1 00:00:00,080 --> 00:00:13,040 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,600 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg to 5 00:00:33,640 --> 00:00:35,760 Speaker 1: the Treasury market. Then, what a start of the year. 6 00:00:35,800 --> 00:00:38,839 Speaker 1: It's been the tenure starting the year around to forty, 7 00:00:39,320 --> 00:00:41,800 Speaker 1: up thirty four basis points since then, and up another 8 00:00:41,800 --> 00:00:44,400 Speaker 1: three or four basis points in today's session alone. Two 9 00:00:44,479 --> 00:00:47,760 Speaker 1: point seven four pc is your yield on a US 10 00:00:47,840 --> 00:00:51,440 Speaker 1: ten uere For year after year many strategists have called 11 00:00:51,479 --> 00:00:53,760 Speaker 1: for three percent, and for year after year many of 12 00:00:53,800 --> 00:00:56,560 Speaker 1: those strategists have been disappointed. When I can tell you 13 00:00:56,680 --> 00:00:59,120 Speaker 1: this year we're a whole lot closer than we have 14 00:00:59,280 --> 00:01:01,840 Speaker 1: been the quite a while. John gets not to discuss 15 00:01:01,880 --> 00:01:04,319 Speaker 1: in New York City is a bond market legend in 16 00:01:04,360 --> 00:01:08,040 Speaker 1: these pasts. His name is Gary Shilling, a Gary Shilling President. 17 00:01:08,080 --> 00:01:12,480 Speaker 1: Gary always great to get your insight on what's happening. 18 00:01:13,240 --> 00:01:15,600 Speaker 1: Can you tell me where we're out now at seventy 19 00:01:15,680 --> 00:01:19,360 Speaker 1: four and what kind of world with pricing in Well, 20 00:01:19,400 --> 00:01:21,440 Speaker 1: we're in a world where the Fed is obviously got 21 00:01:21,440 --> 00:01:23,440 Speaker 1: the bit in their mouth to raise rates, and there 22 00:01:23,520 --> 00:01:26,400 Speaker 1: is a spillover effect. I mean, if you look at 23 00:01:26,400 --> 00:01:29,200 Speaker 1: the entire post work period and look at the average 24 00:01:29,240 --> 00:01:31,959 Speaker 1: spill over. Now this is average, of course, but for 25 00:01:32,000 --> 00:01:35,280 Speaker 1: every hundred basis point increase in the FED controlled FED 26 00:01:35,360 --> 00:01:38,560 Speaker 1: funds rate, you get a forty four basis point increase 27 00:01:38,640 --> 00:01:41,039 Speaker 1: in the ten year yield. And that's over about the 28 00:01:41,080 --> 00:01:43,160 Speaker 1: next six months. Now when you get out to the 29 00:01:43,160 --> 00:01:46,120 Speaker 1: thirty year yield, it's much less. It's thirty four basis 30 00:01:46,120 --> 00:01:49,320 Speaker 1: points for every hundred basis point increase in FED funds 31 00:01:49,400 --> 00:01:51,800 Speaker 1: Or isn't that's what you'd expect. The further further, what 32 00:01:51,880 --> 00:01:54,360 Speaker 1: you get from where the Fed is the less the impact. 33 00:01:54,800 --> 00:01:56,640 Speaker 1: And the third year has a lot of other forces 34 00:01:56,680 --> 00:02:00,240 Speaker 1: acting on it, uh deflationary forces in my view, things 35 00:02:00,280 --> 00:02:04,920 Speaker 1: like globalization, certainly very important, things like Amazon what they're 36 00:02:04,920 --> 00:02:09,120 Speaker 1: doing to online sales, a lot of other forces affecting 37 00:02:09,120 --> 00:02:11,720 Speaker 1: the longer run. So for anyone getting excited about the 38 00:02:11,760 --> 00:02:14,960 Speaker 1: reflation theme finally taking hold of the treasury market, are 39 00:02:14,960 --> 00:02:17,200 Speaker 1: you saying that to state, take a step back, garyon 40 00:02:17,400 --> 00:02:20,000 Speaker 1: and look at the bigger pitch of world Watte. Hey, John, 41 00:02:20,080 --> 00:02:24,760 Speaker 1: I I the yield on the thirty year bond was 42 00:02:24,880 --> 00:02:28,720 Speaker 1: twelve point six and I said in writing, we're in. 43 00:02:28,960 --> 00:02:32,359 Speaker 1: We're ending the bond rally of a lifetime now, all 44 00:02:32,400 --> 00:02:35,079 Speaker 1: the way down in yields, all the way up in prices. 45 00:02:35,639 --> 00:02:38,960 Speaker 1: The the consensus has been, oh, no, rais are going up, 46 00:02:39,040 --> 00:02:41,600 Speaker 1: razor going up raisor going up, Raiser going up. I 47 00:02:41,639 --> 00:02:44,639 Speaker 1: can't remember one time when there was any general agreement 48 00:02:44,720 --> 00:02:47,919 Speaker 1: with this, with this position, and yeah, maybe it's right 49 00:02:47,960 --> 00:02:51,200 Speaker 1: this time. But the point is that this is this 50 00:02:51,240 --> 00:02:54,440 Speaker 1: has happened so many times in the past that I'm 51 00:02:54,440 --> 00:02:56,800 Speaker 1: not persuaded because I look at I look at what 52 00:02:56,840 --> 00:02:59,520 Speaker 1: I consider the fundamentals. Let's say, when you look at 53 00:03:00,080 --> 00:03:03,400 Speaker 1: what's going on in terms of even in the service economy, 54 00:03:03,480 --> 00:03:08,440 Speaker 1: and we're increasingly as incomes. As economies expand, service has 55 00:03:08,520 --> 00:03:10,640 Speaker 1: become more important than goods. You can only put so 56 00:03:10,639 --> 00:03:12,400 Speaker 1: many cars in your drive away, but you can spend 57 00:03:12,560 --> 00:03:15,800 Speaker 1: infinite a louts of money on healthcare, recreation, travel and 58 00:03:15,840 --> 00:03:19,800 Speaker 1: so on. And and even in the service inflation area, education, 59 00:03:20,280 --> 00:03:23,520 Speaker 1: service costs are coming down. A lot of pressure. UH, 60 00:03:23,680 --> 00:03:26,119 Speaker 1: students and their parents are saying, hey, this is too expensive. 61 00:03:26,200 --> 00:03:28,880 Speaker 1: I'm going to go to apprenticeship program rather than for 62 00:03:29,080 --> 00:03:32,360 Speaker 1: your college. Healthcare. A lot of pressure there. And you 63 00:03:32,400 --> 00:03:37,640 Speaker 1: see this this recent decision by h Morgan Bank uh 64 00:03:37,840 --> 00:03:45,600 Speaker 1: Um Amazon, and yeah, and you know that these things 65 00:03:45,640 --> 00:03:48,560 Speaker 1: are really coming under control. So I think there's a 66 00:03:48,680 --> 00:03:51,320 Speaker 1: there's just a lot of deflationary forces in the world, 67 00:03:51,800 --> 00:03:54,720 Speaker 1: and I'm not sure the feed is properly recognize those. 68 00:03:54,760 --> 00:03:57,720 Speaker 1: They will be they're beginning to. They've they've an effects 69 00:03:57,760 --> 00:04:00,600 Speaker 1: said that the natural rate of interest, this sort of 70 00:04:00,600 --> 00:04:03,520 Speaker 1: interest rate where we're in nirvana and everything is just 71 00:04:03,640 --> 00:04:08,520 Speaker 1: copacetically right off into the into the horizon, into the sunset. 72 00:04:08,840 --> 00:04:11,480 Speaker 1: You know, equilibrium never exists. It's just a it's just 73 00:04:11,520 --> 00:04:14,800 Speaker 1: a momentary point you're passing through on the way to 74 00:04:14,840 --> 00:04:17,920 Speaker 1: one extreme or the other. But even the FED, I think, 75 00:04:18,080 --> 00:04:20,560 Speaker 1: is beginning to recognize that the world has changed. Do 76 00:04:20,600 --> 00:04:24,080 Speaker 1: you think do you think that yields have to go down? Then? 77 00:04:24,120 --> 00:04:27,360 Speaker 1: And I ask in this context that Feds raised rates 78 00:04:27,400 --> 00:04:32,080 Speaker 1: five times and financial conditions are looser than ever, so 79 00:04:33,160 --> 00:04:35,839 Speaker 1: you could argue that what they're doing isn't the problem 80 00:04:36,080 --> 00:04:39,839 Speaker 1: and yields don't have to fall. Well, yeah, that's a 81 00:04:39,880 --> 00:04:43,000 Speaker 1: good point. Mike, and I think the reality is that 82 00:04:43,040 --> 00:04:46,520 Speaker 1: there is so much liquidity slashing around the world as 83 00:04:46,520 --> 00:04:50,719 Speaker 1: a result of quantitative easing, the FED, the Bank of England, 84 00:04:50,720 --> 00:04:54,520 Speaker 1: Bank of Canada, Bank of Japan, European Central Bank, uh, 85 00:04:54,600 --> 00:04:57,400 Speaker 1: the the Swedish Rice Bank. You have all this liquidity 86 00:04:57,400 --> 00:04:59,960 Speaker 1: slashing around the world, and it's gonna take a while 87 00:05:00,120 --> 00:05:03,200 Speaker 1: to soak that up. In other words, and and so 88 00:05:03,480 --> 00:05:05,640 Speaker 1: I think, you know, if the FED raisers raised three 89 00:05:05,640 --> 00:05:08,240 Speaker 1: times this year, four times, I'm not sure that makes 90 00:05:08,240 --> 00:05:10,640 Speaker 1: a lot of difference to the overall equidity now. Sooner 91 00:05:10,680 --> 00:05:13,200 Speaker 1: or later, if the FED continues to do what they 92 00:05:13,320 --> 00:05:16,159 Speaker 1: what they always do are almost always do, and that 93 00:05:16,400 --> 00:05:19,240 Speaker 1: is get credit too tight and kill the economy, get 94 00:05:19,240 --> 00:05:23,000 Speaker 1: a bear market in stocks, and and uh, by my account, 95 00:05:23,360 --> 00:05:25,760 Speaker 1: in eleven or twelve times in the post World War 96 00:05:25,800 --> 00:05:27,960 Speaker 1: two period when the FED started on a tightening binge, 97 00:05:28,360 --> 00:05:31,320 Speaker 1: they ultimately did achieve that they only had one stoft 98 00:05:31,400 --> 00:05:33,760 Speaker 1: landing in the mid nineties, But that could be years 99 00:05:33,800 --> 00:05:35,960 Speaker 1: away because there's so much liquidity out there to be 100 00:05:36,000 --> 00:05:38,720 Speaker 1: soaked up. Let me ask you this, Johnna, I've been 101 00:05:38,720 --> 00:05:41,600 Speaker 1: insulting Gary all day by asking him questions about the 102 00:05:41,600 --> 00:05:45,680 Speaker 1: olden days. Um, But because you've been doing this for 103 00:05:45,720 --> 00:05:49,559 Speaker 1: so long, do we have better data now that would 104 00:05:49,760 --> 00:05:53,440 Speaker 1: enable a central bank to get ahead of the idea 105 00:05:53,480 --> 00:05:55,960 Speaker 1: that they could go too far? I mean we have 106 00:05:56,040 --> 00:06:01,120 Speaker 1: all these, for example, financial condition indexes. I don't think so. 107 00:06:01,320 --> 00:06:04,040 Speaker 1: The problem is there's really too much data and too 108 00:06:04,080 --> 00:06:07,560 Speaker 1: little analysis. I mean you look for example, at at 109 00:06:07,640 --> 00:06:11,479 Speaker 1: the data on consumer sentiment the Conference Board of the 110 00:06:11,480 --> 00:06:15,840 Speaker 1: Michigan to leading surveys on this. The correlation between that 111 00:06:15,920 --> 00:06:18,719 Speaker 1: and what consumers spend is lawful. As a matter of fact, 112 00:06:19,240 --> 00:06:23,840 Speaker 1: the way it is that consumers spending leads confidence, it's 113 00:06:23,880 --> 00:06:26,000 Speaker 1: it's quite the reverse of what you'd expect. It's not 114 00:06:26,040 --> 00:06:29,640 Speaker 1: a leading it's a lagging indicator. And I just think 115 00:06:29,640 --> 00:06:32,880 Speaker 1: that the that the idea of you can rely on data. 116 00:06:33,120 --> 00:06:35,520 Speaker 1: I mean that this years ago, there was this belief 117 00:06:35,600 --> 00:06:40,280 Speaker 1: that this belief that you could design these huge econometric 118 00:06:40,320 --> 00:06:44,400 Speaker 1: models of the economy two and three D equation jobs. 119 00:06:44,400 --> 00:06:47,360 Speaker 1: And I was trained as econometrician. Uh when I got 120 00:06:47,360 --> 00:06:50,159 Speaker 1: my PhD of Sanford, and everybody thought these were going 121 00:06:50,200 --> 00:06:53,520 Speaker 1: to solve the world. Well, the problem is that they didn't. 122 00:06:53,720 --> 00:06:56,480 Speaker 1: And and there's so many nuances, there's so many unknowns. 123 00:06:56,480 --> 00:06:59,200 Speaker 1: There's so many, so many things you have to put 124 00:06:59,240 --> 00:07:02,360 Speaker 1: in to wreck the models from blowing up, from giving 125 00:07:02,400 --> 00:07:05,400 Speaker 1: a nonsensical answers that by the time you get through 126 00:07:05,680 --> 00:07:07,440 Speaker 1: your shower, Say, wait a minute, there's a lot of 127 00:07:07,520 --> 00:07:10,200 Speaker 1: human nature in here that you never really can quite 128 00:07:10,280 --> 00:07:13,080 Speaker 1: you can't quantify, at least not in today's world. Everybody 129 00:07:13,120 --> 00:07:16,800 Speaker 1: hated economists after the Great Financial Crisis because nobody called 130 00:07:16,840 --> 00:07:20,080 Speaker 1: the Great Financial Crisis. Now, wait a minute, except for 131 00:07:20,200 --> 00:07:23,760 Speaker 1: a Gary Sully, it seems to be that I do 132 00:07:23,920 --> 00:07:26,720 Speaker 1: love the way that history has kind of rewritten itself 133 00:07:26,800 --> 00:07:30,240 Speaker 1: with the words nobody predicted this. Michael. I don't know 134 00:07:30,360 --> 00:07:32,000 Speaker 1: where you were going with it. But Gary, does that 135 00:07:32,080 --> 00:07:35,520 Speaker 1: frustrate you that somehow we sit and we sit here 136 00:07:35,560 --> 00:07:40,960 Speaker 1: and say, nobody predicted this? People did? Yeah? Yeah, And 137 00:07:41,000 --> 00:07:43,440 Speaker 1: of course there's there's always a question of the degree 138 00:07:43,480 --> 00:07:46,960 Speaker 1: of prediction. I mean, it's a somebody who said, um, 139 00:07:48,000 --> 00:07:50,440 Speaker 1: say five years I mean, we were on top of 140 00:07:50,440 --> 00:07:53,600 Speaker 1: the of the housing bubble. The first time we started 141 00:07:53,600 --> 00:07:56,360 Speaker 1: writing about this was in uh two thousand two, and 142 00:07:56,360 --> 00:07:58,640 Speaker 1: we said, a bubbleist farming sooner or later. A crack 143 00:07:59,160 --> 00:08:03,120 Speaker 1: Now it only crack. Actually February of of two thousand 144 00:08:03,240 --> 00:08:05,960 Speaker 1: eight was probably the time that you could because that 145 00:08:06,160 --> 00:08:08,320 Speaker 1: was on the A b X UH when the A 146 00:08:08,440 --> 00:08:12,600 Speaker 1: b X trouble b UH minus index went off the cliff. 147 00:08:13,080 --> 00:08:16,760 Speaker 1: But did anybody say February is a data ahead of time. 148 00:08:17,080 --> 00:08:19,400 Speaker 1: We didn't, and I think we're as good as anybody. 149 00:08:19,440 --> 00:08:21,400 Speaker 1: But it's always a degree. I mean, when you know, 150 00:08:21,440 --> 00:08:24,320 Speaker 1: and hey, let's face it, the Tennessee is when you're 151 00:08:24,400 --> 00:08:26,880 Speaker 1: right to go back and say, well, I told you so, 152 00:08:27,480 --> 00:08:30,440 Speaker 1: and I refer to this, and of course, uh, there're 153 00:08:30,480 --> 00:08:32,880 Speaker 1: guys like Michaelill remind you that there's sometimes you said 154 00:08:32,960 --> 00:08:35,440 Speaker 1: things that didn't come up and come through and that's 155 00:08:35,440 --> 00:08:38,680 Speaker 1: weekly valid. But you know, it is a degree. It 156 00:08:38,800 --> 00:08:40,800 Speaker 1: is a degree of forecast. It's not a it's not 157 00:08:40,880 --> 00:08:43,360 Speaker 1: a one off kind of you're either right or either wrong. 158 00:08:43,480 --> 00:08:45,720 Speaker 1: Just to finish things up with you before we before 159 00:08:45,760 --> 00:08:47,439 Speaker 1: we lose you. We've got one minute left. What do 160 00:08:47,480 --> 00:08:52,000 Speaker 1: you think people are getting wrong? Now? Um? I think 161 00:08:52,080 --> 00:08:56,360 Speaker 1: they're getting wrong. The conviction that this is going to 162 00:08:56,440 --> 00:09:00,920 Speaker 1: continue forever. The complacency in markets is extreme. Now, that 163 00:09:00,960 --> 00:09:03,880 Speaker 1: doesn't mean that they're gonna have a big come up 164 00:09:03,880 --> 00:09:07,000 Speaker 1: and tomorrow or the next day. But I do think 165 00:09:07,080 --> 00:09:10,560 Speaker 1: and and the latest example of this is bitcoin. When 166 00:09:10,559 --> 00:09:13,000 Speaker 1: you see this, when people are just desperate for returns 167 00:09:13,040 --> 00:09:16,839 Speaker 1: and they're going to speculative areas like this, it tells 168 00:09:16,880 --> 00:09:20,079 Speaker 1: you that they really have that that the greed has 169 00:09:20,120 --> 00:09:25,280 Speaker 1: overcome fear. Alright, Gary Shilling, Um, we will continue to 170 00:09:25,320 --> 00:09:28,720 Speaker 1: hold your feet to the fire because that's what I do. Okay, 171 00:09:28,760 --> 00:09:32,480 Speaker 1: love you the bees. Okay, the bees are okay. It's 172 00:09:32,520 --> 00:09:37,880 Speaker 1: been produced. So I wish I checked him out a 173 00:09:37,880 --> 00:09:40,160 Speaker 1: couple of weeks ago ahead and give him a food. 174 00:09:40,200 --> 00:09:42,679 Speaker 1: It's called fonding his cake decoration for they can eat 175 00:09:42,679 --> 00:09:44,400 Speaker 1: to get through the winter. I don't want him to starve. 176 00:09:44,440 --> 00:09:47,040 Speaker 1: But uh, out of a hundred hives, and I only 177 00:09:47,040 --> 00:09:48,959 Speaker 1: had about five of them that have died so far 178 00:09:49,000 --> 00:09:51,319 Speaker 1: in the winter. And that's pretty good. That's pretty good. 179 00:09:51,320 --> 00:09:55,360 Speaker 1: Gary Shilling, Hey, Gary Shilling Company and a beekeeper. We 180 00:09:55,400 --> 00:10:12,720 Speaker 1: love them here on Bloomberg Surveillance. The story, though, for 181 00:10:12,760 --> 00:10:15,560 Speaker 1: the equity market will be all about the tech earnings, 182 00:10:15,559 --> 00:10:19,680 Speaker 1: and we have had a taster from Facebook. The story 183 00:10:19,720 --> 00:10:22,520 Speaker 1: from Wall Street is that less time spent on Facebook 184 00:10:22,559 --> 00:10:24,760 Speaker 1: is apparently no big deal. So let's have a big 185 00:10:24,800 --> 00:10:27,280 Speaker 1: conversation about Facebook. Shall we with the man who quite 186 00:10:27,320 --> 00:10:31,720 Speaker 1: literally wrote the book on Facebook. It's David Kirkpatrick, CEO 187 00:10:32,080 --> 00:10:36,480 Speaker 1: of and founder of Teconomy Media, David Kirkpatrick joining us 188 00:10:36,520 --> 00:10:38,880 Speaker 1: on the phone. David helped me out here. Less time 189 00:10:38,880 --> 00:10:42,040 Speaker 1: spent on Facebook apparently no big deal? Is it a 190 00:10:42,080 --> 00:10:44,720 Speaker 1: big deal? Um? I don't. I don't think it's yet 191 00:10:44,760 --> 00:10:46,560 Speaker 1: a big deal, and thanks for having me. And I 192 00:10:46,600 --> 00:10:48,760 Speaker 1: think that in the United States and North America is 193 00:10:48,760 --> 00:10:51,040 Speaker 1: where we saw this trend just begin for the first 194 00:10:51,040 --> 00:10:53,160 Speaker 1: time ever, that there was actually a net loss of 195 00:10:53,840 --> 00:10:58,200 Speaker 1: uh daily active users. But on the global basis, which 196 00:10:58,240 --> 00:11:01,440 Speaker 1: is really what the level of would Facebook operates and 197 00:11:01,640 --> 00:11:05,200 Speaker 1: you have to think and where it's opportunity ultimately lies, 198 00:11:06,120 --> 00:11:10,240 Speaker 1: that was not the trend. The monthly average users continued 199 00:11:10,320 --> 00:11:15,040 Speaker 1: to go up globally, actually quite considerably. So I don't 200 00:11:15,080 --> 00:11:18,640 Speaker 1: think yet you can say that the decline in North 201 00:11:18,679 --> 00:11:23,480 Speaker 1: America in daily users is extremely serious and that company 202 00:11:23,600 --> 00:11:28,320 Speaker 1: is saying, which I probably for now would accept, that 203 00:11:28,400 --> 00:11:32,800 Speaker 1: this change is something you might expect given the level 204 00:11:32,840 --> 00:11:36,319 Speaker 1: of penetration this company has in the North American population. 205 00:11:36,400 --> 00:11:39,320 Speaker 1: That's something more like a fluctuation. You mean they couldn't 206 00:11:39,400 --> 00:11:42,320 Speaker 1: go up forever in terms of getting you know, more 207 00:11:42,360 --> 00:11:46,600 Speaker 1: than they can't get more than everybody to be on Facebook, 208 00:11:46,600 --> 00:11:50,320 Speaker 1: and they've gotten perilously close to that. So that particular 209 00:11:50,400 --> 00:11:53,240 Speaker 1: thing doesn't worry me yet it could if it continued 210 00:11:53,280 --> 00:11:55,199 Speaker 1: to be a trend. Is it too early, David to 211 00:11:55,240 --> 00:11:58,640 Speaker 1: say that in North America that we're seeing significant signs 212 00:11:58,640 --> 00:12:02,920 Speaker 1: of saturation. Oh? No, I think we've seen saturation coming 213 00:12:02,960 --> 00:12:06,120 Speaker 1: for some time, which isn't necessarily a problem if they 214 00:12:06,120 --> 00:12:10,200 Speaker 1: can at least keep those people there and then begin 215 00:12:10,280 --> 00:12:13,080 Speaker 1: to raise their AD rates over time, which they have 216 00:12:13,240 --> 00:12:15,120 Speaker 1: been able to do in many I mean, AD rates 217 00:12:15,640 --> 00:12:18,960 Speaker 1: are going up on Facebook, So that's their kind of 218 00:12:19,040 --> 00:12:23,120 Speaker 1: lever they can play with regardless of what happens with users. 219 00:12:23,160 --> 00:12:25,160 Speaker 1: But they have to of course retain the interest of 220 00:12:25,240 --> 00:12:28,000 Speaker 1: their of their community. To use the word they love 221 00:12:28,040 --> 00:12:30,640 Speaker 1: to use. To your point, ad rates are going up, 222 00:12:30,679 --> 00:12:33,439 Speaker 1: and AD revenue growth still is pretty strong to me, David. 223 00:12:33,520 --> 00:12:36,600 Speaker 1: So they've warned about engagement, and actually the warnings of 224 00:12:36,640 --> 00:12:40,319 Speaker 1: engagement actually materialized, but the warnings around ad growth haven't 225 00:12:40,360 --> 00:12:43,800 Speaker 1: really materialized at all. Is there any reason to believe 226 00:12:43,840 --> 00:12:45,520 Speaker 1: Facebook when they tell us that this is going to 227 00:12:45,600 --> 00:12:50,080 Speaker 1: slow sometime soon. Well, you know what what they've said 228 00:12:50,200 --> 00:12:53,959 Speaker 1: especially is that add load, meaning the amount of ads 229 00:12:53,960 --> 00:12:56,920 Speaker 1: that are given user sees when they go on Facebook, 230 00:12:57,840 --> 00:13:00,000 Speaker 1: will go down, and that they'd actually like to see 231 00:13:00,000 --> 00:13:02,240 Speaker 1: it go down a little bit. But because they seem 232 00:13:02,320 --> 00:13:07,040 Speaker 1: to have so much leverage in pricing UH, that doesn't 233 00:13:07,080 --> 00:13:09,719 Speaker 1: seem to affect their results. I mean, and I think 234 00:13:09,720 --> 00:13:15,600 Speaker 1: it's worth pausing to notice the unbelievable impressiveness of the 235 00:13:15,679 --> 00:13:20,800 Speaker 1: financials here. I mean, this is a company h which 236 00:13:21,080 --> 00:13:27,000 Speaker 1: is growing its revenues considerably more than its costs, where 237 00:13:27,040 --> 00:13:32,400 Speaker 1: you know, their profitability rates increased um and their profit 238 00:13:32,480 --> 00:13:37,440 Speaker 1: growth was something like uh at a time when they're 239 00:13:37,480 --> 00:13:40,720 Speaker 1: close to a fifty billion dollar company. I mean, this 240 00:13:40,800 --> 00:13:43,600 Speaker 1: is this is something you haven't seen in companies like 241 00:13:43,679 --> 00:13:47,360 Speaker 1: this before. Really, there hasn't been a company like this before. 242 00:13:47,880 --> 00:13:51,360 Speaker 1: And the financials remained spectacular. So I think that's the 243 00:13:51,400 --> 00:13:55,160 Speaker 1: reason why the stock, even though it dropped considerably in 244 00:13:55,160 --> 00:13:58,439 Speaker 1: the few minutes after the earnings were released, once people 245 00:13:58,440 --> 00:14:00,600 Speaker 1: had more time to digest what was really going on, 246 00:14:01,040 --> 00:14:02,959 Speaker 1: they turned around and now the stock is up from 247 00:14:02,960 --> 00:14:04,839 Speaker 1: where it was before the release. And of course it's 248 00:14:04,840 --> 00:14:06,199 Speaker 1: worth a night in David that for all of these 249 00:14:06,200 --> 00:14:08,480 Speaker 1: tech companies that report over the next twenty four hours, 250 00:14:08,480 --> 00:14:10,559 Speaker 1: the comps for the whole of the next year are 251 00:14:10,559 --> 00:14:13,360 Speaker 1: going to be really, really tough, because just last year 252 00:14:13,920 --> 00:14:17,120 Speaker 1: was so so, so so good. I looked at some 253 00:14:17,120 --> 00:14:20,600 Speaker 1: of the numbers in the quarterly earnings release yesterday after 254 00:14:20,560 --> 00:14:24,880 Speaker 1: the close head count and costs arising materially now that 255 00:14:24,960 --> 00:14:27,000 Speaker 1: may be outstripped by what they're doing with that revenue. 256 00:14:27,000 --> 00:14:28,920 Speaker 1: And that's great, David, But on the costs and the 257 00:14:29,000 --> 00:14:32,760 Speaker 1: head count, what's the story behind that? Well, I mean, 258 00:14:32,760 --> 00:14:35,280 Speaker 1: I think they've said they were going to double the 259 00:14:35,360 --> 00:14:38,760 Speaker 1: number of people who they devote to overseeing content to 260 00:14:38,840 --> 00:14:42,240 Speaker 1: try to address some of these very serious criticisms they've 261 00:14:42,240 --> 00:14:45,320 Speaker 1: received from received for their social role, that it was 262 00:14:45,360 --> 00:14:47,760 Speaker 1: going to go from ten thousand to twenty thousand, and 263 00:14:47,760 --> 00:14:50,800 Speaker 1: they have said that in October. So some of that 264 00:14:50,880 --> 00:14:53,600 Speaker 1: increase is probably attributable to that. I think a lot 265 00:14:53,640 --> 00:14:56,000 Speaker 1: of it is also attributable to just the scale of 266 00:14:56,040 --> 00:14:59,040 Speaker 1: their global growth and the fact that they continue to 267 00:14:59,080 --> 00:15:03,080 Speaker 1: become a more and more important platforms in literally something 268 00:15:03,160 --> 00:15:05,560 Speaker 1: like a hundred and ninety countries, which means they have 269 00:15:05,680 --> 00:15:08,080 Speaker 1: to have people on the ground in many of those places. 270 00:15:08,560 --> 00:15:15,720 Speaker 1: Um so UM. I don't think the cost problem worries 271 00:15:15,760 --> 00:15:17,720 Speaker 1: me that much. I mean, I'm just looking at the 272 00:15:18,760 --> 00:15:25,880 Speaker 1: release right now advertising increased, costs increased. You know, as 273 00:15:25,920 --> 00:15:28,320 Speaker 1: long as they could keep that kind of ratio, they 274 00:15:28,320 --> 00:15:30,760 Speaker 1: don't have a problem with costs, even if they're adding 275 00:15:30,760 --> 00:15:33,080 Speaker 1: more people and spending more money. They've also said they're 276 00:15:33,080 --> 00:15:36,240 Speaker 1: going to spend a lot of money on infrastructure and 277 00:15:37,200 --> 00:15:41,320 Speaker 1: server farms and cloud infrastructure and all the back end 278 00:15:41,400 --> 00:15:43,160 Speaker 1: stuff that they have to spend on to keep this 279 00:15:43,280 --> 00:15:47,160 Speaker 1: service operating. Uh, and they're very aggressive in that kind 280 00:15:47,200 --> 00:15:50,400 Speaker 1: of spending. But so far there's no sign and that 281 00:15:50,520 --> 00:15:52,920 Speaker 1: I can see that that's affecting their profitability. To me, 282 00:15:53,480 --> 00:15:56,960 Speaker 1: the threat, such as it is, and it's something of 283 00:15:56,960 --> 00:16:01,600 Speaker 1: a unique one, is a political, social, of socioeconomic threat 284 00:16:01,920 --> 00:16:05,920 Speaker 1: and perceptual one. And if they if they cannot shift 285 00:16:05,960 --> 00:16:10,119 Speaker 1: the narrative and begin to be seen as a positive 286 00:16:10,160 --> 00:16:15,160 Speaker 1: contributor to society, I think that implies all kinds of peril, 287 00:16:15,240 --> 00:16:19,000 Speaker 1: including eventually financial peril. Well, Scott Galloway of n y 288 00:16:19,120 --> 00:16:22,200 Speaker 1: U has been quite vocal about this. I'm sure you know, David. 289 00:16:22,240 --> 00:16:24,640 Speaker 1: He said that the company has been tone deaf to 290 00:16:24,720 --> 00:16:31,800 Speaker 1: these kind of things, I think slipping. Um, Yes, I 291 00:16:31,800 --> 00:16:35,880 Speaker 1: mean there's certainly they are tone deaf. I think their 292 00:16:35,880 --> 00:16:41,240 Speaker 1: immaturity as a company is increasingly evident. Um. They are 293 00:16:41,280 --> 00:16:44,520 Speaker 1: a young company, especially to now be fifty billion dollar 294 00:16:44,600 --> 00:16:47,440 Speaker 1: company making this kind of profit, you know, run by 295 00:16:47,480 --> 00:16:52,480 Speaker 1: a someone in his early thirties who has absolute power. Um. 296 00:16:52,600 --> 00:16:57,520 Speaker 1: These are delicate and challenging realities. I mean, Galloway goes 297 00:16:57,600 --> 00:17:00,320 Speaker 1: much further. He says Facebook should be broken up in 298 00:17:00,360 --> 00:17:03,560 Speaker 1: no unequivocal terms. I heard him speak just last week 299 00:17:03,640 --> 00:17:08,920 Speaker 1: in Munich. Um. The guy is rapidly critical of not 300 00:17:09,000 --> 00:17:11,960 Speaker 1: just Facebook but all the Internet giants, but he singles 301 00:17:11,960 --> 00:17:16,399 Speaker 1: them out especially for criticism. Believe Facebook should be broken up, David, No, 302 00:17:16,720 --> 00:17:18,320 Speaker 1: I don't see how you could break it up. I 303 00:17:18,320 --> 00:17:22,919 Speaker 1: think breakup is the wrong term. Um. But you know, 304 00:17:23,200 --> 00:17:27,960 Speaker 1: here's what I do think. Um, Facebook operates on its 305 00:17:28,000 --> 00:17:31,520 Speaker 1: own with no oversight in a hundred and nineties some 306 00:17:31,680 --> 00:17:35,040 Speaker 1: countries h at a at a time when we know 307 00:17:35,960 --> 00:17:41,720 Speaker 1: that it is having, alongside many many deeply beneficial effects, 308 00:17:41,760 --> 00:17:46,679 Speaker 1: some extremely worrisome negative effects on both individuals and society. 309 00:17:47,440 --> 00:17:50,240 Speaker 1: So we have issues of addiction, and also we have 310 00:17:50,359 --> 00:17:53,680 Speaker 1: a lot of other things, including issues of political manipulation 311 00:17:53,760 --> 00:17:57,359 Speaker 1: inside an ungoverned platform, which we saw very evident in 312 00:17:57,359 --> 00:18:00,800 Speaker 1: the United States, and Americans ought to be clearied in 313 00:18:00,920 --> 00:18:04,680 Speaker 1: realizing is a problem in every country. This is not 314 00:18:04,840 --> 00:18:07,280 Speaker 1: It's not just the US election you know might have 315 00:18:07,320 --> 00:18:10,960 Speaker 1: been uh manipulated, or the Russians might have attempted to 316 00:18:11,000 --> 00:18:15,480 Speaker 1: manipulated inside Facebook. They and bad actors, including the governments 317 00:18:15,480 --> 00:18:18,879 Speaker 1: themselves when they're not democratic, are attempting to manipulate public 318 00:18:18,880 --> 00:18:23,200 Speaker 1: opinion inside Facebook in literally every country. So we need 319 00:18:23,240 --> 00:18:29,120 Speaker 1: to find a way to somehow combat that. Facebook needs 320 00:18:29,160 --> 00:18:31,880 Speaker 1: to find a way to combat that. But I don't 321 00:18:31,880 --> 00:18:34,640 Speaker 1: see how that could ever be found by them alone. 322 00:18:34,720 --> 00:18:37,960 Speaker 1: I think somehow a new form of compact needs to 323 00:18:38,000 --> 00:18:42,600 Speaker 1: be arrived at between governments, the general's public business, and 324 00:18:42,840 --> 00:18:45,680 Speaker 1: these platforms, particularly Facebook. Many of these same points hold 325 00:18:45,680 --> 00:18:47,760 Speaker 1: true for Google and some of these other companies, I 326 00:18:47,800 --> 00:18:49,840 Speaker 1: would say as well, but Facebook is the one where's 327 00:18:49,920 --> 00:18:54,080 Speaker 1: most obvious. David Kirkpatrick, they see and founder of Teconomy Media, 328 00:18:54,160 --> 00:18:56,680 Speaker 1: joining us on those facebooktarnings. Really appreciate your time, sir, 329 00:18:56,760 --> 00:18:59,080 Speaker 1: Thank you very much from New York city you're listening 330 00:18:59,160 --> 00:19:14,520 Speaker 1: to val Kate Warren is in just was tragic, said 331 00:19:14,680 --> 00:19:18,480 Speaker 1: Edward Jones. We've ostensibly brought her in to talk about 332 00:19:18,520 --> 00:19:21,359 Speaker 1: the FED and jobs and markets ahead, and I'm gonna 333 00:19:21,400 --> 00:19:25,160 Speaker 1: start with the markets rather than the Fed, because when 334 00:19:25,240 --> 00:19:28,520 Speaker 1: we started the show today, futures were up and it 335 00:19:28,640 --> 00:19:31,000 Speaker 1: was like, all right, you know, forget that little sell 336 00:19:31,040 --> 00:19:33,040 Speaker 1: off we had. And then we've started to get some 337 00:19:33,400 --> 00:19:37,080 Speaker 1: bad earnings numbers today, and now we've got these Ford 338 00:19:37,160 --> 00:19:41,200 Speaker 1: and Chrysler numbers which suggests January was not at all 339 00:19:41,280 --> 00:19:45,160 Speaker 1: a good month for auto sales. Is there a crack 340 00:19:45,160 --> 00:19:47,159 Speaker 1: of the armor? Is there something to start to be 341 00:19:47,280 --> 00:19:49,400 Speaker 1: worried about here? Or is this just going to turn 342 00:19:49,400 --> 00:19:52,439 Speaker 1: out to be one day story and into tonight, Apple 343 00:19:52,520 --> 00:19:56,000 Speaker 1: or Faith, you know, or or Amazone's gonna come out 344 00:19:56,040 --> 00:19:58,160 Speaker 1: and say, you know, earnings were great and everybody's buying 345 00:19:58,160 --> 00:20:01,679 Speaker 1: again tomorrow. Well it's har to tell, because short term 346 00:20:01,720 --> 00:20:04,440 Speaker 1: you never know exactly why where the markets are going 347 00:20:04,480 --> 00:20:06,280 Speaker 1: to move. And I don't think there's really a crack 348 00:20:06,320 --> 00:20:08,320 Speaker 1: in the armor. But I think investors have gotten a 349 00:20:08,320 --> 00:20:11,400 Speaker 1: little ahead of themselves in terms of thinking that all 350 00:20:11,440 --> 00:20:14,359 Speaker 1: the good news we're seeing from earnings earlier was going 351 00:20:14,359 --> 00:20:18,480 Speaker 1: to translate into nothing but great earnings from everyone. So 352 00:20:18,640 --> 00:20:20,800 Speaker 1: I wouldn't be too worried about this. I would certainly 353 00:20:20,800 --> 00:20:23,879 Speaker 1: be using it as an opportunity to add investments to 354 00:20:24,000 --> 00:20:27,080 Speaker 1: broaden the diversification in your portfolio. But I think it's 355 00:20:27,080 --> 00:20:29,560 Speaker 1: a good reminder for investors also that if you have 356 00:20:29,640 --> 00:20:32,040 Speaker 1: too much in stocks, now is the time to add bonds. 357 00:20:32,160 --> 00:20:33,760 Speaker 1: Even though, of course the Feds on the way to 358 00:20:34,000 --> 00:20:39,119 Speaker 1: raising interest buying bonds, they're going down in value. Yes, exactly, 359 00:20:39,160 --> 00:20:42,119 Speaker 1: everything is going down. And that's a situation where you 360 00:20:42,160 --> 00:20:43,760 Speaker 1: look at the markets and you say, how do you 361 00:20:43,800 --> 00:20:46,240 Speaker 1: protect in a world where interest rates are rising and 362 00:20:46,320 --> 00:20:50,680 Speaker 1: stocks maybe you know, poised for dropping, and we don't 363 00:20:50,680 --> 00:20:53,680 Speaker 1: even have bitcoin anymore to invest it, so well, we'd 364 00:20:53,720 --> 00:20:56,600 Speaker 1: stay away from bitcoin. So so don't take that as 365 00:20:56,600 --> 00:21:00,959 Speaker 1: an investment careful they're so, what do you do? I 366 00:21:00,960 --> 00:21:03,080 Speaker 1: think what you do is make sure you've got the 367 00:21:03,160 --> 00:21:05,639 Speaker 1: right mix of stocks and bonds, and you prepare for 368 00:21:05,680 --> 00:21:09,400 Speaker 1: that volatility by realizing that it's likely to be short 369 00:21:09,520 --> 00:21:12,080 Speaker 1: term that stocks are going to bounce like we've seen 370 00:21:12,080 --> 00:21:15,800 Speaker 1: the last couple of days sometimes, so you just you 371 00:21:15,880 --> 00:21:18,640 Speaker 1: hold on for this that you said the right stocks 372 00:21:19,240 --> 00:21:22,280 Speaker 1: or the right investments. What are the right investments? I 373 00:21:22,320 --> 00:21:25,159 Speaker 1: think right now it's quality companies that can make their 374 00:21:25,200 --> 00:21:27,640 Speaker 1: own luck in this environment. And that's part of why 375 00:21:27,680 --> 00:21:29,760 Speaker 1: tech has done so well is they've been able to 376 00:21:29,800 --> 00:21:33,520 Speaker 1: grow markets, they've been able to grow market share, and 377 00:21:33,640 --> 00:21:36,200 Speaker 1: they've sort of powered through whether the economy was fast 378 00:21:36,280 --> 00:21:39,280 Speaker 1: or slow. So I'm not too worried about the technology 379 00:21:39,280 --> 00:21:42,000 Speaker 1: stocks right now. I'd certainly be adding that. But many 380 00:21:42,040 --> 00:21:44,199 Speaker 1: people may be overweight. So what you're trying to do 381 00:21:44,240 --> 00:21:46,399 Speaker 1: is be sure you're not taking too much risk in 382 00:21:46,480 --> 00:21:49,600 Speaker 1: any specific place. And I think that's really the key, 383 00:21:49,640 --> 00:21:53,560 Speaker 1: which is positioning your portfolio not based on what's just 384 00:21:53,600 --> 00:21:56,200 Speaker 1: done great, but making sure that you're sort of looking 385 00:21:56,280 --> 00:21:59,200 Speaker 1: more at over time, how are these companies going to 386 00:21:59,280 --> 00:22:01,320 Speaker 1: do well? And do you have the right mix and 387 00:22:01,359 --> 00:22:04,360 Speaker 1: stocks and bonds to stay invested in case stocks continue 388 00:22:04,400 --> 00:22:08,080 Speaker 1: to go down? Do I wanna buy any gold or 389 00:22:08,480 --> 00:22:12,080 Speaker 1: put any cash aside, or or even get into commodities 390 00:22:12,160 --> 00:22:14,600 Speaker 1: or something something besides stocks and bonds, which is we're 391 00:22:14,680 --> 00:22:18,040 Speaker 1: just saying we're both going down. I think that you 392 00:22:18,080 --> 00:22:20,320 Speaker 1: don't want to buy gold in this environment unless you 393 00:22:20,320 --> 00:22:23,440 Speaker 1: think that the price is going higher and certainly won't 394 00:22:23,480 --> 00:22:25,960 Speaker 1: know the things we've seen disconnect is typically when the 395 00:22:26,000 --> 00:22:29,040 Speaker 1: US dollar drops, gold goes up instead. It's been going 396 00:22:29,080 --> 00:22:32,560 Speaker 1: down too, although it's somewhat higher, so I would say no, 397 00:22:32,800 --> 00:22:35,720 Speaker 1: the commodities gold are not the place to be that 398 00:22:35,800 --> 00:22:38,360 Speaker 1: it really is more traditional stocks and bonds, and that's 399 00:22:38,400 --> 00:22:42,080 Speaker 1: sufficient to build a well diversified portfolio. Well, if if 400 00:22:42,160 --> 00:22:44,359 Speaker 1: most of us know that this isn't gonna last forever, 401 00:22:45,000 --> 00:22:48,000 Speaker 1: is it worth while setting aside some cash. Yes, I 402 00:22:48,040 --> 00:22:51,160 Speaker 1: do think it's worthwhile setting aside some cash and buying 403 00:22:51,160 --> 00:22:53,480 Speaker 1: when we see a bigger dip than we saw, or 404 00:22:53,560 --> 00:22:56,000 Speaker 1: something will lasts a little longer than you know, a 405 00:22:56,040 --> 00:22:58,480 Speaker 1: few hours. So I do think this is an environment 406 00:22:58,480 --> 00:23:00,560 Speaker 1: where part of your fixed incomfortable. It should be a 407 00:23:00,600 --> 00:23:03,280 Speaker 1: little heavier in cash and a little less in long 408 00:23:03,400 --> 00:23:07,720 Speaker 1: term fixed income, especially since the longer term part of 409 00:23:07,800 --> 00:23:10,760 Speaker 1: the interest rates haven't risen as much as I think 410 00:23:10,800 --> 00:23:14,800 Speaker 1: they may as people worry more about inflation. You've also written, 411 00:23:14,840 --> 00:23:20,000 Speaker 1: I believe that investors may feel worse because of these 412 00:23:20,280 --> 00:23:24,800 Speaker 1: sudden moves lower or at least against their positions, because 413 00:23:24,840 --> 00:23:28,320 Speaker 1: they have not had the experience of volatility at least 414 00:23:28,359 --> 00:23:30,960 Speaker 1: for the last twelve months. Yes, actually for the last 415 00:23:31,000 --> 00:23:33,240 Speaker 1: two years, because think about the fact that the last 416 00:23:33,240 --> 00:23:35,439 Speaker 1: time we had a ten percent pullback in stocks was 417 00:23:35,480 --> 00:23:38,800 Speaker 1: about two years ago. In last year, as we all know, 418 00:23:39,200 --> 00:23:41,560 Speaker 1: the biggest drop in the SMP five hundred was less 419 00:23:41,560 --> 00:23:45,000 Speaker 1: than three percent. So even the normal five percent moves 420 00:23:45,080 --> 00:23:46,840 Speaker 1: up and down that we typically see in the stock 421 00:23:46,880 --> 00:23:49,840 Speaker 1: market haven't been happening. I think we're headed back into 422 00:23:49,880 --> 00:23:54,640 Speaker 1: that environment, partly because of less accommodation from monetary from 423 00:23:54,680 --> 00:23:57,320 Speaker 1: central banks, the FED, but also the rest of the world, 424 00:23:57,800 --> 00:24:00,680 Speaker 1: but also because inflation is beginning to pick up. And 425 00:24:00,840 --> 00:24:03,880 Speaker 1: after this very strong run in the stock market and 426 00:24:04,000 --> 00:24:07,000 Speaker 1: even the last few months, I think investors are beginning 427 00:24:07,040 --> 00:24:09,399 Speaker 1: to say, all right, what happens next. We had the 428 00:24:09,400 --> 00:24:11,879 Speaker 1: benefit of the tax cuts, we've had the benefit of 429 00:24:11,920 --> 00:24:15,680 Speaker 1: stronger economic growth, of stronger earnings growth. What's going to 430 00:24:15,760 --> 00:24:17,639 Speaker 1: propel stocks higher? And I think that's where you get 431 00:24:17,680 --> 00:24:19,840 Speaker 1: more volatility. What is it? What are you going to 432 00:24:19,920 --> 00:24:25,200 Speaker 1: watch for as a sign that this change is happening. 433 00:24:25,280 --> 00:24:28,919 Speaker 1: Because we had the big sell offs earlier in the weekend, 434 00:24:28,960 --> 00:24:32,280 Speaker 1: everybody said it's finally time for a correction, and then 435 00:24:32,359 --> 00:24:36,280 Speaker 1: nothing happened. I would say you never know, because think 436 00:24:36,320 --> 00:24:38,600 Speaker 1: about the fact that for the last couple of years, 437 00:24:38,960 --> 00:24:41,800 Speaker 1: investors have really ignored money of the risks that we 438 00:24:41,880 --> 00:24:44,720 Speaker 1: knew were out there, whether it's geopolitical risk or whether 439 00:24:44,760 --> 00:24:50,480 Speaker 1: it's policy uncertainty. Investors continue to be positive even when 440 00:24:50,520 --> 00:24:52,800 Speaker 1: some of the news wasn't so positive. And I think 441 00:24:52,880 --> 00:24:55,720 Speaker 1: it's uh the problem in answering your question, Mike, as 442 00:24:55,800 --> 00:24:59,000 Speaker 1: nobody knows when investors there's something going to switch and say, well, 443 00:24:59,040 --> 00:25:00,600 Speaker 1: there's good news and there's bad news, and we're going 444 00:25:00,680 --> 00:25:03,359 Speaker 1: to react negatively to the bad news as supposed to 445 00:25:03,400 --> 00:25:06,200 Speaker 1: just ignoring it. And that's what you're really asking. When 446 00:25:06,240 --> 00:25:09,080 Speaker 1: are people going to do that? The psychology of markets, 447 00:25:09,119 --> 00:25:11,119 Speaker 1: I think is the thing that we never know, and 448 00:25:11,160 --> 00:25:12,840 Speaker 1: that's why we want to be sure we're always looking 449 00:25:12,880 --> 00:25:15,879 Speaker 1: at the fundamental They can make you crazy. Kate Warren 450 00:25:15,960 --> 00:25:31,280 Speaker 1: of Edward Jones, We're going to continue the theme of 451 00:25:31,400 --> 00:25:34,640 Speaker 1: talking about automobiles with Mike Jackson. He is the chief 452 00:25:34,680 --> 00:25:38,879 Speaker 1: executive of Auto Nation that He began his career helping 453 00:25:38,920 --> 00:25:42,640 Speaker 1: to be a technician at an automotive dealership in Cherry Hill, 454 00:25:42,720 --> 00:25:46,680 Speaker 1: New Jersey. Following his graduation from St. Joseph's University. He 455 00:25:46,800 --> 00:25:48,880 Speaker 1: joins us Now, Mike Jackson, thanks very much for being 456 00:25:48,880 --> 00:25:51,960 Speaker 1: with us, my pleasure, good morning. I imagine you can't 457 00:25:51,960 --> 00:25:53,879 Speaker 1: really fix any of the new cars now with all 458 00:25:53,920 --> 00:25:56,359 Speaker 1: the technology that's in them, all that experience. It has 459 00:25:56,400 --> 00:26:01,560 Speaker 1: to go somewhere else. Absolutely, But uh, we actually love 460 00:26:01,760 --> 00:26:04,960 Speaker 1: the complexity and the benefit of the technology in the 461 00:26:05,000 --> 00:26:10,120 Speaker 1: new cars because as they become ever more sophisticated and complicated, 462 00:26:10,680 --> 00:26:14,159 Speaker 1: those who have the training, the tools, the equipment and 463 00:26:14,200 --> 00:26:18,119 Speaker 1: the skill to repair them become fewer and fewer. And uh, 464 00:26:18,160 --> 00:26:23,280 Speaker 1: that is our strength, and therefore we are very optimistic 465 00:26:23,320 --> 00:26:27,160 Speaker 1: about growing our customer care business. We currently service over 466 00:26:27,240 --> 00:26:30,679 Speaker 1: four million cars a year and we increase our customer 467 00:26:30,720 --> 00:26:35,760 Speaker 1: care growth profit in the fourth quarter by a kind 468 00:26:35,760 --> 00:26:39,199 Speaker 1: of oddball question here, but just flowing out of what 469 00:26:39,240 --> 00:26:41,600 Speaker 1: you were saying there, there's a guy who knows what's 470 00:26:41,680 --> 00:26:46,440 Speaker 1: under the hood. Uh, this whole NAFTA trade deal. One 471 00:26:46,480 --> 00:26:49,000 Speaker 1: of the things that hinges on is automobiles. And the 472 00:26:49,000 --> 00:26:51,280 Speaker 1: Canadians came up with this concept of if you want 473 00:26:51,320 --> 00:26:54,879 Speaker 1: to increase the amount of North American produced stuff, count 474 00:26:55,480 --> 00:26:58,760 Speaker 1: the software and technology that they put in cars today 475 00:26:58,800 --> 00:27:01,639 Speaker 1: that they didn't before. Do you think that's a fair idea. 476 00:27:03,600 --> 00:27:09,200 Speaker 1: I'm very concerned about the entire discussion around UH NAFTA. 477 00:27:09,560 --> 00:27:12,320 Speaker 1: It's been in place for twenty five years, clearly needs 478 00:27:12,359 --> 00:27:16,680 Speaker 1: to be modernized. But the idea of walking away from 479 00:27:16,680 --> 00:27:21,879 Speaker 1: it would have a significant impact on the auto industry immediately, 480 00:27:22,640 --> 00:27:28,320 Speaker 1: which has built this ballet of suppliers and assembly across 481 00:27:28,320 --> 00:27:31,560 Speaker 1: the continent, with barts moving back and forth across borders 482 00:27:31,920 --> 00:27:34,680 Speaker 1: UH several times a day in the in the millions, 483 00:27:34,840 --> 00:27:38,560 Speaker 1: so it would really be massively disruptive. And I hope 484 00:27:38,600 --> 00:27:43,399 Speaker 1: they find a solution now UH modernized, Yes, find a 485 00:27:43,480 --> 00:27:49,680 Speaker 1: fair way to value where added value UH comes in, absolutely, 486 00:27:49,840 --> 00:27:54,240 Speaker 1: and hopefully they find solutions. And I'm open to any 487 00:27:54,280 --> 00:27:59,159 Speaker 1: suggestions including let's let's count how much software development is 488 00:27:59,160 --> 00:28:03,320 Speaker 1: in these hicals today, which is, you know, a multiple 489 00:28:03,359 --> 00:28:06,960 Speaker 1: of what the Space Shuttle used to be. Mike Jackson. 490 00:28:07,760 --> 00:28:12,880 Speaker 1: As far as your dealership network goes, you've got what 491 00:28:13,000 --> 00:28:15,639 Speaker 1: I think it's more than three hundred and seventy new 492 00:28:15,720 --> 00:28:20,200 Speaker 1: vehicle franchises in fifteen states. You sell thirty five new brands, 493 00:28:20,200 --> 00:28:23,000 Speaker 1: so you have a pretty good pulse on the market. 494 00:28:23,760 --> 00:28:26,239 Speaker 1: What are you hearing from from the folks that are 495 00:28:26,280 --> 00:28:29,480 Speaker 1: managing your individual dealerships. What are there is their general 496 00:28:29,520 --> 00:28:32,960 Speaker 1: feeling right now? Well, first, we have our own performance, 497 00:28:33,040 --> 00:28:36,240 Speaker 1: and we released our fourth quarter earnings today and on 498 00:28:36,359 --> 00:28:40,640 Speaker 1: an operating basis, uh we're our strongest ever with revenue 499 00:28:40,680 --> 00:28:44,080 Speaker 1: of five point seven billion, up four percent, but even 500 00:28:44,080 --> 00:28:48,680 Speaker 1: more importantly, gross profits were up uh a seven percent 501 00:28:48,800 --> 00:28:51,800 Speaker 1: on the same store sale basis, driven particularly by our 502 00:28:51,840 --> 00:28:56,640 Speaker 1: performance in pre owned vehicles being up uh six So 503 00:28:56,720 --> 00:28:59,400 Speaker 1: the overall environment is quite good when I look at 504 00:28:59,440 --> 00:29:04,520 Speaker 1: the outlook for this year for new vehicle sales um 505 00:29:04,560 --> 00:29:08,160 Speaker 1: even though the economy is going to be rather robust, 506 00:29:08,200 --> 00:29:12,120 Speaker 1: and I'm a big supporter of finally achieving corporate tax 507 00:29:12,160 --> 00:29:16,040 Speaker 1: reform and what that means for the US economy, US corporations, 508 00:29:16,320 --> 00:29:18,760 Speaker 1: competitiveness around the world, what it means for the workers 509 00:29:18,800 --> 00:29:23,080 Speaker 1: of America is all very positive. Paradoxically, I think new 510 00:29:23,160 --> 00:29:26,800 Speaker 1: vehicle sales will go down somewhat from above seventeen million 511 00:29:26,840 --> 00:29:31,520 Speaker 1: to just below seventeen million around six eight. That's mainly 512 00:29:31,600 --> 00:29:35,280 Speaker 1: caused by this new category of vehicle we have due 513 00:29:35,280 --> 00:29:37,400 Speaker 1: to all the vehicles put in leasing three to four 514 00:29:37,440 --> 00:29:40,840 Speaker 1: years ago are coming back to market, and it's four 515 00:29:40,920 --> 00:29:43,520 Speaker 1: million vehicles coming back this year at a price point 516 00:29:43,520 --> 00:29:47,040 Speaker 1: of around thousand. So you have a new segment that's 517 00:29:47,040 --> 00:29:50,000 Speaker 1: a compelling value offer for the American consumer. So there 518 00:29:50,080 --> 00:29:53,800 Speaker 1: is a certain substitution or cannibalization away from the new 519 00:29:53,880 --> 00:29:57,920 Speaker 1: vehicle market into the nearly new market. But the manufacturers 520 00:29:57,920 --> 00:29:59,320 Speaker 1: will have a good year and we will have a 521 00:29:59,320 --> 00:30:02,440 Speaker 1: good year. You wear another hat, and that as chairman 522 00:30:02,440 --> 00:30:05,880 Speaker 1: of the board of the Atlanta Federal Reserve Bank, and 523 00:30:05,920 --> 00:30:08,480 Speaker 1: I'm sure that Raphael Bostick has you in and asked 524 00:30:08,520 --> 00:30:11,960 Speaker 1: you how things look in the economy, So let me 525 00:30:12,000 --> 00:30:15,120 Speaker 1: ask you that how do things look in the economy. 526 00:30:15,160 --> 00:30:18,680 Speaker 1: Everybody seems to be very, very confident that this is 527 00:30:18,720 --> 00:30:22,680 Speaker 1: going to be a strong year. I think that is 528 00:30:22,720 --> 00:30:26,240 Speaker 1: the sentiment that we're hearing from the grassroots level. And 529 00:30:26,280 --> 00:30:28,720 Speaker 1: one of the things I admire about the Federal Reserve 530 00:30:29,560 --> 00:30:35,440 Speaker 1: is not only do they have their phenomenal economist, uh, 531 00:30:35,560 --> 00:30:40,040 Speaker 1: but they are very keen to get a grassroot sent 532 00:30:40,720 --> 00:30:44,920 Speaker 1: of what's going on in reality through their twelve reserve banks. 533 00:30:44,960 --> 00:30:49,640 Speaker 1: And I'm honored to serve as chairman. I think the 534 00:30:49,720 --> 00:30:55,080 Speaker 1: debate is, can you have this new level of growth 535 00:30:55,160 --> 00:31:00,320 Speaker 1: without inflation, and what does it mean for We're where 536 00:31:00,360 --> 00:31:03,600 Speaker 1: are the workers going to come from? For this level 537 00:31:03,640 --> 00:31:07,120 Speaker 1: of growth with an unemployment rate of four point one 538 00:31:07,440 --> 00:31:09,840 Speaker 1: And when you get go down to the next level, 539 00:31:10,320 --> 00:31:14,000 Speaker 1: you say, well, workforce participation has fallen in the US 540 00:31:14,040 --> 00:31:17,000 Speaker 1: from the high sixties into the low sixties. And this 541 00:31:17,160 --> 00:31:20,120 Speaker 1: is a structural issue that we have to address in 542 00:31:20,160 --> 00:31:24,440 Speaker 1: America if you really want UH to sustain growth of 543 00:31:25,240 --> 00:31:29,200 Speaker 1: three or or even something more. And the big issues 544 00:31:29,240 --> 00:31:32,720 Speaker 1: there that have to be dealt with is you you 545 00:31:33,160 --> 00:31:36,800 Speaker 1: had a robust safety net from the Great Crash that 546 00:31:36,840 --> 00:31:40,680 Speaker 1: a significant percent of the population got comfortable with. You 547 00:31:40,720 --> 00:31:47,040 Speaker 1: have a skills gap where we have technical jobs that 548 00:31:47,120 --> 00:31:51,400 Speaker 1: pay very well, but an education system that's not UH 549 00:31:51,600 --> 00:31:56,520 Speaker 1: not supplying them, and a society that doesn't put a 550 00:31:56,520 --> 00:31:59,360 Speaker 1: big social value on those jobs. So where where these 551 00:31:59,360 --> 00:32:02,200 Speaker 1: workers going to? I'm from And let's face an, immigration 552 00:32:02,280 --> 00:32:06,720 Speaker 1: has always been a source of increase in the worker 553 00:32:06,800 --> 00:32:10,680 Speaker 1: population in America and supportive growth and immigration is that 554 00:32:10,800 --> 00:32:15,160 Speaker 1: we say, not exactly functioning smoothly today. So the debate 555 00:32:15,320 --> 00:32:18,200 Speaker 1: centers around not so much will there be growth. I 556 00:32:18,200 --> 00:32:22,080 Speaker 1: think there is a sense that growth will actually increase 557 00:32:22,120 --> 00:32:27,760 Speaker 1: in maybe to three percent, But how do you manage 558 00:32:28,360 --> 00:32:32,840 Speaker 1: the threats of inflation and longer term where the work 559 00:32:32,920 --> 00:32:35,480 Speaker 1: is going to come from? What you are in what 560 00:32:35,840 --> 00:32:40,320 Speaker 1: used to be called an interest rate sensitive industry back 561 00:32:40,360 --> 00:32:43,600 Speaker 1: when we had interest rates, now that they're going up again, 562 00:32:44,480 --> 00:32:47,719 Speaker 1: is there a level at which you think auto buying 563 00:32:48,120 --> 00:32:51,040 Speaker 1: would suffer at when a level where people would say 564 00:32:51,600 --> 00:32:56,680 Speaker 1: that makes my monthly payment too high? Well, you know. Uh, Fortunately, 565 00:32:56,720 --> 00:32:58,760 Speaker 1: I've been in this business so long that I can 566 00:32:58,800 --> 00:33:03,800 Speaker 1: remember interest rates and trying to do business with them. Uh. 567 00:33:03,880 --> 00:33:08,200 Speaker 1: The key issues are availability and affordability of credit, both 568 00:33:08,240 --> 00:33:12,840 Speaker 1: for corporations and for consumers. And I see no issues there. 569 00:33:13,560 --> 00:33:17,480 Speaker 1: And the idea that we need crisis rates that were 570 00:33:17,520 --> 00:33:19,960 Speaker 1: put in place during the Great Crash and the and 571 00:33:20,000 --> 00:33:23,800 Speaker 1: the six seven, eight years that followed, Uh, we're not. 572 00:33:23,840 --> 00:33:26,880 Speaker 1: This economy is not in a crisis. So a step 573 00:33:27,240 --> 00:33:32,400 Speaker 1: towards normalization of rates is entirely appropriate. Uh, and entirely 574 00:33:32,920 --> 00:33:35,840 Speaker 1: makes sense. And I think the new normal of where 575 00:33:36,280 --> 00:33:39,520 Speaker 1: rates settled down is lower than what it was in 576 00:33:39,640 --> 00:33:42,960 Speaker 1: the past, So I think it's all manageable. And until 577 00:33:43,040 --> 00:33:49,120 Speaker 1: inflation aggressively rears its head, um, I think, uh, we're fine. 578 00:33:49,280 --> 00:33:53,960 Speaker 1: On both the availability of credit and the pricing of credit. 579 00:33:54,560 --> 00:33:57,000 Speaker 1: Mike Jackson, in ten seconds, can you tell us what 580 00:33:57,080 --> 00:33:59,880 Speaker 1: the biggest mistake is that you find people make when 581 00:34:00,000 --> 00:34:02,600 Speaker 1: to go into an automobile dealership to buy an automobile, 582 00:34:02,680 --> 00:34:07,360 Speaker 1: or at least one ten seconds? Uh. First, the consumer 583 00:34:07,760 --> 00:34:12,720 Speaker 1: prepares themselves like never before, uh, through digital and the internet. 584 00:34:12,880 --> 00:34:14,560 Speaker 1: So the only mistake you can make is not to 585 00:34:14,600 --> 00:34:16,960 Speaker 1: go online first. All right, do all of your homework. 586 00:34:17,000 --> 00:34:20,759 Speaker 1: Well done, Thanks before you come in. Okay, thanks very much, 587 00:34:21,040 --> 00:34:24,160 Speaker 1: Mica Jackson. He is the chief executive of Auto Nation. 588 00:34:24,520 --> 00:34:33,600 Speaker 1: They are based in Fort Lauderdale, Florida. Thanks for listening 589 00:34:33,640 --> 00:34:38,200 Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews 590 00:34:38,200 --> 00:34:43,440 Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 591 00:34:44,000 --> 00:34:47,360 Speaker 1: I'm on Twitter at Tom Keane before the podcast, you 592 00:34:47,360 --> 00:34:50,760 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.