Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane.
Speaker 1: Daily we bring you inside from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg You
Speaker 1: make your luck. And that's when Jeffrey Curry walks in
Speaker 1: the studio from Golden Sacks with a bigger, larger macro
Speaker 1: view on oil. And yet he knows there is a bank,
Speaker 1: a financial arm of the oil business that happens to
Speaker 1: look for oil called Xson as well. So we're gonna
Speaker 1: fold some cell side here on x on Mobile earnings up,
Speaker 1: the stock moves up three and jeff Curry here to
Speaker 1: rip up the script on Big Oil. How is amery
Speaker 1: can Big Oil doing right now? Not so much sell
Speaker 1: side analysis, but from your purview, well, I think when
Speaker 1: you look at their ability to tract capital, one of
Speaker 1: the biggest issues right now is the E S G
Speaker 1: issue and how do they restructure themselves such that they
Speaker 1: be able to become more relevant in the de carbonized world.
Speaker 1: And we think big oil is going to turn into
Speaker 1: big energy, and they're gonna do that by buying gas
Speaker 1: sst assets from l n G um gas here in
Speaker 1: the US power assets. I just did a fabulous seminar
Speaker 1: with Robert Litterman of great financial guides like Black Shoals.
Speaker 1: He did a huge amount of work with Fisher Black
Speaker 1: years ago, and he has led the study of climate
Speaker 1: change and all that, and he led our session of
Speaker 1: Sustained Bloomberg Sustainable Summit on XX on finally catching up.
Speaker 1: Is big oil gonna go green? I'm not gonna say
Speaker 1: they're gonna go go go green, but they're gonna put
Speaker 1: a greater emphasis on green type assets. So they basically,
Speaker 1: instead of um letting go of their dirty assets, they'll
Speaker 1: add on more clean assets to balance out the overall
Speaker 1: carbon footprint and so they become big energy. Does natural
Speaker 1: gas factor into that as well? Oh, it's critical to it.
Speaker 1: L n G is a really important part of that
Speaker 1: overall strategy. The reason I bring this up is because
Speaker 1: we've had a big deal, but it was three years
Speaker 1: ago and I haven't seen one since, and it was
Speaker 1: shall p G Right, So when is this stuff really
Speaker 1: gonna stop happening? You're seeing the the f I D
Speaker 1: beginning to happen that they're going to go out and
Speaker 1: build these capacity. Interesting because in terms of looking at
Speaker 1: where the marginal growth globally comes for energy, it's on
Speaker 1: the gas side, So you need to build these assets.
Speaker 1: So what does that mean for crude supply? Jeff? If
Speaker 1: they're going to go out and spend a lot of
Speaker 1: money doing these other things, what does it mean for
Speaker 1: crude supply? It means that the supply crude is going
Speaker 1: to come from USC and p Saudi and Russia, you know,
Speaker 1: so it's a big OPEC plus plus the shale guys
Speaker 1: is going to be the ones that delivered crude at
Speaker 1: the marginal Jeff Curry, Golden Sex with so much of
Speaker 1: what you do in industry is what you don't do.
Speaker 1: Did the Canadians get it right with the sands? In hindsight?
Speaker 1: Was that like smart investment? And was maybe excellents smart
Speaker 1: because they didn't do Canadian sands well. If you go
Speaker 1: back to two thousand and five, everybody thought it was
Speaker 1: the future, and part of that because we did not
Speaker 1: know what shale was. And then we shifted around two
Speaker 1: thousand and ninth thought Brazil was the future and we
Speaker 1: still didn't know what shale was, and by two thousand
Speaker 1: and eleven, two thousand twelve, we realized, hey, shale is
Speaker 1: the future. So I don't think it was a mistake
Speaker 1: in the hind sighting it is, but at the back
Speaker 1: in two thousand and five it sure wasn't a mistake.
Speaker 1: Are the Saudis astute at those technological shifts or they
Speaker 1: blind to them because everything is so perfect for their hydrocars. Well, again,
Speaker 1: there at the bottom of the cost curve, there there
Speaker 1: is intra marginal as one can possibly get. And so
Speaker 1: in terms of thinking about what how this impacts them,
Speaker 1: it just tells them where their support is going to be.
Speaker 1: So if you go back to two thousand and five,
Speaker 1: two thousand and six, we thought shale was a hundred
Speaker 1: barrel propositions why we didn't think it was doable. We
Speaker 1: thought um oil sands was um So in terms of
Speaker 1: you know, thinking about how does that impact Saudi, it
Speaker 1: impacts where the price level is going to be. Now
Speaker 1: we think that that marginal barrel is a deep water
Speaker 1: offshore um platform, which is somewhere around seventy dollars a barrel,
Speaker 1: and that's where back in Brent is right now today,
Speaker 1: let's talk about the oil story of the morning. Iran.
Speaker 1: Now the message to anyone buying oil from Iran was
Speaker 1: stopped buying gold from Iran. And then as it got
Speaker 1: to the deadline, was starting to find out from a
Speaker 1: senior Administration official. UM. According to the reporting Cabra Bloomberg,
Speaker 1: the United States about to let eight countries, including Japan, India,
Speaker 1: and South Korea to keep buying Irani and crude. What
Speaker 1: is going on? Well, I think a question is you
Speaker 1: alluded to is what was the market pricing it. I
Speaker 1: don't think the market was pricing in zero Iranian exports. UM.
Speaker 1: I think it was probably closer to around eight hundred
Speaker 1: thousand a day. Our expectations were one point two to
Speaker 1: one point for you take if you go take that,
Speaker 1: you got those eight countries dropping by about going into
Speaker 1: uh the hundred and eighty day mark, then you would
Speaker 1: be talking to number around one point to That still
Speaker 1: gives you a deficit in fourth quarters. So it's still
Speaker 1: a bullish outcome in terms of thinking about the price,
Speaker 1: which is why we think the market's oversold. Here, let's
Speaker 1: talk about how much Crewed has ruled out rolled out
Speaker 1: to what degree do you think it is? I've assault
Speaker 1: um looking at Brenton's WC this morning, going to hundred
Speaker 1: dollars barrel. It's gonna happen. D's there. That was two
Speaker 1: weeks ago. Two weeks ago, it was Jeff Carry two
Speaker 1: weeks ago, not us. We were eighty two weeks ago
Speaker 1: and we're eighty today. I think that the key point
Speaker 1: there is really that with you you have relatively strong demand.
Speaker 1: And I think a lot of that sell off was
Speaker 1: demand driven because you saw it in the equity market.
Speaker 1: In fact, we when we do a decomposition of the
Speaker 1: run up, it was I ran and the sell off
Speaker 1: was demand until yesterday it became a run. But I
Speaker 1: think the key point is you've got three reasons why
Speaker 1: you want to be long long oil positioning. Um the market,
Speaker 1: all the length has gone out of the market to
Speaker 1: inventories are finally beginning to draw, so that the impact
Speaker 1: of the decline in the Iranian exports is now greater
Speaker 1: than what that increase in production has been out of
Speaker 1: the US, Russia and China. And then the third reason
Speaker 1: we're seeing it in copper today, the e M environment
Speaker 1: is probably not as bad as people think. The downside
Speaker 1: risk is that the Saudis need to buy some foreign
Speaker 1: policy favors some diplomacy um and that they need to
Speaker 1: keep the President of the United States on this side.
Speaker 1: Following the foreign policy crisis, the diploma diplomatic crisis of
Speaker 1: the last couple of weeks, what do you think of that?
Speaker 1: I think that they have delivered on that promise. You know,
Speaker 1: you see if you look again the numbers that came
Speaker 1: out and in the last um several days, Russia, Saudi
Speaker 1: and the United States all massively increased production in anticipation
Speaker 1: of this Iranian decline. Now, I agree with you that
Speaker 1: that means they're more likely than not to be more
Speaker 1: cooperative with the US, But I think they'll also try
Speaker 1: to defend the seventy downside. I want to go back
Speaker 1: to the circle back here in the time we've got
Speaker 1: left Jeff Curry again, someone to the cell side. I'm
Speaker 1: sorry for that. What did big oil learn from a
Speaker 1: hundred down to twenty nine dollars? Brent and one are
Speaker 1: the best practices of excellent right now? Or Chevron or
Speaker 1: BP Maybe there's a laggards, you know that I don't know,
Speaker 1: But what were the lessons learned enjoyed from a hundred
Speaker 1: down to twenty nine dollars a barrel. Well, I I'd
Speaker 1: say one of the big the big lessons is that
Speaker 1: cost support isn't cost support, and that you have many
Speaker 1: macro variables that that are at play here. In fact,
Speaker 1: I like to give an example that that I learned
Speaker 1: on that is that if you took the cost bases
Speaker 1: of Canadian oils undred and twenty dollars a barrel in
Speaker 1: two thousand and fourteen, with an applied return of somewhere around,
Speaker 1: guess what they were when oil was at forty five
Speaker 1: dollars around? What were the return on those assets north
Speaker 1: the whole world be priced? And so that where they
Speaker 1: were on the cost curve continue to shift as you
Speaker 1: move down. So when you have those big re pricings five,
Speaker 1: it's a macro price. Is that cross curve shifted up
Speaker 1: with the recovery in oil? Yes, it has. We've we've
Speaker 1: seen inflationary Why is that inflationary? Presstionary pressure? Labor a
Speaker 1: lot of it because yours now stressing the system at
Speaker 1: a rate we haven't seen it stressed since, you know,
Speaker 1: the the early part of this decade. So they go
Speaker 1: in tandem, there's symmetric they go down the same way
Speaker 1: they go up. You know, that's always But people like
Speaker 1: to say, is that you know which one is a
Speaker 1: chicken and which one is the egg? Is that the
Speaker 1: cost or the We do that in surveillance every day
Speaker 1: it's Friday. Do we do chicken? Okay, we can't. But
Speaker 1: but I think that the broader issue here is it's
Speaker 1: strong global demand for oil increasing the demand for service
Speaker 1: activities that can creates the inflationary pressures like we're seeing
Speaker 1: across the broader economy. Never enough time. Jeff Curry, thank
Speaker 1: you so much with his work in London over the years.
Speaker 1: So he's probably a page tips T. He's had pag
Speaker 1: tips T that needs a big fan of the city London.
Speaker 1: Jeff is going to catch up to see Jeff. Eric
Speaker 1: Ross is with us with great acuity, great granularity on Apple, Eric,
Speaker 1: I just looked at the fancy Bloomberg chart on Apple,
Speaker 1: and we're down something in the vicinity. Eric, we're down
Speaker 1: something in the vicinity of three standard deviations. Three standard
Speaker 1: deviations on Apple. You know to TWI and you know
Speaker 1: you go down and two oh seven two o eight.
Speaker 1: Right now, it's been an abrupt move. Is it an
Speaker 1: opportunity to buy shares today. But we see it that
Speaker 1: Apple clearly missed what the guidance was being expected by
Speaker 1: analysts out there. So they do to get actors, they
Speaker 1: have to get condished a small bit. But when you
Speaker 1: start looking at what's actually happening in in in their
Speaker 1: business overall, and the smartphones are a s owing growth
Speaker 1: type of business. But Apple continues to take more and
Speaker 1: more share there. But if you look at everybody else
Speaker 1: in the smartphone business, all the Android players, Sampson Hua
Speaker 1: show me they're barely making a profit. They're seeing their
Speaker 1: units continue to get ground down. It's it's a terrible market.
Speaker 1: Apple is figured out the formula to make a tremendous
Speaker 1: amount of six years ago. I mean, they've always been
Speaker 1: the premium product, that's a fact they have. But they
Speaker 1: know more. They're they're pricing dramatically last year and that
Speaker 1: made a huge difference in the amount of money they
Speaker 1: were able to pull out of the the smartphone supply.
Speaker 1: If you don't some of the parts analysis, I know
Speaker 1: your targets to fifty, it's an opportunity for you folks.
Speaker 1: Earlier this morning, Morgan Stanley cut their price target on Apple,
Speaker 1: and there's other dynamics out there as well, But has
Speaker 1: anybody done legit some of the parts, like what is
Speaker 1: services actually worth? Uh? As far as services being worth
Speaker 1: uh separately from itself, I mean it's trund It's it's
Speaker 1: basically about ten billion in revenues a quarter slap on
Speaker 1: something that's got Yeah, I mean a company that would
Speaker 1: be separate by it's equivalent to that. What would be
Speaker 1: the name you would come up with that would be
Speaker 1: an equivalence to Apple Services? You can look at something
Speaker 1: like it's a little bit different, but something like a salesforce.
Speaker 1: You know, So you're talking about a multiple that's definitely
Speaker 1: north of twenty and that's probably north of thirty right now.
Speaker 1: We don't cover how does Apple price it right now? Again?
Speaker 1: Compare that so you know, Apple you're talking about you know,
Speaker 1: earnings are probably on the order of five billion a
Speaker 1: quarter right now, so you're talking about roughly twenty billion
Speaker 1: a year times call it times. So you're talking about
Speaker 1: if I'm doing this right, you got a price target.
Speaker 1: It's way up. It's way way up, way way up there.
Speaker 1: And we'll let you write that out before can you
Speaker 1: do with some of the parts force and get back
Speaker 1: to Monday by ten, and that's what they do in
Speaker 1: the real world, is absolutely that's what clients tell them.
Speaker 1: What did you learn in a conference call last night?
Speaker 1: There's nuances of media reports that I think the media
Speaker 1: does a much better job than they used to. But
Speaker 1: what was the distinction you heard, Well, that the media
Speaker 1: actually does do a very very good job at pulling
Speaker 1: apart what's going on in the Apple report, even before
Speaker 1: the analysts get to to to do it. There's a
Speaker 1: lot more people covering it real time that what weren't
Speaker 1: doing it five ten years ago. But the thing that
Speaker 1: we noticed most about the call are two things. One,
Speaker 1: Apple is moving very heavily into what they're calling the ecosystem,
Speaker 1: let's say, which is essentially they have a huge install
Speaker 1: base of their products, not just the products they are
Speaker 1: sold this quarter, but products they sold two years ago,
Speaker 1: and people are using it. There's still buying services, they're
Speaker 1: buying other things like Apple Watch, air buds, et cetera, wearables,
Speaker 1: the home uh products, etcetera. And they're they're they're continuing
Speaker 1: to layer on more and more products there at Apple
Speaker 1: is becoming a sales channel into that huge install base.
Speaker 1: And because it's a very protected walled garden type of ecosystem.
Speaker 1: You can only get in with an Apple product. You
Speaker 1: can't go in by by logging on from an Android product.
Speaker 1: It becomes an incentive to buy Apple products and incentive
Speaker 1: to stay. It's kind of like the Bloomberg terminal. Actually,
Speaker 1: I actually talk about this to clients. Bloomberg is built
Speaker 1: an incredible walled garden where if you're not in it,
Speaker 1: you don't have the ecosystem to be able to communicate
Speaker 1: back and forth with clients. And if you're not there
Speaker 1: then people notice then with That is what I call
Speaker 1: and I've written memos on this, folks. Annuity pricing. My
Speaker 1: great criticism of the last twenty four hours is the
Speaker 1: outrage and at times moral outrage of thousand dollar toys,
Speaker 1: except they're not. They're perceived as fifty two dollar a
Speaker 1: month toys. Do you value a company differently if the
Speaker 1: linkages to the customer are monthly fees versus a one
Speaker 1: time cash payment. Yes, Again, moving more towards what I
Speaker 1: would call the ecosystem play, which is much more of
Speaker 1: an annuity type of payment system. How do you value
Speaker 1: terminal value differently with an annuity type payment system? Well,
Speaker 1: I'm more looking at examples of what's been gone on
Speaker 1: in major tech companies before, as we look at Microsoft
Speaker 1: as being a great example of this. So right now
Speaker 1: Apple is looked at as seller of iPhones, but they're
Speaker 1: not necessarily as seller iPhones. They're now looked at as
Speaker 1: they're not trying to move into although I don't think
Speaker 1: analysts believe with them quite yet, into being an ecosystem
Speaker 1: sale into their huge install base. Microsoft has made this
Speaker 1: transition in a very meaningful way where they're not just
Speaker 1: selling office products. They're now selling an annuity software as
Speaker 1: a service office products plus of all kinds of other
Speaker 1: products like that, and the stock has has really rocketed
Speaker 1: in the last three years since they made that transition.
Speaker 1: I've got a forward p on Apple off the bloomberg
Speaker 1: of sixteen is seventeen ish, you know, folks, this is
Speaker 1: Friday chit chat, so don't hold me to that sixteen
Speaker 1: or seventeen. And I've got Microsoft with an equivalent twenty four. Yes,
Speaker 1: so basically that's a four. I'm off the top of
Speaker 1: my head, a fort lift of Apple valuation up to
Speaker 1: Microsoft valuation. If the street figures out the annuity benefits
Speaker 1: of that cashul right, absolutely, and if you look at it,
Speaker 1: the commarison is actually very good because I do three
Speaker 1: three years ago Microsoft is doing very well. But you know,
Speaker 1: three years ago PC was considered a dead, dying platform.
Speaker 1: Microsoft was selling office products and operating systems into that platform,
Speaker 1: plus some other growth areas, but those are very small
Speaker 1: pieces of the business. Nobody really believed that that could happen.
Speaker 1: But they knew that if they could sell that again
Speaker 1: as an annuity, as a software as a service type
Speaker 1: of product to be pushing the cloud, that they could
Speaker 1: get a better multiple, better understanding apples At the beginning
Speaker 1: of this process, I think longer term it's gonna be
Speaker 1: a bumpy ride. It's a bumpy ride for any company
Speaker 1: that's trying to change the way that Street values it.
Speaker 1: But I think that as we look forward, this is
Speaker 1: gonna be a much more uh predictable type of earning stream,
Speaker 1: steady earning stream. What's the cash drama to come? Is
Speaker 1: there now a calendar date where they do massive share
Speaker 1: buy back or reaffirmed share buy back, or they do
Speaker 1: a real dividend lift. Is there, like we got through
Speaker 1: the holidays February March April kind of calendar date, where
Speaker 1: Eric Ross says, this is where we'll know what they'll
Speaker 1: do with that cash. This is unfortunately beyond the pure
Speaker 1: view of the type of research that we do. We're
Speaker 1: not really very tight with the management team as far
Speaker 1: as their plans, not on speaking terms of really we're
Speaker 1: really pulling a lot of data from the supply chain
Speaker 1: of what's going on where the components. What do you
Speaker 1: see there right now, particularly China Dynamics. Well, actually, things
Speaker 1: look very good in the supply chain. So last year
Speaker 1: when we were looking at it this time, the supply
Speaker 1: chain was barely growing at all. They were having a
Speaker 1: lot of problems get the product that and we could
Speaker 1: tell that there were problems with the display, problems with
Speaker 1: the sensing, problems with the fingerprinting, fingerprint measurements. And this
Speaker 1: year it's complete opposite. They had a nice steady ramp
Speaker 1: over the summer to release the excess and excess math
Speaker 1: or the tennis. Have you seen that. I haven't seen
Speaker 1: it in person. I've only seen the specs. Have you
Speaker 1: had two children have their laptops break in the last
Speaker 1: seventy two hours? That would be me, Eric Ross, Thank
Speaker 1: you so much. We now turned far more towards the
Speaker 1: policy of all this and a better America with Betsy
Speaker 1: Stevenson of course at the University of Michigan and her
Speaker 1: work for the Department of Labor Ages Ago, Betsy, there
Speaker 1: is no other issue in America on this Friday, and
Speaker 1: towards the selection that immigration. If you were standing with
Speaker 1: undergraduates in ann Arbor, what would you state to them
Speaker 1: in a class on our immigration dynamics right now? Well,
Speaker 1: I think what's going on with immigration has a lot
Speaker 1: more to do with, uh, you know, the sort of
Speaker 1: politics and how people feel about it than the labor market.
Speaker 1: And we have a very tight labor market um, and
Speaker 1: certainly you know we've seen over um the last year,
Speaker 1: they're they're certainly areas where um the red duction and
Speaker 1: immigrants has left some businesses scrambling um. And that's you know,
Speaker 1: one of the big puzzles this whole year has been
Speaker 1: if we don't have enough workers, or if the labor
Speaker 1: markets tight, why aren't we seeing wage growth? So you know,
Speaker 1: we take strong rates wage growth in this report, so
Speaker 1: we're starting to see that some of us picking up.
Speaker 1: But I think you know that was you know, the
Speaker 1: real puzzle, and you know, last summer, I saw a
Speaker 1: report of a landscaper who couldn't get enough low cost
Speaker 1: immigrant labor to do his landscaping services, so he canceled
Speaker 1: his contracts and shut down. And the real questions for
Speaker 1: economists is why not offer higher wages and try to
Speaker 1: hire that American labor? And that's the real puzzle's going
Speaker 1: to take to get businesses to pay the higher wages UM.
Speaker 1: Which boat Betsy. We've got listeners out there saying, Professor,
Speaker 1: that's great, but that immigrant landscaper could be an American
Speaker 1: adult or a college or high school kid instead of
Speaker 1: that immigrant landscaper. How do you respond to that in
Speaker 1: the reality of the modern American economy. Well, I think
Speaker 1: the reality is that they aren't applying for jobs, right,
Speaker 1: That's why we saw people shutting down UM. And I
Speaker 1: think that's what I was trying to say, is the question,
Speaker 1: you know, yes, we could pay much higher wages and
Speaker 1: try to try for Americans to those jobs, but that
Speaker 1: is going to push prices up UM. And the question
Speaker 1: is other people want to pay to have someone to
Speaker 1: their law and at those higher costs UM. Otherwise, the
Speaker 1: you know, people might say, I'm not gonna I'm not
Speaker 1: it's not worth it. The purchasing services, so it was
Speaker 1: worth it when you know I could get them done cheaper,
Speaker 1: but these higher costs, I'm not gonna do it. Should we?
Speaker 1: It is you know the you know, when you think
Speaker 1: about the reality of the labor market, No Americans are
Speaker 1: going to college in droves because they want to get
Speaker 1: the kind of skills that generate higher wages. We've never
Speaker 1: seen a higher gap between the wages that college graduates
Speaker 1: GIP and those that UH and those that people who
Speaker 1: don't have a college degree or getting. In the United States,
Speaker 1: it's a terrific time to get a college degree, and
Speaker 1: we're seeing students who do respond to those incentives and
Speaker 1: our increasing our educational payment, and that's going to leave
Speaker 1: us with a gap and these kind of jobs that
Speaker 1: immigrants scifically done. That's Stevenson with us of course, with
Speaker 1: Afford School, University of Michigan UH, and with their Department
Speaker 1: of Economics as well. Professor. When we look at the
Speaker 1: debate of this election, as we engage the debate very
Speaker 1: presidential election, I guess it's a fully employed America. And
Speaker 1: yet I get more mail from listeners on professors and
Speaker 1: fancy pants Wall Street economists saying it's fully employed, and
Speaker 1: the people out there that I hear get letters from
Speaker 1: every day say you are out of your minds. How
Speaker 1: did that divide come about? I think, you know, it
Speaker 1: really comes to not just can you get a job,
Speaker 1: but are you able to get a job to pay
Speaker 1: you a wage that you feel allowing you to earn,
Speaker 1: you know, to have the living standard that you're expecting
Speaker 1: given the investments you made in your skills. Uh, do
Speaker 1: you have a job that provide you a career path
Speaker 1: that you think you're going to be able to grow?
Speaker 1: I think Americans to feel like the labor market UM
Speaker 1: is in a difficult play for them. It's not necessarily
Speaker 1: giving all workers access to those career career paths, and
Speaker 1: there's a lot of risks that's been shifted onto workers.
Speaker 1: Now you're not you know, you're responsible for figuring out
Speaker 1: your healthcare, your retirement UM. You know the fact that
Speaker 1: you know you may get more hours this week or
Speaker 1: less hours this week. You practice, you know your income
Speaker 1: is going up and down this week. We see a
Speaker 1: lot of income volatility even when employement is try. These
Speaker 1: are the kinds of problems that matter for people are
Speaker 1: trying to pay their mortgage, pay their rent puictured on
Speaker 1: the table. One final question if I could, then, can
Speaker 1: we get back to a better full time America, employed,
Speaker 1: waged and benefited or do we just need to get
Speaker 1: used to a gig economy and its instabilities? Um, you know,
Speaker 1: I think that's a difficult question. I think you know.
Speaker 1: The real question is there's a lot of people, they're
Speaker 1: doing really well. There's a lot of corporations out there
Speaker 1: doing really well. And what could we do? What should
Speaker 1: we be doing to make sure that those gains This
Speaker 1: strong economy has produced a ton of money for some people.
Speaker 1: How do we get that more broadly distributed? Are we
Speaker 1: getting at Betsy? This is critical. I wish we had
Speaker 1: more time. We got to do this again. Are we
Speaker 1: not seeing those gains filtered to labor because executives understand
Speaker 1: that any marginal wage gain comes out of their bonus
Speaker 1: amount their bonus pocket. Is it just that simple? I
Speaker 1: can't tell you what they're thinking, but of course it
Speaker 1: is not simple. Of a link right now, you heard
Speaker 1: that the big corporate tax cuts were gonna lead to
Speaker 1: big games for workers. They didn't leave the big games
Speaker 1: for workers what did they lead. You know, they led
Speaker 1: to UH stock buy back, They led to big payments
Speaker 1: for the careholders. So we have seen the labor share
Speaker 1: of income has gone down. And this, you know, this recovery,
Speaker 1: this strong economy, has not changed that. I talked that
Speaker 1: what labor is getting is a smaller share than what
Speaker 1: it used to be. And if you're growing the pie,
Speaker 1: put your shrinking labor share. Labors doesn't care that the
Speaker 1: pie growing what they wanted their share back. This has
Speaker 1: been wonderful, Betsy Stevenson, thank you so much. With the
Speaker 1: FOURD School, the University of Michigan, in the course republic service,
Speaker 1: with the Department of Labor, as well for the Trump administration.
Speaker 1: Views on the jobs report were now joined on Bloomberg
Speaker 1: Television and on Bloomberg Radio by Kevin Hasset, Council of
Speaker 1: Economic Advisors Chairman, and he joins us from outside the
Speaker 1: White House. Good morning to Kevin. Oh, it's great to
Speaker 1: be here. Especially, had a great job to stay right,
Speaker 1: a really good job. Today. The economy is booming, gets
Speaker 1: running hot, Kevin. I guess that's a good reason for
Speaker 1: the Fed to keep rising interest rates, isn't it? Oh?
Speaker 1: You go right, to the thing that you know, I
Speaker 1: can't talk about. You know, we respect the independence of
Speaker 1: the FED. Uh. The thing I can say though, as
Speaker 1: an economist is that not only was job growth really
Speaker 1: strong despite the hurricane, but wage growth was really strong too,
Speaker 1: going north of three over a twelve month period for
Speaker 1: the first time since before the Great Recession. And you know,
Speaker 1: you and I have been talking about this for more
Speaker 1: than a year. I said, cut taxes will have a
Speaker 1: capital spending boom, and then with the capital spending boom,
Speaker 1: will get wage growth, but it will be supported by
Speaker 1: higher productivity, and so it won't be inflationary. And so
Speaker 1: we're definitely seeing the capital spending and now we're seeing
Speaker 1: the wage growth that everybody said was impossible. We've got
Speaker 1: this slow, quiet pick up in productivity and I think
Speaker 1: that's really important and not many people are talking about it,
Speaker 1: but on CAPEX, I think this is interesting. And the
Speaker 1: last GDP report business investment didn't look good. It's decelerated
Speaker 1: by a fair bit. Kevin, what's the view from the
Speaker 1: White House as to why? Well, yeah, so, first, if
Speaker 1: you look at the source status, so the the advanced
Speaker 1: durables numbers have non defense capital goods shipments and orders.
Speaker 1: If you look there, then you you see you know,
Speaker 1: basically they were up something like six percent for the quarter.
Speaker 1: Imports of capital goods were up a lot, and so
Speaker 1: we were expecting the capital goods UH spending in the
Speaker 1: in the two three number to be sort of seven
Speaker 1: to ten percent, and so the fact that it was
Speaker 1: so low as a surprise to us. And and all
Speaker 1: of the indicators like like capital spending plans, you know,
Speaker 1: n f I B sentiment, all of the indicators are
Speaker 1: much more consistent with the key source data. And you
Speaker 1: even saw it in the Job's report today. So so
Speaker 1: down down in the details, you guys probably didn't have
Speaker 1: time to dig that deep yet. Cap the employees that
Speaker 1: make capital goods in this Job's report, they increase at
Speaker 1: a rate of five points. And so there's definitely a
Speaker 1: dissidence right now with all the data we see and
Speaker 1: the capital spending in the GDP release. Now, those guys
Speaker 1: are pros. I wouldn't want to say anything like they're
Speaker 1: making a mistake. No, they've got some nuanced micro data
Speaker 1: that we don't have or something. But everything we look
Speaker 1: at says the capital spending trend is continued. So Kevin,
Speaker 1: I assume that is still in this bullish camp where
Speaker 1: you expect to supply side response, where we can have
Speaker 1: white growth but without the inflation repressions that come with
Speaker 1: that better output in America, right, And don't forget that.
Speaker 1: It's it's it's econ one oh one. Everybody who ever
Speaker 1: took an economics class, the very first chart they showed
Speaker 1: you was supply and demand. And if you shift the
Speaker 1: fly out, then that puts downward pressure on prices. You know,
Speaker 1: we've got statistical models, macro models over at c A
Speaker 1: where we put a capital spending shock into an economy
Speaker 1: as big as our own, and we find that it's
Speaker 1: actually disinflation ary, just because that intuition from your first
Speaker 1: economics class is accurate. And we're so we're seeing right now,
Speaker 1: right is real wage growth. So so not only is
Speaker 1: nominal wage growth above three we're looking at three point
Speaker 1: one from both the e c I wages and salaries
Speaker 1: and from what we got today, but the PC deflator
Speaker 1: is you know, more than a percent below that, and
Speaker 1: and so that means that we've got real wage growth,
Speaker 1: which means that you know, underlying productivity is what's driving
Speaker 1: wages Kevin, that's a bullish story. Here's another one for you.
Speaker 1: A report that the President has asked officials to draw
Speaker 1: by potential trite dale with China. Is that true? You know,
Speaker 1: I've seen those reports that I can't comment one way
Speaker 1: or the other about what folks are working on for
Speaker 1: the president behind the scenes. That's all covered by executive privilege.
Speaker 1: But I can tell you that the President had a
Speaker 1: very promising call with President she. We're looking forward to
Speaker 1: him having a very productive meeting when they meet at
Speaker 1: the G twenty meetings. And you know, President Trump is
Speaker 1: very very good at getting deals. That's something that we've
Speaker 1: seen over and over. I who wrote the Art of
Speaker 1: the Deal. But whatever the president's going to meet about anything.
Speaker 1: You know, if he was going to meet and talk
Speaker 1: about Tiddley Winks, then there'd be a lot of staff
Speaker 1: all over town helping prepare him for that meeting. And
Speaker 1: so that, you know, the fact that people would be
Speaker 1: helping him prepare for the G twenty meeting is not
Speaker 1: really does well. I'm trying to understand, Kevin, if he's
Speaker 1: preparing for the G twenty or preparing for the mid terms.
Speaker 1: Is this campaign politics or make an economic policy. What
Speaker 1: could you be more clear about your question doesn't want
Speaker 1: to deal with now I can. I can say that
Speaker 1: there's a big, big incentive for the administration to get
Speaker 1: the market up and get the market route off the
Speaker 1: front page of the newspaper coming into the midterms next week.
Speaker 1: And I think a lot of people would like real
Speaker 1: clarity as to whether some of this is disingenuous or not,
Speaker 1: whether there is a real effort to get a trade deal,
Speaker 1: let the G twenty, or just an effort to get
Speaker 1: some better stories ahead of the midterms. Look, if you
Speaker 1: look at the U s m c A deal, which
Speaker 1: is a great, improved modern trade deal. If you look
Speaker 1: at the free trade talks that we've begun with Europe
Speaker 1: and with Japan, the progress that President Trump made with
Speaker 1: President Yunker, you can see that his objective in the
Speaker 1: trade space is better policy. Better policy is good for America.
Speaker 1: It makes growth go up, it makes markets go up.
Speaker 1: And better policy is you know, it's our objective, it's
Speaker 1: our long run objective. And the g TWITY meeting has
Speaker 1: been on the schedule you forever. And the fact that
Speaker 1: Presidency and President Trump are going to meet at the
Speaker 1: g TWITY meeting has been something that's been considered for
Speaker 1: a very long time. And so the notion that we
Speaker 1: would consider great policy just because it will get us reelected,
Speaker 1: it's it's cookie. I mean, come on, we consider great
Speaker 1: policies because we're patriots, we love America. We want to
Speaker 1: make workers wages go up by even more than three
Speaker 1: point present. Let's talk about something else. Let's talk about
Speaker 1: the deficit and the debt. Kevin John Bolton said the following,
Speaker 1: and I find this fascinating. Let me read it too.
Speaker 1: I'm sure you're familiar with the quote. It is a
Speaker 1: fact that when your national debt gets the level hours
Speaker 1: is that it constitutes an economic threat to the society.
Speaker 1: And that kind of threat ultimately has a national security consequence,
Speaker 1: for it is the deficit and national security risk. I
Speaker 1: think certainly if you run, uh, you know, all the
Speaker 1: way forward out fifty years and look at the long
Speaker 1: run projections, then there are unsustainable policies that will have
Speaker 1: to be revised. Every economist will tell you. And if
Speaker 1: you didn't do that, then you'd run the risk of
Speaker 1: all sorts of things like not having enough money to
Speaker 1: defend our country. And I'm sure that that's the kind
Speaker 1: of thing that John Bolton has in mind. Uh. You know, again,
Speaker 1: in economic models, there's a great opportunity in the US
Speaker 1: if we have a fiscal consolidation what economists call it,
Speaker 1: that it would be a big positive for growth. That's
Speaker 1: absolutely true. But is there a near term risk that
Speaker 1: the deficits are going to cause the economy to tank
Speaker 1: or something like that? Like, absolutely not. In fact, usually
Speaker 1: the near term models that model the near term effects
Speaker 1: of deficit think. In fact, you know, even amongst the
Speaker 1: Kynesie and so, one of their metrics of stimulus is
Speaker 1: the deficit, right, and so they would say we're being
Speaker 1: stimulative right now. So I asked this question of mcmulvaney
Speaker 1: in the last couple of weeks as well, Kevin, I'd
Speaker 1: love your insight on it too. Is the g IP
Speaker 1: really still the Party of Fiscal Responsibility? Oh? Sure, sure?
Speaker 1: But no, no, okay, but let's think about it this way. So,
Speaker 1: so GDP growth was one point six percent where President
Speaker 1: Trump took office. You agree with that. Wage growth was
Speaker 1: in the tubes. Every new factory was being built in
Speaker 1: Ireland instead of here. We had the highest corporate tax
Speaker 1: on earth, and a military that was really, really had
Speaker 1: worrisome readiness because so little money had been spent on
Speaker 1: weapons and taking care of our boats and so on,
Speaker 1: and you know, planes that couldn't fly because they didn't
Speaker 1: have parts, all of those things. And so President Trump
Speaker 1: came in, he prioritized getting the taxes right, fixing the military,
Speaker 1: and the result has been what we're talking about that
Speaker 1: we've got a whole year of three percent growth, we've
Speaker 1: got north of three percent wage growth, we've got real
Speaker 1: wage growth, the capital spending boom, and a military that's
Speaker 1: you know, got about set a step again. And so
Speaker 1: I think that after we have prioritized those objectives, that
Speaker 1: of course it's natural for us to then think about
Speaker 1: what the next step should be. And that's why President Trump,
Speaker 1: leading again like he does, has called on the cabinet
Speaker 1: agencies to submit budgets that are that show a five
Speaker 1: percent cut across the board, across all cabinet agencies, because
Speaker 1: he thinks that now one of the next priorities should
Speaker 1: be deficit. But there are some contradictions here, Kevin. A
Speaker 1: lot of people want the GOP to be the party
Speaker 1: of fiscal responsibility. That were the military to have a
Speaker 1: bounce in its step, we all do. And then we
Speaker 1: see headlines and comments about sending fifteen thousand troops towards
Speaker 1: the border to protect the border from a migrant caravan
Speaker 1: that is, some estimates, is up to two months away.
Speaker 1: Does that make sense? Is that fiscally responsible? Well, you know,
Speaker 1: I I'm not a border security expert, but I can
Speaker 1: say nor would anyone ever ask me for military advice,
Speaker 1: I can tell you. But the fact is that we've
Speaker 1: spent wisely in the military to repair the things that
Speaker 1: were broken and to up the spending to make sure
Speaker 1: that the folks that we go in harm's way have
Speaker 1: the materials they need so that they can win and
Speaker 1: not be harmed. And I think that that that wasn't
Speaker 1: the state the President Trump thought that we had when
Speaker 1: we got here, and and so we've prioritized that fixing
Speaker 1: that first. But now now that it looks like we've
Speaker 1: made great progress there and with the tax cuts to
Speaker 1: livering high growth and the revenues that come with it,
Speaker 1: now it's time to sit back and look at spending
Speaker 1: in other places and exactly all of this and this
Speaker 1: comes from a genuine place, honestly, Kevin Okay, I understand
Speaker 1: that you want to have this image of being fiscally
Speaker 1: responsible and you can't comment on national security. But last
Speaker 1: time I checked, John Bolton is not an expert on
Speaker 1: the fiscal deficit either. And it just seems that a
Speaker 1: lot of people are commenting on a lot of things
Speaker 1: outside of their lane ahead of the midterms because politically
Speaker 1: it might make sense to say these things. And just
Speaker 1: before we go, I want a final word from you
Speaker 1: as the weather focus actually is and whether you can
Speaker 1: actually get things back together and just focus on this
Speaker 1: is my job. I'm going to do my thing instead
Speaker 1: of having all these other people comment on things outside
Speaker 1: of their lane. It's kind of an odd question. I
Speaker 1: guess what's your lane? Right? I mean, your land is
Speaker 1: everything that I don't know. It's question you know what
Speaker 1: my lane is? You know, you know what my lane is,
Speaker 1: and and I stay in my lane. You know. I
Speaker 1: talked about the things I know about and try to,
Speaker 1: you know, to say, hey, I don't have extra information
Speaker 1: for you and that thing, and that's that's what we do,
Speaker 1: you know. And uh So, anyway, this whole lane thing
Speaker 1: is not a conversation that I'm an expert in either.
Speaker 1: There you go. It's like talking about lanes is not
Speaker 1: in my lane? How about that? And then we got
Speaker 1: Kevin Hasset from that side of White House, right to
Speaker 1: have you with us. Kevin always a sport, and yet
Speaker 1: she's doing to be back. Always stand your line. I'm
Speaker 1: sure we'll talk to you again. So thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
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