WEBVTT - Disney Poised To Explode At End Of Year: Porter Bibb 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:25.480 at Bloomberg dot com. Disney reported worse than expected results 0:00:25.520 --> 0:00:27.680 and the parks and resorts, one of their you know, 0:00:27.840 --> 0:00:31.240 most dependable businesses, came in a little bit short. To 0:00:31.280 --> 0:00:33.279 get the latest on what's going on at Disney as 0:00:33.320 --> 0:00:36.000 they make this big pivot from or to streaming. We 0:00:36.000 --> 0:00:38.720 welcome our good friend Porter Bibby's, a managing partner at 0:00:38.760 --> 0:00:41.839 Media Tech Capital Partenacy drains us here in our Bloomberg 0:00:41.920 --> 0:00:45.160 Interactive broker studio support a kind of an ugly quarter 0:00:45.240 --> 0:00:47.400 last night, stocks trading off. What do you what's the 0:00:47.479 --> 0:00:52.160 key takeaway for you? Well, the market hadn't digested the investment, 0:00:52.760 --> 0:00:56.480 uh that that Disney has made not only the seventy 0:00:56.560 --> 0:01:00.920 three billion dollars that they used to buy Fox, but 0:01:01.640 --> 0:01:05.760 five billion for the part of Hulu that Comcast didn't known, 0:01:06.319 --> 0:01:10.720 and they've been spending like drunken sailors getting Disney Plus 0:01:10.760 --> 0:01:15.240 and ESPN Plus organized as streaming sites, and they will 0:01:15.360 --> 0:01:19.160 they will continue to spend. UH about a half a 0:01:19.160 --> 0:01:22.280 billion dollars will go into Disney Plus between now and 0:01:22.360 --> 0:01:27.880 November twelve, when it actually launches. I'm struggling to understand 0:01:27.920 --> 0:01:30.360 not the streaming side of this, but really the theme parks, 0:01:30.360 --> 0:01:33.560 the idea that the Star Wars Uh Galaxy's Edge didn't 0:01:33.640 --> 0:01:36.520 didn't fly, and what does this say about their ability 0:01:36.560 --> 0:01:40.280 to predict audiences and revenues in this area. I think 0:01:40.280 --> 0:01:44.039 what they didn't predicted Disney who was the crowds because 0:01:44.120 --> 0:01:50.000 that Star Wars Uh New theme park was heavily, heavily promoted, 0:01:50.120 --> 0:01:54.680 and it was over overbooked and jammed, and people just decided, 0:01:54.760 --> 0:01:58.040 I'm not taking my kids to this thing that I 0:01:58.080 --> 0:02:01.120 can't get into. It's it's an all day event and 0:02:01.280 --> 0:02:06.000 it's really spectacular and it will smooth things out over over. 0:02:06.120 --> 0:02:07.840 Of course, I want to make sure that I understand that. 0:02:07.880 --> 0:02:10.280 In other words, you're saying that because it was so 0:02:10.400 --> 0:02:14.400 popular and because people people didn't get tickets that it 0:02:14.560 --> 0:02:16.720 sort of diminished demand. But do you think that they 0:02:16.760 --> 0:02:21.320 didn't inaccurately predict the enthusiasm for it. That's that's exactly right. 0:02:21.360 --> 0:02:23.880 And I think you're going to see with with the 0:02:23.960 --> 0:02:27.120 new Star Wars film coming out at Christmas time again 0:02:28.160 --> 0:02:31.560 a huge new surge of interest in that the theme 0:02:31.639 --> 0:02:35.520 parks and and the merchandise are the biggest revenue and 0:02:35.600 --> 0:02:38.760 profit drivers at Disney right now. They represent more than 0:02:39.560 --> 0:02:44.000 of Disney's total revenue. Uh. They were down very marginally 0:02:44.040 --> 0:02:47.280 a couple of points for this last quarter, but that's 0:02:47.320 --> 0:02:50.800 because they had to invest in building the Star Wars park, 0:02:51.320 --> 0:02:56.560 and they're suffering modestly in China and in Hong Kong 0:02:56.600 --> 0:03:00.600 with the protests over there. But those are temporary setbacks 0:03:00.600 --> 0:03:03.920 and Disney will will just go exploding at the end 0:03:03.919 --> 0:03:07.080 of this year. With with the streaming networks that they're launching. 0:03:07.720 --> 0:03:12.080 One of the things that nobody talks about ESPN is 0:03:12.720 --> 0:03:16.480 best position with their live sports coverage and the hundreds 0:03:16.480 --> 0:03:19.800 of millions billions that they've sunk into sports rights to 0:03:19.919 --> 0:03:24.560 be the platform for online betting, which is coming. There 0:03:24.600 --> 0:03:28.760 are nine states that have legalized online betting now. UH, 0:03:28.919 --> 0:03:31.680 by the end of after the election. I think you're 0:03:31.680 --> 0:03:35.400 gonna see twenty five or thirty States going because it's 0:03:35.480 --> 0:03:38.360 found revenue for them, and it beats the pants off 0:03:38.400 --> 0:03:41.800 of the state lotteries and the other other revenue generators 0:03:41.800 --> 0:03:43.600 that States has. You go, You go to the Magic 0:03:43.680 --> 0:03:45.480 Kingdom and just lay down a bet. You know, I 0:03:45.480 --> 0:03:51.120 don't know what snow white exactly on the next game tonight, 0:03:51.160 --> 0:03:54.200 so um so Porter. One of the big announcements I 0:03:54.240 --> 0:03:56.800 thought from last night's results was the company kind of 0:03:56.800 --> 0:03:59.840 announced a bundle streaming product. They're going to be putting 0:03:59.840 --> 0:04:02.560 all this all their streaming products together for one price. 0:04:02.600 --> 0:04:05.360 We can tell us about that. That was a blockbuster 0:04:05.440 --> 0:04:09.720 move by Bob Bob iger Uh to counter the falloff 0:04:09.840 --> 0:04:14.400 in in the share price that his modest earnings miss 0:04:14.720 --> 0:04:19.560 Uh created twelve nine for Hulu, Disney Plus, and the 0:04:19.800 --> 0:04:24.400 ESPN Plus. It's an unstoppable, untouchable idea, and the question 0:04:24.520 --> 0:04:26.800 is how long can they keep it because they're not 0:04:26.839 --> 0:04:29.120 going to make any profit with that kind of a price, 0:04:29.760 --> 0:04:34.599 and there there's no advertising, no um dual revenue stream 0:04:34.680 --> 0:04:37.680 that that any of those except Hulu has a modest 0:04:38.480 --> 0:04:41.080 service that you can buy, pay pay less and get 0:04:41.160 --> 0:04:44.839 some advertising. But even then they've cut the advertising way back, 0:04:45.320 --> 0:04:48.720 So Disney shows down four point seven percent, a pretty 0:04:48.960 --> 0:04:53.680 fierce response to the disappointing earnings. I'm just wondering, and 0:04:53.720 --> 0:04:55.159 just to give you a sense, at one point that 0:04:55.200 --> 0:04:56.839 was the biggest drop in the in the share since 0:04:56.839 --> 0:05:00.920 two thousand and fifteen. Porter, I guess what is going 0:05:01.040 --> 0:05:04.200 to uh sort of turn around the impression here because 0:05:04.480 --> 0:05:07.159 it seems like the disappointment was in the revenues. But 0:05:07.520 --> 0:05:10.760 you know with the package that they offered, if the 0:05:11.160 --> 0:05:13.320 bundling services of a bunch of different things, that seems 0:05:13.360 --> 0:05:16.040 really competitive. I mean, the whole Netflix killer story is 0:05:16.080 --> 0:05:19.760 still on the table. So Disney is not a Netflix killer. 0:05:19.880 --> 0:05:23.320 Netflix is going to be around, thank you very much. 0:05:24.120 --> 0:05:28.280 The economic model is not sustainable, and someone at some 0:05:28.360 --> 0:05:30.839 point in the game is going when the when the 0:05:30.920 --> 0:05:33.760 share price comes down to a reasonable level, is going 0:05:33.800 --> 0:05:36.880 to pick them up. There there's no shortage of of 0:05:37.760 --> 0:05:41.640 content less buyers waiting right now. You have CBS, veh 0:05:41.760 --> 0:05:45.920 Coom coming together today or tomorrow. Um for Eizen wanted 0:05:45.960 --> 0:05:47.839 them a year ago. They're going to be first in 0:05:47.920 --> 0:05:51.000 line knocking the doors down. People don't talk about it, 0:05:51.040 --> 0:05:55.360 but Microsoft needs content. They have eighty million Xbox, Uh, 0:05:55.440 --> 0:05:59.719 Internet connections and just games on the Xbox. But why 0:05:59.760 --> 0:06:02.760 can't they show all of the content that movies and 0:06:02.800 --> 0:06:07.479 television can create? Then then Apple, Oprah and Steven Spielberg 0:06:07.520 --> 0:06:10.440 are not enough to carry Apple into the streaming wars 0:06:10.560 --> 0:06:12.880 and do it, do it well, and do it successfully, 0:06:13.200 --> 0:06:18.040 so there's there's no shortage of buyers. Um Disney, unfortunately 0:06:18.160 --> 0:06:20.800 for the rest of them, has almost no cost of 0:06:20.880 --> 0:06:25.120 content because they have such a spectacular archive and they're 0:06:25.120 --> 0:06:27.919 putting the igor Is announced that they're putting all of 0:06:27.960 --> 0:06:32.280 their brand new movies, the The Avengers, the new Star 0:06:32.320 --> 0:06:35.600 Wars movie this Christmas, the new Frozen. Uh, those are 0:06:35.640 --> 0:06:39.240 blockbusters that cost them nothing to put on the streamings. 0:06:39.240 --> 0:06:42.039 So before you mentioned the costs associated with streaming and 0:06:42.040 --> 0:06:44.839 the company's disclose that won't break even. I guess until 0:06:44.960 --> 0:06:49.120 fiscal still several years away. Do you think investors are 0:06:49.120 --> 0:06:54.359 gonna be that patient? Well, and it's a building business. 0:06:54.400 --> 0:07:01.800 We're seeing a cataclysmic transition of media from legacy media 0:07:01.880 --> 0:07:08.120 cable and satellite to streaming and people who want to 0:07:08.120 --> 0:07:10.720 get in. You have to realize Disney. Disney is up 0:07:10.720 --> 0:07:14.960 twenty seven percent since January. They dropped four percent yesterday 0:07:14.960 --> 0:07:18.440 and today, but there's still a lot of latitude there, 0:07:18.440 --> 0:07:21.720 and investors realized that the assets that they have are 0:07:21.760 --> 0:07:25.200 almost untouchable in the entertainment world. Certainly, if you have 0:07:25.240 --> 0:07:27.440 a child, I'll just say that. But Portabb, thank you 0:07:27.480 --> 0:07:29.920 so much for being with us. Portabb, Managing partner at 0:07:29.920 --> 0:07:48.160 Media Tech Capital Partners. It is time to check in 0:07:48.200 --> 0:07:50.240 with Bloomberg Opinion, and luckily for us, we've got a 0:07:50.280 --> 0:07:53.560 Bloomberg Opinion contributor who is stellar when it comes to 0:07:53.720 --> 0:07:56.960 all things in markets, but particularly fixed income, Jim Bianco, 0:07:57.080 --> 0:08:02.080 President and founder of Bianco Research, coming to us from Chicago. Jim, 0:08:02.320 --> 0:08:05.400 the real story today, this week, this year, for the 0:08:05.440 --> 0:08:08.120 past ten years, has been bonds and bond yields heading 0:08:08.160 --> 0:08:11.640 to record loads today around the world, near record lows 0:08:11.680 --> 0:08:13.280 in the United States. When you look at the thirty 0:08:13.320 --> 0:08:17.480 year yield, and I'm wondering, why is this now causing 0:08:17.640 --> 0:08:23.480 concern rather than support for risk assets? You know, you're 0:08:23.560 --> 0:08:26.000 right that we are very close to We're like five 0:08:26.040 --> 0:08:28.240 basis points away from a record low now in the 0:08:28.320 --> 0:08:31.680 thirty year. And I think that the concern is in 0:08:31.720 --> 0:08:35.680 a unique situation that I don't remember ever seeing we've 0:08:35.679 --> 0:08:39.120 had one rate cut, the market over the next year 0:08:39.240 --> 0:08:41.760 is pricing in four more rate cuts, a total of 0:08:41.840 --> 0:08:45.360 five rate cuts. I can't find a single economist or 0:08:45.400 --> 0:08:48.320 a Federal Reserve official that thinks that the FED should 0:08:48.400 --> 0:08:51.240 or the FED should cut rates five times between the 0:08:51.320 --> 0:08:55.000 last one and four more coming. So the market itself 0:08:55.120 --> 0:08:59.200 is an outlier. The market is seeing problems down the road. 0:08:59.640 --> 0:09:02.600 It is trying to communicate that through the inverted yield curve, 0:09:02.679 --> 0:09:05.360 through the plunge in yields, and it seems like the 0:09:05.400 --> 0:09:08.559 economic community in the FETE is not listening, and it's 0:09:08.600 --> 0:09:11.400 getting worried that since they're not listening, I have to 0:09:11.480 --> 0:09:14.800 not price in an even worse outcome. And we're caught 0:09:14.880 --> 0:09:18.199 in this spiral now with interest rates falling and falling 0:09:18.240 --> 0:09:21.679 and falling. So, Jim, how surprised were you to wake 0:09:21.760 --> 0:09:23.760 up this morning and see that we had rake cuts 0:09:23.760 --> 0:09:28.000 coming out of New Zealand and Indian and Thailand. Surprised 0:09:28.040 --> 0:09:31.200 and that all three of them were more than expected. 0:09:31.720 --> 0:09:34.240 There was an expectation that there'd be a cut in India, 0:09:34.360 --> 0:09:36.439 but it was larger than expected. There was not a 0:09:36.600 --> 0:09:39.240 for Thailand, and they did cut as well in New 0:09:39.320 --> 0:09:41.640 Zealand cut by fifty basis points, which is only done 0:09:41.720 --> 0:09:44.400 during the global financial crisis in the christ Church earthquake, 0:09:44.679 --> 0:09:47.280 So those were big deals, so it was very surprising. 0:09:47.800 --> 0:09:50.520 Do you think that this is signaling that there is 0:09:50.840 --> 0:09:53.559 more of a real possibility of a near term recession 0:09:53.600 --> 0:09:56.560 globally and in the US, because that certainly seems to 0:09:56.559 --> 0:09:59.960 be the indication of yield curves around the world. Yeah, 0:10:00.040 --> 0:10:02.360 I think so. Um, if you look at the data 0:10:02.400 --> 0:10:05.719 that is coming out of Europe, especially today one of 0:10:05.760 --> 0:10:09.600 the big wirehouses UH describe some of the German data 0:10:09.640 --> 0:10:13.400 that came out today if disastrous. It's been such a 0:10:13.440 --> 0:10:17.679 bad number, and we it matters global growth is slowing down. 0:10:17.800 --> 0:10:21.120 It matters for the US. We cannot ignore it, and 0:10:21.160 --> 0:10:24.560 that is weighing on us as well too. It's obviously 0:10:24.600 --> 0:10:26.880 weighing on the rest of the world, which is why 0:10:27.040 --> 0:10:30.400 we're now approaching outside of the US half of the 0:10:30.480 --> 0:10:33.719 sovereign bonds in the world are now negative outside of 0:10:33.760 --> 0:10:37.920 the US. So, Jim, you mentioned that the FED or 0:10:37.960 --> 0:10:40.520 the markets are discounting four more rate cuts by the FED, 0:10:40.559 --> 0:10:43.600 although the data UH may not support that. What do 0:10:43.640 --> 0:10:46.600 you actually think the FED is going to do? They are, 0:10:46.640 --> 0:10:50.680 in fact, you know, as they say, data dependent. Yeah, 0:10:50.679 --> 0:10:54.280 I think they're going to cut rates in September. The 0:10:54.440 --> 0:10:58.600 problem is is that they think that they're pretty sure 0:10:59.280 --> 0:11:01.760 that they're going to cut by twenty five, and there's 0:11:01.800 --> 0:11:05.559 some argument that maybe, you know, there might be something 0:11:05.600 --> 0:11:08.360 that comes along that they don't cut. The market's pretty 0:11:08.400 --> 0:11:11.800 sure they're gonna cut by fifty because it's now almost 0:11:11.840 --> 0:11:15.040 at a chance the way it's priced in that there 0:11:15.040 --> 0:11:17.240 will be a fifty basis point cut. So this will 0:11:17.240 --> 0:11:19.360 be the game will play. The Fed will follow you, 0:11:19.520 --> 0:11:22.040 we'll give you great cuts, but the market will be screaming, no, 0:11:22.120 --> 0:11:24.800 you're gonna give us more than you think and faster 0:11:24.960 --> 0:11:27.880 than you think. So we're all headed in the same direction. 0:11:28.000 --> 0:11:30.800 It's just the speed at which the market thinks to 0:11:30.840 --> 0:11:33.040 fet should go in which the Fed wants to go. 0:11:33.120 --> 0:11:35.920 At Jim, here's what I'm really struggling with. I'm looking 0:11:35.960 --> 0:11:38.840 at break even rates, sort of a gauge of inflation 0:11:38.880 --> 0:11:40.719 over the next five to ten years, or at least 0:11:40.720 --> 0:11:42.760 where people are pricing it in. It's come down, but 0:11:42.840 --> 0:11:45.920 it's not at the lowest point since the financial crisis. 0:11:46.000 --> 0:11:48.560 The way that bond that that that the yield curves 0:11:48.600 --> 0:11:52.360 are and I'm struggling to understand what the implication here is. 0:11:52.480 --> 0:11:55.680 Real yields just are going to continue to go lower 0:11:55.800 --> 0:11:57.959 even if growth grinds along. I mean, is that the 0:11:58.360 --> 0:12:02.120 main takeaway here? Yes, and there is a nuance we 0:12:02.160 --> 0:12:06.040 need to put into those market measures of inflation expectation 0:12:06.120 --> 0:12:09.160 to break even rates. If you go back over the 0:12:09.240 --> 0:12:11.560 last several years and look at all of the times 0:12:11.559 --> 0:12:14.520 that it was lower, you know, February of two thousand sixteen, 0:12:14.520 --> 0:12:18.319 two thousand twelve and example, and you look at crude oil, 0:12:18.640 --> 0:12:22.400 crude oil was down or more off of its high. 0:12:22.720 --> 0:12:26.440 Crude oil is down, but nowhere near that right now. 0:12:26.760 --> 0:12:30.360 So what's driving these break evens lower, these expectations of 0:12:30.400 --> 0:12:34.400 lower inflation is not the energy market falling apart, but 0:12:34.520 --> 0:12:38.439 a belief that non energy inflation, which is core inflation, 0:12:38.920 --> 0:12:42.000 is coming down. That's what I think is really worrisome. 0:12:42.280 --> 0:12:44.360 This is not two thousand and sixteen when the break 0:12:44.400 --> 0:12:45.960 even s fell a lot more because crude I went 0:12:46.000 --> 0:12:49.000 from a hundred dollars to twenty six dollars and just 0:12:49.080 --> 0:12:51.839 wiped out the energy part of the equation. This is 0:12:51.880 --> 0:12:55.079 everything else that seems to be falling. Jim Bianco, thank 0:12:55.120 --> 0:12:57.240 you so very much. Jim, as president and founder of 0:12:57.240 --> 0:13:00.560 Bianco Research, is also a contributor to Blue or Opinion. 0:13:00.559 --> 0:13:02.400 You can read more on this and other stories from 0:13:02.400 --> 0:13:05.880 Bloomberg Opinion at Bloomberg dot com, slash Opinion or on 0:13:05.920 --> 0:13:24.760 the terminal by typing O P I n go. President 0:13:24.800 --> 0:13:29.119 Trump coming out yet again against the Federal Reserve, basically 0:13:29.160 --> 0:13:33.079 saying the problems in the US not China. We are 0:13:33.120 --> 0:13:35.720 stronger than ever. Money is pouring into the US, while 0:13:35.800 --> 0:13:38.760 China is losing companies by the thousands to other countries 0:13:38.800 --> 0:13:41.880 and their currencies under siege. Our problem is a federal 0:13:41.920 --> 0:13:44.720 Reserve that is too proud to admit their mistake of 0:13:44.760 --> 0:13:47.680 acting too fast and tightening too much, and that I 0:13:47.720 --> 0:13:49.400 was right. And it goes on. There is a three 0:13:49.440 --> 0:13:52.920 tweet tweet storm joining us now to talk about what 0:13:53.000 --> 0:13:57.720 this implies for markets and how it's being interpreted and frankly, 0:13:57.880 --> 0:14:00.600 what is the FEDS conundrum is going forward? Tom Or, 0:14:00.640 --> 0:14:04.560 like chief economist for Bloomberg Economics, I'm just wondering what 0:14:04.640 --> 0:14:09.439 your impression is of these tweets? Is Trump right? So? 0:14:09.520 --> 0:14:12.840 I think there's certainly a consensus that the Federal Reserve 0:14:13.200 --> 0:14:16.840 was too aggressive um at the end of two thousand 0:14:17.000 --> 0:14:21.920 and eighteen, UM, and that that rate hike misjudged the 0:14:21.920 --> 0:14:25.360 state of the economy, misjudged the mood in the markets, 0:14:25.880 --> 0:14:27.960 and now they're having to undo some of the damage 0:14:27.960 --> 0:14:32.040 which that did. UM. Where he's wrong, I think is 0:14:32.080 --> 0:14:36.160 on the idea. Firstly, that politicians should be intervening in 0:14:36.200 --> 0:14:39.840 monetary policy. We have independent central banks for a good reason. 0:14:40.200 --> 0:14:43.720 The White House weighing in UM before breakfast, lunch, and 0:14:43.760 --> 0:14:48.640 dinner doesn't make their job any easier. UM. Secondly, is 0:14:48.760 --> 0:14:54.160 monetary policy effective against trade tariffs? Can you cut interest 0:14:54.240 --> 0:14:58.760 rates to offset the drag caused by Trump's trade war? Um? 0:14:58.880 --> 0:15:02.840 I think the answer to that probably no. Businesses see 0:15:02.880 --> 0:15:05.640 lower rates as an incentive to invest, But when they're 0:15:05.640 --> 0:15:09.040 so worried about supply chains being broken, about access to 0:15:09.120 --> 0:15:12.120 markets being blocked, they're not going to make that investment. 0:15:12.760 --> 0:15:15.520 So Tom, it's the market is pricing in, you know, 0:15:15.560 --> 0:15:18.840 as much as four more rate cuts over the next 0:15:18.920 --> 0:15:23.560 year or so. What is the market seeing that? Maybe? Um, 0:15:23.720 --> 0:15:27.000 The Federal Reserve is not so. I think the markets 0:15:27.000 --> 0:15:30.280 are forward looking. The Federal Reserve is looking at the 0:15:30.360 --> 0:15:33.880 data and the data is telling us about the past. Um, 0:15:33.920 --> 0:15:38.920 So the market is anticipating an escalating trade war, chilling 0:15:39.120 --> 0:15:45.080 US exports, breaking US supply chains, hitting the US consumer 0:15:45.120 --> 0:15:48.280 in the pocket book, and a federal reserve which is 0:15:48.320 --> 0:15:52.120 being forced to respond to that. The risk, I think, 0:15:52.520 --> 0:15:57.040 is that we have a spiral of higher tariffs and 0:15:57.240 --> 0:16:00.840 lower rates, and in a year's time, the economy is 0:16:00.880 --> 0:16:03.520 on the cusp of a very serious downturn, and the 0:16:03.560 --> 0:16:07.160 Federal Reserve has not enough firepower left to deal with it. 0:16:07.520 --> 0:16:09.520 So it's not just a federal reserve. We've got central 0:16:09.560 --> 0:16:12.080 banks around the world that are cutting rates more than 0:16:12.120 --> 0:16:15.400 people have expected. We got the three rate cuts from 0:16:15.440 --> 0:16:18.520 three three different central banks in Asia overnight, and I'm 0:16:18.520 --> 0:16:20.680 just wondering, I mean, do you think that basically the 0:16:20.720 --> 0:16:24.040 Fed is given a green light to central banks around 0:16:24.080 --> 0:16:28.240 the world to go into an easing cycle, perhaps prematurely. 0:16:29.560 --> 0:16:32.080 I think there's two things going on, Lisa. So the 0:16:32.160 --> 0:16:36.160 first thing is that central banks are all responding to 0:16:36.240 --> 0:16:39.840 the same threat. The trade war isn't just a problem 0:16:39.880 --> 0:16:44.280 for China and the US. It's a problem for most 0:16:44.320 --> 0:16:46.960 other major economies in the world, and that's why we're 0:16:46.960 --> 0:16:50.360 seeing so many central banks responding to it. The second point, 0:16:50.440 --> 0:16:52.920 and I think this is where your comment is is 0:16:52.920 --> 0:16:57.920 completely on point, is the FED easing enables other central 0:16:57.920 --> 0:17:01.600 banks to ease. If the U his lowering rates, other 0:17:01.680 --> 0:17:06.040 central banks can and do lower rates without concerns about 0:17:06.119 --> 0:17:09.600 currency weakness and capitaliite flows. And that's why we're seeing 0:17:10.160 --> 0:17:15.320 Thailand and other emerging markets taking advantage of that opportunity. So, Tom, 0:17:15.400 --> 0:17:18.600 you lived and worked in Beijing for many years, you 0:17:18.640 --> 0:17:22.320 have a good sense of the economic situation there. What 0:17:22.359 --> 0:17:25.959 do you think the Chinese are really looking to achieve 0:17:26.080 --> 0:17:29.000 from a trade deal, if anything, and what is kind 0:17:29.000 --> 0:17:31.760 of the timing that you think that they might be under. 0:17:32.800 --> 0:17:37.720 So I don't have a window into China's leadership compound 0:17:37.920 --> 0:17:42.399 Jong Nan high Um, but my sense is that the 0:17:42.560 --> 0:17:46.639 Chinese view on negotiations with Trump has changed in the 0:17:46.680 --> 0:17:50.439 last few months. UM. We had that move at the 0:17:50.480 --> 0:17:56.120 beginning of the summer to hike tariffs from ten unexpected. 0:17:56.760 --> 0:18:00.600 We had that surprise threat of tariffs against mex Acho 0:18:00.720 --> 0:18:05.000 after the US had negotiated noon after UM, and now 0:18:05.080 --> 0:18:08.359 we have the teen per cent tariffs on three billion 0:18:08.400 --> 0:18:12.560 dollars and the move to label China currency manipulator. I 0:18:12.600 --> 0:18:16.760 think all of these things are convincing Beijing that actually 0:18:17.080 --> 0:18:20.080 the chances of a wind wind deal with Trump on 0:18:20.200 --> 0:18:23.400 trade are pretty low, and so I think what they're 0:18:23.440 --> 0:18:27.600 doing is buckling down the hatches and trying to last 0:18:27.680 --> 0:18:30.600 three to November twenty twenty, when they hope that they'll 0:18:30.600 --> 0:18:32.360 have someone else in the White House who they find 0:18:32.359 --> 0:18:36.520 it easier to talk to. Tom Can the tariffs and 0:18:36.720 --> 0:18:39.240 what we've seen so far with the trade wars and 0:18:39.280 --> 0:18:43.919 the global economy into recession. So global recession is a 0:18:43.920 --> 0:18:48.600 big call. Um, Let's start with the US. So US 0:18:48.640 --> 0:18:52.639 recession is a big call as well. Unemployment is a 0:18:52.680 --> 0:18:58.280 fifty years Luxemburg. Luxembourg's much smaller, But unfortunately I haven't 0:18:58.280 --> 0:19:02.080 flown over it recently. So per the economists rule that 0:19:02.119 --> 0:19:04.200 you can't make a judgment on an economy you haven't 0:19:04.200 --> 0:19:07.520 flown over, I can't make a judgment. Um. But let's 0:19:07.560 --> 0:19:10.440 come back to the US. UM. Yes, the trade war 0:19:10.840 --> 0:19:14.200 is a very serious threat to growth, not just because 0:19:14.200 --> 0:19:16.320 of what the tariffs are doing, but because of the 0:19:16.400 --> 0:19:20.679 chilling impact of uncertainty on business and consumer confidence and 0:19:20.720 --> 0:19:25.680 financial markets. UM. At the same time, we have unemployment 0:19:25.760 --> 0:19:29.520 at a fifty year low UH and wage growth running 0:19:29.640 --> 0:19:33.679 at more than three. The consumer is the main driver 0:19:34.119 --> 0:19:36.840 of you of the U S economy. UM, So yes, 0:19:37.280 --> 0:19:40.879 we're concerned. Yes, we're looking at UM some indications of 0:19:40.880 --> 0:19:43.600 some weakness coming into the labor market, but we'd want 0:19:43.640 --> 0:19:47.040 to see more signs of the labor market crumbling before 0:19:47.080 --> 0:19:49.280 we made a big call like that, Tom, or like, 0:19:49.359 --> 0:19:51.480 thank you very much time as a chief economist for 0:19:51.560 --> 0:19:54.760 Bloomberg Economics, joining us live here in our Bloomberg Interactive 0:19:54.760 --> 0:20:11.760 Broker studio. Well, what I thought was some very interesting 0:20:11.800 --> 0:20:14.919 news coming out of FedEx. The company announced that the 0:20:15.000 --> 0:20:18.879 ground delivery contract with Amazon won't be renewed when it 0:20:18.920 --> 0:20:20.960 expires at the end of this month, the company said 0:20:20.960 --> 0:20:23.199 in a statement. To get the latest on this and 0:20:23.240 --> 0:20:26.879 what it means for FedEx and the transportation industry, we 0:20:26.880 --> 0:20:31.160 welcome Satista Jendle, president of s J Consulting, and Thomas Black, 0:20:31.320 --> 0:20:35.280 transportation reporter for a Bloomberg UH. Tom's let's start with 0:20:35.359 --> 0:20:37.679 you kind of just give us the background here on 0:20:37.720 --> 0:20:40.160 what FedEx is doing with one of the biggest strippers 0:20:40.160 --> 0:20:44.639 in the world. They're pulling back. We knew this was coming. 0:20:44.800 --> 0:20:48.359 They announced in June that they were no longer going 0:20:48.400 --> 0:20:53.000 to do the next day air service for Amazon. So, uh, 0:20:53.119 --> 0:20:55.399 this is an incremental step in that and they're pulling 0:20:55.400 --> 0:20:58.959 back on on the ground and they it's a signal 0:20:59.000 --> 0:21:02.119 that they see Amazon more as a competitor as it 0:21:02.160 --> 0:21:05.080 builds out its network, and they're gonna try to scoop 0:21:05.160 --> 0:21:07.880 up other customers for e commerce as it grows. Situation. 0:21:08.280 --> 0:21:11.080 President of j Consulting, come in in here, because I'm 0:21:11.080 --> 0:21:13.920 wondering how much this bet is a good one on 0:21:14.040 --> 0:21:17.840 FedEx's part. How big of an infrastructure does Amazon dot 0:21:17.840 --> 0:21:19.919 Com have right now? And it is fed X going 0:21:19.960 --> 0:21:21.840 to be in a better position than Amazon as a 0:21:21.880 --> 0:21:26.360 result of this move, you know, this is Uh. The 0:21:26.520 --> 0:21:29.720 termination of the contract first is really an academic because 0:21:30.400 --> 0:21:32.879 based on a lot of data we have, fed X 0:21:32.960 --> 0:21:36.280 was not handling any packages because Amazon has cut them 0:21:36.320 --> 0:21:40.240 off completely. They give them zero packages, So it is academic. 0:21:40.560 --> 0:21:43.440 The only relevance of terminating that contract is that during 0:21:43.480 --> 0:21:46.399 peak time, Amazon will not be able to rely on 0:21:46.480 --> 0:21:49.399 fed X for any volume. But Amazon has built its 0:21:49.440 --> 0:21:52.639 own network of last mile delivery to such a point 0:21:52.720 --> 0:21:57.320 that today they are delivering over four million packages a 0:21:57.400 --> 0:22:01.640 day with their own drivers, and they're continuing to ramp 0:22:01.680 --> 0:22:04.200 that up. So and they've got the post aft that 0:22:04.240 --> 0:22:06.880 they've got ups and they've got up the private small 0:22:06.960 --> 0:22:10.520 cave here to deliver for them. And this is no 0:22:10.760 --> 0:22:13.359 headache for Amazon. They will not miss a heartbeat not 0:22:13.520 --> 0:22:16.159 having fed X. Instead, fed X is going to have 0:22:16.240 --> 0:22:19.360 to work hard to replace that capacity and that volume 0:22:19.680 --> 0:22:23.560 with others. That doesn't come easy. Yeah, Thomas, I want 0:22:23.560 --> 0:22:25.360 to follow up on that point. It seems like when 0:22:25.359 --> 0:22:27.359 I think about Amazon, I would think that would just 0:22:27.400 --> 0:22:31.159 be a huge, huge customer for fed X, and you know, 0:22:31.200 --> 0:22:34.560 I think about a fixed cost system like uh, you 0:22:34.600 --> 0:22:38.520 know FedEx has how will they make up that lost volume? Well, 0:22:38.520 --> 0:22:41.920 they talked about the volume with Amazon being about one 0:22:41.960 --> 0:22:45.560 point three of their total sales, which if you do 0:22:45.760 --> 0:22:49.119 just to back it of the envelope, calculations around nine million. 0:22:49.800 --> 0:22:52.359 So it seems a lot. But it's a company that 0:22:52.359 --> 0:22:56.320 does almost seventy billion in sales per year, so it 0:22:56.640 --> 0:22:59.840 can handle the hit um ups on. On the other 0:23:00.119 --> 0:23:03.960 it probably does more business with Amazon and that partnership 0:23:04.080 --> 0:23:06.160 is continuing, so it's going to be interesting to see 0:23:06.160 --> 0:23:09.560 how that plays out over time. If this is more 0:23:09.600 --> 0:23:12.280 of a cosmetic type of move on the part of 0:23:12.320 --> 0:23:15.199 fed X or a pr kind of I don't want 0:23:15.200 --> 0:23:17.280 to call it a stunt, but something to sort of 0:23:17.280 --> 0:23:19.760 make a statement more than anything else. What are they 0:23:19.800 --> 0:23:24.480 hoping happens from it? I think this is a wait 0:23:24.520 --> 0:23:29.160 for them to embrace themselves with Walmart and get Walmart 0:23:29.160 --> 0:23:33.480 to realize that they are, uh not working with Walmart's 0:23:33.480 --> 0:23:38.160 biggest competitor, and that to have Walmart make FedEx their 0:23:38.160 --> 0:23:41.399 primary career and give them more business than and to 0:23:41.520 --> 0:23:45.040 what whatever they're giving to ups to FedEx other than that, 0:23:45.400 --> 0:23:47.840 If I'm a shipper, it doesn't make a difference to 0:23:47.840 --> 0:23:50.199 me that I would rather do business with fed X. 0:23:50.359 --> 0:23:53.400 If they're not doing business with Amazon that never happens, 0:23:53.400 --> 0:23:56.919 then this is a more negative for FedEx than for 0:23:57.040 --> 0:24:01.440