WEBVTT - 2017's Dramatic Decline in Global Wine Production 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. 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 and L 0:00:20.840 --> 0:00:32.199 Podcast on Apple Podcasts, SoundCloud and Bloomberg dot com. Just 0:00:32.240 --> 0:00:35.760 to try to cover all the bases of various things 0:00:35.760 --> 0:00:37.680 that are happening in the world, you know, we want 0:00:37.680 --> 0:00:40.560 an update on the California wildfires. This is an area, 0:00:40.560 --> 0:00:43.640 of course of intense interest for the wine industry. And 0:00:43.680 --> 0:00:45.680 here to help us understand what's going on is Steven 0:00:45.840 --> 0:00:49.200 ron Kliev. He is the global beverages strategist and food 0:00:49.200 --> 0:00:53.640 and agrib business research and advisory group for Rabobank International, 0:00:53.720 --> 0:00:57.720 major Dutch lender lender to the agriculture industry. Stephen, thanks 0:00:57.760 --> 0:00:59.720 for coming into our studios here just give us an 0:00:59.760 --> 0:01:02.880 update on what you know right now about UH wine 0:01:03.000 --> 0:01:07.320 cultivation production. The harvest was almost complete, I believe in 0:01:07.800 --> 0:01:11.319 Napa and Sonoma. That's correct. That's correct. So it's it's 0:01:11.360 --> 0:01:14.320 still very much a fluid situation. And and you know, 0:01:14.319 --> 0:01:16.120 one of the questions that we get asked often is 0:01:16.160 --> 0:01:19.840 you know, what will this mean for overall California wine production? 0:01:19.920 --> 0:01:23.480 And and really, you know, the the short answer is 0:01:23.520 --> 0:01:26.680 probably not that much in terms of volume, right, because 0:01:26.920 --> 0:01:29.759 when you look at Napa and Sonoma, you're talking about 0:01:29.800 --> 0:01:33.920 ten percent of of overall California wine production, and as 0:01:33.959 --> 0:01:37.760 you said, probably eight of that was already harvested. So 0:01:37.800 --> 0:01:40.840 in terms of overall volume, probably doesn't mean much. In 0:01:40.920 --> 0:01:44.040 terms of disruption to the industry, it's enormous. It's it's 0:01:44.120 --> 0:01:48.080 it's enormous impact. And you know, first off, let's I 0:01:48.120 --> 0:01:50.280 think you would share in this. Let's send our condolences 0:01:50.360 --> 0:01:53.280 to the families of forty one people that that lost 0:01:53.320 --> 0:01:56.919 their lives, to the countless people that lost homes and businesses. 0:01:57.440 --> 0:02:01.840 It's it's a tremendous disruption to the industry, mostly because 0:02:01.880 --> 0:02:04.920 of what it's meant for for tourism and disruption to 0:02:05.000 --> 0:02:07.640 operations in one of the most prestigious regions in all 0:02:07.640 --> 0:02:11.519 of California, or the most prestigious regions in all of California. Well, 0:02:11.600 --> 0:02:15.200 let's also talk about future production, because just because there's 0:02:15.200 --> 0:02:19.360 been everything or mostly the vineyards had been already harvested 0:02:19.400 --> 0:02:22.640 doesn't mean that the damage couldn't continue into next year. 0:02:22.720 --> 0:02:25.480 Is there any talk about that? There is some concern, 0:02:25.560 --> 0:02:28.120 and and and there will be small pieces of vineyards 0:02:28.120 --> 0:02:32.560 that will see some some some um long term impact 0:02:32.600 --> 0:02:36.440 on production. But for the most parts, UH, vines tend 0:02:36.480 --> 0:02:39.520 to be fairly resilient. I think they'll they'll come back. 0:02:39.600 --> 0:02:42.040 The The big impact is going to be what does 0:02:42.120 --> 0:02:44.440 this mean for the two thousand and seventeen vintage, which 0:02:44.480 --> 0:02:48.079 was looking really good. Uh, there's concern. You know, most 0:02:48.160 --> 0:02:51.560 of what was out there had been harvested. The challenges 0:02:51.680 --> 0:02:55.000 that you know, it's the ten percent that hadn't been 0:02:55.040 --> 0:02:58.240 harvested is Cabernet sauvignon. And that's, you know, the most 0:02:58.320 --> 0:03:01.880 valuable when you think of the US wine industry, the 0:03:01.960 --> 0:03:06.359 US wine market, the typical consumer, the typical wine sold 0:03:06.400 --> 0:03:09.239 in the market sells for under eight dollars a bottle. 0:03:09.800 --> 0:03:13.560 Napa Valley Cabernet sauvignon sold direct to consumer averages around 0:03:13.600 --> 0:03:16.480 a hundred dollars a bottle. So it's this is the 0:03:16.520 --> 0:03:19.960 most premium wine grape in the market, and that's what's 0:03:20.000 --> 0:03:23.280 out there potentially being affected by smoke Taine. Okay, now 0:03:23.520 --> 0:03:25.480 this is that we were talking about California. Now I 0:03:25.480 --> 0:03:28.320 want to get your thoughts on France, Italy and Spain 0:03:28.480 --> 0:03:32.280 because they have not had a good year. That's been 0:03:32.320 --> 0:03:35.440 a you know when you talk about overall volume and 0:03:35.440 --> 0:03:37.400 people ask me what, you know, what are the what 0:03:37.520 --> 0:03:42.760 does the California wildfires mean for for consumption globally? Their 0:03:42.880 --> 0:03:46.720 volume not much. France, Italy, in Spain. That's really a 0:03:46.760 --> 0:03:50.320 horror terrible weather. Terrible weather. You had, you had frost 0:03:50.400 --> 0:03:53.480 in the spring, you had drought, you had extreme temperatures 0:03:53.480 --> 0:03:57.040 in the summer, hail, all of that, and and it 0:03:57.120 --> 0:03:59.160 really hit all three of them. We've seen years in 0:03:59.200 --> 0:04:01.720 the past when any single one of those might have 0:04:01.800 --> 0:04:04.680 had an off year, but never where you've seen all 0:04:04.760 --> 0:04:07.960 three of them down so much the same time. And 0:04:08.480 --> 0:04:11.200 you know, again you're going back to now the smallest 0:04:11.280 --> 0:04:14.800 vintage that we've seen in over fifty years. So this 0:04:14.880 --> 0:04:19.640 is you know, this will really weigh on wine consumption globally. 0:04:20.680 --> 0:04:23.080 We've seen, you know, with that, just to kind of 0:04:23.120 --> 0:04:26.159 put it in perspective, the decline that we've seen versus 0:04:26.240 --> 0:04:29.520 last year in production globally because of those three countries 0:04:29.560 --> 0:04:33.320 that make up half of all wine production. That decline 0:04:33.360 --> 0:04:38.800 represents something like ten of typical global wine consumption in 0:04:38.800 --> 0:04:41.960 a year. So something's going to have to give globally, 0:04:42.000 --> 0:04:45.720 and wine producers in the industry will look for levers 0:04:45.760 --> 0:04:48.320 to to try to mitigate the effects of that, but 0:04:48.800 --> 0:04:52.320 there will be impacts that will reverberate kind of globally 0:04:52.320 --> 0:04:54.919 and wine consumption because of it. Well, the events this 0:04:55.000 --> 0:04:57.960 year don't make me want to have don't reduce my 0:04:58.040 --> 0:04:59.840 desire to have a drake. It's not that in some 0:05:00.240 --> 0:05:03.040 is necessarily going to go down, just that prices could 0:05:03.080 --> 0:05:04.600 go up, right, I mean, could we see a real 0:05:04.720 --> 0:05:07.880 increase in prices, especially as millennials evidently love wine and 0:05:07.920 --> 0:05:12.080 are drinking lots of it. Absolutely, and thank god for millennials, right, um, 0:05:12.600 --> 0:05:17.240 thank god for wine. Let's forget the millennials. Come on, Yeah, 0:05:17.320 --> 0:05:19.680 I think you know some of the price increases is 0:05:19.760 --> 0:05:22.279 we've looked at it. I think we expect that, you know, 0:05:22.400 --> 0:05:25.039 much of the price increases will see in in the 0:05:25.200 --> 0:05:29.000 very low end segments of the European wine market, right 0:05:29.080 --> 0:05:32.240 the stuff that gets drunk for you know, a Euro 0:05:32.440 --> 0:05:34.839 two or a leader, that's where you'll see it. You 0:05:34.920 --> 0:05:38.000 will see some of the price increases passed on, you 0:05:38.040 --> 0:05:40.320 know in the in the higher end stuff like the 0:05:40.640 --> 0:05:42.719 Bordeaux and the rio Hus, but they have a little 0:05:42.760 --> 0:05:45.719 bit more of a cushion in terms of margin to 0:05:45.720 --> 0:05:48.800 to to take on that price increase just quickly as 0:05:48.839 --> 0:05:51.520 a big lender to the agriculture industry and to the 0:05:51.520 --> 0:05:56.239 wine industry. UM collateral is what grows on the vines, 0:05:56.400 --> 0:06:00.000 right and the land. Is it going to change blending pattern? 0:06:01.560 --> 0:06:03.760 I don't think so so far. When you when you 0:06:03.839 --> 0:06:08.880 think of the UM the wildfires, what it's done, it's 0:06:08.880 --> 0:06:13.760 been the it's been tremendous the impact. But it's it's 0:06:13.800 --> 0:06:16.760 really been When you look at the number of wineries 0:06:16.760 --> 0:06:20.799 and NAPA wineries, it was maybe fifteen that were affected. 0:06:20.920 --> 0:06:24.800 The vineyards are mostly okay. Uh. It's really more the 0:06:25.160 --> 0:06:29.160 destruction of interruption of operations, interruption of tourism, which has 0:06:29.240 --> 0:06:33.160 become really the driver of of route to market for 0:06:33.160 --> 0:06:35.719 for a lot of these wineries. Steven Nickley, thank you 0:06:35.760 --> 0:06:38.599 so much for joining US Global beverage strategist and food 0:06:38.880 --> 0:06:43.200 and aggrib business research and advisory for Robbo Bank International. 0:06:43.279 --> 0:06:57.800 He is their in house wine drinker. I want to 0:06:57.839 --> 0:07:00.559 turn our attention to one tech company that is sitting 0:07:00.680 --> 0:07:03.640 very pretty today. I'm talking about Twitter shares up fourteen 0:07:03.640 --> 0:07:07.440 and a half percent after releasing earnings that beat analysts 0:07:07.560 --> 0:07:11.320 estimates and showed some strength in their user rates. And 0:07:11.360 --> 0:07:13.720 I want to bring into tender we're all global Internet 0:07:13.760 --> 0:07:17.400 and consumer electronics analysts for Bloomberg Intelligence to talk about 0:07:17.760 --> 0:07:20.920 what kind of underpinned the success here that Twitter unveiled. 0:07:21.080 --> 0:07:24.360 So tender, just how good were the earnings today? Quote? 0:07:24.360 --> 0:07:27.320 Are the expectations are very low? Actually, and last quarter 0:07:27.480 --> 0:07:31.680 we saw a deceleration in some user momentum, but this 0:07:31.840 --> 0:07:34.520 quota they just showed that the momentum has come back. 0:07:34.960 --> 0:07:39.320 So a combination of continued cost cuts which happens helping profitability, 0:07:39.640 --> 0:07:42.640 they're making product changes and the numbers are showing that 0:07:43.120 --> 0:07:46.200 they seem to be working. Well, what isn't working? What 0:07:46.280 --> 0:07:49.560 needs to be fixed? So basically, if you look at 0:07:49.560 --> 0:07:51.480 the growth rate right now, it's still you know, we're 0:07:51.480 --> 0:07:54.520 talking about four percent um why hy growth rate and 0:07:54.640 --> 0:07:57.440 users and we have not seen a big secular shift 0:07:57.560 --> 0:08:00.320 like people coming back to Twitter at the same pace 0:08:00.400 --> 0:08:04.440 as peers are experiencing. So that's not working yet. But 0:08:05.240 --> 0:08:07.920 the product changes that they've done in terms of simplifying 0:08:07.960 --> 0:08:11.040 it and notification things like that is showing that these 0:08:11.120 --> 0:08:15.360 changes can drive engagement. What about profitability? What about advertising? 0:08:15.520 --> 0:08:18.920 They show that they were able to monetize more effectively 0:08:19.120 --> 0:08:22.080 the audience that it has. Now that's the big question, right, 0:08:22.120 --> 0:08:26.680 So first step was to sort of resurrective user growth, 0:08:26.720 --> 0:08:29.680 bring in more users on board, and then go convince advertisers. 0:08:29.680 --> 0:08:32.000 So they're doing a good job convincing investors right now. 0:08:32.040 --> 0:08:35.040 Now they have to use that momentum to convince advertisers 0:08:35.040 --> 0:08:37.679 to shift at budgets here. But as far as profitability 0:08:37.720 --> 0:08:40.640 is concerned, I mean, uh, they have done a good 0:08:40.720 --> 0:08:42.960 job in terms of like cost cuts and getting the 0:08:43.000 --> 0:08:45.360 margins up, so that should continue and it's working in 0:08:45.360 --> 0:08:48.600 their favor. Also, one thing to remember is the expectation 0:08:48.679 --> 0:08:51.520 for next year and next or next year are very low, 0:08:51.760 --> 0:08:55.360 you know, single digits, and they're coming from this seventeen 0:08:55.400 --> 0:08:59.959 comparison which is negative. So if they continue this moment 0:09:00.000 --> 0:09:02.680 and um, I think you know, at least in the 0:09:02.679 --> 0:09:06.040 phase of low expectations, they could they could see better 0:09:06.040 --> 0:09:08.920 results to tender. Can we can we just move a 0:09:08.960 --> 0:09:11.720 little bit to the future and get your thoughts on 0:09:11.800 --> 0:09:15.000 alphabet give us a preview of what what analysts are 0:09:15.000 --> 0:09:18.920 going to be looking for. Sure, so the underlying demand here, 0:09:18.920 --> 0:09:22.120 coming mostly from mobile search and YouTube, is pretty strong. 0:09:22.400 --> 0:09:25.080 Um In fact, we saw that last quarter as well. 0:09:25.120 --> 0:09:28.800 They recorded the high the highest growth and paid clicks. 0:09:29.480 --> 0:09:32.600 What would be interesting to see is the traffic acquisition cost, 0:09:32.640 --> 0:09:35.640 which made them sort of miss revenues a little last quarter. 0:09:36.240 --> 0:09:38.680 Uh So the cost that they paid to distribution partners 0:09:38.720 --> 0:09:42.840 including Apple, uh and more and more mobile search at 0:09:43.040 --> 0:09:46.640 basically contribution from mobile search increasing also increases the traffic 0:09:46.720 --> 0:09:50.560 acquisition cost. So the top line expectation is strong, the 0:09:50.640 --> 0:09:53.640 end market demand is strong. There will be a keen 0:09:53.720 --> 0:09:56.880 eye on how these costs are faring, especially in light 0:09:56.920 --> 0:09:59.200 of what we see what we saw last quarter. And 0:09:59.240 --> 0:10:01.560 not to give everyone whiplash, but I also want to 0:10:01.559 --> 0:10:04.400 get a look ahead to Amazon dot Com. They're reporting 0:10:04.440 --> 0:10:09.080 earnings it for one today PM Wall Street time, and 0:10:09.440 --> 0:10:12.199 I am very curious to see how much they're sacrificing 0:10:12.240 --> 0:10:14.480 their margins to gain a competitive edge. What are you 0:10:14.480 --> 0:10:17.559 looking for? Yeah, don't be surprised if they miss on 0:10:17.600 --> 0:10:21.199 the bottom line, I mean, expenses ramp is expected. They 0:10:21.200 --> 0:10:25.560 are increasing expense expenses on a WS as content spending, 0:10:25.600 --> 0:10:29.760 and with double Whole Foods acquisition integration, that should also 0:10:30.240 --> 0:10:32.640 go up. But if you look at the third quarter 0:10:33.000 --> 0:10:36.360 with Amazon Prime Day, with the contribution from Whole Foods, 0:10:36.360 --> 0:10:38.600 and continue growth in a WS, they should be fine. 0:10:38.920 --> 0:10:40.880 The guidance for next quarter is going to be very 0:10:40.920 --> 0:10:43.560 important from a revenue standpoint because we are kind of 0:10:43.559 --> 0:10:46.040 flying blind right now. It's the first full quarter of 0:10:46.200 --> 0:10:50.120 Whole Foods integration, so we need to see what sort 0:10:50.120 --> 0:10:54.319 of impact the price cuts and traffic increase has had 0:10:54.360 --> 0:10:57.400 on the net revenue for Amazon. But all in all, 0:10:57.520 --> 0:11:00.800 the end market demand is strong on all fronts to tender. 0:11:01.000 --> 0:11:04.160 If you pull out Amazon Web Services from Amazon, what 0:11:04.320 --> 0:11:09.200 kind of company is it? Uh, It's not a profitable company. 0:11:09.280 --> 0:11:12.959 So they have seen actually profit margins have been rising 0:11:13.080 --> 0:11:17.400 in North America, but beyond that it's lost making. So 0:11:17.640 --> 0:11:20.680 the idea here is to sort of read scale in 0:11:20.760 --> 0:11:24.559 their prime and FBA cycle internationally so they can replicate 0:11:24.559 --> 0:11:26.920 what they're doing here in North America. But it'll take time, 0:11:27.160 --> 0:11:29.880 and with the Whole Foods push, things are going to 0:11:30.000 --> 0:11:34.440 get even more volatile in terms of spending, So don't 0:11:34.440 --> 0:11:37.880 expect a double x a w S Amazon to uh, 0:11:37.920 --> 0:11:41.559 you know, secularly grow their profits, but it's expected because 0:11:41.600 --> 0:11:45.280 revenue growth has been pretty strong in light of these expenses. 0:11:45.520 --> 0:11:48.320 Any chance that investors will call for Amazon to spin 0:11:48.360 --> 0:11:52.280 off a WS into a separate business at the moment, 0:11:52.320 --> 0:11:55.240 I mean, right now a w S is the sort 0:11:55.280 --> 0:12:00.960 of the profit driver for the company, but still it's 0:12:01.200 --> 0:12:04.199 the country. There are many contributions, very low. Profit contribution 0:12:04.320 --> 0:12:07.160 is high. It actually plugs into a lot of other 0:12:07.200 --> 0:12:10.960 services that Amazon is providing, you know, your Alexa, your 0:12:11.040 --> 0:12:13.640 content spending that they're doing. So a WS is pretty 0:12:13.640 --> 0:12:16.760 plugged into the whole Amazon ecosystem, including logistics. So I 0:12:16.800 --> 0:12:19.760 don't see a reason why that should be done. To 0:12:19.800 --> 0:12:23.480 begin with J Tantra, I'm curious how much information will 0:12:23.559 --> 0:12:27.280 get on how their acquisition with Whole Food of Health 0:12:27.320 --> 0:12:29.960 Foods has been going, you know, and kind of where 0:12:30.000 --> 0:12:32.520 they're thinking, because I know that it's just completely destroyed 0:12:33.120 --> 0:12:35.439 the stocks of a lot of grocery chains out there. 0:12:35.480 --> 0:12:38.440 As people start to guard for whatever disruption they have planned, 0:12:38.480 --> 0:12:43.440 what do you expect to learn so they'll basically the 0:12:43.480 --> 0:12:46.920 revenue guidance should actually help us understand the run rate 0:12:46.960 --> 0:12:49.400 that Whole Foods was doing as a standalone company is 0:12:49.440 --> 0:12:53.280 an increasing or decreasing. Uh. If it's decreasing, it's probably 0:12:53.320 --> 0:12:56.319 coming from the price cuts that they're doing. If it's increasing, 0:12:56.360 --> 0:12:59.679 then the traffic that they're getting because of this acquisition 0:12:59.720 --> 0:13:03.000 is actual outpacing those price cuts. So I guess it's 0:13:03.080 --> 0:13:05.880 not the amount of impact, but the place of impact 0:13:05.920 --> 0:13:08.040 that's what that's what's going to be most important. So 0:13:08.080 --> 0:13:11.400 if they guide higher than what the street is expecting 0:13:11.480 --> 0:13:15.080 right now, I mean we could expect that negative effect 0:13:15.120 --> 0:13:19.199 on others to continue. Do you expect any details at 0:13:19.240 --> 0:13:22.520 all about moving into other businesses such as the prescription 0:13:22.640 --> 0:13:27.000 drug delivery business or indeed even the banking industry. Not much, 0:13:27.679 --> 0:13:31.720 just some color maybe, But it's super early days in 0:13:31.720 --> 0:13:33.520 in in on those regards, and we have to keep 0:13:33.559 --> 0:13:35.840 in mind the Whole food acquisition is start getting a 0:13:36.080 --> 0:13:38.880 eight hundred billions all plus market, and they have the 0:13:39.000 --> 0:13:42.360 last mild delivery problem still to be solved and optimized. 0:13:42.360 --> 0:13:46.280 So until those things are uh done, I I don't see, 0:13:46.360 --> 0:13:49.600 like you know, any color on a big revenue contribution 0:13:50.080 --> 0:13:54.160 coming from you know, any of these other experimentation face. 0:13:54.240 --> 0:13:56.160 I think that they're doing right now, so it's a 0:13:56.200 --> 0:13:59.040 long game that they're playing on those fronts. I'm wondering 0:13:59.080 --> 0:14:03.280 about regular Tory pressure, the idea that an increasing number 0:14:03.320 --> 0:14:05.920 of regulators, both in Europe and the US are starting 0:14:05.960 --> 0:14:10.280 to question, uh, sort of the incredible size and pricing 0:14:10.320 --> 0:14:13.240 power of Amazon, and you know, do you expect them 0:14:13.280 --> 0:14:15.920 to address that or at least nod to that as 0:14:15.960 --> 0:14:20.120 a potential risk. It is a potential risk, and especially 0:14:20.120 --> 0:14:23.520 in eu've we've been seeing uh more and more of 0:14:23.600 --> 0:14:26.640 those examples. But one thing to keep in mind is 0:14:26.680 --> 0:14:29.680 with Amazon, a big chunk of their revenues driven by 0:14:29.720 --> 0:14:33.600 third party sale services, third party sellers on the platform, 0:14:33.680 --> 0:14:36.480 so it's not Amazon selling directly, it's you know, other 0:14:36.560 --> 0:14:41.840 businesses selling through Amazon. So that sort of like dilutes 0:14:42.040 --> 0:14:46.200 the monopolistic sort of argument a bit. But as far 0:14:46.240 --> 0:14:50.080 as examples you have seen in EU, uh, those risks 0:14:50.080 --> 0:14:52.960 will linger not just for like the next couple of quarters, 0:14:52.960 --> 0:14:55.040 but the next couple of years, given you know how 0:14:55.080 --> 0:14:57.880 fast they're growing, and um, the end market still is 0:14:57.960 --> 0:15:02.360 much much bigger. But that will be an ongoing sort 0:15:02.400 --> 0:15:06.280 of argument, if you may. We are awaiting details and 0:15:06.320 --> 0:15:09.560 the comments from House Speaker Paul Ryan having to do 0:15:09.680 --> 0:15:13.480 with the budget resolution that was just recently past, will 0:15:13.520 --> 0:15:16.000 be bringing that to you live. We're speaking with cha 0:15:16.080 --> 0:15:19.040 Tender Warrel. He is our global Internet and consumer electronics 0:15:19.040 --> 0:15:22.000 analysts for Bloomberg Intelligence. He's joining us from our Bloomberg 0:15:22.040 --> 0:15:26.160 nine sixties studio in San Francisco. Tender, you know, I 0:15:26.480 --> 0:15:28.480 keep thinking about what you just said having to do 0:15:28.520 --> 0:15:31.640 with these third party sellers that use Amazon basically for 0:15:31.680 --> 0:15:36.160 all of fulfillment UH needs. But aren't states I mean 0:15:36.200 --> 0:15:38.440 I know that for example, of state in Massachusetts has 0:15:38.520 --> 0:15:42.920 asked for a list of those third party sellers because 0:15:43.320 --> 0:15:46.440 right now they're not paying sales tax. Yeah, so they 0:15:46.440 --> 0:15:49.600 have left it on the sellers the onus of collecting 0:15:49.640 --> 0:15:51.720 the sales tax when it comes to third parties. And 0:15:51.840 --> 0:15:55.080 you know very state by states, so there there are 0:15:55.240 --> 0:15:59.200 some states where you're seeing more scrutiny on that end. 0:15:59.520 --> 0:16:02.200 But in the end, if there is a widespread change 0:16:02.240 --> 0:16:06.360 in terms of tax collection, I think it will basically 0:16:06.440 --> 0:16:09.400 being normalized by the volume growth that these third party 0:16:09.440 --> 0:16:11.920 sellers are seeing. Because you have to keep in mind 0:16:11.960 --> 0:16:15.440 that when third party sellers go on FBA program, they 0:16:15.440 --> 0:16:18.960 get exposed to prime members and Prime members are continuing 0:16:18.960 --> 0:16:21.280 to increase, not just in numbers, but the amount of 0:16:21.280 --> 0:16:25.600 money that they're spending on on on Amazon. So basically 0:16:25.840 --> 0:16:29.680 that exposure, that volume that they're getting should help them 0:16:29.680 --> 0:16:33.400 offset in an instance where uh, the sales tax need 0:16:33.480 --> 0:16:36.240 to be enforced. Just sort of zooming out a little 0:16:36.240 --> 0:16:39.680 bit because today is such a big fang tech stock 0:16:39.840 --> 0:16:43.440 day with you know, both Google and or Alphabet I'm sorry, 0:16:43.800 --> 0:16:47.320 and Amazon reporting after earning today and we got Twitter's already. 0:16:47.560 --> 0:16:50.000 I'm wondering what you're saying. With Twitter, there were really 0:16:50.040 --> 0:16:54.640 low expectations going into this and they exceeded them. Expectations 0:16:54.640 --> 0:16:59.200 are still pretty high for Alphabet and Amazon. That do 0:16:59.240 --> 0:17:01.640 you think will do you think that will create a 0:17:01.720 --> 0:17:05.880 negative surprise? Uh, potential that the market's not prepared for 0:17:06.800 --> 0:17:09.760 the So we have to take both the cases separately. 0:17:09.800 --> 0:17:13.880 So with Alphabet, negative surprise potential could come from these 0:17:13.920 --> 0:17:17.560 traffic acquisition costs and at pricing that we talked about, 0:17:18.000 --> 0:17:21.760 because as more AD dollars come from mobile, they have 0:17:21.880 --> 0:17:25.640 to pay the distribution network to get that and that 0:17:26.200 --> 0:17:29.679 did sort of cause us per last time. If you remember, 0:17:29.720 --> 0:17:32.280 there was a confusion when Google reported in terms of 0:17:32.320 --> 0:17:34.680 what they missed and what they what they beat because 0:17:34.680 --> 0:17:37.480 of this tax, So that issue could surface again with 0:17:37.640 --> 0:17:42.400 Alphabet with Amazon. Like I said, with Whole Foods contribution, 0:17:43.240 --> 0:17:45.800 V are sort of flying in the dark here in 0:17:45.880 --> 0:17:48.119 terms of what the contribution is going to be. So 0:17:48.160 --> 0:17:51.000 any negative surprise in terms of you know, the expectation 0:17:51.119 --> 0:17:53.320 was Whole food will maintain its revenue run rate that 0:17:53.400 --> 0:17:56.720 it had before Amazon bought it. If that expectation is 0:17:56.800 --> 0:17:59.560 much lower, then you could see some surprise on the downside. 0:18:00.080 --> 0:18:02.080 Thank you so much for joining us to Tendra. We're 0:18:02.119 --> 0:18:20.160 all global Internet and consumer electronics analysts for Bloomberg Intelligence. Well, 0:18:20.200 --> 0:18:22.680 we'd like to learn more about the European Central Bank 0:18:22.760 --> 0:18:24.840 as they seem to have decided to slow the pace 0:18:24.920 --> 0:18:29.760 of their quantitative easing program, but they are extending the 0:18:29.800 --> 0:18:32.440 program by nine months here tell us more in detail. 0:18:32.640 --> 0:18:37.840 Is maxim A Spahi, our Euro Area economist for Bloomberg Intelligence, 0:18:37.880 --> 0:18:41.040 and you can follow maxim A at on Twitter at 0:18:41.400 --> 0:18:45.200 m x s b A. Alright, m x s b A, 0:18:45.320 --> 0:18:48.680 tell me about the European Essential Bank and what is 0:18:48.720 --> 0:18:53.480 this plan about extending uh the quantitative easing program? Yes, 0:18:53.520 --> 0:18:57.040 good morning from from London. So the ECB decided today 0:18:57.080 --> 0:18:59.359 to go with the consensus. So I mean that means 0:18:59.400 --> 0:19:02.480 they extended a quee program by nine months, but they 0:19:02.560 --> 0:19:07.439 cut the monthly pace of purchases from sixty to surrey 0:19:07.520 --> 0:19:11.160 starting in January. Most importantly is that drag Is said 0:19:11.240 --> 0:19:14.160 during the press conference that there won't be no sudden 0:19:14.280 --> 0:19:18.320 stop to the quee program, so he basically hinted at 0:19:18.440 --> 0:19:21.720 further extension of the quee program. He basically said that 0:19:21.800 --> 0:19:24.440 September was probably not going to be the end date 0:19:24.920 --> 0:19:27.080 of the quee program. And that's in itself as a 0:19:27.160 --> 0:19:30.560 very dolvish statement. Well, Maximi, I was looking at some 0:19:30.680 --> 0:19:34.560 analyst notes after the announcement by the ECB earlier today, 0:19:34.560 --> 0:19:37.040 and they were saying, you know, yes, it's thirty billion 0:19:37.240 --> 0:19:40.600 euros of as purchase as the purchases, but it's actually 0:19:40.640 --> 0:19:42.840 gonna be forty five billion euros because they're going to 0:19:42.880 --> 0:19:46.359 be reinvesting the proceeds of notes that they currently have. 0:19:47.000 --> 0:19:48.800 Just to give you a sense of how this has 0:19:48.840 --> 0:19:52.760 been received, the two year German bond yield plummeted. It 0:19:52.840 --> 0:19:56.920 went back down to negative uh is the point seven 0:19:57.000 --> 0:20:00.280 to five percent. I mean, this just means that it's tape. 0:20:00.280 --> 0:20:03.960 It it's gonna be que forever in the European Union. Now, yeah, 0:20:04.000 --> 0:20:06.439 the that's the whole debate about the stock and the 0:20:06.480 --> 0:20:10.760 flow of Quie and Mayo. Draggie said very specifically today 0:20:10.800 --> 0:20:13.199 they actually published a press release on on the details 0:20:13.240 --> 0:20:16.119 of this, that they were going to reinvest all the 0:20:16.440 --> 0:20:19.080 bonds that come to maturity and so basically that they 0:20:19.080 --> 0:20:20.720 were going to be in the markets for a long 0:20:20.800 --> 0:20:23.840 time even after stopping the purchase. You hasn't mentioned it, 0:20:23.920 --> 0:20:25.480 but one day they will have to stop. We think 0:20:25.520 --> 0:20:27.679 it's going to be in two thousand nineteen, early two 0:20:27.680 --> 0:20:31.280 thousand nineteen. After that, the huge stock of purchases will 0:20:31.320 --> 0:20:34.560 be reinvested, just like the FED did for a long time. Yes, 0:20:35.160 --> 0:20:39.000 is there any sense of when the European Central Bank 0:20:39.200 --> 0:20:42.239 may start to raise the deposit rate or is that 0:20:42.320 --> 0:20:45.520 just completely off the table at this point. So it's 0:20:45.560 --> 0:20:47.679 it's it's not gonna happen anytime soon. But if you 0:20:47.800 --> 0:20:51.680 add up the nine months extension of today, the fact 0:20:51.720 --> 0:20:53.160 that he said there was going to be no sense 0:20:53.160 --> 0:20:55.840 stop that, so that qu is gonna be it's gonna 0:20:55.880 --> 0:20:59.240 be extended after September. And if you also had to 0:20:59.320 --> 0:21:02.520 that the n change forward guidance, who still promises that 0:21:02.680 --> 0:21:05.280 the rates are gonna stay at the current levels for 0:21:05.320 --> 0:21:08.080 an extended period of time and I quote well past 0:21:08.160 --> 0:21:10.960 the curierizon. If you add everything up, that means they're 0:21:10.960 --> 0:21:13.760 gonna have to wait until two thousand nineteen, we think 0:21:13.960 --> 0:21:17.480 end two thousand nineteen to start hiking rates again. And 0:21:17.480 --> 0:21:19.119 if you think about it, Mario drag is going to 0:21:19.240 --> 0:21:21.800 leave the e CB in October two thousand nineteen. So 0:21:21.840 --> 0:21:24.080 there's actually a high chance now that is going to 0:21:24.240 --> 0:21:27.120 leave after eight years at the ECB head without ever 0:21:27.560 --> 0:21:33.320 having to hike rates. Maxim ay the the Euro Area, 0:21:33.400 --> 0:21:37.840 the Eurozone economy is not homogeneous, and you have the 0:21:37.960 --> 0:21:41.080 enviable task of being the Euro Area economist. So I'm 0:21:41.080 --> 0:21:45.680 wondering if you could describe which countries and which economies 0:21:45.720 --> 0:21:48.439 have benefited the most from the actions of the e 0:21:48.560 --> 0:21:51.120 c B. Well, if you look just at the pure 0:21:51.119 --> 0:21:55.679 composition of QUI um they QUI is mostly oriented towards 0:21:55.680 --> 0:21:58.399 Germany because that's a large economy, and the e c 0:21:58.560 --> 0:22:01.639 B implements the purchases according to its capital keys. That 0:22:01.680 --> 0:22:04.440 means how much the weight of each country in the economy. 0:22:04.800 --> 0:22:08.359 So around purchase are going to Germany, So Germany is 0:22:08.359 --> 0:22:11.080 probably the most the one that benefits the most from it. 0:22:11.400 --> 0:22:12.960 On the other hand, you can also look at what's 0:22:12.960 --> 0:22:14.840 going on in Spain and its Italy, and the fact 0:22:14.880 --> 0:22:17.879 that the growth rate is accelerating in these countries, that 0:22:17.960 --> 0:22:21.640 unemployment is going down, that financial conditions allow less tight 0:22:21.680 --> 0:22:25.199 than before. That's all to put on the e CBS credits. 0:22:25.200 --> 0:22:28.199 So everybody is benefiting from it, just not to the 0:22:28.200 --> 0:22:30.760 same extent. You know, I find it interesting that the 0:22:30.840 --> 0:22:34.160 yield curve in Germany is steepening on this. In other words, 0:22:34.160 --> 0:22:38.080 people expect that this will allow inflation to pick up 0:22:38.119 --> 0:22:42.440 over the longer term much more than it would otherwise. 0:22:42.720 --> 0:22:45.159 Are people pretty abolishtion this and are people saying, you 0:22:45.200 --> 0:22:47.439 know what, this is actually going to bleed into the 0:22:47.480 --> 0:22:50.560 banks and provide a better backdrop for them. Or are 0:22:50.640 --> 0:22:53.680 people raising alarm and saying that the longer this goes on, 0:22:54.280 --> 0:22:56.600