♪ . welcome to "bloomberg businessweek." carol: i'm carol masser. issue week's u.s.-china trade talks front and center. jason: the magazine has several stories enter into a relationship with big tech nd its impact on the digital economy. the : on the cover technology giant, we're talking about zte.

survive onpaypal its own. carol: recession fears, it inevitable. jason: but there are some things that might crush this u.s. expansion. carol: we put a up with coy.omic expert peter you've seen since october the stock market has down quite a bit. people think the good times stop rolling, yet on friday we had a great jobs report. be talking le about a recession an at the ame time, you have all evidence of, current indicators are quite strong. >> because one of the rguments there is that's a lagging indicator. the stock market is forward the ng, sees around corner, and here's what

c.e.o.s and others are good times may be running out. what do you hear? >> that's true. stock market, if you think why is it a forward looking indicator? think something is going to happen that's going to cause stocks to go now why months from would you wait for that to happen? would you sell now to beat lock in at the current high price and because everybody does that, to happenas going in six months from now happens right now. that's markets. >> this is the animal extent. to some >> the animal spirits is a closely related idea and forbes, someone i spoke actually uses s, t expression, c.e.o. people, investors, are moved by

emotion, and one of those is confidence. so you can spend all the time you want looking at monetary e aggregate and every other ndicators, but one of the most important, but least angible is this confidence in animal spirits. look n if things do pretty good right now, if then itions change, is conceivable to have a recession. >> ultimately, though, maybe think janet yellen is wrong that old sions do die of age. we see this play out ultimately. o consumers at some point get tapped out in terms of buying too much debt. same thing, e and that creates the cycle. >> what you see sometimes is that expansion looks like

it's going to die. t's building all of these imbalances but it somehow comes out of it. to a soft landing, and and ce is restored growth comes back. and this is an exceptionally right now.ion >> right. >> and if it reaches june it 10 years old. and that would equal the length of the longest history going back to 1854. the month after that, it become a record. so, we have seen the average length of expansion has over the last couple of decades. so something is going on here. i don't know if we can credit the federal reserve or something about the of the economy, but we seem to be managing to expansions longer. they are not dying of old age. evity is the long increasing, let's put it way. rainier ked to pat

about how investors can take stock of their portfolio without overreacting. nothing like the last go around so it's a time to say, if i haven't attention to this maybe i pay a little bit of attention, but we're advocating after talking to advisers, do a look at your portfolio and sure in a world where volatility is a part of the game you have the amount of volatility that you're to get in your portfolio. >> also interesting in this story, think about what you're investing in because you might be buying a lot of etf, the broader market, getting exposure to your hing but some of big tech names have become overly weighted in these indexes. more exposure to big tech than you want. >> if you're invested in s&p 500, you're a tech investor. you have about a fifth to a your portfolio is in tech stocks, which is

fine. if you're going against you decide to want to have less than that you're making a contrarian which isn't et particularly easy to do but what you do want to watch if you've added and if vely managed funds, you're one of those, buy what you know and a lot of those companies are tech not only got maybe your coreeck fund a big chunk of tech you've with, you ch know, your shares of fidelity contra fund with facebook stock you picked up a while ago or that apple stock you bought because you feel like that's understand.ou so you want to make sure you haven't doubled down on what's turning out to be the biggest momentum play of the last few years. you may have more tech than just look at certain companies. if you're a great believer what does uffet, he invest in, his publicly traded portfolio? apple.s >> his shareholders, over

to last couple of weeks, their detriment. an everyday investor probably says, well, bonds i'm old.hen you know, i'm much more risk adverse but in a market like this how does it play in? >> what they are, and this buying ing you're the kinds of bonds that are intermediate interest rate what they quality are sitting there for is to e a stabilizer and maybe a little bit of a psychological stabilizer. no lmost any age, it's fun to look at your statement and see that verything you invested in lost money all at the same time. bonds, as you know, bonds money.can lose we're entering into a rising interest rate environment which means that if you have you could see your bond fund lose some value although it will also picking up extra income. it sits there as a stabilizer and then when starting to look at short term bonds that can

very important in an emergency. and one of the things that we learned the last time we a big bear market is that financial bear markets financial eam emergencies go together. i mean, i remember very well 401-k fall at the same time i was thinking about how long is my job going to last? so common experience you definitely want to have, you know, short term assets and or very short term bonds in a portfolio, 401-k.ly outside your honestly, you may even want to have some inside your 401-k. you can't always build up all of our financial cushion 401-k and it's good to know that the money saved up for the future is steady. >> later on, a program, why now may be a buyer's market comes to luxury homes. >> up next, a cautionary ale for every global tech company, how gte was spared

war with 's trade china. >> this is "bloomberg businessweek."

carol: welcome back to "bloomberg businessweek." jason: join us for "bloomberg businessweek" on the radio 2:00 to 5:00 p.m. you can also listen to our podcast. you can find us businessweek.com. >> this is one of china's tech companies. carol: it nearly became a casualty with president trump's trade war with china. to avoid a crippling ban. jason: that ban has been

a death penalty. carol: they are studying this story very closely. here's more. >> gte last spring, a company that some people had heard of, few people understood, was announcing that it was basically at of going out of business because the u.s. commerce department had done something to it. that was a really interesting illustration of just the way that the united the chinese economies and technology industries are tied together don't reallywe understand. nd that create a lot of vulnerabilities, and just interesting wrinkles for the way that this tension is going to play out. zte being an important but somewhat misunderstood really an un-understood company, i hought it would be a good place to dig in. carol: what's un-understood. > which is not a word, but i just don't think it's a company that many people think much about.

think, ne point, i with you like the fourth largest smartphone u.s. butrer in the it's like way down there. it makes phones but its main making is telecommunications equipment, the things that you put up to have your networks. carol: which makes officials nervous because the communications equipment, wonder what access, for the people who buy those access whatwhat kind of security, might not as ar might be at risk result of these companies, chinese company making it, correct? >> absolutely. zte and the bigger chinese telecom manufacturer, they equipment in that power the networks in many countries. both have ties to the chinese state and there are questions about, are going to be back doors in this equipment? will companies be pressured the chinese government to do things? a symbol of the discomfort

hat the west has with the sort of rise of china. and : did zte come out say they did evade sanctions, and paid penalties, so they have the law at least when it comes to u.s. requirements. >> absolutely. chinese hat a company ends up skirting u.s. sanctions by doing business with another as i said, it gets complicated, zte relies on the united states for many its components. some of the most important inputs are u.s. made technology. so you're not allowed to take that u.s. equipment and to iran, even if it's a chinese branded equipment.ece of carol: and they did do that? >> they did do that. admitted to it. they paid a very large fine. carol: 1.4 billion? much as17 it was as $1.2. a year later, it seemed like

he situation was over a. year later the commerce department came out and said you violated the agreement e reached and we're now going to put a complete ban on your ability to import american technology. which looked like it could drive zte out of business because it wouldn't be able its equipment at all. >> close to home here in the company, is this zte's u.s. headquarters down there in california, a couple of hundred employees who, during that time period, didn't really have on. idea what was going were kind of wandering around trying to figure out mean for my s job this company, and maybe not getting a whole lot of guidance from their bosses. absolutely. when we think about the u.s. and china it's such a big always focus object most macro-thing positive. interesting parts was hearing from people on the ground both, you know, in you said, or, you

zte in china. was it a big deal, that texas, basically just stopped hearing from their bosses for weeks know if hey didn't their jobs would continue. it seemed like a very surreal situation. the : we heard about story. let's think about the images. putting zte on the cover week, tell us about at the discussion in the newsroom about the cover image. had a lot of ideas about this idea of sort of something more conceptual. how the global tech companies are behind this, ut it was sort of complex and i think we sort of were more drawn to this idea of showing the zte we shot ers, which in this beautiful light, and we overlaid with it just this really strong headline it has a poster quality to it and pulled you into the story. >> witness you get into the as we heard, you really realize this is just dallasce building in that held some people who did not know what was

happening next. in a lot it home of ways. >> yeah. you know, the building, we a little bit of research on google maps, saw what the building looks like because there are some flags hanging next to it. it's like technology.on of >> it gave us a nice drama and pulled you in. jason: thank you so much. next, more on china's tech sector, why some developing countries are hinking twice about making tech deals with beijing. in the ater on broadcast, the hottest entertainment game, fort night. >> a fascinating story. carol: this is bloomberg business week. jason: welcome back to

"bloomberg businessweek." i'm jason kelly. carol: i'm carol massar. you can listen to us in new 106.1 in boston. a.m. 960 in the bay area and the bloomberg business app. focusing ve been on the u.s.-china talks this week. hinese companies are continuing to expand their global footprint and the government's influence. jason: they are installing cyberoptic surveillance systems around the world. carol: they map beijing's reach. if you're looking at a map of the world, it shows where

there are internet cables. colored spots show where chinese companies have had an impact, are selling their their products. you've got smart city initiatives and other things. interesting. you see areas where they are specially interest, the united states, we saw that clearly, that's a focus. but also africa, if you look at the internet cable, blue. you see a lot going on, on that continent. carol: that's where we're of focus.ot jason: africa is front and technology e sector. sherrill is based in hong kong. zambia to tell the story there. carol: the promises and challenges of buying into of the vision internet. >> countries like zambia are in need of development. great e china as a way of funding projects. so, for example, in zambia, funding a big new

airport in the capital. funded some smaller regional airports as well. roads that go directly to copper belt, zambia is copper cobalt and both. so the total debt they have to china right now is about billion, which the imf is ecoming concerned about, calling that a high risk of debt distress. these lion is on technology products. so what they want to do is reach, its mobile its broadband reach to the also, broadly, but with that technology also comes the means of control inside see sometimes of china. >> let's talk about that, because you went to zambia encountered government officials, one in was educatedho in the united states but he's all in china. that.us about

>> i met the transporting communications minister who of zambia a's technology upgrade. i had a discussion with him, it starts out like it does with a lot of ministers in zambia. is, actually, what has the west ever done colonize.ept alwaysy children has been our friend. they are here helping us develop. in africa, the united states, is the largest donor to africa. have f those projects to do with healthcare. so h.i.v. prevention. clean water. it's not quite as visible as a big shiny airport terminal. interesting, too, you wonder about what china's mission is, they access to commodities and things like that, and this country or other countries in africa, too, this but you do

wonder if it's about increasing their footprint the world. is that part of what some people are speculating, that is up to?t china >> that's certainly true. the trillion dollars in pending that china is currently embarking on, on a orldwide basis, is buying it enormous influence and lots of new friends. of 's certainly a part their foreign policy agenda and it's certainly something more s. need to be aware of. we've seen a few initiatives by the trump administration a little bit more on the infrastructure spending night to counter the massive spending but what we've done so far is not nearly enough. >> and one of the elements to point ortant out in your reporting here, is that they like the say, they as you like the shiny airports, the cell phones, effortlessly and what not. but there is also an appreciation for kind of the way of governing,

too. in terms of, maybe like a little more control over people, especially as there are more calls for democracy, maybe. they kind of like what they see in the model. >> yeah. very interesting actually, in order to find a test country for where this happening i had to pick a multiparty emocracy, because, like zambia. there is a lot of kind of and ssion equipment stuff being sold in more repressive places but you can't see the impact of that easily as you can in a place like zambia, which multiparty democracy and ostensibly then you get people complaining about it. we're starting to be repressed. ou see the measure of reedom of expression expression declining. what china is offering, a odel development of

stimulus spending. try to glow the economy and bring people out of poverty. china.rked in it's very appealing for african countries to do that. model same time, that comes with the china model of less free expression, so for example, in china, is meant to be an instrument of the government. development. it helps push the overnment's agenda, and policy lines. not act as a critique. and so in the west we have a very different model of what that's supposed to look like but in some countries, in some countries, as you mentioned, are seeing that china model and saying, us, too. works for carol: let's take another look at the chinese technology market. so what are you focusing on? >> when we talk about china we talk about trade. wanted to shift and look purely at the markets. u.s. stocks, correlation, it's a good day when i can make some correlation. coming to my terminal, we

s, e chinese index, etf and thenig stocks, qqq etf, a u.s. echnology, like all the stocks, apple, microsoft and intel. n the bottom of the screen is where it gets interesting. you move positively together. that's a high collation meaning they are starting to move together. i think it's globalization. could crew definitely saw it negative apple news. all of the supplies around he world reacted, or many, i should say. jason: maybe they are onnected in ways that we

didn't fully anticipate across borders. >> i think it's supply chain. like you were saying they can all move up together and they can all move down together. carol: it's definitely worth watching. paypal p next, how escaped obscurity by embracing its competitors. refitting vintage cars with electric batteries. carol: this is "bloomberg businessweek."

jason: welcome back to "bloomberg businessweek." i'm jason kelly. carol: still ahead, nancy pelosi's dealmaker reputation is being put to the test. jason: and real estate experts see deals ahead. carol: paypal is as well known for who founded it as what it does. andgreat and it has more --

drake bennett has more. >> they went on to do totally different things and for a lot of people, paypal is still associated with ebay options and a button on a website but at this point, it has become a that -- a much bigger company. ofon: for a certain segment the audience out there, they probably heard of paypal but nmo. have heard of thven thathey are talking about much more than paypal. a couple of acquisitions that have framed the company in a different way. >> braintree processes payments , stub hub, a lot of these instantaneous mobile phone transactions you are not aware

of. braintree does that and that is part of paypal. which also owns vennmo was created to handle informal social payments like buying a round of drinks. to notff that used require a payback. friends you can bill on vennmo. carol: but it is not profitable. >> a common problem. very popular especially with millennials by paypal is trying to figure out how to make money off this thing which was born in a social atmosphere. carol: let us talk about partnerships. this is key. whether you have a visa or mastercard, of the banks out there wanting to process transactions. to make money.

atpal has become smart learning how to partner with them. >> it was a very concerted part -- that was done by the current ceo. default was that it would go to your bank account. you could switch it to a credit card but it was confusing and hard which was by design. every time, paypal takes a cut from the merchant of the payment, and when that payment is made to your credit card, a lot of the cut goes back to the credit card companies. paypal did not like that but it made credit card companies incredibly angry at paypal. and shulman decided to forgo some of that profit but starting to play nice with the banks and .ard networks and it has worked visa and mastercard for a while were trying to create a paypal

killer. now they are not doing that anymore. apple, samsung, the tech companies that have pay options also see paypal as a partner to drive more transactions through their payment platform. pal you might say. with us now is joel weber. and we just heard from drake on paypal smart story on how you have to work with your enemies to get ahead. is still ahat paypal story. the dream of the 1990's is still alive. the story is one of how paypal escaped the palm pilot and then escaped ebay and then managed to turn all of these foes into friends. jason: it feels like the quintessential "bloomberg thenessweek" story with paypal mafia.

when you think about the big finds this week, china its way into so many different features and segments of the magazine. >> how can it not? tradeect more on the talks ahead and we wanted to use that as a way to look at the relationship between u.s. and china in different ways. technology figures prominently in the trade talks because that is one of the reasons why we are even having the trade talks. carol: fascinating and a reminder of the conductivity among global technology. >> we call this a bank shot off the news. wuawei has been dominating the news lately. it dominated the headlines when donald trump put the company on the nice. carol: we talked to our reporter on the ground in hong kong. has been big in

making investments for commodities and infrastructure in emerging markets but they are also building a digital silk road. >> it is part of the silk road initiative. they have been very successful in making inroads into africa. and we have looked specifically at one country grappling with the consequences of this relationship now. jason: up next, the key to nancy pelosi's legislative agenda. carol: and fighting schools with chocolate milk. jason: this is "bloomberg businessweek." ♪

jason: welcome back to "bloomberg businessweek."

i am jason kelly. does every day on the radio from 2:00 until 5:00 wall street time. you can also check out our podcast. jason: and you can find us online at bloomberg businessweek.com. over to the politics section, house speaker nancy pelosi faces multiple chances. -- challenges. carol: she has to address the issues that helped democrats win the house. >> she was also speaker of the 2011.from 2007 until she kept her caucus in line making sure that everyone stays together. that means they were able to pass things like the affordable care act also known as obamacare. now, she is speaker again and it is a different washington. have a president that tweets

policy announcements and she also has freshmen members of her caucus that also tweet their opinion and are not shy about tweeting their criticism. it is going to be a very different way she will have to employ the skills she honed before. carol: there are a couple of things that we should break down. that thed-boggling democrats are not really a unified party. >> you would expect any party to have a faction. we are a diverse country. a democrat from new york city would look different from one from illinois. within that kind of caucus, you have nancy pelosi who is very good at building consensus and a very good listener. canng sure that they present to their voters progress for the country. whohave progressive members would like a more ambitious

agenda on health care for all coming universal health care, universal higher education, universal pre-k pre-education. and you also have some moderates that will be more worried about fiscal issues and making sure that they are in a position to take the mantle of fiscal discipline from republicans who have abandoned that. carol: what is also interesting is that there is a balance for nancy pelosi she has to think about those issues that got democrats in the first place a leg did during the midterms. gs the balance those issues with what is coming up in 2020, the presidential election and maybe gaining back the senate. there is a balance here. subjectyou look at the issue areas, there are a few policy approaches that have been wereved of by voters and very popular. if we look at health care,

voters overwhelmingly say they think people with pre-existing conditions should be protected from having their insurance taken away or their rates rising. thatmocrats can protect element of the affordable care act, that would be a very popular thing with voters. similarly with gun control. there is widespread support for universal background checks. a more sweeping gun-control measure that would include an assault rifle ban and even more restrictions on what kinds of arms can be purchased and focus on universal background checks, you can get those incremental wins. staying focused on politics come this summer the agricultural department will put chocolate milk back on school menus. it is controversial. jason: it is part of a rollback of former first lady michelle obama's signature effort. carol: i have to say that the

change means a dairy is -- big dairy is thrilled. >> these wars are not unheard of. it goes back to catch up arguments -- ketchup arguments from the reagan era. lunches more recently have been including skim chocolate milk. skim turned out to be a big issue for the dairy not taste asdoes good and a lot of kids were passing on the chocolate milk. as i found out in the reporting, the fattier milk is what drives customers and it keeps people coming back to milk. was raised on a

dairy farm and has been in agribusiness his whole life. being a week of appointed, he came in and announced a change and the first change was to put 1% chocolate milk back in lunchrooms. and he said i would not the here today without chocolate milk. wasn: why and how radical the change that the trump administration made especially given how it was a centerpiece of michelle obama's time at the white house? there was definitely an element of politics because it was so soon after sonny perdue had been confirmed and he made a point of saying in the press release that he would make rules that would make school lunches great again. couldctice, the changes have been more radical but the big change that i talked to

people about is the sodium levels. the sodium levels were a cudgel to force process food companies to lower the sodium levels. i spoke with one consultant in the injury who described it as a cheese apocalypse. within a few years coming you would not be able to have macaroni and cheese or a cheeseburger and the scale of that was apparent to the food industry and when the administration changed, they had the opportunity to stop that change from happening. carol: up next, a videogame global.ing and we're talking about fortnight. jason: no fun and games for luxury home by -- home sellers but it could be different for homebuyers. embracing the green world. jason: this is bloomberg.

♪

carol: welcome back to "bloomberg businessweek." i am carol massar. jason: you can listen to us on sirius xm including 106 in boston. 960 in the bay area area and of course on the bloomberg business cap. in the economic section, how the hottest videogame on the planet is emblematic of a new digital mile of digitalization. some point over the summer, my son started talking about something that he and his friends were doing and that was gaming globalization. he did not call it that but they were changing the server they toe using to brazil or asia try to take on what they saw as weaker players, build up some

and build some kind of teenage playground/street credit if you well. what he did not realize what he was doing there was leveraging the internet, leveraging the new form of globalization that we all live with every day and it reminded me that we kind of forget that the new world of globalization is a very digital one and it is one that has become not just a daily one but an hourly one that we deal with. carol: i think this will resonate with our audience. digital arbitrage. this is what they were doing. an opportunity to make some profits in the form of wins, easy profits by simply changing the regions they were playing and it turns out there was a whole cottage industry that has sprung up in youtube videos and chat rooms explaining these tips and tricks.

my son and his buddies were not alone in doing this. this was a real phenomenon going rtniteund the fo universe. jason: it is a multiplayer game where you start with, keep me honest, you start with 100 or so players and it is a fight to the death come a virtual death as you squad up and do all sorts of things and essentially try to become the winner of each individual session. do i have it mostly right? >> you are doing a good job of dad's explaining it. explaining it. shoeruth is it is an old did up kind of game including some fun dancing but also importantly, it is free and that is the big business revolution here.

that is what has turned this game out of the studio in north carolina come epic games, into a global phenomena. there are 200 million registered users of fortnite. dids the old-fashioned shoe up kind of game that has become a cultural phenomenon. all of those athletes doing dances last season were doing fortnite dances. jason: how 2019 could be the year of the discount. carol: especially when it comes to luxury homes. >> 2018 was not great for anyone, buyers or sellers and now it looks like prices will go down, inventory is going up and buyers could get a discount. carol: what is going on? -- mikegroh economic

groh economic trends and macroeconomic trends are causing issues. london, each of these have different economic impacts of affecting them but we are seeing a bit of a hangover from the housing boom and people are calling it a bit of a bubble. --the lot of building? >> too much building. in london, massive amounts of construction even as there is extreme sensitivity to brexit. jason: there is a great chart that shows the delta of essentially. vancouver taking a massive hit apparently. that was by all accounts a bubble, right? it had a lot of investment coming into the city that ultimately slowed down because there is a finite number

of people that want to spend tens of thousands of dollars on an apartment in vancouver. new york has been slowing down for a couple of years and we are aeing in 2019 or we will see tremendous amount of inventory held back. these developers have already built it but they have not been able to sell it. nows coming on the market and there are also several thousands of new units hitting the market. talkeda recent story about the medium price of new york going below a million dollars. that is a significant drop. >> completely. it is impacting every single level of the markets. and that is the slow down you will see for pretty much everyone. carol: from discounts to luxury homes to retrofit of luxury cars. jason: it is a new trend in

vintage cars. people are a lector find them. people have been taking an engine out of the car and putting in a battery but with tesla, it is becoming more popular. there are garages around the world that will help people do that. they will take out the engine from a classic car and put in a tesla battery or another kind of battery and know you have a car that is more powerful, faster, and sometimes safer. lotn: it has gotten a easier. as you describe in the story, back in the day, it involved a lot of jerry rigging to make it work. >> the front of a volkswagen. and now, it is a lot easier. the technology is better. and you are plugging in your porsche. jason: and demand is huge. years,he last three

companies we talked to say they are getting demand from all over the world. we spoke with a , apany in wales and in japan lot of different companies are doing this. someone took a volkswagen bug and it was converted and it went from 40 horsepower up to 400. >> we wondered if it was safe? carol: did the car start to disintegrate? >> you're just dealing with the motor and the axles. retrofitted to be safe and they are actually more nimble now. that old beadle did not have -- beetle did not have the ability to pull more quickly onto the highway but now it well. jason: and a lot quieter. talking about someone pulling up next to one of those cars,

anyone that has been next to a beetle in the old days and it is super loud. now it glides through. carol: what does it cost? to 100an cost up thousand dollars depending on the car but a lot of people we spoke to are doing it in the $10,000 range. carol: what was fascinating was up shopon doing it set and learned how to do it by watching youtube videos. >> it is a big thing on youtube. you can do it yourself. i probably would not. but one could. jason: none of us around this table would do it by ourselves. carol: come on. at the end ofs the day are annoying. these are super reliable though. for a lot of people that are isssic purists, this

something they never thought they would be into but suddenly their car is not a problem anymore. businessweek is available on press stands right now. kong isrter in hong understanding what is going on in china reminding us that with all of our focus on the trade china what is going on in is making significant inroads in terms of investment but also influence over some emerging economies and this week we focus on zambia. jason: it was such an interesting follow the money story. carol: definitely a must-read. what was yours? youn: it is fortnite, probably could have guessed that. it is like catnip. in a totally different context. drake you look at

differently after reading that story. daily check out our business week podcast. carol: more bloomberg television starts right now. ♪

emily: welcome to the "best of bloomberg technology." the next hour ibm took center stage at the consumer electronics show this week. we talk about the next frontiers. plus, from a shutdown to a slowdown. how the u.s. government shutdown could delay the most highly anticipated tech ipos in 2019. and can elon musk