China's Didi Crackdown, Controlling Data

the big Chinese technology sector. Then d D China's crackdown on the ride hailing service UM just days after d D went public again in the US, really sending again chills through the entire tech sector, particularly those Chinese domacile companies that are listed in the West. And people are really trying to get a sense of what is behind the Chinese government and their crackdown seemingly on these companies. Yeah, absolutely, um, you know, really getting you know, list in the West.

So we have questions about anything China, we go to Leland Miller. He's the CEO of China Beach Book International. Leland Again, at first I thought it was just Jack mob mismanaging or misreading his relationship with the Chinese regulators. But it seems to be something much broader than that. What's going on. Well, that's the interesting thing about this issue. You've got a whole bunch of different sub jobs playing out across the Chinese text fhere and and the listing

the listing universe. We have jack ma and and financial and you've got all these stories that's developing on DED and how they ignored regulators. I think the broader story here is that China is really forcing a paradigm shift. There's a lot of worry that these these firms are going to go list abroad and they're going to be subject to US rules or foreign rules, and they're not going to be safeguarding their data which should be in

China and subject to Chinese rules. So what what Beijing is doing right now is in four seeing Beijing's view on this this these data are are these are Chinese companies, this will be Chinese data, this will be stored in China, and uh, I think this is this is finally the lesson that that foreign investors need to hear in terms of realizing that what the Chinese government has been saying it's real, they mean what they're saying, and that they're

real long term implications here. Yeah, to me, it makes perfect sense. I mean, if I were China, I feel like I would do it too. If I were the US, I would wonder what what to do about this. UM. We had a great Bloomberg story overnight that UM showed somebody has been circulating a couple of charts illustrating traffic at the Ministry of Public Security was really busy on a certain day while UM the Anti Corruption Agency wasn't using any cars. And it just flipped the switch for me.

You can use big data to really track some stuff that gets that that that the country might want to keep secret. You know, not just with DED but also

probably you can do the same with TikTok. You know where all the teenagers are, what they're doing, you know what they're buying what It just seems like you would want to get a handle on this and not let foreign investors access it, right And and you know, when you're talking about big data, there are insights you can glean from big data, and then there are ways to

use data to influence certain populations. That's of course what we were talking about with TikTok the potential there for them to send political messages subtenly or not through into the into the Western environments. But yeah, look the risk with big data are are just developing, and China is very cognizant of what it doesn't want to be, uh, you know, a face that doesn't want to be showing the rest of the world. So so again, this this

is just a gigantic issue going forward. So Leland, you know, we love to have you acause you help us really see the big picture as it relates to US and China relations as we pull back here and think about it. Is this just, guess, another example of a building tech cold war between the US and China. Yeah. Look, every time anyone uses a term like that, there's a thousand academics that rush in and say, no, no, look, it's not a cold war. It's different than the last one,

you know, decoupling. There's not a real US China financial decoupling and the broadest sense. But sure, I mean, look, if you're if you're just trying to get an understanding of directionality here, yes, you're seeing all these uh you know, you're seeing this, this this this cold war esque environment developed and you are seeing some elements of financial decoupling.

The US has an enormous amount of leverage, particularly because Chinese companies like the list in the US, and it has used that leverage, not not always and not enough, you know, in the case of audits, for instance, but it is used for for its compliance regime to be the default. And what China is saying is no, our companies will not be subject to that. They will be subject to a Chinese compliance regime overall at the top layer.

And the problem with this is it's not entirely clear that a lot of companies who who operate in China and the United States and other places can actually adhere to the law that is both Chinese law and the U s law. Something has to give, and it's not clear at all what that's going to be. You know, this all happened right around the same time we saw yield start to um drop in the US for six days in a row, seven days in a row, eight

days in a row. And then Jim O'Neill was on Bloomberg Television I think it was yesterday morning, telling Francine Lacroix that um that China is really the catalyst for the flight to safety, maybe not the data issue or the d D issue specifically, but concerns about growth, concerns about what's happening post one year anniversary, Um, what's going on there? Do do we do? We do? We know enough about Chinese growth and how strong it is the recovery from COVID. Sure, we know a lot about it,

Chinese growth. And the problem is that not enough people are listening and you know a lot about it. We don't know. That's why we have you on. Well, you know, look the the issues since China emerged, you know that with with with quotations around emerged from from the coronavirus uh and and and it's you know, into this very impressive recovery was that Beijing announced this recovery as way more intense than it actually was. They did a great job,

that did better anyone else. That's fine, but it was never a soaring recovery. What they did is pull growth forward from one and announced year and year growth and basically signal that there is a return to normalcy because the party conquered the virus. And what the real story was is that yes, they got stimulus out there and they did a good crackdown to to to take out outbreaks, but there was never a durable recovery. On the consumption side,

services has been treading water. Retail has been doing very poorly. Consumption more broadly has been doing very poorly, particularly in the latest China Beja book data. Our credit data are shockingly tight right now. You know, our our investment data down. So yes, he were seeing some of these numbers early on that suggested that, you know, China's back. China's not back in the sense that it it's where it was before.

And now you're seeing people finally get the worries and realize that, look, getting up factories up and running and exports up and running is good, but I's not sustainable if they can't get the consumption inside of the economy back working again. This is why it's great to get

you on the program, Leland. We should have you on more often because I think you know, for for a while, markets kind of lost sight um the last few weeks, the last few months of what was going on in China, and then all of a sudden got wind of it, and as a result, we saw a tenure yield um in US treasuries at so Leland. Miller is the CEO of China beige Book International, talking to us about the big data, the control of big data, and UM the

growth situation post pandemic. We have been asking I've been asking the same question for days and days and days. And I know that we've seen things turn around a little bit now, but Paul, treasuries are still very Yeah, and in the ten year I mean, yes, it's a bounce back from yesterday. We were down. What was the lowest we hit? Like one was the body tick UM. In any case, it's still a conundrum to me. Just heard, uh, just heard Muhammad al Arian talk about it. Let's bring

in Jordan Jackson to ask him. He's vice president and global market strategist for JP Morgan Asset Management. Jordan's you know, I don't just ask these questions. I was up past midnight reading people's theories online, not just you know, crazy people on Reddit, but you know smart market technicians. I still don't get it. It doesn't seem to jibe with UM a view that the economy is strong and picking up and we're going to see real growth for the

next couple of years. Yeah, it's it's I if anyone tells says that they are absolutely a hundred percent accurate, and why yields are where they are, I think, I think that's a long shot. But I think there's a confluence of things that are happening that are causing or that have caused this this reversal in yields. And you know, one is the supply side of the equation. If we think about what's happened over pretty much the course of the first half of the year, you've seen a significant

draw down in the Treasury General Account. So the Treasury Department has not been funding additional fiscal stimulus by way of issuing new treasury bonds. It's by way of drawing down the Treasury General the Treasury General account. And what that does is that increases bank reserves in the system, just that mechanical aspect. And so what we actually have seen is, you know, from from banks. You know, as as reserves have increased in the banking system, that money

it's got to find itself somewhere. Typically it finds its way at the front end of the curve. But what we have been observing more recently is that those flows have actually been making their way to the back end of the curve as well. So there's there's this have been some strong demand from banks as well as from from foreign investors as well. I talked about how the rolldown of the treasury general account at the same time the FED is still purchasing eighty billion dollars a month

and treasuries. You've actually seen net negative supply of treasury issuance come to the market as well. So you can sort of paint yourself with supply and demand demand picture in which you've got potentially demand outpacing pacing supply that's put down with pressure and yield. I think there was sort of a self fulfilling prophecy to the first half of the first quarter of the year that yields were

going to rise in the back half. Growth is going to be stronger in the second half of the year than it was going to be in the first half of the year. Until you have this this this this broad market narrative of a Stephen and yield curve, and I think folks were positioned as such um and so you have some shorts come onto the market. I think some of those shorts have to unwound themselves as yields started to grind lower UM and so a lot of these factors kind of funneling into the move lower from

a technical perspective, the move lower in bond yields. All right, George, given where we are in the yield market, what are you telling your clients in terms if they're looking for a return here and they just gotta go the equity markets, don't they? What are you hearing from your clients? That's that's pretty much what what we're seeing. I mean, the

reality is the fixed income landscape. It's kind of like trying to look for um, the cheapest house on a really expensive block, um, and we're trying to generate output. It's it's we don't want to trick ourselves into trying to pick up pennies in front of a steam roller. I mean, that's just where credit spreads are at um UM.

Given the impact of that, everyone searching for yield, there's a lot of cash out there are not enough bonds UM and so look, if you do have to sort of start to look towards the equity market for for for yields UM hedge type of strategies to sort of mitigate some of some of the downside risk UM and and even looking at some of the sort of hybrid securities, may think preferredsum given bank stocks are the primary issuers

of preferred stocks. Uh C CAR results came out a couple of weeks ago those where those are very encouraging. We're going to get some reports coming through. From an earnings perspective, we think bank balaciets are are very very strong, so preferred preferred to look like they could be a

good spot for for income income as well. And then on the convertible side, we do think some of the more UM equity like convertibles or those things, they have run up pretty significantly UM over over the past twelve months or so. UM we still think there are some some interesting opportunities in that space as well. Is UM the US going to continue to outperform? Do you do you start to put more of your bets on in, for example, emerging markets as they start to well, as

they eventually will reopen and recover. So it's it's it's interesting. It's kind of like, if I'm going to think about global equity markets, where is the baton going to be passed? Two next sort of started started to start the conversation that folks generally thought that growth was going to be particularly exceptional in the second half of the year. We actually may be looking at peak growth in the second

quarter of this year, particularly here in the US. Now, we still are expecting above trend growth in the second half, but at certain deceleration from sort of a ten percent quarter a quarter pace that we're expecting here in in in the second quarter. Now, where does the baton get passed too? I do think that the next sort of of of of equity market, global equity market is going to be sort of your Europe and Japan um, you know,

as they get over there their their COVID curves. Over the next few months here you should start to see some that cyclical trade, that reflation trade bring itself back into the market. Hey, Jordan, thanks so much for joining us. Really appreciated. Jordan Jackson, vice president, Global market Strategist at JP Morgan Asset Manager. All Right, you've heard a venture capital, You've heard maybe even a venture equity, but how about venture debt. Dan divorcets CE IO and executive vice president

for Horizon Technology Fans. They're based in Brookfield, Connecticut. He joins us. Dan, thanks so much for taking the time. What is venture debt Matt and Paul, first of all, thanks for having me pleasure to be here. Venture debt is a non dilutive source of capital for these same venture capital backed companies that you were referring to UM, their development and growth stage companies that are backed by

really world class VC and P investors. And venture debt is secured loans to these companies that provide non dilutive capital to get them to their next valuation point and raise additional equity at much higher evaluations. We provide UH an option for for for equity. I think it's really fascinating because Matt Levin just UM a couple of days ago, was writing about how important vcs are not just as a source of capital, but also as a source of advice.

You know, these young kids or I guess old people could start companies to UM, you know, just get getting into the into the market. They need to know how before the I p O to a bunch of strangers, right or before they sell debt to a bunch of strangers. So I wonder how how much you not only loan these companies money, but take them by the hand the hand and lead them along. So we provide we've certainly

provided advice in terms of their financial path. We don't claim we I'm not a technologist, I'm not a I'm not a scientist, So I'm not going to tell them how to how to do their clinical trials, but I will certainly will certainly help them with advice on financing alternatives. UM and and venture debt is one that that sometimes sometimes entrepreneurs need need um education on that you can

you can raise equity and and uh sell off. You know, Let's say let's say you're you're developing the next great drug and your companies valued at a hundred million dollars and it's gonna take thirty million dollars of new capital to get to that next valuation point when you're when you when you get approval, you can sell thirty million dollars of equity and sell thirty percent of your of your shares, or you can sell twenty million dollars of equity,

take a ten million dollar venture loan, and when you hit that next valuation inflection point, you'll have preserved tens of millions of dollars for your management team and your investors. So we provide that certainly provide that type of advice to our to our companies. All right, Dan, Back in the day, I was a corporate finance banker at the Chase Manhattan Bank. We lost deals to nobody back in

the day had swagger. But we lent against either assets like property, plant, equipment, or inventory or cash flow, the good stuff that actually pays you back. VC companies don't have any of that stuff. So what's the collateral for some of this debt? Cash? So I don't know what cash flow is gonna We have cash flow, but it's going it's going out of the company. Our companies are cash burn companies. Uh So we are lending against the enterprise value of the company. We take a senior secured

position in all assets of the of the company. Certainly cash is a big piece of it. But but as I said, that is draining. We are looking at the intellectual property, we're looking at at the franchise value. We're looking at growing exactly exactly. Yeah, but you never got that kind of opportunity then, right, what kind of yield we are we are lending so we have premium yields in the in the loan terms, we get interest rates as well as fees that are in the eleven. Then

we take small small exactly. Then we take small warrant positions um in all of our companies, so as they do succeed, we can we can get some capital appreciation on the success stories. That's the trade off right there. That's the look at the look at what the guy's got who lent money to corectly on the wireless side. I lost that. Can you repeat that? I apologize? No, No, We're all good anyway, Dan, thanks so much for joining us.

We really appreciated. We're just at a time Dan divorcets, uh from you know, giving us some thoughts here on this Venture technology Horizon Technology Financi. Yeah, back in the day, um, it was either you gotta have some assets and you gotta have some cash flowmat of course, of course, but you weren't getting thirteen Well maybe you were depending I guess in the eighties that that was at the time my parents were paying a mortgage. Um, all right, this

is Bloomberg. There's been a lot of talk about bitcoin today on CNBC. Scott Miners said it's in a crash right now and he sees no reason to own it. Um, And our next guest says, it is an ecological disaster. James ross A joins a c i O and founding partner at Coast Capital. UM. So, James, your take on this, I mean it's from the mining point of view, a very dirty business. UM. And but you also think that gold is a much cleaner alternative. UM. I think cleaner

alternative is not nice to be with you. Cleaner alternative is not Look, any human endeavor results in carbon emission and an erosion in the environment if not offset property. Right, So there's nothing you can do literally that doesn't have an environmental impact, and that can be described as having

a negative environmental impact. The problem that we have with bitcoin, and why we think the value is zero, although the price maybe what it is, is that not only is it an ecological disaster, I think it's a monetary disaster and it is bound to fail. The reason why we think bitcoin is bound to fail is because, well, first of all, you can't it's very difficult to conduct transactions

with cryptocurrencies. And we were told by the bitcoin profits, who you know, I must admit to sound a lot less like profits and like um promoters of a product that no one can has figured out how to use. UM. You know, we were taught that it would become a basically functiable with money, that it would become an monetary instrument, and it has failed to do that. And then we were told it's not gonna be money. It's too cumbersome to use. It takes thirty minutes to expect payment from

a testla using bitcoin. But it's a store of value, and it's going to appreciate, you know, at inflationary times, which we certainly aren't. Now. If you look at concerns about it, you can't deny that it's appreciated. I meant it certainly has. But when you look at when inflation began to make itself out, which was you know, three or four months ago, Bitcoin has half since then it was supposed to react, you're just looking at a very short window though, I mean, you know, moment. Sure. Look,

time will tell where this thing ends. But here's one thing that I think is difficult to argue against. Bitcoin will be superseded by another cryptocurrency, or by a by a by a more attractive one. That um does not have some of the flaws that bitcoin has, and that the ethereum, and in fact, it looks like a hysterium itself will be unseated by another cryptocurrency that will not have solved the short comings that eithereum has, and so why would I commit my saving stupid coin. You know,

so I hear, I hear this argument. I think it's it's a fair argument for sure. So James, I guess you know I'm not in the in the big bitcoin believer, right. I think you know, my colleague Matt has really been covering it since the absolute beginning here. But my understanding is it's a commodity, and it's a commodity with a fixed supply and presumably ever increasing demand from more use cases. For that argument suggests that's the we can go higher argument.

I mean, I think James has a great point that we were told at the beginning um that it was going to be fungible with any other currencies, and that definitely didn't pan out. Now there are people saying that they're working on the use cases and it can evolve, but it's pretty big and cumbersome, that's true. Yeah, Well,

the commodity has value by definition. The one commodity that people say may may or may not have value as gold, right, And that's where we think actually investors should be investing into, and by the way, gold miners are from our perspective, the place to be on the fact that nobody is interested in gold miners and that capitals scarce as can be in this in this most profitable of industries. It's like,

is pretty laughable from my perspective. So what we've done is we've put together an advisory board that's made up of some of the beating geologists and mine engineers and gold miners in the world to attract to identify the most attractive opportunities in that space. That's what we're betting on. That's where central banks, who know a lot more about currency and monetary affairs than we do, are bending on.

I don't see anybody other than what you think are the best gold miners out there right now, James, or most of the Well, look, we're actually buying them as we speak. We've launched the fund in October. First of all, there's a number of them we think that we're we're currently buying them, so we don't necessarily want to talk

them up and see. But I would say that Jaguar Mining, for example, is a prime example of a company that people aren't paying attention to second largest gold miner in Brazil, training at you know, less than five times normalized cash flows, a lot of attractive deposits that haven't even been explored yet. Really good management team which we spent a lot of time helping to appoint to the board of the company. Really great board. Um has a lot of transformational events

ahead of it. What we really like about Jaguars it's ideally place to consolidate the sector. And gold miners are kind of like diamonds. The larger they are, the higher the valuation, you know, and the p multiples that they get, and so consolidating the sector is a very warning event. One thing that an empoties I'm going on and on. One thing we think is super interesting about gold miners that people don't understand is that we're actually running out

of gold to produce. Ten years from now, we'll be producing fifty percent less gold paranlem than we do today. Well, it is a bit point argument, but guess what with gold, I can actually see a lot of use for it. There's using jewelry. It's the only stable source of value that central bankers around the world and and people around the world have agreed on as a source of UH savings, as an invasion head for hundreds of years and for millennia,

and I think that will continue. Bitcoin, I am a hundred percent confident will be served at best for I think that look when that's what bitcoin thain. When I started looking at it into bitcoin, I thought I have problems with bitcoin, but blockchain actually is a really attractive technology that has merits and uses. You will please have to note that no big tech company has come out with like revolutionary technology using blockchain, and we wrote a

people um the European investment banks sold bonds on the blockchain. James, We're gonna have to continue this conversation later because we're running out of time, but I think it's very fascinating. Love hearing your perspective. James ross Day is the chief investment officer and founding partner of Coast Capital. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform

you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three and on Fall Sweeney I'm on Twitter at pt sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio,