Surveillance: Coronavirus With Eurasia Group's Sumpter

and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg The like move from the State Department how confidence the State Department warning against Americans traveling to China, And we've said again and again over the last week that for the economy, for markets, what will matter is the way states respond, nations, people, corporations,

and right now things are throttling back even more. Yeah, it's it's it's definitely clearly spreading, both economically as well as otherwise. Almost ten cases to Our team has worked Haires Lison, with Steve Angel reporting from Hong Kong and others to bring you the best we can clear to discussion on this virus in China. UH. Jennifer Ron joined us from UCL in London the other day and we're now thrilled to bring you from Baylor University Peter Hotez.

We've spoken to him many times before, of course, UH with the UH the Tropical Medicine National School at Baylor Peter Hotels. I want to use a little bit of your heritage here, and that is the moment decades ago at Rockefeller University where we really began to figure out virology, and you, of course we're part of that in the eighties. Are we that much smarter now about all this than we were in Stars or back when you were at Rockefeller University thirty years ago. We certainly are. And it's

first of all, thank you for having me back. It's always good to talk to you. And I think we're in better shape now than we were back then because we have learned some lessons, although we're still not perfect. If we remember the Stars coronavirus that immerged out of the southern China, UH scared everybody shut down. This to be a Toronto back in two thousand two, two thousand

three that wolf people up. And in response to the World Health Organization created a new series of international health regulations to beef up our security for health and border and virus detection, and the Global Health Security Agenda was put in place by the US government and w h O and and so things are better than they were. Um. The other good thing that's happened is that science has

has really stepped up. I mean, imagine we've gone from a brand new virus agent at the end of twenty nineteen, within a few weeks, isolating the virus, having a full genetic code, knowing how it finds to and people. It's extraordinary. So um, that's the good news. The bad news is you can only accelerate vaccine so much because despite what the anti vaccine lobby says, you still have to test

them for safety. And that's the one thing that you only has diffic developed a common a protein STARS vaccine the head of manufactured in sixteen that we couldn't get the support, can proceed through clinical trials. And and now we've just learned that these two viruses are actually quite similar Stars in the end coronavirus about to the same receptor, about eight percent similar. So we may be sitting out

a vaccine for this end coronavirus UM. But we still have to go through all of the safety testing and everything else. And that's the one piece that's company in the blur of knowledge, in pseudo knowledge that we have. What's the compare here of this virus is it two stars? Is it to a different virus? I can't pronounce or is it to the Spanish influence of what kind of thing is this? This is it's very much closely resemble Stars.

The difference is it's not quite as lethal. As far as we can tell, it's about as easily transmissible where Stars was affecting healthy people. Uh. This one of the serious cases the respiratory illness. Sear respiratory illness, mostly individuals over the age of sixty, mostly mails, mostly those with underlying diabetes hypertension, but a lot of people are getting serious deal and requiring respiratory support. Look, this, this is what's gonna happen. Um. Uh, it's the tale of two

different countries in the United States. I'm actually not so worried. We've got a good team in place. We've uh we were thanks to the Chinese scientists who got a heads up on this virus, so we knew it was coming. Um. We will see an increase in the number of cases in the US, but it won't nearly resemble anything like what we're seeing in China or Central China. Such a

China and China will be in free fall. Um. Although we say ten thousand cases, summer estimating is already a hundred thousands people infective because there's probably a lot of individuals with low grades UH symptoms. So this is gonna sweep unless we can get a vaccine in there. This is gonna sweep across China. It's already upt on commerce between Hong Kong and mainland. It's um it's it's calling a fallen Asian markets. I I imagine massive economic losses

in China, and that's SCI markets as well. Dr hote is what's China doing wrong in their response to the virus that's leading to what you expect to be a rampant, widespread UH disease that is already perhaps hit it's a hundred thousand people. I think the Chinese leadership, unlike in two thousand to two thousand three when they were covering

up things slow, on this one. They're good, but you know they're doing the best a person can with one hand tied behind their back because there's no vaccine, and when you have a contagious virus like this, ultimately in the end you need a vaccine. You can need a vaccine to stop it. So I actually think the Chinese leadershild be doing everything they can all handed that they recognize the hit not only the public health, but their

their economy and political stability. But the frustrating pieces that it's been slow to yet our vaccine and the other four or five vaccine candidates out there, if you're just joining US worldwide. Peter Hotels with us is dean of the National School of Tropical Medicine at Baylor Ecology, has been with US many times on surveillance over the years. Here on the Wuhan virus, Dr Hotez, is there any sign that the virus is mutating into something that potentially

is more lethal. We We don't have any evidence at this point, and I don't think we need to postulate that this is a virus that emerged out of the wet markets in in Wuhan, because there's the virus that jumps from bath to a second animal species and then two people and now it's picked up human to human transmissions going But in that sense is going by the same playbook that are two other big coronavirus epidemics that the Stars in two thousand to two thousand three and

then the Mayor's coronavirus out of the Middle East in two thousand twelves um So I don't think we have to. I mean, mutatition always possible. I don't think we have to worry so much about that. But we've got to figure out how we could do everything to help China.

And remember there's also a million Chinese in Africa right now through their belts and the ODA initiatives, So there's lots of commerce back and forces in China and Africa, whereas the United States has got a great health system in place to prevent the spread from with Africa's country to country, So next to China the other place I'm really worried about it such to here in Africa, and I think that's the major reason why Dr ted ros w h O had declared the public health emergency. He's

probably stim early concerned. Peter, forgive me for getting a little bit ahead of things at the moment. But once we've got past this and hopefully move on from it, what measures can we put into place in the country like China to make sure these kind of things don't happen,

or at least minimize the possibility of them actually happening. Well, you know, after the Stars coronavirus, the Chinese leadership committed to shutting down those wet markets these exotic animals that are all if you've ever been to one of them, they're all piled together in cages. Some are dead, some are That's just a recipe for disasters that needs to be shut down. The other two other things need to happen. One, we still need to be do a better job at

building up our vaccine infrastructure. This business of waiting for a catastrophe then to start. Um. You know, we could have had this vaccine potentially ready to go back in seventeen after he came in trial. But you know we're too reactive. We we uh. We're like a little kids soccer game. If you are washing little kids play soccer, the ball goes in one direction. All everybody runs through the ball, and nobody stays behind to play defense. And

we need to do better at that. I think the third thing is we uh, we have to recognize this is our third major coronavirus epidemic pandemic in the twenty one century. We'd stars and mayors. Now this we have to start building an infrastructure specifically for the virus, just like we do for flu. Given not only public health impact, but it's it's economic consequences. This is going to Peter Hotess, thank you so much with the Baylor College of Venison

in Houston. Now we go right over to the authentic on the ground knowledge of Meredith Sumter of Eurasia Group. Meredith, I'm gonna cut to the chase. Most of us don't speak Mandarin. John, do you speak Man speak? I just wanted to check that out, Meredith, what do you see in the Mandarin press? I mean, how is it different from the wall to wall coverage of this Wuhuan virus in English has been morning Tom and John is great

to be with you. Yeah, there's a market difference in the way that sort of statewide media press more important to a state organs of press are reporting on the the the the virus. Then the more local level media outlets are even sit as an activist journalist who are trying to get more information out to the Chinese people. And what you see here is at the central level

there's really pressure. Uh, there's there's pressure there to try to to have more of a release of the public discontent with how Beijing has handled this biver so far, and the media is doing this by going after local officials who have withheld information. At the same time that there are circling wagons around President Shi j and Ping as a decisive and strong leader who is taking action and mobilizing all resources to get ahead of the crisis.

And that's why, Meredith, the Major in China is just considered state propaganda. It is always blame the local government and never the leader. This is from the ft Signing.

A critic said the local government in Wuhan did not have the power to act decisively because they were at the bottom of the chain of command that started with the Supreme Leader amou Era title recently bestowed on Mr. She is that a problem, Meredith, Regardless of what the Major is saying, let's talk about the structure of government. How a country this large responds to a crisis so

local so early. That's exactly right, John, And it really it shines the spotlight on the limitations of China's political system. And really it's it's she's top down leadership style, the one party system, top down leadership style that contributed to the problem by making local officials fearful to act without authorization from Beijing. And what's notable here really is the

Wuhan mayor Joe Hian Wam. He accepted responsibility, while subtly placing blame on the need to wait for Beijing's approval in publicizing the outbreak. Meredith, there was data overnight showing that Chinese factories were struggling even before the country shutdown for the linear New York holidays as well as the worsening coronavirus outbreak. And I'm wondering how much energy the virus is spread takes away from Beijing to address some of the economic issues that are still out there. Oh,

it takes a great deal of energy. But I think in terms of a social stability issue, j and Pain is going to mobilize everything that he's got to try

to focus on getting the virus contained first. And and then at the same time you see actions by UH States banking officials UH to make sure that while there are obvious economic stillover effects broadly impacting the Chinese economy, that because the way that they're mobilizing these resources, we see fairly limited risk to economic stability UH at large. You have UM, you have Chinese banks that have been instructed to extend loans to cushion the negative effects of

the virus. UH and we believe that the central government will intervene to maintain fiscal stability, with with the Central Bank providing likely to provide emergency liquidity provisions to limit the stress on China's bank system merative. Just a final question on on the trade story, just quickly, where does this leave the agreement between the United States and China that was struck just a month or so ago. What is the whole issue with the coronavirus and relations with

the United States and China leave things. That's a terrific question. And really the combination of Beijing's focus on crisis fighting and the economic disruption is likely to slow China's purchases of US goods under that Phase one trade deal. And let's be honest here, Jonathan, this was this was an ambitious projection of what Beijing would be able to buy

even before the outbreak. So we think that the limited domestic consumption, uh the the slowing industrial activity means that China is going to be even slower to start to make those market purchases. Now, this is not going to derail Phase one, obviously, we understand and Washington would understand why it would be harder for trying to make good

on those purchases right away. But the shortfall may put more pressure on Trump to defend the deal later this year of facing is slow to red regain momentum and its purchases. Thank you so much. Madith Sumpter with Eraser Group, just riving in this morning with their knowledge of China

with respect to the spread of the coronavirus. And there's a question especially to Goldman's access call as you're highlighting earlier, John, which is that it will eat into second quarter GDP of US by zero point four percent to cut it down Martel, Yeah, well this quarter. Excuse me, thank you wells Capital Portfolio manage our marquis. As we look at a slight risk off feel in markets, do you think that this is actually going to eat into potential returns?

Do you think that this is going to persist or do you think that this is a by the dip, very small dip moment. I would say more more body if we don't actually know what the impact on GP will be in the US, But it's really reflecting a bigger trend, which is a move away from China outsourcing and also Chinese slower growth. So those trends are intact. I think that's more important. Looking out beyond one quarter market.

Looking at the commodity market move, We're down eleven and a half percent on copper on the London Medal Exchange in just two weeks. It's been a massive move in the commodity market. Are we pricing down inflation in the bond market, Margie? Is that way you're doing or you're pushing back against that move? No. I think that low inflation, zero inflation is just going to be with us for the foreseeable future. So this makes a big call for

the bond market. Then, markis, if we're gonna have low inflation, how can you make a call for high yields on tens, on thirties through twenty How difficult is it to do that? You really can't. You have to lower your expectation for what fixed income can be across the board, which is low to possibly mid single digits in the high yield market,

so much much less here the returns on equities. To drag you with the headline eighteen months ago or so, looking out to the end of two thousand twenty, Governor Kearney, I believe it was two days ago, Margie, looking out to the end of two thousand twenty, one is Margie Battell beginning to look at a low rate regime out farther than you thought even months ago. Have you extended your ex access out well, I've been thinking we are in unthinkably low rates for many years. I spend my fear. Yes, well,

and it's been very profitable. We were aware of your excellence on that. But what now more? The same were the same? We've been in a one and a half two and a half on the tenure. If we break out, it will be a low side. Margaret, do you think that the equation changes materially if we do get a sustained, sustained inversion of the yield curve and increasing fear that we could be reaching stall speed. I'm not looking for an inverted de Old curve. I think we're basically going

to be looking at a somewhat flattish yield curve. But I don't think it as an irrelevance or reflecting the economy. To be clear, we're talking about the gap between ten year and two year yields, because if you take a look at the three month tenure yield, it's already inverted in the same with a two year to five year yield. So I'm just wondering, isn't that sending a concerning signal. Well, it's been that way for quite a long time, and hasn't it any effect on the economy or on inflation

or on business lending. So I really don't look at it. I just think the curve will be so low, and it is somewhat administered by the government that is irrelevant for economic activity. Margat Patel as well as capital management, Margie, you've had courage to say, look at if yields are this troubled, look into equities, look at dividend growth and

share buy back with the elevated assets. Is there a distinction between new cash flow or belief in cash flow being applied to dividend or being applied to share buy back? Which makes more sense to you. I don't think it really matters what a company does with its free cash flow. Uh, it's just a matter of a company choice. But I think that the Copper down Amazon up really tells you what the trend of the market is going to be

over the next few years. Marky, thank you so much, greatly appreciated with Wells Capital management and that that's her magic. I love what she said there Anthony Phillipson has not only been the High Commissioner to Singapore but also John Ferrell directly involved in the exiting process and trade and

partnerships to Europe as well. And John, I go back on this historic day to the clear memories of the morning after the Brexit vote walking down the corridor at our London offices and there were there, you were doing a marathon on the desk. We had no idea where this would add on that morning after. I think the one thing people really didn't have a clue about is how long it would take. Three and a half years, and we finally stopped and make a move. Her Majesty's

tried Commissioner for North America, Anthony Phillipson joined us now. Anthony, always great to catch up with you, walk us through it. Then eleven pm UK time, what actually happens, Well, good morning to all of you, and thank you very much for having me on. As you say, it's a it's a historic occasion, it's a significant momentum. At eleven pm UK time this evening six pm New York, the UK

will leave the EU. We will end our almost forty seven year membership, but it will become a new chapter in our relationship with our European and our EU partners. We have an ambition to a close economic and defense and security and indeed people to people relationship. In London itself, the Prime Minister will speak to the nation around about ten pm understand or five pm New York. There will be some visual displays around London, but I think it will be a moment of significance and momentous in a

momentous occasion. But it's just the beginning in a new chapter, perhaps in name only. The rules will still apply. The UK will still pay into the EU's budget as well Antony, as you well know, through the rest of this year eleven months, we have to secure a transition deal, I

guess secure secure the future relationship. So we're in this transition period for the rest of What is the government looking for and if we established what the red lines are for the relationship between the UK and the EU be on I think we have to some degree The political declaration that was agreed between the government and the European the other twenty seven member states in October last year gives us a blueprint for what that future relationship looks.

Like we will now be working out our own mandate and negotiating position, as will the European Commission on behalf of the member states, and we anticipate those negotiations beginning early March. And then, as you say, we have the rest of this year while we are in the implementation period. That gives this that period of transition and certainty to to work out the fine detail and that's what both

sides are committed to, Anthony. Earlier this week, UK Prime Minister Boris Johnson coming out and saying that they are going to give Yahwei some of the contracts to help build out their infrastructure. How much does that complicate your job right now? That process was incredibly detailed, thought through, an incredible detail, with a very very high degree of focus on the security and resilience of our telecom system.

It's it's a process be running for a long long period in terms of how we approach what we call high risk vendors, and the decision that the government took

reflects the particular circumstances for the UK. It is a decision that we have explained in detail to our American colleagues, including this week when Secretary Pompeio was in London, and we will keep explaining to them why we believe this is the right decision for us, why it does not endanger our own security and resilience of our telecom's network, and why it is it should not affect the bilateral partnership between ourselves and off places security and Trade and

Economic Council General. Thank you so much for joining us this morning, Anthony Phillipson with the United Kingdom on this historic date. I lean Burbage joining us now, yeah, she is an arsenal. That's not what I was gonna talk. That's great. I would leave that. I'll leave that. I'll leave that for you, Island Burbage. We're gonna talk Amazon partner, co founder of Passion Capital Investors, with years and years of experience covering this industry. I thank just how good

we're Amazon's earnings. I mean, does this give you a sense that right now the guy is a limit and basically Amazon has as a lot more road to run here. It absolutely does, it really does. And by the way, we've got NFL matches now here in London, so I'm all about following the NFL again as well as the summer League too, But yeah, no, the thing about Amazon is they do such a great job of managing expectations that then when they blow it out of the water,

they really do blow out of the water. Everyone was expecting that revenues would go up like they did, but everyone was a little bit, you know, worried about maybe profitability, thinking about the costs that we're going to go into fulfillment and to try and get everybody owns the day, same day or next day shipping with time. And they

still blew it out of the water. So in terms of the question about how much more runway there is to go, they haven't finished all the youngers and the conversions to next day to delivery for farm so there's still a lot more to go there and they've shown

they can do that while managing costs. Uh they're still growth in Amazon Web services and cloud, even though that's slowing, it's still massive, and they added ten billion dollars worth of revenue from the year before on that, and then of course they're still add so they are kind of the night and shining owners industry at these from the week gatter point of view, where they might be able to break up advertising uh D wappoly between Google and Facebook,

so the little learning there too. And then the one they still haven't really given us too much data about are the devices which echo or even the use of a Lexa for example. And how's your fiquitous We know that's becoming. We don't know how much value that's bringing into the bottom line, but that's something else they can still fought of the hat. So Amazon now on track to exceed a trillion dollars in market value yet again,

given the pop that we're seeing in their shares. When you talk about this growth, particularly when it comes to sales, retail sales, who are they taking business from most of all at this point, Well, this one, I think they're consolidating a lot of online sales, and obviously we know the demise is forrick and mortar retails, that's happening anyway. But in terms of share, they're clearly getting more and more share um from other online retailers and e commerce providers.

The other thing I look at is that international growth was only four for them, whereas in North America there's still a lot more headway and a lot more for them to gain abroad. When it's here in the UK or another market outside of the home legion, and I want to go to your expertise. So this goes back to you. You were fifteen, you were at Sun Microsystems and you know, a long time ago, and then you dashed over to England and did Skype and all of

this tech techy stuff is about network effect. And if you look at network effect, I mean Bezos has a network effect with Amazon, including the bandwagon effect, which is where everybody climbs on board. How are normal companies to defend against the massive first movers status and network effects that Amazon has wrought. Well, I think you're gonna you can't actually come out and try and beat Amazon or

compete with it on its owne churp. You're gonna have to come at it from a different angle, come up with a niche satarian. We've seen more direct to consumer brands and products come out um, and you gotta hope that you build up at each other. You build up a sort of leadership position in a category that Amazon doesn't already dominate. So they're seen as a you know, a general it's kind of e commerce provider, um. But you see brands, whether it's Alberts for shoes, or even

Night which continues to dominate another superfly shoes. There are going to be categories that Amazon can't compete with at the highest levels. Answer that brand value. They're just now seen as a general fulfilment providers from a retail point of view. But I really think what's what striving corporate values the enterprise side, cloud services and software that they use. So, Eileen,

let's turn to politics now. Then, with that in mind, you've done a fremendous job over the last few years of working with the British government and expanding investment in tech, specifically in London over the last several years. Just looking

across the Atlantic into the United States. At the moment here we have a massive company, Amazon with this huge cloud business now basically providing all the capital for the e commerce expansion, and a government a Washington, d C. Scene at the moment where a lot of these names Amazon, Facebook and the likes aren't very popular and I'm just wondering what the future looks like for them? What does

it look like for them? Alene, Yeah, I think there's a reason you're seeing all these companies spend record levels on lobbying, and I think Amazon's in a really interesting position. So I mentioned earlier, they could be the hedge against the duop lee in advertising between Google and facements. But on the other hand, with the own ship of Washington Post and Bezo's personal interest and his lack of friendly nature with Donald Trump, he could be really the subject

of a lot of scrutiny. And this Department of Defense deal for instance that Amazon lost for cloud services for a WS two Microsoft a year for example, is a really really prime example of that. What would you expect from Basils next? Does he just relentlessly stay with his strategic plan or can I lean Bourbage Sea a twist coming down the road? I mean, I think Bezos is pretty on top of his game, so I'm pretty sure he's got lots of continuency plans, lots of things up

to sleep. And I'm not worried about this business or its potential or its ability to send from anything like that um in the York to I mean, how concerned are you about anti trust cases against Amazon given how much control they have not only over their own products and sort of their their clout there, but also with independent independent shops that are operating on their website that

are not necessarily prioritized in source results. Yeah, I think that that is a concern, but it's probably I don't think antitrust is as much concerning to Amazon as it might be for Google and Facebook. Where I would be concerned if I was on the Amazon mobby inside or public policy side, is what's going to come down the pipe UM this year with respect to tax treatment and whether or not they might get hit with really severe tax bills, especially outside of North America. How much more

upside is there left in Amazon shares? Do you think? I don't see UM an end insight. I really don't. I think that they have continued to demonstrate solid, consistent, responsible growth. They continue to show that they can control costs UM. They'll experiment when they need to, they'll acquire when they have to, they make strategic investments UM you know, their acquisition or investment stars to stay in delivery here in UK is UM you know, being looked at by

the competition of markets authority. But they are continuing to innovate, and yet they also don't forget what really matters to retail customers in terms of fulfillment the same day or next day delivery and even things like doing their own titles for Amazon Prime to make that a more interesting composition actual media content, so I don't see a lot of feeling to come. Eileen, Thank you so much. Eileen Bourberich with us today from London. Thanks for listening to

the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio