It's Very Implausible That Powell Will Pause To Please Markets

We're going to take a little pause. We've seen the stock sell off and weren't going to make sure that we don't go too quickly. Our next guest says, not so fast on author, as a senior editor for Bloomberg Markets, we are so lucky that he joins us here in our interactive brokers studios in New York. John, you think

that this is an implausible scenario? Is that right? The fit would would to call off change its course just because of a sell off in the stock markets just the extent we've had so far, or frankly, if it fell another from here, Yes, I find very implausible. They've learned the lesson from the last two cycles. The FED got it wrong by being too easy and allowing very big bubbles to inflate. That hurt when they burst tech stocks the first time and then credit the second. They

will at least make a different mistake this time. You know, at least themistic love it. They're not going to make the same mistake at least. What is your reaction to investment professionals who blame the Federal Reserve either because they don't raise interest rates enough or because they have raised them too much already. When they use the Federal Reserve as a whipping post for why the market behaves in a certain way, I find it a little rich personally.

I mean, certainly we all of us way of yes, exactly, try to be nice. But those of us around this table, we all make a living commenting on markets, which means that we spend a lot of time commenting on the FED. Because the FED is an incredibly important player. All of that is evident generally speaking, However, the FED is not just an actor, but it's also a passive recipient of conditions. It does have to respond, and while it's I think it's fair to say the single most powerful actor in markets.

It's not omnipotent by any leap of the imagination at the moment. It If you really think that the FED is already overtightening, that is I think ridiculous given the

historically how low interest rates still are. And one I don't want to comment on any particular politicians you might be taking any particular positions to say that the FED should be hiking less than it is when we can all agree that it's still being very accommodative, means that you're saying the economy is a lot weaker than certain politicians might be claiming. There is there is no way

out of that. Either the Fed is doing the right thing or if it's going too far, that's because the economy is in real trouble if it can't stand interest rates. So I do have serious problems with people who say that that the Fed is already going too far, and that the significant problem we have all right, well, just looking to one aspect of the tightening, the balance sheet reduction that gets less attention than the raid high exprests

perhaps shouldn't. And there's still a big question, which is at what point will the FEDS say all right enough, We've done enough rolling off here, and we're going to keep our balance sheet at what two trillion, three trillion? I mean, we don't really have a number, right we We're gonna get guidance on that this week. Yes, but I would I suspect this could be where we get

quite an ugly surprise. If you look through the volumes of FED speak that are out there, and FED governors, as they should, are fairly transparent at least in thinking out loud, there is almost no thinking out loud about the balance sheet. Just none. The implicit, implicit uh conclusion you can draw from their public pronouncements is that on the balance sheet reduction they are on autopilot. It is the ideas of the balance sheet is going to very

steadily reduced month over month. You don't hear. You hear plenty of risks, potential risks on the horizon being listed by Powell and the other governors, resource as resource reserve reserve scarcity is not among them. You hear plenty of people complaining about already about a shortage of dollars in the market. You do not hear that reflected by fit speak. And just real quick here to give a sense of

the balance sheet. The balance sheet has been reduced from four and a half trillion at its peak in January down to four point one trillion dollars, so we have seen a bit of a roll off, but there's still a lot more to go. If they want to write, I mean, this has been you know, yes, a decline, but it's completely realistic to think that they will keep doing this for more than another year, and the balance

sheet would still be utterly enormous in historic terms. But the change at the margin, which is all important, I suspect, is much more what people should be worrying about than exactly how many more changes we get in the target fit funds rate. This may sound bizarre, but is there any value in noting the difference between two thousand and eight and twenty eighteen when it comes to the accessibility of social media apps and the ability to report crises.

When the two thousand eight crisis was broadcast mainly via television and traditional media, do you think that it means something different? Now? Very much so. I mean my farewell piece, but when I'm still at the Financial Times, my farewell

piece was about how I remember it. Yeah, I it's blazoned into my mind that that that I went to I went to my city branch on possibly the worst day of the crisis, and found there were dozens of very well dressed Wall Streeters evidently shifting money around to make sure they still had to UH insured accounts. And we wrote a very, very very negative story that day.

But I didn't actually do what I might conceivably do now and which somebody definitely would do, which is just take a photo of a bunch of panicking Wall Streeters in their suits trying to get their money out of a bank. Such a photo now on on that social media could have could have been the spark that lit an even worse flame. So yes, I think that's a

very worrying scenario. I don't think it has a particularly big effect, bar you know, the president's focal diplomacy over over Twitter, which which the FED seems to be ignoring so far. But so far, I don't think it makes a great difference. But if things get as nerve wracking as they did in two thousand and eight, it could be critical. Just real quick, here is your sense that if the fired were to indicate that they are ready to slow down a little bit, or that they're showing

more concern. Do you think that that will correspond with a substantial pop in US stocks? Quite? No, I I suspect not. I mean in the in the very short term, if you have your operative word is substantial. No. If if we get if we get unusually dovish FED speak at some point in the next week, then yes you'll

get a pop on that day. But ultimately I've got enough trust in the FIT that the only reason I believe, the only reason they'd be doing that is because the underlying data, particularly from China, will be worrying, and therefore that would cancel out the effects of the the extra devisist from the faith. Thank you very much for spending

time with us. As always, John Authors is a senior editor for Bloomberg Markets, talking about the Federal Reserve potential rate increases and what they might do to the US economy.

Facebook the shares of Facebook. They are higher right now by about three and a half dollars a hundred and thirty five dollars a share for Facebook joining us as David Garretty, chief market strategist for laid Law and Company, and you can follow David on Twitter at g v A Research David Garritty speak to the issues that surround

corporate governance at Facebook. This is coming at a time time when the report is that Britain's Parliament has actually seized some confidential Facebook documents from the developer of what is described as a now defunct bikini photos searching app. And this has to do with data protection policies. What

does this have to do with Facebook's corporate governance? In terms of looking at Facebook's corporate governance, I mean, it's pretty much, very clearly set forth in the prospectives when the company went public back in two thousand twelve that Mark Zuckerberg would have because of many class dual classes of stock, that he would have supervoting rights. And then the company since then had introduced another class of stock

that had no votes at all. So effectively, Zuckerberg, for owning about a five percent economic interest in the company, has you know, majority voting control. He also has the right to be the sole person to select who his successor as CEO will be. So from that standpoint, Zuckerberg's hold on corporate governance at Facebook is effectively a hammer lock. It's impregnable. There's no way that you're going to get rid of Mark Zuckerberg anytime soon, unless he chooses to

step down for some reason. Um. Obviously there's a question here does this pierce the corporate veil when it comes to looking at some of the liabilities that Facebook may face.

But going specifically to the case that you mentioned that was being examined by Parliament and the invasion of privacy rights, it ties into the committee in Parliament that is investigating what Facebook had done in terms of providing user information to Cambridge Analytica for the purposes of interference or campaigning around or targeting advertising around not only the Brexit campaign

but also the two thousand sixteen elections. And so from that standpoint, if we look in the context of Europe that's been introduced introduced new privacy regulations, this is separate and distinct and is very much focused on bad actors such as Cambridge Analytica. Okay, but when you talk about regulators kind of stepping in our lawmakers investigating Facebook and its role in some recent elections, I just have to

wonder what could come out of that. How much does this sort of threaten Facebook's existence in its current form, and how much is this already praised in with Facebook shares down more than this year. True. No, I mean you certainly have seen the stock come off. You know what, it was about two dollars a share back and um July and then has since sort of come in to a level about one forty, so it's lost about a third.

UM And yeah, Baron's over the weekend and come up with a favorable article saying, here's a company on the double sales, but it's cheaper than Walmart. Um. The issue here is is that you know, Walmart's business model isn't under regulatory scrutiny. Um. You have a situation with Facebook where you know the company arguably given how important it's become for people getting news. You know, if something barks like a dog or walks like a duck, you know it's a duck or it's a dog. In Facebook's case,

we could say it's actually a media company. They distribute news, and from this standpoint, they're a media company that's trying to say that they're not. And in the event that the government would decide to say, look, you're a media company, despite whatever your protestations otherwise might be, we're gonna start regulating you like a media company. This changes the dynamic for Facebook in terms of their internal costs and in terms of what they may and may not be allowed

to do. Because this also that would mean libel laws would apply to Facebook precisely and possibly you know, there may be scrutiny here given the governance structure. You know, what is management's responsibility here? You know, does it does the corporate veil actually apply? So just expanding out, I mean, we did get the news today that Supreme Court justice is a pure ways to allow an antitrust lawsuit to go through. It accuses Apple of using its market dominance

to artificially inflate prices at its app store. Apple shares have been falling steadily for the past few weeks, And I'm just wondering, I mean, do you view this sort of existential threat to the business model to be similar at other big tech companies just by virtue of their size and the fact that regulators are kind of getting more concerned about that. I don't know if I necessarily

want to go out. I mean, looking at Facebook's problem, facebooks problem is a problem with social media and and the abuse of social media, and how our regulator is going to exercise appropriate and proper oversight in terms of social media companies. As we look to other technology companies, whether it's an Apple, whether it's a Google, whether it's a micro Microsoft, whether it's a Netflix or an Amazon, um.

You know, certainly we have to look at companies that have grown to a fairly substantial size, wield, substantial economic influence um and as a result, you know, are they introducing anti competitive behaviors. There has been the case being made quietly but steadily over the past six to twelve months that the next administration ought to be coming back in and looking at trust busting. We ought to be going back and looking at what happened in earlier economic cycles,

back in nearly twentieth century. You know, Teddy Roosevelt came in basically as a trustbuster. Have these companies gotten to be too large? And it's interesting here with this news with respect to Apple, is that this is something that's actually rising to review by the Supreme Court. David Garty. The one name we have yet to mention is Cheryl Sandberg. Cheryl Sandberg is responsible, I believe, for the direct scrutiny of advertising as well as legal and policy issues at Facebook.

Who gets thrown under the bus if anyone because of the perilous situation that the company faces right now, well one certainly has to argue that Sandberg is going to be sort of squarely in the crosshairs. And but I will give Sandberg credit is that when it has come time for this company's management to appear before various government bodies, regulatory bodies to testify, it has generally been Sandberg who has been the stand up person out of management to

be held accountable. Zuckerberg has tried to stay in the shadows, has tried to dutch dodge duck Bob Weave, but it's been Sandberg who really has been the stand up person here. And unfortunately, given the way things are set up in terms of the governance we discussed earlier, it's most likely going to be Sandberg who takes the first fall. David Garritty, it's always a pleasure to have you. Thank you so

much for coming in. David Garritty as chief market strategist at laid Law and Company in New York, joining us here in our eleven at three oh studios. General Motors Shares are searching after they announced it will cut more than ten thousands salerate staff and factory workers, closing five factories and this comes after surprisingly good results. David Walts joining US now Detroit Bureau chief for Bloomberg. He is at GM headquarters. David, why are they doing this and

why is it being so well received by shareholders? There are a couple of reasons. One, they see the market moving toward electric vehicles autonomous vehicles, and they're still hiring people in those areas. But as they cut passenger car models that aren't selling, and as they try to develop the cars of tomorrow, they just don't need as many assemblers and traditional mechanical engineers. Um. You know, electric cars have fewer parts, they're easier to engineer, they're easier to build. Uh.

They see a future there. People are buying more SUVs and fewer passenger cars, so they're getting rid of some of those nameplates like the Chevy Cruise Compact. They're getting the Impalace sedan. You don't need passenger car engineers to do that. Um. And you know, I think they're not really admitting this part, but I think they the the global auto market softening. China is in a downturn this year, the US is definitely coming off. It's two thousand sixteen peak.

It's not going a creator, but when things are getting soft during you don't need as many people to engineer this myriad of nameplates that they've had for a long time. You can make a lot of cuts. The other thing that's Mary bars under a lot of pressure because the stock prices hasn't been doing great. Add it all together

and she's got to show some money. David Watch, could you just continue on the theme of electric and hybrid vehicles and the number of workers that it takes to build them compared to what it takes to build a fossil fuel power automobile or vehicle. Okay, I don't have any numbers for you on that, but imagine this. One of the reasons electric cars are so expensive, it's just because that one big hunk of battery costs so much. But that's coming down so so the cost is getting

more competitive. What that will replace. And I've seen testa's torn down, I've seen a ship both torn down. You have this giant battery, and you have one electric motor that replaces an internal combustion engine, a transmission on, a whole exhaust system, a whole fuel intake and management system, a bunch of pumps um. You take all of those parts and you toss them, and you've got these two big pieces that you know that that battery is basically

the floor of a car. You kind of bolted in and connect everything, and it's like, it's not that simple, tim You and I couldn't do it. But it's a lot less complex than that whole suite of internal combustion

parts I just rattled up. So, David, though, I have to wonder whether that is going to be an excuse for the other point that you mentioned, which is that GM probably sees the global auto market slowing substantially and they want to make sure that they're the correct size to meet waning demand, because honestly, we haven't seen electric car sales pick up that much, and frankly, cars and trucks, gas guzzling trucks have continued to be the most popular, right,

So I mean that basically a red herring for the real issue, which is the slowdown. It's not a red hearing in the sense that they are hiring software related people to do autonomous cars and the power, electronics and battery engineering you need for e vs, but they're absolutely using the cover of that in order to really just

get leaner. Number one, uh and and number two prepare for what is I think it's going to be a slowdown in the US, and some other forecasters uh that are making that point that they could be we could go from selling seventeen million vehicles in the US this year to you know, maybe fifteen and a half or sixteen in the next couple of years. Um. You know that there's a forecast out there like that, and it's

from someone who's not crazy. So yeah, I think they see things softening up a bit, and they're they're allocating more in China as well. You know what. The part that they're not talking about here is a lot of the vehicles they're killing in the US are still going to be stold in China. They're probably gonna engineer them over there in future slip of hiring engineers there as well. So it's kind of all of these factors, and you know that they put probably the best and most futuristic

spin on it. But yeah, they want to get leander and they see the markets often David Well should just give you a couple of seconds here. Do you think that the same issues face the large German automobile makers, and they have big labor unions to deal with. Yeah, it's going to affect everyone. And to be honest with you, I think the US market it's probably a healthier market

than Europe is. Even though they sell luxury cars over there, that's always been a tougher market than the US because here you got pick up trucks and big subs that had a lot of problems and make a lot of money to help you deal with your other problems. Uh, they've got luxury cars over there, but that's just a tougher place to do business than the US. So absolutely,

thanks very much for being with us. David Welchard, Detroit bureau chief for Bloomberg, talking about GM and its announcement that it will cut about fifteen percent of its workforce and shutter five manufacturing plants in twenty nineteen. Fernando Camera is the co founder and the chief executive of sky hour, and he's here to tell us how you can actually book and give flights and travel to someone else using hint, hint, right, using the website that he is co created called sky

our dot com. Thanks very much for being here. How does sky our work? Thank you? For having me guys, So it's SKay our. What we do is we sell flight hours for sixty dollars an hour and you can use those hours book any flights on the biggest fall hunding the airlines in the world. So it all started when I was trying to give the flights to one of my best friends and and I couldn't find a way to do that. So first I was trying to book a flight, I had to know the person, details,

destination dates. I was killing the surprise airlines in telome me to book a flight for a because of security reasons. Then I try their line Miles. But if I give you miles of chet Blue, you cannot travel on Delta. There's a lot of like outdates and restrictions and so it's almost impossible to use them. And it's exactly exactly the same thing with airline gifts cards gives car off jet Blue doesn't work on Debta. It's almost impossible to

use to use them. So there wasn't like a easy, smart and inspiring great to give someone a flight as a gift. And so at sky Hour you can buy as many hours as you want for sixty dollars and you can use those hours book any flights on the biggest one hundred their lines in less than a minute. To be it seems like a cheap price sixty an hour, especially when you think about peak travel times to say Florida, places that are popular destinations in the United States during

those times, is it? I mean, how did you get the airlines on board here? So you know, people don't know, but more than all the flights in the world, they cost less than six hours an hour. And so there's only around five percent, which is the super last minute flights on busy routes. And we a very fair model because when you book a fight on SKA our, we always give you a rewards back, so we always give you hours back they can use to book your next flight. And so if you do them at and and you

see that we are never more expensive. We have a very fair model. In looking at just the sort of sample trip and itinerary from New York to London, it came back and it told me that I needed fourteen I needed fourteen hours, right because that's around trip experience, So I that would be fourteen hours fourteen times sixty exactly. So you know, probably fights from New York to Londy's six thurs and thirty minutes and the return flights eight hours in ten minutes. So the total is uh fourteen

hours and fourteen minutes. Okay, So how does that actually work? In other words, if someone goes to your site, signs up, buys those fourteen hours, gives them to someone else, how to is the airline manage their inventory? So we do it.

Everything happens on scaur. So you got scar dot com and can buy hours for yourself and then you can use those hours book any flight on any of your line, or you can use those urts your friends and so you know, if you're subverted tomorrow, I give you ten hours and can use those ten hours to go anywhere anytime. And if the flatuation, if the booking a total booking cost is fourteen hours and you only have ten, you can buy another four hours on the checkout. And we

also allow you to crowd from the flights. So if you're a student or your for a charity, you need to book a flights, you don't have money, you can ask your friends and send me for hours and they can give you hours in less than thirty seconds, even if they are not members of SCAR. So what's the incentive for the airlines to work with you? Because I assume that you capture some differential to keep your operations going right. I mean, they could just get more if

they went directly. So airlines they love sky Hour because they believe that we can essentially be the most important distribution channel for them in a couple of years from now because of the gifting industry. So I will give you an example. Right now in US Americans, they're spending hundred forty billion dollars per year on gift cards and less than one percent to spend on air travel because you know, before SCAR, that wasn't a way to give a flight someone and our generations we want to spend

our money and experiences. That's where what we want to do and the most exciting trips are the ones far away, the ones that normally starting to be the flight. So you know, by allowing people to give scarts to each other, we're gonna essentially, you know, bring a big percentage of those hundred forty billions that people spend gifts cards to the airline industry. So this ye has, as you know, a new distribution channel bringing more money to the industry.

Now that just included any of the extra fees. Yeah, everything is included. Everything, everything is included. Take your bags and everything is included. So one thing I'm wondering is does it remove pricing power from the airlines? Uh? We know it's not not exactly because essentially we sell hours for six dollars an hour. But you know, most of the times that actually phrase cheap. The fairer of the flight is scheper than six dollars, So we give you

the difference back in minutes. So airline, No one loses money. Everyone makes money. No, I'm saying that, you know, especially just in general, I've seen Delta raise their prices and American people have basically been saying airlines have been saying, we need to we need to charge more because of the contracts with pilots, etcetera. I mean, does this sort of remove their ability to do that because it's sort

of capping things at six. Now, we are not doing that. Actually, we are, you know, airlines they they you know, we we make airlines super happy. You know, we are bringing our money to the industry, and we respect their business models and we support them under percent. We need them to operate. Do you travel a lot all the time. Yeah, that's your favorite destination. Oh that's a very tough question, you know, I um favorite destination. I love skiing. Probably

you know Whistler, I love it. Always go there for skiing. We'll have a great time. It's like getting to that season. Fernando Camera is co founder and chief executive of sky Hour in New York and Lisbon. 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 abramowits one before

the podcast. You can always catch us worldwide on Bloomberg Radio.