Markets May Have To Adjust To Getting Info Via Twitter

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Tesla shares are down nearly four percent, falling deeper after a report from Fox Business UH that the U S as you see, sent a subpoena to the carmaker regarding Elon Musk's plans to take it private and has claimed to have had quote funding secured for the deal. Joining us now for more insight is Professor Jill Fish, business law professor at the University of Pennsylvania Law School. UH. Professor Fish,

thank you so much for being with us. Let's just start with what are the legal issues as you see them that the SEC is likely investigating when it comes to Elon Musk and his tweets. Well, just to start um,

the tweets have gotten a tremendous amount of attention. They've obviously had a huge effect on the stock price, and so I think it's absolutely expected that the SEC would want to probe into this and find out exactly what Elon musk knew at the time that he made the statements, what his purpose was in making the statements, and what

exactly he meant by those keywords funding secured. Based on your experience, if you were called in to offer legal counsel, what would you say two members of the TESLA board at this point in time? Yes, Um, I guess I would want to have an understanding of the situation. It's really, I think, a very rapidly evolving situation. Uh, we as the public aren't sure at this point exactly what the status of the deal is, what the status of the negotiations are. We learned I learned last night that Goldman

and silver Lake were involved in this. So my first step would be to find out what's going on, Um, how far along things are, and what the status of the various players are. One thing that I'm struggling to understand is how long an investigation like this would go on by the SEC and what the potential consequences are. Can you shed some light there. It's very hard to predict because we really don't know what the SEC is

going to find. I think the SEC's first priority is to make sure that the public, that the capital markets have accurate information, and so I think the purpose initially is to clarify the situation, to find out whether any sort of corrective disclosures are necessary, and to move very quickly on that. I think at this stage it's much too early to try to understand are they going to bring an enforcement action? Is there a possibility of some sort of sanctions and so forth? We just don't know.

So if that's the case that I'm trying to understand, you know, when I talked to investors in Tesla analysts, they say, well, there is this SEC risk. How big of a risk is it? If the investigation might take a very long time, it might just result to in sort of a hand slap of a fine um. I think in terms of affecting whether Tesla goes private, the

SEC investigation is a limited risk. I think it could upset the apple cart, so to speak, but I don't think that the SEC investigation would prevent the company from going private. I think with respect to Elon Musk's personal situation, a lot of that is going to depend on these unknowns, on what his intent was whether there was some sort of purpose to deal with short sellers and manipulate the market,

or whether he just got ahead of himself. In the SEC's view, Professor Fish, is it legal for the CEO of a publicly traded company who also owns nearly of a company's stock to put out a specific stock price for a take private deal unless they have a committed end or some kind of documented evidence that such a conversation or negotiation is taking place. Um, well, you put

it very bluntly, and that's kind of a hard statement, right. Um. I think there are a bunch of questions that I would ask, or that the SEC would ask in terms of determining legality. But I think the way the tweet was framed in terms of his intention or his goal at a specific stock price, I don't think that's necessarily problematic. One of the things that we've seen with Elon Musk's tweets, and it goes back before this specific incident, is he's

sort of pushing the envelope. He's using Twitter to communicate information more rapidly in something in a in a style that's really unconventional compared to your typical CEO. But I don't think that's something that's necessarily illegal, and frankly, I think it's something that markets may have to adjust to as information becomes more time sensitive, as we start to see greater use of social media and so forth. Professor Fish, do you think you're gonna be teaching your students about

this particular case? Absolutely? How what capacity? UM? I think that number one, the way companies communicate with their investors and with the capital markets is evolving, is tremendously important. Is something that UM is something that UH students are going to have to learn about in their capacity as corporate advisors. And I think the evolving use of social media is something we want to think about really carefully.

Thanks very much for being with us. Professor Jill Fish is a business law professor at the University of Pennsylvania Law School. Talking about Elon Musk and Tesla, and of course this all in the wake of those tweets made by Elon Musk about taking the car manufacturer private. What does the United States really want from China when it comes to trade. Here to help answer that question is

Robert Lawrence. He is the Albert L. Williams Professor of Trade and Investment at the John F. Kennedy School of Government at Harvard University. He is also a Senior Fellow at the Peterson Institute for International Economics. Previously, he served as a member of the Council of Economic Advisors under President Clinton, and he is the author of the forthcoming book Blue Collar Blues. Is Trade to Blame for rising US income in equality? I beg your pardon, Professor Lawrence.

Maybe you could just sort of give us a little bit of your perspective before you tell us what you believe President Trump's ultimate strategy with trade in China is. Well, I am suspicious of I think basically what President Trump wants to do is to raise tariffs and increase protection in the United States. Uh. And I think he's prepared to use the trade rules when it suits him in

order to accomplish this. UM. And that's why I'm suspicious that his um urging China to change its behavior UM and UM respect the intellectual property protection of American firms in China is really a negotiating demand UM or what I believe is actually a pretext for him to raise barriers on Chinese products. So this is a really compelling point because there are many people who say that President Trump's actions so far are negotiating tactics that will ultimately

lead to a softer end. You're saying that that's not the case. What is the end result of what you believe President Trump is going for? Well, I I believe the end result is high tariffs. Were already seeing them in place against stealing an aluminum with no possibilities really of them being removed in short in the short run. And I actually think that the tariffs against China, which have been escalating, are going to be with us for

a long time. Another thing that really strikes me as inconsistent is that, um, when it comes to Mexico, what the administration is trying to do is to negotiate a man after that makes it much harder to outsource to Mexico, and they want the agreement to expire. They don't want to give a legal protection to investors in Mexico and have the ability to challenge things that the Mexican government does. So that's sort of consistent. They don't want outsourcing to Mexico.

But when it comes to China, ostensibly what they want is for the Chinese to protect American investors by ensuring their intellectual property. And if the Chinese actually do that, it's going to become more attractive to invest in China, which isn't really what the administration wants. I think what Mr Trump really wants is something he's promised for many years, and that is to tax products which are outsourced by American firms for production in China and then brought back

into the US market. Professor Lawrence, can you speak a little bit about how tariffs have can can may have a long term effect on an industry beyond just increases in prices or blocking certain kinds of companies from uh, you know, producing their products overseas. And I'm thinking of many things you've talked about, including the chicken tax, which

goes back to four. How to tariffs affect businesses and how they really operate well, well, they affect them tremendously in today's global economy because increasingly products are not made in one country and sold in another, but firms try to make their products in the world. They make components in one country and then they assemble them in a second, and then they bring them in to a third. So so many of the products that are manufactured in the

United States use imported components. What parists do is to interfere with the entire system. And today, if you were a planner in any corporation, you're going to have a huge amount of uncertainty as to whether relying on the components that you bring in from other countries is going to be a viable economic strategy, because it's quite possible either the US will put a tariff on your products or the foreigners will also prevent you from doing this

by retaliating. So what I'm struggling to understand that what you're describing as President Trump's goal is that the goal of the of the people in the rust belt, Well, I think it's ultimately not going to help help them very much because of the global nature. Uh, it is the goal of some in some industries. So if you're in the steel industry, now you have protection from foreign competition, and so you're quite happy with what President Trump has done.

If similarly in the aluminum industry, or or if you make dishwashers, you've received more protection. But if you're a steel user and you're in the rust belt, if you're trying to make machinery, if you, for instance, are working for Caterpillar, your firms. Costs have gone up, and you're much less competitive in world markets, and you're gonna find it tougher to compete. And I think there are more

people who you steal than produce it. So at the end of the day, I think this is a strategy that isn't going to work for people in the Rust belt, even though it's optics may look good in the short run. Professor Robert Lawrence, thank you so much for being with us. It's always wonderful to get your insights. Professor Robert Lawrence of the John F. Kennedy School of Government at Harvard University, also a Senior Fellow the Peterson Institute for International Economics,

joining us from Boston. There has been a lot of discussion about ten Cent, which reported its first drop in profit in at least a decade. Shares were not happy. You could see a decline of more than three and a half percent today following a similar decline yesterday. What happened here and what are the implications? We're gonna be speaking with Brendan Hearn, chief investment officer who joins us now for for Crane Shares UM. Brendan, thank you so

much for being with US. What happened with Tencent, Like just start there. Yes, Cent reported disappointing both revenue as well as net income, as well as a um um concern around some of the regulatory approval within China some of their online games. So overall this was it was

a very disappointing results. Uh. Probably more importantly, it comes at a time where you're seeing a little bit of kind of cracks in the tech growth fang uh name So, so certainly ten cent um is not is not helping to US listed both Chinese as well as US listen technology companies today, Brendan, I'm looking at the performance of the Shanghai Stock Exchange Composite Index. It's down more than

seventeen so far this year. Is there any indication based on your experience, that we're going to see any kind of turnaround? Well, I think that the hope one PIM as you have mscis inclusion of two thirty six Shanghai and Shenzen names. The second inclusion in September one. If you take the pe of the s and P five hundred and minus it from the Shanghai pe, we're basically back to a point where we had the crisis back

in the summer of twenty fifteen. If you subtract praise the book of SMP minus Shanghai, it's the widest ever. It's literally never Shanghai stocks have never been at this level of a discount to their US equivalence ever. And yeah, wait, wait, wait, wait, but how can you compare Chinese stocks to US stocks? You can do it using the numbers, but you can't use it using governance issues, uh, interference from the central government,

corporate issues. I mean, how can you compare the two? Well, I think you know, we're just we're just looking at this mathematically. You know, what are the numbers? And sir I, I don't disagree that there are elements to investing not only in in any emerging market or any foreign country. There there's additional risks associated with that. So certainly, you know, what we're doing UM should be part of an overall

diversified portfolio. What we do think it's a very on the Shanghai names, very compelling valuations with the backdrop of this coming UM inclusion from m s c I, which will continue for the next several years. On on the Hong Kong and US names, you do have say, for a company like Ali Baba, Uh, they do have to adhere to the US gap. They have to have a US accounting firm and here to US listening standard, which

help address some of those concerns. Pim so Brendan, I want to talk about what happened with ten Cent, why things were so disappointing for them, and sort of tie this to what we saw with Facebook when they reported earnings, which there was a sense of peak tech or at least peak expansion of tech, right, um that everyone who has a smartphone has a smartphone, who's who is going

to have on etcetera, etcetera. I'm just wondering. I mean, from a contagions standpoint, is ten cents sending a really significant message that can be applied broadly throughout big tech? You know, I think it's a it's a really great point. And even the comparison you make Lisa around ten Cent, because we do, you know, because of their reach at over are a billion users of this, you know, this

social media platform run by ten Cent. Um. But but one interesting thing about ten Cent is the core business at this point is still online gaming and and there were positives on on the social media side. Um, you know, video subscription seventy four million up year over year, Mobile payments eight hundred million monthly users grew year over year

for the quarters. So so so as much as we kind of call ten Cent and Facebook, we make that comparison, you know, it's that online gaming is is still a big, big part of the business and that that's that is the culprit in ten Cent, and I don't necessarily believe that creates issues for UM us or or other say Chinese technology companies that even we saw just just from very recently Nettie's one of ten cents big competitors and

online gaming pretty pretty weak outlook. Um a little bit of a forebearer of ten cents week online gaming results today, Thanks for being with us as always. Brendan or Hearn is the chief investment officer for Crane Shares, talking about ten cent earnings and the Chinese technology sector. The good news for Turkey is that some unconventional measures and intervention have it staved off some of the declines from the Turkish lira and it is rising a little bit against

the dollar. The bad news for European banks is some of the most exposed continued to drop in equity markets, and here to talk about bank exposure to Turkey and how bad this could get is Jonathan Tyson, senior banks analyst for Bloomberg Intelligence, coming to us from London. Jonathan, what's going on here? Why do we continue to see declines in the likes of maybe v A and in p POI back, well, I think this is just a more general risk off. Clearly b B v A. It

isn't just Turkey. I mean there in six sixty two sales may have guarantee, but they're also Latin. I'm exposed one of the most exposed to emerging markets of all global banks. So the market is trying to assess what happens the what ifs and emerging market exposure and currencies are clearly very large risk. Jonathan. There are a couple of issues with the banks in Turkey. One is their

asset base, which are their loans. You've got lots of loans that are denominated in US dollars or euros, but the borrowers are trying to repay those loans as they are based in Turkey with Lira. The second thing is the funding of the actual banks and how they can continue operating. Can you explain a little bit more about how they're dealing with these two issues. Well, do you've hit the nail on the head. I mean, this is one of the reasons that the banks, s happy crateity,

et cetera. Have sold off more effects lending foreign exchange lending traditionally when in Europe we've had a problem, We've had it in Hungary, we've had it in Poland, etcetera. And they've been fines, but it was to the retail base in the same market. In Turkey, these guys have borrowed the corporates in dollars and by extension. Clearly their interest costs have gone through the roof very recently, so

bad that will spike. We're already beginning to see that in the FX loan MPR ratios that the Bank of Turkey provide every week. How are they working through it? Well, I think what they're gonna have to do, and the foreign banks will be pulling away from f X lending, and domestically they're going to have to take up we're under a new accounting standard. They but start to take up provisions over the next two or three quarters, which is why you've seen the big domestic banks fall quite

heavily over the past two three weeks. Do you think that there's a likelihood that one or more of some of the major Turkish banks could fail. I don't. Personally, I cannot see how that will be allowed to happen. But that said, domestic consolidation. If you look at Russia post sanctions, post oil slide, et cetera, we have seen an awful lot of the smaller banks hoovered up. In Turkey, you've got four or five banks that make up the market.

And yes we've seen a changing of the guard. So spare banks sold down lead and is sold it on their steak. But I don't think we're there yet. I think funding wise it isn't a problem. But growth has gone. The domestic banks have to pay back and we are approaching a period of pain. But that said as well, I think the measures that have been taken so far should stem for now the lear's full. That said, we still need to understand what Airman is going to do

and will he allow them to hike rates. Jonathan Three industry groups tell our calms, retailers, and energy. The companies in those groups operating in Turkey, they get most they generate most of their sales their revenue in Lira. Recently, I believe the Turkish cell phone operator what is it, turk Telecom, the phone operator, they reported a loss because of what they described as unfavorable for X movements. It erased their entire net income. Are we going to see

more companies report this this way? Well, you have to remember that that's a mismatch between costs and revenues. Uh. Our margin is being squeazed, absolutely, But then again for some for example, if you're one of the big energy providers, chances are your margin is gonna go up. And within Bloomberg Intelligence, we've got several examples some of the ANIMs have written about where this is ultimately to be positive. So remember on every side of this debate depends how

you're skewed, but there will be profit beneficiaries. And as far as the banking system is concerned, capital is still okay. Funding liquidity costs will go up, consensus needs to come down. But is this a stomach crisis for the financial system at the moment? No? Is Is there a good reason why only credit, for example, of sold off at least as much. Yes, because the happy credit is the weakest, the BBV has the most exposure. But are we calling

time on the bank system now? Absolutely not? Okay, Jonathan, But let's dig into the liabilities of the four banks that you really pinpointed as having the most risk. You said that foreign bank claims on Turkey total two hundred and twenty billion dollars in the first quarter. What do those claims consist of? Are those UH loans made in dollars and euros too smaller and mid sized companies and

could this lead to some significant rightdowns? Well, two things. One, the b I esday so that everybody goes to tends to be a bit out of date, and we don't have much granularity. And also, as we know, balance sheet dates can be quite a long way back in history, so we have very little idea at the moment how much has been rolled over forbear and something that in America, you guys be very very comfortable and away with about

bank systems, it's pretty difficult. Certainly, liquidity provision will be continuing at the moment for the most key businesses and SMME is a very large part of Turkey. So do I think that we're already saying mpls for f X loans ticking out, but they're still only a two percent. Do I think we're going to see anything that tangibly as an analysts I can point to and say, here's the data point. They're all in trouble in the next six to nine months. Very unlikely. All Right, we gotta

leave it there. Thanks very much for being with us. Jonathan Tys, Senior banks analyst for Bloomberg Intelligence, speaking about Turkish banks. Thanks for listening to the Bloomberg p m 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 match us worldwide on Bloomberg radioh