Angela Merkel Pre-Empts Power Vacuum With Exit Strategy

be coming to an end. This is the news uh this morning, we are broadcasting live from the Bloomberg Interactive Broker's studios. What does this mean for arguably the most powerful country in the European Union going forward? Joining us now, Irene finnel Hannegman. She's an adgict Professor of International Affairs at Columbia University. Irene, thank you so much for being with us. What did you make of this announcement this

morning from Uncle Bob. Well, first of all, this was clearly talk because both the international markets and certainly in Germany itself, this was not expected. But I do want to make one or two points. We have to understand that Andrea Macil has announced that she is stepping down from the c E C d U. In other words, she will no longer be in the leader of her party, which she has been actually UH since almost thirteen years, almost twenty years. Excuse me. However, she is not stepping

down from the translorship. This is very important. She is still in her fourth term as Chancellor and will be till two thousand twenty one unless for some reason there is another real crisis and she is forced out. So at this point, which is the reason why there has not been as great a shock as they could have been, she is not stepping down as Chancellor. That is the

first thing. The second point I want to make that she really at this point did not have a choice, as there have been severe electoral losses both in Bavarian and Hesse in the last two weeks, and her party would choose toff close to has now some been somewhere in the twenties, so it was clear that this has become more disruptive to have her in charge of that. However,

I think we never need to underestimate Angel America. In many ways, we have to remember she's been underestimated to she first came into politics in the ninety nineties under Trancellor Cold she was called the Matron, the young lady. She then became Muttie, the protective mother figure for Germany, cautious,

protective and in a sense always pragmatic. So the question is is this in fact a very very smart preemptive move which instead of risking total disruption and intra factional fights, is she now stepping aside before being forced out, but actually doing this very much on her own terms. So I think that this is still a story in progress. This is not a definitive story. The other issue is who now takes over as head of the c DU.

Her chosen successor would be any great Kranenbauer, who was the second in command of the c d U and who could ideally be able to lead thought a much stronger c DU Green coalition, as the Green Party has shown very unexpected strength in the last two regional elections. So we are still right now in the wait and see. Angelmack led Europe through the financial basically all of the financial crisis, including the sovereign death crisis. As key player before that, she was the one who led Europe into

a full Eurozone and the European Monetary Union. She has in a sense always had to play a tough role, often a good cop bad cop versus other European leaders. But right now is Europe is again at the cusp of two major crises, Brexit and potentially Italy. It's very important that are America is down. She's not necessarily out, so this I think is essential right now. This is say sentiment. I was listening to the German press and media this morning. There's a sense of shock across Germany.

Whether people liked her or hated her, agreed or disagreed. The terms that we're hearing is dignified how she presented Germany to the world, and extraordinary, brilliant and pragmatic politician and very much still the sense of seeing what role does she play now the tragedy with are America, and it should have been in a way her greatest moral

victory was the refugee crisis in two thousands fifteen. Uh, this was a moral decision, it was not a political decision, perhaps for the first time in her life, that she stood outside of politics, as brilliant politicians she is. And unfortunately the assimilation did not occur she had hoped. It's been an unmitigated failure there was never a plan being Eastern and Central Europe immediately closed borders and closed their doors.

And the great tragedy historically is that this actually led to the extreme right wing form a neo Nazi party, the a f D Atma Tifol Deutschland, coming into the German Parliament when Marker won her fourth UH chancellorship and at this point is still a major problem for them to deal with just quickly. I read can can you describe in your experience what do you believe the disposition

of the German government will be like without Angela Merkel? Well, I think the problem is can she maintain still enough strength and leadership as chancellor versus what she always wanted to do is to be both head of the party and chancellor. There is a precedent. Schroeder tried this when he was forced out of his party in two thousand four and remains still transferred to the end of his term in two thousand five. Hard to know. In my opinion,

I think Marcus can probably do this. It'll be interesting to see whether the shop of Andrea Marcos stepping down in a way wakes up some of these groups within her own party and brings about in fact more rather than less cohesion. Uh, this is still very unclear at this point. As I said, the feeling I had this morning was that everyone is genuinely in shock right now and trying to figure out how to pick up the pieces.

Irene vanel Hanagan, thank you very much, Adjunct Professor, International Affairs, Columbia University. You're listening to Bloomberg Markets. We're broadcasting from the Bloomberg Interactive broker's studios. Our topic now is Tesla and joining us as Robert Hockett, Professor of laud Cornell University, also a consultant for the New York Federal Reserve and for the International Monetary Fund. And you think having a professor of law comment Tesla not going to talk about

zero to sixty. We're going to talk about the Federal Bureau of Investigation and potential misstatements related to production of Model three Sedans. Bob Hockett, what can you tell us about this investigation and have you seen anything similar in the past? Well, in many ways, um, actually thanks for

having me on you guys. Um, in many ways this is quite reminiscent of the investigation late in the summer about mr Or in connection with Mr Musk's tweets right about the funding being secured for UH take private transaction, it looks as though it's the same sort of thing effectively, UM. The worry is that there might have been a bit of an overstatement, in other words, a bit of an over optimistic statement UM, concerning how ready Tesla was to

meet its production targets. UH. And the question is whether that that overstatement was intentional or reckless, or you know, designed to get the shareholders and perspect active shareholders to be themselves over optimistic about testless prospects. You know. I have to wonder, in this new era of social media and a lot of CEO is taking to Twitter, how

that changes the scenario from a legal perspective. In other words, Elon Musk is known as UH an extraordinary human being who it can be a bit bombastic, and so does that sort of make him less credible and thus less liable for misstatements. I think that's a great question, Lisa. In theory it could, and I think even in theory it should, in the sense that in general, what we ask when we're asking whether somebody is misleading investors or attempting to mislead investors or acting in a manner that

is likely to mislead investors. A central inquiry at the core of that particular inquiry is what would a reasonable investor believe or what would a reasonable investor take the

speaker to be meaning right? Or how much credence or how much reliance would a reasonable investor sort of vest in the statements of the um, the the spokesperson, right, uh, And as you say, um, the fact that Mr Musk is kind of known as a kind of overly optimistic prognosticator sometimes, and the fact that social media is a very common menu for people to sort of over a common venue at which people make sort of overly optimistic statements of predictions, might make you think that the reasonable

investor would take anything that they find by or come sort of here over social media with the proverbial grain of salt. Well, why do why have this investigation in the first place. It doesn't even seem as if the SECS investigation has curtailed Elon Musk's use of Twitter. Yeah,

well so, I think a couple of things, right. It looks as though the d o J and the SEC alike are wanting to see to it that social media does not become a sort of gigantic loophole uh in the rules that were in early governed communications that firms make to the general public or that individual insiders within

the firms do. So there's sort of, um, you know, they're basically trying to set the standard uh of reasonable illness, you might say, rather than to simply to react to a sort of antecedently given standard a reasonable nous um in those particular metaphora. UM. As for why Mr Musk has not stopped or why he kind of continues to speak optimistically, I think there are two reasons. One is, I think it's just in his nature um. And I

actually don't fault him for that exactly. It It seems to come with the sort of entrepreneurial personality that leads somebody to innovate in many ways. In the way that he does, UH to be UM sort of overly optimistic sometimes or a kind of a booster. I mean, I think he believes his own overly optimistic uh claims, and you know, God love him for it in a sense. Right. The other reason I think that he continues is that,

you know, the fines thus far have been fairly minimal. Right, as you guys know, he tweeted this weekend that um it was total forty million, that it was quote unquote worth it. Yeah, it's sort of maybe being viewed by him and others at the moment as sort of just one of the costs of doing business, as it were. So in other words, going back to your point about how regulators have been trying to close this loophole created by social media, are they failing? Um, well, I mean

they're not. Let's say they're not succeeding yet, because it's there's a sense in which has only just begune right, and it's still kind of I think it's a bit of a toss up um where we're ultimately ultimately going to end up when it comes to communications over social media.

I could imagine the law gradually developing in such a way as to recognize at least a sort of partial loophole in the sense that they say, well, social media is a little bit different from say formal communications or communications you know in shareholder meetings or you know, in the road shows or the like. Uh, and so we'll sort of make the standard a little bit more lenient there. I can still imagine that turning out to be, uh,

the ultimate standard. I could also, of course imagine them saying, well, there's really nothing different about social media, and the very same standards will apply. And because we're just at the beginning of the process of determining that, and again the regulators will be the determinators ultimately. UM, it's kind of hard to say whether they're failing yet or not because we're just so still so early in that process. Bob Hockett, thank you so much for being with us. Really fascinating.

Bob hocket is professor of law Cornell University, coming to us from Ithaca, New York. He's also a consultant for the New York Fed and the International Monetary Fund and Pam, you know, this is going to be an ongoing big question, especially as we have the cult of personality leading companies and leading also the advertising of those companies on social media. I mean, this is basically the facto advertising. What is

sort of the loophole or what are the provisions? What can they can they cannot say on social media that might end up moving their shares A really interesting question. Well, Cure Leaf Holdings, this is a US cannabis producer. It began trading on the Canadian Securities Exchange with a valuation of about nine rather six billion dollars. It completed a reverse takeover of Canada's Lead Ventures. The company is based in Wakefield, Massachusetts. Joe Lusardi, the president of cure Leaf,

joins us here in our Bloomberg Interactive Broker's studio. Joe, thank you very much for being here. Congratulations on your initial public offering. Thank you. Why did you decide to do it as a reverse takeover of lead Ventures rather than a pure I p O to be Canadida. That was the fastest way to the equity markets, and no US company has successfully done an IPO yet in the Canadian exchanges. But our offering was I p O like in its quality, so we did a full disclosure statement.

We did a three week international road show and attracted investments from over a hundred institutions across the world. So we were excited about it. What are curra Leaf's biggest competitors and what exactly is curre Leaves business? So Curely is a vertical marijuana company. So we cultivate, manufacturing, dispense cannabis. We operate twenty eight dispensaries where the largest dispensary network under one brand in the US right now, and so

we are the fastest growing largest US company. So is this uh for recreational or medical or both of our sales are medical. We service thirty three thousand unique patients last month. That's something I'm extremely proud of. And so we're primarily a medical business today. But many markets were in including Massachusetts, are liberalizing and they're converting from medical to adult use. So we can expect that we'll address

that market in two thousand nineteen as well. Tell us a little bit about the process that a company has to go through in order to get a license to operate a dispensary, because there are so many different state rules and regulations, and then there's also the divergence between recreational use and medical use medicinal use. Correct. I mean, it's a really rigorous process. I think that you have to understand that each state is unique and they all

have different regulatory requirements. But our business is primarily on the East Coast and those are some of the most regulated markets in the country. For example, in New Jersey, we had to be background checked by the New Jersey Gaming Commission as well as the state regulators. So, um, we are probably the most vetted, background checked individuals in the in the country. I would say at this point were we operate in ten states and so we've been

through this, uh, you know, ten times already. So Joe, can you can you talk a little bit about what it's been like from your perspective watching the up and down in pot stocks that we've been experiencing and the

comparisons between bitcoin and pot stocks. How has that sort of influenced your decision and when to go public and how Yeah, yeah, I mean, I mean, certainly the markets are volatile, no doubt, But I mean the reality is this is our first day of trading, not our last, and my job is to create long term shareholder value and I intend to do that. I don't think it's

a good analogy to compare us to bitcoin. We're a real company with earnings and revenue, and I think that as we post quarterly returns, I think investors will recognize that, Um, you know, we're going to generate a lot of value for shareholders. I was I was going to ask about some of the medicinal research that's going on, because you know, it's understandable that t HC, which is the psychoactive UH portion of the cannabis plant, gets a lot of attention. But there's c B D, CBC, c b G. I mean,

there are a lot of acronyms here. Can you just pull out a couple of them and explain to people what kind of research is going on? Absolutely, I mean there are over a hundred compounds and the cannabis plants, some of which we don't really understand yet. There's a lot of research happening internationally, and the reality is that we need that research to happen in the US, and so we're working very hard with our representatives and in Washington, d C. To get a bill pass so we can

study cannabis in the US. UM. It's a shame that most of the research is happening UM internationally at the moment, but we have tremendous amount of anecdotal evidence that cannabis is effective. We have millions of people in the United States using cannabis to UM, you know, treat some very very serious diseases, and so there's no doubt in my mind that over time and we'll be able to do profound research and demonstrate that all that cannabinoids in the

cannabis plant can have medicinal qualities. How much of your future business Planet hinges on the idea of marijuana being legalized for recreational use in the US well, as I said, right now, we're mostly medical, but certainly as the markets liberalized,

we will address that market. If you think about the cannabis today in the US, by any estimate, it's about a seventy five billion dollar industry and only eleven billion of that is regulated at the moment, So there's a huge amount of growth we think ahead of us in this industry, both in medical formats and and recreational. There are only eight states that have adult use programs at the moment, so um, you know, we think there's a lot of growth to come and we'll be part of that.

Thank you so much for being with us, My pleasure. Thank you. Joe Lisard loose Hardy is president of cure Leaf, which is based in Wakefield and is one of the largest cannabis retailers in the United States. Deciding UH an interesting way to list in Canada since in the US it is not broadly legalized, even on the medical side. PIM and the state. Uh, well, the individual provinces rather of Canada are going to be the ones that they're

the ones that offer the products. The topic now is China considering a tax cut in order to revive and help their automotive industry. Brendan to Hearn is the chief investment officer for Crane Shares. They are experts when it comes to investing in China. Brendan joins us here in our eleven three oh studios. Thanks very much for being here. Brendon, Let's talk or have you talk about how bad is the automotive industry in China? Why do they need this

tax cut? Well, China is still the global leader in terms of auto sales that you have, almost twenty four million cars were sold in China last year. GM alone sold more four million cars in China three million cars here in the US. But we've seen the UH rate of sales come down a bit. So in order to help push this con assumption, h autos is a big part of that, we're seeing a potential tax cut when it comes to car car purchases. How big are the taxes?

And with this tax cut applied to global companies that don't that aren't based in China that are also rallying on this news. So the foreign autos that are imported, there is a there is a pretty meaningful tariff that's actually gone up due to this trade war. But a lot of the foreign automakers Volkswagen, GM Ford actually manufacture their vehicles within China and therefore avoid the tariff. So the ones that have the local manufacturing capacity would would

actually benefit from that. And how big is the tax just in general, even for local cars, So the China has a vat tax which runs around twelve percent. Uh so it's it's you know, any sort of tax cut is gonna have a pretty meaningful impact the automotive industry in China, as you said, has an effect on companies outside of China. Is the economy in China doing well? So China it's a it's a big country geographically and

likewise the economy is very big. So parts of China's economy are definitively slowing a lot of those traditional economic sectors. At the same time, parts of China are doing very very well. The more domestically oriented domestic consumption names are performing quite well. So as investors, we want to be very specific and where we're kind of placing our chips in order to really overweight the parts of China that are doing well, where lessening our exposure to some of

those slowing parts of China. So Howard Marks, one of the co founders of Oak Trade, the world's biggest distress debt investors, said that he was actually interested in starting to buy distressed debt and equities in China. Um, what do you make of that? Well, certainly Mr Marks is you know, a very well regarded, well followed investors, so

certainly his words carry a lot of gravitas um. And certainly I think it's very encouraging that at these two price levels in terms of equities Shanghai Composite, the pe is now under eleven four looking pees those are the ten uh. You get these discount sales um not very often as investors, so we do think it's a great entry point. You talked about specific areas of investment in China,

So what are those specific areas? So we we Domestic consumption, healthcare, clean energy are three of our as well as the Belton Road related infrastructure names. UH. Domestic consumption is area that has come down a lot of the US list of Chinese internet and e commerce companies are off very dramatically. For instance, Tal Education Great Online Education It's it's stock is off over fifty percent from its June highs. They just reported earnings on Friday. They grew revenue fifty year

over year. So I think that's where the sediment and the fundamentals have potentially diverged very greatly. I think that one challenge for investors with respect to China, and something that sort of clouds my understanding of what's going on there is the government intervention and the huge leverage pile

that is sort of supported and fueled economy. You just have to wonder at what point will the government be unable to step in and support markets the way that they have continued to do so year after year to keep this growth going. So yeah, I mean, I would agree that the China's economy has one it has been slowing. They've been fighting an anti pollution campaign. They've been very aware of debt to GDP growth, so they're trying to

de leverage uh debt in China. It's not the government, it's not the household, it's not the private companies, it's the big s O ees. So there's a big focus on basically making credit more difficult for these s o s make it more expensive at s, and they don't want to shut off so they don't want to shut off credit to private companies. So so they have to

play a little bit of a balancing act here. The market in China is, as you mentioned, huge, right, It's very difficult to figure out, you know, what is going to win, what's not going to win. What about high end luxury goods companies that are outside of China but derive huge business from Chinese markets. I'm thinking of LVMH for example. Well just just recently, um I believe was a Gucci just came out and said that there they actually had a great quarter in China, in China, And

who would have thunk it? Right that that you know, China, you've got this China pocalypse. It's it's just where sometimes these uh perceptions that don't meet with reality. And I thought gucciese earnings and people say, oh, how can we trust these numbers? It's this isn't that talent. But I mean, do you do you buy into that? Do you think that those are the kinds of companies that are continued to do well. I I do believe anything domestically oriented that.

If anything, this current trade war, which I think well get resolved, shows why China needs to continue to raise domestic consumption less than any dependency on export driven manufacturing, uh, just in order to insulate themselves and in the years to come. There's a cliche that there's a rolling all of money in China that goes from one asset class to another as investors start to stampede away from one

area into another. The stampede has been going into bonds, and you've seen yields drop in China, lowering borrowing costs, which again leads to sort of releveraging and an incentive to do that. I mean, do you think that that can last? I think one of China's issues this very high savings rate, where you are very much responsible for your healthcare, your retirement. These banks have a lot of deposits.

Would do banks do with deposits? They lend, so so that's part of I think there's been this malinvestment of where that lending has gone, and they need to reorientate it away from the big state owned enterprises. UM I eat no default risk to the private companies that where there is default risk, So the bankers have been a part of this issue. Is there really no default risk in risk in the s o s at this point?

Now there is? You know, I think that's one aspect of China is very much aware that, uh, there's potentially that first domino within their economy and within their financial systems. So they're trying to identify those players that could act as a first commino, which means if you're big enough, you get saved, but if you're not big enough, guess what, You're gone. Very Darwinistic and we're seeing the faults actually

pick up. We think that's actually a good thing, a healthy thing that the martin you know, the invisible hand of the market is at work here, the invisible hand making itself felt. You know, honestly, China's intervention, it's still my head hurts a little bit to understand where they're intervening, where they're willing to, where they want to leverage, why they're incentivized to do so. A lot of questions, Brendon to Herne are really outlined a lot of really important issues.

Thank you so much for being with us. Brendan Hern, Chief Investment Officer, at Crane Shares based in New York and PAM. A lot of people are focusing on China as sort of the lynchpin in the future of global markets, certainly for emerging markets, but also in particular in Europe given the important expert export lines of transmission. Lisa Abramo wits along with my co host Pim Fox, and this is Bloomberg Markets. Thanks for listening to the Bloomberg P

and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox, I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio