Latest / Bloomberg Intelligence / Poor Risk-Reward Ratio Now in High Yield, Maglan's Tawil Says

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Poor Risk-Reward Ratio Now in High Yield, Maglan's Tawil Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. All right,
• 0:32
  Speaker 1: let's turn our attention now to the world of high
• 0:34
  Speaker 1: yield bonds, and we have David Towell. He is the
• 0:37
  Speaker 1: president and the co founder of Maglan Capital in our
• 0:40
  Speaker 1: studios here at eleven three oh to tell us more. David,
• 0:43
  Speaker 1: thank you very much for being here. I have to
• 0:44
  Speaker 1: confess that, you know, I feel like I've laughed myself
• 0:47
  Speaker 1: because in looking at the notes for your appearance, I
• 0:50
  Speaker 1: noticed the words Covenant Light Loans And that just rings
• 0:55
  Speaker 1: a bell, doesn't it? The Covenant Light Loans can Is
• 0:58
  Speaker 1: there a historical connection between Covenant Light Loans today and
• 1:01
  Speaker 1: Covenant Light light loans maybe you know two thousand and eight. Uh, certainly, Uh,
• 1:09
  Speaker 1: you know, we we seem to oscillate now in the
• 1:12
  Speaker 1: world of risky error assets between extremes. Uh, there seems
• 1:18
  Speaker 1: to be a very hard push when we go risk
• 1:22
  Speaker 1: on to the absolute lightest of restrictions on issuers UH.
• 1:27
  Speaker 1: And then when things collapse, the tightening happens almost overnight. UH.
• 1:34
  Speaker 1: The liquidity drives up in seconds UH and pricing comes
• 1:39
  Speaker 1: down very very hard. What that means, I think for
• 1:43
  Speaker 1: the investor is you need to be aware of that
• 1:47
  Speaker 1: volatility that can exist. UM. To the downside, you need
• 1:52
  Speaker 1: to be prepared for it and be able to weather it.
• 1:54
  Speaker 1: Some of the best buying opportunities may come at those moments. UM.
• 1:58
  Speaker 1: And then to the upside, do you need to appreciate
• 2:01
  Speaker 1: uh something very simple like the supplied demand equation, which
• 2:06
  Speaker 1: is UH. We live in a world that has UM
• 2:10
  Speaker 1: legacy like thinking surrounding how we balance our portfolios visa
• 2:15
  Speaker 1: v fixed income versus equities UM. And at the same time,
• 2:21
  Speaker 1: the fixed income world is radically different uh than historically
• 2:27
  Speaker 1: it has been. UH. There is uh lowest of low
• 2:31
  Speaker 1: interest rates. UH. We have extremely aggressive borrowers that are
• 2:38
  Speaker 1: fueled by private equity firms and you know, pushing for
• 2:42
  Speaker 1: as much leverage as they possibly can, and to the
• 2:44
  Speaker 1: extent that a certain investment doesn't work out well. They
• 2:47
  Speaker 1: have a portfolio of other investments that are similarly levered,
• 2:50
  Speaker 1: and they could probably go ahead and get a grand
• 2:53
  Speaker 1: slam or a home run out of one of those
• 2:55
  Speaker 1: in order to go ahead and compensate for a loss
• 2:58
  Speaker 1: in their portfolio. You know, David, I really want to
• 3:00
  Speaker 1: hate hild bonds right now because I'm looking at yields
• 3:03
  Speaker 1: that are within a half percentage point from they're all
• 3:04
  Speaker 1: time loads for US high yield bonds. They're not high yield.
• 3:08
  Speaker 1: They're about five percent, which is about half of what
• 3:11
  Speaker 1: they've been over the past three decades of an average.
• 3:13
  Speaker 1: I mean, it's a tremendous decline. And I'm looking at
• 3:16
  Speaker 1: spreads that are also similarly depressed uh in uh in
• 3:20
  Speaker 1: high yield bonds in particularly and in particular, and yet
• 3:24
  Speaker 1: I don't see any reason for this market to reverse
• 3:29
  Speaker 1: in the near term. I absolutely agree with you. I think,
• 3:32
  Speaker 1: I'm sorry, please finish your thought. Well, no, I just
• 3:34
  Speaker 1: it's sort of like you know, but at the same time,
• 3:36
  Speaker 1: it feels terrible. It's it's really annoying to look at
• 3:38
  Speaker 1: this and say, you know, how do you find value here? Right? So,
• 3:41
  Speaker 1: I think on relative basis, a lot of high yield
• 3:43
  Speaker 1: managers will say what you said, which is we're doing
• 3:48
  Speaker 1: good relative to the risk free rate, although we've never
• 3:51
  Speaker 1: seen the risk premium this narrow. But at the same time,
• 3:55
  Speaker 1: where am I going to go ahead and get real
• 3:58
  Speaker 1: high yield UM? And I don't see a default cycle
• 4:02
  Speaker 1: coming on anytime soon, even though we're in a rising
• 4:04
  Speaker 1: interest rate environment and so on. Weight I actually think
• 4:09
  Speaker 1: that the worst point and and this is the broader
• 4:13
  Speaker 1: point here about general portfolio management, not for specific high
• 4:18
  Speaker 1: yield managers who have a mandate to invest in a
• 4:20
  Speaker 1: high yield I'm talking about the overall investor, whether that
• 4:25
  Speaker 1: be institutional or individual. UM. There is very bad risk
• 4:30
  Speaker 1: reward ratio right now in high yield. And what I
• 4:35
  Speaker 1: what I mean by that is, yes, there isn't an
• 4:38
  Speaker 1: apparent risk outstanding, but at the same time, we do
• 4:43
  Speaker 1: have some lurking potential risks like geo political, whether they
• 4:49
  Speaker 1: be in this country specifically or whether they be generally
• 4:53
  Speaker 1: around the world with regimes that are unpredictable. UM. We're
• 4:57
  Speaker 1: also dealing with the market that has has changed substantially
• 5:01
  Speaker 1: over the past five to ten years. There's a lot
• 5:04
  Speaker 1: of ETF money in high yield that there wasn't once was.
• 5:09
  Speaker 1: We do not know how that works in a bear market,
• 5:12
  Speaker 1: in an extreme sell off. Uh, the liquidity um depth
• 5:18
  Speaker 1: is much shallower than it once was. We all know
• 5:22
  Speaker 1: that people have talked about it at nauseum throughout the
• 5:25
  Speaker 1: broker dealer world. Um. And so at the end of
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  Speaker 1: the day, the downside risk is extreme and unpredictable, and
• 5:36
  Speaker 1: the upside at this point is to your point, we're
• 5:39
  Speaker 1: reaching nosebleed levels. Happy Wednesday, David Towell, Thank you so
• 5:43
  Speaker 1: much for joining us. It's definitely a harrowing market to cover,
• 5:46
  Speaker 1: since we see gains every day and yet where is
• 5:50
  Speaker 1: that value? David Towell is president and co founder of
• 5:53
  Speaker 1: Magdalen Capital, which is based in New York. And I'm
• 5:56
  Speaker 1: looking right now at relative yields and hier bonds three
• 5:59
  Speaker 1: and have percentage points above treasury Young Sid Vermo, market
• 6:16
  Speaker 1: supporter for Bloomberg in London, joins us now and he
• 6:19
  Speaker 1: wrote a story about how there are some remarkable similarities
• 6:23
  Speaker 1: now to the lead up to the financial crisis, especially
• 6:29
  Speaker 1: as it relates to these big rating agencies. Said, thank
• 6:33
  Speaker 1: you so much for joining us. Can you just give
• 6:34
  Speaker 1: us a sense of what those similarities are? Yes, Um,
• 6:38
  Speaker 1: I mean I think It's obviously a very well documented
• 6:41
  Speaker 1: fact that the post crisis financial landscape for a lot
• 6:45
  Speaker 1: of players such as banks, or insurance firms or brokers,
• 6:49
  Speaker 1: couldn't be any more different. But the big three credit
• 6:52
  Speaker 1: rating agencies maintain their market share, their business models remain intact,
• 6:58
  Speaker 1: and their profits are remaining extremely strong. UM. At the
• 7:01
  Speaker 1: same time, the regulatory regime that governs credit rating agencies
• 7:06
  Speaker 1: on all accounts remains remarkably soft relative to the fact
• 7:12
  Speaker 1: that they were blamed as the villains UM for creating
• 7:16
  Speaker 1: a crisis in the first place. UM. The issue of
• 7:19
  Speaker 1: pays model, which was really lamented UM and one of
• 7:26
  Speaker 1: the reasons cited by US regulators for contributing to the
• 7:31
  Speaker 1: crisis in the first place through creating conflicts of interest,
• 7:35
  Speaker 1: remains intact and and many many people concerned that they crept.
• 7:41
  Speaker 1: The big three agencies UM have been loosening their standards
• 7:45
  Speaker 1: just trying to win business, and that crisis era behavior
• 7:49
  Speaker 1: has been noted by UM the sec and we've also
• 7:54
  Speaker 1: seen UM some problems in the asset that security industry,
• 8:01
  Speaker 1: in which UM a couple of the agencies have been
• 8:04
  Speaker 1: faulted UM, but it's not clear how much has changed
• 8:10
  Speaker 1: was really the numb of my piece. Well, you're being
• 8:13
  Speaker 1: diplomatic about it, said, so we we appreciate that. I
• 8:17
  Speaker 1: won't be because you know this thing about paying for
• 8:20
  Speaker 1: a rating. I'm wondering if you could explain that to
• 8:22
  Speaker 1: people how that works. And uh, you know, when businesses,
• 8:26
  Speaker 1: not only when you're thinking of investing in a business,
• 8:29
  Speaker 1: but I mean thinking of buying a business, particularly if
• 8:32
  Speaker 1: it's a large business and it has lots of relations
• 8:34
  Speaker 1: financial relationships, they're gonna go out and they're gonna get
• 8:36
  Speaker 1: a rating, and they're gonna get a rating either from
• 8:38
  Speaker 1: you know, maybe even an insurance company, and then they
• 8:41
  Speaker 1: use that rating because that's part of the sale process.
• 8:44
  Speaker 1: Speak about how people pay for ratings. You've encapsulated the
• 8:49
  Speaker 1: issue very well. UM. Basically, since the nineteen seventies, a
• 8:54
  Speaker 1: model in which the bora UM buys a credit rating
• 8:58
  Speaker 1: and then the credit agency itself does an assessment that's
• 9:04
  Speaker 1: supposed to be independent about its credit wordiness UM uh
• 9:09
  Speaker 1: kicks in and UM A lot of that has obviously
• 9:12
  Speaker 1: come under a lot of criticism. UM. What's interesting is
• 9:16
  Speaker 1: there have been new credit rating agencies that have emerged
• 9:20
  Speaker 1: on the scene which have tried to go on an
• 9:24
  Speaker 1: investor pays model in which subscribers to the credit rating
• 9:31
  Speaker 1: UM pay for the rating and the issuer itself doesn't
• 9:35
  Speaker 1: pay for the rating to try and reduce perceived conflicts
• 9:39
  Speaker 1: of interest. Interestingly, that hasn't really got off the ground UM.
• 9:43
  Speaker 1: A lot of investors UM. There is a free rider
• 9:46
  Speaker 1: issue there, A lot of the rating agency information, rating
• 9:50
  Speaker 1: information and rating itself can be consumed by third party
• 9:55
  Speaker 1: who don't provide UM, you know, don't contribute financially to
• 9:59
  Speaker 1: the cost of that rate thing UM. And so we've
• 10:01
  Speaker 1: seen that model not take off. Same time, the credit
• 10:06
  Speaker 1: rating agencies argue themselves that UM. What we've seen is
• 10:12
  Speaker 1: the fact that that's a very difficult model because actually
• 10:15
  Speaker 1: by reducing information in the marketplace, you increase trading courts UM.
• 10:19
  Speaker 1: And there's a reason why that model UM exists, and
• 10:23
  Speaker 1: there's a reason why it persists. You know. I have
• 10:24
  Speaker 1: to say, just anecdotally, just to push back a little bit,
• 10:27
  Speaker 1: I have heard from investors that in fact, UH, when
• 10:31
  Speaker 1: they want a deal rated that is maybe smaller and
• 10:35
  Speaker 1: a structured deals a securitization, they'll go to DBRs or
• 10:39
  Speaker 1: CRULL simply because SMP and Moody's and Fitch will not
• 10:43
  Speaker 1: rate it because they do not want to be accused
• 10:45
  Speaker 1: of exactly what you are saying in your article. What's
• 10:48
  Speaker 1: your response to that. Yeah, I mean, certainly their market
• 10:52
  Speaker 1: share has been reduced and you can see that in
• 10:54
  Speaker 1: some of their numbers for the asset backed securitization market,
• 11:00
  Speaker 1: and SMP has been fingered by the SEC for and
• 11:04
  Speaker 1: was banned from a portion of that credit market for
• 11:08
  Speaker 1: a UM. But a lot of the a lot of
• 11:12
  Speaker 1: the issues of that market probably pertained to the fact
• 11:17
  Speaker 1: that a lot of the rated issuance is pretty minuscule
• 11:22
  Speaker 1: UM and we've not really seen it achieved to its
• 11:25
  Speaker 1: pre crisis peak. So yes, UM, a lot of the
• 11:28
  Speaker 1: rating agencies and the Big three might be concerned about
• 11:31
  Speaker 1: their reputational risks in that market, but it's not really
• 11:34
  Speaker 1: from a kind of business perspective that problematic for them,
• 11:38
  Speaker 1: because there's been this boom in corporate bond issuance and
• 11:42
  Speaker 1: boom and emerging market bonding. So literally they made it
• 11:45
  Speaker 1: up in volume completely right. They set revenues from the
• 11:50
  Speaker 1: declining revenues and securitization. Yeah, yeah, well done, good good
• 11:54
  Speaker 1: to have you on. Thank you very much. Sid Verma
• 11:56
  Speaker 1: is our markets reporter for a Bloomberg. He joins us
• 11:59
  Speaker 1: from London. Well, Apple reported earnings yesterday after the bell,
• 12:15
  Speaker 1: and they were great. The markets cheering stocks are up
• 12:18
  Speaker 1: the highest to the highest levels they have ever been,
• 12:21
  Speaker 1: dragging along a lot of other UH shares with them,
• 12:25
  Speaker 1: and Shara Overday is here to cast some shade on
• 12:27
  Speaker 1: it all. Shara Ovida is our technology calumnist for Bloomberg,
• 12:31
  Speaker 1: gad Fly and Shira I am just struck by the
• 12:33
  Speaker 1: fact that our entire stock market is leveraged to an iPhone.
• 12:36
  Speaker 1: Can you give us a sense of what your main
• 12:39
  Speaker 1: takeaways were from this earnings report? Well, it was better
• 12:44
  Speaker 1: than feared, I think, is the big top line headline right,
• 12:49
  Speaker 1: And you're right that. I mean a large portion of
• 12:53
  Speaker 1: Apple's share press right now is leveraged to a phone
• 12:55
  Speaker 1: that no one has seen yet, which is the next
• 12:58
  Speaker 1: versions of the iPhone. Expe did to debut in September
• 13:02
  Speaker 1: or so, and the stock has been running up for
• 13:06
  Speaker 1: more than a year basically on expectations that this new
• 13:09
  Speaker 1: phone is going to unleash what the the Wall Street
• 13:13
  Speaker 1: smarties have called a supercycle of iPhone sales. Sure, just
• 13:18
  Speaker 1: to move us to the numbers for just a moment,
• 13:20
  Speaker 1: because I find this staggering. This is a company that,
• 13:24
  Speaker 1: at least, as for the last twelve months, two hundred
• 13:27
  Speaker 1: and twenty three billion dollars in sales. So because my
• 13:32
  Speaker 1: brain is small, I get rid of the billions and
• 13:34
  Speaker 1: I just say, all right, imagine you had a business
• 13:36
  Speaker 1: where you did two hundred and twenty three dollars in
• 13:39
  Speaker 1: sales and you were able to put forty six of
• 13:41
  Speaker 1: it in your pocket. Forty six billion dollars in profit
• 13:45
  Speaker 1: out of that to twenty three. That is a staggering thing,
• 13:48
  Speaker 1: no matter whether it's you know, you're selling phones or
• 13:51
  Speaker 1: or you know, I don't know, pocket protectors. But it
• 13:54
  Speaker 1: is amazing that the scale of this business continues to grow.
• 13:59
  Speaker 1: Do you think they can continue this this momentum? I mean,
• 14:01
  Speaker 1: can they get the fifty in profits? Well? Certainly seems
• 14:06
  Speaker 1: in rage and you're right that. I mean, the scale
• 14:08
  Speaker 1: of Apple is nuts. I mean, this is its own category. Yes,
• 14:15
  Speaker 1: it's own category. It's the most profitable company in the
• 14:18
  Speaker 1: country by you know, a long shot um. But the
• 14:22
  Speaker 1: big question is what is the natural growth rate in
• 14:25
  Speaker 1: the future for Apple? And I don't know the answer
• 14:28
  Speaker 1: to that question, right, what what Apple had been before
• 14:32
  Speaker 1: last year or so was a company that was huge,
• 14:35
  Speaker 1: incredibly profitable and growing very quickly. And the growth part
• 14:41
  Speaker 1: of that three legged stool kind of has fallen apart.
• 14:44
  Speaker 1: And so what we don't know is, Okay, what is
• 14:48
  Speaker 1: the natural growth rate of a company at Apple scale
• 14:52
  Speaker 1: beyond the next year or so? And I don't think
• 14:55
  Speaker 1: anybody has a realistic answer to that question. Well, and Sira,
• 14:58
  Speaker 1: in your latest god Like column, you talked about how
• 15:01
  Speaker 1: sales in China have been following for six consecutive quarters
• 15:05
  Speaker 1: and continued in this lot latest pay earning this period.
• 15:09
  Speaker 1: Uh in other places also internationally, Apple has not gained
• 15:13
  Speaker 1: the same kind of traction and it's certainly accelerating momentum
• 15:17
  Speaker 1: as it has in the US. And I'm just wondering
• 15:20
  Speaker 1: how much is priced into the shares already, right, because
• 15:22
  Speaker 1: we're talking about a relative game. We're not talking about
• 15:24
  Speaker 1: Apple going out of business or becoming, you know, not
• 15:28
  Speaker 1: a behemoth and an amazing performer. We're talking about, you know,
• 15:31
  Speaker 1: is is the stock price pricing in astronomical growth that
• 15:36
  Speaker 1: seems improbable at this point? What's your answer to that question?
• 15:40
  Speaker 1: Probably is the answer to that question. I mean, the
• 15:43
  Speaker 1: stock has run up. UM. Apple has always been a
• 15:47
  Speaker 1: little bit of a tricky company to value because it's
• 15:51
  Speaker 1: a hardware company and typically those are valued lower than
• 15:54
  Speaker 1: other kinds of high margin software companies. UM. But even
• 16:00
  Speaker 1: relative to Apple's own history, it's stock valuation is higher
• 16:05
  Speaker 1: than it has ever been, or certainly has ever been
• 16:08
  Speaker 1: in the recent history of Apple. And there is a
• 16:11
  Speaker 1: lot of expectation of growth and profitability baked into the
• 16:16
  Speaker 1: share price at this point. And obviously, you know the
• 16:18
  Speaker 1: slucks now at a record today, so that's even pushing
• 16:21
  Speaker 1: up the valuation even more. India and the next maybe
• 16:27
  Speaker 1: frontier for Apple, because I know that Tim Cook, the
• 16:30
  Speaker 1: chief executive, he's already said he's focused on India, and
• 16:33
  Speaker 1: indeed production of the iPhone SE is going to begin
• 16:38
  Speaker 1: this quarter. That could be the next growth story. Yeah,
• 16:41
  Speaker 1: India is a very interesting market, not only for Apple,
• 16:44
  Speaker 1: but for lots of other tech companies, both domestic tech
• 16:48
  Speaker 1: companies and India and foreign companies like Apple and Amazon,
• 16:51
  Speaker 1: which is also investing heavily in India. UM. Tim Cook
• 16:55
  Speaker 1: has said for a while now that he sees India
• 16:58
  Speaker 1: on kind of a similar potent entual trajectory as China
• 17:02
  Speaker 1: for them, which has been an enormous growth driver, although
• 17:05
  Speaker 1: India is lagging far behind. Really, in the last year,
• 17:09
  Speaker 1: you've seen this huge surge of people with UM smartphone
• 17:15
  Speaker 1: connections with There's been some moves by one of the
• 17:18
  Speaker 1: domestic cell phone companies in India to basically make almost
• 17:23
  Speaker 1: free fast Internet connection from people's phones, and that's going
• 17:27
  Speaker 1: to be a big help to anybody that's selling smartphones
• 17:30
  Speaker 1: in India. But there's a lot of hurdles. I mean
• 17:32
  Speaker 1: there there's a lot of favoritism towards UM domestic companies
• 17:36
  Speaker 1: in India. Apple phones are very expensive relative to what
• 17:41
  Speaker 1: people typically buy in India, so it's not an immediate
• 17:44
  Speaker 1: growth story. Thanks very much for being here. Sure O.
• 17:47
  Speaker 1: The day is Bloomberg Gadfly columnists covering technology for Bloomberg News.
• 18:04
  Speaker 1: Let's turn our attention now to China. The Premier of
• 18:07
  Speaker 1: China said yesterday that all states US states, including Michigan,
• 18:11
  Speaker 1: are welcome to strength and exchanges with provinces and municipalities
• 18:15
  Speaker 1: in China in order to deepen cooperation in fields such
• 18:19
  Speaker 1: as trade, investment, manufacturing, and innovations. Who was he speaking
• 18:23
  Speaker 1: to the Governor of Michigan, Rick Snyder, who happens to
• 18:26
  Speaker 1: be in China. Here to tell us about the U. S.
• 18:29
  Speaker 1: China trade relation is Tom Orlick. Here's our chief Asia
• 18:32
  Speaker 1: economist for Bloomberg Intelligence. Uh, Tom, maybe just come in
• 18:37
  Speaker 1: on what is the current state of US China trade
• 18:40
  Speaker 1: relations and what do you believe the President and the
• 18:43
  Speaker 1: administration are going to propose. Um, I think the current
• 18:47
  Speaker 1: picture is actually extremely positive for China, PIM. If you remember,
• 18:52
  Speaker 1: Donald Trump came into office promising to get extremely tough
• 18:55
  Speaker 1: on China relations. He was talking about at tariff on
• 19:00
  Speaker 1: Chinese imports, talking about naming China a currency manipulator. So far,
• 19:05
  Speaker 1: we've had some aggressive tweets, we've had some um suggestive
• 19:10
  Speaker 1: reports from the U. S. T R and others, but
• 19:12
  Speaker 1: in terms of substance, we've basically had nothing. And that
• 19:16
  Speaker 1: means that China's exports to the US are doing really
• 19:19
  Speaker 1: well up around so far this year. Well, Tom, there
• 19:24
  Speaker 1: was a report today out of the New York Times
• 19:26
  Speaker 1: saying the White House is preparing to open a broad
• 19:28
  Speaker 1: investigation into China's trade practices. This is in part to
• 19:33
  Speaker 1: possibly counter the country's effort to become a global leader
• 19:36
  Speaker 1: in microchips, electric cars, and other crucial technologies of the future.
• 19:39
  Speaker 1: Does that concern you in any way? China is a
• 19:43
  Speaker 1: country which has an industrial strategy, so they're consciously and
• 19:48
  Speaker 1: deliberately attempting to catch up with the technology frontier. They
• 19:52
  Speaker 1: see what the US, Europe, Japan has in terms of
• 19:56
  Speaker 1: high technology and they want to get there, and they
• 19:59
  Speaker 1: use policy together. UM. Now, so far, other countries have
• 20:06
  Speaker 1: not really formulated a response to that. UM. It's been
• 20:10
  Speaker 1: left to corporates to decide do we want to put
• 20:13
  Speaker 1: on new high tech R and D facility in China
• 20:15
  Speaker 1: and risk that technology transfer or not. What this seems
• 20:19
  Speaker 1: to suggest is perhaps the Trump administration is going to
• 20:23
  Speaker 1: put a bit of US government strategy around a response.
• 20:26
  Speaker 1: Oh that's fascinating I I when I see this, I
• 20:29
  Speaker 1: start thinking to myself, Wow, China US relationship trade and
• 20:33
  Speaker 1: then paired with North Korea and the fact that US
• 20:35
  Speaker 1: is trying to uh strengthen its hand to force China
• 20:39
  Speaker 1: into action with North Korea. But what you're saying makes
• 20:42
  Speaker 1: it sound like this is completely unrelated. I think the
• 20:46
  Speaker 1: US administration are going to be taking a view on
• 20:48
  Speaker 1: China relations in the round. If you remember, going back
• 20:51
  Speaker 1: to the she Trump meeting at Mara Lago, Trump said, Okay,
• 20:56
  Speaker 1: we can't go in too hard on trade. We can't
• 20:58
  Speaker 1: go in too hard on the exchange rate because we
• 21:00
  Speaker 1: need support on North Korea. UM. At the same time,
• 21:04
  Speaker 1: clearly it's possible to snap these things apart and take
• 21:07
  Speaker 1: separate views on security, trade, intellectual property. Tom fox Can
• 21:14
  Speaker 1: didn't the the president was touting this move by fox
• 21:17
  Speaker 1: Can to place a new factory in the United States, right,
• 21:22
  Speaker 1: maybe spend anywhere from ten to thirty billion dollars here.
• 21:26
  Speaker 1: If you're going to praise them for doing that, how
• 21:29
  Speaker 1: can you in the same what what's the reaction from
• 21:31
  Speaker 1: the Chinese leaders if you if you praise that and
• 21:35
  Speaker 1: then launch this trade investigation, what do you think Chinese
• 21:38
  Speaker 1: leaders and business leaders are thinking. So my first reaction
• 21:42
  Speaker 1: to that fox Can news was ten billion dollars. That
• 21:46
  Speaker 1: must be the most expensive factory ever built. UM. My
• 21:50
  Speaker 1: second reaction was, do US politicians know what it's like
• 21:55
  Speaker 1: working in a Chinese factory? Is this the kind of
• 22:00
  Speaker 1: job which they really want to offer to their voters.
• 22:04
  Speaker 1: Take a look at some of the news flow on
• 22:07
  Speaker 1: what happens at some of Chinese electronics assembly plants. I
• 22:12
  Speaker 1: understand in certain places, right, they put nets so that
• 22:14
  Speaker 1: people who jump aren't don't necessarily die. They have nets,
• 22:19
  Speaker 1: and those nets and not being used to play soccer,
• 22:21
  Speaker 1: that's right, Pim, Well, I just want to get a sense,
• 22:24
  Speaker 1: so if you do, zoom back. And I am wondering
• 22:28
  Speaker 1: as we hear more about North Korea, and there was
• 22:30
  Speaker 1: a report on Bloomberg today talking about how perhaps North
• 22:33
  Speaker 1: Korean nuclear technologies have gotten too far for sanctions to work.
• 22:39
  Speaker 1: I'm just wondering what's the state of the relationship between
• 22:43
  Speaker 1: China and the US with respect to moving forward and
• 22:46
  Speaker 1: some kind of diplomatic solution to that quagmire. I think
• 22:51
  Speaker 1: for Beijing, there's going to be a certain amount of
• 22:54
  Speaker 1: confusion in the new aggressive approach which the Trump administration
• 22:59
  Speaker 1: is taking. Um Mara Largo. Trump passed she to help
• 23:03
  Speaker 1: out with North Korea. UM and China has now actually
• 23:07
  Speaker 1: gone further than it's ever gone in the past in
• 23:09
  Speaker 1: terms of putting the choke on North Korea's exports. China
• 23:14
  Speaker 1: has basically embargoed North Korea's sales of coal, which cuts
• 23:18
  Speaker 1: off a huge source of f X income from Pyongyang. Now,
• 23:22
  Speaker 1: you would expect that that would be welcomed by the
• 23:24
  Speaker 1: Trump administration as a kind of constructive show of good
• 23:28
  Speaker 1: faith by the Chinese administration. In fact, the reverse has happened.
• 23:33
  Speaker 1: Trump has been on Twitter saying China has done nothing,
• 23:36
  Speaker 1: China needs to do more. He's very disappointed. You've been
• 23:41
  Speaker 1: studying China, but I think you've been in China for
• 23:43
  Speaker 1: how long a decade? All rights a decade. Are there
• 23:48
  Speaker 1: some things that you can describe, even anecdotally, to give
• 23:50
  Speaker 1: people a quick version of what they would see if
• 23:54
  Speaker 1: they went to China they've never been. I think the
• 23:58
  Speaker 1: striking thing which people miss a by China pim um
• 24:02
  Speaker 1: is firstly, well, I think the thing which people miss
• 24:05
  Speaker 1: about China when they read the coverage in some of
• 24:08
  Speaker 1: the Western press is just the optimism you have on
• 24:11
  Speaker 1: the grain there. I think if you read you know,
• 24:14
  Speaker 1: Western commentary, you think the end is nigh, the credit
• 24:17
  Speaker 1: bubble um, the stress in the financial system. That's just
• 24:21
  Speaker 1: not the feeling on the Chinese street. Tom more Like,
• 24:24
  Speaker 1: thank you so much for joining us, Tom or Like
• 24:26
  Speaker 1: as Chief Asia economist for Bloomberg Intelligence. Thanks for listening
• 24:32
  Speaker 1: to the Bloomberg p M l podcast. You can subscribe
• 24:35
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 24:39
  Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter
• 24:43
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
• 24:46
  Speaker 1: one before the podcast. You can always catch us worldwide
• 24:49
  Speaker 1: on Bloomberg Radio