Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg P M L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The
Speaker 1: fight over your dinner table. No, it's not between you
Speaker 1: and perhaps your children or your other relatives. It's the
Speaker 1: fight between grocery stores to deliver the food that would
Speaker 1: actually end up on your table. Here to tell us
Speaker 1: more about the grocery store wars is Scott Mushkin's senior
Speaker 1: retail and staples analysts for Wolf Research. Scott, always a
Speaker 1: pleasure give us your sort of thoughts on the cost
Speaker 1: that is being borne by companies like Amazon to actually
Speaker 1: get the food and products to the table of their
Speaker 1: consumers and customers. Because that's not cheap. They say, it's
Speaker 1: free if you're a prime customer, but somehow, somewhere someone's
Speaker 1: paying for it. Yeah, it's great point, Pam, and thanks
Speaker 1: again for having me on. Highly says so, yeah, I mean,
Speaker 1: I think the challenge with consumables, and particularly those every
Speaker 1: day reordable items like go with toothbrush or toothpaste, high
Speaker 1: and deodorant. I we as consumers would like them delivered
Speaker 1: to our our house. Our our research shows the challenges.
Speaker 1: It's it's not that economical to get us to get
Speaker 1: us those products. And so I think there's this push
Speaker 1: and pull and trying to understand how the economics will work,
Speaker 1: what the model will be like as we go forward
Speaker 1: over the next five to ten years. UM and Amazon's
Speaker 1: you know, obviously bought Whole Foods. It's in what we
Speaker 1: consider the driver's seat of trying to put an omni
Speaker 1: channel spin on consumables. UM and we had just the
Speaker 1: head the announcement at of Walmart it's gonna be delivering
Speaker 1: from a lot of its stores. So the grocery wars
Speaker 1: are definitely taking place. We think they favor Amazon significantly,
Speaker 1: UM as they don't have and they haven't built out
Speaker 1: their assets there in the process of doing that, And
Speaker 1: for other bricks and mortar companies, it's it's tough. I mean,
Speaker 1: they're having to follow Amazon, who's now setting the strategic
Speaker 1: vision for the for the industry. All right, So I'm
Speaker 1: just wondering. So Amazon might have the upper hand, but
Speaker 1: they've tried to get into this industry before and failed,
Speaker 1: and this is notoriously hard hard nut to crack as
Speaker 1: far as food delivery and replacing brick and mortar. Do
Speaker 1: you think that the stock reaction which has been fierce
Speaker 1: with with grocers like Kroger and bankruptcy is of an
Speaker 1: increasing number of such companies. Do you think it's overdone
Speaker 1: at this point? You know, Actually I don't, uh, And
Speaker 1: I think the challenges we go. We look to China,
Speaker 1: we look to China and what Ali Bob is doing
Speaker 1: with Hima, and we think the purchase of Amazon of
Speaker 1: Whole Foods is a watershed event where what we're going
Speaker 1: to see, I think is a blend of an omni
Speaker 1: channel blend developed um And it's a darn shame because
Speaker 1: the stores had a huge home field advantage We've talked
Speaker 1: about before where people still buy almost all their fresh
Speaker 1: at the store um, and what we're seeing is that
Speaker 1: home field advantage being surrendered to the vision of Amazon.
Speaker 1: And I think it's going to be a like it's
Speaker 1: an omni channel blend and will incorporate some bricks and
Speaker 1: mortar stores as you've seen them by by Whole Foods UM.
Speaker 1: But so I think they you know, they have some
Speaker 1: of their best people working on this. We think they're
Speaker 1: going to combine Amazon Now, Amazon Fresh, and Whole Foods
Speaker 1: into one offering. UM. But the the idea is to
Speaker 1: really bring omni channel, the omni channel experience and incorporate
Speaker 1: stores uh into into that offering to make it a
Speaker 1: little bit more economical. Alright, So so far this year,
Speaker 1: Kroger and Walmart have lost more than thirty billion dollars
Speaker 1: in market value combined. Other grocers have also seen their
Speaker 1: shares plunge. Is there a specific company you're looking at
Speaker 1: that has more pain to go? So we've been pretty
Speaker 1: bullish on the U S economy and what's going on
Speaker 1: with the tax the tax cuts. We think nominal growth
Speaker 1: in the US has got to pick up UM. But
Speaker 1: that's really a short term call, short term relief for
Speaker 1: an industry that's under extraordinary pain and change. UM. So
Speaker 1: our long term vision of staples retailing, as we call
Speaker 1: it is is someone is very negative. And the reason
Speaker 1: is we think Amazon is gonna grab twenty share, up
Speaker 1: from less than three percent share right now, and that
Speaker 1: twenty share has got to come from someone well but
Speaker 1: but but very negative meaning how many bankruptcy is or
Speaker 1: how much devastation with respect to specific grocers. Well, we've
Speaker 1: already seen some announcements. We had wind Dixie which was
Speaker 1: a private company but had public debt. They did they're
Speaker 1: doing a pre pack UH bankruptcy tops up in UH
Speaker 1: in the northern part of the US. I think it's
Speaker 1: gonna be, you know, part of what we see. One
Speaker 1: of the things that we're we're we've been thinking about
Speaker 1: a lot is contents. You know, who has content that
Speaker 1: people may pay for another majority of one subscription to
Speaker 1: Primes you're paying a month and when that's going to
Speaker 1: get you as a lot, it's going to get you
Speaker 1: access to Whole Food now Fresh obviously all the video
Speaker 1: content that Amazon has. So what other retailers are set
Speaker 1: up with content specific to them. We actually think there's
Speaker 1: actually favors they're not public companies, but we think its
Speaker 1: favors some of the smaller private supermarkets. UH. Someone like
Speaker 1: h eb Down in Texas, very good grosser, a very
Speaker 1: good merchant and probably able to charge for delivery. The
Speaker 1: other company that we like is Sprouts. UH. Sprouts Farmers
Speaker 1: Market square footstore right and called the best pure foods
Speaker 1: pure play, um Natural Organic Fresh. So we like we
Speaker 1: like Sprouts. All the other companies public, and some of
Speaker 1: them are private by private equity. You know, we get
Speaker 1: really nervous because a lot of share is going to
Speaker 1: have to move in our opinion, and when that share moves,
Speaker 1: it's a lot of pressure. The other thing is it's
Speaker 1: just costing more to do business. So you know, Walmart,
Speaker 1: they're gonna have two thousand stores that have clicking, you know,
Speaker 1: clicking collect They're gonna have another eight stores delivering. That's
Speaker 1: all added costs and unless you're able to charge um,
Speaker 1: it's going to really hurt the economics of the business
Speaker 1: as we move forward. Thing for Kroger, you know, Scott,
Speaker 1: I'm surprised that that you that I'm talking to you.
Speaker 1: I think you're in Mississippi. I thought you'd be you'd
Speaker 1: be at the Shop Talk Uh trade show, because that's
Speaker 1: you know where a lot of the Amazon and eBay, Alphabet,
Speaker 1: Facebook and all these companies are given presentations about the
Speaker 1: future of retail. And one of the points I was
Speaker 1: reading about earlier is that Google is integrating the retail
Speaker 1: product categories like you know from Walmart or Target. With
Speaker 1: what they describe as the Universal Shopping Cart. They're gonna
Speaker 1: share the checkout page and the online payments with a
Speaker 1: commission pricing model. Any thoughts on it? Yeah, I mean,
Speaker 1: so you know, Google is basically going to start charging
Speaker 1: some of these retailers for their search um and again
Speaker 1: somewhat Amazon has an advantage here. A lot of searches
Speaker 1: start right on Amazon for product um and so they
Speaker 1: have an ecosystem that includes all of this. And so
Speaker 1: if you're using Google, and Google has a lot of power,
Speaker 1: they're going to start charging you as a retailer. UM.
Speaker 1: I actually think that's an advantage to Amazon UM. And another.
Speaker 1: The reason to fear the retailer's economics not that they're
Speaker 1: necessary going to go away and go bankrupt all of
Speaker 1: these guys, but the retailer's economics are going to be
Speaker 1: under pressure UM. And of course we saw today with
Speaker 1: an Amazon announcement that pressure tends to roll downhill to
Speaker 1: some of these manufacturers. So manufacturers are gonna be under
Speaker 1: pressure to particularly again if you don't have good content,
Speaker 1: if you're not you don't have things that people are
Speaker 1: willing to pay pay for Scott Mushkin, Thank you so
Speaker 1: much for joining us. Scott Mushkin, managing director and senior
Speaker 1: Staples retail analyst with Wolf Research normally in New York,
Speaker 1: but today in Mississippi. Right now the share is of Facebook.
Speaker 1: They are lower by five percent, the company grappling with
Speaker 1: backlash over its role in spreading disinformation. Here to tell
Speaker 1: us a little bit more about the story and what
Speaker 1: the reaction and congress might be is our own technology
Speaker 1: reporter Sarah Friar joining us from San Francisco. Sarah, thanks
Speaker 1: very much for being with us. Any updates in terms
Speaker 1: of the Facebook reaction to this and also reaction to
Speaker 1: the news that Alex Stamos, the chief information security officer,
Speaker 1: is set to leave the company in August. Well, I
Speaker 1: have a story today that explains how Facebook made this
Speaker 1: into a crisis almost by the way it responded to it. Uh,
Speaker 1: they smically by pre empting the news reports with its
Speaker 1: own blog posts on Friday explaining that it was suspending
Speaker 1: Cambridge Analytica. It made it seem like they had their
Speaker 1: own information on Cambridge Analytica obtaining the data they didn't.
Speaker 1: So now Facebook has as they're spiraling into crisis. They
Speaker 1: have to show people that they don't actually know if
Speaker 1: the reports are true on their end, so they can't
Speaker 1: take stronger action or have Mark Zuckerberg or Cheryl Sandberg
Speaker 1: speak until they have completed an internal audit. So they
Speaker 1: really put themselves in this really difficult position that they
Speaker 1: didn't need to be in, where they're sort of trying
Speaker 1: to undo some of the weight that they gave to
Speaker 1: the reports by pre empting them. So, Sarah, is this
Speaker 1: why the shares are down so much? Because the botched
Speaker 1: response suggects to suggests a vacuum of either leadership or
Speaker 1: appropriate response thought in the c suite? Or is it
Speaker 1: sort of a game change, or now that the FTC,
Speaker 1: the Federal Trade Commission is getting involved and President Trump
Speaker 1: also commenting and saying just this morning that all Americans
Speaker 1: should expect privacy of data. I think that there's a
Speaker 1: number of factors. I think Facebook made this a big story,
Speaker 1: in part by taking action before the story happened. Um,
Speaker 1: But I do think that this is a moment in
Speaker 1: in all of Facebook news where people look at it
Speaker 1: the way things have worked in they're starting to say, wait,
Speaker 1: this is not good, this is not helpful for our
Speaker 1: users of these products that are so dominant around the world,
Speaker 1: So we need to start asking questions about the way
Speaker 1: it's always worked. Facebook's um stands here is that this
Speaker 1: is this is a problem that's sort of been resolved
Speaker 1: by an update they made, uh that they have you know,
Speaker 1: they have to degraize this is actually true audited. Nobody
Speaker 1: trusts them anymore. We have people calling for Zuckerberg or
Speaker 1: Sandberg to testify in front of lawmakers on both sides
Speaker 1: of the Atlantic. The sec is down falls. This is
Speaker 1: a point where people are saying that they don't expect
Speaker 1: that Facebook will have usn best interest in heart when
Speaker 1: they when they go and try to solve these problems
Speaker 1: on their own and then reassure the public that they've
Speaker 1: done so. Sarah, maybe you could just also speak to
Speaker 1: the perhaps confrontation or the constant back and forth between
Speaker 1: those people at Facebook who are more eager to look
Speaker 1: at ways to make money than those who are fighting
Speaker 1: for the protection of data and information that has been
Speaker 1: voluntarily entered into the Facebook system by users. So basically
Speaker 1: saying that the information that was accessed by Alexander Cogan,
Speaker 1: the creator of this personality app, he that he didn't
Speaker 1: in a way that was valid per Facebook policies at
Speaker 1: the time, which allowed people to give information not to
Speaker 1: some themselves but on their friends. So two and seventy
Speaker 1: thousand people using the app resulted in information on fifty
Speaker 1: million people. Facetoos doesn't allow that anymore, but further policies
Speaker 1: at the time that was routine. And um, what people
Speaker 1: are saying now is is okay, we understand that you
Speaker 1: change those policies Facebook, but did you ever look into,
Speaker 1: you know, once these third parties received data on white
Speaker 1: floss of people, did you ever look into whether they
Speaker 1: were doing right by it? Didn't protecting it? Of course,
Speaker 1: in this case, Alexander Cogan gave that data to Cambridge Analytic,
Speaker 1: to which the users had not agreed to. And there's
Speaker 1: a big question here about like, how how does Facebook
Speaker 1: audit these relationships with third parties and the company you know,
Speaker 1: I don't know. Sincesarily think it's an odds with their
Speaker 1: business model. I mean, their business model is all about
Speaker 1: making sure that the information that people give Facebook, uh
Speaker 1: their demographic information, their interests, their groups that they've joined,
Speaker 1: all that information can be used with marketers to target them.
Speaker 1: Add that's like, that's like the promise of the free Internet, right,
Speaker 1: you get the internet for free. These companies get your
Speaker 1: data and they get to target you add based on
Speaker 1: that data. Um, advertisers, I spoke to one last night.
Speaker 1: They actually want Facebook to show users that they are
Speaker 1: good with their data privacy. Advertisers don't want to be
Speaker 1: advertising on a service that users have a bad feeling about. Um,
Speaker 1: it's not going to be good for their business. And
Speaker 1: I would, well, you tell me. I mean, with the
Speaker 1: revelation that Alex Stamos is gonna be leaving the company
Speaker 1: in August, Uh, didn't he lead a group of engineers
Speaker 1: that found out in June of that and that was
Speaker 1: the month of Democratic National Committee announced that it has
Speaker 1: been attacked by Russian hackers. They said, yeah, there's a
Speaker 1: lot of Russian activity and that they actually had people
Speaker 1: paying for these fake accounts. Yeah. I actually I was
Speaker 1: speaking with the head of news Feed in August of
Speaker 1: that year and he said, oh, yeah, we've been starting
Speaker 1: to look into misinformation on Facebook and the spread of it.
Speaker 1: I mean, the company was starting to see the signs.
Speaker 1: Just remember Facebook's position at that time. The company was
Speaker 1: responding to a controversy over its its news curation, that
Speaker 1: it may be silencing conservative viewpoints. So the the company,
Speaker 1: the company's reaction to crises is very, very reactionary. They
Speaker 1: don't want any bad news out there. They want everyone
Speaker 1: to feel like they are this unbiased rap for anything, seraphire,
Speaker 1: We're gonna have to leave it there. Thank you so much,
Speaker 1: and thank you for all of your fantastic reporting. Sarah
Speaker 1: Fryar is a technology reporter for Bloomberg News trade tariffs
Speaker 1: and China. I'm here to help us understand the current
Speaker 1: situation and what is likely to unfold this week. Is
Speaker 1: Andrew Mayetta. He is our global economy reporter for Bloomberg News.
Speaker 1: He can be followed on Twitter at a Mayeta and
Speaker 1: he joins us from our nine one studios into Washington,
Speaker 1: d C. Andrew, thanks for being with us. Maybe just
Speaker 1: bring everyone up to date on what is going on
Speaker 1: between the United States and China as it relates to
Speaker 1: trade in tariff wars. Sure, so, the US Administration has
Speaker 1: been investigating whether China basically disregards US intellectual property and
Speaker 1: forces American companies to transfer technological know how to the Chinese,
Speaker 1: and that investigation is nearing a close. Report has been
Speaker 1: submitted to the president, and he's considering a number of
Speaker 1: different options, including UH sixty billion dollars in tariffs on
Speaker 1: Chinese products. All Right, Andrew, I was struck by a
Speaker 1: top headline today on the Bloomberg Terminal about how China
Speaker 1: is pledging not to interfere or violate intellectual property rules
Speaker 1: with any foreign companies coming to the nation, basically saying, guys,
Speaker 1: let's just work this out. We're not going to do
Speaker 1: anything bad. Please trust us. Does that Does that work?
Speaker 1: Does that fly? I think Larry Cudlow, who just replaced
Speaker 1: Gary Cohen, is going to say this is positive, this
Speaker 1: is encouraging. We should work with this. We should sit
Speaker 1: down at the negotiating table where the world's two biggest economies.
Speaker 1: You know that global recovery is actually going pretty well.
Speaker 1: Let's not mess this up. I think Peter Navarro is
Speaker 1: going to say, these guys have made promises before, they
Speaker 1: haven't lived up to them. They've been making promises since
Speaker 1: two thousand one, since they joined a w t O
Speaker 1: and talk is cheap. Well, Andrew, can you give us
Speaker 1: some specific examples of products that might be hit with
Speaker 1: these kinds of tariffs. I mean I was looking at
Speaker 1: things like textiles, and the details there are really astounding
Speaker 1: because it, you know, it really goes everything from the
Speaker 1: kind of fabrics that you might use in uh, clothing,
Speaker 1: to the kinds of products that boy I mean, uh,
Speaker 1: you'd never you know, whisk brooms, ethel alcohol, milk and cream, olives, tuna.
Speaker 1: I mean, it is a dizzying array of products. Yeah.
Speaker 1: My understanding is they're looking at everything from shoes, apparel,
Speaker 1: travel goods, so we're talking luggage to you know, higher
Speaker 1: end consumer electronics. I understand that one way USCR is
Speaker 1: looking at it is they're taking China's own economic plan,
Speaker 1: the made in China Plan, and they're looking at areas
Speaker 1: of technology that China is trying to lead in and
Speaker 1: they're trying to target those areas for tariffs. All right,
Speaker 1: So one thing, as we are watched the headlines coming
Speaker 1: out of the G twenty meeting in Buenos Aires, uh,
Speaker 1: in Argentina that's ongoing right now, there actually is a
Speaker 1: greater call for trade, free trade and trade tariffs loosening
Speaker 1: or any other restrictions being sort of released among countries
Speaker 1: other than the US. Can you talk a little bit
Speaker 1: about that and how much that could potentially offset talk
Speaker 1: of a trade war, tariffs or other rhetoric that we're
Speaker 1: hearing out of the White House. Yeah, I think that overall,
Speaker 1: actually the situation for the global economy and trade volumes
Speaker 1: is pretty positive. UM. For the first year in a
Speaker 1: long time, trade growth and trade volumes actually outpaced growth
Speaker 1: in in overall outputs. In other words, trade resumed being
Speaker 1: an engine of global growth. So so things are actually
Speaker 1: going well, and I think that most countries in the
Speaker 1: world don't want a trade war. What's unusual about the
Speaker 1: situation is you have the US, which has been kind
Speaker 1: of at the vanguard of creating the current global training system,
Speaker 1: basically trying to blow it up from within UM and
Speaker 1: pushing for major changes. And you have China, which for
Speaker 1: years has kind of been seen as a pariah, pushing
Speaker 1: for the status quo. So how exactly that equilibrium works
Speaker 1: out at a place like the G twenty, It'll be
Speaker 1: interesting to see how it works out. Andrew any any
Speaker 1: word or any any inkling of how does it work
Speaker 1: out between the United States and let's say, Canada and
Speaker 1: Mexico in terms of exemptions on some of the already
Speaker 1: announced tariffs. Well, Canada and Mexico have been excluded from
Speaker 1: the steel tariffs that President Trump announced earlier this month. Um,
Speaker 1: but President Trump, as kind of is his want, has
Speaker 1: added um a condition to it. He's basically said, look,
Speaker 1: your exclude for now. I'm recognizing your important security partners,
Speaker 1: but I want a good NAFTA. And if you don't
Speaker 1: give me a good NAFTA, then you know that that
Speaker 1: exclusion could go away. So that it's kind of creating
Speaker 1: a bit of a storm hanging over the NAFTA talks. Well,
Speaker 1: we're gonna have to wait and see what happens. But boy, Andrew,
Speaker 1: I think you're gonna end up in the nitty gritty.
Speaker 1: I mean, I've been looking at things like the commissioned
Speaker 1: voting on things like rubber bands from China, Sri Lanka,
Speaker 1: and Thailand, as well as digital video receivers. So it
Speaker 1: really just covers the you know, an entire encyclopedia of
Speaker 1: products and services, encyclopedia of agencies that have to weigh
Speaker 1: in on this, which is going to be a part
Speaker 1: of the issue getting all of them to agree on
Speaker 1: on rubber bands. And you know, I'm gonna follow you
Speaker 1: know what I'm gonna do. I'm gonna follow Andrew Mayetta
Speaker 1: on Twitter. Follow you back. Okay, Andrew Mayetta, our global
Speaker 1: economy reporter for Bloomberg News, joining us from our ninety
Speaker 1: nine one studios in Washington, D C. And uh, well,
Speaker 1: we'll have to see what happens to the rest of
Speaker 1: the week. Sixty billion dollars potential hit to two trades.
Speaker 1: We do have a Federal Reserve meeting that is underway
Speaker 1: in Washington, D C. And will conclude tomorrow, most likely
Speaker 1: with an additional rate hike. Here to talk about what
Speaker 1: we can expect and what we ought to be paying
Speaker 1: attention to, is Ira Jersey, chief US interest rate strategist
Speaker 1: for Bloomberg Intelligence. Ira, let's start by taking a temperature
Speaker 1: of debt markets. What are they expecting j Powell to
Speaker 1: do tomorrow in his first press conference as chairman of
Speaker 1: the Federal Reserve. Yeah so so a like you mentioned, Lisa,
Speaker 1: a hike is all but baked in the cake here. Um,
Speaker 1: the shock would be if they didn't hike. Actually, we're
Speaker 1: now a price for hike tomorrow. Um. The other was
Speaker 1: saying that the market's going to be looking for is
Speaker 1: will some of the hawk is comments that J Pale
Speaker 1: made during the Humphrey Hawk and testimony, and a number
Speaker 1: of others have have hinted at will that UM show
Speaker 1: up in the summary of Economic projections that are also
Speaker 1: be released with the statement tomorrow, and uh, and then J.
Speaker 1: Powell will have to kind of describe them in more
Speaker 1: detail during his press conference. Because the market is now
Speaker 1: pricing for five hikes by the end of ten and
Speaker 1: I think that that's pretty Uh, that's pretty interesting because
Speaker 1: when we talked just a couple of weeks ago, the
Speaker 1: market was only pricing for four, so we were pricing
Speaker 1: in a full other hike now over the next year
Speaker 1: and a half or so. Alright, what if you could
Speaker 1: bring into this conversation the global issues having to do
Speaker 1: with the reduction and quantitative easing Because European Central Bike
Speaker 1: President Mario drag announcing that he's going to phase out
Speaker 1: those monthly asset purchases by the end of yeah. So
Speaker 1: so I think the ECB action is is kind of realistic,
Speaker 1: but they're trying to temper that with UM, you know,
Speaker 1: saying look, we're gonna we're gonna stop our asset purchases.
Speaker 1: We're gonna try to avoid a taper tantrum, and so
Speaker 1: far they kind of have. Um. I think we had
Speaker 1: our taper tantrum for for that last June UM. But
Speaker 1: but by saying that, hey, we're still not going to
Speaker 1: hike for a very long time, I think that that's
Speaker 1: tempered the expectations of of how steep the yield curve
Speaker 1: can get in Europe. And and that is the one
Speaker 1: thing that could probably significantly steep in the U S
Speaker 1: yield curve is um is if if European rates back
Speaker 1: up quite a lot. So he's still very low interest
Speaker 1: rates in Germany and a lot of developed Europe, and
Speaker 1: if those were to move forty sixty basis points, those
Speaker 1: would have significant, uh knock on effects to US rates.
Speaker 1: But so far it's been um pretty orderly at least,
Speaker 1: you know, you've seen a little modestly higher rates, but
Speaker 1: they haven't really spiked higher like they did last June
Speaker 1: when he first suggested that that that quantitative easing might
Speaker 1: be coming to an end. Okay, now take that possibility
Speaker 1: of the effects of reduction in asset purchases by the
Speaker 1: European Central Bank, and how do you factor in the
Speaker 1: risk that Shinzo abe prime Minister of Japan. He's got
Speaker 1: a political scandal that he's dealing with, and that could
Speaker 1: also affect what the Governor of the Bank of Japan Kuroda,
Speaker 1: is forced to do. They may be thinking about unwinding
Speaker 1: their stimulus stimulus package. Yeah, so I think, you know,
Speaker 1: Japan is an interesting case because it's it's been a
Speaker 1: long time since the since the actions within domestically within
Speaker 1: Japan have really played out on a global horizon. Um,
Speaker 1: you know, it's certainly affected the yen and versus the
Speaker 1: euro and the dollar. It's affected um, you know, Japanese
Speaker 1: rates obviously keeping uh with the Bank of Japan saying hey,
Speaker 1: we're going to keep our tenure rates near zero and
Speaker 1: we're going to buy whatever we need to do that. Um.
Speaker 1: It's it's it's very unclear what would happen if they
Speaker 1: let their tenure rates they go up from you know,
Speaker 1: ten twelve basis points up to uh yeah, well right
Speaker 1: now is at four, but up to say fifty or
Speaker 1: sixty basis points. Would that have a knock on effect globally?
Speaker 1: And it's it's less clear what the what the relationship
Speaker 1: of the Japanese market is to the rest of the world,
Speaker 1: and I suspect it will be less men um some
Speaker 1: people fear so I I want to focus on something
Speaker 1: that is happening. It's not a potential, and it's actually
Speaker 1: raising a lot of eyebrows. We've talked about this before,
Speaker 1: the gapping outspread between libr and o I S translation,
Speaker 1: the cost of borrowing dollars has surged even related even
Speaker 1: when compared with the Overnight Index swap rate, which is
Speaker 1: basically the FEDS rate. This is generating a lot of
Speaker 1: eyebrows being raised and questions. We've talked about it. You
Speaker 1: don't think it's banking stress, you don't think it's much
Speaker 1: to worry about. But City Group came out with a
Speaker 1: report that said that there are real world negative consequences
Speaker 1: from this increase in libor, which really is a mark
Speaker 1: for trillions of dollars of us. It's do you agree, yeah, Well,
Speaker 1: for sure, it's raising the borrowing costs for anyone who
Speaker 1: borrows at a floating rate. In particular, UM, this is
Speaker 1: raising the cost. So this could be raising the cost
Speaker 1: for people who have mortgages that are going to reset soon,
Speaker 1: for example, and if those reset the librar, it's certainly
Speaker 1: affecting people who have credit card debt that's based on
Speaker 1: on live war and and anyone who issues floating rate
Speaker 1: notes that are again live war based. Now what's interesting
Speaker 1: is that a lot of live a lot of floating
Speaker 1: rate note issuance UM is so so companies that issue
Speaker 1: these floating rate notes, a lot of them swap those
Speaker 1: back into fix So what they do is, especially when
Speaker 1: interest rates were lower, So anyone who issued, say a
Speaker 1: year or two ago, when interest rates are very low,
Speaker 1: they might have issued a floating rate note because it
Speaker 1: was cheap financing, because investors said, I don't want to
Speaker 1: buy fixed rate debt when treasury yields are at one
Speaker 1: and a half percent, so but I'm happy to buy
Speaker 1: a floating rate note because that protects me when the
Speaker 1: FED starts to hike. But then um, but then those
Speaker 1: companies then do an interest rates up that flots it
Speaker 1: back in the six So it's probably not it's it's
Speaker 1: not like there's a systemic risk here, but for some borrowers, certainly,
Speaker 1: it's increasing um their cost of borrowing a little bit more.
Speaker 1: It's kind of like another two Fed hikes have happened
Speaker 1: for borrowers who who tend to borrow against lieboard. Thanks
Speaker 1: very much for being with us. Ira Jersey is always
Speaker 1: an expert when it comes to interest rates. He's our
Speaker 1: chief US interest rates strategist for Bloomberg Intelligence. Thanks for
Speaker 1: listening to the Bloomberg P and L podcast. You can
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Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
Speaker 1: It's one before the podcast. You can always catch us
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