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Bessent Says No Unilateral US Offer to Cut Tariffs on China · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
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  Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business app.
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  Speaker 1: Listen on demand wherever you get your podcasts, or watch
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  Speaker 1: US live on YouTube.
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  Speaker 2: US Treasury Secretary Scott Bessont participating in a Q and
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  Speaker 2: A session with the Institute of International Finance. The President
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  Speaker 2: there and CEO Tim Adams having a little conversation about
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  Speaker 2: the economy, about trade policy, and we want to you know,
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  Speaker 2: get a sense of kind of where we go from here.
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  Speaker 2: Let's bring our next guest, Stewart Paul, us economist with
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  Speaker 2: Bloomberg Economic Stewary. It seems like Secretary Bessant and even
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  Speaker 2: the President in his most recent tweets and social media posts,
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  Speaker 2: I guess, seemingly pulling back from some of the most
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  Speaker 2: you know, stringent tariff requirements. How are you guys reading that?
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  Speaker 2: From an economic perspective, is a US trying to to
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  Speaker 2: be I guess less confrontational.
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  Speaker 3: From a trade perspective, I think the US is less confrontation,
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  Speaker 3: is trying to be a little bit less confrontational, especially
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  Speaker 3: when it comes to dealing with our global trading partners,
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  Speaker 3: that we need to offset what we typically would get
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  Speaker 3: from China, and I think that that's an important thing
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  Speaker 3: to keep in mind. When we have, let's say, a
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  Speaker 3: universal tariff of twenty five percent, or an average effect
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  Speaker 3: of tarifrate of twenty five percent, net's relatively evenly spread
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  Speaker 3: across all of our trading partners. That gives us a
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  Speaker 3: relatively limited ability to substitute across sources and across suppliers.
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  Speaker 3: When we ramp up our efforts to combat China with
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  Speaker 3: tariffs with trade barriers, and we lower our trade barriers
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  Speaker 3: everywhere else, we are becoming less confrontational globally. We're directing
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  Speaker 3: more of our efforts specifically towards China, and in doing so,
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  Speaker 3: we open up other sources for inputs to production that
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  Speaker 3: we might need, so probably less confrontational, and we're just
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  Speaker 3: becoming more specifically targeted towards China. That's probably a good
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  Speaker 3: thing in terms of maintaining the global commercial order, but
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  Speaker 3: it also will make it an especially difficult list when
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  Speaker 3: it comes to negotiating some sort of a trade deal
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  Speaker 3: with China, who's responsible for eleven twelve percent of our imports.
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  Speaker 4: He did say that the goal isn't too decoupled. But
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  Speaker 4: then as each day passes with no resolution or no
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  Speaker 4: dramatic lowering of tariffs, the viability of businesses and other
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  Speaker 4: things remain at risk. What can we expect, like how
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  Speaker 4: long can this keep on going? I guess is the question?
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  Speaker 3: Yeah, it's going to be a slow de escalation. I
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  Speaker 3: think that that's the direction that we're going to be going.
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  Speaker 3: So you could talk about both the level and the direction.
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  Speaker 3: Right the level is, things are bad. We are at
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  Speaker 3: an all time a difficult moment when it comes to
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  Speaker 3: our relationship with China and especially our economic relationship with China.
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  Speaker 3: But in terms of the direction of travel, things are
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  Speaker 3: moving slowly in the right direction, and it can take years.
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  Speaker 3: It can last well beyond the Trump administration. As we
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  Speaker 3: saw in the first Trump administration, he imposed Section three
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  Speaker 3: zero one tariffs that lasted through the Biden administration with
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  Speaker 3: no material change. Now there's been a ramp up. We're
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  Speaker 3: starting to change direction, and the de escalation process can
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  Speaker 3: take years.
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  Speaker 2: So I guess, is Bloomberg Economics forecasting every recession.
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  Speaker 3: We are not forecasting a recession at this point. We
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  Speaker 3: have very modest growth of just over half a percent
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  Speaker 3: for twenty twenty five. The contour of growth is going
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  Speaker 3: to be determined in large part by what segments of
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  Speaker 3: GDP are driving quarter to quarter dynamics. So we know
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  Speaker 3: that in the first quarter we should see slow growth
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  Speaker 3: because we've front loaded our imports of inputs to production
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  Speaker 3: ahead of tariff implementation. Then when uncertainty really hits, When
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  Speaker 3: in certain uncertainty really hits in Q two and into
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  Speaker 3: Q three, we should see slower fixed investment growth That
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  Speaker 3: should hollow out GDP growth in the middle of the year,
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  Speaker 3: but probably not enough to offer set the rebound that
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  Speaker 3: we'll get in that export in the middle of the year.
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  Speaker 3: So the contour of GDP and the dynamics for the
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  Speaker 3: different components of GDP are probably going to be enough
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  Speaker 3: to just keep modest positive growth throughout the year.
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  Speaker 4: We think President Trump said that the US was doing
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  Speaker 4: just fine quote unquote with Beijing and did not anticipate
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  Speaker 4: a quote hardball negotiation. What was your team's reaction. Did
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  Speaker 4: you anticipate that it's.
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  Speaker 3: Going to be hardball? I mean, the President's going to
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  Speaker 3: be able to do The President could say whatever he wants,
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  Speaker 3: but The reality is that the metals, let's say that
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  Speaker 3: we need for just base metals, inputs of production, raw
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  Speaker 3: materials for building buildings, electure for the electric grade for
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  Speaker 3: battery production, they come from China. China needs a lot
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  Speaker 3: of food from US. They're going to try to replace
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  Speaker 3: US food, but let's say food from Brazil. So this
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  Speaker 3: is just a massive geopolitical upset that's going on right out.
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  Speaker 3: You do have to play hardball. You do have to
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  Speaker 3: manage your trading partners. You have to you have to
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  Speaker 3: prohibit let's say, geopolitical and economic promiscuity between trading partners
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  Speaker 3: who stand between the US and China. And so it
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  Speaker 3: is going to be hardball for a while. Trump likes
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  Speaker 3: to say that he holds all the cards to use
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  Speaker 3: a different analogy, but it doesn't entirely seem to be
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  Speaker 3: the case. Yes, China does need food imports from the US,
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  Speaker 3: and they've shown they're not going to retaliate one for one,
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  Speaker 3: because they've only imposed you know, low double digitarifs on
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  Speaker 3: US corn for example. But it is going to have
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  Speaker 3: the opportunity to source food elsewhere, and so over the
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  Speaker 3: long run, it's going to be a difficult a difficult negotiation.
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  Speaker 2: All right, we will stay on top of it, of course.
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  Speaker 2: Stuart Paul, us economists for Bloomberg Economics, joining us slid
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  Speaker 2: here in our Bloomberg Interactive Broker studio.
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  Speaker 2: Tesla stocks up just under eight percent today. It came
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  Speaker 2: out with numbers last week that last night, which were
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  Speaker 2: really bad, will blow expectations the worst we've seen in
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  Speaker 2: years yet to stock trading out because Elon Musk says
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  Speaker 2: that he will devote quote far more of his time
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  Speaker 2: to Tesla starting next month, and that's clearly what investors
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  Speaker 2: wanted to hear. Craig Trudell joins us Global autos editor
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  Speaker 2: for Bloomberg News, joining us from London via that Zoom thing. So, Craig,
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  Speaker 2: is just as simple as Elon's coming back. Let's buy
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  Speaker 2: the stock.
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  Speaker 5: Yeah, you know, I think as as our colleague Liam
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  Speaker 5: Denning put it. You know, the cure for musks missteps
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  Speaker 5: is more Musk apparently, so, you know, I do think
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  Speaker 5: that there were a lot of investors who wanted to
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  Speaker 5: see him, you know, sort of come come back and
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  Speaker 5: you know, devote more of his time. You know, I
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  Speaker 5: think you can find people who can say that, you know,
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  Speaker 5: that will necessarily fix all that that ails the company.
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  Speaker 5: And you do have to wonder when he was saying
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  Speaker 5: in the same breath last night that you know he'll
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  Speaker 5: still you know, one or two days a week. Uh,
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  Speaker 5: you know, advise for the administration. Just how much he's
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  Speaker 5: he's really going to step back here. I would be
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  Speaker 5: surprised to see him. He's he's not much of a
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  Speaker 5: sort of backseat driver. He likes to be in control.
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  Speaker 4: And Tesla sales started to really slow even before Musks
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  Speaker 4: through his waight around politics, and they also go through
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  Speaker 4: guidance for the year ahead. What are you going to
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  Speaker 4: look at now that he's back and we're getting more
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  Speaker 4: elon Musk?
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  Speaker 5: Yeah, I mean I think, you know, the first thing
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  Speaker 5: that comes to mind for me is is, uh, you know,
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  Speaker 5: given all of all of the challenge challenges they're having
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  Speaker 5: with growing sales, you know, around this time last year
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  Speaker 5: is when we saw the company make these really dramatic
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  Speaker 5: uh you know, changes to to uh you know, headcount
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  Speaker 5: and and you know, restructure in this really aggressive way.
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  Speaker 5: I think Tesla cut quite a lot of employees last year.
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  Speaker 5: And do we see Musk in his words, you know,
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  Speaker 5: come back and be hardcore and sort of uh you know,
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  Speaker 5: throw throw his weight around. Because I think that the
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  Speaker 5: challenge that we're going to find this company have until
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  Speaker 5: and unless they follow through on these promises for you know,
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  Speaker 5: more affordable vehicles in the offering, uh you know, and
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  Speaker 5: and also I think vehicles that sort of are differentiated
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  Speaker 5: from just what they already have, uh, they're they're going
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  Speaker 5: to have trouble you know, continuing to grow and and
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  Speaker 5: so there's I think real concern about you know, if
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  Speaker 5: they're just offering a you know, de contented version of
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  Speaker 5: the Model Y and or the Model three, is that
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  Speaker 5: really going to be enough to sort of move the
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  Speaker 5: needle and sort of you know, tie them over until
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  Speaker 5: they make some headway on on other efforts that are
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  Speaker 5: sort of going to take them more time, like say
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  Speaker 5: autonomous driving or robots.
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  Speaker 2: So just with the core auto business, I know mister
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  Speaker 2: Musk would like to people look to other parts of
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  Speaker 2: his company, but the core auto business, one can argue
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  Speaker 2: it's never been a tougher time to compete for them.
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  Speaker 2: I mean, you just think it just feels like China
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  Speaker 2: by D specifically just kind of taken over the global
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  Speaker 2: EV market. What's the competitive landscape book for TESTA these days.
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  Speaker 5: Yeah, I think that's a great point. You know, the
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  Speaker 5: Chinese market is incredibly competitive. We're seeing you know, just
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  Speaker 5: this week, uh, you know, fresh indication of just how
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  Speaker 5: tough the sledding is there at the Shanghai Auto Show,
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  Speaker 5: where you know, Jaomi is turning lots of heads. You know,
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  Speaker 5: it's it's sort of the Apple car that that Apple
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  Speaker 5: decided they couldn't pull off making their su seven that
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  Speaker 5: that really has done well there. You know, b y
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  Speaker 5: D continues to just go from sort of strength to
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  Speaker 5: strength and really dominate in that market, and Tesla hasn't
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  Speaker 5: really had answers. You know, they they play in higher
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  Speaker 5: priced you know brackets. It's not that they are are
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  Speaker 5: you know, falling apart there, but in terms of of
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  Speaker 5: you know, being able to sort of hang on to
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  Speaker 5: the position that they have, it's becoming more difficult when
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  Speaker 5: you have you know, a fairly stale lineup and your
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  Speaker 5: competitors are of peppering the market with fresh product and
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  Speaker 5: innovating in a way that we used to you know,
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  Speaker 5: kind of find Tesla was able to. The Chinese industry
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  Speaker 5: has really sort of taken up the mantle in this regard.
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  Speaker 4: Can you talk to us more about how much of
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  Speaker 4: the tire of discussion was in the call, which took
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  Speaker 4: longer than usual. We have must sing it's pretty expensive
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  Speaker 4: to bring in things from China right now, and that
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  Speaker 4: he'll continue to advocate for lower tireff so we know
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  Speaker 4: that this has hurt his business, which does a lot
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  Speaker 4: of production and manufacturing in China.
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  Speaker 5: Yeah, it was. It was a long call. It was
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  Speaker 5: a late night for those of us tuning in from London,
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  Speaker 5: so you know, it was I was a little bit surprised,
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  Speaker 5: I would say to hear Musk, you know, be as
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  Speaker 5: frank as he was about tariffs. He's of course a
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  Speaker 5: very frank person, but he has tended to be very
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  Speaker 5: careful about, you know how and when he speaks about
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  Speaker 5: having any daylight between him and President Trump. But he
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  Speaker 5: was he was very you know, uh, sort of honest
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  Speaker 5: and open about this idea that he does not think
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  Speaker 5: that you know, tariffs are the best approach to prosperity,
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  Speaker 5: as he put it. And you know, while Tesla is
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  Speaker 5: somewhat insulated and that they make the vehicles they stell
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  Speaker 5: in the US, you know, in the US, and they
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  Speaker 5: have a plant in Shanghai that is is massive and
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  Speaker 5: and you know a huge source of their exports for
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  Speaker 5: places other than the US. UH, the company is still
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  Speaker 5: affected and and particularly on the side of their energy business,
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  Speaker 5: which has been a bright spot, the fact that they
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  Speaker 5: import battery cells from China for that business. You know,
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  Speaker 5: there's a big concern.
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  Speaker 2: There, Craig, excellent reporting. Thank you very much, appreciate it.
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  Speaker 2: Craig Trudelle, Global autos editor for Bloomberg News, joining us
• 12:08
  Speaker 2: from London on Tesla.
• 12:11
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 12:15
  Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto
• 12:18
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• 12:21
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 12:25
  Speaker 2: We're talking about Boeing putting up some results that were
• 12:29
  Speaker 2: a little bit better and expected, and I've learned from
• 12:31
  Speaker 2: George Ferguson that I need to focus on the cash
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  Speaker 2: situation of this company, particularly their free cash flow, because
• 12:37
  Speaker 2: they need to get the free cash flow positive sooner
• 12:39
  Speaker 2: rather than the later. And they made some progress there
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  Speaker 2: is what is what my read is. So let's check
• 12:43
  Speaker 2: in with the extra George Ferguson. He covers airspace, he
• 12:46
  Speaker 2: covers the airlines and all that kind of stuff for
• 12:48
  Speaker 2: Bloomberg Intelligence. George talk to us about Boeing stocks up
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  Speaker 2: seven percent here today? What at the company? What did
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  Speaker 2: your takeaways from their earnings?
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  Speaker 6: Yeah, I mean, I think the biggest issue there was
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  Speaker 6: a cash general came in a billion dollars better than expectations.
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  Speaker 7: I mean, I kind of get the sense that Boeing
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  Speaker 7: management has sort of.
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  Speaker 6: Give us some pretty conservative estimates for cash generation for
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  Speaker 6: the year. I think they showed it in the first quarter,
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  Speaker 6: coming up, coming out pretty strong. I think there's a
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  Speaker 6: real good potential that Boeing could be sort of cash flat,
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  Speaker 6: meaning no usage for the year, or maybe even a
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  Speaker 6: bit of generation.
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  Speaker 7: And I think as we've.
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  Speaker 6: Gotten into the earnings call what we've heard ish the
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  Speaker 6: tariff effects are pretty manageable outside of China.
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  Speaker 7: China's a bit of a challenge.
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  Speaker 6: They know that, but again, a lot of the backlog
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  Speaker 6: is is not Chinese airplanes. A lot of that's been
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  Speaker 6: the Chinese haven't placed many orders, and you know, Boeing
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  Speaker 6: has been sort of busy getting deliveries out to them
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  Speaker 6: to get some of those airplanes they've already built for
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  Speaker 6: them off the balance sheet. So China the major issue
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  Speaker 6: again not not not big though. And the rest of
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  Speaker 6: tariff world sounds like where there's occasions that they have
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  Speaker 6: to pay, they're paying. They can claw back some of
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  Speaker 6: those costs from the administration. So it sounds like I
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  Speaker 6: would say things are continued to be on track for recovery,
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  Speaker 6: for a strong recovery.
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  Speaker 7: Hopefully it's here.
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  Speaker 4: Yes, And Boeing last earned a profit in mid twenty
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  Speaker 4: twenty one, and it's definitely coming off. It's worse there
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  Speaker 4: and it's century long history. We have the CEO okay
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  Speaker 4: or break saying at twenty twenty five is the turnaround here?
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  Speaker 4: What ising going to do differently?
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  Speaker 6: Well, I mean I think they're going to deliver airplanes, right,
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  Speaker 6: So that's the biggest challenge. When you're an aircraft manufacturer
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  Speaker 6: and you stop delivering airplanes and you have quality problems,
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  Speaker 6: that's why they stop delivering. You're just not going to
• 14:46
  Speaker 6: generate cash. They've really been trying to keep the supply
• 14:51
  Speaker 6: chain I would say warm, by buying components from the
• 14:56
  Speaker 6: supply chain, and that's why they've seen inventories balloon to
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  Speaker 6: like eighty seven billion dollars. I got to check and
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  Speaker 6: see what it was on today's balance sheet, but last
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  Speaker 6: balance sheet eighty seven billion dollars. So, I mean a
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  Speaker 6: lot of the turnaround is build those airplanes with existing inventory.
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  Speaker 6: Means the cash generation for the airplanes they build and
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  Speaker 6: deliver ought to.
• 15:16
  Speaker 7: Be higher than historically.
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  Speaker 6: Use that money to pay it, do on debt, keep
• 15:22
  Speaker 6: the balance sheet, or heal the balance sheet.
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  Speaker 7: That's the recovery plan, George.
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  Speaker 2: I know, if I'm talking to you and reading your research,
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  Speaker 2: the cash story hinges in large part on getting those
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  Speaker 2: seven three sevens out the door. Talk to us about
• 15:35
  Speaker 2: where production is today and where do you think it's
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  Speaker 2: going to go in the future.
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  Speaker 6: Yeah, So they said that they were the factory was
• 15:43
  Speaker 6: building at thirty low thirties number of aircraft per month.
• 15:48
  Speaker 6: You know, we had kind of been tracking and I
• 15:50
  Speaker 6: think we saw high twenty. So probably Kelly's got maybe
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  Speaker 6: just a more current number on that. I think that
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  Speaker 6: they'll they'll get up to the thirty eight limits. This
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  Speaker 6: is all on the seven thirty seven that the FAA
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  Speaker 6: is put in place for them this year and go
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  Speaker 6: past that.
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  Speaker 7: I think they'll get an.
• 16:08
  Speaker 6: FA approval for that, and probably at the back half
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  Speaker 6: of the year, we're kind of looking for them to
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  Speaker 6: be forty ish. And so again that you know, the
• 16:17
  Speaker 6: more you use the factory, the more overhead gets absorbed
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  Speaker 6: over a larger number of airplanes. The more profitable you are,
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  Speaker 6: the more cash you're going to generate.
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  Speaker 7: Part of that story.
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  Speaker 4: Can you talk to us a bit more about how
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  Speaker 4: much the tariff headwind will affect the company's top line
• 16:33
  Speaker 4: or bottom line, especially with this really heated tit for
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  Speaker 4: tat it seems with China, well.
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  Speaker 6: So again, China has really become much less of an
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  Speaker 6: issue for Boeing. The Chinese have placed sixteen orders this
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  Speaker 6: decade for airplanes. There's some four hundred orders on the
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  Speaker 6: Boeing books. Still that's of a backlog, that's six thousand large.
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  Speaker 6: Kelly Orberg is just talking on the call that you
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  Speaker 6: know he's prepared to He was planning and delivering forty
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  Speaker 6: to fifty into China this year, So not a lot
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  Speaker 6: of airplanes that would be mostly seven thirty sevens and
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  Speaker 6: that's out of an expected build of maybe four hundred
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  Speaker 6: and seven thirty sevens or so this year.
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  Speaker 7: So you can already see the sizes and that large.
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  Speaker 6: And he's ready to go out and he's going to
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  Speaker 6: talk to the customers, see what they want to do,
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  Speaker 6: and he's ready to go out and remarket those airplanes.
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  Speaker 6: I think we've already seen Air India raise their hand
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  Speaker 6: say hey, we'd take some airplanes. And there's other folks
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  Speaker 6: around the world that just haven't gotten the deliveries they wanted.
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  Speaker 6: They're ready to take airplanes too. So on the top line,
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  Speaker 6: I just don't see China impacting things that much.
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  Speaker 7: The bottom line again.
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  Speaker 6: Boeing said eighty percent of their supplier base is US based.
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  Speaker 7: A lot more a lot of the other stuff is
• 17:45
  Speaker 7: Canada and Mexico, which you're under.
• 17:48
  Speaker 6: You know, the agreement between those countries that allows things
• 17:51
  Speaker 6: to flow without a tariff. And then there's cases where
• 17:55
  Speaker 6: when airplanes would be sold overseas, they can call those
• 17:58
  Speaker 6: tariffs back.
• 17:59
  Speaker 2: Excell and George, we got go to some breaking news.
• 18:00
  Speaker 2: George ferguson covering the airlines and aerospace companies.
• 18:05
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 18:09
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• 18:12
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• 18:15
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• 18:19
  Speaker 2: Markets are moving. Let's see what the professionals are doing.
• 18:22
  Speaker 2: I mean, you can get whipsawed around here. I don't
• 18:24
  Speaker 2: care who you are. Shelby McFadden joins US investment analyst
• 18:27
  Speaker 2: for Motley Full Asset Management, located down in Arlington, Virginia. Shelby,
• 18:32
  Speaker 2: how are you guys kind of day to day dealing
• 18:36
  Speaker 2: with the volatility of this market? Again, We've got a
• 18:38
  Speaker 2: VIX that's come in today but still up near thirty.
• 18:41
  Speaker 2: How do you guys deal with the volatility?
• 18:44
  Speaker 8: At this point, we've really just buckled ourselves in, you know,
• 18:47
  Speaker 8: that sort of overhead harness that you pull down when
• 18:49
  Speaker 8: you're on a roller coaster. That's been our tool of choice,
• 18:51
  Speaker 8: and it's mainly because the swings that we've seen in
• 18:54
  Speaker 8: the market, they're usually the up and down swing tend
• 18:56
  Speaker 8: to be about the same magnitude down nine hundred, up
• 18:59
  Speaker 8: thousand next day or within thirty six to forty eight hours.
• 19:03
  Speaker 8: And the other thing too, is that the swings have
• 19:05
  Speaker 8: been pretty broad, right, We're not seeing any major changes
• 19:08
  Speaker 8: in sort of like relative valuations up until today, with
• 19:11
  Speaker 8: you know, consumer discretionary outperforming. It tends to just be
• 19:14
  Speaker 8: a really big, sort of congealed swing in the market,
• 19:18
  Speaker 8: which doesn't leave too too much room for the sort
• 19:20
  Speaker 8: of relative valuation opportunity. So we are watching the headlines
• 19:24
  Speaker 8: a little bit more closely, not because we want to
• 19:26
  Speaker 8: trade on them, but we're trying to be able to
• 19:28
  Speaker 8: see where the dust is going to settle. And so
• 19:30
  Speaker 8: I think today what we're seeing in the market is
• 19:32
  Speaker 8: a reaction to the prospect that the dust will be
• 19:35
  Speaker 8: settling soon. And I don't really expect there to be
• 19:39
  Speaker 8: too much of an overreaction to Secretary buston sort of
• 19:42
  Speaker 8: follow up headline. So yeah, I think as active investors
• 19:46
  Speaker 8: we have sat tight so that we can really get
• 19:50
  Speaker 8: a better lay of the land and waited for the
• 19:52
  Speaker 8: real opportunity to show up and not necessarily just move
• 19:55
  Speaker 8: at every sort of down opportunity. Really trying to say
• 19:59
  Speaker 8: discipline and what we believe to be fair.
• 20:01
  Speaker 4: Value, Sitting tight seems to be the consensus these days.
• 20:04
  Speaker 4: But how are you allocating your funds? Have you shifted
• 20:07
  Speaker 4: anything recently, cut something to overweight or boosted something to overweight.
• 20:13
  Speaker 8: Yeah, that's a great question. In terms of allocation, what
• 20:15
  Speaker 8: we have looked at is, I would say, in terms
• 20:18
  Speaker 8: of at the top, we've taken a look at what
• 20:20
  Speaker 8: is our cyclical exposure, so whether that's going to be
• 20:22
  Speaker 8: industrials or consumer cyclical. That was one of the first
• 20:25
  Speaker 8: things that we had to look at really after inauguration.
• 20:29
  Speaker 8: So at election we pretty much had to sit down
• 20:32
  Speaker 8: and said, Okay, what are the main sort of like
• 20:34
  Speaker 8: tax policies that we think are going to be the
• 20:36
  Speaker 8: most impactful. But right now it's more so been okay,
• 20:40
  Speaker 8: what is going to be the most sensitive to any
• 20:43
  Speaker 8: sort of slowdown because we've been back and forth right
• 20:47
  Speaker 8: on whether or not we're going to be able to
• 20:48
  Speaker 8: hold on to this soft landing that was so they
• 20:52
  Speaker 8: worked so hard for or is it going to sort
• 20:54
  Speaker 8: of fall through our fingers. So allocation has been a
• 20:58
  Speaker 8: lot more focused on, Okay, the company is doing very well.
• 21:01
  Speaker 8: We know that they're going to probably perform ahead of
• 21:04
  Speaker 8: their peers, but we may want to pull back just
• 21:06
  Speaker 8: a little bit because the growth is not going to
• 21:09
  Speaker 8: be a little bit more deferred into the future.
• 21:12
  Speaker 2: So Shelby, you know, there's with all the tariff talk,
• 21:15
  Speaker 2: it's created a level of uncertainty and you here which
• 21:17
  Speaker 2: is sapped corporate confidence. We're seeing companies pull back on
• 21:21
  Speaker 2: some of their cappecs guidance and so on, and some
• 21:23
  Speaker 2: of their earnings guide and so it's even impacted consumer confidence.
• 21:26
  Speaker 2: We see that in the survey data, like the University
• 21:28
  Speaker 2: of Michigan data. Yet a name on your list is
• 21:30
  Speaker 2: American Express. That seems to be a play on the consumer.
• 21:34
  Speaker 2: How do you think about American Express in this world?
• 21:37
  Speaker 8: Well, there's a couple of things I really like about
• 21:39
  Speaker 8: American Express. The first is they are in that sort
• 21:41
  Speaker 8: of premium part of the spectrum, so it's a little
• 21:45
  Speaker 8: bit stickier in terms of being able to maintain those revenues,
• 21:49
  Speaker 8: being able to maintain that spend, so they're just you know,
• 21:51
  Speaker 8: on the higher end of the credit spectrum. The second
• 21:53
  Speaker 8: thing is more recent and it came from their most
• 21:55
  Speaker 8: recent earnings call where management has basically said, hey, we're
• 21:59
  Speaker 8: not going to be just full stop cutting our allocation
• 22:03
  Speaker 8: of spend to things like product refreshes and reinvesting in
• 22:07
  Speaker 8: the business just to pad earnings. Right, They're going to
• 22:10
  Speaker 8: continue to try and serve the customer and serve the
• 22:13
  Speaker 8: business for the long term at a time when management
• 22:17
  Speaker 8: of different companies, and rightfully so, are a lot more cautious.
• 22:20
  Speaker 8: So it's not to say that they are sort of
• 22:22
  Speaker 8: in the wild wild West and thinking that they're completely
• 22:25
  Speaker 8: sort of insulated from any sort of macro issue, but
• 22:29
  Speaker 8: also saying we've got the balance sheet, we've got the
• 22:32
  Speaker 8: financial health to keep investing in this business, and we're
• 22:34
  Speaker 8: going to do so. And as active managers, that's something
• 22:36
  Speaker 8: that we really like to see, is a commitment to
• 22:39
  Speaker 8: continuing to make the business better and serve customers up
• 22:42
  Speaker 8: into a point where you say, okay, now we need
• 22:44
  Speaker 8: to go ahead and pull things back, but not doing
• 22:46
  Speaker 8: so prematurely is what keeps me excited about that business.
• 22:49
  Speaker 4: What about TransUnion, that's another company that you like. We
• 22:52
  Speaker 4: know that definitely Americans are relying more and more on
• 22:55
  Speaker 4: credit when it comes to consumer spending.
• 22:59
  Speaker 8: Absolutely, and so there's another dual sided story to TransUnion
• 23:02
  Speaker 8: as well. So one is again the increasing reliance on
• 23:04
  Speaker 8: credit and debt and also the need for identity verification
• 23:10
  Speaker 8: goes along with that as well, and that is something
• 23:12
  Speaker 8: that one of their peers actually did a lot more of,
• 23:14
  Speaker 8: which is sort of what made the valuation a bit
• 23:17
  Speaker 8: more attractive for TransUnion. Whether or not that sort of
• 23:20
  Speaker 8: federal identity valuation market sort of starts to shrink is
• 23:24
  Speaker 8: something that could very well serve Transunion's valuation in the future.
• 23:28
  Speaker 8: But the fact is they've been pretty robust up against
• 23:32
  Speaker 8: this environment where we're not quite sure how consumers are
• 23:34
  Speaker 8: going to behave but increasingly people are using more credit,
• 23:38
  Speaker 8: not just because they need to stretch out the financing,
• 23:40
  Speaker 8: but because of the rewards. So if you're looking at
• 23:43
  Speaker 8: a situation where in the past maybe you'd use credit
• 23:46
  Speaker 8: because you had to, but now the younger generations are
• 23:49
  Speaker 8: getting into credit early, they're using multiple different cards for
• 23:52
  Speaker 8: multiple different purposes, and that's going to require credit check
• 23:56
  Speaker 8: every time, and Transunions does it most affordably.
• 23:59
  Speaker 2: Shelby, thank you so much for joining us, Shelby McFadden
• 24:01
  Speaker 2: Investment and also Motley Full Asset Management joining us from Arlington, Virginia.
• 24:06
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