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U.S. Pork Producers Are Forced Out of China-Led Rally · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. At least, let's talk pig, shall we.
• 0:23
  Speaker 1: It's been one year since the uh, you know, the
• 0:28
  Speaker 1: the Asian swine flew initially broke out in China. New
• 0:31
  Speaker 1: estimates show that the country's pig herd could be reduced
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  Speaker 1: by more than half at year end compared to the
• 0:37
  Speaker 1: last year. To get the latest on what that means
• 0:38
  Speaker 1: for the global pig market, let's welcome Christine McCracken. She's
• 0:42
  Speaker 1: the senior annals covering animal protein for Robbo Bank. She
• 0:46
  Speaker 1: joins us here in a Bloomberg Interactor Broker studio. She
• 0:48
  Speaker 1: braved the heat. We appreciate that, Christine. Thanks so much
• 0:51
  Speaker 1: for joining us. So give us kind of the latest
• 0:54
  Speaker 1: on this the African swine fever and what it's doing
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  Speaker 1: to First of all, the Chinese herd and market, and
• 1:01
  Speaker 1: then the global market. Sure, thanks for inviting me. Generally
• 1:05
  Speaker 1: in Asia continues to move fairly aggressively throughout China, specifically
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  Speaker 1: in southern China, and is moving into neighboring countries. So
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  Speaker 1: from the standpoint of the global market, about half of
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  Speaker 1: the world's hogs were in China prior to the a
• 1:21
  Speaker 1: s F outbreak. Roughly half of those have been lost,
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  Speaker 1: or a quarter of the world's supply, So a lot
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  Speaker 1: of pigs already gone, and it continues to move. Uh.
• 1:30
  Speaker 1: In terms of the market, prices had been fairly stagnant. Uh.
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  Speaker 1: You know, with that those losses, a lot of that
• 1:37
  Speaker 1: pork actually ended up in the market, UM and and
• 1:40
  Speaker 1: it weighed on prices for majority of the spring and summer.
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  Speaker 1: Now we're going into the stronger demand period with a
• 1:47
  Speaker 1: big holiday season coming up Chinese New Year uh first
• 1:51
  Speaker 1: of next year, and prices have started to move strongly higher,
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  Speaker 1: up about thirty percent just in the last thirty days
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  Speaker 1: UM and roughly double year ago level. So it's it's
• 2:01
  Speaker 1: taken a long time, but prices have moved up really strongly.
• 2:04
  Speaker 1: And and just in Asia, not a big reaction here
• 2:07
  Speaker 1: in the US or in Europe. Well, so let's talk
• 2:11
  Speaker 1: about the US and China in terms of pork production
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  Speaker 1: and imports and exports. So, if I understand this correctly,
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  Speaker 1: China imposes a pretty big tax, a pretty big tariff
• 2:24
  Speaker 1: on US pork. Is that correct? It is it's about
• 2:27
  Speaker 1: six on the sales of pork to China, and and
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  Speaker 1: that's obviously significantly higher than the rest of the world
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  Speaker 1: that don't face that tariff. So where at an extreme
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  Speaker 1: disadvantage relative to the rest of the world. So if
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  Speaker 1: China would like to make up for the hogs that
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  Speaker 1: were lost because of the virus, where do they go? Well,
• 2:49
  Speaker 1: you know, there really are just a few countries in
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  Speaker 1: the world that can make up that that deficit. UM
• 2:54
  Speaker 1: Europe is the largest. Uh. They have about twice as
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  Speaker 1: many hogs as the US and are free to x
• 3:00
  Speaker 1: board as much as they can to China, and they
• 3:02
  Speaker 1: have been aggressively exporting. Specifically, Spain and Germany and Denmark,
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  Speaker 1: the Netherlands all have been benefiting from exports to China. UM.
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  Speaker 1: Brazil is another big one that cannect sport to China
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  Speaker 1: and has been but there there herd is just a
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  Speaker 1: fraction of of what Europe has or the us UM
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  Speaker 1: Outside of those two countries, Canada has has some hogs
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  Speaker 1: but has now been blocked from UH exporting to China
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  Speaker 1: on the basis of some political disagreements, possibly Huawei UM.
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  Speaker 1: So you know, there's been a lot of red tape
• 3:35
  Speaker 1: there that's that's keeping them from exporting to China. And
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  Speaker 1: the US has been shipping even with the sixty tariff,
• 3:43
  Speaker 1: but still at very low levels. So is there any
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  Speaker 1: incentive for the us UM industry to increase the herd
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  Speaker 1: just to fill the global UH supply laws coming out
• 3:53
  Speaker 1: of China. Well, you know, there there would be if
• 3:56
  Speaker 1: markets were open that that is a possibility, But I
• 3:59
  Speaker 1: think if you look generally, there's a lot of constraints
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  Speaker 1: to expanding. It's a very you know, a long UH
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  Speaker 1: kind of lead time. It takes about two and a
• 4:07
  Speaker 1: half years to expand the herds, so it's not a
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  Speaker 1: simple process. You couldn't do it quickly. You might be
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  Speaker 1: able to add a little bit more weight, make bigger hogs,
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  Speaker 1: so you'd have more pounds to sell, but generally, you know,
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  Speaker 1: in terms of total expansion, not very likely. A lot
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  Speaker 1: of that's tied to labor. The plants generally are tight
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  Speaker 1: on labor. The ice raids in the last few weeks
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  Speaker 1: obviously have a lot of nervous workers, but prior to that,
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  Speaker 1: even we've been facing a labor shortage in the in
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  Speaker 1: the packing industry, just not enough places um to slaughter
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  Speaker 1: at the pigs if if in fact they were available.
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  Speaker 1: You know, it's so interesting. And Christina, you grew up
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  Speaker 1: on a farm in Minnesota, and we were talking about this,
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  Speaker 1: and I just find it so interesting how especially pork
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  Speaker 1: producers are really at the epicenter of a lot of
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  Speaker 1: the tensions that we're seeing increasingly, whether it's the tariffs
• 4:54
  Speaker 1: that are making their hogs less in demand than those
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  Speaker 1: in Europe or Brazil, as you were saying, or the
• 5:01
  Speaker 1: plants where they can't get enough workers. So has sort
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  Speaker 1: of is there a general feeling of unrest or sort
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  Speaker 1: of feeling of dissatisfaction amongst some of these pork producers.
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  Speaker 1: I think I think they have been a bit frustrated.
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  Speaker 1: It's not just the issues with China or you know,
• 5:16
  Speaker 1: with regard to other trade disputes where we're trying to
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  Speaker 1: get a deal done with Japan. Um that's our our
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  Speaker 1: top value market for for exports in terms of high
• 5:26
  Speaker 1: value products U S M c A still not ratified.
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  Speaker 1: We're looking for that to come through here later this fall. UM,
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  Speaker 1: big big markets in Mexico and Canada really important for
• 5:36
  Speaker 1: the pork industry specifically. And then you know, generally, all
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  Speaker 1: of these terrorists not just impacting pork, but the feet
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  Speaker 1: supplies as well, um because of the the export uh
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  Speaker 1: taxes on on um on soybeans for example. So we're
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  Speaker 1: facing a lot of issues in in the pork industry
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  Speaker 1: and I think it's making it very complicated, uh from
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  Speaker 1: a political standpoint for these farmers to know how to
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  Speaker 1: move forward. But generally, uh, you know, I think they're
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  Speaker 1: they're pretty firm and their support at this point in
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  Speaker 1: terms of government, uh, you know, the government involvement and
• 6:10
  Speaker 1: all of the things they're trying to do to open
• 6:12
  Speaker 1: up these markets. Christine McCracken, thank you so much for
• 6:15
  Speaker 1: being here. Christine McCracken has senior analysts focused on animal
• 6:19
  Speaker 1: protein for Robbo Bank based in New York, joining us
• 6:22
  Speaker 1: here in our Bloomberg Interactive Broker Studios. An interesting piece
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  Speaker 1: of news came out earlier this week, UH, in a
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  Speaker 1: widely circulated memo the Business Roundtable, which is a two organization,
• 6:48
  Speaker 1: kind of reversed itself and the writing now that shareholder
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  Speaker 1: primacy is no longer the sole purpose of a corporation. Instead,
• 6:55
  Speaker 1: corporations must include commitments to all stakeholders, which are customers
• 6:59
  Speaker 1: and joy's suppliers and local communities. If you get a
• 7:03
  Speaker 1: sense of what this means for corporate America, we turned
• 7:06
  Speaker 1: to our good friend Barry Ridholts. Barry's a Bloomberg Opinion
• 7:09
  Speaker 1: calumnists and host of Masters in Business on Bloomberg Radio. Barry,
• 7:14
  Speaker 1: thanks so much for joining us. So what do you
• 7:17
  Speaker 1: make of this letter coming out of the Business Roundtable?
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  Speaker 1: Kind of fascinating Given everything we've seen in terms of
• 7:25
  Speaker 1: rising income, inequality and social unrest both here and in Europe,
• 7:31
  Speaker 1: it seems as if the CEOs of America have figured
• 7:34
  Speaker 1: out that some trouble is off on the horizon and
• 7:38
  Speaker 1: they want to get out ahead of it. So this
• 7:40
  Speaker 1: is the cynical view, right that basically, uh, these hundred
• 7:44
  Speaker 1: and eighties some odds CEOs got together said all right,
• 7:48
  Speaker 1: we need to take a stand. We're not just trying
• 7:51
  Speaker 1: to raise profits, we're also trying to cater to the
• 7:54
  Speaker 1: greater good, cynical view is the greater good. It sounds
• 7:58
  Speaker 1: a lot better than our profits are falling, and we
• 8:00
  Speaker 1: don't know what to do with their money because, uh,
• 8:03
  Speaker 1: there doesn't seem to be anything to invest in that's
• 8:05
  Speaker 1: particularly profitable. Barry, can you give us some perspective, some
• 8:09
  Speaker 1: background on this round Table group and their history of
• 8:13
  Speaker 1: having sort of a political perspective. Sure. So. Uh, they
• 8:19
  Speaker 1: were formed in V two primarily as a counterweight against
• 8:25
  Speaker 1: the rise of labor unions, the New Deal, big any
• 8:28
  Speaker 1: trust enforcement, big regulations. Uh, they very much were counter
• 8:35
  Speaker 1: to President Roosevelt and everything that we saw going forward
• 8:40
  Speaker 1: from the post depression era. So they can talk about
• 8:44
  Speaker 1: wanting to support stakeholders, but look at what the Round
• 8:49
  Speaker 1: Table has done. They they've opposed consumer protections, they've opposed
• 8:53
  Speaker 1: increases to rising a minimum wage, um compensation, they've fought
• 8:59
  Speaker 1: any trust um enforcement. They really have been the only
• 9:04
  Speaker 1: thing that matters is corporate profits and to the shareholders
• 9:08
  Speaker 1: and anything else, we're going to oppose the challenge. And
• 9:12
  Speaker 1: and let me back up and and give kudos to
• 9:15
  Speaker 1: Jamie Diamond for he's been talking about this for a
• 9:18
  Speaker 1: couple of years now. He's been giving speeches. His annual
• 9:22
  Speaker 1: letter to shareholders has so this isn't I don't believe
• 9:25
  Speaker 1: this is just lip service. I think Diamond is serious
• 9:29
  Speaker 1: about this. However, when you look at all of the
• 9:32
  Speaker 1: members of the round table, they have very very strong
• 9:37
  Speaker 1: vested interests against the concept of stakeholder primacy. If you're
• 9:42
  Speaker 1: a MAX you have fine prints that's pages and pages long,
• 9:46
  Speaker 1: and you have an arbitration clause built into your contract
• 9:50
  Speaker 1: with your clients, that's not exactly um customer friendly. Uh.
• 9:54
  Speaker 1: Go go down the list Apple and Amazon. Hey, you're
• 9:57
  Speaker 1: the most successful companies in the world. Here's a crazy idea.
• 10:02
  Speaker 1: Why don't you guys pay your taxes. It used to
• 10:05
  Speaker 1: be it used to be that the I R S
• 10:09
  Speaker 1: enforced the tax regulation in a way that you could
• 10:14
  Speaker 1: do whatever you wanted to do, so long as it
• 10:17
  Speaker 1: served a legitimate business purpose. But if the sole purpose
• 10:21
  Speaker 1: of the reverse double Dutch go to Ireland, to the Bahamas,
• 10:25
  Speaker 1: to Liechtenstein, to grant Caymans, to the U S, if
• 10:28
  Speaker 1: the sole purpose of that is tax avoidance, the I
• 10:31
  Speaker 1: R S used to consider that illegitimate and would enforce
• 10:35
  Speaker 1: it and say no, you can't do that. US nineteen
• 10:38
  Speaker 1: billion dollars. So Amazon and Apple these are signatories to this.
• 10:42
  Speaker 1: Walmart a signature story to it. To be fair to Walmart, Yes,
• 10:46
  Speaker 1: they spent years and years opposing increases a minimum wage.
• 10:49
  Speaker 1: About three years ago they raised their own minimum payments
• 10:54
  Speaker 1: and they've dropped opposition to minimum wage. I think someone
• 10:57
  Speaker 1: explained to them, Hey, you guys are giant, have a
• 11:00
  Speaker 1: lot of cash, so it's an advantage to you. So
• 11:02
  Speaker 1: so the problem is all these signatories there, look at
• 11:07
  Speaker 1: all the big insurers and Morgan Stanley and Accent, some
• 11:10
  Speaker 1: of the other people who I don't remember facts assigned,
• 11:12
  Speaker 1: but a number of big insurers signed it. They're very
• 11:15
  Speaker 1: much against the fiduciary standard, which would tremendously benefit they're
• 11:21
  Speaker 1: the clients of their firm, but it would cost themselves profits.
• 11:25
  Speaker 1: So balancing this broad rhetorical desire with the specific needs
• 11:31
  Speaker 1: of the members of the business roundtable, that's a big challenge.
• 11:35
  Speaker 1: So one of the challenges I saw just in terms
• 11:37
  Speaker 1: of implementing this in a in a real way, is
• 11:40
  Speaker 1: that most executive compensation is tied to shareholder returns. Where
• 11:44
  Speaker 1: is the stock going um If you really want to
• 11:48
  Speaker 1: hold executive accountable to some of these stakeholder issues, some
• 11:51
  Speaker 1: of these softer issues, if you will. Does that mean
• 11:54
  Speaker 1: you have to change the executive compensation schemes for all
• 11:57
  Speaker 1: of corporate for a lot of corporate America to incorporate
• 12:00
  Speaker 1: maybe environmental sustainability, governance issues, all those types of things.
• 12:04
  Speaker 1: So it's a really interesting point. And and here's where
• 12:09
  Speaker 1: again I gotta go back to giving Jamie Diamond a
• 12:11
  Speaker 1: little bit of credit. And I think people have overlooked this,
• 12:14
  Speaker 1: you know, the idea of stakeholder primacy over shareholder primacy.
• 12:19
  Speaker 1: Let me say that same thing, but in a slightly
• 12:22
  Speaker 1: different way. We're more concerned with long term sustainable profits
• 12:26
  Speaker 1: for our company than just making the quarterly numbers. That's
• 12:30
  Speaker 1: the subtext here. If you take care of your customers
• 12:34
  Speaker 1: and your employees and your suppliers and everybody else involved
• 12:39
  Speaker 1: in in who has a stake in the company, well
• 12:42
  Speaker 1: that's fantastic long term. Look at companies that are private.
• 12:47
  Speaker 1: Look at look at Vanguard that doesn't care about shareholders,
• 12:51
  Speaker 1: but cares about their employees and their customers and whatever.
• 12:54
  Speaker 1: They became a giant that way. So substituting stakeholders for
• 12:58
  Speaker 1: shareholders really means that you're asking the shareholders to think
• 13:03
  Speaker 1: in terms of decades and years, not in terms of quarters. Now,
• 13:07
  Speaker 1: the way we can tie this into the executive compensation,
• 13:10
  Speaker 1: who is more interested in the quarterly numbers than the
• 13:13
  Speaker 1: c suite that, thanks to some late nineties legislation, are
• 13:18
  Speaker 1: capped at a certain dollar amount but have unlimited stock
• 13:21
  Speaker 1: option compensation. The way to fix that is to say,
• 13:24
  Speaker 1: we'll give you stock option compensation, but you can't cash
• 13:28
  Speaker 1: in for ten years, or you have to you have
• 13:31
  Speaker 1: to exercise. You have to put up some cash, and
• 13:33
  Speaker 1: you have to exercise within five years, and you have
• 13:35
  Speaker 1: to hold it for five years. So at that point,
• 13:37
  Speaker 1: nobody cares about next quarter. They start to think long term.
• 13:41
  Speaker 1: When we look at the emphasis on stock buy backs
• 13:44
  Speaker 1: and the decline in CAPEX, you have to think that
• 13:48
  Speaker 1: that has a lot to do with it. Verry rid Holts,
• 13:50
  Speaker 1: thank you so much for being with us. My pleasure.
• 13:53
  Speaker 1: Very rid Holtz is founder of rid Holt's Wealth Management,
• 13:55
  Speaker 1: Bloomberg opinion columnist, also host of Masters in Business on
• 14:00
  Speaker 1: Bloomberg Radio. When it comes to big tech, a sweet
• 14:19
  Speaker 1: spot has been the cloud, and the cloud has been
• 14:23
  Speaker 1: a profit driver from everyone from Amazon to Microsoft Salesforce
• 14:28
  Speaker 1: dot Com did have the first mover advantage and they
• 14:32
  Speaker 1: got into this. They've also become a darling of hedge funds.
• 14:36
  Speaker 1: Did you know, Paul that thirteen hedge funds have more
• 14:40
  Speaker 1: than five percent of the disclosed equity investments in Salesforce.
• 14:44
  Speaker 1: Let's talk about crowded trade. Yeah, what's interesting is that
• 14:48
  Speaker 1: the shares are of about six percent so far your date,
• 14:50
  Speaker 1: compared to seventeen and a half percent for the SMP.
• 14:53
  Speaker 1: But let's get a perspective and what to expect from
• 14:56
  Speaker 1: their earnings on our ground and joining us now here
• 14:58
  Speaker 1: in our Bloomberg Interactive broker studios on senior analysts of
• 15:02
  Speaker 1: software I T services for Bloomberg Intelligence, what are you
• 15:05
  Speaker 1: expecting from Salesforce? Not much, any major surprises. We don't
• 15:10
  Speaker 1: think the China is going to have an impact on
• 15:12
  Speaker 1: their sales. In fact, we think Salesforce is one of
• 15:16
  Speaker 1: the very few tech companies that should whether any downturn
• 15:19
  Speaker 1: if we do see in spending in this you know,
• 15:21
  Speaker 1: second half or next year. Why why is this stock
• 15:25
  Speaker 1: underperforming so greatly at a time when the cloud is
• 15:29
  Speaker 1: being adopted pretty much across the board worldwide. Hey, it's
• 15:34
  Speaker 1: done very well over the last few years. Second, the
• 15:36
  Speaker 1: size of this company is life very large right now,
• 15:39
  Speaker 1: compared to any you know, smaller MidCap company that is,
• 15:42
  Speaker 1: you know, that could double or triple in size. It's
• 15:44
  Speaker 1: difficult for a company like this to, you know, mathematically,
• 15:48
  Speaker 1: you know, from a from a statistical point of view,
• 15:50
  Speaker 1: give that kind of returns. But performance underlying is should
• 15:54
  Speaker 1: be very good in our view. Um, this is a
• 15:57
  Speaker 1: company that is not exposed to China, and in our view,
• 16:00
  Speaker 1: the two acquisitions that they did over the last you know,
• 16:03
  Speaker 1: eighteen months or so should help their product growth going
• 16:06
  Speaker 1: into next year. How important? How important? I'm looking at
• 16:09
  Speaker 1: the Bloomberg uh F A function for salesforce and looking
• 16:13
  Speaker 1: at the street consensus, you know, still over twenty revenue
• 16:16
  Speaker 1: growth in each of the next couple of years. How
• 16:19
  Speaker 1: important is or r M and A acquisitions to the
• 16:22
  Speaker 1: underlying growth storage salesforce? Because this guy is a serial
• 16:25
  Speaker 1: acquire right, he has done such a good job of
• 16:27
  Speaker 1: acquiring companies and then integrating them, coming up with newer
• 16:31
  Speaker 1: products to sell on the the client base. So go
• 16:33
  Speaker 1: back in history and they have one particular product called
• 16:36
  Speaker 1: the sales cloud, which is where the company started off
• 16:38
  Speaker 1: with that still is predominantly their biggest product. And what
• 16:42
  Speaker 1: they do is when they buy these newer, smaller units,
• 16:45
  Speaker 1: they go to that large install base and try to
• 16:47
  Speaker 1: sell them more products. That remains one of the core
• 16:50
  Speaker 1: businesses for the company. And for a cloud application industry
• 16:53
  Speaker 1: growing at these guys you eighteen percent organically and a
• 16:57
  Speaker 1: few acquisition points in a down term, this is going
• 17:00
  Speaker 1: to be a good place to hide. So where is
• 17:03
  Speaker 1: salesforce growing the fastest. It's all the emerging areas in
• 17:08
  Speaker 1: terms of integration, cloud marketing, cloud commerce, cloud areas that
• 17:13
  Speaker 1: are ancillary or or or complementary to the you know,
• 17:16
  Speaker 1: function of sales. So you want to go buy a
• 17:18
  Speaker 1: product online, you can you know, use their digital commerce
• 17:23
  Speaker 1: platform to buy something. You want to do something on
• 17:26
  Speaker 1: customer service side, and their latest acquisition of mule Soft
• 17:30
  Speaker 1: and Tableau will help you integrate a lot of data
• 17:32
  Speaker 1: that you have on your premises. So Tableau was the
• 17:35
  Speaker 1: most recent big deal that I can remember. So what's
• 17:38
  Speaker 1: the some of the early feedback in terms of integrating
• 17:40
  Speaker 1: this thing. And it's just going to be a good deal,
• 17:42
  Speaker 1: you think in hindsight. So think about it this way.
• 17:44
  Speaker 1: A lot of enterprises still have their data on their premises.
• 17:48
  Speaker 1: It's not on the cloud. I mean, one could argue
• 17:51
  Speaker 1: more than seventy to eighty percent of the data still
• 17:53
  Speaker 1: resides on you know, companies like Pepsi and Coca Cola
• 17:57
  Speaker 1: on their premises. You can take that data out and
• 18:00
  Speaker 1: use something like a Tableau to see a visualization dashboard
• 18:04
  Speaker 1: of all the different things that you have in house.
• 18:07
  Speaker 1: And they bought a company before that called mule Soft
• 18:09
  Speaker 1: that remains the software that can help them do it.
• 18:12
  Speaker 1: So it works very well with all the different front
• 18:15
  Speaker 1: offices things that they have right now. So when we
• 18:17
  Speaker 1: talk about the cloud landscape more broadly, I mean I'm
• 18:20
  Speaker 1: thinking Amazon a WS has been a huge profit driver
• 18:23
  Speaker 1: for them. Microsoft has been successful there. How much room
• 18:27
  Speaker 1: is there for all of these companies to grow their
• 18:31
  Speaker 1: cloud services at the same time, I mean, when do
• 18:34
  Speaker 1: we reach saturation? It's a good question. So Amazon plays
• 18:37
  Speaker 1: in the infrastructure layer. That's not the game for salesforce.
• 18:39
  Speaker 1: Salesforces all applications. Microsoft has a sweet spot that has
• 18:43
  Speaker 1: both infrastructure and applications, so it's it works very well.
• 18:48
  Speaker 1: Salesforce actually just tell us what that means. So the
• 18:51
  Speaker 1: infrastructure would be just giving the bear servers and the
• 18:54
  Speaker 1: storage capacity for you to store your application for Salesforce.
• 18:58
  Speaker 1: The Salesforce application is like you know, think about like
• 19:01
  Speaker 1: a Facebook or a LinkedIn the application that you can
• 19:04
  Speaker 1: just log in and do something. That's the kind of
• 19:06
  Speaker 1: work that they sell for enterprises, for sales people to
• 19:10
  Speaker 1: be more productive, customer service people to be more productive.
• 19:14
  Speaker 1: It's very similar to the app that you have on
• 19:16
  Speaker 1: your phone, but for an enterprise, not so much for
• 19:20
  Speaker 1: for a consumer. So Amazon is not in that business.
• 19:22
  Speaker 1: Amazon doesn't sell those things. That's the differentiation of both
• 19:27
  Speaker 1: these clouds, you know, rising in parallel. So one thing
• 19:30
  Speaker 1: I know about the cloud business is that it is
• 19:34
  Speaker 1: very competitive from a pricing perspective. And I know I've
• 19:36
  Speaker 1: read your research in the past and it's kind of
• 19:38
  Speaker 1: almost the concern might be it's a race to the bottom.
• 19:41
  Speaker 1: Give us a sense of kind of the pricing in
• 19:43
  Speaker 1: this market. How competitive is it and is that kind
• 19:46
  Speaker 1: of a risk for investors. Yeah, So, as we talked
• 19:48
  Speaker 1: about in the infrastructure labor layer, massive pricing pressure on
• 19:52
  Speaker 1: adding more capacity to build applications, store more data on
• 19:56
  Speaker 1: the Salesforce applications or work Day or viv those companies
• 20:00
  Speaker 1: that sell enterprise applications, there's not a whole lot of
• 20:03
  Speaker 1: pricing pressure there because what they're selling is something so
• 20:06
  Speaker 1: unique that only a handful of people do it that
• 20:08
  Speaker 1: at that scale. So in workday, for example, it's cloud
• 20:12
  Speaker 1: HR applications, only two or three people work in that area,
• 20:15
  Speaker 1: and they are not trying to you know, beat them
• 20:18
  Speaker 1: each other down to the bottom. Same thing with Salesforce
• 20:20
  Speaker 1: and the sales side of it, but on the infrastructure side,
• 20:23
  Speaker 1: we have massive pricing pressure, all right, So just to
• 20:26
  Speaker 1: sort of build on that. As far as the competitive landscape,
• 20:30
  Speaker 1: it sounds like Microsoft does have some offerings that you
• 20:33
  Speaker 1: compete with Salesforce dot Com. Who else is a competitor
• 20:37
  Speaker 1: um SAP is a big competitor. SAP is actually pushing
• 20:41
  Speaker 1: a lot of their efforts. They acquired a company called
• 20:43
  Speaker 1: call Tricks just not you know, long ago, and they
• 20:46
  Speaker 1: want to integrate that kind of in their legacy cloud
• 20:50
  Speaker 1: products and their you know, legacy on premise products, and
• 20:54
  Speaker 1: so they want to fight very aggressively with Salesforce. I
• 20:57
  Speaker 1: think they should have a good, you know, runway of
• 21:01
  Speaker 1: growth as well, but not at the expense of Salesforce,
• 21:04
  Speaker 1: because in the place where Salesforce plays at more than
• 21:07
  Speaker 1: fifty of the revenue of that total addressable market comes
• 21:10
  Speaker 1: from very very small players. We think sales SAP will
• 21:14
  Speaker 1: gain market share from those smaller vendors, not so much
• 21:16
  Speaker 1: from Salesforce. A rock Runa, thank you so much for
• 21:19
  Speaker 1: joining us on a rock A senior analysts covering software
• 21:21
  Speaker 1: and I T services for Bloomberg Intelligence joining us here
• 21:24
  Speaker 1: in a Bloomberg Interactive broker studio previewing Salesforce dot com.
• 21:42
  Speaker 1: The data that we're getting out about the US economy
• 21:45
  Speaker 1: is highly conflicted, and adding to some of the conflict
• 21:50
  Speaker 1: was today's July Conference Board Leading Economic Index, which actually
• 21:55
  Speaker 1: came out positive and more positive then people had expect.
• 22:00
  Speaker 1: Here to talk about it is Bart van Arc. He
• 22:02
  Speaker 1: has the Conference Board's chief economist joining us. Bart, I
• 22:05
  Speaker 1: just want to get started with the numbers. What exactly
• 22:08
  Speaker 1: did we see in July. Well, it's a pretty broad
• 22:11
  Speaker 1: based improvement actually in the numbers. Um so uh what
• 22:15
  Speaker 1: particularly helps Here's housing permits have picked up a fair bit.
• 22:19
  Speaker 1: Unemployment insurance claims have gone down, which was mentioned just
• 22:21
  Speaker 1: a little earlier. Stock prices in July were okay, not
• 22:24
  Speaker 1: in August of course, but the EU IDA world, the
• 22:26
  Speaker 1: leading credit index was okay. There are a few downsides,
• 22:29
  Speaker 1: you know, for example, the pm I I s M
• 22:31
  Speaker 1: index has been down or so in July, that's being continued,
• 22:34
  Speaker 1: but if you balance it all out, it was actually
• 22:36
  Speaker 1: somewhat stronger improvement that we had expected. And I think
• 22:38
  Speaker 1: what's very important, it's not just one month. Also, our
• 22:41
  Speaker 1: six months average has improved quite a bit and it's
• 22:43
  Speaker 1: sort of back on track at about an opened a
• 22:45
  Speaker 1: puts and growth. So the expansion just seems to extend
• 22:48
  Speaker 1: a bit further. It's interesting the some of the data,
• 22:51
  Speaker 1: your data today, some of the p m I data,
• 22:53
  Speaker 1: I think, and you know, just thinking back to some
• 22:55
  Speaker 1: of the retailers that reported this week, you know, just
• 22:57
  Speaker 1: kind of reinforcing this narrative that the consumers generally pretty
• 23:01
  Speaker 1: strong out there. But let's flip to the manufact and
• 23:04
  Speaker 1: that's seventy the U S economy, but that the manufacturing
• 23:08
  Speaker 1: side showed some signs continued signs of weakness, and we
• 23:12
  Speaker 1: certainly have seen some weaker numbers out of Europe, including Germany.
• 23:15
  Speaker 1: So kind of what are you seeing on the manufacturing front. Ye,
• 23:18
  Speaker 1: So the manufacturing cycle is still very weak, and as
• 23:20
  Speaker 1: you say, they are highly highly dependent on what's happening
• 23:23
  Speaker 1: in the rest of the global economy. So we've got Germany,
• 23:25
  Speaker 1: got the UK, Japan, significant parts of Asia are a
• 23:29
  Speaker 1: week So that's why we expected industrial cycle will continue
• 23:33
  Speaker 1: to be a downbeat on this whole story. But you know,
• 23:35
  Speaker 1: as you're saying in the US, it's the consumer which
• 23:37
  Speaker 1: really matters. As as long as the labor market remains
• 23:39
  Speaker 1: strong than they continue to see some raights increases, I
• 23:42
  Speaker 1: think we will pull this alone for a while. How
• 23:44
  Speaker 1: much of the increase in the unexpectedly large increase in
• 23:48
  Speaker 1: this leading economic indicator index is due to lower rates?
• 23:54
  Speaker 1: Any idea that the Fed was going to cut rates
• 23:57
  Speaker 1: more than people had previously expected earlier in the year. Yeah,
• 24:00
  Speaker 1: I think it's a little bit early to expect that.
• 24:02
  Speaker 1: It is sort of the change in tune of the
• 24:05
  Speaker 1: fellow reserves already playing out into the numbers except for
• 24:07
  Speaker 1: the confidence side. So I think on the confidence side
• 24:10
  Speaker 1: we will you know, I think it has helped consumers
• 24:12
  Speaker 1: to hear the story that there's you know, lower rates,
• 24:15
  Speaker 1: and that helps them a little bit. Well, the only
• 24:17
  Speaker 1: thing is about housing. You did see an improvement in housing.
• 24:20
  Speaker 1: There was an improvement in some of the credit metrics,
• 24:23
  Speaker 1: which have to do with also the lower rates makes
• 24:26
  Speaker 1: it easier to borrow and refinance and as well as equities. Right,
• 24:29
  Speaker 1: that's in part of one of the one of the
• 24:32
  Speaker 1: factors in the index. So all of those things were
• 24:35
  Speaker 1: sort of supported, and I'm just wondering how much of
• 24:37
  Speaker 1: a boost that is. I think the mortgage rates are
• 24:39
  Speaker 1: by far the most important here, and and that of
• 24:41
  Speaker 1: course because that's where you really will see these long
• 24:43
  Speaker 1: rates putting putting through into the mortgage rates becoming lower.
• 24:47
  Speaker 1: So I think that's why this housing permits number comes
• 24:49
  Speaker 1: in nice and the other housing indicators that also look
• 24:51
  Speaker 1: pretty well. So I think the housing market is a
• 24:53
  Speaker 1: very important parttion of this action. So it's interesting the
• 24:57
  Speaker 1: lot of talk kind of growing talk with a better
• 25:01
  Speaker 1: recession in the US economy. Maybe you know, I guess
• 25:03
  Speaker 1: in the beginning of the here people thinking oh mid now,
• 25:06
  Speaker 1: maybe pushed out the late um. But I guess, what,
• 25:11
  Speaker 1: what what is your data showing you and what are
• 25:14
  Speaker 1: your thoughts about a depending in recession in the US,
• 25:17
  Speaker 1: given just how far we are in the cycle of
• 25:18
  Speaker 1: no I would say, I mean, despite today's good number,
• 25:20
  Speaker 1: which we're very happy about. We still believe that the
• 25:24
  Speaker 1: economy is on a nice edge, and so our default
• 25:27
  Speaker 1: scenario is a gradual slowdown of the US economy to
• 25:30
  Speaker 1: about two for the remainder of this year, which is
• 25:32
  Speaker 1: slower than it was you know, last year, and even
• 25:35
  Speaker 1: the average at the beginning of this year and into
• 25:37
  Speaker 1: next year it will be around the two percent, which
• 25:39
  Speaker 1: by the way, is the underlying long term growth rate
• 25:41
  Speaker 1: of the economy. So who are more or less a trend,
• 25:43
  Speaker 1: But there is a down, a potential risk, of course,
• 25:45
  Speaker 1: a very very high and and again the consumer really
• 25:48
  Speaker 1: matters here. There's a lot of uncertainty in the economy.
• 25:51
  Speaker 1: The consumer seems to be okay with it. I mean,
• 25:53
  Speaker 1: you know, the news comes in and goes out, and
• 25:54
  Speaker 1: every day it changes. On balance, I think it's kind
• 25:56
  Speaker 1: of okay. But if any of these uncertainties, whether it
• 25:59
  Speaker 1: is Brexit or the trade dispute or Hong Kong is
• 26:02
  Speaker 1: turning into a big shock, the kazomer could pull back
• 26:05
  Speaker 1: and that wouldn't be the alternative scenario of a much
• 26:07
  Speaker 1: faster slowdown. So you say that even though this is positive,
• 26:11
  Speaker 1: you think that the U s economy is at a
• 26:12
  Speaker 1: knife's edge. What in the numbers is giving you that sense? Well,
• 26:17
  Speaker 1: I think in the numbers there are still as as
• 26:19
  Speaker 1: we have seen in today's numbers, very little, but the
• 26:22
  Speaker 1: underlying economic fundamentals have been weakening, you know, I mean
• 26:25
  Speaker 1: we we've been gradually slowing down to this trend growth
• 26:28
  Speaker 1: of the economy. Yes, the labor market is still strong,
• 26:30
  Speaker 1: but we're adding fewer jobs. Productivity is going up, but
• 26:34
  Speaker 1: it's not going up very rapidly. So if you add
• 26:36
  Speaker 1: all these factors up, then you know the U. S
• 26:38
  Speaker 1: economy is not gaining steam. We're just extending the expansion
• 26:42
  Speaker 1: and that puts the economy at a nice sge because
• 26:44
  Speaker 1: if there's a negative shocking the economy, you can very
• 26:47
  Speaker 1: quickly get into trouble. But again it's an alternative scenario.
• 26:50
  Speaker 1: Our probability is on the default of about two growth.
• 26:52
  Speaker 1: And are you expecting any kind of trade deal done
• 26:56
  Speaker 1: before the election or you just is your base case assuming? Now? Well,
• 26:59
  Speaker 1: the question is what exactly is a trade deal? I
• 27:01
  Speaker 1: think both the US and China want to get to
• 27:03
  Speaker 1: some kind of agreement because this back and thor of
• 27:05
  Speaker 1: on not agreeing on anything is not helpful. The question
• 27:08
  Speaker 1: is what is the nature of that agreement. The most
• 27:10
  Speaker 1: important thing, of course, is to get these terrorists of
• 27:12
  Speaker 1: the table, or at least the threat of terrorists, and
• 27:14
  Speaker 1: gradually pull them back better. We'll have a more fundamental
• 27:17
  Speaker 1: agreement which deals with you know, intellectual property and technology
• 27:21
  Speaker 1: and and foreign direct investment arrangements. I think that's probably
• 27:24
  Speaker 1: something that will take more time. Part Van Ark, thank
• 27:27
  Speaker 1: you so much for joining us part Dissy, chief Economists
• 27:29
  Speaker 1: for the conference board. Thanks for listening to the Bloomberg
• 27:32
  Speaker 1: P and L podcast. You can subscribe and listen to
• 27:34
  Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
• 27:38
  Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney and Lisa Abramo.
• 27:41
  Speaker 1: It's I'm on Twitter at Lisa Abramo. It's one before
• 27:44
  Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.