Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com and of course on the Bloomberg. This
Speaker 1: is a joy anytime you see head of Global research,
Speaker 1: that's uses someone who spends a lot of time on
Speaker 1: airplanes just recruiting people and all that and talking to
Speaker 1: their investor clients, you know, and they sometimes they sort
Speaker 1: of know what they're talking about inequities, bonds, and then
Speaker 1: sometimes they don't. JP Morgan takes a different tex their
Speaker 1: Joyce Chang is head of Global Research, Chair Global at Research,
Speaker 1: and she has prodigious abilities in the fixed in market
Speaker 1: in including tenure at Columbia University. Joyce, wonderful to have
Speaker 1: you in our London studios. Let me ask you an
Speaker 1: open question. Get started. What is the Joyce Chang observation
Speaker 1: on fixed income right now? Well, it's great to be here. Tom. Well,
Speaker 1: first of all, we expect yields to go lower. We're
Speaker 1: seeing synchronized central bank easing, so it's not just all
Speaker 1: about the Fed in total for what we expect in
Speaker 1: central bank easing. We think that the e c B,
Speaker 1: the b o J is going to follow and thirteen
Speaker 1: emerging market central bank, So yields are going lower here UM,
Speaker 1: and so we've seen you know, the best returns and
Speaker 1: fixed income markets in about the last five years. UM.
Speaker 1: You know, there's a little bit further for this to
Speaker 1: go as UM yields come down. So importantly, if prices
Speaker 1: up institutional retail yield down, do I want to lock
Speaker 1: in that appreciation or are you just comfortable now? You
Speaker 1: know the Joyce does as she clips coupons down in
Speaker 1: the new Park Avenue office. Jamie's got a asked down
Speaker 1: in the basement for Joyce to clip coupons. Well, you've
Speaker 1: got to hold onto these gains because what's ahead for
Speaker 1: the rest of the year, weather it's in fixed incomeer equities,
Speaker 1: is mostly about preserving the game that we are expecting
Speaker 1: no more than like low single digit returns across any
Speaker 1: asset class in the second half of the year. And
Speaker 1: be careful in emerging markets because the f X side,
Speaker 1: actually it could be more volatile. Here. We've got to
Speaker 1: see what happens between the U S and China. So Joyce,
Speaker 1: you mentioned kind of a global coordinated devishness by some
Speaker 1: of these central banks around the world. Does that suggest
Speaker 1: that we maybe take on a little bit more risk
Speaker 1: we think about emerging market debt, maybe US high yield. Well,
Speaker 1: if you want to achieve a five percent yield at
Speaker 1: this point, you have to look at emerging markets fixed
Speaker 1: income or at high yield bonds. Um We still think
Speaker 1: that the dollar debt is a better place to be
Speaker 1: right now. I think there is still f X risk
Speaker 1: if you have more tensions developed between the U S
Speaker 1: and China, and you have c n y depreciation that
Speaker 1: could have an effect on other currencies. And the time, Joyce,
Speaker 1: that we've got left with you, I want to talk
Speaker 1: about your serious job. Have had a research for one
Speaker 1: of the world's great great banks. Right now, there are
Speaker 1: people all across the world getting ready for the December
Speaker 1: exams of the c A program, and a lot of
Speaker 1: those people level one, level two, level three, people that
Speaker 1: want to get into the act are going Is there
Speaker 1: going to be a research capability five or ten or
Speaker 1: fifteen years from now? Restate the vailue of research to
Speaker 1: a major bank moving forward? Well, the CFA exam is
Speaker 1: always a big deal in research departments, in particular the
Speaker 1: credit groups. The company analysts all as a group study
Speaker 1: for this, and we're very proud of the c F
Speaker 1: as we have at JP Morgan. But there's always going
Speaker 1: to be a need for thought leadership. Now you're gonna
Speaker 1: have to incorporate more AI, examine more alternative and high
Speaker 1: frequency data. But the thought leadership is all about the judgment.
Speaker 1: It's all about connecting the different parts of the story.
Speaker 1: And now it's about putting the geopolitical overlay on this.
Speaker 1: And it's yeah, and much higher frequency data points are
Speaker 1: needed and much greater amounts of flash crash. I didn't
Speaker 1: ask for me. I asked for afterthought. She's twelve years old,
Speaker 1: and what you're telling telling me is she needs a
Speaker 1: double major international relations and finance. Right. Well, the geopolitics
Speaker 1: of me, a lot of my background had been in
Speaker 1: policy and so for a long time the view on
Speaker 1: geo politics is, well, it doesn't determine the trend, it's
Speaker 1: just the volatility. Now we're getting some real questions about
Speaker 1: that and we're really seeing that play through in the
Speaker 1: way that we're looking at business confidence and that's playing
Speaker 1: out in global cat BACS, George Chang, thank you so much,
Speaker 1: Thank you so much, share of their global research. Really
Speaker 1: can't say enough about it. She took this is a
Speaker 1: huge I get goose bumps over it because the history
Speaker 1: of Manhattan in Columbia College, Columbia University. She took the
Speaker 1: John J. Award one year, which is like super duper
Speaker 1: teacher award from the Bloomberg Interactive Worker Studios in New York.
Speaker 1: This is our China discussion of the day. She's Catherine Man,
Speaker 1: who has left a trail of debris in international economics
Speaker 1: for twenty or thirty years. Is a sympathy project. City
Speaker 1: Group picked her up a couple of years ago from
Speaker 1: the O E. C D in Paris. How is it
Speaker 1: working out at City What a change from from brandeis
Speaker 1: and your your important academic work and then O E.
Speaker 1: C D with Anna L. Guria and all of a
Speaker 1: sudden you're working for the animals in New York. Well,
Speaker 1: I think the you know, the issue that is most
Speaker 1: important is uh the interaction of financial markets in the
Speaker 1: real economy, and I think we're seeing that playing out
Speaker 1: right now as financial markets are trying to bet on
Speaker 1: what is going to happen at the G twenty and
Speaker 1: it even could be relatively better for the real economy
Speaker 1: or relatively worse for the Let's back up. Then, I
Speaker 1: was at a meeting with you and Michael Rosenberg of
Speaker 1: Bloomberg a million years ago. You were like eighteen or twenty,
Speaker 1: just out of m I T where the two of
Speaker 1: you codified this idea of family dysfunction between China and
Speaker 1: the United States. Folks to be careful here. Doctor Man
Speaker 1: is acclaimed for her research on the back and forth,
Speaker 1: almost the game theory figuring, you know, Mary Tyler Moore,
Speaker 1: ordinary people bringing over to China in the US. How's
Speaker 1: that dysfunction going right now? Well, I think we're seeing
Speaker 1: a very difficult period of time where, uh, we're trying
Speaker 1: to decide whether we're going to more deeply engage with
Speaker 1: the marriage with China that's been developing with supply chain
Speaker 1: or whether we're going to divorce because um, you know
Speaker 1: you can't break up these supply chains, uh, and and
Speaker 1: expect to continue to trade with them in the same way.
Speaker 1: But we have a new president with a more mercantile tact,
Speaker 1: and yet to your research, we're addicted the price of
Speaker 1: those goods aren't we. Well, so I think there are
Speaker 1: a couple of things that we think about where I
Speaker 1: mean addicted to the price of the goods um, but
Speaker 1: they are. They are also addicted to our capital flows,
Speaker 1: so it goes both ways. They've invested in in US
Speaker 1: UH businesses and and US treasuries, and where we have
Speaker 1: deeply engaged with them, both to sell products in their
Speaker 1: location as well as to sell products in terms of exports.
Speaker 1: So we're very deeply engaged with China. Our businesses are
Speaker 1: very deeply engaged. I want to continue to be deeply engaged.
Speaker 1: And yet that's not the direction that the current policy
Speaker 1: is going. The current policy is designed to divorce, so um,
Speaker 1: you kind of can't have both of those uh in
Speaker 1: a marriage. So, doctor Man, given that we are mutually
Speaker 1: dependent with with China, clearly we know that the President
Speaker 1: later said is getting on Air Force one heading over
Speaker 1: to Osaka. What do you think is a reasonable outcome
Speaker 1: here from this weekend's talks. Well, our base case is
Speaker 1: that they shake hands and agree to UH go back
Speaker 1: to the negotiating table UH and avoid therefore putting the
Speaker 1: on the last tranche of the three billion dollars worth
Speaker 1: of trade from China, and so that's that's our base case,
Speaker 1: and we think that that's a very important outcome. It's
Speaker 1: it's kind of minimalist in that it doesn't take off
Speaker 1: any of the tariffs, but uh, it is a better
Speaker 1: outcome and that it doesn't add to the tariffs and
Speaker 1: more deeply, uh caused discress and distress and financial markets
Speaker 1: and in business investment in the real economy. So it's
Speaker 1: it's it's a better outcome than the alternative, which is
Speaker 1: which is no, which is storming away from the table. Um.
Speaker 1: So uh. But on the other hand, you know, that's
Speaker 1: that's pretty minimalist. Usn't reduced the uncertainty associated with maybe
Speaker 1: there will be tariffs in the future. We're not quite
Speaker 1: so sure. Um, And uh that type of uncertainty of
Speaker 1: roads business confidence and uh, if they're going to have
Speaker 1: a lower confidence in the rules of the game going forward,
Speaker 1: and that's the challenge. You know, give me some rules.
Speaker 1: I'll play by the game and then um, you know,
Speaker 1: you end up with lower investment, you get lower trade, uh,
Speaker 1: and you get employment consequences from that well going forward.
Speaker 1: For the next step would be sitting down again and
Speaker 1: trying to close this deal. Do you think that a
Speaker 1: meaningful deal is is an option here? Can we get
Speaker 1: a meaningful deal with trying to can trying to get
Speaker 1: a meaningful deal with the United States? So, uh, some
Speaker 1: of the issues that that started this round of of tariff, well,
Speaker 1: this whole round of trade negotiations and so forth, are
Speaker 1: very serious issues having to do with intellectual property, UM, force,
Speaker 1: technology transfer, joint ownership, and cybersecurity. Those are the elements
Speaker 1: that were put forward at the beginning of the of
Speaker 1: the whole relationship breakdown with China. Right now, um, the
Speaker 1: strategy is not focused so much on those issues. The
Speaker 1: tools that have been used to kind of pry uh
Speaker 1: those negotiations open have been tariffs that has led to
Speaker 1: much reduced trade with China. So I think there is
Speaker 1: this there is this sort of um disconnect between the
Speaker 1: objectives is to you know, enhance thetellectual property, allow for
Speaker 1: broader joint ownership, allow for protected technology transfer that would
Speaker 1: more deeply engage the US with China. The tariffs are
Speaker 1: to divorce our relationship with China, to break up those
Speaker 1: supply chains, make them go to some other country. So
Speaker 1: there's a real disconnect between these two different objectives. Uh,
Speaker 1: in the current policy set we are fifteen years on
Speaker 1: since your seminal work on codependency and in all of
Speaker 1: these dysfunctions. We had on Pierre Navarro the other day,
Speaker 1: who espoused his view of economics, which to me is
Speaker 1: exceptionally static, almost in a true classical economic standpoint you
Speaker 1: work out of Harvard and M I. T. And a
Speaker 1: hugely dynamic regime. Is the dynamics now radically different from
Speaker 1: what you looked at fifteen years ago. Have we moved
Speaker 1: on to even more interdependencies and correlations where anybody's policy
Speaker 1: is really going to have little effect. Well, actually, what's
Speaker 1: most disturbing to me is is that this, uh, this
Speaker 1: this trade situation that we have right now with with
Speaker 1: China is emblematic of ten years of stagnation in terms
Speaker 1: of global integration. Uh. We had you know, earlier in
Speaker 1: my career, we talked about deeping deep, more deeply integrated
Speaker 1: global supply chains, a greater variety of products crossing borders,
Speaker 1: lower prices available to both businesses and consumers. And you know,
Speaker 1: all that stop about ten years ago, and so and
Speaker 1: so where we are is kind of like trying to
Speaker 1: fight the last war because we're to go. I mean,
Speaker 1: the way we got to get was a tragedy of
Speaker 1: two world wars? Have we have we just lost our
Speaker 1: collective memory of the Atlantic Charter in the early GET initiatives.
Speaker 1: Well we can look at you know, there's slow down
Speaker 1: and you know, no multilateral trade agreement has has succeeded,
Speaker 1: and there aren't even any successful or very few successful
Speaker 1: pluralateral agreements. This is part of the sort of the
Speaker 1: need to revitalize the w t O. What should it
Speaker 1: be doing in today's world, which is which is very
Speaker 1: complex with lots of competing interests. But but the bottom
Speaker 1: line is we have ten years of very sluggish growth,
Speaker 1: little investment um, productivity growth being slow, rising inequality. And
Speaker 1: that also is a period of time when global trade
Speaker 1: has stagnated. So you know, most people think about there
Speaker 1: was too much globalization. I think we've had two So
Speaker 1: Dr Man, you've met mentioning before we went on the air.
Speaker 1: Have you've been traveling around the world meeting with the
Speaker 1: largest institutional investors. What's number one on their issues that
Speaker 1: they want to talk to you about. Uh, They're really
Speaker 1: concerned about where the FED is going to go. That's
Speaker 1: that's their their key issue. Um, some of them have
Speaker 1: a longer term agenda and so that you know that's uh,
Speaker 1: they're looking a bad productivity. Uh, they're looking at inequality,
Speaker 1: specifically intergenerational inequality and what the implication of that might
Speaker 1: be for wealth management issues and and that sort of thing.
Speaker 1: So some of them have a very long term perspective
Speaker 1: and are concerned about those issues. Other ones have more
Speaker 1: short term, immediate perspective. On the on the FED actions
Speaker 1: cancer man, thank you so much with sitting group. Always
Speaker 1: just really honored to have you here in a time
Speaker 1: of extraordinary international politics and international economics that darkening the door.
Speaker 1: Timothy O'Brien Bloomberg Opinion, truly expert on the finances and
Speaker 1: much of the past of the President of the United States.
Speaker 1: Tim O'Brien the debates tonight, New York Times had that
Speaker 1: great spread of the buttons. My first buttons were Nixon, Cabot,
Speaker 1: Lodge sixty and Kennedy for presidents sixty. What was the
Speaker 1: first button you had as a kid? Wow, the first
Speaker 1: button they had as a kid was Carter Reagan Carter right, God,
Speaker 1: he's young. Yeah, that's where I was. That's you too,
Speaker 1: I guess I came from a Nixon household. My father
Speaker 1: just went down the line of the Republicans. Does anybody
Speaker 1: do that anymore? Do people vote straight line anymore? That's
Speaker 1: a great question. I would I would think yes, I
Speaker 1: would think the majority of voters do. But that's just
Speaker 1: based on instinct. Yeah, Chim O'Brian with Jim, I want
Speaker 1: to go to the debatement going tangentially with a House
Speaker 1: Democratic vote. Uh, Promelia jail Uh of Seattle seventh District.
Speaker 1: They voted for President Obama. They boosted it up to
Speaker 1: eight percent for Hillary Clinton. Are the liberals driving the
Speaker 1: Democratic bus in the House? Well? I mean, I think
Speaker 1: the liberals and particularly women, are the people that put
Speaker 1: the House back into Democratic hands at the mid terms.
Speaker 1: But I think that was a very specific election. I
Speaker 1: think I think, Um, I think that what you're gonna
Speaker 1: have to see now is whether or not the issues
Speaker 1: in in at the mid terms translated into what we're
Speaker 1: gonna see in the general where we see moderation in
Speaker 1: this debate tonight, or is going to be a progressive
Speaker 1: free for all? Um. I think you'll see a lot
Speaker 1: of both. I mean, you know, Joe Biden is obviously
Speaker 1: the moderate, traditional candidate tomorrow tonight, you're gonna have um
Speaker 1: I think a lot of people who need to differentiate
Speaker 1: themselves from one another, and they're gonna differentiate themselves from
Speaker 1: issues that um uh are going to be flashpoints for
Speaker 1: the progressive of portion I think of the Democratic voters. So,
Speaker 1: just following up on Tom's comment, the question I have
Speaker 1: is we kind of get into these debates and we
Speaker 1: begin this long slog of Democratic debates Kenneth Centrist, what
Speaker 1: do you think the Democrats will put a central stop
Speaker 1: at the end of the day. I think there's a
Speaker 1: big push for that to happen. I think people I
Speaker 1: think that they're there are pragmatists within the party who
Speaker 1: are saying that the party needs a ticket that can
Speaker 1: beat Trump, and that the candidates that Trump is most
Speaker 1: worried about our our white males currently. I think there's
Speaker 1: also a good argument to be made that the Democrats
Speaker 1: should show that a diverse ticket also can win in
Speaker 1: the United States. And so I think that those are
Speaker 1: the conflicting things here. But I don't think it's inevitable,
Speaker 1: um that either a a more left leading candidate or
Speaker 1: a moderate candidate is going to come on top come
Speaker 1: out on top. Here, you've seen Elizabeth Warren, who's done
Speaker 1: great homework and really nailed down positions in a variety
Speaker 1: of issues, surge because of that. You see Biden surging
Speaker 1: because I think he's reass during, you know, to post
Speaker 1: industrial blue collar workers as someone they can relate to.
Speaker 1: And I think both of those tensions are are in
Speaker 1: competition with one another. You know, the other big issue,
Speaker 1: which arguably President Trump raised back in twenty six is immigration.
Speaker 1: And I'll tell you the images we're starting to see.
Speaker 1: I'm just wondering how how front and center immigration will
Speaker 1: be not only in these debates over the next couple
Speaker 1: of nights, but just in the election. Well. I think,
Speaker 1: like everything around public policy, this depends on on how
Speaker 1: uh principled and well spoken Democrats and Republicans want to
Speaker 1: be about something that's no longer about just immigration policy.
Speaker 1: This is a humanitarian crisis. You have people dying at
Speaker 1: the border, you have detention centers that are brimming with children,
Speaker 1: taking care of children in squalid, inhumane conditions, and it
Speaker 1: it screamed out for a policy solution that, in an
Speaker 1: ideal world, would transcend politics. I want to go to
Speaker 1: your real host. It's gonna be hard to leave this, Paul.
Speaker 1: But I was had a beverage in my hand the
Speaker 1: other day and I was quoting Tim O'Brien, shocked at
Speaker 1: that would happen. You are expert on how the president
Speaker 1: rationalizes until he doesn't. How do you interpret the change,
Speaker 1: the shift in Iran, the change, the shift in Mexico,
Speaker 1: and on and on and on. You've witnessed that, am
Speaker 1: I right? You've witnessed that behavior for decades. I mean,
Speaker 1: this has been pretty typical of Donald Trump. He I
Speaker 1: think the important thing to think about the president is
Speaker 1: that he does not think strategically. He thinks cinematically, and
Speaker 1: he's usually thinking about narratives, and he's usually thinking about
Speaker 1: his own role on the stage. So his first instinct
Speaker 1: is always going to be how does this make me appear?
Speaker 1: And what he wants to always appear as is a
Speaker 1: man of action who finds decisive solutions in a fast
Speaker 1: and sometimes blunt, forced way, even if that doesn't achieve
Speaker 1: his goals. So you saw and and and it creates
Speaker 1: the self contradiction he wants to be, you know, carry
Speaker 1: a big stick and be very mucho on policy in
Speaker 1: the Middle East, if anyone gets in our way, we
Speaker 1: will obliterate them. But the reality is he doesn't want
Speaker 1: to engage in a in a deep seated military way.
Speaker 1: Would you suggest he's an archise elationist. Uh, he he can't.
Speaker 1: He can't be an archive as somebody who's on Twitter
Speaker 1: is not an isolationist. What he is is I think
Speaker 1: he's an unsophisticated person who hasn't thought through the implications
Speaker 1: of his own beliefs. And what's more important to him
Speaker 1: is atmospherics and and I think it's and self promotion
Speaker 1: than policy goals. Jim O'Brien, thank you so much writing
Speaker 1: for Bloomberg Opinion. Very you know, whatever your politics, very
Speaker 1: very important. On the finances of the private citizen Trump
Speaker 1: right now, we monitor Stephen Stanley. He has been fabulous
Speaker 1: engaging the gross domestic product of this to me, Uh,
Speaker 1: of of this nation? Stephen Stanley Amerson pierpoint, how gross
Speaker 1: is our gross domestic product right now? Are we above two?
Speaker 1: Good morning, Tom, Yes, I think we are. I mean,
Speaker 1: you know, obviously the first quarter number was very good,
Speaker 1: although it was the mix wasn't great. I think what
Speaker 1: you've seen in the first half of the year is
Speaker 1: what we've seen in five of the last six years,
Speaker 1: which is you get a week underlying first quarter consumption
Speaker 1: as always, for whatever reason, soft in Q one, and
Speaker 1: then it roars back in Q two, and it seems
Speaker 1: like we're seeing that pattern all over again. So Stephen,
Speaker 1: Tom and I are hearing more and more economist strategist
Speaker 1: fund managers talking about the recession. Perhaps mid that something
Speaker 1: you subscribe to. No, I think the economy has very
Speaker 1: good underlying momentum um. Obviously, the trade situation has been
Speaker 1: a bit of a drag in the short run, and
Speaker 1: and certainly you could envision a scenario where, um, you know,
Speaker 1: the trade talks totally break off, we get into a
Speaker 1: massive tariff war, and and then that that kind of
Speaker 1: changes things. But anything short of that, I think the
Speaker 1: economy has a good staying power. Steven Sally and the
Speaker 1: President putting out extraordinary headlines in free flow. Here we
Speaker 1: miss barter Romo over at Fox Biz mentioning Japan, mentioning
Speaker 1: World War three. Forget about that. Here's the headline Steve
Speaker 1: Stanley that matters. Trump says the U. S should have
Speaker 1: draggy instead of quote our fed person unquote. What would
Speaker 1: it be like, if Mario Draggy was running the FED,
Speaker 1: based on his history, his challenges, different challenges in Europe,
Speaker 1: what would what would Sherman Droggy look like. I mean,
Speaker 1: obviously Draggy is someone that's been very doublish over the
Speaker 1: course of his tenure. Um, you know, arguably the justified
Speaker 1: given the difficulties in Europe. It is kind of ironic
Speaker 1: because certainly Trump does want seem to want someone that's
Speaker 1: extremely doublish at the FED, and the act is he
Speaker 1: had probably the most dubbish FED chairman in the history
Speaker 1: of the institution and he, uh, he let her go,
Speaker 1: So you know, I guess, uh, maybe you get what
Speaker 1: you deserve. I suspect it sounds like a Carol Kings
Speaker 1: from Ali here in New York years ago, the President
Speaker 1: goes down Mr Stanley to say he has high rates
Speaker 1: while President Obama had cheap money. I'm lost translate. I
Speaker 1: think he's jealous that we had zero rates throughout his
Speaker 1: predecessor's tenure. I don't know that that's a good thing,
Speaker 1: because that's indicative of a weak economy. I think he
Speaker 1: should just focus on GDP and and trying to make
Speaker 1: political hay out of the fact that the economy has
Speaker 1: grown faster over the last few years. So, Stephen, you
Speaker 1: know we've heard and read, I think over the last
Speaker 1: several months, and you know, a growing argument that maybe
Speaker 1: global growth rates are going to be lower going forward
Speaker 1: than maybe we've seen over the last couple of decades.
Speaker 1: Is that something you think is a reasonable view? Well, yeah,
Speaker 1: I think there's not much question about that if you
Speaker 1: compare it back to say the nineties or even the
Speaker 1: two thousand's UM and there are a couple of things
Speaker 1: going on. One is simply demographics, is the population ages,
Speaker 1: the growth in labor supply slows down. And the second
Speaker 1: thing is we've had very low productivity growth for most
Speaker 1: of this decade, something that Tom and I've talked about
Speaker 1: a lot over the last several years. And the good
Speaker 1: news there is there does seem to be some upward slope. Um.
Speaker 1: You know, we had fat somewhat faster productivity growth last year.
Speaker 1: The the Q one number for this year was very good,
Speaker 1: So I think there's a chance that productivity growth is accelerating,
Speaker 1: which would be very good news for the economy. It
Speaker 1: would mean higher potential growth and probably higher actual growth
Speaker 1: than what we've seen the last um, you know, for
Speaker 1: through most of this expansion, but we're not going to
Speaker 1: get back to the kind of three percent potential GDP
Speaker 1: type scenario that we had in prior decades. Why is
Speaker 1: productivity predicted to accelerate. Is it a capital ratio, a
Speaker 1: labor ratio or is it the pixie dust on the
Speaker 1: right hand side of the equation. Well, I would say
Speaker 1: it's a combination of the last two things. It's the
Speaker 1: number one is that we we've had stronger investment on
Speaker 1: the back of tax reform. And there's some cloudiness there
Speaker 1: in the short term right now because of uncertainties around trade.
Speaker 1: But if if those are resolved, I think you should
Speaker 1: continue to better investment and that investment will provide better
Speaker 1: plant equipment for workers to be Let's do this Steve
Speaker 1: Stanley with Amber's Pierre Pott, and this is the President
Speaker 1: says he has a right to fire Powell. President Trump
Speaker 1: says Paul should have never raised rates as high as
Speaker 1: he did. Now the most dangerous interview of the day
Speaker 1: of the week, the month, the year, and Paul. It
Speaker 1: starts with the palladium plated two thousand and eleven collection
Speaker 1: format Alligator or MEZ broken bag and what's that gonna
Speaker 1: set you? Gonna set you back forty dollars. It's just
Speaker 1: one of the small items available this paycheck on Real
Speaker 1: Real and Online, the Real Real, the Real Real and
Speaker 1: online marketplace. Who would I think it but an online
Speaker 1: marketplace for used luxury goods. Uh. This company, Real Real
Speaker 1: is going public. I believe they're pricing their I p
Speaker 1: O tonight, So we'll see how the market feels about that.
Speaker 1: So to talk about this company, we're fortunate to have
Speaker 1: our good friend Sema Shaw. She's a analyst covering all
Speaker 1: things retail for Bloomberg Intelligence. She joins us here in
Speaker 1: our Bloomberg Interactive Brokers studio. So, seema an online market
Speaker 1: place for used luxury goods? There's such a thing as that.
Speaker 1: There is? There are actually many things like that. There's
Speaker 1: a lot of competitors in this space. Um, they're trying
Speaker 1: to make the market for selling these use goods more efficient.
Speaker 1: But the problem with the spaces you're spending a lot
Speaker 1: of money, as Tom pointed out, so you want to
Speaker 1: make sure what you get is not counterfeit. And it's
Speaker 1: that authentication process that makes this. Uh, how how did
Speaker 1: they do that? How? Do they authenticate stuff. So if
Speaker 1: I'm going to pay forty dollars for whatever Tom was describing,
Speaker 1: I know what I'm getting. So they hire people to
Speaker 1: specifically look at each item. So it's jewelry, there's a gemologist,
Speaker 1: and so it's a very time consuming, unhard to scale process.
Speaker 1: And should that item be returned, they will have to
Speaker 1: re authenticate it, so the margins on that second sale
Speaker 1: of the same item would be less. Is it profit
Speaker 1: making or is this like uber and Lift where we're
Speaker 1: in hope streams and the fumes of two thousand the ladder.
Speaker 1: We're on the hopes and dreams right now. There is
Speaker 1: no money to be made, and there's, as I said,
Speaker 1: a lot of competition. So what they need to have
Speaker 1: in a marketplace to go, you need to have a
Speaker 1: lot of sellers, but you also need to have a
Speaker 1: lot of buyers. But in order to get sellers, they
Speaker 1: have to make sure that they make enough money on
Speaker 1: each product that they sell. And there's a lot of
Speaker 1: competition to even get the sellers from even people like
Speaker 1: Posh Mark Fashion file through um eBay even and they
Speaker 1: may pay the seller more than the real real I
Speaker 1: This says Paul Sweeney if nothing ever does. Actually, says
Speaker 1: John Farrell, who the Saint laur On Jimmy twenties slide
Speaker 1: sandals estimated retail five marked down to four off now
Speaker 1: three for a pair sliders to walk that bill with,
Speaker 1: I mean that's what people are buying, right essentially. Yeah,
Speaker 1: so it is a deal on luxury. But are you
Speaker 1: getting what you paid for? That's what's costing me. This
Speaker 1: is used stuff. I mean, this is from John Farrell.
Speaker 1: He's already worn those Saint Laurel sliders. Yes, yes, yes, somebody.
Speaker 1: So this isn't you know the thing about the you know,
Speaker 1: just the Amazons or the Ebays, it's about scale. So
Speaker 1: how do you scale this business? Like how many units
Speaker 1: did they actually transacted? I mean just right, so they're
Speaker 1: total gmbe and ten million, and that's significantly less than
Speaker 1: obviously an Amazon or many other peers, like even far
Speaker 1: Fetch who's selling new luxury goods, which is over a
Speaker 1: billion or selling good So there it's they sold a
Speaker 1: total in the life of the company nine point four
Speaker 1: million items. But still you have to continue to get
Speaker 1: those sellers, and you have to keep driving the buyers.
Speaker 1: And I think in this case because of the sellers
Speaker 1: can sort of jump from platform to platform. It's really
Speaker 1: hard to keep them unless you pay them a lot,
Speaker 1: so that affects your growth margin. How long has this
Speaker 1: company been around? Um? Not too long, I want to
Speaker 1: say it hours. I'm just wondering, like I was six years.
Speaker 1: I don't have the exact because you have to build
Speaker 1: up some trust, don't you with your do And I
Speaker 1: think they have trust, but there are so many other competitors,
Speaker 1: and someone Likenshion file has it, you know, has been
Speaker 1: invested in by Name and Marcus name, and Marcus already
Speaker 1: has the stores and has the relationships with the brand,
Speaker 1: so that might give them an edge to So what
Speaker 1: do they make on a Patech Calatrava Tiffany's watched. They're
Speaker 1: moving it out the door for fifteen dollars. Typically on
Speaker 1: an item they'll get about sevent gross margin on the
Speaker 1: first sale they resell it that the gross margin goes
Speaker 1: down to the high teens. So then, of course that
Speaker 1: depends on the product, but that's typically what it goes
Speaker 1: after they've paid the person who sold. And I'm selling
Speaker 1: my protech there because I'm broke and and I'm going
Speaker 1: to get a hunk of it, and they get a hunk,
Speaker 1: how much do they get they get about versus someone
Speaker 1: like an eBay posh that's taking So in the movie
Speaker 1: that won the Academy Award this year, The Green Book
Speaker 1: and the guy So Broke before he goes out on
Speaker 1: tour with a guy, he takes his watch into the
Speaker 1: pawn shop and Queens of Brooklyn in the sixties, has
Speaker 1: anything changed? Um, I guess this would be authenticated and
Speaker 1: you can sell to more people than in Queens and
Speaker 1: you can transact without talking to anybody. Interesting, So it's
Speaker 1: is this a growing market? Are they growing their business?
Speaker 1: They are growing their business from a top line perspective,
Speaker 1: as are many of their peers. But as a question
Speaker 1: is at what point will they be able to be profitable?
Speaker 1: And how do you get this to scale so that
Speaker 1: you can authenticate these products and move them through your
Speaker 1: system at a faster rate and a less costly rate.
Speaker 1: And so how do they attract who's the typical seller?
Speaker 1: Is it someone who doesn't want to walk down to
Speaker 1: the pawn shop, or there are people who have these
Speaker 1: luxury products that they may have only used once or
Speaker 1: twice any in their closets. So they're targeting them like
Speaker 1: you monetize, monetize what you already have luxury that's already
Speaker 1: out there. So Pharaoh is huge. I mean John Pharrell's
Speaker 1: just j enormous. He sees the Pateech World Time watch
Speaker 1: list they're moving out the door thirty five. Does he
Speaker 1: get to see it before he buys it? No? What
Speaker 1: you have to trust that the Pharaoh wouldn't do that
Speaker 1: authenticated the product, and so that is what they have
Speaker 1: built up by you know, getting their name out. So
Speaker 1: the real rule is trusted as a far but so
Speaker 1: are many of their peers. Wow, what's it? Is it? Like?
Speaker 1: Is an average item? Is it a thousand dollar item
Speaker 1: or some of these fifty dollar items for luxury? I
Speaker 1: think it goes depending on it's jewelry, clothing, bags. I
Speaker 1: think there's a wide range. Right now, did they guarantee
Speaker 1: it if I buy something? Did they guarantee it's the authenticity? Yes? Yes, okay,
Speaker 1: all right, but that's a big risk for them. Well yeah,
Speaker 1: and if you don't like it, you send it back,
Speaker 1: they have to do it again, make sure you didn't
Speaker 1: do anything to it, and that's the cost. All right, Tom, Yeah,
Speaker 1: I think you've got a new app for your phone here.
Speaker 1: I just I just hope Mrs Keen's not listening. Riley
Speaker 1: from St. Louis she knew all about this, she was
Speaker 1: all over it. Yeah. I mean, does it have a buzz?
Speaker 1: I mean, you know, it does have a bus. It's
Speaker 1: supposed to be a very hot from an ibo perspective,
Speaker 1: does have a buzz. A lot of these Why are
Speaker 1: they going I p O? If that's small? I mean,
Speaker 1: what's what's their motivation to go I PO? And they
Speaker 1: could even do a direct listing? They need the money. Um.
Speaker 1: The founder of this company had been in a couple
Speaker 1: of prior companies during the dot com world, and so
Speaker 1: I think that's part of what's driving in. And also
Speaker 1: it's just a hot market for this retail consumer tech
Speaker 1: I p O s given what you saw with something
Speaker 1: like stitch fix Chewy. So they're performing much better than
Speaker 1: let's say the IPOs of Uber and Left. Their prices
Speaker 1: and watches are stunning. I mean, are people lined up
Speaker 1: ten deep to buy this stuff? I don't know about that,
Speaker 1: but they do have buyers. But you know, you need
Speaker 1: to have increased velocity to really make any money. All right, Well,
Speaker 1: we're gonna look at this type time. We're gonna pay
Speaker 1: attention to this thing, you know, I love. I'm gonna
Speaker 1: record back on this tomorrow. How it trades, how it opens,
Speaker 1: the Aquinot uh really rare roch Patech. It's got a
Speaker 1: secondary dial on it. Estimated retail thirty four thousand. They're
Speaker 1: selling it for four thousand more. That's interesting, we're real
Speaker 1: selling it for that's how in demand that watches. Just
Speaker 1: nothing I would ever ownly Aquinot travel Time black with
Speaker 1: a cool second drive. But there are people out there
Speaker 1: that there would be. Mike Mayo, if you're listening, I
Speaker 1: gotta watch for you. C Michelle. Thank Bloomberg Intelligence covering
Speaker 1: all things retail forced. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio a