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

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

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

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Let's

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Speaker 1: bring getting Peter Shaffrey Shawe MBC Capital Markets, Global Markets

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Speaker 1: Strategist ahead of US GDP, and it ran about nine

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Speaker 1: minutes time pizza. What are you looking for from the

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Speaker 1: US economy this morning? Good morning guys. Well, first of all,

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Speaker 1: it's good to see that you're all having fun here. Um. Well,

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Speaker 1: if I if we look at the number so that

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Speaker 1: the number of all is obviously not going to be

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Speaker 1: super strong. I mean we are like the head of consensus.

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Speaker 1: Our number, our estimate is two point zero, whether the

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Speaker 1: market is looking for one point eight. But I think

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Speaker 1: that's not really the point. The point is if you

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Speaker 1: look underneath the bunnet, Um, what what are we getting there? Um,

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Speaker 1: and our guys over there in New York and you're

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Speaker 1: part of the world, and when when they when they

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Speaker 1: look under it, and what they say, well, what really

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Speaker 1: coming out was likely going to come out, is that

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Speaker 1: the consumer remains strong and it has been the bullwark

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Speaker 1: of US growth. And if the rest, particularly if inventories

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Speaker 1: are causing some of the weakness that you potentially see,

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Speaker 1: that's not so bad. So as long as the consumers

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Speaker 1: stay strong, that's really one of the key things, Peter.

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Speaker 1: Does it change an I think for the Federal Reserve

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Speaker 1: next week? Probably not. I mean, you know, it's it's

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Speaker 1: it's not necessarily a question of whether or not the

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Speaker 1: economic backdrop really requires in the here and now a

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Speaker 1: rate cut. They have I wouldn't say nailed their colors

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Speaker 1: to the mast, but it seems like a very very

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Speaker 1: high probability that would get a twenty five basis points right. Well,

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Speaker 1: it's sort of on the same theme. What would we

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Speaker 1: have to see with respect to an upside surprise to

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Speaker 1: make the Federal Reserve question at their current approach to

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Speaker 1: cutting rates. Well, you know, I would say probably more

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Speaker 1: of the same, and probably even stronger numbers than we

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Speaker 1: currently had. But if you if you sort of really

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Speaker 1: just look in the numbers that are coming out, and

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Speaker 1: then I think the the here and now doesn't justify

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Speaker 1: a rate cut in the first place, So what really

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Speaker 1: is driving it? I we think is first of all,

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Speaker 1: is the is the potential risk down the road. So

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Speaker 1: if if the assessments of any kind of future developments

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Speaker 1: are changing to the upside, if any of the sort

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Speaker 1: of looming risk on the horizon go away, I think

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Speaker 1: that's probably what the FED would be really looking for.

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Speaker 1: So going forward, I'm trying to understand actually the state

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Speaker 1: of the U s economy right now, given the fact

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Speaker 1: that we have gotten some weaker than expected data, but

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Speaker 1: on the whole you said, as you pointed out, the

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Speaker 1: numbers have been pretty good. Where do you think we

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Speaker 1: are I mean, do you think that there is a

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Speaker 1: material slow down in the US economy that the FED

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Speaker 1: is rightly recognizing. Well, look, first of all, if I

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Speaker 1: you know, I don't want to sort of just pull

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Speaker 1: it away from only the US. I think it is

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Speaker 1: the same pretty much everywhere. What you had is that

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Speaker 1: the strength of most of the Western economies has been

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Speaker 1: that virtus circle between hiring on the one hand, consumption

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Speaker 1: on the other. Is who put people in people in employment,

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Speaker 1: they have money in their pockets and they spend it.

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Speaker 1: And it has particularly predominant in the US, and obviously

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Speaker 1: you have a very strong labor market over there. On

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Speaker 1: the other hand, however, what has been lacking his investment

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Speaker 1: On the one hand, and certainly in parts of the economy,

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Speaker 1: the trade picture is making it worse. That's particularly true

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Speaker 1: over here in Europe on the manufacturing side, but you

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Speaker 1: also see it in the forward looking indicators in the US,

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Speaker 1: and I think that's sort of the fear that is

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Speaker 1: not necessarily what has been making us strong over the

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Speaker 1: last couple of years is the question of whether there

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Speaker 1: is something on the horizon that might push us down

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Speaker 1: into the future and eventually sort of eat away as

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Speaker 1: sort of that that key pillar that I was just

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Speaker 1: mentioning that has been driving our growth rates, you know,

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Speaker 1: for the last couple of years. So we're waiting for

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Speaker 1: Chairman Poal next week. President Dragic, seven years to the

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Speaker 1: day since that bumble bee speech back in London and

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Speaker 1: the pledge to do whatever it takes to preserve the

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Speaker 1: euro Peter, your thoughts now that dust is settled after

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Speaker 1: yesterday's news conference, right, if I may say, already after

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Speaker 1: the central speech, and just because you made that reference

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Speaker 1: to do whatever it takes, we send the research report

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Speaker 1: out saying this was whatever it takes two point zero um,

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Speaker 1: and I think yesterday, in my mind, market reaction was

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Speaker 1: slightly disappointed, of course, but I think the market is

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Speaker 1: missing missing a trick here when you look at what

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Speaker 1: the e c B has now inserted into their key statement,

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Speaker 1: which was a reference to inflation inflation expectation, essentially again

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Speaker 1: to whatever to do, whatever it takes to get inflation back.

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Speaker 1: And particularly they made this reference to the symmetry of

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Speaker 1: their inflation target. So essentially, if inflation has been below

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Speaker 1: the target for a while, it can well stay above

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Speaker 1: the target for quite a while. Um. I think this

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Speaker 1: is a substantial step for the ECB to tell markets guys,

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Speaker 1: we will stay at extremely low levels or even lower

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Speaker 1: as long as necessary for inflation to come up. So therefore,

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Speaker 1: in my mind, the market should not be selling off here,

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Speaker 1: and particularly not the forwards. The forward should be coming down,

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Speaker 1: the curve should be better. Peter. This is important and

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Speaker 1: it's a point of confusion for of people. The mandate

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Speaker 1: for the e c B. The actual mandate is price stability,

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Speaker 1: but the Government Council defines the mandate and they last

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Speaker 1: define the mandate a long long time ago, so this

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Speaker 1: is a almost a re clarification of a definition or

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Speaker 1: in fact the fresh clarification of how they define price stability, Peter,

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Speaker 1: what does it mean for policy? Then? What did they

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Speaker 1: do now they've changed that, now they've clarified what they

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Speaker 1: now think the definition of price stability is. Well, first

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Speaker 1: of all, I want to stress that they haven't yet

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Speaker 1: changed it um I mean the you know, or they

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Speaker 1: haven't redefined it. And what they're saying is that they're

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Speaker 1: really working on this and that the the and apparently

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Speaker 1: there's some stories out there that they have been presented

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Speaker 1: with different ways of of of looking at inflation and

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Speaker 1: these type of things. But I expect that as time

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Speaker 1: progressors will get a much much firmer definition of this.

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Speaker 1: But what what seems to be very clear is that

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Speaker 1: when you look at the past, and we've just put

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Speaker 1: this in a research and order yesterday and post the ECB,

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Speaker 1: when you look at the past let's say ten years,

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Speaker 1: there's at least three occasions when inflation was above two percent,

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Speaker 1: and although there were some trouble outside ahead the e

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Speaker 1: c B hiked, that was before the crisis in two

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Speaker 1: thousand eight, that was before the European crisis in two

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Speaker 1: thousand eleven, and most recently when they adopted it in

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Speaker 1: a hiking bias. I think the ECB wants to pull

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Speaker 1: the rug out from under that and will tell markets,

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Speaker 1: do not think that we will do this again. If

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Speaker 1: we are not anywhere closed to a medium term two

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Speaker 1: percent level, we will not hike. And I think there's

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Speaker 1: a very very strong message if, if I may say,

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Speaker 1: even a sort of a little bit tongue in cheek,

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Speaker 1: the e c B was modeled after the Bundesbank. I

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Speaker 1: think they really want to drive the Bundesbank out of

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Speaker 1: the e c B. So um. There's a quote that's

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Speaker 1: been misattributed to Albert Einstein many times. The definition of

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Speaker 1: insanity is doing the same thing over and over again

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Speaker 1: and expecting a different result. And that sticks out in

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Speaker 1: my mind as we hear that the e c B

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Speaker 1: is going to drop the deposit rate even lower and

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Speaker 1: engage in further asset purchases and hope of igniting inflation.

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Speaker 1: Is this a faulty premise to negative rates actually hinder

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Speaker 1: the ability for inflation to take off? Well, I I,

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Speaker 1: first of all, I don't think so that's a very

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Speaker 1: short answer, and I'll give you more meat to the bone.

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Speaker 1: But secondly, I think you're starting from a m if

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Speaker 1: I may say so, no offense here. I think you're

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Speaker 1: starting from a wrong point of view, because what you're

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Speaker 1: saying is what the ECB has done has not delivered

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Speaker 1: what they wanted to achieve, which is getting inflation and

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Speaker 1: towards two percent again. But then you don't know what

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Speaker 1: the counter factual is. Where would inflation be if they

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Speaker 1: hadn't moved interest rates to these levels, and I would

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Speaker 1: claim it would probably be even lower than where it

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Speaker 1: is currently. So and that's the point that drug was

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Speaker 1: making yesterday to more or less the same question as well.

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Speaker 1: Um so I think and he thinks, and the ECB

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Speaker 1: things that they have been fairly successful, they just have

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Speaker 1: not been successful enough. And in fact, when you're then

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Speaker 1: going back to your original question, when you look at

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Speaker 1: some of the research that the ECB has put out,

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Speaker 1: and they have the best data on this, they're very

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Speaker 1: clearly demonstrate that in an environment of very low inflation,

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Speaker 1: particularly coupled with relatively large sums of reserves out there

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Speaker 1: sort of que that's been printed, that lending of banks

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Speaker 1: two corporates increases, and that's exactly what they want. A

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Speaker 1: Peter greater cash how with you to get your thoughts,

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Speaker 1: Peter Shaffrick, there of our we see capital markets global

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Speaker 1: market strategist. Least at the end of the day, in

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Speaker 1: the short term at least, it doesn't matter whether you

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Speaker 1: and I or Peter thinks this will work. What matters

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Speaker 1: is whether the ECB thinks it will work, because if

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Speaker 1: they believe their tools are effective, they'll deploy them. And

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Speaker 1: ultimately that's what's going to happen in September. Now the

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Speaker 1: dust settled after yesterday, I think we can focus on

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Speaker 1: September and try and work out what's about to come

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Speaker 1: down from the e c B, the size and scope

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Speaker 1: of QUI if they deliver, and whether we finally get

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Speaker 1: some tearing to go along with that lower right, And

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Speaker 1: I think that that's the key thing is what it

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Speaker 1: is going to be sort of the amelioration for the

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Speaker 1: banks to the charge that they're paying on their deposits.

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Speaker 1: And I think that may be a really key factor here.

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Speaker 1: I'm overwhelmed by the guest appearances on this program this morning. Firstly,

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Speaker 1: so Brandt's now pull Swayney joining us early. How many

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Speaker 1: early white cup cools is this in the last week exactly?

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Speaker 1: This is not in my contract. I'm gonna have to

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Speaker 1: talk to somebody. This must be his tech earnings week.

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Speaker 1: And Amazon came out after the close the stock down

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Speaker 1: by a little more than one percent. Have they flicked

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Speaker 1: the switch the other way again? Pulled? You know, it's

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Speaker 1: a little bit. I think it's just gonna be a

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Speaker 1: short term thing. They're ramping up their expenses to you know,

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Speaker 1: kind of get to this one day delivery. It's getting,

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Speaker 1: you know, so competitive in terms of uh, this e

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Speaker 1: commerce business, so that you know, they started this whole

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Speaker 1: thing kind of with this you know, I'll get you

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Speaker 1: the package in two or three days. Now it's one day.

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Speaker 1: But no matter what it is, it costs a lot

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Speaker 1: of money. So they were ramping up about eight hundred

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Speaker 1: million expenses just to get that one day uh delivery

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Speaker 1: for a lot of markets and a lot of products.

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Speaker 1: And that's that impact that their EPs and they're operating profit.

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Speaker 1: But the revenue came in really strong once again. You

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Speaker 1: know it's interesting. Shares down a little bit more than

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Speaker 1: a percent ahead of the U S open. So not

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Speaker 1: huge move that we're seeing, but as Amazon still going

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Speaker 1: to be an eCOM worse company in five years or

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Speaker 1: is it going to be a cloud, computing, logistics and

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Speaker 1: advertising company. I think it's going to be all of

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Speaker 1: the above. You know that, You're right, they're really investing

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Speaker 1: in some of these you know, non retail businesses. And

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Speaker 1: of course, the big profit driver for this company is

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Speaker 1: Amazon Web Services that has a you know, double digit

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Speaker 1: operating profit margin versus the core retail business which is

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Speaker 1: barely profitable, um which we know. So the web is

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Speaker 1: you know, a big, big driver for them. Their number

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Speaker 1: one in the market, but it's very competitive about their

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Speaker 1: Microsoft is out there, Google is out there, and some

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Speaker 1: other tech companies. But the advertising business is just starting

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Speaker 1: to ramp up for them, and it's a question of

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Speaker 1: whether how big they want that business to get. But

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Speaker 1: I'll tell you advertisers would love to have a third

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Speaker 1: digital marketplace in the market, UM, aside from Facebook and Google.

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Speaker 1: So the advertising business, the web business, very profitable businesses,

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Speaker 1: fast growing businesses for them, and that drives profits. And

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Speaker 1: this this is a company that hasn't had much profits

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Speaker 1: to show for over the last decade or so, so

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Speaker 1: investors like the profit story. So once they turned the tables,

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Speaker 1: as you mentioned, Jonathan, a little bit on the expenses

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Speaker 1: just kind of reminds people, oh, this is a company

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Speaker 1: that can spend money to and that's where the focus

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Speaker 1: has been ever since the numbers dropped after the close yesterday,

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Speaker 1: just a WS just the word on a w S

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Speaker 1: if you can. Since they first started breaking out these numbers,

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Speaker 1: we've had revenue growth of north of forty north of

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Speaker 1: north and yesterday I dropped below that number. Should we

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Speaker 1: be looking at that a little bit more carefully, a

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Speaker 1: little bit more closely? I think so well. I mean,

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Speaker 1: I think the long term trend for cloud revenue growth

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Speaker 1: remains very strong. We saw good numbers out of Microsoft

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Speaker 1: UM and you know, we saw some good numbers although

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Speaker 1: Google doesn't really break it out that clearly out of Google,

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Speaker 1: so we know cloud average cloud revenue is growing pretty substantially.

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Speaker 1: That's a big part of the tech stack right now.

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Speaker 1: So and and of course Amazon has the leading play

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Speaker 1: there so UM but the revenue did miss and that

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Speaker 1: and that definitely spooked investors because again that's the big

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Speaker 1: profit driver for this company. But I think they're going

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Speaker 1: to continue to invest in the cloud business because that's

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Speaker 1: where they're spending a lot of money on servers and

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Speaker 1: all that type type of stuff. I have to wonder

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Speaker 1: about regulatory pressures, and I have to wonder what they're doing,

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Speaker 1: how they're positioning themselves ahead of what will be an

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Speaker 1: increasingly contentious period of time for big tech as elections

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Speaker 1: heat up. Yeah, exactly. And that's something that Google, Facebook, Apple,

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Speaker 1: all these big tech companies have to deal with, um

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Speaker 1: because as we know, the US has generally taking a

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Speaker 1: very light touch to big technology Silicon Valley over the

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Speaker 1: last twenty thirty years. But that seems to be changing. Uh.

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Speaker 1: And it's and the companies know it, because they're stepping

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Speaker 1: up their lobbying and about it. They're saying, they're saying

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Speaker 1: that they're working with regulators, they you know, um, you know,

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Speaker 1: they're looking for smart regulation of this industry. I think

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Speaker 1: Mark Zuckerberg at Facebook is probably the most out in

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Speaker 1: front because quite frankly, Facebook is probably the most at

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Speaker 1: risk here because it's personal. It's it's people's personal data

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Speaker 1: and privacy, and I think they are kind of the

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Speaker 1: poster child for what's going to happen going forward in

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Speaker 1: terms of tech regulation. Amazon probably probably to a much

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Speaker 1: lesser extent. I think the headline of the week though,

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Speaker 1: goes to perhaps Treasury Secretary Stephen Manuchin. Amazon has destroyed

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Speaker 1: US retail using the word destroyed. I mean, this was

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Speaker 1: really powerful stuff. And then you sort of put the

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Speaker 1: headline to one side and try and work out, well,

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Speaker 1: what does this really mean for this company? What does

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Speaker 1: it mean? You know, I don't know. I think that

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Speaker 1: you know, I think most investors that didn't really impact

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Speaker 1: the stock people kind of thought it was just political rhetoric. Um.

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Speaker 1: But the fact is e commerce is destroying main street retail,

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Speaker 1: and it's just consumer behavior. What consumers want. They you know,

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Speaker 1: now with the Internet, you can actually order stuff online

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Speaker 1: and have it delivered and you don't necessarily need to

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Speaker 1: go to the mall or to the local main street

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Speaker 1: to get to the store. And that's just the way that,

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Speaker 1: you know, the business has evolved. And of course Amazon

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Speaker 1: is the eight pound guerrilla, so they're going to bear

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Speaker 1: bear the brunt. Here, Paul Sweeney, we can hash this

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Speaker 1: out pretty soon. In two hours, you and I can

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Speaker 1: debate this. But I've got to say, Paul Sweeney, Bloomberg

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Speaker 1: Radio anchor joining us here, I've got to say this

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Speaker 1: is very controversial, John, because people say Amazon killed Mom

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Speaker 1: and Poper retail. But there are a lot of questions

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Speaker 1: about the ability to adjust to an Internet age, the

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Speaker 1: interference with some of these firms that had these companies

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Speaker 1: incur a lot of leverage, and their ability to spend

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Speaker 1: and adapt to the new environment. I'm just saying it's

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Speaker 1: not so simple. Well, in reality, Walmart killed Main Street.

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Speaker 1: That's what happened, and that was thirty forty years Mike

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Speaker 1: drop post, Wayne right to catch up with you, as always, Well,

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Speaker 1: let's bring in David Rosenberg shown we gliskin chef chief

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Speaker 1: economist David always great to get your insight, your first

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Speaker 1: take on the GDP per and please, well, it's a

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Speaker 1: obviously um above expected and uh, you know, I think

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Speaker 1: has the FED leaning towards twenty five as opposed to

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Speaker 1: fifty basis points. I think we look at the components.

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Speaker 1: I mean, as stated that it was led by the

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Speaker 1: big bounce and hum, we're spending at four point three,

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Speaker 1: but remember the previous two quarters consumer spending growth had

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Speaker 1: a one handle. So this is I think a temporary

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Speaker 1: spirit of growth and consumer spending after really two quarters

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Speaker 1: of of almost stagnation. What really catches my eye though

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Speaker 1: that people should recognize uh and why I might be

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Speaker 1: my treasury is here on the sell off? Is business

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Speaker 1: spending UM contracted at a five and a half percent

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Speaker 1: annual rate, Housing negative one point five, exports negative five

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Speaker 1: point two. So when you almost look at this on

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Speaker 1: a diffusion basis beyond the consumer, a lot of the

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Speaker 1: components are pretty soft. Although if you think about business spending,

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Speaker 1: how much is that going to lag behind consumer spending

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Speaker 1: and will eventually pick up as a consumer remains strong? Well, Uh,

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Speaker 1: I guess that you're asking me, um, you know who's

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Speaker 1: swagging the tail? And so is it a case where

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Speaker 1: businesses are going to start to invest more because we

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Speaker 1: had um a spurt of consumer spending growth after two

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Speaker 1: off quarters? Or is business sector going to be curtailing

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Speaker 1: their hirings because if they're cutting back on capex, employment

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Speaker 1: is not far behind. And if employment ends up following

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Speaker 1: what capital spending is doing, uh, you're not seeing a

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Speaker 1: forehandle on consumption growth again anytime soon. David. These are

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Speaker 1: really important points, and I think, just more broadly globally

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Speaker 1: right now, something people are grappling with is the manufacturing

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Speaker 1: recession and whether it begins or has already started to

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Speaker 1: bleed into services David, are you identifying any spots where

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Speaker 1: you see that happening already? Well, a couple of things

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Speaker 1: I think that you know you are seeing out of

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Speaker 1: the anecdotal or the diffusion industries. There's no question that

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Speaker 1: service sector activity globally and even in the US is

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Speaker 1: slowing down. It's not contracting. But remember that the service sector,

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Speaker 1: I mean a lot of the service sector is education

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Speaker 1: and health services and not really that typical. Uh. The

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Speaker 1: goods producing sector manufacturing is typical simately, Uh, cyclical services

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Speaker 1: do service? Um? You know the goods producers. Uh, that

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Speaker 1: they're the leading indicator. Um. But people always talk about, well,

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Speaker 1: don't worry so much about the service sector, it's not contracting. Well,

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Speaker 1: it's very difficult to get services contracting because so much

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Speaker 1: of it has very little correlation with the overall business cycle. Uh.

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Speaker 1: The one thing that has that had did catch fron eye,

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Speaker 1: by the way. Uh. And I know that we're talking

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Speaker 1: about really a coincidence lagging indicator called last quarters GDP.

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Speaker 1: But I did notice that when you're taking a look

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Speaker 1: at small business employment out of the ADP data, it's

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Speaker 1: been negative two months in a row. And so if

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Speaker 1: you want to drive looking through the front window instead

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Speaker 1: of the rear view mirror, which everybody will talk about

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Speaker 1: the rear view mirror today, which is last quarters GDP.

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Speaker 1: One of the best leading indicators for the economy is

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Speaker 1: small business employment. Small business is how the flexibility, flexibility

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Speaker 1: to lay off people much quicker than big companies do.

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Speaker 1: And that's why a d P I think is slowing

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Speaker 1: down much faster than non farm payrolls. But to me,

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Speaker 1: if you're asking me, what is the canari in a

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Speaker 1: coal mine? Right now, small business employment, by the way,

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Speaker 1: including the service sector, is flowing down precipitously, and that's

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Speaker 1: a leading indicator. So this is really important. So I

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Speaker 1: believe in the IDP report this is business is smaller

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Speaker 1: than forty nine employees. Is that right? Do you see

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Speaker 1: that bleeding up into bigger companies. Then it's a great

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Speaker 1: leading indicators. So the answer is yes. You know, the

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Speaker 1: big the big megacap companies, it's hard for them to

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Speaker 1: let people go. I mean they'll package them out, they

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Speaker 1: let them go. But the big companies operate with the lag.

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Speaker 1: The small companies can let you go tomorrow, um, So

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Speaker 1: they're much more flexible. And take a look historically greatly

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Speaker 1: the indicator small business employment. I actually think that it's

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Speaker 1: the cap X recession that is going to lead the

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Speaker 1: softening in consumer spending. I'm not going to stay consumer

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Speaker 1: spending goes negative, but I would not be superposing the

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Speaker 1: four percent growth and consumer spending this quarter into the future.

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Speaker 1: Captains will lead the consumer, not the other way around. David.

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Speaker 1: We've really got to spend a little bit more time

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Speaker 1: on this and look forward to having you in the

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Speaker 1: studio quite soon. David Rosenberg. Then let's can Chief Chief

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Speaker 1: Economy you wanting us to react to a g D

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Speaker 1: preprint hit in the honest stice that if I continues

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Speaker 1: ahead of a Federal Reserve decision next week, mobile Sprint

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Speaker 1: deal the least surprising deal to ever possibly get approved

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Speaker 1: by the d o J, which could come as soon

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Speaker 1: as today. Yesterday, we were thinking it would come after

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Speaker 1: close perhaps or later in the afternoon. Uh. Now it's

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Speaker 1: gotten pushed back joining us. We are so lucky to

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Speaker 1: have Tera La Chapale. She is a Bloomberg opinion columnist. Uh,

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Speaker 1: and she has incredible insights, particularly in this space. And

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Speaker 1: I'm just wondering, first of all, what we're expecting the

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Speaker 1: d o j the Department of Justice deal to look

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Speaker 1: like to enable T Mobile and Sprint to finally complete

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Speaker 1: the very long awaited marriage. Finally, it's been years of

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Speaker 1: covering this deal, so we'll be very nice to finally

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Speaker 1: get an announcement. What we think the structure of the

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Speaker 1: divestiture deal is going to be is T Mobile will

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Speaker 1: be able to buy Sprint and they will sell off

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Speaker 1: likely Boost Mobile, which is a prepaid service, so sort

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Speaker 1: of a pay as you go phone business that caters

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Speaker 1: to lower income Americans. And they all have also have

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Speaker 1: to sell some spectrum licenses, which are very valuable to

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Speaker 1: Dish Network. So Dish Network, the satellite TV provider, will

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Speaker 1: likely be acquiring all these assets, and that's what we're expecting.

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Speaker 1: Um it'll be a small number of subscribers that they're

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Speaker 1: taking on, but I think the goal from the DJ's

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Speaker 1: perspective is to lay the groundwork so that there can

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Speaker 1: be this fourth competitor that kind of fills the space

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Speaker 1: that Spurt is going to leave behind. Whether that's how

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Speaker 1: it ends up, we'll see. I don't know that Dish

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Speaker 1: can actually rise to that occasion, but that at least

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Speaker 1: seems to be the parameters of the deal from what

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Speaker 1: we hear, so I guess that if you look at

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Speaker 1: market reactions to the expectation here, it seems like investors say, Okay,

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Speaker 1: this will be enough to modify the Department of Justice,

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Speaker 1: but it will not be enough to actually curtail the

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Speaker 1: competitive advantage for T mobile and Sprint to get together.

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Speaker 1: Is that your interpretation is exactly if you look at

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Speaker 1: the reaction. Addish investors, I think are a little bit

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Speaker 1: disappointed by this. I think they were hoping that Dish

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Speaker 1: would a partner with a giant tech company with deep

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Speaker 1: pockets and be maybe even just sell out and sell

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Speaker 1: their spectrum. Since Dish already has some of its own

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Speaker 1: it's worth billions of dollars. So the fact that they're

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Speaker 1: going to go through this very costly, time consuming process

431
00:21:14,119 --> 00:21:16,760
Speaker 1: of building their own network and having to try to

432
00:21:16,880 --> 00:21:20,080
Speaker 1: compete with these three other carriers to Mobile Verizing and

433
00:21:20,160 --> 00:21:22,240
Speaker 1: a T and T, it's going to be very challenging

434
00:21:22,320 --> 00:21:25,120
Speaker 1: because Dish is not known nationwide for being a wireless

435
00:21:25,160 --> 00:21:27,560
Speaker 1: server because they don't do service providers. They don't do that.

436
00:21:27,760 --> 00:21:30,040
Speaker 1: So it's going to be a big sort of teaching

437
00:21:30,080 --> 00:21:32,240
Speaker 1: experience to try to market to the country. Hey, we

438
00:21:32,359 --> 00:21:35,720
Speaker 1: also sell wireless service, which brings us to a really

439
00:21:35,800 --> 00:21:39,639
Speaker 1: interesting point that you raised incredibly insightfully in a column

440
00:21:39,680 --> 00:21:42,920
Speaker 1: that you recently wrote looking at why there is so

441
00:21:43,080 --> 00:21:46,320
Speaker 1: much focus on breaking up big tech and regulating big

442
00:21:46,400 --> 00:21:49,639
Speaker 1: tech and there doesn't seem to be any attention right

443
00:21:49,680 --> 00:21:53,280
Speaker 1: now at the size of the conglomerates in the wireless space.

444
00:21:53,359 --> 00:21:56,400
Speaker 1: So what why? I know I'm asking that too. I mean,

445
00:21:56,800 --> 00:22:00,720
Speaker 1: it's very interesting that the Justice Departments and Trust Division,

446
00:22:00,840 --> 00:22:05,600
Speaker 1: led by making Dell Raheem, is very focused on Google, Facebook, Amazon, Apple,

447
00:22:05,640 --> 00:22:08,040
Speaker 1: the power that they have and whether that's harming consumers,

448
00:22:08,080 --> 00:22:11,600
Speaker 1: and I think that's a worthy review that they're doing. However,

449
00:22:11,920 --> 00:22:15,400
Speaker 1: it doesn't really say that they're looking out for consumers

450
00:22:15,440 --> 00:22:17,200
Speaker 1: If they're going to turn around and approve this T

451
00:22:17,359 --> 00:22:21,359
Speaker 1: Mobile Sprint deal as structured with these tiny divestitures, I

452
00:22:21,400 --> 00:22:23,240
Speaker 1: think that this deal could be just as harmful to

453
00:22:23,320 --> 00:22:26,200
Speaker 1: consumers and that more should have been done too to

454
00:22:26,680 --> 00:22:29,840
Speaker 1: make it so that they can't. This can't result in

455
00:22:30,040 --> 00:22:33,280
Speaker 1: greater pricing power, a change to the industry in which

456
00:22:33,359 --> 00:22:36,520
Speaker 1: consumers end up paying more money and getting less service,

457
00:22:36,600 --> 00:22:40,159
Speaker 1: less innovation. Although you could make the argument that if

458
00:22:40,240 --> 00:22:43,760
Speaker 1: you have a behemoth. If you've got three behemoth now

459
00:22:44,440 --> 00:22:47,000
Speaker 1: uh that they are able to invest more in the

460
00:22:47,119 --> 00:22:49,720
Speaker 1: five G infrastructure, they'll have more cash, and they'll be

461
00:22:49,760 --> 00:22:52,520
Speaker 1: able to provide better service, and they'll continue to compete

462
00:22:52,560 --> 00:22:55,080
Speaker 1: with each other. It's possible. I mean, I think you

463
00:22:55,119 --> 00:22:57,200
Speaker 1: know what T Mobile and Sprint saying it Sprint with

464
00:22:57,240 --> 00:23:00,000
Speaker 1: such a weak player, but they have this really valuable spectrum.

465
00:23:00,200 --> 00:23:02,480
Speaker 1: So if T Mobile has access to that, they can

466
00:23:02,560 --> 00:23:05,440
Speaker 1: kind of build this network faster, the five G sort

467
00:23:05,480 --> 00:23:09,040
Speaker 1: of future of wireless service. And I think there's some

468
00:23:09,359 --> 00:23:12,080
Speaker 1: truth to that. But I also think that T Mobile

469
00:23:12,119 --> 00:23:14,320
Speaker 1: and Sprint, by having the two of them competing with

470
00:23:14,400 --> 00:23:16,960
Speaker 1: one another, is what kept prices down the last few years,

471
00:23:17,240 --> 00:23:19,399
Speaker 1: and that's why the industry has struggled so hard to

472
00:23:20,160 --> 00:23:22,200
Speaker 1: um have anything in the way of profit growth off

473
00:23:22,240 --> 00:23:24,680
Speaker 1: of consumers. So I think by putting them together and

474
00:23:24,840 --> 00:23:27,480
Speaker 1: arguing that dishes somehow going to keep that balance. I

475
00:23:27,520 --> 00:23:29,800
Speaker 1: don't know that that's completely honest, because I think T

476
00:23:29,920 --> 00:23:32,760
Speaker 1: Mobile wouldn't do this deal if that were the case.

477
00:23:33,200 --> 00:23:35,760
Speaker 1: And just to that point, I'm looking right now, for example,

478
00:23:35,800 --> 00:23:37,840
Speaker 1: at a T and T shares year to date up

479
00:23:38,200 --> 00:23:41,920
Speaker 1: more than and you're seeing similar action and Verizon, and

480
00:23:42,000 --> 00:23:44,520
Speaker 1: so there does raise a question this ends up benefiting

481
00:23:44,560 --> 00:23:46,280
Speaker 1: the other big guys because there isn't the race to

482
00:23:46,320 --> 00:23:48,280
Speaker 1: the bottom with a sprinting T mobile. I mean, the

483
00:23:48,320 --> 00:23:50,960
Speaker 1: biggest indicator of whether this deal is going to hurt

484
00:23:51,000 --> 00:23:54,119
Speaker 1: consumers and benefit the industry's pricing power is a T

485
00:23:54,240 --> 00:23:56,199
Speaker 1: and T and verise and stock prices. I mean they

486
00:23:56,359 --> 00:23:58,720
Speaker 1: rise every time that there was some sort of signal

487
00:23:58,800 --> 00:24:00,359
Speaker 1: that this deal will go through, and a time that

488
00:24:00,440 --> 00:24:02,119
Speaker 1: it looked like the deal might get blocked or was

489
00:24:02,160 --> 00:24:05,440
Speaker 1: running into interference, that these stock prices would fall. So

490
00:24:05,480 --> 00:24:07,320
Speaker 1: I think that tells you right there what the industry

491
00:24:07,440 --> 00:24:09,800
Speaker 1: is expecting from this. What would you say to people

492
00:24:09,840 --> 00:24:12,760
Speaker 1: who argued that Sprint would ultimately be I don't want

493
00:24:12,800 --> 00:24:16,879
Speaker 1: to say unsustainable, but certainly a poor competitor in the

494
00:24:17,000 --> 00:24:20,120
Speaker 1: long run. Should it have remained independent or should should

495
00:24:20,160 --> 00:24:22,520
Speaker 1: it remain independent? It's it's weak and getting weaker, and

496
00:24:22,560 --> 00:24:24,960
Speaker 1: I think that's true. Um Sprint's business is kind of

497
00:24:25,040 --> 00:24:27,240
Speaker 1: a mess and they have a ton of debt. However,

498
00:24:27,320 --> 00:24:30,160
Speaker 1: they're backed by massa selling, the Japanese billionaire and soft

499
00:24:30,200 --> 00:24:32,159
Speaker 1: bank groups. So I think at the end of the day,

500
00:24:32,200 --> 00:24:34,520
Speaker 1: We're not really, you know, bailing out a company that

501
00:24:34,640 --> 00:24:36,720
Speaker 1: was going to go away anytime soon. I think it's

502
00:24:36,760 --> 00:24:38,480
Speaker 1: just sort of helping him get out of an investment

503
00:24:38,520 --> 00:24:40,760
Speaker 1: that really wasn't working out so well, and now he's

504
00:24:40,760 --> 00:24:42,760
Speaker 1: going to own a piece of this combined company that's

505
00:24:42,760 --> 00:24:45,000
Speaker 1: going to be on much healthier footing. Although you could

506
00:24:45,040 --> 00:24:47,480
Speaker 1: make an argument that this race to the bottom was

507
00:24:47,560 --> 00:24:51,520
Speaker 1: unsustainable for for Sprint, right, I mean T Mobile as well, perhaps,

508
00:24:51,680 --> 00:24:53,480
Speaker 1: and that they were just winning and they were in

509
00:24:53,560 --> 00:24:55,760
Speaker 1: a position of power because of the debt profile of

510
00:24:55,800 --> 00:24:58,000
Speaker 1: sprinting a whole bunch of other sort of structural issues.

511
00:24:58,080 --> 00:25:00,720
Speaker 1: But I do have to wonder, you know, to the

512
00:25:00,840 --> 00:25:03,720
Speaker 1: d o j's defense and to the defense of regulators

513
00:25:03,760 --> 00:25:05,920
Speaker 1: that are not stepping in and saying, you know, hey,

514
00:25:06,240 --> 00:25:09,399
Speaker 1: this is gonna be terrible for the consumer, what was

515
00:25:09,520 --> 00:25:12,000
Speaker 1: the likelihood that this kind of price wark could continue

516
00:25:12,400 --> 00:25:14,399
Speaker 1: indefinitely at a time when they do need to make

517
00:25:14,480 --> 00:25:16,840
Speaker 1: so many investments in five G It's true, it probably

518
00:25:16,880 --> 00:25:19,280
Speaker 1: couldn't have continued much longer. I mean, Sprint a year

519
00:25:19,359 --> 00:25:22,280
Speaker 1: ago was offering free service to anyone from Verizon who

520
00:25:22,320 --> 00:25:24,840
Speaker 1: switched to Sprint, and so I think that tells you

521
00:25:24,960 --> 00:25:27,440
Speaker 1: you know, how desperate they were. But I still think,

522
00:25:27,520 --> 00:25:29,000
Speaker 1: you know, we weren't at the point where and the

523
00:25:29,040 --> 00:25:31,240
Speaker 1: companies themselves aren't making the argument that this is a

524
00:25:31,320 --> 00:25:34,360
Speaker 1: failing business. So and if you listen to their earnings calls,

525
00:25:34,359 --> 00:25:36,600
Speaker 1: I mean, they're still talking optimistically about it. So I

526
00:25:36,720 --> 00:25:39,239
Speaker 1: think if that's the message they're telling their investors, I mean,

527
00:25:39,320 --> 00:25:41,960
Speaker 1: regulators have to take that seriously too. And I don't

528
00:25:42,000 --> 00:25:43,840
Speaker 1: think that this is a case. If T Mobile doesn't

529
00:25:43,840 --> 00:25:47,320
Speaker 1: buy Sprint, Sprint disappears. If Sprint really got cheap enough,

530
00:25:47,480 --> 00:25:49,680
Speaker 1: someone else would probably try to buy them. Okay, So

531
00:25:49,800 --> 00:25:52,160
Speaker 1: then this raises another question. And you sort of talked

532
00:25:52,160 --> 00:25:56,119
Speaker 1: about perhaps big tech coming in and buying one of

533
00:25:56,200 --> 00:25:59,960
Speaker 1: the networks. Is there any talk of big tech getting

534
00:26:00,200 --> 00:26:03,720
Speaker 1: involved here and trying to offer some sort of competing

535
00:26:03,840 --> 00:26:10,240
Speaker 1: wireless entity eventually, especially if there are only three big behaves.

536
00:26:10,359 --> 00:26:12,400
Speaker 1: I mean, right now it's mostly rumor, but I think

537
00:26:12,480 --> 00:26:15,119
Speaker 1: you know, Dish Network, there's always been rumors swirling around

538
00:26:15,200 --> 00:26:17,919
Speaker 1: them that they need a partner to build a wireless network,

539
00:26:17,960 --> 00:26:20,200
Speaker 1: and they are sitting on all this spectrum, so I

540
00:26:20,320 --> 00:26:23,080
Speaker 1: think there is potential for someone to partner with them.

541
00:26:23,560 --> 00:26:25,760
Speaker 1: And do something with the spectrum and turn it into

542
00:26:25,800 --> 00:26:28,800
Speaker 1: some sort of wireless network. Dishes focused on talking about

543
00:26:28,800 --> 00:26:32,600
Speaker 1: Internet of things as opposed to sort of consumer wireless service. Um,

544
00:26:32,720 --> 00:26:35,560
Speaker 1: so there is that possibility, but I and and there's

545
00:26:35,560 --> 00:26:38,920
Speaker 1: also Charter and Comcast which are reselling wireless service using

546
00:26:39,000 --> 00:26:41,560
Speaker 1: Verizon's network. But right now, I mean, I think for

547
00:26:41,680 --> 00:26:43,800
Speaker 1: a while it's just going to be these three main carriers,

548
00:26:43,960 --> 00:26:47,400
Speaker 1: which big tech company would want to have this sort

549
00:26:47,440 --> 00:26:49,560
Speaker 1: of mess on their hands. I mean, I like, on

550
00:26:49,680 --> 00:26:53,080
Speaker 1: one hand, it's it's incredible terms of the demand and

551
00:26:53,160 --> 00:26:55,600
Speaker 1: that sort of built in demand. On the other hand,

552
00:26:55,800 --> 00:26:57,920
Speaker 1: there is a huge capital investment that needs to be

553
00:26:58,000 --> 00:27:01,880
Speaker 1: made continuously, as well as regulatory pressure because it's sort

554
00:27:01,920 --> 00:27:04,479
Speaker 1: of skirting the line with utilities. And there's a lot

555
00:27:04,520 --> 00:27:09,200
Speaker 1: of just technological issues there too, because five G service

556
00:27:09,280 --> 00:27:13,320
Speaker 1: is going to require different bands of spectrum which traveled

557
00:27:13,359 --> 00:27:15,960
Speaker 1: to different distances and need different things in order for

558
00:27:16,160 --> 00:27:19,520
Speaker 1: the connections to work. So it's very costly. It's it's

559
00:27:19,560 --> 00:27:22,760
Speaker 1: a very difficult process. UM, Google and Amazon or names

560
00:27:22,800 --> 00:27:24,680
Speaker 1: that come up whenever Dish's name is in the mix.

561
00:27:24,800 --> 00:27:26,959
Speaker 1: But again it's hard to tell whether that's coming from

562
00:27:27,040 --> 00:27:29,360
Speaker 1: dish or coming from the tech companies themselves. They tend

563
00:27:29,400 --> 00:27:33,680
Speaker 1: to deny this. So, just to tie this all together,

564
00:27:34,520 --> 00:27:36,320
Speaker 1: who do you think is the big winner from the

565
00:27:36,440 --> 00:27:39,800
Speaker 1: likely approval of the Sprint T Mobile deal? Absolutely massive

566
00:27:39,880 --> 00:27:43,560
Speaker 1: zone of soft Bank, the controlling shareholder of Sprint, because

567
00:27:43,600 --> 00:27:45,960
Speaker 1: he gets to be bailed out of this situation which

568
00:27:46,000 --> 00:27:48,160
Speaker 1: otherwise could have gotten really ugly. Yes, because he would

569
00:27:48,160 --> 00:27:50,359
Speaker 1: have had to put up more capital to keep Sprint going.

570
00:27:50,600 --> 00:27:53,000
Speaker 1: And I think that, you know, there's there's not much

571
00:27:53,000 --> 00:27:55,399
Speaker 1: of an optimistic case around Sprint right now, so I

572
00:27:55,440 --> 00:27:57,520
Speaker 1: think they're a big winner. And then T Mobile shareholders

573
00:27:57,560 --> 00:27:59,119
Speaker 1: likely there's gonna be a lot of synergies in this.

574
00:27:59,200 --> 00:28:01,080
Speaker 1: They'll see their profit margins go up. I mean, there's

575
00:28:01,080 --> 00:28:02,720
Speaker 1: gonna be a lot of benefits for them. But the

576
00:28:02,800 --> 00:28:04,960
Speaker 1: industry as a whole, you can tell by their share prices.

577
00:28:05,280 --> 00:28:08,959
Speaker 1: Everybody's everybody's a winner, except perhaps, as Tara la Chappell

578
00:28:09,400 --> 00:28:13,240
Speaker 1: uh suggests, perhaps the consumer might not be Tara la Chappell,

579
00:28:13,240 --> 00:28:17,040
Speaker 1: Bloomberg calumnist. Thank you that was terrific joining us here.

580
00:28:17,119 --> 00:28:20,239
Speaker 1: You can always read Bloomberg opinion columns at Bloomberg dot

581
00:28:20,280 --> 00:28:22,960
Speaker 1: com slash Opinion or on the terminal O P I

582
00:28:23,320 --> 00:28:27,920
Speaker 1: n go. Thanks for listening to the Bloomberg Surveillance podcast.

583
00:28:28,320 --> 00:28:33,240
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

584
00:28:33,400 --> 00:28:37,680
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

585
00:28:37,840 --> 00:28:41,640
Speaker 1: Keane before the podcast. You can always catch us worldwide.

586
00:28:42,160 --> 00:28:43,200
Speaker 1: I'm Bloomberg Radio