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Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.

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Speaker 1: Along with my co host Lisa Brahma Waits. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. Well, yesterday, Scott Minor, who's the

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Speaker 1: global chief investment officer of Guggenheim Partners, came out with

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Speaker 1: one of the most barished notes I have ever seen

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Speaker 1: yet in this cycle. He first started saying that the

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Speaker 1: coronavirus is a looming economic problem, but sort of indicated

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Speaker 1: that that was just one of many of them, and

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Speaker 1: then wrote this, I have never in my career seen

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Speaker 1: anything as crazy as what's going on right now. I

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Speaker 1: have said before that we've entered the silly season, but

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Speaker 1: I stand corrected. We are in the ludicrous season. Axel

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Speaker 1: Mark joining us now President and Chief Investment Officer of

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Speaker 1: Merk Investments. Do you agree, Axel we ended end of

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Speaker 1: the ludicrous season a long long time ago. I think

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Speaker 1: the question is we still need to live and make

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Speaker 1: a living and try to make sense of of some

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Speaker 1: of it, right, um, and and and so and at

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Speaker 1: first we we need to understand what's happening and so forth.

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Speaker 1: But let in in the content of the virus. Right,

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Speaker 1: We've always had shocks. We know that usually markets were

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Speaker 1: the worst when we've most talked about them. So the

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Speaker 1: fact that we're talking about the virus probably means that

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Speaker 1: we're not at the peak yet, because otherwise you'll talk

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Speaker 1: to other even bigger experts, right. Um, But but in

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Speaker 1: all seriousness, Um, the US is more isolated from a

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Speaker 1: lot of what's happening here and and so that may

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Speaker 1: well be one of the reasons why the US is

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Speaker 1: doing comparatively well. And so we are focused on all

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Speaker 1: kinds of things. And I just might to remind people, Um,

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Speaker 1: we were talking about World War three at the beginning

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Speaker 1: of this year, which didn't quite materialize. So markets have

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Speaker 1: a habit of moving on and with interest rates as

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Speaker 1: low as they are, we quote unquote discount the short

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Speaker 1: term things. And then so we live happily of after,

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Speaker 1: in terms of living happily ever after that driven simply

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Speaker 1: by the fact that there's so much cash slashing around

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Speaker 1: the global system with uh, you know, central banks very

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Speaker 1: very accommodative. Well, one way to answer a question of

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Speaker 1: interest rates were at six percent in the US, markets

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Speaker 1: wouldn't be as happy. I mean, from that point of view,

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Speaker 1: certainly is correct. Um. One one minor issue I have

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Speaker 1: with with with that statement is that every time a

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Speaker 1: crisis hits, we we lower rates. And I was arguing

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Speaker 1: last year that lower rates don't exactly help the trade

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Speaker 1: war right. Similarly, a rate cut doesn't cure an illness,

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Speaker 1: and so I don't think that the rates is everything

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Speaker 1: that's driving it. But one thing of course that that

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Speaker 1: takes place when we have money printing is we take

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Speaker 1: perceived the risk out of the market. Risk premium get compressed,

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Speaker 1: and ultimately what it does it it doesn't faster healthy

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Speaker 1: capital location. Um. But at the same time, um, yes,

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Speaker 1: I mean if we had a more serious disruption, and

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Speaker 1: right now, by all means there are certain local disruptions.

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Speaker 1: Conferences get canceled and there's a fallout from that. Supply

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Speaker 1: chains get disrupted, but big business is able to deal

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Speaker 1: with some of that. So it's not as simple as saying, hey, um,

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Speaker 1: the central banks are foaming here. The runway and therefore

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Speaker 1: everything everything is fine. I do think central banks play

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Speaker 1: a roland. This are a very important piece of the puzzle,

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Speaker 1: but it's not everything that's going on. I want to

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Speaker 1: pick up on what you said with respect misallocating capital.

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Speaker 1: People are looking at how companies are using extra cash

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Speaker 1: they're generating to buy back their shares, payout dividends. They're

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Speaker 1: not using it to invest in their businesses. Necessarily, we're

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Speaker 1: seeing capital expenditures continue to decline. How long can this

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Speaker 1: continue with an expansion versus having it bleed into the

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Speaker 1: economy in a negative way. Well, the last time we

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Speaker 1: talked about goldilocks was in two thousand four two five.

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Speaker 1: It didn't end too well, but it lasted for several

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Speaker 1: more years. It's very difficult to to time those sort

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Speaker 1: of things. And so the concern I have is that

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Speaker 1: everybody talks about our economy is slowing down. I'm actually

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Speaker 1: more learned about the other end. It's not the most

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Speaker 1: likely scenario, But what if all this accommodative monitor policy,

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Speaker 1: the fiscal stimulus we have, and presumably we're gonna get

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Speaker 1: a Chinese stimulus in due course, is actually going to

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Speaker 1: get us a heart economy with inflation. Everybody says it's

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Speaker 1: a good problempt to have, But how do you tighten

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Speaker 1: monitor policy when we have so when corporations have gotten weaker,

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Speaker 1: when they stretch the balance sheets, we cannot afford to

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Speaker 1: have higher rates. It's one of the reasons we have

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Speaker 1: these lower rates. But what if something goes wrong at

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Speaker 1: the other end of the spectrum that things are too good,

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Speaker 1: so to speak, um, then the fat needs to tighten

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Speaker 1: and everything crumbles. Right, and so a credit driven society,

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Speaker 1: um is a more quote up what efficient society. Greenspan

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Speaker 1: used to say that, But it's a more fragile society

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Speaker 1: in some ways because when things go wrong, people fall

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Speaker 1: through the crucks and and so, yes, we can sustain

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Speaker 1: this for an extended period. I'm not convinced that this

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Speaker 1: is the best way to move forward. But then again,

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Speaker 1: I'm just an observer here, right, or humble participant in

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Speaker 1: the market. I'm not the one calling the shots. So

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Speaker 1: we just have to deal with the cords were dealt with.

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Speaker 1: So actually, just switching gears a little bit, looking at commodities,

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Speaker 1: there's an area that has certainly felt the pain, maybe

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Speaker 1: reflecting some of the global economic uncertainty. Maybe tied to

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Speaker 1: the coronavirus. One commodity that is not where it seems

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Speaker 1: to be gold. So we're seeing a lot of good

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Speaker 1: movement in gold. What is your thoughts about gold here

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Speaker 1: given some of those uncertainties. Well, we've long looked at

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Speaker 1: and invested in the gold market. The The one thing

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Speaker 1: we observe is that investors want to have the cake

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Speaker 1: and eat it. And what I mean with that is

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Speaker 1: that usually when you have a crisis, people would run

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Speaker 1: to cash, but maybe because people have had such amazing

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Speaker 1: gains over the years, they rather diversified to gold or

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Speaker 1: even more volatile gold mining, so that with a small

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Speaker 1: addition to the portfolio they can get diversification. I'm not

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Speaker 1: suggesting everybody should do that, but we see that certainly happening.

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Speaker 1: We do some of that ourselves because it's a ultimately

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Speaker 1: cash isn't all that attractive, and so that's why people

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Speaker 1: use those sort of things. What we see in that

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Speaker 1: sector is that because the price of gold is moving,

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Speaker 1: it attracts a lot of traders, and so inspective positions

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Speaker 1: are at record highs and so forth. Those speculators love

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Speaker 1: it when things are moving. Those are in there the

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Speaker 1: diversification folks saying that the folks who say, well, whatever

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Speaker 1: it's going to happen in the medium term can't end

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Speaker 1: too well. Those investors are there. So so we see

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Speaker 1: that there is a really early wave of investors coming

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Speaker 1: back in and on our gold mining side, companies are

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Speaker 1: far more prudent um with with how they manage these

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Speaker 1: minds than they had and had been in the last cycle.

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Speaker 1: Just about thirty seconds here, you're dot, you're dealt with

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Speaker 1: the you deal with the cards that you're dealt What

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Speaker 1: are you doing? What are you what are you allocating

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Speaker 1: your money too? We have changed all that much. We

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Speaker 1: we bought a little bit in China at the Chinese

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Speaker 1: New Year and what we do the extent we could

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Speaker 1: in US markets. But but that's really just play money

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Speaker 1: and again that's not investment advice here. But but beyond that,

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Speaker 1: we've really stuck to our guns and tried to look

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Speaker 1: at the Delmacom picture. And so yes we have exposure

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Speaker 1: to risk outs. Yes we do have significant assets also

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Speaker 1: to ads occasions to something something like gold and gold mining.

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Speaker 1: Exel Mark, thank you so much for joining us. We

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Speaker 1: really appreciate your thoughts and commentary. Axel Work, President and

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Speaker 1: Chief investment Officer of MERK Investments based in San Francisco.

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Speaker 1: Time to check in with Bloomberg Opinion. We're joined by

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Speaker 1: Bloomberg Opinion calms Tara la Chapelle. She covers entertainment, telecom deals,

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Speaker 1: all that kind of fun stuff. She joins us here

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Speaker 1: on O Bloomberg Interactive Broker Studio. So, Tera, it looks

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Speaker 1: like this Sprint T Mobile deal is finally going to

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Speaker 1: get done. But what's interesting about this deal is the

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Speaker 1: delay and it's been delayed and delayed and delayed. Hasn't

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Speaker 1: been so much at the federal level, but at the

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Speaker 1: state level. What's going on here? Yeah, So it's a

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Speaker 1: really unique situation where this deal that I think most

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Speaker 1: people for a long time thought was never possible, just

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Speaker 1: because T Mobile and Sprint are such close competitors and

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Speaker 1: there's only two other real national rivals in their market.

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Speaker 1: So when the FCC and the Justice Department both approved

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Speaker 1: the deal with kind of minimal concessions really surprised people

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Speaker 1: that the Trump administration was on board with this. And

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Speaker 1: then um about you know, a couple dozen U. S

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Speaker 1: States came out against it and decided to sue to

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Speaker 1: try to stop the deal, and the number of states

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Speaker 1: had kind of dwindled as different ones kind of struck

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Speaker 1: individual concessions for their own state constituents along the way.

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Speaker 1: But New York and California you were really persistent and

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Speaker 1: resolved to try to stop this deal. And in the

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Speaker 1: end of fourteen state attorneys general were part of this trial.

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Speaker 1: And even though they lost this week, I think it

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Speaker 1: could have a little bit of a chilling effect on

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Speaker 1: some deals like this. Yeah, well, you pointed out the

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Speaker 1: dealmaker's face of fifty two headed monster. The idea of

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Speaker 1: being that all of the different attorneys general could get

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Speaker 1: together independently go after certain deals. What's the precedent for this?

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Speaker 1: I mean, how active are the states typically when it

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Speaker 1: comes to walking deals. We don't really see them need

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Speaker 1: to be active in the sense of going all the

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Speaker 1: way to trial to try to stop a deal, because

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Speaker 1: usually that would be the role of the Justice Department. Um,

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Speaker 1: like we saw with a T and T time Warner,

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Speaker 1: and you know, when states object to different things, what

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Speaker 1: they'll do is work with the companies on their you know, individually,

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Speaker 1: behind the scenes, and try to get concessions just for

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Speaker 1: their own states. So like the New York State, A

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Speaker 1: G may go to T Mobile and say, well, we

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Speaker 1: need you to do this for us if we're going

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Speaker 1: to support the deal. And some states did do that

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Speaker 1: in the end, but it was really interesting that these

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Speaker 1: fourteen states didn't. And you know, even though the judges

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Speaker 1: ad up siding with T Mobile and Sprint. I had

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Speaker 1: been talking with John Stevens, the chief financial officer at

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Speaker 1: A T and T last month, right after their their

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Speaker 1: own earnings report, and you know, the trial was still

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Speaker 1: ongoing at the time. We didn't know what the ruling

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Speaker 1: was going to be. But when we were talking about

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Speaker 1: the impact of this case, he said, you know, it's

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Speaker 1: a three headed monster now, meaning you have the FCC,

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Speaker 1: the d o J, and now the states that you

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Speaker 1: have to appease if you want to do a big

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Speaker 1: telecom or media merger. And he said, in fact, maybe

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Speaker 1: I should call it a fifty two headed monster. So

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Speaker 1: that's where that came from. And it's really interesting because

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Speaker 1: I think a lot of people look at this deal

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Speaker 1: and say, well, if T Mobile SPRINGT can get done,

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Speaker 1: basically any mega merger can get done now, and you

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Speaker 1: know that might be true, um unfortunately, but at the

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Speaker 1: same time, I think that a lot of executives and

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Speaker 1: dealmakers are looking at this and say, do we want

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Speaker 1: to go through the process of a potentially long trial

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Speaker 1: and PR fight with a bunch of really powerful state

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Speaker 1: attorneys general like Leticia James in New York, who you know,

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Speaker 1: really didn't back down from this. It's interesting, but it

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Speaker 1: seems like there's uneven application of kind of antitrust issues.

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Speaker 1: I think back to the deal that you and I

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Speaker 1: spent so much time talking about, the A T and

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Speaker 1: T Time Warner deal. That deal just you know, the

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Speaker 1: Justice Department just would not let go of that deal.

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Speaker 1: And um so, is there a sense is there a

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Speaker 1: sense on Wall Street and among the merger lawyers of

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Speaker 1: is it a good time to do a big deal

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Speaker 1: or not a good time? But I think it's hard

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Speaker 1: to know. I mean, I think if you aren't in

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Speaker 1: sort of the um you know, one of the companies

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Speaker 1: that's been targeted by Trump directly, maybe you are safer

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Speaker 1: than others. You know, we saw this week the Federal

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Speaker 1: deals that the big tech giants did, and you know,

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Speaker 1: that makes sense. But at the same time, It's hard

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Speaker 1: little bit of a double standard there. The time warner

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Speaker 1: at trial definitely stands out. You know, a case where

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Speaker 1: the d o J was against it, but supporting this one.

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Speaker 1: You said, thank god or unfortunately. The idea of being

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Speaker 1: the that that Emerger liked mobile and spread is not good.

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Speaker 1: Is that just because you expect the phone bills to

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Speaker 1: go up? Yeah? I think so. I mean, I think

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Speaker 1: it's hard to look at this deal and think that

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Speaker 1: it's going to be anything but that as a results that,

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Speaker 1: you know, these companies that have been competing with each

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Speaker 1: other so intensely for the last few years, unable to

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Speaker 1: raise prices and having to keep their plans so competitive,

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Speaker 1: They're not going to have to do that anymore. So

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Speaker 1: why would they keep prices. The counter argument is they

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Speaker 1: have to actually build out a five G network. They

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Speaker 1: don't have the capital to do it unless they have

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Speaker 1: the market share and the and the pricing power or

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Speaker 1: to raise more money. And so this will actually end

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Speaker 1: up benefiting people by creating a more robust infrastructure. What's yours?

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Speaker 1: It's a little bit of a stretch. There's a lot

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Speaker 1: of caveats, and in the case of Sprint, yes they

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Speaker 1: needed more funding. But at the same time, I think

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Speaker 1: it was probably likely Sprint would have gotten bought by

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Speaker 1: someone else down the road. They have so many subscribers

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Speaker 1: and so much valuable spectrum. And you know, it's true

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Speaker 1: that T Mobile having this bigger scale means that they'll

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Speaker 1: be able to kind of spread those network costs across

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Speaker 1: a bigger subscriber base. But A T N T and

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Speaker 1: Verizon already have that big scale, and their costs aren't

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Speaker 1: any lower. Their prices aren't any lower, I should say, so,

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Speaker 1: I just really don't buy the argument. When you're going

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Speaker 1: from four to three competitors, it is anti competitive, And

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Speaker 1: so I thought that it was interesting that the judge

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Speaker 1: disagreed with that. Tara la Chappelle always insightful, uh and

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Speaker 1: wonderful columns. You can read them all at Bloomberg dot com,

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Speaker 1: Slash Opinion or O P I N go on the

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Speaker 1: Bloomberg Tera. L A. Chapelle as a columnist for us

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Speaker 1: with Bloomberg Opinion. When we talk about the melt up

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Speaker 1: or the skyrocket up, if you take a look at

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Speaker 1: a longer time series of the US equity market. Really,

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Speaker 1: when you dive in, it is about the rally in

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Speaker 1: a select group of shares, the fang shares, the big

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Speaker 1: fanmag Actually, because we're gonna be speaking about one of them.

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Speaker 1: Apple and Microsoft combine account for more than ten per

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Speaker 1: cent of the S and P S value, which raises

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Speaker 1: even more scrutiny of these companies because they are becoming

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Speaker 1: systemically important in a way that few others have in history.

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Speaker 1: Joining us now on our a Grana senior I T

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Speaker 1: and software analyst for Bloomberg Intelligence, I want to drill

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Speaker 1: into Microsoft, in particular a couple of interesting developments when

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Speaker 1: it comes to their cloud development. Can you give us

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Speaker 1: a sense of what the latest is there in the

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Speaker 1: broader context of the import of this country, of this

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Speaker 1: company within the sphere of the US equity markets. Yeah. Absolutely.

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Speaker 1: See cloud has been talked about for a very long

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Speaker 1: period of time, but when you look at the infrastructure

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Speaker 1: piece of it, Amazon had the lead, and you know,

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Speaker 1: had lead for years for for just because of the

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Speaker 1: early entrant being the first, you know, person in the market. Um,

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Speaker 1: Microsoft is doing a phenomenal job over the last six

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Speaker 1: seven years to scale that business up. It became the

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Speaker 1: first and the most important part of satire when he

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Speaker 1: came in what close to what six years ago now,

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Speaker 1: and he has done a lot of good work in

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Speaker 1: terms of working with the rivals, making Microsoft more open

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Speaker 1: to open source software UM and now their cloud portfolio

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Speaker 1: is second to Amazon and a very close second. It's

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Speaker 1: not a question of before the gap was very wide.

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Speaker 1: Now if you are looking to, you know, move any

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Speaker 1: of your applications to the cloud, you can choose one

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Speaker 1: or the other. It didn't, it does. It's not a

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Speaker 1: slam dunk that it has to go to Amazon. And

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Speaker 1: the most recent win or the word big, you know,

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Speaker 1: controversial contract is just around that. But you know, Microsoft

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Speaker 1: is in a great position today. So give us the latest.

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Speaker 1: I saw some news out I guess yesterday federal judge

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Speaker 1: temporarily blocked Microsoft from working on a ten billion dollar

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Speaker 1: Pentagon cloud computing contract after Amazon, I guess, asked for delay.

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Speaker 1: So give us a sense of how material that is

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Speaker 1: and what's your story. It's more of philosophical about that,

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Speaker 1: you know, the second player beat the first player kind

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Speaker 1: of an argument because financially, you know, with with the

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Speaker 1: amount of money Microsoft generates per year, you know, billion dollars,

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Speaker 1: billion dollars per year is not you know right financially

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Speaker 1: that moving, but philosophically it's a very important thing. Um,

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Speaker 1: we go back a few years when Amazon beat IBM

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Speaker 1: to a similar ci A contract. It was all up

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Speaker 1: in there is that Amazon's now up in front running

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Speaker 1: when it comes to infrastructure, and you know this is similar.

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Speaker 1: There's a lot of politics involved in it because of

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Speaker 1: Jeff Bezos and the president. Um, so you know there

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Speaker 1: is a lot of argument over there, but both and

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Speaker 1: you know, our take is both companies will do really

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Speaker 1: good in cloud. They have really good products and um,

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Speaker 1: you know, the market's large enough of both of them

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Speaker 1: to be there. So taking a step back, there's sort

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Speaker 1: of an existential question when it comes to the US

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Speaker 1: equity market about how much further tech giants can go

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Speaker 1: when it comes to their share prices rallying. They've led

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Speaker 1: the charge globally and I'm wondering when you surveil the

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Speaker 1: landscape of the tech giants, are there any clouds? Are

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Speaker 1: there really any kind of you know, harbingers of another

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Speaker 1: time that's less suspicious for these or do you feel

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Speaker 1: like it's just going to keep on going. It's that's

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Speaker 1: a very difficult question because a lot of propose it

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Speaker 1: that way. A lot depends on the macro view. If

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Speaker 1: if the global economy slows down, nothing is sacred at

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Speaker 1: that point, tech spending, cloud being you know, a growth area, yes,

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Speaker 1: but the degree or the rate of growth will actually

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Speaker 1: slow down for all products. So if you look at it,

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Speaker 1: you know, our philosophy and going into or our thesis,

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Speaker 1: what we should see a slow down in some of

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Speaker 1: the you know, even the high growth areas, but it

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Speaker 1: hasn't happened so far. Now, whether it gets pushed off

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Speaker 1: in the middle of the year the elections, does it

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Speaker 1: if the virus like there are there are so many

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Speaker 1: macro factors out there from you know, weakness in Europe, weakness,

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Speaker 1: and you know, it's difficult to say because because the

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Speaker 1: rate of growth is still holding up and and that's

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Speaker 1: actually pretty impressive given where we are in the economic cycle.

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Speaker 1: All right, So Microsoft stacks up sever the past twelve months.

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Speaker 1: Is it just the cloud? What's the story here? It

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Speaker 1: is just the cloud. But actually it's a funny part

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Speaker 1: is for Microsoft, it's not just the public cloud. It's

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Speaker 1: actually what they call the hybrid cloud strategy, because what's

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Speaker 1: happening is the you know, we we were a piece

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Speaker 1: called cloud two point when talks about that, the next

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Speaker 1: phase of cloud growth is not going to come from

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Speaker 1: the netflix is of the world. It's going to come

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Speaker 1: from the Disneys of the world that are moving their

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Speaker 1: entire business dig to a digital platform. So they are

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Speaker 1: the ones who are upgrading it. And guess what, Microsoft

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Speaker 1: is a dominant position in the legacy I T infrastructure.

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Speaker 1: So when people move that, they buy both their on

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Speaker 1: premise software and they buy their cloud programs, so they're

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Speaker 1: actually having what I would call is the best of

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Speaker 1: both words. Interesting stocks been it's such a nadela is.

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Speaker 1: You know, he's been there six years. It's kind of

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Speaker 1: an unsung maybe just in my mind, an unsung star

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Speaker 1: of Silicon value. You think about, you know, the Bezos

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Speaker 1: of the world. He's being sung enough, he's being sung

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Speaker 1: more now you think not. I still haven't come across

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Speaker 1: the CEO going back to even you know, the days

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Speaker 1: of IBM stilling around or Lei co cop. I think

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Speaker 1: he's done better than any one of them because he

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Speaker 1: has changed the philosophy of the company. He has changed

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Speaker 1: the mindset of the company from who cared about Microsoft

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Speaker 1: seven eight years ago and now the biggest player in

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Speaker 1: software is growing faster than the software industry. That's pretty impressive. Yeah,

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Speaker 1: that's Valentine such an Adela. Yes, exactly round it covers

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Speaker 1: all things technology for Bloomberg Intelligence. We appreciate him coming

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Speaker 1: in here in our Bloomberg and Diactor broker studio giving

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Speaker 1: us his thoughts on Microsoft, well investors across the globe,

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Speaker 1: or trying to figure out the pact of the coronavirus

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Speaker 1: will have on global economic growth. Economists are crunching their numbers.

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Speaker 1: We have our own economists with his own model. Car

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Speaker 1: Rico Dona, chief US economist for Bloomberg Economics, joins us

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Speaker 1: here in the Bloomberg Interactive Broker studio. So, Carl, what

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Speaker 1: do you guys at Bloomberg Economics thinking about right here

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Speaker 1: as it relates to the impact from the coronavirus maybe

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Speaker 1: on obviously Chinese economic growth, but also global GDP. Absolutely so,

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Speaker 1: as we think about the impact and I know a

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Speaker 1: lot of people immediately pull out the playbook from Stars

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Speaker 1: in two thousand and three, I don't think that's the

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Speaker 1: best comparison China had a much smaller role on the

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Speaker 1: global economy at that time, and so I think the

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Speaker 1: stars comparisons run a little thin UH and instead we

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Speaker 1: can see some better parallels if we look back to

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Speaker 1: the Thai the flooding in Thailand in twleven, or the

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Speaker 1: Fukushima nuclear disaster in Japan UH and how those disrupted

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Speaker 1: global supply chains. And I think that gives us some

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Speaker 1: more use a way of thinking about what we're seeing

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Speaker 1: as we hear more and more headlines about, especially in

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Speaker 1: the auto sector, production lines being slowed because they are

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Speaker 1: missing parts and whatnot. Just to put some numbers around

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Speaker 1: the forecast are China team has downgraded their Q one

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Speaker 1: UH forecast to about four point five percent growth in China.

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Speaker 1: That compares to a running rate of about six high

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Speaker 1: five type of territory for China in terms of the

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Speaker 1: U S economy. We have modified our growth numbers to

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Speaker 1: look for more weakness in the first half of the year.

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Speaker 1: But that is not a coronavirus story. That is actually

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Speaker 1: a bowing production story. The the stoppage of production of

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Speaker 1: the seven thirty seven max actually holds the potential to

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Speaker 1: move top line economic growth. So GD there's very few

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Speaker 1: companies that can actually move the needle on GDP growth.

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Speaker 1: Uh Boeing jumbo jets are an expensive item, and so

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Speaker 1: in fact, the the the volatility around production can impact growth,

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Speaker 1: and that's what we're seeing in the first half fast nating.

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Speaker 1: There's a question in the economists who we speak with,

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Speaker 1: they say there's going to be a V shaped recovery.

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Speaker 1: A lot of people say that any growth lost will

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Speaker 1: be subsequently made up for when people start to go

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Speaker 1: back out and and the virus fear subside or Boeing gets,

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Speaker 1: you know, finished with their issues with the seven thirty

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Speaker 1: seven Max. What's your take on the on the likelihood

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Speaker 1: of a V shaped recovery. So, if we're talking about

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Speaker 1: Boeing production issues, if they get clearance, ramp up production

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Speaker 1: and fill a bunch of orders, then absolutely you get

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Speaker 1: that V shaped production V shaped rebound production. For the

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Speaker 1: virus story, I'm not so sure that's the case because

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00:21:37,400 --> 00:21:40,960
Speaker 1: a lot of spending, especially in service categories, will not

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00:21:41,080 --> 00:21:43,320
Speaker 1: be replaced and so there you know, there certainly will

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00:21:43,320 --> 00:21:45,080
Speaker 1: be some pent up demand. If you need a new

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00:21:45,119 --> 00:21:47,560
Speaker 1: phone or a new automobile and you didn't get to

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00:21:47,600 --> 00:21:50,840
Speaker 1: buy it because of transportation networks being shut down and whatnot,

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00:21:50,960 --> 00:21:53,439
Speaker 1: you're probably gonna go buy it relatively soon, So that

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00:21:53,480 --> 00:21:56,439
Speaker 1: demand does get pent up. But if you normally go

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00:21:56,520 --> 00:21:59,120
Speaker 1: to the movies five times a month, you're not going

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00:21:59,160 --> 00:22:02,880
Speaker 1: ten times next to make up for uh, the the misstime.

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00:22:02,960 --> 00:22:05,120
Speaker 1: Same with restaurant meals and a lot of stuff like that.

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00:22:05,600 --> 00:22:09,400
Speaker 1: Also there's an income impact. So for shutting down the economy,

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00:22:09,480 --> 00:22:12,400
Speaker 1: a lot of people who are maybe earning an hourly

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00:22:12,400 --> 00:22:15,399
Speaker 1: wage as opposed to a salary, they're not getting paid

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00:22:15,400 --> 00:22:19,160
Speaker 1: and so they will have less spending power when when

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00:22:19,200 --> 00:22:21,639
Speaker 1: activity does start to bounce back. Doesn't mean again that

447
00:22:21,680 --> 00:22:23,600
Speaker 1: there's not a little bit of pent up activity. You

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00:22:23,640 --> 00:22:26,240
Speaker 1: have to buy groceries and whatnot. But I think that

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00:22:26,280 --> 00:22:30,560
Speaker 1: we're looking at last income which will actually lower the

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00:22:30,720 --> 00:22:34,919
Speaker 1: level of GDP growth. For so, Carl, we think when

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00:22:34,960 --> 00:22:37,399
Speaker 1: we think about GDP growth, certainly in the US but

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00:22:37,480 --> 00:22:40,040
Speaker 1: certainly around the world as well, we think about the consumer,

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00:22:40,040 --> 00:22:42,320
Speaker 1: of the strength of the consumer. We had some US

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00:22:42,400 --> 00:22:44,600
Speaker 1: retail sales number came out this morning. On that surface

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00:22:44,640 --> 00:22:47,280
Speaker 1: looked pretty good. What did you take from those, Well,

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00:22:47,280 --> 00:22:49,119
Speaker 1: when you say we think about the consumer, we pretty

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00:22:49,160 --> 00:22:54,040
Speaker 1: much think only about the consumer, because the core, if

458
00:22:54,040 --> 00:22:57,760
Speaker 1: not sole engine of economic growth for the last quarter,

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00:22:58,280 --> 00:23:02,280
Speaker 1: four quarters, twelve core, or sixteen quarters, I could go on,

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00:23:02,800 --> 00:23:05,520
Speaker 1: has really been consumer spending. And so as we look

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00:23:05,520 --> 00:23:09,000
Speaker 1: at the retail sales numbers today, they're basically consistent with

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00:23:09,080 --> 00:23:12,000
Speaker 1: the same type of consumer activity we saw in Q four,

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00:23:12,400 --> 00:23:15,120
Speaker 1: which was not great, but it was not terrible either.

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00:23:15,160 --> 00:23:18,439
Speaker 1: So it's enough to prop up economic growth in the

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00:23:18,560 --> 00:23:22,880
Speaker 1: vicinity of two percent or slightly less. So consumers are

466
00:23:22,880 --> 00:23:25,679
Speaker 1: holding up and certainly, uh, you know, to kind of

467
00:23:25,680 --> 00:23:27,440
Speaker 1: look at the silver lining of all of this, which

468
00:23:27,480 --> 00:23:30,440
Speaker 1: is kind of a perverse thing to do with oil

469
00:23:30,520 --> 00:23:33,520
Speaker 1: prices coming down as much as they did, we're seeing

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00:23:33,560 --> 00:23:36,600
Speaker 1: prices at the pump coming down, uh, and so this

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00:23:36,680 --> 00:23:39,639
Speaker 1: is giving consumers a little bit of an energy dividend,

472
00:23:39,680 --> 00:23:41,959
Speaker 1: and they're spending accounts. And we saw that in things

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00:23:42,000 --> 00:23:45,040
Speaker 1: like restaurant and bar sales being quite strong. Often that's

474
00:23:45,040 --> 00:23:47,680
Speaker 1: a give or take category of gas becomes more expensive,

475
00:23:47,720 --> 00:23:50,480
Speaker 1: people eat out or drink less in vice versa, and

476
00:23:50,480 --> 00:23:52,960
Speaker 1: so we saw some signs of that in January. Uh,

477
00:23:53,000 --> 00:23:55,240
Speaker 1: the gas price decline is going to be much more

478
00:23:55,359 --> 00:23:59,320
Speaker 1: evident in February, so watch for those discretionary categories that

479
00:23:59,400 --> 00:24:01,840
Speaker 1: to perk up. Where we would be concerned that things

480
00:24:01,840 --> 00:24:05,200
Speaker 1: are really falling apart is if you saw consumer sentiments

481
00:24:05,200 --> 00:24:07,560
Speaker 1: start to pull back, and that is not the case,

482
00:24:07,680 --> 00:24:09,720
Speaker 1: whether you look at equity markets or whether you look

483
00:24:09,720 --> 00:24:12,840
Speaker 1: at the preliminary reading from University of Michigan, uh the

484
00:24:12,960 --> 00:24:16,639
Speaker 1: surprised expectations to the upside this morning right coming in

485
00:24:16,800 --> 00:24:19,560
Speaker 1: at the highest level since two thousand and eighteen. Is

486
00:24:19,600 --> 00:24:23,800
Speaker 1: this a leading or logging indicator, Well, it depends, but

487
00:24:23,880 --> 00:24:27,960
Speaker 1: it can often be a leading indicator heading into economic downturns.

488
00:24:28,000 --> 00:24:31,360
Speaker 1: If we look at past recessions, you see consumer sentiment

489
00:24:31,560 --> 00:24:35,040
Speaker 1: roll over before the downturn actually occurs. Now, this could

490
00:24:35,080 --> 00:24:38,560
Speaker 1: be for two reasons. Maybe households are very intuitive and

491
00:24:38,600 --> 00:24:41,800
Speaker 1: they can read the trend in the economy before it

492
00:24:41,840 --> 00:24:46,280
Speaker 1: actually occurs. Or maybe the pullback and sentiment actually contributes

493
00:24:46,359 --> 00:24:48,159
Speaker 1: to enough of a down draft that it pushes the

494
00:24:48,200 --> 00:24:51,879
Speaker 1: economy into contraction. Whether it's chicken or egg doesn't really matter.

495
00:24:51,960 --> 00:24:54,360
Speaker 1: But the important thing is it is a leading indicator

496
00:24:54,359 --> 00:24:57,760
Speaker 1: of recession, and so you don't see this acceleration going

497
00:24:57,800 --> 00:25:01,000
Speaker 1: into a downturn. So again, there's lots of negative headlines

498
00:25:01,040 --> 00:25:03,720
Speaker 1: out there, but we have to remember, with unemployment as

499
00:25:03,840 --> 00:25:05,679
Speaker 1: low as it's been going all the way back to

500
00:25:05,760 --> 00:25:09,840
Speaker 1: nineteen nine, UH, wage pressure is not great, but there

501
00:25:10,000 --> 00:25:13,880
Speaker 1: is some upward trajectory. Their wage stagnation as a myth,

502
00:25:13,880 --> 00:25:17,040
Speaker 1: we're seeing wage growth. Consumer spending should be able to

503
00:25:17,080 --> 00:25:19,600
Speaker 1: hold in at some base level over the course of

504
00:25:19,600 --> 00:25:24,080
Speaker 1: this year, which means US recession odds still remain relatively low.

505
00:25:24,200 --> 00:25:27,760
Speaker 1: I put him in the vicinity of about fifteen, down

506
00:25:27,880 --> 00:25:31,120
Speaker 1: from a lot more. Well, it was temporarily a little

507
00:25:31,160 --> 00:25:33,919
Speaker 1: bit higher last year, but I was never big into

508
00:25:33,960 --> 00:25:36,480
Speaker 1: the notion that we were on the cusp of recession

509
00:25:36,560 --> 00:25:40,160
Speaker 1: for the reasons I just highlighted low unemployment, wage pressures,

510
00:25:40,160 --> 00:25:44,840
Speaker 1: and consumer spending power. Kara Kadonna, Happy Valentine's Day and likewise,

511
00:25:45,040 --> 00:25:47,480
Speaker 1: thank you sporting the pink sure today he is supporting

512
00:25:47,520 --> 00:25:50,879
Speaker 1: the pink shirt the curl in his hair. Lovely Kara Kadonna,

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00:25:50,960 --> 00:25:53,359
Speaker 1: chief US economist for Bloomberg Economics, shoining us here in

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00:25:53,400 --> 00:25:56,720
Speaker 1: our interactive Broker Studios. Thanks for listening to the Bloomberg

515
00:25:56,720 --> 00:25:58,919
Speaker 1: P and L podcast. You can subscribe and listen to

516
00:25:58,960 --> 00:26:02,200
Speaker 1: interviews at Apple podcast or whatever podcast platform you prefer

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00:26:02,600 --> 00:26:05,359
Speaker 1: Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa

518
00:26:05,400 --> 00:26:07,880
Speaker 1: abram Woits. I'm on Twitter at Lisa A. Bram Wits.

519
00:26:07,880 --> 00:26:10,679
Speaker 1: One before the podcast, you can always catch us worldwide.

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00:26:10,720 --> 00:26:11,720
Speaker 1: I'm Bloomberg Radio