Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.
Speaker 1: Along with my co host Lisa Brahma Waits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Well, yesterday, Scott Minor, who's the
Speaker 1: global chief investment officer of Guggenheim Partners, came out with
Speaker 1: one of the most barished notes I have ever seen
Speaker 1: yet in this cycle. He first started saying that the
Speaker 1: coronavirus is a looming economic problem, but sort of indicated
Speaker 1: that that was just one of many of them, and
Speaker 1: then wrote this, I have never in my career seen
Speaker 1: anything as crazy as what's going on right now. I
Speaker 1: have said before that we've entered the silly season, but
Speaker 1: I stand corrected. We are in the ludicrous season. Axel
Speaker 1: Mark joining us now President and Chief Investment Officer of
Speaker 1: Merk Investments. Do you agree, Axel we ended end of
Speaker 1: the ludicrous season a long long time ago. I think
Speaker 1: the question is we still need to live and make
Speaker 1: a living and try to make sense of of some
Speaker 1: of it, right, um, and and and so and at
Speaker 1: first we we need to understand what's happening and so forth.
Speaker 1: But let in in the content of the virus. Right,
Speaker 1: We've always had shocks. We know that usually markets were
Speaker 1: the worst when we've most talked about them. So the
Speaker 1: fact that we're talking about the virus probably means that
Speaker 1: we're not at the peak yet, because otherwise you'll talk
Speaker 1: to other even bigger experts, right. Um, But but in
Speaker 1: all seriousness, Um, the US is more isolated from a
Speaker 1: lot of what's happening here and and so that may
Speaker 1: well be one of the reasons why the US is
Speaker 1: doing comparatively well. And so we are focused on all
Speaker 1: kinds of things. And I just might to remind people, Um,
Speaker 1: we were talking about World War three at the beginning
Speaker 1: of this year, which didn't quite materialize. So markets have
Speaker 1: a habit of moving on and with interest rates as
Speaker 1: low as they are, we quote unquote discount the short
Speaker 1: term things. And then so we live happily of after,
Speaker 1: in terms of living happily ever after that driven simply
Speaker 1: by the fact that there's so much cash slashing around
Speaker 1: the global system with uh, you know, central banks very
Speaker 1: very accommodative. Well, one way to answer a question of
Speaker 1: interest rates were at six percent in the US, markets
Speaker 1: wouldn't be as happy. I mean, from that point of view,
Speaker 1: certainly is correct. Um. One one minor issue I have
Speaker 1: with with with that statement is that every time a
Speaker 1: crisis hits, we we lower rates. And I was arguing
Speaker 1: last year that lower rates don't exactly help the trade
Speaker 1: war right. Similarly, a rate cut doesn't cure an illness,
Speaker 1: and so I don't think that the rates is everything
Speaker 1: that's driving it. But one thing of course that that
Speaker 1: takes place when we have money printing is we take
Speaker 1: perceived the risk out of the market. Risk premium get compressed,
Speaker 1: and ultimately what it does it it doesn't faster healthy
Speaker 1: capital location. Um. But at the same time, um, yes,
Speaker 1: I mean if we had a more serious disruption, and
Speaker 1: right now, by all means there are certain local disruptions.
Speaker 1: Conferences get canceled and there's a fallout from that. Supply
Speaker 1: chains get disrupted, but big business is able to deal
Speaker 1: with some of that. So it's not as simple as saying, hey, um,
Speaker 1: the central banks are foaming here. The runway and therefore
Speaker 1: everything everything is fine. I do think central banks play
Speaker 1: a roland. This are a very important piece of the puzzle,
Speaker 1: but it's not everything that's going on. I want to
Speaker 1: pick up on what you said with respect misallocating capital.
Speaker 1: People are looking at how companies are using extra cash
Speaker 1: they're generating to buy back their shares, payout dividends. They're
Speaker 1: not using it to invest in their businesses. Necessarily, we're
Speaker 1: seeing capital expenditures continue to decline. How long can this
Speaker 1: continue with an expansion versus having it bleed into the
Speaker 1: economy in a negative way. Well, the last time we
Speaker 1: talked about goldilocks was in two thousand four two five.
Speaker 1: It didn't end too well, but it lasted for several
Speaker 1: more years. It's very difficult to to time those sort
Speaker 1: of things. And so the concern I have is that
Speaker 1: everybody talks about our economy is slowing down. I'm actually
Speaker 1: more learned about the other end. It's not the most
Speaker 1: likely scenario, But what if all this accommodative monitor policy,
Speaker 1: the fiscal stimulus we have, and presumably we're gonna get
Speaker 1: a Chinese stimulus in due course, is actually going to
Speaker 1: get us a heart economy with inflation. Everybody says it's
Speaker 1: a good problempt to have, But how do you tighten
Speaker 1: monitor policy when we have so when corporations have gotten weaker,
Speaker 1: when they stretch the balance sheets, we cannot afford to
Speaker 1: have higher rates. It's one of the reasons we have
Speaker 1: these lower rates. But what if something goes wrong at
Speaker 1: the other end of the spectrum that things are too good,
Speaker 1: so to speak, um, then the fat needs to tighten
Speaker 1: and everything crumbles. Right, and so a credit driven society,
Speaker 1: um is a more quote up what efficient society. Greenspan
Speaker 1: used to say that, But it's a more fragile society
Speaker 1: in some ways because when things go wrong, people fall
Speaker 1: through the crucks and and so, yes, we can sustain
Speaker 1: this for an extended period. I'm not convinced that this
Speaker 1: is the best way to move forward. But then again,
Speaker 1: I'm just an observer here, right, or humble participant in
Speaker 1: the market. I'm not the one calling the shots. So
Speaker 1: we just have to deal with the cords were dealt with.
Speaker 1: So actually, just switching gears a little bit, looking at commodities,
Speaker 1: there's an area that has certainly felt the pain, maybe
Speaker 1: reflecting some of the global economic uncertainty. Maybe tied to
Speaker 1: the coronavirus. One commodity that is not where it seems
Speaker 1: to be gold. So we're seeing a lot of good
Speaker 1: movement in gold. What is your thoughts about gold here
Speaker 1: given some of those uncertainties. Well, we've long looked at
Speaker 1: and invested in the gold market. The The one thing
Speaker 1: we observe is that investors want to have the cake
Speaker 1: and eat it. And what I mean with that is
Speaker 1: that usually when you have a crisis, people would run
Speaker 1: to cash, but maybe because people have had such amazing
Speaker 1: gains over the years, they rather diversified to gold or
Speaker 1: even more volatile gold mining, so that with a small
Speaker 1: addition to the portfolio they can get diversification. I'm not
Speaker 1: suggesting everybody should do that, but we see that certainly happening.
Speaker 1: We do some of that ourselves because it's a ultimately
Speaker 1: cash isn't all that attractive, and so that's why people
Speaker 1: use those sort of things. What we see in that
Speaker 1: sector is that because the price of gold is moving,
Speaker 1: it attracts a lot of traders, and so inspective positions
Speaker 1: are at record highs and so forth. Those speculators love
Speaker 1: it when things are moving. Those are in there the
Speaker 1: diversification folks saying that the folks who say, well, whatever
Speaker 1: it's going to happen in the medium term can't end
Speaker 1: too well. Those investors are there. So so we see
Speaker 1: that there is a really early wave of investors coming
Speaker 1: back in and on our gold mining side, companies are
Speaker 1: far more prudent um with with how they manage these
Speaker 1: minds than they had and had been in the last cycle.
Speaker 1: Just about thirty seconds here, you're dot, you're dealt with
Speaker 1: the you deal with the cards that you're dealt What
Speaker 1: are you doing? What are you what are you allocating
Speaker 1: your money too? We have changed all that much. We
Speaker 1: we bought a little bit in China at the Chinese
Speaker 1: New Year and what we do the extent we could
Speaker 1: in US markets. But but that's really just play money
Speaker 1: and again that's not investment advice here. But but beyond that,
Speaker 1: we've really stuck to our guns and tried to look
Speaker 1: at the Delmacom picture. And so yes we have exposure
Speaker 1: to risk outs. Yes we do have significant assets also
Speaker 1: to ads occasions to something something like gold and gold mining.
Speaker 1: Exel Mark, thank you so much for joining us. We
Speaker 1: really appreciate your thoughts and commentary. Axel Work, President and
Speaker 1: Chief investment Officer of MERK Investments based in San Francisco.
Speaker 1: Time to check in with Bloomberg Opinion. We're joined by
Speaker 1: Bloomberg Opinion calms Tara la Chapelle. She covers entertainment, telecom deals,
Speaker 1: all that kind of fun stuff. She joins us here
Speaker 1: on O Bloomberg Interactive Broker Studio. So, Tera, it looks
Speaker 1: like this Sprint T Mobile deal is finally going to
Speaker 1: get done. But what's interesting about this deal is the
Speaker 1: delay and it's been delayed and delayed and delayed. Hasn't
Speaker 1: been so much at the federal level, but at the
Speaker 1: state level. What's going on here? Yeah, So it's a
Speaker 1: really unique situation where this deal that I think most
Speaker 1: people for a long time thought was never possible, just
Speaker 1: because T Mobile and Sprint are such close competitors and
Speaker 1: there's only two other real national rivals in their market.
Speaker 1: So when the FCC and the Justice Department both approved
Speaker 1: the deal with kind of minimal concessions really surprised people
Speaker 1: that the Trump administration was on board with this. And
Speaker 1: then um about you know, a couple dozen U. S
Speaker 1: States came out against it and decided to sue to
Speaker 1: try to stop the deal, and the number of states
Speaker 1: had kind of dwindled as different ones kind of struck
Speaker 1: individual concessions for their own state constituents along the way.
Speaker 1: But New York and California you were really persistent and
Speaker 1: resolved to try to stop this deal. And in the
Speaker 1: end of fourteen state attorneys general were part of this trial.
Speaker 1: And even though they lost this week, I think it
Speaker 1: could have a little bit of a chilling effect on
Speaker 1: some deals like this. Yeah, well, you pointed out the
Speaker 1: dealmaker's face of fifty two headed monster. The idea of
Speaker 1: being that all of the different attorneys general could get
Speaker 1: together independently go after certain deals. What's the precedent for this?
Speaker 1: I mean, how active are the states typically when it
Speaker 1: comes to walking deals. We don't really see them need
Speaker 1: to be active in the sense of going all the
Speaker 1: way to trial to try to stop a deal, because
Speaker 1: usually that would be the role of the Justice Department. Um,
Speaker 1: like we saw with a T and T time Warner,
Speaker 1: and you know, when states object to different things, what
Speaker 1: they'll do is work with the companies on their you know, individually,
Speaker 1: behind the scenes, and try to get concessions just for
Speaker 1: their own states. So like the New York State, A
Speaker 1: G may go to T Mobile and say, well, we
Speaker 1: need you to do this for us if we're going
Speaker 1: to support the deal. And some states did do that
Speaker 1: in the end, but it was really interesting that these
Speaker 1: fourteen states didn't. And you know, even though the judges
Speaker 1: ad up siding with T Mobile and Sprint. I had
Speaker 1: been talking with John Stevens, the chief financial officer at
Speaker 1: A T and T last month, right after their their
Speaker 1: own earnings report, and you know, the trial was still
Speaker 1: ongoing at the time. We didn't know what the ruling
Speaker 1: was going to be. But when we were talking about
Speaker 1: the impact of this case, he said, you know, it's
Speaker 1: a three headed monster now, meaning you have the FCC,
Speaker 1: the d o J, and now the states that you
Speaker 1: have to appease if you want to do a big
Speaker 1: telecom or media merger. And he said, in fact, maybe
Speaker 1: I should call it a fifty two headed monster. So
Speaker 1: that's where that came from. And it's really interesting because
Speaker 1: I think a lot of people look at this deal
Speaker 1: and say, well, if T Mobile SPRINGT can get done,
Speaker 1: basically any mega merger can get done now, and you
Speaker 1: know that might be true, um unfortunately, but at the
Speaker 1: same time, I think that a lot of executives and
Speaker 1: dealmakers are looking at this and say, do we want
Speaker 1: to go through the process of a potentially long trial
Speaker 1: and PR fight with a bunch of really powerful state
Speaker 1: attorneys general like Leticia James in New York, who you know,
Speaker 1: really didn't back down from this. It's interesting, but it
Speaker 1: seems like there's uneven application of kind of antitrust issues.
Speaker 1: I think back to the deal that you and I
Speaker 1: spent so much time talking about, the A T and
Speaker 1: T Time Warner deal. That deal just you know, the
Speaker 1: Justice Department just would not let go of that deal.
Speaker 1: And um so, is there a sense is there a
Speaker 1: sense on Wall Street and among the merger lawyers of
Speaker 1: is it a good time to do a big deal
Speaker 1: or not a good time? But I think it's hard
Speaker 1: to know. I mean, I think if you aren't in
Speaker 1: sort of the um you know, one of the companies
Speaker 1: that's been targeted by Trump directly, maybe you are safer
Speaker 1: than others. You know, we saw this week the Federal
Speaker 1: Trade Commission is trying to crack down on some past
Speaker 1: deals that the big tech giants did, and you know,
Speaker 1: that makes sense. But at the same time, It's hard
Speaker 1: not to notice that these are also companies where Trump
Speaker 1: has his own personal a grievances, So there is a
Speaker 1: little bit of a double standard there. The time warner
Speaker 1: at trial definitely stands out. You know, a case where
Speaker 1: the d o J was against it, but supporting this one.
Speaker 1: You said, thank god or unfortunately. The idea of being
Speaker 1: the that that Emerger liked mobile and spread is not good.
Speaker 1: Is that just because you expect the phone bills to
Speaker 1: go up? Yeah? I think so. I mean, I think
Speaker 1: it's hard to look at this deal and think that
Speaker 1: it's going to be anything but that as a results that,
Speaker 1: you know, these companies that have been competing with each
Speaker 1: other so intensely for the last few years, unable to
Speaker 1: raise prices and having to keep their plans so competitive,
Speaker 1: They're not going to have to do that anymore. So
Speaker 1: why would they keep prices. The counter argument is they
Speaker 1: have to actually build out a five G network. They
Speaker 1: don't have the capital to do it unless they have
Speaker 1: the market share and the and the pricing power or
Speaker 1: to raise more money. And so this will actually end
Speaker 1: up benefiting people by creating a more robust infrastructure. What's yours?
Speaker 1: It's a little bit of a stretch. There's a lot
Speaker 1: of caveats, and in the case of Sprint, yes they
Speaker 1: needed more funding. But at the same time, I think
Speaker 1: it was probably likely Sprint would have gotten bought by
Speaker 1: someone else down the road. They have so many subscribers
Speaker 1: and so much valuable spectrum. And you know, it's true
Speaker 1: that T Mobile having this bigger scale means that they'll
Speaker 1: be able to kind of spread those network costs across
Speaker 1: a bigger subscriber base. But A T N T and
Speaker 1: Verizon already have that big scale, and their costs aren't
Speaker 1: any lower. Their prices aren't any lower, I should say, so,
Speaker 1: I just really don't buy the argument. When you're going
Speaker 1: from four to three competitors, it is anti competitive, And
Speaker 1: so I thought that it was interesting that the judge
Speaker 1: disagreed with that. Tara la Chappelle always insightful, uh and
Speaker 1: wonderful columns. You can read them all at Bloomberg dot com,
Speaker 1: Slash Opinion or O P I N go on the
Speaker 1: Bloomberg Tera. L A. Chapelle as a columnist for us
Speaker 1: with Bloomberg Opinion. When we talk about the melt up
Speaker 1: or the skyrocket up, if you take a look at
Speaker 1: a longer time series of the US equity market. Really,
Speaker 1: when you dive in, it is about the rally in
Speaker 1: a select group of shares, the fang shares, the big
Speaker 1: fanmag Actually, because we're gonna be speaking about one of them.
Speaker 1: Apple and Microsoft combine account for more than ten per
Speaker 1: cent of the S and P S value, which raises
Speaker 1: even more scrutiny of these companies because they are becoming
Speaker 1: systemically important in a way that few others have in history.
Speaker 1: Joining us now on our a Grana senior I T
Speaker 1: and software analyst for Bloomberg Intelligence, I want to drill
Speaker 1: into Microsoft, in particular a couple of interesting developments when
Speaker 1: it comes to their cloud development. Can you give us
Speaker 1: a sense of what the latest is there in the
Speaker 1: broader context of the import of this country, of this
Speaker 1: company within the sphere of the US equity markets. Yeah. Absolutely.
Speaker 1: See cloud has been talked about for a very long
Speaker 1: period of time, but when you look at the infrastructure
Speaker 1: piece of it, Amazon had the lead, and you know,
Speaker 1: had lead for years for for just because of the
Speaker 1: early entrant being the first, you know, person in the market. Um,
Speaker 1: Microsoft is doing a phenomenal job over the last six
Speaker 1: seven years to scale that business up. It became the
Speaker 1: first and the most important part of satire when he
Speaker 1: came in what close to what six years ago now,
Speaker 1: and he has done a lot of good work in
Speaker 1: terms of working with the rivals, making Microsoft more open
Speaker 1: to open source software UM and now their cloud portfolio
Speaker 1: is second to Amazon and a very close second. It's
Speaker 1: not a question of before the gap was very wide.
Speaker 1: Now if you are looking to, you know, move any
Speaker 1: of your applications to the cloud, you can choose one
Speaker 1: or the other. It didn't, it does. It's not a
Speaker 1: slam dunk that it has to go to Amazon. And
Speaker 1: the most recent win or the word big, you know,
Speaker 1: controversial contract is just around that. But you know, Microsoft
Speaker 1: is in a great position today. So give us the latest.
Speaker 1: I saw some news out I guess yesterday federal judge
Speaker 1: temporarily blocked Microsoft from working on a ten billion dollar
Speaker 1: Pentagon cloud computing contract after Amazon, I guess, asked for delay.
Speaker 1: So give us a sense of how material that is
Speaker 1: and what's your story. It's more of philosophical about that,
Speaker 1: you know, the second player beat the first player kind
Speaker 1: of an argument because financially, you know, with with the
Speaker 1: amount of money Microsoft generates per year, you know, billion dollars,
Speaker 1: billion dollars per year is not you know right financially
Speaker 1: that moving, but philosophically it's a very important thing. Um,
Speaker 1: we go back a few years when Amazon beat IBM
Speaker 1: to a similar ci A contract. It was all up
Speaker 1: in there is that Amazon's now up in front running
Speaker 1: when it comes to infrastructure, and you know this is similar.
Speaker 1: There's a lot of politics involved in it because of
Speaker 1: Jeff Bezos and the president. Um, so you know there
Speaker 1: is a lot of argument over there, but both and
Speaker 1: you know, our take is both companies will do really
Speaker 1: good in cloud. They have really good products and um,
Speaker 1: you know, the market's large enough of both of them
Speaker 1: to be there. So taking a step back, there's sort
Speaker 1: of an existential question when it comes to the US
Speaker 1: equity market about how much further tech giants can go
Speaker 1: when it comes to their share prices rallying. They've led
Speaker 1: the charge globally and I'm wondering when you surveil the
Speaker 1: landscape of the tech giants, are there any clouds? Are
Speaker 1: there really any kind of you know, harbingers of another
Speaker 1: time that's less suspicious for these or do you feel
Speaker 1: like it's just going to keep on going. It's that's
Speaker 1: a very difficult question because a lot of propose it
Speaker 1: that way. A lot depends on the macro view. If
Speaker 1: if the global economy slows down, nothing is sacred at
Speaker 1: that point, tech spending, cloud being you know, a growth area, yes,
Speaker 1: but the degree or the rate of growth will actually
Speaker 1: slow down for all products. So if you look at it,
Speaker 1: you know, our philosophy and going into or our thesis,
Speaker 1: what we should see a slow down in some of
Speaker 1: the you know, even the high growth areas, but it
Speaker 1: hasn't happened so far. Now, whether it gets pushed off
Speaker 1: in the middle of the year the elections, does it
Speaker 1: if the virus like there are there are so many
Speaker 1: macro factors out there from you know, weakness in Europe, weakness,
Speaker 1: and you know, it's difficult to say because because the
Speaker 1: rate of growth is still holding up and and that's
Speaker 1: actually pretty impressive given where we are in the economic cycle.
Speaker 1: All right, So Microsoft stacks up sever the past twelve months.
Speaker 1: Is it just the cloud? What's the story here? It
Speaker 1: is just the cloud. But actually it's a funny part
Speaker 1: is for Microsoft, it's not just the public cloud. It's
Speaker 1: actually what they call the hybrid cloud strategy, because what's
Speaker 1: happening is the you know, we we were a piece
Speaker 1: called cloud two point when talks about that, the next
Speaker 1: phase of cloud growth is not going to come from
Speaker 1: the netflix is of the world. It's going to come
Speaker 1: from the Disneys of the world that are moving their
Speaker 1: entire business dig to a digital platform. So they are
Speaker 1: the ones who are upgrading it. And guess what, Microsoft
Speaker 1: is a dominant position in the legacy I T infrastructure.
Speaker 1: So when people move that, they buy both their on
Speaker 1: premise software and they buy their cloud programs, so they're
Speaker 1: actually having what I would call is the best of
Speaker 1: both words. Interesting stocks been it's such a nadela is.
Speaker 1: You know, he's been there six years. It's kind of
Speaker 1: an unsung maybe just in my mind, an unsung star
Speaker 1: of Silicon value. You think about, you know, the Bezos
Speaker 1: of the world. He's being sung enough, he's being sung
Speaker 1: more now you think not. I still haven't come across
Speaker 1: the CEO going back to even you know, the days
Speaker 1: of IBM stilling around or Lei co cop. I think
Speaker 1: he's done better than any one of them because he
Speaker 1: has changed the philosophy of the company. He has changed
Speaker 1: the mindset of the company from who cared about Microsoft
Speaker 1: seven eight years ago and now the biggest player in
Speaker 1: software is growing faster than the software industry. That's pretty impressive. Yeah,
Speaker 1: that's Valentine such an Adela. Yes, exactly round it covers
Speaker 1: all things technology for Bloomberg Intelligence. We appreciate him coming
Speaker 1: in here in our Bloomberg and Diactor broker studio giving
Speaker 1: us his thoughts on Microsoft, well investors across the globe,
Speaker 1: or trying to figure out the pact of the coronavirus
Speaker 1: will have on global economic growth. Economists are crunching their numbers.
Speaker 1: We have our own economists with his own model. Car
Speaker 1: Rico Dona, chief US economist for Bloomberg Economics, joins us
Speaker 1: here in the Bloomberg Interactive Broker studio. So, Carl, what
Speaker 1: do you guys at Bloomberg Economics thinking about right here
Speaker 1: as it relates to the impact from the coronavirus maybe
Speaker 1: on obviously Chinese economic growth, but also global GDP. Absolutely so,
Speaker 1: as we think about the impact and I know a
Speaker 1: lot of people immediately pull out the playbook from Stars
Speaker 1: in two thousand and three, I don't think that's the
Speaker 1: best comparison China had a much smaller role on the
Speaker 1: global economy at that time, and so I think the
Speaker 1: stars comparisons run a little thin UH and instead we
Speaker 1: can see some better parallels if we look back to
Speaker 1: the Thai the flooding in Thailand in twleven, or the
Speaker 1: Fukushima nuclear disaster in Japan UH and how those disrupted
Speaker 1: global supply chains. And I think that gives us some
Speaker 1: more use a way of thinking about what we're seeing
Speaker 1: as we hear more and more headlines about, especially in
Speaker 1: the auto sector, production lines being slowed because they are
Speaker 1: missing parts and whatnot. Just to put some numbers around
Speaker 1: the forecast are China team has downgraded their Q one
Speaker 1: UH forecast to about four point five percent growth in China.
Speaker 1: That compares to a running rate of about six high
Speaker 1: five type of territory for China in terms of the
Speaker 1: U S economy. We have modified our growth numbers to
Speaker 1: look for more weakness in the first half of the year.
Speaker 1: But that is not a coronavirus story. That is actually
Speaker 1: a bowing production story. The the stoppage of production of
Speaker 1: the seven thirty seven max actually holds the potential to
Speaker 1: move top line economic growth. So GD there's very few
Speaker 1: companies that can actually move the needle on GDP growth.
Speaker 1: Uh Boeing jumbo jets are an expensive item, and so
Speaker 1: in fact, the the the volatility around production can impact growth,
Speaker 1: and that's what we're seeing in the first half fast nating.
Speaker 1: There's a question in the economists who we speak with,
Speaker 1: they say there's going to be a V shaped recovery.
Speaker 1: A lot of people say that any growth lost will
Speaker 1: be subsequently made up for when people start to go
Speaker 1: back out and and the virus fear subside or Boeing gets,
Speaker 1: you know, finished with their issues with the seven thirty
Speaker 1: seven Max. What's your take on the on the likelihood
Speaker 1: of a V shaped recovery. So, if we're talking about
Speaker 1: Boeing production issues, if they get clearance, ramp up production
Speaker 1: and fill a bunch of orders, then absolutely you get
Speaker 1: that V shaped production V shaped rebound production. For the
Speaker 1: virus story, I'm not so sure that's the case because
Speaker 1: a lot of spending, especially in service categories, will not
Speaker 1: be replaced and so there you know, there certainly will
Speaker 1: be some pent up demand. If you need a new
Speaker 1: phone or a new automobile and you didn't get to
Speaker 1: buy it because of transportation networks being shut down and whatnot,
Speaker 1: you're probably gonna go buy it relatively soon, So that
Speaker 1: demand does get pent up. But if you normally go
Speaker 1: to the movies five times a month, you're not going
Speaker 1: ten times next to make up for uh, the the misstime.
Speaker 1: Same with restaurant meals and a lot of stuff like that.
Speaker 1: Also there's an income impact. So for shutting down the economy,
Speaker 1: a lot of people who are maybe earning an hourly
Speaker 1: wage as opposed to a salary, they're not getting paid
Speaker 1: and so they will have less spending power when when
Speaker 1: activity does start to bounce back. Doesn't mean again that
Speaker 1: there's not a little bit of pent up activity. You
Speaker 1: have to buy groceries and whatnot. But I think that
Speaker 1: we're looking at last income which will actually lower the
Speaker 1: level of GDP growth. For so, Carl, we think when
Speaker 1: we think about GDP growth, certainly in the US but
Speaker 1: certainly around the world as well, we think about the consumer,
Speaker 1: of the strength of the consumer. We had some US
Speaker 1: retail sales number came out this morning. On that surface
Speaker 1: looked pretty good. What did you take from those, Well,
Speaker 1: when you say we think about the consumer, we pretty
Speaker 1: much think only about the consumer, because the core, if
Speaker 1: not sole engine of economic growth for the last quarter,
Speaker 1: four quarters, twelve core, or sixteen quarters, I could go on,
Speaker 1: has really been consumer spending. And so as we look
Speaker 1: at the retail sales numbers today, they're basically consistent with
Speaker 1: the same type of consumer activity we saw in Q four,
Speaker 1: which was not great, but it was not terrible either.
Speaker 1: So it's enough to prop up economic growth in the
Speaker 1: vicinity of two percent or slightly less. So consumers are
Speaker 1: holding up and certainly, uh, you know, to kind of
Speaker 1: look at the silver lining of all of this, which
Speaker 1: is kind of a perverse thing to do with oil
Speaker 1: prices coming down as much as they did, we're seeing
Speaker 1: prices at the pump coming down, uh, and so this
Speaker 1: is giving consumers a little bit of an energy dividend,
Speaker 1: and they're spending accounts. And we saw that in things
Speaker 1: like restaurant and bar sales being quite strong. Often that's
Speaker 1: a give or take category of gas becomes more expensive,
Speaker 1: people eat out or drink less in vice versa, and
Speaker 1: so we saw some signs of that in January. Uh,
Speaker 1: the gas price decline is going to be much more
Speaker 1: evident in February, so watch for those discretionary categories that
Speaker 1: to perk up. Where we would be concerned that things
Speaker 1: are really falling apart is if you saw consumer sentiments
Speaker 1: start to pull back, and that is not the case,
Speaker 1: whether you look at equity markets or whether you look
Speaker 1: at the preliminary reading from University of Michigan, uh the
Speaker 1: surprised expectations to the upside this morning right coming in
Speaker 1: at the highest level since two thousand and eighteen. Is
Speaker 1: this a leading or logging indicator, Well, it depends, but
Speaker 1: it can often be a leading indicator heading into economic downturns.
Speaker 1: If we look at past recessions, you see consumer sentiment
Speaker 1: roll over before the downturn actually occurs. Now, this could
Speaker 1: be for two reasons. Maybe households are very intuitive and
Speaker 1: they can read the trend in the economy before it
Speaker 1: actually occurs. Or maybe the pullback and sentiment actually contributes
Speaker 1: to enough of a down draft that it pushes the
Speaker 1: economy into contraction. Whether it's chicken or egg doesn't really matter.
Speaker 1: But the important thing is it is a leading indicator
Speaker 1: of recession, and so you don't see this acceleration going
Speaker 1: into a downturn. So again, there's lots of negative headlines
Speaker 1: out there, but we have to remember, with unemployment as
Speaker 1: low as it's been going all the way back to
Speaker 1: nineteen nine, UH, wage pressure is not great, but there
Speaker 1: is some upward trajectory. Their wage stagnation as a myth,
Speaker 1: we're seeing wage growth. Consumer spending should be able to
Speaker 1: hold in at some base level over the course of
Speaker 1: this year, which means US recession odds still remain relatively low.
Speaker 1: I put him in the vicinity of about fifteen, down
Speaker 1: from a lot more. Well, it was temporarily a little
Speaker 1: bit higher last year, but I was never big into
Speaker 1: the notion that we were on the cusp of recession
Speaker 1: for the reasons I just highlighted low unemployment, wage pressures,
Speaker 1: and consumer spending power. Kara Kadonna, Happy Valentine's Day and likewise,
Speaker 1: thank you sporting the pink sure today he is supporting
Speaker 1: the pink shirt the curl in his hair. Lovely Kara Kadonna,
Speaker 1: chief US economist for Bloomberg Economics, shoining us here in
Speaker 1: our interactive Broker Studios. Thanks for listening to the Bloomberg
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Speaker 1: Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa
Speaker 1: abram Woits. I'm on Twitter at Lisa A. Bram Wits.
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