And south korea. This comes from south koreas cooperation with the u. S. On a shield that is designed to prevent a north Korean Missile attack but obviously china who is very sensitive use it as a Security Threat and has urged its population to stop traveling to korea and stop vacationing there. For some areas of south korea, it was a huge part of their market. Some businesses have been hit by chinas approach to their business. Oliver tell us about that tourism because of there is some interesting examples. It is a strange market where people go to karaoke and there are all these outlets catering specifically to the chinese and their strange activities as they pursue in korea. People have built up their entire business and 70 has declined. At the end of the article was person says it feels like im staring down a dark tunnel. Caroline china using the power of the purse here. It goes back to chinas reaction in the South China Sea and the tensions in that region. Oliver in the market section lets talk about stocks. There is something called reason to buy and it is affecting how people view expectations. Is a passing thing where we are in this market and we have seen this outside return. People are now thinking that they will continue get this outsides return. Termed ase phenomenon recency. Dont expect a percent7 annualized returns. It could be as much as half of that are lower in bonds and stocks. Since the Trump Administration we a scene another pop in the market. I never get in the business of protecting the market. Oliver an interesting point because you look at the links of the bulls market and timeline does not end a bull market. It does slow down and the returns are hard to keep up. Particularly when you look at the outlook not just in the u. S. But the challenges in europe with u. K. And brexit and also corporate earnings and whether or not that is sustainable. How it will impact some policies with deregulation. Will see larger corporate earnings feeling the market. This article is a warning to people who continue to pump money into the market thinking theyre going to get the kinds of returns. Caroline lets talk about the cover story. It takes a look at the cigarette story industry. This is the story im most proud of because it really delves into something that i would nevereople think above the cigarette industry itself is admitting that cigarette consumption will sunset and they have to move to other products. This product this article draws a square connection with Silicon Valley and the cigarette industries trying to reinvent itself with the type of marketing you would use from tech companies. That is everything from how you consume tobacco as a product to the Research Facilities they have set up and one part of the article describes these communities, they are forming cks as these new heat sti part espresso store, and it is fascinating putting a hummingbird on the packaging. Almost going in an ecofriendly direction. Oliver we did get details on the story. This story is basically about the future of Cigarette Technology and how Big Tobacco Companies are excited about going digital. Really they are thinking of themselves as more than technology companies. Isnt this about to Electronic Cigarette . I think Electronic Cigarettes came out of left field. A market that sprung up overnight and suddenly grew into a multibillion dollar business and i think from the big tobacco companys perspective they saw that the tobacco consumer was restless. It freaks them out the little bit. Caroline meaning they are not smoking as much as they used to . They were looking for other ways of consuming. They have all scrambled to acquire and launch of their own ecigarette brands. In the meantime they have taken it a step further where they are really getting fully on their Silicon Valley. Posting ted talks as launching apps and starting tech incubators and venture funds. Oliver keeping with that, you say, somewhere in flavor country boro manaret man mar is rolling over in his grave. Caroline youre talking about Phillip Morris. They are excited about the smokingnonsmoking future of the tobacco gadget called the itos. It is somewhere between the traditional cigarette and an Electronic Cigarette. Oliver explain what that is. I didnt see it before i started working on the story but you get these tiny little roles of tobacco and then you jam them into this holder that looks like some sort of teachers sick devices that he could be tobacco without combusting it. In theory it is healthier than smoking traditional europe. Cigarette. They are also flavored but the difference between that and an ecigarette is it has some tobacco in it as opposed to just a nicotine. This categoryy that is called heat not burn in 2000 y launch burn tobacco. They will launch in japan. A have a boy about 1. 4 million active users. They are working to bring iqos to the United States. Usedr the ecigarette is as a former cigarette smoker, you kind of want to use something. It is a replacement. Now Phillip Morris is saying we have this delivery mechanism, lets ride with that idea. It gives them an advantage over some of these ecigarette, they being vaping startups. Tobaccohe use your old and they have this whole decades and decades worth of learning about how to manufacture cigarettes. They are putting that to use by techie that onto the cigarette device. Oliver turning hightech into a cover story was of the job of our creative director. Talking with the editors about the story, thinking about how this industry wants to be like Silicon Valley. The most recognizable Silicon Valley icon is steve jobs and the most recognizable cigarette industry icon is marbaoro man. Oliver this is your combination. Black andthe iquos, white, tells about the color choice. Copy, i think most people are familiar with the steve jobs picture on the buyer fee, we were looking at them sidebyside. A lot of time oliver a lot of times you guys have words or phrases, this is straightforward, it is an image. I guess you think that is a Strong Enough image. The headline we came up with is what you see on the back of which is typically designed by apple in california. Oliver up next what may have been the boldest promise candidate donald trump may have made and how a dangerous costs are cocktail went from hiphop to mainstream. Oliver welcome back to Bloomberg Businessweek. Economics editor peter cooley wrote this weeks opening remarks section. He spoke with us about how President Donald Trump is more likely to expand the National Debt than eliminate it as he promised. The issue is not whether or not he will pay off the National Debt, the issue is how much will it go up. Anytime you run a deficit you are adding to the debt and the trump budget involves quite a large budget deficit. He wants to preserve Social Security and medicare, pretty much untouched, massive corporate and income cap cuts, tax cuts, get rid of the obamacare levies and raise the been spending. Any one of these alone is a plausible goal. Get rid of the obamacare levies and raise defense spending. Oliver is of the National Deficit a sure thing . Debt, the deficit is at the annual imbalance between savings and between spending and revenue and the debt is the accumulated the last time we had no National Debt was 1835. For one year it was paid off and then another recession came along. President has put a most didnt in the debt . The debt came high in world war ii and as a share of gdp, excel rather dramatically for decades afterwards. It is not debt alone that matters, it is the ability of the country to carry that debt. A large economy can carry a lot more debt than a small one. Gdp is your savior. That is where it gets interesting with the donald trump. Caroline he thinks he can grow his way out of this. Conceptually, that is at the least painful strategy for dealing with the debt. Strong Economic Growth, more tax revenue, the debt problem suggest go away by itself so you might recall during the campaign but wealked about 34 , have been growing around 2 and the Congressional Budget Office said the potential growth is 1. 8 . Oliver what kind of growth would you need . If youre going to be cutting taxes in order to be able to decrease in the debt, youre going to get a lot more of those taxes through the growth. Taxing at a lower rate, but if youre taxing more of it because of there is growth, how much of growth would one need . Laffer return, he said we are at a point where higher taxes has a decrease our revenue because of they choke off the economy. If we cut taxes, we have more revenue. That is pretty much been disproven. There is a little bit of an accelerant effect on lower taxes for growth but it is not enough to offset the cut taxes. We would need infinite amounts of growth. Oliver of next, the upcoming about a border adjustment tax proposed by the Trump Administration. Oliver welcome back to Bloomberg Businessweek. m Oliver Renick you can catch us on the radio on york,130 in New Washington dc, the bay area and theondon and in asia on Bloomberg Radio plus app. Thetics and policy section, battle lines being drawn along a border adjustment tax. Republicans in congress and the Trump Administration are on the same page. They want to reform the tax code. Lower Corporate Tax rates, Advantage Companies that make things over here and try to bring back some of these profit back to the u. S. Paul ryan has come up with a very intricate, very complicated border adjustment tax. It takes of the 35 corporate rate brings it down to 20 and only applies it to domestic income, exports are exempt. You have a stark line being drawn down the middle of Corporate America where companies at that import a lot like retailers like walmart, this died, they are saying no way, this is going to kill us. We have exporters like a boeing that would love this because it would lower their tax burden significantly. You have political lines being drawn and corporate lines being drawn. They project it would bring in a lot of money over the next decade . The way to think about this, it is a way to get their tax overhaul done because of they need money. This to be deficit neutral to do this complicated procedural maneuver in congress that would allow them to do it without needing democratic vote. To do that you need to keep it deficit neutral. With an estimate of about a trillion dollars of tax revenue over a decade that would help pay for the loss and offset the lost revenue from lower rate. Your exporters love it where your importers are going to immediately raised their costs for a lot of the goods they bring in from overseas and they argue it would raise prices on all kinds of things on consumers from avocados to furniture etc. Oliver it will, it is simple math. If something is coming in and has a tax on it, that jacket is going to cost more. Here is the trick of the whole thing, this theory that says if you do this the dollar will appreciate over time certainly but it will appreciate. That willset increase of the buying power of u. S. Consumers and will offset all the ups and downs and even things out. That is going to take years. Oliver and also took away what the exporters will make . It will disadvantage the competitiveness of u. S. Goods overseas if the dollar is stronger but this idea that the dollar is going to rise and everything is going to be even, that is. Economic data. This has never been done. This has never been done in a real world. We talked to Midsize Companies that import luggage, they import a lot of their companies materials overseas the they say i will have to spend years banging on my suppliers to get them to lower their cost. I do not see an advantage of a stronger dollar and if i would it would be years and i would be profitless until then. Oliver also in the politics and policy, the two reforms being pushed by probusiness groups and republicans alike. In 2005 a law was restricted past that restricted Class Action Lawsuits, it made it more difficult for corporate defendants to bring it from state court into federal court. Since then it has become clear that was not sufficient in the eyes of business so business interest are going back this year and with a Republican Congress and republican president they are pushing a hold of the bills hoping to further curb Class Action Lawsuits and civil lawsuits in general. Oliver what are the requirements of that this group was to put on legislation . There is a whole range of them and i will mention a couple of the more significant ones. In terms of security Class Action Lawsuits, one of these bills would prevent a law firm from repeatedly representing the same plaintiff in Class Action Lawsuits. That may sound relatively innocuous and less you know how Securities Class Action lawsuits work in which you often have a small group of very expert plaintiffs firms who are repeatedly representing the same Pension Funds that are pursuing on their investors suing companies. If this provision were to go into effect, it could be a death knell for that kind of relationship between the expert plaintiffs law firms and the Institutional Investors who actually bring a lot of those kinds of cases. Oliver it could be a very big deal. In the field of consumer Class Action Lawsuits, one of the restrictions would be that legal fees have to be based specifically on a percentage of the money that plaintiffs recover. That sounds sort of reasonable on the face of it but in fact a lot of consumer Class Action Lawsuit seeking to change corporate behavior and the amount of money plaintiffs class members are going to get is diminished diminimus or zero and that might deter lawyers from taking the case if there is oliver is it determined to prevent cases overall . It is a whole series of changes to incentives. Congress cannot outlaw class action across the board, people have the right to bring civil cases in federal court that it is fingering with the rules in very small ways that make it much more difficult for a plaintiff lawyer to say im going to bring this case. Caroline you also point out another provision of the bill which would allow class action to move forward only when a judge certifies is that all plaintiffs have suffered the same sort of injuries. The rules already require that they be a certain degree of commonality among plaintiffs but this would make it a much stricter requirement that there could actually be plymouth airy litigation against whether the injuries are the same in terms of their nature and their scope. That would be another disincentive to bring the cases in the first place. Theer lets talk about point they are trying to address which is at the litigation industry. I remember in college talking with my friends, you guys see we for everything. Hey, thats how he make sure people dont be wrong by others. Sue eachother for everything. There is a litigation industry. Of american facet life and business life. Companies are aware of their liabilities. They have Risk Compliance officers of that picture they behave themselves anyway that will not invite litigation. There is some degree of a limitation litigation tax on business and that is the nature of the beast in this country. Next, the arrest of a chilean smuggler and his role in the distribution of illegally mined gold. Plus the Virtual RealityCybersecurity Firm that helps you visualize an attack in realtime. Oliver welcome back to Bloomberg Businessweek. Still ahead, what a Chinese Company wants with the Chicago Stock Exchange and how does Virtual Reality detect hackers. All that ahead on Bloomberg Businessweek. Oliver were back with Bloomberg Businessweek editorinchief. We are talking about some more must reads. Lets look at some more market stuff in particular some transaction happenings in the Stock Exchange industry. The Chicago Stock Exchange which has long lumbered in the shadows, they had a really small proportion of stock trading. There are now in a Transaction Company andsebased it is a 27 million deal. This company does not have any experience running an exchange. Chicago would be the Stock Exchange to focus on listing smaller companies. This is a small deal. 27 million but the impact could a potential avenue for chinabased companies. Question of if they have controls in place and if investors are going to be fully apprised of what the risks involved. Lets talk about something in global economics. We know the president wants to build Economic Growth but some of his measures may be impacting something important to the u. S. Economy and that is foreign tourism. The numbers are far about how tourism is going to be impacted is tens of millions. People no longer coming to visit. Can we trace of this directly to donald trump . New york is going to be hit hard the numbers show. People are alarmed about this. There is a direct loss of jobs, fewer tourism places like l. A. , chicago, san francisco. Tourism is a huge place for job growth in this country. We are seeing this trickle down and mayors are alarmed, tourism officials are alarmed. Whether or not this is the yen pnd the yang of the trum impact. Oliver Tourism Industry being policies, this doesnt seem like such an enriching project. Looking at his business, weve seen some of his on cabinet members stay in his hotel in washington when they are in washington to be in the cabinet. Will the trump brand rise or fall on the back of the president . His two sons are active in pursuing deals around the world, they are building this hotel brand. Overall, theourism early numbers are not great in terms of the impact. Lets see what happens. You never know if america the greatest american renaissance could be ahead of us. Willr well great we wait to see what happens with the renewed travel plan ban as well. Caroline who knew gold smuggling was at this easy . Who grewas a young guy up his father ran a pawnshop. It started smallscale. Bringing pesos for his father and then he decided he wanted to make it big and started gold smuggling. Its really traces the flow of gold from how cumbersome that project is extracting it illegally from these mines and him legally literally taking it in backpacks and suitcases back to miami. When he was apprehended he had 44 pounds of gold in a roller bag. You can get a lighter through security but you can take 44 pounds of gold. This is an interesting quarter of the smuggling market. Caroline we have more from reporter Michael Smith on what it is like to be a International Gold mugler. Smuggler. Up around the business and started working with his father after his father got sick when he was in college and basically dropped out of college to try to run the family Jewelry Store and he basically got himself into the global gold smuggling market. He basically created an a Multinational Enterprises that ended up shifting tons of gold to florida and into the gold market. Oliver before reading your story i didnt think much about the gold smuggling market. Caroline how much of a market is it and he was buying it . Buying it . Almost 50 tons of gold a year comes from just five countries in latin america to the United States and this is gold that is not officially reported on the books. Illegallycally obtained gold that is legally brought into the United States illegally brought into the United States and sold on the international market. Were talking Jewelry Companies and Electronics Companies and all kinds of industry. There is a huge demand for gold in the world right now. It is gone up by about 1000 tons a year in the last 15 years and they need gold and a lot of it is coming from these illegal mines. Oliver i never thought about gold smuggling. Now that you talk about it, it makes sense that it happens. When you think of counterfeiting, your printing fake cash, gold, the illegal aspect of it, tell us about the origin of the legal gold. What makes it illegal . There are two elements to it. Biggest element is in latin america, especially in the amazon, we are talking about colombia, ecuador, parts of brazil and even into olivia bolivia, you have vast regions of the territory that is rain forest and in the rain forest of there is lots of gold is based in the ground. These territories are controlled by criminal gains from Drug Trafficking organizations to smuggling groups to groups like columbia. Roup in they control all the mining done there. There is no respect for the environment or labor and they basically get the gold out of the ground and they have to bring it to market. They find ways to lie about the origin of the gold and say it is coming from some legitimate Mining Operation where it isnt. That allows to exported by lying on customs forms to get it into the longer it so it can be sold legally. Vilchez, hereld he was a welloff city kid, he went from being legitimate and he went to dealing with illegal gold, how did that happen . He is a very ambitious young man and when he got into business he seems to have a good sense of business he decided he wanted to make more money and he found out there is a voracious demand. There are buyers who would buy any gold you bring to them to feed this back market black market. He basically started googling gold producers in peru, he heard in peru there is a huge underground black market for gold and he found a guy who has introduced him to other people and he started making buys. He found sellers and buyers and he became the middleman. It didnt seem that hard until he got called. Caught. A cybersecurity startup is using Virtual Reality to catch hackers. Cybersecurity, it was obviously different and it was something that i could literally visually understand which is very unusual. Often when you are talking to people about cybersecurity, youre talking about companies, youre talking about people who are with cybersecurity. It is hard to understand what they are talking about and she cant picture it. Twise focuses on the presentation layer. To make it easier to understand what you are even looking at when you are looking at a network. They started in 2013 and came out in 2015. Their user base has already been cool thats always been cool. They hire this guy from hollywood he was involved in the special effects for tron legacy. And now they are taken of a step further to develop a Virtual Reality software so if you are a cybersecurity analyst instead of looking at numbers on a screen, you can put on a headset and fly through your network and it is virtualized as a city. Something you would fly through and you would know your neighborhood, there would be like a police on the beat where you would fly around and notice that something was out of the ordinary. Caroline have you know something is out of the ordinary . What do you see . , it is set up as a cityscape different neighborhoods are different to business areas. Lets say you have finance over here, you have accounting over sales over here. You notice in sales, this tilting that is normally blue is normallyg that blue is a red. You can click and see all this other data about what is happening and he will know exactly what you are looking at because each structure has a different shape depending on what it is. A is a Cloud Network cloud the database is a different shape. The with and the height the q width and the height is based on the inflow. You can view it as superficial but the idea is right now it is very hard to get a view of the network and you need to make it easier for analysts to do that. Oliver a next, the controversial purple colored drink is causing alarm for a cough syrup manufacturer. This is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. Im Oliver Renick. In the future section, investigation into purple drank. It is popular with hiphop artist from the lane to Justin Bieber. This looks at the Company Behind purple drank. It focuses on houston and it was such an integral part sipping this cough syrup with a substance that forms a high. It is a small corner of the overall market. These bottles of this cough syrup were traded as high as 1000 2000 and were specific to their flavor. There is also pink drank, linen drank. We laugh about it but in the throes of opioid addiction, unseen scale and threat to so many communities now and this was under the radar in communities like houston and the Law Enforcement how difficult it is to combat this as it spreads. Did dig into it. You look at other additions that have made the headlines and you wonder how much corporate communities new about it and the street value of this drug. We went to so Many Companies and it was a small market and a small number of producers involved in producing the syrup. How much they can combat is when it is an offtheshelf combination and they may not be aware of it. What they can do to limit the street use of it. It talks about how changing even the kind of bottle that the syrup is made in to give it a different taste and make it last was viable. It is not just in this market but other markets, there is a this usage of things, how do you control it, you exit the market altogether . There are legitimate uses for this product, it is a fascinating tale. It delves into the community. The Hiphop Community in houston who feels like they are being taken advantage of under the radar. Oliver tell us about that community. The reporter did a great job. He is from texas and he witnessed this firsthand. I remember the first time i heard about it was little lane got hospitalized lil wayne got hospitalized for drinking it. It has been proliferated by its use and reference throughout hiphop. It is referenced in a lot of lyrics and a lot of songs. Tmz story also goes into talking about Justin Bieber and how he was allegedly on purple drink. There is artwork in this story that teachers some of this in it and it goes into as we said, it is that community which is a community where a lot of things liberate through the lyrics of music. Things are popularized, people regulate replicate what people are doing in songs. It is you a window into that very tight community. Oliver up next, google learns it takes more than fast internet to build the next Silicon Valley. This is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. You can listen to us on the new york, boston washington dc and the bay area. In the technology section, googles attempts to buy highspeed internet has not led to as heart of. Google fiber is super highspeed internet it is gigabit speed, it means you can upload and download movies in the blink of an eye, if you have large files like photographs, no time to spend at all using the internet. It is noticeable and it is very fast. Oliver basically it went by the wayside. There was a lot of talk about how big it was going to be and the changes it was going to spur but ultimately has faded from the spotlight. I would not say exactly that. In those huge cities where people have it, they really love it. The thing is, google was going to roll it out in cities across the country and it is in quite a few cities across the country but to the company, which once was working superfast to get google fiber across the country has pulled back a little bit and in the cities where it went in, where people were initially so excited, now they just have faster internet and the older of it has worn off. Caroline lets talk about one of those cities, kansas city, kansas was the first of the cities to get google fiber. There were quite a few people who saw this on it would be great for their businesses do kansasogle fiber and city, missouri as well as kansas city, kansas has businesses and one of them is this guy who had driven to kansas city, kansas to check it out and then moved to their and set up his business. He was the only person i could really find for him google fiber fiber had agoogle this escape. He is a sports for todd river and needs that speeded to upload photographs. We talked to other entrepreneurs who said they liked it but they could not find a business use case for it. If they had it, their customers did not have it. Even if they found a way to move files around, they may get clogged up on the customer end. A lot of the entrepreneurs who moved to kansas city ended up moving away again. Oliver what happened is of those entrepreneurs it did come to places like kansas city, perhaps they could not find a business for google fiber but what about on the investment side . Money go to these areas and how did it end up feeling any growth in the start up space . The Startup Community in kansas city they were so excited and thought this will put us on the map. Investors will come piling in and it will help kickstart our startup scene. The problem is it turns out that investors outside almost everywhere except Silicon Valley are still fairly conservative. If you go as an investor in a place like kansas city and say i have this business idea, i dont have much revenue, profit is anys away, i dont have assets, the investors are going to say, thanks, im going to invest in something else. In Silicon Valley, if they believe in your story enough, you might be able to guess get the money. In kansas city it turned out it was hard. Oliver also in the technology section, we look at nintendo attempts to bridge Global Gaming mobile gaming with the home console. Tablet with jumbo controllers that attach built onto the sides. You did to get up to you to go with you if you want to play in the park and he can hold it on the couch. Areer what do you think the bets nintendo is making . With that that would wii saying we think people want to get up and move around. What are they betting on now . What do people need to do differently to make the switch work . , the big bet wasnt there is dual screen experience and it would be a differentiator for people. You could build enough cool things into it so people would want Something Different run the xbox and the playstation. They made the system a little too difficult to program for. It was hard to get outside developers to make games for it. They are hoping by turning the keys ever to a more Software CentricDevelopment Team that will accommodate for that. It will be easy or for outside companies to make great games for it. Caroline it involves in terms of developing threats, it was more software guys, not hardware guys. They also brought in a younger team of developers so they can get right to the younger audience. A lot of the nintendo lifers who had been Principal Developers were sidelines for thisone sidelined for one. Mostlyrned the keys to game designers and their 20s and 30s to throw ideas at the wall and figure out how they want to play with the system, how do use it and in what capacity. Like with the previous iterations of nintendo consoles, the hardware is not what you would expect if you are the fan of the latest generation of xbox system. There betting heavily on the software to be the differentiator to make people want to keep playing with each other. Oliver Bloomberg Businessweek is available on newsstands right now and online. More Bloomberg Television starts right now. Coming up on bloomberg best. The stories that shaped the week in business around the world. In the u. S. , fears over travel ban and health care plan. China says is economic target and britain gets its budget into account for the coming brexit. From thedimon fires hip in an exclusive interview. Wilbur ross draws of the bottom line on trade. Weveare in a trade war, been in a trade war for decades