Latest / Bloomberg Intelligence / See Tesla At $88 By End of 2019: Vertical's Johnson

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See Tesla At $88 By End of 2019: Vertical's Johnson · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg pim 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
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Elon
• 0:32
  Speaker 1: Musk is having a bad morning. This comes after video
• 0:36
  Speaker 1: emerges of him taking a puff of a marijuana laced
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  Speaker 1: cigar on a comedy podcast that he was on. That's
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  Speaker 1: not although also to senior executives both stepping down, including
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  Speaker 1: the head of HR as well as the chief accounting officer.
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  Speaker 1: Not great shares down more than six percent, They've been
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  Speaker 1: down all ten percent or more than ten percent at
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  Speaker 1: one point. Let's bring in Gordon Johnson, Managing director and
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  Speaker 1: Alternative Energy Metals, Mining and Equipment Analystic Vertical Group in
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  Speaker 1: New York. Gordon, is this the end or is this
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  Speaker 1: just sort of another chapter in the ongoing saga of
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  Speaker 1: a very non traditional chief executive officer? But yeah, I mean,
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  Speaker 1: we don't know if it's the end um, but you know,
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  Speaker 1: we have a very uh draconium view on Tesla's outwork
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  Speaker 1: from a fundamental perspective, but we think lately it's more
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  Speaker 1: important to a lot of the investors um and the
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  Speaker 1: stock the perception of Elon Musk. And what's interesting is
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  Speaker 1: the chief accounting officer who we know left is leaving
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  Speaker 1: the company. They actually found this out on the fourth
• 1:46
  Speaker 1: um so that was released in the eight k. So
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  Speaker 1: when Elon Musk went on the podcast yesterday, he knew
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  Speaker 1: um that his chief accounting officer was leaving um um
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  Speaker 1: and uh, you know, decided to to as you as
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  Speaker 1: you know, to take a puff um. So I think
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  Speaker 1: that um, you know, as his credibility comes under more scrutinty,
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  Speaker 1: we think that's actually more important. We think it's wrong,
• 2:07
  Speaker 1: but nonetheless we think that's actually more important UM to
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  Speaker 1: the stock near term. Gorton Johnson. Is it possible to
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  Speaker 1: imagine Tesla without Elon Musk? Uh? Yes, I think it's possible.
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  Speaker 1: But I think if Elon Musk leaves, I think a
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  Speaker 1: lot of the enthusiasm comes out of this stock. I mean,
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  Speaker 1: think about this, Tim, you you know this well, you've
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  Speaker 1: seen this, you know in your years of uh you know, coverage.
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  Speaker 1: I mean, the chief accounting officer was there that lest
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  Speaker 1: one month. He's seen the books, He's seen things we
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  Speaker 1: haven't seen. Look, we highlighted on your show him that
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  Speaker 1: we questioned Tesla's accounting and specifically um you twenty seventeen
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  Speaker 1: and their Services and other segment. The revenue was essentially
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  Speaker 1: fat flat, but the cost of good soul um in
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  Speaker 1: that segment was up two hundred and sixty six million
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  Speaker 1: seventeen up only sixty six million. And the point is,
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  Speaker 1: we believe Tesla maybe shifting cost a good soult out
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  Speaker 1: of the automotive segment into the services another segment that's
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  Speaker 1: artificially boosting their their automotive margins. But this guy seens
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  Speaker 1: stuff we aren't seen, right, the stuff that's not disclosed,
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  Speaker 1: and he leaves less than a month with a ten
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  Speaker 1: million dollar grant package on the table that he walked
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  Speaker 1: away from. Question did he see well? And to be clear,
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  Speaker 1: he did point out that this was not because of
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  Speaker 1: some major accounting problem that he was leaving, so he
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  Speaker 1: was specific about that. But you do raise a good point,
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  Speaker 1: which is he did see a lot of things that
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  Speaker 1: we have not seen, and he chose to leave. Right now,
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  Speaker 1: we're looking at shares that are about two hundred and
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  Speaker 1: sixty two dollars, where do you think they ought to
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  Speaker 1: be given this backdrop? Our price target at the end
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  Speaker 1: of eighty eight dollars, and we think that's where the
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  Speaker 1: shares are headed. Keep in mind, Elon Musk has roughly
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  Speaker 1: thirteen point eight million shares treads against debt that Tesla has,
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  Speaker 1: and we don't know the strike price of when he
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  Speaker 1: has to effectively sell those shares, but when he does,
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  Speaker 1: we will see those those corn fours and that'll be
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  Speaker 1: yet another uh negative data point. Real quick though, I'd
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  Speaker 1: love to get your sense of whether today's news lowers
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  Speaker 1: that target further or it's just more noise confirming your thesis.
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  Speaker 1: We can't. We can't lower our target on Bloomberg Radio.
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  Speaker 1: But what I will say is, um, you know, you
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  Speaker 1: look at the competition that's coming, right the Mercedes car
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  Speaker 1: that was unveiled. I think it's the e q R
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  Speaker 1: that's unveiled. We're going to the Audi unveil later this
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  Speaker 1: month in September. And people keep asking the question, have
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  Speaker 1: you driven the Model three, and no, we haven't. We've
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  Speaker 1: driven a Model lesque um. But when you look at
• 4:47
  Speaker 1: the guys who have driven the Model three and then
• 4:49
  Speaker 1: they go and drive the Jaguar I pace are the
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  Speaker 1: Audi tron Um. They're saying that the newer cars um
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  Speaker 1: are much better. Um. And we're gonna we're gonna go
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  Speaker 1: drive a Model three this weekend. Uh. There's you can
• 5:02
  Speaker 1: drive a jag warre I taste. There's one in Manhattan
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  Speaker 1: jag War where you can drive. We're going to do that.
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  Speaker 1: So we're gonna we're gonna experience it ourselves. But I
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  Speaker 1: think that this company has major problems, major issues. Uh,
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  Speaker 1: and it's all out there in the open. And I
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  Speaker 1: think that, you know, some of the things the CEO
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  Speaker 1: is doing um UM, you know, are certainly denting further
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  Speaker 1: his credibility. And as we stated, I think that's more important.
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  Speaker 1: We think that's more important to the stock than even
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  Speaker 1: the fundamentals. We don't think that's right. We think people
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  Speaker 1: should look at the fundamentals, but we think people are
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  Speaker 1: investing this for Elon and Elon UM you know, is
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  Speaker 1: doing some questionable things, and I think that's going to
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  Speaker 1: weigh all the stock further. Just give you about the
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  Speaker 1: twenty seconds here, Gordon. If you're a fund manager and
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  Speaker 1: you are a long testleas stock. Do you think you're
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  Speaker 1: exposing yourself to potential lawsuits by your investors? Absolutely. You
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  Speaker 1: have a CEO who said funding secured, more importantly, said
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  Speaker 1: all that we need now is a shareholder vote that
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  Speaker 1: clearly was not true. You have a CEO who's smoking
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  Speaker 1: marijuana on tv UM, where the company policy is if
• 6:02
  Speaker 1: the employee smoke marijuana, you're supposed to report them um.
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  Speaker 1: You have guys like me and others out there highlighting
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  Speaker 1: clearly things in the public eye that you know. I
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  Speaker 1: think people are just ignoring and just saying, hey, we
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  Speaker 1: believe in Ellen. Uh if this stock collapses, I do
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  Speaker 1: think that there's some risk to guys who are ignoring
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  Speaker 1: all these red flags. I think that's a great question
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  Speaker 1: and I agree with that. Pim many thanks. Gordon Johnson
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  Speaker 1: is analyst and managing director at The Vertical Group. You're
• 6:30
  Speaker 1: speaking about Tesla, Well, takeing a look at the US
• 6:47
  Speaker 1: dollar right now, and while the emerging market currencies have
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  Speaker 1: gained a little bit of strength, that's not the case
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  Speaker 1: with the euro at one seventies seven, the pounds sterling
• 6:57
  Speaker 1: at sixty, the Japanese yen one eleven fourteen, and strength
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  Speaker 1: continues despite news from Canada that the Canadian Central Banking
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  Speaker 1: considered raising interest rates Canadian dollar at one. Here to
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  Speaker 1: tell us more is Dr win Thin, Global head of
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  Speaker 1: Emerging Markets FX for Brown Brothers Harriman win Thin. The
• 7:20
  Speaker 1: relationship between the US dollar and emerging market currencies? What
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  Speaker 1: are the links and how do they work? First are
• 7:29
  Speaker 1: thankfully thanks for having me. It's always a pleasure. Um.
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  Speaker 1: The outside performance of the US dollars this year has
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  Speaker 1: really been driven by two major factors. There's to be
• 7:38
  Speaker 1: the main one right now is still remains interest rate differentials.
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  Speaker 1: That is, the Fed is hiking rates, everyone else is not. Basically,
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  Speaker 1: of course, you have some outliers, as you mentioned Canada tightening,
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  Speaker 1: but for the most part developed world is pretty much
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  Speaker 1: in the steady state of near zero rates. Today's data
• 7:56
  Speaker 1: from the Commas Department was I'm sorry from BLS was
• 8:00
  Speaker 1: it was certainly eye opener. Um. The average alley earnings
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  Speaker 1: is what people are keying on two point ye over
• 8:05
  Speaker 1: a year cycle high the HYA stins June two thousand nine,
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  Speaker 1: So that to me tells I think tells the market
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  Speaker 1: the Fed is going to remain comfortable hiking rates. Um.
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  Speaker 1: Into next year. UM Septembers done deal December December is
• 8:18
  Speaker 1: gonna probably close getting close to be priced as a
• 8:20
  Speaker 1: done deal, and that's continuing to help fuel this dollar rally.
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  Speaker 1: When you know, it's really interesting. We were speaking with
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  Speaker 1: David and Sassa of Bloomberg Intelligence earlier and he said,
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  Speaker 1: there is a misconception right now in the emerging markets
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  Speaker 1: universe that the sell off stems from FED tightening, where
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  Speaker 1: it really stems much more from a tightening and financial
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  Speaker 1: conditions in China. Would you agree, Uh? No, I do.
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  Speaker 1: I would disagree. You know, as big as the Chinese
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  Speaker 1: economy is, the World Central Bank is still the said UM.
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  Speaker 1: The dollar rates really are a center as US of
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  Speaker 1: the benchmark for for all sorts of investments. That's out
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  Speaker 1: to say China doesn't have an impact, but I think
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  Speaker 1: the major impact is still coming from the US UM.
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  Speaker 1: I think the other I mentioned there's several factors hurting
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  Speaker 1: e M. To me, the other thing that's hurting emerging
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  Speaker 1: markets is the continue heightened trade tensions. It looks like
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  Speaker 1: the US is teeing up two more terraffs on Chinese goods.
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  Speaker 1: I think has threatened China's retaliating. Um, you know, despite
• 9:20
  Speaker 1: some good news at the marginal NAFTA, which also still
• 9:24
  Speaker 1: seems up in the air with Canada. I think trade
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  Speaker 1: the trade tension story is not going away anytime soon.
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  Speaker 1: So the really we're seeing libering repounds to EM but
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  Speaker 1: I remain negative into next year. Can you explain what
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  Speaker 1: countries that we have not been talking about our next
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  Speaker 1: on your list for per apps raising interest rates in
• 9:44
  Speaker 1: order to show up the value of their currency. Oh sure,
• 9:48
  Speaker 1: let's see. Well we in the emerging markets world, we
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  Speaker 1: already have had several UM. Argentina is obviously the biggest example. Uh.
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  Speaker 1: Turkey is hiking continue to hike. Brazil to me, Brazil
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  Speaker 1: sound to Africa, Russia. Those the three, uh, sort of
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  Speaker 1: in the next three in the fragile five that we're
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  Speaker 1: seeing Russia, South African, Brazil, Turkey, Argentina. I would say,
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  Speaker 1: a Russia's meeting next week. They're talking about a possible hike. UM.
• 10:11
  Speaker 1: Brazilian rail at the Central Bank. Um. Uh, it's been dubblished,
• 10:16
  Speaker 1: but I think to me, you know that with the
• 10:19
  Speaker 1: rail remains on the pressure, it's gonna have to consider
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  Speaker 1: a rate hike to Analysts are saying no rate hikes
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  Speaker 1: three year end, but the cd I market, that's the
• 10:24
  Speaker 1: fixed income market in Brazil is pricing in rate hike
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  Speaker 1: as soon as this month. So the market split on that,
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  Speaker 1: but I think Brazil will have to hike. South Africa,
• 10:32
  Speaker 1: to me, is the puzzled um they've they've rarely hiped
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  Speaker 1: rates to defend the rand in past episodes, and we
• 10:39
  Speaker 1: had a shocker contraction gdp Q two earlier this week
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  Speaker 1: make it more reluctant to high rates. So you know,
• 10:46
  Speaker 1: I think South Africa gonna it can be the outliers
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  Speaker 1: as the one that's standing doublished even though the Rand
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  Speaker 1: is under pressure. Do you think, just talking about this
• 10:53
  Speaker 1: from a liquidity standpoint, a technical standpoint, do you think
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  Speaker 1: that we've seen the bulk of forced selling or has
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  Speaker 1: the weakness that we've seen so far just been the
• 11:01
  Speaker 1: beginning and not really including that much in the way
• 11:05
  Speaker 1: of outflows. Oh well, I'll think I think the people
• 11:10
  Speaker 1: of economists answer and say, I think right in the middle.
• 11:12
  Speaker 1: I think, you know, very different. I think we've gone
• 11:16
  Speaker 1: through a lot of selling. I think you know, I
• 11:18
  Speaker 1: wouldn't say we're early on, but I don't think it's
• 11:20
  Speaker 1: we're by any means over So I think we're still
• 11:22
  Speaker 1: sort of navigating. I hear talk about how all evaluations
• 11:26
  Speaker 1: are great, but you know, facing you know, e M assets,
• 11:29
  Speaker 1: we're really inflated by the zero rate policy that we've
• 11:32
  Speaker 1: had after financial crisis, and we're still repricing um those assets.
• 11:37
  Speaker 1: As I mentioned that the ECB hasn't hiped yet, you know,
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  Speaker 1: they're they're starting normalizing probably next year. UM, So there's
• 11:43
  Speaker 1: still a lot of sort of repricing and liquid is
• 11:45
  Speaker 1: gonna be taken away in the coming quarters. So I
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  Speaker 1: would say let's let's remain cautious on em. Thank you
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  Speaker 1: so much for being with us. Dr Winton. Dr Winton,
• 11:56
  Speaker 1: Global head of Emerging Markets f X four Brown Brothers Harriman.
• 12:18
  Speaker 1: Supreme Court nominee Brett Kavanaugh has been very much in
• 12:21
  Speaker 1: the news as he speaks with senators in hearings on
• 12:25
  Speaker 1: Capitol Hell this week, talking about his past views, previous
• 12:29
  Speaker 1: letters he's written, and how he would view a president
• 12:33
  Speaker 1: in terms of potential criminal charges joining us now. Kimberly Robinson,
• 12:38
  Speaker 1: Supreme Court reporter for Bloomberg Law. Kimberly, let's just start
• 12:42
  Speaker 1: off with this idea that it seems very unlikely at
• 12:46
  Speaker 1: this point that Supreme Court nominee Brett Kavanaugh will be
• 12:49
  Speaker 1: derailed in his ascension to the court. Is that true? Well,
• 12:54
  Speaker 1: that is true, and that's because Democrats just don't have
• 12:57
  Speaker 1: the votes really to block his confirmation. Their best hope
• 13:00
  Speaker 1: seems to be to pro choice Republicans, but so far
• 13:04
  Speaker 1: they seem to be leaning towards supporting him, and it's
• 13:07
  Speaker 1: likely that they have to pick up a few more
• 13:08
  Speaker 1: Republicans because, uh, several Democrats are likely to vote for him,
• 13:13
  Speaker 1: given that they're facing really tough reelection battles, uh in
• 13:16
  Speaker 1: the midterm elections in states that went for Donald Trump
• 13:20
  Speaker 1: in the last presidential election. Well, Kimberly, so why are
• 13:23
  Speaker 1: they doing this, because it's not as if, I mean,
• 13:25
  Speaker 1: based on what you just described, they're not convincing anybody
• 13:28
  Speaker 1: that was unconvinced. And are they basically preaching to their
• 13:32
  Speaker 1: own choir? And why do that? Because it certainly seems
• 13:36
  Speaker 1: to have ignited a lot of criticism from those areas
• 13:42
  Speaker 1: of the political spectrum that may not have been paying
• 13:44
  Speaker 1: attention to this in the first place. Well, we are
• 13:47
  Speaker 1: seeing really unprecedented levels of protests, not only from senators themselves,
• 13:52
  Speaker 1: but also from audience members. I suspect that Democrats are
• 13:56
  Speaker 1: doing this not in order to trip up this confirmation battle,
• 13:59
  Speaker 1: although I'm sure they'd like to do that, but to
• 14:01
  Speaker 1: fire up their base for midterm elections. You know, traditionally
• 14:05
  Speaker 1: Republicans has cared more about the Supreme Court, and this
• 14:07
  Speaker 1: is the way to highlight for Democratic voters that you
• 14:10
  Speaker 1: have to vote in these midterm elections if you want
• 14:12
  Speaker 1: to have to say, and who is going to be
• 14:13
  Speaker 1: the next Supreme Court justice. So let's talk about who
• 14:16
  Speaker 1: Brett Kavanaugh is. What are the views that people must
• 14:18
  Speaker 1: object to here? Well, I think people, uh we've seen
• 14:22
  Speaker 1: are really pressing on his views on abortion, on gay rights,
• 14:26
  Speaker 1: and on affirmative action. And these are all issues were
• 14:30
  Speaker 1: just as Kennedy, whom Kavanaugh would be replacing, actually crossed
• 14:33
  Speaker 1: over and voted with their liberals. And so people are
• 14:36
  Speaker 1: watching these because they suspect that when Kavanaugh is confirmed
• 14:39
  Speaker 1: to the Supreme Court that these areas will switch shift
• 14:42
  Speaker 1: quite a bit. Is there any information that you believe
• 14:47
  Speaker 1: that exists about Brett Kavanaugh, either his opinions or his
• 14:53
  Speaker 1: time in the Bush White House that our earth shaking
• 14:58
  Speaker 1: and that we have not been privy to in any way. Well,
• 15:03
  Speaker 1: there's probably not a lot of information that we don't know.
• 15:07
  Speaker 1: We've seen over the last couple of days a few
• 15:09
  Speaker 1: documents come out that have been sort of described as bombshells,
• 15:14
  Speaker 1: but they described views the Brett kavanol that many people
• 15:17
  Speaker 1: suspect that he has, although these these documents seem to
• 15:20
  Speaker 1: prove it um. So we're not learning anything new about
• 15:24
  Speaker 1: Brett Kavanaugh. There are really no new concerns. It's just
• 15:26
  Speaker 1: raising these concerns. The voters are aware of them, all right,
• 15:30
  Speaker 1: So Kimberally, let's take a step back and just talk
• 15:32
  Speaker 1: about conservative ideology versus liberal ideology within Supreme Court law.
• 15:38
  Speaker 1: For example, antonin Scalia, who is deceased but who is
• 15:42
  Speaker 1: a long time very traditional Supreme Court or conservative Supreme
• 15:47
  Speaker 1: Court justice, was very good friends with Ruth Ruth Betty Ginzberg,
• 15:50
  Speaker 1: who was a very liberal Supreme Court justice. They disagreed
• 15:53
  Speaker 1: in a lot of things. What are some of the
• 15:55
  Speaker 1: fundamental differences in their ideology And does Brett Kavanaugh fit
• 16:01
  Speaker 1: in just the conservative classification or does he depart from that? Well,
• 16:06
  Speaker 1: I think one of the major differences that impacts Americans
• 16:09
  Speaker 1: most significantly is how liberal versus conservative justices view constitutional
• 16:15
  Speaker 1: interpretation and the constitutional rights that Americans have. And we see, uh,
• 16:22
  Speaker 1: conservatives really home close to the text of the Constitution,
• 16:26
  Speaker 1: seeming to grant fewer constitutional rights to individuals, and on
• 16:31
  Speaker 1: the opposite side, liberals, uh, having a more expansive view
• 16:35
  Speaker 1: of the rights that individuals have. Brett Cavanan does fit
• 16:38
  Speaker 1: that bill. He's called himself an originalist, and that is
• 16:41
  Speaker 1: the kind of person who you know, looks at the
• 16:44
  Speaker 1: past and what the public meaning was of the rights
• 16:48
  Speaker 1: that we have when the Constitution was passed, not what
• 16:51
  Speaker 1: we might want them to be today. Kimberly, the American
• 16:54
  Speaker 1: Bar Association committee that takes a look at nominees for
• 16:57
  Speaker 1: the Supreme Court says that Judge cab and A has
• 17:01
  Speaker 1: the highest rating and that he's well qualified. Is that
• 17:05
  Speaker 1: go ahead, I beg your pardon the American Bar Association. Uh,
• 17:10
  Speaker 1: they do this for every judicial nominee. Uh. They gave
• 17:14
  Speaker 1: him their highest qualification of well qualified. But when testifying today,
• 17:18
  Speaker 1: A B. A representatives wanted to emphasize that they don't
• 17:22
  Speaker 1: look at his political ideology. It's really just a peer
• 17:26
  Speaker 1: review of individuals who have worked with a judge and
• 17:28
  Speaker 1: who have argued before the judge. All right, so that
• 17:31
  Speaker 1: he is qualified. That's right, they said he was qualified. Um.
• 17:36
  Speaker 1: But it's important to note that you know, every Supreme
• 17:38
  Speaker 1: Court justice and modern history to come before the justices, um,
• 17:42
  Speaker 1: and who have gotten on the court have been marked
• 17:44
  Speaker 1: qualified by the A B. A. So it isn't a
• 17:47
  Speaker 1: signal of how they will vote once on the Supreme Court. Right, Okay,
• 17:51
  Speaker 1: very good. Thanks for clearing that up and being on
• 17:55
  Speaker 1: watch for us as always. Kimberly Robinson our Supreme Court
• 17:59
  Speaker 1: reporter for a Bloomberg Law. And you can of course,
• 18:02
  Speaker 1: uh follow Kimberly on Twitter at Kimberly Robinson that's without
• 18:09
  Speaker 1: the O at the end. And also you can follow
• 18:11
  Speaker 1: Bloomberg Law on Twitter at a Bloomberg Law. Wages in
• 18:30
  Speaker 1: the United States increased two point nine percent. The economy
• 18:34
  Speaker 1: adds over two hundred thousand new jobs. Here to tell
• 18:37
  Speaker 1: us more about the economy is Chris Lowe, chief economist
• 18:40
  Speaker 1: at FTN Financial. Chris, always a pleasure to have you
• 18:45
  Speaker 1: with us. Uh, maybe you could just do something for me.
• 18:48
  Speaker 1: Let's just pretend for a moment that you were born
• 18:53
  Speaker 1: after the financial crisis, of two thousand eight, and you
• 18:58
  Speaker 1: were to take a look at the state histics that
• 19:01
  Speaker 1: describe the current state of the US economy. If you
• 19:06
  Speaker 1: were to do that and then take a look at
• 19:09
  Speaker 1: the level of interest rates for US treasuries, would you
• 19:14
  Speaker 1: say that it makes sense or would you say that
• 19:16
  Speaker 1: there's something that doesn't that doesn't shibe. Well, it's certainly
• 19:23
  Speaker 1: if you think about it in terms of four percent
• 19:28
  Speaker 1: job four percent employment growth, four percent unemployment rate, historical norms.
• 19:36
  Speaker 1: Uh yeah, interest rates at these levels are just remarkably low.
• 19:41
  Speaker 1: But if if you as you said, we're born after
• 19:46
  Speaker 1: oh eight and and that's the world you know, then
• 19:50
  Speaker 1: then they make perfect sense. And in fact, John Williams
• 19:56
  Speaker 1: just yesterday talking about no sign of of financial excesses,
• 20:03
  Speaker 1: credit growth actually is tame by historical standards, is extremely low,
• 20:10
  Speaker 1: and in that sense, I think interest rates are perfectly
• 20:15
  Speaker 1: reasonable at these levels. The differences that Americans are just
• 20:21
  Speaker 1: much more reluctant to borrow than they have been in
• 20:23
  Speaker 1: the past. So given that backdrop, John Williams also said
• 20:28
  Speaker 1: some other things, particularly about the yield curve, saying that
• 20:30
  Speaker 1: they're going to continue to hike rates as they see fit,
• 20:34
  Speaker 1: even if that means inverting the yield curve, because it
• 20:37
  Speaker 1: doesn't seem to bother him. So do you expect more
• 20:41
  Speaker 1: rate hikes to go, especially after this pretty good jobs report?
• 20:46
  Speaker 1: I think so. I think September and December we're pretty
• 20:52
  Speaker 1: much in the cards anyway. That the issue was whether
• 20:55
  Speaker 1: they were going to pause in early. With faster wage growth,
• 21:00
  Speaker 1: the hawks are going to be emboldened. Even Williams who
• 21:04
  Speaker 1: had some doubts yesterday about the wage growth mystery, this
• 21:10
  Speaker 1: report should answer some of those doubts and and maybe
• 21:14
  Speaker 1: settled the mystery for him. Uh. It wasn't just that
• 21:17
  Speaker 1: wages rose in August. They were revised up in June
• 21:20
  Speaker 1: and July as well. Job wage growth over the summer
• 21:25
  Speaker 1: was terrific. Average weekly earnings, which reflect both the the
• 21:30
  Speaker 1: hourly rate of wages but also the work week. We're
• 21:34
  Speaker 1: up at a three point to six pace over the summer,
• 21:40
  Speaker 1: which is the fastest in the cycle. Uh, you know,
• 21:44
  Speaker 1: wages are heating up. But a little perspective is probably
• 21:49
  Speaker 1: a good idea to given the age of the expansion,
• 21:53
  Speaker 1: wage growth at this point. Back in in the two
• 21:55
  Speaker 1: thousand's expansion was four In the late ninety it was
• 22:00
  Speaker 1: running at three and a half to four percent, and
• 22:02
  Speaker 1: actually UH was in that range for about five years
• 22:07
  Speaker 1: with no significant inflation. So, yeah, wages are picking up,
• 22:13
  Speaker 1: but that they're still tamed by historical standards. Nevertheless, we
• 22:17
  Speaker 1: better see some productivity gains in the next six months
• 22:21
  Speaker 1: or that the FED is going to have to continue
• 22:24
  Speaker 1: to tighten. Chris Lowe, do you believe that the Federal
• 22:27
  Speaker 1: Reserve will taken to account any of the havoc that
• 22:29
  Speaker 1: has been wrecked upon the emerging markets as a result
• 22:34
  Speaker 1: of the strength of the US dollar. Absolutely, I do,
• 22:38
  Speaker 1: but not until it spills over into the US. I
• 22:42
  Speaker 1: think they should give a bigger weight, frankly, to what's
• 22:46
  Speaker 1: happening in the emerging markets because it's it's pretty clearly
• 22:51
  Speaker 1: a result, at least partially of their dependence on US
• 22:55
  Speaker 1: dollar financing, on you know, the difficulty of raising cash
• 23:00
  Speaker 1: in dollars now that the FED is draining liquidity UH.
• 23:04
  Speaker 1: And really, if you think about inflation, it's a global phenomenon.
• 23:09
  Speaker 1: Um I. As the FED tightens, their goal is to
• 23:12
  Speaker 1: free up some capacity. I suspect it'll be pretty clear
• 23:17
  Speaker 1: by the end of the year they have freed up capacity.
• 23:20
  Speaker 1: It just isn't necessarily in the US. Uh, They'll there'll
• 23:24
  Speaker 1: be plenty of spare capacity around the world, and that
• 23:27
  Speaker 1: should keep inflation in check. Do you think that right now,
• 23:30
  Speaker 1: people including FED officials, are too sanguente about trade tensions
• 23:34
  Speaker 1: because right now it seems like we could get announced
• 23:36
  Speaker 1: any day an additional tariff on two d billion dollars
• 23:41
  Speaker 1: of additional goods from China heading into the US. President
• 23:44
  Speaker 1: Trump has said that he wants to do this. I
• 23:47
  Speaker 1: am struggling to understand what the implication is for the
• 23:50
  Speaker 1: market and whether everyone's just discounting this to their fault.
• 23:55
  Speaker 1: I think there's a couple of things there. First, the
• 23:59
  Speaker 1: FED is alert to this that they listed trade tensions
• 24:04
  Speaker 1: and tariffs particularly as one of the top four risks
• 24:07
  Speaker 1: to the US economy, so they're they're not at all
• 24:10
  Speaker 1: asleep at the switch. I think what makes this so
• 24:13
  Speaker 1: difficult is that predicting the outcome is extraordinarily tough. Uh.
• 24:20
  Speaker 1: You know, just days before we reached a trade agreement
• 24:24
  Speaker 1: with Mexico, for example, the papers were reporting that an
• 24:30
  Speaker 1: agreement was unlikely. Uh, things can change quickly. As for
• 24:36
  Speaker 1: the trade fight with China, I I do think that's
• 24:39
  Speaker 1: only going to get uglier, and UH I suspect it
• 24:43
  Speaker 1: to real threat to put some additional perspective on that.
• 24:48
  Speaker 1: Looking at the employment report this morning, the diffusion index
• 24:53
  Speaker 1: for manufacturing has declined sharply in the last three months.
• 24:58
  Speaker 1: UH that they were broad based losses in manufacturing UM
• 25:02
  Speaker 1: industries in August and it's it's not clear, but it
• 25:08
  Speaker 1: likely has to do with a slowdown in car sales.
• 25:11
  Speaker 1: So manufacturing is looking a little more vulnerable now than
• 25:15
  Speaker 1: it was just a few months ago. And obviously if
• 25:19
  Speaker 1: we have big increases in tariffs here and in China,
• 25:23
  Speaker 1: that's going to further way on on their prospects. Chris
• 25:26
  Speaker 1: low thank you so much for being with us on
• 25:28
  Speaker 1: this Job's Friday. Chris Lowe, chief economist at f t
• 25:32
  Speaker 1: N Financial in New York. Thanks for listening to the
• 25:38
  Speaker 1: Bloomberg p m L podcast. You can subscribe and listen
• 25:41
  Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
• 25:45
  Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
• 25:49
  Speaker 1: I'm on Twitter at Lisa abramowits one before the podcast.
• 25:53
  Speaker 1: You can always catch us worldwide on Bloomberg Radio.