1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma wits. 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 --> 00:00:17,959 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:23,600 Speaker 1: at Bloomberg dot com. At least, let's talk pig, shall we. 8 00:00:23,880 --> 00:00:28,240 Speaker 1: It's been one year since the uh, you know, the 9 00:00:28,240 --> 00:00:31,080 Speaker 1: the Asian swine flew initially broke out in China. New 10 00:00:31,280 --> 00:00:34,879 Speaker 1: estimates show that the country's pig herd could be reduced 11 00:00:34,880 --> 00:00:36,960 Speaker 1: by more than half at year end compared to the 12 00:00:37,000 --> 00:00:38,680 Speaker 1: last year. To get the latest on what that means 13 00:00:38,680 --> 00:00:42,840 Speaker 1: for the global pig market, let's welcome Christine McCracken. She's 14 00:00:42,840 --> 00:00:46,400 Speaker 1: the senior annals covering animal protein for Robbo Bank. She 15 00:00:46,479 --> 00:00:48,720 Speaker 1: joins us here in a Bloomberg Interactor Broker studio. She 16 00:00:48,800 --> 00:00:51,400 Speaker 1: braved the heat. We appreciate that, Christine. Thanks so much 17 00:00:51,400 --> 00:00:53,880 Speaker 1: for joining us. So give us kind of the latest 18 00:00:54,080 --> 00:00:58,440 Speaker 1: on this the African swine fever and what it's doing 19 00:00:58,600 --> 00:01:01,800 Speaker 1: to First of all, the Chinese herd and market, and 20 00:01:01,800 --> 00:01:05,840 Speaker 1: then the global market. Sure, thanks for inviting me. Generally 21 00:01:05,959 --> 00:01:11,160 Speaker 1: in Asia continues to move fairly aggressively throughout China, specifically 22 00:01:11,160 --> 00:01:14,399 Speaker 1: in southern China, and is moving into neighboring countries. So 23 00:01:14,920 --> 00:01:18,080 Speaker 1: from the standpoint of the global market, about half of 24 00:01:18,120 --> 00:01:21,000 Speaker 1: the world's hogs were in China prior to the a 25 00:01:21,120 --> 00:01:24,480 Speaker 1: s F outbreak. Roughly half of those have been lost, 26 00:01:24,560 --> 00:01:26,920 Speaker 1: or a quarter of the world's supply, So a lot 27 00:01:26,959 --> 00:01:30,040 Speaker 1: of pigs already gone, and it continues to move. Uh. 28 00:01:30,280 --> 00:01:34,680 Speaker 1: In terms of the market, prices had been fairly stagnant. Uh. 29 00:01:34,720 --> 00:01:37,039 Speaker 1: You know, with that those losses, a lot of that 30 00:01:37,120 --> 00:01:40,160 Speaker 1: pork actually ended up in the market, UM and and 31 00:01:40,200 --> 00:01:43,319 Speaker 1: it weighed on prices for majority of the spring and summer. 32 00:01:44,080 --> 00:01:47,560 Speaker 1: Now we're going into the stronger demand period with a 33 00:01:47,600 --> 00:01:51,080 Speaker 1: big holiday season coming up Chinese New Year uh first 34 00:01:51,080 --> 00:01:54,680 Speaker 1: of next year, and prices have started to move strongly higher, 35 00:01:54,800 --> 00:01:57,840 Speaker 1: up about thirty percent just in the last thirty days 36 00:01:58,360 --> 00:02:01,360 Speaker 1: UM and roughly double year ago level. So it's it's 37 00:02:01,400 --> 00:02:04,120 Speaker 1: taken a long time, but prices have moved up really strongly. 38 00:02:04,160 --> 00:02:07,920 Speaker 1: And and just in Asia, not a big reaction here 39 00:02:07,920 --> 00:02:11,160 Speaker 1: in the US or in Europe. Well, so let's talk 40 00:02:11,200 --> 00:02:15,440 Speaker 1: about the US and China in terms of pork production 41 00:02:15,480 --> 00:02:18,760 Speaker 1: and imports and exports. So, if I understand this correctly, 42 00:02:19,440 --> 00:02:24,359 Speaker 1: China imposes a pretty big tax, a pretty big tariff 43 00:02:24,520 --> 00:02:27,720 Speaker 1: on US pork. Is that correct? It is it's about 44 00:02:27,720 --> 00:02:32,760 Speaker 1: six on the sales of pork to China, and and 45 00:02:32,800 --> 00:02:37,000 Speaker 1: that's obviously significantly higher than the rest of the world 46 00:02:37,160 --> 00:02:39,560 Speaker 1: that don't face that tariff. So where at an extreme 47 00:02:39,639 --> 00:02:42,120 Speaker 1: disadvantage relative to the rest of the world. So if 48 00:02:42,200 --> 00:02:45,520 Speaker 1: China would like to make up for the hogs that 49 00:02:45,560 --> 00:02:49,520 Speaker 1: were lost because of the virus, where do they go? Well, 50 00:02:49,720 --> 00:02:51,840 Speaker 1: you know, there really are just a few countries in 51 00:02:51,880 --> 00:02:54,720 Speaker 1: the world that can make up that that deficit. UM 52 00:02:54,760 --> 00:02:57,840 Speaker 1: Europe is the largest. Uh. They have about twice as 53 00:02:57,880 --> 00:02:59,840 Speaker 1: many hogs as the US and are free to x 54 00:03:00,000 --> 00:03:02,120 Speaker 1: board as much as they can to China, and they 55 00:03:02,160 --> 00:03:06,800 Speaker 1: have been aggressively exporting. Specifically, Spain and Germany and Denmark, 56 00:03:06,880 --> 00:03:11,040 Speaker 1: the Netherlands all have been benefiting from exports to China. UM. 57 00:03:11,200 --> 00:03:14,639 Speaker 1: Brazil is another big one that cannect sport to China 58 00:03:14,720 --> 00:03:17,560 Speaker 1: and has been but there there herd is just a 59 00:03:17,560 --> 00:03:21,080 Speaker 1: fraction of of what Europe has or the us UM 60 00:03:21,120 --> 00:03:24,640 Speaker 1: Outside of those two countries, Canada has has some hogs 61 00:03:24,680 --> 00:03:29,200 Speaker 1: but has now been blocked from UH exporting to China 62 00:03:29,280 --> 00:03:33,560 Speaker 1: on the basis of some political disagreements, possibly Huawei UM. 63 00:03:33,840 --> 00:03:35,840 Speaker 1: So you know, there's been a lot of red tape 64 00:03:35,880 --> 00:03:38,760 Speaker 1: there that's that's keeping them from exporting to China. And 65 00:03:38,800 --> 00:03:43,000 Speaker 1: the US has been shipping even with the sixty tariff, 66 00:03:43,040 --> 00:03:45,480 Speaker 1: but still at very low levels. So is there any 67 00:03:45,480 --> 00:03:49,360 Speaker 1: incentive for the us UM industry to increase the herd 68 00:03:49,440 --> 00:03:53,240 Speaker 1: just to fill the global UH supply laws coming out 69 00:03:53,280 --> 00:03:55,840 Speaker 1: of China. Well, you know, there there would be if 70 00:03:56,120 --> 00:03:59,040 Speaker 1: markets were open that that is a possibility, But I 71 00:03:59,040 --> 00:04:01,680 Speaker 1: think if you look generally, there's a lot of constraints 72 00:04:01,680 --> 00:04:05,160 Speaker 1: to expanding. It's a very you know, a long UH 73 00:04:05,320 --> 00:04:07,720 Speaker 1: kind of lead time. It takes about two and a 74 00:04:07,760 --> 00:04:09,720 Speaker 1: half years to expand the herds, so it's not a 75 00:04:09,760 --> 00:04:12,360 Speaker 1: simple process. You couldn't do it quickly. You might be 76 00:04:12,360 --> 00:04:15,040 Speaker 1: able to add a little bit more weight, make bigger hogs, 77 00:04:15,040 --> 00:04:17,800 Speaker 1: so you'd have more pounds to sell, but generally, you know, 78 00:04:17,800 --> 00:04:20,520 Speaker 1: in terms of total expansion, not very likely. A lot 79 00:04:20,560 --> 00:04:24,360 Speaker 1: of that's tied to labor. The plants generally are tight 80 00:04:24,400 --> 00:04:26,760 Speaker 1: on labor. The ice raids in the last few weeks 81 00:04:26,800 --> 00:04:30,280 Speaker 1: obviously have a lot of nervous workers, but prior to that, 82 00:04:30,360 --> 00:04:32,880 Speaker 1: even we've been facing a labor shortage in the in 83 00:04:32,920 --> 00:04:36,640 Speaker 1: the packing industry, just not enough places um to slaughter 84 00:04:36,720 --> 00:04:39,200 Speaker 1: at the pigs if if in fact they were available. 85 00:04:39,480 --> 00:04:42,160 Speaker 1: You know, it's so interesting. And Christina, you grew up 86 00:04:42,160 --> 00:04:44,600 Speaker 1: on a farm in Minnesota, and we were talking about this, 87 00:04:44,839 --> 00:04:48,920 Speaker 1: and I just find it so interesting how especially pork 88 00:04:48,960 --> 00:04:51,680 Speaker 1: producers are really at the epicenter of a lot of 89 00:04:51,720 --> 00:04:54,880 Speaker 1: the tensions that we're seeing increasingly, whether it's the tariffs 90 00:04:54,960 --> 00:04:57,920 Speaker 1: that are making their hogs less in demand than those 91 00:04:57,960 --> 00:05:00,920 Speaker 1: in Europe or Brazil, as you were saying, or the 92 00:05:01,279 --> 00:05:04,120 Speaker 1: plants where they can't get enough workers. So has sort 93 00:05:04,160 --> 00:05:07,279 Speaker 1: of is there a general feeling of unrest or sort 94 00:05:07,279 --> 00:05:10,279 Speaker 1: of feeling of dissatisfaction amongst some of these pork producers. 95 00:05:10,520 --> 00:05:12,800 Speaker 1: I think I think they have been a bit frustrated. 96 00:05:12,880 --> 00:05:16,120 Speaker 1: It's not just the issues with China or you know, 97 00:05:16,720 --> 00:05:20,840 Speaker 1: with regard to other trade disputes where we're trying to 98 00:05:20,880 --> 00:05:23,360 Speaker 1: get a deal done with Japan. Um that's our our 99 00:05:23,440 --> 00:05:26,800 Speaker 1: top value market for for exports in terms of high 100 00:05:26,880 --> 00:05:30,200 Speaker 1: value products U S M c A still not ratified. 101 00:05:30,240 --> 00:05:33,160 Speaker 1: We're looking for that to come through here later this fall. UM, 102 00:05:33,760 --> 00:05:36,800 Speaker 1: big big markets in Mexico and Canada really important for 103 00:05:36,839 --> 00:05:40,320 Speaker 1: the pork industry specifically. And then you know, generally, all 104 00:05:40,360 --> 00:05:43,520 Speaker 1: of these terrorists not just impacting pork, but the feet 105 00:05:43,640 --> 00:05:47,840 Speaker 1: supplies as well, um because of the the export uh 106 00:05:48,040 --> 00:05:51,760 Speaker 1: taxes on on um on soybeans for example. So we're 107 00:05:51,800 --> 00:05:54,560 Speaker 1: facing a lot of issues in in the pork industry 108 00:05:54,600 --> 00:05:57,479 Speaker 1: and I think it's making it very complicated, uh from 109 00:05:57,480 --> 00:05:59,880 Speaker 1: a political standpoint for these farmers to know how to 110 00:06:00,000 --> 00:06:02,960 Speaker 1: move forward. But generally, uh, you know, I think they're 111 00:06:03,000 --> 00:06:06,080 Speaker 1: they're pretty firm and their support at this point in 112 00:06:06,200 --> 00:06:10,280 Speaker 1: terms of government, uh, you know, the government involvement and 113 00:06:10,839 --> 00:06:12,560 Speaker 1: all of the things they're trying to do to open 114 00:06:12,640 --> 00:06:15,599 Speaker 1: up these markets. Christine McCracken, thank you so much for 115 00:06:15,640 --> 00:06:19,680 Speaker 1: being here. Christine McCracken has senior analysts focused on animal 116 00:06:19,720 --> 00:06:22,440 Speaker 1: protein for Robbo Bank based in New York, joining us 117 00:06:22,440 --> 00:06:40,840 Speaker 1: here in our Bloomberg Interactive Broker Studios. An interesting piece 118 00:06:40,880 --> 00:06:43,240 Speaker 1: of news came out earlier this week, UH, in a 119 00:06:43,360 --> 00:06:48,000 Speaker 1: widely circulated memo the Business Roundtable, which is a two organization, 120 00:06:48,520 --> 00:06:51,280 Speaker 1: kind of reversed itself and the writing now that shareholder 121 00:06:51,320 --> 00:06:54,760 Speaker 1: primacy is no longer the sole purpose of a corporation. Instead, 122 00:06:55,120 --> 00:06:59,480 Speaker 1: corporations must include commitments to all stakeholders, which are customers 123 00:06:59,720 --> 00:07:03,279 Speaker 1: and joy's suppliers and local communities. If you get a 124 00:07:03,320 --> 00:07:06,200 Speaker 1: sense of what this means for corporate America, we turned 125 00:07:06,200 --> 00:07:09,320 Speaker 1: to our good friend Barry Ridholts. Barry's a Bloomberg Opinion 126 00:07:09,360 --> 00:07:14,840 Speaker 1: calumnists and host of Masters in Business on Bloomberg Radio. Barry, 127 00:07:14,880 --> 00:07:16,960 Speaker 1: thanks so much for joining us. So what do you 128 00:07:17,000 --> 00:07:20,040 Speaker 1: make of this letter coming out of the Business Roundtable? 129 00:07:20,640 --> 00:07:24,640 Speaker 1: Kind of fascinating Given everything we've seen in terms of 130 00:07:25,320 --> 00:07:30,560 Speaker 1: rising income, inequality and social unrest both here and in Europe, 131 00:07:31,160 --> 00:07:34,679 Speaker 1: it seems as if the CEOs of America have figured 132 00:07:34,720 --> 00:07:37,840 Speaker 1: out that some trouble is off on the horizon and 133 00:07:38,360 --> 00:07:40,320 Speaker 1: they want to get out ahead of it. So this 134 00:07:40,400 --> 00:07:44,080 Speaker 1: is the cynical view, right that basically, uh, these hundred 135 00:07:44,120 --> 00:07:48,560 Speaker 1: and eighties some odds CEOs got together said all right, 136 00:07:48,640 --> 00:07:51,080 Speaker 1: we need to take a stand. We're not just trying 137 00:07:51,120 --> 00:07:54,320 Speaker 1: to raise profits, we're also trying to cater to the 138 00:07:54,400 --> 00:07:58,559 Speaker 1: greater good, cynical view is the greater good. It sounds 139 00:07:58,600 --> 00:08:00,760 Speaker 1: a lot better than our profits are falling, and we 140 00:08:00,760 --> 00:08:03,440 Speaker 1: don't know what to do with their money because, uh, 141 00:08:03,480 --> 00:08:05,560 Speaker 1: there doesn't seem to be anything to invest in that's 142 00:08:05,600 --> 00:08:08,920 Speaker 1: particularly profitable. Barry, can you give us some perspective, some 143 00:08:09,040 --> 00:08:13,760 Speaker 1: background on this round Table group and their history of 144 00:08:13,840 --> 00:08:19,280 Speaker 1: having sort of a political perspective. Sure. So. Uh, they 145 00:08:19,640 --> 00:08:24,840 Speaker 1: were formed in V two primarily as a counterweight against 146 00:08:25,320 --> 00:08:28,600 Speaker 1: the rise of labor unions, the New Deal, big any 147 00:08:28,680 --> 00:08:35,240 Speaker 1: trust enforcement, big regulations. Uh, they very much were counter 148 00:08:35,520 --> 00:08:40,000 Speaker 1: to President Roosevelt and everything that we saw going forward 149 00:08:40,040 --> 00:08:44,480 Speaker 1: from the post depression era. So they can talk about 150 00:08:44,559 --> 00:08:49,079 Speaker 1: wanting to support stakeholders, but look at what the Round 151 00:08:49,080 --> 00:08:53,040 Speaker 1: Table has done. They they've opposed consumer protections, they've opposed 152 00:08:53,120 --> 00:08:59,200 Speaker 1: increases to rising a minimum wage, um compensation, they've fought 153 00:08:59,280 --> 00:09:04,920 Speaker 1: any trust um enforcement. They really have been the only 154 00:09:04,920 --> 00:09:08,320 Speaker 1: thing that matters is corporate profits and to the shareholders 155 00:09:08,360 --> 00:09:12,880 Speaker 1: and anything else, we're going to oppose the challenge. And 156 00:09:12,880 --> 00:09:15,480 Speaker 1: and let me back up and and give kudos to 157 00:09:15,640 --> 00:09:18,960 Speaker 1: Jamie Diamond for he's been talking about this for a 158 00:09:18,960 --> 00:09:22,120 Speaker 1: couple of years now. He's been giving speeches. His annual 159 00:09:22,200 --> 00:09:25,520 Speaker 1: letter to shareholders has so this isn't I don't believe 160 00:09:25,559 --> 00:09:29,000 Speaker 1: this is just lip service. I think Diamond is serious 161 00:09:29,040 --> 00:09:32,480 Speaker 1: about this. However, when you look at all of the 162 00:09:32,559 --> 00:09:37,200 Speaker 1: members of the round table, they have very very strong 163 00:09:37,280 --> 00:09:42,520 Speaker 1: vested interests against the concept of stakeholder primacy. If you're 164 00:09:42,600 --> 00:09:46,880 Speaker 1: a MAX you have fine prints that's pages and pages long, 165 00:09:46,920 --> 00:09:50,120 Speaker 1: and you have an arbitration clause built into your contract 166 00:09:50,160 --> 00:09:54,719 Speaker 1: with your clients, that's not exactly um customer friendly. Uh. 167 00:09:54,840 --> 00:09:57,640 Speaker 1: Go go down the list Apple and Amazon. Hey, you're 168 00:09:57,679 --> 00:10:01,800 Speaker 1: the most successful companies in the world. Here's a crazy idea. 169 00:10:02,280 --> 00:10:05,880 Speaker 1: Why don't you guys pay your taxes. It used to 170 00:10:05,920 --> 00:10:09,480 Speaker 1: be it used to be that the I R S 171 00:10:09,760 --> 00:10:14,600 Speaker 1: enforced the tax regulation in a way that you could 172 00:10:14,679 --> 00:10:17,440 Speaker 1: do whatever you wanted to do, so long as it 173 00:10:17,559 --> 00:10:21,480 Speaker 1: served a legitimate business purpose. But if the sole purpose 174 00:10:21,559 --> 00:10:25,160 Speaker 1: of the reverse double Dutch go to Ireland, to the Bahamas, 175 00:10:25,200 --> 00:10:28,160 Speaker 1: to Liechtenstein, to grant Caymans, to the U S, if 176 00:10:28,200 --> 00:10:31,600 Speaker 1: the sole purpose of that is tax avoidance, the I 177 00:10:31,720 --> 00:10:35,680 Speaker 1: R S used to consider that illegitimate and would enforce 178 00:10:35,720 --> 00:10:38,120 Speaker 1: it and say no, you can't do that. US nineteen 179 00:10:38,120 --> 00:10:42,240 Speaker 1: billion dollars. So Amazon and Apple these are signatories to this. 180 00:10:42,400 --> 00:10:46,520 Speaker 1: Walmart a signature story to it. To be fair to Walmart, Yes, 181 00:10:46,559 --> 00:10:49,560 Speaker 1: they spent years and years opposing increases a minimum wage. 182 00:10:49,840 --> 00:10:54,080 Speaker 1: About three years ago they raised their own minimum payments 183 00:10:54,400 --> 00:10:57,720 Speaker 1: and they've dropped opposition to minimum wage. I think someone 184 00:10:57,720 --> 00:10:59,960 Speaker 1: explained to them, Hey, you guys are giant, have a 185 00:11:00,000 --> 00:11:02,800 Speaker 1: lot of cash, so it's an advantage to you. So 186 00:11:02,800 --> 00:11:07,560 Speaker 1: so the problem is all these signatories there, look at 187 00:11:07,559 --> 00:11:10,360 Speaker 1: all the big insurers and Morgan Stanley and Accent, some 188 00:11:10,440 --> 00:11:12,760 Speaker 1: of the other people who I don't remember facts assigned, 189 00:11:12,760 --> 00:11:15,360 Speaker 1: but a number of big insurers signed it. They're very 190 00:11:15,480 --> 00:11:21,640 Speaker 1: much against the fiduciary standard, which would tremendously benefit they're 191 00:11:21,800 --> 00:11:25,439 Speaker 1: the clients of their firm, but it would cost themselves profits. 192 00:11:25,480 --> 00:11:31,559 Speaker 1: So balancing this broad rhetorical desire with the specific needs 193 00:11:31,559 --> 00:11:35,240 Speaker 1: of the members of the business roundtable, that's a big challenge. 194 00:11:35,320 --> 00:11:37,360 Speaker 1: So one of the challenges I saw just in terms 195 00:11:37,400 --> 00:11:40,000 Speaker 1: of implementing this in a in a real way, is 196 00:11:40,040 --> 00:11:44,440 Speaker 1: that most executive compensation is tied to shareholder returns. Where 197 00:11:44,520 --> 00:11:48,120 Speaker 1: is the stock going um If you really want to 198 00:11:48,120 --> 00:11:51,640 Speaker 1: hold executive accountable to some of these stakeholder issues, some 199 00:11:51,640 --> 00:11:54,120 Speaker 1: of these softer issues, if you will. Does that mean 200 00:11:54,160 --> 00:11:57,199 Speaker 1: you have to change the executive compensation schemes for all 201 00:11:57,200 --> 00:12:00,000 Speaker 1: of corporate for a lot of corporate America to incorporate 202 00:12:00,040 --> 00:12:04,600 Speaker 1: maybe environmental sustainability, governance issues, all those types of things. 203 00:12:04,760 --> 00:12:08,400 Speaker 1: So it's a really interesting point. And and here's where 204 00:12:09,360 --> 00:12:11,679 Speaker 1: again I gotta go back to giving Jamie Diamond a 205 00:12:11,679 --> 00:12:14,199 Speaker 1: little bit of credit. And I think people have overlooked this, 206 00:12:14,720 --> 00:12:19,320 Speaker 1: you know, the idea of stakeholder primacy over shareholder primacy. 207 00:12:19,559 --> 00:12:22,040 Speaker 1: Let me say that same thing, but in a slightly 208 00:12:22,120 --> 00:12:26,800 Speaker 1: different way. We're more concerned with long term sustainable profits 209 00:12:26,800 --> 00:12:30,440 Speaker 1: for our company than just making the quarterly numbers. That's 210 00:12:30,480 --> 00:12:34,080 Speaker 1: the subtext here. If you take care of your customers 211 00:12:34,080 --> 00:12:39,240 Speaker 1: and your employees and your suppliers and everybody else involved 212 00:12:39,280 --> 00:12:42,480 Speaker 1: in in who has a stake in the company, well 213 00:12:42,679 --> 00:12:46,960 Speaker 1: that's fantastic long term. Look at companies that are private. 214 00:12:47,000 --> 00:12:51,120 Speaker 1: Look at look at Vanguard that doesn't care about shareholders, 215 00:12:51,120 --> 00:12:54,520 Speaker 1: but cares about their employees and their customers and whatever. 216 00:12:54,559 --> 00:12:58,920 Speaker 1: They became a giant that way. So substituting stakeholders for 217 00:12:58,960 --> 00:13:03,199 Speaker 1: shareholders really means that you're asking the shareholders to think 218 00:13:03,520 --> 00:13:07,120 Speaker 1: in terms of decades and years, not in terms of quarters. Now, 219 00:13:07,160 --> 00:13:10,000 Speaker 1: the way we can tie this into the executive compensation, 220 00:13:10,280 --> 00:13:13,520 Speaker 1: who is more interested in the quarterly numbers than the 221 00:13:13,559 --> 00:13:18,400 Speaker 1: c suite that, thanks to some late nineties legislation, are 222 00:13:18,480 --> 00:13:21,960 Speaker 1: capped at a certain dollar amount but have unlimited stock 223 00:13:21,960 --> 00:13:24,800 Speaker 1: option compensation. The way to fix that is to say, 224 00:13:24,840 --> 00:13:28,839 Speaker 1: we'll give you stock option compensation, but you can't cash 225 00:13:28,880 --> 00:13:31,000 Speaker 1: in for ten years, or you have to you have 226 00:13:31,040 --> 00:13:33,560 Speaker 1: to exercise. You have to put up some cash, and 227 00:13:33,559 --> 00:13:35,240 Speaker 1: you have to exercise within five years, and you have 228 00:13:35,280 --> 00:13:37,640 Speaker 1: to hold it for five years. So at that point, 229 00:13:37,840 --> 00:13:40,920 Speaker 1: nobody cares about next quarter. They start to think long term. 230 00:13:41,160 --> 00:13:44,800 Speaker 1: When we look at the emphasis on stock buy backs 231 00:13:44,800 --> 00:13:48,160 Speaker 1: and the decline in CAPEX, you have to think that 232 00:13:48,160 --> 00:13:50,560 Speaker 1: that has a lot to do with it. Verry rid Holts, 233 00:13:50,600 --> 00:13:52,760 Speaker 1: thank you so much for being with us. My pleasure. 234 00:13:53,040 --> 00:13:55,520 Speaker 1: Very rid Holtz is founder of rid Holt's Wealth Management, 235 00:13:55,640 --> 00:13:59,679 Speaker 1: Bloomberg opinion columnist, also host of Masters in Business on 236 00:14:00,000 --> 00:14:19,600 Speaker 1: Bloomberg Radio. When it comes to big tech, a sweet 237 00:14:19,600 --> 00:14:23,000 Speaker 1: spot has been the cloud, and the cloud has been 238 00:14:23,160 --> 00:14:28,239 Speaker 1: a profit driver from everyone from Amazon to Microsoft Salesforce 239 00:14:28,400 --> 00:14:32,840 Speaker 1: dot Com did have the first mover advantage and they 240 00:14:32,880 --> 00:14:36,600 Speaker 1: got into this. They've also become a darling of hedge funds. 241 00:14:36,760 --> 00:14:40,240 Speaker 1: Did you know, Paul that thirteen hedge funds have more 242 00:14:40,240 --> 00:14:44,280 Speaker 1: than five percent of the disclosed equity investments in Salesforce. 243 00:14:44,360 --> 00:14:48,080 Speaker 1: Let's talk about crowded trade. Yeah, what's interesting is that 244 00:14:48,080 --> 00:14:50,640 Speaker 1: the shares are of about six percent so far your date, 245 00:14:50,760 --> 00:14:53,240 Speaker 1: compared to seventeen and a half percent for the SMP. 246 00:14:53,400 --> 00:14:55,800 Speaker 1: But let's get a perspective and what to expect from 247 00:14:56,400 --> 00:14:58,720 Speaker 1: their earnings on our ground and joining us now here 248 00:14:58,720 --> 00:15:02,000 Speaker 1: in our Bloomberg Interactive broker studios on senior analysts of 249 00:15:02,080 --> 00:15:05,040 Speaker 1: software I T services for Bloomberg Intelligence, what are you 250 00:15:05,040 --> 00:15:09,920 Speaker 1: expecting from Salesforce? Not much, any major surprises. We don't 251 00:15:10,000 --> 00:15:12,880 Speaker 1: think the China is going to have an impact on 252 00:15:12,920 --> 00:15:16,200 Speaker 1: their sales. In fact, we think Salesforce is one of 253 00:15:16,200 --> 00:15:19,880 Speaker 1: the very few tech companies that should whether any downturn 254 00:15:19,960 --> 00:15:21,840 Speaker 1: if we do see in spending in this you know, 255 00:15:21,960 --> 00:15:25,000 Speaker 1: second half or next year. Why why is this stock 256 00:15:25,200 --> 00:15:28,960 Speaker 1: underperforming so greatly at a time when the cloud is 257 00:15:29,080 --> 00:15:34,000 Speaker 1: being adopted pretty much across the board worldwide. Hey, it's 258 00:15:34,000 --> 00:15:36,240 Speaker 1: done very well over the last few years. Second, the 259 00:15:36,280 --> 00:15:39,040 Speaker 1: size of this company is life very large right now, 260 00:15:39,080 --> 00:15:41,920 Speaker 1: compared to any you know, smaller MidCap company that is, 261 00:15:42,120 --> 00:15:44,640 Speaker 1: you know, that could double or triple in size. It's 262 00:15:44,680 --> 00:15:47,480 Speaker 1: difficult for a company like this to, you know, mathematically, 263 00:15:48,160 --> 00:15:50,560 Speaker 1: you know, from a from a statistical point of view, 264 00:15:50,800 --> 00:15:54,240 Speaker 1: give that kind of returns. But performance underlying is should 265 00:15:54,280 --> 00:15:57,120 Speaker 1: be very good in our view. Um, this is a 266 00:15:57,120 --> 00:16:00,520 Speaker 1: company that is not exposed to China, and in our view, 267 00:16:00,520 --> 00:16:03,080 Speaker 1: the two acquisitions that they did over the last you know, 268 00:16:03,120 --> 00:16:06,320 Speaker 1: eighteen months or so should help their product growth going 269 00:16:06,360 --> 00:16:09,520 Speaker 1: into next year. How important? How important? I'm looking at 270 00:16:09,520 --> 00:16:13,720 Speaker 1: the Bloomberg uh F A function for salesforce and looking 271 00:16:13,760 --> 00:16:16,280 Speaker 1: at the street consensus, you know, still over twenty revenue 272 00:16:16,280 --> 00:16:19,040 Speaker 1: growth in each of the next couple of years. How 273 00:16:19,080 --> 00:16:22,640 Speaker 1: important is or r M and A acquisitions to the 274 00:16:22,680 --> 00:16:25,480 Speaker 1: underlying growth storage salesforce? Because this guy is a serial 275 00:16:25,480 --> 00:16:27,920 Speaker 1: acquire right, he has done such a good job of 276 00:16:27,960 --> 00:16:31,000 Speaker 1: acquiring companies and then integrating them, coming up with newer 277 00:16:31,000 --> 00:16:33,240 Speaker 1: products to sell on the the client base. So go 278 00:16:33,280 --> 00:16:36,360 Speaker 1: back in history and they have one particular product called 279 00:16:36,360 --> 00:16:38,720 Speaker 1: the sales cloud, which is where the company started off 280 00:16:38,760 --> 00:16:42,280 Speaker 1: with that still is predominantly their biggest product. And what 281 00:16:42,320 --> 00:16:45,160 Speaker 1: they do is when they buy these newer, smaller units, 282 00:16:45,280 --> 00:16:47,280 Speaker 1: they go to that large install base and try to 283 00:16:47,320 --> 00:16:49,880 Speaker 1: sell them more products. That remains one of the core 284 00:16:50,000 --> 00:16:53,320 Speaker 1: businesses for the company. And for a cloud application industry 285 00:16:53,320 --> 00:16:57,840 Speaker 1: growing at these guys you eighteen percent organically and a 286 00:16:57,840 --> 00:17:00,800 Speaker 1: few acquisition points in a down term, this is going 287 00:17:00,840 --> 00:17:03,360 Speaker 1: to be a good place to hide. So where is 288 00:17:03,640 --> 00:17:08,040 Speaker 1: salesforce growing the fastest. It's all the emerging areas in 289 00:17:08,160 --> 00:17:13,040 Speaker 1: terms of integration, cloud marketing, cloud commerce, cloud areas that 290 00:17:13,160 --> 00:17:16,639 Speaker 1: are ancillary or or or complementary to the you know, 291 00:17:16,680 --> 00:17:18,879 Speaker 1: function of sales. So you want to go buy a 292 00:17:18,920 --> 00:17:23,240 Speaker 1: product online, you can you know, use their digital commerce 293 00:17:23,240 --> 00:17:26,280 Speaker 1: platform to buy something. You want to do something on 294 00:17:26,440 --> 00:17:30,280 Speaker 1: customer service side, and their latest acquisition of mule Soft 295 00:17:30,320 --> 00:17:32,879 Speaker 1: and Tableau will help you integrate a lot of data 296 00:17:32,920 --> 00:17:35,600 Speaker 1: that you have on your premises. So Tableau was the 297 00:17:35,640 --> 00:17:38,320 Speaker 1: most recent big deal that I can remember. So what's 298 00:17:38,359 --> 00:17:40,640 Speaker 1: the some of the early feedback in terms of integrating 299 00:17:40,680 --> 00:17:42,640 Speaker 1: this thing. And it's just going to be a good deal, 300 00:17:42,720 --> 00:17:44,879 Speaker 1: you think in hindsight. So think about it this way. 301 00:17:44,920 --> 00:17:48,600 Speaker 1: A lot of enterprises still have their data on their premises. 302 00:17:48,640 --> 00:17:51,359 Speaker 1: It's not on the cloud. I mean, one could argue 303 00:17:51,359 --> 00:17:53,560 Speaker 1: more than seventy to eighty percent of the data still 304 00:17:53,600 --> 00:17:57,200 Speaker 1: resides on you know, companies like Pepsi and Coca Cola 305 00:17:57,240 --> 00:18:00,400 Speaker 1: on their premises. You can take that data out and 306 00:18:00,560 --> 00:18:04,440 Speaker 1: use something like a Tableau to see a visualization dashboard 307 00:18:04,480 --> 00:18:06,960 Speaker 1: of all the different things that you have in house. 308 00:18:07,280 --> 00:18:09,560 Speaker 1: And they bought a company before that called mule Soft 309 00:18:09,880 --> 00:18:12,240 Speaker 1: that remains the software that can help them do it. 310 00:18:12,440 --> 00:18:15,000 Speaker 1: So it works very well with all the different front 311 00:18:15,040 --> 00:18:17,280 Speaker 1: offices things that they have right now. So when we 312 00:18:17,320 --> 00:18:20,400 Speaker 1: talk about the cloud landscape more broadly, I mean I'm 313 00:18:20,400 --> 00:18:23,240 Speaker 1: thinking Amazon a WS has been a huge profit driver 314 00:18:23,359 --> 00:18:27,600 Speaker 1: for them. Microsoft has been successful there. How much room 315 00:18:27,880 --> 00:18:31,040 Speaker 1: is there for all of these companies to grow their 316 00:18:31,119 --> 00:18:34,080 Speaker 1: cloud services at the same time, I mean, when do 317 00:18:34,119 --> 00:18:37,320 Speaker 1: we reach saturation? It's a good question. So Amazon plays 318 00:18:37,320 --> 00:18:39,920 Speaker 1: in the infrastructure layer. That's not the game for salesforce. 319 00:18:39,920 --> 00:18:43,440 Speaker 1: Salesforces all applications. Microsoft has a sweet spot that has 320 00:18:43,520 --> 00:18:47,960 Speaker 1: both infrastructure and applications, so it's it works very well. 321 00:18:48,320 --> 00:18:51,280 Speaker 1: Salesforce actually just tell us what that means. So the 322 00:18:51,320 --> 00:18:54,480 Speaker 1: infrastructure would be just giving the bear servers and the 323 00:18:54,640 --> 00:18:58,560 Speaker 1: storage capacity for you to store your application for Salesforce. 324 00:18:58,640 --> 00:19:01,280 Speaker 1: The Salesforce application is like you know, think about like 325 00:19:01,320 --> 00:19:04,000 Speaker 1: a Facebook or a LinkedIn the application that you can 326 00:19:04,080 --> 00:19:06,879 Speaker 1: just log in and do something. That's the kind of 327 00:19:06,920 --> 00:19:10,240 Speaker 1: work that they sell for enterprises, for sales people to 328 00:19:10,280 --> 00:19:13,720 Speaker 1: be more productive, customer service people to be more productive. 329 00:19:14,240 --> 00:19:15,960 Speaker 1: It's very similar to the app that you have on 330 00:19:16,000 --> 00:19:20,040 Speaker 1: your phone, but for an enterprise, not so much for 331 00:19:20,040 --> 00:19:22,760 Speaker 1: for a consumer. So Amazon is not in that business. 332 00:19:22,760 --> 00:19:27,160 Speaker 1: Amazon doesn't sell those things. That's the differentiation of both 333 00:19:27,280 --> 00:19:30,760 Speaker 1: these clouds, you know, rising in parallel. So one thing 334 00:19:30,760 --> 00:19:33,760 Speaker 1: I know about the cloud business is that it is 335 00:19:34,000 --> 00:19:36,880 Speaker 1: very competitive from a pricing perspective. And I know I've 336 00:19:36,880 --> 00:19:38,800 Speaker 1: read your research in the past and it's kind of 337 00:19:38,840 --> 00:19:41,080 Speaker 1: almost the concern might be it's a race to the bottom. 338 00:19:41,119 --> 00:19:43,199 Speaker 1: Give us a sense of kind of the pricing in 339 00:19:43,240 --> 00:19:45,959 Speaker 1: this market. How competitive is it and is that kind 340 00:19:46,000 --> 00:19:48,400 Speaker 1: of a risk for investors. Yeah, So, as we talked 341 00:19:48,400 --> 00:19:52,199 Speaker 1: about in the infrastructure labor layer, massive pricing pressure on 342 00:19:52,440 --> 00:19:56,159 Speaker 1: adding more capacity to build applications, store more data on 343 00:19:56,200 --> 00:20:00,840 Speaker 1: the Salesforce applications or work Day or viv those companies 344 00:20:00,840 --> 00:20:03,520 Speaker 1: that sell enterprise applications, there's not a whole lot of 345 00:20:03,520 --> 00:20:06,320 Speaker 1: pricing pressure there because what they're selling is something so 346 00:20:06,440 --> 00:20:08,800 Speaker 1: unique that only a handful of people do it that 347 00:20:08,920 --> 00:20:12,399 Speaker 1: at that scale. So in workday, for example, it's cloud 348 00:20:12,560 --> 00:20:15,840 Speaker 1: HR applications, only two or three people work in that area, 349 00:20:15,920 --> 00:20:17,880 Speaker 1: and they are not trying to you know, beat them 350 00:20:18,040 --> 00:20:20,919 Speaker 1: each other down to the bottom. Same thing with Salesforce 351 00:20:20,960 --> 00:20:23,880 Speaker 1: and the sales side of it, but on the infrastructure side, 352 00:20:23,880 --> 00:20:26,679 Speaker 1: we have massive pricing pressure, all right, So just to 353 00:20:26,720 --> 00:20:30,040 Speaker 1: sort of build on that. As far as the competitive landscape, 354 00:20:30,359 --> 00:20:33,439 Speaker 1: it sounds like Microsoft does have some offerings that you 355 00:20:33,560 --> 00:20:37,520 Speaker 1: compete with Salesforce dot Com. Who else is a competitor 356 00:20:37,960 --> 00:20:41,000 Speaker 1: um SAP is a big competitor. SAP is actually pushing 357 00:20:41,040 --> 00:20:43,720 Speaker 1: a lot of their efforts. They acquired a company called 358 00:20:43,800 --> 00:20:46,920 Speaker 1: call Tricks just not you know, long ago, and they 359 00:20:46,920 --> 00:20:50,439 Speaker 1: want to integrate that kind of in their legacy cloud 360 00:20:50,480 --> 00:20:54,359 Speaker 1: products and their you know, legacy on premise products, and 361 00:20:54,400 --> 00:20:57,679 Speaker 1: so they want to fight very aggressively with Salesforce. I 362 00:20:57,720 --> 00:21:01,000 Speaker 1: think they should have a good, you know, runway of 363 00:21:01,040 --> 00:21:04,160 Speaker 1: growth as well, but not at the expense of Salesforce, 364 00:21:04,400 --> 00:21:07,440 Speaker 1: because in the place where Salesforce plays at more than 365 00:21:07,480 --> 00:21:10,640 Speaker 1: fifty of the revenue of that total addressable market comes 366 00:21:10,680 --> 00:21:14,000 Speaker 1: from very very small players. We think sales SAP will 367 00:21:14,000 --> 00:21:16,679 Speaker 1: gain market share from those smaller vendors, not so much 368 00:21:16,760 --> 00:21:19,320 Speaker 1: from Salesforce. A rock Runa, thank you so much for 369 00:21:19,400 --> 00:21:21,880 Speaker 1: joining us on a rock A senior analysts covering software 370 00:21:21,880 --> 00:21:24,560 Speaker 1: and I T services for Bloomberg Intelligence joining us here 371 00:21:24,600 --> 00:21:42,560 Speaker 1: in a Bloomberg Interactive broker studio previewing Salesforce dot com. 372 00:21:42,600 --> 00:21:45,800 Speaker 1: The data that we're getting out about the US economy 373 00:21:45,960 --> 00:21:49,840 Speaker 1: is highly conflicted, and adding to some of the conflict 374 00:21:50,359 --> 00:21:55,720 Speaker 1: was today's July Conference Board Leading Economic Index, which actually 375 00:21:55,800 --> 00:21:59,920 Speaker 1: came out positive and more positive then people had expect. 376 00:22:00,119 --> 00:22:02,280 Speaker 1: Here to talk about it is Bart van Arc. He 377 00:22:02,400 --> 00:22:05,639 Speaker 1: has the Conference Board's chief economist joining us. Bart, I 378 00:22:05,680 --> 00:22:08,480 Speaker 1: just want to get started with the numbers. What exactly 379 00:22:08,720 --> 00:22:11,440 Speaker 1: did we see in July. Well, it's a pretty broad 380 00:22:11,440 --> 00:22:15,639 Speaker 1: based improvement actually in the numbers. Um so uh what 381 00:22:15,720 --> 00:22:18,640 Speaker 1: particularly helps Here's housing permits have picked up a fair bit. 382 00:22:19,080 --> 00:22:21,800 Speaker 1: Unemployment insurance claims have gone down, which was mentioned just 383 00:22:21,840 --> 00:22:24,600 Speaker 1: a little earlier. Stock prices in July were okay, not 384 00:22:24,680 --> 00:22:26,320 Speaker 1: in August of course, but the EU IDA world, the 385 00:22:26,400 --> 00:22:29,080 Speaker 1: leading credit index was okay. There are a few downsides, 386 00:22:29,280 --> 00:22:31,359 Speaker 1: you know, for example, the pm I I s M 387 00:22:31,400 --> 00:22:33,879 Speaker 1: index has been down or so in July, that's being continued, 388 00:22:34,080 --> 00:22:36,159 Speaker 1: but if you balance it all out, it was actually 389 00:22:36,280 --> 00:22:38,360 Speaker 1: somewhat stronger improvement that we had expected. And I think 390 00:22:38,400 --> 00:22:41,200 Speaker 1: what's very important, it's not just one month. Also, our 391 00:22:41,280 --> 00:22:43,640 Speaker 1: six months average has improved quite a bit and it's 392 00:22:43,640 --> 00:22:45,440 Speaker 1: sort of back on track at about an opened a 393 00:22:45,560 --> 00:22:48,000 Speaker 1: puts and growth. So the expansion just seems to extend 394 00:22:48,040 --> 00:22:50,720 Speaker 1: a bit further. It's interesting the some of the data, 395 00:22:51,560 --> 00:22:53,480 Speaker 1: your data today, some of the p m I data, 396 00:22:53,880 --> 00:22:55,399 Speaker 1: I think, and you know, just thinking back to some 397 00:22:55,440 --> 00:22:57,720 Speaker 1: of the retailers that reported this week, you know, just 398 00:22:57,760 --> 00:23:01,879 Speaker 1: kind of reinforcing this narrative that the consumers generally pretty 399 00:23:01,920 --> 00:23:04,119 Speaker 1: strong out there. But let's flip to the manufact and 400 00:23:04,119 --> 00:23:08,280 Speaker 1: that's seventy the U S economy, but that the manufacturing 401 00:23:08,320 --> 00:23:12,080 Speaker 1: side showed some signs continued signs of weakness, and we 402 00:23:12,200 --> 00:23:15,600 Speaker 1: certainly have seen some weaker numbers out of Europe, including Germany. 403 00:23:15,680 --> 00:23:17,879 Speaker 1: So kind of what are you seeing on the manufacturing front. Ye, 404 00:23:18,000 --> 00:23:20,200 Speaker 1: So the manufacturing cycle is still very weak, and as 405 00:23:20,240 --> 00:23:23,000 Speaker 1: you say, they are highly highly dependent on what's happening 406 00:23:23,000 --> 00:23:25,320 Speaker 1: in the rest of the global economy. So we've got Germany, 407 00:23:25,680 --> 00:23:29,280 Speaker 1: got the UK, Japan, significant parts of Asia are a 408 00:23:29,320 --> 00:23:33,120 Speaker 1: week So that's why we expected industrial cycle will continue 409 00:23:33,119 --> 00:23:35,240 Speaker 1: to be a downbeat on this whole story. But you know, 410 00:23:35,280 --> 00:23:37,200 Speaker 1: as you're saying in the US, it's the consumer which 411 00:23:37,240 --> 00:23:39,760 Speaker 1: really matters. As as long as the labor market remains 412 00:23:39,760 --> 00:23:42,119 Speaker 1: strong than they continue to see some raights increases, I 413 00:23:42,160 --> 00:23:44,520 Speaker 1: think we will pull this alone for a while. How 414 00:23:44,600 --> 00:23:48,800 Speaker 1: much of the increase in the unexpectedly large increase in 415 00:23:48,920 --> 00:23:54,320 Speaker 1: this leading economic indicator index is due to lower rates? 416 00:23:54,840 --> 00:23:57,200 Speaker 1: Any idea that the Fed was going to cut rates 417 00:23:57,280 --> 00:24:00,520 Speaker 1: more than people had previously expected earlier in the year. Yeah, 418 00:24:00,560 --> 00:24:02,800 Speaker 1: I think it's a little bit early to expect that. 419 00:24:02,840 --> 00:24:05,080 Speaker 1: It is sort of the change in tune of the 420 00:24:05,080 --> 00:24:07,879 Speaker 1: fellow reserves already playing out into the numbers except for 421 00:24:07,920 --> 00:24:10,240 Speaker 1: the confidence side. So I think on the confidence side 422 00:24:10,640 --> 00:24:12,840 Speaker 1: we will you know, I think it has helped consumers 423 00:24:12,840 --> 00:24:15,720 Speaker 1: to hear the story that there's you know, lower rates, 424 00:24:15,720 --> 00:24:17,120 Speaker 1: and that helps them a little bit. Well, the only 425 00:24:17,119 --> 00:24:20,040 Speaker 1: thing is about housing. You did see an improvement in housing. 426 00:24:20,480 --> 00:24:23,080 Speaker 1: There was an improvement in some of the credit metrics, 427 00:24:23,160 --> 00:24:26,280 Speaker 1: which have to do with also the lower rates makes 428 00:24:26,280 --> 00:24:29,800 Speaker 1: it easier to borrow and refinance and as well as equities. Right, 429 00:24:29,840 --> 00:24:32,520 Speaker 1: that's in part of one of the one of the 430 00:24:32,560 --> 00:24:35,400 Speaker 1: factors in the index. So all of those things were 431 00:24:35,400 --> 00:24:37,240 Speaker 1: sort of supported, and I'm just wondering how much of 432 00:24:37,280 --> 00:24:39,199 Speaker 1: a boost that is. I think the mortgage rates are 433 00:24:39,200 --> 00:24:41,320 Speaker 1: by far the most important here, and and that of 434 00:24:41,359 --> 00:24:43,320 Speaker 1: course because that's where you really will see these long 435 00:24:43,440 --> 00:24:46,840 Speaker 1: rates putting putting through into the mortgage rates becoming lower. 436 00:24:47,119 --> 00:24:49,320 Speaker 1: So I think that's why this housing permits number comes 437 00:24:49,320 --> 00:24:51,440 Speaker 1: in nice and the other housing indicators that also look 438 00:24:51,480 --> 00:24:53,520 Speaker 1: pretty well. So I think the housing market is a 439 00:24:53,600 --> 00:24:57,080 Speaker 1: very important parttion of this action. So it's interesting the 440 00:24:57,800 --> 00:25:01,160 Speaker 1: lot of talk kind of growing talk with a better 441 00:25:01,200 --> 00:25:03,520 Speaker 1: recession in the US economy. Maybe you know, I guess 442 00:25:03,880 --> 00:25:06,440 Speaker 1: in the beginning of the here people thinking oh mid now, 443 00:25:06,560 --> 00:25:11,320 Speaker 1: maybe pushed out the late um. But I guess, what, 444 00:25:11,320 --> 00:25:14,800 Speaker 1: what what is your data showing you and what are 445 00:25:14,800 --> 00:25:17,040 Speaker 1: your thoughts about a depending in recession in the US, 446 00:25:17,080 --> 00:25:18,600 Speaker 1: given just how far we are in the cycle of 447 00:25:18,680 --> 00:25:20,960 Speaker 1: no I would say, I mean, despite today's good number, 448 00:25:20,960 --> 00:25:24,239 Speaker 1: which we're very happy about. We still believe that the 449 00:25:24,240 --> 00:25:27,520 Speaker 1: economy is on a nice edge, and so our default 450 00:25:27,520 --> 00:25:30,280 Speaker 1: scenario is a gradual slowdown of the US economy to 451 00:25:30,359 --> 00:25:32,919 Speaker 1: about two for the remainder of this year, which is 452 00:25:32,920 --> 00:25:35,000 Speaker 1: slower than it was you know, last year, and even 453 00:25:35,000 --> 00:25:37,200 Speaker 1: the average at the beginning of this year and into 454 00:25:37,280 --> 00:25:39,040 Speaker 1: next year it will be around the two percent, which 455 00:25:39,040 --> 00:25:41,080 Speaker 1: by the way, is the underlying long term growth rate 456 00:25:41,080 --> 00:25:42,800 Speaker 1: of the economy. So who are more or less a trend, 457 00:25:43,400 --> 00:25:45,440 Speaker 1: But there is a down, a potential risk, of course, 458 00:25:45,480 --> 00:25:48,200 Speaker 1: a very very high and and again the consumer really 459 00:25:48,240 --> 00:25:50,640 Speaker 1: matters here. There's a lot of uncertainty in the economy. 460 00:25:51,000 --> 00:25:52,919 Speaker 1: The consumer seems to be okay with it. I mean, 461 00:25:53,000 --> 00:25:54,600 Speaker 1: you know, the news comes in and goes out, and 462 00:25:54,640 --> 00:25:56,680 Speaker 1: every day it changes. On balance, I think it's kind 463 00:25:56,680 --> 00:25:58,960 Speaker 1: of okay. But if any of these uncertainties, whether it 464 00:25:59,040 --> 00:26:02,119 Speaker 1: is Brexit or the trade dispute or Hong Kong is 465 00:26:02,119 --> 00:26:05,520 Speaker 1: turning into a big shock, the kazomer could pull back 466 00:26:05,560 --> 00:26:07,680 Speaker 1: and that wouldn't be the alternative scenario of a much 467 00:26:07,720 --> 00:26:11,200 Speaker 1: faster slowdown. So you say that even though this is positive, 468 00:26:11,359 --> 00:26:12,920 Speaker 1: you think that the U s economy is at a 469 00:26:12,960 --> 00:26:17,120 Speaker 1: knife's edge. What in the numbers is giving you that sense? Well, 470 00:26:17,160 --> 00:26:19,800 Speaker 1: I think in the numbers there are still as as 471 00:26:19,800 --> 00:26:21,840 Speaker 1: we have seen in today's numbers, very little, but the 472 00:26:22,000 --> 00:26:25,560 Speaker 1: underlying economic fundamentals have been weakening, you know, I mean 473 00:26:25,560 --> 00:26:28,320 Speaker 1: we we've been gradually slowing down to this trend growth 474 00:26:28,320 --> 00:26:30,760 Speaker 1: of the economy. Yes, the labor market is still strong, 475 00:26:30,800 --> 00:26:33,960 Speaker 1: but we're adding fewer jobs. Productivity is going up, but 476 00:26:34,000 --> 00:26:36,520 Speaker 1: it's not going up very rapidly. So if you add 477 00:26:36,520 --> 00:26:38,679 Speaker 1: all these factors up, then you know the U. S 478 00:26:38,720 --> 00:26:42,320 Speaker 1: economy is not gaining steam. We're just extending the expansion 479 00:26:42,680 --> 00:26:44,680 Speaker 1: and that puts the economy at a nice sge because 480 00:26:44,720 --> 00:26:47,399 Speaker 1: if there's a negative shocking the economy, you can very 481 00:26:47,480 --> 00:26:50,200 Speaker 1: quickly get into trouble. But again it's an alternative scenario. 482 00:26:50,240 --> 00:26:52,760 Speaker 1: Our probability is on the default of about two growth. 483 00:26:52,840 --> 00:26:56,000 Speaker 1: And are you expecting any kind of trade deal done 484 00:26:56,000 --> 00:26:59,159 Speaker 1: before the election or you just is your base case assuming? Now? Well, 485 00:26:59,400 --> 00:27:01,679 Speaker 1: the question is what exactly is a trade deal? I 486 00:27:01,720 --> 00:27:03,760 Speaker 1: think both the US and China want to get to 487 00:27:03,840 --> 00:27:05,840 Speaker 1: some kind of agreement because this back and thor of 488 00:27:05,920 --> 00:27:08,639 Speaker 1: on not agreeing on anything is not helpful. The question 489 00:27:08,720 --> 00:27:10,480 Speaker 1: is what is the nature of that agreement. The most 490 00:27:10,520 --> 00:27:12,800 Speaker 1: important thing, of course, is to get these terrorists of 491 00:27:12,920 --> 00:27:14,760 Speaker 1: the table, or at least the threat of terrorists, and 492 00:27:14,760 --> 00:27:17,800 Speaker 1: gradually pull them back better. We'll have a more fundamental 493 00:27:17,840 --> 00:27:21,200 Speaker 1: agreement which deals with you know, intellectual property and technology 494 00:27:21,560 --> 00:27:24,760 Speaker 1: and and foreign direct investment arrangements. I think that's probably 495 00:27:24,800 --> 00:27:27,120 Speaker 1: something that will take more time. Part Van Ark, thank 496 00:27:27,160 --> 00:27:29,679 Speaker 1: you so much for joining us part Dissy, chief Economists 497 00:27:29,680 --> 00:27:32,560 Speaker 1: for the conference board. Thanks for listening to the Bloomberg 498 00:27:32,560 --> 00:27:34,800 Speaker 1: P and L podcast. You can subscribe and listen to 499 00:27:34,800 --> 00:27:38,040 Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer. 500 00:27:38,440 --> 00:27:41,680 Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney and Lisa Abramo. 501 00:27:41,760 --> 00:27:44,359 Speaker 1: It's I'm on Twitter at Lisa Abramo. It's one before 502 00:27:44,400 --> 00:27:47,560 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.