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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. Pork Garvey

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Speaker 1: is with I n G and he brings to them

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Speaker 1: prodigious econometrics as well. I want to go to the

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Speaker 1: econometrics of the moment and really within that and the

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Speaker 1: shock of all the fancy mathematic you deal with on

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Speaker 1: dead and central banks every day. What's the overcome by

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Speaker 1: events thing you worry about out there? What's the obe

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Speaker 1: out there that we need to pay attention to. I

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Speaker 1: think you've got to look at the shape of the

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Speaker 1: curved tom to on the sound that they is a

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Speaker 1: really unusual set of circumstances. We haven't seen the degree

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Speaker 1: of inversion that we're seeing now in the past four

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Speaker 1: or five decades, and that tells me that that the

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Speaker 1: back end of the curve is pricing in a huge

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Speaker 1: degree of uncertainty. I'm not convinced it's entirely the rate

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Speaker 1: cut narrative. I think there's a bit of geopolitics out there.

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Speaker 1: I think there's the reality that the central Bank is

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Speaker 1: holding lots of bonds out there, and I think there's anchoring.

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Speaker 1: I have this conversation with traders all the time. They say, oh,

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Speaker 1: we think the tens they're going to go back to

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Speaker 1: two percent, and I would say why, and they say, well,

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Speaker 1: that's because that's where it was. We're not going back

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Speaker 1: to where we were. I meant, this is brilliant and

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Speaker 1: there's a lot to unpack there, and we don't have

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Speaker 1: a time to do the unpacking today. We'll do our

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Speaker 1: for Bosi later. The bottom line is we are at

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Speaker 1: a fourth standard deviation move off the Great Moderation going

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Speaker 1: back to nineteen eighty five, and that's part of that

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Speaker 1: yield curve spread. And whether if I look at two

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Speaker 1: years compared to three years, as you say, truly we're

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Speaker 1: in new territory, does it signal depressed growth or a

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Speaker 1: duration of subpart economic growth. I doubt that very much.

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Speaker 1: And here's why. If you look at where neutrality is,

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Speaker 1: I would suggest neutralities around three percent. Why three percent?

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Speaker 1: Three percent is two two and a half percent off lation?

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Speaker 1: A half one percent really yield And if I look

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Speaker 1: at the back end of the curve, it's not discounting

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Speaker 1: a break below three that's usually important for me. So

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Speaker 1: I think we've had this unprecedented degree of monetary tightening.

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Speaker 1: It's still in absolute terms, leaves us at approaching five

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Speaker 1: and a half percent. Big picture, that's not huge. We've

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Speaker 1: come from zero to five and a half were not huge.

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Speaker 1: If we get there and we're done, and the next

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Speaker 1: move is down, and let's suppose a FED gets down

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Speaker 1: to three percent, that's a very tolerable outcome, And it

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Speaker 1: doesn't suggest anything like what you've just scribed. Work with

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Speaker 1: the balance of risks, which do you think is more

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Speaker 1: concerning the risk of inflation persisting at a higher level

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Speaker 1: or the risk that rate hikes could really kill the economy?

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Speaker 1: The former is the biggest risk. But I think I

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Speaker 1: think the way the FED is pursuing policy here is

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Speaker 1: it's kind of smart. I know the FED gets a

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Speaker 1: hard rap because of missing the early rate hikes, but

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Speaker 1: twenty fives from here is quite smart. They've got to

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Speaker 1: keep on twenty fives and level off, and at a

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Speaker 1: certain point in time, this degree of tightening has got

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Speaker 1: to hurt. You look at lending standards out there, they

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Speaker 1: are as tough as they've been since the Great Financial Crisis,

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Speaker 1: but we're not seeing that in the data. And this

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Speaker 1: is really the concern that's causing a lot of people

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Speaker 1: to rethink the balance of risks once again, the sort

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Speaker 1: of you know, schizophrenic nature of disinflation or not. How

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Speaker 1: much do you look at the recent data and the

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Speaker 1: stickiness of inflation and start to question your thesis and

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Speaker 1: start to question if perhaps it's not really restrictive if

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Speaker 1: you look at policy rates right now, yeah, you're right

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Speaker 1: least we're not seeing it in the data for January,

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Speaker 1: potentially for February. There's a weather impact there, there's a

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Speaker 1: seasonal adjustment factor there. If you stand back and look

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Speaker 1: at the direction of travel for the data over the

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Speaker 1: past year, we are seeing the impact with the exception

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Speaker 1: of the labor market. The labor market is where we

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Speaker 1: have this remarkable anomally where we still can't get people

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Speaker 1: to work, which is incredible to be in that situation

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Speaker 1: right now. That is going to creek. Though we've got

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Speaker 1: to remember that the replacement number in payrolls is one fifty.

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Speaker 1: Once we get to blow one fifty, we're in growth

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Speaker 1: recession territory. If we go mildly negative, we're in recessionary territory.

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Speaker 1: We don't have to go to a deep recession territory,

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Speaker 1: but the indicators we're heading in that direction, and it'll

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Speaker 1: be over the next couple of quarters that we see

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Speaker 1: that come to bear. If you want to peaka payrolls

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Speaker 1: for next Friday, not this Friday, but next Friday. The

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Speaker 1: estimates so far to twenty the previous number five seventeen.

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Speaker 1: I'm not sure what the estimate is worth at this point,

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Speaker 1: and I'm not sure what the previous number is worth either,

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Speaker 1: because we can have some months to revision in one

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Speaker 1: way one way or the other. So I won't put

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Speaker 1: too much weight on that. Probably, I think there's something

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Speaker 1: I'm going to walk away from this conversation with from you.

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Speaker 1: We're not going back there. There's still a lot of

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Speaker 1: people who think we're going back there. And if you

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Speaker 1: look about the arc of like the last twelve eighteen months,

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Speaker 1: it was we can't live with two percent, we can't

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Speaker 1: live with three, we can't live with four, we're about

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Speaker 1: to live with five. What is it that's changed? Do

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Speaker 1: you think in this economy that maybe people haven't grasped

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Speaker 1: the people that are sitting there saying we are going

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Speaker 1: back there, what don't they get we also count live

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Speaker 1: with five. By the way of five percent is ns

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Speaker 1: an equilibrium and the equibinate is down to three. This

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Speaker 1: is a really unusual set of circumstances, John, I mean

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Speaker 1: that there are so many anomalies here relative to previous cycles.

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Speaker 1: I think people are not getting a lot of stuff

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Speaker 1: because it's it's tough, it's it's it's all over the place.

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Speaker 1: And it goes back to the inversion of the curve

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Speaker 1: and how unusual that is. And I would say the

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Speaker 1: other big anomaly out there is how calm. But I

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Speaker 1: would say it's anomally it's a positive thing. How calm

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Speaker 1: the system is. You look at where banks PRINTCP very tight,

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Speaker 1: you look at where credit spreads are very contained. There's

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Speaker 1: very little concerned about anything breaking. So when I say

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Speaker 1: we're not going to go back there, show me a

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Speaker 1: reason to go back there. Something's got to break, and

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Speaker 1: so far something hasn't broken. And until we get that,

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Speaker 1: you know, I think up to five percent down to

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Speaker 1: three percent, it's a pretty tolerable outcome. It includes a

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Speaker 1: bit of a growth recession, but not Tom's description of

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Speaker 1: Tom's gloom and armaged. It's been a surprise to me,

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Speaker 1: so to be honest with you, particularly in Europe, not

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Speaker 1: just the United States least. So we've talked about this.

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Speaker 1: Just the idea that we're now talking for in Europe

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Speaker 1: and the Italian bond market spreads there is still pretty

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Speaker 1: contained right to the whites we saw last year, which

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Speaker 1: suggests we can live with higher than two percent in

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Speaker 1: terms of what that terminal yield can be, as Park

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Speaker 1: was saying, and we're not going back to zero a

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Speaker 1: big time soon. People say that, but have they really

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Speaker 1: believed that. In that believe we can go back to

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Speaker 1: pre pandemic trends, love inflation, low growth, interest rates, get

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Speaker 1: a long big tech. A lot of people still think

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Speaker 1: that this was great, just awesome. Come by more often.

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Speaker 1: Para of ig financial markets on this debt market. Joining

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Speaker 1: Michael McKee is of course Carl Ricadana with BMP Perry

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Speaker 1: by the Chief US Economents again out eight beeps on

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Speaker 1: the ten year or four point zero eight percent to

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Speaker 1: thirty year bond is a stunning four point zero three percent.

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Speaker 1: I want to allude here to the complexities of productivity.

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Speaker 1: I'm going to call its three ratios lots of partial

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Speaker 1: differentials there. And the bottom line is people like you

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Speaker 1: are hoping and praying that our post pandemic productivity, that

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Speaker 1: our post pandemic efficiency is good. That data tells me

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Speaker 1: maybe not fold productivity into this volatile market debate. Well,

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Speaker 1: the productivity numbers, if we look at them in year

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Speaker 1: on year terms, are actually deep into negative territory, almost

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Speaker 1: down two percent. So we have very strong job gains

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Speaker 1: and an economy that is slowing. So that's not really sustainable,

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Speaker 1: but it can kind of run that way and inconsistent.

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Speaker 1: The inconsistency can last for you know, at least multiple

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Speaker 1: quarters unit labor costs of a three handle. Does it

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Speaker 1: lead to the gloom of a wage price spiral? Does

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Speaker 1: it lead to a gloom that we're not going to

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Speaker 1: get quiescent wage growth. So let's look at that unit

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Speaker 1: labor cost number and year on year terms, and it's

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Speaker 1: even more disturbing. It's six point three percent, as I

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Speaker 1: see in the bloom table here. So what six percent

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Speaker 1: plus on a unit labor costs if we look at

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Speaker 1: the employment cost index running at five percent, These are

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Speaker 1: the elements of wage price spiral. And I know Cher

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Speaker 1: Powell has said that he doesn't think we're in a

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Speaker 1: wage price spiral at the moment, but once you're there,

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Speaker 1: it's too late and it's a very expensive problem. Historic

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Speaker 1: this factors into how the FET is thinking about that

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Speaker 1: annual average productivity decreased one point seven percent from twenty

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Speaker 1: twenty one to twenty twenty two. The BLS says, the

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Speaker 1: largest annual decline in the measure since nineteen seventy four. Wow,

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Speaker 1: that's it, and that that precisely gets back to four

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Speaker 1: to five years before vulgar and shows the scope and

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Speaker 1: scale of this historic moment. I just want to point

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Speaker 1: out Lisa Rickadona can come back because he uses the

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Speaker 1: Bloomberg terminal. It's good how that works well. But Carl,

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Speaker 1: aside from your usage off the Bloomberg terminal, I am

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Speaker 1: curious as you pass through this. We were just talking

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Speaker 1: before these numbers came out, that you were looking for

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Speaker 1: more evidence that there was something stickier in nature about

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Speaker 1: these numbers that we got out in January. Is this

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Speaker 1: leaning you a little bit closer to that moment. We

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Speaker 1: are seeing persist inflation everywhere. That's been a longstanding call

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Speaker 1: of my team at BMP. We're seeing persistent inflation everywhere,

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Speaker 1: including in wages. And there was a little bit of

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Speaker 1: a rollover in Q four and so team Transitory was

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Speaker 1: put on their sneakers to run a victory lap. And

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Speaker 1: it's pretty clear that that has kind of washed out

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Speaker 1: now in the most recent data, So we have to

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Speaker 1: see how far this is running. But certainly, you know,

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Speaker 1: I see evidence of labor markets softening everywhere I look,

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Speaker 1: except for in the economic data. Right if you open

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Speaker 1: the newspaper, you see layoffs here, and hiring intentions down

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Speaker 1: and all those signals. But in the actual macroeconomic data,

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Speaker 1: you're not seeing the cooling of conditions. And we have

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Speaker 1: seen this. There was a Wall Street shortle article about

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Speaker 1: this as well. I am looking right now at ten

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Speaker 1: year yields getting close to that four point one percent,

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Speaker 1: four point zero eight percent rounded up to the nearest tenth.

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Speaker 1: I'm a hundred. I'm curious from your perspective, whether we're

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Speaker 1: getting to a perspective where it is a new regime

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Speaker 1: where productivity is going to be lower, Labor costs are

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Speaker 1: going to be higher. You have a different kind of

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Speaker 1: labor market and workforce that's going to require more investment.

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Speaker 1: Are you seeing enough signs that we are there? When

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Speaker 1: you have that kind of heat in the labor cost

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Speaker 1: pressure series? On an extended basis, businesses have no alternative

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Speaker 1: aside from making the capital investments, from the technological technological

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Speaker 1: investments to drive a productivity rebound. Just real quick, the

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Speaker 1: broader story here, We surged in productivity coming out of

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Speaker 1: the pandemic, right, so now this is the correction period,

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Speaker 1: so we shouldn't get too depressed about the low productivity number. Also,

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Speaker 1: the BLS notes that they applied the historical revisions that

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Speaker 1: they put into the Jobs report and into the CPI

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Speaker 1: reports to this release, which is probably why it is

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Speaker 1: such a huge show to the two of you here,

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Speaker 1: and you got a minute and a half to warble gaily.

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Speaker 1: As Lisa mentioned earlier today, blah blah blah. And the

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Speaker 1: answer here is does this shift the fifty beeps? At

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Speaker 1: next meeting debate, Michael oh I would say no, this doesn't.

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Speaker 1: I mean, we have too much data coming out ahead

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Speaker 1: of us that's far more important than this, Jobs and

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Speaker 1: CPI will have a much bigger influence on the FED

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Speaker 1: than Carl believe. They will warble gaily in uniform harmony

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Speaker 1: with my you're not supposed to agree with that. The

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Speaker 1: inflation report that's going to be much more critical. This

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Speaker 1: is kind of stuff we already knew from the look

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Speaker 1: like the inflation report. If we look into the details,

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Speaker 1: look at the US service sector inflation, which is what

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Speaker 1: is really driving the FED reaction function is showing very

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Speaker 1: little evidence of any kind of disinflationary trend, and you

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Speaker 1: won't see that with wage pressure. It's continuing to accelerate higher.

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Speaker 1: And tomorrow we do get at ten AM the ISM

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Speaker 1: services index, and that is going to be key, not

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Speaker 1: just the index, but price is paid for that given

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Speaker 1: the fact that we saw manufacturing prices paid increase to

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Speaker 1: the degree that they did. If you see that kind

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Speaker 1: of moving services, could that really move the prices matter?

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Speaker 1: But it's an activity gauge. So the new orders, the

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Speaker 1: production numbers, that really will tell us more about this

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Speaker 1: potential reacceleration thing about the European numbers too, as they

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Speaker 1: were largely even buy food prices, which has not been

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Speaker 1: a big issue here. I mean, we've had elevated food prices,

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Speaker 1: but we've seen being driven by the UH service prices

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Speaker 1: much more. What's been happening. Had you were talking yesterday

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Speaker 1: about with or without shelter? I got the three of

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Speaker 1: your pilot on me together. Mike, please, you were talking

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Speaker 1: yesterday about the differences between the way the US and

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Speaker 1: Europe dealt with unemployment during the pandemic. Europe kept workers

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Speaker 1: on the job by subsidizing employers, and so the employers

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Speaker 1: didn't have to go out and raise wages as much

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Speaker 1: as they've had to do in the US. Well, let's

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Speaker 1: continue this discussion. We're go into a data check now. Lisa,

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Speaker 1: help me here, because I don't see much spread movement.

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Speaker 1: I do see a ten year real yield come out

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Speaker 1: to a one point five percent, but in the actual

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Speaker 1: yield space nastack down one percent here on the nastack

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Speaker 1: one hundred. But Lisa, four point zero seven percent on

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Speaker 1: the ten year yield is just stunning. The nominal yield

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Speaker 1: is really what I'm looking at. Not just after the

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Speaker 1: thirty year it crossed four percent for the first time,

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Speaker 1: it went straight to four point h two percent, And

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Speaker 1: we're looking at just this real trajectory of higher inflation

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Speaker 1: for longer being gamed out in some of the yield structure,

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Speaker 1: and that I think is a game changer on radio

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Speaker 1: and television. Thank you for continuing with this pre AMISERA

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Speaker 1: will join us here in a moment. We thank Carl

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Speaker 1: Ricadya of BMP Pariba and always Michael McKee for driving

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Speaker 1: this stunning debate to put things into perspective. I'm going

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Speaker 1: to do that right now. Priamisra and Lisa Bramwits are

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Speaker 1: far too young to remember when Bob Redford stood outside

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Speaker 1: the Plaza Hotel in the way we were and with

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Speaker 1: Barbara Streis, and they said, memories data, DA, DA, guess

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Speaker 1: what productivity dynamics are back to nineteen seventy four. Someone

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Speaker 1: who has been expert at measuring this over to our

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Speaker 1: financial bond market is Priamisra TV Securities, and she joins

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Speaker 1: us this morning. We're looking at the history of this

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Speaker 1: pre up and we're also looking at your brilliant call

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Speaker 1: an inversion. Although some have been brave recently and said

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Speaker 1: look higher yields, I get a coupon along the way,

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Speaker 1: I want to be brave here. In February and March

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Speaker 1: of twenty twenty three, did the bravery the courage? Did

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Speaker 1: it slip away this morning? Thanks for having me on.

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Speaker 1: So no, I think you have to be patient. It's

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Speaker 1: hard to pick the absolute topping yield. You know you're

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Speaker 1: talking about having confidence. I don't have a ton of

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Speaker 1: confidence in the front end because you know, we know

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Speaker 1: inflation is sticky. We know it's post services X shelter

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Speaker 1: is driven by wages. It's a very tight labor market

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Speaker 1: and companies are holding label. So it's possible that inflation

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Speaker 1: remains persistently high through the year, and the Fed we

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Speaker 1: think in twenty five basespin instruments may have to keep

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Speaker 1: hiking maybe five seventy five, maybe six percent. So you

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Speaker 1: know that very front end of the yield cuve I

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Speaker 1: think is very driven by data in the near term,

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Speaker 1: the long end. That's your view, that's your neutral rate view.

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Speaker 1: And I think the data is strong on the consumer,

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Speaker 1: on the labor market. Not because policy contrastrictive. We are

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Speaker 1: in restrictive freditory. It's because the lags have not worked through.

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Speaker 1: I mean, the fat fund rate crossed four percent only

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Speaker 1: in December. You have to give the economy more than

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Speaker 1: two months for it to keel over. And I think,

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Speaker 1: you know, that's why the long end is selling off.

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Speaker 1: People expect that interest rates don't matter. I think interest

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Speaker 1: rates matter. They just take a while to show up

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Speaker 1: in terms of business investment decisions or spending decisions free

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Speaker 1: I want to go to the It takes a while.

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Speaker 1: If I've got a seven standard deviation, move from very

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Speaker 1: low thirty year yields out of very high thirty year

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Speaker 1: yields stunningly out above the great moderation, and I go

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Speaker 1: back to whatever the new center tendency is. How long

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Speaker 1: does that take? Is this a matter of six months

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Speaker 1: or is it a matter of six years to get

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Speaker 1: back to normal? So economic theories suggests twelve to eighteen

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Speaker 1: months from monetary policy to work through. I mean you

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Speaker 1: could argue maybe it's a little bit shorter, maybe it's

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Speaker 1: twelve months nine months. I will say something that maybe

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Speaker 1: making the lags longer this time is that the consumer

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Speaker 1: entered the hiking cycle with a large amount of accumulated savings.

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Speaker 1: Now those savings are running off. We're tracking, you know,

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Speaker 1: by the end of this year. We're thinking in the

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Speaker 1: third quarter those savings are largely gone that's when the

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Speaker 1: consumer has to start to reckon with higher interest rates,

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Speaker 1: tighter financial conditions, maybe a job market that's not as strong.

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Speaker 1: I mean, there may not be a lot of firing,

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Speaker 1: but job openings start to come off. So I think

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Speaker 1: it's more or later this year that we think consumer

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Speaker 1: spending slows down the job market starts to weaken. So

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Speaker 1: I don't think you're waiting six years. But we're watching

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Speaker 1: those savings numbers and the savings continue to come off.

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Speaker 1: But you know, today, if I have a job and

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Speaker 1: I'm making five percent wage growth, wage gains, and I've

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Speaker 1: got savings I'm spending. I think we're just saying be

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Speaker 1: careful in extrapolating that, because those savings will run out

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Speaker 1: by the end of the year. How much conviction do

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Speaker 1: you have to load the boat on ten year to

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Speaker 1: load the boat on thirty year treasuries? So I have

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Speaker 1: much more conviction on the ten year and the thirtie

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Speaker 1: than I do on the front end. I don't know

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Speaker 1: about loading the boat. I use the word I used.

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Speaker 1: I guess some few weeks ago when I started to

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Speaker 1: leg in, I would leg in some more because you know,

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Speaker 1: I think you're at we entered some around three eighty,

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Speaker 1: we lenter some more longs at four percent. I think

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Speaker 1: the Fed's telling you that they have to engineer hard landing.

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Speaker 1: They're not going to say it because it's very hard

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Speaker 1: politically to get that through. But how do you get

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Speaker 1: inflation down without a rise in the unemployment rate? So

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Speaker 1: the FED will have to engineer a rise in the

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Speaker 1: unemployment rate. Then these four percent tens will look really cheap.

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Speaker 1: But it's for the peak of four ten. Now maybe

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Speaker 1: it goes to four twenty five, So I think you

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Speaker 1: want to have some dry powder to keep adding to it.

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Speaker 1: But I think you know these levels in a long

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Speaker 1: term sense. I don't think our star is higher or

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Speaker 1: the neutral rate should be much high. I think the

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Speaker 1: FED is committed to two percent inflation, and we've seen productivity.

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Speaker 1: I don't think the economy can handle very high real

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Speaker 1: rates in the long run. This is such an important point,

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Speaker 1: and it goes guess what poor Carvey was saying, or

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Speaker 1: he said, Listen, people think we're going back to the

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Speaker 1: same kind of regime we were in prior. You're saying

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Speaker 1: we are going to go back to that regime. What

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Speaker 1: gives you confidence other than just the FET is committed

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Speaker 1: to a two percent inflation regime, especially if a two

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Speaker 1: percent inflation regime is different from the prior ten years,

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Speaker 1: which it wasn't a two percent inflation regime. As Time mentioned,

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Speaker 1: it was a sub two percent inflation rate, right, So

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Speaker 1: I think there are some structural factors that might be

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Speaker 1: moving inflation a little higher. So if we were sub

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Speaker 1: two percent, maybe the next ten years will be a

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Speaker 1: two percent number. But I think inflation does. If the

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Speaker 1: FIT thinks they want to get to two, they're going

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Speaker 1: to keep policy restrictive for a while. They're going to

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Speaker 1: keep that front in, you know, not cut rates anytime soon.

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Speaker 1: Really our star or really equilibrium rate, those are driven

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Speaker 1: by productivity, demographics, saving the cloud. I don't know if

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Speaker 1: any of this is right, you know, after COVID, so

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Speaker 1: maybe it's not zero. It's fifty basins points, all right,

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Speaker 1: but we're well north of that in terms of market

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Speaker 1: pricing of real rate Priya with respect of the giant.

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Speaker 1: Stanley Fisher, who I would suggest codified ultra accommodative as

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Speaker 1: his work as a vice chairman and Ben Amma's at

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Speaker 1: New Ones just writes this up. I've never used this phrase.

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Speaker 1: Before Priya and Ben doesn't predict this, but he suggests,

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Speaker 1: does this data drive us out to ultra restrictive? Is

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Speaker 1: the larger pendulum here from ultra accommodative out to ultra restrictive. No,

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Speaker 1: I think it's fair. I mean the move in rail rates,

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Speaker 1: it's not just a front endrail rates. Look at where

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Speaker 1: ten year rail rates are and the speed of the

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Speaker 1: move over the last year. The extent of tightening, I

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Speaker 1: think in move us from ultra accommodative to ultra restrictive.

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Speaker 1: But we're not seeing it in the ITA yet, and

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Speaker 1: so I think this is where we want to be patient.

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Speaker 1: I don't know if the FED can be patient. Can

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Speaker 1: you know, are they going to feel the pressure to

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Speaker 1: go faster, go higher. We actually think they're going to

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Speaker 1: be patient and go at twenty five, try and feel

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Speaker 1: their way around that end point and then keep it

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Speaker 1: there for a while until inflation comes down. But yeah,

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Speaker 1: we are in restrictive editory. I think there's no question.

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Speaker 1: We just got there pretty late last year though, very

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Speaker 1: good Prea measures, Thank you so much for joining us

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Speaker 1: from the fixed income fallout shelter. She is with TD Security.

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Speaker 1: Dani joins us now with wet Bush here on his

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Speaker 1: enthusiasm for a musk automotive. Dan, I look at the

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Speaker 1: desire for a cheap electric car. Everyone else has the

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Speaker 1: same desire. I'll leave it up to your Nissan, etcetera, etcetera.

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Speaker 1: Isn't he competing at the low price point with five

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Speaker 1: to six, seven, eight other vehicles? Look, I mean no

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Speaker 1: doubt to hit the masses, you need a sub thirty

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Speaker 1: K vehicle. I think what Must showed yesterday and the

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Speaker 1: testa vision is from a production and scale, and they're

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Speaker 1: at in Mexico batteries that I believe could come down

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Speaker 1: thirty They're now going to be able to hit those

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Speaker 1: and hit the masses. And I think ultimately it's a

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Speaker 1: flex the muscles moment for Tessa specially a lot of

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Speaker 1: the industry stumbling, Okay, well this is fine. But as

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Speaker 1: John mentioned, and I saw a stream of disappointment over

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Speaker 1: this investor day, there was a stream about the Golden

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Speaker 1: Sex investor Day, but it was nothing. What was your

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Speaker 1: take on two guys in black T shirts up with

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Speaker 1: Mike's given an investor's day. I mean, I don't get it. Yeah, Look,

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Speaker 1: I think these investors day, Look, we've seen it with

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Speaker 1: Apple and Cupertino, you tend to come out wanting more

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Speaker 1: and more meat on the bone. I think for Tesla,

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Speaker 1: as we've seen before, they lay out the foundation, sometimes

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Speaker 1: don't unveil the actual vehicle. They've talked about two new

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Speaker 1: vehicles coming out, but but the last thing they want

430
00:23:13,520 --> 00:23:15,560
Speaker 1: to do is sort of, you know, get ahead of this.

431
00:23:15,960 --> 00:23:17,680
Speaker 1: I think this is something there will be probably a

432
00:23:17,760 --> 00:23:21,080
Speaker 1: separate event, but I think the foundation to get to

433
00:23:21,560 --> 00:23:24,880
Speaker 1: three to five million vehicles and eventually twenty million. It's

434
00:23:24,960 --> 00:23:28,760
Speaker 1: there and I think ultimately that's why, you know, I believe,

435
00:23:28,800 --> 00:23:32,520
Speaker 1: along with Apple, most transformational companies in the market. Dan.

436
00:23:32,600 --> 00:23:34,760
Speaker 1: There's been a lot of narrative about how companies are

437
00:23:34,760 --> 00:23:37,320
Speaker 1: moving their supply chain out of China, including Elon Musk,

438
00:23:37,400 --> 00:23:41,520
Speaker 1: despite some of his rhetoric supporting the cause in China

439
00:23:41,600 --> 00:23:44,200
Speaker 1: and supporting his business there. How much credence do you

440
00:23:44,240 --> 00:23:48,200
Speaker 1: put into this is just just anecdotal specific incidents that

441
00:23:48,359 --> 00:23:51,440
Speaker 1: don't really move the dial, or is there a seizemic

442
00:23:51,520 --> 00:23:54,280
Speaker 1: shift out of China to insulate some of these companies

443
00:23:54,520 --> 00:23:58,159
Speaker 1: from the geopolitical risk? Yeah, well, normally it's smoke and

444
00:23:58,240 --> 00:24:01,159
Speaker 1: mirror type Beltway talk. I think this is real in

445
00:24:01,320 --> 00:24:04,640
Speaker 1: terms of Flation Reduction Act. There's a real incentives from

446
00:24:04,680 --> 00:24:07,760
Speaker 1: a tax perspective. That's why you're seeing more and more

447
00:24:07,800 --> 00:24:10,080
Speaker 1: of a build out in around Austin. I think you'll

448
00:24:10,119 --> 00:24:12,000
Speaker 1: see more of a build out in Free Mount as well.

449
00:24:12,280 --> 00:24:14,400
Speaker 1: But we're seeing in a cross path. I think you're

450
00:24:14,400 --> 00:24:17,200
Speaker 1: going to see more come to the US, but no

451
00:24:17,320 --> 00:24:20,080
Speaker 1: doubt right now and it is for you know, called

452
00:24:20,080 --> 00:24:22,359
Speaker 1: the next three to five years. China is going to

453
00:24:22,440 --> 00:24:25,320
Speaker 1: continue be the hearts and rungs of the supply chain,

454
00:24:25,720 --> 00:24:28,600
Speaker 1: and I think CASSLA is just really sort of balancing

455
00:24:28,880 --> 00:24:31,680
Speaker 1: between China and non China. That's why you're seeing that

456
00:24:31,720 --> 00:24:34,080
Speaker 1: build out now in Mexico as well. Dan, how do

457
00:24:34,119 --> 00:24:38,120
Speaker 1: you game out the market risk tied to the presence

458
00:24:38,240 --> 00:24:40,920
Speaker 1: of a lot of these tech companies and I'm including

459
00:24:41,080 --> 00:24:43,040
Speaker 1: a test light in that loosely because it could be

460
00:24:43,080 --> 00:24:45,800
Speaker 1: an industrial company. How do you include the risk of

461
00:24:45,920 --> 00:24:50,879
Speaker 1: increasing geopolitical tensions between the US and China disrupting supply chains,

462
00:24:51,200 --> 00:24:54,359
Speaker 1: forcing a more rapid shift in some sort of supply

463
00:24:54,480 --> 00:24:57,719
Speaker 1: chain issue earlier that would cause some of the margins

464
00:24:57,760 --> 00:25:01,479
Speaker 1: to compress. I mean, look, just to put in context, Apple,

465
00:25:01,600 --> 00:25:04,200
Speaker 1: if they if they went full in and wanted to

466
00:25:04,400 --> 00:25:07,120
Speaker 1: move production out of China, best case, in the next

467
00:25:07,200 --> 00:25:10,320
Speaker 1: three years, they can move five percent of production out

468
00:25:10,359 --> 00:25:13,160
Speaker 1: of China. I mean there this is such the hearts

469
00:25:13,200 --> 00:25:16,280
Speaker 1: and lung. It's almost cemented. So it's something where it

470
00:25:16,320 --> 00:25:19,200
Speaker 1: would take a long time to start to move five

471
00:25:19,359 --> 00:25:22,240
Speaker 1: camera cent production. That's why the reality and we saw

472
00:25:22,320 --> 00:25:25,240
Speaker 1: it with Tessa and and Apple in terms of the

473
00:25:25,359 --> 00:25:28,000
Speaker 1: zero COVID issues in December, I mean, really at the

474
00:25:28,119 --> 00:25:32,159
Speaker 1: mercy of China and Beijing for now, although slowly moving,

475
00:25:32,320 --> 00:25:34,840
Speaker 1: you know, in the opposite direction, Dad, what were your

476
00:25:34,880 --> 00:25:40,040
Speaker 1: February channel checks on various and sundry tech names. I mean,

477
00:25:40,119 --> 00:25:42,840
Speaker 1: it's holden up much much better than feared. I mean

478
00:25:42,920 --> 00:25:45,680
Speaker 1: even coming out of Asia not seeing any sort of

479
00:25:45,680 --> 00:25:49,320
Speaker 1: supply chain cuts for iPhone, which I think is important.

480
00:25:49,760 --> 00:25:52,360
Speaker 1: But I think what you saw from salesforce and across

481
00:25:52,440 --> 00:25:55,720
Speaker 1: the board, you know, this is not necessarily the minute

482
00:25:55,760 --> 00:25:58,920
Speaker 1: that yell fire in a crowd theater. In terms of overseeing, damn,

483
00:25:58,920 --> 00:26:01,000
Speaker 1: it'd be a crowded seat for some of the parts

484
00:26:01,040 --> 00:26:03,720
Speaker 1: analysis from you on Apple. Somebody asked on the show

485
00:26:03,800 --> 00:26:05,960
Speaker 1: the other day some of the parts, and I said,

486
00:26:06,000 --> 00:26:08,040
Speaker 1: I really don't know because nobody wants to mention how

487
00:26:08,119 --> 00:26:12,880
Speaker 1: high that's. This is just two one statistic is Apple

488
00:26:13,000 --> 00:26:15,480
Speaker 1: one hundred and fifty dollars a share? What's some of

489
00:26:15,560 --> 00:26:18,560
Speaker 1: the parts, I mean some of the parts bull case

490
00:26:18,680 --> 00:26:21,960
Speaker 1: gets you to two twenty five to two forty base

491
00:26:22,040 --> 00:26:24,119
Speaker 1: case two hundred. I think the big thing is the

492
00:26:24,240 --> 00:26:28,040
Speaker 1: services business, and that's a permanent rerating that we see there.

493
00:26:28,520 --> 00:26:30,520
Speaker 1: And now when you start to see more and more,

494
00:26:30,600 --> 00:26:34,000
Speaker 1: specially without the next iPhone, and you have twenty five

495
00:26:34,080 --> 00:26:36,720
Speaker 1: percent the base that have not upgraded. I is this

496
00:26:36,840 --> 00:26:38,240
Speaker 1: doctor that's going to have a two in front of

497
00:26:38,280 --> 00:26:42,840
Speaker 1: it this year despite the macro and obviously many negative attacks.

498
00:26:43,160 --> 00:26:45,200
Speaker 1: Where's the two come from? And the numerator and the

499
00:26:45,280 --> 00:26:48,640
Speaker 1: denominator just pe or price to cash flow or price

500
00:26:48,720 --> 00:26:52,280
Speaker 1: to record share buybacks? What drives it over two hundred?

501
00:26:53,359 --> 00:26:55,720
Speaker 1: I mean it's really services. I believe it's one point

502
00:26:55,880 --> 00:26:58,560
Speaker 1: three to one point four trillion. Of course you have

503
00:26:58,640 --> 00:27:02,080
Speaker 1: the franchise hardware, and then you start to look at

504
00:27:02,119 --> 00:27:04,840
Speaker 1: the capitol allocation program. I mean, that's what drives you

505
00:27:04,920 --> 00:27:08,600
Speaker 1: anyware from that low to mid two level. In terms

506
00:27:08,640 --> 00:27:10,520
Speaker 1: of where I see the stock going down just to

507
00:27:10,600 --> 00:27:13,000
Speaker 1: finish on Tesla. If yesterday was so good, why is

508
00:27:13,000 --> 00:27:16,040
Speaker 1: the stock down six percent? I think it's just a

509
00:27:16,160 --> 00:27:20,000
Speaker 1: typical sell in the news street always wants more stock

510
00:27:20,119 --> 00:27:23,040
Speaker 1: cells off the heaters come out. But also in terms

511
00:27:23,080 --> 00:27:26,240
Speaker 1: of the path, in terms of record deliveries where they're playing,

512
00:27:26,600 --> 00:27:28,480
Speaker 1: I think this is more flex than muscles. More we

513
00:27:28,640 --> 00:27:31,359
Speaker 1: be buying on the selloff coming out of these events.

514
00:27:31,440 --> 00:27:35,640
Speaker 1: What about the cyber struck down, what's happening with that? Yeah,

515
00:27:35,680 --> 00:27:38,600
Speaker 1: I mean, look, I think this is something where by

516
00:27:38,640 --> 00:27:40,639
Speaker 1: the end of this year you're going to see ultimate

517
00:27:40,720 --> 00:27:45,000
Speaker 1: deliveries come out production and it's important, and that's why

518
00:27:45,040 --> 00:27:47,560
Speaker 1: I think there's ult to me lease the groundwork for

519
00:27:47,680 --> 00:27:50,400
Speaker 1: what we see is the next vehicle, you know, from

520
00:27:50,440 --> 00:27:53,280
Speaker 1: the Tesla ecosystem. Did you get enough from them yesterday

521
00:27:53,359 --> 00:27:58,440
Speaker 1: on that release? I felt yesterday they basically doubled down

522
00:27:58,520 --> 00:28:00,760
Speaker 1: to that target's going to get continue to be there.

523
00:28:00,760 --> 00:28:02,679
Speaker 1: It's not going the goalpost. You're not going to get

524
00:28:02,760 --> 00:28:05,600
Speaker 1: moved out further. I think a year from now, you're

525
00:28:05,680 --> 00:28:10,080
Speaker 1: driving round Monhan and you see cybertrucks. Okay in the wild, Dan,

526
00:28:10,200 --> 00:28:12,520
Speaker 1: I's a wet bush. Thank you, Dan, appreciate it. As

527
00:28:12,560 --> 00:28:18,560
Speaker 1: a White. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify,

528
00:28:18,680 --> 00:28:23,080
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529
00:28:23,400 --> 00:28:26,840
Speaker 1: starting at seven am Eastern. I'm Bloomberg dot Com, the

530
00:28:26,960 --> 00:28:31,440
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You

531
00:28:31,560 --> 00:28:35,600
Speaker 1: can watch us live. I'm Bloomberg Television and always I'm

532
00:28:35,640 --> 00:28:39,560
Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keane, and

533
00:28:39,720 --> 00:28:41,280
Speaker 1: this is Bloomberg