Phase 1 Trade Deal Is Just The Beginning: Leland Miller

CEO of the BA Shop China Basebook International. He'll give us very informed thoughts on kind of what this means for China. Should we get some informed thoughts from him, Let's do it. I mean, I think that might be better than me pretending it. I could. I'm happy to pretending. Willam Mill are here in studio with us. What are you looking for today? You know, I I don't think that there's a chance of a breakdown. I think that we're you know, the the deal is UH is pretty

much spelled out. It's a purse agreement. Not many people are expecting big things on I P or other issues. So look, I think you're you're looking for a lot of CEOs clicking CHAMPAGEO US is and saying, you know, we're gonna be friends for the next year, all right, but you are you skeptical that this is a material deal or I mean, is there anything it's a really meat here? How are you kind of viewing this? The meat is the purchases beyond what the Chinese have provided

are talking about buying. Uh No, there really isn't There really isn't a core deal. The Chinese are putting in certain I p uh measures, some of them they have announced previously six months ago or longer. Uh So, look this this the reason there's not a bigger deal is that the two sides just decided that they couldn't come to terms with either rolling back a ton of a ton of terroiffs in order to get the big I p forced tech stuff. And so they said, look, the best way to do it is to is to go

right on in and and and just do buys. I'm a big questions has been uh sort of the overlap between between the w t O agreement that the fact that the US, UH, the UK, or rather the U, S, the E, and Japan have all teamed up to try to pressure China to reduce their industrial subsidies at the same time that we're signing this Phase one agreement. How

are these multilateral and bilateral tracks overlapping or not? Well, I think that the administration realized early, well it realized recently that it's better to have friends, and so at the beginning, everything was bilateral, We're gonna get a Bilattal trade deal, We're gonna get bilateral agreement from the Chinese. Did not not to do this or to do that. And they've come around to the idea that it's it's it's an easier process if you get the rest of

the world on board. Is that true? I mean, so the Trans Pacific Partnership would would be the arguably the epitome of a multilateral group negotiating. They're not that, they're still not supportive of those types of agreements, are they not? Yet? But the t p P is very closely associated with Obama. So if you, you know, you rename TPP Trump Pacific Partnership three years from now, then is there a chance that they come around to it. It's I've I've discussed

it with administration officials, ingest who knows. Look, there's a there was a desire by the Trump White House to break from everything Obama. Uh, some things are good, some things are more controversial. But t p P was was was not gonna work under Trump, but a revised version of it in the future, who knows. So what precipitate did this come to Jesus moment for the administration multilateralism? Well, I think they wanted to continue to claim that that

they're pushing the Chinese on odd subsidies. So if you're if it's not part of Phase one, and you don't have Phase two coming about, then why not go with your allies, the w t O and and then get the Europeans and Japanese animated about Chinese subsidies which they care about as well. So this is this is not really a come to Jesus so much as if they're not getting progress on this now, why not utilize the

other tools in the toolbox to to push China. And this the shift of of course done been done by from the beginning, but it's it's it's making its way back there. President Trump also mentioned at one point that once this is one deal assigned that he I believe said, would go to China to begin negotiating a phase two. Is there any reason to believe that that will occur, and will we have any success If you have a second Trump term, then yeah, there will be a continuation

of of of the trade war trade negotiations. Then, Uh, there's nothing contemplated right now now. The one asterist I would put on that is if the economy starts to really slide, if stock markets start to tank, they have they have created this phased uh sequencing uh for the ability for for for the President simply to jump into and say, I'm going to start negotiating again and We're going to do more tariff bullback. So we're gonna grant some other concessions and we're gonna get more in return.

And so it will allow him, if he finds it politically necessary to do so, to jump back in in two thousand twenty. But that's not the game play. And right now I still have struggling with this idea that we're bilaterally negotiating, that the US and China are bilaterally

negotiating while there's a multilateral push on another level. I'm just wondering, does that mean that Phase two is going to be a multilateral Phase two or does that mean that Phase two will continue with added pressure from allies and others. I think I think what Phase two has always been sold as is, we're going to do the big moves next, So don't don't hold us to this now, but we're gonna do it next time. And look, anyone who's dealt with the Chinese uh for for years will realize,

like like the administration now has. They'll realize that the Chinese are very savvy negotiators, and they'll string this out and they're not going to give up core things that are important to them without a lot of pain. So I think this is more of a situation where, uh, you know, the White House realized that its administration was

divided on on what to go after. The President had different priorities and some of his some of his other principles, and they would go after agricultural purchases first, try to get the trade deficit in order as much as possible. And while they're waiting that out, they'll they'll start to to maybe go back and and and utilize again these other tools which involve using Europeans and Japanese and everyone else to try to push back on the Chinese model.

I'm not even sure I even buy off on the whole agricultural aspect of this phase one, weren't they They were buying agriculture and soybeans and stuff before. Now it's gone a year, they haven't been buying. Now they're gonna start buying again. I'm not sure what's incremental here. Well, the big question is can they hit any of these targets that are that are quite big that they claim

to be able to do over two years. So the promise is that they're not going to just get the number back up to two billion, that they're going to get another two hundred billion on top of that. So if by some miracle of math they're able to do that, then there would be a real DNT in the Bilottal trade deficit. The problem is is that this is really a one year trade deal because the administration and the Chinese are both motivated to get through the election. Uh,

at frontloads some of those purchases. Keep keep the keep the guns the guns and ammo dry and try to get into see where the situation is there. But look, these targets are extremely bold. Uh they're they're almost mathematically impossible to hit, the agriculture not being the most difficult to hit, and so you're gonna you're You're gonna see

a lot of challenging things here. And if the Chinese are actually getting close to me those targets, they're gonna really irritate all their other trading partners who they're no longer buying from. So the Chinese are trying to thread this needle. It's probably not possible, but what they want to do is get through this year first, and then

they're gonna worry about it here too. Lela Miller is the person joining us right now, chief executive officer of China Beige Book International, as we await the signing of this trade deal between the US and China at the White House. It's been widely anticipated, but no one's actually read, at least in the public, the eighties six page document. A lot of questions remain about the details, in particular any concessions that China gave aside from making these agricultural purchases.

That's been one question raised. Do we know anything about further concessions that China might have made. No, uh, we don't, um look that. Here's here's the difficulty. A lot of the things that that has been talked about in terms of I P have been things that the Chinese have announced domestically over the last several months. Uh So, one of the things that was recently touted was the fact that you know, there will be heavier criminal penalties for

i P infringers. Okay, but we knew that months ago. So what they're doing right now is they're trying to scoop in all the developments that have happened in the Chinese economy and Chinese corporate landscape for the last you know, three six, nine months and say these are part of the i P changes that the administration is pushing about. Um, we're not going to try to quantify them. We're more worried about the purchases. But this is more than just purchases.

Uh this is this is us really moving the system. So thet the lack of clarity is something it's it's sort of hard to get around. And Leland, I know in the past, when you've been in our studios talking to us about China, you said to us, it's about enforcement. We have to be able to enforce this, and that's

been a challenge in the past. Is there any reason to believe that this agreement will include some provisions for proper enforcement, so so I have and others have been very critical the idea of snapback tariffs or some sort of automatic mechanism for the simple fact that nothing's automatic if you've got a president who will be weighing the political ups and downs of throwing tariffs back on. So there's nothing automatic about an enforcement mechanism, and that was

always oversold. However, this deal in some ways was done very cleverly because the Chinese are very motivated to do the purchases for the first year. If they can get the numbers up and the numbers to where President Trump likes it, then after November, sometime in the November to January period, they have been promised behind the scenes that they will get a tariff rollback. So they have to

get President Trump elected. They have to honor their commitments, and if they do, then you're gonna see a tariff rollback in the first few months of a Trump second term. Meanwhile, the trade agreement has yet to be seen, and we will be getting the document and perhaps passed through it in real time as we get the text of it. There is a question about China's underlying economy, particularly how

they've adjusted to the ongoing trade tensions. We got some trade data that was kind of interesting showing how they've shifted some of their uh, their channels. Um. But also what remains to be seen is supply chains getting truly rejiggered and the impact on China. How much have we seen that already go into effect. How much more are we going to see supply chains move away from that nation? Plenty? Uh,

But the question is you know in what areas? So if you're if you're a tech company and you're trying to figure out how to uh to to play the US China game, you're gonna have to make a decision. It looks it looks like they're gonna be cracking down more and more and more as things go by. You're not gonna be able to supply Huawei if you're supplying you know, US firms and and US government um. And

this is going to continue from there. On the manufacturing side, I think there is also going to be more and more of a concerted effort to separate the supply chains. They're gonna have even foreign companies developing inside China for the China's China market, and that's going to be separate from where other firms are supplying the United States the rest of the world, so a lot of this supply chain, uh,

decoupling is happening. Um. It doesn't mean that decoupling overall has to happen in some sort of scary sense, but there's no question things are going in this direction. And on the tech side, this is going to be the battle that people fight, you know, for the next five fifteen years. You know what, while we have you here, just give us kind of an update on how things

are in China broadly speaking from an economic perspective. Well, it's it's it's interesting because people are less worried about the Chinese economy right now than they were, say three months ago or six months ago. Uh, and fair enough because our fourth quarter data were an improvement on Q three, their improvement on year from a very very weak Q

four of last year. But you know, it's it's it's more of a temporary stability, I think, Um, we when we talk to firms, they are investing more and they are hiring more. So so the fourth quarter again beyond even the top line look better than than the third quarter. But why are they doing this? If you look at new orders, new orders are weaker for the second quarter in a row. You look at cash flow, cash flow is the weakest we've seen in the entire history of

China Beige Book for the fourth quarter of two thousand nineteen. Now, why are they investing then? Why are they hiring it? Well? Are they? Are they just looking at trade war headlines and seeing a truce and investing blindly. That's what we're going to see in early We're gonna see whether this is a refusal of companies to listen to their customers who are or they invest more because the government tells them to invest more to make the numbers look good

because we're going to Washington negotiating. Historically the answers yes, and it's historically with state firms the answer is a double yes. So we're gonna see how much of that is is the government saying, look, improve conditions. But you can't do that forever. You can you can order a temporary tick up, but you know, economics are economics. So I think early twenty will be a a look to the government to see how much slower growth it's willing to accept now that the trade wars is going to

be temporary. Out of the headlines, what do we look at now. A lot of people say, well, you know, this all sounds problematic, but there's such a fire hose that the PBOC has to release to the market to sort of prop everything up that it doesn't matter. How long can that be true? Well, the big argument we've had with the consensus over the past years, we think the PBOC and the China's credit environment overall are very

active right now. Now. The pushback usually is, well, we don't see all the building we saw in that is correct. We are not seeing a style stimulus where it's you know, build, build it and they will come. Uh, this is not heavy infrastructure spending right now. Our transportation construction indicators sharply weaker, commodities are weaker. Uh so we're not seeing a build out. But we are seeing is tremendous provision of credit to corporates are are borrowing numbers are sky high. Our bond

sales numbers have gone up six consecutive quarters. We're seeing a resurgence in shadow finance, which has not yet been publicly admitted by Beijing. So that the PBOC has already been very very active. And what is the result. Well, they've got a stable economy. Now, things aren't falling, but they're not getting a jolt. So it's a little bit disconcerting that the PBOC is as active as it is right now and they're not seeing a surgeon growth. They're

simply avoiding a much worse outcome. I want to bring in Andy Brown right now. Andy's editorial director of the New Economy Forum at Bloomberg, And you were reading the signing of the trade agreement, the Phase one trade agreement between the US and China. What does it mean to you this trade agreement. Less in this trade agreement than meets the eye that's always been saying for quite some time. Uh So, the tariffs on most Chinese imports into the

United States remain okay. And the concessions that the Chinese side of making have been on the table or they were working on them long before this trade will began, which includes concessions on intellectual property, which includes apparently concessions on currency manipulations. In fact, China hasn't been manipulating its currency now for many years, has been propping it up

rather than allowing it to depreciate. Um And the reason that China has been proceeding with these reforms is not because of pressure from the White House, but because it's good for the Chinese economy. Andy, we heard from the Democratic candidates last night and they made clear in their discussions about trade they weren't necessarily going to take a

softer line with China. How much is that kind of weighing on the Chinese delegation's minds at this idea that you know, it's not just about waiting it out and waiting until President Trump if he gets reelected, and then figuring it out from there. That you know is picking you know, the lesser of evils and just to sort

of go with it. You know, I think that the Chinese side are about as confused as everybody is over a central contradiction which is at the heart of US training policy to China, that the White House cannot cannot figure out what it is it wants to get out of this trading relationship. What we're all waiting for, of course,

is the Phase two deal. Now, this phase to deal is the about the rolling back of state owned enterprise privilege and power in the Chinese economy to level the playing field for foreign investors, including US investors, now to the extent that that succeeds, it will actually open the door for more foreign investment, more US investment in the Chinese economy, which is apparently precisely the opposite of what some in the Trump White House want, which is to

bring jobs and bring manufacturing back to the United States with the unstated goal, of course, of economically weakening and economic and security competitor. So both Democrats and Republicans need to really get to grips with this issue. What is it that the US wants out of the trading relationship? Lelan? What do you think the Chinese government? How do you think the Chinese government is going to portray this phase

one deal? Is at a great victory for China economically or is it just it's a step along the way and it's not that big a deal. Well, I think at the very beginning you didn't hear much in the Chinese press about this because they couldn't figure that out. And now that they are convinced that President Trump is serious about having this done, we'll see in a few minutes. Uh they are. They are conveying a sense of victory, but this is just a small step on the road.

So you know, there there are many disagreements. The fact we came together on this and found compromises is healthy. But let's not pretend that this is the end of the road for the trade war. They've They've made sure to add that in quite often when discussing this in the in the Chinese press. So I think that they see this as a temporary truce. It is just a temporary truce and uh, and they're waiting for the other shoe to drop, all right. We're just to reiterate we

are waiting this trade agreement to be signed. And we are speaking currently with Leland Miller, CEO of China beige Book International, as well as Andy Brown, who runs a New Economy forum here at Bloomberg for US, and we

really appreciate both of your perspectives. One question I have is we're coming out about a delay of ten months before the tariffs get ruled back that the US has put on China, And this is sort of differ This just differs from what we've heard earlier where these tariffs would be rolled back as as China sort of agreed with or sort of complied with certain requirements. Is this a big deal, Andy, I think it is a big deal. I mean you know, you've you've got tariffs on three

sixty billion dollars of Chinese exports to the US. That's two covers two thirds of all of the exports. So um, you know you you this hasn't this, This isn't the end, of course, is not the end of the trade. Well, this this represents at best a truce. And then you have to look at what the Chinese need to do

in order to get these tariffs. Now they have to comply with this purchase agreement two billion dollars, which includes something like eighty billion dollars of manufacturers from the United States. This is not going to be easy for the unit either for the United States to fulfill. Uh, you know, where where is this? Where is this additional industrial capacity

going to come from to supply the Chinese market? In two billion dollars, by the way, implies something like increase annual increase in US exports to China over what they were in two thousand and seventeen before the trade war started. How's that going to happen? So Leland within China itself? Did you in your data at the China Bage book, did you see data? Are you seeing data that the

trade war. The trade uncertainty has caused Chinese companies to pull back on maybe some of their investment and growth and you know, building new plants and so on. It's had an effect. It's not the reason the Chinese economy is descellering. It it it has had an effect. What you saw in the early early tranches of tariffs was a Chinese counter reaction. You know, they would there would there

was a devaluation, depreciation of the currency. There were some backdoor subsidies to basically counteract the effects of the first waves of tariff UH, and then you saw a bit of pain come from the next wave. But I think that the real fear has always been the nightmare scenario, which is putting tariffs, probably very high tariffs on all five billion plus of Chinese of Chinese imports and keeping them on there, and that would cause significant pain to

the Chinese economy. And that is why this entire trade war UH, as animated as has been, has come to the point we are today, which the Phase one signing. The Chinese realized that we're not here to win, We're here to avoid worst case scenarios, and that's what they're doing by settling for a Phase one deal that's not great for them, but it's it's far from far from terrible.

Right now, just in the market, we're seeing record highs for the NASTAC and the SMP five hundred as people look at earnings and see that the companies are still coming in strong, as they look to this trade agreement and see tensions easing. Meanwhile, basically flat on the treasury curve here. And meanwhile gold and this is where I

really wanted to go. Gold getting another bid up to one thousand, five hundred and fifty dollars per ounce, and it comes as we have Bridgewater, one of their co c io is saying that he expects it to go to two thousand dollars per ounce, a record high. And this comes as we talk about d dollarization, and we talk about in particular China and Essential Bank buying a lot more gold and leland. I'm wondering how serious is this and how much do we expect this to gain

steam as tensions persist between the U S and China. Well, the Chinese have been buying loads of gold as of as of others like Russia for for for years now. UM, I don't think that that's what's what's moving the gold price right now. I think people have had some visibility on that for years. Um, look, it's it. There's most people have wanted to take their cash and throw it in the market because the market keeps going up and

up and up. And if you're doing that, then putting your money in gold is is a much uh you know, it is a much more depressing investment. But now as I think you get a little more uncertainty, um, goal becomes more interesting. And I think we're gonna have to see how the markets markets react this year. And you know, this trade negotiation with China has been unlike anything we've seen, the Red arc as much at a much higher level,

tariffs going on coming down. Is this the new way to negotiate with China and with other major trade partners or is this just the Trump administration way? Do you think? No? I think this is very much a new era in global trade. Multilateral trade negotiations, UH, deals and institutions are

collapsing UH very very significantly. In the middle of this whole trade war, you had the Trump White House essentially crippling UH the w t O. It's now all about these big bilateral deals in which log economies, UM will have the upper hand over smaller ones. This is managed trade. This isn't free trade. There's managed trade. I mean two billion dollars, very clear target, broken down into categories, so much gas, so much agricultural production, so much UH manufactured production.

And in fact, they haven't even released a schedule of this because they say that it's going to influence as would of course it would influence the markets. UM. So you know this is a this isn't an anti free trade and anti free market arrangement that these two countries are putting together going forward. I'm wondering, is this, though, a beginning at least that we are going to get some meeting of minds? I mean, is this an encouraging

sign to you on some level? I know you're saying it's underwhelming, but on some level that there has been something done? I mean, are we sort of blowing over that a little bit too much? Well? The question is was it worth it? You know? I mean all of the disruption that we've seen over the last you know, a year or so of of of trade tensions. UM, you know, has all that pain been worth the game that we're going to get out of this? Trade deal today,

I'm skeptical. However, I think what I am relatively positive about is that it has, in a sense, but a flaw underneath the U S China relationship um and I think that is what the Chinese will be celebrating more than anything else. They do not want this, and neither side does want this relationship to fall off a cliff. There's too much at stake these two countries, of too much mutual interest. So leland do the Chinese people to

get a sense that the Chinese people support this? I guess heightened kind of back and forth between China and the US on traders. Is there a perception within China that it's it's not balanced and maybe the US has taken advantage of US, or they're or they're not supporting us. What's the feeling within China? You know, it's very hard

to pinpoint a monolithic feeling coming out of China. I'd say there's certainly is a sentiment within China that the US is attacking it in certain ways, attacking Huawei, attacking national champions. On the other hand, there's also a very noisy minority that is uh that is very uh positive about what Trump is doing and saying the only time the Chinese system is going to change in a material way as if it's pushed on the outside. That's the lesson of Chinese history. That's a lesson uh that that

that we're taking now. So I don't think you have any type of strong uh sentiment that's just in one direction. But this is certainly something that to the extent that Chinese citizens have have optics on what's actually going on, I think they're they're very much of two minds about this. Can we talk about the defaults in China, how much we were worried about the corporate defaults that have been

picking up. They're still pretty pretty small, But this is unchartered territory because it's the first time that China has allowed companies to default in this manner. Right, well, I think China watchers should be rooting for more defaults, not that it won't cause some rough times in the short term, but because the only way that they're going to fix the financial system and fix the financial the economic model is by allowing risk to be injected in the system.

If people think that they're financial products can't go bust, if they think that companies can't go bankrupt. If they think that investments can't default, then there's no way you're going to ever have a model that allows for a for for for rejiggering of of what has always been a government backstopped economy. That's that's that's in real problems

right now. The real issue has been that as the Chinese government has been unwilling to allow companies to go bankrupt, they just keep throwing good money after bad and that means that you're gonna have slower You're gonna slower growth over time because you're constantly putting good money in the economy after bad investments, and it just stagnates the economy and into a zombie economy over time. Are deep deep thanks to both of you, Lilan Miller and Andy Brown.

We really appreciate all of your perspectives here. H Leland Miller is the executive the head of China Beige Book International, Andy Brown, editorial director of the New Economy Forum at Bloomberg. We are less than an hour away from the signing of a six page trade agreement, the Phase one deal between the US and China that we have not seen yet, but evidently when they sign it it does exist and evidently they are going to release it, so we will be passing through that. It has a lot to do

with agg purchases, agricultural purchases. So we are so pleased to say sal GILBERTI joining us now President, chief investment officer and co founder of two Trading UH in Brattleboro, Vermont. So just give us a sense of what we do know about the agricultural purchase agreement here within this trade pact, that UM, China will be buying aggs again from the US,

and that that's about it. We don't have many more details, unfortunately, but what we what we can assume pretty confidently is that China will buy as much agricultural product as they need from the United States. Whatever number is is or is not stated in the agreement really doesn't matter. UM. We think that using seen is a baseline. That's the last time we didn't have trade war implications between the two nations. In their trade, UM China brought about four

billion worth of US agricultural product. If you just take their rate of GDP growth and agricultural usage is probably a little faster. UM, that means they need about billion right now. UM, we're here at two Green projecting about thirty one billion in that they'll that they'll buy and they're going to meet come in and buy pork, beef,

and soybeans. There's no question because they need those things. Um, how much more they buy of other things is up for debate, but we do have have some projections for that which we've published a sal I'm looking at your research and it's just amazing that looking at those numbers you just were discussing, we're really talking about soybeans here

we talk about what China imports from the US. Is there a sense that across the commodity spectrum, uh, that China needs to maybe rebuild or restock their inventory and say that you could see maybe some unusual surge and demand over the first you know, six eighteen months. Yes, absolutely, they they they've drawn down their soybean stocks. They've drawn down their soy stocks, uh, they of all kinds, and they've drawn down their corn stocks. They've also, you know,

massively drawn down their pork stocks. And so they'll come in and immediately buy soybeans to rebuild. They'll buy some corn to rebuild and freshen up what they had because they had old inventory. They were they were stockpiling for quite a while. Um, they've almost run out of pork ifew will they really tight the releasing supplies for the holiday coming up a week from Saturday when their new year starts, where they have enormous pork usage, so they've

got to replenish their soybeans. They've got to repunish their pork. They've also they're supplementing their their meat based protein with beef, and so they'll they'll come in and buy beef quite a bit too, as well as poultry. Chicken and eggs um are are a small part of it, but they've just been freed up to buy chicken feet in the parts that the Chinese use where we just send their rendering plants. So we think, um, soybeans, we think pork, we think beef, we think no question poultry. Those will

be the things they come in and buy immediately. How much are we gonna expect these increased purchases to uh suspect the price here or to increase the price in the US. That's the magic question. I think we can expect the floor. I think I think there's no doubt that it's reasonable to assume that there could be a floor in prices, and understand, we've been trading soybeans and corn in particular right near their cost of production anyway, and they do trade for quite long periods of time

at their cost of production. That's the natural thing they do. Then when there's a supply disruption, because demand is continually growing um, you know, you often see pretty pretty good spikes upward in the price. Historically, corns doubled twice in the past thirteen years from right where it's trading now, So you know, people are starting to layer in acid allocate.

We think once they signed and it's confirmed that they'll be buying, and they will be buying because they need our agricultural products, there's no question that there should be a floor under the price. How much it goes up, it remains to be seen. Depends how fast they buy. It depends of course on the weather, and it depends on some insight into um what the Chimes will be

doing in their economy, including ethanol. They are blending ethanol into their fuel, and while they've um they were going to enforce a ten percent mandate, they realized their infrastructure is not capable of that. They're not abandoning ethanol in any way, shape or form, and that's gonna put some big demand on corn globally. And remember this is the seventh year in a row that corn demand globally will break a record. It's the third year in a row

the horn demand globally will outpace demand global production. Uh this year, soybean demand globally will outpace production. So the price is sitting where they are now. You know, you can reasonably assume there's certainly for or how high they go, we'll say odd question, is there enough inventory? Are the American farmers can they meet the surgeon demand? Is there a bunch of inventory in the Midwest and the farm belt to get meet this surgeon demand? Yes, there is, um,

there's enough inventory certainly for this year. Um. You know that's the interesting part about aggs. That's why prices you know, in corn have doubled from these same levels place in the past thirteen years. What happens is year to year you can replace it. But the one year when you fail, you're using eggs, they grow, you harvest them, there's a big pile. You're using that pile until the following year's harvest. And if the following year has a problem with harvest.

That's when the issue comes in. And so that's why agg markets they always trade kind of at their cost of production, and then they explode higher when you get that blip and product because remember, demand just keeps going on. That's just a steady bad SalCo birt day. Thank you so much for joining a sales president and c I O and co founder of Two Cream Trading Limited, based in Brattleboro, Vermont, targ The shares are down over seven percent this morning. The company posted a rare stumble on

holiday sales came in a week er than expected. To help us dig into the details, we welcome our good friend Jen Bartashes, senior US retail staples and a restaurant analyst for Bloomberg Intelligence. He joins us on the phone from bi's headquarters in Princeton, New Jersey. So, Jen, kind of a rare stumble for Target. I seem to be calling quarter after quarters some pretty solid top line numbers. What happened? Yeah, good morning. UM. So Target has had

a stellar year thus far. Um, but really going into holiday, it seems that perhaps there was a little bit of a miscalculation with regards to the shorter selling season, but they really underperformed in critical categories for holiday, which included toys, electronics, and parts of the home decre part part of the store. So we've had a bunch of hours to digest the

release and some of the possible explanations for it. Has anything become clear in terms of how much this is a Target specific issue and how much this is a widespread likely disappointment for all retailers and the last holiday season, right, So to put that into context, you know, you know, Target, you know still posted positive same store sales growth, it was just below expectations. Some of this seems to be Targets specific because in certain categories at Target they did

very well. Apparel was up five percent, Beauty was up seven um. And so it seems that there were some miscalculations specific to Target in a couple of those critical areas. But when you look at the broader retail landscape, you know, it's been a really mixed holiday season, and so even though consumer spending has been up, especially online spending um,

different retailers have really had posted mixed results. So, Jen, I know from reading your research over the years, I can't just look at top line same store sales also have to look at promotion activities that goes right the profit Margins did. What did we learn from target ors maybe some of the other retailers you follow about the

promotional activity to drop those holiday sales. Yeah, so, so one of the categories that we tracked very closely is toys, and we tracked toy prices throughout the holiday season, and Target consistently was more expensive than both Amazon and Walmart. So that may be playing into some of the results in toys that they had. UM With regards to promotions over Black Friday and and Cyber Monday, UM, Targets promotions

were different this year. So last year on Cyber Monday they gave fifteen percent off on everything on their site. This year it was very strategic specific UM discounts. And so even though that may be better for Margins overall, it seems that it did have a definite impact on top line sales going forward. Do we have a sense

of Walmart. We know that their shares also fell in sympathy with Target, Are they going to face some of the same issues, well, you know, with regards to specifically toys, UM, you know, we think that they may have fared a little bit better just because they were more price competitive and they're out of stocks Rose, which implies that they ran through their inventory at a little bit of a faster pace than Target did across the season. Um, across the broader store. UM, it's hard to say. Um. They

also had a strong holiday last year. UM. And so it could well be that they did well in certain categories and less well in other category as much as Target did. JEN what do we learn from the e commerce side of Target? I remember, you know, last four quarters really strong e commerce reven or growth kind of led me to believe that the Targets and the Walmarts of the world have kind of figured out how to

compete against Amazon. Well, what was interesting about the revenue growth and and the percentage it was for Target over the holiday season, which is not bad, um, But what we're really seeing is that a big portion of that overall growth came from same day fulfillment options. So that's where you order it Neither you pick it up at the store, um, delivered to your car, or you go

in the store to pick it up. And that actually is the part that is interesting with regards to competition against Amazon, because even though Amazon has free next Days, you know, shipping and in some markets free same day shipping. UM it's still very difficult to compete with UM a Target or a Walmart who can offer that same service and you know that you're going to have it in hand by the end of the day. Just real quick here, Jed. Earlier you're speaking about the target experience. What is the

target experience? Well, when you know, when when their their core customers go in and they expect to be delighted, and a lot of the they do. I mean, you know, when when you go in, you're a lot of the target core customers are into looking for that new piece

of fashion, that new accessory, the new beauty product. Um And and a lot of the Turket has made in their stores has really been to reformat the stores to make it easier to you know, access and to be inspired by the products that they have their UM and that has really bolstered same store sales over the last year.

Now they're coming to where they've done a lot of those remodels, so it'll be interesting to see going forward whether they're able to sustain that same amount of traffic into their stores that they were able to generate off the heels of those renovations. Jen Bratashes, thank you so much of Bloomberg Intelligence. Paul literally turning my mic off and saying, don't do it. Whatever you're gonna say, don't do it, and I gotta say my My only point

is the big box stores. The whole design of them was to make it look like you're going to get a deal, not an experience, right, I mean that was sort of the idea. I understand going in and being excited about getting something that you can get, but delighted. I mean, yes, I guess that's what the millennials and the gen xers want. They want experiences. I don't disagree with that, but I'm just I think people just want a good deal. Okay, thanks for listening to the Bloomberg

pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Bramwoyits. I'm on Twitter at Lisa Bramwoyits one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio