Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Placed
Speaker 1: the site that here in New York City, Stephen want
Speaker 1: to joins a city Private bank Global chief investment strategist.
Speaker 1: Good morning to stand look at the investors thinking agreement
Speaker 1: will still materialize or global growth bottoming? Isn't that dependent
Speaker 1: on a tray truce? Which one is it? So look,
Speaker 1: I think, um, there is a little bit of leap
Speaker 1: of faith here that at least ahead of the US
Speaker 1: election at the end of next year, that we will
Speaker 1: certainly not um create a greater shock on the trade front,
Speaker 1: that there is a good deal of hope still there,
Speaker 1: but not utter arity that we will pull down the
Speaker 1: terrorists which we impose on ourselves for example. But you know,
Speaker 1: the I think the larger economic story is is that
Speaker 1: we had a true, um severe You'll see it in
Speaker 1: the data in a couple of months inventory correction, that
Speaker 1: we have been producing uh fewer goods for export that
Speaker 1: are actually being demanded uh, and that if we were
Speaker 1: to stall here and simply hold these tariffs, we would rebound,
Speaker 1: we would grow through this. So I think it's still
Speaker 1: important for the direction of markets. You know, if you
Speaker 1: look at yesterday's market action. Today, I think the fact
Speaker 1: that again, like you said, if we can't even agree
Speaker 1: on uh, you know, the level of soybean exports, uh,
Speaker 1: that this is not a done deal, and that's going
Speaker 1: to impact market sentiment more than almost any of the
Speaker 1: other news. Well, what's the message to invest us to
Speaker 1: our listeners this morning? When stokes are still narrow time highs,
Speaker 1: the wit is weak, the trite soulks have quite clearly
Speaker 1: hit a series of road bumps, and yet we are
Speaker 1: still narrow time high. Markets are telling us where the
Speaker 1: economy is going. And I think it's important again that
Speaker 1: the way that we have set this up, that with
Speaker 1: the an absence of a severe pullback and inflation rise
Speaker 1: in inflation, if we don't have um over levered consumers
Speaker 1: that just have no capacity to grow, uh, and if
Speaker 1: we've just been cutting factory output, the economy can rebound.
Speaker 1: We're going to have a new all time high and
Speaker 1: profits next year. Okay, tell me if I'm wrong next year. Uh,
Speaker 1: and the will share prices going up to all time highs. Well,
Speaker 1: you know, like a lot of things. Uh, this is
Speaker 1: where things go in terms of in terms of nominal returns.
Speaker 1: Let's get out the crystals and pyramids right now and
Speaker 1: zone right in with Stephen White against City Group. You're
Speaker 1: in Timor, Thank you Alec Tansy for bringing me that
Speaker 1: important note. You're You're gonna Timor rather up at Fidelity
Speaker 1: with a hugely bullish note this morning on the end
Speaker 1: of the drawdown. As you just said on inventories. We
Speaker 1: had Steve Chivaron in here yesterday with freder Rated. He's
Speaker 1: single pointing up. Whatever your number. I don't need a number, Stephen.
Speaker 1: I'm looking at that technology stock Walmart up year to
Speaker 1: date well and up three four to make it four,
Speaker 1: make it five dollars right now? Off of this earnings report.
Speaker 1: How do you have a bull market, this bull market
Speaker 1: this long in this cycle, Well, you know, simply not
Speaker 1: having a massive collapse and earnings, a big rise in unemployment,
Speaker 1: any of those things that don't seem to be necessary
Speaker 1: when we have a low inflation. At least this goes
Speaker 1: back to Tony Dwyer one oh one, which is if
Speaker 1: you don't have a recession, it is tough to get negative. Well,
Speaker 1: you could also say this is just a massive a
Speaker 1: bout of fear of missing out with the SMP up,
Speaker 1: which is a great that's not a great reason to
Speaker 1: be investing right now. Okay, what was a team? All right,
Speaker 1: you out of the triple leverage cash but yet no, no,
Speaker 1: there you go. Okay, So two thousand eighteen was the
Speaker 1: biggest valuation drop that we've had. Now again, you had
Speaker 1: a down market last year with sharply up earnings. This
Speaker 1: year we have sharply upmarket with flat earnings, and you know,
Speaker 1: in the end we made some progress here. But our
Speaker 1: two year return is not really dramatic. I think again
Speaker 1: the big returns, uh, the when I when I'm optimistic
Speaker 1: on the economy in two thousand twenty, that's reflected in
Speaker 1: the stock market this year. So next year it's going
Speaker 1: to be a more moderate return environment. It's gonna be
Speaker 1: a somewhat more volatile environment for lots of reasons that
Speaker 1: you can guess. But people who are zooming, for example,
Speaker 1: to the end of I don't know for certain who's
Speaker 1: going to be president. I don't know for certain how
Speaker 1: Brexit is going to be resolved. They're going to ignore
Speaker 1: the economy's performance at their peril. Let's put some capital
Speaker 1: to work. Then what do you do state? So, look,
Speaker 1: I think we have gone and tilted from being UM
Speaker 1: overweight global bonds as of August to now underweight UM.
Speaker 1: I don't think it's an extreme position. I don't think
Speaker 1: you're gonna lose a lot of money in bonds in
Speaker 1: the in the next year. But we've tilted from defensive equities,
Speaker 1: you know too again to realign to get a little
Speaker 1: bit more cyclical explosure. UM. That's work so well recently
Speaker 1: that you know, when I think about the full year
Speaker 1: twenty UM, I have some doubts that cyclicals are just
Speaker 1: going to race through the full year twenty UM. So
Speaker 1: if you want to think about again investing and really
Speaker 1: holding a position for the full year twenty I want,
Speaker 1: you know, stocks that provide current income and grow current income.
Speaker 1: Now that sort of these you know, show me with
Speaker 1: current performance, uh, that these types of equities are you know,
Speaker 1: a good UM allocation for a world in which global
Speaker 1: bond yields, including emerging markets on high yield you know,
Speaker 1: are down near one and a half percent back to neutral?
Speaker 1: Would it be fat to sell get back to neutral?
Speaker 1: Just incentive white things? This is uh yeah, and uh,
Speaker 1: you know, I think that we are reasonably more optimistic
Speaker 1: on where we will be going uh in trade sensitive
Speaker 1: cyclical equities, you know, over at least the near term
Speaker 1: um our longer term massive allocation aimed at twelve to
Speaker 1: eighteen months, you know, again is not expecting any kind
Speaker 1: of you know, repeat of twenty nineteen returns. What happens
Speaker 1: if no trade deal? Um I think that you'll take
Speaker 1: a setback in markets. You'll see the dollar strengthened. Uh,
Speaker 1: you'll see equities weekend a bit on this, But I
Speaker 1: don't think it ends this card expansion and that eventually
Speaker 1: you make up for that when we continue to grow
Speaker 1: through it. Stephen Wayne, thank you so much. Thanks with
Speaker 1: the group this morning. Here's what you need to know
Speaker 1: Fred Burgston when he invented the Peterson Institute and along
Speaker 1: with Adam Posen's excellent leadership, like secuity, the secret is
Speaker 1: on the Delta Shuttle, the American Airline shuttle. Is they
Speaker 1: read Mary Lovely. Her reports are exceptionally acute at the
Speaker 1: Peterson Institute about the trade war and John uh very
Speaker 1: Lovely of Syracuse and the Peterson Institute really has a
Speaker 1: wonderful bar chart of the profound effects across computer and
Speaker 1: electronic products, electric equipment, apparel and accessories, machinery, accept electrical
Speaker 1: There's a detail here that's profound. And I'm pleased to
Speaker 1: say that Mary Lovely joins us now Peterson Institute nonresident
Speaker 1: Senior Fellow. Mary. Great to have you with us on
Speaker 1: the program. For a long time now we've been told
Speaker 1: to phase one trade deal is close. We had a
Speaker 1: good friend of this program on yesterday, Terry Haynes of
Speaker 1: Pangaea Policy talking about enforcement enforcement, enforcement. Is that where
Speaker 1: the hangup is at the moment? Well, good morning, Yeah,
Speaker 1: I'm sure the enforcement is part of it, but also
Speaker 1: is the schedule for the purchases of agricultural products and
Speaker 1: what what the timetable will be. So I think we're
Speaker 1: really hitting the rocky parts here getting sort of these
Speaker 1: top line promises on the paper, and a lot of
Speaker 1: us are are very nervously watching how this develops. Mary,
Speaker 1: Trade deals take a long time to get on paper.
Speaker 1: Is that what we're seeing develop here or we're seeing
Speaker 1: something that you think you can conclude. Maybe this doesn't
Speaker 1: get done. Well, we're worried about it. Um. I think
Speaker 1: as many people do that there's enormous economic and political
Speaker 1: good sense to getting a trade truth here, uh and
Speaker 1: get some of these purchases back on, you know, back
Speaker 1: rolling in the marketplace. So um. You know, it is
Speaker 1: difficult to make these kinds of deals, and it really
Speaker 1: depends on how much they're trying to get done in
Speaker 1: this Phaze one. When we're talking about enforcement, we could
Speaker 1: be looking at some of the more difficult issues. I
Speaker 1: think it's going to be very difficult to get done
Speaker 1: in a short pressed time period. Is enforcement an issue
Speaker 1: with soybeans or other Phase one items? Surprisingly yes, because
Speaker 1: of the amounts of purchases that have been promised by
Speaker 1: the president. Uh in an uncertain marketplace, Uh, there are
Speaker 1: going to the US is going to be concerned about
Speaker 1: how many will be purchased. Okay, this is great. How
Speaker 1: how one way is enforcement? Do the Chinese one enforcements
Speaker 1: so they can count soybeans in Fargo? The Chinese don't
Speaker 1: want to buy well to be kind of cute a
Speaker 1: pig and of hope they don't want to know this
Speaker 1: is surveillance, the kind of cute works, Professor Lovely. They
Speaker 1: don't want to be buying things, they don't need prices
Speaker 1: that are too high. Uh So, and they also know
Speaker 1: this is their key leverage over the Americans, so they
Speaker 1: are going to try to uh not make very specific
Speaker 1: deals on paper. But the Americans want quarter you know,
Speaker 1: monthly quarterly targets that will have to be met by
Speaker 1: the Chinese for them to be in compliant. All this
Speaker 1: tells us that some tarofts will remain, and certainly the
Speaker 1: threat of tariffs being snapped on or increased in any
Speaker 1: time will remain. So they'll still be a lot of
Speaker 1: uncertainty for businesses trying to figure out where they're supposed
Speaker 1: to invest in this new environment. Yeah, overnight Chinese economic data,
Speaker 1: industrial put rising, less than expected, retail sales, fixed accent
Speaker 1: investment all disappointing. Who has the bigger incentive China? Are
Speaker 1: the US to make a trade deal sooner? Hi, Lisa Um,
Speaker 1: I think they both have incentives, but you know, the
Speaker 1: Chinese system is different than ours. The really full I
Speaker 1: think Unpresident Trump's political calculations regarding this trade war. Clearly
Speaker 1: there are many people who are happy to see the
Speaker 1: United States standing up to China UH and giving them hell,
Speaker 1: as they say. On the other hand, there are a
Speaker 1: lot of people that are beginning to be very badly
Speaker 1: hurt by this UH, and I think that's got to
Speaker 1: be a concern to the President and his team. So
Speaker 1: I would say that the US has a lot here. China,
Speaker 1: clearly though, would like an end to this. Unfortunately, we're
Speaker 1: not going to see an end to conflict. We know
Speaker 1: that there's a lot of issues coming in the technology
Speaker 1: space between the two countries. The so called pushed a
Speaker 1: d couple, so we're not going to see an And
Speaker 1: no matter what happened, who's in charge of saving face
Speaker 1: right now? I mean, if we've got to get through
Speaker 1: the next literally days, weeks, months, and you're you know,
Speaker 1: marry your expert at this, who's in need of saving
Speaker 1: face the most? Wow? I'm not sure that I'm an
Speaker 1: expert in that part of it because it's really political
Speaker 1: and um, you know, I think that President Trump has
Speaker 1: been able to sort of spin this the way he
Speaker 1: wants at least to some part of the American population,
Speaker 1: and he will have the ability to say that if
Speaker 1: a deal isn't reached you know, he hung in there,
Speaker 1: he hung tough. He didn't go for a you know,
Speaker 1: a cheap shot deal. Um. I think the Chinese have
Speaker 1: much bigger issues that they're dealing with. Many of them
Speaker 1: are their own creation, Hong Kong, shin Jung. They have
Speaker 1: to slow it out in their own economy due to
Speaker 1: their reigning in of credit. So I would say that, um,
Speaker 1: it really is going to fall down to who thinks
Speaker 1: they have the more political gains to make by having
Speaker 1: a deal here. I personally think it would be very
Speaker 1: wise for the President to make a deal. I think
Speaker 1: we're seeing that these tariffs now have broad coverage, the
Speaker 1: rates are higher, They're starting to hit a whole bunch
Speaker 1: of American products that are really going to hurt consumers.
Speaker 1: This is a consumer led economy, so I'm hoping that
Speaker 1: the us UH negotiating team is able to find a
Speaker 1: way forward. Mary, you mentioned Hong Kong and some of
Speaker 1: the domestic issues in China at the moment. Help us
Speaker 1: understand that just a little bit better, how something like
Speaker 1: Hong Kong can spill over to these broader macro issues,
Speaker 1: and why there might be a problem for some of
Speaker 1: our listeners in the markets at the moment. How are
Speaker 1: you framing that, Mary Well, I am particularly framing in
Speaker 1: terms of people's perceptions of China and domestic support for
Speaker 1: a trade deal with China, and also moving forward this
Speaker 1: idea of technology uh decoupling. I think that if we
Speaker 1: see China take a very strong hand in China, if
Speaker 1: we see a lot of bloodshed, even if things just
Speaker 1: been out of trolling ways they don't want, it's going
Speaker 1: to to have vague replications here in the Congress and
Speaker 1: among the American people. Very lovely, thank you so much
Speaker 1: for the Peterson in studio. We greatly appreciate your perspective.
Speaker 1: With Bloomberg surveillance, A house can have a house call
Speaker 1: and it can be pretty cautious call. They really colors
Speaker 1: every conversation in every tone worldwide when they have a
Speaker 1: more cautious call. John Farrell, can we state that PIMCO
Speaker 1: has a cautious call? I think we can, particularly on
Speaker 1: the corporate credit side, I think we can say that,
Speaker 1: and we can probably say that on US growth relative
Speaker 1: to expectations going into as well, if you go on
Speaker 1: that most recent cyclical outlook. I'm happy that I don't
Speaker 1: have to speak for them that Nicol lam is with
Speaker 1: us pimco's sovereign credit analyst. So let's do that. Nicola.
Speaker 1: Let's talk about and your expectations relative to what you
Speaker 1: see as the consensus for you. Yeah, so um, I
Speaker 1: would say that, Yeah, we have been on the more
Speaker 1: cautious side. We do expect some kind of reacceleration in
Speaker 1: growth next year on the back of two things. I mean, first,
Speaker 1: trade tansions stabilizing and secondly monetary policy getting some traction.
Speaker 1: But on the whole, we think it's going to be
Speaker 1: a pretty slow reacceleration, partly because the trade tangions will
Speaker 1: keep simmering, and partly because yeah, I mean, the monetary
Speaker 1: policy is hitting its limits when it comes to a sicacy.
Speaker 1: We've already had a lot of stimulus before. Let's talk
Speaker 1: about what that means for markets. This is something you
Speaker 1: wrote around about a month ago. Monetary stimulus is likely
Speaker 1: to prove insufficient and largely ineffective in raising depressed inflation expectations,
Speaker 1: and for that reason, the longer end is expected to
Speaker 1: remain supported. That's Germany. The long end right now, a
Speaker 1: ten year negative thirty two basis points. Nicola, we duck
Speaker 1: at these levels stand, I would say that, yeah, I
Speaker 1: see duration globally and especially in Europe, it's pretty anchored here.
Speaker 1: Even though the levels look extremely low, I just see
Speaker 1: it as very difficult for the ECB to actually be
Speaker 1: able to raise inflation without the help from the fiscal authorities,
Speaker 1: and dragging has clearly before leaving, been calling for them
Speaker 1: very clearly. But we're not seeing enough of a shift
Speaker 1: in the German political space to to see that changing.
Speaker 1: So so yeah, I would say the long end is
Speaker 1: pretty pretty anchored. So the extent of the sell off
Speaker 1: in bonds is done. Um. I mean, it's obviously hard
Speaker 1: to have to call a very near term move in duration,
Speaker 1: but but generally speaking, we think we've seen a decent
Speaker 1: move here, and we are you know, we're pretty neutral
Speaker 1: at these levels. We don't have a very strong conviction
Speaker 1: on the duration vita these levels. Someone said, the levels
Speaker 1: we're seeing on bond yields indicate much slower growth than
Speaker 1: equity valuations would imply. Do you think that equities are
Speaker 1: wrong here? And I've gotten ahead of themselves with pricing
Speaker 1: and the re acceleration that you're expecting. Well, you see,
Speaker 1: I see the things as linked in that you know,
Speaker 1: equity prices have done well partly because central banks have
Speaker 1: been extremely accommodative. So so the very kind of like
Speaker 1: the rally and duration and in interest rates, frisk free
Speaker 1: interest rates has been pushing up equity prices. You know,
Speaker 1: if you if you look at our outlook, I would
Speaker 1: say that risk valuations in terms of equities, in terms
Speaker 1: of credit spreads and so on, do look fairly elevated.
Speaker 1: UM So, so yeah, we're pretty cautious when it comes
Speaker 1: to risk assets at this point. So you're gonna grab
Speaker 1: a coupon this year, how do you defend against price
Speaker 1: decline while you grab a coupon? So, I mean the
Speaker 1: way we the way we try to make alpha, the
Speaker 1: way we make out for it is to be very selective.
Speaker 1: So it doesn't mean not that we don't take any
Speaker 1: risk at all, but we go very focused on sectors
Speaker 1: and areas that we like. So, for example, financials we
Speaker 1: think offer good opportunities in the UK, but not only
Speaker 1: We think that securitized assets like mortgage securities in the US,
Speaker 1: where where households have been delivering a lot, offer good value.
Speaker 1: We think real estate assets more generally offer offer decent
Speaker 1: value UM. And on duration. You know, we we have
Speaker 1: some duration in our portfolios, especially U S duration, which
Speaker 1: we see as a good hedge for for having some
Speaker 1: credit risk um and also it still has positive yield. Nicole,
Speaker 1: Thank you so much. Nicole, and my with Pimcole greatly
Speaker 1: appreciate it. With a cautious view, Diane Swunk with us
Speaker 1: with Grant Thornton, Diane, do we have room for fiscal
Speaker 1: place in America? Rates are abnormally low on a real
Speaker 1: phenomenal basis. Are we under a pleat delusion about our
Speaker 1: fiscal flexibility? We're not under a complete delusion at the moment.
Speaker 1: Deficit doesn't matter until it does, and then it matters
Speaker 1: very rapidly. And I think that's why you saw J.
Speaker 1: Powell sort of caution on policymakers yesterday and step into
Speaker 1: the space that many of his predecessors have. J. Paul
Speaker 1: is an old deficit hawk and say, hey, you know,
Speaker 1: we need to worry about fiscal sustainability because next time
Speaker 1: we hit a downturn, we will need fiscal studious We
Speaker 1: have limited tools here, and I think it is very
Speaker 1: important about thinking about at least I'll be disappointed if
Speaker 1: this is not front and center at the Budget Committee.
Speaker 1: I know there's a lot of politics today, but sure
Speaker 1: Paul's got to step out his misswant ventions. He is
Speaker 1: a deficit hawk, but not all fiscal stimulus is the same. Dan,
Speaker 1: what could we see they would actually be fruitful at
Speaker 1: this stage in the economic cycle. You know, that's a
Speaker 1: really great question. I mean, clearly that keep focusing on
Speaker 1: task cut. This throught about a story that we've kind
Speaker 1: of played over and over again and that really worked
Speaker 1: at this latest stage in the stycle. What we really
Speaker 1: really need is, of course, infrastructure investment. Aren't the investment
Speaker 1: investment that will have productivity growth with it down the
Speaker 1: road and will change the equation across the board for
Speaker 1: the American economy, not just for individuals that get those
Speaker 1: temporary tax because that's what's really important at this stage
Speaker 1: of the game, is to think about the long term
Speaker 1: potential at the economy to grow and long term investments
Speaker 1: at these low industrates, investments in our infrastructure do actually
Speaker 1: makes sense. So the playoffs, you're issuing cheat bonds and
Speaker 1: getting some productivity down the road. So p p i
Speaker 1: UH inflation coming in below expectations. If you strip out food, energy,
Speaker 1: h and trade weighted items. I'm trying to figure out
Speaker 1: what we're seeing here and how concerning this sort of
Speaker 1: decelerating inflation is. Well, you know, it's interesting because there's
Speaker 1: the what came up yesterday in share and powers questioning
Speaker 1: was also the gap and inflation between low income households
Speaker 1: and high income houseless And this is something that's not
Speaker 1: gotten enough attention. Is the head munity in the data.
Speaker 1: You know, we look at the economic I ever get
Speaker 1: them and say, oh, we'll worried about this inflation or
Speaker 1: worried about to low inflation. There's legitimate reasons to worry
Speaker 1: about that. That said, lower income houses in many households
Speaker 1: are saying, we don't see the low inflation. What are
Speaker 1: you talking about because the things they're paying for not
Speaker 1: only do they not have the market power of higher
Speaker 1: income households, they also have a sixth basket of goods
Speaker 1: costs that costs more that they're sort of don't have
Speaker 1: as much wiggle room. And this is really hard for
Speaker 1: the FED because at that point in time, do you
Speaker 1: say you want to run the economy hotter and get
Speaker 1: more inflation, hopefully from wage games. So what if you
Speaker 1: don't get those wage games. Then you're left out and
Speaker 1: getting hotter inflation, especially for lower income housholds, and not
Speaker 1: getting it spread across the economy. Even like Diane the
Speaker 1: lengthest communication from the Federal Reserve echoed once again from
Speaker 1: Cham and Pal yesterday, likely to do the same thing
Speaker 1: today on growth. What they would need to see to
Speaker 1: introduce another right reduction of material reassessment in the outlook.
Speaker 1: What constitutes a material reassessment in the outlook a major
Speaker 1: escalation in trade with China. I mean, part of the
Speaker 1: reason they stepped to the sidelines it felt like they're
Speaker 1: done for a while, is that they're hoping for this
Speaker 1: phase one deal with China, which now again looks in jeopardy,
Speaker 1: and not a further escalation tariffs in December fifteenth. If
Speaker 1: we can get over those hurdles to settle, feel more
Speaker 1: comfortable and staying on the sidelines longer and holding their
Speaker 1: powder dry. I myself, of course, I'm worried about the
Speaker 1: trade war and wish they would have helped that one
Speaker 1: rate cut a little a little bit back and then
Speaker 1: waited for when the big bang for the dollar was greater.
Speaker 1: But it is something that is really front and center
Speaker 1: is the trade war. We're trying to China having more
Speaker 1: weakness in their economy again reporting in Alaskay, Diana swank
Speaker 1: too short. We'll do it again, Diana swank with gran
Speaker 1: Thornton of course, always giving us help here on FED Day,
Speaker 1: with perspective, and of course out of Chicago where the
Speaker 1: real Midwest feel as well. I can't focus, Paul, because
Speaker 1: I'm looking at the Ninjas Super a kitchen blender system
Speaker 1: with food processor b L seven eighty from Walmart. That
Speaker 1: must mean it's time to talk to Sarah Hall sec Sarah.
Speaker 1: If I want to buy a Ninja Super kitchen blender
Speaker 1: system with food processor Comma b L seven eighty, why
Speaker 1: am I going to buy it from Walmart and not
Speaker 1: from Amazon? So Walmart has been making a lot of
Speaker 1: progress in the e commerce division sales or in the
Speaker 1: latest quarter um and they are really you know Amazon.
Speaker 1: Of course, there's a splashy news that they were moving
Speaker 1: to one day shipping a lot of prime orders. Walmart
Speaker 1: has answered that with not quite as large an assortment
Speaker 1: as Amazon is offering one day shipping on but um
Speaker 1: basically on all the sort of most commonly purchased in
Speaker 1: items and so um, and you don't need a prime
Speaker 1: membership right Prime cost a hundred nineteen dollars a year
Speaker 1: Walmart ship format, So if you're going to buy your bonner,
Speaker 1: that that would be the reason to do it. Well,
Speaker 1: rom on Ninja blender because I want total crushing technology.
Speaker 1: Rusha's ice whole fruits and vegetables in seconds. Okay, great, Sarah.
Speaker 1: What portion of Walmart is their future Amazon? I think
Speaker 1: the most important part of Walmart success going forward is
Speaker 1: its grocery division. This accounts for of their US sales,
Speaker 1: and it's a key traffic driver to the rest of
Speaker 1: the departments, and it's an area where they really do
Speaker 1: have an advantage against Amazon. They had this really well
Speaker 1: developed fresh supply chain, moving perishables to customers doorsteps into stores.
Speaker 1: It's just a whole different enchilada than moving books or sweaters,
Speaker 1: right um. And Walmart has the infrastructure to do that
Speaker 1: nationwide much better than Amazon does. And they've had a
Speaker 1: lot of success with their online grocery pickup program and
Speaker 1: they've now rolled out delivery from fourteen hundred stores, and
Speaker 1: Amazon to me just seems to be increasingly incoherent in
Speaker 1: the grocery space. Right They plunked down all this money
Speaker 1: for Whole Foods, you know, just two and a half
Speaker 1: years ago, and now they're starting a second grocery chain
Speaker 1: they've confirmed week. Now, this is important, Paul. You can
Speaker 1: get the old Passo Enchilada dinner kit fourteen ounces for
Speaker 1: six dollars fifty cents. That's if you want the hall
Speaker 1: Zack Whole Enchilada, all right, and I get the hall
Speaker 1: Zack discount, of course, I'm sure, so, sir, talk to
Speaker 1: us about a little bit about the stores, the actual
Speaker 1: Walmart starves. Are they still opening news stores? No, they've
Speaker 1: really backed away from that that. I mean, there may
Speaker 1: be an occasional you know, they might open say ten
Speaker 1: stores in a given year, but really now it's more
Speaker 1: about remodeling the fleet that they already have, making sure
Speaker 1: those store environments are inviting, and most of their capax
Speaker 1: at this point is going into online shopping, right, is
Speaker 1: building out that warehouse infrastructure, UM and software and all
Speaker 1: those kinds of things to really be able to take
Speaker 1: the fight to Amazon in the digital space. So I'm
Speaker 1: looking at the the Bloomberg terminal, the p g O
Speaker 1: function for Walmart. It gives us kind of this cool
Speaker 1: revenue breakdown by geography, So I think about of their
Speaker 1: revenue from Walmart International talked to us about their international
Speaker 1: strategies that they see growth going forward. Yeah, so Walmart,
Speaker 1: particularly in markets like Mexico, that's an important market for them,
Speaker 1: where things have been strong and where they see some
Speaker 1: good runway for growth. Other international markets are more uncertain.
Speaker 1: You know, they had tried to sell their as a
Speaker 1: division earlier this year in the UK or blocked blocked
Speaker 1: by regulators from doing that. Um and clearly the UK
Speaker 1: with breaks that looming is a is a market um
Speaker 1: that where there's a lot of uncertainty and where the
Speaker 1: customer has been a little bit more challenging for them
Speaker 1: to reach. So international is important, but US is still
Speaker 1: the bulk of the operating income and is where investors
Speaker 1: are really focused. Sarah Onto the filter system for Walmart
Speaker 1: dot com I put under a Hall sec typed it
Speaker 1: in Angara has a Black Friday sale a classic ruby
Speaker 1: and diamond necklace and fourteen carrot white for sixties six
Speaker 1: thousand dollars on Walmart. Walmart is selling sixties six thousand
Speaker 1: dollar necklaces. So Walmart has made a big effort in
Speaker 1: the last couple of years to expand its third party marketplace. Um,
Speaker 1: we're much like how Amazon. A lot of the merchandise
Speaker 1: you see for sale on that website is not actually
Speaker 1: held in an Amazon warehouse or sold directly by Amazon.
Speaker 1: Walmart is trying to get into that same space, just
Speaker 1: sort of make sure it has a wide assortment to
Speaker 1: compete with the Everything store. And I my best guess
Speaker 1: is that that's where that sixty bling is coming from.
Speaker 1: It's pretty solid there, Tom, It's just it's just one
Speaker 1: click away time click. You look under Hall Sick and
Speaker 1: there it is. Sarah. I'm looking at the stock here
Speaker 1: up thirty this year, two week high today, Sarah, Are
Speaker 1: there are the bulls just saying, you know, the consumers
Speaker 1: in good shape. Walmart's figured out this online shopping thing.
Speaker 1: They're not. Walmart's not putting them out of business. Is
Speaker 1: that kind of the bowl case for Walmart? Uh, That's
Speaker 1: a lot of it. And then I think the other
Speaker 1: thing is that if we do go into a recession, um,
Speaker 1: if there is an economic downturn, or if the trade
Speaker 1: war continues to be a problem for the retail industry,
Speaker 1: Walmart is perhaps better insulted from all of that than anyway,
Speaker 1: if we get into a recession, folks tend to trade down, right,
Speaker 1: and where do you trade down to? But Walmart, um,
Speaker 1: so they tend to Actually, you know, two thousand nine
Speaker 1: was actually a quite good year for them, um as
Speaker 1: folks were pinching pennies and same with tariff. Obviously, it's
Speaker 1: a very uncertain environment around that right now. But because
Speaker 1: of Walmart's sheer scale, uh you did to negotiate with
Speaker 1: suppliers's pretty unmatched in the industry. You've been great about that, Sarah.
Speaker 1: Let's frame that right now. Revenue is half a trillion dollars.
Speaker 1: They take six cents down to the operating income line.
Speaker 1: The line like we all know, Walmart is a three
Speaker 1: cents on the dollar business. You walk to the store
Speaker 1: and they pocket three cents of every dollar you spend.
Speaker 1: As a generalization from where you said, and you know, Sarah,
Speaker 1: this is maybe too financial, but let's go with it. Anyways,
Speaker 1: are they going to become a more blue chippy company
Speaker 1: where they rotate from use of cash to build build
Speaker 1: build out the legit dividend growth. I mean, are they
Speaker 1: at a tip point where the family says, let's start
Speaker 1: acting like a mature company. I mean, I think Walmart
Speaker 1: has been acting like a mature company for some time,
Speaker 1: with the exception of, you know, having to incubate this
Speaker 1: e commerce business from scratch, from within, you know, from
Speaker 1: within a very different kind of business. Um. But I
Speaker 1: think they're you know, they have a new CEO of
Speaker 1: their US business, John Furner, who's a Walmart lifer. But
Speaker 1: we'll bring sort of a new eye to running the
Speaker 1: US business specifically, and I'm sure he'll be doing so
Speaker 1: with an eye towards kind of bridging this sort of
Speaker 1: new part of the business, the ecomic with the legacy,
Speaker 1: the more mature part of the business, the physical stores
Speaker 1: that they know how to run so well. You know
Speaker 1: something Sarah that works for the office. You can tell
Speaker 1: Mr Hall SX Sarah some things the fourteen Carrett yellow
Speaker 1: gold two thousand dollar bracelets as you, Sarah will set
Speaker 1: giving us wisdom on Walmart really an extraordinary story. Thanks
Speaker 1: are listening to the Bloomberg Surveillance podcast. Subscribe and listen
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