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Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,

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Speaker 1: along with my co host Lisa Brahma wits. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. You know, Lisa, the market's just

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Speaker 1: you're just kind of looking at They were holding onto

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Speaker 1: some gains here just a few minutes ago. Then they

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Speaker 1: just rolled over. We've got the SMP down twenty and

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Speaker 1: the Dow off two hundred. They were again for that

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Speaker 1: first hour of the market kind of holding those small

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Speaker 1: gains but uh not enough. Yeah, we're looking right now

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Speaker 1: than has dacked down in tens of a percent, really

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Speaker 1: tanking around. Uh you know, ten fifteen ten ten am.

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Speaker 1: Would try to figure out what the catalyst was there,

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Speaker 1: which headline it was for everyone to push the cell button.

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Speaker 1: I'd sell it's a perfect set up for next guest.

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Speaker 1: Narianna cultural Lakota, former Minneapolis Fed president and Bloomberg opinion columnists,

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Speaker 1: is also the professor of economics at the University of

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Speaker 1: Rochester based in Rochester. Now, Rihanna, you wrote a really

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Speaker 1: interesting column for or Bloomberg just yesterday kind of talking

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Speaker 1: about how the FED should be aggressive not wait, maybe

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Speaker 1: think about some pre emptive rate cuts to kind of

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Speaker 1: get ahead of this coronavirus. I guess the question is

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Speaker 1: would that even help? Would that matter given how low

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Speaker 1: rates are right now? Oh yeah, and thanks for having

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Speaker 1: me on. Actually, I think given how low rates are

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Speaker 1: right now, I'll really um makes the case even stronger

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Speaker 1: for a preemptive move. UM. You know the basics thinking

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Speaker 1: about UM let's emerged the last ten to fifteen years

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Speaker 1: about what central banks should do when they're so close

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Speaker 1: to the zero or bround, that is, when they're so

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Speaker 1: close to being odd of tools, is to try to

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Speaker 1: keep the economy as healthy as possible when faced with

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Speaker 1: the risk of a downturn or adverse shock. And I

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Speaker 1: think the coronavirus is exactly an example that My benchmark

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Speaker 1: outlook is one where UM, the the U S economy

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Speaker 1: remains resilient, but there's downside risk, and the FED should

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Speaker 1: I think the very sensitive that downside risk, given given

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Speaker 1: how low rates are already, meaning given how little ammunition

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Speaker 1: they have. Um, they really should be moving right now

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Speaker 1: to try to keep the economy as healthy as possible. Ariana,

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Speaker 1: I just want to bring you this because we did

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Speaker 1: note a real rollover in equity markets, and I asked

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Speaker 1: Men Signerella, our macro strategist here at Bloomberg, and he

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Speaker 1: was saying, there are a number of headlines about the virus,

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Speaker 1: the coronavirus, hitting mainland Spain and Barcelona, as well as

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Speaker 1: in Switzerland. So this idea that it's becoming more widespread

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Speaker 1: throughout the euro continent. I'm just wondering, from your perspective,

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Speaker 1: the fact that this makes the case even more for

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Speaker 1: the Federal Reserve to cut rates. What will that actually do,

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Speaker 1: given the fact that it won't necessarily make people more

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Speaker 1: incentivized to go out and spend money. I mean, if

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Speaker 1: they're just pulling up and trying not to get sick. Uh. No,

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Speaker 1: I think that what you you do by um, by

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Speaker 1: cutting rates is uh in the in the in the

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Speaker 1: US is special. I think what you see when we've

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Speaker 1: seen the last couple of days is flights to save havens.

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Speaker 1: What that ends up doing is uh, the U S

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Speaker 1: dollar is one of those safe havens. It pushes up

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Speaker 1: the value of the dollar. And even if the US

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Speaker 1: itself ends up not being affected greatly by the coronavirus,

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Speaker 1: that appreciation of the dollar pulls the FED further away

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Speaker 1: from its goals of UM two percent inflation. On the

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Speaker 1: employment front, UH, if we can, if we by cutting rates,

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Speaker 1: the FED can get more Americans to spend. That offsets

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Speaker 1: the falling demand for US goods and services that we

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Speaker 1: will be seeing from overseas. So I think that this

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Speaker 1: is all about trying to keep the U s economy

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Speaker 1: as healthy as possible. Given this. Uh, given this negative shock,

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Speaker 1: would fiscal stimulus be a better option um than more

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Speaker 1: rate cuts? Do you think? Well? You know, I'm completely

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Speaker 1: supportive of what I heard from FED speakers last week

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Speaker 1: who were putting out the case for Look, the FED

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Speaker 1: doesn't have that many tools in the in the toolkit,

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Speaker 1: so physical policy should be ready to roll if we

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Speaker 1: were to get into, um a recessionary state or a

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Speaker 1: negative negative demand shock of some kind. UM. I don't

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Speaker 1: think Congress is in that situation right now, but I

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Speaker 1: certainly agree with my former FED colleagues who were laying

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Speaker 1: out this case that, look, the FED only has a limited,

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Speaker 1: limited tool kit would be great if physical policy UM

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Speaker 1: it was clearly going to step in to make up

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Speaker 1: for that slack. Marianna, I would say that the bond

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Speaker 1: market currently agrees with you that the Federal Reserve will

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Speaker 1: or should be cutting rates potentially even three times by

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Speaker 1: early next year, although perhaps disagrees in that there is

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Speaker 1: a very dimnimous chance that they're going to cut rates

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Speaker 1: on the March eighteenth meeting. The great cuts really are

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Speaker 1: priced in to begin in June. I'm just wondering what

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Speaker 1: you said about incentivizing consumers to spend. Is that sort

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Speaker 1: of the last tool because we're not necessarily seeing corporations

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Speaker 1: borrow that much more despite record low borrowing costs. Is

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Speaker 1: it really aimed at the consumer levering up to go

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Speaker 1: buy cars or microwaves or whatever else. Yeah, I mean, uh,

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Speaker 1: we incentivized consumers to buy UM through monetary policy, partly

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Speaker 1: through by making borrowing cheap, but also by making savings unattractive.

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Speaker 1: So through both of those instruments, you're trying to incentivized spending.

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Speaker 1: I've been disappointed by investment on the on the corporate side.

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Speaker 1: I'm I'm not alone in that. Uh, that's really, um,

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Speaker 1: you need some notion of I think better expectations about

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Speaker 1: the long run than than the corporations appear to have,

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Speaker 1: either in the US or in Europe, or in in

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Speaker 1: China and Japan. I think that um it's long run

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Speaker 1: diminished expectations are really keeping the lid on on corporate evolve.

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Speaker 1: With all due respect, though, I have to wonder if

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Speaker 1: you say that in making savings less advantageous, does that

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Speaker 1: just push people into risk your assets, risk your debt

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Speaker 1: that's already treating at highly elevated prices, into equities that

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Speaker 1: already are at historically high levels. There's going to be

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Speaker 1: some of that on the there's someone set it to

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Speaker 1: do that. Although as you just pointed out, I mean

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Speaker 1: equities are very expensive, um Um, So that that that

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Speaker 1: that the fact that equities are so expensive should say

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Speaker 1: to people, look, UM, I don't want to buy stocks.

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Speaker 1: I might as well spend my money instead. So I

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Speaker 1: think on on the margin, UM, all of this is

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Speaker 1: on the margin, you are going to be able to

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Speaker 1: stimulate spending and that will generate higher employment and um

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Speaker 1: keep the FED closer to it's it's in inflation target.

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Speaker 1: So it's interesting now Jana, the FED open market can

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Speaker 1: mid he holds its next meeting March or eighteen. Do

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Speaker 1: you think they will wait till then or do you

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Speaker 1: think they will act preemptively? Well, um, my column was

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Speaker 1: a should column. It wasn't the scription what the Fed

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Speaker 1: will actually do? Um? So I I thought that the

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Speaker 1: Fed should move preemptively. I don't anticipate that they will. Um.

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Speaker 1: I share the skepticism that they will move in in March.

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Speaker 1: I I think the Feeding yet again, has boxed itself

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Speaker 1: into a quarter by saying, look, things are great, We're

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Speaker 1: not gonna We're in a great position, and it means

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Speaker 1: that by locking themselves in, by talking so much about that,

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Speaker 1: it means a loss of face, a loss of quote

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Speaker 1: unquote credibility of some kind for them to start to move,

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Speaker 1: to move right in either direction. We're speaking with Marianna

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Speaker 1: Kutula Quota, former Minneapolis FED President, professor of economics at

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Speaker 1: the University of Rochester, a Bloomberg opinion columnist, about his

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Speaker 1: column that called for a preemptive rate cup by the

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Speaker 1: FED to reserve. We should just mention that right now

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Speaker 1: we are seeing a sell off inequities, although off earlier

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Speaker 1: lows after starting the day positive with the losses led

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Speaker 1: by the SMP down a little bit more than six

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Speaker 1: tenths of a percent. Arianna, I'm curious about the actual

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Speaker 1: fundamental US economy in the state of it. We got

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Speaker 1: some p m MY data on Friday that how to

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Speaker 1: do with services in particular, that highlighted a degree of

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Speaker 1: weakness that was really unexpected by economists and market players alike.

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Speaker 1: I'm wondering what you make of that. Is there perhaps

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Speaker 1: less momentum behind the US consumer than some people expect.

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Speaker 1: I think they're, you know, as usual when you read

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Speaker 1: the tea leaves. I think there's some some strong positives

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Speaker 1: of the labor market remains a real source of good news. UM.

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Speaker 1: On the other hand, UM market tends to be a

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Speaker 1: little bit backward looking at Maybe there's things you can

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Speaker 1: see that that are more forward looking at that, UM

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Speaker 1: give you cause, would give ones cause for concern. My

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Speaker 1: own benchmark outlook is remains that. UM. You know, I'd

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Speaker 1: like to see more growth, but I think we're gonna

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Speaker 1: see about two growth in this year. UM. That point, though,

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Speaker 1: is when you're making policy, it's really not so much

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Speaker 1: about your benchmark outlook as it is about the risks

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Speaker 1: that outlook. And that's especially true when you're as close

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Speaker 1: as you are to the zeroal are abound. All right.

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Speaker 1: So just last thing, you know, we're always thinking about

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Speaker 1: this feed is being data dependent. I wonder what day

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Speaker 1: do you think they might be looking at now as

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Speaker 1: it relates to the coronavirus. That might be a little

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Speaker 1: different than what they've done in the past. Yeah, I mean,

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Speaker 1: I I think that's a tough question. I you know,

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Speaker 1: I think that one of the things I'll be looking at,

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Speaker 1: I suspect is what's going on in markets. I think

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Speaker 1: that you see UM fear in markets, you see the

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Speaker 1: imprint of fear in markets, and UM that fear is

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Speaker 1: be a drag on the economy. And so I think

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Speaker 1: that the FED will be looking at that in terms

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Speaker 1: of actual hard numbers on on on the economic front.

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Speaker 1: I really hope they don't wait to see those. And

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Speaker 1: I think last year they moved it away. UM. Their

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Speaker 1: their interest rate cuts were less motivated by what was

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Speaker 1: going on in the economy as opposed to a perception

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Speaker 1: of risk the economy. That's exactly what I'm urging in

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Speaker 1: the context of the coronavirus as well, and I hope

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Speaker 1: they do that. Um. As I said, they again, I

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Speaker 1: feel like they've used language to box themselves into a

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Speaker 1: corner where it's hard. They're going to find it hard.

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Speaker 1: They're gonna feel that it's hard for them to move

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Speaker 1: interest rates either up or down. Naranna cultural Lakota, former

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Speaker 1: Minneapolis Fed President, Thank you so much for being with us.

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Speaker 1: Uh Naryana is a professor of economics at the University

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Speaker 1: of Rochester and a Bloomberg opinion columnist. Paul, we really

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Speaker 1: noticed a market turnaround from what had been a positive

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Speaker 1: start to the day. Yeah. And I think, as you

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Speaker 1: mentioned earlier, it looks like seeing some reporting of some

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Speaker 1: cases you know now not just Italy, but perhaps Spain

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Speaker 1: as well. Um. And so I think that just raises

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Speaker 1: the concerns that a lot of investors have about how

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Speaker 1: much of a potential is this to be a global

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Speaker 1: pandemic which could impact global GDP. And I think that's

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Speaker 1: kind of the risk we're seeing in the bond market. Um.

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Speaker 1: You know, yields grinding lower in than the equity markets

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Speaker 1: rolling over here. Yeah, this is just to be very clear,

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Speaker 1: the who has not the World Health Organization has not

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Speaker 1: deemed this yet. A pandemic, it is required that an

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Speaker 1: international agency like that give it that designation. However, we

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Speaker 1: are seeing it spread beyond the borders of China and

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Speaker 1: Japan and Korea, uh and Italy now to Switzerland, which

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Speaker 1: is confirmed and also reports in Spain as well. The

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Speaker 1: question is do you buy this dip? And Jim Pulson,

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Speaker 1: chief investment strategistic Luthhold Group, has been watching closely and

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Speaker 1: joins us now on the phone, Jim, do you buy here? Well?

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Speaker 1: I uh, I think if you've been underweighted dramatically, you

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Speaker 1: might want to buy a little bit. But otherwise I

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Speaker 1: think I'd stand pat here and let the let the

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Speaker 1: fear sort of burn itself out here, uh for a

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Speaker 1: few more days. You know. I think the coronavirus was

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Speaker 1: the catalyst here, but I think this market would have

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Speaker 1: found some catalyst. I mean, we've just had a tremendous

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Speaker 1: run over the last year, and really we have not

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Speaker 1: had a tempera set correction. We certainly could have here

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Speaker 1: who knows, um, and that would not be at all

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Speaker 1: you know, uh surprising. Probably at some point would have

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Speaker 1: found some catalysts to do that. Um. You know, and

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Speaker 1: when you have these Steve drops. You know, the fear

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Speaker 1: really escalates and the stories get get pretty scary. Uh personally,

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Speaker 1: who knows. I'm no pandemic expert by any means, so

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Speaker 1: it could be a horrific outcome. I don't really know,

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Speaker 1: but odds I think strong only favor that probably this

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Speaker 1: epidemic will will start to fade a little bit here

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Speaker 1: over the next several months, and and probably a lot

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Speaker 1: of the spending that has been paused because of this,

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Speaker 1: like in places like China, will catch up. And I

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Speaker 1: still think that's the most likely outcome. It's not shocking

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Speaker 1: to me that we have incidents in other parts of

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Speaker 1: the world. Heck, we had long before last week. We

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Speaker 1: had incidents here in the United States and several other

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Speaker 1: places in the world, so we knew, uh it was spreading.

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Speaker 1: I just I'll be surprised, though, to some extent, if

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Speaker 1: it gets nearly as bad elsewhere as it did in China,

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Speaker 1: simply because China, you know, that was the outbreak and

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Speaker 1: no one really knew what it was, and no one

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Speaker 1: expected that it was as bad as it was. Everywhere

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Speaker 1: knows what this is from a standpoint that it's serious,

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Speaker 1: and you know before it even gets bad, they've taken majors.

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Speaker 1: I think that makes a difference, UM, where people have

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Speaker 1: some warning to this as opposed to when it broken China. UM.

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Speaker 1: So I you know, who knows, but you've never known

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Speaker 1: these things. But I think underneath this, going into this

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Speaker 1: UM coronavirus, we had an up tick in world economic growth.

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Speaker 1: Manufacturing was recovering around the world, growth in general was recovering. UM.

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Speaker 1: We had r I s M pop backup of fifty.

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Speaker 1: We had the s M and China pop backup of fifty.

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Speaker 1: Right now, economic surprises have been on the positive side

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Speaker 1: in most places around the world, including China, Emerging World,

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Speaker 1: in the United States. So we had positive momentum going

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Speaker 1: into this, which I think is a very good thing,

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Speaker 1: as opposed to negative momentum that we might have had

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Speaker 1: last year of this hit. Ye. I certainly don't know,

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Speaker 1: but but I would try to avoid uh, you know,

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Speaker 1: panicking here. I think this whole is more a correction

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Speaker 1: than the end of the cycle. Just to give you

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Speaker 1: an update. Right now, all three major US equity indusicries

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Speaker 1: down nearly one percent as Spain isolates a thousand people

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Speaker 1: at an island hotel with the concern that there could

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Speaker 1: be the spread of coronavirus, Switzerland confirming its first case. Meanwhile,

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Speaker 1: you're seeing in the bond market thirty year yields down

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Speaker 1: uh to new loads of one point eight percent at

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Speaker 1: one point seven percent now actually uh, and you're seeing

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Speaker 1: rate cut bets increasing, with a lot of people speculating

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Speaker 1: the FED could cut rate three times by the beginning

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Speaker 1: of next year. That's exactly where I wanted to go, Lisa, Jim,

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Speaker 1: what do you think the FED should do could do? Uh?

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Speaker 1: In response to some of the concerns that the coronavirus. Well,

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Speaker 1: you know, it's uh, the market continues to go down.

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Speaker 1: You know, I think the FED will probably come in

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Speaker 1: and with the rate cut. Um. You know what does

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Speaker 1: that do though, Well, I think it doesn't do much

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Speaker 1: directly fundamentally um that we've already done. But I take

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Speaker 1: does help confidence to some degree. One thing it would

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Speaker 1: do is help take the inversion out of the yield curve,

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Speaker 1: which would help Wall Street confidence to some degree. I think, Um,

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Speaker 1: you know, I I also think so that in many

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Speaker 1: ways that coronavirus is you know, the understanding of the

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Speaker 1: story here, that's the narrative. I really think a big

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Speaker 1: part of what's going on is is the bond market

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Speaker 1: and the fact that the thirty year yield broke to

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Speaker 1: new lows last week and the ten year is doing

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Speaker 1: so now or is very close. I think that's scaring

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Speaker 1: a lot of traders and investors more even than the coronaviruses.

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Speaker 1: Is the breakdown and yields. What what does the bond

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Speaker 1: market know that the stock market doesn't and and the

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Speaker 1: fields break low below those levels? Is our yields in

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Speaker 1: the United States headed negative? Like here's here's here's the

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Speaker 1: sort of condundrum. Right. A lot of people say that

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Speaker 1: the lower yields go on bonds in the United States,

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Speaker 1: the more of a relative valuation case there is for equities.

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Speaker 1: And yet there is this sort of confidence factor where

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Speaker 1: if bond yields head south, price up, yield down, especially

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Speaker 1: at these levels, it indicates a flight to safety and

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Speaker 1: a fear trade that makes people risk averse. So which

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Speaker 1: is it, right? I mean, which signal can you get

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Speaker 1: that you're getting a better relative valuation and equities the

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Speaker 1: lower that yields go, or that the bond market is

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Speaker 1: telling you something kind of scary that you keep you

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Speaker 1: away from risk assets well, the bond market has been

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Speaker 1: telling is you know, uh, something scary for really since

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Speaker 1: the end of two thousand eighteen, and it's also told

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Speaker 1: us something scary in two thousand sixteen, and it also

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Speaker 1: told us something scary in two thousand eleven and two

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Speaker 1: thousand thirteen. I mean, the bond market has been telling

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Speaker 1: a scary story throughout this bowl market and uh, you know,

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Speaker 1: it hasn't really been right in a lot of those.

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Speaker 1: Now it could be right at some point, there's no

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Speaker 1: doubt about that. But the fact that we've got a

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Speaker 1: scary story coming from the stock market is nothing new

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Speaker 1: in the last decade um, where it's been professionally setting

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Speaker 1: new lows and suggesting something sinis or is underneath the surface. Um,

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Speaker 1: and we're doing that again. But you know, we did

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Speaker 1: that at the end of the last manufacturing recession in

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Speaker 1: two thousand sixteen as well, and the yields are about

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Speaker 1: where they were, you know, and following it at this

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Speaker 1: point then as well. So it's hard to know. I mean,

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Speaker 1: the bottomark could be right, I'm not saying that, but

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Speaker 1: it's not. It's not like this is a one off

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Speaker 1: event that's never happened before. The bond market has been uh,

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Speaker 1: you know, yelling fire for quite some time. Um, and

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Speaker 1: you know who knows who who is right. I just

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Speaker 1: think it connotes fear more than anything else right now.

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Speaker 1: And to me, I wouldn't necessarily run from that. I'm

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Speaker 1: not sure i'd buy into it. I'd let's see a

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Speaker 1: few days, see if this can find a bottom, But

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Speaker 1: I wouldn't necessarily panic along with everyone else. Hey, Jim,

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Speaker 1: thanks so much for joining us. We appreciate your thoughts

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Speaker 1: and commentary. Jim Paulson, Chief investment STRATEGI just for the

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Speaker 1: Lithhole Group, joining us on the phone from Minneapolis. Presidential

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Speaker 1: election is ramping up, and the concern remains from seen

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Speaker 1: about the vulnerability of the campaigns and of the election

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Speaker 1: itself to outside influences, most notably certainly from from Russia.

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Speaker 1: To get a sense of kind of where we are

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Speaker 1: today versus, we welcome Admiral James Turvidas. He's a columnist

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Speaker 1: for Bloomberg Opinion, retired U S. Navy admiral and of course,

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Speaker 1: former military commander of NATO. Adams Strevidis. Thank you so

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Speaker 1: much for joining us. We know you are busy. Let's

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Speaker 1: start with the presidential election. Clear evidence that the election

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Speaker 1: was influence, was hacked by the Russians. Is that risk

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Speaker 1: still there today? In the entire U S intelligence community,

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Speaker 1: all seventeen elements of it had attested to that in

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Speaker 1: front of Congress, most recently in a somewhat controversial briefing. Uh.

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Speaker 1: It is clearly a threat. And I'll give you three

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Speaker 1: quick things we got to focus on. One is local manipulation,

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Speaker 1: actually going in and trying to work on balloting procedures.

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Speaker 1: This is perhaps the most undefended portion of this that

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Speaker 1: won't be manifest until November. Of course. Number two is

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Speaker 1: going after the campaigns the way the Russians did in

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Speaker 1: getting into emails, revealing insider detail to embarrass and deter campaigns.

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Speaker 1: And then number three what you alluded to, Paul, attempting

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Speaker 1: to influence the campaigns by getting on social media social networks,

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Speaker 1: creating thoughts that drive social media campaigns. So there are

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Speaker 1: layer upon layer of ways in which Russia, Ken and

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Speaker 1: I would suspect, will try and attack these elections. Admiral,

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Speaker 1: given your experience within the military and the the security

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Speaker 1: forces all around, how good is our defense to these

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Speaker 1: types of attacks now? Compared to two thousand sixteen. At least,

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Speaker 1: I wish I could say it's, uh, it's much much better.

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Speaker 1: I cannot. I would say that we are somewhat better

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Speaker 1: because our technology and our tools coming out of the

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Speaker 1: National Security Agency n s A are better, Our big

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Speaker 1: banks are financials are telecom have improved. And then thirdly,

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Speaker 1: a plus is that we're more aware of the threat

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Speaker 1: than we were in But having said all of that,

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Speaker 1: I would say our defenses are a C plus at best.

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Speaker 1: I wouldn't say they are going to get us in

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Speaker 1: a or even to be and you know, in elections,

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Speaker 1: that's our democracy. You only want to get an A

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Speaker 1: grade on the conduct of your democracy. So ad were

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Speaker 1: one of the things that's been a theme for the

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Speaker 1: Trump administration is generally not supportive of major parts of

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Speaker 1: our intelligence community and apparatus, and you know, constant attacks

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Speaker 1: on individuals as well as the UH the entities themselves

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Speaker 1: have those as that position by the administration materially weakened

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Speaker 1: US defenses as it relates to UM, you know, kind

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Speaker 1: of cybersecurity and just overall intelligence UH support it has, unfortunately,

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Speaker 1: and it manifests in two different ways. Paul One is

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Speaker 1: internally it's extremely discouraging to the intelligence community when they're denigrated,

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Speaker 1: dilluded a moment ago to a brief being done behind

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Speaker 1: closed doors, classified briefing up on the Hill, conducted by

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Speaker 1: the intelligence community about concerns of the election coming forward. Um,

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Speaker 1: this was attacked by the president. That's not helpful. If

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Speaker 1: the president has views on this, you have to get

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Speaker 1: behind closed doors with the intelligence community. But um, it

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Speaker 1: starts to buckle the morale inside the intelligence community when

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Speaker 1: they perceive they're being attacked by the commander in chief.

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Speaker 1: And then secondly, our allies are partners and our friends

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Speaker 1: are watching this, and even worse, the Russians are watching this,

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Speaker 1: and the Chinese and the Iranians and the North Koreans,

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Speaker 1: and it gives them more license, more optimism that they

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Speaker 1: can intrude in these elections if they see a split

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Speaker 1: between the executive branch and the intelligence community itself. So uh,

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Speaker 1: not helpful. I wish the President would take his concerns,

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Speaker 1: which may be legitimate at times, do it behind closed doors,

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Speaker 1: don't do it in a way that reveals these kind

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Speaker 1: of divisions. Admiral I want to just broaden out here.

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Speaker 1: We have certainly the election coming up this November. The

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Speaker 1: Democratic debates will be held tonight at a p m. Eastern.

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Speaker 1: But on a broader level, I'm wondering about the U.

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Speaker 1: S IS alliances right now, especially as head towards potentially

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Speaker 1: a more disruptive period of time, from a health perspective

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Speaker 1: or an economic perspective. How close is the US to

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Speaker 1: its allies versus say, two years ago. We have drifted

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Speaker 1: away from UH some of our allies, most notably our

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Speaker 1: European allies and NATO. That creaking sound you hear from

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Speaker 1: time to time, we is the Transatlantic bridge which is

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Speaker 1: under allowed stress and strain as between the United States

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Speaker 1: on one side and NATO on the other. I think,

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Speaker 1: in fairness, we're still very very close to the Israelis

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Speaker 1: to the Saudiast, were quite close with the Japanese. Are

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Speaker 1: South Korean alliance has had some stresses. I think the

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Speaker 1: one I worry about the most is that US European relationship,

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Speaker 1: because the Europeans matter collectively, that's the largest economy in

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Speaker 1: the world, the European Union. Now with Great Britain leaving it,

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Speaker 1: it's somewhat small oler than it was, but it's still

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Speaker 1: an enormous economic and military capability. So as we look

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Speaker 1: at challenges around the world, the military one certainly the

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Speaker 1: cyber ones. And you're absolutely correct. If this coronavirus continues

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Speaker 1: to accelerate, we're going to need all hands on deck

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Speaker 1: globally to deal with it. It's not a good time

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Speaker 1: to be drifting away from our principal pool of allies,

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Speaker 1: partners and friends, and that's Europe. And we'll just quickly,

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Speaker 1: you know, on the election, simple question, why hasn't the

430
00:25:30,880 --> 00:25:34,199
Speaker 1: US improved its election security just seems like it wouldn't

431
00:25:34,200 --> 00:25:37,920
Speaker 1: be that difficult. I think the simple answer to the

432
00:25:38,000 --> 00:25:44,320
Speaker 1: question is because it is bifurcated between different elements of governance.

433
00:25:44,400 --> 00:25:49,000
Speaker 1: So there are municipal and local elements, there are state elements,

434
00:25:49,240 --> 00:25:53,200
Speaker 1: there are national elements to it. And then secondly, a

435
00:25:53,320 --> 00:25:56,960
Speaker 1: continuing flaw in the US government is our inter agency

436
00:25:57,440 --> 00:26:00,359
Speaker 1: still does not work together as well as it should.

437
00:26:00,600 --> 00:26:05,040
Speaker 1: Department of Homeland Security, Department of Justice, Department of Defense,

438
00:26:05,200 --> 00:26:09,080
Speaker 1: National Security Agency. We haven't found a way to collectively

439
00:26:09,200 --> 00:26:12,560
Speaker 1: bring them together. Last point, we have nobody in the

440
00:26:12,680 --> 00:26:16,280
Speaker 1: cabinet of the United States who focuses on cybersecurity. We

441
00:26:16,400 --> 00:26:19,639
Speaker 1: have a Department of agriculture. I'm sure that's useful, but

442
00:26:20,400 --> 00:26:23,280
Speaker 1: we need a focus at the cabinet level that can

443
00:26:23,359 --> 00:26:26,760
Speaker 1: bring all these stove pipes together. That's what's lacking. Paul.

444
00:26:27,160 --> 00:26:29,360
Speaker 1: Admiral James steffrid Is, thank you so much for being

445
00:26:29,440 --> 00:26:32,560
Speaker 1: with us, columnist for Bloomberg Opinion or retired U S.

446
00:26:32,640 --> 00:26:37,119
Speaker 1: Navy admiral and former military commander of NATO joining us.

447
00:26:37,200 --> 00:26:39,800
Speaker 1: He's also the author of a book that was out

448
00:26:39,920 --> 00:26:43,880
Speaker 1: last year, Sailing True North Ten Admirals and the Voyage

449
00:26:44,040 --> 00:26:47,119
Speaker 1: of Character. H. Dina Meritus, also of the Fletcher School

450
00:26:47,119 --> 00:26:54,960
Speaker 1: of Law and Diplomacy at Tufts University. One stock that

451
00:26:55,119 --> 00:26:57,960
Speaker 1: is not falling is Home Depot, although off its earlier highs,

452
00:26:58,080 --> 00:27:02,600
Speaker 1: up now only one point three percent after beating estimates,

453
00:27:03,119 --> 00:27:05,399
Speaker 1: and we want to dig into whether this is simply

454
00:27:05,480 --> 00:27:08,600
Speaker 1: an interest rate story that has given a boost to

455
00:27:08,640 --> 00:27:10,960
Speaker 1: the housing market, or if there is a message that

456
00:27:11,080 --> 00:27:13,880
Speaker 1: we can take about the broader consumer and will wrap

457
00:27:13,960 --> 00:27:15,960
Speaker 1: in Macy's as well joining us now to help do that.

458
00:27:16,080 --> 00:27:19,840
Speaker 1: As Craig Johnson, president of Customer Growth Partners, Craig, I

459
00:27:19,920 --> 00:27:22,560
Speaker 1: want to start with Home Depot, the shares off earlier

460
00:27:22,680 --> 00:27:25,080
Speaker 1: highs but still positive, which is remarkable on a day

461
00:27:25,119 --> 00:27:28,000
Speaker 1: like today. How much do you think the story here

462
00:27:28,320 --> 00:27:31,359
Speaker 1: is interest rates and how much is this organic demand

463
00:27:31,520 --> 00:27:36,600
Speaker 1: for housing? Well, UM, this is the two companies important

464
00:27:36,600 --> 00:27:39,960
Speaker 1: to our iconic names in retail, but they're clearly going

465
00:27:40,040 --> 00:27:43,840
Speaker 1: in different directions UM Home Depot. We think the interest

466
00:27:43,960 --> 00:27:46,480
Speaker 1: rate element is a part of the picture, but the

467
00:27:46,560 --> 00:27:50,040
Speaker 1: more important thing is the front. Changing and improving fundamentals

468
00:27:50,080 --> 00:27:53,560
Speaker 1: in the housing market is the big driver UM. And

469
00:27:53,960 --> 00:27:57,400
Speaker 1: the two key metrics we look at as UH home

470
00:27:57,520 --> 00:28:00,760
Speaker 1: pricing and then home turnover existing home and over, and

471
00:28:00,920 --> 00:28:03,320
Speaker 1: both of those are up. Prices are up six point

472
00:28:03,400 --> 00:28:06,480
Speaker 1: eight percent year of a year at the latest read,

473
00:28:06,920 --> 00:28:10,119
Speaker 1: and home turnover is up over nine about nine and

474
00:28:10,160 --> 00:28:13,600
Speaker 1: a half percent. Those are exceptionally good numbers and represent

475
00:28:13,680 --> 00:28:16,960
Speaker 1: a sequential improvement over each of the last couple of months.

476
00:28:17,520 --> 00:28:21,760
Speaker 1: And it's those two factors expectations of rising prices and

477
00:28:21,920 --> 00:28:25,760
Speaker 1: secondly rising home turnover. Those are the key triggers to

478
00:28:25,920 --> 00:28:28,480
Speaker 1: spending in terms of home improvement. And that's what that's

479
00:28:28,480 --> 00:28:31,199
Speaker 1: what we think is driving to home deep performance. All right,

480
00:28:31,480 --> 00:28:35,000
Speaker 1: let's switch gears to Macy's. UM. You know, another tough quarter,

481
00:28:35,080 --> 00:28:37,159
Speaker 1: stocks off three and a half percent here, the stocks

482
00:28:37,200 --> 00:28:41,360
Speaker 1: down for this year and the past twelve months here,

483
00:28:41,680 --> 00:28:43,400
Speaker 1: So it kind of goes back to that conundrum for

484
00:28:43,560 --> 00:28:47,760
Speaker 1: these UH department stores led by the iconic name Macy's,

485
00:28:48,160 --> 00:28:53,040
Speaker 1: what can they do to survive well UM Macy's challenge.

486
00:28:53,160 --> 00:28:57,479
Speaker 1: This is true across the department store retailers. There's lagging

487
00:28:57,680 --> 00:29:01,080
Speaker 1: organic growth in the overall concept of a department show,

488
00:29:01,120 --> 00:29:04,320
Speaker 1: which really hasn't the format hasn't really changed that much

489
00:29:04,720 --> 00:29:07,320
Speaker 1: from when R. H. Maizie and Marshall Field created the

490
00:29:07,400 --> 00:29:11,320
Speaker 1: concept of hundred and seventy years ago. And the demand

491
00:29:11,440 --> 00:29:15,040
Speaker 1: for department store shopping is simply down by the range

492
00:29:15,120 --> 00:29:19,000
Speaker 1: of about UM of about one percent year of a year,

493
00:29:19,600 --> 00:29:22,880
Speaker 1: and and so so we look at we look at

494
00:29:22,920 --> 00:29:28,520
Speaker 1: what's happening is UH a decline in market share, department

495
00:29:28,560 --> 00:29:32,440
Speaker 1: shares down to one percent, UH decline of one percent,

496
00:29:33,160 --> 00:29:38,360
Speaker 1: And what we're seeing is that Macy's UM is trying

497
00:29:38,440 --> 00:29:42,040
Speaker 1: to catch up to have his new operational pilaris concept

498
00:29:42,440 --> 00:29:45,000
Speaker 1: where it tries to match cut its costs, so it's

499
00:29:45,200 --> 00:29:50,480
Speaker 1: in reduced capacity, so it matches the UH, so it

500
00:29:50,600 --> 00:29:54,320
Speaker 1: matches the supply with demand, and so it's announced cutting

501
00:29:54,360 --> 00:29:56,440
Speaker 1: of stores and questions, it's done this a little, it's

502
00:29:56,440 --> 00:29:59,640
Speaker 1: a dollar late and a dollar short. Can we take

503
00:29:59,720 --> 00:30:04,080
Speaker 1: any broader UH takeaway from the data that we've been

504
00:30:04,080 --> 00:30:06,880
Speaker 1: getting out of Macy's. Not maybe Home Deepokes that's a

505
00:30:06,920 --> 00:30:10,120
Speaker 1: particular story, but Macy's and some of the other retailers

506
00:30:10,400 --> 00:30:13,880
Speaker 1: about the state of the US consumer, well, we think

507
00:30:13,960 --> 00:30:16,400
Speaker 1: that the underlying state of the U s consumer is

508
00:30:16,680 --> 00:30:20,600
Speaker 1: is essentially healthy. To challenge for department stores is that's

509
00:30:20,640 --> 00:30:23,600
Speaker 1: a segment of the market that is that it's it's

510
00:30:23,640 --> 00:30:26,400
Speaker 1: in decline and it's been in decline for full generation.

511
00:30:26,680 --> 00:30:29,520
Speaker 1: You go back to the late nineteen eighties, department stores

512
00:30:29,760 --> 00:30:32,959
Speaker 1: comprised a full ten percent of the retail market. Now

513
00:30:33,000 --> 00:30:36,840
Speaker 1: it's down to one one. It's it's exceptional. So it's

514
00:30:36,880 --> 00:30:38,320
Speaker 1: you don't want to you don't you don't want to

515
00:30:39,280 --> 00:30:43,040
Speaker 1: estimate the number coming out of just Macy's. So we

516
00:30:43,160 --> 00:30:45,600
Speaker 1: look at the overall UH picture, and you know, we

517
00:30:45,720 --> 00:30:52,600
Speaker 1: just issued our our annual forecaster, and the overall forecast

518
00:30:52,680 --> 00:30:54,880
Speaker 1: calls for growth at four point one percent, which is

519
00:30:55,280 --> 00:30:58,040
Speaker 1: quite good, not spell it, but quite good. But you

520
00:30:58,080 --> 00:31:00,680
Speaker 1: look at the department store sector and we're forecasting that

521
00:31:00,960 --> 00:31:05,120
Speaker 1: is down about again about one percent decline. So, Craig,

522
00:31:05,160 --> 00:31:08,440
Speaker 1: given that you know backdrop that outlook, one of the

523
00:31:08,480 --> 00:31:10,800
Speaker 1: concepts that I'm fascinated with is the concept of the

524
00:31:10,960 --> 00:31:14,200
Speaker 1: US is still overstored. Um, despite the fact that we

525
00:31:14,240 --> 00:31:18,080
Speaker 1: see Macy's and others closing stores by what magnitude do

526
00:31:18,120 --> 00:31:21,160
Speaker 1: you think the industry still has to shrink. It's a

527
00:31:21,240 --> 00:31:26,520
Speaker 1: physical footprint. Uh, we're guessing for the department store sector

528
00:31:26,840 --> 00:31:31,959
Speaker 1: by about another This is a large number. It's simply

529
00:31:32,360 --> 00:31:35,080
Speaker 1: the sector is still way over capacity. There's a lot

530
00:31:35,160 --> 00:31:38,440
Speaker 1: of stores that you don't need. There's markets in Necutter

531
00:31:38,520 --> 00:31:41,480
Speaker 1: you don't need ten stores and made many major faulting

532
00:31:41,520 --> 00:31:44,680
Speaker 1: areas you can get by with five, six, seven, and

533
00:31:45,000 --> 00:31:47,200
Speaker 1: the same thing in smaller to mid sized markets. You

534
00:31:47,240 --> 00:31:50,160
Speaker 1: don't need the number stores because the demand simply isn't there.

535
00:31:50,720 --> 00:31:53,440
Speaker 1: And in Masa's case, just like the other department stores,

536
00:31:53,520 --> 00:31:57,640
Speaker 1: you have too many retail square feet chasing too few

537
00:31:57,760 --> 00:32:01,239
Speaker 1: customer fee and that's the core pro problem, got it um,

538
00:32:01,360 --> 00:32:05,080
Speaker 1: And it's exacerbated as is online grows, which keeps growing

539
00:32:05,240 --> 00:32:08,400
Speaker 1: year after year. Craig Johnson, thanks so much for joining us.

540
00:32:08,480 --> 00:32:11,240
Speaker 1: We really appreciate your thoughts here on all Things Retail.

541
00:32:12,040 --> 00:32:14,480
Speaker 1: Thanks for listening to the Bloomberg pen L podcast. You

542
00:32:14,520 --> 00:32:17,160
Speaker 1: can subscribe and listen to interviews at Apple Podcasts or

543
00:32:17,200 --> 00:32:20,160
Speaker 1: whatever podcast platform you prefer. I'm Paul Sweeney, I'm on

544
00:32:20,240 --> 00:32:22,880
Speaker 1: Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on

545
00:32:22,920 --> 00:32:25,680
Speaker 1: Twitter at Lisa A. Bram Woyds. One Before the podcast,

546
00:32:25,760 --> 00:32:28,320
Speaker 1: you can always catch us worldwide on Bloomberg Radio