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tv   Charlie Rose  Bloomberg  June 6, 2017 6:00pm-7:01pm EDT

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>> wall street fall the second day amid caution ahead of the u.k. collections and the ecb rate decision, the dollar hitting the record low. >> treasuries, an indication china may lift holdings of u.s. that. -- that. >> 26 years without a recession. how this could put australia's proud record under threat. >> california governor jerry brown warns the u.s. against complacency as he sees through
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trade deals in china. >> hello from sydney. just past 8 a.m.. i'm haidi lun. this is "bloomberg daybreak: australia." betty: i'm betty liu. after 6 p.m. here in new york. we will be watching how all the action in washington plays into the trading day. investors striking a bearish town today. the markets following two days in a row. there's a lot investors will be digesting. we've been talking about this all week. you can imagine every trading floor will be glued to the television when james comey takes the stand on the hill and testifies. that has dominated headlines as well today. also, looking forward to the u.k. elections. all that uncertainty leading to the declines you see np down about 3/10 of 1% .the dow, off by almost 50 points. tumble.aking a slight
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again, setting you up for a softer open in asia. haidi: that's right. that's not even counting what we get out of the ecb. we expected guidance from mario draghi. markets are calling this super thursday, led by the potential for political absent from the james comey testimony. asia, say, here in looking like a bit of a softer session, at least a mixed start as we get this risk off tone. new zealand trading underway. we are seeing them down a 10th of 1%. the big story for australia is the first quarter gdp number. we are expecting growth to have slowed to 1.6% on the year. some analysts are seeing a contraction. this is after sluggish consumption retail and the contribution made by export. futures pointing to the outside.
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the aussie dollar holding at 75.10. in a statement, striking billion tons, saying he continues to see 3% growth for the next couple of years. taking a quick look around -- weities, you see them had gold headed for a seven-month high. crude paring earlier gains, but that is showing u.s. stockpiles continue to decline. iron ore up about a quarter of 1%. certainly we are seeing quite a bit of writing activity when it comes to u.s. treasury. flat safety starting to play out ahead of a very heavy second half of the week when it comes to global news flow. let's get first word news with nina melendez in new york.
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reporter: qatari stocks fell again as the saudi led isolation takes hold. a band pass -- vessels sailing to and from qatar from using facilities. this has no restrictions as it is considered international waterway. qatar relies almost completely on imports. food entersf through the land border through saudi arabia. president trump is claiming some of the lead it -- credit for the saudi led isolation of qatar, calling it punishment for support of extremist groups. he says it's proof that history trip to the middle east is paying off. it also means washington is taking sides in a dispute between key allies in the gulf. home to america's regional military headquarters and 10,000 personnel. goldman sachs boss lloyd is calling for the u.s. to spend more on infrastructure. beijing, he tweeted, always impressed by the condition of the airports, roads, cell phone service. the u.s. needs to invest to keep
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up. it is only his third ever tweet, and builds on diamonds warning that spending neglect is damaging american growth. the governor of california is wanting the u.s. not to rest on its laurels amid rising competition from china. jerry brown is in china, trying to forge new links on energy following the president's decision to pull a knack the pair's climate accord. the democratic governor leads a $2.5 trillion economy that on it's on would be the world's six largest, just behind the u.k.. >> they are not sitting there and making a one dad -- 121 trump down, china. mind tona puts its something, they persist. i thought that was the words of someone who's looking out over the whole world and not looking inward. tesla shareholders had voted against directors to face
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reelection each year. a group of pension funds wanted the change, seeing most board members are personally or professionally lee linked to elon musk. shares extended record highs as investors meet in california, with the model three do next month. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm nina melendez. this is bloomberg. haidi: thank you. now for a look at with happening in australia today. 26 years without a recession. is it going to hold? paul: it is to be an interesting rest of the year. the first quarter gdp numbers expected to be pretty soft. a third of 1% gain expected. gives us an annualized number of 1.6%.
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that slow down as well. it may be weaker still because we had a balance of payment figures yesterday, which was exports. amid we have capital economics for testing half percent fall to the gp -- gdp number today. jp morgan sees some chance of a negative read, expecting 1/10 ever present. looking sluggish there. they don't seem concerned at all. they see growth at 3% over the next couple of years. haidi: i'm going to bring up this chart that shows nicely, 63.71. we were talking about whether it's good luck or good management, but we have done pretty well over the last quarter-century. let's talk about corporate headlines. chp can't catch a break. elliott management calling for better shareholder value and tribeca having ago. paul: everybody's favorite punching bag.
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for bhp. -- poor bhp. bhp of accused destroying $40 billion worth of shareholder value over poor decisions. portfolio manager craig evans didn't hold back. debate there's no because there's no one with substantial technical or operational experience challenging senior management. he says tribeca has enough support to force a vote, but they don't particularly want to do that, but just approached bhp. bhp says no comment. betty: bhp suffered another setback with the restart of the iron ore mine. that's being delayed again. what's going on? paul: a bit of court battle in play here. of particularr interest to the mind that needs to draw water from the river to get operations going.
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one mayor is the holdout. he has been blocking a state court, ordering him to make a decision in 10 days. the supreme court put an injunction on the decision. tailingsll over the dam. 2015 with those flooding, 19 people lost their lives when the dam gave way. bhp had been working to reopen the samarco mine. it doesn't look like they will get underway this year. betty: paul allen in sydney. stocks falling a second day in a row. down the most since mid-may. we had dollar down as well. treasuries rallying. joining me on set with more details is su keenan with a rundown of the markets. a bit of a retreat.
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second day in a row. many strategists calling this a caution sign ahead of what they are referring to as super thursday. not just jamess, comey, but the ecb, the u.k. vote, many things investors need to wait for. let's go into the big movers. dollar general beat the view, lifted its outlook, but got slammed as amazon, this retailing giant, lowered the price for prime. a lot of similar discounters were lower. advanced market advice sudden surge there,. that has a lot to do with the big surge in bitcoin. they say it drives sales of graphic cards. and you have hd supply holding company, downture in a big way. let's go to the bloomberg. 5332. first is the financial conditions index, which is broadly rising, but taking lowered today.
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the white line is the bloomberg financial contribution in lyrics -- index you know. a crossing there. a bit of a crossing -- caution note this week. betty: there's also this talk about super thursday. hearing,ng, the comey and the preview of the u.k. election. all of that is being watched, but it's also a time when trump is pushing his infrastructure plan. is there any conflict here? reporter: that's getting lost in the shuffle, but it is pretty big infrastructure. the bloomberg again p this is the weeklong push for infrastructure plans. -- ants to hand over we are looking at the snp municipal bonds. that is investment grades, thinks -- fixed incomes, crossed with the aggregate.
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in the lower chart, a similar chart. the global index outperforming the msci index. we know conceptually the infrastructure play has been strong. let's go into the particular. steel stocks have suffered. questions about whether trump .an get it done you will see that u.s. steel has been flat of late. it is actually down significantly year today. if we go into one marred bloomberg chart, many of the infrastructure stocks have been giving back gains they had since the election. this is a number of engineering stocks. haidi: seeing some activity when
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it comes to the oil trade ahead of the wednesday inventory data. reporter: we are seeing oil holding up, even though we saw weakness after hours in gold and oil, but they were strong in the regular session. in the chart you can see the big tookthat oil futures several weeks ago on concerns about the opec deal. of the dustuplot between the middle eastern countries and diplomatic issues should have been bearish for oil, it has continued to rise and close above $48. a lot of traders positioning ahead of the inventory data which will be out wednesday. it could drop for a night week in the u.s. eia,so have data from the showing u.s. output could break a record in 2018, 48 year record. domestic production could top what we saw in 1979 due to the shale drilling surge.
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again, oil edging back to the $50 mark. are watching the oil prices carefully as we get those inventory numbers. let's get it live to the bloomberg invest conference in new york. the biggest names in business giving their views on china tesla -- and tesla, but the focus is on trump. to the north star inc. chairman. some of the comments coming through, he says the first year of any president's administration is chaos, but he manages chaos when it comes to the private sector, and he's doing an amazing job in a difficult situation. let's get it over to this conversation w. >> because he wants it the way that is. in other words, death by a thousand leaks is a consequence
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of attacking the institutions. when you attack the cia and fbi, and you attack congress, and you attack the diplomatic corps in the state department, all the protectacy can do is itself. within the white house, actually, things are actually running pretty well. all of the rhetoric between jared, he's 36, he's an unbelievably soft, considered, thoughtful mind, and a trusted advisor to the president. gary cohn, you couldn't have a in theadvisor -- adult sandbox. if you can run goldman sachs, you can run the economic piece of the white house.reince priebus knows the hardware and the plumbing of washington.and steve bannon is the victor of a philosophy, whether we agree on it a not -- or not,
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he's like a buddhist monk. reporter: that's the last time you will hear steve bannon described as a buddhist monk. [laughter] >> he's very bright and capable and has a point of view. all these other things on leaks come from management by confusion. there's no command control. the command-and-control is the president. to give you an example, the and says ioes to pei want to design a building. he says i want to use your name and i'm going to design the building. then he goes to a builder. but i don't really want you to build it. i need your bond. i'm going to negotiate the drywall contract. he has a drywall contractor come in. he has the palmer and, you walk into that -- white house and the office, baker.t james
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there's no differentiation between him and what's happening in all the spheres, because that's how he manages. death by a thousand weeks is a problem.- leaks is a reagan was exactly the same thing. it's the only 12 the bureaucracy has besides budget to get back at everybody. and that eventually i think will evaporate, because what will happen to the president, wants his troops get in place -- remember, when i say this only 50 people, there's only 50 people. when you go to steve mnuchin and say we will have a repatriation tax policy, and he says great, let me go to my battery of capablece, he has people there. there's nobody more capable and competent than he is, but it's going to take another three or four months to get troops. first of all, when we talk about forever trumpers, there are
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probably three, jared, ivanka, and melania. there's really nobody at the beginning who thought they president would have the choice -- chance. unlike hillary clinton or barack obama had resources, or republicans that had teams, and had been governing, remember paysa great position, it 125 thousand dollars year, plus you got to the government ethics, can you imagine going into the government at this point in time with everything confronted? now you have a president under fire. you have five investigations going on, you say i have a great job, be assistant secretary, give up your $1 million a year job, i will pay you $119,000 you have to go through, a hundred checks, and press interviews, at the end of the day it's difficult. they are doing a great job
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following that resource space. , once that gets blended now we get to midterms of congress. there's no congressional bandwidth. when you look at what congress is going to get done between now and the time they go home, you can't enter one more piece of paper. so this consensus and conciliation, they are learning on the job how to govern. compromise ona all of these things the same time as doing what he's doing for his base. i think what happens is the president is saying my bases all of america. s,'s not the forever trumpster it is the american people. you will start to see him retail. he's changing his points of view. they are softening on some things. he's very focused on some of the ardent things.
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the tweeting makes everybody crazy. i'm going to actually give you a call you said about that. just last month. you told erik schatzker that is tweets shouldn't be taken as off-the-cuff. he has actually brought -- thought them through more than people think. do you still believe that? >> absolutely. absolutely. of the president. he's the embassy of the presidency. -- amazon of the presidency. as good as bloomberg is, as good as cable tv is, social media is a form of communication which mature adults at his level in my level have not had intense use in their careers. he has a new way of
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communicating, which is unsettling, because presidents usually have a cadence and political balance of ever saying anything. say something beautiful, everybody will not. everyone will say it was so poetic. it means nothing. this president is sending shockwaves. off-the-cuff. when it's off-the-cuff, he's doing it for a reason. reporter: do you think it's appropriate for the president of the united states to tweet criticism of the mayor of london in the immediate aftermath of a terrorist attack? >> bloke, personally if it were me, why do it? there's no gain. why does he do it? because it's how he feels. he's communicating to the world, i will tell you. you can like it or not like it, but i'm going to tell you how it feels. it's part of what you get with the man. , so not politically correct
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just as the president of china comes for the first time to mar-a-lago, sitting there in between steak and chocolate cake , mcmaster leans over to the president and says we are locked and loaded. the chinese president thinks that must be some kind of dessert. what could this be? reporter: i don't know what this is. >> the president nods and says, continue. at that moment he decides he president ofhe china what's happening. he leans over and says, mr. president, we are 189 miles off the coast of syria. . we are launching ballistic missiles. i want you to know, president of china looks at him, and he says repeat to his translator. can you imagine that moment?
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never in history has something like that happened. thesaying one of warrantless moments for me -- i hate to see him getting beat up. he's doing the best job he can. daythe generals that changed everything. he became the commander-in-chief that day. the generals saluted him up and ranks.e military thoughtfulness he put into that, the way he pushed it wasn't knee-jerk. they spent two days into situation rooms analyzing it. he called the commander of the ship himself. he said, i want you to tell me what are the risks? we talk about sailors, the earth of -- these are m.i.t. phd's. it's a different world. whether yount, believe in it, whether you don't believe in it, the military got
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a shot of adrenaline they hadn't had fred decade -- for a decade. the responsibility, the terror of wounded people and senseless lives. i saw the man stepped into a role that he now owned. i think that will happen to him all the way along the way. reporter: let's talk about moving to his legislative agenda, we talked about tax, trade, infrastructure. this is infrastructure week. let's start with tax. one thing that i think constantly interests people is the market response to the administration so far, and continuing to price in optimistically progress on a comprehensive tax overhaul. i think the markets are still feeling optimistic. are you optimistic they will get things through? >> there is no better secretary
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of treasury in my opinion then steve mnuchin. he is focused, he is so smart, so intent, and his team within the treasury admire him not for his political ability, but his brains, mind, and tenor. the congressional battle. how do you solidify these issues and get something sensible on both sides of the aisle through quickly? its low hanging fruit for everybody. i'm the most encourage by a workable and usable tax bill as i am for everything. everybody wins. health care is much more complicated. i'm optimistic about a workable tax bill. it won't be as great as people hope, it will be as bad as in a series think. i think mnuchin and gary cohn together with budgetary confinement and congress will have to get there.
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the congress has got to do something. i think on a business sense, optimism, hope, boldness, when you look at transparency in the world, why is our stockmarket doing what it's doing? by stock market is driven five stocks. all we have to do is invest at local and amazon. cap ofthe market top -- the whole world. but transparency optimism, capital, at a time when the rest of the world is in sovereign wealth, central bank warfare, the only thing getting better is the central banks have now .ecome the governors du jour we didn't know they were. 10 years ago, nobody cared who was the central bank or in any of these countries. even in our country. it's a boring job. now it dictates the pace. , we are look and say almost in the 10th year.
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we would have all been wrong. everybody wants to fix interest rates. all of you in the audience and at home, as interest rates 4%,ted to drop from 5% to everyone says, i'm going to lock my interest rates and go fix. if you had done that in the last 15 years, you would be wrong. it's an amazing phenomenon. everything is getting cheaper. five years, we will have driverless cars. the effect on the world will change tremendously. haidi: betty: ok, that is tom withck betty: speaking megan murphy giving context to president trump and his first year in the white house saying that the first year is going to be messy, given his backing to steve mnuchin and gary cohn, saying that you couldn't have a better at all in the sandbox.
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we will have a lot more from the bloomberg invest conference in a few moments. we'll hear from the founder of tenneco's associates in about 10 minutes.
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haidi: 8:30 a.m. in sydney. quite a bit off upside ahead of first-quarter gdp numbers coming through. expecting to show growth has slowed in the first three months. i'm haidi lun in sydney. betty: are my eyes deceiving me? is that frost over there? it is 6:30 p.m., you are daybreak:bloomberg asia." nina: apple ceo tim cook says any tax on overseas earnings should be mandatory with proceeds spent on infrastructure. apple has billions of dollars in cash reserves, most of it
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outside the u.s. cook says he supports president trump's campaign proposal for a one-time 10% levy on offshore income, which is less than a third of the u.s. corporate tax rate. >> in our view, it should be a deemed repatriation. this means it should be required tax. so you are not asking the people of -- that have had earnings from their international subsidiaries if they would like to bring back money. you are saying that you must pay the government x-percent now or over some period of time. nina: u.k. prime minister he is makingays human rights legislation to fight against terrorism. securities dominating the election campaign ahead of thursday's vote or she wants the power to deport foreign suspects and limit the freedoms of people deemed a threat but who cannot be prosecuted.
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she called the election on brexit, but recent attacks have switched the focus. ae brazilian president faces new threat as a top court debates whether he and former running mate dilma rousseff took illegal financing. he could lose if the mandate goes against them. he's been under rising pressure since corruption allegations emerged last month, prompting calls from his impeachment, even from his own ruling coalition. american international group, the insurer that last month hired its seventh ceo since 2005, had the outlook cut negative by s&p global ratings. that is after claims costs like underwriting losses. the reduction came because "aig's recent track record of delivering on strategic goals, specifically losing the insurance segment, has been subpar." values continue to soar in japan. ward, in tokyo's central
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home to a shopping district, had jumped 61% and four years. in osaka, they are up by nearly half. booming construction of apartments and shopping centers is driven by funding by banks. office prices are at the highest 1984. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i nina melendez. -i am nina melendez. -this is bloomberg. overnight, street stocks showing a little activity when it comes to save haven assets. new zealand down by a 10th of 1%. futures in australia setting up, looking more positive. rb a leading rates on hold for a a littleth yesterday. resilience coming through from statements, still seeing about 3% growth when it comes to
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gdp over the next couple of years or so. futures, upset of about 15 points. aussie dollar at 75.13. that gdp number, we are expecting growth to have slowed to 1.6%. 3/10 of 1% on quarter. elsewhere around the region, the yen is strengthening. 21.ngest since april quite a bit of price action when it comes to the u.s. 10 year. looking at yields lowest since i believe about november. we got there report suggesting that chinese buying interests has in revived after the brief break last year. a reminder of how u.s. stocks closed in the u.s. -- overnight session. second and the clients for wall street. more on what we should watch which -- with adam.
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volatility remains low, even ahead of what we call super thursday. where are you seeing activity? one interesting place is people wanting to hedge against declines coming in and the u.s. market. we are seeing this across lots of markets. in particular, this trade coming over as a $.50 trade. we have seen it come down to multi-decade lows at the moment, but now we see the number of calls relative to the number of puts his back to levels we have not seen since october. it shows you people want to find some way -- it doesn't have to be catastrophic declines in equities to benefit, but just small moves that we haven't seen yet, that increasingly people are interested in to get bets on. we are seeing those in the u.s. market. there are plenty of other markets across the u.s. region.
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betty: thank you. adam haigh in sydney. let's return to the bloomberg invest conference in new york, or some of the biggest names in business are giving us their views. scarlet fu and joe weisenthal are with jim chanos. more recently, as many of you know, he's been sounding the alarm on china and tesla. let's begin with the elephant in the room, the trump administration. as ad has built himself change agent, ready to disrupt the status quo. so far, what we've seen has been more rhetoric than policy action. substancesything, policy changes do you see coming in the next six months? >> first of all, thanks for having me. where else can i get a bloomber
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-- makeover and listen to elon musk talk about the future? [laughter] so, it's interesting. we all follow politics. a lot of us care about politics. at the end of the day, politics works in strange days -- ways in the markets. if you go back to 2009, we had elected, by many people's views, someone to the left of vladimir a community organizer who would nationalize banks, raise taxes, increase the estate tax, do a lot of really business unfriendly things. after a few rocky months, the stock market tripled. we have elected ostensibly the most pro-business president, at least self-described, in modern probably only matched by george w. bush.
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remember what happened under bush. we had the mba president -- nba president. we were coming in at the end of a long economic expansion that would continue.instead , we had to a sessions under his watch, including the worst financial crisis in modern memory. it doesn't always work out the way you think. events conspired to overtake people. joe: i feel like that's a good lesson. i want to come back in a minute to talk about specific domestic policies. as scarlett mentioned, you have been well known in recent years for your comments about china, president trump himself has made many comments about china on the campaign trail and now. >> a little bit different. joe: once again, little different than what people expected, but what do you see emerging in that relationship, and does it change in any way,
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the way you see things playing out? >> that's one of the interesting things about the administration. china was the that man in 2016 in the campaign. -- bogeyman in 2016 in the campaign. then in mar-a-lago, the president and xi jinping seemed to be best buddies. this is one of the things that have caused most of us watching -- it is geopolitics. we are stock guides, not macro people. i will make that disclosure and caveat. this policy could change tomorrow. i think that is something that has a lot of people a little bit uncertain, and that you have this currency manipulator, trade , and now all of a sudden china is our best friend in the western pacific. know.t
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i think clearly people are focused on north korea, as they should be. but the south china sea is still being developed militarily by china. you have the chinese currency stabilizing post-mar-a-lago, which i think is a good thing. but we will have to see. this is an administration that seems to make it up as it goes along. what their policy will be six months or a year from now, i have no idea. scarlet: we can't safely say the threat of a trade war was china has been removed? >> i don't know that a trade war with china -- i think anything that will bring tariffs is kind of a dumb idea. free-trade guy, but i think that will extend well beyond china. that will extend to partners in north america, europe. we seem to be picking lots of fights these days. china seems to be one we are not picking.
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we seem to be concerning trade partners everywhere else in the world. andneral rise in tariffs drop in global trade would have to be bad news. speaking of the domestic situation in china, it appears regulators and the government are embarking on a deleveraging campaign, recognizing there's a lot of that debt -- bad debt in the banks and structural issues. what does that do for your thesis? what do you make of that? >> only in china would growth in banking assets of 15%, twice the gdp, be considered deleveraging. steel production is still rising 5% a year. orn china says deleveraging supply-side reform, we are going to cut capacity, they have been saying these things as long as i've been following china, over seven years. when you look at the numbers and
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remember, we are comparing bad , there isbad apples still substantial growth in credit and capacity. all the things they claim they are trying to rein in doesn't happen. haverticular, when you bank credit, banking assets, forgetting the shadow banking system for a second, still three-x gdp, the model is still the same, debt driven. last year, we think they added about 5 trillion or so in new credit dollars, in new credit to the system, which is somewhere between 40% and 50% of gdp. i keep saying, if the u.s. economy added $8 trillion or $9 trillion in new credit, we would be growing at 5% or 6%, too. there's not a lot to that. people ask, do you believe the
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numbers in china? when it comes to gdp, i kind of do. that's the problem. given the model, you stick a shovel in the ground, borrow money, put up another building, it would add gdp. said,t: on the company carson block of muddy waters told bloomberg that a lot of companies that are listed in hong kong, he thinks they are committing fraud, often combined with stock manipulation. would you agree with? that? mutual friend called china the people republic of madoff. [laughter] done a think anyone has better job of describing china than that. it's amazing. as much as you look at national accounts and scratch your head, when you look at the actual corporate balance sheets and reports,s and annual
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it's amazing. even the so-called national champions, the biggest state-owned companies, seem to never earn their profits in catch -- cash, have a byzantine labyrinth of subsidiaries that get swapped around willy-nilly. then on top of that, you have the chinese corporate governance system. when you buy a chinese company in the west, typically you are buying shares in a holding company in the caribbean that has an operating agreement with the actual operating business in the people's republic. as long as they want to agree to make good on your economic ownership, they will. if not, they won't. your records is negligible. this is something people keep forgetting over and over again. coming back here, one of
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the areas that has been pretty lucrative for short-sellers and darius ways has been the health care space. pretty big names. what is it about u.s. health care fundamentally that lends spotting these opportunities? >> it is a system designed to be gained. that's what's frightening. it's the best system in the world, but it is this hybrid of socialized and free market health care. my friends tell me, why do you want to see a single-payer option or why? do you think the free markets the best way? we don't have free market health care. we have a bizarre system of fee for service, and lack of eating. for example, medicare part d, charge providers
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whatever they can and often get reimbursed for it. so on one end of the health care spectrum, we had tremendous rent seeking behavior. that's what we thought obamacare would take care of ins -- take care of. instead, obamacare became focused on coverage. i asked the writer of the bill in 2011, why did you not push for single-payer? she said something interesting. she said, don't worry, it's coming in five to 10 years. she said, when people realized just how much their co-pays are going to go up in the next handful of years, the public will get outraged. it's almost as if that was a feature to the bill, not a bug. that's with getting people now. that's why there's such outrage and the town halls, no matter whether you are republican or democrat. the average american, who 80% of
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get through our employer, is beginning to realize how much this costs. we are not doing $10 co-pays anymore. it's hundreds of dollars for a drug or thousands for an operation. that's what's beginning to put political pressure on the system. scarlet: do you see any potential reforms coming out of washington dc? the house has already cost -- past this portion of the bill. it is supposedly starting from thetch that would close loopholes. believe it when i see it. i don't know what might happen. there's a couple of moving parts. the dropping of essential health benefits or giving states a waiver to drop them under medicaid and under the exchanges would kill a number of is mrs. who have -- businesses left grown up under the concept of, you have to pay for this. that's one area we are focused on.
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i think it's going to be really hard to get a lot of what the republicans want to do on this completely in the free market, because we don't have a free market. health care and other industrialized companies figured this out decades ago. free market does not apply to health care because we don't shop for like consumer goods. if your doctor says i think you need this test, by and large, you get the test. you don't go to minneapolis and check what the doctor will say. you listen to your doctor. so we don't shop for this stuff free market. it's not a free market system. at the end of the day, i still kind of suspect we are going to end up in some kind of basic major medical package that's going to be part of the basic package for all americans. it may not happen in 10 years, but i think inevitably, we are going there. joe: to move it back from politics and theory for a
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second, i noticed you said you are focused on companies that may be in trouble with the potential rollback of essential health care benefits. can you give us insight into specifics? who is vulnerable to a rollback? >> one area we would focus in on is the kidney dialysis business. i think that business is really heading for difficulties. joe: we have a chart here. [laughter] kidney dialysis. amazing how that happened. >> i should say that any , younies you see chart of should assume we are sure that stock. the kidney dialysis business is interesting, because we have obamacare exchange insurance officials on record saying kidney dialysis is almost single-handedly breaking the
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exchanges. blue cross of california has said that for every single dialysis patient they have, they need 3800 healthy lives to cover it. it is amazingly expensive. but not in a way you would think. the way the companies have prospered in a weird way is they are actually trying to push medicare and medicaid patients were they reimbursement is much lower into obamacare. where they get to three times .he reimbursement rate taking an elderly person on medicare, why would they go into obamacare? it would cost them a fair amount of money. well, they get third parties to pay a big chunk of the premium, the former charities. guess who donates to some of those charities? so this is one of these rent seeking behaviors that i think
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is going to go by the wayside. i think these excess returns. one of those companies up there actually has a slide in their investor deck that says, 90% of their business is medicare medicaid, and that loses money. 10% of their business is commercial, and that makes 110% of operating profits. joe: everybody can go search for that. >> i think they can figure it out. scarlet: has that gained momentum due to other people pressing on that? >> i can't mention networks, i know it's no good on bloomberg, but there's a wonderful sunday night weekly news show on a cable network chaired by a british guy that hit a 15 minute segment about one of those companies about a month ago. we were stunned when we saw it. we had no idea anybody else cared. they did a pretty gal -- good job of walking you through exactly what an issue this is. so there's health care.
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let's move onto another company you have spoken publicly about, which is tesla. company is holding its annual shareholders meeting right now. they are probably a putting for their five-year return. >> they are probably launching themselves to mars right now. perhaps. the stock has launched itself. it went from less than $30 five years ago to more than $350, a return of more than 1000%. despite the uptick in profits and cash burn. joe and i were talking about this. you have been public on tesla for a while. -- what would have to happen for you to throw in that hell and say, i give up, it's not going to work? >> i would have to see that company actually begin to make money selling products. i should point out we were also solarcity that he bought
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in. that worked out a little better than tesla. the fact of the matter is, this is a company that burns lots of cash. we think they are going to be burning close to $750 million to $1 billion a quarter. it has not finished the factory. batteries are made by panasonic. i had of it, the big test, the model three, it has been losing money selling 120 thousand dollars cars. it hopes to make money telling $35,000 cars, which we think it will be a lot more than that. you have an executive departure when i seenly longer in the last two years is valiance. people leaving left and right. they are not waiting around for the company, even the stock price notwithstanding.
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we will see. they will be competing with real companies in 2018. i noticed opening remarks by mr. musk, talking about transforming to an energy solution company, so he's trying to reposition the company as something other than an automobile company. it is an automobile comfortably -- company with a money-losing solar roof subsidiary. in addition, he will have to raise a lot of money. rule of thumb is it takes about $.50 in capital for every dollar of automobile revenue. if he's going to be doing and000 model threes, 100,000 of the model s's and x's, he will need something on the order of $30 billion in
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revenue. he will need about another $10 billion in capital to do that. so the teslarians should brace themselves. joe: what's the most likely way the tesla story ends? is it something that in the model three doesn't live up to the hype? >> he actually starts making money. [laughter] joe: in terms of your thesis becoming validated, would it be more of this investor strike? if conditions change, there's a market downturn -- >> if the model three is not popular, it's going to hurt. that's the one everyone's waiting for. it's the one that average person x, ifn't afford the s or they can be a part of the solution, it's a problem. without -- at the end of the day, he has to make a car for
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the masses that is successful. that's what we will watch. scarlet: you cited tesla as a poster child for this market, where valuations are premised on what's to come rather than what the company's business is. -- and wehere else can talk about sectors or kinds of companies -- do you see that happening, where everything is premised on what's to come? >> there's a number of them out there. sector obviously is where most of those companies, itcall 2.0 -- we call two point oh, where old business models revamped 15 years later are sold to internet will the revolutionize the way in which they sell things or do things. probably the biggest impact is going to be in finance, are it's already in finance, with the advent of big data and
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artificial learning. passive versus active investing. all these things are hitting every business. cycle,bull side of the everybody see the opportunities. but what we found out after 2000 was that when you have lots of capital going towards disrupted business models, you have lots of is this is that get decimated, too. old business models are destroyed by the advent of the data or online retailing, or whatever. for every winner, there's usually a loser. that's the darkside of the disruptive capitalism coin. i think it's a good thing, generally speaking, but one of the reasons why we have a business. joe: speaking of quantitative finance and ai, we talk a lot about this all the time, particularly on the long side or market neutral site. how do these trends affect you on the shortselling side?
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>> beasley, lots of things business, notance is hedge of things fund pressure, and non-out for producing strategies are being unmasked for what they are. passive eta chasing or market hunting. or marketasing hunting. i think that's good for investors. as it relates to the shortselling business, there's something we noticed. we noticed it in a number of our shorts in the past handful of years, particularly ones we couldn't figure out with 260, and we saw a lot of funds in those stocks at the end. it dawned on us that a lot of these models, not all, but a lot of the models were some combination of momentum, and we
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are taking just simple input into the theory garbage in garbage out. valeant was pumping out pro forma cash epa numbers that had no conception of reality. people are putting in valuation numbers. it is only at whatever, 18 times this number, growing 35% a year. but it was doing neither. the computer didn't know that. the computer was looking at the numbers the company was spitting out. in those models, it got picked up as a cheap stock. i think that's going to be one of the things where machines will learn from that, if anything. now, we see a lot of those situations. i think it's one of the reasons we have seen an explosion in really, really questionable earnings presentations that are now taken companies, and that
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are reporting pro forma numbers left right and center it to make them look as good as possible. some of that might be for the machines. scarlet: can you give us an example of where you see the most egregious of that? >> almost across the board. take a look at situations tor of point to, men deign companies of breakfast cereals, where they just add back everything every quarter. how many quarters has caterpillar taken restructure packages? i suspect if you have been doing it for 20 eight quarters in a row it may be -- 20 eight quarters in a row it may be recurrent. joe: there is an extra


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