Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Along
Speaker 1: with my co host of Bonnie Quinn. Every business day
Speaker 1: we bring you interviews from CEOs, A market pros, and
Speaker 1: Bloomberg experts, along with essential market moving news. Kind the
Speaker 1: Bloomberg Markets Podcast on Apple podcast or wherever you listen
Speaker 1: to podcasts, and on Bloomberg dot com. It is time
Speaker 1: now to get to our next guests. Currency guest, but
Speaker 1: one of the best because he used to cover emerging
Speaker 1: market currencies. Now he covers everything and he really just
Speaker 1: knows everything about everything. Wentin of Brown Brothers Harmon. Thanks
Speaker 1: for joining us today. Hi FI always a picture. Thank
Speaker 1: you so when you know, I'd love to talk about
Speaker 1: emerging market currencies, but I do want to ask you
Speaker 1: first about this spot, which is really more than a spot.
Speaker 1: I shouldn't call it a bat between the US and China.
Speaker 1: It's pumping up again President Trump, you know, throwing in
Speaker 1: a threat. Perhaps it's too distract from other things. Perhaps
Speaker 1: it's for real, as they say, how are you reading it?
Speaker 1: And will it affect the dollar longer term? As you know,
Speaker 1: the markets have been struggling with the U S China
Speaker 1: struggle really for for several years now, right, it started
Speaker 1: off with the trade war, No certaint you know something
Speaker 1: I think even deeper and such structurally more profound. You
Speaker 1: I think, regardless of who the next president is, I
Speaker 1: think the US China relations have h well, you know,
Speaker 1: have changed um forever. I mean, if you look at
Speaker 1: the poles um voters in in the US cross party lines,
Speaker 1: both Democrats and Republicans all favor taking a tougher line
Speaker 1: against China, against the perceiving fractions, etcetera. So whether it's
Speaker 1: Mr Biden or whether this Mr Trump, um, you know,
Speaker 1: both administrations I think will continue on this tough line
Speaker 1: with China. Yeah. And what will that do to the
Speaker 1: US dollar? Because we definitely saw you know, big weakening
Speaker 1: in the dollar last week. It wasn't just on the
Speaker 1: China news, but you know it was ninety two and
Speaker 1: change on d x y. We've strengthened a little bit again.
Speaker 1: Will there be any the impact even if this continues? Well,
Speaker 1: what we saw back last year was, you know, during
Speaker 1: when the trade war erupted and really got tense, the
Speaker 1: dollars tend to strengthen, especially against emerging markets, right, because
Speaker 1: it's not just China, it's all the countries in sort
Speaker 1: of the wider China orbit. UM. You know, China imports UH, commodity,
Speaker 1: et cetera from other countries. So it's it's really you know,
Speaker 1: part of it, you know, sort of a big cog
Speaker 1: cog in the whole global trading regime. So to me,
Speaker 1: that's the risk UM that you know, a a UM,
Speaker 1: it's a prolonged or renewed tensions in the US China
Speaker 1: would a two things, probably boost the dollars for safe
Speaker 1: haven and most likely UM put down depression on equities.
Speaker 1: You know, we saw that last year. I think that's
Speaker 1: what dynamic would take place. Now what's interesting to me
Speaker 1: is that, you know, and Mr Trump is sort of
Speaker 1: kind of eased off that a little bit. UM. And
Speaker 1: but now I think, as you pointed out, you know,
Speaker 1: we're going into prime election season, and it seems you're
Speaker 1: trying to find some sort of message that's going to
Speaker 1: resonate with voters. UM myself personally, I look at the
Speaker 1: polls and and see that most voters at this point
Speaker 1: really we're most worried about the pandemic and the domestic economy.
Speaker 1: China seems a little bit lower on the list, and
Speaker 1: so also I do suspect this, this, this will not
Speaker 1: get that much traction. And Mr Trump me go on
Speaker 1: the next message. So, if we don't have to worry
Speaker 1: so much about the dollar, where are you looking around
Speaker 1: for value in currencies? We saw the g B P
Speaker 1: U S D weekend today a little bit sterling trading
Speaker 1: at one thirty twenty six, but it had been strengthening.
Speaker 1: So there's that. We have the Canadian dollar almost at
Speaker 1: one thirty two right now and the end below one
Speaker 1: oh six, so there's definitely movement out there when but
Speaker 1: where are you finding the most buying for your book? Literally? Yeah,
Speaker 1: So if I'm glad you brought that, because it's is
Speaker 1: something that myself and I think a few other analysts
Speaker 1: have been talking about that. You know, in the past
Speaker 1: you could talk about interest rate differentials as as a
Speaker 1: big driver for currencies, and that's just no longer the case.
Speaker 1: We've got zero of rates basic basically across developed markets
Speaker 1: and even in across many emerging markets. So instead of
Speaker 1: the carry and sort of intertect differentials, I think investors
Speaker 1: are focusing really purely on the fundamentals and and relative
Speaker 1: economic growth potential and differentials. So where does that put us? Well,
Speaker 1: you know, I've been as you probably know, I've been
Speaker 1: pretty negative on the dollar in two three just because
Speaker 1: you've really I think mishandled this virus. It's been much
Speaker 1: worse than it had to be, and I think the
Speaker 1: US economy has been underperforming. But what we're seeing around
Speaker 1: the world now is that those countries that started to
Speaker 1: reopen or having trouble right We're seeing problems in Italy, France, Germany,
Speaker 1: in Asia. So it's it's sort of almost a moving target,
Speaker 1: like who's what's what's looking worse right now? Um So,
Speaker 1: I remain negative on the US dollar in your term,
Speaker 1: We've got to get these virus numbers that control. Um
Speaker 1: you know, I think China is a good story they
Speaker 1: you know, of all these other countries around the world,
Speaker 1: it's it seems to be done the best in in
Speaker 1: really keeping the virus numbers down. So China, Emerging Asia,
Speaker 1: I think hold the best eye right now in terms
Speaker 1: of relative fundamentals and relative growth Latin Americans and is
Speaker 1: just like he has in the US. Just we're struggling
Speaker 1: with the virus, struggling to keep economic growth. Um So
Speaker 1: it's really I think for fundamental person like myself, you know,
Speaker 1: fundamentally focused investors and analysts, this is really where it
Speaker 1: becomes important. And I think that we really have to
Speaker 1: pay attention here. Yeah. So obviously we're in a coronavirus era,
Speaker 1: and so you're saying that until that era is over,
Speaker 1: you would look at certain countries very differently than you
Speaker 1: might if we were not on a coronavirus era, such
Speaker 1: as emerging Asia and parts of Latin America and not
Speaker 1: not all of Latin America. But does that mean, for example,
Speaker 1: that you would consider, you know, currencies where you wouldn't
Speaker 1: normally and I say normally pre pandemic and post pandemic
Speaker 1: invest Yes, I mean, I think what you know. I
Speaker 1: think that, for instance, we've always seen um emerging markets,
Speaker 1: a lot of high carey countries sort of Brazil, Turkey, um,
Speaker 1: South Africa. They tended to gain during risk on training.
Speaker 1: But now and again with basically zero rates, there's no
Speaker 1: Crishian there, there's no yield or carriage that attracts um
Speaker 1: UH invest in closes these countries, which to me have
Speaker 1: arguably amongst the worst fundamentals. So within the e M,
Speaker 1: it's it's fascinating to me that there's such a divergence
Speaker 1: in performance um even during this sort of risk on
Speaker 1: um environment we really saw in the last several months.
Speaker 1: So again I would just again caution investors to to
Speaker 1: really not buy things sort of wholesale that is, you know, look,
Speaker 1: look differentiate, look at the aversion fundamentals, you know, within
Speaker 1: asset classes, and that's that's that's very important to remember
Speaker 1: as you're going to Q four. Where do you like
Speaker 1: in Emerging Asia? I think, um, Singapore, Korea, China. You know,
Speaker 1: they again these countries, you know, they're still struggling obviously
Speaker 1: to to maintain low virus numbers. They've done a fantastic
Speaker 1: job um and without having to shut down the economy
Speaker 1: as as as uh these day, as we have elsewhere
Speaker 1: in Europe and here in in North America. So Taiwan
Speaker 1: I would go in that as well. You know, again,
Speaker 1: the China story is solid and it's going to bring
Speaker 1: up a lot of these other other regional economies as well. Um.
Speaker 1: You know, it's it's not perfect. You know, China has
Speaker 1: its issues. You know, I think as you as we've
Speaker 1: been talking about this, this issue with the U S
Speaker 1: could flare up and could harm sentiment. But for now,
Speaker 1: I think investors are pretty comfortable with the China recovery story.
Speaker 1: You look at am I numbers and an export numbers
Speaker 1: China just as they lead the sort of the world
Speaker 1: downward during this coronavirus, leaving the world world upward in
Speaker 1: the recovery. And again it's I think we all have
Speaker 1: to focus on which countries have done the best in
Speaker 1: in limiting the pandemic impact. You know, another reason I'm
Speaker 1: negative on the US is we still can't get another
Speaker 1: studless book past, and I think it's very crucial. And
Speaker 1: you know, I would have thought we've had something in
Speaker 1: the in the bank bank by now, but um, I mean,
Speaker 1: it's unreal that it's fifty six days to the election
Speaker 1: and we still have nothing. Very briefly starting, why is
Speaker 1: it not reacting more? Our investors not taking the possibility
Speaker 1: of a worse break sit seriously? Yeah, so what look
Speaker 1: it did we have seen throwing U be the worst
Speaker 1: performance today? And I think over the last week it's
Speaker 1: pretty clear that that they're the odds of a no
Speaker 1: deal Brexit are are rising their higher than I think
Speaker 1: many has expected. Mr Johnson, you know, through our monkey
Speaker 1: mentions and the works by saying he may just throw
Speaker 1: out parts of you know, withdrawalogy, which is against I
Speaker 1: I believe against international law. Uh So it's just to me,
Speaker 1: it's a big mess. Um. I think what most people
Speaker 1: are comfortable with. It's not going to be a huge
Speaker 1: sort of um global can cast. I think most agents
Speaker 1: have have sort of prepared for this um and and
Speaker 1: so the impact will not be huge globally. But throwing
Speaker 1: it's pretty negative. Yeah, that's for sure. Win, thank you
Speaker 1: so much. That's when thin of Brown Brothers Harriman so
Speaker 1: much appreciated. That's a serious story that Greg Jared just
Speaker 1: told us about JP Morgan issuing about two eighty thousand
Speaker 1: loans in the p p P. Those loans told more
Speaker 1: than twenty nine billion dollars with a b so. JP
Speaker 1: Morgan was the top p p P lender in the
Speaker 1: country according to SPA data. And if it's now looking
Speaker 1: into instances, we don't know how many in which COVID
Speaker 1: relief funds were misused by customers and as probing employees
Speaker 1: involvement in the illegal activities, you can be sure we're
Speaker 1: here a lot a lot more about that. All right,
Speaker 1: let's bring in somebody who knows a lot about what's
Speaker 1: going on in the NASDAC right now, and that is
Speaker 1: David Garrity of laid Law and also bt Block. David,
Speaker 1: thanks for joining. How concerned are you that now we're
Speaker 1: you know, in the last three sessions or so, we're
Speaker 1: at around about eight to nine percent drop for the deck. Yeah, Vanni.
Speaker 1: In terms of looking at the price action that we
Speaker 1: had going into the end of August, you certainly had
Speaker 1: a asymptotic move to the upside by the likes of
Speaker 1: Apple as well as Tesla going into their splits um.
Speaker 1: Certainly we've had the news about the options market activity
Speaker 1: that have been taking place. So to have the market
Speaker 1: back now nine percent below its highs um as that
Speaker 1: tends more volatile, we don't think we necessarily going to
Speaker 1: be finished with this correction as of today. It may
Speaker 1: have a little bit further to run. Are there stocks
Speaker 1: that you would pile into right now though, even if
Speaker 1: there is a little more to run, or would you
Speaker 1: wait for another while? Or are we getting to the
Speaker 1: stage where we'll see stocks correctly valued as opposed to
Speaker 1: under valued. I think that your last point here in
Speaker 1: terms of trying to get to a more correct valuation
Speaker 1: is probably the most appropriate point. Um. We have to
Speaker 1: take into account the fact the prospects for further fiscal stimulus,
Speaker 1: at least prior to the election in November, are most
Speaker 1: likely being put squarely on the sidelines. So there is
Speaker 1: nothing that's going to be coming over the hill, so
Speaker 1: to speak, in terms of further spending UH to support
Speaker 1: the US economy, and certainly that has knock on effects
Speaker 1: for the global economy. Um. And at the same time,
Speaker 1: absent that support. The drumbeat of bad news in terms
Speaker 1: of layoffs, whether it's coming from airlines, banks or other places,
Speaker 1: is probably going to become more significant. And you know,
Speaker 1: in the meanwhile, we always have the news about you know,
Speaker 1: the second wave if you will, of coronavirus infections. So
Speaker 1: you know, on balance, um, people were quite a brilliant
Speaker 1: going into the late summer, and unfortunately fall brings along
Speaker 1: with the cooler temperatures perhaps a cooler perspective, David. The
Speaker 1: options activity that you were talking about, you know, religio
Speaker 1: to soft bank and so on, How serious is that
Speaker 1: for trading going forward? Will have any impact? Um? I
Speaker 1: mean to the extent we don't know necessarily what were
Speaker 1: what was the maturity or what was the term on
Speaker 1: the options contracts that were involved, To the extent that
Speaker 1: they appear to have been fairly significant relative to the
Speaker 1: ramp up in the shares um, we would think that
Speaker 1: the options contracts themselves were perhaps relatively short term, in
Speaker 1: which case, um, you know, the impact of those contracts
Speaker 1: should wash out fairly frequently. Nevertheless, it probably leaves us
Speaker 1: in a position here where the month of September um
Speaker 1: is going to be obviously ordered, started volatile, but it's
Speaker 1: likely to continue to be so. And that more, it's
Speaker 1: going to be the earning season that we start to
Speaker 1: get announced in October for the third quarter of that
Speaker 1: will serve to stabilize things and give a better prospect
Speaker 1: in terms of where are the valuations reasonable in terms
Speaker 1: of the prices in the market relative to the earnings
Speaker 1: prospects of the companies involved. So, David, perfect news for you.
Speaker 1: We just got the word that Apple is going to
Speaker 1: hold an online event September where the company is expected
Speaker 1: to unveil its latest iPhones and Apple Watches. It's going
Speaker 1: to start at ten am Pacific time one pm Eastern.
Speaker 1: What should we look forward to from Apple in this
Speaker 1: round of innovation. Well, certainly the biggest thing to look
Speaker 1: for from Apple is going to be the latest edition
Speaker 1: of the iPhone, which is going to be engineered to
Speaker 1: be using the five G wireless spectrum and in this
Speaker 1: regard considered to be possibly a transformative product for Apple.
Speaker 1: Certainly it's been an element that's been responsible for the
Speaker 1: run up and the shares um probably over the last
Speaker 1: three to four months. Maybe if you want to go
Speaker 1: back further and look at the March lows so clearly
Speaker 1: allowed the expectations they're already baked into the market. Um.
Speaker 1: Nice to know that we're going to be getting something
Speaker 1: to look forward to in the fifteen September um, and
Speaker 1: we'll be looking for what the surprises are on the margin.
Speaker 1: But the five G I phone is the big ticket.
Speaker 1: So why put so much and for this on five
Speaker 1: G when really you know there's a lot of the
Speaker 1: country that is not going to be able to benefit
Speaker 1: from that. I mean we're really only talking about the
Speaker 1: major cities and not even all of those major cities
Speaker 1: that have five G right now. No, it's true, um,
Speaker 1: but if we look at what the services are that
Speaker 1: can be facilitated as a result of having the speed
Speaker 1: that five G will offer, it can be a substantially
Speaker 1: different user experience. UM, and you have to look at
Speaker 1: you know, what's going to be capable in terms of
Speaker 1: providing more information by way of video at faster rates.
Speaker 1: And arguably you may say it's the cities that have
Speaker 1: most of the coverage right now, but UM absent COVID,
Speaker 1: that's where most of the people or most of the
Speaker 1: cell phone users tend to be UM. So you know,
Speaker 1: looking at five G we're not so far out from
Speaker 1: the deployment of five gene networks that this is something
Speaker 1: of a product that comes out before there's really a
Speaker 1: market for it. I think the timing on Apple support
Speaker 1: is actually quite good. Yeah, indeed, because there will be
Speaker 1: nothing like wanting a little bit of luxury or a
Speaker 1: little something new to pep us up if coronavirus continues,
Speaker 1: which as we know it will. David Garrity, thank you
Speaker 1: so much for all of your intelligence today. David Garrity,
Speaker 1: chief market strategist at laid Lawn Company and also beat
Speaker 1: t block which is a blockchain and cryptocurrency company. It
Speaker 1: is time now forms and we're opinion of that we're
Speaker 1: going to actually across the pond. Sterling has been trading
Speaker 1: today just a little bit on the idea that Boris
Speaker 1: Johnson might be taking breaksit in a crazy direction. And
Speaker 1: that is also the title of Terre's Raphael's latest bloombaring
Speaker 1: opinion piece. So we welcome tores right now and once
Speaker 1: again Sterling at one thirty thirty two week or by
Speaker 1: one percent. What crazy direction are we talking about, Terres, Well,
Speaker 1: there's there, there is crazy and crazier. Let's put it
Speaker 1: that way. So john since ministers, his cabinet and then
Speaker 1: the can downing streets, have been putting out the word
Speaker 1: for some time now that he sees no deal with
Speaker 1: the EU, no trade deal that sets out the future negotiations,
Speaker 1: is actually preferable to compromising on the outstanding issues, including
Speaker 1: the one of state aid now that carries all sorts
Speaker 1: of implications because of the insertible trade, but the World
Speaker 1: Trade Organization terms, which will carry of course economic costs
Speaker 1: as we get trade Christians. The crazier part is the acknowledgement,
Speaker 1: including by a government minister in the House of Commons today,
Speaker 1: that the government plans to break its treaty obligation. This
Speaker 1: is the treaty it fined with the EU only months ago, UH,
Speaker 1: and the part of the treaty on the Northern Irish
Speaker 1: Protocol that was intended to ensure that there's an open
Speaker 1: border between the Northern Ireland and Ireland, and the government
Speaker 1: is now saying it wants to pass legislation that would
Speaker 1: override parts of that treaty. So all of this is
Speaker 1: obviously caused much consternation uh from the EU side, though
Speaker 1: there is at least, you know, some hope that it's
Speaker 1: uh the kind of brinkmanship we've seen in the past
Speaker 1: that tends to perceive the eleventh hour adminciations that tends
Speaker 1: to procede some kind of a deal. So essentially Boris
Speaker 1: Johnson might be trying to rewrite the Brexit divorce deal
Speaker 1: that took so long to get signed last year with
Speaker 1: the European Union, and he might also be baking international law.
Speaker 1: If all of this goes ahead, why are markets not
Speaker 1: taking this seriously seriously enough in the sense that's starting
Speaker 1: as a little weaker but nothing is falling off a cliff.
Speaker 1: I mean, I think for a couple of reasons. One,
Speaker 1: there is a sense that that EU negotiations always UH
Speaker 1: go through this sort of stage of falling apart before
Speaker 1: they come together at the last minute. And that's what
Speaker 1: we saw last year where Boris Johnson met with the
Speaker 1: former Irish teacher Leo Rodka and did a deal um
Speaker 1: on the Northern Island that that field um are paved
Speaker 1: the way for the rest of the withdrawll agreement. So
Speaker 1: there's some sense that this may be posturing, but you know,
Speaker 1: there's also an understanding that they now had a significant
Speaker 1: time to prepare for a no deal exit. Both sides
Speaker 1: have been doing. So any deal that they would uh
Speaker 1: conclude now is not going to be uh substantially better
Speaker 1: in terms of trade than leaving without a deal. They
Speaker 1: will get, you know, perhaps some relief on tariffs and quotas,
Speaker 1: but we're not talking the kind of comprehensive free trade
Speaker 1: agreement covering all areas of policy that was hoped for
Speaker 1: in the beginning, and that's kind of priced in now.
Speaker 1: These talks are going to go on and on and
Speaker 1: on regardless of whether some kind of deal is reached
Speaker 1: at the end of the year. Not only that, but
Speaker 1: it sounds like there are two options for no deal.
Speaker 1: One is just no deal, but fairly endye terms, and
Speaker 1: the other is what seems to be happening, and that's
Speaker 1: no deal in pretty acrimonious terms. Yeah, and I think
Speaker 1: you know, from the point off, if you're going to
Speaker 1: look at it from from from the market perspective, you
Speaker 1: can have a no deal on acrimonious terms, but how
Speaker 1: long can you really stay on those terms. Britain and
Speaker 1: the EU are each other's major trading partner. They cooperate
Speaker 1: on a whole rate, but issues from migration to counter terrorism, security, policing, um,
Speaker 1: all sorts of uh, you know, all sorts of other issues,
Speaker 1: and really they have to find some way through this.
Speaker 1: So you know, whatever the mood music is now, uh,
Speaker 1: we can expect that at some point cooler had to
Speaker 1: prevail and some kind of return to ano those shaping
Speaker 1: table would be expected. And I think that's that's sort
Speaker 1: of a reasonable expectation. When that happens, and on what
Speaker 1: terms is really hard to say. So as I read
Speaker 1: Lauris Johnson's statement out of the ten Downings Weak yesterday,
Speaker 1: and it appeared to be, you know, very optimistic and look,
Speaker 1: if this all happens, it'll end up that we're you know,
Speaker 1: essentially trading with Europe, like Australia trades with Europe for example,
Speaker 1: but we'll also have completely you know, sovereign power and
Speaker 1: control over what we decide to do and so on.
Speaker 1: Is the tone too optimistic for what would happen in
Speaker 1: a scenario where Britain was on the outside, like say Australia, Well,
Speaker 1: I mean you might as well well have said, you know,
Speaker 1: we'll trade with Europe the way um as someone said
Speaker 1: Outer Mongolia will trade with her, because Australia doesn't have
Speaker 1: a trade deal, and so that is just kind of
Speaker 1: a soft way of saying, um, you know, we will
Speaker 1: be completely on the outside. I think Johnson does want
Speaker 1: some kind of a deal. It's clearly in Britain's economic
Speaker 1: interests to have preferential trade terms. Politically, it will get
Speaker 1: very very tricky with the momentum for independence in Scotland
Speaker 1: if there's no deal at all, So I think his
Speaker 1: preference would be to have a deal. At the same time,
Speaker 1: the issue that's dividing them now, which is a state aid,
Speaker 1: the the ability of governments to get subsidies, tax really
Speaker 1: for other incentives to businesses. It is pretty existential for
Speaker 1: this government because it's trying to reorient the British economy
Speaker 1: after Brexit, to make it amenable to global trade deals,
Speaker 1: to level up, as as Johnson likes to put it,
Speaker 1: parts of the economy that has fallen behind, to try
Speaker 1: to improve certain lagging productivity. And the only way, in
Speaker 1: their view, they can do that is to have a
Speaker 1: free rein when it comes to using taxpayer money to
Speaker 1: help give a boost to investment in R and D
Speaker 1: skills training in certain industries. And they're worried that the
Speaker 1: EU is going to try to prevent that because the
Speaker 1: EU will fear a distortion of competition. So the both
Speaker 1: sides actually have a lot of to stake here. The
Speaker 1: EU is trying to preserve the integrity of the Single
Speaker 1: Market and prevent Britain from undercutting the new industries in
Speaker 1: Britain wants to reap the benefits of Brexit and have
Speaker 1: complete freedom over its rules. And uh, you know, there
Speaker 1: is a deal to be done, no doubt, but it
Speaker 1: will require political will on both sides. And the dangerous
Speaker 1: that you know they've really um from the UK side,
Speaker 1: they've sort of painted themselves into a corner because if
Speaker 1: you you know, if they're if they're going to go
Speaker 1: ahead with a plan to you know, literally abrogated international
Speaker 1: treaty and then say they refused to compromise at all
Speaker 1: of state. It's really hard to say. How I see
Speaker 1: how the EU can move closely towards the UK position
Speaker 1: and save a deal. And again, you know, we're talking
Speaker 1: about a very tight time frame. Johnson's put a deadline
Speaker 1: of October fifteen on it, and then on the Northern
Speaker 1: Ireland Protocol. Ray is just very briefly because we're pretty
Speaker 1: out of time. Hard border has been obviously ruled out,
Speaker 1: but there would be some kind of order now, is
Speaker 1: that what this means? Well, not necessarily. The articles that
Speaker 1: talk just talking about um regards the impact of of
Speaker 1: state aid for trade attract more than Ireland and the EU.
Speaker 1: But I think abrogating the treaty does open reopen questions
Speaker 1: about the border, So you know, one might follow the other.
Speaker 1: It's not for certain, but it certainly it's an issue.
Speaker 1: Terre's Raphael Bloomberg opinion columnists, thank you so much for
Speaker 1: explaining all of this to us. As John author says,
Speaker 1: the Empire strikes back. And in other news, sl Green
Speaker 1: Realty preparing to cut the ribbon next week on one
Speaker 1: Vanderbilt a thirteen billion dollar office tower above Grand Central
Speaker 1: Terminal in New York. It's twenty years in the making.
Speaker 1: But will it be rented now to the story of
Speaker 1: the day. Really, it's the tale of the two electric
Speaker 1: vehicle makers. Neither of them really profitable, but one of
Speaker 1: them is actually turning out vehicles, and that's Tesla. Tesla
Speaker 1: down sent right now. But Nicola that's trying to make
Speaker 1: the badger in big numbers. Well it's higher because GM
Speaker 1: is to get a two billion billion. That's with a
Speaker 1: b dollar steak in Nicola. Let's bring in someone to
Speaker 1: tell us a lot more about this. David Welsh is
Speaker 1: Detroit bureaucy for Bloomberg News. David, just the initial questions
Speaker 1: I want to ask surround the differences between Nicola and Tesla.
Speaker 1: Is it a false comparison? Look right now it is.
Speaker 1: You have a company that's worth almost nineteen billion dollars,
Speaker 1: but they haven't sold any You do have a couple
Speaker 1: of CEOs to these companies that like to get on
Speaker 1: Twitter and and be very active there and be very
Speaker 1: quotable and colorful. But after that the comparison kind of
Speaker 1: fall short. That's not to see Nikola doesn't have some technology, um,
Speaker 1: but they don't even have a model for sale yet.
Speaker 1: They're still in the process of developing those and getting
Speaker 1: plants up and running. And really this deal sort of
Speaker 1: underscores and even bigger difference between Tesla from its early
Speaker 1: days and Nicola today, and that is with this partnership
Speaker 1: with GM, they're actually using GMS utric vehicle battery and
Speaker 1: GM's fuel cell system, which is generally developed with Honda.
Speaker 1: Tesla developed its own battery pack that everybody else in
Speaker 1: the industry said couldn't work, wouldn't have great quality, but
Speaker 1: it did work, and it did that pretty good quality,
Speaker 1: so they didn't need to use anybody else's technology. Early on,
Speaker 1: Dime More of Germany and Toyota Corp. HAID invested in Tesla,
Speaker 1: but they were still using Tesla's own battery pack. This
Speaker 1: is different here, So it does make a lot of
Speaker 1: people question what does Nicola bring the GM in terms
Speaker 1: of technology or is it basically a brand name of
Speaker 1: pickup truck concept and some sales down the line, and
Speaker 1: that that appears to be what it is. That's pretty insane.
Speaker 1: So the story is General Motors is giving two billion
Speaker 1: dollars to Nikola. It gets a two billion dollar equity
Speaker 1: stake for that and even ownership of Nicola. Nicola says
Speaker 1: it's the saving over four billion dollars in battery and
Speaker 1: power train costs, and GM says it's going to receive
Speaker 1: in excess of four billion dollars of benefits. Where did
Speaker 1: I get that four billion dollar figure? So, first of all,
Speaker 1: GM is not even putting cash in the two billion
Speaker 1: dollar UH state that they're getting is simply by giving
Speaker 1: Nicola and their battery and their fuel cell technology. So
Speaker 1: with then no cash deal for GM and therefore much
Speaker 1: less risk the same things everybody's talking about. And we'll
Speaker 1: take a brief walk back here to my days of
Speaker 1: covering M and A deals. It's sort of assuming a
Speaker 1: certain amount of sales and here's how much we will
Speaker 1: save on battery development and fuel cell development and building stories.
Speaker 1: Nicola doesn't have to build an electric vehicle factory. Now
Speaker 1: they'll use GMS. It's really by joining forces, but it's
Speaker 1: based on a bunch of assumptions that X number of
Speaker 1: vehicles will sell and would have cost each company a
Speaker 1: certain amount of money had they gone on their own.
Speaker 1: But now they're joining forces and combining things, and they'll
Speaker 1: get all kinds of savings. You know, I'm not sure
Speaker 1: we'll see four billion peeled out of General Motors UH
Speaker 1: costs and down to the bottom line. But it's sort
Speaker 1: of a future projection here, so I've always looked at
Speaker 1: through a little bit suspiciously. But see what happens in
Speaker 1: the future. So what does it say about GM that
Speaker 1: it's looking for a new concept like that? Why does
Speaker 1: it need it now? And when might the badger is
Speaker 1: sort of becoming off GM assembly lines or even you know,
Speaker 1: Nicola Tesla lines, the Nicola lines. They're saying the second
Speaker 1: half of two, so at least six months after GM's
Speaker 1: Hummer pickup truck comes out. So if if Nicola's vehicles sell,
Speaker 1: GM gets two things out of it, they will be
Speaker 1: selling a basic work pickup truck, very different from the
Speaker 1: Hummer pickup truck that GM is planning. So that's more
Speaker 1: of a lifestyle vehicle, almost kind of a luxury vehicle.
Speaker 1: Hummer is not the kind of brand for people for
Speaker 1: contractors who are loading it up with pipes and two
Speaker 1: by fours and that sort of thing. This is the
Speaker 1: kind of truck that tows a boat or is just
Speaker 1: driven around town. So the Nicola truck would give GM
Speaker 1: a crack. It's selling something more of a regular work truck.
Speaker 1: And then on a few also the side of things,
Speaker 1: what GM give because there's much more concrete, is the
Speaker 1: Class seven and eight pickup truck. These are the big
Speaker 1: over the road or rags for hauling free. GM doesn't
Speaker 1: really have anything there and this is their way to
Speaker 1: get into that game. And fuel cells are a pretty
Speaker 1: good way to power those trucks because batteries weighs so much.
Speaker 1: You're you're just cutting away how much Frede you can
Speaker 1: holof You did it with electric power, now you're doing
Speaker 1: the hydrogen power. So GM gets into a new market
Speaker 1: if it works, if it doesn't work, GM has not
Speaker 1: put any cash in UM and and and so you
Speaker 1: know that there's not a lot of monetary respire GM here.
Speaker 1: So Nika is up. You might understand that. But is
Speaker 1: it understandable that Tesla is down today? Uh? Yeah, in
Speaker 1: in a big way. It is because a lot of investors.
Speaker 1: Tesla is going to be welcomed into the SMP five hundred,
Speaker 1: and that means you have seen a lot of passive
Speaker 1: money through SMP five STP index bonds coming in as
Speaker 1: opposed to you know, the heavy cohort of re Tell
Speaker 1: investors and some institutions that are in Tesla that didn't happen.
Speaker 1: And it has to implications. One that's just you know,
Speaker 1: pure fact, you're not going to have all this potential
Speaker 1: new money coming into the stock. And too, there is
Speaker 1: some talk out there that um Testa's earnings, well, I
Speaker 1: have been profitable several quarters in a row. Now, it's
Speaker 1: not a great quality of earnings. They often lose money
Speaker 1: on the core vehicle business and make enough money selling
Speaker 1: regulatory electric vehicle credits to the gas burning many car manufacturers,
Speaker 1: and and that overshadows the losses and end up turning
Speaker 1: a profit. David, we absolutely there, But thank you so
Speaker 1: much for explaining all of that to us. Much much appreciated,
Speaker 1: David Welch there in Detroit. Thanks for listening to the
Speaker 1: Boomberg Markets podcast. You can subscribe and listen to interviews
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. I'm
Speaker 1: Bonnie Quinn, I'm on Twitter at Bonnie Quinn. And Paul
Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
Speaker 1: you can always catch us worldwide at Bloomberg Radio. Huh
Speaker 1: uh uh u.