Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We
Speaker 1: are broadcasting live from the Bloomberg Interactive Broker's studios. We
Speaker 1: did get the third quarter GDP report out earlier this morning.
Speaker 1: It came in ahead of expectations three point five percent.
Speaker 1: And interesting, that's an annualize right. Interestingly enough, the director
Speaker 1: of the U S Office of Management and Budget mcmulvaney
Speaker 1: came on Bloomberg Television. He said he expects this pace
Speaker 1: of growth to be sustainable. That is a key question here,
Speaker 1: and we are going to ask it of Constance Hunter,
Speaker 1: Chief Economistic APMG, who joins us here in our eleven
Speaker 1: three studios. Constants, do you think that three point is
Speaker 1: a sustainable annual rate of growth for US economy in
Speaker 1: the years ahead? I do not, and let me tell
Speaker 1: you why. There's a couple of reasons. First, if you
Speaker 1: look at potential GDP, which is the growth rate of
Speaker 1: the sum of the working age population plus the growth
Speaker 1: rate of productivity. That puts us it about a one
Speaker 1: point eight percent GDP growth. Now, we could have a
Speaker 1: productivity surge, right, could happen, But productivity is very difficult
Speaker 1: to predict um and so far we've had very lackluster
Speaker 1: capital deepening that is the amount of capital investment per
Speaker 1: labor hour during this expansion. It really lacks previous expansions.
Speaker 1: And so that would suggest that a productivity surge, while possible,
Speaker 1: is not something I would bank on. Now you put together,
Speaker 1: you and the folks at KPMG. You put together this
Speaker 1: great chart where you break down all of the components
Speaker 1: of g d P, and I want to go through
Speaker 1: some of them if you don't mind talk a little
Speaker 1: bit about residential investment. Yes, so we actually looked at
Speaker 1: just to sort of analyze this question. Okayen does it
Speaker 1: put it on a on a different trajectory than the
Speaker 1: previous years and the expansion. So we have took the
Speaker 1: first half and annualized the pace of growth. And now
Speaker 1: we've taken the first three quarters of the year and
Speaker 1: annualize this pace of growth. And it looks pretty good.
Speaker 1: Consumptions a little stronger, we have business investment inching up
Speaker 1: a little bit more. Uh. But the thing that's really
Speaker 1: concerning is that residential fixed investment is down compared to
Speaker 1: UM the full year residential fixed investment, so that's housing
Speaker 1: investment is down, and that is a big concern because
Speaker 1: housing is a leading indicator and if you recall it,
Speaker 1: prices started to detern for housing in two thousand and six,
Speaker 1: when everybody was still popping their champagne and saying raw
Speaker 1: raw c D O S. Well. But I want to
Speaker 1: pick up exactly on this, right, this decline of the
Speaker 1: first time since late to thousan date in early two
Speaker 1: thousand nine, right, So this is uh, this is an
Speaker 1: unusual development, this decline in residential investments. And I'm just wondering,
Speaker 1: given the fact that homeownership has changed and that more
Speaker 1: people rent, fewer people own and have their sort of
Speaker 1: net worth tied up with their residence, could it be
Speaker 1: different this time? Well, it could be different in terms
Speaker 1: of the impact on households. And certainly, UM there have
Speaker 1: been tighter lending standards, so I wouldn't expect if we
Speaker 1: even had I mean and remember, house prices declining is
Speaker 1: actually not the norm. What happens when housing gets softer
Speaker 1: as you see less investment there, you you see you
Speaker 1: don't see the multiplier effects of an expanding um expanding
Speaker 1: housing markets. You don't see another housing crash coming. Is
Speaker 1: that we basically housing crisis? But but I think it's
Speaker 1: a warning sign in terms of the overall strength of GDP.
Speaker 1: And there are some really important structural reasons why housing
Speaker 1: has an advance. I mean there that is one area
Speaker 1: where there are severe construction shortages. Another area where there's
Speaker 1: shortages is in transportation, so getting the materials to the builders. Um.
Speaker 1: And then there's of course increase in prices for building materials,
Speaker 1: so you've an increasing cost of labor and increasing cost
Speaker 1: of materials and a shortage of labor, so people can't
Speaker 1: do projects that they want to do. So this is
Speaker 1: a classic macroeconomic business cycle situation. Right, This is exactly
Speaker 1: what causes slowdowns of the business cycle, is you have
Speaker 1: supply constraints that prevent expansion and then in fact bring
Speaker 1: about declines. Tell us about business investment right now? Yes, so, um,
Speaker 1: we saw this quota decline in structures. Well, let me
Speaker 1: actually go out to thirty feet first, So business investment
Speaker 1: has been on an upswing for about six quarters seven quarters,
Speaker 1: and uh when we started this year, of course, we
Speaker 1: had the tax law change, and we saw a surge
Speaker 1: in business investment in the first half of the year.
Speaker 1: So moving up around ten percent is five point three
Speaker 1: percent for all. Now it's a little bit more moderated,
Speaker 1: Right's up six point three percent on an annualized basis,
Speaker 1: So a faster pace, but a faster pace that you
Speaker 1: would expect. This had been accelerating, and I say you
Speaker 1: would expect absent any tax law change. So this is
Speaker 1: going to be debated for a long time. Has this
Speaker 1: increase in business investment this year been as a result
Speaker 1: of the tax wealth change or a result of the
Speaker 1: trend that was already under way at the end of
Speaker 1: into So given the fact that we actually saw not
Speaker 1: a decrease but a slowdown in business expenditures investments in
Speaker 1: the third quarter, does that give you confidence in one
Speaker 1: view or another in terms of the tax cuts playing
Speaker 1: a role or not? No, Um, I mean it, and
Speaker 1: it doesn't even make me overly concerned. In general, we
Speaker 1: sell structures decline, but we saw um and we saw
Speaker 1: a slower pace of growth in intellectual property and equipment,
Speaker 1: but those numbers fluctuating in quarter to quarter. It's also
Speaker 1: the first reading, so I I'm not going to get
Speaker 1: overly concerned about that. But if you if you think
Speaker 1: about how much of this was tax driven, I think
Speaker 1: it's too soon to see those results. If you look
Speaker 1: at surveys of business leaders and ceo s, they say
Speaker 1: of them say they weren't planning to change their investment
Speaker 1: plans based on the tax I'll change. And as Pam
Speaker 1: and I were talking about before the show, right that
Speaker 1: this is something that business leaders take a long time
Speaker 1: to plan. It's not something you really can do on
Speaker 1: the fly. There's maybe a few investments, but basically this
Speaker 1: is a long term trend. Thank you very much for
Speaker 1: coming in and spending time with us. Constance Hunter, Chief
Speaker 1: Economist KPMG, and of course you can follow Constance Hunter
Speaker 1: on Twitter at Constance Hunter. We're looking at a sell
Speaker 1: off in stocks, the SMP five right now down one
Speaker 1: and three quarters of a percent. You're listening to Bloomberg
Speaker 1: Markets driving the action today and markets very much is
Speaker 1: the Amazon and Alphabet reports that came out overnight or
Speaker 1: after the bell yesterday basically giving a very negative tone
Speaker 1: even though the uh the actual earnings were okay. Joining
Speaker 1: us now, David Garretty, chief market strategist at laid Law
Speaker 1: and Company in Brooklyn, David, thank you so much for
Speaker 1: being here. I wanted just to ask you. Can you
Speaker 1: start by saying what was your impression of the earnings?
Speaker 1: Do you think that markets are misinterpreting them? The earnings
Speaker 1: themselves are fairly solid. However, if one looked at Amazon,
Speaker 1: there was a deceleration in terms of growth quarter to quarter,
Speaker 1: also Google showing some challenges in terms of their top
Speaker 1: line revenue growth. Obviously, the bigger thing here is the
Speaker 1: fact that even though interest rates have been going up,
Speaker 1: even though the market has been selling off, we hadn't
Speaker 1: seen analysts bring in their own expectations. And anytime there
Speaker 1: is a shortfall relative expectations, there has to be a reset. Obviously,
Speaker 1: analysts need to start bringing their numbers down. But as
Speaker 1: we also looked inside the results for both of these companies,
Speaker 1: Alphabet as well as Amazon, we saw that they're raising
Speaker 1: their spending levels, which is going to have an impact
Speaker 1: on near term profit margins, which is going to further
Speaker 1: serve to further reduce earnings expectations. So, from that standpoint,
Speaker 1: anytime there's a shortfall versus expectations, yes, one could say
Speaker 1: it's the fault of the street, but the fact of
Speaker 1: the matter is that these companies shares trade within something
Speaker 1: called the stock market that's populated by expectations, and if
Speaker 1: the company's performance is out of line with expectations, there
Speaker 1: has to be a reset on both sides. David Garritty,
Speaker 1: if you love the shares of Amazon at the end
Speaker 1: of September, you have lost about seventeen and a half percent.
Speaker 1: Is it time to buy Amazon? If you love it
Speaker 1: at two thousand and six dollars a share? Do you
Speaker 1: love it at six and thirty three share? Certainly, we're
Speaker 1: at a point in time during the year, going into
Speaker 1: the fourth quarter, with the year end holiday shopping season
Speaker 1: in front of us that historically has been the seasonally
Speaker 1: strongest quarter in terms of earnings and results for Amazon,
Speaker 1: going back historically, if one wanted to trade what one's
Speaker 1: own expectations might be as what that fourth quarter is, fine,
Speaker 1: this may not be a bad point in time to
Speaker 1: consider a short term trade. However, at the same time,
Speaker 1: offset that against the fact that we had a very solid,
Speaker 1: better than expected GDP growth print for the third quarter
Speaker 1: at three and a half percent, which obviously is going
Speaker 1: to leave the Federal Reserve in a position of raising
Speaker 1: interest rates going further into two thousand nineteen. Higher interest
Speaker 1: rates always mean greater valuation challenges for high pe valuation
Speaker 1: names such as an Amazon, especially as they don't pay
Speaker 1: a dividend and give you a total return. So if
Speaker 1: you want to have a trade around the fourth quarter results,
Speaker 1: but it's just a trade, it's not a long term
Speaker 1: buy in your opinion, I think until such time as
Speaker 1: we're out of the woods terms of the FED tightening cycle, um,
Speaker 1: these names are going to be a little bit challenged.
Speaker 1: You're certainly seeing reallocation by investors away from tech names
Speaker 1: towards more lower volatility, higher earning certainty names such as
Speaker 1: Staples in terms of its sector over the course of October.
Speaker 1: I like how you talked about spending, and I think
Speaker 1: this is important because not all spending is equal. What
Speaker 1: are they spending the money on and is it something
Speaker 1: that could give them growth leader on and keep them
Speaker 1: as being growth stocks. Certainly there continues to be investment
Speaker 1: on their part in terms of high ticket items such
Speaker 1: as data centers, which certainly give them the capacity for
Speaker 1: future growth. But as we know, looking at the results
Speaker 1: that came out of Microsoft earlier this week, Microsoft in
Speaker 1: terms of their online cloud services Azure, we're doing much
Speaker 1: better in growth terms than you saw either coming out
Speaker 1: of Amazon, who has been the leader in this category
Speaker 1: with their Amazon Web Services business, or with Google in
Speaker 1: this regard. So clearly you're seeing more competitive market. Um.
Speaker 1: I would also add maybe not so much for an Amazon,
Speaker 1: but I would say that relative to a Google, along
Speaker 1: with other social media names like a Facebook and a Twitter.
Speaker 1: You know, we're not only going up against the Federal
Speaker 1: Reserve tightening interest rates, but we're also facing greater regulatory scrutiny,
Speaker 1: which might intensify should the Democrats take the House of
Speaker 1: Representatives On November six. David Garritty taking a look at Apple.
Speaker 1: They report their results after the close on the first
Speaker 1: of November. The stock is up about twenty seven and
Speaker 1: a half percent so far this year. It pays a dividend.
Speaker 1: What are your thoughts on Apple? In terms of Apple,
Speaker 1: I mean, the company has demonstrated a policy of returning
Speaker 1: capital the shareholders, either through buybacks or through raising their dividend.
Speaker 1: Um we see the company's growth in their services business
Speaker 1: being a certainly an important driver for further gains in
Speaker 1: cash flow to sustain that kind of pattern of return generation.
Speaker 1: We do note, however, that smartphone volumes as a whole
Speaker 1: looking across the mark it, the growth there basically has
Speaker 1: come down to low single digits, a more competitive market.
Speaker 1: But we think if we look at Apple from evaluation standpoint,
Speaker 1: and we look at us a total return vehicle, we're
Speaker 1: far more comfortable owning an Apple than we are saying
Speaker 1: owning UM, an Amazon or a Facebook. Alright, So over
Speaker 1: the next two years, since you don't see this as
Speaker 1: a long term by if the FED does continue to
Speaker 1: raise rates, how much more do you think the fang
Speaker 1: stocks have to sell off before they've become attractive on
Speaker 1: a long term basis. Some of the work I've seen
Speaker 1: coming out elsewhere on the street have indicated that, you know,
Speaker 1: if we were to see an under performance by tech
Speaker 1: names versus the staples sector by maybe another three to
Speaker 1: five percent, that there might be what people would call
Speaker 1: sort of a near term bottom being put in. But
Speaker 1: we also have to consider that, you know, we've been
Speaker 1: operating here in a stock market since March of two
Speaker 1: thousand nine, where we've had a commendative monetary policy, not
Speaker 1: just in the US but globally, and all of this
Speaker 1: obviously has to be wound back, if you will, if
Speaker 1: we're going to position ourselves to address the possibility of
Speaker 1: a recession in two thousand twenty, which other companies such
Speaker 1: as a JP Morgan have started to put odds on
Speaker 1: that we're going to have a recession in eighteen months.
Speaker 1: If that happens, the monetary authorities have to have the
Speaker 1: capability to respond to that downturn, which means that they
Speaker 1: do need to unwind this easing that we saw so
Speaker 1: for earlier in this cycle. David Garty, I'm taking a
Speaker 1: look at Facebook. You mentioned Facebook as another stock where
Speaker 1: you're not necessarily that eager to add to position or
Speaker 1: even engage a new position. The stock has lost more
Speaker 1: than thirty percent of its value since July. Since mid July,
Speaker 1: you'd have to go back to June of last year
Speaker 1: to find a comparable price. Trading at a hundred and
Speaker 1: forty six dollars a share. Is Facebook on sale or
Speaker 1: is it just accurate more accurately priced I think Facebook
Speaker 1: is pricing in the greater regulatory burdens that they're dealing with.
Speaker 1: Clear we spoke earlier about congressional scrutiny here in the US.
Speaker 1: We have also previously on this air spoken about in
Speaker 1: the EU the imposition of the Global Data Privacy Regulations
Speaker 1: or g DPR, which took place in May. I'd make
Speaker 1: the argument here that until such time as we start
Speaker 1: to anniversary i e. Going into the second half of
Speaker 1: two thousand nineteen of GDP g DPR being put on
Speaker 1: the books, Facebook is going to be under a bit
Speaker 1: more pressure. So they're not just fighting the FED, but
Speaker 1: they're fighting regulators here at home and abroad. Before we
Speaker 1: let you go, I'm really curious on your views on Twitter,
Speaker 1: because Twitter is bucking this trend, reported better than expected
Speaker 1: earning is even with the decline in actual users due
Speaker 1: to their crackdown on bots and other things. Um, what
Speaker 1: do you think about Twitter going forward? Um? Twitter faces
Speaker 1: the same dynamic from a regulatory standpoint. Clearly, Um, you know,
Speaker 1: we would argue at the same time that you know,
Speaker 1: while they may be getting to profitability by shrinking their base.
Speaker 1: I've followed other industries in the past where shrinking one's
Speaker 1: way to profitability was not necessarily one's way to higher
Speaker 1: share price. So I think until we start to get
Speaker 1: better definition as to how it is that the social
Speaker 1: media names are going to be able to operate after
Speaker 1: these regulatory changes are put into effect, we probably sit
Speaker 1: back on the sidelines in terms of these stocks and
Speaker 1: let them find their own level. Well done, Thanks very
Speaker 1: much for being with us. David Garerty, chief market strategist
Speaker 1: for laid Law and Company. Congratulations on your new position.
Speaker 1: Much appreciated. We are broadcasting live from the Bloomberg Interactive
Speaker 1: Broker's studios just to reiterate this development. The US Justice
Speaker 1: Department said that one person is now in custody in
Speaker 1: connection with the mailing of suspected explosive devices that targeted
Speaker 1: high profile democrats. They are holding a news friends today
Speaker 1: at two thirty pm Eastern times, so we will bring
Speaker 1: you more when we get it. Right now, though, it
Speaker 1: is time to turn our attention to the semiconductor space,
Speaker 1: the chip sector that has been beaten up pretty broadly
Speaker 1: over the past few weeks. A non street of Austin
Speaker 1: joins us right now. A non street of Austin, a
Speaker 1: senior Semiconductor and Hardware analyst for Bloomberg Intelligence and on.
Speaker 1: It's actually a little bit challenging to get a consistent
Speaker 1: story when you look at the shares across the board,
Speaker 1: because Intel is doing great, but a m D is
Speaker 1: absolutely getting crushed along with broad common Qualcolm, what's going
Speaker 1: on here? Yeah, it's kind of hard to um sometimes
Speaker 1: separate the week from the shelf if you, if you may,
Speaker 1: but to schools of thought here, right, So it's all
Speaker 1: semi conductor cycle all the time. The semiconductor index has
Speaker 1: gone from a level of four hundred to four hundred
Speaker 1: over a period of five and a half years school thought.
Speaker 1: School of thought number one is that this was an
Speaker 1: unheralded extended up cycle, and we will pay the price
Speaker 1: on the downside and it will be an unnerralded extended
Speaker 1: down cycle, in which case this is time to abandon
Speaker 1: the chips for an extended period of time. School of
Speaker 1: start number two is that this is a substantially better
Speaker 1: industry with multiple demand drivers, more diversified, and as a result,
Speaker 1: you're going to have a shallower downturn, and semiconductors being
Speaker 1: the new industrials, you will have shallower up cycles. And
Speaker 1: shallower down cycles as has been the case, the smaller
Speaker 1: dips being more indicative of of the downturn. So UH
Speaker 1: semmy's have been beaten up pretty badly in the last month. UM.
Speaker 1: If you look at a m D and video down
Speaker 1: in video down, so they've been beaten up. But there's
Speaker 1: no question that down cycles underway. The question is how
Speaker 1: shallow or deep will it be? On does this reflect
Speaker 1: and market demand? So so Intel's UM. Intel has an
Speaker 1: opportunity to really change in the narrative here and then
Speaker 1: try to spend it such that PCs and servers are
Speaker 1: somewhat exempt from that that this is a vertical specific downturn.
Speaker 1: I'm not a big believer in that camp. Usually once
Speaker 1: UH the bug catches, it spreads all through the all
Speaker 1: through the sector, So no particular in market is usually immune.
Speaker 1: And it's also reflective of the fact that UM corporate
Speaker 1: I T spending has been on a boom. UM service
Speaker 1: spending has been is good, PCs uptick for the first
Speaker 1: time up to percent UH in several years. So all
Speaker 1: of that you can make a case for UM. But
Speaker 1: you can either say, Okay, it hasn't broken yet or
Speaker 1: it's actually been a little bit on the mend, and
Speaker 1: the other sectors have to catch up. I watched away
Speaker 1: in exactly sort of the potential scenarios that you initially
Speaker 1: laid out in particular, you know what do we have
Speaker 1: to see to know that this is going to be
Speaker 1: a protracted and deep decline in this entire industry at
Speaker 1: a time when we do get some disappointing We have
Speaker 1: gotten some disappointing earnings at a big tech and they're
Speaker 1: kind of a saturation point when it comes to certain
Speaker 1: technologies that really are are heavy in the chip industry.
Speaker 1: Absolutely look so UM semi conductors are sort of the
Speaker 1: tip of the spear, if you may. In order to
Speaker 1: see a protracted, extended downturn, there has to be a
Speaker 1: macro collapse, right UM, semi see. At first, you can
Speaker 1: make the case through tariffs. You can make the case
Speaker 1: through global GDP growth. UM, But I'm not in that
Speaker 1: camp UM, not being a macro sire, but also that UM,
Speaker 1: there are just too many irons in the fire. From
Speaker 1: our demand perspective. You have a third of the demand
Speaker 1: being the PC supply chain. You have a third of
Speaker 1: the semiconductor industry being the handset supply chain. But you
Speaker 1: have autos, you have industrials, you have um other subsectors
Speaker 1: that are perhaps not as big and and PCs are
Speaker 1: doing okay right now, so you can make the case,
Speaker 1: but autos are not, so a bunch of those other
Speaker 1: other parts are not. That's a that's a great point.
Speaker 1: Autos and industrials, however, are growing, but more due to
Speaker 1: content rather than gizmo growth. With PCs and handsets, gizmo
Speaker 1: growth was almost as important as stuff inside the gizmo.
Speaker 1: Semiconutters grow in two a way, two ways, right. Once
Speaker 1: you ship more handsets and PCs option A or the
Speaker 1: content within the handset and the PC expand. So when
Speaker 1: these particular devices grew, the stuff within the gizmo also
Speaker 1: grew versus. If you look at autos and industrials, these
Speaker 1: are pretty well established market, but stuff in the gizmo
Speaker 1: is growing. So if you look at content growth within
Speaker 1: a car up from two seven years ago to somewhere
Speaker 1: in the five plus range right now, depending on what
Speaker 1: subsectors you include in there. So industrials, the same thing
Speaker 1: IoT distributed, so you can make the case for an extended,
Speaker 1: extended up cycle. But these are smaller subsectors a third
Speaker 1: of the business, handsets a third of the business, pecs,
Speaker 1: um SO and and therein lies the ama of their
Speaker 1: two schools of thought with the cycle, Ana, can you
Speaker 1: speak to the memory chip demand issue? Yeah? So memory member,
Speaker 1: that's a great point um and memory is ubiquitous. It
Speaker 1: goes into everything, right. Memory density or memory capacity for
Speaker 1: device has been on a tear across devices. But there
Speaker 1: has been built up of over capacity in the industry
Speaker 1: and the question is is there enough absorption of that
Speaker 1: over capacity over a short period of time to get
Speaker 1: supply and demand back into balance. The big driver of
Speaker 1: that was the cloud data center market um and um
Speaker 1: UH and the SSD business, and there was a big
Speaker 1: move from flash from heart descrives to flash. So those
Speaker 1: are the big consumers, but prices collapsing the way they
Speaker 1: are given over supply. Will that extra demand be absorbed
Speaker 1: and how soon will be absorbed? So I'm just wondering it.
Speaker 1: Just to wrap up here, which companies are most exposed
Speaker 1: to the o an industrial space where the insides are
Speaker 1: expanding and maybe the gizmos aren't versus those that are
Speaker 1: more exposed to the PCs and phones and things where
Speaker 1: you know there's much less kind of room to expand.
Speaker 1: Absolutely so um n XP Semiconductors, which is UM which
Speaker 1: was just coming out of the broken M and a
Speaker 1: deal with Qualcom. Um is one of the leaders in
Speaker 1: auto market share. Um Texas Instruments has high auto market share,
Speaker 1: st micro Electronics and in Finian out of Germany. Well,
Speaker 1: thanks for being with us as always illuminating on on Trinivason,
Speaker 1: senior semiconductor and hardware analysts for Bloomberg in Intelligence. We
Speaker 1: are broadcasting live from the Bloomberg Interactive Broker's studios on
Speaker 1: this Friday. President Trump yesterday announced a drug pricing proposal,
Speaker 1: and here to talk a little bit about that is
Speaker 1: Max Sneathan, Biotech, farm and healthcare columnist for Bloomberg Opinion. Max,
Speaker 1: wonderful to see you. So first, can you just give
Speaker 1: us a sort of outline of what President Trump is proposing. Yeah. Absolutely,
Speaker 1: So it's a three part plan, a demonstration through the
Speaker 1: Center for Medicare and Medicaid Services Office of Innovation, so
Speaker 1: not something that requires extra legislation and sort of a
Speaker 1: three pronged approach. The first is to give some some
Speaker 1: vendors in the private sector more power to negotiate with
Speaker 1: drug makers. The second to change the way that doctors
Speaker 1: are reimbursed for some medicines from a six percent on
Speaker 1: top of the average will sale price to a flat fee.
Speaker 1: And then the most important one is to benchmark a
Speaker 1: series of expensive drugs paid through for medica through Medicare.
Speaker 1: Part b uh, they're gonna benchmark them too cheaper international
Speaker 1: prices and over the period of five years, UM mandate
Speaker 1: that you know, Medicare will start reimbursing at that low
Speaker 1: or average rate because the rest of the the world
Speaker 1: pays substantially lower lower prices for those medicines that we do.
Speaker 1: By some analysis, Americans spend nearly nine hundred dollars per
Speaker 1: person on prescription drugs each year. That's twice as much
Speaker 1: as Australians and three times as much as the people
Speaker 1: in the Netherlands. Why uh so that actually ends up
Speaker 1: being a really interesting question with this international price index.
Speaker 1: The reason is that other countries are much more willing
Speaker 1: to say no to highly priced medicines to enact price controls.
Speaker 1: All of that comes at a cost to access you
Speaker 1: know people, Um the average person well those countries is
Speaker 1: less likely to be able to access the most advanced
Speaker 1: possible therapy uh than someone in America usually. But the
Speaker 1: kind of upside of that is the fact that they
Speaker 1: end up paying dramatically less for medicines because they're willing
Speaker 1: to play hardball in a way that we're not. Nope, Max,
Speaker 1: you've come on the show before and you've talked about
Speaker 1: previous uh proposals from President Trump for people who work
Speaker 1: for him, and you've said, this is kind of no meat.
Speaker 1: Here is this the same thing? I think this is
Speaker 1: the first time that that I really think that that
Speaker 1: you know, if it happens, and that's un enormous if
Speaker 1: and we can talk about why it would bring down prices.
Speaker 1: And again, this is a subset of a subset of
Speaker 1: the drug market. It's just half the country uh and
Speaker 1: just part B medicines for the National Pricing Index. But
Speaker 1: since those prices are so much lower, um, if you
Speaker 1: actually you know, follow through with this index, prices in
Speaker 1: the United States will come down for for seniors um.
Speaker 1: And you know, it's sort of a curious way to
Speaker 1: go about it in that we're sort of importing the
Speaker 1: sort of price controls and restrictions that we you know
Speaker 1: that the administration has said it previously doesn't like just
Speaker 1: kind of doing a back war way, a backdoor way
Speaker 1: of of importing them. So so it's an interesting way
Speaker 1: to go about it, but it should actually bring down
Speaker 1: prices that mostly because you know, theoretically drug makers could
Speaker 1: raise prices elsewhere. That's sort of the angle that the
Speaker 1: administration is going with to sort of explain ideologically what
Speaker 1: seems like a a sort of incongruous move from them. Um, Basically,
Speaker 1: they're saying, you know, we're they're freeloading off of us.
Speaker 1: We're paying for the innovation and they're benefiting from us.
Speaker 1: But it's it's not so easy as to go to
Speaker 1: the UK and say we're raising the price. The UK
Speaker 1: can just say well no, then they they've proven themselves
Speaker 1: willing to do that. So um yeah, that's why I
Speaker 1: do think the price will actually come down here if
Speaker 1: this goes goes ahead. All right, well, let's just to
Speaker 1: offer us I'll offer some examples and get your thoughts
Speaker 1: on this. The price of a vast and, which is
Speaker 1: a cancer drug. In the United States, you're gonna end
Speaker 1: up paying about four thousand dollars for a vast and
Speaker 1: in Switzerland you pay under two grand. In Spain, you're
Speaker 1: paying about and you mentioned the United Kingdom, you're paying
Speaker 1: a at five dollars for the same drug, harvony, which
Speaker 1: is the HEPSI drug. You're paying like thirty five thousand
Speaker 1: dollars in the United States, and in you know, Switzerland,
Speaker 1: you're paying sixteen seventeen thousand. Way do those numbers come from?
Speaker 1: Who sets that price? Uh, it's it's the drug maker,
Speaker 1: and and it's all within the context of a different system.
Speaker 1: Like you know that that harvony price after discounts in
Speaker 1: the commercial market is probably a little bit lower. But
Speaker 1: of vastin is actually a really good example here. It
Speaker 1: is a biologic administered in doctor's office, is so apart
Speaker 1: be drug and one that's used for cancer patients, so
Speaker 1: one that has a lot of Medicare reimbursement UM. And
Speaker 1: in this case, you know, part of it is just
Speaker 1: that these healthcare systems are are willing to play hardball
Speaker 1: when they negotiate. They negotiate on behalf of the entire
Speaker 1: country in many cases, as opposed to kind of the
Speaker 1: piecemeal way we do that UM. And also the other
Speaker 1: thing is that there's more robust biosimilar competition in other
Speaker 1: countries have been quicker about um getting competition to the
Speaker 1: market for these expensive drugs. So we're hoping to sort
Speaker 1: of both import that more aggressive negotiation and the more
Speaker 1: aggressive competition for biologics. So of these markets, I want
Speaker 1: to go to something that you hinted at, which you
Speaker 1: said that if this gets implemented, and it's a very
Speaker 1: big if, and we could talk about it. So let's
Speaker 1: talk about it. Why is it such a sort of
Speaker 1: long shot? It sounds like you think so. Um. One
Speaker 1: thing that this is reminiscent of two people that have
Speaker 1: been following drug prices for a long time is a
Speaker 1: similar CMS demonstration by the Obama administration that also tried
Speaker 1: to move physician reapbursement to a flat fee and implement
Speaker 1: a variety of reference pricing, though though a different one
Speaker 1: in many ways, it was actually a milder proposal, but
Speaker 1: it was absolutely ripped to shreds by the farmland physician
Speaker 1: lobby and Republican lawmakers. This is really interesting, in other words,
Speaker 1: that they're taking a page from the Obama administration and
Speaker 1: crafting this proposal Republican Congress when we're not in favor
Speaker 1: of this. Now President Trump is proposing it wouldn't it
Speaker 1: potentially have a greater chance of getting through because there
Speaker 1: is more likely to be Republicans support for it given
Speaker 1: President Trump's leadership. Or do you think that that's still
Speaker 1: it's not enough to sort of get this pushed through.
Speaker 1: It's it's pretty unclear. It'll it'll take some time for
Speaker 1: that to play out, but so far, Um, you know,
Speaker 1: I'm thinking of a statement that that or and Hatch
Speaker 1: made the center from Utah it was to call it
Speaker 1: tepid would be would be exaggerating a little bit. Uh,
Speaker 1: you know. So it's it's just sort of an awkward
Speaker 1: and a little bit out of character proposal for Republicans
Speaker 1: to support, and time will tell whether kind of the
Speaker 1: Trump effect, um, you know, the kind of move towards
Speaker 1: the populist will lead them to support something that they
Speaker 1: they vehemently opposed. Another version of in the past, Max,
Speaker 1: the United States has no government panel that negotiates drug prices. Correct, Uh,
Speaker 1: that's correct. It's all left, for example, in the Medicare
Speaker 1: part D to private plans and in part be the
Speaker 1: part it's just kind of left up to the drug maker.
Speaker 1: Supposed there's not much negotiation at all. Does that make
Speaker 1: any sense. Um, you know, I mean the government is
Speaker 1: the bill. It's basically, you know, letting one of the
Speaker 1: world's largest purchasers of healthcare services and tossing one of
Speaker 1: the biggest benefits of that, which is a huge amount
Speaker 1: of negotiating power, tossing it by the wayside, and instead
Speaker 1: of using that um going by this very complicated backdoor
Speaker 1: um importation of other people's negotiating power for part of
Speaker 1: the market. So yet that would one would think that
Speaker 1: the more impactful proposal would be to just use that
Speaker 1: negotiating power, but that that appears to still be off
Speaker 1: the table. Thanks very much for being with us. Max
Speaker 1: Neeson is always an expert when it comes to all
Speaker 1: things healthcare. Bloomberg opinion columns covering the healthcare industry. You're
Speaker 1: listening Bloomberg Markets. We should just say that the SMP
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