1 00:00:05,800 --> 00:00:08,360 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim 2 00:00:08,440 --> 00:00:11,200 Speaker 1: Fox along with my co host Lisa A. Brahmowitz. Each 3 00:00:11,240 --> 00:00:14,440 Speaker 1: day we bring you the most important, noteworthy, and useful 4 00:00:14,480 --> 00:00:17,079 Speaker 1: interviews for you and your money, whether you're at the 5 00:00:17,120 --> 00:00:20,360 Speaker 1: grocery store or the trading floor. Find the Bloomberg P 6 00:00:20,520 --> 00:00:33,920 Speaker 1: M L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 7 00:00:33,920 --> 00:00:36,920 Speaker 1: We are smack dab in the middle of bank earning 8 00:00:36,960 --> 00:00:40,040 Speaker 1: season with JP Morgan and Wells Fargo reporting today. We've 9 00:00:40,080 --> 00:00:42,360 Speaker 1: seen some rough results out of the banks for their 10 00:00:42,360 --> 00:00:45,600 Speaker 1: fourth quarter. Uh. Joining us now to kind of bring 11 00:00:45,640 --> 00:00:47,239 Speaker 1: us up the date on what's going on with the 12 00:00:47,280 --> 00:00:50,879 Speaker 1: big money center banks and the investment banks is Charles Pvty, 13 00:00:51,280 --> 00:00:55,960 Speaker 1: President Portalis Partners, longtime analyst on the street covering the banks. 14 00:00:56,240 --> 00:00:58,600 Speaker 1: So Charles, thanks for being with us. Um, what have 15 00:00:58,680 --> 00:01:02,000 Speaker 1: you seen so far? We've had city, JP Morgan Wells report. 16 00:01:02,040 --> 00:01:06,040 Speaker 1: What have you seen in the results? Thanks Paul. Um. 17 00:01:07,120 --> 00:01:11,000 Speaker 1: You know what intrigues me Um the most is the 18 00:01:11,520 --> 00:01:15,759 Speaker 1: insistence by these companies that they're meeting their expense targets. 19 00:01:15,840 --> 00:01:19,119 Speaker 1: And they certainly are in absolute dollar terms, but none 20 00:01:19,160 --> 00:01:23,520 Speaker 1: of these guys are hitting their efficiency ratio targets, which 21 00:01:23,680 --> 00:01:27,520 Speaker 1: as you know, includes a numerator related to revenues, I 22 00:01:27,520 --> 00:01:30,480 Speaker 1: mean a denominator related to revenues. And so they're falling 23 00:01:30,480 --> 00:01:33,959 Speaker 1: shot on the revenues and and that's the big disappointment, 24 00:01:34,920 --> 00:01:37,280 Speaker 1: you know, And I think that's what has caused this 25 00:01:37,360 --> 00:01:40,800 Speaker 1: whole multiple revaluation of the stocks during the course of 26 00:01:40,840 --> 00:01:43,319 Speaker 1: two thousand and eighteen. It was the expectation that revenues 27 00:01:43,360 --> 00:01:46,240 Speaker 1: would slower disappoint So so far, do you think that 28 00:01:46,360 --> 00:01:49,400 Speaker 1: the disappointment, the disappointing revenue has already been baked into 29 00:01:49,440 --> 00:01:52,600 Speaker 1: the share prices here? Yes, I do think it has. 30 00:01:52,640 --> 00:01:54,880 Speaker 1: And so I've sort of indicated that I thought the 31 00:01:54,880 --> 00:01:57,960 Speaker 1: first leg of the bear market has concluded, um, and 32 00:01:58,000 --> 00:02:01,040 Speaker 1: that a relief rally is in in place right now. 33 00:02:01,640 --> 00:02:04,000 Speaker 1: But the second leg of the bear market is out there, 34 00:02:04,040 --> 00:02:06,720 Speaker 1: you know, ready to start at some point, maybe spring, summer, 35 00:02:06,760 --> 00:02:09,800 Speaker 1: I don't know, UM. And it's going to be characterized 36 00:02:09,800 --> 00:02:13,360 Speaker 1: by deteriorating credit and you are starting to see some 37 00:02:13,440 --> 00:02:18,040 Speaker 1: early signs of that likely to happen. So, Charles, you've 38 00:02:18,080 --> 00:02:20,280 Speaker 1: been I think pretty spot on on these banks. You've 39 00:02:20,280 --> 00:02:23,079 Speaker 1: got cautious In October, you downgraded some of the names 40 00:02:23,520 --> 00:02:28,520 Speaker 1: in December ahead of the earnings. You know, cities seem 41 00:02:28,600 --> 00:02:31,200 Speaker 1: to have had the CFO seemed to have some moderately 42 00:02:31,280 --> 00:02:36,560 Speaker 1: positive outlook for twenty nineteen. Do you share that optimism? 43 00:02:36,919 --> 00:02:40,119 Speaker 1: I don't in terms of where they're headed. I mean, 44 00:02:40,680 --> 00:02:44,000 Speaker 1: you know, they had promised a two hundred basis point 45 00:02:44,040 --> 00:02:48,440 Speaker 1: improvement in operating efficiency in two thousand nineteen. They walked 46 00:02:48,440 --> 00:02:51,600 Speaker 1: that back yesterday on the call um and started to 47 00:02:51,760 --> 00:02:54,840 Speaker 1: take a page out of Wells fargoes Um you know approach, 48 00:02:54,840 --> 00:02:57,120 Speaker 1: and say, well, we think we can keep expenses flat 49 00:02:57,120 --> 00:02:59,800 Speaker 1: around forty two billion, but we're not going to promise 50 00:03:00,120 --> 00:03:04,080 Speaker 1: or than you know, a ninety to some plus ninety 51 00:03:04,440 --> 00:03:08,240 Speaker 1: basis point improvement inefficiency. So they're already walking back, you know, 52 00:03:08,280 --> 00:03:11,400 Speaker 1: some of the expectations in nineteen and and it really 53 00:03:11,440 --> 00:03:14,520 Speaker 1: is related to the uncertain revenue environment. You know, I 54 00:03:14,560 --> 00:03:17,160 Speaker 1: think short term, you know, on a trading basis, you 55 00:03:17,160 --> 00:03:20,360 Speaker 1: know that revenue disappointments are been discounted, but I don't 56 00:03:20,360 --> 00:03:23,600 Speaker 1: think the credit disappointments that are coming have been discounted yet. 57 00:03:23,880 --> 00:03:26,040 Speaker 1: All right, talking about credit, now we get to talk 58 00:03:26,080 --> 00:03:29,000 Speaker 1: about debt, and I'm very excited of course, because that's 59 00:03:29,040 --> 00:03:32,920 Speaker 1: that's where I feel most comfortable. But Gila boss actually 60 00:03:32,919 --> 00:03:35,840 Speaker 1: of Janny Montgomery Scott came out today and so that 61 00:03:35,920 --> 00:03:38,920 Speaker 1: two banks, City Group and JP Morgan have reported increases 62 00:03:38,920 --> 00:03:42,560 Speaker 1: in loan loss provisions and credit costs. And he takes 63 00:03:42,600 --> 00:03:44,560 Speaker 1: this it is an indication that they're preparing for the 64 00:03:44,640 --> 00:03:48,000 Speaker 1: credit downturn, even if that's not what they're saying outright, 65 00:03:48,280 --> 00:03:52,400 Speaker 1: Do you agree? I do? UM. In fact, you know 66 00:03:52,480 --> 00:03:55,160 Speaker 1: JP Morgan got caught here in the fourth quarter, um 67 00:03:55,280 --> 00:03:58,800 Speaker 1: being a little bit too aggressive in the capital markets arena. Um, 68 00:03:58,880 --> 00:04:02,720 Speaker 1: they did see a jump in loans held for sale 69 00:04:03,160 --> 00:04:06,560 Speaker 1: that we're put on non accrual status. And I'm guessing, 70 00:04:06,640 --> 00:04:08,320 Speaker 1: and I don't know this, but I'm guessing that it's 71 00:04:08,360 --> 00:04:11,800 Speaker 1: related to some of their leverage lending or hung loans 72 00:04:11,920 --> 00:04:17,080 Speaker 1: for the syndications of buyouts. But um, you know there 73 00:04:17,120 --> 00:04:20,320 Speaker 1: are indications there there are too good Bloombird functions. If 74 00:04:20,320 --> 00:04:22,400 Speaker 1: you have a Bloomberg terminal that are worth looking at, 75 00:04:24,440 --> 00:04:29,840 Speaker 1: you see why go and if your listeners can put 76 00:04:29,880 --> 00:04:32,760 Speaker 1: that up on their terminal. It shows the concentration where 77 00:04:32,800 --> 00:04:36,560 Speaker 1: bankruptcy filings are occurring, and then also shows most recently 78 00:04:36,640 --> 00:04:42,000 Speaker 1: bankruptcy filings. And the second one is UM the symbolist 79 00:04:42,080 --> 00:04:46,640 Speaker 1: b n k R I n d X index go 80 00:04:47,240 --> 00:04:50,400 Speaker 1: and it shows the pace of bankruptcy filings. And you 81 00:04:50,480 --> 00:04:53,240 Speaker 1: see your bottom line as you're seeing a pick up 82 00:04:53,279 --> 00:04:56,080 Speaker 1: in the fourth quarter bankruptcy filings in the corporate world. 83 00:04:56,760 --> 00:05:01,080 Speaker 1: And I think that's a forerunner of more things to come. So, 84 00:05:01,200 --> 00:05:03,599 Speaker 1: Charles on the cost side of the equation, do you 85 00:05:03,600 --> 00:05:06,040 Speaker 1: think these big money center banks and investment banks are 86 00:05:06,040 --> 00:05:10,040 Speaker 1: they right sized for kind of the revenue environment that 87 00:05:10,120 --> 00:05:11,880 Speaker 1: is likely to occur we're likely to see over the 88 00:05:11,880 --> 00:05:16,640 Speaker 1: next several years. Uh, you know, it's you're gonna have 89 00:05:16,680 --> 00:05:19,160 Speaker 1: to answer that. Business by business, You're you're going to 90 00:05:19,240 --> 00:05:22,120 Speaker 1: see more downsizing. For example, in the mortgage banking business, 91 00:05:22,680 --> 00:05:25,200 Speaker 1: you're probably going to see more downsizing, and the wealth 92 00:05:25,279 --> 00:05:29,760 Speaker 1: management business. Um. So it is a business by business UM. 93 00:05:30,080 --> 00:05:34,320 Speaker 1: You know situation. I would say, what we are facing, 94 00:05:34,680 --> 00:05:37,280 Speaker 1: you know, in the course of nineteen twenty is a 95 00:05:37,480 --> 00:05:41,560 Speaker 1: earnings recession for these banks as opposed to a balance 96 00:05:41,600 --> 00:05:44,520 Speaker 1: sheet impairment. Words. I do think these banks will come 97 00:05:44,520 --> 00:05:49,040 Speaker 1: through the next downturn with their capital intact um and 98 00:05:49,040 --> 00:05:52,039 Speaker 1: and so they'll become out of that recession day one, 99 00:05:52,200 --> 00:05:55,400 Speaker 1: ready to invest in their businesses and and build as 100 00:05:55,400 --> 00:05:57,520 Speaker 1: opposed to repairing their balance sheets for two or three 101 00:05:57,600 --> 00:06:00,160 Speaker 1: years after the recession ends. So the good news is 102 00:06:00,200 --> 00:06:02,240 Speaker 1: they might not have to get bailed out by the 103 00:06:02,360 --> 00:06:04,600 Speaker 1: US government. The bad news they're not going to make 104 00:06:04,640 --> 00:06:06,240 Speaker 1: that much money. In fact, they're going to see their 105 00:06:06,279 --> 00:06:09,000 Speaker 1: earnings decline. Thank you so much, Charles Peabody, Thank you 106 00:06:09,440 --> 00:06:13,920 Speaker 1: for your insights. They always are welcome and usually spot on, 107 00:06:14,040 --> 00:06:32,520 Speaker 1: President of Prtalis Partners. Let's talk Brexit. Theresa May faces 108 00:06:32,600 --> 00:06:35,320 Speaker 1: what is likely to be a disappointing vote for her, 109 00:06:35,400 --> 00:06:39,960 Speaker 1: possibly the biggest disappointment of her tenure as Private Minister 110 00:06:40,160 --> 00:06:44,160 Speaker 1: of Great Britain. Joining us now to speak with us 111 00:06:44,200 --> 00:06:48,640 Speaker 1: about Brexit is somebody who has called economists charlatans and 112 00:06:48,839 --> 00:06:53,679 Speaker 1: crackpots when it comes to supporting Brexit. Danny blanche Flower, 113 00:06:53,680 --> 00:06:56,800 Speaker 1: professor of economics at Dartmouth College, as well as the 114 00:06:56,960 --> 00:06:59,800 Speaker 1: x Bank of England Monetary Policy Committee member, joining us 115 00:07:00,040 --> 00:07:04,359 Speaker 1: our so um, please explain, professor Well, I think the 116 00:07:04,800 --> 00:07:08,000 Speaker 1: claims that the people who thought that there would be 117 00:07:08,040 --> 00:07:12,560 Speaker 1: a Brexit hard Brexit and everything would be easy and 118 00:07:12,640 --> 00:07:19,280 Speaker 1: all the the negotiations would deliver easily were completely wrong. 119 00:07:19,760 --> 00:07:24,000 Speaker 1: Here we are today in a position of complete chaos. Um. 120 00:07:24,040 --> 00:07:26,800 Speaker 1: I was reading a book by Nicholas Shakespeare's called six 121 00:07:26,880 --> 00:07:30,800 Speaker 1: Minutes in May, and it refers back to May nine forty, 122 00:07:30,960 --> 00:07:35,600 Speaker 1: when actually six minutes of voting in Parliament brought Churchill 123 00:07:35,640 --> 00:07:39,080 Speaker 1: to Paris. It's probably the most consequential vote since then. 124 00:07:39,960 --> 00:07:42,080 Speaker 1: But I would say chaos reigned. I mean, we have 125 00:07:42,240 --> 00:07:45,760 Speaker 1: really no idea what the heck the outcomes are going 126 00:07:45,840 --> 00:07:49,360 Speaker 1: to be, Um, and everything's on the table, and I 127 00:07:49,400 --> 00:07:53,560 Speaker 1: think perhaps you understated how cataclysmic this vote is. The 128 00:07:53,600 --> 00:07:59,000 Speaker 1: Only question I think is how badly Theresa May loses. 129 00:07:59,440 --> 00:08:03,119 Speaker 1: She'll probably lose by the biggest historic margin ever seen. 130 00:08:03,400 --> 00:08:06,360 Speaker 1: I mean in the UK governments lose votes by eight 131 00:08:06,480 --> 00:08:10,040 Speaker 1: or ten votes. Several of the newspapers today are calling 132 00:08:10,080 --> 00:08:13,320 Speaker 1: that she may well lose by over two hundred. So 133 00:08:13,400 --> 00:08:17,440 Speaker 1: this is this is really you know, we're sitting watching 134 00:08:17,600 --> 00:08:22,040 Speaker 1: chaos being made. So, Professor, this is clearly uncharted territory. 135 00:08:22,320 --> 00:08:26,360 Speaker 1: Let's say that Prime Minister May does in fact lose 136 00:08:26,440 --> 00:08:32,280 Speaker 1: and lose big votes. Where do they go from there? Well, 137 00:08:33,040 --> 00:08:35,040 Speaker 1: I thought you'd ask me that question. I wrote down 138 00:08:35,440 --> 00:08:38,880 Speaker 1: five things, none of which you can rule out. I mean, 139 00:08:38,880 --> 00:08:41,720 Speaker 1: if she loses by and May loses by a number 140 00:08:41,800 --> 00:08:45,120 Speaker 1: around two hundred or so, prospects are and she says 141 00:08:45,160 --> 00:08:47,800 Speaker 1: she's going to give a statement straight afterwards. The first 142 00:08:47,840 --> 00:08:51,440 Speaker 1: prospect is actually the Prime Minister may quit, so that's 143 00:08:51,480 --> 00:08:54,640 Speaker 1: on the table. Another possibility is actually that there will 144 00:08:54,679 --> 00:08:57,920 Speaker 1: be no Brexit at all. That's still now on the table. 145 00:08:58,160 --> 00:09:01,120 Speaker 1: Another possibility is that Article fifty, which is the data 146 00:09:01,240 --> 00:09:06,679 Speaker 1: which Brexit occurs and it would be extended, and another possibility. 147 00:09:06,800 --> 00:09:09,400 Speaker 1: All of these are on the table. Another possibility, which 148 00:09:09,440 --> 00:09:12,719 Speaker 1: is probably the most likely I think now, is that 149 00:09:12,760 --> 00:09:15,439 Speaker 1: there will be a second referendum. And of course then 150 00:09:15,440 --> 00:09:17,560 Speaker 1: you're saying to me, well, what's the question in the reference. 151 00:09:17,600 --> 00:09:19,600 Speaker 1: I don't know the answer to that. So all of 152 00:09:19,600 --> 00:09:22,200 Speaker 1: those things are on the table. I think the one 153 00:09:22,280 --> 00:09:27,680 Speaker 1: that's most unlikely right now is a hard brexit with 154 00:09:27,840 --> 00:09:31,120 Speaker 1: no deal. I think the Parliament has moved against that. 155 00:09:31,640 --> 00:09:33,520 Speaker 1: But this is going to be pretty exciting. All of 156 00:09:33,520 --> 00:09:36,600 Speaker 1: those things are on the table today, all based up. 157 00:09:36,720 --> 00:09:39,760 Speaker 1: I mean, we're just simply talking about how badly she's 158 00:09:39,760 --> 00:09:42,120 Speaker 1: going to lose. I think that's really where we are. 159 00:09:42,240 --> 00:09:44,320 Speaker 1: And the question is when I called a bloomberg, I 160 00:09:44,320 --> 00:09:46,520 Speaker 1: said about a month ago that Theresa May was a 161 00:09:46,520 --> 00:09:49,760 Speaker 1: dead woman walking, that's probably where we are. What's your 162 00:09:49,840 --> 00:09:53,200 Speaker 1: view on the pound from here? Yeah, I mean I 163 00:09:53,240 --> 00:09:56,520 Speaker 1: think that the risk are clearly to the downside. That's 164 00:09:56,600 --> 00:10:01,480 Speaker 1: exactly what the MPC has said, UM um that that 165 00:10:01,480 --> 00:10:04,240 Speaker 1: that's the biggest concern. Obviously we've seen it dropped some 166 00:10:04,440 --> 00:10:07,480 Speaker 1: was I mean, I think I think the biggest piece 167 00:10:07,480 --> 00:10:10,800 Speaker 1: of evidence here is that businesses have really worried about 168 00:10:10,960 --> 00:10:15,240 Speaker 1: the uncertainty that's going on UM, and investment has has 169 00:10:15,280 --> 00:10:17,640 Speaker 1: been falling for the three quarters in a row. In 170 00:10:17,720 --> 00:10:19,640 Speaker 1: some way, I think the pound is going to be 171 00:10:19,679 --> 00:10:23,400 Speaker 1: impacted UM in a way once we know where things 172 00:10:23,440 --> 00:10:25,920 Speaker 1: are going here, once we have a clue which are 173 00:10:25,920 --> 00:10:27,840 Speaker 1: the options that I put on the table. There's no 174 00:10:28,000 --> 00:10:31,120 Speaker 1: Brexit brex to the second referendument, so I think that 175 00:10:31,240 --> 00:10:35,559 Speaker 1: some of that uncertainty gets resolved UM. But it doesn't 176 00:10:35,600 --> 00:10:38,160 Speaker 1: appear to me that anything looks very great. When I 177 00:10:38,200 --> 00:10:40,240 Speaker 1: wrote a column last week, I think in the Guarden 178 00:10:40,280 --> 00:10:42,559 Speaker 1: where I said all the options are either bad, horrendous 179 00:10:42,640 --> 00:10:45,520 Speaker 1: or disastrous, and I think that's probably where we are 180 00:10:45,920 --> 00:10:47,880 Speaker 1: risk to the pound of the downstad and if there's 181 00:10:47,920 --> 00:10:50,560 Speaker 1: a hard Brexit, then I think the risk really out 182 00:10:50,559 --> 00:10:52,800 Speaker 1: of the downstad and the question could even come to 183 00:10:53,200 --> 00:10:55,240 Speaker 1: that we get to dollar pound parity. I mean, I 184 00:10:55,280 --> 00:10:59,160 Speaker 1: think the Brexit, hard Brexit would really be a disaster 185 00:10:59,320 --> 00:11:01,080 Speaker 1: for the for the pound, and that's what the Bank 186 00:11:01,120 --> 00:11:03,960 Speaker 1: of England has said in its inflation reporting um and 187 00:11:03,960 --> 00:11:07,280 Speaker 1: it's comments recently, Paul, whenever I speak with Professor Blant 188 00:11:07,280 --> 00:11:09,360 Speaker 1: Flower always wonder how does he really feel? How does 189 00:11:09,400 --> 00:11:14,200 Speaker 1: he really feel that? Actually, so, professor, let's let's go 190 00:11:14,240 --> 00:11:17,680 Speaker 1: across the English Channel to Brussels. What do you think 191 00:11:17,720 --> 00:11:20,760 Speaker 1: the European Union would like to see here? What's kind 192 00:11:20,760 --> 00:11:25,160 Speaker 1: of a best case scenario from their perspective? Well, I 193 00:11:25,240 --> 00:11:28,560 Speaker 1: think they want to see calm and calm nerves. I mean, 194 00:11:28,679 --> 00:11:31,280 Speaker 1: part of the reason for that particularly is that that 195 00:11:31,360 --> 00:11:35,720 Speaker 1: we've seen data now with Sweden, Italy, Germany having negative 196 00:11:35,800 --> 00:11:39,400 Speaker 1: growth in in the in the last quarter, European sentiment 197 00:11:39,440 --> 00:11:43,520 Speaker 1: industries being low, German industrial production being low. So again, 198 00:11:43,600 --> 00:11:47,240 Speaker 1: the uncertainty is obviously something you want to see resolve. 199 00:11:47,320 --> 00:11:49,480 Speaker 1: But I think I think the twenty seven have been 200 00:11:49,520 --> 00:11:52,880 Speaker 1: pretty down United and their concern obviously is that you 201 00:11:52,880 --> 00:11:55,200 Speaker 1: don't want it to be another another one. You don't 202 00:11:55,200 --> 00:11:57,560 Speaker 1: want I texted and you know any of these other 203 00:11:57,600 --> 00:12:00,719 Speaker 1: countries thinking of leaving, so they position shouldn't has been 204 00:12:01,120 --> 00:12:04,400 Speaker 1: a pretty tough one. I think they're going to respond 205 00:12:05,000 --> 00:12:07,960 Speaker 1: by the nature of the vote. One possibility is to 206 00:12:08,000 --> 00:12:11,600 Speaker 1: go back and renegotiate again. I mean, the possibility still 207 00:12:11,679 --> 00:12:13,640 Speaker 1: is that we could have a different government and then 208 00:12:13,720 --> 00:12:17,160 Speaker 1: they'll go back. But they've been pretty sum saying, you know, 209 00:12:17,200 --> 00:12:19,400 Speaker 1: there are benefits of being a member of the club. 210 00:12:19,520 --> 00:12:21,560 Speaker 1: If you want to have those benefits, you have to pay, 211 00:12:21,920 --> 00:12:24,040 Speaker 1: and if you want to leave, then you can't just 212 00:12:24,080 --> 00:12:26,440 Speaker 1: have an allah cart menu. And I think they're going 213 00:12:26,480 --> 00:12:29,320 Speaker 1: to stick with that um And I think the big 214 00:12:29,320 --> 00:12:31,640 Speaker 1: deal for the name is pretty dumb much. They're spoken 215 00:12:31,679 --> 00:12:34,959 Speaker 1: with one voice, which is pretty hard to twenty seven 216 00:12:34,960 --> 00:12:37,160 Speaker 1: people around the table, so I think they're going to 217 00:12:37,160 --> 00:12:40,640 Speaker 1: try and prevent that from cracking. Professor Danny Blancheflower, thank 218 00:12:40,679 --> 00:12:43,000 Speaker 1: you so much for your time, a professor of economics 219 00:12:43,000 --> 00:12:46,840 Speaker 1: at Dartmouth College, also former Bank of England Monetary Policy 220 00:12:46,880 --> 00:13:07,559 Speaker 1: Committee member. Talking about that Brexit vote, I am eager 221 00:13:07,600 --> 00:13:10,600 Speaker 1: to learn more from George Magnets, economists and associate at 222 00:13:10,600 --> 00:13:14,560 Speaker 1: the China Center for Oxford University, also the former chief 223 00:13:14,800 --> 00:13:19,240 Speaker 1: economist of UBS, author of the book Red Flags Why 224 00:13:19,360 --> 00:13:23,959 Speaker 1: Jes China Is in Jeopardy. Love having you on the show. 225 00:13:24,240 --> 00:13:28,120 Speaker 1: Let's just talk about trade. What does the US want 226 00:13:28,200 --> 00:13:31,560 Speaker 1: from trade negotiations with China and advice versa? What is 227 00:13:31,640 --> 00:13:34,520 Speaker 1: China hoping to get out of them? Um So, I 228 00:13:34,559 --> 00:13:37,080 Speaker 1: think the easier question for me is what is what 229 00:13:37,120 --> 00:13:38,959 Speaker 1: does China hope to get out of it? They hope 230 00:13:39,000 --> 00:13:43,600 Speaker 1: not to have the tariff taken out of deep out 231 00:13:43,600 --> 00:13:45,200 Speaker 1: of the cold stories. They don't want to change anything. 232 00:13:45,400 --> 00:13:47,520 Speaker 1: They don't want anything. They want the status quote. They want, 233 00:13:48,080 --> 00:13:50,120 Speaker 1: you know, wherever President Trump was in terms of his 234 00:13:50,640 --> 00:13:53,400 Speaker 1: you know, suspension of the tariffs, not broadening them to 235 00:13:53,400 --> 00:13:56,319 Speaker 1: the rest of imports from China, they want that status 236 00:13:56,360 --> 00:14:00,360 Speaker 1: quote to remain because because their trade position is starting 237 00:14:00,360 --> 00:14:02,800 Speaker 1: to hurt, not just because of the tariffs, but it 238 00:14:02,880 --> 00:14:05,280 Speaker 1: is starting to hurt, and it's it's joining all the 239 00:14:05,320 --> 00:14:08,120 Speaker 1: other things we were talking about earlier, which are weighing 240 00:14:08,120 --> 00:14:11,520 Speaker 1: on the economy. What the American side wants out of 241 00:14:11,559 --> 00:14:14,199 Speaker 1: it may be different now that it was the President 242 00:14:14,200 --> 00:14:16,200 Speaker 1: Trump may want different things out of this. From his 243 00:14:16,440 --> 00:14:18,920 Speaker 1: US trade representative, I'm not sure how this is all 244 00:14:18,960 --> 00:14:23,120 Speaker 1: going to play out, um, but I suppose the narrow win, 245 00:14:23,680 --> 00:14:27,040 Speaker 1: if that's the right word way to put it, would be, uh, 246 00:14:27,120 --> 00:14:30,400 Speaker 1: you know, the appearance of a deal which is good 247 00:14:30,440 --> 00:14:33,400 Speaker 1: for the equity market and good for business confidence. I 248 00:14:33,440 --> 00:14:35,520 Speaker 1: don't think there's too much more into it. I mean, 249 00:14:35,520 --> 00:14:38,680 Speaker 1: obviously it would be good for American farmers and for 250 00:14:38,920 --> 00:14:43,760 Speaker 1: energy producers and for some other companies if the Chinese 251 00:14:44,000 --> 00:14:47,360 Speaker 1: agreed to step up their purchases of these products, no 252 00:14:47,520 --> 00:14:49,440 Speaker 1: question about it. So there are some interest groups for 253 00:14:49,480 --> 00:14:51,960 Speaker 1: whom it would be good. But from the point of 254 00:14:52,040 --> 00:14:54,960 Speaker 1: view of what is the United States get out of this, 255 00:14:55,320 --> 00:14:58,800 Speaker 1: I'm not sure other than very kind of transient, short 256 00:14:58,920 --> 00:15:02,760 Speaker 1: term kind of business equity market benefits, Whereas what they 257 00:15:02,840 --> 00:15:06,480 Speaker 1: want is a substantial change in the things which are 258 00:15:06,520 --> 00:15:10,120 Speaker 1: really really difficult to negotiate, which is tech transfer, intellectual 259 00:15:10,160 --> 00:15:15,320 Speaker 1: property infringement, ownership caps on foreign businesses, market access and opening, 260 00:15:15,320 --> 00:15:17,440 Speaker 1: and so on. These things are going to be hard. 261 00:15:17,600 --> 00:15:20,320 Speaker 1: So George, to what extent are is the is the 262 00:15:20,440 --> 00:15:23,800 Speaker 1: trade dispute between the US and China impacting the Chinese 263 00:15:23,880 --> 00:15:26,080 Speaker 1: economy do you believe and maybe how much pain do 264 00:15:26,160 --> 00:15:28,760 Speaker 1: you think that they can take before maybe they have 265 00:15:28,840 --> 00:15:32,000 Speaker 1: to engage more substance conversations with the US. I think, 266 00:15:32,000 --> 00:15:35,640 Speaker 1: looking backwards, let's say over the last twelve months, the 267 00:15:35,680 --> 00:15:38,880 Speaker 1: trade dispute or trade war didn't really have that much 268 00:15:38,920 --> 00:15:42,320 Speaker 1: impact on China's economy, and what impact it may have 269 00:15:42,400 --> 00:15:47,520 Speaker 1: had was probably offset by incremental easing of reserve requirement 270 00:15:47,600 --> 00:15:52,680 Speaker 1: ratios on banks and tax cuts and easier regulatory environment 271 00:15:52,680 --> 00:15:54,880 Speaker 1: and so on, So it was a bit of a wash. 272 00:15:54,960 --> 00:15:59,440 Speaker 1: But I think, um, if those tariffs had begun on 273 00:15:59,480 --> 00:16:02,680 Speaker 1: the first of January and they had been broadened to 274 00:16:02,760 --> 00:16:06,440 Speaker 1: the other half of imports into the United States from China, 275 00:16:07,240 --> 00:16:09,320 Speaker 1: this would have had a probably an impact of about 276 00:16:09,520 --> 00:16:11,880 Speaker 1: one one and a quarter percent of GDP this year. 277 00:16:12,280 --> 00:16:16,760 Speaker 1: It's it's that meaningful, so really important from a Chinese 278 00:16:16,760 --> 00:16:20,200 Speaker 1: perspective that this does not happen. So let's talk about 279 00:16:20,200 --> 00:16:24,040 Speaker 1: the thornier issues that go beyond just some kind of 280 00:16:24,280 --> 00:16:27,320 Speaker 1: cosmetic deal that gives a boost to the number of 281 00:16:27,360 --> 00:16:33,000 Speaker 1: soybean bushels that China imports from the US. What could 282 00:16:33,000 --> 00:16:35,640 Speaker 1: be on the table, say, come, and what is on 283 00:16:35,680 --> 00:16:40,280 Speaker 1: the table for European countries that are also negotiating with China. Yeah. 284 00:16:40,320 --> 00:16:44,680 Speaker 1: Now this is really interesting because just imagine that the 285 00:16:44,760 --> 00:16:50,600 Speaker 1: relationship between the United States and European countries and Japan 286 00:16:50,960 --> 00:16:54,480 Speaker 1: career and so on were you know, great, you know 287 00:16:54,520 --> 00:16:56,520 Speaker 1: that there hadn't been any disputes, any any kind of 288 00:16:56,520 --> 00:17:00,440 Speaker 1: bad blood about and with Canada, of course, Um, then 289 00:17:01,000 --> 00:17:04,040 Speaker 1: I think I was forgetting Canada. Yeah, well, you know, 290 00:17:04,119 --> 00:17:07,720 Speaker 1: I think the Western you know, the Western negotiating positions 291 00:17:07,720 --> 00:17:10,800 Speaker 1: on China, I think would be much stronger and would 292 00:17:10,920 --> 00:17:14,359 Speaker 1: and I think the Chinese would would be certainly cognizant 293 00:17:14,359 --> 00:17:19,200 Speaker 1: of that fact. But as it is, Um, President Trump 294 00:17:19,240 --> 00:17:22,320 Speaker 1: has has kind of awoken, uh you know, kind of 295 00:17:22,359 --> 00:17:25,400 Speaker 1: a sleeping demon or something like that. So it's not 296 00:17:25,520 --> 00:17:28,000 Speaker 1: just the White House that is starting to get or 297 00:17:28,000 --> 00:17:31,359 Speaker 1: has gotten tough with China or tougher with China about 298 00:17:31,359 --> 00:17:34,159 Speaker 1: trade and investment rules and you know what kind of 299 00:17:34,200 --> 00:17:37,920 Speaker 1: investment were prepared to accept and whatnot. But in London 300 00:17:38,080 --> 00:17:43,439 Speaker 1: and Berlin and Brussels, Paris, um, you know, Tokyo soul, 301 00:17:43,600 --> 00:17:46,399 Speaker 1: I mean, it's everybody is basically singing from the same 302 00:17:46,480 --> 00:17:49,359 Speaker 1: hymn book. And in fact, there were data published just 303 00:17:49,560 --> 00:17:51,639 Speaker 1: within the last day or two that showed that the 304 00:17:51,680 --> 00:17:55,280 Speaker 1: amount of Chinese foreign direct investment into the United States, 305 00:17:55,400 --> 00:17:58,919 Speaker 1: Europe and Canada last year was about thirty billion dollars, 306 00:17:58,960 --> 00:18:00,640 Speaker 1: which was a quarter of what it was in two 307 00:18:00,680 --> 00:18:04,920 Speaker 1: thousand and seventeen, and pretty much that ratio for two 308 00:18:04,960 --> 00:18:07,800 Speaker 1: thousand and sixteen as well. So that's fallen off a 309 00:18:07,840 --> 00:18:10,800 Speaker 1: long way, and a good part of that is much 310 00:18:10,840 --> 00:18:15,560 Speaker 1: greater scrutiny over the kind of sectors and companies that 311 00:18:15,640 --> 00:18:19,280 Speaker 1: we are prepared to allow Chinese investment to come into. So, George, 312 00:18:19,320 --> 00:18:22,119 Speaker 1: when I think about the negotiating position of China in 313 00:18:22,160 --> 00:18:26,280 Speaker 1: this dispute, I often wonder about the position of President She. 314 00:18:26,560 --> 00:18:30,520 Speaker 1: How secure is he in his position within China? I 315 00:18:30,520 --> 00:18:34,439 Speaker 1: guess externally it seems very strong, very secure. But is 316 00:18:34,440 --> 00:18:38,200 Speaker 1: that the case, Well, yes, it is the case. He 317 00:18:38,200 --> 00:18:40,600 Speaker 1: he is. I mean, I don't see any threat to 318 00:18:40,720 --> 00:18:44,640 Speaker 1: his leadership or to his position um and I think 319 00:18:44,720 --> 00:18:47,719 Speaker 1: it would be that the optics would be different if 320 00:18:47,720 --> 00:18:51,600 Speaker 1: there were something going on. But that said, I think 321 00:18:51,640 --> 00:18:54,600 Speaker 1: it is of note that during the last twelve months 322 00:18:54,600 --> 00:18:57,880 Speaker 1: we have seen the emergence of what I call disquiet, 323 00:18:57,960 --> 00:19:03,680 Speaker 1: Okay from professor's intellectual even subtly from some senior party officials. 324 00:19:04,080 --> 00:19:07,800 Speaker 1: Not everybody is happy with his approach to the United 325 00:19:07,880 --> 00:19:11,359 Speaker 1: States over trade, with his approach to the Belton Road initiative, 326 00:19:11,720 --> 00:19:14,159 Speaker 1: and with his approach to the economy. So could there 327 00:19:14,200 --> 00:19:17,120 Speaker 1: be a meaningful pushback from inside of China right now? Well, 328 00:19:17,160 --> 00:19:19,760 Speaker 1: I don't really see because these people who are you know, 329 00:19:19,800 --> 00:19:22,480 Speaker 1: who are exercising the disquiet, are really not in a 330 00:19:22,480 --> 00:19:25,640 Speaker 1: position to push back, and they the state is very powerful, 331 00:19:25,680 --> 00:19:29,680 Speaker 1: the party is very powerful. Um. I think President Sei 332 00:19:29,840 --> 00:19:31,920 Speaker 1: Ping would probably have to step out of line. Somebody 333 00:19:31,960 --> 00:19:34,119 Speaker 1: would have to. He would have to take on the 334 00:19:34,240 --> 00:19:37,920 Speaker 1: blame for something that had gone really wrong. Um, for 335 00:19:37,960 --> 00:19:40,560 Speaker 1: any pushback within China. But I think at the moment 336 00:19:40,640 --> 00:19:43,080 Speaker 1: that's not the case. But you never can tell with 337 00:19:43,359 --> 00:19:48,760 Speaker 1: authoritarian people. And I'm sorry, you know, what's the big 338 00:19:48,800 --> 00:19:52,199 Speaker 1: business in China? How much pressure are they feeling? How 339 00:19:52,240 --> 00:19:54,679 Speaker 1: much pressure maybe are they putting on the negotiators and 340 00:19:54,720 --> 00:19:58,000 Speaker 1: she and the government to get something done. Well, I 341 00:19:58,040 --> 00:20:00,800 Speaker 1: don't really think that the when you say big business 342 00:20:00,800 --> 00:20:05,879 Speaker 1: you mean big domestic business. Yes, um uh, Well, it's 343 00:20:06,000 --> 00:20:08,399 Speaker 1: very hard for that kind of that lobbying effect. I mean, 344 00:20:08,400 --> 00:20:11,119 Speaker 1: you don't really know what happens behind behind closed doors, 345 00:20:11,160 --> 00:20:14,359 Speaker 1: you know, between leaders of the party and you know, 346 00:20:14,400 --> 00:20:18,160 Speaker 1: the chief executives of major corporations. But you imagine that 347 00:20:18,800 --> 00:20:21,720 Speaker 1: there's probably, you know, not much more than a cigarette 348 00:20:21,720 --> 00:20:24,040 Speaker 1: paper between what the government thinks and what the what 349 00:20:24,119 --> 00:20:27,080 Speaker 1: the corporations think, which is, you know, we need to 350 00:20:27,119 --> 00:20:30,800 Speaker 1: resist pressure from outside, and we need to come away 351 00:20:30,840 --> 00:20:33,760 Speaker 1: with as as much as we can offer without compromising 352 00:20:33,760 --> 00:20:36,640 Speaker 1: our principles. George Magnus a pleasure having you here. Thank 353 00:20:36,640 --> 00:20:38,480 Speaker 1: you so much for being with my pleasure. Thank you. 354 00:20:38,520 --> 00:20:41,200 Speaker 1: George Magnus is economist and associate with the China Center 355 00:20:41,280 --> 00:20:44,840 Speaker 1: for Oxford University, also former chief economist at You Be 356 00:20:45,040 --> 00:20:47,840 Speaker 1: as author of a new book, Red Flags, Why She's 357 00:20:47,920 --> 00:21:04,800 Speaker 1: China is in jeopardy Right now, I want to talk 358 00:21:04,840 --> 00:21:08,159 Speaker 1: about the battle of the behemoths in the healthcare industry. 359 00:21:08,200 --> 00:21:10,720 Speaker 1: Walmart coming out and saying that it will leave CVS 360 00:21:10,800 --> 00:21:14,879 Speaker 1: Health network that administers drug benefits for millions of Americans 361 00:21:14,920 --> 00:21:18,680 Speaker 1: joining us now in our Bloomberg Interactive Broker Studios, Drew Armstrong, 362 00:21:18,760 --> 00:21:21,880 Speaker 1: team leader for US Healthcare at Bloomberg News. So what's 363 00:21:21,880 --> 00:21:24,119 Speaker 1: going on here? Drew? Well, So you know, if you 364 00:21:24,160 --> 00:21:26,480 Speaker 1: think about CVS and you're a normal person, you know, 365 00:21:26,520 --> 00:21:28,600 Speaker 1: you probably walk around, you see the pharmacy on the street. 366 00:21:28,600 --> 00:21:32,720 Speaker 1: You and if you're a normal person, I don't know, Well, 367 00:21:32,760 --> 00:21:34,199 Speaker 1: I won't go that far and call you normal, but 368 00:21:34,240 --> 00:21:36,600 Speaker 1: I will say a regular person said, eyes, who you 369 00:21:36,600 --> 00:21:38,399 Speaker 1: know walks around on the street to New York City. 370 00:21:38,640 --> 00:21:41,400 Speaker 1: You've got to you've you know, you know CVS because 371 00:21:41,440 --> 00:21:43,199 Speaker 1: it's a drug store where you you know, you go 372 00:21:43,280 --> 00:21:45,560 Speaker 1: and buy you know, toilet paper, pick up a prescription. 373 00:21:45,680 --> 00:21:48,080 Speaker 1: But actually about sixty of their business is something called 374 00:21:48,119 --> 00:21:51,040 Speaker 1: pharmacy benefits management, And essentially what they do is they 375 00:21:51,119 --> 00:21:55,119 Speaker 1: sell their services to health insurers and big employers like 376 00:21:55,119 --> 00:21:58,960 Speaker 1: Bloomberg for example, and they say, hey, there's thousands and 377 00:21:59,000 --> 00:22:01,040 Speaker 1: thousands of drugs out there. You gotta negotiate the price 378 00:22:01,040 --> 00:22:03,320 Speaker 1: of each and everyone. You also have to, you know, 379 00:22:03,320 --> 00:22:04,959 Speaker 1: get a network of pharmacies where you can go pick 380 00:22:05,000 --> 00:22:07,480 Speaker 1: this stuff up. We'll handle it. They're basically a middleman 381 00:22:07,560 --> 00:22:10,240 Speaker 1: for this super complex market. What they do is they 382 00:22:10,440 --> 00:22:14,520 Speaker 1: charge their employer and ensure clients fee for their services, 383 00:22:14,880 --> 00:22:18,040 Speaker 1: and then they pay the drug stores in order to 384 00:22:18,119 --> 00:22:21,320 Speaker 1: dispense the drugs and so you know, all right, now, 385 00:22:21,359 --> 00:22:23,960 Speaker 1: look at Walmart. Walmart's got about five thousand stores. They've 386 00:22:23,960 --> 00:22:25,640 Speaker 1: got a drug store in each one. I mean, CVS 387 00:22:25,760 --> 00:22:28,359 Speaker 1: is paying these guys a fee every time that someone 388 00:22:28,440 --> 00:22:31,200 Speaker 1: walks into a Walmart and says, hey, I need a prescription. 389 00:22:31,240 --> 00:22:34,600 Speaker 1: You know, my my prescription from my libertor. Walmart said, 390 00:22:34,800 --> 00:22:37,159 Speaker 1: you are not paying us nearly enough for This is 391 00:22:37,280 --> 00:22:40,600 Speaker 1: essentially a dispute over prices, and it got bad enough 392 00:22:40,680 --> 00:22:43,200 Speaker 1: that Walmart was willing to say we're gonna walk away 393 00:22:43,280 --> 00:22:47,400 Speaker 1: from one of the biggest, biggest PBM networks here. Now, 394 00:22:47,640 --> 00:22:50,159 Speaker 1: CVS has tons of stores everywhere, so does Walmart. You're 395 00:22:50,200 --> 00:22:53,120 Speaker 1: not dealing with a lot of geographic overlap here necessarily, 396 00:22:53,440 --> 00:22:55,000 Speaker 1: so it's you know, people are saying it won't be 397 00:22:55,000 --> 00:22:57,840 Speaker 1: that big of a hit to CVS for that reason 398 00:22:57,880 --> 00:23:00,600 Speaker 1: because they have stores where they can see your their 399 00:23:00,680 --> 00:23:04,080 Speaker 1: drug customers. That said, this is a pretty big shake up, 400 00:23:04,080 --> 00:23:06,280 Speaker 1: and I think the really meaningful stuff could be what 401 00:23:06,520 --> 00:23:09,440 Speaker 1: comes next year. So all right, so we've got Walmart, 402 00:23:09,480 --> 00:23:11,639 Speaker 1: we've got CBS. As you mentioned, two of the you know, 403 00:23:11,680 --> 00:23:15,200 Speaker 1: the biggest players in the business basically having a tiff 404 00:23:15,320 --> 00:23:18,840 Speaker 1: over price. Is there an expectation that this will get 405 00:23:18,840 --> 00:23:21,320 Speaker 1: resolved at some reasonable period of time. It just seems 406 00:23:21,359 --> 00:23:23,359 Speaker 1: like these are two big players I have to do 407 00:23:23,400 --> 00:23:25,360 Speaker 1: business with one another, you know. I think when we 408 00:23:25,440 --> 00:23:27,879 Speaker 1: looked at the public statements side of these companies, it 409 00:23:28,000 --> 00:23:30,680 Speaker 1: was pretty surprising. Walmart came out swinging pretty hard. I 410 00:23:30,720 --> 00:23:32,480 Speaker 1: mean they basically said, this has been you know, bad 411 00:23:32,520 --> 00:23:34,960 Speaker 1: for healthcare, bad for our customers. We don't want to 412 00:23:35,000 --> 00:23:38,160 Speaker 1: play ball on this anymore. Uh. Most of the time 413 00:23:38,240 --> 00:23:42,320 Speaker 1: these are disputes, they do get resolved quietly, discreetly. I mean, 414 00:23:42,359 --> 00:23:43,680 Speaker 1: this is like a this is a B two B 415 00:23:43,880 --> 00:23:47,320 Speaker 1: thing where you know, it has impact unreal, unreal, folks. 416 00:23:47,359 --> 00:23:49,359 Speaker 1: But most of the time this gets worked out. This 417 00:23:49,400 --> 00:23:51,439 Speaker 1: has turned ugly, and there has been a lot of 418 00:23:51,440 --> 00:23:54,000 Speaker 1: pressure on these pharmacy benefit managers. They're getting it from 419 00:23:54,000 --> 00:23:57,160 Speaker 1: both sides. They're being criticized by you know, the administration 420 00:23:57,200 --> 00:23:59,640 Speaker 1: and drug makers for having a role in keeping drug 421 00:23:59,760 --> 00:24:02,439 Speaker 1: prices high, and now they're getting criticized by pharmacists who 422 00:24:02,440 --> 00:24:04,439 Speaker 1: are saying, hey, you're you're you're hosting us on this 423 00:24:04,560 --> 00:24:06,960 Speaker 1: and we can't get enough money to run our business effectively. 424 00:24:07,080 --> 00:24:08,399 Speaker 1: So just to give you a sense of what the 425 00:24:08,440 --> 00:24:11,679 Speaker 1: market reaction has been Walmart definitely coming out ahead, shares 426 00:24:11,680 --> 00:24:14,600 Speaker 1: out one point three p, CVS down more than one percent. 427 00:24:14,720 --> 00:24:18,000 Speaker 1: I'm wondering, from your perspective, how this reflects the bigger 428 00:24:18,040 --> 00:24:21,159 Speaker 1: issue here, which is big corporations in the United States 429 00:24:21,200 --> 00:24:24,320 Speaker 1: taking on the bargaining power themselves. I mean, is there 430 00:24:24,320 --> 00:24:28,520 Speaker 1: any talk of Walmart potentially acting as its own pharmacy 431 00:24:28,560 --> 00:24:32,280 Speaker 1: benefit administrator and just sort of bypassing CVS entirely. I 432 00:24:32,280 --> 00:24:35,439 Speaker 1: think a lot of big employers and insurers and anyone 433 00:24:35,480 --> 00:24:38,240 Speaker 1: who spends a lot of money buying drug benefits have 434 00:24:38,359 --> 00:24:40,880 Speaker 1: looked at this industry and said, is there a way 435 00:24:40,880 --> 00:24:43,160 Speaker 1: for us to do this better ourselves? And there has 436 00:24:43,200 --> 00:24:46,000 Speaker 1: been a lot of pressure on any kind of middleman 437 00:24:46,160 --> 00:24:49,280 Speaker 1: in healthcare to say, you know, justify why you're here 438 00:24:49,320 --> 00:24:51,399 Speaker 1: for us, Justify why you're not just you know, taking 439 00:24:51,440 --> 00:24:53,280 Speaker 1: rents out of here. And these guys will fairly argue 440 00:24:53,280 --> 00:24:55,439 Speaker 1: a lot of times, these are really complex benefits. We 441 00:24:55,520 --> 00:24:58,320 Speaker 1: handle something that other people don't want to do or 442 00:24:58,440 --> 00:25:01,119 Speaker 1: can't do. I think that the there's also a perception 443 00:25:01,200 --> 00:25:04,960 Speaker 1: by some of their business partners that they started as 444 00:25:05,080 --> 00:25:07,840 Speaker 1: one thing, which was a relatively discrete kind of middleman 445 00:25:08,000 --> 00:25:10,240 Speaker 1: entityam managing some really tough stuff and then have since 446 00:25:10,320 --> 00:25:13,000 Speaker 1: grown into a business that figures out to add on 447 00:25:13,119 --> 00:25:15,880 Speaker 1: fees and profits and do all sorts of stuff through 448 00:25:15,920 --> 00:25:17,959 Speaker 1: a pick contracting. I mean, that's the criticism of these 449 00:25:18,000 --> 00:25:20,959 Speaker 1: guys that it turned into a massive profit center as 450 00:25:21,000 --> 00:25:23,760 Speaker 1: opposed to just being a you know, a service provider 451 00:25:23,840 --> 00:25:27,080 Speaker 1: that's relatively benign. So does the market expect or does 452 00:25:27,119 --> 00:25:29,560 Speaker 1: the industry expect more of these disputes coming down the 453 00:25:29,640 --> 00:25:31,879 Speaker 1: road here? I think you're going to see more disputes 454 00:25:32,000 --> 00:25:35,520 Speaker 1: like this where you do have you know, big pharmacy chains, 455 00:25:35,600 --> 00:25:38,880 Speaker 1: big employers, insurers pushing back on the folks who kind 456 00:25:38,880 --> 00:25:41,400 Speaker 1: of exist between them and the patient or between them 457 00:25:41,400 --> 00:25:43,720 Speaker 1: and the customer. There's immense pressure in the U s 458 00:25:43,800 --> 00:25:46,720 Speaker 1: right now to deal with healthcare costs, to squeeze money 459 00:25:46,720 --> 00:25:49,920 Speaker 1: out of the system, and people looking at this and saying, there, 460 00:25:50,000 --> 00:25:52,919 Speaker 1: you know, between the end customer and you know, the 461 00:25:52,920 --> 00:25:55,719 Speaker 1: doctor prescribing this stuff. We've got five different layers of companies. 462 00:25:55,760 --> 00:25:58,320 Speaker 1: Do we need them all? Cvs? You know, to be fair, 463 00:25:58,480 --> 00:26:01,400 Speaker 1: just bought ETNA, a giant in in order to simplify 464 00:26:01,520 --> 00:26:03,479 Speaker 1: and vertically integrate a lot of these things for some 465 00:26:03,560 --> 00:26:05,639 Speaker 1: of the same reasons. So I mean this is, you know, 466 00:26:05,720 --> 00:26:08,800 Speaker 1: they're they're both feeling this pressure and creating some of 467 00:26:08,800 --> 00:26:11,399 Speaker 1: it themselves. Yeah, and perhaps even trying to set up 468 00:26:11,400 --> 00:26:13,560 Speaker 1: for a time when they are cut out. If they 469 00:26:13,560 --> 00:26:15,760 Speaker 1: are cut out of the picture, have diversified business due 470 00:26:15,800 --> 00:26:17,440 Speaker 1: I'm strong. Thank you so much for being with us, 471 00:26:18,040 --> 00:26:20,640 Speaker 1: really really great rundown of what's going on here. Drew 472 00:26:20,880 --> 00:26:23,640 Speaker 1: Armstrong as team leader for US Healthcare at Bloomberg News, 473 00:26:23,720 --> 00:26:28,639 Speaker 1: joining us here in our living three oh studios. Thanks 474 00:26:28,640 --> 00:26:31,280 Speaker 1: for listening to the Bloomberg P and L podcast. You 475 00:26:31,320 --> 00:26:35,080 Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 476 00:26:35,200 --> 00:26:38,680 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 477 00:26:38,720 --> 00:26:42,240 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa 478 00:26:42,280 --> 00:26:45,200 Speaker 1: Abramo wits one. Before the podcast, you can always catch 479 00:26:45,320 --> 00:26:47,040 Speaker 1: us worldwide on Bloomberg Radio.