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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jaylie.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Day

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Speaker 1: two of high level trade negotiations down, day two coming up.

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Speaker 1: Day one down, rather day two coming up. The President

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Speaker 1: of the United States said the talks have gone, quote

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Speaker 1: very well. Tom Alik joined us now from Washington, d C.

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Speaker 1: On Bloomberg Economics Chief Economists. Tom translate very well for

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Speaker 1: us if you can. Well. Actually, the main question I

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Speaker 1: have right now, Jonathan, is where I stand in your

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Speaker 1: friendship rankings? Am I in between Tom and Lisa and

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Speaker 1: the bottom of The're gonna have to work that out,

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Speaker 1: so maybe not live on radio. So um so, I

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Speaker 1: think coming into these talks, expectations were extremely low. The

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Speaker 1: backstory was. The backstory was sanctions on major Chinese surveillance firms.

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Speaker 1: The backstory was the acrimony over the m b A

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Speaker 1: and the free speech controversy, and of course that bloomberg

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Speaker 1: scoop about the US pondering barriers to dollar flows portfolio

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Speaker 1: flows into China. So I was surprised that the Chinese

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Speaker 1: delegation even got on the plane to come over. The

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Speaker 1: fact that they're here suggests that they want a deal.

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Speaker 1: The fact that President Trump is no raising expectations things,

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Speaker 1: saying things are going very well, saying that he's going

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Speaker 1: to meet with Vice Premier Leo Hurt in the White

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Speaker 1: House today, suggests he wants a deal. The big things

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Speaker 1: are not on the table. We're not going to get

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Speaker 1: IP protection, We're not going to get market entry, We're

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Speaker 1: certainly not going to get on anything on China's industrial subsidies. Um,

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Speaker 1: but I think expectations are clearly there for some kind

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Speaker 1: of mini package. Tom, do you remember the February rand

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Speaker 1: of talk, when IP theft wasn't on the table, when

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Speaker 1: subsidies wasn't on the table. It was about a currency pack,

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Speaker 1: it was about buying agricultural products, and Vice Premier Leah

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Speaker 1: was in the Oval Office with the President of the

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Speaker 1: United States. This feels so much like February, and the

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Speaker 1: lesson of the year for many people is that unless

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Speaker 1: you tackle the big issues, you haven't really tackled anything.

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Speaker 1: How are you interpreting that? At the moment, tom So,

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Speaker 1: I think you're completely right, Jonathan. I think the phrase

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Speaker 1: groundhog day has been thrown around quite a lot um,

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Speaker 1: and that's absolutely right. Um. So. UM, it seems like

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Speaker 1: both sides of positioning to do something. We'll see what happens. Um.

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Speaker 1: I think the thing which has changed though from February, Jonathan,

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Speaker 1: and changed on both sides, is that the economy is

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Speaker 1: heading south. Um. The US isn't creating as many jobs

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Speaker 1: as it was. US business surveys are falling, US consumer

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Speaker 1: confidence is disappointing. In China, we think growth is going

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Speaker 1: to drop below the bottom of the government and six

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Speaker 1: percent to six point five percent target range. UM. So,

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Speaker 1: the pressure on both sides to do something, certainly to

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Speaker 1: have a standstill on tariffs, certainly to take some of

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Speaker 1: the uncertainty out of the markets, we think has gone

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Speaker 1: up um. And that's why we're not counting on this.

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Speaker 1: But that's why we think the chances of a mini

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Speaker 1: deal are up as well. Well. And that's actually where

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Speaker 1: I wanted to go. How much is the market acting

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Speaker 1: as sort of the key pressure point to look at

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Speaker 1: to decide whether or not President Trump will go through

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Speaker 1: with a deal, So it would certainly be. It's certainly

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Speaker 1: harder to under deliver after you've raised expectations. UM. But

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Speaker 1: I don't think the market is actually the key consideration

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Speaker 1: at this point. I think clearly President Trump plays close

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Speaker 1: attention to the stock market. UM. But he's plaid close

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Speaker 1: attention to the stock market throughout his presidency, and that

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Speaker 1: hasn't stopped past trade deals, past trade talks falling through

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Speaker 1: through UM. I think the critical difference this time around

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Speaker 1: is that it's not just market stress, it's economic stress

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Speaker 1: as well. Tom All. It great to catch up with you,

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Speaker 1: joining us from Washington, Tom Olick. They're heading up Bloomberg

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Speaker 1: Economics team down in d C on the US economy.

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Speaker 1: Kathy Fisher joining Lisa and I in these studios here

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Speaker 1: in New York City. Burnsting's head of Wealth Investment Strategies, Cathy,

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Speaker 1: Great to see you. Sean Donnan, my colleague Dann in Washington,

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Speaker 1: d C. Weren't any where he is on the rankings,

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Speaker 1: but he put this out on Twitter just moments ago.

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Speaker 1: My thought for today, we may get a limited US

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Speaker 1: China true still today, but the economic relationship between the

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Speaker 1: U S and China will still be in a worse

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Speaker 1: place than it was just a week ago. Kathy, what

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Speaker 1: do you make of that? Well, I do agree with

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Speaker 1: everything you're your prior speaker just said that the market

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Speaker 1: is focused on the the real risk of the increased

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Speaker 1: terrorists in October and December. That will not be good. Right.

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Speaker 1: We all know that the U S. Consumer has kept

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Speaker 1: the economy going and anything that causes a big increase

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Speaker 1: in consumer prices potentially is a bad thing. So the

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Speaker 1: the other side of those that the big issues are

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Speaker 1: not just trade. The big issues are intellectual property, cybersecurity,

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Speaker 1: human rights, all those things that are really more visible

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Speaker 1: than they were just a few weeks ago. Um, everybody

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Speaker 1: knows about the NBA now, right, so there's a lot

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Speaker 1: of new things out there that have shown how different

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Speaker 1: the relationship is than people have realized a few months ago.

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Speaker 1: So I kind of see where he may be going

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Speaker 1: with that. Is it too late to get a narrow

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Speaker 1: trade deal that could actually ameliorate the economic concerns at

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Speaker 1: this point in the United States? Not, it's probably too late.

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Speaker 1: It will help. It will help stymy real problems. But

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Speaker 1: remember companies have had to rethink their strategies based on

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Speaker 1: the need to rearrange their supply chains and they're not

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Speaker 1: going back, right, there's inefficiencies that this has caused that

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Speaker 1: will not just disappear because of a minor trade concession.

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Speaker 1: So given that our markets fairly priced even with an

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Speaker 1: arrow deal, I think when you look at you know,

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Speaker 1: we talked about where the market is the market, you know,

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Speaker 1: he's near all time highs. But many stocks have sold

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Speaker 1: off substantially over the past year, as you know, with

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Speaker 1: the U S the SMP is flat with where it

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Speaker 1: was a year ago. So there's been quite a lot

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Speaker 1: of cyclical sectors that have sold off a lot based

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Speaker 1: on expectations of a tougher environment for them. Uh So,

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Speaker 1: So I think there's there's a lot more of a

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Speaker 1: stock pickers opportunity going forward if we have a trade deal,

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Speaker 1: then there might have been before. Um so, but I

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Speaker 1: think there's there's a more realistic view among investors about

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Speaker 1: how much tougher it's going to be. Remember in seventeen

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Speaker 1: we had a synchronous global recovery. Remember those happy days,

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Speaker 1: remember those how CeON days, and and that that now

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Speaker 1: is so far in the past, right, So I think

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Speaker 1: there's a much more realistic view that it is a

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Speaker 1: bit more every country for itself than we've had in

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Speaker 1: quite some time. That's a big change from where people

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Speaker 1: were thinking several years. The big debate that happens on

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Speaker 1: this program almost daily is trying to work out this

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Speaker 1: downturn and what one depends it. How much of that

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Speaker 1: is the trade story, and how much of it is

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Speaker 1: something couse And with that in mind, once you make

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Speaker 1: a judgment call on that, you can decide whether this

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Speaker 1: short term rally is just that, a short term rally

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Speaker 1: off the back of a trade truce, and work out

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Speaker 1: whether there's more paints come down on the road on

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Speaker 1: those money debates right now, Kathee, where'd you come out

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Speaker 1: on them? So, so let's think of it this way.

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Speaker 1: We we see it's much slower growth economy going forward.

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Speaker 1: I don't think there's I think everyone agrees with that.

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Speaker 1: It's not it's not just trade, it's demographics, it's productivity,

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Speaker 1: it's all the things we've been talking about for some time,

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Speaker 1: which is why interest rates are so low. Right, everybody

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Speaker 1: gets that the global economy is slowing. So when you

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Speaker 1: think about the outlook for stocks over the next several years,

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Speaker 1: certainly they will be more modest returns and we've seen

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Speaker 1: with some ups and downs along the way. Um and

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Speaker 1: that too, I think is becoming better understood. Cathy Grant

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Speaker 1: to catch you with you good to see you canthy

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Speaker 1: fish at that. Bernstein Head of Wealth and Investment Strategies,

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Speaker 1: Laura Raym joining US now FS Investments Chief US Economist, Laura,

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Speaker 1: do you think that the market is right that the

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Speaker 1: FED really will take its cues from any developments on

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Speaker 1: trade talks? You know, and we're seeing the FED look

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Speaker 1: at a wide variety of factors. And I think one

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Speaker 1: of the things that we've seen too that may be

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Speaker 1: affecting markets is the minutes yesterday showing that there is

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Speaker 1: such this lively and disparate discussion within the FED. Are

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Speaker 1: we reacting to the data or are we reacting to

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Speaker 1: the risks? And this has been an ongoing discussion and

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Speaker 1: to day with the you know, talk about a trade deal,

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Speaker 1: and I think we all need to really remember that

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Speaker 1: we've been here before thinking that we're gonna get a

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Speaker 1: trade deal and it hasn't happened. Yeah, so you know

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Speaker 1: this is important. We shouldn't, you know, count our chickens

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Speaker 1: before they've matched. But but when you think about sort

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Speaker 1: of that balance. If the risks are coming down, it

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Speaker 1: just shows how much markets are counting on those risks

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Speaker 1: to push the federal rates. And to what degree the

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Speaker 1: Federal Reserve is managing markets will managing the economy. That's

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Speaker 1: exactly right. And you have a vocal, increasingly vocal cohort

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Speaker 1: on that committee that is saying, listen, we don't see

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Speaker 1: we shouldn't be hitting the panic button yet. The trade

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Speaker 1: is affecting select parts of the economy, other parts of

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Speaker 1: doing well. So you know, if we've got only a

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Speaker 1: small amount of ammunition, we can't take practice shots. GDP

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Speaker 1: growth is quite clearly decelerated. Payroll growth is quite clearly

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Speaker 1: decelerated over the last twelve months. Whether it's a big

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Speaker 1: debate right now still Laura, eighteen months into the global

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Speaker 1: economic slowdown, what's driving get what's actually be driving this

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Speaker 1: downturn because the beginning of the downturn in places like

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Speaker 1: China and Europe predates the tariffs going gone in spring

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Speaker 1: of And the risk, I think now is to look

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Speaker 1: at the potential of a trade truths and decide this

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Speaker 1: is it. The global economy will bottom out because this

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Speaker 1: was the story when on global growth, how do you

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Speaker 1: think about that right now. What's underpinning the global slowdown

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Speaker 1: and how much of that is trade? You know? So

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Speaker 1: I think a lot of it is trade, although I

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Speaker 1: you know, we there's no doubt that across the world

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Speaker 1: structurally we are challenged in terms of growth. The US

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Speaker 1: two thousand eighteen growth rates, you know, around three percent,

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Speaker 1: was very very strong for where we really should be

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Speaker 1: given you know, the gemographic story, productivity. All that said, um,

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Speaker 1: you know, my outlook continues to be one of relatively

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Speaker 1: sluggish growth, not a recession. And I think you know,

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Speaker 1: when we look at countries like Europe, we look at Germany, um,

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Speaker 1: you know, there is some gravity that's going to kick

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Speaker 1: in and weigh us down. But I think that domestically,

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Speaker 1: we've actually got a lot of supports for our economy.

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Speaker 1: Slow growth, no downturn, cheap credit. How worried are you

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Speaker 1: about leverage? So the household leverage is looking good. I

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Speaker 1: think one thing that's made clear is that also globally,

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Speaker 1: we have an enormous demand for um, you know, higher

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Speaker 1: income products, for you know, assets safer sort of you know,

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Speaker 1: up the credit chain. Assets. When Jonathan is talking about

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Speaker 1: the fact that you know, the drop in growth predated

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Speaker 1: the trade wars. The drop in interest rates predated the

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Speaker 1: trade wars too. I mean, we are dealing with these

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Speaker 1: structurally low interest rates that are partly being driven by

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Speaker 1: flight to quality, but let's face it, a lot of

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Speaker 1: it is just dealing with the fact that demographically we

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Speaker 1: need these safer assets. There's demand. I guess the reason

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Speaker 1: why I ask that is because we have these low

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Speaker 1: rates at a time when the consumer is still strong

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Speaker 1: by getting less strong in the United States, and you're

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Speaker 1: seeing household leverage tick up. So at what point does

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Speaker 1: cutting rates actually create more of a ask that actually uh,

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Speaker 1: leaving them where they are? Yeah, So you know, the household,

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Speaker 1: I think is not the area of leverage that we're

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Speaker 1: terribly concerned about. I think we look at corporate debt

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Speaker 1: as being a place and it's not that we're worried

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Speaker 1: about it yet, but it's certainly a place where leverage

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Speaker 1: looks significantly worse than um than the households. In fact,

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Speaker 1: the savings rate, which you could quibble about that measure,

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Speaker 1: but it's really actually risen during this expansion, which I

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Speaker 1: think gives the consumers some insulation against some of these

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Speaker 1: downside chocks. What's the signal that you take from that?

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Speaker 1: From the jumpop we've seen in the savings, right, Laura.

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Speaker 1: You know it's funny because I think a lot of

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Speaker 1: economists when they're just adding up g d P and

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Speaker 1: are looking for growth in this quarter, feel like it's

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Speaker 1: a negative. For me, I actually feel like it's a positive.

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Speaker 1: And there's this double there's this sort of circular psychology.

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Speaker 1: Can we talk ourselves into recession? Can households get so

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Speaker 1: nervous that they themselves stop spending? But that goes both ways.

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Speaker 1: If they're nervous about recession, they're saving and that gives

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Speaker 1: them the insulation. So, you know, I see a household

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Speaker 1: that sort of steady as she goes very you know,

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Speaker 1: if the jobs really fall and we see initial jobless

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Speaker 1: claim skyrocket, to me, that's a real warning sign that

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Speaker 1: households are gonna change. Well, that's the road to recession.

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Speaker 1: As an at lara, right now, we have if we

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Speaker 1: have a crisis, we have a crisis of confidence on

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Speaker 1: the business side, and if business spending drops as it

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Speaker 1: has done, does it turn into a drop in hiring,

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Speaker 1: which ultimately starts to hit the household sector. Do you

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Speaker 1: have a baseline cool. Do you have a base case

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Speaker 1: around that story? Yeah, that's you know, so, I think,

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Speaker 1: you know, we have probably haven't seen the bottom of

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Speaker 1: manufacturing sentiment. It would be great if the I s

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Speaker 1: M bounced at least once to give us, to give

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Speaker 1: us a little bit of comfort there, but we may

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Speaker 1: not have seen the bottom, especially given the slower growth abroad.

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Speaker 1: Business sentiment we expect to remain uh, sort of relatively sluggish,

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Speaker 1: but still the services sentiment UM to remain generally an

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Speaker 1: expansive territory, and I think that we're going to continue

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Speaker 1: to see a consumer that is generally driven by UM,

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Speaker 1: the inflict the job numbers. My expectation is that we can,

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Speaker 1: you know, see these hundred thousand an eighty two job

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Speaker 1: gains and the unemployed unemploymentary really stay where it is. Laura,

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Speaker 1: what would you have to see to change your view

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Speaker 1: and actually grow more pessimistic. I think we would need

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Speaker 1: to see some you know, again, another the next round

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Speaker 1: of tariffs actually hit households. Uh so, you know, some

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Speaker 1: further escalation of the trade um conflict. And I think

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Speaker 1: it would require some other exogenous shock, maybe something domestic UM.

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Speaker 1: It's rare that we see, um, a recession coming when

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Speaker 1: it's not a domestic issue. Um, you know, something needs

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Speaker 1: to really hit our economy specifically, not just globally. So Laura,

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Speaker 1: let's think about that. So we have two deadlines or

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Speaker 1: two dates in mind for trade talks. October fift next week,

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Speaker 1: tarrists is set to go from I believe on two

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Speaker 1: billion dollars of goods. Then this the December date. In December,

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Speaker 1: all the goods that are left is set to be

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Speaker 1: hit by tarroists by the United States. As you look

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Speaker 1: at these talks today, how important is it to get

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Speaker 1: next week's terrifix suspended and the December round suspended as well.

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Speaker 1: That's gonna be critical. I mean, there's no doubt that

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Speaker 1: the that tariffs hitting the household opens up a whole

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Speaker 1: new avenue of impact on the economy. So that, I

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Speaker 1: think is the piece that we really it's incredibly hard

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Speaker 1: to model. We just don't have precedent for it, and

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Speaker 1: causes us genuine consider all the household. Giving your outlook

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Speaker 1: and that you do not expect us to be headed

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Speaker 1: toward a downturn? How many times should the Fed cut

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Speaker 1: rates by the end of next year? You know, I

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Speaker 1: am in the camp that feels the FED needs to

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Speaker 1: be cautious. They need to have the language of you know,

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Speaker 1: we have the tools, we have the confidence that our

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Speaker 1: tools could work, but to actually be cautious on the

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Speaker 1: right front. And that's simply because you know, they have

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Speaker 1: stated that they don't feel like negative interest rate policy

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Speaker 1: is something they're really interested in. And let's be honest, QUEI,

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Speaker 1: I think they understand the both the benefits but also

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Speaker 1: the limitations of that policy. Laura Ryank, great to get

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Speaker 1: your thoughts this morning. Have a fantastic day, Laura Rain,

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Speaker 1: their FS Investments chief US economist. Ahead of day two

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Speaker 1: for trade talks in the United States, Let's check in

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Speaker 1: with our Bloom Opinion columnists. We have Leonel Laurent joining

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Speaker 1: us from London. Brexit definitely in the front end center.

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Speaker 1: With the pound ripping higher this morning. The question is

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Speaker 1: what actually do we know about what is going on

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Speaker 1: with respect to the tunnel, the private negotiations between the

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Speaker 1: European Union and Boris Johnson. So do what details do

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Speaker 1: we have right now, if any, about these negotiations. So

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Speaker 1: the answer is we're not not a lot. From from

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Speaker 1: what I've seen recently, there has been a statement from

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Speaker 1: the European side saying that the positions on the European

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Speaker 1: side regarding Ireland, which is a big contentious sticking point,

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Speaker 1: remain the same. So the implication here is that the

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Speaker 1: UK has made some kind of move. There was a

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Speaker 1: meeting between Boris Johnson and his Irish counterpartly over ADCA

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Speaker 1: yesterday which was apparently very constructive. So again the subtext

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Speaker 1: is there have been some moves. We can imagine what

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Speaker 1: kind of moves they would be, but it's pure speculation

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Speaker 1: at this point. But it seems like the the the

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Speaker 1: the implications that the UK has made some kind of move, big,

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Speaker 1: big move. Basically, how could this have happened so quickly?

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Speaker 1: It was as if they were at war with each

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Speaker 1: other and Boris Johnson was beating his chest and all

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Speaker 1: of a sudden everything is copasetic. What changed? Well, you

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Speaker 1: are right that not not that much has changed, aside

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Speaker 1: from the fact that currency markets are clearly more positive

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Speaker 1: ahead of next week summit, which is a kind of

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Speaker 1: deadline of sort because obviously happens on now. The big

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Speaker 1: thing was that there would be no conclusion, no deal,

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Speaker 1: that there might still be no conclusion next week or

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Speaker 1: on October thirty one. It's just that the worst case

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Speaker 1: scenario suddenly looks a bit better. Look it looks unlikely

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Speaker 1: that that things will be so bad that that the

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Speaker 1: UK will just fall out, or that you won't won't

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Speaker 1: extend anything. I would just add in terms of why

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Speaker 1: there might be a move boris Johnson is weak politically.

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Speaker 1: He does not have a majority. The talk is cheap.

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Speaker 1: A lot of the chest beating that you're describing was

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Speaker 1: not backed up by anything aside from a desire to

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Speaker 1: have an election, some kind of new vote that would

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Speaker 1: give him the majority he wants. But a lot of

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Speaker 1: this has been talking. A lot of this has been

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Speaker 1: cheap talk. I'm not convinced there was that much substance there.

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Speaker 1: You're right in your latest column it looks like Johnson

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Speaker 1: will have to do most of the yielding, which is

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Speaker 1: why this won't be easy despite the excitement of pound traders.

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Speaker 1: Why do you think you'll have to do most of

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Speaker 1: the yielding? Well, the problem is that this is a

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Speaker 1: very asymmetric negotiation. You have on the one side the EU,

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Speaker 1: which is twenty seven countries and they are trying to

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Speaker 1: defend their union, and which is made up of laws

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Speaker 1: and rules against one member, Yes, a very important member

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Speaker 1: with a large economy that's leaving. And this viewpoint difference

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Speaker 1: where you have the UK leaving and saying a bit

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Speaker 1: like Donald Trump or I want to leave with an

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Speaker 1: even better deal than I had going in, is just

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Speaker 1: hitting the buffers of a block that has rules and

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Speaker 1: says we're not going to tear up the rules to

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Speaker 1: accommodate you. And again they said earlier, Johnson's domestic situation

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Speaker 1: does not include a political majority of parliamentary majority. Sorry.

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Speaker 1: So it's been clear for the past few months that

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Speaker 1: whatever Johnson does, it's a prelude to some kind of

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Speaker 1: move on his part, whether it's an election campaign where

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Speaker 1: he says I've been stopped by dark forces and the

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Speaker 1: British people need to vote me in with an even

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Speaker 1: bigger majority, or as seems to be happening, he does

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Speaker 1: some kind of shift backwards to help the EU get

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Speaker 1: more on his side. Why were the EU strike a

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Speaker 1: deal with Boris Johnson, given how politically weak he is, Well,

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Speaker 1: they haven't struck a deal yet. What I think they

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Speaker 1: might want to do is create enough grounds to keep

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Speaker 1: the talks going further into the future. Now it all

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Speaker 1: depends on whether there is an election, because what I

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Speaker 1: think we've seen recently is if there is an election,

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Speaker 1: Boris Johnson will blame the EU. This is a blame

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Speaker 1: game that's being set up as much as possible. It

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Speaker 1: could be that the EU is doing this as a

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Speaker 1: way to avoid such a situation, to say, well, look

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Speaker 1: it's it's not our fault if there's no deal. We've

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Speaker 1: done everything we can and we want to keep keep

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Speaker 1: the talks going. The other issue is that as weak

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Speaker 1: as Johnson is, the EU once Brexit done so it

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Speaker 1: may have seen some kind of hope, something to cling

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Speaker 1: to that says we can get Brexit done with a

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Speaker 1: deal without there being some massive shift or change in

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Speaker 1: the UK that attacks the EU and sees it as

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Speaker 1: as being to blame. We were speaking with Stephen Gallo

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Speaker 1: earlier of Female Capital Markets, and he was saying that

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Speaker 1: the big move in Sterling, yes it is due to

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Speaker 1: some more positive talk around some sort of Brexit deal,

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Speaker 1: but it also has to do with the illiquidity right

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Speaker 1: now in the Sterling market. What's your view on that?

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Speaker 1: Is sort of how easy it is to get in

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Speaker 1: and out and take a position on these talks that

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Speaker 1: have been ungoing for so long. Well, of course, as

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Speaker 1: we were saying earlier, this is this is the Sterling market.

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Speaker 1: I mean, it's it's structurally short, it's it's investors are

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Speaker 1: generally underweight sterling. Brexit is the obvious reason. And with

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Speaker 1: every bad news flow that Burrows Johnson has brought, the

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Speaker 1: pound has been socked lower. A lot of what we're

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Speaker 1: seeing today is that it can be seen as a

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Speaker 1: squeeze higher. If you look at the if you look

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Speaker 1: at the rate, especially against the Euro, it's it's popping up.

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Speaker 1: But if you zoom out over the past six months

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Speaker 1: or a year, we're back to the worst six months ago,

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Speaker 1: and that was not an incredible place. There was no

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Speaker 1: Brexit deal in place, just a general feeling that they

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Speaker 1: wouldn't be a no deal. So you can easily just

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Speaker 1: look at it, look at the levels and say, well,

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Speaker 1: is this euphoria no? So going forward, let's say we

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Speaker 1: get some sort of deal, or at least an agreement

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Speaker 1: to talk about the deal and to push this off

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Speaker 1: a while longer. Do you expect a lot of money

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Speaker 1: to come flooding into the city, in particular property, So

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Speaker 1: I think that it is true that there is a

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Speaker 1: lot of pent up money, pent up money again because

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Speaker 1: of this short position on sterling that might come back

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Speaker 1: into the into the UK. But again we don't know

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Speaker 1: what this deal looks like. And in the long term

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Speaker 1: the UK is is losing out. London is is losing out.

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Speaker 1: The political instability that we've seen in the UK, which

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Speaker 1: hasn't been seen in a while, makes it lose out.

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Speaker 1: And for all the talk of some kind of Boris

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Speaker 1: Johnson bounce, his fight against Jeremy Corbyn isn't over. And

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Speaker 1: if there is an election, it's clear that British voters

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Speaker 1: are far more volatile than there used to be. So

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Speaker 1: that's that's the extent of my investment optimism if there

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Speaker 1: is a deal. Leone Lauren, thank you so much for

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Speaker 1: joining me today. Leone Lauren is a Bloomberg opinion columnist

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Speaker 1: joining us from London, talking about the light in the tunnel.

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Speaker 1: They are entering the tunnel Boris Johnson and the European

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Speaker 1: Union as they seek a pathway to a deal in

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Speaker 1: secret without leaking all the details along the way, which

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Speaker 1: is giving people confidence. The fewer details the better. That's

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Speaker 1: what a line of logic saying that at least it

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Speaker 1: does seem like they are having real discussions rather than

431
00:23:29,880 --> 00:23:46,320
Speaker 1: just posturing for public consumption. I want to talk a

432
00:23:46,359 --> 00:23:48,959
Speaker 1: little bit of tech, Lisa. There's a lot of interesting

433
00:23:48,960 --> 00:23:51,880
Speaker 1: stuff going on. As always, I want to start with Tesla,

434
00:23:52,200 --> 00:23:54,120
Speaker 1: and to do that, we welcome our good friend Jean

435
00:23:54,200 --> 00:23:56,800
Speaker 1: Monster from Loup Adventures. Jean, thanks so much for joining us.

436
00:23:57,119 --> 00:23:59,760
Speaker 1: You know, I'm just looking at the chart of Testlas

437
00:23:59,760 --> 00:24:02,480
Speaker 1: stuck on the Bloomberg terminal. You know, it's down twenty

438
00:24:02,560 --> 00:24:04,359
Speaker 1: six year to day. And then I was looking at

439
00:24:04,440 --> 00:24:06,879
Speaker 1: kind of the analysts the A and R function, and

440
00:24:06,920 --> 00:24:11,160
Speaker 1: there's twelve buys, ten holes, fifteen cells. You know, putting

441
00:24:11,160 --> 00:24:14,000
Speaker 1: those two together seems like, you know, Wall Street investors

442
00:24:14,080 --> 00:24:15,600
Speaker 1: just not sure what to do with Tesla here. What

443
00:24:15,800 --> 00:24:19,439
Speaker 1: are your thoughts? I totally agree, Paul. It's one of

444
00:24:19,440 --> 00:24:22,240
Speaker 1: the more controversial stories. Have been covering tech for a

445
00:24:22,280 --> 00:24:26,800
Speaker 1: long time, and it is entertaining to see how split

446
00:24:27,000 --> 00:24:31,160
Speaker 1: investors are on this story. Essentially two camps, and they're

447
00:24:31,160 --> 00:24:35,359
Speaker 1: pretty firm. One is that this company is overvalued because

448
00:24:35,359 --> 00:24:38,680
Speaker 1: there uh potentially could be losing money and there's gonna

449
00:24:38,680 --> 00:24:40,680
Speaker 1: be a lot of competition coming and the other camp

450
00:24:40,800 --> 00:24:44,080
Speaker 1: is that mobility and automotive is going to be transformed

451
00:24:44,080 --> 00:24:47,160
Speaker 1: in the next twenty years are on electrification and autonomy,

452
00:24:47,160 --> 00:24:50,880
Speaker 1: and Tesla's got a lead, and so you are correct,

453
00:24:50,960 --> 00:24:55,280
Speaker 1: and the stock trades more on UH kind of flow

454
00:24:55,480 --> 00:24:58,160
Speaker 1: news flow versus fundamentals. I just want to quickly talk

455
00:24:58,160 --> 00:25:00,720
Speaker 1: about what's going on. The fundamentals is that they gave

456
00:25:00,760 --> 00:25:04,280
Speaker 1: their production numbers for the September quarter was up six

457
00:25:05,480 --> 00:25:08,200
Speaker 1: year every year, which compares the broader auto which is

458
00:25:08,280 --> 00:25:11,760
Speaker 1: essentially flat. But more impressive is that in the September

459
00:25:11,880 --> 00:25:15,320
Speaker 1: quarter a year ago, the company basically harvested a couple

460
00:25:15,359 --> 00:25:18,359
Speaker 1: of years of pent up demand for Model three, and

461
00:25:18,440 --> 00:25:23,320
Speaker 1: so that pent up demand has now been UH filled

462
00:25:23,680 --> 00:25:26,000
Speaker 1: and there this is new orders coming in and so

463
00:25:26,080 --> 00:25:30,640
Speaker 1: I think that effectively, UH this company will have, has

464
00:25:30,680 --> 00:25:35,480
Speaker 1: its challenges and controversies, is making measurable progress towards that

465
00:25:35,560 --> 00:25:39,240
Speaker 1: future of electrification and autonomy. Jane, One thing I find

466
00:25:39,280 --> 00:25:43,359
Speaker 1: interesting is we've seen this with the unicorns investors starting

467
00:25:43,400 --> 00:25:47,880
Speaker 1: to care about governance. And if they care about governance,

468
00:25:47,920 --> 00:25:51,399
Speaker 1: Elon Musk is a nightmare. He gives easy expectations that

469
00:25:51,440 --> 00:25:53,600
Speaker 1: are way higher than he ought to. He says things

470
00:25:53,600 --> 00:25:56,520
Speaker 1: that he probably shouldn't on Twitter and gets castigated by

471
00:25:56,520 --> 00:25:59,480
Speaker 1: the SEC and does it again. I mean, how much

472
00:25:59,520 --> 00:26:02,800
Speaker 1: does govern gonna start to weigh on the share price

473
00:26:02,960 --> 00:26:06,200
Speaker 1: even by the biggest bulls out there, when he keeps

474
00:26:06,240 --> 00:26:09,760
Speaker 1: sort of basically eating his foot. I mean it basically

475
00:26:09,760 --> 00:26:12,560
Speaker 1: the idea that he's he's sort of working against his

476
00:26:12,640 --> 00:26:18,200
Speaker 1: share price sometimes. So, uh, you know, we all have flaws,

477
00:26:18,240 --> 00:26:21,879
Speaker 1: and uh, Ellen definitely has his flaws. I do not

478
00:26:22,080 --> 00:26:25,760
Speaker 1: want to overly defend him because I think what you

479
00:26:25,840 --> 00:26:29,560
Speaker 1: just described as accurate, it weighs on the multiple of Tesla.

480
00:26:29,800 --> 00:26:32,800
Speaker 1: This company would be worth more hard to say how

481
00:26:32,880 --> 00:26:34,879
Speaker 1: much more if he was more measured. I think it

482
00:26:34,880 --> 00:26:37,600
Speaker 1: would be considerably higher if he was more measured in

483
00:26:37,640 --> 00:26:41,720
Speaker 1: his language and um, just how he runs the business. Um.

484
00:26:41,760 --> 00:26:45,119
Speaker 1: I think that uh, of course that Tesla would not

485
00:26:45,119 --> 00:26:47,320
Speaker 1: be where they are without Elon And so you kind

486
00:26:47,320 --> 00:26:49,760
Speaker 1: of have to take in some ways the bad with

487
00:26:49,880 --> 00:26:53,040
Speaker 1: the good. Uh there is I think the real core

488
00:26:53,320 --> 00:26:56,320
Speaker 1: for me around Ellen is less about the governance piece,

489
00:26:56,400 --> 00:26:59,720
Speaker 1: and that's gonna flare up and be what it is,

490
00:26:59,760 --> 00:27:03,000
Speaker 1: but I think it's it's more just around the retention piece.

491
00:27:03,080 --> 00:27:05,240
Speaker 1: And this has been well documented over the last year

492
00:27:05,240 --> 00:27:08,280
Speaker 1: and a half, the company UH loses top executives and

493
00:27:08,400 --> 00:27:11,399
Speaker 1: the reason is that it is an intense environment and

494
00:27:11,480 --> 00:27:14,119
Speaker 1: Elon is a difficult person to work with, and so

495
00:27:14,440 --> 00:27:17,840
Speaker 1: UH to me, to have sustainability, you have to have

496
00:27:17,960 --> 00:27:22,000
Speaker 1: retention of talent, and so UH loosely related to the

497
00:27:22,040 --> 00:27:25,560
Speaker 1: government's question is Elon and the impact on government. That's

498
00:27:25,800 --> 00:27:29,600
Speaker 1: piece that that I think more about. So H, Gene,

499
00:27:29,640 --> 00:27:31,560
Speaker 1: we want to take advantage of having you here this

500
00:27:31,640 --> 00:27:33,600
Speaker 1: morning and talk broaden it out a little bit. At

501
00:27:33,680 --> 00:27:35,480
Speaker 1: least I mentioned kind of some of the unicorns here,

502
00:27:35,520 --> 00:27:37,879
Speaker 1: and we've had a you know, en, we came in

503
00:27:37,880 --> 00:27:40,200
Speaker 1: with the expectation of some of these unicorns really coming

504
00:27:40,200 --> 00:27:43,880
Speaker 1: in and making money for shareholders, making money for early investors,

505
00:27:43,880 --> 00:27:47,480
Speaker 1: making money for investment bankers. Hasn't really worked out that way,

506
00:27:47,480 --> 00:27:49,240
Speaker 1: And I guess to me, it kind of raises a

507
00:27:49,280 --> 00:27:52,000
Speaker 1: fundamental question of is there a It seems like there's

508
00:27:52,040 --> 00:27:55,720
Speaker 1: a material disconnect between evaluation coming out of the private market,

509
00:27:55,760 --> 00:27:59,440
Speaker 1: most notably out of the Valley, and in the public market.

510
00:27:59,480 --> 00:28:01,960
Speaker 1: So I'm gonna take advantage of your decades of experience

511
00:28:01,960 --> 00:28:05,720
Speaker 1: to get your thoughts on that. So We're in a

512
00:28:05,800 --> 00:28:09,040
Speaker 1: unique place because we continue to write and follow these

513
00:28:09,119 --> 00:28:12,040
Speaker 1: large tech companies, but our core businesses investing in the

514
00:28:12,080 --> 00:28:15,280
Speaker 1: private market. So we still talk to buy side and

515
00:28:15,359 --> 00:28:18,520
Speaker 1: we see the private valuations too. And the simple takeaways

516
00:28:18,640 --> 00:28:21,240
Speaker 1: there tend to be different types of people that invest

517
00:28:21,280 --> 00:28:24,000
Speaker 1: in private versus public, and there is a lot of

518
00:28:24,000 --> 00:28:26,200
Speaker 1: money on the sidelines on the private side as well,

519
00:28:26,600 --> 00:28:29,200
Speaker 1: and so that disconnect is pretty simple. The best way

520
00:28:29,240 --> 00:28:31,639
Speaker 1: to describe it is that the private market tends to

521
00:28:31,760 --> 00:28:36,840
Speaker 1: have longer time horizons and that impacts profitability and uh

522
00:28:37,119 --> 00:28:41,720
Speaker 1: basically ah an ability to invest in companies that aren't

523
00:28:41,760 --> 00:28:44,960
Speaker 1: profitable is higher in the private and it's been absolutely

524
00:28:44,960 --> 00:28:47,160
Speaker 1: a wake up call if you look at what's happened

525
00:28:47,200 --> 00:28:49,680
Speaker 1: with we Work and lift in uber Um. I don't

526
00:28:49,720 --> 00:28:52,520
Speaker 1: think it's a surprise there, But what I think the

527
00:28:52,600 --> 00:28:55,320
Speaker 1: substance of what is going to happen is that there

528
00:28:55,520 --> 00:28:59,240
Speaker 1: is going to be less companies I think coming out

529
00:29:00,160 --> 00:29:03,880
Speaker 1: these companies that are losing lots of money because essentially

530
00:29:04,120 --> 00:29:06,640
Speaker 1: they would be down rounds. I mean, we're talking about

531
00:29:08,040 --> 00:29:10,840
Speaker 1: a negative outcome for investors, and I think some of

532
00:29:10,840 --> 00:29:15,840
Speaker 1: these later rounds that traditionally we're just over subscribed on

533
00:29:15,880 --> 00:29:19,440
Speaker 1: the private side. I think that will come into overall.

534
00:29:19,480 --> 00:29:23,480
Speaker 1: I think it's a healthy exercise for the marketplace just

535
00:29:23,560 --> 00:29:26,360
Speaker 1: to have some consistency in a little bit more alignment

536
00:29:26,400 --> 00:29:29,200
Speaker 1: in terms of how private investors and public investors think,

537
00:29:29,960 --> 00:29:32,320
Speaker 1: just shifting gears a little bit from the unicorns to

538
00:29:32,440 --> 00:29:36,000
Speaker 1: the behemous. Apple shares have been on a tear recently,

539
00:29:36,040 --> 00:29:38,760
Speaker 1: not just because of trade tensencising, but also because of

540
00:29:39,000 --> 00:29:43,360
Speaker 1: or that their latest iPhone demand is actually quite significant

541
00:29:43,360 --> 00:29:46,000
Speaker 1: and perhaps more than people had expected. Shares up now

542
00:29:46,280 --> 00:29:49,720
Speaker 1: nearly fifty percent year to date. How much more is

543
00:29:49,760 --> 00:29:53,800
Speaker 1: there to go with respect to the rally here least.

544
00:29:53,800 --> 00:29:56,600
Speaker 1: I think this is one of the more misunderstood stories,

545
00:29:57,280 --> 00:30:02,959
Speaker 1: hard to believe because Apple is hyper covered but misunderstood opportunities.

546
00:30:02,960 --> 00:30:05,760
Speaker 1: And I think there's fifty percent upside in the Apple

547
00:30:05,760 --> 00:30:08,440
Speaker 1: story over the next couple of years. And the consensus

548
00:30:08,520 --> 00:30:12,080
Speaker 1: view today is that of Apples a hit driven the

549
00:30:12,160 --> 00:30:15,960
Speaker 1: hardware business services. But I think that's gonna involve to

550
00:30:16,320 --> 00:30:20,120
Speaker 1: being this consumer tech staples company, and ultimately it's the

551
00:30:20,160 --> 00:30:23,920
Speaker 1: only company that can bring together seamlessly different types of hardware,

552
00:30:24,000 --> 00:30:28,160
Speaker 1: whether it's watch, phone, AirPods, or computer with services on

553
00:30:28,240 --> 00:30:31,440
Speaker 1: top of it, which is uh consumer in my view,

554
00:30:31,480 --> 00:30:34,000
Speaker 1: consumer staples. And if you look at the multiples on

555
00:30:34,160 --> 00:30:37,840
Speaker 1: consumer staple company Proctering, Gamble, for example, Coca Cola, both

556
00:30:37,840 --> 00:30:41,600
Speaker 1: of those are trading in the mid twenties multiples, which

557
00:30:41,640 --> 00:30:44,800
Speaker 1: is about fifty higher multiple next year's numbers. And those

558
00:30:44,800 --> 00:30:48,720
Speaker 1: two companies, Proctering Gamble and Coca Cola Parker gambles fractional growth.

559
00:30:48,760 --> 00:30:51,200
Speaker 1: Coca Cola has been declining and growth, and so I

560
00:30:51,240 --> 00:30:53,480
Speaker 1: think that you will see over the next couple of

561
00:30:53,560 --> 00:30:57,560
Speaker 1: years of slow shift to this less anxiety about what

562
00:30:57,600 --> 00:30:59,560
Speaker 1: the iPhone revenue is going to be quartered a quarter

563
00:31:00,040 --> 00:31:02,120
Speaker 1: in more of a holistic view. Today, we're going to

564
00:31:02,200 --> 00:31:06,720
Speaker 1: publish some work on our wearables. They're wearable segment seven

565
00:31:07,160 --> 00:31:09,560
Speaker 1: of revenue. So I think that that ultimately is going

566
00:31:09,600 --> 00:31:12,280
Speaker 1: to drive the stock higher. Gene Munster, thank you so

567
00:31:12,360 --> 00:31:15,360
Speaker 1: much for being with us. Gene Munster, Loop Ventures, co founder,

568
00:31:16,080 --> 00:31:20,400
Speaker 1: All Things Tech. Talking about Tesla as well as Apple

569
00:31:20,640 --> 00:31:25,280
Speaker 1: and the unicorns. Private valuations coming in quite high question

570
00:31:25,400 --> 00:31:27,600
Speaker 1: of whether they will be tested or whether they will

571
00:31:27,640 --> 00:31:33,360
Speaker 1: simply stay out a public market. Thanks for listening to

572
00:31:33,400 --> 00:31:37,959
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

573
00:31:38,000 --> 00:31:43,840
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

574
00:31:43,880 --> 00:31:47,160
Speaker 1: on Twitter at Tom Keane before the podcast. You can

575
00:31:47,200 --> 00:31:50,400
Speaker 1: always catch us worldwide. I'm Bloomberg Radio