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

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

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

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

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Speaker 1: you want to bring in Francis Donald No, I want

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Speaker 1: to go west to Chicago. Lisa, have you seen a soybean?

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Speaker 1: And you know you were a mountain girl years ago.

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Speaker 1: Were you out in the fields looking at soybeans in

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Speaker 1: the Midwest? I was not, but I lived in Farger,

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Speaker 1: North Dakota out there, I mean maw folks. Farm Journal

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Speaker 1: with Lisa Brown was seepid. All about the press we did.

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Speaker 1: We did farm Journal every morning and you learned about

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Speaker 1: it was when were kids? They sound science East those

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Speaker 1: people upper east Side, upper west side, Manhattan. We don't

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Speaker 1: understand that linkage. John, on this this phase one partial

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Speaker 1: soybean uh item. I will give you this. U S

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Speaker 1: farm bankruptcies searched twenty four to the highest since two

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Speaker 1: thousand and eleven. This according to one work News article yesterday.

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Speaker 1: Just to give you a sense some of the strains

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Speaker 1: is that the morning staff from Lisa Ravits. Do we

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Speaker 1: get one every morning? It's Farm Journal. Francis Donald joining

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Speaker 1: US now Manual Life Fasset Management, head of macroeconomic Strategy. Francis,

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Speaker 1: your thoughts on the events of this morning so far? Well,

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Speaker 1: this morning is just another example of the market having

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Speaker 1: to digest long term themes and what the next two

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Speaker 1: to three years will look like. I was sitting here

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Speaker 1: watching futures drop as much as half a percent, and

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Speaker 1: I thought, really off of another trade headline, but it

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Speaker 1: echoes exactly what the Fed told us yesterday, which is

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Speaker 1: we shouldn't really be focused on what the next three

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Speaker 1: months look like in the US global economy of the trade.

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Speaker 1: Who should be thinking about the long run, And the

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Speaker 1: long run is looking more were more discouraging. Well, let's

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Speaker 1: look at the Chinese p M I s out overnight.

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Speaker 1: Really weren't impressive at all. They were disappointing, Francis. Over

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Speaker 1: the last couple of weeks, the sentiment has shifted. Any

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Speaker 1: reason to believe the data is set to follow anytime

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Speaker 1: soon now? But worried there. You know, Chinese pms have

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Speaker 1: been sub fifty for six months and we were hoping

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Speaker 1: for a re acceleration or what I call a L

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Speaker 1: shape recovery, and everyone says L shaped isn't a recovery

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Speaker 1: at all. We'll call it a stabilization. But it looks

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Speaker 1: like they might be double dipping. And what's so critical

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Speaker 1: here is that we are in the middle of what

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Speaker 1: people have been calling our third mid cycle slowdown. But

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Speaker 1: what different about this one versus sixteen is that we

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Speaker 1: don't have the China lifeline this time in we're experiencing

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Speaker 1: a global slowdown. China is using aggressively infrastructure through the roof.

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Speaker 1: We don't have that component this time and that's what

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Speaker 1: makes so different. I don't mean to pick on your Francis,

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Speaker 1: but you and I are so up about the Montreal Canadians.

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Speaker 1: I can understand that I can bring you down what

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Speaker 1: is mid cycle? What is what is mid cycle? Mid

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Speaker 1: Cycle only means we haven't put gray bars across our

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Speaker 1: charts and called for a technical recession. But I spent

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Speaker 1: a lot of time thinking exactly about that, Tom, because

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Speaker 1: as someone who's managing money, we have to recognize, you know,

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Speaker 1: are your asstalcation decision is going to be substantially different

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Speaker 1: if your plus point one or minus point one on

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Speaker 1: your g d P. They really shouldn't, so you know,

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Speaker 1: I agree. I think it's a little bit of kind

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Speaker 1: of a way to fluff up what's really just called

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Speaker 1: us a substantial slowdown and growth. Do we blame the British? John?

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Speaker 1: What is mid cycle? I'm serious? Well, reflecting on the

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Speaker 1: mid nineties, late nineties scenario, I just wonder, francis whether

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Speaker 1: a better parallels the growth scare of fifteen sixteen. What

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Speaker 1: is the better parallel right now to what we're experiencing

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Speaker 1: at the moment. Well, we don't have a parallel because

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Speaker 1: we have not experienced, at least since the nineteen thirties,

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Speaker 1: a period of such heightened trade tensions before. That makes

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Speaker 1: this environment really really different. Quote for policymakers like the

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Speaker 1: said to compare against. They've essentially told us yesterday that

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Speaker 1: seventy five basis points is a mid cycle adjustment just

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Speaker 1: because seventy five basis points. But there's no way for

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Speaker 1: us to know that's a theoretical concept. My personal views,

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Speaker 1: they have to go at least twenty five basis points more.

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Speaker 1: But critically, the messaging that we're getting is it doesn't

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Speaker 1: really matter whether we're mid cycle or not. Or recession

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Speaker 1: or not. This set does not want to hike rate

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Speaker 1: for a very long time. So we can sit here

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Speaker 1: and talk about whether the next three to six months

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Speaker 1: looks like whatever in the bond market, but longer term,

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Speaker 1: I mean, this is again a by bonds where diamonds

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Speaker 1: type of situation, Francis, before we let you go, I'm

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Speaker 1: really pleased to announce that Tom Kine and I do

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Speaker 1: have an interview with the Vice Chairman of the FED,

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Speaker 1: Richard Clarida, tomorrow morning Eastern Francis, if you have a

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Speaker 1: question outstanding at the moment, what would that question be?

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Speaker 1: I don't want to know. Um, you know, when would

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Speaker 1: you hike rate again? And exactly how much inflation will

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Speaker 1: it take. That's the most important question for all of markets,

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Speaker 1: and it has to do with this three to five

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Speaker 1: year outlook that will entirely define what acid allocation decisions

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Speaker 1: look like for the next years. What's the inflation? What's

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Speaker 1: the inflation? Is the inflation you know Cleveland Fed higher

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Speaker 1: or is the inflation lower? It's a basket of all

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Speaker 1: of the inflation metrics that that shows us that we're

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Speaker 1: back up to a sustainable taper target. To me, this

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Speaker 1: is the number one question. Johnny Chairman Paul brought it

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Speaker 1: up yesterday Francis Donald's inflation. Thank you and thank you

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Speaker 1: for writing that question for us. And because of that

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Speaker 1: we can thank Francis and say Eric Clement, Francis husband,

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Speaker 1: a fantastic artist. Check it out, very very cool stuff.

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Speaker 1: You didn't know that Radi coo stuff and should check

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Speaker 1: it out. Bloomberg reports this morning that the Chinese uh

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Speaker 1: decided the Chinese decidedly want tariff relief. If we're gonna

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Speaker 1: move forward with the trade talks and that move the market,

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Speaker 1: you get lucky sometimes. John farre and I did not

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Speaker 1: know that Brendan Murray and our team would be reporting

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Speaker 1: this important story, but we did decide to have on

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Speaker 1: from the University of California, Berkeley, Barry Green, who joins

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Speaker 1: us now from our London studios. He is iconic on

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Speaker 1: international economics and the globalization of capital. Barriot, want you

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Speaker 1: to take us to Beijing. What is the thought process

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Speaker 1: of the Chinese? Is they deal with a mercantile American president?

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Speaker 1: Thought Chinese now that um Mr Trump is a tariff man.

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Speaker 1: I think they were never under any illusions that um

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Speaker 1: this administration was going to give up its aggressive trade

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Speaker 1: policy as part of a far reaching deal. Neither are

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Speaker 1: they prepared to change their economic model under pressure. Bloomberg's

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Speaker 1: news this morning is big, but it's not surprising. I

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Speaker 1: think this UH Phase one deal was always about fifty

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Speaker 1: billion dollars worth of soybeans. It wasn't about change in

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Speaker 1: the Chinese intellectual property rights regime. Well, then that we've

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Speaker 1: got to move on as well. What would be an

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Speaker 1: appropriate approach of Mr Lightheizer to try to get his

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Speaker 1: president and the Chinese together. Everybody needs to understand that progress,

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Speaker 1: if there is to be progress, it's going to have

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Speaker 1: to be incremental. It will start with de escalating tensions

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Speaker 1: with some narrowly focused trade deals, and that the bigger

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Speaker 1: issues about force, technology, transfer, industrial policy in China and

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Speaker 1: so forth will take years to work out. And the

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Speaker 1: constraint there is that nobody knows whether Mr Trump is

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Speaker 1: going to be in office for years. Well, Barry beyond

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Speaker 1: just that, professor, do you think will ever work these

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Speaker 1: issues out with the Chinese? In the United States? We're

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Speaker 1: going to have to work them out. I think if

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Speaker 1: we're going to return to UH relatively robustly growing global economy. Uh,

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Speaker 1: this backdrop of trade tensions and geo political tensions is

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Speaker 1: unsettling for financial markets, but more broadly, it's a negative

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Speaker 1: for business investment, and I can imagine it will become

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Speaker 1: a negative for consumer confidence as well. Going forward, the

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Speaker 1: approach will be in the hands of the politicians, and

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Speaker 1: the approach from the president is unlikely to change anytime soon,

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Speaker 1: even if he gets a second term, even if he doesn't.

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Speaker 1: Senator war And put out her trade position in July

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Speaker 1: of this year, and arguably she's gonna put more pressure

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Speaker 1: on the Chinese than perhaps this President of the United

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Speaker 1: States is currently so professor with that, I will in mind.

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Speaker 1: I just wonder, in one shape or another, subsequent administrations

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Speaker 1: are going to continue putting pressure on China, aren't they.

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Speaker 1: You're right sho on that there really has been a

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Speaker 1: seat change in Washington, d C. Where both parties now

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Speaker 1: view China as a geo political rival, and they understand

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Speaker 1: that geo political power flows in part from economic power

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Speaker 1: and leverage. The question is what kind of tactics do

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Speaker 1: you use in order to try to um deal with

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Speaker 1: the other side. Mr Trump's tactics, as everyone knows, are disruptive, unpredictable,

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Speaker 1: and I think we're learning again today unproductive. Maybe a

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Speaker 1: President Warren, a democratic president, more broadly, will have a

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Speaker 1: better match between her tactics and her objectives. So I'm wondering,

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Speaker 1: Professor using the market as a tool of persuasion, President

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Speaker 1: Trump coming out and trying to get people optimistic about

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Speaker 1: a deal. I'm wondering if China is trying to get

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Speaker 1: the market to go lower to give them some ammunition

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Speaker 1: to show the consequences of not getting a deal. I

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Speaker 1: don't believe that the Chinese are are are are looking

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Speaker 1: at how the market reacts uh strategically From that point

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Speaker 1: of view, I think they are simply trying to send

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Speaker 1: a clear message that we are not going to buckle

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Speaker 1: under pressure. If we offer concessions, we will expect concessions,

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Speaker 1: tariff rollbacks uh, no more threats uh that that that

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Speaker 1: we in Beijing will have to forcewear any possibility of

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Speaker 1: tariff retaliation in the future, And a recognition on the

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Speaker 1: part of the United States that China has its own

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Speaker 1: economic model, it's not going to abandon that under pressure.

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Speaker 1: When they send that that message, the markets react, But

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Speaker 1: I don't think it's the market's reaction that they have

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Speaker 1: foremost in mind. Barah, thank you so much. With Berkeley

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Speaker 1: and of course the author of Golden Fetters and Globalizing Capital,

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Speaker 1: among other words, a wonderful new book out of populism

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Speaker 1: as well that was shockingly Prussian. Shannon Cross Cross research

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Speaker 1: with this. Now on what we saw yesterday with Apple, Shannon,

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Speaker 1: I was blown away by the rigor in the discreetness

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Speaker 1: of the conference called Shannon Cross has been on four thousand,

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Speaker 1: eight twelve conference calls, and I would suggest Shannon, this

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Speaker 1: one was different. There is a persistency and inertial force

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Speaker 1: to growth at Apple. I think you just called me old.

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Speaker 1: But yes, other than that, um, there clearly was strength

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Speaker 1: and across the board, um, you know. And and they

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Speaker 1: talked about in the growth of the installed basin, um,

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Speaker 1: you know, the strength of of the iPhones and how

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Speaker 1: they're they're you know, improving, and then when you look

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Speaker 1: at what they're doing in services and a re excel

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Speaker 1: ration growth and services across all geos, across all products.

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Speaker 1: It was a recurring theme within the call. We got

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Speaker 1: a lot of ideas here, but just one I'll bring

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Speaker 1: up is they mentioned installment sales are geometric in growth.

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Speaker 1: Is that nothing more Shannon than taking expensive toys and

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Speaker 1: putting them on a monthly plan. And do you have

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Speaker 1: to do your Excel spreadsheets differently because they're moving literally

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Speaker 1: to being a monthly plan utility. Well, I mean the

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Speaker 1: entire tech hardware industry is trying to move to as

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Speaker 1: a service, So hardware as a service, service as a service.

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Speaker 1: You know, everything going to a monthly recurring charge, whether

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Speaker 1: it's for consumers or it's for UM corporate. So I

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Speaker 1: think you know, that trend is something that Apple is

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Speaker 1: working with. But Tim was very careful to say he

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Speaker 1: didn't think this was a wholesale change in the model.

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Speaker 1: I mean, they're they're clearly selling devices, you know, on

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Speaker 1: a onesday, two day basis as well. Shannon, there's a

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Speaker 1: hope that we get a real change to the hardware

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Speaker 1: next year with five G And I'm just wondering whether

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Speaker 1: that business, the iPhone business, can return to the kind

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Speaker 1: of growth we've seen in years gone by anytime soon. Well,

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Speaker 1: I think I think it will be difficult. I mean,

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Speaker 1: there's a lot of large numbers here right in terms

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Speaker 1: of how big they're installed bases, and that there's there's

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Speaker 1: clearly going to be a refresh. I think the refresh

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Speaker 1: is actually positioned across this year and next year if

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Speaker 1: you look at the features that they added this year,

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Speaker 1: and you know the demand they're seeing, which is clearly

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Speaker 1: improved from last year. And then obviously with five G

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Speaker 1: you'll probably suit mean more um promotions from the carriers

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Speaker 1: to try to get subscribers. So, you know, I think

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Speaker 1: it's more of a sort of a two year process.

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Speaker 1: Will they get to significant growth, I don't know. I'm

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Speaker 1: not sure they know. It may be, you know, kind

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Speaker 1: of lumpy, but I think the trajectory of a you know,

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Speaker 1: increased installed base is what's key to them because if

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Speaker 1: you look at it, services is about of the revenue,

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Speaker 1: but already thirty percent of the gross profit, so the

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Speaker 1: biases the upside on on gross profit dollars. Shannon, It's

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Speaker 1: interesting to me that no one's talking about eight new

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Speaker 1: product that's going to generate the kind of growth that

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Speaker 1: we saw from the iPhone or even the Apple Watch.

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Speaker 1: There's no talk of that anymore. Now. It's just services

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Speaker 1: and installs and the details that are not as exciting.

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Speaker 1: Does that worry you at all? You know, again, because

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Speaker 1: the margin differential is so much greater in services. I mean,

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Speaker 1: I think some of the new products they're talking about

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Speaker 1: are things like Apple Card, which you know that the

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Speaker 1: CFO thinks could could be you know, meaningful over the

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Speaker 1: next several years. So um, you know, it is changed,

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Speaker 1: but it's hard to have big hits and product land.

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Speaker 1: And I would point to air pods. I mean, I

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Speaker 1: don't know if you guys have noticed, but more and

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Speaker 1: more and more people in AirPods. There's been a really

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Speaker 1: good ones that they launched up, and it's the new lego.

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Speaker 1: You walk around and you step on the damn things.

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Speaker 1: Oh my gosh, I'm gonna start. I'm saying that people

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Speaker 1: pick them up or you know they're gonna get tell

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Speaker 1: Kane Household. It's very different to the other assholes across

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Speaker 1: the country. You you'll leg out Shann gene Monster was

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Speaker 1: un earlier. He's got a three fifty view out there.

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Speaker 1: It's not like a cell side target. But what's critical

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Speaker 1: here is gene Monster moves Apple towards a Proctor and

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Speaker 1: Gamble kind of valuation as a mature consumer entity. Can

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Speaker 1: you go through that exercise? Or is Apple forever gonna

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Speaker 1: be a product driven air pod company? To you. No.

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Speaker 1: I mean we started talking to investors a couple of

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Speaker 1: years ago about the concept that you know, this is

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Speaker 1: more and more recurring revenue the ecosystem. Um. Just you know,

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Speaker 1: people tied to the brand it they you know, they've

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Speaker 1: looked at it. They trying to figure out you know

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Speaker 1: what point. You know, you're recurring revenue and your profit

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Speaker 1: matters from a multiple perspective, and I think you will

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Speaker 1: start to see multiple expansion over time because Apple has

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Speaker 1: become so dominent and you know, they've they've expanded so

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Speaker 1: much beyond just being a device company. Shannon. Great to

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Speaker 1: catch show with you this morning. Across that across research

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Speaker 1: the co founder henrit To Trace joining a snap, Director

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Speaker 1: of Economic Policy of Vada Partners, Henrietta. Great to have

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Speaker 1: you with us on the program. Would love your thoughts

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Speaker 1: on our latest reporting and the prospect of Phase one,

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Speaker 1: even Phase one breaking down at some point in the future.

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Speaker 1: Thanks so much for having me guys. Um Well per usual,

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Speaker 1: the reporting is amazing, UM, and I completely agree. I

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Speaker 1: would say that I think that China is basically confirming

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Speaker 1: what the administration has essentially led on a Phase one

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Speaker 1: deal is, in my opinion, really just acknowledgement that US

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Speaker 1: farmers and manufacturers are in a very real set of

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Speaker 1: dire straights here and the administration being pressured extensively just

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Speaker 1: to get us back to where we were in two

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Speaker 1: thousand seventeen. Um. I don't care about optics. I can't

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Speaker 1: take it anymore. Um is the message from farmers we're desperate,

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Speaker 1: and I give us twelve billion dollars, we don't need

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Speaker 1: forty uh. And for the President to come out and

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Speaker 1: say random numbers that China's never confirmed, like forty and

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Speaker 1: fifty billion dollars over a two year window eventually is

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Speaker 1: essentially just admitting in different words that we're not going

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Speaker 1: to get a grand, robust deal exactly what you're reporting

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Speaker 1: and what China is indicating overnight. The most significant part

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Speaker 1: to me, Henrietta Trees is the idea that to get

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Speaker 1: to Phase one, they have to agree on the parameters

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Speaker 1: for Phase two, even just the timeline, and that there

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Speaker 1: isn't a meeting of the minds there. How significant is that, Um? Well,

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Speaker 1: I would love to say that it's significant, except for that,

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Speaker 1: I think that's what the tariffs are for. I don't

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Speaker 1: think anybody has high expectations that you know every other

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Speaker 1: day they're going to be on the following working diligently

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Speaker 1: on a phase two. Indeed, one of the things that

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Speaker 1: was most telling is that they picked all the low

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Speaker 1: hanging fruit and put it in basket one. And doing

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Speaker 1: that creates a scenario where nobody, especially not China, would

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Speaker 1: be incentivized to come back and continue negotiating with you.

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Speaker 1: And that's what USCR Lifehiser believes is the purpose of tariffs.

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Speaker 1: The purpose tarifs have a play, and the point is

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Speaker 1: to force those conversations, whether timeline exists or not, um

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Speaker 1: and invite the usc R Lifehiser believe that they've been

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Speaker 1: working futures at negative nine. I do want to point

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Speaker 1: out the importance of this article. Both Maria over at

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Speaker 1: Fox Business Squawk are talking up is Bloomberg story, Henriette.

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Speaker 1: As you mentioned within, it is the idea of the

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Speaker 1: agricultural flattening of America. I've got you from Louisiana, I

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Speaker 1: got Lisa Brando wants from Fargo. I mean the fact is,

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Speaker 1: does a calendar play in here? Does winter play in here?

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Speaker 1: Let me go to you, Henrietta, first, does winter play?

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Speaker 1: Does the seasons? Do they play into this debate this

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Speaker 1: season's in terms of planting, certainly do, although that was

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Speaker 1: really a September time horizon for the latest um crop

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Speaker 1: that they were most concerned with. But when I think

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Speaker 1: about phasing and timing, I think more about the politics,

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Speaker 1: in my opinion, When you still have you know, twelve

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Speaker 1: plus Democrats in the presidential campaign and they can't get

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Speaker 1: a until he's a consistent message on trade, it's the

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Speaker 1: best chance for President Trump to hit the pause button

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Speaker 1: without expecting some unified national message from the Democratic Party

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Speaker 1: to challenge his decision to hit pause. I want to

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Speaker 1: be clear here that we are hitting pause, Henrietta, that

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Speaker 1: this Phase one trade deal is still very much in play.

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Speaker 1: From the perspective of the markets. What matters here, And Henritta,

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Speaker 1: you weren't surprised by our reporting. I don't know anyone

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Speaker 1: on Wall Street that was surprised this morning by our reporting,

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Speaker 1: and I think that goes some way to explain why

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Speaker 1: the equity market is only down just a third of one.

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Speaker 1: The risk here is that the Chinese and their refusal

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Speaker 1: to budge on the bigger issue, blows up the truce

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Speaker 1: and the pause we have current. Do you see that

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Speaker 1: as a real risk in the coming months. I think

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Speaker 1: that China holds all the cards here, so to that extent, absolutely,

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Speaker 1: if China decides that they are better off blowing up

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Speaker 1: the President Trump presidency and holding off until there's another

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Speaker 1: Democrat in office and seeing what happens, or just stalling,

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Speaker 1: which has historically been their main negotiating tactic, that is

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Speaker 1: entirely up to them, and the US is pretty clearly

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Speaker 1: illustrated that all they need right now are agriculture purchases.

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Speaker 1: So accepting poultry, accepting Boeing jets, accepting more ethanol would

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Speaker 1: be nice, but really we just need to get back

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Speaker 1: to seventeen and whatever the Chinese will throw at us.

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Speaker 1: So they've seen that. I think this is mostly a

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Speaker 1: political calculation on the part of China. Now do they

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Speaker 1: want to throw President Trump and bone or not so um,

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Speaker 1: And it's entirely in their hands, not ours. When you

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Speaker 1: talk about the political pressures from the agricultural region, and

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Speaker 1: we talked about how bankruptcy search due to some of

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Speaker 1: the trade war concerns and the recent bankruptcies concentrated in

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Speaker 1: the thirteen state Midwestern region, which is the key battleground

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Speaker 1: for President Trump's reelection, and I'm wondering is there any

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Speaker 1: analysis of how much a trade deal will boost support

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Speaker 1: in that region, or whether the support of President Trump

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Speaker 1: is independent frankly, and whether people are just happy that

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Speaker 1: he's taking a hard line, because I've heard that from

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Speaker 1: some analysts. Yeah, I would say the bulk of the

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Speaker 1: population out there, and you can see from the President's

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Speaker 1: internal approval numbers within the party is that he is

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Speaker 1: very much doing the you know, God's work with China

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Speaker 1: in in a lot of their opinions. Yes, it's sitting

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Speaker 1: in their pocketbook. And yes, historically maybe if the economy

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Speaker 1: was worse more broadly, that would be the only thing

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Speaker 1: that they cared about. But if you look at polling

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Speaker 1: data and see what voters care about, the economy is

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Speaker 1: still high up there, but not as high as it

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Speaker 1: was during the recession. So ironically, when the economy is good,

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Speaker 1: people care less about it. The farmers are a different story, obviously,

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Speaker 1: because the small farmers are going out of business, going

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Speaker 1: into bankruptcy. Uh. One of the things we hear and

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Speaker 1: I know that Republicans on the Agriculture committees here is

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Speaker 1: I don't care about Lists four B tariffs because there's

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Speaker 1: nothing China can do to make my life worse. It's

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Speaker 1: already awful. And I think we've discussed that before. Um So,

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Speaker 1: I think what President Trump is doing right here, right

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Speaker 1: now is making sure that he can create an off ramp.

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Speaker 1: You know, forget curbing semiconductor sales and uh, curbing AI

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Speaker 1: and visual and audio surveillance and all that stuff. Let's

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Speaker 1: just get the farmers and soybean purchases and pork. And

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Speaker 1: that's what this Phase one deal is doing. It's a

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Speaker 1: complete capitulation on the part of the us UM in

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Speaker 1: terms of our long term economy in exchange for just

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Speaker 1: getting back to where we were two years ago. Andrietta,

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Speaker 1: thank you so much. In the trace with Beta Partners,

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Speaker 1: I've been an extraordinary set of conversations in the last

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Speaker 1: for about two troubled companies in Europe Fiat Chrysler in

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Speaker 1: the very troubled French auto industry, Renault and Puggeaux. And

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Speaker 1: I can only take it back to my ute, where

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Speaker 1: the coolest thing in the neighborhood, John Farrell, was what

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Speaker 1: we called a Renault Dauphine. We of course mispronounced Renault.

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Speaker 1: It was a Renault Dauphine and there was a romance

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Speaker 1: to these French cars. Lisa, did you ever have anyone

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Speaker 1: cool in your neighborhood the rich guy who had the Citron.

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Speaker 1: I grew up in Morningside Heights in Okay, so they

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Speaker 1: didn't have a Citron Morningside. My mom had a Renout five. Yeah, exactly.

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Speaker 1: She was very, very happy with it. Then she came

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Speaker 1: home one day and my dad had sold it, and

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Speaker 1: I just remember just exactly the window shook. Let's talk

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Speaker 1: to an expert on the cool. He's Damien Flower is

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Speaker 1: really quite good on European autos, the financials, the cultural

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Speaker 1: and the romance of it. Damian, let's start with that

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Speaker 1: conversation as we ugly Americans see it. Is there any

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Speaker 1: romance left anymore to Renault or Pugeaux. Um. I'm not

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Speaker 1: sure I've ever been called an expert of the call before,

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Speaker 1: but I'm but I'm flattered. Um. I think they're trying

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Speaker 1: to restore some of their romance into into Persia. I

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Speaker 1: think some of the newer products is igniting some small

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Speaker 1: bit of passion again in the in the consumer. The

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Speaker 1: two O eight is one example. In the three O eight,

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Speaker 1: they've been well received. But in the end, I think

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Speaker 1: that what's driving the purge products story is his emissions.

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Speaker 1: Right in Europe, we've got to be compliant, So it's

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Speaker 1: all about a little bit boring but cleaner. That's the necessity,

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Speaker 1: and well a little boring is is I would say

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Speaker 1: as a general statement, Peugeot's down. The income statement margin

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Speaker 1: is three basis points different than General motors. Are they

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Speaker 1: affecting this merger because of revenue challenges or are they

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Speaker 1: affecting this merger to actually try to make more profit

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Speaker 1: um I think it is or the latter, right, I

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Speaker 1: think for most carmakers now, regardless of where they operate,

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Speaker 1: there's not much growth in this industry. There's not many

429
00:25:10,600 --> 00:25:13,639
Speaker 1: untapped markets to go and explore. China was kind of

430
00:25:13,640 --> 00:25:17,560
Speaker 1: the last one, and look it's moved into decline. So

431
00:25:17,920 --> 00:25:20,679
Speaker 1: what's left. You've got to try and make cars profitably,

432
00:25:20,720 --> 00:25:23,840
Speaker 1: and that means taking costs out. That is really the

433
00:25:23,920 --> 00:25:26,359
Speaker 1: key russianale behind this merger, and the key place you

434
00:25:26,359 --> 00:25:29,280
Speaker 1: want to take costs out, to your point is Europe. Yeah,

435
00:25:29,320 --> 00:25:32,600
Speaker 1: the US carmakers, they're doing okay. North America is a

436
00:25:32,600 --> 00:25:35,480
Speaker 1: relatively profitable market that's huge money to be made in

437
00:25:35,880 --> 00:25:38,560
Speaker 1: light trucks over there in Europe we don't have that.

438
00:25:38,600 --> 00:25:43,879
Speaker 1: We've got these emissions regulations squeezing us. It's hard to

439
00:25:43,880 --> 00:25:45,720
Speaker 1: make money over there. Demian, what does it tell you

440
00:25:45,760 --> 00:25:49,720
Speaker 1: this morning, this afternoon into its Milan into Paris, that

441
00:25:49,760 --> 00:25:53,600
Speaker 1: we see Fiat Chrysler up eight percent in Italy and

442
00:25:53,680 --> 00:25:57,040
Speaker 1: per Joe down more than in France. What's your takeaway?

443
00:25:57,080 --> 00:26:02,240
Speaker 1: What's the signal from the price section? What it's not

444
00:26:03,320 --> 00:26:07,040
Speaker 1: is it's not a judgment on from the market on

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00:26:07,040 --> 00:26:09,760
Speaker 1: on the sense of this deal, whether it makes sense,

446
00:26:10,160 --> 00:26:14,439
Speaker 1: what it is it is, it's the manifestation. Thus learning

447
00:26:14,480 --> 00:26:17,439
Speaker 1: how the deal was structured, how the balance of power

448
00:26:17,560 --> 00:26:20,120
Speaker 1: was allocated within the two parties at the point where

449
00:26:20,119 --> 00:26:23,280
Speaker 1: they struck the steel, and clearly it was allocated more

450
00:26:23,359 --> 00:26:28,280
Speaker 1: favorably in the direction of the at the shares tell

451
00:26:28,320 --> 00:26:31,879
Speaker 1: you that UM this special dividend of five and a

452
00:26:31,880 --> 00:26:36,600
Speaker 1: half billion that pays itself as very nice for the shareholders.

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00:26:36,960 --> 00:26:40,720
Speaker 1: UM Persia is having to contribute more than what we

454
00:26:40,840 --> 00:26:45,000
Speaker 1: previously thought. Now, how did that balance get broken? Well,

455
00:26:45,080 --> 00:26:47,160
Speaker 1: ultimately the Persian guy is going to be the guy

456
00:26:47,560 --> 00:26:50,680
Speaker 1: running the new operation. They maybe to a degree, there's

457
00:26:50,680 --> 00:26:53,520
Speaker 1: a price to be paid for that I'm wondering paid

458
00:26:53,560 --> 00:26:57,440
Speaker 1: by the PERSO shareholders. So Tom was talking about Romance

459
00:26:57,600 --> 00:27:00,520
Speaker 1: and about the Renault in his neighbor head, and I

460
00:27:00,520 --> 00:27:03,400
Speaker 1: wonder if the Romance has shifted to electric even though

461
00:27:03,400 --> 00:27:05,480
Speaker 1: it's not that profitable, and how important it is for

462
00:27:05,520 --> 00:27:09,080
Speaker 1: these two companies to join forces, to have the capital

463
00:27:09,160 --> 00:27:14,560
Speaker 1: to invest in the new Romance that is that that

464
00:27:14,640 --> 00:27:18,879
Speaker 1: is absolutely the right observation in my view. Rome is

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00:27:18,880 --> 00:27:20,480
Speaker 1: a nice way of putting it too, because if you

466
00:27:20,520 --> 00:27:24,120
Speaker 1: look at you know, pick up any car magazine, Yeah,

467
00:27:24,400 --> 00:27:27,160
Speaker 1: that's such a disproportionate focus on electric. Go to any

468
00:27:27,200 --> 00:27:30,320
Speaker 1: auto show, a disproportionate focus on electric relative to the

469
00:27:30,359 --> 00:27:34,119
Speaker 1: actual number of cars that are being sold of that type.

470
00:27:35,520 --> 00:27:38,800
Speaker 1: Electric is, in a ways the new premium um It's proven.

471
00:27:38,880 --> 00:27:42,040
Speaker 1: Maybe not there yet, but ultimately in order to sell

472
00:27:42,240 --> 00:27:44,560
Speaker 1: a product at a premium, it needs to be differentiated.

473
00:27:44,600 --> 00:27:46,879
Speaker 1: And I believe in the future electric is where the

474
00:27:46,920 --> 00:27:50,320
Speaker 1: differentiation will will lie. So yes, down the line, maybe

475
00:27:50,440 --> 00:27:52,600
Speaker 1: don't have to be there today, it's my profit perspectives

476
00:27:52,640 --> 00:27:54,720
Speaker 1: that they need to get there. And that's not cheap

477
00:27:55,000 --> 00:27:57,440
Speaker 1: box foggers can get there because of scale. These guys

478
00:27:57,480 --> 00:28:01,240
Speaker 1: have got to find their own way, the skill and

479
00:28:01,359 --> 00:28:05,040
Speaker 1: the new skill. Damian Flower Emergers, Yes, exactly, Damian Flowers.

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Speaker 1: Thank you so much for Commerce Bank. Thanks for listening

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00:28:09,160 --> 00:28:13,720
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

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00:28:13,720 --> 00:28:18,960
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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00:28:19,520 --> 00:28:22,840
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You

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00:28:22,880 --> 00:28:26,280
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio