Latest / Bloomberg Intelligence / Amazon’s Health Care Threat Just Became A Reality: Ovide, Nisen

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Amazon’s Health Care Threat Just Became A Reality: Ovide, Nisen · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
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  Speaker 1: or the trading floor. Find the Bloomberg P M L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well,
• 0:33
  Speaker 1: the Amazon effect is somewhat toxic today for big healthcare
• 0:38
  Speaker 1: and pharmaceutical companies. Joining us now is the dream team
• 0:41
  Speaker 1: Max Nisson, biotech pharma and healthcare calumnists and share O
• 0:44
  Speaker 1: VDA technology columnists, both of them with Bloomberg Opinion, both
• 0:47
  Speaker 1: of them joining us here in our eleven three oh studios. So, Max,
• 0:51
  Speaker 1: let's start with you pill Pack. What is it and
• 0:55
  Speaker 1: what does it say about Amazon's approach to getting into
• 0:58
  Speaker 1: the healthcare business. Absolutely? So, it's a mail order focused pharmacy. UM.
• 1:03
  Speaker 1: What they do is basically divide prescriptions into day by
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  Speaker 1: day doses, UM, using a lot of technology and software
• 1:10
  Speaker 1: to kind of make that process as efficient as possible.
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  Speaker 1: And the real benefit for Amazon here is that there
• 1:15
  Speaker 1: there licensed across the country. UM, it gets a lot
• 1:18
  Speaker 1: of the regulatory and and logistical work of getting into
• 1:22
  Speaker 1: the pharmacy business just out of the way right away,
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  Speaker 1: so they can kind of immediately, um, start scaling that
• 1:28
  Speaker 1: that thing's up, you know, reaching out to their enormous
• 1:31
  Speaker 1: network of customers you know, Prime and otherwise, and start
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  Speaker 1: trying to sign them up for for a new way
• 1:37
  Speaker 1: of getting their medicines. Sure, there your thoughts. I mean, look,
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  Speaker 1: this is what everyone in the health care industry has
• 1:44
  Speaker 1: been worried about or anticipating for more than a year.
• 1:49
  Speaker 1: That Amazon had shown interest in becoming kind of a
• 1:53
  Speaker 1: prescription drug retailer, and more recently it looked like they
• 1:58
  Speaker 1: weren't going to do that right away, that they had
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  Speaker 1: some pharmacy licenses in a handful of states they let
• 2:03
  Speaker 1: them laps. Amazon had talked more recently about kind of
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  Speaker 1: nibbling around the edges of healthcare by selling medical supplies
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  Speaker 1: to hospitals and things like that. So I think that
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  Speaker 1: the fear of Amazon becoming a you know, pharmacy um
• 2:18
  Speaker 1: had started to add a little bit. And today we
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  Speaker 1: learned that they should have been very, very afraid, because
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  Speaker 1: in one fell swoop, Amazon has become a force to
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  Speaker 1: reckon with in in the pharmacy world by announcing this
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  Speaker 1: purchase of hill Pack, Um, Max, come on in here.
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  Speaker 1: Because it's one thing to be a distributor of pharmaceuticals,
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  Speaker 1: it's another thing to move further into the healthcare industry.
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  Speaker 1: Is there any sign, uh, that that could be the
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  Speaker 1: ultimate ambition of Amazon or is this just an extension
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  Speaker 1: of their you know, sort of retail um. I think
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  Speaker 1: it definitely points directionally, um that that way, just because
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  Speaker 1: you know, selling drugs, you know, as as easy as
• 3:01
  Speaker 1: it sounds, it's it's actually incredibly complicated, um, just from
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  Speaker 1: a regulatory standpoint, and in terms of the sort of
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  Speaker 1: risks um. You know, if you get things wrong, it
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  Speaker 1: can go very badly. Indeed, So it's just to move
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  Speaker 1: the sign that they're willing to move into a more
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  Speaker 1: complex environment with with you know, dealing with with payers
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  Speaker 1: insurance companies PBMs, as opposed to like, like she said,
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  Speaker 1: nibbling around the edges. This is kind of the heart
• 3:25
  Speaker 1: of healthcare, and I think a sign that they're potentially
• 3:28
  Speaker 1: willing to take on harder challenges in their kind of
• 3:31
  Speaker 1: ongoing effort to to kind of be everywhere. Yeah, well, Max,
• 3:35
  Speaker 1: I'm glad you said harder challenges and shure, this is
• 3:37
  Speaker 1: where I want you to come in. We've talked extensively
• 3:39
  Speaker 1: about how some of the businesses that they've been trying
• 3:41
  Speaker 1: to get into are very different from brick and mortar retailers,
• 3:45
  Speaker 1: such as the whole foods purchase, and how the grocery
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  Speaker 1: sort of conundrum has been a difficult one for Amazon
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  Speaker 1: to crack with respect to delivery. I'm just wondering, you know,
• 3:56
  Speaker 1: what the success rate is with something like this, and
• 3:59
  Speaker 1: whether you know, perhaps people are extrapolating a little too
• 4:02
  Speaker 1: far the Amazon which just hit another home run. Yeah,
• 4:05
  Speaker 1: and I think that's a very a very good point
• 4:08
  Speaker 1: that there is now this belief that Amazon maybe can
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  Speaker 1: do anything and might do anything, which which could be true. Look,
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  Speaker 1: I wouldn't be surprised in five years of Amazon is
• 4:18
  Speaker 1: you know, a giant seller of groceries in a way
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  Speaker 1: that they really aren't today, or in financial services or
• 4:24
  Speaker 1: other areas of of commerce. But it is worth pointing
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  Speaker 1: out that Amazon is not successful and everything it does.
• 4:32
  Speaker 1: It actually owned part of drug store dot com um
• 4:35
  Speaker 1: beginning in the late ninety nineties. That was a way
• 4:37
  Speaker 1: that they wanted to kind of explore getting into for
• 4:41
  Speaker 1: prescription drug sales didn't really work out the way they intended. Obviously,
• 4:45
  Speaker 1: those were different times, both for drug sales and for Amazon.
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  Speaker 1: It was a much younger company. Amazon has failed at
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  Speaker 1: online traveled, It had a service that it shut down,
• 4:54
  Speaker 1: It has um you know, it is not successful that
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  Speaker 1: everything it does. So m a heart Walgreens and CBS investors,
• 5:03
  Speaker 1: Alexa Shira over Day is skeptical Alexa Max Neeson. Are
• 5:09
  Speaker 1: you in the same camp. Do you believe that they're
• 5:11
  Speaker 1: going to have a big challenge to try to roll
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  Speaker 1: this out under the Amazon umbrella. I mean, because as
• 5:17
  Speaker 1: I just kind of kidding, but Alexa refill my prescription.
• 5:22
  Speaker 1: Oh my god, you are absolutely terrorizing anyone who's listening
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  Speaker 1: to this on a smart advice I mean everybody. But
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  Speaker 1: that's the point. If Alexa is in the background, it's listening,
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  Speaker 1: and it is in many you know, we you know,
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  Speaker 1: I'm old, right. I mean, so that the idea of
• 5:38
  Speaker 1: having something that is interactive like that in your house
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  Speaker 1: can be kind of a little off putting. But you know,
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  Speaker 1: any person under the age of whatever, they have no
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  Speaker 1: problem with this kind of technology. Yeah, so so I think, um,
• 5:51
  Speaker 1: you know, actually, the the volume of drug prescriptions ordered
• 5:55
  Speaker 1: through the mail has actually gonne down, which as much
• 5:58
  Speaker 1: as anything, is a function of that. They're just more
• 6:00
  Speaker 1: expensive drugs, like the actual money is has gone up.
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  Speaker 1: But um, you know, if there's any one that can
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  Speaker 1: make people more comfortable with or make this process easier, cheaper, better, um,
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  Speaker 1: you think it might be Amazon, and especially that they're
• 6:14
  Speaker 1: going in with pill Pack, that's already kind of doing
• 6:17
  Speaker 1: something interesting with the model and trying to make a
• 6:20
  Speaker 1: consumer friendly and easier to do it with the dosage.
• 6:23
  Speaker 1: I mean, this is something that I always found was
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  Speaker 1: revolutionary with pill pack because you know, you go to
• 6:28
  Speaker 1: the pharmacy, you get something in the mail and it
• 6:30
  Speaker 1: sends you a bottle with the child proof cap and
• 6:33
  Speaker 1: so on, and then you kind of take your pill
• 6:34
  Speaker 1: whatever it is. But with pill pack, all the pills
• 6:38
  Speaker 1: that you are prescribed for that particular day come in
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  Speaker 1: its own pack. It's seal, it tells you what time
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  Speaker 1: to take it, with day to take it. There's no more,
• 6:47
  Speaker 1: you know, it just it's a it's almost an it's
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  Speaker 1: an intellectual advance, I would say, yeah, and it's one
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  Speaker 1: that's pretty clearly aimed at you know, America's aging population. Um,
• 6:58
  Speaker 1: you do this instead of having you know, a nurse
• 7:01
  Speaker 1: or or a family member come over and sort out
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  Speaker 1: your your pills, which is um. You know, if anyone
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  Speaker 1: who's ever done that knows that it's a incredibly long
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  Speaker 1: and difficult process. So UM, you know, it's a It's
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  Speaker 1: a consumer move as well, and one that Amazon is
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  Speaker 1: uniquely poised to to take advantage of. Just real quick here, Shira,
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  Speaker 1: who are the hires that we should be looking out
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  Speaker 1: for from Amazon to get a sense of how serious
• 7:24
  Speaker 1: and how broad their pushes? I mean, are they going
• 7:26
  Speaker 1: to try to beef up it all from the inside. Well, look,
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  Speaker 1: they have already in the last year or so hired
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  Speaker 1: people who have experience in pharmaceutical and healthcare, so it's
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  Speaker 1: clear that it has been clear that this is an
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  Speaker 1: area that they're interested in. UM. I would be curious
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  Speaker 1: to see whether they put pill Pack in this Amazon
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  Speaker 1: puts pill Pack under the leadership of people who are
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  Speaker 1: doing prime Do they put it into under the whole
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  Speaker 1: foods bucket? Where exactly do they slot in? Um? The
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  Speaker 1: leadership of pill Pack Alexa, thanks you, We thank you
• 7:58
  Speaker 1: that very much. As Shira over they are technology columnist
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  Speaker 1: for Bloomberg Opinion, Max Niese and our healthcare columnist for
• 8:04
  Speaker 1: Bloomberg Opinion. On this day in which we know that
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  Speaker 1: Amazon is purchasing pill pack and giving a lot of
• 8:11
  Speaker 1: competition to CVS and Walgreen's boots alliance. It's been a
• 8:32
  Speaker 1: terrible stretch for financial stocks in the US and frankly globally,
• 8:36
  Speaker 1: with European bank shares taking a hit, and a big
• 8:39
  Speaker 1: question has been why here to answer that? As Chris Whalen,
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  Speaker 1: Chairman of Whalen Global Advisors, Chris, thank you so much
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  Speaker 1: for joining us. So what's your take on the recent
• 8:50
  Speaker 1: route in financial stocks given the fact that nothing really
• 8:54
  Speaker 1: that bad has happened in the economy. Well, both financials
• 8:58
  Speaker 1: had a tremendous year in two thousand and seventeen, largely
• 9:02
  Speaker 1: an anticipation of two tax cuts and deregulation, all the
• 9:06
  Speaker 1: rest of it. You guys reported on it extensively, and
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  Speaker 1: so now at a fairly full valuation one point six
• 9:14
  Speaker 1: one point seven times book values, say, for JP Morgan um,
• 9:19
  Speaker 1: the markets are looking at a flattening wheel curve. They're
• 9:22
  Speaker 1: looking at the prospect for an economic slowdown. Um. They're
• 9:25
  Speaker 1: also taking notice to the fact that loan growth for
• 9:28
  Speaker 1: banks is dropping off dramatically. Uh. And you put all
• 9:32
  Speaker 1: that together and it really, I think argues for taking
• 9:35
  Speaker 1: money off the table. And that's kind of how I
• 9:38
  Speaker 1: view this. Financials are big so that when people want
• 9:41
  Speaker 1: to take a short position in the market, they're one
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  Speaker 1: of the first sectors you go to. So I think
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  Speaker 1: all of that is really what what explains the weakness
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  Speaker 1: in the last couple of months. Chris Whalen or banks
• 9:52
  Speaker 1: going to be able to increase their dividends to shareholders, Oh,
• 9:56
  Speaker 1: they have him. I mean the portion of bank income
• 9:59
  Speaker 1: that's going to shareholders is up that they're going to
• 10:02
  Speaker 1: actually pay out more than they make this year um,
• 10:06
  Speaker 1: which is an indication of how over capitalized the industry is.
• 10:10
  Speaker 1: And I think there's there's a lack of demand for loans.
• 10:14
  Speaker 1: This is something people don't focus on. You know, we
• 10:16
  Speaker 1: talk about the recovery and the strong economy, but really
• 10:19
  Speaker 1: when you look at loan growth, it's pretty pedestrian. And
• 10:23
  Speaker 1: the reason is is that there's a combination of regulatory factors.
• 10:27
  Speaker 1: They don't want thanks to take risk, higher capital levels,
• 10:31
  Speaker 1: and also there's just a lack of demand. Even things
• 10:33
  Speaker 1: like autos to slowed down after a very torrid growth
• 10:37
  Speaker 1: period after the crisis. You know, auto loane doubled as
• 10:40
  Speaker 1: an asset class. Think about that. Leasa's unbelievable quick, Chris.
• 10:45
  Speaker 1: I guess that that one question is can we look
• 10:47
  Speaker 1: at the weakness in bank stocks as sort of a
• 10:50
  Speaker 1: canary in that sense? I mean, if people really are
• 10:52
  Speaker 1: expressing that they think that the economy is going to slow,
• 10:55
  Speaker 1: we're not seeing that elsewhere. And frankly, when we talk
• 10:58
  Speaker 1: to people UH, they say that every thing looks pretty good.
• 11:00
  Speaker 1: Fundamentals look solid in the US, well, fundamentals look solid.
• 11:05
  Speaker 1: But I will tell you that credit is very very
• 11:08
  Speaker 1: stretched right now in terms of quality, both leverage loans,
• 11:13
  Speaker 1: high yield debt, all of these sectors have really pushed
• 11:17
  Speaker 1: the limit in terms of eroding investor protections, pricing, UH
• 11:23
  Speaker 1: spreads are still very tight. Even though the FED has
• 11:26
  Speaker 1: been raising rates now for months, you haven't seen any
• 11:29
  Speaker 1: reaction in the higheld market. They've been rallying. In fact,
• 11:32
  Speaker 1: the tenure is rallying now too. So you have a
• 11:35
  Speaker 1: lot of contradictory indicators. And I think investors look at
• 11:40
  Speaker 1: that flattening wheel curve and they worry about banks because
• 11:44
  Speaker 1: obviously banks make money on leverage. They borrowsh uh, you know,
• 11:48
  Speaker 1: they raise money short and they lend it long. And
• 11:51
  Speaker 1: if the curve is flattening and there's no reaction in
• 11:55
  Speaker 1: credit spreads, that's a very confusing set of indicators. Lisa,
• 12:00
  Speaker 1: it really is Chris Fannie, Mae, Freddie Mac what happens
• 12:06
  Speaker 1: and what happens to the preferred shareholders that have been
• 12:09
  Speaker 1: holding on for so long. Well, they just the Trump
• 12:14
  Speaker 1: administration just put out some thoughts on on privatizing Fannie
• 12:18
  Speaker 1: and Freddy, which I think is is, you know, a
• 12:21
  Speaker 1: fanciful proposal. Without the support of the federal government, Fannie
• 12:26
  Speaker 1: and Freddie could not function. You know, they can't just
• 12:29
  Speaker 1: turn them into big non banks like a Redwood trust
• 12:32
  Speaker 1: Ride or Pennymack. That would not work. Um, the preferred
• 12:36
  Speaker 1: shareholders have been hanging on, you know, in a moral sense,
• 12:40
  Speaker 1: they are owed something. But I will tell you that
• 12:42
  Speaker 1: I think the lid against the hedge funds and everybody
• 12:45
  Speaker 1: who went in the court to fight over this had
• 12:49
  Speaker 1: a very bad strategy. They should have argued that they
• 12:52
  Speaker 1: were the creditors instead of shareholders, and that they were
• 12:56
  Speaker 1: defrauded they or owed their money back with six in
• 13:00
  Speaker 1: for per year. That didn't happen. I don't think politically
• 13:03
  Speaker 1: there's any catalyst to really push a proposal forward right now.
• 13:07
  Speaker 1: There's no interest in it. Maybe after the after the
• 13:12
  Speaker 1: mid term elections, we can have a discussion about this,
• 13:15
  Speaker 1: but there's no urgency. You know, a lot of the
• 13:17
  Speaker 1: proponents of reform of paying the preferred shareholders say the
• 13:21
  Speaker 1: current situation is not sustainable. Well, that's clearly not true. Um,
• 13:26
  Speaker 1: Fannie and Freddie are functioning fine. UM. I would tell
• 13:30
  Speaker 1: you that I think the next big inflection point with
• 13:33
  Speaker 1: the g s c S is going to be when
• 13:35
  Speaker 1: mel Wott leaves the regulator next year and the Republicans
• 13:39
  Speaker 1: put someone in place. I think that they are gonna
• 13:42
  Speaker 1: make changes to Fannie and Freddy administratively. They're going to
• 13:46
  Speaker 1: downsize them. They're gonna probably reduce the maximum loan amount
• 13:51
  Speaker 1: that they're allowed to guarantee. They'll probably end of second homes.
• 13:57
  Speaker 1: You won't be able to get a Fannie and Freddy
• 13:59
  Speaker 1: loan or a vacation home, for example. So the Republicans
• 14:03
  Speaker 1: have an agenda to really use administrative tools to downsize
• 14:08
  Speaker 1: both of these entities. But I don't know that they'll
• 14:10
  Speaker 1: actually pass legislation to take them out of conservatorship, because
• 14:14
  Speaker 1: that's what you need. You've got to get Congress in
• 14:16
  Speaker 1: the game. Otherwise nothing happens. Thanks very much, Chris Whalen,
• 14:21
  Speaker 1: Chairman of Whalen Global Advisers, on banks and Fannie May
• 14:26
  Speaker 1: and Freddie Mack and the potential for some kind of
• 14:29
  Speaker 1: reform of those government sponsored entities. Leland, thanks very much
• 14:50
  Speaker 1: for coming into our studio dispel some of the current
• 14:55
  Speaker 1: opinions and analysis of the Chinese economy for us. Well,
• 15:00
  Speaker 1: most China watchers view the economy not through data because
• 15:04
  Speaker 1: they don't trust official data, but through anecdotes. And right
• 15:06
  Speaker 1: now there's a few anecdotes that say China is in
• 15:09
  Speaker 1: real trouble, that that the tides are turned, and uh,
• 15:13
  Speaker 1: and you're you're starting to see, uh, you know, the
• 15:15
  Speaker 1: beginnings of a troubled scenario or collapse are hard landing.
• 15:19
  Speaker 1: And uh, you know, we don't buy it. And we
• 15:21
  Speaker 1: don't buy it because we look at our own data
• 15:22
  Speaker 1: and which just came out, and we see a much
• 15:25
  Speaker 1: more solid picture than what's being reflected official data. And
• 15:28
  Speaker 1: I acknowledge that the May official data look pretty bad,
• 15:33
  Speaker 1: but but it's lagging compared to what we're looking at,
• 15:35
  Speaker 1: and it's the prettier picture right now. Old one second,
• 15:38
  Speaker 1: let's just set the stage a little bit, because we're
• 15:40
  Speaker 1: seeing a huge decline in the UN and the Chinese
• 15:43
  Speaker 1: currency versus the dollar at the lowest levels in more
• 15:46
  Speaker 1: than a year. We're seeing a massive sell off in
• 15:49
  Speaker 1: the stock market, which began UH several weeks ago but
• 15:52
  Speaker 1: has deepened. So you see that the concern is being
• 15:55
  Speaker 1: expressed in a number of different ways. It's not just
• 15:58
  Speaker 1: that we're getting new data that people are funding too.
• 16:00
  Speaker 1: So why do you think the narrative has shifted so
• 16:04
  Speaker 1: quickly to all of a sudden people saying, look, this
• 16:07
  Speaker 1: could be the beginning of a hard landing. Well, first
• 16:10
  Speaker 1: of all, the Party Congress honeymoon is over, and and
• 16:13
  Speaker 1: so people realize that there's there's not as much government
• 16:16
  Speaker 1: potentially not as much government backstop. You have the Trump
• 16:19
  Speaker 1: trade war hovering over the economy, so people think that
• 16:21
  Speaker 1: China could be vulnerable to that. Uh. And then you
• 16:23
  Speaker 1: also have this fear that deleveraging is really catching on
• 16:26
  Speaker 1: and about to light the economy on fire through starvation
• 16:29
  Speaker 1: of credit and what's interesting about deleveraging is there are
• 16:32
  Speaker 1: aspects of the economy that are deleveraging. If you look
• 16:34
  Speaker 1: inside the financial sector, there is financial sector deleveraging. Shadow
• 16:38
  Speaker 1: products are being uh capped there, They're they're really going hard.
• 16:43
  Speaker 1: There's a shadow finance crackdown, no question. But what's happening
• 16:48
  Speaker 1: there is they're shutting down these off balance sheet vehicles
• 16:50
  Speaker 1: and these shadow products and they're shoving them into the
• 16:52
  Speaker 1: formal banking system. So in our data, what we actually
• 16:55
  Speaker 1: saw corporates borrowing more this quarter than last quarter, borrowing
• 17:00
  Speaker 1: more this quarter than a year ago, and at the
• 17:01
  Speaker 1: levels that were close to the run up to the
• 17:03
  Speaker 1: Party congress and the recovery. So firms are not being
• 17:07
  Speaker 1: started to credit. There's plenty of it. It's just they're
• 17:09
  Speaker 1: just shifting the spicket from from one place to another.
• 17:12
  Speaker 1: So basically you're saying that the de leveraging so far
• 17:15
  Speaker 1: is something of a fiction in terms of actually reducing
• 17:18
  Speaker 1: the leverage from this system. That said, today or overnight,
• 17:22
  Speaker 1: the Chinese government started to crack down more aggressively on
• 17:26
  Speaker 1: short term dollar funding of in particular developers property developers,
• 17:30
  Speaker 1: and seems to be trying to strip out some of
• 17:32
  Speaker 1: the froth in the housing market, and I'm just wondering,
• 17:34
  Speaker 1: i mean, do you view that as a real potential
• 17:37
  Speaker 1: deleveraging or is this just the shifting that you're saying
• 17:40
  Speaker 1: is going on there. Well, it's it's it's a tug
• 17:43
  Speaker 1: a war that constantly happens when the Chinese think that
• 17:45
  Speaker 1: the housing sector is is too frothy. And r Q
• 17:48
  Speaker 1: two data show property with sizzling again despite the fact
• 17:51
  Speaker 1: that Chinese don't want it sizzling, So there is something
• 17:54
  Speaker 1: to that. The second thing is they're trying to crack
• 17:56
  Speaker 1: down on short term instruments and trying to extend the
• 17:58
  Speaker 1: dead out farther. So there's a major problem this year
• 18:01
  Speaker 1: with debt coming DOE and potential liquidity concerns over being
• 18:05
  Speaker 1: able to roll over that debt. So they are focused
• 18:08
  Speaker 1: on short term debt, They're focused on short term debt instruments,
• 18:11
  Speaker 1: and because they're cracking down the shadow sector, they're they're
• 18:14
  Speaker 1: they're hitting wealth management products, they're hitting negotiable certificates of deposit.
• 18:17
  Speaker 1: So there is a crunch there. The crunch is not fake.
• 18:20
  Speaker 1: What's fake is that the economy as a whole is
• 18:23
  Speaker 1: not being starved of credit. There's plenty of it to
• 18:25
  Speaker 1: go around, and there will be dislocations, but this is
• 18:27
  Speaker 1: not the beginning of, you know, she's massive crackdown where
• 18:32
  Speaker 1: the economy runs dry of its fuel. Leland tell people
• 18:36
  Speaker 1: about made in China and how that has in many
• 18:40
  Speaker 1: cases obscured what is really going on in the relationship
• 18:45
  Speaker 1: between the United States and China. Well, I think it
• 18:48
  Speaker 1: all comes back to the fact that the White House
• 18:50
  Speaker 1: doesn't really agree on the China strategy. So there's people
• 18:53
  Speaker 1: in the White House who think that made in China
• 18:57
  Speaker 1: is something that needs to be addressed. Encounter tell people
• 19:00
  Speaker 1: what it is. So first of all, it's it's a
• 19:01
  Speaker 1: it's a Chinese It's a Chinese plan to bring as
• 19:05
  Speaker 1: much of this focus on advanced manufacturing, AI, robotics, biomedicine, uh,
• 19:11
  Speaker 1: it's basically advanced up the food chain type of production
• 19:15
  Speaker 1: back to China, to have China capture those markets, to
• 19:19
  Speaker 1: have the Chinese government subsidize these companies and really take
• 19:22
  Speaker 1: control of this globally. And this went under the radar
• 19:26
  Speaker 1: for a long time in d C, and it caught
• 19:28
  Speaker 1: on when people realize, well, look, this is this is
• 19:31
  Speaker 1: another form of cheating a more dangerous form of cheating
• 19:34
  Speaker 1: than the Chinese would potentially be doing. And this needs
• 19:36
  Speaker 1: to be the focus of policymakers. So even though you
• 19:38
  Speaker 1: have a bunch of people in d C focused on
• 19:40
  Speaker 1: the bilettal trade deficit and others are focused on investment
• 19:43
  Speaker 1: restrictions made in China, five is this is this is
• 19:46
  Speaker 1: this central rallying point because it's about Chinese companies coming
• 19:51
  Speaker 1: in and and and stealing i P. It's about Chinese
• 19:54
  Speaker 1: companies buying uh US innovation and bringing it to China.
• 19:58
  Speaker 1: It covers all these bases. So it's really called a
• 20:00
  Speaker 1: toxic word in Washing d C. Right now, You know, Leland,
• 20:02
  Speaker 1: you started the conversation really saying that you're not seeing
• 20:06
  Speaker 1: the sort of material slow down on the ground. And
• 20:09
  Speaker 1: one of the great things about your organization, the China
• 20:12
  Speaker 1: Bag Book International, is that you look for what the
• 20:16
  Speaker 1: actual signs are of growth of economic activity. What are
• 20:19
  Speaker 1: you seeing right now that gives you such confidence to
• 20:23
  Speaker 1: say people are wrong that China is about to experience
• 20:26
  Speaker 1: something more significant in a downturn way. Well, we saw
• 20:29
  Speaker 1: we saw an improved economy from the second from from
• 20:32
  Speaker 1: the first quarter of the second quarter which is not
• 20:34
  Speaker 1: what people think has happened. They saw may official data
• 20:37
  Speaker 1: and you have these incredible headlines, very scary. So retail
• 20:40
  Speaker 1: sales the worst in fifteen years, you know, investment worst
• 20:43
  Speaker 1: and what was it twenty year or something like that.
• 20:45
  Speaker 1: And when we look at our data, we see that
• 20:47
  Speaker 1: this is not the case. We actually saw retail had
• 20:50
  Speaker 1: gone through a difficult time earlier this year, and it's
• 20:53
  Speaker 1: already potentially taking a turn upwards, not great, but taking
• 20:56
  Speaker 1: a turn upwards. Investment, we we we look at this
• 20:59
  Speaker 1: much more broad, leave them the very specific category of
• 21:01
  Speaker 1: fixed assets fixed asset investment UH in official data, and
• 21:05
  Speaker 1: what we're seeing is stronger trends that are being recognized.
• 21:08
  Speaker 1: And then credit, everyone thinks again that credits being drained
• 21:11
  Speaker 1: to the economy. You've got plenty of credit going in.
• 21:13
  Speaker 1: So one of the reasons the economy is stronger is
• 21:15
  Speaker 1: because they're not cracking down investment the way they say
• 21:17
  Speaker 1: they are, they're not cracking down on credit the way
• 21:19
  Speaker 1: they say they are. These things are still happening, So
• 21:21
  Speaker 1: the economy stronger, but it means that they're pushing off
• 21:23
  Speaker 1: a lot of these these reforms and restructuring points till later,
• 21:27
  Speaker 1: just real quick, then what do you make of the
• 21:29
  Speaker 1: decline in the U N Look the Chinese, Uh, you
• 21:33
  Speaker 1: know this, this looks unexpected. But if you look at
• 21:35
  Speaker 1: what happened right up to where President Trump was inaugurated,
• 21:39
  Speaker 1: the Chinese ran this to six nine to the dollar,
• 21:42
  Speaker 1: and then steadily ever since have strength and strength and
• 21:45
  Speaker 1: strengthen until very recently they got it up to around
• 21:47
  Speaker 1: with six two or so. And recently you've seen some
• 21:50
  Speaker 1: fear over the trade warrior sees some fear over the
• 21:53
  Speaker 1: of the state of the Chinese economy, which again we
• 21:54
  Speaker 1: think is mostly unfounded and it's it's effect and they've
• 21:57
  Speaker 1: weakened it. They they're weak, but they're not we getting it.
• 22:00
  Speaker 1: They are stopping holding back any significant strengthening, so they're
• 22:04
  Speaker 1: just sort of letting it go a little bit more,
• 22:05
  Speaker 1: letting it go. Um, this this will be a problem
• 22:08
  Speaker 1: if it gets six seven, six eight, I think we'll
• 22:10
  Speaker 1: freak out. Markets. Where it is right now is not
• 22:12
  Speaker 1: an issue. Leland Miller, thank you so much for being
• 22:14
  Speaker 1: with us. Leland Miller, chief executive of the China Beige
• 22:17
  Speaker 1: Book International, based in New York. Well the Standard and
• 22:38
  Speaker 1: Poors the SMP five hundred casinos and gaming industry index
• 22:44
  Speaker 1: is down about ten percent so far this year, and
• 22:47
  Speaker 1: yet in Atlantic City they are set to open two
• 22:51
  Speaker 1: new casinos at the same time that sports betting has
• 22:55
  Speaker 1: begun in New Jersey. For more on the world of gaming,
• 22:57
  Speaker 1: we turned to Brian Egger are senior game and lodging
• 23:00
  Speaker 1: analysts for Bloomberg Intelligence, and you can follow Brian as
• 23:05
  Speaker 1: we all do on Twitter at breaking call. Actually, agronomics changes,
• 23:10
  Speaker 1: agronomics you changed this ye? Sorry, oh my gosh. All right, well, agronomics.
• 23:15
  Speaker 1: Tell us about these two new casinos. You've got the
• 23:17
  Speaker 1: Ocean Resort and the Hard Rock Casino. Why are they
• 23:23
  Speaker 1: opening in a place that, by all measures seems to
• 23:25
  Speaker 1: already have enough capacity. Well that's a good point. So
• 23:28
  Speaker 1: the view is that by any more entertainment, entertainment attractions
• 23:32
  Speaker 1: uh the city will be able to increase the average
• 23:34
  Speaker 1: visitor length of stay, attract a younger audience with entertainment
• 23:37
  Speaker 1: and concerts, and some of that may be true. But
• 23:40
  Speaker 1: our concern is that while these openings, which take place
• 23:43
  Speaker 1: today actually will grow capacity in the market by about
• 23:47
  Speaker 1: they may only increase the markets overall revenue by ten
• 23:50
  Speaker 1: or eleven percent. So we're really concerned they take business
• 23:53
  Speaker 1: away from other players in the city. Can we just
• 23:57
  Speaker 1: get a sense of snapshot taking a step back of
• 24:00
  Speaker 1: what the volumes have been like in Atlantic City, because
• 24:03
  Speaker 1: my understanding is that they had actually been losing popularity
• 24:06
  Speaker 1: with respect to uh to gambling. So so they've been
• 24:09
  Speaker 1: they've been better. But bear in mind that we until
• 24:12
  Speaker 1: yesterday had seven casinos. After four casinos closed in they
• 24:17
  Speaker 1: all they all shut down. The Atlantic Club, Showboat, Revel,
• 24:20
  Speaker 1: and Trump Plaza basically went out of business. What you're
• 24:23
  Speaker 1: seeing today is the Revel being reborn as the Ocean Resort,
• 24:27
  Speaker 1: and the Trump taj Mahal, which also closed down, being
• 24:30
  Speaker 1: reopened as the hard Rock. So these are reopenings after
• 24:34
  Speaker 1: a period of a shakeout and downsizing. Admittedly, the market
• 24:38
  Speaker 1: has been behaving somewhat better, but Atlantic City is not
• 24:41
  Speaker 1: the only area expanding. We've had expansion and ongoing expansion
• 24:44
  Speaker 1: in Pennsylvania, New York, elsewhere throughout the mid Atlantic, along
• 24:49
  Speaker 1: with sports betting. Okay, well, so yeah, that's what I
• 24:51
  Speaker 1: wanted to go with this, and New Jersey also just
• 24:53
  Speaker 1: legalized sports betting. How much betting can people do? I mean,
• 24:56
  Speaker 1: is there like a point of peak betting capacity, peak
• 24:59
  Speaker 1: gambling an interest charter. Look to the other day. If
• 25:01
  Speaker 1: you look at a map of tensam od are almost
• 25:04
  Speaker 1: a dozen Northeast and mid Atlantic states. Uh. Twenty years ago,
• 25:08
  Speaker 1: when I was a younger gaming analysts, there were about
• 25:12
  Speaker 1: sixteen casinos in those ten states. Today there are fifty one.
• 25:16
  Speaker 1: So we've had significant expansion not only nationally but also
• 25:19
  Speaker 1: in the Man Atlantic region as we've seen this liberalization
• 25:22
  Speaker 1: of gaming. This is generally a mature industry. You know,
• 25:26
  Speaker 1: are concern as these casinos made, you find, but they
• 25:28
  Speaker 1: take business away from other operators because as they're doing this. Uh,
• 25:33
  Speaker 1: there's much more competition in the mid Atlantic and greater
• 25:35
  Speaker 1: Northeast market today than there was five or ten years ago. Brian,
• 25:40
  Speaker 1: if you happen to be an investor that believes that
• 25:43
  Speaker 1: sports betting as it comes to New Jersey is going
• 25:46
  Speaker 1: to be a win, and you'd like to participate in
• 25:50
  Speaker 1: that experience, what is the best way to do so? Sure? Well,
• 25:53
  Speaker 1: there are companies that we don't follow, but they're actively
• 25:56
  Speaker 1: involved in managing the sports books of both the Ocean
• 25:59
  Speaker 1: resort opening today and the mom with race track which
• 26:02
  Speaker 1: started sports betting two weeks ago have sports books operated
• 26:05
  Speaker 1: by William Hill. Draft Kings, the Delhi fantasy sports operator,
• 26:09
  Speaker 1: will soon have a sports book at Resorts Casino, and
• 26:12
  Speaker 1: we've got Patty Power Betfair in the Meadowlands. So a
• 26:14
  Speaker 1: lot of these sports books are being operated either by
• 26:17
  Speaker 1: the fantasy sports companies or these European companies that have
• 26:21
  Speaker 1: operated in markets where sports betting and online gaming has
• 26:24
  Speaker 1: been legal for quite some time. All Right, so here's
• 26:27
  Speaker 1: what I'm struggling with. You now have more than doubling,
• 26:31
  Speaker 1: almost tripling, right of the casinos in the Northeast UH
• 26:35
  Speaker 1: in recent years. You have new casinos being built at
• 26:39
  Speaker 1: a time when people are doing more things online and
• 26:43
  Speaker 1: there has been a liberalization, so they're more areas that
• 26:45
  Speaker 1: are expanding. I'm just wondering, at what point is it
• 26:49
  Speaker 1: sort of overkill, and at what point is it sort
• 26:51
  Speaker 1: of people can get out what they need to get
• 26:53
  Speaker 1: out easily with the touch of their fingers and they
• 26:56
  Speaker 1: don't really need to go to these big buildings anymore.
• 26:59
  Speaker 1: I think there are some risk of channel shift towards
• 27:01
  Speaker 1: online gaming, but I think the bigger issue is that
• 27:03
  Speaker 1: Atlantic City has tried to be like Lallas Vegas. Bear
• 27:05
  Speaker 1: mind of the the number of visitors staying in Atlantic
• 27:08
  Speaker 1: City for more than three days is only one third
• 27:10
  Speaker 1: of the visitor base in Vegas, it's three quarters. So
• 27:13
  Speaker 1: one of the challenges that Atlantic City has, other than
• 27:16
  Speaker 1: the competition for monoline gaming, is people stay shorter lengths
• 27:19
  Speaker 1: of stay, they tend to be somewhat older, uh, and
• 27:23
  Speaker 1: they spend less on entertainment and more pure gambling. Some
• 27:26
  Speaker 1: of that has to begin to change for these new
• 27:29
  Speaker 1: resort properties to really bring a full complement of entertainment
• 27:32
  Speaker 1: that makes it worth building these additional resorts. Brian, let's
• 27:37
  Speaker 1: go out west for just a second to Las Vegas.
• 27:39
  Speaker 1: Who's doing the best right now? So right now, we've
• 27:42
  Speaker 1: had a bit of a slowdown in parts of the
• 27:44
  Speaker 1: Las Vegas Strip after the tragic shooting last October. UH.
• 27:47
  Speaker 1: That has slowed down MGM a bit, although we put
• 27:50
  Speaker 1: out a report this morning on the terminal indking that
• 27:52
  Speaker 1: we think twenty nine team will be much better year
• 27:54
  Speaker 1: for MGM in the Las Vegas Strip. Generally, it's been
• 27:57
  Speaker 1: a it's been a challenging year because of that slowdown,
• 28:00
  Speaker 1: because of the construction of Monte Carlo being re retrofitted,
• 28:04
  Speaker 1: as the park MGM because of the shooting last October,
• 28:07
  Speaker 1: which really slowed down leisure visits. I think in that
• 28:11
  Speaker 1: context will be better here. Brian Iger, thank you so
• 28:14
  Speaker 1: much for being with us. I find this so interesting,
• 28:17
  Speaker 1: just the shift in the whole business model at the
• 28:20
  Speaker 1: time when people are still building as much as they can.
• 28:24
  Speaker 1: I mean, is it going to be builded? If you know,
• 28:26
  Speaker 1: build it and they will come. But as I but
• 28:28
  Speaker 1: as Brian mentioned, you know what's sixteen when you started
• 28:31
  Speaker 1: covering this whole thing that will watch sixteen operations and
• 28:35
  Speaker 1: now we've got you know yeah. Brian Iger, Senior Gaming
• 28:39
  Speaker 1: and Lodging analysts for Bloomberg Intelligence. Thanks for listening to
• 28:47
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 28:50
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 28:54
  Speaker 1: platform you prefer. I'm Pim Fox. I'm on Twitter at
• 28:58
  Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo. It's one
• 29:01
  Speaker 1: before the podcast. You can always catch us worldwide on
• 29:04
  Speaker 1: Blueberg Radio.