WEBVTT - Surveillance: Biden's Tax Plans With Hubbard 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Ley. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.280 dot Com, and of course on the Bloomberg Terminal. I 0:00:29.280 --> 0:00:31.520 want to bring in Mouf and boffinap Bombastead of FFECS 0:00:31.560 --> 0:00:33.319 and E. M. Mac cris stonogy MAV and you code 0:00:33.360 --> 0:00:35.360 in the dollar the base. It's still the base, but 0:00:35.440 --> 0:00:39.680 it can't get much stronger. White Well, it's already relatively 0:00:39.720 --> 0:00:41.959 overvalued if they look at it on a long term 0:00:42.080 --> 0:00:47.000 historical basis um. But uh, you know, we do expect 0:00:47.040 --> 0:00:49.240 it to continue to trade at these high levels. Not 0:00:49.440 --> 0:00:52.920 actually quite unusual. You look back historically when the dollar 0:00:52.960 --> 0:00:55.000 has been to its peaks, it's gone to these you know, 0:00:55.560 --> 0:00:59.200 peaks in the eighty five, in in uh two thousand two, 0:00:59.440 --> 0:01:01.520 and then it comes involved quite hard. That isn't what 0:01:01.640 --> 0:01:03.880 we're seeing this time. And part of that is because 0:01:04.040 --> 0:01:07.120 of exactly what you've been talking about here, that where 0:01:07.160 --> 0:01:09.640 are you going to go to access growth in the world. 0:01:09.760 --> 0:01:11.920 It's really about the US, but it's also the place 0:01:11.959 --> 0:01:13.880 that you go to access safety, so you get the 0:01:13.920 --> 0:01:16.280 best of both worlds. So people are going to maintain 0:01:16.920 --> 0:01:20.640 overallocations US assets for the foreseeable future. Marvin, when do 0:01:20.880 --> 0:01:25.480 deficits start to matter again? Well, I think we're getting 0:01:25.520 --> 0:01:27.319 to the point where they do matter, and I think 0:01:27.360 --> 0:01:30.280 it's more a question of the debt, not so much, um, 0:01:31.600 --> 0:01:35.200 the deficits. Let's remember that deficits are taking place pretty 0:01:35.280 --> 0:01:39.200 much everywhere, um, So it's not just a US issue. Um. 0:01:39.400 --> 0:01:42.480 What we're confronting right now is a very different situation 0:01:42.680 --> 0:01:47.080 from the past, or certainly the last decade, where countries 0:01:47.160 --> 0:01:51.120 were bailed out by following real interest rates. Now you're 0:01:51.160 --> 0:01:53.520 not going to see following real interest rates. We're at 0:01:53.560 --> 0:01:56.560 the zero lower around or effective lower around for most 0:01:56.600 --> 0:01:59.480 countries on nominal rates, and the only way to get 0:01:59.520 --> 0:02:02.040 real rates to fall from there is a hyper inflation. 0:02:02.720 --> 0:02:06.960 So Marvin, with your dollar resiliency, do you assume then 0:02:07.040 --> 0:02:10.400 that the real yield doesn't claw its way back to zero, 0:02:10.760 --> 0:02:14.919 that we stay with a persistent negative real yield, So 0:02:15.120 --> 0:02:18.400 ultimately we should expect that really yields will start to 0:02:18.840 --> 0:02:22.080 to pick up. Um. You know, we will see UM 0:02:22.720 --> 0:02:25.840 treasury yields start to pick up over the course of 0:02:25.880 --> 0:02:30.240 the next few years. Gradually, UM markets have already priced 0:02:30.280 --> 0:02:33.079 in a significant amount of the inflation that we expect. 0:02:33.160 --> 0:02:35.600 There's still room for that to go to get to 0:02:35.680 --> 0:02:39.440 the Fed's comfort zone in terms of where break evens 0:02:39.639 --> 0:02:42.799 uh go. But UM, we will see a rise in 0:02:42.880 --> 0:02:44.880 really yield, but it's not going to be anything um 0:02:45.160 --> 0:02:46.959 like what we've seen in the path. But remember that 0:02:47.120 --> 0:02:50.880 just makes UM. To Lesa's point, the debt problems more 0:02:51.919 --> 0:02:54.400 pressing for countries around the world. And John, what's so 0:02:54.560 --> 0:02:57.600 important here? The cadence, So Marvin Bart at Berkeleys is 0:02:57.639 --> 0:03:01.240 the same cadence as Chairman Powell. The real note yesterday 0:03:01.280 --> 0:03:05.360 with Chairman Poue is his ex axis. Chairman Paul's timeline 0:03:06.080 --> 0:03:09.760 extends well out into two thousand twenty two. And that's 0:03:09.800 --> 0:03:12.040 what I'm hearing from Marvin Burd the Ft is totally 0:03:12.160 --> 0:03:14.760 committed to this. Marvin totally committed to this. And Shaman 0:03:14.800 --> 0:03:19.040 pound one blink. Do you think everybody gets that now? Well, look, 0:03:19.160 --> 0:03:21.200 I think people will get that, and that's why we've 0:03:21.240 --> 0:03:24.800 had this pause in bond market markets over the course 0:03:24.840 --> 0:03:26.959 of the last month month or so. Right, Remember, we 0:03:27.000 --> 0:03:29.160 had a very intense sell off in the first quarter, 0:03:29.680 --> 0:03:32.680 a lot of altility assession, and since then bond yields 0:03:32.960 --> 0:03:34.760 you pointed out they've gone up a lot this week, 0:03:34.800 --> 0:03:37.120 but we're still basically trading within the same range we've 0:03:37.160 --> 0:03:39.520 traded for the last month, month or so. They're not 0:03:39.600 --> 0:03:42.640 really going anywhere. That is the market accepting that, And 0:03:42.720 --> 0:03:45.520 now the next step is they need to see, well, 0:03:46.000 --> 0:03:48.640 is the economy going to be stronger than share Powell 0:03:48.720 --> 0:03:51.160 in the committee exact, or is it going to be 0:03:51.240 --> 0:03:52.760 in line with theirs? Or is there going to be 0:03:52.800 --> 0:03:55.680 some sort of disaster that's that's gonna take it down. 0:03:55.920 --> 0:03:57.839 And for that we're just going to have to wait 0:03:57.880 --> 0:04:00.640 for the data. And that's why we're range trading across 0:04:00.760 --> 0:04:03.200 asset markets right now. Mom, And it's always good to 0:04:03.200 --> 0:04:05.440 see you got to catch up morv and Batley's head 0:04:05.480 --> 0:04:13.520 of Effects and am macro strategy, David Kelly, Whether this 0:04:13.640 --> 0:04:15.600 is JP Morgan and David Kelly, I'm gonna go to 0:04:15.640 --> 0:04:17.360 the bottom of this first look at g d P. 0:04:18.000 --> 0:04:21.840 In the nominal GDP statistic is ten point seven percent 0:04:22.200 --> 0:04:25.880 with the big prices paid statistic. Does that signal to 0:04:26.000 --> 0:04:29.440 you an inflation that is here or an inflation that's 0:04:29.480 --> 0:04:33.080 good to come, a little bit of both. Um I 0:04:33.160 --> 0:04:35.200 think there is clearly inflation right now. You can see 0:04:35.279 --> 0:04:37.720 and things like lumber prices which don't feed through that much. 0:04:38.200 --> 0:04:40.560 But you can also see in the difficulty that businesses 0:04:40.600 --> 0:04:42.480 are having and hiring workers, they're going to have to 0:04:42.520 --> 0:04:45.600 pay up in terms of higher wages. I think we've 0:04:45.640 --> 0:04:48.880 got some bottle legs all over the place. I think 0:04:48.960 --> 0:04:51.800 you know, light vehicle sales are pretty strong, but the 0:04:51.839 --> 0:04:54.880 inventories are very low, and that's that is pushing prices up. 0:04:54.920 --> 0:04:56.960 So I think we're seeing that right now. And in fact, 0:04:57.200 --> 0:04:59.280 one other thing in this report when you're actually with 0:04:59.320 --> 0:05:02.520 the numbers that's really interesting is inventories fell at an 0:05:02.600 --> 0:05:05.640 eighty six billion dollar annual pace in the first quarter. 0:05:06.080 --> 0:05:08.560 So if you think it's hard to find stuff, you're right. 0:05:08.880 --> 0:05:10.920 But what that's gonna do is going to cause manufacturing 0:05:10.960 --> 0:05:13.600 to crank up in the rest of this year. So 0:05:13.720 --> 0:05:16.480 I think you're going to see UM as inventories are 0:05:16.839 --> 0:05:18.440 restored over the course this year is just going to 0:05:18.480 --> 0:05:23.000 add further to this economy. We had a savings rate 0:05:23.120 --> 0:05:26.440 over in the first quarter. That's more fuel. So I 0:05:26.480 --> 0:05:28.840 can see this economy really geared up to boom in 0:05:28.880 --> 0:05:31.000 the second quarter. I think we'll get better than ten 0:05:31.080 --> 0:05:34.159 percent growth annualized in the second quarter. Can these companies 0:05:34.240 --> 0:05:36.920 make that demand? David? The money question, and it's still 0:05:37.000 --> 0:05:41.000 racing to be bullish the sancuity market. Yes, I think so. 0:05:41.880 --> 0:05:44.360 But I think you've got to got to focus on 0:05:44.800 --> 0:05:47.720 the cyclical sectors, the value sectors. I think they should 0:05:47.839 --> 0:05:49.880 They should do very well because this economy is going 0:05:49.920 --> 0:05:52.960 to accelerate fast here. I don't think interest rates are 0:05:52.960 --> 0:05:54.320 going to stay at this level. I think they have 0:05:54.480 --> 0:05:56.599 to go up with the pace of acceleration that would 0:05:56.600 --> 0:05:58.840 likely see over the next few quarters. How do you 0:05:58.960 --> 0:06:01.719 look at the data, David, Given the fact that people 0:06:01.760 --> 0:06:04.040 don't seem to trade off of it, what data are 0:06:04.080 --> 0:06:06.480 you looking at to determine whether this is something more 0:06:06.520 --> 0:06:11.640 than transitory, whether these price pressures have legs. Well, you 0:06:11.960 --> 0:06:13.960 you almost have to have a new model of inflation. 0:06:14.040 --> 0:06:16.720 I mean, the problem is that the old rules in 0:06:16.839 --> 0:06:18.560 terms of exact you know, the Phillips curve and the 0:06:18.600 --> 0:06:21.400 relationship between money supply and inflation, they don't really work 0:06:21.560 --> 0:06:25.120 very well. So it is it's a complicated process, but 0:06:25.200 --> 0:06:27.120 you have to put together the pieces of it. And 0:06:27.160 --> 0:06:29.960 I think the wage part of it's very important. Um. 0:06:30.120 --> 0:06:32.880 And also the fiscal party. You know, the present Biden 0:06:32.920 --> 0:06:35.360 announced a lot of plans yesterday. If he gets that 0:06:35.520 --> 0:06:39.880 through Congress, you know, usually it's spending now, taxes later, um. 0:06:40.000 --> 0:06:41.840 And so I think you get more physical stimulus. And 0:06:41.839 --> 0:06:43.960 if you get that stimulus, you will I think have 0:06:44.120 --> 0:06:47.160 some inflation that sticks. And the really interesting point about 0:06:47.200 --> 0:06:48.840 this is, you know the federal reserves as well. It's 0:06:48.839 --> 0:06:51.479 probably transitory. But by the time they know whether it's 0:06:51.480 --> 0:06:53.839 transitory or not, we're in the middle of next year. 0:06:54.200 --> 0:06:56.240 So the question is how long can you wait to 0:06:56.800 --> 0:07:00.920 be sure that it's transitory. That was a hatter of transitors. 0:07:01.000 --> 0:07:03.360 That was very good. Dr you're getting drunk, t K. 0:07:04.560 --> 0:07:08.720 He's going it, David Kelly. It was very transitory of 0:07:08.839 --> 0:07:11.240 you to come on and give us wisdom out to 0:07:11.360 --> 0:07:14.640 the third quarter or fourth quarter. With what we've seen 0:07:14.680 --> 0:07:17.480 in the last a week or even five days, do 0:07:17.600 --> 0:07:22.880 you have any clarity pest Labor Day of this year? Yeah, 0:07:22.920 --> 0:07:24.360 I mean I think I think we can see we 0:07:24.400 --> 0:07:26.440 can see the GDP story. I mean, this thing is 0:07:26.520 --> 0:07:28.880 just going to keep on accelerating. We know we've got 0:07:28.920 --> 0:07:31.200 the funds, and we also know that we've got people, 0:07:31.800 --> 0:07:34.320 you know, anxious to get back to to doing normal things. 0:07:34.400 --> 0:07:36.160 And you know, I think the fourth quarter this year 0:07:36.200 --> 0:07:37.680 is the first quarter that's going to feel in any 0:07:37.680 --> 0:07:40.680 way normal, and I expected to be a very blockbuster 0:07:40.800 --> 0:07:43.400 quarter in terms economic activity. I think the holiday season 0:07:43.440 --> 0:07:46.440 will be huge. But you know, I think things get 0:07:46.560 --> 0:07:48.880 much more murky when you get into twenty two. Just 0:07:49.000 --> 0:07:50.680 David Kelly, have to go back to the office soon. 0:07:51.240 --> 0:07:52.960 Is that July? Is that July line in the sand 0:07:53.040 --> 0:07:56.600 for you, David? I'm well, my second vaccine, I guess 0:07:56.680 --> 0:07:59.000 on May eight, two weeks later, I intend to go 0:07:59.040 --> 0:08:01.080 down to New York. We go. We look forward to 0:08:01.120 --> 0:08:03.080 seeing you, so hopefully can come back into the studio 0:08:03.200 --> 0:08:04.920 one day. I'd love to do that. That's the point 0:08:05.120 --> 0:08:07.520 in the next I don't know, several years. David Kelly 0:08:07.640 --> 0:08:17.280 check mugan asid Management Chief Club with Strategies. Now Henrietta 0:08:17.280 --> 0:08:20.480 Trades joins his Veda partners here on the soire in 0:08:20.640 --> 0:08:25.120 Washington last night, Henrietta, I want you to explain in 0:08:25.200 --> 0:08:30.880 the white marbled halls of Washington how politicians line up 0:08:30.960 --> 0:08:35.280 their tax policy around as a president mentioned three tenths 0:08:35.320 --> 0:08:40.080 of one percent of taxpayers, why aren't they more representative 0:08:40.280 --> 0:08:43.240 of the rest of America? You know, what are the 0:08:43.320 --> 0:08:47.240 interesting things I hear from senators and including the moderates, like, um, 0:08:47.360 --> 0:08:49.000 you know what Joe mansion is that they want to 0:08:49.120 --> 0:08:52.439 tax wealth like the tax work. So they have I 0:08:52.520 --> 0:08:55.720 think a lot of talking points around raising cap games, 0:08:55.800 --> 0:08:58.880 around raising taxes on top marginal rates. I think the 0:08:59.000 --> 0:09:02.480 real question is, you know, what can you functionally get 0:09:02.559 --> 0:09:05.640 the votes for with no margin for error? Where can 0:09:05.679 --> 0:09:08.679 you get those fifty votes then? And you know, I 0:09:08.679 --> 0:09:11.640 don't see much movement as realistic. Maybe a couple of 0:09:11.679 --> 0:09:14.320 points here and there. Okay, this is really really important. 0:09:14.400 --> 0:09:17.439 Dan Balls steam Dan Balls in the Washington Post, so 0:09:17.840 --> 0:09:21.520 talks about the narrowest of majorities. When do we come 0:09:21.600 --> 0:09:26.040 to our senses that the president can't be bold? If 0:09:26.120 --> 0:09:29.120 we do, is it within hours days? Or do we 0:09:29.200 --> 0:09:32.640 have to drag this into July? I mean, honestly, I 0:09:32.720 --> 0:09:35.800 think that you probably most investors should have seen that 0:09:35.960 --> 0:09:38.920 when you know, for instance, they couldn't pass the minimum 0:09:38.960 --> 0:09:42.400 wage hight votes see the fifteen dollars an hour, and 0:09:42.440 --> 0:09:44.559 they lost eight votes. I mean, I think July is 0:09:44.600 --> 0:09:47.959 probably a good time frame for when we'll start to 0:09:48.040 --> 0:09:50.520 recognize that we're going to be mostly deficit to financing 0:09:50.559 --> 0:09:54.760 the costs of this bill. The administration and Democrats generally 0:09:54.840 --> 0:09:57.960 have been doing a great job of avoiding the conversation 0:09:58.040 --> 0:10:00.760 around reconciliation and deficiting races that will have to be 0:10:00.800 --> 0:10:03.800 authorized this bill, and that's because President Biden has rolled 0:10:03.800 --> 0:10:06.559 out this ambitious agenda to pay for it. So July 0:10:07.080 --> 0:10:09.200 seems right to me based on what we see from 0:10:09.200 --> 0:10:12.480 the budget committees. We know that Secret Pelosi is marshaling 0:10:12.520 --> 0:10:13.959 this bill through the House and they want to be 0:10:14.040 --> 0:10:16.520 wrapped up by the fourth of July. I think reconciliation 0:10:16.640 --> 0:10:19.760 comes right after um. September is a possibility, you know, 0:10:19.880 --> 0:10:22.520 might be this headline risk that looms over us until September, 0:10:22.559 --> 0:10:25.280 But July september is my thinking as well well, the 0:10:25.320 --> 0:10:28.120 headline number, and most likely be in September after it 0:10:28.160 --> 0:10:32.160 gets pushed through the congressional sausage. My expectation is at 0:10:32.200 --> 0:10:34.960 the cost of this bill, which is currently four trillion dollars, 0:10:35.040 --> 0:10:37.240 the combo of the Infrastructure Bill and the family's plan 0:10:37.480 --> 0:10:40.280 gets flashed by at least half. So to trillion is 0:10:40.320 --> 0:10:43.520 the maximum sticker shock spending number that goes moderates in 0:10:43.559 --> 0:10:46.520 the Senate can stomach. So the spend alone is going 0:10:46.600 --> 0:10:48.880 to come down by half, and that means the revenues 0:10:48.960 --> 0:10:50.760 needed to offset the cost are going to calm down 0:10:50.880 --> 0:10:53.480 by at least half. And we haven't even started about 0:10:53.559 --> 0:10:56.720 started talking about the deficit hike. So the real question 0:10:56.840 --> 0:10:59.160 is going to be when do we see the spending level. Um, 0:10:59.280 --> 0:11:02.560 my expectation that that doesn't get discovered and earnest until 0:11:02.640 --> 0:11:04.599 the Senate starts to consider this bill, which will be 0:11:04.720 --> 0:11:08.880 July late July specifically, and then um, the deficit hike 0:11:08.960 --> 0:11:11.920 number again will be the other key input point to 0:11:12.040 --> 0:11:14.560 see how revenue we need. So all this is gonna 0:11:14.640 --> 0:11:17.079 just effectively wait till July. You can skip over the 0:11:17.160 --> 0:11:19.199 next couple of months. The Housel pass a big bill 0:11:19.320 --> 0:11:21.640 that maybe is three four trillion dollars and then we 0:11:21.679 --> 0:11:23.320 can forget about that as soon as we get over 0:11:23.360 --> 0:11:26.240 to the Senate. Henrietta, if you look at equity trading, 0:11:26.280 --> 0:11:28.000 you can see that a lot of people don't believe 0:11:28.120 --> 0:11:31.040 that corporate taxes will be raised all that much. What 0:11:31.200 --> 0:11:33.319 do you think they will be looking at in September. 0:11:33.400 --> 0:11:35.640 Will it be higher than they expect or will there 0:11:35.679 --> 0:11:38.280 be more enforcement of loopholes and just getting the actual 0:11:38.360 --> 0:11:41.160 taxes that they're charging A great point, I mean that 0:11:41.320 --> 0:11:44.720 enforcement mechanism. When you start hearing lawmakers talk about enforcement 0:11:44.840 --> 0:11:48.360 and collecting taxes that are due by beefing up the 0:11:48.640 --> 0:11:50.520 funding for the I R S, that should tell you 0:11:50.679 --> 0:11:52.480 all you need to know, which is we're not going 0:11:52.520 --> 0:11:54.800 to go after new taxes. We're not going to create 0:11:54.920 --> 0:11:57.520 some new tax stream. We're gonna go after the ones 0:11:57.559 --> 0:11:59.880 we've already collected, trying to boost you know, fraud ways 0:12:00.000 --> 0:12:02.280 an abuse and and and call some earnings from that. 0:12:02.760 --> 0:12:05.200 Um I think what investors are stuck in right now 0:12:05.520 --> 0:12:09.360 is this um mentality that whatever the President says goes. 0:12:09.640 --> 0:12:11.439 So they here, you know, at thirty nine point six 0:12:12.240 --> 0:12:14.719 capital gains tax rate, and that's what they go to. 0:12:14.920 --> 0:12:16.559 And then you see a couple of advisors say, you know, 0:12:16.600 --> 0:12:20.280 maybe twenty eight. We'll imagine if the number is. I 0:12:20.280 --> 0:12:21.960 think that's where we ultimately end up. But people are 0:12:22.120 --> 0:12:25.280 using their imagination effectively enough. Yet the same with corporate rates, 0:12:25.320 --> 0:12:27.839 it doesn't have to be. It doesn't even have to 0:12:27.840 --> 0:12:31.959 be five percent. It could easily be. And that's what 0:12:32.040 --> 0:12:33.920 the business community is pushing right now. You know, we 0:12:33.960 --> 0:12:35.960 can handle a point or two. Don't take us all 0:12:36.000 --> 0:12:38.280 the way at twenty eight, and possibly don't take us 0:12:38.280 --> 0:12:40.040 all the way at twenty five, and those are options, 0:12:40.040 --> 0:12:42.560 and I think the street will spawn pretty favorably based 0:12:42.559 --> 0:12:44.959 off of what current expectations are, which still can be 0:12:45.040 --> 0:12:46.640 really high. If you're on the phone with folks, I 0:12:46.720 --> 0:12:48.640 agree the market is not pricing it in. But when 0:12:48.640 --> 0:12:50.600 you're on the phone with people talking about where tax 0:12:50.679 --> 0:12:52.920 rates are going to go, they're surprised at our thesis 0:12:53.000 --> 0:12:54.959 that taxes will not rise that much. And then it 0:12:55.040 --> 0:12:56.959 just quickly. It wouldn't be the first time that we've 0:12:56.960 --> 0:12:59.160 had a week where we're drowning in fiscal news in 0:12:59.200 --> 0:13:02.320 America and we missed the foreign policy story that creeps 0:13:02.400 --> 0:13:04.520 up on us. What are we missing right now? At 0:13:04.559 --> 0:13:08.000 Sound of America? At Sound of Domestic Fiscal Policy? Man 0:13:08.120 --> 0:13:10.280 John I thought the part of the speech Laborite that 0:13:10.360 --> 0:13:13.559 was most compelling was the China facing component. Um The U. S. 0:13:13.640 --> 0:13:15.880 China relationship is one that I think is going to 0:13:15.960 --> 0:13:19.160 be paramount in the back three years of the Biden administration. 0:13:19.200 --> 0:13:21.360 They're not going to pass anymore legislation after this bill, 0:13:21.480 --> 0:13:25.400 most likely except for a China facing component, so U 0:13:25.520 --> 0:13:28.880 S China relationships. That means everything from expert control restrictions 0:13:28.920 --> 0:13:32.240 beeping up to domestic subsidization of manufacturing in the high 0:13:32.280 --> 0:13:35.840 tech sectors. Um, you know, monitoring the South China, see 0:13:36.120 --> 0:13:39.040 dealing with Taiwan, dealing with the EU and the UK 0:13:39.320 --> 0:13:42.520 to sort of combat China on a multilateral basis. That's 0:13:42.559 --> 0:13:45.320 the future. That's the next three years. Henrietta gotta catch 0:13:45.440 --> 0:13:53.040 up and registrates there of Vata Panas thank you, the 0:13:53.240 --> 0:13:56.640 Caterpillos CFO saying that they may not meet the one 0:13:56.679 --> 0:13:59.199 and use a demand due to a chip shortage. You 0:13:59.240 --> 0:14:01.319 saw this in Apple as they knock off three or 0:14:01.360 --> 0:14:04.480 four billion dollars a quarterly revenue because of a chip shortage, 0:14:04.520 --> 0:14:07.520 holding back sales of the Mac and the iPad. You 0:14:07.559 --> 0:14:10.959 saw this from forward cutting production by fift planned production 0:14:11.000 --> 0:14:13.800 by in the second quarter. I want to bring it 0:14:13.800 --> 0:14:15.560 a man who knows this business far better than us 0:14:15.800 --> 0:14:19.440 p f Ago, the New Street Research head of Technology Infrastructure. 0:14:19.960 --> 0:14:22.600 Let's just start right there. What's happening at the moment, 0:14:22.720 --> 0:14:26.520 and why is this hitting some companies more than others. Okay, 0:14:26.920 --> 0:14:30.080 so on what's happening at the moment. Let's rewind back 0:14:30.160 --> 0:14:33.720 to a year ago. A year ago, the world came 0:14:34.200 --> 0:14:38.080 to a stud everything stopped, and then you know guys 0:14:38.160 --> 0:14:42.240 working in the supply chain at like in in boundaries 0:14:43.120 --> 0:14:48.600 at chip manufacturers, like buyers planning for orders, they all 0:14:48.720 --> 0:14:51.760 went a very cautious role. And then at that point 0:14:51.800 --> 0:14:54.560 in time, the word split into you have you have 0:14:54.720 --> 0:14:58.480 players more into tech space who we are thinking, we 0:14:58.640 --> 0:15:01.640 have very important turns to take, like the cloud, the 0:15:01.760 --> 0:15:05.040 five jet turn, and we don't want that situation, that 0:15:05.120 --> 0:15:09.200 temporary situation to stuff. So they kept ordering like there 0:15:09.320 --> 0:15:11.880 is more tomorrow. And then you have people who are 0:15:11.920 --> 0:15:16.560 more defensive, like the auto industry, like industrial supply chains, 0:15:16.920 --> 0:15:19.920 that were really scared about cash burn and like getting 0:15:19.960 --> 0:15:25.160 into trouble in such like a significant downturn, and they 0:15:25.240 --> 0:15:28.440 became very very cautious. Then right after that what happened. 0:15:29.200 --> 0:15:33.120 The word remained relatively slow, which is not great for 0:15:33.280 --> 0:15:36.080 many people for like restaurants and things like that. But 0:15:36.200 --> 0:15:39.600 people staying at home, like white collar kept getting paid. 0:15:40.000 --> 0:15:43.240 Blue collars or like you know, like a service jobs 0:15:43.600 --> 0:15:46.600 got compensated with government with simil this money and a 0:15:46.680 --> 0:15:49.920 lot of money kept flowing into demand. You look at 0:15:49.920 --> 0:15:52.720 the results of that early yesterday, that was a massive, 0:15:53.120 --> 0:15:56.920 massive bit like iphen stays up sixty five percent own here. 0:15:57.360 --> 0:16:01.560 So demand is far outstripping the questions supply planning that 0:16:01.760 --> 0:16:05.840 was made. Okay, So Pierre beautifully explained you are definitive 0:16:05.920 --> 0:16:08.760 on this out of Bernstein years ago. What is the 0:16:08.960 --> 0:16:16.359 fairly good timeline to where the logistics mass clears. So unfortunately, 0:16:16.960 --> 0:16:19.360 the core of the logistics mess is what we call 0:16:19.440 --> 0:16:24.480 legging edge uh logic chips. So that's the chips manufactured 0:16:24.560 --> 0:16:29.320 by Global Foundries, by t SMC, by UMC. And the 0:16:29.440 --> 0:16:32.320 lead time to put out a new fab and have 0:16:32.480 --> 0:16:36.640 it up and running is at best, in ideal conditions, 0:16:36.760 --> 0:16:39.840 eighteen months and you should be more like thinking, you know, 0:16:40.560 --> 0:16:45.920 um uh, like even six more months like that, like 0:16:46.040 --> 0:16:49.040 twenty four months or a bit more. So we're going 0:16:49.160 --> 0:16:51.960 to hear that chip supply for the next couple of years. 0:16:52.840 --> 0:16:55.760 Um And in terms of getting gets impacted the most 0:16:55.840 --> 0:16:57.200 and things like that, it's it's going to be very 0:16:57.240 --> 0:17:00.240 difficult to call because one chip missing on the mother board. 0:17:00.360 --> 0:17:03.240 You can't chip your iPad, one chip missing in your car. 0:17:03.480 --> 0:17:06.520 You can't manufacture your car. So it's going to be 0:17:06.680 --> 0:17:09.199 very random. You know, who gets hit, who doesn't get hit. 0:17:09.600 --> 0:17:13.720 But of course, if you are like uh an Apple, 0:17:14.840 --> 0:17:18.000 your better position because you've been preparing for that better 0:17:18.160 --> 0:17:20.639 because you were working on your five transitions and others 0:17:21.040 --> 0:17:24.159 taking way more precautions in terms of supply than to 0:17:24.240 --> 0:17:27.640 can manufact You're just being focused on managing the downtown here. 0:17:27.760 --> 0:17:30.000 This is exactly where I wanted to go execution risk. 0:17:30.040 --> 0:17:32.720 As John was talking about earlier, how much is this 0:17:32.960 --> 0:17:36.240 something that corporate executives can get ahead of at this point? 0:17:36.320 --> 0:17:38.960 What are you looking forward to hear from corporate executives 0:17:39.200 --> 0:17:42.960 that they are going to do about it? Um, So 0:17:44.040 --> 0:17:45.840 you know it's going to be very difficult to get 0:17:46.000 --> 0:17:48.960 granular details about what they're going to to be able 0:17:49.000 --> 0:17:52.280 to do that. If the CFO Ford, you know, you know, 0:17:52.640 --> 0:17:55.120 you cannot really have his own and on the plan 0:17:55.359 --> 0:17:59.680 to secure like alternative supply for a very minor chip 0:18:00.560 --> 0:18:05.919 in their car, So, um, it's going to be very 0:18:05.960 --> 0:18:08.119 difficult to be able to do something about it. I 0:18:08.200 --> 0:18:11.320 think what you have to do is to mitigate it. Uh. 0:18:11.440 --> 0:18:13.240 And then another perspectives that you have to keep in 0:18:13.320 --> 0:18:15.960 mind that is very important is that we are in 0:18:16.040 --> 0:18:19.159 this extreme situation where people braced for a downturn and 0:18:19.200 --> 0:18:23.960 actually spending increase. But as you know, the world reopened 0:18:24.119 --> 0:18:26.760 and you were talking about New York getting back to normal, 0:18:26.840 --> 0:18:29.960 people getting back into the cities that never sleeps in 0:18:30.080 --> 0:18:33.160 bars and restaurants. This is actually going to flush down 0:18:33.400 --> 0:18:36.720 the amount of money going into consumer econics and potentially 0:18:36.760 --> 0:18:39.440 even going into the car industry. And so maybe the 0:18:39.520 --> 0:18:42.120 saving grace in this environment is going to be when 0:18:42.200 --> 0:18:46.320 demands normalize. It is apply going to have like massive 0:18:46.440 --> 0:18:49.800 quarters that they reverted yesterday for the next six months 0:18:49.880 --> 0:18:51.920 or nine months. Maybe not. Maybe things are going to 0:18:52.040 --> 0:18:55.040 cool down, and that's actually what's going to to accelerate 0:18:55.080 --> 0:18:58.440 a return to normal. On the supply side of things 0:18:58.960 --> 0:19:01.240 are really smart as always, and I look forward to 0:19:01.280 --> 0:19:03.200 catching up again. I can't MANE told you about TESTA 0:19:03.240 --> 0:19:05.040 and then we get distracted by something else. We're gonna 0:19:05.080 --> 0:19:07.200 do that soon. I promised PFW to that New Street 0:19:07.240 --> 0:19:17.480 Research Head of Technology Infrastructure Joseph Feldban of Telsea Adviser 0:19:17.520 --> 0:19:19.600 to go up as a choice set. He wrote a 0:19:19.680 --> 0:19:23.240 brilliant note on Amazon to maybe three days ago. The 0:19:23.359 --> 0:19:26.119 ink is barely dry and he probably already has to 0:19:26.240 --> 0:19:29.879 change the model. Joe Feldman, how do you approach Amazon 0:19:30.000 --> 0:19:36.200 this afternoon after what you witnessed from Google and Apple? Yeah, 0:19:36.280 --> 0:19:38.199 I think you're going to see some really good results 0:19:38.240 --> 0:19:42.520 out of Amazon, especially fourth quarter has in the first 0:19:42.600 --> 0:19:44.760 quarter so far is proven to be quite strong for 0:19:45.200 --> 0:19:48.080 really all the retailers, anybody selling to the consumer, and 0:19:48.520 --> 0:19:50.159 Amazon is going to be a big winner of that. 0:19:50.680 --> 0:19:53.280 I think they're Amazon a ws business has been strong 0:19:53.320 --> 0:19:55.760 even last night. They just announced a new deal with 0:19:55.880 --> 0:20:00.240 Disney Plus. So they're continuing to be this juggernaut in 0:20:00.600 --> 0:20:04.240 the you know, retail and technology and just dominating out there. 0:20:04.320 --> 0:20:06.200 So I think our our numbers are probably going to 0:20:06.280 --> 0:20:08.159 go up. I think our models going to have to 0:20:08.240 --> 0:20:11.479 adjust again tonight after they report. I'm expecting good results. 0:20:11.760 --> 0:20:13.800 A juggernaut with a target on its back, and we 0:20:13.880 --> 0:20:15.520 saw it of an Apple trying to get ahead of 0:20:15.600 --> 0:20:18.000 that with a plan to do infrastructure spending in the 0:20:18.080 --> 0:20:20.639 United States, invest in new plants. Are we going to 0:20:20.720 --> 0:20:24.919 hear something similar out of Amazon. I think they are. 0:20:25.600 --> 0:20:29.080 You know you you. They continue to invest in the future. 0:20:29.560 --> 0:20:33.240 They're getting closer to the customer with more facilities. UM, 0:20:33.440 --> 0:20:37.320 whether it's distribution or grocery. They're leveraging their technology and 0:20:37.359 --> 0:20:39.680 the stores. I think we're going to have contact with 0:20:39.800 --> 0:20:42.679 shopping at a whole new level because of the technology 0:20:42.720 --> 0:20:47.240 Amazon has. Their distribution capabilities continue to improve. Like I said, 0:20:47.280 --> 0:20:50.600 the AWS, they're continuing to become more dominant there, and 0:20:50.760 --> 0:20:53.840 especially with more people working from home, and and you know, 0:20:54.000 --> 0:20:57.639 that's likely to continue to some extent that AWS becomes 0:20:57.720 --> 0:21:00.280 even more important to have things in the class. So 0:21:01.040 --> 0:21:03.560 I think they're going to continue to to to really 0:21:03.680 --> 0:21:07.639