Forget Supply. Demand For Tesla Cars At $70,000+ Will Dry Up

Governor Carney in the MPC. Let's cross over to just outside of thread Needles Street and around the corner where near a church is standing by Bloomberg's very own Nara go through the headlines for us and get us up to speed on what we're learning this morning from the Bank of England. Yes, thanks so much, Sean. This is a unanimous vote for that rate rise. Of course, the rate rise was highly expected, but economists were perhaps expecting

a seven to vote. We've got nine zero on the MPC, so perhaps that might send a little bit of a hawkish signal to the markets. More than that as well, what we've got is the long term trend equilibrium rate the bo ecs that at about two to three percent. This is interesting because remember this is the first time we're getting that our star from the BOE might give some signal to wear rates settle in the future and

perhaps effect that forward curve somewhat. Now, some economists, many of them, were saying we could get a range of one point five to two point five per cent, So this, of course is slightly higher at two to three percent. Is that also a little bit of a hawkish signal here? Other things that we've had in terms of comments from the BOE, there are tentative signs that protection is um is affecting global growth, so that's a little bit of

a sign of some of the risks. No mentions yet of Brexit, but no doubt Mark Carney will get a lot of questions out of that in the news conference, because of course, one of the questions here that a lot of people were asking is why the Bank of England would hike into a potential down to turn ahead of all that uncertainty around Brexit. But nonetheless that highly

anticipated hike has come. We do still have the comment though of limited and gradual the boecing interest rate increases from here being limited and gradual, and of course in the news conference, there will be a lot of questions around the guidance of the forward curve and when or how rate hikes might come from here. Is it going to be a one and done? What sort of signals will we get on that John now a chair. It is great to cat show with you much more from there.

Through the afternoon and morning right here on Bloomberg Radio saw a great height from the Bank of England. Guilt yields just jump a little bit higher off the back of this decision to unchanged on the down a ten year and at the front end the communication for the Bank of England policymakers agreeing that more rate hikes will

be needed. Off the back of this, a little bit of a bounce on sterling, a stronger dollar story today, so that kind of sort of warp in the move here cable now almost unchanged on a session down by just a tenth of one percent now at one dollar thirty one. Tom Keane expected, it was expected, but the street wondering whether this has wanted done in the bank having the communicating that more could be coming, and then just as remarkable is the complete opposite of what we

saw yesterday afternoon with a fed. This is some real substance to our US listeners. There's real substance here. And I would suggest John knock on effect to the American economy. This is not discreetly about the United Kingdom and whether the guy from Arsenal will leave Racy Milan. We can get that to that a little bit. We can do that. But we have got some really good guests coming up.

And we got two individuals that used to serve on the Bank aving the Monekey Policy Committee, and we can begin with Adam Poston, Peterson Institute for International Economics President, and he joins us on the phone. Now, Adam, it's great to have you with us. Let's just begin with the decision itself. If you were back on the MPC, would this have been nine zero? No, I would have I would have voted against it. I know Danny by

char you're having on later, would vote against it. And I would presume that a couple of the members currently more importantly, like the speech John Kunloft gave month out and a half ago, would vote against it. It's very hard to justify this decision in my view. How are

they justifying it, Adam? They seem to have two things going on as as time put up on the TV bloom A TV surveillance um that they think that their output gap is closing, so inflations around the corner, and they believe their wage forecasts that there's going to be rising wages, even though, as Blanche Flower and others have pointed out, those forecasts going back to the time I was on the NBC years ago, have repeatedly been wrong. We can bring in Danny now, Danny Blanchelind Datmouth professor

and former bankinging the Monetary Policy Committee member. Danny have got no doubt where your vote would have gone last night. Your thoughts on the decision, well, I I completely agree with Adam. Um. I think what's really interesting is now we're in the world if we still thinking and guessing. Um. I'm actually trying to read the last four paragraphs of the decision and there's actually no day to whatsoever that

sustains they can't come up with any data. Adams right, They seem to think the output gap has actually has closed a lot, and the only word is based upon is I would sencely Caclaric summarize what they've written as the data is absolutely horrible. There's no data to support it, but we think it's temporary and wage growth is about to explode. Um, I think it's I think, I know. How is it right? This is a classic Red mistake that will be reversed. Can I just tell you what

the data looks like. There's no inflation, no wage growth. The people are borrowing like crazy, raised uncertainty, potential trade wars and Brexit. Commercial property values and house prices are falling. Business confidence is low, household debts through the roof insolvent is a rising GDP. Growth is weak, and there's no data whatsoever. Sounds like more rate hikes on Adam Poston, because that's the communication coming from the Bank of England today,

not just one hike, but agreeing that more is to come. Yeah. And again, often not always, but often I agree with Danny, and in this case, especially on wages. I always agree with Danny because he gets right. But I mean, it is interesting, I've said on the show before and elsewhere. You know, I could imagine the bank aving and filling hamstrung visa vi bregsit Because they politically have to play

it straight and just be reacting. They can't argue against it, and because the currency could move in crazy ways, but that's not where we are right now, and so I do not understand. I honestly don't get it. Dr Pos And I've I've had the privilege of attending a packed lecture of David blanche Flower and having the privilege of opining to the young Turks of Dartmouth. David blanche Flower, if you were in your lecture hall right now, and you and Pose it are having a love fest over

no rate rise. Others disagree. So if I think of Charles Plash or the Fresh Freshwater School or others. But Professor Blanchflower state the case of those who feel Curney's got to raise rates to get some room for the next slowdown, Well, the case for those folks is that

you have to ignore the data. You go and look at the forecast that you've got wrong the last twenty meetings in a row, and you say we need to raise rates in case the economy slows um and pretend that the fact that you raise rate won't cause the economy to flow. And you're don't going to ignore the fact that, um, there's a potential Brexit disaster coming and there's trade wars coming. So you have to take a huge leap of faith and stay to yourself. Um. Now

is the moment something is fundamentally changed. Um, And you've gotta have to persuade Blanchdown Post them that you know what it is, but you can't tell us because there's nothing in the data that actually tells you that this is fundamentally altered. So the risk are to the downside. And you've been saying for the last five years that inflation is going to take off and wage growth is going to take off, and you're going to say that

it's really going to happen now. Um. And I'm afraid my class is gonna get to vote Adam Post And I want to get a final thought from you. Typically, when a central bank hikes, especially a developed one, the some optimism around it. It sounds like growth is going to improve, and that's why we're normalizing. This is a

thoroughly depressing interest rate hike. Even the Bank of England might admit that themselves, because they're talking about lower potential for the economy and bumping up against limitations, which means inflation pressures around the corner. How do they convince people in the news conference that there's some optimism out there. I don't think they do. I do want to say that you've hit your you put your finger on the point.

The most legitimate argument they can make, and they started making this some months ago, was an argument that potential had fallen. And when you your estimate of potential, meaning the trend rate of growth, is off, you are more prone to mistakes. But central bankers, they said in a Bloomberg list of mistakes economists are making, are two caught up in the nineteen seventies mistake. The classic nineteen seventies mistake Arthur Burns us fed was potential was going down.

They thought it was rising. Therefore inflation took off. In this case, they're probably going the wrong way. They're overestimating how much potential is down. So they're going to make a mistake in the wrong direction and impose. And it's great to have you with us. He's gonna stay with us alongside Danny blanch Flower'll get their thoughts or not. But on central banks worldwide, great starts at the morning.

Tom It was plenty to talk about with this h Danny blanch Flower, who's got us six thousand square foot man, it's just north to Hanover, New Hampshire with Dartmouth at College. Danny within the good comments of the governor is truly he makes history raising rates into a huge political debate called Brexit. He said policy and this is very Matthew Danny. This is something you'd say, policy needs to walk and not run for us to stand still. Boy, are there a lot of dynamics. Is policy needs to walk in

that run? You and Adam pose and say policy needs to stand still in that walk in that run. Why why can't we get a little bit of normalization in here? Well, times are not normal? Um? I mean so that the UK economy prior to the Brexit boat was really doing very well. Um. And now we essentially see the forecast showing in many senses to come the sick man of Europe. So you see very low growth. Um. You see lots

of pieces of data flashing amber if not read. And the MPC's answer is that the capacity of the economy has permanently gone downwards and now we have to start to raise rates to make things is worse. So, I mean, I've been since we since this all started at seven, I've desperately been trying to read the inflation reports in the minute, and it's really completely incoherent is to actually

why they raised rates. I mean, the one thing that really gets me is if you look at one of the charts they have, they see, if we don't raise rates to inflation is going to be two percent m So you raise rates because of inflation, but the forecast says there isn't any and you say, well, we think it's because the economy is at full and point, but we have no evidence to support that. So I'm afraid

that this is a sort of utter incoherence. People to look at it and say, why the heck did they do this when the economy is under space, is huge uncertainty and Brexit presume it is a major downside risk. So I think this is the most incoherent decision I've ever seen from the banks, because they don't if you read the thing through, you can't really work out why

they raise rates. Well, there is this concern that the economic potential of the United Kingdom has been diminished by the exit conversation and that the UK is about to bump up against supply constraints. You're just flat out saying that's not going to happen. Danny I'm flat out are I mean, I mean, you're you're right, that's what they say, But what's the evidence consistent with that? I mean, I'm allowed to respond by saying, show me something that's consistent

with that. Um. And I think the big thing that they've said that the big basis of this is that they think that means that wage growth is going to take off. And I've tweeted a chart from the paper this morning. They said that the last nineteen forecast in a road said exactly the same thing, so over nineteen, but now they think it really, really really is going to happen now, So essentially this forecast is based on which we're thinking and guessing because the forecasts have been

completely worthless. So now so, I mean, you're right, I mean I agree with you. But what what the public and the markets have to think is well, why should we believe them that today things fundamentally have changed. So Danny leap of faith? What's going to come next? I know what you think the Bank in England should do? I want to ask you what you think the Bank of England will do? It's the next move really going to be a hike or do you think it could actually be a cut. Well, I think the answer is

obviously what would at imposing a Denny branch. First, they'd say, well, let's see what the data looks like. Let's see how things look going forward. Um, I think the expectation. I mean, I think what we'll see will be the data and not really going to improve. There won't be any rising inflation, there won't be much wage growth, and we'll start to see some bad numbers coming and so that will mean the pressure will be on to reverse the cart and

start to think about putting more stimulus in. I think that's probably where we got. But I would sit and look at the data and I would say, well, let's see if things have things proceed. But I would be trying to make a decision based upon the data from the real world, rather than guessing about the world that they're dreaming about. And I think Adam has pretty much said the same thing. So I'd be a data guy, and I think the mark get some people listening should

say let's look at the data. So we just had in the last twenty minutes the construction t m I came in quite strong. So I would be looking at the data, and I think I think the chances are the data is going to come in bad. If you ever seen a divergence like we've seen in the last eighteen hours between an American monetary forecast in a UK forecast, well I haven't, but think about tom. Actually, let's expand

it a little further. Let's expand it to Japan. I mean, so we saw a couple of days before that we saw and talking about extending quee, further, buying, further, e t s, keeping rates negative. I mean, obviously the fair has been raising rates and put things on hold, and I've been critical of the US, but obviously you you would be hard to argue against the four point one GDP growth for the first quarter. I mean that there is some evidence that there is strength in the US economy.

I mean that that's the d That number is a big deal. So the data for the UK, we're talking about some probably some GDP growth for the whole year of about what we caught for the US for one quarter. So if you have data like that, how does a member of the MPC vote and say we should raise weights. The only thing they can say is, oh, it's temporary, and I guess I'm hopeful and I guess that this is temporary and it's all gonna be okay. So I think the answer is the divergence, perhaps if you focus

on is driven by the data. I mean, it's hard to say that you should be rooting for a rate cut in the US with a four point one when you've got a point three in Britain. Okay, Danny, thank you so much. David blanche Flower where us? So we greatly appreciate dr proposing of Peterson Institute being with us as well. Professor blanch Flower holds court at Dartmouth. Colin, why don't you bring in? I guess you do. You

you don't have a tesla because I don't have a tesla. Note, but I can tell you I'm not church rating in the national some some rare positive price action in a risk aversion session. We're up by almost nine percent in the pre market. I want to bring in Brian Johnson, Barclay's Capital senior order analyst, to get his thoughts on the earnings. The headline from the Barclays research this morning boring with a touch of tech row. Brian walked me through what that means boring, because what we had on

the phone calls compared to last quarter. Was a Mr Musk who sounded like he's stuck to a script prepared by professional touch of check brow because they Philipbuster to ran down the clock with an extensive discussion of the progress over on the Autopilot team, including three members of the AUTOPILOTUE team, Geeky out like a podcast about neural nets and co operates on fast chips. So what have

we learn about the capital position? Uh? You know, cash deteriorated for the quarter, bid less than we were looking for UM with UM and we'll wait for the kid to see some of the pathetics on cash. But what we learned is that they are guys we expected, continuing to target profitability for next quarter. Capex is being potentially produced for the second time UM and by not selling ZEP credits, that makes it clear that they're going to

sell some next quarter to help them get there. Portia as revenues of I'm gonna call it, I guess Tesla is on its way to Does Elon Musk want to be Portia? Does he want to be Forward in a hundred and fifty seven billion or does he want to be something? What's the scale? What's the scale dream here for Tesla. You know that that is I think the great um the question that this gets to, we've actually, you know, with a two dollar price target. Well, we

think it's over valued. We're certainly not out there predicting bankruptcy. But the Tesla could make a fine niche manufacturer along the lines supports selling a premium brand to products globally that yet is an expensive way well with competition getting free to be, but brings other attributes. Um, you know, if to compare a Porch to Toyota in terms of practicality and economy, obviously the Toyota will win, But instead the Aspirations seemed to be to be the next Toyota.

And I think the most interesting thing about the quarter and the new guide is, and part of my headline around Boring, is they're at least willing temporarily to pull back some of their aspiration ships. China is not likely to be in production until um you know. And I think there's actually the YouTuber run at the end and saying, wait a second, what about all these brand growth plans?

Still after trucks pickup trucks, dude, So we'd actually be very happy and probably more supportive of Tesla shares if it reigned in its growth aspirations. However, I wonder if the tech world, which is temporarily entranced by revenue growth, they will get supporter We actually want that. Okay, Well, what's and I want to broaden this out with US Brian Johnston Johnson running all of autos for Barclays. If we broaden this out to the greater US economy, have

you done the tariff math yet? I mean John Farrell has been great about saying BMW's in the Carolinas, and you got the whole Detroit complex and you're making cars out in a tent in California. What's the Barclays tariff math for the American no industry? Yeah. Really three fronts

to the terrorist trade wars with different implications across the board. Uh. First of all, China, which is probably the most heated, definitely affects Tesla because it's an exporter there, as well as BMW and Daimler because of their plants in South Carolina and Alabama. But for the most of my US auto parts and autos coverage, it's built in China, stay in China. So let's there's some sort of retaliation against

General Motors and other joint ventures. They're not a major worry U S e U not a whole lot of either parts or trade flow for the American based automakers and auto parts suppliers. B Chrysler is the one exception. Watually see light at the end of the tunnel there after last week's meeting. It's frankly in the German automaker's interest, you know, to have low sheriffs between the US and Europe a LA. Then take those TVs that aren't going to China into your more prost efectively question is though

connect get through the EU bureaucracy. Third is NAFTA, which is absolutely essential to mind US auto and out of FIRS thage companies like General Motors are can actual top pick um. We see some light at the end of the tunnel there around the local content high wage um requirements in that US and Mexico and christ Canada's high

wage and will go along. I could see an agreement there that would be inflationary somewhat to the cost space of the O E M S, but frankly less than the swing we've had a year to data around stealing Brian really appreciated, particularly early this morning as well. Brian Johnson, Barclays and Tessa Johnfer. What are you out over there listening to the the MPC decision and the consequences of it?

Governor Khani? In the news conference after the right Hike, someone of the audience asked him about Danny blanche flat and one thought about whether Danny blanch was was right or wrong? Take a listen to this, it just took place. A former member of this committee, Professor blanch Flower says that the natural rate is actually a lot lower than

that could be as low as three. And given that Professor blanch flowers predictions for labor market and particularly earn his growth have been yeah, recently a lot more accurate in the banks, why is he wrong? And you're right? Yeah, where do I begin? Um um? Great respect for a Professor blanch Flower, but his time in the MPC has passed, and this is the judgment of this MPC. I think I think the last glacier just smelled in the Green and White mouse. We've got to get Danny back on,

haven't we see what's what's going on? This is really important. Thank you, I missed completely Joan. Thanks for finding that this is what we try to do with surveillance. And I'm not saying they were listening to Posing Blanche Flower or fifteen minutes ago, but we're trying to engage a

debate John that affects everybody's life. Is a lot of people have responded to the former MPC policy maker Danny Blanche Fly and the comments he made on this show in the last forty minutes or so, and clearly someone's picked it up and brought it up in the Q and A. And I think it's fascinating and Governor Karney clearly taking a different tack than he's got to justify

the right highs. But I think it is a different cast and theory and not so much the mathiness of economics as in Blanche Flowers classic book, but it's on the behavior of people and the mystery between Carney and Blanche Flower. Are the times we live in in the technology that's there as well. Can we listen in more to Bank of England. Maybe they'll bring up Adam Posing. It's been tech, this tech that all of us, all of our listeners, me and Pim, we're all checked out

by tex So. Well, we need more here's share over day with us, and I want to go to what no, you know, I've said this for years. You've heard me blathering about it. It's about the engineering and the aesthetic, and part of that is the A six, the A seven, ten, and the A eleven bionic chip. So let's get out front of this silly tech debate. What is Apple going to show in September or in March of next year? Is there like an A twelve chip coming that all

the nerds like you are like, O MG. I don't know how many people are excited about Apples self designed computer chips, because this is what makes it go totally. It is only one of the um untold or or I think not widely understood certainly by the consumer tech buyers that you know. Apple's own self design chips are a big reason the company is where it is. That it's helped the company advance. It's um I mean the

last time around they increased part of the speed seven zero. Yeah, and I think, look, it's not really about speeds and feeds, which is I think the things that the tech nerds care about. But if you look at something like the air pods, for example, that's something that's not possible without Apple zone. Uh work, right, And and so I don't know what's next with you, at least in terms of you. Yeah, it's it is that secret. And obviously there are going

to be more Apple iPhones unveiled next month. September is the period when Apple releases its newest models of phones. We're expecting you know, three this time. Are gonna go we need an Apple X. I. Well, they'll at least get you to pay for an Apple X an Apple ten, which a racket, of course it is. That's the way it works, right between. The two of us are monthly fee on this gimmick they have you and I are paying a mortgage. Well I was going to say a

mortgage jet an education. Yeah, I mean the funny thing is that, you know, cell phone smartphones have become essentially a commodity product except for iPhones, right, And that's really I mean give Apple credit for doing that. That they have convinced people to pay a lot of money for what is essentially a product that they could buy for less from many other vendors. Yeah, but you don't get the you don't get an Apple operating system, but you

don't get iOS. You get Android, which is not necessarily better or worse. It's just different. It's different. But sure, can I just ask something about it? You've seen an old led screen phone? Sure, yeah, I don't own one, but I have an old, older iPhone. But okay, screens.

When you see the difference between an old ed screen, this is like going back to people who said, oh, I would never need a forty whatever it is inch television flat panel, and then all of a sudden they looked at the fifty two inch and they went, oh, oh I that Oh no, I'm not going to get this other thing. Yeah. Although I mean again, this is a person. You watch a lot of video. The old screens are amazing. Okay, I I haven't been that thrilled by the screens, but that's just me. Maybe sim Cook?

Is Tim Cook scrilled by this? Next? I mean my whole thing. You're we usually talk math numbers, cash flow? What do they do in seven under twenty four dollars? Blowney? Tim Cook's worried about popping the next toy. I mean it's not here, it doesn't even have an I Watch. Yeah exactly, yes, we all have watched Watch. I mean they need to keep the beast going with a technological want. Come on, I mean most people you walk around, you see people with the air buds right, the airpots. You

see people with their Apple watches. This is we're like arguing over you know, angels on the head of a pin here, right, people are gonna want this stuff. As far as the new phones go, all the we're gonna have facial recognition technology. I believe that's correct. Altho, I've now forgotten the reported specs on the new phone. Second day I got rid of that. Why because it took me two days to figure out how to get rid

of it. You didn't think it was it wasn't personal, No, I just think I don't have time to screw up with the reason I mentioned the facial recognition technology is now you start to talk about twinning that with health records or sensitive information that can then make your life supposedly easier, right, Yes, I mean, look, that's that. That is a game. The initiative that all the technology companies are doing that they want to get deeper and deeper

into our lives. Um, you know, for reasons of helping people. It's definitely true that, uh, if we had better access to our electronic health records, and it was more digitized and we had access to it without jumping through digital gymnastics or faxing things to the doctor having to remember your password, having to remember your password. That would certainly be helpful. But yeah, everything in technology now involves tradeoffs

in terms of creepiness. Shore over there with us who writes brilliantly on Apple for all of Bloomberg and Bloomberg opinion. I thought the gimmick here was we'd share in and it becomes a trillion dollar company? Does it happen? Agree? But his steady, the markets down at points and apples like a rock with green on the screen. We keep talking also about the Apple services business, right we do, although I think I'm a little bit more skeptical about

the services. Yeah. Maybe. Look, the thing that Apple does not talk about but it does the school thos and its financial reports, is that this year the biggest driver of growth in that services business is not Apple Music. It's not app store sales, it's not iCloud, it's not

Apple Care. It's licensing, quote unquote, which includes things like the payments that Google makes to Apple for making Google Search the default on its Safari web browsers, So that has little to do directly with demand or interest for Apple's Internet services. That's about business arrangements that Apple makes.

UM that when you use Safari, So if you use Safari on your iPhone, which people probably do, or if you use Safari on your on your Mac computer, um, and you searches, the built in option to do those searches is you can change it. Most people don't, and Google makes payments to Apple for for making it the default option. Four beds, three bass two thousand two and at square feet Lebanon, driving Kupertino zero one four clocking in at a cool two point one million dollars. A

thing looks like it could be bulldozed tomorrow. Yeah, boy, you're looking at real estate. How do kids like you, even if there's some fancy pants engineer live out in San Francisco and Cupertino. I mean, look, Tom, you you spend time in the Bay Area. You know as well as I know that the number one topic of discussion in the Bay Area anywhere is housing priceses. So what's what Tim Cook could it do for the mere mortals

at Apple only making four a year? Well, I mean I think Tim Cook would argue that he pays his people well enough that they can afford to buy homes. It's just the rest of the the rest of the population to bearer that that maybe can't. Twenty seconds, do you know the square footage at an Apple store? Is it like cosmetics at Bloomingdale's. I have no I can you figure this out? I don't know. You can only

come back on two accounts. You gotta figure out we're footage at a retail store because we think it's like cosmetics burg Do or for Bloomingdale's. And you can't come back to it's a trillion dollar company. Okay, fair enough, I'll take my tape measure down to fifth that okay, sure? Over day where this with brilliance on Apple. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

I'm on Twitter at Tom Keane before the podcast, you can always catch us worldwide. I'm Bloomberg Radio