WEBVTT - The Compelling Case For Front-Loading A 50bp Rate Cut 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:23.800 at Bloomberg dot com. It is the blockbuster event of 0:00:23.840 --> 0:00:27.040 the week, of the month, possibly of the year. It 0:00:27.160 --> 0:00:29.560 is the Federal Reserve decision that will be announced at 0:00:29.600 --> 0:00:33.320 two pm, and more importantly, the two thirty pm press 0:00:33.360 --> 0:00:37.040 conference with FED Chair j Powell indicating perhaps how the 0:00:37.040 --> 0:00:40.360 Federal Reserve is thinking about future rate cuts. Joining us, 0:00:40.520 --> 0:00:43.120 I'm so pleased to say is at Al Hassani. He's 0:00:43.159 --> 0:00:46.760 senior interest rate, rates and Currencies analyst for Columbia thread 0:00:46.760 --> 0:00:51.599 Needle Investments, which overseas nearly four hundred and sixty billion dollars. 0:00:51.640 --> 0:00:53.800 And thank you so much for being with us. What 0:00:53.880 --> 0:00:57.000 are you expecting from the Fed today? Great to be 0:00:57.040 --> 0:01:00.080 with you, so you know when the Fed decision and 0:01:00.120 --> 0:01:02.360 today I mean, let me just start by saying that 0:01:02.560 --> 0:01:07.560 the case for a frontloaded easing cycle. It's pretty aggressive, 0:01:07.600 --> 0:01:10.720 starting perhaps with the fifty basis point cut today is 0:01:10.840 --> 0:01:13.880 very compelling. And yet at the same time, on the 0:01:14.000 --> 0:01:16.919 from c UM, I would say this is pretty violent 0:01:16.959 --> 0:01:21.200 disagreement in terms of whether to proceed with something that aggressive. UM. 0:01:21.319 --> 0:01:22.760 So I think the base case has to be a 0:01:23.319 --> 0:01:27.080 basis point cut with some guidance in terms of UH 0:01:27.160 --> 0:01:30.800 cuts later on this year as well. But in my mind, again, 0:01:30.880 --> 0:01:34.679 the case for frontloading and being quite aggressive at this 0:01:34.760 --> 0:01:38.000 stage is very compelling. So at your case again, your 0:01:38.360 --> 0:01:41.520 case for more aggressive frontloading of interest rates maybe fifty 0:01:41.520 --> 0:01:45.080 basis points today, UM, what's that predicated upon? Because it 0:01:45.080 --> 0:01:47.800 seems like some of the cyclical data that we're getting 0:01:47.840 --> 0:01:51.480 recently is actually pretty decent, whether it's UH jobs or 0:01:51.520 --> 0:01:55.520 you know, other the consumer seems pretty strong. Yeah, And look, 0:01:55.560 --> 0:01:58.440 and I want to acknowledge that there there there's basically 0:01:58.920 --> 0:02:02.520 two buckets. A factor is driving this decision. There's the 0:02:02.600 --> 0:02:06.120 cyclical factors UH, which really kind of focus on some 0:02:06.200 --> 0:02:08.320 of the shorter term data that we've had come through 0:02:08.320 --> 0:02:11.440 over the past six months. There's obviously a manufacturing stall, 0:02:11.840 --> 0:02:15.360 there's a slowdown globally UH, you know, quite pronounced in 0:02:15.360 --> 0:02:18.919 in Europe that was confirmed by GDP data today. Obviously 0:02:18.919 --> 0:02:22.200 a slowdown in in China and Asia and more broadly uh, 0:02:22.200 --> 0:02:25.440 and weakness in domestic capex. Uh. The labor market in 0:02:25.480 --> 0:02:29.320 the US looks relatively healthy, but there as well, we're 0:02:29.320 --> 0:02:33.359 seeing on the margin weakness versus where we were last year. 0:02:33.560 --> 0:02:36.120 And you see that pretty clearly in in in wages, 0:02:36.440 --> 0:02:39.560 wage growth has stagnated or on three and you see 0:02:39.560 --> 0:02:41.640 that being confirmed by the employment cost in next day 0:02:41.680 --> 0:02:44.560 as well. So there's some short term data that I 0:02:44.600 --> 0:02:47.120 would say has weakened. And if you if you focus 0:02:47.160 --> 0:02:49.840 in in terms of data flow over the past six weeks, 0:02:50.480 --> 0:02:52.840 you can feel a little bit more optimistic. Uh. Like 0:02:52.880 --> 0:02:55.840 you said, labor market is okay. Uh. Confidence both in 0:02:55.919 --> 0:03:00.320 terms of consumer confidence and business confidence is pretty solid. Um. 0:03:00.400 --> 0:03:02.880 And the household sector in general has been very healthy, 0:03:03.000 --> 0:03:05.079 and that's been true for for a number of years now. 0:03:05.760 --> 0:03:09.320 So UM, go ahead, But I was gonna say that, 0:03:09.320 --> 0:03:13.720 you know, the structural reason is really a risk management reason. 0:03:14.440 --> 0:03:19.280 From perspective, real rates remain quite low, uh, and yet 0:03:19.400 --> 0:03:22.480 we are significantly above real rates in the rest of 0:03:22.520 --> 0:03:26.160 the world. Uh. That's a dynamic that's unlikely to be sustainable. 0:03:26.520 --> 0:03:31.760 So while real rates are coming down, growth continues to decelerate. UM. 0:03:32.240 --> 0:03:34.280 Whether our potential is somewhere between one and a half 0:03:34.280 --> 0:03:37.440 and one seventy five, we're we're going to that level 0:03:38.080 --> 0:03:43.280 um and the margin for error for the FAD is shrinking. 0:03:43.560 --> 0:03:46.960 And we see what happens when that margin disappears in 0:03:47.040 --> 0:03:49.840 terms of outcomes in Europe and Japan. And that's a 0:03:49.920 --> 0:03:52.880 place we we desperately don't want to be. So here's 0:03:52.920 --> 0:03:56.280 here's my concern actually with all of this is that 0:03:56.440 --> 0:03:59.200 ultimately this comes down to a currency play, because if 0:03:59.240 --> 0:04:01.640 this is a relative value game with respect to the 0:04:01.640 --> 0:04:04.560 rest of the world, it comes down to weakening the 0:04:04.640 --> 0:04:08.360 dollar uh and and thus lowering yields. Here and I'm wondering, 0:04:08.400 --> 0:04:11.840 I mean, is that the ultimate goal sort of implicitly 0:04:12.080 --> 0:04:15.920 of the Federal Reserve at this point? I know how 0:04:15.960 --> 0:04:18.680 much put back against that a little bit in the 0:04:18.720 --> 0:04:22.800 sense that the currency sensitivity of the U. S economy 0:04:22.880 --> 0:04:26.440 is actually quite low. The pass through of the currency 0:04:26.480 --> 0:04:29.919 into inflation is quite low. Obviously it has a it 0:04:30.000 --> 0:04:32.680 has a short term impact. But as we've seen, the 0:04:32.760 --> 0:04:36.520 dollar has strengthened uh and as weekend has gone through 0:04:36.560 --> 0:04:39.200 cycles over the course of the past decade, and the 0:04:39.320 --> 0:04:42.920 pass through and the impact of inflation is marginal. Although 0:04:43.160 --> 0:04:45.599 although that said, a lot of people say that the 0:04:45.640 --> 0:04:50.080 reason why yields on on U S treasury treasuries are 0:04:50.200 --> 0:04:53.080 so high relative to the rest of the world is 0:04:53.160 --> 0:04:56.360 only because of the FED, and frankly because the FED 0:04:56.640 --> 0:05:01.200 is in a raising cycle or has been. UM that 0:05:01.240 --> 0:05:04.120 has kept the dollars stronger, and the hedging costs have 0:05:04.240 --> 0:05:07.320 been higher, and the hedging costs will come down if 0:05:07.320 --> 0:05:10.280 the FED cuts, and that will draw more foreign investors 0:05:10.320 --> 0:05:14.800 back into US UH assets, and then we'll just lower 0:05:14.839 --> 0:05:17.239 the rates substantially. I mean, do you buy that argument? 0:05:18.760 --> 0:05:21.000 I don't think so. I mean, like the curve has 0:05:21.080 --> 0:05:24.640 flattened as the set has heighted, so the feeds ability 0:05:24.680 --> 0:05:27.000 to impact the longer end of the curve has been 0:05:27.040 --> 0:05:31.400 relatively muted. Um. This is this is I think quite 0:05:31.400 --> 0:05:33.960 similar to hikes that we saw in the nineties and 0:05:34.000 --> 0:05:38.240 the two thousand's right, So we have the curve flatten. Um. 0:05:38.400 --> 0:05:42.120 The hedging cost issue, UH, I think you're right of it, 0:05:42.240 --> 0:05:45.200 but but it's I think it's much more relevant for 0:05:45.400 --> 0:05:48.680 risk assets in the US. If you think about foreign 0:05:48.720 --> 0:05:51.680 demand for risk assets and the fact that you know, 0:05:51.839 --> 0:05:57.080 about half of fixed income outside of the US now 0:05:57.240 --> 0:06:02.240 yields below zero. There's obviously robust demand for US risk 0:06:02.800 --> 0:06:06.600 UH from Europe, from Japan, from the broader Asian complex, 0:06:06.800 --> 0:06:09.760 and high hedging costs have kept some of those buyers 0:06:09.800 --> 0:06:13.080 on the sidelines. UM. At the same time, it's not 0:06:13.160 --> 0:06:19.320 the Fed's job to manage hedging costs for international investors. UM. 0:06:19.400 --> 0:06:22.240 That's that's a byproduct of what they're trying to do here. 0:06:22.360 --> 0:06:26.120 That's the book. It's not in their band aid book. 0:06:26.480 --> 0:06:29.479 I mean, um, um look at it. It's a fairy 0:06:29.480 --> 0:06:32.080 thing to say. UM. If we zoom out a little bit, 0:06:32.240 --> 0:06:36.240 Foreign demand for treasuries, for example, has diminished, and it's 0:06:36.279 --> 0:06:40.280 been in structural decline over the past five years, but 0:06:40.360 --> 0:06:43.239 domestic demand has stepped in and we're really not seen 0:06:44.200 --> 0:06:46.719 any impact of that on the long end of the curve, 0:06:47.440 --> 0:06:50.960 despite the fact that issuance has increased obviously due to 0:06:50.960 --> 0:06:55.240 the deficits and demand. Foreign demand has stepped back UM. 0:06:55.279 --> 0:06:57.760 And as a thought experiment, I would say this, if 0:06:57.800 --> 0:07:04.440 we didn't have this fiscal um um SURPLUSA and the 0:07:04.440 --> 0:07:08.080 fiscal deficit of the last several years, UH, US long 0:07:08.480 --> 0:07:12.240 end rates would be substantially below where they are today, 0:07:12.440 --> 0:07:15.200 and that should be very worried for the Fed. UM. 0:07:15.240 --> 0:07:17.360 It means we would be much closer to where Germany 0:07:17.440 --> 0:07:21.440 is today. UM. And that's again a reflection of our 0:07:21.480 --> 0:07:25.560 growth and inflation dynamics rather than anything that the set 0:07:25.680 --> 0:07:28.520 is trying to do. Ed Al Hussini, thank you very much. 0:07:28.640 --> 0:07:31.400 Ed is a senior interest rate uh IN currency analyst 0:07:31.440 --> 0:07:50.520 at Columbia thread Needle Investments, based in Minneapolis. Well Apple 0:07:50.600 --> 0:07:53.320 reported some pretty decent results, better than expected for its 0:07:53.360 --> 0:07:56.600 fiscal third quarter fourth quarter forecast, also a little bit 0:07:56.640 --> 0:07:58.320 better and expected than looking at the stock here on 0:07:58.320 --> 0:08:00.840 the Bloomberg terminal, up about four points re percent today, 0:08:00.920 --> 0:08:03.720 up about thirty for the year, so investors certainly liked 0:08:03.720 --> 0:08:05.400 what they heard there. They'll us break it down a 0:08:05.440 --> 0:08:07.360 little bit. We welcome back our good friend Lauren Martin. 0:08:07.400 --> 0:08:09.560 She's a senior analyst that need him in company. She 0:08:09.680 --> 0:08:12.560 joins us live here in a Bloomberg eleven three oh studio. Laura, 0:08:12.560 --> 0:08:15.960 thanks so much for being with us. Key takeaways from Apple. 0:08:16.000 --> 0:08:17.520 You have a strong buy on the stuff we do. 0:08:17.600 --> 0:08:19.680 It's our one strong by name, it's our top pick 0:08:19.760 --> 0:08:22.400 for this year, UM, And what I would say is this, 0:08:22.560 --> 0:08:25.200 I think the three most important metrics that drive Apples 0:08:25.320 --> 0:08:29.080 upside are the number of installed based unique users, and 0:08:29.120 --> 0:08:32.560 then um the actual revenue per user, and then how 0:08:32.600 --> 0:08:35.880 long they stay in the Apple ecosystem, which generates this 0:08:35.920 --> 0:08:39.040 lifetime value per user. And what you saw yesterday from 0:08:39.040 --> 0:08:41.319 their earnings, which was so important, was that they hit 0:08:41.640 --> 0:08:44.240 all time highs in every product, which means the installed 0:08:44.240 --> 0:08:47.880 basis growing. The penetration per unique we think there's nine 0:08:48.240 --> 0:08:51.839 and fifty unique users. The penetration is now one point 0:08:51.880 --> 0:08:55.160 six products per user, up from one point five a 0:08:55.240 --> 0:08:58.200 year ago, so they're getting deeper penetation of products. And 0:08:58.240 --> 0:09:00.840 finally we're getting we have four four hundred and twenty 0:09:01.320 --> 0:09:06.160 million subscriptions, up from three sixty ninety days ago and 0:09:06.280 --> 0:09:08.840 up from three twenty ninety days before that. All of 0:09:08.880 --> 0:09:11.840 which said, and that lowers churn, because every time somebody 0:09:11.840 --> 0:09:15.439 subscribes to a service, it lowers your churn, which elongates 0:09:15.440 --> 0:09:18.520 the amount of time someone stays in the ecosystem. Coming 0:09:18.520 --> 0:09:21.720 on that, looking forward as the next catalyst, we have 0:09:21.920 --> 0:09:25.960 the Arcade service coming, we have the card coming. Apple 0:09:26.000 --> 0:09:28.400 Pay is getting more widely used they're going to try 0:09:28.440 --> 0:09:32.560 to add services that displace other services in the market, 0:09:32.600 --> 0:09:34.720 which is one of the reasons Spotify is correcting today. 0:09:34.960 --> 0:09:37.600 And all of that should lower churn, which makes the 0:09:37.720 --> 0:09:41.160 lifetime value per customer go up, both because they're in 0:09:41.200 --> 0:09:43.720 the ecosystem longer and because they're spending more money on 0:09:43.760 --> 0:09:47.200 new services. Although some people would argue that they're trying 0:09:47.280 --> 0:09:50.680 to shift their focus to a services company and yet 0:09:50.679 --> 0:09:56.800 their services revenue came in below expectations, So what's sort 0:09:56.840 --> 0:09:59.480 of your reasoning behind why that's okay? So I think 0:09:59.520 --> 0:10:02.120 I think the important point for me anyway, is that 0:10:02.200 --> 0:10:05.520 services has a seventy percent profit margin and product has 0:10:05.559 --> 0:10:08.400 a thirty percent profit margin. So I think an interesting 0:10:08.440 --> 0:10:11.600 frame way to frame Apple is razor, razor blade. Let's 0:10:11.640 --> 0:10:14.000 give a loss leader on the product. Okay, it's a 0:10:14.000 --> 0:10:16.600 thirty percent margin, not a loss like a razor, And 0:10:16.640 --> 0:10:19.800 then what you're really selling is the seventy percent margin services. 0:10:19.840 --> 0:10:21.760 So every time they tell you they're adding a new 0:10:21.800 --> 0:10:26.679 seventy a new service, that's another new green field of 0:10:26.720 --> 0:10:29.680 adding a seventy percent margin. So to me, that's the 0:10:29.720 --> 0:10:33.080 more important point here, because that's like a supercharger for 0:10:33.280 --> 0:10:35.560 the Ebat dog growth and the stock trades on a 0:10:35.640 --> 0:10:39.000 pe and it trades at fifteen times earnings and it's 0:10:39.000 --> 0:10:41.360 going to grow seventeen percent, which means you're buying this 0:10:41.440 --> 0:10:44.600 stock at a PEG ratio of nine point nine zero 0:10:44.640 --> 0:10:48.319 point nine, meaning below one. Even though it's now the 0:10:48.320 --> 0:10:50.520 biggest company on Earth. It's has a nice growth now 0:10:50.559 --> 0:10:53.560 they've got When when the China trade issues flared up, 0:10:53.600 --> 0:10:56.120 Apples certainly got hit. It was highlighted as one of 0:10:56.120 --> 0:10:58.320 those companies that's really exposed. They sell a lot of 0:10:58.320 --> 0:11:01.280 product in China, they manufacture a product in China. Did 0:11:01.280 --> 0:11:03.680 there have anything last night on the conference call to 0:11:03.679 --> 0:11:06.480 talk about kind of how they viewed China. Yeah, so, 0:11:06.520 --> 0:11:08.160 I mean I sort of thought one of the things 0:11:08.160 --> 0:11:09.920 that came out of last night's call was they've sort 0:11:09.960 --> 0:11:12.679 of solved China. And what they said was they had 0:11:12.679 --> 0:11:15.120 to lower price for sure because the US dollar has 0:11:15.120 --> 0:11:17.840 been so strong, but they said that the Chinese consumer 0:11:17.920 --> 0:11:21.160 has not had a negative reaction to American products, which 0:11:21.200 --> 0:11:24.040 was something we're super worried about. That the Chinese government 0:11:24.040 --> 0:11:27.240 had become much more aggressive at stimulating the consumer economy, 0:11:27.320 --> 0:11:30.760 so they were getting more acquisitions of in China of 0:11:30.800 --> 0:11:34.079 iPhones UM, and that the trade talks. You saw that 0:11:34.160 --> 0:11:37.640 the the administration said they were constructive. The China trade 0:11:37.640 --> 0:11:40.560 talks were constructive today UM, so that all of that 0:11:40.720 --> 0:11:43.560 sounds like China might be solved at least for the 0:11:43.600 --> 0:11:46.600 near term. And it definitely was a driver of Apple's 0:11:46.679 --> 0:11:49.040 unit upside in the quarter. I want to shift gears 0:11:49.040 --> 0:11:51.800 a little bit as we head into the second half 0:11:51.880 --> 0:11:54.679 of this earning season and go back and look at 0:11:54.679 --> 0:11:57.040 some of the ones that came out earlier. Netflix reporting 0:11:57.040 --> 0:12:01.439 on July sevente July eighteenth, and they showed that they 0:12:01.640 --> 0:12:04.079 lost subscribers. It was a big disappointment. You saw the 0:12:04.160 --> 0:12:08.160 shares decline substantially. I'm wondering what your view is here. 0:12:08.200 --> 0:12:11.520 Is this a buying opportunity? We would say no. I 0:12:11.520 --> 0:12:15.400 mean our thesis is that UM subscriber losses in the 0:12:15.520 --> 0:12:19.160 US is the new normal. Uh. They raised price, which 0:12:19.200 --> 0:12:21.720 is what drove the subscriber losses in the June quarter. 0:12:22.200 --> 0:12:24.480 But starting on November twelve, you're gonna get the Walt 0:12:24.480 --> 0:12:27.760 Disney Company coming in UM with a new competitive enter 0:12:27.880 --> 0:12:30.439 at half the price. It's going to be seven dollars 0:12:30.600 --> 0:12:33.439 versus Netflix is now you know, sort of twelve to 0:12:33.480 --> 0:12:37.840 fourteen dollars, and um, you're gonna have every movie that 0:12:37.960 --> 0:12:42.160 Disney's ever made in that service for seven dollars, from Lucasfilm, 0:12:42.200 --> 0:12:45.000 from Marvel, from Pixar, and from Disney Animation like Frozen. 0:12:45.320 --> 0:12:47.880 So every big film they've ever made in fifty years 0:12:47.920 --> 0:12:50.920 will be on that service, watchable fifteen times by your 0:12:51.040 --> 0:12:54.000 twelve year old girl if they want to. So I 0:12:54.040 --> 0:12:57.000 think you're gonna get trial. What we saw from Game 0:12:57.000 --> 0:12:59.360 of Thrones is that so long as Game of Thrones 0:12:59.440 --> 0:13:02.240 was on, Peep will subscribe and paid fifteen dollars for HBO, 0:13:02.360 --> 0:13:05.200 and they had stopped paying for Netflix. Then Game of 0:13:05.200 --> 0:13:08.360 Thrones ended, they went back to Netflix. So it's gonna 0:13:08.360 --> 0:13:10.600 happen is people are going to turn off Netflix and 0:13:10.640 --> 0:13:13.760 spend seven dollars buying Disney, and when they finished watching 0:13:13.800 --> 0:13:17.040 all those movies, Disney's challenge will be to transport them 0:13:17.040 --> 0:13:20.000 to the Fox programming, which is more TV series. Otherwise 0:13:20.000 --> 0:13:21.920 they're going to go back to Netflix. But meanwhile, it's 0:13:21.960 --> 0:13:24.160 going to be a hellish three months six months for 0:13:24.240 --> 0:13:27.040 Netflix U S subscriber subs as people go over to 0:13:27.080 --> 0:13:30.160 Disney and and sort of rewatch all those great movies. 0:13:30.440 --> 0:13:31.839 So one of the things we've also seen, as it 0:13:31.840 --> 0:13:34.480 relates to Netflix and a lot of the traditional media companies, 0:13:34.480 --> 0:13:36.200 which you've covered for a long time, law, is a 0:13:36.200 --> 0:13:37.920 lot of the media companies are bringing some of their 0:13:37.920 --> 0:13:41.000 content that they had been licensing to Letflix bringing back 0:13:41.040 --> 0:13:43.680 because they are launching their own service, whether it's Disney 0:13:43.760 --> 0:13:47.080 or Comcast or NBC, you know all those folks. How 0:13:47.080 --> 0:13:50.000 big of the risk is that for Netflix losing some 0:13:50.080 --> 0:13:52.400 of that content. Yeah, I mean, I think it's a 0:13:52.520 --> 0:13:55.040 I think it's a risk because the value proposition is 0:13:55.080 --> 0:13:58.240 getting worse because they used to have The Office and 0:13:58.280 --> 0:14:00.520 they used to have Friends, and those were two of 0:14:00.520 --> 0:14:03.320 their highest rated shows or viewed shows. And now those 0:14:03.320 --> 0:14:05.520 are leaving and they're splitting up. One's going to Warner 0:14:05.559 --> 0:14:08.199 and one's going to NBC. So what's about to happen 0:14:08.200 --> 0:14:10.640 to the consumer is he's going to have five choices 0:14:10.640 --> 0:14:12.760 where it used to all be aggregated for a ten 0:14:12.800 --> 0:14:15.720 dollars a month under Netflix, which was an awesome value proposition. 0:14:16.280 --> 0:14:17.880 So what the consumer is going to have to do 0:14:17.960 --> 0:14:20.680 now is figure out which services he wants. And so 0:14:20.720 --> 0:14:23.720 we're gonna have this chaotic period of sort of open, 0:14:23.840 --> 0:14:26.840 free for all competition for let's say three to five years, 0:14:26.960 --> 0:14:29.240 but at the end of five years, consumers are all. 0:14:29.240 --> 0:14:31.320 The research shows that consumers are going to take three 0:14:31.360 --> 0:14:34.560 of these big entertainment services, probably including a spinning bundle 0:14:34.640 --> 0:14:36.680 or the big bundle, plus a couple O t t s. 0:14:37.000 --> 0:14:38.840 So the consumer will decide and it will be winner 0:14:38.880 --> 0:14:42.000 take all, and then whoever wins, they'll have to license 0:14:42.040 --> 0:14:43.760 the contract for the guy who went out of business. 0:14:44.800 --> 0:14:47.240 Who are the three winners? So I think the three 0:14:47.280 --> 0:14:49.480 I think Disney wins because they're big, they got a 0:14:49.520 --> 0:14:51.200 balance sheet, and they bought Fox to do this for 0:14:51.240 --> 0:14:53.120 seventy billion to do this, so they're really all in 0:14:53.160 --> 0:14:56.360 on this name. I think at biggest risk is Warner 0:14:56.400 --> 0:14:59.240 because they have to price that HBO product above fifteen 0:14:59.280 --> 0:15:01.480 dollars and so they're going to throw the turner stuff 0:15:01.480 --> 0:15:04.560 in UM and so you know, we'll see if they 0:15:04.560 --> 0:15:07.240 can market around that high price point, because that is 0:15:07.240 --> 0:15:09.960 at the Netflix price point. I think Netflix loses. It's 0:15:10.000 --> 0:15:12.360 already has to raise three point five billion a year. 0:15:12.400 --> 0:15:14.880 It doesn't have the balance sheet withstand a fight. And 0:15:14.960 --> 0:15:17.440 I gotta tell you if you're if you're a T 0:15:17.600 --> 0:15:22.320 and T, Warner Brothers or Disney or Comcast, the NBC Universal. 0:15:22.400 --> 0:15:24.120 You can lose money for ten years on this. It 0:15:24.240 --> 0:15:29.480 doesn't matter. Netflix cannot. Laura Martin really interesting points. Thank 0:15:29.480 --> 0:15:31.520 you so much for being here with us, My pleasure. 0:15:31.600 --> 0:15:34.320 Laura Martin is senior analyst at Needham and Company. Joining 0:15:34.400 --> 0:15:53.840 us here in our interactive broker studios. The earnings parade 0:15:53.960 --> 0:15:58.040 continues this week, in particular for the autos sector. Christ 0:15:58.120 --> 0:16:01.520 Are reported earlier today General Oters tomorrow. Joining us here 0:16:01.560 --> 0:16:05.040 in our interactive broker studios as Craig Trudell, us Autos 0:16:05.080 --> 0:16:08.320 team leader for Bloomberg News. So, Craig, before we get 0:16:08.360 --> 0:16:10.440 started into digging into some of the results we've gotten, 0:16:10.440 --> 0:16:14.240 because we've already gotten forward, Um, let's just talk about 0:16:14.280 --> 0:16:18.480 where we are in this secular decline of the auto industry. 0:16:18.520 --> 0:16:22.160 How low our expectations going into this earnings period. Well, 0:16:22.200 --> 0:16:24.560 we so we started the year with an expectation that 0:16:24.600 --> 0:16:28.840 we would tread water on a global perspective. So so 0:16:28.920 --> 0:16:31.440 the US market is sort of was sort of widely 0:16:31.480 --> 0:16:35.240 expected to start to decline. Uh, there was sort of 0:16:35.280 --> 0:16:39.440 a false positive last year of of sales being up 0:16:39.960 --> 0:16:42.760 just a smidgeon, but it was mostly driven by the 0:16:42.800 --> 0:16:44.960 fact that the car makers were selling a lot more 0:16:45.000 --> 0:16:48.560 to rental fleet companies and and it was you know, 0:16:48.640 --> 0:16:52.040 not really actually a strong year from a retail perspective. 0:16:52.760 --> 0:16:56.200 Relative to the last couple of years. We've seen a 0:16:56.240 --> 0:17:00.720 continuation of retail weakness and uh you know, uh sort 0:17:00.720 --> 0:17:02.600 of a move on the part of the car makers 0:17:02.600 --> 0:17:05.840 to sort of pad the numbers by selling more to fleets. Uh. 0:17:05.880 --> 0:17:09.359 In Europe, the market is deteriorating, especially in the in 0:17:09.400 --> 0:17:12.159 the last month. I think it sort of caught people 0:17:12.320 --> 0:17:15.080 off guard a little bit just how much weakness has 0:17:15.160 --> 0:17:17.520 has been over there. But the big, big story has 0:17:17.520 --> 0:17:21.359 been China. There was an expectation that the government would 0:17:21.359 --> 0:17:25.000 step in, as they have so often uh over the 0:17:25.080 --> 0:17:28.440 years when the auto market there has shown sign of 0:17:28.440 --> 0:17:31.960 of signs of weakness, you've seen uh state support to 0:17:32.080 --> 0:17:35.520 kind of you know, keep the market growing, and we 0:17:35.600 --> 0:17:38.359 haven't seen that. And we've seen China really, um, you know, 0:17:38.400 --> 0:17:42.160 continue to deteriorate. And so you know, a lot of suppliers, 0:17:42.200 --> 0:17:43.760 a lot of O. E M s are talking about 0:17:43.800 --> 0:17:47.040 the idea that you know, they were entering this year thinking, 0:17:47.200 --> 0:17:50.000 you know, the global industry would be you know, roughly 0:17:50.440 --> 0:17:53.920 treading water, when in fact it's it's down roughly about 0:17:53.960 --> 0:17:56.560 five percent. It's looking like for this year down five 0:17:56.560 --> 0:18:00.359 percent globally. So we've got Fiat Chrysler Um numbers and 0:18:00.480 --> 0:18:02.200 stocks up four percent. What do we what are the 0:18:02.240 --> 0:18:05.400 key takeaways there? So with f c A, the the 0:18:05.440 --> 0:18:07.960 big big story is trucks here in the US. So 0:18:08.000 --> 0:18:14.840 they've they've taken Ram truck. Yeah, Ram ram is you 0:18:14.880 --> 0:18:19.560 know please ram Is. Ram is really cutting the checks 0:18:19.560 --> 0:18:23.360 in Detroit. So uh. They they've got a new Ram 0:18:23.600 --> 0:18:26.320 Ram pickup that is really doing well. They also have 0:18:26.440 --> 0:18:29.119 this sort of dual strategy of they've they've continued to 0:18:29.160 --> 0:18:32.679 make the outgoing generation version of the Ram. Uh. They 0:18:32.680 --> 0:18:35.000 actually announced today that they're going to sort of continue 0:18:35.080 --> 0:18:38.760 that two pronged strategy of being able to offer the newer, uh, 0:18:38.800 --> 0:18:42.119 you know, more expensive, higher margin, you know, lucrative truck 0:18:42.560 --> 0:18:45.480 uh that that has been really successful. They've put a 0:18:45.520 --> 0:18:48.359 massive touch screen into that pickup that has you know, 0:18:48.400 --> 0:18:52.159 surprisingly gone over extremely well with with truck buyers. But 0:18:52.240 --> 0:18:55.000 they also have this older generation truck that's a little 0:18:55.040 --> 0:18:58.000 bit more for the budget buyer, and they're giving GM 0:18:58.040 --> 0:18:59.679 a real run for their money in terms of the 0:18:59.680 --> 0:19:01.720 pick up market here in the US. And that's huge 0:19:01.760 --> 0:19:05.560 for profitability, which brings us to General Motors, which reports tomorrow. 0:19:05.920 --> 0:19:10.119 Ford reported last week shares plunged seven and a half 0:19:10.200 --> 0:19:13.200 percent the day that they reported, so not a great 0:19:13.240 --> 0:19:15.719 day for Ford. Are we going to see a similar 0:19:15.760 --> 0:19:19.320 type of disappointment from motors? From what analysts are saying, 0:19:19.680 --> 0:19:22.040 given the fact that Fiat Chrysler might be taking away 0:19:22.080 --> 0:19:24.240 some of their market share, the key for them is 0:19:24.520 --> 0:19:27.520 going to be trucks. So so they too have a 0:19:27.560 --> 0:19:30.600 new pickup on the market. They for who is Truck's 0:19:30.680 --> 0:19:34.880 not the key? Everybody in Detroit. It's everybody. I mean, 0:19:34.920 --> 0:19:37.160 it's it really is still the story is It sort 0:19:37.160 --> 0:19:40.280 of feels like, you know, it feels like a broken 0:19:40.320 --> 0:19:43.359 record talking about Detroit and pickups. But it remains to be. 0:19:43.760 --> 0:19:46.160 It remains the case, despite all of this hype about 0:19:46.160 --> 0:19:49.679 electrification and autonomous vehicles, that is still what pays the 0:19:49.680 --> 0:19:53.119 bills around a town in Detroit. Uh, they have a 0:19:53.119 --> 0:19:57.280 new pickup as well. They've they've had a lot slower 0:19:57.280 --> 0:20:01.400 a ramp for that vehicle than than Fiat cry Sler has. UH. 0:20:01.440 --> 0:20:04.400 And whether or not. They're able to sort of resolve that, 0:20:04.560 --> 0:20:06.320 you know, work out the kinks of of getting that 0:20:06.400 --> 0:20:09.440 new truck onto the market and and sort of help 0:20:09.520 --> 0:20:12.720 the bottom line. That's important And for GM an important 0:20:12.720 --> 0:20:14.960 factor too is they got out of Europe a couple 0:20:15.000 --> 0:20:18.840 of years ago, so they're dodging the recent market weakness 0:20:18.920 --> 0:20:22.920 over there. Uh, the sort of impending doom that is 0:20:22.960 --> 0:20:26.280 being warned warned about in terms of the stricter emission 0:20:26.320 --> 0:20:29.359 standards over there. So GM has really sort of, uh, 0:20:29.400 --> 0:20:31.560 you know, said, you know what, we're we're out of here. 0:20:31.800 --> 0:20:33.960 They sold opal To to p s A a couple 0:20:34.000 --> 0:20:37.560 of years ago and that's no longer a concern for them. 0:20:37.640 --> 0:20:40.680 So that being said, China's weakness is a big deal 0:20:40.720 --> 0:20:42.720 for them. They are huge in that market and they're 0:20:42.720 --> 0:20:45.800 feeling feeling the pain just like everybody else. All right, now, 0:20:45.800 --> 0:20:47.520 we're gonna get to what I really want to talk about, 0:20:47.520 --> 0:20:51.399 which is Elon Musk tweeting production numbers. I thought he 0:20:51.440 --> 0:20:53.480 had an agreement with the SEC not to do that. 0:20:54.119 --> 0:20:56.440 I thought so too, uh, you know, And in the past, 0:20:56.520 --> 0:20:59.320 we've we've heard, we've seen him, you know, talking about 0:20:59.560 --> 0:21:03.159 car earlier this week it was it was about the 0:21:03.200 --> 0:21:06.400 solar roof which, uh in and of itself, was already 0:21:06.400 --> 0:21:08.840 a very controversial product. He showed that a couple of 0:21:08.880 --> 0:21:11.080 years ago really to sort of seal the deal on 0:21:11.080 --> 0:21:14.879 on buying Solar City, which everyone uh you know knows 0:21:14.960 --> 0:21:19.240 as as being a pretty controversial uh merger. Um. He 0:21:19.280 --> 0:21:21.919 talked about, you know, sort of towards the end of 0:21:21.960 --> 0:21:25.480 this year, his hope for how many of those roofs 0:21:25.520 --> 0:21:28.119 he's going to be able to make. He's had real, 0:21:28.200 --> 0:21:31.120 real trouble actually just sort of you know, getting production 0:21:31.160 --> 0:21:34.800 going whatsoever on that product comes out and says a 0:21:35.160 --> 0:21:37.800 thousand a week by the end of this year. That's 0:21:38.000 --> 0:21:41.520 not anywhere you know there. There hasn't been any forecast 0:21:41.600 --> 0:21:45.320 whatsoever from the company from that perspective, and the amended 0:21:45.400 --> 0:21:49.359