WEBVTT - We Actually Can't Afford To Have Higher Rates: Axel Merk 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.239 at Bloomberg dot com. Well, yesterday, Scott Minor, who's the 0:00:21.239 --> 0:00:24.880 global chief investment officer of Guggenheim Partners, came out with 0:00:24.920 --> 0:00:27.400 one of the most barished notes I have ever seen 0:00:27.520 --> 0:00:30.280 yet in this cycle. He first started saying that the 0:00:30.280 --> 0:00:33.880 coronavirus is a looming economic problem, but sort of indicated 0:00:33.880 --> 0:00:35.920 that that was just one of many of them, and 0:00:35.960 --> 0:00:38.560 then wrote this, I have never in my career seen 0:00:38.640 --> 0:00:41.239 anything as crazy as what's going on right now. I 0:00:41.280 --> 0:00:43.519 have said before that we've entered the silly season, but 0:00:43.560 --> 0:00:47.200 I stand corrected. We are in the ludicrous season. Axel 0:00:47.240 --> 0:00:49.680 Mark joining us now President and Chief Investment Officer of 0:00:49.760 --> 0:00:54.680 Merk Investments. Do you agree, Axel we ended end of 0:00:54.720 --> 0:00:57.800 the ludicrous season a long long time ago. I think 0:00:57.840 --> 0:01:01.040 the question is we still need to live and make 0:01:01.080 --> 0:01:03.560 a living and try to make sense of of some 0:01:03.640 --> 0:01:08.320 of it, right, um, and and and so and at 0:01:08.360 --> 0:01:10.800 first we we need to understand what's happening and so forth. 0:01:10.840 --> 0:01:13.520 But let in in the content of the virus. Right, 0:01:13.640 --> 0:01:17.360 We've always had shocks. We know that usually markets were 0:01:17.360 --> 0:01:19.520 the worst when we've most talked about them. So the 0:01:19.560 --> 0:01:21.679 fact that we're talking about the virus probably means that 0:01:22.360 --> 0:01:24.800 we're not at the peak yet, because otherwise you'll talk 0:01:24.840 --> 0:01:28.400 to other even bigger experts, right. Um, But but in 0:01:28.480 --> 0:01:31.720 all seriousness, Um, the US is more isolated from a 0:01:31.800 --> 0:01:34.680 lot of what's happening here and and so that may 0:01:34.720 --> 0:01:36.240 well be one of the reasons why the US is 0:01:36.240 --> 0:01:39.400 doing comparatively well. And so we are focused on all 0:01:39.440 --> 0:01:42.120 kinds of things. And I just might to remind people, Um, 0:01:42.160 --> 0:01:43.840 we were talking about World War three at the beginning 0:01:43.840 --> 0:01:47.160 of this year, which didn't quite materialize. So markets have 0:01:47.240 --> 0:01:49.920 a habit of moving on and with interest rates as 0:01:49.920 --> 0:01:52.520 low as they are, we quote unquote discount the short 0:01:52.640 --> 0:01:54.840 term things. And then so we live happily of after, 0:01:55.320 --> 0:01:58.760 in terms of living happily ever after that driven simply 0:01:58.840 --> 0:02:01.600 by the fact that there's so much cash slashing around 0:02:01.640 --> 0:02:05.680 the global system with uh, you know, central banks very 0:02:05.840 --> 0:02:10.120 very accommodative. Well, one way to answer a question of 0:02:10.160 --> 0:02:13.280 interest rates were at six percent in the US, markets 0:02:13.320 --> 0:02:15.079 wouldn't be as happy. I mean, from that point of view, 0:02:15.120 --> 0:02:19.799 certainly is correct. Um. One one minor issue I have 0:02:19.919 --> 0:02:22.600 with with with that statement is that every time a 0:02:22.720 --> 0:02:25.840 crisis hits, we we lower rates. And I was arguing 0:02:25.919 --> 0:02:29.880 last year that lower rates don't exactly help the trade 0:02:29.880 --> 0:02:33.880 war right. Similarly, a rate cut doesn't cure an illness, 0:02:34.480 --> 0:02:37.480 and so I don't think that the rates is everything 0:02:37.520 --> 0:02:41.119 that's driving it. But one thing of course that that 0:02:41.480 --> 0:02:45.000 takes place when we have money printing is we take 0:02:45.120 --> 0:02:48.480 perceived the risk out of the market. Risk premium get compressed, 0:02:48.800 --> 0:02:51.880 and ultimately what it does it it doesn't faster healthy 0:02:51.919 --> 0:02:56.840 capital location. Um. But at the same time, um, yes, 0:02:56.960 --> 0:02:59.400 I mean if we had a more serious disruption, and 0:02:59.600 --> 0:03:02.079 right now, by all means there are certain local disruptions. 0:03:02.360 --> 0:03:05.000 Conferences get canceled and there's a fallout from that. Supply 0:03:05.040 --> 0:03:08.240 chains get disrupted, but big business is able to deal 0:03:08.280 --> 0:03:11.040 with some of that. So it's not as simple as saying, hey, um, 0:03:11.080 --> 0:03:14.359 the central banks are foaming here. The runway and therefore 0:03:14.360 --> 0:03:17.760 everything everything is fine. I do think central banks play 0:03:17.800 --> 0:03:20.160 a roland. This are a very important piece of the puzzle, 0:03:20.240 --> 0:03:21.840 but it's not everything that's going on. I want to 0:03:21.840 --> 0:03:24.760 pick up on what you said with respect misallocating capital. 0:03:24.880 --> 0:03:28.440 People are looking at how companies are using extra cash 0:03:28.440 --> 0:03:31.440 they're generating to buy back their shares, payout dividends. They're 0:03:31.480 --> 0:03:34.560 not using it to invest in their businesses. Necessarily, we're 0:03:34.560 --> 0:03:38.040 seeing capital expenditures continue to decline. How long can this 0:03:38.160 --> 0:03:42.800 continue with an expansion versus having it bleed into the 0:03:42.840 --> 0:03:46.280 economy in a negative way. Well, the last time we 0:03:46.320 --> 0:03:49.320 talked about goldilocks was in two thousand four two five. 0:03:49.440 --> 0:03:51.800 It didn't end too well, but it lasted for several 0:03:51.800 --> 0:03:54.600 more years. It's very difficult to to time those sort 0:03:54.600 --> 0:03:57.360 of things. And so the concern I have is that 0:03:57.480 --> 0:03:59.720 everybody talks about our economy is slowing down. I'm actually 0:03:59.720 --> 0:04:01.440 more learned about the other end. It's not the most 0:04:01.440 --> 0:04:05.000 likely scenario, But what if all this accommodative monitor policy, 0:04:05.040 --> 0:04:08.120 the fiscal stimulus we have, and presumably we're gonna get 0:04:08.120 --> 0:04:10.800 a Chinese stimulus in due course, is actually going to 0:04:10.840 --> 0:04:13.640 get us a heart economy with inflation. Everybody says it's 0:04:13.680 --> 0:04:16.200 a good problempt to have, But how do you tighten 0:04:16.240 --> 0:04:20.480 monitor policy when we have so when corporations have gotten weaker, 0:04:20.720 --> 0:04:23.800 when they stretch the balance sheets, we cannot afford to 0:04:23.839 --> 0:04:25.520 have higher rates. It's one of the reasons we have 0:04:25.560 --> 0:04:27.919 these lower rates. But what if something goes wrong at 0:04:27.960 --> 0:04:30.320 the other end of the spectrum that things are too good, 0:04:30.360 --> 0:04:33.159 so to speak, um, then the fat needs to tighten 0:04:33.440 --> 0:04:37.880 and everything crumbles. Right, and so a credit driven society, 0:04:38.360 --> 0:04:40.880 um is a more quote up what efficient society. Greenspan 0:04:40.960 --> 0:04:43.600 used to say that, But it's a more fragile society 0:04:43.640 --> 0:04:46.040 in some ways because when things go wrong, people fall 0:04:46.080 --> 0:04:49.120 through the crucks and and so, yes, we can sustain 0:04:49.160 --> 0:04:52.200 this for an extended period. I'm not convinced that this 0:04:52.320 --> 0:04:54.320 is the best way to move forward. But then again, 0:04:54.320 --> 0:04:57.320 I'm just an observer here, right, or humble participant in 0:04:57.320 --> 0:04:59.800 the market. I'm not the one calling the shots. So 0:05:00.000 --> 0:05:01.920 we just have to deal with the cords were dealt with. 0:05:02.400 --> 0:05:04.880 So actually, just switching gears a little bit, looking at commodities, 0:05:04.920 --> 0:05:07.799 there's an area that has certainly felt the pain, maybe 0:05:07.839 --> 0:05:11.760 reflecting some of the global economic uncertainty. Maybe tied to 0:05:11.800 --> 0:05:16.479 the coronavirus. One commodity that is not where it seems 0:05:16.520 --> 0:05:18.640 to be gold. So we're seeing a lot of good 0:05:18.680 --> 0:05:21.320 movement in gold. What is your thoughts about gold here 0:05:21.720 --> 0:05:26.960 given some of those uncertainties. Well, we've long looked at 0:05:26.960 --> 0:05:29.640 and invested in the gold market. The The one thing 0:05:29.680 --> 0:05:32.360 we observe is that investors want to have the cake 0:05:32.400 --> 0:05:34.320 and eat it. And what I mean with that is 0:05:34.400 --> 0:05:37.039 that usually when you have a crisis, people would run 0:05:37.040 --> 0:05:40.960 to cash, but maybe because people have had such amazing 0:05:41.000 --> 0:05:44.360 gains over the years, they rather diversified to gold or 0:05:44.400 --> 0:05:47.159 even more volatile gold mining, so that with a small 0:05:47.200 --> 0:05:50.840 addition to the portfolio they can get diversification. I'm not 0:05:50.880 --> 0:05:54.440 suggesting everybody should do that, but we see that certainly happening. 0:05:54.640 --> 0:05:58.159 We do some of that ourselves because it's a ultimately 0:05:58.240 --> 0:06:00.440 cash isn't all that attractive, and so that's why people 0:06:00.520 --> 0:06:02.280 use those sort of things. What we see in that 0:06:02.360 --> 0:06:05.920 sector is that because the price of gold is moving, 0:06:06.360 --> 0:06:09.640 it attracts a lot of traders, and so inspective positions 0:06:09.680 --> 0:06:13.080 are at record highs and so forth. Those speculators love 0:06:13.120 --> 0:06:14.960 it when things are moving. Those are in there the 0:06:15.000 --> 0:06:18.479 diversification folks saying that the folks who say, well, whatever 0:06:18.480 --> 0:06:20.800 it's going to happen in the medium term can't end 0:06:20.920 --> 0:06:24.080 too well. Those investors are there. So so we see 0:06:24.120 --> 0:06:27.560 that there is a really early wave of investors coming 0:06:27.560 --> 0:06:29.680 back in and on our gold mining side, companies are 0:06:29.680 --> 0:06:32.359 far more prudent um with with how they manage these 0:06:32.440 --> 0:06:34.400 minds than they had and had been in the last cycle. 0:06:34.839 --> 0:06:37.680 Just about thirty seconds here, you're dot, you're dealt with 0:06:37.720 --> 0:06:40.279 the you deal with the cards that you're dealt What 0:06:40.320 --> 0:06:42.160 are you doing? What are you what are you allocating 0:06:42.160 --> 0:06:46.560 your money too? We have changed all that much. We 0:06:46.560 --> 0:06:49.960 we bought a little bit in China at the Chinese 0:06:50.000 --> 0:06:51.800 New Year and what we do the extent we could 0:06:51.800 --> 0:06:54.600 in US markets. But but that's really just play money 0:06:54.640 --> 0:06:57.840 and again that's not investment advice here. But but beyond that, 0:06:57.960 --> 0:07:00.320 we've really stuck to our guns and tried to look 0:07:00.320 --> 0:07:02.719 at the Delmacom picture. And so yes we have exposure 0:07:02.760 --> 0:07:05.720 to risk outs. Yes we do have significant assets also 0:07:05.760 --> 0:07:08.599 to ads occasions to something something like gold and gold mining. 0:07:09.279 --> 0:07:11.320 Exel Mark, thank you so much for joining us. We 0:07:11.360 --> 0:07:14.800 really appreciate your thoughts and commentary. Axel Work, President and 0:07:14.920 --> 0:07:18.680 Chief investment Officer of MERK Investments based in San Francisco. 0:07:22.120 --> 0:07:24.520 Time to check in with Bloomberg Opinion. We're joined by 0:07:24.560 --> 0:07:29.200 Bloomberg Opinion calms Tara la Chapelle. She covers entertainment, telecom deals, 0:07:29.240 --> 0:07:31.200 all that kind of fun stuff. She joins us here 0:07:31.200 --> 0:07:34.520 on O Bloomberg Interactive Broker Studio. So, Tera, it looks 0:07:34.640 --> 0:07:38.280 like this Sprint T Mobile deal is finally going to 0:07:38.360 --> 0:07:42.600 get done. But what's interesting about this deal is the 0:07:42.760 --> 0:07:45.320 delay and it's been delayed and delayed and delayed. Hasn't 0:07:45.320 --> 0:07:48.000 been so much at the federal level, but at the 0:07:48.040 --> 0:07:50.440 state level. What's going on here? Yeah, So it's a 0:07:50.440 --> 0:07:53.679 really unique situation where this deal that I think most 0:07:53.680 --> 0:07:56.880 people for a long time thought was never possible, just 0:07:56.960 --> 0:08:00.080 because T Mobile and Sprint are such close competitors and 0:08:00.120 --> 0:08:03.480 there's only two other real national rivals in their market. 0:08:04.000 --> 0:08:08.480 So when the FCC and the Justice Department both approved 0:08:08.520 --> 0:08:12.160 the deal with kind of minimal concessions really surprised people 0:08:12.160 --> 0:08:14.280 that the Trump administration was on board with this. And 0:08:14.320 --> 0:08:17.440 then um about you know, a couple dozen U. S 0:08:17.440 --> 0:08:19.960 States came out against it and decided to sue to 0:08:20.000 --> 0:08:22.559 try to stop the deal, and the number of states 0:08:22.560 --> 0:08:25.560 had kind of dwindled as different ones kind of struck 0:08:25.760 --> 0:08:29.320 individual concessions for their own state constituents along the way. 0:08:29.360 --> 0:08:32.800 But New York and California you were really persistent and 0:08:32.840 --> 0:08:35.640 resolved to try to stop this deal. And in the 0:08:35.720 --> 0:08:39.040 end of fourteen state attorneys general were part of this trial. 0:08:39.200 --> 0:08:41.240 And even though they lost this week, I think it 0:08:41.240 --> 0:08:43.000 could have a little bit of a chilling effect on 0:08:43.040 --> 0:08:45.640 some deals like this. Yeah, well, you pointed out the 0:08:45.679 --> 0:08:48.800 dealmaker's face of fifty two headed monster. The idea of 0:08:48.800 --> 0:08:52.120 being that all of the different attorneys general could get 0:08:52.160 --> 0:08:56.560 together independently go after certain deals. What's the precedent for this? 0:08:56.679 --> 0:08:59.560 I mean, how active are the states typically when it 0:08:59.600 --> 0:09:02.319 comes to walking deals. We don't really see them need 0:09:02.360 --> 0:09:04.280 to be active in the sense of going all the 0:09:04.320 --> 0:09:06.680 way to trial to try to stop a deal, because 0:09:06.760 --> 0:09:09.240 usually that would be the role of the Justice Department. Um, 0:09:09.280 --> 0:09:11.120 like we saw with a T and T time Warner, 0:09:11.400 --> 0:09:13.400 and you know, when states object to different things, what 0:09:13.440 --> 0:09:16.040 they'll do is work with the companies on their you know, individually, 0:09:16.080 --> 0:09:18.240 behind the scenes, and try to get concessions just for 0:09:18.280 --> 0:09:20.280 their own states. So like the New York State, A 0:09:20.360 --> 0:09:22.120 G may go to T Mobile and say, well, we 0:09:22.160 --> 0:09:23.520 need you to do this for us if we're going 0:09:23.559 --> 0:09:25.960 to support the deal. And some states did do that 0:09:26.000 --> 0:09:28.720 in the end, but it was really interesting that these 0:09:28.880 --> 0:09:32.760 fourteen states didn't. And you know, even though the judges 0:09:32.800 --> 0:09:35.160 ad up siding with T Mobile and Sprint. I had 0:09:35.200 --> 0:09:38.240 been talking with John Stevens, the chief financial officer at 0:09:38.280 --> 0:09:40.400 A T and T last month, right after their their 0:09:40.400 --> 0:09:42.920 own earnings report, and you know, the trial was still 0:09:42.960 --> 0:09:44.880 ongoing at the time. We didn't know what the ruling 0:09:44.920 --> 0:09:47.240 was going to be. But when we were talking about 0:09:47.320 --> 0:09:49.760 the impact of this case, he said, you know, it's 0:09:49.800 --> 0:09:52.400 a three headed monster now, meaning you have the FCC, 0:09:52.679 --> 0:09:54.920 the d o J, and now the states that you 0:09:54.960 --> 0:09:56.440 have to appease if you want to do a big 0:09:56.480 --> 0:09:59.640 telecom or media merger. And he said, in fact, maybe 0:09:59.640 --> 0:10:01.720 I should call it a fifty two headed monster. So 0:10:01.760 --> 0:10:04.320 that's where that came from. And it's really interesting because 0:10:04.320 --> 0:10:05.640 I think a lot of people look at this deal 0:10:05.679 --> 0:10:07.800 and say, well, if T Mobile SPRINGT can get done, 0:10:07.920 --> 0:10:10.640 basically any mega merger can get done now, and you 0:10:10.679 --> 0:10:14.080 know that might be true, um unfortunately, but at the 0:10:14.120 --> 0:10:16.440 same time, I think that a lot of executives and 0:10:16.440 --> 0:10:18.559 dealmakers are looking at this and say, do we want 0:10:18.600 --> 0:10:21.600 to go through the process of a potentially long trial 0:10:21.760 --> 0:10:24.199 and PR fight with a bunch of really powerful state 0:10:24.240 --> 0:10:27.240 attorneys general like Leticia James in New York, who you know, 0:10:27.320 --> 0:10:30.400 really didn't back down from this. It's interesting, but it 0:10:30.400 --> 0:10:34.959 seems like there's uneven application of kind of antitrust issues. 0:10:34.960 --> 0:10:36.240 I think back to the deal that you and I 0:10:36.280 --> 0:10:37.960 spent so much time talking about, the A T and 0:10:37.960 --> 0:10:41.120 T Time Warner deal. That deal just you know, the 0:10:41.160 --> 0:10:43.760 Justice Department just would not let go of that deal. 0:10:43.880 --> 0:10:45.959 And um so, is there a sense is there a 0:10:46.520 --> 0:10:49.560 sense on Wall Street and among the merger lawyers of 0:10:50.040 --> 0:10:51.600 is it a good time to do a big deal 0:10:51.720 --> 0:10:53.280 or not a good time? But I think it's hard 0:10:53.320 --> 0:10:55.360 to know. I mean, I think if you aren't in 0:10:55.520 --> 0:10:57.720 sort of the um you know, one of the companies 0:10:57.720 --> 0:11:00.440 that's been targeted by Trump directly, maybe you are safer 0:11:00.480 --> 0:11:02.800 than others. You know, we saw this week the Federal 0:11:02.800 --> 0:11:05.360 Trade Commission is trying to crack down on some past 0:11:05.440 --> 0:11:07.800 deals that the big tech giants did, and you know, 0:11:07.840 --> 0:11:09.760 that makes sense. But at the same time, It's hard 0:11:09.800 --> 0:11:12.600 not to notice that these are also companies where Trump 0:11:12.640 --> 0:11:14.920 has his own personal a grievances, So there is a 0:11:14.960 --> 0:11:17.240 little bit of a double standard there. The time warner 0:11:17.440 --> 0:11:20.080 at trial definitely stands out. You know, a case where 0:11:20.080 --> 0:11:22.679 the d o J was against it, but supporting this one. 0:11:22.880 --> 0:11:26.640 You said, thank god or unfortunately. The idea of being 0:11:26.760 --> 0:11:30.320 the that that Emerger liked mobile and spread is not good. 0:11:31.280 --> 0:11:33.120 Is that just because you expect the phone bills to 0:11:33.160 --> 0:11:35.480 go up? Yeah? I think so. I mean, I think 0:11:35.480 --> 0:11:37.600 it's hard to look at this deal and think that 0:11:37.679 --> 0:11:40.120 it's going to be anything but that as a results that, 0:11:40.400 --> 0:11:42.640 you know, these companies that have been competing with each 0:11:42.640 --> 0:11:45.280 other so intensely for the last few years, unable to 0:11:45.360 --> 0:11:47.880 raise prices and having to keep their plans so competitive, 0:11:48.280 --> 0:11:49.800 They're not going to have to do that anymore. So 0:11:49.840 --> 0:11:52.760 why would they keep prices. The counter argument is they 0:11:52.800 --> 0:11:54.960 have to actually build out a five G network. They 0:11:54.960 --> 0:11:57.440 don't have the capital to do it unless they have 0:11:57.679 --> 0:12:00.280 the market share and the and the pricing power or 0:12:00.520 --> 0:12:02.840 to raise more money. And so this will actually end 0:12:02.920 --> 0:12:06.520 up benefiting people by creating a more robust infrastructure. What's yours? 0:12:06.640 --> 0:12:08.120 It's a little bit of a stretch. There's a lot 0:12:08.160 --> 0:12:11.000 of caveats, and in the case of Sprint, yes they 0:12:11.040 --> 0:12:13.160 needed more funding. But at the same time, I think 0:12:13.160 --> 0:12:15.400 it was probably likely Sprint would have gotten bought by 0:12:15.440 --> 0:12:17.360 someone else down the road. They have so many subscribers 0:12:17.360 --> 0:12:19.920 and so much valuable spectrum. And you know, it's true 0:12:19.960 --> 0:12:22.920 that T Mobile having this bigger scale means that they'll 0:12:22.960 --> 0:12:25.480 be able to kind of spread those network costs across 0:12:25.480 --> 0:12:27.960 a bigger subscriber base. But A T N T and 0:12:28.040 --> 0:12:30.560 Verizon already have that big scale, and their costs aren't 0:12:30.559 --> 0:12:33.320 any lower. Their prices aren't any lower, I should say, so, 0:12:33.480 --> 0:12:35.600 I just really don't buy the argument. When you're going 0:12:35.640 --> 0:12:39.320 from four to three competitors, it is anti competitive, And 0:12:39.360 --> 0:12:41.400 so I thought that it was interesting that the judge 0:12:41.760 --> 0:12:45.920 disagreed with that. Tara la Chappelle always insightful, uh and 0:12:46.120 --> 0:12:48.800 wonderful columns. You can read them all at Bloomberg dot com, 0:12:48.840 --> 0:12:51.319 Slash Opinion or O P I N go on the 0:12:51.320 --> 0:12:53.400 Bloomberg Tera. L A. Chapelle as a columnist for us 0:12:54.000 --> 0:13:07.880 with Bloomberg Opinion. When we talk about the melt up 0:13:08.000 --> 0:13:10.480 or the skyrocket up, if you take a look at 0:13:10.559 --> 0:13:13.920 a longer time series of the US equity market. Really, 0:13:13.920 --> 0:13:16.320 when you dive in, it is about the rally in 0:13:16.440 --> 0:13:19.560 a select group of shares, the fang shares, the big 0:13:20.040 --> 0:13:22.480 fanmag Actually, because we're gonna be speaking about one of them. 0:13:22.520 --> 0:13:26.040 Apple and Microsoft combine account for more than ten per 0:13:26.120 --> 0:13:28.920 cent of the S and P S value, which raises 0:13:28.960 --> 0:13:31.880 even more scrutiny of these companies because they are becoming 0:13:31.920 --> 0:13:35.760 systemically important in a way that few others have in history. 0:13:36.120 --> 0:13:38.080 Joining us now on our a Grana senior I T 0:13:38.200 --> 0:13:40.600 and software analyst for Bloomberg Intelligence, I want to drill 0:13:40.640 --> 0:13:44.559 into Microsoft, in particular a couple of interesting developments when 0:13:44.559 --> 0:13:47.120 it comes to their cloud development. Can you give us 0:13:47.160 --> 0:13:49.640 a sense of what the latest is there in the 0:13:49.679 --> 0:13:52.480 broader context of the import of this country, of this 0:13:52.559 --> 0:13:56.119 company within the sphere of the US equity markets. Yeah. Absolutely. 0:13:56.320 --> 0:13:58.719 See cloud has been talked about for a very long 0:13:58.760 --> 0:14:01.200 period of time, but when you look at the infrastructure 0:14:01.240 --> 0:14:03.920 piece of it, Amazon had the lead, and you know, 0:14:04.000 --> 0:14:06.959 had lead for years for for just because of the 0:14:07.040 --> 0:14:10.920 early entrant being the first, you know, person in the market. Um, 0:14:11.160 --> 0:14:14.000 Microsoft is doing a phenomenal job over the last six 0:14:14.040 --> 0:14:16.720 seven years to scale that business up. It became the 0:14:16.800 --> 0:14:19.600 first and the most important part of satire when he 0:14:19.640 --> 0:14:21.680 came in what close to what six years ago now, 0:14:22.080 --> 0:14:24.640 and he has done a lot of good work in 0:14:24.760 --> 0:14:28.960 terms of working with the rivals, making Microsoft more open 0:14:29.000 --> 0:14:33.000 to open source software UM and now their cloud portfolio 0:14:33.120 --> 0:14:36.160 is second to Amazon and a very close second. It's 0:14:36.160 --> 0:14:38.720 not a question of before the gap was very wide. 0:14:39.040 --> 0:14:41.920 Now if you are looking to, you know, move any 0:14:41.960 --> 0:14:44.680 of your applications to the cloud, you can choose one 0:14:44.800 --> 0:14:46.760 or the other. It didn't, it does. It's not a 0:14:46.840 --> 0:14:49.200 slam dunk that it has to go to Amazon. And 0:14:49.240 --> 0:14:51.280 the most recent win or the word big, you know, 0:14:51.320 --> 0:14:55.440 controversial contract is just around that. But you know, Microsoft 0:14:55.560 --> 0:14:58.320 is in a great position today. So give us the latest. 0:14:58.360 --> 0:15:01.360 I saw some news out I guess yesterday federal judge 0:15:01.360 --> 0:15:05.040 temporarily blocked Microsoft from working on a ten billion dollar 0:15:05.160 --> 0:15:09.760 Pentagon cloud computing contract after Amazon, I guess, asked for delay. 0:15:09.840 --> 0:15:11.680 So give us a sense of how material that is 0:15:11.680 --> 0:15:15.000 and what's your story. It's more of philosophical about that, 0:15:15.280 --> 0:15:18.840 you know, the second player beat the first player kind 0:15:18.840 --> 0:15:21.800 of an argument because financially, you know, with with the 0:15:21.840 --> 0:15:25.320 amount of money Microsoft generates per year, you know, billion dollars, 0:15:25.680 --> 0:15:28.960 billion dollars per year is not you know right financially 0:15:29.040 --> 0:15:32.600 that moving, but philosophically it's a very important thing. Um, 0:15:32.720 --> 0:15:35.200 we go back a few years when Amazon beat IBM 0:15:35.200 --> 0:15:37.400 to a similar ci A contract. It was all up 0:15:37.400 --> 0:15:39.880 in there is that Amazon's now up in front running 0:15:39.920 --> 0:15:43.960 when it comes to infrastructure, and you know this is similar. 0:15:43.960 --> 0:15:45.680 There's a lot of politics involved in it because of 0:15:45.760 --> 0:15:49.640 Jeff Bezos and the president. Um, so you know there 0:15:49.720 --> 0:15:52.720 is a lot of argument over there, but both and 0:15:52.800 --> 0:15:55.880 you know, our take is both companies will do really 0:15:55.880 --> 0:15:58.920 good in cloud. They have really good products and um, 0:15:59.080 --> 0:16:00.760 you know, the market's large enough of both of them 0:16:00.800 --> 0:16:03.400 to be there. So taking a step back, there's sort 0:16:03.400 --> 0:16:05.400 of an existential question when it comes to the US 0:16:05.440 --> 0:16:08.400 equity market about how much further tech giants can go 0:16:08.440 --> 0:16:10.720 when it comes to their share prices rallying. They've led 0:16:10.720 --> 0:16:14.320 the charge globally and I'm wondering when you surveil the 0:16:14.440 --> 0:16:19.520 landscape of the tech giants, are there any clouds? Are 0:16:19.520 --> 0:16:22.880 there really any kind of you know, harbingers of another 0:16:22.960 --> 0:16:25.360 time that's less suspicious for these or do you feel 0:16:25.400 --> 0:16:27.400 like it's just going to keep on going. It's that's 0:16:27.400 --> 0:16:33.320 a very difficult question because a lot of propose it 0:16:33.440 --> 0:16:37.160 that way. A lot depends on the macro view. If 0:16:37.240 --> 0:16:40.240 if the global economy slows down, nothing is sacred at 0:16:40.240 --> 0:16:43.400 that point, tech spending, cloud being you know, a growth area, yes, 0:16:43.640 --> 0:16:45.880 but the degree or the rate of growth will actually 0:16:45.880 --> 0:16:48.440 slow down for all products. So if you look at it, 0:16:48.480 --> 0:16:52.640 you know, our philosophy and going into or our thesis, 0:16:52.680 --> 0:16:55.280 what we should see a slow down in some of 0:16:55.320 --> 0:16:58.080 the you know, even the high growth areas, but it 0:16:58.120 --> 0:17:00.880 hasn't happened so far. Now, whether it gets pushed off 0:17:00.880 --> 0:17:03.000 in the middle of the year the elections, does it 0:17:03.400 --> 0:17:05.400 if the virus like there are there are so many 0:17:05.680 --> 0:17:09.240 macro factors out there from you know, weakness in Europe, weakness, 0:17:09.240 --> 0:17:13.600 and you know, it's difficult to say because because the 0:17:14.560 --> 0:17:17.440 rate of growth is still holding up and and that's 0:17:17.440 --> 0:17:20.240 actually pretty impressive given where we are in the economic cycle. 0:17:20.480 --> 0:17:24.399 All right, So Microsoft stacks up sever the past twelve months. 0:17:25.000 --> 0:17:26.840 Is it just the cloud? What's the story here? It 0:17:27.359 --> 0:17:29.280 is just the cloud. But actually it's a funny part 0:17:29.359 --> 0:17:31.520 is for Microsoft, it's not just the public cloud. It's 0:17:31.520 --> 0:17:34.359 actually what they call the hybrid cloud strategy, because what's 0:17:34.359 --> 0:17:36.920 happening is the you know, we we were a piece 0:17:36.920 --> 0:17:39.520 called cloud two point when talks about that, the next 0:17:39.560 --> 0:17:41.719 phase of cloud growth is not going to come from 0:17:41.760 --> 0:17:43.399 the netflix is of the world. It's going to come 0:17:43.400 --> 0:17:45.880 from the Disneys of the world that are moving their 0:17:46.080 --> 0:17:49.080 entire business dig to a digital platform. So they are 0:17:49.080 --> 0:17:51.200 the ones who are upgrading it. And guess what, Microsoft 0:17:51.280 --> 0:17:54.320 is a dominant position in the legacy I T infrastructure. 0:17:54.320 --> 0:17:56.760 So when people move that, they buy both their on 0:17:56.840 --> 0:17:59.240 premise software and they buy their cloud programs, so they're 0:17:59.240 --> 0:18:01.320 actually having what I would call is the best of 0:18:01.359 --> 0:18:04.720 both words. Interesting stocks been it's such a nadela is. 0:18:04.960 --> 0:18:06.359 You know, he's been there six years. It's kind of 0:18:06.400 --> 0:18:09.359 an unsung maybe just in my mind, an unsung star 0:18:09.520 --> 0:18:11.880 of Silicon value. You think about, you know, the Bezos 0:18:11.880 --> 0:18:14.760 of the world. He's being sung enough, he's being sung 0:18:14.800 --> 0:18:18.240 more now you think not. I still haven't come across 0:18:18.280 --> 0:18:20.360 the CEO going back to even you know, the days 0:18:20.400 --> 0:18:23.520 of IBM stilling around or Lei co cop. I think 0:18:23.560 --> 0:18:25.359 he's done better than any one of them because he 0:18:25.400 --> 0:18:28.040 has changed the philosophy of the company. He has changed 0:18:28.080 --> 0:18:31.240 the mindset of the company from who cared about Microsoft 0:18:31.280 --> 0:18:34.439 seven eight years ago and now the biggest player in 0:18:34.520 --> 0:18:38.280 software is growing faster than the software industry. That's pretty impressive. Yeah, 0:18:38.280 --> 0:18:43.960 that's Valentine such an Adela. Yes, exactly round it covers 0:18:44.000 --> 0:18:47.000 all things technology for Bloomberg Intelligence. We appreciate him coming 0:18:47.000 --> 0:18:49.280 in here in our Bloomberg and Diactor broker studio giving 0:18:49.359 --> 0:18:58.399 us his thoughts on Microsoft, well investors across the globe, 0:18:58.440 --> 0:19:01.960 or trying to figure out the pact of the coronavirus 0:19:01.960 --> 0:19:06.080 will have on global economic growth. Economists are crunching their numbers. 0:19:06.080 --> 0:19:08.320 We have our own economists with his own model. Car 0:19:08.400 --> 0:19:11.719 Rico Dona, chief US economist for Bloomberg Economics, joins us 0:19:11.720 --> 0:19:14.240 here in the Bloomberg Interactive Broker studio. So, Carl, what 0:19:14.280 --> 0:19:18.520 do you guys at Bloomberg Economics thinking about right here 0:19:18.880 --> 0:19:22.320 as it relates to the impact from the coronavirus maybe 0:19:22.400 --> 0:19:28.439 on obviously Chinese economic growth, but also global GDP. Absolutely so, 0:19:28.480 --> 0:19:31.159 as we think about the impact and I know a 0:19:31.200 --> 0:19:34.000 lot of people immediately pull out the playbook from Stars 0:19:34.000 --> 0:19:35.919 in two thousand and three, I don't think that's the 0:19:35.960 --> 0:19:39.840 best comparison China had a much smaller role on the 0:19:39.880 --> 0:19:42.240 global economy at that time, and so I think the 0:19:42.240 --> 0:19:45.240 stars comparisons run a little thin UH and instead we 0:19:45.240 --> 0:19:47.520 can see some better parallels if we look back to 0:19:47.680 --> 0:19:51.919 the Thai the flooding in Thailand in twleven, or the 0:19:52.119 --> 0:19:56.840 Fukushima nuclear disaster in Japan UH and how those disrupted 0:19:56.880 --> 0:19:59.399