Crackdown on China Tech Could Create Two 5G Markets (Podcast)

Joining us here in our Bloomberg inactivist Broker Studios and Stevenson Yang, co founder and research director at JA Capital Research, also a Bloomberg Opinion contributor, and thank you so much for being here today. Let's just start with a state of play. Where are we in the trade negotiations between the US and China? To be honest, it looks like the US is just about to capitulate. Um. But we're in the in the last last lap. It looks like

the US is about to capitulate. How so? Uh, you know, March was the what was was the delayed date for the implementation of the higher tariffs? Should should China not agree to a number of conditions. The conditions that were set for China were conditions that really could not be made be met. They were too vague, too broad. They meant basic restructuring of the economy and the political system.

And I think that Trump and his administration don't really want to walk off that ledge, and so they're preparing to de find a face saving method to back down. What do you think that face saving method is in terms of acudan? Who knows? Last time it was Fentinel, which came right out of left field, so it could be anything this time. How about some of the more more substantive issues like technology and intellectual property or any

of those really tough topics going to be addressed. Look, those are the issues that really need to be addressed. The question is how so the US has been going around to allies and asking them to you to drop Huawei from the from the five G network construction, and that could actually happen. There's a meeting in uh in Spain of the EU Committee on G S M Technologies at the end of the month where people are going

to discuss that. I'm just wondering Huawei. Huawei, we were talking about the proscently the charges that the US levied against Huawei UH and and how this would be read politically. The US taking the stances is a completely separate legal action that has nothing to do with trade negotiations. Originally, China seemed to make noise saying that that you know, this is absolutely part of trade negotiations. We're not buying the U s S line. But recently they've got a

little dark on that. What's the latest there? They've gone a little dark on that, but they're still holding in detention three Canadians as really naked leverage against Canada in hopes that Canada will not extradite among to the United States. And this is so so it really is clearly viewed in China, and all of the press coverage and Global Times and so forth is all about how how long is upon? So are we is the Lawwei situation? I e. You mentioned Barcelona, maybe you know asking our European UH

countries not to use that technology. Are we creating a kind of a bifurcated technology market where the Chinese companies will supply Belt and Road countries and Western companies will supply Western technologies. And the reason I asked that I'm thinking about the global five G build out and rollouts could be the next mega trend in text spending. I wonder from creating kind of as a segregated market being developed. Yeah, I think of it as sort of a bamboo technology curtain.

It's it's an interesting thing because the five G network is the thing that will really UH manage smart appliances, self driving cars, UH, power networks, all of those things and um and you can imagine some of the security uh issues that could arise from that. And so excluding UH, Huawei and Zte and Chinese providers from that network, I think is a key goal of the United States right now and you can you can understand why, but it

would create a very interesting bifurcation. Yes, So we're speaking with and Stevenson Yang, co founder and research director at Jake Capital Research, also a Bloomberg opinion columnist. We're talking about China and U and US relations as well as the build out of five G, which is sort of integral in this whole issue. As we've been talking about for the past few weeks. How does the slowdown in China's economy affect the five G build out plan? If at all, well, I think what it really affects is

the is the view internationally by investors of China. Formerly, you had companies like like Cisco which sued Huawei back in two thousand three, Motorola with sued Huawei, and I think it was you had them come to settlements because they were concerned about being shut out of the market. I think that there's much less of that concern now and more of a more of a combative stance. So the U S technology companies again, my my sense will be boy, China is a huge market to sell into

on the one hand. On the other hand, we need some protection from China. So what are we hearing from Silicon Valley and some of the leaders about how they would like to see policy developed. You know, they've been surprisingly quiet. They used to be really strong supporters of accommodation with China, trying not to uh to to to make these issues tremendously public, trying not to embarrass China.

Now you find that they're very quiet. So you said that, if I'm understanding you correctly, the US companies are becoming more combative and international companies are becoming more combative when negotiating with Chinese tech giants. First of all, how is this manifesting and why does this slowdown give them that

sort of confidence. Well, because the slowdowns suggests that that the market is really not quite as promising as they thought, and that they may not after all, build billion or two billion dollar businesses in China, and therefore they're able to defend their interests or you know, in a more strident manner, does does China still need our technology? Or if they developed skills in court technology, but whether it's chips or software or hardware, they really don't need us

or Western technology as much as I used to. Well, apparently they do. I mean. The thing that struck me, really bowled me over about the Huawei indictment, the Washington State indictment for its attempt to to steal Tappy technology from T Mobile was how, you know, the the US, the North American market is huge for Huawei, and its

reputation in North America is also really important. So the idea that they would risk all these things in order to steal a technology that's really kind of hum drum, and that that a lot of other companies had developed in different ways um is really kind of stunning and suggest that there that there's been some myth making about Huawei's capabilities. Do you think there's been myth making overall

in terms of China's technological prowess? Look, I do. I mean this is not to say at all that that that you know, extremely extreme competence doesn't exist in China's tech industry and that they're not inventing things all the time. But the fact is that the companies that get to scale and manage to uh to achieve big sales are not the companies that are innovative. You can't do that in China's economy. And Stevenson Yang, thank you so much

for being with us. We really appreciate it. And Stevenson Yang co founder and research director at j Capital Research, also a Bloomberg opinion columnist, and she is normally based in Washington, d C. In Hong Kong, but joining us here in our eleven three our studios. It is the end of an era. Bill Gross, the erstwhile bond king of PIMCO, who went to Janice, said he was retiring after a period of mixed performance. If you want to hear what he had to say, let's listen to Bill

Gross in his own word. Speaking with Bloomberg's Tom Keene earlier this morning about his performance, and you know, I look back on it um and the performance on the constrained fund in the past four years with Jannis has H has been unsatisfactory, no doubt, but still positively um positive and normal and nominal terms. Joining us now in our Bloomberg and Directive Broker Studios is Peggy Collins, investing

team leader for Bloomberg News. Uh, Peggy really interesting. He had an amazing run at Pimco, falling out went to Janice. Since then his performance highly underwhelming, that's right, and also not a lot of money followed him to Janice. So when he left, I remember the morning he left Pimco September.

People were shocked. We were scrambling around the newsroom trying to put the story out fast, and he basically at that time jumped to Janice, where he had been longtime friends with Dick Wild who was running Janie at the time out of Colorado. A couple of years later, Janice merged with Henderson Group in London, and so now it's a big London based firm that he's a part of.

But Bill Gross maintained kind of a solo act um in Newport Beach for a long time over the last few years, and we've just seen the assets in the fund really deplete, the dip below one billion at the end of last year, and his performance, as you said, has really lagged about less than one percent over the annualizes four years, so it's been it's been a struggle since he left PIMCO. So Peggy is yet another example in the decline of the active manager. I will say it is it is a signal in terms of how

difficult it is to be an active manager. Um. I think in general bond funds have had fewer outflows than equity funds. We've really seen a lot of investors pour into particularly US S stock funds on the passive side rather than active, but bond fund managers, in part because there's not as much of a delta between the expense ratios on bond funds passive or active, they have held up somewhat. But to your point, it is an indication of how hard it can be to do well in

an active fund. It's interesting because he was known as a bond king, the bond king. Is there another bond king that has taken Bill Gross's place. You know, I think it's hard to say right now. I mean, he certainly was the person who built up the bond industry in terms of the total return fund at Pimco. PIMPO became the world's largest mutual fund manager while he was there. It reached a three hundred billion in assets by at

the peak. So I think he really became the face of bond funds and in testing, and he was on TV a lot, he did investor letters. Tons of people had the total return fund at him go in there for oh one k plans, But I don't think we have someone to that degree, and in part because it was something new at the time. In hindsight, Peggy, what is probably the call here about what happened to Bill Gross?

In terms of performance? He had such a good run there, as you mentioned then, the most more recent performance has been underwhelming at best. Did he just did the market just kind of move away from him? Did he just

missed the evolution of the fixed income market. I think one of the things that may have happened was he changed his strategy, and he noted this today to Tom Keane on the interview with Bloomberg Radio and TV that he wished in some ways that he might have stuck with his total return strategy, which he really pioneered a bit more and Ben a little bit more constrained. Lisa,

you know these funds really well. But these unconstrained bond funds which Bill Gross ran one at Janice, they were really un vogue after the financial crisis, and lots of bond managers said they're going to be the greatest thing because we can go anywhere and when interest rate starts to rise, we'll be able to move and groove. And well, it turned out to be a little bit more difficult

than that. They had higher fees than other bond funds, and the whole argument was predicated on this idea of rising rates, of rising benchmark yields, which Bill grow subscribed to. He thought that, you know, he shorted tenure treasuries when the yields were three three and a half present. That was not right. But I do have to wonder, you know, how much of the active model is broken Bill Gross in particular, uh, you know, homing in on hedge funds

and saying that that model is broken. Take a listen to what he had to say. Obviously, the hedge fund concepts suggested long and short, but it was really one in which managers took a lot of risk. So when you speak to diversification, you know, perhaps most of those hedge funds were non diversified in terms of the risk that they were taking. They were taking levered risk and still are. So he was talking about hedge funds Bill Gross this morning in a conversation with Bloomberg's Tom Keane.

Of course he himself also took unlevered risk, but in mutual fun format, right and again, on this uncontrained bond fund, they had a lot more latitude and versus the total return fund that had a lot had to stay more constrained and take more measured risks. So when you have the ability to take big risks, sometimes it goes very well and sometimes it goes very sharply down the other way.

And we saw Bill Gross's fund in the spring of last year really take a dive on a couple of bad bets that he had made in relation to the German bunds. So, and I think on hedge funds, you know, he makes a good point that a lot of we've seen a lot of the hedge funds kind of heard together into long bets with with the fang stocks, and then when things turned the other way kind of they go go in tandem downwards. So I think his point is made. But I do think he you know, he

struggled over the last few years. We saw a lot of investor redemptions. He did say on the interview today on Bloomberg Radio and TV that he believes his legacy stands because for his over his four decade more than four decade career in the investment market, he certainly had great returns at Pimco. Peggy cons thank you very much for bringing us up to date on really momentous news

in the fixed income world. Here Peggy Collins, investing team leader Bloomberg News, joining us live in a Bloomberg Interactive broker studio. And I think I have to agree with with Peggy that and with Bill that, you know, over his forty year career, just outstanding performance for his investors in the fixed income market. Uh, and he clearly was

the bond king. You know, if we want to take a look at what's going on with the global economy, there is no better place to look than the shipping industry. And so we're very lucky to have Ian Webber with us here, chief executive officer of Global ship Leaves, normally based in London, but here with us in our New

York studios today. Global ship Leaves actually just merged with Beside Containers late last year, now has point three billion dollars worth of ships as well as thirty eight modern fleet of thirty eight So, Ian, thank you so much for being here. Do you think the concern from your perspective of seeing ships in the water, the concern about trade tensions has been overplayed or underblown? Firstly, thanks for

inviting me. It's good to be here again. Um. Yeah, trade wars and tariffs and and and the uncertainty that that creates never good for business, but it does create opportunities. Now, for for my business, you have to take a step back and look at the global container fleet and look at very big ships and then the rest medium sized and smaller. The very big ships are the ones that are deployed on trades between China and North America and

China and Europe. They're the ones that are going to be most affected directly by tariffs and trade wars, at least until something is resolved. The midsize and smaller fleet is out with that. That's global contain a trade. That's where my company, Global Ship Leases is focused. There will be an indirect effects, of course, but the direct effect on global trade flows for US we expect to be negligible.

That's interesting when you raise that seventy number, because when I think of global shipping, I think of the big monster container ships sitting in the harbor and Singapore, you know, in Bayo, New Jersey, getting loaded and offload of these monster things. But global trade is with the medium and smaller ships. As you say, what are the drivers of that business if it isn't the global trade that we're

talking about China, Europe, China, US local local economies. These are trade lanes that connect the Indian Subconsinan and Australasia, Australasia and South America, North America and South America, Europe

and South America. So it's everything else, and it's it's consumer products, it's some manufactured products, it's raw materials, it's frozen lamb, it's butter, it's wine, it's water, it's beer, it's shoes, it's all of these things that emerging economies, particularly in Okay so what changes have you seen in the past six months that sort of very indicative of either the global economy or the changing trade routes emerging from the tech Continued growth in demand in these non

mainline trades, so we've got three or four demand growth. Where is it something from in particular, it's broadly spread, so you know, it's across the whole world, which is great because our ships are built to be able to be deployed around the world. On the other side of the occasion, the supply side, the order book ships that are contracted to be built for midsize and smaller container

ships is tiny in flank. The supply of midsizing and smaller ships has contracted over the last half a dozen years. So we've got demand growth and supply contraction which will lead to increase in price charter rates for US rental income and ultimately asset values. So our ships that are coming open in the market later this year into two thousand and twenty, we're hoping to renew at higher rate driven by these economic fundamentals. What are you doing with

your fleet right now? At least mentioned thirty eight ships, I believe are you adding to the fleet? How do you think about that capital expenditure as it related to the maybe the visibility you may have on your upcoming business. Sure, I mean, we've just double the size of the fleet. You're kind enough to observe that we've reduced the average age of the vessels. Who improve the quality of the ships. It's it's a great transaction. More than doubling the size

of the business. Going forward, we still see opportunities to add selectively to the fleet second hand vessels, five ten year old vessels with a charter with a rental stream attached to it, when asset values are still relatively low. We're still it's a cyclical industry. We're still at the bottom of the cycle, and therefore there are good investment opportunities for those who have the appetite and the capital,

which which we do. How does the growth that you're seeing right now in demand compared to the past few years, It's it's steady and wan it flucture. It's from me to you, we are cyclical. Not every trade lane is going gangbusters all at the same time. There are there are more prosperous economies and less prosperous, but on average three or four percent. The reason why I ask is because people are talking about this sort of global deceleration.

I'm just wondering if your empirical evidence bears that out. Really is difficult to tell, but with no new ships being built in our sector um and positive demand growth even if it's three percent rather than four percent, and that's a great position for us to be in. So your company's interesting. You you own the ships and then you lease them to the large, larger container ship companies from maris them about the world. Um, so I would send,

I would get it. I would sense that you would probably be a very you know, a high delta indicator to what is really going on in terms of demand in terms of global shipping. So do you have it? What's the average tenure of your contract? You have contracts rolling over, and what can you tell us about kind

of the renegotiation rates you're currently seeing? I'm sure. I mean, if you were renewing a ship in today's market, you'll be looking at a new lease, a new charter of six, nine, twelve, maybe eighteen months, relatively short term, which is fined by us because we expect rates to continue to rise, so we'll then release again and an improving market but we have a mixture of long and short term charters. We have seven fifty million dollars of contracted revenue on average.

Our charters run for two and a half years, So we've got a great mixture of a bedrock of of cash flow and then some short term charters renewing soon that we hope to be able to renew an improved market. So the supply demand dynamic really favors you in terms of being able to raise rates. For the marisks of the world, how much do they push back at a time when people all talk about margin compression, Uh, you know, inflation around the edges and the inability to pass it

along to consumers. Oh, it's a it's a tough negotiation. You know, you've got a buyer and a seller and you're trying to come up with a price. Our our industry is very liquid. However, there are professional shipbrokers out there. Information flows extremely quickly, um and very broadly, so we kind of know what market rates are. But there is inevitably a bit of a tussle between owner and charter and you end up with something that you agree in

terms of rate and duration. So who do you compete against every other container ship that's that's that's out there, but other people in your business that are in that leasing business, that are kind of in the flex business that that you're in. Yes, I mean there are just over five thousand container ships in the world. Roughly half of them are owned by owners like us, so two and a half thousand broadly spread. Some are on very

long term charters, some are on short term charters. So it's a pretty fragmented industry, hence the availability of decent market information. So just real quick here in thirty seconds, what are you most concerned about with respect to global growth or do you think it's just smooth sailing ahead so to speak. Pardon my plan. It won't be smooth sailing for twenty years in the industry. I've known that. But we're looking forward. We came and it's there will

be hiccups. Um you know, we're we're in a bit of a seasonal down to now. We expect things to pick up come come late February, early March, a seasonal downtown in industry. Um. Interesting, Ian Weber, thank you so much for joining us IAN as a chief executive officer of Global Ship Lease as symbols g S l on your Bloomberg terminal. He's based in London, but he joins

us today in our Bloomberg eleven three oh studios. So unless you're a Patriots fan, you probably didn't find last night's thirteen to three Patriots win over the Brams very scintillating to television. But the real question for Madison Avenue has how did to do in ratings and how did the advertisers fair? So do you give us some color on that? We bring in John Swollen. John is a chief research officer from North America for Can'tar Media. He's

based in Euyork and joins us on the phone. So again, John, not the most exciting of games, arguably, but what did you think of the ads and any winners and losers you saw? Well, you're right, it wasn't the most exciting game on the field. But that's why we have the Advertising Bowl as a backup. UM, and every year the advertisers do their best to entertain fans during the breaks in the action. So do they win? Did they do

a good job of it? I don't know. Um. Late in the game, I heard Tony ruma I would call Tony Roma saying it hasn't been pretty, and I think that comment might apply to some of the advertising as well. UM. But by and large, I mean there were a handful of winners in the in the game. UM. Certainly Budweiser, which was the top advertiser in the game UH spent about sixty six million dollars to UH to run spots in the game promoting It's it's different beer brands and

many of those. I think we're favorably received by the UM, by the by the doing audience, by the corner, and extending their Delly Delly franchise. Al Right, so we had a delidilly. Although the corn lobby is pretty upset with Budweiser today, I believe right that's right, because they were touting that there I guess corn syrup free maybe exactly, and people didn't realize that wasn't even aware, but most people didn't realize that corn syrup was used to brew

beer in the first place. But you know, I gotta say, I was looking actually at some cantorvideos of some of your research, and I was really interested in the fact that the ads paid for by these brands, the total amount of time that they had was the lowest since two thousand and ten, with the rest being taken up by network promos and NFL promotions, etcetera. Uh, what do

you make of that? I make that, Um, it's a supply and demand marketplace, and the fact that there was slightly less paid commercial time to me as an indication of a relative lack of demand. Um. I think the game was still very well received by advertisers, and many of them took advantage. But I think there was maybe a swing of a minute and a half to two minutes of commercial time that in previous years would have been paid at this time time was used by the

network or by the NFL instead. So, John, we saw that CBS charged I think I saw between five point one and five point three million for their average thirty second spot. That was I think kind of flatish. Maybe with the prior year Super Bowl has I think thirty second spots that they plateaued they hit a peak, do you think, um? I think so. I mean, it certainly gets harder to raise prices once you're above that five

million dollar threshold. The you know, the difficulty that CBS had in selling spots in this game, and the fact that they were still selling spots within twenty four hours of kickoff. UM. Is an indication I think that, you know, prices a barrier for for more and more advertisers. UM. But at the end of the day, UM, it's still a very large it's still a very large reviewing audience. UM. And there's still advertisers that will gravitate towards the Super Bowl.

But I think increasingly we're going to see a fewer and few of those small upstart brands that are used the Super Bowl to try and break through make a big impression. I think they are an endangered SPECEI. You know, John, people talk about how this is the lowest scoring super Bowl ever and that it also probably had a decline in viewership. And I'm just wondering. You know, Paul was asking about whether the thirty second spot is kind of on its deathbed or have we seen the peak in

prices for Super Bowl ads? UM. I don't know that we've seen a peak. UM. I think certainly if it continues to increase in future years, it will be at a very low rate. I mean, over the last ten years, the price of the Super Bowl ad doubled. UM. We're not gonna certainly not going to see that over the

next ten years. So, John, given that maybe you know, these networks have kind of maybe seen some peak pricing, or maybe the growth rates will be a little bit lower than what they have been over the last ten years, is it still worth it for them to be into the Super Bowl business. It's definitely worth it for the networks. Yes, Um, I mean, it's a tremendous promotional platform for them. Um. It does bring in huge revenue. Even if the revenue

growth slows in future years. There's nothing else out there that brings in nearly as much revenue as the super Bowl. I mean to put things in perspective, Um, the super Bowl brings in as much revenue as many small cable networks do in a full year. The super Bowl does it in one day. John swall and thank you so much for being with us. We really appreciate it. John Swallen, chief Research Officer for North America at Cantor Media, talking about the Super Bowl and the advertisers that did spend

millions and millions of dollars getting that exposure. 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 A. Bram Woyds. I'm on Twitter at Lisa bramwo wits one before the podcast, you can always catch us worldwide on Bloomberg Radio