Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
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Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. Pork Garvey
Speaker 1: is with I n G and he brings to them
Speaker 1: prodigious econometrics as well. I want to go to the
Speaker 1: econometrics of the moment and really within that and the
Speaker 1: shock of all the fancy mathematic you deal with on
Speaker 1: dead and central banks every day. What's the overcome by
Speaker 1: events thing you worry about out there? What's the obe
Speaker 1: out there that we need to pay attention to. I
Speaker 1: think you've got to look at the shape of the
Speaker 1: curved tom to on the sound that they is a
Speaker 1: really unusual set of circumstances. We haven't seen the degree
Speaker 1: of inversion that we're seeing now in the past four
Speaker 1: or five decades, and that tells me that that the
Speaker 1: back end of the curve is pricing in a huge
Speaker 1: degree of uncertainty. I'm not convinced it's entirely the rate
Speaker 1: cut narrative. I think there's a bit of geopolitics out there.
Speaker 1: I think there's the reality that the central Bank is
Speaker 1: holding lots of bonds out there, and I think there's anchoring.
Speaker 1: I have this conversation with traders all the time. They say, oh,
Speaker 1: we think the tens they're going to go back to
Speaker 1: two percent, and I would say why, and they say, well,
Speaker 1: that's because that's where it was. We're not going back
Speaker 1: to where we were. I meant, this is brilliant and
Speaker 1: there's a lot to unpack there, and we don't have
Speaker 1: a time to do the unpacking today. We'll do our
Speaker 1: for Bosi later. The bottom line is we are at
Speaker 1: a fourth standard deviation move off the Great Moderation going
Speaker 1: back to nineteen eighty five, and that's part of that
Speaker 1: yield curve spread. And whether if I look at two
Speaker 1: years compared to three years, as you say, truly we're
Speaker 1: in new territory, does it signal depressed growth or a
Speaker 1: duration of subpart economic growth. I doubt that very much.
Speaker 1: And here's why. If you look at where neutrality is,
Speaker 1: I would suggest neutralities around three percent. Why three percent?
Speaker 1: Three percent is two two and a half percent off lation?
Speaker 1: A half one percent really yield And if I look
Speaker 1: at the back end of the curve, it's not discounting
Speaker 1: a break below three that's usually important for me. So
Speaker 1: I think we've had this unprecedented degree of monetary tightening.
Speaker 1: It's still in absolute terms, leaves us at approaching five
Speaker 1: and a half percent. Big picture, that's not huge. We've
Speaker 1: come from zero to five and a half were not huge.
Speaker 1: If we get there and we're done, and the next
Speaker 1: move is down, and let's suppose a FED gets down
Speaker 1: to three percent, that's a very tolerable outcome, And it
Speaker 1: doesn't suggest anything like what you've just scribed. Work with
Speaker 1: the balance of risks, which do you think is more
Speaker 1: concerning the risk of inflation persisting at a higher level
Speaker 1: or the risk that rate hikes could really kill the economy?
Speaker 1: The former is the biggest risk. But I think I
Speaker 1: think the way the FED is pursuing policy here is
Speaker 1: it's kind of smart. I know the FED gets a
Speaker 1: hard rap because of missing the early rate hikes, but
Speaker 1: twenty fives from here is quite smart. They've got to
Speaker 1: keep on twenty fives and level off, and at a
Speaker 1: certain point in time, this degree of tightening has got
Speaker 1: to hurt. You look at lending standards out there, they
Speaker 1: are as tough as they've been since the Great Financial Crisis,
Speaker 1: but we're not seeing that in the data. And this
Speaker 1: is really the concern that's causing a lot of people
Speaker 1: to rethink the balance of risks once again, the sort
Speaker 1: of you know, schizophrenic nature of disinflation or not. How
Speaker 1: much do you look at the recent data and the
Speaker 1: stickiness of inflation and start to question your thesis and
Speaker 1: start to question if perhaps it's not really restrictive if
Speaker 1: you look at policy rates right now, yeah, you're right
Speaker 1: least we're not seeing it in the data for January,
Speaker 1: potentially for February. There's a weather impact there, there's a
Speaker 1: seasonal adjustment factor there. If you stand back and look
Speaker 1: at the direction of travel for the data over the
Speaker 1: past year, we are seeing the impact with the exception
Speaker 1: of the labor market. The labor market is where we
Speaker 1: have this remarkable anomally where we still can't get people
Speaker 1: to work, which is incredible to be in that situation
Speaker 1: right now. That is going to creek. Though we've got
Speaker 1: to remember that the replacement number in payrolls is one fifty.
Speaker 1: Once we get to blow one fifty, we're in growth
Speaker 1: recession territory. If we go mildly negative, we're in recessionary territory.
Speaker 1: We don't have to go to a deep recession territory,
Speaker 1: but the indicators we're heading in that direction, and it'll
Speaker 1: be over the next couple of quarters that we see
Speaker 1: that come to bear. If you want to peaka payrolls
Speaker 1: for next Friday, not this Friday, but next Friday. The
Speaker 1: estimates so far to twenty the previous number five seventeen.
Speaker 1: I'm not sure what the estimate is worth at this point,
Speaker 1: and I'm not sure what the previous number is worth either,
Speaker 1: because we can have some months to revision in one
Speaker 1: way one way or the other. So I won't put
Speaker 1: too much weight on that. Probably, I think there's something
Speaker 1: I'm going to walk away from this conversation with from you.
Speaker 1: We're not going back there. There's still a lot of
Speaker 1: people who think we're going back there. And if you
Speaker 1: look about the arc of like the last twelve eighteen months,
Speaker 1: it was we can't live with two percent, we can't
Speaker 1: live with three, we can't live with four, we're about
Speaker 1: to live with five. What is it that's changed? Do
Speaker 1: you think in this economy that maybe people haven't grasped
Speaker 1: the people that are sitting there saying we are going
Speaker 1: back there, what don't they get we also count live
Speaker 1: with five. By the way of five percent is ns
Speaker 1: an equilibrium and the equibinate is down to three. This
Speaker 1: is a really unusual set of circumstances, John, I mean
Speaker 1: that there are so many anomalies here relative to previous cycles.
Speaker 1: I think people are not getting a lot of stuff
Speaker 1: because it's it's tough, it's it's it's all over the place.
Speaker 1: And it goes back to the inversion of the curve
Speaker 1: and how unusual that is. And I would say the
Speaker 1: other big anomaly out there is how calm. But I
Speaker 1: would say it's anomally it's a positive thing. How calm
Speaker 1: the system is. You look at where banks PRINTCP very tight,
Speaker 1: you look at where credit spreads are very contained. There's
Speaker 1: very little concerned about anything breaking. So when I say
Speaker 1: we're not going to go back there, show me a
Speaker 1: reason to go back there. Something's got to break, and
Speaker 1: so far something hasn't broken. And until we get that,
Speaker 1: you know, I think up to five percent down to
Speaker 1: three percent, it's a pretty tolerable outcome. It includes a
Speaker 1: bit of a growth recession, but not Tom's description of
Speaker 1: Tom's gloom and armaged. It's been a surprise to me,
Speaker 1: so to be honest with you, particularly in Europe, not
Speaker 1: just the United States least. So we've talked about this.
Speaker 1: Just the idea that we're now talking for in Europe
Speaker 1: and the Italian bond market spreads there is still pretty
Speaker 1: contained right to the whites we saw last year, which
Speaker 1: suggests we can live with higher than two percent in
Speaker 1: terms of what that terminal yield can be, as Park
Speaker 1: was saying, and we're not going back to zero a
Speaker 1: big time soon. People say that, but have they really
Speaker 1: believed that. In that believe we can go back to
Speaker 1: pre pandemic trends, love inflation, low growth, interest rates, get
Speaker 1: a long big tech. A lot of people still think
Speaker 1: that this was great, just awesome. Come by more often.
Speaker 1: Para of ig financial markets on this debt market. Joining
Speaker 1: Michael McKee is of course Carl Ricadana with BMP Perry
Speaker 1: by the Chief US Economents again out eight beeps on
Speaker 1: the ten year or four point zero eight percent to
Speaker 1: thirty year bond is a stunning four point zero three percent.
Speaker 1: I want to allude here to the complexities of productivity.
Speaker 1: I'm going to call its three ratios lots of partial
Speaker 1: differentials there. And the bottom line is people like you
Speaker 1: are hoping and praying that our post pandemic productivity, that
Speaker 1: our post pandemic efficiency is good. That data tells me
Speaker 1: maybe not fold productivity into this volatile market debate. Well,
Speaker 1: the productivity numbers, if we look at them in year
Speaker 1: on year terms, are actually deep into negative territory, almost
Speaker 1: down two percent. So we have very strong job gains
Speaker 1: and an economy that is slowing. So that's not really sustainable,
Speaker 1: but it can kind of run that way and inconsistent.
Speaker 1: The inconsistency can last for you know, at least multiple
Speaker 1: quarters unit labor costs of a three handle. Does it
Speaker 1: lead to the gloom of a wage price spiral? Does
Speaker 1: it lead to a gloom that we're not going to
Speaker 1: get quiescent wage growth. So let's look at that unit
Speaker 1: labor cost number and year on year terms, and it's
Speaker 1: even more disturbing. It's six point three percent, as I
Speaker 1: see in the bloom table here. So what six percent
Speaker 1: plus on a unit labor costs if we look at
Speaker 1: the employment cost index running at five percent, These are
Speaker 1: the elements of wage price spiral. And I know Cher
Speaker 1: Powell has said that he doesn't think we're in a
Speaker 1: wage price spiral at the moment, but once you're there,
Speaker 1: it's too late and it's a very expensive problem. Historic
Speaker 1: this factors into how the FET is thinking about that
Speaker 1: annual average productivity decreased one point seven percent from twenty
Speaker 1: twenty one to twenty twenty two. The BLS says, the
Speaker 1: largest annual decline in the measure since nineteen seventy four. Wow,
Speaker 1: that's it, and that that precisely gets back to four
Speaker 1: to five years before vulgar and shows the scope and
Speaker 1: scale of this historic moment. I just want to point
Speaker 1: out Lisa Rickadona can come back because he uses the
Speaker 1: Bloomberg terminal. It's good how that works well. But Carl,
Speaker 1: aside from your usage off the Bloomberg terminal, I am
Speaker 1: curious as you pass through this. We were just talking
Speaker 1: before these numbers came out, that you were looking for
Speaker 1: more evidence that there was something stickier in nature about
Speaker 1: these numbers that we got out in January. Is this
Speaker 1: leaning you a little bit closer to that moment. We
Speaker 1: are seeing persist inflation everywhere. That's been a longstanding call
Speaker 1: of my team at BMP. We're seeing persistent inflation everywhere,
Speaker 1: including in wages. And there was a little bit of
Speaker 1: a rollover in Q four and so team Transitory was
Speaker 1: put on their sneakers to run a victory lap. And
Speaker 1: it's pretty clear that that has kind of washed out
Speaker 1: now in the most recent data, So we have to
Speaker 1: see how far this is running. But certainly, you know,
Speaker 1: I see evidence of labor markets softening everywhere I look,
Speaker 1: except for in the economic data. Right if you open
Speaker 1: the newspaper, you see layoffs here, and hiring intentions down
Speaker 1: and all those signals. But in the actual macroeconomic data,
Speaker 1: you're not seeing the cooling of conditions. And we have
Speaker 1: seen this. There was a Wall Street shortle article about
Speaker 1: this as well. I am looking right now at ten
Speaker 1: year yields getting close to that four point one percent,
Speaker 1: four point zero eight percent rounded up to the nearest tenth.
Speaker 1: I'm a hundred. I'm curious from your perspective, whether we're
Speaker 1: getting to a perspective where it is a new regime
Speaker 1: where productivity is going to be lower, Labor costs are
Speaker 1: going to be higher. You have a different kind of
Speaker 1: labor market and workforce that's going to require more investment.
Speaker 1: Are you seeing enough signs that we are there? When
Speaker 1: you have that kind of heat in the labor cost
Speaker 1: pressure series? On an extended basis, businesses have no alternative
Speaker 1: aside from making the capital investments, from the technological technological
Speaker 1: investments to drive a productivity rebound. Just real quick, the
Speaker 1: broader story here, We surged in productivity coming out of
Speaker 1: the pandemic, right, so now this is the correction period,
Speaker 1: so we shouldn't get too depressed about the low productivity number. Also,
Speaker 1: the BLS notes that they applied the historical revisions that
Speaker 1: they put into the Jobs report and into the CPI
Speaker 1: reports to this release, which is probably why it is
Speaker 1: such a huge show to the two of you here,
Speaker 1: and you got a minute and a half to warble gaily.
Speaker 1: As Lisa mentioned earlier today, blah blah blah. And the
Speaker 1: answer here is does this shift the fifty beeps? At
Speaker 1: next meeting debate, Michael oh I would say no, this doesn't.
Speaker 1: I mean, we have too much data coming out ahead
Speaker 1: of us that's far more important than this, Jobs and
Speaker 1: CPI will have a much bigger influence on the FED
Speaker 1: than Carl believe. They will warble gaily in uniform harmony
Speaker 1: with my you're not supposed to agree with that. The
Speaker 1: inflation report that's going to be much more critical. This
Speaker 1: is kind of stuff we already knew from the look
Speaker 1: like the inflation report. If we look into the details,
Speaker 1: look at the US service sector inflation, which is what
Speaker 1: is really driving the FED reaction function is showing very
Speaker 1: little evidence of any kind of disinflationary trend, and you
Speaker 1: won't see that with wage pressure. It's continuing to accelerate higher.
Speaker 1: And tomorrow we do get at ten AM the ISM
Speaker 1: services index, and that is going to be key, not
Speaker 1: just the index, but price is paid for that given
Speaker 1: the fact that we saw manufacturing prices paid increase to
Speaker 1: the degree that they did. If you see that kind
Speaker 1: of moving services, could that really move the prices matter?
Speaker 1: But it's an activity gauge. So the new orders, the
Speaker 1: production numbers, that really will tell us more about this
Speaker 1: potential reacceleration thing about the European numbers too, as they
Speaker 1: were largely even buy food prices, which has not been
Speaker 1: a big issue here. I mean, we've had elevated food prices,
Speaker 1: but we've seen being driven by the UH service prices
Speaker 1: much more. What's been happening. Had you were talking yesterday
Speaker 1: about with or without shelter? I got the three of
Speaker 1: your pilot on me together. Mike, please, you were talking
Speaker 1: yesterday about the differences between the way the US and
Speaker 1: Europe dealt with unemployment during the pandemic. Europe kept workers
Speaker 1: on the job by subsidizing employers, and so the employers
Speaker 1: didn't have to go out and raise wages as much
Speaker 1: as they've had to do in the US. Well, let's
Speaker 1: continue this discussion. We're go into a data check now. Lisa,
Speaker 1: help me here, because I don't see much spread movement.
Speaker 1: I do see a ten year real yield come out
Speaker 1: to a one point five percent, but in the actual
Speaker 1: yield space nastack down one percent here on the nastack
Speaker 1: one hundred. But Lisa, four point zero seven percent on
Speaker 1: the ten year yield is just stunning. The nominal yield
Speaker 1: is really what I'm looking at. Not just after the
Speaker 1: thirty year it crossed four percent for the first time,
Speaker 1: it went straight to four point h two percent, And
Speaker 1: we're looking at just this real trajectory of higher inflation
Speaker 1: for longer being gamed out in some of the yield structure,
Speaker 1: and that I think is a game changer on radio
Speaker 1: and television. Thank you for continuing with this pre AMISERA
Speaker 1: will join us here in a moment. We thank Carl
Speaker 1: Ricadya of BMP Pariba and always Michael McKee for driving
Speaker 1: this stunning debate to put things into perspective. I'm going
Speaker 1: to do that right now. Priamisra and Lisa Bramwits are
Speaker 1: far too young to remember when Bob Redford stood outside
Speaker 1: the Plaza Hotel in the way we were and with
Speaker 1: Barbara Streis, and they said, memories data, DA, DA, guess
Speaker 1: what productivity dynamics are back to nineteen seventy four. Someone
Speaker 1: who has been expert at measuring this over to our
Speaker 1: financial bond market is Priamisra TV Securities, and she joins
Speaker 1: us this morning. We're looking at the history of this
Speaker 1: pre up and we're also looking at your brilliant call
Speaker 1: an inversion. Although some have been brave recently and said
Speaker 1: look higher yields, I get a coupon along the way,
Speaker 1: I want to be brave here. In February and March
Speaker 1: of twenty twenty three, did the bravery the courage? Did
Speaker 1: it slip away this morning? Thanks for having me on.
Speaker 1: So no, I think you have to be patient. It's
Speaker 1: hard to pick the absolute topping yield. You know you're
Speaker 1: talking about having confidence. I don't have a ton of
Speaker 1: confidence in the front end because you know, we know
Speaker 1: inflation is sticky. We know it's post services X shelter
Speaker 1: is driven by wages. It's a very tight labor market
Speaker 1: and companies are holding label. So it's possible that inflation
Speaker 1: remains persistently high through the year, and the Fed we
Speaker 1: think in twenty five basespin instruments may have to keep
Speaker 1: hiking maybe five seventy five, maybe six percent. So you
Speaker 1: know that very front end of the yield cuve I
Speaker 1: think is very driven by data in the near term,
Speaker 1: the long end. That's your view, that's your neutral rate view.
Speaker 1: And I think the data is strong on the consumer,
Speaker 1: on the labor market. Not because policy contrastrictive. We are
Speaker 1: in restrictive freditory. It's because the lags have not worked through.
Speaker 1: I mean, the fat fund rate crossed four percent only
Speaker 1: in December. You have to give the economy more than
Speaker 1: two months for it to keel over. And I think,
Speaker 1: you know, that's why the long end is selling off.
Speaker 1: People expect that interest rates don't matter. I think interest
Speaker 1: rates matter. They just take a while to show up
Speaker 1: in terms of business investment decisions or spending decisions free
Speaker 1: I want to go to the It takes a while.
Speaker 1: If I've got a seven standard deviation, move from very
Speaker 1: low thirty year yields out of very high thirty year
Speaker 1: yields stunningly out above the great moderation, and I go
Speaker 1: back to whatever the new center tendency is. How long
Speaker 1: does that take? Is this a matter of six months
Speaker 1: or is it a matter of six years to get
Speaker 1: back to normal? So economic theories suggests twelve to eighteen
Speaker 1: months from monetary policy to work through. I mean you
Speaker 1: could argue maybe it's a little bit shorter, maybe it's
Speaker 1: twelve months nine months. I will say something that maybe
Speaker 1: making the lags longer this time is that the consumer
Speaker 1: entered the hiking cycle with a large amount of accumulated savings.
Speaker 1: Now those savings are running off. We're tracking, you know,
Speaker 1: by the end of this year. We're thinking in the
Speaker 1: third quarter those savings are largely gone that's when the
Speaker 1: consumer has to start to reckon with higher interest rates,
Speaker 1: tighter financial conditions, maybe a job market that's not as strong.
Speaker 1: I mean, there may not be a lot of firing,
Speaker 1: but job openings start to come off. So I think
Speaker 1: it's more or later this year that we think consumer
Speaker 1: spending slows down the job market starts to weaken. So
Speaker 1: I don't think you're waiting six years. But we're watching
Speaker 1: those savings numbers and the savings continue to come off.
Speaker 1: But you know, today, if I have a job and
Speaker 1: I'm making five percent wage growth, wage gains, and I've
Speaker 1: got savings I'm spending. I think we're just saying be
Speaker 1: careful in extrapolating that, because those savings will run out
Speaker 1: by the end of the year. How much conviction do
Speaker 1: you have to load the boat on ten year to
Speaker 1: load the boat on thirty year treasuries? So I have
Speaker 1: much more conviction on the ten year and the thirtie
Speaker 1: than I do on the front end. I don't know
Speaker 1: about loading the boat. I use the word I used.
Speaker 1: I guess some few weeks ago when I started to
Speaker 1: leg in, I would leg in some more because you know,
Speaker 1: I think you're at we entered some around three eighty,
Speaker 1: we lenter some more longs at four percent. I think
Speaker 1: the Fed's telling you that they have to engineer hard landing.
Speaker 1: They're not going to say it because it's very hard
Speaker 1: politically to get that through. But how do you get
Speaker 1: inflation down without a rise in the unemployment rate? So
Speaker 1: the FED will have to engineer a rise in the
Speaker 1: unemployment rate. Then these four percent tens will look really cheap.
Speaker 1: But it's for the peak of four ten. Now maybe
Speaker 1: it goes to four twenty five, So I think you
Speaker 1: want to have some dry powder to keep adding to it.
Speaker 1: But I think you know these levels in a long
Speaker 1: term sense. I don't think our star is higher or
Speaker 1: the neutral rate should be much high. I think the
Speaker 1: FED is committed to two percent inflation, and we've seen productivity.
Speaker 1: I don't think the economy can handle very high real
Speaker 1: rates in the long run. This is such an important point,
Speaker 1: and it goes guess what poor Carvey was saying, or
Speaker 1: he said, Listen, people think we're going back to the
Speaker 1: same kind of regime we were in prior. You're saying
Speaker 1: we are going to go back to that regime. What
Speaker 1: gives you confidence other than just the FET is committed
Speaker 1: to a two percent inflation regime, especially if a two
Speaker 1: percent inflation regime is different from the prior ten years,
Speaker 1: which it wasn't a two percent inflation regime. As Time mentioned,
Speaker 1: it was a sub two percent inflation rate, right, So
Speaker 1: I think there are some structural factors that might be
Speaker 1: moving inflation a little higher. So if we were sub
Speaker 1: two percent, maybe the next ten years will be a
Speaker 1: two percent number. But I think inflation does. If the
Speaker 1: FIT thinks they want to get to two, they're going
Speaker 1: to keep policy restrictive for a while. They're going to
Speaker 1: keep that front in, you know, not cut rates anytime soon.
Speaker 1: Really our star or really equilibrium rate, those are driven
Speaker 1: by productivity, demographics, saving the cloud. I don't know if
Speaker 1: any of this is right, you know, after COVID, so
Speaker 1: maybe it's not zero. It's fifty basins points, all right,
Speaker 1: but we're well north of that in terms of market
Speaker 1: pricing of real rate Priya with respect of the giant.
Speaker 1: Stanley Fisher, who I would suggest codified ultra accommodative as
Speaker 1: his work as a vice chairman and Ben Amma's at
Speaker 1: New Ones just writes this up. I've never used this phrase.
Speaker 1: Before Priya and Ben doesn't predict this, but he suggests,
Speaker 1: does this data drive us out to ultra restrictive? Is
Speaker 1: the larger pendulum here from ultra accommodative out to ultra restrictive. No,
Speaker 1: I think it's fair. I mean the move in rail rates,
Speaker 1: it's not just a front endrail rates. Look at where
Speaker 1: ten year rail rates are and the speed of the
Speaker 1: move over the last year. The extent of tightening, I
Speaker 1: think in move us from ultra accommodative to ultra restrictive.
Speaker 1: But we're not seeing it in the ITA yet, and
Speaker 1: so I think this is where we want to be patient.
Speaker 1: I don't know if the FED can be patient. Can
Speaker 1: you know, are they going to feel the pressure to
Speaker 1: go faster, go higher. We actually think they're going to
Speaker 1: be patient and go at twenty five, try and feel
Speaker 1: their way around that end point and then keep it
Speaker 1: there for a while until inflation comes down. But yeah,
Speaker 1: we are in restrictive editory. I think there's no question.
Speaker 1: We just got there pretty late last year though, very
Speaker 1: good Prea measures, Thank you so much for joining us
Speaker 1: from the fixed income fallout shelter. She is with TD Security.
Speaker 1: Dani joins us now with wet Bush here on his
Speaker 1: enthusiasm for a musk automotive. Dan, I look at the
Speaker 1: desire for a cheap electric car. Everyone else has the
Speaker 1: same desire. I'll leave it up to your Nissan, etcetera, etcetera.
Speaker 1: Isn't he competing at the low price point with five
Speaker 1: to six, seven, eight other vehicles? Look, I mean no
Speaker 1: doubt to hit the masses, you need a sub thirty
Speaker 1: K vehicle. I think what Must showed yesterday and the
Speaker 1: testa vision is from a production and scale, and they're
Speaker 1: at in Mexico batteries that I believe could come down
Speaker 1: thirty They're now going to be able to hit those
Speaker 1: and hit the masses. And I think ultimately it's a
Speaker 1: flex the muscles moment for Tessa specially a lot of
Speaker 1: the industry stumbling, Okay, well this is fine. But as
Speaker 1: John mentioned, and I saw a stream of disappointment over
Speaker 1: this investor day, there was a stream about the Golden
Speaker 1: Sex investor Day, but it was nothing. What was your
Speaker 1: take on two guys in black T shirts up with
Speaker 1: Mike's given an investor's day. I mean, I don't get it. Yeah, Look,
Speaker 1: I think these investors day, Look, we've seen it with
Speaker 1: Apple and Cupertino, you tend to come out wanting more
Speaker 1: and more meat on the bone. I think for Tesla,
Speaker 1: as we've seen before, they lay out the foundation, sometimes
Speaker 1: don't unveil the actual vehicle. They've talked about two new
Speaker 1: vehicles coming out, but but the last thing they want
Speaker 1: to do is sort of, you know, get ahead of this.
Speaker 1: I think this is something there will be probably a
Speaker 1: separate event, but I think the foundation to get to
Speaker 1: three to five million vehicles and eventually twenty million. It's
Speaker 1: there and I think ultimately that's why, you know, I believe,
Speaker 1: along with Apple, most transformational companies in the market. Dan.
Speaker 1: There's been a lot of narrative about how companies are
Speaker 1: moving their supply chain out of China, including Elon Musk,
Speaker 1: despite some of his rhetoric supporting the cause in China
Speaker 1: and supporting his business there. How much credence do you
Speaker 1: put into this is just just anecdotal specific incidents that
Speaker 1: don't really move the dial, or is there a seizemic
Speaker 1: shift out of China to insulate some of these companies
Speaker 1: from the geopolitical risk? Yeah, well, normally it's smoke and
Speaker 1: mirror type Beltway talk. I think this is real in
Speaker 1: terms of Flation Reduction Act. There's a real incentives from
Speaker 1: a tax perspective. That's why you're seeing more and more
Speaker 1: of a build out in around Austin. I think you'll
Speaker 1: see more of a build out in Free Mount as well.
Speaker 1: But we're seeing in a cross path. I think you're
Speaker 1: going to see more come to the US, but no
Speaker 1: doubt right now and it is for you know, called
Speaker 1: the next three to five years. China is going to
Speaker 1: continue be the hearts and rungs of the supply chain,
Speaker 1: and I think CASSLA is just really sort of balancing
Speaker 1: between China and non China. That's why you're seeing that
Speaker 1: build out now in Mexico as well. Dan, how do
Speaker 1: you game out the market risk tied to the presence
Speaker 1: of a lot of these tech companies and I'm including
Speaker 1: a test light in that loosely because it could be
Speaker 1: an industrial company. How do you include the risk of
Speaker 1: increasing geopolitical tensions between the US and China disrupting supply chains,
Speaker 1: forcing a more rapid shift in some sort of supply
Speaker 1: chain issue earlier that would cause some of the margins
Speaker 1: to compress. I mean, look, just to put in context, Apple,
Speaker 1: if they if they went full in and wanted to
Speaker 1: move production out of China, best case, in the next
Speaker 1: three years, they can move five percent of production out
Speaker 1: of China. I mean there this is such the hearts
Speaker 1: and lung. It's almost cemented. So it's something where it
Speaker 1: would take a long time to start to move five
Speaker 1: camera cent production. That's why the reality and we saw
Speaker 1: it with Tessa and and Apple in terms of the
Speaker 1: zero COVID issues in December, I mean, really at the
Speaker 1: mercy of China and Beijing for now, although slowly moving,
Speaker 1: you know, in the opposite direction, Dad, what were your
Speaker 1: February channel checks on various and sundry tech names. I mean,
Speaker 1: it's holden up much much better than feared. I mean
Speaker 1: even coming out of Asia not seeing any sort of
Speaker 1: supply chain cuts for iPhone, which I think is important.
Speaker 1: But I think what you saw from salesforce and across
Speaker 1: the board, you know, this is not necessarily the minute
Speaker 1: that yell fire in a crowd theater. In terms of overseeing, damn,
Speaker 1: it'd be a crowded seat for some of the parts
Speaker 1: analysis from you on Apple. Somebody asked on the show
Speaker 1: the other day some of the parts, and I said,
Speaker 1: I really don't know because nobody wants to mention how
Speaker 1: high that's. This is just two one statistic is Apple
Speaker 1: one hundred and fifty dollars a share? What's some of
Speaker 1: the parts, I mean some of the parts bull case
Speaker 1: gets you to two twenty five to two forty base
Speaker 1: case two hundred. I think the big thing is the
Speaker 1: services business, and that's a permanent rerating that we see there.
Speaker 1: And now when you start to see more and more,
Speaker 1: specially without the next iPhone, and you have twenty five
Speaker 1: percent the base that have not upgraded. I is this
Speaker 1: doctor that's going to have a two in front of
Speaker 1: it this year despite the macro and obviously many negative attacks.
Speaker 1: Where's the two come from? And the numerator and the
Speaker 1: denominator just pe or price to cash flow or price
Speaker 1: to record share buybacks? What drives it over two hundred?
Speaker 1: I mean it's really services. I believe it's one point
Speaker 1: three to one point four trillion. Of course you have
Speaker 1: the franchise hardware, and then you start to look at
Speaker 1: the capitol allocation program. I mean, that's what drives you
Speaker 1: anyware from that low to mid two level. In terms
Speaker 1: of where I see the stock going down just to
Speaker 1: finish on Tesla. If yesterday was so good, why is
Speaker 1: the stock down six percent? I think it's just a
Speaker 1: typical sell in the news street always wants more stock
Speaker 1: cells off the heaters come out. But also in terms
Speaker 1: of the path, in terms of record deliveries where they're playing,
Speaker 1: I think this is more flex than muscles. More we
Speaker 1: be buying on the selloff coming out of these events.
Speaker 1: What about the cyber struck down, what's happening with that? Yeah,
Speaker 1: I mean, look, I think this is something where by
Speaker 1: the end of this year you're going to see ultimate
Speaker 1: deliveries come out production and it's important, and that's why
Speaker 1: I think there's ult to me lease the groundwork for
Speaker 1: what we see is the next vehicle, you know, from
Speaker 1: the Tesla ecosystem. Did you get enough from them yesterday
Speaker 1: on that release? I felt yesterday they basically doubled down
Speaker 1: to that target's going to get continue to be there.
Speaker 1: It's not going the goalpost. You're not going to get
Speaker 1: moved out further. I think a year from now, you're
Speaker 1: driving round Monhan and you see cybertrucks. Okay in the wild, Dan,
Speaker 1: I's a wet bush. Thank you, Dan, appreciate it. As
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