1 00:00:09,840 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,600 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Don't 5 00:00:27,680 --> 00:00:29,720 Speaker 1: risk joining us here in New York's to take us 6 00:00:29,840 --> 00:00:32,440 Speaker 1: research chief economists, Good Morney to It's on Good Morning. 7 00:00:32,479 --> 00:00:35,320 Speaker 1: Can we begin with the headline out of Germany? Why 8 00:00:35,360 --> 00:00:37,120 Speaker 1: do we have to wait for the crisis? Why do 9 00:00:37,200 --> 00:00:39,240 Speaker 1: we have to wait for the recession for them to 10 00:00:39,320 --> 00:00:43,040 Speaker 1: loosen the past race? Oh, it's an excellent, excellent question, 11 00:00:43,320 --> 00:00:46,519 Speaker 1: and so the answer is we shouldn't have to, but 12 00:00:46,840 --> 00:00:50,199 Speaker 1: there have been political reasons in the past that have 13 00:00:50,520 --> 00:00:54,320 Speaker 1: meant we have not been preemptive globally. So I think 14 00:00:54,320 --> 00:00:56,880 Speaker 1: the issue here is now you have the Bundesbank and 15 00:00:56,920 --> 00:00:59,800 Speaker 1: others saying we may be getting to some sort of 16 00:01:00,040 --> 00:01:02,240 Speaker 1: racist doesn't have to be as bad as the last crisis. 17 00:01:02,600 --> 00:01:05,000 Speaker 1: But that's what I think is being used to justify 18 00:01:05,040 --> 00:01:08,000 Speaker 1: that this time could be different. There's enough intellectual support, 19 00:01:08,000 --> 00:01:12,360 Speaker 1: there's enough academic support for some sort of spending fiscal 20 00:01:12,360 --> 00:01:15,280 Speaker 1: policy is clearly the right answer in a world where 21 00:01:15,280 --> 00:01:17,880 Speaker 1: monetary policy looks exhausted. And I'd say if you look 22 00:01:17,880 --> 00:01:20,440 Speaker 1: at the amount of negative yielding debt in the world, 23 00:01:20,520 --> 00:01:23,679 Speaker 1: monetary policy is looking exhausted. Yeah, looking at the German 24 00:01:23,680 --> 00:01:27,640 Speaker 1: tenual negative point six three and nine percent, So we've 25 00:01:27,680 --> 00:01:29,880 Speaker 1: seen that for a long period of time, don I mean? 26 00:01:30,000 --> 00:01:32,240 Speaker 1: So if I'm Germany, am I to what extent am 27 00:01:32,240 --> 00:01:34,920 Speaker 1: I discounting a hard brexit at this point, because it 28 00:01:34,959 --> 00:01:36,400 Speaker 1: seems like some of the rhetor are coming out of 29 00:01:36,400 --> 00:01:39,720 Speaker 1: the UK is that is still very much on the table. Yeah, 30 00:01:39,760 --> 00:01:42,319 Speaker 1: and certainly that has to be part of any contingency plan. 31 00:01:42,720 --> 00:01:44,840 Speaker 1: So if you're thinking about what could cause a crisis 32 00:01:44,880 --> 00:01:47,840 Speaker 1: that's just a few months away here, Even if it's 33 00:01:47,880 --> 00:01:50,600 Speaker 1: not the hard breaks that you're seeing a slowdown in 34 00:01:50,640 --> 00:01:53,200 Speaker 1: the economy that's been affected by some of the uncertainty 35 00:01:53,200 --> 00:01:56,440 Speaker 1: created by it, and that's impacted investment, and that's filtered 36 00:01:56,480 --> 00:01:59,800 Speaker 1: through to the European economy. So hard or not, I 37 00:01:59,800 --> 00:02:02,400 Speaker 1: think you're discounting some of those drags, whether they're coming 38 00:02:03,040 --> 00:02:05,520 Speaker 1: from the UK side or the China side, which is 39 00:02:05,520 --> 00:02:07,520 Speaker 1: a whole other story. The mood of the markets is 40 00:02:07,560 --> 00:02:10,079 Speaker 1: better this morning, but overwhelmingly, i'd say over the last 41 00:02:10,080 --> 00:02:14,240 Speaker 1: couple of months, investors, economists desperately looking searching for a 42 00:02:14,280 --> 00:02:16,960 Speaker 1: policy anchor. We have had a policy anchor throughout this 43 00:02:17,000 --> 00:02:19,120 Speaker 1: whole expansion over the last ten years, whether it was 44 00:02:19,160 --> 00:02:21,680 Speaker 1: the federal reserve, whether it was China and it's spending 45 00:02:21,680 --> 00:02:23,760 Speaker 1: in a stimulus package, or whether it was the tax 46 00:02:23,840 --> 00:02:26,120 Speaker 1: cuts of a couple of years ago. Where does that 47 00:02:26,200 --> 00:02:29,520 Speaker 1: policy anchor come from now, because quite clearly Chairman Powell 48 00:02:29,919 --> 00:02:34,080 Speaker 1: is struggling to be that guy, struggling to distinguish what 49 00:02:34,160 --> 00:02:37,240 Speaker 1: that policy actually is. Yeah, so that's an important point 50 00:02:37,280 --> 00:02:40,760 Speaker 1: that markets like normal distributions, they're like a central tendency 51 00:02:40,880 --> 00:02:43,640 Speaker 1: with tail outcomes there aren't all that likely. And in 52 00:02:43,680 --> 00:02:46,960 Speaker 1: the world today we have some things that look not normal. 53 00:02:47,240 --> 00:02:50,040 Speaker 1: Whether it's Brexit where you could have a variety of 54 00:02:50,040 --> 00:02:52,880 Speaker 1: tail outcomes, whether it's what's going on in Hong Kong 55 00:02:52,880 --> 00:02:56,160 Speaker 1: where there could be tail outcomes that are quite different. 56 00:02:56,600 --> 00:02:59,760 Speaker 1: It's hard to find what the central tendency is, and 57 00:03:00,040 --> 00:03:03,040 Speaker 1: unfortunately it may come back to central banks at least 58 00:03:03,040 --> 00:03:05,720 Speaker 1: in the near term. Fiscal policy can be an important tool, 59 00:03:05,720 --> 00:03:08,120 Speaker 1: but it's going to take time. Even in the German case, 60 00:03:08,520 --> 00:03:10,600 Speaker 1: monetary policy has to be the anchor, and that's the 61 00:03:10,600 --> 00:03:12,520 Speaker 1: worry right now for a lot of paoples to whether 62 00:03:12,840 --> 00:03:15,160 Speaker 1: that can actually work. The thing that Jackson home is 63 00:03:15,240 --> 00:03:19,200 Speaker 1: Friday the challenges of monetary policy, the current dynamic globally, 64 00:03:19,240 --> 00:03:20,919 Speaker 1: the issues we have in this global economy, that is 65 00:03:20,919 --> 00:03:23,480 Speaker 1: the ultimate challenge for monety policy. Can they really address 66 00:03:23,520 --> 00:03:27,280 Speaker 1: it with monetary policy? So maybe we have to define 67 00:03:27,320 --> 00:03:30,400 Speaker 1: what we mean by work here, and so I do 68 00:03:30,480 --> 00:03:34,120 Speaker 1: think monetary policy could take care of an inverted yield curve. 69 00:03:34,240 --> 00:03:36,960 Speaker 1: I think that is within the control of monetary policy. 70 00:03:37,000 --> 00:03:39,080 Speaker 1: Are we going to cut interest rates and have lower 71 00:03:39,120 --> 00:03:43,160 Speaker 1: interest rates spur investment? That's much less clear. It's not 72 00:03:43,240 --> 00:03:45,880 Speaker 1: clear that the problem there is the interest rate. It's 73 00:03:46,040 --> 00:03:49,920 Speaker 1: the amount of uncertainty that's inhibiting CEOs and CFOs from 74 00:03:49,960 --> 00:03:52,800 Speaker 1: making some of the decisions they would otherwise make. So 75 00:03:53,080 --> 00:03:55,560 Speaker 1: I think monetary policy has a role. I think monetary 76 00:03:55,560 --> 00:03:59,600 Speaker 1: policy in particular with an inverted yield curve that's starting 77 00:03:59,640 --> 00:04:02,120 Speaker 1: to come out of that position on the assumption that 78 00:04:02,160 --> 00:04:05,720 Speaker 1: monetary policy could work, has a role, but monterrey policy 79 00:04:05,720 --> 00:04:08,040 Speaker 1: can't do it all. So don I mean coming out 80 00:04:08,120 --> 00:04:11,680 Speaker 1: of or going into Jackson Hole on Friday. What time 81 00:04:11,720 --> 00:04:14,360 Speaker 1: of language do you think we're gonna get from Chairman Pal. 82 00:04:14,400 --> 00:04:16,919 Speaker 1: I think most of market participants are thinking about the 83 00:04:16,920 --> 00:04:20,719 Speaker 1: next meeting will be basis points, perhaps fifty basis points, 84 00:04:20,720 --> 00:04:22,919 Speaker 1: given some of the uncertainty that we've seen just in 85 00:04:22,920 --> 00:04:24,800 Speaker 1: the last couple of weeks. I guess in the market place, 86 00:04:24,839 --> 00:04:27,280 Speaker 1: what kind of language and body language more important do 87 00:04:27,279 --> 00:04:30,120 Speaker 1: you think we're gonna get from Chairman Pal? So I 88 00:04:30,160 --> 00:04:32,640 Speaker 1: think the market would love to see something that would, 89 00:04:33,279 --> 00:04:36,960 Speaker 1: uh make a fifty basis point cut the right answer, 90 00:04:37,080 --> 00:04:38,880 Speaker 1: But I don't think we're gonna get that. I don't 91 00:04:38,920 --> 00:04:42,760 Speaker 1: think the FED wants to guide towards a fifty basis 92 00:04:42,800 --> 00:04:46,440 Speaker 1: point cut here. That's an emergency move and we don't 93 00:04:46,440 --> 00:04:49,480 Speaker 1: have the financial crisis right now that would justify that 94 00:04:49,560 --> 00:04:52,200 Speaker 1: maybe in the future, but not right now. So I 95 00:04:52,240 --> 00:04:54,440 Speaker 1: think they want to be vigilant, but I don't think 96 00:04:54,720 --> 00:04:56,719 Speaker 1: the language is going to be a whatever it takes 97 00:04:57,120 --> 00:05:00,960 Speaker 1: type of outcome here. Outside of Chairman how we haven't 98 00:05:01,000 --> 00:05:03,320 Speaker 1: heard very much from the governors and the board around him. 99 00:05:03,680 --> 00:05:06,320 Speaker 1: Don do you think there is a disagreement on the 100 00:05:06,360 --> 00:05:08,120 Speaker 1: f WEBC that has been covering up over the last 101 00:05:08,120 --> 00:05:10,159 Speaker 1: couple of weeks, we haven't heard much from the key 102 00:05:10,200 --> 00:05:12,479 Speaker 1: players at the Federal Reserve. What do you think the 103 00:05:12,480 --> 00:05:16,840 Speaker 1: reason is for that? So there has been disagreement, and 104 00:05:16,880 --> 00:05:20,520 Speaker 1: we had two descents on the last vote. Usually the 105 00:05:20,600 --> 00:05:25,039 Speaker 1: disagreement happens within the regions, So the regional Fed presidents 106 00:05:25,040 --> 00:05:27,960 Speaker 1: who could say, in my district things look one way 107 00:05:28,040 --> 00:05:30,760 Speaker 1: or another, would come in, fly in for the meeting 108 00:05:31,120 --> 00:05:34,120 Speaker 1: and vote a certain way, maybe descent on. We got 109 00:05:34,160 --> 00:05:36,280 Speaker 1: that from the Boston Fed President Eric rosen Gren, who 110 00:05:36,320 --> 00:05:39,200 Speaker 1: incidentally will be speaking of Bloomberg later on the southfternoon, 111 00:05:39,240 --> 00:05:42,640 Speaker 1: but carry on, dump plays right, Yeah, So that happens 112 00:05:43,040 --> 00:05:46,240 Speaker 1: from time to time. Often the vote is unanimous, but 113 00:05:46,279 --> 00:05:49,239 Speaker 1: not always, and so one or two descents is something 114 00:05:49,279 --> 00:05:51,320 Speaker 1: that happens. But those descents usually come from the regional 115 00:05:51,360 --> 00:05:54,200 Speaker 1: Fed folks, the group that all sit next to each 116 00:05:54,200 --> 00:05:57,480 Speaker 1: other in Washington, d C. The Board of Governors very 117 00:05:57,560 --> 00:06:00,599 Speaker 1: rarely descent and I think it's because the talk over 118 00:06:00,680 --> 00:06:04,359 Speaker 1: some of their differences being in the same physical location. 119 00:06:04,400 --> 00:06:06,680 Speaker 1: I do think that that matters and that lets the 120 00:06:06,760 --> 00:06:09,880 Speaker 1: chair guide uh the committee. So I do think there 121 00:06:09,960 --> 00:06:12,240 Speaker 1: is some uncertainty depending on whether you look at the 122 00:06:12,240 --> 00:06:16,320 Speaker 1: economic indicators, the typical numbers like jobs and consumer spending, 123 00:06:16,360 --> 00:06:18,320 Speaker 1: or whether you look at financial market indicators like the 124 00:06:18,400 --> 00:06:21,800 Speaker 1: Yel curve, and that tension I think is what's driving 125 00:06:21,800 --> 00:06:24,360 Speaker 1: some of this disagreement. So, Tom, where do you stand 126 00:06:24,480 --> 00:06:27,560 Speaker 1: in terms of outlook for a recession in the next 127 00:06:27,680 --> 00:06:30,320 Speaker 1: twelve to eighteen months in the US? Because is John 128 00:06:30,640 --> 00:06:32,400 Speaker 1: let Off the show? I mean, you know, we look 129 00:06:32,560 --> 00:06:36,440 Speaker 1: look at Europe weaker maybe perhaps then expected, China slowing. 130 00:06:36,440 --> 00:06:37,960 Speaker 1: How do you kind of view the U s economy 131 00:06:38,040 --> 00:06:41,200 Speaker 1: going into so with the Oel curve inverted, we thought 132 00:06:41,240 --> 00:06:42,880 Speaker 1: of it like you're holding your breath. You could do 133 00:06:42,920 --> 00:06:46,559 Speaker 1: this for a little while, and so you inverted curve, 134 00:06:47,200 --> 00:06:48,880 Speaker 1: especially when we look at the three months to ten 135 00:06:48,920 --> 00:06:51,279 Speaker 1: year versus the two year to ten year is telling 136 00:06:51,400 --> 00:06:53,800 Speaker 1: us that there needs to be some policy action. The 137 00:06:53,800 --> 00:06:56,159 Speaker 1: Fed should cut interest rates. But if they cut interest rates, 138 00:06:56,200 --> 00:06:58,400 Speaker 1: we don't have to have a recession. So the fact 139 00:06:58,400 --> 00:07:00,000 Speaker 1: that we're holding our breath here means we could come 140 00:07:00,080 --> 00:07:02,920 Speaker 1: up for air. That's a higher chance over session. That's 141 00:07:02,920 --> 00:07:05,960 Speaker 1: a little more dangerous than average. But I don't think 142 00:07:06,000 --> 00:07:08,360 Speaker 1: recession is the base case, given that the consumer still 143 00:07:08,400 --> 00:07:09,960 Speaker 1: looks to be in good Chiape. They don't great to 144 00:07:10,000 --> 00:07:12,760 Speaker 1: catch up with you, Don Rismuller, their strategous research chief 145 00:07:12,760 --> 00:07:29,280 Speaker 1: economists have a key week for the Federal Reserve. According 146 00:07:29,320 --> 00:07:31,960 Speaker 1: to two people with direct knowledge of the matter, the 147 00:07:32,040 --> 00:07:35,160 Speaker 1: German government is getting ready to act to shore up 148 00:07:35,200 --> 00:07:38,800 Speaker 1: the economy by preparing a fiscal stimulus package that could 149 00:07:38,840 --> 00:07:43,400 Speaker 1: be triggered by drum roll a deep recession, Class fistess 150 00:07:43,400 --> 00:07:48,000 Speaker 1: and joining us now pantheon macroeconomics chief Eurozone economist. Class 151 00:07:48,080 --> 00:07:52,280 Speaker 1: always love to get your insight. Why why why do 152 00:07:52,400 --> 00:07:55,000 Speaker 1: we have to wait for a deep recession to do 153 00:07:55,120 --> 00:07:59,960 Speaker 1: fiscal stimulus in Germany? Yeah, that's that's it is very German. 154 00:08:00,000 --> 00:08:02,760 Speaker 1: I do think that what's happening now though, is that 155 00:08:03,000 --> 00:08:06,600 Speaker 1: we're seeing kind of a sequence by which it's very 156 00:08:06,680 --> 00:08:09,160 Speaker 1: like that Germany is in a texical recession. We don't 157 00:08:09,160 --> 00:08:10,800 Speaker 1: know yet, but it's very like that's going to happen. 158 00:08:10,800 --> 00:08:14,640 Speaker 1: And now then what we're seeing is is UM. It's 159 00:08:15,000 --> 00:08:18,920 Speaker 1: slow movement towards UM, towards fiscal stimulus. I mean, the 160 00:08:18,920 --> 00:08:22,160 Speaker 1: answer to your question is simply that the things that 161 00:08:22,320 --> 00:08:25,600 Speaker 1: normally trigger fiscal stimulus in sort of a normal uh, 162 00:08:25,800 --> 00:08:28,120 Speaker 1: sort of a normal economic context is the labor market. 163 00:08:28,120 --> 00:08:30,480 Speaker 1: The labor market is like a ndicator. So if Germany 164 00:08:30,520 --> 00:08:33,280 Speaker 1: is now in a technical recession and where growth has 165 00:08:33,280 --> 00:08:35,839 Speaker 1: been slowing for since from the last for the last 166 00:08:35,880 --> 00:08:38,320 Speaker 1: six and nine months, I mean, it takes it takes 167 00:08:38,360 --> 00:08:41,120 Speaker 1: a while before the labor market starts to starts show 168 00:08:41,440 --> 00:08:44,360 Speaker 1: show showing the fact of that. And this is exactly 169 00:08:44,400 --> 00:08:45,880 Speaker 1: what we're probably going to see in the next six 170 00:08:45,920 --> 00:08:48,800 Speaker 1: or twelve months. So that's when you'll see the fiscal 171 00:08:48,840 --> 00:08:50,839 Speaker 1: stimulus kick in. But just to get the dates, I mean, 172 00:08:51,000 --> 00:08:54,120 Speaker 1: what we're hearing here now is going to affect the 173 00:08:54,160 --> 00:08:58,280 Speaker 1: two thousand and twenty budgets probably right, this is pretty 174 00:08:58,360 --> 00:09:00,960 Speaker 1: much as quick as they can do it. I think so, 175 00:09:01,040 --> 00:09:02,840 Speaker 1: class I agree with you, and I think many people 176 00:09:02,840 --> 00:09:05,240 Speaker 1: were the optics of this are encouraging. The fact that 177 00:09:05,280 --> 00:09:09,000 Speaker 1: the German government is even having the conversation is encouraging 178 00:09:09,040 --> 00:09:11,280 Speaker 1: and perhaps build some optimism. But let's just be a 179 00:09:11,360 --> 00:09:12,839 Speaker 1: little bit clear on what do you think this is 180 00:09:12,880 --> 00:09:16,599 Speaker 1: contingent on at the moment? Are reporting and suggesting it 181 00:09:16,640 --> 00:09:19,360 Speaker 1: will be triggered by deep recession? Are you saying it 182 00:09:19,360 --> 00:09:22,199 Speaker 1: could be triggered by something a whole lot less severe 183 00:09:22,240 --> 00:09:25,240 Speaker 1: than that. Yeah, I mean I don't I mean, I 184 00:09:25,800 --> 00:09:28,680 Speaker 1: don't put a lot of emphasis on on this that 185 00:09:28,760 --> 00:09:32,319 Speaker 1: atteitive deep recession. I mean, fact that matter is Germany 186 00:09:32,480 --> 00:09:35,000 Speaker 1: has had zero growth into the middle of last year. 187 00:09:35,120 --> 00:09:37,600 Speaker 1: It's probably the technical recession. Now we don't really know. 188 00:09:38,600 --> 00:09:41,040 Speaker 1: The labor market is already starting to suffer a little 189 00:09:41,040 --> 00:09:43,439 Speaker 1: bit and probably will suffer more going forward, and that 190 00:09:43,440 --> 00:09:46,440 Speaker 1: will probably enough for Germany to do something. But just 191 00:09:46,600 --> 00:09:48,720 Speaker 1: to put some numbers on this, one number that's been 192 00:09:48,720 --> 00:09:52,800 Speaker 1: bandied around is the sort of billions or sixty of stimulus. 193 00:09:52,840 --> 00:09:54,880 Speaker 1: We don't really know what that's supposed to do, but 194 00:09:55,040 --> 00:09:57,199 Speaker 1: that's super sanity t P, which would mean that Germany 195 00:09:57,200 --> 00:10:00,560 Speaker 1: would go from from a surplus to balanced by right. So, 196 00:10:00,679 --> 00:10:02,600 Speaker 1: I mean, the numbers we've seen so far is still 197 00:10:02,920 --> 00:10:06,320 Speaker 1: fairly modest in terms of sort of where we are now. 198 00:10:06,760 --> 00:10:09,240 Speaker 1: So class just give us a sense some background of 199 00:10:09,320 --> 00:10:11,600 Speaker 1: kind of what's been happening in the German economy over 200 00:10:11,640 --> 00:10:15,200 Speaker 1: the last eighteen months in terms of manufacturing and the consumer. 201 00:10:15,280 --> 00:10:18,040 Speaker 1: What's kind of tilting the German government to think about 202 00:10:18,080 --> 00:10:21,120 Speaker 1: this type of stimulus. Well, but then then this is 203 00:10:21,160 --> 00:10:22,840 Speaker 1: one of the issues for the German government because the 204 00:10:22,880 --> 00:10:25,320 Speaker 1: domestic economy has actually held up all right, which is 205 00:10:25,360 --> 00:10:28,000 Speaker 1: to say, the consumer has has been doing okay. The 206 00:10:28,040 --> 00:10:31,320 Speaker 1: construction sector up until very recently has been doing okay, 207 00:10:31,400 --> 00:10:33,400 Speaker 1: although I think that's rolling over now. But it's been 208 00:10:33,440 --> 00:10:37,520 Speaker 1: all manufacturing and net experts and in some sense, if 209 00:10:37,559 --> 00:10:40,520 Speaker 1: you are an expert oriented economy, and Germany is probably 210 00:10:40,679 --> 00:10:43,360 Speaker 1: the world's most export oriented economy, and you get a 211 00:10:43,440 --> 00:10:46,920 Speaker 1: hit to the expert for um and to to external 212 00:10:46,960 --> 00:10:51,760 Speaker 1: demand while you're at full employment um and and so 213 00:10:51,840 --> 00:10:55,520 Speaker 1: you so the government's ability to to come out quickly 214 00:10:55,840 --> 00:10:58,440 Speaker 1: with with a fiscal stimulus program to to counteract that 215 00:10:58,640 --> 00:11:02,319 Speaker 1: is not um um is limited a little bit. Also, 216 00:11:02,720 --> 00:11:04,920 Speaker 1: if you look at a sort of economic orthodopcy in 217 00:11:04,960 --> 00:11:06,600 Speaker 1: Germany is that you know, this is why a lot 218 00:11:06,600 --> 00:11:08,960 Speaker 1: of German politicians have been telling as well, you know, 219 00:11:09,160 --> 00:11:10,600 Speaker 1: there's not much we can do. We just have to 220 00:11:10,640 --> 00:11:13,640 Speaker 1: write this out. Although again to to to this conversation 221 00:11:13,720 --> 00:11:16,280 Speaker 1: we're having here, I do think that's changing. But yeah, 222 00:11:16,440 --> 00:11:19,840 Speaker 1: net exports manufacturing are the two areas where Germany has 223 00:11:19,840 --> 00:11:23,719 Speaker 1: really suffered in the last six and nine months. Solus. 224 00:11:23,800 --> 00:11:25,360 Speaker 1: It just give us a sense of that fifty five 225 00:11:25,480 --> 00:11:29,280 Speaker 1: billion dollar number two extent that that's somewhat accurate, just 226 00:11:29,440 --> 00:11:31,640 Speaker 1: gives a sense of what you think that could do 227 00:11:31,960 --> 00:11:34,520 Speaker 1: to the economy over the next couple of years, how 228 00:11:34,520 --> 00:11:37,960 Speaker 1: helpful it could be, how stimulative it could be. Yeah, 229 00:11:37,960 --> 00:11:41,320 Speaker 1: So the fifty five billion number that's banding around, I 230 00:11:41,320 --> 00:11:42,880 Speaker 1: have to assume that's that's going to be sort of 231 00:11:42,880 --> 00:11:46,320 Speaker 1: a standard changing stop gap in terms of sort of 232 00:11:46,400 --> 00:11:49,719 Speaker 1: tax cards, things that that work immediately, right, because I 233 00:11:49,760 --> 00:11:51,559 Speaker 1: think there are two stories here. There are things that 234 00:11:51,600 --> 00:11:53,640 Speaker 1: Germany can do in the short run that that would 235 00:11:53,640 --> 00:11:56,439 Speaker 1: work very quickly in terms of getting growth up um 236 00:11:56,480 --> 00:11:59,560 Speaker 1: sort of that tax cards for the for the lows 237 00:11:59,600 --> 00:12:02,240 Speaker 1: middle in come, perhaps an increase in social chance. Also, 238 00:12:02,280 --> 00:12:05,560 Speaker 1: remember Germany has very strong automatic stabilizes that kicking if 239 00:12:05,640 --> 00:12:08,120 Speaker 1: job job jobless clam starts to increase it, that will 240 00:12:08,120 --> 00:12:11,000 Speaker 1: also shield the German economy a little bit. But that's 241 00:12:11,000 --> 00:12:12,600 Speaker 1: not what we're really talking about. If you look at 242 00:12:12,640 --> 00:12:14,480 Speaker 1: the story in general of the idea, is that Germany 243 00:12:14,520 --> 00:12:18,360 Speaker 1: is supposed to, you know, do this multi year infrastructure 244 00:12:18,400 --> 00:12:21,439 Speaker 1: spending in in its in its auto bonds or whatever. 245 00:12:21,440 --> 00:12:24,160 Speaker 1: It's it's it's it's broadbands or like climate change or 246 00:12:24,240 --> 00:12:27,040 Speaker 1: more defense. I mean, that's great, but I mean you're 247 00:12:27,080 --> 00:12:29,160 Speaker 1: not gonna see me or any other years on FOECAST 248 00:12:29,200 --> 00:12:31,719 Speaker 1: has moved the needle on on our economic forecast. Is 249 00:12:31,800 --> 00:12:34,400 Speaker 1: that because that takes I mean that takes a long 250 00:12:34,440 --> 00:12:37,200 Speaker 1: time to come through. So there are kind of two 251 00:12:37,240 --> 00:12:40,480 Speaker 1: stories here. And one thing I'll say is obviously that 252 00:12:40,520 --> 00:12:42,520 Speaker 1: the bund market is really trading this now, which I 253 00:12:42,559 --> 00:12:45,000 Speaker 1: think is really fascinating in some sense given where budd 254 00:12:45,080 --> 00:12:47,720 Speaker 1: deals are now. I think, you know, more fiscal talk 255 00:12:47,800 --> 00:12:51,880 Speaker 1: can really unsettled that market. But you know, markets will 256 00:12:51,920 --> 00:12:55,040 Speaker 1: be disappointed with whatever Germany does because markets now expect 257 00:12:55,520 --> 00:12:57,480 Speaker 1: a lot. I think in terms of want a lot, 258 00:12:57,520 --> 00:12:59,880 Speaker 1: there's a there's a normative narrative here that Germany really 259 00:13:00,120 --> 00:13:01,680 Speaker 1: to do a lot, and I think that, well, it 260 00:13:01,760 --> 00:13:04,720 Speaker 1: might be difficult for them to to to fulfill those expectations. 261 00:13:04,840 --> 00:13:06,880 Speaker 1: Class we've got to talk about how you define success 262 00:13:06,880 --> 00:13:10,079 Speaker 1: as well. Morgan Stanleys Russia's Shama running in the New 263 00:13:10,160 --> 00:13:13,000 Speaker 1: York Times over the weekend a really interesting article about 264 00:13:13,200 --> 00:13:15,920 Speaker 1: some of the challenges the global economy faces, including Germany, 265 00:13:16,200 --> 00:13:19,280 Speaker 1: an economy a country that faces a shrinking labor force 266 00:13:19,360 --> 00:13:22,680 Speaker 1: and Russia. Schama running the following the forty six countries 267 00:13:22,720 --> 00:13:25,120 Speaker 1: around the world, including major pass like Japan, Russia, and 268 00:13:25,200 --> 00:13:29,320 Speaker 1: China now have shrinking populations. And with that in mind, 269 00:13:29,360 --> 00:13:33,239 Speaker 1: class whether we can just look at GDP figures, inflation 270 00:13:33,320 --> 00:13:36,240 Speaker 1: figures and decide whether a country is failing or succeeding, 271 00:13:36,640 --> 00:13:39,839 Speaker 1: whether we need to redefine the metrics that we use 272 00:13:39,920 --> 00:13:45,160 Speaker 1: to define success and failure. Claus, does that resonate with you, No, hope, 273 00:13:45,160 --> 00:13:47,040 Speaker 1: So I mean preach. I mean that this is this 274 00:13:47,120 --> 00:13:48,880 Speaker 1: is the main story for me, and I think that 275 00:13:49,920 --> 00:13:52,120 Speaker 1: there are kind of to two elements of this story. 276 00:13:52,160 --> 00:13:54,439 Speaker 1: One is that that that element of the story, which 277 00:13:54,480 --> 00:13:57,360 Speaker 1: I think is completely turned in in the Eurozone now, 278 00:13:57,440 --> 00:14:00,640 Speaker 1: train growth is probably in the structural in a structural 279 00:14:00,679 --> 00:14:03,120 Speaker 1: decline because the working age population is not it's not 280 00:14:03,240 --> 00:14:06,720 Speaker 1: rising anymore. But you still have a central bank that 281 00:14:06,840 --> 00:14:09,000 Speaker 1: is to shooing the same inflation targeted as it was 282 00:14:09,040 --> 00:14:11,200 Speaker 1: ten fifteen years ago. This is the same thing in Japan. 283 00:14:11,320 --> 00:14:13,480 Speaker 1: They're not reaching it, so therefore they reach for net 284 00:14:13,520 --> 00:14:15,400 Speaker 1: more and more, negative interest rates more and more. QUI 285 00:14:15,760 --> 00:14:18,080 Speaker 1: creates a lot of access liquidity flows out into the 286 00:14:18,080 --> 00:14:22,120 Speaker 1: global economy and and and and that you know, and 287 00:14:22,160 --> 00:14:24,680 Speaker 1: then now you have politicians in the US, especially Trump, 288 00:14:24,680 --> 00:14:27,760 Speaker 1: you are very grumpy about trade death certain and trading balances. 289 00:14:28,560 --> 00:14:33,160 Speaker 1: And oddly enough, we are now moving towards a situation 290 00:14:33,200 --> 00:14:35,440 Speaker 1: where it seems like we're more likely to double down, right, 291 00:14:35,480 --> 00:14:37,320 Speaker 1: We're more likely to double down with even more steams, 292 00:14:37,400 --> 00:14:40,200 Speaker 1: even more fiscal stimulus or monitor steams in order to 293 00:14:40,200 --> 00:14:42,760 Speaker 1: try to counterbalance this store. And I just think that, 294 00:14:43,360 --> 00:14:45,280 Speaker 1: you know, I so I agree with that sentiment. I mean, 295 00:14:46,920 --> 00:14:49,280 Speaker 1: it's not it's not going to be it's not clear 296 00:14:49,280 --> 00:14:53,080 Speaker 1: to me where that you know, nominal growth of whatever 297 00:14:53,120 --> 00:14:54,920 Speaker 1: we wanted to be five to six percent in the 298 00:14:54,920 --> 00:14:56,640 Speaker 1: Euros I'm just going to come from. I mean, I 299 00:14:56,680 --> 00:14:58,760 Speaker 1: don't see it anywhere, no matter what we do. And 300 00:14:58,760 --> 00:15:01,480 Speaker 1: and so maybe that that's that's that's a that's a 301 00:15:01,520 --> 00:15:04,040 Speaker 1: tricky world for markets to navigate. But I think the 302 00:15:04,080 --> 00:15:07,080 Speaker 1: main story is that so far we're much more likely 303 00:15:07,160 --> 00:15:12,120 Speaker 1: to get more stimulus than less stimulus, both fishal and monetary, 304 00:15:12,120 --> 00:15:14,600 Speaker 1: because that's kind of like where we're where we're going. 305 00:15:14,840 --> 00:15:17,000 Speaker 1: And Sharma is making that argument as well, that potentially 306 00:15:17,000 --> 00:15:20,080 Speaker 1: this just leads to more fruitless stimulus campaigns in class. 307 00:15:20,080 --> 00:15:21,800 Speaker 1: I guess my final question for you is how many 308 00:15:21,800 --> 00:15:24,640 Speaker 1: more fruitless stimulus campaigns do we need to have to 309 00:15:24,680 --> 00:15:26,920 Speaker 1: get some of these central banks to look away from 310 00:15:27,160 --> 00:15:33,720 Speaker 1: dated metrics for whether they're succeeding or failing. Well, quite 311 00:15:33,760 --> 00:15:35,760 Speaker 1: a lot, I mean, I think, so look at the HV. 312 00:15:35,880 --> 00:15:38,200 Speaker 1: We're having a change of gardener. Obviously a drug is 313 00:15:38,240 --> 00:15:41,360 Speaker 1: out and Madame mcgard is coming. I mean, we don't 314 00:15:41,400 --> 00:15:45,680 Speaker 1: really know what she thinks about the different different things, 315 00:15:45,680 --> 00:15:47,480 Speaker 1: but it's much more likely I think that we're going 316 00:15:47,520 --> 00:15:51,000 Speaker 1: to get more of the same than less um and 317 00:15:51,000 --> 00:15:52,360 Speaker 1: and all. Let me put it like this, if we're 318 00:15:52,360 --> 00:15:55,080 Speaker 1: going to get less I mean, bond markets are sitting 319 00:15:55,120 --> 00:15:56,920 Speaker 1: duck here, and then this is you know, in some 320 00:15:56,960 --> 00:15:59,000 Speaker 1: sense markets have already made made up their mind and 321 00:15:59,080 --> 00:16:01,720 Speaker 1: at the moment posting are following their lead. So you know, 322 00:16:01,840 --> 00:16:04,200 Speaker 1: I think you know most the same line. He class, 323 00:16:04,200 --> 00:16:06,440 Speaker 1: great to catch you with. This conversation will continue, and 324 00:16:06,440 --> 00:16:08,000 Speaker 1: if we get more of the same, I imagine some 325 00:16:08,040 --> 00:16:12,120 Speaker 1: of these arguments are going nowhere. Pantheon macro economists, chief 326 00:16:12,680 --> 00:16:28,400 Speaker 1: Eurozone economists joining us from the UK. There so much 327 00:16:28,480 --> 00:16:31,040 Speaker 1: to look forward to through the week, all of it 328 00:16:31,240 --> 00:16:34,040 Speaker 1: really centered around the Federal Reserve and the US economy 329 00:16:34,120 --> 00:16:37,080 Speaker 1: joining us to weigh in. Lanta rain FS Investments Chief 330 00:16:37,520 --> 00:16:40,000 Speaker 1: US Economists, Good morning, chi Laura. Just walk me through 331 00:16:40,240 --> 00:16:43,920 Speaker 1: what you're looking for this week. The minutes are really 332 00:16:43,920 --> 00:16:46,760 Speaker 1: going to be the focus, and I think news from 333 00:16:46,920 --> 00:16:49,760 Speaker 1: the rest of the developed world. We've had news overnight 334 00:16:49,800 --> 00:16:53,000 Speaker 1: that Germany is considering a stimulus package. I think that 335 00:16:53,200 --> 00:16:55,400 Speaker 1: we have to keep in mind the last several large 336 00:16:55,440 --> 00:16:58,040 Speaker 1: moves that we've had in the US have come from 337 00:16:58,200 --> 00:17:01,080 Speaker 1: down u S data point that we're really focused on 338 00:17:01,120 --> 00:17:04,320 Speaker 1: this idea of a global slowdown, global market moves, and 339 00:17:04,359 --> 00:17:08,440 Speaker 1: really pessimism in the global bond market. So, Lauren, let's 340 00:17:08,600 --> 00:17:11,040 Speaker 1: focusing on Jackson Hole this week. Obviously, as you mentioned, 341 00:17:11,040 --> 00:17:13,600 Speaker 1: the minutes will be critically important. What kind of tone 342 00:17:13,640 --> 00:17:16,359 Speaker 1: do you think we're going to get from the Fed, 343 00:17:16,440 --> 00:17:20,040 Speaker 1: in from Chairman Pal You know, I think it's going 344 00:17:20,080 --> 00:17:21,960 Speaker 1: to be a tone that takes us back to a 345 00:17:22,080 --> 00:17:25,159 Speaker 1: time before we had the tenure at close to one 346 00:17:25,200 --> 00:17:28,439 Speaker 1: and a half percent, at the time when there was 347 00:17:28,560 --> 00:17:31,320 Speaker 1: a lot less cohesion on the set about what the 348 00:17:31,320 --> 00:17:34,840 Speaker 1: next great move should be. Remember, we had two dissenters 349 00:17:34,840 --> 00:17:37,040 Speaker 1: at that meeting. In favor of not changing rates. So 350 00:17:37,720 --> 00:17:40,760 Speaker 1: surely there will be a much more active discussion at 351 00:17:40,760 --> 00:17:44,119 Speaker 1: that FOM meeting, with some participants thinking that the economy, 352 00:17:44,240 --> 00:17:48,160 Speaker 1: domestic economy was strong enough to not move rates at all. 353 00:17:48,640 --> 00:17:51,840 Speaker 1: I think what we're going to look at is a 354 00:17:51,960 --> 00:17:56,360 Speaker 1: really um you know, this difference between reacting to the 355 00:17:56,440 --> 00:17:58,960 Speaker 1: fundamentals of the US economy versus a lot of the 356 00:17:59,000 --> 00:18:01,800 Speaker 1: concern that we're seeing to financial markets and volatility coming 357 00:18:01,800 --> 00:18:05,400 Speaker 1: from abroad. On Friday, the headline the topic the theme 358 00:18:05,480 --> 00:18:09,199 Speaker 1: of this year's Jackson host Symposium the challenges of Monetary policy. 359 00:18:09,200 --> 00:18:11,359 Speaker 1: And I just wonder, Laura, whether that is the ultimate 360 00:18:11,400 --> 00:18:14,320 Speaker 1: challenge of monetary policy right now, that these central banks 361 00:18:14,359 --> 00:18:16,080 Speaker 1: don't really have the tools to address some of the 362 00:18:16,080 --> 00:18:19,639 Speaker 1: economic challenges we have globally, and front and center that 363 00:18:19,720 --> 00:18:24,400 Speaker 1: challenge being trade. I completely agree with you. I think 364 00:18:24,640 --> 00:18:27,960 Speaker 1: I've long said that monetary policy gets both too much 365 00:18:28,000 --> 00:18:31,800 Speaker 1: credit and too much blame. The reality is that some 366 00:18:31,880 --> 00:18:34,720 Speaker 1: of the big problems these economies are having, like slowing 367 00:18:34,800 --> 00:18:38,760 Speaker 1: labor force growth, low productivity, even the trade tensions that 368 00:18:38,800 --> 00:18:42,760 Speaker 1: we're seeing rock equity market. The said can only really 369 00:18:42,800 --> 00:18:46,320 Speaker 1: put a band aid on what is a very big, 370 00:18:46,600 --> 00:18:50,199 Speaker 1: larger psychological break um, and the tools that they have 371 00:18:50,400 --> 00:18:53,119 Speaker 1: simply are not going to be able to ease a 372 00:18:53,160 --> 00:18:55,399 Speaker 1: lot of the bigger problems that we have. Really, the 373 00:18:55,480 --> 00:18:58,280 Speaker 1: big concern is that over the long run, we're making 374 00:18:58,280 --> 00:19:03,679 Speaker 1: a policy mistake by expandinging valuable ammunition with FED RAID 375 00:19:03,760 --> 00:19:07,199 Speaker 1: cuts when really they're not going to impact what is 376 00:19:07,240 --> 00:19:11,560 Speaker 1: causing the larger volatility and financial discomfort. So, Lara, do 377 00:19:11,560 --> 00:19:13,320 Speaker 1: you expect I mean, you know, I think there's a 378 00:19:13,320 --> 00:19:15,720 Speaker 1: growing concern that the U S E. Commuquad has generally 379 00:19:15,760 --> 00:19:19,119 Speaker 1: been slowing obviously but generally very strong, certainly relative to 380 00:19:19,160 --> 00:19:21,600 Speaker 1: what we're seeing in Europe, for example, or even a 381 00:19:21,640 --> 00:19:24,560 Speaker 1: slowing growth in China. What odds do you kind of 382 00:19:24,600 --> 00:19:26,760 Speaker 1: put it at a US recession in next twelve of 383 00:19:26,760 --> 00:19:30,480 Speaker 1: the eighteen months. I am still in the camp that 384 00:19:30,600 --> 00:19:36,119 Speaker 1: expects the US economy to slow potentially to uncomfortably low levels, 385 00:19:36,440 --> 00:19:39,400 Speaker 1: but to avoid a recession, we may get one quarter 386 00:19:39,440 --> 00:19:42,679 Speaker 1: of negative growth somewhere in the middle of but I 387 00:19:42,720 --> 00:19:45,320 Speaker 1: think we're still looking at full your growth this year 388 00:19:45,320 --> 00:19:49,080 Speaker 1: of two percent and next year maybe more like one percent. 389 00:19:49,640 --> 00:19:51,359 Speaker 1: I think to get a recession, we're going to need 390 00:19:51,400 --> 00:19:54,000 Speaker 1: a real event to happen. But you know, you can't 391 00:19:54,040 --> 00:19:56,919 Speaker 1: fight gravity with the rest of the world slowing. And 392 00:19:57,000 --> 00:20:00,240 Speaker 1: I don't know what the ark of Europe so down 393 00:20:00,240 --> 00:20:02,560 Speaker 1: will be, but certainly the headlines and the data are 394 00:20:02,640 --> 00:20:06,440 Speaker 1: looking worse than many of us had expected. So it's 395 00:20:06,480 --> 00:20:08,760 Speaker 1: hard to fight that. Gravity is going to impact the 396 00:20:08,800 --> 00:20:13,760 Speaker 1: US economy, and particularly these large caps stocks are going 397 00:20:13,760 --> 00:20:16,560 Speaker 1: to be impacted because they're prong tens of purpose as international. 398 00:20:17,000 --> 00:20:19,280 Speaker 1: So Laura, for the chairman this way, you at checks 399 00:20:19,280 --> 00:20:21,640 Speaker 1: in Hole that speech on Friday, what do you think 400 00:20:21,680 --> 00:20:24,800 Speaker 1: the challenge the objective should be for him going into 401 00:20:24,800 --> 00:20:28,919 Speaker 1: this weekend. I mean, he is in a tough spot 402 00:20:29,040 --> 00:20:32,680 Speaker 1: because markets have clearly priced and aggressive said rate cuts. 403 00:20:33,000 --> 00:20:36,800 Speaker 1: After the f MC meeting, he worked hard to really 404 00:20:36,960 --> 00:20:40,320 Speaker 1: limit market expectations and walk those back. I think we're 405 00:20:40,320 --> 00:20:42,560 Speaker 1: going to need to see if he sticks to his 406 00:20:43,040 --> 00:20:46,679 Speaker 1: mid cycle adjustment language, which would imply one, they need 407 00:20:46,760 --> 00:20:49,359 Speaker 1: two more rate cuts this year, or if he's really 408 00:20:49,400 --> 00:20:51,520 Speaker 1: on board with the fact that the US is now 409 00:20:51,560 --> 00:20:55,320 Speaker 1: in danger of slipping into a recession, which would imply 410 00:20:55,440 --> 00:20:59,440 Speaker 1: a much more radical rate cut trajectory and larger real quickly. 411 00:20:59,440 --> 00:21:01,560 Speaker 1: What is your I know it's back and forth, back 412 00:21:01,600 --> 00:21:03,560 Speaker 1: and forth, back and forth. Your sense on kind of 413 00:21:03,600 --> 00:21:06,239 Speaker 1: trade and how this plays out over the you know, 414 00:21:06,520 --> 00:21:08,159 Speaker 1: next several months, or is this something that's gonna be 415 00:21:08,160 --> 00:21:11,959 Speaker 1: a post election I think this is really you know, 416 00:21:12,040 --> 00:21:16,280 Speaker 1: we are now in this ground war for the long haul. 417 00:21:16,480 --> 00:21:19,720 Speaker 1: I think you know, there were deep divisions UM going 418 00:21:19,800 --> 00:21:23,359 Speaker 1: into any kind of negotiations, and we may get a 419 00:21:23,560 --> 00:21:26,560 Speaker 1: short term sort of trade deal announced almost like a 420 00:21:27,000 --> 00:21:30,639 Speaker 1: like a mission accomplished, not the aerograph character UM, but 421 00:21:30,800 --> 00:21:34,800 Speaker 1: I was a lasting, enduring trade agreement I think is 422 00:21:34,920 --> 00:21:37,640 Speaker 1: quite far away at this point. Laura, great to catch 423 00:21:37,680 --> 00:21:39,280 Speaker 1: out with you to get your thoughts in another key 424 00:21:39,320 --> 00:21:42,560 Speaker 1: week for the global economy. Laura Rein, the FS Investments 425 00:21:42,600 --> 00:21:59,880 Speaker 1: Chief US Economists, Going back to this story with Apple. 426 00:22:00,600 --> 00:22:04,359 Speaker 1: Apple CEO Tim Cook had dinner apparently Friday night with 427 00:22:04,400 --> 00:22:07,400 Speaker 1: President Trump at the President's Golf Club in New Jersey. 428 00:22:07,880 --> 00:22:09,760 Speaker 1: I don't see it reported that they played golf. But 429 00:22:09,800 --> 00:22:12,639 Speaker 1: what they did do is talk trade. They talked tariffs, 430 00:22:13,040 --> 00:22:14,960 Speaker 1: and I think Mr Cook was clearly trying to make 431 00:22:15,040 --> 00:22:18,000 Speaker 1: the argument that tariffs are not good for Apple and 432 00:22:18,080 --> 00:22:20,440 Speaker 1: certainly put them at a competitive disadvantage against some of 433 00:22:20,480 --> 00:22:23,760 Speaker 1: their competitors, including Samsung Electronics. So to dig a little 434 00:22:23,800 --> 00:22:27,159 Speaker 1: bit deeper about what this could mean for Apple, we 435 00:22:27,320 --> 00:22:30,560 Speaker 1: turned to Rob Schiff and Rob covers all Things Technology 436 00:22:30,600 --> 00:22:33,760 Speaker 1: for Bloomberg Intelligence on the credit side. Rob, thanks so 437 00:22:33,840 --> 00:22:36,320 Speaker 1: much for joining us here on a Bloomberg Interactor broker studio. 438 00:22:36,640 --> 00:22:39,240 Speaker 1: First of all, just give us a sense from you know, 439 00:22:40,000 --> 00:22:43,000 Speaker 1: from the business perspective, you're looking at the balance sheet 440 00:22:43,000 --> 00:22:45,679 Speaker 1: and the P and L. How much do these tariffs 441 00:22:45,720 --> 00:22:48,600 Speaker 1: if they go full effect, Well, they have a big 442 00:22:48,680 --> 00:22:52,679 Speaker 1: impact on Apple. Thanks Paul. You know, the reality is 443 00:22:53,960 --> 00:22:58,960 Speaker 1: from a bondholder's perspective, it almost doesn't make a difference. 444 00:22:59,119 --> 00:23:01,960 Speaker 1: From a stockholder's perspective though, it makes a huge difference 445 00:23:01,960 --> 00:23:06,000 Speaker 1: in terms of growth rate and trajectory. What Trump is 446 00:23:06,080 --> 00:23:10,119 Speaker 1: clearly trying to do is get stocks to stay up high, 447 00:23:10,160 --> 00:23:11,639 Speaker 1: and there's no better way to do it than to 448 00:23:11,640 --> 00:23:14,240 Speaker 1: try to prop up Apple. So if there's a concept 449 00:23:14,359 --> 00:23:17,679 Speaker 1: that you're going to have lower towerfs on Apple and 450 00:23:17,840 --> 00:23:20,879 Speaker 1: product costs are going to be lower, Christmas is going 451 00:23:20,920 --> 00:23:24,520 Speaker 1: to be booming for the company and helped rise the 452 00:23:24,720 --> 00:23:28,120 Speaker 1: entire the hot entire market. I think when you think 453 00:23:28,119 --> 00:23:30,000 Speaker 1: about it from a bottled perspective. As you know, I'm 454 00:23:30,000 --> 00:23:34,480 Speaker 1: a credit guy. It's almost Christmas every day because Apple 455 00:23:34,840 --> 00:23:38,880 Speaker 1: just continues to generate massive amounts of free cash flow. 456 00:23:39,200 --> 00:23:44,040 Speaker 1: So regardless of what the tariff situation is, um we 457 00:23:44,040 --> 00:23:47,760 Speaker 1: we don't see much risk to Apple's massive cash flow. 458 00:23:48,280 --> 00:23:51,639 Speaker 1: I think when you're projecting out revenues from quarter to quarter, 459 00:23:51,960 --> 00:23:55,920 Speaker 1: you're gonna have significant ebbs and flows. And quite frankly, 460 00:23:56,040 --> 00:24:00,000 Speaker 1: the equity market consistently has just gotten Apples growth traject 461 00:24:00,000 --> 00:24:02,159 Speaker 1: story in the near term wrong. And you see that 462 00:24:02,240 --> 00:24:06,080 Speaker 1: by by big balances in volatility of its stock price. 463 00:24:06,440 --> 00:24:09,200 Speaker 1: When you start looking over an extended period of time, 464 00:24:10,119 --> 00:24:13,160 Speaker 1: let's just say twelve eighteen, twenty four months, I think 465 00:24:13,160 --> 00:24:16,639 Speaker 1: there's less questions about longer term growth rates of Apple, 466 00:24:16,920 --> 00:24:19,639 Speaker 1: and we can sort of wash through short term teriff issues. 467 00:24:19,920 --> 00:24:21,600 Speaker 1: So when you take a look at the balance sheet here, 468 00:24:21,600 --> 00:24:23,520 Speaker 1: I'm looking on the Bloomberg terminal here, and I see 469 00:24:23,680 --> 00:24:27,119 Speaker 1: as of June about a hundred eight billion dollars of 470 00:24:27,160 --> 00:24:28,760 Speaker 1: total debt. That's a big number. But then I look 471 00:24:28,800 --> 00:24:30,280 Speaker 1: up a little bit higher on the balance sheet and 472 00:24:30,280 --> 00:24:33,560 Speaker 1: in the cash I see two billion dollars of cash. 473 00:24:33,800 --> 00:24:35,840 Speaker 1: And you mentioned that I'm also looking on the terminal 474 00:24:35,880 --> 00:24:38,679 Speaker 1: here about sixty billion dollars of free cash flow for Apple. 475 00:24:39,000 --> 00:24:40,520 Speaker 1: So with that kind of free cash flow, why does 476 00:24:40,560 --> 00:24:43,920 Speaker 1: Apple even go to the debt market. Well, they haven't 477 00:24:44,000 --> 00:24:51,239 Speaker 1: since post tax repatriation changes. They haven't funded UM, nor 478 00:24:51,440 --> 00:24:55,480 Speaker 1: of some of the other big tech players as well. 479 00:24:55,680 --> 00:24:58,120 Speaker 1: You know, Microsoft hasn't been in the market, Amazon hasn't 480 00:24:58,119 --> 00:25:01,960 Speaker 1: been in the market, Cisco hasn't been in the market. UM. 481 00:25:02,000 --> 00:25:07,960 Speaker 1: The concept of bringing stuck cash back from international coffers 482 00:25:08,359 --> 00:25:11,200 Speaker 1: is no longer an issue. So what you're seeing our 483 00:25:11,359 --> 00:25:16,359 Speaker 1: companies trending towards lower absolute debt balances. The problem that 484 00:25:16,359 --> 00:25:20,440 Speaker 1: that Apple has is that they generate so much cash 485 00:25:20,640 --> 00:25:23,800 Speaker 1: every single quarter it's hard to meet their goal. Their 486 00:25:23,840 --> 00:25:27,400 Speaker 1: goal is to get to a cash neutral position. As 487 00:25:27,440 --> 00:25:31,400 Speaker 1: you just said, their cash position right now still over 488 00:25:31,440 --> 00:25:34,560 Speaker 1: two is well over a hundred billion more than what 489 00:25:34,600 --> 00:25:37,879 Speaker 1: their debt position is. So if every quarter they're pumping 490 00:25:37,920 --> 00:25:41,920 Speaker 1: in an incremental fifteen billion dollars of free cash, how 491 00:25:41,920 --> 00:25:45,439 Speaker 1: do they get there? They just re up their buyback 492 00:25:45,520 --> 00:25:48,959 Speaker 1: program in May to another hundred billion dollars. You know, 493 00:25:49,000 --> 00:25:51,439 Speaker 1: our sense is that it's going to take multiple years 494 00:25:51,840 --> 00:25:54,600 Speaker 1: for Apple to get to a cash neutribe position. You know, 495 00:25:54,920 --> 00:25:56,880 Speaker 1: you could get there a bit quicker if you use 496 00:25:56,920 --> 00:25:59,320 Speaker 1: your cash to pay down debt as well, and they've 497 00:25:59,359 --> 00:26:01,680 Speaker 1: been doing that. You can see their total debt balances 498 00:26:02,000 --> 00:26:05,480 Speaker 1: have shrunk almost twenty billion dollars over the last couple 499 00:26:05,560 --> 00:26:08,080 Speaker 1: of years, and I think that will will happen, but 500 00:26:08,119 --> 00:26:10,119 Speaker 1: I don't see them coming back to the debt market 501 00:26:10,320 --> 00:26:14,439 Speaker 1: quite frankly, unlike other tech players, there's no M and 502 00:26:14,480 --> 00:26:17,119 Speaker 1: A for them. Uh, there's just I think there's a 503 00:26:17,880 --> 00:26:21,640 Speaker 1: big media company which people speculate about Listen. We'd love 504 00:26:21,680 --> 00:26:24,040 Speaker 1: to see it because it would be more interesting, but 505 00:26:24,080 --> 00:26:26,480 Speaker 1: I just don't see that happening. I think they have 506 00:26:26,720 --> 00:26:30,560 Speaker 1: enough organic growth potential um that they don't need to 507 00:26:30,560 --> 00:26:33,120 Speaker 1: spend their money buying it. There's a lot of other 508 00:26:33,200 --> 00:26:35,920 Speaker 1: companies that need to do that, like a broad Com 509 00:26:36,000 --> 00:26:40,160 Speaker 1: or an ibm um or maybe even UH an Oracle 510 00:26:40,280 --> 00:26:43,280 Speaker 1: eventually an Intel, but I don't see that for For 511 00:26:43,320 --> 00:26:48,360 Speaker 1: Apple again, it's it's Christmas every single day exactly. Keep 512 00:26:48,359 --> 00:26:52,560 Speaker 1: getting so much. I think they're gonna meaningfully increase this 513 00:26:52,640 --> 00:26:55,679 Speaker 1: buyback program, though over the next two years, a hundred 514 00:26:55,680 --> 00:27:01,280 Speaker 1: billion dollars might grow to a hundred fifty around eighteen 515 00:27:01,320 --> 00:27:03,959 Speaker 1: months out. Because for these tech companies between when they 516 00:27:03,960 --> 00:27:06,399 Speaker 1: threat these huge numbers like a hundred billion dollar buyback, 517 00:27:06,440 --> 00:27:08,399 Speaker 1: that a that that is a big number, certainly, and 518 00:27:08,480 --> 00:27:10,680 Speaker 1: it does reduce the flow, But they also are issuing 519 00:27:11,119 --> 00:27:13,280 Speaker 1: stock all the time, stock based compensation, which is a 520 00:27:13,320 --> 00:27:15,919 Speaker 1: big part of the compensation structure in Silicon Valley. So 521 00:27:15,960 --> 00:27:17,680 Speaker 1: a lot of the buy back is just kind of 522 00:27:17,680 --> 00:27:20,200 Speaker 1: off setting the new stock coming onto the marketplace. Is 523 00:27:20,240 --> 00:27:23,720 Speaker 1: Apple actually reducing a share count? So the answers, yes, 524 00:27:24,040 --> 00:27:29,280 Speaker 1: but it's relative to cash flows, it's still somewhat meaningless. 525 00:27:29,800 --> 00:27:34,359 Speaker 1: So there's um there's a lot of stock to buy 526 00:27:34,400 --> 00:27:37,199 Speaker 1: back just to keep the company neutral in terms of 527 00:27:37,200 --> 00:27:42,200 Speaker 1: shares outstanding. They're buying back massively in excess of what 528 00:27:42,240 --> 00:27:45,600 Speaker 1: compensation issues are UM. So I don't really think that's 529 00:27:45,680 --> 00:27:51,080 Speaker 1: the worry. UM. Again, from an equity holders perspective, you 530 00:27:51,160 --> 00:27:54,280 Speaker 1: get stuck in a name like this because there really 531 00:27:54,359 --> 00:27:58,040 Speaker 1: is no financial engineering that's going to change the story significantly. 532 00:27:58,440 --> 00:28:01,720 Speaker 1: There's no large transaction. You almost can't buy back enough stock, 533 00:28:01,960 --> 00:28:05,000 Speaker 1: and it really does boil down much more to fundamentals. 534 00:28:05,040 --> 00:28:07,439 Speaker 1: When it comes to the credit side. I think it 535 00:28:07,440 --> 00:28:09,879 Speaker 1: becomes a little bit of a yawner. These names trade 536 00:28:09,920 --> 00:28:12,480 Speaker 1: super tight and are likely to continue to trade super tight. 537 00:28:13,400 --> 00:28:16,760 Speaker 1: The advantage with an Apple, though, is relative to a 538 00:28:16,840 --> 00:28:19,399 Speaker 1: Google or an Amazon, is when you have a hundred 539 00:28:19,440 --> 00:28:22,320 Speaker 1: billion dollars of dead outstanding relative to someone else with 540 00:28:23,240 --> 00:28:26,280 Speaker 1: or four billion, you're gonna get incremental spread for that 541 00:28:27,240 --> 00:28:29,879 Speaker 1: because technicals are going to be meaningfully weaker. So you 542 00:28:29,920 --> 00:28:34,480 Speaker 1: could buy Apple bonds ten wide to some of their 543 00:28:34,520 --> 00:28:38,520 Speaker 1: tech peers that are lower rated, with less cash, lower 544 00:28:38,560 --> 00:28:43,560 Speaker 1: cash flow trajectories, and still get incremental yield you don't. Luckily, 545 00:28:44,600 --> 00:28:47,560 Speaker 1: rates have really helped everybody this year. So when you 546 00:28:47,600 --> 00:28:49,640 Speaker 1: think about a name like Apple that trades fift or 547 00:28:49,680 --> 00:28:52,280 Speaker 1: sixty over a ten year curve, you think would be 548 00:28:52,280 --> 00:28:55,200 Speaker 1: near impossible to get double digit returns, And in fact, 549 00:28:55,360 --> 00:28:58,640 Speaker 1: across the Apple curve you're seeing ten eleven, twelve percent 550 00:28:58,760 --> 00:29:01,000 Speaker 1: returns a year to date. That's going to be tougher 551 00:29:01,000 --> 00:29:03,120 Speaker 1: as we head into next year, where rates are not 552 00:29:03,120 --> 00:29:05,240 Speaker 1: going to be your friend. So from an Apple perspective, obviously, 553 00:29:05,280 --> 00:29:08,440 Speaker 1: the key question is, you know, as they can they 554 00:29:08,440 --> 00:29:11,560 Speaker 1: successfully pivot away from being really dependent upon the phone 555 00:29:11,800 --> 00:29:14,760 Speaker 1: two more of building up their services business and and 556 00:29:14,800 --> 00:29:17,080 Speaker 1: having that be the growth driver. I mean, kind of 557 00:29:17,120 --> 00:29:18,960 Speaker 1: how do you feel like that's going to play out 558 00:29:19,000 --> 00:29:21,880 Speaker 1: for the company. Well, I think that's that's already playing out. 559 00:29:22,040 --> 00:29:25,560 Speaker 1: The ability to on an absolute basis to grow handsets 560 00:29:25,600 --> 00:29:29,320 Speaker 1: on a on a global perspective becomes somewhat limiting. It 561 00:29:29,360 --> 00:29:32,040 Speaker 1: becomes the law of large numbers. One everyone has a 562 00:29:32,080 --> 00:29:36,600 Speaker 1: phone to everybody believes that the incremental upgrade of a 563 00:29:36,640 --> 00:29:38,760 Speaker 1: new phone is not that much. More So, the way 564 00:29:38,800 --> 00:29:41,520 Speaker 1: that you squeeze more dollars out of anyone is to 565 00:29:41,560 --> 00:29:44,280 Speaker 1: put more services layered on top of that phone. And 566 00:29:44,320 --> 00:29:47,840 Speaker 1: they're doing a fantastic job services across the board for 567 00:29:47,880 --> 00:29:51,560 Speaker 1: them continue to grow. And I think ultimately, you know, 568 00:29:51,640 --> 00:29:54,280 Speaker 1: we're not going to think about Apple as a phone company. 569 00:29:54,520 --> 00:29:56,800 Speaker 1: We're going to think about it much more as an 570 00:29:56,840 --> 00:30:01,880 Speaker 1: application services based company with a broad wet ray of hardware. 571 00:30:02,120 --> 00:30:08,840 Speaker 1: So the phone gets them in the door into everybody's house, car, business, 572 00:30:09,320 --> 00:30:11,040 Speaker 1: and now all the things that we're seeing layered on 573 00:30:11,120 --> 00:30:13,120 Speaker 1: top are really going to be the drivers of growth 574 00:30:13,480 --> 00:30:16,320 Speaker 1: in the future. Tariffs are going to have a smaller 575 00:30:16,320 --> 00:30:19,680 Speaker 1: and smaller impact on that as you start worrying less 576 00:30:19,720 --> 00:30:23,680 Speaker 1: about hardware generating the majority of your revenues and you 577 00:30:23,720 --> 00:30:27,120 Speaker 1: shift ultimately in a few years to all these services 578 00:30:27,200 --> 00:30:29,600 Speaker 1: driving the majority, and that kind of scenario that you 579 00:30:29,640 --> 00:30:31,800 Speaker 1: just laid out, kind of a slower growth, but a 580 00:30:31,840 --> 00:30:33,800 Speaker 1: predictable growth is great for bond holders and maybe not 581 00:30:33,840 --> 00:30:35,640 Speaker 1: so much for equity holders. Just looking at the stock 582 00:30:35,680 --> 00:30:38,400 Speaker 1: kind of flat on a trailing twelve month basis, So 583 00:30:38,600 --> 00:30:41,360 Speaker 1: equity investors kind of looking for that longer term growth story. 584 00:30:41,360 --> 00:30:44,240 Speaker 1: Whereas as you say, it's every day is Christmas for 585 00:30:44,280 --> 00:30:46,560 Speaker 1: an Apple creditor, Rob Shift, and thanks so much for 586 00:30:46,640 --> 00:30:50,640 Speaker 1: joining us. Rob covers all things technology for Bloomberg Intelligence. 587 00:30:52,640 --> 00:30:56,840 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 588 00:30:56,880 --> 00:31:01,480 Speaker 1: listen to interviews on Apple podcasts, so Cloud, or whichever 589 00:31:01,640 --> 00:31:05,680 Speaker 1: podcast platform you prefer. I'm on Twitter at Tom Keene 590 00:31:06,160 --> 00:31:09,840 Speaker 1: before the podcast. You can always catch us worldwide. I'm 591 00:31:09,840 --> 00:31:10,760 Speaker 1: Bloomberg Radio.