China Tariffs Are Mild, Investors Should Be Relieved: Miller

Here to talk about that is Leland Miller, chief executive officer of China Beige Book. He made it into our eleven three oh studios despite the fact that we still see a smattering of snow. So Leland, thank you so much for being here. What was your take on the expectation. We haven't gotten confirmation from President himself on the fifty billion dollar figure, but what was your reaction to that number. Well, it may surprise a lot of people, but I think

this is actually the baby option. So fifty billion certainly sounds like a big number, but if you look at what the stakes are in this, the types of numbers the President has been throwing around. You have a hundred billion dollar trade surplus that he said he was going to reverse from the Chinese. We now have a potential announcement of fifty billion in products getting tariffs on them tariff The numbers aren't that big, So I think the way that this is going to be looked at is

the smaller option that he could have gone. He still may go bigger, but I think if you're Beijing, you're looking at this and saying this is this is very far from a worst case scenario. So does that mean that they are going to lessen their threats of retaliation or that it mitigates some of that threat or does this just say well, they've got the upper hand because they're dealing with someone who isn't sure how to how to go about this. Well, the Trump White House believes

that they have all the leverage in this. At the same time, there's apparently going to be a long comments period where businesses can can can can talk about, you know, alterations to this regime, where the Chinese can certainly come and have talks. But I think that the most important thing is that the president wanted to get a number out there. Uh, he wanted to start this, and then tariffs are only half of this. Tariffs are other ones are gonna play the larger political be part of the

larger political conversation. But there are investment restrictions, there are other things that are being talked about which will have much farther, longer term UH repercussions in the relationship and all of this. So it's very hard to evaluate what this is gonna look like in the end. But from the tariff number alone, this is actually on the smaller side,

I would say Leland. Looking at the China Daily and the newspapers in in China, the UM spokesperson for China's Ministry of Foreign Affairs says, quote, we want no trade war with any one, but if our hands are forced, we will not quail nor recoil from it. Therefore, if the day did come when the U S took measures to hurt our interests, we will definitely take firm and necessary countermeasures to safeguard our legitimate interests. Now, are there

legitimate interests there? We're talking about commercial interests because this is from the Farm Affairs Ministry. And at the same time, when you look at what is popular at least into carding the media in China. It is not necessarily US China relations. It is China relations with other countries in Asia and specifically with what is going on in Taiwan.

Right well, I mean right now the Chinese. This this comment period is going to give the Chinese a wonderful opportunity to be able to threaten repercussions on the economic side. They'll threaten subtly some security issues, whether you're talking about Taiwan is suddenly in the news, South China see may become come back in the news before not too long. Uh, but to threaten, Look, this can be bad for you too.

And I think that again, you know the Trump White House things, they have all the leverage in this and in a long term battle, China would be heard the worst in the United States. But in the short term, what China simply does is subsidizes industries, keep them afloat. They'll feel less pain than than the U. S industry,

so they can play this game too. And I think the major threat is the president announced is something the Chinese announced the possibility of light retaliation, And then the question is is whether the President gets angry at that idea or whether he says Okay, well, this is exactly what I wanted to do. I wanted to bring him

to the table. Let's talk. Yeah, well, I wanted just to get your perspective about just other Republicans in Congress and policy advisors in Washington, d C. I know you talk with a lot of people in d C. What's their response to this whole trade tension, but specifically with China, and how are they worried about House will play into mid terms. So Section three oh one is which which it's what we're talking about today, is the the anti

China tariffs for unfair trade practices. Uh, that has widespread support. It actually has a lot of bipartisan support. UM. Very different from the steel and aluminum tariffs that we saw a number of weeks ago. Those were uh not supported, uh even within the White House, certainly amongst Republicans, certainly in Congress. Uh, they were not supported because they thought

that it was a bad idea. They were not supported because two thirty two is a blunt mechanism which could cause a lot of problems if it goes into effect, which it looks like it's not going to. So there was two thirty two, the aluminium tariffs steel tariffs. We were opposed that China tariffs. There's a lot of support in that. I think that there's a bipartisant understanding now that China has to feel pain or they will not move.

I think that the fear is that the President will do something too aggressive or too loud, and he will go too far in this and not accomplis is what he what what people hope he will. But the idea that they needed that China needs to be pushed actually has broad support in d C. Just quickly, Leland, if you were an investor making an investment in China, I don't mean a stock investment, but I mean actually a

physical investment, would you do it now? I wouldn't hesitate to do it right now if this is where it stops. So if you, if you, if you, if this is the president's broad blow against China, then this is actually pretty mild, and I think the investors should probably be pretty relieved. It could escalate though, we'll see. Thanks very much.

Leland Miller is the chief executive of China beij book giving us his thoughts on tariffs and trade wars and China and the President said to announce fifty billion dollars worth of tariffs against a China over intellectual property violations. Facebook shares are deepening their losses today, down nearly two point five percent right now following ball games yesterday, but the biggest two day loss UH in a very long time, equal to a decline in market value equal to the

market capitalization of Tesla joining us now. David Garretty, chief executive officer of g v A Research, we had some words from Mark Zuckerberg. Clearly the markets have said it's not enough. How do you interpret the market action and the failure of Mark Zuckerberg to stave off some of

the declines a negative sentiment. Well, in early crises at Facebook, you know, Zuckerberg has taken this same approach in terms of having a blog post, having a very sincere sort of video interval interview in a in a T shirt, maybe a hoodie, depending how formally occasion might be. But nevertheless, what's been put forward by Zuckerberg here is really just a matter of saying, oh, we'll make a few fixes and we'll promise to do better going forward. Uh. Certainly

you know the market isn't buying it. We also know from what's been seeing relative to regulators and legislators, not just here in the United States, but also overseas in Europe. It's not proving to be satisfactory. People want to see Mike Zuckerberg Mark Zuckerberg in person, front and center in terms of doing congressional testimony or also impearing before either Parliament in the UK or perhaps even the European Parliament.

And the one thing that we need to bear in mind here is the fact that it's not just the fact that regulators and legislators have these concerns. There's actually a significant consent decree out there since two thousand eleven that Facebook operates under which can have significant financial implications for the company. Give people the details. How about this consent to cree. They may not have that long of

a memory. Yeah, In two thousand eleven, ages ago before the last presidential election to presidential elections, the Federal Trade Commission, the FDC, and Facebook entered into an agreement at consent decree in why Facebook said that if they were to expose any users personal information for a day, that they would pay a fine of up to forty thou dollars. But now that we have an instance here going back to two thousand and fourteen, where there were fifty million

users personal data that was exposed without their consent. Uh, if that fine were applied to forty dollars a day per user, the math works out to two trillion dollars a day. And we're working here with Facebook that you know, had a market cap that was roughly of that at the time. Hold on a second, So could this fine I mean, obviously it won't be implemented with two trillion dollars, but could Facebook still face some significant fines? And who

would be the person to make that decision? Well, certainly from the standpoint of the Federal Trade Commission. The FTC has already expressed that they take very seriously any violation of their consent decrees. So one might say that the idea the decision for enforcement of this consent decree rests very much with the Federal Trade Commission and what determination

they make in terms of violation having taken place. Obviously, there will be I'm sure scores of lobbyists being deployed by Facebook, but this is just one thing that's already on the books that could be used against Facebook, not to consider what other prospective measures might be applied. By the UK or the EU or other countries, but has it been applied already? This decree be the first time the decree has been applied, but we haven't seen Facebook

paying any fines for it as of yet. In response to the news that broke over the weekend through the New York Times and The Observer, Okay, well, um, if you go back to the November two eleven consent decree that you're describing, and I'll put it out on a Twitter. One of the complaints that is listed by the Federal Trade Commission has to do with third party apps, which is what we're talking about in terms of limiting the ability of not on Facebook companies to access personal information.

And it says Facebook representative represented that the third party apps that users installed would have access only to user information that they needed to operate. In fact, the apps could actually access nearly all of users personal data, data the apps didn't need. In addition, Facebook had a quote Verified Apps program and claimed it certified the security of participating apps. It didn't. If this goes back to two thousand and eleven, what has Facebook been doing for the

last seven years? Facebook essentially has been promising to do better going forward. You know, overlook our sins um. You know, we're good guys, um, stay with us. And people have accepted that. And the question is, you know, Facebook, having gotten to a scale where you've got over two billion users, you know there's the ability here to move society, to change nation. This obviously is something that cannot persist going forward. The question really for the moment is are the regulators

going to enforce existing decrees on the books? And is Facebook management really cognizant of that? Well, I'm glad you mentioned management, and yes, that's a question for them to uh answer, perhaps before Congress. But I'm wondering if investors can put this question to the members of the board of Facebook because they signed the proxy statement and if there is a material loss, can't this open up the company to lawsuits? I mean Erskine Balls has been on

the board for over six years. Read Hastings has been on the board for more than six years, so has Mark Entries, and Peter Thiel and Cheryl Sandberg has been on the board for nearly six years now. Certainly the board has to be concerned here with respect of their fiduciary duty and the fact that where the liabilities have not been adequately reported in terms of the company's financial statements.

I mean, these are significant concerns, and yes, the board has come out and made a statement on their own, but they next haven't owned up to the extent that this is as big a problem that it could be. I mean, this is an eight pound guerrilla or this is the elephant in the room, if you will, that no one really is paying much attention to as of yet.

And even though the board from the standpoint of governance doesn't have majority control over the company that stays with Mark Zuckerberg given the capital structure and the nature of Facebook's classes of stock, uh, the board still has the legal liability from a fiduciary standpoint. And yes, investors have redress in this regard. So you know, we've already had some class action suits have been filed against Facebook. But clearly this opens the floodgates real quick in thirty seconds.

If this order is enforced by the FTC. What does that mean for other companies, including Google, which shares down more than three percent today. Well, I think with respect too well, they weren't necessarily party to the consent decree, but it's certainly will have to look more at the environment and look at other countries the UK, the EU, and to see whether there are other finds that are potentially going to be levied. What are the changes that are going to be made in terms of trying to

provide uh greater protection around personal information? You know, one has to also stand back and say, you know, do we have an Internet as it is currently structured and operates that's really capable of being reformed, or do we potentially have to start looking at other forms of how else can we construct the Internet to put privacy first? Because in the past it's really been more redundancy and openness. We know that this is clearly something that has failed

in this area. So we have to find and make a decision in a very large way how our society is going to operate. Thanks very much, David Garty. He is the chief executive of g v A Research. Now let's turn our attention to Time Warner and A T and T. Tara la Chapelle, our Deal's columnist for Bloomberg gad Fly, joins us now in studio. You can follow Tara on Twitter at Tara l A c H. All Right, Tara l A c H, what are the attorneys for Time Warner and a T and T saying today in Washington,

d C. Right, So today are the opening arguments. This trial means a lot for the future of media, not just this deal. But it's interesting because the d o J attorneys that are trying to have this merger blocked are basically asking the judge here to predict the future, which is of course very hard to do and not something that the law normally does. We're very backward looking

with these cases. So when you look back in history, obviously Comcast NBS went through with concessions, and I think that's why this A T and T Time Warner deal stands a really good shot in court. Um, most people seem to believe that the lawyers on the d o J side have a lot of work to do, as opposed to necessarily the companies, and I think that's a big reason why it doesn't mean that the deal should go through. It's just that there's not a whole lot

of precedent for blocking a vertical merger like this. So what's the government arguing. The government is arguing that this merger will raise prices for consumers by reducing competition, basically because a T and T could in theory, keep Time owners content for themselves for their own products, which they say they're not going to a T and T. So

that that's preposterous, but it's really not. I mean, what's the point of doing a merger like this except to have more control over the content that is very popular that people love to watch, like HBO, T N T, TB S, Warner Brothers movies. Um, So it's a very it's a justified concern. Um. But A T n T is saying, look, we we just want to be able to bundle more of these things with our services, make better packages for our customers. We're not going to keep

this content out of the hands of our rivals. What would be the point we generate fees from them airing this. So A T N T and Time Warner, in addition to the chief executives testifying their lawyers, how much do you expect an argument that this is completely politically motivated and sort of draw in some of the tweets and comments that President Trump has made about this deal. I mean, it seems like that would be that's an interesting route

for A T and T to play. I don't know if that's going to work in court, because I think what this is about is how is the landscape going to look in the next few years and the next decade. Who's going to be controlling what content? What are the distribution channels going to look like? Online video? Not just

regular cable TV that you know we have. Now there's going to be all these different ways of watching video on your mobile phone, on your computer, I mean, all these different things that we probably can't even dream about yet. So I think they're more focused on that, and I think it's a distraction to say that, you know, somehow

there's this Trump angle. I'm sure that Trump would love to see this deal blocked and kind of stick it to the CNN folks, But at the end of the day, I don't think that's what these attorneys are I don't think this is their angle. You you mentioned that, you know, this is about something that's forward looking versus something that is backwards looking. But if the government were to block this, would they then have any basis to go after Comcast and NBC and a variety of other deals in which

the distributor owns the actual content. I don't know how motivated they are to do that, but I think it is important to look at which companies are as a result of A T and D Time Warner agreeing to their merger seventeen months ago, have already started kind of moving the ball forward on what deals they could do

as a follow up to this. Everyone's watching this deal very closely, and I think what the judge knows is that while he doesn't want to predict the future, and he said that he's going to need a crystal ball for this case, which is an ideal, he knows that if this deal goes through a lot of other transactions, you're going to come out of the woodwork. So I think that's important to consider in this That's what I was going to ask, you know, what are the implications

both legally and practically. And you're saying that if h if Time Warner and A T and T win, it will unleash an even bigger wave of M and A. Is there a particular deal that you're looking at that hinges most directly on the outcome of this case. I don't think there's one that's announced yet that does. I mean, obviously Disney, Fox, Comcast getting into the ring for that UM has something to do with it. I mean it comes down to this question about power over content, but

I think there's gonna be other machinations. I mean, think about what a Verizon could do, What could some of the tech companies do if this is allowed. I mean there's a lot of different players that could get into this because they see that content is so important, and the content companies don't have enough scale in this day and age. So I think they're seeing these vertical mergers could be really good for them, but not so good

for consumers. At the end of the day, we mentioned that not being good for consumers is that because we would see the price of monthly subscription rates increase. I think that could be a result down the road. So what a T and T you saying is that what would be the point right there? Their whole thing is they want to lower prices, have these more attractive bundles.

But by controlling more content, you have more negotiating power with your distributors, which then means there's less choice for consumers, which then means you can raise your prices for your own consumers. And it comes back to this idea of media tribalism, which is something some media reports have been saying lately where you know, look at Disney pulling their content off of Netflix putting it on their own apps. These companies are becoming more and more insular, which is

against the tide of what consumers want. And I think it's very dangerous if we give them that ability. Tara la Chapelle, thank you so much. A really insightful look at what we're seeing in Washington, d C. Arguably the most high profile antitrust case ever in US history. Thank you so much. Tara La Chapelle, deal's columnist for Bloomberg Gadfly. Read her stuff. There are fabulous columns. It's got a great calm just to tell your TV's death by a

thousand streaming apps. It's a wonderful column. Let's talk about commodities and specifically fossil fuels. John Love is the president and the chief executive officer of the United States Commodity Funds, helping the manager about three and a half billion dollars. Based in Redondo Beach, California, but he joins us here in an hour eleven three oh studios. John, always a pleasure, Thank you for being here. Uh, tell us about what's

going on right now with the oil market. Dynamics. I'm looking at crude on the NIMEX, down about one percent at sixty four dollar barrow. What has changed in your view over the last let's say three months when it comes to the oil market. Sure, well, we had a and thanks for having me, by the way, we had a spectacular run since September. The between September and January, the market was up w t I was up about fifty six. We have since since they've been trading, you know,

a little bit in a side is range. And then yesterday we had a very bullish stock draw on US inventories which led to the price jumping three percent. I think that might have just been a little bit of an overshoot. People are pulling back today a little bit, reassessing um as of last night, that's near the highs for the January highs for the year. So it's uh. I think I think there's kind of a probably arranged based on certain factors right now in the crude market.

And UH, people are just kind of reacting to both the bullish news yesterday and some of the things that are maybe some of the head winds that are ahead. John, I want to talk about actually investing in the oil market. I'm looking at your us O fund. It's an e t F that has nearly two billion dollars of assets, and a lot of people think of it as sort of the instrument to use when thinking of quick trading

on oil. I want you to talk about who you're targeting with this fund, given the fact it doesn't really track the crude spot price over time. Sure, well, it's actually not possible to track the spoon the crude spot price unless you actually own physical crude, and even then you're paying um storage cost, transportation costs, insurance and all of that stuff. And that's kind of sometimes reflected in the sort of the premium you pay to buy oil futures.

Right now, though the crude market isn't a condition called backwardation UM, which has been UM that which is actually a boon to investors. That actually is kind of a a yield you pick up when you roll the futures from one month to another. So we've been in contango for a number of years. We've we've vacillated between contango

and backwardation over the long term UM. So when people say that USO doesn't track, it actually does track the daily change in price, But over time, UM it appears not to track UM track crude simply because of that contango backwardation factors. So that's something the investors really need to watch is go to UM any any financial site that tracks crude and find out is the market our futures prices going up as you go out on the curve, are they going down? If they're going up, that's a headwind.

If they're going down, that's a tail wind. Do you get the sense that most of USOS investors are sophisticated traders who understand this dynamic, because I know there was a lot of attention on this fund back in when the fund lost nearly forty percent and then the next year when it only gained six point six percent back even though oil had rebounded so much. Sure, actually that's

a beautiful test case for for this UM. This scenario UM we had very steep contango, so USO it earned six and a half percent the spot price UM theoretically it went up forty percent. You couldn't actually earn that, But if you look at some different products out there, we have a product that owns the first twelve months that was up in the high teens. We have a

Brent oil fund. I think that was around percent that year, So you can get much closer to UM maybe that theoretical return by kind of looking at the different different options that are out there. Gasoline was another one, but that's not always the case. The the other times when USO outperforms UM, when you get a big pop in the market, it's going to it's it's gonna tend to track that pop better than something that's further out on

the curve. Uh. And it's certainly if you're in a backward dated market, it will pick up that roll yield and do better. So was the reverse example where it was tough UM Right now if we stay in backwardation, that's a little bit. It's almost like a little bit of income to the fund UM. And of course interest rates are rising as well, So where we had really no income on the collateral to three years ago, we're

now starting to see some UM collateral return coming back in. John, I'm gonna show my age and let you know that the rig count was a closely watched number at one point if you were interested in the oil market. Is that still the case right now, or have new ways of extracting oil from the ground really made the rig count more of a fossil. Yeah, I think I think

both people are still watching it. I do not think it's as UM efficient an indicator as it used to be, as you said, simply because if you look over the last five ten years, UM, what's happened is, especially since the oil crash, rig counts UM are only half what they were at their peak about two three years ago, and yet we've hit record production in the US over ten point four million barrels a day UM right now. And the only reason that's possible is because the drillers

have become so much more efficient UM. They were forced by the YEOPEC decision to defend market share back in to really look at their costs and really start to make changes, and so they are able to extract more UM. We'll see how long that lasts, because they have gone towards the more efficient rigs that the wells that were already drilled UM, and they have not done as much on the capex front, So we'll see if that lasts. But to your point, UM, it's not as efficient an

indicator as it used to be. Yet people still watch it very closely, John Love, Thank you so much for being with us. John Love, President and Chief Executive Officer of u s CF United States Commodity Funds, overseeing about three and a half billion dollars in asset. 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