Biden Finds Himself Boxed In on China

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube. Searched Bloomberg Global News lots of headlines when it comes to COVID and the pandemic. UK government Tim This is positive. They are lifting the restrictions that opposed. But in England back in December when the o maicron variant caused a record spike and infections that now show signs of easing.

So a peak coming down, that's good. We're certainly seeing that here in New York City, but we should note that cases are still soaring elsewhere in Europe. France reporting a set a record of nearly four d and sixty five thousand new infections. Italy and Germany also registered all time highs. Switzerland decided to extend a work from home order to the end of February as cases search of different stories playing out. But we're learning more about how

quickly hopefully on the cron can peak exactly. Fingers crossed. Dr David Kim is back with US, chief Executive of Physician Enterprise of at Providence Health. The first known US case of COVID nineteen was confirmed in Washington State at Providence Regional Medical Center and Everett that was pack in early January. There are massive hospital system and Dr Kim joins us on the phone in Irvine, California. Dr Kim so glad to have you back with Tim and myself

here on Bloomberg. How are you and what are you seeing. I'm doing well and we are seeing a lot of what you are mentioning already that the COVID is uh the omicron is very infectious, and we're seeing it in fact people much more easily than the previous variants, and we're seeing our hospitalizations rise as a result of that. Um Although the rate of the percentage of people that are winding up in the I c U is much lower relative to the previous surges with omicron, and we

were seeing milder disease. Okay, so that's a lot of good news. What what can you tell us? And and forgive me, but I like to ask this to everybody who has an idea of what's going on in in hospitals. Uh, who is that? Who is hospitalized right now? And are they vaccinated versus unvaccinated versus boosted? What can you tell us about who is actually getting very sick with covid um So there's there's different ways to answer that question.

I would say who's getting hospitalized? We're seeing both vaccinated and unvaccinated people wind up in the hospital, and that is different with omicron because we saw the delta virus affected. Hospitalization is much less in people who are vaccinated. However, and what we're seeing is that people who are unvaccinated being hospitalized are getting much sicker. So the percentage of people that are going to the IIC you that do get very sick with omicron tend to be people who

have not been vaccinated or boosted. Can you believe we're still talking about this and living this? Dr Kim, Yeah, day is like a year these days and you know, depending on how you look at it, this is the third, fourth, or fifth surge we've had over the past two years. It is it has been a remarkable time. And healthcare. How do you balance normal health care with pandemic healthcare.

It's difficult, right. Not only are there constraints in the hospital because of the COVID patients, but there is a bit of a shift in the mindset of patients of when do they feel comfortable going to the hospital um.

And some of that has been positive and thinking through telehealth and the evolution of being able to get health care in new and novel ways, but some of it is concerning that people who need care aren't getting it and where um, there is a concern that once COVID is over, we're going to start seeing people who delayed care, who are going to need care. We're going to see more significant consequences of that. It's so it's so interesting that you said that, I mean a year ago, Carol

remembers this. I hadn't been to the dentist any year because of because of COVID, and finally I finally gotten appointment for with a with a physician today for a check out. But it was so difficult to get an appointment because all these healthcare workers, so many of them have gotten sick, so many of them are overworked. So it seems like the system is kind of being pulled from both ends here. Doctor. Oh yeah, the staffing issue, I would say is almost as much of a concern

as the as the COVID itself. That so much of our constraints these days are because people are getting sick and they can't work or they're just tired, you know. And we see record numbers of people leaving healthcare as as an employment option because of the past two years and the and the strains that COVID has put on the system, and then the people who work in the system. So what are the changes that need to be made? I mean, your your your CEO of Physician Enterprise at

Providence Health Systems. So so you're making these decisions, and you're looking closely at the data about people who are staying and people who are leaving. What needs to change in order to make sure that our health care workers in the US do not get burned out? I think that's the that's the million dollar or the billion dollar

question we are really thinking through. How do we keep hearts in minds engage, and how do we keep people close to their initial calling of why they went into healthcare in the first place, and why, how we can keep healthcare from being a commoditized industry but really be a place where people can fulfill the mission of why they chose a career to help others in their communities.

And the more we can continue to bring that back into the why of why people came into healthcare and why they come to work every day, I think, the more we can think about how we can sustain them through what is a very very difficult time. How do we do that, though, like you said, you've got to figure it out. What are your thoughts on that? Is it a case of pay? Is it a case of respect? Is it I love? I don't love. But I think about how you said commoditized, you know, um in terms

of health care workers. UM, I certainly don't think of that. When I go to see somebody as like a commodity. I think about, you're an expert, you went had a lot of education. You know you've got to you know, you're taking care of our health. Absolutely, we call those sacred encounters, and it is the reason why it's so fulfilling to be in healthcare to have those moments of connection and relationship and intimacy almost with with sharing your life and thinking about your health. How we do that,

I think is this multiple fold. Some of it is through programmatic work around keeping people focused on the purpose and the mission of why. Some of it around creating a work environment, whether that's compensation or cultural work, or a sense of community that we can really get our arms around how to make people feel part of something and and connected to the purpose of what we're trying

to accomplish together. And part of it is practical is sending people to workshifts that don't burn them out in so that they can find adequate time to rest, and equipping them with tools so that they can check out when their home and not be thinking about work all the time. All about wellness that has been a big theme of this pandemic. Dr Kim David Kim, Chief Executive Physician Enterprise at Providence Health, Thank you so much, Bloomberg.

You're listening to Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. President Biden Marking one year in office, we're going to hear from the president, I guess in about an hour or so on that. In the meantime. In the upcoming issue of Bloomberg Business Week, Bloomberg News white house reporter Jenny Leonard writes about how one year in tim the president finds himself boxed in when it comes to China. Jenny Leonard

is white house reporter for Bloomberg News. She joins us on the phone from Washington, d C. Also joining us is Joel Webber, editor at Bloomberg Business Week. He joins us on the access line from Brooklyn. Joel, it's so interesting during at this point in the Trump administration, we'd probably be talking about a trade war perhaps it maybe perhaps in the second year of the Trump administration. Up What exactly, though, is the policy that the Biden administration

has towards China right now? Well, that's the whole point of the story, my friend. So it's a really interesting moment because if I rewound the clock and we were at this moment, like you said, in the Trump administration, I think I had done multiple trade war uh covers already, and you know, here we are, um uh when almost one year in knocking on that door for the Biden administration, and I think, as Jenny is about to tell you, it looks pretty much like the same framework. That's exactly

what I was. Yeah, we haven't really even talked about trade forever. Um, I just forgot all about it. So Jenny remind us where do things stand in and what is the Biden administration's uh policies on trade with China? Especially, looked like, yeah, you got it right, Joel. It does look a lot like you know, where Trump left office. And a lot of Democrats fear that that's sort of a weakness going into the mid term election because China, of course is something that energizes with voters. Of course

it takes a backseat to COVID and the economy right now. Uh, but Biden hasn't really in the first year in office, put his own stamp on China policy. And even his allies say, hey, you know, I think you I think we're we know where you're hinting at wanting to do, but we don't really know for sure, So why don't you tell us? Um, the Biden administration has been meticulously reviewing sort of what they inherited. Right if you guys, remember the trade war sort of ended with the Phase

one deal inherited that those negotiations are still ongoing. Uh, the Chinese have fallen short on their commitments, which we knew going into this administration. Um, and there's really no timeline for when those negotiations should result in any sort of outcome. So UM to sum it up, I would say, you know, they really need to hit the gas to to show something in the mid terms because Democrats are getting a little anti that Republicans sends a little weakness here,

you know, Jenny, what's the right China policy? I mean I talked to the Cisco CEO Tech Robbins earlier. China we know so important to global company companies, But what's the right balance when it's safe to say world leaders, US leaders don't agree with Chinese social policies, but they also don't want to lose access to the China's you know, massive market potential that that continues to be out there.

So what is the right policy with China? Yeah, I think you hit the nail on the head there on exactly what you know any government or any U S government is trying to balance and where the different sort of voices come in when the different principles from agencies are discussing it, right, So you you would have you know, in thinking back to the Trump administration, you would of course have you know the more HACKISHENDVERSH sides, you know, Treasury, U, SCR, Commerce,

all these different entities that here from different stakeholders. And I think the Biden administration is hearing exactly the same things. Even if a has become more and more difficult to deal with, even as supposedly you know, there's less interest in investing in China, We're still seeing how intertwined the economies are. And I think you've seen at least the Commerce Secretary be very vocal, uh in this Biden administration saying decoupling is not an option, that is not something

that is possible, that is not something that's desirable. If anything, we need to slow that down China as much as we can, but we need to run faster. And so that's been the Biden administration's focus, you know, getting the Rescue plan pass getting the infrastructure plan passed, and you know, of course now working on their third big plan, the

Build Back Better Plan, which is stalled. Um, so there isn't really anything in the immediate term, and definitely nothing that they can show in the biladult sense where they say, hey, we're competing with China in a smarter way. Jenny, we got to talk about the politics of this, because here we are, it's midterm elections coming up in November. We are expecting to hear from the president to really give a speech about his first year in office at four

o'clock today Wall Street Time. How are Republicans though, using the President's policy towards China, the administration's policy towards China, as a way to criticize him. So I think, um, Republicans are are definitely you know, seizing the moment that Biden for now, and they might prove us wrong, you know, in two months. But for now, Biden has adopted and kept in place Trump's policies, which, of course, uh you

remember the Republican Congress has pushed him. There. There's a lot of you know, China Hawks in Congress that are maybe gearing up for presidential runs themselves in two that are running for re election to their Senate seats or

House seats in two Uh. So they feel emboldened knowing that the Biden administration is sort of boxed in leaving in place the policies that you know, they sort of pushed the Trump administration to go for UH and and they are seeing you know, the this boxed in situation for Biden too that I think they're sort of relishing a little bit that Biden is, you know, maybe unable to do much on China that could hurt the U. S economy even more. Uh when you think about tariffs, right,

so currently we have tariffs in place. Um, everyone knows that, you know, taking off Harris will probably leave Biden even more vulnerable to criticism from Republicans. But adding more tariffs to it, if that is your enforcement tool, is maybe not something they want to go down. It's it's not really a pass they want to you know, go down. And so Republicans see the current reality for Biden and you know, probably enjoying watching him sort of figure out

his way out of this box. Okay, we spent a lot of time learning uh cast of characters in the Trump administration who would love to tip their cards and talk about how negotiations were going. We've heard nothing about who's leading the charge of the American side, and the Biden administration. Who are the players real quick Jenny, Yeah, certainly a different casts of characters, and they're way less

likely to tell us how it's going. Um it's the chief negotiator here is Katherine tie of the US Trade Representative. She's been in touch with the Chinese, uh, only twice in the first year in office. Her deputy, Sarah Bianchi, who handles China issues, has been in touch with the Chinese also a couple of times, although the agency decided not to disclose that. So um uh interesting there. And then you know, of course Tresure Secretary Yellen and Commerce

Secretary are also key players here. Yeah. Aho, a lot of top names there in the administration, he thinks so much. Bloomberg News White House reporter Jenny Leonard from d C, of course, along with Bloomberg Business Week at or Jill Webber from Brooklyn. That story in the upcoming issue of Bloomberg Business Week magazine. It's online on the Bloomberg that magazine out lead this week. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on

Bloomberg Radio. So we had a bunch of big banks report over the last week, and Tim, we had what Morgan in b of a today coming out with numbers. Yeah, we've far already heard from Goldman Sachs, We've heard from JP Morgan Chase. Uh. We're also starting to hear from the regional banks as well, right, and I know that's something that's certainly always on the radar of our next guest, Anton Shuts is back with us. He's president and chief

investment officer at Mendon Capital Advisors. On the phone in Florida. Anton, Good to have you here, Happy New Year. How are you. I'm doing well? Thanks about yourself doing okay? You know, taken one day at a time as as we do. Um. Good to hear though and kind of get into earnings because I really love when we start to hear, certainly from the financials and from leaders overall the big banks. How do you see it, not only the numbers today, but the numbers we got last week. How are the

banks doing? I mean, compensation is one of those things increased costs showing up big time. Well, it's compensation, it's technology, and you know it's a it's a real difference in strategy between a number of these companies. You know, if you think about um, you know, JP Morgan investing twelve billion dolls in financial technology, right, I mean that's more than all the disruptors combined, probably right, investing in new

new innovation and research. I mean, they certainly can win the game, but you know it comes at a cost. It's amazing they can earn the amount of money they earned while spending twelve billion dollars. Yeah, Anton, what does that look like? Because when we talked to fintech companies for example, you know I talked to Chris Britt, the CEO of Chime yesterday. It's a twenty five billion dollar fint it doesn't call itself a bank, though it offers

banking services. It's it's just got a massive, massive private market valuation. Is the idea for for JP Morgan to invest in products like like that? Because help me understand what what these fintech investments are. Well, I mean they're they're obviously trying to make themselves more efficient. They're trying to improve their delivery process. They're trying to improve their ability to provide compliance, which is you know, it's very expensive and if you look at the core processors the

five serves. Jack Henry's the f I s is those are very expensive cores and you know all the banks using them. At the end of the day, if you can find a way to deliver all of your products that even exists your customers right cheaper, then you get to eliminate some of those very expensive U and capital costs that are very bay. You can't get people to come to work anyway. And obviously if you if you can get people to come to work, you've got to

pay them more. So part of part of the money spent on the innovation is not just a new products, right, It's it's and how do you deliver those products. That's how you provide compliance for that deliberate and I think that you know, we'll learn a lot more about that compliance as the regulators get more involved in unregulated you know, uh sin tex right, the banks are very regulated. We just saw so far this morning. It's gonna become a lot more regulated as now you know, it's got approval

to become a bank. And when one of the first things right and said, well wait a second, you know, on the crypto side, you guys got to back off a bit. You know, we've got to get to understand you better. As a thank Anton in terms of the financial space, and you've been investing in in these types of names for a long time. Um, you liked off

in the regional space. But is fintech and the newer upstarts starting to get you know, garner any more of your attention or potentially some of your thoughts about well, you know what we should be putting and committing money there. Well, I really like banks that have fintech embedded in him. So you talked about these private market valuations, but obviously some of the public evaluations and a lot of those

comanies don't earn money. And and I'm a traditional value investor, of course, I'm always looking for, you know, what creates value. And if I can find banks that are fintech embedded in the more managements that are leaning forward, that are

going to create a better mouse trap. You know, for instance, in New York and New York community that's really embraced you know, fintech and blotching technology, or a signature bank also headquartered in New York has done a lot of it, or or a silver Gate or a Triumph or we've talked about Live Oak Bank before. You know, these banks all have fintech embedded in them. They're all using it to liver they're investing in it, and they're part of

the future. And I think that as we start looking at that stable coins and and who's going to have that ability to really get approval from the regulators, it's going to be the banking system. Is it going to be more regional bankers banks or the big banks? I think the big banks will eventually get because it does seem like the regional banks are leading in that right now. They are. It's it's you know, part of that's the

decision trade, right I mean. J K. Morten's a really large organization and they literally think said they invested a hundred fin tax last year parsing them, getting them, you know, to the to the market, getting them distributed through that very large organization. It's harder to do that if you're smaller entergy. It's a lot faster to bring something to market and you can test things out with some customers and get it going without a very large, um, you know,

bureaucracy to say the least. And obviously some of those banks are better getting things to market, but it's a lot easier if you're a multibillion dollar bank rather than a multi trillion dollar bank. And what do you think the banking environment is going to be like for some of the names that that you hold onto, whether it's a live oak, whether there it's an equity bank shares, first bank shares. I mean, it's going to be a better environment because of a higher rates that we're starting

to see certainly come through the system. Um, how do you see it? Well, all, you know, higher rates, everybody always talks about how great those are. Yes, absolutely a good you occur higher Um, you know, short term interest rates are good for almost all banks, and you've got the raise rates quite a bit before you start creating credit issues out there will just obviously the other side

of that. But I think the thing that's that's really important here is there was so much stimulus put into their customers hands that loan growth really didn't exist a ton other than some of those faster growing markets like Tennessee or Texas or Florida, um, nationally, So now you've got the loan growth coming back. You've seen some good loan growth numbers out there across the guys that are reported,

and I think that's really critical. So, yeah, higher rates matter and will matter, and they're not all in the estimates yet, but loan growth is really what you know, what drives earnings ship right, all right, so we'll we're watching out for that. Anton, thank you so much. We really always appreciate the perspective you have in the informed perspective. Anton Shows, President and chief investment officer at Mendon Capital Advisors, on the phone in Florida. You're listening to brook Radio. Yeah,

but you let drive? Oh no, no, no no, non, please, i'vels I want to drive. It's a good question. This is the drive to the clothes on Bloomberg Radio. We're driving to the close, just about ten minutes left in today's trading session, and Tim, as Charlie mentioned, we are near our lows at this session on those major equity averages. I'm curious what our next guest has to say because

he runs a fund, the Rational Dynamic Brands Fund. We've talked with him before, and over the last three years it's up on average annually, putting that fund in the eighty nine percentile according to Bloomberg Data, so it's been an outperformer. We're talking about Eric Clark, portfolio manager at Rational Dynamic Brands Fund, He joins us now on the phone once again from San Diego. Eric, how are you. I'm good, Kevin Carroll, how are you. We're doing well.

We're doing well. Look, the story today obviously is about what's happening on the NASDAC has it down in correction territory more than ten percent below its peak from November nineteenth of last year. How are you reading into this? You know, I I think there's there's that short term noise surrounding interest rates and the FED and how aggressive they're going to be with rating, with with rate increases, as well as withdrawing some accommodation and maybe even outright

selling a bond. You know, I have my own personal view that the FED is not willing to tank the markets in the economy just to try to reduce inflation.

So I think they're more taught trying to talk it down. Um. But you know that that has an effect on high multiple stocks and it's been a very popular part of the market, and so I just see that de risking happening until there's some realization that the FED is probably not going to be as aggressive and people are much more wrong footed about where their positionings are, but it's certainly been a painful you know, a couple of months for sure for how data stocks. All right, so what

is it, Eric? For some of the names in your portfolio. We've often talked about investments that you've got in an alphabet, and Microsoft and Netflix and Apple and Amazon and more, a lot of those well known tech bass tech names excuse me, that have certainly provided support to the equity markets of the last couple of years. You still like them? I do, I absolutely do. I mean, you know, we

have certainly shifted up the portfolio in quality. You know, big profits, lots of free cash flow, great balance sheets, the ability to buy back stock. But you know, add to the dividend growth those kind of businesses which frankly have kind of underperformed over the last couple of years. We you know, it wasn't that long ago when we had the companies without profits and lots of growth were

really what drove the bus. Now, you know, we're more focused on the stable, predictable growers with great balance sheets, that have good pricing power and have a lot of brand loves. So it's a very highly recognizable portfolio currently. So help me out. Microsoft up, it was up last year. Oh it was up. Um. Speaking of healthy balance sheets, it has a lot on its balance sheet are a

little bit less as it buys Activision. Do you want to change your holdings at all because of this or do you like Microsoft even more want to add to the position. Well, I would love to add, probably a little bit lower than where it is today because it really hasn't had, you know, a real deep sell off yet. I did find the potential acquisition of Activision pretty interesting, and using Activision's cash as as part of that. So interesting, good, interesting, interesting,

good interesting, and scratching my head. Okay, yeah, no, I think I like that just moves further into gaming and also with the potential of what the metaverse could look like at some point. So I mean that I p and and staff and engineers. They're hard to come by, so in some ways they're buying the infrastructure to too key building their video business, you know, their gaming business

and whatever the metaverse looks like over time. Okay, well, speaking of the metaverse, we're not there yet when it comes to Netflix, but that company reporting earnings after the bell tomorrow increasingly getting into games. What are you looking for from Netflix? You know? Last quarter, they told us that they were going to be spending aggressively on content. So anybody that's surprised that free cash flow is down when they report tomorrow, I just you know, you just

didn't pay attention to last quarter. Bigger picture though, we still think, you know, let's say they have two million subscribers around the world. We think they have five million plus. They got twenty nine billion in revenue. Now that's gonna equate to maybe a hundred billion in revenue. So I mean, I think this is the brand when people around the world start to search for content. It used to be

the cable channel that you opened up. Now I think it's Netflix first, and then if you can't find what you want, you go other places. So it's still the dominant brand. And you know, if if the if the market you know right now the markets that kind of sell everything mode, So if the response is lower, I'm going to buy more for sure. What name have you most recently been adding to. Well, we have been adding because of the market volatility. We've been adding some stable,

predictable um type of you know, defenses. So we added pretty aggressively, you know, next Terra Energy, not not everybody knows what next Era Energy is. It's the old Florida Power and Light. But so it's a public utility, but they also have a renewable energy business that's high growth, and so that that you know, they have it's a public utility with great, stable revenues, great dividend growth. It's you know, increased their dividends consecutive years plus. So that

and maybe a United Health. I thought the quarter was great, you know, reported this morning. The stock you know, has been selling off ever since the print. But again, I think we're more in the sell everything mode and those kind of stable, predictable businesses I really like in this you know, in this next you know, six month period, along with some of the more higher beta stuff. So

so definitely the defense and even a Sherwin Williams. I still really like the housing trade, particularly as interest rates get to the top end of the range. Hey, Eric, what about Amazon? Just in the last minute so that we have with you, the company's down more than six percent year to data was only higher by two point three percent. What's going on with Amazon? Well, it's a big yawn, and I mean it's been a kind of a two year yawn after a really strong two thousand.

But you know, they have had so many spending cycles that lead to higher revenue growth and higher free cash flow periods, So you know, you have to accumulate the stock when they're in high spin mode to get the benefit of the ramp when the revenue comes back and

the free cash flow goes back. So whether it's this quarter or next, are going to see all of a sudden the free cash flow vault back up and people are going to be surprised in this box is going to catch a good like it has for the last years, just quickly twenty seconds. Has Amazon become a dividend company at some point a dividend pay or they don't need to. I don't think it's part of their their philosophy and their mentality and that there's a lot of those that do.

But I just don't see Amazon becoming back. All right, We're gonna leave it on that note. Always love talking with you. You get into the specifics, you get into the names that are in your portfolio and explain why. So thank you so much for that. Eric Clark, he's portfolio manager at Rational Dynamic Brands Fund, joining us on the phone from San Diego as we mentioned his doc has been excuse me, his fund has been an our performer, up on average annually, and we've got it in the

eighty nine percent according to Bloomberg. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Search to Bloomberg Global News