Admiral Stavridis: It's Good Time For The Space Force

at Bloomberg dot com. For the first time since nineteen when the Air Force was created out of what was then the Army Air Corps, which my father was in at the time, the US has created a new military branch, the Space Force. At first I thought it was a really odd idea, but after reading a particular column from UH Admiral James Stravitis, who was a columnist for Bloomberg Opinion, I kind of changed my tune here a little bit. So, Admiral, thanks so much for UH joining us. Really to appreciate it.

You're a Bloomberg Opinion UH commissary, also a US Navy admiral and former military commander of NATO. Talk to US Admiral if you will about this Space Force, because I think a lot of people don't really understand Dan what it is and what it's supposed to do. I Ken, Paul, and happy holidays. Let's start with, Uh, what most people have in their mind are the voyages of the starship Enterprise. And how soon are we can be in manned space

flight and have massive warships going into space? Listen, that's a hundred and fifty to two hundred years away, I would estimate. But what do we do now? We operate a complex, highly complex and very large constellation of satellites as well as a rising number of very small, manned operations of space station. All of those have military aspects

to it. So the idea here, much as you just alluded to, Paul about the foundation of the US Air Force back in the forties, we wanted a group of people who would focus specifically on aviation and the operations of military activities in the air. Now we realize we need that same thing in space. So that's the idea here. I think it makes sense. Going to be small. It'll

start with a few thousand people. I don't think it will ever get bigger than fifteen to twenty thousand folks, which is of course a drop in the bucket in the big one point two million people that are in the Department of Defense. It's a good idea whose time has come. Add well, as someone who grew up a kind of a space kid, my dad worked on a lot of the early space programs. I think when I first heard about, you know, a sixth branch of the Armed Forces, I'm thinking, like what to like, you know,

have folks on the moon or appen space. But but when you think about what our world has become in terms of data and information moving around the world, if you knocked out a nation's satellite system, you could really cripple them in a big way. And that's really what it's about, whether it's on a military angle or you know, pick your angle right, because there's so much floating out

there in space that is exactly right. And so what the Space Force, these few thousand people that start off are going to be doing is operating ground stations that control those satellites. Are going to move the satellites around. They're going to make sure our satellites are not attacked by anti satellite weapons from Russia and China, both of whom, by the way, already have space forces. They will build

and launch new satellites. So think of it as a way to operationalize what is already happening in space, but assign a very specific group of young men and women to it. And I'll tell you the response within the military has been fantastic. People really want to join the space force and be part of it. And ultimately, to pick up your point, there will also be a heavy cyber and cyber security component in this, so I could

see this evolving into a space and cyber force over time. Admiral, can you give us just kind of a sense of the competitive landscape of space? Where is the US relative to other countries? I guess we're talking about China and Russia, but this gives a sense of how you think the theater of space is playing out. UM at the moment of the United States still enjoys I would say, a lead overall in our ability to construct, launch, and operate UM massive satellites in space that are capable of high

end communication. The drive the Global Positioning System GPS, and also monitors and provides intelligence functions, collecting everything from communications to taking photographs of the Earth to looking at infrared signatures. For example, if North Korea launches this Christmas surprise and decides to launch a long range ballistic missile. The first indication will be our constellation of satellites seeing a heat signature when that launch goes off on the North Korean peninsula.

So we are the leader. I'd say number two is probably Russia, although number three is China, and they are gaining fast as you would think. Um. All of this sort of parallels the standings, if you will, in cyber and cyber security, where the US has a lead. Uh, Russia's quite good. China coming up behind. Next tier down are the European nations. France operates capable satellites, Japan does, UM, the Australians have a small capability, but it's really the

big three in space at the moment um. You know, It's interesting and I'm curious when I think about, I don't know fiscal policy, what would it cost to put this into place, because you say it doesn't need to

be a huge um force, at least not initially. Indeed, UM, I think it will be tens of billions of dollars, which sounds like a lot, but hold on, the US defense budget overall is seven hundred billion dollars, and I think that the estimates for this space force will be in the initially ten twenty thirty billion, it might at some point get up to be eight to ten of the overall defense budget. And I want to make a very important point here, UM, None of that money and

none of the people involved here are new additions. This is simply repurposing, at least at the moment, repurposing principally air force, but also some army, some navy will go out of their current service and go into this space force. And the funding is already locked in place, UM. And it is in the range as I mentioned, of tens of billions of dollars to think of it as a six percent of the defense budget. Now perhaps trekking upward, which would make sense. And we'll just want to switch

gears real quickly. In the last question here China Navy. We understand the China recently launched its first I guess home built aircraft carrier. To tell us what you know about that carrying what you believe the future of naval UH forces for China will be indeed very significant. UM. China has previously purchased UM older used platforms from Russia and re engineered them into their carriers. This is the

first their third aircraft carrier coming off the ways. It's about two thirds of the size of our US hundred thousand ton Forward class carrier, so it'll be immediately one of the largest in the world. Um, and they already have here's the important point, three more carriers under construction, the sixth of which is going to be nuclear powered. The previous ones are conventional powered. So clearly China is stepping up its maritime operations. They want to interact globally

and not just operate locally in the South China Sea. Well, I have to say this is a fascinating column and so great to check in with you. Admiral James Stavida is he is calumnist at Bloomberg Opinion of course, um, former military commander of Nada, retired U S. Navy Admiral, And I do want to point out he's got a new book that came out this year, Sailing True North ten Admirals and the Voyage of Characters. So something Christmas right for the holiday shopping list, right for those gifts

you still need. Definitely check it out. You want to get into one of the most red stories on the Bloomberg today. It's about China's bite Um Bye Dance. I believe it is weighing a sale of its addictive video app TikTok. We've got that story. We're watching. We're also watching Uber's co founder Travis Kalanak to parting from the company's board at the end of the year. There's a lot going on when it comes to the world of text. So let's get around up with Shara of a day.

She's Bloomberg Opinion technology columnists. She joins Paul and Me and our Bloomberg Interactive Broker studio. So much for a quiet day, huh, never a bloing dance technology. So talk to us about Bye Dance. First of all, I feel like there is folks out there who might not be familiar with what Bye dances. But it's pretty big in China. It is very big in China. It owns two at

least two popular apps in China. There's kind of a news feed kind of app called Totio and then what is called in the rest of the world, uh TikTok goes by a different name in China, but TikTok is basically a short video app that lets people set sort of skits or dance routines to music, and it has gotten very popular quite quickly in the US and in India and some other places outside of China. So the issue is the US federal government has some concerns about TikTok,

and that's that's making Bye Dance maybe rethink. Maybe it's ownership. Yes, so there have been some concerns I would say on both sides of the political aisle in Congress about TikTok, and the concerns are basically they stem from the ownership of TikTok by a Chinese internet company. So the worries are twofold. One is that TikTok, again because it's owned by a Chinese company, is collecting data about users in the United States that can be used or misused by

the Chinese government. The second worry is that, again because of TikTok's ownership by a Chinese internet company, that it engages in censorship of content outside of China. That um would be that is relatively common inside of China, right, that Chinese internet companies are expected to scrub their services for content that is generally not prohibited by the Chinese government, whether it's talking about Hong Kong protests, in a certain

way or other things. Um TikTok and Bite Dance, for for their parts, say that they segregate data about Chinese about non Chinese internet users from what's happening in China, and that they do not engage with censorship, engage in censorship outside of China in the same way they engage

inside of China. It seems kind of extreme, now, is it, like, is this a kin to like Google selling I don't know, YouTube or you know what I mean, one of its properties, Like it just seems like stream And yeah, I agree, we should say that. Our callings in Bloomberg News said that this is one option under consideration by Byte Dance to calm some of the anxiety in in u s political circles about the Bite Dance ownership of TikTok. That maybe they'll sell a majority steak or some portion of

TikTok to presumably to a US financial player. It does seem extreme. We'll see if that happens, and we'll see, honestly, even if they sell all or a majority steak of TikTok, whether that actually changes how some of the hardliners feel about Bite Dance ownership of this popular dagus Internet service, did they pretend who do they sell it to? And do they potentially sell it like forgive me? And I'm always suspicious when it comes to some of this stuff, but I mean, I do wonder do they sell it

to an entity that is still somehow Chinese owned? Yeah, fair enough. I think that the question will always be, even if TikTok is sold or a majority of TikTok is sold to a US company, if that really means that a Bye Dance will be completely hands off. I think if I'm just gonna put my investment banker hat on here, my advice to them would be, if you think there is some kind of risk coming from the U. S. Government, you better sell now before that becomes apparent because that

can impact valuation. Is that maybe some other thinking? Certainly, I think that's a legitimate concern that Look, Byte Dance is now, by by most accounts, the most highly valued UM private technology company in the world. The valuation that's something like seventy billion dollars, and the company wants, at least by news reports, wants to go public relatively soon.

And I think there's an open question about whether UM Bye Dance can go public if it has all of these questions hanging over its head about being whether TikTok is allowed in the United States and also whether the US government it will become kind of a standard center for governments elsewhere in the world. Also questioning the Chinese

ownership of TikTok. Is that this this go to that, you know, the Cold War for technology, that people are concerned that they'll be technology for the West and that technology for China. This would be another I guess brick in that wall. Yeah, and look, I think this is somewhat new ground for the United States. This is really the first time that the US government and US citizens honestly have had to reckon with the idea that there is now a very popular internet service that is not

run by an American company. And what does that mean? Yeah? And I do think back going back to if they want to go public and right, they've got some interesting investors in terms of Bye Dance, I think is soft Bank, Sequoia Capital, Right, Is that correct? Those are some companies that I think maybe potential buyers or buyers of it. But I do wonder if they do want to go public, right, what they need to do in order to make that happen and to kind of clean it up, clean up

the business. Well, look, there are internet companies in China that have gone public and they have done very well. Met you On, which is a sort of mostly a food delivery and travel services company, and Nina there's companies like Ali Baba and Tencent that again their operations are largely in China that are public companies and have done very very well. So there's a precedent for being a

China focused internet company. Byte dances a little bit of a different animal again because it's one of the very very few Chinese internet companies that has successfully proven popular outside of its home country. Carol, you were absolutely correct. Early investors into calling Bloo Bloomberg reporting early investors include soft Bank, Sequoia Capital in Susquehannan, and National So some big,

big players. And I just do wonder about right investors who are saying, Okay, now we want to see you know, make our money, right we investor, and you know at some point you want to take this company public. So I just do wonder, you know, the kind of pressure on them to kind of do something and do something soon.

And look, there are also pedestrian business questions, big business questions about Bye Dance as well, whether it's at particularly TikTok, can prove lasting outside of China, and also whether it can generate enough money enough and to justify it's very large evaluation. We have too because we have you here

just really quickly, Uber Travis Kalinak like goodbye. Yeah, I mean this this has been coming for a long time, right that Travis Kalenik was forced out of his company two and a half years ago and he's been selling apparently he has now sold his entire stake. We've been arding for billions of dollars, and so I think it was inevitable. This has been a long divorce. It's interesting.

I mean that's right. So he was forced out and you know, just a couple of years ago, and now he's selling, you know, over I guess most of his stock over two billion dollars now stepping off the board officially. So it seems like it's a clear break here from the one of the co founders and the company. Sure, over Day, thanks so much for joining us us here is a technology columns for Bloomberg Opinion. Joining us here

on Christmas eat in our Bloomberg Interactive Broker Studio. I tak there's usually so much buzz in the Bloomberg building, particularly on the sixth floor. It is like a beehive. Nobody there, nobody here, so but we're here at Bloomberg Radio and here is here working hard. Uh. And I always say, you know, her coms are great. You should check out all the work opinion columns. They're great stuff. You can find out on the website Bloomberg dot com, slash Opinion or on the terminal O P I n go.

You know. One of the fastest growing areas that it just amazes me in finit financial services is whole eke F issue. That seems like there's an e t F for just about everything out there. I love to get up to dated on what's going on with the et F world. Denise Chrisco can help us. She is president and co founder of Vident Investment Advisory. She joins us on the phone from New Jersey. Denise, thanks so much

for joining us. One thing I want to start with is something I have no idea how it works, is what is an active e t F. Good morning, Thanks for having me right and active ETF is essentially an active open end investment fund that is in and within the e t F rapper. So unlike a passive or an index fund where you're very tightly acting a specific index which is being calculated every day. UM, active incorporates the strategy investment philosophy and quite honestly, UM I p

of a specific asset manager. So denise why an active e t F versus a mutual fund? And I know there's differences in terms of when they trade, when they price, and I guess tax implications, But tell me why would I choose that over a mutual fund? Sure? Well you know right now, you you um, you know, hit the

hit the nail on the head. The biggest differences are with the e t f s. Of course, our tax advantages and ability to trade UM with active e t F UH, the tax advantages have really been very limited

until more recently. UM. Recently, the SCC past what has been referred to as the e t F rule Rules six C eleven UM, which really has created a much more consistent and even playing field across you know, all e t f s and potential ETF sponsors and so active et f s will also be able to take advantage of some of the tax advantages of the E

t F structure. UM. That's why we believe here invite into that active ETFs are going to very likely become more popular as we go into and beyond, because until now you've had a number of active mutual fund managers or active managers with other product types, for example, that would be interested perhaps in an e t F, but realizing that UM the tax advantages weren't really equivalent for active ETFs, UM weren't so inclined to launch a product.

As well as the fact that you know, E t f s also required daily transparency of holdings, which UM was something that many asset managers were not interested in. UM that's also changed recently as well. So there's a lot on the horizon for so then it gives a sense of the cost structure cost advantages of active ETFs versus mutual funds right so to the retail investor that

the cost savings can be significant. UM with the e t F the expense ray shows are typically lower than with mutual funds UM, although you know you do have to weigh that against brokerage cost, commissioned fees and importantly the bitest spread of course on any h t F UM notably active ETF. So you know, the costs UM could be UH advantageous to the retail investor, UM definitely to the asset manager. UH costs are are generally lower to to run such a vehicle, and so that would

be another reason why they may be attractive. Denise, I do wonder too that if I'm going to do an active e t F and I think about funds, about some of the fees and so on and so forth. I mean, why would I do anybody but the biggest, whether it's Vanguard or State Street, right, because I'm assuming they're going to have the lowest feeds, That's right. I mean they'll have the lowest explicit fees, the lowest expense ratio. And you know the majority of assets are flowing to

the largest etf issuers UM. These days, we work you know with numerous smaller and mid sized firms and some larger firms as well, UM who you know, have unique ideas, have very you know, different perspectives. UM have really innovated UM to create strategies UM that really can't be found anywhere else. We we manage almost four and a half billion dollars of assets and it's all almost exclusively to

customized indicies. And so it's these types of products investors that are looking for something maybe different than what they

offer now, and you know, I respect that. I just you know, what's what's interesting about the E t F L I kind of said to Paul coming in, Oh man, the E t F world kind of drives me crazy, because I do feel like it's, you know, every month, every week we have somebody new, you know, coming on with a new E t F idea, and I feel like until you have some history, you know, a few years in to get an idea of how these performs, you know, I think for investors they have to be

very careful. It is. It is a challenge, especially from you know, some of the smaller firms that many investors may not be as familiar with. UM. They're looking for longer term track records UM. You know. We have had a number of funds also that have formed really very well, funds that we have subadvised for our clients that have really had excellent performance, but unfortunately weren't able to garner those assets and you know, ultimately closed, you know, which

has really been a phenomenon we've seen industry wide. I think that will continue as well, you know, as we're going too we see additional launches. There's gonna be a lot of excitement potentially to launch active ets, especially now that there's options available for non transparent and semi transparent active ETFs. UM you know that that to me, I want transparency. What is semi are non transparent? Forgive me?

What does that mean? Yeah? So essentially, you know, the SEC has approved programs that have been created um to uh not necessarily fully disclosed the holdings of the e t F subject to as you can imagine, numerous other

restrictions as well. UM. In the non transparent option, for example, UM, they would the holdings are actually traded in and out of a blind trust so that those positions aren't known publicly and the asset manager can you know, retain um you know, the i P I suppose and not be divulging you know, their active management strategy and the semi

transparent it's a bit of a hybrid. Um there is there are you know, holdings that are released on a daily basis, although those don't look exactly like the true underlying portfolio, with the idea being that it is hard for someone to maybe copycat or you know, try to trade that strategy on their own on the side. All right, I couldn't leave it on that note. He did. He's

happy holidays. Denise Chris, president and co founder of Ident Investment Advisory, joining us on the phone, say, there's a great, great story on the Bloomberg today, and I love the opening paragraph. China last week commissioned it's first home built aircraft carrier to protect it's military minded. It's now on a mission to create quote aircraft carrier sized investment bank to take on Wall Street. Chiants surely not rotch and

joins us He's from Bloomberg News. He covers all things financial joints us here in our Bloomberg Interactive Broker studio. So that's just a great view of how China is thinking about the investment banking business. And I spent most of my life investment banking, and I hadn't really thought about that. There isn't a China size investment bank out there to compete against the goverment sacks and the Morgan Stanleys.

What are they thinking these days? And then that's the reason they're possibly thinking about it at this stage, right, and this is a fabulous story when you look at some of the stats in this piece, China has about a hundred and thirty one securities films all of their assets combined is equal to one Goldman Sacks the trillion dollar balance shee the Goldman Sacks as it takes about a hundred and thirty Chinese investment banks to get there.

China has large scale commercial banks right I CBC has a much bigger balance sheet than even JP Morgan uh north of four trillion dollars. But when it comes to investment banks, they never really had a large scale player, and that is critical, especially if you look at a global view of the big financial players, who think, especially inside the Chinese market, you're closer to the starting block

rather than having a fully developed market. So as the market opens up, as more and more international players come in, the local banks have to figure out a way to compete with them, and you possibly have to consolidate, possibly have to think about mergers to be able to go

to to toe with them. So surely is the goal here about creating this massive global bank that ultimately will be funding and working with companies around the Global's just really about helping out Chinese companies and building Chinese industry. I guess two things there. If you look at Ali Baba, the one thing you've learned from that is you don't necessarily have to be a loge scale global player to be a successful Chinese company. Uh, that market is big enough.

There are enough people then the markets developed enough to make a lot of money just focused on China. But I mean, do your question. I am interested in finding out if part of their goal is also to make sure that these firms can also go across the globe and compete with the governments and the Morgan Stanleys of the world. And there's an interesting cautionary tale there if

you look at it. If you if you go back to late eighties, early nineties, at that time, you had a uh, smallish Deutsche Bank that was looking outside a sleepy industrial German economy, trying to take itself across the world. Through the nineties and the two thousand's, Deutsche Bank did become a Wall Street powerhouse, a massive fix income shop, made a ton of money. But look at where we

are right now. They're on the retreat and saw a lot of their European peers and the ones who are benefiting from that are the large US banks that seem to be beefing up. So if they want to plot sort of this global expansion, they have to make sure that they can careful steps. So I have to ask a question, why haven't Why hasn't China created a much more vibrant investment banking industry as it has for say,

the commercial banking side. Is there something structural there? Or if you're just focusing internally in Chinese don't necessarily need these big investment banks. My guests would be perhaps more structural. You probably don't have an economy that has the full time requirements of a lode scale investment bank. Even the securities films that we talked about in this story, they say a lot of them are not full service investment bank.

You know, they're small, they're not full service investment. A lot of them seem to be doing business with the uh, you know, your mom and pop retail customers, which which is not a way to compete with the government's accent. The Morgan Stanley is the world. But now as the economy opens up, now as they're looking to deepen the footprint of their you know, capitalistic economy, even even under the control of the government. If you're looking to sort

of strengthen the pillars of what drive modern business. If you do that, you definitely need a lot scale investment bank to service that, to raise money, to help companies go public, to do trading, everything that comes with the full service investmentank. But is it really opening up It's what forty five trillion dollar financial industry. Is China truly opening it up so that any global bank, and I think about the US big players, will they really be able to kind of set up shop there and operate

like they do around the rest of the world. That's the goal. By the end of next year, the number of the U s from the number of the large international banks will be able to take dent controls of their subsidiaries. Some of them already are in the process. Others have applied for it. They have been waiting on it for a while. The Chinese promise has always been there. You almost feel like these banks have been knocking at the door for a while, but you really haven't gotten

the fruits out of it yet. And you have to remember, with the backdrop of the trade war, maybe some of that has also delayed the process and there's some level of nervousness when you talk to the CEOs of the U S investment banks as to when that promise will materialize. But it is a promise they believe in, and it is a promise that they're willing to invest in. That's interesting. I think the yes, I think about some of the U S firms. They've been knocking on the door in

China for a long time. Um, did they view that as a big, big growth opportunity. Absolutely, they're ready and eager to jump in. What has stopped them is not their hesitation or trapodition on their part. What to stop them is their ability to jump in the market. There's, if not in no entry sign, at least a bobbed wire gate that sort of makes sure that you can't

really jump into the market full time. But the banks are eager to get in there as they look just quickly about forty seconds, or as they look to expand tree. I mean, is their government support behind it or is this truly a private enterprise and as private as it can be in China. Well, if you have to create an aircraft carrier sized rival to government zacks alongstly, you better hope there is a government will behind that. But we have seen that in the past, especially in a

system like the Chinese economy the way it operates. If there's government bill will a lot can get done and they will need a lot of it to make sure that they can create an institution like that. Right, but then you see how the world use it because there is government involvement. Sure, thank you so much. Always appreciate appreciate it. Tree not Rody, and he is finance reporter at Bloomberg News, joining us in our Bloomberg Interactive Broker Studio.

Fascinating story. I'm in the most read and I'll put it out on our Twitter feeds because it definitely is something you should check out. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa bram Woyds. I'm on Twitter at Lisa bram Woyds. One before the podcast, you can always catch us worldwide. I'm Bloomberg Radio