1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:30,480 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg This 5 00:00:30,720 --> 00:00:35,280 Speaker 1: is Bloomberg Surveillance. Economics. Productivity is the key to real 6 00:00:35,360 --> 00:00:37,839 Speaker 1: GDP growth. Argue is that inflation is going to be 7 00:00:37,880 --> 00:00:41,000 Speaker 1: moving higher, but it's gonna be moving higher in gradual basis. Clinants, 8 00:00:41,080 --> 00:00:43,040 Speaker 1: I don't think there's a reason to expect the dollar 9 00:00:43,120 --> 00:00:45,960 Speaker 1: to keep going up. We don't realize how good times 10 00:00:46,000 --> 00:00:49,440 Speaker 1: are now. Investment, I'm very pessimistic on stocks. I'm very 11 00:00:49,440 --> 00:00:52,320 Speaker 1: pessimistic on bob. If you're longer term investor, you just 12 00:00:52,400 --> 00:00:55,480 Speaker 1: want to stay a long Bloomberg Surveillance with Tom Keene 13 00:00:55,480 --> 00:00:59,800 Speaker 1: and Jonathan Parow on Bloomberg Radio from New York City 14 00:00:59,840 --> 00:01:03,160 Speaker 1: for audience worldwide. Good morning, Good morning. This is a 15 00:01:03,240 --> 00:01:07,360 Speaker 1: Bloomberg Surveillance Alongside Tom Keene, I'm Jonathan Pharaoh. President Trump 16 00:01:07,400 --> 00:01:10,840 Speaker 1: picking a loyalist to replace Cone cuver Low, signaling he 17 00:01:10,959 --> 00:01:14,200 Speaker 1: supports a tough stance on China. The Senate backing a 18 00:01:14,280 --> 00:01:17,639 Speaker 1: bill to relax post crisis rules, giving smaller banks a break, 19 00:01:17,880 --> 00:01:21,640 Speaker 1: offering Wall Street very little and drowning in debt crushed 20 00:01:21,640 --> 00:01:25,880 Speaker 1: by competition. The toys r US turnaround collapses after turnaround 21 00:01:25,880 --> 00:01:29,440 Speaker 1: efforts fail. In the markets, your thirstday morning price action 22 00:01:29,520 --> 00:01:32,840 Speaker 1: as follows. Futures up fourteen on the doubt, unchanged on 23 00:01:32,840 --> 00:01:35,600 Speaker 1: the SMP five hundred. In the FX markets, some muted 24 00:01:35,720 --> 00:01:38,520 Speaker 1: price action, but some yen strength in there with Dolly 25 00:01:38,600 --> 00:01:40,759 Speaker 1: Yen down for a second straight day. We dropped SETH 26 00:01:40,800 --> 00:01:43,399 Speaker 1: at one oh six at one eighty nine, down four 27 00:01:43,440 --> 00:01:46,200 Speaker 1: tenths of one percent. In the bond market is there's 28 00:01:46,240 --> 00:01:50,480 Speaker 1: some stormy weather brewing in Shortsville. Treasuries yields lower by 29 00:01:50,520 --> 00:01:53,240 Speaker 1: another basis points to almost two a d on a 30 00:01:53,320 --> 00:01:55,280 Speaker 1: US tenure at the front end of the curve were 31 00:01:55,360 --> 00:01:58,640 Speaker 1: unchanged at two point to five percent. And to round 32 00:01:58,680 --> 00:02:01,240 Speaker 1: things out for you, in the commodity ARKT Brent unchanged 33 00:02:01,280 --> 00:02:04,560 Speaker 1: at and w T I positive by just a mere 34 00:02:04,600 --> 00:02:07,120 Speaker 1: two tenths of one percent at sixty one dollars and 35 00:02:07,200 --> 00:02:10,480 Speaker 1: around about ten cents. The main story worldwide is still 36 00:02:10,720 --> 00:02:13,720 Speaker 1: very much China, with the question one question on many 37 00:02:13,720 --> 00:02:17,360 Speaker 1: people's minds. How does the United States counter China? In 38 00:02:17,360 --> 00:02:19,800 Speaker 1: a period of just twenty four hours, the struggles were 39 00:02:19,880 --> 00:02:23,840 Speaker 1: very much underlined. In Beijing, President she was consolidating power, 40 00:02:24,080 --> 00:02:27,360 Speaker 1: unveiling a sweeping diplomatic overhaul to help deliver a decade 41 00:02:27,400 --> 00:02:31,200 Speaker 1: long plan. In Washington, the President fired his top diplomat 42 00:02:31,200 --> 00:02:35,280 Speaker 1: by tweet, letting bear months of policy disputes. I'm really 43 00:02:35,320 --> 00:02:37,720 Speaker 1: pleased to say that Wang in this morning on Bloomberg 44 00:02:37,800 --> 00:02:41,320 Speaker 1: Surveillance is Stephen Roach, the Yale University professor, formerly chairman 45 00:02:41,480 --> 00:02:44,080 Speaker 1: of Morgan's Down the Asia and the firm's economists for 46 00:02:44,200 --> 00:02:46,840 Speaker 1: much of his thirty year career at the company. He 47 00:02:46,919 --> 00:02:50,880 Speaker 1: joins US now professor, Good morning, thanks joining us. So 48 00:02:50,919 --> 00:02:54,720 Speaker 1: how does the United States counter the Chinese approach in 49 00:02:54,720 --> 00:02:59,399 Speaker 1: international trade? Well, there's several things we've gotta do. Number one, Jonathan, 50 00:03:00,320 --> 00:03:05,840 Speaker 1: we have to restart the formal engagement on on on 51 00:03:05,919 --> 00:03:09,200 Speaker 1: economic matters. We used to have something called the Strategic 52 00:03:09,240 --> 00:03:12,919 Speaker 1: and Economic Dialogue. It morphed into the Comprehensive Economic Dialogue, 53 00:03:12,919 --> 00:03:15,639 Speaker 1: and now it's on hold and we really don't talk. 54 00:03:16,040 --> 00:03:19,160 Speaker 1: We don't need a bunch of you know, annual uh 55 00:03:19,440 --> 00:03:24,799 Speaker 1: sort of event planning exercises. We need a permanent secretariat 56 00:03:24,880 --> 00:03:27,600 Speaker 1: to to really engage the Chinese on a regular basis. 57 00:03:27,720 --> 00:03:31,560 Speaker 1: Number one. Number two, we've got to focus on market access, 58 00:03:31,639 --> 00:03:35,440 Speaker 1: and there we've had a negotiations stalled for nine years 59 00:03:35,440 --> 00:03:39,400 Speaker 1: on a bilateral investment treaty which would allow US and 60 00:03:39,440 --> 00:03:44,200 Speaker 1: our multinationals to UM have greater access to rapidly growing 61 00:03:44,240 --> 00:03:47,800 Speaker 1: consumer markets UH in China. We are stymied on this. 62 00:03:47,960 --> 00:03:51,600 Speaker 1: The Chinese are also part of this UM. They want 63 00:03:51,600 --> 00:03:54,840 Speaker 1: access to our markets. Let's if we have a president 64 00:03:54,880 --> 00:03:59,320 Speaker 1: who does deals, Let's do a deal to allow UH 65 00:03:59,520 --> 00:04:03,480 Speaker 1: companies on both sides to actively participate. And Thirdly, there's 66 00:04:03,480 --> 00:04:08,080 Speaker 1: a number of UH sort of UM UH software policy 67 00:04:08,120 --> 00:04:10,760 Speaker 1: issues that need to be addressed. We talked about them 68 00:04:10,840 --> 00:04:15,000 Speaker 1: on television a few minutes ago. The US is completely 69 00:04:15,040 --> 00:04:18,920 Speaker 1: off base and viewing the Chinese bilateral deficit and isolation 70 00:04:19,000 --> 00:04:23,080 Speaker 1: from its multilateral current account and savings problems. We've got 71 00:04:23,080 --> 00:04:26,479 Speaker 1: to get economic analysis back into the issue. And the 72 00:04:26,560 --> 00:04:29,360 Speaker 1: Chinese have soft issues of their own to address in 73 00:04:29,440 --> 00:04:35,800 Speaker 1: terms of their geostrategic contentions UH, their training practice issues UH, 74 00:04:35,800 --> 00:04:42,080 Speaker 1: and cyber issues as well. UH. China's reputation amongst the 75 00:04:42,240 --> 00:04:45,679 Speaker 1: um The intellectual thought leader base in the United States 76 00:04:45,800 --> 00:04:48,080 Speaker 1: is probably an all time low right now, and China 77 00:04:48,160 --> 00:04:51,920 Speaker 1: needs to counter that with more effective UH and reasoned 78 00:04:51,960 --> 00:04:54,400 Speaker 1: responses on their side. How do you expect the Chinese 79 00:04:54,440 --> 00:04:56,839 Speaker 1: to count up the events of the last month, professor, 80 00:04:56,920 --> 00:04:59,800 Speaker 1: because they have been remarkably quiet in the face of 81 00:05:00,120 --> 00:05:04,240 Speaker 1: heights and criticism worldwide. Well, they've been. They've been quiet 82 00:05:04,279 --> 00:05:07,400 Speaker 1: because the actions to date have not really been of 83 00:05:07,600 --> 00:05:12,120 Speaker 1: enormous consequence. The big shoe to fall would be Jonathan 84 00:05:12,200 --> 00:05:18,440 Speaker 1: if the President does impose much UH, higher and broader 85 00:05:18,480 --> 00:05:21,400 Speaker 1: tariffs as part of the so called Section three oh 86 00:05:21,480 --> 00:05:25,280 Speaker 1: one negotiations that his trade representative has been working on 87 00:05:25,680 --> 00:05:30,520 Speaker 1: since last August in areas like intellectual property rights, technology transfer, 88 00:05:30,640 --> 00:05:35,479 Speaker 1: and innovation. And you know, the rumor not so secret 89 00:05:35,520 --> 00:05:39,760 Speaker 1: coming out of Washington is that big tariffs are coming 90 00:05:40,360 --> 00:05:43,320 Speaker 1: UH in response to that, and if the Chinese are 91 00:05:43,440 --> 00:05:47,200 Speaker 1: hit with much bigger tariffs, we will most assuredly retaliate. 92 00:05:47,279 --> 00:05:49,640 Speaker 1: And we'll see how we like it when our third 93 00:05:49,760 --> 00:05:53,479 Speaker 1: largest and most rapidly growing export market puts tariffs on 94 00:05:53,680 --> 00:05:56,960 Speaker 1: US companies, including Boeing. Steve to me, the thing that's 95 00:05:57,040 --> 00:06:01,560 Speaker 1: most charming is a complete miss and standing of game theory. 96 00:06:01,640 --> 00:06:04,880 Speaker 1: And I'm not talking about the sophistication of avanage sticks 97 00:06:05,040 --> 00:06:09,120 Speaker 1: down at Princeton University or the wonderful program at Rice University. 98 00:06:09,480 --> 00:06:14,200 Speaker 1: I'm just talking about basic response. Mr Navarro and Mr 99 00:06:14,360 --> 00:06:19,920 Speaker 1: Ross seemed to be unaware that China will respond. How 100 00:06:20,000 --> 00:06:23,719 Speaker 1: will China respond? What is the game theory? It's Steve 101 00:06:23,839 --> 00:06:28,200 Speaker 1: Roach observes or can predict from Beijing China. We have 102 00:06:28,200 --> 00:06:31,120 Speaker 1: a code, I mean time. We have a codependent economic 103 00:06:31,120 --> 00:06:35,640 Speaker 1: relationship with China, which means that uh, they depend on 104 00:06:35,680 --> 00:06:38,520 Speaker 1: our markets to sell their goods, but we also depend 105 00:06:39,279 --> 00:06:42,479 Speaker 1: on products from China to make ends meet for hard 106 00:06:42,480 --> 00:06:45,880 Speaker 1: press consumers. And by the way, we depend uh hugely 107 00:06:45,920 --> 00:06:50,120 Speaker 1: every year on Chinese buying of treasuries to fund our 108 00:06:50,160 --> 00:06:53,200 Speaker 1: budget deficit, which is of course UH going to get 109 00:06:53,240 --> 00:06:56,640 Speaker 1: considerably larger in the years ahead. So China's got a 110 00:06:56,720 --> 00:07:00,240 Speaker 1: number of options that it can UH think of out 111 00:07:00,279 --> 00:07:03,440 Speaker 1: in response to the US pressure on the trade front 112 00:07:03,520 --> 00:07:05,279 Speaker 1: or on the capital flow front. I mean, I mean 113 00:07:05,480 --> 00:07:07,960 Speaker 1: you should see John Farrell going down Fifth Avenue when 114 00:07:07,960 --> 00:07:12,120 Speaker 1: a Harley Davidson actally something. If they put a tariff 115 00:07:12,200 --> 00:07:18,480 Speaker 1: on Harley Davidson's what's the effect on that for both parties? Well, 116 00:07:18,640 --> 00:07:20,880 Speaker 1: you won't. You won't see John writing as Harley in 117 00:07:21,120 --> 00:07:24,520 Speaker 1: UH in Beijing. Don't just get a little bit more expensive. Yeah, 118 00:07:24,640 --> 00:07:30,080 Speaker 1: well who knows? Um, I think again. Uh, the US 119 00:07:30,840 --> 00:07:36,679 Speaker 1: UH is looking for sources of growth, and our two 120 00:07:36,720 --> 00:07:41,400 Speaker 1: biggest trading partners are Mexico and Canada. Number three in 121 00:07:41,520 --> 00:07:44,360 Speaker 1: terms of and and number one in terms of actual 122 00:07:44,760 --> 00:07:48,600 Speaker 1: growth over the last ten years is China. China's changing 123 00:07:48,600 --> 00:07:51,400 Speaker 1: its economy, Tom, They're becoming more of a middle class 124 00:07:51,760 --> 00:07:56,240 Speaker 1: consumption economy, which is a huge potential market for US 125 00:07:56,640 --> 00:07:59,440 Speaker 1: in terms of both goods and services, provided we do 126 00:07:59,480 --> 00:08:03,920 Speaker 1: a deal on market access through the bilateral investment treaty 127 00:08:03,960 --> 00:08:07,760 Speaker 1: that I just alluded to. So that should be the focus. Uh. 128 00:08:07,800 --> 00:08:10,760 Speaker 1: And you know, the Chinese can choke off that option 129 00:08:10,920 --> 00:08:13,320 Speaker 1: if we play tough with them. So you're right, there 130 00:08:13,440 --> 00:08:19,400 Speaker 1: is no real game theoretic mindset in Washington. They view 131 00:08:19,440 --> 00:08:21,400 Speaker 1: it as a one way street. You know, we can 132 00:08:21,480 --> 00:08:26,880 Speaker 1: stop China, irrespective of the consequences that may have on US. Professor. 133 00:08:26,960 --> 00:08:29,280 Speaker 1: At the moment, though, that development in China is largely 134 00:08:29,320 --> 00:08:32,480 Speaker 1: seen as a threat made in China, this big decade 135 00:08:32,520 --> 00:08:34,200 Speaker 1: long plan. It's seen as a threat not just by 136 00:08:34,240 --> 00:08:36,200 Speaker 1: the United States of America, but by Europe as well, 137 00:08:36,280 --> 00:08:39,720 Speaker 1: and perhaps Germany more specifically. You keep talking about the 138 00:08:39,720 --> 00:08:42,400 Speaker 1: benefits of this relationship with China, and I look at 139 00:08:42,400 --> 00:08:45,280 Speaker 1: the current administration and wonder whether they identify enough shared 140 00:08:45,320 --> 00:08:48,319 Speaker 1: interests right now to really counter the areas of friction. 141 00:08:48,559 --> 00:08:53,120 Speaker 1: Do they look those are those are great questions. Industrial policy, 142 00:08:53,240 --> 00:08:57,520 Speaker 1: whether it you know, was sponsored by UM, the Japanese 143 00:08:58,360 --> 00:09:02,200 Speaker 1: UH in the eighties or now the Chinese right now 144 00:09:02,840 --> 00:09:06,520 Speaker 1: has has been viewed as a threat for systems like 145 00:09:06,600 --> 00:09:11,400 Speaker 1: ours that are based on the creative destruction of Joseph Schumpeter. 146 00:09:11,600 --> 00:09:14,600 Speaker 1: The market knows a lot more. But you know, we 147 00:09:14,679 --> 00:09:17,560 Speaker 1: get engaged a lot in industrial policy. Just look at 148 00:09:17,600 --> 00:09:21,680 Speaker 1: what the Trump administration did with respect to this Qualcom 149 00:09:22,280 --> 00:09:24,440 Speaker 1: UH deal as well. And look at what we've done 150 00:09:24,480 --> 00:09:28,440 Speaker 1: repeatedly UH in intervening in what we think are our 151 00:09:28,480 --> 00:09:34,720 Speaker 1: strategic interests. UH through Scipious and other organizations that UH 152 00:09:34,840 --> 00:09:39,480 Speaker 1: control the way in which UM other companies operate in 153 00:09:40,080 --> 00:09:44,320 Speaker 1: our space. So we're all guilty of intervening UH in 154 00:09:44,320 --> 00:09:47,559 Speaker 1: in markets. And you know, the Chinese do have this 155 00:09:47,880 --> 00:09:53,319 Speaker 1: strategic plan made in China. But look, there's no guarantee 156 00:09:53,360 --> 00:09:57,199 Speaker 1: it's it's actually gonna work out exactly as they say. 157 00:09:56,920 --> 00:09:59,679 Speaker 1: They've got to do a lot of innovation. They're gonna 158 00:09:59,679 --> 00:10:01,720 Speaker 1: move up the value chain, they're gonna be moving into 159 00:10:01,760 --> 00:10:04,760 Speaker 1: new industries. They're gonna put a lot of government support 160 00:10:05,320 --> 00:10:10,880 Speaker 1: into these industries like you know, biotech and information technology 161 00:10:11,080 --> 00:10:16,319 Speaker 1: and environmental remediation. But there's no guarantee it's gonna work 162 00:10:16,360 --> 00:10:20,480 Speaker 1: if they don't have the innovation UH and the breakthroughs 163 00:10:20,920 --> 00:10:23,920 Speaker 1: UH to really bring these industries to the next place. 164 00:10:24,040 --> 00:10:25,800 Speaker 1: Steven right, it's going to have you with us the 165 00:10:26,160 --> 00:10:29,560 Speaker 1: university professor Fumer, chairman of Morgan Stamby Asia and these 166 00:10:29,600 --> 00:10:33,160 Speaker 1: funds economists. For much of his thirty year careit son 167 00:10:33,200 --> 00:10:36,480 Speaker 1: annual visit that we do with Douglas Cass of Sea Breezes. 168 00:10:36,520 --> 00:10:38,680 Speaker 1: We do this for the brackets, we do this for 169 00:10:38,760 --> 00:10:43,280 Speaker 1: spring training and his Florida casts visiting all the stadia 170 00:10:43,960 --> 00:10:45,960 Speaker 1: of the Grapefruit League, and we talked to him about 171 00:10:45,960 --> 00:10:49,680 Speaker 1: the equity markets as well. Dougo, who do you have 172 00:10:49,720 --> 00:10:51,760 Speaker 1: in your bracket? Please let's get that out of the way. 173 00:10:52,320 --> 00:10:54,680 Speaker 1: On the right side, of the bracket. I'm all Philly 174 00:10:55,040 --> 00:10:59,320 Speaker 1: villain over versus Pennsylvania and Quakers go kers. You've got 175 00:10:59,360 --> 00:11:03,480 Speaker 1: the pen makers. I'm being facetious. I think Villanova goes 176 00:11:03,559 --> 00:11:07,000 Speaker 1: all the way. Okay, very good. We're looking boiler up 177 00:11:07,040 --> 00:11:11,000 Speaker 1: here Perdue, John Farrow, Doug Cass is trying to find 178 00:11:11,040 --> 00:11:15,560 Speaker 1: Perdue in the map. If someone to tell me, well 179 00:11:15,600 --> 00:11:17,520 Speaker 1: the duck care, we'll get into that history that. We'll 180 00:11:17,559 --> 00:11:20,199 Speaker 1: do that at our ten o'clock our a topsy me, 181 00:11:20,400 --> 00:11:24,320 Speaker 1: our autopsy meeting this morning. I'm boiler up, Doug Cass, 182 00:11:24,400 --> 00:11:29,480 Speaker 1: boiler up these markets down thousand. Everyone knows you've been 183 00:11:29,520 --> 00:11:34,000 Speaker 1: more than cautious. Are you still short the market? Yes? 184 00:11:34,600 --> 00:11:37,280 Speaker 1: Well I've been long and short, but I see better 185 00:11:37,320 --> 00:11:40,000 Speaker 1: than a fifty percent probability that we've seen a market 186 00:11:40,040 --> 00:11:44,080 Speaker 1: top already this year. Within that, is it about the 187 00:11:44,120 --> 00:11:49,160 Speaker 1: economic growth fragilities that are percolating? Is a simply valuation 188 00:11:49,320 --> 00:11:52,760 Speaker 1: or is it? Jerome Powell? Well, I think history rhymes. 189 00:11:52,800 --> 00:11:56,040 Speaker 1: And we discussed last time when I went along into 190 00:11:56,120 --> 00:12:00,560 Speaker 1: the liquidity dry up owing to the unwind short fall 191 00:12:00,640 --> 00:12:04,240 Speaker 1: and risk parity trades in early February, and um I 192 00:12:04,320 --> 00:12:07,120 Speaker 1: compared it to the last liquidity event that I remember 193 00:12:07,120 --> 00:12:11,600 Speaker 1: in October seven when portfolio insurance crashed the market. So 194 00:12:11,760 --> 00:12:14,760 Speaker 1: of history rhymes, we have a rally off that we 195 00:12:14,840 --> 00:12:17,079 Speaker 1: have a retest, rally and a retest. I think we're 196 00:12:17,120 --> 00:12:19,680 Speaker 1: at the We had the second rally already. I brought 197 00:12:19,720 --> 00:12:25,240 Speaker 1: back my shorts, went long sold into my target around fifty. 198 00:12:25,240 --> 00:12:27,600 Speaker 1: We had a bit of an overshoot. And where I 199 00:12:27,600 --> 00:12:30,480 Speaker 1: stand now as I've been consistently in the last week 200 00:12:30,600 --> 00:12:33,880 Speaker 1: or so re shorting the indices. I made the observation 201 00:12:34,000 --> 00:12:36,960 Speaker 1: to you and to your producer and but my buddy Lee, 202 00:12:37,800 --> 00:12:41,040 Speaker 1: that you know, we live in this interconnected world, world, 203 00:12:41,240 --> 00:12:46,080 Speaker 1: this flat world, so all geography market geographies should really 204 00:12:46,160 --> 00:12:49,840 Speaker 1: correlate to each other. And I made the observation that 205 00:12:49,920 --> 00:12:52,200 Speaker 1: the s that the docks is now back to where 206 00:12:52,280 --> 00:12:55,440 Speaker 1: it was in March two thousand seventeen, which is will 207 00:12:55,440 --> 00:12:57,960 Speaker 1: surprise a lot of people. At that time, the S 208 00:12:58,040 --> 00:13:02,240 Speaker 1: and P was about four five points lower, so you 209 00:13:02,320 --> 00:13:05,520 Speaker 1: get some sense of overvaluations. I don't think this is 210 00:13:05,520 --> 00:13:08,880 Speaker 1: a divergence we can ignore. But there are other warning signs. 211 00:13:09,080 --> 00:13:13,600 Speaker 1: Jonathan mentioned the strong bid and the treasury market high 212 00:13:13,679 --> 00:13:17,480 Speaker 1: yield debt is starting to roll over. Um. We're beginning 213 00:13:17,480 --> 00:13:21,800 Speaker 1: to see the domestic economy stumbling a bit, and the 214 00:13:21,840 --> 00:13:28,000 Speaker 1: more optimistic economic assumptions are not being confirmed by retail sales, 215 00:13:28,120 --> 00:13:32,400 Speaker 1: durable goods, housing starts, automobile sales which have peaked, and 216 00:13:32,559 --> 00:13:35,880 Speaker 1: so there's a developing trend of disappointing economic data as well. 217 00:13:36,160 --> 00:13:38,760 Speaker 1: It's also occurring in the EU. The less couple of 218 00:13:38,800 --> 00:13:42,240 Speaker 1: deaths very pronounced in the Europe. Do yeah, So I 219 00:13:42,280 --> 00:13:44,040 Speaker 1: think the market may be the mirror image of the 220 00:13:44,040 --> 00:13:46,280 Speaker 1: New York Yankees. In the latter case, the best is 221 00:13:46,360 --> 00:13:48,400 Speaker 1: yet to come. In the former case, the market the 222 00:13:48,440 --> 00:13:50,719 Speaker 1: worst is yet to come. Good morning Bloomberg one or 223 00:13:50,760 --> 00:13:54,640 Speaker 1: six one from Boston on a half of all I apologies, 224 00:13:55,400 --> 00:13:58,680 Speaker 1: please please come on, but it's free to be Doug. 225 00:13:58,720 --> 00:14:01,040 Speaker 1: How the Orioles can pop ball five or six in 226 00:14:01,080 --> 00:14:04,040 Speaker 1: a row in a great like No one understands this world, 227 00:14:04,120 --> 00:14:08,160 Speaker 1: John Braining, Look my eyes on the market. My heart 228 00:14:08,240 --> 00:14:10,920 Speaker 1: is on d D and Wede and Bird and Sanchez 229 00:14:10,960 --> 00:14:13,120 Speaker 1: and Hick, and we have to all stand up for 230 00:14:13,120 --> 00:14:15,280 Speaker 1: the judge, so we so we keep it on the market, 231 00:14:15,880 --> 00:14:17,600 Speaker 1: just for a couple of minutes, Just for a couple 232 00:14:17,600 --> 00:14:21,800 Speaker 1: of minutes, before everyone in Boston turns off the radio. UM. Dug. 233 00:14:23,280 --> 00:14:25,640 Speaker 1: If we've come into the new year and everyone is 234 00:14:25,640 --> 00:14:30,040 Speaker 1: completely over enthusiastic about global synchronized growth, Europe picking up, 235 00:14:30,080 --> 00:14:32,800 Speaker 1: the United States picking up. Talk to me about whether 236 00:14:32,840 --> 00:14:34,920 Speaker 1: A we've seen peak growth. From listening to you, you 237 00:14:34,960 --> 00:14:37,000 Speaker 1: think we have, and too, whether we've seen the peak 238 00:14:37,040 --> 00:14:40,000 Speaker 1: for the tenure year this year already. I think we've 239 00:14:40,000 --> 00:14:43,720 Speaker 1: seen peak expectations for growth. UM. I think we are 240 00:14:44,280 --> 00:14:48,240 Speaker 1: market participants, Jonathan, are far too focused on the jobs 241 00:14:48,280 --> 00:14:52,520 Speaker 1: report UM of last Friday. I would emphasize that employment 242 00:14:52,600 --> 00:14:56,960 Speaker 1: data is a notoriously rear view mirror or lacking economic indicator. 243 00:14:57,720 --> 00:15:01,480 Speaker 1: Yesterday morning, the Atlanta Fed said that DP model sees 244 00:15:01,560 --> 00:15:04,400 Speaker 1: first quarter of growth of only one point nine percent, 245 00:15:04,520 --> 00:15:09,120 Speaker 1: down from two I would say that's fairly disappointing, considering 246 00:15:09,160 --> 00:15:12,440 Speaker 1: we have been in a respend and rebuilding period following 247 00:15:12,440 --> 00:15:16,600 Speaker 1: the hurricanes, and we're now nearly three months past the 248 00:15:17,440 --> 00:15:20,520 Speaker 1: passage of meaningful corporate tax cuts. What do you say 249 00:15:20,520 --> 00:15:22,760 Speaker 1: back to people, Doug, that's say those tax cuts won't 250 00:15:22,760 --> 00:15:27,000 Speaker 1: buy until the second quarter, the third quarter. I don't 251 00:15:27,120 --> 00:15:30,280 Speaker 1: I don't understand understand why that would be the case, well, 252 00:15:30,440 --> 00:15:31,840 Speaker 1: for a lot of people, they won't sit in that 253 00:15:32,200 --> 00:15:36,120 Speaker 1: check until later on this quarter. I speak to companies, Jonathan, 254 00:15:36,200 --> 00:15:39,600 Speaker 1: and I don't see an ex a meaningful change in 255 00:15:39,640 --> 00:15:45,640 Speaker 1: their capex UH projections for fiscal and calendar. But this 256 00:15:45,720 --> 00:15:47,360 Speaker 1: is something I wanted to do this with David Kelly 257 00:15:47,400 --> 00:15:49,040 Speaker 1: here in a minute, but let's do it right now 258 00:15:49,040 --> 00:15:51,360 Speaker 1: with Douglas cast. Doug, you and I have seen this 259 00:15:51,600 --> 00:15:56,280 Speaker 1: jillion times where you get a consensus always deserved zeitgeist 260 00:15:56,400 --> 00:16:00,120 Speaker 1: view in this case better economic growth. And it may 261 00:16:00,160 --> 00:16:03,320 Speaker 1: be cyclical and short, it may be structured and long. 262 00:16:03,360 --> 00:16:07,320 Speaker 1: Good morning President Trump, Good morning Mr Cudlow. But but Doug, 263 00:16:07,360 --> 00:16:11,640 Speaker 1: the fact is the percolation and research is it may 264 00:16:11,720 --> 00:16:16,600 Speaker 1: not be there that has a profound ramification on FED 265 00:16:16,720 --> 00:16:20,600 Speaker 1: tone and market tone, doesn't it. I'm beginning to think 266 00:16:21,240 --> 00:16:24,240 Speaker 1: Tom that we're going to see a tour or less 267 00:16:25,200 --> 00:16:29,600 Speaker 1: rate increases, which is far below consensus. Yes, Um, you 268 00:16:29,640 --> 00:16:33,440 Speaker 1: know it's this consensus, Jonathan, is what I call groups 269 00:16:33,480 --> 00:16:38,000 Speaker 1: think and um particularly at a flinch in it. If 270 00:16:38,000 --> 00:16:40,440 Speaker 1: you can identify inflection points, you can make a great 271 00:16:40,480 --> 00:16:43,359 Speaker 1: deal of money. And then now we have this optimism 272 00:16:43,400 --> 00:16:47,120 Speaker 1: about my good buddy pal friend Larry Cudlow, which I do, 273 00:16:47,440 --> 00:16:50,240 Speaker 1: which we should discuss, well, Doug, let's let's just dis 274 00:16:50,240 --> 00:16:52,080 Speaker 1: because of time, we gotta rip up the script here, 275 00:16:52,120 --> 00:16:55,600 Speaker 1: you and I've done Larry for years. Can Larry talk 276 00:16:55,760 --> 00:16:58,480 Speaker 1: back to the president because the critics say he's just 277 00:16:58,520 --> 00:17:02,000 Speaker 1: gonna mouth the Trump date? Isn't his job to say? 278 00:17:02,040 --> 00:17:07,000 Speaker 1: Wait a minute, Mr President? Right? My relationship with Larry 279 00:17:07,080 --> 00:17:09,520 Speaker 1: runs deep. I've been on the Cutlow Report when it 280 00:17:09,640 --> 00:17:13,280 Speaker 1: existed over fifty times, maybe twenty times on his radio show. 281 00:17:13,359 --> 00:17:15,680 Speaker 1: He was at my son's wedding. That's how close we are. 282 00:17:16,440 --> 00:17:19,000 Speaker 1: I think on numerous grounds, this is a very different 283 00:17:19,000 --> 00:17:21,760 Speaker 1: administration than Larry is joining as compared to the one 284 00:17:21,800 --> 00:17:24,080 Speaker 1: that he left when he was working with Reagan years ago. 285 00:17:24,600 --> 00:17:27,000 Speaker 1: I don't think you changed Trump's mind, which is strong 286 00:17:27,040 --> 00:17:30,639 Speaker 1: and long held, becomes with these quick policy decisions and 287 00:17:30,680 --> 00:17:33,840 Speaker 1: seems to stick with them. So speaking truth through his 288 00:17:33,920 --> 00:17:37,800 Speaker 1: power is almost an insurmountable objective for Larry with Trump, 289 00:17:37,800 --> 00:17:42,119 Speaker 1: in my opinion, um is it? Well? I think his 290 00:17:42,320 --> 00:17:46,439 Speaker 1: role is going to primarily be in marking, marketing, selling 291 00:17:46,480 --> 00:17:50,320 Speaker 1: the tax package, and secondarily working with Ross and the 292 00:17:50,359 --> 00:17:53,560 Speaker 1: borrow towards a sensible trade policy. Thirdly, he's gonna obviously 293 00:17:53,600 --> 00:17:56,840 Speaker 1: bridge Washington and Wall Street in the business communities, which 294 00:17:56,880 --> 00:18:00,159 Speaker 1: would be good at But I asked you the the 295 00:18:00,240 --> 00:18:06,280 Speaker 1: following questions. Um, Look, Larry has met more than anyone 296 00:18:06,320 --> 00:18:08,280 Speaker 1: and I know and this is why I respect him. 297 00:18:08,400 --> 00:18:11,119 Speaker 1: He has overcome challenges in the past. But this mountain 298 00:18:11,160 --> 00:18:14,880 Speaker 1: is really high. High. Everyone is saying, especially on your 299 00:18:15,520 --> 00:18:19,240 Speaker 1: competing network, the NBC where he worked, if that Larry 300 00:18:19,280 --> 00:18:21,960 Speaker 1: will have the upper hand against Navarrow and Ross. I 301 00:18:22,000 --> 00:18:25,399 Speaker 1: would ask if Cohen, the former president of Goldman Sachs, 302 00:18:25,400 --> 00:18:27,720 Speaker 1: did not have the upper hand over Ross and the Varl, 303 00:18:28,200 --> 00:18:31,639 Speaker 1: why should we expect Larry this media commentated at the 304 00:18:31,720 --> 00:18:33,919 Speaker 1: upper hand? Okay, I gotta go here for Boston. I 305 00:18:33,920 --> 00:18:36,080 Speaker 1: got an email here from Boston one or six one 306 00:18:36,119 --> 00:18:39,120 Speaker 1: half of where should Aaron Judge be in the Yankees lineup? 307 00:18:39,359 --> 00:18:43,960 Speaker 1: Isn't he like the ultimate leadoff hitter? Would you please? 308 00:18:44,800 --> 00:18:49,399 Speaker 1: He's gonna back? Third, Third, Okay, it'll be magnificent. I 309 00:18:49,400 --> 00:18:51,280 Speaker 1: hope to be down there in a couple of days. 310 00:18:51,320 --> 00:18:54,680 Speaker 1: Maybe Doug, I'll run into you, uh at Steinbrenner Field, 311 00:18:54,680 --> 00:18:57,840 Speaker 1: Douglas Cass series partners with us is why thank you? 312 00:18:57,880 --> 00:19:05,320 Speaker 1: For those comments. Well, a change in the White House 313 00:19:05,359 --> 00:19:07,320 Speaker 1: and in advisors to the President when it comes to 314 00:19:07,359 --> 00:19:10,200 Speaker 1: economic policy, and perhaps you've been a change in markets. 315 00:19:10,400 --> 00:19:13,480 Speaker 1: Gina Martin Adams is a Bloomberg Intelligence expert when it 316 00:19:13,480 --> 00:19:16,960 Speaker 1: comes to all things related to economics and the markets. 317 00:19:16,960 --> 00:19:19,760 Speaker 1: She not always a pleasure. Thanks for being here. Um, 318 00:19:19,760 --> 00:19:22,520 Speaker 1: maybe just let's talk a little bit about contradictions, or 319 00:19:23,080 --> 00:19:26,640 Speaker 1: seemingly contradictions. On the one hand, you have an administration 320 00:19:26,640 --> 00:19:30,920 Speaker 1: that is imposing tariffs on the imports of foreign manufactured 321 00:19:31,000 --> 00:19:35,280 Speaker 1: steel and aluminum. Also, there's a conversation more than a conversation, 322 00:19:35,320 --> 00:19:40,159 Speaker 1: I bet about tariffs or preventing automobiles from being shipped 323 00:19:40,200 --> 00:19:43,720 Speaker 1: to the United States for US consumers. Now you have Ms. 324 00:19:43,800 --> 00:19:46,879 Speaker 1: Larry Cudlow, who is going to be joining the administration 325 00:19:47,680 --> 00:19:51,320 Speaker 1: and has in the past, I believe, been a quote 326 00:19:51,359 --> 00:19:54,960 Speaker 1: free trader. How do you square those two things at 327 00:19:54,960 --> 00:19:57,800 Speaker 1: a time when the budget deficit in the United States 328 00:19:58,320 --> 00:20:01,560 Speaker 1: is ballooning. It's get be tricky. I mean, I think, 329 00:20:01,640 --> 00:20:04,640 Speaker 1: as with all things with this particular administration, it's really 330 00:20:04,640 --> 00:20:07,119 Speaker 1: tough to get a consistent read on where things are headed. 331 00:20:07,560 --> 00:20:09,040 Speaker 1: I think if I were to take a stab at 332 00:20:09,080 --> 00:20:12,439 Speaker 1: how cut Lowell position this. It is probably going to 333 00:20:12,480 --> 00:20:15,360 Speaker 1: be positioned as a president that is attempting to negotiate 334 00:20:15,920 --> 00:20:20,320 Speaker 1: better trade relations, not necessarily restrict trade. That would be 335 00:20:20,359 --> 00:20:22,439 Speaker 1: my guests as to have a spin, guys, is that 336 00:20:22,480 --> 00:20:25,360 Speaker 1: the way investors will take this? I think investors are 337 00:20:25,359 --> 00:20:28,760 Speaker 1: taking it this week as with a big question mark. 338 00:20:29,000 --> 00:20:30,920 Speaker 1: All right. I mean, we started off this week in 339 00:20:30,960 --> 00:20:34,720 Speaker 1: pretty solid territory despite the fact that the trade package 340 00:20:34,800 --> 00:20:37,399 Speaker 1: was passed last week. We had a really strong rally 341 00:20:37,400 --> 00:20:39,920 Speaker 1: on Friday. We failed to follow through on that rally 342 00:20:39,920 --> 00:20:42,520 Speaker 1: on Monday, and it's been a tough week ever since. 343 00:20:42,840 --> 00:20:44,600 Speaker 1: And I think a lot of the reason for that 344 00:20:45,040 --> 00:20:47,960 Speaker 1: tough week, so to speak, is this uncertainty with respect 345 00:20:47,960 --> 00:20:50,879 Speaker 1: to where this administration is headed. If if rates of 346 00:20:51,000 --> 00:20:54,760 Speaker 1: tenure treasuries go above three and a half percent, what 347 00:20:54,920 --> 00:21:01,840 Speaker 1: happens to the US government's ability to employed? Hopeful for that, 348 00:21:02,200 --> 00:21:06,159 Speaker 1: but how how really how does that factor into the 349 00:21:06,200 --> 00:21:08,440 Speaker 1: ability of the U. S Government to finance it's debt 350 00:21:08,720 --> 00:21:11,160 Speaker 1: and pay for it? Yeah, it's going to be really tough. 351 00:21:11,280 --> 00:21:13,440 Speaker 1: I think this is one of the really critical questions 352 00:21:13,480 --> 00:21:16,720 Speaker 1: for this year is you've got a FED that has 353 00:21:16,800 --> 00:21:21,760 Speaker 1: to react to fiscal policy getting easier and easier, reinflating 354 00:21:21,800 --> 00:21:25,240 Speaker 1: the economy, creating some degree of inflation pressure, creating better 355 00:21:25,320 --> 00:21:28,960 Speaker 1: growth conditions. The natural reaction of monetary policymakers is going 356 00:21:28,960 --> 00:21:32,399 Speaker 1: to be continue to tighten. If monetary policymakers continue to 357 00:21:32,440 --> 00:21:35,840 Speaker 1: tighten amid that higher growth pace rates are going to 358 00:21:35,920 --> 00:21:39,200 Speaker 1: go higher, what they need to happen to fund this deficit, 359 00:21:39,240 --> 00:21:41,960 Speaker 1: if for growth to really skyrocket, Because if you do 360 00:21:42,040 --> 00:21:45,000 Speaker 1: have much stronger growth conditions, and as rates are going higher, 361 00:21:45,320 --> 00:21:47,920 Speaker 1: it's not as difficult to fuel. Right, the deficit looks 362 00:21:48,080 --> 00:21:50,159 Speaker 1: much better in a higher growth environment than it does 363 00:21:50,200 --> 00:21:52,560 Speaker 1: in a slow growth environment. Jinor Martin Adams with a 364 00:21:52,800 --> 00:21:55,800 Speaker 1: Bloomberg equity and Bloomberg intelligence, can I throw you a 365 00:21:55,840 --> 00:21:59,800 Speaker 1: curveball question? Of course? And on my way to spring training, 366 00:22:00,000 --> 00:22:04,600 Speaker 1: So I'm right now. Toys r US blew up today 367 00:22:04,800 --> 00:22:08,239 Speaker 1: and there was a certitude about all that debt X 368 00:22:08,359 --> 00:22:12,120 Speaker 1: number of years ago. Are you afeared in a general 369 00:22:12,280 --> 00:22:16,359 Speaker 1: sense that we become so complacent about debt, build up, 370 00:22:17,080 --> 00:22:21,359 Speaker 1: low yield, everything's great, you know, make private equity great again? 371 00:22:21,880 --> 00:22:24,080 Speaker 1: Are we setting her up for more toys? R US 372 00:22:24,200 --> 00:22:26,800 Speaker 1: is right now. In the future, I think we have 373 00:22:27,119 --> 00:22:30,520 Speaker 1: a temporary reprieve from more toys r us as for 374 00:22:30,640 --> 00:22:34,560 Speaker 1: this year, specifically because of all the cash that's coming 375 00:22:34,560 --> 00:22:37,480 Speaker 1: back through repatriation, because of all the tax reform that 376 00:22:37,480 --> 00:22:40,439 Speaker 1: has unlocked a degree of cash for companies. All of 377 00:22:40,480 --> 00:22:42,600 Speaker 1: that's going to make IBADA look a lot better this 378 00:22:42,680 --> 00:22:45,199 Speaker 1: year than it has in the recent past. So some 379 00:22:45,280 --> 00:22:48,800 Speaker 1: of your leverage ratios, particularly those that are debt relative 380 00:22:48,840 --> 00:22:52,720 Speaker 1: to earnings related measures, look a lot better this year. 381 00:22:53,119 --> 00:22:56,280 Speaker 1: So company's capacity to pay improved significantly as their earnings 382 00:22:56,280 --> 00:22:59,640 Speaker 1: are improving. I think Toys r us is a one 383 00:23:00,040 --> 00:23:03,840 Speaker 1: ace in a segment of the U S acuity market 384 00:23:03,880 --> 00:23:06,800 Speaker 1: that is continuing to struggle, and that's retail. But you're 385 00:23:06,800 --> 00:23:09,800 Speaker 1: not really seeing this in the broad sectors. I do 386 00:23:09,920 --> 00:23:13,359 Speaker 1: think should rate skyrocket, Should you get a really rapid 387 00:23:13,480 --> 00:23:16,040 Speaker 1: increase in rates, It makes things look a lot more 388 00:23:16,040 --> 00:23:19,680 Speaker 1: difficult in future years, but it does not necessarily impact 389 00:23:19,760 --> 00:23:22,399 Speaker 1: the stock market or sectors at large in the short run. 390 00:23:22,440 --> 00:23:24,159 Speaker 1: Can I put out on Twitter? You can do it 391 00:23:24,640 --> 00:23:28,920 Speaker 1: for Sears Holdings s h l D. I'm going to 392 00:23:29,080 --> 00:23:33,480 Speaker 1: let I mean talk about comment I try to avoid. Yeah, 393 00:23:33,680 --> 00:23:36,560 Speaker 1: I'm not going there. It's a totally new retail world, 394 00:23:36,960 --> 00:23:40,120 Speaker 1: thank you, Yes, all right, having a totally new tax world. 395 00:23:40,160 --> 00:23:41,640 Speaker 1: I don't know whether you've got a chance to listen 396 00:23:41,640 --> 00:23:44,040 Speaker 1: to some of the presidents re marks yesterday he was 397 00:23:44,080 --> 00:23:48,960 Speaker 1: speaking I believe in St. Louis and um uh, topic 398 00:23:49,080 --> 00:23:54,040 Speaker 1: is taxes and the potential for a second really well, 399 00:23:54,080 --> 00:23:56,359 Speaker 1: I mean I said, there was just a hint of it. 400 00:23:56,680 --> 00:23:58,720 Speaker 1: I'm wanting, you know, in the in the context of 401 00:23:58,760 --> 00:24:01,119 Speaker 1: we got the news today that the Dutch government is 402 00:24:01,119 --> 00:24:05,480 Speaker 1: going to continue with their plan to abolish dividend taxes. 403 00:24:06,520 --> 00:24:08,120 Speaker 1: Is this a race to the bottom when it comes 404 00:24:08,119 --> 00:24:09,840 Speaker 1: to taxes? And do you think we could get another 405 00:24:09,840 --> 00:24:12,920 Speaker 1: tax cut? Wow? This is out of a totally out 406 00:24:12,920 --> 00:24:15,560 Speaker 1: of left I thought the President was looking at walls 407 00:24:15,560 --> 00:24:20,280 Speaker 1: in California yesterday. I wasn't aware of it. Finger his 408 00:24:20,400 --> 00:24:25,160 Speaker 1: finger in the wall. You know. Perhaps I think it's 409 00:24:25,160 --> 00:24:27,800 Speaker 1: a long way off. Gina, I just put up. We 410 00:24:27,880 --> 00:24:30,320 Speaker 1: do this for Gina, Martin Adams and no one else, folks. 411 00:24:30,960 --> 00:24:33,120 Speaker 1: We go to the way to the average cost of capital. 412 00:24:33,160 --> 00:24:37,960 Speaker 1: It's a wonderful function. On the Bloomberg Sears Holdings percent 413 00:24:38,720 --> 00:24:43,120 Speaker 1: debt with a coupon of four point nine percent, which 414 00:24:43,200 --> 00:24:48,920 Speaker 1: is popping conservatively two beats off the tenure yield. I 415 00:24:49,280 --> 00:24:52,560 Speaker 1: mean we'll have we have to have Gina Martin Adams 416 00:24:52,600 --> 00:24:55,119 Speaker 1: back on just to go over these kind of things. 417 00:24:55,440 --> 00:24:59,240 Speaker 1: When you wait the average cost of equity and debt 418 00:24:59,320 --> 00:25:03,520 Speaker 1: within the President Nirvana that he was going to ask 419 00:25:03,560 --> 00:25:06,920 Speaker 1: you to wait the cost of tickets to spring training baseball. 420 00:25:07,720 --> 00:25:09,879 Speaker 1: Thank god, I'll take lay at average cost of capital 421 00:25:09,880 --> 00:25:12,280 Speaker 1: over that any day. We had to sell the middle 422 00:25:12,359 --> 00:25:15,680 Speaker 1: daughter just to be able to swing this. Gina Martin 423 00:25:15,720 --> 00:25:18,439 Speaker 1: had is with his Bloomberg intelligence working on equities, and 424 00:25:18,840 --> 00:25:21,040 Speaker 1: of course she does this with futures up, six down, 425 00:25:21,080 --> 00:25:24,840 Speaker 1: futures up, pim Fox in Tom King. We need to 426 00:25:24,880 --> 00:25:34,280 Speaker 1: get the markets open, this is Bloomberg. Well, I guess 427 00:25:34,320 --> 00:25:38,040 Speaker 1: you can do an r I P for Toys are Us. 428 00:25:38,480 --> 00:25:41,560 Speaker 1: And here to explain how it all happened is Stephanie 429 00:25:41,560 --> 00:25:45,560 Speaker 1: whis sink At Jeffrey's research analyst and managing director. And yes, 430 00:25:45,680 --> 00:25:49,240 Speaker 1: we're talking about the toy retail business. Stephanie, thanks very 431 00:25:49,320 --> 00:25:52,080 Speaker 1: much for being with us. Uh you say that the 432 00:25:52,480 --> 00:25:55,040 Speaker 1: toys are rust liquidation perhaps is going to send ripples 433 00:25:55,040 --> 00:25:57,800 Speaker 1: to the industry in what way? Yeah? I think a 434 00:25:57,800 --> 00:26:01,080 Speaker 1: couple of ways in good morning. I think two things. One, clearly, 435 00:26:01,119 --> 00:26:03,160 Speaker 1: there are a number of toy vendors that support Toys 436 00:26:03,240 --> 00:26:05,480 Speaker 1: r US that will feel the impact of the loss 437 00:26:05,480 --> 00:26:08,440 Speaker 1: of a retailer. And anytime there's a loss of the retailer, 438 00:26:08,480 --> 00:26:11,320 Speaker 1: and that means that there's concentration of share with other retailers, 439 00:26:11,320 --> 00:26:13,600 Speaker 1: and we think the winners are most likely to be 440 00:26:13,800 --> 00:26:16,879 Speaker 1: Amazon and Walmart UM and both of those companies we 441 00:26:16,920 --> 00:26:20,080 Speaker 1: know fight on price, and so as a vendor selling 442 00:26:20,119 --> 00:26:23,800 Speaker 1: toys into the toy industry with two big powerful retailers 443 00:26:23,840 --> 00:26:26,960 Speaker 1: now as your your lead agents for a consumer buying 444 00:26:27,400 --> 00:26:29,960 Speaker 1: means that there's most likely going to be some margin pressure. 445 00:26:30,359 --> 00:26:32,800 Speaker 1: I think secondarily, as we think about Toys r US's 446 00:26:32,960 --> 00:26:35,440 Speaker 1: role in the toy industry, it was definitely a destination 447 00:26:35,440 --> 00:26:39,199 Speaker 1: where consumers discovered new brands and new products within the 448 00:26:39,240 --> 00:26:41,480 Speaker 1: toy space. So I do think for those small and 449 00:26:41,520 --> 00:26:44,919 Speaker 1: midsized companies, they're not going to necessarily have a venue 450 00:26:45,400 --> 00:26:49,119 Speaker 1: to really build and uh develop their brands. So you know, 451 00:26:49,160 --> 00:26:52,480 Speaker 1: we we do look for new venues to potentially unfold 452 00:26:52,520 --> 00:26:56,600 Speaker 1: and emerge where some of the inventors and some of 453 00:26:56,640 --> 00:26:59,359 Speaker 1: the more innovative toy companies that are on the small 454 00:26:59,400 --> 00:27:03,119 Speaker 1: and mediums i've can find homes for their products. Stephanie, 455 00:27:03,280 --> 00:27:08,280 Speaker 1: is this a casebook example where the actual business of 456 00:27:08,600 --> 00:27:12,119 Speaker 1: toy stores is perfectly okay in the sense that you 457 00:27:12,160 --> 00:27:13,680 Speaker 1: want to go and buy a toy, you want to 458 00:27:13,720 --> 00:27:15,399 Speaker 1: go and see it, you want children to go and 459 00:27:15,440 --> 00:27:17,840 Speaker 1: see it before they actually cost you the money to 460 00:27:17,880 --> 00:27:21,399 Speaker 1: do so. But that the sort of not management, but 461 00:27:21,520 --> 00:27:25,760 Speaker 1: the financial engineering behind Toys are Us is what doomed 462 00:27:25,760 --> 00:27:29,439 Speaker 1: the company. Yeah, I think that's a fair observation. I 463 00:27:29,440 --> 00:27:32,600 Speaker 1: think clearly the financial engineering and the financial structure of 464 00:27:32,600 --> 00:27:36,720 Speaker 1: Toys are Us put pressure on its ability to invest 465 00:27:37,000 --> 00:27:40,400 Speaker 1: to stay current with changes in the modern retail marketplace. 466 00:27:41,000 --> 00:27:43,840 Speaker 1: I think second, though we have seen very distinct changes 467 00:27:43,840 --> 00:27:47,399 Speaker 1: in consumer behavior, one of the most unique and I 468 00:27:47,440 --> 00:27:50,840 Speaker 1: think probably most prolific changes in the consumer marketplace is 469 00:27:50,880 --> 00:27:54,320 Speaker 1: the changing leadership of demographics. We've moved now into a 470 00:27:54,400 --> 00:27:59,320 Speaker 1: millennial lead consumer marketplace, and that millennial is a digitally native, 471 00:27:59,480 --> 00:28:04,960 Speaker 1: digitally savvy, and it's clearly shopping more online than prior generation. 472 00:28:05,040 --> 00:28:07,600 Speaker 1: So I think that has also been unfolding in the backdrop. 473 00:28:08,160 --> 00:28:11,520 Speaker 1: Layering on top of this overall financial structure that was prohibitive. 474 00:28:11,840 --> 00:28:15,800 Speaker 1: Stuff was with us with Jefferies right now and not 475 00:28:15,840 --> 00:28:19,720 Speaker 1: only consumer retail and the toy industries. Your reports are 476 00:28:20,200 --> 00:28:25,840 Speaker 1: wonderfully detailed about store closings and liquidations. What's the level 477 00:28:25,920 --> 00:28:30,240 Speaker 1: of sweat right now? It's March. I guess they're really 478 00:28:30,280 --> 00:28:32,959 Speaker 1: beginning to get ready for the fall that went through 479 00:28:33,000 --> 00:28:35,640 Speaker 1: the Christmas season. I don't know what the schedule is. 480 00:28:35,920 --> 00:28:39,520 Speaker 1: There's trade shows to go to forget about it all. 481 00:28:39,560 --> 00:28:45,560 Speaker 1: What's the sweat level of right sizing income statements right now? Well? 482 00:28:45,600 --> 00:28:48,120 Speaker 1: I think certainly as an academic, we need to be 483 00:28:48,360 --> 00:28:51,760 Speaker 1: very thoughtful about what we think the potential residual outcome is, 484 00:28:51,800 --> 00:28:54,360 Speaker 1: and not just the impact of toys are us, but 485 00:28:54,480 --> 00:28:58,040 Speaker 1: how the consumer behavior shifts play into our considerations around 486 00:28:58,040 --> 00:29:02,080 Speaker 1: profit structures. I think in sortinly though, because Toys r 487 00:29:02,120 --> 00:29:05,640 Speaker 1: US is announcing its intent to liquidate across its US, 488 00:29:05,920 --> 00:29:09,520 Speaker 1: UK and portions of Europe and Australia fleet, this may 489 00:29:09,560 --> 00:29:13,320 Speaker 1: take many, many months. One thing that consumers are incredibly 490 00:29:13,360 --> 00:29:16,440 Speaker 1: savvy about is pantry loading product when they find a 491 00:29:16,440 --> 00:29:19,960 Speaker 1: great deal, So we don't necessarily know what the residual 492 00:29:19,960 --> 00:29:21,800 Speaker 1: outcome is going to be in the holiday, which is 493 00:29:21,840 --> 00:29:25,560 Speaker 1: where seventy of toy sales occur typically in the year. 494 00:29:26,320 --> 00:29:28,840 Speaker 1: But if Grandma's out shopping in August and she finds 495 00:29:29,080 --> 00:29:31,960 Speaker 1: some Christmas presents that she can buy at seventy or 496 00:29:32,000 --> 00:29:35,480 Speaker 1: eighty percent off, she might stock up on presents, and 497 00:29:35,560 --> 00:29:38,040 Speaker 1: that might mean that the holiday season looks different than 498 00:29:38,080 --> 00:29:40,680 Speaker 1: it has in the past. As we start to reconcile 499 00:29:40,720 --> 00:29:43,240 Speaker 1: in twenty nineteen, I don't know that we'll see as 500 00:29:43,320 --> 00:29:46,080 Speaker 1: much of an impact, but certainly this is going to 501 00:29:46,680 --> 00:29:48,840 Speaker 1: play out over the course of the next twelve months 502 00:29:48,920 --> 00:29:51,640 Speaker 1: or so before we fully appreciate what the loss of 503 00:29:51,680 --> 00:29:53,760 Speaker 1: toys r US means to the industry. Do we buy 504 00:29:53,760 --> 00:29:58,479 Speaker 1: toys off Amazon? Absolutely? Amazon is the fastest growing and 505 00:29:58,520 --> 00:30:02,480 Speaker 1: one of the largest retailers of joys. I find him, 506 00:30:03,160 --> 00:30:05,520 Speaker 1: I you know, and I mean I don't even needed 507 00:30:05,560 --> 00:30:09,640 Speaker 1: more step for this, Like Omni channel. Omni channel sounds 508 00:30:09,680 --> 00:30:13,640 Speaker 1: like an NBA program you don't name the school. Well, 509 00:30:13,680 --> 00:30:15,720 Speaker 1: I hope omni channel has a lot of money, because 510 00:30:15,720 --> 00:30:17,920 Speaker 1: you're gonna need it. Yeah, I want to ask you 511 00:30:17,960 --> 00:30:20,480 Speaker 1: stefinitely just a little bit here, you know, if we 512 00:30:20,600 --> 00:30:24,560 Speaker 1: just go back to December. Um, there was, of course 513 00:30:24,600 --> 00:30:28,840 Speaker 1: a court hearing about this bankruptcy filing and the bankruptcy judge, 514 00:30:28,920 --> 00:30:32,840 Speaker 1: Keith Phillips, he overruled objections by the US Trustees Office. 515 00:30:33,160 --> 00:30:36,480 Speaker 1: They had the public watchdog right in the East bankruptcy cases, 516 00:30:36,920 --> 00:30:40,000 Speaker 1: and the judge ruled that the retailer could pay its 517 00:30:40,120 --> 00:30:45,280 Speaker 1: seventeen top executives fourteen million dollars in incentive bonuses. Why 518 00:30:45,280 --> 00:30:48,680 Speaker 1: would they do that? Yeah, it's an excellent question. I 519 00:30:48,720 --> 00:30:52,560 Speaker 1: think in the age of transparency, the consumers take issue 520 00:30:52,600 --> 00:30:55,640 Speaker 1: with that when they see that occurring, and frankly in 521 00:30:55,680 --> 00:30:57,960 Speaker 1: some cases the employees do too. And empoyter Us with 522 00:30:58,040 --> 00:31:01,400 Speaker 1: all very very large retailer and employed a significan in 523 00:31:01,440 --> 00:31:03,120 Speaker 1: tens of thousands of people in the United States, and 524 00:31:03,120 --> 00:31:06,440 Speaker 1: I think at holiday time worldwide was extending up into 525 00:31:06,440 --> 00:31:10,040 Speaker 1: the hundred thousand dollars excutingly a hundred thousand person type range. 526 00:31:10,720 --> 00:31:15,160 Speaker 1: So clearly that is a statement about protecting the interests 527 00:31:15,160 --> 00:31:18,280 Speaker 1: of the executive group. But I think in again, in 528 00:31:18,280 --> 00:31:23,120 Speaker 1: the age of transparency, that doesn't necessarily sit well with consumers, infendors, 529 00:31:23,200 --> 00:31:25,320 Speaker 1: and employees. Well, I was going to say and add 530 00:31:25,320 --> 00:31:30,080 Speaker 1: into those investors because toys Arrest used adjusted earnings as 531 00:31:30,120 --> 00:31:33,200 Speaker 1: the benchmark for whether the executives have actually made their 532 00:31:33,240 --> 00:31:36,560 Speaker 1: bonuses right correct, and that's that's not an uncommon approach, 533 00:31:37,200 --> 00:31:40,440 Speaker 1: but it certainly doesn't sit well. So I think it's 534 00:31:40,600 --> 00:31:44,080 Speaker 1: um not a typical many times perform what were adjusted. 535 00:31:44,360 --> 00:31:45,920 Speaker 1: The head of the company, the head of the company, 536 00:31:46,000 --> 00:31:51,080 Speaker 1: Mr Brandon Day Brandon uh hem, I believe his cash 537 00:31:51,120 --> 00:31:54,600 Speaker 1: compensation with six and a half million, and he receives 538 00:31:54,600 --> 00:31:57,440 Speaker 1: other long term incentives and bonuses. It brings his total 539 00:31:57,520 --> 00:32:00,280 Speaker 1: annual camp to twelve and a half million dollars. Stuff. 540 00:32:00,320 --> 00:32:02,080 Speaker 1: At the time we got left with you, I mean, 541 00:32:02,120 --> 00:32:03,960 Speaker 1: I know they're based out of Wayne, New Jersey. Al 542 00:32:04,120 --> 00:32:06,680 Speaker 1: from New Jersey, not from Wayne, New Jersey, I believe. 543 00:32:07,280 --> 00:32:10,800 Speaker 1: Emailed in and said, isn't this all about real estate? 544 00:32:11,320 --> 00:32:14,520 Speaker 1: Did toys r Us hold on so long because they 545 00:32:14,560 --> 00:32:19,280 Speaker 1: had prime real estate that was a bargaining chip? Yeah, 546 00:32:19,280 --> 00:32:21,040 Speaker 1: there is some truth to that if you look at 547 00:32:21,080 --> 00:32:24,680 Speaker 1: the consortum. This goes back to the moment when toys 548 00:32:24,760 --> 00:32:28,240 Speaker 1: Rus went private and when it was a levered buyout 549 00:32:28,360 --> 00:32:31,040 Speaker 1: was used to take it private. One of the three 550 00:32:31,080 --> 00:32:34,880 Speaker 1: parties was a real estate operator, so there was a 551 00:32:34,920 --> 00:32:40,080 Speaker 1: real estate party appetit. They go under they've got some 552 00:32:40,200 --> 00:32:44,480 Speaker 1: primo I'll let you name the property, some primo property. 553 00:32:44,560 --> 00:32:48,760 Speaker 1: What happens that lease, what happens to that property? Yeah. 554 00:32:48,800 --> 00:32:50,960 Speaker 1: I think that was the reason that the real estate 555 00:32:50,960 --> 00:32:53,760 Speaker 1: party was involved in the transaction originally was to protect 556 00:32:53,840 --> 00:32:57,920 Speaker 1: the real estate and protect the leasing structure. Those properties, 557 00:32:58,080 --> 00:33:01,280 Speaker 1: in many cases could be filled by a different retailer. 558 00:33:01,320 --> 00:33:03,720 Speaker 1: If they are in prime locations, they are going to 559 00:33:03,760 --> 00:33:06,880 Speaker 1: be in demand. I think what we're observing broadly in 560 00:33:06,920 --> 00:33:10,160 Speaker 1: the national retail marketplace is that the number of neighborhood 561 00:33:10,480 --> 00:33:14,000 Speaker 1: dense neighborhood nodes where you have these big power centers, 562 00:33:14,680 --> 00:33:18,640 Speaker 1: is being reduced. People are spending less time in traditional 563 00:33:18,640 --> 00:33:22,200 Speaker 1: bricks and mortar, and so is that your in fewer destiny? 564 00:33:22,280 --> 00:33:24,400 Speaker 1: Is that your prediction for the future. I mean, PIM 565 00:33:24,440 --> 00:33:26,520 Speaker 1: and I are seeing a slow audit torture here. I mean, 566 00:33:26,840 --> 00:33:28,480 Speaker 1: I don't need you to comment on sears in that 567 00:33:28,520 --> 00:33:31,280 Speaker 1: we don't have time, but basically Amazon has got the 568 00:33:31,360 --> 00:33:33,600 Speaker 1: high ground and this is this a look for the 569 00:33:33,640 --> 00:33:37,280 Speaker 1: rest of two thousand eighteen. Well, I think it raises 570 00:33:37,320 --> 00:33:40,880 Speaker 1: some very legitimate questions about experienceal retail. I think retail 571 00:33:40,960 --> 00:33:44,720 Speaker 1: that is succeeding in the marketplace today has a high 572 00:33:45,040 --> 00:33:48,480 Speaker 1: emotional connection to the consumer, is in a category where 573 00:33:48,480 --> 00:33:51,680 Speaker 1: there's a high trial and discovery area um and it 574 00:33:51,800 --> 00:33:54,960 Speaker 1: offers the consumers something more than what you can experience 575 00:33:55,000 --> 00:33:57,360 Speaker 1: in a mobile device or online and I need it's 576 00:33:57,400 --> 00:33:59,240 Speaker 1: not ultimately, it is going to be how the consumer 577 00:33:59,320 --> 00:34:02,440 Speaker 1: prioritize their time. If they're given an opportunity to go 578 00:34:02,600 --> 00:34:04,680 Speaker 1: spend time at a restaurant with friends and enjoy an 579 00:34:04,720 --> 00:34:09,440 Speaker 1: evening out, or go into a transactional venue and for product, 580 00:34:09,680 --> 00:34:12,439 Speaker 1: they're most likely to biased towards the experience. And so 581 00:34:12,920 --> 00:34:15,399 Speaker 1: I think the more and more retailers think creatively about 582 00:34:15,440 --> 00:34:20,400 Speaker 1: experiences that draw customers together, build community, connect and ultimately 583 00:34:20,960 --> 00:34:24,520 Speaker 1: community at the community co creates the brand experience. Not 584 00:34:24,600 --> 00:34:27,200 Speaker 1: those are going to succeed. I think for the unfortunate 585 00:34:27,200 --> 00:34:29,400 Speaker 1: thing for toys r US is the seasonality of the 586 00:34:29,400 --> 00:34:33,400 Speaker 1: industry and the fact that the overall toy industry is 587 00:34:33,400 --> 00:34:36,000 Speaker 1: going through these dramatic changes and how kids play today 588 00:34:36,200 --> 00:34:39,040 Speaker 1: versus what they did years ago. I'm underwater, I got 589 00:34:39,040 --> 00:34:40,719 Speaker 1: to get the three thirty one. My elf has been 590 00:34:40,760 --> 00:34:42,840 Speaker 1: blown up. What's your single best by to save me 591 00:34:42,920 --> 00:34:49,759 Speaker 1: for the quarter? Oh boy to save you for this quarter. Yeah, quick, well, 592 00:34:49,840 --> 00:34:51,920 Speaker 1: not in the toy space, we do. We cover the 593 00:34:51,920 --> 00:34:53,919 Speaker 1: beauty space as well, and we would say St. Lauder 594 00:34:54,000 --> 00:34:55,919 Speaker 1: is still one of our favorite. I love it, thank 595 00:34:55,960 --> 00:34:59,520 Speaker 1: you so much, definitely greatly appreciate with with this with Jeffreys. 596 00:34:59,680 --> 00:35:02,000 Speaker 1: That's you know, folks. We make pim and I make 597 00:35:02,040 --> 00:35:03,960 Speaker 1: a lot of fun with it. But literally, if I 598 00:35:04,040 --> 00:35:05,960 Speaker 1: was to do an equity show, I'd call it single 599 00:35:06,000 --> 00:35:08,560 Speaker 1: best buy because you go to a two hour meeting 600 00:35:08,600 --> 00:35:11,200 Speaker 1: with somebody on the South Side and it's blah blah blah. 601 00:35:13,120 --> 00:35:18,239 Speaker 1: What's the single best buy? Stay Louder Stay Lauder? All right? 602 00:35:18,680 --> 00:35:24,640 Speaker 1: You know how many employees us? I heard thirty thousand people, 603 00:35:24,680 --> 00:35:27,480 Speaker 1: seven and forty stores. You know who did the private 604 00:35:27,760 --> 00:35:32,480 Speaker 1: buyout k k R, Yeah, six point six billion. They 605 00:35:32,560 --> 00:35:36,680 Speaker 1: got five billion in debt. We say, good morning. I 606 00:35:36,680 --> 00:35:40,600 Speaker 1: appreciate your attendance. The Dow up thirty nine. Stay with 607 00:35:40,640 --> 00:35:43,920 Speaker 1: us through the day. This is Bloomberg Radio. Thanks for 608 00:35:44,000 --> 00:35:48,400 Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to 609 00:35:48,560 --> 00:35:54,320 Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 610 00:35:54,840 --> 00:35:58,200 Speaker 1: I'm on Twitter at Tom Keane. Before the podcast you 611 00:35:58,239 --> 00:36:01,640 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.