1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg P and 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 --> 00:00:31,720 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Quaal 7 00:00:31,800 --> 00:00:35,559 Speaker 1: calm Broadcom. Will they get together? How much will this 8 00:00:35,720 --> 00:00:39,200 Speaker 1: deal cost? And will it benefit investors? Let's find out 9 00:00:39,240 --> 00:00:42,360 Speaker 1: more from a Trina Aston. He is our senior semiconductor 10 00:00:42,360 --> 00:00:46,320 Speaker 1: and hardware analyst for Bloomberg Intelligence. Also joining us is 11 00:00:46,360 --> 00:00:51,000 Speaker 1: Brooks Sutherland, our mergers and acquisitions columnist for Bloomberg gad Fly. 12 00:00:51,159 --> 00:00:53,640 Speaker 1: Thank you both for being here on Maybe you can 13 00:00:54,000 --> 00:00:57,520 Speaker 1: start by just explaining why this might be a good 14 00:00:57,600 --> 00:01:02,120 Speaker 1: deal for Broadcom. Look, I mean this creates a powerhouse, 15 00:01:02,320 --> 00:01:07,280 Speaker 1: create an alto Intel, if you will. And Broadcom's um 16 00:01:07,600 --> 00:01:10,720 Speaker 1: claim to the semiconductor industry comes from the fact that 17 00:01:10,760 --> 00:01:14,240 Speaker 1: it is a phenomenal roller up of companies. It's done 18 00:01:14,280 --> 00:01:19,200 Speaker 1: this pretty extensively since its existence, and in in doing 19 00:01:19,600 --> 00:01:24,640 Speaker 1: Broadcom first acquiring Brocade first, Avago buying Broadcom then the 20 00:01:24,720 --> 00:01:29,360 Speaker 1: renaming themselves to Broadcom, buying Brocade, and then potentially buying Qualcom, 21 00:01:29,360 --> 00:01:31,399 Speaker 1: which is in and of itself. In the process of 22 00:01:31,400 --> 00:01:35,600 Speaker 1: buying n XP will assemble a company that is very 23 00:01:35,680 --> 00:01:37,920 Speaker 1: very strong in the data center and all your routers, 24 00:01:37,959 --> 00:01:41,560 Speaker 1: which is all your networking gear. Number one. It will 25 00:01:41,600 --> 00:01:45,440 Speaker 1: be incredibly powerful in your phone, both from a modem 26 00:01:45,480 --> 00:01:48,720 Speaker 1: and processor perspective as well as the RF chip. And 27 00:01:48,840 --> 00:01:51,960 Speaker 1: if they're able to swing an XP into that equation, 28 00:01:52,360 --> 00:01:57,120 Speaker 1: they will own your auto two, so, so and and in. 29 00:01:57,320 --> 00:02:00,080 Speaker 1: One of the things that comes as a byproduct of 30 00:02:00,240 --> 00:02:05,760 Speaker 1: UH Qualcomm's management focus in this equation is that they 31 00:02:05,840 --> 00:02:09,840 Speaker 1: are an incredible leverager of costs. UH there a s 32 00:02:09,880 --> 00:02:12,160 Speaker 1: g n A is a percentage of sales is actually 33 00:02:12,240 --> 00:02:16,440 Speaker 1: incredibly low in the semiconductor industry. UM, they'll have a 34 00:02:16,480 --> 00:02:19,960 Speaker 1: tremendous amount of scale and reduced manufacturing costs. So from 35 00:02:20,040 --> 00:02:23,880 Speaker 1: a whole host of angles, this makes a lot of sense. 36 00:02:23,960 --> 00:02:27,040 Speaker 1: Now if you look at Qualcom, the target entity, it's 37 00:02:27,080 --> 00:02:30,280 Speaker 1: got some drama going on with its intellectual property assets 38 00:02:30,400 --> 00:02:33,960 Speaker 1: and it's embroiled with in litigation with with with Apple. 39 00:02:35,160 --> 00:02:39,240 Speaker 1: Broad Broadcom is much much more friendly with Apple so 40 00:02:39,320 --> 00:02:46,679 Speaker 1: potentially they come in, they readjust this relationship, reassess where 41 00:02:46,720 --> 00:02:50,800 Speaker 1: royalty rates are, and UM start a new relationship going forward. 42 00:02:50,840 --> 00:02:53,800 Speaker 1: I think that that is doable. UM. If they're not 43 00:02:54,200 --> 00:02:56,960 Speaker 1: willing to do that, you can potentially corral the i 44 00:02:57,080 --> 00:03:01,480 Speaker 1: P assets in a in a particular UH basket, potentially 45 00:03:01,520 --> 00:03:04,600 Speaker 1: sell it off or potentially diminish its value, move all 46 00:03:04,639 --> 00:03:06,720 Speaker 1: the IP over to the chip division. There's a whole 47 00:03:06,760 --> 00:03:09,600 Speaker 1: host of things you can do here, UM, and I 48 00:03:09,639 --> 00:03:13,960 Speaker 1: think it makes for a very very compelling semiconductor company. 49 00:03:14,000 --> 00:03:17,800 Speaker 1: All right, Son, you seem to be pretty optimistic about 50 00:03:17,919 --> 00:03:20,960 Speaker 1: this whole deal and sort of the rationale behind it. Brooke, 51 00:03:21,040 --> 00:03:24,320 Speaker 1: come on in here, because you express some skepticism in 52 00:03:24,360 --> 00:03:27,720 Speaker 1: a recent column saying that u Qualcom is not such 53 00:03:27,760 --> 00:03:31,120 Speaker 1: an obvious target, and there are so many moving pieces 54 00:03:31,120 --> 00:03:33,320 Speaker 1: here that all have to fit together perfectly. Given the 55 00:03:33,360 --> 00:03:36,000 Speaker 1: fact that the n XP purchase hasn't been completed yet 56 00:03:36,440 --> 00:03:38,480 Speaker 1: and because of all these mergers, can you just walk 57 00:03:38,560 --> 00:03:40,840 Speaker 1: us through your your thinking here? Yeah? I think that 58 00:03:40,880 --> 00:03:42,920 Speaker 1: would be You know, my biggest sort of pushback is 59 00:03:42,960 --> 00:03:45,360 Speaker 1: that you are piling you know, I think at this 60 00:03:45,400 --> 00:03:48,320 Speaker 1: point six big deals on top of each other if 61 00:03:48,320 --> 00:03:50,600 Speaker 1: this goes ahead, if you include you know, the purchases 62 00:03:50,640 --> 00:03:53,560 Speaker 1: and a n XP made before clock n XP, or 63 00:03:53,600 --> 00:03:57,240 Speaker 1: the purchases that Brocade Maine. I mean, so I you know, 64 00:03:57,320 --> 00:03:59,800 Speaker 1: to and on the point, I think that Broadcom CEO 65 00:04:00,040 --> 00:04:03,000 Speaker 1: Hawk Tan is known as this good operator and this 66 00:04:03,120 --> 00:04:06,160 Speaker 1: sort of skilled master of rolling up deals. But we're 67 00:04:06,160 --> 00:04:09,360 Speaker 1: talking about multitudes of what he's done in the past. 68 00:04:09,440 --> 00:04:12,440 Speaker 1: And any time you talk about a mega merger, there's 69 00:04:12,520 --> 00:04:15,839 Speaker 1: integration risk there. If you start piling them on top 70 00:04:15,880 --> 00:04:18,400 Speaker 1: of each other, it just makes everything more complicated. And 71 00:04:18,440 --> 00:04:22,279 Speaker 1: it's not like these companies are just humming along perfectly 72 00:04:22,279 --> 00:04:24,080 Speaker 1: at this point. You know, I think there are probably 73 00:04:24,120 --> 00:04:27,719 Speaker 1: opportunities to reassess the Apple situation or to you know, 74 00:04:27,800 --> 00:04:30,880 Speaker 1: sort of rethink the configuration of the businesses, but that 75 00:04:31,040 --> 00:04:33,159 Speaker 1: is also going to be complicated, and it does sort 76 00:04:33,200 --> 00:04:36,479 Speaker 1: of open up maybe the potential for increased competition from 77 00:04:36,480 --> 00:04:39,720 Speaker 1: some of these companies rivals um and you know, I 78 00:04:39,760 --> 00:04:42,280 Speaker 1: think sort of just raises the question of ultimately what 79 00:04:42,480 --> 00:04:44,560 Speaker 1: this company is going to look like and how well 80 00:04:44,600 --> 00:04:46,400 Speaker 1: it's going to be able to What about the debt, 81 00:04:46,480 --> 00:04:48,440 Speaker 1: I mean, how is it going to pay for it? Well, 82 00:04:48,480 --> 00:04:50,080 Speaker 1: that's The other thing is that you you know, the 83 00:04:50,160 --> 00:04:52,760 Speaker 1: debt load after all of these deals. Their companies are 84 00:04:52,800 --> 00:04:56,080 Speaker 1: sitting on a pretty hefty burden here. And I think 85 00:04:56,120 --> 00:04:58,599 Speaker 1: you know that that is another factor here that you 86 00:04:58,640 --> 00:05:01,479 Speaker 1: have to think about, is that what is the motivation 87 00:05:01,560 --> 00:05:03,679 Speaker 1: for all of these deals. I mean, they're not doing 88 00:05:03,720 --> 00:05:06,000 Speaker 1: it because they're growing really well on their own. They're 89 00:05:06,040 --> 00:05:08,599 Speaker 1: doing that because this is the opportunity for them to 90 00:05:08,640 --> 00:05:11,280 Speaker 1: get scale and to sort of build growth through M 91 00:05:11,320 --> 00:05:13,320 Speaker 1: and A. And I think you know, anytime you sort 92 00:05:13,360 --> 00:05:16,799 Speaker 1: of see that happening in the companies simultaneously piling on debt, 93 00:05:17,320 --> 00:05:19,080 Speaker 1: I you know, I think that should give you pause. 94 00:05:19,880 --> 00:05:21,560 Speaker 1: You know, I'm actually going to push back on that 95 00:05:21,640 --> 00:05:24,080 Speaker 1: for a whole host of reasons. One is that if 96 00:05:24,080 --> 00:05:26,719 Speaker 1: you look at the revenue profiles on on all of 97 00:05:26,720 --> 00:05:31,000 Speaker 1: these companies, there's very little overlap. If you look at Broadcom, Brocade, 98 00:05:31,240 --> 00:05:36,719 Speaker 1: n XP, Qualcom, the overlap the adjacencies are are between 99 00:05:36,720 --> 00:05:40,400 Speaker 1: Broadcomm and Brocade are pretty significant. Between Broadcom and Qualcom 100 00:05:40,400 --> 00:05:43,840 Speaker 1: are pretty significant. But there's no reason Qualcom is buying 101 00:05:43,960 --> 00:05:46,760 Speaker 1: n xp s because it wants to diversify away from handsets. 102 00:05:46,760 --> 00:05:48,560 Speaker 1: And how far do you have to get away. You 103 00:05:48,560 --> 00:05:51,520 Speaker 1: can go go to autos. The other part of it is, 104 00:05:51,600 --> 00:05:54,280 Speaker 1: for the last five years we've been writing about semiconductors 105 00:05:54,360 --> 00:05:56,599 Speaker 1: being the new industrials and the fact that they are 106 00:05:56,760 --> 00:06:01,200 Speaker 1: cash rich and debt poor. And you know, debt has 107 00:06:01,279 --> 00:06:05,080 Speaker 1: never been a good word in the technology industry. And 108 00:06:05,360 --> 00:06:09,840 Speaker 1: debt is cheap, right, and there is capital term set 109 00:06:09,880 --> 00:06:13,960 Speaker 1: stake here, and an optimal mix of debt is is 110 00:06:14,080 --> 00:06:18,480 Speaker 1: good UM investor friendly nights Brook, what do you think 111 00:06:19,400 --> 00:06:22,159 Speaker 1: at a response? No, I mean, I think, you know, 112 00:06:22,839 --> 00:06:25,039 Speaker 1: there's there's two sides of this coin, but I just think, 113 00:06:25,040 --> 00:06:27,080 Speaker 1: you know, having seen a lot of these big deals, 114 00:06:27,120 --> 00:06:30,200 Speaker 1: and you know, I understand that the semi conductor industry 115 00:06:30,200 --> 00:06:34,080 Speaker 1: is sort of adapting to this new sort of financial profile, 116 00:06:34,200 --> 00:06:38,160 Speaker 1: but you know that is debt and integration risk is 117 00:06:38,160 --> 00:06:39,880 Speaker 1: is still there, and so I think we'll just sort 118 00:06:39,880 --> 00:06:42,280 Speaker 1: of see how this plays out. But there certainly are 119 00:06:42,600 --> 00:06:45,920 Speaker 1: risks here. It's definitely gonna be interesting to watch, especially 120 00:06:45,920 --> 00:06:49,719 Speaker 1: because Upqualcom is saying that they're not going to accept it, 121 00:06:49,839 --> 00:06:51,839 Speaker 1: so Broadcom is going to probably have to wage some 122 00:06:51,920 --> 00:06:53,760 Speaker 1: kind of proxy war. So it should be interesting to 123 00:06:53,800 --> 00:06:56,400 Speaker 1: see how this plays out. A non screen of US 124 00:06:56,440 --> 00:06:59,760 Speaker 1: and senior semi conductor and hardware analyst for Bloomberg Intelligence. 125 00:06:59,800 --> 00:07:02,200 Speaker 1: Our thanks to you and our thanks to you. Brook Sutherland, 126 00:07:02,279 --> 00:07:06,800 Speaker 1: Mergers and Acquisitions columnist for Bloomberg Gadfly Bloomberg dot com 127 00:07:06,920 --> 00:07:09,080 Speaker 1: slash goad Fly. You can find all the columns there. 128 00:07:09,080 --> 00:07:10,960 Speaker 1: And you know both of you raise really good points. 129 00:07:10,960 --> 00:07:12,440 Speaker 1: I mean, I think it's going to be interesting to 130 00:07:12,440 --> 00:07:28,920 Speaker 1: watch the biggest tech deal on record. Shares of Michael 131 00:07:28,960 --> 00:07:32,120 Speaker 1: Course Holdings they're up more than thirteen and a half percent. 132 00:07:32,200 --> 00:07:36,240 Speaker 1: This comes after the company handily beats earnings estimates in 133 00:07:36,320 --> 00:07:40,440 Speaker 1: the fiscal second quarter. Despite the drop in the same 134 00:07:40,480 --> 00:07:43,960 Speaker 1: store sales, they posted better than expected results. The retailer 135 00:07:44,000 --> 00:07:47,120 Speaker 1: preparing a yes for that all important holiday shopping season. 136 00:07:47,360 --> 00:07:49,400 Speaker 1: And here to help us understand what's going on is 137 00:07:49,480 --> 00:07:51,720 Speaker 1: the all important Craig Johnson. He is the president of 138 00:07:51,760 --> 00:07:54,720 Speaker 1: Customer Growth Partners. They're based in New Canaan, Connecticut, and 139 00:07:54,800 --> 00:07:56,640 Speaker 1: he joins us now. Craig, thank you very much for 140 00:07:56,680 --> 00:08:00,520 Speaker 1: being with us. Tell us what do you see as 141 00:08:00,600 --> 00:08:04,560 Speaker 1: the positive and negative aspects of what Michael Core's Holdings 142 00:08:04,640 --> 00:08:07,960 Speaker 1: is doing right now? Uh? Well, first, good morning him. 143 00:08:08,120 --> 00:08:10,960 Speaker 1: Great to be with you and Lisa. Um. Of course, 144 00:08:11,000 --> 00:08:13,160 Speaker 1: of course we've been noticing, and you know, we have 145 00:08:13,480 --> 00:08:16,200 Speaker 1: a team of eighteen people across the country's another person 146 00:08:16,280 --> 00:08:19,320 Speaker 1: in London, so we're in the stores every week, and 147 00:08:19,360 --> 00:08:23,360 Speaker 1: we've seen kind of a step by step recovery there. 148 00:08:24,160 --> 00:08:27,400 Speaker 1: Um that you know, it's not quite in the positive territories, 149 00:08:27,400 --> 00:08:29,200 Speaker 1: but it had been mid to high single digits and 150 00:08:29,200 --> 00:08:32,160 Speaker 1: the guided to negative mid single digits. Now the only 151 00:08:32,200 --> 00:08:35,640 Speaker 1: one point a percent negative. And um, we think there's 152 00:08:35,679 --> 00:08:39,600 Speaker 1: a company that slowly, slowly returning to health after some 153 00:08:39,800 --> 00:08:43,760 Speaker 1: very severe damage to the brand by via over distribution, 154 00:08:44,320 --> 00:08:46,880 Speaker 1: over promotion and so forth, and by going back to 155 00:08:46,920 --> 00:08:51,520 Speaker 1: the basics of its core DNA style and fashion skills. 156 00:08:51,679 --> 00:08:54,360 Speaker 1: We think it's on the way back. So those are 157 00:08:54,360 --> 00:08:57,280 Speaker 1: the major factors. Uh, there's you know a couple of 158 00:08:57,280 --> 00:08:59,920 Speaker 1: the factors. You know that the watches there are strong 159 00:09:00,040 --> 00:09:01,720 Speaker 1: and you know, watches have been in the ditch for 160 00:09:01,760 --> 00:09:03,880 Speaker 1: a couple of years now. The watches are having a 161 00:09:03,960 --> 00:09:07,640 Speaker 1: nice comeback this holiday and that's another factor as well. 162 00:09:08,200 --> 00:09:11,200 Speaker 1: So Craig, can you sort of expand out based on 163 00:09:11,640 --> 00:09:15,360 Speaker 1: the success that Michael course has had and turning itself around, 164 00:09:15,640 --> 00:09:18,280 Speaker 1: can you extra polate out who you expect to do 165 00:09:18,400 --> 00:09:21,320 Speaker 1: well this holiday season coming up and who you don't 166 00:09:21,640 --> 00:09:25,240 Speaker 1: based on who has made an effort at changing with 167 00:09:25,280 --> 00:09:29,520 Speaker 1: the times. Well, the I want to be carefully you 168 00:09:29,559 --> 00:09:33,280 Speaker 1: don't want to extrapolate too much off of uh, you know, 169 00:09:33,520 --> 00:09:37,040 Speaker 1: you know one company that has had let's just say, 170 00:09:37,040 --> 00:09:38,959 Speaker 1: some ups and downs and you know, they've been pretty 171 00:09:39,040 --> 00:09:40,840 Speaker 1: challenged for the last year or two. But again on 172 00:09:40,880 --> 00:09:44,599 Speaker 1: the on the road to recovery, we say, right now, um, 173 00:09:44,640 --> 00:09:48,720 Speaker 1: but if if you look across the spectrum some of 174 00:09:48,720 --> 00:09:50,800 Speaker 1: the players are that have been challenged, you're going to 175 00:09:50,880 --> 00:09:54,120 Speaker 1: continue to be challenged. Irrespect you of course performance and 176 00:09:54,120 --> 00:09:56,960 Speaker 1: I particularly mean the department stress sector there and that 177 00:09:57,200 --> 00:10:01,240 Speaker 1: with the potential exception of nor Them, which is really 178 00:10:01,320 --> 00:10:05,960 Speaker 1: doing fairly well, the sector is very very challenged UM. 179 00:10:06,040 --> 00:10:10,840 Speaker 1: And then you have other sectors such as apparel broadly UM, 180 00:10:10,840 --> 00:10:14,280 Speaker 1: which is doing better than it was earlier in the year, 181 00:10:15,000 --> 00:10:17,240 Speaker 1: but it's still only going to get to maybe two 182 00:10:17,240 --> 00:10:19,760 Speaker 1: percent year of year growth this holiday as a sector. 183 00:10:20,760 --> 00:10:22,199 Speaker 1: And so it's you know, it's a little bit of 184 00:10:22,240 --> 00:10:25,040 Speaker 1: a mixed bag among facts about what we're seeing overall 185 00:10:25,679 --> 00:10:28,439 Speaker 1: is is that if we've done these these we've done 186 00:10:28,440 --> 00:10:32,240 Speaker 1: annual forecasts since the turn of the century, this century, um, 187 00:10:32,520 --> 00:10:35,040 Speaker 1: and we're seeing the sales as being up four point 188 00:10:35,080 --> 00:10:37,000 Speaker 1: three percent year of a year, and that's compared to 189 00:10:37,000 --> 00:10:40,600 Speaker 1: a consensus about three point seven And we think the 190 00:10:40,679 --> 00:10:43,800 Speaker 1: risk to our forecast there's overall retailed. The risk of 191 00:10:43,840 --> 00:10:46,800 Speaker 1: the forecast is not on the downside. The risk is 192 00:10:46,840 --> 00:10:49,079 Speaker 1: actually more likely to be the high side. You know, 193 00:10:49,120 --> 00:10:52,319 Speaker 1: all the signals where our team has been seeing. We've 194 00:10:52,400 --> 00:10:55,480 Speaker 1: issued our forecast last month, but everything we've seen since 195 00:10:55,520 --> 00:10:58,480 Speaker 1: then confirms that this may actually be not just a 196 00:10:58,480 --> 00:11:01,880 Speaker 1: four point three percent, but could even approached towards five percent, 197 00:11:01,920 --> 00:11:05,240 Speaker 1: which will be the best growth in some years. Craig, 198 00:11:05,400 --> 00:11:07,800 Speaker 1: not to to port too much cold water on the 199 00:11:08,800 --> 00:11:12,560 Speaker 1: Michael Course story, but you know, the purchase of Jimmy 200 00:11:12,679 --> 00:11:15,160 Speaker 1: Chew obviously going to add sales to the to the 201 00:11:15,440 --> 00:11:17,319 Speaker 1: to the company. But when you look at the camp 202 00:11:17,400 --> 00:11:19,959 Speaker 1: store sales, the numbers were not that great, right, I 203 00:11:20,000 --> 00:11:23,880 Speaker 1: mean Camp store sales down about two uh A lot 204 00:11:23,920 --> 00:11:27,760 Speaker 1: of this the income had to do with reduction in 205 00:11:27,760 --> 00:11:32,360 Speaker 1: the tax rate, and um, you know, I'm just wondering 206 00:11:32,440 --> 00:11:36,960 Speaker 1: if your flagship label in the same store sales category 207 00:11:37,240 --> 00:11:39,199 Speaker 1: are gonna fall in the high single digits in the 208 00:11:39,280 --> 00:11:42,360 Speaker 1: Christmas quarter and decline the description is by the mid 209 00:11:42,480 --> 00:11:45,040 Speaker 1: single digits in the fiscal year as a whole. How 210 00:11:45,040 --> 00:11:47,760 Speaker 1: does that point to a turnaround? I mean, and maybe 211 00:11:47,760 --> 00:11:50,640 Speaker 1: you can twin that with the concept of tapestry, you know, 212 00:11:50,679 --> 00:11:53,360 Speaker 1: the old coach they're reporting tomorrow, so that you go out, 213 00:11:53,400 --> 00:11:55,760 Speaker 1: you buy Jimmy Chew. You say things are great, but 214 00:11:56,120 --> 00:12:01,000 Speaker 1: if your flagship brand isn't working well, what you have 215 00:12:01,120 --> 00:12:04,280 Speaker 1: to look at is is that here's a company that's 216 00:12:04,280 --> 00:12:06,720 Speaker 1: been so deeply troubled for a good a good couple 217 00:12:06,720 --> 00:12:09,800 Speaker 1: of years. Although the seeds of that difficulty go back 218 00:12:10,160 --> 00:12:12,800 Speaker 1: four or five six years when this when the store 219 00:12:12,880 --> 00:12:18,080 Speaker 1: began to um over expand over distribute um was in 220 00:12:19,440 --> 00:12:22,600 Speaker 1: doors worldwide. It just it was too much. You don't 221 00:12:22,640 --> 00:12:25,400 Speaker 1: need that, and you you do. You can destroy your 222 00:12:25,480 --> 00:12:30,559 Speaker 1: brand that way, and to repair that brand damage when 223 00:12:30,600 --> 00:12:34,440 Speaker 1: you're so over promoted and you're so overdistributed. That doesn't 224 00:12:34,440 --> 00:12:39,400 Speaker 1: happen overnight. So we see the one camp that negative 225 00:12:39,440 --> 00:12:43,160 Speaker 1: that they reported this quarter as being compared to guidance 226 00:12:43,200 --> 00:12:46,760 Speaker 1: of negative mid single digits, and for the last several 227 00:12:46,800 --> 00:12:51,280 Speaker 1: quarters they've been running high single digits, uh negative or 228 00:12:51,320 --> 00:12:55,280 Speaker 1: even a little a little worse. And so one is improvement. 229 00:12:55,880 --> 00:12:59,640 Speaker 1: Now whether how how steady that's going to be going 230 00:12:59,720 --> 00:13:01,840 Speaker 1: full it is a little bit of a little bit 231 00:13:01,840 --> 00:13:04,200 Speaker 1: of an open question. But the first thing they needed 232 00:13:04,240 --> 00:13:07,000 Speaker 1: to do was take the hard medicine of cutting back 233 00:13:07,040 --> 00:13:10,200 Speaker 1: on the promotions and cutting back on the distribution. And 234 00:13:10,240 --> 00:13:15,160 Speaker 1: so the comp numbers may bounce around a little because 235 00:13:15,200 --> 00:13:18,920 Speaker 1: you're comparing numbers versus last year when they were, you know, 236 00:13:19,040 --> 00:13:23,280 Speaker 1: juicing up the the promotional hype. Right well, Craig, you know, 237 00:13:23,520 --> 00:13:26,520 Speaker 1: I just want to get your sense about this upcoming 238 00:13:26,559 --> 00:13:28,679 Speaker 1: holiday season. I mean, it's got to be a make 239 00:13:28,720 --> 00:13:31,439 Speaker 1: it or break it period for a lot of retailers. 240 00:13:31,480 --> 00:13:36,000 Speaker 1: If they cannot at least boost their revenues by hooking 241 00:13:36,040 --> 00:13:40,520 Speaker 1: onto the increase in watches or luxury sales or technology, 242 00:13:40,679 --> 00:13:43,800 Speaker 1: then are they dead? Because we're seeing consumers actually spend 243 00:13:43,880 --> 00:13:46,320 Speaker 1: more and we're seeing the economy doing well. If they 244 00:13:46,320 --> 00:13:49,240 Speaker 1: can't make it now, is this it? Well I'm not 245 00:13:49,400 --> 00:13:52,000 Speaker 1: prepared to say this this is it, but people that 246 00:13:52,200 --> 00:13:56,000 Speaker 1: don't react to way the consumers are behaving now, the 247 00:13:56,080 --> 00:13:59,839 Speaker 1: way they're spinning choices are changing. Um, they are going 248 00:13:59,840 --> 00:14:03,920 Speaker 1: to get crushed. But the smart players, um are are 249 00:14:03,960 --> 00:14:06,840 Speaker 1: reacting like the watches are are are coming back. And 250 00:14:06,920 --> 00:14:09,040 Speaker 1: so you have the you know the Apple series three. 251 00:14:09,080 --> 00:14:11,080 Speaker 1: They they finally got it right, you know on the 252 00:14:11,160 --> 00:14:15,080 Speaker 1: third try. Uh, that's that's that's that's better. You have 253 00:14:15,120 --> 00:14:19,320 Speaker 1: an overall economy that's expanding. Um, you know, disposable income 254 00:14:19,400 --> 00:14:23,440 Speaker 1: is up. There's a wealth effect coming at tourist and returning. 255 00:14:23,880 --> 00:14:27,200 Speaker 1: And clearly, if if you're a retailer and you don't 256 00:14:27,240 --> 00:14:30,320 Speaker 1: do well in this season, when overall reach out growth 257 00:14:30,400 --> 00:14:32,960 Speaker 1: is going to be you know four three four eight, 258 00:14:33,040 --> 00:14:37,320 Speaker 1: somewhere in that neighborhood, Uh, you have some real explaining 259 00:14:37,400 --> 00:14:41,040 Speaker 1: to do. Hey, Craig, can you tell us who is 260 00:14:41,520 --> 00:14:44,560 Speaker 1: on on your blacklist in terms of not going to 261 00:14:44,680 --> 00:14:46,880 Speaker 1: do well the rest of the year and who's doing 262 00:14:46,960 --> 00:14:49,400 Speaker 1: who's knocking the ball out of the park. Well, I 263 00:14:49,720 --> 00:14:52,520 Speaker 1: think the folks that are going to be most challenged 264 00:14:52,560 --> 00:14:54,880 Speaker 1: again are the department stares and you know, it's like 265 00:14:54,960 --> 00:14:58,000 Speaker 1: round up the usual suspect. JCP just had their penny, 266 00:14:58,120 --> 00:15:01,000 Speaker 1: just had their announcement the other day that had you 267 00:15:01,000 --> 00:15:04,000 Speaker 1: know that basically did the inventory liquidation because they were 268 00:15:04,120 --> 00:15:07,960 Speaker 1: way way over inventory. May She's is having challenges, Dillerdence 269 00:15:08,000 --> 00:15:10,760 Speaker 1: is having challenges. Um and those are some of the 270 00:15:10,760 --> 00:15:13,600 Speaker 1: ones that are having the most difficulties. Some of the apparel, 271 00:15:13,640 --> 00:15:17,600 Speaker 1: the women's where players are are challenged. And the people 272 00:15:17,640 --> 00:15:19,200 Speaker 1: that are going to do well. There are people that 273 00:15:19,280 --> 00:15:22,280 Speaker 1: really sell value, and so you think value, you think 274 00:15:22,360 --> 00:15:25,200 Speaker 1: at the very larger and you have companies like Costco 275 00:15:25,280 --> 00:15:28,280 Speaker 1: and Walmart which you're doing great. Target is much improved, 276 00:15:28,600 --> 00:15:31,760 Speaker 1: and then you have the off prices t J's, Burlington 277 00:15:32,040 --> 00:15:36,760 Speaker 1: and Ross which are all very well positioned for holiday. 278 00:15:37,080 --> 00:15:39,920 Speaker 1: Craig Johnson, thank you so much for joining us. Craig Johnson, 279 00:15:39,960 --> 00:15:57,360 Speaker 1: president of Customer Growth Partners, which is based in New Canaan, Connecticut. Well. 280 00:15:57,440 --> 00:16:00,600 Speaker 1: In the past few weeks, CME Group announced its plans 281 00:16:00,600 --> 00:16:05,200 Speaker 1: to offer a bitcoin futures contract this year, and Aaron Brown, 282 00:16:05,320 --> 00:16:08,360 Speaker 1: who is a columnist for Bloomberg Profits as well as 283 00:16:08,400 --> 00:16:11,440 Speaker 1: former managing director and head of financial market Research at 284 00:16:11,440 --> 00:16:14,240 Speaker 1: a q R Capital Management, wrote a really compelling column 285 00:16:14,480 --> 00:16:16,720 Speaker 1: where he said that this is kind of a sort 286 00:16:16,720 --> 00:16:20,640 Speaker 1: of tipping point for the cryptocurrency. He wrote, if regulators 287 00:16:20,640 --> 00:16:24,520 Speaker 1: smile and clearing houses operate without problems, will find out 288 00:16:24,560 --> 00:16:28,440 Speaker 1: what happens when cryptocurrency prices are exposed to real money. 289 00:16:28,480 --> 00:16:30,760 Speaker 1: Aaron Brown joins us. Now, Aaron, thank you so much 290 00:16:30,760 --> 00:16:33,520 Speaker 1: for joining us. The implication here is that bitcoin hasn't 291 00:16:33,560 --> 00:16:36,200 Speaker 1: been exposed to real money yet. Can you explain your 292 00:16:36,240 --> 00:16:40,160 Speaker 1: idea here and what you expect to happen? Sure, Lisa, 293 00:16:40,200 --> 00:16:44,160 Speaker 1: thank you for having me. UM. The cryptocurrency total market 294 00:16:44,240 --> 00:16:47,680 Speaker 1: capitalization if you look across all currents a cryptocurrencies have 295 00:16:47,800 --> 00:16:50,440 Speaker 1: stated at something like a hundred billion or two hundred 296 00:16:50,440 --> 00:16:53,520 Speaker 1: billion dollars, but that really only represents a couple of 297 00:16:53,560 --> 00:16:56,440 Speaker 1: billion real dollars people have put into it, most of 298 00:16:56,480 --> 00:17:00,280 Speaker 1: those bitcoins and most of those cryptocurrencies, and incidentally, coin 299 00:17:00,440 --> 00:17:02,400 Speaker 1: is maybe two thirds of that total. It's it's a 300 00:17:02,440 --> 00:17:06,480 Speaker 1: majority of it. UM either were people who got their 301 00:17:07,000 --> 00:17:11,720 Speaker 1: allocations free through mining or something, or they about relatively 302 00:17:11,760 --> 00:17:16,280 Speaker 1: low prices. So we don't really know if people are 303 00:17:16,280 --> 00:17:20,160 Speaker 1: willing to pay two hundred billion dollars for all those cryptocurrencies, 304 00:17:20,240 --> 00:17:22,440 Speaker 1: or perhaps they're willing to pay five hundred billion, or 305 00:17:22,480 --> 00:17:24,280 Speaker 1: maybe they're only willing to pay ten billion. We don't 306 00:17:24,280 --> 00:17:28,080 Speaker 1: really know, UM, and that's because the exchanges to this 307 00:17:28,200 --> 00:17:32,280 Speaker 1: point have essentially shut out most institutional money, most big holdings. 308 00:17:32,320 --> 00:17:35,119 Speaker 1: You had to be either a PhD in computer science 309 00:17:35,160 --> 00:17:37,920 Speaker 1: or you had to be a very serious UH individual 310 00:17:38,960 --> 00:17:42,560 Speaker 1: to put substantial amount of money to work in cryptocurrencies. 311 00:17:43,280 --> 00:17:46,240 Speaker 1: It seems possible, although we're not sure yet that in 312 00:17:46,320 --> 00:17:48,320 Speaker 1: two or three months that will no longer be true 313 00:17:48,359 --> 00:17:51,320 Speaker 1: and anybody can put as much money to work as 314 00:17:51,359 --> 00:17:54,800 Speaker 1: easily into cryptocurrencies as they can to stocks or bonds, 315 00:17:55,280 --> 00:17:58,040 Speaker 1: and then we'll finally see what these things are really worth. 316 00:17:59,560 --> 00:18:03,359 Speaker 1: You own bitcoin, right, yes, yes, I have investments in 317 00:18:03,359 --> 00:18:06,199 Speaker 1: a number of cryptocurrencies. So what are you looking for 318 00:18:06,760 --> 00:18:12,520 Speaker 1: To determine whether big institutions actually are interested in investing 319 00:18:12,520 --> 00:18:16,639 Speaker 1: in bitcoin and putting their big money to work, well, 320 00:18:16,840 --> 00:18:20,280 Speaker 1: they have to recognize it as an asset class basically, 321 00:18:20,320 --> 00:18:22,560 Speaker 1: so this would mean that you know and and it 322 00:18:22,600 --> 00:18:25,200 Speaker 1: would only be the more innovative pension funds, for example, 323 00:18:25,280 --> 00:18:27,280 Speaker 1: might might consider doing this, but they might say we're 324 00:18:27,280 --> 00:18:29,280 Speaker 1: going to put one percent or two percent of our 325 00:18:29,320 --> 00:18:34,760 Speaker 1: assets UH into cryptocurrencies um. Also, of course, a bitcoin 326 00:18:34,960 --> 00:18:37,439 Speaker 1: or or or any sort of cryptocurrency e t F 327 00:18:37,480 --> 00:18:41,639 Speaker 1: would allow individual investors to get in very easily, and 328 00:18:41,680 --> 00:18:44,200 Speaker 1: some people are predicting that, you know, tons of money 329 00:18:44,200 --> 00:18:47,439 Speaker 1: will flow in and hundreds of billions of dollars in 330 00:18:47,480 --> 00:18:49,840 Speaker 1: the price of cryptocurrencies will sore. But I think it's 331 00:18:49,840 --> 00:18:52,679 Speaker 1: equally likely that we'll find out that while there is 332 00:18:52,680 --> 00:18:56,879 Speaker 1: some institutional appetite and some individual investor appetite, most of 333 00:18:56,920 --> 00:18:59,520 Speaker 1: it is just chasing high returns and people aren't really 334 00:18:59,520 --> 00:19:02,480 Speaker 1: willing to put large amounts of money in, and and 335 00:19:02,600 --> 00:19:05,520 Speaker 1: the price will fall. But whatever the new price is, 336 00:19:05,560 --> 00:19:07,240 Speaker 1: it will be a real price. It will be something 337 00:19:07,280 --> 00:19:11,840 Speaker 1: where you can really buy and sell large quantities. Aaron 338 00:19:12,240 --> 00:19:17,359 Speaker 1: is the increasing level of skepticism by some investors going 339 00:19:17,400 --> 00:19:20,639 Speaker 1: to assure the continued rise in the value of bitcoin. 340 00:19:21,240 --> 00:19:22,679 Speaker 1: You know, it's like the more the more you come 341 00:19:22,760 --> 00:19:25,639 Speaker 1: up with reasons for why it really makes no sense, 342 00:19:25,960 --> 00:19:29,280 Speaker 1: the greater the value of it seems. Uh yeah, that 343 00:19:29,400 --> 00:19:32,399 Speaker 1: that is true. Bitcoin and cryptocurrencies in general are what 344 00:19:32,440 --> 00:19:36,760 Speaker 1: we call in the financial bis, badly anchored assets with 345 00:19:36,840 --> 00:19:41,600 Speaker 1: badly anchored prices. There's really no strong fundamental reason why 346 00:19:41,600 --> 00:19:44,600 Speaker 1: bitcoin should be ten dollars or a million dollars or 347 00:19:44,680 --> 00:19:48,880 Speaker 1: seven thousand dollars whatever it is. Um just whenever everybody 348 00:19:48,880 --> 00:19:51,080 Speaker 1: agrees that's what the price should be that's when it 349 00:19:51,119 --> 00:19:54,159 Speaker 1: becomes valuable. That's how currencies work. Okay, all right, so 350 00:19:54,200 --> 00:19:56,359 Speaker 1: happy dollars should be worth either, all right. So having 351 00:19:56,400 --> 00:19:59,320 Speaker 1: said that, it seems that there's a philosophical thread for 352 00:19:59,480 --> 00:20:06,399 Speaker 1: bitcoin which is get away from the fiat currencies of governments. Correct. Uh, 353 00:20:06,600 --> 00:20:09,239 Speaker 1: that was certainly much of the motivation for inventing it. 354 00:20:09,280 --> 00:20:11,199 Speaker 1: But I think we're moving very far away from that. 355 00:20:11,359 --> 00:20:13,879 Speaker 1: If we have CNY futures trading on our cbo E 356 00:20:14,000 --> 00:20:17,520 Speaker 1: futures trading on bitcoin, uh, then it's not far away 357 00:20:17,520 --> 00:20:20,639 Speaker 1: from the currencies. Well, but I also have to wonder 358 00:20:20,840 --> 00:20:24,400 Speaker 1: erin you know, there hasn't been a way for they 359 00:20:24,400 --> 00:20:29,080 Speaker 1: sayers to short bitcoin, and that has sort of removed 360 00:20:29,160 --> 00:20:32,359 Speaker 1: some of the healthy aspects of a functioning market. How 361 00:20:32,440 --> 00:20:35,960 Speaker 1: much does that concern you. I don't think that's a 362 00:20:35,960 --> 00:20:38,360 Speaker 1: big factor, because you'd have to be a very very 363 00:20:38,400 --> 00:20:42,000 Speaker 1: brave short seller, uh to want a short bitcoin. So 364 00:20:42,040 --> 00:20:44,440 Speaker 1: conceivably we'll see a bunch of people come in and 365 00:20:44,560 --> 00:20:47,520 Speaker 1: and frankly, there is a way to short cryptocurrencies. You 366 00:20:47,560 --> 00:20:50,880 Speaker 1: make your own cryptocurrency and sell it um. So really 367 00:20:50,920 --> 00:20:54,480 Speaker 1: we've seen thousands of people do that UM and it 368 00:20:54,520 --> 00:20:57,760 Speaker 1: hasn't you know, uh, drammatically pushed down the price. I 369 00:20:57,760 --> 00:20:59,360 Speaker 1: don't think short selling is going to have a big 370 00:20:59,359 --> 00:21:01,760 Speaker 1: effect on the price one way or the other. That's 371 00:21:01,760 --> 00:21:03,919 Speaker 1: really fascinating, PIM. I had never thought about it. But 372 00:21:03,960 --> 00:21:06,960 Speaker 1: if you sell your own cryptocurrency, you're basically raising money 373 00:21:07,240 --> 00:21:09,560 Speaker 1: from people who are willing to give it to cryptocurrencies 374 00:21:09,880 --> 00:21:12,560 Speaker 1: without having to actually give as much back to them. 375 00:21:12,640 --> 00:21:16,240 Speaker 1: I suppose that's a big short Yes. Well, having said that, UM, 376 00:21:16,280 --> 00:21:19,000 Speaker 1: I kind of think that creating your own script, I 377 00:21:19,080 --> 00:21:22,240 Speaker 1: think the federal government might have a little comment or 378 00:21:22,280 --> 00:21:25,679 Speaker 1: two about that. Thanks very much, Aaron Brown. He is 379 00:21:25,680 --> 00:21:28,000 Speaker 1: the former managing director in the head of Financial market 380 00:21:28,040 --> 00:21:31,600 Speaker 1: Research at a q R Capital Management, and he is 381 00:21:31,680 --> 00:21:47,600 Speaker 1: also a Bloomberg Prophets contributor. The market has been waiting 382 00:21:47,800 --> 00:21:50,879 Speaker 1: for a tax reform plan out of Washington, d C. 383 00:21:51,520 --> 00:21:55,080 Speaker 1: We got it, and the response has been less than impressed. 384 00:21:55,080 --> 00:21:57,760 Speaker 1: We could see that certainly in the bond market at least, 385 00:21:57,840 --> 00:22:02,480 Speaker 1: yields going lower typically an indication that people are expecting 386 00:22:02,640 --> 00:22:05,280 Speaker 1: slower growth ahead. To talk about this, I want to 387 00:22:05,280 --> 00:22:09,080 Speaker 1: bring in Jim Vogel Interest Rate Strategistic FTN Financial coming 388 00:22:09,080 --> 00:22:12,080 Speaker 1: to us from Memphis, Tennessee. Jim, thank you so much 389 00:22:12,119 --> 00:22:15,199 Speaker 1: for joining us. I'm looking at the yield curve today 390 00:22:15,280 --> 00:22:17,320 Speaker 1: in the U S. I'm looking at the gap between 391 00:22:17,359 --> 00:22:20,320 Speaker 1: ten ure and two year treasury yields. It is now 392 00:22:20,480 --> 00:22:24,639 Speaker 1: at the narrowest since the end of two thousand and seven, 393 00:22:24,720 --> 00:22:27,280 Speaker 1: in the week of the announcement of this tax reform bill. 394 00:22:27,560 --> 00:22:31,159 Speaker 1: What does this tell you? I think the market had 395 00:22:31,160 --> 00:22:35,399 Speaker 1: always been anticipating that the personal taxes would be cut 396 00:22:35,480 --> 00:22:38,240 Speaker 1: more than developed in the plan that we're eventually that 397 00:22:38,280 --> 00:22:42,000 Speaker 1: we're looking at this week. And without those personal tax cuts, 398 00:22:42,040 --> 00:22:44,359 Speaker 1: there's not going to be that sort of sugar rush 399 00:22:44,560 --> 00:22:48,720 Speaker 1: next year as people um spend their share of the 400 00:22:48,800 --> 00:22:52,680 Speaker 1: accumulative one point five trillion dollars and cuts. Jim, can 401 00:22:52,680 --> 00:22:54,919 Speaker 1: you just give us sort of your perspective on interest 402 00:22:55,000 --> 00:22:57,479 Speaker 1: rates right now and where they would be without the 403 00:22:57,760 --> 00:23:00,600 Speaker 1: vast amounts of either quantitative easing in the Added States 404 00:23:00,680 --> 00:23:04,560 Speaker 1: or bond buying that's been going on in Europe. That's 405 00:23:04,600 --> 00:23:07,119 Speaker 1: a tough question, but I mean, in rough terms, you 406 00:23:07,240 --> 00:23:09,560 Speaker 1: probably need to think about at least twenty five to 407 00:23:09,640 --> 00:23:13,960 Speaker 1: thirty five basis points higher. Uh. And the real question 408 00:23:14,080 --> 00:23:17,800 Speaker 1: is going to be not whether we go up um 409 00:23:17,840 --> 00:23:23,640 Speaker 1: as that bonbuying slowly um disappears. But whether people will 410 00:23:23,640 --> 00:23:26,760 Speaker 1: continue to issue a lot of debt like Apple today 411 00:23:27,480 --> 00:23:30,680 Speaker 1: as rates go up in response, well, and you can 412 00:23:30,720 --> 00:23:35,119 Speaker 1: add into that the tax plan because the interest that 413 00:23:35,480 --> 00:23:38,280 Speaker 1: a lot of companies pay on that debt would not 414 00:23:38,480 --> 00:23:43,480 Speaker 1: be deductible from taxes under that plan. So there has 415 00:23:43,520 --> 00:23:46,320 Speaker 1: been speculation into the Bank of America. Mary Lynch, for example, 416 00:23:46,359 --> 00:23:48,960 Speaker 1: came out today with the report saying that they expect 417 00:23:49,080 --> 00:23:52,000 Speaker 1: big corporations to reduce their leverage by ten to thirty 418 00:23:52,080 --> 00:23:55,520 Speaker 1: percent in the wake of these tax changes. Do you 419 00:23:55,560 --> 00:24:01,360 Speaker 1: agree with that assessment in rough terms? Absolutely, there's it 420 00:24:01,400 --> 00:24:04,439 Speaker 1: depends on how there still maybe some people that can 421 00:24:04,480 --> 00:24:08,200 Speaker 1: get in under the most recent test, and so there 422 00:24:08,240 --> 00:24:10,960 Speaker 1: could be some people that are actually expanding their leverage 423 00:24:11,000 --> 00:24:14,560 Speaker 1: to take advantage of the cap in terms of interest 424 00:24:14,680 --> 00:24:20,600 Speaker 1: rate deductibility. But um, the days of corporate issuing new 425 00:24:20,640 --> 00:24:23,280 Speaker 1: debt hand over fist and just doing nothing but any 426 00:24:23,359 --> 00:24:27,159 Speaker 1: leverage or at least going to calm down, both because 427 00:24:27,280 --> 00:24:30,880 Speaker 1: their stock is more expensive on the buybacks and because 428 00:24:31,320 --> 00:24:35,480 Speaker 1: the deductibility question is going to be an open issue 429 00:24:35,480 --> 00:24:37,600 Speaker 1: maybe for the next three to five years. So Jim, 430 00:24:37,680 --> 00:24:40,959 Speaker 1: I don't understand in that context. I don't understand how 431 00:24:41,040 --> 00:24:44,679 Speaker 1: yields could rise because if you have the supply of 432 00:24:44,840 --> 00:24:49,560 Speaker 1: bonds getting reduced pulled back as companies issue less debt, 433 00:24:50,040 --> 00:24:53,240 Speaker 1: then you have a sort of smaller supply. You've got 434 00:24:53,240 --> 00:24:55,840 Speaker 1: the same amount of demand or more as retirees, Uh, 435 00:24:56,040 --> 00:25:00,520 Speaker 1: save money. So wouldn't this lead to even lower corporate 436 00:25:00,560 --> 00:25:04,919 Speaker 1: els It pushes down on them. Yes, But on the 437 00:25:04,920 --> 00:25:08,199 Speaker 1: other hand, you've got what Tim was talking about in 438 00:25:08,280 --> 00:25:10,600 Speaker 1: terms of the large amount of buying that's been done 439 00:25:10,640 --> 00:25:13,520 Speaker 1: by central banks. So it's very possible for the two 440 00:25:13,520 --> 00:25:16,560 Speaker 1: to net offset. And that's why we come up with 441 00:25:17,080 --> 00:25:20,680 Speaker 1: um the potential for raids to slowly drift up as 442 00:25:20,720 --> 00:25:25,040 Speaker 1: the market begins to approach equilibrium. Jim, you know, one 443 00:25:25,080 --> 00:25:27,040 Speaker 1: of the things that everyone talks about, it seems to 444 00:25:27,080 --> 00:25:31,199 Speaker 1: be inflation with the lack thereof and uh, is it 445 00:25:31,320 --> 00:25:35,160 Speaker 1: right to connect inflation with something that marks how old 446 00:25:35,160 --> 00:25:38,640 Speaker 1: we are? Excess money supply growth No one even talks about, 447 00:25:38,720 --> 00:25:40,680 Speaker 1: you know, M one, M two and three, men four. 448 00:25:40,680 --> 00:25:43,159 Speaker 1: I mean, no one mentions these things. But if you 449 00:25:43,359 --> 00:25:47,320 Speaker 1: have access money supply growth, you get inflation. If the 450 00:25:47,359 --> 00:25:55,200 Speaker 1: money supplies actually shrinking you get deflation? Do you buy that? Really? 451 00:25:55,280 --> 00:25:57,919 Speaker 1: We've not paid attention to it for so long because 452 00:25:58,640 --> 00:26:03,199 Speaker 1: um velac city of money turnover um kept changing and 453 00:26:03,240 --> 00:26:07,320 Speaker 1: so you can't really track relative to the monetary supply 454 00:26:07,880 --> 00:26:10,480 Speaker 1: and and draw a straight line to inflation any longer 455 00:26:10,880 --> 00:26:14,080 Speaker 1: for them in terms of thinking about interest rates, we 456 00:26:14,119 --> 00:26:18,600 Speaker 1: are so far more focused on inflation expectations now than 457 00:26:18,680 --> 00:26:22,680 Speaker 1: we ever were um uh six to eight years ago. 458 00:26:23,200 --> 00:26:25,560 Speaker 1: So I'd love to get your take on the federal Reserve. 459 00:26:25,720 --> 00:26:28,720 Speaker 1: We found out today that William Dudley Built Dudley, new 460 00:26:28,800 --> 00:26:32,640 Speaker 1: York Fed President, is planning to retire midyear next year. 461 00:26:33,520 --> 00:26:35,960 Speaker 1: I want to start with, who do you think would 462 00:26:36,000 --> 00:26:40,040 Speaker 1: be a good New York Fed President to succeed Bill Dudley. 463 00:26:40,640 --> 00:26:43,879 Speaker 1: We haven't gotten that far yet, okay. UM would be 464 00:26:43,920 --> 00:26:47,560 Speaker 1: fascinating though, if they brought somebody in internally that it 465 00:26:47,600 --> 00:26:52,040 Speaker 1: was already there. Because the regional Fed president choices have 466 00:26:52,240 --> 00:26:55,800 Speaker 1: become more and more controversial, and with the high profile 467 00:26:55,840 --> 00:26:58,960 Speaker 1: of the New York Fed, UM, it might make sense 468 00:26:59,000 --> 00:27:02,560 Speaker 1: for them to consider on internal candidates rather than bring 469 00:27:02,720 --> 00:27:07,560 Speaker 1: somebody with possible baggage in from the private sector. All right, Well, 470 00:27:07,640 --> 00:27:11,800 Speaker 1: how important is the fact that yet another Federal Reserve 471 00:27:12,080 --> 00:27:16,119 Speaker 1: president regional president is leaving after all the departures that 472 00:27:16,160 --> 00:27:18,919 Speaker 1: we've seen in all the vacancies. I mean, does this 473 00:27:19,080 --> 00:27:23,760 Speaker 1: change the equation for you as a bond strategist of 474 00:27:23,800 --> 00:27:25,800 Speaker 1: how to look at the way that the FED is 475 00:27:25,800 --> 00:27:28,640 Speaker 1: going to approach tapering the balance sheet, et cetera next year, 476 00:27:28,960 --> 00:27:31,240 Speaker 1: given the uncertainty here with the composition of the FED. 477 00:27:32,359 --> 00:27:37,720 Speaker 1: Not yet, because still we see just incredible, Um, we 478 00:27:37,840 --> 00:27:43,120 Speaker 1: see incredible, incredible longevity in the FED staff. UM. That's 479 00:27:43,119 --> 00:27:47,439 Speaker 1: supplying a lot of the views that the governors react to. 480 00:27:48,040 --> 00:27:51,280 Speaker 1: So while Dudley has been a principal architect of recent 481 00:27:51,320 --> 00:27:54,680 Speaker 1: policy and a chief salesman of the short term view 482 00:27:55,119 --> 00:27:57,680 Speaker 1: of what the FED was going to be doing, uh, 483 00:27:57,720 --> 00:28:01,919 Speaker 1: he replacing him doesn't really enter into our interest rate 484 00:28:01,960 --> 00:28:05,640 Speaker 1: equation yet at all. Do negative interest rates in Europe 485 00:28:05,640 --> 00:28:13,000 Speaker 1: and Japan enter into your equation? Uh? Guess, because they 486 00:28:13,160 --> 00:28:19,160 Speaker 1: constantly make the US Treasury rates on a comparable basis 487 00:28:19,680 --> 00:28:24,320 Speaker 1: that much more that they make them more um attractive. 488 00:28:24,800 --> 00:28:27,399 Speaker 1: And so anytime that we get like a run of 489 00:28:27,480 --> 00:28:30,000 Speaker 1: the ten year up to forty seven, like we did 490 00:28:29,720 --> 00:28:32,560 Speaker 1: at the end of October, you get a good bit 491 00:28:32,560 --> 00:28:37,440 Speaker 1: of buying because the yield gap out so far versus Europe. Jim, 492 00:28:37,480 --> 00:28:39,520 Speaker 1: real quick, where do you see the tenure yield going 493 00:28:39,840 --> 00:28:44,160 Speaker 1: within the next six months? This is boring. We see 494 00:28:44,160 --> 00:28:48,400 Speaker 1: it somewhere between two fifty. Well, that's up boring because 495 00:28:48,480 --> 00:28:51,360 Speaker 1: right now it's a two thirty one, I think, so 496 00:28:51,520 --> 00:28:53,960 Speaker 1: it's not that far off. What it's saying is it's 497 00:28:53,960 --> 00:28:57,280 Speaker 1: not going to move materially, and that potentially affect the 498 00:28:57,280 --> 00:29:00,920 Speaker 1: way that people invest. Right give sabelly to the stock 499 00:29:00,960 --> 00:29:05,840 Speaker 1: and bond markets correct, and so that that reduction of 500 00:29:05,920 --> 00:29:09,800 Speaker 1: volatility also helps keep corporate spreads tied. It reduces the 501 00:29:09,880 --> 00:29:13,320 Speaker 1: term premium. It just changes the basic equation that we 502 00:29:13,360 --> 00:29:15,680 Speaker 1: all grew up with in terms of thinking about the 503 00:29:15,720 --> 00:29:18,160 Speaker 1: long end of the bond market when the FED tightening. 504 00:29:18,520 --> 00:29:20,600 Speaker 1: Thank you very much for being with us. Jim Vogel 505 00:29:20,720 --> 00:29:27,480 Speaker 1: is interest rate strategist for ft N Financial. Thanks for 506 00:29:27,560 --> 00:29:30,200 Speaker 1: listening to the Bloomberg P and L podcast. You can 507 00:29:30,240 --> 00:29:34,080 Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or 508 00:29:34,080 --> 00:29:37,600 Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on 509 00:29:37,640 --> 00:29:41,480 Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 510 00:29:41,600 --> 00:29:44,200 Speaker 1: It's one before the podcast. You can always catch us 511 00:29:44,240 --> 00:29:45,800 Speaker 1: worldwide on Bloomberg Radio