China Sell-Off Is Buying Opportunity: KraneShares CIO

at Bloomberg dot com. Well, Chinese markets are open for trading once against Shanghai, which hadn't traded since the holidays began in January, UH tumbled seven point seven percent, the most since two thousand and fifteen, as the economy virtually is shut down because of the coronavirus. To give us a sense of kind of how to navigate UH those waters, we welcome Brendan A. Hearn, chief investment officer for Crane Scharity's based in New York City. Brandan, thanks so much

for joining us. What do you tell clients here as it relates to China to Asia in terms of allocating capital there? We saw again a virus, a violent turned down in the Asian markets today, certainly for long term investors, we believe obviously the coronavirus is having a very tragic toll from our human on claiming lives. Um. It's going to have a economic impact. UM. That could be in the know over the next quarter or so. But but we believe it is an opportunity UM that for long

term investors, there is an opportunity today. I think they need to be a little careful and where they allocate those investments. But again I think it is an opportunity for those long run investors. All right, So it's an opportunity for long run investors. Is this a bed on central bank stimulus by the PBOC? No, I mean, I mean certainly the you know, like as we saw during the trade war, Uh, China policymakers are going to do whatever they can to support the economy. Increasingly, China's economy

is a um, a consumer driven economy. So I think, as we saw last year around the trade war, we're going to see a lot of stimulus to help that that side of the economy during this this kind of economic shutdown due to the coronavirus so Brendan, we had some news today on that front. Chinese officials are hoping that the US will agree to some flexibility on pledges in their Phase one trade deal. Does that suggest to you that the virus may be worse than maybe currently

being discussed by the government. I think you know, certainly, UM, the the virus, I mean, I mean people are scared. I mean from talking to brokers and and even colleagues in both China and Hong Kong, people are are very scared, UM and and so there there there is going to be an impact. You're just going to limit you know, say you know, we saw it, you know leading up

to the Chinese New Year around tourism. You know that big big sites or even movie theaters, you know, if it's Disneyland in Shanghai, you know, people don't want to congregate in big groups. And and that that is going to have a downstream effects because of the China's role in in in the global supply chain. Brendan I asked

this question of Damian Sasaur earlier. There is suspicion that the UH, the the government of China basically encouraged national investors UH, particularly those that are beholden to their wishes UM to go in and buy stocks to perhaps save some of the declines that we saw on the initial day of trading. After reopening, uh, in the wake of a closure due to the coronavirus? Is that true? How

much state sponsored encouraged buying was there? It's difficult to know, you know, you know, the the Chinese regulator takes almost a paternalistic role in the mainland market due to the high participation rate from individual investors. UM. I do think there was activity uh from the quote unquote national team.

These are you know, big social security pension plans. The end reality is when the last time we saw the national field basically come come into the market was in the summer of when when everything everyone was selling, they bought and that ended up being a very profitable trade. And I think, you know, I don't know. I don't think it's gonna happen tomorrow or in a week, but in the it could be in the next month or the next quarter. I think those purchases done today and

we'll probably see it again tomorrow. I think there's a very profitable trade. This is you know, bylow cell high so Brendan what you know, what do you think the impact the coronavirus will be on GDP for China this year and maybe even into next How does this how do you think this will play out. So Hobey providence plays a very minor role. Uh but but China is is taking a very very serious approach. So so it is going to affect it. You know, the cell side

analysts are going to start dialing down expectations. It's it's even hard for them because we don't know when the coronavirus will take it, when things will start to peter out. You know. You know, the markets tended to come back during stars uh once once the number of people infected stopped. Um, And we're not there yet, so so it's hard to know.

You know, I think things stay in a lockdown mode until we see the virus contain and as that becomes stays become potentially weeks, the feasibility of that being months. It's going to have an economic impact, without question, Brendan, Does it worry you at all that we're seeing the U N lose value versus the dollar now exceeding seven u N per dollar? No? Not not. I mean, you know, the U one you know, post trade deal came down

from six twenty down into the six eighties. So um, you know, I think you know, certainly to me, I personally believe uh interest rate differentials as well as economic conditions determined effects rates. Um. You know, certainly Chinese bond market, what a rally yet that had overnight, I mean mass effensive as much as equities were down huge rally in the onshore bond market. And then then combine that with we're gonna have a weakening in the short run in

China's common That explains the weaker you on. Thank you so much being with us Brendan and her and chief investment officer of Crane Shares in New York. Well, there is increasing focus on Amazon dot Com as the dominant commerce site, and there's a question about their crackdown or

lack thereof on counterfeit items. Joining us now, as Ronnie I said Home, managing partner at sat Home Law Group in our Interactive Broker Studios, Ronnie, let's just talk first about why you decided to look at this in particular, how big of a problem is it for counterfeit goods to be sold on the Amazon dot com platform. First

of all, thank you for having me here. I'm looking at it because it's an endemic issue on Amazon dot Com and it's sometimes it's quite subtle because the the dollar amount that you're paying for this counterfeit merchandise is similar by maybe five to what you would pay for the genuine merchandise. Other times it's not so subtle, but either way, most people are being duped. So is this all products on online market places or is it primarily luxury the high price luxury items. What kind of products

are typically susceptible to counterfeiting? Well, I'm very sorry to have to announce this on the radio, but it's all products at all price points, from toothpaste to rames items. What's Amazon dot COM's role in policing this, because ultimately, is it their responsibility? Is it the perpetrators responsibility On the other side, I think that's a great, great question.

If you buy something that ends up being counterfeit from Sacks, Fifth Avenue or CBS, you can go back into that store and return it and have a conversation with someone who may be able to assess the product um when you return it and give you a refund. Here, no one is really there to help you, and some sellers do not allow you to return items. But in fairness, Amazon dot Com is not trying to be a curator of retail items. They're trying to be or they aspire.

The sense that I get is they aspire to be UH an online marketplace for many different retailers and sort of a common h a common area. So does that change their role? Kind of? Does it make it not a good analogy necessarily to say sex with having no I don't think it really changes my position because if you're in a mall, we have them all right, we have them all on Hudson Yards, we have them on Manhattan Mall's great and New Jersey too. There are malls everywhere.

But by analogy, when you want to rent space to sell your merchandise, there's some kind of vetting process. Provide me with your p n L. Let me see if you're incorporated. Someone is caring about who that merchant is. Online it's very anonymous. I have no idea who you are. Sometimes I can't tell where things are being shipped from where they're being manufactured. And Amazon is extremely convenient. You just sit or stand, press a button, and voila. Your

item is here within a day, sometimes even less. Okay, so I'm a consumer. I realized that the package that was just delivered to me is a counterfeit. What are my legal rights. Amazon doesn't have a program that allows you to return merchandise, but sometimes those refunds don't come for a very long time. Sometimes people get lazy. I mean, if you're buying lipstick for twelve dollars, you may not, you know, make an attempt to return it. You'll say, oh,

it's not worth it. And that happens all the time. So Amazon, though, they will if you say it's a counterfeit and they agree with you, they will refund your money, right. I mean, it's not like Amazon's out there to to screw their users, are they. I mean, I can't speak for Jeff Bezos. However, I can tell you that their algorithm that uses Amazon's Choice does lead consumers to buy counterfeit goods. Try it at home today, type in I don't know, uh luxury iPhone case and see what pops up.

There's a sort of a bigger question underlying a lot of what you're saying, which is what is the role of Amazon dot Com and are they absconding it in terms of being responsible stewards of the modern marketplace? And this has been an issue with respect to how they do their own product placement versus others their algorithm that way, it's been an issue in terms of how they have pushed some competitors out of the market. How does this piece fit into that larger debate. I think it's all

part and parcel, uh the same. Amazon is trying to maximize its profits. No one can blame them for that. That's the purpose of a for profit company. However, there are many ways you can do so, and one way is educating the consumer. There is consumer loyalty. People may think it's disappeared, but it's there. Amazon is a great, you know, example of that. I want to go shopping. I think of Amazon consumer loyalty. Get more of it. Educate your consumers. Tell them this is the usual m

s r P of your item. So if you're paying, we'll just go back to you know, cosmetics. If you know that that Armani lipstick is supposed to be thirty eight dollars, don't buy it for twenty dollars here it may not be real. If you want to buy it, then you may, but you should at least know what you're getting into when you're purchasing the product. Also tell us has this color been discontinued? Perhaps that's why it's on sale. I don't know if it would get to twenty.

It might actually go up to However, educate consumers. Not everybody knows how much every single item is supposed to cost. Ronnie has set Home, Thanks so much for joining us. We really appreciate your thoughts there. Ronnie is a managing partner set Home Law Group, joining us here in our Bloomberg Interactive Broker studio giving us something. It's about buying onlines, not just Amazon dot Com buying a line in general.

Time to check in with Bloomberg Opinion. We're joined by opinion columnist Noah Feldman was a professor of law at Harvard University and also a Bloomberg Opinion columnists based in Boston. No thanks so much for joining us. You know, it looks like again, as Lisa was suggesting earlier, that this thing, this impeaching trial, is pretty much done and dusted. Here, let's take the step back and take a thirty thousand foot view. What do you think are some of the

bigger picture takeaways from this whole process. There's a kind of glass half full, glass half empty, set of ways of looking at it. You know, the glass half full side is that the president engaged in conduct that's certainly the majority of Democrats in the House of Representatives thought rose to the the level of impeachment, and they did what they were supposed to do. They exercised their constitutional already, they impeached him. So that's the good news. The system

worked in that in that way. The glass have full side, though, is a little bit outweighed at the moment by the glass half empty perception, which is that many Republicans in the Senate seemed to be taking the view that even if Trump did these things, it nevertheless doesn't count as impeachable under the Constitution. And you know, it's hard to say if they really believe that or if they're just saying that to cover up their desire to, you know,

not to do anything politically bad to Trump. But either way, it's not a great thing for them to be saying, because it implies that this kind of conduct, you know, cheating in an election, is just okay under our constitutional system, and that's not going to bode well for the future.

Professor Veldman, given your work at Harvard when you are clerking for a Supreme Court Justice David's suitor, and beyond how much of a precedent, does this said for future proceedings in terms of what is or in this case is not a truly impeachable offense. There's two kinds of president. When you talk about impeachment. There's not a court that can be bound by an earlier decision. So when we

talk about president, we're talking about two things. One, we're talking about the kinds of legal arguments that will be made in any future impeachment proceeding. And for sure, if Trump is cleared, whoever's defending a president in future impeachment proceedings will say, look, the Trump impeachment stands for the idea that you can't impeach someone unless there's some kind of an actual statutory crime. And then other people who will be able to say, well, says you, but that's

not really what happened. The other kind of president is will any future House of Representatives even bother to impeach a president who's done something that really breaks the constitutional system but doesn't count as a statutory crime. That's the

kind of real world political calculus type of precedent. And there it's you know, it's too soon to say, but I certainly think that any future House of representatives is going to be very, very very cautious about entering into an impeachment under those conditions unless they're prepared to lose, which I suppose the Democrats were in this case. So were you surprised at all of that at the Republicans stood so uniformally behind the president or it was this

like many people were concerned, kind of preordained. I'm sorry to say that I'm not surprised by it. Um that said, I am surprised to see senators saying that this conduct just doesn't rise to the the level of impeachment. That seems to me to be one of the more doubtful things that they're saying. I actually expected them to say, well, on the evidence, you know, maybe we just can't prove this, and anyway, the president denies that. I expected a more

fact based defense. Even even again, even if it was hypocritical, that just sounded more plausible to me than saying, well, it doesn't rise the level of impeachment. And it also, you know, the saying that it doesn't rise to the level of impeachment has a much worse effect in the long run, because it implies that they think this kind of conduct is fine. Can you de grade Justice roberts

performance in this I think he did excellently. Um. You know, his predecessor, Chief Justice Rank Whist, who actually, interestingly Roberts also was a law clerk for many years ago, famously said after the Continent impeachment trial, I did nothing in particular, and I did it very well. And I think that's what Roberts was aiming for. And I would give him an a for doing nothing in particular and doing it

very well. So very well. Um. So the Constitution as it relates to impeachment, has that been kind of neutered it to some extent? I would say yes, you know, I mean I think if the vote goes the way we expected to, that really weakens the idea that the impeachment is there to help protect us against the president who does things to cheat in an election that don't necessarily count a statutory crimes. And I would expect that future presidents are likely to be willing to take that risk.

I mean, I hope it's not that way. I hope future presidents say, well, you know, look, I mean Donald Trump got impeached and that goes on his historical record, and it looked bad and a lot of that, to be blunt, is going to depend on what happens in the next election. If Trump is re elected, people I think will feel very few qualms in the future about and what he did. If he's not re elected, there might be some second thoughts. Professor Feldman, thank you so

much for being with us. Noah Feldman, Professor of Law at Harvard University, also a Bloomberg Opinion columnist. Uh tons of experience both in the legal and beyond worlds, having clerked for Justice suitor joining us from Boston, Massachusetts. Well coming into if you can rewind all the way back to January nine, it was going to be the year of the Big Unicorn I p O lift Uber we work it didn't quite turn out that successfully for public

equity investors. To get a sense of kind of what we should be learning from some of those lessons, we welcome Vincent w R. He has a global macro strategist for I N T l F C Stone based in San Francisco, but joining us here on a Bloomberg and Director Brooker Studio. So Vincent, thanks so much for joining us again. As we think back, put our rear view mirror, take look at the rear view mirror. We see uber,

we see lift, we see smile direct. A lot of these companies raised a lot of money at a certain valuation. They come to the public markets, they don't get that valuation. What are some of the takeaways that that that you've seen in your work? Well, I mean it's almost a mirror opposite of what happened in two thousand when you know you had these exuberant public markets. Today it seems to me that the the exuberances on the private markets and the public markets are bringing some form of discipline.

I mean, I was reading about Gasper trying to ip you and a lot of these companies cannot get the valuations that they got in in private markets. And the effect that this has had is that, um, there's no exit. Um. So now you you have this backlog of unicorns that are burning gachet of the high rates, and the big exit, whether it's you know, a big stuff bank cash infusion or a big I p O is is no longer

going going to happen. So you have this idea that actually the bust of these unicorns, the myth of the unicorns, is going to be reflationary. Can you explain the connection there, especially on a day what I should just know, we just gotta headline on the w t I prices fell below fifty barrel UH for the first time in more than a year, so we have that kind of pressure as well, right, Um, So I think first we need to understand how it was deflationary in the first place.

I mean, following the away crisis you had, this UH two thousand was a genuinely deflationary shock yelks flattened rates when negative or the world. And what it did is that it directed a flood of money into venture capital and private equity, which certainly became seen as a silver bullet that would allow endowment institutions to achieve the return targets.

And it was a very small asset class with not that many great ideas, but the money got invested with the mandate to achieve growth at any cost, kind of the Amazon model. Right. Amazon never turned the profit in the first nine years of its existence. So the way most of these many of these companies did that was by by sending your dollar for ninety cents um and a lot of the consumer oriented unicorns were built on that model. Let me achieve scale and then I'll worry

about profits later. So effectively, all these companies were subsidizing customers. That's the example, of course, is we work lift uber and UM. The more they grew, the more money they lost. UM and as long as the money kept going in the loop would keep going. But without this constant in flats of money, I mean, you will have to raise prices. I don't know if you've taken an uber lately, but you'll notice that the prices have gone up significantly from

last year. And you've seen certainly a lot of a lot of these unicorns come back and say, well it will be profitable at will be profitable, while how A

You're going to achieve that by raising prices. So the reflation trade, which is one of the trades we certainly heard about when people strategies are talking about opportunities and emerging markets, reflation trade small caps, we're obviously we're not saying Lisa mentioned you know you've got oil uh w t I dip below fifty dollars or barrel just a few minutes ago. First time in a year, we've got

an inverted yield curve. What do you think are the conditions that need to develop for that reflation trade to really start to develop. What I think it was trying to happen between you know, November December, you had a good strength and copper prices you so value do well emerging markets. It was all the trade, he hoped. I think we had this perfect setup for it, and then of course the coronavirus has thrown a big wrench into it. But again, obviously I'm not a I can't really talking

too intently about the coronavirus. But maybe let's let's step back a little bit and think of what it means. I mean, either if it's really I think if if it turns off, we'll go back to where we were before, where you know, kind of global synchronized, we cover trade peace. And if it's bad, I mean, you end up basically, you know, shutting down the factory of the world. I mean,

to me down the line, that will be an inflationary event. Uh. And and the last part I would say that people probably should think about is how is that going to change a policy response in China. In part of the issue with the reflasion trade was a lack of Chinese stimulus. Well maybe that is in a weird way that that would be the trigger for that. You know, there there's a question is it going to be reflationary in a positive sense where you end up with more growth that

defend has been trying for and failing to get. Or is it going to be stagflationary with prices being raised at the time when higher bond prices might mean a collapse in the stock market, etcetera, etcetera. Play out your

worst case scenario. So which is it could be more likely? Well, I think I think at the beginning of the market would obviously welcome some inflation, especially in the regions like Europe in Japan, But eventually my thesis was a lot of the things that we treated we mistook, and uh, there is no productivity improvement in the uniquorn segment of the world. So that would be more actually inflation story stack flation ry than it would be a positive shock

over the long term. One of the interesting things just coming out of Davos was the I don't know, listen, who was the person that the boom bust cycle is over? Bob Princes, Yeah, Bridge Water, I know you brought up many times. It's interesting do you think that has values? Has the FED taken that dynamic out of the marketplace. Do you think again, as long as you don't have

inflation and the bab Princes comment makes sense, right. I mean if the FED is, if central banks are freed from their price stability mandate, they can pursue other mandates like you know, rising asset prices or the ripple market that suddenly their hands become free to do anything, any anything that they want. If you get inflasion back, which is my case, then know the boom bust cycle. It's

not over, it's just been postponed. Vincent Louire, thank you so much for being with us, global macro strategist of I N T L F C Stone based in San Francisco, but joining us here in our interactive broker studios. We really appreciate you being with us. Thanks for listening to the Bloomberg P and 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 Woyds. I'm on Twitter at Lisa abramo wits one. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio,