WEBVTT - Three Percent Inflation Looks Likely, Leuthold's Paulsen Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.440 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Right now, 0:00:32.479 --> 0:00:34.479 I want to turn our attention back to markets, in 0:00:34.479 --> 0:00:38.120 particular how to invest. James Paulston joins US now. He's 0:00:38.159 --> 0:00:41.159 chief investment strategist at the looth Hold Group, which oversees 0:00:41.200 --> 0:00:43.520 about one and a half billion dollars and is based 0:00:43.560 --> 0:00:47.639 in Minneapolis, Minnesota. James, thank you so much for joining US. 0:00:47.960 --> 0:00:50.520 I want to start with Risk your Credit because we've 0:00:50.520 --> 0:00:53.479 been speaking with some money managers who've been saying they 0:00:53.479 --> 0:00:57.880 have started reducing their allocations to US hiled bonds as 0:00:57.920 --> 0:01:01.200 well as more so even in Europe. Europe UH. The 0:01:01.360 --> 0:01:06.040 list includes Jpmorg and Asset Management, Double Line, uh Alean's 0:01:06.040 --> 0:01:11.920 Global Investors, Deutscha Asset Management. Do you agree, well, I certainly, 0:01:12.520 --> 0:01:16.640 UH bonds in general, I would still be underweight. Um. Well, 0:01:16.640 --> 0:01:19.880 the bonds are I mean bonds could be government bonds, 0:01:19.959 --> 0:01:22.920 which are haven investment and would be you know, it 0:01:22.920 --> 0:01:25.920 would hinge on inflation and growth. But if you have 0:01:26.040 --> 0:01:28.920 risk your credit, you're looking more at the credit worthiness 0:01:28.920 --> 0:01:32.840 of companies and also the pretty high valuations that we're 0:01:32.840 --> 0:01:35.560 seeing in the market right now. Yeah, I would, I 0:01:35.560 --> 0:01:39.280 would stay overweighted, uh there at least. I think that 0:01:40.040 --> 0:01:42.520 the risk for that is when do you think the 0:01:42.560 --> 0:01:48.120 next recession is? And I don't think that's real near 0:01:48.800 --> 0:01:51.640 and if it's not, I think in the balance of 0:01:51.640 --> 0:01:55.080 this recovery, I think the bond investor is going to 0:01:55.200 --> 0:01:58.800 need a yield buffer because I do think before the 0:01:58.840 --> 0:02:03.400 next recession comes, we're going to reset interest rates higher. Um. 0:02:03.440 --> 0:02:06.080 Probably this recovery is going to end the way most 0:02:06.120 --> 0:02:08.760 post war recoveries have ended, that is in some sense 0:02:08.800 --> 0:02:12.280 of overheat. At some point. I do think wages and 0:02:12.400 --> 0:02:16.799 inflation probably rise above three and um, I think that's 0:02:16.800 --> 0:02:19.800 going to cause a major reset and the tenure yield 0:02:19.840 --> 0:02:23.120 probably above three percent as well. And unless you have 0:02:23.240 --> 0:02:25.640 some yield buffer, whether that be from credit or whether 0:02:25.680 --> 0:02:28.360 it be from structure, I think it's going to be 0:02:28.919 --> 0:02:32.760 a very damaging position to be in and just nothing 0:02:32.760 --> 0:02:38.400 but high quality paper. The other thing about spreads is typically, 0:02:39.080 --> 0:02:42.480 although they're tight today, and I would agree with that, um, 0:02:42.560 --> 0:02:46.200 I think that they probably stay relatively tight until the 0:02:46.480 --> 0:02:50.680 recession risk gets pretty close. Um. And so even if 0:02:50.720 --> 0:02:53.880 they don't tighten further from here, um, you could still 0:02:54.000 --> 0:03:00.200 have excess return and in a buffer against rising yields. Um, 0:03:00.240 --> 0:03:02.360 even if they just hold at the at the current 0:03:02.520 --> 0:03:08.320 you know, tightness of spread that they possessed today. So, Jim, 0:03:08.400 --> 0:03:11.359 you just said something that was actually incredibly radical. You 0:03:11.440 --> 0:03:15.440 said that, uh, that you think inflation is going to 0:03:15.560 --> 0:03:19.560 pick up to that's radical and very different from what 0:03:19.600 --> 0:03:22.000 a lot of people are saying. What gives you confidence 0:03:22.000 --> 0:03:27.359 that that will happen? Well, Um, you know, the range 0:03:27.360 --> 0:03:30.720 on inflation that we've had over the last quarter century 0:03:30.760 --> 0:03:34.400 almost has been very narrow. It's one of the great 0:03:34.400 --> 0:03:37.840 accomplishments in the United States is we've had very low 0:03:37.920 --> 0:03:41.760 inflation volatility. Not only low inflation, but it's been very 0:03:42.120 --> 0:03:45.320 low volatility over the last ten years. Now. One standard 0:03:45.360 --> 0:03:50.120 deviation about the current inflation rate at one is above 0:03:50.160 --> 0:03:52.480 it is three percent, and blow it is about thirty 0:03:52.520 --> 0:03:56.600 basis points. It wouldn't take a lot of inflation to 0:03:56.800 --> 0:04:00.520 shock people that are used to low and stable inflation, 0:04:00.960 --> 0:04:04.800 and I think three percent inflation looks very likely. Wage 0:04:04.800 --> 0:04:07.680 inflation year on year is already least have been at 0:04:07.720 --> 0:04:10.240 two point nine percent inflation in this year on year 0:04:10.280 --> 0:04:14.200 in this recovery, we're still hanging at two five Medium 0:04:14.240 --> 0:04:18.680 wage inflation is already at three three UM. The the 0:04:18.720 --> 0:04:23.640 other labor indicators suggest private wage pressures. UM if the 0:04:23.720 --> 0:04:26.719 unemployment rate, just like the claims number this morning, falling 0:04:26.760 --> 0:04:30.040 to almost its lowest level of the recovery, suggesting we're 0:04:30.040 --> 0:04:32.840 gonna have continued job growth, I think it's very likely 0:04:32.920 --> 0:04:35.320 we're gonna get wages over three. And if we do, 0:04:35.520 --> 0:04:37.600 I think companies are going to be forced to raise 0:04:37.640 --> 0:04:41.640 selling prices, and that puts your CPI above it. One 0:04:41.720 --> 0:04:44.200 other thing that's at play right now is the US 0:04:44.320 --> 0:04:48.120 dollar is very close to breaking below a thirty one 0:04:48.160 --> 0:04:51.800 month trading range. It's been down about ten per year 0:04:51.839 --> 0:04:53.800 to date, but I think it could If it breaks 0:04:53.839 --> 0:04:57.200 that range, it could fall even further, which would also 0:04:57.279 --> 0:04:59.800 put some life back into crude oil and other come 0:04:59.800 --> 0:05:06.719 o of the prices aggravating or least elevating inflationary expectations. 0:05:07.279 --> 0:05:09.159 So right now I'm looking at a tenure treasure yield 0:05:09.200 --> 0:05:12.640 at two a little bit more than that, but it's 0:05:12.720 --> 0:05:17.159 down on the year. Given your expectation for a surprising 0:05:17.360 --> 0:05:23.960 amount of inflation and possibly three UH wage growth. Where 0:05:24.000 --> 0:05:26.120 are you seeing this tenure yields at the end of 0:05:26.120 --> 0:05:29.359 this year. Well, I'm not sure this will. All you 0:05:29.400 --> 0:05:31.240 know happened before the end of the year. Indeed, I 0:05:31.560 --> 0:05:34.240 think that one of the reasons I'm positive on stocks 0:05:34.320 --> 0:05:36.600 right now, Lisa, is that I think we're in a 0:05:36.640 --> 0:05:39.760 sweet spot with inflation where we're growing. The economy of 0:05:39.800 --> 0:05:42.920 the City Group Economic Surprise Index has been rising against 0:05:42.920 --> 0:05:46.200 since late June in the United States, reports have been 0:05:46.200 --> 0:05:49.080 getting better, but we're not aggravating inflation and interest rates. 0:05:49.320 --> 0:05:50.760 As long as we stay in that sweet spot, I 0:05:50.760 --> 0:05:54.320 think stocks move higher. Eventually. If we aggravate those, and 0:05:54.360 --> 0:05:57.280 I think we will, that could be what ends the 0:05:57.320 --> 0:06:00.360 stock market rally as well as the bond rally. But personally, 0:06:00.440 --> 0:06:04.880 I think that's probably a two eighteen event now, um, 0:06:04.880 --> 0:06:07.520 but I would get prepared for it, and I certainly 0:06:07.560 --> 0:06:09.680 wouldn't be hanging out and overweights in a in a 0:06:09.720 --> 0:06:14.040 two in your treasury because I think the terminal level 0:06:14.120 --> 0:06:15.760 is going to be probably more like three and a 0:06:15.760 --> 0:06:18.160 half percent before this recovery is over. Jim Paulson, thank 0:06:18.200 --> 0:06:19.840 you so much for joining us. Jim Paulson is chief 0:06:19.920 --> 0:06:34.400 investment strategist with the luth Hold Group in Minneapolis. One 0:06:34.440 --> 0:06:37.800 other area that we are watching is in currency is 0:06:37.800 --> 0:06:40.720 particularly the Euro. It fell at one point the most 0:06:40.720 --> 0:06:44.120 since December, although it's recovered some of the losses after 0:06:44.200 --> 0:06:46.640 ECB European Central Bank officials said that they're worried that 0:06:46.640 --> 0:06:51.080 the Euro might strengthen more than justified by the economic upturn. 0:06:51.520 --> 0:06:54.760 And with us to discuss is Doug Barthwick. He's managing 0:06:54.760 --> 0:06:59.400 director and head of f X at Chapelen and Company. Doug, 0:06:59.800 --> 0:07:02.240 I first want to just get your thoughts on the 0:07:02.360 --> 0:07:06.120 knee jerk reaction by the market of selling the euro 0:07:07.560 --> 0:07:10.120 based on this com these comments by the e c B. 0:07:10.520 --> 0:07:13.200 Do you think the ECB would and could take actions 0:07:13.280 --> 0:07:16.400 to devalue the Euro. No. I don't think they'll take 0:07:16.440 --> 0:07:18.160 access to divide the year. I think this is a 0:07:18.160 --> 0:07:20.760 really job owning, a job owning effect, and I think 0:07:20.800 --> 0:07:22.840 that the market maybe has taken it a little the 0:07:22.840 --> 0:07:25.760 wrong way and that euro strength can be shown not 0:07:25.840 --> 0:07:29.360 just against the dollar, but against many other currencies. The euro, 0:07:29.480 --> 0:07:32.600 you know, trading around this one set four, it's so 0:07:32.800 --> 0:07:35.160 much lower than one sixty it was back in two 0:07:35.160 --> 0:07:39.120 thousand nine, or even one thirty seven in September two fourteen. 0:07:39.920 --> 0:07:42.280 And so when you look at your who does the 0:07:42.320 --> 0:07:45.560 Europe export to only coming to the US. So if 0:07:45.560 --> 0:07:48.000 you're concerned about their exports and the strength of the Euro, 0:07:48.760 --> 0:07:50.720 it may not be just against the US, but certainly 0:07:50.760 --> 0:07:54.880 against China. So euro China, which has retraced about of 0:07:54.960 --> 0:07:59.320 it's high to low going back to two, certainly looks 0:07:59.360 --> 0:08:01.440 like the euro maybe a little bit overvide or maybe 0:08:01.480 --> 0:08:04.000 overdone there. But against the dollar, if you were to 0:08:04.000 --> 0:08:07.120 go sixt one above the loans, they're we're looking at 0:08:07.160 --> 0:08:09.640 one and the euro. So I think that the euro 0:08:09.760 --> 0:08:13.480 still has further moves higher against the dollars. Certainly because 0:08:13.720 --> 0:08:16.040 while the ECB may be anxious about the strength of 0:08:16.080 --> 0:08:19.600 the Euro, that's US administration sift with the Trump administration, 0:08:20.200 --> 0:08:23.440 it's very concerned about dollar strength. But not only is 0:08:23.880 --> 0:08:25.720 the U S concerned about it, the b I S 0:08:25.720 --> 0:08:27.680 and the I m F, both around these levels, have 0:08:27.720 --> 0:08:31.120 said that they believe the dollar to be ten over valued. 0:08:31.640 --> 0:08:34.000 In other words, you've got the U S and uh, 0:08:34.520 --> 0:08:36.880 you know, talking against the ECB. No one wants to 0:08:36.920 --> 0:08:39.200 have a strong currency. But I think it's the U 0:08:39.280 --> 0:08:41.400 S that's really in the driving seat here, and that 0:08:41.760 --> 0:08:44.840 the Euro still is under vied relative to maybe where 0:08:44.840 --> 0:08:46.679 it should be, and I think that's probably around the 0:08:47.360 --> 0:08:49.160 level well before we get to the dolls. So do 0:08:49.160 --> 0:08:50.960 you want to get your thoughts on the dollar. I 0:08:51.000 --> 0:08:52.240 just want to stick with the e c B for 0:08:52.320 --> 0:08:56.120 one second, because to me, the implication here is, even 0:08:56.160 --> 0:09:00.840 if this is just jaw boning, the e jerk reaction 0:09:01.000 --> 0:09:04.280 on the part of ECB officials would be to hold 0:09:04.520 --> 0:09:08.880 benchmark rates lower for longer and to move more slowly 0:09:08.920 --> 0:09:14.000 as far as removing accommodation in order to keep the 0:09:14.040 --> 0:09:17.680 economy kind of in this place where the Euro is 0:09:18.080 --> 0:09:22.240 sort of stabilized, even as as as the economy grows, right, 0:09:22.280 --> 0:09:24.439 I mean, because I don't really see what other moves 0:09:24.480 --> 0:09:27.280 easy B could take. Well, the the CP would have 0:09:27.320 --> 0:09:30.120 to keep on doing something at a at a greater 0:09:30.480 --> 0:09:32.320 level than the FED is doing it. Now. We can 0:09:32.320 --> 0:09:34.040 look at the Fed, right, and I believe that maybe 0:09:34.080 --> 0:09:37.480 there's one more rate rise this year, and certainly e 0:09:37.520 --> 0:09:39.360 CP won't be raising rates. But even if you look 0:09:39.400 --> 0:09:41.640 at the ten year yields and the US tenure yields 0:09:41.640 --> 0:09:44.200 are unchanged in the year, but tenure yield let's say 0:09:44.200 --> 0:09:47.199 for Germany or maybe city basis points higher, So the 0:09:47.280 --> 0:09:50.480 yield differentials moving more in the favor of Europe than 0:09:50.520 --> 0:09:52.839 it is in the US. And remember, when you look 0:09:52.840 --> 0:09:54.840 at currencies, you look have to look at, well, what's 0:09:54.840 --> 0:09:57.400 the FED doing versus what's the ECB doing. The e 0:09:57.520 --> 0:10:00.960 c B going forward into two thousand nine is maybe 0:10:01.000 --> 0:10:03.079 going to have Bidman in charge. Widman is much more 0:10:03.320 --> 0:10:05.679 of a hawk and would like to see rates get 0:10:05.720 --> 0:10:08.199 a little bit higher in the year zone, whereas you 0:10:08.280 --> 0:10:10.400 may have Cone coming into the FED in the US 0:10:10.800 --> 0:10:13.800 who's seen as being a dove. And so longer term, 0:10:13.960 --> 0:10:16.439 we're still looking at the US maybe having lower yields 0:10:16.480 --> 0:10:19.400 for longer and the ECB moving out of the lower yields. 0:10:19.800 --> 0:10:21.679 Plus the e c B is now running out of 0:10:21.840 --> 0:10:24.120 products they can buy in the market. You know, there's 0:10:24.160 --> 0:10:26.640 only so much you can buy in terms of big 0:10:26.720 --> 0:10:29.520 income in Europe, and they begin to really fill their coffers. 0:10:29.520 --> 0:10:33.840 Already with respect to the dollar, the dollar did strengthen 0:10:34.240 --> 0:10:37.920 a touch today after falling quite a bit yesterday. Uh, 0:10:39.080 --> 0:10:42.080 basically just due to some of the turmoil, particularly having 0:10:42.120 --> 0:10:45.200 to do with the Economic Council and the CEO stepping 0:10:45.240 --> 0:10:48.480 away and this idea that possibly, uh, there could be 0:10:48.720 --> 0:10:51.720 less progress made on tax or form and other policy issues. 0:10:51.840 --> 0:10:53.959 But I have to wonder what your view is. Do 0:10:54.080 --> 0:10:55.920 you think that the dollar has further to fall? It 0:10:56.000 --> 0:10:58.319 sounds like you do. I certainly do. I think that 0:10:58.440 --> 0:11:00.480 the dollar is going to be on this weekending stands 0:11:00.600 --> 0:11:02.400 really going off over the next couple of years. I 0:11:02.440 --> 0:11:04.600 think that a weak dollar policy are certainly a step 0:11:04.640 --> 0:11:08.720 away from the strong dollar policy is the new US term. 0:11:09.440 --> 0:11:11.760 And so based on that, I think that what folks 0:11:11.760 --> 0:11:14.679 are worried about more globally is not how far the 0:11:14.720 --> 0:11:17.040 dollar is going to weaken, but just how I mean, 0:11:17.440 --> 0:11:18.920 what's the pace of that? And I think that when 0:11:19.000 --> 0:11:21.559 we get more of a sense at Jackson Hole. But 0:11:21.679 --> 0:11:24.839 certainly there is a very strong belief and understanding in 0:11:24.880 --> 0:11:27.520 the US that in order to keep equity markets as 0:11:27.559 --> 0:11:29.160 bit as they are, you need to have the dollar 0:11:29.200 --> 0:11:31.920 continue to weaken, because remember, for every one percent that 0:11:32.040 --> 0:11:35.480 the dollar weakens, that that moves into a half a 0:11:35.520 --> 0:11:37.839 percent rise in terms of the earnings per share for 0:11:37.880 --> 0:11:40.800 the SMP five. So as the US, you know, the 0:11:40.920 --> 0:11:43.200 US dollars to we can buy you's here and per 0:11:43.240 --> 0:11:45.600 share go up by ten percent. And so that's now 0:11:45.679 --> 0:11:48.240 that that's considerable. And still within the US, we still 0:11:48.280 --> 0:11:50.800 have this issue where you have underfunded pension plans. You've 0:11:50.840 --> 0:11:53.640 got you know, government engine plans that are sitting there. 0:11:53.679 --> 0:11:56.000 They're very underfunded right now, and the way the boost 0:11:56.040 --> 0:11:58.360 them is by having equities boosted. The way to do that, 0:11:58.480 --> 0:12:01.000 certainly would be to have the dollar week considerably. Dog 0:12:01.160 --> 0:12:03.280 borth birth Wick, thank you so much for your comments. 0:12:03.320 --> 0:12:06.040 Dog Borthwick as managing director and head of FX at 0:12:06.240 --> 0:12:23.760 Chapter Lane and Company. Well, today Walmart posted its best 0:12:23.960 --> 0:12:28.360 grocery sales growth in five years for the second quarter 0:12:28.440 --> 0:12:32.040 of This is really important because the grocery business accounts 0:12:32.040 --> 0:12:35.600 for more than half of Walmart's overall revenue. It beat 0:12:36.040 --> 0:12:39.079 estimates and yet its shares are down. To get a 0:12:39.080 --> 0:12:42.040 little bit more perspective about why and whether this decline 0:12:42.080 --> 0:12:45.240 will continue, I want to bring in my colleague Sarah 0:12:45.320 --> 0:12:47.600 How's act. She's a retail columnist, a Bloomberg gad fly 0:12:48.000 --> 0:12:51.440 bloombergad Fly is a fast commentary section with a smart 0:12:51.559 --> 0:12:55.959 and analysis of breaking news. Sarah, what was your take 0:12:56.640 --> 0:13:01.000 when you saw there sort of tepid X diectations going 0:13:01.120 --> 0:13:06.160 forward paired with this pretty impressive performance. Yeah, Look, I 0:13:06.280 --> 0:13:08.679 think Walmart is doing the right things that needs to 0:13:08.800 --> 0:13:12.000 do for the long term. What investors seem to be 0:13:12.080 --> 0:13:15.319 skittish about was the fact that this third quarter guidance 0:13:15.440 --> 0:13:17.800 wasn't quite as high as they hoped it would be. 0:13:18.320 --> 0:13:20.360 But Walmart is in a position right now where it 0:13:20.440 --> 0:13:23.360 really needs to spend big if it's going to in 0:13:23.440 --> 0:13:26.880 a serious, full throated way take the e commerce fight 0:13:26.960 --> 0:13:29.640 to Amazon. And so if it's not spending this money 0:13:29.960 --> 0:13:33.440 um and pressuring its profits, it's hard to see how three, five, 0:13:33.520 --> 0:13:35.839 ten years down the road it's a viable competitor in 0:13:35.880 --> 0:13:38.080 the digital space. So how much money is it spending 0:13:38.120 --> 0:13:41.959 and where exactly is it spending? Yeah, it's spending several 0:13:42.040 --> 0:13:44.079 billion over the next few years, and a big part 0:13:44.120 --> 0:13:47.160 of that investment is in supply chain. What it wants 0:13:47.200 --> 0:13:49.880 to do is to have fulfillment centers that are more 0:13:49.960 --> 0:13:52.079 state of the art so it can get orders to 0:13:52.160 --> 0:13:55.680 people more quickly. And it's also experimenting with different kinds 0:13:55.720 --> 0:13:59.079 of tactics for reaching shoppers in a more profitable way. So, 0:13:59.240 --> 0:14:02.880 for example, on millions of items now Walmart is giving 0:14:02.920 --> 0:14:04.920 you a discount if you buy the item online but 0:14:05.040 --> 0:14:07.880 pick it up in store. That's a more profitable transaction 0:14:07.960 --> 0:14:09.920 for them, and so they want to reward that. You know, 0:14:10.040 --> 0:14:13.959 I have to wonder Walmart's not alone in shelling out 0:14:14.000 --> 0:14:15.679 as much money as they can to try to boost 0:14:15.720 --> 0:14:20.200 their online operations and their uh digital distribution. I'm wondering 0:14:20.520 --> 0:14:23.200 if a things are getting a lot more expensive and 0:14:23.440 --> 0:14:27.560 because of the demand from Walmart and Target and everybody else, uh, 0:14:27.880 --> 0:14:32.360 and and be whether they're behind the times already. I mean, 0:14:32.400 --> 0:14:36.560 we were talking yesterday about how if they didn't impress today, 0:14:37.320 --> 0:14:40.840 it was going to be a really rough next two quarters. 0:14:41.360 --> 0:14:44.800 Do agree, Yeah, So I think there is something to 0:14:44.920 --> 0:14:47.000 the fact that they are a little bit behind the 0:14:47.080 --> 0:14:50.760 curve here, and they probably should have been making these investments, uh, 0:14:51.040 --> 0:14:54.400 quite a bit earlier. But at least they're trying now, right, 0:14:54.680 --> 0:14:57.280 And I think it's also encouraging that they're thinking creatively 0:14:57.320 --> 0:15:00.200 and inquisitively. I mean, we've seen them pick up jet 0:15:00.280 --> 0:15:03.320 dot Com, They've also bought the Nobo's, They've bought Modcloth, 0:15:03.760 --> 0:15:06.320 and their reports out there now that they might be 0:15:06.400 --> 0:15:09.440 looking to buy birch Box, and so at least they're 0:15:09.480 --> 0:15:12.440 they're thinking in different ways about how they might boost 0:15:12.880 --> 0:15:17.040 their e commerce muscle by bringing in sort of acquahiring, right, 0:15:17.120 --> 0:15:20.480 bringing in some different talent to help them think differently 0:15:20.480 --> 0:15:25.040 about this problem. One other problem that I am facing 0:15:25.240 --> 0:15:28.320 right now is that the margins are much smaller on 0:15:28.480 --> 0:15:33.080 online sales for Walmart just simply because, uh, the amount 0:15:33.160 --> 0:15:35.840 that they have to pay to fulfill the order and 0:15:36.040 --> 0:15:40.640 process everything is higher at this point. If they're trying 0:15:40.680 --> 0:15:43.920 to move more of their business online and they make 0:15:44.080 --> 0:15:47.400 less money from it and they're spending more, Uh, this 0:15:47.520 --> 0:15:50.040 equation doesn't seem that rosie. That means they have to 0:15:50.120 --> 0:15:54.000 make it up on volume. Do they address that? Not 0:15:54.200 --> 0:15:57.000 that specifically. But I think the hope is that as 0:15:57.320 --> 0:16:00.680 over time things get better on the profit ability front, 0:16:00.760 --> 0:16:03.840 because theoretically, once you have a network built out right, 0:16:03.960 --> 0:16:06.760 once you have these supply chains that have all the 0:16:06.880 --> 0:16:09.400 right fulfillment centers excuse me, they have all the right 0:16:09.480 --> 0:16:12.840 technology and place once you're not building those from scratch, 0:16:13.120 --> 0:16:14.920 that you can start to have some you know, more 0:16:14.960 --> 0:16:17.240 scale benefits there, and that's sort of a similar argument 0:16:17.280 --> 0:16:20.120 that Amazon makes, and the investors seem more convinced when 0:16:20.160 --> 0:16:23.080 Amazon makes it right, We're plowing all this money into 0:16:23.120 --> 0:16:25.360 building out our supply chain and that will benefit us 0:16:25.400 --> 0:16:27.920 on the back end. And I think Walmart is hopeful 0:16:28.160 --> 0:16:30.640 that the same thing will happen for them. And Walmart 0:16:30.720 --> 0:16:33.120 still is very much a brick and mortar operation, and 0:16:33.400 --> 0:16:35.520 there were were a lot of complaints in the past 0:16:35.600 --> 0:16:40.960 few years about shelves being unstalked, about staff being inattentive. 0:16:41.600 --> 0:16:44.680 Do they talk at all about better kind of operations 0:16:44.760 --> 0:16:49.560 within stores as well as what the increase in wages 0:16:49.680 --> 0:16:52.080 that they did deliver has done to their bottom line 0:16:52.120 --> 0:16:55.200 and what they expect going forward. Yeah. So they've said 0:16:55.440 --> 0:16:59.240 for the last several quarters that they've seen improving customer 0:16:59.520 --> 0:17:02.880 score when they survey them about the experience that they're 0:17:02.880 --> 0:17:05.960 having in stores, and that likely reflects that they have 0:17:06.119 --> 0:17:08.840 made all these efforts on making sure stores are better stucked, 0:17:09.160 --> 0:17:12.919 making sure produces fresher and deploying staffers in the right 0:17:13.000 --> 0:17:16.719 way so that you're getting good customer service. So they 0:17:16.760 --> 0:17:20.119 have now had twelve straight quarters of positive comparable sales, 0:17:20.200 --> 0:17:22.600 and I think almost the same number of straight quarters 0:17:22.920 --> 0:17:26.119 of positive traffic to the stores, and so that's a 0:17:26.160 --> 0:17:29.200 good sign that some of those investments are working for them. 0:17:29.640 --> 0:17:31.480 You know, I'm struck by what you're saying, which is 0:17:31.640 --> 0:17:33.320 which is wise? You know, I mean, at some point 0:17:33.320 --> 0:17:35.320 they're going to have to spend, so they should spend 0:17:35.400 --> 0:17:38.359 sooner than later. Uh, And yet it's just the shares 0:17:38.400 --> 0:17:42.320 are just not forgiving. Investors are not being forgiving right now. 0:17:42.880 --> 0:17:45.000 Do you think that they will come to some kind 0:17:45.040 --> 0:17:48.119 of uh Kumbaya moment where they say, you know what, 0:17:48.760 --> 0:17:50.640 we believe in you, or do you think that they're 0:17:50.640 --> 0:17:52.240 going to sort of go into a show me mode 0:17:52.280 --> 0:17:55.080 for the rest of the year. I think there for 0:17:55.240 --> 0:17:56.800 at least for the short term, there could be a 0:17:56.840 --> 0:17:59.200 little more show me, because it's hard for me to 0:17:59.280 --> 0:18:02.440 see how just in the next one quarter or quarter 0:18:02.600 --> 0:18:05.920 after that they do something that really meaningfully changes their 0:18:06.000 --> 0:18:09.399 narrative to investors on this question of profitability. Um. But 0:18:09.520 --> 0:18:11.960 over the long haul, if they really continue to deliver 0:18:12.160 --> 0:18:16.320 this strong e commerce growth, uh, maybe investors will start 0:18:16.320 --> 0:18:18.399 rewarding them for it. Sarah Hols like, thank you so 0:18:18.520 --> 0:18:20.800 much for joining us always a pleasure. Sarah Holsing is 0:18:20.840 --> 0:18:25.879 a retail columnist at Bloomberg. Gad Flies are fast commentary group. 0:18:26.000 --> 0:18:29.200 You can find it at Bloomberg dot com, slash gad fly, 0:18:29.480 --> 0:18:32.760 on the web or on the terminal at n I 0:18:33.200 --> 0:18:48.879 space Gadfly Go. Yesterday was a pretty big day, uh, 0:18:49.119 --> 0:18:53.840 in turmoil Land. For politics. We have President Trump generating 0:18:53.960 --> 0:18:59.040 controversy after his press conference and some comments from Republicans, 0:18:59.080 --> 0:19:02.679 and then you had the disbandment of the Council of CEOs. 0:19:03.320 --> 0:19:07.520 This matters to markets arguably because it raises some questions 0:19:07.560 --> 0:19:11.920 about how quickly President Trump can move on his policy agenda. 0:19:11.960 --> 0:19:14.240 And here to talk about that is Mike McDonough. He's 0:19:14.240 --> 0:19:18.000 Global director of Economics Research and chief economist at Bloomberg Intelligence, 0:19:18.000 --> 0:19:20.760 and he joins us in our eleven three oh studios. So, Mike, 0:19:21.240 --> 0:19:25.720 how much does all of this actually make an impact 0:19:26.000 --> 0:19:29.879 on these policies? I mean, are you getting sense? Yeah? So, 0:19:30.000 --> 0:19:32.800 I think you know, the the the actual resignation of 0:19:32.880 --> 0:19:36.000 the CEOs and disbanding of the Council's Uh, that's somewhat 0:19:36.000 --> 0:19:39.520 more symbolic than meaningful in a way, because I mean 0:19:39.640 --> 0:19:42.480 I actually said this. I think that no one, Not 0:19:42.640 --> 0:19:45.399 many Americans, if any Americans could name any successes the 0:19:45.440 --> 0:19:47.720 Council has had. But you know, as of twenty four 0:19:47.760 --> 0:19:50.280 hours ago. But it was always symbolic. It was never 0:19:50.359 --> 0:19:52.240 anything but symbolic. So this is the extent that it 0:19:52.280 --> 0:19:54.800 was a symbolic vote of support that gave people confidence. 0:19:54.920 --> 0:19:57.600 Is now the opposite? Well, you know, like I said 0:19:57.680 --> 0:20:00.240 that every everyone could now name at least once CEO 0:20:00.359 --> 0:20:02.879 who's quit from this panel. Where it makes more of 0:20:02.960 --> 0:20:05.800 a difference is infrastructure is one area where both the 0:20:05.840 --> 0:20:09.000 Republicans and Democrats needed agree it needs to get done. 0:20:09.040 --> 0:20:12.080 They have some differences on how. But when you're going 0:20:12.200 --> 0:20:14.119 when you're coming out and saying, Okay, this is the 0:20:14.280 --> 0:20:17.120 infrastructure press conference, I'm gonna do something, you should leave 0:20:17.160 --> 0:20:20.680 with everyone applauding, everyone joining hands and saying, finally something 0:20:20.960 --> 0:20:24.080 is getting done. Uh for the press conference to derail 0:20:24.280 --> 0:20:27.840 as it derailed, and you've basically, you know, shifted from 0:20:27.920 --> 0:20:32.480 infrastructure to these divisive comments where you have Republicans coming 0:20:32.520 --> 0:20:35.560 out and and coming coming out against you. Now you 0:20:35.640 --> 0:20:37.720 basically have gone from something that should have had a 0:20:37.760 --> 0:20:41.160 really good outcome to where it's increasingly difficult to see 0:20:41.200 --> 0:20:43.200 how he's going to be able to get any of 0:20:43.320 --> 0:20:46.600 his agenda done, and it's incredibly important that he does 0:20:46.680 --> 0:20:49.720 get some of this stuff done. Infrastructure is needed, tax 0:20:49.760 --> 0:20:52.440 reform is needed. I don't see how it gets done. 0:20:52.480 --> 0:20:54.080 And this is maybe the nail on the coffin for 0:20:54.119 --> 0:20:56.159 a lot of that. So, but how much was it 0:20:56.720 --> 0:20:59.200 his agenda to start with, because as you just said, 0:20:59.320 --> 0:21:01.760 it was Wilkins and Democrats who wanted to come together 0:21:01.800 --> 0:21:03.800 and come up with some infrastructure plan. I mean, can't 0:21:03.840 --> 0:21:05.840 they do that anywhere? Or does he have to be 0:21:05.960 --> 0:21:09.600 leading it? Well? I think, you know, the president has 0:21:09.680 --> 0:21:14.840 to lead that sort of. I mean, maybe it's possible 0:21:14.960 --> 0:21:16.520 some of he gets out of the way and let 0:21:16.600 --> 0:21:18.280 some of his cabinet handle it, but I mean it's 0:21:18.320 --> 0:21:20.840 going to be hard for him to get must or 0:21:20.840 --> 0:21:23.120 any the type of support needed because you know, while 0:21:23.119 --> 0:21:24.959 I said, both sides agree this needs to get done, 0:21:25.000 --> 0:21:26.560 they differ on how it should be then, you know, 0:21:26.640 --> 0:21:29.240 be it from public private partnerships versus how much the 0:21:29.320 --> 0:21:31.960 government should fund on the infrastructure side, and then on 0:21:32.080 --> 0:21:35.480 the tax reform who who should have benefit? Right should it? Well? 0:21:35.560 --> 0:21:39.040 So on the Bloomberg I think in the past, the 0:21:39.080 --> 0:21:41.920 past week or so, there was a story about two 0:21:42.040 --> 0:21:47.520 thirds of economists surveyed. I think that the current administration 0:21:47.840 --> 0:21:50.760 will get some kind of tax plan passed by the 0:21:50.840 --> 0:21:53.400 end of the year, but that the effects won't take 0:21:53.480 --> 0:21:57.959 place until after after the year after, possibly next year 0:21:58.000 --> 0:22:01.680 as well. I'm that that that ratio surprises me. I 0:22:01.800 --> 0:22:04.240 think that the idea of there's two things we need 0:22:04.320 --> 0:22:06.840 to look at. One is the probability of tax reform, 0:22:07.000 --> 0:22:10.359