China's Debt Poses Much Greater Threat Than Trade

just markets in general. I'm very pleased to say John Authors joining us right now, joining us from our Bloomberg Interactive Broker Studios. John Author, Senior editor for Bloomberg Markets. John, I want to talk about at least start with a Bank of America Maryland February Fund Manager survey that came out this morning that showed, for the first time ever in the history of this survey, UH investors thought that long emerging markets is the most crowded trade. Yes, what

do you think that? I find it somewhat surprising. I think it's probably got something to do with the country of the blind. The one night Man is king um on the basis of valuation, plainly, lots of people I have to admit myself included. I've been making a point for a long time that yes, emerging markets do indeed look cheap UM. And the thing that bothers me about this and why I suspect the people are talking to be of a m l as as by saying it's not popular but crowded, is that so much of it

realies on on the dollar. If you have a week dollar, then this is a really good trade. I did just check the numbers. The JP Morgan Emerging Markets Effects Index is the most sort of popular agglomeration of being diseases, up about five from a crushing horrific low set last fall. It's still about one above its nady air or nadier depending on which side of the Atlantic you are. That it was that it sets early in twenty sixteen in that very serious growth scared that we had at the

beginning of surrounding China. Uh. Plainly, there's a long way to recover, but there is still quite a lot of faith put in UM in the fits to be as dubbish as it said it was recently, and in the U. S economy to continue to push the help push the dollar up. So, John, what else do you think this trade? This emerging markets trade getting crowded. Does that reflect you think investors, I guess sentiment that some trade deal with China will be achieved, tensions will come down, and that

will help EM across the board. I mean, it's certainly the case that UM people are working on the assumption that the single most likely scenario is that some kind of a deal is reached because it's in the interests of both sides to do so. I think you do, however, have to call into question whether I'm not saying that the president done to his team are cynics, but they have to ask themselves. This goes back to the West Wing, which I've been binge watching while I wasn't terribly well

over Christmas. The the the whether he wants an issue or a victory. If he wants an issue, maybe he pushes ahead and lets uh and and we actually get a ratcheting up of the trade confrontation with China. I

don't think. I certainly think there is. And this is one of the points that that that you know that that the Trump supporters make often and I think it's probably correct, is that if you want to get China at a point of weakness, this is the best time to try to raise this point in quite a long time. You know, it's interesting to me. You talked about the dollar, right, and then we brought up the trade issue and a

deal with China, which is more important. The thing that matters most um by far, I think is the underlying health of China. Uh and everything else is a symptom of ratchets off it. I like that you say that, because, in other words, you're not You're not going to just say trade and some kind of trading room, because that's kind of facile when it comes to Chin to slow down in the economy, which goes deeper and had it

was sort of they're regardless. Not so long since the outgoing head of the People's Bank of China said, are we going to have a Minsky? We've got to be careful. We don't have a Minsky moment in China for the head of a central bank to use language like that. For readers, the most of the readers old newspaper man for listeners out there, For listeners out there, I'm still getting better for listeners out there, a Minsky moment. The last time we had a Minsky moment was when Lehman

brothers went down. A Minsky moment is a catastrophic loss of confidence in debt. Uh central bank governors never ever ever speculate in public about whether there's going to be a Minsky moment to except the head of the second most important central bank in the planet did do so not so long ago. Uh So that's still, it seems to me, is the greatest concern. There's a very there's

a cartoon that has done. It's done the rounds of social media many times from HEDGEI where you've seen this, say this, this guy on a on a on a the boat from Jaws pointing at this rather pathetic little shark going with tariffs written on it, shouting shark. Meanwhile, this giants octopus is surrounding the boat with its tentacles and pulling it down, and the octopus is marked Chinese economy.

And that I think I've seen that brought up by bulls, by bears, by people who pathologically hate China, by people of perma bullish on China. That is ultimately where it is. I think trade barring real stupidity and nobody given what's going on back at home, we can't rule that out by in real stupidity. I don't think trade is as big a deal as whether China can somehow or other deal with this huge amount of credit it's got outstanding. You mentioned home. I'm assumming that's not New Jersey or

Long Island. Give us twenty seconds on what you think the latest is on Brexit. The latest I think the most significant thing that Theresa May said today was that she thinks it's not going to take them the three weeks that had it had been thought it would take to clear any deal that's voted by Parliament. She says that it's possible to put it through on a fast track, which basically means that she thinks she can wait literally until one week before Britain is due to leave and

put it to a vote. So we have the same tractic as before, which has always been to run out the clock, taken ever to ever greater extremes as we get to the end of the clock. So it's a mass. Basically, Yes, it's high it's high risk poker and who will blink first, But it's a high risk poker game that's going to

take you know, months, years. Well, thank you so much for being with us, John author A senior editor for Bloomberg Market Well, Netflix has certainly validated the pay streaming video model, and now we've got a bunch of other media companies, including Disney, following suit. One of the real questions is is there an opportunity for a free streaming service and how can that be competitive in the marketplace.

So to help us kind of answer that question, um joining us as Tara la Chapelle, Deals and media columnists for Bloomberg Opinion. She joins us in New York here in our Bloomberg Interactive Broker studio and Sarah How'sick columnist at Bloomberg Opinion. She joins us in Washington, d C. Terrence, Sarah, welcome, uh ter, give us a sense of we we know how successful the Netflix of the world is. You pay your ten twelve bucks a month and you get all

this great content. Talk to us about the free streaming market. What are what are some of the opportunities there. So what we're seeing is sort of a bifurcation of this streaming market, and it's sort of nascent days where Disney and A T and T and the companies that think they have a lot of brand power and pricing power are basically trying to replicate Netflix with subscription video services

of all different kinds. And then you have on the other side of the market the Roku channel to be Pluto TV, some names that may not be as well known, but they're generating a lot of subscribers, people that are looking to save money their free streaming services, which in

media we know free just means AD supported. So you're the product and they're basically, you know, seeing that consumers, certain number of consumers are willing to tolerate ads and have a sort of I guess you would say mediocre service relative to like a Netflix or an HBO and be able to watch TV and not have to pay for cable and just pay their internet fees. So Sarah, come on in here to get a sense of some examples of how companies have gained market share substantially by

a with this free approach while remaining solvent. Yeah. So I think that the e commerce world provides a really instructive example. Um, and this is a place where a lot of retailers have made the bet to that between when consumers are choosing between free shipping and fast shipping, that they're going to want to get it for free that they're going to want to save money. UM, and Amazon I think is the shining example of how this

has paid off. That was a core promise of the Prime membership and how they brought people into that ecosystem to begin with was that people didn't want to have to pay for shipping on each transaction. And it's really interesting because an e commerce we've seen all this innovation around speed. We see same day delivery now even two hour and one hour delivery available in certain markets, but

shoppers just remain wedded to free shipping. So in a survey that was conducted this holiday season by Deloitte can, sumers were asked which of the following two promises is more important to you in online shopping, free shipping or fast shipping. Of them chose free, So UM. I think it's a powerful example to the streaming world in that we've seen in e commerce consumers are willing to sacrifice speed in order to not pay money. And I think with TV we will see a cohort of consumers that's

willing to sacrifice quality programming to not pay money. Yeah. I love how you guys kind of woven the whole concept of how people like free stuff free shipping and how important it's becoming into the content business because you know, it's a little bit counterintuitive just given how successful Netflix has been and even Hulu is having some success when their streaming in Amazon Prime, um tera. What kind of programming if I go to this type of service, Like

let's take a look at Viacom. They just paid three forty million dollars for Pluto TV. If I were to go onto Pluto TV or something like that, what kind of content am I going to find? Yeah, I mean there's some channels you would recognize. I mean, I think Bloomberg TV is on there. Um. But yeah, I mean you're not going to get everything. And I think that's the point. You know, some networks, like smaller network owners

like Viacom and Discovery which now owns scripts. You know that we're kind of feeling a little a little bit left out of these higher costs uh O T T streaming products. We're looking to these free streaming options because you know, there's their shows do generate a lot of viewers um which are important to advertisers. And to the extent that you could have a free product supported entirely by advertising. You know that serves a certain segment of

the market. I mean, the especially lower income consumers, which I would hazard to guess is maybe even a growing segment of the market, so to the extent that you're trying to reach those people in a world where this Balkanization of the TV industry is making these services expensive, you know, and everyone's having to think about, well, if I want HBO, I'm going to need a T and T S product, But I want Netflix, but I also want this other thing, and well, Tara, just to that point,

I have to wonder, do we see people going to these free online streaming services in lieu of the cable giants, the cored types of services, or in lieu of Netflix. In other words, who's losing the business to these to

these sort of free online services. It's hard to know right now, but I imagine that what we're seeing are younger people or people looking to save money going to these free services, which means they likely have an Internet connection, maybe they still have cable, or maybe they have Netflix. But I did a survey recently, and you know, it was only a hundred or so people, but it seems like people really value Netflix. They don't value it enough to be willing to cut the cord and only have Netflix.

They do want other things. So maybe a Netflix and a free live TV streaming service is a is a good little combination for some people. Um. And at the same time, they're also said that they're willing to pay more than they already do for Netflix. The average response I got when I asked about that was nineteen dollars

a month. There's a lot of value in Netflix. And when I think about people trying to navigate this very jumbled, confusing marketplace and trying to save money, you know, Netflix is very simple and easy and that's sort of the beauty of it, and it's not very expensive. And then maybe you know, a free service is the way that you get your fixed with some reality TV shows. So, Sarah, what have you guys in your reporting got any sense of the advertiser support for this product? Did the advertisers

view this as a viable place to put their dollars? Uh? You know, I'm not sure Tera might be a better equipped answer a question about where the advertisers are putting their dollars, but I do think that, Um, it's interesting the ripple effect of people's preferences for free control up in ways you don't even expect, and I think that will be important for the TV guys to keep in

mind too. So I think in e commerce, what we've seen is this preference for free shipping has really driven folks to click and collect services where you buy something

online and pick up in store. That's the most prominent reason that people choose that, and then that ends up providing this other opportunity for the retailer for what is known as attachment spending, meaning typically when people come in to pick up their online or they ended up buying twenty to four dollars worth of stuff that they didn't

even realize they needed. Um. And so I think these these free programs had the opportunity to become something else for these streaming services in the same way that they did for e commerce. Tara just real quickly. I'm wondering, what about from the advertiser's perspective, are they willing to pay up on for some of these free services, given the fact that they funnel so much spending towards uh, the amazons and the things. I mean, we've got to

see what kind of viewership these services get. I mean, it's still very early days. But I know via common standpoint with this Pluto deal was that you know, they have a telefay in Latin America, and you know, maybe they could marry some of their Spanish language programming with Pluto, which has a younger audience, which has a big Hispanic audience, and not a lot of advertisers are successfully targeting that

right now in a very narrow way. So maybe this is an opportunity from an advertiser standpoint with this service. So I think there's like unique ways that they're looking at it and trying to meet those consumers that aren't the ones that are going to just pay for every service out there and have you know, already have every device and they've got an Xbox and they've got Apple TV.

You know, there are a lot of people that don't, and so I think that's where maybe these mortgage products are going for really really interesting column Thank you so much for being with us, both of you, Tera La Chapelle Deals and media columnists Sarah HOW'SAC columnists covering the retail sector for Bloomberg Opinion. Both of you, thank you for being with us. Well, we are two days away

from Valentine's Day. The pressure is building to get that right gift, and flowers always make the right gift for Valentine's Day. And who better to help us break down the business of the flowers than Chris McCann. And Chris is president and CEO of one flowers dot com. Uh. He companies based on Long Island City, but he joins us here in our Bloomberg eleven three studios. So, Chris, we are two days away from Valentine's Day, people always fall back on that classic gift of flowers. How big

is Valentine's Day? That time period of Valentine's Day to your business? Every year? It's such an important day for us because it's so important to our customers, and it's a nice spike for us. It's about ten percent of out consumer floral segments annual business, but it's really only less than five percent about total companies business because today half of our businesses come from our gourmet food brands like Harry and David and Cheryl's Cookies and simply Chocolate.

We really built the celebratory echo system. All right, Paul, are you buying flowers for your wife? I think I might be buying flowers for my wife. What kind of flowers are gonna be buying. Um, I'm not really sure. Maybe you know, Chris can give what's the most popular flower rangement right now and not committing. He's also very very traditional guy, so I'll recommend roses. I'll put a little spin. Trending this year is hot pink roses, So

that's really wild. I'm wondering you mentioned about food. You know, is food becoming a more popular option chocolate, for example, over flowers, or is you know, as that mixed continue you just sort of more steadily skewed toward the food offerings. Well, I don't think it's instead of flowers. What we find with food offerings, especially from our brands like Harry and David, are simply chocolate that they're big around the Christmas season

and the complimentary to other gifts throughout the year. Okay, hold on a second. How much has the average spending on Valentine's Day changed over time? I mean, are people just going crazy and hog wild here? I hope? So I know we have a sense of, you know, what the direction is of the overall spending. Well and expects it to be up about four or five percent this year, about a hundred and sixties six dollars on average Valentine celebration.

I hope most of that includes flowers and chocolates, but it's so it's expected to be up again this year, which is very nice. And what sixty hundred and sixty six you're looking at me? Okay, interesting, Chris? So what are you seeing? You know, you've been in this business thirty years? Thirty five years? How is consumer? How's the consumer change? And how's the consumer perceives gift giving not

just Valentine's Day? How the trends changed across the board. Well, what we're just seeing is that the consumers are really looking for ways to express, connect and celebrate. And then this technological world that we live in, this interconnected world, we're looking to see how do we bring the human back into the process more. And that's what we do as a company, really to help you express yourself, that

we deliver smiles on your behalf. Now you're using technologies more and more to do that in all different forms, whether it be AI capabilities, whether it be voice computing capabilities, chatbots. So that continues to change and that's our job. Make it frictionless for you to express yourself, all right, So one eight hundred flowers dot com is sort of an example of how the world has changed in and of itself.

One eight hundred of flowers is the telephone number. But since telephones have got out of style, dot com is there. What is the proportion of online sales versus calls and how has that shifted? So the one hundred flowers brand and some of our younger customers may not know what that means. Uh, really the numbers, the eight hundred is

often a toll free number you do not know. But aboutent of that brand's business comes online, and when I say online, more and more of that coming from mobile devices. More than half of our traffic this holiday is from mobile devices. So talk to us about the supply of flowers. Where do you get your flowers? How what's going on with the cost of flowers? So I think about the business of one flowers, Your raw material costs, your cost

to get sold are flowers? What's going on there? So it's very interesting in flowers as the raw material costs really haven't gone up because of technology improvements on the supply chain over the last ten years, cost have remained stable, if not down a little bit, and we import product. A lot of the flowers come from South America, Columbia

and Ecuador, so of logistics get better and better. But we're also seeing an increase in domestic production over the last ten years and more and more flowers being grown domestically here in the US. I'm going to be such a debby downer. I'm gonna be made fun of this. For years. How has global warming affected that? Oh? No, we we haven't seen an effect on global warming on our flour production even where you source them. Most of the time it's sourced around the equator, which is hot

to begin with. Uh So, I think we've been fine on that side of it. All, Right, what's what's how big are you guys versus? Just size out the market for me. I don't know if it's US or global, and how big are you guys in that market? So we're about overall about one point two billion of the

estimates that we'll do in revenue this year. We're growing nicely with the leader in the floral category, where the leader in the gourmet food category, and now we're starting to expand into all the product categories as well, listening to our customers as to what products they will use to express, connect and celebrate. Thank you so much for being with us. Chris McCann Happy Valentine's Day, Happy Valentine's Chris McGann as CEO of what eight hundred flowers dot com.

So it looks like we have a border deal potentially, which suggests that the US government will potentially remain open. To get a sense of how the credit markets are pricing in these developments, let's chat with our good friend Ira Jersey iras a chief US interest rate strategist from

Bloomberg Intelligence. He comes to us from the phone from bi's headquarters in Princeton, New Jersey, or I assume it's snowing down there, Ira, does the bond market to what extent does the bond market care about what's going on with the border deal and the shutdowns and all of the uncertainty. Yeah, hey, Paul, I'm actually in Washington, d C. This week to you know, get a sense of what life is here on the ground in politics, and it does look like that, you know, thanks, that some deal

is going to be uh is going to be done? Uh? You know that, I think for for fixed income markets and for even risk asset markets in general, UM markets don't like uncertainty. And when you have a resolution to something like this, and that's gonna be good for risk assets. You see equities up today, you see bond yields up today, so so bonds doing doing poorly. So that's that's the reaction that you'd expect from an optimistic set of circumstances

like like a deal. Um, I think what one thing that I'll be looking for is does this deal also include an extension of the debt ceiling? Because the debt ceiling as we know, winds up expiring on on March one, and then they the government will be able to use extraordinary measures probably to get into the late summer, maybe

September October. It depends on a lot of variables. But um, but if that's done, then then you know, quite frankly, it's not something it's not a model that I like to to have to do all the time and worry about whether or not we're going to see the fault on the US debt, because that is something that is completely man made and not not a UM, it's a political problem, it's not that's not a real economic problem.

I love that we can say in all seriousness, I don't like modeling for us to fall to every two weeks because it's just you know, especially since it's totally avoidable, and this is sort of a serious discussion that is ongoing. I want to pick up on what you're talking about,

which is the debt ceiling negotiations that are imminent. Uh, the latest on the government shutdown is that President Trump still hasn't decided whether or not he'll support the bipartisan congressional agreement, so we don't even know whether we actually have staved off a government shutdown. Is the sign that bonds are not selling off more, in other words, that yields are not rising more and that stocks are not

ralling more. Is that a sign that investors are still very concerned about the debt ceiling negotiations and that there is a real risk being priced into the market that there could be some sort of more serious gridlock that leads to another government shutdown. Well, I think I think part of it is certainly is certainly the goings on

here in Washington. I think the the bigger question for the bond market right now is how well this is going to impact confidence and ultimately the ultimately the outcome

of the economy. You know, we we got some really good data just twenty minutes ago with the Jolts data showing that there's a lot of job openings, that there's you know, it seems like at least on the job front, things are good, but uh, there is I think a lot of questions to how how confident both businesses and consumers are going to be with an environment that's as

politically contentious as we have today. Um, and this isn't the only the only thing that's that's worrying people, right, So even if we get a budget deal and we you know, avoid to shut down, even if we get the debt limit uh done, then we still have a lot of trade tensions that that people are going to

worry about. You are seeing some of that actually in some of the data where you have seen some um uh some real world data that's uh, that's showing that that's having an impact on global trade and and that's that's something I think that at least in the corporate boardroom that you're going to have a lot of angst about in the future if if it's not resolved, so you're you're done in Washington, d c Uh, I'm sure you're gonna wander up to the FED at some point.

But is I guess the consensus in the marketplace as people you know, try to price in everything that's going on in the market, economic, financial, geopolitical, is that the FED has you know, maybe one or two rate increases for the remainder of the year combined with a steady roll off of the balance sheet. Is there anything that you've seen, data wise or just discussions with clients that would lead you to believe that that's there's material risk

to that kind of scenario. Yeah, So it's so they're going to be very data dependent, and I actually think that the um UH that that basically the level for them to have to hike is they want to see additional um UH, an additional inflation impulse. So our wage growth that we're seeing at three and a half percent a year, is that going to translate into higher inflation going forward? Um you know, it tends to. It tends to lead services inflation by a little by a little bit.

So if you see an inflationary impulse, we think that that's something that's going to be needed for um UH for the FED to to hike again later this year. I don't think they're gonna hike before the third quarter. UM. I think that they want to be data dependent. They want to make sure that the economy is on stable

footing before they take any additional action. On the On the other side, if something gets to rail and say equity markets fall another ten percent from here or something like that, UM, that would be something where they would, you know, maybe be in more risk management mode, maybe stop the FED to runoff, and then maybe even start to talk about cutting interest rates. All right, I read thirty seconds here. I'm looking at ten ten year treasury

yields now at two point six eight percent. Where would they be if we did not have the trade negotiation tensions or the prospect of a government shutdown? Yeah, we have fair value closer to three percent, and we actually think that that over time will probably get back up there. Again that that's our forecast for for year end is three plus or minus a few basis wents. In other words, there's a discount of three tenths of one percentage point UH that is being baked in due to the uncertainty

around some of these governments. It seems that way right now. Yeah, really interesting. I Red Jersey, thank you so much for being with us. Our Jersey chief US interest rate strategist at Bloomberg Intelligence, joining us from Washington, d C. Where he's going to try to understand everything that's going on there, and he'll report back and we'll all make sense of it, and then it will be complete. Thanks for listening to

the Bloomberg pen 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 abram Woits. I'm on Twitter at Lisa Bramwoits. One before the podcast, you can always catch us worldwide. I'm Bloomberg Radio