WEBVTT - Surveillance: Inflation Picture on Weak Side, Hooper Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.640 Bloomberg dot Com, and of course on the Bloomberg Chann 0:00:33.720 --> 0:00:37.520 fro On Tim keenan New York looking at global economics 0:00:37.520 --> 0:00:39.760 and yes, the politics involved as well, and that means 0:00:39.760 --> 0:00:43.920 in Japan an important election over the weekend. The short 0:00:44.040 --> 0:00:48.080 answers Abe wins again joining us now Robert Feldman of 0:00:48.120 --> 0:00:52.480 Morgan Stanley MUFG, their senior advisor in Tokyo. H he 0:00:52.640 --> 0:00:57.800 is definitive on Japan and their political economics. Robbie, thank 0:00:57.840 --> 0:01:01.279 you so much for joining us again for at Tokyo. 0:01:01.600 --> 0:01:05.360 What was the character of this victory for Mr Abbe? 0:01:07.040 --> 0:01:09.480 The victory was a little bit stronger than I had expected. 0:01:09.520 --> 0:01:12.560 He has now again got a very strong majority in 0:01:12.600 --> 0:01:15.240 the Upper House. At the moment, he does not have 0:01:15.360 --> 0:01:17.600 the two thirds he would need to amend the constitution. 0:01:17.640 --> 0:01:19.360 There's been a little bit of talk about one of 0:01:19.400 --> 0:01:22.480 the center left parties may be coming along, but he 0:01:22.520 --> 0:01:25.479 has all the votes he needs to get major economic 0:01:25.600 --> 0:01:28.400 legislation through if he chooses to do so. And that 0:01:28.520 --> 0:01:30.360 is the issue that I think markets are going to 0:01:30.440 --> 0:01:33.400 start grappling over the next month as they see him 0:01:34.319 --> 0:01:36.640 redo his cabinet, to see who he appoints, see what 0:01:36.720 --> 0:01:39.360 the policy priorities are. That is the issue I think 0:01:39.480 --> 0:01:43.360 is before investors. Now, who votes for Mr Abe? I mean, 0:01:43.560 --> 0:01:45.800 does he have the support of Iowa, is at the 0:01:45.800 --> 0:01:49.120 support of New York City? What is the character of 0:01:49.200 --> 0:01:55.960 his supporters? Well, his supporters are broadly small business um uh, 0:01:56.040 --> 0:01:59.720 the general public uh, the sort of center right, and 0:01:59.760 --> 0:02:03.120 a little bit of those who are focused on say 0:02:03.080 --> 0:02:07.840 agriculture or other industry interests. But I think another very 0:02:07.880 --> 0:02:11.400 important new support for has come from young people because 0:02:11.760 --> 0:02:15.000 Primeister obb is the one who pushed and achieved the 0:02:15.240 --> 0:02:18.280 lowering of the voting age to eighteen. Moreover, if you 0:02:18.320 --> 0:02:21.280 look at the voting results on some call it litmus 0:02:21.280 --> 0:02:26.120 issues between call it left and right, such as constitutional reform, 0:02:26.200 --> 0:02:28.360 what you see is that it's a much larger share 0:02:28.360 --> 0:02:30.920 of older people who are on the left wing and 0:02:30.960 --> 0:02:33.400 a much smaller share of young people who are on 0:02:33.440 --> 0:02:35.639 the left wing, although obviously there are some so I 0:02:35.639 --> 0:02:38.800 think that's also an important characteristic to look at. Probably 0:02:38.880 --> 0:02:41.000 we got him back, I don't know, six years to 0:02:41.160 --> 0:02:44.680 Shinzo Abe, the Prime minister that's talking about sales tax hikes. 0:02:44.840 --> 0:02:47.359 Are we finally going to get this sales tax hike 0:02:47.760 --> 0:02:52.280 one and two? What do you expect the fallout to be? Uh? Well, 0:02:52.320 --> 0:02:55.040 the answer on that is almost certainly yes, because he 0:02:55.120 --> 0:02:57.800 said as part of the election that yes, he would 0:02:58.080 --> 0:03:01.280 the hike the tax as has been all ready legislated, 0:03:01.680 --> 0:03:03.440 and so he doesn't. If he does nothing, and that 0:03:03.480 --> 0:03:05.480 would be hard to redo at this point, then the 0:03:05.520 --> 0:03:09.480 tax will go up on October one. The negative impact 0:03:09.480 --> 0:03:11.560 of the tax, I think will be significant, but not 0:03:11.680 --> 0:03:14.480 nearly as bad as it was in two thousand and fourteen. 0:03:15.000 --> 0:03:17.480 At that time, they not only hid three percentage points, 0:03:17.480 --> 0:03:19.959 but they also made a revision to the social security 0:03:20.000 --> 0:03:23.640 system to take back some of the over indexing that 0:03:23.760 --> 0:03:27.120 had allowed nominal pension levels to stay where they were 0:03:27.240 --> 0:03:30.280 despite deflation in the economy. So all that took about 0:03:30.320 --> 0:03:33.360 three percentage points out of the out of GDP. This time, 0:03:33.520 --> 0:03:36.360 they're only doing two percentage points on the consumption tax, 0:03:36.440 --> 0:03:40.800 and they've already passed some measures to ease the burden, 0:03:41.120 --> 0:03:43.920 partly in some spending areas that are really necessary, like 0:03:43.960 --> 0:03:46.840 better education things like that. So the negative impact will 0:03:46.840 --> 0:03:50.880 probably be smaller than it was last time, but not 0:03:50.880 --> 0:03:53.720 not tiny. So, Robbie, that's domestic policy. That's the tax hike. 0:03:53.840 --> 0:03:55.680 Let's talk about what I don't think has got much 0:03:55.720 --> 0:03:59.360 discussion here in the United States, the trade dispute between 0:03:59.440 --> 0:04:03.800 Japan and South Korea. Just frame that for our listeners, Robbie, 0:04:03.840 --> 0:04:08.120 what is going on between Japan and South Korea right now? Well, 0:04:08.120 --> 0:04:10.240 there are a couple of things that are going on. 0:04:10.240 --> 0:04:13.280 One is that a few months ago, the South Korean 0:04:13.320 --> 0:04:17.200 Supreme Court made some rulings that were inconsistent with Japan's 0:04:17.279 --> 0:04:19.320 interpretation of the treaty, and so there's been a lot 0:04:19.320 --> 0:04:22.479 of back and forth on that. In addition, most recently, 0:04:23.440 --> 0:04:27.680 I think was July one, Japan decided to to take 0:04:28.000 --> 0:04:31.159 UH South Korea off the so called white list for 0:04:31.200 --> 0:04:33.760 the export of certain dual use items. These are items 0:04:33.800 --> 0:04:37.560 that can be used in the manufacture of nuclear weapons 0:04:38.200 --> 0:04:41.200 um UH. Now, also we've seen from Korea a couple 0:04:41.240 --> 0:04:45.120 of statements from diet members UH that some of these 0:04:45.160 --> 0:04:47.599 materials over the last four years actually have been diverted 0:04:48.040 --> 0:04:51.800 UH to or sold in non approved ways. So from 0:04:51.800 --> 0:04:53.599 the Japanese point of view, this is an issue of 0:04:53.680 --> 0:04:57.720 national security of great worry to the South Koreans. UH, 0:04:57.720 --> 0:05:00.960 they don't believe this or they don't believe it. They 0:05:00.960 --> 0:05:04.280 think it's much more oriented towards UH call it tit 0:05:04.440 --> 0:05:07.640 for tat retaliation and might be political, etcetera. But I 0:05:07.640 --> 0:05:09.960 think there are two issues here. One is that those 0:05:10.000 --> 0:05:12.520 of us, you know, regular working stuffs like us, don't 0:05:12.600 --> 0:05:16.760 understand the chemistry of what's going on, the difference between 0:05:16.800 --> 0:05:20.800 an extraordinarily good quality of this sort of material and 0:05:20.839 --> 0:05:23.560 a pretty good quality apparently like night and day. So 0:05:23.600 --> 0:05:26.760 that's one issue. And then there's probably some information that 0:05:26.800 --> 0:05:29.120 most of us don't have, like what happened to those 0:05:29.120 --> 0:05:31.880 exports that kind of got out of hand? Why did 0:05:31.880 --> 0:05:35.920 it happen? Are the matters? Are the methods that these 0:05:35.960 --> 0:05:39.440 companies have to control experts? Are they actually sufficient? Moreover, 0:05:39.520 --> 0:05:41.839 when you think about those things, there is a huge 0:05:41.960 --> 0:05:45.760 incentive among the Security Committee not to let information go 0:05:45.920 --> 0:05:49.000 public because if they do, then some of those sources 0:05:49.080 --> 0:05:52.800 might be might be compromised. So it's very difficult for 0:05:52.839 --> 0:05:55.760 investors to really know what's going on here. Dr Felman, 0:05:55.839 --> 0:05:58.760 Thank you so much, greatly appreciated for the Morgan Stanley 0:05:58.880 --> 0:06:13.640 m U f G in a Tokyo. We are thrilled 0:06:13.640 --> 0:06:16.560 to bring you know Peter Hooper, who is a Deutsche 0:06:16.600 --> 0:06:19.760 Bank They're global head of economic research. Really just set 0:06:19.800 --> 0:06:22.640 the tone here. Dr Hooper, thank you so much for 0:06:22.680 --> 0:06:26.279 being with us. I love your headline off your note. 0:06:26.400 --> 0:06:29.599 Will the first cut be the deepest? And this goes 0:06:29.680 --> 0:06:34.520 to almost the inertial impact of a rate cut cycle. 0:06:35.320 --> 0:06:39.359 Is it biggest early on or is it bigger is 0:06:39.440 --> 0:06:45.000 you add on rate cuts forward? Good morning tom um. 0:06:45.040 --> 0:06:50.480 You know, certainly the debate has been um uh whether 0:06:50.760 --> 0:06:55.359 whether to go big upfront, fifty and done, or or 0:06:56.800 --> 0:07:00.520 make it a little smaller and uh cuts over time. 0:07:01.120 --> 0:07:04.520 We we are still expecting several cuts this year. We 0:07:04.560 --> 0:07:07.000 think we'll get a total of seventy five basis points. 0:07:07.040 --> 0:07:10.000 That that does assume that things get a bit worse 0:07:10.040 --> 0:07:14.920 on the trade front and uncertainties continue there. But it 0:07:15.000 --> 0:07:17.760 certainly is not It is not a picture that says 0:07:17.800 --> 0:07:20.679 you need to be aggressive up front. We don't agree 0:07:20.720 --> 0:07:25.520 with that one. I mean, the economy is okay, um. 0:07:26.120 --> 0:07:28.400 There are a number of reasons why we expect the 0:07:28.400 --> 0:07:32.080 committee to want to cut rates um um. But but 0:07:32.520 --> 0:07:35.680 I mean the case against fifty, I mean not cutting deep. 0:07:36.600 --> 0:07:42.120 The committee committees, you know, committees mixed on this economy generally, Okay, 0:07:44.400 --> 0:07:46.840 we're not too far from neutral, and cutting a lot 0:07:46.920 --> 0:07:50.880 could overshoot. There are a number of other factors in 0:07:50.920 --> 0:07:53.320 there we can talk about. Well, one of the factors 0:07:53.360 --> 0:07:55.920 to me is the reaction functions. Since we're at the 0:07:55.960 --> 0:07:58.920 lower bound. I mean, I know, everybody wanders back to 0:08:00.200 --> 0:08:02.680 you know, everybody's got their analog they like to look at. 0:08:03.080 --> 0:08:06.640 But those analogs aren't with negative interest rates. Those analogs 0:08:07.080 --> 0:08:10.960 aren't with near zero percent rates and certainly zero really 0:08:11.040 --> 0:08:15.320 yield rates as well. Does does your do your dynamics 0:08:15.400 --> 0:08:20.040 work here like they've worked before. Well, yeah, we are 0:08:20.160 --> 0:08:24.360 close to the zero bound. We're I guess nine basis 0:08:24.360 --> 0:08:31.400 point cuts above it. One could argue, yes, you definitely 0:08:31.440 --> 0:08:34.760 want to go aggressively given how close we are to zero, 0:08:35.400 --> 0:08:38.160 if there's a serious risk for the economy. We're not 0:08:38.240 --> 0:08:40.559 in that situation. We're not at a serious ritt. We're 0:08:40.559 --> 0:08:44.600 not at the point that would warrant doing doing a 0:08:44.600 --> 0:08:50.040 lot extra up front right now. I think the basic 0:08:50.120 --> 0:08:53.800 reasons for cutting rates. Now, Yes, we have some we 0:08:53.880 --> 0:08:57.040 have some risks on the global front. Yes, we have 0:08:58.280 --> 0:09:02.000 some uncertainty on trade. The going to continue to fester 0:09:02.880 --> 0:09:07.800 most likely. Uh. And we have an inflation picture that's 0:09:07.800 --> 0:09:09.800 a little on the weak side, and I think the 0:09:09.800 --> 0:09:13.680 Fed wouldn't mind seeing inflation move a bit above two. 0:09:14.679 --> 0:09:20.959 So so the risk to to going further below neutral, 0:09:21.000 --> 0:09:24.719 if you will, are not high. But it's not a 0:09:24.720 --> 0:09:28.559 case of hey, we're we're on the cusp of a 0:09:29.160 --> 0:09:32.640 downturn here, we need to act aggressively. That just isn't 0:09:32.679 --> 0:09:34.720 the picture right now. Paid a lot of pressure from 0:09:34.720 --> 0:09:37.840 the President this morning through Twitter on the FEDA reserve 0:09:37.920 --> 0:09:41.559 needing to act. Does that complicate things just optically month end? 0:09:43.000 --> 0:09:46.600 You know, you know it? It does? I think. Um, 0:09:47.720 --> 0:09:50.960 the Fed, I mean left to its own devices. If if, 0:09:51.040 --> 0:09:55.480 if we didn't have the mixed economic picture and everything else, 0:09:55.520 --> 0:09:57.640 I mean the Fed, the Fed is going to move 0:09:57.800 --> 0:10:01.640 policy based on where it sees the economy. Um. If 0:10:01.679 --> 0:10:05.160 the economy we're not in the picture. Uh. Pressure from 0:10:05.160 --> 0:10:08.400 the administration of anything I think is counterproductive. The FED 0:10:08.480 --> 0:10:14.120 does not like the impression that it seems to be growing, 0:10:14.200 --> 0:10:18.439 that the monetary policies being run out of the White House. Uh, this, 0:10:18.600 --> 0:10:23.520 this is counterproductive, I think, and it well one factor 0:10:23.600 --> 0:10:26.199 that to my mind argues against fifty. You don't want 0:10:26.200 --> 0:10:29.560 to act aggressively because says, okay, the Feds jumping when 0:10:29.600 --> 0:10:32.640 the way that jumped, and that that's that's that's bad 0:10:32.679 --> 0:10:36.960 for perceptions about independence. Peter. One final question the idea 0:10:37.240 --> 0:10:40.960 of how business will react to the first second, the 0:10:41.040 --> 0:10:44.600 third rate cut. I mean, do they act or are 0:10:44.640 --> 0:10:47.080 we at a point where they don't change investment plans 0:10:47.480 --> 0:10:53.720 off of more accommodative policy. Well, I guess you know 0:10:55.040 --> 0:10:59.240 at this point basis point cut is doing at least 0:10:59.360 --> 0:11:06.400 something to to bolster financial conditions. Um. Yes, if you 0:11:06.480 --> 0:11:09.360 wanted to really give financial conditions a boost near term, 0:11:09.440 --> 0:11:12.240 you might want to argue doing more than more than 0:11:12.280 --> 0:11:16.240 the market expects. But I think we're we're a bit 0:11:16.280 --> 0:11:19.800 below neutral. I think everybody every little bit helps in 0:11:19.920 --> 0:11:26.480 terms of supporting financial financial conditions. Um. But the bigger, 0:11:26.600 --> 0:11:29.880 the bigger issue is what's what's going to be happening. 0:11:29.920 --> 0:11:32.800 The trade policy for that is the main drag, that 0:11:32.960 --> 0:11:36.079 is the main factor holding back business right now. We've 0:11:36.120 --> 0:11:37.760 got to leave it there, Peter, Hooper, Thank you so 0:11:37.840 --> 0:11:39.959 much for the briefing out of all of economic research 0:11:40.760 --> 0:11:55.240 at Deutsche Bank this morning and with us now Brookes 0:11:55.320 --> 0:11:59.760 Sutherland joining us on the industrial space as they call it, 0:12:00.320 --> 0:12:04.559 this will be a two hour conversation right now, two 0:12:04.600 --> 0:12:08.520 hour conversation on industry. It's oh the rage right now. 0:12:08.720 --> 0:12:12.320 All sorts of smart people are in the value in 0:12:12.400 --> 0:12:18.800 the the trade manufacturing gloom gloominess of industrial. Who's gonna 0:12:18.840 --> 0:12:22.240 win this battle? The earnings are terrible, crew or those 0:12:22.280 --> 0:12:25.200 that are buying deep discount value. I don't really know 0:12:25.240 --> 0:12:27.800 where the deep discount value is at this point. I mean, 0:12:27.800 --> 0:12:29.600 I think one of the things that's interesting to me 0:12:29.720 --> 0:12:32.760 is just how much some of these industrial stocks are 0:12:32.920 --> 0:12:35.439 up going into earning season. And I think that's why 0:12:35.480 --> 0:12:38.280 you saw really big disappointments at the likes of CSX. 0:12:38.320 --> 0:12:41.000 I mean that stock was up going into earnings, and 0:12:41.000 --> 0:12:43.200 then when you have them come out and drastically cut 0:12:43.200 --> 0:12:45.240 their record about honey well, I mean, honey well, the 0:12:45.240 --> 0:12:47.240 gloom there you wrote about the gloom. I'm looking at 0:12:47.280 --> 0:12:50.280 it as you beautifully stayed as you always do, Brooke. 0:12:50.720 --> 0:12:55.400 They lifted organic revenue sales vision. That's not gloomy, is it? 0:12:55.920 --> 0:12:58.560 So the thing about that, so they did raise their 0:12:58.640 --> 0:13:01.240 organic revenue guidance for the full year, but the second 0:13:01.280 --> 0:13:04.200 quarter actually came in way weaker than analysts. I'm not 0:13:04.240 --> 0:13:06.760 buying it for ninety days. I'm buying it for one year, 0:13:06.800 --> 0:13:12.040 two year, five years, twenty years. So the thing I understand. 0:13:12.120 --> 0:13:14.320 The thing it gives me pause about Honeywell is people 0:13:14.360 --> 0:13:17.720 typically think that they are just being conservative and there's 0:13:17.800 --> 0:13:20.160 upside to their guidance and they have the opportunity to 0:13:20.280 --> 0:13:22.440 raise down the road. And this to me does not 0:13:22.520 --> 0:13:24.480 feel like they're trying to set the bar low so 0:13:24.520 --> 0:13:26.120 that they can beat it. It It feels like they have 0:13:26.280 --> 0:13:29.760 legitimate reason to be concerned to be cautious here sixty 0:13:30.200 --> 0:13:32.600 Honeywell's business is shorter cycle, so they don't really have 0:13:32.640 --> 0:13:35.040 that much visibility to how well it's going to turn. 0:13:35.600 --> 0:13:39.840 Um sound like a cell side analyst. I'm just trying 0:13:39.880 --> 0:13:44.800 to be, you know, properly this morning, get us all 0:13:44.840 --> 0:13:47.240 in trouble. So so when it was honey was like 0:13:47.240 --> 0:13:49.760 a twenty times earnings whatever. I'm not even going to 0:13:49.840 --> 0:13:52.959 mention the name of the company. It's a vanilla um, 0:13:53.280 --> 0:13:57.200 it's a vanilla industrial company. Good morning, Cleveland, Ohio, and 0:13:57.240 --> 0:14:01.960 they're trading it like fourteen times earning. Are people comfortable 0:14:02.040 --> 0:14:05.840 on this stuff just because it's cheap. I mean, I 0:14:05.880 --> 0:14:08.280 think it depends on the name. I think aerospace is 0:14:08.320 --> 0:14:10.800 still a really safe place right now. I think you 0:14:10.840 --> 0:14:13.959 saw that with Honeywell eleven organic sales growth in their 0:14:13.960 --> 0:14:16.920 aerospace business. I think we're going to get numbers tomorrow 0:14:16.920 --> 0:14:20.040 from the United Technologies. They're going to reflect similar growth 0:14:20.120 --> 0:14:22.640 there in their aerospace business, and I think that gives 0:14:22.680 --> 0:14:26.440 people confidence um in that sector continuing to be robust 0:14:26.480 --> 0:14:29.680 for the time being. But you look elsewhere, particularly at 0:14:29.680 --> 0:14:32.200 some of the shorter cycle markets, you just see you know, 0:14:32.360 --> 0:14:36.320 ground swells of weakness there, and I think that should 0:14:36.320 --> 0:14:38.320 make you nervous and make you feel like maybe some 0:14:38.400 --> 0:14:40.600 of these stocks are not quite cheap enough, especially if 0:14:40.640 --> 0:14:43.360 I think about three M, which is also reporting later 0:14:43.400 --> 0:14:46.320 this week, and I think, you know, expectations there are 0:14:46.400 --> 0:14:49.040 that we could see yet another guidance cut, which would 0:14:49.040 --> 0:14:51.320 bring us, by my account, I think, to five in 0:14:51.360 --> 0:14:54.400 the past year, which would be you know, a rough 0:14:54.440 --> 0:14:57.520 start for that new management team. I mean, I look 0:14:57.560 --> 0:15:00.080 at three M as a separate beast in itself. What 0:15:00.160 --> 0:15:03.360 a difference in relative performance versus other industries. It's really 0:15:03.880 --> 0:15:06.920 rolled over there from two thousand and eighteen early as well. 0:15:07.000 --> 0:15:09.680 Let's go back to the railroads, you know, the transports. 0:15:09.760 --> 0:15:12.800 I've had more doubt theory conversations I think in the 0:15:12.840 --> 0:15:14.720 last ten years. I've in the last week and a 0:15:14.760 --> 0:15:18.320 half c Sex as an example, the airlines. I guess 0:15:18.360 --> 0:15:23.400 this bundled ugly thing called transports is that the transports 0:15:23.440 --> 0:15:29.000 of of of my mother and your grandmother. No, I mean, 0:15:29.040 --> 0:15:30.800 I think it's interesting. I think you're right you think 0:15:30.840 --> 0:15:33.680 of this as a very sort of old school industry, 0:15:33.720 --> 0:15:36.720 but it can be a linking indicator for for where 0:15:36.760 --> 0:15:40.120 we're going, just you know, in terms of measuring demand. 0:15:40.280 --> 0:15:42.680 And Bloomberg News came and Creees actually did a really 0:15:42.720 --> 0:15:47.640 interesting last week where he compared the Transport index to 0:15:47.760 --> 0:15:52.040 FedEx and so FedEx has obviously that it's share of issues, 0:15:52.120 --> 0:15:55.720 and but it's also exposed to international markets, so it 0:15:55.720 --> 0:15:57.480 can be sort of a proxy for the trade war 0:15:57.640 --> 0:16:00.280 versus railroads, you know, just by nature of their business 0:16:00.320 --> 0:16:02.640 are more domestically focused. So if you start to see 0:16:02.640 --> 0:16:05.280 the railroad sell off, that could be an indicator that 0:16:05.320 --> 0:16:08.240 you know, what, the domestic economy is starting to loose steam, 0:16:08.280 --> 0:16:11.320 that maybe we're starting to see this weakness spread into America. 0:16:11.400 --> 0:16:14.080 So it's sort of an interesting proxy for the what's 0:16:14.080 --> 0:16:18.960 the correlation of railroad prices right now to trade war Trump? 0:16:19.000 --> 0:16:21.360 You know, the whole thing not very much because they're 0:16:21.360 --> 0:16:23.960 so domestically focused. I mean, to the extent that the 0:16:24.000 --> 0:16:27.760 automakers are struggling because of the trade tensions huge A 0:16:27.840 --> 0:16:30.080 huge part of the railways business is moving the cars, 0:16:30.400 --> 0:16:33.320 and so that's been weak for them. Um, you know, lately, 0:16:33.440 --> 0:16:37.000 they've struggled a lot on the intermodal front, and intermodal 0:16:37.080 --> 0:16:39.200 is sort of your typical consumer goods that can be 0:16:39.240 --> 0:16:42.480 transported via either truck or rail. So part of that's 0:16:42.520 --> 0:16:44.240 the trade war. But the other part is that the 0:16:44.280 --> 0:16:46.760 trucking market is weak right now. The prices are down, 0:16:46.800 --> 0:16:49.680 there's a lot of capacity there and so they're starting 0:16:49.720 --> 0:16:51.720 to see some of the pain points there. But you know, 0:16:51.800 --> 0:16:54.040 they sort of last a lot longer than names like 0:16:54.080 --> 0:16:57.360 FedEx Um in terms of volume staying up. But the 0:16:57.400 --> 0:16:59.400 other saving grace for them is they've all been under 0:16:59.440 --> 0:17:02.720 these easy efficiency cost cutting plants, so their margins are 0:17:02.720 --> 0:17:05.600 going up even though volumes are coming down. So what's 0:17:05.640 --> 0:17:08.600 your focus into this this earning season. I mean, which 0:17:08.640 --> 0:17:12.080 company is sort of the Brooks Southerland one. I've really 0:17:12.080 --> 0:17:18.640 got to dive through well ge always, but they're industrial yeah, 0:17:18.680 --> 0:17:20.680 oh yeah, I mean at this point they've gotten rid 0:17:20.680 --> 0:17:24.320 of all the consumer facing businesses, really wound down the 0:17:24.400 --> 0:17:26.840 finance arm um. You know, I don't know if that 0:17:27.520 --> 0:17:30.159 so much as a is a key, you know, indicator 0:17:30.200 --> 0:17:31.920 of where the markets are going. But I will say 0:17:31.960 --> 0:17:34.959 that company, more than anything, is very vulnerable to swings 0:17:34.960 --> 0:17:38.480 and interest rates, just given the size of their unfunded 0:17:38.480 --> 0:17:42.120 pension liability and then their long term care insurance balance. Um, 0:17:42.160 --> 0:17:45.120 those are very sensitive to steps down in interest rates. 0:17:45.240 --> 0:17:47.400 And now we've got one more question for Brooks Southerland. 0:17:47.440 --> 0:17:49.960 Of course we have to do this, which is she 0:17:50.200 --> 0:17:54.240 is our surveillance movie mean, scarlet food is our celebrity 0:17:54.640 --> 0:17:58.960 Loadstone Brooke could never touched scarlet foods and cyclopedic knowledge 0:17:58.960 --> 0:18:01.520 of Hollywood, but you didn't go right there on movies 0:18:01.600 --> 0:18:04.760 anytime you were you were one of the one eighty 0:18:04.880 --> 0:18:09.320 three million dollars in Lion King this weekend. I was report. 0:18:09.840 --> 0:18:12.439 You know, I have to say, it sort of lacks 0:18:12.440 --> 0:18:15.040 something for me. I don't know if it really added 0:18:15.119 --> 0:18:17.600 value to do the c g I lions. I just 0:18:17.800 --> 0:18:20.680 maybe I'm too old school. I liked the old cartoon version. 0:18:21.000 --> 0:18:23.560 You can see more emotion with the cartoon animals than 0:18:23.600 --> 0:18:27.080 you can realistic looking lions, if that makes sense. But 0:18:27.160 --> 0:18:32.280 they did have a c at the movie theater. Selling 0:18:32.359 --> 0:18:36.320 point was scars suitably scarry. No, it was much more 0:18:36.359 --> 0:18:38.560 faded it was. I mean, it took me a while 0:18:38.600 --> 0:18:41.159 before I even found the scar on his face, and 0:18:41.480 --> 0:18:44.240 it was it was more Was he a more modern 0:18:44.359 --> 0:18:48.480 sensitive scar now the classic cartoon? No, it was still 0:18:48.560 --> 0:18:51.080 just as Um. There's a lot of violence, a lot 0:18:51.080 --> 0:18:54.080 of regicide and um, I don't know what the word 0:18:54.160 --> 0:18:58.680 is for uncle's side, but that is uncle's side. You 0:18:58.840 --> 0:19:03.320 just the basic ideas anyone with a with a dog 0:19:03.400 --> 0:19:06.120 at home. I was lifting them up this weekend doing 0:19:06.160 --> 0:19:09.439 this Simba routine. I mean, you know, the torture of 0:19:09.480 --> 0:19:12.400 dogs at vet Bill hated it all weekend. We're doing 0:19:12.400 --> 0:19:15.800 a Simba routine with Vett Bill all weekend. You know. 0:19:16.320 --> 0:19:18.960 But dude, well, it's just like three star, four star, 0:19:19.080 --> 0:19:22.320 five star. I would give it sold three and a 0:19:22.320 --> 0:19:26.000 half that experience. It was fun, take me back to 0:19:26.000 --> 0:19:28.720 my childhood. And the air conditioning was good, the popcorn 0:19:28.840 --> 0:19:32.919 was good. Yeah, what wait a minute, what the popcorn cost? 0:19:33.760 --> 0:19:36.080 It was a lot. It's a lot. And it also 0:19:36.160 --> 0:19:39.960 comes in this like industrial size that basically like you 0:19:39.960 --> 0:19:44.080 could feed a family of six. So thank you so 0:19:44.160 --> 0:19:49.600 much on Industrial America with lots coming up UM as well, 0:19:58.920 --> 0:20:02.120 this is a wonderful moment for me. Jonathan porteris as 0:20:02.160 --> 0:20:04.960 a King's College, and I can tell you that in 0:20:05.040 --> 0:20:09.159 all my conversations in the United Kingdom on the oddity 0:20:09.280 --> 0:20:14.760 of the constitutional ballet of a disunited Kingdom, he has 0:20:14.800 --> 0:20:19.960 been hugely valuable. Professor Porters joins us now from King's College. 0:20:20.680 --> 0:20:25.200 Your mathematics at Oxford maybe prepared you for this moment. Professor, 0:20:26.000 --> 0:20:30.440 what is the mathod? What is boris Johnson's mathematics? When 0:20:30.440 --> 0:20:36.400 he becomes prime Minister Johnson? What is his calculus? Um? 0:20:36.440 --> 0:20:39.800 So the big question is that Jonasan could really go 0:20:39.960 --> 0:20:44.360 one of two ways. UM. The first is to UH 0:20:44.520 --> 0:20:49.720 is to say that um a no deal breaksit would 0:20:49.720 --> 0:20:52.520 be bad for the UK economy and perhaps more importantly, 0:20:52.520 --> 0:20:55.920 from his point of view, bad for him politically. Um, 0:20:56.000 --> 0:21:00.680 and that therefore he needs a deal with the EU. UM. 0:21:01.080 --> 0:21:04.240 And that essentially means the deal that is already on 0:21:04.280 --> 0:21:09.840 the table, the deal that Theresa May has negotiated, possibly rebadged. UM. 0:21:09.880 --> 0:21:14.840 I think what UH in American politics is referred to 0:21:14.880 --> 0:21:21.000 as putting lipstick on the pig UH and then UH 0:21:21.000 --> 0:21:24.920 and then trying to sell that to the UK Parliament 0:21:25.080 --> 0:21:27.800 and then to the to the British people. So he 0:21:27.840 --> 0:21:31.280 could go that way. UM. The alternative is to for 0:21:31.359 --> 0:21:33.480 him to say, as he has done in the campaign, 0:21:33.600 --> 0:21:37.320 that Theresa May's deal is dead UM, and that if 0:21:37.359 --> 0:21:39.040 the EU want a deal, they're gonna have to throw 0:21:39.080 --> 0:21:41.840 it out and start again. You have said that's not 0:21:41.880 --> 0:21:46.280 going to happen. UM. If he goes down that route, 0:21:46.320 --> 0:21:50.000 and that seems to me the most likely one, then 0:21:51.600 --> 0:21:55.240 the most likely outcome is that we are headed for 0:21:55.320 --> 0:21:59.240 no deal, that the UK Parliament will stop him from 0:21:59.240 --> 0:22:00.919 going to no deal, and that we will have to 0:22:00.920 --> 0:22:04.840 have an election to sort it out. So that obviously 0:22:04.920 --> 0:22:08.200 is a very high risk gamble from Mr Johnson to take, 0:22:08.560 --> 0:22:13.359 but it is really the logical consequences so far. Now. 0:22:13.480 --> 0:22:17.440 Mr Johnson is no stranger to changing his mind when 0:22:17.440 --> 0:22:20.320 he decides it it suits him. Um, I don't think 0:22:20.320 --> 0:22:24.040 anyone would describe him as the most principal politician in 0:22:24.440 --> 0:22:27.240 in UK politics, so he's quite capable of doing a 0:22:27.320 --> 0:22:29.800 U turn. But at the moment, the logic point to 0:22:30.480 --> 0:22:34.680 US heading for no deal UM, and US having a 0:22:34.760 --> 0:22:39.639 general election relatively soon within the next six months to 0:22:39.640 --> 0:22:41.520 to decide whether or not that's through it we want 0:22:41.560 --> 0:22:44.800 to go. So, Jonathan, is there any sense yet it's 0:22:44.800 --> 0:22:47.000 been you know, several years now of what a hard 0:22:47.080 --> 0:22:51.040 Brexit really would look like for the UK. Um. Well, 0:22:51.080 --> 0:22:53.640 I think we have a much better idea now than 0:22:53.760 --> 0:22:56.160 than we did about what a hard break it would 0:22:56.160 --> 0:22:58.359 look like. And we know that some of the worst 0:22:58.440 --> 0:23:01.080 potential impacts of a hard break of a no deal 0:23:01.160 --> 0:23:06.320 Brexit will not materialize. So UM. In technical terms, if 0:23:06.359 --> 0:23:09.600 nothing at all had been done, then planes would stop 0:23:09.600 --> 0:23:13.080 flying between the UK and continental Europe for example. That's 0:23:13.119 --> 0:23:16.200 not going to happen. Uh. There are some legal fixes 0:23:16.240 --> 0:23:18.600 that the EU has put in place UNI laterally to 0:23:18.720 --> 0:23:23.160 ensure that planes will keep on flying, UH, trucks will 0:23:23.240 --> 0:23:27.480 keep on rolling UM. And on the UK side, we've 0:23:27.480 --> 0:23:30.520 made contingency plans so we can avoid things like shortages 0:23:30.520 --> 0:23:32.600 of medicine and so on. So I don't think the 0:23:32.640 --> 0:23:37.520 idea that, as was technically possible at one point, that 0:23:37.440 --> 0:23:40.760 that what the the UK would literally be cut off 0:23:40.760 --> 0:23:43.359 from the continent and that there would be a quick 0:23:43.400 --> 0:23:46.639 descent into chaos with widespread shortages. I don't think that 0:23:46.760 --> 0:23:50.399 is very likely. But there will be significant economic disruption 0:23:50.720 --> 0:23:55.080 because the one thing No Deal clearly does mean legally 0:23:55.640 --> 0:24:00.240 is new tariffs, trade barriers and custom controls bete queen 0:24:00.600 --> 0:24:05.280 the UK and continental Europe UM and given the degree 0:24:05.320 --> 0:24:11.119