Latest / Bloomberg Intelligence / GeoQuant Model Predicts Trump Wins In Bernie Matchup

Transcript

GeoQuant Model Predicts Trump Wins In Bernie Matchup · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel podcast on Paul Swing You.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma Waits, 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: that Bloomberg dot com. Just to give you a picture
• 0:21
  Speaker 1: of what's going on in the bond world, you see
• 0:23
  Speaker 1: the thirty year yield reaching new all time lows one
• 0:27
  Speaker 1: point eight nine percent on the thirty year treasury. You
• 0:32
  Speaker 1: see the dollar having its worst sell off versus its
• 0:34
  Speaker 1: peers of gold shooting higher. A big question of what's
• 0:39
  Speaker 1: driving this. Is it just the fear that the coronavirus
• 0:42
  Speaker 1: is spread, is bleeding into the services and industries in
• 0:46
  Speaker 1: the United States previously thought to be a little more immune,
• 0:49
  Speaker 1: or is this something large or joining us now? Is
• 0:52
  Speaker 1: Mark Rosenberg, founder and chief executive officer of Geoquad, which
• 0:56
  Speaker 1: is based in San Francisco and looks at the geopolitical
• 1:00
  Speaker 1: will risk generally in the global picture. He's also an
• 1:02
  Speaker 1: adject professor at Columbia University Mark, can you give us
• 1:05
  Speaker 1: a landscape here. We talk a lot about the coronavirus
• 1:08
  Speaker 1: and what the potential bleed through could be on industries,
• 1:11
  Speaker 1: but an economists say, well, there's going to be a
• 1:13
  Speaker 1: v shaped recovery. But on the political front, is there
• 1:16
  Speaker 1: something that's going to be equally potentially difficult for markets
• 1:21
  Speaker 1: to digest on the political sphere? Sure, I think. I
• 1:25
  Speaker 1: think with with a health risk like the coronavirus, UM,
• 1:28
  Speaker 1: you want to look at the implications for social instability
• 1:31
  Speaker 1: and the country is affected and in turn the stability
• 1:34
  Speaker 1: of the government. Those generally have more latent effect on markets.
• 1:38
  Speaker 1: But I think when it comes to a large economy
• 1:40
  Speaker 1: like China, UM, if there were indications that this that
• 1:44
  Speaker 1: this virus was disrupting kind of social stability in the country,
• 1:48
  Speaker 1: or if there was news as there has been of late,
• 1:51
  Speaker 1: that it may be weakening the government, UM, then I
• 1:54
  Speaker 1: think you can get some concern around the potential of
• 1:57
  Speaker 1: the government to respond to a shock like like like
• 1:59
  Speaker 1: a how um, like a disease outbreak like like the coronavirus. So, Mark,
• 2:04
  Speaker 1: we obviously are getting into the heat of the election
• 2:06
  Speaker 1: cycle here. We kind of know where President Trump stands
• 2:10
  Speaker 1: on a number of issues that are important to markets
• 2:12
  Speaker 1: and investors. How are you, we talk to clients, how
• 2:14
  Speaker 1: are you framing up the Democratic side of the field.
• 2:18
  Speaker 1: For us, it's really about the strength of the Democratic
• 2:21
  Speaker 1: Party and kind of more generically the opposition to the
• 2:24
  Speaker 1: incumbent versus UM, you know, the Trump administration or the
• 2:28
  Speaker 1: current incumbent. And you know, according to our models that's
• 2:32
  Speaker 1: probably the primary driver of Trump's likely reelection right now.
• 2:36
  Speaker 1: Is in fact the weakness, the relative weakness of the
• 2:39
  Speaker 1: Democratic Party as an opposition party has demonstrated, I think
• 2:43
  Speaker 1: by some of the dysfunction in the primary process, by
• 2:45
  Speaker 1: the UM still unclear field, the the growing likelihood that
• 2:50
  Speaker 1: a more kind of divisive extreme candidate like Bernie Sanders
• 2:54
  Speaker 1: will be the nominee. Those are the factors driving you know,
• 2:58
  Speaker 1: what we call kind of UM intitutional institutional support risk
• 3:03
  Speaker 1: uh for the administration. That risk is down as the
• 3:07
  Speaker 1: Democratic Party looks weaker and weaker. So let's talk a
• 3:10
  Speaker 1: little bit about the Democratic Party. It seems like after
• 3:13
  Speaker 1: this week's debate. It was the first of Michael Bloomberg,
• 3:15
  Speaker 1: who was founder a majority owner of Bloomberg LP, and
• 3:18
  Speaker 1: this radio station was a participant that Bernie Sanders appeared
• 3:22
  Speaker 1: to consolidate a lot of his support. People thought that
• 3:26
  Speaker 1: he emerged a winner. They also thought, though, that President
• 3:29
  Speaker 1: Trump consolidated his win. Given the fact that there was
• 3:32
  Speaker 1: a lot of cross uh, circular firing squad type of activity,
• 3:36
  Speaker 1: how significantly do you think the Democrats were set back?
• 3:41
  Speaker 1: I'm not sure the debate itself was any kind of
• 3:43
  Speaker 1: critical juncture and setting back the Democrats. UM. I think
• 3:47
  Speaker 1: it was more a symptom of you know, what we
• 3:49
  Speaker 1: saw in the previous debates and then and then the
• 3:52
  Speaker 1: primaries and CAUCUSUS so far, which is um, you know,
• 3:55
  Speaker 1: a field that's that's heavily divided, um. And and a
• 3:59
  Speaker 1: group candidates that um all you know, ostensibly agree on
• 4:05
  Speaker 1: the goal of defeating Donald Trump and uniting to do so. UM,
• 4:09
  Speaker 1: but are now just inherently engaged in the process, the
• 4:11
  Speaker 1: primary process, UM, where they're they're in some ways making
• 4:15
  Speaker 1: that less likely because they are fighting against each other
• 4:17
  Speaker 1: as opposed to the common you know, quote unquote enemy.
• 4:21
  Speaker 1: So Mark Bernie Sanders is leading in the polls right now,
• 4:24
  Speaker 1: can he be President Trump in in according to our models?
• 4:31
  Speaker 1: And again, um, you know, these are kind of generic
• 4:33
  Speaker 1: incumbent survival models, No UM. In that Bernie Sanders UM,
• 4:39
  Speaker 1: it will be a candidate that would have trouble uniting
• 4:42
  Speaker 1: the Democratic Party UM, and as such would weaken the
• 4:45
  Speaker 1: strengths of the opposition VISAVI the incumbent, and so the
• 4:49
  Speaker 1: incumbent will be more likely to win UM, and so
• 4:52
  Speaker 1: UM in our the scenarios we're running with our models,
• 4:55
  Speaker 1: the sanders Um candidacy makes a Trump real sin more likely.
• 5:01
  Speaker 1: What about Pete Boudage? What about Michael Bloomberg whose performance
• 5:05
  Speaker 1: was panned pretty significantly by almotions of the coverage following
• 5:08
  Speaker 1: the debate. Again, generically, a more moderate candidate, candidate more
• 5:15
  Speaker 1: capable of winning, of winning, of winning swing voters, of
• 5:19
  Speaker 1: winning suburban white voters and key swing states that are
• 5:23
  Speaker 1: in many cases the the key to the election. UM
• 5:27
  Speaker 1: is likely to be Trump right and more like and
• 5:29
  Speaker 1: certainly makes Trump's reelection less likely. So in our models,
• 5:32
  Speaker 1: it's a relatively simple trade off between UM a a
• 5:37
  Speaker 1: candidate that is more likely to win you know what
• 5:39
  Speaker 1: political scientists called the median voter UM, and which in
• 5:43
  Speaker 1: the case of of key states, is really a swing
• 5:45
  Speaker 1: voter or one less likely to win those voters, and
• 5:49
  Speaker 1: in our model, Sanders is less likely, whereas a more
• 5:51
  Speaker 1: moderate candidate is more likely. So, Mark, is there any
• 5:55
  Speaker 1: indication that if Bernie Sanders gets the nomination, that he
• 6:00
  Speaker 1: or the Democratic Party could move him more to the
• 6:03
  Speaker 1: center to maybe appeal to some of those swing voters.
• 6:05
  Speaker 1: Do you kind of put any of those odds in
• 6:06
  Speaker 1: your model? We don't model that directly. That does make
• 6:11
  Speaker 1: kind of common political sense and is generally the way
• 6:14
  Speaker 1: UH Party candidates run in the general election. They generally
• 6:19
  Speaker 1: pivot um more to the center, UM, in order to
• 6:22
  Speaker 1: capture a larger swat at the electorate. Sanders has made
• 6:25
  Speaker 1: a career um of not doing that, and so just anecdotally, UM,
• 6:32
  Speaker 1: it suggests that that kind of dynamic is maybe less
• 6:35
  Speaker 1: likely this time around. UM. But but to be sure,
• 6:39
  Speaker 1: you know, in a in a more with a more
• 6:42
  Speaker 1: generic candidate, that's exactly what you would expect to happen.
• 6:46
  Speaker 1: And given again that all Democratic candidates are at least
• 6:50
  Speaker 1: vocally saying their priority is beating Trump, that would be
• 6:53
  Speaker 1: the right strategy. It's just not clear that that is
• 6:56
  Speaker 1: what will actually happen. Mark, just real quickly here, I'm
• 6:59
  Speaker 1: wondering ston history how soon does the Democratic field have
• 7:03
  Speaker 1: to shrink or consolidate support behind one or two candidates
• 7:07
  Speaker 1: in order to have a better chance going forward of
• 7:09
  Speaker 1: defeating President Trump. So there isn't really a clear historical pattern. UM.
• 7:15
  Speaker 1: I think, UM, you know, the primary calendar in terms
• 7:20
  Speaker 1: of opposition beating incumbents. UM. You know, the primary calendar
• 7:23
  Speaker 1: is relatively set in the United States. Um. And so
• 7:26
  Speaker 1: there isn't really a kind of date by which the
• 7:28
  Speaker 1: Democrats need to um, you know, coalesced or form a
• 7:32
  Speaker 1: coalition by which they make um, their success in the
• 7:35
  Speaker 1: election more likely. I think the general rule in this
• 7:38
  Speaker 1: case is the sooner the better. Mark Rosenberg, thanks so
• 7:42
  Speaker 1: much for joining us. We appreciate your thoughts. Mark Rosenberg,
• 7:45
  Speaker 1: founder and CEO of geo Quant, also an adjunct professor
• 7:48
  Speaker 1: at Columbia University. He is based in San Francisco. Some
• 7:52
  Speaker 1: interesting commentary about the election and kind of what their
• 7:55
  Speaker 1: models are showing, and uh appears to be, you know,
• 7:58
  Speaker 1: from Mark's comments, you know, pretty predisposed or you know,
• 8:02
  Speaker 1: towards President Trump getting re elected, unless you know, maybe
• 8:06
  Speaker 1: the field somehow coalesces around candidate and maybe can put
• 8:10
  Speaker 1: up a stronger fight. Yeah, and then they'll be the
• 8:12
  Speaker 1: question of whether any candidate on the Democratic side could
• 8:15
  Speaker 1: get something done without the both sides of Congress. Meanwhile,
• 8:18
  Speaker 1: I should just mentioned that right now FED funds futures
• 8:20
  Speaker 1: are pricing in a full half a percentage point rate
• 8:24
  Speaker 1: cut through the end of twenties, so really shifting their
• 8:27
  Speaker 1: rate cut expectations forward. This morning, everyone was watching thirty
• 8:33
  Speaker 1: year treasury yields, which were covering on the precipice of
• 8:36
  Speaker 1: an all time new record, and it reached it after
• 8:39
  Speaker 1: the p m I data that came out this morning
• 8:42
  Speaker 1: from market US business activity shrank this month for the
• 8:45
  Speaker 1: first time since twenty with the services section of the
• 8:49
  Speaker 1: index seeing a particularly big drop off. The question here
• 8:53
  Speaker 1: is what is the message being sent by bonds which
• 8:55
  Speaker 1: are reaching new all time loads and how in canherent
• 8:59
  Speaker 1: in cohere? Arn is it with equities reaching or hovering
• 9:02
  Speaker 1: near all time high joining us now Ben Emmon's Managing director,
• 9:06
  Speaker 1: Global Strategy at Medley Global Advisors, joining us here in
• 9:09
  Speaker 1: our interactive broker studios. So let's start there. What is
• 9:12
  Speaker 1: the message being sent by thirty year yields at all
• 9:14
  Speaker 1: time lows? So the one hand, Lisa, it's a technical message,
• 9:18
  Speaker 1: right there is a aparent positioning going on with hedge
• 9:22
  Speaker 1: funds going short and the as you managers going long,
• 9:24
  Speaker 1: and it's probably very much driven by different views about
• 9:27
  Speaker 1: whether the economy and be heading as well as hedging
• 9:30
  Speaker 1: against the downside risk of this virus outbreak. On the
• 9:33
  Speaker 1: other hand, it's it's to that fundamental picture. I think
• 9:36
  Speaker 1: the inflation picture is gonna see a significant moderation this year.
• 9:41
  Speaker 1: If if the collapse in China's as we speak happening,
• 9:45
  Speaker 1: you know, in terms of production data, then inflation data
• 9:48
  Speaker 1: and China will will will go down quite a bit
• 9:50
  Speaker 1: and that will really transcend down globally. I think this
• 9:53
  Speaker 1: is not a reason why bond deals are lower in
• 9:56
  Speaker 1: the United States? Do you what do you how do
• 9:58
  Speaker 1: you think the FED is going to respond to It
• 10:00
  Speaker 1: appears to be a growing problem. It doesn't appear like
• 10:03
  Speaker 1: we've seen the peak of the coronavirus risk. So all
• 10:07
  Speaker 1: these central banks we feed are monitoring, as they say,
• 10:10
  Speaker 1: and you know, we know that they don't have the
• 10:12
  Speaker 1: precise tools to combine any of this, but they do
• 10:16
  Speaker 1: know as we know now is that companies are responding
• 10:18
  Speaker 1: quite dramatically to this outbreak, you know, shutting off production,
• 10:21
  Speaker 1: shutting down air traffic. So there will be something of
• 10:24
  Speaker 1: a message there to tell to two companies about you know, well,
• 10:28
  Speaker 1: this is really something that that's going to drag down
• 10:30
  Speaker 1: global growth just because it's a virus outbreak that we've
• 10:33
  Speaker 1: had in several cases before and by far not as
• 10:36
  Speaker 1: as severe as a normal influenza. At the same time,
• 10:39
  Speaker 1: central banks will likely stand by with liquidity, as we
• 10:42
  Speaker 1: saw from the BBC and the fedsil ongoing that other
• 10:45
  Speaker 1: central banks would there too, And I think that liquidity
• 10:48
  Speaker 1: operation is pretty effective. If you think about the shock
• 10:51
  Speaker 1: that which just went through, it could have been much
• 10:53
  Speaker 1: more severe if if we did not have liquidity injections
• 10:57
  Speaker 1: by the BBC and you know, ongoing by the So
• 11:00
  Speaker 1: will the should be in the BUJ follow with something
• 11:02
  Speaker 1: like that not not unlikely if we're getting more downdraft
• 11:05
  Speaker 1: in data. I want to go back to something you
• 11:07
  Speaker 1: were talking about, this sort of technical factor with hedge
• 11:10
  Speaker 1: funds going short, treasuries and insurance companies pensions going long,
• 11:15
  Speaker 1: particularly on the long end, and I'm wondering if this
• 11:18
  Speaker 1: is a short squeeze that we're observing which is really
• 11:20
  Speaker 1: responsible for the rally that we're seeing in treasuries. Then
• 11:24
  Speaker 1: is it potentially not that negative or even positive for
• 11:28
  Speaker 1: equities because it keeps borrowing costs so low that it
• 11:31
  Speaker 1: continues to support the relative valuation case for equities. Yeah,
• 11:36
  Speaker 1: I think you're right about that, because if you if
• 11:39
  Speaker 1: bonds work well as as in total return, I say
• 11:43
  Speaker 1: hedgechickens the downstafe fish within loan loan as your manager
• 11:46
  Speaker 1: would do a sort of that view. In addition that
• 11:48
  Speaker 1: you say low borrowing costs which affect positively for corporations
• 11:52
  Speaker 1: and housing and consumer spending, then yes, this is this
• 11:56
  Speaker 1: and that's typically, by the way, the case when you
• 11:57
  Speaker 1: have flight to safety, believe or not, there's actually emilist
• 12:00
  Speaker 1: to the economy. Very often happened that way. We saw
• 12:02
  Speaker 1: it in August that way too, and subpoquent data recovers
• 12:05
  Speaker 1: low interests of falling long term interest rates tend to
• 12:08
  Speaker 1: do that. So I think this is another phase of
• 12:10
  Speaker 1: like short screes, fight the safety leads to ultimately simmers
• 12:13
  Speaker 1: in the economy, and that could be positive for stocks.
• 12:16
  Speaker 1: Some of the consensus trades that we heard coming into
• 12:20
  Speaker 1: was maybe this is the time where international markets will
• 12:23
  Speaker 1: outperform the US does this growing concern about the global
• 12:27
  Speaker 1: economy featuring China called that trade into into play, maybe
• 12:32
  Speaker 1: into question. I'm actually on the side pole of that.
• 12:35
  Speaker 1: That actually makes it even more compelling them before. And
• 12:39
  Speaker 1: here's why. So if if you think about the data
• 12:41
  Speaker 1: it's coming out now, say that be my data in
• 12:43
  Speaker 1: Japan overnight or the expert orders of Taiwan and and
• 12:46
  Speaker 1: sup forth. Pretty big drops in that data, right, and
• 12:49
  Speaker 1: and that's what you would expect if you have a
• 12:51
  Speaker 1: production shutdown in China. It's pretty extraordinary to to go
• 12:55
  Speaker 1: through that at the moment. But the more that data drops,
• 12:58
  Speaker 1: the more encouraging the v shas recall of recovery would become.
• 13:01
  Speaker 1: So I'm more on that camp, which makes actually the
• 13:04
  Speaker 1: relative value difference between US and four markets even more compelling.
• 13:08
  Speaker 1: And yes, the the the valuation of Asian markets is
• 13:11
  Speaker 1: at a discount relative to US markets, and if the
• 13:16
  Speaker 1: US markets are benefits so much from a flight to
• 13:18
  Speaker 1: safety with stock values or bumping my value up and
• 13:21
  Speaker 1: the dollar up, it becomes a case at some point
• 13:23
  Speaker 1: that anticipating the V shape, that four assets look more attractive.
• 13:27
  Speaker 1: So I remain on that trade. It's just a little
• 13:30
  Speaker 1: bit knocked out of bounds for the first quarter. It
• 13:32
  Speaker 1: will come back in the second half. I think when
• 13:35
  Speaker 1: it's bad news bad news again. Well that's another good
• 13:38
  Speaker 1: point at least of course, because the scare that we
• 13:40
  Speaker 1: have a little bit of markets today is about this
• 13:42
  Speaker 1: word pandemic, right, is becoming a pandemic in Asia and
• 13:45
  Speaker 1: then it spills to the rest of the globe. But
• 13:47
  Speaker 1: they also have to put it in perspective. Our previous
• 13:49
  Speaker 1: viruses have have worked, they tend to do spread around,
• 13:53
  Speaker 1: and it really comes down to that. I think about
• 13:56
  Speaker 1: the infrastructure countries how to deal with an outbreak of
• 13:58
  Speaker 1: the virus. You know, the most worrying would be in
• 14:01
  Speaker 1: the in the in the say South Africa or African nations, right,
• 14:04
  Speaker 1: who do not have any infrastructures to the w h
• 14:07
  Speaker 1: O warrent for But for the developed markets that's a
• 14:10
  Speaker 1: different story. And because marcus react now, because a virus
• 14:14
  Speaker 1: outbreak links to you know, production shut down, delay of
• 14:18
  Speaker 1: any kind of activity because people have to stay home,
• 14:21
  Speaker 1: there's still a lot of workaround. I think to that too,
• 14:23
  Speaker 1: all companies are preparing to say, you know this flight
• 14:26
  Speaker 1: chain shift, will shift, will happen anyway, I'm going to
• 14:28
  Speaker 1: prepare differently to continue my production because you know you
• 14:30
  Speaker 1: have to here to stockholder. So by and large, I
• 14:33
  Speaker 1: think pandemic is a fear factor in markets, but ultimately
• 14:37
  Speaker 1: I think it's it's still going to be a recovery
• 14:39
  Speaker 1: from here, not not a recession. Okay, Ben em it's
• 14:41
  Speaker 1: thanks so much for joining us. We appreciate chatting with
• 14:43
  Speaker 1: you as we do periodically. Ben Emmon's managing director Global
• 14:46
  Speaker 1: Macro Strategy for Medlely Global Partners. Joining us here in
• 14:49
  Speaker 1: our Bloomberg Interactive Broker Studio. Really interesting to hear how
• 14:53
  Speaker 1: the interclining yields could end up being a positive for stocks,
• 14:56
  Speaker 1: even though people usually look at the flight to safety
• 14:59
  Speaker 1: is being a negative message for equities, sort of the
• 15:01
  Speaker 1: modern conundrum of markets. Yep, absolutely so. We had the
• 15:04
  Speaker 1: SMP down here twenty five off the lows, uh, the
• 15:07
  Speaker 1: down down two three points. That's twenty oh nineteen on
• 15:11
  Speaker 1: the down. Jones Industrials. This is Bloomberg time to check
• 15:19
  Speaker 1: in with Bloomberg Opinion. We're joined by opinion calumnist Tara
• 15:22
  Speaker 1: la Chapelle. She covers all things industrial for Bloomberg Opinion
• 15:26
  Speaker 1: and for those Warren Buffet watchers Tomorrow's on a very
• 15:29
  Speaker 1: important day. That's when Berkshire Hathaway releases its annual letter.
• 15:32
  Speaker 1: We get a sense of kind of how Warren is
• 15:34
  Speaker 1: viewing the world. Helps preview that we have our good
• 15:37
  Speaker 1: friend Tara. So Tara again, Warren Buffet watchers. Tomorrow is
• 15:40
  Speaker 1: a big day. What's the expectation here because they've been
• 15:44
  Speaker 1: kind of quiet on the acquisition front. I think what
• 15:47
  Speaker 1: people are really hoping for is that Warren Buffett is
• 15:49
  Speaker 1: going to talk a little bit more about what he's
• 15:51
  Speaker 1: going to do with all that cash. Berkshire Hathaway's cash
• 15:55
  Speaker 1: was a hundred and twenty eight billion dollars in the
• 15:58
  Speaker 1: latest quarter that they reported, So we'll find out tomorrow
• 16:00
  Speaker 1: when his letter comes out. We'll have the fourth quarter
• 16:03
  Speaker 1: earnings report with it, and we'll see if that cash
• 16:05
  Speaker 1: moved at all. Uh. He didn't make any significant acquisitions
• 16:09
  Speaker 1: during the period, as we know, and last week we
• 16:12
  Speaker 1: got their thirteen F filing filing and saw that they
• 16:14
  Speaker 1: didn't really um make any tremendous purchases in the stock
• 16:18
  Speaker 1: market either. He bought a steak in Kroger, a small
• 16:21
  Speaker 1: steak in Biogen, but nothing really big. And we don't
• 16:23
  Speaker 1: think that they've done a lot of Berkshire buy backs, Yeah,
• 16:26
  Speaker 1: even though he's talked about doing that. So hopefully he can,
• 16:29
  Speaker 1: you know, get people excited about what's going to happen,
• 16:31
  Speaker 1: and maybe he'll be able to find his big elephant
• 16:34
  Speaker 1: this year, the big acquisition he's been trying to do.
• 16:37
  Speaker 1: He turns ninety in August, so one would think that,
• 16:40
  Speaker 1: you know, time is of the essence and he'd want
• 16:41
  Speaker 1: to do something. Yeah, although throwing some cold water on that,
• 16:44
  Speaker 1: Berkshire vice chair saying in an interview with Bloomberg, we're
• 16:47
  Speaker 1: gradually getting more pessimistic about using our money. It's been
• 16:50
  Speaker 1: a long time since we bought anything. This is Charlie Munger,
• 16:53
  Speaker 1: and I have to say again Warren Buffett problems the
• 16:57
  Speaker 1: idea that you just have so much money you don't
• 16:58
  Speaker 1: know what to do with it. But it, you know,
• 17:00
  Speaker 1: is really good question, Tara, which is why don't they
• 17:02
  Speaker 1: buy back more shares or just give massive dividends to
• 17:05
  Speaker 1: their investors. Yeah, I mean we're not sure. We know
• 17:08
  Speaker 1: Buffett and Monger are really opposed to the idea of
• 17:10
  Speaker 1: a dividend, and he's kind of started to mention that
• 17:13
  Speaker 1: more often. The last couple of years. It used to
• 17:15
  Speaker 1: be kind of unheard of that they would even do
• 17:17
  Speaker 1: something like that, So the fact that he's brought it up,
• 17:19
  Speaker 1: I just don't think they're at the point of being
• 17:21
  Speaker 1: willing to pay a big, one time special dividend. I
• 17:24
  Speaker 1: think maybe that's something his successor would want to be
• 17:27
  Speaker 1: able to have the opportunity to do, should they need it.
• 17:29
  Speaker 1: Um But I think Buffett his goal is still finding
• 17:31
  Speaker 1: a deal, and Manger always tends to be sort of
• 17:33
  Speaker 1: the more pessimistic one of the two. Buffett in his
• 17:36
  Speaker 1: letter every year, you know, he always gives that pep
• 17:38
  Speaker 1: talk about America and how great America's prospects are, and
• 17:41
  Speaker 1: you know, kids born today are better off than he was,
• 17:44
  Speaker 1: and so on and so forth. And I don't think
• 17:45
  Speaker 1: that will change in this letter, but I think you
• 17:48
  Speaker 1: will see that growing frustration with the markets that he
• 17:51
  Speaker 1: just hasn't been able to find anything to put this
• 17:53
  Speaker 1: money to work on. It's interesting, Terry, you mentioned succession,
• 17:58
  Speaker 1: where what's the status of that? I mean, they just
• 18:00
  Speaker 1: kick this can down the road and down the road.
• 18:01
  Speaker 1: We have any greater clarity. I know there's some new
• 18:03
  Speaker 1: hires pre senior positions, but what's the latest. I think,
• 18:07
  Speaker 1: if anything, it's gotten more uncertain because so a couple
• 18:10
  Speaker 1: of years ago they did promote Greg Able to run
• 18:14
  Speaker 1: to be vice chairman of everything that didn't have to
• 18:16
  Speaker 1: do with their insurance business, and a Jet Jane, who
• 18:19
  Speaker 1: came from the insurance side, they put him in charge
• 18:21
  Speaker 1: of their huge insurance operations, and so that kind of
• 18:24
  Speaker 1: set the two up to be the next in line
• 18:27
  Speaker 1: to become Successor's a little bit older, and it seems
• 18:29
  Speaker 1: like Greg is kind of the favorite for the job.
• 18:31
  Speaker 1: Greg also got to speak at last year's annual meeting
• 18:34
  Speaker 1: for the first time publicly, which was kind of unusual
• 18:37
  Speaker 1: and I think really symbolic. But then, uh, Todd Combs,
• 18:40
  Speaker 1: who came from the investing side of the business, was
• 18:44
  Speaker 1: promoted to run Geico, and I think that got a
• 18:47
  Speaker 1: lot of people thinking that is Todd another person that
• 18:49
  Speaker 1: he's looking at, or maybe there will be sort of
• 18:51
  Speaker 1: a split role when his successors take over, someone doing
• 18:55
  Speaker 1: capital allocation another person running the operational side of the business.
• 18:58
  Speaker 1: We just don't know, so hopeful He addresses that though
• 19:01
  Speaker 1: knowing Buffett, he probably won't say very much. Although in
• 19:05
  Speaker 1: just to put this into perspective of how much pressure
• 19:07
  Speaker 1: they're under. Uh, they've missed a bunch of deals, and
• 19:11
  Speaker 1: their shares row at a slower pace, rose at a
• 19:13
  Speaker 1: slower pace than SP five hundred. It was their worst
• 19:16
  Speaker 1: under performance since two thousand and nine. There's a question
• 19:20
  Speaker 1: is there strategy one that fit with another time in
• 19:24
  Speaker 1: history of the stock markets that is no longer and
• 19:27
  Speaker 1: that they are really coming to that realization at a
• 19:31
  Speaker 1: time when they aren't sure how to deploy their cash.
• 19:34
  Speaker 1: It's true, I mean, the true Buffet stands they don't
• 19:36
  Speaker 1: really worry much about the stock price and the fact
• 19:39
  Speaker 1: that it's lagging, which is kind of funny. It's a
• 19:41
  Speaker 1: very unusual trait that Berkshire has still But I think,
• 19:44
  Speaker 1: you know, after going to last year's meeting and seeing
• 19:47
  Speaker 1: that the investor based really reflected what we see at
• 19:51
  Speaker 1: Berkshire itself, where it's excuse older. These are people that
• 19:54
  Speaker 1: have a lot of respect for Buffet, But I don't
• 19:56
  Speaker 1: know how they get that younger generation interested in a
• 19:58
  Speaker 1: stock that's lagging so much. So I think this is
• 20:01
  Speaker 1: going to become a bigger question when his successor is
• 20:04
  Speaker 1: in charge. You know, does the strategy worked as being
• 20:06
  Speaker 1: a big conglomerate with all this cash that's very difficult
• 20:09
  Speaker 1: to put to work. Is is that the best way
• 20:11
  Speaker 1: to run this or do they need to change strategy?
• 20:14
  Speaker 1: And I don't think that will ever happen under Buffett,
• 20:16
  Speaker 1: but I think those questions start to arise when you
• 20:18
  Speaker 1: think about when he's not there any longer, So you're
• 20:21
  Speaker 1: working tomorrow anti terror, right and early. I just honestly,
• 20:26
  Speaker 1: why do they do it on Saturday? I think you know,
• 20:28
  Speaker 1: he he has said, who knows if this is the case,
• 20:30
  Speaker 1: but he has said that, you know, he doesn't want
• 20:32
  Speaker 1: the stock overreacting to things when they released during closer
• 20:36
  Speaker 1: to market times, and especially now that the way they
• 20:39
  Speaker 1: have to report their stockholdings and how that changes their earnings.
• 20:42
  Speaker 1: But I think he just likes journalists working on Saturday
• 20:45
  Speaker 1: and the spot life because nobody else is going to compete. Yes,
• 20:50
  Speaker 1: Aryla Chappelle of Bloomberg Opinion, thank you so much as
• 20:53
  Speaker 1: always for your insights here. Really amazing. A hundred and
• 20:57
  Speaker 1: twenty eight billion dollars of Stay owned two and fifty
• 21:01
  Speaker 1: million shares of Apple. Yeah, they've actually more than doubled
• 21:04
  Speaker 1: the shareholding since two thousand and sixteen, when they started
• 21:07
  Speaker 1: getting in they owned seventy nine billion dollars of the shares.
• 21:10
  Speaker 1: But Warren Buffett said this is not a tech story
• 21:12
  Speaker 1: for him. It's one of share by backs and dividends
• 21:16
  Speaker 1: as well as the consumer story, which is really interesting.
• 21:19
  Speaker 1: That's what he understands more than the tech side. We've
• 21:24
  Speaker 1: got some economic data this morning that showed US business
• 21:28
  Speaker 1: activity shrank in February for the first time since as
• 21:31
  Speaker 1: a coronavirus hit supply chains and made firms hesitant to
• 21:35
  Speaker 1: place orders. To get a sense of what's going on,
• 21:37
  Speaker 1: we welcome our good friend Tom or Like. He's a
• 21:39
  Speaker 1: chief economist for Bloomberg Economics, spent lived and worked many
• 21:43
  Speaker 1: years in Beijing, has a real feel for what's going
• 21:45
  Speaker 1: on in China. He joins us from our Bloomberg One
• 21:48
  Speaker 1: studio in Washington, d C. Tom, thanks so much for
• 21:51
  Speaker 1: joining us. So the data that came out of the
• 21:53
  Speaker 1: market p M I today really brought home for many
• 21:56
  Speaker 1: in the market that this coronavirus is gonna be an
• 21:59
  Speaker 1: economic event. It appears where do you see the biggest
• 22:03
  Speaker 1: risk from what's going on in China right now? Um, So,
• 22:08
  Speaker 1: I'm a bit surprised to see this hitting the US
• 22:11
  Speaker 1: services sector so early. Um, certainly this is going to
• 22:16
  Speaker 1: be a big blow for China in the first quarter.
• 22:20
  Speaker 1: Certainly there's going to be supply chain snarl ups which
• 22:24
  Speaker 1: are gonna mean the impact ripples around Asia and around
• 22:28
  Speaker 1: the world. The US, though, seems a long way away. Certainly,
• 22:33
  Speaker 1: the U S Services sector is not very integrated into
• 22:37
  Speaker 1: what's going on in China. In some ways, the trade
• 22:40
  Speaker 1: war was about President Trump trying to get more access
• 22:44
  Speaker 1: for the U S services sector to the Chinese economy.
• 22:48
  Speaker 1: So the fact that we're seeing the US numbers coming
• 22:50
  Speaker 1: off so much and so quickly, I think rings and
• 22:54
  Speaker 1: alarm bell um that the global ripples from this virus
• 22:57
  Speaker 1: could be bigger and it would appear more quickly than
• 23:00
  Speaker 1: anyone anticipated. Tom Is there also an implication that perhaps
• 23:03
  Speaker 1: there was more weakness underneath that was building regardless of
• 23:07
  Speaker 1: the coronavirus. Yeah, I mean that is also something to
• 23:12
  Speaker 1: think about, Lisa. I think people were coming into with
• 23:17
  Speaker 1: a certain amount of optimism. We had some easing from
• 23:21
  Speaker 1: the FED, we had easing from the People's Bank of China.
• 23:25
  Speaker 1: The ECB did what they could to spur European growth.
• 23:29
  Speaker 1: Of course, the trade truth meant there was some optimism
• 23:33
  Speaker 1: about what was going to happen to exports over the
• 23:36
  Speaker 1: course of the year. UM. The coronavirus has completely changed
• 23:40
  Speaker 1: the narrative. UM. At a minimum, it means any kind
• 23:44
  Speaker 1: of recovery is going to be delayed until the second quarter. UM.
• 23:48
  Speaker 1: It could mean that we're in for another year of
• 23:52
  Speaker 1: very bumpy growth and elevated risks of a downturn. So, Tom,
• 23:58
  Speaker 1: based on you know, the work you've done, the contacts
• 24:00
  Speaker 1: you have in China, what's your best guess as to
• 24:03
  Speaker 1: how much of the economy is really being impacted? How
• 24:05
  Speaker 1: much are people back to work and how many how
• 24:07
  Speaker 1: much you know, what percentage are staying are still at home?
• 24:09
  Speaker 1: What percentage of the the economy is really back versus offline?
• 24:12
  Speaker 1: I guess I mean that that is the fourteen trillion
• 24:16
  Speaker 1: dollar question call UM, and we've been trying to answer
• 24:20
  Speaker 1: it through a variety of different means. We've been looking
• 24:23
  Speaker 1: at high frequency data on passenger travel. We've been looking
• 24:28
  Speaker 1: at f X trading volume, which is a proxy for
• 24:31
  Speaker 1: what's going on with imports and exports. We've been reading
• 24:36
  Speaker 1: the corporate announcements speaking to our contacts across China. UM
• 24:40
  Speaker 1: our best estimate is that around of China is back
• 24:45
  Speaker 1: to work, um, and that sustained over the course of
• 24:49
  Speaker 1: a month would mean that China's GDP in the first
• 24:53
  Speaker 1: quarter doesn't grow at all and potentially contracts on a
• 24:58
  Speaker 1: sequential basis. This is this is important, especially what you
• 25:02
  Speaker 1: were saying earlier about how in the entire world there
• 25:05
  Speaker 1: seems to be a faster bleed through of the effect
• 25:08
  Speaker 1: of the coronavirus and efforts to contain it. I'm wondering
• 25:12
  Speaker 1: whether you think that this caused into question of v
• 25:15
  Speaker 1: shape recovery that so many economists are talking about. So
• 25:20
  Speaker 1: when we think about China, one of the reasons why
• 25:24
  Speaker 1: I'm not succumbing to extreme pessimism right now is because
• 25:29
  Speaker 1: China's government is really effective at closing things down. We
• 25:34
  Speaker 1: see that right now hundreds of millions of people effectively
• 25:37
  Speaker 1: under lockdown under quarantine. But China's government is going to
• 25:41
  Speaker 1: be really effective at opening things up again as well. Um.
• 25:45
  Speaker 1: We've just had some announcements from the Politburo, the top
• 25:49
  Speaker 1: level of China's leadership, and they indicate with the balance
• 25:52
  Speaker 1: of concern in China, well, certainly they're still very concerned
• 25:56
  Speaker 1: about the outbreak and public health and minimizing the risk there.
• 26:00
  Speaker 1: But they're also increasingly concerned about growth and getting people
• 26:04
  Speaker 1: back to work. And I think one possibility in the
• 26:08
  Speaker 1: next week or two um, if the government thinks that
• 26:11
  Speaker 1: the public health risks can be contained, is that we
• 26:14
  Speaker 1: see an accelerated move to get China's workers back into
• 26:18
  Speaker 1: the factories, back into the offices, at which point the
• 26:23
  Speaker 1: V shaped recovery, which a lot of people are kind
• 26:25
  Speaker 1: of implicitly penciling in, will start to look like more
• 26:29
  Speaker 1: of a real possibility. Hey, Tom, are you, I know,
• 26:31
  Speaker 1: in your work, if you look at kind of what
• 26:33
  Speaker 1: corporations say and do, are you surprised this pest earning
• 26:36
  Speaker 1: season we haven't had more companies call out the coronavirus
• 26:39
  Speaker 1: as a risk to either their supply chain or their demand.
• 26:43
  Speaker 1: I mean, I know Apple did in a pretty high
• 26:45
  Speaker 1: profile way, but I'm surprised, like even Dear Today didn't
• 26:48
  Speaker 1: really mention that much at coronavirus being at risk. Right, So,
• 26:53
  Speaker 1: so on this pool, I want to give a brief
• 26:55
  Speaker 1: shout out to our colleagues in Bloomberg Intelligence who are
• 26:58
  Speaker 1: just comprehensively on top of the industrial story and the
• 27:03
  Speaker 1: company story and and certainly suggest that people go and
• 27:06
  Speaker 1: take a look at what they're saying to get all
• 27:08
  Speaker 1: the details on the industry level UM impact. What we've
• 27:13
  Speaker 1: done is try and track corporate announcement UM to give
• 27:17
  Speaker 1: us a kind of a view on the supply chain
• 27:20
  Speaker 1: risks UM. And one of the things which struck us
• 27:23
  Speaker 1: reading through around a hundred and eighty corporate transcripts is
• 27:28
  Speaker 1: that the degree of concern that we're hearing from the
• 27:32
  Speaker 1: multinational boardroom doesn't really match up with the bleak reality
• 27:38
  Speaker 1: on the ground in China. Yes, there are certainly more boardrooms,
• 27:43
  Speaker 1: more corporations now talking about the risks and giving some
• 27:47
  Speaker 1: detail and some color on how they see it impacting
• 27:49
  Speaker 1: their company, but there's an awful lot saying yeah, we're
• 27:53
  Speaker 1: going to wait and see, or yeah we see some risks,
• 27:56
  Speaker 1: but we've got some inventory, so we're going to manage
• 27:59
  Speaker 1: through UM. And to ask that doesn't seem to be
• 28:04
  Speaker 1: sufficiently taking a kain of the way in which China
• 28:08
  Speaker 1: has really closed down now for several weeks, Tom more like,
• 28:11
  Speaker 1: thank you so much for being with us, UH and
• 28:13
  Speaker 1: for a dose of reality of why you're not totally
• 28:15
  Speaker 1: jumping on the pessimism bandwagon just yet, but still have
• 28:19
  Speaker 1: some concerns about what's going on. Yeah, I think his
• 28:21
  Speaker 1: you know, his estimate coming out of Bloomberg Economics about
• 28:23
  Speaker 1: maybe forty of the economy is still kind of offline
• 28:27
  Speaker 1: is and that's a that's a big number, and it
• 28:29
  Speaker 1: just kind of calls into question the duration is Thomas
• 28:32
  Speaker 1: suggesting if it goes on for the you know, you
• 28:34
  Speaker 1: know longer, could have a material impact on Q on GDP. Yeah,
• 28:37
  Speaker 1: Tom or like chief economist for Bloomberg Economics. There's also
• 28:40
  Speaker 1: the question of the spread throughout Asia, Japan and South
• 28:43
  Speaker 1: Korea in particular in the forefront, with Japan seeing its
• 28:46
  Speaker 1: cases double overnight. South Korea also seeing an increased Japan
• 28:49
  Speaker 1: in particular, the population is older, there is a culture
• 28:53
  Speaker 1: in osht a sick day, uh so people coming in
• 28:55
  Speaker 1: and there are a number of cases that have been
• 28:57
  Speaker 1: popping up in different parts that the government men can't
• 29:00
  Speaker 1: really track. A lot of pressure on that government given
• 29:02
  Speaker 1: the fact already that there seemed to be a slowdown
• 29:06
  Speaker 1: in the works, and this seems to be affecting the
• 29:08
  Speaker 1: end which has very much been in the focus and weakening.
• 29:10
  Speaker 1: Although today kind of stable thanks for listening to the
• 29:15
  Speaker 1: Bloomberg P and L podcast, you can subscribe and listen
• 29:18
  Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.
• 29:21
  Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
• 29:24
  Speaker 1: Abram woids I'm on Twitter at Lisa Abram Woyds one.
• 29:27
  Speaker 1: Before the podcast, you can always catch us worldwide. I'm
• 29:30
  Speaker 1: Bloomberg Radio