Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: bring getting Peter Shaffrey Shawe MBC Capital Markets, Global Markets
Speaker 1: Strategist ahead of US GDP, and it ran about nine
Speaker 1: minutes time pizza. What are you looking for from the
Speaker 1: US economy this morning? Good morning guys. Well, first of all,
Speaker 1: it's good to see that you're all having fun here. Um. Well,
Speaker 1: if I if we look at the number so that
Speaker 1: the number of all is obviously not going to be
Speaker 1: super strong. I mean we are like the head of consensus.
Speaker 1: Our number, our estimate is two point zero, whether the
Speaker 1: market is looking for one point eight. But I think
Speaker 1: that's not really the point. The point is if you
Speaker 1: look underneath the bunnet, Um, what what are we getting there? Um,
Speaker 1: and our guys over there in New York and you're
Speaker 1: part of the world, and when when they when they
Speaker 1: look under it, and what they say, well, what really
Speaker 1: coming out was likely going to come out, is that
Speaker 1: the consumer remains strong and it has been the bullwark
Speaker 1: of US growth. And if the rest, particularly if inventories
Speaker 1: are causing some of the weakness that you potentially see,
Speaker 1: that's not so bad. So as long as the consumers
Speaker 1: stay strong, that's really one of the key things, Peter.
Speaker 1: Does it change an I think for the Federal Reserve
Speaker 1: next week? Probably not. I mean, you know, it's it's
Speaker 1: it's not necessarily a question of whether or not the
Speaker 1: economic backdrop really requires in the here and now a
Speaker 1: rate cut. They have I wouldn't say nailed their colors
Speaker 1: to the mast, but it seems like a very very
Speaker 1: high probability that would get a twenty five basis points right. Well,
Speaker 1: it's sort of on the same theme. What would we
Speaker 1: have to see with respect to an upside surprise to
Speaker 1: make the Federal Reserve question at their current approach to
Speaker 1: cutting rates. Well, you know, I would say probably more
Speaker 1: of the same, and probably even stronger numbers than we
Speaker 1: currently had. But if you if you sort of really
Speaker 1: just look in the numbers that are coming out, and
Speaker 1: then I think the the here and now doesn't justify
Speaker 1: a rate cut in the first place, So what really
Speaker 1: is driving it? I we think is first of all,
Speaker 1: is the is the potential risk down the road. So
Speaker 1: if if the assessments of any kind of future developments
Speaker 1: are changing to the upside, if any of the sort
Speaker 1: of looming risk on the horizon go away, I think
Speaker 1: that's probably what the FED would be really looking for.
Speaker 1: So going forward, I'm trying to understand actually the state
Speaker 1: of the U s economy right now, given the fact
Speaker 1: that we have gotten some weaker than expected data, but
Speaker 1: on the whole you said, as you pointed out, the
Speaker 1: numbers have been pretty good. Where do you think we
Speaker 1: are I mean, do you think that there is a
Speaker 1: material slow down in the US economy that the FED
Speaker 1: is rightly recognizing. Well, look, first of all, if I
Speaker 1: you know, I don't want to sort of just pull
Speaker 1: it away from only the US. I think it is
Speaker 1: the same pretty much everywhere. What you had is that
Speaker 1: the strength of most of the Western economies has been
Speaker 1: that virtus circle between hiring on the one hand, consumption
Speaker 1: on the other. Is who put people in people in employment,
Speaker 1: they have money in their pockets and they spend it.
Speaker 1: And it has particularly predominant in the US, and obviously
Speaker 1: you have a very strong labor market over there. On
Speaker 1: the other hand, however, what has been lacking his investment
Speaker 1: On the one hand, and certainly in parts of the economy,
Speaker 1: the trade picture is making it worse. That's particularly true
Speaker 1: over here in Europe on the manufacturing side, but you
Speaker 1: also see it in the forward looking indicators in the US,
Speaker 1: and I think that's sort of the fear that is
Speaker 1: not necessarily what has been making us strong over the
Speaker 1: last couple of years is the question of whether there
Speaker 1: is something on the horizon that might push us down
Speaker 1: into the future and eventually sort of eat away as
Speaker 1: sort of that that key pillar that I was just
Speaker 1: mentioning that has been driving our growth rates, you know,
Speaker 1: for the last couple of years. So we're waiting for
Speaker 1: Chairman Poal next week. President Dragic, seven years to the
Speaker 1: day since that bumble bee speech back in London and
Speaker 1: the pledge to do whatever it takes to preserve the
Speaker 1: euro Peter, your thoughts now that dust is settled after
Speaker 1: yesterday's news conference, right, if I may say, already after
Speaker 1: the central speech, and just because you made that reference
Speaker 1: to do whatever it takes, we send the research report
Speaker 1: out saying this was whatever it takes two point zero um,
Speaker 1: and I think yesterday, in my mind, market reaction was
Speaker 1: slightly disappointed, of course, but I think the market is
Speaker 1: missing missing a trick here when you look at what
Speaker 1: the e c B has now inserted into their key statement,
Speaker 1: which was a reference to inflation inflation expectation, essentially again
Speaker 1: to whatever to do, whatever it takes to get inflation back.
Speaker 1: And particularly they made this reference to the symmetry of
Speaker 1: their inflation target. So essentially, if inflation has been below
Speaker 1: the target for a while, it can well stay above
Speaker 1: the target for quite a while. Um. I think this
Speaker 1: is a substantial step for the ECB to tell markets guys,
Speaker 1: we will stay at extremely low levels or even lower
Speaker 1: as long as necessary for inflation to come up. So therefore,
Speaker 1: in my mind, the market should not be selling off here,
Speaker 1: and particularly not the forwards. The forward should be coming down,
Speaker 1: the curve should be better. Peter. This is important and
Speaker 1: it's a point of confusion for of people. The mandate
Speaker 1: for the e c B. The actual mandate is price stability,
Speaker 1: but the Government Council defines the mandate and they last
Speaker 1: define the mandate a long long time ago, so this
Speaker 1: is a almost a re clarification of a definition or
Speaker 1: in fact the fresh clarification of how they define price stability, Peter,
Speaker 1: what does it mean for policy? Then? What did they
Speaker 1: do now they've changed that, now they've clarified what they
Speaker 1: now think the definition of price stability is. Well, first
Speaker 1: of all, I want to stress that they haven't yet
Speaker 1: changed it um I mean the you know, or they
Speaker 1: haven't redefined it. And what they're saying is that they're
Speaker 1: really working on this and that the the and apparently
Speaker 1: there's some stories out there that they have been presented
Speaker 1: with different ways of of of looking at inflation and
Speaker 1: these type of things. But I expect that as time
Speaker 1: progressors will get a much much firmer definition of this.
Speaker 1: But what what seems to be very clear is that
Speaker 1: when you look at the past, and we've just put
Speaker 1: this in a research and order yesterday and post the ECB,
Speaker 1: when you look at the past let's say ten years,
Speaker 1: there's at least three occasions when inflation was above two percent,
Speaker 1: and although there were some trouble outside ahead the e
Speaker 1: c B hiked, that was before the crisis in two
Speaker 1: thousand eight, that was before the European crisis in two
Speaker 1: thousand eleven, and most recently when they adopted it in
Speaker 1: a hiking bias. I think the ECB wants to pull
Speaker 1: the rug out from under that and will tell markets,
Speaker 1: do not think that we will do this again. If
Speaker 1: we are not anywhere closed to a medium term two
Speaker 1: percent level, we will not hike. And I think there's
Speaker 1: a very very strong message if, if I may say,
Speaker 1: even a sort of a little bit tongue in cheek,
Speaker 1: the e c B was modeled after the Bundesbank. I
Speaker 1: think they really want to drive the Bundesbank out of
Speaker 1: the e c B. So um. There's a quote that's
Speaker 1: been misattributed to Albert Einstein many times. The definition of
Speaker 1: insanity is doing the same thing over and over again
Speaker 1: and expecting a different result. And that sticks out in
Speaker 1: my mind as we hear that the e c B
Speaker 1: is going to drop the deposit rate even lower and
Speaker 1: engage in further asset purchases and hope of igniting inflation.
Speaker 1: Is this a faulty premise to negative rates actually hinder
Speaker 1: the ability for inflation to take off? Well, I I,
Speaker 1: first of all, I don't think so that's a very
Speaker 1: short answer, and I'll give you more meat to the bone.
Speaker 1: But secondly, I think you're starting from a m if
Speaker 1: I may say so, no offense here. I think you're
Speaker 1: starting from a wrong point of view, because what you're
Speaker 1: saying is what the ECB has done has not delivered
Speaker 1: what they wanted to achieve, which is getting inflation and
Speaker 1: towards two percent again. But then you don't know what
Speaker 1: the counter factual is. Where would inflation be if they
Speaker 1: hadn't moved interest rates to these levels, and I would
Speaker 1: claim it would probably be even lower than where it
Speaker 1: is currently. So and that's the point that drug was
Speaker 1: making yesterday to more or less the same question as well.
Speaker 1: Um so I think and he thinks, and the ECB
Speaker 1: things that they have been fairly successful, they just have
Speaker 1: not been successful enough. And in fact, when you're then
Speaker 1: going back to your original question, when you look at
Speaker 1: some of the research that the ECB has put out,
Speaker 1: and they have the best data on this, they're very
Speaker 1: clearly demonstrate that in an environment of very low inflation,
Speaker 1: particularly coupled with relatively large sums of reserves out there
Speaker 1: sort of que that's been printed, that lending of banks
Speaker 1: two corporates increases, and that's exactly what they want. A
Speaker 1: Peter greater cash how with you to get your thoughts,
Speaker 1: Peter Shaffrick, there of our we see capital markets global
Speaker 1: market strategist. Least at the end of the day, in
Speaker 1: the short term at least, it doesn't matter whether you
Speaker 1: and I or Peter thinks this will work. What matters
Speaker 1: is whether the ECB thinks it will work, because if
Speaker 1: they believe their tools are effective, they'll deploy them. And
Speaker 1: ultimately that's what's going to happen in September. Now the
Speaker 1: dust settled after yesterday, I think we can focus on
Speaker 1: September and try and work out what's about to come
Speaker 1: down from the e c B, the size and scope
Speaker 1: of QUI if they deliver, and whether we finally get
Speaker 1: some tearing to go along with that lower right, And
Speaker 1: I think that that's the key thing is what it
Speaker 1: is going to be sort of the amelioration for the
Speaker 1: banks to the charge that they're paying on their deposits.
Speaker 1: And I think that may be a really key factor here.
Speaker 1: I'm overwhelmed by the guest appearances on this program this morning. Firstly,
Speaker 1: so Brandt's now pull Swayney joining us early. How many
Speaker 1: early white cup cools is this in the last week exactly?
Speaker 1: This is not in my contract. I'm gonna have to
Speaker 1: talk to somebody. This must be his tech earnings week.
Speaker 1: And Amazon came out after the close the stock down
Speaker 1: by a little more than one percent. Have they flicked
Speaker 1: the switch the other way again? Pulled? You know, it's
Speaker 1: a little bit. I think it's just gonna be a
Speaker 1: short term thing. They're ramping up their expenses to you know,
Speaker 1: kind of get to this one day delivery. It's getting,
Speaker 1: you know, so competitive in terms of uh, this e
Speaker 1: commerce business, so that you know, they started this whole
Speaker 1: thing kind of with this you know, I'll get you
Speaker 1: the package in two or three days. Now it's one day.
Speaker 1: But no matter what it is, it costs a lot
Speaker 1: of money. So they were ramping up about eight hundred
Speaker 1: million expenses just to get that one day uh delivery
Speaker 1: for a lot of markets and a lot of products.
Speaker 1: And that's that impact that their EPs and they're operating profit.
Speaker 1: But the revenue came in really strong once again. You
Speaker 1: know it's interesting. Shares down a little bit more than
Speaker 1: a percent ahead of the U S open. So not
Speaker 1: huge move that we're seeing, but as Amazon still going
Speaker 1: to be an eCOM worse company in five years or
Speaker 1: is it going to be a cloud, computing, logistics and
Speaker 1: advertising company. I think it's going to be all of
Speaker 1: the above. You know that, You're right, they're really investing
Speaker 1: in some of these you know, non retail businesses. And
Speaker 1: of course, the big profit driver for this company is
Speaker 1: Amazon Web Services that has a you know, double digit
Speaker 1: operating profit margin versus the core retail business which is
Speaker 1: barely profitable, um which we know. So the web is
Speaker 1: you know, a big, big driver for them. Their number
Speaker 1: one in the market, but it's very competitive about their
Speaker 1: Microsoft is out there, Google is out there, and some
Speaker 1: other tech companies. But the advertising business is just starting
Speaker 1: to ramp up for them, and it's a question of
Speaker 1: whether how big they want that business to get. But
Speaker 1: I'll tell you advertisers would love to have a third
Speaker 1: digital marketplace in the market, UM, aside from Facebook and Google.
Speaker 1: So the advertising business, the web business, very profitable businesses,
Speaker 1: fast growing businesses for them, and that drives profits. And
Speaker 1: this this is a company that hasn't had much profits
Speaker 1: to show for over the last decade or so, so
Speaker 1: investors like the profit story. So once they turned the tables,
Speaker 1: as you mentioned, Jonathan, a little bit on the expenses
Speaker 1: just kind of reminds people, oh, this is a company
Speaker 1: that can spend money to and that's where the focus
Speaker 1: has been ever since the numbers dropped after the close yesterday,
Speaker 1: just a WS just the word on a w S
Speaker 1: if you can. Since they first started breaking out these numbers,
Speaker 1: we've had revenue growth of north of forty north of
Speaker 1: north and yesterday I dropped below that number. Should we
Speaker 1: be looking at that a little bit more carefully, a
Speaker 1: little bit more closely? I think so well. I mean,
Speaker 1: I think the long term trend for cloud revenue growth
Speaker 1: remains very strong. We saw good numbers out of Microsoft
Speaker 1: UM and you know, we saw some good numbers although
Speaker 1: Google doesn't really break it out that clearly out of Google,
Speaker 1: so we know cloud average cloud revenue is growing pretty substantially.
Speaker 1: That's a big part of the tech stack right now.
Speaker 1: So and and of course Amazon has the leading play
Speaker 1: there so UM but the revenue did miss and that
Speaker 1: and that definitely spooked investors because again that's the big
Speaker 1: profit driver for this company. But I think they're going
Speaker 1: to continue to invest in the cloud business because that's
Speaker 1: where they're spending a lot of money on servers and
Speaker 1: all that type type of stuff. I have to wonder
Speaker 1: about regulatory pressures, and I have to wonder what they're doing,
Speaker 1: how they're positioning themselves ahead of what will be an
Speaker 1: increasingly contentious period of time for big tech as elections
Speaker 1: heat up. Yeah, exactly. And that's something that Google, Facebook, Apple,
Speaker 1: all these big tech companies have to deal with, um
Speaker 1: because as we know, the US has generally taking a
Speaker 1: very light touch to big technology Silicon Valley over the
Speaker 1: last twenty thirty years. But that seems to be changing. Uh.
Speaker 1: And it's and the companies know it, because they're stepping
Speaker 1: up their lobbying and about it. They're saying, they're saying
Speaker 1: that they're working with regulators, they you know, um, you know,
Speaker 1: they're looking for smart regulation of this industry. I think
Speaker 1: Mark Zuckerberg at Facebook is probably the most out in
Speaker 1: front because quite frankly, Facebook is probably the most at
Speaker 1: risk here because it's personal. It's it's people's personal data
Speaker 1: and privacy, and I think they are kind of the
Speaker 1: poster child for what's going to happen going forward in
Speaker 1: terms of tech regulation. Amazon probably probably to a much
Speaker 1: lesser extent. I think the headline of the week though,
Speaker 1: goes to perhaps Treasury Secretary Stephen Manuchin. Amazon has destroyed
Speaker 1: US retail using the word destroyed. I mean, this was
Speaker 1: really powerful stuff. And then you sort of put the
Speaker 1: headline to one side and try and work out, well,
Speaker 1: what does this really mean for this company? What does
Speaker 1: it mean? You know, I don't know. I think that
Speaker 1: you know, I think most investors that didn't really impact
Speaker 1: the stock people kind of thought it was just political rhetoric. Um.
Speaker 1: But the fact is e commerce is destroying main street retail,
Speaker 1: and it's just consumer behavior. What consumers want. They you know,
Speaker 1: now with the Internet, you can actually order stuff online
Speaker 1: and have it delivered and you don't necessarily need to
Speaker 1: go to the mall or to the local main street
Speaker 1: to get to the store. And that's just the way that,
Speaker 1: you know, the business has evolved. And of course Amazon
Speaker 1: is the eight pound guerrilla, so they're going to bear
Speaker 1: bear the brunt. Here, Paul Sweeney, we can hash this
Speaker 1: out pretty soon. In two hours, you and I can
Speaker 1: debate this. But I've got to say, Paul Sweeney, Bloomberg
Speaker 1: Radio anchor joining us here, I've got to say this
Speaker 1: is very controversial, John, because people say Amazon killed Mom
Speaker 1: and Poper retail. But there are a lot of questions
Speaker 1: about the ability to adjust to an Internet age, the
Speaker 1: interference with some of these firms that had these companies
Speaker 1: incur a lot of leverage, and their ability to spend
Speaker 1: and adapt to the new environment. I'm just saying it's
Speaker 1: not so simple. Well, in reality, Walmart killed Main Street.
Speaker 1: That's what happened, and that was thirty forty years Mike
Speaker 1: drop post, Wayne right to catch up with you, as always, Well,
Speaker 1: let's bring in David Rosenberg shown we gliskin chef chief
Speaker 1: economist David always great to get your insight, your first
Speaker 1: take on the GDP per and please, well, it's a
Speaker 1: obviously um above expected and uh, you know, I think
Speaker 1: has the FED leaning towards twenty five as opposed to
Speaker 1: fifty basis points. I think we look at the components.
Speaker 1: I mean, as stated that it was led by the
Speaker 1: big bounce and hum, we're spending at four point three,
Speaker 1: but remember the previous two quarters consumer spending growth had
Speaker 1: a one handle. So this is I think a temporary
Speaker 1: spirit of growth and consumer spending after really two quarters
Speaker 1: of of almost stagnation. What really catches my eye though
Speaker 1: that people should recognize uh and why I might be
Speaker 1: my treasury is here on the sell off? Is business
Speaker 1: spending UM contracted at a five and a half percent
Speaker 1: annual rate, Housing negative one point five, exports negative five
Speaker 1: point two. So when you almost look at this on
Speaker 1: a diffusion basis beyond the consumer, a lot of the
Speaker 1: components are pretty soft. Although if you think about business spending,
Speaker 1: how much is that going to lag behind consumer spending
Speaker 1: and will eventually pick up as a consumer remains strong? Well, Uh,
Speaker 1: I guess that you're asking me, um, you know who's
Speaker 1: swagging the tail? And so is it a case where
Speaker 1: businesses are going to start to invest more because we
Speaker 1: had um a spurt of consumer spending growth after two
Speaker 1: off quarters? Or is business sector going to be curtailing
Speaker 1: their hirings because if they're cutting back on capex, employment
Speaker 1: is not far behind. And if employment ends up following
Speaker 1: what capital spending is doing, uh, you're not seeing a
Speaker 1: forehandle on consumption growth again anytime soon. David. These are
Speaker 1: really important points, and I think, just more broadly globally
Speaker 1: right now, something people are grappling with is the manufacturing
Speaker 1: recession and whether it begins or has already started to
Speaker 1: bleed into services David, are you identifying any spots where
Speaker 1: you see that happening already? Well, a couple of things
Speaker 1: I think that you know you are seeing out of
Speaker 1: the anecdotal or the diffusion industries. There's no question that
Speaker 1: service sector activity globally and even in the US is
Speaker 1: slowing down. It's not contracting. But remember that the service sector,
Speaker 1: I mean a lot of the service sector is education
Speaker 1: and health services and not really that typical. Uh. The
Speaker 1: goods producing sector manufacturing is typical simately, Uh, cyclical services
Speaker 1: do service? Um? You know the goods producers. Uh, that
Speaker 1: they're the leading indicator. Um. But people always talk about, well,
Speaker 1: don't worry so much about the service sector, it's not contracting. Well,
Speaker 1: it's very difficult to get services contracting because so much
Speaker 1: of it has very little correlation with the overall business cycle. Uh.
Speaker 1: The one thing that has that had did catch fron eye,
Speaker 1: by the way. Uh. And I know that we're talking
Speaker 1: about really a coincidence lagging indicator called last quarters GDP.
Speaker 1: But I did notice that when you're taking a look
Speaker 1: at small business employment out of the ADP data, it's
Speaker 1: been negative two months in a row. And so if
Speaker 1: you want to drive looking through the front window instead
Speaker 1: of the rear view mirror, which everybody will talk about
Speaker 1: the rear view mirror today, which is last quarters GDP.
Speaker 1: One of the best leading indicators for the economy is
Speaker 1: small business employment. Small business is how the flexibility, flexibility
Speaker 1: to lay off people much quicker than big companies do.
Speaker 1: And that's why a d P I think is slowing
Speaker 1: down much faster than non farm payrolls. But to me,
Speaker 1: if you're asking me, what is the canari in a
Speaker 1: coal mine? Right now, small business employment, by the way,
Speaker 1: including the service sector, is flowing down precipitously, and that's
Speaker 1: a leading indicator. So this is really important. So I
Speaker 1: believe in the IDP report this is business is smaller
Speaker 1: than forty nine employees. Is that right? Do you see
Speaker 1: that bleeding up into bigger companies. Then it's a great
Speaker 1: leading indicators. So the answer is yes. You know, the
Speaker 1: big the big megacap companies, it's hard for them to
Speaker 1: let people go. I mean they'll package them out, they
Speaker 1: let them go. But the big companies operate with the lag.
Speaker 1: The small companies can let you go tomorrow, um, So
Speaker 1: they're much more flexible. And take a look historically greatly
Speaker 1: the indicator small business employment. I actually think that it's
Speaker 1: the cap X recession that is going to lead the
Speaker 1: softening in consumer spending. I'm not going to stay consumer
Speaker 1: spending goes negative, but I would not be superposing the
Speaker 1: four percent growth and consumer spending this quarter into the future.
Speaker 1: Captains will lead the consumer, not the other way around. David.
Speaker 1: We've really got to spend a little bit more time
Speaker 1: on this and look forward to having you in the
Speaker 1: studio quite soon. David Rosenberg. Then let's can Chief Chief
Speaker 1: Economy you wanting us to react to a g D
Speaker 1: preprint hit in the honest stice that if I continues
Speaker 1: ahead of a Federal Reserve decision next week, mobile Sprint
Speaker 1: deal the least surprising deal to ever possibly get approved
Speaker 1: by the d o J, which could come as soon
Speaker 1: as today. Yesterday, we were thinking it would come after
Speaker 1: close perhaps or later in the afternoon. Uh. Now it's
Speaker 1: gotten pushed back joining us. We are so lucky to
Speaker 1: have Tera La Chapale. She is a Bloomberg opinion columnist. Uh,
Speaker 1: and she has incredible insights, particularly in this space. And
Speaker 1: I'm just wondering, first of all, what we're expecting the
Speaker 1: d o j the Department of Justice deal to look
Speaker 1: like to enable T Mobile and Sprint to finally complete
Speaker 1: the very long awaited marriage. Finally, it's been years of
Speaker 1: covering this deal, so we'll be very nice to finally
Speaker 1: get an announcement. What we think the structure of the
Speaker 1: divestiture deal is going to be is T Mobile will
Speaker 1: be able to buy Sprint and they will sell off
Speaker 1: likely Boost Mobile, which is a prepaid service, so sort
Speaker 1: of a pay as you go phone business that caters
Speaker 1: to lower income Americans. And they all have also have
Speaker 1: to sell some spectrum licenses, which are very valuable to
Speaker 1: Dish Network. So Dish Network, the satellite TV provider, will
Speaker 1: likely be acquiring all these assets, and that's what we're expecting.
Speaker 1: Um it'll be a small number of subscribers that they're
Speaker 1: taking on, but I think the goal from the DJ's
Speaker 1: perspective is to lay the groundwork so that there can
Speaker 1: be this fourth competitor that kind of fills the space
Speaker 1: that Spurt is going to leave behind. Whether that's how
Speaker 1: it ends up, we'll see. I don't know that Dish
Speaker 1: can actually rise to that occasion, but that at least
Speaker 1: seems to be the parameters of the deal from what
Speaker 1: we hear, so I guess that if you look at
Speaker 1: market reactions to the expectation here, it seems like investors say, Okay,
Speaker 1: this will be enough to modify the Department of Justice,
Speaker 1: but it will not be enough to actually curtail the
Speaker 1: competitive advantage for T mobile and Sprint to get together.
Speaker 1: Is that your interpretation is exactly if you look at
Speaker 1: the reaction. Addish investors, I think are a little bit
Speaker 1: disappointed by this. I think they were hoping that Dish
Speaker 1: would a partner with a giant tech company with deep
Speaker 1: pockets and be maybe even just sell out and sell
Speaker 1: their spectrum. Since Dish already has some of its own
Speaker 1: it's worth billions of dollars. So the fact that they're
Speaker 1: going to go through this very costly, time consuming process
Speaker 1: of building their own network and having to try to
Speaker 1: compete with these three other carriers to Mobile Verizing and
Speaker 1: a T and T, it's going to be very challenging
Speaker 1: because Dish is not known nationwide for being a wireless
Speaker 1: server because they don't do service providers. They don't do that.
Speaker 1: So it's going to be a big sort of teaching
Speaker 1: experience to try to market to the country. Hey, we
Speaker 1: also sell wireless service, which brings us to a really
Speaker 1: interesting point that you raised incredibly insightfully in a column
Speaker 1: that you recently wrote looking at why there is so
Speaker 1: much focus on breaking up big tech and regulating big
Speaker 1: tech and there doesn't seem to be any attention right
Speaker 1: now at the size of the conglomerates in the wireless space.
Speaker 1: So what why? I know I'm asking that too. I mean,
Speaker 1: it's very interesting that the Justice Departments and Trust Division,
Speaker 1: led by making Dell Raheem, is very focused on Google, Facebook, Amazon, Apple,
Speaker 1: the power that they have and whether that's harming consumers,
Speaker 1: and I think that's a worthy review that they're doing. However,
Speaker 1: it doesn't really say that they're looking out for consumers
Speaker 1: If they're going to turn around and approve this T
Speaker 1: Mobile Sprint deal as structured with these tiny divestitures, I
Speaker 1: think that this deal could be just as harmful to
Speaker 1: consumers and that more should have been done too to
Speaker 1: make it so that they can't. This can't result in
Speaker 1: greater pricing power, a change to the industry in which
Speaker 1: consumers end up paying more money and getting less service,
Speaker 1: less innovation. Although you could make the argument that if
Speaker 1: you have a behemoth. If you've got three behemoth now
Speaker 1: uh that they are able to invest more in the
Speaker 1: five G infrastructure, they'll have more cash, and they'll be
Speaker 1: able to provide better service, and they'll continue to compete
Speaker 1: with each other. It's possible. I mean, I think you
Speaker 1: know what T Mobile and Sprint saying it Sprint with
Speaker 1: such a weak player, but they have this really valuable spectrum.
Speaker 1: So if T Mobile has access to that, they can
Speaker 1: kind of build this network faster, the five G sort
Speaker 1: of future of wireless service. And I think there's some
Speaker 1: truth to that. But I also think that T Mobile
Speaker 1: and Sprint, by having the two of them competing with
Speaker 1: one another, is what kept prices down the last few years,
Speaker 1: and that's why the industry has struggled so hard to
Speaker 1: um have anything in the way of profit growth off
Speaker 1: of consumers. So I think by putting them together and
Speaker 1: arguing that dishes somehow going to keep that balance. I
Speaker 1: don't know that that's completely honest, because I think T
Speaker 1: Mobile wouldn't do this deal if that were the case.
Speaker 1: And just to that point, I'm looking right now, for example,
Speaker 1: at a T and T shares year to date up
Speaker 1: more than and you're seeing similar action and Verizon, and
Speaker 1: so there does raise a question this ends up benefiting
Speaker 1: the other big guys because there isn't the race to
Speaker 1: the bottom with a sprinting T mobile. I mean, the
Speaker 1: biggest indicator of whether this deal is going to hurt
Speaker 1: consumers and benefit the industry's pricing power is a T
Speaker 1: and T and verise and stock prices. I mean they
Speaker 1: rise every time that there was some sort of signal
Speaker 1: that this deal will go through, and a time that
Speaker 1: it looked like the deal might get blocked or was
Speaker 1: running into interference, that these stock prices would fall. So
Speaker 1: I think that tells you right there what the industry
Speaker 1: is expecting from this. What would you say to people
Speaker 1: who argued that Sprint would ultimately be I don't want
Speaker 1: to say unsustainable, but certainly a poor competitor in the
Speaker 1: long run. Should it have remained independent or should should
Speaker 1: it remain independent? It's it's weak and getting weaker, and
Speaker 1: I think that's true. Um Sprint's business is kind of
Speaker 1: a mess and they have a ton of debt. However,
Speaker 1: they're backed by massa selling, the Japanese billionaire and soft
Speaker 1: bank groups. So I think at the end of the day,
Speaker 1: We're not really, you know, bailing out a company that
Speaker 1: was going to go away anytime soon. I think it's
Speaker 1: just sort of helping him get out of an investment
Speaker 1: that really wasn't working out so well, and now he's
Speaker 1: going to own a piece of this combined company that's
Speaker 1: going to be on much healthier footing. Although you could
Speaker 1: make an argument that this race to the bottom was
Speaker 1: unsustainable for for Sprint, right, I mean T Mobile as well, perhaps,
Speaker 1: and that they were just winning and they were in
Speaker 1: a position of power because of the debt profile of
Speaker 1: sprinting a whole bunch of other sort of structural issues.
Speaker 1: But I do have to wonder, you know, to the
Speaker 1: d o j's defense and to the defense of regulators
Speaker 1: that are not stepping in and saying, you know, hey,
Speaker 1: this is gonna be terrible for the consumer, what was
Speaker 1: the likelihood that this kind of price wark could continue
Speaker 1: indefinitely at a time when they do need to make
Speaker 1: so many investments in five G It's true, it probably
Speaker 1: couldn't have continued much longer. I mean, Sprint a year
Speaker 1: ago was offering free service to anyone from Verizon who
Speaker 1: switched to Sprint, and so I think that tells you
Speaker 1: you know, how desperate they were. But I still think,
Speaker 1: you know, we weren't at the point where and the
Speaker 1: companies themselves aren't making the argument that this is a
Speaker 1: failing business. So and if you listen to their earnings calls,
Speaker 1: I mean, they're still talking optimistically about it. So I
Speaker 1: think if that's the message they're telling their investors, I mean,
Speaker 1: regulators have to take that seriously too. And I don't
Speaker 1: think that this is a case. If T Mobile doesn't
Speaker 1: buy Sprint, Sprint disappears. If Sprint really got cheap enough,
Speaker 1: someone else would probably try to buy them. Okay, So
Speaker 1: then this raises another question. And you sort of talked
Speaker 1: about perhaps big tech coming in and buying one of
Speaker 1: the networks. Is there any talk of big tech getting
Speaker 1: involved here and trying to offer some sort of competing
Speaker 1: wireless entity eventually, especially if there are only three big behaves.
Speaker 1: I mean, right now it's mostly rumor, but I think
Speaker 1: you know, Dish Network, there's always been rumors swirling around
Speaker 1: them that they need a partner to build a wireless network,
Speaker 1: and they are sitting on all this spectrum, so I
Speaker 1: think there is potential for someone to partner with them.
Speaker 1: And do something with the spectrum and turn it into
Speaker 1: some sort of wireless network. Dishes focused on talking about
Speaker 1: Internet of things as opposed to sort of consumer wireless service. Um,
Speaker 1: so there is that possibility, but I and and there's
Speaker 1: also Charter and Comcast which are reselling wireless service using
Speaker 1: Verizon's network. But right now, I mean, I think for
Speaker 1: a while it's just going to be these three main carriers,
Speaker 1: which big tech company would want to have this sort
Speaker 1: of mess on their hands. I mean, I like, on
Speaker 1: one hand, it's it's incredible terms of the demand and
Speaker 1: that sort of built in demand. On the other hand,
Speaker 1: there is a huge capital investment that needs to be
Speaker 1: made continuously, as well as regulatory pressure because it's sort
Speaker 1: of skirting the line with utilities. And there's a lot
Speaker 1: of just technological issues there too, because five G service
Speaker 1: is going to require different bands of spectrum which traveled
Speaker 1: to different distances and need different things in order for
Speaker 1: the connections to work. So it's very costly. It's it's
Speaker 1: a very difficult process. UM, Google and Amazon or names
Speaker 1: that come up whenever Dish's name is in the mix.
Speaker 1: But again it's hard to tell whether that's coming from
Speaker 1: dish or coming from the tech companies themselves. They tend
Speaker 1: to deny this. So, just to tie this all together,
Speaker 1: who do you think is the big winner from the
Speaker 1: likely approval of the Sprint T Mobile deal? Absolutely massive
Speaker 1: zone of soft Bank, the controlling shareholder of Sprint, because
Speaker 1: he gets to be bailed out of this situation which
Speaker 1: otherwise could have gotten really ugly. Yes, because he would
Speaker 1: have had to put up more capital to keep Sprint going.
Speaker 1: And I think that, you know, there's there's not much
Speaker 1: of an optimistic case around Sprint right now, so I
Speaker 1: think they're a big winner. And then T Mobile shareholders
Speaker 1: likely there's gonna be a lot of synergies in this.
Speaker 1: They'll see their profit margins go up. I mean, there's
Speaker 1: gonna be a lot of benefits for them. But the
Speaker 1: industry as a whole, you can tell by their share prices.
Speaker 1: Everybody's everybody's a winner, except perhaps, as Tara la Chappell
Speaker 1: uh suggests, perhaps the consumer might not be Tara la Chappell,
Speaker 1: Bloomberg calumnist. Thank you that was terrific joining us here.
Speaker 1: You can always read Bloomberg opinion columns at Bloomberg dot
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