1
00:00:05,800 --> 00:00:08,719
Speaker 1: Welcome to the Bloomberg PI and L Podcast. I'm pim Fox.

2
00:00:08,760 --> 00:00:11,520
Speaker 1: Along with my co host Lisa Brahmowitz. Each day we

3
00:00:11,640 --> 00:00:15,120
Speaker 1: bring you the most important, noteworthy, and useful interviews for

4
00:00:15,200 --> 00:00:17,840
Speaker 1: you and your money, whether you're at the grocery store

5
00:00:17,960 --> 00:00:20,720
Speaker 1: or the trading floor. Find the Bloomberg P and L

6
00:00:20,840 --> 00:00:33,240
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Bloomberg

7
00:00:33,240 --> 00:00:35,559
Speaker 1: News is reporting that China is said to offer a

8
00:00:35,640 --> 00:00:38,520
Speaker 1: path to eliminate the US trade and bounced to zero

9
00:00:38,640 --> 00:00:42,279
Speaker 1: by the year that trade and bounced to last year

10
00:00:42,320 --> 00:00:45,720
Speaker 1: at three billion dollars. To give us a sense of

11
00:00:45,760 --> 00:00:48,720
Speaker 1: what this means for markets, we are fortunate once again

12
00:00:48,760 --> 00:00:51,199
Speaker 1: to having our studios. Kathleen Gaffey is still with us.

13
00:00:51,200 --> 00:00:54,440
Speaker 1: She is a director diversified fixing coming at Eaton Vance

14
00:00:54,480 --> 00:00:56,720
Speaker 1: based in Boston, but she is fortunately in here with

15
00:00:56,760 --> 00:00:59,960
Speaker 1: our Bloomberg eleven three oh studio. So, Kathleen, the scene

16
00:01:00,080 --> 00:01:02,360
Speaker 1: is big. Um. It's something that I think a lot

17
00:01:02,400 --> 00:01:04,360
Speaker 1: of the market has been waiting for. What is your

18
00:01:04,360 --> 00:01:08,280
Speaker 1: initial read? This is big and it looks like it's

19
00:01:08,400 --> 00:01:13,399
Speaker 1: impacting bonds right now, and that means that the Fed

20
00:01:13,560 --> 00:01:17,679
Speaker 1: is back on This is volatility in markets, it changes

21
00:01:17,800 --> 00:01:22,319
Speaker 1: quickly and the markets tend to react in big ways.

22
00:01:23,000 --> 00:01:27,960
Speaker 1: We recently had more devish comments and the market took

23
00:01:28,280 --> 00:01:30,760
Speaker 1: all of the rate hikes out and even started to

24
00:01:30,800 --> 00:01:33,640
Speaker 1: think about a cut. Here we are, things are right

25
00:01:33,680 --> 00:01:35,880
Speaker 1: back on. What's interesting to me is you are getting

26
00:01:35,880 --> 00:01:39,160
Speaker 1: a little bit of yield curve flattening again. So to

27
00:01:39,360 --> 00:01:40,960
Speaker 1: your point, which is what you would expect, right, I

28
00:01:41,000 --> 00:01:42,800
Speaker 1: mean the two year yield is the one that's reacting

29
00:01:42,800 --> 00:01:44,560
Speaker 1: the most. In other words, people are looking at this

30
00:01:44,600 --> 00:01:48,000
Speaker 1: information and saying, if there is a trade agreement that

31
00:01:48,040 --> 00:01:50,680
Speaker 1: will give the market the boost it needs to continue

32
00:01:50,720 --> 00:01:53,320
Speaker 1: the growth, and that will give the Fed the reason

33
00:01:53,400 --> 00:01:56,440
Speaker 1: to continue hiking rates, which is a negative for the

34
00:01:56,440 --> 00:02:00,360
Speaker 1: bond investors. It is. It makes it very challenge. It's

35
00:02:00,360 --> 00:02:03,680
Speaker 1: a headwind, but the fundamentals a growing economy is always

36
00:02:03,680 --> 00:02:06,560
Speaker 1: good for everyone. And that's but that's consistent with your call.

37
00:02:06,640 --> 00:02:08,800
Speaker 1: You've not been looking for a rate cut? Is that true?

38
00:02:09,240 --> 00:02:10,840
Speaker 1: I have not been looking for a ray cut. The

39
00:02:11,160 --> 00:02:15,320
Speaker 1: Fed is on a mission. This clears the way uh

40
00:02:15,400 --> 00:02:17,959
Speaker 1: for them to get there. The cost of money should

41
00:02:18,000 --> 00:02:20,200
Speaker 1: not be zero. So how many more hikes with they're

42
00:02:20,200 --> 00:02:21,959
Speaker 1: going to be this year? Well, we still have a

43
00:02:21,960 --> 00:02:25,480
Speaker 1: lot of uncertainty out there. We still have breggsit um,

44
00:02:25,480 --> 00:02:27,280
Speaker 1: but we could learn a lot just in the next

45
00:02:27,400 --> 00:02:30,560
Speaker 1: week or two. You remove that uncertainty, and the global

46
00:02:30,560 --> 00:02:34,560
Speaker 1: growth story is not just the US and China. It

47
00:02:34,680 --> 00:02:37,520
Speaker 1: might be Europe too, and that's the rest of the world.

48
00:02:37,560 --> 00:02:40,200
Speaker 1: But let's talk about that, because honestly, it seems like

49
00:02:40,360 --> 00:02:43,880
Speaker 1: this has the potential to affect emerging markets potentially even

50
00:02:43,919 --> 00:02:46,720
Speaker 1: more than the US, because China is slowing. If you

51
00:02:46,760 --> 00:02:51,200
Speaker 1: remove the uncertainty of US China trade UH skirmishes, that

52
00:02:51,240 --> 00:02:53,840
Speaker 1: could really give a boost elsewhere. Does this make you

53
00:02:53,880 --> 00:02:56,120
Speaker 1: double down on your bed that emerging markets are going

54
00:02:56,160 --> 00:02:58,840
Speaker 1: to outperform this year in credit? I don't know about

55
00:02:58,840 --> 00:03:01,800
Speaker 1: double down, because we're all ready there. We've we've believed

56
00:03:01,840 --> 00:03:04,400
Speaker 1: that this is where it's going, mainly because the valuations

57
00:03:04,400 --> 00:03:08,200
Speaker 1: are there and the fundamentals are there. Many emerging markets,

58
00:03:08,240 --> 00:03:11,920
Speaker 1: not all of them, um, in particular Mexico and Brazil

59
00:03:12,000 --> 00:03:16,079
Speaker 1: where inflation has been coming down, so that's a positive

60
00:03:16,440 --> 00:03:20,000
Speaker 1: for fixed income investors. Where inflation is coming down and

61
00:03:20,080 --> 00:03:23,920
Speaker 1: growth is supportive, that's where you're going to see returns

62
00:03:23,960 --> 00:03:28,560
Speaker 1: that are higher than what the developed market, Uh, yields

63
00:03:28,600 --> 00:03:31,080
Speaker 1: are likely to experience as rates move higher. So how

64
00:03:31,080 --> 00:03:34,400
Speaker 1: about the emerging markets in Asia? Maybe? Given this news

65
00:03:34,400 --> 00:03:37,320
Speaker 1: in general, is there any aura, if you will, that

66
00:03:37,400 --> 00:03:42,040
Speaker 1: it improved China China trade transpecific trade with China. Are

67
00:03:42,080 --> 00:03:44,240
Speaker 1: there economies and emerging markets in that region the world

68
00:03:44,280 --> 00:03:49,040
Speaker 1: that you're looking at? Definitely, this really opens up that market. Um,

69
00:03:49,200 --> 00:03:52,800
Speaker 1: You've you've got competition going on right now. China is

70
00:03:52,840 --> 00:03:57,040
Speaker 1: saying we're going to spend. That means living standards and

71
00:03:57,120 --> 00:04:00,200
Speaker 1: income are going to rise there and they'll be looking

72
00:04:00,280 --> 00:04:03,520
Speaker 1: to be buying elsewhere around. Asia opens it up in

73
00:04:03,760 --> 00:04:08,559
Speaker 1: a really big way. We like in India and Indonesia

74
00:04:08,680 --> 00:04:11,960
Speaker 1: because there's good reform potential there. But now this is

75
00:04:12,000 --> 00:04:16,040
Speaker 1: a much broader support for emerging markets. So here's what

76
00:04:16,279 --> 00:04:19,560
Speaker 1: I'm trying to understand. The dollar Understandably, it would weaken

77
00:04:19,600 --> 00:04:21,240
Speaker 1: on this news, right, I mean the idea of being

78
00:04:21,360 --> 00:04:24,200
Speaker 1: that China and the rest of the world would strengthen,

79
00:04:24,240 --> 00:04:26,440
Speaker 1: and particularly Europe, as you're saying, because China such a

80
00:04:26,480 --> 00:04:29,240
Speaker 1: major trade partner with them. I'm just wondering though, if

81
00:04:29,279 --> 00:04:32,320
Speaker 1: the FED hikes more. Trying to put it all together

82
00:04:32,360 --> 00:04:35,159
Speaker 1: is kind of make my head spin it does. There's

83
00:04:35,279 --> 00:04:38,239
Speaker 1: just a lot going on, but if you just focus

84
00:04:38,279 --> 00:04:42,560
Speaker 1: on what's what's really important, and that is that fiscal

85
00:04:42,640 --> 00:04:46,719
Speaker 1: spending has picked up and the budget deficit is rising,

86
00:04:47,080 --> 00:04:51,240
Speaker 1: so that uh will weigh on the dollar. You've also

87
00:04:51,320 --> 00:04:56,320
Speaker 1: got Europe, which if we've got global growth going and

88
00:04:56,360 --> 00:05:02,440
Speaker 1: you have less concern about tariffs on Europe or China,

89
00:05:03,040 --> 00:05:06,520
Speaker 1: it clears the decks and that might remove uncertainty for Europe,

90
00:05:06,680 --> 00:05:12,159
Speaker 1: and that means interest rate differentials gives draggy or who

91
00:05:12,720 --> 00:05:15,760
Speaker 1: a little more room to reduce buying, and so you

92
00:05:15,760 --> 00:05:18,599
Speaker 1: can see rates moving up in Europe as well. I

93
00:05:18,640 --> 00:05:23,160
Speaker 1: think this is really big for fixed income so thin

94
00:05:23,480 --> 00:05:24,840
Speaker 1: and you think it's going to be a net negative

95
00:05:24,839 --> 00:05:28,240
Speaker 1: for fixed income in terms of returns, Yes, but it

96
00:05:28,240 --> 00:05:30,839
Speaker 1: gets us back to normal, which is just where we

97
00:05:30,920 --> 00:05:34,039
Speaker 1: want to be. You mentioned just and just briefly, you

98
00:05:34,080 --> 00:05:39,400
Speaker 1: mentioned Brexit, still uncertainty, any call there real briefly. I

99
00:05:39,440 --> 00:05:41,640
Speaker 1: always try to make it as simple as possible. This

100
00:05:41,720 --> 00:05:47,279
Speaker 1: is so complicated. I think Theresa May has done what

101
00:05:47,360 --> 00:05:50,440
Speaker 1: she needs to do, which is honor what the vote said.

102
00:05:51,000 --> 00:05:53,800
Speaker 1: But things have changed a lot over the two years,

103
00:05:53,839 --> 00:05:58,280
Speaker 1: and I think that there's more acceptance the millennials that

104
00:05:58,360 --> 00:06:00,200
Speaker 1: you've added. I think a million and a half of

105
00:06:00,240 --> 00:06:03,599
Speaker 1: millennials who can now vote UM. If we go to

106
00:06:03,640 --> 00:06:08,520
Speaker 1: a second referendum, I think you will see remain really yes.

107
00:06:09,040 --> 00:06:10,680
Speaker 1: All right, well, thank you so much for your time

108
00:06:10,680 --> 00:06:13,480
Speaker 1: and for your patience. Kathleen Gaffney, Director of Diversified Fixed

109
00:06:13,480 --> 00:06:16,440
Speaker 1: in Company in vance. Really interesting commentary. It does seem

110
00:06:16,440 --> 00:06:18,839
Speaker 1: like this news is a big deal for debt markets

111
00:06:18,880 --> 00:06:35,160
Speaker 1: as well as all equity markets. As well as the

112
00:06:35,200 --> 00:06:38,640
Speaker 1: government shut down, which is the longest on record, stretches

113
00:06:38,640 --> 00:06:42,800
Speaker 1: into the day. A big question emerges which employees are

114
00:06:42,880 --> 00:06:45,600
Speaker 1: hurt most by this, who are either being furloughed or

115
00:06:45,640 --> 00:06:48,839
Speaker 1: not paid. Joining us now to talk about the composition

116
00:06:49,040 --> 00:06:52,279
Speaker 1: of people who are employed on and and depend dependent

117
00:06:52,360 --> 00:06:55,240
Speaker 1: on the federal government for their income is Paul lighte uh,

118
00:06:55,320 --> 00:06:57,880
Speaker 1: Professor of Public Service at n y U, New York University,

119
00:06:58,320 --> 00:07:01,120
Speaker 1: Joining us here in our Bloobrigader Active Brokers Studios. Paul,

120
00:07:01,160 --> 00:07:05,320
Speaker 1: thank you so much for being here. Really interesting focus.

121
00:07:05,560 --> 00:07:08,280
Speaker 1: You highlighted in a recent Wall Street Journal article that

122
00:07:08,320 --> 00:07:12,800
Speaker 1: there has been a growing roster of contracted employees of

123
00:07:12,840 --> 00:07:17,440
Speaker 1: the federal government even while the full time roster stays stagnant.

124
00:07:17,440 --> 00:07:22,119
Speaker 1: Why well, we use contractors and grantees as well, um

125
00:07:22,200 --> 00:07:25,440
Speaker 1: as a surge tank, uh in a search tank model.

126
00:07:25,880 --> 00:07:29,600
Speaker 1: So during wars and economic crisis, when we're pumping the

127
00:07:29,640 --> 00:07:33,320
Speaker 1: economy with stimulus and were when we're buying weapons, we're

128
00:07:33,320 --> 00:07:37,360
Speaker 1: fighting battles, we go to the contractors. The federal workforce

129
00:07:37,640 --> 00:07:40,800
Speaker 1: full time equivalent workforce has been at about two million

130
00:07:41,480 --> 00:07:44,800
Speaker 1: since nineteen fifty, and there is a de facto ceiling

131
00:07:44,800 --> 00:07:47,640
Speaker 1: on the number of Feds you can hire. Uh, you don't.

132
00:07:47,800 --> 00:07:50,040
Speaker 1: You can exceed that by a hundred thousand here and

133
00:07:50,080 --> 00:07:54,000
Speaker 1: there over time. But contractors provide the real slack in

134
00:07:54,040 --> 00:07:57,720
Speaker 1: the system. They expand quickly, the numbers expand quickly, and

135
00:07:57,760 --> 00:08:01,880
Speaker 1: they contract quickly. Surge press surge compressed. So, so what

136
00:08:01,960 --> 00:08:05,840
Speaker 1: types of jobs typically are being contracted out these days?

137
00:08:06,080 --> 00:08:08,560
Speaker 1: You know, you'd think it would be metal benders, people

138
00:08:08,600 --> 00:08:12,480
Speaker 1: who make stuff. It's not. About two thirds of federal

139
00:08:12,520 --> 00:08:18,119
Speaker 1: contract employees are delivering services, whether that's consulting, whether that's

140
00:08:18,160 --> 00:08:22,920
Speaker 1: computer programming, back office work. They're doing soil testing for

141
00:08:23,000 --> 00:08:27,880
Speaker 1: the Environmental Protection Agency. They're doing vehicle repairs. They run

142
00:08:27,920 --> 00:08:32,240
Speaker 1: the repair depots for the Department of Fence. Uh, there's

143
00:08:32,280 --> 00:08:35,360
Speaker 1: a misperception here that it's all things you buy at

144
00:08:35,360 --> 00:08:38,200
Speaker 1: the store. It's not. It's a lot of labor that

145
00:08:38,240 --> 00:08:41,120
Speaker 1: we're buying. And that's where you get these big numbers

146
00:08:41,200 --> 00:08:45,959
Speaker 1: of people who work for the federal government indirectly as contractors.

147
00:08:45,960 --> 00:08:48,720
Speaker 1: How many people is that overall for the entire federal

148
00:08:48,760 --> 00:08:52,880
Speaker 1: government four point one million by my contract, full time

149
00:08:52,920 --> 00:08:55,480
Speaker 1: equivalent contract employees. So there have been a number of

150
00:08:55,600 --> 00:08:58,720
Speaker 1: articles talking about how these four point one million contractors

151
00:08:58,720 --> 00:09:01,679
Speaker 1: are a subset of them are not getting any income

152
00:09:01,760 --> 00:09:05,200
Speaker 1: as a result of this partial government shutdown. Uh, and

153
00:09:05,640 --> 00:09:09,920
Speaker 1: that there's a question of whether they will be compensated,

154
00:09:09,960 --> 00:09:11,920
Speaker 1: whether they'll have more work later and then it will

155
00:09:11,960 --> 00:09:15,320
Speaker 1: just be a wash in the end, or what do

156
00:09:15,320 --> 00:09:17,080
Speaker 1: you think is going to happen with these count Federal

157
00:09:17,120 --> 00:09:21,520
Speaker 1: employees are now guaranteed by law. President Trump signed it yesterday,

158
00:09:21,559 --> 00:09:25,200
Speaker 1: I believe day before yesterday. Maybe. Uh. Any any fad

159
00:09:25,320 --> 00:09:28,800
Speaker 1: who is working right now but not getting paid, they're

160
00:09:28,800 --> 00:09:30,200
Speaker 1: going to get a paycheck at the end of it.

161
00:09:30,280 --> 00:09:34,720
Speaker 1: All contractors, We're not sure. Depends on the business. I mean,

162
00:09:34,720 --> 00:09:37,439
Speaker 1: if you're a big consulting firm, are you gonna front

163
00:09:37,480 --> 00:09:39,839
Speaker 1: them some money if they're not doing anything. I mean,

164
00:09:39,880 --> 00:09:44,760
Speaker 1: businesses have a different pressure, right, So the people who

165
00:09:44,840 --> 00:09:47,480
Speaker 1: are working for contractors but not doing anything, I mean,

166
00:09:47,480 --> 00:09:51,520
Speaker 1: they're on the payroll, but they're idled. I don't see

167
00:09:51,559 --> 00:09:53,080
Speaker 1: that they get paid at the end of all of this.

168
00:09:53,360 --> 00:09:55,640
Speaker 1: Do they What types of recourse, if any, do you

169
00:09:55,720 --> 00:09:58,000
Speaker 1: think they have. I would think going up against the

170
00:09:58,040 --> 00:10:01,280
Speaker 1: government would be something quite for a small shop that

171
00:10:01,320 --> 00:10:03,360
Speaker 1: you just suggested. You know, if you've got no work

172
00:10:03,480 --> 00:10:06,319
Speaker 1: order from the federal government, you've been told to stand down,

173
00:10:06,640 --> 00:10:10,080
Speaker 1: like we have at the Federal Emergency Management Agency, You've

174
00:10:10,120 --> 00:10:13,000
Speaker 1: been given a stop work order. That's on you as

175
00:10:13,040 --> 00:10:15,360
Speaker 1: the contractor. The federal government is going to step in

176
00:10:15,880 --> 00:10:19,000
Speaker 1: and help you give your employees, uh, you know, back

177
00:10:19,000 --> 00:10:22,199
Speaker 1: pay for work they didn't do. You know, these are businesses.

178
00:10:22,320 --> 00:10:25,120
Speaker 1: They rise and fall based on their income and flow.

179
00:10:25,400 --> 00:10:28,320
Speaker 1: So somebody would argue, I mean, if their contractors, so

180
00:10:28,440 --> 00:10:32,520
Speaker 1: they should expect this. Sometimes work comes and sometimes work goes.

181
00:10:32,760 --> 00:10:34,720
Speaker 1: And a lot of the companies that we're talking about

182
00:10:34,720 --> 00:10:37,720
Speaker 1: are not mom and pop shops, but are the formerly

183
00:10:37,800 --> 00:10:39,960
Speaker 1: named black Waters of the world who are actually doing

184
00:10:40,000 --> 00:10:43,120
Speaker 1: military complex work. I'm just wondering can you give us

185
00:10:43,120 --> 00:10:45,520
Speaker 1: a sense of the breakdown at all of of you know,

186
00:10:45,600 --> 00:10:49,640
Speaker 1: big versus small, and also you know whether what you

187
00:10:49,640 --> 00:10:52,040
Speaker 1: know whether these contractors have other clients or is it

188
00:10:52,080 --> 00:10:55,160
Speaker 1: really just the government paying for them? Uh? Fully great,

189
00:10:55,520 --> 00:10:59,800
Speaker 1: great question about of the contract employees are working for

190
00:11:00,080 --> 00:11:05,280
Speaker 1: mall businesses, A very large number obviously working for large businesses,

191
00:11:05,360 --> 00:11:09,400
Speaker 1: and they're often operating under soul source contracts. The real

192
00:11:09,480 --> 00:11:11,640
Speaker 1: question here is whether the federal government is going to

193
00:11:11,720 --> 00:11:17,960
Speaker 1: try to protect contract employees who are in essential jobs. Uh.

194
00:11:18,000 --> 00:11:21,360
Speaker 1: For example, two d and fifty thousand or so contractors

195
00:11:21,400 --> 00:11:24,600
Speaker 1: we think work for what's known as Top Secret America.

196
00:11:25,000 --> 00:11:29,079
Speaker 1: They're doing the high end intelligence analysis down in Virginia.

197
00:11:29,240 --> 00:11:33,679
Speaker 1: They're doing a lot of surveillance activities under contract. You

198
00:11:33,720 --> 00:11:36,880
Speaker 1: don't want to lose those analysts. So the question here

199
00:11:36,920 --> 00:11:40,000
Speaker 1: will be whether the federal government will step in and

200
00:11:40,080 --> 00:11:43,480
Speaker 1: try to maintain the strength of some of these big,

201
00:11:43,520 --> 00:11:47,559
Speaker 1: big firms that provide a lot of high end analysis

202
00:11:47,600 --> 00:11:50,559
Speaker 1: and consulting. So what has been the discussion in Congress

203
00:11:50,559 --> 00:11:52,880
Speaker 1: since the shutdown A starter may maybe even before the

204
00:11:52,880 --> 00:11:56,040
Speaker 1: shut down about that topic. I suspect that you're going

205
00:11:56,080 --> 00:11:59,320
Speaker 1: to have some very high end workers entities working for

206
00:11:59,320 --> 00:12:01,320
Speaker 1: the federal government that are going to say listen, I

207
00:12:01,440 --> 00:12:04,360
Speaker 1: expect to get paid. You can't afford to lose me.

208
00:12:05,360 --> 00:12:08,880
Speaker 1: I don't know what's going on. You know, Congress doesn't

209
00:12:09,000 --> 00:12:13,359
Speaker 1: really pay a great deal of attention to the contract workforce.

210
00:12:13,559 --> 00:12:15,320
Speaker 1: It's not on the agenda. We spend a lot of

211
00:12:15,360 --> 00:12:19,400
Speaker 1: time focusing on fetes. We know everything about the federal

212
00:12:19,440 --> 00:12:23,480
Speaker 1: employees down to their shoe size. We know very little

213
00:12:23,679 --> 00:12:27,360
Speaker 1: about contract employees, very little. I'm struck by this idea

214
00:12:27,720 --> 00:12:31,400
Speaker 1: where you started the conversation saying that contractors, the ranks

215
00:12:31,440 --> 00:12:35,240
Speaker 1: of them expanded during wartime and other extraordinary situations. We're

216
00:12:35,280 --> 00:12:38,920
Speaker 1: not in an extraordinary situation right now, but the ranks

217
00:12:38,960 --> 00:12:41,560
Speaker 1: of contractors have continued to rise or state at the

218
00:12:41,559 --> 00:12:44,800
Speaker 1: elevated levels. Well, it's compressed a little bit, but not

219
00:12:44,840 --> 00:12:47,880
Speaker 1: as much as you'd expect. The end of the Iraq

220
00:12:48,120 --> 00:12:52,400
Speaker 1: and Afghanistan, you know, the major fighting UH did drop

221
00:12:52,440 --> 00:12:55,520
Speaker 1: the number of contractors by three or four hundred thousand,

222
00:12:56,080 --> 00:13:00,800
Speaker 1: But the recent increases in military spending have up the numbers.

223
00:13:00,800 --> 00:13:03,880
Speaker 1: So we're making more stuff and we're doing more analysis.

224
00:13:04,240 --> 00:13:07,520
Speaker 1: We're going to build a new missile defense system. As

225
00:13:07,880 --> 00:13:11,760
Speaker 1: President Trump said yesterday, UM, so the contract workforce is

226
00:13:11,760 --> 00:13:17,240
Speaker 1: starting to surge as President Trump pursues this expanded UH

227
00:13:17,320 --> 00:13:20,480
Speaker 1: military presence. You know, it seems that, you know, this

228
00:13:20,520 --> 00:13:24,199
Speaker 1: is a situation the contractors and the government. It mutually dependent.

229
00:13:24,880 --> 00:13:27,240
Speaker 1: I can't My question to you was going to be,

230
00:13:27,440 --> 00:13:30,760
Speaker 1: do you think the shutdown will change that relationship. I'm

231
00:13:30,760 --> 00:13:33,479
Speaker 1: not sure it will because it seems like the contractors

232
00:13:33,520 --> 00:13:36,920
Speaker 1: depend upon the government and the government depends upon them.

233
00:13:37,000 --> 00:13:39,160
Speaker 1: So do you have any sense of whether that relationship

234
00:13:39,320 --> 00:13:42,440
Speaker 1: or interdependency may change. You know, we've had this government

235
00:13:42,520 --> 00:13:45,960
Speaker 1: industrial complex, as I call it UH since the very

236
00:13:45,960 --> 00:13:51,640
Speaker 1: beginning of our country UH contractors, UH, federal employees, federal

237
00:13:51,679 --> 00:13:55,120
Speaker 1: soldiers standing side by side on the battlefield. That's been

238
00:13:55,120 --> 00:13:58,120
Speaker 1: the history of this. And we had contractors delivering the

239
00:13:58,120 --> 00:14:02,440
Speaker 1: mail at the very beginning of our nation. I expect

240
00:14:02,679 --> 00:14:06,120
Speaker 1: it to continue. I may I may argue, I could

241
00:14:06,200 --> 00:14:09,040
Speaker 1: argue that we'll have somewhat of a downturn in the

242
00:14:09,080 --> 00:14:13,120
Speaker 1: number of federal employees UH as contractors step in more

243
00:14:13,160 --> 00:14:18,079
Speaker 1: and more. That that's a protective approach for future shutdowns.

244
00:14:18,080 --> 00:14:21,560
Speaker 1: We're normalizing the use of shutdowns as a regular way

245
00:14:21,640 --> 00:14:24,720
Speaker 1: of resolving budget disputes, and there may be a shift

246
00:14:24,800 --> 00:14:29,240
Speaker 1: somewhat to contractors because they are, in fact, uh more

247
00:14:29,360 --> 00:14:31,880
Speaker 1: likely to not get paid during a shutdown, which is

248
00:14:31,920 --> 00:14:34,520
Speaker 1: the point. I guess. It's like contractors are the the

249
00:14:34,560 --> 00:14:40,480
Speaker 1: temp workers of the government complex. Absolutely and uh from

250
00:14:40,480 --> 00:14:43,320
Speaker 1: the very bottom in terms of serving soup all the

251
00:14:43,320 --> 00:14:48,000
Speaker 1: way up to fighting wars and deploying troops. Wonderful, Absolutely,

252
00:14:48,320 --> 00:14:51,720
Speaker 1: thank you very much. Fantastic discussion. Professor Paul Light Paul

253
00:14:52,240 --> 00:14:54,480
Speaker 1: Paul that got her professor of Public Service at New

254
00:14:54,560 --> 00:15:12,920
Speaker 1: York University here in New York City. You know, I

255
00:15:13,000 --> 00:15:16,040
Speaker 1: like out of consensus calls as much as anybody. And

256
00:15:16,120 --> 00:15:19,200
Speaker 1: our next guest has a whopper of an out of

257
00:15:19,200 --> 00:15:22,080
Speaker 1: consensus called Dr Brendan Brown is a senior fellow at

258
00:15:22,080 --> 00:15:27,400
Speaker 1: the Hudson Institute. Coming to us from London. Dr Brown, welcome. Um.

259
00:15:27,480 --> 00:15:31,280
Speaker 1: You make a point that you believe that brexit or

260
00:15:31,320 --> 00:15:34,360
Speaker 1: a no deal brexit is the most likely outcome and

261
00:15:34,400 --> 00:15:37,320
Speaker 1: get this the best outcome for the UK and Europe.

262
00:15:37,360 --> 00:15:41,880
Speaker 1: Can you explain that no deal Brexit is not a

263
00:15:41,960 --> 00:15:45,440
Speaker 1: no deal Brexit. What it means is that from the

264
00:15:45,720 --> 00:15:50,720
Speaker 1: end of March um the UK would be negotiating week

265
00:15:50,800 --> 00:15:53,720
Speaker 1: by week or month by month um what it's going

266
00:15:53,760 --> 00:15:56,800
Speaker 1: to get in return for continuing to pay into the EU.

267
00:15:57,440 --> 00:15:59,680
Speaker 1: So it's going to be a series of lots of

268
00:15:59,720 --> 00:16:04,040
Speaker 1: mini deals. Now, why I think that's better than any

269
00:16:04,200 --> 00:16:08,680
Speaker 1: other solutions for present impact on the table is that,

270
00:16:08,880 --> 00:16:12,800
Speaker 1: first of all, if the UK was to agree to

271
00:16:13,640 --> 00:16:18,760
Speaker 1: anything like the present or a more diluted form of Brexit,

272
00:16:19,400 --> 00:16:23,800
Speaker 1: that would be a huge setback for the Conservative Party,

273
00:16:23,880 --> 00:16:27,960
Speaker 1: who's popular base does depend on working class nationalist support.

274
00:16:28,440 --> 00:16:33,000
Speaker 1: So if we see any further dilution, the potential for

275
00:16:33,120 --> 00:16:38,600
Speaker 1: a far left government in the UK increases quite substantially. Secondly,

276
00:16:39,760 --> 00:16:44,640
Speaker 1: any sort of diluted or delayed Brexit is a big

277
00:16:44,640 --> 00:16:47,160
Speaker 1: win for the status quo in Europe, in particular for

278
00:16:47,280 --> 00:16:52,239
Speaker 1: Chancellor Merkel. By contrast, if we have a no deal outcome,

279
00:16:53,040 --> 00:16:56,200
Speaker 1: that would be quite a serious setback, which answer Merkel

280
00:16:56,480 --> 00:16:59,800
Speaker 1: and could really bring change and a shift to the

281
00:17:00,440 --> 00:17:05,320
Speaker 1: right in Germany and a much more economic reform minded

282
00:17:05,400 --> 00:17:10,120
Speaker 1: type government. So those are the sort of considerations why

283
00:17:10,359 --> 00:17:14,359
Speaker 1: I see the no deal brexit as superior to the

284
00:17:14,440 --> 00:17:17,680
Speaker 1: other alternatives. What is your sense of timing. We know

285
00:17:17,880 --> 00:17:20,879
Speaker 1: that Teresa May has to come back to Parliament on

286
00:17:20,960 --> 00:17:24,680
Speaker 1: Monday with her revised plan. Um, what do you expect

287
00:17:24,760 --> 00:17:26,080
Speaker 1: that plan to be and what do you expect the

288
00:17:26,160 --> 00:17:29,600
Speaker 1: timing to be of whatever negotiations may take place between

289
00:17:29,680 --> 00:17:33,520
Speaker 1: the UK and EU. Well, there's a lot of bluff here,

290
00:17:33,560 --> 00:17:40,680
Speaker 1: of course, is as negotiations have been intrinsically and I

291
00:17:40,800 --> 00:17:45,560
Speaker 1: don't expect any serious concessions to be made from the

292
00:17:46,200 --> 00:17:51,280
Speaker 1: EU or for the UK government under Prime Minister May

293
00:17:51,359 --> 00:17:56,200
Speaker 1: to be making any big shift much short of Marche

294
00:17:56,840 --> 00:17:59,320
Speaker 1: one and probably after that. You see, I believe that

295
00:17:59,440 --> 00:18:02,280
Speaker 1: the YOU is now convinced that the May government is

296
00:18:02,359 --> 00:18:05,240
Speaker 1: so weak, Um, they really don't have to make any

297
00:18:05,280 --> 00:18:08,639
Speaker 1: concessions with the UK Government's going to move towards a

298
00:18:08,720 --> 00:18:13,560
Speaker 1: dilution or delay. So if the UK government is to

299
00:18:13,680 --> 00:18:17,000
Speaker 1: get anything better than what's on the table, um, they

300
00:18:17,080 --> 00:18:20,720
Speaker 1: have to prove it are serious. So my central scenario

301
00:18:20,840 --> 00:18:23,440
Speaker 1: here is that there maybe a few days or weeks

302
00:18:23,560 --> 00:18:26,560
Speaker 1: of a no deal Brexit and then the real talking begins.

303
00:18:27,320 --> 00:18:30,160
Speaker 1: So I guess the question that I have is couldn't

304
00:18:30,240 --> 00:18:34,040
Speaker 1: the the European Union pushed back the deadline? Right? I mean,

305
00:18:34,080 --> 00:18:36,160
Speaker 1: that's basically one theory is that they're going to push

306
00:18:36,200 --> 00:18:40,240
Speaker 1: back the deadline so that negotiations continue for the United Kingdom.

307
00:18:40,600 --> 00:18:42,720
Speaker 1: Why isn't that the best outcome? Why isn't it you know,

308
00:18:42,800 --> 00:18:45,520
Speaker 1: give them more time hash it out, maybe get a

309
00:18:45,600 --> 00:18:49,560
Speaker 1: new government. Yeah, go ahead, Yeah, we've already had two years.

310
00:18:50,240 --> 00:18:52,480
Speaker 1: Was obvious eighteen months. It was obviously eighteen months ago

311
00:18:52,680 --> 00:18:57,440
Speaker 1: that the German and French governments were not going to

312
00:18:57,600 --> 00:19:03,120
Speaker 1: be very accommodating to UK aspirations for a free trade agreement.

313
00:19:04,160 --> 00:19:06,919
Speaker 1: So another three months is a sign of weakness at

314
00:19:06,960 --> 00:19:13,680
Speaker 1: this stage. If the UK government is to impress on

315
00:19:13,800 --> 00:19:17,399
Speaker 1: the EU counterparts that they're serious and they're not prepared

316
00:19:17,440 --> 00:19:19,399
Speaker 1: to make any further concessions that are not going to

317
00:19:19,480 --> 00:19:24,320
Speaker 1: accept for present terms, then it's very delay is a

318
00:19:24,400 --> 00:19:27,359
Speaker 1: sign of weakness. And the other big news of a

319
00:19:27,440 --> 00:19:30,040
Speaker 1: day China. We we already see that to some extent,

320
00:19:30,320 --> 00:19:36,119
Speaker 1: in that delaying raising tariffs can be interpreted as a

321
00:19:36,359 --> 00:19:39,080
Speaker 1: sign of weakness on the other side. But that's always

322
00:19:39,160 --> 00:19:43,240
Speaker 1: a problem with the delay in in in high Wai negotiations.

323
00:19:45,400 --> 00:19:48,160
Speaker 1: So it seems like the you know, this is impacting

324
00:19:48,200 --> 00:19:52,840
Speaker 1: Europe as well. ECB President Dragging warned about negative rates

325
00:19:52,920 --> 00:19:54,960
Speaker 1: for the remainder of the year really quickly, Professor, I

326
00:19:55,040 --> 00:20:00,040
Speaker 1: understand you don't support that negative rate environment. No, the

327
00:20:00,480 --> 00:20:06,440
Speaker 1: negative rate environment in Europe is essentially there to be

328
00:20:06,560 --> 00:20:11,920
Speaker 1: a gravy train into Italy and prevent it's an Italian

329
00:20:12,000 --> 00:20:16,800
Speaker 1: exit from the European Monetary Union. And of course a

330
00:20:16,920 --> 00:20:22,160
Speaker 1: main backer and the essential backer of that is Chancellor

331
00:20:22,200 --> 00:20:25,360
Speaker 1: merk who who accepts negative interest rates for that purpose.

332
00:20:26,040 --> 00:20:29,719
Speaker 1: But negative rates in Germany are a total absurdity. Why

333
00:20:29,760 --> 00:20:33,000
Speaker 1: should German sabers be accepting negative rates when the economy

334
00:20:33,640 --> 00:20:36,280
Speaker 1: is at full stretch, although it was a bit weaker

335
00:20:36,320 --> 00:20:39,520
Speaker 1: in the second half of last year, and essentially they're

336
00:20:39,520 --> 00:20:42,720
Speaker 1: paying a heavy price for this. Dr Brendon Brown, thank

337
00:20:42,760 --> 00:20:44,159
Speaker 1: you so much. I remember when people thought it was

338
00:20:44,160 --> 00:20:47,639
Speaker 1: an absurdity, and now yet we have eight naf trillion

339
00:20:47,720 --> 00:20:50,800
Speaker 1: dollars of absurdity out there, of negative yielding dead outstanding.

340
00:20:50,920 --> 00:20:53,560
Speaker 1: Just shocking to think about it. Dr Brendon Brown, senior

341
00:20:53,600 --> 00:20:56,320
Speaker 1: fellow at the Hudson Institute, coming to us from London,

342
00:20:56,400 --> 00:20:58,200
Speaker 1: Thank you so much for being with us with the

343
00:20:58,359 --> 00:21:00,960
Speaker 1: non consensus view that they know deal brexit is actually

344
00:21:01,000 --> 00:21:03,560
Speaker 1: probably the best option given what else is out there.

345
00:21:03,640 --> 00:21:21,440
Speaker 1: Right now. A big story overnight, Elon Musk coming out

346
00:21:21,520 --> 00:21:24,000
Speaker 1: and saying that he has a very rough road ahead

347
00:21:24,000 --> 00:21:26,000
Speaker 1: of him. He's gonna cut seven percent of its staff,

348
00:21:26,280 --> 00:21:29,480
Speaker 1: highlighted the difficulties of making money and as well as

349
00:21:29,520 --> 00:21:34,040
Speaker 1: efficient electric vehicles in this current era. Joining us now,

350
00:21:34,119 --> 00:21:38,119
Speaker 1: Kevin Tynan, senior autos analyst for Bloomberg Intelligence, joining us

351
00:21:38,119 --> 00:21:40,280
Speaker 1: from Skullman, New Jersey. I'm just wondering, Kevin. I'm looking

352
00:21:40,320 --> 00:21:42,879
Speaker 1: at the shares a Tesla down nine percent today, bonds

353
00:21:42,920 --> 00:21:47,800
Speaker 1: hanging in there. What's your read on this cut in staff? Well,

354
00:21:47,880 --> 00:21:52,440
Speaker 1: this give Tesla the boost that it needs to survive. Uh. Well,

355
00:21:52,520 --> 00:21:54,720
Speaker 1: now that's not what's gonna do it, right. What's gonna

356
00:21:54,760 --> 00:21:58,200
Speaker 1: do it is uh having a larger addressable market with

357
00:21:58,320 --> 00:22:02,680
Speaker 1: more affordable vehicles. UM. So you know what strikes me

358
00:22:02,840 --> 00:22:06,600
Speaker 1: about um headcount reduction at this point in time, Right,

359
00:22:06,640 --> 00:22:12,359
Speaker 1: we're still waiting on model why a pickup truck, a roadster,

360
00:22:12,680 --> 00:22:15,520
Speaker 1: a semitruck. Right, so we have all these products and

361
00:22:16,080 --> 00:22:20,520
Speaker 1: supposedly capacity coming online, not to mention China. Um, yet

362
00:22:20,760 --> 00:22:24,240
Speaker 1: we're cutting back on headcount. Kevin. You know when you

363
00:22:24,280 --> 00:22:26,440
Speaker 1: and I have talked about Tesla in the past Um.

364
00:22:26,920 --> 00:22:29,000
Speaker 1: You know you've always said to me over the which

365
00:22:29,000 --> 00:22:30,840
Speaker 1: I thought made a lot of sense, which is technology

366
00:22:31,000 --> 00:22:34,280
Speaker 1: is easy, manufacturing is hard. And I think we've seen

367
00:22:34,320 --> 00:22:36,520
Speaker 1: that time and time again with Tessa. Obviously have a

368
00:22:36,840 --> 00:22:40,879
Speaker 1: fantastic products, consumers love it. What are you know, is

369
00:22:40,920 --> 00:22:44,000
Speaker 1: there a scenario where you see Tesla being able to

370
00:22:44,240 --> 00:22:48,960
Speaker 1: scale its manufacturing to really satisfy the demand? Is that

371
00:22:49,040 --> 00:22:51,720
Speaker 1: demand grows out there? Right? And and that's the key word,

372
00:22:51,800 --> 00:22:55,040
Speaker 1: paulse scale, right, And in the automotive space, that's it, right,

373
00:22:55,080 --> 00:22:57,920
Speaker 1: There's no margin here. It's all about scale. And again

374
00:22:58,000 --> 00:23:01,040
Speaker 1: this goes back to the idea of this thirty five

375
00:23:01,119 --> 00:23:04,240
Speaker 1: thousand dollar which is roughly the average transaction price in

376
00:23:04,280 --> 00:23:07,480
Speaker 1: the US of this thirty five tho dollar Model three,

377
00:23:07,560 --> 00:23:11,199
Speaker 1: because you know, up in fifty thou dollar range plus

378
00:23:11,520 --> 00:23:15,440
Speaker 1: where where Model threes are transacting mostly now, you're adjustable

379
00:23:15,440 --> 00:23:17,600
Speaker 1: market is very different than what it is at thirty

380
00:23:17,640 --> 00:23:21,160
Speaker 1: five thousand. Now, the issue is you can you can

381
00:23:21,760 --> 00:23:25,679
Speaker 1: sell thirty five thousand dollar electric vehicles arguably, but can

382
00:23:25,720 --> 00:23:28,000
Speaker 1: you do it profitably? And I think this is the

383
00:23:28,240 --> 00:23:30,280
Speaker 1: what's interesting, you know, and you mentioned it with in

384
00:23:30,359 --> 00:23:33,240
Speaker 1: the lead in is that this makes them look like

385
00:23:33,400 --> 00:23:36,560
Speaker 1: every other automaker, right, And that's been my other point

386
00:23:36,600 --> 00:23:39,080
Speaker 1: on them is that they are an auto manufacturer. They're

387
00:23:39,080 --> 00:23:41,800
Speaker 1: going to have autom auto manufacturing issues. They're gonna have

388
00:23:41,880 --> 00:23:44,440
Speaker 1: margin issues, they're going to have demand issues. So the

389
00:23:44,560 --> 00:23:46,639
Speaker 1: idea is if they can get to thirty five thousand

390
00:23:46,720 --> 00:23:50,040
Speaker 1: dollars for a Model three and do it profitably, then

391
00:23:50,080 --> 00:23:53,200
Speaker 1: they can get to scale. So Kevin, one aspect of

392
00:23:53,320 --> 00:23:56,120
Speaker 1: this is the tax credits the US suffering to own

393
00:23:56,640 --> 00:23:59,879
Speaker 1: electric vehicles that it got cut in half. How my

394
00:24:00,320 --> 00:24:03,200
Speaker 1: is that part of what's driving this latest bout of

395
00:24:03,240 --> 00:24:06,920
Speaker 1: weeks is a Tesla? I think it's part of it.

396
00:24:07,200 --> 00:24:11,080
Speaker 1: I've I haven't been um, I haven't looked at it

397
00:24:11,200 --> 00:24:14,960
Speaker 1: like that's a real demand killer or driver for them,

398
00:24:15,720 --> 00:24:18,520
Speaker 1: just because of where the transaction prices have been. Right,

399
00:24:18,600 --> 00:24:21,960
Speaker 1: this is this is um typically a buyer that is

400
00:24:22,040 --> 00:24:25,959
Speaker 1: not hinging on that tax credit to make a difference

401
00:24:26,000 --> 00:24:28,160
Speaker 1: of whether they're buying or not. Now at thirty five

402
00:24:28,200 --> 00:24:31,560
Speaker 1: thousand dollars, is that a different scenario maybe, But I'm

403
00:24:31,600 --> 00:24:34,919
Speaker 1: not sure if you have, you know, a thirty five

404
00:24:34,960 --> 00:24:37,560
Speaker 1: thousand dollar vehicle buyer that you're even eligible for that

405
00:24:37,720 --> 00:24:41,600
Speaker 1: full credit anyway in most cases, So UM, I haven't

406
00:24:41,640 --> 00:24:44,720
Speaker 1: really modeled that in as being UM as much of

407
00:24:44,760 --> 00:24:48,920
Speaker 1: a demand driver or killer as maybe others have. Look

408
00:24:49,160 --> 00:24:52,280
Speaker 1: and again, the transaction price is a big deal, uh,

409
00:24:52,600 --> 00:24:55,960
Speaker 1: the credits expiring. But you know there's fundamental issues with

410
00:24:56,160 --> 00:25:00,440
Speaker 1: recharged times UM. You know that infrastructure where that just

411
00:25:00,640 --> 00:25:06,119
Speaker 1: the the daily management of keeping your vehicle charged UH

412
00:25:06,480 --> 00:25:08,800
Speaker 1: is probably as big a concern to a lot of people.

413
00:25:09,640 --> 00:25:11,720
Speaker 1: So Kevin, just give us a quick summary of what

414
00:25:11,960 --> 00:25:16,400
Speaker 1: the big global audio manufacturers are doing an electronic vehicle market. Yeah,

415
00:25:16,520 --> 00:25:19,040
Speaker 1: so so, and we've talked about this a ton. To Paul,

416
00:25:19,119 --> 00:25:22,240
Speaker 1: is that is that? And I think there's this misconception

417
00:25:22,359 --> 00:25:26,000
Speaker 1: between inability and an activity. And I think a lot

418
00:25:26,040 --> 00:25:28,280
Speaker 1: of the automakers are looking at what Tesla does and

419
00:25:28,840 --> 00:25:30,880
Speaker 1: you know that P and L and saying hey, look,

420
00:25:30,920 --> 00:25:32,920
Speaker 1: I'm in not in a huge rush to run into

421
00:25:33,000 --> 00:25:38,680
Speaker 1: that market. If this proves profitable at average transaction prices

422
00:25:38,800 --> 00:25:40,840
Speaker 1: in the range where we want to be, maybe that's

423
00:25:40,880 --> 00:25:44,240
Speaker 1: thirty five dollars will invest in that strategy. But you

424
00:25:44,320 --> 00:25:47,280
Speaker 1: gotta keep in mind, right, this is different production footprint.

425
00:25:47,640 --> 00:25:49,840
Speaker 1: You you have factories that are used to making internal

426
00:25:49,880 --> 00:25:54,199
Speaker 1: combustion engines and body panels that house those combustion engines.

427
00:25:54,320 --> 00:25:57,520
Speaker 1: Now you're you're looking at changing that whole footprint to

428
00:25:57,560 --> 00:26:01,840
Speaker 1: say we need factories specifically tooled for these kinds of vehicles,

429
00:26:02,040 --> 00:26:04,720
Speaker 1: and you just haven't seen that commitment yet. Kevin Tyn,

430
00:26:04,800 --> 00:26:06,240
Speaker 1: and thank you so much for being with us. Kevin

431
00:26:06,280 --> 00:26:10,879
Speaker 1: Tyn and senior autos analyst for Bloomberg Intelligence, talking about

432
00:26:11,000 --> 00:26:17,560
Speaker 1: that with Tesla. Thanks for listening to the Bloomberg P

433
00:26:17,680 --> 00:26:20,600
Speaker 1: and L podcast. You can subscribe and listen to interviews

434
00:26:20,680 --> 00:26:24,680
Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.

435
00:26:25,119 --> 00:26:28,680
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm

436
00:26:28,720 --> 00:26:32,000
Speaker 1: on Twitter at Lisa Abramo wits one. Before the podcast,

437
00:26:32,080 --> 00:26:34,640
Speaker 1: you can always catch us worldwide on Bloomberg Radio