1 00:00:00,080 --> 00:00:13,880 Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm term Keene Jaylie. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:31,720 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg You'll 5 00:00:31,760 --> 00:00:33,960 Speaker 1: come police to say, to help us, give us a 6 00:00:34,000 --> 00:00:36,280 Speaker 1: little bit of clarity, Peter Hooper, go to your bank, 7 00:00:36,280 --> 00:00:39,120 Speaker 1: Global head of Economic Research, joins us. Now, good morning 8 00:00:39,159 --> 00:00:43,400 Speaker 1: to Peter. The administration says China broke the deal. We've 9 00:00:43,440 --> 00:00:46,920 Speaker 1: seen several reports that suggest that is the case China, 10 00:00:47,000 --> 00:00:49,960 Speaker 1: though according to the United States, it's indicated it wants 11 00:00:49,960 --> 00:00:53,040 Speaker 1: a deal. Have we got any clarity whatsoever going into 12 00:00:53,040 --> 00:00:56,080 Speaker 1: these talks over what kind of deal the Chinese are 13 00:00:56,120 --> 00:00:59,680 Speaker 1: actually willing to make? Well, I think it's it's not 14 00:00:59,720 --> 00:01:03,440 Speaker 1: on your usual to see China UM following these kinds 15 00:01:03,440 --> 00:01:05,960 Speaker 1: of tactics. It's it's it's been done in the past. UM. 16 00:01:06,760 --> 00:01:10,760 Speaker 1: There may also have been some somewhat exaggerated expectations on 17 00:01:10,800 --> 00:01:13,760 Speaker 1: the U S side. I'm not sure, but at this 18 00:01:13,840 --> 00:01:18,240 Speaker 1: point it's looking like both sides of hardened somewhat. Our 19 00:01:18,280 --> 00:01:23,000 Speaker 1: analysts and China's tell us that, uh, it's unlikely they 20 00:01:23,040 --> 00:01:26,120 Speaker 1: will walk back in the direction that the US administration 21 00:01:26,160 --> 00:01:29,319 Speaker 1: wants to see at this point significantly enough to allow 22 00:01:29,400 --> 00:01:32,600 Speaker 1: the US administration to back off. So we we where 23 00:01:32,680 --> 00:01:36,160 Speaker 1: it looks looks like we'll be getting some tariff increases tomorrow. 24 00:01:36,280 --> 00:01:38,560 Speaker 1: Is that your base case for tomorrow? PEZ? What other 25 00:01:38,680 --> 00:01:40,880 Speaker 1: inputs do you have into any calculation as to whether 26 00:01:40,959 --> 00:01:44,319 Speaker 1: hights horris can be avoided or not? Well, you know, 27 00:01:44,520 --> 00:01:46,920 Speaker 1: on the on the politics of it. We made this 28 00:01:47,000 --> 00:01:49,440 Speaker 1: call on Monday, after the news over the weekend and 29 00:01:49,520 --> 00:01:53,960 Speaker 1: after discussing things with our chief economists for China, our 30 00:01:54,000 --> 00:01:57,000 Speaker 1: head of a head of research in Asia. The feeling 31 00:01:57,160 --> 00:02:00,000 Speaker 1: was that that this was going to be a difficult 32 00:02:00,000 --> 00:02:02,400 Speaker 1: got one to come back from that we probably needed 33 00:02:02,400 --> 00:02:06,480 Speaker 1: to go this next round of UH tariffs to get 34 00:02:06,520 --> 00:02:10,720 Speaker 1: things to a point where, uh we would finally make 35 00:02:10,760 --> 00:02:13,480 Speaker 1: an agreement down the road. So we think it's happening 36 00:02:13,480 --> 00:02:16,200 Speaker 1: in in the months I had not in the hours ahead. Hey, 37 00:02:16,320 --> 00:02:18,679 Speaker 1: we've seen this movie before. We saw it last year. 38 00:02:19,000 --> 00:02:22,799 Speaker 1: If things go bad, it hurts China, it hurts Europe. 39 00:02:22,840 --> 00:02:25,480 Speaker 1: Relatively speaking, it did little to the U s economy 40 00:02:25,480 --> 00:02:29,160 Speaker 1: through much of last year, it's twenty eighteen. Any guide 41 00:02:29,440 --> 00:02:34,160 Speaker 1: to how this could play out in well, you know, yes, 42 00:02:34,200 --> 00:02:38,760 Speaker 1: the economies did remarkably well and and first quarter numbers 43 00:02:38,760 --> 00:02:42,119 Speaker 1: for both China and the US have probably strengthened. Uh 44 00:02:42,560 --> 00:02:46,080 Speaker 1: seemed to have strengthened the the resolve of both parties 45 00:02:46,120 --> 00:02:51,640 Speaker 1: in these negotiations. UM at this point, Uh we we felt, 46 00:02:51,760 --> 00:02:54,400 Speaker 1: I mean last fall we were assuming we'd get to 47 00:02:54,440 --> 00:02:59,320 Speaker 1: twenty five tariffs on on this two d billion and 48 00:02:59,360 --> 00:03:01,840 Speaker 1: that would be where with another percentage tenth of a 49 00:03:01,880 --> 00:03:05,320 Speaker 1: percent negative on growth. We didn't get it. We we 50 00:03:05,400 --> 00:03:07,760 Speaker 1: marked our growth up a little bit. Now we're going back. 51 00:03:08,520 --> 00:03:11,440 Speaker 1: The key issue is how things go from here. Does 52 00:03:11,560 --> 00:03:16,560 Speaker 1: this next salvo move things in a decidedly more negative 53 00:03:16,600 --> 00:03:20,600 Speaker 1: direction or given that both parties really want an agreement, 54 00:03:20,760 --> 00:03:23,280 Speaker 1: and I think the political pressure in the US is 55 00:03:23,280 --> 00:03:26,040 Speaker 1: is pretty intense on this one my senses, there is 56 00:03:26,080 --> 00:03:28,840 Speaker 1: a lot of pressure in China as well. Uh. We 57 00:03:28,960 --> 00:03:33,079 Speaker 1: think that having having gone through this next next setback, 58 00:03:33,120 --> 00:03:35,120 Speaker 1: there will be pressure to really come to a deal. 59 00:03:35,760 --> 00:03:38,480 Speaker 1: Peter Hooper, I want to get Matthew on you here. 60 00:03:38,520 --> 00:03:42,320 Speaker 1: We've got Mercantilia's theory back to Elizabethan, England, and we 61 00:03:42,320 --> 00:03:46,720 Speaker 1: can wax philosophical about the corn laws and and Ricardo 62 00:03:46,840 --> 00:03:49,600 Speaker 1: and and all that. Forget about it. If a tariff 63 00:03:49,640 --> 00:03:53,200 Speaker 1: goes from ten percent to as I said the last 64 00:03:53,200 --> 00:03:56,280 Speaker 1: couple of days, I'm sorry, it's non linear. It has 65 00:03:56,320 --> 00:04:01,520 Speaker 1: a massive and profound effect. If we get an tariff 66 00:04:02,000 --> 00:04:05,360 Speaker 1: what does that do to soybean farmers? Just as one example. 67 00:04:06,720 --> 00:04:08,920 Speaker 1: As I say, the political pressure is going to become 68 00:04:08,960 --> 00:04:13,040 Speaker 1: intense here. We have an election year approaching. Uh My 69 00:04:13,160 --> 00:04:16,160 Speaker 1: sense is that the retaliation China is going to come 70 00:04:16,200 --> 00:04:21,599 Speaker 1: through with is going to be targeted to be on 71 00:04:21,640 --> 00:04:27,880 Speaker 1: a game theory basis. By definition, they're going to retaliate, right, absolutely, 72 00:04:28,279 --> 00:04:31,960 Speaker 1: they They've made that very clear. Uh So we're we're 73 00:04:32,040 --> 00:04:37,240 Speaker 1: in it. The hope is that this this next round 74 00:04:37,279 --> 00:04:42,200 Speaker 1: of retaliation sobers both sides enough to bring things to 75 00:04:42,400 --> 00:04:46,760 Speaker 1: a real conclusion. I mean, there are some things that 76 00:04:46,800 --> 00:04:49,880 Speaker 1: we've needed to have corrected on the on the China 77 00:04:49,960 --> 00:04:53,360 Speaker 1: side for quite some time, but we're not talking about 78 00:04:53,400 --> 00:04:56,599 Speaker 1: those in the next eighteen hours, are we. Did you 79 00:04:56,640 --> 00:05:01,039 Speaker 1: see our our China tariff countdown clock gonna comes? Look 80 00:05:01,200 --> 00:05:05,240 Speaker 1: it's beautiful, I said to Tania in London. I said, 81 00:05:05,320 --> 00:05:09,960 Speaker 1: I need a countdown clock for Liverpool tots. We're going 82 00:05:10,000 --> 00:05:13,080 Speaker 1: to talk about football. We're doing countdown clocks today. Can 83 00:05:13,160 --> 00:05:15,480 Speaker 1: we just talk about leveling the playing field? That will 84 00:05:15,520 --> 00:05:18,320 Speaker 1: be discussed today. These are some of the issues that 85 00:05:18,400 --> 00:05:20,960 Speaker 1: China has tried to back away from that. The President 86 00:05:21,040 --> 00:05:23,480 Speaker 1: is putting his foot down together with Trade to Representative 87 00:05:23,839 --> 00:05:27,640 Speaker 1: Bob la Heiser. Can they finally push the Chinese to 88 00:05:27,760 --> 00:05:30,760 Speaker 1: do the right thing and level the playing field. I 89 00:05:30,839 --> 00:05:33,920 Speaker 1: don't think it's gonna happen tomorrow. I think it will 90 00:05:33,960 --> 00:05:37,600 Speaker 1: happen over the over the months ahead. I think tomorrow 91 00:05:37,680 --> 00:05:42,800 Speaker 1: and uh then with the threat of additional I mean 92 00:05:43,880 --> 00:05:46,520 Speaker 1: the stakes are definitely going higher here for both sides, 93 00:05:47,000 --> 00:05:49,400 Speaker 1: and our assumption and the stakes will get high enough 94 00:05:50,080 --> 00:05:54,280 Speaker 1: to bring both sides to a successful conclusion down the road. 95 00:05:55,320 --> 00:05:57,000 Speaker 1: And that's the only way I can explain why the 96 00:05:57,000 --> 00:05:59,280 Speaker 1: markets have been relatively calm this week in the face 97 00:05:59,320 --> 00:06:01,960 Speaker 1: of what going on. What's your run rate on US 98 00:06:02,000 --> 00:06:03,960 Speaker 1: G d P right now? What is your U S team? 99 00:06:04,200 --> 00:06:08,400 Speaker 1: What's their guestimate with all this uncertainty? Well we so 100 00:06:08,760 --> 00:06:13,240 Speaker 1: we we had three two in the first quarter, surprisingly high, 101 00:06:13,839 --> 00:06:16,440 Speaker 1: much lower on final demand we think we're going to 102 00:06:16,560 --> 00:06:20,160 Speaker 1: something below too below too slightly below two in the 103 00:06:20,200 --> 00:06:21,960 Speaker 1: second quarter, but but for the year as a whole, 104 00:06:22,720 --> 00:06:25,320 Speaker 1: we're we're still at about two and a quarter percent 105 00:06:25,400 --> 00:06:30,440 Speaker 1: to three um UH. With with with if the tariffs 106 00:06:30,480 --> 00:06:33,200 Speaker 1: go up, we could see a bit of a drop 107 00:06:34,080 --> 00:06:38,960 Speaker 1: near term, but as long as the final solution comes through, 108 00:06:39,200 --> 00:06:42,760 Speaker 1: financial conditions will be which will be hit tomorrow, which 109 00:06:42,760 --> 00:06:45,080 Speaker 1: will be hit UH in the near term, are going 110 00:06:45,120 --> 00:06:48,120 Speaker 1: to bounce back and we think, I think getting that 111 00:06:48,400 --> 00:06:52,080 Speaker 1: to to three for the years is very achievable. The 112 00:06:52,120 --> 00:06:55,160 Speaker 1: reason it's down from last year is because fiscal stimulus 113 00:06:55,200 --> 00:06:58,960 Speaker 1: is is dropping off UH and some salong of growth abroad. 114 00:06:59,040 --> 00:07:02,960 Speaker 1: But thank you for coming in with all the distractions, 115 00:07:03,000 --> 00:07:23,160 Speaker 1: Peter Hooper. Thank you for Deutsche Bank as well. It 116 00:07:23,320 --> 00:07:27,320 Speaker 1: is always good to speak to Henrietta Treys, who really 117 00:07:27,400 --> 00:07:32,320 Speaker 1: synthesizes sort of inside the Beltway zeitgeist with what we're 118 00:07:32,360 --> 00:07:35,680 Speaker 1: actually seeing in the markets with Veta Partners, and she 119 00:07:35,840 --> 00:07:39,920 Speaker 1: joins us this morning, Henrietta, I want to go to 120 00:07:40,040 --> 00:07:45,800 Speaker 1: the tariff response of August Senators of the GOP flavor. 121 00:07:46,480 --> 00:07:51,280 Speaker 1: What do they actually do with tariffs? That's a great question. 122 00:07:51,320 --> 00:07:54,040 Speaker 1: Thanks for having me. So I've been pulling Senate Republican 123 00:07:54,080 --> 00:07:57,680 Speaker 1: Council um, mostly from the Agriculture Committee, because I think 124 00:07:57,680 --> 00:08:01,040 Speaker 1: they're the ones that are yes, thank you, and they 125 00:08:01,040 --> 00:08:05,080 Speaker 1: are okay, they are really why okay? First of all, Johnny, 126 00:08:05,440 --> 00:08:08,880 Speaker 1: I got I gotta, I gotta translate Henrietta's Washington jargon. 127 00:08:09,240 --> 00:08:15,680 Speaker 1: Polling means she's having a cocktail, you know afterwards, that's 128 00:08:15,720 --> 00:08:18,440 Speaker 1: you know, that's what they do in Washington. Henrietta, get 129 00:08:18,480 --> 00:08:21,440 Speaker 1: the truth. You gotta be Kidney tariffs go from ten 130 00:08:22,880 --> 00:08:26,720 Speaker 1: and agricultural senators are okay with that. I would encourage 131 00:08:26,760 --> 00:08:30,520 Speaker 1: you to look directly at the folks matter here. Joni Ernst, 132 00:08:30,720 --> 00:08:33,720 Speaker 1: the junior Senator from Iowa, and Chuck Grassley, the senior 133 00:08:33,760 --> 00:08:38,400 Speaker 1: Senate senator from Iowa, including Pat Roberts from Kansas. Those 134 00:08:38,440 --> 00:08:41,920 Speaker 1: guys are behind President Trump. They are campaigning on it. 135 00:08:41,960 --> 00:08:44,720 Speaker 1: You've seen polling in Iowa declined for President Trump, but 136 00:08:44,800 --> 00:08:47,719 Speaker 1: still they remain on his side, saying, look, China is 137 00:08:47,720 --> 00:08:49,160 Speaker 1: a bad actor. If this is one it has to 138 00:08:49,160 --> 00:08:52,559 Speaker 1: be will be patriotic. That's the buzzword. You know. They 139 00:08:52,679 --> 00:08:54,920 Speaker 1: figure that they're the front line of this trade war 140 00:08:55,000 --> 00:08:58,320 Speaker 1: and nobody's literally dying, but they are having a real 141 00:08:58,320 --> 00:09:01,160 Speaker 1: problem with their farms. They're getting frustrated, and this is 142 00:09:01,160 --> 00:09:04,480 Speaker 1: all happening really quickly. So the president's trying to throw 143 00:09:04,480 --> 00:09:05,920 Speaker 1: on my bone every once in a while with these 144 00:09:05,960 --> 00:09:10,440 Speaker 1: monster soybean purchases. But the fear of long term surprise 145 00:09:10,520 --> 00:09:14,440 Speaker 1: change instruction is something that these members are really concerned about. 146 00:09:14,440 --> 00:09:16,599 Speaker 1: And actually, if you have time for an anecdote, I 147 00:09:16,640 --> 00:09:19,240 Speaker 1: would share that a few months back, I was in 148 00:09:19,360 --> 00:09:21,640 Speaker 1: with the Chief Council to Speaker Ryan, back when he 149 00:09:21,720 --> 00:09:24,360 Speaker 1: was still Speaker, and this was right when all the 150 00:09:24,480 --> 00:09:27,320 Speaker 1: farmers from Sotath, Dakota and the rest were sending letters 151 00:09:27,320 --> 00:09:30,199 Speaker 1: to the leadership of the Republican Caucus saying, look, we're 152 00:09:30,200 --> 00:09:33,319 Speaker 1: not worried about right now is purchases of soybeans or 153 00:09:33,360 --> 00:09:36,560 Speaker 1: pork bellies. Were concerned about these relationships that we created, 154 00:09:36,800 --> 00:09:38,920 Speaker 1: you know, over the last several decades, that we need 155 00:09:38,960 --> 00:09:41,319 Speaker 1: to foster in order to make sure we keep having 156 00:09:41,360 --> 00:09:44,840 Speaker 1: these people to sell our products too. And to my face, 157 00:09:45,240 --> 00:09:48,800 Speaker 1: leadership in h Speaker Ryan's office called it fake news. 158 00:09:49,559 --> 00:09:52,400 Speaker 1: And that's sort of I think consistent. You know that 159 00:09:52,480 --> 00:09:54,480 Speaker 1: you're saying this is worth it. The juice is worth 160 00:09:54,520 --> 00:09:56,600 Speaker 1: the squeeze. We're going to get there and Rich. It 161 00:09:56,679 --> 00:09:59,360 Speaker 1: sounds like to me that youth sense these talks could 162 00:09:59,400 --> 00:10:02,040 Speaker 1: unraffle in a negative way in the next couple of days. 163 00:10:02,080 --> 00:10:05,440 Speaker 1: Is that your base case? Now, well, I it is 164 00:10:05,480 --> 00:10:08,360 Speaker 1: my base case. I'm technically in about sixty odds, but 165 00:10:08,400 --> 00:10:10,080 Speaker 1: I am happy to hear arguments that the odds are 166 00:10:10,160 --> 00:10:13,120 Speaker 1: much higher than that that these tariffs go into place. Um. 167 00:10:13,200 --> 00:10:15,120 Speaker 1: But more directly to your point, I don't think that 168 00:10:15,160 --> 00:10:17,240 Speaker 1: there's a lot of upside for the market. The market 169 00:10:17,280 --> 00:10:20,840 Speaker 1: has been factoring in a win over the last few months, um, 170 00:10:20,880 --> 00:10:24,120 Speaker 1: even since maybe the Buena Feris meeting in December and 171 00:10:24,160 --> 00:10:27,000 Speaker 1: then furthermore in January and again in March. So we've 172 00:10:27,000 --> 00:10:29,560 Speaker 1: come to expect that there would be a resolution. That 173 00:10:29,640 --> 00:10:32,280 Speaker 1: means that if there is one that's already priced into 174 00:10:32,320 --> 00:10:34,439 Speaker 1: the market for the most part, a two percent correction 175 00:10:34,520 --> 00:10:38,160 Speaker 1: this week is not sufficient, um for what the lawmakers 176 00:10:38,160 --> 00:10:40,559 Speaker 1: in DC have been expecting. That's because the markets priced 177 00:10:40,559 --> 00:10:42,560 Speaker 1: in that this is going to go away. UM. The 178 00:10:42,600 --> 00:10:45,080 Speaker 1: fact that this looks like it's going to escalate and 179 00:10:45,120 --> 00:10:48,040 Speaker 1: there's no near term off ramp means there's a substantial 180 00:10:48,080 --> 00:10:52,280 Speaker 1: move to UM room for this to move to the downside. UM. 181 00:10:52,320 --> 00:10:55,200 Speaker 1: Speaking with long term investors now, they're they're thinking somewhere 182 00:10:55,200 --> 00:10:57,800 Speaker 1: in the four percent range of the minimum, and maybe 183 00:10:57,800 --> 00:10:59,320 Speaker 1: as high as ten percent if we go all the 184 00:10:59,320 --> 00:11:01,360 Speaker 1: way and put that for chronic with tariffs on. The 185 00:11:01,400 --> 00:11:04,320 Speaker 1: administration has said that the Chinese have indicated that they 186 00:11:04,360 --> 00:11:06,440 Speaker 1: would like to make a deal. What we don't have 187 00:11:06,520 --> 00:11:09,160 Speaker 1: much indication of is what kind of deal the Chinese 188 00:11:09,160 --> 00:11:12,040 Speaker 1: would like. Do you have any clarity whatsoever as to 189 00:11:12,120 --> 00:11:15,400 Speaker 1: how the Chinese arrive in Washington today and what deal, 190 00:11:15,520 --> 00:11:19,200 Speaker 1: what kind of deal they're actually looking for. My concern 191 00:11:19,320 --> 00:11:21,600 Speaker 1: is that the Chinese have been working on how they're 192 00:11:21,600 --> 00:11:24,760 Speaker 1: going to retaliate to our uptick in tariffs more than 193 00:11:24,800 --> 00:11:27,240 Speaker 1: they've been working on how to correct the one fifty 194 00:11:27,240 --> 00:11:30,040 Speaker 1: pages worth of a judgments that they want to see 195 00:11:30,760 --> 00:11:33,480 Speaker 1: in the deal that Lifetis has written up. So I'm 196 00:11:33,559 --> 00:11:36,080 Speaker 1: I'm very anxious about what I've heard in terms of 197 00:11:36,160 --> 00:11:39,680 Speaker 1: China thinking about providing stimulus to the automakers, domestically the 198 00:11:39,720 --> 00:11:43,360 Speaker 1: spur auto purchases of cars made in China. UM. I'm 199 00:11:43,400 --> 00:11:46,400 Speaker 1: concerned that they're talking about what kind of response they'll 200 00:11:46,440 --> 00:11:48,760 Speaker 1: have and the question is whether they'll raise tariffs on 201 00:11:48,880 --> 00:11:51,839 Speaker 1: insisting product lines or move to new product lines. And 202 00:11:51,920 --> 00:11:54,280 Speaker 1: they seem far more focused on how to retaliate and 203 00:11:54,360 --> 00:11:56,439 Speaker 1: much less focused on whether or not they want to, 204 00:11:56,640 --> 00:11:59,840 Speaker 1: you know, change their laws versus change their ranks and 205 00:12:00,000 --> 00:12:03,120 Speaker 1: here to trades with us with Veda partners right now, Henrietta, 206 00:12:03,160 --> 00:12:05,120 Speaker 1: I've been quiet, and it's not that I'm trying to 207 00:12:05,200 --> 00:12:09,120 Speaker 1: model out the likelihood of bruins blues in the Stanley Cup. 208 00:12:09,440 --> 00:12:14,439 Speaker 1: What I'm modeling out, Henriet, is I'm interpolating inflation adjusted soybeans. 209 00:12:14,840 --> 00:12:17,080 Speaker 1: I just redid that math, folks. I'm gonna put the 210 00:12:17,160 --> 00:12:21,160 Speaker 1: chart out. You'll see it first on Bloomberg Radio, Henrietta, 211 00:12:21,520 --> 00:12:24,880 Speaker 1: soybeans have created I haven't even done the math on 212 00:12:24,920 --> 00:12:28,920 Speaker 1: how much they've created since uh two thousand and twelve, 213 00:12:29,360 --> 00:12:33,760 Speaker 1: and we're almost back to basically depression soybean lows. I mean, 214 00:12:34,320 --> 00:12:38,520 Speaker 1: explain how that is good for Senator Grassley and Senator Ernst. 215 00:12:39,320 --> 00:12:42,560 Speaker 1: It is not. It most definitely is not um. But 216 00:12:43,040 --> 00:12:45,040 Speaker 1: what I understand, and I'm not you know, I'm not 217 00:12:45,080 --> 00:12:46,800 Speaker 1: a farmer, but I understand that they've been going through 218 00:12:46,800 --> 00:12:50,040 Speaker 1: a cycle for five plus years. And that they are 219 00:12:50,800 --> 00:12:54,840 Speaker 1: uh well equipped branch to deal with these declines even 220 00:12:54,880 --> 00:12:58,480 Speaker 1: over a long term period. Um. I think that what 221 00:12:58,720 --> 00:13:02,920 Speaker 1: we can learn lot from is the Farmer Stimulus Plan, 222 00:13:03,080 --> 00:13:05,440 Speaker 1: the program that the U. S d A put into 223 00:13:05,440 --> 00:13:08,280 Speaker 1: effect last year. You know, that was a twelve and 224 00:13:08,320 --> 00:13:11,199 Speaker 1: a half billion dollar program that the farmers didn't want. 225 00:13:11,240 --> 00:13:14,120 Speaker 1: They didn't like that handout. Chuck Grassley got one personally, 226 00:13:14,160 --> 00:13:19,120 Speaker 1: he was k per farmer, uh in the most rudimentary form. 227 00:13:19,160 --> 00:13:23,360 Speaker 1: And I think that the farming community is torn between 228 00:13:24,640 --> 00:13:27,800 Speaker 1: hating the Democratic candidate that was up in two thousands sixteen, 229 00:13:28,160 --> 00:13:32,079 Speaker 1: really liking how aggressive President Trump was on things like immigration, 230 00:13:32,280 --> 00:13:34,480 Speaker 1: talking about how this system doesn't work for them. I 231 00:13:34,480 --> 00:13:37,480 Speaker 1: don't think it was about their pocketbook, and for right 232 00:13:37,520 --> 00:13:42,320 Speaker 1: now they're willing to sustain um. You know, interestingly, sorry 233 00:13:42,360 --> 00:13:46,160 Speaker 1: go ahead now, But how close are we to their pocketbook? 234 00:13:46,200 --> 00:13:48,640 Speaker 1: I think that's what John and I are curious about. 235 00:13:48,679 --> 00:13:51,640 Speaker 1: If we get you know, the president's banter last night 236 00:13:51,679 --> 00:13:54,720 Speaker 1: at a political rally, and if he affects that banter, 237 00:13:55,320 --> 00:14:00,600 Speaker 1: how close are we to his core constituencies pocketbook? Well, 238 00:14:00,640 --> 00:14:04,400 Speaker 1: I think we're close. I mean, bankruptcies are on the rise. Um, 239 00:14:04,440 --> 00:14:07,680 Speaker 1: you know, Floyd being prices cratering and fear of supply 240 00:14:07,800 --> 00:14:11,800 Speaker 1: chains permanently being disrupted with Brazil and Argentina creates real problems. 241 00:14:12,200 --> 00:14:15,520 Speaker 1: But nonetheless, the polling data shows from every outlet that 242 00:14:15,640 --> 00:14:22,400 Speaker 1: the the farmers remain the president's biggest um group of supporters, 243 00:14:22,640 --> 00:14:24,760 Speaker 1: is the only part of the country that's still in 244 00:14:24,800 --> 00:14:28,480 Speaker 1: the red for President Trump um and that that is 245 00:14:28,520 --> 00:14:32,640 Speaker 1: something that the administration knows they're familiar with, and they 246 00:14:32,880 --> 00:14:36,600 Speaker 1: call them patriots on purpose, you know, to see the 247 00:14:36,680 --> 00:14:39,200 Speaker 1: National Economic Council Director come out and say that people 248 00:14:39,240 --> 00:14:41,160 Speaker 1: who are taking on the Chin because of tariffs and 249 00:14:41,200 --> 00:14:44,760 Speaker 1: our Republican administration calling them patriots is absurd in any 250 00:14:44,800 --> 00:14:48,760 Speaker 1: other universe. Uh, Nonetheless, here we are, and being against 251 00:14:48,920 --> 00:14:53,280 Speaker 1: China is extraordinarily popular in America across all party lines, 252 00:14:53,440 --> 00:14:55,360 Speaker 1: so that you're in the rust belt or in the 253 00:14:55,360 --> 00:14:58,560 Speaker 1: bread basket. So they've got that going for him. We 254 00:14:58,640 --> 00:15:00,880 Speaker 1: got to leave this. Henrietta's thank you so much, and 255 00:15:00,960 --> 00:15:03,120 Speaker 1: somehow I think we'll be talking in the coming days. 256 00:15:03,120 --> 00:15:19,520 Speaker 1: Henrietta Treys on the American economy. Steven Roshudau joins us. 257 00:15:19,520 --> 00:15:23,360 Speaker 1: We love his granularity at MISSOI Steve I'm gonna give 258 00:15:23,360 --> 00:15:26,480 Speaker 1: you an open question. Within the equation of economic growth, 259 00:15:26,560 --> 00:15:30,720 Speaker 1: what are you most focused on in the American economy. Well, 260 00:15:30,760 --> 00:15:32,320 Speaker 1: I think the key things you've got to look at 261 00:15:32,400 --> 00:15:34,040 Speaker 1: is where we go from here in terms of the 262 00:15:34,040 --> 00:15:37,160 Speaker 1: trade in the inventory situation, because it was really dune 263 00:15:37,560 --> 00:15:40,440 Speaker 1: the first quarter GDP. So run the partial differentials of 264 00:15:40,480 --> 00:15:45,480 Speaker 1: expert export dynamics and import dynamics, which matters most of 265 00:15:45,480 --> 00:15:48,840 Speaker 1: the president. Well, what matters most of the president is 266 00:15:48,880 --> 00:15:52,840 Speaker 1: primarily the the export numbers um and they should because 267 00:15:52,880 --> 00:15:54,960 Speaker 1: a lot of his ellectual support has come from the 268 00:15:55,000 --> 00:15:57,480 Speaker 1: rust belt areas, and that's going to depend a lot 269 00:15:57,520 --> 00:16:01,400 Speaker 1: on where the exports go rather where the imports go. Steve, 270 00:16:01,400 --> 00:16:03,560 Speaker 1: looking at PPR and looking at CPI, pp I just 271 00:16:03,640 --> 00:16:06,760 Speaker 1: coming out in the United States, CPI coming out tomorrow. 272 00:16:06,960 --> 00:16:09,360 Speaker 1: Give us a rate on inflation in America at the moment, 273 00:16:09,360 --> 00:16:11,360 Speaker 1: and how you think that's going to shape said policy 274 00:16:11,360 --> 00:16:14,880 Speaker 1: in the its come. Well, the domestic sources of inflation. 275 00:16:14,960 --> 00:16:19,000 Speaker 1: Clearly you're generating about two percent inflation on an ongoing 276 00:16:19,040 --> 00:16:21,520 Speaker 1: sustainable basis. I mean, we are the one country in 277 00:16:21,520 --> 00:16:25,040 Speaker 1: the advanced economies that are dealing with a positive GDP 278 00:16:25,160 --> 00:16:28,880 Speaker 1: output gap. Which means we're running above our uh capacity rate, 279 00:16:29,200 --> 00:16:31,280 Speaker 1: where everybody else will you include the United States and 280 00:16:31,320 --> 00:16:35,720 Speaker 1: the advanced Economic calculation is running with a negative GDP cap, 281 00:16:35,760 --> 00:16:38,560 Speaker 1: which means they're running below potential. And you have this 282 00:16:38,640 --> 00:16:41,920 Speaker 1: trade off between the domestic inflation pressures and the global 283 00:16:41,960 --> 00:16:44,840 Speaker 1: inflation pressures. And that's really why you've got the curve 284 00:16:44,880 --> 00:16:47,520 Speaker 1: as flat as you do, because the FED sitting there saying, 285 00:16:47,520 --> 00:16:50,680 Speaker 1: from a domestic standpoint, we have to worry about inflation. 286 00:16:50,720 --> 00:16:52,720 Speaker 1: And then along end of the curve is being dominated 287 00:16:52,720 --> 00:16:55,840 Speaker 1: by the global story, which is dealing with greater disinflationary 288 00:16:55,920 --> 00:16:58,760 Speaker 1: pressures and inflationary pressures. And the net result is the 289 00:16:58,800 --> 00:17:00,880 Speaker 1: short term rates are up, while the long term rates 290 00:17:01,160 --> 00:17:03,000 Speaker 1: aren't up anywhere near as much as they should be. 291 00:17:03,040 --> 00:17:05,320 Speaker 1: In the net result of the curve is very flat, Steve, 292 00:17:05,359 --> 00:17:08,879 Speaker 1: how do you identify what is and what isn't transitory 293 00:17:09,720 --> 00:17:12,439 Speaker 1: in the inflation story in general? Actually, there's there's a 294 00:17:12,480 --> 00:17:15,480 Speaker 1: very good calculation done by the Atlanta Fed where they 295 00:17:15,520 --> 00:17:21,040 Speaker 1: breakout inflation between flexible and sticky components UM and it's 296 00:17:21,040 --> 00:17:24,960 Speaker 1: a straight mathematical calculation based on which ones tend to 297 00:17:25,040 --> 00:17:27,360 Speaker 1: move more on a month to month basis, and which 298 00:17:27,359 --> 00:17:29,480 Speaker 1: ones tend to move less on a month to month basis, 299 00:17:29,720 --> 00:17:32,080 Speaker 1: and there is an ability to substitute between one and 300 00:17:32,119 --> 00:17:35,560 Speaker 1: the other as time goes on. And in that particular calculation, 301 00:17:35,640 --> 00:17:37,959 Speaker 1: it's interesting is the dominant issue has been a very 302 00:17:38,040 --> 00:17:42,879 Speaker 1: very flat, sticky component of inflation, and there's volatility taking place, 303 00:17:43,119 --> 00:17:45,560 Speaker 1: which is really from the export side, uh and the 304 00:17:45,600 --> 00:17:49,200 Speaker 1: import side driving the volatility and the flexible components. Steve 305 00:17:49,240 --> 00:17:50,520 Speaker 1: pressed for time, so we've got to wait through a 306 00:17:50,600 --> 00:17:53,280 Speaker 1: variety of subjects. We do want your thoughts on trade. 307 00:17:53,320 --> 00:17:56,560 Speaker 1: The Chinese touchdown a little bit later this afternoon in Washington, 308 00:17:56,640 --> 00:17:58,840 Speaker 1: d c. Remains to be seeing what their position will 309 00:17:58,880 --> 00:18:01,560 Speaker 1: be when they right. If you have a base case, 310 00:18:02,040 --> 00:18:04,919 Speaker 1: what is it, Steve? My base case is basically this 311 00:18:05,000 --> 00:18:07,760 Speaker 1: is going to drag on very very long into the 312 00:18:07,800 --> 00:18:11,439 Speaker 1: electoral process. Trump has a desire to make sure that 313 00:18:11,440 --> 00:18:15,320 Speaker 1: he either gets full capitulation from China or he gets 314 00:18:16,160 --> 00:18:18,520 Speaker 1: the lays this thing as long as he possibly can, 315 00:18:19,200 --> 00:18:22,040 Speaker 1: holding out the benefits to those rust belt states that 316 00:18:22,119 --> 00:18:25,840 Speaker 1: are key to his potential reelection. And the longer he 317 00:18:25,960 --> 00:18:28,199 Speaker 1: keeps this story going, the better it is for him. 318 00:18:28,240 --> 00:18:30,840 Speaker 1: Because the reality is trade deals never really solved the 319 00:18:30,840 --> 00:18:34,040 Speaker 1: trade deficit problem when the reserve currency, and that's really 320 00:18:34,119 --> 00:18:35,880 Speaker 1: the critical issue. And that's why they're going to keep 321 00:18:35,880 --> 00:18:38,840 Speaker 1: this going as long as they possibly can. Stephen, shoot 322 00:18:38,920 --> 00:18:41,120 Speaker 1: up too short. We've got to do this longer next time, 323 00:18:41,160 --> 00:19:03,800 Speaker 1: Stephen excused uh heron Stigram from n y U Professor 324 00:19:03,960 --> 00:19:08,000 Speaker 1: of in A Stern School of Business, Professor uh Siagram, 325 00:19:08,000 --> 00:19:10,280 Speaker 1: thanks so much for joining us. Where I wanted to 326 00:19:10,320 --> 00:19:14,159 Speaker 1: focus on here is kind of valuation. Um. You know, 327 00:19:14,200 --> 00:19:17,879 Speaker 1: there's no net income, there's no cash flow. How do 328 00:19:17,880 --> 00:19:22,960 Speaker 1: you think investors should be valuing this company? Good morning Paul, 329 00:19:23,000 --> 00:19:25,119 Speaker 1: Good morning Tom. Good to be with Tom with that 330 00:19:25,280 --> 00:19:27,359 Speaker 1: two hours I spoke to him on TV this morning. 331 00:19:30,160 --> 00:19:33,280 Speaker 1: In this case, should think about this business When I 332 00:19:33,320 --> 00:19:36,720 Speaker 1: think about Goober, I value this company parts of the 333 00:19:36,800 --> 00:19:40,679 Speaker 1: business using a DIZCF analysis one, then analysis parts of 334 00:19:40,680 --> 00:19:42,480 Speaker 1: the business. We have to think of this as a 335 00:19:42,640 --> 00:19:46,080 Speaker 1: real option or the call option on this moon shot projects. Yeah, 336 00:19:46,440 --> 00:19:50,080 Speaker 1: that is that's why people find this very difficult to 337 00:19:50,560 --> 00:19:52,520 Speaker 1: some of them come up with the value of seventeen 338 00:19:52,800 --> 00:19:57,159 Speaker 1: billion versus one billion because people are focusing on the 339 00:19:57,240 --> 00:20:00,439 Speaker 1: optionality of the business and how they pay might be 340 00:20:00,480 --> 00:20:03,639 Speaker 1: in the future. That's why people are not able to 341 00:20:03,800 --> 00:20:08,000 Speaker 1: nail a value. But based on my analysis, to a 342 00:20:08,080 --> 00:20:11,879 Speaker 1: value between sixty seven of the lower end and thirty 343 00:20:11,920 --> 00:20:16,920 Speaker 1: billion at the higher end. Okay, it's optionality you're buying. 344 00:20:17,000 --> 00:20:19,800 Speaker 1: You're paying a little bit, folks for the hope and 345 00:20:19,880 --> 00:20:22,160 Speaker 1: prayer out there. But as you know, the Greek letter 346 00:20:22,280 --> 00:20:26,159 Speaker 1: everybody avoids is theta. So if I'm on the X 347 00:20:26,240 --> 00:20:31,560 Speaker 1: axis and I'm trying to value the value of that option, 348 00:20:32,240 --> 00:20:36,600 Speaker 1: I need the guestimate the X axis. How far out 349 00:20:36,680 --> 00:20:40,000 Speaker 1: do you have to go to make the option turn 350 00:20:40,080 --> 00:20:47,680 Speaker 1: into an asset? Okay, I assumed time between five to 351 00:20:47,840 --> 00:20:52,880 Speaker 1: seven years, especially for the autonomous vehicles to come in. 352 00:20:53,000 --> 00:20:57,040 Speaker 1: They're dreaming about trying cars, So for this option to 353 00:20:57,119 --> 00:20:59,880 Speaker 1: be finishing in the money, it has to be at 354 00:21:00,080 --> 00:21:05,040 Speaker 1: least five years afraid or autonomous driving. So if you 355 00:21:05,200 --> 00:21:08,480 Speaker 1: value the core business the right sailing and to some 356 00:21:08,680 --> 00:21:12,199 Speaker 1: extern uber eats as a dac of analysis, then you 357 00:21:12,400 --> 00:21:17,560 Speaker 1: have this optionality for this um ambixious ventures. That is 358 00:21:17,560 --> 00:21:20,960 Speaker 1: how people are sort of coming up at different values. 359 00:21:22,080 --> 00:21:24,120 Speaker 1: My time frame is at least five years to five 360 00:21:24,160 --> 00:21:26,520 Speaker 1: to seven years passweeney. I want to put in perspective 361 00:21:26,520 --> 00:21:28,959 Speaker 1: and correct me if I'm wrong. If Professor Seagram as 362 00:21:29,000 --> 00:21:32,679 Speaker 1: an optionality, this seems a little more adult than some 363 00:21:32,760 --> 00:21:37,080 Speaker 1: of the three year guestimates. Yes, exactly so, Professor. One 364 00:21:37,080 --> 00:21:40,040 Speaker 1: of the things we've heard in the marketplace surrounding this 365 00:21:40,080 --> 00:21:43,119 Speaker 1: deal is, Hey, you can just compare Uber with maybe 366 00:21:43,280 --> 00:21:46,159 Speaker 1: Facebook or Amazon and that will help you get to 367 00:21:46,200 --> 00:21:51,760 Speaker 1: that valuation. Do you think that's prudent? I don't think so. UM, 368 00:21:52,080 --> 00:21:56,560 Speaker 1: it's not advisable at all, um as I mention, really 369 00:21:56,560 --> 00:21:59,800 Speaker 1: and the TV interview, Amazon was meditation with the re 370 00:22:00,000 --> 00:22:03,400 Speaker 1: telling business. They got to a level where they can 371 00:22:03,480 --> 00:22:06,280 Speaker 1: turn on the profits and turn off the profits if 372 00:22:06,320 --> 00:22:10,840 Speaker 1: they want to. Um. They go through investment cycle, harvesting cycles, 373 00:22:10,880 --> 00:22:13,959 Speaker 1: surject because those had a switch. If he wants to 374 00:22:14,000 --> 00:22:15,960 Speaker 1: turn it on, he can turn on the process. Then 375 00:22:15,960 --> 00:22:19,520 Speaker 1: he'll go back to investing cycle. That luxury is not 376 00:22:19,600 --> 00:22:23,280 Speaker 1: available for Uber or Lift at the moment. And Facebook 377 00:22:23,320 --> 00:22:27,040 Speaker 1: has strong network effects. If you're friends from Facebook, you 378 00:22:27,160 --> 00:22:31,920 Speaker 1: cannot be on another week work talking to your friends. 379 00:22:31,960 --> 00:22:35,160 Speaker 1: I spoke to a Uber driver he's driving for Uber 380 00:22:35,880 --> 00:22:40,840 Speaker 1: left Juno and the via heard of the fourth fourth company. 381 00:22:41,440 --> 00:22:45,320 Speaker 1: So there's a very low switching cost. Therefore, we should 382 00:22:45,400 --> 00:22:49,679 Speaker 1: never compare Uber to Facebook, Amazon in my opinion, and 383 00:22:49,720 --> 00:22:52,240 Speaker 1: Professor say, I'm the only network effect I know on 384 00:22:52,400 --> 00:22:54,280 Speaker 1: Uber and Left is my kids don't want me to 385 00:22:54,320 --> 00:22:57,440 Speaker 1: know where they're going. Futures, Let's do a data check 386 00:22:57,520 --> 00:23:00,959 Speaker 1: futures negative three or six. Rather, we're open and open 387 00:23:01,080 --> 00:23:05,119 Speaker 1: negative three oh five five thousand six sixty four SMP 388 00:23:05,240 --> 00:23:10,560 Speaker 1: down thirty four points. As well in the vix is 389 00:23:10,560 --> 00:23:14,240 Speaker 1: gonna come out four big figures for FO you are 390 00:23:14,280 --> 00:23:17,960 Speaker 1: twenty three point three zero Uh, beginning to see a 391 00:23:18,040 --> 00:23:21,399 Speaker 1: yield move even lower yield six basis points rounded up 392 00:23:21,760 --> 00:23:25,760 Speaker 1: on the tenure two point four three percent, and and 393 00:23:25,800 --> 00:23:28,719 Speaker 1: again this is well, the yen has finally turned around 394 00:23:29,320 --> 00:23:33,400 Speaker 1: fractually stronger yet in the last twenty minutes Paul Sweeney, so, Professor, 395 00:23:33,440 --> 00:23:35,920 Speaker 1: one of the issues that I know investors are really 396 00:23:36,560 --> 00:23:38,920 Speaker 1: challenged by, even you know, certainly with the Lift deal 397 00:23:38,960 --> 00:23:43,000 Speaker 1: and also with Uber, is just envisioning a path to profitability. 398 00:23:43,000 --> 00:23:45,400 Speaker 1: Look at the income statement of this company, and boy, 399 00:23:45,520 --> 00:23:48,600 Speaker 1: their two biggest expenses are kind of variable in nature, 400 00:23:48,640 --> 00:23:51,879 Speaker 1: that is, subsidizing the drivers and ensuring the drivers. What 401 00:23:52,040 --> 00:23:57,000 Speaker 1: is your model say about whether this company can achieve profitability. 402 00:23:58,000 --> 00:24:01,840 Speaker 1: Lift I have a making in in about four years, 403 00:24:02,240 --> 00:24:05,399 Speaker 1: or Uber at least one year longer than that. So 404 00:24:06,600 --> 00:24:09,520 Speaker 1: what their problem right now is they cannot be upfront 405 00:24:09,560 --> 00:24:11,919 Speaker 1: with the drivers saying that they're going to replace you 406 00:24:12,000 --> 00:24:17,199 Speaker 1: one day. That would impact the employee employee attitude towards 407 00:24:17,200 --> 00:24:20,720 Speaker 1: the working condition right now, so I think they're keeping 408 00:24:20,720 --> 00:24:24,879 Speaker 1: it under wraps. Eventually they want to this possibility of 409 00:24:25,320 --> 00:24:29,280 Speaker 1: autonomous driving. The cost is going to go down for them. 410 00:24:29,600 --> 00:24:33,560 Speaker 1: Even for example, if liftfer to a partner with Google, 411 00:24:33,920 --> 00:24:36,440 Speaker 1: they might share the profits to some extent, but the 412 00:24:36,640 --> 00:24:39,840 Speaker 1: biggest cost is going to go down the refinee growth. 413 00:24:39,920 --> 00:24:44,440 Speaker 1: The top line growth alone cannot turn this company into profitability. 414 00:24:44,480 --> 00:24:47,879 Speaker 1: They have to have stricter cost measures for them to 415 00:24:47,960 --> 00:24:50,880 Speaker 1: turn profits in the future. So it seems if I'm 416 00:24:50,960 --> 00:24:53,320 Speaker 1: thinking about buying the IP of tonight, do I have 417 00:24:53,440 --> 00:24:56,159 Speaker 1: to buy off on autonomous vehicles? That seems like a 418 00:24:56,200 --> 00:24:59,920 Speaker 1: stretch exactly right. That is why I drew off in 419 00:25:00,040 --> 00:25:03,040 Speaker 1: that optionality. We have to focus on the core business 420 00:25:03,040 --> 00:25:06,720 Speaker 1: they're operating right now. But I feel they have this 421 00:25:06,960 --> 00:25:10,480 Speaker 1: pricing power once the top line growth settles down a 422 00:25:10,520 --> 00:25:12,600 Speaker 1: little bit, So it's going to be end of the 423 00:25:12,680 --> 00:25:15,680 Speaker 1: day the Apoleague game between Uber and Left, at least 424 00:25:15,720 --> 00:25:18,960 Speaker 1: in the United States, saying we will raise the prices 425 00:25:19,000 --> 00:25:22,679 Speaker 1: to the extent that taxi business doesn't take off again. 426 00:25:23,280 --> 00:25:25,439 Speaker 1: So I have I feel they have some room to 427 00:25:25,520 --> 00:25:29,680 Speaker 1: raise the prices without bringing in taxi services back the 428 00:25:29,840 --> 00:25:33,280 Speaker 1: free perhaps to sign thank you so much greatly appreciated 429 00:25:33,560 --> 00:25:36,040 Speaker 1: around segram with us from New York University, study in 430 00:25:36,080 --> 00:25:45,880 Speaker 1: school and thrilled that he's with us. Thanks for listening 431 00:25:45,920 --> 00:25:50,480 Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews 432 00:25:50,520 --> 00:25:55,760 Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 433 00:25:56,320 --> 00:25:59,639 Speaker 1: I'm on Twitter at Tom Keane before the podcast. You 434 00:25:59,640 --> 00:26:03,080 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.