U.S. Should Follow The EU's Footsteps To Tackle Google (Podcast)

Just to be fully transparent. Social Flow is a platform used by Bloomberg for social media purposes. Jim, thank you so much for being here. You've already read the prepared statement which Stars has just delivered. From your perspective, one, are the most important things that he should address when he does get these questions from representatives. Well, I think first and foremost, he did exactly what you said. He waived the big American flag. He did what you want

to do. You talk about the possibility and the optimism of technology. You know, the story about not having to ride a bus for two hours to find out your blood results. I mean those are true and authentic stories and it's certainly to his interest to try to emphasize that and make sure that people don't lose sight of

the good. That being said, we're about to get the rest of the story, right, and they've got a lot of things to worry about, whether it be privacy, whether it be the alleged bias against conservatives, whether it be sort of the EU issues, and just data in general. You know, there's a lot of things that I'm sure we're about to to hear a lot of fairly pointed questions about. But Jim, the whole purpose of the hearing isn't excuse me, is not the point of the good

right right? I mean, the idea is to figure out where the data goes. Well, that is absolutely one very important thing, and I think ultimately that that data and privacy issue is one of the most foundational ones. I'm not sure that's going to be the biggest issue. I think you're gonna hear a lot about the alleged bias against conservatives, and we've talked about that before. This idea of shadow banning. If I type in social into Google, because I'm the CEO of social Flow, I wanted to

autocomplete social flow. It's more likely though, to autocomplete social security because that's a more common search than Social Flow, and so you get these annexies. You believe there's a bias when it comes to search results. I don't, actually, I truly. First off, you can't prove a negative. I can't prove that there's no bias. And again there's billions and billions of search results and what really constitutes bias?

But Google could prove it. I'm not sure Google could prove and real, right, because think about your search and my search are different, right, it's unless we're using an anonymous browser and incognito mode. Google knows a lot about you. Google knows a lot about me. So actually, when I searched for social it may actually autocomplete Social flow because Google knows that I search for Social flow a lot. I don't think Google could demonstrably prove that they never

discriminate against anyone. What do you think is the main issue? Is it privacy? I do think it's it's privacy and data. And I think we can get look to the EU as to what's going on. Different gular Corey Tory construct different sort of cultural expectations. But I think that is the vanguard of what you're gonna see in the rest of the world too, and not just privacy but also antitrust.

And think about it. So Google is being accused of effectively bundling, right, the Android operating system and Google Maps. You're you're sort of inappropriately bundling those together. Does anybody other than me think that's exactly what happened to Microsoft two decades ago? Right? It was Windows operating System and Internet Explore. The Department of Justice in the US said

you're inappropriately bundling those. It took twenty years for Microsoft to effectively recover from that, and they've done so quite nicely, but in a very different way with cloud computing, etcetera. So I think that's that, in some combination of the privacy and data are really where you're going to see the big focus for Google. I'm not sure though today in the testimony that's going to be the big area focus. Is there also a necessary focus on the dominance that

Google has in search? Absolutely? I mean, and I think any of those anti trust points is predicated on a dominant position. Right that the reason the Microsoft issue was so big was they were so dominant. I think that's exactly right. Google is incredibly dominant in regard. So the implication here in the Microsoft analogy is that there is going to be a big effort to break up Google for its dominance. Ah, we don't see where political pressure comes from. That's a remedy. I'm not I'm not jumping

all the way to remedy. I think first you have to prove that there's an issue, and I think that's going to start and continue in the EU. I think you're exactly right. I don't see the political pressure in the U S building for any kind of breakup anytime in the near future. I think that's not in the cards.

But it's a big world out there. Google is a global company, global company, so I think what happens in the EU could very well propagate elsewhere, first, you know, beyond the US, and then ultimately maybe in a little bit of a different political climate back here to the States. Is it worth noting that this does not just take place on your mobile device, but also on whatever devices you use at home, whether they are television monitors or

PCs or some kind of computer. I think that's exactly right. So you know, the Amazon Echo obviously different, come any different competitor, and it is worth bringing up. By the way, I think one of Google's big risks here is actually not necessarily just the government and regulation, but Amazon. So Google knows what you search for, Amazon knows what you buy. So there aren't a lot of companies that the Google

is afraid of giving their size and scale. But I'm sure they're paying a lot of attention to what Amazon is doing. And but but your core point about the devices, you know, the connected home everything. It's not just a mobile device, it's not just a computer, it's everything that's connected to the internet. All right, So you said that it's very difficult to prove a negative that there is

not bias. Can Google prove that it is doing everything that it can prevent foreign actors from interfering in elections? And that's a tough one as well. I mean, these are two sides of the same coin. Right. At the same time Google is being criticized for alleged bias against conservatives, it's also being accused of not doing enough to protect against hate speech. Right And by the way, they're advertisers,

which is how they make all their money. Are the ones who are principally concerned with that who wants they're advertising associated with hate speech or potentially offensive videos. Well, you know, the the the implication there is that Google needs to play a heavier hand and be more controlling about the type of speech that's allowed on his platform. But when you talk about alleged bias against conservatives, well, now you're you're putting your heavy hand to work in

a in a biased way. And these are issues, I mean, they're not technology issues. Their policy issues right, and their values issues. So again you can't their First Amendment issues. They really are free speech versus you know, hate speech. Right, where's the one beginning the other end. As far as the hearing is concerned, do you believe that this is more of a show for the people asking the questions or is this something that Google can really come away

with with a gold star? Well, I would say it's gonna be very tough for them to come away with a gold star. I think all political hearings like this or congressional hearings to have an element of show, because politics is showmanship or show personship. Um, So you know, if he can just not avoid making a serious misstep, that's probably a win. I do think his prepared remarks

were sort of merciful short. I mean, so it doesn't appear that he's trying to run run out the clock strategy to just keep talking until the time is up. We'll see whether the question is an answer. You sort of follow that, But I thought it was really interesting that it was such a short set of prepared remarks. What's the one question you'd ask him? I would focus on the data and say, well, what are your values?

What are your policies about data and privacy? And I might just stop right there and let let him give it as an expansive and answer as he's willing to. Thanks very much for being with us. Jim Anderson is the chief executive of a social flow and in full disclosure. Social Flow is a platform that is used by Bloomberg for social media purposes. The price of oil moves higher today.

It is up more than two percent right now fifty two dollars for a barrel of oil on the NYMEX natural Gas, though going the other wright down more than three and a quarter percent. Here to tell us all about the energy complex. Neil Dingman. He is Managing director for Energy for sun Trust. Robinson Humphrey also joining us here in our Bloomberg Interactor Broker Studios as well as Fitzpatrick also managing director as well as and he covers

exploration and production research for sun Trust Robinson Humphrey. They're both from Houston, and we're glad to have them here, all right, So you're great to have you, all right, So let's just dive right into it. Um fifty two dollars a barrel for West Texas, sixty dollars a barrel for Brent and you've got that gas you know, under four and a half dollars per million b to you, what are those prices due to the companies you cover? I think for most of us they might say their

break even. They'll suggest the break even is in the forties. But from what we're hearing, when the new budgets come out for nineteen, you're gonna see cuts. Um, you've already saw who was it earlier this week, just a day or two ago. Konico one of the very largest that we don't follow, but talk about um single digit growth and returning share shareholder valued, and again I think that's going to be a common trend, even with our smaller companies.

I think overall him you're going to see a lot more cuts um as long as oil is anything under sixty dollars wells, what's the pain point at which E m P companies have to start going out of business again? Yeah, going out of businesses is tough. You really have had the balance sheets improved dramatically since we saw the last slug of those rolls through. But I think Neil's right. I mean to that point, you had tin oil rigs drop out last week. That's the biggest one week dropped

since we've had in sixteen. So these these year over year estimates going into nineteen for US oil growth are are almost surely overstated, and probably largely so. Combine that with the OPEC plus cuts and a little bit more from Iran and Canada, and all of a sudden you're in a pretty decent position. So you know, what characterizes a company that you want to be buying stock in. I think one that has a very low break even phim in one that you know, we look at a

couple like a Magnolia and the Eagle Ford. It's a run by the former head of Oxy or Continental or Whiting both in the baking. And the type that we like is even in the low fifties. We think all three can generate free cash flow. To me, it's really interesting because as both of you speak, I'm thinking, all right, so if OPEC plus is going to be cutting production, and then you have riggs already coming off and probably cuts to production further in January from US companies, you

guys both are expecting much higher oil prices. Is that correct? Wells, I think I think there's upside from here. I think your rally. I mean, look, those those rigs will probably go back to work if you cross the sixty threshold again. The other thing that you have going on is the Midland differential is going to be coming in, So the prices that these guys are getting is going to be much higher in later and nineteen, even with a flat w T I price. So uh, I think that the

fundamentals are improving for all of these guys. I think that the real zations are going to improve for all of them. But but to your point, I think you're right, you do have more levers that are pressing oil up than down. I would agree as well. I think the only thing I'm nervous about is if you get a snap back and it and it goes up too quickly. Again, we've seen that happen. I mean again, we're down almost since the first of October. Could we go up as

quick Probably not, but we certainly could go up very quickly. Well, talk about cash flow. If you can free cash flow at some of these companies, which ones have it and which ones don't, and why would they would? Why would that change your decision on what to invest in? Yeah,

there's there. There's a huge discrepancy across the MP. And it's interesting because in this recent pullback, everything's been hit relatively universally, and so you have companies like a Highlight PDC or or NBL Noble, both of them have double digit free cash flow yields in both of them are training out less than four times. These are high quality companies with little to no debt and a lot of

free cash flow. Now on the other side, you have some small caps and microcaps that are gonna be a little bit tighter, but you certainly have enough companies that that that fit that mold. They're growing under their own power with great assets. So it just I'm curious from your perspective, Neil, I'm looking right now at the SMP five Energy subsector. It's down a lot. Um. I have a feeling you are talking and trying to comfort a lot of your clients, to soothe their their tears drive

them up. Um. What makes you confident that we're going to see some stability from here? I think just the comments from some OPEC plus I mean, I'm gonna mentioned that earlier, and I think by them more than willing to come in, and you know, I would call that sort of the stabilization you didn't have that prior to sixteen. Sixteen was the first time that you saw them in a material way come in, and now they're continuing to

say that both Russia, both Zaudi, etcetera, etcetera. So again, I think it's very unlikely if we do go under fifty we stay there long. Wells, if you loved energy stocks seventy five, sixty five, and fifty five, don't you have to really fall in love with them at fifty two. I think that's right. And the other thing that that that I've note is that you are at multi year lows on on multiples, like we've talked about, you have a constructive set up in the commodity, both gas and oil.

So I think I think now is the time to be buying. And I think when people sharpen their pencils going into January and start building books, you could see reversal in these names. When you guys talk to clients generally right now, Neil, any optimism whatsoever, very very little. Still, they're they're doing the work, but they're they're certainly not there.

And this is both the big long only mutual funds here in town and the hedge funds, and both what the mutual funds says, why be an energy if it's this volatile and you see tech or retail go up every other day, well maybe not go up every other day? Thank you so much. Be careful about those sharpened pencils. Yeah, the sharpen pencils can be can be daggers, Neil Dingman, thank you so much. Wells Flitzpatrick, both of you really appreciate you coming in Managing directors in the energy space

for sun Trust. Robinson Humphrey based in Houston, Texas, but coming here to our frigid New York City and our eleven three oh studios here joining me and my co host and colleague him Fox. The topic now China, the Trump administration preparing a series of actions to call out Beijing for what it says our China's continued efforts to steal America's trade secrets and advanced technologies and compromise sensitive government and corporate computers. It's all according to US officials.

Here to tell us more about the relationship between the United States and China is Michael Smart, Managing Director, Rock Creek Global Advisors, and previously Mr Art was the Director for International Trade and Investment on the staff of the National Security Council at the White House, and he's previously served as International Trade Counsel on the Democratic Staff of

the US Senate Committee on Finance. Thank you very much for being with us, Michael Smart, What can you tell us about the ongoing confrontation and challenges that the relationship between the United States and China face? Yeah, well, first, I would say it is undoubtedly positive that the two leaders, Donald Trump and Chi Jinping agreed uh to avoid further escalation for now and agree to have discussions. That's the

good news. The not so good news is I'm not optimistic that they can actually tackle the agenda that the US has in mind over the ninety day period they set out for themselves. It involves some very difficult issue uh, preferential treatment of Chinese data and enterprises. You mentioned, violation of intellectual property rights, restriction on foreign ownership of Chinese enterprises. This is difficult stuff and I don't think ninety days

is nearly enough to tackle that. And tweets about auto tariffs are really kind of a distraction from the core issue of structural reform. That's that's the first point. Well, Michael, I actually want to follow up on that. What is the primary agenda of the U S mean, is this a national security issue? Is this a trade deficit issue? You know, what sort of the primary driver here. It's

a really good question. So the structural reforms are those that I mentioned, Those are the ones that U S, tr Lightheiser and Leuha will be focused on in their negotiation. But I have a real question about whether China has enough incentive to make those reforms if the only thing

on offer is the reduction of US terroiffs. And the reason is because they've seen this dispute spread into the areas Lisa you just mentioned, which is national security, and in these areas they see the potential for even more harm UH than UH than comes from the U S tariffs, and here I'm talking about export controls, So basically the denial of US technologies to Chinese companies, tight restrictions on

inbound Chinese investment into the United States. UH, the the the u S efforts around the world to encourage other company countries to keep Chinese telecommunications equip equipment out of their infrastructure. These and other efforts are are undertaken by national security officials and I think are of concern to the Chinese and will and will make the trade negotiation

more difficult. Michael Smart, if there were to be Justice Department moves to announce indictments of hackers suspected of working for Chinese intelligence services and participating in espionage campaigns targeting US networks, what would that do to the talks? Well, certainly it would make them more challenging. But those efforts must continue and they must be on a a separate track. In the same way the detention and potential extradition of

of Mrs Mung the cfo UM of Huawei UH. These are criminal law enforcement matters, national security matters, UH and UH. The timing certainly complicates the early stages of this discussion, but I don't expect them to be traded off at

the negotiating table. You know, Michael Smart, since you did serve as international trade counsel and the credit staff of the of the U. S. Senate Committee on Finance, I'm curious from a partisan perspective your take on what sides are are for what trade negotiations, because interestingly, Democratic senators

have come out in favor of the Huahwei prosecutions. Not that it's there say anyway, it's the federal court in the Eastern District in Brooklyn, But I'm just wondering, you know, what's the common ground here between Republicans and Democrats as to how the US China trade relationship has to change. Yeah,

I think there's a lot of common ground. Um that the US can't follow the same policy that it's followed in the past of bilateral dialogues and discussions that did not produce adequate results, and so I think when they see this opportunity, uh, they're going to look for the same kinds of results, whether you're a Democrat are Republican, getting at structural issues that will improve US access to the China market, both in terms of exports, and investment

for the long term. And I think there is a reluctance for the U s simply to be satisfied, you know, with a series of Chinese purchases of US goods to maybe make a temporary reduction in the trade deficits. They're looking for a more substantive deal. Michael, who dropped the ball then in not dealing with this earlier? Oh gosh, I mean, I think you have to go back twenty years. I mean, uh, certainly, when China acceded to the w t OH, there was an expectation that they were on

the trajectory of economic reform. Uh. That changed in the late two thousands and became much more state centric. And this year will be the first year that the private sector has actually contracted as a share of the Chinese economy. So lots of people got it wrong and trying to see where the Chinese economy was headed. And now we're trying to go back and do the reforms that are necessary for China to be really part of the international

trading system. If a if an executive of an American company, a chief financial officer, for example, called Michael Smart for advice on whether he or she should go on a trip to China for business. What would you say? I would say, can you postpone that trip to the second quarter. I'm mean, it's seriously, I really would I mean, I hope that the evidence UH and the case that they

have against Mrs Mung becomes clear. From the early reports, it does appear that she has some individual responsibility for the alleged sanctions violations that occurred. If that's true, then then the course that the US is taking will be seen as justified and and just one off retaliation by the Chinese. That will be much harder for them to undertake. But we don't know that yet, and so for the time being, I would let the waters calm and see if you can take care of that business a couple

of months down the road. And that's certainly the advice that a number of big companies are telling their top executives right now. Michael Smart, thank you so much for being with us. I love your perspective. Michael Smart managing director at Rock Creek Global Advisors in Washington, d C.

He's worked with the Senate on crafting trade policies. So coming from a very much in FORO view, I want to turn our attention now to the big news of at least the beginning of the morning, and that was that China is a sensibly moving toward lowering tariffs on US made cars that are imported to the nation. Joining us down to talk about this is David Welch, Detroit bureau chief for Bloomberg. David, how big of a deal is this, considering the fact that imports to China's car

market comprise an infinitesimal part of the cars that they sell. Yeah, I've sort of wondered every time there seems to be progress with a deal with China and car tariffs, why Ford and GM stocks getting nice boost and they both an up two or three percent at least today. Uh, in a time when they're out of favor. Um, they don't sell very much over here over there that's made here basically, and really most carmakers are that way because

the tariffs have always been pretty big. Could they use some of their excess capacity maybe and sell it in China with lower tariffs? Possibly, but you still have shipping costs, You're still looking at a tariff. It's it's not a great business. No one's going to build a new plant in the US because they can sell all those cars in China. It does. It is a big deal for

the German carmakers, especially BMW. BMW exports more cars from the United States than any carmaker and they sell a lot of SUVs in China that are made in South Carolina, so would certainly help them. It would certainly help DIME more with os Mercedes. And that's kind of about it. You're really not seeing a lot of cars go that way. It's maybe more of a sentiment play where Okay, if Trump is happy, maybe who will rattle the saber lesson? Do fewer things with UH, with tariffs on other commodities

of products with other markets. I think maybe that's what's going on, David. The majority of the vehicles that are made by US automakers that are sold in China are made in China, right, right, and usually with a joint venture partner, So GM shares about half of its income with one of a couple of partners they have UH and UH, you know, it just makes more sense to do it over there because of the long shipping lines and that sort of thing, and the tariffs have always

made it almost impossible. Cadillacs sold vehicles to start that were made in the US, but that was just kind of a way to introduce the brand to the Chinese consumer while getting plants up and running. They were actually going to make the cars over there. Between GM and Ford, who potentially benefits more from a potential thawing in Chinese tariffs or other restrictions and carmakers from the US going to China probably at this point forward because they're they're

still trying to expand over there. GM got to jump by setting up shop in China in the nineties. Uh, and and word is also manufacturing vehicles over there. But if if the tariff barriers do come down, there are other vehicles that they may want to want to send from here to there. While they get manufacturing up and running. It's not a bad way to test the market and see if if consumers over there like a certain model.

Um and and and so I think given it Forward's kind of behind GM in developing the brand, and a consumer following in China could help them more. How about Tesla, does this really benefit them? It could, although they're talking about manufacturing over there, and uh, they've got plans for

a factory in China underway. But yeah, it certainly would help them because even though the cars are already expensive um and and wealthier consumers are buying them, are pretty big tariffs they've had to pay on things like the models and Model three with it, you know, getting up to production. I'm sure they'd love to sell cars in China,

and tariff is still a pretty big disadvantage. But when you're one of the few companies selling an all electric car, um it certainly would help them kick start things until they can get the cash and get everything going to get a new factory open running in China. And by the way, we know how long it tastes Testa to get full production and a new factory going, so they could be exporting cars from here for quite a while

if that was the plan. David Welch, the cars that are made by US automobile makers are not necessarily cars right there. Pickup trucks, isn't that they make here in the United States and support utility vehicles, Yeah, quite a few of them. Sure, those the kind of cars that the Chinese consumer wants. Chinese consumers aren't buying pickup trucks the way Americans do, but SUVs absolutely in a lot of ways Chinese consumer tastes are very similar to what

Americans like before the suv craze. They liked big, long sedans and that that was always a truly American thing. To go back to the forties, fifties and sixties. Smell really fifties and sixties here there were British political cartoons about these ridiculously long American sedans, and Chinese have always the Chinese consumers always liked the big sit in and then when there were many more SUVs available, they started

latching onto those. And and it's very similar, not not quite the urban cowboy pickup market over there, but that could develop a construction continues, uh and you know, once the economy kind of gets back into overdrive there. But it's very much as for utility vehicle market at this point. Thanks very much, David Well, Charge Detroit Bureau Chief 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 abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio.