WEBVTT - Surveillance: Hawkish Cut From Fed, Luzzetti Expects 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.040 Bloomberg dot Com, and of course on the Bloomberg Place. 0:00:28.080 --> 0:00:30.040 To say that RUSS CoA Strick joins us in the 0:00:30.080 --> 0:00:33.920 studio blank Rock Global Allocation Fund portfolio manager. Good monitude, Russ, 0:00:34.600 --> 0:00:36.319 Where do you fall on that debate right now? That's 0:00:36.320 --> 0:00:37.960 the big one of the last couple of weeks that 0:00:38.040 --> 0:00:42.040 maybe peak pessimism is behind US treasury yields of bottom 0:00:42.080 --> 0:00:45.440 the bottoms are in. What are your thoughts? And it's 0:00:45.479 --> 0:00:48.360 probably right. You've taken a lot of tail risk out 0:00:48.360 --> 0:00:51.560 of the market the last month. You've made progress on trade, 0:00:51.600 --> 0:00:53.400 and it's not a permanent deal, but it will at 0:00:53.479 --> 0:00:55.960 least alleviate some of the tension. The risk of a 0:00:56.040 --> 0:00:59.360 hard break exit has gone down. The economic numbers appear 0:00:59.400 --> 0:01:01.840 to be stabilis and you're having a decent earning season, 0:01:01.960 --> 0:01:04.840 so you know, going into a seasonally strong part of 0:01:04.880 --> 0:01:07.319 the year. It's not on reason. We'll say you probably 0:01:07.319 --> 0:01:09.000 have seen the loan bond yields for the year. I'm 0:01:09.000 --> 0:01:11.200 gonna give a credit to Jeffreys. I believe there's an 0:01:11.200 --> 0:01:13.800 outlier call that maybe they won't do something here at 0:01:13.800 --> 0:01:16.520 this meeting tomorrow and that they'll wait out to December 0:01:16.560 --> 0:01:18.880 because we see so much good that we see so 0:01:18.959 --> 0:01:21.320 much good in the equity market as well to find 0:01:21.319 --> 0:01:24.560 a lousy economy. The survey, the surveying, excuse me, the 0:01:24.680 --> 0:01:28.240 Bloomberg statistic is one point six percent. I hear people 0:01:28.240 --> 0:01:31.280 at one point eight percent g d P and on 0:01:31.440 --> 0:01:35.360 and on and on. How bad does the economy need 0:01:35.440 --> 0:01:37.840 to be for further rate cuts. Well, I think you've 0:01:37.880 --> 0:01:40.319 got to compare to what's trend these days. And let's 0:01:40.319 --> 0:01:42.400 call a two percent growth, because you know there's a 0:01:42.440 --> 0:01:45.680 little rounding are around all of this. Two percent is trend. 0:01:45.800 --> 0:01:48.440 You know, we're in an environment where demographics are very 0:01:48.480 --> 0:01:50.840 different than thirty or forty years ago. To get to 0:01:50.880 --> 0:01:52.760 the type of three and a half percent growth that 0:01:52.840 --> 0:01:55.880 was normal back then, you need the sugar high of 0:01:55.960 --> 0:01:58.080 the type of taxica we had in two thousand seventeen. 0:01:58.120 --> 0:02:01.400 Without that, two percent is a about normal. I mean, 0:02:02.040 --> 0:02:03.840 I just looked to be sure the number hadn't moved 0:02:03.840 --> 0:02:07.280 from yesterday were still at one point six GDP growth, 0:02:07.320 --> 0:02:10.160 many others at one point eight. I mean, does that 0:02:10.280 --> 0:02:13.280 cleared the solid economy you mentioned Jeffreies. Jefferies will be 0:02:13.360 --> 0:02:15.679 joining me on the TV show a little bit later 0:02:15.680 --> 0:02:18.519 this morning. Properties looking forward to catching up with them 0:02:18.520 --> 0:02:21.720 on that call of no rate cup potentially coming tomorrow. Russ, 0:02:21.760 --> 0:02:23.560 I'd love to get your insight just a little bit 0:02:23.560 --> 0:02:26.400 more on this topic at the moment. How vulnerable is 0:02:26.440 --> 0:02:29.360 that call that the worst this behind us? Because it 0:02:29.360 --> 0:02:32.000 seems to have picked up with some written enthusiasm over 0:02:32.000 --> 0:02:34.640 the last couple of weeks without much data to back 0:02:34.680 --> 0:02:36.320 it up. Well, I think there are a couple of things. 0:02:36.320 --> 0:02:38.600 I mean, one of the reasons people are comfortable with 0:02:38.639 --> 0:02:42.280 the calls that we know manufacturing is struggling. You're arguably 0:02:42.320 --> 0:02:46.280 in a global manufacturing recession. But people, I think, justifiably 0:02:46.680 --> 0:02:49.440 feel very good about the U. S. Consumer. And whether 0:02:49.480 --> 0:02:51.840 you look at real earnings, whether you look at the 0:02:51.840 --> 0:02:54.880 savings rate, whether you look at debt levels, everything tells 0:02:54.919 --> 0:02:57.600 you the consumers in decent shape. Now, if you started 0:02:57.600 --> 0:03:00.680 to see a slow down and hiring and that started 0:03:00.720 --> 0:03:04.239 to transmit to confidence, you might have to revisit that call, 0:03:04.320 --> 0:03:06.600 but that's not our base case. I think as long 0:03:06.639 --> 0:03:09.600 as the consumer is still growing at the pace it is, 0:03:09.919 --> 0:03:12.320 you can be reasonably confident we're not on the cusp 0:03:12.320 --> 0:03:15.519 of a recession. Let's get some capital allocation calls. We've 0:03:15.520 --> 0:03:18.959 seen these kind of levels a few times through en 0:03:18.960 --> 0:03:21.880 We've tested three thousand a couple of times, three times 0:03:21.960 --> 0:03:25.480 through nineteen, high yield spreads sitting right on top of 0:03:25.480 --> 0:03:28.560 the tights of the year at three fifty four basis 0:03:28.600 --> 0:03:31.800 points tights of the year three forty six. We've seen 0:03:31.840 --> 0:03:34.280 this level a few times this year. We haven't been 0:03:34.280 --> 0:03:36.520 able to hold it. Why is this time different? We 0:03:36.640 --> 0:03:38.839 have and I think it's it's a great question. Look, 0:03:38.920 --> 0:03:40.440 you know it's still you have to the market has 0:03:40.440 --> 0:03:42.160 got to prove that you can break out of this range. 0:03:42.160 --> 0:03:44.440 And this range is really now going on almost two years. 0:03:44.720 --> 0:03:46.680 We set the boundary at least the high back in 0:03:47.120 --> 0:03:50.280 early eighteen, at least globally. My guess is you've got 0:03:50.320 --> 0:03:52.960 a little bit more support this time because some of 0:03:52.960 --> 0:03:55.800 the things that have inhibited the rally over the last 0:03:55.880 --> 0:03:57.960 year and a half two years of starting to fade, 0:03:58.080 --> 0:04:01.880 most importantly trade, If you get a truce that's been 0:04:01.920 --> 0:04:04.320 one of the things that's been inhibiting the market from 0:04:04.320 --> 0:04:07.200 breaking out. That's one factor that might let you move 0:04:07.240 --> 0:04:09.720 on to new hives. And again, I think signs that 0:04:09.800 --> 0:04:13.840 the global economy is stabilizing. We're not talking about a 0:04:13.880 --> 0:04:17.120 sharp search higher. That should also help kind of edge 0:04:17.160 --> 0:04:18.880 higher through the remainder of the year. What do you 0:04:18.920 --> 0:04:20.600 say about the breadth of the market. If you look 0:04:20.640 --> 0:04:24.040 at the value line geometric index, which is great mathematics 0:04:24.040 --> 0:04:27.839 on the median stock of the median equity market, the 0:04:28.000 --> 0:04:31.800 trend ain't so hot compared to the big fangs. The 0:04:31.839 --> 0:04:34.680 big tech move we've seen is well, and there's been 0:04:34.680 --> 0:04:37.880 a sharp split there. Over the last year. There has 0:04:37.920 --> 0:04:39.920 been a slip, and I think this is indicative of 0:04:40.320 --> 0:04:42.240 a couple of things, one of which is we're still 0:04:42.640 --> 0:04:45.040 very much in a winter take all economy where you've 0:04:45.080 --> 0:04:48.440 got some businesses, including some of the fag businesses that 0:04:48.480 --> 0:04:51.960 are in secular growth mode, whether you're talking about cloud computing, 0:04:52.320 --> 0:04:55.360 internet retail, and you've got large parts of the market up. 0:04:55.480 --> 0:04:58.440 Let's take multi line retail that are just challenged from 0:04:58.440 --> 0:05:00.560 a long term basis, and these tra is are probably 0:05:00.600 --> 0:05:03.000 going to stick with us for some time. A Russ 0:05:03.000 --> 0:05:05.200 great to catch up with you, Russ Coastrick blank Rock 0:05:05.200 --> 0:05:08.480 Global Allocation Fund portfolio manager on the lacest in markets. 0:05:08.520 --> 0:05:10.559 Lisa would love your insight on what's happening in fixed 0:05:10.560 --> 0:05:13.120 income right now. How yield spreads half tightened up, but 0:05:13.120 --> 0:05:16.039 there are still some cracks within high yield and within 0:05:16.120 --> 0:05:18.479 leverage loans. That's exactly what I was going to UH 0:05:18.720 --> 0:05:21.320 to talk about. I mean, honestly, you're seeing Fitch, for example, 0:05:21.440 --> 0:05:24.080 increase their default forecast over the next twelve months for 0:05:24.160 --> 0:05:26.360 leverage loans from two to three and a half percent, 0:05:26.360 --> 0:05:28.200 which is a pretty big jump, and it's on some 0:05:28.279 --> 0:05:32.200 specific problems. But you are seeing a certain loans, certain 0:05:32.240 --> 0:05:35.200 bonds fall out of bed today. With Submarine Energy file 0:05:35.279 --> 0:05:38.560 for bankruptcy protection. This is a private coal miner, the 0:05:38.560 --> 0:05:42.240 biggest one going bus. Despite some of the rescue plans 0:05:42.279 --> 0:05:45.159 from President Trump, you're seeing uh PG and E bonds 0:05:45.160 --> 0:05:48.040 absolutely getting crushed in the wake of the potential for 0:05:48.160 --> 0:05:52.680 more damages from the fires in California, disrupting the currency, bankruptcy, 0:05:52.800 --> 0:05:55.680 the current bankruptcy plan, and you know, you're seeing some 0:05:55.760 --> 0:05:59.680 banks getting stuck with with leverage buyout loans on their 0:05:59.720 --> 0:06:02.200 book because people don't want to buy them. The question 0:06:02.320 --> 0:06:04.120 is how I don't want to use the word because 0:06:04.120 --> 0:06:10.839 I think that this might be a drinking game right there? 0:06:10.440 --> 0:06:16.320 Right you wait for the drinks. Do we have time 0:06:16.360 --> 0:06:19.920 to go back to costric on this? Let's go really 0:06:20.000 --> 0:06:23.320 quickly here. The bottom line is Lisa brilliantly brings up 0:06:23.320 --> 0:06:27.080 as idiosyncratic versus systemic risk at epsilon out the back 0:06:27.160 --> 0:06:30.040 of every equation. Is the epsilon out there right now? 0:06:30.120 --> 0:06:33.279 Is this systemic or is it all idiosyncratic the fourteen 0:06:33.320 --> 0:06:36.280 things Lisa mentioned. I think it's largely adiosyncratic. I mean, 0:06:36.279 --> 0:06:38.200 there are pockets of the market where you do want 0:06:38.200 --> 0:06:40.560 to be worried about credit. But most of the instances, 0:06:40.560 --> 0:06:42.920 and again it's probably not a coincidence. We're talking about 0:06:42.920 --> 0:06:47.680 a coal company. They tend to be more idiosyncratic. That's 0:06:47.720 --> 0:06:55.279 called six everybody, can I just explain what this what? 0:06:55.360 --> 0:06:58.600 This game is? A drinking game? On Bloomberg surveymance is 0:06:58.640 --> 0:07:02.560 when the guests says idio and cradic shot can we there? 0:07:02.720 --> 0:07:07.640 And not just a shot? I was laid there? We 0:07:07.720 --> 0:07:10.520 say good morning worldwide to the monkey bar. See a 0:07:10.640 --> 0:07:14.800 monkey bar and he's three. It's pretty good, pretty good. 0:07:15.280 --> 0:07:18.000 The shots there are the size of an old fashioned class. 0:07:19.280 --> 0:07:20.600 Is that what we're going to do on this show? 0:07:20.880 --> 0:07:23.760 I hope not. It could be futures this morning down 0:07:23.800 --> 0:07:26.400 about a tenth of one percent. Russ Greater catch up 0:07:26.400 --> 0:07:43.760 with you. Let's bringing Peter Dixon Shower. We commus Bank 0:07:43.800 --> 0:07:46.120 Global Equities of columists, Peter Greater, catch up with you. 0:07:46.200 --> 0:07:49.760 European out performance got people lining up around a corner 0:07:49.800 --> 0:07:52.360 telling me about that here in the United States. Now, Peter, 0:07:52.400 --> 0:07:56.200 why does that make sense? Well? I guess it makes 0:07:56.200 --> 0:07:58.520 sense because you know, the europe house surprised on the 0:07:58.560 --> 0:08:01.360 outside for for such a such a long time that, 0:08:01.760 --> 0:08:05.160 you know, given that we're seeing the global equities locomotive 0:08:05.240 --> 0:08:08.640 being pulled by the US, um you know the scope 0:08:08.680 --> 0:08:11.160 for Europe to catch up. But I have to say 0:08:11.160 --> 0:08:14.840 that given the concerns that many people have regarding the 0:08:14.880 --> 0:08:18.960 economic outlook in the euro Zone, particularly, well, you know, 0:08:19.000 --> 0:08:23.960 you might find that that European performance doesn't actually materialize. 0:08:24.000 --> 0:08:25.640 So I think it'd be a bit careful about that one. Well, 0:08:25.680 --> 0:08:28.040 let's talk about it, Peter. The sentiment has certainly shifted, 0:08:28.040 --> 0:08:31.040 are you saying the data won't back it up. Yeah, 0:08:31.080 --> 0:08:32.720 I mean, I think that's where we are. I mean, basically, 0:08:32.760 --> 0:08:36.080 the European economy looks very slugly, certainly compared to the 0:08:36.160 --> 0:08:38.959 United States. Um, it's likely that the data out in 0:08:39.000 --> 0:08:40.880 a couple of each time will show that a second 0:08:40.880 --> 0:08:45.200 consecutive quarter of the contraction in German GDP. Now, I 0:08:45.240 --> 0:08:47.400 guess that on the positive side, you could argue that 0:08:47.520 --> 0:08:51.839 because European markets have been hammered by the US China 0:08:52.000 --> 0:08:55.840 trade dispute, the expectation or the hope that we are 0:08:55.920 --> 0:08:58.560 past the worst there might provide Europe with a bit 0:08:58.559 --> 0:08:59.880 of a list. But you know, we're not out of 0:09:00.120 --> 0:09:02.400 was yet. In my Peter, one of the great charms 0:09:02.440 --> 0:09:06.680 here with your economics is the global scale. Basically, all 0:09:06.720 --> 0:09:09.719 the money's moved to large cap us is a stereotype, 0:09:10.200 --> 0:09:14.000 and internationals left and left and left and left behind. 0:09:14.840 --> 0:09:17.720 Is now the time for an international call? Should we 0:09:17.800 --> 0:09:22.120 go long large cap international? Should we go along? E 0:09:22.320 --> 0:09:26.600 m uh long e M. I mean, I think at 0:09:26.600 --> 0:09:29.400 the moment, as long as the federal reserve is in play, 0:09:29.440 --> 0:09:30.960 it doesn't make a lot of sense. So I think 0:09:30.960 --> 0:09:33.040 I probably want to stay clear of the in from now, 0:09:33.280 --> 0:09:35.440 we don't you have more clienty, but whether he fed 0:09:35.440 --> 0:09:38.120 girls in and beyond, that's the time of which you 0:09:38.360 --> 0:09:39.520 might want to do it. You still you know what 0:09:39.600 --> 0:09:43.400 to do anytime soon. With regard to European large caps again, 0:09:43.440 --> 0:09:46.600 I mean I just read what I said before. Um, 0:09:46.600 --> 0:09:48.640 it's not yet the time to get to those more. 0:09:48.760 --> 0:09:50.920 It's because I think there's too much volatility there are 0:09:51.000 --> 0:09:53.040 still think there's too much bad needs to come. The 0:09:53.080 --> 0:09:56.839 corporate earning season is it's look okay, but the downside 0:09:56.960 --> 0:09:59.720 is that they're still downside. Let me cut to the chase. 0:09:59.760 --> 0:10:02.080 Are you selling into this strength? I mean, as John 0:10:02.120 --> 0:10:05.800 Farrell mentioned earlier, on a range bound basis, were buttressed 0:10:05.880 --> 0:10:08.040 up against the top of the range even with sp 0:10:08.320 --> 0:10:13.040 X highs. Are you selling into this good news? It's 0:10:13.120 --> 0:10:15.920 probably not about idea because you know, the COVID towards 0:10:15.920 --> 0:10:17.480 the end of the year, I think a lot of 0:10:17.480 --> 0:10:21.480 equity managers or fun manchers wants to realize the best 0:10:21.480 --> 0:10:24.240 games they can. So it's entirely possible that over the 0:10:24.240 --> 0:10:26.800 course of becoming weeks wants the good news from the 0:10:26.880 --> 0:10:28.840 union seasons out of the way. You know, we start 0:10:28.880 --> 0:10:30.840 to see you where I selling, and certainly, you know, 0:10:30.920 --> 0:10:33.880 I feel a little bit uncomfortable with stock hitting record 0:10:33.960 --> 0:10:38.440 highs given all of the economic concernancy. So I know 0:10:38.520 --> 0:10:41.079 that you're in the equity space on a macro level, 0:10:41.160 --> 0:10:44.360 but just taking a look at the micro with beyond meat, 0:10:44.520 --> 0:10:46.920 I think that that's a really interesting story, and I 0:10:46.960 --> 0:10:49.520 want to know whether it's wait for it, idiosyncratic or 0:10:49.559 --> 0:10:53.160 whether it's endemic of something larger. They actually reported better 0:10:53.200 --> 0:10:57.200 than expected earnings and yet their stock still fell in 0:10:57.280 --> 0:11:00.880 early trading because it had just gotten run up so much. 0:11:01.360 --> 0:11:03.439 Is that something that we are going to see sort 0:11:03.480 --> 0:11:07.080 of the hopium of future growth getting wiped out of 0:11:07.080 --> 0:11:09.800 the market in increasing pockets, particularly in the tax space. 0:11:11.200 --> 0:11:14.240 I think that's entirely possible. I mean, you know, on meats, 0:11:14.440 --> 0:11:17.480 as you said, it is your syncratic stock which has 0:11:17.559 --> 0:11:20.240 yet to show that it can take its products and 0:11:20.280 --> 0:11:22.959 broaden it to a wider audience, but it has a 0:11:23.000 --> 0:11:25.720 lot of potential. Probably is when you've got to stock 0:11:25.840 --> 0:11:28.840 like that, which um you know, which still have potential 0:11:28.880 --> 0:11:30.600 but you know, is trying to get very slow to deliver. 0:11:30.800 --> 0:11:33.080 Once you start to get a big lot of momentum 0:11:33.080 --> 0:11:35.199 behind it, you do find a lot of willing sellers 0:11:35.280 --> 0:11:38.079 when when the when the price which is a certain level, 0:11:38.120 --> 0:11:40.920 and are rather suspectable. That's going to be one of 0:11:41.000 --> 0:11:44.280 the features going forward over the next few weeks, particularly 0:11:44.280 --> 0:11:46.080 as you said in the text space, where there are 0:11:46.240 --> 0:11:48.360 a lot of outfits which have done very well, but 0:11:48.679 --> 0:11:52.000 there are question marks against their you know, their future performance. Peter, 0:11:52.000 --> 0:11:53.680 where do you think the leadership comes from in this 0:11:53.760 --> 0:11:55.840 leg of the rally of it continues? A key question? 0:11:56.920 --> 0:11:59.320 Good question, indeed. I mean it's going to come from 0:11:59.320 --> 0:12:01.440 the US and not outs about that. I mean, I 0:12:01.440 --> 0:12:05.560 think the market overall, um. You know, although I say 0:12:05.600 --> 0:12:08.120 that there are potential for downside, don't I think for 0:12:08.160 --> 0:12:10.400 the moment at least it's probably going to hold up 0:12:10.440 --> 0:12:12.920 for now, um. And I think so long as it 0:12:12.960 --> 0:12:14.760 does hold up, investors will start to looking at the 0:12:14.760 --> 0:12:17.000 pockets of the world, particularly Europe and say, actually, no, 0:12:17.360 --> 0:12:18.880 the US is holding up. Maybe it is a bit 0:12:19.160 --> 0:12:21.000 time to for for a bit of a double But 0:12:21.040 --> 0:12:23.960 if I've just cautioned you know, that could easily turn around. 0:12:23.960 --> 0:12:26.040 And I guess the question is to what extents to 0:12:26.360 --> 0:12:28.480 you know, investors generally rather than you know what I 0:12:28.520 --> 0:12:33.040 think investors think about the US. Peter Dixon, I just 0:12:33.120 --> 0:12:35.520 have to ask one more economic question before we let 0:12:35.520 --> 0:12:38.400 you go. We've seen the pageantry of dragging, handing off 0:12:38.840 --> 0:12:42.000 the brass bell or whatever it is to Madame lendguard is, Well, 0:12:42.040 --> 0:12:45.160 how critical is this December twelfth meeting for that equity 0:12:45.200 --> 0:12:49.760 confidence in Europe? Is the December twelve ECB meeting one 0:12:49.800 --> 0:12:52.080 that they just get through and move on or could 0:12:52.120 --> 0:12:56.040 it actually have substance? Well, I think it's definitely one 0:12:56.080 --> 0:12:59.160 that they just have to get through because basically to 0:12:59.240 --> 0:13:01.360 see that God has been handed a legacy that she 0:13:01.480 --> 0:13:04.080 has to deal with, it's very difficult to know exactly 0:13:04.080 --> 0:13:05.800 you know what she's going to be differently to draw. 0:13:06.520 --> 0:13:09.520 So I think Marcus look at this meeting and saying, well, 0:13:09.559 --> 0:13:11.640 let's hope she doesn't drop the ball um the like 0:13:12.000 --> 0:13:14.240 is she wants. She's a very experienced operator, but she's 0:13:14.240 --> 0:13:16.199 not gonna do anything visible once she's got it. It's 0:13:16.200 --> 0:13:19.439 just a question if you know the pitfalls. Peter, Thank 0:13:19.480 --> 0:13:21.600 you so much. Peter Dixon and Commerce Bank this morning 0:13:21.600 --> 0:13:37.560 on the equity markets, p M E S is a 0:13:37.600 --> 0:13:40.800 reason to bring in Matthew Lozetti of Deutsche Bank because 0:13:40.840 --> 0:13:43.600 his front and center. He's got that chart to cut 0:13:43.640 --> 0:13:45.319 to the Jape, Matthew, and then we could talk to 0:13:45.360 --> 0:13:48.120 you for two hours this morning. The first and second 0:13:48.120 --> 0:13:51.160 derivatives of global p M s are not pretty, are they. 0:13:51.320 --> 0:13:54.040 I think you have seen some stabilization in the global 0:13:54.040 --> 0:13:56.199 PM eyes. If you look at global manufacturing, it's been 0:13:56.320 --> 0:13:58.439 kind of bouncing around it at low levels over the 0:13:58.480 --> 0:14:01.800 past few months. I think you will continue to see that. 0:14:01.840 --> 0:14:05.120 You've seen US data on the sentiment side a bit 0:14:05.160 --> 0:14:08.480 mixed recently, but the I s M we think bounces 0:14:08.480 --> 0:14:10.920 back a little bit um later this this week as 0:14:10.920 --> 0:14:12.920 well on Friday, which would be an important data point. 0:14:13.480 --> 0:14:15.840 All told, I think what we're seeing for the US 0:14:15.880 --> 0:14:18.760 growth outlook is you you still have a deceleration built in. 0:14:19.400 --> 0:14:21.640 The Phase one deal we got in place at this 0:14:21.720 --> 0:14:23.840 point was not enough, I think to flip that second 0:14:23.840 --> 0:14:26.480 derivative in a more positive direction. What's the second derivative 0:14:26.520 --> 0:14:29.960 of the chairman's press conference tomorrow? I mean, it's extraordinary 0:14:30.000 --> 0:14:33.600 you people nail the mid cycle importance of this. How 0:14:33.640 --> 0:14:37.840 can we mid be mid cycle umpteen years into a lift? 0:14:39.080 --> 0:14:43.280 It's it's a good question. I think there's a emerging view. 0:14:43.320 --> 0:14:46.080 I think that pal is going to orchestrate a hawkish 0:14:46.160 --> 0:14:49.920 cut um tomorrow. We think that he does raise the 0:14:49.960 --> 0:14:52.320 bar for another cut. I think when you look at 0:14:52.320 --> 0:14:56.120 the committee, they have framed this as as three great cuts. 0:14:56.160 --> 0:14:57.680 But I think it's far too early for him to 0:14:57.680 --> 0:15:00.320 take December off the table. We still have on knees 0:15:00.360 --> 0:15:03.080 on the trade front and Brexit. The data has continued 0:15:03.280 --> 0:15:06.080 to decelerate and the market is only pricing about six 0:15:06.120 --> 0:15:08.160 basis points at this point, so the Fed doesn't really 0:15:08.160 --> 0:15:10.520 need to actively push against that pricing. John, if we 0:15:10.520 --> 0:15:12.800 start a band, can we please call it hawkish cut? 0:15:12.880 --> 0:15:16.480 We can call it what did God's name, Matthew? Was 0:15:16.520 --> 0:15:19.880 a hawkish cut or a dovish hike? For our listeners 0:15:19.880 --> 0:15:21.880 that have just tuned in, this is the Fed coal 0:15:22.040 --> 0:15:25.680 From Deutsche Bank's chief US economist, Mattenzeti. Go On continued 0:15:27.360 --> 0:15:30.280 that that is that's definitely the prevailing market view. Uh, 0:15:30.360 --> 0:15:34.360 the idea that they will cut but guide towards less 0:15:34.400 --> 0:15:37.200 likelihood of cuts over the next few months. I think 0:15:37.240 --> 0:15:38.840 that the market has gone a little bit too far 0:15:39.000 --> 0:15:41.840 on that point. You know, on on these uncertainties that 0:15:41.840 --> 0:15:44.240 that they've been worried about. They're still there, as you noted, 0:15:44.280 --> 0:15:47.320 global growth remains low in the U S data. You 0:15:47.360 --> 0:15:49.880 know tomorrow for US GDP we're likely to print we 0:15:49.960 --> 0:15:54.600 think at one point UM with equipment spending and capex 0:15:54.640 --> 0:15:57.640 being actually negative in that that story, so that I 0:15:57.720 --> 0:16:00.200 think in an environment in which he'd be and the 0:16:00.200 --> 0:16:03.040 COMMUNEY should be reluctant to to firmly back off about 0:16:03.080 --> 0:16:05.600 the Dovish guidance. Do you think that at this point 0:16:05.880 --> 0:16:09.840 the Fed has the capacity to allow inflation to increase 0:16:09.960 --> 0:16:12.320 or is that totally out of their purview given the 0:16:12.360 --> 0:16:15.160 fact they have been unable to do so until now. 0:16:16.280 --> 0:16:18.760 I don't think it's totally out of their purview, UM, 0:16:18.800 --> 0:16:22.080 but it is significantly outside of what they can control. 0:16:22.720 --> 0:16:25.080 The San Francisco Fed has done this nice analysis about 0:16:25.120 --> 0:16:28.680 pro cyclical versus a cyclical UH components. We've we've done 0:16:28.680 --> 0:16:31.080 some work UM which I think suggests that the FED 0:16:31.160 --> 0:16:33.680 can influence even more than what the San Francisco Fed 0:16:33.760 --> 0:16:37.360 thinks UM. But the the extent which they can do 0:16:37.400 --> 0:16:40.400 that is is very limited, particularly in a world where 0:16:40.400 --> 0:16:44.040 healthcare inflation is a key driver UM and is largely 0:16:44.080 --> 0:16:47.400 dictated by healthcare policy. Not necessarily the business. When you 0:16:47.480 --> 0:16:50.000 ex out healthcare, what's the inflation run rate? We've got 0:16:50.000 --> 0:16:53.440 Cleveland and Dallas trimmed up, up up. Everybody listening to 0:16:53.480 --> 0:16:58.560 this program across America knows that higher inflation rate they're living, 0:16:58.640 --> 0:17:02.080 think tuitions and down below you've got this core number 0:17:02.080 --> 0:17:05.160 of guys like you are looking at X out healthcare. 0:17:05.560 --> 0:17:10.040 What's the disinflation right well, in in for core pc 0:17:10.320 --> 0:17:13.200 it's actually pretty close to what the core cp reading 0:17:13.280 --> 0:17:16.439 is showing. For course, CPI is actually a much different 0:17:16.440 --> 0:17:20.320 story because there you've had health health insurance inflation has 0:17:20.320 --> 0:17:23.120 been rising ten percent year on year or sorry, year 0:17:23.160 --> 0:17:26.800 on year, uh, and it's adding about thirty basis points 0:17:26.800 --> 0:17:29.439 of the core CPI index. So if you x that 0:17:29.520 --> 0:17:31.600 out of course c p I, we're we're closer to 0:17:32.240 --> 0:17:36.080 two point two. One. Of course, CPI I haven't been 0:17:36.080 --> 0:17:38.879 the current reading that we were seeing. This has been great, Matte, 0:17:38.960 --> 0:17:42.000 Thank you so much, really really appreciative, brilliant work from 0:17:42.040 --> 0:17:58.040 Deutsche Bank. Right now. This is a really fascinating interview, 0:17:58.040 --> 0:18:00.960 and it is a fascinating story that's always been a 0:18:01.000 --> 0:18:03.399 little bit of that Florida hype. It is auto nation 0:18:03.560 --> 0:18:06.040 peaking in two thousand and fifteen. It's been a challenge 0:18:06.080 --> 0:18:10.159 since then giving way to their esteem of finance professional. 0:18:10.200 --> 0:18:12.639 Her name is Cheryl Miller out of James Addison and 0:18:12.720 --> 0:18:17.680 joins us today on three auto dealerships. Everybody knows it's 0:18:17.680 --> 0:18:22.240 a fractious, wonderfully visceral company as well. What was the 0:18:22.320 --> 0:18:25.600 first day like taking over? How many phone calls did 0:18:25.600 --> 0:18:29.199 you get from? How many dealers are? I need this, 0:18:29.240 --> 0:18:30.919 I need this, I need this now? What was the 0:18:30.960 --> 0:18:33.320 first day like? The great thing about the first day 0:18:33.480 --> 0:18:36.760 was twenty six thousand people emailed me, the associates of 0:18:36.800 --> 0:18:39.480 Auto Nation and a lot of our field leadership teams, 0:18:39.480 --> 0:18:42.399 associates in the stores. That was amazing. Everyone from the 0:18:42.440 --> 0:18:44.560 industry who I had known for years emailed me and 0:18:44.600 --> 0:18:47.840 said what are you going to force? And and it 0:18:47.960 --> 0:18:51.280 was fantastic. And I was right there with Mike Jackson, 0:18:51.359 --> 0:18:54.000 are amazing executive tare now and so it was a 0:18:54.080 --> 0:18:55.920 really great current. This is this is Its been a 0:18:55.960 --> 0:18:58.000 great first day. But this has been controversial as a 0:18:58.119 --> 0:19:00.400 roll up when isn't getting all that you're ago? It's 0:19:00.440 --> 0:19:02.440 a roll up of the auto industry. I got a 0:19:02.520 --> 0:19:04.960 number of ways to go here. First the business and 0:19:05.000 --> 0:19:07.520 then the financials. What what I really want to know 0:19:07.840 --> 0:19:10.480 into me? The history is always wants on the lots, 0:19:10.920 --> 0:19:15.239 what's the inventory look like? Of course your dealerships right 0:19:15.320 --> 0:19:18.080 now it looks seven thousand units lower than it did 0:19:18.160 --> 0:19:20.400 last How did you do that? On price? Move them out? 0:19:20.920 --> 0:19:23.080 So we we actually we did. We did a combination thing, 0:19:23.200 --> 0:19:25.879 so we we priced smartly and if you look at 0:19:25.920 --> 0:19:28.679 our new vehicle sales, you've got an optimal balance between 0:19:28.840 --> 0:19:31.920 units and pricing. So we had pretty solid pricing. But 0:19:32.000 --> 0:19:34.760 we also ordered smart so we centrally ordered and we 0:19:34.840 --> 0:19:36.520 really manage that. So if you think about our day 0:19:36.560 --> 0:19:39.639 suppliance at fifty five days versus sixty three last year, 0:19:39.680 --> 0:19:42.800 then where would that have been ten years ago? You know, 0:19:42.880 --> 0:19:46.160 giving you slow downcially, fifty five to sixty five would 0:19:46.200 --> 0:19:48.440 be the normal balance of what you want in automotive 0:19:48.480 --> 0:19:51.480 new and when it gets to seventy eight five you 0:19:51.520 --> 0:19:54.200 start to get nervous your business down. The income statement 0:19:54.280 --> 0:19:56.119 is a five cents on the dollar business. I mean 0:19:56.160 --> 0:19:57.960 you've got net income if you come up a little 0:19:58.000 --> 0:20:00.119 bit the market. You know, it's like a grocer your 0:20:00.200 --> 0:20:05.600 store business almost how are you holding margins? And on 0:20:05.720 --> 0:20:08.679 a differential basis trying to improve margins right now, how 0:20:08.720 --> 0:20:11.119 do you s this? So the great thing as a retailers, 0:20:11.160 --> 0:20:13.439 we have a service component to our business, so margins, 0:20:13.520 --> 0:20:16.000 so you're charging more for our for my portion. What 0:20:16.200 --> 0:20:18.879 is an hourly cost on a Porsche to service it 0:20:19.000 --> 0:20:21.119 at automation depends what you need done on it, so 0:20:21.240 --> 0:20:22.879 we we blend the labor. So if you need to 0:20:23.240 --> 0:20:26.120 blend the labor while you blend me the free coffee. Right. Yeah, 0:20:26.119 --> 0:20:27.520 if you need an oil change, we're not going to 0:20:27.640 --> 0:20:29.480 charge you the same as if you need a skilled tech. 0:20:29.760 --> 0:20:31.760 But if you're working on a complex vehicle, if you're 0:20:31.760 --> 0:20:34.960 working on a nine eleven, or if you're working autonomous, 0:20:36.560 --> 0:20:39.640 we we don't usually give our blended right, but don't 0:20:39.680 --> 0:20:42.159