1 00:00:00,080 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jai Lely. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,440 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg So, 5 00:00:33,520 --> 00:00:35,479 Speaker 1: you know, we've been focusing so much with respect to 6 00:00:35,920 --> 00:00:38,840 Speaker 1: trade talks between the US and China that we forgot 7 00:00:38,880 --> 00:00:41,200 Speaker 1: about all the other places in the world, including in Europe, 8 00:00:41,240 --> 00:00:44,520 Speaker 1: where evidently, uh, they are kind of not that please. 9 00:00:44,720 --> 00:00:47,120 Speaker 1: You have them trying to negotiate their own trade deal 10 00:00:47,159 --> 00:00:49,440 Speaker 1: with China. Uh. And then you also have a fact 11 00:00:49,440 --> 00:00:52,559 Speaker 1: that President Trump now just throughout these potential tariffs on 12 00:00:52,680 --> 00:00:56,480 Speaker 1: the of all autos that come into the US that 13 00:00:56,600 --> 00:00:59,480 Speaker 1: are from outside countries. I want to bring Richard Bravo. 14 00:00:59,560 --> 00:01:01,960 Speaker 1: He is a Blo and Broke news editor who has 15 00:01:01,960 --> 00:01:05,120 Speaker 1: been tracking this. What's the mood there when it comes 16 00:01:05,200 --> 00:01:10,880 Speaker 1: to trade discussions. Well, there's certainly a lot of confusion 17 00:01:11,000 --> 00:01:15,920 Speaker 1: right now in Europe because nobody really knows what this 18 00:01:16,000 --> 00:01:19,320 Speaker 1: means and what the likelihood of these tariffs actually being 19 00:01:19,360 --> 00:01:23,280 Speaker 1: instituted are. Um. But as you know, the EU is 20 00:01:23,319 --> 00:01:28,160 Speaker 1: currently in negotiations with Washington over steel tariffs, and these 21 00:01:28,200 --> 00:01:32,280 Speaker 1: steel aluminium tariffs are set to go into effect starting 22 00:01:32,360 --> 00:01:36,520 Speaker 1: June one unless they can make some kind of side agreement. 23 00:01:37,120 --> 00:01:41,560 Speaker 1: So uh, this new set of possible tariffs on automobiles 24 00:01:41,720 --> 00:01:45,520 Speaker 1: really does throw a wrench into those negotiations, which which 25 00:01:45,560 --> 00:01:50,440 Speaker 1: are ongoing. So I think the overriding sentiment right now 26 00:01:50,560 --> 00:01:53,640 Speaker 1: is confusion in Europe. So I'm trying to get a 27 00:01:53,720 --> 00:01:56,360 Speaker 1: sense of how realistic people think it is that the 28 00:01:56,440 --> 00:01:59,320 Speaker 1: US is going to impose tariffs on foreign cars coming 29 00:01:59,320 --> 00:02:01,440 Speaker 1: into the US this point, do you have a sense 30 00:02:01,480 --> 00:02:05,400 Speaker 1: of that, Um, it's it's hard to gauge at this point. 31 00:02:05,560 --> 00:02:08,760 Speaker 1: But when the steel tariffs were imposed, those went into 32 00:02:08,800 --> 00:02:13,600 Speaker 1: effect in March, but the initial threat was about a 33 00:02:13,680 --> 00:02:17,440 Speaker 1: year ago. So even if these auto tariffs do you 34 00:02:17,520 --> 00:02:20,359 Speaker 1: go into effect, it's not something that people expect would 35 00:02:20,400 --> 00:02:24,639 Speaker 1: happen immediately. But I mean looking at at how the 36 00:02:24,720 --> 00:02:32,040 Speaker 1: Trump administration engages in these deals, UM, many times they 37 00:02:32,160 --> 00:02:36,240 Speaker 1: don't come about, but it obviously because Germany has so 38 00:02:36,280 --> 00:02:38,600 Speaker 1: many auto exports, it is a threat that they do 39 00:02:38,720 --> 00:02:42,160 Speaker 1: need to take seriously, irrespective of whether or not they 40 00:02:42,200 --> 00:02:45,600 Speaker 1: think it will eventually come to pass. All bark, no 41 00:02:46,000 --> 00:02:49,240 Speaker 1: bite that it has been the mantra. Richard Robert, thank 42 00:02:49,240 --> 00:02:50,760 Speaker 1: you so much for joining us. Richard Bravo is a 43 00:02:50,760 --> 00:02:55,120 Speaker 1: Bloomberg News editor coming to us from London. Volkswagen shares 44 00:02:55,200 --> 00:02:59,080 Speaker 1: down almost three looking at BMW shares down also almost 45 00:02:59,080 --> 00:03:01,440 Speaker 1: three percent. Jonathan knows they try to weigh what these 46 00:03:01,440 --> 00:03:05,120 Speaker 1: potential tariffs could mean. You found some price action. Congratulations, 47 00:03:05,160 --> 00:03:08,120 Speaker 1: because futures are doing absolutely inspect to start on any 48 00:03:08,160 --> 00:03:09,919 Speaker 1: of this, I want to bring in Julian jess Up 49 00:03:09,919 --> 00:03:13,000 Speaker 1: of the Institute of Economic Affairs, the chief economist joining 50 00:03:13,040 --> 00:03:15,600 Speaker 1: us from London. I'm Julian. How do you view the 51 00:03:15,639 --> 00:03:18,680 Speaker 1: events and the reporting around the trade issue, the threat 52 00:03:19,040 --> 00:03:22,000 Speaker 1: of global auto terrorists from the United States? Is this 53 00:03:22,120 --> 00:03:25,080 Speaker 1: just a negotiaring strategy? Well, I mean to be honest, 54 00:03:25,120 --> 00:03:27,280 Speaker 1: I find it a bit depressing either way. You know, 55 00:03:27,280 --> 00:03:29,600 Speaker 1: whether or not you think it's good or bad politics. 56 00:03:29,639 --> 00:03:33,240 Speaker 1: It's certainly bad economics. This sort of protectionist measure is 57 00:03:33,320 --> 00:03:37,600 Speaker 1: both unfair and inefficient. It's it's unfair because it forces 58 00:03:37,680 --> 00:03:41,000 Speaker 1: US consumers to pay higher prices and have less choice 59 00:03:41,000 --> 00:03:44,040 Speaker 1: than what otherwise have done. And it's inefficient because it's 60 00:03:44,080 --> 00:03:47,760 Speaker 1: reducing the competitive pressure on domestic auto manufacturers in the 61 00:03:47,840 --> 00:03:50,520 Speaker 1: US too, to improve the quality and price of the 62 00:03:50,560 --> 00:03:52,800 Speaker 1: things they want to try and sell. So it may 63 00:03:52,880 --> 00:03:55,240 Speaker 1: or may not score some short term political points, but 64 00:03:55,240 --> 00:03:56,960 Speaker 1: but in the long run, I think it leads everybody 65 00:03:56,960 --> 00:03:59,600 Speaker 1: worse off, just in terms of political points scoring. Chancellor 66 00:03:59,720 --> 00:04:03,200 Speaker 1: Murka and Premier League saying they're committed to free and 67 00:04:03,360 --> 00:04:07,120 Speaker 1: fair trade representing two countries with the biggest trade surpluses 68 00:04:07,520 --> 00:04:11,640 Speaker 1: on the planet, Julian distincts of hypocrisy, doesn't it well, 69 00:04:11,760 --> 00:04:14,120 Speaker 1: not really, I think as far as Germany is concerned, 70 00:04:14,120 --> 00:04:16,280 Speaker 1: that the reason why they run such a huge current 71 00:04:16,279 --> 00:04:20,000 Speaker 1: account surplus is essentially because they hold back domestic demand. 72 00:04:20,000 --> 00:04:23,279 Speaker 1: It's not that they cheat somehow in international markets. China 73 00:04:23,320 --> 00:04:25,720 Speaker 1: perhaps is a bit more guilty of that, the manipulation 74 00:04:25,760 --> 00:04:29,239 Speaker 1: of the of the currency there and also sometimes dumping 75 00:04:29,440 --> 00:04:31,920 Speaker 1: of things like steel on on on world markets. I 76 00:04:31,920 --> 00:04:33,840 Speaker 1: think that is one of the few areas where some 77 00:04:33,920 --> 00:04:35,920 Speaker 1: form of intervention and some sort of trade barrier might 78 00:04:35,960 --> 00:04:38,560 Speaker 1: be justified. But I don't really see any of those 79 00:04:38,600 --> 00:04:41,720 Speaker 1: arguments applying to the exports of cars from from Europe 80 00:04:41,760 --> 00:04:44,200 Speaker 1: to the US, which is simply meeting a demand from 81 00:04:44,279 --> 00:04:47,920 Speaker 1: US consumers themselves. So what I'm trying to figure out 82 00:04:48,000 --> 00:04:50,560 Speaker 1: is from an economics perspective, you started out saying this 83 00:04:50,600 --> 00:04:53,240 Speaker 1: is depressing regardless of whether it goes through. Do you 84 00:04:53,279 --> 00:04:56,679 Speaker 1: expect that the increased trade tensions, regardless of what actually 85 00:04:56,720 --> 00:05:00,120 Speaker 1: happens from them, will actually reduce economic growth in the 86 00:05:00,160 --> 00:05:03,160 Speaker 1: world over the next couple of years. Um, well, I 87 00:05:03,720 --> 00:05:05,719 Speaker 1: think they will, and we've got a preston for that. 88 00:05:05,800 --> 00:05:08,520 Speaker 1: I mean, in the wake of the global recession in 89 00:05:08,560 --> 00:05:10,640 Speaker 1: two thousands and two thousand and eight, lots of countries 90 00:05:10,680 --> 00:05:14,800 Speaker 1: started to introduce new trade barriers that they didn't have before. Um. 91 00:05:14,839 --> 00:05:16,960 Speaker 1: You know, it's much easier to argue for protectionism when 92 00:05:16,960 --> 00:05:20,200 Speaker 1: your own economy is weak, and that I think actually 93 00:05:20,720 --> 00:05:24,000 Speaker 1: prolonged the slump. It certainly led to more weakness in 94 00:05:24,080 --> 00:05:26,799 Speaker 1: well trade than you you might have expected. So again 95 00:05:26,839 --> 00:05:29,240 Speaker 1: there's there's this contrast. You score some sort of short 96 00:05:29,360 --> 00:05:33,479 Speaker 1: term populist points. Maybe it's good politics, but economically it 97 00:05:33,560 --> 00:05:36,960 Speaker 1: holds back growth. Certainly, if we're looking at the future 98 00:05:36,960 --> 00:05:39,760 Speaker 1: of growth in over the next ten twenty thirty years, 99 00:05:39,920 --> 00:05:42,160 Speaker 1: a lot of it is going to come from emerging markets, 100 00:05:42,640 --> 00:05:45,200 Speaker 1: and China has been leading, but others will will start 101 00:05:45,200 --> 00:05:47,880 Speaker 1: to catch up, in which case you certainly want more 102 00:05:47,960 --> 00:05:50,760 Speaker 1: free trade. It might be you end up importing more 103 00:05:50,800 --> 00:05:53,360 Speaker 1: from these countries yourself, but you've got more opportunities to 104 00:05:53,440 --> 00:05:56,799 Speaker 1: exports too. Something has got lost over the last couple 105 00:05:56,800 --> 00:05:59,800 Speaker 1: of weeks, Julian, the focus seems to be once again 106 00:06:00,480 --> 00:06:04,520 Speaker 1: on the trade surplus or trade deficit with respective countries, 107 00:06:04,880 --> 00:06:07,719 Speaker 1: when for a moment it was driven by Wilbur Ross, 108 00:06:07,720 --> 00:06:09,479 Speaker 1: the Commerce Secretary, and it was about the theft of 109 00:06:09,480 --> 00:06:12,200 Speaker 1: American genius, It was about intellectual property, it was about 110 00:06:12,200 --> 00:06:16,080 Speaker 1: real issues about the future, not just headline grabbing stories 111 00:06:16,320 --> 00:06:20,240 Speaker 1: about getting trade surpluses down two billion dollars. Has this 112 00:06:20,279 --> 00:06:23,120 Speaker 1: administration sort of lost its way a little bit as 113 00:06:23,120 --> 00:06:25,800 Speaker 1: to what it wants out of the Chinese? Well, I 114 00:06:25,839 --> 00:06:27,800 Speaker 1: think this sort of illustration in particular has always been 115 00:06:27,839 --> 00:06:30,039 Speaker 1: a bit muddled about what trade is about. So it 116 00:06:30,080 --> 00:06:32,440 Speaker 1: sees a trade surplus as a as a good thing 117 00:06:32,480 --> 00:06:34,600 Speaker 1: and a trade deficit as as a bad thing, whereas 118 00:06:34,800 --> 00:06:37,919 Speaker 1: all those things really are is the result of decisions 119 00:06:37,960 --> 00:06:40,880 Speaker 1: made by consumers and companies that you know they might 120 00:06:40,960 --> 00:06:44,480 Speaker 1: choose to buy good from overseas, wether than one produced domestically, 121 00:06:44,520 --> 00:06:46,920 Speaker 1: it's not not a zero sum game. You know, both 122 00:06:46,920 --> 00:06:49,160 Speaker 1: sides benefit from trade, whether you're an import ural or 123 00:06:49,200 --> 00:06:53,039 Speaker 1: the exporter. Um. What I'm also worried about is increasingly 124 00:06:53,040 --> 00:06:57,880 Speaker 1: spurious reasons being used to justify intervention in markets. And 125 00:06:58,080 --> 00:07:01,840 Speaker 1: a good example is the ctential security concerns over over 126 00:07:01,880 --> 00:07:04,600 Speaker 1: intellectual property and so on. Sometimes that's valid, but it's 127 00:07:04,600 --> 00:07:07,440 Speaker 1: not obvious to me it's valid enoughy single occasion. Another 128 00:07:07,600 --> 00:07:10,720 Speaker 1: is food safety standards or animal welfare standards in the 129 00:07:10,720 --> 00:07:14,200 Speaker 1: agricultural sector. I think people are finding excuses to intervene 130 00:07:14,240 --> 00:07:17,080 Speaker 1: for very narrow protectionist interests rather than thinking about the 131 00:07:17,080 --> 00:07:21,320 Speaker 1: broad economics and whether they're security issues, whether the auto 132 00:07:21,400 --> 00:07:24,520 Speaker 1: situation is a national security issue and aid to the president. 133 00:07:24,560 --> 00:07:27,600 Speaker 1: The headline just coming across the Bloomberg Julian, the trade 134 00:07:27,640 --> 00:07:31,360 Speaker 1: deficits are a national security concern? Should they be? Julian, 135 00:07:31,800 --> 00:07:37,360 Speaker 1: that's absolutely ludicrous, Um, you know exactly. I mean, you know, 136 00:07:37,400 --> 00:07:40,160 Speaker 1: I run a run a deficit with various high street 137 00:07:40,200 --> 00:07:43,520 Speaker 1: shops in the UK because you know, try as hard 138 00:07:43,560 --> 00:07:45,320 Speaker 1: as I like, there's nothing that they want to buy 139 00:07:45,320 --> 00:07:47,080 Speaker 1: from me, but they've got plenty of things I want 140 00:07:47,120 --> 00:07:49,240 Speaker 1: to buy from them. I'm not worse off because I 141 00:07:49,320 --> 00:07:52,080 Speaker 1: run a trade deficit with my local coffee shop. Coffee 142 00:07:52,080 --> 00:07:55,160 Speaker 1: shops not looking to dominate the world though, is it, Julian, Well, 143 00:07:55,920 --> 00:07:58,640 Speaker 1: some of the high street chains particularly are. But um, 144 00:07:59,240 --> 00:08:01,280 Speaker 1: we have to we have to recognize that, you know, 145 00:08:01,360 --> 00:08:04,840 Speaker 1: China is already the world's second biggest economy. In time 146 00:08:04,840 --> 00:08:07,760 Speaker 1: it will become the become the biggest. We want free 147 00:08:07,760 --> 00:08:10,560 Speaker 1: trade with them, of course, and if there are particular 148 00:08:10,640 --> 00:08:13,040 Speaker 1: areas where they're cheating or we don't trust them fair enough, 149 00:08:13,080 --> 00:08:15,760 Speaker 1: we might want to intervene. But but the idea that 150 00:08:15,800 --> 00:08:19,520 Speaker 1: you can measure the strength or witness of relationship purely 151 00:08:19,560 --> 00:08:23,040 Speaker 1: by the bilateral trade surplus or deficit Parde is economically illiterate, 152 00:08:23,440 --> 00:08:26,960 Speaker 1: Julian jessup Sellagasari really feels. I think of the Institute 153 00:08:26,960 --> 00:08:29,840 Speaker 1: of Economic Affairs, the chief economist joining us from London. 154 00:08:43,160 --> 00:08:45,880 Speaker 1: I want to cross over to Allison Williams of Bloomberg Intelligence, 155 00:08:45,920 --> 00:08:50,160 Speaker 1: the senior analyst for US banks here in New York. Allison, 156 00:08:50,200 --> 00:08:52,679 Speaker 1: you've been following Deutsche Bank very closely, and what have 157 00:08:52,760 --> 00:08:56,280 Speaker 1: we learned about the strategy this morning? So I think 158 00:08:56,360 --> 00:09:00,320 Speaker 1: that I guess a little surprise in terms of you know, 159 00:09:00,520 --> 00:09:04,960 Speaker 1: cuts to the equity business, cutting head count, um, you know, 160 00:09:05,080 --> 00:09:08,680 Speaker 1: giving some new targets. The key for Joute bank is 161 00:09:08,679 --> 00:09:11,040 Speaker 1: going to be, um you know, firstly meeting these targets. 162 00:09:11,080 --> 00:09:13,000 Speaker 1: I think that's been the disappointment with some of the 163 00:09:13,040 --> 00:09:19,600 Speaker 1: prior management and um you know, in my opinion, um 164 00:09:19,679 --> 00:09:22,280 Speaker 1: and and Argent Bauwer who co covers Deutsche Bank with me. 165 00:09:22,760 --> 00:09:24,400 Speaker 1: You know, our view is really just that it's the 166 00:09:24,440 --> 00:09:27,160 Speaker 1: revenue side of things that are that's much more difficult. 167 00:09:27,240 --> 00:09:29,240 Speaker 1: Keep in mind that um, you know, trading is a 168 00:09:29,240 --> 00:09:33,160 Speaker 1: significant portion of the business. Uh, the equity has really 169 00:09:33,200 --> 00:09:35,560 Speaker 1: been the the area that's trailed. We focus on fixed 170 00:09:35,600 --> 00:09:38,360 Speaker 1: income mostly because it's more important to them, but equity 171 00:09:38,559 --> 00:09:41,160 Speaker 1: is really where they've sort of not been able to 172 00:09:41,240 --> 00:09:44,120 Speaker 1: regain market share. And then you know, looking at other businesses, 173 00:09:44,160 --> 00:09:47,960 Speaker 1: the German retail business has not been one with a 174 00:09:48,000 --> 00:09:51,720 Speaker 1: lot of opportunity, and as a management they've they've sold 175 00:09:51,720 --> 00:09:55,280 Speaker 1: off some of that. Um So I think, you know, 176 00:09:55,440 --> 00:09:59,280 Speaker 1: delivering on costs I think is something that Sewing has 177 00:09:59,320 --> 00:10:01,760 Speaker 1: made it very there that he is going to deliver 178 00:10:01,880 --> 00:10:04,560 Speaker 1: on that the whole second, Allison, because this is actually 179 00:10:04,600 --> 00:10:07,360 Speaker 1: really important, you say, delivering on costs, in other words, 180 00:10:07,480 --> 00:10:10,400 Speaker 1: job cuts. But I want to quote the head of 181 00:10:10,400 --> 00:10:14,040 Speaker 1: Hermes Eos on Bloomberg Television saying, job cuts in itself 182 00:10:14,080 --> 00:10:17,680 Speaker 1: are not a new strategy and they're also not value creating. 183 00:10:18,120 --> 00:10:20,200 Speaker 1: So do they actually give a strategy or do they 184 00:10:20,240 --> 00:10:25,440 Speaker 1: just look at cost savings? So from a true strategic perspective, 185 00:10:26,280 --> 00:10:28,720 Speaker 1: UM the changes, and I think they're really more sort 186 00:10:28,760 --> 00:10:30,560 Speaker 1: of at the at the margin. You know what what 187 00:10:30,600 --> 00:10:32,880 Speaker 1: they had said with the last quarters earnings is that 188 00:10:33,480 --> 00:10:35,480 Speaker 1: UM they are going to try to you know, reign 189 00:10:35,520 --> 00:10:38,160 Speaker 1: in and just focus more on their core competencies, more 190 00:10:38,160 --> 00:10:40,840 Speaker 1: of a focus on the European business, pull back from 191 00:10:40,880 --> 00:10:43,840 Speaker 1: the US rates business about ten percent. And then you know, 192 00:10:44,520 --> 00:10:48,920 Speaker 1: similarly within the global equities unit, UM again just trying 193 00:10:48,920 --> 00:10:51,240 Speaker 1: to to cut down the business and focus more on 194 00:10:51,280 --> 00:10:56,040 Speaker 1: the profitability aspect of that UM and so UM, you know, 195 00:10:56,080 --> 00:10:58,640 Speaker 1: to your point, job cuts in and of itself, and 196 00:10:58,760 --> 00:11:00,520 Speaker 1: it sort of doesn't matter this thought eyes of the cut. 197 00:11:00,600 --> 00:11:02,880 Speaker 1: That matters where you're cutting in, how effective it's going 198 00:11:02,920 --> 00:11:05,520 Speaker 1: to be. And you know, the tougher part of it is, 199 00:11:05,880 --> 00:11:07,360 Speaker 1: you know you can come in and cut jobs, but 200 00:11:07,480 --> 00:11:10,240 Speaker 1: can you do it in a way that you can 201 00:11:10,320 --> 00:11:13,360 Speaker 1: kind of still keep your good people that you um. 202 00:11:13,480 --> 00:11:15,360 Speaker 1: And that's not to say that everyone is not good, 203 00:11:15,400 --> 00:11:18,080 Speaker 1: but to keep the people that are, you know, imperative 204 00:11:18,120 --> 00:11:20,160 Speaker 1: to the strategy of the people that are in the 205 00:11:20,240 --> 00:11:22,880 Speaker 1: units that they want to focus on. You know, you're 206 00:11:22,880 --> 00:11:25,200 Speaker 1: gonna want to keep morale up and keep those people 207 00:11:25,760 --> 00:11:28,240 Speaker 1: UM And can you do that successfully when you're in 208 00:11:28,640 --> 00:11:31,520 Speaker 1: this more broadly cutting mode that creates a lot of 209 00:11:31,600 --> 00:11:35,520 Speaker 1: uncertainty for everyone? Now, Allison also doing it quickly enough, 210 00:11:36,000 --> 00:11:37,720 Speaker 1: we all know to keep going back to this. We 211 00:11:37,760 --> 00:11:41,760 Speaker 1: all know some really talented individuals at Deutsche Bank who 212 00:11:41,760 --> 00:11:44,760 Speaker 1: have stayed with the bank despite the last few years 213 00:11:44,760 --> 00:11:47,120 Speaker 1: which have been terribly difficult for morale. But at the 214 00:11:47,160 --> 00:11:50,000 Speaker 1: same time, Allison, this equity story has been hanging over 215 00:11:50,040 --> 00:11:52,120 Speaker 1: this bank now for months and months and months. Could 216 00:11:52,160 --> 00:11:54,679 Speaker 1: you imagine trying to work in the equities business over 217 00:11:54,720 --> 00:11:57,040 Speaker 1: the last few months at Deutsche Bank and trying to 218 00:11:57,080 --> 00:11:59,920 Speaker 1: gain any kind of business from anywhere at all when 219 00:12:00,080 --> 00:12:02,880 Speaker 1: our reports that that unit is going to be demolished 220 00:12:02,920 --> 00:12:05,320 Speaker 1: over the next couple of months. And I think that 221 00:12:05,440 --> 00:12:08,200 Speaker 1: is what you've seen in the equities of revenue numbers 222 00:12:08,240 --> 00:12:10,880 Speaker 1: and keep in mind, you know, the prime business was 223 00:12:10,960 --> 00:12:14,920 Speaker 1: one of the businesses that that really suffered with some 224 00:12:15,000 --> 00:12:18,600 Speaker 1: of the legal concerns. That's not surprising, you know, versus 225 00:12:18,640 --> 00:12:20,400 Speaker 1: several years ago when all of the banks were weak 226 00:12:20,480 --> 00:12:22,560 Speaker 1: during the crisis. Here you had someone that people were 227 00:12:22,600 --> 00:12:25,640 Speaker 1: worried about the viability of the of the franchise and 228 00:12:25,679 --> 00:12:27,719 Speaker 1: they had other people to pick from. And what we 229 00:12:27,800 --> 00:12:30,280 Speaker 1: learned from the crisis is once people make those decisions, 230 00:12:30,320 --> 00:12:33,040 Speaker 1: they generally tend not to go back. So even though 231 00:12:33,080 --> 00:12:36,480 Speaker 1: Deutsche Mac may have retained those clients, UM, part of 232 00:12:36,520 --> 00:12:39,120 Speaker 1: the wallet may have going to Peer. Peer's JP Morgan 233 00:12:39,160 --> 00:12:41,440 Speaker 1: talked about some of the progress they've made an international 234 00:12:41,480 --> 00:12:44,360 Speaker 1: prime over the years, and even though Deutscha said they've 235 00:12:44,360 --> 00:12:47,480 Speaker 1: won back the clients, they haven't had, you know, the 236 00:12:47,480 --> 00:12:49,800 Speaker 1: the upside and growth that some of the US piers had. 237 00:12:49,840 --> 00:12:52,959 Speaker 1: So I think that gives UM you know, credence to 238 00:12:53,000 --> 00:12:56,440 Speaker 1: the story that it has been tough to try to UM, 239 00:12:56,480 --> 00:12:58,680 Speaker 1: you know, not only win back market share but sort 240 00:12:58,679 --> 00:13:02,000 Speaker 1: of keep what you have UM you know, with with 241 00:13:02,000 --> 00:13:05,680 Speaker 1: with a tough environment at one company, in general, environments 242 00:13:05,760 --> 00:13:09,760 Speaker 1: challenging but stronger competitors. Alison Williams of Bloomberg in Stelligence. 243 00:13:09,800 --> 00:13:11,600 Speaker 1: Great to cant shop with you on the story that 244 00:13:11,720 --> 00:13:30,000 Speaker 1: keeps on giving. And the big question, you know, John, honestly, 245 00:13:30,160 --> 00:13:33,920 Speaker 1: is are we watching the beginnings of an emerging markets crisis? 246 00:13:34,480 --> 00:13:37,000 Speaker 1: It's a good question. And does the central bank in 247 00:13:37,080 --> 00:13:40,880 Speaker 1: Turkey have any credibility with the market because quite clearly 248 00:13:40,880 --> 00:13:44,920 Speaker 1: three basis points in an interest rate hike yesterday wasn't 249 00:13:45,040 --> 00:13:48,200 Speaker 1: enough to to stem the bleeding of the Turkish lira. Yeah. Well, 250 00:13:48,320 --> 00:13:50,000 Speaker 1: one person who says this is not a crisis is 251 00:13:50,120 --> 00:13:52,520 Speaker 1: Jeff Dennis. Let's bring him in. He is the head 252 00:13:52,520 --> 00:13:55,600 Speaker 1: of Global Emerging Markets at UBS Investment Bank. We love 253 00:13:55,640 --> 00:13:57,640 Speaker 1: having him on. Jeff, thank you so much for being 254 00:13:57,679 --> 00:14:00,320 Speaker 1: with us. You wrote in a report this is not 255 00:14:00,360 --> 00:14:03,240 Speaker 1: a crisis. In another report, this is not a crisis. 256 00:14:03,760 --> 00:14:06,400 Speaker 1: So you know, at a certain point you have an 257 00:14:06,400 --> 00:14:09,479 Speaker 1: increasing number of voices saying this could be the precursor 258 00:14:09,520 --> 00:14:12,439 Speaker 1: of something that we saw in Why do you think 259 00:14:12,440 --> 00:14:17,000 Speaker 1: it is not? I think the comparisons of n are 260 00:14:17,160 --> 00:14:21,080 Speaker 1: frankly ridiculous. Um what was Certainly there are countries like 261 00:14:21,120 --> 00:14:24,160 Speaker 1: Turkey that do have very weak fundamentals that are being 262 00:14:24,160 --> 00:14:27,600 Speaker 1: picked over by investors in a rising dollar environment we've 263 00:14:27,640 --> 00:14:29,880 Speaker 1: got at the moment. But in the late nineties you 264 00:14:29,960 --> 00:14:32,360 Speaker 1: had a number of Asian countries running six seven eight 265 00:14:32,360 --> 00:14:35,120 Speaker 1: percent current account depth as they will have fixed exchange rates, 266 00:14:35,440 --> 00:14:38,360 Speaker 1: they're running out of reserves um. It was just a 267 00:14:38,480 --> 00:14:41,160 Speaker 1: much less table environment than we've got today. One of 268 00:14:41,160 --> 00:14:44,080 Speaker 1: the advantages for emerging markets of a floating exchange rate regime, 269 00:14:44,120 --> 00:14:47,440 Speaker 1: which of course is what everybody's started to adopt instigation 270 00:14:47,520 --> 00:14:50,440 Speaker 1: crisis of the late nineties, it gives you a uh 271 00:14:50,720 --> 00:14:52,360 Speaker 1: an ability to take some of the pressure at the 272 00:14:52,400 --> 00:14:55,000 Speaker 1: pressure cooker by actually allowing the currency to go down. 273 00:14:55,520 --> 00:14:57,360 Speaker 1: I still think you have to look at Turkey as 274 00:14:57,400 --> 00:15:00,160 Speaker 1: a little bit of a one off in this environment. Think, 275 00:15:00,160 --> 00:15:03,200 Speaker 1: what's very interesting about the situation of this warnings, Although 276 00:15:03,640 --> 00:15:05,760 Speaker 1: there's still a lot of doubts about what's hapving in Turkey, 277 00:15:05,800 --> 00:15:07,520 Speaker 1: some of the other em currencies that have been out 278 00:15:07,560 --> 00:15:10,040 Speaker 1: of pressure recently, like the random like the pasto in 279 00:15:10,120 --> 00:15:13,240 Speaker 1: Mexico and the Brazilian rayal are well off their loads. 280 00:15:13,280 --> 00:15:17,000 Speaker 1: And so this still feels to me like an individual 281 00:15:17,080 --> 00:15:20,120 Speaker 1: country problem, not a general emerging market problem. Jeff. To 282 00:15:20,160 --> 00:15:21,760 Speaker 1: that point, the price sanction of the last couple of 283 00:15:21,800 --> 00:15:24,600 Speaker 1: days to suggest that Turkey is decoupled from the wider 284 00:15:24,960 --> 00:15:26,880 Speaker 1: em story. So let's spend a little bit of time 285 00:15:27,000 --> 00:15:30,880 Speaker 1: talking about Turkey an emergency three hundred basis point hike yesterday. 286 00:15:30,920 --> 00:15:32,680 Speaker 1: But the events and how they rolled out and how 287 00:15:32,680 --> 00:15:35,480 Speaker 1: they played out were really interesting. First we find out 288 00:15:35,600 --> 00:15:38,120 Speaker 1: there's a Central Bank meeting, an emergency one because we 289 00:15:38,120 --> 00:15:40,680 Speaker 1: weren't expecting one until the first week of June. And 290 00:15:40,760 --> 00:15:44,120 Speaker 1: then the Deputy Prime Minister of Turkey goes on Twitter 291 00:15:44,520 --> 00:15:47,560 Speaker 1: and says it's time to regain the confidence of investors. 292 00:15:48,160 --> 00:15:50,360 Speaker 1: Was that the government given the central bank the green 293 00:15:50,440 --> 00:15:56,080 Speaker 1: light yesterday, Jeff Um, I suspect that is the case. 294 00:15:56,320 --> 00:15:58,400 Speaker 1: It was the government giving the Central bout of the 295 00:15:58,400 --> 00:16:01,160 Speaker 1: green lights, and and if that was a kind of 296 00:16:01,200 --> 00:16:03,920 Speaker 1: oblique signal to do that, that that's kind of helpful 297 00:16:03,960 --> 00:16:07,480 Speaker 1: because of course, as you imply by your question there, Jonathan, 298 00:16:07,520 --> 00:16:10,640 Speaker 1: And actually the backdrop to all of this is the 299 00:16:10,720 --> 00:16:14,200 Speaker 1: clear desire of present eard One to get involved directly 300 00:16:14,200 --> 00:16:16,800 Speaker 1: in monetary policy in Turkey, which is obviously what he 301 00:16:16,880 --> 00:16:19,120 Speaker 1: said in the statements a few days ago, which is 302 00:16:19,160 --> 00:16:22,240 Speaker 1: what sets the thing going. So I think, to be honest, 303 00:16:22,280 --> 00:16:25,080 Speaker 1: the speed with which, even though a great rise was 304 00:16:25,160 --> 00:16:29,080 Speaker 1: definitely needed, and the speeder which it came through was 305 00:16:29,280 --> 00:16:32,680 Speaker 1: somewhat surprising and perhaps does indicate that the government, so 306 00:16:32,800 --> 00:16:35,320 Speaker 1: to speak, might have given them a you know, a 307 00:16:35,400 --> 00:16:38,360 Speaker 1: behind the hand if you like green light. Um. I 308 00:16:38,360 --> 00:16:41,640 Speaker 1: think the point we make here is that this is 309 00:16:41,640 --> 00:16:44,320 Speaker 1: probably the minimum they had to do. It's pushed real 310 00:16:44,400 --> 00:16:48,760 Speaker 1: interest rates in Turkey up to about five basis points plus. 311 00:16:49,160 --> 00:16:52,440 Speaker 1: There's still concerns about things such as the high price 312 00:16:52,480 --> 00:16:55,400 Speaker 1: of oil, a very wide currenting count death that. As 313 00:16:55,440 --> 00:16:57,880 Speaker 1: I've said, so it remains to be seen whether this 314 00:16:57,960 --> 00:16:59,960 Speaker 1: will be enough, and certainly we're not changing our record 315 00:17:00,000 --> 00:17:02,920 Speaker 1: inndations on Tokey were underweight in equities, we don't like 316 00:17:03,000 --> 00:17:05,640 Speaker 1: the currency generally, so it's a wait to see here. 317 00:17:05,640 --> 00:17:08,280 Speaker 1: But this probably did move through a bit quicker than 318 00:17:08,320 --> 00:17:12,080 Speaker 1: we'd anticipated. Yeah, So the answer, Jonathan Varrow is that 319 00:17:12,280 --> 00:17:14,960 Speaker 1: Jeff Dennis overt Eubs is not sticking his hand in 320 00:17:15,040 --> 00:17:20,640 Speaker 1: this blender. It's like trade in a blend. It's just, God, 321 00:17:20,760 --> 00:17:22,639 Speaker 1: what a brutal image, Jeff. I do want to get 322 00:17:22,680 --> 00:17:24,840 Speaker 1: your sense that you're saying that that Turkey is an 323 00:17:24,840 --> 00:17:27,480 Speaker 1: idiosyncratic story. We have a bunch of idiosyncratic stories. We 324 00:17:27,520 --> 00:17:30,160 Speaker 1: also have Argentina. We also have elections that are coming 325 00:17:30,240 --> 00:17:33,320 Speaker 1: up in Mexico. We have some issues in Southeast Asia. 326 00:17:33,359 --> 00:17:36,800 Speaker 1: I'm just wondering, at what point do these idiosyncratic stories 327 00:17:36,840 --> 00:17:38,920 Speaker 1: add up to something more, especially given the fact that 328 00:17:38,920 --> 00:17:41,560 Speaker 1: we've seen so much money go into emerging markets through 329 00:17:41,680 --> 00:17:46,480 Speaker 1: exchange traded funds, through index strategies that are indiscriminate. The 330 00:17:46,560 --> 00:17:48,480 Speaker 1: point we make about all of this is, this is 331 00:17:48,520 --> 00:17:50,720 Speaker 1: all of the margin being driven by the rebound of 332 00:17:50,760 --> 00:17:53,919 Speaker 1: the dollar. The dollars gone against the euro to one 333 00:17:54,000 --> 00:17:57,240 Speaker 1: seventeen over the last several months. That always pulls money 334 00:17:57,240 --> 00:17:59,560 Speaker 1: out of them and pushes currencies under pressure. And of 335 00:17:59,600 --> 00:18:01,920 Speaker 1: course that has done as as they poked holes in 336 00:18:02,000 --> 00:18:05,320 Speaker 1: some of the weaker stories. Now, Um, the house view 337 00:18:05,400 --> 00:18:07,720 Speaker 1: here is the dollar goes back down again later this 338 00:18:07,840 --> 00:18:11,360 Speaker 1: year towards the one thirty level. Obviously, the talent situation 339 00:18:11,440 --> 00:18:12,840 Speaker 1: is a bit of a risk to that view, but 340 00:18:13,280 --> 00:18:16,320 Speaker 1: that's what the house view is here. Now. If that's wrong, um, 341 00:18:16,400 --> 00:18:18,880 Speaker 1: and the dollar continues to rally, well, these things will 342 00:18:19,000 --> 00:18:21,840 Speaker 1: become a more generalized crisis. I think the point we're 343 00:18:21,880 --> 00:18:24,320 Speaker 1: trying to make here is on our long term view 344 00:18:24,400 --> 00:18:26,600 Speaker 1: on the U. S. Dollar. There's not enough going wrong 345 00:18:26,680 --> 00:18:29,720 Speaker 1: in the emerging markets overall. Even though you've got politics 346 00:18:29,760 --> 00:18:32,919 Speaker 1: in Brazil and politics in Mexico and Argentina has obviously 347 00:18:33,000 --> 00:18:35,600 Speaker 1: been a concern, there's not enough negative going on in 348 00:18:35,640 --> 00:18:38,879 Speaker 1: them to cause a major crisis here now, especially if 349 00:18:38,920 --> 00:18:40,800 Speaker 1: the dollar goes back down again. Now, your last point 350 00:18:40,920 --> 00:18:43,160 Speaker 1: is very important. We've seen massive amounts of money coming 351 00:18:43,240 --> 00:18:45,480 Speaker 1: to the M fifty four billion dollars into e M 352 00:18:45,520 --> 00:18:47,920 Speaker 1: equity funds so far this year, and very little that 353 00:18:48,240 --> 00:18:49,920 Speaker 1: seems to have gone out so far. If some of 354 00:18:50,000 --> 00:18:51,960 Speaker 1: that does start to come out, that will be a 355 00:18:52,000 --> 00:18:53,879 Speaker 1: little bit of a negative. But we see this as 356 00:18:53,920 --> 00:18:57,560 Speaker 1: a temporary decline in the M driven by a stronger dollar, 357 00:18:57,800 --> 00:19:00,240 Speaker 1: which ultimately we think we'll roll over and we'll give 358 00:19:00,320 --> 00:19:03,200 Speaker 1: us a better environment for emergency markets later this year. Jeff, 359 00:19:03,240 --> 00:19:05,479 Speaker 1: It's almost the e M equivalent of a stock pickers 360 00:19:05,560 --> 00:19:08,840 Speaker 1: market at the moment. Pick your spots, take your opportunities, 361 00:19:08,880 --> 00:19:11,040 Speaker 1: and make sure you've got a long time arising. If 362 00:19:11,080 --> 00:19:12,879 Speaker 1: you apply that to we am right now, Jeff, what 363 00:19:12,880 --> 00:19:16,600 Speaker 1: are you looking at? Well? We um we as actually 364 00:19:16,640 --> 00:19:18,760 Speaker 1: not a lot of markets. Why major markets we have 365 00:19:18,800 --> 00:19:21,080 Speaker 1: got big overweights, and we like Russia, we liked we 366 00:19:21,200 --> 00:19:23,480 Speaker 1: like career, where we think the earnings numbers are going 367 00:19:23,520 --> 00:19:26,720 Speaker 1: to start to improve again. We actually in terms of 368 00:19:27,040 --> 00:19:30,240 Speaker 1: markets that have been under pressure recently, we're taking h well, 369 00:19:30,400 --> 00:19:33,080 Speaker 1: you know, we haven't overweight Indonesia, so we'd buy that back. 370 00:19:33,400 --> 00:19:35,760 Speaker 1: Those are three markets that I think are worth looking at. 371 00:19:36,080 --> 00:19:41,120 Speaker 1: Selective exposure in Central Europe, um more neutral in countries 372 00:19:41,160 --> 00:19:43,240 Speaker 1: like India and China. But those some of the markets 373 00:19:43,280 --> 00:19:46,399 Speaker 1: that we're looking at um um in this environment. But 374 00:19:46,440 --> 00:19:48,440 Speaker 1: our big call here is the dollars going back down 375 00:19:48,480 --> 00:19:50,720 Speaker 1: again eventually, and that's going to bring these sentiment back. 376 00:19:50,760 --> 00:19:53,359 Speaker 1: I think for m Jeff, what would have to happen 377 00:19:53,480 --> 00:19:55,720 Speaker 1: to make you rethink your thesis that this is not 378 00:19:56,080 --> 00:19:59,399 Speaker 1: a crisis and that everything is just fine. Two things. 379 00:19:59,600 --> 00:20:04,040 Speaker 1: First all, an ongoing dollar rally, dollar continues to move 380 00:20:04,119 --> 00:20:06,280 Speaker 1: up to say, US inflation goes up more than we think, 381 00:20:06,320 --> 00:20:08,480 Speaker 1: and the Fed's got to do more. Our house few 382 00:20:08,560 --> 00:20:10,480 Speaker 1: here for examples, the US and placing pressure is going 383 00:20:10,560 --> 00:20:11,960 Speaker 1: to fade a little bit in the second half of 384 00:20:11,960 --> 00:20:14,200 Speaker 1: the year, but if inflation continues to rise, the Fed's 385 00:20:14,240 --> 00:20:15,960 Speaker 1: got to get more aggressive. Bond yours get up a 386 00:20:16,000 --> 00:20:18,960 Speaker 1: lot more, pushing the dollar higher. That would obviously mean 387 00:20:19,080 --> 00:20:22,760 Speaker 1: more outflows from me. From a fundamental point of view, 388 00:20:22,880 --> 00:20:25,879 Speaker 1: what I'm watching above all is the earnings momentum now, 389 00:20:25,960 --> 00:20:28,800 Speaker 1: corporate earnings growth, and e M last year was extremely strong. 390 00:20:28,920 --> 00:20:33,679 Speaker 1: North of that, the forecast are running around fifteen this year. 391 00:20:33,760 --> 00:20:36,120 Speaker 1: Our own numbers a little higher than that. If those 392 00:20:36,160 --> 00:20:39,400 Speaker 1: earnings numbers start to come under pressure, that would indicate 393 00:20:39,560 --> 00:20:42,280 Speaker 1: that the pressure we've had on currencies recently, on the 394 00:20:42,320 --> 00:20:45,560 Speaker 1: markets generally, is starting to contaminate the corporate story, and 395 00:20:45,680 --> 00:20:47,560 Speaker 1: that would make me a little bit more cautious. So 396 00:20:47,920 --> 00:20:50,000 Speaker 1: from a fundamental point of view, would definitely look at 397 00:20:50,040 --> 00:20:52,520 Speaker 1: the earnings numbers as well as of course monitoring the 398 00:20:52,680 --> 00:20:55,280 Speaker 1: U S currency. Just to wrap things up, just finally, Jeff, 399 00:20:55,680 --> 00:20:57,800 Speaker 1: what's the response of the Federal Reserve if e M 400 00:20:57,880 --> 00:20:59,440 Speaker 1: does fall out of bed? Do we have a federal 401 00:20:59,480 --> 00:21:02,640 Speaker 1: reserve that is less sensitive or increasingly sensitive to what's 402 00:21:02,680 --> 00:21:06,480 Speaker 1: having abroad? Because j Pal spoke about em very recently, 403 00:21:06,760 --> 00:21:08,560 Speaker 1: didn't suggest to me we had a Federal Reserve chair 404 00:21:08,600 --> 00:21:12,280 Speaker 1: that was sensitive to what was happening abroad. I don't 405 00:21:12,280 --> 00:21:15,840 Speaker 1: think the Fed is going to remotely design policy based 406 00:21:15,880 --> 00:21:18,440 Speaker 1: on what's going on abroad unless you have a fully 407 00:21:18,480 --> 00:21:20,639 Speaker 1: fledged crisis. I want to make the point EM is 408 00:21:20,720 --> 00:21:24,040 Speaker 1: down ten to eleven from from the high. It is 409 00:21:24,119 --> 00:21:26,920 Speaker 1: not This is not a crisis. The Chinese currency hasn't moved, 410 00:21:28,760 --> 00:21:31,359 Speaker 1: countries have not moved as all this is idiosyncratic, is 411 00:21:31,440 --> 00:21:33,920 Speaker 1: driven by the dollar. I think the dollar will play 412 00:21:33,960 --> 00:21:36,360 Speaker 1: a role in the Fed's policy as part of their 413 00:21:36,760 --> 00:21:39,040 Speaker 1: their metrics. But what's going on in EM unless you 414 00:21:39,119 --> 00:21:40,639 Speaker 1: end up with a full blown prices, which you're not 415 00:21:40,720 --> 00:21:42,800 Speaker 1: going to have in our view, that's not going to 416 00:21:42,880 --> 00:21:45,480 Speaker 1: make a lot of difference to them. Jeff, really strong 417 00:21:45,560 --> 00:21:47,720 Speaker 1: and really reasoned, and we appreciate your time this morning. 418 00:21:47,800 --> 00:22:04,040 Speaker 1: Jeff Dennis UBS, head of Global Emerging Market Strategy. Scott 419 00:22:04,119 --> 00:22:08,440 Speaker 1: Mushkin joins us now he is Wolf Research Senior retail analyst. 420 00:22:09,000 --> 00:22:12,080 Speaker 1: Uh joining us by phone. Scott, So, what happened here? 421 00:22:12,160 --> 00:22:14,879 Speaker 1: Why are people trading down Best Buy shares so much? 422 00:22:15,000 --> 00:22:17,399 Speaker 1: Right now? Yeah, thanks for thanks for having me on. 423 00:22:17,720 --> 00:22:20,400 Speaker 1: I think there's shares are down because of profitability. Um. 424 00:22:20,720 --> 00:22:22,720 Speaker 1: You know they had a monster comp as you as 425 00:22:22,760 --> 00:22:26,480 Speaker 1: you're talking about ten point one perceis incredible. Um, but 426 00:22:26,760 --> 00:22:28,840 Speaker 1: the flow through to the bottom line I think was 427 00:22:28,920 --> 00:22:32,000 Speaker 1: less than people expected given that that comp And frankly, 428 00:22:32,040 --> 00:22:34,680 Speaker 1: that's exactly what happened with Target yesterday. Um. You know, 429 00:22:35,119 --> 00:22:39,520 Speaker 1: strong sales, um, but the profitability wasn't wasn't there? And 430 00:22:39,600 --> 00:22:42,679 Speaker 1: I think it's concerning, uh, concerning some investors. What does 431 00:22:42,720 --> 00:22:45,240 Speaker 1: this mean that they're basically slashing prices so much and 432 00:22:45,480 --> 00:22:48,280 Speaker 1: offering such discounts that they don't actually make any money? 433 00:22:48,400 --> 00:22:50,960 Speaker 1: Is that that the answer here? So so I don't 434 00:22:50,960 --> 00:22:53,160 Speaker 1: think it's the prices that they're slashing. It's the cost 435 00:22:53,240 --> 00:22:56,360 Speaker 1: of doing business. It's the omni channel cost to do business, 436 00:22:56,440 --> 00:23:00,680 Speaker 1: so it's the delivery, it's the in store service. So 437 00:23:01,040 --> 00:23:03,680 Speaker 1: it's just costing more now to be a retailer and 438 00:23:03,760 --> 00:23:06,320 Speaker 1: to be a relevant retailer. And again, same thing with 439 00:23:06,400 --> 00:23:09,000 Speaker 1: Target yesterday. All right, So if it's the same thing 440 00:23:09,080 --> 00:23:12,360 Speaker 1: with Target yesterday, is this eventually going to work out 441 00:23:12,400 --> 00:23:14,640 Speaker 1: in their favor or are they going down the wrong 442 00:23:14,720 --> 00:23:17,959 Speaker 1: path now? I actually think Best Buy is going down 443 00:23:18,000 --> 00:23:20,880 Speaker 1: the right path. Um. I think they are creating relevance 444 00:23:20,920 --> 00:23:24,080 Speaker 1: for themselves um and Hubert, who runs the company, has 445 00:23:24,080 --> 00:23:28,720 Speaker 1: done an amazing job emphasizing culture we're seeing, I think 446 00:23:28,840 --> 00:23:34,080 Speaker 1: a distancing between you know, like considered surviving retailers and 447 00:23:34,480 --> 00:23:37,040 Speaker 1: the ones that are probably going to be more trouble. 448 00:23:37,040 --> 00:23:38,840 Speaker 1: I put you know, Home is not just a survivor, 449 00:23:38,920 --> 00:23:43,000 Speaker 1: it's a thriver. Um. You know, clearly best buy last 450 00:23:43,040 --> 00:23:45,840 Speaker 1: man standing in that industry, but putting a strategic plan 451 00:23:46,040 --> 00:23:49,200 Speaker 1: that that makes sense. UM and Target looks like it's 452 00:23:49,240 --> 00:23:51,720 Speaker 1: it's moving into that category now too, with with with 453 00:23:51,880 --> 00:23:54,480 Speaker 1: Brian Cornell is doing over there. So no, they're they're 454 00:23:54,520 --> 00:23:56,879 Speaker 1: doing the right stuff. It's just costing them. It's costing 455 00:23:56,920 --> 00:23:59,080 Speaker 1: them some money. Scott. You know what I'm struck by 456 00:23:59,440 --> 00:24:01,879 Speaker 1: People talk about how there really hasn't been that much inflation, 457 00:24:02,359 --> 00:24:05,200 Speaker 1: and yet it seems like there are these extra costs. 458 00:24:05,400 --> 00:24:08,080 Speaker 1: Prices are going up. Certainly for the retailers, they're just 459 00:24:08,200 --> 00:24:10,600 Speaker 1: absorbing them, uh and it sort of is cutting into 460 00:24:10,600 --> 00:24:14,600 Speaker 1: their bottom line rather than passing along, Uh, the increases 461 00:24:14,880 --> 00:24:17,720 Speaker 1: with higher prices for consumers. Is that really what's going 462 00:24:17,760 --> 00:24:22,720 Speaker 1: on here? Such a great question, and and to a degree, yes, 463 00:24:22,880 --> 00:24:25,239 Speaker 1: And that where we're seeing it the most right now, 464 00:24:25,280 --> 00:24:27,520 Speaker 1: where we're most nervous about what you're talking about is 465 00:24:27,560 --> 00:24:31,360 Speaker 1: in the consumables area. Uh, price increases go right through 466 00:24:31,400 --> 00:24:35,359 Speaker 1: Bentonville Walmart's headquarters. UM. Walmart's been dragging their feet on 467 00:24:35,560 --> 00:24:39,720 Speaker 1: on raising prices and getting consumables, and that's making everybody nervous. 468 00:24:39,760 --> 00:24:42,240 Speaker 1: I mean, obviously we hate Campbell's report UM and talked 469 00:24:42,240 --> 00:24:45,920 Speaker 1: about really no pricing power UM. So this is an issue. 470 00:24:46,040 --> 00:24:48,800 Speaker 1: We do have rising costs, rehbalizing logistics costs, we have 471 00:24:48,920 --> 00:24:52,840 Speaker 1: rising labor costs in some cases, rising input costs UM. 472 00:24:53,320 --> 00:24:55,879 Speaker 1: And you know, right now there's a lot of friction 473 00:24:55,960 --> 00:24:59,400 Speaker 1: at retail to get that pricing through. UH. Some other 474 00:24:59,440 --> 00:25:02,880 Speaker 1: people like Srwyn Williams and paint um they're they're having 475 00:25:02,920 --> 00:25:07,040 Speaker 1: more success UM. But right now consumables is a focal 476 00:25:07,160 --> 00:25:11,040 Speaker 1: point of you know, will we see price right now? 477 00:25:11,119 --> 00:25:14,800 Speaker 1: We're not? Is the idea here that when retailers have 478 00:25:14,960 --> 00:25:20,080 Speaker 1: tried to raise prices on these consumables, people just go elsewhere, 479 00:25:20,400 --> 00:25:24,800 Speaker 1: that they just lose too much volume? Yes, And and 480 00:25:25,840 --> 00:25:28,800 Speaker 1: it's also business plans. You know, Walmart's plan is to 481 00:25:28,880 --> 00:25:30,880 Speaker 1: take a lot of share, So they're getting a lot 482 00:25:30,920 --> 00:25:34,720 Speaker 1: of volume share UM, and that's offsetting some of the 483 00:25:34,880 --> 00:25:37,840 Speaker 1: rising costs that they're seeing. So there their their plan 484 00:25:38,000 --> 00:25:39,640 Speaker 1: is to take share in the US, and so it's 485 00:25:39,680 --> 00:25:43,120 Speaker 1: different agendas at different companies. And right now Walmart's agenda 486 00:25:43,240 --> 00:25:46,360 Speaker 1: is to take share, and they haven't let price through 487 00:25:46,480 --> 00:25:48,800 Speaker 1: as much as we would have thought. We'll see as 488 00:25:48,880 --> 00:25:50,640 Speaker 1: time goes on, by the way, because these pressures are 489 00:25:51,160 --> 00:25:55,560 Speaker 1: our building. So it's definitely a fluid situation. Hey, Scott Muskin, 490 00:25:55,760 --> 00:25:58,600 Speaker 1: what's next for these companies? I mean, is it getting 491 00:25:58,640 --> 00:26:03,120 Speaker 1: their online game in order? Is it making the stores 492 00:26:03,320 --> 00:26:08,440 Speaker 1: more attractive or shrinking the store footprint? What's next for them? 493 00:26:09,280 --> 00:26:11,080 Speaker 1: I mean, I think it's optimizing the stores as you 494 00:26:11,440 --> 00:26:13,840 Speaker 1: talk about. I think it's omni channel, and I think 495 00:26:13,880 --> 00:26:16,720 Speaker 1: it's very specific to companies like Target. We were really 496 00:26:17,040 --> 00:26:19,159 Speaker 1: believed they need to have a complete shop, they have 497 00:26:19,240 --> 00:26:23,000 Speaker 1: to do more with their food. UM. So it depends 498 00:26:23,040 --> 00:26:26,000 Speaker 1: on you know, it's company to company um. But generally 499 00:26:26,800 --> 00:26:30,040 Speaker 1: optimizing the store base, improving the store experience, and then 500 00:26:30,080 --> 00:26:33,200 Speaker 1: working uh their omni channel and having a very good 501 00:26:33,280 --> 00:26:36,760 Speaker 1: e commerce and website. So that's what's that, That's what's next, 502 00:26:36,800 --> 00:26:38,440 Speaker 1: and they've got to keep you know, they gotta hope 503 00:26:38,720 --> 00:26:41,960 Speaker 1: the economy keeps coming. Scott, who is the most vulnerable. 504 00:26:42,359 --> 00:26:44,640 Speaker 1: I mean, we continue to think the most vulnerable companies 505 00:26:44,720 --> 00:26:48,359 Speaker 1: are what we call the multi regional UH supermarket chains, 506 00:26:48,480 --> 00:26:52,600 Speaker 1: guys like Kroger, a'll hold, Albertson's merging into Right Aid. 507 00:26:53,320 --> 00:26:55,920 Speaker 1: And the reason is this Amazon is really going after 508 00:26:56,000 --> 00:26:59,320 Speaker 1: the consumables area with you know, with Whole Foods. But 509 00:26:59,400 --> 00:27:02,399 Speaker 1: there's other other factors there. You have all the h 510 00:27:02,520 --> 00:27:05,520 Speaker 1: you have Walmart building share, which I just talked about. Um, 511 00:27:05,600 --> 00:27:08,400 Speaker 1: you have very strong regional chains like an ATB down 512 00:27:08,440 --> 00:27:11,720 Speaker 1: in Texas or Doubula is up in Boston. So those 513 00:27:11,880 --> 00:27:15,240 Speaker 1: those companies are really fighting a pretty strong battle. And 514 00:27:15,359 --> 00:27:18,119 Speaker 1: me we just talked about the lack of pricing power 515 00:27:18,200 --> 00:27:20,399 Speaker 1: there too. So those are the ones we we worry 516 00:27:20,440 --> 00:27:22,680 Speaker 1: about the most. All Right, We've got to leave it there, 517 00:27:22,680 --> 00:27:24,639 Speaker 1: but I want to thank you very much. Scott Mushkin. 518 00:27:24,800 --> 00:27:28,320 Speaker 1: He is a senior retail analyst and managing director for 519 00:27:28,680 --> 00:27:32,720 Speaker 1: Wolf Research. Talking about the best Buy as well as 520 00:27:33,040 --> 00:27:36,600 Speaker 1: the efforts on behalf of Target by Brian Cornell. Very 521 00:27:36,680 --> 00:27:54,280 Speaker 1: interesting stuff. Pere to give us more details and to 522 00:27:54,440 --> 00:27:57,639 Speaker 1: explain what's going on with President Donald Trump and the 523 00:27:58,119 --> 00:28:01,120 Speaker 1: it seems to be off meeting, but between the President 524 00:28:01,280 --> 00:28:03,920 Speaker 1: and North Korea's leader Kim Chung. I want to bring 525 00:28:04,000 --> 00:28:08,520 Speaker 1: in Craig Gordon, executive editor for Bloomberg Bloomberg Bureau chief 526 00:28:08,560 --> 00:28:13,399 Speaker 1: for Washington, D C. Craig a surprise or not so 527 00:28:13,560 --> 00:28:16,520 Speaker 1: much a surprise, as President Trump previously had said he 528 00:28:16,640 --> 00:28:18,760 Speaker 1: didn't know whether the meeting would take place. Yeah, I'm 529 00:28:18,760 --> 00:28:20,680 Speaker 1: a little surprised that we got this letter this morning. 530 00:28:20,840 --> 00:28:22,800 Speaker 1: I think there was definitely there were a lot of 531 00:28:22,880 --> 00:28:24,919 Speaker 1: bearers signs if someone was going to take place. There 532 00:28:24,960 --> 00:28:26,760 Speaker 1: had been a lot of verbal sniping back and forth 533 00:28:26,800 --> 00:28:29,520 Speaker 1: between the two sides. Trump seemed to keep open the 534 00:28:29,560 --> 00:28:32,399 Speaker 1: possibilities late as yesterday at the meeting might still go forward. 535 00:28:32,520 --> 00:28:35,240 Speaker 1: But yeah, we had dropped a letter on Kim Jong 536 00:28:35,400 --> 00:28:38,280 Speaker 1: n this morning saying that based on Kim's rather bellico 537 00:28:38,400 --> 00:28:40,680 Speaker 1: statements about Mike pens and a few other things that 538 00:28:40,760 --> 00:28:43,360 Speaker 1: have come around lately, that there's really no reason to 539 00:28:43,440 --> 00:28:46,800 Speaker 1: go forward with the summit in Singapore. Well. Having said that, 540 00:28:47,760 --> 00:28:50,120 Speaker 1: this also comes at a time when North Korea said 541 00:28:50,160 --> 00:28:53,680 Speaker 1: it shut its nuclear test site ahead of the planned meeting. 542 00:28:54,040 --> 00:28:57,360 Speaker 1: Could this be a situation where the President got what 543 00:28:57,520 --> 00:29:01,120 Speaker 1: he wanted and then decides doesn't necessarily makes sense for 544 00:29:01,160 --> 00:29:04,000 Speaker 1: the US to meet with North Korea. Sure, that's a possibility. 545 00:29:04,040 --> 00:29:05,920 Speaker 1: I mean, it's interesting to me because both sides seem 546 00:29:05,960 --> 00:29:08,320 Speaker 1: to be doing, you know, a little trust building steps 547 00:29:08,480 --> 00:29:11,000 Speaker 1: to try to salvage the summit. They obviously shut down 548 00:29:11,040 --> 00:29:13,520 Speaker 1: the nuclear faciliar destroyer, blew it up. Whatever they did. 549 00:29:14,080 --> 00:29:16,880 Speaker 1: Trump and Secretary of State Pompeo have been kind of 550 00:29:17,000 --> 00:29:19,680 Speaker 1: easing back on Trump's early rhetoric that there had to 551 00:29:19,720 --> 00:29:23,000 Speaker 1: be sort of immediate to nuclearization. Pompeo said in testimony 552 00:29:23,120 --> 00:29:26,320 Speaker 1: yesterday that it had to be verifiable. Trump said on 553 00:29:26,480 --> 00:29:28,479 Speaker 1: Fox News this morning that it had to be uh, 554 00:29:28,560 --> 00:29:30,760 Speaker 1: sort of it could be phased in, they'd be okay 555 00:29:30,800 --> 00:29:33,040 Speaker 1: with that. And everybody seemed to be trying to kind 556 00:29:33,080 --> 00:29:34,640 Speaker 1: of dance around a little bit to try to find 557 00:29:34,680 --> 00:29:37,320 Speaker 1: ways to salve age this thing. Obviously, Trump decided there 558 00:29:37,400 --> 00:29:39,120 Speaker 1: was really not much point in going forward, and so 559 00:29:39,280 --> 00:29:41,800 Speaker 1: he he canceled it with this letter. Well, it's certainly 560 00:29:41,840 --> 00:29:45,080 Speaker 1: showing up in markets right now. SMP five hundred, which 561 00:29:45,200 --> 00:29:48,280 Speaker 1: was making a move higher in early trading, down now 562 00:29:48,360 --> 00:29:51,360 Speaker 1: about four tenths of a percent. Craig, do you think 563 00:29:51,440 --> 00:29:53,560 Speaker 1: this has anything to do with the president's meeting with 564 00:29:53,760 --> 00:29:57,640 Speaker 1: the South Korea's leader. Um, it's possible, although you know, 565 00:29:57,760 --> 00:29:59,720 Speaker 1: we know that the sub Kreen leader was ranged in 566 00:29:59,760 --> 00:30:02,320 Speaker 1: trying to have this happened. Obviously, the North and South 567 00:30:02,400 --> 00:30:04,960 Speaker 1: have been having some of the I mean dramatic We 568 00:30:05,040 --> 00:30:08,040 Speaker 1: also the dramatic images of Kim walking across the d 569 00:30:08,200 --> 00:30:11,160 Speaker 1: m Z, the sort of warm embraced there. I think, 570 00:30:11,320 --> 00:30:12,800 Speaker 1: you know, the South Korean leader is known to be 571 00:30:12,840 --> 00:30:15,120 Speaker 1: somebody who wants the Moon, wants to have this meeting, 572 00:30:15,200 --> 00:30:17,920 Speaker 1: wants to try to turn on the temperature on the peninsula. 573 00:30:18,040 --> 00:30:21,000 Speaker 1: All those nuclear weapons and conventional weapons are pointed right 574 00:30:21,040 --> 00:30:23,960 Speaker 1: at him, frankly first and foremost, so he's eager to 575 00:30:24,160 --> 00:30:26,680 Speaker 1: make this happen. Um. So it's not really clear. We 576 00:30:26,720 --> 00:30:28,320 Speaker 1: didn't have a very clear signal coming out of the 577 00:30:28,400 --> 00:30:31,560 Speaker 1: meeting earlier this week when Trump and Moon met, of 578 00:30:31,680 --> 00:30:34,000 Speaker 1: where this was headed. But as I say, you know, 579 00:30:34,160 --> 00:30:36,240 Speaker 1: it felt like there was a chance that could still 580 00:30:36,240 --> 00:30:38,560 Speaker 1: come together. But there was definitely a lot of headwinds 581 00:30:38,640 --> 00:30:41,200 Speaker 1: that this thing was running into. And so while I'm 582 00:30:41,240 --> 00:30:43,360 Speaker 1: surprised by the timing, I'm not surprised by the outcome. 583 00:30:43,440 --> 00:30:54,240 Speaker 1: All Right, Craig Gordon, Bloomberg's your chief in Washington. Thanks 584 00:30:54,280 --> 00:30:58,480 Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen 585 00:30:58,760 --> 00:31:04,080 Speaker 1: to interviews on Apple podcast, SoundCloud, or whichever podcast platform 586 00:31:04,200 --> 00:31:08,440 Speaker 1: you prefer. I'm on Twitter at Tom Keene before the podcast. 587 00:31:08,560 --> 00:31:12,040 Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio