WEBVTT - Surveillance: Dudley Irresponsible, Posen Says 0:00:09.840 --> 0:00:13.880 Welcome to the Bloomberg Surveillance Podcast. I'm term Keene Jay Leie. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.240 Bloomberg dot Com, and of course on the Bloomberg Really 0:00:28.240 --> 0:00:30.400 really interesting note coming from the team over at Morgan 0:00:30.480 --> 0:00:32.000 Stanley in the last week. I want to quote some 0:00:32.080 --> 0:00:34.000 of it for you just to begin this segment. The 0:00:34.040 --> 0:00:38.479 puts have expired. Has been a game of deteriorating fundamentals 0:00:38.560 --> 0:00:41.040 versus a pivoting FED and hope for a resolution to 0:00:41.080 --> 0:00:44.000 the US China trade uncertainties. With the Fed's first rate 0:00:44.000 --> 0:00:46.680 cut in a decade not having the desired effect on markets, 0:00:46.880 --> 0:00:50.400 and a trade deal looking less likely every week, these 0:00:50.400 --> 0:00:54.040 two puts, the FED and trade deal may have expired, 0:00:54.400 --> 0:00:58.160 leaving investors facing the potential reality there is no second 0:00:58.200 --> 0:01:01.720 half rebound coming. Michael Wilson joins US now Morgan Stanley's 0:01:01.760 --> 0:01:05.360 chief US equity strategist. Market's always great to get your inside. 0:01:05.400 --> 0:01:09.240 Just explore that a little bit further for us. Yeah, thanks, guys, Uh, 0:01:09.520 --> 0:01:11.360 I mean I think you said it right. John At 0:01:11.360 --> 0:01:13.560 the at the outset I mean, this has been building 0:01:13.600 --> 0:01:16.160 for a while. This is not new news to the market. 0:01:16.640 --> 0:01:20.399 I've been a little bit perplexed why a lot of 0:01:20.440 --> 0:01:24.800 folks have been, I guess unwilling to kind of acknowledge 0:01:24.800 --> 0:01:28.119 the slowdown. Maybe it's just the eternal optimism around the 0:01:28.120 --> 0:01:30.679 FED and that the Fed can always fix things. So 0:01:30.720 --> 0:01:34.200 the feds dubbish pivot was absolutely a positive development earlier 0:01:34.240 --> 0:01:37.920 this year. Uh. And it's interesting, you know, whenever the 0:01:37.920 --> 0:01:42.120 FED pauses after a long rates hiking cycle, it's always 0:01:42.160 --> 0:01:44.800 positive for markets. And we went back and looked at this, 0:01:44.840 --> 0:01:49.480 it's usually markets go about. However, once the FED starts cutting, 0:01:50.160 --> 0:01:53.520 it's usually negative because I think it usually means that 0:01:53.560 --> 0:01:55.560 things are getting worse, not better. And so I think 0:01:55.600 --> 0:01:58.760 that was just a misunderstanding by folks going into the 0:01:58.800 --> 0:02:01.200 FED meeting that if they were to cut, I mean, sure, 0:02:01.200 --> 0:02:02.840 maybe they could have cut fifty and maybe when it 0:02:02.880 --> 0:02:05.920 looked to react and that the President tweeted that next 0:02:05.960 --> 0:02:08.560 morning that obviously was negative too. But I think I 0:02:08.600 --> 0:02:11.880 think the die was cast once they cut that. You know, 0:02:11.919 --> 0:02:13.400 now we have to deal with the reality of the 0:02:13.440 --> 0:02:16.160 slow down. I want to point out folks, twelve months 0:02:16.400 --> 0:02:21.560 trailing sp negative on Mike Wilson. I want to congratulate 0:02:21.600 --> 0:02:24.680 you on your reticence against the uber bulls. Let's frame 0:02:24.720 --> 0:02:28.880 your reticence and equity markets. Are you in cash or 0:02:28.919 --> 0:02:32.880 are you in a certain kind of equities. We're both. 0:02:32.880 --> 0:02:34.840 We're both, and we actually bought a bunch of the 0:02:34.880 --> 0:02:38.440 low you sound like Ellen, Zanner continued, you know, we're 0:02:38.600 --> 0:02:42.080 h I mean we we've been defensively positioned since last summer. 0:02:42.280 --> 0:02:44.760 We didn't feel the need to, you know, pivot and 0:02:44.760 --> 0:02:47.760 get really aggressive earlier this this year. That hurt us 0:02:47.800 --> 0:02:50.800 in the first quarter, but now it's coming home to 0:02:51.000 --> 0:02:54.359 have been been the right moves. We've been overweight utilities 0:02:54.400 --> 0:02:57.799 and staples for over a year. We've been overweight a 0:02:57.919 --> 0:03:00.240 long duration since April. That's turned out to be even 0:03:00.280 --> 0:03:02.360 better than we hoped. And we've had a bunch of cash, 0:03:02.520 --> 0:03:05.320 so uh, you know, it's helped, and we're not we're 0:03:05.320 --> 0:03:08.080 not totally disinvested. I mean, we have equity positions and 0:03:08.120 --> 0:03:11.200 we have exposures. We just took it over the edge. 0:03:11.520 --> 0:03:13.959 You know. That's it. This John, this is so important 0:03:13.919 --> 0:03:17.679 Alo Gino, Martin Adams, and others. The idea that if 0:03:17.720 --> 0:03:21.920 someone's cautious there in a undred percent cash is just wrong. Well, 0:03:22.000 --> 0:03:24.800 let's pick out two with those trades, long utilities that 0:03:24.880 --> 0:03:29.600 has performed up around about through so far, the long 0:03:29.720 --> 0:03:31.720 end of the treasury curve that has performed really well 0:03:31.840 --> 0:03:36.080 up around about through so far, Mike, with many people 0:03:36.080 --> 0:03:37.880 on those trades, and listen to the program right now, 0:03:38.000 --> 0:03:42.920 they're trying to understand what would unpin the circumstances, underpin 0:03:43.080 --> 0:03:46.200 rather these circumstances where you rotate out of some of 0:03:46.200 --> 0:03:48.960 those traits. What are you looking for, Mike, I mean, 0:03:48.960 --> 0:03:51.320 that's that's the right question. We're getting closer, I mean, 0:03:51.560 --> 0:03:53.560 as you know. I mean, we've been correcting now for 0:03:53.640 --> 0:03:55.760 eighteen months. We'd call it a rolling bear market, a 0:03:55.840 --> 0:03:58.640 cyplical bear market. That's frustrating to the bears because the 0:03:58.640 --> 0:04:01.119 bottom doesn't fall out either because rates are coming down. 0:04:01.240 --> 0:04:04.600 Evaluation is supportive, but the defensive rotation has been clear 0:04:04.640 --> 0:04:07.680 and that's been the way to really protect your portfolios. 0:04:08.000 --> 0:04:10.520 So the thing we got to look for now is 0:04:10.960 --> 0:04:13.960 um we're actually waiting for, like just full acknowledgement of 0:04:14.000 --> 0:04:16.400 a US recession. And I think we're starting to hear 0:04:16.440 --> 0:04:19.159 that now. Finally in the rhetoric. You know, Ellen is 0:04:19.160 --> 0:04:22.320 not calling for a recession epitter, She's definitely looking at me. 0:04:22.440 --> 0:04:24.359 I think we're probably have been the loudest on the 0:04:24.400 --> 0:04:26.960 street of looking for elevator risk of recession in the 0:04:27.080 --> 0:04:30.400 US now probably or so over the next six or 0:04:30.400 --> 0:04:33.279 twelve months. And that's you know, that's a pretty high risk. 0:04:33.320 --> 0:04:35.800 And so the market is obviously priced a lot of this. 0:04:36.160 --> 0:04:38.680 You know, calling a recession as it's happening is not 0:04:38.839 --> 0:04:40.760 very helpful. You have to get in front of it. 0:04:40.839 --> 0:04:43.440 And and we've been defensively positioned for that reason. So 0:04:43.480 --> 0:04:47.479 what we're waiting for now is full acknowledgement by you know, 0:04:47.600 --> 0:04:51.480 basically the mainstream, and when that happens, you'll get a 0:04:51.600 --> 0:04:55.440 final purge of these areas that have been somewhat protected. 0:04:55.480 --> 0:04:58.400 The two areas that have been protected is basically high 0:04:58.520 --> 0:05:01.400 quality defensive stocks and then what we call you know, 0:05:01.480 --> 0:05:04.120 secular gross stories because they tend to hold up the 0:05:04.120 --> 0:05:07.120 best at the end. We know that from past grows 0:05:07.160 --> 0:05:12.240 scares that the secular growth stocks tend to fall at 0:05:12.240 --> 0:05:14.839 the end and the defensive stocks hold up. So we're 0:05:14.880 --> 0:05:16.680 waiting for now, is that is that sort of the 0:05:16.800 --> 0:05:19.080 secular growth stocks to kind of fall away. That's starting 0:05:19.080 --> 0:05:22.520 to happen. In fact, after the FED cut, it's interesting 0:05:22.560 --> 0:05:26.560 the secular growth stocks stocks started underperformed defensive ones again, 0:05:27.160 --> 0:05:29.560 and so that's that's good, and we want to see 0:05:29.560 --> 0:05:32.440 more underperformance there before we rotate out of defenses. And 0:05:32.440 --> 0:05:35.080 the second thing is more important is that the Yoo 0:05:35.120 --> 0:05:37.400 curve has to start to re steep, and from the 0:05:37.440 --> 0:05:39.320 back end in particular, we want to see the long 0:05:39.360 --> 0:05:42.880 bond or tenure start to stabilize and and see the 0:05:42.960 --> 0:05:45.039 Yol curve start to re steep. And so that hasn't 0:05:45.040 --> 0:05:47.599 happened yet. Sentine cloths are still under performing defenses and 0:05:47.680 --> 0:05:50.240 secular growth is under performing defenses. So we think we 0:05:50.279 --> 0:05:51.719 have a little bit of time, but it's going to 0:05:51.760 --> 0:05:53.560 happen quickly. We think it could happen in the next 0:05:53.600 --> 0:05:57.640 thirty to sixty days. Target on the SMP has reached 0:05:57.640 --> 0:06:00.479 probably breached on the downside, and that all kind of 0:06:00.520 --> 0:06:03.279 happened at once, So it's we're getting closer to that moment, 0:06:03.279 --> 0:06:05.880 but we don't think it's time yet to rotate other defenses. So, Mike, 0:06:05.920 --> 0:06:08.560 we're seeing some of this tension in treasuries, as you mentioned, 0:06:08.560 --> 0:06:10.480 you'lds aren't rising at the long end, they're falling there 0:06:10.480 --> 0:06:13.440 down another three basis points. Today many people focused on 0:06:13.480 --> 0:06:15.880 what's happening in high yield. At the moment, high yield 0:06:15.880 --> 0:06:18.880 spreads have really hold in there. But something is starting 0:06:18.920 --> 0:06:21.240 to happen. If you just break down high yield through 0:06:21.279 --> 0:06:24.040 the various credit ratings, say the top credit rates can 0:06:24.120 --> 0:06:27.640 high yield double bees versus the bottom triple c's, that 0:06:27.760 --> 0:06:30.440 spreads start into widen just a little bit. Mike, What 0:06:30.480 --> 0:06:33.720 does that signal to you? Well, it's exactly the same 0:06:33.760 --> 0:06:35.920 thing that's happening in the equity market. You know, one 0:06:35.960 --> 0:06:37.400 thing that we we've talked a lot about and you 0:06:37.400 --> 0:06:38.960 guys know this this year is that we don't think 0:06:38.960 --> 0:06:41.920 the equity and bond markets have been that disconnected, right 0:06:42.000 --> 0:06:45.600 that the equity markets are trading defensively, uh and and 0:06:45.640 --> 0:06:47.960 so are so are the bond markets. So you're seeing 0:06:48.080 --> 0:06:52.800 quality outperform just like in equities. And it's extreme because 0:06:53.040 --> 0:06:55.599 there is there is still Tina, right, I mean they 0:06:55.600 --> 0:06:58.200 basically people are gonna put the money somewhere so people 0:06:58.240 --> 0:07:02.400 feel okay own high quality credit investment grade or the 0:07:02.480 --> 0:07:05.680 highest quality high yield and I'll get rid of the 0:07:05.720 --> 0:07:08.480 lowest quality. Is the exactly thing is happening in equities. 0:07:08.560 --> 0:07:28.160 This has been a wonderful brief Michaelson, thank you both. 0:07:28.240 --> 0:07:30.640 John and I yesterday said we need to speak to 0:07:30.680 --> 0:07:33.760 a select group of people and we continue this off 0:07:33.760 --> 0:07:38.080 of William Dudley's essay for Bloomberg Opinion. Gena Smilek writes 0:07:38.120 --> 0:07:40.440 it up on the cover of The New York Times today, 0:07:40.560 --> 0:07:45.040 quoting Dr Posen Leaderson Institute in his public service for 0:07:45.120 --> 0:07:48.720 the Bank of England years ago. Adam John Farrell just 0:07:48.800 --> 0:07:51.120 mentioned the response of the Central Bank as they look 0:07:51.160 --> 0:07:55.400 at a dual mandate. Will this change the dialogue of 0:07:55.440 --> 0:07:59.600 the speeches ex. Jackson, Hall of Presidents, governors and the 0:07:59.680 --> 0:08:04.080 Vice German. I think this will tom focus everybody to 0:08:04.240 --> 0:08:08.280 more solidarity and discipline around the message and more clearly 0:08:08.440 --> 0:08:13.119 stating that they are only looking at the near term 0:08:13.200 --> 0:08:18.400 of inflation and goal. I have no idea what Bill 0:08:18.480 --> 0:08:21.120 Dudley's goal isn't. Frankly, I don't care. It just feeds 0:08:21.120 --> 0:08:24.680 conspiracy theories and it was totally irresponsible to talk that way. 0:08:25.200 --> 0:08:27.320 The issue of discipline is one that was going to 0:08:27.440 --> 0:08:29.920 happen anyway. You could see what Neil Cashgari said an 0:08:30.000 --> 0:08:33.120 NPR about independence, which was totally in line with what 0:08:33.200 --> 0:08:36.640 everybody else was saying. You know that the FED realizes 0:08:36.720 --> 0:08:39.080 that they have to be careful in this situation. And 0:08:39.200 --> 0:08:43.199 careful doesn't mean respecting Trump's tweets. Careful means showing the 0:08:43.280 --> 0:08:46.320 Congress and the American people that they don't overstep the 0:08:46.360 --> 0:08:48.840 trust that's been given in them, and that's what they're 0:08:48.840 --> 0:08:51.760 gonna do. The other thing is just I think JR. 0:08:51.800 --> 0:08:55.080 Pale said it bluntly as he could in his speech 0:08:55.080 --> 0:08:57.600 at Jackson Hole. You have to treat the trade war, 0:08:57.720 --> 0:09:01.640 however destructive it is, just like you treat bad fiscal policy. 0:09:02.040 --> 0:09:05.320 You cannot predict it publicly, you cannot prepare for it, 0:09:05.360 --> 0:09:07.720 you cannot try to game it. If you're a central baker, 0:09:07.960 --> 0:09:10.520 you just have to react to it and then be 0:09:10.600 --> 0:09:12.719 honest about what the reaction is. And I think that's 0:09:12.760 --> 0:09:14.800 exactly what the FEDS are going to do. I remember 0:09:14.840 --> 0:09:17.160 hearing a great story about the former governor Irvin King, 0:09:17.720 --> 0:09:20.760 and he told policymakers on the FIC NPC that if 0:09:20.800 --> 0:09:22.880 you're going to go out there and say that you 0:09:22.920 --> 0:09:24.960 didn't vote for que that you don't like Hui. The 0:09:25.000 --> 0:09:26.640 one thing I don't want you to do is say 0:09:26.640 --> 0:09:29.319 that QUI does not work. You can say whatever else 0:09:29.400 --> 0:09:31.199 you want to say, but you are not allowed to 0:09:31.240 --> 0:09:33.080 say that QUI doesn't work. And Adam, I just wonder 0:09:33.080 --> 0:09:34.960 if you can touch on your experience over at the 0:09:34.960 --> 0:09:38.720 Bank of England many years ago, your experience for that matter, 0:09:38.760 --> 0:09:41.400 with Mervyn King as well, how you got behind one 0:09:41.480 --> 0:09:44.560 message even when there was disagreement about the policy. Just 0:09:44.600 --> 0:09:47.679 how does that work internally? Adam, Well, I think there 0:09:47.679 --> 0:09:50.440 were two instances that were relevant, Jonathan. I mean, one 0:09:50.480 --> 0:09:52.880 was as you said, and it wasn't that Irvin King 0:09:52.920 --> 0:09:55.440 could say, the governor could say you're not allowed. It 0:09:55.600 --> 0:09:58.640 was of course rightly made the case that this would 0:09:58.720 --> 0:10:01.800 just be destructive of if you were not on board 0:10:01.800 --> 0:10:04.600 with que then you could basically leave. He didn't have 0:10:04.720 --> 0:10:06.280 to say that. But I think that was the right 0:10:06.320 --> 0:10:08.920 message and we all said, you know, this is a 0:10:08.920 --> 0:10:11.840 true crisis and this is something that is legitimate for 0:10:11.880 --> 0:10:13.760 the Central Bank to do, so we're going to all 0:10:13.800 --> 0:10:17.040 stand by it and we're not going to feed destructive chatter. 0:10:17.520 --> 0:10:20.080 But the other instance was some people on the NPC 0:10:20.720 --> 0:10:25.240 came out in May April and May of talking about 0:10:25.320 --> 0:10:28.080 physical policy, talking about the need for austerity. It was 0:10:28.120 --> 0:10:31.040 part of the panic around Greece at that time. Then 0:10:31.120 --> 0:10:34.680 a lot of countries shifted to austerity mistakenly. And I 0:10:34.720 --> 0:10:37.400 was against the Bank talking that way because it was 0:10:37.520 --> 0:10:40.120 right on top of the UK election. And I was 0:10:40.160 --> 0:10:43.120 against the Bank talking that way because they have no 0:10:43.240 --> 0:10:47.000 business lecturing fiscal policy, especially ahead of the election. You 0:10:47.120 --> 0:10:49.120 just have to take it as it comes. And the 0:10:49.160 --> 0:10:54.360 bank had suffered as a result of moves. Adam posted 0:10:54.480 --> 0:10:56.800 with this folks at Peterson Institute where thrilled he could 0:10:56.800 --> 0:10:58.960 be with us today. Adam, none of this is in 0:10:59.000 --> 0:11:01.560 the text books. What were is a textbook? You add, Adam, 0:11:01.760 --> 0:11:04.920 freshman year Economics. You're a wonder child. I know you 0:11:04.960 --> 0:11:07.520 went through college in twenty four months. But what was it. 0:11:07.679 --> 0:11:11.640 What was the first com book you had in school? Uh? 0:11:11.760 --> 0:11:15.760 The first one I remember was dorn Bush and Fisher Macrow. Okay, 0:11:15.760 --> 0:11:18.439 so you got you got Dornbush Fisher Stars, which I've 0:11:18.480 --> 0:11:21.559 read I think cover to cover twice, Stanley Fisher's classic 0:11:21.600 --> 0:11:25.760 book with Dornbush. Great is any of this in Dornbush 0:11:25.800 --> 0:11:30.319 Fisher Stars? No? But it is in the third year course. 0:11:30.400 --> 0:11:34.680 It's actually pretty straightforward, Tom that we know economists know 0:11:34.880 --> 0:11:38.400 one big lesson from development, which is what they call institutions. 0:11:38.760 --> 0:11:41.480 If you roade you of law, if you rode rule 0:11:41.520 --> 0:11:44.000 of law, if you have a government that's capricious and 0:11:44.040 --> 0:11:46.520 deterring investment, if you have a government that tries to 0:11:46.559 --> 0:11:51.120 politicized decisions beyond simplice stating its values, you end up 0:11:51.160 --> 0:11:53.120 with a flight of investment, you end up with a 0:11:53.160 --> 0:11:56.880 flight to safety, you end up with bad results. And 0:11:56.920 --> 0:11:59.560 that's what we're seeing. And that's the one Dudley has 0:11:59.679 --> 0:12:04.280 right that the Trump administration's approach is hurting institutions. But 0:12:04.320 --> 0:12:08.000 it's the same saying about the military, about the here, 0:12:08.160 --> 0:12:09.719 we're gonna run out of there. We got like eight 0:12:09.760 --> 0:12:11.560 things to talk about, Adam Pose, and let's do a 0:12:11.600 --> 0:12:25.000 three hour conversation next time, Dr Posing with the Peterson Institute. 0:12:28.840 --> 0:12:31.960 We welcome a woman who just heard her voice on radio, 0:12:32.080 --> 0:12:34.800 Tara la Chapelle. What is it like hearing your voice 0:12:34.840 --> 0:12:36.960 like in real time on radio like that. You're like, 0:12:37.040 --> 0:12:40.959 oh MG, yeah, it makes me cringe a little. Imagine 0:12:41.000 --> 0:12:44.520 with this voice what it's like. It's really strange. Isn't 0:12:44.559 --> 0:12:47.040 it is. It's very weird. It's like, really, you're over 0:12:47.080 --> 0:12:48.920 there square and I'm like, why am I? Why are 0:12:48.920 --> 0:12:51.680 they doing this? Team? So we just heard from Tera 0:12:51.559 --> 0:12:54.960 Les Chapelle on m O and Altria and you know, 0:12:54.960 --> 0:12:57.040 I got like eight ways to go here, folks. Let 0:12:57.080 --> 0:13:00.480 us start with profitability on an Eva da Bay. They 0:13:00.520 --> 0:13:05.440 still are hugely profitable on no revenue growth. Is that 0:13:05.559 --> 0:13:08.719 all that bad of a thing? Um? No? But I 0:13:08.760 --> 0:13:10.640 think if you start to look down the into the 0:13:10.679 --> 0:13:14.280 future and look at the smoking prevalence trends, I mean 0:13:14.280 --> 0:13:16.439 they're going down in most parts of the world, especially 0:13:16.480 --> 0:13:18.560 in the US. So I think it's coming to a 0:13:18.559 --> 0:13:21.600 point that yes, they're very profitable. Austria throws off a 0:13:21.640 --> 0:13:25.360 ton of cash. But I think now these newer products, 0:13:25.360 --> 0:13:27.839 even though they're not really contributing much to revenue or 0:13:27.880 --> 0:13:31.200 profit yet, that's the future and that's where this business 0:13:31.280 --> 0:13:34.000 is headed. You've got a great chart showing that the 0:13:34.040 --> 0:13:36.520 glide path it's not a log basis, but the glide 0:13:36.520 --> 0:13:39.960 path on US consumption of tobacco, I'll say, is a 0:13:40.320 --> 0:13:44.080 smoking prevalence is you know, like we'd expect, But even 0:13:44.160 --> 0:13:48.240 globally it's getting is it does the globe catch up 0:13:48.360 --> 0:13:51.079 the America? Is that sort of the belief of health 0:13:51.080 --> 0:13:54.560 officials Maybe eventually. I mean some parts of Europe and 0:13:54.600 --> 0:13:57.480 other parts of Africa are still in growth mode, I believe, 0:13:57.559 --> 0:13:59.920 But when you look at the bigger picture, I think 0:14:00.040 --> 0:14:02.760 overall it's going down and it's becoming less about cigarettes, 0:14:02.800 --> 0:14:05.240 which is why Aultrey and Philip Morris they really don't 0:14:05.280 --> 0:14:07.319 even talk about cigarettes that much anymore, even though it 0:14:07.360 --> 0:14:09.520 drives most of their profits. They don't identify with that. 0:14:09.760 --> 0:14:11.360 They don't want that to be part of their image. 0:14:11.360 --> 0:14:13.280 They want to be seen as a growth company, something 0:14:13.320 --> 0:14:18.240 that's you know, into these newer, hotter products like very vaping, 0:14:18.360 --> 0:14:24.760 all this coronouncing their you're not is not a camel 0:14:25.160 --> 0:14:28.560 no filter right right, It's not a combustible cigarette. It's 0:14:28.600 --> 0:14:31.600 a device that heats tobacco so it doesn't burn it. 0:14:31.640 --> 0:14:33.680 There's no real smoke that comes off. It's a different 0:14:33.680 --> 0:14:38.080 way of getting nicotine and it Philip Morris and Altria 0:14:38.200 --> 0:14:41.680 partnered on this. So Philip, no, I haven't now I've 0:14:41.680 --> 0:14:44.040 seen them though, I mean they're they're becoming very popular. 0:14:44.360 --> 0:14:46.480 Smoke come out or you know, can I look like 0:14:46.600 --> 0:14:48.680 Katherine hepburn in one of those movies. Yeah, I mean 0:14:48.680 --> 0:14:50.560 you see something coming out, but it doesn't look like 0:14:50.600 --> 0:14:54.080 a cigarette burning. It's it's just like a plastic device. Basically, 0:14:54.200 --> 0:14:57.200 it's just the working. Because I you know, I feel like, 0:14:57.360 --> 0:15:00.360 you know, I'm out of touch on this, but can 0:15:00.400 --> 0:15:04.120 you tell me there's actually a transference from a palm 0:15:04.160 --> 0:15:07.560 all or you know, the days of Madmen a lark 0:15:07.880 --> 0:15:09.920 over to what we're looking at now with these quote 0:15:10.000 --> 0:15:13.320 unquote devices. Well, Philip Morris had an interesting line in 0:15:13.360 --> 0:15:16.680 their last running statement last month. They said Icast delivers 0:15:16.760 --> 0:15:20.480 nicotine and levels close to combustible cigarettes, suggesting a likelihood 0:15:20.480 --> 0:15:23.680 that I Coast users may be able to completely transition 0:15:23.720 --> 0:15:27.160 away from traditional cigarettes and use this exclusively. And it's 0:15:27.200 --> 0:15:30.080 really gaining traction in Japan and parts of Europe where 0:15:30.080 --> 0:15:32.520 they've launched so far. Next month it will launch in 0:15:32.560 --> 0:15:34.760 the US, starting in stores in Atlanta. How is that 0:15:34.840 --> 0:15:37.880 different from vaping? Help them? So vaping, it's just a 0:15:37.960 --> 0:15:40.240 it's a little bit different. So east cigarettes are a 0:15:40.240 --> 0:15:42.040 form of vaping, and that's what we think of when 0:15:42.080 --> 0:15:44.560 we think of Jewel, which is the time cigarette, and 0:15:44.560 --> 0:15:47.920 it's very controversial. So it's it's made with US chemicals 0:15:47.960 --> 0:15:50.600 and vapor and it still delivers nicotins. You're talking about 0:15:50.680 --> 0:15:53.960 reported serious illness, even death. Yes, there is a death 0:15:54.040 --> 0:15:56.600 just last week that for the first time, medical officials 0:15:56.800 --> 0:16:00.680 are starting equivalent or is it? Is it like worse 0:16:00.760 --> 0:16:03.760 than you know, the tragedy of cancer and cigarettes and 0:16:03.760 --> 0:16:05.840 all that. I mean, no one knows yet. There hasn't 0:16:05.880 --> 0:16:08.080 been enough research. We just don't know. But I think 0:16:08.120 --> 0:16:10.880 the concern is starting to come, and especially since jewel 0:16:11.320 --> 0:16:13.240 is very attractive to teens. They used to have all 0:16:13.240 --> 0:16:15.840 these flavors, so I think the government is trying to 0:16:15.840 --> 0:16:19.080 crack down on that because it's the co stop they 0:16:19.080 --> 0:16:22.040 did close cigarettes. I mean remember close cigarettes. You'd hang 0:16:22.040 --> 0:16:24.640 around and your Tony Lama boots and some girl would 0:16:24.640 --> 0:16:26.920 have a close cigarette and oh yeah, all the clothes. 0:16:27.240 --> 0:16:29.440 I mean, what's the difference between a close cigarette from 0:16:29.440 --> 0:16:34.600 Indonesia or Gentan from France and the flavored jewels, right? 0:16:34.600 --> 0:16:36.600 I mean that's the problem. Right. And then that's why 0:16:36.920 --> 0:16:38.520 you know, it's so hard to talk about this merger, 0:16:38.560 --> 0:16:41.160 because I think what these companies wanted to be about 0:16:41.320 --> 0:16:43.960 is this future, and they're seeing themselves a sort of 0:16:44.000 --> 0:16:47.240 reduced risk products. It's no longer cigarettes, it's these reduced 0:16:47.320 --> 0:16:49.600 risk They're they're safer, but we don't actually know that, 0:16:49.640 --> 0:16:50.920 and it's going to take a lot of time to 0:16:51.000 --> 0:16:53.760 find out the effects of this. Okay, you tarrells Chappelle 0:16:53.800 --> 0:16:56.880 with us, folks, and really an extensive conversation on something 0:16:56.920 --> 0:16:59.800 that really touches all of us, whatever your beliefs on 0:16:59.840 --> 0:17:05.320 the American politics of tobacco use. Is nicotine safe? I 0:17:05.320 --> 0:17:08.560 mean the goals to get from no smoke, no lungs, 0:17:09.200 --> 0:17:12.760 no Chesterfield cancer from years ago? Great? I mean to 0:17:12.800 --> 0:17:14.399 this day I look at a pack of Knson, I 0:17:14.440 --> 0:17:17.080 can't look at them because my grandfather smoked three packs 0:17:17.080 --> 0:17:20.640 a day down to the filter. Great, that's the past. 0:17:21.440 --> 0:17:24.919 But is pure nicotine safe if we get rid of 0:17:24.920 --> 0:17:27.920 the past, I don't know, but we know don't. Is addictive, right, 0:17:28.040 --> 0:17:30.320 And that's what these companies are counting on. They need 0:17:30.320 --> 0:17:33.080 that to be the basis of their future. And then 0:17:33.160 --> 0:17:35.240 on the side of that, they're also looking at marijuana 0:17:35.280 --> 0:17:38.520 of course, but right now the focus is on nicotine 0:17:38.640 --> 0:17:41.000 products that are in a different form than a cigarette. 0:17:41.880 --> 0:17:45.120 And when will we see this? So next month, Icos 0:17:45.240 --> 0:17:47.520 is going to launch in the US, and that's the 0:17:47.600 --> 0:17:51.280 catalyst for this merger of p m I and Altria. 0:17:51.400 --> 0:17:54.560 I think so because Altria would be sharing the profits 0:17:54.560 --> 0:17:57.120 on that so Philip Morris sells that in other parts 0:17:57.160 --> 0:17:59.159 of the world. In the US, Altria would be the 0:17:59.160 --> 0:18:01.440 ones selling it. So I think part of the motivation 0:18:01.520 --> 0:18:03.760 for merging now is Philip Morris won't have to split 0:18:03.800 --> 0:18:06.480 those profits. They'll get all that margin, and also they'll 0:18:06.480 --> 0:18:08.639 get to take advantage of al Trea's cash flow and 0:18:08.680 --> 0:18:10.960 do things like dividends and buy backs. I think that's 0:18:10.960 --> 0:18:14.240 the basis for coming together now. Um, but again it's 0:18:14.280 --> 0:18:17.639 it's all about these new products that they're trying to 0:18:18.160 --> 0:18:21.439 not only have some growth and get new customers so 0:18:21.480 --> 0:18:24.440 to speak, but also change their image into something that 0:18:24.800 --> 0:18:26.800 is a little bit more wholesome seeming, right. And I 0:18:26.800 --> 0:18:29.680 think that's what they're doing, is the proof of growth 0:18:30.160 --> 0:18:35.520 in other cities or nations in Europe and in Japan. Yes, 0:18:35.600 --> 0:18:37.920 but again it's it's just so small at this point, 0:18:38.240 --> 0:18:41.040 but I think that they're what they're trying to say is, 0:18:41.280 --> 0:18:43.000 you know, we're we're doing a really good job of 0:18:43.040 --> 0:18:45.760 converting cigarette smokers to these products. Whether that's a good 0:18:45.800 --> 0:18:48.640 thing or not. You know, that's another debate. But from 0:18:48.640 --> 0:18:51.480 the company's standpoint, they do see this as the future 0:18:51.480 --> 0:18:53.160 and they're plowing a lot of money into it. And 0:18:53.440 --> 0:18:55.760 cigarettes still drive the bulk of their business, but you'll 0:18:55.800 --> 0:18:57.760 notice more and more they're going to be talking about 0:18:57.800 --> 0:19:02.080 these other products. Breathing. Le Chapelle writing with a wonderful 0:19:02.119 --> 0:19:06.359 density for Bloomberg opinion No smoking a cigarette Giants Reunion. 0:19:07.280 --> 0:19:10.399 This is Philip Morrison all three as they look to 0:19:10.480 --> 0:19:25.719 devices to change their future. Pausanian Tom Keene into the 0:19:25.720 --> 0:19:29.439 markets and linking it into your future equity investment. We 0:19:29.480 --> 0:19:31.600 are thrilled to bringing Alicia Levin and she's been very 0:19:31.640 --> 0:19:35.160 good about not so much holding our hands in all 0:19:35.240 --> 0:19:41.640 this August turmoil, but actually cogently thinking about a plan forward. 0:19:41.960 --> 0:19:44.800 I just had a record low by three decimal points 0:19:45.359 --> 0:19:50.840 in German tenure thirty year US Italian under one percent. 0:19:50.960 --> 0:19:57.240 Italian tenure is dividend growth. The new coupon in the 0:19:57.480 --> 0:20:00.679 short answer is yes. So the long end of the 0:20:00.680 --> 0:20:04.000 curve is telling you everywhere is that the market does 0:20:04.040 --> 0:20:06.560 not think that central banks are able to really rescue 0:20:06.560 --> 0:20:08.520 these economies. And so the only way you're going to 0:20:08.640 --> 0:20:11.680 get any return is going into the equity markets of 0:20:11.800 --> 0:20:15.560 the steady dividend growing pain company. So what do you 0:20:15.640 --> 0:20:19.479 do if and when price turns around? Paul? Do you 0:20:19.480 --> 0:20:21.640 know bonds can go lower? And that's what I hear. 0:20:21.720 --> 0:20:25.200 It's a m How do you manage you know, forget 0:20:25.200 --> 0:20:28.679 about fancy talk equity, gamma, beta, delta. How do you 0:20:28.760 --> 0:20:32.280 manage across the kitchen table at home knowing someday price 0:20:32.400 --> 0:20:35.320 will go down in bonds? Well, that's true, when when 0:20:35.320 --> 0:20:37.560 this turn is going to be vicious, right, It's it's 0:20:37.560 --> 0:20:39.960 going to be a vicious term because every trade right 0:20:40.000 --> 0:20:42.240 now is into the long end of the bond market. 0:20:42.800 --> 0:20:45.560 So you've got to be well diversified on the credit side, 0:20:45.560 --> 0:20:47.240 and on the sovereign debt side. You've got to go 0:20:47.320 --> 0:20:49.239 short end as well, and you've got to look at 0:20:49.320 --> 0:20:52.959 high quality investment grade credit as well to round out 0:20:54.240 --> 0:20:56.960 the fix income side. So you can't just be you 0:20:57.040 --> 0:20:58.719 just can't be in the sovereign debt market, all right. 0:20:58.760 --> 0:21:01.200 So we haven't inverted yield curve here in the US 0:21:01.280 --> 0:21:03.479 looking at the twos in ten years, where does that 0:21:03.520 --> 0:21:05.480 bring us in terms of the inflation? I'm in the 0:21:05.480 --> 0:21:09.480 recession discussion. This is actually a great question because it 0:21:09.520 --> 0:21:12.240 goes so deep. So every person who comes on I'm 0:21:12.280 --> 0:21:14.920 sure you're hearing, is saying, well, the actually the inversion 0:21:14.920 --> 0:21:17.360