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2017's Dramatic Decline in Global Wine Production · 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 Abramowitz. Each day we
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• 0:32
  Speaker 1: to try to cover all the bases of various things
• 0:35
  Speaker 1: that are happening in the world, you know, we want
• 0:37
  Speaker 1: an update on the California wildfires. This is an area,
• 0:40
  Speaker 1: of course of intense interest for the wine industry. And
• 0:43
  Speaker 1: here to help us understand what's going on is Steven
• 0:45
  Speaker 1: ron Kliev. He is the global beverages strategist and food
• 0:49
  Speaker 1: and agrib business research and advisory group for Rabobank International,
• 0:53
  Speaker 1: major Dutch lender lender to the agriculture industry. Stephen, thanks
• 0:57
  Speaker 1: for coming into our studios here just give us an
• 0:59
  Speaker 1: update on what you know right now about UH wine
• 1:03
  Speaker 1: cultivation production. The harvest was almost complete, I believe in
• 1:07
  Speaker 1: Napa and Sonoma. That's correct. That's correct. So it's it's
• 1:11
  Speaker 1: still very much a fluid situation. And and you know,
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  Speaker 1: one of the questions that we get asked often is
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  Speaker 1: you know, what will this mean for overall California wine production?
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  Speaker 1: And and really, you know, the the short answer is
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  Speaker 1: probably not that much in terms of volume, right, because
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  Speaker 1: when you look at Napa and Sonoma, you're talking about
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  Speaker 1: ten percent of of overall California wine production, and as
• 1:33
  Speaker 1: you said, probably eight of that was already harvested. So
• 1:37
  Speaker 1: in terms of overall volume, probably doesn't mean much. In
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  Speaker 1: terms of disruption to the industry, it's enormous. It's it's
• 1:44
  Speaker 1: it's enormous impact. And you know, first off, let's I
• 1:48
  Speaker 1: think you would share in this. Let's send our condolences
• 1:50
  Speaker 1: to the families of forty one people that that lost
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  Speaker 1: their lives, to the countless people that lost homes and businesses.
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  Speaker 1: It's it's a tremendous disruption to the industry, mostly because
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  Speaker 1: of what it's meant for for tourism and disruption to
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  Speaker 1: operations in one of the most prestigious regions in all
• 2:07
  Speaker 1: of California, or the most prestigious regions in all of California. Well,
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  Speaker 1: let's also talk about future production, because just because there's
• 2:15
  Speaker 1: been everything or mostly the vineyards had been already harvested
• 2:19
  Speaker 1: doesn't mean that the damage couldn't continue into next year.
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  Speaker 1: Is there any talk about that? There is some concern,
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  Speaker 1: and and and there will be small pieces of vineyards
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  Speaker 1: that will see some some some um long term impact
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  Speaker 1: on production. But for the most parts, UH, vines tend
• 2:36
  Speaker 1: to be fairly resilient. I think they'll they'll come back.
• 2:39
  Speaker 1: The The big impact is going to be what does
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  Speaker 1: this mean for the two thousand and seventeen vintage, which
• 2:44
  Speaker 1: was looking really good. Uh, there's concern. You know, most
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  Speaker 1: of what was out there had been harvested. The challenges
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  Speaker 1: that you know, it's the ten percent that hadn't been
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  Speaker 1: harvested is Cabernet sauvignon. And that's, you know, the most
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  Speaker 1: valuable when you think of the US wine industry, the
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  Speaker 1: US wine market, the typical consumer, the typical wine sold
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  Speaker 1: in the market sells for under eight dollars a bottle.
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  Speaker 1: Napa Valley Cabernet sauvignon sold direct to consumer averages around
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  Speaker 1: a hundred dollars a bottle. So it's this is the
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  Speaker 1: most premium wine grape in the market, and that's what's
• 3:20
  Speaker 1: out there potentially being affected by smoke Taine. Okay, now
• 3:23
  Speaker 1: this is that we were talking about California. Now I
• 3:25
  Speaker 1: want to get your thoughts on France, Italy and Spain
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  Speaker 1: because they have not had a good year. That's been
• 3:32
  Speaker 1: a you know when you talk about overall volume and
• 3:35
  Speaker 1: people ask me what, you know, what are the what
• 3:37
  Speaker 1: does the California wildfires mean for for consumption globally? Their
• 3:42
  Speaker 1: volume not much. France, Italy, in Spain. That's really a
• 3:46
  Speaker 1: horror terrible weather. Terrible weather. You had, you had frost
• 3:50
  Speaker 1: in the spring, you had drought, you had extreme temperatures
• 3:53
  Speaker 1: in the summer, hail, all of that, and and it
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  Speaker 1: really hit all three of them. We've seen years in
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  Speaker 1: the past when any single one of those might have
• 4:01
  Speaker 1: had an off year, but never where you've seen all
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  Speaker 1: three of them down so much the same time. And
• 4:08
  Speaker 1: you know, again you're going back to now the smallest
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  Speaker 1: vintage that we've seen in over fifty years. So this
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  Speaker 1: is you know, this will really weigh on wine consumption globally.
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  Speaker 1: We've seen, you know, with that, just to kind of
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  Speaker 1: put it in perspective, the decline that we've seen versus
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  Speaker 1: last year in production globally because of those three countries
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  Speaker 1: that make up half of all wine production. That decline
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  Speaker 1: represents something like ten of typical global wine consumption in
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  Speaker 1: a year. So something's going to have to give globally,
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  Speaker 1: and wine producers in the industry will look for levers
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  Speaker 1: to to try to mitigate the effects of that, but
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  Speaker 1: there will be impacts that will reverberate kind of globally
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  Speaker 1: and wine consumption because of it. Well, the events this
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  Speaker 1: year don't make me want to have don't reduce my
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  Speaker 1: desire to have a drake. It's not that in some
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  Speaker 1: is necessarily going to go down, just that prices could
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  Speaker 1: go up, right, I mean, could we see a real
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  Speaker 1: increase in prices, especially as millennials evidently love wine and
• 5:07
  Speaker 1: are drinking lots of it. Absolutely, and thank god for millennials, right, um,
• 5:12
  Speaker 1: thank god for wine. Let's forget the millennials. Come on, Yeah,
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  Speaker 1: I think you know some of the price increases is
• 5:19
  Speaker 1: we've looked at it. I think we expect that, you know,
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  Speaker 1: much of the price increases will see in in the
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  Speaker 1: very low end segments of the European wine market, right
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  Speaker 1: the stuff that gets drunk for you know, a Euro
• 5:32
  Speaker 1: two or a leader, that's where you'll see it. You
• 5:34
  Speaker 1: will see some of the price increases passed on, you
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  Speaker 1: know in the in the higher end stuff like the
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  Speaker 1: Bordeaux and the rio Hus, but they have a little
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  Speaker 1: bit more of a cushion in terms of margin to
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  Speaker 1: to to take on that price increase just quickly as
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  Speaker 1: a big lender to the agriculture industry and to the
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  Speaker 1: wine industry. UM collateral is what grows on the vines,
• 5:56
  Speaker 1: right and the land. Is it going to change blending pattern?
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  Speaker 1: I don't think so so far. When you when you
• 6:03
  Speaker 1: think of the UM the wildfires, what it's done, it's
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  Speaker 1: been the it's been tremendous the impact. But it's it's
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  Speaker 1: really been When you look at the number of wineries
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  Speaker 1: and NAPA wineries, it was maybe fifteen that were affected.
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  Speaker 1: The vineyards are mostly okay. Uh. It's really more the
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  Speaker 1: destruction of interruption of operations, interruption of tourism, which has
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  Speaker 1: become really the driver of of route to market for
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  Speaker 1: for a lot of these wineries. Steven Nickley, thank you
• 6:35
  Speaker 1: so much for joining US Global beverage strategist and food
• 6:38
  Speaker 1: and aggrib business research and advisory for Robbo Bank International.
• 6:43
  Speaker 1: He is their in house wine drinker. I want to
• 6:57
  Speaker 1: turn our attention to one tech company that is sitting
• 7:00
  Speaker 1: very pretty today. I'm talking about Twitter shares up fourteen
• 7:03
  Speaker 1: and a half percent after releasing earnings that beat analysts
• 7:07
  Speaker 1: estimates and showed some strength in their user rates. And
• 7:11
  Speaker 1: I want to bring into tender we're all global Internet
• 7:13
  Speaker 1: and consumer electronics analysts for Bloomberg Intelligence to talk about
• 7:17
  Speaker 1: what kind of underpinned the success here that Twitter unveiled.
• 7:21
  Speaker 1: So tender, just how good were the earnings today? Quote?
• 7:24
  Speaker 1: Are the expectations are very low? Actually, and last quarter
• 7:27
  Speaker 1: we saw a deceleration in some user momentum, but this
• 7:31
  Speaker 1: quota they just showed that the momentum has come back.
• 7:34
  Speaker 1: So a combination of continued cost cuts which happens helping profitability,
• 7:39
  Speaker 1: they're making product changes and the numbers are showing that
• 7:43
  Speaker 1: they seem to be working. Well, what isn't working? What
• 7:46
  Speaker 1: needs to be fixed? So basically, if you look at
• 7:49
  Speaker 1: the growth rate right now, it's still you know, we're
• 7:51
  Speaker 1: talking about four percent um why hy growth rate and
• 7:54
  Speaker 1: users and we have not seen a big secular shift
• 7:57
  Speaker 1: like people coming back to Twitter at the same pace
• 8:00
  Speaker 1: as peers are experiencing. So that's not working yet. But
• 8:05
  Speaker 1: the product changes that they've done in terms of simplifying
• 8:07
  Speaker 1: it and notification things like that is showing that these
• 8:11
  Speaker 1: changes can drive engagement. What about profitability? What about advertising?
• 8:15
  Speaker 1: They show that they were able to monetize more effectively
• 8:19
  Speaker 1: the audience that it has. Now that's the big question, right,
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  Speaker 1: So first step was to sort of resurrective user growth,
• 8:26
  Speaker 1: bring in more users on board, and then go convince advertisers.
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  Speaker 1: So they're doing a good job convincing investors right now.
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  Speaker 1: Now they have to use that momentum to convince advertisers
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  Speaker 1: to shift at budgets here. But as far as profitability
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  Speaker 1: is concerned, I mean, uh, they have done a good
• 8:40
  Speaker 1: job in terms of like cost cuts and getting the
• 8:43
  Speaker 1: margins up, so that should continue and it's working in
• 8:45
  Speaker 1: their favor. Also, one thing to remember is the expectation
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  Speaker 1: for next year and next or next year are very low,
• 8:51
  Speaker 1: you know, single digits, and they're coming from this seventeen
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  Speaker 1: comparison which is negative. So if they continue this moment
• 9:00
  Speaker 1: and um, I think you know, at least in the
• 9:02
  Speaker 1: phase of low expectations, they could they could see better
• 9:06
  Speaker 1: results to tender. Can we can we just move a
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  Speaker 1: little bit to the future and get your thoughts on
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  Speaker 1: alphabet give us a preview of what what analysts are
• 9:15
  Speaker 1: going to be looking for. Sure, so the underlying demand here,
• 9:18
  Speaker 1: coming mostly from mobile search and YouTube, is pretty strong.
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  Speaker 1: Um In fact, we saw that last quarter as well.
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  Speaker 1: They recorded the high the highest growth and paid clicks.
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  Speaker 1: What would be interesting to see is the traffic acquisition cost,
• 9:32
  Speaker 1: which made them sort of miss revenues a little last quarter.
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  Speaker 1: Uh So the cost that they paid to distribution partners
• 9:38
  Speaker 1: including Apple, uh and more and more mobile search at
• 9:43
  Speaker 1: basically contribution from mobile search increasing also increases the traffic
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  Speaker 1: acquisition cost. So the top line expectation is strong, the
• 9:50
  Speaker 1: end market demand is strong. There will be a keen
• 9:53
  Speaker 1: eye on how these costs are faring, especially in light
• 9:56
  Speaker 1: of what we see what we saw last quarter. And
• 9:59
  Speaker 1: not to give everyone whiplash, but I also want to
• 10:01
  Speaker 1: get a look ahead to Amazon dot Com. They're reporting
• 10:04
  Speaker 1: earnings it for one today PM Wall Street time, and
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  Speaker 1: I am very curious to see how much they're sacrificing
• 10:12
  Speaker 1: their margins to gain a competitive edge. What are you
• 10:14
  Speaker 1: looking for? Yeah, don't be surprised if they miss on
• 10:17
  Speaker 1: the bottom line, I mean, expenses ramp is expected. They
• 10:21
  Speaker 1: are increasing expense expenses on a WS as content spending,
• 10:25
  Speaker 1: and with double Whole Foods acquisition integration, that should also
• 10:30
  Speaker 1: go up. But if you look at the third quarter
• 10:33
  Speaker 1: with Amazon Prime Day, with the contribution from Whole Foods,
• 10:36
  Speaker 1: and continue growth in a WS, they should be fine.
• 10:38
  Speaker 1: The guidance for next quarter is going to be very
• 10:40
  Speaker 1: important from a revenue standpoint because we are kind of
• 10:43
  Speaker 1: flying blind right now. It's the first full quarter of
• 10:46
  Speaker 1: Whole Foods integration, so we need to see what sort
• 10:50
  Speaker 1: of impact the price cuts and traffic increase has had
• 10:54
  Speaker 1: on the net revenue for Amazon. But all in all,
• 10:57
  Speaker 1: the end market demand is strong on all fronts to tender.
• 11:01
  Speaker 1: If you pull out Amazon Web Services from Amazon, what
• 11:04
  Speaker 1: kind of company is it? Uh, It's not a profitable company.
• 11:09
  Speaker 1: So they have seen actually profit margins have been rising
• 11:13
  Speaker 1: in North America, but beyond that it's lost making. So
• 11:17
  Speaker 1: the idea here is to sort of read scale in
• 11:20
  Speaker 1: their prime and FBA cycle internationally so they can replicate
• 11:24
  Speaker 1: what they're doing here in North America. But it'll take time,
• 11:27
  Speaker 1: and with the Whole Foods push, things are going to
• 11:30
  Speaker 1: get even more volatile in terms of spending, So don't
• 11:34
  Speaker 1: expect a double x a w S Amazon to uh,
• 11:37
  Speaker 1: you know, secularly grow their profits, but it's expected because
• 11:41
  Speaker 1: revenue growth has been pretty strong in light of these expenses.
• 11:45
  Speaker 1: Any chance that investors will call for Amazon to spin
• 11:48
  Speaker 1: off a WS into a separate business at the moment,
• 11:52
  Speaker 1: I mean, right now a w S is the sort
• 11:55
  Speaker 1: of the profit driver for the company, but still it's
• 12:01
  Speaker 1: the country. There are many contributions, very low. Profit contribution
• 12:04
  Speaker 1: is high. It actually plugs into a lot of other
• 12:07
  Speaker 1: services that Amazon is providing, you know, your Alexa, your
• 12:11
  Speaker 1: content spending that they're doing. So a WS is pretty
• 12:13
  Speaker 1: plugged into the whole Amazon ecosystem, including logistics. So I
• 12:16
  Speaker 1: don't see a reason why that should be done. To
• 12:19
  Speaker 1: begin with J Tantra, I'm curious how much information will
• 12:23
  Speaker 1: get on how their acquisition with Whole Food of Health
• 12:27
  Speaker 1: Foods has been going, you know, and kind of where
• 12:30
  Speaker 1: they're thinking, because I know that it's just completely destroyed
• 12:33
  Speaker 1: the stocks of a lot of grocery chains out there.
• 12:35
  Speaker 1: As people start to guard for whatever disruption they have planned,
• 12:38
  Speaker 1: what do you expect to learn so they'll basically the
• 12:43
  Speaker 1: revenue guidance should actually help us understand the run rate
• 12:46
  Speaker 1: that Whole Foods was doing as a standalone company is
• 12:49
  Speaker 1: an increasing or decreasing. Uh. If it's decreasing, it's probably
• 12:53
  Speaker 1: coming from the price cuts that they're doing. If it's increasing,
• 12:56
  Speaker 1: then the traffic that they're getting because of this acquisition
• 12:59
  Speaker 1: is actual outpacing those price cuts. So I guess it's
• 13:03
  Speaker 1: not the amount of impact, but the place of impact
• 13:05
  Speaker 1: that's what that's what's going to be most important. So
• 13:08
  Speaker 1: if they guide higher than what the street is expecting
• 13:11
  Speaker 1: right now, I mean we could expect that negative effect
• 13:15
  Speaker 1: on others to continue. Do you expect any details at
• 13:19
  Speaker 1: all about moving into other businesses such as the prescription
• 13:22
  Speaker 1: drug delivery business or indeed even the banking industry. Not much,
• 13:27
  Speaker 1: just some color maybe, But it's super early days in
• 13:31
  Speaker 1: in in on those regards, and we have to keep
• 13:33
  Speaker 1: in mind the Whole food acquisition is start getting a
• 13:36
  Speaker 1: eight hundred billions all plus market, and they have the
• 13:39
  Speaker 1: last mild delivery problem still to be solved and optimized.
• 13:42
  Speaker 1: So until those things are uh done, I I don't see,
• 13:46
  Speaker 1: like you know, any color on a big revenue contribution
• 13:50
  Speaker 1: coming from you know, any of these other experimentation face.
• 13:54
  Speaker 1: I think that they're doing right now, so it's a
• 13:56
  Speaker 1: long game that they're playing on those fronts. I'm wondering
• 13:59
  Speaker 1: about regular Tory pressure, the idea that an increasing number
• 14:03
  Speaker 1: of regulators, both in Europe and the US are starting
• 14:05
  Speaker 1: to question, uh, sort of the incredible size and pricing
• 14:10
  Speaker 1: power of Amazon, and you know, do you expect them
• 14:13
  Speaker 1: to address that or at least nod to that as
• 14:15
  Speaker 1: a potential risk. It is a potential risk, and especially
• 14:20
  Speaker 1: in eu've we've been seeing uh more and more of
• 14:23
  Speaker 1: those examples. But one thing to keep in mind is
• 14:26
  Speaker 1: with Amazon, a big chunk of their revenues driven by
• 14:29
  Speaker 1: third party sale services, third party sellers on the platform,
• 14:33
  Speaker 1: so it's not Amazon selling directly, it's you know, other
• 14:36
  Speaker 1: businesses selling through Amazon. So that sort of like dilutes
• 14:42
  Speaker 1: the monopolistic sort of argument a bit. But as far
• 14:46
  Speaker 1: as examples you have seen in EU, uh, those risks
• 14:50
  Speaker 1: will linger not just for like the next couple of quarters,
• 14:52
  Speaker 1: but the next couple of years, given you know how
• 14:55
  Speaker 1: fast they're growing, and um, the end market still is
• 14:57
  Speaker 1: much much bigger. But that will be an ongoing sort
• 15:02
  Speaker 1: of argument, if you may. We are awaiting details and
• 15:06
  Speaker 1: the comments from House Speaker Paul Ryan having to do
• 15:09
  Speaker 1: with the budget resolution that was just recently past, will
• 15:13
  Speaker 1: be bringing that to you live. We're speaking with cha
• 15:16
  Speaker 1: Tender Warrel. He is our global Internet and consumer electronics
• 15:19
  Speaker 1: analysts for Bloomberg Intelligence. He's joining us from our Bloomberg
• 15:22
  Speaker 1: nine sixties studio in San Francisco. Tender, you know, I
• 15:26
  Speaker 1: keep thinking about what you just said having to do
• 15:28
  Speaker 1: with these third party sellers that use Amazon basically for
• 15:31
  Speaker 1: all of fulfillment UH needs. But aren't states I mean
• 15:36
  Speaker 1: I know that for example, of state in Massachusetts has
• 15:38
  Speaker 1: asked for a list of those third party sellers because
• 15:43
  Speaker 1: right now they're not paying sales tax. Yeah, so they
• 15:46
  Speaker 1: have left it on the sellers the onus of collecting
• 15:49
  Speaker 1: the sales tax when it comes to third parties. And
• 15:51
  Speaker 1: you know very state by states, so there there are
• 15:55
  Speaker 1: some states where you're seeing more scrutiny on that end.
• 15:59
  Speaker 1: But in the end, if there is a widespread change
• 16:02
  Speaker 1: in terms of tax collection, I think it will basically
• 16:06
  Speaker 1: being normalized by the volume growth that these third party
• 16:09
  Speaker 1: sellers are seeing. Because you have to keep in mind
• 16:11
  Speaker 1: that when third party sellers go on FBA program, they
• 16:15
  Speaker 1: get exposed to prime members and Prime members are continuing
• 16:18
  Speaker 1: to increase, not just in numbers, but the amount of
• 16:21
  Speaker 1: money that they're spending on on on Amazon. So basically
• 16:25
  Speaker 1: that exposure, that volume that they're getting should help them
• 16:29
  Speaker 1: offset in an instance where uh, the sales tax need
• 16:33
  Speaker 1: to be enforced. Just sort of zooming out a little
• 16:36
  Speaker 1: bit because today is such a big fang tech stock
• 16:39
  Speaker 1: day with you know, both Google and or Alphabet I'm sorry,
• 16:43
  Speaker 1: and Amazon reporting after earning today and we got Twitter's already.
• 16:47
  Speaker 1: I'm wondering what you're saying. With Twitter, there were really
• 16:50
  Speaker 1: low expectations going into this and they exceeded them. Expectations
• 16:54
  Speaker 1: are still pretty high for Alphabet and Amazon. That do
• 16:59
  Speaker 1: you think will do you think that will create a
• 17:01
  Speaker 1: negative surprise? Uh, potential that the market's not prepared for
• 17:06
  Speaker 1: the So we have to take both the cases separately.
• 17:09
  Speaker 1: So with Alphabet, negative surprise potential could come from these
• 17:13
  Speaker 1: traffic acquisition costs and at pricing that we talked about,
• 17:18
  Speaker 1: because as more AD dollars come from mobile, they have
• 17:21
  Speaker 1: to pay the distribution network to get that and that
• 17:26
  Speaker 1: did sort of cause us per last time. If you remember,
• 17:29
  Speaker 1: there was a confusion when Google reported in terms of
• 17:32
  Speaker 1: what they missed and what they what they beat because
• 17:34
  Speaker 1: of this tax, So that issue could surface again with
• 17:37
  Speaker 1: Alphabet with Amazon. Like I said, with Whole Foods contribution,
• 17:43
  Speaker 1: V are sort of flying in the dark here in
• 17:45
  Speaker 1: terms of what the contribution is going to be. So
• 17:48
  Speaker 1: any negative surprise in terms of you know, the expectation
• 17:51
  Speaker 1: was Whole food will maintain its revenue run rate that
• 17:53
  Speaker 1: it had before Amazon bought it. If that expectation is
• 17:56
  Speaker 1: much lower, then you could see some surprise on the downside.
• 18:00
  Speaker 1: Thank you so much for joining us to Tendra. We're
• 18:02
  Speaker 1: all global Internet and consumer electronics analysts for Bloomberg Intelligence. Well,
• 18:20
  Speaker 1: we'd like to learn more about the European Central Bank
• 18:22
  Speaker 1: as they seem to have decided to slow the pace
• 18:24
  Speaker 1: of their quantitative easing program, but they are extending the
• 18:29
  Speaker 1: program by nine months here tell us more in detail.
• 18:32
  Speaker 1: Is maxim A Spahi, our Euro Area economist for Bloomberg Intelligence,
• 18:37
  Speaker 1: and you can follow maxim A at on Twitter at
• 18:41
  Speaker 1: m x s b A. Alright, m x s b A,
• 18:45
  Speaker 1: tell me about the European Essential Bank and what is
• 18:48
  Speaker 1: this plan about extending uh the quantitative easing program? Yes,
• 18:53
  Speaker 1: good morning from from London. So the ECB decided today
• 18:57
  Speaker 1: to go with the consensus. So I mean that means
• 18:59
  Speaker 1: they extended a quee program by nine months, but they
• 19:02
  Speaker 1: cut the monthly pace of purchases from sixty to surrey
• 19:07
  Speaker 1: starting in January. Most importantly is that drag Is said
• 19:11
  Speaker 1: during the press conference that there won't be no sudden
• 19:14
  Speaker 1: stop to the quee program, so he basically hinted at
• 19:18
  Speaker 1: further extension of the quee program. He basically said that
• 19:21
  Speaker 1: September was probably not going to be the end date
• 19:24
  Speaker 1: of the quee program. And that's in itself as a
• 19:27
  Speaker 1: very dolvish statement. Well, Maximi, I was looking at some
• 19:30
  Speaker 1: analyst notes after the announcement by the ECB earlier today,
• 19:34
  Speaker 1: and they were saying, you know, yes, it's thirty billion
• 19:37
  Speaker 1: euros of as purchase as the purchases, but it's actually
• 19:40
  Speaker 1: gonna be forty five billion euros because they're going to
• 19:42
  Speaker 1: be reinvesting the proceeds of notes that they currently have.
• 19:47
  Speaker 1: Just to give you a sense of how this has
• 19:48
  Speaker 1: been received, the two year German bond yield plummeted. It
• 19:52
  Speaker 1: went back down to negative uh is the point seven
• 19:57
  Speaker 1: to five percent. I mean, this just means that it's tape.
• 20:00
  Speaker 1: It it's gonna be que forever in the European Union. Now, yeah,
• 20:04
  Speaker 1: the that's the whole debate about the stock and the
• 20:06
  Speaker 1: flow of Quie and Mayo. Draggie said very specifically today
• 20:10
  Speaker 1: they actually published a press release on on the details
• 20:13
  Speaker 1: of this, that they were going to reinvest all the
• 20:16
  Speaker 1: bonds that come to maturity and so basically that they
• 20:19
  Speaker 1: were going to be in the markets for a long
• 20:20
  Speaker 1: time even after stopping the purchase. You hasn't mentioned it,
• 20:23
  Speaker 1: but one day they will have to stop. We think
• 20:25
  Speaker 1: it's going to be in two thousand nineteen, early two
• 20:27
  Speaker 1: thousand nineteen. After that, the huge stock of purchases will
• 20:31
  Speaker 1: be reinvested, just like the FED did for a long time. Yes,
• 20:35
  Speaker 1: is there any sense of when the European Central Bank
• 20:39
  Speaker 1: may start to raise the deposit rate or is that
• 20:42
  Speaker 1: just completely off the table at this point. So it's
• 20:45
  Speaker 1: it's it's not gonna happen anytime soon. But if you
• 20:47
  Speaker 1: add up the nine months extension of today, the fact
• 20:51
  Speaker 1: that he said there was going to be no sense
• 20:53
  Speaker 1: stop that, so that qu is gonna be it's gonna
• 20:55
  Speaker 1: be extended after September. And if you also had to
• 20:59
  Speaker 1: that the n change forward guidance, who still promises that
• 21:02
  Speaker 1: the rates are gonna stay at the current levels for
• 21:05
  Speaker 1: an extended period of time and I quote well past
• 21:08
  Speaker 1: the curierizon. If you add everything up, that means they're
• 21:10
  Speaker 1: gonna have to wait until two thousand nineteen, we think
• 21:13
  Speaker 1: end two thousand nineteen to start hiking rates again. And
• 21:17
  Speaker 1: if you think about it, Mario drag is going to
• 21:19
  Speaker 1: leave the e CB in October two thousand nineteen. So
• 21:21
  Speaker 1: there's actually a high chance now that is going to
• 21:24
  Speaker 1: leave after eight years at the ECB head without ever
• 21:27
  Speaker 1: having to hike rates. Maxim ay the the Euro Area,
• 21:33
  Speaker 1: the Eurozone economy is not homogeneous, and you have the
• 21:37
  Speaker 1: enviable task of being the Euro Area economist. So I'm
• 21:41
  Speaker 1: wondering if you could describe which countries and which economies
• 21:45
  Speaker 1: have benefited the most from the actions of the e
• 21:48
  Speaker 1: c B. Well, if you look just at the pure
• 21:51
  Speaker 1: composition of QUI um they QUI is mostly oriented towards
• 21:55
  Speaker 1: Germany because that's a large economy, and the e c
• 21:58
  Speaker 1: B implements the purchases according to its capital keys. That
• 22:01
  Speaker 1: means how much the weight of each country in the economy.
• 22:04
  Speaker 1: So around purchase are going to Germany, So Germany is
• 22:08
  Speaker 1: probably the most the one that benefits the most from it.
• 22:11
  Speaker 1: On the other hand, you can also look at what's
• 22:12
  Speaker 1: going on in Spain and its Italy, and the fact
• 22:14
  Speaker 1: that the growth rate is accelerating in these countries, that
• 22:17
  Speaker 1: unemployment is going down, that financial conditions allow less tight
• 22:21
  Speaker 1: than before. That's all to put on the e CBS credits.
• 22:25
  Speaker 1: So everybody is benefiting from it, just not to the
• 22:28
  Speaker 1: same extent. You know, I find it interesting that the
• 22:30
  Speaker 1: yield curve in Germany is steepening on this. In other words,
• 22:34
  Speaker 1: people expect that this will allow inflation to pick up
• 22:38
  Speaker 1: over the longer term much more than it would otherwise.
• 22:42
  Speaker 1: Are people pretty abolishtion this and are people saying, you
• 22:45
  Speaker 1: know what, this is actually going to bleed into the
• 22:47
  Speaker 1: banks and provide a better backdrop for them. Or are
• 22:50
  Speaker 1: people raising alarm and saying that the longer this goes on,
• 22:54
  Speaker 1: the more fragile the economy becomes. I mean, we're a
• 22:56
  Speaker 1: sentiment right now. Well, I think I think what what
• 22:59
  Speaker 1: the market is looking at right now? If you look
• 23:01
  Speaker 1: at the euro, it's also reacting. It's that's going down
• 23:03
  Speaker 1: and gets the dollar after this Starfish press conference. But
• 23:06
  Speaker 1: I think the market is reacting to the fact that
• 23:08
  Speaker 1: the ECB is gonna stay for longer, that the rate
• 23:10
  Speaker 1: hike won't happen anytime soon, but also to the fact
• 23:13
  Speaker 1: that Mayo dragging seemed to be very pleased by the
• 23:16
  Speaker 1: way the economy was going. Gross is strong, we have
• 23:20
  Speaker 1: unemployment continuing to go down, there's a good momentum in
• 23:23
  Speaker 1: the region. The only problem again is that inflation is
• 23:26
  Speaker 1: not following. We have a V shaped profile of inflation,
• 23:28
  Speaker 1: meaning that it's gonna go down over the next month
• 23:31
  Speaker 1: before it starts rising again. And all this obviously is
• 23:35
  Speaker 1: coming into investors anticipations, and the yield curve obviously reflects that,
• 23:41
  Speaker 1: especially Germany, which is the main Euros on assets to
• 23:45
  Speaker 1: buy in the market real quick, any commentary on the
• 23:48
  Speaker 1: e c B S purchase of CORPORATEBT. Notice that they
• 23:51
  Speaker 1: didn't discuss the composition today, which is a bit surprising,
• 23:54
  Speaker 1: to be honest, because you would expect them to at
• 23:56
  Speaker 1: least address that issue. So they're gonna continue buying them
• 24:00
  Speaker 1: and probably not change any parameters anytime soon. Um from
• 24:03
  Speaker 1: the QUEI program, Max Masbai, thank you so much for
• 24:06
  Speaker 1: joining us. Always a pleasure speaking with you. Max Masbahi,
• 24:10
  Speaker 1: euro Area economist for Bloomberg Intelligence, joining us from London,
• 24:14
  Speaker 1: and I think back to what Ray Dalio said on
• 24:16
  Speaker 1: Bloomberg Surveillance this morning. He said, the longer this goes on,
• 24:19
  Speaker 1: the harder will be for central banks to taper as
• 24:22
  Speaker 1: yields go up and as the economy start to accelerate.
• 24:26
  Speaker 1: Something to keep in mind right now, let's focus on
• 24:39
  Speaker 1: the new technology and a new generation of automobile from Audi.
• 24:43
  Speaker 1: Joining us is Scott Kio. He is the president of
• 24:46
  Speaker 1: Audi of America and he joins us in our studio. Scott,
• 24:49
  Speaker 1: thanks for being here. Um, let me see if I
• 24:52
  Speaker 1: can just do this in three words, long, low, and wide.
• 24:56
  Speaker 1: Would that be a good description of the new generation?
• 24:59
  Speaker 1: He saven absolutely textbook, absolute textbook. You want to make
• 25:02
  Speaker 1: something beautiful and the automotive business, that's generally what you're doing.
• 25:05
  Speaker 1: Why did you do that? Because you've you've really you've
• 25:07
  Speaker 1: changed the shape of the automobile. We'll get to the
• 25:10
  Speaker 1: cockpit in the second, but the exterior, the shape has changed,
• 25:13
  Speaker 1: it has you know, this is our second generation of
• 25:15
  Speaker 1: the A seven and when we launched the first generation car,
• 25:18
  Speaker 1: people sort of said, we're crazy. It was a sport
• 25:20
  Speaker 1: back design. It wasn't your classic three box sedan, and
• 25:23
  Speaker 1: we launched it and the market loved it. Our market
• 25:25
  Speaker 1: share went up, of course, in that segment, the market
• 25:27
  Speaker 1: share went up three or four points. This is now
• 25:30
  Speaker 1: the second generation of the car, and what we have
• 25:32
  Speaker 1: is an all new head of design, a gentleman by
• 25:34
  Speaker 1: the name of Marklita. And you know, his real premise
• 25:37
  Speaker 1: is to make beautiful cars. And you see it and
• 25:38
  Speaker 1: how we stretched the car out a little bit and
• 25:40
  Speaker 1: lowered it. But even if you go back to Da Vinci,
• 25:43
  Speaker 1: there is this thing of perfect proportions and an automobiles.
• 25:46
  Speaker 1: It's long, low and wide. And if you look at
• 25:49
  Speaker 1: beautiful cars, that's almost always what they are, and the
• 25:51
  Speaker 1: A seven is one of those simple Scott, I want
• 25:54
  Speaker 1: to talk about something that is beautiful. In another way.
• 25:57
  Speaker 1: People are seeing electric vehicles as in the future of
• 26:01
  Speaker 1: cars and the future of profitability, in the future of
• 26:04
  Speaker 1: clean electricity. And I'm wondering, when do you see them
• 26:08
  Speaker 1: actually being profitable. We really haven't seen either the demand
• 26:11
  Speaker 1: for them from the American public nor the profitability for
• 26:16
  Speaker 1: the car companies. Where do you see this going well least. Look,
• 26:18
  Speaker 1: I I think you're right. Yeah, you have to walk
• 26:20
  Speaker 1: a fine line obviously between compliance and the standards and
• 26:24
  Speaker 1: the greenhouse gas emissions. But of course, at the end
• 26:26
  Speaker 1: of the day, a customer does not walk into a
• 26:28
  Speaker 1: showroom saying, how can I help the automotive industry hit
• 26:31
  Speaker 1: their targets. You need a consumer product that a customer
• 26:34
  Speaker 1: loves and joys and wants to pay for. But look,
• 26:37
  Speaker 1: I'm an optimistic and the reason I'm optimist is if
• 26:40
  Speaker 1: you look at out these demographic they are affluent, educated,
• 26:43
  Speaker 1: and they believe and want new technologies. And the simple
• 26:47
  Speaker 1: thing I see when I drive out these prototype electric
• 26:49
  Speaker 1: cars which will be launching in two thousand nineteen, the
• 26:52
  Speaker 1: very simple thing is you feel like you're driving the future.
• 26:55
  Speaker 1: And I think that's something that's gonna work. I think
• 26:57
  Speaker 1: the other point, you know, not to go on too long,
• 26:59
  Speaker 1: is I have a very simple criteria. There's twenty six
• 27:02
  Speaker 1: million luxury cars navigating America right now, and yearly we
• 27:06
  Speaker 1: sell retail about one point four million across the industry.
• 27:09
  Speaker 1: That tells me there's the need for some new stimulus.
• 27:12
  Speaker 1: And I think this is the new stimulus. So I'm
• 27:14
  Speaker 1: an optimist where the break even on profitability, as you know,
• 27:18
  Speaker 1: it's going to be a couple of years. We need
• 27:19
  Speaker 1: to get more scale, as you know, and costs need
• 27:22
  Speaker 1: to continue to come down. All right, So what cost
• 27:24
  Speaker 1: do you think electric vehicles have to be sold at
• 27:27
  Speaker 1: in order to generate interest from a broader swath of
• 27:30
  Speaker 1: public And when, specifically the year do you expect electric
• 27:34
  Speaker 1: vehicles to truly take off in the US. Look, the
• 27:37
  Speaker 1: year they're going to take off for Auty is going
• 27:39
  Speaker 1: to be two thousand nineteen, because that's the year we're
• 27:41
  Speaker 1: launching our first electric cars. So from an Audi perspective, Uh,
• 27:44
  Speaker 1: you know, I think we did the smart thing. We
• 27:46
  Speaker 1: placed the car right in the sweet spot of the
• 27:49
  Speaker 1: luxury segment. I think what a lot of people have
• 27:51
  Speaker 1: done is they have sort of made what I'll call
• 27:53
  Speaker 1: a compliance car. And at the end of the day,
• 27:55
  Speaker 1: you have to make a beautiful car. So we've made
• 27:57
  Speaker 1: an suv. It's a C segment SUV, which is the
• 28:00
  Speaker 1: second largest segment in luxury and so consumers are going
• 28:03
  Speaker 1: to desire this and that's when it's going to start
• 28:05
  Speaker 1: to go. Now, in terms of percentages, what we've announced,
• 28:08
  Speaker 1: I can see AUDI doing twenty five to thirty percent
• 28:11
  Speaker 1: of its total business by being electric. I think that's fair.
• 28:15
  Speaker 1: I think that's reasonable, and I think we can get
• 28:17
  Speaker 1: that done before we get to the future. I just
• 28:21
  Speaker 1: want to mention the past. And I don't know whether
• 28:23
  Speaker 1: you're familiar with the program night Writer. Remember I remember,
• 28:27
  Speaker 1: remember a kid booking around I do, okay, So I
• 28:29
  Speaker 1: gotta say that the current updated version reminded me of
• 28:34
  Speaker 1: the night Rider because of the lights. You can actually
• 28:37
  Speaker 1: do a light show. It's l E ED laser lights
• 28:39
  Speaker 1: with the Audi A seven. What what are you doing
• 28:43
  Speaker 1: putting laser lights on the car because it's cool, It's
• 28:46
  Speaker 1: really cool. Uh No, and who makes I'll give you
• 28:49
  Speaker 1: an engineering, I'll give an engineering. Well, but look, I
• 28:53
  Speaker 1: think if you look at Audi, we've sort of been
• 28:55
  Speaker 1: the innovators of lights. We were the first to do
• 28:57
  Speaker 1: l E d s and actually l E d s
• 28:58
  Speaker 1: started in the race track with our with our prototype
• 29:01
  Speaker 1: race cars in Lama, and then from l E d
• 29:04
  Speaker 1: s we put them on our passenger cars. We put
• 29:05
  Speaker 1: them on the R eight first, and now it's on
• 29:07
  Speaker 1: every single autie and if you look at the industry,
• 29:10
  Speaker 1: every single car has LED lights now and usual they
• 29:13
  Speaker 1: don't call them l D lights, they call them OUTI
• 29:15
  Speaker 1: lights because it's something we innovated. The next phase we
• 29:17
  Speaker 1: feel of l d s is laser lights. Now we
• 29:20
  Speaker 1: have them on a few hundred r eights today and
• 29:23
  Speaker 1: it's simple. You get better visibility to look out and
• 29:26
  Speaker 1: you get a more consistent light. And I think this
• 29:29
  Speaker 1: is something that will become a standard. But of course
• 29:31
  Speaker 1: we need to get the cost right. It's going to
• 29:33
  Speaker 1: take a little bit of time, but that's the first
• 29:34
  Speaker 1: thing everyone said when we launched l e d s.
• 29:36
  Speaker 1: They said, no way. And now it's an industry standard,
• 29:38
  Speaker 1: so you've got to roll the dice and take some
• 29:40
  Speaker 1: risk on innovation. Scott, thank you so much for joining
• 29:43
  Speaker 1: us and for the honest state, why do you have them?
• 29:45
  Speaker 1: Because they're cool? Scott Kia, President of Audi of America, Incorporated,
• 29:50
  Speaker 1: based in Herndon, Virginia. Thanks for listening to the Bloomberg
• 29:56
  Speaker 1: P and L podcast. You can subscribe and listen to
• 29:58
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 30:03
  Speaker 1: I'm pim Fox, I'm on Twitter at pim Fox. I'm
• 30:07
  Speaker 1: on Twitter at Lisa Abramo wits one Before the podcast.
• 30:10
  Speaker 1: You can always catch us worldwide on Bloomberg Radio