Admiral Stavridis: U.S. Is Entering A Period of Vulnerability

and on Bloomberg dot Com. It is time for Bloomberg Opinion, and I'm excited now to welcome our next guest, Admiral James Stabrita's retired Navy admiral, former military commando of NATO and of course Bloomberg Opinion columnist. Admiral what is the thing that most keeps you up at night right now? I mean there's a plethora smore gas board if you like, things that I'm sure bother you and questions that you're

trying to answer. But the particular one right now as we are, what three weeks out from the election, First and foremost, it's the distinct possibility of real turbulence domestically here in the United States after the election, and let's hope for a clean win on election eve, but I think that's unlikely and therefore there'll be court challenges and so what worries me, Vonnie and keeps me awake at night at the moment, and the things I worry about

in the international sphere is that an opponent might take advantage of this period of weeks or even months of turbulence. I think it will resolve by inauguration day one where or the other. But you could see China making a move on Taiwan. You could see Iran doing something in the Arabian Gulf. You could see North Korea rattle a saber as they did just a couple of days ago,

rolling out a new I CBM. So that sense of potential turbulence in the near term is the first thing I worry about, and the second one, less obvious, is cyber um. We have moved so many things into the cyber world, Vanni. I am concerned that our opponents might take advantage of that. And if you merge those two things together, concern about cyber and that turbulence after the election, I think we're headed into a period of vulnerability. That's

what keeps me awake at night right now. Why wouldn't those opponents take advantage, Admiral, Can you give us reasons why it would not be in their interest to do thus, because long term, uh, the United States will come out of this period capable, ready to respond. We have the most capable military in the world, so we have military deterres. We still have the strongest economy in the world. It will come out somewhat battered, as I don't need to tell a blue Berg columnist, and China is having a

better swifter recovery. But I wouldn't bet against the United States in the long term. So I think our opponents are smart enough. I hope to realize that we have the military capability, we have the economic kept and lastly, we have that network of allies, partners and friends around the world. I think it would be foolish for China to make a move. I think it would be a mistake for Iran to do so, or Russia. But you still have to account for and pay attention to that possibility.

What's the apparatus that's already up and running that these countries would have to tamp down in order to sort of comply with international accepted practices. Pre election, I mean, we already know that China and Russia have huge troll farms, and you know, a huge apporatus basically designed to interfere in any election all over the world should they wish to. Is there any evidence to suggest that they might tamp

that down. I don't think so, because at the end of the day, there's this sort of sense that, oh, the Russians and the Chinese are working to reelect Donald Trump. I don't think that's quite right. I think what the Russians in the Chinese are doing is to try and create real divisions in American society, and they will do that as you a, using social media, primarily, but also

using actual incidents. I think as we get closer to the election, I could foresee, for example, a false flag operation where hundreds of ballots are suddenly discovered in a dumpster. It's entirely possible a physical act like that could be undertaken by our opponents, as well as all the social network problems that you've just addressed, and no, there are

no international sanctions that can be applied uniformly. That's why it's important that the United States and clear signals to these nations that we will respond in the moment, will defend better, and we will also respond potentially after the election when we sort out what has happened, and then take action in the cyber world against those who have attacked US. Now, Admiral Cebidas, you have a great column out on the Boomberg today. COVID commission is crucial for

a US recovery. You say, an investigation of the p that makes it into scientists, doctors, and gasp, a big pharma executive explained to us, you know who might put this together given that we're not quite sure who will be leading the country. There's a lane doc session at some point, and then there'll be, you know, either another four years with President Trump or four years with President Biden. So what how would this work? Well, let's look at history.

Um After Pearl Harbor, where hundred Americans shockingly died on December seven, there was a national commission set up by the Congress. After the nine eleven events where three thousand Americans died, there was a national commission set up by the Congress. I think we're going to see the same thing. We're now at two hundred fifteen thousand Americans dead, probably by inauguration will be north of three hundred thousand. Most

observers think, so there has to be accountability. We have to look back and see how did this happen, just like we did at Pearl Harbor, just like we did at kind of eleven. And more importantly, we've got to look forward so that it never happens again. What are the practical things we need to do to prepare ourselves for this so how it would happen? And I think

this will happen. Whoever is in office after January will be a congressional push because all of us, all of us who are American citizens, are to demand that our national government focus on this. And the Congress is very well equipped with the tools to do this. They could appoint to leaders to set it up. You pick about a dozen commissioners I lay out in the article, uh some ideas for what it would look like, and you give them. You know this won't be instant work. You

give them about two years to put this together. The Pearl Harbor Commission took five, Eleven took three. I think we can do this in two years. It will be perhaps the significant such commission American history. You've got to do it all right, well, I imagine it's coming at some point and our thanks to you, it's a mustery today COVID commission crucial for US recovery. Retired Admiral James Stabida's former NATO military commander, it is time now to

have a look at a big tech. Of course, big tech has been dominating markets basically, even if it hasn't been dominating casual conversation outside of markets. But certainly that might start to change once we start to get Congress looking into the regulation of big tech. Let's bring in Mark Douglas, who CEO of Steel House. He is currently in Istanbul, but he is based generally in s in l A. So Mark, thank you so much for joining. First of all, talked to us about Istanbul. What's it

like at the moment um. It's bustling, So it's the weather is great and there are a ton of people on the street. Everyone's wearing masks and the feels great. I've been traveling all over the world during COVID, so that I got here two days ago. Yeah, it's pretty amazing how the Eastern European countries are treating this slightly differently from some of the rest of the countries in the world. And uh, you know, Turkey would be sort

of a little bit in that group. So talk to us about regulating big tech and what you anticipate will see over the next few days two weeks in Congress. I mean, we're in a sort of strange period where you know, senators are up for re election, we're obviously re electing a president or electing a president, and there's a lot of uncertainty. Is it the best time to be doing this? Well, I think the reasons they're doing

it are legitimate. I mean, these large companies Apple, Amazon, Google, and Facebook and maybe even a few others, they legitimately do have monopoly power. I think Apple is kind of trying to fly a bit under the radar, but um, they have probably the biggest monopoly, which is the app store and the thirty percent fee that they charge, and a complete monopoly on getting apps on into your iOS devices.

But I think all these companies are vulnerable, and I think it's it's legitimate to kind of investigate them and try to find solutions that ultimately create more competition and are better for consumers in the long term. Who's most at risk of having to change what they're doing? So maybe you know, breaking off the piece or you know, spinning off a piece. Yeah, I think Apple is. So when you look at someone like Amazon and Google, I think the big complaints are mainly about their search results.

Amazon when you go shopping, and Google obviously with Google Search. But Apple's entire business model that them breaking the two trillion dollar mark in market gap is essentially based on them having a complete monopoly on um what gets on your onto your iPhone and the and the things they charge. And if if the US kind of the as government kind of interferes with them, it's gonna take some time.

I think that kind of really starts at disrupted the heart of their business model, which was has been driving their market cap. They'll obviously survive, they may have to charge lower fees, but that and you look at bundles they're introducing, like Apple One, the Apple one bundle, which is basically you know whether you watch it, read it, listen to it, yet they them or or now Apple Fitness is part of that bundle like that could potentially get attacked also by the US government, So so they

are I think the most vulnerable. What's for the senator is, I mean, don't all senators want to keep big tech on site in some way? Well, I mean the it's a big driver for the US economy. So on the one hand, you want to keep um, these big companies who are create a lot of jobs and generate UM a lot you wanna Essentially you don't want to really harm them and allow competition from outside of the United States. Um, if you're kind of like a pro America first type

type senator. But I mean it's it's legitimate concerns. I think ultimately tech is an easy target everyone. It's a like do nothing right type environment right now, especially with the topic of censorship and what should be allowed on social media, talking about Facebook and Instagram and what shouldn't

be allowed. So you know, with that bigger talk topic, that bigger target and a lot of people being kind of angry at social media, I mean, it's easy to join their bandwagon and and try to leverage it to create a kind of populist sentiment towards your candidacy. I mean, you sort of got the impression that no matter what happens, these talks are going to keep going higher anyway. Um,

nothing has dented them up to now. What's your sense of where they go on I'm talking about basically Apple and Alphabet I guess yeah, I think well, I think Amazon is by far the biggest. Apple used to be the biggest innovator. Um. I think people think of Apple as an innovator now, but the last real product they introduced that had any level of success with the Apple Watching two thousand fourteen. Now it's just cycles of evolution

rather than you know, something really innovative. But um, Amazon continues to be the big innovator with the success they've had with the Echo and a lot of the acquisitions that they've done. So I think, UM, I I think ultimately Amazon is you know, kind of retakes the top spot as the most valuable company, and the others are playing catch up. Google is kind of being attacked from

all sides, um again by Amazon. In terms of Amazon's app business, Um, that search business is obviously like they have no competition basically worldwide except for China with the search business. So I think, UM, I don't think they will. They're not as vulnerable as as someone like Apple is, and may be to a lesser extent Amazon. Speaking of Apple, we have, of course a big event tomorrow. There's a lot going on tomorrow, including some enemy Cony Barrett hearings

on the Hill. But at the same time, and a lot of people will be looking at Apple's launch and we're meant to get some more phones. What do you think is going to happen? Mark? What have you heard? And will people upgrade? Yeah? So the Apple twelve is the big announcement. I think there's no secret on that. The probably the most innovative thing coming out of the Apple twelve announcement is the strong rumors that there's going to be a new Apple Mini and which will bring

the price point down to essentially half. Remember when Apple introduced the Apple X, everyone was complaining about how expensive it was. I mean, the phone costs more than like Apple's lowering computer. And so now they're introducing a phone

at half the price point. And what's really interesting about that think really key to watch is Apple is a lot of their profit is increasingly coming from the services, and so the Apple One bundle on an Apple Mini, I think the Apple wants a subscription from every household essentially in the world, and so they are bringing down the price point to their products in order to get to encourage more people to get an Apple one subscription.

And also with Apple Fitness Plus, which hasn't been launched yet, I mean, they're now going after Peloton and other fitness companies. So it's all about that kind of ongoing revenue stream

after you buy the device. So it's a really smart move to bring low, low priced iPhone, current model, low price iPhone and then essentially make hundreds of dollars a year more in the monthly subscription fees that you're gonna pay for for all forms of entertainment and business that that they want you to beg Mark, we're out of time. But is it a wild success even in pandemic times? Say that question one of my time. I comminue people

buy it even when cash is low in pandemic times. Um, I don't think the I think the example twelves are a bit of a diet. I mean, they were introducing five G but essentially a lot of people seem to be the pole. The polling is saying that people want to buy them, So I guess they're going to be successful. All right, thank you so much for joining us. Mark Douglas is a CEO of Steel House. Let's see tomorrow what actually emerges from that Apple event. We appreciate Mark's

time today. All right, it is time now to get to one of our old chestnuts. Bill Smeade, always love having you on the program. Bill Smide is CEO and CIO of Smade Capital Management, and Bill, I'm sure you have varying opinions on everything that's happening this week. Having been in the market so long, what is the one thing that markets will concentrate on this week? Well, thanks

for having us, Monny. The the markets are concentrating on um what I call COVID misery investments, and they are exacerbating a trend of concentrating capital in the vast monopoly UH companies, and they just doesn't seem to be any end to the urge on the part of investors to uh extrapolate what is going on far out into the future. So Bill, I mean, I know that you invest slightly differently to sort of watching the day to day news headlines anyway, as do the same you know, most investors

for the long haul. But at the same time, you have to wonder which of these macro events could really change the dynamic in the market. Is there one out there? Well, Actually, what happens is below the surface economics actually do change. So for example, you would expect stock prices to peak at the point where the prospects for the industry appear

to people to be the most favorable. And with all of people being afraid of catching COVID and kind of self quarantining, the reliance on the large tech companies will probably never be higher, I would guess, than at this moment in time. So it only makes sense that those stocks are very high right now because the prospects for

their profits due to the current circumstances. But at the same time that's going on, it also lays the groundwork for superior economics in other areas where the stock prices are extremely low. And that's our job is to to figure out where economics are very favorable and then uh and then adjust appropriately. Have you making any adjustments? We are,

and it's just painful, Vinnie. We are tacking away from investments that we've made in the last three to ten years that are becoming too popular because of how popular growth stocks are. We're taking money from there and applying it to favorable economics in places like energy, in places like uh real estate and and by the way, that's the two worst performing sectors today, so you know and

and uh so I'll give you one example. It was announced that Warren Buffett's lieutenant Ted Wessler now owns almost six percent of Dillard's department stores, and the stock has soared today thirty. Uh. Well, we own two companies that are landlords to Dillard's. So if he if he likes Dillard's, he'd probably like the landlords, and that would be Simon

Properties and mace Rich. Just in the Phoenix Valley where I am, there are seven dillard stores at seven separate mace Rich properties, and uh I counted, I think Simon has seventeen dillard stores. So while they're really excited about Dillard's, they aspies their landlords, and I would suggest that the two should go in tandem. Well, explain that to me, because I've just been looking at mass Ridge and Simon Poverty Group and obviously the stocks you know, plummeted and

march and they haven't really recovered since. And I think the question is okay. So Dillard's might be okay, and Dillards might be able to pay his rent, but what about all of the other tenants. Why are you still bullish on these real estate companies? Well, first of all, they are very close to uh most American population, and

so there's two possibilities here. One is that two or three years from now, the virus is gone, vaccinations are enforced, and cures or whoever had it have come to pass, and then people go back to something that's a new normal, but but closer to the way we used to live. And under that environment, these people own very attractive property in some of the most attractive places in the United States, uh, Florida, Texas, California, Arizona.

That that's where people are moving, uh to the sun Belt and and that's that's where they own a lot of properties. And uh So the answer is, um, this idea that we're all just going to huddle in our house and do nothing for the next five years and spend all of our money and never leave the house, and spend all of our time on on electronic devices

and be anti social. I just think it's it's it's highly unlikely it's worth making some investments with a very high reward potential that the risk has been taken out by depressed prices. All right, Bill, thank you so much. Bill Smead is CEO and c IO of Sneed Capital Management.

Until they're talking about some of the real estate companies and It's really interesting to hear the different opinions on on this, because of course you get those that same malls are dead, and you get those that say no, I mean, they might be in a little bit of a lull period, but at some point we'll have to get back to something akin to the life that we had been living. All right, and this portion of Bloomberg markets now concentrating on big tech and break up potentially

in the future. Let's bring in Steven Strauss, who joins US from Princeton University's Woodrow Wilson School of Public and International Affairs, where he is a visiting professor. Stephen, you know, you're a sort of ahead of the game on this, but the US is a little more let's say, wide reaching. I mean, the US could actually mandate for these companies to start breaking themselves apart. Do you see that even

potentially happening. It's going to be a long where um if if history is any guy, I looked up some of the numbers. Breaking up Stairard Oil was about corny year process. The IBM anti trust litigation like years. The A T and T anti trust litigation went about ten years, and Microsoft anti trust went about ten years, and particularly

in the technology sector, it's not standing still. I mean there have been some rueful jokes at by the time, particularly the Microsoft IBM cases were settled, the original basis for the cases were essentially irrelevant. That's actually quite stunning. I mean, that's really really stunning. Is that a testament to the ability of these companies to put up a defense, an argument for how they should be how they are?

And if that's the case, are we looking at something similar? Um, it's certainly a comment on you know, these companies can afford the best lawyers in the world. Um. You know, the American legal system has many virtue speed is not necessarily among them. So I mean think about the process. First there's the trial and the court. Whoever loses will appeal it. Then there's another round of appeals. I mean,

it just it can go on for a very long time. Again, past performance is not a necessarily a predictor of future results, but looking at the historical record, and it was a side point, there's a general feeling that to really take on these companies there may need some changes to the legislation. So that's going to have to get through Congress. Okay, when you say the legislation of what legislation exactly are

we talking about. Well, the antitrust legislation we currently have on the books, you know, originally dates the nineteenth century. It was last updated during the nineteen seventies. Uh So, for example, one of the things that the House is suggesting, he's rewriting the antitrust laws so that if they're unfairly treating their suppliers, they're kind of crushing their suppliers, it will easier, it'll be easier to take action against them. Most of antitrust at this point is oriented towards are

consumers being heard. Whereas the issue with Amazon, for example, is there's a strong argument that what it's doing is harming its suppliers. Um, you did so for a lot of different reasons. Um, you know, they'd like to change the laws on Facebook. Other companies can't buy without proving that doing so well enhanced competition and health consumers. Yeah, so there's certainly possibility of action under interesting law. I mean, Google's market share and search is something like which and

which certainly presents an antitrust issue. And indeed, rumor mill I think more than rumor mill. At this point, the Department of justice is looked. Justice is looking at initiating a antitrust action against Google. Yeah, I mean these companies, do they have a plan B in case they're forced or are they just you know, do they have that little humility that they're not even thinking that they might be forced? Well, I mean it depends. I mean, it's

a question. It's a smart movie. One maneuver on their part might be thinking about, Look, we don't want ten years of litigation, is or something relatively straightforward we can do. But honestly, from their point of view, given that, you know, I'm assuming their lawyers are pointing out to them that litigation is a process, there's gonna be years before any of the settles. I'm not sure I would be making

any major plans to split up. Um, they might be making plans to be better, nicer competitors while you're in litigation. Probably the last thing you want to be do, want to be seen doing, is something that's viewed as anti competitive. People tend to get Microsoft partially got its big start because IBM was in the middle of antitrust litigation and wanted to be seen as being friendly to a smaller software company. Are there any precedents here when it comes

to you know, the law. Well, I mean in what sense to mean precedence. I mean, we've certainly we ever broken up a big company before successfully and permanently. Um well, Standard Oil was broken up. H and T was split into seven companies. Microsoft, Microsoft, I'm sorry, IBM was forced to spin off some subsidiaries. Um so, yeah, I mean it's been done. At the side point, it's not necessarily bad for the companies, at least some argument that the

antitrust litigation forced them to rethink their business models. They may become more lucrative after the fact. Yeah, I mean, I suppose Amazon is is the one that most people interact with most. I mean, obviously Apple for those who you know can afford to use the Apple Uh equals here if you like. But you know, you could imagine a world in which Amazon splits up and each part

of it is totally viable and successful on its own. Yeah, I mean, you could think of Amazon being split off cloud computing, which you can make an argument really has nothing to do with the retail operation anyway, split up the retail operation into vertical silos, the fulfillment centers, the retail front end, Um, there are lots of ways to think about splitting these companies up, but I mean the reality is it's going to be years of litigation before

anyone gets to that point. And the other reality is it's I mean, it's the intention, right, so you split them up in order for there to be more choice and for all companies to be better actors because they have you know, peers in their group and they're sort of forced to be better actors for their consumers. But

that won't necessarily happen even if these companies are split up. No, I mean, you know, there are certain things you might expect if you split them up, probably more intense competition. I mean, the amount of profits that you know, Google, Facebook, etcetera. Make are quite impressive, and it's hard to justify those profits in any other way except that their quasi monopolies. So one issue might be, you know, they have to

compete more on price, they have to think about different models. Um. I mean again, to some extent to Google, you are the product, I am the product, and they take our data for free. If they're in a more intense competition situation, they might actually have to think about, well, how do we pay people for data fascinating. My god. Yeah, well, I'm certainly god. They'll haven't give it away all of it already then, because there is still something left to buy.

Our thanks to you very much, as Steven Stroiless, for joining us there, and we do hope you'll come back and take us through this process because no doubt, some of it will be easy to understand, but there will be a lot of it that won't be easy to understand for the layman. Steven Stiles is visiting professor at Princeton University's at Woodrow Wilson School of Public and International Affairs, joining us there. Do continue to listen to Bloomberg Markets

throughout the afternoon. You will be taken through all of the Columbus Stay News if you like, Bloomberg Business Week taking place a little bit later on. My co host Baul Sweeney is on that show this week and next week Bloomberg Business Week filling in in the afternoons on Bloomberg Radio. Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn, I'm on

Twitter at Bonnie Quinn and I'm Baul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio