WEBVTT - Tesla Is Not Executing Well, Eisman Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.040 Bloomberg dot com, and of course on the Bloomberg. The 0:00:34.400 --> 0:00:38.080 story in the equity market front end center is Twitter 0:00:38.240 --> 0:00:42.440 right now down in the pre market with a Facebook 0:00:42.479 --> 0:00:46.520 style disappointment. Joining me to discusses, Paul Sweeney, Bloomberg Intelligence, 0:00:46.560 --> 0:00:51.000 Director of North American Research pull what went wrong? Users? 0:00:51.240 --> 0:00:54.880 Monthly average active users declined in the quarter, and the 0:00:54.920 --> 0:00:57.920 company is talking about the more declines on the third quarter, 0:00:58.520 --> 0:01:00.880 and you know, they're they're talking up to their trying 0:01:00.880 --> 0:01:04.240 to clean up the platform of you know, some bad accounts, 0:01:04.280 --> 0:01:07.479 of fake accounts, some accounts that are just troublemakers. And 0:01:07.800 --> 0:01:10.840 so the you know, the monthly active users has been 0:01:10.920 --> 0:01:14.560 a metric that investors focus on for Twitter, you know, 0:01:14.640 --> 0:01:17.440 it's it's it's kind of struggled to gain scale we 0:01:17.520 --> 0:01:19.679 need we need compared to Facebook with a couple of 0:01:19.680 --> 0:01:23.160 billion users and um, and so I think people are 0:01:23.200 --> 0:01:25.160 concerned that ge if this, if the company is not 0:01:25.240 --> 0:01:27.400 growing its user based then it's going to become less 0:01:27.400 --> 0:01:31.759 attractive to advertisers, and that's kind of the concern going forward. So, UM, 0:01:31.800 --> 0:01:33.840 you know, the monthly active users was disappointing here and 0:01:33.920 --> 0:01:36.639 trying to understand the bullish view on this stalk this morning. 0:01:36.880 --> 0:01:40.360 Monthly three active users stalled. They stall because they're cleaning 0:01:40.400 --> 0:01:43.679 up the platform. They reset revenue expectations. Is there a 0:01:43.720 --> 0:01:47.400 good story out there associated with this over the long term, pool, Well, 0:01:47.440 --> 0:01:49.280 the good story is that you know, there are three 0:01:49.640 --> 0:01:52.760 thirty five million users roughly, and they are a very active, 0:01:52.840 --> 0:01:58.040 passionate users. UM. There's some influencers there if if you will, uh, 0:01:58.080 --> 0:02:01.480 including uh Donald Trump. UM. So you know, if advertisers 0:02:01.520 --> 0:02:03.960 want to reach a you know, a audience of over 0:02:04.000 --> 0:02:09.000 three million, UM, passionate audience uh tends to be younger demos. Uh, 0:02:09.080 --> 0:02:11.840 then this is a good audience. Uh. The problem, however, 0:02:11.840 --> 0:02:14.919 in digital media is it's it seems to be if 0:02:14.960 --> 0:02:19.560 you have less than a billion users, you're just not relevant. So, 0:02:19.840 --> 0:02:21.440 you know, the good news for Facebook because they have 0:02:21.520 --> 0:02:25.680 four platforms with Facebook and Messenger and WhatsApp and Instagram 0:02:25.680 --> 0:02:29.720 all north of a billion users. UM. Obviously uh, Google 0:02:29.800 --> 0:02:31.920 and and and even at Amazon Uh, you know, have 0:02:32.080 --> 0:02:35.079 have that kind of scale, but anything sub a billion 0:02:35.200 --> 0:02:39.160 users tends to be deemed not really an effective advertising 0:02:39.160 --> 0:02:41.760 by for for advertising. What's your point called You've got 0:02:41.760 --> 0:02:45.800 Facebook with four franchises with a billion users plus and 0:02:45.840 --> 0:02:49.080 Twitter are struggling to get past the five hundred million mark. 0:02:49.320 --> 0:02:51.120 There is a question mark about the whole sect of 0:02:51.160 --> 0:02:53.560 the whole space today in social media. I notice his 0:02:53.639 --> 0:02:56.440 Facebook pad it's gains after these Twitter results came out. 0:02:56.680 --> 0:02:59.160 Are we finding out there's just limitations to growth in 0:02:59.240 --> 0:03:02.800 terms of social medi idea? You know, it's um probably, 0:03:02.840 --> 0:03:04.919 I mean there's certainly from a user perspective, you know, 0:03:04.960 --> 0:03:07.840 there's some close to matrization in some of the more 0:03:07.919 --> 0:03:10.600 mature markets such as the North American Western Europe, but 0:03:10.639 --> 0:03:12.919 there's a you know, a lot of growth, uh and 0:03:12.919 --> 0:03:15.040 and other parts of the world. But what we're seeing 0:03:15.160 --> 0:03:18.800 is I still think the long term bowl case for 0:03:18.919 --> 0:03:22.080 digital advertising is still very much intact because we see 0:03:22.560 --> 0:03:26.360 across all me including Twitter today, their daily active users 0:03:26.400 --> 0:03:29.200 are actually up eleven So people are spending more and 0:03:29.280 --> 0:03:32.840 more time on the Internet, including social media, and the 0:03:32.840 --> 0:03:35.720 advertisers are are are following. And I put a personal 0:03:35.760 --> 0:03:37.480 note on this. I mean, I'm looking here at the 0:03:37.480 --> 0:03:42.000 bold letters of the fabulous Bloomberg top live blog on Twitter. Folks, 0:03:42.000 --> 0:03:44.480 I can't say enough about this. If you have a terminal, 0:03:44.520 --> 0:03:49.200 these top live streams are unreal. And they say we 0:03:49.280 --> 0:03:55.680 have made we wait, Twitter says, reflecting impact from decisions 0:03:55.760 --> 0:04:01.480 we have made to prioritize the health of the platform. 0:04:01.520 --> 0:04:05.280 I went down over two thousand followers, you know, in 0:04:05.320 --> 0:04:08.720 my puny world, not not Donald Trump's world, but I 0:04:08.760 --> 0:04:12.240 want to down two thousand followers one day. Is they 0:04:12.280 --> 0:04:15.600 cleaned up the health of their platform. I would suggest 0:04:15.680 --> 0:04:19.080 the the m a you miss there's a lot to 0:04:19.160 --> 0:04:23.000 do with them getting these idiot bots and computer stuff off. 0:04:23.720 --> 0:04:25.720 I think you're probably You're probably right. And I think, um, 0:04:25.920 --> 0:04:28.320 you know, the bullish call here is this is for 0:04:28.360 --> 0:04:32.200 the long term benefit of the platform and advertisers will 0:04:32.279 --> 0:04:35.640 ultimately reward this platform down the road. Um so, And 0:04:35.680 --> 0:04:37.320 I think you know what, I think what investors are 0:04:37.320 --> 0:04:39.280 saying is g where where where? Where is the end 0:04:39.320 --> 0:04:40.600 of this? We we saw it here in the second 0:04:40.640 --> 0:04:42.440 quarter where they they kind of talked about it in 0:04:42.440 --> 0:04:45.200 the third quarter. So again, I think concerns for it 0:04:45.240 --> 0:04:48.680 for Twitter have been you know, you know, scale, it's 0:04:48.680 --> 0:04:50.680 one of scale. Will they ever have scale to be 0:04:50.720 --> 0:04:54.080 relevant to advertisers? And anytime you you talk about re 0:04:54.080 --> 0:04:56.280 reducing the amount of users on there, I think that 0:04:56.440 --> 0:04:59.200 just heightens the concern. And John, you've got a followers 0:04:59.200 --> 0:05:01.359 size like area on a grand Did you lose like 0:05:01.440 --> 0:05:07.719 seven year eight tho? I lost nothing, Seriously, I lost nothing. 0:05:07.760 --> 0:05:10.360 I don't know I lost seriously. I was like one 0:05:10.400 --> 0:05:11.839 oh seven, one oh eight and all of a sudden 0:05:11.839 --> 0:05:15.760 boom and at one oh five, just one day. Help us. 0:05:15.839 --> 0:05:20.960 Have you've seen this before? Facebook hysteria, Amazon omg, phenomenal, 0:05:21.200 --> 0:05:24.640 Twitter hysteria. What's next? You know, I think the uh, 0:05:24.680 --> 0:05:26.640 you know, what we're seeing out there in the tech 0:05:26.680 --> 0:05:29.599 world is very high valuations. The stocks have been just 0:05:29.640 --> 0:05:33.480 phenomenally just think about this like mar one hopefully not 0:05:33.560 --> 0:05:35.719 hopefully not um although that was a good year for me, 0:05:35.800 --> 0:05:38.960 but um. I think the you know, the Fank stocks 0:05:38.800 --> 0:05:41.000 and and tech stocks in general, you know, they have 0:05:41.040 --> 0:05:44.520 been one of the very few consistent areas of growth 0:05:44.520 --> 0:05:47.159 that investors could feel confident about. And and and to 0:05:47.200 --> 0:05:50.000 the extent that there's any miss there, whether it's a 0:05:50.480 --> 0:05:52.960 you know, even you know, on users are on revenue 0:05:53.040 --> 0:05:55.200 or EPs, the stocks get get hit hard. But let's 0:05:55.240 --> 0:05:58.200 talk about the A and fang for most people. Amazon. 0:05:58.720 --> 0:06:01.279 Amazon did this really interesting thing yesterday where they said, 0:06:01.279 --> 0:06:03.440 don't look at that, Look how vega UM. We've been 0:06:03.440 --> 0:06:05.800 looking at revenue and growth there for a long long time, 0:06:05.800 --> 0:06:07.000 and that all of a sudden they said, look, we 0:06:07.000 --> 0:06:09.440 can make big profits. How did they disappoint on revenue 0:06:09.440 --> 0:06:12.320 but beat on profits. You know, it's it's an interesting story. 0:06:12.360 --> 0:06:14.280 You're right. For for years and years and years that 0:06:14.400 --> 0:06:16.359 the company has done a wonderful job of conditioning at 0:06:16.400 --> 0:06:19.159 shareholder base to say, don't worry about profits, just focus 0:06:19.240 --> 0:06:21.559 on the top line growth because we're playing this long 0:06:21.680 --> 0:06:24.280 game for the growth of e commerce, and we are 0:06:24.320 --> 0:06:27.360 the play in e commerce globally. UM. But every once 0:06:27.400 --> 0:06:29.839 in a while they will dial down their expenses in 0:06:29.920 --> 0:06:33.040 terms of opening up new fulfillment centers and distribution centers 0:06:33.080 --> 0:06:34.960 and R and D and so on and so forth, 0:06:35.000 --> 0:06:37.080 on all the crazy things they invest in, whether it's 0:06:37.120 --> 0:06:40.080 groceries or whatever, they will dial that back a little bit, 0:06:40.120 --> 0:06:42.480 and then the EPs will just explode and and and 0:06:42.520 --> 0:06:45.280 really surprise people. And that's what happened again. Yesterday. So 0:06:45.720 --> 0:06:49.359 you know, the the drivers for the improved profitability of 0:06:49.720 --> 0:06:52.680 Amazon today versus just even two years ago are really 0:06:52.680 --> 0:06:55.440 two areas. One is the cloud business, the Amazon Web 0:06:55.480 --> 0:06:58.480 services business that has operating margins in the mid thirty 0:06:58.480 --> 0:07:02.760 percent range versus low single digits for the core Amazon business. Uh. 0:07:02.760 --> 0:07:04.719 And then the second thing is advertising. You know, they 0:07:04.920 --> 0:07:08.159 they're advertising was up over a hundred percent last quarter. 0:07:08.480 --> 0:07:11.400 We think advertising will be an eight billion dollar business 0:07:11.480 --> 0:07:14.360 for them in two thousand and eighteen versus three billion 0:07:14.440 --> 0:07:17.000 last year. That's a profitable business. So they are in 0:07:17.080 --> 0:07:20.240 fact growing businesses that are profitable. Uh. So this is 0:07:20.280 --> 0:07:22.720 a business that, whether investors wanted or not, are going 0:07:22.800 --> 0:07:27.160 to show increased profitability. So um, the narrative is changing 0:07:27.160 --> 0:07:29.240 a little bit here on Amazon is great to have 0:07:29.320 --> 0:07:44.120 you with it, Seanna, You and I are really on 0:07:44.160 --> 0:07:47.280 the same page. On Friday as a time to collect 0:07:47.360 --> 0:07:50.320 your thoughts, particularly in the summer, and drive forward a 0:07:50.360 --> 0:07:53.960 weekend thinking and getting to Monday. We have a guest 0:07:54.040 --> 0:07:56.640 who can jump start the Yes, Steve Asman. It's always 0:07:56.680 --> 0:07:59.080 great to catch up with Steve, of course, famed for 0:07:59.080 --> 0:08:01.760 the big Shot I Sman's groups, new Berger Berman Signior 0:08:01.840 --> 0:08:04.400 portfolio manager Stevis grab to catch up with you a 0:08:04.440 --> 0:08:06.200 couple of shorts that you mentioned on TV a little 0:08:06.200 --> 0:08:08.560 bit earlier. But for the benefit of our listeners, let's 0:08:08.560 --> 0:08:11.040 begin with Tesla. It's kind of one of those stocks, 0:08:11.040 --> 0:08:14.040 one of those stories that just separates the longs, which 0:08:14.080 --> 0:08:17.080 are sort of called fans, and the shorts, which are 0:08:17.080 --> 0:08:19.640 called the haters. Um, you're sort of in the latter 0:08:19.680 --> 0:08:22.120 category right now, walk me through it. I'm not a hater, 0:08:22.200 --> 0:08:28.360 I'm a lover. That's a joke. Um. Look, people who 0:08:28.400 --> 0:08:30.720 love tests are like the point. They like to say, 0:08:30.760 --> 0:08:33.840 he's a genius, and he's in my experience over the years, 0:08:33.840 --> 0:08:36.680 there are a lot of smart people this world. Um, 0:08:36.720 --> 0:08:39.319 But just because you're smart doesn't mean you're execute well. 0:08:40.040 --> 0:08:43.960 And so far he's not executing well. Um. He's building 0:08:44.320 --> 0:08:47.600 a whole bunch of cars in a tent. He's negative 0:08:47.640 --> 0:08:51.880 cash flow, he's at war with his safety regulator after 0:08:52.000 --> 0:08:58.640 the the unfortunate crash for his autonomous driving car. Um, 0:08:58.679 --> 0:09:02.240 and he's and he's lost a tremendous number of executives 0:09:02.280 --> 0:09:05.240 over the last two years. Those are all negative signs. Now, 0:09:05.280 --> 0:09:07.280 maybe he can pull it out, but as of now, 0:09:07.559 --> 0:09:09.960 it seems to me all the fundamentals are pointing negatively 0:09:10.040 --> 0:09:13.080 and some really peculiar behavior elsewhere. Do you factor that 0:09:13.120 --> 0:09:15.240 in when you have to create short thesis or is 0:09:15.320 --> 0:09:17.160 that separate to what you're walking us through at the 0:09:17.200 --> 0:09:20.200 moment um? I don't I factor some of that in. 0:09:20.679 --> 0:09:24.160 I factor more in that. After the autonomous driving accident, 0:09:24.240 --> 0:09:26.120 he announced two weeks later that he was no longer 0:09:26.200 --> 0:09:29.640 cooperating with the National Safety Board. I thought that was 0:09:30.480 --> 0:09:34.360 a very poor decision. And the other stuff I listened to, 0:09:34.480 --> 0:09:37.200 but I don't pay that much attention to. Let's talk 0:09:37.240 --> 0:09:40.600 about the execution of this short. How difficult is it 0:09:40.679 --> 0:09:43.240 to execute? How expensive is it? Just walk us through this? 0:09:43.320 --> 0:09:47.720 It's the fundamental short. It's a very liquid stock. You know, 0:09:48.360 --> 0:09:52.160 you can put the position on before you go out 0:09:52.160 --> 0:09:54.160 and get a cup of coffee and come back. So 0:09:54.160 --> 0:09:56.360 it's for the easiest thing in the world, either by 0:09:56.440 --> 0:09:59.679 tesla or short. It must talks about storemy weather and 0:09:59.720 --> 0:10:02.640 short phil Quite often it's there a risk that you 0:10:02.679 --> 0:10:05.160 do get that surprise to the upside and all of 0:10:05.200 --> 0:10:07.480 a sudden the position gets wiped out, Steve, is that 0:10:07.559 --> 0:10:09.720 something you account for? That's of course, I mean you 0:10:09.760 --> 0:10:12.880 have to assize it appropriately. It's a very very volatile stock, 0:10:12.960 --> 0:10:17.400 So it's not the biggest short my portfolio. Um, but 0:10:19.400 --> 0:10:21.760 you know, I I think the stock could go down 0:10:21.760 --> 0:10:26.760 about Is there a biggest short out there for you? 0:10:26.840 --> 0:10:28.840 Then if it's not the biggest short in your portfolios, 0:10:28.920 --> 0:10:31.400 but it's it's not the biggest short because of the motility. 0:10:31.480 --> 0:10:38.319 Interstility is wild and the stock tends to move on nonsense. 0:10:39.080 --> 0:10:42.480 So you know, just for I like to sleep at night, 0:10:43.120 --> 0:10:47.000 so I've sized it in a way where it's sleep 0:10:47.040 --> 0:10:49.400 is still possible. Could you explain what you mean by that? 0:10:49.400 --> 0:10:51.280 That's a word I use when I get lecture and 0:10:51.400 --> 0:10:54.440 people go, what what do you mean when you say sized? 0:10:54.600 --> 0:10:57.560 I'm looking at It's called portfolio sizing. But what do 0:10:57.600 --> 0:11:00.720 you mean when you say sized? Well, first of all, 0:11:01.120 --> 0:11:04.160 my philosophy of investing generally longs and shorts is that 0:11:04.200 --> 0:11:08.000 no position should be so large that your career is 0:11:08.040 --> 0:11:11.800 at risk. So you know, as I said on the TV, 0:11:11.960 --> 0:11:17.319 you know, my biggest long position is four and my 0:11:17.400 --> 0:11:21.120 biggest short position is about three and a half percent. Um, 0:11:21.120 --> 0:11:25.040 my smallest short position is about one and a half percent. Position. 0:11:25.160 --> 0:11:29.400 You know, Tesla is is size more towards the smaller 0:11:29.520 --> 0:11:32.160 end of the scale. Um, not because I don't think 0:11:32.200 --> 0:11:33.880 there's a lot There isn't a lot of downside. I 0:11:33.880 --> 0:11:36.520 do think potentially there's a lot of downside, but it 0:11:36.600 --> 0:11:40.080 tends to be an extremely volable stock. And what tends 0:11:40.120 --> 0:11:44.199 to happen with stocks like that is your day gets 0:11:44.240 --> 0:11:48.679 consumed completely by that one stock, And when your day 0:11:48.760 --> 0:11:52.440 is consumed by one stock, you can't think about the 0:11:52.440 --> 0:11:55.160 rest of your portfolio, and so I try to avoid 0:11:55.160 --> 0:11:57.080 situations like so, just to be clear here, the same 0:11:57.280 --> 0:11:59.320 here at bloom Bogs reached down to testa for comment. 0:11:59.400 --> 0:12:02.520 UM represent STIPs for for Tesla have not immediately returned 0:12:02.720 --> 0:12:05.559 a co full comment on this position of yours. Steve, 0:12:06.240 --> 0:12:09.000 Is it about the space that Tesla is operating in 0:12:09.160 --> 0:12:11.040 or is it about Tesla? Do you think there could 0:12:11.040 --> 0:12:13.240 be winners in this space, because quite clearly Elon Muski 0:12:13.320 --> 0:12:17.480 is having a very difficult time rolling this out in 0:12:17.559 --> 0:12:21.480 mass production. Well, look, I think when you look at 0:12:21.559 --> 0:12:26.439 the the car space, the real future is going to 0:12:26.520 --> 0:12:29.960 be autonomous driving. You know, he's gotten big in the 0:12:30.000 --> 0:12:33.400 electric car space, but I really think that we're leap 0:12:33.440 --> 0:12:37.720 frogging now towards autonomous driving, and the two largest players 0:12:37.720 --> 0:12:41.400 in a Toronto's driving are Google and GM, and as 0:12:41.400 --> 0:12:46.680 far as I can tell, um, Tesla is a very 0:12:46.760 --> 0:12:50.760 distant party in that space. Your other short that you 0:12:50.840 --> 0:12:54.080 mentioned to us, and there are longs, including your enthusiasm 0:12:54.200 --> 0:12:57.800 for Mr Bezos and Amazon, was Zillo, which is a 0:12:57.800 --> 0:13:01.520 whole different beast. It's again a smaller single story if 0:13:01.520 --> 0:13:04.520 you would, how do you handle a given short like 0:13:04.559 --> 0:13:10.880 a Zillo Z versus something with notoriety like a Tesla. Well, 0:13:11.000 --> 0:13:14.400 Zilla was a larger short, and the vectors up. I mean, 0:13:14.400 --> 0:13:16.760 you're really going against now, I'm going against I'm going 0:13:16.800 --> 0:13:19.880 against a trend in the sense that Zillo is considered 0:13:19.880 --> 0:13:23.959 to be what's called a platform, and the platform space 0:13:24.200 --> 0:13:26.880 is the hottest space in the Internet, so that I 0:13:26.920 --> 0:13:30.600 have going against me Um. But not all platforms are 0:13:30.640 --> 0:13:34.120 created equal, and this is a platform where I think 0:13:34.120 --> 0:13:37.880 the addressable market is much smaller than the company is saying. 0:13:38.280 --> 0:13:41.200 The growth rate of the company has slowed in its 0:13:41.200 --> 0:13:44.840 basic business enormously over the last year or so. And 0:13:44.880 --> 0:13:48.160 then the thing that really took tilted me over the 0:13:48.280 --> 0:13:51.640 edge with respect to Zillo was when they announced earlier 0:13:51.679 --> 0:13:54.040 this year that they were entering a new business, which 0:13:54.120 --> 0:13:56.400 was they were going to use their own capital to 0:13:56.800 --> 0:14:00.400 buy houses and flip them. And you know, you could 0:14:00.400 --> 0:14:03.199 have arguments about how good or bad the basic businesses, 0:14:03.360 --> 0:14:06.440 but it's definitely a cash flow positive business doesn't require 0:14:06.480 --> 0:14:09.320 a lot of capital. They're now entering into a low 0:14:09.400 --> 0:14:13.240 margin cyclical business where if we go into recession, that 0:14:13.240 --> 0:14:15.720 business will do particularly badly. Steve Osman, it has been 0:14:15.720 --> 0:14:17.640 great to get your thoughts this morning. Thank you very much. 0:14:17.720 --> 0:14:33.200 Iisman Group Newberger Berman, Senior portfolio manager. Why don't you 0:14:33.240 --> 0:14:35.720 bring in mr rupt Gear as we see the the 0:14:35.800 --> 0:14:38.360 yield come in a solid basis point two point nine 0:14:38.480 --> 0:14:42.800 six Chris Rapki joining us NATCHI financial economist m uf 0:14:42.960 --> 0:14:46.840 G a Union bank. You thought, she really thoughts Chris, Yeah, 0:14:46.880 --> 0:14:50.000 it looks like a pretty terrific number. As they say, 0:14:50.080 --> 0:14:53.520 it had a four handle. I was surprised by the 0:14:53.560 --> 0:14:57.200 strength of consumers spending because it didn't look like car 0:14:57.200 --> 0:14:59.640 and light truck sales were all that strong. I guess 0:14:59.640 --> 0:15:04.480 we're of the teen point four million annual rate in June. 0:15:05.560 --> 0:15:11.160 Um exports look like they're pretty strong. I still think 0:15:11.200 --> 0:15:14.720 you can say that you can make the case that 0:15:14.800 --> 0:15:18.080 this is the high water mark for growth here certainly 0:15:18.160 --> 0:15:23.360 this year, and that everything clicked this quarter, um, and 0:15:23.400 --> 0:15:26.040 we'll see what happens in the future. I think some 0:15:26.120 --> 0:15:29.480 of the trade uncertainty is still a problem, even with 0:15:29.880 --> 0:15:33.120 the agreement with the European Union. Well, Chris Let's unpacks 0:15:33.160 --> 0:15:35.040 that first of all, as Tom says, going beneath the 0:15:35.080 --> 0:15:37.600 headline number you've picked up on that trade story, how 0:15:37.680 --> 0:15:40.600 much of a contribution did we get from a build 0:15:40.680 --> 0:15:43.160 up ahead of tariffs being introduced that will likely not 0:15:43.200 --> 0:15:47.600 be in the number in the back half. Just trying 0:15:47.640 --> 0:15:50.960 to get my Bloomberg screen going here, Well, better get 0:15:51.120 --> 0:15:54.760 going net ex Well, exports add at one point one 0:15:54.800 --> 0:15:59.640 percentage point, and the drag from imports was minimal. So 0:16:00.000 --> 0:16:05.280 does look like certainly, uh you know, they people we 0:16:05.480 --> 0:16:07.840 exported more to the rest of the world to get 0:16:07.840 --> 0:16:11.720 ahead of some of these made tariff uncertainty that one 0:16:11.720 --> 0:16:14.320 percentage point. Yeah, I've got a first look at seven 0:16:14.360 --> 0:16:18.760 point four percent current g d P. That's a whow statistic. 0:16:18.800 --> 0:16:20.840 I've had a search here to figure out what that 0:16:20.960 --> 0:16:24.320 gives us. US goes back to is seven point four 0:16:24.440 --> 0:16:32.640 percent boom nominal GDP A healthy condition. Well, yeah, I 0:16:32.640 --> 0:16:36.160 mean you can do the same thing by saying, uh, 0:16:36.240 --> 0:16:39.440 you know, for some reason, inventories was a huge drag. 0:16:39.960 --> 0:16:42.600 I mean, first off, we revised the data back to 0:16:44.680 --> 0:16:47.080 um I wasn't there, so we'll have to study this 0:16:47.160 --> 0:16:51.800 a little more. But I was surprised that inventories subtracted 0:16:51.880 --> 0:16:55.560 one percentage point. So even though we missed at four 0:16:55.600 --> 0:16:59.120 point one percent, it was actually five point one percent. 0:16:59.200 --> 0:17:02.600 Which also, you know, if we take out inventories, which 0:17:02.600 --> 0:17:05.080 are just you know, they go back and forth every quarter. 0:17:05.920 --> 0:17:10.480 Uh so the underlying potential rate real growth is like five. Really, 0:17:11.640 --> 0:17:14.760 the economy is quite strong with I think the Trump 0:17:14.800 --> 0:17:17.240 administration has a reason to crow about it. I don't 0:17:17.240 --> 0:17:19.639 know if they'll be crowing quite the same way. No, 0:17:19.760 --> 0:17:24.320 but still real final sales John Ferrell or five and 0:17:24.400 --> 0:17:28.400 that's a that's around statistic that uh is just absolutely 0:17:28.960 --> 0:17:33.080 absolutely extraordinarius. Another way, overwhelmingly, the consensus view now is 0:17:32.880 --> 0:17:36.080 this is as good as it gets. Chris, tell me 0:17:36.080 --> 0:17:38.440 why this can't be self fulfilling. Why these kind of 0:17:38.520 --> 0:17:41.200 numbers can inspire confidence in the economy and drive things 0:17:41.200 --> 0:17:44.240 forward even more? Well, I mean it comes down to 0:17:44.280 --> 0:17:49.520 the battle between the Trump administration. Remember the famous US 0:17:49.600 --> 0:17:52.800 Treasury one page economic growth forecast that came out with 0:17:53.280 --> 0:17:57.480 to justify the tax cuts. Now, the administration is looking 0:17:57.880 --> 0:18:01.440 for three percent growth starting in two thousand and twenty 0:18:01.720 --> 0:18:03.760 forever as far as the eye can see. But the 0:18:03.800 --> 0:18:09.440 economics profession, as shown by FED official forecasts, have GDP 0:18:09.800 --> 0:18:13.119 being two in two thousand and twenty. So the tax 0:18:13.200 --> 0:18:19.520 cuts that economists see is one year phenomenon in trailing 0:18:19.520 --> 0:18:25.080 out in two thousand nineteen. So the economics world say 0:18:25.240 --> 0:18:29.760 has two percent growth starting two thou administrations say is three. 0:18:29.840 --> 0:18:31.960 So I mean there's quite a difference. And the reason 0:18:32.040 --> 0:18:35.480 between the two is the the economists have come down 0:18:35.520 --> 0:18:38.320 on the idea of demographics are very big. They ignored 0:18:38.359 --> 0:18:41.679 it for years now. They think the graying of society, 0:18:42.520 --> 0:18:45.840 low birth rate, that's gonna doom economic growth, or at 0:18:45.880 --> 0:18:50.119 least keep it down at load percent range. Chris Rob, you, 0:18:50.160 --> 0:18:54.520 what's your run rate for for US GDP. I think 0:18:54.760 --> 0:18:57.840 we're gonna get close to three percent, not quite in 0:18:57.920 --> 0:18:59.960 the next couple of years. I haven't like two point 0:19:00.040 --> 0:19:03.840 eight two point nine. I'm not quite as bearish as 0:19:03.920 --> 0:19:06.920 some of the set official forecasts, but not quite as 0:19:07.160 --> 0:19:10.560 uh as Blue Skies for the economy, I don't I 0:19:10.560 --> 0:19:13.560 don't see the administration forecast is being that good either. 0:19:14.040 --> 0:19:16.280 Thanks so much, Chris ROPPI greatly appreciate it, And for 0:19:16.280 --> 0:19:18.199 the record, I would note that Mr Rupprie has been 0:19:18.200 --> 0:19:35.040 an optimist on the American economy. Margie Battell looks at 0:19:35.080 --> 0:19:37.840 the same day that we look at uh in a 0:19:37.920 --> 0:19:41.600 high yield in bonds, in dividend, paying in dividend, and 0:19:41.600 --> 0:19:45.879 growing equities at Wells Fargo Asset Management. Margat I happened 0:19:45.880 --> 0:19:51.920 to be looking at contribution to g d P. Exports 0:19:52.400 --> 0:19:58.640 is jaw dropping goods, boom services not bad, but export, 0:19:58.680 --> 0:20:02.520 the export char coming off of two thousand and fifteen 0:20:02.560 --> 0:20:07.080 and particularly coming off the election, is extraordinary. You are 0:20:07.440 --> 0:20:11.400 very optimistic on the markets. Is it because we're an 0:20:11.400 --> 0:20:17.520 export juggernaut? Uh? Well, really it's everything everything. US business 0:20:17.640 --> 0:20:22.919 is extremely productive, globally competitive. Global growth is at least 0:20:22.960 --> 0:20:26.920 okay to picking up a little bit. So conditions here 0:20:26.960 --> 0:20:31.040 are great. Our manufacturers in particular have lowered their costs. 0:20:31.240 --> 0:20:33.560 They have such a flexible cost structure they can compete 0:20:33.600 --> 0:20:35.840 with anybody even if the dollar moves up, which of 0:20:35.840 --> 0:20:39.399 course it has I mean the dollar dynamics are tangible. 0:20:40.000 --> 0:20:43.280 Is a kind of report today in the interior data 0:20:43.359 --> 0:20:47.560 of the report enough to shift the bond market priced down, 0:20:47.920 --> 0:20:53.960 yield higher, Not as long as you have inflation so 0:20:54.000 --> 0:20:58.560 well behaved, and not as long as the treasury market 0:20:58.640 --> 0:21:02.000 is still has a competitive yield compared to yields of 0:21:02.040 --> 0:21:05.560 other developed countries. It's incredible that our yields are so 0:21:05.640 --> 0:21:09.280 much hard and say your yields in Europe. So I 0:21:09.280 --> 0:21:12.040 think that for a safe haven for investors to get 0:21:12.119 --> 0:21:14.159 something like a three percent is going to keep a 0:21:14.240 --> 0:21:17.400 lid on how fast rates can go up, assuming inflation 0:21:17.520 --> 0:21:20.280 days where it is. Have you changed your portfolio a 0:21:20.359 --> 0:21:23.760 lot in the last ninety days? I mean the toxic 0:21:23.960 --> 0:21:28.360 not toxic, the cocktail rather of booming economic growth four 0:21:28.400 --> 0:21:31.679 point one percent with a real final sales folks nicely 0:21:31.720 --> 0:21:35.119 above five. I mean, do does that make you change 0:21:35.160 --> 0:21:39.840 your portfolio? Have you been you vacationing in Iceland? No? 0:21:40.160 --> 0:21:43.080 I've been thinking for a long time that the market 0:21:43.160 --> 0:21:47.760 is set up under estimating how strong and how sustainable 0:21:47.800 --> 0:21:50.359 the growth is. And I think that a lot of 0:21:50.400 --> 0:21:53.199 market players still are geared as if tomorrow is going 0:21:53.240 --> 0:21:55.280 to be two thousand and eight. Again in the market's 0:21:55.320 --> 0:21:58.760 going to drop. Where do you wrong on rates too? 0:21:58.880 --> 0:22:01.160 They're not going to go up, that asked. Okay, they're 0:22:01.160 --> 0:22:04.000 on rates as well, which means price stability. But what 0:22:04.119 --> 0:22:06.639 does it mean for dividend growth? And where can you 0:22:06.760 --> 0:22:12.320 find intelligent dividend growth backed by free cash flow? I 0:22:12.359 --> 0:22:15.520 think in just about all sectors except for those that 0:22:15.560 --> 0:22:20.439 are under structural pressure because of global forces. Um. I 0:22:20.480 --> 0:22:23.639 think retailing is a sector that is continuing to suffer 0:22:23.680 --> 0:22:26.119 because of the Internet trend. And I think, really you 0:22:26.160 --> 0:22:28.400 look at a sector like autos. Yes, people have more 0:22:28.400 --> 0:22:31.879 money to buying more cars, but too much global competition, 0:22:31.960 --> 0:22:35.360 too much capacity. We have a headline out now Margie 0:22:35.359 --> 0:22:40.960 Patel to speak on the American economy at eight one am, 0:22:41.040 --> 0:22:44.320 and just behind that Bloomberg headline, President Trump will speak 0:22:44.359 --> 0:22:49.040 to the nation a m this morning, uh New York 0:22:49.080 --> 0:22:52.119 time on the US economy. Pim Fox, Why don't you 0:22:52.200 --> 0:22:55.880 jump in here as we speak with Margie Patel, Wells Fargo, PIM. 0:22:55.920 --> 0:22:58.280 I mean this is this is this is an economy 0:22:58.320 --> 0:23:03.280 Pim from years in my childhood. Well, well, well we 0:23:03.359 --> 0:23:08.600 won't go there. This is big numbers. These are big 0:23:08.680 --> 0:23:12.160 numbers and market. One point to you is how much 0:23:12.200 --> 0:23:16.800 do you believe the investors smart investors are willing to 0:23:16.880 --> 0:23:20.720 pay for every dollar of earnings? Now do you think 0:23:20.720 --> 0:23:24.719 that's changing? I think they should be willing to pay 0:23:24.760 --> 0:23:27.439 a bit more um. If you say that, you know, 0:23:27.520 --> 0:23:30.760 going forward, PE is roughly seventeen is. I see no 0:23:30.840 --> 0:23:33.600 reason why they can't go up a turn or two. 0:23:33.920 --> 0:23:35.919 You know, the argument that well as rates go up, 0:23:35.960 --> 0:23:41.119