China Intellectual Property Poses Biggest Thorn For U.S. (Podcast)

that perhaps these tensions are easing. Joining us now as Bill Rhodes, President and chief executive officer of William R. Rhodes Global Advisors, author of Banker to the World, Leadership Lessons from the front Lines of Global Finance, helped broker some of the biggest deals both at a sovereign and corporate level, over the past decades in which he's been active. He's shoining us here in our interactive Broker Studios. So, Bill,

you just got back from China. Do you get the feeling that there is a thawing in the tensions between the US and China from the Chinese perspective? Well, first of all, at least I want to thank you and Tim for inviting me. Is my favorite program, So anyway, it was. It was a very interesting week I spent there, and particularly with the trade tensions. UH. There's no doubt that China wants to come to an agreement because the

Chinese economy is slowing down. They have this mountain of debt of over three percent of gross of GDP gross national product, and they have a lot of stresses there on manufacturing is down and sold. No matter what they say in the sense of tough talk, they want to do a deal. It's not going to be in ninety days. But I think we'll see some progress. We already saw the oobile tariffs UH, and I think we're going to see other things going forward. But it's not gonna be

solved overnight. The basic problem between the United States and China will not be trade going forward, because I think something can be worked out. I think it's going to be intellectual property. That's going to be a tough one. And I've said this on on your program before. As far as the Chinese economy is going itself, they'll make their six and a half projection for this year, but next year is going to be a tough year. For them because they need to continue financial reform, which means

reigning in the bank's bad loans. Uh. You know, the municipality bad loans and the provinces bad loans, and they have to shut down some of these small regional banks in northeast China, which basically a zombie institution. So there's gonna be a lot of pressure on the Chinese economy next year. Uh. They hope they can get six percent, but it could fall below six for the first time ever.

Bill Rhodes, you have negotiated during your career with dictators strong men, as well as corporate executives and government officials and central bank regulators. Who are the key people in China right now? Well, obviously, uh, you start off with the president and leader uh Shi Jinping. His vice president is very strong because he is an expert on economics one Shi Shan. He's also was a trouble shooter for previous governments. He's the one who cleaned up stars in Beijing.

He's the one who cleaned up the problems in Guangdong Province. He's a disciple mentory of of Joranji, the great Premier of China, who cleaned up their Economy and got him into the w t OH. But also the head of the People's Bank of China is very important. We have a technician in there, and I was privileged enough to to spend an hour and a half alone with him at lunch. Ye Gang his name is. He actually taught at the University Indiana for uh eight years, so his

English is as good as ours. And the previous Governor of the People's Bank of China, Joshiah Schwan, who's a leading reformer who's still although he does not have the official position in the People's Bank of China, he has the title uh, you know, President emeritus there and he's advising UH both the President Si Jinping and uh Want

Hi Sean. And then there's one other person who has the title Vice Premier of the Economy, and that's uh someone named who's new that in the sense that we didn't see him before, and that's his name is Lee Who, And he's the one who's talking with Manuchin on the telephone. The big problem among others that the Chinese have with us, they don't know who's on first, second, and third in negotiation. It's like tinkers to have is a chance one in

his lightheiser the next minutes in Manuchin. Uh, they're confused, well, they're they're confused about who's on first. But also, you know, sort of the distinction between the trade tensions and intellectual property is confusing to me because I don't totally understand

how intertwined those are. Well, I think for the United States is very important because the Chinese announced their program of two thousand twenty five, which was their goal to be the leading UH innovators in technology in the world, and of course that gets into five G and all of these things, and the United States Silicon Valley forever, we've been the leaders in technology, and so the feeling

is that there's a real challenge to us. Also, UH, there's also a feeling here in the United States and in Europe that the Chinese have gone out of their way to gain technology through several different ways. One when in American the European company wants to operates up in China on a joint venture, they make them turn over their intellectual property. The other thing is many people in the US and Europe feel the Chinese have been stealing

technology from us. So this question of intellectual property is going to be tougher to solve than the trade issue, because let's say the economy slowing down in China, the economy is slowing down here, and so I think it's on both, you know, both governments. I think want to come to a deal, all right, Bill Rhodes. He is the author of Banker to the World Leadership Lessons from the front Lines of Global Finance. Oil definitely having a trickle down effect on broader markets over the past week

or so. Uh, the three days ended yesterday, it comprised comprised the biggest drop in the in the oil index, in the oil prices. Joining us now to understand what's been driving the big moves we've been seeing there, John Kilduff, founding partner of Again Capital. So John, let's just start there. What is the main driver behind the declines that we've

seen in the price of crude? Well, a relative over supply to the market, partly because sanctions that we're supposed to go on Iran didn't really come to pass, and so they're still producing, and Saudias and Russians rushed production onto the market to make up for what was supposed to be lost barrels. And then now the economic slowing that we're seeing, particularly in China in Asia has weakened the demand side of the equation. So it's sort of been a one to punch here. Uh for the oil

commodity John, who are the sellers and are they forced sellers? Well, I'll tell you him. A big speculative long position did get built up into this market, um, right around the highs in October there when we were up around over seventy dollars a barrel for w t I based upon the CFTC data that we get to see every Friday. Uh, they've been washed out. And yes, there's been rumors of forced hedge fund liquidation UM and and a growing a barrish fishooning in this market, and that there's a net

short sellers in here now too. So sentiment has really turned quite negative at this point, UM, and it remains so. One thing that I'm struggling with is Saudi Arabia just came out with their budget for next year, and I'm struggling with the idea that they are assuming eighty dollars a barrel for the price of crew next year in order to make their budget work, and they would need a price upwards of ninety dollars a barrel in order to balance their budget. Does that concern you, um? If anything,

it's um. You know. It shows me that they have a real incentive to follow through on the the old peck Russia, a chord that was struck a couple of weeks ago. I think they're feeling a little flushed with success because of what they they were able to achieve in the aftermath of the November deal. This whole thing just fell apart over the summer again because of the real almost trick that was put on the market with the Iran sanctions. So I guess they believe they can

do it again. I also think they have barring capacity, so they're not going to worry about it. But they also have home fires to tamp down. Here is there's some unrest in the kingdom. No better way to play kate that than to uh, you know, give away some money, which is which is what this budget does in a big, big way, lots of extra money to government workers and others that should help keep the you know, waters calm or calm there as as we move forward here almost

on que by the way, the facility. The Saudi Oil Minister this morning was all over the wires trying to talk up the price, committing to a big cutback and extending this deal next April when they all meet again. So, Um, they're trying to do everything they can to support this price, for sure, John speak if you can about us shail producers, At what price do share producers stop making money? You're

getting into that zone now, Pam. You know, particularly when you've sort of had an all the cost not just the pure stage drilling and extraction methodologies. It's gonna start to get tough for them right now. But they have been successful, many of them, particularly in the in the Permian basin, where they've driven break even course down two round thirty five to forty dollars a barrel. Now, some of those numbers are all over the place, so they're

gonna try to hang in there. Um. And I know there's a lot of concern too about the indebtedness of the group. I'll tell you when the last generation of this price is crashing back in two era. Um, what the banks basically did was extend the loans, recapitalized the loans, and repackaged a loans. So I'm not as worried about the group falling apart this time, unless we were to get another sort of extended sell off down into the same mid to low thirties. But it's hard to see

that happening. John. Every time you've been on, you've been incredibly accurate, and I've been impressed by some of your forecasts. So what's your sense of where oil heads. I don't know throughout next year, it's at the say it's it's a tough call right now. I've been trying to shake up the magic eight ball vigorously um these days. But uh my, my inclination is too as the guys in the bun or guys and gals in the bond markets say, don't fight the Fed, I'm inclined not to bite Saudi Arabia.

So if they do come through with the extensive cuts that they're talking about, prices should head back higher. And because also because sentiment has just gotten so negative in this market that there's a tendency to overshoot here in commodities especially, and we should swing back. So I would expect this to be back into the you know, at least low sixties, say by by midyear next year. All right, Thanks very much, John Kilduff, founding partner again Capital speaking

about the world of oil. The topic now is the housing market. Sales are previously owned US homes rose for a second consecutive month and exceeded forecasts in November. It suggests that consumer demand is picking up as price gains moderate. Here to tell us more, Darryl Fairweather, chief economist for Redfinn Corp. Joining us from Seattle. Darryl, thank you very much for being with us. Do you believe that the sales of previously owned US homes that this rise will continue?

The market right now is much different than it was earlier this year. Earlier this year we had really fast price growth, especially in coastal markets like San Francisco and Seattle. Prices were growing in the double digits every year, and that has moderated since earlier this year. Now price growth is more around four percent. And it's actually taken a while for sellers to get the news that buyer demand isn't what it used to be, so we've seen fewer

bidding wars, more price drops. But I think finally sellers are starting to get the message are dropping their prices and that's why we've seen sales pick up this month. So Daryl, do you can you just give us a sense of why there has been a slowdown in the US housing market. Is it an interest rate story, is it just a demand story, or is it a supply story.

I think the story here is affordability. So prices were growing, and they were growing very quickly, and recently interest rates one up at the same time, and buyers has finally had enough. They couldn't keep raising their prices and keep paying these high prices getting the same homes. So we've seen buyers back off, and as a result, sellers are starting to drop their prices and meet buyers at their at their price reservation. Do you expect mortgage rates to

continue to decline? It's interesting. So mortgage rates follow both supply and demands. So on the supply side, the cost of borrowing is higher, and if the FED rates interest rate rates today, the cost of borrowing will continue to rise for the people who are supplying these mortgages. But at the same time, we've seen mortgage rate demand fall because people are buying fewer homes now than they were last year. It'll be interesting to see which of these

forces uh end up dominating. So we could see and a rise in interest rates and on mortgage interest rates. But it buyers back off, then maybe that will be mitigated. So which areas of the market do you think are still poised for significant price increases? I mean are their regions or their sectors of the housing market that still have upside that are significant. Yeah, so places like Nashville, UM, Atlanta, Austin, some of these inland markets. That's where we'll see more

buyer demand grow. And that's because people are moving towards more affordable places. We have this migration data redfin where we can see where people are searching for homes based on their IP address, and we see increasing number of people searching for homes and are affordable places, especially in really expensive places like San Francisco or Seattle or Washington,

d C. They're looking to move inland. What do you believe institutional owners of real estate will face in I think that so there do you mean by institutional owners companies or do you mean like a typical investor? No, no, A companies. You know the institutional part of the market, right, right, So we have redfind now and there are other institutional owners um like open door and Delo has their own institutional owners UM, they are going to have to change

their strategy. Buyers. Previously, they may have seen an offer from an institutional owner and thought this was a really good price. But institutional owners may have to lower their price, and sellers may not want to accept those prices, thinking that the market hasn't changed as much as these institutional owners think the market has changed. So, Daryl, where do you see prices declining the most regionally or in a

specific sector? So the places that really saw the most price growth, we're going to see that price growth slow. I don't think that price growth will necessarily go negative. UM, but in places like Seattle and San Francisco, that price growth is not going to be what it was earlier this year or in We're going to see price growth slow. But that's interesting to me. You don't see it actually going negative. Well, So with that, a lot of people

actually UM prices have fallen from earlier this year. Some of that is seasonality. The prices have dropped more than just a seasonal effect in places like Seattle in San Francisco. But come spring, prices maybe exactly where they were last spring, maybe a little bit higher. Uh, there's a possibility that may be lower than they were last spring. But I think that's a small a small possibility. Since you're coming to us from Seattle, can't avoid asking the question having

to do with Amazon dot Com and new headquarters. What does this mean for those areas? We think prices might go up, but what does it also mean for housing prices in Seattle? Yes, so I actually used to work for Amazon before I came to Redfin, and I had co workers who were tracking where the h Q two is going to go and thinking that they were going to move back home. We're to be close to family

depending on where it went. I actually have one friend who whose mom was calling her the day that they announced in Washington, d C. Asking her if she was going to move back home. So I think we'll see, um, some Amazon workers in Seattle put their homes up for sale to move to these new locations because there are all these new jobs and the transfer is pretty easy. In the actual places where the head cars are going home, prices will be affected. Um. It will kind of depend

on the transportation that is around those areas. So in a place like Crystal City that's slightly outside the study center, we will probably see housing demand grow the most in the suburbs that are far away from d C but relatively close to Crystal City. So if your commute is going from an hour commute to a half hour commute, that's where we'll see demand go up. Darryl Fairweather, thank you so much for being with us. Daryl Fairweather is

chief economist for Redfinn. Interesting to be getting more signs of stability in the US housing market and a more sanguine view of what's to come in the meantime. I want to turn our attention to the information that big tech reveals about its users to uh other companies and profit from it. And joining us now is Mark Douglas, chief executive of Steelhouse. Mark, thank you so much for

being with us. The New York Times put out a story that was really eye opening of how Facebook collected data from its users and shared them with other big companies such as Amazon, profiting from it without necessarily disclosing this. So what did you make of that article? Um, well,

it's not good, that's that's for sure. I think it's clearly part of a pattern that Facebook's definition of personal information and the common consumer, and certainly government, you know, kind of your euro government, and now US government definition of personal information are very different. And Facebook view that information, like you just said, is something that could they could sell and they could profit ford and they can provide the partners, and you know, it's it's just not a

great pattern that they've established. And now is even more is coming light with the story Mark Douglas, do you believe this to be an intentional effort on the part of Facebook to obscure what actually happened? Or is this something that, as they describe many times, the technological wherewithal in order to follow all this may not be available. Well, I think essentially the this is based on the reporting from the New York Times, this was intentional. This wasn't

a data breach, This was an accidental. Facebook provided information to partners in order to benefit those partners businesses and for Facebook to benefit ultimately. The reason they're doing it is because they don't think there would be a backlash from the users, and quite frankly, there hasn't been much

of a backlash from the users. Although Facebook usages down, Instagram usages is continuing to expand rapidly, and at the end of the day, you know, these stories come out and people just keep using these platforms and and somewhat yawned about them. And so as long as that's the case Facebook, I think now it's such a spotlight on them that they have to restrict those actions. But they didn't have that spotlight when this was occurring, and so so they had no incentive not to do it. You know.

But Mark, I mean to push back a little bit exactly the point that you're making that users don't care. That they're willing to go along with this contract of getting free access to platforms that connect them with their friends and give them access to news or in return

for giving up some of their privacy. So where does the problem come in, Well, the problem comes in in that the governments are not agreeing with the consumers using the platforms, you know, the the EU, the European Union clearly doesn't agree with all the laws they've been passing, and the U s Government seems to be somewhere in

the middle. We have hearings, but then there's no legislation, and so the and and again the reason that's probably occurring is because the senators and congressmen are not are not getting you know, kind of a huge consumer backlash on this. And I think consumers. You know, they think of this like, Okay, so my friend list was shared with Spotify and I got better music Again what you just said. They think it's a quid pro quo and um,

but think ultimately this church Facebook. I think the big, big problem Facebook is going to have, it's going to be I think it's going to be very hard for them to make acquisitions. Um. Everything they do is going to be scrutinized going forward. And I think this is starting to put it over the top. This is a just clear disclosure of information without the slosing it to

the consumers that that provided the information. Mark Douglas. This comes at a time when the government has received investigations and reports about the use of platforms such as Facebook, Twitter, and Instagram, which is owned by Facebook, as part of an effort on the part of the Russian Internet Research Agency to manipulate what people see an access online. Is that in any way connected based on the culture that you know about Facebook, No, I don't think that's in

any way connected. At think that what that proves is that Facebook's ultimate business as they are an advertising platform to reach the consume. The two point two billion users reaching Facebook, the over billion users using Instagram, over billion users using What'sapp, and it's a very effective advertising platform. And essentially the Russian government figured out that they could you can sway elections. You can you cannot only use it to sell clothes, you could use it to sell

presidents and they and they did that. I can't say that the Russian government led to the current president's elections, but clearly there was a lot of that spending going on to to try and influence it. And so this is the quandary that that we're in. The platforms are very fun and useful Facebook, Instagram, they're super effective advertising platforms, and there's not a lot of controls on either one

of those. And you know, Facebook is imposing controls on themselves, but they're doing it because of the scrutiny that they're on, not because of what appears to be kind of any clear standard that they had in place at the time. Thanks very much for being with us. Mark Douglas is the chief executive of Steelhouse, based in Los Angeles. 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 Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio