Latest / Bloomberg Intelligence / Trump's Desire For Bilateral Trade Is A Big Deal: Coy (Podcast)

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Trump's Desire For Bilateral Trade Is A Big Deal: Coy (Podcast) · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa A. Brahmowitz. Each day
• 0:11
  Speaker 1: we bring you the most important, noteworthy, and useful interviews
• 0:15
  Speaker 1: for you and your money, whether you're at the grocery
• 0:17
  Speaker 1: store or the trading floor. Find the Bloomberg P M
• 0:20
  Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.
• 0:33
  Speaker 1: Let's bring in our own Peter core. He is our
• 0:36
  Speaker 1: economics editor for Bloomberg business Week. Peter Coy always a pleasure,
• 0:40
  Speaker 1: Thanks for joining us here in studio. Tell us about
• 0:44
  Speaker 1: the renaming of a trade agreement, that this is now
• 0:48
  Speaker 1: a bilateral. This is just breaking now, so we're still
• 0:52
  Speaker 1: digesting it that I think Trump is speaking any moment now,
• 0:55
  Speaker 1: he's going to start elaborating on this. But that would
• 0:58
  Speaker 1: be huge. I would assume that then Trump would also
• 1:02
  Speaker 1: want to have a separate bilateral agreement with Canada, and
• 1:06
  Speaker 1: then maybe Cannon would have one with Mexico, so it
• 1:08
  Speaker 1: would really break down the trial. Yeah, well, I mean,
• 1:11
  Speaker 1: can you take a step back, what is the argument
• 1:13
  Speaker 1: for bilateral agreements versus multilateral agreements? And you know why
• 1:19
  Speaker 1: has NAFTA and some of the other has been multilateral
• 1:22
  Speaker 1: in the past. Trump's argument for the bilateral approaches the
• 1:26
  Speaker 1: US is a very strong country, very open markets, and
• 1:30
  Speaker 1: everybody wants access to the US market, So why not
• 1:34
  Speaker 1: leverage that to the hilt. Thinking like a business person,
• 1:36
  Speaker 1: that's what you do when you're in a negotiation. You
• 1:38
  Speaker 1: use whatever you have to try to get the best
• 1:40
  Speaker 1: deal possible. What other people say is that a multilateral deal,
• 1:45
  Speaker 1: ideally a global deals sort of like the World Trade
• 1:49
  Speaker 1: Organization you know, tries to promote, actually can be better
• 1:54
  Speaker 1: for everyone because it allows for finer tune trade offs
• 1:58
  Speaker 1: and it sort of worth the temperature because you no
• 2:01
  Speaker 1: longer have heads of state butting up against each other.
• 2:05
  Speaker 1: On principle, you can sort of slide something in. You
• 2:08
  Speaker 1: can argue, well, we're doing this for the greater good,
• 2:11
  Speaker 1: will be better on net And I think that happens
• 2:15
  Speaker 1: even with tri lateral like the three countries versus bilateral.
• 2:20
  Speaker 1: So there's no way to sort of describe it as
• 2:22
  Speaker 1: being positive or negative. It just is different. Yeah, certainly different.
• 2:26
  Speaker 1: But so far Trump's bi letter poach has not borne
• 2:30
  Speaker 1: a lot of fruit. You see what's happening with China. Um,
• 2:34
  Speaker 1: it all does is it gets the backup of the Chinese,
• 2:37
  Speaker 1: and we maybe we get less out of them than
• 2:39
  Speaker 1: we would have if we had tried to pursue the
• 2:42
  Speaker 1: Not that not that the multi letter poach was hugely
• 2:44
  Speaker 1: successful either, is not That's my point. In other words,
• 2:48
  Speaker 1: it's not as if the approach that was taken, maybe
• 2:50
  Speaker 1: if you take a case to the World Trade Organization,
• 2:53
  Speaker 1: is going to get you the result that you're looking for. True. Well,
• 2:57
  Speaker 1: I guess then let's talk about the the aspects of
• 3:01
  Speaker 1: NAFTA as they wore, versus what an agreement would look like.
• 3:05
  Speaker 1: I mean, what are the issues we should be paying
• 3:07
  Speaker 1: attention to here that could get rejiggered as Mexico and
• 3:11
  Speaker 1: the US and Canada come up with bilateral agreements potentially. Well,
• 3:15
  Speaker 1: all I can say is what the sticking points have
• 3:17
  Speaker 1: been and the couple of ones that where the U. S.
• 3:21
  Speaker 1: And Canada are most coming into conflict. One of them
• 3:24
  Speaker 1: is this fairly wonky issue of how to deal with disputes,
• 3:27
  Speaker 1: and the Canadians have insisted for a long time that
• 3:30
  Speaker 1: there be a b national sort of impartial mechanism. They
• 3:35
  Speaker 1: don't want it to be handled in the U. S.
• 3:36
  Speaker 1: Court system, and that was a prerequisite for the free
• 3:41
  Speaker 1: trade agreement, the proceded NAFTA, and Trump wants to get
• 3:44
  Speaker 1: rid of it. Canada says that's a deal breaker for US,
• 3:47
  Speaker 1: so that that'll be huge. That we have other issues
• 3:48
  Speaker 1: like uh dairy of course, which I think that's much
• 3:52
  Speaker 1: more easily resolved. You know, Canada will roll back teariffs
• 3:57
  Speaker 1: here and there. The U s has a trade surplus
• 3:59
  Speaker 1: with handad on dairy, so it's hard to believe that's
• 4:01
  Speaker 1: a deal break at the same with dispute resolution mechanisms.
• 4:05
  Speaker 1: But the automobile industry may be another story. Well, the
• 4:09
  Speaker 1: Canadian and US auto industries are very tightly integrated, products
• 4:13
  Speaker 1: going back and forth across the border at all times.
• 4:16
  Speaker 1: So I think that the autos is more of an
• 4:18
  Speaker 1: issue between US and Mexico, where of course it's also
• 4:21
  Speaker 1: a complicated supply chain. The US and Mexico seemed to
• 4:24
  Speaker 1: have resolved their issues over autos the ideas to try
• 4:28
  Speaker 1: to have more production done. This is Trump's goal in
• 4:31
  Speaker 1: North America. So here's what I'm really confused about. Don't
• 4:35
  Speaker 1: we have a trade surplus with Canada pretty much across
• 4:39
  Speaker 1: the board. Yeah, so it's should be doable. To create
• 4:43
  Speaker 1: an agreement here. So why have there not been talks?
• 4:47
  Speaker 1: Why has it been Why has the focus been solely
• 4:49
  Speaker 1: on Mexico and Canada is kind of an afterthought even
• 4:52
  Speaker 1: though the rhetoric has been raised between the two nations,
• 4:56
  Speaker 1: and there doesn't seem to be a sort of meeting
• 4:59
  Speaker 1: of the ma is there. That's a hard question to answer.
• 5:03
  Speaker 1: I mean, I think part of it is just personality.
• 5:06
  Speaker 1: You know. Trump has started going after Trudeau after the
• 5:10
  Speaker 1: June G seven summit in Canada. He called him very
• 5:14
  Speaker 1: weak and dishonest. That's kind of a blow. It's kind
• 5:17
  Speaker 1: of hard to deal with. So they don't like each
• 5:19
  Speaker 1: other at this point. It's hard hard to argue there's
• 5:22
  Speaker 1: a lot of leve laws between those two guys. Peter,
• 5:25
  Speaker 1: I've been mentioning energy as a big issue between the
• 5:28
  Speaker 1: United States and Mexico all morning, and Mexico is really
• 5:32
  Speaker 1: the big recipient for US natural gas. We've got a
• 5:35
  Speaker 1: lot of natural gas we're looking for export markets, and
• 5:40
  Speaker 1: Mexico is it. We've got four major pipelines that are
• 5:43
  Speaker 1: scheduled open by the end of the year. Uh, this
• 5:46
  Speaker 1: is a very important topic, particularly in Texas. Is Mexico
• 5:52
  Speaker 1: going to be substituting their own supplies of natural gas
• 5:58
  Speaker 1: and oil with pam X or US supplies because pe
• 6:02
  Speaker 1: X needs a lot of foreign investments. One of the
• 6:07
  Speaker 1: answers the Omblo, the incoming president of Mexico's much more
• 6:10
  Speaker 1: of a nationalist than Pinion Yeto, and he is was
• 6:14
  Speaker 1: never happy with the two thousand thirteen opening of the
• 6:19
  Speaker 1: energy sector in Mexico. So uh. But on the other hand,
• 6:25
  Speaker 1: one of his representatives is part of the troika that
• 6:27
  Speaker 1: Mexico has been sending up to these negotiations, so he's
• 6:31
  Speaker 1: apparently signed off on this deal. It's a very that's
• 6:33
  Speaker 1: a very positive sign. That's why there's been such a
• 6:36
  Speaker 1: positive response to this tentative agreement between the US of Mexico. Alright,
• 6:41
  Speaker 1: so what is the US likely to get? Do we
• 6:44
  Speaker 1: have any sense you mean, say, with Canada, well with Mexico,
• 6:49
  Speaker 1: in particularly with Mexico. Oh well, um, they do say,
• 6:52
  Speaker 1: We're going to find out momentarily and stay tuned to
• 6:56
  Speaker 1: Bloomberg Radio on this one. But it's they do seem
• 6:59
  Speaker 1: like this deal is on autos and energy tightening rules
• 7:03
  Speaker 1: to increase auto production in North America and somehow working
• 7:07
  Speaker 1: out a deal that Omlos Okay with on energy production
• 7:11
  Speaker 1: between the two countries. Well, let me just give you
• 7:13
  Speaker 1: this headline. We're talking about Canada in the United States.
• 7:16
  Speaker 1: President Trump says that he will call Canadian Prime Minister
• 7:19
  Speaker 1: Trudeau soon and quote will see if Canada is separate
• 7:24
  Speaker 1: or part of the Mexico deal. Interesting that they haven't
• 7:28
  Speaker 1: been part of this, and Uh, the question is is
• 7:31
  Speaker 1: it going to be kind of a strong arming of
• 7:33
  Speaker 1: Canada to sign onto something that's already been hashed between
• 7:36
  Speaker 1: Mexico and the US versus having Canada in the room.
• 7:40
  Speaker 1: I don't know. It's just it's going to be really
• 7:42
  Speaker 1: interesting to see how this plays out. I guess one
• 7:46
  Speaker 1: question that I have is how much does Mexico rely
• 7:49
  Speaker 1: on the United States for its GDP. Do you have
• 7:52
  Speaker 1: a sense of just how crucial the US is to Mexico, Uh,
• 7:56
  Speaker 1: and vice versa. Well, far more Mexico depending on the
• 8:00
  Speaker 1: US and vice versa. In Mexico can't can't get along
• 8:04
  Speaker 1: without open trade with the US. UM and that's Trump's theory, like, hey, look,
• 8:10
  Speaker 1: we can push them around, but but national pride enters
• 8:14
  Speaker 1: in here. For both both Mexico and Canada have national
• 8:18
  Speaker 1: pride that gets wounded when they feel like the big
• 8:21
  Speaker 1: brother is trying to roll them. And so that's why
• 8:25
  Speaker 1: this is a potential problem. Well, Elon must decided he
• 8:42
  Speaker 1: was just kidding or perhaps just a little bit of
• 8:45
  Speaker 1: premature in his bid to take Tesla private. He says
• 8:48
  Speaker 1: it will remain a public company and it is due
• 8:51
  Speaker 1: to pressure from shareholders who said this is really what
• 8:54
  Speaker 1: they wanted here to give us. His take is Liam Denning,
• 8:57
  Speaker 1: Energy Minding and Commodities calumnist with Bloomberg opinion in uh, Liam,
• 9:01
  Speaker 1: wonderful to have you here. So when you take a
• 9:04
  Speaker 1: step back with this back and forth with Elon Musk,
• 9:08
  Speaker 1: this round trip, where does it leave Tesla as a
• 9:12
  Speaker 1: company better or worse off than it was? I think yeah,
• 9:17
  Speaker 1: I mean, I think the key issue here is credibility.
• 9:21
  Speaker 1: So you know, if we look at this whole episode
• 9:24
  Speaker 1: last seventeen days, where supposedly the company really completely seriously
• 9:32
  Speaker 1: looked at what was likely to be the biggest, most
• 9:35
  Speaker 1: complex take out transaction ever attempted, all in seventeen days,
• 9:43
  Speaker 1: what we've seen really is this tweet that went out
• 9:46
  Speaker 1: on August seven. It's still not clear to me why
• 9:50
  Speaker 1: that went out in the first place, and since then
• 9:52
  Speaker 1: we've seen a series of blog posts and other tweets which,
• 9:57
  Speaker 1: when you look at them, really look like attempts to
• 10:00
  Speaker 1: create a narrative backing up that tweet. You know. One
• 10:04
  Speaker 1: of the things that struck me about the releases that
• 10:07
  Speaker 1: went out UM late Friday night, very late fridnight, almost
• 10:11
  Speaker 1: early Saturday morning. In fact, UM one of the things
• 10:14
  Speaker 1: that struck me about those was the board statement that
• 10:18
  Speaker 1: it had, you know, looked at this proposal over the
• 10:22
  Speaker 1: course of several weeks. It actually only set up a
• 10:25
  Speaker 1: special committee ten days before that announcement went out on Friday.
• 10:29
  Speaker 1: There was no UM formal proposal, as it acknowledged in
• 10:33
  Speaker 1: the statement it put out when it set up that
• 10:36
  Speaker 1: special committee. So I think the issue here is credibility.
• 10:40
  Speaker 1: I don't think anyone, you know, it doesn't seem to
• 10:42
  Speaker 1: be really moving the stop that much this morning. I
• 10:46
  Speaker 1: think where it could be an issue is if anything
• 10:48
  Speaker 1: is attempted further down the line, say there really is
• 10:51
  Speaker 1: a serious buy out proposal further down the line, or
• 10:54
  Speaker 1: attempts to bring in an outside investor, or attempts to
• 10:56
  Speaker 1: raise money, which despite the company saying it doesn't need to.
• 11:00
  Speaker 1: I and I know a lot of people on the street.
• 11:03
  Speaker 1: I think it will have to. Tesla shares are currently
• 11:07
  Speaker 1: down about two and a half percent. They traded three
• 11:10
  Speaker 1: hundred and fourteen dollars a share. That's nowhere near four
• 11:16
  Speaker 1: and twenty dollars to shares. It no. And you know,
• 11:19
  Speaker 1: one of the things that struck me about Elon Musk's
• 11:21
  Speaker 1: statement late Friday night, you know, in there, as he
• 11:25
  Speaker 1: was walking a lot of this back, he still felt
• 11:28
  Speaker 1: the need to put in this point saying that his
• 11:30
  Speaker 1: his belief that there were investors ready to um to
• 11:35
  Speaker 1: to take the company private had only been strengthened. What
• 11:39
  Speaker 1: was interesting about that was one that he felt the
• 11:42
  Speaker 1: need to put it in there at all. Two, of course,
• 11:46
  Speaker 1: he left out the key part of the whole thing,
• 11:48
  Speaker 1: which was that for twenty figure that he put in
• 11:52
  Speaker 1: on August seven. Presumably there are plenty of people who
• 11:56
  Speaker 1: would put him money to a take private transaction. There
• 11:59
  Speaker 1: were just yeah, well there was a lot of interesting,
• 12:03
  Speaker 1: uh sort of speculation, and there was an interesting piece
• 12:05
  Speaker 1: in the Wall Street Journal is taking a look at
• 12:07
  Speaker 1: what sort of went into Elon Musk's decision to walk
• 12:09
  Speaker 1: back his going private statement. Among the potential investors Volksweigen,
• 12:15
  Speaker 1: which I thought was interesting. In this TikTok sort sort
• 12:18
  Speaker 1: of piece, they were saying that one reason why Elon
• 12:20
  Speaker 1: Musk balked was because he didn't want to have any
• 12:23
  Speaker 1: strings attached to this money going private, and he sort
• 12:26
  Speaker 1: of liked the image of mom and pop shareholders having
• 12:31
  Speaker 1: a piece of tesla. He didn't like the image of
• 12:33
  Speaker 1: big corporations getting access to his, uh, to his magnetism
• 12:37
  Speaker 1: and his his momentum. And it just sort of raises
• 12:41
  Speaker 1: this question about his views on investment, whether he really
• 12:46
  Speaker 1: does have the right mindset in order to kind of
• 12:48
  Speaker 1: raise the capital that he may need in any circumstance. Yeah.
• 12:52
  Speaker 1: I was struck by that as well. I mean there
• 12:55
  Speaker 1: were two things. One is, um, the idea that you're
• 12:58
  Speaker 1: going to get billions of laws of funding with no
• 13:00
  Speaker 1: strings attached is just a bit ludicrous. Uh. Two Um,
• 13:04
  Speaker 1: I I saw those stories again, It's not clear to
• 13:07
  Speaker 1: me really how real any of this is. These are
• 13:10
  Speaker 1: anonymously sourced stories that came out, you know, after a
• 13:15
  Speaker 1: very late Friday night, uh walk back of everything. It's
• 13:20
  Speaker 1: not clear to me how real any of this is.
• 13:22
  Speaker 1: One question that I have also where does the securities
• 13:25
  Speaker 1: an Exchange Commission come in here? So I don't think
• 13:28
  Speaker 1: this walk back is necessarily going to end Uh the
• 13:32
  Speaker 1: SECS probes of what happened here. You know, it's very
• 13:37
  Speaker 1: hard to say whether the SEC, how far the SEC
• 13:39
  Speaker 1: will push this M that's really in their hands. I think, um,
• 13:44
  Speaker 1: given the way this has been handled, you know, with
• 13:47
  Speaker 1: a with a tweet put out during market hours, uh,
• 13:52
  Speaker 1: and then this, you know, this very late walk back
• 13:55
  Speaker 1: on a Friday night. Uh. If I was the SEC,
• 13:59
  Speaker 1: I would feel like, clearly I would have to do something.
• 14:03
  Speaker 1: I mean you, it's I think it's just very dangerous
• 14:06
  Speaker 1: to create a precedent where CEO feels empowered to throw
• 14:10
  Speaker 1: out that kind of information with not much backing it
• 14:14
  Speaker 1: up and move the stop price quite a lot. I
• 14:16
  Speaker 1: want to thank you very much. Liam Denning, our energy,
• 14:19
  Speaker 1: mining and commodities columnist for Bloomberg Opinion. After Jackson Hole,
• 14:40
  Speaker 1: people are reassessing how frequently the Federal Reserve and tends
• 14:43
  Speaker 1: to hike interest rates both this year and next, joining
• 14:46
  Speaker 1: us now as someone who has been arguing for a
• 14:49
  Speaker 1: long time that long term treasury yields will not rise
• 14:52
  Speaker 1: that much. In response, his fund has performed better than
• 14:57
  Speaker 1: seven percent of its peers over the past five years.
• 15:00
  Speaker 1: Lacy Hunt joining us now. He is executive vice president,
• 15:03
  Speaker 1: chief economist at Hoysington's Investment Management. At Hoysington is the
• 15:07
  Speaker 1: subadvisor for the wasa Hoysington's US Treasury Fund that when
• 15:11
  Speaker 1: I was just talking about uh and at the firm
• 15:13
  Speaker 1: that he where he works overseas about three billion dollars.
• 15:17
  Speaker 1: Dr Hunt, thank you so much for joining us. I
• 15:19
  Speaker 1: want to just start with the yield curve. We're near
• 15:22
  Speaker 1: the narrowist at this point since the crisis hit, and
• 15:27
  Speaker 1: I'm wondering the Photo Reserve does not seem that concerned.
• 15:30
  Speaker 1: Do you think they should be more concerned? Well, the
• 15:34
  Speaker 1: yield curve is a very significant development. It's it's not
• 15:37
  Speaker 1: the only monetary indicator. And one must never assume that
• 15:40
  Speaker 1: there's a silver bullet or or a magical LICKXIR. But um,
• 15:46
  Speaker 1: the yield curve is flattening very significantly, as you said,
• 15:50
  Speaker 1: and then in our opinion, it reflects the fact that
• 15:54
  Speaker 1: there is a very substantial monetary deceleration underway. The Fall
• 16:00
  Speaker 1: Reserve has hiked the short term rate seven times. They're
• 16:04
  Speaker 1: going to raise again and in September there's been a
• 16:08
  Speaker 1: very material contraction and all of the reserve aggregates and
• 16:13
  Speaker 1: this has followed through to the rate of growth in
• 16:16
  Speaker 1: the monetary and credit Adreas we're seeing both sides of
• 16:20
  Speaker 1: the bank balance sheet, we can very substantially and in
• 16:24
  Speaker 1: this context, the yield curve is a significant development. When
• 16:28
  Speaker 1: when the yield curve flattening, flattens in an environment of
• 16:31
  Speaker 1: monetary restraint, Um, that is first of all a symptom
• 16:37
  Speaker 1: that the monetary restraint is starting to bite, and it
• 16:40
  Speaker 1: also reinforces the restraint of the monetary change. The flattening
• 16:46
  Speaker 1: and the yield curve reduces the profitability to everyone that's
• 16:50
  Speaker 1: borrowing short and lending long and and so therefore it's
• 16:53
  Speaker 1: important in its own right, and it's part of a
• 16:57
  Speaker 1: of a monetary deceleration which is clearly underway. Lacy Hunt,
• 17:02
  Speaker 1: can you talk about the concept of liquidity and what
• 17:08
  Speaker 1: what that means for investors maybe make those connections because
• 17:12
  Speaker 1: they may not be apparent on the surface. No, they
• 17:16
  Speaker 1: are not only parent apparent on the surface, Pam. And
• 17:19
  Speaker 1: that's an excellent question. Um. The I think it's well
• 17:24
  Speaker 1: understood that when when the Fed UM raises the Federal
• 17:30
  Speaker 1: funds rate, that they have control over the short rate.
• 17:33
  Speaker 1: The short rate has an influence out the curve, but
• 17:37
  Speaker 1: that that influence diminishes rather quickly as we move to
• 17:41
  Speaker 1: longer and longer rates. And the most complete theory of
• 17:47
  Speaker 1: interest rates ever developed was was the one developed by
• 17:50
  Speaker 1: the late Nobel laureate Milton Friedman, and and Freedman gave
• 17:55
  Speaker 1: us the rather ironical statement he said that monetary decelerations
• 18:01
  Speaker 1: lead not to higher interest rates, but to lower interest rates.
• 18:05
  Speaker 1: And what he meant is that when the FED raises
• 18:08
  Speaker 1: the Fed funds rate, reduces the reserve, voluntary and credit aggregates,
• 18:12
  Speaker 1: they put upward pressure on the short term rates. But
• 18:16
  Speaker 1: as this process goes along, the right of growth in
• 18:19
  Speaker 1: the economy begins to weaken, so will the rate of inflation,
• 18:23
  Speaker 1: and ultimately monetary decelerations lead to lower, not higher interest rates.
• 18:28
  Speaker 1: Do you believe that if you okay, well, if you
• 18:30
  Speaker 1: and I want to just connect that with you, you
• 18:33
  Speaker 1: also maybe have alluded to, which is the repatriation of
• 18:38
  Speaker 1: dollar assets by US corporations. At the same time, yes,
• 18:45
  Speaker 1: I think that I think that one of the other
• 18:48
  Speaker 1: symptoms monetary policy is biting. Monetary policy is very insidious.
• 18:55
  Speaker 1: It has extremely long lags. The lags are variable um
• 19:00
  Speaker 1: and so you you look for symptoms that monetary policy
• 19:03
  Speaker 1: is biting, and one of them is the flattening and
• 19:06
  Speaker 1: the Yelk curve. Another symptom of the fact that the
• 19:09
  Speaker 1: monetary restraint is biting is that the dollar is at
• 19:13
  Speaker 1: a very high level relative to where it's been over
• 19:16
  Speaker 1: the last twenty five years. It's a you know, six
• 19:19
  Speaker 1: or seven percent so far this year. And so the
• 19:23
  Speaker 1: fellow reserve um is not only central bank to the US,
• 19:28
  Speaker 1: but the factough not not legally, but the facto, the
• 19:32
  Speaker 1: FED is central bank to the rest of the world.
• 19:35
  Speaker 1: And so when the fellow reserve tightens monetary conditions in
• 19:39
  Speaker 1: the US, they drain liquidity from the rest of the world,
• 19:42
  Speaker 1: and this tends to cause the value of dollar to rise,
• 19:45
  Speaker 1: and it puts downward pressure on monetary growth and other
• 19:49
  Speaker 1: parts of the world. In fact, we're seeing that in
• 19:51
  Speaker 1: all of the major economies China, Europe, Japan, and and
• 19:57
  Speaker 1: so the U s monetary restraint is transferred to the
• 20:00
  Speaker 1: rest of the world. Another symptom of the monetary deceleration
• 20:04
  Speaker 1: is that is that the commodity prices can to move lower,
• 20:09
  Speaker 1: which they've been doing this year. So the the overall
• 20:13
  Speaker 1: economy seems to be very strongly at a growth rate
• 20:17
  Speaker 1: in the in the second quarter. But but given the
• 20:21
  Speaker 1: way in which monetary policy works, that was probably the
• 20:24
  Speaker 1: peak rter growth for the economy. Inflation rate also, we
• 20:28
  Speaker 1: believe peaked in the second quarter, and we'll move significantly
• 20:31
  Speaker 1: lower as we moved through the balance of this year
• 20:33
  Speaker 1: and into so given that backdrop, and given the fact
• 20:37
  Speaker 1: that the market is currently pricing in about two interest
• 20:40
  Speaker 1: rate hikes through the remainder of where do you see
• 20:44
  Speaker 1: the tenure yield ending the year, given the fact that
• 20:46
  Speaker 1: we're at two point eight give or take well, our
• 20:52
  Speaker 1: expertise is really in the long end. But right so
• 20:55
  Speaker 1: in the long end, in the thirty year, which is
• 20:57
  Speaker 1: to the thirty year, will will be lower than it
• 21:00
  Speaker 1: is today. The just to give you a point of
• 21:04
  Speaker 1: of reference, when the Fed started raising the short rates
• 21:08
  Speaker 1: in December of UM the federal funds rate was under
• 21:14
  Speaker 1: twenty five basis points and the long bond was around three.
• 21:18
  Speaker 1: We had seven hikes in the federal funds rate. We've
• 21:21
  Speaker 1: had a substantial fiscal package, not just the tax cuts,
• 21:25
  Speaker 1: but also big increase in federal spending and a number
• 21:28
  Speaker 1: of other things, the shortfall and energy production and difficulties
• 21:32
  Speaker 1: with medical care pricing and so forth. But in spite
• 21:35
  Speaker 1: of all those things, the thirty year bond is still three.
• 21:41
  Speaker 1: And that that illustrates that the long end of the
• 21:44
  Speaker 1: bond market is determined by a different set of parameters
• 21:47
  Speaker 1: than the short term. And so although the Fed will
• 21:51
  Speaker 1: be pushing the short rates higher as the market expects,
• 21:55
  Speaker 1: the long end of the market is not likely to rise.
• 21:58
  Speaker 1: They may rise intermittently over very short periods of time,
• 22:02
  Speaker 1: but the long end is being hancher anchored by these
• 22:06
  Speaker 1: fundamental factors which point to weaker economic growth and lower inflation.
• 22:11
  Speaker 1: Over to thank you very much for being with us.
• 22:13
  Speaker 1: Lacy Hunt is executive vice president and chief economist for
• 22:18
  Speaker 1: Hoisington's Investment Management. They're based in Austin, Texas. Hoisington is
• 22:23
  Speaker 1: the subadvisor for the WASA Hoisington U S Treasury Fund.
• 22:28
  Speaker 1: The symbol there is w h O SX. A little
• 22:32
  Speaker 1: bit of a sell off in the bond market today,
• 22:35
  Speaker 1: the thirty year yield there's two point nine. This is Bloomberg.
• 22:40
  Speaker 1: In other News today, some of the biggest US banks
• 22:42
  Speaker 1: have continued to slash their exposure to state and city
• 22:44
  Speaker 1: dead since the federal government cut corporate tax rate. This
• 22:47
  Speaker 1: includes JP Morgan, State Street Walls, Fargo City Group, and
• 22:51
  Speaker 1: Bank of America. This is Bloomberg right now, Let's turn
• 23:09
  Speaker 1: our focus to Apple. They are tripling down on the
• 23:12
  Speaker 1: iPhone and ten. They are going to be rolling out
• 23:15
  Speaker 1: new phones that have that computer chip that allows the
• 23:19
  Speaker 1: photographs that him was just waxing, waxing. Yeah, the portrait mode,
• 23:24
  Speaker 1: it's and and and the size of the of the
• 23:27
  Speaker 1: device and you know, okay, it doesn't have a button
• 23:29
  Speaker 1: for the home screen, but it's you know, you get
• 23:32
  Speaker 1: used to it. John Butler, you you are you gonna
• 23:35
  Speaker 1: line up overnight to to get a new Apple phone? Uh?
• 23:39
  Speaker 1: This year? I am him, I'm a buyer. Say um why? Well,
• 23:45
  Speaker 1: first of all, it's not the first model year anymore. Right,
• 23:48
  Speaker 1: So they're going to be building on the design of
• 23:51
  Speaker 1: the iPhone ten. As Lisa alluded to a moment ago,
• 23:55
  Speaker 1: there's going to be really three new devices built off
• 23:58
  Speaker 1: that basic design. One of them will call it the
• 24:01
  Speaker 1: iPhone nine is going to be a lower cost and
• 24:05
  Speaker 1: six point one in screen that's a you know, it's
• 24:08
  Speaker 1: a it's a it'll be lower cost with made with
• 24:12
  Speaker 1: lower cost materials, but still a very solid device. And
• 24:17
  Speaker 1: then the at the higher end, we're going to get
• 24:20
  Speaker 1: the five point eight inch screen with a feature update
• 24:24
  Speaker 1: to the iPhone current iPhone ten which has the same
• 24:27
  Speaker 1: size screen, and then a larger six point five inch
• 24:32
  Speaker 1: uh call it an iPhone X two plus. And as
• 24:37
  Speaker 1: Pim said a moment ago, people people really love those
• 24:40
  Speaker 1: larger screens. There's even a rumor that it may work
• 24:43
  Speaker 1: with a new Apple pencil. So, um, we'll see what
• 24:47
  Speaker 1: they have in store. But excitement is building, John, aside
• 24:50
  Speaker 1: from just it's a shiny new thing that does cool things.
• 24:52
  Speaker 1: I mean, how how big of a deal is this
• 24:55
  Speaker 1: for Apple given the fact that it's not a huge
• 24:57
  Speaker 1: departure from the iPhone tan, it doesn't necessarily turn out
• 25:00
  Speaker 1: a new path or new products. You know, can we
• 25:03
  Speaker 1: put this in a perspective, Well, here's Here's what's important
• 25:07
  Speaker 1: to me, Lisa, is they keep expanding the iPhone product line,
• 25:11
  Speaker 1: the number of skews, if you will. So there is
• 25:15
  Speaker 1: a thought out there that the highest, the high end
• 25:17
  Speaker 1: of the memory is going to go from two fifty
• 25:20
  Speaker 1: six to twelve gigabits while keeping two fifty six and
• 25:26
  Speaker 1: sixty four, so you'll get a broader product line out there.
• 25:31
  Speaker 1: Twenty skews this year versus next year versus sixteen this
• 25:37
  Speaker 1: uh so, presumably that will help sales a bit. But
• 25:39
  Speaker 1: what's most important here is they're they're working to drive
• 25:43
  Speaker 1: up that average selling price in the phone, and now
• 25:47
  Speaker 1: that we can all finance our phones, that's the whole point.
• 25:51
  Speaker 1: They want to thell like dynamic of all of their phones.
• 25:55
  Speaker 1: They want to have the average price point be closer
• 25:57
  Speaker 1: to a thousand dollars than two hundred dollars. Sure they do,
• 26:00
  Speaker 1: because average unit shipments year in and year out for
• 26:04
  Speaker 1: the iPhone have been slowing there now in the low
• 26:06
  Speaker 1: single digits. So to get that call at ten to
• 26:10
  Speaker 1: fiftcent growth in the iPhone category, which is still sixty
• 26:15
  Speaker 1: cent of sales or so at Apple, you've got to
• 26:18
  Speaker 1: drive up the average price. And you do that by
• 26:22
  Speaker 1: expanding the high end options, which is what I was
• 26:26
  Speaker 1: just talking about a moment ago, with more memory. Um
• 26:29
  Speaker 1: So I think they'll get there, and I like this
• 26:32
  Speaker 1: the strategy. We'll see what's coming this year it's it's
• 26:35
  Speaker 1: what's known as a soft upgrade year. Right, So last
• 26:38
  Speaker 1: year we got a significant redesign of the iPhone. The
• 26:43
  Speaker 1: year following that kind of significant upgrade, you to call
• 26:47
  Speaker 1: the talk here, you typically get feature updates. In this case,
• 26:51
  Speaker 1: we're getting feature updates and more models, and then next
• 26:54
  Speaker 1: year we'll hopefully see more significant, significant redesign. Butler, is
• 27:00
  Speaker 1: it worth noting that the simcard that customers use in there,
• 27:06
  Speaker 1: let's say non iPhone X or iPhone ten model, will
• 27:11
  Speaker 1: not work because the size is just different than that
• 27:15
  Speaker 1: found on the newer iPhones, and that you're going to
• 27:18
  Speaker 1: have to go in and get a new simcard. Is
• 27:21
  Speaker 1: it worth noting that when you go in and get
• 27:22
  Speaker 1: a new simcard, chances are you might buy an accessory
• 27:25
  Speaker 1: or two. I had not heard that, pim actually, but
• 27:29
  Speaker 1: I will say that, yes that. Could you know anything
• 27:32
  Speaker 1: that sparks a visit to your carrier? Where you're walking in,
• 27:36
  Speaker 1: you're talking about your phone what you can do with it?
• 27:40
  Speaker 1: Do I need a screen saver? Do I need a case?
• 27:42
  Speaker 1: Do I need new headphones? For example? Yes? Wow? Should
• 27:46
  Speaker 1: I buy a watch to pair with this phone? You know?
• 27:50
  Speaker 1: That's uh, that's retail one oh one is get the
• 27:53
  Speaker 1: customer in the store and shopping and talking to salesperson. Son.
• 27:58
  Speaker 1: Is there any sense that Apple is going to phase
• 28:00
  Speaker 1: out some of the more inexpensive models that they have
• 28:04
  Speaker 1: currently on market. No. In fact, that the latest I heard,
• 28:09
  Speaker 1: which I thought was an encouraging development, is they may
• 28:13
  Speaker 1: upgrade the iPhone se which is their low range UH
• 28:18
  Speaker 1: phone price to three and that really is due for
• 28:22
  Speaker 1: a facelift. You know, it's really gone through I think
• 28:26
  Speaker 1: three years now without an upgrade. UM, so they really
• 28:31
  Speaker 1: need to put a better processor in that phone. UM.
• 28:35
  Speaker 1: What I was reading suggested that the small version of
• 28:39
  Speaker 1: the iPhone seven now will become the new s e uh.
• 28:43
  Speaker 1: We'll see what's in store there, but I don't think
• 28:45
  Speaker 1: they're going to do away with a low end. If anything,
• 28:48
  Speaker 1: they should expand their a bit because they're trying to
• 28:51
  Speaker 1: grow in India, which where the average selling price of
• 28:55
  Speaker 1: iPhones is well below the US, so to compete there
• 28:58
  Speaker 1: they need a low end. Any Thanks John Butler, our
• 29:01
  Speaker 1: senior Telecom services and Equipment analysts for Bloomberg Intelligence. I
• 29:06
  Speaker 1: guess he's getting his portable seat ready because he'll be
• 29:10
  Speaker 1: waiting for those new iPhones. Does your entire family have
• 29:13
  Speaker 1: iPhone Tense? No? Do you know your daughter? No? Your wife? Yes?
• 29:20
  Speaker 1: Ding Nick ing ing ing Nick ding, I got one.
• 29:23
  Speaker 1: I got my son the s He loves it. Of
• 29:26
  Speaker 1: course they do. It's an addiction. Thanks for listening to
• 29:31
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 29:34
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 29:38
  Speaker 1: platform you prefer. I'm Pim Fox. I'm on Twitter at
• 29:42
  Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo. It's one
• 29:45
  Speaker 1: before the podcast. You can always catch us worldwide on
• 29:48
  Speaker 1: Bloomberg Radio