Latest / Bloomberg Intelligence / Flattened Yield Curve Signals a Fed Policy Error, Jersey Says

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Flattened Yield Curve Signals a Fed Policy Error, Jersey Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
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  Speaker 1: Along with my co host Lisa A. Bramowitz. Each day
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• 0:31
  Speaker 1: Before we do anything, we consult with Ira Jersey, are
• 0:33
  Speaker 1: interest rate strategist for Bloomberg Intelligence, and he joins us. Now. Ira,
• 0:38
  Speaker 1: in one of the most recent pieces I have read
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  Speaker 1: that there's a variety of different type their variety of
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  Speaker 1: flattening types when it comes to the yield curve, and
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  Speaker 1: I'm wondering, what's that there. I thought, you know, I
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  Speaker 1: thought flat is flat, but apparently not. Yeah. So, so
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  Speaker 1: there's basically two ways that the curve can can change,
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  Speaker 1: and one way is during market selloffs, and the other
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  Speaker 1: way is during market rallies and um and and what
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  Speaker 1: what what? When you look at the history of interest
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  Speaker 1: rates and what the curves none versus the economy, what
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  Speaker 1: you find is that it's really when you get bare flattening,
• 1:15
  Speaker 1: and that's the type of flattening that we've had now
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  Speaker 1: that's preceded economic slowdowns. But when you get UM, when
• 1:21
  Speaker 1: you get both flattening, so flattening for example, like we
• 1:24
  Speaker 1: had inn when the Fed was buying long end bonds
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  Speaker 1: and you wound up getting a very flat yield curve
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  Speaker 1: as well, that tended that type of flattening actually tends
• 1:34
  Speaker 1: to be good for the economy. So it's basically that
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  Speaker 1: you have low interest rates, people are um. People are
• 1:38
  Speaker 1: trying to stimulate the economy by um by taking advantage
• 1:42
  Speaker 1: of those low interest rates. But when the curve flattens
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  Speaker 1: while the front end is selling off, it's it's not
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  Speaker 1: so good. So you know, there is a reason for
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  Speaker 1: kind of a little bit of concern with the the
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  Speaker 1: yield curve being as flat as it is. And quite frankly,
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  Speaker 1: just from a technical perspective, we're sitting right on top
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  Speaker 1: of a very important technical level four UM for the
• 2:01
  Speaker 1: two year versus ten year treasury curve. Okay, So in
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  Speaker 1: other words, for all of the enthusiasm we hear about stocks,
• 2:09
  Speaker 1: all the optimism, the yield curve to you is sending
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  Speaker 1: an ominous message that traders need to pay attention to.
• 2:17
  Speaker 1: That is saying that the U. S economy is slowing
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  Speaker 1: down and is heading towards some kind of downturn. Well,
• 2:23
  Speaker 1: so it takes a long there's long leads here. So
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  Speaker 1: when the yield curve gets to zero gets to flat,
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  Speaker 1: what you've experienced over the last forty years or so
• 2:33
  Speaker 1: was sometime within the next two to four years. So
• 2:35
  Speaker 1: again long long leg there. Within two to four years,
• 2:39
  Speaker 1: you tend to get an economic slowdown. But you know,
• 2:42
  Speaker 1: it's not the curve itself that's causing that. It's you know,
• 2:45
  Speaker 1: the reason why we get this bare flattening is because
• 2:48
  Speaker 1: front and interest rates are being increased by the Federal Reserve.
• 2:51
  Speaker 1: So um, so it's really the policy error. So it's
• 2:54
  Speaker 1: really the actions of the central bank that is causing
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  Speaker 1: the curve to flatten, and that's where, um you wind
• 3:01
  Speaker 1: up getting the slow down in the economy. Get you know,
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  Speaker 1: one of the impacts and effects of that, and kind
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  Speaker 1: of the canary in the coal mine might be the
• 3:07
  Speaker 1: flattening curve. But it's um But like I mentioned, the
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  Speaker 1: curb being flat in and of itself isn't necessarily bad.
• 3:13
  Speaker 1: It's the way that it flattens and why, and that's
• 3:15
  Speaker 1: that's the policy are part of this, all right, so
• 3:18
  Speaker 1: policy error from the Fed, of course, UH, FED Chair
• 3:21
  Speaker 1: jin Yellen is going to step down as soon as
• 3:23
  Speaker 1: the appointed next FED Chair, Jerome Powell, is confirmed and
• 3:28
  Speaker 1: sworn in early next year. I'm wondering, given the fact
• 3:32
  Speaker 1: that Chair Yellen is going to be departing, and given
• 3:34
  Speaker 1: the vacancies already a mug among the FED governors, can
• 3:39
  Speaker 1: we really even have visibility into the path of the
• 3:43
  Speaker 1: Fed's rate hikes next year? I mean, presumably that the
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  Speaker 1: sort of policy error here is that they're hiking too fast. Yeah,
• 3:50
  Speaker 1: that that's exactly right. And I know that the market
• 3:52
  Speaker 1: thinks that they're hiking too fast or that they'll hike
• 3:54
  Speaker 1: too much, one or the other. But either way it
• 3:57
  Speaker 1: would be that would be a policy error, and it
• 3:59
  Speaker 1: you know, it's hard to judge what the future Fed's
• 4:01
  Speaker 1: going to be. We're going to get a whole lot
• 4:02
  Speaker 1: of new governors. We already have a number of new
• 4:05
  Speaker 1: members of the f O m C in in the
• 4:07
  Speaker 1: form of of several presidents who have been appointed recently. UM,
• 4:12
  Speaker 1: and you're gonna get a new a new vice chair
• 4:14
  Speaker 1: of the Federal Open Market Committee when UM, when new
• 4:18
  Speaker 1: York Fed President Dudley retires at the end of next
• 4:21
  Speaker 1: year resigns um sometime next year, so so we really
• 4:25
  Speaker 1: don't know exactly what future monetary policy will bring. So
• 4:28
  Speaker 1: that's one reason why listening to the confirmation hearings of
• 4:31
  Speaker 1: Jerome Powell and uh you know who the who the
• 4:34
  Speaker 1: President picks as the next vice chair, those two seats
• 4:38
  Speaker 1: in particular will probably be very important for um for
• 4:42
  Speaker 1: what the future monetary policy is. What will they be
• 4:44
  Speaker 1: more dubbish, will they be more hawkers, or will they
• 4:46
  Speaker 1: stay the course like it's you know, we can all
• 4:49
  Speaker 1: make speculations, but in reality, I don't think anyone quite
• 4:52
  Speaker 1: knows at this point. I just want to go back
• 4:54
  Speaker 1: to something you talked about having to do with this
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  Speaker 1: flattening of the yield curve and your analysis at last
• 5:00
  Speaker 1: time that this offered itself. We saw a lot of
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  Speaker 1: bond buying by the Federal Reserve, by the Central Bank,
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  Speaker 1: and that's not taking place now. Now, that's right, And
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  Speaker 1: in fact, you know, the Federal Reserve is um already
• 5:13
  Speaker 1: starting to allow its portfolio to run off, and starting
• 5:17
  Speaker 1: in price February or March next year, the Treasury Department
• 5:20
  Speaker 1: is going to have to start issuing more bonds, partially
• 5:23
  Speaker 1: due to um to this extra supply that the Fed's
• 5:26
  Speaker 1: not going to be buying every every month when they
• 5:28
  Speaker 1: have maturities, but also because there's going to be higher
• 5:31
  Speaker 1: deficits starting next year, um just because Medicare and sort
• 5:35
  Speaker 1: of security payments are going to go up, and and
• 5:37
  Speaker 1: the potential for additional deficits based on on the budget
• 5:40
  Speaker 1: that Congress passed recently, which could add another hundred and
• 5:43
  Speaker 1: fifty billion dollars of potential supply into the market. So
• 5:47
  Speaker 1: so there is going to be this, uh, this supply.
• 5:50
  Speaker 1: I don't want to call it fear, but there is
• 5:51
  Speaker 1: going to be certainly a supply push which is going
• 5:53
  Speaker 1: to have to be absorbed, and that could certainly affect prices,
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  Speaker 1: and where and how it affects those prices will be
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  Speaker 1: determined by what bonds the Treasury Department decides the issue.
• 6:03
  Speaker 1: So will this be a good empirical test that if
• 6:06
  Speaker 1: stock prices continue to move higher or are higher. Let's
• 6:11
  Speaker 1: say in that the argument that stock prices moved because
• 6:17
  Speaker 1: of this extra liquidity from central banks, that theory would
• 6:22
  Speaker 1: be tossed out the window if we saw prices accelerate. Well,
• 6:27
  Speaker 1: I think you know, liquidity is is a strange is
• 6:29
  Speaker 1: a strange thing. I think one of the things is
• 6:32
  Speaker 1: that you've you've seen now more recently, the fact that
• 6:35
  Speaker 1: you don't need all the liquidity from the FED reserve
• 6:38
  Speaker 1: for the economy to run. I mean, basically, what the
• 6:40
  Speaker 1: Fed did when they did all the bond buying, did
• 6:42
  Speaker 1: all the quantitative easing, was to try and jump start
• 6:45
  Speaker 1: the economy. It was kind of like you know, putting
• 6:47
  Speaker 1: a doctor putting on the the you know, the A
• 6:51
  Speaker 1: D and and trying to you know, kick start your heart.
• 6:53
  Speaker 1: That's basically what queue is. But now you know, the
• 6:56
  Speaker 1: economy is pumping on its own and it doesn't necessarily
• 6:59
  Speaker 1: need all the accommodation that it's had. Now. The problem
• 7:01
  Speaker 1: is is that if you pull that accommodation out too quickly,
• 7:05
  Speaker 1: you have a detrimental effect. And that's I think the worry,
• 7:08
  Speaker 1: and that's that's that's really going to be Powell's um.
• 7:11
  Speaker 1: The challenge for the power Powell set is not removing
• 7:15
  Speaker 1: accommodation too fast that you really stifled the economy and
• 7:18
  Speaker 1: you wind up hurting things like corporate profits and the
• 7:21
  Speaker 1: like were real quick, which yield curve Do you look
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  Speaker 1: at so so you know the one that has the
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  Speaker 1: best um, the best correlation to the economy is the
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  Speaker 1: two year versus tenure treasury yield curve. UM. No, that
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  Speaker 1: that's the main one. All right, Ira, Jersie, thank you
• 7:37
  Speaker 1: so much for joining us. As always, well, the U
• 7:52
  Speaker 1: S is suing to stop a T and T S
• 7:55
  Speaker 1: takeover of time Warner. There are all sorts of suspicions
• 7:59
  Speaker 1: and rumors that the Department of Justice is doing this,
• 8:03
  Speaker 1: uh due to CNN and President Trump's contentious relationship with that.
• 8:07
  Speaker 1: These have not been proven, and in fact, some are
• 8:10
  Speaker 1: saying that this lawsuit by the d o J resembles
• 8:14
  Speaker 1: classic antitrust cases that are pretty much routine. Here to
• 8:20
  Speaker 1: talk about it and put it into perspective is Jennifer Ree,
• 8:22
  Speaker 1: senior litigation analyst for Bloomberg Intelligence. She joins us in
• 8:26
  Speaker 1: our eleven three oh studios. Jennifer, is this a routine
• 8:30
  Speaker 1: antitrust case? You know? No, I would not call it
• 8:33
  Speaker 1: a routine antitrust case. I would call it a routine
• 8:37
  Speaker 1: theory of harm. And I think the big difference there
• 8:40
  Speaker 1: is that theories of harm from a vertical deal are
• 8:44
  Speaker 1: talked about in discussed. Um. Sometimes they come up and
• 8:47
  Speaker 1: they get resolved in mergers with behavioral remedies. But the
• 8:50
  Speaker 1: reason I say it's not necessarily a routine case is
• 8:53
  Speaker 1: because we haven't seen actual litigation to try to block
• 8:57
  Speaker 1: this kind of deal in a very very long time time.
• 9:00
  Speaker 1: And it's really kind of a departure from you know,
• 9:03
  Speaker 1: D O J precedent in history, and so it is.
• 9:06
  Speaker 1: It is surprising, and I think that's why these political
• 9:09
  Speaker 1: ideas are kind of haunting this. Okay, so the political
• 9:13
  Speaker 1: ideas are haunting this, uh potential combination. I have to
• 9:20
  Speaker 1: assume that somebody in the Council's office at a T
• 9:24
  Speaker 1: and T sat down with Mr Stevenson, the CEO, even
• 9:28
  Speaker 1: before they decided to make this attempt public, to go
• 9:33
  Speaker 1: over some of these issues. Do you think that this
• 9:35
  Speaker 1: was something that was discussed and then said, oh no,
• 9:38
  Speaker 1: we'll get over it or what do you how does
• 9:41
  Speaker 1: how does that work? And you're talking about in advising
• 9:44
  Speaker 1: the companies as whether they face risk, you know, I mean,
• 9:46
  Speaker 1: that's what's really tough here. My guess is that the
• 9:48
  Speaker 1: outside lawyers said, look, there there always can be some
• 9:51
  Speaker 1: harms that come from vertical deals. But look for fifty years,
• 9:54
  Speaker 1: they've been treated in one way. So you will likely
• 9:56
  Speaker 1: be able to close this deal, but you'll likely have
• 9:58
  Speaker 1: to agree to a consent order, a settlement where you
• 10:02
  Speaker 1: moderate your conduct, where you agree that after you emerged
• 10:05
  Speaker 1: you will behave in a certain way. You're probably going
• 10:07
  Speaker 1: to have to make those agreements. But with that, we
• 10:09
  Speaker 1: think you'll be able to close. That's likely the legal
• 10:13
  Speaker 1: opinion that they got. Yeah, so then they went with
• 10:16
  Speaker 1: that and the Department of Justice kind of turned things
• 10:20
  Speaker 1: on their head. I want to talk about the precedent
• 10:23
  Speaker 1: this sets. You know, if this is a departure from
• 10:26
  Speaker 1: the norm, what does this mean about a deal, uh, say,
• 10:30
  Speaker 1: like the Tribune at Sinclair Broadcasting merger. I mean that
• 10:34
  Speaker 1: combination would give the company access to seventy two percent
• 10:38
  Speaker 1: of the American television audience. Are you expecting this deal
• 10:41
  Speaker 1: to get the same kind of scrutiny from the Department
• 10:44
  Speaker 1: of Justice? You know, I think that's a great question
• 10:46
  Speaker 1: because it will be so interesting to see how that's treated.
• 10:49
  Speaker 1: It gives some clue as to whether politics have weighed
• 10:52
  Speaker 1: in on the A T and T Time Warner deal
• 10:54
  Speaker 1: because Sinclair theoretically we we assume as a friend to
• 10:57
  Speaker 1: this administration or the administrations of friend to Sinclair. And
• 11:01
  Speaker 1: if you look at the way past similar deals have
• 11:04
  Speaker 1: been treated, I would expect that they'd have to divest
• 11:07
  Speaker 1: sell off at least ten stations, ten stations in ten
• 11:10
  Speaker 1: different markets, but possibly even a few more, but at
• 11:12
  Speaker 1: least divest in ten markets. If we this would follow
• 11:17
  Speaker 1: the precedent that's been set in similar deals to the
• 11:19
  Speaker 1: Sinclair Tribune deal. If we don't see that, then it
• 11:23
  Speaker 1: makes this all look more political. I'm struggling here also,
• 11:28
  Speaker 1: because typically Republican administrations have been more allowing of big deals.
• 11:36
  Speaker 1: That's sort of the assumption that mergers have an easier
• 11:41
  Speaker 1: time getting through under Republican administrations. Is that an inaccurate impression?
• 11:47
  Speaker 1: And if it's not, how does this square with that?
• 11:50
  Speaker 1: You know, that's a very accurate impression. And I think
• 11:53
  Speaker 1: there are a lot out there that had that impression,
• 11:54
  Speaker 1: because if you remember, just about a month ago or so,
• 11:57
  Speaker 1: Senator Elizabeth Warren was asking for this new head of
• 12:01
  Speaker 1: antitrust at the d o J to recuse himself from
• 12:03
  Speaker 1: this deal, and she is against this deal. She has,
• 12:06
  Speaker 1: you know, vocalized her her opinion about it, So obviously
• 12:10
  Speaker 1: what she was thinking is that he would also just
• 12:12
  Speaker 1: sign on the dotted line to get let this go
• 12:13
  Speaker 1: forward as well. I think most of the antitrust community
• 12:17
  Speaker 1: is very surprised by this for that reason, and and
• 12:20
  Speaker 1: and that is why you hear people talking about politics
• 12:23
  Speaker 1: and politics weighing in, because this just seems so out
• 12:26
  Speaker 1: of the ordinary, well out of the ordinary or not.
• 12:29
  Speaker 1: CNN and Time Warner, they are all content providers, right,
• 12:33
  Speaker 1: they don't actually own any of the distribution assets. That
• 12:37
  Speaker 1: is where a T and T comes in. That's right.
• 12:40
  Speaker 1: So what is the anti true? What is the argument,
• 12:43
  Speaker 1: if you can make it, what's the antitrust argument that says, no,
• 12:47
  Speaker 1: you're a distribution company, We don't want you owning the
• 12:50
  Speaker 1: content that would then be distributed on your pathways as
• 12:55
  Speaker 1: well as those of your competitors. The argument that's been
• 12:58
  Speaker 1: made here is an economic argument, and it is that
• 13:01
  Speaker 1: by they get added leverage by owning the content, it
• 13:04
  Speaker 1: will give them the freedom to raise the price survival
• 13:07
  Speaker 1: distributors because either they make more money by raising the price,
• 13:11
  Speaker 1: or if these distributors refuse to pay that and they
• 13:14
  Speaker 1: have a blackout of their of their television stations. Then
• 13:16
  Speaker 1: some of those subscribers will be lost to that distributor
• 13:19
  Speaker 1: and we'll come over to a T and T. So
• 13:20
  Speaker 1: in the long run they'll benefit from it. Does that
• 13:24
  Speaker 1: mean that the next step would be to go after
• 13:26
  Speaker 1: a company like Comcast to divest the or split the
• 13:30
  Speaker 1: content producing division from the distribution division. Now, I don't
• 13:35
  Speaker 1: think that that that the anti drest agencies would do
• 13:37
  Speaker 1: that at this point unless there is some evidence or
• 13:40
  Speaker 1: some reason that they want to investigate the company for
• 13:43
  Speaker 1: potential anti competitive conduct at this point. All right, thanks
• 13:46
  Speaker 1: very much for being with us sharing the updates. This
• 13:50
  Speaker 1: is a story that's going to keep on giving. Indeed,
• 13:52
  Speaker 1: thank you very much. Jennifer resurstigation analyst for Bloomberg Intelligence,
• 13:57
  Speaker 1: speaking about a T and T S attempt to acquire
• 14:00
  Speaker 1: Time Warner and push back from the US Justice Department.
• 14:17
  Speaker 1: Uh Denver is going to get a hyperloop or rather
• 14:21
  Speaker 1: hyperloop inspired system, and the person who is going to
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• 14:50
  Speaker 1: on in Denver? Absolutely? Thank you in the good morning. Um, yeah,
• 14:55
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• 16:10
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• 16:13
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• 17:37
  Speaker 1: and then drive your own car in the last mile.
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  Speaker 1: dedicated places where you you load and get on it
• 17:54
  Speaker 1: and then yeah, you you end up moving fully autonomously
• 17:57
  Speaker 1: and two winter miles an hour. Um, you know to
• 18:00
  Speaker 1: the portals closest to your final destination. Is it? Is
• 18:02
  Speaker 1: it magnetic? Is it is it wind? Are you just
• 18:05
  Speaker 1: being sucked as quickly as possible to the other side?
• 18:07
  Speaker 1: I mean, what what is this? No? No, no, there's uh,
• 18:11
  Speaker 1: there's no giant sucking sound. Um, it is magnetic levitation
• 18:15
  Speaker 1: and propulsion. So linear electric motors are used in roller
• 18:18
  Speaker 1: coasters today they're using aircraft launch systems. So we're just
• 18:21
  Speaker 1: optimizing it for our application on the roadway. UM, we
• 18:25
  Speaker 1: do levitated high speeds that both enables the high speed itself.
• 18:29
  Speaker 1: What also means it's a super smooth ride because we
• 18:31
  Speaker 1: can actively control that, so it would literally be as
• 18:33
  Speaker 1: smooth as sitting in the chair. Um. So you know,
• 18:37
  Speaker 1: we're just taking some of these twenty century technologies and
• 18:39
  Speaker 1: really focusing. You know, as populations urbanized, more people are
• 18:43
  Speaker 1: moving to cities. Traffic is a major problem. So what
• 18:46
  Speaker 1: we want to do is do more with less. So
• 18:48
  Speaker 1: our focus is on getting more vehicles on a given
• 18:51
  Speaker 1: lane of infrastructure. That's the key. Just to put a
• 18:53
  Speaker 1: quick number to that, given freeway, depending on which standard
• 18:57
  Speaker 1: you use, can move about two thousand to thirty hundred
• 19:00
  Speaker 1: vehicles per lane per hour. The Rebo system to move
• 19:03
  Speaker 1: twenty thousand vehicles per lane per hours. This idea that
• 19:06
  Speaker 1: you can enable regional mobility with less infrastructure. I hate
• 19:11
  Speaker 1: to keep harping on the on the money, but I'm
• 19:13
  Speaker 1: but I'm wondering how much money have you have you
• 19:15
  Speaker 1: raised so far to do this or how much money
• 19:18
  Speaker 1: has the Colorado Department of Transportation put into this partnership.
• 19:23
  Speaker 1: So yeah, So the the study that we've announced, we
• 19:26
  Speaker 1: formed a public private partnership. Uh see dot put in
• 19:30
  Speaker 1: about Colorade Department Transportation put in about two hundred thousand
• 19:33
  Speaker 1: dollars for the first phase of this study. Uh And
• 19:35
  Speaker 1: and if we're successful, then then we like to to
• 19:38
  Speaker 1: to go a little further with that. M Our Companies
• 19:40
  Speaker 1: privately funded. We're gonna be dealing our series A uh
• 19:43
  Speaker 1: coming up, and I'd be happy to come back on
• 19:45
  Speaker 1: the show and announce that. But we do have a
• 19:47
  Speaker 1: team of of over forty people, mostly engineers, really world
• 19:51
  Speaker 1: class talent from from all the most you know, technically
• 19:54
  Speaker 1: impressive companies and universities around the world. Amazing team. Where
• 19:58
  Speaker 1: is this being tested? Is there a place where someone
• 20:01
  Speaker 1: could go and actually see something that was built? Because
• 20:05
  Speaker 1: I know that the hyper loop that Elon Musk has
• 20:07
  Speaker 1: put together, I believe that there's a test center in Nevada.
• 20:11
  Speaker 1: What you want to built a test hyper loop in Hawthorne, California,
• 20:15
  Speaker 1: and there's a private company that built a test system
• 20:17
  Speaker 1: in Nevada. We are going to be doing that, so
• 20:20
  Speaker 1: you know in Los Angeles where our engineering headquarters is,
• 20:23
  Speaker 1: we're doing competent level work. Mind you were only you know,
• 20:25
  Speaker 1: nine months old as a company, and we did announced
• 20:29
  Speaker 1: also a test site in Denver, So we will be
• 20:31
  Speaker 1: doing system level testing and we're gonna have shovels in
• 20:34
  Speaker 1: the ground for our own test site in Q one
• 20:36
  Speaker 1: of next year. You have been you're only around for
• 20:39
  Speaker 1: nine months and you've got a fourteen month old. You
• 20:42
  Speaker 1: must have had a crazy year. It's crazy good but yes,
• 20:46
  Speaker 1: crazy um real quick? In your company? Are the actual
• 20:51
  Speaker 1: builders part of the company or are you going to
• 20:55
  Speaker 1: contract out that work? And is there enough uh, those
• 21:00
  Speaker 1: types of workers to actually construct something like this? Oh? Um?
• 21:05
  Speaker 1: So you know our company is really a technology company.
• 21:08
  Speaker 1: As we move into projects, we're all about the partner ecosystem.
• 21:12
  Speaker 1: We've partnered with a Coom, the world's number one design
• 21:14
  Speaker 1: construction firm, on this never project. We have other partners
• 21:17
  Speaker 1: in different places around the world. Um, so we'll be
• 21:20
  Speaker 1: building out a workforce in Denver that's going to be
• 21:23
  Speaker 1: a Revo employees, but it will also be a workforce
• 21:25
  Speaker 1: in Denver that will be supporting the project. So the
• 21:27
  Speaker 1: project will be separate from our balance sheet. All right, Well,
• 21:31
  Speaker 1: we look forward to learning more about it and perhaps
• 21:35
  Speaker 1: even getting a ride on it when it is built.
• 21:37
  Speaker 1: Thank you very much for being with us. A. Brogan
• 21:39
  Speaker 1: Van Brogan is the founder and the chief executive of
• 21:42
  Speaker 1: the Los Angeles based a Revo hyper Loops. How about
• 21:46
  Speaker 1: that when we talked about Uber Technologies agree meant to
• 22:00
  Speaker 1: buy twenty four thousand Volvo cars, including some that are autonomous,
• 22:06
  Speaker 1: The focus was on the fact that drivers are becoming obsolete.
• 22:10
  Speaker 1: But Sherry O. Day, who is a Bloomberg Gadfly columnist
• 22:13
  Speaker 1: here covering tech, points out another very important aspect of
• 22:18
  Speaker 1: this deal, which is Uber is going to own cars
• 22:21
  Speaker 1: and this is a change for them Shara joins us. Now, Shia,
• 22:26
  Speaker 1: can you just talk a little bit about what your
• 22:28
  Speaker 1: biggest takeaway was from this announcement. Yeah, I was actually
• 22:31
  Speaker 1: very surprised with the Uber Volvo announcement yesterday for the
• 22:35
  Speaker 1: reason you said right that this is a company. Part
• 22:38
  Speaker 1: of the beauty of the business model at Uber is
• 22:41
  Speaker 1: it doesn't own anything. It doesn't employ people, or doesn't
• 22:44
  Speaker 1: employ drivers. At least, the beauty of the business model
• 22:47
  Speaker 1: was it connected people who wanted rides with drivers who
• 22:51
  Speaker 1: are willing to take them places, and it took a
• 22:53
  Speaker 1: cut of the fairs, and it didn't have to deal
• 22:55
  Speaker 1: with owning cars or other messy and expensive assets. But
• 23:00
  Speaker 1: as you said, Uber is now saying it's going to
• 23:03
  Speaker 1: buy cars from Volvo and retrofit them to so they're driverless,
• 23:09
  Speaker 1: and in doing so, it is owning assets for the
• 23:13
  Speaker 1: first time, expensive depreciating assets, and I wonder what that
• 23:17
  Speaker 1: does to its business model. Does it also mean that
• 23:19
  Speaker 1: Uber is going to have to learn how to service
• 23:21
  Speaker 1: the vehicles. Well, they weren't very specific about the servicing
• 23:25
  Speaker 1: aspect of it, but you're right, no matter whether cars
• 23:28
  Speaker 1: have drivers or not, they still need to be serviced
• 23:32
  Speaker 1: and maintained like any car, you need to change the oil,
• 23:35
  Speaker 1: you need to recharge it with electricity. With all this
• 23:41
  Speaker 1: autonomous driving that is being touted, how is it going
• 23:45
  Speaker 1: to be fueled? Uh? Nobody has really addressed publicly all
• 23:50
  Speaker 1: of these questions about driverless cars. We have seen companies
• 23:54
  Speaker 1: including Lift and and Waymo, which is the driverless car
• 23:58
  Speaker 1: business within Google's parent company. Those companies have adopted a
• 24:03
  Speaker 1: different model that they don't seem to be willing necessarily
• 24:06
  Speaker 1: to own cars, but are rather contracting with fleet ownership
• 24:11
  Speaker 1: companies including the car rental companies were familiar with to
• 24:15
  Speaker 1: kind of own and service cars in a future driverless
• 24:18
  Speaker 1: car world. And Uber is obviously taking a different approach,
• 24:22
  Speaker 1: although it's still early, and I suspect they're going to
• 24:24
  Speaker 1: do a mix of owning cars and kind of um
• 24:29
  Speaker 1: leaning on service company to own and service cars, you know,
• 24:32
  Speaker 1: talking about Lift in Waibo. I mean another way that
• 24:35
  Speaker 1: you can look at this is that this change in
• 24:39
  Speaker 1: Uber's business model is brilliant because now a they're especially
• 24:44
  Speaker 1: given the sort of controversy over Uber in Europe, now
• 24:48
  Speaker 1: they're actually going to be a buyer of European goods, right,
• 24:51
  Speaker 1: So that gives them more political cloud. But then also
• 24:55
  Speaker 1: it distinguishes them from way more or lift and all
• 24:57
  Speaker 1: of a sudden they actually do have assets which could
• 25:00
  Speaker 1: be considered, you know, potentially a benefit. Now, I mean,
• 25:04
  Speaker 1: I think you're right on both points that um Uber
• 25:07
  Speaker 1: basically said yesterday that they want to have a little
• 25:11
  Speaker 1: bit more control over their future, over this kind of
• 25:15
  Speaker 1: driverless car future, and they believe that actually owning physical
• 25:18
  Speaker 1: the physical cars themselves gives them that control. So that
• 25:22
  Speaker 1: will be an interesting thing to see. The other point
• 25:25
  Speaker 1: about you know, the business model changes is yeah, yeah,
• 25:28
  Speaker 1: it could be that um in the future Uber's business
• 25:33
  Speaker 1: model looks you know, perky and bright when you kind
• 25:37
  Speaker 1: of take the drivers out of the equation, which is
• 25:39
  Speaker 1: one of obviously the biggest costs and complications and Uber's business.
• 25:43
  Speaker 1: But I think the key to meet for me is
• 25:45
  Speaker 1: that we don't really know what a future Uber is
• 25:49
  Speaker 1: going to look like. If we assume the driverless cars
• 25:52
  Speaker 1: are going to be ubiquitous, how is the company going
• 25:55
  Speaker 1: to make money? What do these sort of financial dynamics
• 25:58
  Speaker 1: look like? And is valued at something like seventy billion
• 26:02
  Speaker 1: dollars and you know that assumes that the company has
• 26:05
  Speaker 1: a lot of its kind of business model questions figured out,
• 26:08
  Speaker 1: and part of my point is it doesn't have those
• 26:10
  Speaker 1: questions figured out. Sure, in all of your conversations with
• 26:14
  Speaker 1: experts in the technology world, is there anybody that points
• 26:18
  Speaker 1: to Uber as being the potential straw that breaks the
• 26:22
  Speaker 1: markets back that if something were to happen with this valuation,
• 26:26
  Speaker 1: or there were to be some question about its ongoing viability,
• 26:30
  Speaker 1: would that cause a route in technology? It's an interesting question.
• 26:34
  Speaker 1: I don't know that I've heard anybody. I mean, certainly
• 26:37
  Speaker 1: there are questions about what Uber is really worth um
• 26:41
  Speaker 1: right now, especially because you know, soft Bank, the Japanese conglomerate,
• 26:46
  Speaker 1: is negotiating to buy stock from Uber shareholders at a
• 26:49
  Speaker 1: significant discount to where the company is currently valued on paper. UM.
• 26:53
  Speaker 1: But I don't know that there would be kind of
• 26:55
  Speaker 1: contagion effect if Uber's valuation were to create if the
• 27:00
  Speaker 1: company had significant business problems um and certainly not in
• 27:04
  Speaker 1: public markets, I would think, although it might have a
• 27:07
  Speaker 1: cast of Paul on other private tech companies. Well done.
• 27:12
  Speaker 1: All right, Well we're gonna leave it there, thank you
• 27:14
  Speaker 1: very much. Shira Oviday are technology columnist and Bloomberg gadfly
• 27:19
  Speaker 1: when it comes to all things technological. And you can
• 27:22
  Speaker 1: follow Shira on Twitter at Shira ov Day And of
• 27:26
  Speaker 1: course we look forward to more of your reports on Blouberg.
• 27:31
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 27:34
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 27:38
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 27:41
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 27:46
  Speaker 1: It's one before the podcast. You can always catch us
• 27:48
  Speaker 1: worldwide on Bloomberg Radio