WEBVTT - Hershey's Main Owner Rejects Mondelez Offer 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:08.240 --> 0:00:12.119 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:12.200 --> 0:00:14.880 weekdays at ten am Easter on Apple, card Playing and 0:00:15.040 --> 0:00:17.919 Broyd Auto with the Bloomberg Business App. Listen on demand 0:00:17.960 --> 0:00:22.280 wherever you get your podcasts, or watch us live on YouTube. 0:00:23.360 --> 0:00:24.880 Let's go to another deal that we've been talking about 0:00:24.920 --> 0:00:27.320 throughout the morning, and that's Hers. She's in Mondaliz. Mondales 0:00:27.360 --> 0:00:29.319 makes a bit for her, She's Hershe's comes back today 0:00:29.360 --> 0:00:31.560 and says, Nah, she's not high enough. Want to get 0:00:31.560 --> 0:00:34.800 more on this with Diana Rosea Pina, Bloomberg Intelligence Consumer 0:00:34.880 --> 0:00:38.440 Staples analyst. Is there a number you think that Hershe's 0:00:38.440 --> 0:00:38.879 would be like? 0:00:39.040 --> 0:00:45.040 Yep, Well, it really depends. Last time Mondales tried, which 0:00:45.080 --> 0:00:49.479 was in twenty sixteen, they went up to twenty five 0:00:49.600 --> 0:00:54.480 billion dollars with a multiple of twenty times EBITDA. Currently 0:00:54.640 --> 0:00:59.440 Hershe's at sixteen and he was still denied. There's a 0:00:59.440 --> 0:01:01.920 lot of hurt that Mondaliese will have to go through. 0:01:02.000 --> 0:01:06.559 Not only the trust that owns pretty much controls eighty 0:01:06.560 --> 0:01:12.119 percent of Hershey, but there's also the age for Pennsylvania 0:01:12.160 --> 0:01:14.640 that has to say on it and it's likely that they. 0:01:14.520 --> 0:01:15.160 Will deny it. 0:01:15.680 --> 0:01:20.160 Interesting, So, have we heard anything from the trust either 0:01:20.240 --> 0:01:22.680 now or in the past about kind of their willingness 0:01:22.760 --> 0:01:24.800 to sell because this is a family situation. 0:01:24.920 --> 0:01:28.560 Yeah, it's unlikely that they will want to sell. Her 0:01:28.680 --> 0:01:33.600 reports that because cocoa is at you know, such high levels, 0:01:33.680 --> 0:01:36.560 they might be more willing to sell. It is unlikely. 0:01:37.319 --> 0:01:41.920 You know, ten percent of the revenue for Hershey is 0:01:41.959 --> 0:01:44.759 in salty snacks. There's expanding into it, There's a lot 0:01:44.760 --> 0:01:47.080 of things that they're trying to do. I don't think 0:01:47.200 --> 0:01:50.120 necessarily that you know, a commodity is going to make 0:01:50.160 --> 0:01:51.280 them sell. It's unlikely. 0:01:51.440 --> 0:01:53.240 So you mentioned that Monley's made a bid bad with 0:01:53.280 --> 0:01:55.400 twenty sixteen. Is that what you've said? Yes, So what's 0:01:55.440 --> 0:01:58.040 the environment from twenty sixteen where you were looking at 0:01:58.080 --> 0:02:00.600 twenty five billion dollars bid twenty five times even da right, 0:02:00.640 --> 0:02:04.000 that's what it was valued at that versus today within 0:02:04.120 --> 0:02:05.960 this kind of snack foods market. 0:02:06.240 --> 0:02:10.160 Well, you know, obviously there's been a lot more acquisitions 0:02:10.680 --> 0:02:16.360 compared to twenty sixteen. Rates might be going down in 0:02:16.440 --> 0:02:19.720 terms of that will make it permissible. Another thing that 0:02:19.800 --> 0:02:23.000 we think it's going to be difficult for Mandalize is 0:02:23.040 --> 0:02:27.960 actually to finance the deal. So currently they will probably 0:02:28.040 --> 0:02:31.560 go extending beyond six times abidad to be able to 0:02:31.600 --> 0:02:35.120 even get closer. And last time they actually did a 0:02:35.160 --> 0:02:39.440 fifty stock fifty percent cash. We're thinking that they're probably 0:02:40.200 --> 0:02:43.560 came back to the same with the same proposal and 0:02:43.639 --> 0:02:44.959 it was pretty much nigh. 0:02:45.520 --> 0:02:49.960 What's your sense of how aggressive Mondalies may be, both 0:02:49.960 --> 0:02:54.080 in terms of price and I don't know, maybe structure 0:02:54.160 --> 0:02:58.400 giving the family some kind of special value or something. 0:02:58.560 --> 0:03:02.440 Yeah, I mean it seems like they were going, uh, 0:03:02.800 --> 0:03:04.320 they're going in a I don't want to say a 0:03:04.360 --> 0:03:07.200 fishing expedition, but it's kinda I think they want to 0:03:07.200 --> 0:03:10.200 be friendly. I don't think they want to be extremely aggressive. 0:03:11.720 --> 0:03:14.720 You know, obviously they they have a relatively new CEO 0:03:14.840 --> 0:03:19.520 compared to what they had last time, so maybe he 0:03:19.720 --> 0:03:23.480 sees things a little bit different. Uh, the industry has 0:03:23.480 --> 0:03:26.920 gone beyond strategic m and A and more of like 0:03:27.000 --> 0:03:31.440 bolt on acquisitions. They do better with that because it's 0:03:31.440 --> 0:03:35.040 easier to assimilate, it's cheaper, uh, and it's easier on 0:03:35.080 --> 0:03:39.160 the balance sheet. So I think they're more there. I 0:03:39.160 --> 0:03:42.400 think they will be happy if it happens, but I 0:03:42.400 --> 0:03:44.120 don't I don't think it's going to be something that 0:03:44.120 --> 0:03:45.520 they're gonna be pressing on. 0:03:46.000 --> 0:03:49.800 How uh, how fractured is the snack group right now, 0:03:50.240 --> 0:03:52.560 like how many players are in it and sort of 0:03:52.560 --> 0:03:54.640 what's the growth rate for these guys right now. 0:03:54.800 --> 0:03:59.680 So for confectionery, you know, if if Mandalize is successful, 0:03:59.800 --> 0:04:05.360 then and the combined global market for the global share 0:04:05.440 --> 0:04:09.160 for Mandalize Hershey will be about sixteen percent and twenty 0:04:09.200 --> 0:04:12.680 seven percent in North America, So it is it is 0:04:12.840 --> 0:04:18.479 not as fragmented as you know other other situations. You 0:04:18.560 --> 0:04:23.320 have the snack Salty Snacks, which is sixty percent going 0:04:23.360 --> 0:04:27.800 to PepsiCo, So it's it's it's very concentrated. I would say, all. 0:04:27.800 --> 0:04:31.279 Right, you put in Mandales md l Z is the ticker, 0:04:31.400 --> 0:04:33.599 and you go equity comp comp This is one of 0:04:33.600 --> 0:04:36.960 Matt Miller's favorite functions, SHUZI that compares the stock price 0:04:37.600 --> 0:04:40.360 of Mandaliese over the last five years average annual return 0:04:40.440 --> 0:04:44.880 five point seven percent, the Consumer Staples Index nine point 0:04:44.920 --> 0:04:47.279 eight percent, and the S and P five hundred over 0:04:47.320 --> 0:04:50.360 the last five years up almost sixteen percent. So Mandalize 0:04:50.400 --> 0:04:54.400 has been an underperformer are they just too big? Do 0:04:54.440 --> 0:04:57.560 you think what's the bare case on Mandalize? 0:04:57.640 --> 0:05:00.760 I think I think it has to do with how 0:05:01.680 --> 0:05:06.320 snacks have have performed in the past a couple of years. 0:05:06.120 --> 0:05:11.040 Also because of you know, chocolate being high. They are 0:05:11.160 --> 0:05:14.200 actually exposed to chocolate. Obviously they have half of their 0:05:14.200 --> 0:05:17.960 revenue comes from Oreo, which is obviously. 0:05:17.680 --> 0:05:22.120 The revenue Mondolize comes from Oreos. Yes, wow, see there 0:05:22.240 --> 0:05:24.800 the problem here. First, for these snack good companies, there's 0:05:24.800 --> 0:05:27.200 more and more people like Lisa Mittelo out there. You know, 0:05:27.279 --> 0:05:29.480 healthy food, always exercise. 0:05:29.640 --> 0:05:32.320 Excuse me, am, I insulted. I was not included in 0:05:32.360 --> 0:05:39.120 this list sitting right next to you. Yeah. Mostly that's 0:05:39.160 --> 0:05:41.160 no good. But that's the point. And then you also 0:05:41.160 --> 0:05:43.719 have the GLP one drugs numbers, all the worries that like, 0:05:43.800 --> 0:05:47.400 oh that was going to tank food, et cetera, but 0:05:47.440 --> 0:05:49.760 that we haven't really seen that. But if you talk 0:05:49.839 --> 0:05:52.000 to the CEO of say Novdes like a year and 0:05:52.000 --> 0:05:53.680 a half ago, who had been like, oh, yeah, I'm 0:05:53.680 --> 0:05:55.720 getting calls from the snack guys for sure. 0:05:56.040 --> 0:05:56.320 Yeah. 0:05:56.400 --> 0:05:58.760 I mean it's it's these companies have been around for 0:05:58.760 --> 0:06:02.640 a hundred years. They have seeing everything and last time 0:06:02.680 --> 0:06:06.719 there was another wave of like healthy snacking. They responded 0:06:06.760 --> 0:06:09.839 by doing what they call permissible snacking, which. 0:06:09.640 --> 0:06:13.840 Was basically their Oreos. 0:06:14.400 --> 0:06:18.120 Cookies in like a smaller package, which was more profitable 0:06:18.160 --> 0:06:20.359 for them, and they will like market it as you know, 0:06:20.400 --> 0:06:23.039 it's only one hundred calories. You can actually eat this 0:06:23.200 --> 0:06:23.880 as a snack. 0:06:24.000 --> 0:06:26.800 So you know the ylp. 0:06:28.040 --> 0:06:30.040 Thread, it's it's of our vlona. 0:06:30.080 --> 0:06:33.520 I think Eric from the back row rights and Oreos 0:06:33.600 --> 0:06:34.160 are vegan. 0:06:35.160 --> 0:06:36.280 Oh that I. 0:06:36.440 --> 0:06:39.320 No, No, the cookie parts not vegan. The's no way. 0:06:39.520 --> 0:06:39.800 I don't know. 0:06:39.839 --> 0:06:40.880 Maybe they have a vegan version. 0:06:40.920 --> 0:06:42.960 You're gonna have milk and eggs in there in some capacity, 0:06:42.960 --> 0:06:49.640 you know, or unless it's you ate one like I've 0:06:49.640 --> 0:06:51.680 eaten them. I just don't eat them. Although I did 0:06:51.720 --> 0:06:55.440 make an Oreo pavlova for Thanksgiving that was really good, 0:06:55.680 --> 0:07:00.599 and uh oreo with cream. It's basically it's like a 0:07:00.640 --> 0:07:03.720 big Moraine cake with Oreos in it. Okay, and nobody 0:07:03.839 --> 0:07:06.039 ate it. Everybody ate it. My mom and wanted to bulky. 0:07:06.080 --> 0:07:07.960 There's like four of us, but still all right, enough 0:07:08.000 --> 0:07:11.160 of that, Thank you very much. We appreciated Diana Dana 0:07:11.200 --> 0:07:13.560 Pena Roseero Penya Bloomberg Intelligence. 0:07:15.120 --> 0:07:19.000 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:07:19.080 --> 0:07:22.600 weekdays at ten am Eastern on applecar Play and Android 0:07:22.640 --> 0:07:25.400 Auto with a Bloomberg Business at You can also listen 0:07:25.520 --> 0:07:28.600 live on Amazon Alexa from our flagship New York station, 0:07:28.960 --> 0:07:31.720 Just say Alexa playing Bloomberg eleven thirty. 0:07:33.000 --> 0:07:34.960 All right, back to the economic data of the day, 0:07:35.000 --> 0:07:37.440 You're going to take a look at CPI. So it 0:07:37.480 --> 0:07:40.680 felt like a pretty benign read on inflation. That was 0:07:40.720 --> 0:07:43.240 sort of the zeitgeist. After the number broke, However, the 0:07:43.320 --> 0:07:47.400 question really becomes, then where else will we see disinflation? 0:07:48.000 --> 0:07:50.720 Or is the stickiness of higher prices going to change 0:07:50.760 --> 0:07:53.520 the neutral rate in that terminal rate for the Fed? 0:07:53.760 --> 0:07:56.120 While Bill Lee is joining us one of the best 0:07:56.200 --> 0:07:59.880 in the industry, Bill Lee, chief economists at the Milken Institute, 0:08:00.000 --> 0:08:04.160 Hey Bill, do you think that the disinflation trend is 0:08:04.320 --> 0:08:05.000 over for now? 0:08:06.080 --> 0:08:08.800 Hy Alex, Well, we see the disinflation trend mainly in 0:08:08.880 --> 0:08:11.760 goods and that seems to be continuing until perhaps we 0:08:11.800 --> 0:08:15.000 see the tabs come in. But the key to the 0:08:15.040 --> 0:08:17.840 inflation picture is going to be services, as you know, and. 0:08:17.760 --> 0:08:19.880 I think most people have not realized. 0:08:19.400 --> 0:08:24.160 That they've concentrated so much on services and housing services 0:08:24.280 --> 0:08:28.120 they forget that services X energy X housing has been 0:08:28.320 --> 0:08:30.600 running somewhere three and a half to three to three 0:08:30.680 --> 0:08:34.120 quarter percent for the longest time, and that doesn't show 0:08:34.160 --> 0:08:35.360 any sign of coming down. 0:08:35.640 --> 0:08:36.480 And I think that's one of. 0:08:36.480 --> 0:08:40.040 The reasons why perhaps the discontent elected President Trump, because 0:08:40.040 --> 0:08:43.160 people are saying, I just can't make ends meet, I 0:08:43.320 --> 0:08:46.040 might cost a living just doesn't show any signs of recovering. 0:08:46.440 --> 0:08:50.160 And I think the reason there is because launch things 0:08:50.200 --> 0:08:55.800 like personal services, haircuts, medical services, car insurance, use, car prices. 0:08:56.080 --> 0:08:59.959 These are things that are still showing a lot of momentum, 0:09:00.480 --> 0:09:02.840 and there's no sign that those are ebating. And I 0:09:02.880 --> 0:09:05.760 think that's what the FED worried enough to say, Look, 0:09:05.840 --> 0:09:09.040 we need to normalize, but we're going to be normalizing 0:09:09.080 --> 0:09:11.040 at our own pace, and it's going to be determined 0:09:11.040 --> 0:09:14.640 by what's happening the services, X housing, eccentergy, eccentergy. 0:09:15.080 --> 0:09:18.000 So how do you think the FED will interpret today's 0:09:18.080 --> 0:09:20.200 data as it thinks about it's December eighteenth meeting. 0:09:21.320 --> 0:09:22.520 I think they think it's on track. 0:09:22.960 --> 0:09:26.320 They really see that downward momentum in the in the 0:09:26.360 --> 0:09:29.680 overall numbers and especially on the PC the flavor where 0:09:29.679 --> 0:09:33.880 people's behavior can really adjust to relatively cheaper stuff. But 0:09:34.040 --> 0:09:37.080 I think what they're going to say, come come January 0:09:37.200 --> 0:09:40.560 is let's see more momentum going down. We've seen the 0:09:40.600 --> 0:09:44.560 bulk of that from that surprising sharp rise that we 0:09:44.600 --> 0:09:48.000 saw in February March down to the lows in July. 0:09:48.360 --> 0:09:51.920 But since July and even financial markets have reacted that 0:09:51.960 --> 0:09:55.319 the long term expectations, the five year breaking inflation rates 0:09:55.559 --> 0:09:58.200 have risen from the low of like one point nine 0:09:58.240 --> 0:10:00.760 percent up to about two and a quarter. We're realizing 0:10:00.800 --> 0:10:04.160 that when inflation is not over yet, that this inflation 0:10:04.240 --> 0:10:07.680 services has yet to start really significantly. And until we 0:10:07.720 --> 0:10:09.480 start to see that, I think the FED is going 0:10:09.520 --> 0:10:11.760 to start to slow down its normalization and kind of 0:10:11.760 --> 0:10:13.000 recalibrate where normal. 0:10:13.040 --> 0:10:15.360 Where normal is, So is that a cut in December, 0:10:15.400 --> 0:10:16.800 pause in January. 0:10:18.080 --> 0:10:20.240 January pause can be in the cards. 0:10:20.559 --> 0:10:23.280 But the thing that's driving the FED to really lower 0:10:23.360 --> 0:10:26.120 rates is that they're well above neutral, and neutral is 0:10:26.120 --> 0:10:27.880 somewhere between what three and a half four percent, So 0:10:28.000 --> 0:10:31.120 unless you see a four handle on the short term rate, 0:10:31.400 --> 0:10:34.400 we're nowhere near that neighborhood. Are normal now maybe you 0:10:34.400 --> 0:10:36.240 can say we don't need to get to normal that quickly, 0:10:36.240 --> 0:10:37.679 and that's exactly what the FED is going to be 0:10:37.720 --> 0:10:40.120 debating between now and January. 0:10:41.240 --> 0:10:43.880 So, but when you see inflation prints like this and 0:10:43.920 --> 0:10:46.840 kind of what we know about elevated prices for you know, 0:10:46.880 --> 0:10:48.600 a lot of folks out there in the supermarket and 0:10:48.920 --> 0:10:52.920 other places. What's your call on the US consumer these days? 0:10:53.559 --> 0:10:56.560 You know, Paul, that's a great question. I strongly believe 0:10:56.760 --> 0:11:00.720 for the longest time, even when I was back at City, 0:11:00.880 --> 0:11:04.920 that we live in a bifurcated economy. The consumer spending 0:11:04.960 --> 0:11:07.400 has been very strong because so many people are dipping 0:11:07.400 --> 0:11:10.080 into savings. And where's the savings coming from is for 0:11:10.160 --> 0:11:12.760 the asset owners, the people who own the NVIDIAs and 0:11:13.160 --> 0:11:15.800 all the tech stocks. Well, that's only twenty percent of 0:11:15.800 --> 0:11:18.840 the population. So what we see is that forty percent 0:11:18.840 --> 0:11:22.040 of the bump in consumption, the growth of consumption is 0:11:22.080 --> 0:11:24.160 accounted for it by about twenty percent of the population. 0:11:24.559 --> 0:11:27.240 Well over sixty percent of the population is hand to 0:11:27.360 --> 0:11:31.280 mouth and they depend upon wage income. And that's just 0:11:31.360 --> 0:11:33.120 not high enough because even though we've had a lot 0:11:33.120 --> 0:11:37.120 of job creation, it's in payrolls, which means people are 0:11:37.120 --> 0:11:39.440 getting second and third jobs. We don't see it in 0:11:39.480 --> 0:11:42.800 household surveys, which have averaged about thirty five thousand per 0:11:42.840 --> 0:11:45.160 month over the last year. So we're not seeing a 0:11:45.160 --> 0:11:48.000 lot of people more people being employed. We're seeing a 0:11:48.000 --> 0:11:49.800 lot of more jobs being created. And that to me 0:11:49.880 --> 0:11:52.320 sounds like a lot of second and third jobs just 0:11:52.320 --> 0:11:54.560 to make ends meet. And the jobs are in the 0:11:54.600 --> 0:11:58.760 low wage paying sectors of hospitality and healthcare and that 0:11:58.880 --> 0:11:59.360 kind of stuff. 0:12:00.080 --> 0:12:03.959 Some breaking news for everybody right now. Hershey's main owner 0:12:04.040 --> 0:12:07.240 has said to reject Mandalese's offer as too low. Now, 0:12:07.320 --> 0:12:10.600 this comes after Mondalese made a preliminary approach to acquire 0:12:10.679 --> 0:12:13.760 Hershey that could create a food a giant of combined 0:12:13.800 --> 0:12:16.080 sales worth almost fifty billion dollars. The deal would help 0:12:16.120 --> 0:12:19.800 Mondalze compete with Mars. But nonetheless, it looks like Hershey's 0:12:19.840 --> 0:12:23.120 main owner is said to reject Mondalese's offer as too low. 0:12:23.200 --> 0:12:26.640 So we'll see there's a potential counter that comes back. 0:12:27.360 --> 0:12:30.040 Bill when you look at your models for next year 0:12:30.160 --> 0:12:32.160 and sort of game out, how do you think about 0:12:32.280 --> 0:12:35.520 US policy? Right, there's there's one side and one and 0:12:35.640 --> 0:12:38.719 one positive one negative in that you have immigration, and 0:12:38.920 --> 0:12:44.119 you have taxes and deregulation. Where do you think sequencing 0:12:44.240 --> 0:12:45.920 is going to be and how does that affect your 0:12:45.960 --> 0:12:46.760 growth forecast. 0:12:47.920 --> 0:12:50.800 That's a really interesting question because in order for the 0:12:50.840 --> 0:12:53.839 policies that really matter for growth to take effect, and 0:12:54.600 --> 0:12:58.160 to me, those are deregulation, a lowering energy prices, and 0:12:58.480 --> 0:13:00.880 these pro growth agenda that present Trump is talking about 0:13:01.600 --> 0:13:04.040 that can can take place fairly quickly in the sense 0:13:04.120 --> 0:13:08.679 that people can be reassured that that the the the 0:13:09.040 --> 0:13:12.480 the government is going to be very supportive of whatever 0:13:12.600 --> 0:13:16.079 promotes growth, which means technology uh and and the mega 0:13:16.120 --> 0:13:18.160 agenda is to create more jobs. 0:13:18.480 --> 0:13:20.319 So even with the tariff policies. 0:13:19.960 --> 0:13:22.000 Being announced, we know that they're going to be used 0:13:22.040 --> 0:13:25.600 as a bargaining tool to get foreigners to invest more 0:13:25.679 --> 0:13:29.000 capital the United States. So we expect to see capital 0:13:29.040 --> 0:13:32.439 flows coming in, more domestic investment, more domestic job creation. 0:13:32.800 --> 0:13:35.120 But where you're going to hire people, and you need 0:13:35.200 --> 0:13:38.720 skilled people in order to fulfil fill these high paying jobs. 0:13:39.000 --> 0:13:40.800 If you're going to suck in a lot of labor 0:13:41.360 --> 0:13:43.920 into these high paying sectors, where you're going to find 0:13:43.960 --> 0:13:46.240 people in the services sectors that are lower paying, you 0:13:46.320 --> 0:13:48.520 need immigration for that, and I think it's going to 0:13:48.559 --> 0:13:51.960 be tricky how the Trump administration arranges the immigration laws 0:13:52.000 --> 0:13:56.880 in the way that allows legal low skilled workers to 0:13:56.920 --> 0:13:59.240 stay in the United States, And that's really the key 0:13:59.320 --> 0:14:03.360 to staining growth going forward. Will the low skilled labor 0:14:03.559 --> 0:14:06.360 be legalized in a way that that doesn't interrupt the 0:14:06.440 --> 0:14:09.439 flow that goes into construction and and a lot of 0:14:09.520 --> 0:14:14.160 the entertainment and restaurant businesses that are are absorbing these 0:14:14.240 --> 0:14:16.839 lower cost labor. So so this a long witted way 0:14:16.840 --> 0:14:19.520 of saying the first half of the year, I expect. 0:14:19.240 --> 0:14:20.680 To see a lot of uh. 0:14:22.160 --> 0:14:24.480 Pent up demand for domestic investment and a lot of 0:14:24.560 --> 0:14:28.800 investment in high tech industries. But later on in the year, 0:14:29.360 --> 0:14:33.200 unless we see the low wage workers staying in the 0:14:33.280 --> 0:14:35.960 United States in legal fashion, that's what we're going to 0:14:36.000 --> 0:14:36.920 see the bottlenecks. 0:14:37.480 --> 0:14:39.760 Hey, Bill, people come up to your cocktail parties and say, 0:14:40.200 --> 0:14:43.680 should I be worried about deficits and the debt of 0:14:43.960 --> 0:14:44.600 this country? 0:14:45.320 --> 0:14:48.640 What do you say? All? You know, that's the mantra 0:14:48.760 --> 0:14:49.760 of every economist that. 0:14:50.200 --> 0:14:52.120 Well, first he says, why am I at this cocktail party? 0:14:52.200 --> 0:14:52.360 Yeah? 0:14:52.640 --> 0:14:53.960 And then the second question is. 0:14:56.320 --> 0:15:00.040 Well, I think I think the bond market vigilantes. I 0:15:00.040 --> 0:15:02.640 have really not been at work yet, otherwise we'd be 0:15:02.680 --> 0:15:06.400 seeing that bear Steepener really go crazy and long end 0:15:06.440 --> 0:15:09.920 start to rise. So, as as Cheff Paul says, we're 0:15:10.000 --> 0:15:14.720 not at an unsustainables position right now, but surely the 0:15:14.800 --> 0:15:17.760 path is completely unsustainable and has been unsustainable for the 0:15:17.840 --> 0:15:18.520 last ten years. 0:15:18.880 --> 0:15:19.000 Now. 0:15:19.240 --> 0:15:22.640 Because it's been unsustainable for the last ten years, people say, hey, well, 0:15:22.720 --> 0:15:24.280 I don't need to worry about it right now. And 0:15:24.320 --> 0:15:27.880 I think until something really hits, like a default in 0:15:27.920 --> 0:15:31.440 the US Treasury or something that gets people excited about 0:15:31.600 --> 0:15:34.280 about what's going on in the future and future deficits 0:15:34.280 --> 0:15:36.280 in future crying out, we're not going to see much 0:15:36.320 --> 0:15:37.600 reaction in the bob markets. 0:15:39.200 --> 0:15:40.000 That's it. I don't think. 0:15:40.080 --> 0:15:42.120 I just I don't see the political will on either side. 0:15:42.960 --> 0:15:44.640 I thing is, I think I've heard this the whole 0:15:44.680 --> 0:15:46.320 time I've ever been in this man syet right, and 0:15:46.400 --> 0:15:49.080 it's like it doesn't matter until it matters at the 0:15:49.160 --> 0:15:52.840 end of the day. So can the US exceptionalism theme continue? 0:15:52.920 --> 0:15:53.080 Then? 0:15:54.400 --> 0:15:56.920 You know, I've been saying this in all my eighteen 0:15:57.000 --> 0:16:00.600 years of the IMF, where people said that Bill, you know, 0:16:00.680 --> 0:16:02.640 such an American. When you go to Paris, it's like 0:16:02.720 --> 0:16:05.040 John Wayne walking down to the cham Zays. I am 0:16:05.160 --> 0:16:07.920 so pro American and that always have it because that's 0:16:08.000 --> 0:16:09.240 where capital is coming to. 0:16:10.080 --> 0:16:10.240 You know. 0:16:10.480 --> 0:16:14.200 The famous Lucas paradox means is that says, why is 0:16:14.280 --> 0:16:17.040 it that advanced economies draw in capital even though they 0:16:17.080 --> 0:16:19.640 are capital rich. It's because that's where innovation is and 0:16:19.680 --> 0:16:22.080 the United States is the heart of innovation. So for 0:16:22.200 --> 0:16:26.440 me going forward, unless the administration somehow screws up and 0:16:27.120 --> 0:16:31.520 destroys the technological advantages that we have, and that's very 0:16:31.600 --> 0:16:34.600 unlikely under President Trump, I think we see more of 0:16:34.680 --> 0:16:37.960 the exceptionalism continuing because we're at the edge of the 0:16:38.200 --> 0:16:40.560 leading edge of AI, we're at the leading edge of 0:16:40.600 --> 0:16:41.440 other technologies. 0:16:41.880 --> 0:16:45.040 The fear I have is that people are ignoring what's 0:16:45.080 --> 0:16:45.880 going on in China. 0:16:46.400 --> 0:16:50.680 China is determined to be our biggest competitor in these 0:16:50.800 --> 0:16:53.440 high value outed fields, and unless we really pay attention 0:16:53.480 --> 0:16:55.920 to what's going on there, we may lose our edge. 0:16:56.920 --> 0:16:58.720 All right, Bill, thank you so much for joining us. Billy, 0:16:58.800 --> 0:17:02.040 he's the chief economist at the Elkin Institute, giving us 0:17:02.040 --> 0:17:03.520 a few minutes of his time. As we break down 0:17:03.560 --> 0:17:04.400 this inflation data. 0:17:05.840 --> 0:17:09.680 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:17:09.800 --> 0:17:12.880 weekdays at ten am Eastern on Apple card playing Android 0:17:12.920 --> 0:17:15.960 Auto with the Bloomberg Business App. Listen on demand wherever 0:17:16.040 --> 0:17:19.640 you get your podcasts, or watch us live on YouTube. 0:17:21.200 --> 0:17:23.159 Alex Steel Paul Swiney live here in our Bloomberg in 0:17:23.200 --> 0:17:26.159 Actor Broker Studio or streaming live on YouTube as well 0:17:26.280 --> 0:17:28.320 to check us out there. As johns is reporting, the 0:17:28.359 --> 0:17:30.800 economic news of the day was one of inflation. CPI 0:17:30.920 --> 0:17:34.000 headline zero point three percent, bang in line with expectations, 0:17:34.040 --> 0:17:37.320 a little bit higher than the prior month ex food 0:17:37.359 --> 0:17:40.680 and energy. You know, it was also up zero point 0:17:40.840 --> 0:17:43.679 three percent and that was in line with expectations as well. 0:17:43.760 --> 0:17:48.359 Let's break it down with Lindsay Piegs, chief economists for Steefel. Lindsay, 0:17:48.440 --> 0:17:51.520 what are your takeaways from this CPI report we saw 0:17:51.600 --> 0:17:52.040 this morning? 0:17:52.800 --> 0:17:55.520 Well, nothing overly alarming. As you mentioned, it did come 0:17:55.560 --> 0:17:59.520 in write in line with expectations. Excuse me, But at 0:17:59.560 --> 0:18:02.480 the same time, this does show a further lack of 0:18:02.680 --> 0:18:05.720 disinflationary progress and this should be pretty alarming for the 0:18:05.840 --> 0:18:09.120 Fed that had really started to focus on potential labor 0:18:09.200 --> 0:18:12.560 market weakness as opposed to still focused on getting inflation 0:18:12.720 --> 0:18:16.720 down to two percent. We've seen inflation not necessarily re 0:18:16.920 --> 0:18:20.120 accelerate per se, but certainly move sideways for the past 0:18:20.160 --> 0:18:23.000 several months, and this morning's report is no exception. 0:18:24.000 --> 0:18:28.400 Does that mean the disinflation narrative continues or just lack 0:18:28.480 --> 0:18:29.320 of more inflation? 0:18:30.800 --> 0:18:33.840 Well, I think you're kind of it's two sides of 0:18:33.920 --> 0:18:37.880 the same coin. We are still in a disinflationary environment, 0:18:38.119 --> 0:18:42.639 but the progress of disinflation has largely stalled at this point, 0:18:43.240 --> 0:18:47.040 making that conclusion of getting back to two percent still 0:18:47.440 --> 0:18:50.560 somewhat of a reach for the FED. Now, again, we've 0:18:50.640 --> 0:18:54.560 made ample progress coming down from earlier peak levels, but 0:18:54.720 --> 0:18:56.760 this is not the time for the FED to lose 0:18:56.840 --> 0:19:00.119 focus on that last mile getting us back to a 0:19:00.240 --> 0:19:02.080 sustainable two percent level. 0:19:02.560 --> 0:19:04.680 What do you think is the sticky part of that 0:19:05.560 --> 0:19:09.440 next one undred and fifty basis points of reduction in inflation? 0:19:10.680 --> 0:19:13.520 Well, if you look at this morning's report, the games 0:19:13.520 --> 0:19:17.439 were widespread across a number of different categories. But when 0:19:17.480 --> 0:19:18.879 we take a step back and we look over the 0:19:18.960 --> 0:19:21.280 past couple of months, we see that a lot of 0:19:21.359 --> 0:19:24.399 that sticky pressure is really on the services side. So 0:19:24.920 --> 0:19:28.080 we see that in terms of consumers shifting their preference 0:19:28.119 --> 0:19:32.320 away from stuff, away from electronics and goods towards services 0:19:32.400 --> 0:19:35.760 and experience. But we also see one of the components 0:19:35.800 --> 0:19:39.800 that remain sticky is housing. That owner's equivalent rent components 0:19:39.840 --> 0:19:42.960 still on a year over year basis up near five percent, 0:19:43.560 --> 0:19:46.440 And because it can holds such a sizeable portion, such 0:19:46.440 --> 0:19:49.520 a sizable weight in the CPI or even the pc 0:19:49.760 --> 0:19:52.320 for that matter, it's going to be very difficult for 0:19:52.400 --> 0:19:55.200 the FED to get that headline back to two percent 0:19:55.840 --> 0:19:58.720 without further reprieve on the shelter costs or on the 0:19:58.800 --> 0:19:59.800 housing side of things. 0:20:01.400 --> 0:20:03.720 What do you think the picture is going to look 0:20:03.800 --> 0:20:08.439 like next year with question marks about tariffs in etc. Directionally, 0:20:09.000 --> 0:20:13.200 where do you think the CPI the PPA numbers move Well? 0:20:13.560 --> 0:20:15.800 I think that right now that's part of the motivation 0:20:15.920 --> 0:20:18.920 of why the FED remains committed to a potential third 0:20:19.000 --> 0:20:22.040 round reduction in December. The Committee really does want to 0:20:22.080 --> 0:20:24.920 provide as much relief as possible before we turn the 0:20:25.000 --> 0:20:29.040 calendar page and face a potentially more aggressive fiscal policy 0:20:29.320 --> 0:20:34.040 agenda which could bring upside risks to inflation. Now, nothing 0:20:34.080 --> 0:20:36.840 in the Trump administration is a foregone conclusion in terms 0:20:36.880 --> 0:20:41.840 of inflationary pressures, but there are upside risks. Large sizable 0:20:41.920 --> 0:20:45.800 tax cuts could be inflationary if they're not offset with 0:20:46.119 --> 0:20:51.040 sizeable reductions in other areas of government outlays, tariffs inive themselves, 0:20:51.720 --> 0:20:56.040 excuse me, not necessarily inflationary. But if we did see 0:20:56.160 --> 0:20:59.399 the US engage in a back and forth tit for 0:20:59.480 --> 0:21:03.320 tat retire he military retaliatory cycle with some of our 0:21:03.359 --> 0:21:06.960