Latest / Bloomberg Intelligence / Amazon Is Now Competing For Advertising Dollars: Soper, Ovide

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Amazon Is Now Competing For Advertising Dollars: Soper, Ovide · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Apple
• 0:27
  Speaker 1: is bringing back a lot of money from overseas, and
• 0:31
  Speaker 1: Amazon is choosing which city it wants to put its
• 0:36
  Speaker 1: headquarters number two, and it has narrowed down the list
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  Speaker 1: from two d cities to twenty. Here to talk about
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  Speaker 1: all of this tech news is Spencer Soaper, tech reporter
• 0:48
  Speaker 1: in Seattle, who has been writing on the Amazon Bachelorette
• 0:53
  Speaker 1: show that we are currently admired in, as well as
• 0:56
  Speaker 1: our own shira ov Day Bloomberg Gadfly columnist ring all
• 1:00
  Speaker 1: things technology. Spencer, Let's start with you. Did Amazon give
• 1:06
  Speaker 1: any color as to its selection process and this reality
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  Speaker 1: television show known as Headquarters to for Amazon? No? Not
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  Speaker 1: not really? Uh? And this really looks like administrative clean up.
• 1:18
  Speaker 1: You know. They put out this bit for proposals and
• 1:21
  Speaker 1: they got way more proposals than they anticipated more than
• 1:25
  Speaker 1: two hundred and so it was simply matter. It was
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  Speaker 1: just getting on wieldy for them. Uh and inboxes were
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  Speaker 1: blowing up, you know, email boxes overflowing. So this is
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  Speaker 1: kind of like an administrative cleanup. We we don't. It's
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  Speaker 1: a huge, huge, very long shortlist, so it doesn't really
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  Speaker 1: give much indication of anything. You know, you've got West
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  Speaker 1: Coast cities, East Coast City's, Heartland cities, Southeast cities, Texas cities. Um.
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  Speaker 1: But basically it's it's it includes all of the the
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  Speaker 1: front runners that that people were anticipating, So it's largely
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  Speaker 1: administrative cleanup and getting rid of a lot of those
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  Speaker 1: smaller markets that that that likely never to the chance
• 2:01
  Speaker 1: Spencer at just the point about perhaps it's not a
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  Speaker 1: clean up. Maybe it's a sort of an expenditure of
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  Speaker 1: energy on the part of Amazon because people, of course
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  Speaker 1: on the Internet, they don't get enough advertising. Um. Now
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  Speaker 1: Amazon will be offering advertising, as I guess, a form
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  Speaker 1: of entertainment on their website. Tell us about this move. Yeah,
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  Speaker 1: well so advertising is really emerging. Um. If if you
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  Speaker 1: think of Amazon and cycles right the core the core
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  Speaker 1: e commerce business has grown and wild investors with this
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  Speaker 1: with this tremendous top line growth and ability to steal
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  Speaker 1: steel market share from Big buckstores and department stores, but
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  Speaker 1: it's never been profitable. Then along came its cloud computing division,
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  Speaker 1: which was also growing quickly and adding a lot to
• 2:45
  Speaker 1: the top line, but healthing helping profitability. And now the
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  Speaker 1: latest thing we have emerging is advertising. It's another fast
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  Speaker 1: growing business, but it's also extremely profitable. It doesn't require
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  Speaker 1: the big investments of warehouses around the country or data
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  Speaker 1: centers around the country that it's commerce business or it's
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  Speaker 1: cloud computing business requires. So so investors are excited about
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  Speaker 1: the revenue growth, but but more importantly excited about the
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  Speaker 1: potential profit margins of the of the advertising business. Shara,
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  Speaker 1: I mean, it's it's not as if some of these
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  Speaker 1: tech companies need more cash, but it seems like the
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  Speaker 1: cash is just flowing in, and the question now is
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  Speaker 1: really how they plan to spend it. And Apple said
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  Speaker 1: that it was going to be bringing back what thirty
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  Speaker 1: billion dollars of cash. What did they say exactly, Well,
• 3:31
  Speaker 1: they didn't say exactly, but if there's they did say
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  Speaker 1: they're expecting to spend expected to pay a tax bill
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  Speaker 1: of thirty eight billion dollars on their overseas cash, which
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  Speaker 1: implies that they're going to bring back to the US
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  Speaker 1: something like two forty billion dollars of their overseas cash stockpile.
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  Speaker 1: And where is that going to go? Do you think?
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  Speaker 1: I don't know. That's a very good question. Um. So
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  Speaker 1: it's worth saying right that Apple, you know, patted itself
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  Speaker 1: on the back for paying the US Treasury thirty eight
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  Speaker 1: billion dollars. But the reasons paying that some now is
• 4:01
  Speaker 1: that it's parked two billion dollars or so of cash
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  Speaker 1: that it considered permanently reinvested in its overseas operations because
• 4:10
  Speaker 1: it didn't want to pay taxes on that money until now.
• 4:13
  Speaker 1: I believe the tax rate was too high. So now
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  Speaker 1: with the new tax code changes, that tax rate goes
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  Speaker 1: down to fifteen and a half percent. So Apple thinks, well,
• 4:23
  Speaker 1: this is a good opportunity to bring that cash home,
• 4:25
  Speaker 1: and it's gonna owe that tax bill regardless of whether
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  Speaker 1: it brings the money back to the U S or not.
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  Speaker 1: So it's gonna have something like two hundred billion dollars
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  Speaker 1: remaining after it pays taxes um on that cash stockpile.
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  Speaker 1: And I think investors expect the company to spend it
• 4:41
  Speaker 1: on things like stock buybacks, which is maybe not what
• 4:44
  Speaker 1: Donald Trump and his crew had in mind when they
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  Speaker 1: passed these large tax code changes. But Apple has also
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  Speaker 1: said what that they will consider spending some of this
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  Speaker 1: to expand their real estate empire. They're gonna be adding
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  Speaker 1: maybe a new office. Uh of what could they be
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  Speaker 1: spending it on, at least domestically, right, so their Apple's
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  Speaker 1: announcement yesterday did include some disclosures about US investments and spending.
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  Speaker 1: I have to say, it's hard to know how much
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  Speaker 1: of that would have been done regardless of whether the
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  Speaker 1: tax code changed. So, yes, the company did announce that
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  Speaker 1: they're going to open a new location somewhere in the
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  Speaker 1: US specifics TBD that will house customer service kind of personnel,
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  Speaker 1: at least initially. Again, it's possible they may have done
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  Speaker 1: that anyway. They have a customer service location in near Austin,
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  Speaker 1: Texas already, And they made some disclosures about hiring twenty
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  Speaker 1: people in the US, although they already have eighty four
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  Speaker 1: thousand employees in the U S and it's likely that
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  Speaker 1: at the rate that they've been adding to that, the
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  Speaker 1: twenty people in five years is not a deviation from
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  Speaker 1: their current rate. So Spencer, come on in here, because
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  Speaker 1: Shia is talking about a ton of expansion here and
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  Speaker 1: hiring plans. Those hires have to go somewhere. And I'm wondering,
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  Speaker 1: you know, Amazon is getting all the attention, but are
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  Speaker 1: there other big tech companies that are also erecting new
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  Speaker 1: buildings and you know, hiring mass at workforces, and are
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  Speaker 1: these are these cities lobbying for for that activity as well? Well?
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  Speaker 1: I think that the Amazon is Q two just by
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  Speaker 1: the nature of its size, has kind of sucked all
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  Speaker 1: the oxygen out of the room. But yes, I mean
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  Speaker 1: cities are are always looking for any type of economic development,
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  Speaker 1: even even even uh small businesses maybe creating fifty or
• 6:30
  Speaker 1: so jobs will get an audience and will get incentives
• 6:34
  Speaker 1: depending on the market and the the attract The attraction
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  Speaker 1: of the tech jobs is this generally you know, clean
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  Speaker 1: office type setting um jobs that pay good wages. And
• 6:44
  Speaker 1: that's always the uh, the problem or the detension around
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  Speaker 1: job creation tax credits is, Okay, we want job growth,
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  Speaker 1: but what kind of jobs are we investing in? And
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  Speaker 1: you know, good paying, high skilled tech jobs generally worth
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  Speaker 1: the investment in terms of that that ripple effect, people
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  Speaker 1: are enough to buy homes and and spend elsewhere in
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  Speaker 1: the economy. Sure, you heard the spencer, and we're talking
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  Speaker 1: about the advertising business that Amazon is looking for. Who
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  Speaker 1: gets hit by that? Facebook? Google? Probably not. I mean
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  Speaker 1: it's and I think Spencer did a good job in
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  Speaker 1: his story kind of talking about the potential losers there.
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  Speaker 1: It doesn't seem like the money that's being spent on
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  Speaker 1: advertisements on Amazon isn't necessarily money that would have been
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  Speaker 1: spent on Facebook, Um or Google anyway. But you know
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  Speaker 1: that's the kind of money that companies spend places like
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  Speaker 1: Walmart right to get better shelf placement at big box stores. Right,
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  Speaker 1: those are the kinds of budgets that are maybe instead
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  Speaker 1: shifting to Amazon, which is now getting the sort of
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  Speaker 1: equivalent of money to put tide at at on the
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  Speaker 1: shelves at eye level. I see. So that the button right,
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  Speaker 1: the tide buttons or what do they called, the Amazon
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  Speaker 1: sells you that, thank you, Spencer, that they're not doing
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  Speaker 1: their job. You've got to have advertising and addition, right Spencer. Yeah,
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  Speaker 1: and and what Sure just mentioned this. If you look
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  Speaker 1: at traditional marketing, especially big CpG brands, consumer package goods brands.
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  Speaker 1: These are the products that are lining the shelves of
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  Speaker 1: a supermarket. Uh. They've they've developed a program over years
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  Speaker 1: of a combination of TV commercials, radio commercials, display advertising
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  Speaker 1: in newspapers and magazines, coupons in your mailbox, and what
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  Speaker 1: Amazon brings is kind of a one stop solution for
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  Speaker 1: all of that UM and even even the in store placement.
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  Speaker 1: They call it like trade promotional, but basically they're paying
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  Speaker 1: for an end cap or they might even not necessarily
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  Speaker 1: be paying the retailer, but offering a discounted price that
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  Speaker 1: that retailer come promote to get an end cap placement
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  Speaker 1: in the store. UM that that's spending, all of that
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  Speaker 1: combined is like two billion dollars for consumer package for
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  Speaker 1: goods companies. So even if Amazon takes us takes the
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  Speaker 1: piece of that, there's a lot of room for a
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  Speaker 1: lot of ceiling there. Thanks very much, Spencer Soaper, Bloomberg
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  Speaker 1: News reporter, and our thanks also to share over Day,
• 9:02
  Speaker 1: Bloomberg Gadfly columnist. We turn our attention now to the
• 9:09
  Speaker 1: world of NAFTA and trade with Jacques Gordon he Is
• 9:12
  Speaker 1: Kellogg School of Management, Real Estate professor and the global
• 9:15
  Speaker 1: head of research and strategy for LaSalle Investment Management that
• 9:19
  Speaker 1: helped to manage more than sixty billion dollars worth of
• 9:22
  Speaker 1: real estate assets. Jacques, thank you very much for being
• 9:25
  Speaker 1: with us. You know. President Donald Trump yesterday said that
• 9:28
  Speaker 1: terminating the North American Free Trade Agreement would result in
• 9:32
  Speaker 1: the quote best deal to fix the twenty four year
• 9:36
  Speaker 1: old trade packed between Canada, Mexico and the United States.
• 9:41
  Speaker 1: But lawmakers, industrial groups, agricultural proponents, they all say this
• 9:47
  Speaker 1: is not a good idea. What do you glean from
• 9:51
  Speaker 1: this back and forth? Well, it could be posturing. UM.
• 9:56
  Speaker 1: Of course, the US President has um UH spoken on
• 10:02
  Speaker 1: both sides of this issue at some point, saying that
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  Speaker 1: he was a little bit flexible about NAFTA last week
• 10:08
  Speaker 1: and then this week. UH certainly heading into the sixth
• 10:12
  Speaker 1: round of discussions UH scheduled up in Canada and Montreal
• 10:16
  Speaker 1: and January twenty three. It could be it could be
• 10:19
  Speaker 1: just being able to put a bit of fear of
• 10:21
  Speaker 1: God into the other trade representatives from Mexico and Canada.
• 10:26
  Speaker 1: Who knows, UM, But in the world of real estate,
• 10:30
  Speaker 1: similar to other industries, we are watching, UH. The NAFTA
• 10:34
  Speaker 1: negotiations with great interest. UM I think real estate is
• 10:39
  Speaker 1: not UM in the direct line of path of the
• 10:43
  Speaker 1: of the of the NAFTA negotiations. But but we're watching
• 10:48
  Speaker 1: them carefully because of course the UM manufacturers, agriculture industries,
• 10:54
  Speaker 1: financial services industries, well, those those folks are all tenants
• 10:57
  Speaker 1: in our buildings, and so UM my firm and others
• 11:01
  Speaker 1: have huge operations UM in in all three countries, and
• 11:05
  Speaker 1: we'll be watching carefully for any UM any rollback that
• 11:10
  Speaker 1: makes it harder for our tenants to do business. And
• 11:13
  Speaker 1: that's that's really the focus that probably most real estate
• 11:17
  Speaker 1: people are watching very careful. You have big firms like Brookfield,
• 11:21
  Speaker 1: like LaSalle, um many firms who are are investing UH
• 11:27
  Speaker 1: and and operating large portfolios of property across the borders
• 11:32
  Speaker 1: of Canada, US and Mexico. So so we do care
• 11:35
  Speaker 1: about this topic as well. Amazon, for example, released their
• 11:39
  Speaker 1: shortlist can I put short in air quotes twenties cities
• 11:45
  Speaker 1: for their potential headquartered to UH, and it basically is
• 11:49
  Speaker 1: who's who of cities in North America. But it included Toronto,
• 11:52
  Speaker 1: which I thought was very interesting and I'm just wondering,
• 11:55
  Speaker 1: can you walk us through what the real estate effects
• 11:58
  Speaker 1: would be on a city that one this golden ticket
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  Speaker 1: that Amazon is kind of hanging out there. Well, we said,
• 12:05
  Speaker 1: the real estate world is is really watching this carefully because, UM,
• 12:11
  Speaker 1: what's happening is is all of those um what was
• 12:14
  Speaker 1: it two thirty cities UH not only said, uh, do
• 12:19
  Speaker 1: we welcome Amazon, and we've got the workforce and we've
• 12:22
  Speaker 1: got the tax abatements, but we have the locations, we
• 12:26
  Speaker 1: have the buildings, we have the real estate development UH
• 12:29
  Speaker 1: expertise to handle you. Now we're down to twenty and
• 12:33
  Speaker 1: Toronto is very competitive on on all those fronts. And UM,
• 12:41
  Speaker 1: just as a good example, Sidewalk Labs, which is part
• 12:44
  Speaker 1: of Alphabet, part of that that enormous UH empire UM
• 12:49
  Speaker 1: that UH is UM looking at doing more in cities,
• 12:55
  Speaker 1: has chosen Toronto as a place where they will basically
• 12:59
  Speaker 1: be working on de oping a city of the future.
• 13:01
  Speaker 1: It wouldn't surprise me that that that whole effort and
• 13:04
  Speaker 1: the Amazon bid that Toronto put forward was linked in
• 13:08
  Speaker 1: some way. Uh. I think all these cities are trying
• 13:11
  Speaker 1: to say, look, we're the place where knowledge industries are
• 13:14
  Speaker 1: are going to be comfortable, and a firm like Amazon
• 13:17
  Speaker 1: should consider Toronto very very seriously. I I it makes
• 13:23
  Speaker 1: total sense to me that Toronto is on the list. Um.
• 13:26
  Speaker 1: Of course they're gonna have a tough competition with the
• 13:28
  Speaker 1: likes of Washington, d C. And Boston and Atlanta and Austin,
• 13:32
  Speaker 1: who are all on the list as well. But um,
• 13:36
  Speaker 1: luckily so I think. I think in terms of location, location, location, um, Vancouver,
• 13:42
  Speaker 1: um uh, Toronto, um uh. These these cities compete right
• 13:47
  Speaker 1: alongside American cities for jobs when things get expensive in
• 13:51
  Speaker 1: incoding world in in San Francisco. Vancouver is a place
• 13:56
  Speaker 1: that UM tech firms like to go as a way
• 13:58
  Speaker 1: to diversify their operations. So there's a lot of just
• 14:03
  Speaker 1: um integration of of the way that companies in technology
• 14:08
  Speaker 1: as well as the ones I know Bloomberg's covering on
• 14:11
  Speaker 1: industrial auto manufacturing, agriculture. Of course those supply chains are
• 14:15
  Speaker 1: all integrated across three countries too, But there are a
• 14:18
  Speaker 1: lot of other industries real estate being one, financial services
• 14:21
  Speaker 1: being another, technology being another, that really operate pretty seamlessly
• 14:26
  Speaker 1: across across all three borders. So um um, you know,
• 14:30
  Speaker 1: it's it's very difficult to to read what uh Robert
• 14:34
  Speaker 1: Leightheiser maybe thinking, and what what the White House may
• 14:38
  Speaker 1: be thinking as they go into the Montreal talks. But
• 14:41
  Speaker 1: we're all hoping that a complete rollback of NAFTA is
• 14:45
  Speaker 1: just posturing and not really, not really, not really on
• 14:49
  Speaker 1: the table. Jack Gordon, thank you so much for joining us.
• 14:51
  Speaker 1: As Jacques Gordon is global head of Research and Strategy
• 14:54
  Speaker 1: for LaSalle Investment Management, which oversees nearly sixty billion dollars
• 14:59
  Speaker 1: in US. It's also professor of real estated Kellogg School
• 15:02
  Speaker 1: of Management. Coming to us from Chicago, he says that
• 15:10
  Speaker 1: the traditional approach to being a passive, intermediate maturity focused
• 15:14
  Speaker 1: investors seeking income only is no longer suitable for municipal
• 15:19
  Speaker 1: bond investors. Well, here to tell us why is Bob
• 15:22
  Speaker 1: de Mella. He is the co head of Municipal Managers
• 15:24
  Speaker 1: from McCay Shields, helping to manage more than twenty three
• 15:27
  Speaker 1: billion dollars. He joins us in our eleven three oh studios. Bob,
• 15:31
  Speaker 1: thank you very much for coming in. So why is
• 15:33
  Speaker 1: that no longer a suitable perspective for investors? I think
• 15:38
  Speaker 1: what has happened is, if you look at the shape
• 15:39
  Speaker 1: of the municipal yield curve, your average investor in the
• 15:42
  Speaker 1: high grade intermediate space no longer has a reasonable income
• 15:46
  Speaker 1: stream anymore, and that's the primary goal for a bond
• 15:48
  Speaker 1: or a bond strategy, right, but you also have a
• 15:51
  Speaker 1: reasonable amount of duration risk in that space. And so
• 15:54
  Speaker 1: we're advising clients to actually move away from either a
• 15:57
  Speaker 1: little longer out the yield curve or a barbell st ategy,
• 16:00
  Speaker 1: which is even better. That's going to make a big
• 16:03
  Speaker 1: difference for them on an income stream and also potential
• 16:05
  Speaker 1: total return. Especially give on our outlook with regards to
• 16:08
  Speaker 1: the yield curve, What do you mean to mean? Because
• 16:10
  Speaker 1: I'm looking, for example, at a tenure in New York State,
• 16:13
  Speaker 1: you'll get about two correct, and so uh as an example,
• 16:18
  Speaker 1: we have our our our flagship National fund, you can
• 16:20
  Speaker 1: attain around a three and a quarter three and a
• 16:23
  Speaker 1: half percent yield um if you're taking more of a
• 16:26
  Speaker 1: barbell strategy, being a little more creative with regards to
• 16:29
  Speaker 1: the yield curve. The problem with that bond that you
• 16:31
  Speaker 1: just pointed out, right, it's it's a two percent yield,
• 16:34
  Speaker 1: it's an eight year duration and so therefore it doesn't
• 16:37
  Speaker 1: take much of a rise in rates and and then
• 16:39
  Speaker 1: your net total return is negative and you're kind of
• 16:43
  Speaker 1: playing catch up with that, and so we think income
• 16:45
  Speaker 1: is really important, and so people should look at their
• 16:48
  Speaker 1: overweight allocations that they have today with the high grade
• 16:51
  Speaker 1: intermediate part of the municipal yield curve and and allocate
• 16:55
  Speaker 1: away from that. Let's just seem out a little bit
• 16:58
  Speaker 1: in just to take a look at the municipal bond
• 17:00
  Speaker 1: category as an asset class. There was a three point
• 17:04
  Speaker 1: one billion dollar in flow into municipal bond funds in
• 17:09
  Speaker 1: the week end in January. This set an all time
• 17:12
  Speaker 1: high record. This was from i c I, the Investment
• 17:15
  Speaker 1: Company Institution for UH for investment managers, and I have
• 17:21
  Speaker 1: to wonder, you know, this follows pretty steady flows, not
• 17:24
  Speaker 1: this high. There's a lot of demand for this stuff
• 17:27
  Speaker 1: right now that should be good for municipal bonds. Now.
• 17:30
  Speaker 1: It is definitely good for bonds, and it's one of
• 17:31
  Speaker 1: our main themes for two thousand eighteen. We believe the
• 17:34
  Speaker 1: municipal marketplace. One of our insights at Mackay is that
• 17:37
  Speaker 1: the ratios of one of the relative value ratios that's
• 17:40
  Speaker 1: always used is muni triple a yields versus triple A treasuries.
• 17:45
  Speaker 1: Historically on the long ends around eight percent. We believe
• 17:48
  Speaker 1: you're going to test twenty year lows this year, in
• 17:50
  Speaker 1: other words, that the yields on municipal bonds will fall
• 17:55
  Speaker 1: much lower relative to treasuries than in the past has
• 17:58
  Speaker 1: been sustainable. Correct, And a couple of different reasons for that.
• 18:01
  Speaker 1: One is technicals, really strong demand, increasing demand, especially for
• 18:06
  Speaker 1: high tax states like California, New York, New Jersey. In
• 18:09
  Speaker 1: addition to a significant reduction in supply, tax reform has
• 18:13
  Speaker 1: a big reduction in supply going into two thousand eighteen.
• 18:16
  Speaker 1: So here's what I'm struggling with. Because we hear about
• 18:19
  Speaker 1: the the infrastructure problems that a lot of states are having,
• 18:23
  Speaker 1: not hearing a lot about how that's going to get financed.
• 18:26
  Speaker 1: There's certainly some issues with high tax states. What's the
• 18:30
  Speaker 1: revenue going to look like? Given potential exodus is on
• 18:34
  Speaker 1: the heels of this tax plan? Um, how are you
• 18:38
  Speaker 1: thinking about that? Does that concern you at all? Yeah?
• 18:41
  Speaker 1: So you have to Yeah, absolutely, I mean you picked
• 18:44
  Speaker 1: the you picked the problem. I'll give you you know. Yeah, No,
• 18:47
  Speaker 1: there's there's absolutely, But the municipal marketplace is a very
• 18:51
  Speaker 1: strong credit worthy marketplace and without issues, no but most
• 18:56
  Speaker 1: states have done pension reform. The overall credit characteristics of
• 18:59
  Speaker 1: the municipal marketplace is very positive. Infrastructure will definitely play
• 19:02
  Speaker 1: out with it. As you know, Washington, d C. Is
• 19:04
  Speaker 1: grappling with some kind of infrastructure solution. The infrastructure need
• 19:08
  Speaker 1: in the in the United States will not be born
• 19:12
  Speaker 1: municipal entities. As a matter of fact, you have seen it.
• 19:14
  Speaker 1: They've pulled away from a lot of the projects. We've
• 19:17
  Speaker 1: had an introduction of the P three structures to public
• 19:19
  Speaker 1: private partnerships, which is part of the funding for um
• 19:25
  Speaker 1: tapan Zee Bridge replacement, Gothel's Bridge and also LaGuardia terminal replacement.
• 19:29
  Speaker 1: That brings private equity, private debt into the mix in
• 19:32
  Speaker 1: addition to yes taxpayer municipal bonds. And so we actually
• 19:36
  Speaker 1: think the supply of the municipal marketplace this year is
• 19:39
  Speaker 1: going to shrink. The new issue volume is probably gonna drop.
• 19:43
  Speaker 1: That's a big reduction, Bob. I'm just go back to
• 19:46
  Speaker 1: this idea of having to change the way you view
• 19:50
  Speaker 1: municipal bond investing because of the tax overhaul. If you
• 19:54
  Speaker 1: hold whatever bonds you purchased and maturity and you're okay
• 19:58
  Speaker 1: with the interest rate, that you're getting I assume that
• 20:00
  Speaker 1: you should be smiling at the end of that particular term, correct.
• 20:03
  Speaker 1: So I'm wondering about the alignment of interest because if
• 20:06
  Speaker 1: you're a manager of municipal debt, your interest obviously is
• 20:11
  Speaker 1: to make sure that you don't show any big capital losses.
• 20:14
  Speaker 1: But if you're an actual investor, you don't really care
• 20:17
  Speaker 1: in terms of the interim what happens to your capital.
• 20:19
  Speaker 1: You just want to get paid and you know you're
• 20:21
  Speaker 1: gonna get your money back at the end, So why
• 20:24
  Speaker 1: go further out on the yield curve for that extra
• 20:26
  Speaker 1: bit of yield? Um In in many cases it's not
• 20:29
  Speaker 1: just a little extra bit of yield. And I'm not
• 20:31
  Speaker 1: talking about increasing your interst rate risk again I throughout
• 20:34
  Speaker 1: Barbell strategy. With a Barbel strategy, you're not increasing your
• 20:38
  Speaker 1: duration risk, and you actually can actually something short term,
• 20:42
  Speaker 1: you can match it with something short term exactly, and
• 20:44
  Speaker 1: you can insulate yourself from the risk that what have
• 20:47
  Speaker 1: happens if the shape of the municipal yield curve shifts.
• 20:49
  Speaker 1: As an example, with tax reform, there's the potential for
• 20:53
  Speaker 1: banks and property and casualty insurance company reducing their exposures
• 20:57
  Speaker 1: in the municipal marketplace because their tax rates have come down.
• 21:00
  Speaker 1: Banks and property casually insurance companies are own very large
• 21:03
  Speaker 1: books of high grade intermediate municipal bonds. Now, I don't
• 21:07
  Speaker 1: think they're gonna be net sellers per se, but they're
• 21:09
  Speaker 1: certainly got not going to be marginal buyers in two
• 21:11
  Speaker 1: thousand eighteen. So what's going to happen in that part
• 21:14
  Speaker 1: of the yield curve versus the rest of the yield curve.
• 21:17
  Speaker 1: So I'm an active municipal bond money manager. I can
• 21:20
  Speaker 1: absolutely sit there in front of a client and say, listen,
• 21:24
  Speaker 1: look and think actively in the municipal space. You're absolutely right, Pimp.
• 21:27
  Speaker 1: Most clients don't think actively in the community book. They
• 21:30
  Speaker 1: put it aside. It's low risk, low ball, and as
• 21:33
  Speaker 1: long as it gives them a reasonable tax exempt income stream.
• 21:37
  Speaker 1: Here at Mackay we're a little different. We say I'm
• 21:39
  Speaker 1: gonna give you capital preservation. I'm also going to give
• 21:41
  Speaker 1: you a slightly better than attractive income stream, but also
• 21:44
  Speaker 1: I'm gonna look at the entire municipal marketplace from a
• 21:46
  Speaker 1: total return lens. Because at the end of five or
• 21:50
  Speaker 1: ten years, as you pointed out with your time horizon
• 21:52
  Speaker 1: if I can be a little more opportunistic and make
• 21:55
  Speaker 1: money for you in between. With some certain strategies you're after.
• 21:59
  Speaker 1: Tax return is substantially better without a significant increase in risk.
• 22:04
  Speaker 1: Real quick. To your clients, understand what you tell them
• 22:07
  Speaker 1: when you explain this to them. Yeah, we have you
• 22:09
  Speaker 1: know what, we have a great clientele base, not only
• 22:11
  Speaker 1: in the in the pure retail space, but the ultrahan
• 22:14
  Speaker 1: net worth family office client space. We are different, so
• 22:17
  Speaker 1: I'm I'm a different participant, our team is different in
• 22:21
  Speaker 1: the municipal marketplace. We absolutely look at it through a
• 22:24
  Speaker 1: total return lens. There's opportunities out there as to how
• 22:27
  Speaker 1: you you can make money UM, and there's other risks
• 22:30
  Speaker 1: out there with it. Right. Our insights this year talk
• 22:32
  Speaker 1: about it's a return and a risk profile in the
• 22:34
  Speaker 1: current year. I think when you look at the different
• 22:37
  Speaker 1: credit and yield curve UM issues with regards to not
• 22:40
  Speaker 1: only tax reform, but everything else that's going on with
• 22:43
  Speaker 1: regards to the federal Reserve. Yes, i am I will
• 22:46
  Speaker 1: sound different than most money managers in the municipal space.
• 22:49
  Speaker 1: Bob Damela, thank you so much for joining us. Bob
• 22:51
  Speaker 1: Tamela as co head of the Mackay Municipal managers. Another
• 22:58
  Speaker 1: story that we're keeping track of is Airbus, which seems
• 23:01
  Speaker 1: to be getting a lifeline. I want to bring in
• 23:04
  Speaker 1: George Ferguson's your aerospace defense airlines analyst for Bloomberg Intelligence
• 23:08
  Speaker 1: who joins us. Now this seems like a pretty big deal.
• 23:12
  Speaker 1: Airbus getting the sixteen billion dollar order from Emirates, yet
• 23:16
  Speaker 1: shares up just under one point three percent. Why are
• 23:20
  Speaker 1: shareholders not rallying more around this? Hey, good morning, Lisa.
• 23:24
  Speaker 1: I think the challenge here is that the A three
• 23:28
  Speaker 1: eight doesn't make any money for Airbus, and this order
• 23:31
  Speaker 1: doesn't materially change the landscape for the A three eight.
• 23:34
  Speaker 1: And the reason I say that is that the order
• 23:37
  Speaker 1: book is still very very much um uh Emirates focus.
• 23:42
  Speaker 1: There's some order actually. I think this will go to
• 23:45
  Speaker 1: a hundred and fifteen firm motors, and sixty of those
• 23:48
  Speaker 1: will be the Emirates. I don't really see it changing
• 23:51
  Speaker 1: the production rate right now, Airbus building about twelve of
• 23:55
  Speaker 1: these a year, they'll they'll just dip down to about
• 23:57
  Speaker 1: eighty year that they can't make a profit there, or
• 24:00
  Speaker 1: much of a profit there. So the program is still
• 24:03
  Speaker 1: sort of limping along with one real customer, which is
• 24:07
  Speaker 1: Emirates not making any money. This doesn't change either of
• 24:11
  Speaker 1: those outlooks. And you know, Emirates is not going to
• 24:13
  Speaker 1: bring these orders forward quickly so that it's not going
• 24:16
  Speaker 1: to change production rate. So the program is still very challenged.
• 24:21
  Speaker 1: It's just we've got a little more order in the
• 24:23
  Speaker 1: in the back of the in the back of the backlog. Now,
• 24:26
  Speaker 1: George's Emirates just really buying a big repair shop, because
• 24:30
  Speaker 1: if the air bus was going to close down the
• 24:32
  Speaker 1: production line, good luck trying to get those things fixed
• 24:34
  Speaker 1: in the future. Yeah, I mean, I'm not so sure
• 24:38
  Speaker 1: they're buying a big repair shop. I mean, I understand
• 24:40
  Speaker 1: what you're saying. And anybody else fly that's a three
• 24:44
  Speaker 1: eight and want to fly it. I mean there are
• 24:47
  Speaker 1: other people that do fly it, right, it's Singapore, but
• 24:51
  Speaker 1: they've got a couple of park Air France flies it, love,
• 24:55
  Speaker 1: tons of flies that Korean Air flies it. Um in time,
• 24:59
  Speaker 1: there may well be problems with getting spares on on
• 25:03
  Speaker 1: the airplane. I don't think we're near that yet. Um
• 25:06
  Speaker 1: Rolls makes an engine for it. Plus there's a consortium
• 25:09
  Speaker 1: with g that makes an engine for it. Saffran. Yeah,
• 25:14
  Speaker 1: I believe, but isn't. Isn't then the A three eighty
• 25:18
  Speaker 1: the wrong aircraft for the time, I mean it is.
• 25:22
  Speaker 1: And you know where we're seeing a concentration of orders
• 25:25
  Speaker 1: is really in the narrow body fleet, which is a
• 25:28
  Speaker 1: dfty to two some airplanes, and the small wide body fleet,
• 25:32
  Speaker 1: which is seven eight seven's, A three fifties, A three thirties.
• 25:37
  Speaker 1: That's where the bulk of the orders are being placed.
• 25:39
  Speaker 1: Those those airplanes are sort of two fifty two maybe
• 25:42
  Speaker 1: up the three hundred ish seats. That's where we see
• 25:45
  Speaker 1: the bulk of demand right now. At the top of
• 25:49
  Speaker 1: the wide body world, the A three eighties and seven
• 25:51
  Speaker 1: four sevens and even the larger twin engines, the triple seven,
• 25:56
  Speaker 1: we're seeing less demand and it's just harder to put
• 25:59
  Speaker 1: the those airplanes into markets and not have to deluke
• 26:03
  Speaker 1: fares to do it. So airlines are not as excited
• 26:06
  Speaker 1: about those airplanes right now. And again, so this sort
• 26:09
  Speaker 1: of helps this airplane continue to roll down the road.
• 26:12
  Speaker 1: I think Airbus thinks somewhere down the road there's a
• 26:15
  Speaker 1: lot of demand for this airplane. They're just trying to
• 26:17
  Speaker 1: get it to survive until that it helps. Yeah, it helps,
• 26:21
  Speaker 1: but it thanks. It's it's hard. Thanks very much. George Ferguson,
• 26:24
  Speaker 1: Senior Aerospace Defense analyst for Bloomberg Intelligence. And Dave Wilson,
• 26:28
  Speaker 1: Bloomberg Stocks Calm this. Thanks for listening to the Bloomberg
• 26:33
  Speaker 1: P and L podcast. You can subscribe and listen to
• 26:35
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 26:40
  Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
• 26:44
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 26:47
  Speaker 1: You can always catch us worldwide on Bloomberg Radio