Latest / Bloomberg Intelligence / Most of Tesla's Value Lies in Its Expectations, Denning Says

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Most of Tesla's Value Lies in Its Expectations, Denning Says · Bloomberg Intelligence

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Speaker 1: order your first custom shirt today. Welcome to the Bloomberg
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Speaker 1: most important, noteworthy, and useful interviews for you and your money,
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Speaker 1: whether you at the grocery store or the trading floor.
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Speaker 1: Find the Bloomberg P and L Podcast on iTunes, SoundCloud
0:35
Speaker 1: and at Bloomberg dot com. Tesla reported earnings yesterday after
0:45
Speaker 1: the bell and what they delivered up was very pleasing
0:49
Speaker 1: to traders, at least initially in after hours, but they've
0:52
Speaker 1: kind of backed away from some of those bets now.
0:55
Speaker 1: I want to bring in somebody who knows much more
0:56
Speaker 1: about this than I do, Liam Denning. He is a
0:58
Speaker 1: Bloomberg gad Fly columnist, and you wrote a column that
1:01
Speaker 1: highlighted one number in particular, nine hundred and seventy million dollars.
1:06
Speaker 1: That's the amount of cash the Tesla burned through in
1:09
Speaker 1: the last three months of two thousand sixteen. So what
1:12
Speaker 1: was your biggest takeware? Was this your biggest takeaway from
1:15
Speaker 1: from the Tesla earnings? I mean, yeah, that's really the
1:17
Speaker 1: only number that that counts with Tesla any any time.
1:20
Speaker 1: I mean the earnings themselves. They were distorted this quarter
1:25
Speaker 1: by the acquisition of Solar City UM. And in any case,
1:29
Speaker 1: whether Tesla beats earnings MSS earnings, there is zero correlation
1:33
Speaker 1: between that and what happens to the stock price the
1:36
Speaker 1: next day. I've gone back and checked it. There's none.
1:39
Speaker 1: Why because the key issue here is UM is Tesla's
1:45
Speaker 1: cash flow and its ability to realize this ever expanding
1:49
Speaker 1: vision that Elon Musk lays out. If you look at
1:53
Speaker 1: any valuation model for Tesla, most of the value resides
1:57
Speaker 1: in what people expect it to be doing. You know,
1:59
Speaker 1: five of our ten years from now, you know, whether
2:01
Speaker 1: it's producing millions of vehicles or you know, installing solar
2:08
Speaker 1: roofs or building its fifth giga factory. The the constant
2:13
Speaker 1: need for cash necessitates a strong message of growth and transformation.
2:20
Speaker 1: And that's kind of what I meant when I said,
2:22
Speaker 1: you know, investors take Elon Musk seriously. They don't take
2:26
Speaker 1: him literally, that's a good that's a good distinction to make. Liam.
2:30
Speaker 1: I was looking at the f A page because I
2:33
Speaker 1: love it of Tesla, and I note the free cash
2:37
Speaker 1: flow has a wonderful minus sign next to it. As
2:40
Speaker 1: you just mentioned, at least for the year one point
2:42
Speaker 1: four billion. As a matter of fact, how much is
2:48
Speaker 1: there any estimate how much they're going to need? Um? Well,
2:52
Speaker 1: it's you know, it's looking like they're gonna need a
2:55
Speaker 1: lot well not a lot of god, but I mean
2:58
Speaker 1: are we talking? I mean because obviously you know, Well,
3:01
Speaker 1: the reason that the reason it's interesting also is because
3:03
Speaker 1: Elon Musk of course owns what about of the company,
3:09
Speaker 1: So what is what is the most what he wants
3:12
Speaker 1: is probably most likely to happen. Well, the way to
3:15
Speaker 1: think about it is this, so, um, you know, revenue
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Speaker 1: cash flow, Yeah, but cash flow from operations in the
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Speaker 1: last quarter was about minus you know, four hundred someone
3:26
Speaker 1: between four hundred and five hundred million UM. Their guidance
3:30
Speaker 1: for CAPEX just for the first half of this year
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Speaker 1: is somewhere between two and two and a half billion,
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Speaker 1: So that means net net they're probably going to burn
3:40
Speaker 1: through I would say somewhere between two and a half
3:44
Speaker 1: and three and a half billion in the first half
3:46
Speaker 1: of the year. And that kind of makes sense because
3:49
Speaker 1: they're about to launch the Model three, which is there
3:53
Speaker 1: they're kind of mass market ev that's where they try
3:56
Speaker 1: and get from producing you know, eight thousand cars a
3:59
Speaker 1: year up to more like five or six thousand. Well,
4:02
Speaker 1: let me just offer this note. This comes from our
4:04
Speaker 1: colleague Corey Johnson, who you know, coming up on a
4:07
Speaker 1: Bloomberg Markets PM, he said. A year ago. Chief executive
4:10
Speaker 1: Elon Musk stated on their Q four earnings call that
4:15
Speaker 1: quotes something I'm personally quite excited about is that we
4:17
Speaker 1: expect to be positive cash flows starting next month and
4:22
Speaker 1: then continuing into Q two and beyond. Well, analysts don't agree.
4:27
Speaker 1: I'm looking at the expectation for fiscal year two thousand,
4:30
Speaker 1: seventeen h that was a year ago, all right, Well,
4:34
Speaker 1: that didn't didn't come looking at a sort of an
4:38
Speaker 1: expectation among analysts of negative basically a hundred and seventy
4:42
Speaker 1: billion dollars, right, Um, But I would go back to
4:44
Speaker 1: the original message, which is that none of it matters,
4:47
Speaker 1: which is right, you know, he can say whatever. He
4:50
Speaker 1: was missed. Sales forecast its original sales guidance for the
4:53
Speaker 1: last three years running, and it's got a market cap
4:58
Speaker 1: which is almost the same as as awards. That will
5:01
Speaker 1: give them the wherewithal to go out and sell more equity,
5:05
Speaker 1: to raise more money. And as long as they keep
5:09
Speaker 1: pushing out a message of growth and transformation, and as
5:13
Speaker 1: long as enough investors believe in it, then they can
5:16
Speaker 1: keep raising money to keep pushing towards it. Okay, So
5:19
Speaker 1: what could happen to disrupt this virtuous chain of events? Okay,
5:24
Speaker 1: so it's hard to say specifically, but I think what
5:27
Speaker 1: would have to happen is some sort of real disruption
5:33
Speaker 1: to something like the Model three. Now it's looking like
5:37
Speaker 1: the guidance for the Model three's production, I mean that
5:41
Speaker 1: looks pretty shaky to me. The numbers that they were
5:43
Speaker 1: putting out last night. We haven't even seen a fully
5:47
Speaker 1: functioning pre production model yet. Doesn't look like we're gonna
5:51
Speaker 1: see one before production is supposed to start in July.
5:54
Speaker 1: So if some if there was some real setback to that,
5:57
Speaker 1: then I think that might shake people's confidence. I think
6:00
Speaker 1: the other thing is as time rolls on, we're seeing
6:02
Speaker 1: more competitors like GM for BMW launched their own electric vehicles.
6:09
Speaker 1: I mean, GM has pretty much beaten Tesla to the
6:12
Speaker 1: punch with the Bolt, which is going to be the
6:14
Speaker 1: main competitor to the Model three. And I think over time,
6:18
Speaker 1: although right now Tesla is seen as the force for
6:21
Speaker 1: change in the auto's market, at some point there is
6:24
Speaker 1: going to be the reality of having lots of other
6:26
Speaker 1: competitors who are also able to offset their risk with
6:30
Speaker 1: other cars producing their own electric vehicles. Thank you very much,
6:33
Speaker 1: Liam Denning, Bloomberg Gadfly columns. Shares of Tesla data about
6:37
Speaker 1: five and a half percent. I want to turn to
6:51
Speaker 1: Krishna Mamani, chief investment officer at Oppenheimer Funds UH, to
6:55
Speaker 1: talk a little bit about what are you seeing in
6:57
Speaker 1: the bar market specifically. I want to start Krishna with
7:00
Speaker 1: comments that we heard today from US Treasury Secretary Steve
7:03
Speaker 1: Minution basically expressing great interest frankly and issuing longer dated
7:09
Speaker 1: US treasuries. This would be the fifty year or possibly
7:12
Speaker 1: even a hundred year UH treasuries. What's what's your feeling
7:16
Speaker 1: on this? Do you think this is realistic? I think
7:19
Speaker 1: from a demand perspective, so in any policy change, you
7:23
Speaker 1: have to kind of focus on whether there will be
7:25
Speaker 1: some buyer for the security. But you're a buyer, right,
7:28
Speaker 1: I'm a buyer, and I think there are lots of
7:30
Speaker 1: people who are buyers of really long bonds special fuer quality.
7:35
Speaker 1: So you would buy a fifty year US treasure absolutely,
7:39
Speaker 1: because if you if you have really long term liabilities
7:42
Speaker 1: that you're looking to extinguish and extinguished with really high
7:46
Speaker 1: quality assets, there really isn't a better instrument available. So
7:49
Speaker 1: do you have a sense of what premium you would
7:53
Speaker 1: need for a fifty year treasury over a thirty year
7:56
Speaker 1: treasury or a ten year treasury in order to make
7:58
Speaker 1: it worthwhile? So I guess would be that that premium
8:02
Speaker 1: is probably smaller than most of us anticipate. And the
8:06
Speaker 1: reason for that is because the the convexity characteristics which
8:11
Speaker 1: is a technical term to say the the the price
8:16
Speaker 1: appreciation and appreciation qualities of really long bonds is very
8:21
Speaker 1: good and from a from a liability extinguishment standpoint, the
8:26
Speaker 1: demand is quite solid. So I think that premium would
8:29
Speaker 1: be much less than what we think uh it would be,
8:32
Speaker 1: and much less than what the differences between ten years
8:35
Speaker 1: and thirty years today. As much as I would like
8:38
Speaker 1: to say that I'm going to be around in fifty years,
8:41
Speaker 1: I got to say that there are chances that I
8:43
Speaker 1: might not. So why would you buy something that is
8:46
Speaker 1: going to be subject to the vagaries of inflation, global instability? Uh,
8:54
Speaker 1: in order to satisfy a current And I don't mean
8:57
Speaker 1: you personally, but I mean to satisfy a current and
9:00
Speaker 1: hole in the portfolio because number one, you can't think
9:03
Speaker 1: of anything better to buy. Second, you need to keep
9:06
Speaker 1: your job, and no one's gonna fire you for buying
9:09
Speaker 1: us treasuries. You're gonna say, here, I bought them. It
9:12
Speaker 1: matches our liability. But you know, I'm not gonna be
9:15
Speaker 1: around when this thing blows up. So that's that's funny
9:18
Speaker 1: that you say that. But you you you have to recognize,
9:22
Speaker 1: uh that while you and I may not be around
9:24
Speaker 1: in fifty years, there are pension plans. No, no, no,
9:28
Speaker 1: I got I. I understand all that. But I mean,
9:30
Speaker 1: if you're to tell me that you were to buy
9:32
Speaker 1: a thirty year let's say it's thirty years right now
9:35
Speaker 1: at three percent, you mean to tell me that in
9:38
Speaker 1: thirty years you're not going to take a hit in
9:40
Speaker 1: terms of what it is. Maybe your new customer base
9:44
Speaker 1: wants in terms of a return, because if you're an
9:46
Speaker 1: insurance company, you're matching future liabilities future new customers. Sure, so,
9:52
Speaker 1: but I today I have some liabilities that I need
9:56
Speaker 1: to fund and demonstrate to the accountants that my liability
10:01
Speaker 1: is fully funded. So you're limited in what you can exactly. Okay, alright, Well,
10:06
Speaker 1: moving moving on to something else that Minution said. He
10:08
Speaker 1: said that he thinks it's completely feasible that the U
10:11
Speaker 1: S should see three percent or even higher growth. That's
10:14
Speaker 1: up from two rate or less. Frankly, now, first of all,
10:18
Speaker 1: do you agree with this assessment? And second of all,
10:20
Speaker 1: if this is true, what bond is going to get
10:23
Speaker 1: hit hardest? So I I think that's that's really more
10:28
Speaker 1: hope than reality in my view. Alright, And so you
10:31
Speaker 1: don't think that's true in the current environment, The likelihood
10:35
Speaker 1: that we get to higher than three percent growth rate
10:39
Speaker 1: anytime soon, I'm not holding my breath, you know. It's
10:42
Speaker 1: it's not it's not to say that it couldn't happen,
10:45
Speaker 1: but for it to happen, a whole lot of policy
10:49
Speaker 1: initiatives have to come into play. And policy initiatives like
10:53
Speaker 1: significantly higher level of fiscal deficit, which I don't think
10:57
Speaker 1: the Republican administration, at least the Republican Congress is really
11:01
Speaker 1: very much in the mood mood to do without that.
11:03
Speaker 1: The likelihood that we get three percent, in my mind,
11:06
Speaker 1: is virtually zero. And yet you do still think that
11:09
Speaker 1: benchmark borrowing costs in the US will rise enough to
11:12
Speaker 1: legitimize or justify uh favoring leverage loans or other floating
11:18
Speaker 1: rate debt correct well, so the floating rate debt market
11:22
Speaker 1: is really not just about your view on where rates
11:26
Speaker 1: are going. That certainly helps, but I think what you
11:29
Speaker 1: have to factor in is the fact that floating rate
11:33
Speaker 1: yields are comparable to high yield yields, and therefore the
11:39
Speaker 1: the end they are senior. So the downside in loans
11:43
Speaker 1: is significantly less than what it is in high yield bonds,
11:48
Speaker 1: and as a result, I think in the current market environment,
11:51
Speaker 1: loans is the best asset class in all of all
11:54
Speaker 1: of credit. Having said that, you know the interest rate
11:58
Speaker 1: component of loans is a side benefit rather than the
12:01
Speaker 1: primary driver of the value and loans, thank you very much,
12:05
Speaker 1: very interesting. Christian Memony is the chief investment officer at
12:08
Speaker 1: Oppenheimer funds uh. He is based here in New York
12:12
Speaker 1: and joining us in our eleven three OHD studios. Thank
12:15
Speaker 1: you very much for being here. P and L is
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13:06
Speaker 1: When you think of appliances, Lisa Bramwitz, do you think
13:10
Speaker 1: of J. C. Penny? Yes, I do you do? I
13:12
Speaker 1: do well. I'm glad you do because this was a
13:16
Speaker 1: category that they well, they exited at one point and
13:19
Speaker 1: now um they are back in the world of appliances,
13:23
Speaker 1: so you must have a very good memory. Here to
13:25
Speaker 1: tell us more. Craig Johnson, President Customer Growth Partners. They're
13:28
Speaker 1: based in New Canaan, Connecticut. Craig, always a pleasure. Thanks
13:31
Speaker 1: for coming into the studio, tell us about j C.
13:34
Speaker 1: Penny and whether there is any way they can offset
13:38
Speaker 1: that weak store traffic and also the negative soft apparel
13:43
Speaker 1: trends that a lot of retailers are facing. Well, him
13:46
Speaker 1: and Lisa, great to be with you all today. Um, yeah,
13:49
Speaker 1: j C. Penney has been doing a lot better under
13:52
Speaker 1: the still fairly new CEO, Robert Allison. Uh, he came
13:56
Speaker 1: out of out of home Depology, you might recall, and
13:59
Speaker 1: so he knows a lot about major appliances now. Um,
14:02
Speaker 1: they extualed the major pints is like thirty plus years ago,
14:06
Speaker 1: but they've always been in small pints is kitchen, the
14:08
Speaker 1: pints as and so forth. Um, and so they're looking
14:12
Speaker 1: that is one of the things they're looking at to
14:14
Speaker 1: increase the productivity of the store floor. The floor is
14:16
Speaker 1: still jc pnny stores are still way under productive where
14:20
Speaker 1: they used to be some years back. And they're working
14:23
Speaker 1: on the Internet. That helps. They're doing much better on
14:26
Speaker 1: that than they used to be. I used to do.
14:28
Speaker 1: And um, major plinants is is not gonna be a
14:30
Speaker 1: panacea because for major appliances, I would argue a little
14:34
Speaker 1: bit there at least it's not it's not top of
14:37
Speaker 1: mind for most customers. Most major plants sales are what
14:41
Speaker 1: are known as duress sales when the old unit conks out.
14:43
Speaker 1: When the old unit conks out, you're probably gonna go
14:45
Speaker 1: to Loads, which is number one in market share. Maybe
14:48
Speaker 1: Sears Home Depot or best Buy. J. J. Penney just
14:51
Speaker 1: doesn't pop up, then Greg just zooming out a little bit.
14:55
Speaker 1: This is peak earnings week for the retailers, and it
14:58
Speaker 1: comes at a time when a lot of people are
15:01
Speaker 1: writing off retailers as uh soon to be victims of
15:06
Speaker 1: the Amazon boom and the online move to shopping. And
15:11
Speaker 1: yet we're seeing Beats Coals this morning beat expectations. We
15:15
Speaker 1: saw Macy's beat expectations earlier this week. Does this point
15:19
Speaker 1: to signs of recovery in your opinion? Well, the fact
15:22
Speaker 1: that they beat pretty dour expectations doesn't always bode well.
15:28
Speaker 1: In other words, it's it's maybe a moral victory at
15:31
Speaker 1: most best to have only negative two point comps as
15:35
Speaker 1: calls we boarded they can get right right exactly. But
15:40
Speaker 1: I distinguished between the department store sector and the apparel sector,
15:45
Speaker 1: which have been the most troubled, and department stores are
15:48
Speaker 1: mostly apparel and accessory stores mostly for women that you
15:51
Speaker 1: will have a home section and so forth. But it's
15:53
Speaker 1: mostly apparel, and that whole sector is declining. It's so
15:57
Speaker 1: much slower share of market that used to be department
15:59
Speaker 1: sto as a generation ago. Um Uh used to have
16:03
Speaker 1: ten percent of the retail market. Now it's sounded one
16:05
Speaker 1: point six. So you do the math. That is not
16:08
Speaker 1: that is not a good thing. But other parts of
16:10
Speaker 1: retail off price apparel, such as t j X, which
16:13
Speaker 1: had fairly decent numbers, Ross and Burlington, which is reported
16:16
Speaker 1: in the next you know week ten days, they'll do
16:18
Speaker 1: very very well. Um and and there's been a major
16:22
Speaker 1: rotation to home um, whether it's home improvement or the
16:25
Speaker 1: homeport instance. Players w Wayfair just reported this morning, did
16:28
Speaker 1: you know very strong numbers not make any money by
16:31
Speaker 1: the report of the strong top line tell us about
16:35
Speaker 1: I gotta go to l brands. I know that the
16:38
Speaker 1: results are already out, so I was just watching to
16:40
Speaker 1: talk about Victoria's secret. Well, I just don't know. I mean,
16:43
Speaker 1: here's the stock. It's down at sixth the body works,
16:46
Speaker 1: I see good, thank you down six Uh. They don't know.
16:52
Speaker 1: They they've got their own stores. Obviously a brand but
16:55
Speaker 1: I mean, is this the story that is this like
16:56
Speaker 1: a business that's going to be around in five years
16:58
Speaker 1: in the same format somehow, I think the market for
17:02
Speaker 1: intimatewear or innerwears calling it these days, I suspect that's
17:06
Speaker 1: gonna be around for a while. The difference is is
17:09
Speaker 1: that Victoria's Secret uh, as apart from Bath and Bodyworks,
17:13
Speaker 1: which is you know, different little bit of different animals.
17:16
Speaker 1: But for the for Vicky, um, we believe that it's overexpanded.
17:21
Speaker 1: It kind of breathed, was breathing its own exhaustumes too much.
17:25
Speaker 1: And any good retail you have, even if you have
17:28
Speaker 1: a great concept, you don't want to make it so
17:30
Speaker 1: it's totally ubiquitous. So there's one on every corner because
17:35
Speaker 1: you'll you'll overserve the market. And right now the market
17:38
Speaker 1: for for for intimate underwear is uh, it's you know,
17:42
Speaker 1: it's modestly growing, but it's not rampant. Well and also
17:46
Speaker 1: didn't Victoria's Secret come under some fire for not having
17:49
Speaker 1: big enough sizes for some clients and there was some
17:52
Speaker 1: discussion about should they have should they cater to a
17:56
Speaker 1: larger population. Does that matter to you at all or
17:59
Speaker 1: is that sort of just a relevant kind of side show. Well,
18:03
Speaker 1: the the size of the average woman has over the
18:06
Speaker 1: last generation has increased, and uh, the full figured woman
18:12
Speaker 1: does have a market, and right now that's a little
18:15
Speaker 1: bit underserved, we believe. And so Victoria's secret, you know,
18:20
Speaker 1: it's the image of Victoria's sacred is maybe you know,
18:23
Speaker 1: a little thinner, younger, et cetera. But there's a ton
18:26
Speaker 1: of women that may need, you know, a little bit
18:29
Speaker 1: larger sizing, and there we believe they're a little bit undeserved. Craig,
18:33
Speaker 1: you said that you just returned from a trip to Chicago.
18:36
Speaker 1: I know you spent a lot of time on the
18:37
Speaker 1: road actually checking out the retail operations. What can you
18:40
Speaker 1: tell about what's going on in the middle of the
18:42
Speaker 1: country in Chicago, Well, he was, you know, we have
18:45
Speaker 1: a team of eighteen people. We've been doing this for
18:47
Speaker 1: years across the country. They go about to about ninety
18:49
Speaker 1: major venues um and I like to travel myself and
18:53
Speaker 1: native Chicago's I remember Marshall Fields in its better days,
18:57
Speaker 1: and so you remember the chocolate, the mints, I guess
19:00
Speaker 1: the Franco mits where which macis. I believe they just
19:03
Speaker 1: sold that the great thing and so um. Retail in
19:08
Speaker 1: the rest of the country is doing, you know, kind
19:11
Speaker 1: of much better than the pundits think because the headlines
19:13
Speaker 1: are all around the department store as the well known
19:15
Speaker 1: names and departments are a sector is tanking, it's it's
19:19
Speaker 1: a it's a near free fall. Now there's a role
19:22
Speaker 1: for department stores, but they have to rethink and reconceptualize
19:26
Speaker 1: really what they are. But what you see in Chicago,
19:28
Speaker 1: can you tell us, I mean any are there any
19:30
Speaker 1: retail concepts that are new that we need to pay
19:32
Speaker 1: attention to? One of them, just as expanding rapidly is
19:34
Speaker 1: a warby Parker, the the the eyeglass maker, and they
19:38
Speaker 1: have I was in their stores on North Rush Street
19:40
Speaker 1: and it's great. Locations like Catty Corner from an urban outfitters,
19:43
Speaker 1: you know, sort of serve a little bit of the
19:45
Speaker 1: same customers and so forth. And so they now have
19:48
Speaker 1: a couple of locations physical location. Because this is a
19:50
Speaker 1: retailer that started online. Classes. Yeah, but they started online
19:56
Speaker 1: and now they're now they're rapidly going to building out
19:59
Speaker 1: a store fleet. Craig Johnson, thank you so much for
20:02
Speaker 1: joining us. Craig, uh, it sounds like they're eighteen people
20:06
Speaker 1: go around secretly shopping for for for their business. I
20:09
Speaker 1: love it. Craig Johnson, president of Customer Growth Partners in
20:12
Speaker 1: New Canaan at Connecticut Well pim Fox. We heard quite
20:29
Speaker 1: a bit this morning from US Treasury Secretary UH Steve Minution.
20:33
Speaker 1: Now that he has been confirmed, he is making the
20:36
Speaker 1: rounds and giving some sense of what his priorities will
20:40
Speaker 1: be over the next couple of years. I want to
20:44
Speaker 1: bring in Salaha Moson, she is a Bloomberg News reporter,
20:48
Speaker 1: to talk a little bit about what we've learned about
20:51
Speaker 1: manutions policies. So, Sala, let's first start with the longer
20:55
Speaker 1: dated US Treasury since this is moving markets and causing
20:59
Speaker 1: a quarter into some traders. This is what's causing the
21:01
Speaker 1: yield curve to steep in somewhat today. Um, what exactly
21:05
Speaker 1: did he say about the U s issuing fifty one
21:08
Speaker 1: hundred year treasuries? So the Secretary Minution said that the
21:12
Speaker 1: Treasury will explore issuing longer term debt maturities. As you said, Um,
21:17
Speaker 1: he said that with rates seen historically low for some
21:21
Speaker 1: time to come, it is time to seriously explore whether
21:25
Speaker 1: Treasury should be issuing these bonds. Well, what is the
21:29
Speaker 1: likelihood that this will happen? Who does he have in support?
21:33
Speaker 1: You know, there are a few members in Congress who
21:35
Speaker 1: have asked about this in the last year, uh and
21:39
Speaker 1: including some Democrats, But so far in the Senate there
21:43
Speaker 1: hasn't been a lot of movement on this. It's not
21:45
Speaker 1: clear that he would actually even need congress um full
21:48
Speaker 1: support to do this, But I think for now it's
21:50
Speaker 1: more just the sake, a question of asking market participants
21:55
Speaker 1: and investors what they think and then going from there.
21:58
Speaker 1: You know, one thing that I found interesting both today
22:01
Speaker 1: as well as yesterday, there was an article about Treasury
22:04
Speaker 1: Manution in the Wall Street Journal where he talked about
22:07
Speaker 1: the dollar policy and that the strong the strong dollar
22:11
Speaker 1: is a good reflection on the US over the long term.
22:14
Speaker 1: That seemed to go in contradiction to what President Trump
22:17
Speaker 1: had said about the dollar being too strong. He also
22:20
Speaker 1: said today that there is no urgency to brand China
22:23
Speaker 1: a currency manipulator. How much is Treasury Secretary Manution in
22:29
Speaker 1: sync with President Trump? You know, it's hard to know, um,
22:34
Speaker 1: when something might come out on a tweet and where
22:36
Speaker 1: the signaling there might when it might shift, um. But
22:41
Speaker 1: you know, we have seen some clear signals from Trump
22:44
Speaker 1: himself where he is softening on his views of China. UM.
22:48
Speaker 1: That started after the elections and it's continued as he
22:51
Speaker 1: has become president. UM and Manution is pretty much echoing that.
22:56
Speaker 1: But this is new that you know, no announcement will
22:58
Speaker 1: come before April, and that means that they are looking
23:00
Speaker 1: to the traditional mechanisms to investigate whether they should be
23:05
Speaker 1: labeling them now or or how they can start raising
23:08
Speaker 1: any alarms before they would actually formally designate them. It
23:12
Speaker 1: just shows that we're not going to do this haphazardly.
23:14
Speaker 1: We're gonna look to what existing established mechanisms. We have
23:18
Speaker 1: to do this now, Sala. Earlier, President Trump spoke about
23:23
Speaker 1: the United states is economic relationship with Mexico, and did
23:27
Speaker 1: he reference that Secretary of State Rex Tillerson is in
23:31
Speaker 1: Mexico today beginning that relationship. What if you could speak
23:36
Speaker 1: a little bit about what you know about repealing or
23:39
Speaker 1: changing or reforming NAFTA. You know, right now it looks
23:43
Speaker 1: like a very strong initiative to start, like a ninety
23:48
Speaker 1: day review of the law has not started. Um, it
23:51
Speaker 1: looks like they're still in the talking mode. Let's connect
23:54
Speaker 1: with all of our counterparts and see what we hear
23:57
Speaker 1: back as the rest of the world kind of starts
23:59
Speaker 1: to re adjust to the US's new trade stance. You know.
24:03
Speaker 1: One other aspect of Minutions comments earlier today was his
24:08
Speaker 1: expectations for the growth rate in the US. He said
24:11
Speaker 1: that it was completely reasonable to expect a three percent
24:14
Speaker 1: or higher growth rate. Did he give any idea of
24:18
Speaker 1: what he thought would push growth to that rate, which
24:22
Speaker 1: we have not seen for years. Yeah, So he stuck
24:26
Speaker 1: to the party line that it is tax cuts and
24:29
Speaker 1: cutting regulations that will unlock this economic growth of at
24:34
Speaker 1: least three percent. Mission did say today on TV and
24:37
Speaker 1: a scene LEAs the interview that he doesn't expect that
24:39
Speaker 1: to really feed into the economy until the end of
24:41
Speaker 1: next year. But that's why they want to get started
24:44
Speaker 1: on this sooner rather than later, just so that that
24:46
Speaker 1: can start showing up in the economy. Now. Recently, I believe,
24:50
Speaker 1: you know, there was a G twenty meeting, and this
24:54
Speaker 1: was at a time when I believe the Secretary of
24:56
Speaker 1: the Treasury had just been installed, and I'm wondering if
25:01
Speaker 1: you could just give us the reaction to some of
25:03
Speaker 1: those UH from the Foreign UH Finance chiefs about Stephen
25:08
Speaker 1: Manuchition and about the US policy. So the next twenty
25:12
Speaker 1: meeting is in Germany in mid March UM, and what
25:16
Speaker 1: we had was a leadership gap at Treasury that was
25:20
Speaker 1: longer than before between administrations, So the Treasure secretary counterparts
25:25
Speaker 1: around the world had no one really to pick up
25:28
Speaker 1: and call as they heard Trump and his advisors, including Manuchian,
25:32
Speaker 1: making comments about bilateral trade issues and currencies that were
25:36
Speaker 1: moving markets. Um. So as soon as Minuition was installed,
25:40
Speaker 1: we saw that within half a day we had his
25:42
Speaker 1: German counterpart UH talking about saying, you know, be careful
25:46
Speaker 1: how you talk about cutting regulations because they don't want
25:50
Speaker 1: a race to the bottom of the very regulations that
25:52
Speaker 1: were put in place two Uh sort of keep another
25:55
Speaker 1: financial crisis from happening. And then shortly after that we
25:59
Speaker 1: heard from Japan's pair also about how Minution should be
26:04
Speaker 1: cautious and careful in remarks about the yen. And that
26:07
Speaker 1: kind of comes from Trump's comments that China and Japan
26:11
Speaker 1: are playing in currency markets. Although you know, aside from
26:15
Speaker 1: just the big Dodd Frank rollback which some people are expecting,
26:19
Speaker 1: Treasury Secretary Minution could have a much more direct effect
26:22
Speaker 1: on rolling back some of these regulations. Correct, I mean
26:25
Speaker 1: he could potentially direct the Federal Reserve of the o
26:28
Speaker 1: c C or work with f STOCK, uh this Financial
26:31
Speaker 1: Stability Committee to potentially ease certain sort of de facto
26:35
Speaker 1: policies that are that are just basically governed by guidance. Right.
26:39
Speaker 1: That's right. He is as treasure Secretary's ahead of f STOCK,
26:42
Speaker 1: and so it's up to him if he decides to
26:44
Speaker 1: put some different issues on the backboard burner and re
26:48
Speaker 1: prioritize that is one way to sort of start loosening regulations.
26:52
Speaker 1: Like what types of things you're talking about, I mean,
26:54
Speaker 1: it's hard to say. Right now. He seems very focused
26:56
Speaker 1: on doing anything he can to help small and medium
26:59
Speaker 1: businesses grow investment. They said for a long time that
27:02
Speaker 1: small community banks aren't able to make loans that really
27:06
Speaker 1: are a part of a large part of the economy
27:09
Speaker 1: and are holding back part of growth according to their
27:12
Speaker 1: base case, because they are kind of weighed down by regulation.
27:16
Speaker 1: And if they can loosen that up and make it
27:18
Speaker 1: easier for these smaller banks to operate, then you know
27:21
Speaker 1: that's they're going to aim for. First. I wonder if
27:24
Speaker 1: you just give US about twenty seconds on the euro.
27:27
Speaker 1: On the Euro, you know, we did hear from Peter Navarro,
27:29
Speaker 1: who is the Trade Council Director at the White House,
27:32
Speaker 1: that Germany does have a large trade imbalance with the
27:36
Speaker 1: US and that was kind of, you could say, a
27:39
Speaker 1: soft attack to the on the Euro. Now, we haven't
27:42
Speaker 1: heard a lot on Europe. UM. I know that UM
27:45
Speaker 1: in Germany. Merkel is often seen or heard talking about
27:51
Speaker 1: an interview that Trump did many years ago where he
27:54
Speaker 1: says that maybe Mercedes should be pariffed, and you kind
27:57
Speaker 1: of wonder if she is now kind of darting to
28:00
Speaker 1: gird herself to maybe be a weary of a trade war.
28:04
Speaker 1: Well that and uh in a coming election. I want
28:06
Speaker 1: to thank you very much, Salleja most Economy Treasury reporter
28:10
Speaker 1: for Bloomberg News giving us details about the new Treasury
28:15
Speaker 1: Secretary Stephen. This is Bloomberg. Thanks for listening to the
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