Solar Cost Declines To Persist Despite Tariff Disruption: Evans

weakening against uh the rival currencies. Here to talk about whether we can expect to see the ongoing weakness continue for the dollar is Doug Borthwick, Managing director and head of FX at Chapter Lane and Co H. Doug, thank

you so much for being with us. You know, this is a really important question, and I just want to frame this issue first because I was reading a story about how the pace of dollar denominated emerging market bond sales are hitting a record so far this year, and this is basically a leveraged bet that the dollar will continue to depreciate and then emerging market currencies will continue to appreciate. Is there any risk that all these investors

are wrong? Well, there's certainly a risk of the investors are wrong. That there always is, there's no one way bet. But I think the one thing that they're putting their their money on is the fact that there will be

a continuation of the dollar weakening. Now, dollar weakness is something that this administration has been pushing from day one, when President Trump has talked about making the US more competitive, and that's certainly the case, and we're seeing weakness in the US all However, it's it's expounded somewhat by what's happening with reserve managers and how they're managing the reserves given uh, you know, how they're moving money into China and moving it out of the US or not allocating

towards US treasuries as much as they used to. And what's really interesting is that once the SDR the I M S currency came into being, and then they decided that China should be part of that, they made China ten percent or eleven percent allocation, and that man to bother the US is and it means that if the folks and reserve managers start building up Chinese reserves as you'd expect to, because China is now a rather large trade um trade partner with them, then they need to

really start moving money into Chinese currency and out of US currency. We re estimate right now that if they allocate ten percent of the reserves to China, that's about one point three trillion dollars that they would no longer be buying in US treasuries but instead be putting into China. And that ends up as being of all of the holdings of US traasors that are held by foreigners right now.

And so this constant drip we're seeing from reserve managers and the Bundesbank has already said that they're buying China, and they said the Central Bank and Francis said they're buying China. They're not the only ones, as more of folks by Chinese and that means there's less dollar demand that obviously the US dollar is going to start weakening, and we've been seeing that continually over the past year. Doug Borthwick more prosaic question, did you uh forecast the

strength and sterling against the dollar? I haven't forecasted the strength and sterling against the dollar. I've sort of stepped away from sterling given Brexit, but certainly we did say when it was euro was at one oh four at the start of last year, that it was going to weaken considerably through one tent and we see the euro continuing to weaken and we see no reason why we

won't see one thirty in the next coming months. Okay, but the reason I'm bringing up the pounds sterling is, you know, when we speak to four X experts, and it's always about how the market, you know, trades off of you know, little pieces of news. I didn't hear anybody over the last you know, two weeks say, boy, you know you've really got to go short the dollar along the pound, and you know you would have a four and a quarter percent just on a spot basis.

That seemed like a really good trade, and I haven't heard anyone mention it. Yeah, I think that coin flippers would be very good in telling you where sterling is going, but not necessarily four EX experts. The interesting thing that the pound is because of the uncertainty and Brexit. Is it going to be a hard Brexit a soft Brexit, folks are mostly staying away from discussing it. And what you do find though, is that you know, as the

dollars weakly cross the board against every single currency. Sterling is picking up on that, yeah, is really based on the euro strength or the weakness and dollar against the end, it's it's just getting picked up in the whole front of it. Yeah, But I mean, all you gotta do is look at a chart. You've got higher highs and higher lows. That's certainly the case. But then you know they could turn around in the UK and so they're doing a hard, hard Brexit and we're looking at one

thirty in the Sterlings. So it's sterling is Sterling is less simple to to really identifying the divine all right, So what's the best call you've got right now to make some money over the last Over the next let's say two to three months, I continue to believe that sterling is going to move much much higher, and it's just really the beginning of the cycle. I think we're going to see these ten moves annually for the next couple of years of dollar weakness. Euro is gonna be

a big beneficiary of this. I think folks thinks that dollyn is going to continue in this one ten, maybe moved back to one fift. I think that's wrong. I think we'll see one O five and dollar in dollar Canada. Canada has the trade surpace with the US. I think we're going to see that move lower the dollar against the Canada, and I think the dollar Mexican continue to move lower as well. So you're a dollar bear dollar

bear across the board. Absolutely. So one thing that I'm trying to square is let's say, uh, the US economic picture is as good as people think it is, and perhaps even better, let's say that there's an upside surprise. We have seen the City Surprise Index showing that there

have been more upside surprises of late um. At what point, especially given the fact that the Federal Reserve is going to be hiking interest rates, at what point is that enough to encourage people back to the dollar or is this something that's structural that that is going to continue regardless, Certainly,

I think that if the sudden is very structural. Remember before the European bailout of Greece, you know, the euro was trading around this one thirty level, and then you saw a huge move into the dollar and out of the European currency. And now, if anything, we have we've heard nothing about Greece, nothing about Italy, leaving the euro Zone.

And so what we're seeing now is folks not necessarily deciding they don't like the US, but they're certainly deciding that maybe it's time to get back into the Euro and unwind some of their safety play that they moved into the United States. And so, you know, moving up to one thirty doesn't mean that we don't like the dollar anymore. It just means that, you know what, we feel more comfortable with the Euro. And so where the Fed is, I think the Feds very much behind the curve,

you know. I think that the fact that probably raised another hundred and fifty basis points before folks start thinking, oh, you know what, now the US dollar is more interesting to us. Remember, interest rates over in China are much harder than they are in the US right now. And as long as reserve managers need to get into China, and that means taking reserves maybe out of the United States, then that's that's that's going to be a move that's going to see dollar weakening. It's going to see us

and streets naturally start to rise. One thing that certainly will allow the Fed to raise rates will be if the dollar we can considerably does that mean that we're going to see about of accelerated inflation. I think that inflation, you know, I think one of the best indicators of inflation was when Walmart moved into Mexico and suddenly pricing

inflation almost disappeared overnight. And I think that the Internet has done something very similar to that with the prices, and that we don't there's now we have so much clarity in what pricing should be that it's hard to raise prices because we can always find somewhere else that's cheaper. So I think that when you look at prices rising above two percent in the US, I think that sometimes it's a fool's dream and that we can always seem

to find pricing less ultras. I think high inflation something that's really going to be the back burner for a number of years. All Right, we're gonna leave it there, but thanks very much for being with us. Douglas Borthwick is managing director and the head of f X at at Chapolin, Dane and Company. President Donald Trump slapping tariffs on solar panels and also on washing machines imported into

the United States. Here to tell us more about the tariffs and the effect on the solar industry is James Evans. He is our global clean Energy analyst for Bloomberg Intelligence. James, thanks for being with us. You know, last time I believe that we went through this whole tariff issue regarding the solar industry, Chinese companies decided to just relocate their

firms to Taiwan. Isn't that correct? Yes, that's correct. So there was unecdotal evidence that a little of the Chinese manufacturers trying to get the previous tariffs at the US put on the imports of solar modules and cells by setting up operations in other countries in Southeast Asia like Vietnam, Malaysia and Thailand. So hopefully with the new section to a one tariffs that have been imposed, that won't happen because these tariffs are effectively impacted on every single country,

no matter where you are. So that's not something that can be so easily skirted by a lot of the Chinese solar producers. Okay now, and I just want you to hold that thought and then tell me the manufacturers that are in the United States that have been asking for there's terror for leave their bankrupt, right, I mean, there's a SNIVA and Solar World. So a lot of the manufacturers that used just mentioned have gone bankrupt over

the recent years. Part of that is because of a massive build up in production capacity of the solar modules in the in China and in Southeast Asia, and so a lot of those panels are being able to be produced at a very very low cost. And you know,

we're operating in a very global market. So those pan are ending up in the US market, and it's been hard for a lot of the US manufacturers to compete with the scale of production that a lot of the Chinese manufacturers have been able to produce, so James, So, if this is going to potentially allow producer producers in the US to charge higher rates for their solar panels, that means that some consumers may not choose solar panels because it's more expensive. How much does this damp in

the expansion of solar energy in the US. That's right, Lisa. So the big fear amount about these tariffs is that actually most of the jobs in the US market aren't related to manufacturing of solar panels or solar cells. They're actually in installing the panels, in developing the projects, and in making equipment that goes around the panels, so kind of the trackers, the racks, and a lot of the electrical equipment. So there's concerns about some of those job implications.

But but also you're right. If the panel costs that are imported into the US will increase, then we're going to see the impact of that on love of the project economics are going to worsen. Um. It's going to have the most impact on the larger utility scale projects where kind of module costs are a higher share of the total system um the kind of residential and commercial scales. So the smaller kind of solar developments may be less impacted by this because there's a little bit more margin

in there. There's a little bit more room for a lot of the panel producers to to get a higher price, whereas you may see some delays in development of utility scale the large solar developments over the next year or two until this kind of module tariff digresses over the

next four years. James, did the US producers are poly silicon Did they end up connecting or hooking up with Chinese companies after the first round of UH sort of imports of of low cost solar panels, so poly silicon, you're you're referring to the raw material of solar panels

and um. Effectively, what happened was when the US Imports imposed tariffs on imports of US modules UM sorry in Chinese modules into the US market, China responded by imposing tariffs on polysilicon, which is the raw material for solar panels, into China from the US, and that's still not been resolved.

That's still an issue that's ongoing, and there are a number of US polysilicon manufacturers of producers that have found it really really hard to compete now that China has such a stranglehold on global module production and they can't effectively get their product into the main consuming market of China.

So as part of the I t C investigation and this kind of announcement, they've also said that they want to have a separate investigation into whether there's any kind of deal that can be done to remove the previous tariffs and the Chinese tariffs on polysilicon. But given the fact that the Section two or one tariffs haven't really gone down very well, not only in China but in in the rest of the world, especially in Southeast Asian markets. UM that is going to be a bit of a

long long shot. If you ask me, how much of a price increase our consumer is going to see in solar panels as a result of this. So from a typical basis, you're you're talking about a kind of ten percent um increase, So it's on the larger scale utility salt kind of side. From a consumer perspective, it's going to be in in the lower single digits. So there's going to be some small increase incremental increase in this um,

but that's going to fade with time. It's going to fade as the tariffs go down over the next four years. They start at thirty and they decreased by five percent every year. But they're also going to go down because panel costs are going to continue to fall. You know, we've seen dramatic declines in the cost of a solar panel. Last in you saw a decline of about a third in the cost of a solar panel. Last year is about twelve percent, and we're anticipating that those panel cross

de planes are going to continue going forwards. So you don't think necessarily that this move is going to undermine the expansion of solar or the industry more broadly. I think it's gonna it's going to be slightly disruptive in the near term, especially for some of the larger projects as I mentioned, but I think that the fundamentals are there and that solar is a technology the costs are coming down. It's not like you have a fixed fossil fuel base that you have to try and support all

the fossil fuel prices. So this is a bit like on the semi conductor side. The costs are coming down over time and that's going to continue. That trend is going to continue. So there is I think a secular shift towards not only solar but also other technologies like wind energy UM that is going to see these costs declined further and further UM and you're going to see

more and more of this into the market. There might be some near term disruption at least in the US over the next year or two as a result of these, but it's it's definitely going to be a trend that we're going to see continue going forwards. James Evans, thank you so much for being with us. James Evans is global clean energy analyst with Bloomberg Intelligence coming to us up from London talking about the tariffs that are being

placed on solar panels and what that means for the industry. Well, we got some sense today of what JP Morgan plans to do with the money that it is saving from the tax overhaul. It's saying that it's playing the earmark twenty billion dollars over five years to boost lending, expand its branch network, and increase gifts to charity. Here to tell us what this means for shareholders is Charles Peabody, who we always love having on Managing director and research

analyst at Compass Point. Charles, thank you so much for joining us. So what's your first dake on this? Well, you know, I think it's clearly a net positive for Morgan in the industry in the sense that it's clear that those institutions that have invested in their franchise and their employees over long period of time and consistently have

done better than those that have not. Um Just in the last decade we saw JP Morgan do much better than City Group, and that's because Morgan was investing in its products and businesses where a City Group was capital constrained well, could just I want to break in there, because do we really have a sense of what these investments really mean? I mean, we do have a sense that, you know, the sort of minimum wage that they'll pay for workers will go from fifteen to eighteen dollars an hour.

But beyond that, what does this really mean? Well, you know, I break it down into four pieces. I mean, there's ten billion being airmarked for affordable housing finance, and I think as an aside, you're gonna see JP Morgan invest much more aggressively going forward in and building out their mortgage banking operation, which had really shrunk over the last ten years. UM and I suspect acquisitions may be part

of that. Um You're gonna see four billion invest in in supporting small business growth and that's been the fastest growing portfolio. They've got about a twenty billion dollar portfolio there. And you're gonna see another half a billion incremental investment in philanthropic investments. UM. So the balance of that twenty billion, which is about five and a half billion, is going to be invested in things like employees, branch expansion, innovation,

et cetera. UM So, I think those investments, you know, JP Morgan has done invested wisely. I think they will enhance the value the franchise over a long period of time. So I'm just curious, Charles, why do you think the

stock is not reacting today? Well, you know, short term, Um, one of the things that you have to acknowledge is this is going to add about a billion to a a billion and a half to UM JP Morgan's expense operating expense structure, and so you're in a sense increasing the fixed costs of that expense structure, hoping that growth will offset that that fixed cost uh. Um, But that remains to be seen. So one thing that I was noticing, Charles is that you actually or not that bullish though

on JP Morgan's shares. Well, I think the shares are pretty fully priced. Um is where I'm coming from. Um, you know these actions aside, I mean, the stock is um trading you know almost at two times book, you know, and Jamie Diamond even said that, you know, at two times book his own investment in his own stock was not necessarily the best investment where he rationalized that he could buy the stock between one and a half two times book. But he's sort of captain at two times book.

All right, So if you believe that the stock is a little too expensive for investors, what stock do you recommend people buy? What company do you think is not been overpriced? Well, you know, I will tell you him. The b k X index, which reflects the large cap banks, is around one fifteen today um the pre crisis top, and that b k X index was about one. So

we're worthin five of that all time high UM. And as a as a relative to the SMP five hundred, the b k X index hit a high in March up two thousand seventeen, and despite all the hooplab around deregulation and tax reform, that b k X index has not been able to make a new high relative to the SMP five hundred. So I'm I'm thinking we're topping out here, and I'm not anxious other than very very very short term training. I'm not anxious to add to

my long positions here to be peeling off. I wanted to just follow up in one aspect that you said. You said that you think that JP Morgan could potentially make an acquisition of a mortgage lender. Is did I hear you correctly? Yeah? I mean they there, they want to reinvest in the mortgage space. UM. What has held

them back has been the litigious environment UM. And if if we can get some cleanup of that litigation risk, UM, I think you'll see them go out and start to invest in both organically and inorganically UM, in that space and rebuild that that mortgage banking franchise that used to be quite substantial ten years ago. And would they start to issue UH non agency mortgage backed securities again. You know, if you can, as I said, you can clean up the little litigation risk, I think they would do f

h A lending again. I think you know Jamie Diamond talked about that in his annual letter UM two shareholders. Well, Charles said, if JP Morgan is too expensive, and you mentioned the possibility of adding to their mortgage business, is there a particular stock or even a non bank financial company that you believe is undervalue well on a relative basis. You know, Goldman Sachs has been treated very poorly by the marketplace UM year to date, largely because of their

week thick trading businesses UM. Yet the other three businesses UM plus they're equity trading, are doing very well. UM. I think if we get some added volatility, and there are indications that we're starting to see that we could see better activity. So in many respects, I would say the thick trading business bottomed in the second quarter of seventeen and there's some leverage from that going back this year. I want to thank you very much for being with us.

Charles Peabody, he is managing director Research Channelists at Compass Point in giving us his thoughts about the banking industry, House of Cards and other Netflix originals, Orange is the New Black, Stranger Things. Here to tell us about the success of Netflix is Paul Sweeney, US director of Research and senior Media and Internet analyst for Bloomberg Intelligence. Alright, Paul Sweeney, is this all about subscriber growth or is

it about something else? Yeah, it really is about subscriber growth. Um. You know, this is a company where investors really focus on the growth of the subscribers, not you know, and really internationally. That's really really the bulk of the growth is coming from for this company. Um, you know, it's not really an earning story yet, it's not even a

revenue growth story at the moment. It's really investors are focusing on subscribers because eventually, you know, you get the more subscribers, you get paying more every month in the company just put through another price increase in October of last year that drives revenue and ultimately profits in cash flow. UM. So this is clearly a momentum. Stock has been. It's been a phenomenal stock, up another sixty percent last year. Uh.

And what's driving the momentum is the subscriber story. I guess if people like the shows, it perhaps doesn't surprise them that it dominates their life more than Goldman Sacks does. Because their market cap is now beyond where Goldman Sacks is. And I'm just struggling what needs to happen with Netflix to legitimize this market cap and even translate into upside

for share investors. That's what you know the company when they kind of came well, not when they came public, but when they really started talking about their uh you know, they're over the top of viewing as opposed to the CDs. They said, listen, this is gonna be an expensive gambit for us. We're gonna have to buy a lot of programming.

We're gonna have to invest in a lot of programming. Um, But we believe in what they called the virtuous psycho, which is the more we spend on programming, the more subscribers will sign up, and the more subscribers that sign up and pay more, that will drive revenue, that will drive cash flow, and that will drive profitability, which will give us even more money to invest in more product,

which again will attract more subscribers. So, um, where they are in the life cycle there is it's they're absolutely in this toward growth uh stage. Uh there in every entry around the world, with a notable exception of China. And so their strategy now is to invest in programming to drive subscribers. And the US market has become and continues to be very profitable, and the profitability margins in

the US continue to grow. Many of their international markets have also turned profitable and expect to be fully profitable by the end of this year. And then that's really when the street looks for earnings and free cash low growth, because when you take a look at the company now, they are significantly free cash flow negative. Let's let's put that in plain English. You're expecting to burn through four billion dollars of cash this year exactly. It's just extraordinary

and where's that cash going. It's going to fund about eight billion dollars of programming, which is the biggest programming budget in Hollywood by far. Just by point of comparison, HBOS will spend about two and a half billion dollars on programming. Uh So how are they financing that programming? Uh? In the debt market. They they have been issuing dead over the past couple of years. UM. And the debt market loves this company, and so that is kind of

their source of capital. And really, if you take a look at street consensus numbers, UM, you know they don't have this company turning three casual positive to one or maybe two keeps getting pushed back UM as a continue to invest. Paul Sweeney, Alright, they've got about six and a half billion dollars of debt and they've got all these great deals to create original programming, I believe is the target for Netflix. They want to have at least

fifty of it the original content. I wonder if you could contrast that with what's going on at Twitter and their content, which is a user generated And just a note that Bloomberg LP has a venture with a Twitter for at TikTok. That's a twenty four seven streaming news service. So what is Twitter need in order to grab those eyeballs? Twitter has about five million monthly users, which you know,

sounds like a lot. It is a big number, but relative to the facebooks and the Instagrams of the world, which have you know, one to two billion subscribe subscribers every every month, it's not. And uh so when you're out there competing for advertising dollars, which Netflix doesn't have to do, Twitter really realized on advertising dollars. What they're finding is that three million user base is not enough

to really attract digital advertising dollars. So and it's unlikely that they can materially grow that much more um although we are seeing some growth. So what they have to do is they have to make sure that those people that are on Twitter stay longer, are more engaged. And how do you do that. Like a lot of companies, Twitters investing in video because that actually is engaging and

that's where advertisers want to place their money. So we did just get the news this morning that Anthony not to the former now chief operating officer of Twitter, was departing to join a lending start up. So far or not really start up but a lending arm so far. How big of a of a problem is this for Twitter? You know? I I do think it's an issue for Twitter, both the media term and longer term. Anthony Noo is very well regarded by investors in Wall Street in general.

H He has that rare combination of operational experience which he's gleaned over the last several years at at Twitter, as as well as a very deep financial background having been a banker in the CFO. Uh. So, he really brought some stability to Twitter. And it's really it's it's doubly important at Twitter his role because the CEO, Jack Dorsey, the founder and CEO, always spends half of his time at Twitter, spends the other half at his other public

company Square. So you kind of have a part time CEO. You need a strong CEO. That's what Anthony Noto is. Now what do you do? Yeah? Paul Sweeney, thank you so much. We will find out what they do as we follow this and other stories in the media with you. Paul Sweeney, US director of Research and senior media Internet analyst for Bloomberg Intelligence. Uh definitely a tale of two stories this morning. Thanks for listening to the Bloomberg P

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