1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,920 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Please 5 00:00:29,000 --> 00:00:30,920 Speaker 1: to say that joining Tom and I in a studio 6 00:00:31,040 --> 00:00:34,240 Speaker 1: here in New York, Gina Martin Adams, Bloomberg Intelligence Chase 7 00:00:34,440 --> 00:00:38,640 Speaker 1: to Strategist. Isn't this a beautiful thing? It's just a 8 00:00:38,680 --> 00:00:42,199 Speaker 1: great good Good morning to genus. Good morning, let's talk 9 00:00:42,240 --> 00:00:44,240 Speaker 1: about earnings. We're looking forward to catching up with you 10 00:00:44,280 --> 00:00:45,920 Speaker 1: a lot over the next couple of weeks. You thought, 11 00:00:45,920 --> 00:00:49,400 Speaker 1: so far, so so far, so good about companies are 12 00:00:49,400 --> 00:00:51,880 Speaker 1: beating expectations. Of course, we're only about a fish for 13 00:00:51,960 --> 00:00:54,360 Speaker 1: the market cap through the SMP five hundred, and it's 14 00:00:54,400 --> 00:00:57,360 Speaker 1: all financials. This morning is a little mixed. You've got 15 00:00:57,440 --> 00:00:59,319 Speaker 1: a few beats, a few misses, a little bit more 16 00:00:59,360 --> 00:01:03,240 Speaker 1: mixed results. I'm very, very happy to see the forward 17 00:01:03,240 --> 00:01:05,760 Speaker 1: guidance from some companies. I mean, this is one of 18 00:01:05,760 --> 00:01:08,080 Speaker 1: our concerns as we were just going to have total 19 00:01:08,200 --> 00:01:10,839 Speaker 1: radio silence on for your guidance because there's so little 20 00:01:10,880 --> 00:01:18,600 Speaker 1: visibility in the It's always my worry, I know for 21 00:01:18,640 --> 00:01:22,600 Speaker 1: you ups ups out with numbers just now boosting that 22 00:01:22,880 --> 00:01:25,479 Speaker 1: year outlook as well. Gina, you've been crunching the numbers. 23 00:01:25,520 --> 00:01:28,920 Speaker 1: It's that time of year. The scars of Queen is 24 00:01:28,959 --> 00:01:32,280 Speaker 1: still very deep. We're looking out to the analysts is 25 00:01:32,319 --> 00:01:35,759 Speaker 1: starting to line up. Cut cut cut cut cut. How 26 00:01:35,840 --> 00:01:37,360 Speaker 1: damaging is it? What does it look like? You know, 27 00:01:37,400 --> 00:01:40,600 Speaker 1: it's really interesting actually in comparison to this time last year, 28 00:01:40,680 --> 00:01:43,720 Speaker 1: it's almost nothing. I mean, last year earnings estimates just 29 00:01:43,760 --> 00:01:45,560 Speaker 1: fell off a cliff. Now, we might be a bit 30 00:01:45,560 --> 00:01:48,000 Speaker 1: early to make this sort of statement because it really 31 00:01:48,000 --> 00:01:50,520 Speaker 1: didn't happen until late October last year. So you want 32 00:01:50,520 --> 00:01:52,520 Speaker 1: to reserve the right for judgment for another week or 33 00:01:52,520 --> 00:01:55,400 Speaker 1: two of earning season. But should we get through this 34 00:01:55,440 --> 00:01:58,120 Speaker 1: season this week as well as next week without a 35 00:01:58,160 --> 00:02:02,040 Speaker 1: material downdraft in, we'll look completely opposite of what last 36 00:02:02,120 --> 00:02:05,760 Speaker 1: year looked like, which was just an absolute plummeting and expectations. 37 00:02:05,800 --> 00:02:08,520 Speaker 1: We just haven't seen that yet. Instead, the numbers are 38 00:02:08,520 --> 00:02:12,480 Speaker 1: coming down, because the numbers are coming down, which is 39 00:02:12,600 --> 00:02:17,960 Speaker 1: very different than last year where looked okay, numbers were 40 00:02:17,960 --> 00:02:20,679 Speaker 1: coming down. This year, it's all about, Okay, this year's week, 41 00:02:20,720 --> 00:02:23,160 Speaker 1: but next year we should see a little bit of recovery, 42 00:02:23,200 --> 00:02:25,240 Speaker 1: and a lot of that we were talking about this yesterday, Tom. 43 00:02:25,240 --> 00:02:27,240 Speaker 1: A lot of that is the comp I mean, we 44 00:02:27,360 --> 00:02:31,400 Speaker 1: can't underappreciate how strong last year was because of corporate 45 00:02:31,400 --> 00:02:34,960 Speaker 1: tax reformula. Double the average pace of revenue growth, triple 46 00:02:35,000 --> 00:02:38,359 Speaker 1: the average pace of earnings growth were comparing to those numbers. 47 00:02:38,440 --> 00:02:41,120 Speaker 1: And that's in some cases making their earning stream look 48 00:02:41,200 --> 00:02:44,600 Speaker 1: artificially week not necessari like a core weakness. I'm gonna 49 00:02:44,639 --> 00:02:46,720 Speaker 1: paint the reality here, and this goes to Paul Sweeney's 50 00:02:46,760 --> 00:02:50,440 Speaker 1: excellence in building Bloomberg Intelligence, Jane. As you know, there's 51 00:02:50,600 --> 00:02:54,600 Speaker 1: acres of analysts working for Bloomberg Intelligence in New York, 52 00:02:54,680 --> 00:02:57,000 Speaker 1: in Princeton as well. It's like it's like one of 53 00:02:57,000 --> 00:02:59,720 Speaker 1: those Spielberg movies, John, where they go back, you can't 54 00:02:59,760 --> 00:03:03,120 Speaker 1: see where they end. The junior analysts are in the midst, 55 00:03:04,200 --> 00:03:08,040 Speaker 1: like the UBS training floor in Stanford years ago. I 56 00:03:08,040 --> 00:03:09,960 Speaker 1: don't know what you're talking about, not enough of us. 57 00:03:10,120 --> 00:03:13,880 Speaker 1: But at the bottom line of the accounting statements is 58 00:03:14,000 --> 00:03:18,560 Speaker 1: cap X. Can they get through this earnings year by 59 00:03:18,639 --> 00:03:21,840 Speaker 1: cutting cap X. That's like trick one on one is 60 00:03:22,000 --> 00:03:24,960 Speaker 1: yeah yeah, between cap X and operating expenditure. So much 61 00:03:25,080 --> 00:03:29,120 Speaker 1: tax reform blended the lines between those two things as well. Um, 62 00:03:29,200 --> 00:03:34,160 Speaker 1: so between those two things a complete halt. I do 63 00:03:34,360 --> 00:03:37,640 Speaker 1: think that there is some capacity for corpus to really 64 00:03:37,720 --> 00:03:41,400 Speaker 1: rationalized expenses across the board, and that is what typically 65 00:03:41,400 --> 00:03:43,920 Speaker 1: creates some sort of bottom and margins, which creates a 66 00:03:43,960 --> 00:03:46,000 Speaker 1: turn in earnings progress. And we have seen that to 67 00:03:46,040 --> 00:03:48,520 Speaker 1: a certain degree, but in particular for the big communications 68 00:03:48,560 --> 00:03:50,800 Speaker 1: companies like the facebooks and the Googles of the world, 69 00:03:51,160 --> 00:03:54,520 Speaker 1: which are really dominating operating expenditure for the entire index. 70 00:03:54,560 --> 00:03:56,880 Speaker 1: They're dominating U S G and a expense for the 71 00:03:57,040 --> 00:03:59,520 Speaker 1: entire index as well. To the extent that they can 72 00:03:59,560 --> 00:04:02,680 Speaker 1: cut some of their expenditure or their planned expenditure, that 73 00:04:02,720 --> 00:04:05,800 Speaker 1: does create a turnaround in margins. Now that everybody's snoozing, 74 00:04:05,840 --> 00:04:10,360 Speaker 1: I'll stop talking and just see Tom looks Netflix. Okay, 75 00:04:10,520 --> 00:04:15,440 Speaker 1: Netflix two point six billion cash from operations. Less than 76 00:04:15,520 --> 00:04:18,360 Speaker 1: ten percent of that is capex. I mean, that's how 77 00:04:18,720 --> 00:04:21,120 Speaker 1: odds some of these companies are. So let's look out 78 00:04:21,160 --> 00:04:25,320 Speaker 1: to profits. Are we still looking at profit growth to 79 00:04:25,360 --> 00:04:28,599 Speaker 1: ten percent, So the analysts are now forecasting closer to 80 00:04:28,640 --> 00:04:32,039 Speaker 1: seven eight percent interesting growth. Our models say, the macro 81 00:04:32,160 --> 00:04:35,400 Speaker 1: unders indicators suggests we're gonna get closer to zero. A 82 00:04:35,520 --> 00:04:38,160 Speaker 1: lot of this depends on that capex line, and it 83 00:04:38,200 --> 00:04:41,080 Speaker 1: depends on how much business expenditure starts to bounce back, 84 00:04:41,480 --> 00:04:43,279 Speaker 1: or if it does at all. I mean, we're modeling 85 00:04:43,680 --> 00:04:46,640 Speaker 1: a five percent drop in capital goods orders x aircraft. 86 00:04:46,680 --> 00:04:50,560 Speaker 1: It's sort of our core expectation to drive business expenditure, 87 00:04:50,560 --> 00:04:53,320 Speaker 1: which means basically no spending by businesses next year. So 88 00:04:53,360 --> 00:04:56,920 Speaker 1: you've got sort of this flat line earnings growth unless 89 00:04:57,040 --> 00:04:59,600 Speaker 1: you get resolution to some of the broader global uncertainties, 90 00:04:59,600 --> 00:05:02,480 Speaker 1: which I think you're weighing on business confidence and restraining investment. 91 00:05:02,839 --> 00:05:04,719 Speaker 1: At that point, there is a really strong case for 92 00:05:04,760 --> 00:05:09,000 Speaker 1: businesses actually to pile into investing into the future because 93 00:05:09,120 --> 00:05:12,960 Speaker 1: cap capacity utilization is actually still quite high. They haven't 94 00:05:12,960 --> 00:05:16,360 Speaker 1: invested a tremendous amount this cycle. There's no excess investment 95 00:05:16,360 --> 00:05:18,960 Speaker 1: that they're recovering from. It's just a tremendous amount of 96 00:05:19,000 --> 00:05:21,760 Speaker 1: uncertainty that is holding them back from making long term 97 00:05:21,800 --> 00:05:24,680 Speaker 1: plans and investing into their future. Tonydir of kind of 98 00:05:24,720 --> 00:05:28,000 Speaker 1: core genity rights in and ask the following question. In fact, 99 00:05:28,000 --> 00:05:31,720 Speaker 1: he makes a statement which is Tony says, you do 100 00:05:31,839 --> 00:05:34,600 Speaker 1: remember our MythBuster on the topic that showed the market 101 00:05:34,640 --> 00:05:38,120 Speaker 1: does worse when the out eear estimates are being revised up? Yea, 102 00:05:38,400 --> 00:05:41,720 Speaker 1: not down? Yes, Gina, just walk us through that dynamic. Yeah. Well, 103 00:05:41,720 --> 00:05:45,080 Speaker 1: there's this phenomenon in the markets where stocks are forward looking, right, 104 00:05:45,120 --> 00:05:48,680 Speaker 1: so technically they actually peak and peak earnings years and 105 00:05:48,720 --> 00:05:51,279 Speaker 1: trough in earnings trophy years. If this is an earnings 106 00:05:51,240 --> 00:05:53,919 Speaker 1: trophy here, as we think it is, stocks should actually 107 00:05:53,960 --> 00:05:57,080 Speaker 1: start to be doing better looking forward into now in 108 00:05:57,160 --> 00:06:00,400 Speaker 1: terms of revisions, I think that the phenomenon there is 109 00:06:00,839 --> 00:06:04,239 Speaker 1: what analysts are forecasting is not always what's priced into stocks. 110 00:06:04,240 --> 00:06:06,839 Speaker 1: And this is a critical point right now is yes, 111 00:06:06,880 --> 00:06:09,320 Speaker 1: analysts may be forecasting high single digit growth, but I 112 00:06:09,320 --> 00:06:11,159 Speaker 1: have yet to speak to a by side investor the 113 00:06:11,160 --> 00:06:14,080 Speaker 1: people that are actually put in capital right that suggests 114 00:06:14,080 --> 00:06:17,760 Speaker 1: that that's realistic. So most by side investors that are 115 00:06:17,800 --> 00:06:20,440 Speaker 1: thinking about the outlook for earnings growth are already modeling 116 00:06:20,720 --> 00:06:25,000 Speaker 1: at best low single digit growth, maybe even some contracting 117 00:06:25,320 --> 00:06:30,080 Speaker 1: growth into So that implies that you've actually got presumed 118 00:06:30,160 --> 00:06:34,120 Speaker 1: upside two stocks because the expectations embedded in prices are 119 00:06:34,160 --> 00:06:37,520 Speaker 1: not necessarily reflecting the expectations of the analysts. I'm so 120 00:06:37,600 --> 00:06:42,200 Speaker 1: confused over what you just said was here. Yes, I 121 00:06:42,279 --> 00:06:49,320 Speaker 1: just love that she acknowledged. She just acknowledged. Let's let's 122 00:06:49,320 --> 00:06:51,680 Speaker 1: review your facts that Gina Martin Adams and the heat 123 00:06:51,760 --> 00:06:55,120 Speaker 1: of the gloom stayed in stocks, which will cut to 124 00:06:55,160 --> 00:06:57,400 Speaker 1: the chase, as did Mr Dwyer for that matter as well. 125 00:06:57,680 --> 00:07:00,840 Speaker 1: Gina Charles Cantor in here yesterday say he hasn't seen 126 00:07:00,880 --> 00:07:04,880 Speaker 1: a time where we go back to individual security analysis. 127 00:07:05,120 --> 00:07:07,800 Speaker 1: How every company is a different story right now. Do 128 00:07:07,839 --> 00:07:10,200 Speaker 1: you agree with that idea? I think that's a lot 129 00:07:10,240 --> 00:07:14,960 Speaker 1: of this. Unfortunately, every company trades still in line with 130 00:07:15,080 --> 00:07:18,920 Speaker 1: geopolicy and in line with FED policy, So there is 131 00:07:18,960 --> 00:07:23,720 Speaker 1: this incredible overwhelming dynamic of policy moving stocks all at 132 00:07:23,760 --> 00:07:27,280 Speaker 1: once in one direction or another. However, the earning stories 133 00:07:27,360 --> 00:07:29,920 Speaker 1: are not all the same, and there is definitely very 134 00:07:29,960 --> 00:07:33,440 Speaker 1: wide dispersion and earnings estimates. I mean, you're seeing energy 135 00:07:33,480 --> 00:07:37,480 Speaker 1: sector companies printing double digit declines and earnings with more 136 00:07:37,520 --> 00:07:42,320 Speaker 1: consumer oriented and domestically oriented defensive companies producing earnings growth 137 00:07:42,360 --> 00:07:44,720 Speaker 1: still and the same as in the sales line. So 138 00:07:44,760 --> 00:07:50,680 Speaker 1: there is very different sort of differentiated, differentiated fundamentals um 139 00:07:50,720 --> 00:07:53,360 Speaker 1: behind stocks. The trouble is, I think we still are 140 00:07:53,480 --> 00:07:57,560 Speaker 1: in an environment where psychology is completely tied to geopolitics 141 00:07:58,120 --> 00:08:00,640 Speaker 1: politics in general as well as let's see is to 142 00:08:00,680 --> 00:08:02,600 Speaker 1: the extent that we go, we gotta. We had an 143 00:08:02,640 --> 00:08:05,800 Speaker 1: SMP three thousand closed yesterday, John, did she do? Okay? Sure? 144 00:08:05,840 --> 00:08:07,200 Speaker 1: We go for three days in a row. I had 145 00:08:08,800 --> 00:08:12,160 Speaker 1: the room is and she's about to leave to Catull 146 00:08:12,200 --> 00:08:14,960 Speaker 1: with you. Good to see you. I'm believe like intelligence chief, 147 00:08:15,280 --> 00:08:19,480 Speaker 1: US Equity strategistic busy week for learnings, Tom in full swing. Now, 148 00:08:34,160 --> 00:08:37,640 Speaker 1: it's great to see people parachute in in Land. It 149 00:08:37,840 --> 00:08:41,040 Speaker 1: firms it absolutely fit their skill set. Dan cats Have 150 00:08:41,160 --> 00:08:43,880 Speaker 1: has been wonderful in the street and to see him 151 00:08:43,960 --> 00:08:48,720 Speaker 1: join BMP Perry with their analytical and derivative history, John 152 00:08:48,840 --> 00:08:51,959 Speaker 1: is absolutely superb. And of course this unfeign exchange Dan 153 00:08:52,040 --> 00:08:54,280 Speaker 1: Can't Save has been with BMP Papa for years. Tom. 154 00:08:54,280 --> 00:08:56,400 Speaker 1: You're talking like he's just joined them, Well, you know, 155 00:08:56,480 --> 00:08:58,120 Speaker 1: but I mean over you know, as long as I've 156 00:08:58,120 --> 00:09:00,280 Speaker 1: known Dan cats Have, it's been like you know what talk. 157 00:09:00,320 --> 00:09:02,120 Speaker 1: I think it's been six years, hasn't it, Dan, that 158 00:09:02,160 --> 00:09:04,840 Speaker 1: you've been with BMP Paraba. That's correct, but we go away, 159 00:09:04,880 --> 00:09:06,760 Speaker 1: but we go way back, and you know, it was 160 00:09:06,800 --> 00:09:08,520 Speaker 1: just one the day that I heard the cats it 161 00:09:08,559 --> 00:09:13,040 Speaker 1: was going to be. It was like total perfectly reminiscing. Yeah, 162 00:09:13,400 --> 00:09:18,400 Speaker 1: you know, let's get to dand of effect strategy in 163 00:09:18,480 --> 00:09:20,880 Speaker 1: North America. Good morning to your Dan. Good morning. Let's 164 00:09:20,880 --> 00:09:23,520 Speaker 1: talk about this US dollar starting to waken up over 165 00:09:23,520 --> 00:09:25,520 Speaker 1: the last couple of weeks. A lot of people trying 166 00:09:25,520 --> 00:09:28,600 Speaker 1: to work out whether it's time to reposition their portfolios 167 00:09:28,600 --> 00:09:31,000 Speaker 1: with more of a global till away from the United States, 168 00:09:31,000 --> 00:09:33,760 Speaker 1: and what the foreign exchange story is around that. What 169 00:09:33,800 --> 00:09:36,000 Speaker 1: are your talent clients at the moment. Well know, the 170 00:09:36,040 --> 00:09:39,160 Speaker 1: dollar has been remarkably resilient for the last few months, 171 00:09:39,280 --> 00:09:41,560 Speaker 1: so it makes sense to us that it's starting to 172 00:09:41,760 --> 00:09:43,960 Speaker 1: come off a bit and catch up to what yields 173 00:09:43,960 --> 00:09:45,520 Speaker 1: have been doing and what the FET has been doing. 174 00:09:45,880 --> 00:09:48,520 Speaker 1: It seems what you know, maybe we underappreciated a few 175 00:09:48,520 --> 00:09:51,360 Speaker 1: weeks ago, is that Brexit was holding the dollar up 176 00:09:51,400 --> 00:09:53,959 Speaker 1: more broadly, not just versus the pound, but off also 177 00:09:54,120 --> 00:09:55,920 Speaker 1: versus the earine. As we see some of the breggsit 178 00:09:55,960 --> 00:09:59,680 Speaker 1: tail risks fade. Euro is looking a lot perkier. Well, 179 00:09:59,720 --> 00:10:02,640 Speaker 1: let's talk about that. We've reclaimed one thirty on cable. 180 00:10:03,200 --> 00:10:05,080 Speaker 1: People trying to work out whether we establish a new 181 00:10:05,200 --> 00:10:07,280 Speaker 1: range in and around one thirty, or whether we can 182 00:10:07,400 --> 00:10:09,760 Speaker 1: drift higher. I already started to think about this too, 183 00:10:09,840 --> 00:10:12,280 Speaker 1: as we've started to pull down the odds of a 184 00:10:12,320 --> 00:10:15,040 Speaker 1: hard Brexit cable as inch from one twenty. In fact, 185 00:10:15,080 --> 00:10:19,240 Speaker 1: searched from one to one thirty, the post Brexit high 186 00:10:19,559 --> 00:10:22,960 Speaker 1: it is in and around one forty. That was the 187 00:10:23,000 --> 00:10:27,480 Speaker 1: spring of eighteen. Eurodollar was at one five. Euro dollar 188 00:10:27,600 --> 00:10:29,880 Speaker 1: right now is at one eleven. The path to one 189 00:10:30,040 --> 00:10:33,000 Speaker 1: forty without a broader call on a week a dollar 190 00:10:33,480 --> 00:10:35,760 Speaker 1: looks pretty difficult down, would you agree? Yeah? I would 191 00:10:35,760 --> 00:10:37,240 Speaker 1: agree with that. It's gonna be hard to get up 192 00:10:37,280 --> 00:10:40,800 Speaker 1: there without the dollar weakening. More broadly, um, you know, 193 00:10:40,840 --> 00:10:44,080 Speaker 1: we had done some analysis early on and said, you know, 194 00:10:44,120 --> 00:10:48,400 Speaker 1: in a h anything but a no deal scenario, one 195 00:10:48,480 --> 00:10:50,840 Speaker 1: thirty three was in a reasonable target for for a 196 00:10:50,840 --> 00:10:53,760 Speaker 1: cable for sterling usd were almost there. Now certainly you 197 00:10:53,800 --> 00:10:56,559 Speaker 1: could overshoot that, especially if you know, we really locked 198 00:10:56,559 --> 00:11:00,560 Speaker 1: down the uncertainty this this week but you know it 199 00:11:00,640 --> 00:11:03,840 Speaker 1: was sterling and this is outside your remit, but you 200 00:11:03,880 --> 00:11:06,319 Speaker 1: know you're not talking to the traders and all that is. 201 00:11:06,400 --> 00:11:10,320 Speaker 1: Johnn mentioned we were a ginormous surge in strength of 202 00:11:10,440 --> 00:11:15,319 Speaker 1: pounds sterling. We're a lot of people on board that trade. 203 00:11:15,480 --> 00:11:17,200 Speaker 1: I mean, did a lot of people make a lot 204 00:11:17,240 --> 00:11:20,559 Speaker 1: of money or was it a lonely success? I doubt 205 00:11:20,600 --> 00:11:22,640 Speaker 1: a lot of I don't know. I doubt it because 206 00:11:22,679 --> 00:11:25,240 Speaker 1: I think my impression talking to people over the last 207 00:11:25,400 --> 00:11:28,079 Speaker 1: few months, people who who trade kind of very dynamically, 208 00:11:28,160 --> 00:11:30,720 Speaker 1: was that it was too difficult to to really trade 209 00:11:31,160 --> 00:11:34,400 Speaker 1: the whole the whole on Brexit saga. So people probably 210 00:11:34,400 --> 00:11:39,160 Speaker 1: weren't involved, um, you know, certainly some some probably were, 211 00:11:39,240 --> 00:11:41,280 Speaker 1: But I don't think it was a huge deal. You know, 212 00:11:41,320 --> 00:11:44,280 Speaker 1: we talked about Johnny's genormous moves, but are they lonely moves? 213 00:11:44,480 --> 00:11:46,480 Speaker 1: Let's talk about since used to be greater. There was 214 00:11:46,520 --> 00:11:49,480 Speaker 1: a big short position sitting on Tolocag boat. How much 215 00:11:49,480 --> 00:11:51,920 Speaker 1: have we taken that off now in the last six weeks, 216 00:11:52,440 --> 00:11:54,520 Speaker 1: I mean, our our you know metrics would suggest a 217 00:11:54,520 --> 00:11:56,480 Speaker 1: lot of that has come off, and probably even more, 218 00:11:56,559 --> 00:11:58,960 Speaker 1: you know, in the last few days. Um, there's probably 219 00:11:58,960 --> 00:12:01,040 Speaker 1: a big underweight, you know, looking beyond just the sort 220 00:12:01,080 --> 00:12:05,199 Speaker 1: of dynamic positioning underweight of sterling risk among longer term investors. 221 00:12:05,640 --> 00:12:08,200 Speaker 1: Maybe that still has some more room to m to unwind. 222 00:12:08,480 --> 00:12:10,559 Speaker 1: If we really got certainty and you've got a resumption 223 00:12:10,600 --> 00:12:12,760 Speaker 1: of inward investment and stuff like that, let's talk about 224 00:12:12,760 --> 00:12:15,000 Speaker 1: that word certainty. I had someone right into me this 225 00:12:15,040 --> 00:12:18,720 Speaker 1: morning and said, please please ask your guests about removing uncertainty. 226 00:12:18,800 --> 00:12:21,240 Speaker 1: So many people come on the program and say, if 227 00:12:21,240 --> 00:12:23,679 Speaker 1: we get this vote go through a seven pm, it 228 00:12:23,760 --> 00:12:27,720 Speaker 1: removes uncertainty. What kind of uncertainty does it remove? Because 229 00:12:27,760 --> 00:12:30,840 Speaker 1: this is just stage one, right, Stage two on establishing 230 00:12:30,880 --> 00:12:34,520 Speaker 1: what this relationship could look like could take years. Yeah, yeah, 231 00:12:34,559 --> 00:12:37,520 Speaker 1: I think what you're removing is the risk of no 232 00:12:37,640 --> 00:12:40,160 Speaker 1: deal or you haven't really removed it even but you've 233 00:12:40,160 --> 00:12:42,120 Speaker 1: reduced it quite a bit. It certainly it seems like 234 00:12:42,160 --> 00:12:45,240 Speaker 1: it's been reduced in terms of an immediate risk. So um, 235 00:12:45,280 --> 00:12:49,520 Speaker 1: you've eliminated or reduced to tail risk. But as you say, 236 00:12:49,840 --> 00:12:52,760 Speaker 1: there's there's you know, still a massive uncertainty in terms 237 00:12:52,800 --> 00:12:55,560 Speaker 1: of what the future looks like. Dan I bet on 238 00:12:55,559 --> 00:12:57,719 Speaker 1: the Yankees, and I bet on Tottenham, I gotta make 239 00:12:57,760 --> 00:13:00,679 Speaker 1: some money back. Fast is your best trade right now? 240 00:13:00,760 --> 00:13:03,960 Speaker 1: Strong En Yeah, that's ore are still our favorite currency 241 00:13:03,960 --> 00:13:07,160 Speaker 1: in the G ten. We think um Japan is gonna 242 00:13:07,320 --> 00:13:10,640 Speaker 1: lag easing in other G ten economies. Um, they're already 243 00:13:10,679 --> 00:13:13,680 Speaker 1: lagging easing and energy ten economies. Japanese investors have a 244 00:13:13,679 --> 00:13:16,480 Speaker 1: lot of exposure to global fixed income and yields are 245 00:13:16,520 --> 00:13:19,280 Speaker 1: coming down everywhere. So the risk is they hedge their 246 00:13:19,360 --> 00:13:21,079 Speaker 1: f X risk and we and we see a big 247 00:13:21,120 --> 00:13:23,440 Speaker 1: surge in the end. The den cass of thank you 248 00:13:23,480 --> 00:13:41,160 Speaker 1: so much. With the MP Parrybody, our chief financial correspondence, 249 00:13:41,400 --> 00:13:45,800 Speaker 1: Shelli bask darkins the door shally US Bank Corps is 250 00:13:45,840 --> 00:13:49,320 Speaker 1: trying to catch up on digital AM I right, it's 251 00:13:49,360 --> 00:13:52,600 Speaker 1: a hopeless task. If it is hopeless, what are they 252 00:13:52,600 --> 00:13:56,560 Speaker 1: really trying to accomplish By shrinking retail and spending more 253 00:13:56,559 --> 00:14:00,000 Speaker 1: on digital. By shrinking retail time, you're also cutting costs. Remember, 254 00:14:00,360 --> 00:14:03,560 Speaker 1: and it's really impossible right now to be catching up 255 00:14:03,600 --> 00:14:05,680 Speaker 1: to some of not only the big banks like Jamie 256 00:14:05,679 --> 00:14:08,520 Speaker 1: Diamond's JP Morgan that's spanning twelve billion dollars a year 257 00:14:08,559 --> 00:14:11,160 Speaker 1: on technology. But think about it this way. You have Stripe, 258 00:14:11,640 --> 00:14:14,840 Speaker 1: which is above the market cap of Deutsche Bank. The 259 00:14:14,880 --> 00:14:19,040 Speaker 1: big syntax are huge. How many do you have a 260 00:14:19,120 --> 00:14:22,520 Speaker 1: model with Michael Warren, Carolin Salis and our finance team 261 00:14:22,600 --> 00:14:26,000 Speaker 1: of how many jobs are going to be lost coast 262 00:14:26,040 --> 00:14:29,880 Speaker 1: to coast as we go digital? Actually, Mike Mayo Wells 263 00:14:29,920 --> 00:14:32,200 Speaker 1: Fargo has that number. He thinks it's going to be 264 00:14:32,280 --> 00:14:37,000 Speaker 1: hundreds of thousands. I think it will be more over time. John, 265 00:14:37,160 --> 00:14:40,080 Speaker 1: this is like retail and like Amazon. Is that big 266 00:14:40,080 --> 00:14:41,760 Speaker 1: a deal? Should we talk about another big deal? It's 267 00:14:41,760 --> 00:14:44,440 Speaker 1: just across the Bloomberg Adam Newman to step down from 268 00:14:44,440 --> 00:14:47,440 Speaker 1: the wal This is coming from the team over at 269 00:14:47,480 --> 00:14:50,440 Speaker 1: Dow Jones Shinali. Theres some options on the table for 270 00:14:50,560 --> 00:14:53,080 Speaker 1: we work. One is from JP Morgan at least JP 271 00:14:53,120 --> 00:14:55,480 Speaker 1: Morgan exploring some options for them. Another is from self 272 00:14:55,480 --> 00:14:57,720 Speaker 1: Bank looking for a majority stake, which was tied to 273 00:14:57,800 --> 00:15:01,400 Speaker 1: Adam Newman stepping down from the board. Does this headline 274 00:15:01,400 --> 00:15:04,520 Speaker 1: imply that they're leaning towards the soft Bank bail out option? 275 00:15:04,720 --> 00:15:07,120 Speaker 1: It certainly does. They've been leaning towards that option for 276 00:15:07,200 --> 00:15:09,880 Speaker 1: days now. They like soft Bank. They believe they have 277 00:15:10,000 --> 00:15:12,680 Speaker 1: more patients under soft Bank. Some of these other headlines 278 00:15:12,680 --> 00:15:15,200 Speaker 1: from down Jones are also pretty stunning because soft Bank 279 00:15:15,280 --> 00:15:17,520 Speaker 1: is doing something that JP Morgan is not even able 280 00:15:17,560 --> 00:15:20,400 Speaker 1: to do, and it's pull off a credit line. And 281 00:15:20,480 --> 00:15:24,040 Speaker 1: so they're figuring out a debt financing package and translate that. 282 00:15:24,360 --> 00:15:29,160 Speaker 1: So they're not just let's go back to first principles. Well, 283 00:15:29,240 --> 00:15:33,000 Speaker 1: what they're not doing here is doing this JP Morgan 284 00:15:33,240 --> 00:15:40,000 Speaker 1: very complicated exactly, and so what the credit line will 285 00:15:40,000 --> 00:15:42,520 Speaker 1: look like from soft Bank is a little more complicated. 286 00:15:42,560 --> 00:15:44,520 Speaker 1: We don't know the details of that yet. We know 287 00:15:44,560 --> 00:15:49,160 Speaker 1: that Miszouho and other Japanese banks are peripherally involved. Um 288 00:15:49,280 --> 00:15:52,560 Speaker 1: soft Bank itself, according to these headlines, are sending sending 289 00:15:52,560 --> 00:15:57,200 Speaker 1: five million of credit to Newman himself, which is interesting. Yes, 290 00:15:57,320 --> 00:15:59,440 Speaker 1: that's that's what the headline says. And I have a 291 00:15:59,440 --> 00:16:05,960 Speaker 1: little bit of belief. So today I have no idea. 292 00:16:07,520 --> 00:16:10,600 Speaker 1: Well that CNBC reported yesterday that he gets two millions 293 00:16:10,680 --> 00:16:13,320 Speaker 1: hand out of control. Why would he need a credit line? 294 00:16:13,400 --> 00:16:15,360 Speaker 1: Is he has he taken loans out that are tied 295 00:16:15,400 --> 00:16:17,560 Speaker 1: to the stock that good in order to get him 296 00:16:17,560 --> 00:16:19,720 Speaker 1: to give up some of these voting rights, he would 297 00:16:19,720 --> 00:16:22,440 Speaker 1: need he would need a credit line. Yes, So think 298 00:16:22,480 --> 00:16:24,560 Speaker 1: about it this way. If the soft Bank deal and 299 00:16:24,640 --> 00:16:27,800 Speaker 1: no JP Morgan deal means that if they dilute the equity, 300 00:16:27,960 --> 00:16:31,360 Speaker 1: Newman has shares pledged towards his loans five million dollars 301 00:16:31,360 --> 00:16:34,120 Speaker 1: with the loans from JP Morgan ubs and credit sweets 302 00:16:34,120 --> 00:16:37,320 Speaker 1: and so that they would have had to require him 303 00:16:37,320 --> 00:16:39,720 Speaker 1: to put up more margin, maybe sell some assets. Is 304 00:16:39,800 --> 00:16:44,880 Speaker 1: pretty homes and throughout New York and I know, so 305 00:16:45,200 --> 00:16:47,240 Speaker 1: that would have been a real problem. There is a 306 00:16:47,280 --> 00:16:51,160 Speaker 1: sense of propriety on Wall Street, if you will, where 307 00:16:51,280 --> 00:16:54,280 Speaker 1: soft Bank, everybody wants everyone to do well. You know, 308 00:16:54,360 --> 00:16:59,080 Speaker 1: the least money lost is the deal that will help everybody. 309 00:16:59,240 --> 00:17:06,280 Speaker 1: So Newman here will be able to exit somewhat, somewhat gracefully, Yes, gracefully. 310 00:17:06,280 --> 00:17:09,400 Speaker 1: I don't think you can exert this mess gracefully. Soft Bank. 311 00:17:09,440 --> 00:17:11,680 Speaker 1: Then the report of the last twenty four hours looking 312 00:17:11,720 --> 00:17:14,639 Speaker 1: to take a majority steak and valuing this company at 313 00:17:14,680 --> 00:17:18,080 Speaker 1: eight billion or less after valuing January of this year. 314 00:17:18,200 --> 00:17:20,520 Speaker 1: January of this year this company was valued at forty 315 00:17:20,640 --> 00:17:24,480 Speaker 1: seven billion. What does SoftBank do next? They take over 316 00:17:24,680 --> 00:17:27,080 Speaker 1: if that gets confirmed they have a majority steake, what 317 00:17:27,119 --> 00:17:30,480 Speaker 1: do they do so reportedly they'll own succeed at eight percent, 318 00:17:30,880 --> 00:17:33,639 Speaker 1: Like I mentioned earlier. What we work liked about soft 319 00:17:33,640 --> 00:17:36,000 Speaker 1: Bank is the hope that they will be more patient. Right. 320 00:17:36,080 --> 00:17:38,560 Speaker 1: What this does is they were about to run out 321 00:17:38,560 --> 00:17:41,639 Speaker 1: of cash on right, and so now will they have 322 00:17:41,800 --> 00:17:44,720 Speaker 1: enough cash to not only resume operations? And then the 323 00:17:44,760 --> 00:17:47,200 Speaker 1: news slow here, which is extraordinary. This is really important. 324 00:17:47,640 --> 00:17:50,399 Speaker 1: Like there are all sorts of banks tied to soft 325 00:17:50,440 --> 00:17:53,440 Speaker 1: Bank in these transactions. Do you assume with these announcements 326 00:17:53,880 --> 00:17:57,640 Speaker 1: the JP Morgan and other institutions will have to book losses? 327 00:17:58,400 --> 00:18:01,880 Speaker 1: You know, we can bring all of these loans right 328 00:18:01,960 --> 00:18:04,760 Speaker 1: all the way back to Massa Son, right. I mean 329 00:18:04,800 --> 00:18:06,920 Speaker 1: there are dozens of banks that have margin loans to 330 00:18:07,000 --> 00:18:11,520 Speaker 1: Massa and they have to be down. As John mentioned, 331 00:18:11,600 --> 00:18:14,880 Speaker 1: what John eight, if you're lucky, if you're lucky, which 332 00:18:14,960 --> 00:18:19,200 Speaker 1: means any given bank that did the loan, they have 333 00:18:19,240 --> 00:18:22,120 Speaker 1: to market down now. Right. Yes, So I think that 334 00:18:22,160 --> 00:18:27,400 Speaker 1: they're you know, Wall Street is over. It's endlessly optimistic, John, John, Tom, 335 00:18:27,440 --> 00:18:32,840 Speaker 1: they really are. I'm Tom, that's the stud over the head. 336 00:18:33,359 --> 00:18:38,000 Speaker 1: I It amazes me always because up till the summer, 337 00:18:38,000 --> 00:18:40,800 Speaker 1: when I was questioning the forty seven billion dollar valuation, 338 00:18:41,240 --> 00:18:45,040 Speaker 1: I kept on being told, don't worry about it, we'll 339 00:18:45,040 --> 00:18:51,840 Speaker 1: get there. And so to care eight billion, it could 340 00:18:51,880 --> 00:18:54,560 Speaker 1: be less, right, will we know? John self Bank has 341 00:18:54,560 --> 00:18:59,960 Speaker 1: already put ten billion into this company already and then 342 00:19:00,000 --> 00:19:02,399 Speaker 1: now value in the company eight billion. And by the way, 343 00:19:02,400 --> 00:19:05,879 Speaker 1: SoftBank shares react to these fluctuations, so soft Bank has 344 00:19:05,920 --> 00:19:09,080 Speaker 1: a lot online here. Thank you so much, really wonderful 345 00:19:09,119 --> 00:19:24,080 Speaker 1: analysis for the moment. Right now, Diane Swap joins this 346 00:19:24,160 --> 00:19:26,960 Speaker 1: Grant Thornt Here in the American economy, Diane, I'm gonna 347 00:19:27,040 --> 00:19:29,280 Speaker 1: go to your charm, which is the middle West of 348 00:19:29,280 --> 00:19:32,240 Speaker 1: this nation, and right now that is in the heartland 349 00:19:32,320 --> 00:19:35,800 Speaker 1: of a trade war. Give us the local update from Chicago. 350 00:19:36,280 --> 00:19:38,400 Speaker 1: What we would hear from Charles Evans, what we would 351 00:19:38,440 --> 00:19:41,160 Speaker 1: hear from James Bullard of St. Louis and all their 352 00:19:41,240 --> 00:19:44,760 Speaker 1: good economists. What is the tone of the trade war 353 00:19:44,920 --> 00:19:48,800 Speaker 1: so immediate in our nation's middle West. Well, we are 354 00:19:48,840 --> 00:19:52,880 Speaker 1: seeing the trade wars has taken a toll on manufacturing activity, 355 00:19:52,880 --> 00:19:55,800 Speaker 1: there's no question about it. And the general motor strike 356 00:19:55,840 --> 00:19:58,959 Speaker 1: at an insult to injury to that trade war to manufacturers, 357 00:19:59,160 --> 00:20:03,040 Speaker 1: particularly in Chigan in Indiana. So that really was sort 358 00:20:03,080 --> 00:20:07,080 Speaker 1: of a very hard situation. That said Charlie Evans, has 359 00:20:07,119 --> 00:20:09,280 Speaker 1: already come out and said, listen, we've made a half 360 00:20:09,320 --> 00:20:13,000 Speaker 1: percent cut, and I'm optimistic that you know, that's enough 361 00:20:13,040 --> 00:20:15,200 Speaker 1: for now, and I want to wait and see. So 362 00:20:15,480 --> 00:20:18,639 Speaker 1: it's interesting that there is this ambiguity because they have 363 00:20:18,760 --> 00:20:20,520 Speaker 1: put some stimulus in the system, and what we're going 364 00:20:20,560 --> 00:20:23,280 Speaker 1: to see later today is some of that stimulus paying 365 00:20:23,359 --> 00:20:26,159 Speaker 1: off in terms of strong home sales we have. We 366 00:20:26,200 --> 00:20:28,200 Speaker 1: think we've got enough home sales to carry us out 367 00:20:28,240 --> 00:20:30,320 Speaker 1: through the end of the year. Next year is another issue, 368 00:20:30,400 --> 00:20:33,640 Speaker 1: but this is the first positive quarter for the housing 369 00:20:33,680 --> 00:20:37,400 Speaker 1: market in seven quarters. Just a quick program note. I'm 370 00:20:37,400 --> 00:20:40,040 Speaker 1: pleased to sale speak at length with Mr Evans of 371 00:20:40,119 --> 00:20:43,760 Speaker 1: Chicago in the early November at the Council on Foreign Relations. 372 00:20:43,800 --> 00:20:47,760 Speaker 1: Really looking forward to a lengthy conversation on this moment. 373 00:20:48,040 --> 00:20:51,160 Speaker 1: Diane Swank, you say we've got existing home sales out there, 374 00:20:51,400 --> 00:20:54,320 Speaker 1: and are do we have fiscal space in America? I'm 375 00:20:54,359 --> 00:20:58,399 Speaker 1: looking at trillion dollar deficits. Is swanky economics say we 376 00:20:58,440 --> 00:21:02,120 Speaker 1: have fiscal space? Well, this is one of those hard issues. Um, 377 00:21:02,160 --> 00:21:04,920 Speaker 1: we have fiscal space to make long term investments when 378 00:21:04,920 --> 00:21:07,159 Speaker 1: interest rates are so low that payoff in terms of 379 00:21:07,200 --> 00:21:11,320 Speaker 1: infrastructure investments. We have less fiscal maneuverability should we hit 380 00:21:11,320 --> 00:21:13,840 Speaker 1: a recession, and what we really need is the automatic 381 00:21:13,920 --> 00:21:17,000 Speaker 1: stabilizers to kick in much sooner and not wait for 382 00:21:17,200 --> 00:21:19,520 Speaker 1: things to get so bad that we notice them. That 383 00:21:19,680 --> 00:21:23,400 Speaker 1: Congress then UM has to enact things to extend things 384 00:21:23,480 --> 00:21:26,960 Speaker 1: like unemployment insurance and UM add ons. In fact, we 385 00:21:27,000 --> 00:21:30,360 Speaker 1: have fewer automatic stabilizers, those things that kick in when 386 00:21:30,400 --> 00:21:32,359 Speaker 1: we do have a recession, than we did during the 387 00:21:32,440 --> 00:21:35,919 Speaker 1: last recession, and I think that's really important to acknowledge. 388 00:21:35,960 --> 00:21:38,080 Speaker 1: One of the things people are talking about is using 389 00:21:38,160 --> 00:21:41,600 Speaker 1: something we call the some role, which once the unemployment 390 00:21:41,720 --> 00:21:44,159 Speaker 1: rate goes up by a certain percent, we know we 391 00:21:44,200 --> 00:21:47,119 Speaker 1: actually are in a recession, and instead of waiting for 392 00:21:47,320 --> 00:21:49,880 Speaker 1: it to be declared, there actually to be an automatic 393 00:21:50,320 --> 00:21:52,920 Speaker 1: UM sort of movement to be able to get longer 394 00:21:53,040 --> 00:21:56,600 Speaker 1: term unemployment insurance in this country. John Ira Jersey, publishing 395 00:21:56,680 --> 00:22:00,160 Speaker 1: for Bloomberg Intelligence and our Fixed Income Shop calling get 396 00:22:00,160 --> 00:22:04,520 Speaker 1: a hawk is cut count. This could be the end 397 00:22:04,520 --> 00:22:06,479 Speaker 1: of the mid cycle adjustment. Is that what he's implying? 398 00:22:06,560 --> 00:22:09,000 Speaker 1: I guess that's what are your thoughts on that? Down 399 00:22:09,040 --> 00:22:11,280 Speaker 1: Many people thought that a mid cycle adjustment was just 400 00:22:11,359 --> 00:22:14,199 Speaker 1: seventy five basis points. If we get another one at 401 00:22:14,200 --> 00:22:16,119 Speaker 1: the end of this month, do they then draw a 402 00:22:16,119 --> 00:22:18,359 Speaker 1: line in the sand. I don't think they draw a 403 00:22:18,400 --> 00:22:20,159 Speaker 1: line in the sand. I don't think they know. What 404 00:22:20,440 --> 00:22:23,560 Speaker 1: stuns me is my own uncertainty about what's going to happen. 405 00:22:23,680 --> 00:22:26,160 Speaker 1: I think a lot of things are contingent on how 406 00:22:26,400 --> 00:22:29,280 Speaker 1: the global economy is in global uncertainty, everything from Brexit 407 00:22:29,400 --> 00:22:32,840 Speaker 1: still unknown this close to the October one. We think 408 00:22:32,840 --> 00:22:35,320 Speaker 1: it's an extend and pretend and trying to, you know, 409 00:22:35,359 --> 00:22:38,040 Speaker 1: get an extension for the UK. But all of these 410 00:22:38,040 --> 00:22:41,560 Speaker 1: things are factoring into now the said's decision making, and 411 00:22:41,640 --> 00:22:43,960 Speaker 1: there is a bit of a strategy of how soon 412 00:22:43,960 --> 00:22:45,600 Speaker 1: do you cut when you know you may need to 413 00:22:45,680 --> 00:22:47,800 Speaker 1: cut later on, and try to be a beacon of 414 00:22:47,880 --> 00:22:50,720 Speaker 1: certainty in a sea of uncertainty. And I think that's 415 00:22:50,720 --> 00:22:53,159 Speaker 1: a very difficult decision for the FED to make. And 416 00:22:53,160 --> 00:22:55,639 Speaker 1: there's more people pushing back making a cut at this 417 00:22:55,720 --> 00:22:58,280 Speaker 1: particular meeting than there were the last two. And we've 418 00:22:58,320 --> 00:23:01,120 Speaker 1: already had a lot of ends going into the last 419 00:23:01,119 --> 00:23:03,920 Speaker 1: two cuts. And final question, the p M ice, the 420 00:23:04,280 --> 00:23:07,480 Speaker 1: m numbers worried people in the last month the market 421 00:23:07,600 --> 00:23:09,520 Speaker 1: p M I s your thoughts and what we may 422 00:23:09,600 --> 00:23:11,199 Speaker 1: or may not get this Thursday, and whether you can 423 00:23:11,240 --> 00:23:15,160 Speaker 1: take any comfort discomfort from the levels we're currently at. 424 00:23:16,000 --> 00:23:18,679 Speaker 1: I think what we're seeing is the added pressure of 425 00:23:18,680 --> 00:23:21,520 Speaker 1: the GM strike exacerbating those losses. We also saw that 426 00:23:21,560 --> 00:23:23,480 Speaker 1: in the industrial production numbers, and that's not going to 427 00:23:23,560 --> 00:23:26,360 Speaker 1: go away anytime soon. They're not back with the production 428 00:23:26,520 --> 00:23:29,240 Speaker 1: up and running again. They haven't rapid yet, So all 429 00:23:29,280 --> 00:23:31,240 Speaker 1: of this is still going to be weighing on us. 430 00:23:31,359 --> 00:23:33,639 Speaker 1: And it's noise and the SID should look through some 431 00:23:33,720 --> 00:23:36,160 Speaker 1: of it, but it's hard to delineate that from what's 432 00:23:36,160 --> 00:23:38,400 Speaker 1: going on in the trade war. And I think what's 433 00:23:38,400 --> 00:23:40,480 Speaker 1: important about all of these p m I s that 434 00:23:40,560 --> 00:23:42,960 Speaker 1: are coming out is that it is showing a slowdown. 435 00:23:43,000 --> 00:23:45,440 Speaker 1: We will see a slowdown later this week. That's confirmed. 436 00:23:45,880 --> 00:23:48,680 Speaker 1: Is a half percent enough to deal with that slowdown 437 00:23:48,720 --> 00:23:50,560 Speaker 1: from the subtle reserve? That's how much they have these 438 00:23:50,600 --> 00:23:54,040 Speaker 1: and cut rates this year. Nobody knows. We're in unchartered waters, 439 00:23:54,080 --> 00:23:55,840 Speaker 1: and people saying that said doesn't have a book to 440 00:23:55,920 --> 00:23:58,720 Speaker 1: look at how to do intergrate cuts right now. There 441 00:23:58,800 --> 00:24:01,199 Speaker 1: is no precedence for We're We're at Dianne's grab a 442 00:24:01,200 --> 00:24:20,680 Speaker 1: cat Sun that it has been far, far too long 443 00:24:21,600 --> 00:24:24,800 Speaker 1: since we spoke with Sarah Senator of san Fandci Bernstein 444 00:24:24,960 --> 00:24:29,040 Speaker 1: and Company to say she's a senior research analysis barely 445 00:24:29,119 --> 00:24:33,359 Speaker 1: describes paul Her ability to test the fast food that 446 00:24:33,440 --> 00:24:36,680 Speaker 1: we eat worldwide. She goes from store to store, from 447 00:24:36,880 --> 00:24:41,160 Speaker 1: franchise to franchise, trying them all. Sarah, you were brilliant 448 00:24:41,160 --> 00:24:44,639 Speaker 1: on McDonald's. The one guy came in. He resurrected a 449 00:24:44,720 --> 00:24:49,000 Speaker 1: troubled blue chip, and the persistency of performance at McDonald's 450 00:24:49,040 --> 00:24:53,520 Speaker 1: has been extraordinary, seventeen point five percent shareholder return per 451 00:24:53,600 --> 00:24:57,520 Speaker 1: year for the last decade. Is it finally enough? I mean, 452 00:24:57,640 --> 00:25:02,280 Speaker 1: is this shortfall a blip or is it something more structural? 453 00:25:03,359 --> 00:25:06,640 Speaker 1: I think, um, you know, I think candidly, the company 454 00:25:06,680 --> 00:25:08,480 Speaker 1: told us they were going to invest this year and 455 00:25:08,520 --> 00:25:10,960 Speaker 1: that's what they've done. So if you look at the 456 00:25:11,280 --> 00:25:15,600 Speaker 1: same store sales, which is the hallmark of a of 457 00:25:15,640 --> 00:25:18,679 Speaker 1: a good restaurant company, is strong consistent same store sales, 458 00:25:18,720 --> 00:25:22,240 Speaker 1: they have that, um, you know, in particular in some 459 00:25:22,359 --> 00:25:25,639 Speaker 1: of the international market it's really impressive. But even in 460 00:25:25,680 --> 00:25:28,919 Speaker 1: the US almost five percent same store sales. So I 461 00:25:28,960 --> 00:25:32,000 Speaker 1: wouldn't call this a blip so much as you know, 462 00:25:32,720 --> 00:25:35,720 Speaker 1: a decision to reinvest any upside that they might have 463 00:25:35,760 --> 00:25:38,000 Speaker 1: gotten back into the business. And that's why you know, 464 00:25:38,080 --> 00:25:41,280 Speaker 1: G and A was was higher than than we expected 465 00:25:41,400 --> 00:25:43,480 Speaker 1: or than they had maybe guided to. And I think 466 00:25:43,520 --> 00:25:46,960 Speaker 1: that that is a reflection on it's just the technology 467 00:25:46,960 --> 00:25:49,560 Speaker 1: in particular the needs of the business that have changed 468 00:25:49,600 --> 00:25:52,120 Speaker 1: so much for the whole industry in just the last 469 00:25:52,160 --> 00:25:54,840 Speaker 1: couple of years. So it gives a sense of the 470 00:25:54,880 --> 00:25:57,800 Speaker 1: competitive landscape we think about the fast food business is 471 00:25:57,880 --> 00:26:01,159 Speaker 1: just so so competitive, and terms of store openings, in 472 00:26:01,240 --> 00:26:04,920 Speaker 1: terms of pricing, in terms of promotion, where's McDonald's here, 473 00:26:06,240 --> 00:26:09,080 Speaker 1: You're right, and and that's always been the case. I mean, uh, 474 00:26:09,119 --> 00:26:13,080 Speaker 1: you know, McDonald's has the advantage of being huge. Um 475 00:26:13,119 --> 00:26:15,960 Speaker 1: it's you know, it's system is is three or four 476 00:26:16,000 --> 00:26:19,399 Speaker 1: times out of the next biggest burger um system. So 477 00:26:19,800 --> 00:26:23,280 Speaker 1: you know that all plays to the to the importance 478 00:26:23,320 --> 00:26:25,960 Speaker 1: of value and investments in all of these things. But 479 00:26:26,000 --> 00:26:28,080 Speaker 1: there's no question, I mean, you know, you've got to 480 00:26:28,119 --> 00:26:29,919 Speaker 1: be on your game day in and day out in 481 00:26:29,920 --> 00:26:34,800 Speaker 1: this business, sir. I'm trying to be responsible. I've been 482 00:26:34,840 --> 00:26:37,280 Speaker 1: advised to be responsible. I just don't look that good 483 00:26:37,320 --> 00:26:41,359 Speaker 1: on radio, and the cheese burgers three hundred calories. The 484 00:26:41,400 --> 00:26:45,399 Speaker 1: Paul Sweeney double quarter pounder with cheese is seven hundred 485 00:26:45,520 --> 00:26:50,719 Speaker 1: eighty calories as well. Is nutrition in the New American nutrition? 486 00:26:50,920 --> 00:26:54,680 Speaker 1: Is it affecting their financials or is it just sort 487 00:26:54,720 --> 00:26:58,159 Speaker 1: of there and they really don't matter, you know, I 488 00:26:58,200 --> 00:27:01,680 Speaker 1: mean people I think in get hit on it um 489 00:27:01,800 --> 00:27:07,120 Speaker 1: right now. It's just that you know, you're being responsible. 490 00:27:07,200 --> 00:27:10,600 Speaker 1: But also there's a sandwich there that's seven d eighty 491 00:27:10,600 --> 00:27:13,320 Speaker 1: calories and you know what, it's delicious. So what we 492 00:27:13,400 --> 00:27:16,840 Speaker 1: have found is that people who go out want things 493 00:27:16,840 --> 00:27:20,359 Speaker 1: that are more indulgent. I mean, there's no question you eat, yeah, 494 00:27:20,400 --> 00:27:23,360 Speaker 1: you can eat um. You know, you can eat well 495 00:27:23,400 --> 00:27:26,840 Speaker 1: if you want, you can make responsible choices. But when 496 00:27:26,840 --> 00:27:29,000 Speaker 1: people go to eat, they want things that taste good. 497 00:27:29,320 --> 00:27:32,960 Speaker 1: Really surveillance correction. I forgot to mention that when I 498 00:27:33,000 --> 00:27:35,920 Speaker 1: have a three hundred calorie cheeseburger, I have three of them. 499 00:27:38,200 --> 00:27:43,359 Speaker 1: Sarah gives a sense of international growth. Where is McDonald 500 00:27:43,520 --> 00:27:46,800 Speaker 1: seeing growth in terms of stores outside of the US 501 00:27:46,960 --> 00:27:51,280 Speaker 1: right now? Yeah, you know it's it's in the countries 502 00:27:51,320 --> 00:27:54,240 Speaker 1: that you would expect, you know, faster growing economies more 503 00:27:54,480 --> 00:27:56,960 Speaker 1: developing economies or where you are seeing some of the 504 00:27:57,040 --> 00:27:59,320 Speaker 1: faster rates of growth. You know, China is a good 505 00:27:59,359 --> 00:28:02,800 Speaker 1: example of that. UM and certainly that's you know, that 506 00:28:02,920 --> 00:28:06,320 Speaker 1: is the UH, that's the segment that had the highest 507 00:28:06,359 --> 00:28:11,040 Speaker 1: comps so UH international development the licensees, those are mostly 508 00:28:11,080 --> 00:28:14,320 Speaker 1: emerging markets and they're comping eight point one. They're also 509 00:28:14,359 --> 00:28:16,760 Speaker 1: seeing the best store growth. But there's some growth in 510 00:28:17,119 --> 00:28:20,080 Speaker 1: more developed markets to you know, in Western Europe. I 511 00:28:20,080 --> 00:28:23,240 Speaker 1: mean you look at a country like the UK, which 512 00:28:23,240 --> 00:28:26,200 Speaker 1: has put up now over fifty quarters of positive same 513 00:28:26,240 --> 00:28:30,160 Speaker 1: store sales. Yeah, that's hardly a you know, an economy 514 00:28:30,200 --> 00:28:33,199 Speaker 1: that people would characterize as you know, fast growing. And 515 00:28:33,280 --> 00:28:36,560 Speaker 1: yet McDonald's has managed to do quite well there with 516 00:28:36,760 --> 00:28:40,440 Speaker 1: both same store sales and UH and store growth. How 517 00:28:40,440 --> 00:28:44,280 Speaker 1: about the breakfast market. I heard or saw that Wendy's 518 00:28:44,440 --> 00:28:47,640 Speaker 1: is now getting I guess back into breakfast and that's 519 00:28:47,640 --> 00:28:51,600 Speaker 1: been an area that's really been McDonald's stronghold. Yes, for sure. 520 00:28:51,680 --> 00:28:53,760 Speaker 1: And to your point, Wendy's is trying to get back 521 00:28:53,760 --> 00:28:56,960 Speaker 1: into breakfast. It will be the fourth time they've tried. UM. 522 00:28:57,080 --> 00:28:59,400 Speaker 1: So you know, I think we are all sort of 523 00:28:59,720 --> 00:29:03,200 Speaker 1: a whole holding judgment to see what exactly it looks 524 00:29:03,240 --> 00:29:06,080 Speaker 1: like this time and whether it's it's different this time around. 525 00:29:06,640 --> 00:29:09,520 Speaker 1: McDonald's has a great breakfast business. It's you know, we 526 00:29:09,560 --> 00:29:11,480 Speaker 1: think it's about a quarter of their sales, but we 527 00:29:11,520 --> 00:29:14,840 Speaker 1: think it's probably those of their profits. You know, it's 528 00:29:14,960 --> 00:29:19,200 Speaker 1: it can be very profitable to sell egg sandwiches. Don't 529 00:29:19,200 --> 00:29:21,640 Speaker 1: be a stranger, Sarah Senator, thank you so much. Of course, 530 00:29:21,640 --> 00:29:25,120 Speaker 1: award winning with Sanford Bernstein just wonderful, and so many 531 00:29:25,120 --> 00:29:28,200 Speaker 1: other things having to do how we eat as well. 532 00:29:28,240 --> 00:29:29,800 Speaker 1: We'll have to get her in here. Particularly need an 533 00:29:29,840 --> 00:29:33,200 Speaker 1: update on Chipolt. They pulled Sweeney with with I mean 534 00:29:33,240 --> 00:29:35,320 Speaker 1: they used to. I don't know if they're doing now. 535 00:29:35,440 --> 00:29:38,840 Speaker 1: They search Margarita's and McDonald's does a kid, No Margarite 536 00:29:38,880 --> 00:29:42,560 Speaker 1: is there. Thanks for listening to the Bloomberg Surveillance podcast. 537 00:29:42,920 --> 00:29:47,840 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 538 00:29:48,000 --> 00:29:52,320 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 539 00:29:52,400 --> 00:29:56,240 Speaker 1: Keane before the podcast. You can always catch us worldwide. 540 00:29:56,760 --> 00:30:01,080 Speaker 1: I'm Bloomberg Radio All