1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma Waits, each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money, whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple 6 00:00:15,520 --> 00:00:17,960 Speaker 1: Podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:23,560 Speaker 1: at Bloomberg dot com. So let's get to the headlines 8 00:00:23,600 --> 00:00:28,120 Speaker 1: that crossed just moments agost Labor Secretary Alex Acosta resigning 9 00:00:28,120 --> 00:00:32,320 Speaker 1: within the week after coming under severe criticism over his 10 00:00:32,400 --> 00:00:36,400 Speaker 1: handling of the Jeffrey Epstein case. Uh he appleaded guilty 11 00:00:36,479 --> 00:00:39,800 Speaker 1: in two thousand and eight and got thirteen months in jail. 12 00:00:40,360 --> 00:00:43,120 Speaker 1: Now he is being prosecuted again. Jeffrey Epstein, the financier 13 00:00:43,880 --> 00:00:46,199 Speaker 1: by the Southern District of New York joining us now. 14 00:00:46,240 --> 00:00:49,960 Speaker 1: Craig Gordon Bloomberg washed. Bloomberg's Washington bureau chief, Craig, what 15 00:00:49,960 --> 00:00:52,920 Speaker 1: do we know so far about why Secretary Acosta is 16 00:00:52,960 --> 00:00:56,080 Speaker 1: resigning now? I mean, look, we have Bloomberg News had 17 00:00:56,120 --> 00:00:59,560 Speaker 1: reported a few days ago that several people around Donald 18 00:00:59,560 --> 00:01:02,840 Speaker 1: Trump did not think a Costa would survive the week. Um. 19 00:01:02,880 --> 00:01:05,800 Speaker 1: Obviously he's caught up very heavily in this Jeffrey Epstein 20 00:01:06,440 --> 00:01:08,520 Speaker 1: case because it was the U. S. Attorney down there 21 00:01:08,520 --> 00:01:10,800 Speaker 1: in Miami when they kind of pretty a pretty generous 22 00:01:10,840 --> 00:01:14,000 Speaker 1: plea deal with Jeffrey Epstein on very similar charges related 23 00:01:14,040 --> 00:01:16,720 Speaker 1: to underage girls and that sort of thing. So I 24 00:01:17,080 --> 00:01:19,800 Speaker 1: think our feeling here in the Bluebird Washington Bureau was 25 00:01:19,800 --> 00:01:22,319 Speaker 1: that a Costa was always on borrow time. People know, 26 00:01:22,440 --> 00:01:24,720 Speaker 1: he went out yesterday and tried to give a kind 27 00:01:24,760 --> 00:01:27,360 Speaker 1: of a defense of his um, of his handling of 28 00:01:27,440 --> 00:01:30,080 Speaker 1: that case, saying, you know, he didn't have available to 29 00:01:30,160 --> 00:01:32,040 Speaker 1: him all the evidence that the New York prosecutors had 30 00:01:32,080 --> 00:01:34,520 Speaker 1: available to them. I think there's some question of whether 31 00:01:34,560 --> 00:01:37,200 Speaker 1: that's true or not, honestly, but um, but there was 32 00:01:37,240 --> 00:01:39,240 Speaker 1: also were also some reports of Trump had asked him 33 00:01:39,240 --> 00:01:41,759 Speaker 1: to go out and kind of make a last stand. Um. 34 00:01:41,920 --> 00:01:44,119 Speaker 1: I don't think he. He you know, did a lot 35 00:01:44,160 --> 00:01:46,320 Speaker 1: to help his case yesterday, and then you know the 36 00:01:46,360 --> 00:01:48,400 Speaker 1: ax fell this morning. Do we know who's going to 37 00:01:48,480 --> 00:01:51,240 Speaker 1: replace him? Uh, there's an acting Labor Secretary that will 38 00:01:51,240 --> 00:01:54,080 Speaker 1: step in, um now, and I'm sure Trump will look 39 00:01:54,120 --> 00:01:56,840 Speaker 1: to to fill the job, you know, for Republican administration. 40 00:01:57,240 --> 00:01:59,400 Speaker 1: It's actually a pretty important job. It involves a lot 41 00:01:59,440 --> 00:02:02,960 Speaker 1: of regulatory issues in terms of businesses, and we all 42 00:02:03,000 --> 00:02:06,360 Speaker 1: know Trump as a fairly pro business, antiregulation sort of president. 43 00:02:06,480 --> 00:02:09,360 Speaker 1: So obviously there will be a move to put someone 44 00:02:09,360 --> 00:02:11,600 Speaker 1: in there with with that um, with those sort of 45 00:02:11,639 --> 00:02:15,359 Speaker 1: bona fides. The thing that apparently angered Trump along the way, 46 00:02:15,400 --> 00:02:17,960 Speaker 1: even before the Jeffrey Epstein case rey surface, was that 47 00:02:18,560 --> 00:02:21,639 Speaker 1: some of the state ag s attorney attorneys general had 48 00:02:21,680 --> 00:02:24,400 Speaker 1: been thought a Costa was kind of slow walking, uh 49 00:02:24,400 --> 00:02:26,880 Speaker 1: an antiregulation you know, Bill that was kind of sitting 50 00:02:26,880 --> 00:02:29,440 Speaker 1: on his desk. So we think, you know, again, our 51 00:02:29,480 --> 00:02:32,160 Speaker 1: reporting shows that alex A. Costa was already a little 52 00:02:32,160 --> 00:02:34,399 Speaker 1: bit in Trump's dog house. Trump today said some nice 53 00:02:34,400 --> 00:02:37,080 Speaker 1: things about him are reporting suggested to the contrary, And 54 00:02:37,080 --> 00:02:39,639 Speaker 1: then when the Epstein thing came along, it was hard 55 00:02:39,680 --> 00:02:42,160 Speaker 1: to imagine he could survive that. Again, it's easy and 56 00:02:42,560 --> 00:02:44,800 Speaker 1: with hindsight to look back at his handling of the case, 57 00:02:45,160 --> 00:02:46,960 Speaker 1: I don't think the Costa was able to answer some 58 00:02:46,960 --> 00:02:49,080 Speaker 1: pretty key questions about why a guy who did all 59 00:02:49,080 --> 00:02:51,880 Speaker 1: the things the accused of doing essentially got a thirteen 60 00:02:51,919 --> 00:02:54,240 Speaker 1: month sentence and got to basically leave jail every day 61 00:02:54,280 --> 00:02:56,560 Speaker 1: and go work at his house. So for most people, 62 00:02:56,600 --> 00:02:57,920 Speaker 1: even if you don't, you don't have to have a 63 00:02:57,919 --> 00:03:00,120 Speaker 1: lot of gree to kind of question that. And I 64 00:03:00,160 --> 00:03:01,799 Speaker 1: think a Coasta it would have been really hard for 65 00:03:01,840 --> 00:03:04,079 Speaker 1: him to keep dig out from under this. Washington were 66 00:03:04,160 --> 00:03:06,920 Speaker 1: Chief Craig Gordon, thank you so much for the update. 67 00:03:21,800 --> 00:03:24,959 Speaker 1: The US equities climbing to new highs, leaving many fund 68 00:03:25,000 --> 00:03:27,720 Speaker 1: managers but a rather sick feeling in their stomachs. On 69 00:03:27,720 --> 00:03:31,400 Speaker 1: one hand, uh, you know, valuations are incredibly high. On 70 00:03:31,520 --> 00:03:34,920 Speaker 1: the other hand, however, there doesn't seem to be any 71 00:03:35,000 --> 00:03:38,080 Speaker 1: pressure to push them down. Joining me now, Bruce Biddle's 72 00:03:38,160 --> 00:03:41,920 Speaker 1: chief investment strategist, Bared Bruce, thank you for being with me. 73 00:03:42,160 --> 00:03:45,240 Speaker 1: I'm trying to figure out what could potentially stop this 74 00:03:45,360 --> 00:03:48,160 Speaker 1: rally that has left the SMP, the NASDAC, and the 75 00:03:48,240 --> 00:03:52,360 Speaker 1: Dow all at new records. Well at least so you're exact. 76 00:03:52,360 --> 00:03:55,000 Speaker 1: You're right. The market continues to press higher, and there's 77 00:03:55,600 --> 00:04:00,240 Speaker 1: the pervasive lack of selling is really really amazing, and 78 00:04:00,280 --> 00:04:02,160 Speaker 1: I think a lot of that has to do with 79 00:04:02,240 --> 00:04:05,360 Speaker 1: the fact that, um the US economy continues to do 80 00:04:05,480 --> 00:04:09,320 Speaker 1: well even though it is slowing UM. And then you 81 00:04:09,400 --> 00:04:12,760 Speaker 1: have the fellow Reserve Board UM indicating that they'll cut 82 00:04:12,840 --> 00:04:16,320 Speaker 1: interest rate twenty five basis points perhaps at the end 83 00:04:16,320 --> 00:04:19,679 Speaker 1: of July as an insurance policy to keep it going 84 00:04:19,880 --> 00:04:22,760 Speaker 1: so UM. And there's been a lot of discussion about 85 00:04:23,680 --> 00:04:27,520 Speaker 1: shortfall and earnings, of course, but you have to suspect 86 00:04:27,560 --> 00:04:29,839 Speaker 1: that a lot of that's really built into the market. 87 00:04:30,040 --> 00:04:35,440 Speaker 1: And i'd say, furthermore, the markets not based on on 88 00:04:35,560 --> 00:04:38,200 Speaker 1: second quarter earnings and markets looking for third and fourth 89 00:04:38,279 --> 00:04:42,719 Speaker 1: quarter and maybe even into so UM. I think what's 90 00:04:42,720 --> 00:04:45,680 Speaker 1: happening here is you've got a decent economy, and you've 91 00:04:45,720 --> 00:04:48,560 Speaker 1: got our friendly Federal Reserve Board, and you've got the 92 00:04:48,600 --> 00:04:51,640 Speaker 1: best economy in the world, and so it's it's being 93 00:04:51,640 --> 00:04:56,520 Speaker 1: reflected in the stock market. Yeah, I can't see why 94 00:04:56,560 --> 00:04:59,640 Speaker 1: you couldn't suspect the market can continue to go higher. Now, 95 00:04:59,640 --> 00:05:03,080 Speaker 1: with that said, we're already up over for the year 96 00:05:03,080 --> 00:05:08,400 Speaker 1: in the big averages. UM. My suspicion is that we're 97 00:05:08,560 --> 00:05:11,279 Speaker 1: a touch over board here of course as a result 98 00:05:11,320 --> 00:05:15,680 Speaker 1: of that, and the third quarter typically is a difficult 99 00:05:15,760 --> 00:05:19,400 Speaker 1: quarter seasonally for the market, and I wouldn't be surprised 100 00:05:19,440 --> 00:05:22,000 Speaker 1: if we had some sort of consolidation, even a pullback 101 00:05:22,000 --> 00:05:25,400 Speaker 1: in the third quarter. Now, if that should occur, I 102 00:05:25,400 --> 00:05:27,680 Speaker 1: think that would set us up for what we've for 103 00:05:27,720 --> 00:05:30,400 Speaker 1: a mirror image this year what we saw last year, 104 00:05:30,440 --> 00:05:33,960 Speaker 1: in other words, a good rally in November and December 105 00:05:34,000 --> 00:05:36,960 Speaker 1: to finish out the year. So how much is the 106 00:05:37,120 --> 00:05:40,599 Speaker 1: rally and equities dependent on the federals or of cutting 107 00:05:40,680 --> 00:05:44,839 Speaker 1: rates at least two times before your end? Well, I 108 00:05:44,880 --> 00:05:48,440 Speaker 1: suspect a lot, because I mean the markets turned around 109 00:05:48,920 --> 00:05:52,480 Speaker 1: in January of this year based on the feeders, are 110 00:05:52,560 --> 00:05:55,560 Speaker 1: board moving a hundred and eight degrees away from you know, 111 00:05:55,720 --> 00:06:00,799 Speaker 1: tightening policy. So um, and I think that's continuing into 112 00:06:00,839 --> 00:06:05,240 Speaker 1: this year, and perhaps we'll go into as well. But UM, 113 00:06:05,320 --> 00:06:07,880 Speaker 1: a lot of the market this year and and and 114 00:06:07,880 --> 00:06:10,880 Speaker 1: the reason for that is, Um, it's not the rate 115 00:06:10,920 --> 00:06:14,760 Speaker 1: cuts so much that drives the market. It's the psychology 116 00:06:14,800 --> 00:06:19,240 Speaker 1: of the rate cut. It builds confidence among investors and 117 00:06:19,320 --> 00:06:22,000 Speaker 1: in terms of the economy, it builds confidence in terms 118 00:06:22,040 --> 00:06:25,800 Speaker 1: of the consumer. So UM. The rate cuts by themselves 119 00:06:25,839 --> 00:06:28,320 Speaker 1: are not the magic ointment, but I think it's a 120 00:06:28,400 --> 00:06:32,280 Speaker 1: confidence that they they instill in the investor that causes 121 00:06:32,320 --> 00:06:35,359 Speaker 1: these markets that do much better so so, given those comments, 122 00:06:35,400 --> 00:06:39,359 Speaker 1: do you favor consumer stocks more than others just because 123 00:06:39,440 --> 00:06:42,800 Speaker 1: this potentially the rate cuts give a boost disproportionately to 124 00:06:42,800 --> 00:06:46,880 Speaker 1: the consumer. Well, for most of this year, we favored 125 00:06:46,880 --> 00:06:50,520 Speaker 1: defensive sectors simply because we felt the economy was slowing 126 00:06:50,520 --> 00:06:53,680 Speaker 1: and that's where the earnings visibility would be and that's 127 00:06:53,680 --> 00:06:57,080 Speaker 1: where a larger dividend pay us are and that that's 128 00:06:57,120 --> 00:07:00,360 Speaker 1: been true so far. They continue to be very strong 129 00:07:00,440 --> 00:07:03,120 Speaker 1: in this environment. But if the economy is going to 130 00:07:03,640 --> 00:07:07,240 Speaker 1: improve later this year, it should certainly show up in 131 00:07:07,320 --> 00:07:11,920 Speaker 1: two areas. One would be consumer discretionary sector. UM, that 132 00:07:11,960 --> 00:07:14,000 Speaker 1: should do much better. And if you look at some 133 00:07:14,040 --> 00:07:17,920 Speaker 1: of these retail stocks on the big box retailers, they're 134 00:07:17,960 --> 00:07:22,560 Speaker 1: making new highs here this week. So the consumer discretionary 135 00:07:22,640 --> 00:07:24,480 Speaker 1: certainty is a place to go. And I would think 136 00:07:24,720 --> 00:07:28,800 Speaker 1: the industrials would also be another area that has lagged 137 00:07:28,800 --> 00:07:31,440 Speaker 1: but UM, but I think it will do much better 138 00:07:31,440 --> 00:07:33,440 Speaker 1: as the year progresses. On the flip side, are you 139 00:07:33,480 --> 00:07:36,119 Speaker 1: cashing out of utilities and reads and other haven beds 140 00:07:36,160 --> 00:07:39,640 Speaker 1: that have been bit up tremendously now? Not really, because 141 00:07:39,680 --> 00:07:43,400 Speaker 1: we think that the best portfolio configuration right now is 142 00:07:43,400 --> 00:07:46,200 Speaker 1: is a diversified one. And the reason we say that 143 00:07:46,400 --> 00:07:50,120 Speaker 1: is there are still certain unknowns out there. Um the 144 00:07:50,160 --> 00:07:53,040 Speaker 1: fate is concerned about the global economy, and we think 145 00:07:53,160 --> 00:07:57,160 Speaker 1: rightfully so if that would continue to deteriorate, it could 146 00:07:57,160 --> 00:08:00,680 Speaker 1: cause our economy to slowly and further, So we don't 147 00:08:00,680 --> 00:08:05,680 Speaker 1: want to put too much emphasis on economic growth yet. 148 00:08:05,760 --> 00:08:09,520 Speaker 1: And and and also the unknowns however, the trade war 149 00:08:09,600 --> 00:08:13,640 Speaker 1: with China and perhaps even Europe. So I think there's 150 00:08:13,640 --> 00:08:16,240 Speaker 1: a real reason to have a diversified portfolio. You might 151 00:08:16,280 --> 00:08:19,560 Speaker 1: even consider having a small portion of your principle and 152 00:08:20,320 --> 00:08:23,400 Speaker 1: gold stocks which they're broken out, and perhaps that's reflecting 153 00:08:23,440 --> 00:08:26,520 Speaker 1: the instability in the global economy as well. I suspected 154 00:08:26,520 --> 00:08:28,480 Speaker 1: you were going to mention gold. And I actually wonder 155 00:08:28,520 --> 00:08:32,079 Speaker 1: when you say diversified, whether investors are as diversified as 156 00:08:32,120 --> 00:08:34,960 Speaker 1: they have been traditionally by holding a sixty forties sixty 157 00:08:35,000 --> 00:08:39,560 Speaker 1: stocks forty bonds type of allocation. Given the fact that 158 00:08:39,960 --> 00:08:44,480 Speaker 1: bond yields have dropped as stock prices have risen, that 159 00:08:44,520 --> 00:08:48,520 Speaker 1: could reverse. The stock prices could drop as bond yields arise, 160 00:08:48,640 --> 00:08:51,080 Speaker 1: and then you have no diversification. Is that a concern 161 00:08:51,160 --> 00:08:54,520 Speaker 1: of yours? Yes, it is a concern of mine, and 162 00:08:54,640 --> 00:08:59,280 Speaker 1: particularly since passive investing now has become so popular and 163 00:08:59,679 --> 00:09:02,079 Speaker 1: a low lot of that means that a lot of 164 00:09:02,200 --> 00:09:05,480 Speaker 1: investors are concentrated in the same issues, the ones that 165 00:09:05,520 --> 00:09:07,720 Speaker 1: have been out performing, the ones that are in most 166 00:09:07,720 --> 00:09:10,760 Speaker 1: of the e t f s that have outperformed. So UM, 167 00:09:11,640 --> 00:09:13,959 Speaker 1: I think it's UM would be prudent here to So 168 00:09:14,160 --> 00:09:17,040 Speaker 1: we look over a portfolio and looked at diversified more 169 00:09:17,040 --> 00:09:18,880 Speaker 1: than you think you might be. And when you talk 170 00:09:18,920 --> 00:09:21,720 Speaker 1: about diversifying, you talk about gold. A lot of other 171 00:09:21,760 --> 00:09:24,880 Speaker 1: people have talked about alternative assets, things like real estate 172 00:09:25,400 --> 00:09:29,000 Speaker 1: UH sort of tangibles and private debt, private equity, UH, 173 00:09:29,120 --> 00:09:32,200 Speaker 1: infrastructure funds. These are the types of areas people have gone. 174 00:09:32,600 --> 00:09:36,360 Speaker 1: Do you think that that is advisable for people to 175 00:09:36,440 --> 00:09:40,520 Speaker 1: just even consider, well, for the average investor, I've saying 176 00:09:40,520 --> 00:09:44,680 Speaker 1: no because of the liquidity factor. I think at this juncture, 177 00:09:45,360 --> 00:09:48,160 Speaker 1: when you look at valuations in the US and you 178 00:09:48,200 --> 00:09:52,040 Speaker 1: look at valuations overseas, the overseas valuations are much more attractive. 179 00:09:52,840 --> 00:09:56,840 Speaker 1: And so we talked about diversification, we also talk about 180 00:09:57,080 --> 00:10:01,679 Speaker 1: moving outside the US in terms of equity. So you 181 00:10:01,679 --> 00:10:04,680 Speaker 1: think that that's the way to diversify is international. Is 182 00:10:04,679 --> 00:10:08,040 Speaker 1: there any particular region that you think is the best bet. Well, 183 00:10:08,080 --> 00:10:11,000 Speaker 1: you know, Europe is so um so out of favor 184 00:10:11,040 --> 00:10:15,760 Speaker 1: here and evaluations are are particularly attractive there. And I'd 185 00:10:15,760 --> 00:10:18,640 Speaker 1: say also emerging markets. I mean, they haven't done really 186 00:10:18,720 --> 00:10:23,160 Speaker 1: much despite a lot of um support from analysts, and 187 00:10:23,360 --> 00:10:25,440 Speaker 1: yet they haven't done a whole lot yet. But I 188 00:10:25,440 --> 00:10:28,440 Speaker 1: think there's a possibility that the US continues to do well, 189 00:10:28,480 --> 00:10:31,880 Speaker 1: that our weaken some and interest rates remain low, that 190 00:10:31,960 --> 00:10:34,360 Speaker 1: emerging markets could be another place to go as well. 191 00:10:34,559 --> 00:10:36,720 Speaker 1: Briss Biddles, thank you so much for being with me today. 192 00:10:36,880 --> 00:10:40,320 Speaker 1: Bruce Biddles, chef investment strategist at Bird, talking about the 193 00:10:40,320 --> 00:10:43,200 Speaker 1: conundrum right now do you buy or to not to 194 00:10:43,320 --> 00:10:46,400 Speaker 1: buy US equities at all time highs and given the 195 00:10:46,400 --> 00:10:48,960 Speaker 1: fact that the Federal Reserve m President Trump seemed uh 196 00:10:49,120 --> 00:10:52,160 Speaker 1: to want to support valuations even at a time when 197 00:10:52,160 --> 00:10:55,040 Speaker 1: the credit cycle feels long in the tooth. Is it 198 00:10:55,200 --> 00:11:15,880 Speaker 1: that's another uh, that's another point of debate right now, 199 00:11:15,960 --> 00:11:18,640 Speaker 1: Let's turn our focus to US economic data. This morning, 200 00:11:18,640 --> 00:11:21,720 Speaker 1: we got another measure of US inflation that came in 201 00:11:22,000 --> 00:11:26,000 Speaker 1: better than expected. Carra Kadanna, our chief US economist, here 202 00:11:26,120 --> 00:11:30,040 Speaker 1: at Bloomberg Economics, joins me here in New York. So 203 00:11:30,400 --> 00:11:34,320 Speaker 1: this is the Producer Price Index. It came in, uh 204 00:11:34,520 --> 00:11:37,920 Speaker 1: faster than expected in June. How much can we say 205 00:11:38,120 --> 00:11:40,560 Speaker 1: from this and what we heard with this or what 206 00:11:40,640 --> 00:11:43,240 Speaker 1: we saw with the cp I coming in also higher 207 00:11:43,240 --> 00:11:47,280 Speaker 1: than expected? Are we seeing more inflation that people realize? Well, 208 00:11:47,320 --> 00:11:50,360 Speaker 1: I think we're giving vindication that the soft patch on 209 00:11:50,400 --> 00:11:54,640 Speaker 1: the inflation front earlier this year was indeed temporary, transitory 210 00:11:54,800 --> 00:11:58,760 Speaker 1: epick youre upward choice. Powell would say transitory. Yes, Je 211 00:11:58,800 --> 00:12:03,120 Speaker 1: Palan Jenna Yellen like that were transitory. Uh. They initially 212 00:12:03,200 --> 00:12:05,839 Speaker 1: characterized it that way, and then the soft patch went 213 00:12:05,880 --> 00:12:08,720 Speaker 1: on for longer than they anticipated, and so they started 214 00:12:08,760 --> 00:12:12,199 Speaker 1: to get a cold feet on that notion and head 215 00:12:12,200 --> 00:12:14,920 Speaker 1: backed away from that rhetoric. And finally, just as they 216 00:12:14,960 --> 00:12:17,240 Speaker 1: were ready to throw in the towel on this and 217 00:12:17,480 --> 00:12:22,199 Speaker 1: j Pal even in his testimony Wednesday and Thursday, highlighted 218 00:12:22,240 --> 00:12:26,920 Speaker 1: that maybe this transitory patch was uh not so transitory. Uh, 219 00:12:26,960 --> 00:12:28,960 Speaker 1: then suddenly we get the CPI report when we do 220 00:12:29,040 --> 00:12:32,960 Speaker 1: see things bouncing back. Although again we shouldn't have panicked 221 00:12:32,960 --> 00:12:35,040 Speaker 1: when we saw the soft patch earlier this year, because 222 00:12:35,040 --> 00:12:39,160 Speaker 1: there were some one off items, things like the classification 223 00:12:39,200 --> 00:12:42,720 Speaker 1: of apparel prices, so the way they collected the data changed, 224 00:12:42,840 --> 00:12:45,360 Speaker 1: and maybe it was part of the story. There Also 225 00:12:45,720 --> 00:12:47,959 Speaker 1: some of the strength we saw yesterday UH seemed to 226 00:12:48,000 --> 00:12:51,160 Speaker 1: be yet one off categories. And this was something that 227 00:12:51,280 --> 00:12:55,720 Speaker 1: Tom Barkin from the Richmond Fed illustrated. UH. Inflation will 228 00:12:55,760 --> 00:12:59,080 Speaker 1: look more convincing to the Fed that it has rebounded 229 00:12:59,440 --> 00:13:02,680 Speaker 1: if you see it in service categories driven by labor 230 00:13:02,760 --> 00:13:05,440 Speaker 1: costs and wage pressures. That's not what we saw yesterday. 231 00:13:05,520 --> 00:13:10,160 Speaker 1: We saw service CPI kind of continuing to trend sideways. 232 00:13:10,200 --> 00:13:12,880 Speaker 1: So then where are we seeing the games? Well, what 233 00:13:12,960 --> 00:13:16,000 Speaker 1: we saw in yesterday's cp I was really a bounce 234 00:13:16,080 --> 00:13:20,440 Speaker 1: back in goods prices, and goods prices had been really 235 00:13:20,800 --> 00:13:23,439 Speaker 1: taking it on the chin do in large part to 236 00:13:24,040 --> 00:13:27,560 Speaker 1: global over capacity and also the strength of the dollar. Right, 237 00:13:27,600 --> 00:13:31,080 Speaker 1: a strong dollar pushes down import prices. Import prices have 238 00:13:31,200 --> 00:13:34,640 Speaker 1: been in decline. That's weighing on goods in the CPI 239 00:13:34,800 --> 00:13:37,400 Speaker 1: basket UH, and we saw a little bit of respite 240 00:13:37,440 --> 00:13:40,640 Speaker 1: on that front yesterday. Now, if the dollar continues to 241 00:13:40,720 --> 00:13:45,000 Speaker 1: come off as the Fed is moving towards easier policy, 242 00:13:45,120 --> 00:13:47,000 Speaker 1: which that's a big if at this point, but that 243 00:13:47,080 --> 00:13:51,560 Speaker 1: certainly has been the trend over the last couple of weeks, right, uh, 244 00:13:51,600 --> 00:13:55,760 Speaker 1: And so what if the dollar does weaken moderately as 245 00:13:55,760 --> 00:13:57,880 Speaker 1: a FED is easing at the end of this month, 246 00:13:57,920 --> 00:14:00,080 Speaker 1: and then my team thinks one more time at the 247 00:14:00,120 --> 00:14:03,240 Speaker 1: end of this year at the December FOMC meeting, then 248 00:14:03,280 --> 00:14:05,760 Speaker 1: that will put a little bit of upward pressure under 249 00:14:05,800 --> 00:14:09,480 Speaker 1: input prices goods, and it will push core inflation closer 250 00:14:09,480 --> 00:14:12,400 Speaker 1: to the FED subjective. Okay, how much is what we're 251 00:14:12,400 --> 00:14:16,560 Speaker 1: seeing in terms of producer prices increasing just simply due 252 00:14:16,559 --> 00:14:20,840 Speaker 1: to the tariffs. Well, there's a tariff impact there to 253 00:14:20,960 --> 00:14:24,440 Speaker 1: some degree, but we have to be very cautious in 254 00:14:24,840 --> 00:14:29,560 Speaker 1: blaming all price increases everywhere due to tariff and not 255 00:14:29,560 --> 00:14:31,960 Speaker 1: not to say blaming, but the fact that you're seeing 256 00:14:32,000 --> 00:14:36,080 Speaker 1: the increase in stuff in the goods of stuff rather 257 00:14:36,160 --> 00:14:38,920 Speaker 1: than the prices that people are willing to pay for 258 00:14:39,200 --> 00:14:44,080 Speaker 1: a service. It seems like perhaps that asymmetry is tied 259 00:14:44,120 --> 00:14:47,200 Speaker 1: directly to some of the trade tensions and the resulting levies. 260 00:14:47,600 --> 00:14:50,600 Speaker 1: You know, with with the changes to trade policy earlier 261 00:14:50,640 --> 00:14:53,440 Speaker 1: this year, you are still seeing that those price pressures 262 00:14:53,520 --> 00:14:55,920 Speaker 1: kind of coming down the pipeline. So you know, for instance, 263 00:14:55,920 --> 00:14:58,760 Speaker 1: in the c p I, we could see UH furniture 264 00:14:58,800 --> 00:15:01,600 Speaker 1: and household furnishings is one category which really seems to 265 00:15:01,640 --> 00:15:05,720 Speaker 1: be accelerating. That obviously would be very clearly tied into 266 00:15:05,880 --> 00:15:10,080 Speaker 1: UH tariff policy and whatnot, but that doesn't entirely explain 267 00:15:10,320 --> 00:15:14,040 Speaker 1: what's happening here. We have an economy that was operating 268 00:15:14,160 --> 00:15:17,800 Speaker 1: well above its potential growth rate last year, continues to 269 00:15:17,840 --> 00:15:21,760 Speaker 1: be above that potential growth rate in n and that 270 00:15:21,800 --> 00:15:24,800 Speaker 1: in and of itself generates inflation. I guess that without 271 00:15:24,840 --> 00:15:27,440 Speaker 1: wage pressure, this is not good inflation. Right, I'm going 272 00:15:27,480 --> 00:15:30,120 Speaker 1: to stop you without wage pressure, because if we look 273 00:15:30,160 --> 00:15:34,480 Speaker 1: at the Employment cost Index, average general yearnings, many of 274 00:15:34,560 --> 00:15:39,120 Speaker 1: the metrics of wage inflation UH that we watch for 275 00:15:39,200 --> 00:15:42,480 Speaker 1: the economy, they're all very close to post recession highs. 276 00:15:42,520 --> 00:15:45,280 Speaker 1: So yes, they've been a little bit cool in recent 277 00:15:45,320 --> 00:15:48,480 Speaker 1: months and kind of migrating sideways rather than accelerating to 278 00:15:48,720 --> 00:15:51,640 Speaker 1: new record highs, but nonetheless they are still close to 279 00:15:51,720 --> 00:15:54,920 Speaker 1: record highs. So we're seeing the hottest labor cost pressures 280 00:15:54,920 --> 00:15:58,000 Speaker 1: in twenty nineteen that we have in any year of 281 00:15:58,040 --> 00:16:00,880 Speaker 1: this cycle. So that mitigates some of the prices on 282 00:16:01,080 --> 00:16:04,720 Speaker 1: goods that have been increasing. People are getting higher paychecks, 283 00:16:04,760 --> 00:16:07,200 Speaker 1: they're just not accelerating perhaps as fast, and that's why 284 00:16:07,280 --> 00:16:09,960 Speaker 1: some of these price increases can be sustained. If forekers 285 00:16:10,000 --> 00:16:12,760 Speaker 1: are getting higher paychecks, they have more buying power and 286 00:16:12,760 --> 00:16:16,520 Speaker 1: they're more likely to tolerate those price increases that come 287 00:16:16,520 --> 00:16:19,160 Speaker 1: down the pipeline. Carra Kadonna, Are you willing to tolerate 288 00:16:19,240 --> 00:16:25,160 Speaker 1: higher prices for diapers? And I consider those essentials absolutely 289 00:16:26,480 --> 00:16:29,720 Speaker 1: for your child? Caaka Donna Chief you as economist for 290 00:16:29,720 --> 00:16:32,760 Speaker 1: Bloomberg Economics, always of pleasure. We love having you. Thank 291 00:16:32,760 --> 00:16:49,000 Speaker 1: you for being here. Amazon calls it a holiday. The 292 00:16:49,000 --> 00:16:51,440 Speaker 1: rest of us call it a big sale. Amazon Prime 293 00:16:51,520 --> 00:16:54,000 Speaker 1: Day coming up on Monday and Tuesday. Joining us now 294 00:16:54,040 --> 00:16:56,640 Speaker 1: to talk about what we can expect. What Amazon is 295 00:16:56,680 --> 00:17:00,240 Speaker 1: going to try to push the most for people to buy. Answer, 296 00:17:00,240 --> 00:17:03,520 Speaker 1: Soaper joins us now Bloomberg Technology Reporters. So, Spenser, just 297 00:17:03,560 --> 00:17:06,520 Speaker 1: give us a sense of how Amazon is viewing this 298 00:17:06,720 --> 00:17:09,200 Speaker 1: Prime Day. Is this Prime Day different from all other 299 00:17:09,240 --> 00:17:13,679 Speaker 1: Prime Days? No? And that's really what's new about it 300 00:17:13,720 --> 00:17:17,920 Speaker 1: this year. Um, so that we're now in its fifth year. Uh. 301 00:17:17,960 --> 00:17:20,000 Speaker 1: They started it, uh, you know as a way to 302 00:17:20,080 --> 00:17:24,760 Speaker 1: kind of entice um new Prime members to join, encourage 303 00:17:24,760 --> 00:17:28,119 Speaker 1: existing Prime members to renew their memberships. That's really what 304 00:17:28,160 --> 00:17:30,399 Speaker 1: this is all about, is getting people to join Prime 305 00:17:30,480 --> 00:17:33,879 Speaker 1: because you know, if you're a Prime member, it converts 306 00:17:33,920 --> 00:17:36,760 Speaker 1: you from a you know, an occasional Amazon shopper into 307 00:17:36,760 --> 00:17:39,720 Speaker 1: a devoted shopper. And Prime members spend you know, between 308 00:17:39,720 --> 00:17:41,399 Speaker 1: two and three times as much on the site as 309 00:17:41,440 --> 00:17:44,879 Speaker 1: non Prime members. So forget how much they're selling, what 310 00:17:44,920 --> 00:17:47,560 Speaker 1: the deals are today, all of that's not really important. 311 00:17:47,560 --> 00:17:49,880 Speaker 1: The biggest thing for Amazon is how many new members 312 00:17:49,880 --> 00:17:52,560 Speaker 1: sign up. That's what the days always about and what 313 00:17:52,640 --> 00:17:55,359 Speaker 1: it's what it's still about. This year. Has Amazon reached 314 00:17:55,400 --> 00:17:59,080 Speaker 1: saturation point where the new potential subscribers is kind of 315 00:17:59,520 --> 00:18:02,000 Speaker 1: kind of live did Yeah, that's the problem is in 316 00:18:02,000 --> 00:18:04,560 Speaker 1: the US and it's core, you know, it's primary market 317 00:18:04,560 --> 00:18:07,320 Speaker 1: of the US. It's definitely showing signs of reaching saturation 318 00:18:07,359 --> 00:18:11,040 Speaker 1: that Prime member growth is slowing. Um. One interesting thing 319 00:18:11,080 --> 00:18:15,440 Speaker 1: that we saw as they're offering uh, millennials in India, 320 00:18:15,800 --> 00:18:19,080 Speaker 1: which is a big international focus for them, half price 321 00:18:19,119 --> 00:18:22,159 Speaker 1: on Prime memberships, so they're really you know, there's definitely 322 00:18:22,200 --> 00:18:24,800 Speaker 1: a you know, we're focused on kind of all the 323 00:18:24,880 --> 00:18:26,840 Speaker 1: US marketing and the deals and that sort of thing. 324 00:18:26,880 --> 00:18:29,800 Speaker 1: But really, for Amazon to keep growing Prime memberships, it 325 00:18:29,840 --> 00:18:31,919 Speaker 1: has to it has to look globally, and that's what 326 00:18:31,960 --> 00:18:35,000 Speaker 1: it's doing with this half priced membership option in India. 327 00:18:35,400 --> 00:18:37,800 Speaker 1: You know, it's interesting this Amazon Prime Day comes at 328 00:18:37,800 --> 00:18:43,440 Speaker 1: an increasing politicized environment for Amazon. In particular, Amazon warehouse 329 00:18:43,440 --> 00:18:48,440 Speaker 1: workers have been protesting in Minnesota. Amazon I would suppose 330 00:18:48,480 --> 00:18:50,439 Speaker 1: that it is a response to that, coming out with 331 00:18:50,480 --> 00:18:54,399 Speaker 1: this big retraining plan saying, look, we are going to 332 00:18:54,400 --> 00:18:57,119 Speaker 1: take people who are at low wage earning jobs and 333 00:18:57,119 --> 00:19:01,320 Speaker 1: try to retrain them into higher paying ones. How is 334 00:19:01,400 --> 00:19:05,920 Speaker 1: Amazon trying to position itself ahead of the elections right 335 00:19:05,960 --> 00:19:08,879 Speaker 1: now in light of some of these pressures. Well, I mean, 336 00:19:08,880 --> 00:19:11,159 Speaker 1: I don't know if they're positioning themselves in front of anything. 337 00:19:11,200 --> 00:19:13,520 Speaker 1: They seem to be reacting to everything, like the the 338 00:19:13,560 --> 00:19:17,520 Speaker 1: fifteen dollar an hour pledge that came last year followed 339 00:19:17,520 --> 00:19:21,120 Speaker 1: a lot of criticism from presidential hopeful uh Bernie Sanders 340 00:19:21,119 --> 00:19:24,160 Speaker 1: and Elizabeth Warren, and there were you know, states were 341 00:19:24,160 --> 00:19:29,520 Speaker 1: reporting that uh, you know, they're that Amazon employees were 342 00:19:29,560 --> 00:19:33,639 Speaker 1: among their biggest groups of food stamp recipients and people 343 00:19:33,640 --> 00:19:36,200 Speaker 1: needing assistance for basic needs like healthcare and stuff. So 344 00:19:36,560 --> 00:19:38,800 Speaker 1: they really had to kind of react to to those 345 00:19:38,840 --> 00:19:43,240 Speaker 1: negative headlines. Um and now with the training, one of 346 00:19:43,280 --> 00:19:47,040 Speaker 1: my colleagues are a newcomer did something today just looking 347 00:19:47,080 --> 00:19:51,080 Speaker 1: at the train. You know, it's really not that much 348 00:19:51,119 --> 00:19:53,520 Speaker 1: that Amazon is spending when when you break down the numbers, 349 00:19:53,520 --> 00:19:56,800 Speaker 1: it's a big figure seven hundred million because Amazon so big, 350 00:19:56,840 --> 00:19:58,760 Speaker 1: but when you look at the per employee and spending, 351 00:19:59,040 --> 00:20:01,680 Speaker 1: it's actually less than lot of companies pay per year 352 00:20:01,720 --> 00:20:05,199 Speaker 1: to train their people. So um. Even that it's Amazon 353 00:20:05,320 --> 00:20:07,840 Speaker 1: just kind of dressing up, uh, some numbers around its 354 00:20:07,880 --> 00:20:10,480 Speaker 1: size as opposed to actually doing anything differently. You know, 355 00:20:10,600 --> 00:20:13,679 Speaker 1: Spencer is one thing for people to pick it, uh 356 00:20:14,119 --> 00:20:16,320 Speaker 1: pick it against Amazon. It's another thing for them to 357 00:20:16,320 --> 00:20:19,280 Speaker 1: stop buying things on the platform. Is there any evidence 358 00:20:19,560 --> 00:20:22,399 Speaker 1: that Amazon has lost business as a result of some 359 00:20:22,480 --> 00:20:27,480 Speaker 1: of these political issues, Uh, not not that I can see. 360 00:20:27,520 --> 00:20:29,639 Speaker 1: I mean, if anything, it's it's just that they're a 361 00:20:29,720 --> 00:20:32,520 Speaker 1: victim of their success. They've gotten so big that growth 362 00:20:32,560 --> 00:20:35,359 Speaker 1: is slowing. You know, e commerce is it's primary business, 363 00:20:35,359 --> 00:20:38,359 Speaker 1: it's its oldest business, and it's most mature business, and 364 00:20:38,400 --> 00:20:41,439 Speaker 1: that's where the revenue growth is slowing down, you know, 365 00:20:41,480 --> 00:20:44,920 Speaker 1: whether whether the these political protests and things are moving 366 00:20:44,920 --> 00:20:48,000 Speaker 1: the needle much on that, I you know, I'm really 367 00:20:48,000 --> 00:20:53,720 Speaker 1: not sure. But Amazon is also generally reactive to customer feedback. 368 00:20:53,800 --> 00:20:56,040 Speaker 1: So if there's a you know, flood of emails to 369 00:20:56,119 --> 00:20:58,800 Speaker 1: Jeff Bezos about like, hey, I hear your workers are 370 00:20:58,800 --> 00:21:00,639 Speaker 1: getting food stamps and I don't get that's the kind 371 00:21:00,640 --> 00:21:02,840 Speaker 1: of thing that's going to trigger the fifteen dollar an 372 00:21:02,840 --> 00:21:05,560 Speaker 1: hour wage pledge and and that sort of thing. So 373 00:21:05,600 --> 00:21:08,120 Speaker 1: I'm sure it's influencing their decision making, but whether it's 374 00:21:08,200 --> 00:21:13,640 Speaker 1: denting there you know, actual um revenue, I just don't know, Spencer. 375 00:21:13,760 --> 00:21:17,639 Speaker 1: I'm just curious. Lastly, whether Amazon is going to push 376 00:21:17,680 --> 00:21:22,280 Speaker 1: its own products more than other products on Amazon Prime Day, 377 00:21:22,280 --> 00:21:24,760 Speaker 1: in other words, sort of rank them higher in its 378 00:21:24,800 --> 00:21:29,080 Speaker 1: algorithms so that people buy Amazon sourced products that will 379 00:21:29,080 --> 00:21:30,760 Speaker 1: be interesting to watch. I mean, they always put an 380 00:21:30,760 --> 00:21:33,120 Speaker 1: emphasis on their gadgets, right in the past couple of years, 381 00:21:33,119 --> 00:21:36,280 Speaker 1: they've really pushed the you know, the the echo speakers, 382 00:21:36,640 --> 00:21:39,720 Speaker 1: you know that operate on the Alexive voice activated platform. 383 00:21:39,800 --> 00:21:42,680 Speaker 1: That's something that Amazon is really pushing, and they've made 384 00:21:42,680 --> 00:21:44,840 Speaker 1: that a focus of Prime Day. The past couple of years, 385 00:21:44,880 --> 00:21:47,199 Speaker 1: so that's not that's not new. And I think what 386 00:21:47,240 --> 00:21:49,679 Speaker 1: you're asking is more like their private label products, like 387 00:21:50,000 --> 00:21:52,880 Speaker 1: you know, you're you're looking for a you know, oh, 388 00:21:52,880 --> 00:21:55,640 Speaker 1: can I get a deal on Johnson and Johnson baby shampoo? 389 00:21:55,720 --> 00:21:59,160 Speaker 1: Am I going to see some Amazon alternative? And uh? 390 00:21:59,160 --> 00:22:00,760 Speaker 1: And you very likely see that and you may not 391 00:22:00,840 --> 00:22:02,840 Speaker 1: even know that it's an Amazon brand because it could 392 00:22:02,880 --> 00:22:06,720 Speaker 1: have some funky name like Solimo or something that you're 393 00:22:06,760 --> 00:22:09,840 Speaker 1: just you know, they've they've they've launched hundreds of the 394 00:22:09,960 --> 00:22:12,720 Speaker 1: of these things. So um, yeah, I think there's a 395 00:22:12,840 --> 00:22:14,760 Speaker 1: you know, there's definitely a good chance you're you're seeing 396 00:22:14,760 --> 00:22:17,480 Speaker 1: those things in your search results or just be be mindful. 397 00:22:17,520 --> 00:22:19,520 Speaker 1: And I think Amazon is just hoping that people aren't 398 00:22:19,800 --> 00:22:22,840 Speaker 1: so brand beholding and if they can save, you know, 399 00:22:22,880 --> 00:22:24,480 Speaker 1: save a couple of bucks, they might give a give 400 00:22:24,560 --> 00:22:26,760 Speaker 1: something else a chance, and then if then then maybe 401 00:22:26,800 --> 00:22:29,480 Speaker 1: they end up being loyal to to a new Amazon brand. 402 00:22:29,760 --> 00:22:31,720 Speaker 1: Spencer Sober, thank you so much for being with us. 403 00:22:31,960 --> 00:22:35,520 Speaker 1: Spencer Sober is blue Bloomberg Technology reporter. Amazon shares up 404 00:22:35,560 --> 00:22:37,920 Speaker 1: about a half a percentage point today for the year, 405 00:22:38,080 --> 00:22:42,560 Speaker 1: up thirty four per cent a real boom for this 406 00:22:42,760 --> 00:22:45,800 Speaker 1: big tech company in a year when tech has continued 407 00:22:46,000 --> 00:22:49,960 Speaker 1: to drive US equity gains higher. Thanks for listening to 408 00:22:50,000 --> 00:22:52,800 Speaker 1: the Bloomberg Penl podcast. You can subscribe and listen to 409 00:22:52,800 --> 00:22:56,040 Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer. 410 00:22:56,440 --> 00:22:59,240 Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney at Lisa 411 00:22:59,320 --> 00:23:01,840 Speaker 1: bram Woid's I'm on Twitter at Lisa Abramo. It's one 412 00:23:02,080 --> 00:23:04,679 Speaker 1: before the podcast. You can always catch us worldwide on 413 00:23:04,720 --> 00:23:05,560 Speaker 1: Bloomberg Radio.