Britain’s Decision to Go With Huawei on 5G

Week on iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. So I have to think that Ashley advanced, you know that says walk in music in some ways. Given everything he has written about, we have many many things to talk to him about, not least which is his story in the most recent edition of Bloomberg Business Week. Ashley is a feature writer for the magazine. He joins on the phone from Palo Alto, California.

Joel Weber, the editor of the magazine, is here with us in our Bloomberg Interactive Broker studio. All right, so a small rocket maker running a different kind of space race. Ashley all eyes on space. It feels like these days, tell us about this guy. Yeah, well, so there's this guy. These guys. Yeah, it's a company called Astra, and they're based in Alameda, California, which is just kind of right

next door to Oakland in San Francisco. And for the last three years they've been building a what's meant to be a small cheap rocket pretty much in in secret until we did this story. So actually the talked about the model that they're trying to develop here. Yeah, I mean there's you know, for a long time, space was obviously kind of controlled by a handful of governments that had big, expensive rockets that didn't launch very often. And then Ellen came around with SpaceX and and made a big,

expensive rocket that launched more often. And what these guys want to do is they're part of this the whole class of startups that want to build much smaller rockets that, instead of costing sixty million or a hundred million dollars per launch, cost anywhere from one to seven million dollars per launch, and so they can't take as much stuff, but they get you to space much more cheaply. And the idea is that they may be able to launch instead of once a month maybe as much as every

single day. And so it's it's you know, I put it in the story, this idea of becoming like the FedEx for space right sustainability comes to the space uh industry. What's interesting is Astra Right was among a few finalists. Um they'd being out some really well known competitors. We're talking about Virgin and some others. Right, Yeah, there's this DARPA, the kind of R and d arm of the Defense

Department is sponsoring one of these. They do these grand challenges for various things, and so they have this thing called the Launch Challenge, and the whole idea was to get all these small rocket startups to compete against each other to see who could launch two rockets in a very short span of time. I've few weeks in between the launches, and and dozens of companies applied to be

in this. Virgin was one of the three finalists. As the list got whittled down in another company called Vector, and so Vector went out of business last year and Virgin pulled out of the competition, and so now Astra is the last rocket makers standing. So actually, another part that I'm kind of interested in here is like where they are in their trials, because this is like, it's not a foregone conclusion that this is all going to go their away. No, not at all. Yeah, I mean,

you know, this is this business is hard SpaceX. Yeah. You know, they blew up their first three rockets before they finally got one to work, and so um, you know, as I mentioned at the beginning, Astra has been operating in secret, but I've been following them, um during this

whole journey. And so they have actually already flown to rockets from a spaceport in Alaska that's that's kind of run by the government, and both of those and quite badly, the rockets came back to Earth before they were supposed to. And and this new rocket is you know, they spent the last year revamping it, making it bigger, redoing the engines. And so in February, late February, they're gonna make another attempt to go to orbit. But again, like you said,

I mean, this this may not work. And if it doesn't work, they're under a lot of pressure because there is a company in New Zealand called rocket Lab UM that's been doing very very well and has been launching all the time. And actually, you know, this world so well from so much reporting that that you've done, I mean, where are we in sort of the the development of this industry as it were? Is this, we're still at the stage where a lot of flowers are going to bloom,

as they say, and ultimately there will be consolidation. Has there already been consolidation? What does this look like as we go through the next five to ten years in your estimation? Yeah, I mean it's kind of funny. You know. So when SpaceX finally sort of hit its stride, I mean, it opened up this idea that okay, individuals and in

private companies can finally get rockets to space. And so there's been this flood of startups who are come in and tried to prove they can build a rocket and all this money that's come in, but it's just completely unclear that there is a market for this many rockets and and the need to launch a rocket every day. The well, yeah to that in like who do they

see being potential customers? Yeah? I mean the big driver for this is that that traditionally satellites were things that took like ten years to build, they cost a billion dollars each, and they were about the size of a car or a bus, and and you just launched it and you left it up there for a long time.

But now there's there's literally, you know, anywhere from like it's probably about a hundred UM satellite startups that have much smaller satellites about the size of a basketball, and they want to put up hundreds, if not tens of thousands of these satellites for all kinds of tasks, imaging the Earth, connecting, you know, the Internet of Things, all

these devices, creating sort of space based internet networks. UM. And so the whole theory is that these small rocket companies will serve these small satellite makers and you'll just have these rockets going up every day taking new satellite in the orbit. But we don't know, We only know. We don't know if the business case for these satellites will work. We don't know how many of these companies will survive or how many rockets will be needed to

do all this. Okay, so what is it about these guys and their technology, Like, what what's been the breakthrough that that you know makes them the one to watch the So so if Rocket Labs kind of the gold standard right now for these small rocket makers, you know, and it charges about seven point five million per launch. It has this beautiful rocket that's made of carbon fiber and and all these three D printed engines and everything. Astra wants to be the low end of all this.

So they're using really kind of like no breakthrough techniques. They're they're using aluminum um. Everything in the machine shop is is sort of techniques that have been perfected for years. But their whole pitch is that they'll be the first ones who get mass manufacturing of these types of things down and actually get the cost. Instead of seven point five million, they want to get it down to like a million pro launch, and so price would be their

their big weapon. I guess actually just got about a minute left. Got to ask you, you wrote the book on Elon Musk, Tesla SpaceX and the Quest for a Fantastic Future. We'd be remiss. What do you make of Tesla um just you know, shooting to the Moon no pun intended. It's up another twenty just got about forty five seconds. What do you make of what we were

seeing this year when it comes to Elon Musk. I mean, it's kind of amazing because this time last year it looked like the whole thing was going to go under, and that's what everyone was asking me, and so, I mean, it's just it's just it's it's sort of crazy. It's hard to put into words. I mean to me, if you look at it now, they've obviously got their house

in order a lot better. But but people are clearly betting that this is like much more than If you believe this valuation, you're sort of believing in a future where Teslas and energy compy and your car market and so, I don't know, it's a little hard for me to yeah, fully buy in where it is right now. But they're doing much better forward looking pee of ninety five. What's

wrong with that? Just get a say? Check out Ashley's book Elon Musk, Tesla SpaceX in The Quest for a Fantastic Future, and of course check out the magazine UH that story going to be featured when it hits news stands later this week. It's already at Bloomberg dot com and on the Bloomberg terminal our thanks to Ashley Vance joining us from California on the phontal webber or thanks to him as well, Bloomberg Business Week editor in our

interactive Broker Studio. You are listening to Bloomberg Business Week here on a Monday afternoon, Andy Brown, with his editorial director for Bloomberg New Economy. His column, I have to say, is a must read every week, especially at a time where we are fascinated and have to be with the nexus of the US and China in the broader global economy. And that really took an interesting term when it comes

to Huawei. Recently with a country with which the United States has traditionally had a quote unquote special relationship got a little less special, or a little more complicated, to say the least. Uh. Andy, He's here with us in our Bloomberg Interactive Broker Studio talking about Boris Johnson, newly freed up, newly brexited, and he's saying, whoa wait, yeah, we'll do a deal with you, Donald Trump. Sorry about that exactly. The relationship is now a little bit less special.

It was only a few years ago under the cameraon Government that the British were talking about the golden age of relations between the U, between the United Kingdom and China, and that's certainly had a bearing on the outcome of this decision. Look, this is really I think a historical turning point. Um. The White House was warning, it was was issuing these warnings about Huawei in almost you know, apocalyptic terms, right. The message to friends, to allies was

if you go with Huawei, you must be mad. Right. So Matt Partinger, who runs China Natural Security Council UH used a Cold War analogy. He said, can you imagine in the middle of the Cold War, Reagan and Thatcher getting together and say, hey, how about this for an idea. Let's get the KGB to build calms networks and and and and get a cut price on on the deal. Right, crazy? Right, So in Britain takes all this on board. Boris Johnson hears this and it was like, yeah, we get it.

We understand Huawei is a risk. We're only gonna let them, but we're gonna we're gonna let them in, right. Um, And I think this idea that I mean it was Henry kissing your at our New Economy Forum just a few months ago, was warning that we are in the foothills of a new Cold War. Well, you know, maybe we're always going to remain in the foothills because it's really going to be incredibly difficult for the United States to put together a coalition of friends and allies to

have a cold war with China. The world is not working that way anymore. If it ever did right limiting the flow of technology in and out of China, it's just it can't. It's not possible, surely. So the UK so UK UK saying several things. First of all, it's

too expansive. They already have Huawei gear embedded in their three G four G network, so if they're gonna go with Huawei and five G, it means they have to rip all that out, and then they're gonna have to pay more for presumably ericson no no Nokia Networks plus. And here's the killer thing. It's going to offend China. If you're the United States, you can take on China. You can stand up to China. We've seen that, right, Donald Trump, the White House take on China. We're gonna

have a trade war with China. If you're the UK, you cannot do that. They need a trade deal with China, just as they need a trade deal with the United States. Now they're out of the EU. Now you imagine this, This is Britain. This is as you say, the Special

relationship America's closest. Ally, if you are a Singapore or a you know, Philippines or a smaller, weaker country more distant from the United States, you're looking at this and you're you're also way in your alliances, your allegiances, and which way you're gonna go if you're gonna be asked to choose. I also thought it was interesting Andy in your column how you also wrote about Britain really knowing Huawei better than anyone else, that they have really looked

at this company from a bunch of different angles. Correct, They've ripped, They've ripped a pot all the software. They haven't found anything in the software. In fact, nobody has any hard evidence that Huawei has backdoors or that it is, you know, actively planning sabotage or surveillance. Um, the issue really is its relationship with the Chinese state. Would Huawei, if usked act on behalf of the Chinese Communist Party?

And Huawei will say definitively No. The rest of the world, much of the rest of the world says definitively, are you kidding? Of course, they would write skeptical and at least so, while we have you and just a couple months we have left. I have to ask you about the coronavirus and certainly the political implications of it, especially in China, because you wrote about this last week and it feels like this whole notion of the impact on President she especially is being talked about a lot. Remind

us what you think. So you know, we have a we have a top down system in China, uh and she Jimping has concentrated power in his hands beyond any leader since Chairman Mao, and it means that you know, he ultimately is responsible for this. The story that's been the story that's been coming out has been the initial cover up that China missed early opportunities. And why is this? You know, why did lower level officials not kick it up? Were they afraid to kick it up because it was

too politically sensitive? Were they sitting on their hands waiting for the Chinese leadership to make a decision up in Beijing and then hand it down. Certainly, I think you can say this without any doubt, is that a free media in China would have picked up on these cases and would have had it out there in the public view and in the public mind way earlier, on which would have allowed for a more rapid response, and I forgive me, and because I want has to be quick

thirty seconds. So as president g at risk at all. You know this, you know country better than most. You know, it really depends on how this whole coronavirus plays out. I mean, we don't we just it's just so much about it. We don't know. I mean, if it all burns out in the next few weeks. Look, the government is also doing a great job. They're building hospitals. You know, they've taken decisive action. So you know, it's it's it's a central government that appears to be in control and

in command. I think the picture looks very different if there's if there's drags on for months, really knocks the Chinese economy, really knocks employment um and does lasting damage to you know, salaries and livelihoods. All Right, we're gonna be talking a lot more to you about this, we know in the coming weeks. Andy Brown, thank you so much, editorial director for Bloomberg New Economy. Here were that's in

our Bloomberg Interactive Broker studio. Oh journal, but you let me drive, Oh no, no, no no, no, honey, please, I'll do the ride, revels me. I want to drive ball, just drive baby. Good questions, Drying us the drive to the globe community. Thanks well, dry Us on Bloomberg Radio. All right, it's time now for the Drive to the close on an update on the market to bounce back from Friday. What to make of it? All of these

different things that we've been trying to synthesize. We're gonna put all those questions to Sean Cruz, manager of trader strategy at Tediumrritrade. He joins us on the phone from Jersey City, New Jersey. Sean, great to have you back with us. Hey, thanks for having me. All right, so what a difference you know? I guess seventy two hours makes to some extent with the market, because had we talked to you on Friday when we were in Miami sort of half watching Super Bowl preparation and half watching

a meltdown, it felt very different. What do you make of the trade today? I think markets are really just sort of pulling risk off the table going into the long weekend. We had quite a few items coming out over the week when when markets are closed that they probably were just sitting by and saying, you know, and things are open again, and I can respond to this information as it comes out. That's when I want to

have some of that risk on the table. And so we had a lot of potential news that could have come out about the coronavirus. You also had um the impeachment trial going on in Capitol Hill, um, and we also were looking forward to the Shanghai markets finally reopening Monday. And then keep in mind, you know those markets were going to open actually Sunday evening before we actually open

here Monday morning. So I think there was just a lot that could potentially come out over the weekend where there was just really no one wanted to stop up and take risk. And that's why you just saw this gradual grind lower throughout the session on Friday. But that money looks like it's going back to work today, Yeah, exactly. And I am curious where you're seeing people put money

to work. Despite all these things, Sean that we're worried about, people are still buying and selling stocks pretty aggressively, it seems like they are. And then we see that, you know, not only in our client baseball, as we just look at metrics for retail investors across across the industry um.

But what we see is that during earning season there's there's a lot of individual stocks that get traded and see activity pick up um and some of those names that are coming out and reporting, And what's interesting is really the behavior. So last week we actually see a lot We saw a lot of selling in Amazon as it gapped higher, and that was just clients lightening up those positions, um maybe taking some profits. And they were also doing it a little bit in Tesla as well,

so they're sort of selling into that strength. And then on the flip side of that, when Facebook sold off postings, we actually saw a little bit of buying interest in that name. So that's that's kind of the EBB and flow for how we see our our active treader clients trading around earnings specific names and sort of managing their their risk levels and I just scaling in on pullbacks and then sort of taking profits and managing their exposure on on strong rallies. So tell me Amazon Tesla were

people buying that big time? There there was quite a bit of interest in Amazon and Tesla throughout the month of January, and we didn't see them flipped just completely closing out of their positions. I think what they were doing was just taking some profits when you saw these massive run ups. And if you look at Tesla once again today, Um, you know, I think there is legitimate buying going on in here. There's a story that there's

just a lot of short covering. I don't really even think shortcovering could do something because a move like we've seen out of Tesla. I think there's some legitimate buyers coming in and pushing Tesla higher. And so earnings. You mentioned, you know, specific fake names. What are the ones? What are the names we should be looking at for some sense of where the consumer is, how investors are generally

generally excuse me, feeling about the state of the world. Yeah, I think you know, if we're you look at it something like that, you want to look at some of the companies that have a little bit more of a global footprint. Um, this week coming out, there's some names that are that are interesting in US, and I don't know that they're necessarily anything. You can get a strong

readthrough of what's going on globally. Um, you know we have Chipotle it coming out, Disney, UM, Google S evening could be something interesting to look at um qual Comms coming out later this week, And I think the chip makers have been a very interesting space to follow along with, not just this earning cycle, but over the past year as they try and work out the supply and demand balances and if you think about the end use cases for a lot of these chips, it is interesting to

see what sort of demand they're seeing in their businesses because they are strong global companies and they have a lot of different applications for their chips. So it's always interesting to dig into those reports and see where the strength and weaknesses out of their various business units. All Right, I gotta ask you about Tesla because we've been talking about it all day. Uh, we've been talking about it

for the last couple of weeks. There was a great cover story I'm not sure if you saw it in Bloomberg Business Week a couple of weeks ago about the shorts getting burned. I mean, they are just getting chicken fried at this point, as this stock just goes higher and higher and higher. How do you as a trader

read a name like that. So there's something that he said, and there's actually a very popular firm that that's really a really big short seller even said that they tend to try and stay away from names that sort of have that disruptive feel that some of the worst you know, they've gotten burned the worst on shorting names when they turn out to be disruptive UM and they can actually really achieve some of that growth that gets priced in.

And I think Tesla is finally actually starting to really deliver on a lot of those those problemses that they kind of kept getting a sense that we'll get it

next quarter, we'll get it next quarter. They're finally getting the factories put up internationally, they got the one put up in Shanghai, UM, they're expecting to make, you know, similar progress in Germany, and they're starting to hit some of those delivery numbers that for a while a lot of analysts and especially a lot of people on the short side said they would never be able to hit

or they'd go bankrupt before they hit those. So I think that story really came undone over the past month, and you saw a lot of capitulation out of those short sellers, and I think that was the initial move higher. I think a lot of that was short covering. But now I, like I said, I think you're getting some legitimate buyers who believe that in further upside ability for Tesla, especially if they can get the plant in Europe up and running and really start adding to capacity. So would

you buy Tesla? So if I were going to come in here, I wouldn't maybe go in and buy, go all in and put everything I had to work in there right now? If I say, if I wanted to put twenty or fifty thou dollars work in Tesla, maybe don't do it all at once, Scale in a little bit and see if you do get some sort of a pullback here where you can maybe scale in a little bit of a lower price. All right, We're gonna

leave there. Shaun Cruz, manager of Trader Strategy at t d Amor Trade, joining us on the phone from Jersey City, New Jersey. What a town. What a town. Thanks for listening to Bloomberg Business Week. You can subscribe to the podcast on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show every weekday at two pm Eastern only on Bloomberg Radio