1 00:00:02,720 --> 00:00:10,559 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:14,600 --> 00:00:17,880 Speaker 1: Eastern on Apple Coarclay, and Android Auto with the Bloomberg 4 00:00:17,920 --> 00:00:21,040 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,360 --> 00:00:23,080 Speaker 1: or watch us live on YouTube. 6 00:00:23,680 --> 00:00:26,720 Speaker 2: So the Trump administration reportedly and talks with Intel to 7 00:00:26,760 --> 00:00:30,080 Speaker 2: have the US government take a stake in the company. 8 00:00:30,160 --> 00:00:32,120 Speaker 2: What does this all mean. Let's go to someone who 9 00:00:32,120 --> 00:00:34,800 Speaker 2: knows about it. It's Ryan Gold. He's Bloomberg Deals reporter, 10 00:00:34,920 --> 00:00:36,760 Speaker 2: joining us live here in the studio. 11 00:00:37,040 --> 00:00:39,879 Speaker 3: Ryan, Thanks for joining us. What would a deal like 12 00:00:40,000 --> 00:00:40,400 Speaker 3: this do? 13 00:00:41,040 --> 00:00:43,400 Speaker 4: I think this probably should be seen as a way 14 00:00:43,440 --> 00:00:46,239 Speaker 4: to potentially show up Intel's balance sheet. I mean, it's 15 00:00:46,240 --> 00:00:49,640 Speaker 4: a company that's mean struggling, it's losing money. It's really 16 00:00:49,680 --> 00:00:54,160 Speaker 4: got an ambition to return semiconductive manufacturing on mass to 17 00:00:54,200 --> 00:00:55,880 Speaker 4: the United States in a way that we've not seen 18 00:00:55,920 --> 00:00:59,360 Speaker 4: in use. It's all centered around the Ohio plant. The 19 00:00:59,360 --> 00:01:01,920 Speaker 4: Ohio plant has been seen as a way for Intel 20 00:01:02,000 --> 00:01:04,520 Speaker 4: to become a shining light across the world. That he 21 00:01:04,560 --> 00:01:06,160 Speaker 4: said by twenty thirty it was going to be one 22 00:01:06,200 --> 00:01:08,360 Speaker 4: of the biggest and the best in the world. Obviously 23 00:01:08,360 --> 00:01:10,000 Speaker 4: that hasn't been the case. It's been delayed quite a 24 00:01:10,040 --> 00:01:14,800 Speaker 4: few times. So this investment, this proposed investment should probably 25 00:01:14,800 --> 00:01:18,160 Speaker 4: be viewed as a confidence capital type of arrangement for Intel, 26 00:01:18,200 --> 00:01:21,280 Speaker 4: you know, bring give some confidence to investors that this 27 00:01:21,319 --> 00:01:23,039 Speaker 4: is something they should stand behind because it has the 28 00:01:23,040 --> 00:01:26,000 Speaker 4: backing of the most credit worthy institution in the world. 29 00:01:27,319 --> 00:01:29,880 Speaker 5: We don't do this very often. We've been the US government. 30 00:01:29,920 --> 00:01:33,440 Speaker 6: This is a monstrous change in industrial policy. What are 31 00:01:33,440 --> 00:01:34,520 Speaker 6: folks saying out there about this? 32 00:01:34,800 --> 00:01:37,040 Speaker 4: It is I think, you know, certainly among the people 33 00:01:37,040 --> 00:01:40,240 Speaker 4: I've been speaking to, this is something that you know, 34 00:01:40,240 --> 00:01:41,759 Speaker 4: it's a new dawn in a way. I mean, if 35 00:01:41,760 --> 00:01:43,560 Speaker 4: you're a bank or a lawyer, or anyone on Wall 36 00:01:43,600 --> 00:01:47,720 Speaker 4: Street thinking about struggling US companies in quote unquote mission 37 00:01:47,760 --> 00:01:50,760 Speaker 4: critical industries or industries that are sensitive to the United States, 38 00:01:51,480 --> 00:01:54,840 Speaker 4: is the government now an option for you? I mean, 39 00:01:55,040 --> 00:01:57,720 Speaker 4: we think back to the financial crisis, the Cristo GM 40 00:01:57,760 --> 00:01:59,800 Speaker 4: and so on. I mean that's years ago. I mean, 41 00:02:00,160 --> 00:02:02,760 Speaker 4: tied has turned since then, clearly, But it does seem 42 00:02:02,800 --> 00:02:05,360 Speaker 4: as though just given some of these other transactions we've seen, 43 00:02:05,480 --> 00:02:09,680 Speaker 4: like MP materials, like the almost you know, pay per 44 00:02:09,680 --> 00:02:12,320 Speaker 4: play in a way in video agreement with AMD as 45 00:02:12,320 --> 00:02:15,120 Speaker 4: well the fifteen percent that Trump struck to allow China 46 00:02:15,200 --> 00:02:18,440 Speaker 4: to have these chips. It does seem like a new time, 47 00:02:18,480 --> 00:02:20,799 Speaker 4: a new dawn for how to think about, you know, 48 00:02:20,840 --> 00:02:24,000 Speaker 4: the Trump's administration's play with private industry. 49 00:02:24,320 --> 00:02:26,120 Speaker 2: So who's going to pay for the stake? I mean, 50 00:02:26,160 --> 00:02:28,360 Speaker 2: we're hearing the Trump administration eyeing the Chips Act? 51 00:02:28,600 --> 00:02:30,000 Speaker 3: Is that right? Yeah? 52 00:02:30,040 --> 00:02:32,120 Speaker 4: So far? I mean, we just ran a story this morning. 53 00:02:32,200 --> 00:02:35,880 Speaker 4: Our understanding is that at least for now, the funding 54 00:02:35,960 --> 00:02:38,280 Speaker 4: could come from the Chip SECT. I mean, bearing in mind, 55 00:02:38,320 --> 00:02:42,040 Speaker 4: the Chips Act was passed in twenty twenty two, committing 56 00:02:42,080 --> 00:02:45,280 Speaker 4: two hundred and eighty billion dollars in new funding for 57 00:02:45,400 --> 00:02:48,320 Speaker 4: domestic research and manufacturing of semis in the United States. 58 00:02:49,120 --> 00:02:51,720 Speaker 4: Intel was already poised to be the biggest beneficiary of 59 00:02:51,880 --> 00:02:54,240 Speaker 4: the Chip SECT. I mean, I think they were awarded 60 00:02:54,280 --> 00:02:57,520 Speaker 4: seven point nine billion dollars in grants for a commercial 61 00:02:57,560 --> 00:03:01,240 Speaker 4: semi manufacturing program, and they also struck agreement with the 62 00:03:01,320 --> 00:03:04,360 Speaker 4: Pentagon under the Secure Enclay program that was worth around 63 00:03:04,360 --> 00:03:07,520 Speaker 4: three billion. So Intel's already seen quite a bit of 64 00:03:07,560 --> 00:03:10,560 Speaker 4: this money. It remains to be seeing exactly how much 65 00:03:11,080 --> 00:03:13,000 Speaker 4: or what size stake the government will take. 66 00:03:13,880 --> 00:03:17,440 Speaker 3: Does Intel do they welcome a stake by the US government. 67 00:03:17,480 --> 00:03:18,200 Speaker 3: Have they said anything? 68 00:03:18,560 --> 00:03:20,760 Speaker 4: They haven't said anything. I think one of the things 69 00:03:20,760 --> 00:03:23,520 Speaker 4: that was kind of telling yesterday when we went to 70 00:03:23,560 --> 00:03:25,280 Speaker 4: them for comment, they you know, the client to comment 71 00:03:25,280 --> 00:03:27,720 Speaker 4: on what they called rumors in speculation, But they did 72 00:03:27,800 --> 00:03:30,800 Speaker 4: add that they were deeply committed to supporting administration's efforts 73 00:03:30,800 --> 00:03:34,120 Speaker 4: to strengthen US technology and manufacturing leadership. I mean, make 74 00:03:34,200 --> 00:03:37,760 Speaker 4: no mistake, Intel sees itself that it should be the 75 00:03:37,840 --> 00:03:40,720 Speaker 4: leader in semiconductor manufacturing. It has always been in the 76 00:03:40,720 --> 00:03:45,720 Speaker 4: shadow of TSMC as it relates to semiconductor fabs. I 77 00:03:45,760 --> 00:03:47,520 Speaker 4: think they do feel as though this could be a 78 00:03:47,560 --> 00:03:51,200 Speaker 4: potentially very good time for them to change course and 79 00:03:51,280 --> 00:03:52,600 Speaker 4: return to the top of the channel. 80 00:03:52,960 --> 00:03:56,400 Speaker 2: So do you see this as just another intervention intervention 81 00:03:56,480 --> 00:03:58,280 Speaker 2: by by President Trump. We had the you know, the 82 00:03:58,320 --> 00:04:00,960 Speaker 2: fifteen percent cut of certain semi doctor sales to China. 83 00:04:00,960 --> 00:04:04,400 Speaker 2: You had this golden share in the United States Steel. 84 00:04:04,560 --> 00:04:06,320 Speaker 3: I mean, can can you dive more into that? 85 00:04:07,120 --> 00:04:07,320 Speaker 7: Yeah? 86 00:04:07,440 --> 00:04:10,680 Speaker 4: I think you know this is certainly I say, I 87 00:04:10,720 --> 00:04:12,720 Speaker 4: just really want to draw a line under how unprecedented 88 00:04:12,720 --> 00:04:15,320 Speaker 4: this is I mean, this is a wacky suggestion what 89 00:04:15,360 --> 00:04:18,560 Speaker 4: we have here, Lipbu Tam By the way, who you know, 90 00:04:18,600 --> 00:04:20,480 Speaker 4: there are very few people who were as qualified as 91 00:04:20,560 --> 00:04:22,719 Speaker 4: him in semi conductors. I mean he sat on the 92 00:04:22,720 --> 00:04:25,200 Speaker 4: board of Intel before he became the CEO. He left 93 00:04:25,200 --> 00:04:26,640 Speaker 4: the board, and then they've had a process and now 94 00:04:26,640 --> 00:04:29,559 Speaker 4: he's back a CEO. I mean he was already making 95 00:04:29,560 --> 00:04:32,120 Speaker 4: the point when he was on the board that in 96 00:04:32,160 --> 00:04:35,479 Speaker 4: telling them to sort out its manufacturing problem. The fact 97 00:04:35,480 --> 00:04:37,880 Speaker 4: that the Trump administration is now coming in and suggesting 98 00:04:37,920 --> 00:04:40,359 Speaker 4: that they could be behind essentially as a as a 99 00:04:40,400 --> 00:04:42,840 Speaker 4: backstop in a way for what the company is looking 100 00:04:42,839 --> 00:04:47,120 Speaker 4: to do there is turning conventional wisdom on its head 101 00:04:47,120 --> 00:04:49,360 Speaker 4: for sure. I think to draw the tension again to 102 00:04:49,400 --> 00:04:53,440 Speaker 4: the MP Materials deal, that was really interesting because it's 103 00:04:53,480 --> 00:04:56,840 Speaker 4: about you know, loans, it's about outside financing. It could 104 00:04:57,120 --> 00:04:59,800 Speaker 4: they mentioned as part of that deal, it could take 105 00:04:59,839 --> 00:05:02,520 Speaker 4: the of partnerships with other customers. I think it's really 106 00:05:02,520 --> 00:05:04,760 Speaker 4: being seen as a blueprint for for what the Trump 107 00:05:04,760 --> 00:05:06,600 Speaker 4: administration is thinking about Intel here. 108 00:05:07,640 --> 00:05:08,919 Speaker 3: It could work, I mean, it could have. 109 00:05:08,960 --> 00:05:12,400 Speaker 6: It be really advantageous because we see Intel investing all 110 00:05:12,400 --> 00:05:16,039 Speaker 6: this money in this new foundry plant in Ohio, but 111 00:05:16,120 --> 00:05:20,400 Speaker 6: they don't have any customers exactly. And if the US 112 00:05:20,480 --> 00:05:23,040 Speaker 6: government was now a part owner of Intel, I think 113 00:05:23,080 --> 00:05:24,599 Speaker 6: I might want to do some business. 114 00:05:24,279 --> 00:05:26,920 Speaker 4: With Intel, exactly. And I think you make a great 115 00:05:26,960 --> 00:05:30,479 Speaker 4: point because we've you know, we've been asking these questions 116 00:05:30,480 --> 00:05:34,159 Speaker 4: since yesterday. If you're one of Intel's competitors looking across 117 00:05:34,160 --> 00:05:35,880 Speaker 4: the way and thinking, okay, sure, we'd love to be 118 00:05:35,920 --> 00:05:39,000 Speaker 4: in this business, what about us? That's the kind of 119 00:05:39,000 --> 00:05:42,159 Speaker 4: scenario we're in now. Is is Intel being seen to 120 00:05:42,200 --> 00:05:45,080 Speaker 4: get preferential treatment from the US government? And what does 121 00:05:45,120 --> 00:05:47,800 Speaker 4: it mean if you're another semi conductor company which has 122 00:05:47,839 --> 00:05:52,200 Speaker 4: ambitions like Global Foundriies. Global Founderies is a major backerd 123 00:05:52,440 --> 00:05:55,839 Speaker 4: is Mubadla, the Sovereign Wealth Fund. But they're a semi 124 00:05:55,839 --> 00:05:58,080 Speaker 4: conductor manufacturer. They have a few sites in the US, 125 00:05:58,600 --> 00:06:01,640 Speaker 4: a few in Germany. You must, you know, penny for 126 00:06:01,680 --> 00:06:02,960 Speaker 4: their thoughts. 127 00:06:03,360 --> 00:06:05,400 Speaker 3: Before you go the timing of this. 128 00:06:05,520 --> 00:06:09,800 Speaker 2: Didn't the Intel's CEO just come back from meeting with the. 129 00:06:09,760 --> 00:06:11,919 Speaker 3: President at the White House? Was was this kind of 130 00:06:11,960 --> 00:06:13,120 Speaker 3: discussed during that time? 131 00:06:13,240 --> 00:06:17,080 Speaker 4: That was Monday? Yeah, and now on Friday? Is it crazy? 132 00:06:17,080 --> 00:06:19,360 Speaker 4: What differences that we can make but yeah that this 133 00:06:19,520 --> 00:06:24,000 Speaker 4: these plans were talked about on Monday between Trump and 134 00:06:24,040 --> 00:06:26,919 Speaker 4: let Bhutan. You'll note that the Trump put out the 135 00:06:26,920 --> 00:06:29,120 Speaker 4: Truth social post after that meeting and said that he 136 00:06:29,279 --> 00:06:32,760 Speaker 4: described him as an amazing man with a really interesting backstory. 137 00:06:33,640 --> 00:06:35,520 Speaker 4: You know, it was an about face given that he 138 00:06:35,680 --> 00:06:38,240 Speaker 4: just the day before called for the guy to be replaced. 139 00:06:39,200 --> 00:06:41,120 Speaker 4: I think another point i'd not just on the on 140 00:06:41,160 --> 00:06:45,040 Speaker 4: the politics of this. Poor you mentioned Ohio. Ohio is 141 00:06:45,080 --> 00:06:48,440 Speaker 4: a massively sensitive state for Donald Trump. It's where he 142 00:06:48,480 --> 00:06:51,599 Speaker 4: has a very deep base of you know, margat Republicans, 143 00:06:52,400 --> 00:06:55,599 Speaker 4: and they won their three He's won there three times. 144 00:06:55,960 --> 00:06:59,839 Speaker 4: So JD. Vans, the Vice President, is also from Ohio. Big, big, 145 00:07:00,200 --> 00:07:02,240 Speaker 4: big social attention. Then stay with us. 146 00:07:02,360 --> 00:07:04,760 Speaker 5: More from Bloomberg Intelligence coming up after this. 147 00:07:06,920 --> 00:07:10,600 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 148 00:07:10,680 --> 00:07:13,760 Speaker 1: weekdays at ten am Eastern on Apple Coarclay, and Android 149 00:07:13,800 --> 00:07:17,120 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 150 00:07:17,160 --> 00:07:20,280 Speaker 1: you get your podcasts, or watch us live on YouTube. 151 00:07:20,760 --> 00:07:23,000 Speaker 2: So, Paul, my daughter and I have these matching bracelets. 152 00:07:23,040 --> 00:07:25,360 Speaker 2: They're Pandora bracelets. They're really cute. They have these little 153 00:07:25,440 --> 00:07:27,920 Speaker 2: charms and everything like that, but I think we might 154 00:07:28,000 --> 00:07:30,320 Speaker 2: stop at one because the. 155 00:07:30,240 --> 00:07:32,080 Speaker 3: Price of them might start to go up. 156 00:07:32,080 --> 00:07:35,880 Speaker 2: That's according to its CEO, weighing potential price increases due 157 00:07:35,920 --> 00:07:37,680 Speaker 2: to higher tariffs. 158 00:07:38,120 --> 00:07:40,240 Speaker 3: But we want to go someone who knows more about it. 159 00:07:40,240 --> 00:07:43,640 Speaker 2: It's Deborah Ak and she's Bloomberg Intelligence Luxury Goods analysts. 160 00:07:43,640 --> 00:07:44,000 Speaker 5: Deborah. 161 00:07:44,400 --> 00:07:47,400 Speaker 2: Thanks for joining us this morning via London, coming in 162 00:07:47,440 --> 00:07:50,920 Speaker 2: from zoom So what do we know about these price increases? 163 00:07:50,920 --> 00:07:53,440 Speaker 2: I mean, how much is this going to affect the consumer? 164 00:07:54,600 --> 00:07:58,200 Speaker 7: I think, well, the price increases are still very much 165 00:07:58,240 --> 00:08:02,160 Speaker 7: to go through the market. In the jewelry industry, we 166 00:08:02,280 --> 00:08:07,120 Speaker 7: have already seen the higher end brands As and others 167 00:08:07,480 --> 00:08:11,320 Speaker 7: popping through prices of around five to six percent, and 168 00:08:11,360 --> 00:08:14,480 Speaker 7: then on top of that with this brings some collections 169 00:08:14,520 --> 00:08:18,240 Speaker 7: and extra foccent into the US. So we would expect 170 00:08:19,480 --> 00:08:21,840 Speaker 7: when we did some deep analysis, and because of the 171 00:08:21,840 --> 00:08:26,920 Speaker 7: different tariff situations, we would expect maybe four cent pricing 172 00:08:27,080 --> 00:08:30,800 Speaker 7: additionally to come through from Pandora, for example. And that's 173 00:08:30,920 --> 00:08:33,480 Speaker 7: very much a difficult play when other prices are going 174 00:08:33,559 --> 00:08:35,840 Speaker 7: up and in the value orientated offer. 175 00:08:36,600 --> 00:08:39,800 Speaker 6: Well, how about in the watch business, because that's one 176 00:08:39,920 --> 00:08:42,800 Speaker 6: I'm interested. And I mean Lisa and her daughter have 177 00:08:42,840 --> 00:08:44,640 Speaker 6: the bracelets. I get it, I get it. 178 00:08:44,960 --> 00:08:46,880 Speaker 5: I'm kind of a watch guy, not a crazy one. 179 00:08:47,640 --> 00:08:48,720 Speaker 3: But boy, the arrfs. 180 00:08:48,760 --> 00:08:50,760 Speaker 6: We're talking about thirty nine percent tariffs on stuff coming 181 00:08:50,760 --> 00:08:54,720 Speaker 6: out of Switzerland, little old neutral Switzerland. That could be 182 00:08:54,720 --> 00:08:56,120 Speaker 6: a problem for the watch manufacturers. 183 00:08:56,120 --> 00:08:56,760 Speaker 5: What are they saying? 184 00:08:57,320 --> 00:09:00,600 Speaker 7: Yeah, so I think you know, the watch MANUF and 185 00:09:00,640 --> 00:09:02,920 Speaker 7: the retailers too, because I think they'll take a bit 186 00:09:02,960 --> 00:09:05,640 Speaker 7: of the brunt, a lot of the brunt of some 187 00:09:05,679 --> 00:09:11,319 Speaker 7: of the biggest names. So Richmond and its brands, Swatch 188 00:09:12,280 --> 00:09:15,400 Speaker 7: and all of its brands, Swatches brands are all produced 189 00:09:15,400 --> 00:09:18,880 Speaker 7: on the watchmaker side out of Switzerland, richemon On watches 190 00:09:18,920 --> 00:09:22,040 Speaker 7: and also it's Cartier brand, a lot of that out 191 00:09:22,040 --> 00:09:25,319 Speaker 7: of Switzerland, mostly out of Switzerland. So the idea there 192 00:09:25,360 --> 00:09:27,640 Speaker 7: when we did our analysis. They're not saying anything on 193 00:09:27,800 --> 00:09:30,959 Speaker 7: numbers yet, but in order to try to manage EBIT margin, 194 00:09:31,360 --> 00:09:33,680 Speaker 7: we would say that they would need about nine percent 195 00:09:33,920 --> 00:09:37,640 Speaker 7: from Richmond. They do have very high gross margins, so 196 00:09:37,760 --> 00:09:40,960 Speaker 7: low cost of business that is one thing that will 197 00:09:40,960 --> 00:09:43,280 Speaker 7: help them. But even so, we are going to see 198 00:09:43,559 --> 00:09:46,400 Speaker 7: mid single digger prices expected to be passed on to 199 00:09:46,480 --> 00:09:50,160 Speaker 7: the consumer and the big thing coming from you know, 200 00:09:50,679 --> 00:09:54,120 Speaker 7: the numbers this morning from Pandora were very much that 201 00:09:54,360 --> 00:09:58,679 Speaker 7: actually they haven't been passed on yet in key categories, 202 00:09:59,200 --> 00:10:02,320 Speaker 7: with jewelry being one of them because they're gifting occasions 203 00:10:02,840 --> 00:10:04,839 Speaker 7: and so a lot of that inflation is to come 204 00:10:04,880 --> 00:10:06,000 Speaker 7: into the US market. 205 00:10:06,600 --> 00:10:11,679 Speaker 2: So is Pandora's US exposure lower compared to its rivals. 206 00:10:12,040 --> 00:10:14,280 Speaker 7: If we think about it from a global perspective, No, 207 00:10:14,400 --> 00:10:16,800 Speaker 7: But if we're looking at the US, if we're looking 208 00:10:16,840 --> 00:10:20,880 Speaker 7: at the US consumers, then yes, it's one third of 209 00:10:20,960 --> 00:10:24,360 Speaker 7: sales for Pandora globally, but it is its biggest market 210 00:10:24,800 --> 00:10:27,360 Speaker 7: and it has been the engine for growth through the 211 00:10:27,360 --> 00:10:30,360 Speaker 7: first half of this year. It's of eight percent on 212 00:10:30,400 --> 00:10:34,120 Speaker 7: a constant currency twelve percent including the store opening it's doing, 213 00:10:34,679 --> 00:10:37,640 Speaker 7: and that's versus eight percent overall for the business. So 214 00:10:37,720 --> 00:10:41,480 Speaker 7: it is the key driver. But then otherwise, if you 215 00:10:41,520 --> 00:10:44,040 Speaker 7: think about the business overall on the jewelry side, for 216 00:10:44,160 --> 00:10:48,880 Speaker 7: branded business, it's still hugely fragmented. So Pandora only has 217 00:10:48,920 --> 00:10:51,600 Speaker 7: a two percent market share and it's one of the leaders, 218 00:10:52,160 --> 00:10:54,440 Speaker 7: so a lot of pricing to come through lots from 219 00:10:54,480 --> 00:10:58,600 Speaker 7: India and others also with those tariffs coming into force 220 00:10:58,679 --> 00:10:59,880 Speaker 7: from the beginning of August. 221 00:11:00,760 --> 00:11:04,800 Speaker 6: So, deb you cover all of global luxury here. What 222 00:11:04,880 --> 00:11:10,079 Speaker 6: are your companies generally saying about the US market and 223 00:11:10,240 --> 00:11:13,319 Speaker 6: the tariff situation? Are they suggesting that makes that the 224 00:11:13,440 --> 00:11:17,240 Speaker 6: US market less attractive to them? And what are their 225 00:11:17,600 --> 00:11:19,760 Speaker 6: policies for actually dealing with the tariffs? 226 00:11:20,440 --> 00:11:21,360 Speaker 3: Yeah, I think. 227 00:11:22,640 --> 00:11:25,320 Speaker 7: Twofold or threefold should we say one of them is 228 00:11:25,440 --> 00:11:28,080 Speaker 7: cost safe in. All of these companies are working avidly 229 00:11:28,120 --> 00:11:31,880 Speaker 7: on cost safe in. There are also adapting portfolios, which does 230 00:11:31,960 --> 00:11:33,679 Speaker 7: take a little bit of time, so we see more 231 00:11:33,720 --> 00:11:37,120 Speaker 7: of that in the autumn winter. They're widening price points, 232 00:11:37,160 --> 00:11:40,440 Speaker 7: so prior to for example, had said, we realize we 233 00:11:40,480 --> 00:11:43,240 Speaker 7: need to be more at the top of the price point, 234 00:11:43,320 --> 00:11:46,079 Speaker 7: but equally we need to be further down the architecture. 235 00:11:46,480 --> 00:11:48,800 Speaker 7: So they're going to be one of many companies that 236 00:11:48,920 --> 00:11:52,040 Speaker 7: will do the same into the US market. But generally, 237 00:11:52,120 --> 00:11:55,000 Speaker 7: I would say, actually, the market from the mid luxury 238 00:11:55,080 --> 00:11:59,440 Speaker 7: upwards has been particularly robust, and we've seen the consumer 239 00:11:59,480 --> 00:12:01,720 Speaker 7: confidence are still very much at are low, but it 240 00:12:01,840 --> 00:12:04,880 Speaker 7: is picking up in the higher end income brackets more 241 00:12:04,960 --> 00:12:08,800 Speaker 7: quickly than others. And that's typical and a trend that 242 00:12:08,840 --> 00:12:11,520 Speaker 7: we've seen over the long term from the different income 243 00:12:11,600 --> 00:12:12,559 Speaker 7: bands in the US. 244 00:12:12,800 --> 00:12:14,719 Speaker 2: Yeah, but we've got about a minute left. How is 245 00:12:14,720 --> 00:12:17,120 Speaker 2: a luxury market doing in China? That's been kind of 246 00:12:17,120 --> 00:12:17,880 Speaker 2: a sticking point. 247 00:12:19,000 --> 00:12:23,080 Speaker 7: It has it's very, very slow to recover to the 248 00:12:23,120 --> 00:12:26,360 Speaker 7: things we discussed just this week. We're thinking about the 249 00:12:26,400 --> 00:12:29,719 Speaker 7: fact that there's an extension between US and China and 250 00:12:29,840 --> 00:12:33,600 Speaker 7: the tariff situation until the tenth of November, so another 251 00:12:33,720 --> 00:12:36,320 Speaker 7: ninety day pause, so to speak, and we think that's 252 00:12:36,400 --> 00:12:39,520 Speaker 7: negative because both the US and China are running on 253 00:12:39,679 --> 00:12:43,880 Speaker 7: very low consumer sentiment, with China four years in the 254 00:12:43,920 --> 00:12:46,959 Speaker 7: dold rooms and the numbers that we're seen now today 255 00:12:47,040 --> 00:12:51,360 Speaker 7: on kind of CPI on different retail analysis highlights that 256 00:12:51,480 --> 00:12:56,120 Speaker 7: the Chinese consumer is really resolute on holding onto their 257 00:12:56,160 --> 00:12:59,959 Speaker 7: money or shopping very high end or finding something that's local. 258 00:13:00,600 --> 00:13:03,560 Speaker 7: So there's a lot more localized competition and they're not 259 00:13:03,679 --> 00:13:06,679 Speaker 7: traveling the way that they used to. It's all held 260 00:13:06,720 --> 00:13:09,680 Speaker 7: off until they really know what's going on. So difficult 261 00:13:09,679 --> 00:13:13,000 Speaker 7: outlook for the first half of twenty twenty six for luxury. 262 00:13:13,160 --> 00:13:13,800 Speaker 3: Stay with us. 263 00:13:13,920 --> 00:13:16,319 Speaker 5: More from Bloomberg Intelligence coming up after this. 264 00:13:18,480 --> 00:13:22,160 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 265 00:13:22,240 --> 00:13:25,720 Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto 266 00:13:25,720 --> 00:13:28,800 Speaker 1: with the Bloomberg Business App. Listen on demand wherever you 267 00:13:28,840 --> 00:13:32,360 Speaker 1: get your podcasts, or watch us live on YouTube. 268 00:13:32,840 --> 00:13:35,920 Speaker 6: One of the stories in the mortgage market that really 269 00:13:35,960 --> 00:13:39,680 Speaker 6: got my attention is potential IPO of Fanny May Freddie 270 00:13:39,679 --> 00:13:44,280 Speaker 6: macause I'm just thinking about my finance group bankers on 271 00:13:44,440 --> 00:13:46,319 Speaker 6: was shtreet what a boondogle that would be for them, 272 00:13:46,360 --> 00:13:49,319 Speaker 6: but also concern here what it might mean for mortgage 273 00:13:49,400 --> 00:13:51,720 Speaker 6: rates out there. So let's check in with Ben Elliott, 274 00:13:51,720 --> 00:13:54,719 Speaker 6: consumer finance analyst Bloomberg Intelligence. 275 00:13:54,920 --> 00:13:55,520 Speaker 3: So Ben talk to. 276 00:13:55,559 --> 00:13:57,760 Speaker 6: Us about Fannie Mae, Freddie Mac. Is there going to 277 00:13:57,760 --> 00:14:02,920 Speaker 6: be an IPO of these companies and if so, when, Well, Paul. 278 00:14:02,920 --> 00:14:05,320 Speaker 8: It wouldn't really be an IPO since the companies do 279 00:14:05,400 --> 00:14:08,280 Speaker 8: still trade over the counter. But you know, Treasury is 280 00:14:08,280 --> 00:14:12,000 Speaker 8: talking about different options, maybe selling some of the shares 281 00:14:12,040 --> 00:14:15,160 Speaker 8: that they currently own, maybe raising some new equity at 282 00:14:15,200 --> 00:14:18,240 Speaker 8: the market. But I think the core of the issue 283 00:14:18,240 --> 00:14:20,400 Speaker 8: here is we don't know what Treasury is planning to do, 284 00:14:21,480 --> 00:14:25,720 Speaker 8: and so they're talked about timeline, which was by the 285 00:14:25,840 --> 00:14:28,080 Speaker 8: end of twenty twenty five seems to be very optimistic 286 00:14:28,120 --> 00:14:29,880 Speaker 8: because as far as we can tell, none of the 287 00:14:29,880 --> 00:14:30,840 Speaker 8: work has been done. 288 00:14:31,200 --> 00:14:34,600 Speaker 2: So what does this What could this mean for mortgage rates? 289 00:14:34,600 --> 00:14:35,880 Speaker 2: I mean, how much higher could they go? 290 00:14:35,960 --> 00:14:36,360 Speaker 3: If any? 291 00:14:37,560 --> 00:14:40,240 Speaker 8: So there are different estimates out there that you know 292 00:14:40,240 --> 00:14:42,920 Speaker 8: they could go up twenty thirty basis points. Some people 293 00:14:42,960 --> 00:14:46,280 Speaker 8: suggest maybe a percentage point if you sort of sort 294 00:14:46,280 --> 00:14:50,160 Speaker 8: of think about agency nbs. The most of the premium 295 00:14:50,160 --> 00:14:53,440 Speaker 8: there over treasuries that investors get today is because people 296 00:14:53,440 --> 00:14:56,920 Speaker 8: can prepay their mortgage and they have negative convexity, but 297 00:14:57,040 --> 00:14:59,680 Speaker 8: not because of credit risk. Right, So if you re 298 00:15:00,000 --> 00:15:03,160 Speaker 8: reduce credit risk as a result of making the company's 299 00:15:03,200 --> 00:15:07,160 Speaker 8: private and cutting off the federal government guarantee, then that 300 00:15:07,200 --> 00:15:10,320 Speaker 8: could add relatively substantial price there. 301 00:15:10,840 --> 00:15:14,880 Speaker 6: So, just like rewind back to the terrible time of 302 00:15:14,920 --> 00:15:18,640 Speaker 6: the Great Financial Crisis, the government basically bailed out Fannie 303 00:15:18,640 --> 00:15:23,560 Speaker 6: Mae Freddie Mack, and they now have significant equity ownership 304 00:15:24,000 --> 00:15:27,120 Speaker 6: of those two entities. And the question is is now 305 00:15:27,240 --> 00:15:30,800 Speaker 6: the time to sell down some of that equity interest 306 00:15:30,880 --> 00:15:32,400 Speaker 6: is at the story? 307 00:15:32,480 --> 00:15:34,560 Speaker 8: Yeah, that's part of the story. So they own warrants 308 00:15:34,600 --> 00:15:37,320 Speaker 8: to purchase eighty percent of the common stock but they 309 00:15:37,360 --> 00:15:41,720 Speaker 8: also own a senior class of preferred shares and that 310 00:15:41,760 --> 00:15:44,760 Speaker 8: has a par value around two hundred and something billion, 311 00:15:44,960 --> 00:15:48,280 Speaker 8: But it also has a liquidation preference which rises each 312 00:15:48,360 --> 00:15:51,800 Speaker 8: quarter along with Fanny and Freddy's earnings that's hovering around 313 00:15:51,800 --> 00:15:55,240 Speaker 8: three hundred and fifty billion. So when you hear different 314 00:15:55,240 --> 00:15:57,520 Speaker 8: people on the street talk about the potential to raise 315 00:15:57,960 --> 00:16:01,720 Speaker 8: you know, three hundred billion dollars, you know that's actually 316 00:16:02,400 --> 00:16:05,520 Speaker 8: from writing down the senior prefers. That's actually not enough 317 00:16:05,600 --> 00:16:08,680 Speaker 8: really to pay back the stated value or the liquidation 318 00:16:08,760 --> 00:16:11,240 Speaker 8: preference of the senior prefers. So a lot of the 319 00:16:11,360 --> 00:16:14,280 Speaker 8: uncertainty here is what will Treasury do with its senior 320 00:16:15,120 --> 00:16:18,240 Speaker 8: ownership stake as opposed to just its commons. 321 00:16:18,520 --> 00:16:20,480 Speaker 2: Hey Ben, can you dig into what are some of 322 00:16:20,720 --> 00:16:23,520 Speaker 2: the pros and cons of making these companies private? 323 00:16:25,040 --> 00:16:25,320 Speaker 6: Yeah? 324 00:16:25,360 --> 00:16:28,720 Speaker 8: Sure, So, I mean the obvious con right is that 325 00:16:28,880 --> 00:16:32,320 Speaker 8: if any of ready work extremely well, they're providing a 326 00:16:32,320 --> 00:16:36,640 Speaker 8: ton of liquidity to us home buyers. We have a 327 00:16:36,720 --> 00:16:38,800 Speaker 8: unique financial product in this country, which is a thirty 328 00:16:38,880 --> 00:16:43,520 Speaker 8: year fixed rate mortgage at incredibly low rates. The credit 329 00:16:43,600 --> 00:16:46,760 Speaker 8: quality is fantastic, it's better than really it's ever been, 330 00:16:48,320 --> 00:16:50,680 Speaker 8: and so you have to ask yourself what is the 331 00:16:50,720 --> 00:16:54,000 Speaker 8: benefit of disturbing that and going back to sort of 332 00:16:54,000 --> 00:16:57,240 Speaker 8: the pre two thousand and eight status quo that led 333 00:16:57,280 --> 00:17:00,680 Speaker 8: to what occurred with the companies in the financial crisis. 334 00:17:01,720 --> 00:17:03,800 Speaker 8: But if you sort of, you know, take a sort 335 00:17:03,800 --> 00:17:08,600 Speaker 8: of thirty thousand foot view as a more theoretical observer, right, 336 00:17:08,760 --> 00:17:11,159 Speaker 8: maybe there's some benefit in getting the government out of 337 00:17:11,200 --> 00:17:16,159 Speaker 8: private capital markets. Maybe introducing competition could increase innovation, but 338 00:17:16,200 --> 00:17:17,719 Speaker 8: it would have to be done in a really careful 339 00:17:17,760 --> 00:17:20,600 Speaker 8: way that ensured that we never sort of returned to 340 00:17:20,600 --> 00:17:24,359 Speaker 8: the risks that we're inherent in the business model prior 341 00:17:24,400 --> 00:17:25,480 Speaker 8: to the financial crisis. 342 00:17:25,840 --> 00:17:29,199 Speaker 6: So, Ben, you cover the consumer finance industry. What are 343 00:17:29,240 --> 00:17:30,959 Speaker 6: the companies that you cover? What are they telling you 344 00:17:31,040 --> 00:17:34,199 Speaker 6: about the health of the consumer. There's a lot of 345 00:17:34,240 --> 00:17:36,040 Speaker 6: places I like to go to get kind of first 346 00:17:36,040 --> 00:17:39,280 Speaker 6: hand information. Restaurants for examples. I talked to Mike Haalen 347 00:17:39,560 --> 00:17:42,000 Speaker 6: and he gives you a view. But also for you 348 00:17:42,080 --> 00:17:45,399 Speaker 6: like the consumer finance companies because they bank everybody and 349 00:17:45,480 --> 00:17:47,760 Speaker 6: not just the big blue chips. They bank you know, 350 00:17:47,840 --> 00:17:51,479 Speaker 6: the small and some of the more questionable credits. 351 00:17:51,480 --> 00:17:52,239 Speaker 3: What are they telling you? 352 00:17:53,160 --> 00:17:55,200 Speaker 8: Yeah, so our credit card companies put out a really 353 00:17:55,240 --> 00:17:58,959 Speaker 8: interesting data set every month with their delinquencies they're net 354 00:17:59,040 --> 00:18:02,520 Speaker 8: charge offs and their growth. And the story is sort 355 00:18:02,560 --> 00:18:05,560 Speaker 8: of two part. Loan growth is slowing, people are spending 356 00:18:05,640 --> 00:18:09,000 Speaker 8: less money on their credit cards. Maybe consumer confidence is 357 00:18:09,040 --> 00:18:11,760 Speaker 8: declining a little bit at the margins, but credit is 358 00:18:11,800 --> 00:18:15,359 Speaker 8: still fantastic. It's still you know, write at about twenty 359 00:18:15,440 --> 00:18:19,000 Speaker 8: nineteen levels. It's trending sort of down as though it 360 00:18:19,080 --> 00:18:23,359 Speaker 8: might eclipse those levels, and buy and large borrowers are 361 00:18:23,520 --> 00:18:26,480 Speaker 8: are very resilient. But if you sort of look down 362 00:18:26,520 --> 00:18:29,720 Speaker 8: into the weeds of some of the more marginal lenders 363 00:18:29,760 --> 00:18:33,840 Speaker 8: who are doing things like store credit cards, you know 364 00:18:34,240 --> 00:18:36,919 Speaker 8: those people. Those companies say that they see some of 365 00:18:36,920 --> 00:18:41,240 Speaker 8: their consumers struggling and managing through things like inflation, and 366 00:18:41,280 --> 00:18:43,440 Speaker 8: so there's a potential at the margin of the economy 367 00:18:43,440 --> 00:18:45,359 Speaker 8: worsens for that to create some trouble. 368 00:18:45,680 --> 00:18:48,560 Speaker 2: But the question is are they paying off the credit 369 00:18:48,600 --> 00:18:49,040 Speaker 2: card dead? 370 00:18:49,280 --> 00:18:54,280 Speaker 8: Are they're paying it off? They are, Yeah, they're And delinquency, importantly, 371 00:18:54,320 --> 00:18:57,000 Speaker 8: which is a leading indicator of charge offs, is still improving. 372 00:18:57,240 --> 00:18:59,359 Speaker 8: And that gives you about a six month view into 373 00:18:59,440 --> 00:19:01,360 Speaker 8: charge offs because of how they work and how long 374 00:19:01,400 --> 00:19:03,840 Speaker 8: it takes, and so right now of the trend work 375 00:19:03,840 --> 00:19:06,840 Speaker 8: to continue. Credit would keep improving over the next six months. 376 00:19:07,200 --> 00:19:11,879 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 377 00:19:12,040 --> 00:19:15,520 Speaker 1: and anywhere else you get your podcasts. Listen live each 378 00:19:15,560 --> 00:19:19,320 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com, 379 00:19:19,440 --> 00:19:22,960 Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app. 380 00:19:23,400 --> 00:19:26,280 Speaker 1: You can also watch us live every weekday on YouTube 381 00:19:26,720 --> 00:19:28,960 Speaker 1: and always on the Bloomberg terminal.