WEBVTT - Surveillance: Dudley Says Fed Can Do More 0:00:09.880 --> 0:00:12.960 Welcome to the Bloomberg Surveillance podcast and I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.680 Bloomberg dot Com, and of course, on the Bloomberg. William 0:00:27.760 --> 0:00:30.880 Dudley is the former New York Fact President, now Princeton 0:00:30.960 --> 0:00:34.000 Holding Court. As a senior research scholar, but far more 0:00:34.080 --> 0:00:37.920 than that, he developed Goldman Sachs Economics Prejon Hasseas with 0:00:38.080 --> 0:00:40.920 Ed mcelvey and knew that it was about theory, it 0:00:41.000 --> 0:00:44.519 was about the guestimates, but it was also the granularity 0:00:44.560 --> 0:00:48.479 of the data. Bill Dudley joins us this morning. Dr Dudley, 0:00:48.520 --> 0:00:50.280 I want to go right to the Dudley. It feels 0:00:50.280 --> 0:00:52.960 like Ed mcelvy call here. I want to talk about 0:00:53.000 --> 0:00:57.240 the Dudley Beige Book about how you use data, like 0:00:57.320 --> 0:01:01.120 Mike McKee just reported, But you have to look at 0:01:01.120 --> 0:01:03.760 the data in the context of what's going on elsewhere. 0:01:03.840 --> 0:01:06.280 So you know, the fact that the retail cells were 0:01:06.280 --> 0:01:09.840 a little weaker in October reinforces the idea that is, 0:01:09.880 --> 0:01:13.880 the pandemic gets worse and there's more shutdowns and restrictions 0:01:13.880 --> 0:01:16.319 at the November data, which we haven't gotten yet, will 0:01:16.360 --> 0:01:18.840 be even softer. So you know, we have a value 0:01:18.880 --> 0:01:20.720 that we have to go through over the next six 0:01:20.760 --> 0:01:24.399 to nine months before the vaccines arrive and we can 0:01:24.440 --> 0:01:27.000 get people vaccinated. And I think it's gonna be a 0:01:27.000 --> 0:01:30.320 difficult validy to go through because the pandemic is getting 0:01:30.360 --> 0:01:34.360 worse and there's no fiscal stimulus package that seems to 0:01:34.400 --> 0:01:38.080 be about to arrive in a timely way. This is 0:01:38.120 --> 0:01:40.440 so so important, folks, and why it's so good to 0:01:40.480 --> 0:01:42.840 have William Dudley with us right now that the only 0:01:42.840 --> 0:01:44.960 one I can think of Bill Dudley is Lawrence Meyer. 0:01:45.040 --> 0:01:47.559 In terms of looking at the granularity of the data 0:01:47.840 --> 0:01:50.840 week to week, as you did years ago at goldben Sex, 0:01:51.160 --> 0:01:55.320 what data are you looking for forward to frame out 0:01:55.400 --> 0:01:59.040 the next two quarters. I think I'm gonna be focused 0:01:59.040 --> 0:02:02.440 mostly on the course of the pandemic itself and the 0:02:02.480 --> 0:02:04.880 reaction of state and local governments in terms of the 0:02:04.920 --> 0:02:07.640 restrictions that they put in place and how much people 0:02:07.720 --> 0:02:10.840 actually social distance, you know, to extent that the pandemic 0:02:10.880 --> 0:02:13.880 worsens and we have more restrictions, that's gonna exert downward 0:02:13.880 --> 0:02:16.519 pressure on the economic good data. I think it's also 0:02:16.520 --> 0:02:18.519 important to recognize that when we get data like what 0:02:18.680 --> 0:02:20.560 we got today in retail self, we're really looking in 0:02:20.600 --> 0:02:22.359 the rear view mirror. I mean the data is at 0:02:22.400 --> 0:02:24.800 over data first half of October data. We're in a 0:02:24.880 --> 0:02:27.119 much worse place today than we were in the first half. 0:02:28.880 --> 0:02:31.640 This bility point out is about momentum. Momentum is fighting 0:02:31.720 --> 0:02:33.960 the data, as you anticipate, is sets to worsen from 0:02:34.000 --> 0:02:36.560 here because of the restrictions. Let's talk about where this 0:02:36.680 --> 0:02:40.480 leaves policymakers, specifically monasty policymakers at the moment. You wrote 0:02:40.760 --> 0:02:42.920 an upad pace full blom Bug opinion in the last 0:02:42.960 --> 0:02:45.079 month which said quite clearly that you think many of 0:02:45.120 --> 0:02:47.959 the shatis for you that they have run out of ammunition. 0:02:48.440 --> 0:02:51.480 So Bill, where does it leave them right now? Well, 0:02:51.520 --> 0:02:54.120 they can do more, I mean, they haven't completely run 0:02:54.160 --> 0:02:56.079 out of ammunition in the sense that they could increase 0:02:56.120 --> 0:02:58.960 their asset purchases, or they could extend the duration of 0:02:59.000 --> 0:03:01.520 the asset purchases that they make. But it just wouldn't 0:03:01.520 --> 0:03:04.440 have that much consequence because the FED is actually succeeded 0:03:04.440 --> 0:03:07.079 in what it what turns what it wanted to accomplish. 0:03:07.400 --> 0:03:10.240 It's made interest rates very low, and it's made financial 0:03:10.240 --> 0:03:14.480 conditions very accommodative. FED did more, would it help a 0:03:14.520 --> 0:03:16.720 little bit, But the end of the days, this is 0:03:16.720 --> 0:03:20.120 really about fiscal stimulus and providing support to incomes to 0:03:20.120 --> 0:03:22.639 help people get through the valley that we face in 0:03:22.680 --> 0:03:26.440 the months ahead. Come balanced Bill as a former policy 0:03:26.480 --> 0:03:28.839 make at the FED. When you look at things right now, 0:03:28.960 --> 0:03:32.120 we have market participants come on this program all day, 0:03:32.120 --> 0:03:35.320 every day, five days a week talking about risk or 0:03:35.400 --> 0:03:38.040 lack thereof in the credit market. Because it affects presence 0:03:38.160 --> 0:03:41.040 in it, it's not a good thing at a time 0:03:41.120 --> 0:03:45.120 like this. Well, I think the FEDS backstops are pretty 0:03:45.120 --> 0:03:48.040 important because it basically reassures people that there is a 0:03:48.080 --> 0:03:50.840 buyer of last resort, and so that encourages other people 0:03:50.920 --> 0:03:54.920 to be engaging in financial markets. The FEDS, you know, 0:03:54.920 --> 0:03:58.720 the liquidity facilities of the FEDS has provided Actually haven't 0:03:58.760 --> 0:04:03.000 had that great out of takedown. Uh. What's happened is 0:04:03.040 --> 0:04:05.160 that they've served as effective backstops, and I think it's 0:04:05.560 --> 0:04:07.800 very very appropriate. Another issue that's going to get some 0:04:07.840 --> 0:04:10.840 attention is whether the FED is gonna extend the date 0:04:10.920 --> 0:04:14.640 of when these liquidity facilities laughs. Right now, they're scheduled 0:04:14.720 --> 0:04:17.320 to end at the end of December, and I think 0:04:17.320 --> 0:04:20.240 it's very likely that they'll extend them, probably you know, 0:04:20.520 --> 0:04:23.039 through at least into end of March, and maybe through 0:04:23.080 --> 0:04:26.360 the first half of two thousand one. Still a lot 0:04:26.400 --> 0:04:29.159 of people agree that the FED stepped in and provided 0:04:29.160 --> 0:04:31.280 a backstop to a lot of companies in a good way. 0:04:31.600 --> 0:04:35.880 But there's some concern that the FED is dramatically exacerbating inequalities, 0:04:35.920 --> 0:04:38.920 not just in terms of households, but among companies as well, 0:04:38.960 --> 0:04:41.320 because right now we're seeing the pain really being felt 0:04:41.480 --> 0:04:44.000 at smaller companies that don't even register with their bankruptcies, 0:04:44.040 --> 0:04:46.240 since they simply just close up shop and they don't 0:04:46.240 --> 0:04:49.599 have access to borrowing money in credit markets in the 0:04:49.640 --> 0:04:51.279 same kind of way. Do you think that the FED 0:04:51.600 --> 0:04:55.240 has almost whitewashed some of the pain with their policies 0:04:55.520 --> 0:04:58.640 looking at broader markets that have this enthusiasm, and that 0:04:58.720 --> 0:05:02.920 this is somehow at this point potentially even harmful. Well, 0:05:02.920 --> 0:05:04.599 I don't think it's harmful. I mean in the sense 0:05:04.600 --> 0:05:07.320 that it's much better to have financial markets operating than 0:05:07.360 --> 0:05:09.960 not operating. I think the problem for the FED is 0:05:10.000 --> 0:05:13.040 that Monterrey policy is a blue instrument which can't really 0:05:13.080 --> 0:05:15.560 do much about the fact that the impact of the 0:05:15.600 --> 0:05:19.239 pandemic follows very unequally on household and on different types 0:05:19.240 --> 0:05:21.840 of businesses. You know, the FED introduced the main Street 0:05:21.920 --> 0:05:24.159 lending program to try to get to a set of 0:05:24.200 --> 0:05:27.520 businesses that can access the capital markets very easily, and 0:05:27.560 --> 0:05:29.839 it just hasn't worked very well because there's lots of 0:05:29.920 --> 0:05:33.200 terms and conditions and so there's been very little take up. Uh. Yeah, 0:05:33.200 --> 0:05:35.320 I think it's much better for the FED to generate 0:05:35.360 --> 0:05:39.240 as strong as strong economy as they can and recognizing 0:05:39.279 --> 0:05:42.200 that there may be on equal burdens. But then that's 0:05:42.240 --> 0:05:44.840 for Congress and administration to come forward with the fiscal 0:05:44.880 --> 0:05:49.600 pactes that supports those that are most disadvantaged by what's happened. Meanwhile, 0:05:49.920 --> 0:05:53.120 next month, the FED is expected by some, including JP Morgan, 0:05:53.279 --> 0:05:56.039 to extend the duration of their asset purchases. Do you 0:05:56.080 --> 0:05:58.040 think that, based on where we are, based on what 0:05:58.120 --> 0:06:00.599 markets are doing, that they should go through that and 0:06:00.640 --> 0:06:03.840 that they should make that decision next month, even if 0:06:03.920 --> 0:06:07.120 market conditions are similar to where they are today. Well, 0:06:07.120 --> 0:06:09.479 I don't think there's a tremendous rush that they have 0:06:09.560 --> 0:06:11.640 to do in December. If they waited, I don't think 0:06:11.640 --> 0:06:14.520 there'll be a great consequence with tenure Treasury note you'll 0:06:14.600 --> 0:06:17.840 blow one percent. But it sort of makes sense right 0:06:17.880 --> 0:06:22.120 if you're buying UH. Treasury is an agency mortgage backed securities. Now, 0:06:22.240 --> 0:06:24.719 not so much to support market function, but to keep 0:06:24.760 --> 0:06:28.120 long term rates low. Then why not concent figure purchases 0:06:28.120 --> 0:06:31.680 in the long end of the market. Dr Dudley, I 0:06:31.760 --> 0:06:34.760 must ask you about Governor to be it's a very 0:06:34.800 --> 0:06:38.440 close vote right now. Judy Shelton, I want you to 0:06:38.640 --> 0:06:42.960 explain to our audience what her theory is grounded in 0:06:43.040 --> 0:06:48.400 traditional economics. If it's not classical or neo classical, if 0:06:48.400 --> 0:06:53.800 it's not kinesiean, what is shelton theory as you perceive it? Well, 0:06:53.839 --> 0:06:55.719 I don't think I understand her theory. That's to be 0:06:55.800 --> 0:06:59.719 very blunt about it. Look, I think it's unfortunate that 0:07:00.120 --> 0:07:03.279 that the Congress is Republican conference is pushing forward to 0:07:03.400 --> 0:07:06.720 confirm Shelton, UH and Waller. I think it would make 0:07:06.720 --> 0:07:09.600 more sense to leave those positions open so that Joe 0:07:09.640 --> 0:07:14.120 Biden put his imprint on the Fed. End of the day, though, 0:07:14.160 --> 0:07:16.280 if Shelton were to get confirmed. I don't think would 0:07:16.320 --> 0:07:18.760 make a huge difference in terms out of the conserves 0:07:18.800 --> 0:07:21.960 policy bill. I must ask you, and this is so important, 0:07:22.000 --> 0:07:25.200 if you don't understand your theory, do you perceive that 0:07:25.240 --> 0:07:30.040 she's coming from some convolution of Austrian economics and a 0:07:30.120 --> 0:07:36.280 traditional historical German economics, literally from another time and place. Well, 0:07:36.360 --> 0:07:38.880 she's been inconsistent over time. Right, on one hand, she 0:07:38.920 --> 0:07:41.360 has spouses sort of goal standard hard money. On the 0:07:41.360 --> 0:07:43.680 other hand, she now wants to you know, interest rates 0:07:43.720 --> 0:07:47.280 extraordinarily low even before we entered the pandemic. So she 0:07:47.360 --> 0:07:51.040 seems to bend with the political winds. And you really 0:07:51.200 --> 0:07:53.360 want the Fed to not bend with the political winds. 0:07:53.400 --> 0:07:57.880 You want them to be independent of the political pressures. Well, 0:07:57.880 --> 0:07:59.840 but let's talk about process and just wrap things up 0:07:59.880 --> 0:08:02.240 that I've lost kind of how many meetings you must 0:08:02.240 --> 0:08:04.360 have been to at the Federal Reserve if there was 0:08:04.400 --> 0:08:07.560 someone with a more unorthodox approach to monety policy and 0:08:07.600 --> 0:08:11.000 policy setting. How loud could that voice possibly be if 0:08:11.040 --> 0:08:14.280 she was confirmed? Not very loud. I mean, the way 0:08:14.320 --> 0:08:16.640 the Federals are works, it's a it's a consensus, it's 0:08:16.640 --> 0:08:21.280 a committee. The chairman sets the agenda. If you're you know, 0:08:21.400 --> 0:08:22.960 by your you know, if you have views that are 0:08:23.000 --> 0:08:25.559 not shared by others on the committee, you can dissent, 0:08:25.640 --> 0:08:27.760 but you're not gonna have any meaningful impact on policy. 0:08:27.760 --> 0:08:29.800 I think, you know, if Shelton is confirmed, I mean, 0:08:29.840 --> 0:08:32.720 the main implication of it just that Biden wouldn't have 0:08:33.120 --> 0:08:35.720 a chance to appoint governors to the FED, and that 0:08:35.800 --> 0:08:40.240 might slow down his ability to put people in place 0:08:40.320 --> 0:08:43.000 that that that that he thinks there are more consistent 0:08:43.000 --> 0:08:45.400 with his policy views. Not so much on Montrey policy, 0:08:45.640 --> 0:08:50.040 but in terms of financial regulation and bank regulation bill. 0:08:50.080 --> 0:08:52.040 Great to catch up. We appreciate how open you've been, 0:08:52.160 --> 0:08:54.560 and asked him. Minutes built outly their former New York 0:08:54.559 --> 0:09:02.480 FED president now Princeton and bloom Bug opinion columnists joining 0:09:02.559 --> 0:09:06.840 us now Madama Alliance is Global Investors. US investment strategist 0:09:06.880 --> 0:09:11.440 Mona Kitchen Salk said this morning, understandable the last week 0:09:11.520 --> 0:09:15.840 or so in this market, but unsustainable Do you share that? Uh? 0:09:15.880 --> 0:09:19.280 You know, I actually think that the rotation part of 0:09:19.320 --> 0:09:23.120 this equity move is somewhat sustainable. So you know, we 0:09:23.120 --> 0:09:25.000 we see, of course, in the next few months we 0:09:25.040 --> 0:09:27.720 may get some volatility. We're still not through the toughest 0:09:27.760 --> 0:09:31.959 part of this virus and this pandemic um. But beyond that, 0:09:32.080 --> 0:09:33.960 you know, I think the incremental news we got this 0:09:34.000 --> 0:09:37.440 week in last week was not only vaccines, but vaccines 0:09:37.480 --> 0:09:43.000 that were over effective or effective. You know, even the scientists, 0:09:43.360 --> 0:09:47.040 in their their wildest hopes were not expecting two vaccines 0:09:47.040 --> 0:09:49.760 that would produced that. So in our mind, that's incremental 0:09:49.800 --> 0:09:53.000 news that could get us through this pandemic in the 0:09:53.040 --> 0:09:55.560 next twelve month period. And so for us, when you 0:09:55.600 --> 0:09:59.640 think about one where growth may start to accelerate because 0:09:59.679 --> 0:10:01.640 you have have a true reopening, not only in the 0:10:01.760 --> 0:10:05.800 US but globally, rates will probably remain low at least 0:10:05.800 --> 0:10:10.760 through and you have the potential for fiscal stimulus and 0:10:10.840 --> 0:10:13.080 maybe some fiscal spending. You know, that's not a bad 0:10:13.120 --> 0:10:17.120 backdrop for risk assets broadly. So overall, we will continue 0:10:17.160 --> 0:10:19.640 to feel that if you have some periods of alatility, 0:10:19.840 --> 0:10:22.280 use that tactically, if you haven't already layered in some 0:10:22.360 --> 0:10:26.080 cyprocality some non US assets. Start to think about that 0:10:26.600 --> 0:10:29.160 Mona Walmart is breaking out to a new high. Our 0:10:29.160 --> 0:10:31.400 corporation is going to adjust to all this. I mean, 0:10:31.400 --> 0:10:34.480 the bears are there. John's mentioning the gloom of a Bramo. 0:10:34.559 --> 0:10:36.600 It's the gloom of Sockin and the rest of them 0:10:36.840 --> 0:10:40.000 as well, Mona, Just as simple as I can. Are 0:10:40.040 --> 0:10:46.080 we underestimating the ability of corporations to adapt to this pandemic. 0:10:47.120 --> 0:10:51.120 You know, clearly this pandemic has accelerated some key trends. 0:10:51.120 --> 0:10:53.719 So we've seen brick and mortar to online retail, and 0:10:53.760 --> 0:10:57.880 Walmart's a clear beneficiary that they've accelerated their online programs 0:10:58.320 --> 0:11:01.240 um but also things like know a work from more 0:11:01.280 --> 0:11:04.720 work from home employee base that's been accelerated through this. 0:11:05.040 --> 0:11:07.600 We think that's here to stay to some extent. Supports 0:11:07.600 --> 0:11:11.760 cloud computing, supports cybersecurity, going from you know, medical visits 0:11:11.760 --> 0:11:14.199 in person to tell medicine, you know, another trend that's 0:11:14.200 --> 0:11:16.800 probably here to stay. So there's several trends that we 0:11:16.880 --> 0:11:19.880 are seeing that the corporations probably had been thinking about 0:11:20.120 --> 0:11:22.400 but now really have to get on the ball. These 0:11:22.440 --> 0:11:26.360 trends have been accelerated through this pandemic and are likely 0:11:26.480 --> 0:11:29.280 here to stay to some extent, and so that's why 0:11:29.280 --> 0:11:31.600 we still think a balance is important. You know, some 0:11:31.679 --> 0:11:34.880 of these quote unquote stay at home stocks are actually 0:11:35.080 --> 0:11:38.040 you know, they have three five ten years secular growth 0:11:38.080 --> 0:11:40.480 trends behind them, and so it's important to have that 0:11:40.559 --> 0:11:42.520 part of the exposure as well. But you know, we 0:11:42.520 --> 0:11:45.280 could see a few months at least of really strong 0:11:45.320 --> 0:11:48.320 outperformance from the cyclical part of the market as well. 0:11:48.679 --> 0:11:51.280 Not one of the hardest aspects of this moment is 0:11:51.320 --> 0:11:53.880 there's a near term, as John was talking about, that's 0:11:53.880 --> 0:11:56.080 looking darker and darker, and frankly darker than a lot 0:11:56.120 --> 0:11:58.640 of people had expected with respect to the pandemics trends. 0:11:58.880 --> 0:12:00.720 And then you have the longer term or the even 0:12:00.760 --> 0:12:03.720 the intermediate term, which looks better than expected given the 0:12:03.720 --> 0:12:06.800 efficacy of some of these vaccines. You said in periods 0:12:06.840 --> 0:12:10.320 of volatility to take advantage and go long into the 0:12:10.480 --> 0:12:13.560 trades that you're talking about. What counts is volatility? What's 0:12:13.600 --> 0:12:16.480 the entry point that you're looking for. Yeah, it's a 0:12:16.520 --> 0:12:19.640 great question because in some cases, and certainly since the 0:12:19.640 --> 0:12:22.480 start of this quarter, we haven't gotten many pullbacks in 0:12:22.520 --> 0:12:25.000 fact s andps up seven and a half or eight 0:12:25.000 --> 0:12:28.840 percent since septembert and some of the cyclical sectors are 0:12:28.920 --> 0:12:33.280 up thirteen fourteen, so we haven't quite seen a dip 0:12:33.400 --> 0:12:36.040 to buy quite yet. We do think over the next 0:12:36.360 --> 0:12:38.040 two month period three year, and you're not going to 0:12:38.120 --> 0:12:41.360 get a continuation of this straight upward movement. There will 0:12:41.400 --> 0:12:43.960 be pullbocks. Keep in mind, in any given year, three 0:12:43.960 --> 0:12:46.440 to five pullbocks in a five to ten percent basis 0:12:46.520 --> 0:12:49.439 or five ten percent range are normal and are probably 0:12:49.520 --> 0:12:52.880 healthy if we go through another period like that, certainly 0:12:52.920 --> 0:12:55.880 ahead of one. I think it's important to start thinking 0:12:55.920 --> 0:12:58.839 about how you want to position as these vaccines get 0:12:58.920 --> 0:13:01.640 rolled out, as hopefully we start to see this change 0:13:01.640 --> 0:13:04.880 and shift uh two in consumer behavior, perhaps a little 0:13:04.880 --> 0:13:09.080 bit back to pre pandemic activity levels. And so we 0:13:09.160 --> 0:13:12.520 do think we'll we'll get a period of consolidation that 0:13:12.559 --> 0:13:15.480 can be used to position yourself accordingly. So it's important 0:13:15.480 --> 0:13:18.880 to watch for that. No to what extent do you 0:13:18.960 --> 0:13:21.439 think that people were conditioned by the price action of 0:13:21.520 --> 0:13:24.439 the spring and condition to look through what's playing out 0:13:24.440 --> 0:13:26.280 in America right now? And I wonder what you think 0:13:26.280 --> 0:13:29.280 the fall out of that actually is. Yeah, it's a 0:13:29.280 --> 0:13:32.439 great question, because clearly when the Fed stepped in in March, 0:13:32.600 --> 0:13:35.240 and they stepped in a big way, uh not only 0:13:35.320 --> 0:13:37.800 bring rates back down to a little round, adding kwee, 0:13:37.960 --> 0:13:41.319 adding these credit facility programs that really supported the functioning 0:13:41.400 --> 0:13:44.720 of credit an equity markets. Um, they really did put 0:13:44.720 --> 0:13:47.079 a bit of a backstop into this market, and so 0:13:47.640 --> 0:13:51.560 um it does feel like markets are conditioned to buy 0:13:51.600 --> 0:13:54.400 that dip. Um. What we'd say is it's important to 0:13:54.440 --> 0:13:56.800 stay a little bit active and how you buy these 0:13:56.840 --> 0:13:59.680 dips and how you position yourself in the marketplace. If 0:13:59.679 --> 0:14:03.280 you to have performance that's in line with you know, 0:14:03.320 --> 0:14:05.839 the broader indusseries. You do need to think about your 0:14:05.840 --> 0:14:08.880 waiting in certain sectors, in certain regions, etcetera. And so 0:14:09.440 --> 0:14:11.200 there is a bit of conditioning, but we think it 0:14:11.200 --> 0:14:13.400 could be more than just buying the overall market. It's 0:14:13.400 --> 0:14:15.959 how you position as you move forward. But as long 0:14:16.000 --> 0:14:17.800 as the FETE is there, as long as global central 0:14:17.840 --> 0:14:20.880 banks are in play, um, we think there is a 0:14:20.880 --> 0:14:23.280 bit of a backstop in the market. And that's some 0:14:23.360 --> 0:14:26.200 extent helpful, but longer term we'll see what consequences are 0:14:26.720 --> 0:14:28.800 might great to catch up the fete is that with 0:14:28.920 --> 0:14:32.280 all without Judy shouts and made jan from invest this, 0:14:32.400 --> 0:14:39.280 thank you. Let's get started here right now and Amazon 0:14:39.360 --> 0:14:43.000 tom four to where this so d a Davidson, He writes, brilliant, brilliant, No, yeah, 0:14:43.000 --> 0:14:45.240 he's a bowl on Amazon. But this, of course, on 0:14:45.280 --> 0:14:47.960 this big announcement today, Tom, I get the type two 0:14:48.000 --> 0:14:51.520 that this is about hurting right aid, hurting CVS, taking 0:14:51.560 --> 0:14:55.320 market share away, etcetera. What's in it for Mr Bezos? 0:14:57.000 --> 0:15:00.200 So those are the implications for the competition. This is 0:15:00.240 --> 0:15:04.480 a large trillion dollar global opportunity for Amazon. So Amazon 0:15:04.560 --> 0:15:08.440 needs these large global trillion dollar opportunities to sustain their 0:15:08.480 --> 0:15:11.480 growth and their multiple So my question for Amazon is 0:15:11.520 --> 0:15:13.400 what took you so long? But I think this is 0:15:13.440 --> 0:15:15.840 a great move by Amazon. Okay, so it's there, and 0:15:16.000 --> 0:15:18.800 you know, I look at I look at Amazon right now. 0:15:18.880 --> 0:15:21.240 Does this move the needle on their revenues? I mean, 0:15:21.640 --> 0:15:27.120 is it just is it a five year project? Excellent question, Tom. Collectively, 0:15:27.200 --> 0:15:31.360 I would say Amazon's healthcare efforts are needle movers. So 0:15:31.440 --> 0:15:33.920 you think about how they've kind of been forced into healthcare, 0:15:34.560 --> 0:15:38.040 testing their employees for COVID, opening these mini clinics for 0:15:38.080 --> 0:15:43.080 their employees families, and now they're advancing their pharmacy efforts. 0:15:43.120 --> 0:15:44.840 They had pill pack, now they're going to open an 0:15:44.840 --> 0:15:49.160 online pharmacy. I think collectively their efforts and healthcare are 0:15:49.240 --> 0:15:53.560 needle movers. Well, let's more through things just quickly. The 0:15:53.560 --> 0:15:55.840 acquisition of pill back, how does it fit into all 0:15:55.880 --> 0:15:57.160 of this? And do you think they can do this 0:15:57.240 --> 0:16:02.280 from where they are now organically complimentary to the extent 0:16:02.320 --> 0:16:04.600 you think of pill pack is making it easier for 0:16:04.760 --> 0:16:09.040 consumers to follow their prescriptions. I still believe that over 0:16:09.080 --> 0:16:12.080 time they're going to have physical pharmacies that will complement 0:16:12.120 --> 0:16:15.120 their online ones. I really thought acquired Whole Foods in 0:16:16.080 --> 0:16:18.920 they would devote a portion of that box to a pharmacy. 0:16:19.320 --> 0:16:21.520 So I still think this is only the beginning, but 0:16:21.600 --> 0:16:24.640 an important move for Amazon given the large social addressable 0:16:24.720 --> 0:16:29.200 market TOM. Their Whole Foods acquisition and rollout hasn't necessarily 0:16:29.280 --> 0:16:32.960 been incredibly profitable. We don't necessarily know. They don't break 0:16:33.000 --> 0:16:35.960 out all of the data, but they're fries into physical 0:16:36.480 --> 0:16:39.400 grocery stores in the past have not been as successful. 0:16:39.840 --> 0:16:42.640 Why is this time different? Why are we seeing the 0:16:42.960 --> 0:16:48.200 shares of CBS and Walgreen's plummet on this news so 0:16:48.600 --> 0:16:52.560 excellent points. Historically Basis has said your sales is my opportunity. 0:16:52.920 --> 0:16:56.440 I feel like historically Walmart said your gross profits my opportunity, 0:16:56.840 --> 0:16:59.520 and Walmart went hard in the generic drugs. If you remember, 0:17:00.080 --> 0:17:03.360 so there is a lot of profitability opportunity for Amazon, 0:17:03.920 --> 0:17:07.800 especially in generics. Um Grocery, though, is not a high 0:17:07.840 --> 0:17:11.280 margin category. So I would say that expectations the whole 0:17:11.280 --> 0:17:15.720 foods generating materially higher margins were overly optimistic. In the 0:17:15.760 --> 0:17:18.639 case for pharmacy is different, though, Tom there is a 0:17:18.680 --> 0:17:22.920 broader question, especially as Democrats have more power heading into 0:17:23.720 --> 0:17:26.720 one with Joe Biden taking the role of president. There's 0:17:26.760 --> 0:17:30.000 a question of how much more antitrust concerned. This raises 0:17:30.040 --> 0:17:32.960 about Amazon, the fact that they're plowing into every aspect 0:17:33.280 --> 0:17:36.680 of people's lives. Does this matter if it's done organically. 0:17:36.920 --> 0:17:39.479 Does this put pressure to possibly break them up or 0:17:39.480 --> 0:17:43.440 restrain them in some capacity? So I think that it's 0:17:43.480 --> 0:17:47.680 bipartisans support to restrain the impact of Amazon, Apple, Facebook, 0:17:47.680 --> 0:17:50.040 and Google. But I think both parties are trying to 0:17:50.040 --> 0:17:52.359 figure out how to do that. It's my understanding at 0:17:52.359 --> 0:17:56.160 one point was this warrant proposed legislation to limit acquisitions 0:17:56.160 --> 0:17:58.520 over a billion. So you'll see a lot of smaller 0:17:58.520 --> 0:18:01.440 acquisitions if that happens, and to your point, more companies 0:18:01.480 --> 0:18:04.720 building it organically. From an anti competitive standpoint, that it's 0:18:04.720 --> 0:18:06.720 hard for me to imagine that they could prove this 0:18:06.880 --> 0:18:09.439 is bad for the consumer and at this raises costs 0:18:09.440 --> 0:18:12.399 and pharmacy. You know, I'm looking at the margins on 0:18:12.600 --> 0:18:14.920 right aid and come on, it's like a grocery store 0:18:14.960 --> 0:18:18.159 margin as well. Tom, give us the percentage margin we 0:18:18.200 --> 0:18:20.600 should see their forget about the cloud for now? What 0:18:20.680 --> 0:18:23.240 do they make on all the cardboard boxes? On margin? 0:18:23.600 --> 0:18:25.920 What are they going to make on pharmacy? As related 0:18:25.920 --> 0:18:28.800 to that and related to the razor thin margins at 0:18:28.800 --> 0:18:32.639 Whole Foods yep. So collectively, I think of Amazon is 0:18:32.640 --> 0:18:36.200 having the potential for adjusted EVA DON margin long term. 0:18:36.480 --> 0:18:40.040 If I put most profitable least profitable, it'd be advertising first, 0:18:40.160 --> 0:18:43.880 then cloud, then pharmacy, then third party retail, and then 0:18:43.920 --> 0:18:47.439 dot dot dot here, but come on, give me a number, stop, Tom, 0:18:47.480 --> 0:18:51.119 give me a number. Here, I get the IBATA. What's 0:18:51.160 --> 0:18:56.320 the cardboard box margin? And what's pharmacy gonna bring? Sure, 0:18:56.400 --> 0:18:59.000 pharmacy I think confidently will bring more than a ten 0:18:59.040 --> 0:19:01.600 percent in just e but margin and the first party 0:19:01.640 --> 0:19:04.239 retail margin is flat. So I'm great to catch up. 0:19:04.280 --> 0:19:06.480 I appreciate your time today, said some found of that 0:19:06.720 --> 0:19:15.880 day to have its Incenia Research analysts were this right now? 0:19:16.000 --> 0:19:18.320 This is it, folks, is such a blur here. I 0:19:18.359 --> 0:19:20.080 really don't know what the schedule is. We've got such 0:19:20.119 --> 0:19:22.320 a great team that just throws it at me. And 0:19:22.359 --> 0:19:24.760 this is a joy. Ian Bremer joins with your Ragia 0:19:24.760 --> 0:19:29.199 group G zero Media. He's been asconce sequestered away working 0:19:29.200 --> 0:19:31.360 on a new book. How many times have you any 0:19:31.359 --> 0:19:34.280 of you changed your book in the last six weeks given? 0:19:35.560 --> 0:19:37.600 Not at all, my friend, not at all. I mean, 0:19:37.600 --> 0:19:39.520 you know, when you're doing a book. If I can't 0:19:39.520 --> 0:19:42.200 stand up, you're not doing a book. So so many 0:19:42.240 --> 0:19:44.320 things to talk about. Let us start with the bigger 0:19:44.320 --> 0:19:48.199 and the broader. Freezcaria talks about a post American world. 0:19:48.440 --> 0:19:52.720 What does the post Trump world look like? Um, well, 0:19:52.760 --> 0:19:55.440 there's it's gonna be a honeymoon. There's no question that 0:19:55.640 --> 0:19:58.800 most leaders, not all, but most leaders around the world 0:19:58.800 --> 0:20:01.120 are going to be very happy. You see the back 0:20:01.160 --> 0:20:05.600 of Trump, and so the big summits that happen will 0:20:05.640 --> 0:20:10.440 appear much more consensus oriented. They'll be a honeymoon. They'll 0:20:10.480 --> 0:20:14.119 want to give Biden some small winds to show that 0:20:14.200 --> 0:20:17.000 the United States is back. But you and I both 0:20:17.040 --> 0:20:21.160 know that the reasons that we have so much uncertainty 0:20:21.160 --> 0:20:24.600 in the global order, have comparatively little to do with Trump. 0:20:24.680 --> 0:20:28.000 Their structural they are, you know, a United States that 0:20:28.200 --> 0:20:31.880 is less in leading from the front. You remember leading 0:20:31.880 --> 0:20:35.719 from behind that started with Obama Biden. Um. You have Europe, 0:20:35.720 --> 0:20:39.400 which is more divided post Brexit. Um. You have Russia 0:20:39.480 --> 0:20:42.720 which is in decline and undermining the United States and 0:20:42.800 --> 0:20:44.679 our friends. And then you have China, which is not 0:20:44.760 --> 0:20:48.880 aligning towards the US in political and economic systems at all. 0:20:49.119 --> 0:20:53.240 None of those things change one bit with a Biden administration. Okay, 0:20:53.280 --> 0:20:57.040 but the tone changes. And I think all of our listeners, 0:20:57.200 --> 0:21:00.920 you know, worldwide and whatever their politics is, is they 0:21:01.000 --> 0:21:04.360 overweight they underweight tone? Dr Bremer, You've been doing this 0:21:04.440 --> 0:21:09.520 for a while. Tone, We've learned matters. What's the proper 0:21:09.600 --> 0:21:13.919 tone in the first weeks of a Biden administration? Is 0:21:13.960 --> 0:21:20.800 they rebuild state that we care about values, that democracy matters, 0:21:20.960 --> 0:21:23.760 human rights? Does he does he get on an airplane? 0:21:23.800 --> 0:21:26.000 I mean, is the big surprise here is Joe Biden 0:21:26.080 --> 0:21:30.280 is going to do a international tour as president? No? No, 0:21:30.359 --> 0:21:34.879 I don't think so, because he's entering governance with a 0:21:35.080 --> 0:21:40.560 very dysfunctional transition in the midst of an incredibly challenging 0:21:40.640 --> 0:21:44.680 coronavirus at home, and he needs to respond to that 0:21:44.880 --> 0:21:47.280 at home. I mean, there's no question that there will 0:21:47.320 --> 0:21:50.840