1 00:00:05,800 --> 00:00:08,360 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim 2 00:00:08,440 --> 00:00:11,160 Speaker 1: Fox along with my co host Lisa A. Brahmowitz. Each 3 00:00:11,280 --> 00:00:14,440 Speaker 1: day we bring you the most important, noteworthy and useful 4 00:00:14,480 --> 00:00:17,079 Speaker 1: interviews for you and your money, whether you're at the 5 00:00:17,120 --> 00:00:20,360 Speaker 1: grocery store or the trading floor. Find the Bloomberg P 6 00:00:20,520 --> 00:00:27,760 Speaker 1: and L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 7 00:00:28,000 --> 00:00:31,400 Speaker 1: wine has been the topic of a presidential tweet. It 8 00:00:31,480 --> 00:00:34,440 Speaker 1: is also a topic of discussion among those who look 9 00:00:34,520 --> 00:00:39,280 Speaker 1: for alternative investments. Tom Gearing is managing director and co 10 00:00:39,479 --> 00:00:42,760 Speaker 1: founder of Cult Wines based in London, but he joins 11 00:00:42,840 --> 00:00:46,239 Speaker 1: us here in our Bloomberg Interactor Broker Studios. Tom, thank 12 00:00:46,280 --> 00:00:49,680 Speaker 1: you very much for being here. What is Cult Wines? 13 00:00:49,760 --> 00:00:53,480 Speaker 1: What is your business? Psycholt Wines is a wine investment company, 14 00:00:53,520 --> 00:00:57,040 Speaker 1: specifically so with different traditional merchant or a wine breaker 15 00:00:57,080 --> 00:00:59,360 Speaker 1: on a wine auction house. All we all sets up 16 00:00:59,400 --> 00:01:02,360 Speaker 1: completely to deal with private clients all over the world 17 00:01:02,480 --> 00:01:04,760 Speaker 1: and to build up fine wine collections for the sole 18 00:01:04,800 --> 00:01:08,760 Speaker 1: purpose of capital appreciations, so buying physical cases of wine, 19 00:01:08,800 --> 00:01:12,039 Speaker 1: bottles of wine, storing those wines, ensuring them, managing them 20 00:01:12,040 --> 00:01:15,280 Speaker 1: on behalf of the clients providing daily valuations for online 21 00:01:15,319 --> 00:01:18,360 Speaker 1: platform and then reselling the wines and advising them throughout 22 00:01:18,400 --> 00:01:21,280 Speaker 1: that life cycle for investment purposes. It is not to 23 00:01:21,280 --> 00:01:23,399 Speaker 1: be drunk in the future. This is to be purchased 24 00:01:23,400 --> 00:01:26,319 Speaker 1: and resold as a profit for our clients to benefit 25 00:01:26,360 --> 00:01:30,200 Speaker 1: their over investment portfolio. Now I understand that you got 26 00:01:30,280 --> 00:01:33,120 Speaker 1: involved in this in a big way before you could 27 00:01:33,200 --> 00:01:39,160 Speaker 1: legally consume any wine. At the age of thirteen, you 28 00:01:39,680 --> 00:01:46,560 Speaker 1: started a twelve bottle case of Domain Romani Romani CONTI right, 29 00:01:46,640 --> 00:01:52,720 Speaker 1: this is a very worthwhile and prestigious wine. What did 30 00:01:52,760 --> 00:01:56,000 Speaker 1: you discover about it? So? I was very fortunate when 31 00:01:56,000 --> 00:01:57,840 Speaker 1: I was growing up. My father was actually an investment 32 00:01:57,840 --> 00:02:00,600 Speaker 1: banking but it was a massive wine collective, very about wine, 33 00:02:00,600 --> 00:02:02,680 Speaker 1: So I grew up around wine. I think the first 34 00:02:02,720 --> 00:02:04,360 Speaker 1: time I even tasted wine was about eleven when I 35 00:02:04,440 --> 00:02:06,760 Speaker 1: was taken to Burgundy with my father. UM. So he 36 00:02:06,840 --> 00:02:08,400 Speaker 1: bought a lot of wine at auction. This is actually 37 00:02:08,400 --> 00:02:10,240 Speaker 1: a really salient point in terms of what we do 38 00:02:10,280 --> 00:02:12,480 Speaker 1: as a business. Um and he bought a case of 39 00:02:12,520 --> 00:02:16,440 Speaker 1: the main Romny County Romani qunt original wooden casing. Now, 40 00:02:16,480 --> 00:02:18,840 Speaker 1: if anyone knows a lot about wine, these particular bottles. 41 00:02:18,840 --> 00:02:20,680 Speaker 1: They're producing very small quantity, but they come with almost 42 00:02:20,720 --> 00:02:23,440 Speaker 1: like a serial number, So they have numbers on the front, 43 00:02:23,480 --> 00:02:26,200 Speaker 1: which obviously detailed which bottle number it is. Um So 44 00:02:26,280 --> 00:02:28,240 Speaker 1: if you're buying an original case of six bottles, if 45 00:02:28,280 --> 00:02:30,040 Speaker 1: it had never been tampered with, never been open, it 46 00:02:30,080 --> 00:02:33,320 Speaker 1: was the original six bottles, they should be the same 47 00:02:33,360 --> 00:02:36,200 Speaker 1: consecutive numbers. So whatever they number, they are in a series, 48 00:02:36,240 --> 00:02:38,760 Speaker 1: they should be consecutive. So one, two, three, four, five six. 49 00:02:39,000 --> 00:02:40,640 Speaker 1: When we got the case home, I opened it up. 50 00:02:40,680 --> 00:02:43,680 Speaker 1: We were inspecting the bottles, taking photos, condition checking the wines, 51 00:02:44,000 --> 00:02:46,160 Speaker 1: and we found out that the bottom layer of the case, 52 00:02:46,200 --> 00:02:48,560 Speaker 1: to the bottom six bottles, when we looked at it, 53 00:02:48,800 --> 00:02:52,720 Speaker 1: the numbers were not consecutives. They were inconsequential. So what 54 00:02:52,840 --> 00:02:55,040 Speaker 1: that means is at some point in time, someone had 55 00:02:55,040 --> 00:02:57,160 Speaker 1: opened that case and replaced them. So immediately you think 56 00:02:57,200 --> 00:03:00,320 Speaker 1: to yourself, are these wines Counterfeit is their potential some 57 00:03:00,360 --> 00:03:02,799 Speaker 1: forgent activity going on, because there's no way that these 58 00:03:02,800 --> 00:03:04,840 Speaker 1: wines shouldn't be in that order. And the reason I 59 00:03:04,880 --> 00:03:06,680 Speaker 1: say that's a salient point for what we do now 60 00:03:06,720 --> 00:03:08,799 Speaker 1: as a company is that we now manage over a 61 00:03:08,880 --> 00:03:11,320 Speaker 1: hundred twenty million dollars of wine on behalf our clients 62 00:03:11,320 --> 00:03:13,960 Speaker 1: and actually making sure that our clients are protected from 63 00:03:14,000 --> 00:03:18,720 Speaker 1: any potential for forging activity counterfeit bottling is essential because 64 00:03:18,760 --> 00:03:20,880 Speaker 1: if you're buying wine for the purpose of reselling to 65 00:03:20,960 --> 00:03:23,320 Speaker 1: make a profit, you need to make sure that you're 66 00:03:23,360 --> 00:03:25,560 Speaker 1: selling wines that are authentic. And this has been a 67 00:03:25,840 --> 00:03:27,560 Speaker 1: big problem in the wine and she over the last 68 00:03:27,560 --> 00:03:29,800 Speaker 1: ten to fifteen years. So that was obviously a very 69 00:03:29,919 --> 00:03:32,280 Speaker 1: early experience in my in my career, and I wouldn't 70 00:03:32,280 --> 00:03:33,520 Speaker 1: even say it was a career at that time. I 71 00:03:33,560 --> 00:03:35,680 Speaker 1: was just thirteen years of age, but it really has 72 00:03:35,720 --> 00:03:37,320 Speaker 1: stayed with me and it's something that we hold very 73 00:03:37,320 --> 00:03:40,600 Speaker 1: dear to ourselves now being a professional wine investment company 74 00:03:40,680 --> 00:03:43,000 Speaker 1: advising private clients all over the world. All right, now, 75 00:03:43,040 --> 00:03:45,680 Speaker 1: I'm going to put you on the Twitter spot because 76 00:03:45,840 --> 00:03:50,720 Speaker 1: earlier today President Donald Trump said, quote, France makes excellent wine, 77 00:03:50,720 --> 00:03:53,360 Speaker 1: but so does the United States. The problem is that 78 00:03:53,440 --> 00:03:55,880 Speaker 1: France makes it very hard for the US to sell 79 00:03:55,920 --> 00:03:59,560 Speaker 1: its wines into France and charges big tariffs, whereas the 80 00:03:59,680 --> 00:04:03,960 Speaker 1: US makes it easy for French wines and charges very 81 00:04:04,000 --> 00:04:08,960 Speaker 1: small tariffs. Not fair. Must change is that accurate. Well, 82 00:04:09,080 --> 00:04:11,360 Speaker 1: let's let's start the accuracy, because often there's not a 83 00:04:11,400 --> 00:04:12,920 Speaker 1: lot of them with Donald Trump. So they actually are 84 00:04:12,960 --> 00:04:15,120 Speaker 1: that French wine and US wines are excellent. So he's 85 00:04:15,120 --> 00:04:17,599 Speaker 1: correct with that point. What he's inaccurate about is the 86 00:04:17,600 --> 00:04:20,279 Speaker 1: fact that in France the domestic French mark, but the 87 00:04:20,320 --> 00:04:23,880 Speaker 1: domestic market in France for consumption wine is almost entirely French. 88 00:04:24,360 --> 00:04:27,800 Speaker 1: I mean, if you're Italian wine producer, Australian New Zealand, 89 00:04:27,800 --> 00:04:31,000 Speaker 1: they sell very little wine in the domestic market. In fact, 90 00:04:31,120 --> 00:04:34,720 Speaker 1: I travel extensively in France. When I'm in Bordeaux, trying 91 00:04:34,720 --> 00:04:37,640 Speaker 1: to get someone in Bordeaux to drink of Burgundy is impossible. 92 00:04:37,839 --> 00:04:39,400 Speaker 1: You know, if you go to Bordeaux, all the wine 93 00:04:39,400 --> 00:04:42,680 Speaker 1: shops have a hundred percent Bordeaux. So in France it's 94 00:04:42,720 --> 00:04:44,599 Speaker 1: difficult to people get to get people to drink outside 95 00:04:44,640 --> 00:04:47,320 Speaker 1: their own region, let alone their own country. So the 96 00:04:47,480 --> 00:04:50,080 Speaker 1: terrorists that he's talking about is absolute nonsense in my opinion. 97 00:04:50,160 --> 00:04:53,160 Speaker 1: I mean having you know, if Californian wine had zero 98 00:04:53,240 --> 00:04:56,120 Speaker 1: import taxes to ship to export into France, it would 99 00:04:56,160 --> 00:04:58,440 Speaker 1: make zero difference to whether someone in France would buy 100 00:04:58,520 --> 00:05:01,400 Speaker 1: and consume Californian lines. And also the other thing to 101 00:05:01,440 --> 00:05:02,920 Speaker 1: imagine is, you know, you go to a lot of 102 00:05:02,960 --> 00:05:06,200 Speaker 1: these rural agricultural areas of France and outside the more 103 00:05:06,279 --> 00:05:09,040 Speaker 1: prestigious border Burgundy, but paces um, you know, in the 104 00:05:09,120 --> 00:05:11,680 Speaker 1: land without province, whatever it might be, people can go 105 00:05:11,839 --> 00:05:14,760 Speaker 1: to the local cooperative, the local cooperative and they can 106 00:05:14,839 --> 00:05:17,840 Speaker 1: get a gallon of wine for like two euros. So 107 00:05:18,160 --> 00:05:20,280 Speaker 1: those type of individuals are never going to suddenly start 108 00:05:20,320 --> 00:05:22,960 Speaker 1: buying American wine just because there's no tariffs on it. 109 00:05:23,080 --> 00:05:25,360 Speaker 1: So it's really an economies of scale. So for me, 110 00:05:25,520 --> 00:05:27,080 Speaker 1: I would look at this tweet and say, it's put 111 00:05:27,120 --> 00:05:30,120 Speaker 1: political posturing. You know, this is nothing more than obviously 112 00:05:30,279 --> 00:05:32,279 Speaker 1: something that's come up between Trump and Macron, and he's 113 00:05:32,320 --> 00:05:34,360 Speaker 1: using it as a way to you know, you know, 114 00:05:34,440 --> 00:05:36,960 Speaker 1: negotiate or bargain with with the French president. But I 115 00:05:37,040 --> 00:05:39,720 Speaker 1: think in the actual real economy of wine, it would 116 00:05:39,720 --> 00:05:42,040 Speaker 1: make zero difference in my opinion. It also seems as 117 00:05:42,080 --> 00:05:44,599 Speaker 1: though there are a lot of idiosyncrasies when it comes 118 00:05:44,680 --> 00:05:48,000 Speaker 1: to the wine and alcohol trade because of course, in 119 00:05:48,040 --> 00:05:52,280 Speaker 1: the United States you have state boundaries that limit what 120 00:05:52,560 --> 00:05:58,440 Speaker 1: cannon cannot be sold and transported across state lines the 121 00:05:58,720 --> 00:06:01,279 Speaker 1: when you gave the idea it all right in France, 122 00:06:01,960 --> 00:06:04,960 Speaker 1: the domestic market is so domestic that it would be 123 00:06:05,080 --> 00:06:08,400 Speaker 1: like an American saying I will not drink a wine 124 00:06:08,440 --> 00:06:11,039 Speaker 1: that comes from the state of Oregon. I will only 125 00:06:11,120 --> 00:06:15,200 Speaker 1: drink wine that comes from Nappa. Right. That's the kind 126 00:06:15,240 --> 00:06:18,440 Speaker 1: of connection it is there, really is like that. Are 127 00:06:18,800 --> 00:06:22,200 Speaker 1: there a preponderance of French wines when it comes to 128 00:06:22,320 --> 00:06:26,720 Speaker 1: this cult wine business or is it's starting to expand 129 00:06:26,800 --> 00:06:30,920 Speaker 1: to include American labels for example? Very very good question. 130 00:06:30,960 --> 00:06:32,880 Speaker 1: If you're looking at the investment market for fine wine, 131 00:06:32,920 --> 00:06:34,479 Speaker 1: you know, you're very You're talking about probably one percent 132 00:06:34,520 --> 00:06:37,400 Speaker 1: of all wine produced would be categorized to say investment grade, 133 00:06:37,640 --> 00:06:40,279 Speaker 1: and that markets worth about five billion dollars a year. Now, 134 00:06:40,320 --> 00:06:42,080 Speaker 1: if you look at say our assets under management, our 135 00:06:42,120 --> 00:06:46,440 Speaker 1: hundred twenty million dollars around it is in Bordeaux, about 136 00:06:47,440 --> 00:06:49,560 Speaker 1: in Burgundy, so really France and then obvious you've got 137 00:06:49,600 --> 00:06:53,600 Speaker 1: paces like Champagne, etcetera. So France is probably around of 138 00:06:53,640 --> 00:06:55,880 Speaker 1: our total a u M. Outside of that we have 139 00:06:56,160 --> 00:07:00,920 Speaker 1: US is our next biggest regional you know, breakdown within 140 00:07:00,960 --> 00:07:04,520 Speaker 1: our portfolio Italian wines and then New World regions like Australia, 141 00:07:05,279 --> 00:07:08,440 Speaker 1: New Zealand and and and even South America, but Californian 142 00:07:08,480 --> 00:07:11,160 Speaker 1: wines in particular, some of the NAPPA producers have been 143 00:07:11,320 --> 00:07:14,040 Speaker 1: excellent for investment purposes. You know, some of the top 144 00:07:14,160 --> 00:07:17,040 Speaker 1: wines have made fantastic returns for clients over thinking of 145 00:07:17,160 --> 00:07:20,280 Speaker 1: Screaming for example, absolutely, I mean Screaming. It was a 146 00:07:20,400 --> 00:07:22,640 Speaker 1: very tough wine to to source and acquire. Obviously it's 147 00:07:22,680 --> 00:07:24,640 Speaker 1: producing very small quanties. But you're right, you know, if 148 00:07:24,680 --> 00:07:26,320 Speaker 1: you were on that waiting list and you get those 149 00:07:26,320 --> 00:07:28,720 Speaker 1: wines allocated to you, you're almost guaranteed to make a 150 00:07:28,960 --> 00:07:31,240 Speaker 1: profit if you resell those wines, because you're getting them 151 00:07:31,280 --> 00:07:33,880 Speaker 1: as such a great price. There's such little quantity available 152 00:07:33,920 --> 00:07:36,120 Speaker 1: that when you resell, you're almost guaranteed to make a 153 00:07:36,160 --> 00:07:38,160 Speaker 1: good return. But if you're looking outside of that, you've 154 00:07:38,160 --> 00:07:40,880 Speaker 1: got some up and coming producers. Obviously some more well 155 00:07:40,960 --> 00:07:43,160 Speaker 1: known ones that opuswan Dominus that have done very well. 156 00:07:43,240 --> 00:07:45,240 Speaker 1: So I think the Californian wine wine market from an 157 00:07:45,240 --> 00:07:48,080 Speaker 1: investment perspective is is very strong and growing. Should I 158 00:07:48,360 --> 00:07:51,600 Speaker 1: give you twenty seconds, Should I be concerned that I 159 00:07:51,760 --> 00:07:55,200 Speaker 1: like screwed up bottles? Not? Not at all I mean, 160 00:07:55,280 --> 00:07:56,880 Speaker 1: I think, I think in the next twenty years we 161 00:07:56,960 --> 00:07:58,720 Speaker 1: might see a change in the industry. But it's just 162 00:07:58,840 --> 00:08:01,600 Speaker 1: not enough scientific and back vintages of wines that are 163 00:08:01,640 --> 00:08:04,200 Speaker 1: being produced in screwcaps and really show whether they all 164 00:08:04,560 --> 00:08:07,880 Speaker 1: have any real differences to to to cool closures. Well done, 165 00:08:08,000 --> 00:08:10,880 Speaker 1: Thanks very much for being with us. Tom Gearing, he 166 00:08:11,080 --> 00:08:15,120 Speaker 1: is managing director co founder of Cult Wines. Cheers to 167 00:08:15,160 --> 00:08:21,880 Speaker 1: you and many thanks for being here. A bucket of salt, 168 00:08:22,520 --> 00:08:25,840 Speaker 1: A bucket of salt. Those are the words used by 169 00:08:25,880 --> 00:08:32,720 Speaker 1: a witness to the EU negotiator Chief Brexit negotiator Michelle Barnyer. 170 00:08:33,080 --> 00:08:36,520 Speaker 1: He was speaking to European ministers. One witness said that 171 00:08:36,840 --> 00:08:40,800 Speaker 1: Barnyer said the parameters of a possible Brexit agreement are 172 00:08:41,000 --> 00:08:46,120 Speaker 1: very largely defined, but the witness then said it was 173 00:08:46,200 --> 00:08:49,079 Speaker 1: should all be taken with a bucket of salt. Well, 174 00:08:49,280 --> 00:08:52,479 Speaker 1: maybe he's got his own bucket of salt. David Danny Blancheflower, 175 00:08:52,559 --> 00:08:57,360 Speaker 1: Professor of Economics, Dartmouth College, Hanover, New Hampshire, can be 176 00:08:57,480 --> 00:09:02,000 Speaker 1: followed on Twitter at d underscore blanch Flower joins us Now, 177 00:09:02,320 --> 00:09:06,120 Speaker 1: Danny blanch Flower, how big is your bucket of salt? Well? 178 00:09:06,720 --> 00:09:12,000 Speaker 1: A pinch of salt seems obviously seems an exaggeration. We're 179 00:09:12,080 --> 00:09:16,319 Speaker 1: two years in when the UK government needs to get 180 00:09:16,480 --> 00:09:20,520 Speaker 1: some kind of deal done, particularly before a European Council 181 00:09:20,640 --> 00:09:25,000 Speaker 1: meeting of November twenty five. Um, and Brexit supposedly is 182 00:09:25,000 --> 00:09:28,480 Speaker 1: going to happen March next year, certainly doesn't look like it. 183 00:09:28,600 --> 00:09:32,040 Speaker 1: The bucket of salt suggests that, um, there's nowhere near 184 00:09:32,080 --> 00:09:33,680 Speaker 1: to doing that. And you and I have talked about 185 00:09:33,679 --> 00:09:37,400 Speaker 1: this several times. The Northern Ireland problem seems to be 186 00:09:38,000 --> 00:09:40,000 Speaker 1: a large one. And I was in the UK last 187 00:09:40,040 --> 00:09:42,640 Speaker 1: week and great fund was being made of a speech 188 00:09:43,000 --> 00:09:46,079 Speaker 1: made by Dominick Rabb, the Brexit secretary, who appeared to 189 00:09:46,360 --> 00:09:50,840 Speaker 1: have just realized that Britain was an island, which which 190 00:09:51,120 --> 00:09:54,280 Speaker 1: which meant that trade deals and over the ports were 191 00:09:54,320 --> 00:09:57,280 Speaker 1: really important. So I think we're a long way away 192 00:09:57,480 --> 00:10:01,520 Speaker 1: from any kind of deal. May is in trouble, but 193 00:10:01,679 --> 00:10:03,600 Speaker 1: it doesn't really look like within the party there are 194 00:10:03,640 --> 00:10:07,880 Speaker 1: alternatives and outside the party. So this is buckets assault 195 00:10:07,960 --> 00:10:11,480 Speaker 1: being rubbed in the wound. Um, and we're nowhere near 196 00:10:11,559 --> 00:10:14,120 Speaker 1: a deal and maybe no deal at all is what 197 00:10:14,280 --> 00:10:17,480 Speaker 1: will happen. Well done, Danny Blanche Flower. I like the 198 00:10:17,600 --> 00:10:21,360 Speaker 1: connections there. I mean I think maybe Mr Rabs should 199 00:10:21,400 --> 00:10:25,080 Speaker 1: probably Minister Rabs should probably read a little Wadsworth. Maybe 200 00:10:25,160 --> 00:10:29,840 Speaker 1: that will help him understand the disposition of the United Kingdom. No, no, exactly, 201 00:10:29,880 --> 00:10:31,640 Speaker 1: We're two years in and I mean literally it was 202 00:10:31,720 --> 00:10:34,360 Speaker 1: all over the TV and the newspapers. He made a 203 00:10:34,440 --> 00:10:37,719 Speaker 1: speech say he don'tly just really realize how important UM 204 00:10:37,840 --> 00:10:39,880 Speaker 1: the port of Dover was and kind of having these 205 00:10:39,960 --> 00:10:43,959 Speaker 1: deals done, and preparations are being made by the UK 206 00:10:44,160 --> 00:10:49,920 Speaker 1: government for no deal, including stockpiling medicines and food, and 207 00:10:50,000 --> 00:10:52,719 Speaker 1: there was even talk that the huge traffic jam which 208 00:10:52,800 --> 00:10:55,160 Speaker 1: was likely to occur at Dover with lots of lorries, 209 00:10:55,200 --> 00:10:57,959 Speaker 1: they would have to buy porter parties because a thirty 210 00:10:58,000 --> 00:11:01,000 Speaker 1: mile jam would mean that, you know, some you have 211 00:11:01,120 --> 00:11:04,400 Speaker 1: to deal with all eventuality. So this obviously looks disastrous. 212 00:11:04,480 --> 00:11:06,839 Speaker 1: But what's interesting I was looking in the ft today 213 00:11:07,120 --> 00:11:11,040 Speaker 1: it doesn't appear that UM polling has actually moved as 214 00:11:11,080 --> 00:11:14,600 Speaker 1: far against the bricks that as you might think. It's 215 00:11:14,640 --> 00:11:16,840 Speaker 1: still pretty close in the polls, and there's big talk 216 00:11:16,920 --> 00:11:20,199 Speaker 1: about having a second referendum, and the reality is that 217 00:11:20,720 --> 00:11:23,040 Speaker 1: the markets are sort of clear on this. The reality 218 00:11:23,120 --> 00:11:26,160 Speaker 1: is it's not absolutely clear, Danny, Well, not to be 219 00:11:26,600 --> 00:11:30,400 Speaker 1: two pros poetic about it. But you know King Richard 220 00:11:30,480 --> 00:11:34,920 Speaker 1: the second Shakespeare Sceptred Aisle and all that. Are the 221 00:11:35,040 --> 00:11:38,480 Speaker 1: British just going to model through or is there a 222 00:11:38,600 --> 00:11:40,880 Speaker 1: real feeling and you were just there, Is there a 223 00:11:41,000 --> 00:11:44,720 Speaker 1: real feeling that things are going to be very different 224 00:11:44,800 --> 00:11:49,439 Speaker 1: a year from now? Well, I certainly think that, um, 225 00:11:51,000 --> 00:11:53,760 Speaker 1: in some sense, people are as he rightly say that 226 00:11:54,160 --> 00:11:57,160 Speaker 1: they're muddling through. But I talked to a number of people, 227 00:11:57,480 --> 00:12:00,160 Speaker 1: including a variety of academics from Europe, who were very 228 00:12:00,520 --> 00:12:04,319 Speaker 1: concerned that sort of racial attacks on them, the sense 229 00:12:04,400 --> 00:12:07,440 Speaker 1: that foreigners shouldn't be there had risen, so that there 230 00:12:07,520 --> 00:12:10,440 Speaker 1: was certainly a sense of that having conversations with people. 231 00:12:10,760 --> 00:12:13,719 Speaker 1: But the Brits will eventually muddel through. But I think 232 00:12:14,200 --> 00:12:16,880 Speaker 1: he is he was saying that in the past that's happened. 233 00:12:17,160 --> 00:12:19,959 Speaker 1: They're just not clear where we are. But I think, 234 00:12:20,000 --> 00:12:24,240 Speaker 1: honestly it's a lack of political alternatives. Um, No one's 235 00:12:24,280 --> 00:12:28,680 Speaker 1: really told an alternative to trying to find some model 236 00:12:28,920 --> 00:12:33,520 Speaker 1: through um outcome. I mean, I guess the classic would 237 00:12:33,559 --> 00:12:37,520 Speaker 1: be whatever happens, declare victory, withdraw and pretty much go 238 00:12:37,720 --> 00:12:40,520 Speaker 1: back to a to a situation pretty much like now, 239 00:12:41,000 --> 00:12:44,079 Speaker 1: and and the basically the transition period will be a 240 00:12:44,120 --> 00:12:46,520 Speaker 1: really long time and a new government that comes in 241 00:12:46,960 --> 00:12:49,199 Speaker 1: can actually change all of that and go back to 242 00:12:49,240 --> 00:12:52,079 Speaker 1: where we were. So I think buying time pushing you. 243 00:12:52,160 --> 00:12:54,480 Speaker 1: And I've talked about the famous phrase kick the can 244 00:12:54,600 --> 00:12:57,160 Speaker 1: down the road. Well, this is a giant canful assault 245 00:12:57,520 --> 00:12:59,520 Speaker 1: and that's gonna kept pushed down the road. So I 246 00:12:59,600 --> 00:13:01,960 Speaker 1: think I've think people are muddeling through, but there are 247 00:13:02,040 --> 00:13:06,360 Speaker 1: great concerns that things have changed, and particularly that I 248 00:13:06,440 --> 00:13:09,160 Speaker 1: mean in the UK that the views about foreigners of 249 00:13:09,320 --> 00:13:11,559 Speaker 1: something that you know, are you Polish, that kind of 250 00:13:11,600 --> 00:13:13,920 Speaker 1: stuff has changed a bit. All right, well, let's move 251 00:13:14,000 --> 00:13:17,240 Speaker 1: from salted beef to pasta because I want to get 252 00:13:17,280 --> 00:13:20,920 Speaker 1: your thoughts about what's going on in it's the International 253 00:13:21,040 --> 00:13:24,920 Speaker 1: Monetary Fund coming out and warning that Italy's plan to 254 00:13:25,080 --> 00:13:29,920 Speaker 1: increase spending carries quote substantial risks and would leave the 255 00:13:30,080 --> 00:13:36,080 Speaker 1: country vulnerable to market turmoil. Well there's an understatement, right, well, 256 00:13:36,240 --> 00:13:39,559 Speaker 1: and the European Commission has said this, but in a 257 00:13:39,640 --> 00:13:44,320 Speaker 1: sense this is hardly surprising. You see the move to populism, 258 00:13:44,760 --> 00:13:50,040 Speaker 1: you see the move of these political parties against against them. Um, 259 00:13:50,480 --> 00:13:54,000 Speaker 1: mosterity that hang on, Danny. But I mean there's there's populism, 260 00:13:54,120 --> 00:13:57,560 Speaker 1: and then there's just then inability to do simple math. 261 00:13:58,679 --> 00:14:00,839 Speaker 1: No I agree with that, of course, the inability to 262 00:14:00,920 --> 00:14:03,160 Speaker 1: do simple math. But that I mean, in some sense 263 00:14:03,240 --> 00:14:05,960 Speaker 1: that's what's exactly been true in the Brexit conversation we've 264 00:14:06,040 --> 00:14:09,679 Speaker 1: just had. Um, simple math is kind of what's got 265 00:14:09,760 --> 00:14:11,959 Speaker 1: us here in the first place. I'm not suggesting I 266 00:14:12,000 --> 00:14:13,599 Speaker 1: agree with it, but I think you're completely right. I 267 00:14:13,760 --> 00:14:16,840 Speaker 1: think it's a surprise. Um. So now you have these 268 00:14:16,920 --> 00:14:19,280 Speaker 1: parties like Five Star who got elected on we're going 269 00:14:19,360 --> 00:14:21,680 Speaker 1: to help the workers and so on. So they're going 270 00:14:21,720 --> 00:14:24,800 Speaker 1: to start to push for this, and obviously the I 271 00:14:25,000 --> 00:14:26,840 Speaker 1: m F and the Youth Commission and others are going 272 00:14:26,880 --> 00:14:29,960 Speaker 1: to push back. But in a sense, these groups have 273 00:14:30,040 --> 00:14:33,280 Speaker 1: a point, which is that austerity has had a really 274 00:14:33,400 --> 00:14:35,680 Speaker 1: large impact on people. And you might think that that 275 00:14:35,840 --> 00:14:38,480 Speaker 1: explains a lot of the populism. But you're right, simple 276 00:14:38,600 --> 00:14:41,120 Speaker 1: math and facts don't seem to be the order of 277 00:14:41,160 --> 00:14:43,160 Speaker 1: the day around the world right now, and that's where 278 00:14:43,200 --> 00:14:45,640 Speaker 1: we are, all right, So I'm going to untether you 279 00:14:45,840 --> 00:14:49,600 Speaker 1: from simple math and facts give us your worst case 280 00:14:49,680 --> 00:14:52,880 Speaker 1: scenario for what happens to Italy. Give you about half 281 00:14:52,920 --> 00:14:58,320 Speaker 1: a minute. Well, I mean, obviously the talk talk about UM, 282 00:14:58,760 --> 00:15:01,640 Speaker 1: not just Brexit, but I I text it is obviously 283 00:15:01,680 --> 00:15:04,000 Speaker 1: going to be on the table and we're going to 284 00:15:04,040 --> 00:15:06,720 Speaker 1: see a major confrontation. I mean, PYM, let's go back, 285 00:15:06,760 --> 00:15:10,040 Speaker 1: these are double these Italy has double digit unemployment still 286 00:15:10,640 --> 00:15:13,000 Speaker 1: UM and so there's going to be a battle, a 287 00:15:13,080 --> 00:15:15,720 Speaker 1: battle between the Commission, the i m F and others 288 00:15:15,920 --> 00:15:18,080 Speaker 1: to try and helpful and it's probably going to be 289 00:15:18,160 --> 00:15:20,760 Speaker 1: a major battle in the worry would be that we 290 00:15:20,840 --> 00:15:23,360 Speaker 1: won't just be talking about Brexit, will be talking down 291 00:15:23,400 --> 00:15:27,280 Speaker 1: the road about Italy staying enough enough, not least because 292 00:15:27,720 --> 00:15:30,920 Speaker 1: what is the EU done essentially for those at the 293 00:15:30,960 --> 00:15:33,280 Speaker 1: bottom end in Italy. Same argument was made with them 294 00:15:33,360 --> 00:15:35,240 Speaker 1: in France with the election. So I think it's going 295 00:15:35,280 --> 00:15:37,040 Speaker 1: to be a mess. The ability to keep a government 296 00:15:37,080 --> 00:15:39,280 Speaker 1: in place as a mess um and this is going 297 00:15:39,320 --> 00:15:41,560 Speaker 1: to have a great more term all in the markets 298 00:15:42,120 --> 00:15:45,560 Speaker 1: because people are hurting. It sounds like a messy recipe, 299 00:15:45,880 --> 00:15:49,720 Speaker 1: Thank you very much. Danny blanch Flower, Professor of Economics, 300 00:15:50,040 --> 00:15:54,400 Speaker 1: Dartmouth College, Hanover, New Hampshire, follow him on Twitter. As 301 00:15:54,440 --> 00:15:58,760 Speaker 1: we all do a d underscore blanch flower. You're listening 302 00:15:58,840 --> 00:16:07,920 Speaker 1: to Bloomberg Market. I'm pim fox all natural ingredients, getting 303 00:16:08,040 --> 00:16:13,760 Speaker 1: rid of artificial colors, of flavors and preservatives, not for humans, 304 00:16:14,200 --> 00:16:17,960 Speaker 1: but for dogs, cats and your other pets. Here to 305 00:16:18,000 --> 00:16:20,840 Speaker 1: tell us more more about the change in the world 306 00:16:21,120 --> 00:16:24,800 Speaker 1: of pet nutrition and pet health and all things having 307 00:16:24,840 --> 00:16:27,560 Speaker 1: to do with pets is Ron Coglin. He is the 308 00:16:27,640 --> 00:16:31,800 Speaker 1: chief executive of Petco and they are based in San Diego. 309 00:16:31,960 --> 00:16:35,480 Speaker 1: He joins us here in our Bloomberg Interact or Broker's studios. Ron, 310 00:16:35,600 --> 00:16:39,000 Speaker 1: thank you very much for being here. Appreciated. Give people 311 00:16:39,160 --> 00:16:42,240 Speaker 1: just the overview first of all of the pet and 312 00:16:42,400 --> 00:16:46,040 Speaker 1: the pet business and then we'll get into natural ingredients. 313 00:16:46,280 --> 00:16:49,400 Speaker 1: Sounds good. Great to be here. So the pet business 314 00:16:49,480 --> 00:16:51,800 Speaker 1: is a wonderful business. I've been the CEO at Petco 315 00:16:51,920 --> 00:16:54,920 Speaker 1: now for five months and the thing that is most 316 00:16:55,000 --> 00:16:58,240 Speaker 1: impressive is just the love that pet owners have for 317 00:16:58,480 --> 00:17:02,160 Speaker 1: their pets. As a business, this it's a rapidly growing business, 318 00:17:02,240 --> 00:17:06,840 Speaker 1: growing six percent across and food business is a billion 319 00:17:06,880 --> 00:17:09,920 Speaker 1: dollar business, so it is a big business. I was 320 00:17:09,960 --> 00:17:11,880 Speaker 1: going to say, the love that they have for their 321 00:17:11,920 --> 00:17:15,959 Speaker 1: pets and the bottomless pocket of money that they spend. 322 00:17:16,600 --> 00:17:19,320 Speaker 1: Some of that's of course going to be spent on food. 323 00:17:19,480 --> 00:17:24,400 Speaker 1: And you've taken a particular position at pet Co. Tell 324 00:17:24,480 --> 00:17:27,680 Speaker 1: us what you decided to do that's right. So one 325 00:17:27,720 --> 00:17:29,840 Speaker 1: of the things that's clear is pet owners want to 326 00:17:29,880 --> 00:17:32,400 Speaker 1: do the right thing for their pets, and that includes 327 00:17:32,520 --> 00:17:34,560 Speaker 1: feeding them the right food and a pet go For 328 00:17:34,680 --> 00:17:37,040 Speaker 1: fifty years, we've sought to do the right thing for 329 00:17:37,160 --> 00:17:40,520 Speaker 1: pet parents and pet the pets that they love. So 330 00:17:40,640 --> 00:17:44,880 Speaker 1: we decided to take a stand against artificial flavors, artificial colors, 331 00:17:45,160 --> 00:17:48,840 Speaker 1: and artificial preservatives, and will we announcing that will be 332 00:17:48,920 --> 00:17:53,280 Speaker 1: eliminating products that have those ingredients starting in two thousand 333 00:17:53,359 --> 00:17:59,400 Speaker 1: and nineteen, things like ethanol, things like sulfur dioxide, things 334 00:17:59,480 --> 00:18:04,120 Speaker 1: like high H. I can't even I can't even pronounce 335 00:18:04,200 --> 00:18:08,000 Speaker 1: half these chemicals that UH ethanol, F D n C, 336 00:18:08,320 --> 00:18:11,760 Speaker 1: yellow glycerol. We don't think that they belong in our pets. 337 00:18:11,800 --> 00:18:15,040 Speaker 1: So we're eliminating them and we're the first company, major 338 00:18:15,080 --> 00:18:18,040 Speaker 1: pet food company that will eliminate them. Okay, when you 339 00:18:18,119 --> 00:18:21,640 Speaker 1: mentioned pet food company, that's got me thinking that there's 340 00:18:21,680 --> 00:18:24,720 Speaker 1: a whole supply chain out there that either has to 341 00:18:24,880 --> 00:18:27,040 Speaker 1: adapt or they're not going to get into the Pet 342 00:18:27,160 --> 00:18:30,320 Speaker 1: Coast store. Tell us what the reaction has been and 343 00:18:30,440 --> 00:18:33,400 Speaker 1: how that might change your mix of vendors. So there's 344 00:18:33,400 --> 00:18:37,280 Speaker 1: really a continuum of three different types of pet food companies. 345 00:18:37,880 --> 00:18:41,159 Speaker 1: Um one is those that are already all natural, and 346 00:18:41,240 --> 00:18:43,879 Speaker 1: we sell a lot of products from companies like Merrick 347 00:18:43,960 --> 00:18:46,920 Speaker 1: companies like Taste of the Wild as an example. Then 348 00:18:46,960 --> 00:18:49,159 Speaker 1: there are others who said, great idea, we're going to 349 00:18:49,280 --> 00:18:53,280 Speaker 1: reformulate or we're gonna launch natural versions of our line 350 00:18:53,600 --> 00:18:55,480 Speaker 1: and we're gonna work really hard to make sure that 351 00:18:55,600 --> 00:18:58,200 Speaker 1: that's successful. Then there are others that say, you know what, 352 00:18:58,359 --> 00:19:01,280 Speaker 1: we're not going to make the changes with the artificial ingredients, 353 00:19:01,720 --> 00:19:04,200 Speaker 1: and those uh, those companies won't be on our shelves 354 00:19:04,200 --> 00:19:05,879 Speaker 1: anymore because we don't think they're doing the right thing 355 00:19:05,960 --> 00:19:09,200 Speaker 1: for our customers. What about the brands that are attached 356 00:19:09,359 --> 00:19:13,439 Speaker 1: to various types of pet food and we were talking 357 00:19:13,560 --> 00:19:16,600 Speaker 1: just before you came on. You know, many people remember 358 00:19:16,680 --> 00:19:20,439 Speaker 1: pet food as outpo, that was all there was. Are 359 00:19:20,560 --> 00:19:26,840 Speaker 1: those brands catching up to this preservative artificial free food 360 00:19:27,280 --> 00:19:31,080 Speaker 1: or are they sort of slow walking the change? Some 361 00:19:31,240 --> 00:19:33,800 Speaker 1: of them are far behind like the ones that you mentioned. 362 00:19:34,040 --> 00:19:37,080 Speaker 1: Others are making the change and will actually have their 363 00:19:37,160 --> 00:19:40,560 Speaker 1: natural lines in our stores when we start in January, 364 00:19:41,119 --> 00:19:45,360 Speaker 1: and then others are far ahead on already organic foods, 365 00:19:45,560 --> 00:19:49,840 Speaker 1: on natural foods and lacking artificials. What about the price 366 00:19:50,000 --> 00:19:53,960 Speaker 1: point of these kinds of foods, Are they higher? Yeah, 367 00:19:54,200 --> 00:19:58,440 Speaker 1: that's a that's a misnomer that people think because you're 368 00:19:58,440 --> 00:20:02,200 Speaker 1: going eliminating artific show that necessary things are much more expensive. 369 00:20:02,600 --> 00:20:05,520 Speaker 1: We pride ourselves and having an array of price points, 370 00:20:05,760 --> 00:20:08,960 Speaker 1: so we'll have foods without artificials, and the opening price points, 371 00:20:09,160 --> 00:20:12,480 Speaker 1: will have a product like our wholehearted own brand that 372 00:20:12,760 --> 00:20:15,000 Speaker 1: is uh that doesn't have those artificials in the mid 373 00:20:15,080 --> 00:20:18,240 Speaker 1: price points, and then we'll have you know, wonderful high 374 00:20:18,359 --> 00:20:20,440 Speaker 1: end products like the merricks in the Taste of the 375 00:20:20,480 --> 00:20:23,480 Speaker 1: Wilds or candidates that I mentioned earlier. Now, of course, 376 00:20:23,600 --> 00:20:28,280 Speaker 1: pet Co much more than just pet food. You've got operations, grooming, 377 00:20:28,560 --> 00:20:30,720 Speaker 1: I've got training, You've got a variety of things. You 378 00:20:30,800 --> 00:20:34,080 Speaker 1: also have partnerships with non pet Co outlets, for example 379 00:20:34,119 --> 00:20:37,639 Speaker 1: in Canada, I believe we sell products through a third party. 380 00:20:37,880 --> 00:20:40,360 Speaker 1: That's right. So the future of PETC, the new pet 381 00:20:40,440 --> 00:20:43,400 Speaker 1: Co as you will, is about it being a nutrition 382 00:20:43,480 --> 00:20:47,760 Speaker 1: powerhouse but also being a services powerhouse. Our groomers do 383 00:20:47,880 --> 00:20:50,880 Speaker 1: a wonderful job. I visited over a hundred grooming salons 384 00:20:50,880 --> 00:20:53,199 Speaker 1: in my first five months. And the passion that they 385 00:20:53,280 --> 00:20:55,080 Speaker 1: have for the pets. Sometimes I wonder where they like 386 00:20:55,200 --> 00:20:57,840 Speaker 1: the pets more than they like human beings. If you 387 00:20:58,000 --> 00:21:02,200 Speaker 1: if you ever wonder, Actually it's obvious most of the time. 388 00:21:02,880 --> 00:21:04,280 Speaker 1: If you have a new pet, you want to come 389 00:21:04,320 --> 00:21:06,760 Speaker 1: to a pet go to get them trained, And increasingly, 390 00:21:07,160 --> 00:21:09,119 Speaker 1: if you want vet services, you can come to a 391 00:21:09,200 --> 00:21:11,680 Speaker 1: petc and that's something will be scaling out. So the 392 00:21:11,760 --> 00:21:15,359 Speaker 1: whole idea is a nutrition powerhouse and his services powers 393 00:21:16,040 --> 00:21:17,280 Speaker 1: and at the end of the day, we want to 394 00:21:17,320 --> 00:21:20,080 Speaker 1: be the pet parents partner. I'm making sure we're taking 395 00:21:20,119 --> 00:21:22,160 Speaker 1: great care of those pets. Did you have to learn 396 00:21:22,240 --> 00:21:25,480 Speaker 1: a whole new vocabulary? I mean, because your previous role 397 00:21:26,359 --> 00:21:31,240 Speaker 1: was at Hewlett Packard, UH and PepsiCo. Do you have 398 00:21:31,320 --> 00:21:34,040 Speaker 1: to learn a whole new group of you know, vocabulary 399 00:21:34,080 --> 00:21:36,720 Speaker 1: in order to talk about pets and their owners? The 400 00:21:36,800 --> 00:21:39,240 Speaker 1: first step was opening up your heart. People have a 401 00:21:39,320 --> 00:21:41,320 Speaker 1: lot more passion for the pets than they do have 402 00:21:41,440 --> 00:21:44,359 Speaker 1: The PCs even though they loved our PCs UM, they 403 00:21:44,400 --> 00:21:46,560 Speaker 1: have a lot more passion. But there is a lot 404 00:21:46,640 --> 00:21:49,359 Speaker 1: of vocabulary. But at the end of the day, it's 405 00:21:49,600 --> 00:21:52,800 Speaker 1: taking care of something that's precious to people, and we 406 00:21:52,920 --> 00:21:55,760 Speaker 1: take that very seriously. And you're doing about four billion 407 00:21:55,840 --> 00:21:59,840 Speaker 1: dollars worth the business a year right uh, your own 408 00:22:00,119 --> 00:22:05,880 Speaker 1: by Capital Partners, CBC, CVC and the Canadian Pension Plan 409 00:22:06,320 --> 00:22:09,960 Speaker 1: Investment Board. Is it easier in a way to work 410 00:22:10,040 --> 00:22:13,200 Speaker 1: for privately held company? You know, I've been in public 411 00:22:13,280 --> 00:22:17,280 Speaker 1: companies my whole career pretty much, and there's a wariness 412 00:22:17,359 --> 00:22:19,719 Speaker 1: about PE and I will tell you that it has 413 00:22:19,800 --> 00:22:24,400 Speaker 1: been wonderful the support you get, the contacts, the insight, 414 00:22:24,760 --> 00:22:27,440 Speaker 1: but also you know, they give me a rope to 415 00:22:27,640 --> 00:22:30,639 Speaker 1: it to run as well. So it's been a wonderful experience, 416 00:22:30,880 --> 00:22:33,040 Speaker 1: and given what's going on with the markets, it's been 417 00:22:33,440 --> 00:22:35,720 Speaker 1: nice not to be public. Thanks very much for being 418 00:22:35,920 --> 00:22:39,639 Speaker 1: with us. Ron Coglin he is the chief executive of 419 00:22:39,960 --> 00:22:46,200 Speaker 1: pet Co, sending out non preservative, artificial ingredient free food 420 00:22:46,440 --> 00:22:53,520 Speaker 1: for your pets. And the topic now is deficits budget 421 00:22:53,600 --> 00:22:56,119 Speaker 1: deficits when it comes to the federal government. Here to 422 00:22:56,200 --> 00:22:59,440 Speaker 1: tell us more as IRA Jersey. He is chief US 423 00:22:59,560 --> 00:23:04,919 Speaker 1: interest rate Strategists for Bloomberg Intelligence. Ira, you have dubbed 424 00:23:04,960 --> 00:23:11,880 Speaker 1: this deficit Day. Yeah. So, so both myself and our 425 00:23:12,359 --> 00:23:15,399 Speaker 1: colleagues at Bloomberg Economics focused on the deficit today and 426 00:23:15,520 --> 00:23:17,920 Speaker 1: some reports we put out and and you know, we 427 00:23:17,960 --> 00:23:21,160 Speaker 1: took two different angles. So, um, my colleagues and Bloomberg 428 00:23:21,160 --> 00:23:24,960 Speaker 1: Economics think that maybe the government's own estimates of what 429 00:23:25,119 --> 00:23:28,000 Speaker 1: the deficits going to be UH could be as wrong 430 00:23:28,080 --> 00:23:32,040 Speaker 1: as a hundred and sixty billion dollars in UH the year. 431 00:23:32,200 --> 00:23:34,600 Speaker 1: And I think that, you know, that's meaningful obviously for 432 00:23:34,760 --> 00:23:37,120 Speaker 1: what I do, because that means that the Treasury Department 433 00:23:37,400 --> 00:23:40,080 Speaker 1: might have to issue um, you know, and an extra 434 00:23:40,359 --> 00:23:42,720 Speaker 1: call it fifteen billion dollars a month of debt that 435 00:23:43,040 --> 00:23:45,920 Speaker 1: maybe we um. You know, some people don't have in 436 00:23:45,960 --> 00:23:48,359 Speaker 1: their forecasts right now. Okay, if they don't have it 437 00:23:48,440 --> 00:23:50,560 Speaker 1: in their forecast, do they have the money in their 438 00:23:50,560 --> 00:23:53,359 Speaker 1: piggy bank in order to buy all that debt? Yeah? Well, 439 00:23:53,400 --> 00:23:55,520 Speaker 1: that's one of the questions is at what point do 440 00:23:55,880 --> 00:23:58,120 Speaker 1: people book and say, you know, deficits are too big. 441 00:23:58,240 --> 00:24:01,200 Speaker 1: So normally it's you know, when you have growing deficits 442 00:24:01,240 --> 00:24:04,639 Speaker 1: as long as the deficit is growing somewhere around the 443 00:24:05,480 --> 00:24:08,800 Speaker 1: um the level of nominal GDP growth, it's not really 444 00:24:08,880 --> 00:24:11,440 Speaker 1: that much of an issue because that means that the 445 00:24:11,840 --> 00:24:14,240 Speaker 1: you know, the entire economy is growing. You can fund 446 00:24:14,280 --> 00:24:16,800 Speaker 1: the deficits because you have higher income, you have part 447 00:24:16,880 --> 00:24:18,680 Speaker 1: of that income is going to be saved, and and 448 00:24:18,960 --> 00:24:22,200 Speaker 1: corporations even need um you know, the fun pensions and 449 00:24:22,280 --> 00:24:24,680 Speaker 1: other things like that. So there's money coming in. But 450 00:24:24,840 --> 00:24:27,040 Speaker 1: the thing is is that at this point, at least 451 00:24:27,160 --> 00:24:29,640 Speaker 1: for the next several years, you're not likely to see 452 00:24:29,680 --> 00:24:32,639 Speaker 1: that you're likely to see deficits growing faster than the 453 00:24:32,760 --> 00:24:35,520 Speaker 1: level of nominal GDP growth. And that's where you can 454 00:24:35,560 --> 00:24:39,160 Speaker 1: get challenge. And that's why you need foreign investors, for example, 455 00:24:39,280 --> 00:24:41,560 Speaker 1: to at least make up a little bit of the 456 00:24:41,680 --> 00:24:45,359 Speaker 1: shortfall from domestic investors. And you haven't seen that the 457 00:24:45,480 --> 00:24:49,320 Speaker 1: last five years. Foreign investors have not been uh not 458 00:24:49,520 --> 00:24:52,960 Speaker 1: been buying US debt on a net basis. So they're 459 00:24:52,960 --> 00:24:55,200 Speaker 1: still very large holders, but they haven't been buying more 460 00:24:55,280 --> 00:24:58,280 Speaker 1: debt than than they had say in two thousand nine 461 00:24:58,320 --> 00:25:01,080 Speaker 1: ten Jersey, I want to get you in trouble right now. 462 00:25:01,400 --> 00:25:04,080 Speaker 1: Is any of this linked to the tax cuts that 463 00:25:04,280 --> 00:25:09,040 Speaker 1: have decreased revenue for the US treasury. Uh yeah, well 464 00:25:09,160 --> 00:25:11,000 Speaker 1: not not not all of it. I can't say percent, 465 00:25:11,080 --> 00:25:13,600 Speaker 1: but a large portion of this has to do with 466 00:25:14,119 --> 00:25:17,680 Speaker 1: with lower spending than was anticipated, say three years ago, 467 00:25:17,760 --> 00:25:21,399 Speaker 1: when we were UM making budget deficit forecast. UM. The 468 00:25:21,600 --> 00:25:24,399 Speaker 1: the the unrealistic thing that the government has and this 469 00:25:24,520 --> 00:25:26,520 Speaker 1: is what my Bloomberg Economics team did a did a 470 00:25:26,720 --> 00:25:30,240 Speaker 1: very good job pointing out, is that the there's this 471 00:25:30,320 --> 00:25:33,520 Speaker 1: expectation that you're going to have significantly higher revenue in 472 00:25:33,640 --> 00:25:39,119 Speaker 1: two thousand two UM, but that's predicated on growth being faster. 473 00:25:39,359 --> 00:25:42,280 Speaker 1: There's that's just a little bit unrealistic in their view, 474 00:25:42,359 --> 00:25:45,280 Speaker 1: and that's one reason why a lot of these forecasts 475 00:25:45,320 --> 00:25:48,119 Speaker 1: have missed over the past several years. And again by 476 00:25:48,280 --> 00:25:51,040 Speaker 1: by not by by pretty large amounts, I mean, a 477 00:25:51,080 --> 00:25:54,159 Speaker 1: hundred and sixty billion dollars in the grand scheme of 478 00:25:54,200 --> 00:25:57,119 Speaker 1: things might not seem like a lot, you know, when 479 00:25:57,200 --> 00:25:59,480 Speaker 1: when the government has to issue um, you know, a 480 00:25:59,560 --> 00:26:01,760 Speaker 1: trillion dollars, but you know it's a ten or fift 481 00:26:02,600 --> 00:26:05,440 Speaker 1: increase in the deficit above and beyond what we thought 482 00:26:05,480 --> 00:26:07,760 Speaker 1: it was going to be, so that that's very meaningful. Now, 483 00:26:07,880 --> 00:26:10,080 Speaker 1: Ira isn't there a push pull when it comes to 484 00:26:10,240 --> 00:26:13,560 Speaker 1: investors because there are groups of investors that have to 485 00:26:13,680 --> 00:26:18,840 Speaker 1: own what is described as the most risk less asset, 486 00:26:18,960 --> 00:26:21,600 Speaker 1: which would be US Treasury. Yet on the other hand, 487 00:26:21,720 --> 00:26:26,560 Speaker 1: they all have benchmarks, and in order to attract investors, 488 00:26:26,960 --> 00:26:31,680 Speaker 1: will the Treasury have to let interest rates increase? Well, 489 00:26:31,760 --> 00:26:34,760 Speaker 1: the Treasury Department um, you know, they have to fund 490 00:26:34,800 --> 00:26:36,680 Speaker 1: the government, right and so so they don't have a 491 00:26:36,760 --> 00:26:39,920 Speaker 1: choice about the issue. Their decision is where to issue 492 00:26:40,119 --> 00:26:42,840 Speaker 1: and how much of each maturity to issue? So how 493 00:26:42,920 --> 00:26:45,360 Speaker 1: many tea bills are there going to be short term 494 00:26:45,480 --> 00:26:48,439 Speaker 1: versus long term? And what they've done is they've been 495 00:26:48,480 --> 00:26:52,920 Speaker 1: trying to keep the portfolio the weighted average maturity of 496 00:26:53,040 --> 00:26:56,560 Speaker 1: Treasury debt reasonably long. Our estimate is is that it 497 00:26:56,600 --> 00:26:58,840 Speaker 1: will it will fall a little bit over the next 498 00:26:59,000 --> 00:27:01,920 Speaker 1: four years, primarily because they're going to have to issue 499 00:27:01,920 --> 00:27:04,359 Speaker 1: a little bit more in terms of T bills. That Now, 500 00:27:04,520 --> 00:27:06,639 Speaker 1: the good thing about that is that and you know, 501 00:27:06,760 --> 00:27:09,520 Speaker 1: we view our view is that the Fed is probably 502 00:27:09,560 --> 00:27:12,240 Speaker 1: gonna hike interest rates another three or four times before 503 00:27:12,320 --> 00:27:14,840 Speaker 1: they stop um and then the next move is likely 504 00:27:14,880 --> 00:27:16,560 Speaker 1: to be for lower interest rates. So the fact that 505 00:27:16,640 --> 00:27:20,639 Speaker 1: they're issuing more short term debt, means that interest costs 506 00:27:20,800 --> 00:27:23,480 Speaker 1: in aggregate would be lower um than they would be 507 00:27:23,560 --> 00:27:27,840 Speaker 1: if say, interest rate state stayed relatively high um for 508 00:27:28,440 --> 00:27:33,399 Speaker 1: for the next three or four years. Um. Yeah, exactly so. 509 00:27:33,960 --> 00:27:35,800 Speaker 1: But at the same time, you know a lot of 510 00:27:35,840 --> 00:27:38,760 Speaker 1: people are you know, you look at money market flows, 511 00:27:38,800 --> 00:27:41,280 Speaker 1: and money market flows are actually getting bigger now. And 512 00:27:41,560 --> 00:27:44,440 Speaker 1: a big reason for that is the fact that there's 513 00:27:44,480 --> 00:27:46,320 Speaker 1: interest rates that are well above zero. Right. It was 514 00:27:46,400 --> 00:27:48,720 Speaker 1: hard to invest in a money market fund when you're 515 00:27:48,760 --> 00:27:51,520 Speaker 1: making maybe three basis points in that money market fund. 516 00:27:51,840 --> 00:27:54,520 Speaker 1: Now you're making you know, two ish percent plus or minus, 517 00:27:54,600 --> 00:27:57,240 Speaker 1: depending on on what fund and how much risk you're taking. 518 00:27:57,640 --> 00:27:59,800 Speaker 1: That's a bit more attractive to a lot of people. 519 00:27:59,840 --> 00:28:02,639 Speaker 1: So you do see at least some inflows um. And 520 00:28:02,800 --> 00:28:05,480 Speaker 1: and that's increasing demand for things like treasury bills, which 521 00:28:05,600 --> 00:28:09,240 Speaker 1: obviously the government's issuing more of. I read Jersey, give 522 00:28:09,280 --> 00:28:12,040 Speaker 1: you fifteen seconds. Does it make sense at a four 523 00:28:12,160 --> 00:28:15,680 Speaker 1: week bill at two point two percent versus a one 524 00:28:15,760 --> 00:28:19,920 Speaker 1: year at two point seven two percent? Does that make sense? Yeah? So, 525 00:28:20,119 --> 00:28:22,480 Speaker 1: so that's all about the expectations of the feed. The 526 00:28:22,560 --> 00:28:24,800 Speaker 1: reason why you know, you wind up having you know, 527 00:28:25,720 --> 00:28:28,440 Speaker 1: basis points there in that nine months part of the 528 00:28:28,480 --> 00:28:31,000 Speaker 1: curve is just it all has to do with expectations 529 00:28:31,280 --> 00:28:32,720 Speaker 1: that the Fed is going to hike a couple of 530 00:28:32,800 --> 00:28:36,120 Speaker 1: times in between those maturities. Got it, Thank you very much. 531 00:28:36,240 --> 00:28:40,080 Speaker 1: As always, I read Jersey chief US interest rate strategist 532 00:28:40,560 --> 00:28:43,880 Speaker 1: for Bloomberg Intelligence. I mean, you've got a little buying 533 00:28:43,960 --> 00:28:47,320 Speaker 1: at the end of the curve. The thirty year yield 534 00:28:47,360 --> 00:28:50,320 Speaker 1: of three point three six percent, the thirty year bond 535 00:28:50,840 --> 00:28:55,000 Speaker 1: it is up ten thirty seconds. You're listening to Bloomberg Markets. 536 00:28:56,520 --> 00:28:59,000 Speaker 1: Thanks for listening to the Bloomberg p m L podcast. 537 00:28:59,360 --> 00:29:02,480 Speaker 1: You can subscut I've been listened to interviews at Apple Podcasts, 538 00:29:02,680 --> 00:29:06,520 Speaker 1: SoundCloud or whatever podcast platform you prefer. I'm pim Fox. 539 00:29:06,680 --> 00:29:09,959 Speaker 1: I'm on Twitter at pim Fox. I'm on Twitter at 540 00:29:10,120 --> 00:29:13,160 Speaker 1: Lisa Abramo wits one. Before the podcast, you can always 541 00:29:13,200 --> 00:29:15,200 Speaker 1: catch us worldwide on Bloomberg Radio.