1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:30,880 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We 7 00:00:30,960 --> 00:00:35,280 Speaker 1: are broadcasting live from the Bloomberg Interactive Broker's studios. We 8 00:00:35,360 --> 00:00:39,600 Speaker 1: did get the third quarter GDP report out earlier this morning. 9 00:00:39,600 --> 00:00:42,040 Speaker 1: It came in ahead of expectations three point five percent. 10 00:00:42,520 --> 00:00:46,440 Speaker 1: And interesting, that's an annualize right. Interestingly enough, the director 11 00:00:46,479 --> 00:00:49,159 Speaker 1: of the U S Office of Management and Budget mcmulvaney 12 00:00:49,280 --> 00:00:52,760 Speaker 1: came on Bloomberg Television. He said he expects this pace 13 00:00:52,800 --> 00:00:56,800 Speaker 1: of growth to be sustainable. That is a key question here, 14 00:00:56,840 --> 00:00:59,080 Speaker 1: and we are going to ask it of Constance Hunter, 15 00:00:59,160 --> 00:01:01,680 Speaker 1: Chief Economistic APMG, who joins us here in our eleven 16 00:01:01,680 --> 00:01:05,840 Speaker 1: three studios. Constants, do you think that three point is 17 00:01:05,880 --> 00:01:10,120 Speaker 1: a sustainable annual rate of growth for US economy in 18 00:01:10,160 --> 00:01:12,840 Speaker 1: the years ahead? I do not, and let me tell 19 00:01:12,880 --> 00:01:15,000 Speaker 1: you why. There's a couple of reasons. First, if you 20 00:01:15,000 --> 00:01:18,160 Speaker 1: look at potential GDP, which is the growth rate of 21 00:01:18,200 --> 00:01:21,600 Speaker 1: the sum of the working age population plus the growth 22 00:01:21,720 --> 00:01:24,399 Speaker 1: rate of productivity. That puts us it about a one 23 00:01:24,440 --> 00:01:27,679 Speaker 1: point eight percent GDP growth. Now, we could have a 24 00:01:27,680 --> 00:01:32,039 Speaker 1: productivity surge, right, could happen, But productivity is very difficult 25 00:01:32,080 --> 00:01:36,400 Speaker 1: to predict um and so far we've had very lackluster 26 00:01:36,600 --> 00:01:40,200 Speaker 1: capital deepening that is the amount of capital investment per 27 00:01:40,319 --> 00:01:45,480 Speaker 1: labor hour during this expansion. It really lacks previous expansions. 28 00:01:45,560 --> 00:01:49,240 Speaker 1: And so that would suggest that a productivity surge, while possible, 29 00:01:49,760 --> 00:01:52,800 Speaker 1: is not something I would bank on. Now you put together, 30 00:01:53,280 --> 00:01:55,800 Speaker 1: you and the folks at KPMG. You put together this 31 00:01:55,920 --> 00:01:59,640 Speaker 1: great chart where you break down all of the components 32 00:01:59,680 --> 00:02:02,440 Speaker 1: of g d P, and I want to go through 33 00:02:02,480 --> 00:02:04,280 Speaker 1: some of them if you don't mind talk a little 34 00:02:04,280 --> 00:02:08,280 Speaker 1: bit about residential investment. Yes, so we actually looked at 35 00:02:08,360 --> 00:02:11,720 Speaker 1: just to sort of analyze this question. Okayen does it 36 00:02:11,760 --> 00:02:15,000 Speaker 1: put it on a on a different trajectory than the 37 00:02:15,080 --> 00:02:17,920 Speaker 1: previous years and the expansion. So we have took the 38 00:02:17,960 --> 00:02:20,320 Speaker 1: first half and annualized the pace of growth. And now 39 00:02:20,400 --> 00:02:22,840 Speaker 1: we've taken the first three quarters of the year and 40 00:02:22,880 --> 00:02:25,720 Speaker 1: annualize this pace of growth. And it looks pretty good. 41 00:02:25,720 --> 00:02:29,000 Speaker 1: Consumptions a little stronger, we have business investment inching up 42 00:02:29,040 --> 00:02:31,920 Speaker 1: a little bit more. Uh. But the thing that's really 43 00:02:31,919 --> 00:02:36,280 Speaker 1: concerning is that residential fixed investment is down compared to 44 00:02:36,840 --> 00:02:40,440 Speaker 1: UM the full year residential fixed investment, so that's housing 45 00:02:40,480 --> 00:02:44,120 Speaker 1: investment is down, and that is a big concern because 46 00:02:44,120 --> 00:02:47,720 Speaker 1: housing is a leading indicator and if you recall it, 47 00:02:47,960 --> 00:02:51,160 Speaker 1: prices started to detern for housing in two thousand and six, 48 00:02:51,520 --> 00:02:54,760 Speaker 1: when everybody was still popping their champagne and saying raw 49 00:02:54,919 --> 00:02:57,400 Speaker 1: raw c D O S. Well. But I want to 50 00:02:57,400 --> 00:03:00,200 Speaker 1: pick up exactly on this, right, this decline of the 51 00:03:00,200 --> 00:03:02,200 Speaker 1: first time since late to thousan date in early two 52 00:03:02,240 --> 00:03:04,440 Speaker 1: thousand nine, right, So this is uh, this is an 53 00:03:04,480 --> 00:03:09,200 Speaker 1: unusual development, this decline in residential investments. And I'm just wondering, 54 00:03:10,080 --> 00:03:13,720 Speaker 1: given the fact that homeownership has changed and that more 55 00:03:13,760 --> 00:03:16,920 Speaker 1: people rent, fewer people own and have their sort of 56 00:03:16,960 --> 00:03:20,560 Speaker 1: net worth tied up with their residence, could it be 57 00:03:20,639 --> 00:03:24,399 Speaker 1: different this time? Well, it could be different in terms 58 00:03:24,440 --> 00:03:27,760 Speaker 1: of the impact on households. And certainly, UM there have 59 00:03:27,880 --> 00:03:31,440 Speaker 1: been tighter lending standards, so I wouldn't expect if we 60 00:03:31,480 --> 00:03:35,400 Speaker 1: even had I mean and remember, house prices declining is 61 00:03:35,440 --> 00:03:38,920 Speaker 1: actually not the norm. What happens when housing gets softer 62 00:03:39,000 --> 00:03:41,920 Speaker 1: as you see less investment there, you you see you 63 00:03:41,960 --> 00:03:46,000 Speaker 1: don't see the multiplier effects of an expanding um expanding 64 00:03:46,040 --> 00:03:48,320 Speaker 1: housing markets. You don't see another housing crash coming. Is 65 00:03:48,320 --> 00:03:51,480 Speaker 1: that we basically housing crisis? But but I think it's 66 00:03:51,480 --> 00:03:54,960 Speaker 1: a warning sign in terms of the overall strength of GDP. 67 00:03:55,120 --> 00:03:58,560 Speaker 1: And there are some really important structural reasons why housing 68 00:03:58,560 --> 00:04:00,960 Speaker 1: has an advance. I mean there that is one area 69 00:04:01,000 --> 00:04:04,400 Speaker 1: where there are severe construction shortages. Another area where there's 70 00:04:04,440 --> 00:04:09,560 Speaker 1: shortages is in transportation, so getting the materials to the builders. Um. 71 00:04:09,720 --> 00:04:12,560 Speaker 1: And then there's of course increase in prices for building materials, 72 00:04:12,600 --> 00:04:15,400 Speaker 1: so you've an increasing cost of labor and increasing cost 73 00:04:15,440 --> 00:04:18,440 Speaker 1: of materials and a shortage of labor, so people can't 74 00:04:18,520 --> 00:04:21,080 Speaker 1: do projects that they want to do. So this is 75 00:04:21,120 --> 00:04:26,040 Speaker 1: a classic macroeconomic business cycle situation. Right, This is exactly 76 00:04:26,080 --> 00:04:29,400 Speaker 1: what causes slowdowns of the business cycle, is you have 77 00:04:29,480 --> 00:04:33,400 Speaker 1: supply constraints that prevent expansion and then in fact bring 78 00:04:33,440 --> 00:04:39,640 Speaker 1: about declines. Tell us about business investment right now? Yes, so, um, 79 00:04:39,680 --> 00:04:42,840 Speaker 1: we saw this quota decline in structures. Well, let me 80 00:04:42,880 --> 00:04:46,880 Speaker 1: actually go out to thirty feet first, So business investment 81 00:04:46,880 --> 00:04:50,440 Speaker 1: has been on an upswing for about six quarters seven quarters, 82 00:04:50,520 --> 00:04:53,320 Speaker 1: and uh when we started this year, of course, we 83 00:04:53,360 --> 00:04:56,440 Speaker 1: had the tax law change, and we saw a surge 84 00:04:56,440 --> 00:04:58,480 Speaker 1: in business investment in the first half of the year. 85 00:04:58,520 --> 00:05:01,039 Speaker 1: So moving up around ten percent is five point three 86 00:05:01,040 --> 00:05:04,480 Speaker 1: percent for all. Now it's a little bit more moderated, 87 00:05:04,520 --> 00:05:07,160 Speaker 1: Right's up six point three percent on an annualized basis, 88 00:05:07,200 --> 00:05:10,039 Speaker 1: So a faster pace, but a faster pace that you 89 00:05:10,080 --> 00:05:12,560 Speaker 1: would expect. This had been accelerating, and I say you 90 00:05:12,600 --> 00:05:16,440 Speaker 1: would expect absent any tax law change. So this is 91 00:05:16,480 --> 00:05:18,560 Speaker 1: going to be debated for a long time. Has this 92 00:05:19,160 --> 00:05:21,599 Speaker 1: increase in business investment this year been as a result 93 00:05:21,640 --> 00:05:23,839 Speaker 1: of the tax wealth change or a result of the 94 00:05:23,880 --> 00:05:27,200 Speaker 1: trend that was already under way at the end of 95 00:05:28,120 --> 00:05:32,000 Speaker 1: into So given the fact that we actually saw not 96 00:05:32,240 --> 00:05:37,120 Speaker 1: a decrease but a slowdown in business expenditures investments in 97 00:05:37,440 --> 00:05:41,880 Speaker 1: the third quarter, does that give you confidence in one 98 00:05:41,920 --> 00:05:44,400 Speaker 1: view or another in terms of the tax cuts playing 99 00:05:44,400 --> 00:05:47,919 Speaker 1: a role or not? No, Um, I mean it, and 100 00:05:47,960 --> 00:05:50,560 Speaker 1: it doesn't even make me overly concerned. In general, we 101 00:05:50,600 --> 00:05:54,080 Speaker 1: sell structures decline, but we saw um and we saw 102 00:05:54,120 --> 00:05:59,400 Speaker 1: a slower pace of growth in intellectual property and equipment, 103 00:05:59,760 --> 00:06:02,880 Speaker 1: but those numbers fluctuating in quarter to quarter. It's also 104 00:06:02,920 --> 00:06:05,360 Speaker 1: the first reading, so I I'm not going to get 105 00:06:05,360 --> 00:06:07,800 Speaker 1: overly concerned about that. But if you if you think 106 00:06:07,800 --> 00:06:10,440 Speaker 1: about how much of this was tax driven, I think 107 00:06:10,440 --> 00:06:13,039 Speaker 1: it's too soon to see those results. If you look 108 00:06:13,080 --> 00:06:17,960 Speaker 1: at surveys of business leaders and ceo s, they say 109 00:06:18,440 --> 00:06:20,680 Speaker 1: of them say they weren't planning to change their investment 110 00:06:20,720 --> 00:06:23,279 Speaker 1: plans based on the tax I'll change. And as Pam 111 00:06:23,279 --> 00:06:24,839 Speaker 1: and I were talking about before the show, right that 112 00:06:25,120 --> 00:06:27,839 Speaker 1: this is something that business leaders take a long time 113 00:06:27,839 --> 00:06:30,320 Speaker 1: to plan. It's not something you really can do on 114 00:06:30,360 --> 00:06:33,240 Speaker 1: the fly. There's maybe a few investments, but basically this 115 00:06:33,279 --> 00:06:35,520 Speaker 1: is a long term trend. Thank you very much for 116 00:06:35,520 --> 00:06:38,479 Speaker 1: coming in and spending time with us. Constance Hunter, Chief 117 00:06:38,480 --> 00:06:43,360 Speaker 1: Economist KPMG, and of course you can follow Constance Hunter 118 00:06:43,600 --> 00:06:47,640 Speaker 1: on Twitter at Constance Hunter. We're looking at a sell 119 00:06:47,680 --> 00:06:50,599 Speaker 1: off in stocks, the SMP five right now down one 120 00:06:50,720 --> 00:06:54,039 Speaker 1: and three quarters of a percent. You're listening to Bloomberg 121 00:06:54,080 --> 00:07:07,680 Speaker 1: Markets driving the action today and markets very much is 122 00:07:07,720 --> 00:07:10,840 Speaker 1: the Amazon and Alphabet reports that came out overnight or 123 00:07:10,840 --> 00:07:15,080 Speaker 1: after the bell yesterday basically giving a very negative tone 124 00:07:15,360 --> 00:07:19,960 Speaker 1: even though the uh the actual earnings were okay. Joining 125 00:07:20,000 --> 00:07:22,760 Speaker 1: us now, David Garretty, chief market strategist at laid Law 126 00:07:22,840 --> 00:07:25,480 Speaker 1: and Company in Brooklyn, David, thank you so much for 127 00:07:25,560 --> 00:07:28,480 Speaker 1: being here. I wanted just to ask you. Can you 128 00:07:28,520 --> 00:07:31,680 Speaker 1: start by saying what was your impression of the earnings? 129 00:07:31,760 --> 00:07:34,800 Speaker 1: Do you think that markets are misinterpreting them? The earnings 130 00:07:34,800 --> 00:07:38,000 Speaker 1: themselves are fairly solid. However, if one looked at Amazon, 131 00:07:38,080 --> 00:07:41,000 Speaker 1: there was a deceleration in terms of growth quarter to quarter, 132 00:07:41,760 --> 00:07:44,880 Speaker 1: also Google showing some challenges in terms of their top 133 00:07:44,920 --> 00:07:48,200 Speaker 1: line revenue growth. Obviously, the bigger thing here is the 134 00:07:48,240 --> 00:07:52,600 Speaker 1: fact that even though interest rates have been going up, 135 00:07:52,840 --> 00:07:54,760 Speaker 1: even though the market has been selling off, we hadn't 136 00:07:54,800 --> 00:07:58,480 Speaker 1: seen analysts bring in their own expectations. And anytime there 137 00:07:58,560 --> 00:08:02,800 Speaker 1: is a shortfall relative expectations, there has to be a reset. Obviously, 138 00:08:02,840 --> 00:08:06,000 Speaker 1: analysts need to start bringing their numbers down. But as 139 00:08:06,000 --> 00:08:08,920 Speaker 1: we also looked inside the results for both of these companies, 140 00:08:08,960 --> 00:08:11,720 Speaker 1: Alphabet as well as Amazon, we saw that they're raising 141 00:08:11,720 --> 00:08:13,800 Speaker 1: their spending levels, which is going to have an impact 142 00:08:13,800 --> 00:08:16,320 Speaker 1: on near term profit margins, which is going to further 143 00:08:16,920 --> 00:08:21,760 Speaker 1: serve to further reduce earnings expectations. So, from that standpoint, 144 00:08:21,760 --> 00:08:25,520 Speaker 1: anytime there's a shortfall versus expectations, yes, one could say 145 00:08:25,760 --> 00:08:27,960 Speaker 1: it's the fault of the street, but the fact of 146 00:08:27,960 --> 00:08:31,520 Speaker 1: the matter is that these companies shares trade within something 147 00:08:31,520 --> 00:08:35,559 Speaker 1: called the stock market that's populated by expectations, and if 148 00:08:35,559 --> 00:08:38,400 Speaker 1: the company's performance is out of line with expectations, there 149 00:08:38,440 --> 00:08:41,600 Speaker 1: has to be a reset on both sides. David Garritty, 150 00:08:41,640 --> 00:08:44,679 Speaker 1: if you love the shares of Amazon at the end 151 00:08:44,760 --> 00:08:49,720 Speaker 1: of September, you have lost about seventeen and a half percent. 152 00:08:50,800 --> 00:08:53,120 Speaker 1: Is it time to buy Amazon? If you love it 153 00:08:53,640 --> 00:08:57,680 Speaker 1: at two thousand and six dollars a share? Do you 154 00:08:57,760 --> 00:09:02,040 Speaker 1: love it at six and thirty three share? Certainly, we're 155 00:09:02,040 --> 00:09:04,560 Speaker 1: at a point in time during the year, going into 156 00:09:04,559 --> 00:09:07,280 Speaker 1: the fourth quarter, with the year end holiday shopping season 157 00:09:07,280 --> 00:09:10,000 Speaker 1: in front of us that historically has been the seasonally 158 00:09:10,040 --> 00:09:13,440 Speaker 1: strongest quarter in terms of earnings and results for Amazon, 159 00:09:13,640 --> 00:09:17,080 Speaker 1: going back historically, if one wanted to trade what one's 160 00:09:17,080 --> 00:09:20,960 Speaker 1: own expectations might be as what that fourth quarter is, fine, 161 00:09:21,160 --> 00:09:23,040 Speaker 1: this may not be a bad point in time to 162 00:09:23,080 --> 00:09:26,839 Speaker 1: consider a short term trade. However, at the same time, 163 00:09:26,920 --> 00:09:30,200 Speaker 1: offset that against the fact that we had a very solid, 164 00:09:30,240 --> 00:09:33,280 Speaker 1: better than expected GDP growth print for the third quarter 165 00:09:33,320 --> 00:09:35,640 Speaker 1: at three and a half percent, which obviously is going 166 00:09:35,679 --> 00:09:38,000 Speaker 1: to leave the Federal Reserve in a position of raising 167 00:09:38,040 --> 00:09:42,280 Speaker 1: interest rates going further into two thousand nineteen. Higher interest 168 00:09:42,360 --> 00:09:48,160 Speaker 1: rates always mean greater valuation challenges for high pe valuation 169 00:09:48,280 --> 00:09:50,760 Speaker 1: names such as an Amazon, especially as they don't pay 170 00:09:50,760 --> 00:09:52,960 Speaker 1: a dividend and give you a total return. So if 171 00:09:52,960 --> 00:09:54,840 Speaker 1: you want to have a trade around the fourth quarter results, 172 00:09:54,880 --> 00:09:56,720 Speaker 1: but it's just a trade, it's not a long term 173 00:09:56,760 --> 00:09:59,079 Speaker 1: buy in your opinion, I think until such time as 174 00:09:59,080 --> 00:10:02,679 Speaker 1: we're out of the woods terms of the FED tightening cycle, um, 175 00:10:02,800 --> 00:10:04,800 Speaker 1: these names are going to be a little bit challenged. 176 00:10:04,880 --> 00:10:10,080 Speaker 1: You're certainly seeing reallocation by investors away from tech names 177 00:10:10,400 --> 00:10:14,679 Speaker 1: towards more lower volatility, higher earning certainty names such as 178 00:10:14,720 --> 00:10:17,800 Speaker 1: Staples in terms of its sector over the course of October. 179 00:10:17,920 --> 00:10:19,880 Speaker 1: I like how you talked about spending, and I think 180 00:10:19,880 --> 00:10:22,719 Speaker 1: this is important because not all spending is equal. What 181 00:10:22,880 --> 00:10:25,040 Speaker 1: are they spending the money on and is it something 182 00:10:25,120 --> 00:10:28,600 Speaker 1: that could give them growth leader on and keep them 183 00:10:28,920 --> 00:10:32,720 Speaker 1: as being growth stocks. Certainly there continues to be investment 184 00:10:32,760 --> 00:10:35,000 Speaker 1: on their part in terms of high ticket items such 185 00:10:35,000 --> 00:10:37,680 Speaker 1: as data centers, which certainly give them the capacity for 186 00:10:37,760 --> 00:10:40,400 Speaker 1: future growth. But as we know, looking at the results 187 00:10:40,400 --> 00:10:44,400 Speaker 1: that came out of Microsoft earlier this week, Microsoft in 188 00:10:44,480 --> 00:10:48,240 Speaker 1: terms of their online cloud services Azure, we're doing much 189 00:10:48,240 --> 00:10:50,520 Speaker 1: better in growth terms than you saw either coming out 190 00:10:50,520 --> 00:10:52,680 Speaker 1: of Amazon, who has been the leader in this category 191 00:10:52,960 --> 00:10:56,080 Speaker 1: with their Amazon Web Services business, or with Google in 192 00:10:56,080 --> 00:10:59,560 Speaker 1: this regard. So clearly you're seeing more competitive market. Um. 193 00:10:59,600 --> 00:11:02,000 Speaker 1: I would also add maybe not so much for an Amazon, 194 00:11:02,080 --> 00:11:04,440 Speaker 1: but I would say that relative to a Google, along 195 00:11:04,480 --> 00:11:06,960 Speaker 1: with other social media names like a Facebook and a Twitter. 196 00:11:07,200 --> 00:11:09,400 Speaker 1: You know, we're not only going up against the Federal 197 00:11:09,440 --> 00:11:13,800 Speaker 1: Reserve tightening interest rates, but we're also facing greater regulatory scrutiny, 198 00:11:13,840 --> 00:11:16,640 Speaker 1: which might intensify should the Democrats take the House of 199 00:11:16,679 --> 00:11:21,080 Speaker 1: Representatives On November six. David Garritty taking a look at Apple. 200 00:11:21,240 --> 00:11:24,240 Speaker 1: They report their results after the close on the first 201 00:11:24,480 --> 00:11:28,160 Speaker 1: of November. The stock is up about twenty seven and 202 00:11:28,200 --> 00:11:31,560 Speaker 1: a half percent so far this year. It pays a dividend. 203 00:11:31,880 --> 00:11:34,560 Speaker 1: What are your thoughts on Apple? In terms of Apple, 204 00:11:34,600 --> 00:11:37,559 Speaker 1: I mean, the company has demonstrated a policy of returning 205 00:11:37,600 --> 00:11:42,400 Speaker 1: capital the shareholders, either through buybacks or through raising their dividend. 206 00:11:42,640 --> 00:11:46,200 Speaker 1: Um we see the company's growth in their services business 207 00:11:46,960 --> 00:11:50,440 Speaker 1: being a certainly an important driver for further gains in 208 00:11:50,559 --> 00:11:54,800 Speaker 1: cash flow to sustain that kind of pattern of return generation. 209 00:11:55,200 --> 00:11:58,720 Speaker 1: We do note, however, that smartphone volumes as a whole 210 00:11:58,840 --> 00:12:02,079 Speaker 1: looking across the mark it, the growth there basically has 211 00:12:02,120 --> 00:12:05,640 Speaker 1: come down to low single digits, a more competitive market. 212 00:12:05,880 --> 00:12:08,880 Speaker 1: But we think if we look at Apple from evaluation standpoint, 213 00:12:09,080 --> 00:12:11,319 Speaker 1: and we look at us a total return vehicle, we're 214 00:12:11,360 --> 00:12:13,600 Speaker 1: far more comfortable owning an Apple than we are saying 215 00:12:13,600 --> 00:12:17,160 Speaker 1: owning UM, an Amazon or a Facebook. Alright, So over 216 00:12:17,160 --> 00:12:18,840 Speaker 1: the next two years, since you don't see this as 217 00:12:18,880 --> 00:12:21,920 Speaker 1: a long term by if the FED does continue to 218 00:12:22,000 --> 00:12:25,000 Speaker 1: raise rates, how much more do you think the fang 219 00:12:25,040 --> 00:12:28,440 Speaker 1: stocks have to sell off before they've become attractive on 220 00:12:28,480 --> 00:12:30,880 Speaker 1: a long term basis. Some of the work I've seen 221 00:12:30,920 --> 00:12:33,400 Speaker 1: coming out elsewhere on the street have indicated that, you know, 222 00:12:33,480 --> 00:12:36,200 Speaker 1: if we were to see an under performance by tech 223 00:12:36,280 --> 00:12:39,280 Speaker 1: names versus the staples sector by maybe another three to 224 00:12:39,360 --> 00:12:42,120 Speaker 1: five percent, that there might be what people would call 225 00:12:42,200 --> 00:12:44,960 Speaker 1: sort of a near term bottom being put in. But 226 00:12:45,040 --> 00:12:47,040 Speaker 1: we also have to consider that, you know, we've been 227 00:12:47,040 --> 00:12:49,400 Speaker 1: operating here in a stock market since March of two 228 00:12:49,440 --> 00:12:53,120 Speaker 1: thousand nine, where we've had a commendative monetary policy, not 229 00:12:53,240 --> 00:12:56,200 Speaker 1: just in the US but globally, and all of this 230 00:12:56,320 --> 00:13:00,160 Speaker 1: obviously has to be wound back, if you will, if 231 00:13:00,160 --> 00:13:03,520 Speaker 1: we're going to position ourselves to address the possibility of 232 00:13:03,559 --> 00:13:06,400 Speaker 1: a recession in two thousand twenty, which other companies such 233 00:13:06,400 --> 00:13:09,679 Speaker 1: as a JP Morgan have started to put odds on 234 00:13:09,920 --> 00:13:11,960 Speaker 1: that we're going to have a recession in eighteen months. 235 00:13:12,120 --> 00:13:15,320 Speaker 1: If that happens, the monetary authorities have to have the 236 00:13:15,400 --> 00:13:18,600 Speaker 1: capability to respond to that downturn, which means that they 237 00:13:18,600 --> 00:13:21,600 Speaker 1: do need to unwind this easing that we saw so 238 00:13:21,679 --> 00:13:24,839 Speaker 1: for earlier in this cycle. David Garty, I'm taking a 239 00:13:24,880 --> 00:13:28,679 Speaker 1: look at Facebook. You mentioned Facebook as another stock where 240 00:13:29,000 --> 00:13:32,000 Speaker 1: you're not necessarily that eager to add to position or 241 00:13:32,040 --> 00:13:35,720 Speaker 1: even engage a new position. The stock has lost more 242 00:13:35,720 --> 00:13:40,280 Speaker 1: than thirty percent of its value since July. Since mid July, 243 00:13:40,880 --> 00:13:44,120 Speaker 1: you'd have to go back to June of last year 244 00:13:44,240 --> 00:13:46,760 Speaker 1: to find a comparable price. Trading at a hundred and 245 00:13:46,800 --> 00:13:51,680 Speaker 1: forty six dollars a share. Is Facebook on sale or 246 00:13:51,760 --> 00:13:55,240 Speaker 1: is it just accurate more accurately priced I think Facebook 247 00:13:55,280 --> 00:13:59,679 Speaker 1: is pricing in the greater regulatory burdens that they're dealing with. 248 00:13:59,760 --> 00:14:03,400 Speaker 1: Clear we spoke earlier about congressional scrutiny here in the US. 249 00:14:03,480 --> 00:14:06,880 Speaker 1: We have also previously on this air spoken about in 250 00:14:06,920 --> 00:14:11,520 Speaker 1: the EU the imposition of the Global Data Privacy Regulations 251 00:14:11,600 --> 00:14:14,640 Speaker 1: or g DPR, which took place in May. I'd make 252 00:14:14,679 --> 00:14:16,960 Speaker 1: the argument here that until such time as we start 253 00:14:17,000 --> 00:14:20,360 Speaker 1: to anniversary i e. Going into the second half of 254 00:14:20,400 --> 00:14:24,040 Speaker 1: two thousand nineteen of GDP g DPR being put on 255 00:14:24,040 --> 00:14:26,400 Speaker 1: the books, Facebook is going to be under a bit 256 00:14:26,400 --> 00:14:29,280 Speaker 1: more pressure. So they're not just fighting the FED, but 257 00:14:29,320 --> 00:14:32,600 Speaker 1: they're fighting regulators here at home and abroad. Before we 258 00:14:32,680 --> 00:14:35,360 Speaker 1: let you go, I'm really curious on your views on Twitter, 259 00:14:35,560 --> 00:14:39,920 Speaker 1: because Twitter is bucking this trend, reported better than expected 260 00:14:39,960 --> 00:14:42,680 Speaker 1: earning is even with the decline in actual users due 261 00:14:42,680 --> 00:14:46,120 Speaker 1: to their crackdown on bots and other things. Um, what 262 00:14:46,200 --> 00:14:49,720 Speaker 1: do you think about Twitter going forward? Um? Twitter faces 263 00:14:49,760 --> 00:14:53,680 Speaker 1: the same dynamic from a regulatory standpoint. Clearly, Um, you know, 264 00:14:53,880 --> 00:14:55,800 Speaker 1: we would argue at the same time that you know, 265 00:14:56,200 --> 00:14:59,520 Speaker 1: while they may be getting to profitability by shrinking their base. 266 00:15:00,360 --> 00:15:03,040 Speaker 1: I've followed other industries in the past where shrinking one's 267 00:15:03,040 --> 00:15:06,240 Speaker 1: way to profitability was not necessarily one's way to higher 268 00:15:06,320 --> 00:15:09,240 Speaker 1: share price. So I think until we start to get 269 00:15:09,320 --> 00:15:12,560 Speaker 1: better definition as to how it is that the social 270 00:15:12,560 --> 00:15:15,720 Speaker 1: media names are going to be able to operate after 271 00:15:15,800 --> 00:15:20,400 Speaker 1: these regulatory changes are put into effect, we probably sit 272 00:15:20,440 --> 00:15:22,640 Speaker 1: back on the sidelines in terms of these stocks and 273 00:15:22,720 --> 00:15:26,160 Speaker 1: let them find their own level. Well done, Thanks very 274 00:15:26,240 --> 00:15:29,040 Speaker 1: much for being with us. David Garerty, chief market strategist 275 00:15:29,120 --> 00:15:33,200 Speaker 1: for laid Law and Company. Congratulations on your new position. 276 00:15:33,320 --> 00:15:47,480 Speaker 1: Much appreciated. We are broadcasting live from the Bloomberg Interactive 277 00:15:47,520 --> 00:15:50,720 Speaker 1: Broker's studios just to reiterate this development. The US Justice 278 00:15:50,760 --> 00:15:53,560 Speaker 1: Department said that one person is now in custody in 279 00:15:53,640 --> 00:15:56,760 Speaker 1: connection with the mailing of suspected explosive devices that targeted 280 00:15:56,800 --> 00:16:00,520 Speaker 1: high profile democrats. They are holding a news friends today 281 00:16:00,560 --> 00:16:03,720 Speaker 1: at two thirty pm Eastern times, so we will bring 282 00:16:03,760 --> 00:16:06,760 Speaker 1: you more when we get it. Right now, though, it 283 00:16:06,880 --> 00:16:10,080 Speaker 1: is time to turn our attention to the semiconductor space, 284 00:16:10,160 --> 00:16:13,800 Speaker 1: the chip sector that has been beaten up pretty broadly 285 00:16:13,800 --> 00:16:15,960 Speaker 1: over the past few weeks. A non street of Austin 286 00:16:16,040 --> 00:16:17,600 Speaker 1: joins us right now. A non street of Austin, a 287 00:16:17,680 --> 00:16:21,880 Speaker 1: senior Semiconductor and Hardware analyst for Bloomberg Intelligence and on. 288 00:16:22,080 --> 00:16:25,640 Speaker 1: It's actually a little bit challenging to get a consistent 289 00:16:25,840 --> 00:16:27,680 Speaker 1: story when you look at the shares across the board, 290 00:16:27,680 --> 00:16:30,280 Speaker 1: because Intel is doing great, but a m D is 291 00:16:30,320 --> 00:16:33,200 Speaker 1: absolutely getting crushed along with broad common Qualcolm, what's going 292 00:16:33,240 --> 00:16:36,080 Speaker 1: on here? Yeah, it's kind of hard to um sometimes 293 00:16:36,080 --> 00:16:38,480 Speaker 1: separate the week from the shelf if you, if you may, 294 00:16:38,600 --> 00:16:41,640 Speaker 1: but to schools of thought here, right, So it's all 295 00:16:41,760 --> 00:16:45,760 Speaker 1: semi conductor cycle all the time. The semiconductor index has 296 00:16:45,800 --> 00:16:48,360 Speaker 1: gone from a level of four hundred to four hundred 297 00:16:48,360 --> 00:16:51,600 Speaker 1: over a period of five and a half years school thought. 298 00:16:51,720 --> 00:16:54,400 Speaker 1: School of thought number one is that this was an 299 00:16:54,480 --> 00:16:58,640 Speaker 1: unheralded extended up cycle, and we will pay the price 300 00:16:58,680 --> 00:17:01,920 Speaker 1: on the downside and it will be an unnerralded extended 301 00:17:01,960 --> 00:17:05,560 Speaker 1: down cycle, in which case this is time to abandon 302 00:17:05,640 --> 00:17:08,040 Speaker 1: the chips for an extended period of time. School of 303 00:17:08,080 --> 00:17:11,119 Speaker 1: start number two is that this is a substantially better 304 00:17:11,200 --> 00:17:15,920 Speaker 1: industry with multiple demand drivers, more diversified, and as a result, 305 00:17:16,320 --> 00:17:20,400 Speaker 1: you're going to have a shallower downturn, and semiconductors being 306 00:17:20,400 --> 00:17:24,280 Speaker 1: the new industrials, you will have shallower up cycles. And 307 00:17:24,320 --> 00:17:27,720 Speaker 1: shallower down cycles as has been the case, the smaller 308 00:17:27,760 --> 00:17:31,560 Speaker 1: dips being more indicative of of the downturn. So UH 309 00:17:32,240 --> 00:17:37,240 Speaker 1: semmy's have been beaten up pretty badly in the last month. UM. 310 00:17:37,280 --> 00:17:39,960 Speaker 1: If you look at a m D and video down 311 00:17:40,720 --> 00:17:44,760 Speaker 1: in video down, so they've been beaten up. But there's 312 00:17:44,800 --> 00:17:48,080 Speaker 1: no question that down cycles underway. The question is how 313 00:17:48,160 --> 00:17:52,200 Speaker 1: shallow or deep will it be? On does this reflect 314 00:17:52,280 --> 00:17:56,560 Speaker 1: and market demand? So so Intel's UM. Intel has an 315 00:17:56,560 --> 00:18:00,240 Speaker 1: opportunity to really change in the narrative here and then 316 00:18:00,280 --> 00:18:02,720 Speaker 1: try to spend it such that PCs and servers are 317 00:18:03,080 --> 00:18:06,760 Speaker 1: somewhat exempt from that that this is a vertical specific downturn. 318 00:18:07,520 --> 00:18:10,280 Speaker 1: I'm not a big believer in that camp. Usually once 319 00:18:10,480 --> 00:18:16,120 Speaker 1: UH the bug catches, it spreads all through the all 320 00:18:16,119 --> 00:18:20,040 Speaker 1: through the sector, So no particular in market is usually immune. 321 00:18:20,359 --> 00:18:23,879 Speaker 1: And it's also reflective of the fact that UM corporate 322 00:18:23,960 --> 00:18:26,320 Speaker 1: I T spending has been on a boom. UM service 323 00:18:26,359 --> 00:18:30,399 Speaker 1: spending has been is good, PCs uptick for the first 324 00:18:30,400 --> 00:18:33,119 Speaker 1: time up to percent UH in several years. So all 325 00:18:33,160 --> 00:18:35,480 Speaker 1: of that you can make a case for UM. But 326 00:18:35,640 --> 00:18:38,399 Speaker 1: you can either say, Okay, it hasn't broken yet or 327 00:18:39,119 --> 00:18:41,240 Speaker 1: it's actually been a little bit on the mend, and 328 00:18:41,320 --> 00:18:43,280 Speaker 1: the other sectors have to catch up. I watched away 329 00:18:43,280 --> 00:18:46,480 Speaker 1: in exactly sort of the potential scenarios that you initially 330 00:18:46,560 --> 00:18:49,080 Speaker 1: laid out in particular, you know what do we have 331 00:18:49,160 --> 00:18:51,159 Speaker 1: to see to know that this is going to be 332 00:18:51,280 --> 00:18:55,400 Speaker 1: a protracted and deep decline in this entire industry at 333 00:18:55,400 --> 00:18:57,399 Speaker 1: a time when we do get some disappointing We have 334 00:18:57,440 --> 00:19:00,280 Speaker 1: gotten some disappointing earnings at a big tech and they're 335 00:19:00,320 --> 00:19:03,320 Speaker 1: kind of a saturation point when it comes to certain 336 00:19:03,359 --> 00:19:06,520 Speaker 1: technologies that really are are heavy in the chip industry. 337 00:19:06,720 --> 00:19:11,280 Speaker 1: Absolutely look so UM semi conductors are sort of the 338 00:19:11,320 --> 00:19:12,919 Speaker 1: tip of the spear, if you may. In order to 339 00:19:12,920 --> 00:19:15,760 Speaker 1: see a protracted, extended downturn, there has to be a 340 00:19:15,760 --> 00:19:19,800 Speaker 1: macro collapse, right UM, semi see. At first, you can 341 00:19:19,840 --> 00:19:22,200 Speaker 1: make the case through tariffs. You can make the case 342 00:19:22,200 --> 00:19:26,360 Speaker 1: through global GDP growth. UM, But I'm not in that 343 00:19:26,560 --> 00:19:32,080 Speaker 1: camp UM, not being a macro sire, but also that UM, 344 00:19:32,119 --> 00:19:35,000 Speaker 1: there are just too many irons in the fire. From 345 00:19:35,000 --> 00:19:38,080 Speaker 1: our demand perspective. You have a third of the demand 346 00:19:38,119 --> 00:19:40,280 Speaker 1: being the PC supply chain. You have a third of 347 00:19:40,320 --> 00:19:43,320 Speaker 1: the semiconductor industry being the handset supply chain. But you 348 00:19:43,359 --> 00:19:47,360 Speaker 1: have autos, you have industrials, you have um other subsectors 349 00:19:47,359 --> 00:19:50,480 Speaker 1: that are perhaps not as big and and PCs are 350 00:19:50,480 --> 00:19:53,359 Speaker 1: doing okay right now, so you can make the case, 351 00:19:53,560 --> 00:19:55,400 Speaker 1: but autos are not, so a bunch of those other 352 00:19:55,640 --> 00:19:57,920 Speaker 1: other parts are not. That's a that's a great point. 353 00:19:57,960 --> 00:20:02,240 Speaker 1: Autos and industrials, however, are growing, but more due to 354 00:20:02,359 --> 00:20:06,520 Speaker 1: content rather than gizmo growth. With PCs and handsets, gizmo 355 00:20:06,600 --> 00:20:10,479 Speaker 1: growth was almost as important as stuff inside the gizmo. 356 00:20:10,520 --> 00:20:13,240 Speaker 1: Semiconutters grow in two a way, two ways, right. Once 357 00:20:13,280 --> 00:20:16,199 Speaker 1: you ship more handsets and PCs option A or the 358 00:20:16,280 --> 00:20:19,760 Speaker 1: content within the handset and the PC expand. So when 359 00:20:19,880 --> 00:20:25,119 Speaker 1: these particular devices grew, the stuff within the gizmo also 360 00:20:25,200 --> 00:20:27,960 Speaker 1: grew versus. If you look at autos and industrials, these 361 00:20:27,960 --> 00:20:31,360 Speaker 1: are pretty well established market, but stuff in the gizmo 362 00:20:31,520 --> 00:20:33,960 Speaker 1: is growing. So if you look at content growth within 363 00:20:34,000 --> 00:20:37,320 Speaker 1: a car up from two seven years ago to somewhere 364 00:20:37,359 --> 00:20:40,960 Speaker 1: in the five plus range right now, depending on what 365 00:20:41,080 --> 00:20:44,600 Speaker 1: subsectors you include in there. So industrials, the same thing 366 00:20:44,720 --> 00:20:47,960 Speaker 1: IoT distributed, so you can make the case for an extended, 367 00:20:48,600 --> 00:20:52,760 Speaker 1: extended up cycle. But these are smaller subsectors a third 368 00:20:52,760 --> 00:20:55,760 Speaker 1: of the business, handsets a third of the business, pecs, 369 00:20:56,359 --> 00:21:00,640 Speaker 1: um SO and and therein lies the ama of their 370 00:21:00,640 --> 00:21:03,399 Speaker 1: two schools of thought with the cycle, Ana, can you 371 00:21:03,440 --> 00:21:06,920 Speaker 1: speak to the memory chip demand issue? Yeah? So memory member, 372 00:21:06,920 --> 00:21:10,840 Speaker 1: that's a great point um and memory is ubiquitous. It 373 00:21:10,880 --> 00:21:14,879 Speaker 1: goes into everything, right. Memory density or memory capacity for 374 00:21:15,000 --> 00:21:19,560 Speaker 1: device has been on a tear across devices. But there 375 00:21:19,600 --> 00:21:22,440 Speaker 1: has been built up of over capacity in the industry 376 00:21:22,960 --> 00:21:26,119 Speaker 1: and the question is is there enough absorption of that 377 00:21:26,240 --> 00:21:30,240 Speaker 1: over capacity over a short period of time to get 378 00:21:30,320 --> 00:21:33,080 Speaker 1: supply and demand back into balance. The big driver of 379 00:21:33,160 --> 00:21:37,719 Speaker 1: that was the cloud data center market um and um 380 00:21:38,160 --> 00:21:40,480 Speaker 1: UH and the SSD business, and there was a big 381 00:21:40,520 --> 00:21:44,200 Speaker 1: move from flash from heart descrives to flash. So those 382 00:21:44,200 --> 00:21:47,040 Speaker 1: are the big consumers, but prices collapsing the way they 383 00:21:47,040 --> 00:21:50,399 Speaker 1: are given over supply. Will that extra demand be absorbed 384 00:21:50,760 --> 00:21:54,679 Speaker 1: and how soon will be absorbed? So I'm just wondering it. 385 00:21:54,840 --> 00:21:59,399 Speaker 1: Just to wrap up here, which companies are most exposed 386 00:21:59,440 --> 00:22:02,880 Speaker 1: to the o an industrial space where the insides are 387 00:22:02,920 --> 00:22:07,560 Speaker 1: expanding and maybe the gizmos aren't versus those that are 388 00:22:07,600 --> 00:22:11,920 Speaker 1: more exposed to the PCs and phones and things where 389 00:22:12,280 --> 00:22:14,719 Speaker 1: you know there's much less kind of room to expand. 390 00:22:14,800 --> 00:22:19,160 Speaker 1: Absolutely so um n XP Semiconductors, which is UM which 391 00:22:19,280 --> 00:22:21,639 Speaker 1: was just coming out of the broken M and a 392 00:22:21,720 --> 00:22:25,480 Speaker 1: deal with Qualcom. Um is one of the leaders in 393 00:22:25,560 --> 00:22:29,680 Speaker 1: auto market share. Um Texas Instruments has high auto market share, 394 00:22:29,760 --> 00:22:33,880 Speaker 1: st micro Electronics and in Finian out of Germany. Well, 395 00:22:34,280 --> 00:22:37,760 Speaker 1: thanks for being with us as always illuminating on on Trinivason, 396 00:22:38,000 --> 00:22:53,679 Speaker 1: senior semiconductor and hardware analysts for Bloomberg in Intelligence. We 397 00:22:53,720 --> 00:22:57,600 Speaker 1: are broadcasting live from the Bloomberg Interactive Broker's studios on 398 00:22:57,760 --> 00:23:02,520 Speaker 1: this Friday. President Trump yesterday announced a drug pricing proposal, 399 00:23:02,760 --> 00:23:04,520 Speaker 1: and here to talk a little bit about that is 400 00:23:04,560 --> 00:23:09,160 Speaker 1: Max Sneathan, Biotech, farm and healthcare columnist for Bloomberg Opinion. Max, 401 00:23:09,280 --> 00:23:11,120 Speaker 1: wonderful to see you. So first, can you just give 402 00:23:11,200 --> 00:23:15,639 Speaker 1: us a sort of outline of what President Trump is proposing. Yeah. Absolutely, 403 00:23:15,720 --> 00:23:19,359 Speaker 1: So it's a three part plan, a demonstration through the 404 00:23:19,960 --> 00:23:22,840 Speaker 1: Center for Medicare and Medicaid Services Office of Innovation, so 405 00:23:23,119 --> 00:23:27,199 Speaker 1: not something that requires extra legislation and sort of a 406 00:23:27,280 --> 00:23:31,360 Speaker 1: three pronged approach. The first is to give some some 407 00:23:31,560 --> 00:23:33,680 Speaker 1: vendors in the private sector more power to negotiate with 408 00:23:33,720 --> 00:23:36,720 Speaker 1: drug makers. The second to change the way that doctors 409 00:23:36,720 --> 00:23:39,960 Speaker 1: are reimbursed for some medicines from a six percent on 410 00:23:40,000 --> 00:23:42,679 Speaker 1: top of the average will sale price to a flat fee. 411 00:23:42,840 --> 00:23:46,199 Speaker 1: And then the most important one is to benchmark a 412 00:23:46,280 --> 00:23:49,280 Speaker 1: series of expensive drugs paid through for medica through Medicare. 413 00:23:49,320 --> 00:23:52,800 Speaker 1: Part b uh, they're gonna benchmark them too cheaper international 414 00:23:52,840 --> 00:23:56,840 Speaker 1: prices and over the period of five years, UM mandate 415 00:23:56,920 --> 00:23:59,960 Speaker 1: that you know, Medicare will start reimbursing at that low 416 00:24:00,119 --> 00:24:03,320 Speaker 1: or average rate because the rest of the the world 417 00:24:03,400 --> 00:24:06,840 Speaker 1: pays substantially lower lower prices for those medicines that we do. 418 00:24:07,560 --> 00:24:13,200 Speaker 1: By some analysis, Americans spend nearly nine hundred dollars per 419 00:24:13,240 --> 00:24:18,240 Speaker 1: person on prescription drugs each year. That's twice as much 420 00:24:18,280 --> 00:24:22,879 Speaker 1: as Australians and three times as much as the people 421 00:24:23,359 --> 00:24:28,239 Speaker 1: in the Netherlands. Why uh so that actually ends up 422 00:24:28,240 --> 00:24:31,320 Speaker 1: being a really interesting question with this international price index. 423 00:24:31,720 --> 00:24:34,840 Speaker 1: The reason is that other countries are much more willing 424 00:24:34,960 --> 00:24:39,280 Speaker 1: to say no to highly priced medicines to enact price controls. 425 00:24:39,480 --> 00:24:41,639 Speaker 1: All of that comes at a cost to access you 426 00:24:41,640 --> 00:24:44,760 Speaker 1: know people, Um the average person well those countries is 427 00:24:44,840 --> 00:24:47,560 Speaker 1: less likely to be able to access the most advanced 428 00:24:47,600 --> 00:24:52,600 Speaker 1: possible therapy uh than someone in America usually. But the 429 00:24:53,280 --> 00:24:54,880 Speaker 1: kind of upside of that is the fact that they 430 00:24:54,960 --> 00:24:57,560 Speaker 1: end up paying dramatically less for medicines because they're willing 431 00:24:57,600 --> 00:25:00,440 Speaker 1: to play hardball in a way that we're not. Nope, Max, 432 00:25:00,440 --> 00:25:02,760 Speaker 1: you've come on the show before and you've talked about 433 00:25:02,880 --> 00:25:06,360 Speaker 1: previous uh proposals from President Trump for people who work 434 00:25:06,440 --> 00:25:10,000 Speaker 1: for him, and you've said, this is kind of no meat. 435 00:25:10,080 --> 00:25:13,480 Speaker 1: Here is this the same thing? I think this is 436 00:25:13,520 --> 00:25:15,960 Speaker 1: the first time that that I really think that that 437 00:25:16,040 --> 00:25:18,880 Speaker 1: you know, if it happens, and that's un enormous if 438 00:25:18,920 --> 00:25:22,480 Speaker 1: and we can talk about why it would bring down prices. 439 00:25:22,880 --> 00:25:25,639 Speaker 1: And again, this is a subset of a subset of 440 00:25:25,680 --> 00:25:28,919 Speaker 1: the drug market. It's just half the country uh and 441 00:25:29,119 --> 00:25:32,080 Speaker 1: just part B medicines for the National Pricing Index. But 442 00:25:32,200 --> 00:25:35,040 Speaker 1: since those prices are so much lower, um, if you 443 00:25:35,119 --> 00:25:37,720 Speaker 1: actually you know, follow through with this index, prices in 444 00:25:37,720 --> 00:25:41,440 Speaker 1: the United States will come down for for seniors um. 445 00:25:41,640 --> 00:25:43,320 Speaker 1: And you know, it's sort of a curious way to 446 00:25:43,320 --> 00:25:46,520 Speaker 1: go about it in that we're sort of importing the 447 00:25:46,560 --> 00:25:49,879 Speaker 1: sort of price controls and restrictions that we you know 448 00:25:49,920 --> 00:25:53,080 Speaker 1: that the administration has said it previously doesn't like just 449 00:25:53,160 --> 00:25:55,720 Speaker 1: kind of doing a back war way, a backdoor way 450 00:25:55,760 --> 00:25:58,520 Speaker 1: of of importing them. So so it's an interesting way 451 00:25:58,840 --> 00:26:01,639 Speaker 1: to go about it, but it should actually bring down 452 00:26:01,720 --> 00:26:05,160 Speaker 1: prices that mostly because you know, theoretically drug makers could 453 00:26:05,240 --> 00:26:08,040 Speaker 1: raise prices elsewhere. That's sort of the angle that the 454 00:26:08,080 --> 00:26:11,720 Speaker 1: administration is going with to sort of explain ideologically what 455 00:26:11,800 --> 00:26:16,720 Speaker 1: seems like a a sort of incongruous move from them. Um, Basically, 456 00:26:16,720 --> 00:26:19,160 Speaker 1: they're saying, you know, we're they're freeloading off of us. 457 00:26:19,520 --> 00:26:22,240 Speaker 1: We're paying for the innovation and they're benefiting from us. 458 00:26:22,359 --> 00:26:24,720 Speaker 1: But it's it's not so easy as to go to 459 00:26:24,760 --> 00:26:27,280 Speaker 1: the UK and say we're raising the price. The UK 460 00:26:27,400 --> 00:26:30,680 Speaker 1: can just say well no, then they they've proven themselves 461 00:26:30,680 --> 00:26:33,399 Speaker 1: willing to do that. So um yeah, that's why I 462 00:26:33,440 --> 00:26:35,119 Speaker 1: do think the price will actually come down here if 463 00:26:35,160 --> 00:26:37,800 Speaker 1: this goes goes ahead. All right, well, let's just to 464 00:26:37,840 --> 00:26:40,560 Speaker 1: offer us I'll offer some examples and get your thoughts 465 00:26:40,560 --> 00:26:43,240 Speaker 1: on this. The price of a vast and, which is 466 00:26:43,320 --> 00:26:48,520 Speaker 1: a cancer drug. In the United States, you're gonna end 467 00:26:48,600 --> 00:26:51,800 Speaker 1: up paying about four thousand dollars for a vast and 468 00:26:52,359 --> 00:26:56,040 Speaker 1: in Switzerland you pay under two grand. In Spain, you're 469 00:26:56,040 --> 00:26:59,840 Speaker 1: paying about and you mentioned the United Kingdom, you're paying 470 00:26:59,840 --> 00:27:04,680 Speaker 1: a at five dollars for the same drug, harvony, which 471 00:27:04,720 --> 00:27:09,480 Speaker 1: is the HEPSI drug. You're paying like thirty five thousand 472 00:27:09,560 --> 00:27:12,520 Speaker 1: dollars in the United States, and in you know, Switzerland, 473 00:27:12,600 --> 00:27:17,200 Speaker 1: you're paying sixteen seventeen thousand. Way do those numbers come from? 474 00:27:17,200 --> 00:27:20,680 Speaker 1: Who sets that price? Uh, it's it's the drug maker, 475 00:27:20,840 --> 00:27:24,080 Speaker 1: and and it's all within the context of a different system. 476 00:27:24,119 --> 00:27:27,000 Speaker 1: Like you know that that harvony price after discounts in 477 00:27:27,040 --> 00:27:29,760 Speaker 1: the commercial market is probably a little bit lower. But 478 00:27:29,840 --> 00:27:32,199 Speaker 1: of vastin is actually a really good example here. It 479 00:27:32,440 --> 00:27:35,679 Speaker 1: is a biologic administered in doctor's office, is so apart 480 00:27:35,720 --> 00:27:38,679 Speaker 1: be drug and one that's used for cancer patients, so 481 00:27:38,760 --> 00:27:42,320 Speaker 1: one that has a lot of Medicare reimbursement UM. And 482 00:27:42,440 --> 00:27:44,719 Speaker 1: in this case, you know, part of it is just 483 00:27:44,800 --> 00:27:47,359 Speaker 1: that these healthcare systems are are willing to play hardball 484 00:27:47,359 --> 00:27:50,240 Speaker 1: when they negotiate. They negotiate on behalf of the entire 485 00:27:50,280 --> 00:27:52,560 Speaker 1: country in many cases, as opposed to kind of the 486 00:27:52,560 --> 00:27:56,080 Speaker 1: piecemeal way we do that UM. And also the other 487 00:27:56,080 --> 00:27:59,520 Speaker 1: thing is that there's more robust biosimilar competition in other 488 00:27:59,560 --> 00:28:03,119 Speaker 1: countries have been quicker about um getting competition to the 489 00:28:03,119 --> 00:28:05,520 Speaker 1: market for these expensive drugs. So we're hoping to sort 490 00:28:05,520 --> 00:28:09,240 Speaker 1: of both import that more aggressive negotiation and the more 491 00:28:09,240 --> 00:28:12,280 Speaker 1: aggressive competition for biologics. So of these markets, I want 492 00:28:12,280 --> 00:28:14,159 Speaker 1: to go to something that you hinted at, which you 493 00:28:14,200 --> 00:28:18,480 Speaker 1: said that if this gets implemented, and it's a very 494 00:28:18,520 --> 00:28:20,120 Speaker 1: big if, and we could talk about it. So let's 495 00:28:20,119 --> 00:28:21,760 Speaker 1: talk about it. Why is it such a sort of 496 00:28:22,359 --> 00:28:25,160 Speaker 1: long shot? It sounds like you think so. Um. One 497 00:28:25,200 --> 00:28:27,639 Speaker 1: thing that this is reminiscent of two people that have 498 00:28:27,680 --> 00:28:30,280 Speaker 1: been following drug prices for a long time is a 499 00:28:30,359 --> 00:28:35,359 Speaker 1: similar CMS demonstration by the Obama administration that also tried 500 00:28:35,400 --> 00:28:39,680 Speaker 1: to move physician reapbursement to a flat fee and implement 501 00:28:39,760 --> 00:28:42,880 Speaker 1: a variety of reference pricing, though though a different one 502 00:28:42,960 --> 00:28:45,280 Speaker 1: in many ways, it was actually a milder proposal, but 503 00:28:45,320 --> 00:28:49,000 Speaker 1: it was absolutely ripped to shreds by the farmland physician 504 00:28:49,040 --> 00:28:55,040 Speaker 1: lobby and Republican lawmakers. This is really interesting, in other words, 505 00:28:55,040 --> 00:28:57,320 Speaker 1: that they're taking a page from the Obama administration and 506 00:28:57,360 --> 00:29:01,360 Speaker 1: crafting this proposal Republican Congress when we're not in favor 507 00:29:01,480 --> 00:29:04,960 Speaker 1: of this. Now President Trump is proposing it wouldn't it 508 00:29:04,960 --> 00:29:07,800 Speaker 1: potentially have a greater chance of getting through because there 509 00:29:07,920 --> 00:29:11,080 Speaker 1: is more likely to be Republicans support for it given 510 00:29:11,120 --> 00:29:14,040 Speaker 1: President Trump's leadership. Or do you think that that's still 511 00:29:14,520 --> 00:29:16,640 Speaker 1: it's not enough to sort of get this pushed through. 512 00:29:17,360 --> 00:29:20,520 Speaker 1: It's it's pretty unclear. It'll it'll take some time for 513 00:29:20,560 --> 00:29:22,960 Speaker 1: that to play out, but so far, Um, you know, 514 00:29:23,000 --> 00:29:24,960 Speaker 1: I'm thinking of a statement that that or and Hatch 515 00:29:25,080 --> 00:29:28,640 Speaker 1: made the center from Utah it was to call it 516 00:29:28,800 --> 00:29:32,760 Speaker 1: tepid would be would be exaggerating a little bit. Uh, 517 00:29:33,080 --> 00:29:35,920 Speaker 1: you know. So it's it's just sort of an awkward 518 00:29:35,960 --> 00:29:39,480 Speaker 1: and a little bit out of character proposal for Republicans 519 00:29:39,520 --> 00:29:42,480 Speaker 1: to support, and time will tell whether kind of the 520 00:29:42,680 --> 00:29:46,320 Speaker 1: Trump effect, um, you know, the kind of move towards 521 00:29:46,400 --> 00:29:50,160 Speaker 1: the populist will lead them to support something that they 522 00:29:50,800 --> 00:29:54,400 Speaker 1: they vehemently opposed. Another version of in the past, Max, 523 00:29:54,680 --> 00:30:02,680 Speaker 1: the United States has no government panel that negotiates drug prices. Correct, Uh, 524 00:30:02,880 --> 00:30:05,320 Speaker 1: that's correct. It's all left, for example, in the Medicare 525 00:30:05,360 --> 00:30:08,120 Speaker 1: part D to private plans and in part be the 526 00:30:08,240 --> 00:30:10,640 Speaker 1: part it's just kind of left up to the drug maker. 527 00:30:10,680 --> 00:30:13,720 Speaker 1: Supposed there's not much negotiation at all. Does that make 528 00:30:13,760 --> 00:30:18,200 Speaker 1: any sense. Um, you know, I mean the government is 529 00:30:18,560 --> 00:30:21,400 Speaker 1: the bill. It's basically, you know, letting one of the 530 00:30:21,440 --> 00:30:26,560 Speaker 1: world's largest purchasers of healthcare services and tossing one of 531 00:30:26,600 --> 00:30:28,600 Speaker 1: the biggest benefits of that, which is a huge amount 532 00:30:28,600 --> 00:30:31,440 Speaker 1: of negotiating power, tossing it by the wayside, and instead 533 00:30:31,440 --> 00:30:35,440 Speaker 1: of using that um going by this very complicated backdoor 534 00:30:36,000 --> 00:30:39,560 Speaker 1: um importation of other people's negotiating power for part of 535 00:30:39,600 --> 00:30:42,720 Speaker 1: the market. So yet that would one would think that 536 00:30:42,920 --> 00:30:46,760 Speaker 1: the more impactful proposal would be to just use that 537 00:30:46,920 --> 00:30:49,360 Speaker 1: negotiating power, but that that appears to still be off 538 00:30:49,360 --> 00:30:51,840 Speaker 1: the table. Thanks very much for being with us. Max 539 00:30:51,920 --> 00:30:54,080 Speaker 1: Neeson is always an expert when it comes to all 540 00:30:54,160 --> 00:30:59,600 Speaker 1: things healthcare. Bloomberg opinion columns covering the healthcare industry. You're 541 00:30:59,640 --> 00:31:02,040 Speaker 1: listening Bloomberg Markets. We should just say that the SMP 542 00:31:02,120 --> 00:31:05,480 Speaker 1: five hundred has fallen from its all time high. Also 543 00:31:06,040 --> 00:31:09,040 Speaker 1: ciana's reporting that authorities have arrested demand in Florida in 544 00:31:09,080 --> 00:31:12,280 Speaker 1: the explosives package case. We'll keep you posted. This is Bloomberg. 545 00:31:15,320 --> 00:31:17,840 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 546 00:31:18,200 --> 00:31:22,040 Speaker 1: You can subscribe and listen to interviews at Apple podcasts, SoundCloud, 547 00:31:22,200 --> 00:31:25,680 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 548 00:31:25,720 --> 00:31:29,720 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 549 00:31:29,840 --> 00:31:32,440 Speaker 1: It's One before the podcast. You can always catch us 550 00:31:32,480 --> 00:31:34,040 Speaker 1: worldwide on Bloomberg Radio