US Reversal On ZTE Shows Weakness On Trade Negotiations: Miller

has to do with this company, ZTE Corporation. And here to tell us what happened and what the significance of this is is Leland Miller, chief executive of the China Beige Book International in New York. Leland, thank you so much for being with us. So just lay out in broad strokes what happened and why this is a huge deal in your opinion. Well, there's a lot of things that are going on on the on the trade side,

and you've got the tariff list, multiple tariff lists. We've got investment protection regimes that have been rumored for a long time. Uh. You also have a crackdown on on certain corporates, and the one that China is really really upset about is this recent crackdown on z T, which is one of their major telecom firms. It's one of

the two big ones along with Huawei. And what essentially was done over the past month until potentially UH pulled reversed by a tweet over the over the weekend, was a um A near life almost a ban UH lifetime ban of of the z T equipment. ZT was not gonna be sold United States. They were being punished for violation of US law. Essentially, the US was gonna put z T out of business and and now well hold on.

So the Commerce Department enforced certain bands on z T products and the reason why was because they had been selling to Iran and North Korea. Is that right it is? And then they lied about it and were caught lying about it, and so this was a particularly egregious example

of the Chinese cheating. You know, if the if the entire the entire U S. China trade push is about cutting down on China's cheating, then this was the ultimate example of brazenness and UH and cheating that hurt US consumers in U S. NAH security and so the reversal of this has significant repercussions beyond just a concession or a chip that the President is offering up. Z t

E uses components that are made by Qualit, Common Intel correct. Correct, and those companies cannot sell those products to z T E because of current regulations. That was that was the recent decision. Yes, okay, so the President would have to reverse that in order to allow that that take place. Correct. And what's happening right now is is that the Commerce Department came out with a very strong language about how much ZT had transgressed over the past few years. Wilbur

Ross had headed that up. And now what the tweet suggests is that President Trump has ordered Secretary Ross to reevaluate his conclusion on this and to find a way to get around it. So it puts Secretary Ross in a very difficult position here because some of the stuff

he said is really impossible to walk back. All Right, So let's zoom out a little bit, because a lot of people are looking at this deal and saying, well, this is This shows that President Trump has taken a softer line with China, is perhaps not as interested in having a trade war that a lot of people say nobody, nobody can win. This is a good thing for world peace and world commerce. Why why is that not the case? Well, the question is, you know, what is the US side

pushing for. I mean, that's been the question from day one and has not yet been answered. If this is pushing towards a more equal relationship, if this is pushing for, um, a reckoning on the trade theft to eliminate hurdles for the future, then all of this is good. Nobody wants

a terror for nobody wants a trade war. But if you're if you're showing, if you're from the US perspective, if you're showing weakness that a foreign company can exert some economic leverage over you and have you reverse Nash security decisions, it's a problem. It's also a problem if you go into a trade negotiation thinking that the trade deficit is what you should be negotiating instead of market access or intellectual property theft or some of these other

important things that really do affect businesses and consumers. So the question is what have we done this all for, And if it ends up being something that sort of dwindles out over the course of the next few weeks, and months, which which I don't think will happen. Then then you you're basically telling China that they've that they have a ready made formula for putting this behind them, and um, they don't have to to worry about these things which just a few weeks ago were worthy of

a trade war. So it's it's it's all very bizarre. Does it also matter that it coincides with the visit to the United States and the Vice Premier Leu the Chinese trade negotiator, so that what was told by the Chinese to the U. S side was that they wouldn't

have the delegation unless CT was taken care of. So the President wanted to make sure this trade delegation happened, not mostly because there was trade stuff to discuss to discuss, but also because North Korea is playing into this, and so you've got a few different issues at play here. You don't want disruption in front of the North Korea summit.

You don't want any of this trade war stuff to blow up before the U. S has a plan in place, and they've been very slow getting the documents for three oh one ready, So the President apparently did not want to lose steam on this and and decided to to make the ZT decision. Um that said, all of this is part of a long process. And whether Leoho visits this week and they come to a mini bargain many many deal, not a bargain um, then you know this. This is something that's going to go on for a

long time. I want to thank you very much for joining us. Leland Miller is the chief executive of China beige Book International. You can follow their work on Twitter at China beige Book. Talking about the President of the United States, Donald Trump and his tweet regarding ZTE Corp.

And perhaps easing trade sanctions against the company. I want to pick up on what Dave mentioned, Scientific Games rising more than ten percent, so the shares also avoid Gaming and GM and several other gaming companies also rising significantly on the news that the Supreme Court struck down a federal law that bars gambling on individual sporting events. Joining US now, I am pleased to say Brian Eager, he

is senior gaming and lodging analyst with Bloomberg Intelligence. Brian, how big of a deal is this decision by the U. S. Supreme Court? So if you think of the pool um of basically would have to date been illegal sports bets that have been taking place, and you you assign a reasonable wind whole rate to that, there's probably about a seven and a half billion dollar UH newly released revenue opportunity across h the across the states that would now

have an opportunity to have legalized sports betting. Among those, New Jersey and Pennsylvania are kind of front of the line, New Jersey being the petitioner here in Pennsylvania having recently legalized on sports betting, but certainly an opportunity that both casino operators and the back end operators of sports books would all likely capitalize on. So who are some of

the big winners? I mean, Lisa was mentioning some of the stocks, also adding BOYD Gaming, as she mentioned up a little bit more than three ten, National Gaming up four and a half percent, Empire Resorts higher by ten percent. So I would kind of breaking it down at least additionally into three categories. First, you've got operators like MGM and Caesars that have existing operations in Nevada and also

an Atlantic city. Those are the two major public companies that have operations in the Atlantic City market, which is the petitioners here which be likely to benefit. Another subgroup which we used to kind of touched upon our companies like Churchill Downs, Boyd Gaming, National Gaming, El Dorado Resorts, which either have or are in the process of acquiring assets in the Pennsylvania market that stayed also legalized sports betting subject to the Supreme Courts repeal of pasta which

happened today. And then the third group, Tim and Lisa is the operators of the various gaming systems of sports book operators. A couple comes to mind. William Hill, the British company operates of all the Vada based retail sports books.

You've got the Stars group that acquired Sky Betting, and then you've got Scientific Game which Lisa mentioned, which recently acquired m i X Gaming, which has an open bet platform which has the ability although right now UH takes place in the UK to operate kind of the back

end of the sports betting platforms. So you basically got you know, the Jersey operators, You've got the operators in other regional states, and then you've got the operators of the equipment and systems that could benefit from the expansion of sports books nationwide. Just to give a sense of how big a business this is. According to one research unit, Americans place a hundred and fifty billion dollars a year in illegal sports bets. Other research firms put that at

a much lower amount. But I'm just wondering, from your perspective or most of these online do most people like to go to a venue? What's sort of the look of the most popular place to bet on individual teams? So, the sports books in Nevada, although they only generate about two of the total gaming revenue in that state, are

big traffic generators. They're not necessarily a sizeable casino ways or generator, but they generate excitement that makes its way by way of casino play into the gaming portions of the casinos. You've got that portion right now. Gaming sports betting only legal on an unrestricted basis uh A Nevada. The hundred fifty billion dollar number you mentioned, that's the American Gaming Association estimate of that amount currently wagered illegally

on sports betting. And so you put a five percent hold rate on that, you get that the seven and a half billion dollar revenue opportunity I mentioned. And to answer your other question, you know physical venues actual sports books UH where a lot of the action takes place. But all these companies, among them William Pill and others have kind of the mobile platforms UH the other ways, where within the state's legal bounds, you could use a

mobile device, smartphone device, etcetera to place your bets. So certainly mobile is the direction of the future, even though there's there's a large physical presence of these sports books. I want to thank you very much for joining us and shedding light on this issue. Brian Edgar is our expert when it comes to gaming and lodging for Bloomberg Intelligence.

He's our senior industry analysts and just taking a look once again at some of the stocks making moves as a result of the Supreme Court decision avoiding the ban on national sports. But well, just last week we learned that Alliance Bernstein is going to relocate about a thousand of its employees to UH to Memphis, Nashville, Tennessee. I beg your pardon, and perhaps it has to do with compensation levels and making the money go a little bit further.

Here to tell us more about compensation and incentive pay in the financial industry is Alan Johnson, President Managing director and founder of Johnson Associates, Alan, thanks very much for being with us. What is the current trend in terms of compensation and head count in the financial services industry? Will get into the specifics later, but what is the general trend that you're seeing. Compensation is projected to be higher in two thousand and eighteen, and sentives are probably

going to be up five or ten percent. Um Uh, it's probably more of a mixed bag. And um in recruiting and employment, probably more outside the traditional money centers, more more in other parts of the country of the world. Um, So it's got that's a little bit more of a mixed bag. But clearly compensation is trending up for two thousand and eighteen. Yeah. Alan, Well, if it weren't, I'd be shocked because pretty much across the board we've seen

gains over the past twelve months. And Allen, I'm so glad you could join us, because really, if you want to know what's going on in Wall Street, just check the bonuses and that will tell you everything you need to know. And I was looking just to dig into the details. I noticed that hedge funds, the average bonus was a zero to five increase from last year, whereas private equity was five to ten higher than last year.

Can you talk a little bit about that and sort of what this tells you as far as private equity being more of the place to be right now. Well, private equity is continuing its momentum from the last three or four years, the up the the higher markets. They have had great realizations of prior investments. They have been able to go out in fund raise. So private equity is clicking on all cylinders. Hedge funds have had a

very difficult run in the last several years. There we're projecting they're going to be up only slightly, perhaps zero to five incentives for this year, and again it's their fundamental business model of trying to beat the markets is much harder UM, so they're one of the two different ends. Private equity continues to be on a roll of hedge funds.

Hopefully the volatility will help them, but it's a question mark. Well, Alan, maybe shift your attention now to investment in commercial banking and UM you say that the incentive pay would be generally in line with the entire firm's performance. Correct, Yes, the the banks have done better. They don't get the attention that they once did on their pay, but they

continue to do well. What's different than the past that we all remember is that today it's somewhat of the boring parts of the commercial banking, which is commercial lending, retail, credit cards, cars, things that are steady and profitable um, but not as much of their business is the more um risky parts of the business that they used to do so well ahead. One thing I'm wondering is how the bonuses at US banks compared to those at European banks and whether you've seen in a pretty big attrition

out of European banks and into into the US ones. Now, that's a very good question. The US banks continue to not only a business but all pay perspective, continue to move ahead. The European banks have kind of been in lembo now for a number of years. We saw Deutsche Bank cutting back and others, so they have not had the progress that the US banks have had in the last five or so years, either from a business results, stock price, or pay um. They are lagging UM significantly well.

But I have to wonder just you know, with Deutch a bank, for example, I'd heard a while back that they were actually offering some huge bonuses to try to get talented people to come join them, given how much bad press they've gotten. And I wonder if you do see more sort of one off huge compensation offers from banks that are looking to sort of revive their franchise. You certainly don't see that as much in the United States because they don't need to to do the have

and they don't want to. I think they don't need you because sorry to break in, but they don't need to because there are so many people looking for jobs that they can hire. Uh, most of them are got a pretty stable um cadre of senior people. They don't really need. They don't need the savior at this point. They're they're they're certainly looking for really good people, and they're certainly going to pay a lot for expensive people,

but they don't need the savior you mentioned. If you're more troubled or more um in a in a fall, you're more likely to go out and spend an awful lot of money a free agent um and perhaps overpay um. The U S banks historically have always done that, but it certainly in the last five years or more they have not felt the need to or weren't allowed to do that. Um, So you know you're right if you're If you're going to hear an outsized number, it's not likely to be a brand name US Bank. It's likely

to be somebody from probably from Europe. All Right, just really quickly, about thirty seconds. I don't know if you saw the news, Goldman Sachs is just announcing that to heads out of the three that lead the securities division are planning to retire. Just really quickly. Is this is this a significant thing? Um? I think it's a significant move for those two individuals. But certainly Goldman traditionally has had duel heads and a lot of businesses to give

them a deeper bench. Um So, I don't think it tells you anything that they continue to rotate quality people through these jobs, and they've been I think the biggest practitioner of having dual heads, which they have. Their view is we need a deeper bench than relying on a you know, just a single person most of the time. So they still have somebody left from that team. Allan Johnson,

thank you so much for joining us today. Always a pleasure and always important to take a look at what those bonuses are showing us about Wall Street Allan Johnson, managing director and founder of Johnson Associates, the shares of n XP Semiconductor. They are hired by about nine and a half percent after Chinese regulators have restarted their review of Quacom's application to acquire an XP Semiconductors. They previously had shelved this work in reaction to growing trade tensions

with the United States. This according to people familiar with the matter, So better who better than Victoria Espinel, the president and the chief executive of the Business Software Alliance b s a UH to tell us a little bit more about what's going on when it comes to trade, intellectual property and technology between the United States and China. She's also the president of Software dot org and she can be followed on Twitter at Victoria Espinel. She joins

us in our eleven three oh studios. Victoria, thank you very much for being with us UM. Just to give people the background prior to being the head of the the b s a UM, you or the United States in Collectual Property Enforcement Coordinator for the White House UH, and you were appointed by President Barack Obama back in September of two thousand nine. So what is your take on the back and forth over intellectual property and technology issues between the United States and China that currently are

in the headlines. So this has been a long standing issue UM. In fact, before my time at the White House, I was a trade negotiator UM under the President Bush's administration from two thousand and one to two thousand seven, and I was the chief Intellectual property trade negotiator for the United States. But these concerns between the United and United States and China have predated even my time at USTR.

And so this is I think we're seeing what may becoming close to the culmination of a long history of concerns where some things in China have gotten better, but other things have have gotten worse potentially. And I think speaking from the respective of the software industry, well, we

definitely have concerns about intellectual property in China. I think there are a are types of market access barriers that are potentially even more concerning, so for example, joint venture rules or the cybersecurity regulations that China has in place.

All that said, China is an incredibly important, perhaps the most important bilateral trading partner that we have with the United States, and so what I think is important for everyone to remember at this point is what we really need is for the United States in China to be having a constructive dialogue and be working together on solutions that are going to benefit both of us. I don't think it's it is it's not beneficial for China or

the United States to be harmed in this process. Um. And the second point I would make is it's about the United States in China, but it's also about the global economy. And so one thing that I think would be very helpful that we're not seeing that much of at the moment is for the United States to be working with other countries as well. This is not just about the United States in China. This is about making

the global economy work well. And I think, um, while it has been hardening to see the administration working through organizations like the World Trade Organization to a certain extent, um, I think the more that we the United States can be building alliances and we the United States can be working constructively with a range of countries, including with China,

that's ultimately that's going to be helpful for everyone. So one sort of battle that's being waged between China and the US aside from the very clear headlines about trade tensions is over artificial intelligence, and China has made a real concerted effort to push forward any new technology on

that front. The White House had a meeting last week where it had the executive of some of the leading tech companies in the US, and White House officials said, listen, if you want to experiment develop artificial intelligence, go crazy. We are going to have a very light touch with respect to regulating this. What is the cutting edge of artificial intelligence? And how important is this sort of lazy,

fair at tude by US representatives. So I think artificial intelligence is already and will become even more important to our economy. So then the same way that trans software transformed every sector of the economy. I mean, software is like electricity, It is used by literally everyone, I think eventually artificial intelligence is going to rise to that same level of being a truly transformative technology in terms there

are a lot of different kinds of artificial intelligence. And so one of the things that you're reading the headlines in terms of China's investments and research, um, you know, China is investing significant amounts of money, not just at the central level, but at the prevential level. At the same time, in the United States, more through the private sector and through UM we are also having significant investments

in artificial intelligence. And speaking for the software industry, I think what we are most focused on is how you can use artificial intelligence to try to help people make decisions better, So decisions that people are already making, how to make how to give them the tools that they are making those decisions more quickly and with more information. And I can give you a couple of examples of that.

But I will also tell you I think this is going to be present in every sector, healthcare, finances, manufacturing, agriculture. I think, you know, five to ten years from now, we're going to see the ripple effects of this across the industry. Give us, though, one concrete example, just so we have a picture in our head. Sure, I'll give you one that's personally important to me. UM. So, I

have two boys, six and ten. UM And for a very short period of time, Uh, my eldest son was in the natal intensive care unit the nick you after he was born. Uh And and happily he he was

and is fine. But one of the things that's happening in artificial intelligence right now that I think is really is really amazing as a mother, UH is that doctors are using artificial intelligence to monitor the vital signs for babies that are in nick u's and one of the things that they have found in doing that at is that it is actually a danger sign for for very small babies when they're vital signs stabilized, which is completely counterintuitive,

right you would think the vital signs are stabilized, that means um that that child is doing better and therefore care should move to another baby. In fact, that is not the case. In fact, when vital signs stabilized, that is actually a very good predictor that a crash is coming, and so monitoring of that babies should be increased rather than decreased or the amount of care and attention to

it um. Doctors still don't know exactly why this is, but one of the things with artificial intelligence is it can be great to know why, but sometimes it also just mataged to know that it is. And this is UH.

This is changing the way that doctors are treating UH babies that are in native and that are in the nick us and I think it's really important that that is one example, you can look at almost any hairry of health care right now and see the advances that are being made in artificial intelligence, and most of them go to to be more specific, they go to increasing the accuracy of diagnoses, increasing the speed of diagnosis, and then coming up with treatment plans that may not have

been as obvious to the doctors without the ability to use artificial intelligence tools. I'm just wondering if you could just give us maybe a twenty second update. In the world of piracy and the piracy of either stealing software code or intellectual property, it can be anything from movies to music. But that's also a big concern for technology companies. So, you know, I think for software, I don't like the

term piracy and I don't use it. You know. I think we encourage We think all companies should use software within the terms of their licenses. But I don't think it's company that isn't is not an organization that I would call a pirate. UM. I think there are, particularly in counterfeit pharmaceuticals, there are organizations involved in criminal distribution UM, and I think that's reprehensible behavior because of the public

safety impacts that it can have. UM. You know, I think There's there's a lot of progress that's been made in terms of trying to address intellectual property issues, and I think that's going to continue. Victoria Espinel, thank you so much for being with us. Victoria Espinel as President and chief executive officer of the Business Software Alliance based in Washington, d C. 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 abramoits one before the podcast. You can always catch us worldwide on Bloomberg Radio.