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Chipmakers Could Be Hit With Both U.S. And China Tariffs: Ovide · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim
• 0:08
  Speaker 1: Fox along with my co host Lisa A. Brahmowitz. Each
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• 0:42
  Speaker 1: One of the issues having to do with trade and
• 0:44
  Speaker 1: the United States and China is technology. For example, Micron
• 0:47
  Speaker 1: Technology said a ban on the sale of some of
• 0:50
  Speaker 1: its products in China is unfair but won't hurt its earnings.
• 0:56
  Speaker 1: Here to tell us more about how chip makers are
• 0:58
  Speaker 1: trapped in the US China crossfire is our own Shira Oviday,
• 1:03
  Speaker 1: technology columnist for Bloomberg Opinion, and of course you can
• 1:07
  Speaker 1: follow Shira on Twitter at Shira over Day. All right,
• 1:10
  Speaker 1: Shara tell us about the chip companies and why this
• 1:14
  Speaker 1: has been a back and forth because it has to
• 1:17
  Speaker 1: do not just with tariffs, but then it has to
• 1:20
  Speaker 1: do with the imposition of bands about what kinds of
• 1:24
  Speaker 1: products can be sold between the two countries. Right, So
• 1:27
  Speaker 1: there's two issues at play here that involve computer chip makers.
• 1:31
  Speaker 1: US chip makers. So I think, much to the surprise
• 1:36
  Speaker 1: and chagrin of US chip makers, on the list of
• 1:40
  Speaker 1: the first wave of US tariffs of goods coming from
• 1:45
  Speaker 1: China are some products that impact US chip makers. So again,
• 1:53
  Speaker 1: they trade group for the chip company said, we're in
• 1:56
  Speaker 1: this weird position where some of the products that are
• 1:59
  Speaker 1: come from US chip companies that get sent to China
• 2:03
  Speaker 1: force sort of testing or some minor assembly, and then
• 2:07
  Speaker 1: sent back to the U S or other countries, they're
• 2:09
  Speaker 1: being subject to this tariff. Right, So you have US
• 2:13
  Speaker 1: tariffs that are trying to protect US companies that are
• 2:16
  Speaker 1: then being forced to absorb tariffs in some of these cases. Um,
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  Speaker 1: which I think again was surprising to US chip companies. Now,
• 2:24
  Speaker 1: let's just take maybe just one example, because I know
• 2:27
  Speaker 1: that you know, not all chips are created equal, right, um, Micron,
• 2:32
  Speaker 1: which has been the sort of the post child for
• 2:35
  Speaker 1: this whole thing. It has to do that the issue
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  Speaker 1: with Micron has to do with a Taiwanese chip maker
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  Speaker 1: as well, United micro Electronics. They're based in Taiwan, correct, right,
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  Speaker 1: So the the issue that Micron has is somewhat separate
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  Speaker 1: from the tariff issues. So they have been sued Micron,
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  Speaker 1: which is based in Boidi, Boise, Idaho, that makes these
• 2:58
  Speaker 1: kind of memory chips are essential and basically anything that
• 3:01
  Speaker 1: has a computer brain, so that includes smartphones, that includes
• 3:05
  Speaker 1: supercomputers and everything in between. So they've been sued for
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  Speaker 1: patent infringement in China by both a Chinese company and
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  Speaker 1: a Taiwanese company. And what Micron says is this lawsuit
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  Speaker 1: which is basically accusing them of stealing um, you know,
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  Speaker 1: proprietary technology from this Taiwanese and China for their graphics cards,
• 3:26
  Speaker 1: right computer graphics cards. So what Micron says is basically
• 3:30
  Speaker 1: this lawsuit is a ruse um too to cover up
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  Speaker 1: for Chinese intellectual property theft of Micron's own technology. So
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  Speaker 1: and Micron believes that this is politically motivated, that this
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  Speaker 1: is part of China's kind of attempts to develop a
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  Speaker 1: homegrown computer chip industry, and that part of that effort,
• 3:51
  Speaker 1: Micron says, is to kind of steal from American companies,
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  Speaker 1: and they feel like Micron feels like they're caught in
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  Speaker 1: this kind of US China battle over the future of technology. Okay,
• 4:03
  Speaker 1: so that's Microns case. Now let's go to another patient.
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  Speaker 1: This has been to do with Qualcom. It wants to
• 4:10
  Speaker 1: acquire an XP semiconductor, but like in any situation, you
• 4:16
  Speaker 1: have to get government approval, right, Yeah, that's right. So
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  Speaker 1: Qualcom again, like Micron, feels like it's kind of caught
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  Speaker 1: in the crossfire between the U S and China trade
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  Speaker 1: war that they have been trying to buy this Dutch
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  Speaker 1: chip maker and XP for eighteen months I think, and
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  Speaker 1: the last regulatory approval is the Chinese antitrust body, and
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  Speaker 1: Qualcom has said with some justification that they believe that
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  Speaker 1: regulatory approval in China is being held up because of
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  Speaker 1: retaliation perhaps for the us UM essentially banning or imposing
• 4:51
  Speaker 1: a death sentence on z T, which is this um
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  Speaker 1: Chinese telecom company that broke us UM us by selling
• 5:02
  Speaker 1: goods to Iran and other band countries and then lying
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  Speaker 1: about it. It looks like z T s back in
• 5:07
  Speaker 1: the U S government's good graces after you know, a
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  Speaker 1: big fine and some management changes. So we'll see if
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  Speaker 1: that impacts the speed of regulatory approval for the Qualcom
• 5:17
  Speaker 1: n XP deal. Do you have a big whiteboard by
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  Speaker 1: your desk in order to sort of diagram all of
• 5:23
  Speaker 1: the connections here because I'm gonna because I'm gonna go
• 5:27
  Speaker 1: even deeper here, which is that the chips that Micron
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  Speaker 1: makes are very likely sold or shipped to China and
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  Speaker 1: then put into products maybe let's say smartphones, right, that
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  Speaker 1: are then sold to customers in the United States and Europe. Correct. Yeah,
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  Speaker 1: it is very complicated. And I was asking folks in
• 5:54
  Speaker 1: the chip industry yesterday, is it possible that they could
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  Speaker 1: be hit by tariffs on both side of this trade war?
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  Speaker 1: Could they be subject to US tariffs on some products
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  Speaker 1: and Chinese tariffs on some products? And the answer that
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  Speaker 1: I got was, They're not really sure, but it's possible,
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  Speaker 1: which would be mind blowing. And the companies that we've
• 6:16
  Speaker 1: just talked about, Micron, Qualcom, and XP, they're not the
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  Speaker 1: only ones. We've got broad Calm, Texas Instruments, A m
• 6:24
  Speaker 1: D microchip technology, Intel, and video and analog devices. All
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  Speaker 1: of these companies produce a decent amount of revenue in China. Yeah.
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  Speaker 1: I mean, look, China is right now the world's biggest
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  Speaker 1: buyer of computer chips. Um that if you look at
• 6:43
  Speaker 1: US exports by revenue, computer ships are number four, behind
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  Speaker 1: things like airplanes and cars and oil. So you know,
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  Speaker 1: this is a big U s export with a lot
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  Speaker 1: of powerful and big US companies and computer ships are
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  Speaker 1: also again the you know, the beating heart of China's
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  Speaker 1: made made in China initiative to develop more homegrown technology.
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  Speaker 1: So it's inevitable that these US chipmakers are getting kind
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  Speaker 1: of caught in this power play between the US and China,
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  Speaker 1: where China is both the their biggest customer in many
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  Speaker 1: cases and also this kind of source of tension between
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  Speaker 1: their home country, the United States, and their biggest market, China.
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  Speaker 1: Is it worth noting that nobody forced these companies to
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  Speaker 1: put their production Let's say, if they have production in
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  Speaker 1: China in China, they went there because the scale and
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  Speaker 1: the cost makes it possible to then buy a smartphone
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  Speaker 1: that costs whatever it is but allows everybody to make
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  Speaker 1: a decent profit on it. Yeah, and that's a that's
• 7:47
  Speaker 1: a totally fair point. That Look, the supply chain for
• 7:50
  Speaker 1: a lot of products, including computer chips, is very global.
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  Speaker 1: That you do have these huge factories in China that
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  Speaker 1: have developed expertise over the years in you know, certain
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  Speaker 1: discrete elements of the computer chip manufacturing process. And the
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  Speaker 1: same is true in Vietnam. And Malaysia and the United
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  Speaker 1: States and other countries. You know, they have developed these
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  Speaker 1: um specialties and certain aspects of smartphone manufacturing, testing and assembly.
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  Speaker 1: And right now, I think what you're seeing in the
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  Speaker 1: computer chip industry is some questioning about do we need
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  Speaker 1: to adjust the supply chain as it has developed over
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  Speaker 1: the last decades to kind of reflect this fear of
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  Speaker 1: globalization being crimped in various corners of the world. So
• 8:36
  Speaker 1: it's it's really interesting right now, a little a little
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  Speaker 1: bit of an irony when you think of all of
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  Speaker 1: the sort of market driven decisions that are made and
• 8:45
  Speaker 1: yet they end up being political in terms. Everything is political.
• 8:49
  Speaker 1: Everything is political now. Thanks very much. Shira Oviday our
• 8:52
  Speaker 1: technology columns for Bloomberg Opinion. Check out all her stuff
• 8:55
  Speaker 1: on Bloomberg dot com, slash opinion, and follow her on
• 8:59
  Speaker 1: Twitter at your over Day. The unemployment rate moved to
• 9:27
  Speaker 1: hire in June from an eighteen year low. Steady hiring
• 9:31
  Speaker 1: and an increased number of job seekers continue to support
• 9:36
  Speaker 1: the labor market. US non farm payrolls rose a seasonally
• 9:40
  Speaker 1: adjusted two d and thirteen thousand in June. Here to
• 9:43
  Speaker 1: tell us more about the report and its implications is
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  Speaker 1: Chris leu. He is a senior fellow at the University
• 9:49
  Speaker 1: of Virginia Miller Centers, a former Deputy Secretary of Labor
• 9:53
  Speaker 1: under President Barack Obama. He can be followed on Twitter
• 9:56
  Speaker 1: at Chris lout four All Chris lou forty four. I
• 10:01
  Speaker 1: want to focus first on wages and the increase that
• 10:05
  Speaker 1: we saw. I believe it was two point seven percent.
• 10:08
  Speaker 1: Do you believe that at that level we could get
• 10:12
  Speaker 1: to a four percent annual g d P rate? I don't, uh,
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  Speaker 1: And I think that is really the concerning part of
• 10:21
  Speaker 1: an otherwise strong jobs numbers we have been in this
• 10:25
  Speaker 1: kind of two point five. I think we were up
• 10:26
  Speaker 1: to two point eight percent increased last month. Two point
• 10:31
  Speaker 1: seven is just not enough, and particularly when you consider
• 10:34
  Speaker 1: that inflation right now is running two point eight percent,
• 10:37
  Speaker 1: that effectively means that most workers aren't seeing any more
• 10:40
  Speaker 1: money than they did a year ago. And so we
• 10:43
  Speaker 1: we are in a very difficult situation right now where
• 10:46
  Speaker 1: the said um hasn't quite decided where they want to
• 10:49
  Speaker 1: go on rates, which will have an effect on wages.
• 10:51
  Speaker 1: We're starting to wonder whether this jobs market is different
• 10:55
  Speaker 1: than what we have always thought, which is if you're
• 10:58
  Speaker 1: down in this level of unemployment, you would expect ways
• 11:00
  Speaker 1: to be going up much much faster. So um, you know,
• 11:03
  Speaker 1: I think it's concerning, and I think many of us
• 11:05
  Speaker 1: are starting to wonder what this economy is fundamentally different
• 11:08
  Speaker 1: than what it used to be. Well, take that a
• 11:10
  Speaker 1: little bit further and tell us if you had to
• 11:13
  Speaker 1: explore that idea of a fundamentally different economy, what do
• 11:16
  Speaker 1: you mean by that. Well, Look, you would think when
• 11:19
  Speaker 1: you have normally a tightening labor market, a couple of
• 11:21
  Speaker 1: things happen. People come off the sidelines, which is what
• 11:23
  Speaker 1: happened this month, and it's one of the reasons why
• 11:25
  Speaker 1: the unemployment rates picked up from three point eight to
• 11:28
  Speaker 1: four percent. And that's a good thing. But you would
• 11:30
  Speaker 1: also think that in this tightening job market, employers would
• 11:33
  Speaker 1: have to pay more uh to entice workers to come there,
• 11:37
  Speaker 1: and it just doesn't happen. And you know, we know
• 11:39
  Speaker 1: that there are some solutions to this. Obviously, job training
• 11:43
  Speaker 1: is important in helping people advance the more skilled jobs.
• 11:47
  Speaker 1: High paying jobs like manufacturing and construction are another good answers,
• 11:51
  Speaker 1: and it's one of the reasons why infrastructure is always
• 11:54
  Speaker 1: a bipartisan policy idea raising the federal minimum wage and
• 11:58
  Speaker 1: state minimum wages would have an effec as well. But
• 12:01
  Speaker 1: we also may be trapped in a situation where we
• 12:04
  Speaker 1: now have a perpetual class of people who are doing
• 12:07
  Speaker 1: relatively unskilled labor at basically minimum wages who just can't
• 12:12
  Speaker 1: get out of that trap right now. And that's concerning
• 12:15
  Speaker 1: well to your point. In June, the share of American
• 12:18
  Speaker 1: adults working or looking for a job rose by two
• 12:22
  Speaker 1: tenths of a percentage point. That number now is sixty
• 12:26
  Speaker 1: two point nine percent, and it is up from that
• 12:29
  Speaker 1: low of sixty two point three that wasn't in But
• 12:33
  Speaker 1: it's like it's like the smallest share of adults participating
• 12:37
  Speaker 1: since the late nineteen seventies. This is not something that
• 12:40
  Speaker 1: is brand new, is it. No, that's exactly right. I mean,
• 12:43
  Speaker 1: throughout most of the Obama administration and now the Trump administration,
• 12:46
  Speaker 1: the figure you're sighting, the labor force participation has basically
• 12:50
  Speaker 1: been between about sixty two percent and sixty three percent,
• 12:53
  Speaker 1: and that's declined steadily since the mid nineteen seventies. Now,
• 12:57
  Speaker 1: in part it's because of changes in the Democrat six
• 13:00
  Speaker 1: of the workforce. We have a lot of people retiring earlier,
• 13:03
  Speaker 1: we have more people in school, so and that's a
• 13:05
  Speaker 1: good thing. We you know, we're looking at labor force
• 13:08
  Speaker 1: participation which goes all the way down to people aged sixteen,
• 13:11
  Speaker 1: so we don't necessarily want all of them in the workforce.
• 13:14
  Speaker 1: But it does suggest that we have far too many
• 13:16
  Speaker 1: people on the sidelines right now, either because they couldn't
• 13:19
  Speaker 1: find jobs, which was the case a couple of years ago,
• 13:22
  Speaker 1: or because the jobs weren't there, or because they're not
• 13:25
  Speaker 1: trained for the jobs. And that second part, if that's true,
• 13:28
  Speaker 1: is something that we really need to address as a country. Okay,
• 13:31
  Speaker 1: So would it be possible to address that more efficiently
• 13:35
  Speaker 1: if the Department of Labor and the Department of Education
• 13:39
  Speaker 1: work combined. Well, look, that's actually one of the theories
• 13:42
  Speaker 1: of the president's reorganization proposal that he came out with
• 13:46
  Speaker 1: a couple weeks ago. Um. Look, there there is certainly
• 13:49
  Speaker 1: a synergy between education and training UH in the in
• 13:54
  Speaker 1: the federal government, but there are also about nine different
• 13:56
  Speaker 1: federal agencies that deal with training UH, and the overlap
• 13:59
  Speaker 1: between the as agencies is actually relatively small. And having
• 14:03
  Speaker 1: been at one end of UM looking at that, we
• 14:05
  Speaker 1: function very Well, the bigger problem is we're not actually
• 14:09
  Speaker 1: investing enough money. The share of money that we put
• 14:12
  Speaker 1: in as the settled government into job training pales in
• 14:15
  Speaker 1: comparison to what Germany and other countries put in. We
• 14:17
  Speaker 1: don't really have a national job training strategy. It really
• 14:20
  Speaker 1: has done state by state, and we haven't invested sufficiently
• 14:24
  Speaker 1: improven job training methods like apprenticeships, which are wildly popular
• 14:30
  Speaker 1: and successful in Europe. Why haven't we been successful at that?
• 14:34
  Speaker 1: Is it just money? Well, it is money, but it's
• 14:37
  Speaker 1: also the way that employers operate. Employers tend to um
• 14:42
  Speaker 1: train their own workers, UH, and there's less incentive, frankly
• 14:45
  Speaker 1: to create a broader pipeline of workers. So what companies
• 14:49
  Speaker 1: will do in an industry is that they will fight
• 14:51
  Speaker 1: over a share of the pie instead of working collaboratively
• 14:54
  Speaker 1: to increase the pie, which is what UH companies do
• 14:58
  Speaker 1: in other countries. They invest in job training programs that
• 15:01
  Speaker 1: let's say, create more plumbers than the Chinas, understanding that
• 15:04
  Speaker 1: they may not be able to hire those people, but
• 15:06
  Speaker 1: that's good for the overall industry. So companies need to
• 15:09
  Speaker 1: start thinking about job training in a more collaborative way.
• 15:13
  Speaker 1: Do you believe that that may also be a result
• 15:16
  Speaker 1: of states, individual states competing with each other in order
• 15:21
  Speaker 1: to grab businesses because they think of it just as
• 15:25
  Speaker 1: a state's issue rather than of national issue. Well, that's
• 15:30
  Speaker 1: exactly that's a fantastic point. Far too often when states
• 15:32
  Speaker 1: are trying to lure companies there um, they just dropped
• 15:36
  Speaker 1: their tax rates. They provide tax and sentence to companies,
• 15:38
  Speaker 1: and far too often when you talk to companies, they'll say, look,
• 15:41
  Speaker 1: tax low, tax rates are fantastic, but it doesn't help
• 15:44
  Speaker 1: when we get there and we can't find the train
• 15:47
  Speaker 1: workers we need to fill our factories. And so far
• 15:49
  Speaker 1: more now come states are starting to understand if we
• 15:52
  Speaker 1: really want to attract companies, we need to have a
• 15:56
  Speaker 1: uh integrated job training program, and it's one of the
• 15:59
  Speaker 1: reasons why you continue to see more companies going to
• 16:02
  Speaker 1: more urban areas where they can find the train workers
• 16:05
  Speaker 1: for the work they need. Thank you very much. Chris
• 16:07
  Speaker 1: lou Senior Fellow, University of Virginia Miller Center. He's the
• 16:11
  Speaker 1: former Deputy Secretary of Labor under President Barack Obama. You
• 16:15
  Speaker 1: can follow him on Twitter at Chris lou Well. Turning
• 16:43
  Speaker 1: out of the shares of biogen they are up more
• 16:46
  Speaker 1: than fourteen and a half percent, as comes after Bargin
• 16:49
  Speaker 1: and its Japanese partner revealed results of a study of
• 16:53
  Speaker 1: a drug that is designed to raise hopes for the
• 16:56
  Speaker 1: treatment of Alzheimer's to battle this disease. Here to tell
• 17:00
  Speaker 1: us more about it is Drew Armstrong, or healthcare reporter
• 17:03
  Speaker 1: for a Bloomberg News and you can follow Drew on
• 17:07
  Speaker 1: Twitter at Armstrong Drew Okay Armstrong, Drew, what is the
• 17:12
  Speaker 1: breakthrough that we're seeing and learning about? Well, I wouldn't
• 17:15
  Speaker 1: describe what we saw today or I guess late last
• 17:19
  Speaker 1: night technically so much as a breakthrough, but a glimmer
• 17:22
  Speaker 1: of hope for a medical research field that has seen
• 17:27
  Speaker 1: a lot of glimmers of hope before followed by what
• 17:30
  Speaker 1: ultimately turned out to be disappointing failures. So late last
• 17:36
  Speaker 1: night we saw this data from biogen um n as
• 17:39
  Speaker 1: I basically saying, hey, we looked at this drug. It's
• 17:42
  Speaker 1: an experimental drug in mid stage testing, and it looks
• 17:46
  Speaker 1: like it helped people. There are a lot of caveats.
• 17:50
  Speaker 1: UM they're using a different measure of whether or not
• 17:53
  Speaker 1: it helped people than than other drug makers have before.
• 17:57
  Speaker 1: UM that the systems that appeared to give patients in
• 18:02
  Speaker 1: slowing the progression of Alzheimer's didn't show up when they
• 18:04
  Speaker 1: when they looked at this in at the twelve months
• 18:08
  Speaker 1: twelve months along in the study. This is just an
• 18:10
  Speaker 1: eighteen months, so they took a little bit longer than expected.
• 18:13
  Speaker 1: And they haven't announced yet. This is really important. One
• 18:15
  Speaker 1: of the things they're not saying so far that's really important.
• 18:18
  Speaker 1: They haven't announced that, Hey, this is great and we're
• 18:21
  Speaker 1: going to take this to the next stage. A lot
• 18:23
  Speaker 1: of times when you're a drug maker and you have
• 18:25
  Speaker 1: blockbuster good news, you say, great, phase two trial worked,
• 18:29
  Speaker 1: onto phase three, Let's get this in a bigger population
• 18:32
  Speaker 1: that we can use to get this drug approved by
• 18:34
  Speaker 1: the FDA. That is not in the statements that they
• 18:37
  Speaker 1: have given. And I think that should probably sound a
• 18:39
  Speaker 1: note of caution for people here. Okay, well put and
• 18:43
  Speaker 1: and really useful information through the target of this specific drug.
• 18:49
  Speaker 1: They're going after what are what is called beta amyloid.
• 18:55
  Speaker 1: And I know that there's another disease, there's hereditary amoloid
• 19:00
  Speaker 1: assists and so on, but this has to do with
• 19:02
  Speaker 1: the build up of a protein. Is that correct? Yeah,
• 19:05
  Speaker 1: that's exactly right, and and if I can kind of
• 19:07
  Speaker 1: explain the science here. One of the things that research
• 19:10
  Speaker 1: of notice researchers have noticed for a long time is
• 19:12
  Speaker 1: that if you take an image of an Alzheimer's patient's brain,
• 19:16
  Speaker 1: or if after they die you dissect it, you see
• 19:18
  Speaker 1: these little tangles of protein, essentially like plaque build up
• 19:21
  Speaker 1: in the brain that for a long time. It's it's
• 19:23
  Speaker 1: definitely known as a hallmark of the disease. You look
• 19:26
  Speaker 1: at people who have this disease and their brains all
• 19:29
  Speaker 1: have this. I think what hasn't been understood is is
• 19:31
  Speaker 1: it also the cause? You know, is this a is
• 19:35
  Speaker 1: this something that is causing the disease or just something
• 19:37
  Speaker 1: that happens to go along with it. And when if
• 19:41
  Speaker 1: it is, if this is what's damaging people's brains, when
• 19:44
  Speaker 1: does it start. Does it start building up silently when
• 19:47
  Speaker 1: we're forty or fifty years old, only kind of rearing
• 19:50
  Speaker 1: its head in actual Alzheimer's a decade or two decades later,
• 19:54
  Speaker 1: or is it something that you know, you are at
• 19:57
  Speaker 1: an elder age and you begin to show science and
• 19:59
  Speaker 1: that's when the damage begins. But the theory has been
• 20:02
  Speaker 1: that if you can do something to eliminate these plaques
• 20:05
  Speaker 1: or to even stop them from building up, that you
• 20:07
  Speaker 1: might somehow be able to slow Alzheimer's disease. That is
• 20:13
  Speaker 1: exactly so. And so if you can do that, you
• 20:16
  Speaker 1: this might be potentially a a drug that could you know,
• 20:20
  Speaker 1: actually alter the course of the disease. But so far,
• 20:23
  Speaker 1: even though a lot of drugs have shown success in
• 20:25
  Speaker 1: reducing the amount of plaque, you haven't actually seen the
• 20:28
  Speaker 1: kind of corresponding you know, decreases in the rate of
• 20:32
  Speaker 1: dementia or incognitive decline, those things that actually matter. I mean,
• 20:36
  Speaker 1: it's all, it's all well and good to treat a
• 20:38
  Speaker 1: biological thing, but if it doesn't help the patient, it
• 20:41
  Speaker 1: doesn't mean anything for these folks. So the question has
• 20:44
  Speaker 1: always been does this drug work on this thing, this plaque,
• 20:47
  Speaker 1: and does that also translate into a benefit. And so
• 20:50
  Speaker 1: there have been some signs in the studies that maybe
• 20:53
  Speaker 1: that's the case, But I think the big question is
• 20:55
  Speaker 1: going to be does it bear out in a wider study,
• 20:58
  Speaker 1: Does it really true, really alter the course of this disease,
• 21:01
  Speaker 1: or is there somewhere else the drug makers need to
• 21:03
  Speaker 1: be looking. Just quickly, a couple of the companies still
• 21:07
  Speaker 1: looking for drugs to combat Alzheimer's. Right. Yes, Roche is
• 21:11
  Speaker 1: in this space, um Eli, Lily and a number of
• 21:14
  Speaker 1: other folks have looked at some different approaches. You know,
• 21:17
  Speaker 1: drug makers look at this as probably the last great,
• 21:21
  Speaker 1: massive untreated disease in in the world. I mean, this
• 21:24
  Speaker 1: affects millions of people. It costs billions and billions of dollars.
• 21:28
  Speaker 1: It is a personal and tragedy for families when it's
• 21:31
  Speaker 1: struck by them. So this is a huge opportunity for
• 21:33
  Speaker 1: someone to try and do something about that has had
• 21:35
  Speaker 1: so many failures. Thank you very much. Drew Armstrong, healthcare
• 21:38
  Speaker 1: reporter from Bloomberg News. Follow him on Twitter at Armstrong
• 21:42
  Speaker 1: Drew for his continued insights and analysis and reporting about
• 21:47
  Speaker 1: the health care industry. Very interesting. My co host and
• 22:03
  Speaker 1: colleague Lisa Abramwitz on a well deserved holiday vacation. He's
• 22:08
  Speaker 1: not on vacation. He's Scott Wren. He's a senior global
• 22:11
  Speaker 1: equity strategist for Wells Fargo Investment Institute Assets Center Management
• 22:16
  Speaker 1: one point nine trillion dollars based in St. Louis. Scott
• 22:20
  Speaker 1: Rent always a pleasure, you know, looking at the performance
• 22:23
  Speaker 1: of the SMP five hundred. It's up three and three
• 22:27
  Speaker 1: and a quarter percent so far this year. Compare that
• 22:30
  Speaker 1: to the NASDAC up over eleven percent, the Dow basically unchanged.
• 22:35
  Speaker 1: What kind of market does this remind you of? Well,
• 22:39
  Speaker 1: you know, I tell you, Tim we Um, we have
• 22:43
  Speaker 1: been positive on the market, technology has done. We backed
• 22:47
  Speaker 1: off our overweight and technology last year, so we left
• 22:52
  Speaker 1: a little money on the table, no doubt about that.
• 22:54
  Speaker 1: UM small caps are doing a little bit better than
• 22:57
  Speaker 1: what we thought they would this year, and I think
• 23:00
  Speaker 1: that's almost solely due to the fears over a trade war.
• 23:06
  Speaker 1: But you know, really this this this market reminds me
• 23:10
  Speaker 1: of periods when it's it's fairly narrow and you're you're
• 23:17
  Speaker 1: toward the back end of certain cycles. But saying that
• 23:21
  Speaker 1: there are there are numerous other characteristics. One is overwhelming enthusiasm,
• 23:27
  Speaker 1: uh and chasing the market that I think are not um,
• 23:31
  Speaker 1: you know, they're not present right now, so it it
• 23:33
  Speaker 1: largely in narrowness, so to speak. It reminds me of
• 23:37
  Speaker 1: later stages of cycles. Well, when you talk about the
• 23:40
  Speaker 1: lack of enthusiasm, does that mean that you just can't
• 23:43
  Speaker 1: get people interested in stocks? Could that be a real
• 23:47
  Speaker 1: secular change because of the way that investments are made
• 23:51
  Speaker 1: using exchange traded funds. I think that that could be
• 23:56
  Speaker 1: part of it. But really, to be honest with you,
• 23:58
  Speaker 1: and if you look at at our science, and I
• 24:00
  Speaker 1: mean we cater to retail investors, um, most of them,
• 24:04
  Speaker 1: let's say you're north of sixty, Um, most of them,
• 24:08
  Speaker 1: at least on paper, they were burned in the tech bubble,
• 24:11
  Speaker 1: and then they were burned on when in the financial crisis.
• 24:15
  Speaker 1: And now they are older and they and they think
• 24:18
  Speaker 1: in terms of g I don't have the time to
• 24:21
  Speaker 1: make this money back there. They are concerned about, you know,
• 24:27
  Speaker 1: being down on their portfolio. They are concerned about outliving
• 24:31
  Speaker 1: their money. And so I think I think the secular change, really,
• 24:35
  Speaker 1: to be honest with you, is that with all this
• 24:38
  Speaker 1: money on the sidelines in past cycles, and I'm talking
• 24:42
  Speaker 1: you know, you look back over the last forty years, Um,
• 24:45
  Speaker 1: you know, if the market had moved this far over
• 24:47
  Speaker 1: this time by this time, there'd be a lot of chasing,
• 24:51
  Speaker 1: there'd be a lot of exuberance, um. Those types of things.
• 24:55
  Speaker 1: And so I think, really the secular change, at least
• 24:57
  Speaker 1: in my opinion, the stronger secular change is that you
• 25:02
  Speaker 1: have money on the sidelines that in no way, shape
• 25:06
  Speaker 1: or form is going to make it back into the market.
• 25:09
  Speaker 1: So if I go back all the way to January
• 25:12
  Speaker 1: of this year, January eight, for example, that seems like
• 25:15
  Speaker 1: a long time ago, doesn't it. Yeah, But I mean,
• 25:17
  Speaker 1: but where that's like ten points away from where we
• 25:19
  Speaker 1: are now on the SMP. That's where fifty nine. Yeah,
• 25:25
  Speaker 1: I just you know, and really for us, you know,
• 25:29
  Speaker 1: and you and I had talked, you know, in multiple times,
• 25:32
  Speaker 1: but you know, we thought we were going to see
• 25:34
  Speaker 1: a pullback, a reasonable pullback um the second half of seen. Uh.
• 25:39
  Speaker 1: It didn't come until the month of February, and it
• 25:42
  Speaker 1: happened very very fast. It happened for many of the
• 25:45
  Speaker 1: same reasons that we had been looking for. But you know,
• 25:48
  Speaker 1: really the market had not had, uh had a ten
• 25:52
  Speaker 1: percent pullback for for basically two years. And I think,
• 25:56
  Speaker 1: you know, we are over we you know, we were overdue.
• 25:59
  Speaker 1: And and I think the trigger um, which often happens
• 26:04
  Speaker 1: late in the cycle, is things about wage inflation, general inflation,
• 26:09
  Speaker 1: margin squeezes and what's the FED going to do about it? So,
• 26:13
  Speaker 1: you know, this cycle has been very different in a
• 26:15
  Speaker 1: lot of different ways. But as we move into what
• 26:19
  Speaker 1: is likely the later you know, third if you know,
• 26:22
  Speaker 1: third of the cycle or so. Uh, some of these
• 26:25
  Speaker 1: concerns that are causing the volatility outside of the trade
• 26:28
  Speaker 1: war um potential um are really things that you see
• 26:32
  Speaker 1: late in virtually every cycle. Okay, if that's the case,
• 26:36
  Speaker 1: where's the best place to put money late in the cycle.
• 26:39
  Speaker 1: I tell you, I think really, you know, industrials have
• 26:41
  Speaker 1: taken it on the chin here. As as as the
• 26:44
  Speaker 1: trade war rhetoric has has been pretty strong. I still
• 26:48
  Speaker 1: think that there's a relatively low probability that we're going
• 26:53
  Speaker 1: to have an all out trade war. Certainly the rhetorics
• 26:55
  Speaker 1: jumped up a little bit lately is probably the probability.
• 26:58
  Speaker 1: But you know, we want to take advantage of this
• 27:01
  Speaker 1: weakness and industrials. We've been overweighted industrials. We still want
• 27:04
  Speaker 1: to be overweight industrials. We want our clients on weakness
• 27:08
  Speaker 1: and industrials. Consumer discretionary financials. Clearly, if you look back
• 27:12
  Speaker 1: over the last three years, financials have done really well,
• 27:15
  Speaker 1: but obviously over the last six or twelve months they've stumbled. Um.
• 27:19
  Speaker 1: But you're looking forward, you know, we think that's still
• 27:22
  Speaker 1: going to be a good place to be. We think
• 27:24
  Speaker 1: it's too early to hide. So we've been underweight utilities,
• 27:28
  Speaker 1: we've been underweight staples. Now have those sectors done well
• 27:32
  Speaker 1: here since February second, early February when the markets started
• 27:37
  Speaker 1: to get the more chopping and we had to pull back,
• 27:39
  Speaker 1: Sure they have. But but I think when you look
• 27:41
  Speaker 1: ahead over the course of the next twelve months, you
• 27:44
  Speaker 1: want to be assertive. You want to lean towards those
• 27:46
  Speaker 1: sectors that are going to continue to benefit from a
• 27:49
  Speaker 1: continuation of this economy. You do not want to hide. Someday,
• 27:53
  Speaker 1: you know, somewhere out there on the horizon will be
• 27:55
  Speaker 1: time to hide. But I don't think it's now. When
• 27:57
  Speaker 1: you mentioned industrials, you just want to make sure we're
• 27:59
  Speaker 1: talking to about the companies such a and I'm not
• 28:01
  Speaker 1: saying that you're recommending them, just saying companies such as
• 28:05
  Speaker 1: Honeywell International shares down four and a half percent so
• 28:09
  Speaker 1: far this year. Shares of Eaton Corp. Also uh lower?
• 28:13
  Speaker 1: Uh this, you know my four percent this year. Those
• 28:16
  Speaker 1: are the kinds of companies, Yeah, machinery and you know,
• 28:19
  Speaker 1: those those kinds of things. I mean, you know, if
• 28:22
  Speaker 1: you look in a lot of these. Uh, if you
• 28:24
  Speaker 1: look at a lot of these these companies, I mean,
• 28:26
  Speaker 1: they are backlogged well into and now if you talk
• 28:30
  Speaker 1: to any industrials analysts, they will tell you that the
• 28:35
  Speaker 1: managements of the companies that they cover, they are nervous
• 28:39
  Speaker 1: about the potential for trade war, potential for acceleration in
• 28:44
  Speaker 1: this trade rhetoric which would negatively affect their businesses, you know.
• 28:48
  Speaker 1: But the fact is um through this year and into
• 28:53
  Speaker 1: um you know, they are booked up and and and
• 28:56
  Speaker 1: most industrial analysts, the guys who are in the in
• 28:59
  Speaker 1: the trenches covering the individual companies, they'll tell you that
• 29:02
  Speaker 1: you will not really be able to tell if the
• 29:07
  Speaker 1: tax code change was really helpful in terms of capex
• 29:12
  Speaker 1: until nineteen at least in the industrial sector. But you know,
• 29:16
  Speaker 1: certainly these capex numbers we saw in the fourth quarter
• 29:19
  Speaker 1: before the thing even kicked in, we're good. First quarter
• 29:22
  Speaker 1: was pretty darn good. And I suspect, based on these
• 29:26
  Speaker 1: I S M surveys and some other things that we're doing,
• 29:29
  Speaker 1: that that we're going to see some decent capex through
• 29:31
  Speaker 1: the balance of the year as well. I want to
• 29:33
  Speaker 1: thank you very much for joining me. Scott Wren senior
• 29:36
  Speaker 1: Global equity strategist for Wells Fargo Investment Institute. He's in
• 29:41
  Speaker 1: saying louis helping to manage one point nine trillion dollars
• 29:45
  Speaker 1: of customer assets. Thanks for listening to the Bloomberg P
• 29:51
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 29:54
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 29:59
  Speaker 1: I'm pimp box, I'm on Twitter at pim Fox. I'm
• 30:03
  Speaker 1: on Twitter at Lisa Abramo wits one. Before the podcast,
• 30:06
  Speaker 1: you can always catch us worldwide on Bloomberg Radio