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- [00:00]
Marsh Representative
At Marsh, we believe that perspective powers progress. That's why our individual businesses have come together as one company, a new Marsh built to solve the world's most complex challenges and uncover new opportunities for our clients. We're better positioned than ever to help your business navigate obstacles and unlock potential across risk, reinsurance and capital, people and investments and management consulting. Learn more@visitmarsh.com podcast.
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Grainger Narrator
This is the story of the one as the purchasing manager at a manufacturing plant, she knows the.
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Connor Sen
Only thing more important than having the.
- [00:38]
Grainger Narrator
Right safety gear is having it there when you need it. That's why she partners with Grainger for auto reordering, so her team members can count on her to have cut resistant gloves on hand and each shift can run safely and efficiently. Call 1-800-GRAINGER Click grainger.com or just stop by Grainger for the ones who get it done.
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Bloomberg BusinessWeek Daily Host
Bloomberg Audio Studios Podcasts Radio News this is Bloomberg Business Week Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg Business Week Daily podcast with Care Darrell Massar and Tim Stanweck on Bloomberg Radio.
- [01:32]
Carol Massar
US Mortgage rates ticking up for the first time in a month, they are still sticking close to their lowest levels in more than a year. And the good news? There is some affordability set to gradually improve as modest rises in home values mean that incomes can catch up, opening up a wider pool of shoppers able to buy home. That's according to Karen Nigg. She is senior economist over at Zillow Home Loans. So that's going on. And then we had what President Trump had to say yesterday that made us all like, wait, yeah, this is at.
- [02:00]
Tim Stannwick
Least his plan to make homes more affordable, that is to ban institutional investors from buying single family homes. Not everybody agrees that's the way to do it, especially Connor Sen of Bloomberg Opinion. He's founder of Peach Tree Creek Investments. He joins us from Atlanta. Connor, you have this column out this morning. You argue that this is not the right way for the President to approach approach housing affordability. Why is that?
- [02:24]
Connor Sen
I think the first thing you want to do if you want to make affordability better, is you want to make sure that at least we're not building fewer homes as a result of any policy. And my concern, at least if you're talking about preventing institutions from buying new homes, build the rent, things like that, is you're just taking away a source of demand from homebuilders. And rather than Them selling homes to individual homebuyers instead, they might just produce fewer homes because right now they're really struggling with profitability and weak demand. And I don't think you want to remove a source of demand. So I think you want to find other ways of facilitating transactions and improving affordability without really going after the homebuilders.
- [02:57]
Carol Massar
I always feel like, Connor, when we talk to folks in the home building market, it's a lot of it has to do with available land. Buying land and then dealing with, you know, local markets. We know real estate is such a local marketplace. I feel like it always comes down to more of that versus whether or not institutional investors are buying. Especially when there's such a small part of the market.
- [03:19]
Connor Sen
Right. John Burns Research and consulting has data that says that among the new home builders, new home market institutions are only about 4% of the market. And they're really buying communities custom built for them. They're not competing with a 33 year old about to have a kid to buy one off homes. It's really working to allocate a certain number of homes for institutions or in some cases, when the market's weak like it was in 2022, if home builders are really struggling to offload inventory, it's like, here's a buyer, last resort, so to speak. And that just helps de risk the industry where they can keep producing homes knowing that even if market conditions turn rockier, there is a buyer out there, even if households walk away.
- [03:58]
Tim Stannwick
Yeah, I think the data is really interesting and I think there's a lot of politics in this too, Connor. I mean, you've written about the politics of rising prices, especially in your home area around Atlanta, and the way that power costs have increased. Maybe this is a way for Republicans to say we are addressing ahead of the elections, we are addressing the affordability issue in it seems populist and political at its core.
- [04:23]
Connor Sen
And I get how a lot of people in both parties see a headline like, you know, keep blacksmith from buying your home. And that sounds compelling, but the facts just don't really back up that they're a major player. Like in Atlanta, they do own a fair number of homes. I think we're the number one market in the country for institutional ownership. But most of these homes were bought in the early 2010s in the wake of the foreclosure crisis. And at that time there really wasn't much home buying demand at all. And so built our institution stepped in to really prevent the foreclosure crisis from getting worse, prevent home values from falling even further, banks from failing. And I think in 2026, we lose sight of that. But they haven't really been a big player in the market in recent years. These are just homes they bought 15 years ago in a very different environment.
- [05:02]
Tim Stannwick
I thought Jonathan Miller of Miller Samuel, he was on with Scarlet a little earlier today. He said that part of the issue is that the highest concentration of investment is in the south, where there's already excess supply of homes right now. So even though. And that's. That's where these institutional. Institutional owners of single family homes have a high concentration, as Carol mentioned. So much of this is local. This. This all has to do with local. The issue it comes down to, Connor, is zoning and making sure that people are saying, yes in my backyard to upzoning, yes in my backyard to building more dense housing. Is that the only solution here?
- [05:41]
Connor Sen
I think that's a big part of the solution. And the other one that I've written about recently is that in a normal housing market where we're selling maybe five to five and a half millions homes a year, people tend to move from north to south. Maybe retirees in Connecticut moving to Florida, people in California moving to Austin. And because resale transactions are down about 25% from normalized levels, that migration flow isn't happening. And that's why the tightest housing market in the country right now is Hartford. And I've got a lot of love for Connecticut. I've got a cousin who lives up there. But I don't think that Connecticut all of a sudden became the hottest housing market in the country. I think just this decline in mobility and migration means that a lot of retirees who might want to leave Connecticut are kind of stuck there, and therefore their homes aren't hitting the market. That keeps younger people in Connecticut from buying homes that maybe would have been available if people could move to Florida the way they could in the 2010.
- [06:29]
Carol Massar
So, Connor, is it more not about an affordability issue? I mean, I was trying to look at some numbers, and I think it's about 66 to 67% of Americans actually own some kind of property or home ownership. I think it's 85 to 90 million Americans. I mean, so is it not an affordability issue? Is it more about people not moving around, that the houses are there? It's just maybe not where they need to be. And you can understand why home builders might be hesitant to build homes, because at some point, all the baby boomers, forgive me, a lot of them in my family, they're not going to be around anymore and there's going to be home supply.
- [07:08]
Connor Sen
I think your point is really regional issue right now. There are plenty of homes to buy in Florida and Texas and the real shortage in the Northeast and the Midwest. And so you have this two tier market where the places where builders build have plenty of homes. The places where builders typically don't. Rezoning is harder to your point, have a real shortage. And so I think you want to address both sides. To me, the elegant way is to try to find policies that will get transactions back to normalized levels, which that won't lead to more building in Connecticut, but that'll make it easier for homeowners in Connecticut who want to retire to the south to move out and free up that inventory for people in the North. And then your point, people in the north just have to create zoning policies, allow for more homes to be built. And that's a, it's a hard fight that'll take time, but that's as part of the solution as well.
- [07:50]
Tim Stannwick
Yeah, and that's a, that's a local fight. As everybody knows who's, who've been to the ballot box or followed local politics. Hey Connor, before we let you go, when the actual publicly traded homebuilders that, that do the home building in this country, how much of it is on them versus like, you know, the smaller developers, like the, the guy on my block, for example, who's bought, you know, three different homes and, and rehab them and flip those homes like how much is about that supply versus those institutional homebuilders?
- [08:22]
Connor Sen
I think the publicly traded builders that again are predominantly in the south and west, they're doing their job, they're trying to build homes, they're operating at profit margins that they don't want to be operating at. And it's the smaller builders that are dominating the Northeast that have a harder time accessing capital, they're struggling with cost and things like that. So again, I do think it's different issues. And so it's probably more of a local regional issue to address the true shortage of where it currently exists rather than a national solution where again, publicly traded builders already are doing their best and they're struggling. And so they're not the bad guys here.
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Tim Stannwick
Stay with us. More from Bloomberg businessweek Daily Coming up after this.
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Marsh Representative
Business challenges and opportunities are never one dimensional. At Marsh, we believe that to thrive, you need perspective. That's why our individual businesses have come together as one company. A new marsh where each layer of our organization works even more closely together. To provide you with a stronger, more panoramic perspective. We're now one firm solving the world's most complex challenges and unlocking opportunities for you across risk, reinsurance and capital, people and investments and management consulting. As business continues to evolve, Marsh will always be here to help you overcome new challenges, answer new questions and take advantage of new opportunities. We're better positioned than ever to provide the perspective you need to fuel progress forward. See how@visitmarsh.com podcast, you're listening to the.
- [09:59]
Bloomberg BusinessWeek Daily Host
Bloomberg BusinessWeek Daily podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [10:11]
Carol Massar
All right. We do want to as we continue to follow that, we are following a lot of economic news coming out on the US Economy and also trying to kind of fold in everything that's going on and what it means for investors.
- [10:22]
Tim Stannwick
Tim yeah, and that, of course, is the U.S. economy. Companies here announcing fewer layoffs last month while planning more high, potentially easing fears of a sharper slowdown in the labor market. Also, US labor productivity accelerated in the third quarter to the strongest pace in two years, adding to evidence that efficiency gains are suppressing inflationary pressures and wages. And the US trade deficit narrowed in October to the smallest since 2009. Sharp pullback on imports, notably pharmaceuticals, weighing in on the US Economy and the Fed rate trajectory on Bloomberg Surveillance. Fed Governor Stephen Myron I'm unsurprisingly, the.
- [10:57]
Connor Sen
Lowest I'm looking for about a point and a half of cuts. A lot of that is driven by my view of inflation. Underlying inflation is running within noise of our target, and that's a good indication of where overall inflation is going to be going in the medium term. But then the unemployment rate is 4.6%, right? So that means that there's about a million Americans who don't have jobs, who could have jobs without causing unwanted inflation, without causing unwanted upward pressure on inflation.
- [11:19]
Carol Massar
All right. That, of course, is Fed Governor Stephen Myron this morning on Bloomberg Surveillance, the New York Times also reporting that the president says he has made up his mind when it comes to his Fed chair pick. So let's talk the economy.
- [11:29]
Tim Stannwick
He had already made up his mind.
- [11:31]
Carol Massar
It's the thing. It's the thing that keeps on promising. At some point you got to make a pick. We'll see. When it comes to this president, he'll make up his mind, I guess, when he's ready.
- [11:41]
Tim Stannwick
Right.
- [11:42]
Carol Massar
Let's talk about that. The Fed pick, the Fed policy, the US Economy and really what it means for markets and investors. With us is Bloomberg Economics, US and Canada economist Stuart Paul right here in studio along with Ally McCartney. Back with us, managing director of Wealth Management and Private wealth advisor with Alignment Partners at ubs. Happy New Year. Good to have you both. We decided to like put you together because we feel like it all makes sense. But Stuart, we want to start with you. Fed Governor Myron is advocating for 150 basis points of cuts in 2026. Do we need that? Would that make a difference in the labor market? And is that what needs to be targeted when it comes to the fed?
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Grainger Narrator
I think 150 basis points is way too much. I think that it really assumes that policy is super restrictive right now. But when you look at, let's say credit spreads, when you look at asset valuations, when you look at household bankruptcies, when you look at credit card delinquencies and auto loan delinquencies, it's pretty clearly the case that monetary policy is not so restrictive, that 150 basis points of cuts is warranted. I think that when we then look at the labor market, it looks to me like a lot of what we're seeing, the slower absorption of labor by firms, it looks like that's mostly due to a structural rebalancing rather than cyclical weakness. And when that's the case again, why rush to make cuts? Why rush for 150 basis points of cuts this year?
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Tim Stannwick
Ali, you're nodding.
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Ally McCartney
I mean, I think there are two.
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Carol Massar
You don't have to agree with Stu just because he's next to you.
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Ally McCartney
First of all, the relationship between monetary policy and the labor market is tenuous at best. Second, inflation as they said, is exactly where they think it should be. And that seems to be proven out. And the cyclicality has been significant. Part of why we are where we are right now in terms of market highs, in terms of things like where precious metals are, is because growth has surprised to the upside again and again. And you're seeing that to tie this all together. You're seeing that in productivity. When you look at the 18 companies that have off cycle reporting and have already reported full year end and third quarter, they are beating by as dud in the third quarter about two times what the street had expected. So they're beating at about 14%.
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Carol Massar
So things are pretty good.
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Ally McCartney
Revenues not on revenues, on productivity gains on margin. And so things are pretty good. There's a lot of noise, a lot of it's coming out of D.C. like moment by moment, but things are good.
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Carol Massar
Well, that noise from D.C. stu, and we talk with you and we talk with Ali about this. I mean we think about yesterday, all of the social media from President Trump, whether it was on the housing market, whether it was on defense companies. There is a lot, everything that happened in Venezuela which makes you think, okay, what geopolitically next might happen. How do you continue to pull that in? And Ali, we're going to ask the same of you. How do you continue to pull that in and factor it into maybe economic projections or do you not.
- [14:45]
Grainger Narrator
Well, we do, we do think that there is going to be a considerable amount of fiscal, fiscal tailwinds that support growth throughout 2026. We do get a lot of noise when it comes to things like housing policy. And then when we factor in something like a banning of institutional investors from buying homes, we then have to think about the knock on consequences for home valuations, for household wealth. It starts to get very tricky. So we're sort of moving at the pace of policy as opposed to at the pace of rhetoric. And right now where we see the policy stands is that deregulation, fiscal tailwinds are going to support growth throughout the year. And again when that's the case, no need to rush for cuts.
- [15:23]
Tim Stannwick
Ali, what about when it comes to more spending from the US Government? What if the President gets his wish and sees an additional $500 billion in the defense budget from up from a trillion dollars?
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Ally McCartney
Well then we have a couple issues because that's, there's both sides of that trade, right? So then we have increased fiscal tailwinds which are already, you know, through the big beautiful bill, which are already sort of myriad. And, and we've seen them already in.
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Carol Massar
A sense you're talking about the deficit.
- [15:48]
Ally McCartney
Just have the deficit, right. So all of these things play together and I think to your point, you there right now you have to invest on Fed directionality, not magnitude earnings, which is going to be significant this year, probably 10 to 12% and much more broad. Well, when we say much more, there are about 10 companies that made up 50% of the earnings in 2025. And quite honestly the year before and the year before now they're going to grow at about 22% while the rest is going to grow about 4 or 5%. But believe it or not, there is some more breadth to that. But those are the fundamentals you have to invest in. And then you have to understand that this concept that has been coming out of Washington the last couple of days, which is affordability, is a big deal because midterm elections are this year. And so there is going to be a lot of policy put forward, a lot of rhetoric, and it's almost going to be like a live action show for the next number of months. You know, seeing what happens between Trump and Congress, what happens in the Fed and sort of figuring out what if these are, you know, could happen 100%, what could happen 0%. And what's happening in the middle.
- [17:01]
Carol Massar
Stu, you've been looking at the midterms, right. And doing some kind of in House calculations a little bit about whether or not we might see a GOP pushback or maybe it won't be as strong as everybody's expecting.
- [17:12]
Tim Stannwick
Yeah.
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Grainger Narrator
Ali brings up an interesting point about just how much affordability has been at the forefront of people's minds, including for voters. When we then take a macroeconomic perspective and we think about what really matters for voters as much as they're focusing on affordability because it mattered for the Mamdani election in New York, what seems to matter most are things like inflation playing into affordability and improving living standards. And when we then model out what the change in the structure of the House of Representatives is going to look like after the midterms, it actually doesn't look like voters are exactly rushing to flip the House. Right now. The betting markets are assigning about a 70% probability that the House flips to Democratic control after the midterm elections. But when I model out control of the House based on those major economic variables, inflation, standard of living, it looks like just about four Republican seats will flip again. This is very top down. And when you look at politics really need to go bottoms up from the congressional district and really understand how people are living district by district. But it doesn't exactly look like it's a mortal lock that the House is going to flip. It actually looks like it's going to be much closer in the press, in the President's favor in the midterms than betting markets are supposing right now.
- [18:28]
Tim Stannwick
So, Ali, bring it home to the markets for us and to where you're advising people to put their money.
- [18:33]
David Wu
Yeah.
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Ally McCartney
So this year I called my last note lather, rinse, repeat. Over the last two years, you've seen the same thing. You've seen decreasing interest rates, helping bonds and equities. You've seen equities doing extremely well. Actually, last year they were US equities were dwarfed in a sense by non US Equities. And you've seen commodities for a whole host of reasons, including the dollar, including Geopolitical risk increase. I expect more of that to happen this year because I think what we have is the same levels of support and growth, Fed directionality, fiscal tailwinds, AI, but we also have another, that GDP keeps on surprising to the, to the upside. And so really there are a lot of tailwinds and it's, I also call it like fear of heights right now. It's hard to want to invest in these things. Well, but there's reason to be bullish.
- [19:26]
Carol Massar
We got about 30 seconds left for each of you. Ali, I just want to ask you, were you making investment decisions based on what President Trump had to say about institutional investors not buying housing or about defense?
- [19:37]
Ally McCartney
Absolutely not. We make investment decisions based on the fundamentals of stocks, companies and the macro economy. When and if that changes and these things could markedly change that. Right then we would make maybe tactical changes where we would start overweight, defense in something.
- [19:58]
Carol Massar
But not on a tweet, but in terms of.
- [20:00]
Ally McCartney
Absolutely. That you just, you'd get brain damage from doing that.
- [20:03]
Carol Massar
25 seconds left for you. Stuart, are we going to get brain damage coming off of the jobs report tomorrow? No. Just real quickly, what do we need to know?
- [20:09]
Grainger Narrator
No brain damage. I'm expecting 80 to 100,000 jobs added in the month of December.
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Carol Massar
Feels low.
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Grainger Narrator
It feels low. If we consider, you know, the post Covid hiring boom. But, and, but in the context of the break even pace of hiring, that's about double the need, that's double the pace needed to maintain a steady unemployment rate. 80 to 100,000 jobs would be a very good jobs report.
- [20:30]
Ally McCartney
Great stuff.
- [20:31]
Bloomberg BusinessWeek Daily Host
You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg business app or watch us live on YouTube.
- [20:45]
Tim Stannwick
I want to bring in David Wu. He's a macro strategist. He's former bank of America head of global interest rates, foreign exchange, emerging markets, fixed income strategy and economics research. He's here in the Bloomberg Interactive Brokers studio. Now you have David Wu Unbound, where you basically talk about everything concerning the macroeconomic environment. It's an idea of, it's a forum, it's a place for dialogue. There's a lot to talk about right now. And when it comes to geopolitics, I'm wondering how your view shifted after the US's activity over the weekend.
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David Wu
I think, you know, I haven't shifted that much because I saw this coming. But nevertheless.
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Tim Stannwick
What do you mean you saw this coming? What did you See coming.
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David Wu
It was obvious that, you know, listen, I mean, there's no doubt the biggest, the single most important story of 2026 is the US midterm election. And Trump just told you if the Republicans lose their congressional majorities, he's going to get impeached.
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Carol Massar
So why Venezuela? Why?
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David Wu
Why?
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Carol Massar
And I think many would say, like we, I think even talked about it with our Eric Schatzker, maybe off air of like not surprised that it happened. It's just why now?
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David Wu
Right now? I'll tell you, it's very simple because Trump knows like, you know what, he's got a mountain to climb to put his party in the fighting position ahead of the midterm. In 20 out of the last 22 midterm elections, the President's party's lost seats in the House. I mean, the history is completely, you know, stack up against him. He needs to do two things to put his party in a competitive position, one of which is to of course win the affordability argument. And let me tell you, the fastest way to win the affordability argument is to basically push down oil price. That's what this whole Venezuela push down.
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Tim Stannwick
Oil prices even more than 57, $58 a gallon.
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David Wu
Of course. Because in order to, I would say even for the Republicans to even pretend to have a fighting chance, you need to see gasoline price somewhere around $2.25 per gallon nationwide. That would imply low 50s, if not like a high 40s. I think in terms of rent, I'm looking at WTI in rent here. So you definitely need to see much lower oil price now. It's Venezuela, there's no doubt. I mean this is what is going to happen. I have no doubt, short term, whatever happens is what's going to happen. Now if you think about this for a second, if long gold was the ultimate 2025 Trump trade, I would argue the 2026 Trump trade is to sell oil because Trump, that's what he needs. And this is also no doubt in my mind that the timing you were just talking about timing. Do you know that Netanyahu Bennett, okay, my prime minister, because I now live in Israel. I just became Israeli citizen last week actually was in Mar a Lago the day before Trump gave the go ahead to basically go take out basically Maduro.
- [23:33]
Tim Stannwick
What's the, what's the relationship there?
- [23:35]
David Wu
The relationship is obvious. I mean, maybe not that obvious because I personally think that the whole Venezuela thing actually be smacks of, you know, Mossad, you know, whatever hallmark of some the way that's being done and so on. But most importantly, that happened four days after massive demonstrations erupted in Iran. This is very important because if you remember the last time massive demonstrations erupted in Iran, Obama was still the president. And then, you know, the students were getting shot in Tehran and they were crying for help from Obama who did nothing. Trump this time did not waste any time. Not only he took out Madur to show that he can remove Khamenei from power if he wanted to, but more.
- [24:16]
Carol Massar
Importantly, is this a message to Iran?
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David Wu
Of course. So here's the message to protesters in Iran. The message to the protesters said, you know what? If the regime so much to touch one hair, we're going to go after them is to embolden the protesters that come out on the street and to topple the.
- [24:32]
Carol Massar
So you say this is more of a move for to help Israel?
- [24:36]
David Wu
I don't think to help every is to bring down oil price. That's what it is about is to bring that. Because guess what, you know, Venezuela is an OPEC member. OPEC is going to be much weaker once you get a US Friendly regime in Venezuela and Iran. If Iran's regime falls, you're going to get a pro US regime.
- [24:54]
Tim Stannwick
So and so then, sorry, how does this change the relationship with the US And Saudi Arabia? We saw President Trump last year make a big trip to the region, to the Middle east to talk about investment. And we've seen close ties with business relationships, investments in the U.S. does it change the relationship that the U.S. has with the Middle East?
- [25:15]
David Wu
I mean, obviously the reason why Bin Salman was so happy to buy all these US arms is because the US Guarantee of its security in the face of any potential Iranian aggression. So from that point of view, the Saudis can't say anything if the US if the regime falls. Actually they'll be the best thing for the Saudis if the region falls. But if the regime falls in Iran, this will almost amount to even more basically supply of oil in the world, which means low oil price. The Saudis need oil at 85 bucks a barrel. I think this is actually does not spell well for the Gulf oil producers, the core of the opec, especially given non OPEC production is rising like crazy.
- [25:56]
Carol Massar
Okay, so I'm just thinking about all of this geopolitical stuff that's going on. So what is it maybe set up in terms of the investment environment for investors in your view, for what is worth?
- [26:07]
David Wu
I'm short, I'm sure the December Brent contract. Okay. Because I think that oil price is going to be heading towards the low 50s, not the highest 40s. And I'm, I'm however I'm also long the front month contract, the March contract because I don't think that the, the March to equilibrium is going to be a straight one. But at the same time this is actually what's happening today. By the way, I don't, you know like, you know, I mean I'm very happy today because I, on Monday I went long the, the S P equal weight, you know, consumer staples index because I don't tell you the biggest consensus in the world right now on Wall street is the so called K shape economy. Right? Only a 10% are doing well, 90% is too important. This is why the equal weight consumer staple index is at a five year low. I went long because I think low oil price is going to benefit the middle class and lower middle class Americans. I also believe that the market is not paying enough attention to the very high probability that Trump is going to get his way on the $2,000 tariff rebate which I believe is going to be means tested. In other words, he only has got enough money to send to anybody making less than $75,000 and that's super bullish for the bottom 90% of Americans.
- [27:21]
Tim Stannwick
Is just 10 seconds inflationary though. If that $2,000 goes out to Americans.
- [27:25]
David Wu
No doubt this is why I believe this is why when Trump basically rolled this out, he's also going to announce Kevin Hassett as his chair.
- [27:34]
Tim Stannwick
Stay with us. More from Bloomberg businessweek Daily coming up after this foreign.
- [27:41]
Bloomberg BusinessWeek Daily Host
You'Re listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [27:55]
Tim Stannwick
Remember TikTok?
- [27:56]
Carol Massar
You know I love that we're doing this story because you know in our planning calls we kind of are doing like all these stories and of course we've been talking so much about Venezuela, but it's like what are those things that we were talking about so much at the end of last year and then all of a sudden they're forgotten like TikTok.
- [28:11]
Tim Stannwick
The best thing that I've ever done.
- [28:12]
Carol Massar
For my mental health is get rid of TikTok.
- [28:14]
Tim Stannwick
No, is just never get into it.
- [28:16]
Carol Massar
I never got into it either, ever.
- [28:18]
Tim Stannwick
It's not too late, Carol.
- [28:19]
Carol Massar
No, it is too late.
- [28:20]
Tim Stannwick
I want to bring in Alexandra Levine, Bloomberg news technology reporter. She joins us here in the Bloomberg Interactive Broker studio. It's time for a little bit of a tick tock on Tik Tok because it has been quite a while, more than a year since. I mean, this is, this stretches back to the first Trump administration. This idea of banning TikTok. The question that we have now is what the status of it is. Because you had this scoop out just before the holidays about a deal to save TikTok US had been reached. What's the actual status of that now?
- [28:50]
Alexandra Levine
So what we scooped before the break was that binding agreements had been signed with three managing investors in this new US TikTok entity. The three managing investors being Oracle, which has a long standing relationship already with TikTok as well as Silver Lake and MGX. The deal is expected to close on January 22. The executive order that basically sets the deadline for the divestiture that was supposed to happen is the following day. So if the deal does indeed close on the 22nd and there's still things that need to be worked out According to the TikTok CEO, shipping too, if the deal does close, we're going to be an entire year later from, from when this entire thing was supposed to be settled. So I think that's just an important, important thing to note.
- [29:39]
Tim Stannwick
Okay, I want to pause on like one of the first things that you said, one of these three entities. So we got Silver Lake, legendary firm based out of Silicon Valley, you've got Oracle. Then you've also got mgx, which is an Emirati firm. So not necessarily US ownership when it comes to that part of the investment, is that an issue?
- [30:00]
Alexandra Levine
That is correct.
- [30:01]
Tim Stannwick
You know, the whole point of this was like US Ownership, which is correct.
- [30:05]
Carol Massar
That they are doing it or that it's an issue?
- [30:07]
Alexandra Levine
No, it's correct that they are doing it. So they have 15%, Oracle will have 15%. And Oracle will also have this sort of larger role as the security provider, the security auditor for TikTok, which it has actually had that relationship with TikTok for the last several years. And then Silver Lake also will have 15%. This all, this all complies with the. This is all compliant. However. However, I think it is notable that the focus is really at least in the headlines and at least in the way that the White House has explained this and the way that TikTok has explained it, that it is going to be majority American investors. And so I think when people see MGX, that is something that jumps out. And the other 55% is the breakdown. I don't have a number. Roughly, roughly, you've got. ByteDance will have just under 20%, 19.9%, which is keeping with what was required by the law. And then there are going. Whose law was. The law was passed and signed under former President Joe Biden.
- [31:05]
Carol Massar
Okay.
- [31:06]
Alexandra Levine
The law took effect right before Trump took office. Trump took office, decided that he wanted to not enforce it because he wanted more time to strike up a deal. And then he continued extending the deadline and when the law was supposed to be enforced.
- [31:19]
Carol Massar
But if ByteDance still owns some, what's changed?
- [31:23]
Alexandra Levine
So ByteDance was required to own less than 20%. Under this new arrangement, ByteDance will own 19.9%. And then certain affiliates of ByteDance, certain investor affiliates of Bytes will own, will own like another portion of that.
- [31:38]
Carol Massar
I think what a hands off ownership. And is there really can that even possibly exist a hands off ownership?
- [31:44]
Alexandra Levine
I think what is, what is tripping a lot of people up and what is catching a lot of attention is that ByteDance is going, is still going to retain control of really important parts of the business. That likely includes E Commerce, which is TikTok Shop, which is like this incredibly important, fast growing arm of TikTok advertising. And then also the big thing, which is sort of the sticking point of this entire thing, is the algorithm where ByteDance is going to be leasing a copy of its algorithm to this new US venture and the new US Venture is then going to be responsible theoretically for making sure that there's no manipulation of this algorithm, making sure that like, you know, overseeing content moderation. And so, so, so yes, ByteDance's ownership stake, technically on paper, it does, it does dip below 20% in accordance with the law, but it does, it sounds.
- [32:34]
Carol Massar
Like they're in charge of a lot.
- [32:35]
Alexandra Levine
Still, the other, the other, the other terms of this are, you know, the other. This are also very important. And ByteDance is absolutely not going to be severing ties with TikTok US as, as was required by the law.
- [32:47]
Tim Stannwick
It seems very favorable to ByteDance in the end.
- [32:51]
Alexandra Levine
You know, I think that, I think that many, many, many experts, especially national security experts who have been watching this, believe that China is coming out with a pretty good deal in this. Right. It's also worth noting that China hasn't actually said anything publicly about whether it is on board though if you know, the TikTok CEO put out the memo that, which we wrote the scoop on back in December, we can assume that wheels are in motion. But I think it's important, I think it's important to note that yes, China does come out sort of in a strong position here. I think President Trump has already and will continue casting this as a win for his administration as well, because he was able to as them being able to thread a needle that Biden was not able to thread. But I do think it's important to focus as well on how this will benefit China, especially as ByteDance grows there far beyond its own version of TikTok to become this AI powerhouse.
- [33:47]
Carol Massar
So I'm going to go back to that story in December. So, upon closing, the US joint venture will operate as an independent entity that will control data protection, content moderation, algorithm security in the country. And this was the TikTok chief executive saying this in I guess, the memo to employees. So it's not truly independent from China though, is it? Or is it? I guess that's the question I. We all still have.
- [34:13]
Alexandra Levine
It's not independent from bytedance is what is what I can say about that.
- [34:16]
Carol Massar
And then what's the relationship between ByteDance and China?
- [34:19]
Alexandra Levine
Well, there's not separation of church and state there the way that there is here or the way that there used.
- [34:24]
Tim Stannwick
To be here or the.
- [34:26]
Alexandra Levine
Exactly.
- [34:27]
Tim Stannwick
I will point out the reason I say that is because the President just said he finished this great meeting with Intel CEO Lit Bhutan. The United States government is proud to be a shareholder of Intel. So we're in this different situation, different world.
- [34:39]
Alexandra Levine
It's a different world. And I think one thing, you know, one thing I've been thinking about is there was language put out by the White House back in September when they announced, you know, sort of announced their version of this deal, and the version then that was shared by the TikTok CEO sort of was parallel to that. The White House, in their own words, described doing this arrangement in partnership or, sorry, the guarding of TikTok, the oversight of its algorithm, doing some of this work in partnership with Oracle.
- [35:12]
Carol Massar
What.
- [35:12]
Alexandra Levine
In partnership with Oracle. What that means and the extent to which the US government would be involved is definitely a question. You know, TikTok would emphasize that, like that, that. That, you know, the government is not involved, I think, because we have not seen a lot of the actual fine print of the terms and we only know sort of the broad contours. It does raise a question of, you know, especially when some of the investors are political allies of the President, what that means in terms of potential US government involvement. So just something to think about.
- [35:43]
Carol Massar
Does else Oracle sell to China? I know they do a lot overseas. I'm just curious. I think they do. Like, it just makes, you know what I mean? It's complicated, right?
- [35:53]
Alexandra Levine
It's complicated. I. Yeah. I'm not. I'm not sure.
- [35:56]
Carol Massar
No, I'm not. No. But I'm just saying, like, it makes me think about the different relationships and where there might be kind of pressure point. I don't know. This is great reporting, though.
- [36:04]
Alexandra Levine
Thank you.
- [36:05]
Carol Massar
And great because it's we are curious about this story and it's still not finalized.
- [36:09]
Alexandra Levine
Not finalized. I think a lot could change between now and January 22, and then it remains to be seen whether any of the challengers of this are going to be speaking out against it even after January 22nd.
- [36:19]
Carol Massar
Alexandra, thank you so much.
- [36:22]
Bloomberg BusinessWeek Daily Host
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