WEBVTT - Both Administrations Claim Economy But It’s Yellen’s: Eisenbeis 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P and L 0:00:20.840 --> 0:00:33.760 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Changes 0:00:33.920 --> 0:00:37.479 at the Federal Reserve a new chairman, Jerome Pale, taking 0:00:37.479 --> 0:00:41.280 over from Janet Yellen, who chaired her final meeting yesterday 0:00:41.400 --> 0:00:44.600 and on Tuesday. Here to help us understand the future 0:00:44.600 --> 0:00:48.120 of the Federal Reserve is Robert Eisenbeis. Bob Eisenbis is 0:00:48.159 --> 0:00:51.720 the vice chairman and chief monetary economist for Cumberland Advisers 0:00:52.159 --> 0:00:55.200 and they're based in Sarasota, Florida. Bob, thank you very 0:00:55.240 --> 0:00:59.440 much for being with us. As a former employee of 0:00:59.440 --> 0:01:03.400 the Federal Serve at the Reserve Bank of Atlanta. What 0:01:03.480 --> 0:01:06.680 can you tell us about the new FED in context 0:01:06.720 --> 0:01:11.119 for a selection of vice chairman or vice chair and 0:01:11.560 --> 0:01:16.080 who do you believe will fill that role? Well, the 0:01:16.240 --> 0:01:19.600 organization issues right now are pretty challenged because of the 0:01:19.680 --> 0:01:22.880 large number of vacancies and there are a number of 0:01:23.000 --> 0:01:26.679 names being floated. Obviously, the one most recently mentioned as 0:01:26.760 --> 0:01:30.600 John Williams, and John would be a very experienced and 0:01:31.520 --> 0:01:36.880 well qualified economist. I think that's probably one of the 0:01:36.920 --> 0:01:41.959 objectives that the administration has since UH new Chairman Paul 0:01:42.080 --> 0:01:44.160 was not an economist, to have an economist as a 0:01:44.240 --> 0:01:48.560 vice chairman would be essentially putting someone like that in 0:01:48.600 --> 0:01:52.840 a support of function. UM. The vice chairman role changes 0:01:52.920 --> 0:01:54.840 quite a bit. It used to be historically that the 0:01:54.920 --> 0:01:59.000 vice chairman was sort of the operating officer of the organization, 0:01:59.360 --> 0:02:03.480 but that's changed as time has changed. UM. I think 0:02:03.520 --> 0:02:07.920 the real challenge right now is to essentially deal with 0:02:08.000 --> 0:02:11.600 the fact that, given the present structure of the board 0:02:11.680 --> 0:02:16.799 and as chair Yelling leaves, the Reserve Banks actually will 0:02:16.840 --> 0:02:20.880 have the dominant vote as far as policy is concerned, 0:02:20.919 --> 0:02:23.120 and I think that's going to be an interesting challenge 0:02:23.200 --> 0:02:27.880 for new Chairman Powell. Bob, this is Taylor Riggs. I'm 0:02:27.880 --> 0:02:30.800 filling in here for Lisa Bramwoods, who's out on assignment. 0:02:30.880 --> 0:02:35.080 You you mentioned Janet Yellen, and you know, yesterday on 0:02:35.120 --> 0:02:38.160 Bloomberg Radio and TV we spoke with Alan Greenspan. He 0:02:38.200 --> 0:02:42.040 of course would not comment on Janet Yellen's legacy as 0:02:42.120 --> 0:02:46.200 you think about her legacy as the outgoing chair. Of course, 0:02:46.200 --> 0:02:49.480 she was the first female chair of the Federal Reserve. 0:02:49.880 --> 0:02:52.760 What else comes to mind when you think about her 0:02:52.840 --> 0:02:58.440 legacy and her term. Well, I'm glad you asked that question, 0:02:58.520 --> 0:03:02.919 because when you consider the State of the Union address 0:03:02.960 --> 0:03:05.000 and all the claims that are being made as to 0:03:05.480 --> 0:03:09.000 who gets credit for what's going on, I don't think 0:03:09.080 --> 0:03:14.440 that either the previous administration or the current administration can 0:03:14.520 --> 0:03:18.119 claim credit for what's happened as far as the economy 0:03:18.200 --> 0:03:21.240 is concerned. I think that is a tribute to Janet 0:03:21.280 --> 0:03:25.720 Yellen that she has helped guide the economy and policy. 0:03:26.240 --> 0:03:30.519 When administrations and Congress are sitting on their hands, it's 0:03:30.600 --> 0:03:36.200 really hard to point two specific initiatives that either administration 0:03:36.320 --> 0:03:39.960 put in place that you can link to the overall 0:03:40.040 --> 0:03:44.280 performance of the economy. Uh. I know Republicans will claim 0:03:44.320 --> 0:03:47.520 the tax cut, but that's in the last month and 0:03:47.560 --> 0:03:51.240 a half or thereabouts. That doesn't explain the past four 0:03:51.280 --> 0:03:54.400 and five years of growth that the economy has had. 0:03:54.480 --> 0:04:02.000 So I think UH, the position that Chairman Powell UH 0:04:02.560 --> 0:04:05.920 has when it comes to the economy that he's inherited. 0:04:06.280 --> 0:04:10.240 That's her legacy at this juncture. Okay, so you mentioned 0:04:10.360 --> 0:04:13.400 j Powell. Let's go with that going forward. What's his 0:04:13.480 --> 0:04:16.839 biggest headwind this year? What would be his biggest challenge? 0:04:17.440 --> 0:04:21.240 Like you said, he's been given a decent economy here, right. 0:04:21.360 --> 0:04:24.720 I think this is a case where uh, he wants 0:04:24.760 --> 0:04:28.240 to practice the hippocratic growth do no harm. UH do 0:04:28.360 --> 0:04:32.760 no harm in this case means don't rush Liz a 0:04:32.800 --> 0:04:34.839 lot of rating increases. I think they're going to be 0:04:34.960 --> 0:04:38.000 very cautious about what they do, partly because it was 0:04:38.440 --> 0:04:41.920 mentioned in the leading to the whole program here is 0:04:41.960 --> 0:04:45.800 the fact that with interest rates right now on the 0:04:45.839 --> 0:04:50.200 fixed income side moving up, UH, that's essentially doing the 0:04:50.200 --> 0:04:54.200 Fed's job for it. So the Fed looking out at 0:04:54.240 --> 0:04:58.080 the markets and the interest rate environment, that's a situation 0:04:58.160 --> 0:05:01.440 where rates are going up, and as a result, the 0:05:01.480 --> 0:05:04.800 Fed doesn't need to essentially act to try to move 0:05:05.320 --> 0:05:08.520 things in that direction. So they can afford to wait 0:05:08.640 --> 0:05:11.440 and be cautious and see how things sort out. And 0:05:11.480 --> 0:05:14.159 I think that's probably what he's going to have to 0:05:14.160 --> 0:05:17.479 do and manage. And I think he's got a uh 0:05:17.480 --> 0:05:20.960 an f MC right now that's in sync with that 0:05:21.120 --> 0:05:25.400 kind of concern Bob Eyeson, Bis, if you're an institutional 0:05:25.440 --> 0:05:29.719 investor and you have the option to buy or sell bonds, 0:05:29.720 --> 0:05:31.679 you don't have to hold them, perhaps like an insurance 0:05:31.720 --> 0:05:34.960 company or a pension plan. Would you be suggesting that 0:05:35.000 --> 0:05:40.000 the institutions sell their bond holdings or at least reduce them. Well, 0:05:40.040 --> 0:05:42.720 I think what they want to do is you want 0:05:42.839 --> 0:05:46.400 liquidity to be able to reinvest at higher rates, and 0:05:46.480 --> 0:05:50.720 probably a barbell strategy is probably something that you can do. 0:05:50.800 --> 0:05:54.039 I think the the biggest concern is to be sure 0:05:54.120 --> 0:05:57.839 that you're being compensated for the maturity risk that you're 0:05:57.880 --> 0:06:01.479 taking on and with a very flat Yeld curve. Uh, 0:06:01.640 --> 0:06:05.480 there's a tendency to, particularly if you're dealing with clients, 0:06:06.000 --> 0:06:08.719 to try to keep them from reaching for risk where 0:06:08.720 --> 0:06:11.880 they're not being and reaching for rates where they're not 0:06:11.920 --> 0:06:15.080 being compensated for either the maturity risk or in the 0:06:15.080 --> 0:06:19.280 case of corporate bonds and municipal bonds, where they're not 0:06:19.320 --> 0:06:22.200 being compensated for the credit risk that they're taking. How 0:06:22.200 --> 0:06:24.680 do you I measure That's the real challenge, Bob. How 0:06:24.720 --> 0:06:26.240 do you imagine that? I mean, for example, I mean 0:06:26.279 --> 0:06:28.000 if you tell me all right, the duration risk on 0:06:28.040 --> 0:06:30.760 a tenure at two seventy three. How do you actually 0:06:30.760 --> 0:06:33.279 measure that duration risk that is in a way that 0:06:33.400 --> 0:06:36.320 is meaningful to the investor. Well, I think you have 0:06:36.440 --> 0:06:39.920 to use history in that particular case, and uh in 0:06:39.960 --> 0:06:42.039 the case of the credits that I'm talking about, you 0:06:42.160 --> 0:06:45.680 have to dig into the underlying cash flows us that 0:06:45.760 --> 0:06:50.720 are being uh forwarded on those instruments and make that 0:06:50.800 --> 0:06:54.640 judgment of bob juice. Finally, to wrap it up, you 0:06:54.720 --> 0:06:58.279 talked about rising rates and the yield curve. The the 0:06:58.360 --> 0:07:01.880 yield curve does look both the two tens and the 0:07:01.960 --> 0:07:05.039 two thirties. You know, my question is is a flat 0:07:05.120 --> 0:07:08.120 yield curve concern you or is this sort of normal 0:07:08.279 --> 0:07:12.880 in this late stage business cycle. Well, we don't know 0:07:13.160 --> 0:07:15.920 because we've never had this kind of the length of 0:07:15.920 --> 0:07:21.320 a business cycle combined with h central bank activities that 0:07:22.080 --> 0:07:25.160 have pumped so much liquidity in the marketplace. So we're 0:07:25.200 --> 0:07:28.160 in unchartered waters when it comes to this situation. I 0:07:28.200 --> 0:07:30.840 know a lot of people are concerned about a flat 0:07:30.880 --> 0:07:33.400 eel curve and what that might mean in terms of 0:07:33.440 --> 0:07:38.440 inversion and signaling recession and everything else. If you sort 0:07:38.480 --> 0:07:41.480 of take a look back. However, what's happening in the 0:07:41.480 --> 0:07:44.080 real economy. The real economy seems to be doing pretty 0:07:44.080 --> 0:07:47.280 well and doesn't doesn't seem to be showing any signs 0:07:47.280 --> 0:07:52.640 of recession risk at this juncture, at least so. And 0:07:52.680 --> 0:07:56.480 it's not, in my view, a case where the markets 0:07:56.480 --> 0:08:00.240 are going to cause that kind of problem. Abs it's 0:08:00.320 --> 0:08:05.080 some unanticipated shock and we don't see that yet on 0:08:05.160 --> 0:08:08.800 the horizon. But you just have to be cautious because 0:08:08.840 --> 0:08:12.160 of this flat eel curve in terms of where you 0:08:12.240 --> 0:08:17.520 position your your holdings now, shorter time is better than longer. 0:08:17.720 --> 0:08:20.080 Bob Eyes and Bis, thank you very much. Vice chairman 0:08:20.200 --> 0:08:38.800 and chief monetary economist at Cumberland Advisers. They're based in Sarasota, Florida. 0:08:39.600 --> 0:08:42.480 Joining us here in our studio is Shira ov day 0:08:42.559 --> 0:08:46.480 Are expert for all things technology. She's a Bloomberg gad 0:08:46.520 --> 0:08:50.320 Flag columnist, and she's gonna tell us about what's she 0:08:50.320 --> 0:08:52.520 gonna tell us about? Well, I've been dying to ask 0:08:52.559 --> 0:08:54.640 this question, Sierra, So I'm so glad that you have 0:08:54.720 --> 0:08:57.520 been able to join us. All about if Amazon is 0:08:57.559 --> 0:08:59.960 getting too big? I know ahead of their earnings are 0:09:00.040 --> 0:09:02.480 for it. I believe this might be the second report 0:09:02.480 --> 0:09:05.760 where Whole Foods is now included. Earlier this week, we 0:09:05.800 --> 0:09:08.360 all know that they talked about creating the healthcare company 0:09:08.400 --> 0:09:11.920 with JP Morgan in Berkshire Hathaway. At what point is 0:09:11.960 --> 0:09:15.679 Amazon getting too big that they start to draw eyeballs, 0:09:15.720 --> 0:09:19.559 maybe from regulators or antitrust officials. I think that's happening 0:09:19.600 --> 0:09:23.120 already at Amazon's current size. So one of the most 0:09:23.120 --> 0:09:27.640 popular parlor games among academics and economists of the last 0:09:27.679 --> 0:09:32.800 year is debating whether Amazon is currently a monopoly given 0:09:33.080 --> 0:09:36.640 its market share in online shopping and its ability to 0:09:36.800 --> 0:09:40.760 dictate that market and also to have a big hand 0:09:41.400 --> 0:09:44.840 in a job creation or where jobs are created. Amazon 0:09:44.880 --> 0:09:49.439 now has five hundred and forty thousand employees UM. That 0:09:49.520 --> 0:09:54.120 jumped up a large number once Amazon acquired Whole Foods 0:09:54.400 --> 0:09:57.360 towards the end of last year. And look, Amazon is 0:09:57.440 --> 0:09:59.560 at the size like a lot of these tech giants 0:09:59.559 --> 0:10:02.840 where they're attracting scrutiny from regulators all over the globe. 0:10:03.720 --> 0:10:07.120 Talk to me about margins. Are we going to start 0:10:07.160 --> 0:10:10.440 to see more investors more focused on margins? We know, 0:10:10.520 --> 0:10:12.840 of course at this point they've been ignoring that in 0:10:12.920 --> 0:10:15.520 lieu of gaining market share. At what point do we 0:10:15.520 --> 0:10:18.320 need to start to be looking at margins? I don't know. 0:10:18.360 --> 0:10:21.040 I think investors kind of go back and forth about 0:10:21.040 --> 0:10:25.600 how much they care about Amazon's profit margins. Who who 0:10:25.640 --> 0:10:27.960 knows what they feel like today. I guess we'll see 0:10:28.520 --> 0:10:31.760 once the company reports. But look, the story of Amazon 0:10:31.880 --> 0:10:34.760 almost since the beginning of its history has been they 0:10:34.800 --> 0:10:37.800 take almost every dollar that they earn and they plow 0:10:37.880 --> 0:10:40.760 it back into the business. And so far largely that 0:10:40.840 --> 0:10:43.880 has been a good bet on the smarts of Jeff 0:10:43.880 --> 0:10:48.400 Bezos to intelligently invest shareholders money. At some point they 0:10:48.440 --> 0:10:50.920 may not believe that anymore. And you see some quarters 0:10:51.400 --> 0:10:54.760 um investors are more nervous about Amazon spending than other quarters. 0:10:55.320 --> 0:10:58.640 But that's definitely been the consistent strategy at Amazon. So 0:10:58.679 --> 0:11:00.560 what do we need to pay attention to on the 0:11:00.600 --> 0:11:04.480 earnings report today? Because you've got what prime customers. Everyone 0:11:04.520 --> 0:11:07.040 looks to see whether there are more prime customers because 0:11:07.040 --> 0:11:09.439 of course they pay the subscription price. And then you've 0:11:09.480 --> 0:11:13.600 got the expansion of that fulfillment by Amazon, and that 0:11:13.760 --> 0:11:16.439 some people say this could be a record corner for them. Yeah, 0:11:16.440 --> 0:11:18.120 I mean, I think it's pretty clear from all of 0:11:18.160 --> 0:11:20.480 the data that we've seen so far that the holidays 0:11:20.559 --> 0:11:23.959 were very, very good for Amazon, and the company continues 0:11:24.040 --> 0:11:27.520 to um expand its market share and online shopping, and 0:11:27.559 --> 0:11:30.760 that's a category that continues to grow quickly around the world. 0:11:31.160 --> 0:11:34.360 I think what investors are looking for is, in addition 0:11:34.400 --> 0:11:37.280 to revenue growth, what are they spending right back to 0:11:37.320 --> 0:11:40.240 this kind of margin question, um and what are they 0:11:40.280 --> 0:11:42.600 spending it on? Is it on fulfillment centers, on these 0:11:42.640 --> 0:11:45.679 package warehouses, is it on the video service, which I 0:11:45.720 --> 0:11:47.720 think has been a little bit of a wobbly business 0:11:48.080 --> 0:11:50.480 for Amazon. Is it on Amazon Web services, on their 0:11:50.480 --> 0:11:53.320 advertising business? Of what they spend And I think there's 0:11:53.320 --> 0:11:56.280 gonna be a lot of focus on the forecast for 0:11:56.360 --> 0:11:59.760 this coming quarter because this is a year where in 0:12:00.040 --> 0:12:04.840 usters so far have been expecting Amazon to generate higher profits, uh, 0:12:04.880 --> 0:12:08.320 and so we'll start to see that reflected in the forecast. 0:12:08.640 --> 0:12:10.800 I want to shift to the other a we're talking 0:12:10.840 --> 0:12:13.440 about Apple. Of course, we've heard a lot this week 0:12:13.440 --> 0:12:17.319 about production problems with the iPhone ten. Is it too 0:12:17.400 --> 0:12:20.320 early to tell what's going on with the iPhone ten 0:12:20.440 --> 0:12:22.920 or are we going to get some more details about that? Yeah, 0:12:22.960 --> 0:12:25.040 I think it's been very interesting to see the changing 0:12:25.120 --> 0:12:28.480 sentiment about iPhone sales just in the last few months. 0:12:28.600 --> 0:12:30.480 There was a belief a few months ago that the 0:12:30.520 --> 0:12:32.680 iPhone tin was going to be this blockbuster that was 0:12:32.720 --> 0:12:36.720 going to a sharp, significantly increase the number of phones 0:12:36.840 --> 0:12:40.320 Apple cells after a couple of either down or modestly 0:12:40.480 --> 0:12:44.280 up years in unit sales. I don't think investors think 0:12:44.320 --> 0:12:47.240 that largely anymore. That the iPhone ten story is less 0:12:47.280 --> 0:12:51.000 about how many Apple cells and more about what price 0:12:51.240 --> 0:12:54.000 is Apple getting from those phones. That's a thousand dollar 0:12:54.120 --> 0:12:56.439 en up phone, right, So that is inevitably going to 0:12:56.600 --> 0:12:59.400 increase the average sale price for the company, and that's 0:12:59.559 --> 0:13:02.640 good news for Apple. Although it we'll see the puts 0:13:02.640 --> 0:13:06.559 and takes how quickly the revenue grows. Well, revenue, we 0:13:06.640 --> 0:13:09.000 got what the estimate is for eight seven point three, 0:13:09.000 --> 0:13:12.040 So let's say eight seven billion of revenue and net 0:13:12.080 --> 0:13:16.760 income of nearly twenty billion for the company. What what's 0:13:16.800 --> 0:13:18.760 the most important number, like, what would you think will 0:13:18.800 --> 0:13:23.480 be traded on? I think the biggest, the biggest focus 0:13:23.480 --> 0:13:25.560 of attention is going to be on the forecast for 0:13:25.600 --> 0:13:30.360 the March quarter. UM. Apple gives a revenue forecast, so 0:13:30.760 --> 0:13:33.920 investors will use that to extrapolate, Okay, how our iPhone 0:13:33.960 --> 0:13:37.920 ten sales likely to go in the in the March quarter, 0:13:38.200 --> 0:13:40.000 and what does that mean for the rest of the year. 0:13:40.080 --> 0:13:44.280 You can extrapolate some assumptions about iPhone sales for the 0:13:44.280 --> 0:13:46.320 rest of the year from the March forecast. And I 0:13:46.320 --> 0:13:50.760 think there's a lot of anxiety about Apple's potential revenue 0:13:50.800 --> 0:13:54.559 growth this this fiscal year, and that March forecast is 0:13:54.600 --> 0:13:57.200 going to be I think ultra important. Well. And they 0:13:57.240 --> 0:14:00.400 also got to face competition because on February, guess what, 0:14:00.520 --> 0:14:03.520 Samsung is going to launch its Galaxy S nine. So 0:14:03.559 --> 0:14:07.640 that's a competitor to the Apple iPhone. You call it 0:14:07.679 --> 0:14:12.000 the X of the ten. Apple calls it the ten um. 0:14:12.080 --> 0:14:14.679 I have tended to call it the X mostly just 0:14:14.760 --> 0:14:18.800 to thumb my nose at Apple hood. Yes, it's alright, 0:14:18.800 --> 0:14:21.480 well done, Thanks very much. Here every day Bloomberg gad 0:14:21.480 --> 0:14:37.440 Fly columns for all things technology. Here to tell us 0:14:37.440 --> 0:14:39.240 a little bit about what's going on in the world 0:14:39.280 --> 0:14:42.240 of electronic payments is David Rittard. He is our Payments 0:14:42.240 --> 0:14:46.960 and Specialty finance analyst for Bloomberg Intelligence. Shares of PayPal 0:14:47.040 --> 0:14:51.960 they're down six percent the shares of eBay. They're up, David, 0:14:52.280 --> 0:14:56.040 I know you can tell us why. Sure, Well, I 0:14:56.120 --> 0:15:00.240 think that you have to keep PayPal in context of 0:15:00.280 --> 0:15:04.120 how the stock has done. Um it had nearly doubled 0:15:04.160 --> 0:15:07.680 in it was up another fifteen percent this year. And 0:15:08.200 --> 0:15:09.840 you know, I've been saying for months you had the 0:15:09.880 --> 0:15:13.720 fundamentals have been very strong, and and the trends continued 0:15:13.840 --> 0:15:18.000 in the fourth quarter with very strong acceleration in account 0:15:18.000 --> 0:15:23.000 growth and revenue growth. Again. Um, So, I think the 0:15:23.080 --> 0:15:26.120 eBay loss is going to be manageable over time. It's 0:15:26.120 --> 0:15:28.360 going to be staged out over the next several years. 0:15:29.040 --> 0:15:30.880 I think the company could have done a better job 0:15:30.960 --> 0:15:34.880 of telegraphing some of the impacts ahead of time. Um 0:15:34.920 --> 0:15:36.920 but I think this is natural, and we're seeing the 0:15:36.960 --> 0:15:39.200 stock rally actually quite a bit here in the last 0:15:39.240 --> 0:15:43.960 hour already. David, it's Taylor Briggs here. I'm wondering, you know, 0:15:44.040 --> 0:15:46.880 after eBay said that it will shift its payments business 0:15:46.880 --> 0:15:52.880 to the Dutch company Audion from PayPal, why why, now, 0:15:53.000 --> 0:15:56.520 I write, don't doesn't their partnership extend through Why did 0:15:56.600 --> 0:15:59.880 they talk about this now? Yeah? I mean, I think 0:16:00.000 --> 0:16:01.720 we need to be clear on what it is they're 0:16:01.760 --> 0:16:07.760 actually doing. So. They have an agreement with PayPal UM 0:16:07.800 --> 0:16:10.960 that governed when the two companies split, a five year agreement, 0:16:11.120 --> 0:16:13.200 and they're at the point now, at the halfway point 0:16:13.280 --> 0:16:19.240 where um eBay is permitted to allow other companies to 0:16:19.360 --> 0:16:25.360 be their primary payments processor, so paypals he didn't called 0:16:25.440 --> 0:16:29.400 Braintree that does that function. So they're really only transitioning 0:16:29.440 --> 0:16:33.320 their core processing. They're still going to be accepting PayPal. 0:16:33.440 --> 0:16:37.000 I mean, they're not taking the PayPal button off the 0:16:37.320 --> 0:16:41.800 eBay merchants. So that's important to bring up UM. So 0:16:41.840 --> 0:16:44.000 this is something that's been in the works and a 0:16:44.080 --> 0:16:47.040 possibility for some time. The other important thing to remember is, 0:16:47.400 --> 0:16:52.280 on the other hand, the agreement also prohibited PayPal from 0:16:52.360 --> 0:16:56.600 signing up certain marketplaces that eBay competes with, and they're 0:16:56.600 --> 0:16:58.560 going to be free to do that in the next 0:16:58.560 --> 0:17:01.800 couple of years as well. Hey David, and as you noted, 0:17:02.240 --> 0:17:06.160 the stock of palers trading around seventies six sixty nine 0:17:06.200 --> 0:17:09.080 on the open and then now we see it as 0:17:09.160 --> 0:17:12.400 much as so yes to turn around, although the stock 0:17:12.440 --> 0:17:14.600 is still down about five and a half dollars to share. 0:17:14.760 --> 0:17:17.760 Can you tell us about master Card because they, along 0:17:17.800 --> 0:17:21.000 with Visa, they are also considered this you know, electronic 0:17:21.080 --> 0:17:26.120 payments giant. Yeah, no, absolutely, I mean I think it's 0:17:26.160 --> 0:17:30.760 a sign of really very very strong global growth, not 0:17:30.920 --> 0:17:33.680 just a US story, but globally. You know, you saw 0:17:33.720 --> 0:17:38.119 acceleration in payments growth in the fourth quarter and in 0:17:38.200 --> 0:17:41.280 cross border payments, which is a really lucrative source of 0:17:41.320 --> 0:17:44.560 revenue for them because they're translating currencies that they charge 0:17:44.560 --> 0:17:49.199 and added fee for um. They're really cranking on all cylinders. 0:17:49.240 --> 0:17:52.840 And the part partly it's the transition for in cash 0:17:52.880 --> 0:17:56.159 and check globally to electronic payments, and obviously they are 0:17:56.800 --> 0:18:01.159 a dominant central player, and there's certainly benefiting from a 0:18:01.200 --> 0:18:05.280 shift of commerce to to mobile channels as well. Yeah, 0:18:05.359 --> 0:18:07.600 David talked to me more about the outlook for this 0:18:07.720 --> 0:18:11.520 continued shift to digital payments when it comes to master Card. 0:18:11.880 --> 0:18:15.120 Is that helping with margin expansion given the high margins 0:18:15.160 --> 0:18:19.000 there in the cross border sales. Yeah. I mean, you know, 0:18:19.040 --> 0:18:22.639 the interesting thing about both Visa and master Card, by nature, 0:18:22.680 --> 0:18:26.320 they're very very high operating margin businesses because when you 0:18:26.400 --> 0:18:29.960 think about it, it's really a giant computer system and 0:18:30.040 --> 0:18:33.919 communication system, so high fixed costs but the incremental cost 0:18:34.680 --> 0:18:38.360 of each transaction is very very very low. So as 0:18:38.400 --> 0:18:43.160 transactions convert from cash and check over to electronic means 0:18:43.240 --> 0:18:45.320 um that's pure profit. And so what it's to allow 0:18:45.440 --> 0:18:48.320 both companies to do is to say, Okay, well we're 0:18:48.320 --> 0:18:51.119 going to take that natural margin benefit that we have 0:18:51.200 --> 0:18:55.520 in our model and reinvest it in in digital initiatives 0:18:55.560 --> 0:18:58.080 and in trying to grab other types of payment flows, 0:18:58.160 --> 0:19:02.879 not just consumers pay businesses, but maybe government dispersing funds 0:19:02.960 --> 0:19:06.600 to consumers, maybe businesses paying each other. And so you 0:19:06.640 --> 0:19:11.240 saw a MasterCard by an a H company based in 0:19:11.280 --> 0:19:14.840 the UK, and so they're looking to grab the substantial 0:19:14.920 --> 0:19:19.119 portion of commerce that takes place on outside the traditional 0:19:19.119 --> 0:19:22.200 consumer to business channel. So that's kind of their next 0:19:22.320 --> 0:19:25.280 leg of growth. Well, thanks very much for enlightening us. 0:19:25.359 --> 0:19:28.520 David Ritter is our Payments and Specialty finance analyst for 0:19:28.560 --> 0:19:46.640 Bloomberg Intelligence. Good morning, I'm Taylor Riggs. I'm filling in 0:19:46.720 --> 0:19:50.760 for Lisa Abramaitz. She's out on assignment. We are talking 0:19:50.960 --> 0:19:54.919 about artificial intelligence and it is set to further disrupt 0:19:55.200 --> 0:19:58.760 the retail industry. Joining me now, Rona, he's here with 0:19:58.840 --> 0:20:01.560 us in studio Senior analysts of software and I T 0:20:01.720 --> 0:20:05.800 services of Bloomberg Intelligence and over the phone Punum Goyle, 0:20:05.920 --> 0:20:10.040 senior US retail analysts also with Bloomberg Intelligence. You know, 0:20:10.200 --> 0:20:13.200 my first question you two, is the retail industry has 0:20:13.240 --> 0:20:17.560 already been facing some problems with disruption, with Amazon coming 0:20:17.600 --> 0:20:21.280 in disrupting really the entire sector. You tube put together 0:20:21.359 --> 0:20:26.159 this massive report that AI will will further disrupt. I 0:20:26.160 --> 0:20:29.560 guess generally, is this a net positive or a net negative? 0:20:30.680 --> 0:20:33.000 Honor Rug, why don't you take that one? So one 0:20:33.040 --> 0:20:35.199 of the biggest things that we talk about it is 0:20:35.560 --> 0:20:38.199 today you really don't need a lot of capital to 0:20:38.240 --> 0:20:40.600 come up with new stores. Um. So we follow a 0:20:40.640 --> 0:20:43.240 company called Shopify, where you can go out and launch 0:20:43.240 --> 0:20:46.280 a store tailor you can launch any store tomorrow for 0:20:47.359 --> 0:20:53.120 a month with enterprise capabilities of payments, shipping, a look 0:20:53.160 --> 0:20:56.800 and feel off a very large retailer with very little capital. 0:20:57.160 --> 0:20:59.800 And every day or every year, I would say, we 0:20:59.840 --> 0:21:03.040 are seeing hundreds of thousands of these stores pop up 0:21:03.440 --> 0:21:06.440 that are targeted to your mobile device, to your Facebook, 0:21:06.440 --> 0:21:10.040 to your Instagram, and that's how you're going to shop next. 0:21:10.240 --> 0:21:12.520 I want to bring you in because I understand that 0:21:13.040 --> 0:21:17.560 an UG attended the major retail convention and not too 0:21:17.600 --> 0:21:20.840 long ago, and there was some technology that he was 0:21:20.920 --> 0:21:23.840 able to access that told him something about himself that 0:21:23.880 --> 0:21:28.440 he did not already know. Tell us about this experience. Um, 0:21:28.480 --> 0:21:31.520 so the NR conference showcased much of this technology. I 0:21:31.520 --> 0:21:34.560 mean think about, you know, going into a store and 0:21:35.480 --> 0:21:37.920 picking up an item and then putting it back down, 0:21:37.960 --> 0:21:41.120 and then the retailer knows that you picked up this 0:21:41.160 --> 0:21:43.399 item and you didn't purchase it, so why didn't you 0:21:43.440 --> 0:21:46.120 purchase that? And not only provides intelligence on the product, 0:21:46.520 --> 0:21:50.320 but also it helped identify you as a party interested 0:21:50.359 --> 0:21:53.000 in that item. The other thing we saw was the 0:21:53.119 --> 0:21:55.040 makeup app and I don't know if that's what anorag 0:21:55.160 --> 0:21:57.360 was referencing. Yes, tell us about it and how did 0:21:57.400 --> 0:21:59.720 he use it? Yeah, so I guess you know, you 0:21:59.760 --> 0:22:01.520 walk up in front of a mirror or in front 0:22:01.560 --> 0:22:03.720 of a screen, they look at your skin, they tell 0:22:03.760 --> 0:22:06.800 you what you should do to improve your skin. Is 0:22:07.080 --> 0:22:11.240 quite interesting. Um it's actually being used in Europe right now. 0:22:11.440 --> 0:22:14.280 They are talking to clients in the US. But it's 0:22:14.280 --> 0:22:17.240 about giving clients the right feedback. So it's about you. 0:22:17.400 --> 0:22:21.480 It's about the personalization, the connection to you, and it's individualized, 0:22:21.520 --> 0:22:23.920 so it's not one size fits all or one suggestion 0:22:23.960 --> 0:22:26.919 fits all, which is really what you know AI aims 0:22:27.040 --> 0:22:30.720 to fix. Um. Everyone is unique and everyone should have 0:22:30.760 --> 0:22:34.520 a unique recommendation. Okay, So at the end of the day, 0:22:34.960 --> 0:22:39.280 Alex is giving me fashion advice, right this when it 0:22:39.320 --> 0:22:41.679 comes down to see, that's just a tool that's going 0:22:41.720 --> 0:22:43.720 to help you shop a little bit better. But you 0:22:43.760 --> 0:22:47.320 have technology moving at such a rapid pace. Um, we 0:22:47.400 --> 0:22:50.680 saw transactions that would be done through your Facebook messenger. 0:22:51.040 --> 0:22:53.800 You could start buying things on a website and you 0:22:53.800 --> 0:22:56.080 know that the data of that would go straight to 0:22:56.160 --> 0:22:59.040 your messengers. You would use payment systems through that to 0:22:59.119 --> 0:23:03.040 complete the purchase. You're bypassing a lot of legacy systems 0:23:03.040 --> 0:23:05.520 through it. And as I said, you could be a 0:23:05.520 --> 0:23:08.600 small mom and pop shop, you are now competing head 0:23:08.600 --> 0:23:12.159 to head with very large established brands on all. Right, 0:23:12.200 --> 0:23:14.720 let's say you're an investor. Right, let's be there and 0:23:14.840 --> 0:23:16.960 say I want to get in on this. Who's making 0:23:17.000 --> 0:23:20.119 the chips, who's making the actual technology that is making 0:23:20.119 --> 0:23:23.199 all this reality? So, believe it or not, on the 0:23:23.240 --> 0:23:27.159 tech side, it is still companies like Microsoft. Um, I 0:23:27.359 --> 0:23:29.520 we heard that a lot of investors, a lot of 0:23:29.520 --> 0:23:33.400 retailers are not working with Amazon because of obvious reasons. 0:23:33.440 --> 0:23:38.160 So you have Google Cloud, you have Adobe, you have Microsoft, 0:23:38.440 --> 0:23:40.920 you have IBM, you have SAP that's a very big 0:23:40.920 --> 0:23:43.200 player and that. So on the tech side, it's pretty 0:23:43.240 --> 0:23:45.800 much all the large giants we know and it's all software. 0:23:45.880 --> 0:23:49.199 It's all software driven, so no, no no chip players 0:23:49.240 --> 0:23:54.040 in here. That it's pretty ordinary chips that Intel's there, 0:23:54.119 --> 0:23:57.160 Samsung is there, so you would always have those companies 0:23:57.200 --> 0:24:01.359 that provide the infrastructure and the camera US and because 0:24:01.359 --> 0:24:03.600 facial recognition is a big deal, so you have those 0:24:03.640 --> 0:24:07.480 companies as well. Intel's big player obviously, but large portion 0:24:07.520 --> 0:24:10.480 of the value edition comes from the software providers and 0:24:10.560 --> 0:24:13.679 Punham who on the retail side has started to use this. 0:24:14.280 --> 0:24:17.240 So it's not a lot. Actually, American Eagle has constantly 0:24:17.400 --> 0:24:20.199