WEBVTT - Investor Sentiment Has Moved To The Negative Side: Grohowski 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m 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 --> 0:00:17.800 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 m L 0:00:20.840 --> 0:00:27.640 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. This 0:00:27.840 --> 0:00:31.639 is Bloomberg Markets with Them Fox and Lisa Abramowitz on 0:00:31.800 --> 0:00:36.239 Bloomberg Radio. My co host and colleague, Lisa Abramowitz is 0:00:36.320 --> 0:00:40.640 on holiday for this July fourth week. But he's not 0:00:40.680 --> 0:00:43.880 on holiday, Leo Grohowski. He is the chief investment officer 0:00:43.920 --> 0:00:47.200 for b n y Melon Wealth Management, helping to manage 0:00:47.240 --> 0:00:50.440 nearly two hundred and fifty billion dollars. He joins us 0:00:50.760 --> 0:00:53.680 in our eleven three oh studios. Leo, thanks for coming 0:00:53.720 --> 0:00:57.800 in happy July four Um, tell me about people's perception 0:00:57.880 --> 0:01:01.920 of how markets, how equity more cots specifically have behaved, 0:01:01.920 --> 0:01:04.560 because if you look at the SMP five hundred, we're 0:01:04.640 --> 0:01:07.280 up not even one and a half percent so far 0:01:07.400 --> 0:01:10.360 for the year. But if you're invested in stocks like 0:01:10.560 --> 0:01:15.000 Netflix or Amazon dot Com, you've got a different perspective 0:01:15.000 --> 0:01:17.760 on how the market is done. Yeah, no, no doubt, PAM. 0:01:17.840 --> 0:01:23.000 I think UM. Also, after last year, I think investors, UM, 0:01:23.120 --> 0:01:25.880 most of them ratcheted down their expectations for this year 0:01:25.959 --> 0:01:28.840 as a whole. And so as we tally sort of 0:01:28.840 --> 0:01:33.119 the mediear report card, you know, returns are very unexciting, UM, 0:01:33.360 --> 0:01:37.280 low single digits for most balanced portfolios. And this remains 0:01:37.319 --> 0:01:41.520 a very unloved market. I mean an investors sentiment has 0:01:41.560 --> 0:01:45.240 actually moved to the negative side and uh, and so 0:01:45.840 --> 0:01:49.560 there's enough skepticism out there where it's become more palpable. 0:01:50.040 --> 0:01:52.600 And UM, I think when you combine that with investors, 0:01:52.800 --> 0:01:55.880 you know, looking at a lot of profits over the years, UM, 0:01:55.920 --> 0:01:58.160 it's not a surprise to see some selling pressure here 0:01:58.160 --> 0:02:00.640 on the on the equity markets. Where does the activity 0:02:00.840 --> 0:02:04.080 come from? Oh my goodness, I think, uh, just you know, 0:02:04.160 --> 0:02:07.560 open up the paper, you know, watch the TV programs, 0:02:07.560 --> 0:02:09.640 and most of it is on the geo political front. 0:02:09.639 --> 0:02:13.680 And certainly today market participants are very concerned about UM 0:02:13.919 --> 0:02:19.760 tariffs and trade and UH elections and what's going on 0:02:19.800 --> 0:02:22.160 in Germany and the UK with Brexit. So that the 0:02:22.160 --> 0:02:26.000 big picture macro geo political front UM is I think 0:02:26.040 --> 0:02:28.840 of most concern The good news is we're going to 0:02:29.000 --> 0:02:31.639 quickly you know, move into earning season here and and 0:02:31.639 --> 0:02:34.800 finally we'll have more fundamental news to sink our teeth into. 0:02:35.080 --> 0:02:38.640 But it's really been about the the global headlines macroeconomically 0:02:38.680 --> 0:02:42.400 and geo politically. The earnings reports. Uh, you've got to 0:02:42.480 --> 0:02:46.120 kind of make the sort of distinction between gap earnings 0:02:46.160 --> 0:02:48.800 and non gap earnings, right, because when you look at 0:02:48.800 --> 0:02:51.960 the non gap burnings, things that doing just great, but 0:02:52.040 --> 0:02:54.560 when you look at gap earnings, it kind of tells 0:02:54.560 --> 0:02:57.440 a different story. Yeah, I think I think most market 0:02:57.440 --> 0:03:01.680 participants and most strategists are looking at you know, operating 0:03:01.720 --> 0:03:04.960 earnings for the SMP this year, um, and we are, 0:03:05.160 --> 0:03:08.520 you know, somewhere between one and one sixties. So if 0:03:08.520 --> 0:03:10.600 you take the midpoint of that and a market at 0:03:11.840 --> 0:03:13.600 you know, the market's trading at what I think is 0:03:13.600 --> 0:03:17.840 a pretty undemanding pe multiple of seventeen times in the 0:03:17.880 --> 0:03:20.639 context of a tenure treasury at two eight five. Take 0:03:20.680 --> 0:03:22.400 that out to next year, we've got what we think 0:03:22.480 --> 0:03:25.880 is a pretty conservative thought around earnings at one seventy 0:03:26.000 --> 0:03:28.440 the markets that are multiple of just under sixteen times. 0:03:28.440 --> 0:03:32.200 So UM, the market feels more expensive than it really is, 0:03:32.240 --> 0:03:34.840 and the market not having done much while earnings have 0:03:34.960 --> 0:03:38.480 been so strong, has really allowed valuation to get back 0:03:38.480 --> 0:03:41.520 into what we consider to be the reasonable territory. Does 0:03:41.560 --> 0:03:44.400 the FED continue to raise interest rates along that four 0:03:45.440 --> 0:03:48.560 plant path? And you know it's a tough call, but 0:03:48.680 --> 0:03:50.720 if you forced me into the yes or no, I 0:03:50.720 --> 0:03:53.440 would have to say yes. Particularly on the heels of 0:03:53.640 --> 0:03:57.000 Friday's PC report, right, we're sort of getting into holiday mode. 0:03:57.200 --> 0:03:59.480 I didn't find a lot of investors focusing on but 0:03:59.600 --> 0:04:04.280 the personal consumption expenditure index at the core came into 0:04:04.280 --> 0:04:06.560 two percent, right, and the headline was two point three, 0:04:06.960 --> 0:04:10.160 a little hotter than what most we're expecting. And I 0:04:10.200 --> 0:04:13.040 think with that being a critical component in the FEDS 0:04:13.320 --> 0:04:16.240 quis and art of decision making, um, I would say 0:04:16.279 --> 0:04:18.320 that that the leaning is for them to end up 0:04:18.320 --> 0:04:22.640 doing four. So add to your equity holdings. Now, uh, 0:04:22.680 --> 0:04:25.800 you know we're we have been and remain overweight equity. Okay, 0:04:25.839 --> 0:04:29.560 So a lot depends on you know, have you rebalanced lately, right, 0:04:29.600 --> 0:04:33.680 but we would be modestly overweight in equities, favoring US 0:04:33.720 --> 0:04:36.880 equities and favoring small and mid cap small cap unlike 0:04:36.880 --> 0:04:39.119 our comments earlier, you know, had a really good quarter 0:04:39.200 --> 0:04:41.240 up nearly eight percent on the Russell on the Russell 0:04:41.279 --> 0:04:44.440 two thousand. I would be looking at this more as 0:04:44.480 --> 0:04:48.240 an entry point than exit point for most investors. And 0:04:48.360 --> 0:04:50.400 we're still looking at money market funds here in the 0:04:50.520 --> 0:04:53.719 US with two point eight three trillion dollars in cash. 0:04:53.880 --> 0:04:55.960 There's a lot of dry powder out there, and are 0:04:55.960 --> 0:04:59.080 they waiting what for interest rates to increase and then 0:04:59.279 --> 0:05:01.839 make something out of that money, because yet's still going 0:05:01.920 --> 0:05:03.840 to be taxed and you're not going to really end 0:05:03.880 --> 0:05:06.120 up with much more than inflation. And a lot of 0:05:06.120 --> 0:05:09.400 that cash has been waiting for quite some time really 0:05:09.480 --> 0:05:12.359 for the big pullback in the market, right, the twenty 0:05:12.480 --> 0:05:16.200 percent plus correction that many have felt. You know, clearly, 0:05:16.200 --> 0:05:18.440 with all of the challenges out there and how well 0:05:18.480 --> 0:05:21.320 the markets have done, we must be due for that correction. 0:05:21.360 --> 0:05:23.320 There are a lot of market timers, I mean, people 0:05:23.360 --> 0:05:26.440 really think they can time this well. I think there 0:05:26.480 --> 0:05:29.960 are enough of them that certainly have a lot of 0:05:30.000 --> 0:05:32.760 money sitting in either cash or near cash, that have 0:05:32.839 --> 0:05:36.280 really set out a pretty good portion of this bull market. Right. 0:05:36.279 --> 0:05:39.559 It's been very dangerous to be an investor concerned about 0:05:39.560 --> 0:05:43.000 wealth preservation when you also have to digest the news 0:05:43.000 --> 0:05:45.800 flows weekend in week out. Yet, uh, you know, we're 0:05:45.800 --> 0:05:50.280 looking at a market that's up in nine years, and 0:05:50.360 --> 0:05:52.520 so I think a lot of investors field they missed 0:05:52.520 --> 0:05:54.720 that big run and need to wait for sort of 0:05:54.760 --> 0:05:56.800 the big pull back. That's not our view, but that's 0:05:56.839 --> 0:05:59.039 what I sense when I'm out traveling the country. Do 0:05:59.080 --> 0:06:01.080 you get the impression and that people are really paying 0:06:01.120 --> 0:06:03.640 attention to what's going on with the U S treasuries? 0:06:03.760 --> 0:06:08.160 And excuse me, whether that three percent threshold, you know, 0:06:08.279 --> 0:06:10.480 is such a big deal, particularly for the thirty year 0:06:10.520 --> 0:06:12.240 or even for the ten years, not not so much. 0:06:12.279 --> 0:06:13.920 I was in here a few months ago and we were, 0:06:14.000 --> 0:06:15.280 you know, sort of where we are now on the 0:06:15.320 --> 0:06:17.640 cusp of three percent, and we actually exceeded that three 0:06:17.680 --> 0:06:21.159 percent for a while. I think it's a psychological level 0:06:21.520 --> 0:06:24.880 which will cause a pause, right, But I think we've 0:06:24.920 --> 0:06:29.080 already recalibrated, right. A lot of the the earlier part 0:06:29.120 --> 0:06:32.000 of this year was about recalibrating first to higher earnings 0:06:32.120 --> 0:06:35.120 and then quickly to the potential for higher interest rates, 0:06:35.120 --> 0:06:37.839 including a three percent treasury. So I would argue most 0:06:37.880 --> 0:06:40.159 of that is in the market. But let's have the 0:06:40.160 --> 0:06:42.279 conversation if fields or three and a half to four 0:06:42.320 --> 0:06:44.760 percent on the tenure Treasury note, that would be a 0:06:44.800 --> 0:06:47.119 surprise and something the market is not equipped to handle 0:06:47.120 --> 0:06:50.440 at these levels. What about consumer spending? Will that filter 0:06:50.520 --> 0:06:54.320 into let's say a call for this consumer discretionary stocks. 0:06:54.800 --> 0:06:57.560 You know, consumer discretionary stocks have really taken it on 0:06:57.600 --> 0:07:01.800 the chin um and um. The consumer balance sheet and 0:07:01.880 --> 0:07:05.200 now income statement is in very very good shape. So 0:07:05.560 --> 0:07:07.400 you know here too, we we we are and have 0:07:07.560 --> 0:07:11.080 been underweight in the sector. But if we're thinking about 0:07:11.080 --> 0:07:13.360 the next twelve to eighteen months entry or exit point, 0:07:13.440 --> 0:07:16.200 probably be looking more at an entry point given how 0:07:16.240 --> 0:07:19.120 weak the group has been. But let's keep in mind 0:07:19.600 --> 0:07:23.080 a lot of these stocks are dependent on imports, supply 0:07:23.200 --> 0:07:25.600 chain involving China, and so there's gonna be a bit 0:07:25.640 --> 0:07:28.640 of a cloud of uncertainty. I think overhanging this consumer 0:07:28.640 --> 0:07:32.360 discretionary sector for a bit. But consumer balance sheets, income 0:07:32.400 --> 0:07:34.280 statements are in good shape. And this Friday we get 0:07:34.320 --> 0:07:36.560 an employment report that should be another good one. What 0:07:36.600 --> 0:07:38.360 do you think, what are we going to get? Kind 0:07:38.400 --> 0:07:41.280 of well, the over under on nonfarm payroll is looking 0:07:41.320 --> 0:07:43.880 like around two hundred, right, and uh, I think many 0:07:43.880 --> 0:07:46.480 folks won't be around to be seeing it, but I 0:07:46.760 --> 0:07:50.280 would be, you know, thinking that that feels about right. 0:07:50.320 --> 0:07:52.200 I think the bigger number to watch will be average 0:07:52.240 --> 0:07:55.400 hourly earnings, right, because that's what set the market, and 0:07:55.440 --> 0:07:57.480 it is in in February when we got a hot 0:07:57.600 --> 0:08:00.040 number there, so that's the number we're focusing on. Thanks 0:08:00.120 --> 0:08:03.240 very much as always, Leo Grohowski. He is the chief 0:08:03.280 --> 0:08:06.760 investment officer for b n y Melon Wealth Management, helping 0:08:06.800 --> 0:08:11.000 to manage nearly two hundred and fifty billion dollars. You're 0:08:11.000 --> 0:08:16.680 listening to Bloomberg Markets, I'm pim Fox Tesla. The company 0:08:16.720 --> 0:08:19.880 says it has reached a milestone that is critical to 0:08:20.080 --> 0:08:23.400 Elon Musk's goll to bring electric cars to the masses. 0:08:23.480 --> 0:08:25.400 Is having to do with the production target for the 0:08:25.440 --> 0:08:28.760 Model three five thousand of the Sedans in the last 0:08:28.840 --> 0:08:31.680 week of the second quarter. Here to tell us more, 0:08:31.960 --> 0:08:37.439 Liam Denning our energy mining and commodities columnists for Bloomberg Opinion, 0:08:37.480 --> 0:08:41.600 and you can follow Liam on Twitter at Liam Denning. 0:08:41.960 --> 0:08:46.439 All right, Liam Denning as the energy mining and commodities calumnists. 0:08:46.640 --> 0:08:49.680 You get a nice little sort of change in a 0:08:49.720 --> 0:08:52.160 way because you get to talk about an auto company. 0:08:52.160 --> 0:08:56.360 You wouldn't necessarily get that in most things. But um, 0:08:56.840 --> 0:08:59.320 this has to do with the battery technology and the 0:08:59.360 --> 0:09:03.800 ability of of Tesla to sort of leverage this technology. 0:09:04.120 --> 0:09:09.240 What do you make of the milestone achievement? So, um, 0:09:09.280 --> 0:09:13.080 you know, it's it's a milestone, it's been achieved. I 0:09:13.120 --> 0:09:16.000 think the bigger question we have to ask ourselves with 0:09:16.040 --> 0:09:20.040 Tesla is what do these milestones really means? So you know, 0:09:20.080 --> 0:09:23.880 if we break it down, last week of of June, 0:09:24.000 --> 0:09:29.000 they produced just over five thousand model threes. Um. You know, 0:09:29.160 --> 0:09:33.959 thereby reaching the target that that Elon Musk had set 0:09:34.040 --> 0:09:36.640 we should say, a much reduced target from what was 0:09:36.679 --> 0:09:41.720 originally envisaged about two years ago. Um. But then if 0:09:41.760 --> 0:09:43.520 you if you look at the rest of the quarter, 0:09:44.000 --> 0:09:48.679 actually production taking last week out averaged about two thousand 0:09:48.720 --> 0:09:52.320 a week. So clearly this, uh, this final kind of 0:09:52.360 --> 0:09:56.240 burst week for the quarter was was really engineered by 0:09:56.280 --> 0:09:59.559 the company. They really wanted to hit that target. Um. 0:09:59.600 --> 0:10:02.160 But you know, we're talking about a sixty billion dollar 0:10:02.880 --> 0:10:06.120 company here, and if you're really going to value Tesla 0:10:06.200 --> 0:10:09.360 at that level, it needs to be able to show 0:10:09.400 --> 0:10:13.720 that it can actually produced, you know, high quality cars 0:10:13.840 --> 0:10:16.920 at high volume, day in, day out, and I think 0:10:16.960 --> 0:10:20.240 as much as people bid the stock up Monday morning, 0:10:20.280 --> 0:10:23.520 it's actually slightly down at this point, correct. But that 0:10:23.600 --> 0:10:27.000 initial pop I think reflected people saying, hey, let's hit 0:10:27.040 --> 0:10:31.600 the target. That's great, um, but really you need to 0:10:31.640 --> 0:10:34.960 be thinking about the bigger picture here, which is, you know, 0:10:35.040 --> 0:10:38.600 what's the sustainable production rate? All right? You you before 0:10:38.600 --> 0:10:40.920 you came in, you said that you had been in 0:10:41.000 --> 0:10:46.439 a conference in Las Vegas having to do with one 0:10:46.480 --> 0:10:49.640 if you could just describe sort of your larger, your 0:10:49.679 --> 0:10:54.600 bigger picture perspective on the future of battery powered, electric 0:10:54.840 --> 0:10:59.960 charged vehicles, So I will. I'm definitely in the camp 0:11:00.040 --> 0:11:04.520 that I think electrification of vehicles is at this point 0:11:04.559 --> 0:11:13.280 and unstoppable trend, unstoppable, unstoppable now and certainly the the 0:11:13.280 --> 0:11:16.040 the theme I took away from last week's conference on 0:11:16.040 --> 0:11:23.400 on lithium is that, broadly speaking, the the line showing 0:11:23.440 --> 0:11:27.880 where electrification of vehicles is going m is going up. Now. 0:11:27.920 --> 0:11:32.080 People debate what the steepness of that line is, you know, 0:11:32.160 --> 0:11:35.280 but even the most bearish skeptical guys that I met 0:11:35.360 --> 0:11:39.400 last week don't think that electrification is a fad uh 0:11:39.440 --> 0:11:42.319 and will kind of just peter out. I think there 0:11:42.320 --> 0:11:46.640 are good reasons, particularly pertaining to the biggest growth market 0:11:46.640 --> 0:11:50.040 for auto's i China and to an extent, India, they 0:11:50.080 --> 0:11:53.679 have good reasons to electrify their vehicle fleet. They also 0:11:53.840 --> 0:11:59.280 don't have quite the same um infrastructure legacy that we 0:11:59.400 --> 0:12:02.000 have here, uh, which in some ways gets in the 0:12:02.040 --> 0:12:06.079 way of electrification. Do costs need to keep coming down, Yes, 0:12:06.120 --> 0:12:09.360 but historically they have been coming down, and there are 0:12:09.400 --> 0:12:12.480 just good reasons to to to go for that, whether 0:12:12.520 --> 0:12:15.840 it's it's um you know, it's combating pollution, whether it's 0:12:16.200 --> 0:12:19.920 combating dependence on oil imports, which is a growing problem 0:12:19.960 --> 0:12:23.320 for for China and India. So yeah, I am. I 0:12:23.360 --> 0:12:27.640 am optimistic about the future of electric cars, whether Tesla 0:12:27.679 --> 0:12:32.360 will dominate that and thereby justify at sixty billion dollar valuation. 0:12:32.440 --> 0:12:37.400 I'm much more skeptical. The electric car scenario though, comes 0:12:37.440 --> 0:12:40.920 with a big sort of input, which is someone's going 0:12:40.960 --> 0:12:43.520 to have to produce that electricity in order to charge 0:12:43.520 --> 0:12:46.880 all those batteries. Is that going to be renewable sources 0:12:47.000 --> 0:12:48.680 or do you believe it's going to be a mix 0:12:48.679 --> 0:12:52.000 of renewable as well as fossil fuel. I think if 0:12:52.000 --> 0:12:55.040 you're talking today, it's absolutely a mix of both, and 0:12:55.280 --> 0:12:58.319 in China, for example, a lot of it is coal. 0:12:58.400 --> 0:13:01.680 And that's one of the criticism and level against electric 0:13:01.760 --> 0:13:05.120 vehicles that were simply swapping one set of emissions for another. 0:13:05.200 --> 0:13:09.960 I think what that misses is that over time, renewables 0:13:10.040 --> 0:13:12.680 are becoming a much bigger part of the generation mix. 0:13:12.760 --> 0:13:15.400 And if you think about a battery electric vehicle, it's 0:13:15.440 --> 0:13:20.040 essentially a platform that allows you to use different forms 0:13:20.080 --> 0:13:23.280 of energy inputs over time, whereas obviously an internal combustion 0:13:23.360 --> 0:13:27.400 engine it burns oil. That's all it ever does in 0:13:27.600 --> 0:13:31.840 that In that scenario, do you believe that the US 0:13:31.960 --> 0:13:36.360 automobile makers like GM and Ford and even uh Fiart Chrysler, 0:13:36.760 --> 0:13:39.960 do they have the technological wherewithal to take advantage of 0:13:39.960 --> 0:13:46.680 this trend. I'm certain they have the technological know how, 0:13:47.000 --> 0:13:51.319 and GM, you know, obviously is making pretty good progress 0:13:51.360 --> 0:13:54.560 on it in a much less flashy way than say 0:13:54.760 --> 0:13:58.880 Tesla UM. I think the bigger problem for those companies 0:13:59.200 --> 0:14:03.439 is that UM they're they're having to deal with a 0:14:03.559 --> 0:14:07.160 much more multi speed world. In yeah, they have to 0:14:07.200 --> 0:14:09.120 do to at least two things. At the same time, 0:14:09.120 --> 0:14:11.480 they've got to make profits selling the cars that currently 0:14:11.520 --> 0:14:14.760 exist given the infrastructure, Plus they have to plan for 0:14:14.800 --> 0:14:17.400 the future that you're describing. And also a third element, 0:14:17.480 --> 0:14:19.320 which is that a lot of their growth is in 0:14:19.400 --> 0:14:23.320 other countries that have a very different outlook from what 0:14:23.400 --> 0:14:26.200 we have here in in the US, and so in 0:14:26.240 --> 0:14:27.920 some ways they're having to spread their R and D 0:14:28.040 --> 0:14:30.280 budgets in a in a much more complex way than 0:14:30.320 --> 0:14:32.040 they would have had to do. You know, ten twenty 0:14:32.120 --> 0:14:35.640 years ago, what did you take away from the conference 0:14:35.680 --> 0:14:37.880 that you went to in Las Vegas having to do 0:14:37.960 --> 0:14:40.720 with lithium. Of course one of the inputs for lithium 0:14:40.760 --> 0:14:44.400 IAM batteries. I think the biggest takeaway was that this 0:14:44.440 --> 0:14:47.560 industry is sort of at this moment where it's poised 0:14:47.600 --> 0:14:53.560 between greed and fear. So uh, lithium stocks sold sold 0:14:53.600 --> 0:14:56.640 off quite heavily earlier this year after a massive run 0:14:56.720 --> 0:15:01.720 up in sen and I think the problem is is 0:15:01.760 --> 0:15:05.600 this they do will see this future of greater electrification, 0:15:05.640 --> 0:15:09.440 which will require much higher lithium production. Most people are 0:15:09.480 --> 0:15:14.560 looking at the horizon of the early The problem is 0:15:15.240 --> 0:15:17.600 they need to get financing to produce the lithium and 0:15:17.640 --> 0:15:22.120 a lot of these companies are pretty small, and even 0:15:22.160 --> 0:15:25.160 though the the investment needs put it like fifteen to 0:15:25.280 --> 0:15:27.640 twenty billion, that's a lot of money for this sector. 0:15:27.720 --> 0:15:30.760 So they need to persuade people to actually start investing 0:15:30.920 --> 0:15:33.800 in these projects. Thank you very much for being with me. 0:15:34.240 --> 0:15:37.960 Liam Denning always a pleasure, Energy mining and commodities columnist 0:15:38.040 --> 0:15:42.080 for Bloomberg Opinion. Follow him on Twitter at Liam Denning. 0:15:42.360 --> 0:15:47.120 Coming up Bloomberg Politics, Policy, power and Law. Thanks for listening. 0:15:47.360 --> 0:15:54.400 I'm Pim Fox. This is Bloomberg Markets with Pim Fox 0:15:54.440 --> 0:15:59.920 and Lisa Abramowitz on Bloomberg Radio. As Amazon explorers ways 0:16:00.040 --> 0:16:04.080 to expand its delivery capacity, from leasing its own cargo 0:16:04.160 --> 0:16:07.880 planes to experimenting with drones, it is also moving into 0:16:07.880 --> 0:16:11.800 a new business to allow individuals to start their own 0:16:11.960 --> 0:16:16.040 delivery business with as little as ten thousand dollars of 0:16:16.080 --> 0:16:18.600 an investment. Here to tell us more about this is 0:16:18.640 --> 0:16:22.480 Satisha Jendal. He is the president of s J Consulting Group. 0:16:23.120 --> 0:16:26.280 And Satisha, you're an expert when it comes to moving 0:16:26.320 --> 0:16:29.040 things from point A to point B. Just give people 0:16:29.040 --> 0:16:31.520 a little bit of your background and what would you 0:16:31.600 --> 0:16:34.080 do if you were running a logistics company? In Amazon 0:16:34.240 --> 0:16:37.920 said they're getting into your business. Well do you know 0:16:38.360 --> 0:16:42.440 do then it is so relevant here that what Amazon 0:16:42.600 --> 0:16:47.640 is doing is in many ways duplicating with minor changes 0:16:48.520 --> 0:16:52.000 the model that RPS, which is today known as FedEx 0:16:52.000 --> 0:16:57.800 ground with generals fifteen sixteen billion and annual revenue, started 0:16:57.840 --> 0:17:00.320 with that model, and that is to leverage it's the 0:17:00.560 --> 0:17:05.320 entrepreneurial spirit of American people and give them an opportunity 0:17:05.359 --> 0:17:08.600 to own a business and be part of a bigger enterprise. 0:17:09.119 --> 0:17:13.760 And FedEx clown approach to this is what they called 0:17:13.840 --> 0:17:18.960 i s P. Independent service provider. Amazon calls them, you know, 0:17:19.200 --> 0:17:24.560 delivery service partners, and it has got the similar model 0:17:24.680 --> 0:17:28.840 here where individual can set up a business, hires some 0:17:29.080 --> 0:17:33.200 employees to drive for them least vehicles, so buy them. 0:17:33.720 --> 0:17:37.240 And what Amazon is doing is no surprise to the 0:17:37.280 --> 0:17:41.320 companies like UPS and fair X because Amazon is such 0:17:41.359 --> 0:17:45.240 a huge shipper with seven million packages a day and 0:17:45.320 --> 0:17:48.600 tim to put it in context, that is almost two 0:17:48.640 --> 0:17:52.480 and a half times more then the volume DHL was 0:17:52.520 --> 0:17:55.840 delivering in two thousand eight to night before it left 0:17:55.840 --> 0:18:00.320 this country. So she's how people your expertise when it 0:18:00.359 --> 0:18:02.960 comes to OURPS, which is as you describe this now 0:18:03.040 --> 0:18:06.679 FedEx Ground, so they understand where you're coming from. You know, 0:18:06.720 --> 0:18:09.040 I was part of the founding team. I helped with 0:18:09.160 --> 0:18:11.720 that model, with the change that that went about. I've 0:18:11.720 --> 0:18:15.080 worked directly for the CEO, Den Sullivan, who was a 0:18:15.160 --> 0:18:18.960 great mentor for me. And the success of FedEx Ground 0:18:19.520 --> 0:18:22.000 is to a large extent based upon being able to 0:18:22.119 --> 0:18:26.520 leverage that model, which allows you to have a large 0:18:26.560 --> 0:18:31.480 fleet of delivery vehicles and people without you having to 0:18:31.520 --> 0:18:33.880 put up the Capitol's just kind of like the way 0:18:33.960 --> 0:18:38.159 McDonald's and Subway and and other companies expand using a 0:18:38.200 --> 0:18:42.520 franchise model. This is in some ways akin to that, 0:18:43.040 --> 0:18:46.080 and I think it is a very good approach for 0:18:46.119 --> 0:18:51.240 Amazon to have expanded delivery capability because it cannot rely 0:18:51.440 --> 0:18:54.960 upon the other three big partners that it has to 0:18:55.280 --> 0:18:58.159 meet its growing need. What role do you think the 0:18:58.240 --> 0:19:01.040 brand of having Amazon on the side of those trucks 0:19:01.040 --> 0:19:03.760 and on the uniforms of those making the deliveries will 0:19:03.800 --> 0:19:07.520 have on the success of this business. It is huge 0:19:07.680 --> 0:19:11.600 that brand is more recognized than the ups and FedEx 0:19:11.680 --> 0:19:15.720 at this point, Steven. Though it's a younger company, startup 0:19:15.760 --> 0:19:18.680 costs are estimated to be as low as ten thousand dollars. 0:19:19.119 --> 0:19:22.440 Do you buy that? Yeah, because you don't need much 0:19:22.720 --> 0:19:25.040 in startup cost, and you can lease vehicles, You can 0:19:25.119 --> 0:19:28.439 lease the technology you're gonna need, which most people already 0:19:28.440 --> 0:19:32.080 have is your smartphone. Every driver had its own personal one. 0:19:32.160 --> 0:19:35.679 Just reward them for making use off it. And you 0:19:35.720 --> 0:19:38.320 can start with a few drivers, and as you expand, 0:19:39.560 --> 0:19:42.639 you have the resources and you can uh it just 0:19:43.119 --> 0:19:46.480 exactly the way FedEx does it. Will this take business 0:19:46.600 --> 0:19:52.119 away from FedEx and UPS? Now that's a little complicated question, 0:19:52.160 --> 0:19:54.560 and I'll try and answer it for your audience. One 0:19:54.680 --> 0:20:01.119 is the about of Amazon. Business today is being done 0:20:01.160 --> 0:20:05.720 by USPS, UPS and FedEx in that order. In terms 0:20:05.720 --> 0:20:12.000 of volume going forward, I expect the total volume between 0:20:12.040 --> 0:20:15.919 the three to remain the same from Amazon. But because 0:20:15.960 --> 0:20:20.560 Amazon is growing at all, that growth that they're bringing in, 0:20:21.200 --> 0:20:25.480 I see that moving to these new options and approaches 0:20:25.520 --> 0:20:28.600 that they're taking, so they will get the smaller percentage 0:20:28.600 --> 0:20:32.240 of Amazon volume, but an absolute volume, it will not 0:20:32.320 --> 0:20:38.080 be any less. Last point to you, the President has 0:20:38.440 --> 0:20:43.280 talked about a potential reset of US postal service shipping 0:20:43.359 --> 0:20:46.920 rates because of Amazon. What can you tell us about 0:20:47.000 --> 0:20:50.520 that relationship? Just to put it into some context. You know, 0:20:50.600 --> 0:20:53.960 it is a relationship that works for both Uh. Post 0:20:54.000 --> 0:20:57.480 Office is better off as a result of having Amazon volume, 0:20:57.520 --> 0:21:00.720 and Amazon is better off. But I would say that 0:21:00.760 --> 0:21:05.560 the if this DSP program that Amazon has rolled out 0:21:05.920 --> 0:21:09.679 probably was in the making already. But hearing that the 0:21:09.680 --> 0:21:13.879 President is putting his weight behind this relationship, that could 0:21:14.280 --> 0:21:18.439 potentially result in a slightly higher price the Post Office 0:21:18.480 --> 0:21:21.400 may have to ask Amazon. Amazon is prepared to say, 0:21:21.400 --> 0:21:24.520 you know, there's a certain limit to which I can absorb. Otherwise, 0:21:24.520 --> 0:21:29.199 I've got my own network to create a competitive response. 0:21:29.640 --> 0:21:32.320 So you know, yeah, you can relate, but I've got 0:21:32.359 --> 0:21:35.959 other option. Thanks very much. Satis Jendle, He is the 0:21:36.000 --> 0:21:39.840 president of s J Consulting, talking about Amazon and the 0:21:39.880 --> 0:21:44.160 logistics business. Shares of Amazon are up nearly forty year 0:21:44.240 --> 0:21:49.800 to day. You're listening to Bloomberg Markets with Tim Fox 0:21:49.920 --> 0:21:54.360 and Lisa Bramoetz on Bloomberg Radio. Bloomberg Markets has brought 0:21:54.400 --> 0:21:57.560 you by Commonwealth Financial Network, home to the industry's most 0:21:57.600 --> 0:22:00.520 satisfied advisers. Prepared to be swept off your feet by 0:22:00.520 --> 0:22:03.000 the broker dealer r I, A who has been putting 0:22:03.040 --> 0:22:10.200 relationships first since nineteen seventy nine. Visit Commonwealth dot com. 0:22:10.280 --> 0:22:14.760 Well chocolate specifically chocolate from Hershey and other food items 0:22:14.800 --> 0:22:17.959 from Treehouse Foods. They are going to feel the effects 0:22:18.040 --> 0:22:21.640 of counter tariffs that were put in place by Canada. 0:22:21.920 --> 0:22:24.280 They're just some of the companies that are going to 0:22:24.320 --> 0:22:26.800 be affected by this move. Here to tell us more 0:22:26.800 --> 0:22:29.280 about what's going to happen in Canada as a result 0:22:29.320 --> 0:22:32.800 of these countermeasures is Carl Schramada. He is the chief 0:22:32.840 --> 0:22:37.359 strategist for Cambridge Global Payments, joining us from Toronto. Carl, 0:22:37.400 --> 0:22:39.960 thank you very much for being with us. Maybe you 0:22:40.000 --> 0:22:43.000 could just outline exactly what you believe the effects are 0:22:43.040 --> 0:22:46.000 going to be on the Canadian economy and then we 0:22:46.000 --> 0:22:50.159 can kind of get into the details. Sure, so you know, 0:22:50.240 --> 0:22:54.800 certainly the escalation intentions and the direct costs of the 0:22:54.800 --> 0:22:58.639 Canadian economy are likely to be fairly substantial. Here. Um, 0:22:58.680 --> 0:23:02.520 there's been a real shift and sentiment among Canadian businesses 0:23:02.880 --> 0:23:06.159 in recent months, a lot of concern about whether the 0:23:06.400 --> 0:23:09.000 US markets will remain as robust as they have been, 0:23:09.440 --> 0:23:12.080 and as a result, we're seeing a toll taken on 0:23:12.200 --> 0:23:15.720 business investment. However, you know, when we look at the 0:23:15.720 --> 0:23:19.200 Grand scheme of things. This still remains effectively a rounding 0:23:19.320 --> 0:23:22.240 error in the in the grand scheme of trade between 0:23:22.320 --> 0:23:28.760 Canada and the United States. If NAFTA is not renegotiated successfully, 0:23:28.880 --> 0:23:34.119 will that still be a rounding error? No? Uh no, 0:23:34.320 --> 0:23:37.520 that would certainly be sort of the nuclear option with 0:23:37.600 --> 0:23:40.440 respect to trade between the two countries. Um. That would 0:23:40.480 --> 0:23:44.240 reset US most likely to w t O rules, which 0:23:44.280 --> 0:23:47.760 would imply a rise in tariffs and a dramatic slowdown 0:23:48.200 --> 0:23:52.040 in trade as well as investment flows into Canada, and 0:23:52.240 --> 0:23:56.320