WEBVTT - P&L: No Need For More Trade Restrictions, Paul Christopher Says 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg pim L Podcast. I'm pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg p L Podcast on iTunes, 0:00:20.840 --> 0:00:28.200 SoundCloud and at Bloomberg dot com. And here in the 0:00:28.240 --> 0:00:30.520 studio with us is Paul Christopher. He is head of 0:00:30.520 --> 0:00:34.600 Global market Strategy for Wells Fargo Institute and he joins 0:00:34.680 --> 0:00:36.360 us now. Paul, thank you very much for being with us. 0:00:36.440 --> 0:00:38.239 Great to be with you again. Pim um, What has 0:00:38.320 --> 0:00:41.760 happened in your life since the conclusion of the US 0:00:41.800 --> 0:00:45.000 presidential election? Give us a little window into the world 0:00:45.080 --> 0:00:48.640 of a global strategy. You mean besides no sleep. Uh, well, 0:00:48.720 --> 0:00:51.279 you could add that to the mix as well. How 0:00:51.280 --> 0:00:54.040 are you handling it? Well? What? What? What we're seeing 0:00:54.120 --> 0:00:58.520 is a markets really anticipating a lot, extrapolating a lot, 0:00:59.080 --> 0:01:02.440 and we're still we're still pretty cautious on whether or 0:01:02.480 --> 0:01:06.840 not those extrapolations and anticipations will be fully realized, especially 0:01:07.200 --> 0:01:09.080 in the near term. I mean people, right, I mean 0:01:09.120 --> 0:01:11.280 people are doing all the people are doings or a 0:01:11.280 --> 0:01:15.000 computer of some kind. But basically, people are are making 0:01:15.040 --> 0:01:19.520 these decisions, these speculative bets. People are making anticipatory bets 0:01:19.600 --> 0:01:21.680 on how they think policy will work out, and some 0:01:21.720 --> 0:01:24.039 of those bets may have to be changed over the 0:01:24.040 --> 0:01:27.080 coming weeks and months as we see the how the 0:01:27.160 --> 0:01:31.520 president elect will prioritize the new policy initiatives, and how 0:01:31.560 --> 0:01:34.880 the Congress will play with the new president going forward. So, Paul, 0:01:35.280 --> 0:01:38.840 before offline, we were talking about how you're advising clients 0:01:38.920 --> 0:01:42.800 to not change their investment strategies from before the election, 0:01:42.840 --> 0:01:45.679 to sort of stay the course. So what were you 0:01:45.720 --> 0:01:49.600 advising then as far as the proportion of cash people 0:01:49.640 --> 0:01:53.520 should be holding, the mix of bonds and stocks, our 0:01:53.560 --> 0:01:57.680 tactical views were, We're really pretty pretty cautious, pretty defensive. 0:01:57.880 --> 0:02:00.240 We're holding a little bit of cash on the sideline's 0:02:00.280 --> 0:02:04.080 looking for an opportunity, but we're really oriented towards quality. 0:02:04.320 --> 0:02:07.360 So we've been overweight US large cap stocks, but we've 0:02:07.360 --> 0:02:09.640 been underweight US small caps as we get to a 0:02:09.680 --> 0:02:12.000 point in the cycle where things might not look so 0:02:12.040 --> 0:02:15.359 good for small caps. We've been underweight emerging market equities 0:02:15.400 --> 0:02:17.640 and that's hurt a little bit. But we do still 0:02:17.680 --> 0:02:20.720 see some problems, some real challenges in those places. We've 0:02:20.760 --> 0:02:23.040 also been underweight the long end of the yield curve 0:02:23.080 --> 0:02:25.600 and overweight the middle part of the yield curve. Really 0:02:25.919 --> 0:02:29.160 not wanting to take chances that we'll get sudden changes 0:02:29.160 --> 0:02:31.880 and yields, and therefore we would prefer to have people 0:02:32.040 --> 0:02:36.280 position more intermediately. Let's just take a couple of those specifics. 0:02:36.320 --> 0:02:38.680 I want to ask you about small and mid cap stocks. 0:02:38.720 --> 0:02:41.760 For example, the Russell two thousand has seen a very 0:02:41.800 --> 0:02:45.240 good run since the results of the presidential election. The 0:02:45.360 --> 0:02:49.919 dollar has also strengthened. Would that help small and mid 0:02:50.000 --> 0:02:52.840 cap companies that mainly do business, let's say in the 0:02:52.919 --> 0:02:56.040 United States, that don't have that currency risk. Historically that 0:02:56.040 --> 0:02:58.560 that has been the connection him, But but it may 0:02:58.600 --> 0:03:02.080 be not quite so so going forward, supposed the administration, 0:03:02.120 --> 0:03:04.080 for example, where to start working on a lot of 0:03:04.120 --> 0:03:08.079 trade restrictions. A lot of US companies have supply chains 0:03:08.080 --> 0:03:10.960 that extend beyond our borders. Uh. You could have a 0:03:11.000 --> 0:03:14.560 small manufacturer, for example, that imports electric motors from Mexico. 0:03:14.600 --> 0:03:18.200 If Mexico is targeted for trade sanctions, those motors get 0:03:18.240 --> 0:03:20.280 more expensive, and all of a sudden earnings get hit 0:03:20.440 --> 0:03:23.360 or prices have to rise. So it's not necessarily the 0:03:23.400 --> 0:03:25.480 case going forward that we can rely on on some 0:03:25.520 --> 0:03:30.399 of those old one on one relationships. Inflation. Before the election, 0:03:30.720 --> 0:03:34.320 the dominant view before the election, the dominant view was 0:03:34.400 --> 0:03:37.200 that we were in a slow growth period with some inflation, 0:03:37.360 --> 0:03:41.240 but nothing that was too too much to write home about. Now, 0:03:41.280 --> 0:03:43.000 all of a sudden, people are pricing in much higher 0:03:43.080 --> 0:03:44.840 rates of inflation. Where do you stand on that? Yeah, 0:03:44.920 --> 0:03:47.560 well you you you. The reason they're doing that is 0:03:47.560 --> 0:03:51.360 because they're seeing policy promises made on the campaign trail. 0:03:51.400 --> 0:03:55.080 And remember the campaign trail is subject to hyperbole, so 0:03:55.160 --> 0:03:57.120 it's it's always possible that we could see some of 0:03:57.120 --> 0:03:59.880 these promises not quite work out the way they were promised. 0:04:00.320 --> 0:04:03.320 But on the campaign trail, promises of trade restrictions are 0:04:03.360 --> 0:04:06.680 themselves inflationary, as well as promises that we're going to 0:04:06.720 --> 0:04:09.680 cut taxes and increased let's say, infrastructure spending that would 0:04:09.720 --> 0:04:12.040 also tend to be uh tend to tend to work 0:04:12.280 --> 0:04:15.200 towards inflation. So whether one looked at one side of 0:04:15.200 --> 0:04:17.919 the promises or another, inflation seemed to be the result. 0:04:18.000 --> 0:04:20.600 And that's that that also appears to be the result 0:04:20.640 --> 0:04:23.200 of the market pricing in the last week or so. Paul, 0:04:23.320 --> 0:04:26.560 if you love the US Treasury a tenure, for example, 0:04:26.640 --> 0:04:29.560 and under two percent, do you really really love them 0:04:29.600 --> 0:04:33.600 now that they're above two Well, some some increase in 0:04:33.680 --> 0:04:36.200 yields is probably inevitable. The question will be what's going 0:04:36.240 --> 0:04:38.640 to be the timing. Do we expect to see all 0:04:38.680 --> 0:04:42.039 of those policies develop inflation all at once, or do 0:04:42.080 --> 0:04:45.040 we expect the inflation effects to develop over time, or 0:04:45.080 --> 0:04:47.599 do we expect instead that some of those inflationary effects 0:04:47.600 --> 0:04:50.560 maybe offsetting to one another. For example, if you had 0:04:50.640 --> 0:04:53.760 higher yields, that could slow growth and therefore slow inflation. 0:04:53.839 --> 0:04:56.200 Now I don't understand that, but I'm just wondering. For example, 0:04:56.240 --> 0:04:59.000 if now you were to buy the US tenure, you 0:04:59.000 --> 0:05:02.159 would get two point to one percent. If you are 0:05:02.320 --> 0:05:05.520 long the US tenure at anything less than that, would 0:05:05.520 --> 0:05:08.240 you recommend people buy it? Well, we want, we want 0:05:08.279 --> 0:05:11.120 clients to be up to their their they're recommended long 0:05:11.240 --> 0:05:13.880 term allocations and ten years. But we are over or 0:05:13.920 --> 0:05:16.919 excuse me, we're underweight, Uh, the long term part of 0:05:16.920 --> 0:05:20.320 the yield curve again, because there's always that risk volatility 0:05:20.600 --> 0:05:24.720 out there where sudden increases and yields would damage the portfolio, 0:05:24.640 --> 0:05:27.599 the bond portfolio. What what's the scariest spot in the 0:05:27.600 --> 0:05:31.440 market right now? Uh, good question. Scariest spot in the 0:05:31.480 --> 0:05:34.240 market might be a bet that commodity prices are going 0:05:34.240 --> 0:05:36.960 to rise here if you're if you're thinking maybe that 0:05:37.000 --> 0:05:40.720 the Trump administration would boost growth and maybe boost inflation, 0:05:40.760 --> 0:05:43.880 and therefore the commodity prices would rise in response or 0:05:44.000 --> 0:05:46.880 rise simultaneously. We think that's a bit of a bit 0:05:46.920 --> 0:05:49.200 of a stretch. After all, supply and demand in the 0:05:49.200 --> 0:05:53.320 commodity world still really hasn't been re established convincingly. We 0:05:53.360 --> 0:05:56.560 still think those commodity prices have some years of bouncing 0:05:56.560 --> 0:05:59.040 around and ranges to go. Are there any screaming buys 0:05:59.800 --> 0:06:02.720 and no, not really. Again, we would want we would 0:06:02.720 --> 0:06:06.320 want clients to mostly be looking to take advantage. Uh. 0:06:06.360 --> 0:06:09.080 If you, for example, are underweight and treasuries, it might 0:06:09.120 --> 0:06:11.680 be a good time to start averaging into that market. 0:06:12.000 --> 0:06:14.240 If you're underweight and equities, we would be averaging into 0:06:14.279 --> 0:06:16.760 that market right now, just to make sure that you're 0:06:16.800 --> 0:06:19.240 at the at the recommended long term levels. We'll get 0:06:19.320 --> 0:06:22.279 more clarity and we can adjust tactical positions later on, 0:06:22.279 --> 0:06:25.359 once we see again how the president's priority list looks 0:06:25.680 --> 0:06:28.520 and how the Congress plays with that list. What about 0:06:28.560 --> 0:06:31.440 corporate earnings. I thought that corporate earnings were a determinant 0:06:31.440 --> 0:06:34.680 for long term stock performance. Long term stock performance. Yes, 0:06:35.120 --> 0:06:38.600 tactically we're we're still seeing about a six to seven 0:06:38.600 --> 0:06:41.960 percent gain and earnings for next year, but possibly some 0:06:42.040 --> 0:06:45.560 cap on valuations if inflation does surprise to the upside. Why, 0:06:45.600 --> 0:06:47.839 because you think that investors won't pay more for the 0:06:47.920 --> 0:06:50.159 same dollar of earnings. You won't get that expansion in 0:06:50.160 --> 0:06:53.600 the multiple. That's right. Yeah, if you get some expansion, sorry, 0:06:53.600 --> 0:06:56.360 if you get some expansion and multiples, let's say at midyear, 0:06:56.400 --> 0:06:59.479 and then inflation starts to surprise on the upside later 0:06:59.520 --> 0:07:01.520 in the year, you have to start bringing the fedback 0:07:01.520 --> 0:07:04.239 into the picture, and will they accelerate their rate hikes 0:07:04.440 --> 0:07:07.200 and that would be a damaging a factor, or at 0:07:07.240 --> 0:07:10.600 least a speculative factor for bears. Paul, you came in 0:07:10.640 --> 0:07:12.680 here and you said that you haven't been sleeping very much. 0:07:13.120 --> 0:07:15.720 What's been keeping you up? What's keeping me up really 0:07:15.840 --> 0:07:18.280 is what sort of policy mix we're going to see 0:07:18.320 --> 0:07:21.560 out of the new administration. I'm not so concerned about 0:07:21.640 --> 0:07:24.320 the fiscal policy mix. I think we'll see something there 0:07:24.720 --> 0:07:27.960 that will be stimulative, and the deregulatory aspect will be 0:07:28.000 --> 0:07:30.880 positive for the market. But it's the trade element. How 0:07:30.920 --> 0:07:34.120 will the new administration handle the promises to be much 0:07:34.160 --> 0:07:37.560 more restrictive on trade At a point here where inflation 0:07:37.640 --> 0:07:39.880 is still benign but could get worse if if we 0:07:39.920 --> 0:07:42.720 restrict trade, and at a point here where global trade 0:07:42.760 --> 0:07:46.680 itself has has just begun to recover from a big contraction. 0:07:47.000 --> 0:07:50.480 We really don't need another big restriction in global trade. 0:07:50.680 --> 0:07:52.640 Paul Christopher, thank you so much for being with Thank 0:07:52.640 --> 0:07:56.400 you and Paul Christopher had Global market Strategistic well Wells 0:07:56.480 --> 0:08:00.280 Fargo Investment Institute in St. Louis. And Lisa Brown always 0:08:00.280 --> 0:08:16.480 here with pim Fox. This is Bloomberg, This is Bloomberg Markets. 0:08:16.520 --> 0:08:18.840 I'm pim Fox along with Lisa A. Brahma. What's the 0:08:18.840 --> 0:08:22.840 shares of Apple have fallen about four percent since the 0:08:22.880 --> 0:08:26.040 results of the U S presidential election? So what is 0:08:26.120 --> 0:08:29.120 next for apprile? And is it losing its place as 0:08:29.160 --> 0:08:33.280 the crown jewel of a technology company? Shira Ovid joins 0:08:33.360 --> 0:08:36.240 US now. She is a technology columnist and a Bloomberg. 0:08:36.320 --> 0:08:40.560 Gadfly are a fast commentary section of Bloomberg and you 0:08:40.559 --> 0:08:44.120 can follow her on Twitter at Shira Oda. Sure, thanks 0:08:44.200 --> 0:08:46.080 very much for being here. Thank you. So what is 0:08:46.120 --> 0:08:50.080 this about Apple losing its technology? Itch? Yeah, well, I 0:08:50.120 --> 0:08:53.600 think this has basically been a narrative for Apple really 0:08:53.640 --> 0:08:57.000 in the last five years under Tim Cook, who, of course, 0:08:57.480 --> 0:09:00.400 um was the successor to Steve Jobs, the famous co 0:09:00.559 --> 0:09:04.000 founder and longtime CEO of Apple. And there's been a 0:09:04.120 --> 0:09:08.760 question basically since Tim Cook took over about whether Apple 0:09:08.800 --> 0:09:14.200 can sustain its long time position as basically the trendsetter 0:09:14.640 --> 0:09:17.679 in the technology industry. This is a company that for 0:09:17.720 --> 0:09:21.760 a long time took niche ideas like smartphones, like digital 0:09:21.840 --> 0:09:26.040 music players and turn them into basically world changing products 0:09:26.040 --> 0:09:29.680 and world changing ideas, and it doesn't seem to be 0:09:29.760 --> 0:09:32.840 able to do that anymore. Okay, Sira, You know, I 0:09:32.880 --> 0:09:34.760 love it because you sit in my row and we 0:09:34.840 --> 0:09:37.240 kind of come up with doomsday scenarios and throw them 0:09:37.280 --> 0:09:41.719 against each other and are perennially perennially pessimistic. So, um, 0:09:42.040 --> 0:09:44.320 I I read your column and it was like, yes, 0:09:44.480 --> 0:09:48.720 right right in line with the perennial time exactly um So, 0:09:48.800 --> 0:09:51.200 Apple Marker and Alex web and in King of blubric 0:09:51.280 --> 0:09:54.280 Days reported that Apple is weighing an expansion into digital glasses. 0:09:54.720 --> 0:09:57.560 Um and this you sort of take a look at 0:09:58.200 --> 0:10:02.080 what they could bring to it that Google failed to 0:10:02.160 --> 0:10:05.360 bring in two thirteen. What are some of the advancements 0:10:05.400 --> 0:10:08.839 that they could bring that could potentially be lucrative for them? Yes, 0:10:08.920 --> 0:10:11.640 so so, as our colleagues reported right at, Apple is 0:10:12.480 --> 0:10:14.640 kind of working on this idea that may never come 0:10:14.679 --> 0:10:17.880 to fruition as as all you know, design and research 0:10:17.960 --> 0:10:20.520 labs and tech companies, sometimes you work on things that 0:10:20.559 --> 0:10:23.320 don't pan out. But they're working on those kind of 0:10:23.320 --> 0:10:28.280 digital glasses that aren't dissimilar to if people remember Google Glass, 0:10:28.320 --> 0:10:30.520 which was a product that Google kind of flopped on 0:10:30.600 --> 0:10:33.640 a couple of years ago. But this idea of kind 0:10:33.640 --> 0:10:36.920 of eyewear that combines what you see in the real 0:10:37.000 --> 0:10:40.120 world with digital images, Like you might be walking down 0:10:40.160 --> 0:10:42.920 the street and it will show you a digital map 0:10:43.120 --> 0:10:45.959 of walking directions to the coffee shop that you're going 0:10:46.000 --> 0:10:47.959 to or things like that. So why now, I mean, 0:10:48.040 --> 0:10:51.360 is this basically a really high tech version of Pokemon 0:10:51.440 --> 0:10:54.360 Go that can be made more easy for people. Pretty 0:10:54.400 --> 0:10:56.320 much yes. I mean the thing that we don't know, 0:10:56.360 --> 0:11:01.280 of course, and maybe Apple doesn't itself know, is what 0:11:01.280 --> 0:11:04.640 what does this technology do that will really bring something 0:11:04.760 --> 0:11:07.720 you know, clever and innovative to our lives. And Google 0:11:07.840 --> 0:11:10.080 couldn't figure it out, and that's one reason why um 0:11:10.160 --> 0:11:14.360 it pulled glass from circulation. But there is this kind 0:11:14.360 --> 0:11:18.120 of emerging technology against sort of mix digital and UH 0:11:18.240 --> 0:11:21.600 and real life in these kind of wearable gizmos are 0:11:21.640 --> 0:11:24.760 on your phone, and that's clearly kind of a trend 0:11:24.800 --> 0:11:27.200 for the future. But the question that I raise is 0:11:27.480 --> 0:11:30.679 does Apple have a clear vision about this or about 0:11:30.679 --> 0:11:34.160 anything else uh in terms of what it can do 0:11:34.320 --> 0:11:38.559 to a technology to make it mainstream and actually world changing. 0:11:38.760 --> 0:11:40.319 And I don't know the answer to that, but the 0:11:40.760 --> 0:11:43.200 five year track record of Apple is not great in 0:11:43.240 --> 0:11:45.960 this regard. Having said that, I just want to oppose 0:11:46.040 --> 0:11:47.840 to you that this is a company that's doing two 0:11:48.080 --> 0:11:51.640 d and fifteen billion dollars worth of business a year. 0:11:52.240 --> 0:11:56.960 The net income is over forty five billion dollars a year. 0:11:57.880 --> 0:12:01.160 If they just manage that, that will be an amazing feat. 0:12:01.240 --> 0:12:04.520 And you know, when you talk about trend setting technology, yes, 0:12:04.800 --> 0:12:06.959 kind of and no, right, because you don't hear anything 0:12:06.960 --> 0:12:09.560 about virtual reality really from Apple. You don't hear anything 0:12:09.600 --> 0:12:12.200 about drones. You don't hear anything about new TV monitors. 0:12:12.240 --> 0:12:15.840 You don't hear anything about Alexis and those home audio 0:12:16.040 --> 0:12:19.600 assistance that are directly wired to the inventory control system. 0:12:19.600 --> 0:12:24.119 At Amazon, they've been focused on watches, wearables, write phones, iPads, 0:12:24.120 --> 0:12:26.319 and mass Yes. So two things. One is you're right. 0:12:26.360 --> 0:12:29.040 I mean, if if Apple isn't a quote crisis, most 0:12:29.080 --> 0:12:31.760 companies would love to be in the crisis condition that 0:12:31.800 --> 0:12:35.720 Apple is in with again enormous profits and enormous sales. 0:12:36.080 --> 0:12:39.960 But the Apple that that people know is a company 0:12:40.000 --> 0:12:42.960 that is growing revenue and this Apple is not doing 0:12:42.960 --> 0:12:45.760 that anymore. So that's what a crisis looks like for Apple. 0:12:45.800 --> 0:12:49.600 But it's stagnating sales and that's a problem for Apple 0:12:49.679 --> 0:12:51.079 real quick. Do we have a sense of how much 0:12:51.080 --> 0:12:53.600 money and Apple is putting into this, No idea, But 0:12:53.640 --> 0:12:56.720 they've doubled R and D spending over the last three years. 0:12:56.760 --> 0:12:58.679 So they're cooking up a lot of things and their 0:12:58.720 --> 0:13:01.040 research labs and hopeful one of them will be a hit. 0:13:01.400 --> 0:13:05.160 Share overday of Bloomberg Gadfly always always a joy speaking 0:13:05.160 --> 0:13:07.360 with you. Thank you so much for being with us. 0:13:20.280 --> 0:13:26.040 Humans are suing Chrysler and this is not going to 0:13:26.240 --> 0:13:30.120 do wonders for Chrysler shareholders who which have suffered some 0:13:30.200 --> 0:13:32.360 losses as a result. I want to bring in car 0:13:32.440 --> 0:13:37.040 Deke Marotra, a Bloomberg News reporter who wrote the story 0:13:37.160 --> 0:13:40.720 breaking the news about the fact that dodged truck owners, 0:13:41.080 --> 0:13:44.520 sued Chrysler on Monday, claiming that some engines were rigged 0:13:44.640 --> 0:13:47.559 to hide emissions as much as fourteen times higher than 0:13:47.600 --> 0:13:50.679 the law permits. Carter K, thank you so much for 0:13:50.760 --> 0:13:53.360 joining us. Sure so, UM, can you just give us 0:13:53.360 --> 0:13:55.040 a little bit more of a sense, a deeper sense 0:13:55.360 --> 0:13:58.520 of the suit, of what instigated it and how deep 0:13:58.559 --> 0:14:01.960 this could go. So the allegations are, and they are 0:14:02.000 --> 0:14:05.280 only allegations right now, are that the Chrysler, before their 0:14:05.320 --> 0:14:09.760 merger with Fiat UM and their technology, their engine provider 0:14:09.840 --> 0:14:14.719 come in Sank, had created UH diesel engines to circumvent 0:14:14.840 --> 0:14:18.680 new UM regulations by the e p A. UH. The 0:14:18.679 --> 0:14:22.600 EPA had created more stringent laws for diesel based engines, 0:14:22.680 --> 0:14:25.040 and they thought we could we can beat the market 0:14:25.080 --> 0:14:27.320 to this. The deadline was two thousand ten. They were 0:14:27.360 --> 0:14:30.640 a few years ahead and they did beat competitors. And 0:14:31.160 --> 0:14:34.880 the allegation now is that they beat competitors by creating 0:14:34.880 --> 0:14:38.640 an engine that leaks emissions and they knew about it. 0:14:38.840 --> 0:14:41.200 So this is for about half a million Dodge Ram 0:14:41.360 --> 0:14:44.880 trucks that are on US roads. And now the question 0:14:45.000 --> 0:14:47.640 that will be up to a district court in Michigan 0:14:47.800 --> 0:14:50.160 is is whether they did do it, whether they did 0:14:50.160 --> 0:14:54.320 do it intentionally, and and what damages should be rewarded 0:14:54.320 --> 0:14:58.080 to two drivers. Carter K, Is there any evidence or 0:14:58.200 --> 0:15:01.680 any detail that you can offer about these specific engines? 0:15:01.800 --> 0:15:06.800 Have there been issues in the past for example, Uh, 0:15:06.840 --> 0:15:08.880 it's a bit up in the air. There have been 0:15:08.920 --> 0:15:12.720 issues in the past with UM defeat devices as they're 0:15:12.720 --> 0:15:16.680 known so UM. For example of Volkswagen, right, I mean 0:15:16.760 --> 0:15:19.560 that was the Volkswagen store, And just to make mention, 0:15:19.920 --> 0:15:22.640 Volkswagen has agreed to pay what sixteen and a half 0:15:22.640 --> 0:15:25.760 billion dollars to resolve all the issues about that the 0:15:26.040 --> 0:15:29.440 two leader diesel cars right right, so far, So that's 0:15:29.480 --> 0:15:32.400 that's been the most notorious allegation. But even before that 0:15:32.640 --> 0:15:35.960 UM in the late nineties, a number of carmakers were 0:15:35.960 --> 0:15:40.359 hauled up by US regulators for UM installing these defeat devices. 0:15:40.440 --> 0:15:44.640 And actually the Chrysler case precede the Volkswagen. Um. The 0:15:44.680 --> 0:15:47.600 allegations over their cars are for model years from two 0:15:47.600 --> 0:15:50.640 thousand seven to two thousand twelve. Well, VW has only 0:15:50.640 --> 0:15:54.520 started in two thousand nine. Um, So there the question 0:15:54.680 --> 0:15:57.960 is is this a broader behavior of the auto industry? 0:15:58.360 --> 0:16:03.160 Um is their accredibility issue when it comes to clean diesel? 0:16:03.480 --> 0:16:05.480 Um that that's sort of the questions that that these 0:16:05.520 --> 0:16:08.680 cases and recurring issues do seem to be bringing up, 0:16:08.720 --> 0:16:11.320 which you know we'll find out over time. Well, card exactly, 0:16:11.360 --> 0:16:13.320 That's what I was going to ask. I mean, Chrysler 0:16:13.400 --> 0:16:16.680 is the first US company to be sued for these 0:16:16.760 --> 0:16:21.920 kinds of emissions rigging scandals. Are you hearing from your 0:16:21.960 --> 0:16:25.280 sources that are there are other lawsuits pending against other 0:16:25.480 --> 0:16:31.800 US automakers? It would not surprise me. Um, But we 0:16:31.840 --> 0:16:36.640 haven't heard of any definitive suits in in the works yet. UM. 0:16:36.720 --> 0:16:39.680 That said, lawyers like to keep this pretty close to 0:16:39.680 --> 0:16:42.960 the chess until they're ready to file their suits. UM. 0:16:43.240 --> 0:16:46.160 So not yet, but that doesn't mean that they won't come. 0:16:46.320 --> 0:16:51.040 But they're not not coming. Ultimately, is the alleged cheating 0:16:51.120 --> 0:16:54.800 on this emissions would this then lead what to a 0:16:54.880 --> 0:17:00.200 discovery process to try to obtain documents or information related 0:17:00.240 --> 0:17:04.360 to the specific engines over time? Yeah, UM, I think 0:17:04.440 --> 0:17:08.200 what what we've already heard from Fiat Chrysler uncommons is 0:17:08.200 --> 0:17:10.320 that they're going to fight the case. UM So unlike 0:17:10.320 --> 0:17:14.359 Folkswagen who who owned up to it, UM the malfie, 0:17:14.359 --> 0:17:19.600 isn't uh Fia Chrysler intent on fighting uh the allegations. 0:17:19.720 --> 0:17:23.119 Uh So, Yes, there will go through the rigorous court process, 0:17:23.160 --> 0:17:27.199 which will ultimately include going through discovery and and finding 0:17:27.240 --> 0:17:30.600 out what led to the development of these engines and installation. 0:17:31.040 --> 0:17:33.440 What did the car company know um at the time 0:17:33.480 --> 0:17:35.440 that the cars were sold? Real quick? What kinds of 0:17:35.520 --> 0:17:38.440 legal costs or is Fia Chrysler facing at this point? 0:17:39.240 --> 0:17:42.239 That's a good question. Um. All the complaints says is 0:17:42.280 --> 0:17:46.760 that UM, the damage to the car would would be 0:17:47.160 --> 0:17:51.000 UM up to five thousand dollars, so UM components would 0:17:51.000 --> 0:17:54.240 be damaged because you had to go through the motions 0:17:54.400 --> 0:17:57.320 of of fixing the cars. UM. So multiply that by 0:17:57.400 --> 0:17:59.560 by half a million, you're you're starting to climb a ladder. 0:17:59.760 --> 0:18:02.280 It's where near sixteen and a half billion yet, but 0:18:02.440 --> 0:18:04.800 it will cost the company quite a bit, Thank you 0:18:04.920 --> 0:18:09.600 very much. Carter k Merotra, legal reporter for Bloomberg News. 0:18:10.000 --> 0:18:12.800 You're listening to Bloomberg Markets. I'm pim Fox along with 0:18:12.880 --> 0:18:31.399 Lisa Abramowitz. This is Bloomberg. It's time now for us 0:18:31.440 --> 0:18:33.080 to take a little bit closer look into the U 0:18:33.119 --> 0:18:35.800 s economy and lots being said about potential inflation, about 0:18:35.800 --> 0:18:39.919 potential growth, but looking at the numbers, is it showing 0:18:39.960 --> 0:18:44.000 the same optimism that we're hearing at large? Carl Ricka Donna, 0:18:44.320 --> 0:18:47.240 Chief US economists for Bloomberg Intelligence, we got some retail 0:18:47.240 --> 0:18:50.040 sales today. What clues do they give us? Well, the 0:18:50.080 --> 0:18:53.240 retail sales report was in October report, so well, you 0:18:53.320 --> 0:18:56.600 had a couple of unusual trends in that report that 0:18:56.760 --> 0:19:00.280 maybe are making it look like stronger results than what 0:19:00.280 --> 0:19:02.679 was really the case. First and foremost, that we have 0:19:02.720 --> 0:19:06.440 an unusual pattern for gasoline prices. Normally in the second 0:19:06.440 --> 0:19:09.720 half of the year, especially in October, you see price declines. 0:19:10.240 --> 0:19:14.040 We saw modest price increases, so seasonal adjustment right off 0:19:14.040 --> 0:19:17.480 the bat throws that for a loop. That being said 0:19:17.520 --> 0:19:19.560 that when we look a little deeper into the details, 0:19:19.600 --> 0:19:25.040 don't forget Hurricane Matthew UH made a close swipe and 0:19:25.080 --> 0:19:28.639 then eventual landfall at a significant portion of the southeast 0:19:28.680 --> 0:19:31.199 coast at the start of the month. And when we 0:19:31.280 --> 0:19:35.320 have hurricanes UH impacting the US historically, you see a 0:19:35.359 --> 0:19:40.040 big surge in grocery sales UH, demand for building supplies, 0:19:40.080 --> 0:19:42.960 garden equipment, those types of things, UH, and then you 0:19:43.000 --> 0:19:46.160 see a drop off in things like restaurants sales UH 0:19:46.200 --> 0:19:50.040 and some of those discretionary categories furniture, electronics and whatnot. 0:19:50.400 --> 0:19:53.359 And we saw exactly that profile in this report. So 0:19:53.440 --> 0:19:56.800 it looks like a gangbusters report UH. And it looks 0:19:56.840 --> 0:20:00.280 like the fourth quarter is starting off with a full 0:20:00.359 --> 0:20:03.719 head of steam. UH. So to speak, however, we have 0:20:03.800 --> 0:20:08.480 to remember that the income trend is not justifying this 0:20:08.600 --> 0:20:12.640 dramatic acceleration. So we'll continue to see fits and starts 0:20:12.680 --> 0:20:15.760 in the retail data until we see a more pronounced 0:20:15.920 --> 0:20:20.880 and sustained acceleration and wage and salary income. Carl Kadona 0:20:20.960 --> 0:20:25.280 business inventories do they matter? Uh? Inventory is not so 0:20:25.359 --> 0:20:28.000 critical at this point. UH. You know, we saw big 0:20:28.080 --> 0:20:31.440 liquidation that weighed on growth earlier this year. I think 0:20:31.680 --> 0:20:37.119 as economic optimism improves, H heading into your end. And 0:20:37.160 --> 0:20:40.120 also as businesses look ahead to next year UH and 0:20:40.480 --> 0:20:43.719 lick their chops at the prospect of tax cuts and 0:20:43.920 --> 0:20:48.800 potentially fiscal stimulus, that you'll see more confidence uh in 0:20:48.840 --> 0:20:53.800 the business community, leading to a modest, modest inventory restocking 0:20:54.240 --> 0:20:56.800 and that should support g d P grow. Well tomorrow, 0:20:56.800 --> 0:21:00.240 I know we're gonna get producer prices correct, plus some 0:21:00.280 --> 0:21:04.679 mortgage applications, industrial production capacity, utization. What should we be 0:21:04.720 --> 0:21:06.320 looking for? What do you think is going to guide 0:21:06.359 --> 0:21:09.080 us to how the economy is performed? Well, I would 0:21:09.119 --> 0:21:12.720 keep an eye on the industrial production figures more so 0:21:12.800 --> 0:21:17.560 than for a two tenths of a percent increase exactly. 0:21:17.640 --> 0:21:21.359 So what again, this is just kind of middling pace 0:21:21.520 --> 0:21:24.480 of of activity in the factory sector. However, if we 0:21:24.520 --> 0:21:26.879 look to another report that was out this morning, uh, 0:21:26.920 --> 0:21:31.359 the New York Empire Manufacturing Survey was what is it down? 0:21:31.400 --> 0:21:34.280 A modest positive gain? Yes, Well, the I was going 0:21:34.320 --> 0:21:37.639 to say the survey the estimate was November down two 0:21:37.680 --> 0:21:40.359 point five two and a half percent, but it actually 0:21:40.359 --> 0:21:43.560 came in at plus one and a half percent, right, 0:21:43.800 --> 0:21:46.400 And the reason this is such an important report, this 0:21:46.480 --> 0:21:51.119 is the first economic data series that basically covers the 0:21:51.160 --> 0:21:54.240 post election period, So consumer sentiment out last Friday that 0:21:54.320 --> 0:21:57.960 was basically tallied before the election results were in. Uh 0:21:57.960 --> 0:22:00.920 and so Empire, which should be just a survey of 0:22:00.960 --> 0:22:04.960 manufacturing conditions in New York State. Nonetheless, these production surveys 0:22:05.119 --> 0:22:08.840 often take on a sentiment component to them when there 0:22:08.840 --> 0:22:12.440 are significant events like hurricanes or elections or or other 0:22:12.480 --> 0:22:15.840 types of dramatic movements in the markets and whatnot. Uh 0:22:15.880 --> 0:22:18.240 and so, so you're reading this as a positive. This 0:22:18.320 --> 0:22:21.160 is a positive, and this is mimicking what we're seeing 0:22:21.200 --> 0:22:24.720 in both the stock and treasury markets, which is looking 0:22:24.800 --> 0:22:27.520 for more growth and as a result of more growth, 0:22:27.600 --> 0:22:32.440 more inflation. Uh in, uh in and beyond. Carl. Yeah, 0:22:32.560 --> 0:22:34.520 you know, Honestly, if I were, if I were Tom 0:22:34.600 --> 0:22:37.119 Keena would say, let's rip up the script. Um. But 0:22:37.280 --> 0:22:39.880 I'm I'm looking. I'm wondering, you know, how do you 0:22:40.280 --> 0:22:43.720 give any sense uh to your to your economic models 0:22:43.760 --> 0:22:46.840 when you have this big unknown of Donald Trump's infrastructure 0:22:47.040 --> 0:22:49.399 spending plans and then you have all of the noise 0:22:49.520 --> 0:22:51.960 around whether or not they will be effective. Tyler Cowen 0:22:52.400 --> 0:22:55.680