NAFTA Will Happen, But It May Take More Time: Bill Rhodes

in the studio right now is William R. Rhodes. Bill Rhodes is the author of Banker to the World, Leadership Lessons from the front Lines of Global Finance. It also happens to be the chief executive and president of William R. Rhodes Global Advisors. Bill, thank you very much for being here.

I gotta say it's almost like a coincidence because, of course, today we're awaiting news about the NAFTA renegotiation talks that have been taking place over the weekend in Montreal, and you have a direct relationship to uh NAFTA as it was put together, and what if you could just tell people about it. Well, first of all, it's always great to be with you here, Pim. I worked on the original LAFTA with rod Archefeller, Nelson's oldest son who passed

away a few years ago. But we worked very hard on that because we saw a lot of the synergies synergies possible between the three countries. It obviously had to be updated. So much has happened in the area of technology, UH that the updating is very necessary and the negotiations were gonna be tough. We knew because uh the president administration announced that they were very unhappy with the trade

deficit with Mexico and the smaller one with Canada. Although there are a lot of pessimistic estimates and what's going to happen. I think you have uh, a very good group of people negotiating it. Lightheiser has a has a record as a negotiaties are tough. Nego chases the US the leading US exactly, and Christopher Freelands and old friends used to me the uh uh the editor in the

United States for the Financial Times. It's very smart and she knows what she's doing in Gualhardo does it from Mexico, although really Vita Garai is the one who's the foreign minister who really is on top of that. So you have three very tough, smart people negotiating it, UH and UH. I think at the end of the day it will happen. But I think you'll need a couple of more sessions before we get through it. UH. As you know, it's

a whole content thing on automobiles, etcetera. And this is sort of a set piece for the whole trade policy of the Trump administration going forward. This is why I think it's so important and why the negotiations have been so tough. Why why do you think that is it because there's nothing that can be offered, because then you would look weak or what I mean, if ultimately they're going to strike some kind of deal, why wouldn't they just do this rather than putting everyone through all this

storman drown well. I think each side UH wants to show that they are negotiating in a tough fashion, and the Canadians just agreed to I think a major concession on the content side, which I think the Mexicans UH said they'd look at and buy on automobiles, which I think is is one of the key problems. So at the end of the day, in spite of all the bluster and threats and everything, like that. I think you will eventually get a deal bill go right up to

the last minute. I think you probably need another couple of sessions before it occurs, because I think you need to take a look at what President Trump said at the World Economic Form, which is you know, I went to for twenty five years, and he basically said that he wanted to do that deal, but obviously on his terms. But then he brought up for the first time that he might even be opened and taking a look at t p P again, which surprised everyone, which in my

mind is the correct thing to do. Alright, So having learned this and uh, well, maybe just give us your thoughts on the president's uh speech in Davos. Well, I

think he handled himself very well. I wasn't there, but what I read about it, and he used the teleprompter and he was very careful to say that in the United States is uh uh, you know, first America first, but not alone, which I think was the point that he wanted to get through to them that we're not trying to isolate ourselves from the rest of the world. So I think as far as the speech goes, it was well accepted. I understand the law. I was not

there uh in DeVos. What's very important is what he's going to say on the state of the Union. That'll be tomorrow night exactly be covering that live, all right. So we we talked about NAFTA and we are awaiting a press conference in perhaps in the next hour coming from Montreal about that. Does this trade almost public negotiation that the president is conducting, is that also sending a message to the Chinese? Well, I think with China we've got some real problems, not just on the trade side.

I think we have we have problems with them on North Korea because, as I've said on your program before, the only way we're going to get an agreement out of Kim Jong Un is if we get the Chinese and the Russians to a small park imminately the Chinese to cut off all oil and gas uh and to implement it, because they've agreed to do a lot of things, but it's not clear they're implementing it. So that's a

major issue we have with China. And then we have the South China Sea issue, which is also very very important. And then of course we have this whole question of of trade, and I think it's going to be very difficult in the sense to achieve everything we want with the Chinese. So I think think we're gonna have some very tough years ahead of us dealing with China. Because you think that this is going to unleash a trade war between the United States and China. Well, I think

it depends on how China reacts with Kim Jongoon on Korea. Uh, they have to show some more flexibility in the sense of being willing to really push Kim Jongoon to negotiating table um. And there are a number of problems that

China has in addition to what we're discussing. As you know, I've been advocating and I just did it in my recent up ed on the Markets that UM China needs to take some very tough steps to rain in shadow banking in China, to clean up the bed debts at the state owned banks, and to start moving on closing down the zombie companies and in areas like steel, coal and shipbuilding, because if they don't uh start doing that, you could have a main your financial problem in China

in the next couple of years. Bill Rhodes, he is the President chief executive William R. Rhodes Global Advisors. Let's turn our attention out to the world of technology with Mark German. He is our technology reporter for Bloomberg and the topic is Apple and Mark, you know, many people don't recognize that Apple is really in the chip business as much as it is in the phone business. Can

you explain? Yeah, that's exactly right. And speaking of chips, the last guest mentioned they had a settlement with Emersion on chips for the Force touch screens and whatnot. But this story that we have today bloomber Technology is focusing on the main processing engines, the system on the chips, the wireless components used in products like the iPhone, the iPad, the Apple t V, the home pod, and the air pods. And it's it's a growing part of the company's overall

long term strategy. Why did they decide to do this? What? What? What is it about the chips made by let's say Intel or arm Holdings or a m D. What about those chips? Are they not good enough? They are good enough? But what Apple wants to do is sort of control the whole set. So if they don't have to work with third party developers of chips, they can keep their plans closer to the vest. They can work on things years before they would be able to work on them

with Intel and whatnot. Right now, Apple still uses Intel chips for the main processors and Max and Apple sort of stuck to Intel's roadmaps and whenever Intel has a new chip coming out, then Apple is able to use it. At this rate, they get to control their own pace if they're building the chips themselves for their own hardware.

And the result is what that they get their custom components that process tasks that are specific to Apple products, right track your steps, power game graphics, the fa Ace i D, also the Touch i D data and the Apple Watch. Yeah, that's right. So they made components to go along with new features. And there are some cases where a third party hardware developer for chips doesn't make components that support features that Apple wants to come out with. For example, the Touch i D and Pace i D

examples the step tracking and whatnot. There there weren't chips on the market from other chip developers that were able to be optimized for the iPhone to support those new features. So it gives an Apple a leg up to build their own stuff. Okay, but this depends then on Apple's ability to keep selling these hundreds of millions of devices every year because they're the customer, right. So chip making is a very very expensive game, and a lot of people ask what is Apple doing with all this cash

that they have? Well, a lot of it goes into this research and development necessary to build these chips. It's an extraordinarily expensive and long term proposition. They work for upwards of three to four years on a specific component for a future iPhone. They're already working on the internal chip apps for the iPhones of two even three in order to get those features working popular by the time

the phone ship. And so it's a very time consuming and a very expensive and a very resource intensive process. So as long as they're selling two d three hundred million devices a year, it's worth it. If not, if they're not selling that many devices, and you know, there could become a point where it's like why why are they building all these chips? But I don't see that happening anytime soon. Mark tell us about a gentleman named Ronnie SHRUGI. Yeah, so he's the person in charge of

Apple's chip making efforts. He's the senior VP of Hardware technologies. They have offices in Israel and the United States and other countries to build these processors, and he's really in charge of this endeavor to build chips. We did a nice profile of him back in I would encourage anyone interested in him or the or the chip making abilities of Apple to take a look at that article as well.

And if you were to purchase, let's say, a new iPad that will maybe come out by the end of the year, what are you going to see in there

that Apple designs. So the current iPads they don't have a ton of internal Apple custom chips, but we're expecting this new iPad model that comes down in the fall to have at least the pair of new Apple processors, one for artificial intelligence tasks, the neural engine, which works with face i D, So we're expecting the iPad to get face i D, but also an Apple custom graphics processor.

It's called the GPU that's in the iPhone eight eight plus in the iPhone ten, and so they bring it to the iPad for the first time this year, and it makes sense as a natural progression of pushing the chips to more Apple devices and just quickly if you're wanting to buy like a Mac, will you be getting those special processors made by Apple. So right now there's two Macs with special processors made from Apple their coprocessors.

In addition to the Intel chip. They're going to come out with at least three updated Mac models with those chips as well. Across we reported today. I want to thank you very much for joining us. Mark Erman is our expert when it comes to all things related to technology for a Bloomberg News talking about Apple and its chip building desires for my attention now to two different economies, the economy for urban America and rural America. And here

to help us understand this is Tom Halverson. He is the president and the chief executive of co Bank Assets under management about a hundred and twenty five billion dollars, joining us from Denver. Tom, thanks very much for being on tell us about this new report about what influences rural America's economy. Well, thank you, a pleasure to be

with you. You know, there's a there's a great deal of things that influence the royal economy and it obviously has a tremendous impact on the rest of the economy as a whole. We've found trying to do a lot of research that is particularly difficult all to gather appropriate timely data and economic indications about what is in fact

going on in rural America. But we've done a lot of research in that regard, published some some of it that's available to you, and what you can see is, uh, there's quite a meaningful divergence on a variety of different indicators between what's happening in rural America, which hasn't been a strong over the last five to ten years, is what's been happening in UH in UH, in the urban economy as a whole, is it? I mean, maybe start

with misconceptions. I mean, you know, if you mentioned the rural economy of the United States, you may get people saying, well, it's all agriculture and mining. Not so, No, it's not so. There's actually a lot going on in in rural America. In fact, the predominant portion of the population obviously lives in in urban America, but they often don't understand fully or perhaps potentially take for granted, just how reliant their quality of life in their economic well being depends on

what goes on in rural America. Whether it be the agricultural economy. But food and fiber that we all rely on comes from rural America, as does our water other natural resources UH and predominantly a lot of the electricity and other things that are ubiquitous needs of of our quality of life these days, as well as our economic

activity is also predominantly coming from from rural America. Well, you mentioned in the report that in Iowa, agricultural products only account for about ten percent of the state economy, But then you have to figure in things like the

equipment manufacturers, agricultural lending. That changes the picture. It does. Indeed, there is a wide array and diversity of economic activity in rural America, and obviously they're all very highly correlated UH and interdependent, but it's much more diverse than the ability with modern telecommunications capabilities, for example, to and visage economic activity occurring in rural America that couldn't have happened ten, fifteen, twenty years ago, whether it be uh in in the

communications industry itself, or in the health care industry or other things where where distance has a lot more a lot less impact on cost as a result of communications innovation. What about wages in rural America, albeit it's different for you know, whether you're in the agriculture sector or an

education and health. But we'll give us an update on wages. Well, it's it's it's interesting to note that they are in addition to technological UH differences between you know, broadband penetration or any other sort of indicators you want to look at, diverging between urban and rural, there's also a significant diversion in in wage growth, appreciation, unemployment levels, basic labor market conditions in rural America over the last five to ten

years have significantly diverged from what's happening UH in UH in urban America. Substantially more jobs have been created in urban America than in rural America since the financial crisis nearly a decade ago, and there's been much more wage appreciation as a result, UH as well in in in

urban America. So in certain respects, the rural parts of the country, in rural job creation, job opportunities, wage opportunities, and the like have been have been less robust than has been so in in the populous parts of the country. What's your thought. I mean, we've been talking about NAFTA today because of the negotiations and the recent press conference in Montreal. Based on your customer base and your experience, what's your take on the renegotiation of NAFTA. Well, it's

a it's a big issue. It's a big issue for rural America in general. It's a big issue for agricultural America in particular. If you if you look at the changing trade patterns between our sols and our NAFTA partners since that agreement was put in place, the agricultural economy has been one of the predominant beneficiaries. We've substantially grown our agricultural exports, who are particularly to Mexico and therefore among our customers in the rural parts of the country.

There's a fair amount of apprehension about about the potential risks associated with losing the access that our agricultural producers have gained through you know, a lot of hard work over a long period of time, as well as as some concerned about what that might mean for the for the future, because there obviously continues to be good growth upside opportunities for the agricultural economy if we can maintain these advantageous trading relationships. Thank you very much for being

with us. Tom Halverson as the president and the chief executive of co Bank, based in Denver, helping to manage more than a hundred and twenty five billion dollars in assets. All right, let's turn our attention now to the deal

of the day. I guess you could call it over eighteen billion dollars dr Pepper Snapple being snapped up by A J. A b. The holding company of the Rheyman family, and Ed Hammond, our deal's reporter is here to tell us all about it, and Ed can be followed on Twitter at Ed Hammond and why alright Ed Hammond and why they got you up early out of bed to do this one? Uh? Why is this deal so important

for the industry. It's important for the industry because it's counter trend, which is always kind of a nice thing to get us going. So the thing we've seen in food and beverage M and A, particularly food M and A in the last few years, has been in this

real pivot towards health and wellness. So every big deal you've seen done, indeed a lot of small deals, the real characteristic has been when moving food into a space where you have, you know, much more attention on sort of healthy consumers people not wanting to have tons of sugar and sort of high fructo stuff in their diet. This kind of isn't that. This is more what we think of a traditional sort of sugary drinks, stuff that you would go in a store and you would buy

and maybe feel a little bit guilty about afterwards. You're going to buy them in a Crispy Cream store, You're gonna buy them in a Panera bread store, in a Noah in an Einstein Noah store, right exactly. So the idea now is that you'll probably get some kind of some kind of deal where you're going to get cheaper doctor Pepper's in your in your Panera at store, or maybe you're gonna get free Dr Pepper or free snapper

with your Crispy cream. Either way, it's not exactly a move towards health, and so from that point of view, it's interesting. The other thing that's really interesting here, and this is a huge thing for JB in in kind of moving to do the deal, is they have a big coldbrew coffee business. At the moment, they're entirely dependent on their coffee stores really for selling that or they

get held up by the retailers. This immediately opens a channel for them to distribute their cold brew straight two stores, which is a huge market for them and something that will I think provide kind of instant um instant uplift for them. Can you just explain to people this cold brew coffee. Uh, I don't want to say that it's a fat yet, but I'll let's just say it's a trend.

There are kind of fans within it, So like within Colboro you have like nitro coffee, which is kind of Cobrew on steroids, and that's that seems to be a bit of a New York fans. So Cobrew is you know, it's it's as far as I understand, it's it's different from just iced coffee because it's actually brewed cold. It takes like twelve to fifteen hours. You sit it on the grains the ground story, which is slightly coarser, and

it brews in a different way. It means it's it's slightly lower in acids, and it tastes slightly nicer, and it's not just like you know, a drip coffee poured over rice that was quite good, wasn't that was really good? Yes? Indeed, and so the idea being that now, because of this acquisition, every place that you were able to go and buy Dr Pepper or Snapple products like big grocery store chain, you're are going to be able to get your cold

brew coffee onto those same shells exactly. So when you go to Walmart to pick up your Dr Pepper, you were able to buy like a can of Pete's Cold Brew, which is that's a huge part of their business and obviously that's a big part of this proposition for JB. Why merged these businesses together. Well, they've certainly got a nice portfolio, the Rieman family of Austria, and they're adding it to it, correct because they own thirty eight percent of COTI and five percent of Record Bank US. Yeah,

I think it's important thing to disentangle here. Yes, the Rhyman family will be big investors in this proform of business when the merger has done. But this is also j a B Consumer Funds, which is a kind of non Rieman family vehicle that's all outside money. So it's it's two bits of j B. It's the it's the holding code which is predominantly Rhyman family, but it's also the consumer business which is not Roman family, so you're

seeing both of those investing together into this new code. Interestingly, you also have money coming in from Byron Trott, who is advising on the deal, also investing in a deal. This is a very unusual structure, something only he seems to be able to do. He did it recently with Warren Buffett on the Pilot Flying Jay's deal as well. Thanks very much for being with us and explaining it. I have a feeling we're going to be calling on your expertise more to learn more about this. Ed Hamming,

our deal's reporter for Bloomberg. 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.