1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,600 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg P M L 6 00:00:20,840 --> 00:00:27,280 Speaker 1: Podcast on Apple Podcasts, SoundCloud and Bloomberg dot Com. Him 7 00:00:27,320 --> 00:00:31,040 Speaker 1: In the news recently has been consolidation among asset managers, 8 00:00:31,240 --> 00:00:35,080 Speaker 1: one after another after another. The latest UBS is looking 9 00:00:35,080 --> 00:00:39,080 Speaker 1: to possibly buy another asset manager, either in the US 10 00:00:39,280 --> 00:00:42,520 Speaker 1: or Europe in order to get scale. And this raises 11 00:00:42,560 --> 00:00:45,040 Speaker 1: a question what is the right size for an asset 12 00:00:45,080 --> 00:00:49,960 Speaker 1: manager in two And we have someone who's going to 13 00:00:49,960 --> 00:00:53,400 Speaker 1: answer that question with precision. Eric Baltunis has the answer. 14 00:00:53,440 --> 00:00:55,080 Speaker 1: He has all the answers. He's been predicting this for 15 00:00:55,080 --> 00:00:58,560 Speaker 1: a while. Eric a senior et f analyst for Bloomberg Intelligence. 16 00:00:58,600 --> 00:01:02,160 Speaker 1: So Eric, what do you make of this UBS announcement 17 00:01:02,360 --> 00:01:05,720 Speaker 1: and how big is the right size? Uh? Well, look, 18 00:01:05,959 --> 00:01:07,600 Speaker 1: this is not a surprise to me, and I'm not 19 00:01:07,640 --> 00:01:10,400 Speaker 1: sure that the right size the way I've always seen 20 00:01:10,440 --> 00:01:14,880 Speaker 1: it is. Look, I mean, the data is there of 21 00:01:14,920 --> 00:01:17,880 Speaker 1: the net cash that's invested in funds goes to products 22 00:01:17,880 --> 00:01:22,800 Speaker 1: that charge less than twenty basis points UM, and that 23 00:01:22,840 --> 00:01:26,000 Speaker 1: goes to less than ten So who's holding those funds 24 00:01:26,080 --> 00:01:28,240 Speaker 1: is Vangarden black Rock. They're taking in two thirds of 25 00:01:28,280 --> 00:01:31,200 Speaker 1: all net dollars invested in the United States. So this 26 00:01:31,280 --> 00:01:34,160 Speaker 1: is only going to get bigger. The reason hasn't been 27 00:01:34,200 --> 00:01:38,240 Speaker 1: bigger yet is the market performance growth has built the 28 00:01:38,240 --> 00:01:40,039 Speaker 1: assets up of some of these people who have seen 29 00:01:40,160 --> 00:01:43,160 Speaker 1: organic outflows. But I would imagine after a bear market, 30 00:01:43,200 --> 00:01:45,280 Speaker 1: you could be looking at something more kin to the airlines. 31 00:01:45,319 --> 00:01:47,360 Speaker 1: You know how there's like three big airlines that control 32 00:01:47,400 --> 00:01:50,760 Speaker 1: about of the market, and then you have UM, you know, 33 00:01:50,840 --> 00:01:55,080 Speaker 1: smaller airlines like Alaska Air or something that does local trips, 34 00:01:55,080 --> 00:01:57,640 Speaker 1: something more exotic. I wouldn't be surprised if you see 35 00:01:57,680 --> 00:02:00,760 Speaker 1: the middle just clear out and get consolidated. So just 36 00:02:00,800 --> 00:02:03,840 Speaker 1: like other things that grow big, right other industries, Uh, 37 00:02:03,840 --> 00:02:06,800 Speaker 1: there's three or four big ones, and then there's a 38 00:02:06,840 --> 00:02:09,040 Speaker 1: lot of little ones that do specialty things. In that case, 39 00:02:09,080 --> 00:02:14,200 Speaker 1: I think UM quants, hedge funds, alternatives. Uh, there's this 40 00:02:14,560 --> 00:02:17,880 Speaker 1: emerging market specialists UM. And we were actually talking to 41 00:02:18,440 --> 00:02:21,440 Speaker 1: John Bogel for the podcast we do called trillions shameless 42 00:02:21,440 --> 00:02:25,960 Speaker 1: plug um And he said, actually, consolidation is probably gonna happen, 43 00:02:25,960 --> 00:02:27,760 Speaker 1: but it won't be enough. He thinks a lot of 44 00:02:27,760 --> 00:02:30,000 Speaker 1: these firms are going to have to convert to Vanguard's 45 00:02:30,080 --> 00:02:33,320 Speaker 1: mutual ownership structure to survive, because and I'll tell you, 46 00:02:33,360 --> 00:02:35,440 Speaker 1: even some of these ones that do consolidate and lower 47 00:02:35,440 --> 00:02:38,799 Speaker 1: their fees, it's almost feels too late, you can tell, 48 00:02:38,840 --> 00:02:41,800 Speaker 1: because the flows still are largely going to two companies, 49 00:02:41,840 --> 00:02:44,680 Speaker 1: black Rock and Vanguard, even if another firm might go 50 00:02:44,720 --> 00:02:49,760 Speaker 1: a little cheaper. Eric, is this a race to the bottom. Yeah, 51 00:02:49,800 --> 00:02:52,840 Speaker 1: and we're here. I mean Fidelity wanted, which is ironic 52 00:02:52,840 --> 00:02:56,600 Speaker 1: because Fidelity they offered, they offered that. That was why 53 00:02:56,680 --> 00:03:00,480 Speaker 1: that was such a Yeah, Fidelity an ounce that they're 54 00:03:00,520 --> 00:03:03,160 Speaker 1: going to offer index mutual funds for a fee of zero. 55 00:03:03,720 --> 00:03:06,040 Speaker 1: Now keep in mind they already had index mutual funds 56 00:03:06,080 --> 00:03:09,000 Speaker 1: that charged one point five basis points. So it's a 57 00:03:09,040 --> 00:03:13,280 Speaker 1: formality really, but the symbolism of going to zero, it 58 00:03:13,360 --> 00:03:15,760 Speaker 1: was it was almost like a climax. We've been building 59 00:03:15,840 --> 00:03:18,399 Speaker 1: up to this point for fifteen years and now we're here. 60 00:03:18,760 --> 00:03:21,160 Speaker 1: But let's face it, you can get a whole portfolio 61 00:03:21,200 --> 00:03:24,440 Speaker 1: of everything you want for a combined fee of under 62 00:03:24,480 --> 00:03:27,880 Speaker 1: five basis points at this point, so it's already basically 63 00:03:27,919 --> 00:03:30,320 Speaker 1: free and that's where all the money goes. So you 64 00:03:30,400 --> 00:03:34,079 Speaker 1: said that for big asset managers that just now are 65 00:03:34,160 --> 00:03:37,120 Speaker 1: trying to really plow in and compete with the black Rocks, 66 00:03:37,560 --> 00:03:40,320 Speaker 1: uh and the Van Guards, it's too late. What does 67 00:03:40,360 --> 00:03:42,040 Speaker 1: that mean? Does that mean that they're going to be acquired, 68 00:03:42,080 --> 00:03:45,760 Speaker 1: go out of business? You know, I don't know, probably acquired, 69 00:03:45,800 --> 00:03:48,480 Speaker 1: probably merged with other companies. I think. You look at Investco, 70 00:03:48,800 --> 00:03:50,840 Speaker 1: they've been doing a lot of acquisitions. It has brought 71 00:03:50,920 --> 00:03:55,640 Speaker 1: them up to Oppenheimer Appenheimer UM. But the active mutual 72 00:03:55,680 --> 00:03:58,520 Speaker 1: fund space is alive and well remember active mutual funds 73 00:03:58,560 --> 00:04:02,480 Speaker 1: have two thirds more as sets then passive. The reason, though, 74 00:04:02,600 --> 00:04:05,400 Speaker 1: is not the problem is organic growth, market returns. The 75 00:04:05,440 --> 00:04:08,800 Speaker 1: markets of what in five years, so all the assets 76 00:04:08,800 --> 00:04:11,040 Speaker 1: have more than doubled for these active mutual funds. So 77 00:04:11,040 --> 00:04:13,560 Speaker 1: they're getting paid. You know, the revenue is great right now. 78 00:04:14,000 --> 00:04:16,000 Speaker 1: What these people are starting to see is the writing 79 00:04:16,000 --> 00:04:19,040 Speaker 1: on the wall. If the market stops being a money 80 00:04:19,040 --> 00:04:21,359 Speaker 1: printing machine for you is an active mutual fund and 81 00:04:21,400 --> 00:04:24,120 Speaker 1: you're down to organic growth, you're in trouble because there 82 00:04:24,200 --> 00:04:26,760 Speaker 1: is no organic growth. Plus you're probably gonna have panicked 83 00:04:26,800 --> 00:04:29,359 Speaker 1: investors pulling out anyway. So I think that's sort of 84 00:04:29,360 --> 00:04:31,560 Speaker 1: what they're trying to prepare for, is when a bear 85 00:04:31,680 --> 00:04:35,520 Speaker 1: market or a market that's more flat makes organic growth 86 00:04:35,839 --> 00:04:38,479 Speaker 1: more of a big deal. They're like, well, we're in 87 00:04:38,520 --> 00:04:40,880 Speaker 1: big trouble there because really only two or three firms 88 00:04:40,920 --> 00:04:43,560 Speaker 1: taken all the money. What are we gonna do? And 89 00:04:43,600 --> 00:04:45,480 Speaker 1: I think that's where you have them trying to figure 90 00:04:45,480 --> 00:04:48,920 Speaker 1: out what it's going to look like. Eric. Does this 91 00:04:49,200 --> 00:04:54,960 Speaker 1: then create a situation where the companies behind these ets, 92 00:04:55,000 --> 00:05:00,200 Speaker 1: whether it's Vanguard or Black Croc, they become utilities. Yes, 93 00:05:00,279 --> 00:05:02,599 Speaker 1: some people have talked about that. Someone actually had said 94 00:05:02,640 --> 00:05:04,520 Speaker 1: that the government long time ago, should it just come 95 00:05:04,560 --> 00:05:07,320 Speaker 1: out with a couple index funds for the regular public 96 00:05:07,360 --> 00:05:10,920 Speaker 1: and just charge nothing. Vanguard kind of did it for him. Vanguard. Look, 97 00:05:11,000 --> 00:05:14,080 Speaker 1: Vanguard is kind of utility. We gotta remember, Vanguard is 98 00:05:14,120 --> 00:05:17,039 Speaker 1: owned by the investors. It's like a co op. It 99 00:05:17,200 --> 00:05:20,560 Speaker 1: is a it is a whole different animal. Credit union. Yes, 100 00:05:20,600 --> 00:05:23,840 Speaker 1: it's like a credit union, and so it doesn't have 101 00:05:23,880 --> 00:05:26,800 Speaker 1: a profit motive. So it is almost like a utility. 102 00:05:26,960 --> 00:05:29,920 Speaker 1: And Vanguard takes in the most money of any asset 103 00:05:29,960 --> 00:05:33,360 Speaker 1: manager every year, uh, you know, for the past five years. 104 00:05:33,400 --> 00:05:36,080 Speaker 1: So it is affecting the other companies. That's why I 105 00:05:36,120 --> 00:05:39,360 Speaker 1: called it the Vanguard effect is the real story. Vanguard's 106 00:05:39,360 --> 00:05:41,520 Speaker 1: a story, but the real story is the effect that's 107 00:05:41,560 --> 00:05:44,400 Speaker 1: having on everyone else. Okay, but not all markets are 108 00:05:44,440 --> 00:05:47,599 Speaker 1: investible through index funds, and that's what we're seeing with 109 00:05:47,680 --> 00:05:50,480 Speaker 1: PIMCO and other big gas managers trying to get more 110 00:05:50,520 --> 00:05:54,599 Speaker 1: into direct lending and alternative credit, alternative credit and equities 111 00:05:54,600 --> 00:05:57,640 Speaker 1: and other strategies. And I'm just wondering, I mean, is 112 00:05:57,720 --> 00:06:00,560 Speaker 1: that the future, especially given the fact that the private 113 00:06:00,600 --> 00:06:04,480 Speaker 1: markets have been growing much more quickly than the public markets. Yeah, 114 00:06:04,480 --> 00:06:07,839 Speaker 1: it could be. However, I have noticed this trend, and 115 00:06:07,839 --> 00:06:10,599 Speaker 1: because i've especially in the fund world, there are places 116 00:06:10,680 --> 00:06:13,680 Speaker 1: Vanguard doesn't have a fund. What you've seen, though, is 117 00:06:13,720 --> 00:06:16,360 Speaker 1: people copy them. I call it they you know, like this, 118 00:06:16,640 --> 00:06:19,920 Speaker 1: like Goldman Vanguarded Factor Investing. They came out with an 119 00:06:19,920 --> 00:06:22,279 Speaker 1: et F form nine basis points. Now Vanguard was nowhere 120 00:06:22,279 --> 00:06:25,040 Speaker 1: to be found. They just saw what Vanguard was doing 121 00:06:25,120 --> 00:06:27,440 Speaker 1: copy them. So I would not be surprised if you 122 00:06:27,480 --> 00:06:31,960 Speaker 1: see people vanguarding private equity vanguarding hedge funds, but how 123 00:06:31,960 --> 00:06:34,599 Speaker 1: do you how do you vanguard a strategy that owns 124 00:06:34,880 --> 00:06:38,320 Speaker 1: a liquid stuff. Well, you just charged less for the exposure. 125 00:06:38,680 --> 00:06:40,360 Speaker 1: So let's say you're a private equity fund. You could 126 00:06:40,400 --> 00:06:43,120 Speaker 1: just charge half of what people are charging on the market. 127 00:06:43,400 --> 00:06:46,400 Speaker 1: And you're realizing that you're tapping into this cost obsession, 128 00:06:46,440 --> 00:06:50,799 Speaker 1: which isn't just for index funds. Advisors are feeling cost 129 00:06:50,839 --> 00:06:54,040 Speaker 1: obsession to the biggest trend of our day is high 130 00:06:54,080 --> 00:06:57,040 Speaker 1: cost to low cost. Active to passive is debatable. There 131 00:06:57,040 --> 00:06:59,680 Speaker 1: are other trends that you see, you know us from 132 00:06:59,680 --> 00:07:02,800 Speaker 1: merging markets. High cost to low cost seems to be 133 00:07:02,839 --> 00:07:06,120 Speaker 1: the thread that that combines everything, and I do think 134 00:07:06,120 --> 00:07:08,760 Speaker 1: you'll hedge funds are already under pressure. Some of them 135 00:07:08,800 --> 00:07:11,320 Speaker 1: have already started doing fee rebates, offering it for free 136 00:07:11,880 --> 00:07:16,040 Speaker 1: because the Vanguard effect goes beyond what Vanguard even offers. 137 00:07:16,080 --> 00:07:19,080 Speaker 1: Just go ahead, give a ten second shameless plug for Trillions. 138 00:07:19,840 --> 00:07:21,880 Speaker 1: Trillions is a podcast to deal with Joe Webber, the 139 00:07:21,960 --> 00:07:23,680 Speaker 1: editor of Business Week. It's on E t f s 140 00:07:23,800 --> 00:07:26,240 Speaker 1: and it's aimed at the regular retail investor. We try 141 00:07:26,240 --> 00:07:28,840 Speaker 1: to simplify and make this stuff fun trillions. It's a 142 00:07:28,880 --> 00:07:32,080 Speaker 1: great podcast. Thanks very much. Eric Baucun is our senior 143 00:07:32,200 --> 00:07:35,880 Speaker 1: et F analyst for Bloomberg Intelligence, and you can follow 144 00:07:36,080 --> 00:07:42,120 Speaker 1: Eric on Twitter as we all do at Eric Baltunas. 145 00:07:42,120 --> 00:07:45,480 Speaker 1: Our topic now is Facebook, with the shares up a 146 00:07:45,480 --> 00:07:48,360 Speaker 1: little bit more than five per cent. Our guest is 147 00:07:48,560 --> 00:07:51,960 Speaker 1: Mark Douglass. He is the chief executive of steel House. 148 00:07:52,480 --> 00:07:59,800 Speaker 1: Steelhouse is an artificial intelligence driven self service advertising software company. 149 00:08:00,240 --> 00:08:02,160 Speaker 1: We're gonna find out what that is after he tells 150 00:08:02,240 --> 00:08:06,720 Speaker 1: us all about Facebook, which is an advertising company. What 151 00:08:06,800 --> 00:08:09,560 Speaker 1: did you make of the results? More? Um, I think 152 00:08:09,640 --> 00:08:12,440 Speaker 1: that I'm surprised, let me say a different surprise of 153 00:08:12,480 --> 00:08:15,440 Speaker 1: stock is up so much. But I think that people 154 00:08:15,480 --> 00:08:19,280 Speaker 1: were very worried about Facebook engagement is really down. But 155 00:08:19,400 --> 00:08:22,960 Speaker 1: Instagram is just doing phenomenally well right now, and that's that. 156 00:08:23,160 --> 00:08:25,560 Speaker 1: I think that's what everyone's excited about. Well, let's home 157 00:08:25,560 --> 00:08:28,240 Speaker 1: in on exactly what you started with that you're surprised 158 00:08:28,240 --> 00:08:30,400 Speaker 1: that the shares are up as much as they are. Why. 159 00:08:30,880 --> 00:08:32,679 Speaker 1: I mean, you just look at your friends, you look 160 00:08:32,720 --> 00:08:35,560 Speaker 1: at your own usage. I just don't see people using 161 00:08:35,600 --> 00:08:38,680 Speaker 1: Facebook as much as they used to and So the 162 00:08:38,880 --> 00:08:43,160 Speaker 1: core Facebook platform seems to be declining, and I think 163 00:08:43,200 --> 00:08:47,440 Speaker 1: investors are basically overlooking that because of the excitement around 164 00:08:47,520 --> 00:08:51,559 Speaker 1: around Instagram. But I think that excitement is well warranted, 165 00:08:51,600 --> 00:08:55,360 Speaker 1: but it seems slightly premature. Why is there such a 166 00:08:55,440 --> 00:08:59,560 Speaker 1: popularity for Instagram? Do you believe, Well, Instagram, it's all 167 00:08:59,600 --> 00:09:04,560 Speaker 1: about stories. Facebook basically copied stories from Snapchat and Stories 168 00:09:04,640 --> 00:09:08,000 Speaker 1: just to make sure it's clear, is just basically streaming 169 00:09:08,000 --> 00:09:10,720 Speaker 1: your life just wherever you go, whatever you do. Last 170 00:09:10,800 --> 00:09:13,760 Speaker 1: night alone, that made five five Instagram stories while it 171 00:09:13,880 --> 00:09:18,280 Speaker 1: was out, and stories are really popular and engagement on them, 172 00:09:18,280 --> 00:09:21,040 Speaker 1: meaning how much time people spending you doing it, is 173 00:09:21,640 --> 00:09:24,480 Speaker 1: just phenomenal. And so there's a lot of excitement about 174 00:09:24,520 --> 00:09:27,720 Speaker 1: how that's essentially going to rescue Facebook. Let's talk about 175 00:09:27,800 --> 00:09:30,880 Speaker 1: the idea that Instagram is growing rapidly and really is 176 00:09:30,920 --> 00:09:34,000 Speaker 1: the heart of Facebook at this point, whereas Facebook is 177 00:09:34,120 --> 00:09:36,960 Speaker 1: losing users. You know that my children do not use Facebook, 178 00:09:37,040 --> 00:09:40,000 Speaker 1: and you know they do use Instagram. I'm just wondering, 179 00:09:41,080 --> 00:09:44,520 Speaker 1: is the valuation of Facebook appropriate given the fact that 180 00:09:44,559 --> 00:09:47,920 Speaker 1: its future is Instagram and not Facebook. Yeah, and I 181 00:09:47,960 --> 00:09:52,560 Speaker 1: think the um investors are betting that that Facebook will 182 00:09:52,600 --> 00:09:56,800 Speaker 1: figure out how to monetize, how to advertise against Instagram stories. 183 00:09:57,400 --> 00:10:00,920 Speaker 1: I think that's a good bet. I think, frankly, Facebook 184 00:10:01,000 --> 00:10:03,880 Speaker 1: is kind of sandbagging how easy it's going to be 185 00:10:04,120 --> 00:10:07,560 Speaker 1: to to advertise against stories or to increase the average 186 00:10:07,880 --> 00:10:12,040 Speaker 1: sizing on stories. So investors are excited about it. I 187 00:10:12,080 --> 00:10:15,840 Speaker 1: think consumers excited about the feature. Investors are excited about 188 00:10:15,880 --> 00:10:19,600 Speaker 1: the money and so. And the money is going, it's 189 00:10:19,640 --> 00:10:22,640 Speaker 1: going to follow. It's over a billion users. And we 190 00:10:22,800 --> 00:10:27,160 Speaker 1: say engagement. I'm talking hours a day people spending on Instagram. 191 00:10:27,160 --> 00:10:29,520 Speaker 1: A lot of people are spending on Instagram. Now, the 192 00:10:29,600 --> 00:10:33,360 Speaker 1: Instagram story can be tied this to the fashion industry. Um, 193 00:10:33,679 --> 00:10:37,160 Speaker 1: Instagram stories are popular with fashion, but more importantly that 194 00:10:37,360 --> 00:10:39,680 Speaker 1: just popular. No, I understand, But I'm trying to figure 195 00:10:39,640 --> 00:10:42,520 Speaker 1: out how do they make money? Well, within the stories, 196 00:10:42,600 --> 00:10:45,240 Speaker 1: some of the stories or ads. You click on a 197 00:10:45,280 --> 00:10:47,960 Speaker 1: lot of those ads, Um, you swipe up on them. Yeah, 198 00:10:48,040 --> 00:10:50,600 Speaker 1: and it's about discovery. You see products you might not 199 00:10:50,720 --> 00:10:55,120 Speaker 1: have noticed before. Um, you see you're basically discovering new products. 200 00:10:55,160 --> 00:10:57,080 Speaker 1: And there's actually a lot of interesting things in there. 201 00:10:57,280 --> 00:11:01,040 Speaker 1: I have to wonder you talk about hours spent on Instagram. 202 00:11:01,480 --> 00:11:05,079 Speaker 1: We're already talking about the use of data and addiction 203 00:11:05,160 --> 00:11:09,760 Speaker 1: to technology. When with respect to Facebook and Twitter, what 204 00:11:09,840 --> 00:11:12,200 Speaker 1: about Instagram? I mean, how concerned are you about some 205 00:11:12,240 --> 00:11:16,000 Speaker 1: kind of backlash that could reduce growth materially. Well, here, 206 00:11:16,080 --> 00:11:18,880 Speaker 1: here's actually bring up an interesting point in terms of data. 207 00:11:19,320 --> 00:11:23,120 Speaker 1: They answer to questions. So one is Instagram doesn't have 208 00:11:23,320 --> 00:11:26,720 Speaker 1: the data that Facebook has. You don't write on Instagram, 209 00:11:26,720 --> 00:11:29,760 Speaker 1: you only post, you post photos, you post videos. There's 210 00:11:29,800 --> 00:11:32,920 Speaker 1: not a lot of data associated with that. On Facebook, 211 00:11:32,960 --> 00:11:35,440 Speaker 1: you actually can type, and so they learn a lot 212 00:11:35,440 --> 00:11:40,320 Speaker 1: about you. But the the the the engagement, meaning how 213 00:11:40,400 --> 00:11:44,840 Speaker 1: much time people are spending, seems to overcome how little 214 00:11:44,920 --> 00:11:47,920 Speaker 1: data is on Instagram for consumers concerned about data, it's 215 00:11:47,920 --> 00:11:50,480 Speaker 1: actually a good thing. Well except that there's facial recognition, 216 00:11:50,520 --> 00:11:52,960 Speaker 1: their ways to sort of use images as data. Yeah, 217 00:11:53,040 --> 00:11:54,760 Speaker 1: I mean they can tell who you're you're in a 218 00:11:54,800 --> 00:11:57,679 Speaker 1: photo with for sure, they have over two billion people 219 00:11:57,679 --> 00:12:01,200 Speaker 1: in their database. But the if you wanna you know, 220 00:12:01,520 --> 00:12:03,400 Speaker 1: they have to guess. More like, if you want to 221 00:12:03,400 --> 00:12:06,280 Speaker 1: go after motorcycle enthusiasts, you have to just notice that 222 00:12:06,559 --> 00:12:08,480 Speaker 1: they can have algorithms that know this. There is a 223 00:12:08,520 --> 00:12:11,080 Speaker 1: motorcycle in the photo, it's not like you're typing the 224 00:12:11,080 --> 00:12:14,240 Speaker 1: word motorcycle is just not happening on Instagram. It's different, 225 00:12:14,320 --> 00:12:17,280 Speaker 1: but the the user engagement is just so much higher. 226 00:12:17,760 --> 00:12:19,560 Speaker 1: So if someone were to come to you and say, oh, 227 00:12:19,640 --> 00:12:24,160 Speaker 1: I have a hundred thousand Instagram followers, that's a good thing. Um, 228 00:12:24,240 --> 00:12:27,680 Speaker 1: that is a good thing. But it's that that's different. 229 00:12:27,800 --> 00:12:30,920 Speaker 1: Like in other words, their bloggers who have audiences, they'll 230 00:12:30,960 --> 00:12:33,760 Speaker 1: send out a post and they will attract interests. I 231 00:12:33,760 --> 00:12:35,920 Speaker 1: don't think that's where the real money is being spent. 232 00:12:36,000 --> 00:12:38,920 Speaker 1: There's just not enough volume there. The real volume is 233 00:12:39,000 --> 00:12:42,760 Speaker 1: just within the stories. If I posted five stories last 234 00:12:42,880 --> 00:12:46,360 Speaker 1: night alone too, so far today Facebook can throw one 235 00:12:46,440 --> 00:12:50,120 Speaker 1: or two ads between my stories because the content is free. Yeah, 236 00:12:50,120 --> 00:12:53,640 Speaker 1: the content is free to Facebook, and the more content, 237 00:12:53,720 --> 00:12:56,280 Speaker 1: the more ads they can run. Although I have to 238 00:12:56,320 --> 00:12:59,400 Speaker 1: wonder because with respect to Facebook, one reason why people 239 00:12:59,440 --> 00:13:02,200 Speaker 1: liked it so much was why advertisers liked it so 240 00:13:02,280 --> 00:13:05,360 Speaker 1: much was the data they could understand how to pinpoint 241 00:13:05,720 --> 00:13:09,520 Speaker 1: consumers based on their interests. How does that equation change 242 00:13:09,559 --> 00:13:12,720 Speaker 1: if the data isn't as easily accessible in Instagram? Yeah, 243 00:13:12,720 --> 00:13:15,280 Speaker 1: so what likely is what's likely happened? Now, let's go 244 00:13:15,320 --> 00:13:17,959 Speaker 1: to advertising, which is a business. I know, well, if 245 00:13:18,000 --> 00:13:20,520 Speaker 1: the quality of the data is lower, chances are the 246 00:13:20,559 --> 00:13:24,160 Speaker 1: ad rates are lower. So to make up for that, 247 00:13:24,200 --> 00:13:26,679 Speaker 1: they make up literally make up for it in volume 248 00:13:27,240 --> 00:13:30,360 Speaker 1: all the people posting stories. They'll be there's more volume 249 00:13:30,400 --> 00:13:33,560 Speaker 1: to monetize, but probably at lower rates. And that's the 250 00:13:33,559 --> 00:13:35,679 Speaker 1: case right now. The rates on Instagram are a bit 251 00:13:35,720 --> 00:13:38,400 Speaker 1: lower than they are on Facebook. As an expert in 252 00:13:38,400 --> 00:13:41,160 Speaker 1: the world of advertising, could we just shift to Google 253 00:13:41,200 --> 00:13:43,319 Speaker 1: and alphabet for just a moment. I want to get 254 00:13:43,320 --> 00:13:46,480 Speaker 1: your thoughts on YouTube and being able to turn that 255 00:13:46,559 --> 00:13:50,959 Speaker 1: into an ad sponsored moneymaker. Yeah, I mean, I'm not 256 00:13:51,280 --> 00:13:54,800 Speaker 1: personally bullish on YouTube. I don't see um a lot 257 00:13:54,880 --> 00:13:58,839 Speaker 1: of advertising demand on YouTube from our customers. Our customers 258 00:13:59,160 --> 00:14:03,120 Speaker 1: are a lot of large hundreds and hundreds of large retailers. 259 00:14:03,760 --> 00:14:06,360 Speaker 1: UM YouTube is kind of sitting out in the middle 260 00:14:06,360 --> 00:14:10,600 Speaker 1: of nowhere. Right now. You have connected television for monetizing 261 00:14:10,679 --> 00:14:15,320 Speaker 1: TV digitally, and now you have social to monetize. You know, 262 00:14:15,360 --> 00:14:18,680 Speaker 1: we were just talking about Instagram. YouTube is neither of those, 263 00:14:19,160 --> 00:14:21,920 Speaker 1: and it doesn't have a lot of data, and it's 264 00:14:22,280 --> 00:14:25,760 Speaker 1: kind of I don't I don't see a lot of 265 00:14:25,760 --> 00:14:29,520 Speaker 1: growth from YouTube as they exist right now. Just real 266 00:14:29,600 --> 00:14:33,120 Speaker 1: quick here, do you see regulatory headwinds for UH for 267 00:14:33,200 --> 00:14:35,160 Speaker 1: Instagram or do you think that they're much less because 268 00:14:35,160 --> 00:14:38,160 Speaker 1: of the data component here? Um, I don't see much 269 00:14:38,240 --> 00:14:43,800 Speaker 1: regulatory um headwinds for either Instagram or Facebook. I think GDPR, 270 00:14:43,960 --> 00:14:47,240 Speaker 1: which is the Global Privacy loil the EU is kind 271 00:14:47,240 --> 00:14:51,080 Speaker 1: of the gold standard for privacy laws. It's relatively strict, 272 00:14:51,760 --> 00:14:55,520 Speaker 1: and the companies are already figuring out how they accommodate it. 273 00:14:55,560 --> 00:14:58,680 Speaker 1: I don't see more anything stricter than that coming in 274 00:14:58,720 --> 00:15:01,120 Speaker 1: the United States, So I think it's already priced in. 275 00:15:01,600 --> 00:15:04,600 Speaker 1: I think it's already been dealt with and and consumers 276 00:15:04,640 --> 00:15:07,440 Speaker 1: are also pretty blind to this stuff. You know, once 277 00:15:07,760 --> 00:15:10,560 Speaker 1: you get these laws that go so far, consumers at 278 00:15:10,600 --> 00:15:12,320 Speaker 1: a certain point don't care. At the end of the day, 279 00:15:12,360 --> 00:15:14,800 Speaker 1: consumers are dumb. Him that seems to be the Well, 280 00:15:14,840 --> 00:15:19,120 Speaker 1: that's just play. That's not what he's saying. I'm absolutely 281 00:15:19,120 --> 00:15:22,240 Speaker 1: butchering it. Happy Halloween. Mark Douglas, chief executive of Steelhouse 282 00:15:22,480 --> 00:15:25,360 Speaker 1: talking about advertising. He was not saying that consumers are dumb, 283 00:15:25,560 --> 00:15:28,720 Speaker 1: just that people are willing to give up their freedom 284 00:15:28,840 --> 00:15:32,080 Speaker 1: with respect to being tracked in order for free access 285 00:15:32,280 --> 00:15:36,600 Speaker 1: to all of these social media websites. That's absolutely a 286 00:15:36,600 --> 00:15:40,640 Speaker 1: fair exchange. I'm Lisa Brownwood's butchering comments and this is 287 00:15:40,720 --> 00:15:47,200 Speaker 1: pim Fox and this is Bloomberg. The topic now is 288 00:15:47,520 --> 00:15:50,920 Speaker 1: China and it's slowing economy. Here to tell us all 289 00:15:50,920 --> 00:15:55,280 Speaker 1: about it is Michael Mike McDonough, chief economist Financial Products 290 00:15:55,280 --> 00:15:58,720 Speaker 1: for Bloomberg LP, and he joins us here in studio. 291 00:15:58,920 --> 00:16:01,680 Speaker 1: All right, Mr mc on a, how bad is it 292 00:16:01,720 --> 00:16:05,520 Speaker 1: in China. It's it's worse than I think the government 293 00:16:05,520 --> 00:16:09,120 Speaker 1: officials had been anticipating, but it's not not necessarily because 294 00:16:09,120 --> 00:16:11,680 Speaker 1: of the trade war. I think that's the important thing 295 00:16:11,760 --> 00:16:15,320 Speaker 1: that the distinction here really. Um, what you had happened 296 00:16:15,360 --> 00:16:19,080 Speaker 1: was you had the government undertaking a deleveraging agenda, which 297 00:16:19,160 --> 00:16:21,640 Speaker 1: was on the surface working fairly well. You had some 298 00:16:21,880 --> 00:16:24,960 Speaker 1: debt ratios going down, interest coverage was going up. But 299 00:16:25,160 --> 00:16:28,400 Speaker 1: the problem was, Uh, the parts of the economy that 300 00:16:28,440 --> 00:16:31,520 Speaker 1: really needed funding that would help boost growth, we're having 301 00:16:31,560 --> 00:16:34,760 Speaker 1: issues getting it, primarily because these guys were being funded 302 00:16:34,800 --> 00:16:38,560 Speaker 1: by the shadow banking sector, which took the brunt of 303 00:16:38,640 --> 00:16:42,680 Speaker 1: the deleveraging agenda. And meanwhile, UM, areas of the economy 304 00:16:42,720 --> 00:16:46,160 Speaker 1: that we're a little less productive, but still needed still 305 00:16:46,160 --> 00:16:48,280 Speaker 1: needed debt to roll over their old their old debt, 306 00:16:48,760 --> 00:16:51,840 Speaker 1: we're getting it. So what this cause was a sharper 307 00:16:51,840 --> 00:16:54,240 Speaker 1: slowdown than people had been anticipating. And then you throw 308 00:16:54,320 --> 00:16:56,160 Speaker 1: on top of that what's happening with the trade war, 309 00:16:56,400 --> 00:16:59,440 Speaker 1: which hasn't really bit yet, will really start biting in 310 00:16:59,520 --> 00:17:01,840 Speaker 1: twenty nine, Tina, and it's a problem. Well, okay, But 311 00:17:01,880 --> 00:17:03,880 Speaker 1: then I guess this raise is a really important question 312 00:17:03,880 --> 00:17:06,840 Speaker 1: because this morning we're getting news that China is considering 313 00:17:06,840 --> 00:17:09,520 Speaker 1: adding even more stimulus, and we have seen signs that 314 00:17:09,600 --> 00:17:11,720 Speaker 1: they are re leveraging in order to stave off some 315 00:17:11,800 --> 00:17:14,199 Speaker 1: of the declines and the weakness that we've been reporting on. 316 00:17:14,720 --> 00:17:19,440 Speaker 1: My question is if they saw deleveraging is so important 317 00:17:19,480 --> 00:17:21,439 Speaker 1: that they actually went ahead with it, even though they 318 00:17:21,520 --> 00:17:23,960 Speaker 1: knew it was going to slow the economy, what is 319 00:17:24,000 --> 00:17:27,240 Speaker 1: the consequence going to be of them adding more debt 320 00:17:27,280 --> 00:17:30,800 Speaker 1: to the already chinormous debt pile that China has. Well, 321 00:17:30,880 --> 00:17:35,200 Speaker 1: if your choices continue deleveraging and have growth slow more 322 00:17:35,280 --> 00:17:37,800 Speaker 1: meaningfully than you wanted to and far further below the 323 00:17:37,880 --> 00:17:41,840 Speaker 1: official government target or stability, with some leverage at least 324 00:17:41,840 --> 00:17:44,840 Speaker 1: short term, you're gonna go with stability, right, So I 325 00:17:44,880 --> 00:17:47,399 Speaker 1: think you're certainly going to see more action from the 326 00:17:47,440 --> 00:17:50,000 Speaker 1: government to spur growth. I think that some of it, 327 00:17:50,280 --> 00:17:53,200 Speaker 1: a lot of it will be through um spurring infrastructure 328 00:17:53,200 --> 00:17:56,560 Speaker 1: investment in some smaller cities. They need it, you know, 329 00:17:56,680 --> 00:18:00,240 Speaker 1: they there we Yeah, actually if it needs to be 330 00:18:00,320 --> 00:18:02,200 Speaker 1: very targeted. But if you think about it, you know, 331 00:18:02,280 --> 00:18:05,640 Speaker 1: China's urbanization rate is about if you look at most 332 00:18:05,640 --> 00:18:10,000 Speaker 1: developed countries, it's closer to so there is more room, 333 00:18:10,080 --> 00:18:12,520 Speaker 1: but it needs to be done smartly, right. I think 334 00:18:12,680 --> 00:18:15,520 Speaker 1: what caused the problem with the debt. The thing that 335 00:18:15,560 --> 00:18:18,120 Speaker 1: really catalyzed it was during the two thousand and eight 336 00:18:18,119 --> 00:18:21,520 Speaker 1: financial crisis when the government did a pretty big stimulus package, 337 00:18:21,800 --> 00:18:25,400 Speaker 1: and that stimulus package was distributed through a broken capital 338 00:18:25,440 --> 00:18:29,440 Speaker 1: transmission mechanism. So what that meant was and really short 339 00:18:30,160 --> 00:18:32,879 Speaker 1: banks were guaranteed a three hundred basis points spread no 340 00:18:32,920 --> 00:18:35,240 Speaker 1: matter who they lent to. So basically large s o 341 00:18:35,440 --> 00:18:37,640 Speaker 1: s who didn't need money got it. Uh this late 342 00:18:38,560 --> 00:18:41,720 Speaker 1: they don't enterprises, yes, uh, And this led to help 343 00:18:41,840 --> 00:18:45,040 Speaker 1: fuel the overcapacity that we saw. The real estate sector 344 00:18:45,119 --> 00:18:48,679 Speaker 1: was helped immensely. Uh. This led to the overcapacity on 345 00:18:48,720 --> 00:18:52,240 Speaker 1: that side of things. So it's it's more they've they've 346 00:18:52,240 --> 00:18:54,679 Speaker 1: done a lot to modernize the financial sector since then. 347 00:18:54,720 --> 00:18:56,520 Speaker 1: It's not done, but they've done a lot, so it's 348 00:18:56,560 --> 00:18:59,720 Speaker 1: not as broken. So it's trying to get the funds 349 00:18:59,800 --> 00:19:02,000 Speaker 1: to the right areas. And I think another thing they 350 00:19:02,000 --> 00:19:05,240 Speaker 1: want to do, as I mentioned, the sectors that really 351 00:19:05,320 --> 00:19:08,520 Speaker 1: would would be boosting growth are are some of the 352 00:19:08,520 --> 00:19:11,680 Speaker 1: private sectors and technology, healthcare, some of the consumer stuff. 353 00:19:11,720 --> 00:19:15,200 Speaker 1: So trying to get those companies funds. Uh. So it's 354 00:19:15,200 --> 00:19:18,280 Speaker 1: a balancing act. But the deleveraging agenda is shelves for 355 00:19:18,320 --> 00:19:21,320 Speaker 1: now for sure. I think that's gone for the time being. Um. 356 00:19:21,400 --> 00:19:23,359 Speaker 1: And you know, one thing to keep in mind, we 357 00:19:23,400 --> 00:19:25,840 Speaker 1: may get a little bit of a false positive on 358 00:19:25,920 --> 00:19:28,840 Speaker 1: China growth because you could see exports surprised to the 359 00:19:28,920 --> 00:19:31,600 Speaker 1: upside again before the end of the year because if 360 00:19:31,600 --> 00:19:33,800 Speaker 1: you look at what tariffs are in place now versus 361 00:19:33,880 --> 00:19:35,600 Speaker 1: what could be in place next year, it goes up 362 00:19:35,640 --> 00:19:38,479 Speaker 1: pretty substantially. So people want to front run that. You know, 363 00:19:38,760 --> 00:19:41,120 Speaker 1: people want to buy Chinese products now before the cost 364 00:19:41,240 --> 00:19:43,400 Speaker 1: goes up. So um, that's why I say you might 365 00:19:43,440 --> 00:19:46,880 Speaker 1: not really see the bite until twenty nineteen, So that's 366 00:19:46,880 --> 00:19:48,680 Speaker 1: something they want to They're gonna want to get ahead 367 00:19:48,720 --> 00:19:51,480 Speaker 1: of the real risk though, if if you want to 368 00:19:51,520 --> 00:19:54,880 Speaker 1: be worried, is what's going to happen with capital flows? Um, 369 00:19:54,920 --> 00:19:56,639 Speaker 1: there's there's a lot of debt that needs to be 370 00:19:56,720 --> 00:19:58,719 Speaker 1: rolled over in China. So if you start seeing like 371 00:19:58,760 --> 00:20:02,879 Speaker 1: you did in strong out capital outflows from China, that 372 00:20:02,960 --> 00:20:05,280 Speaker 1: could be rather dangerous, and that is certainly something the 373 00:20:05,280 --> 00:20:06,840 Speaker 1: government is going to be keeping an eye on and 374 00:20:06,880 --> 00:20:10,199 Speaker 1: try to get ahead of. Here's a quote from the 375 00:20:10,280 --> 00:20:14,760 Speaker 1: economics professor who oversees a survey that is sort of 376 00:20:14,800 --> 00:20:18,399 Speaker 1: like our p m I survey in China. The quote is, 377 00:20:18,960 --> 00:20:25,400 Speaker 1: foremost business has never been worse. What do you make 378 00:20:25,440 --> 00:20:29,440 Speaker 1: of that? And if you are predisposed to invest in China, 379 00:20:29,960 --> 00:20:32,240 Speaker 1: isn't it better to invest now than it was a 380 00:20:32,320 --> 00:20:35,800 Speaker 1: year ago? Well? I think that, you know, like I said, 381 00:20:35,800 --> 00:20:38,440 Speaker 1: that de leveraging agenda has hurt a lot of companies 382 00:20:38,520 --> 00:20:42,280 Speaker 1: ability to uh raise funds and it's also made it 383 00:20:42,320 --> 00:20:44,800 Speaker 1: more costly. So if you're running a business that's certainly 384 00:20:45,320 --> 00:20:48,440 Speaker 1: isn't great. Uh, it's better if you're an s OE 385 00:20:48,960 --> 00:20:51,359 Speaker 1: for for for state and enterprise for certain reasons. And 386 00:20:51,359 --> 00:20:54,719 Speaker 1: then if you look at the current outlook, right, you 387 00:20:54,840 --> 00:20:58,800 Speaker 1: have the US threatening wider tariffs, uh you know, and 388 00:20:58,920 --> 00:21:01,720 Speaker 1: you you you you not sure what's going to happen 389 00:21:01,760 --> 00:21:03,959 Speaker 1: with this whole U. S. China relations, which is one 390 00:21:04,000 --> 00:21:06,920 Speaker 1: of the most you know, the most important bilateral relationship 391 00:21:06,960 --> 00:21:09,199 Speaker 1: in the world world. Right now, that gives you a 392 00:21:09,200 --> 00:21:12,320 Speaker 1: lot of uncertainty because you're also seeing consumer spending slowing 393 00:21:12,359 --> 00:21:14,720 Speaker 1: a bit in China, right This isn't just weakness in 394 00:21:14,760 --> 00:21:17,720 Speaker 1: one isolated area. It's a slowdown, you know, broadly speaking 395 00:21:17,760 --> 00:21:20,000 Speaker 1: across the economy. So I could see why people might 396 00:21:20,040 --> 00:21:24,240 Speaker 1: be pessimistic in China US with especially with the added 397 00:21:24,320 --> 00:21:27,480 Speaker 1: uncertainty of what happens with those US China relations. And 398 00:21:27,600 --> 00:21:30,040 Speaker 1: of course, just sort of speaking to your point about 399 00:21:30,080 --> 00:21:33,480 Speaker 1: the concern about capital outflows, We're looking at the U 400 00:21:33,640 --> 00:21:36,840 Speaker 1: n which is currently the weakest versus the dollar since 401 00:21:36,920 --> 00:21:39,760 Speaker 1: two thousand and eight. So this is sort of the concern, right, 402 00:21:39,880 --> 00:21:42,919 Speaker 1: is that the more people withdraw money from the economy, 403 00:21:43,119 --> 00:21:46,119 Speaker 1: the weaker the currency, which just escalates from the problems. Mike, 404 00:21:46,119 --> 00:21:47,920 Speaker 1: We're gonna have to have you back, because it's always 405 00:21:47,920 --> 00:21:50,520 Speaker 1: incible to speak with you, Mike, McDonald, chief economist for 406 00:21:50,640 --> 00:21:53,840 Speaker 1: financial Products at Bloomberg LP here with us talking about 407 00:21:53,920 --> 00:21:58,520 Speaker 1: China's planned additional stimulus really interesting. At short run, it 408 00:21:58,560 --> 00:22:01,840 Speaker 1: makes a lot of sense for China to be adding stimulus, 409 00:22:01,840 --> 00:22:03,440 Speaker 1: but in the long run they still have to deal 410 00:22:03,480 --> 00:22:09,600 Speaker 1: with that debt overhang. General Motors reported earnings this morning 411 00:22:09,600 --> 00:22:12,760 Speaker 1: that we're better than expected, shares popping by more than 412 00:22:13,040 --> 00:22:17,119 Speaker 1: seven percent. But the question is what can we expect 413 00:22:17,240 --> 00:22:19,439 Speaker 1: later in the week when we get US auto sales 414 00:22:19,480 --> 00:22:24,120 Speaker 1: which are expected to slip into negative territory for the year. 415 00:22:24,240 --> 00:22:26,000 Speaker 1: Joining us now to talk about that as Alan Baum 416 00:22:26,119 --> 00:22:31,000 Speaker 1: his principle of Bauman Associates in West Bloomfield, Michigan, and Alan, 417 00:22:31,040 --> 00:22:33,680 Speaker 1: thank you so much for joining us. So how much 418 00:22:33,720 --> 00:22:36,800 Speaker 1: of the bad news is already baked in to the 419 00:22:36,840 --> 00:22:40,840 Speaker 1: auto sector. Well, I think that what we're going to 420 00:22:40,960 --> 00:22:44,840 Speaker 1: see going forward um is a decline on the macro side, 421 00:22:44,880 --> 00:22:48,040 Speaker 1: if you will. Obviously, we've got problems in the overall 422 00:22:48,119 --> 00:22:52,920 Speaker 1: market in both UH the North American and Chinese markets, 423 00:22:53,040 --> 00:22:57,800 Speaker 1: and so GM's results today, we're in fact kind of 424 00:22:57,880 --> 00:22:59,920 Speaker 1: a tale of two cities. And what I mean by 425 00:23:00,040 --> 00:23:03,760 Speaker 1: that is they controlled what they could control very well. 426 00:23:03,840 --> 00:23:08,440 Speaker 1: That their own business. But as I say, the piece 427 00:23:08,480 --> 00:23:12,119 Speaker 1: going forward is is more difficult. Alan this is because 428 00:23:12,200 --> 00:23:16,879 Speaker 1: GM is what selling trucks and sport utility vehicles and 429 00:23:16,920 --> 00:23:22,000 Speaker 1: those are higher margin products. Yes, and it goes beyond that. 430 00:23:22,119 --> 00:23:27,840 Speaker 1: They're holding incentives UH in line. UH their inventory of 431 00:23:28,000 --> 00:23:32,400 Speaker 1: product is low, which obviously helps in terms of the incentives. 432 00:23:32,440 --> 00:23:35,560 Speaker 1: But they're going to changeover right now to their new pickups, 433 00:23:35,560 --> 00:23:39,520 Speaker 1: which obviously are are profitable. But what they've done is 434 00:23:39,560 --> 00:23:42,760 Speaker 1: they've they've kept the loss of product to a minimum 435 00:23:43,160 --> 00:23:47,000 Speaker 1: by because of their multiple plants, they can keep producing 436 00:23:47,040 --> 00:23:50,400 Speaker 1: some of the old while producing the new and and 437 00:23:50,640 --> 00:23:54,800 Speaker 1: UH not having the tremendous drop in volume. Because of 438 00:23:54,800 --> 00:23:59,800 Speaker 1: course revenue is what keeps them them moving forward, and 439 00:24:00,160 --> 00:24:02,680 Speaker 1: they were able to do that to keep that from 440 00:24:02,680 --> 00:24:05,679 Speaker 1: declining dramatically. So he's done an excellent job. And of 441 00:24:05,720 --> 00:24:08,080 Speaker 1: course a few minutes ago they it just came out 442 00:24:08,160 --> 00:24:11,679 Speaker 1: that they're announcing buyout of their UH salary staff, so 443 00:24:11,680 --> 00:24:14,560 Speaker 1: they're obviously looking to keep expenses in line as well. 444 00:24:15,200 --> 00:24:18,560 Speaker 1: So and all around positive report for them. We are 445 00:24:18,600 --> 00:24:20,200 Speaker 1: not all around. It is a tale of two cities, 446 00:24:20,240 --> 00:24:23,720 Speaker 1: but they seem to be bearing with the decline in 447 00:24:23,760 --> 00:24:25,800 Speaker 1: auto sales. This here better than some of its peers. 448 00:24:26,000 --> 00:24:28,119 Speaker 1: What are you going to be looking for given the 449 00:24:28,160 --> 00:24:31,760 Speaker 1: sort of diverging market, with truck still being hot and 450 00:24:31,920 --> 00:24:34,640 Speaker 1: sedan's not. What are you looking for in tomorrow's auto 451 00:24:34,640 --> 00:24:37,520 Speaker 1: sales numbers? Well, I think we'll have a drop, and 452 00:24:37,800 --> 00:24:41,640 Speaker 1: the drop is somewhat misleading because we had a year 453 00:24:41,640 --> 00:24:45,480 Speaker 1: ago we still had recovery from from hurricane sales. Um. 454 00:24:45,600 --> 00:24:49,640 Speaker 1: But it is a decline we are seeing. Uh. The 455 00:24:49,640 --> 00:24:54,000 Speaker 1: retail sales are holding on reasonably well, although in the 456 00:24:54,040 --> 00:24:56,880 Speaker 1: new year I expect that to decline as well. We've 457 00:24:56,920 --> 00:25:01,080 Speaker 1: obviously got increasing uh interest rates. We've got to decline 458 00:25:01,200 --> 00:25:04,160 Speaker 1: from the impact of the tax cut, which I would 459 00:25:04,240 --> 00:25:07,399 Speaker 1: argue was still pretty modest with respect to the auto market. 460 00:25:07,720 --> 00:25:10,920 Speaker 1: And the auto market has been declining the last couple 461 00:25:10,920 --> 00:25:13,680 Speaker 1: of years, not terribly by any means, but it's been 462 00:25:13,720 --> 00:25:16,040 Speaker 1: ahead of the economy. In other words, the economy has 463 00:25:16,080 --> 00:25:19,760 Speaker 1: done better uh than the auto market. Um. But the 464 00:25:19,800 --> 00:25:23,120 Speaker 1: automakers have done a good job, as I say, of 465 00:25:23,359 --> 00:25:28,600 Speaker 1: holding the the cutting of holding the incentives off, which 466 00:25:28,600 --> 00:25:31,880 Speaker 1: would would cut into profits. That's gonna obviously get harder 467 00:25:31,920 --> 00:25:35,240 Speaker 1: as volumes decline. What do you see for the future 468 00:25:35,600 --> 00:25:40,960 Speaker 1: of GM's Cadillac brand in China. They've done reason that 469 00:25:41,040 --> 00:25:45,120 Speaker 1: they've done very well actually um but again and they 470 00:25:45,160 --> 00:25:48,960 Speaker 1: certainly have done better than than Lincoln UM and uh 471 00:25:49,280 --> 00:25:52,199 Speaker 1: starting to catch up to the Germans, who have a 472 00:25:52,320 --> 00:25:56,520 Speaker 1: very strong position in China. The obvious problem is if 473 00:25:56,520 --> 00:25:59,800 Speaker 1: there's an overall decline in the Chinese market, which is 474 00:26:00,119 --> 00:26:04,000 Speaker 1: we're expecting, does it affect the high end or is 475 00:26:04,040 --> 00:26:09,560 Speaker 1: it more at the uh, the broader, lower cost part 476 00:26:09,600 --> 00:26:14,720 Speaker 1: of the market. Uh. Again, it's it's such a competitive 477 00:26:14,760 --> 00:26:17,800 Speaker 1: market at the high end. As I say, cadillacts a 478 00:26:17,840 --> 00:26:19,800 Speaker 1: good job, but it's gonna be hard to keep that 479 00:26:20,000 --> 00:26:22,840 Speaker 1: going at the same rate. So, Ellen, I'm wondering. A 480 00:26:22,840 --> 00:26:24,800 Speaker 1: lot of people are talking about how the more that 481 00:26:24,880 --> 00:26:28,360 Speaker 1: the Federal Reserve raises interest rates, the more challenging challenging 482 00:26:28,359 --> 00:26:31,560 Speaker 1: it's going to become for US automakers. What's your take 483 00:26:31,600 --> 00:26:33,359 Speaker 1: on that. Basically, the idea that it's going to get 484 00:26:33,400 --> 00:26:37,120 Speaker 1: more expensive for people to finance their auto purchases. Well, 485 00:26:37,160 --> 00:26:41,160 Speaker 1: and that's obviously true. And and the other problem, of course, UH, 486 00:26:41,280 --> 00:26:44,920 Speaker 1: is that who buys new cars um and and and 487 00:26:45,080 --> 00:26:48,600 Speaker 1: generally it's the upper middle class and the and and 488 00:26:48,760 --> 00:26:52,560 Speaker 1: rich richer people. UH. That is by design of the automakers. 489 00:26:52,560 --> 00:26:55,200 Speaker 1: The automakers are thrilled with that because they can sell 490 00:26:55,320 --> 00:26:58,679 Speaker 1: higher end products, which are of course more profitable. The 491 00:26:58,760 --> 00:27:02,000 Speaker 1: good news with respect to interest rates is those people 492 00:27:02,119 --> 00:27:05,120 Speaker 1: are less affected by the increase in interest rates because 493 00:27:05,160 --> 00:27:08,120 Speaker 1: of course they have the higher income. Of The bad 494 00:27:08,160 --> 00:27:10,520 Speaker 1: news is there's a limit on how how many cars 495 00:27:10,560 --> 00:27:13,480 Speaker 1: those that part of the market will buy. Alan is 496 00:27:13,520 --> 00:27:16,000 Speaker 1: there a limit on the average selling price of a 497 00:27:16,160 --> 00:27:20,480 Speaker 1: vehicle right now it's about thirty six thousand dollars for 498 00:27:20,520 --> 00:27:24,160 Speaker 1: the quarter for you know, automobiles like the Chevy Tahoe 499 00:27:25,960 --> 00:27:28,960 Speaker 1: and and of course that's because of the swing towards 500 00:27:29,600 --> 00:27:33,359 Speaker 1: UH pick up UH crossovers, even in the in the 501 00:27:33,480 --> 00:27:36,600 Speaker 1: luxury segment, because crossovers are of course across the board, 502 00:27:36,600 --> 00:27:41,280 Speaker 1: but increasing throughout the market, including high end and sport 503 00:27:41,400 --> 00:27:46,200 Speaker 1: utilities to a lesser degree. Um. The decline in car 504 00:27:46,240 --> 00:27:50,560 Speaker 1: sales is of course the key UH air indicator of 505 00:27:50,680 --> 00:27:53,359 Speaker 1: why the those numbers are going up. And as I say, 506 00:27:53,440 --> 00:27:57,040 Speaker 1: the automakers are certainly on board with that. Again, we 507 00:27:57,280 --> 00:28:01,000 Speaker 1: get to this point where the the mountain up demand 508 00:28:01,080 --> 00:28:04,240 Speaker 1: has certainly been satiated because it was two thousand nine 509 00:28:04,280 --> 00:28:06,840 Speaker 1: when we boughtom there uh, and we've had a long 510 00:28:06,880 --> 00:28:11,480 Speaker 1: time since then. So it will be increasingly difficult to 511 00:28:11,560 --> 00:28:15,400 Speaker 1: overcome that macro impact as the market as a whole 512 00:28:15,480 --> 00:28:18,920 Speaker 1: starts to trend down. Thanks very much, Alan Baum, auto 513 00:28:18,960 --> 00:28:24,199 Speaker 1: analyst principle at Bauman Associates. Shares of general motors. They 514 00:28:24,240 --> 00:28:27,520 Speaker 1: are higher right now by seven and a half percent. 515 00:28:28,000 --> 00:28:32,040 Speaker 1: You're listening to Bloomberg Markets. Thanks for listening to the 516 00:28:32,040 --> 00:28:35,160 Speaker 1: Bloomberg P and L podcast. You can subscribe and listen 517 00:28:35,200 --> 00:28:39,360 Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform 518 00:28:39,400 --> 00:28:43,320 Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox. 519 00:28:43,640 --> 00:28:47,160 Speaker 1: I'm on Twitter at Lisa Abramo. It's one before the podcast. 520 00:28:47,200 --> 00:28:49,800 Speaker 1: You can always catch us worldwide on Bloomberg Radio.