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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Greg

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Speaker 1: Deco dropping by the studio, Oxford Economics Chief US Economist.

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Speaker 1: Good monitor, Greg, Good morning. What are you looking for

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Speaker 1: from the FT this week? Minutes Wednesday Chairman pal Friday. Yeah,

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Speaker 1: I think in the minutes we're going to see UM

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Speaker 1: some key illustrations as to why the FED decided to

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Speaker 1: cut rates earlier this this year, UM and proceed with

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Speaker 1: what seems to be like attentative mid cycle easing. So

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Speaker 1: some of the reasons, the key factors behind that mid

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Speaker 1: cycle easing. UH. The FED chair Powell noted that there

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Speaker 1: was a key concern to sustain this expansion and to

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Speaker 1: fight frost winds, international cross cross winds, and the uncertainty

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Speaker 1: from trades. So we're going to see that. We're also

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Speaker 1: going to hear from Powell at the Jackson home meeting

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Speaker 1: and perhaps some clarification as to what the FED intents

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Speaker 1: are going into. So, Greg, there was certainly some I

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Speaker 1: guess a misunderstanding or some you know, miscommunication of kind

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Speaker 1: of what Chairman Poal meant the last time they cut rates.

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Speaker 1: Was it a mid course correction, mid cycle correction, or

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Speaker 1: is it the beginning of an easing cycle. Do you

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Speaker 1: think we'll get some clarity coming out of the minutes

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Speaker 1: and his test and his commentary on Friday. I think

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Speaker 1: we'll get some clarity on the discussions that happened at

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Speaker 1: the f MC meeting in the fom C minutes, I

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Speaker 1: don't think we'll get that much clarity as to what

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Speaker 1: the Fed's final intent is UM. And that's really the

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Speaker 1: key on certain element with regards to FED policy going

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Speaker 1: into is what is the FED intent on doing UM.

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Speaker 1: I think the FED is likely to deliver two more

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Speaker 1: rate cuts, not so much to stimulate the economy, but

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Speaker 1: really to reassure markets, reassure investors that the FED is

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Speaker 1: ready and willing to stand by should the economy slow

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Speaker 1: down further than is currently expected, and in an environment

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Speaker 1: in which trade policy remains quite uncertain. So Greg this

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Speaker 1: is where the doubts are as to whether this will

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Speaker 1: actually work. The National Federation of Independent Business put out

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Speaker 1: their monthly sentiments serve At the ARST participants whether one

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Speaker 1: hundred basis point rate reduction would change campex decisions, only

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Speaker 1: twelve said yes, said no, said not sure, Forty three

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Speaker 1: percent said we're not even looking at borrowing. The cost

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Speaker 1: of capital doesn't seem to be a problem right now,

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Speaker 1: does it. I don't think the cost of capital is

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Speaker 1: an issue at all. I think what the key issue

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Speaker 1: is for businesses is the uncertainty pertaining to trade tensions UM,

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Speaker 1: and the FED is caught in a lose lose situation

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Speaker 1: because on the one hand, it is trying to respond

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Speaker 1: to potential terrorists or further terrorists by the US administration

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Speaker 1: against China, and could be seen as reacting to a

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Speaker 1: political influence. On the other if it doesn't do anything,

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Speaker 1: we're going to see a tightening in financial conditions, which

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Speaker 1: will have effects on business investment and capex, and which

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Speaker 1: will deter u s economic activity. Well, Greg, do you

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Speaker 1: think that takes us that uncertainty UM takes us into

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Speaker 1: a recession type scenario? Sometime? I think a recession is

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Speaker 1: a possibility, It's always a possibility. What we're looking for

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Speaker 1: in our baseline is an economic slowdown. You're seeing some

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Speaker 1: of the key factors of the U S economy. Weekend,

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Speaker 1: you're seeing business investment weekend, You're seeing exports weekend, You're

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Speaker 1: seeing the housing sectors still struggling. Luckily for the U

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Speaker 1: S economy, U S consumers are still spending. The key

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Speaker 1: question is whether the backdrop, the fundamental supporting consumer spending,

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Speaker 1: remain as strong. And what we see is some slowing,

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Speaker 1: some maturing of the labor market, which will gradually erode

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Speaker 1: consumer spending growth. So that's why we're expecting the US

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Speaker 1: economy to slow from three percent last year or two

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Speaker 1: around two two and a half percent this year and

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Speaker 1: below two percent, so in and around trend. Grug's essentially correct.

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Speaker 1: That doesn't have to be a problem, does it. No.

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Speaker 1: I think the longer, if you want to grow longer,

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Speaker 1: you might as well grow at a sustainable pace, and

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Speaker 1: that sustainable pace would be potential output growth. Um. The

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Speaker 1: key question is whether there is any kine of fault

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Speaker 1: policy that manages to lift that potential. We saw the

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Speaker 1: big physical package that was passed in eighteen with outskirts

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Speaker 1: and government spending lifting demand. It didn't really lift supply,

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Speaker 1: and that was key at this point in the business cycle.

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Speaker 1: We're now in the longest expansion on cycle on record,

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Speaker 1: excuse me, with ten years of expansion. The key question

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Speaker 1: is how do you sustain that expansion and whether that

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Speaker 1: requires further fed easy to actually do so, I'm not

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Speaker 1: sure if it does or not. I mean, I've seen

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Speaker 1: some stunning stats from the team at Bank for America

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Speaker 1: on where the bond market is right now. The average

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Speaker 1: yield on about twenty seven point eight trillion dollars of

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Speaker 1: global non dollar denominated high grade debt eleven basis points.

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Speaker 1: Non dollar sovereign yields now negative on average for the

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Speaker 1: first time ever, negative three basis points according to this report.

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Speaker 1: That to me tells me that monetary policy is totally

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Speaker 1: exhausted now, yields are incredibly low, and the policy and

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Speaker 1: k needs to come from somewhere else. Greg what is

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Speaker 1: that somewhere else? What does it come from? Well, I

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Speaker 1: think largely it comes from the first side of the economy,

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Speaker 1: and we're seeing economies like Germany that had been reticent

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Speaker 1: to any fiscal spending considering that possibility. So that's really

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Speaker 1: where the physical stimulus will have to come from in

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Speaker 1: the next downturn. Now, the fact still does have some ammunition,

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Speaker 1: but you're absolutely correct that in the current environment, we're

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Speaker 1: seeing a lot of piling on into government bond debt,

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Speaker 1: government debt um and that is pushing yields lower and

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Speaker 1: lower and lower, and in some cases in some countries

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Speaker 1: a lot of countries today, negative yields are are becoming

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Speaker 1: the norm. How much of your base case, you know,

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Speaker 1: kind of low growth, you know, two percent? Call the growth.

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Speaker 1: UH is at risk with trade uncertainty here because it

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Speaker 1: appears that despite some of the rhetoric we've been hearing

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Speaker 1: out of the White House of that nothing is probably

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Speaker 1: gonna get done on the US trying to trade things

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Speaker 1: till after the election. I think the most likely outcome

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Speaker 1: is that we get a status quo. We might get

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Speaker 1: some kind of trade deal as we approached the election,

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Speaker 1: because the administration is really intent on delivering something, but

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Speaker 1: that trade deal will really be promises promises by China

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Speaker 1: to import a little bit more agricultural products, promises maybe

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Speaker 1: by the US exactly, promises by the US to pull

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Speaker 1: back on some terrorists. UM. The key question though, is

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Speaker 1: whether we end up hitting UH more of a significant downturn.

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Speaker 1: And I think we have to remember that the only

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Speaker 1: thing to fear is fear itself. That's really going to

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Speaker 1: be key in the next twelve months. Do we start

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Speaker 1: to see more and more of that recession bias. Do

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Speaker 1: we start to see an environment in which businesses expect

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Speaker 1: weaker sales and therefore invest less in the future, and

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Speaker 1: that erodes the potential of the economy, That lowers our star,

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Speaker 1: and that makes monetary policy perhaps even too tight given

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Speaker 1: the potential, you think there's a risk that this could

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Speaker 1: become self fulfilling. I think that's the key risk today.

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Speaker 1: It's not so much that the U s economy is

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Speaker 1: actually um entering a massive and rapid slow down. It's

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Speaker 1: the fact that people start to pull back because they

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Speaker 1: don't expect a brighter future. They expect a gloomier future. Greg,

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Speaker 1: Great to catch up with you, basically the head from

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Speaker 1: here going into Wednesday, A little bit data coming up

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Speaker 1: on Thursday, then Chairman pal coming up on Friday. Greg Zacho,

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Speaker 1: that Oxford Economics chief the US Economy. I want to

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Speaker 1: bring in Kenley on cfr right, Global director of Research

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Speaker 1: for the Latest on what he's saying. Good morning. You

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Speaker 1: can your thoughts on the sayings that were seeing some

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Speaker 1: of the results were seeing from the big retailers in America.

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Speaker 1: Good morning. So for Home Depot it is a mammoth company,

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Speaker 1: so the movement needle on growth is always hard. But

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Speaker 1: in this quarter, no, we did see disappointment. Operating income

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Speaker 1: pretax InCom net earnings were all flat year over year.

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Speaker 1: It's only because of the buy back at four point

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Speaker 1: three shares that they were able to do an earning

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Speaker 1: speed of three dollars and seventeen cents. So Ken, it's

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Speaker 1: it's interesting here when you think about Home Depot, you

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Speaker 1: think about housing. Just give us a sense of, you know,

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Speaker 1: really how tied is home depots results quarter to quarter

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Speaker 1: to the housing market. So for the housing market, it

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Speaker 1: is correlated to housing starts UH and existing home sales.

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Speaker 1: That's when you have your larger ticket purchases. But a

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Speaker 1: D ninety six million US houseful to stay where they are.

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Speaker 1: But unfortunately, consumer confidence was down last week. It was

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Speaker 1: down a lot um and that really tanks protecture in

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Speaker 1: terms of whether you're going to remodel a kitchen or

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Speaker 1: a bathroom. So I think they're cautious for the rest

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Speaker 1: of this year. You've got to remember to that home

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Speaker 1: Depot of the July quarter is the peak quarter and

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Speaker 1: then numbers go down over the next three quarters. Happens

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Speaker 1: every year, So can the blame game from the CEO?

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Speaker 1: Essentially primarily for the CEO, it comes from continued lumber

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Speaker 1: price deflation. Then there's the unknown going against the back

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Speaker 1: half of this year, the potential impacts the US consumer

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Speaker 1: and rising from recently announced tariffs. Can how are you

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Speaker 1: modeling that at the moment for a company like home Depot.

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Speaker 1: What did the latest round of tariffs mean for this company? Um,

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Speaker 1: it clearly drives in terms of the top line. Essentially,

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Speaker 1: first lumber they said was deflation. You know, they had

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Speaker 1: a decling year over year, but they sell lumber unlike

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Speaker 1: other businesses where it's of course and could be a positive.

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Speaker 1: So the tariffs affects consumer confidence as I mentioned before,

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Speaker 1: and affects the outlook in terms of sales fails going

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Speaker 1: into a slower period for Home Depot. Weather was not

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Speaker 1: an issue for the July quarter. Weather with hurricanes can

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Speaker 1: also be a tipping point, but that could be a

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Speaker 1: good disguise to a weakening demand not only because of tariffs,

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Speaker 1: but lower US consumer confidence potentially from that. So kind.

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Speaker 1: I'm looking on the Bloomer terminal on the A and

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Speaker 1: R function, there's twenty two buys, twelve holes in one sell.

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Speaker 1: What's the bull case for home depot here? I think it's,

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Speaker 1: you know, the high quality predictability of their business UM.

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Speaker 1: Typically home improvement retail is covered by other a retail analysts,

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Speaker 1: so on a relative basis, what's pretty good compared to

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Speaker 1: department stores, et cetera. We actually have to sell and

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Speaker 1: felt that this stock UM was expensive in terms of

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Speaker 1: its valuation, always a high multiple, always a high debt company.

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Speaker 1: But they're able to manage uh very well, you know,

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Speaker 1: with a great track record. But again, if the consumer

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Speaker 1: doesn't have confidence to go in and make some large

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Speaker 1: ticket improvements and not only effects from the household, but

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Speaker 1: the important part is the pro segment, which is even

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Speaker 1: important to home deposts. We'll hear more about that on

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Speaker 1: the conference ball. It can't interesting to see that they've

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Speaker 1: maintained their outlook threeps for earnings for share. Do you

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Speaker 1: think earnings are a risk here than ken Um? You know,

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Speaker 1: as I mentioned, the operating earnings were flat, pretax earnings

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Speaker 1: were flat. Uh, their ability with terrific cash flow is

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Speaker 1: to buy back stock. So can what do you again

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Speaker 1: buying backstock? Obviously shareholders like that, what is where are

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Speaker 1: they investing for growth going forward? Or is this the

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Speaker 1: footprint we have? And it's just a calling and consumer

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Speaker 1: I think in the consumer space, a lot of this

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Speaker 1: is very dependent in terms of the outlooks of the economy.

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Speaker 1: You know, still let's underscore that there's firm footing in

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Speaker 1: terms of job employment growth and household income. But household

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Speaker 1: income is also shifting to savings, not to this rapid

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Speaker 1: spending and leveraging the household. Uh. And that's what the

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Speaker 1: said data has been showing for the list six month historically, Ken,

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Speaker 1: how is this stock performed in recessionary periods? I would

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Speaker 1: not describe home depolar retailers recession resistant. Uh, there's other

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Speaker 1: areas that are more defensive. What are those areas right now?

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Speaker 1: So the areas that we like are in the rates

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Speaker 1: and the real estate sect there, particularly healthcare rates that's

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Speaker 1: very recession resistant. Other areas of real estate are circle

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Speaker 1: call like authors even to some case multi family. You

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Speaker 1: also have to look at utilities. Uh. And then of

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Speaker 1: course there's always a question and debate on what I

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Speaker 1: cover which is the banks, but the banks don't benefits

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Speaker 1: from lower rate. It can great to can share with you,

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Speaker 1: to get your thoughts on a retail sector and a

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Speaker 1: little bit beyond Kenley on their CFL rate Global director

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Speaker 1: of Research. One please to say that joining us now

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Speaker 1: is Terry Haynes PANJIA Policy founder on the latest Town

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Speaker 1: of Washington, d C. Terry. Great to have you with

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Speaker 1: us on the program as always, well, thank you very much. John,

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Speaker 1: It's always my pleasure, believe me. Let's start talking about

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Speaker 1: what's happening with the administration today. Larry Cudlow is expected

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Speaker 1: to be meeting with business leaders pretty soon, and Terry,

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Speaker 1: I'm trying to get my head around as to whether

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Speaker 1: the C suite in America it is starting to put

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Speaker 1: some message that is as a nighting with this administration

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Speaker 1: on the trade issue. What do you see handling the momentary?

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Speaker 1: What I see happening is a more public continuation of

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Speaker 1: a lot of things that have been going on at

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Speaker 1: private for quite some time. And one of the one

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Speaker 1: of the functions of Larry's job and h the folks

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Speaker 1: that work for him, is to is to maintain an

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Speaker 1: outreach in a dialogue with the business community, and what

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Speaker 1: I think they're doing by uh, what I think they're

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Speaker 1: doing by making these things more public and in some cases,

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Speaker 1: like with the President and Tim Cook the other day,

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Speaker 1: bumping them up to principle level, UH is is making

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Speaker 1: sure that the business community understands what the administration's concerns are,

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Speaker 1: what the and and frankly, what the benefits are from

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Speaker 1: from remaining on side with with the United States position

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Speaker 1: uh and uh and and and having the administration and

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Speaker 1: having the administration explain, uh frankly, how it's how it's

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Speaker 1: trying to moderate. So I think all those things so

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Speaker 1: so terry. Even with greater engagement by Corporate America with

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Speaker 1: the President on trade. What is your expectation, Will anything

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Speaker 1: actually happen between US and China or is this something

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Speaker 1: that is a going to be kicked, you know, kick

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Speaker 1: the can down the road to after the elections. My

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Speaker 1: my expectation, Paul, I don't think it's I don't think

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Speaker 1: it's being kicked down the kick the can is being kicked.

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Speaker 1: But my expectation all year on record as saying that

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Speaker 1: I thought that the United States China trade war was

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Speaker 1: not going to be resolved anytime in the differences are fundamental,

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Speaker 1: And the differences are fundamental because China, for for whatever

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Speaker 1: combination of reasons, does not want to make an enforceable

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Speaker 1: agreement UH. It regards enforceability as a violation of its sovereignty.

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Speaker 1: That audit concerned people since the generally if you like

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Speaker 1: trade agreements, because the bottom line here is that all

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Speaker 1: trade agreements have to be enforceable otherwise they don't work.

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Speaker 1: And so that by implication, this is not a just

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Speaker 1: a US problem, This is probably a G seven and

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Speaker 1: W t O problem as well. Combine that with what's

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Speaker 1: going on in Hong Kong and the UH the China

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Speaker 1: wondering about whether or not AT ought to step in. UH.

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Speaker 1: This is not a great moment for for for the

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Speaker 1: rule of international law. But what I expect to happen

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Speaker 1: is that the United States and China will keep talking UH.

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Speaker 1: They may make a little progress here, may may may

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Speaker 1: make a little progress there. But fundamentally I I expect

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Speaker 1: that as long as the two countries think it is

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Speaker 1: to their mutual advantage to continue talking, in part because

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Speaker 1: it calms markets, they'll continue to do so. But do

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Speaker 1: I see any cracks in in the armor on either

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Speaker 1: side any willingness to compromise further in the short term.

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Speaker 1: I do not so. Terry. At one point, not too

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Speaker 1: long ago, um, you know, official certainly on the U

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Speaker 1: s side, we're saying that we were, you know, quote

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Speaker 1: unquote there to a deal. Do you think that was

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Speaker 1: actually accurate or is that last ten percent really the

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Speaker 1: ten percent that matters. I think both of those are true.

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Speaker 1: I do think that it was the case that they

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Speaker 1: were very close on a deal, and I think the

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Speaker 1: last ten percent of the ten percent that matters. And

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Speaker 1: this is what crystallized my view that enforceability is really

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Speaker 1: the problem. As I say, and you don't have an

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Speaker 1: enforceable deal, you don't have a deal that's worth anything

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Speaker 1: on either side, and uh and trying to pull back

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Speaker 1: because China decided that enforceability was a violation of a

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Speaker 1: sovereignty and you can read into that whatever you will,

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Speaker 1: but the bottom line is the United States wants an

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Speaker 1: enforceable deal, and as long as and when, if and

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Speaker 1: when China is ready to have an enforceable deal, I

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Speaker 1: think they. I think a deal can be concluded very

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Speaker 1: very quickly. And I'm not saying that to pick side

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Speaker 1: to here all I'm saying is that enforceability has been

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Speaker 1: a key for the United States since day one, and

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Speaker 1: beyond that, enforceability has been something that is the lynch

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Speaker 1: pin of every trade deal. Uh. You know, just the

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Speaker 1: discussions about how we're going to enforce the new provisions

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Speaker 1: of the new NAPHTA agreement, for example, is uh. It

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Speaker 1: was always a big deal. So Terry, I just think

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Speaker 1: it's a difference between right and wrong. If we're going

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Speaker 1: to have a deal, it needs to be enforcible, well exactly. Uh.

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Speaker 1: And you know, as I say, that's that's the standard, Uh,

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Speaker 1: that that's the standard conclusion of trade deals. And one

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Speaker 1: of the things that happens as a result of trade

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Speaker 1: deals is that the designing nations change their laws. So

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Speaker 1: you know that China is going to have to change

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Speaker 1: its laws and its regulations as a result of any

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Speaker 1: trade deal. This is something that they acknowledge that they

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Speaker 1: would have to do as long ago as May eighteen, uh,

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Speaker 1: in a joint communicated with the United States public communicating

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Speaker 1: and uh and now they claim you want to do it.

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Speaker 1: So that that to me is the lynch can in

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Speaker 1: any deal. So it's trying to continues to drag its

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Speaker 1: feet and it becomes increasingly difficult to get that deal. Sterry.

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Speaker 1: We need to talk about the policy effort from our

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Speaker 1: Swhere in the New York Times today, at the White

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Speaker 1: House rushing to find a recession shield, there is talk

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Speaker 1: the administration is looking at a potential payroll tax cut.

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Speaker 1: There has been pushback from the administration against that idea,

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Speaker 1: and as to whether they're actually working on it. What

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Speaker 1: do you see happening? Are we are about to see

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Speaker 1: more tax cuts in America? Terry? I don't think we are,

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Speaker 1: because it would be impossible to get more tax cuts

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Speaker 1: through Congress fundamentally. Uh So, I don't think that that's

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Speaker 1: likely to happen. But what I do think is the case,

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Speaker 1: and what always remains the case, is that white Houses

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Speaker 1: look at their policy options and try to figure out how,

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Speaker 1: how how they can aggressively push forward. Uh. Would the

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Speaker 1: White House like an additional buffer to maintain economic growth

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Speaker 1: as much as possible? Short? Would? Uh? It's been upfront

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Speaker 1: about that since day one. Are they likely to get

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Speaker 1: it from the current Congress, which is nominally democratic in

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Speaker 1: the lower House, No, they are not. Uh So you

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Speaker 1: have that, but I and you know and you put

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Speaker 1: on top of that, I think the requisite uh, mainstream

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Speaker 1: media huffing and puffing about the White House scrambling to

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Speaker 1: do this and scrambling to do that. I see them

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Speaker 1: as being very consistent from day one and not scrambling

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Speaker 1: at all here. So Terry, just with some benefit of hindsight,

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Speaker 1: the tax cut of seventeen how much how impactful was

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Speaker 1: that for the economy in your opinion? Oh, I think

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Speaker 1: it was very impactful, and it was an impactful uh

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Speaker 1: as much on animal spirits as it was in reality.

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Speaker 1: But you know, it's wearing off and the and firstly

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Speaker 1: and secondly, the the difficulty with the trade dispute is firstly,

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Speaker 1: that drives the animal spirits in another direction. And secondly,

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Speaker 1: there has been a market impact on business investment and

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Speaker 1: the lessening business investment and sustained increased business investment was

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Speaker 1: one of the core cases behind the tax law. So

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Speaker 1: that's uh, that's clearly being damaged. So it's wearing off,

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Speaker 1: it is reversing, I think not Terry. Just a final

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Speaker 1: question for you, As you point out there is a

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Speaker 1: bit of an obsession in the mainstream media at the

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Speaker 1: moment over recession talk. I would say that extends to

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Speaker 1: the business world as well. Terry, what is happening behind

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Speaker 1: the scenes that you think it's been collected right now

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Speaker 1: that needs a little bit more focus on the business

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Speaker 1: side or on the political side. On the political side,

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Speaker 1: oh um, I would uh. On the political side, I

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Speaker 1: think what politicians of all stripes ought to do is

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Speaker 1: uh is look at the fundamentals of the economy with

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Speaker 1: a little bit more care and understand exactly what's happening. Uh.

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Speaker 1: You know, they divorce them divorced themselves a little bit

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Speaker 1: from from the political writer. Uh. As we go into

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Speaker 1: an election season that will be awfully difficult, but that

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Speaker 1: would be my recommendation. Terry Grant to catch up with

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Speaker 1: you as always, joining some of the political drama out

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Speaker 1: of the conversation. As always, Terry hinds that Panchaia policy

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Speaker 1: founder General Electric apparently has a very high exposure to

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Speaker 1: the long term care insurance market and it's worse than

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Speaker 1: average when it comes to adequacy of reserves tied to

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Speaker 1: those policies according to Fitch Ratings. To get a sense

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Speaker 1: of what's going on at GE with their insurance business,

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Speaker 1: we welcome Katherine Chiglinsky. She is with Bloomberg News covering finance.

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Speaker 1: She joins us here in a Bloomberg Interactive Broker studio. Katherine,

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Speaker 1: thanks so much for joining us. First of all, I

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Speaker 1: thought ge had sold off all that financial services stuff.

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Speaker 1: So why are we still talking about insurance policies for them?

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Speaker 1: Because they still have ties and it's been an interest

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Speaker 1: staying I think revelation for a lot of investors over

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Speaker 1: the past two years to recognize exactly how connected g

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Speaker 1: E is still to the insurance market. So they're reinsured policies,

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Speaker 1: which in essence just means that they backstop other insurers. Um.

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Speaker 1: They did spin off gen Worth, which has a huge

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Speaker 1: amount of long term care policies, back in two thousand four. Um,

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Speaker 1: so you're right to think, you know, hey, they separated

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Speaker 1: it a bit, but they're actually still very tied to

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Speaker 1: this market. So I see in your your reporting today

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Speaker 1: that actually took a charge last year tied to the insurance. Yeah,

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Speaker 1: so they took a six point two billion dollar gap charge.

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Speaker 1: And that was the moment I think when everyone realized,

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Speaker 1: you know, dang, these policies are there and they're very

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Speaker 1: painful for the company, and it's only continued, I think

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Speaker 1: to dominate investor's mind since then, because you know, last

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Speaker 1: week we had Harry Markopolis, who was made famous by

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Speaker 1: calling out Bernie made Off, came up from report that

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Speaker 1: was pretty scathing and pretty much called g e out,

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Speaker 1: called it a fraud frankly, and um chastise stip for

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Speaker 1: its insurance accounting, saying it might need twenty nine billion

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Speaker 1: dollar more in reserves for this. Um Geez obviously pushed

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Speaker 1: back and has kind of spent this whole past week

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Speaker 1: talking a lot about his insurance operations and exactly what

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Speaker 1: it might mean. So is there I guess when they

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Speaker 1: spun off the financial services it was in large part

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Speaker 1: because with the financial crisis, it was just a real

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Speaker 1: albatross for the company. So is there something particular about

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Speaker 1: their insurance business that is worse than maybe what we

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Speaker 1: see from some of the other big insurers. Well, so,

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Speaker 1: long term care in general is very complicated. Any any

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Speaker 1: company that has long term care exposure, even even if

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Speaker 1: they're not selling the policies right now, still generally has

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Speaker 1: a bit of a headache from them because they've become

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Speaker 1: a lot more costly, people are living longer, they're not

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Speaker 1: giving those policies up and so we've seen it become

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Speaker 1: a big burden for other companies, but with GE it's

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Speaker 1: particularly nuanced and a bit more complicated because they are

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Speaker 1: a reinsured there like one step removed exactly from the

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Speaker 1: end consumer, and it makes it a little harder I

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Speaker 1: think for people to get their minds about how does

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Speaker 1: this actually work, how much is GE exposed? And you know, frankly,

431
00:24:03,920 --> 00:24:07,399
Speaker 1: I think whenever anyone looks at ges UM long liabilities,

432
00:24:07,400 --> 00:24:10,000
Speaker 1: whether that's long term care or pensions or something, they

433
00:24:10,040 --> 00:24:11,720
Speaker 1: have a little bit of a concern about how much

434
00:24:11,720 --> 00:24:13,600
Speaker 1: has the company actually been investing in it over the

435
00:24:13,640 --> 00:24:16,000
Speaker 1: past couple of years, Because to be honest, they're more

436
00:24:16,040 --> 00:24:19,639
Speaker 1: of an industrial giant thing, uh than a financial services one,

437
00:24:19,680 --> 00:24:21,720
Speaker 1: as they you know, sort of we're in the past.

438
00:24:21,840 --> 00:24:24,280
Speaker 1: So what is g E saying about how they want

439
00:24:24,280 --> 00:24:26,879
Speaker 1: to how they potentially can mitigate some of these I

440
00:24:26,880 --> 00:24:30,320
Speaker 1: guess long tail risk from their insurance business. Well, I

441
00:24:30,359 --> 00:24:33,879
Speaker 1: think they're trying to calm investors down right, so they emphasize,

442
00:24:33,920 --> 00:24:36,919
Speaker 1: you know, as a reinsurer, we're not responsible for a

443
00:24:37,320 --> 00:24:40,400
Speaker 1: p of every claim on every person who has a policy.

444
00:24:40,760 --> 00:24:43,520
Speaker 1: So like in the most dire situation, it's it's not

445
00:24:43,600 --> 00:24:46,639
Speaker 1: as bad as maybe some people might be suspecting. You know,

446
00:24:46,720 --> 00:24:48,760
Speaker 1: ge I think is really taking more of the tact

447
00:24:48,800 --> 00:24:52,119
Speaker 1: of we need to explain it, because the less information

448
00:24:52,160 --> 00:24:54,280
Speaker 1: people have, the more easy it is to get scared

449
00:24:54,320 --> 00:24:56,760
Speaker 1: about it. Um. You know. G E has said that

450
00:24:56,800 --> 00:24:59,159
Speaker 1: they would look for many options on what to do

451
00:24:59,240 --> 00:25:02,040
Speaker 1: with this block. Is but it's really actually hard to

452
00:25:02,080 --> 00:25:05,000
Speaker 1: sell an old block of long term care. That's because

453
00:25:05,040 --> 00:25:07,119
Speaker 1: it's been volatile. It's really hard to get a buyer

454
00:25:07,200 --> 00:25:11,120
Speaker 1: who's willing to pay the price that you want, so um,

455
00:25:11,119 --> 00:25:14,000
Speaker 1: so it can be actually kind of a complicated um deal.

456
00:25:14,040 --> 00:25:17,440
Speaker 1: It's not easy to just hive off like some other businesses. Right,

457
00:25:17,680 --> 00:25:19,800
Speaker 1: So I can't let you go without talking about Berkshire

458
00:25:19,800 --> 00:25:22,520
Speaker 1: Hathaway now you cover them. What's the latest coming out

459
00:25:22,520 --> 00:25:25,520
Speaker 1: of Almaha. Well, so the other week we had the thirteen,

460
00:25:25,720 --> 00:25:28,560
Speaker 1: which was pretty interesting. It was actually a rather quiet

461
00:25:28,680 --> 00:25:31,840
Speaker 1: quarter um for the company. And uh we saw them

462
00:25:31,880 --> 00:25:33,879
Speaker 1: actually booked up a little more on Amazon. And I

463
00:25:33,880 --> 00:25:36,680
Speaker 1: think that's been really interesting with Berkshire, something we've seen

464
00:25:36,720 --> 00:25:39,800
Speaker 1: over the past year or so, um, actually past couple

465
00:25:39,840 --> 00:25:42,520
Speaker 1: of years, because it's more of his investing deputies sort

466
00:25:42,520 --> 00:25:45,440
Speaker 1: of getting their their feet under them and really sort

467
00:25:45,440 --> 00:25:47,560
Speaker 1: of shaping the portfolio in a way that I think

468
00:25:47,680 --> 00:25:51,480
Speaker 1: is interesting because Buffett himself doesn't really love technology historically,

469
00:25:51,520 --> 00:25:55,000
Speaker 1: he has not been certainly overweight and tech totally. And

470
00:25:55,000 --> 00:25:57,040
Speaker 1: and he got burned a bit by IBM that was

471
00:25:57,080 --> 00:25:59,440
Speaker 1: in a great bet, um, And so it's been interesting

472
00:25:59,440 --> 00:26:01,760
Speaker 1: to say, you know, UM, he made it clear the

473
00:26:01,760 --> 00:26:04,160
Speaker 1: Amazon bet is not by Buffet himself. It's by either

474
00:26:04,200 --> 00:26:08,240
Speaker 1: Todd Combs or Ted Weshler. Who's who are his investing deputies? Um,

475
00:26:08,280 --> 00:26:10,680
Speaker 1: But it's been interesting. You know what does it sort

476
00:26:10,720 --> 00:26:13,760
Speaker 1: of say about sort of what the future Berkshire will

477
00:26:13,800 --> 00:26:16,560
Speaker 1: be as you know, kind of the stock picking behemoth.

478
00:26:17,040 --> 00:26:19,000
Speaker 1: And Um, the more we see them kind of book

479
00:26:19,080 --> 00:26:21,919
Speaker 1: up on these technology companies, I think the more the

480
00:26:21,920 --> 00:26:25,399
Speaker 1: more interesting it is about the future. So Kraft heins,

481
00:26:25,440 --> 00:26:27,960
Speaker 1: I guess what's the latest there. It's been such a

482
00:26:28,000 --> 00:26:33,400
Speaker 1: disappointment for shareholders in general general and certainly for Berkshire Hathaway. Um,

483
00:26:33,520 --> 00:26:35,760
Speaker 1: what what are they saying about what they possibly can

484
00:26:35,800 --> 00:26:38,680
Speaker 1: do with that investment? Well? I think it's um. We

485
00:26:39,040 --> 00:26:42,160
Speaker 1: finally got an update this month um from Kraft Hens

486
00:26:42,200 --> 00:26:45,919
Speaker 1: they reported their six months It was delayed because they

487
00:26:45,920 --> 00:26:49,439
Speaker 1: were under investigation, had to do a lot of accounting things. Um,

488
00:26:49,560 --> 00:26:52,439
Speaker 1: so finally we got with some results. It wasn't that pretty,

489
00:26:52,600 --> 00:26:54,400
Speaker 1: you know what I mean. There were still like charges

490
00:26:54,520 --> 00:26:58,240
Speaker 1: for um as they sort of reconciled stuff, and you know,

491
00:26:58,320 --> 00:27:01,359
Speaker 1: I think it's I think it's really hard for this company.

492
00:27:01,359 --> 00:27:03,560
Speaker 1: And he has sort of turned it around easily. Um.

493
00:27:03,600 --> 00:27:06,200
Speaker 1: You know, they have a new CEO in charge, and

494
00:27:06,359 --> 00:27:09,040
Speaker 1: it's interesting to sort of it's hard to gauge exactly

495
00:27:09,080 --> 00:27:12,160
Speaker 1: how Berkshire thinks about it, right. Um, you know, when

496
00:27:12,160 --> 00:27:14,720
Speaker 1: he went on in February to talk about it, he

497
00:27:14,760 --> 00:27:17,879
Speaker 1: mentioned like, you know, it's we're not gonna we're not

498
00:27:17,960 --> 00:27:20,359
Speaker 1: looking to buy more of the stock, but we're also

499
00:27:20,359 --> 00:27:22,639
Speaker 1: not looking to sell it. And it's particularly hard for

500
00:27:22,720 --> 00:27:24,760
Speaker 1: him to sell of stocks when he's this huge of

501
00:27:24,760 --> 00:27:27,199
Speaker 1: an investor. So he sort of raised that question of

502
00:27:27,280 --> 00:27:29,680
Speaker 1: you know, would he really stay around if he could

503
00:27:29,720 --> 00:27:32,600
Speaker 1: get out easily, or would he be you know, miles

504
00:27:32,640 --> 00:27:35,439
Speaker 1: down the road from Kraft HIMESE Warren Buffets already admitted

505
00:27:35,520 --> 00:27:38,119
Speaker 1: I guess the the merger of the too Craft and

506
00:27:38,200 --> 00:27:40,919
Speaker 1: Hines was a mistake. Correct. Yeah, So he said that

507
00:27:40,920 --> 00:27:43,200
Speaker 1: they overpaid for Craft. So he was good on the

508
00:27:43,240 --> 00:27:45,719
Speaker 1: Hines part, not so good on the Craft part. And

509
00:27:45,760 --> 00:27:48,560
Speaker 1: he's also admitted that like consumer brands have changed, you know,

510
00:27:48,680 --> 00:27:51,840
Speaker 1: the pricing power they once had is really challenging. And

511
00:27:51,960 --> 00:27:54,879
Speaker 1: um it's a statement that like definitely applies to Craft Hynes,

512
00:27:54,920 --> 00:27:57,399
Speaker 1: but I think is particularly interesting when you put it

513
00:27:57,440 --> 00:27:59,439
Speaker 1: in the context of all of Berkshire's investments. I mean,

514
00:27:59,480 --> 00:28:02,760
Speaker 1: they have a huge ton of kind of consumer friendly

515
00:28:02,800 --> 00:28:05,840
Speaker 1: stuff they do, Fruit of the Loom, dairy queen, um.

516
00:28:05,880 --> 00:28:07,840
Speaker 1: So it's kind of an interesting thesis. You know, if

517
00:28:07,840 --> 00:28:10,480
Speaker 1: it doesn't work in the package food world, do you

518
00:28:10,480 --> 00:28:12,040
Speaker 1: think it's going to work in all the other worlds?

519
00:28:12,040 --> 00:28:14,479
Speaker 1: And I think that's a question for for Berkshire and

520
00:28:14,600 --> 00:28:17,359
Speaker 1: the shareholders going forward. Right, So what you know, you

521
00:28:17,400 --> 00:28:20,000
Speaker 1: mentioned that some of the two new deputies are probably

522
00:28:20,040 --> 00:28:23,400
Speaker 1: responsible for the Amazon UH investment. What is your sense

523
00:28:23,400 --> 00:28:27,200
Speaker 1: of kind of the percentage of decision making? Is Warren

524
00:28:27,480 --> 00:28:31,680
Speaker 1: versus the new breed here? Who's making the majority of decisions?

525
00:28:31,640 --> 00:28:34,679
Speaker 1: Do you think? Well, still Warren controls the majority of

526
00:28:34,680 --> 00:28:37,600
Speaker 1: the portfolio. Um, So both of them control about on

527
00:28:37,640 --> 00:28:41,520
Speaker 1: average thirteen billion or so each, and so it's still small.

528
00:28:41,640 --> 00:28:44,080
Speaker 1: That's why sometimes if you see small investments creeping on

529
00:28:44,120 --> 00:28:48,640
Speaker 1: the portfolio, it generally might be a Todd or Ted investment. UM.

530
00:28:48,800 --> 00:28:51,480
Speaker 1: So you know, still I think there's deference to the

531
00:28:51,480 --> 00:28:55,080
Speaker 1: guy who built Berkshire and uh, but I find it interesting.

532
00:28:55,120 --> 00:28:58,120
Speaker 1: I mean, you see you see stakes like UM, like

533
00:28:58,200 --> 00:29:01,600
Speaker 1: Apple and other ones where you know he's admitted Yeah,

534
00:29:01,600 --> 00:29:04,560
Speaker 1: an investing deputy, you know, sort of did it too.

535
00:29:04,640 --> 00:29:06,880
Speaker 1: But then I also piled in and I think those

536
00:29:06,880 --> 00:29:10,640
Speaker 1: are interesting because it's like, how does he decide, you know, UM,

537
00:29:10,680 --> 00:29:12,240
Speaker 1: this was a good idea and now I'm going to

538
00:29:12,320 --> 00:29:14,320
Speaker 1: go kind of full force with all the power I

539
00:29:14,400 --> 00:29:17,760
Speaker 1: have in my UM And what's the last, if any

540
00:29:17,920 --> 00:29:22,320
Speaker 1: on timing of kind of really retiring or stepping back. Yeah,

541
00:29:22,440 --> 00:29:25,560
Speaker 1: I don't think there's been much UM. At the beginning

542
00:29:25,560 --> 00:29:28,520
Speaker 1: of twenty eight team, we had the promotion of Greg

543
00:29:28,520 --> 00:29:30,959
Speaker 1: Able and Age Jane to vice chairman. And those are

544
00:29:31,040 --> 00:29:34,000
Speaker 1: very important roles because you know, Greg, who formerly just

545
00:29:34,120 --> 00:29:37,360
Speaker 1: ran their energy operations, all of a sudden got oversight

546
00:29:37,400 --> 00:29:39,800
Speaker 1: of all these different businesses, all the non insurance one,

547
00:29:39,920 --> 00:29:43,480
Speaker 1: so the railroad, dairy queen, all of those companies, and

548
00:29:43,480 --> 00:29:46,800
Speaker 1: a Jane who's known as Berkshire sort of insurance guy

549
00:29:47,200 --> 00:29:50,120
Speaker 1: got full control of all the other insurers. Um, it

550
00:29:50,160 --> 00:29:52,240
Speaker 1: was an important step, but I don't think it really.

551
00:29:53,160 --> 00:29:56,160
Speaker 1: We haven't heard a ton since then about exactly what

552
00:29:56,640 --> 00:29:59,800
Speaker 1: Buffet or Berkshire is thinking on succession. Right. Well, I mean,

553
00:30:00,080 --> 00:30:03,200
Speaker 1: you know, he still seems very engaged, and people still

554
00:30:03,240 --> 00:30:05,680
Speaker 1: flock to the Omaha meeting every year, and he's the

555
00:30:05,720 --> 00:30:07,480
Speaker 1: first phone call for a lot of CEOs we need

556
00:30:07,520 --> 00:30:10,160
Speaker 1: when they need ten or twenty or fifty billion dollars. Uh.

557
00:30:10,200 --> 00:30:13,080
Speaker 1: So it seems to be working right now. So Katherine

558
00:30:13,120 --> 00:30:15,440
Speaker 1: chick Lynsky, thanks so much for joining us. Katherine covers

559
00:30:15,640 --> 00:30:18,360
Speaker 1: all the finance stuff and all the insurance stuff for

560
00:30:18,400 --> 00:30:22,120
Speaker 1: Bloomberg News, does a great job getting update on General

561
00:30:22,120 --> 00:30:26,360
Speaker 1: Electric and uh Berkshire, Hathaway and all things insurance. So okay, Katherine,

562
00:30:26,360 --> 00:30:28,880
Speaker 1: thank you so much. Thanks for listening to the Bloomberg

563
00:30:28,880 --> 00:30:34,840
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

564
00:30:35,200 --> 00:30:39,440
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

565
00:30:39,480 --> 00:30:43,720
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.

566
00:30:44,200 --> 00:30:52,680
Speaker 1: I'm Bloomberg Radio