1 00:00:02,640 --> 00:00:05,360 Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul Sweene. You, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma Wicks. 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 --> 00:00:23,119 Speaker 1: at Bloomberg dot com. Well, China's Vice Premier Loui is 8 00:00:23,160 --> 00:00:25,119 Speaker 1: coming to d C. He's actually in d C right 9 00:00:25,120 --> 00:00:27,920 Speaker 1: now as we speak to talk to US Trade Representative 10 00:00:27,920 --> 00:00:31,120 Speaker 1: Bob Leidheiser to resume trade talks. Tell us kind of 11 00:00:31,160 --> 00:00:33,920 Speaker 1: preview what we might see coming out of these discussions. 12 00:00:34,000 --> 00:00:37,479 Speaker 1: Is Dr Sam Napoff. He has president of Empire Global Ventures. 13 00:00:37,520 --> 00:00:40,560 Speaker 1: He joins us in studio here in the Bloomberg Interactive 14 00:00:40,680 --> 00:00:44,080 Speaker 1: Broker Studio. So, Sam, we've been down this road before. 15 00:00:44,120 --> 00:00:46,239 Speaker 1: They've been talking for a while. The rhetoric has been 16 00:00:46,479 --> 00:00:51,280 Speaker 1: very high, very heated. What should reasonable expectations be coming 17 00:00:51,280 --> 00:00:53,440 Speaker 1: out of these trade talks? What are you looking for? 18 00:00:53,840 --> 00:00:57,240 Speaker 1: In the words of William Shakespeare, nothing shall come of nothing. 19 00:00:57,840 --> 00:01:02,280 Speaker 1: These trade talks are nothing. The Chinese are desperate to 20 00:01:02,360 --> 00:01:05,120 Speaker 1: get this trade war over with because the Chinese economy 21 00:01:05,160 --> 00:01:08,280 Speaker 1: is now running at its lowest rate since recording of 22 00:01:08,319 --> 00:01:12,080 Speaker 1: that economy has happened in They're at the lowest industrial 23 00:01:12,160 --> 00:01:16,360 Speaker 1: level in decades. President g has had to sideline multiple 24 00:01:16,400 --> 00:01:20,400 Speaker 1: domestic policy initiatives because his economy is running slow. He 25 00:01:20,440 --> 00:01:23,720 Speaker 1: needs this over with without bowing and scraping to Donald Trump. 26 00:01:24,120 --> 00:01:26,480 Speaker 1: Donald Trump needs this over because the U s economy 27 00:01:26,560 --> 00:01:31,080 Speaker 1: is slowing. Three key members of his coalition, agriculture, oil, 28 00:01:31,120 --> 00:01:33,720 Speaker 1: and autos are all suffering. And he just got his 29 00:01:33,760 --> 00:01:36,920 Speaker 1: hat handed to him by Nancy Dallassandro Pelosi, and he 30 00:01:36,959 --> 00:01:40,080 Speaker 1: needs a public win. Okay, So what's a win from 31 00:01:40,080 --> 00:01:42,440 Speaker 1: this meeting? What could happen? It's a win for both sides. 32 00:01:42,880 --> 00:01:45,160 Speaker 1: For both sides, The Chinese will probably offer somewhere in 33 00:01:45,160 --> 00:01:46,920 Speaker 1: the region of a hundred and fifty to two hundred 34 00:01:46,959 --> 00:01:49,960 Speaker 1: billion dollars worth of purchases of US goods in those 35 00:01:49,960 --> 00:01:54,919 Speaker 1: three sectors that I mentioned earlier. Today, the Beijing legislature 36 00:01:54,960 --> 00:01:59,920 Speaker 1: passed a law that banned forced technology transfer from foreign 37 00:01:59,840 --> 00:02:02,760 Speaker 1: companies inside China, which has been a sore point for 38 00:02:02,760 --> 00:02:05,880 Speaker 1: the American government for some time. But the question is 39 00:02:07,840 --> 00:02:10,320 Speaker 1: will will Donald Trump choose the path that the Chinese 40 00:02:10,320 --> 00:02:13,160 Speaker 1: government wants, which is a superficial treaty which means nothing, 41 00:02:13,440 --> 00:02:14,960 Speaker 1: or will he go the path of his U S. 42 00:02:15,000 --> 00:02:19,880 Speaker 1: Trade representative Robert Leitheiser, who really wants to address structural 43 00:02:19,919 --> 00:02:23,720 Speaker 1: inequalities and market access issues. And my guess is he'll uh, 44 00:02:23,760 --> 00:02:27,000 Speaker 1: He'll split the difference. So that is really the key issue. 45 00:02:27,040 --> 00:02:29,080 Speaker 1: If you talk to just as as Lisa and I 46 00:02:29,120 --> 00:02:32,960 Speaker 1: talked to trade negotiators and people who followed this issue, 47 00:02:32,960 --> 00:02:34,840 Speaker 1: the real some of the real meat of the matter 48 00:02:35,000 --> 00:02:38,560 Speaker 1: is some of these technology issues in the you know it, 49 00:02:38,600 --> 00:02:41,000 Speaker 1: those are really hard to talk about technology and intellectual 50 00:02:41,080 --> 00:02:45,400 Speaker 1: property and all those issues. Your suggestion is those are 51 00:02:45,440 --> 00:02:48,280 Speaker 1: off the table at least for now. Absolutely, and not 52 00:02:48,360 --> 00:02:51,560 Speaker 1: only that, this is becoming exponentially more complicated with the 53 00:02:51,600 --> 00:02:54,840 Speaker 1: emergence of Huawei as a legal issue in the United States, 54 00:02:54,880 --> 00:02:57,919 Speaker 1: not simply an issue of economic competition. Right now, what 55 00:02:57,960 --> 00:03:00,520 Speaker 1: we're seeing the United States used to of a Cold 56 00:03:00,520 --> 00:03:02,840 Speaker 1: War with the Soviet Union, the United States in the 57 00:03:02,880 --> 00:03:05,840 Speaker 1: middle of a Gold War with China. This is about 58 00:03:05,960 --> 00:03:08,640 Speaker 1: money and technology, not I C B MS and West 59 00:03:08,680 --> 00:03:12,600 Speaker 1: Berlin and Huawei is putting it right in the center 60 00:03:12,960 --> 00:03:16,720 Speaker 1: of uh what two different economies look like, a command 61 00:03:16,760 --> 00:03:19,600 Speaker 1: economy and an open one. And the command economy can't 62 00:03:19,680 --> 00:03:22,560 Speaker 1: let go of control of technology. I don't understand how 63 00:03:23,280 --> 00:03:27,080 Speaker 1: the technology aspect can be completely divorced from the just 64 00:03:27,160 --> 00:03:30,760 Speaker 1: sort of soybeans and oil and cars aspect. Because even 65 00:03:30,760 --> 00:03:33,440 Speaker 1: if they do come up with some narrow trade agreement 66 00:03:33,639 --> 00:03:36,119 Speaker 1: out of this meeting that begins in just a few 67 00:03:36,120 --> 00:03:40,160 Speaker 1: minutes in Washington, d C. I mean, how can President 68 00:03:40,200 --> 00:03:43,360 Speaker 1: Trump face the questions of you still gave away the 69 00:03:43,400 --> 00:03:46,480 Speaker 1: store because you didn't really crack down on these other issues. 70 00:03:46,680 --> 00:03:49,000 Speaker 1: And China, meanwhile, how can they go back and say, 71 00:03:49,000 --> 00:03:50,720 Speaker 1: how can you make a treaty with a with a 72 00:03:50,800 --> 00:03:55,280 Speaker 1: country that's going after one of your biggest and best assets. Well, 73 00:03:55,520 --> 00:04:00,440 Speaker 1: remember President Trump ran on in on getting fair trade 74 00:04:00,440 --> 00:04:03,320 Speaker 1: agreements and about the U. S. China trade deficit. If 75 00:04:03,360 --> 00:04:06,360 Speaker 1: he lowers that deficit, he can declare victory the way 76 00:04:06,480 --> 00:04:08,680 Speaker 1: a U. S. Senator said, let's get out of Vietnam 77 00:04:08,760 --> 00:04:11,280 Speaker 1: back in the day. Let's just declare victory. It may 78 00:04:11,280 --> 00:04:14,240 Speaker 1: not be victory, but we'll call it that. Then you 79 00:04:14,280 --> 00:04:16,200 Speaker 1: flip it over on the other side, on the China side, 80 00:04:16,400 --> 00:04:18,200 Speaker 1: President she wants us to go away so we can 81 00:04:18,200 --> 00:04:21,720 Speaker 1: focus inside China. Most people, most companies in China are 82 00:04:21,720 --> 00:04:24,120 Speaker 1: not focusing on this except to know that their economy 83 00:04:24,160 --> 00:04:26,960 Speaker 1: is slowing down. Remove that impediment and China can get 84 00:04:27,000 --> 00:04:29,080 Speaker 1: back to work the way they want to. Okay, so 85 00:04:29,120 --> 00:04:32,560 Speaker 1: maybe we get a light trade deal here. Is there 86 00:04:32,560 --> 00:04:36,039 Speaker 1: a scenario in the remainder of this administration to revisit 87 00:04:36,080 --> 00:04:38,960 Speaker 1: it on a more substantial, you know, substantial level? And 88 00:04:39,000 --> 00:04:41,520 Speaker 1: what would be the catalyst to get us there? Well, again, 89 00:04:41,520 --> 00:04:45,120 Speaker 1: we've got thirty days before President Trump will raise tariffs 90 00:04:45,160 --> 00:04:47,640 Speaker 1: on two hundred billion dollars worth of Chinese goods from ten. 91 00:04:49,160 --> 00:04:52,320 Speaker 1: That's a pretty good sort of damocles. Now, this is 92 00:04:52,360 --> 00:04:55,320 Speaker 1: a temporary treaty and the and President she understands that 93 00:04:55,360 --> 00:04:58,760 Speaker 1: Donald Trump needs public wins. The question is how much 94 00:04:58,800 --> 00:05:01,880 Speaker 1: will he give them that? And it's that negotiation we're 95 00:05:01,880 --> 00:05:03,600 Speaker 1: really going to find out whether Donald Trump is the 96 00:05:03,680 --> 00:05:05,200 Speaker 1: king of the art of the deal. All Right, You 97 00:05:05,240 --> 00:05:07,799 Speaker 1: talked about China's economy and how it is slowing down. 98 00:05:08,520 --> 00:05:11,400 Speaker 1: That seems to be weighing on a lot of people's 99 00:05:11,440 --> 00:05:15,880 Speaker 1: expectations for global growth, but perhaps more importantly, Europe has 100 00:05:16,040 --> 00:05:17,880 Speaker 1: really slowed, and I want to shove the focus a 101 00:05:17,920 --> 00:05:22,279 Speaker 1: little bit over to Europe. And I'm just wondering, you 102 00:05:22,320 --> 00:05:24,479 Speaker 1: know what, was we look at Brexit and sort of 103 00:05:24,480 --> 00:05:27,559 Speaker 1: the debacle that continues being a debacle. Are we getting 104 00:05:27,560 --> 00:05:29,920 Speaker 1: any more clarity here or is it just getting more 105 00:05:29,920 --> 00:05:32,680 Speaker 1: and more muddied uh and only becoming more of a 106 00:05:32,760 --> 00:05:36,600 Speaker 1: drag on the broader euroeconomy. Well, when it comes to Brexit, 107 00:05:36,600 --> 00:05:39,880 Speaker 1: two things happened yesterday that are incredibly important. One is 108 00:05:39,880 --> 00:05:42,359 Speaker 1: is that Theresa May said that she will attempt to 109 00:05:42,360 --> 00:05:46,080 Speaker 1: reopen the exit deal with the European Union. This won't work. 110 00:05:46,480 --> 00:05:49,839 Speaker 1: Not only that several months ago she said this wouldn't work, 111 00:05:50,000 --> 00:05:51,800 Speaker 1: but now she's going to do it anyway because she 112 00:05:51,880 --> 00:05:54,520 Speaker 1: suffered the worst loss in the history of British politics 113 00:05:54,800 --> 00:05:56,840 Speaker 1: and she's licking her wounds and trying to woo her 114 00:05:56,839 --> 00:05:59,560 Speaker 1: party back to her. Now. That's the first thing that happened. 115 00:05:59,640 --> 00:06:01,640 Speaker 1: The other thing that happened yesterday is that a series 116 00:06:01,680 --> 00:06:05,040 Speaker 1: of amendments to Brexit were voted on the House of Commons. 117 00:06:05,080 --> 00:06:07,240 Speaker 1: One of them was called the Cooper Amendment, which was 118 00:06:07,279 --> 00:06:10,839 Speaker 1: going to essentially eliminate a no deal Brexit that lost 119 00:06:10,920 --> 00:06:13,560 Speaker 1: by by about twenty three votes. There was another amendment 120 00:06:13,560 --> 00:06:16,000 Speaker 1: called the Grieve and then a Grieve amendment which said 121 00:06:16,240 --> 00:06:19,560 Speaker 1: they wanted to explore alternatives to the May plan for Brexit, 122 00:06:19,839 --> 00:06:23,760 Speaker 1: that also lost by twenty three votes. Those lost while, 123 00:06:24,440 --> 00:06:27,279 Speaker 1: you know, while Theresa May was defeated by two votes 124 00:06:27,320 --> 00:06:30,440 Speaker 1: two weeks ago, because the Conservative Party came back to 125 00:06:30,520 --> 00:06:33,159 Speaker 1: Theresa May because now she's blaming Europe for the problems 126 00:06:33,160 --> 00:06:37,040 Speaker 1: and not Britain. This is irresponsible, it is irrational, and 127 00:06:37,120 --> 00:06:39,520 Speaker 1: that's why she won her party back. Okay, so let 128 00:06:39,520 --> 00:06:41,080 Speaker 1: me put you on a spot which I know there's 129 00:06:41,120 --> 00:06:43,839 Speaker 1: no answer, but that's my job. How do you think 130 00:06:43,880 --> 00:06:46,600 Speaker 1: this plays out? Now? She's going to go back to Brussels. 131 00:06:46,839 --> 00:06:49,320 Speaker 1: As for renegotiation, the EU has already said they do 132 00:06:49,360 --> 00:06:52,280 Speaker 1: not want to renegotiate. I'm kind of running out of 133 00:06:52,480 --> 00:06:55,279 Speaker 1: options for Theresa May in the in the UK government. 134 00:06:55,440 --> 00:06:58,159 Speaker 1: The EU government said no today about four hours ago, 135 00:06:58,360 --> 00:07:01,160 Speaker 1: right after the debate, So that that door is closed. 136 00:07:01,400 --> 00:07:04,080 Speaker 1: What you know what, investors and business people, clients of 137 00:07:04,080 --> 00:07:06,919 Speaker 1: my company, Empire Global Ventures, are astling. What's gonna happen? 138 00:07:07,279 --> 00:07:11,000 Speaker 1: A big step towards a no deal brexit. Scott happened yesterday. Um, 139 00:07:11,200 --> 00:07:13,880 Speaker 1: the pounds at one dollar thirty today. It could go 140 00:07:13,920 --> 00:07:16,080 Speaker 1: to one thirteen if they go to a no deal brexit. 141 00:07:16,200 --> 00:07:20,200 Speaker 1: That's what we're looking at. Wow, alright, one thirteen really interesting. 142 00:07:20,480 --> 00:07:22,480 Speaker 1: We love having you, Thank you so much for coming on, 143 00:07:22,680 --> 00:07:25,320 Speaker 1: and really we love we love the enthusiasm as well 144 00:07:25,360 --> 00:07:27,840 Speaker 1: as also the insights, you know, and and really it's 145 00:07:27,880 --> 00:07:31,360 Speaker 1: interesting to think about, uh, this sort of split discussions 146 00:07:31,520 --> 00:07:34,080 Speaker 1: with China in the US and all the expectations, they're 147 00:07:34,400 --> 00:07:37,840 Speaker 1: all the Brexit hubbub and we just continue getting like 148 00:07:38,040 --> 00:07:41,080 Speaker 1: unresolved resolutions, unresolveds, and you start to hear it. I 149 00:07:41,080 --> 00:07:43,000 Speaker 1: think this quarter with some of the CEOs when they 150 00:07:43,080 --> 00:07:45,280 Speaker 1: talk about their guidance one and they you know, they 151 00:07:45,360 --> 00:07:47,200 Speaker 1: maybe they had a decent fourth quarter, but when they 152 00:07:47,200 --> 00:07:50,040 Speaker 1: talk about twenty nineteen, it's a nice way to just say, 153 00:07:50,240 --> 00:07:52,160 Speaker 1: you know, we're a little bit cautious on twenty we're 154 00:07:52,160 --> 00:07:54,080 Speaker 1: just not sure what's going to happen. And two major 155 00:07:54,280 --> 00:07:56,680 Speaker 1: trading blocks. Yeah, there have been a couple of earnings 156 00:07:56,720 --> 00:07:59,480 Speaker 1: reports that are just big shrug emojis. Dr Sam not 157 00:07:59,560 --> 00:08:01,320 Speaker 1: have Pp thank so much for being with us. Dr 158 00:08:01,360 --> 00:08:05,040 Speaker 1: Sam not Aff is President of Empire Global Ventures joining 159 00:08:05,160 --> 00:08:22,880 Speaker 1: us here in our Bloomberg Interactive Broker's studios. We've been 160 00:08:22,920 --> 00:08:27,200 Speaker 1: talking a lot about Apple's earnings, but let's talk about 161 00:08:27,320 --> 00:08:30,040 Speaker 1: what happened A T and T. They added a net 162 00:08:30,280 --> 00:08:34,840 Speaker 1: thirteen thousand US monthly wireless subscribers. Uh, they just reported 163 00:08:35,240 --> 00:08:38,839 Speaker 1: that is compared to projections of about two hundred and 164 00:08:39,000 --> 00:08:44,079 Speaker 1: fifty two thousand monthly wireless subscribers. What happened, John, So, 165 00:08:44,320 --> 00:08:48,880 Speaker 1: first I'll clarify that's thirteen thousand contracts US. So those 166 00:08:48,920 --> 00:08:52,800 Speaker 1: are the plans that you were in Iran as opposed 167 00:08:52,840 --> 00:08:57,160 Speaker 1: to the prepaid business. And frankly, contract is what people 168 00:08:57,320 --> 00:09:00,640 Speaker 1: focus on. So it was not a good number. Uh, 169 00:09:00,800 --> 00:09:04,280 Speaker 1: it's part of what the stock is reacting to this morning, 170 00:09:04,360 --> 00:09:07,640 Speaker 1: would be my guess, Um, And it's worrisome for me 171 00:09:07,800 --> 00:09:10,439 Speaker 1: to see that because at its core, A T and 172 00:09:10,520 --> 00:09:15,000 Speaker 1: T still relies very, very heavily on that wireless business. 173 00:09:15,760 --> 00:09:17,880 Speaker 1: And I think I think at least part of this 174 00:09:18,120 --> 00:09:21,880 Speaker 1: had to do with um competitive losses. You know, you 175 00:09:22,000 --> 00:09:24,640 Speaker 1: saw a great number out of horizon for the quarter. 176 00:09:24,800 --> 00:09:29,120 Speaker 1: So I think overall the industry is it's very low growth, 177 00:09:29,240 --> 00:09:32,240 Speaker 1: but it's healthy. It's not like the whole industry took 178 00:09:32,320 --> 00:09:35,160 Speaker 1: everyone down. I think this is an a T and 179 00:09:35,240 --> 00:09:38,960 Speaker 1: T problem, and um, it may relate to a little 180 00:09:39,000 --> 00:09:42,120 Speaker 1: bit of management distraction with the with the integration and 181 00:09:42,240 --> 00:09:44,520 Speaker 1: Time Warner as well. They have an awful lot of 182 00:09:44,559 --> 00:09:47,720 Speaker 1: balls in the air right now. John Butler's joining US 183 00:09:47,760 --> 00:09:50,800 Speaker 1: senior Telecom Services and Equipment anals and Bloomberg Intelligence here 184 00:09:50,840 --> 00:09:53,720 Speaker 1: in the Bloomberg Interactive Broker Studio. I was so excited 185 00:09:53,840 --> 00:09:56,719 Speaker 1: to get to a T and T and sociate, just like, 186 00:09:56,800 --> 00:09:59,439 Speaker 1: oh my god, John speak So Johnson, we had a 187 00:09:59,559 --> 00:10:02,079 Speaker 1: big us on the wireless side. And that's obviously for 188 00:10:02,200 --> 00:10:06,160 Speaker 1: a T and T a core business for them, competitive marketplaces. 189 00:10:06,320 --> 00:10:08,720 Speaker 1: As you mentioned, let's look at the pay TV business. 190 00:10:08,960 --> 00:10:12,000 Speaker 1: They acquired direct Tv several years ago for a gazillion 191 00:10:12,040 --> 00:10:14,320 Speaker 1: dollars and I think since the day they closed, they've 192 00:10:14,320 --> 00:10:17,400 Speaker 1: been losing subscribers at a rate that's more than maybe 193 00:10:17,520 --> 00:10:20,520 Speaker 1: even the most pessimistic investors thought, what is going on 194 00:10:20,679 --> 00:10:24,640 Speaker 1: with their direct TV business. So satellite in general is 195 00:10:24,720 --> 00:10:29,680 Speaker 1: a bad business. Um, it is suffering from the same 196 00:10:29,800 --> 00:10:33,400 Speaker 1: trends that pay TV is. Right, anyone in the cable business, 197 00:10:33,480 --> 00:10:36,480 Speaker 1: as you know well, Paul is they're suffering from this 198 00:10:36,640 --> 00:10:41,719 Speaker 1: cord cutting trend. Um. I don't think satellite has ever 199 00:10:41,880 --> 00:10:44,720 Speaker 1: been a big focus for A T and T. Part 200 00:10:44,760 --> 00:10:47,800 Speaker 1: of the rationale for buying direct TV at the time 201 00:10:48,600 --> 00:10:53,559 Speaker 1: was to get access to the content contracts and renegotiate 202 00:10:53,679 --> 00:10:57,800 Speaker 1: them to be able to display content or distribute content 203 00:10:58,400 --> 00:11:02,439 Speaker 1: to UH to wireless vices, in particular to smartphones. So 204 00:11:03,080 --> 00:11:06,719 Speaker 1: in that sense, they achieve their goal. Um, will it 205 00:11:06,840 --> 00:11:09,680 Speaker 1: ever pay off for them is still the big question. 206 00:11:10,360 --> 00:11:13,640 Speaker 1: We had a big loss on the direct TV Now side. 207 00:11:14,760 --> 00:11:18,400 Speaker 1: Direct TV Now being that pay TV streaming product that 208 00:11:18,559 --> 00:11:21,199 Speaker 1: A T and T created sort of out of that 209 00:11:21,320 --> 00:11:26,160 Speaker 1: whole satellite business, and that is direct to smartphone content distribution. 210 00:11:27,080 --> 00:11:30,040 Speaker 1: It's a package of there are a lot of different options, 211 00:11:30,200 --> 00:11:33,679 Speaker 1: but call it sixty to two D fifty channels, and 212 00:11:33,760 --> 00:11:37,280 Speaker 1: they lost two hundred sixty thousand subs store in the quarter. 213 00:11:37,880 --> 00:11:40,640 Speaker 1: That's a big number and a big loss, and it 214 00:11:40,760 --> 00:11:45,679 Speaker 1: reflects them moving off that introductory promotional pricing that we 215 00:11:45,800 --> 00:11:48,959 Speaker 1: had last year and now they're beginning to walk it 216 00:11:49,080 --> 00:11:52,760 Speaker 1: back to full prices and we're seeing, um, we're seeing 217 00:11:52,800 --> 00:11:55,680 Speaker 1: the effect of that A hundred and seventy nine billion 218 00:11:55,760 --> 00:11:58,400 Speaker 1: dollars that is how much debt A T and T has. 219 00:11:58,520 --> 00:12:01,600 Speaker 1: So as we look at its box which are falling 220 00:12:01,640 --> 00:12:05,280 Speaker 1: about four percent today after these earnings numbers, I just 221 00:12:05,480 --> 00:12:07,880 Speaker 1: have to wonder does this get A T and T 222 00:12:08,120 --> 00:12:10,360 Speaker 1: closer to a junk rating because right now it has 223 00:12:10,440 --> 00:12:14,280 Speaker 1: close to the lowest investment grade credit scores. And this 224 00:12:14,480 --> 00:12:19,920 Speaker 1: matters tremendously given that they are a massive obligory. They 225 00:12:20,000 --> 00:12:23,400 Speaker 1: owe so much debt. They do, and that's the risk 226 00:12:23,559 --> 00:12:26,960 Speaker 1: here is you know, if there if they were too 227 00:12:27,960 --> 00:12:30,679 Speaker 1: if the rating agencies were to re rate them and 228 00:12:30,800 --> 00:12:35,040 Speaker 1: move them out of that investment grade category, that would 229 00:12:35,080 --> 00:12:38,520 Speaker 1: be devastating for mob bel A T and T. Right, 230 00:12:38,679 --> 00:12:43,000 Speaker 1: So really their only option, as some people see it, 231 00:12:43,240 --> 00:12:46,679 Speaker 1: is to cut the dividend. They address that on the 232 00:12:46,800 --> 00:12:49,719 Speaker 1: call and they said, look, we have a lot of assets, 233 00:12:49,880 --> 00:12:52,280 Speaker 1: a lot of assets that we can sell. Front and 234 00:12:52,400 --> 00:12:56,400 Speaker 1: center was their ten percent steak in Hulu and Paul, 235 00:12:56,480 --> 00:12:58,559 Speaker 1: you probably have a better guess as to what that 236 00:12:58,679 --> 00:13:00,880 Speaker 1: might be worth than on there's but there's some value there. 237 00:13:00,920 --> 00:13:02,360 Speaker 1: But that but that's not going to get them where 238 00:13:02,360 --> 00:13:04,280 Speaker 1: they need to be. Our Yeah, but that seems like 239 00:13:04,400 --> 00:13:06,720 Speaker 1: the future, So why would they be trying to get 240 00:13:07,000 --> 00:13:09,880 Speaker 1: exactly sort if they're I mean, they have basically an 241 00:13:09,920 --> 00:13:13,599 Speaker 1: option to the future. There, it's a minority stake, you know, 242 00:13:13,760 --> 00:13:15,640 Speaker 1: one could argue that it's better to be sold. You know, 243 00:13:16,559 --> 00:13:19,960 Speaker 1: it is I think and so, and they generate ample 244 00:13:20,080 --> 00:13:23,240 Speaker 1: free cash flows. So the question is can they hit 245 00:13:23,280 --> 00:13:26,679 Speaker 1: their cash flow targets for the year. And if they 246 00:13:26,800 --> 00:13:29,760 Speaker 1: do and they pay down debt with that, where does 247 00:13:29,880 --> 00:13:33,040 Speaker 1: that get them in terms of a leverage ratio? Their 248 00:13:33,080 --> 00:13:36,560 Speaker 1: goal is two point five times. We'll see if they 249 00:13:36,640 --> 00:13:39,560 Speaker 1: get there. The races on, so to speak, which under 250 00:13:39,600 --> 00:13:41,839 Speaker 1: the clock is ticking exactly. So, you know, they just 251 00:13:41,880 --> 00:13:44,920 Speaker 1: spent a hundred billion dollars enterprise value buying Time Warner 252 00:13:45,040 --> 00:13:47,360 Speaker 1: arguably some of the best media assets on the planet. 253 00:13:47,800 --> 00:13:51,000 Speaker 1: Did they articulate any further the strategy for trying to 254 00:13:51,080 --> 00:13:55,760 Speaker 1: generate a return on that investment. So there's a lot 255 00:13:55,840 --> 00:13:57,920 Speaker 1: of moving parts at a T and T right now, 256 00:13:58,120 --> 00:14:01,360 Speaker 1: including the content strategy due to a degree, But I 257 00:14:01,400 --> 00:14:05,719 Speaker 1: would say that the key pillars of that are number One, 258 00:14:05,720 --> 00:14:09,720 Speaker 1: they're trying to build a programmatic advertising platform and take 259 00:14:09,840 --> 00:14:14,720 Speaker 1: analytics that they're gathering on the wireless side and begin 260 00:14:14,840 --> 00:14:18,000 Speaker 1: to apply that to the ad inventory at the Turner 261 00:14:18,120 --> 00:14:22,520 Speaker 1: properties to get a higher CPM, as they call it, 262 00:14:22,640 --> 00:14:26,200 Speaker 1: a higher cost per eyeballs in that ad business using 263 00:14:26,280 --> 00:14:31,600 Speaker 1: analytics and that. UM, that whole process is well underway. 264 00:14:31,640 --> 00:14:33,760 Speaker 1: I think they're doing that. I think they're going to 265 00:14:33,880 --> 00:14:37,720 Speaker 1: get higher AD rates out of Turner and UM, I 266 00:14:37,840 --> 00:14:40,920 Speaker 1: really feel good about that. I think the other thing 267 00:14:41,000 --> 00:14:44,320 Speaker 1: they want to do on the content side is, just 268 00:14:44,560 --> 00:14:46,800 Speaker 1: as we were alluding to a moment ago, they want 269 00:14:46,840 --> 00:14:50,320 Speaker 1: to get into that streaming pay TV business and make 270 00:14:50,400 --> 00:14:54,560 Speaker 1: money not only from subscription revenue, but also make money 271 00:14:54,640 --> 00:14:57,840 Speaker 1: on the ad side. They'll have ad inventory to sell there. 272 00:14:58,080 --> 00:15:01,280 Speaker 1: So how how difficult is the hand right now given 273 00:15:01,320 --> 00:15:03,560 Speaker 1: the fact that they need to expand in these areas, 274 00:15:03,960 --> 00:15:06,720 Speaker 1: but they really do need to reduce their deadload. They do. 275 00:15:06,920 --> 00:15:09,480 Speaker 1: There's a lot of pressure on them this year. This 276 00:15:09,680 --> 00:15:14,360 Speaker 1: is a key year of integration and also execution on 277 00:15:14,440 --> 00:15:17,520 Speaker 1: the plan that I just talked about. UM, there's a 278 00:15:17,640 --> 00:15:20,560 Speaker 1: lot of money at stake, there's a big investment there. 279 00:15:21,080 --> 00:15:23,960 Speaker 1: They have a great management team. Actually, I really think 280 00:15:24,000 --> 00:15:26,120 Speaker 1: they can pull it off. But the pressure is on. 281 00:15:26,600 --> 00:15:29,560 Speaker 1: What did they articulate just one you know, everybody's talking 282 00:15:29,600 --> 00:15:32,320 Speaker 1: about getting into the streaming business what is their streaming strategy. 283 00:15:33,680 --> 00:15:37,000 Speaker 1: So I think the key strategy there is to really 284 00:15:37,160 --> 00:15:42,200 Speaker 1: target current A T and T wireless subscribers. Every other 285 00:15:42,320 --> 00:15:45,760 Speaker 1: word out of their mouth is bundling. And so if 286 00:15:45,800 --> 00:15:49,560 Speaker 1: they can bundle a streaming pay TV product with a 287 00:15:49,640 --> 00:15:54,400 Speaker 1: wireless subscription, maybe with a satellite subscription, along with some 288 00:15:54,560 --> 00:15:59,360 Speaker 1: broadband in their fiber markets, then you know, perhaps they 289 00:15:59,440 --> 00:16:01,600 Speaker 1: have a good strategy on their head. I love the 290 00:16:01,680 --> 00:16:04,400 Speaker 1: idea of you know, would you like a bundle phone 291 00:16:04,840 --> 00:16:10,480 Speaker 1: bundle by the bundle? Uh? John Butler, thanks so much 292 00:16:10,560 --> 00:16:12,760 Speaker 1: for helping us pass through the A T and T 293 00:16:13,240 --> 00:16:17,000 Speaker 1: our results. John Butler, Senior Telecommon Service Equipment analyst at 294 00:16:17,040 --> 00:16:20,200 Speaker 1: Bloomberg Intelligence here today with us in the Bloomberg Interactive 295 00:16:20,280 --> 00:16:39,760 Speaker 1: broker studios. Well. Apple stock is up about four and 296 00:16:39,800 --> 00:16:43,840 Speaker 1: early trading here today. Despite reporting first holiday quarter sales 297 00:16:43,880 --> 00:16:47,240 Speaker 1: decline in nearly twenty years, analysts viewed the results as 298 00:16:47,360 --> 00:16:50,160 Speaker 1: quote better than many had feared. According to Piper Jaffrey 299 00:16:50,160 --> 00:16:52,600 Speaker 1: analyst Michael Olsen, so I guess we have that um 300 00:16:52,880 --> 00:16:54,600 Speaker 1: to kind of dig into the numbers a little bit. 301 00:16:54,640 --> 00:16:57,480 Speaker 1: We have Michael Scanlon on the phone. Michael's a portfolio manager, 302 00:16:57,560 --> 00:17:00,880 Speaker 1: a Manu Life Asset Management in Boston. My cool. Thank 303 00:17:00,920 --> 00:17:02,760 Speaker 1: you for joining us. I wonder if you could just 304 00:17:02,800 --> 00:17:05,120 Speaker 1: start us out and kind of give us your view 305 00:17:05,560 --> 00:17:07,879 Speaker 1: on the Apple story. A lot of has changed over 306 00:17:07,880 --> 00:17:09,600 Speaker 1: the last couple of years. How are you guys viewing 307 00:17:09,680 --> 00:17:11,760 Speaker 1: this story and did you see anything in this quarter's 308 00:17:11,840 --> 00:17:15,880 Speaker 1: numbers to change that outlook? Well, good morning and thanks 309 00:17:15,880 --> 00:17:17,879 Speaker 1: for having me. Uh. I think when you look at 310 00:17:17,920 --> 00:17:21,840 Speaker 1: the results last night, definitely very negative expectations going into 311 00:17:21,960 --> 00:17:26,119 Speaker 1: the results in light of the guide in the pre 312 00:17:26,160 --> 00:17:28,680 Speaker 1: announcement that they did at the beginning of January. I 313 00:17:28,760 --> 00:17:31,520 Speaker 1: think ultimately the reaction that you're seeing today is that 314 00:17:31,680 --> 00:17:35,199 Speaker 1: the guide for the next quarter was less bad than 315 00:17:35,280 --> 00:17:38,680 Speaker 1: people were expecting. Um. And I also think if you 316 00:17:38,720 --> 00:17:40,240 Speaker 1: think back to the beginning of the year when they 317 00:17:40,280 --> 00:17:42,560 Speaker 1: did give that pre announcement, you know, you had a 318 00:17:42,640 --> 00:17:45,240 Speaker 1: quarter where they were pre announcing negative numbers, and they 319 00:17:45,280 --> 00:17:48,720 Speaker 1: were also going to be changing their UH segment disclosure 320 00:17:48,760 --> 00:17:51,560 Speaker 1: where they're just giving you products and services now instead 321 00:17:51,600 --> 00:17:54,360 Speaker 1: of the granular data on each one of their devices. 322 00:17:54,960 --> 00:17:57,879 Speaker 1: So I think you had the sort of multiplicative effect 323 00:17:57,920 --> 00:17:59,920 Speaker 1: of those two things at the same time, which led 324 00:18:00,040 --> 00:18:02,959 Speaker 1: to the sell off and the shares earlier in the year. Michael, 325 00:18:03,000 --> 00:18:05,600 Speaker 1: are you more positive or more negative on Apple shares 326 00:18:05,640 --> 00:18:09,280 Speaker 1: after these earnings? So? I think when you look at 327 00:18:09,320 --> 00:18:12,520 Speaker 1: the business last night, they Tim Cook spent a lot 328 00:18:12,600 --> 00:18:15,280 Speaker 1: of time and gave a fair amount more disclosure than 329 00:18:15,359 --> 00:18:19,280 Speaker 1: typical UH into the insights and the revenues. And you know, 330 00:18:19,359 --> 00:18:21,480 Speaker 1: when you look at some of the contributing factors to 331 00:18:21,600 --> 00:18:24,159 Speaker 1: the slowdown that led to the fiftcent year every year 332 00:18:24,240 --> 00:18:27,280 Speaker 1: drop off in iPhone sales, you know, certainly China was 333 00:18:27,359 --> 00:18:31,600 Speaker 1: a well known one. The battery replacement cycle was also 334 00:18:31,720 --> 00:18:34,200 Speaker 1: a head wind, and then they gave good data in 335 00:18:34,359 --> 00:18:37,400 Speaker 1: terms of the impact of subsidies that they're seeing overseas. 336 00:18:37,920 --> 00:18:40,080 Speaker 1: So I think when when you look at the business, 337 00:18:40,119 --> 00:18:42,040 Speaker 1: I mean, there's no doubt that it's more mature than 338 00:18:42,119 --> 00:18:45,560 Speaker 1: it was a handful of years ago. That's undeniable. But 339 00:18:45,640 --> 00:18:47,399 Speaker 1: when you look at Apple, I mean, they still have 340 00:18:47,640 --> 00:18:50,480 Speaker 1: this at one point four billion device install base that 341 00:18:50,520 --> 00:18:53,040 Speaker 1: they're going to be able to monetize, nine million of 342 00:18:53,080 --> 00:18:56,240 Speaker 1: which are iPhones, UH. And the focus on doubling the 343 00:18:56,359 --> 00:18:59,960 Speaker 1: services services business to fifty billion dollars, which is gross 344 00:19:00,080 --> 00:19:02,680 Speaker 1: margin positive for them. You know, I still think that 345 00:19:02,760 --> 00:19:04,720 Speaker 1: there's a lot to like there in addition to the 346 00:19:04,800 --> 00:19:08,400 Speaker 1: capital return profile. So Michael, that's I think you very 347 00:19:08,520 --> 00:19:11,800 Speaker 1: nicely summarize kind of more the bullish case for a 348 00:19:11,880 --> 00:19:15,480 Speaker 1: longer term bullish case for Apple, which is, you know, yes, 349 00:19:15,600 --> 00:19:17,840 Speaker 1: the Apple the phone is a mature business and that 350 00:19:18,000 --> 00:19:20,840 Speaker 1: has been six That is the revenue. But we've got 351 00:19:20,920 --> 00:19:23,480 Speaker 1: some other businesses that are growing nicely. Let's focus on 352 00:19:23,560 --> 00:19:25,679 Speaker 1: one of them which I think most bulls hang their 353 00:19:25,720 --> 00:19:27,960 Speaker 1: hat on, and that is the services business. And you 354 00:19:28,040 --> 00:19:31,159 Speaker 1: talked about doubling the services revenue. Do you think that 355 00:19:31,280 --> 00:19:33,960 Speaker 1: can ever be a driver for this company in the 356 00:19:34,080 --> 00:19:36,880 Speaker 1: stocks the way phones have been over the last ten years. 357 00:19:39,720 --> 00:19:42,719 Speaker 1: I do, uh, And you know, frankly, I expect they 358 00:19:42,840 --> 00:19:45,919 Speaker 1: talked last night about some of the lineup that they 359 00:19:45,960 --> 00:19:48,159 Speaker 1: have in terms of innovation going forward. But you know, 360 00:19:48,320 --> 00:19:51,560 Speaker 1: some of the more important parts of innovation going forward 361 00:19:51,600 --> 00:19:54,560 Speaker 1: will be how they continue to monetize the install base 362 00:19:55,000 --> 00:19:58,159 Speaker 1: in that relates directly to the services side of the business. 363 00:19:58,640 --> 00:20:01,440 Speaker 1: You know, there's been countless data points of speculation on 364 00:20:01,560 --> 00:20:06,119 Speaker 1: some sort of a TV offering, our streaming video offering 365 00:20:06,160 --> 00:20:08,000 Speaker 1: and those kind of things, and I think that that 366 00:20:08,320 --> 00:20:11,360 Speaker 1: is likely to come. And frankly, again, if you've got 367 00:20:11,440 --> 00:20:13,879 Speaker 1: this install base that they have, and even if you 368 00:20:13,880 --> 00:20:15,760 Speaker 1: want to stay well, it's only the nine million of 369 00:20:15,800 --> 00:20:18,760 Speaker 1: iPhones that matter because everything else is just an incremental device. 370 00:20:19,200 --> 00:20:21,560 Speaker 1: That's fine. That's still a pretty solid install base that 371 00:20:21,600 --> 00:20:23,879 Speaker 1: they have the ability to monetize going forward. And we 372 00:20:24,040 --> 00:20:25,560 Speaker 1: never know what Apple is going to come up with 373 00:20:25,640 --> 00:20:27,359 Speaker 1: in terms of innovation. They just don't give you a 374 00:20:27,440 --> 00:20:30,680 Speaker 1: lot talking about the install base. Some people think it's 375 00:20:30,680 --> 00:20:33,639 Speaker 1: interesting that Tim Cook did give the install base and 376 00:20:33,720 --> 00:20:36,760 Speaker 1: really emphasize it's such degree as certainly is helpful with 377 00:20:36,920 --> 00:20:41,440 Speaker 1: respect to services, but also potentially with content. Uh and 378 00:20:41,760 --> 00:20:44,600 Speaker 1: Dana Ives of web Bush Securities was on Bloomberg Television 379 00:20:44,640 --> 00:20:47,200 Speaker 1: earlier this morning and he thinks that within the next 380 00:20:47,240 --> 00:20:50,440 Speaker 1: three to six months, Apple will make an announcement about 381 00:20:50,480 --> 00:20:54,440 Speaker 1: some kind of acquisition of another sort of content provider, 382 00:20:54,800 --> 00:20:57,919 Speaker 1: say Sony or one of these others. And I'm just wondering, 383 00:20:58,400 --> 00:21:00,600 Speaker 1: how likely do you expect that and would that be 384 00:21:00,800 --> 00:21:05,840 Speaker 1: a positive in your opinion for Apple shares? Yeah, very 385 00:21:06,000 --> 00:21:08,280 Speaker 1: very tough to speculate on M and A And frankly, 386 00:21:08,400 --> 00:21:11,119 Speaker 1: that's just not how Apple has built their business. Right. 387 00:21:11,200 --> 00:21:14,119 Speaker 1: Their biggest acquisition ever was Beat, and I think that 388 00:21:14,280 --> 00:21:16,960 Speaker 1: was about three billion dollars. If you're talking about buying 389 00:21:17,040 --> 00:21:21,280 Speaker 1: some sort of a production studio h of size that 390 00:21:21,320 --> 00:21:24,159 Speaker 1: would matter to Apple, you'll be talking about a much 391 00:21:24,200 --> 00:21:27,359 Speaker 1: bigger number. So I would say that's a low probability event. 392 00:21:27,440 --> 00:21:29,960 Speaker 1: I think what they'll continue to do is some of 393 00:21:30,040 --> 00:21:33,080 Speaker 1: what they're doing right now and investing in some original content, 394 00:21:33,200 --> 00:21:35,600 Speaker 1: but not sort of a bet the farm type amount 395 00:21:35,760 --> 00:21:39,080 Speaker 1: or a huge M and a cycle um. But you know, 396 00:21:39,200 --> 00:21:41,280 Speaker 1: that is where the trends are going, and they have 397 00:21:41,440 --> 00:21:43,920 Speaker 1: this install base that they can monetize. So I do 398 00:21:44,119 --> 00:21:45,879 Speaker 1: expect that they're going to try to do more on 399 00:21:45,960 --> 00:21:47,560 Speaker 1: that front. I'm just not sure it's going to be 400 00:21:47,640 --> 00:21:51,520 Speaker 1: driven by some transformative acquisition. So Michael, just in twenty seconds, 401 00:21:52,080 --> 00:21:54,000 Speaker 1: do you expect them to pivot at all as it 402 00:21:54,040 --> 00:21:56,760 Speaker 1: relates to emerging markets and maybe go down market to 403 00:21:56,840 --> 00:21:59,479 Speaker 1: try to you know, compete more stay in the Indias 404 00:21:59,480 --> 00:22:04,480 Speaker 1: of the world. Uh So, if they did decide to 405 00:22:04,520 --> 00:22:06,840 Speaker 1: do that, I don't think the stock reacts positively because 406 00:22:06,920 --> 00:22:09,800 Speaker 1: that's likely going to be a gross margin deluded for them, 407 00:22:09,880 --> 00:22:12,159 Speaker 1: so they'd just be chasing revenue for the stake of 408 00:22:12,240 --> 00:22:15,520 Speaker 1: chasing revenue with lower priced iPhones. UM. I think what 409 00:22:15,600 --> 00:22:17,600 Speaker 1: you'll continue to see is, you know, maybe they do 410 00:22:17,760 --> 00:22:20,160 Speaker 1: something at the margin in terms of pricing these devices 411 00:22:20,240 --> 00:22:22,600 Speaker 1: and emerging markets or other areas where it's a little 412 00:22:22,600 --> 00:22:25,960 Speaker 1: bit more cost prohibitive. UM. But you know, they buy 413 00:22:26,040 --> 00:22:28,120 Speaker 1: themselves a lot of time. I mean, this company kicks 414 00:22:28,119 --> 00:22:30,159 Speaker 1: off a tremendous amount of cash flow, they buy a 415 00:22:30,240 --> 00:22:32,560 Speaker 1: ton of stock, they pay a dividend, so they can 416 00:22:32,640 --> 00:22:34,920 Speaker 1: kind of weather these periods of disruption that they have 417 00:22:35,000 --> 00:22:37,639 Speaker 1: in terms of their growth trajectory. Michael Scanlon, thank you 418 00:22:37,720 --> 00:22:39,920 Speaker 1: so much for being with us and you're your insight 419 00:22:40,080 --> 00:22:43,840 Speaker 1: on Apple. Michael Scanlon is portfolio manager for Manu Life 420 00:22:43,960 --> 00:23:01,719 Speaker 1: Asset Management. We're gonna hear from the FED today. It's 421 00:23:01,720 --> 00:23:03,639 Speaker 1: going to be an exciting announcement or it won't be. 422 00:23:04,080 --> 00:23:06,600 Speaker 1: I'm so I'm sure that FED Chair J. Powell hopes 423 00:23:06,640 --> 00:23:08,399 Speaker 1: that it won't be. We're hoping that it will be. 424 00:23:08,520 --> 00:23:11,320 Speaker 1: In our jersey joining us now to talk about what 425 00:23:11,480 --> 00:23:13,960 Speaker 1: some of the iterations of fedspeak, we might just be 426 00:23:14,080 --> 00:23:17,400 Speaker 1: hearing our jersey chief US interest rate strategist for Bloomberg 427 00:23:17,520 --> 00:23:21,320 Speaker 1: Intelligence joining us here in our interactive brokers studios. So 428 00:23:21,520 --> 00:23:25,879 Speaker 1: IRA focus is really on the balance sheet. What is 429 00:23:26,080 --> 00:23:30,600 Speaker 1: the absolute lowest amount that the balance sheet could be 430 00:23:31,160 --> 00:23:34,080 Speaker 1: for markets to continue to function in a normal way. Yeah, 431 00:23:34,119 --> 00:23:37,840 Speaker 1: so our estimate for that is about another six billion 432 00:23:37,880 --> 00:23:40,520 Speaker 1: dollars lower. So you're talking about about three point two 433 00:23:40,600 --> 00:23:44,040 Speaker 1: ish three point three trillion dollars on the Fed's balance sheet. 434 00:23:44,080 --> 00:23:46,600 Speaker 1: And and the mechanism as to why that number is 435 00:23:46,640 --> 00:23:50,399 Speaker 1: important is because banks hold these reserves. They have to 436 00:23:50,440 --> 00:23:53,280 Speaker 1: hold them. So there's this fallacy that says banks aren't 437 00:23:53,359 --> 00:23:56,600 Speaker 1: using their reserves. Well, banks are using their reserves. Reserves exist, 438 00:23:57,160 --> 00:24:00,280 Speaker 1: um and the only way that the that reserve. It's 439 00:24:00,359 --> 00:24:03,600 Speaker 1: very philosophical, so it sort of feels like they exist. 440 00:24:03,680 --> 00:24:06,240 Speaker 1: It's like decartes, you know. It's like you know, air 441 00:24:06,359 --> 00:24:08,240 Speaker 1: or something. Right, it's just a matter of who's using 442 00:24:08,280 --> 00:24:10,280 Speaker 1: it at any given moment. Right, if you're holding your 443 00:24:10,280 --> 00:24:12,280 Speaker 1: breath and I'm breathing, then I'm using the air you're not. 444 00:24:12,520 --> 00:24:14,800 Speaker 1: But but reserves are the same way, right. So so 445 00:24:15,040 --> 00:24:18,160 Speaker 1: some banks hold a lot of reserves, other banks hold 446 00:24:18,280 --> 00:24:21,040 Speaker 1: very few, But those reserves exist and and they get 447 00:24:21,119 --> 00:24:24,639 Speaker 1: traded between between banks. Um So, but there is a 448 00:24:24,800 --> 00:24:28,280 Speaker 1: point when And these reserves are used in some calculations 449 00:24:28,440 --> 00:24:32,040 Speaker 1: for bank capital ratios. Right, so this thing called liquidity 450 00:24:32,119 --> 00:24:35,480 Speaker 1: coverage ratio where banks hold these and if they whole 451 00:24:35,600 --> 00:24:39,000 Speaker 1: held less than UM a trillion issue of them, then 452 00:24:39,080 --> 00:24:41,880 Speaker 1: banks would have to replace those reserves with something else, 453 00:24:41,960 --> 00:24:44,760 Speaker 1: and the most likely candidate would be treasury bills. And 454 00:24:44,880 --> 00:24:47,879 Speaker 1: you're not seeing significant buying of treasury bills by banks, 455 00:24:47,920 --> 00:24:50,200 Speaker 1: so UM to me that that tells us we're not 456 00:24:50,359 --> 00:24:53,000 Speaker 1: at this constraint level yet. And I think that constraint 457 00:24:53,119 --> 00:24:57,800 Speaker 1: level is about another another six hundred billion dollars of runoff, 458 00:24:57,920 --> 00:25:01,800 Speaker 1: which basically gets you into let's just let's I think 459 00:25:01,880 --> 00:25:04,320 Speaker 1: for the last two weeks, we've asked that question, i e. 460 00:25:04,480 --> 00:25:06,280 Speaker 1: Where do you think the FED is going to take 461 00:25:06,320 --> 00:25:10,480 Speaker 1: its balance sheet? To maybe a dozen different analysts and 462 00:25:10,560 --> 00:25:15,080 Speaker 1: portfolio managers and pupundance, and we get nothing. IRA right 463 00:25:15,119 --> 00:25:17,960 Speaker 1: off the bat gives us a number three point three billion, 464 00:25:18,280 --> 00:25:24,639 Speaker 1: reflecting thank you, corporate government world is trillions, right, so 465 00:25:24,720 --> 00:25:27,520 Speaker 1: six billion right off? What is your sense of timing 466 00:25:27,640 --> 00:25:30,000 Speaker 1: of that roll off? And and and tell us how 467 00:25:30,160 --> 00:25:33,480 Speaker 1: the timing, whether it's impacts the markets, whether it's slower, faster, 468 00:25:33,560 --> 00:25:35,560 Speaker 1: than when the market's discounting. Sure. So, so the way 469 00:25:35,600 --> 00:25:38,119 Speaker 1: that that runoff is for the treasury portfolio is that 470 00:25:38,480 --> 00:25:40,080 Speaker 1: we know what it's going to be for the next 471 00:25:40,160 --> 00:25:43,040 Speaker 1: year and a half um so because if the Treasury 472 00:25:43,440 --> 00:25:46,280 Speaker 1: uh has issued these bonds, the Fed's purchased them, and 473 00:25:46,359 --> 00:25:49,560 Speaker 1: they mature at various points. So the FED balance runoff 474 00:25:49,560 --> 00:25:52,440 Speaker 1: actually peaks in May and June of this year, and 475 00:25:52,520 --> 00:25:55,720 Speaker 1: then after that it actually slows down quite substantially, just 476 00:25:55,800 --> 00:25:58,600 Speaker 1: because the FED reserve doesn't own as many treasuries that 477 00:25:58,640 --> 00:26:02,080 Speaker 1: are maturing, say November this year and December this year, 478 00:26:02,160 --> 00:26:04,959 Speaker 1: as they do right now, so so it actually slows 479 00:26:05,000 --> 00:26:07,160 Speaker 1: down as as the year goes on. That being said, 480 00:26:07,200 --> 00:26:11,040 Speaker 1: it's about four hundred billion dollars in in calendar another 481 00:26:11,160 --> 00:26:16,480 Speaker 1: three hundred plus billion dollars in. So it's still a 482 00:26:16,600 --> 00:26:18,560 Speaker 1: big number, right, and there still is. And if we're 483 00:26:18,600 --> 00:26:21,040 Speaker 1: if I'm right, and we need to get down to 484 00:26:21,080 --> 00:26:23,639 Speaker 1: about a trillion dollars of excess reserves from the one 485 00:26:23,720 --> 00:26:26,399 Speaker 1: point six trillion today, you're saying in the first or 486 00:26:26,440 --> 00:26:28,399 Speaker 1: second quarter of next year, the FED is going to 487 00:26:28,480 --> 00:26:30,720 Speaker 1: be done, and it might even be done before that, 488 00:26:31,040 --> 00:26:34,000 Speaker 1: because you know, banks are gonna say, hey, we're getting 489 00:26:34,080 --> 00:26:36,280 Speaker 1: to this constraint where we're going to have to start 490 00:26:36,400 --> 00:26:39,440 Speaker 1: replacing reserves with T bills and things like that, and 491 00:26:39,560 --> 00:26:42,440 Speaker 1: that's when you start to get market disruptions. I I 492 00:26:42,600 --> 00:26:45,640 Speaker 1: want to go further with even why it matters why 493 00:26:45,680 --> 00:26:47,720 Speaker 1: the banks should basically be handed free money from the 494 00:26:47,760 --> 00:26:49,040 Speaker 1: FED and why they shouldn't have to go out and 495 00:26:49,080 --> 00:26:50,920 Speaker 1: make markets. But I want to just go a little 496 00:26:50,960 --> 00:26:54,000 Speaker 1: bit broader here. I want to ask about just how 497 00:26:54,280 --> 00:26:57,479 Speaker 1: unusual of a situation this is. I mean, we've been 498 00:26:57,520 --> 00:27:00,639 Speaker 1: speaking with person after person yesterday David Kota saying the 499 00:27:00,720 --> 00:27:02,720 Speaker 1: fete is in the dark and they're playing with fire. 500 00:27:02,920 --> 00:27:05,600 Speaker 1: We don't even know what the consequences of this balance 501 00:27:05,640 --> 00:27:08,760 Speaker 1: sheet rolloff really is. I mean, what do we know? 502 00:27:09,040 --> 00:27:11,800 Speaker 1: And just how unchartered is this? So it's a percent 503 00:27:11,840 --> 00:27:15,320 Speaker 1: unchartered because quantitative easing was was first done by the 504 00:27:15,440 --> 00:27:17,879 Speaker 1: Japanese and then it has subsequently been done in the 505 00:27:18,040 --> 00:27:21,280 Speaker 1: US and in the UK and in Europe, but no 506 00:27:21,359 --> 00:27:23,360 Speaker 1: one's ever tried to do the opposite. No one's tried 507 00:27:23,440 --> 00:27:26,200 Speaker 1: quantitative tightening before, so none of us really know, Like, yes, 508 00:27:26,280 --> 00:27:29,240 Speaker 1: I have my estimate, but you can't take that as gospel. 509 00:27:29,359 --> 00:27:32,240 Speaker 1: I mean that is a we take everything you say 510 00:27:32,240 --> 00:27:36,600 Speaker 1: as gospel preach they exist. You know, I'm pretty good 511 00:27:36,640 --> 00:27:40,880 Speaker 1: at I can certainly give my opinions without too much difficulty. 512 00:27:41,200 --> 00:27:43,760 Speaker 1: UM So, I do think that the FETE is kind 513 00:27:43,760 --> 00:27:45,639 Speaker 1: of flying blind and they're going to have to And 514 00:27:45,680 --> 00:27:47,280 Speaker 1: I think this is something that J. Pal has to 515 00:27:47,320 --> 00:27:49,560 Speaker 1: say in as press conference today, which is, remember we 516 00:27:49,640 --> 00:27:53,240 Speaker 1: have a January press conference first whatever, um J Pow 517 00:27:53,320 --> 00:27:55,760 Speaker 1: will say something like, look, we're paying attention to the 518 00:27:55,800 --> 00:27:59,040 Speaker 1: balance sheet. If we see these frictions, if we see 519 00:27:59,560 --> 00:28:03,040 Speaker 1: things like the Federal funds rate trading above interest paid 520 00:28:03,119 --> 00:28:05,800 Speaker 1: on excess reserves, which would be one big thing. If 521 00:28:05,840 --> 00:28:08,720 Speaker 1: we see volume in the Fed funds market pick up 522 00:28:09,040 --> 00:28:13,080 Speaker 1: significantly because banks are demanding reserves, and if we see 523 00:28:13,160 --> 00:28:16,320 Speaker 1: banks starting to buy a lot of Treasury bills because 524 00:28:16,680 --> 00:28:19,280 Speaker 1: they need them because of what I said earlier that 525 00:28:19,840 --> 00:28:22,600 Speaker 1: that reserve balances are getting so low. Those are some 526 00:28:22,760 --> 00:28:24,919 Speaker 1: of the warning signs that the Federal be looking at. 527 00:28:24,960 --> 00:28:26,640 Speaker 1: And as soon as they see one of those, they'll 528 00:28:26,640 --> 00:28:29,200 Speaker 1: probably say, no, Moss, We're done. All right. Where could 529 00:28:29,280 --> 00:28:31,840 Speaker 1: Fed Chairman Pal today in his press conference or his 530 00:28:32,040 --> 00:28:36,239 Speaker 1: statement throw a curveball to the market. So I mean 531 00:28:36,400 --> 00:28:39,440 Speaker 1: it could you know that that's there's a wide range 532 00:28:39,480 --> 00:28:42,040 Speaker 1: of what he could do. Um I think that he 533 00:28:42,480 --> 00:28:45,000 Speaker 1: I think that the surprise would be if he was 534 00:28:45,080 --> 00:28:48,760 Speaker 1: significantly more dovish than the markets expecting. Markets expect them 535 00:28:48,800 --> 00:28:50,240 Speaker 1: to be a little bit dovish. A lot of the 536 00:28:50,320 --> 00:28:52,520 Speaker 1: comments from a lot of the other FED speakers over 537 00:28:52,560 --> 00:28:54,800 Speaker 1: the last month, we're pretty dovish. He was pretty dovish 538 00:28:55,120 --> 00:28:57,400 Speaker 1: in his last couple of comments. I think if he's 539 00:28:57,400 --> 00:28:59,400 Speaker 1: even more dovish than that. So, for example, if he 540 00:29:00,120 --> 00:29:03,480 Speaker 1: takes away all optionality and basically says, hey, we're done 541 00:29:03,560 --> 00:29:06,240 Speaker 1: hiking until we know that the economy is back on track, 542 00:29:07,200 --> 00:29:09,040 Speaker 1: that would be something that I think would get risk 543 00:29:09,080 --> 00:29:12,080 Speaker 1: asset's really happy. That would mean that, you know, treasury yields, 544 00:29:12,120 --> 00:29:13,720 Speaker 1: you know, ten year yields probably go back up to 545 00:29:13,760 --> 00:29:16,320 Speaker 1: three percent pretty quick. Jersey, thank you so much for 546 00:29:16,400 --> 00:29:18,680 Speaker 1: being with us. Great to be here, Iro Jersey, chief 547 00:29:18,760 --> 00:29:22,520 Speaker 1: US interest rate strategist for Bloomberg Intelligence, Chief US interest 548 00:29:22,600 --> 00:29:26,560 Speaker 1: rate philosopher for US here at Bloomberg LP. Thanks for 549 00:29:26,640 --> 00:29:28,840 Speaker 1: listening to the Bloomberg P and L podcast. You can 550 00:29:28,880 --> 00:29:31,680 Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever 551 00:29:31,760 --> 00:29:34,920 Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at 552 00:29:34,960 --> 00:29:37,600 Speaker 1: pt Sweeney, I'm Lisa abram Woyd's I'm on Twitter at 553 00:29:37,680 --> 00:29:40,120 Speaker 1: Lisa A. Bram Woit's one before the podcast. You can 554 00:29:40,160 --> 00:29:42,520 Speaker 1: always catch us worldwide on Bloomberg Radio