WEBVTT - See Tesla At $88 By End of 2019: Vertical's Johnson 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg pim L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.800 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Elon 0:00:32.920 --> 0:00:36.720 Musk is having a bad morning. This comes after video 0:00:36.720 --> 0:00:41.440 emerges of him taking a puff of a marijuana laced 0:00:41.600 --> 0:00:45.800 cigar on a comedy podcast that he was on. That's 0:00:45.840 --> 0:00:51.200 not although also to senior executives both stepping down, including 0:00:51.440 --> 0:00:56.400 the head of HR as well as the chief accounting officer. 0:00:56.880 --> 0:00:59.560 Not great shares down more than six percent, They've been 0:00:59.560 --> 0:01:01.720 down all ten percent or more than ten percent at 0:01:01.720 --> 0:01:05.240 one point. Let's bring in Gordon Johnson, Managing director and 0:01:05.560 --> 0:01:09.640 Alternative Energy Metals, Mining and Equipment Analystic Vertical Group in 0:01:09.680 --> 0:01:13.200 New York. Gordon, is this the end or is this 0:01:13.319 --> 0:01:16.520 just sort of another chapter in the ongoing saga of 0:01:16.760 --> 0:01:21.119 a very non traditional chief executive officer? But yeah, I mean, 0:01:21.240 --> 0:01:24.240 we don't know if it's the end um, but you know, 0:01:24.319 --> 0:01:28.520 we have a very uh draconium view on Tesla's outwork 0:01:28.560 --> 0:01:32.759 from a fundamental perspective, but we think lately it's more 0:01:32.800 --> 0:01:35.880 important to a lot of the investors um and the 0:01:35.920 --> 0:01:39.160 stock the perception of Elon Musk. And what's interesting is 0:01:39.440 --> 0:01:42.800 the chief accounting officer who we know left is leaving 0:01:42.800 --> 0:01:45.720 the company. They actually found this out on the fourth 0:01:46.040 --> 0:01:48.680 um so that was released in the eight k. So 0:01:48.720 --> 0:01:51.480 when Elon Musk went on the podcast yesterday, he knew 0:01:51.920 --> 0:01:55.280 um that his chief accounting officer was leaving um um 0:01:55.400 --> 0:01:58.000 and uh, you know, decided to to as you as 0:01:58.000 --> 0:02:00.840 you know, to take a puff um. So I think 0:02:00.880 --> 0:02:05.240 that um, you know, as his credibility comes under more scrutinty, 0:02:05.400 --> 0:02:07.880 we think that's actually more important. We think it's wrong, 0:02:07.920 --> 0:02:11.079 but nonetheless we think that's actually more important UM to 0:02:11.200 --> 0:02:15.840 the stock near term. Gorton Johnson. Is it possible to 0:02:15.960 --> 0:02:22.760 imagine Tesla without Elon Musk? Uh? Yes, I think it's possible. 0:02:22.760 --> 0:02:25.520 But I think if Elon Musk leaves, I think a 0:02:25.600 --> 0:02:29.680 lot of the enthusiasm comes out of this stock. I mean, 0:02:29.760 --> 0:02:32.079 think about this, Tim, you you know this well, you've 0:02:32.080 --> 0:02:35.320 seen this, you know in your years of uh you know, coverage. 0:02:35.520 --> 0:02:38.320 I mean, the chief accounting officer was there that lest 0:02:38.760 --> 0:02:41.440 one month. He's seen the books, He's seen things we 0:02:41.480 --> 0:02:44.800 haven't seen. Look, we highlighted on your show him that 0:02:44.880 --> 0:02:49.679 we questioned Tesla's accounting and specifically um you twenty seventeen 0:02:50.000 --> 0:02:53.280 and their Services and other segment. The revenue was essentially 0:02:53.280 --> 0:02:55.800 fat flat, but the cost of good soul um in 0:02:55.880 --> 0:02:58.600 that segment was up two hundred and sixty six million 0:02:59.080 --> 0:03:02.720 seventeen up only sixty six million. And the point is, 0:03:02.760 --> 0:03:06.400 we believe Tesla maybe shifting cost a good soult out 0:03:06.400 --> 0:03:10.359 of the automotive segment into the services another segment that's 0:03:10.440 --> 0:03:13.880 artificially boosting their their automotive margins. But this guy seens 0:03:13.880 --> 0:03:16.799 stuff we aren't seen, right, the stuff that's not disclosed, 0:03:16.840 --> 0:03:19.440 and he leaves less than a month with a ten 0:03:19.560 --> 0:03:22.919 million dollar grant package on the table that he walked 0:03:22.919 --> 0:03:26.080 away from. Question did he see well? And to be clear, 0:03:26.120 --> 0:03:28.720 he did point out that this was not because of 0:03:28.800 --> 0:03:32.680 some major accounting problem that he was leaving, so he 0:03:32.840 --> 0:03:36.480 was specific about that. But you do raise a good point, 0:03:36.600 --> 0:03:38.640 which is he did see a lot of things that 0:03:38.680 --> 0:03:41.520 we have not seen, and he chose to leave. Right now, 0:03:41.560 --> 0:03:43.400 we're looking at shares that are about two hundred and 0:03:43.400 --> 0:03:46.600 sixty two dollars, where do you think they ought to 0:03:46.640 --> 0:03:50.520 be given this backdrop? Our price target at the end 0:03:50.560 --> 0:03:54.080 of eighty eight dollars, and we think that's where the 0:03:54.120 --> 0:03:57.120 shares are headed. Keep in mind, Elon Musk has roughly 0:03:57.200 --> 0:04:01.880 thirteen point eight million shares treads against debt that Tesla has, 0:04:02.480 --> 0:04:05.800 and we don't know the strike price of when he 0:04:05.880 --> 0:04:08.680 has to effectively sell those shares, but when he does, 0:04:09.440 --> 0:04:12.600 we will see those those corn fours and that'll be 0:04:12.680 --> 0:04:15.920 yet another uh negative data point. Real quick though, I'd 0:04:15.920 --> 0:04:20.479 love to get your sense of whether today's news lowers 0:04:20.520 --> 0:04:23.960 that target further or it's just more noise confirming your thesis. 0:04:24.480 --> 0:04:27.760 We can't. We can't lower our target on Bloomberg Radio. 0:04:28.240 --> 0:04:32.120 But what I will say is, um, you know, you 0:04:32.160 --> 0:04:34.800 look at the competition that's coming, right the Mercedes car 0:04:34.880 --> 0:04:37.120 that was unveiled. I think it's the e q R 0:04:37.240 --> 0:04:40.160 that's unveiled. We're going to the Audi unveil later this 0:04:40.200 --> 0:04:42.960 month in September. And people keep asking the question, have 0:04:43.080 --> 0:04:44.920 you driven the Model three, and no, we haven't. We've 0:04:45.000 --> 0:04:47.760 driven a Model lesque um. But when you look at 0:04:47.760 --> 0:04:49.560 the guys who have driven the Model three and then 0:04:49.560 --> 0:04:51.720 they go and drive the Jaguar I pace are the 0:04:51.800 --> 0:04:56.080 Audi tron Um. They're saying that the newer cars um 0:04:56.400 --> 0:04:59.320 are much better. Um. And we're gonna we're gonna go 0:04:59.440 --> 0:05:02.280 drive a Model three this weekend. Uh. There's you can 0:05:02.360 --> 0:05:04.880 drive a jag warre I taste. There's one in Manhattan 0:05:05.160 --> 0:05:06.920 jag War where you can drive. We're going to do that. 0:05:07.200 --> 0:05:09.560 So we're gonna we're gonna experience it ourselves. But I 0:05:09.600 --> 0:05:13.280 think that this company has major problems, major issues. Uh, 0:05:13.440 --> 0:05:15.120 and it's all out there in the open. And I 0:05:15.160 --> 0:05:16.960 think that, you know, some of the things the CEO 0:05:17.080 --> 0:05:20.239 is doing um UM, you know, are certainly denting further 0:05:20.480 --> 0:05:23.120 his credibility. And as we stated, I think that's more important. 0:05:23.200 --> 0:05:25.240 We think that's more important to the stock than even 0:05:25.240 --> 0:05:27.120 the fundamentals. We don't think that's right. We think people 0:05:27.160 --> 0:05:29.200 should look at the fundamentals, but we think people are 0:05:29.200 --> 0:05:31.600 investing this for Elon and Elon UM you know, is 0:05:31.640 --> 0:05:33.400 doing some questionable things, and I think that's going to 0:05:33.480 --> 0:05:35.480 weigh all the stock further. Just give you about the 0:05:35.600 --> 0:05:39.520 twenty seconds here, Gordon. If you're a fund manager and 0:05:39.560 --> 0:05:42.480 you are a long testleas stock. Do you think you're 0:05:42.520 --> 0:05:47.960 exposing yourself to potential lawsuits by your investors? Absolutely. You 0:05:48.000 --> 0:05:52.520 have a CEO who said funding secured, more importantly, said 0:05:52.600 --> 0:05:55.120 all that we need now is a shareholder vote that 0:05:55.320 --> 0:05:58.400 clearly was not true. You have a CEO who's smoking 0:05:58.440 --> 0:06:02.760 marijuana on tv UM, where the company policy is if 0:06:02.760 --> 0:06:06.320 the employee smoke marijuana, you're supposed to report them um. 0:06:06.400 --> 0:06:09.160 You have guys like me and others out there highlighting 0:06:09.360 --> 0:06:12.880 clearly things in the public eye that you know. I 0:06:12.920 --> 0:06:14.960 think people are just ignoring and just saying, hey, we 0:06:15.000 --> 0:06:17.919 believe in Ellen. Uh if this stock collapses, I do 0:06:18.040 --> 0:06:20.599 think that there's some risk to guys who are ignoring 0:06:20.640 --> 0:06:23.520 all these red flags. I think that's a great question 0:06:23.760 --> 0:06:26.840 and I agree with that. Pim many thanks. Gordon Johnson 0:06:27.080 --> 0:06:30.080 is analyst and managing director at The Vertical Group. You're 0:06:30.080 --> 0:06:46.960 speaking about Tesla, Well, takeing a look at the US 0:06:47.040 --> 0:06:51.400 dollar right now, and while the emerging market currencies have 0:06:51.520 --> 0:06:53.920 gained a little bit of strength, that's not the case 0:06:53.960 --> 0:06:57.159 with the euro at one seventies seven, the pounds sterling 0:06:57.160 --> 0:07:02.200 at sixty, the Japanese yen one eleven fourteen, and strength 0:07:02.240 --> 0:07:06.679 continues despite news from Canada that the Canadian Central Banking 0:07:06.760 --> 0:07:11.160 considered raising interest rates Canadian dollar at one. Here to 0:07:11.240 --> 0:07:14.400 tell us more is Dr win Thin, Global head of 0:07:14.400 --> 0:07:20.200 Emerging Markets FX for Brown Brothers Harriman win Thin. The 0:07:20.240 --> 0:07:24.840 relationship between the US dollar and emerging market currencies? What 0:07:24.960 --> 0:07:29.280 are the links and how do they work? First are 0:07:29.320 --> 0:07:31.360 thankfully thanks for having me. It's always a pleasure. Um. 0:07:32.520 --> 0:07:35.880 The outside performance of the US dollars this year has 0:07:35.880 --> 0:07:38.600 really been driven by two major factors. There's to be 0:07:38.680 --> 0:07:41.640 the main one right now is still remains interest rate differentials. 0:07:41.640 --> 0:07:45.280 That is, the Fed is hiking rates, everyone else is not. Basically, 0:07:45.720 --> 0:07:48.840 of course, you have some outliers, as you mentioned Canada tightening, 0:07:48.840 --> 0:07:52.520 but for the most part developed world is pretty much 0:07:52.520 --> 0:07:56.480 in the steady state of near zero rates. Today's data 0:07:56.560 --> 0:08:00.200 from the Commas Department was I'm sorry from BLS was 0:08:00.200 --> 0:08:02.720 it was certainly eye opener. Um. The average alley earnings 0:08:02.800 --> 0:08:05.120 is what people are keying on two point ye over 0:08:05.120 --> 0:08:08.080 a year cycle high the HYA stins June two thousand nine, 0:08:08.680 --> 0:08:10.760 So that to me tells I think tells the market 0:08:10.800 --> 0:08:14.360 the Fed is going to remain comfortable hiking rates. Um. 0:08:14.440 --> 0:08:18.440 Into next year. UM Septembers done deal December December is 0:08:18.480 --> 0:08:20.680 gonna probably close getting close to be priced as a 0:08:20.720 --> 0:08:24.280 done deal, and that's continuing to help fuel this dollar rally. 0:08:24.600 --> 0:08:26.160 When you know, it's really interesting. We were speaking with 0:08:26.240 --> 0:08:29.360 David and Sassa of Bloomberg Intelligence earlier and he said, 0:08:29.440 --> 0:08:33.320 there is a misconception right now in the emerging markets 0:08:33.440 --> 0:08:38.160 universe that the sell off stems from FED tightening, where 0:08:38.240 --> 0:08:41.520 it really stems much more from a tightening and financial 0:08:41.520 --> 0:08:46.560 conditions in China. Would you agree, Uh? No, I do. 0:08:46.679 --> 0:08:49.760 I would disagree. You know, as big as the Chinese 0:08:49.800 --> 0:08:54.439 economy is, the World Central Bank is still the said UM. 0:08:54.679 --> 0:08:57.599 The dollar rates really are a center as US of 0:08:57.640 --> 0:09:00.120 the benchmark for for all sorts of investments. That's out 0:09:00.120 --> 0:09:01.719 to say China doesn't have an impact, but I think 0:09:01.760 --> 0:09:04.720 the major impact is still coming from the US UM. 0:09:04.760 --> 0:09:07.000 I think the other I mentioned there's several factors hurting 0:09:07.000 --> 0:09:09.440 e M. To me, the other thing that's hurting emerging 0:09:09.440 --> 0:09:13.000 markets is the continue heightened trade tensions. It looks like 0:09:13.040 --> 0:09:16.600 the US is teeing up two more terraffs on Chinese goods. 0:09:16.600 --> 0:09:20.760 I think has threatened China's retaliating. Um, you know, despite 0:09:20.760 --> 0:09:24.000 some good news at the marginal NAFTA, which also still 0:09:24.000 --> 0:09:26.480 seems up in the air with Canada. I think trade 0:09:26.520 --> 0:09:28.800 the trade tension story is not going away anytime soon. 0:09:28.880 --> 0:09:31.600 So the really we're seeing libering repounds to EM but 0:09:31.760 --> 0:09:36.440 I remain negative into next year. Can you explain what 0:09:36.640 --> 0:09:40.280 countries that we have not been talking about our next 0:09:40.320 --> 0:09:43.880 on your list for per apps raising interest rates in 0:09:44.080 --> 0:09:48.000 order to show up the value of their currency. Oh sure, 0:09:48.559 --> 0:09:51.040 let's see. Well we in the emerging markets world, we 0:09:51.040 --> 0:09:56.040 already have had several UM. Argentina is obviously the biggest example. Uh. 0:09:56.080 --> 0:09:59.680 Turkey is hiking continue to hike. Brazil to me, Brazil 0:09:59.800 --> 0:10:02.280 sound to Africa, Russia. Those the three, uh, sort of 0:10:02.480 --> 0:10:04.720 in the next three in the fragile five that we're 0:10:04.720 --> 0:10:08.160 seeing Russia, South African, Brazil, Turkey, Argentina. I would say, 0:10:08.160 --> 0:10:11.600 a Russia's meeting next week. They're talking about a possible hike. UM. 0:10:11.840 --> 0:10:16.840 Brazilian rail at the Central Bank. Um. Uh, it's been dubblished, 0:10:16.920 --> 0:10:18.719 but I think to me, you know that with the 0:10:19.000 --> 0:10:20.720 rail remains on the pressure, it's gonna have to consider 0:10:20.840 --> 0:10:22.720 a rate hike to Analysts are saying no rate hikes 0:10:22.720 --> 0:10:24.840 three year end, but the cd I market, that's the 0:10:24.840 --> 0:10:27.480 fixed income market in Brazil is pricing in rate hike 0:10:27.520 --> 0:10:30.200 as soon as this month. So the market split on that, 0:10:30.240 --> 0:10:32.480 but I think Brazil will have to hike. South Africa, 0:10:32.480 --> 0:10:35.360 to me, is the puzzled um they've they've rarely hiped 0:10:35.440 --> 0:10:39.280 rates to defend the rand in past episodes, and we 0:10:39.360 --> 0:10:43.120 had a shocker contraction gdp Q two earlier this week 0:10:43.559 --> 0:10:46.160 make it more reluctant to high rates. So you know, 0:10:46.160 --> 0:10:48.280 I think South Africa gonna it can be the outliers 0:10:48.360 --> 0:10:50.280 as the one that's standing doublished even though the Rand 0:10:50.320 --> 0:10:53.080 is under pressure. Do you think, just talking about this 0:10:53.120 --> 0:10:55.800 from a liquidity standpoint, a technical standpoint, do you think 0:10:55.800 --> 0:10:58.880 that we've seen the bulk of forced selling or has 0:10:58.920 --> 0:11:01.920 the weakness that we've seen so far just been the 0:11:01.960 --> 0:11:05.440 beginning and not really including that much in the way 0:11:05.440 --> 0:11:10.120 of outflows. Oh well, I'll think I think the people 0:11:10.080 --> 0:11:12.240 of economists answer and say, I think right in the middle. 0:11:12.679 --> 0:11:16.600 I think, you know, very different. I think we've gone 0:11:16.600 --> 0:11:18.000 through a lot of selling. I think you know, I 0:11:18.040 --> 0:11:20.200 wouldn't say we're early on, but I don't think it's 0:11:20.200 --> 0:11:22.840 we're by any means over So I think we're still 0:11:22.840 --> 0:11:26.160 sort of navigating. I hear talk about how all evaluations 0:11:26.160 --> 0:11:29.520 are great, but you know, facing you know, e M assets, 0:11:29.480 --> 0:11:32.439 we're really inflated by the zero rate policy that we've 0:11:32.440 --> 0:11:37.200 had after financial crisis, and we're still repricing um those assets. 0:11:37.280 --> 0:11:39.720 As I mentioned that the ECB hasn't hiped yet, you know, 0:11:39.760 --> 0:11:43.000 they're they're starting normalizing probably next year. UM, So there's 0:11:43.000 --> 0:11:45.280 still a lot of sort of repricing and liquid is 0:11:45.320 --> 0:11:49.120 gonna be taken away in the coming quarters. So I 0:11:49.120 --> 0:11:52.520 would say let's let's remain cautious on em. Thank you 0:11:52.559 --> 0:11:56.480 so much for being with us. Dr Winton. Dr Winton, 0:11:56.640 --> 0:12:01.160 Global head of Emerging Markets f X four Brown Brothers Harriman. 0:12:18.000 --> 0:12:21.920 Supreme Court nominee Brett Kavanaugh has been very much in 0:12:21.960 --> 0:12:25.640 the news as he speaks with senators in hearings on 0:12:25.760 --> 0:12:29.880 Capitol Hell this week, talking about his past views, previous 0:12:29.960 --> 0:12:33.720 letters he's written, and how he would view a president 0:12:33.880 --> 0:12:38.440 in terms of potential criminal charges joining us now. Kimberly Robinson, 0:12:38.520 --> 0:12:42.360 Supreme Court reporter for Bloomberg Law. Kimberly, let's just start 0:12:42.400 --> 0:12:46.240 off with this idea that it seems very unlikely at 0:12:46.240 --> 0:12:49.720 this point that Supreme Court nominee Brett Kavanaugh will be 0:12:49.760 --> 0:12:54.880 derailed in his ascension to the court. Is that true? Well, 0:12:54.880 --> 0:12:57.360 that is true, and that's because Democrats just don't have 0:12:57.480 --> 0:13:00.880 the votes really to block his confirmation. Their best hope 0:13:00.880 --> 0:13:03.920 seems to be to pro choice Republicans, but so far 0:13:04.000 --> 0:13:07.000 they seem to be leaning towards supporting him, and it's 0:13:07.040 --> 0:13:08.760 likely that they have to pick up a few more 0:13:08.840 --> 0:13:13.040 Republicans because, uh, several Democrats are likely to vote for him, 0:13:13.120 --> 0:13:16.800 given that they're facing really tough reelection battles, uh in 0:13:16.840 --> 0:13:20.240 the midterm elections in states that went for Donald Trump 0:13:20.280 --> 0:13:23.320 in the last presidential election. Well, Kimberly, so why are 0:13:23.360 --> 0:13:25.719 they doing this, because it's not as if, I mean, 0:13:25.920 --> 0:13:28.560 based on what you just described, they're not convincing anybody 0:13:28.600 --> 0:13:32.640 that was unconvinced. And are they basically preaching to their 0:13:32.679 --> 0:13:36.400 own choir? And why do that? Because it certainly seems 0:13:36.400 --> 0:13:42.000 to have ignited a lot of criticism from those areas 0:13:42.040 --> 0:13:44.760 of the political spectrum that may not have been paying 0:13:44.760 --> 0:13:47.800 attention to this in the first place. Well, we are 0:13:47.840 --> 0:13:52.480 seeing really unprecedented levels of protests, not only from senators themselves, 0:13:52.480 --> 0:13:56.120 but also from audience members. I suspect that Democrats are 0:13:56.160 --> 0:13:59.280 doing this not in order to trip up this confirmation battle, 0:13:59.320 --> 0:14:01.400 although I'm sure they'd like to do that, but to 0:14:01.480 --> 0:14:04.959 fire up their base for midterm elections. You know, traditionally 0:14:05.000 --> 0:14:07.640 Republicans has cared more about the Supreme Court, and this 0:14:07.720 --> 0:14:10.080 is the way to highlight for Democratic voters that you 0:14:10.120 --> 0:14:12.120 have to vote in these midterm elections if you want 0:14:12.120 --> 0:14:13.760 to have to say, and who is going to be 0:14:13.760 --> 0:14:16.160 the next Supreme Court justice. So let's talk about who 0:14:16.160 --> 0:14:18.480 Brett Kavanaugh is. What are the views that people must 0:14:18.480 --> 0:14:22.400 object to here? Well, I think people, uh we've seen 0:14:22.440 --> 0:14:26.640 are really pressing on his views on abortion, on gay rights, 0:14:26.720 --> 0:14:30.080 and on affirmative action. And these are all issues were 0:14:30.120 --> 0:14:33.880 just as Kennedy, whom Kavanaugh would be replacing, actually crossed 0:14:33.920 --> 0:14:36.360 over and voted with their liberals. And so people are 0:14:36.360 --> 0:14:39.680 watching these because they suspect that when Kavanaugh is confirmed 0:14:39.720 --> 0:14:42.240 to the Supreme Court that these areas will switch shift 0:14:42.360 --> 0:14:47.160 quite a bit. Is there any information that you believe 0:14:47.280 --> 0:14:52.920 that exists about Brett Kavanaugh, either his opinions or his 0:14:53.080 --> 0:14:58.240 time in the Bush White House that our earth shaking 0:14:58.440 --> 0:15:03.320 and that we have not been privy to in any way. Well, 0:15:03.360 --> 0:15:06.960 there's probably not a lot of information that we don't know. 0:15:07.600 --> 0:15:09.720 We've seen over the last couple of days a few 0:15:09.760 --> 0:15:14.400 documents come out that have been sort of described as bombshells, 0:15:14.760 --> 0:15:17.880 but they described views the Brett kavanol that many people 0:15:17.920 --> 0:15:20.920 suspect that he has, although these these documents seem to 0:15:20.920 --> 0:15:23.960 prove it um. So we're not learning anything new about 0:15:24.000 --> 0:15:26.640 Brett Kavanaugh. There are really no new concerns. It's just 0:15:26.720 --> 0:15:30.400 raising these concerns. The voters are aware of them, all right, 0:15:30.480 --> 0:15:32.560 So Kimberally, let's take a step back and just talk 0:15:32.600 --> 0:15:37.880 about conservative ideology versus liberal ideology within Supreme Court law. 0:15:38.240 --> 0:15:42.800 For example, antonin Scalia, who is deceased but who is 0:15:42.840 --> 0:15:47.320 a long time very traditional Supreme Court or conservative Supreme 0:15:47.400 --> 0:15:50.880 Court justice, was very good friends with Ruth Ruth Betty Ginzberg, 0:15:50.920 --> 0:15:53.520 who was a very liberal Supreme Court justice. They disagreed 0:15:53.520 --> 0:15:55.440 in a lot of things. What are some of the 0:15:55.600 --> 0:16:01.320 fundamental differences in their ideology And does Brett Kavanaugh fit 0:16:01.880 --> 0:16:06.680 in just the conservative classification or does he depart from that? Well, 0:16:06.720 --> 0:16:09.920 I think one of the major differences that impacts Americans 0:16:09.920 --> 0:16:15.640 most significantly is how liberal versus conservative justices view constitutional 0:16:15.680 --> 0:16:21.840 interpretation and the constitutional rights that Americans have. And we see, uh, 0:16:22.080 --> 0:16:26.320 conservatives really home close to the text of the Constitution, 0:16:26.680 --> 0:16:31.440 seeming to grant fewer constitutional rights to individuals, and on 0:16:31.480 --> 0:16:34.920 the opposite side, liberals, uh, having a more expansive view 0:16:35.040 --> 0:16:37.960 of the rights that individuals have. Brett Cavanan does fit 0:16:38.040 --> 0:16:41.000 that bill. He's called himself an originalist, and that is 0:16:41.000 --> 0:16:44.000 the kind of person who you know, looks at the 0:16:44.040 --> 0:16:48.400 past and what the public meaning was of the rights 0:16:48.400 --> 0:16:50.960 that we have when the Constitution was passed, not what 0:16:51.240 --> 0:16:54.160 we might want them to be today. Kimberly, the American 0:16:54.240 --> 0:16:57.800 Bar Association committee that takes a look at nominees for 0:16:57.840 --> 0:17:01.000 the Supreme Court says that Judge cab and A has 0:17:01.040 --> 0:17:04.280 the highest rating and that he's well qualified. Is that 0:17:05.800 --> 0:17:10.399 go ahead, I beg your pardon the American Bar Association. Uh, 0:17:10.480 --> 0:17:14.200 they do this for every judicial nominee. Uh. They gave 0:17:14.320 --> 0:17:18.399 him their highest qualification of well qualified. But when testifying today, 0:17:18.600 --> 0:17:21.960 A B. A representatives wanted to emphasize that they don't 0:17:22.080 --> 0:17:26.040 look at his political ideology. It's really just a peer 0:17:26.040 --> 0:17:28.440 review of individuals who have worked with a judge and 0:17:28.480 --> 0:17:30.920 who have argued before the judge. All right, so that 0:17:31.080 --> 0:17:36.359 he is qualified. That's right, they said he was qualified. Um. 0:17:36.359 --> 0:17:38.760 But it's important to note that you know, every Supreme 0:17:38.800 --> 0:17:42.440 Court justice and modern history to come before the justices, um, 0:17:42.480 --> 0:17:44.160 and who have gotten on the court have been marked 0:17:44.280 --> 0:17:47.119 qualified by the A B. A. So it isn't a 0:17:47.160 --> 0:17:51.840 signal of how they will vote once on the Supreme Court. Right, Okay, 0:17:51.960 --> 0:17:55.600 very good. Thanks for clearing that up and being on 0:17:55.720 --> 0:17:59.040 watch for us as always. Kimberly Robinson our Supreme Court 0:17:59.080 --> 0:18:02.760 reporter for a Bloomberg Law. And you can of course, 0:18:02.960 --> 0:18:09.159 uh follow Kimberly on Twitter at Kimberly Robinson that's without 0:18:09.200 --> 0:18:11.560 the O at the end. And also you can follow 0:18:11.680 --> 0:18:30.760 Bloomberg Law on Twitter at a Bloomberg Law. Wages in 0:18:30.800 --> 0:18:34.000 the United States increased two point nine percent. The economy 0:18:34.080 --> 0:18:37.359 adds over two hundred thousand new jobs. Here to tell 0:18:37.480 --> 0:18:40.600 us more about the economy is Chris Lowe, chief economist 0:18:40.680 --> 0:18:44.919 at FTN Financial. Chris, always a pleasure to have you 0:18:45.000 --> 0:18:48.840 with us. Uh, maybe you could just do something for me. 0:18:48.960 --> 0:18:53.399 Let's just pretend for a moment that you were born 0:18:53.760 --> 0:18:58.320 after the financial crisis, of two thousand eight, and you 0:18:58.359 --> 0:19:01.240 were to take a look at the state histics that 0:19:01.320 --> 0:19:06.480 describe the current state of the US economy. If you 0:19:06.520 --> 0:19:09.320 were to do that and then take a look at 0:19:09.359 --> 0:19:14.199 the level of interest rates for US treasuries, would you 0:19:14.240 --> 0:19:16.840 say that it makes sense or would you say that 0:19:16.920 --> 0:19:23.160 there's something that doesn't that doesn't shibe. Well, it's certainly 0:19:23.640 --> 0:19:28.560 if you think about it in terms of four percent 0:19:28.720 --> 0:19:35.720 job four percent employment growth, four percent unemployment rate, historical norms. 0:19:36.040 --> 0:19:40.880 Uh yeah, interest rates at these levels are just remarkably low. 0:19:41.560 --> 0:19:46.159 But if if you as you said, we're born after 0:19:46.240 --> 0:19:50.000 oh eight and and that's the world you know, then 0:19:50.680 --> 0:19:56.400 then they make perfect sense. And in fact, John Williams 0:19:56.440 --> 0:20:02.960 just yesterday talking about no sign of of financial excesses, 0:20:03.800 --> 0:20:08.720 credit growth actually is tame by historical standards, is extremely low, 0:20:10.240 --> 0:20:15.280 and in that sense, I think interest rates are perfectly 0:20:15.320 --> 0:20:20.560 reasonable at these levels. The differences that Americans are just 0:20:21.119 --> 0:20:23.560 much more reluctant to borrow than they have been in 0:20:23.600 --> 0:20:27.920 the past. So given that backdrop, John Williams also said 0:20:28.119 --> 0:20:30.600 some other things, particularly about the yield curve, saying that 0:20:30.640 --> 0:20:34.560 they're going to continue to hike rates as they see fit, 0:20:34.920 --> 0:20:37.800 even if that means inverting the yield curve, because it 0:20:37.840 --> 0:20:41.600 doesn't seem to bother him. So do you expect more 0:20:41.720 --> 0:20:45.399 rate hikes to go, especially after this pretty good jobs report? 0:20:46.600 --> 0:20:52.320 I think so. I think September and December we're pretty 0:20:52.400 --> 0:20:54.960 much in the cards anyway. That the issue was whether 0:20:55.000 --> 0:21:00.840 they were going to pause in early. With faster wage growth, 0:21:00.960 --> 0:21:04.879 the hawks are going to be emboldened. Even Williams who 0:21:04.960 --> 0:21:10.119 had some doubts yesterday about the wage growth mystery, this 0:21:10.280 --> 0:21:14.560 report should answer some of those doubts and and maybe 0:21:14.600 --> 0:21:17.879 settled the mystery for him. Uh. It wasn't just that 0:21:17.960 --> 0:21:20.880 wages rose in August. They were revised up in June 0:21:20.920 --> 0:21:24.919 and July as well. Job wage growth over the summer 0:21:25.119 --> 0:21:30.359 was terrific. Average weekly earnings, which reflect both the the 0:21:30.480 --> 0:21:34.280 hourly rate of wages but also the work week. We're 0:21:34.359 --> 0:21:39.800 up at a three point to six pace over the summer, 0:21:40.119 --> 0:21:44.040 which is the fastest in the cycle. Uh, you know, 0:21:44.080 --> 0:21:49.080 wages are heating up. But a little perspective is probably 0:21:49.119 --> 0:21:52.200 a good idea to given the age of the expansion, 0:21:53.160 --> 0:21:55.920 wage growth at this point. Back in in the two 0:21:55.960 --> 0:22:00.359 thousand's expansion was four In the late ninety it was 0:22:00.440 --> 0:22:02.399 running at three and a half to four percent, and 0:22:02.440 --> 0:22:07.280 actually UH was in that range for about five years 0:22:07.400 --> 0:22:12.960 with no significant inflation. So, yeah, wages are picking up, 0:22:13.040 --> 0:22:16.840 but that they're still tamed by historical standards. Nevertheless, we 0:22:17.000 --> 0:22:20.880 better see some productivity gains in the next six months 0:22:21.200 --> 0:22:24.240 or that the FED is going to have to continue 0:22:24.240 --> 0:22:27.399 to tighten. Chris Lowe, do you believe that the Federal 0:22:27.400 --> 0:22:29.840 Reserve will taken to account any of the havoc that 0:22:29.920 --> 0:22:34.040 has been wrecked upon the emerging markets as a result 0:22:34.080 --> 0:22:37.720 of the strength of the US dollar. Absolutely, I do, 0:22:38.160 --> 0:22:42.439 but not until it spills over into the US. I 0:22:42.480 --> 0:22:46.520 think they should give a bigger weight, frankly, to what's 0:22:46.520 --> 0:22:50.320 happening in the emerging markets because it's it's pretty clearly 0:22:51.000 --> 0:22:55.040 a result, at least partially of their dependence on US 0:22:55.119 --> 0:23:00.479 dollar financing, on you know, the difficulty of raising cash 0:23:00.600 --> 0:23:04.480 in dollars now that the FED is draining liquidity UH. 0:23:04.520 --> 0:23:08.680 And really, if you think about inflation, it's a global phenomenon. 0:23:09.440 --> 0:23:12.520 Um I. As the FED tightens, their goal is to 0:23:12.640 --> 0:23:17.879 free up some capacity. I suspect it'll be pretty clear 0:23:17.960 --> 0:23:20.400 by the end of the year they have freed up capacity. 0:23:20.440 --> 0:23:24.040 It just isn't necessarily in the US. Uh, They'll there'll 0:23:24.040 --> 0:23:27.359 be plenty of spare capacity around the world, and that 0:23:27.400 --> 0:23:30.480 should keep inflation in check. Do you think that right now, 0:23:30.560 --> 0:23:33.960 people including FED officials, are too sanguente about trade tensions 0:23:34.000 --> 0:23:36.720 because right now it seems like we could get announced 0:23:36.760 --> 0:23:41.240 any day an additional tariff on two d billion dollars 0:23:41.280 --> 0:23:44.560 of additional goods from China heading into the US. President 0:23:44.560 --> 0:23:47.760 Trump has said that he wants to do this. I 0:23:47.760 --> 0:23:49.960 am struggling to understand what the implication is for the 0:23:50.000 --> 0:23:54.159 market and whether everyone's just discounting this to their fault. 0:23:55.840 --> 0:23:59.080 I think there's a couple of things there. First, the 0:23:59.400 --> 0:24:04.120 FED is alert to this that they listed trade tensions 0:24:04.119 --> 0:24:07.760 and tariffs particularly as one of the top four risks 0:24:07.840 --> 0:24:10.600 to the US economy, so they're they're not at all 0:24:10.640 --> 0:24:13.159 asleep at the switch. I think what makes this so 0:24:13.320 --> 0:24:20.800 difficult is that predicting the outcome is extraordinarily tough. Uh. 0:24:20.840 --> 0:24:24.480 You know, just days before we reached a trade agreement 0:24:24.520 --> 0:24:30.159 with Mexico, for example, the papers were reporting that an 0:24:30.240 --> 0:24:35.439 agreement was unlikely. Uh, things can change quickly. As for 0:24:36.040 --> 0:24:39.720 the trade fight with China, I I do think that's 0:24:39.720 --> 0:24:43.280 only going to get uglier, and UH I suspect it 0:24:43.359 --> 0:24:47.280 to real threat to put some additional perspective on that. 0:24:48.280 --> 0:24:52.880 Looking at the employment report this morning, the diffusion index 0:24:53.000 --> 0:24:57.440 for manufacturing has declined sharply in the last three months. 0:24:58.040 --> 0:25:02.920 UH that they were broad based losses in manufacturing UM 0:25:02.960 --> 0:25:07.760