Both Administrations Claim Economy But It’s Yellen’s: Eisenbeis

and on Tuesday. Here to help us understand the future of the Federal Reserve is Robert Eisenbeis. Bob Eisenbis is the vice chairman and chief monetary economist for Cumberland Advisers and they're based in Sarasota, Florida. Bob, thank you very much for being with us. As a former employee of the Federal Serve at the Reserve Bank of Atlanta. What can you tell us about the new FED in context for a selection of vice chairman or vice chair and

who do you believe will fill that role? Well, the organization issues right now are pretty challenged because of the large number of vacancies and there are a number of names being floated. Obviously, the one most recently mentioned as John Williams, and John would be a very experienced and

well qualified economist. I think that's probably one of the objectives that the administration has since UH new Chairman Paul was not an economist, to have an economist as a vice chairman would be essentially putting someone like that in a support of function. UM. The vice chairman role changes quite a bit. It used to be historically that the vice chairman was sort of the operating officer of the organization,

but that's changed as time has changed. UM. I think the real challenge right now is to essentially deal with the fact that, given the present structure of the board and as chair Yelling leaves, the Reserve Banks actually will have the dominant vote as far as policy is concerned, and I think that's going to be an interesting challenge for new Chairman Powell. Bob, this is Taylor Riggs. I'm filling in here for Lisa Bramwoods, who's out on assignment.

You you mentioned Janet Yellen, and you know, yesterday on Bloomberg Radio and TV we spoke with Alan Greenspan. He of course would not comment on Janet Yellen's legacy as you think about her legacy as the outgoing chair. Of course, she was the first female chair of the Federal Reserve. What else comes to mind when you think about her

legacy and her term. Well, I'm glad you asked that question, because when you consider the State of the Union address and all the claims that are being made as to who gets credit for what's going on, I don't think that either the previous administration or the current administration can claim credit for what's happened as far as the economy is concerned. I think that is a tribute to Janet Yellen that she has helped guide the economy and policy.

When administrations and Congress are sitting on their hands, it's really hard to point two specific initiatives that either administration put in place that you can link to the overall performance of the economy. Uh. I know Republicans will claim the tax cut, but that's in the last month and a half or thereabouts. That doesn't explain the past four and five years of growth that the economy has had.

So I think UH, the position that Chairman Powell UH has when it comes to the economy that he's inherited. That's her legacy at this juncture. Okay, so you mentioned j Powell. Let's go with that going forward. What's his biggest headwind this year? What would be his biggest challenge? Like you said, he's been given a decent economy here, right. I think this is a case where uh, he wants to practice the hippocratic growth do no harm. UH do no harm in this case means don't rush Liz a

lot of rating increases. I think they're going to be very cautious about what they do, partly because it was mentioned in the leading to the whole program here is the fact that with interest rates right now on the fixed income side moving up, UH, that's essentially doing the Fed's job for it. So the Fed looking out at the markets and the interest rate environment, that's a situation where rates are going up, and as a result, the Fed doesn't need to essentially act to try to move

things in that direction. So they can afford to wait and be cautious and see how things sort out. And I think that's probably what he's going to have to do and manage. And I think he's got a uh an f MC right now that's in sync with that kind of concern Bob Eyeson, Bis, if you're an institutional investor and you have the option to buy or sell bonds, you don't have to hold them, perhaps like an insurance company or a pension plan. Would you be suggesting that

the institutions sell their bond holdings or at least reduce them. Well, I think what they want to do is you want liquidity to be able to reinvest at higher rates, and probably a barbell strategy is probably something that you can do. I think the the biggest concern is to be sure that you're being compensated for the maturity risk that you're

taking on and with a very flat Yeld curve. Uh, there's a tendency to, particularly if you're dealing with clients, to try to keep them from reaching for risk where they're not being and reaching for rates where they're not being compensated for either the maturity risk or in the case of corporate bonds and municipal bonds, where they're not being compensated for the credit risk that they're taking. How do you I measure That's the real challenge, Bob. How

do you imagine that? I mean, for example, I mean if you tell me all right, the duration risk on a tenure at two seventy three. How do you actually measure that duration risk that is in a way that is meaningful to the investor. Well, I think you have to use history in that particular case, and uh in the case of the credits that I'm talking about, you have to dig into the underlying cash flows us that are being uh forwarded on those instruments and make that

judgment of bob juice. Finally, to wrap it up, you talked about rising rates and the yield curve. The the yield curve does look both the two tens and the two thirties. You know, my question is is a flat yield curve concern you or is this sort of normal in this late stage business cycle. Well, we don't know because we've never had this kind of the length of a business cycle combined with h central bank activities that have pumped so much liquidity in the marketplace. So we're

in unchartered waters when it comes to this situation. I know a lot of people are concerned about a flat eel curve and what that might mean in terms of inversion and signaling recession and everything else. If you sort of take a look back. However, what's happening in the real economy. The real economy seems to be doing pretty well and doesn't doesn't seem to be showing any signs of recession risk at this juncture, at least so. And it's not, in my view, a case where the markets

are going to cause that kind of problem. Abs it's some unanticipated shock and we don't see that yet on the horizon. But you just have to be cautious because of this flat eel curve in terms of where you position your your holdings now, shorter time is better than longer. Bob Eyes and Bis, thank you very much. Vice chairman and chief monetary economist at Cumberland Advisers. They're based in Sarasota, Florida. Joining us here in our studio is Shira ov day

Are expert for all things technology. She's a Bloomberg gad Flag columnist, and she's gonna tell us about what's she gonna tell us about? Well, I've been dying to ask this question, Sierra, So I'm so glad that you have been able to join us. All about if Amazon is getting too big? I know ahead of their earnings are for it. I believe this might be the second report where Whole Foods is now included. Earlier this week, we all know that they talked about creating the healthcare company

with JP Morgan in Berkshire Hathaway. At what point is Amazon getting too big that they start to draw eyeballs, maybe from regulators or antitrust officials. I think that's happening already at Amazon's current size. So one of the most popular parlor games among academics and economists of the last year is debating whether Amazon is currently a monopoly given its market share in online shopping and its ability to dictate that market and also to have a big hand

in a job creation or where jobs are created. Amazon now has five hundred and forty thousand employees UM. That jumped up a large number once Amazon acquired Whole Foods towards the end of last year. And look, Amazon is at the size like a lot of these tech giants where they're attracting scrutiny from regulators all over the globe. Talk to me about margins. Are we going to start to see more investors more focused on margins? We know, of course at this point they've been ignoring that in

lieu of gaining market share. At what point do we need to start to be looking at margins? I don't know. I think investors kind of go back and forth about how much they care about Amazon's profit margins. Who who knows what they feel like today. I guess we'll see once the company reports. But look, the story of Amazon almost since the beginning of its history has been they take almost every dollar that they earn and they plow

it back into the business. And so far largely that has been a good bet on the smarts of Jeff Bezos to intelligently invest shareholders money. At some point they may not believe that anymore. And you see some quarters um investors are more nervous about Amazon spending than other quarters. But that's definitely been the consistent strategy at Amazon. So what do we need to pay attention to on the

earnings report today? Because you've got what prime customers. Everyone looks to see whether there are more prime customers because of course they pay the subscription price. And then you've got the expansion of that fulfillment by Amazon, and that

some people say this could be a record corner for them. Yeah, I mean, I think it's pretty clear from all of the data that we've seen so far that the holidays were very, very good for Amazon, and the company continues to um expand its market share and online shopping, and that's a category that continues to grow quickly around the world. I think what investors are looking for is, in addition to revenue growth, what are they spending right back to this kind of margin question, um and what are they

spending it on? Is it on fulfillment centers, on these package warehouses, is it on the video service, which I think has been a little bit of a wobbly business for Amazon. Is it on Amazon Web services, on their advertising business? Of what they spend And I think there's gonna be a lot of focus on the forecast for this coming quarter because this is a year where in usters so far have been expecting Amazon to generate higher profits, uh, and so we'll start to see that reflected in the forecast.

I want to shift to the other a we're talking about Apple. Of course, we've heard a lot this week about production problems with the iPhone ten. Is it too early to tell what's going on with the iPhone ten or are we going to get some more details about that? Yeah, I think it's been very interesting to see the changing sentiment about iPhone sales just in the last few months.

There was a belief a few months ago that the iPhone tin was going to be this blockbuster that was going to a sharp, significantly increase the number of phones Apple cells after a couple of either down or modestly up years in unit sales. I don't think investors think that largely anymore. That the iPhone ten story is less about how many Apple cells and more about what price

is Apple getting from those phones. That's a thousand dollar en up phone, right, So that is inevitably going to increase the average sale price for the company, and that's good news for Apple. Although it we'll see the puts and takes how quickly the revenue grows. Well, revenue, we got what the estimate is for eight seven point three, So let's say eight seven billion of revenue and net

income of nearly twenty billion for the company. What what's the most important number, like, what would you think will be traded on? I think the biggest, the biggest focus of attention is going to be on the forecast for the March quarter. UM. Apple gives a revenue forecast, so investors will use that to extrapolate, Okay, how our iPhone ten sales likely to go in the in the March quarter, and what does that mean for the rest of the year.

You can extrapolate some assumptions about iPhone sales for the rest of the year from the March forecast. And I think there's a lot of anxiety about Apple's potential revenue growth this this fiscal year, and that March forecast is going to be I think ultra important. Well. And they also got to face competition because on February, guess what, Samsung is going to launch its Galaxy S nine. So that's a competitor to the Apple iPhone. You call it the X of the ten. Apple calls it the ten um.

I have tended to call it the X mostly just to thumb my nose at Apple hood. Yes, it's alright, well done, Thanks very much. Here every day Bloomberg gad Fly columns for all things technology. Here to tell us a little bit about what's going on in the world of electronic payments is David Rittard. He is our Payments and Specialty finance analyst for Bloomberg Intelligence. Shares of PayPal they're down six percent the shares of eBay. They're up, David,

I know you can tell us why. Sure, Well, I think that you have to keep PayPal in context of how the stock has done. Um it had nearly doubled in it was up another fifteen percent this year. And you know, I've been saying for months you had the fundamentals have been very strong, and and the trends continued in the fourth quarter with very strong acceleration in account growth and revenue growth. Again. Um, So, I think the

eBay loss is going to be manageable over time. It's going to be staged out over the next several years. I think the company could have done a better job of telegraphing some of the impacts ahead of time. Um but I think this is natural, and we're seeing the stock rally actually quite a bit here in the last

hour already. David, it's Taylor Briggs here. I'm wondering, you know, after eBay said that it will shift its payments business to the Dutch company Audion from PayPal, why why, now, I write, don't doesn't their partnership extend through Why did they talk about this now? Yeah? I mean, I think we need to be clear on what it is they're

actually doing. So. They have an agreement with PayPal UM that governed when the two companies split, a five year agreement, and they're at the point now, at the halfway point where um eBay is permitted to allow other companies to be their primary payments processor, so paypals he didn't called Braintree that does that function. So they're really only transitioning their core processing. They're still going to be accepting PayPal. I mean, they're not taking the PayPal button off the

eBay merchants. So that's important to bring up UM. So this is something that's been in the works and a possibility for some time. The other important thing to remember is, on the other hand, the agreement also prohibited PayPal from signing up certain marketplaces that eBay competes with, and they're going to be free to do that in the next

couple of years as well. Hey David, and as you noted, the stock of palers trading around seventies six sixty nine on the open and then now we see it as much as so yes to turn around, although the stock is still down about five and a half dollars to share. Can you tell us about master Card because they, along with Visa, they are also considered this you know, electronic payments giant. Yeah, no, absolutely, I mean I think it's a sign of really very very strong global growth, not

just a US story, but globally. You know, you saw acceleration in payments growth in the fourth quarter and in cross border payments, which is a really lucrative source of revenue for them because they're translating currencies that they charge and added fee for um. They're really cranking on all cylinders. And the part partly it's the transition for in cash and check globally to electronic payments, and obviously they are a dominant central player, and there's certainly benefiting from a

shift of commerce to to mobile channels as well. Yeah, David talked to me more about the outlook for this continued shift to digital payments when it comes to master Card. Is that helping with margin expansion given the high margins

there in the cross border sales. Yeah. I mean, you know, the interesting thing about both Visa and master Card, by nature, they're very very high operating margin businesses because when you think about it, it's really a giant computer system and communication system, so high fixed costs but the incremental cost of each transaction is very very very low. So as transactions convert from cash and check over to electronic means

um that's pure profit. And so what it's to allow both companies to do is to say, Okay, well we're going to take that natural margin benefit that we have in our model and reinvest it in in digital initiatives and in trying to grab other types of payment flows, not just consumers pay businesses, but maybe government dispersing funds

to consumers, maybe businesses paying each other. And so you saw a MasterCard by an a H company based in the UK, and so they're looking to grab the substantial portion of commerce that takes place on outside the traditional consumer to business channel. So that's kind of their next leg of growth. Well, thanks very much for enlightening us. David Ritter is our Payments and Specialty finance analyst for Bloomberg Intelligence. Good morning, I'm Taylor Riggs. I'm filling in

for Lisa Abramaitz. She's out on assignment. We are talking about artificial intelligence and it is set to further disrupt the retail industry. Joining me now, Rona, he's here with us in studio Senior analysts of software and I T services of Bloomberg Intelligence and over the phone Punum Goyle, senior US retail analysts also with Bloomberg Intelligence. You know, my first question you two, is the retail industry has already been facing some problems with disruption, with Amazon coming

in disrupting really the entire sector. You tube put together this massive report that AI will will further disrupt. I guess generally, is this a net positive or a net negative? Honor Rug, why don't you take that one? So one of the biggest things that we talk about it is today you really don't need a lot of capital to

come up with new stores. Um. So we follow a company called Shopify, where you can go out and launch a store tailor you can launch any store tomorrow for a month with enterprise capabilities of payments, shipping, a look and feel off a very large retailer with very little capital.

And every day or every year, I would say, we are seeing hundreds of thousands of these stores pop up that are targeted to your mobile device, to your Facebook, to your Instagram, and that's how you're going to shop next. I want to bring you in because I understand that an UG attended the major retail convention and not too long ago, and there was some technology that he was able to access that told him something about himself that he did not already know. Tell us about this experience. Um,

so the NR conference showcased much of this technology. I mean think about, you know, going into a store and picking up an item and then putting it back down, and then the retailer knows that you picked up this item and you didn't purchase it, so why didn't you purchase that? And not only provides intelligence on the product, but also it helped identify you as a party interested in that item. The other thing we saw was the makeup app and I don't know if that's what anorag

was referencing. Yes, tell us about it and how did he use it? Yeah, so I guess you know, you walk up in front of a mirror or in front of a screen, they look at your skin, they tell you what you should do to improve your skin. Is quite interesting. Um it's actually being used in Europe right now. They are talking to clients in the US. But it's about giving clients the right feedback. So it's about you.

It's about the personalization, the connection to you, and it's individualized, so it's not one size fits all or one suggestion fits all, which is really what you know AI aims to fix. Um. Everyone is unique and everyone should have a unique recommendation. Okay, So at the end of the day, Alex is giving me fashion advice, right this when it comes down to see, that's just a tool that's going to help you shop a little bit better. But you

have technology moving at such a rapid pace. Um, we saw transactions that would be done through your Facebook messenger. You could start buying things on a website and you know that the data of that would go straight to your messengers. You would use payment systems through that to complete the purchase. You're bypassing a lot of legacy systems through it. And as I said, you could be a small mom and pop shop, you are now competing head to head with very large established brands on all. Right,

let's say you're an investor. Right, let's be there and say I want to get in on this. Who's making the chips, who's making the actual technology that is making all this reality? So, believe it or not, on the tech side, it is still companies like Microsoft. Um, I we heard that a lot of investors, a lot of retailers are not working with Amazon because of obvious reasons. So you have Google Cloud, you have Adobe, you have Microsoft, you have IBM, you have SAP that's a very big

player and that. So on the tech side, it's pretty much all the large giants we know and it's all software. It's all software driven, so no, no no chip players in here. That it's pretty ordinary chips that Intel's there, Samsung is there, so you would always have those companies that provide the infrastructure and the camera US and because facial recognition is a big deal, so you have those

companies as well. Intel's big player obviously, but large portion of the value edition comes from the software providers and Punham who on the retail side has started to use this. So it's not a lot. Actually, American Eagle has constantly talked about at the show where they've they're trying, testing

and implementing a lot of these technologies. But you know, if you ask me today who's doing it, well, there really isn't one brick and mortar retailer that I can think of that's implementing and using AI in a way that someone else can replicate. Or would want to replicate outside of Amazon. I mean, and that's sound brick and mortar. What about Wayfair, that's the the online retailer of furnishings. I don't cover Wayfair, but Wafair has been making strides

from what I know to implement this. Once again, not a brick and mortar. Right, so you see the e commerce players do a little bit more on AI and on technology to get ahead of the curve. It's the brick and mortars that are really lagging and it's them who have been suffering throughout the whole surge and technology. All right, the well, thanks for and just quickly on a rog what did the what did the app tell you? For your face? A lot of lotions A not dead in by any of them. I just but you didn't

make the purchase? No I didn't. That doesn't sound like a successful transaction. All right, Thanks very much on a rag Grana He is our senior analyst of software and I T Services are Thanks also to Punam Goyal, Senior US, a retail analyst for Bloomberg Intelligence. Check out their latest report, Bloomberg Intelligence taking a look at artificial intelligence when it comes to the retail industry. Thanks for listening to the

Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio te