Surveillance: Fed's Kaplan Advocates For Taking No Action

the read across? Can I read across from Apple into China sort of consumer weakness or is it? Or is the Apple story just idiot syn critic it's got the wrong product or the wrong price point or whatever it is. No, I think this is a pretty kind of macroeconomic story here, although apples, so you can sort of you can read

across in the opposite direction as well. But in this case, actually, all through last year, the headline retail sales um year over year prints were coming in a little bit quite significantly stronger than what the underlying data was telling us.

And even those headline prints were deteriorating the way they have the way they published the data in China, you get the the underlying levels data, and that doesn't always match up with what you see flashing up with the year of a year kind of headline prints because supposedly those headlines are are adjusted for stampling distortions which occur because firms fall in and out of the of the sample.

So if you have UM a lot of kind of smaller firms because it only includes the larger farms, if you have a lot of firms transitioning towards smaller firms because their revenue is is falling, then you get this big drop in the underlying value that the level of retail sales values. But you can extrapolate from that UM if you have that quantity of firms that are that are falling out of the sample, that there is a great deal of underlying weakness that wasn't really being reported

in the in their headline figures there. So that's certainly from from the kind of the sales data was was there. When did the Chinese authorities respond? We saw a little step forward today increasing the number of banks that are eligible for the reserve requirements cuts. They can lend a little bit more money into the real economy. Do we

get a bazooker from the Chinese authorities. I don't think we get a bazooker, because they still are very much up against um a new constraints that they haven't had previously. I'm one of those being the environmental constraints. So the kind of the industrial the old guard polluting industrial companies, they can't really they can't just ratchet up production there anymore because it's such a political issue to have to have clean air with these new environmental targets in place

as well. UM, and those old guard firms that are the kind of the way in which that the authorities have been used to driving the economy. UM. They're also the over indebted firms as well, so they're they're cognizant of the kind of the the longer term outlook UM. And on top of that, we also have the to realize that China's current account surpluses has dissolved into into nothingness UM as a percentage of GDP it was it

was kind of nowhere UM. And that means that they have limited space for for a fiscal kind of just at the limited timing. Guy, let me bring up this chart. I love this chart, folks. This is log China growth, and all you gotta know is a volatility of years ago the crisis obviously in the smoothness in the rollover in their GDP growth that we've seen in the last

two or three even four years as well. What is the mood like on the ground in China away from the macro babble, away from the apple babble, what's the domestic economy and mood like right now? Freya Well, I think actually these kind of the lack of volatility that is quite kind of perplexing in the context of Chinese UM Chinese the listed data and also the kind of the price movements that we've seen PPI over the last few years that doesn't really reflect things that are going

on on the ground. And actually you can tell that even from the from the data that the authorities published. If you look at the nominal GDP growth and then you kind of extrapolate what real GDP growth would be by compiling your own deflated then you do get a lot more volatility than than what is showing up in in the in the the kind of official headlines there. So I think actually that it's it's a lot weaker

than we're saying wonderful for beams and short orders. Thank you so much for joining us some p I want to focus on Apple in the here and now I'm bringing wonderful wile lists and communications equipment analyst Walter, how didn't they see this coming? I mean, this is a

huge miss in China. You know, Tim Cook did make reference to subsidies and upgrade rates and things like that and developed markets, and and that's certainly been an issue for a number of years, but there's really no evidence in the market about a this type of change in terms of subsidies and upgrade rates. So this is really, I think, primarily on the back of China, and it's a massive mess. So you're talking about consumers that just

either can afford the phones. I mean, there could be some market share losses that are going on there, but really I think it's it's a it's a clear sign that there's major economic issues going on in China right now, Walter. Are our economists are saying it's much more a China economic issue? Are John Butler Blumberg Intelligence? I asked him the question. Let me ask you the same question as you mentioned the price of the phone in America, vast

majority of people buy a monthly plan iPhone. Do they do that in China? Or do they have to come up with X number seven, eight hundred nine hundred dollars to buy the toy? I mean, I think it's unique in the US in terms of the payment plans and how long we've haund. There's some other developed markets that that have have adjusted to that. But in in in some of these other prepaid markets, you're expected to come up with um with a lot of money, right, But

there's also trade ins right. And Cook talked about trade ins um yesterday as a way to offset this in his in his note to investors. But again that is not a new thing. Operators have offered trade in so that's not like that's going to change the market. The issue is, you know, people in China, I just don't have the money to pay for it for these phones, and to a much greater extent this year than any prior year. John Templeton, Sir John would say, shares are

on sale today. Does Walter pisk load the boat here on a some of the parts analysis? Are you gonna wait for the debris to clear? At a hundred forty three dollars? The free cash flow yield is now ten percent, So and it's not like you have a company that's not gonna do anything without money. They're gonna use that free cash flow and the existing hundred and thirty billion of net cash that they have to buy the stock back.

So even so, we had this before tom where where the company wasn't generating growth and net income, but they create they created the appearance of earnings growth by buying the stock back, And that's exactly what's gonna happen this year net income. You're not gonna have revenue growth this year. Your net income might be down because there's gonna be some margin pressure. There has to be when you have

this much of a revenue um you know, offload. But you're gonna show some earnings growth, you know, relative to the market. And at a ten percent yield and discount to the overall market, I think it's a good value idea still at this level. So what's the multiple that this is going to try it out? Well, so what's the basic assumption for you? So right now is trading at this kind of in the market's like fourteen and a half time something like that. I mean, I think

if they can return to growth. Even if you ripped China out of your numbers, it's still a company that could return to top line growth in the second half of the year, generating decent earnings growth. So if you're at parody with the market, that that can get you to two hundred bucks a share or one, which is our target. This is a cash machine. We always talk about the gross margins over Apple, but at thirty percent, I think that's the low end of the guidance range

as well. Walter, have you got any basic assumptions and how have they changed in the last twenty four hours? Just on the margins. I mean, whenever you pull in revenue from a high margin product like that and you can't transfer your expenses, that's a company that spent a ton on has spent a ton on R and D with a lot of not many new products to show for it. You have to take your margins in. You

just have to do in. Thirty percent is still a great number relative to other consumer electronic companies, but you have to pull in the gross margin. I think going forward, until you see some signs of stabilization and iPhone revenue, there's going to be some big complaints about the communication from this company over the last couple of months. World, So first it was a change of the communication of the guidance, and now it's the change of the items overrule.

They told us they wouldn't give us the unit numbers and not to worry about that because things would still be okay. Are you scratching your head somewhat about what you've heard from this company over the last couple of months to something not add up to you? I mean, look, I think it's just a lack of experience of never having to deal with this type of a revenue missed before. Right, they haven't been through this and and you know whatever,

more than a decade. Uh. It just doesn't also look good though, that sixty days or so ago you told people you're not going to report iPhone units and then surprise, surprise, it comes out that you're gonna miss your iPhone unit number by like more than ten million people. It just it doesn't look good. How do you respond then, is you know, a frontline cell side analyst to the idea that Tim Cook is reacting to President Trump's trade war? I mean that's not even your strategic three five or

one week business plan. I mean the fact is Mr Trump has upset the trade in revenue generating Apple cart with American China, right It's possible to view it that way. I would look at it the opposite way, which is Apple is showing you the tough position that China is in right now, so that gives our president a tremendous amount of power in any trade war negotiation that he's going to have going forward. I'm not sure that Apple's miss is a result of the trade ward's reflective of

what's going on. It may have been enhanced more, you know, in the recent weeks, but if anything, that's just showing you the position that child in right now. Do you have a meeting with Tim Cook at three pm this afternoon? Are you going to be in that meeting? Walter Um? They have ruined our abilities to situate at Manchester City Liverpool match today unfortunately, maybe they'll use Liverpool billion from Mr Head. What's the bt I G analyst and of

course Liverpool fan as well. Well. It's it great to catch you, how with the business right now are Michael McKee with Robert Chaplan of Dallas. Thank you very much and good morning to our audience worldwide. On Bloomberg television and radio. Thank you for joining us. Happy, I'm not sure you look at the red on the screen there, I'm not sure how happy it is for investors. So I gotta start. There's only one question that matters to the markets. Has the correction but long enough, deep enough,

severe enough that the FED has to react? Well? Uh, let me let me answer it this way. There's three big issues that I see reflected in the markets and are consistent with what I'm seeing in the economy and discussion of the context. Global growth decelerating um, interest sensitive and economically sensitive industries are showing weakness, and financial conditions have tightened. Uh, I mean credit spreads of widen. And I think those three issues, I'm sure affecting the markets,

but they're also affecting my thinking about monetary policy. And uh, it's gonna take some time to see the depth and breadth of those three issues. But do you think the FED should go on hold for now? My own view is we should not take any further action on interest rates until these issues are resolved, for better or for worse. So I would be an advocate of taking no action. And you know, for example, in the first couple of

quarters of this year. If you ask me my base case, my base case would be take no action at all. That could change if things improve. But my own view right now is we should be patient and give some time to this for the economy and to watch how this situation unfolds. What do you think the markets know something the Fed hasn't seen in terms of what's going to unfold this year? Uh, I don't know about that. I think we've been watching this very very carefully. I

watched the markets very careful. Others that the FED watched this carefully. I think we've been trying to balance very tight labor market, strong consumer UH and trying to meet our dual mandate. But I think uh, I think it's critical in the job I'm in that you will pay very close attention to what the markets are saying. But it's important in that in what they tell us about

what's going on in the economy. And also some of these market forces, including financial conditions, can spill over and tighten UH the economy and cause growth to slow, and it's critical that we are very attuned to it. Well, do you see that happening now? I think I think it may be happening now. Yes, I mean, credit spreads

since October have widened pretty substantially. Haven't had a high yield issue UH for the last number of weeks, very little issuance, And I think it's suggests lack of access. I think his history has showing us and shows me that when you see that kind of action, it tends to if it's prolonged, could lead to is slowing in the economy. At the Dallas Fed, we've we've got an estimate for GDP growth for two thousand nineteen that is

a little below two percent. You've been hearing me say old during two thousand eighteen, while eighteen would be strong. We think fiscal stimulus, the effect of it will wane into two thousand nineteen, the impact of the FEDS rate increases will take hold. UH. And so we expected some slowing in the nineteen I think that's slowing is even a little greater than we had expected. So I'm watching this very very carefully. We changed your forecast at all.

Our GDP forecast for next year's come down a little bit. We were still close to two and you've heard me say before, it's been our view that by we'd be trending back down to potential about one in three quarters. But our nineteen forecast is has come down a little bit,

and it's been affected by some of these issues. I just talked about global growth decelerating economically sensitive industries and what we see going on with credits for ads and the shape of the yield curve is another thing I watched very very carefully, and all those things are affecting our forecast. Is Apple telling you anything about the state

of the US, Chinese or global economy? You know, we've talked for some time, We've been seen and I hear from context for the last number of months that Chinese growth has been somewhat weaker. It's masked by the fact that they tend to use leverage, investment in state owned enterprises, investment in infrastructure to meet their six and a half percent goal. That but a lot of the indicators I'm hearing from businesses tell me that Chinese growth has been weaker.

So it doesn't surprise me that we're seeing more indications about weaker Chinese growth, and the trade tensions probably have exacerbated that. Was Apple the tip of the spirit, the beginning of the iceberg above the water. Are we going to see more CEOs coming out with warnings like this. Uh. I'm not going to comment on any specific company, but but what I hear from I talked about thirty c e O s a month, and what I'm hearing from

them is there and some weakness in China. So it doesn't surprise me, uh that you're gonna see some further weakness. And I've been saying for some time, I don't think China can indefinitely keep using leverage to grow GDP. And also they're very dependent on trade. Uh, and I'm sure these trade tensions have had some effect. And the one comment I'd make, why does it matter to us? And the reason I watch it so carefully about of SMP five revenues come from outside the United States, So China

growth slowing, We're unlikely to be immune for that. We might be immune to it for a time, but not indefinitely. It's likely to spill over into US growth. And that's what I'm watching very carefully. Okay, here college calling for a pause in a monetary policy action? What about the balance sheet? J Paul was pretty firm and saying it is news conference that that's going to keep running in the background. So there's a process for the balance sheet, which we it up and started in the fall of

two thousand and seventeen. It's a it's a specific process where we let maturities laps. We're not selling securities, We're just not replacing maturities as they expire. My own view, and I've said this also to you several times, this is unprecedented. There's no textbook for exiting quantitative easing, UH and my own views. While there's a process in place, we should be very vigilant. I'm watching it very carefully and be very open if necessary to making adjustments in

this balance sheet runoff if we need to. I'm not at that point yet, but I'm watching it very very carefully, and I think we should be very open minded about about making adjustments to that process if we need to, a lot of traders have been complaining in recent weeks that the balance sheet has caused the drying up of liquidity. Do you think that's fair or is it just a

repricing of credit. There's a number of factors. I've spent about thirty years in the markets, as you know, UH, and and I watched very carefully, and we tracked trading volumes trading volumes today are lower than they were ten years ago. That's a part that was true even before the FEDS started to run off its balance sheet, and so um UH, the UH with a somewhat lack of

liquidity in two way flows. My guess is the market's more sensitive to any reduction of central bank liquidity, and so it's just something we have to be aware of. But the point of there is I'm watching it very very carefully, and we ought to be very vigilant about monitoring this process. It's not been done before, and we should be learning from this process as unfolds. Well, how could you adjust the balance sheet runoff? I don't really

want to speculate right now. We have we have a runoff rate between treasuries and mortgage backed securities about fifty billion dollars a month. UH. There are a number of things we could do in terms of caps or the pacing, but I don't I'm not there yet, and I don't even want to speculate on it other than to say we're watching it very very carefully, and I'm watching it very very carefully, and I think we ought to be You said we would go down to trend growth, maybe

by the end of the year. But you also mentioned yield curve in version. Things you're watching. Have your recession fears risen at all? Uh, I've I've note a number

of things. First of all, the weakness and what I'm talking about tightening and credit conditions, I think I'm very I note in particular that the two year yield is is now below the one year yield, which tells me at least the market is saying that they expect some sluggishness in nineteen, but even more sluggishness in UH and UM, and obviously the ten year rate in the two sixties

tells me the outlook for growth is very sluggish. So I think the main thing I take from all that is it's critical that we take the right action at the FED during this period. There's a very critical time. We need to be very vigilant, we need to be on our toes, and I think patients is a critical tool we should be using during this period. We can get this right. But normalizing monetary policy, by the way,

it was never going to be easy. For those who thought that the process of normalization was going to be easy, it's not, and we were destined to go through periods like this, but it's critical that we handle this the right way. A lot of investors come on our shows and say, at this point the FED has gone too far. You've already tightened too much. Is there a possibility they're right?

You will know in hindsight. My guess is that when we look back a year or two years from now, we'll talk less about the fact that we're at two and a quarter to two and a half percent today and more about what the FED does from here. Um. I think that I think what we do in two thousand nineteen will turn out to be more significant than whether two and acquarter to two and a half is too far. And I'll remind people at a two percent inflation rate means real interest rates or a quarter to

a half. Also, uh, my own view has been up to a few months ago, the FED doesn't need to be stimulating the economy. We're still, in my view, mildly or very modestly stimulative. We're not restrictive here. So my guess is it's gonna matter much more on what we do from here than anything we've done up to now. We're talking with Robert Kaplan. He's the president of the Dallas Federal Reserve banquet joining us for a New year

interview this morning. UH. You look at the w I r P function on the Bloomberg calculates interest rate probabilities, and basically the markets have priced out any move for two thousand nineteen. In fact, there's more likelihood of a cut before the end of the year than another rate increase. Is that fair assumption in the markets? Uh? Market market

expectations can change on a dime, Sentiment can change. I can just tell you my own view, which is UH, I would advocate we shouldn't be taking any further action until some of these uncertainties resolved themselves, and I think that could take several months. I'm open minded about what the timetable might be UH, and will be watching very very carefully. Has the idea of a cut even entered your discussions or mind? Yet? It hasn't entered my mind.

I think my main UH, my main objective is just to be vigilant and be patient UH and monitoring the economy during during this period here for the next number of months. Inflation, in my judgment, is not running away from us. We're running about two. I think the structural forces of technology and to some extent globalization or having immuting effect on inflation. So we've got the luxury at

the FED. We're very fortunate. We've got the luxury to be patient, and we ought to take advantage of that opportunity. You're the president of the Federal Reserve Bank of the oil patch. So with oil prices down, is this gonna be like two thousand and sixteen where investments only drives up and that hits the larger economy. Uh, My guess is probably won't go to that extent. But we've got a few things going on. Some of them are supply related and some are demand related. So US has produced

more than people that expected. Uh. That's number one, that the shale uh and and permium has been much more prolific than people thought. Number Two, Saudi Arabia increase production as you know in other opaque countries, and then the US gave more waivers than we're expected for Iranian production. So that's the supply side that's created some excess supply. But the other thing that's going on in the price is people are worried about global deceleration, growth deceleration, and

that's affecting the price. To this is as part of this is a demand story. UH. I think you'll see in the oil patch, because there's so many drilled and uncomplete but uncompleted wells, you'll see production still this year net increased by a million barrels a day plus. I think the issue will be if this lower prices go on for an extended period of time, you'll have some

muting effect on capex and may effect. But our survey show and my discussions with contexts and just even at this boil price were above break even from most areas of the Permian basin. UH. Trump tweets government shutdown, trade wars. Does the dysfunction in Washington have any discernible impact on the economy yet, as far as you can see, I'm not going to comment on any any one of those as you as you probably won't surprise you. But I would say the general level of and certainty out there

is very high. I talk to business people regularly, I'm a former business person, and I would say the level of uncertainty is very high. And UH, and I think when business people feel uncertain, it tends to have a chilling effect on capex, employment decisions. You know, UH, trade tensions are are an example, and part of that uncertainty. Also, I'm very aware of the fact that input costs for companies have gone up, pricing power is lower than it's been in my lifetime, and so there's tends to be

a margin squeeze going on. All the creates uncertainty, which tends to cause businesses to be more careful about making investment decisions. Where the President's tweets about the FED disgusted in any way overtly or indirectly at the December nineteenth meeting, yeah, I won't. I won't comment on that other than to say, which won't surprise you. The standard for the FED, which I'm confident will adhere to, is will will make decisions

without regard to political influence or political considerations. And I'm very confident around the table that's the standard we're gonna uphold. Well, the President did tweet that if the impass over the government shutdown continues, he might close the southern border. As the FED official responsible for much of that southern border,

what impact would that have? Well, Uh, the fact of the matter is our trade flows with Mexico are critical to US competitiveness or critical the US GDP Texas by the Way that is the largest exporting state in the country, but there's a whole swath of industries in the United States that use logistic sense supply chains across that border to improve their global competitiveness. It's critical the jobs and growth in the United States when you look ahead to

two thousand nineteen. Uh, has your outlook changed in terms of whether you're worried about where we are? Uh? Do you think it can be managed? Can the FED bring us in for a soft landing. I'm hopeful that we can, but I think it's critical what we do now. Uh. You know, people ask me about the probability of recession and what I tell them, there'll be a recession someday. Our job at the FED is is maximum employment with

price stability and to try to extend this expansion. And I think we have an opportunity, depend on what we do here in the next months, that we can handle this right where we can, we can achieve that dual mandate. But it's critical I think what we do here over the next several months. Robert Caplan, President of the Dallas FED, joining us on Bloomberg Television and Radio worldwide this morning.

Thank you very much With Michael McKie, thank you so much, of course, Mr McKee, and the press conferences of Chairman Powell and here with the Dallas Ft President. Right at the end of that interview, John Farrell was really classic caplan. It's critical what we do now, and by we, I think it's fascinating. I know with Capinet's an openly what does President Trump do? What does Secretary of Minution do? What does Chairman Powell do in the set of decisions?

And John what I really are there within his devilishness was a more data dependent fet to international relations in our first conversation this year. But James Stavrida is he is as a TuS Fletcher school uh, a former admal of the Navy with a nod An acquaintance to being on the boat, on the ship and also working with NATO as well. J Sevita's Happy New Year to you.

As usual, you start strong with looking at the reading that needs to be done, and I love how you go to one of my favorite authors, Nathaniel Philbrick talking about the Battle of York Town and the value of allies. Does the Pentagon have any allies left? Yeah, they've been dropping like flies lately, Tom, but so far we do

have allies, and we ought to remember that. And as we look back on that brilliant book by Nat Philbrick, good friend of mine, Um, we ought to recall that it was France, our ally, who stood with us and delivered our independence. And today the NATO Alliance is strong, Japan is strong, South Korea is strong. Ure a little pressure from this administration, but still a basic part of

our foreign policy. Within the conversations you have, and it would be rude of me to say, have you spoken to Gentle Madison all that blogny, But the way that the General has been treated by the President, how does your Pentagon respond to that? As an institution? Um? Informally, there is enormous dismay in the Pentagon that somebody of the stature and the intellect and the quality of General Jim Mattis, whom I've known for decades, was summarily dismissed

or quit, depending on whose version of events you follow. Officially, Tom, the Pentagon will continue to do what it always does. It will stand on a law and defend this country

to the end. Ad mustefritis. And what if you could just sort of use your naval and strategic background in the context of China and a book that you have recommended called On Desperate Ground and what we should take away from reading this book by Hampton Sides about China and understanding them not only from a military and trade perspective, but from a political and cultural perspective. Yeah, terrific question. The book is about the Korean War, and it's a

cautionary tale for modern times. Right. In other words, we know what a war on the Korean Peninsula would look like, hundreds of thousands, if not millions dead. That was before there were nuclear weapons involved. So a we ought to take the cautionary message and be we are to remember when China's back was pushed to the wall by MacArthur with U. S troops surging north. They responded, They responded hard, and they pushed us all the way back down that peninsula.

We should not underestimate China's will in a military conflict. So I wouldn't say we're quite on desperate ground yet between the US and China, but skirmishes lead to wars. We need to be very cautious and careful and how we deal with China. So what is the scuttle but among your colleagues and other officials in an outside of the military about the future of the United States role in the Pacific. We need to remain engaged. To walk away from the Pacific takes us away from the economic

engine of the Earth. On the other hand, we have got to find a modus vivendi with China. And I'm particularly concerned this week with the exchange of messages, if you will, between President G of China and President PSI of Taiwan in their New Year's messages, they went back and forth about unification. Uh, that could be a real flashpoint in that's been relatively quiet over the last decade.

I of course identified you with Fletcher School, and of course you exited Tufson Fletcher School here after five years hurting cats known as a faculty, and I would love to know within the vogue of international relations, what was your biggest surprise for students within the international relations after five years? It Fletcher, it is so in now to

do international relations. What's your message to students, undergraduates, graduates and their parents who want to pursue I are number one by far, is that international relations gives you an opportunity to serve to serve your country, uh conventionally in the military, but in the diplomatic corps, at the Central Intelligence Agency, UM in international business is a form of service,

engaging globally provide service to the world. And I'll close by saying our students focused, in particular Tom on issues of equality globally in the environment. And it's very idealistic space for students to be in, and I think is a very powerful one in today's world. Jametro Vidas, thank you so much, greatly appreciate it. Writing for Bloomberg Opinion as well in the former UH NATO UH Supreme Allied Commander. Where is asking a good water with Bloomberg Intelligence? And

this has to do with the processing of biotechnology. It's not about Leononager's bio camera, Morrison and Boyd for those of you have a certain vintage in organic chemistry. It's about the technology folding. It leads to Bristol Myers Celgene. Were you surprised at this acquisition of is it dinosaurs mating? Can you get get more sophisticated than that? I think a couple of investor friends of us putting very eloquently.

Tomas is blind leading the blind Okay. I mean, look, this is this is um celgene was built on protein homeostasis, as you know UM but I think this is a very still You got to tell people what is protein HomeOS basically regulating the levels of different types of protein your body. And they found that that has a immunomodalityary response.

He to stimulates or tones it down. So Selgian drugs and it's it's lifeblood has been built around this, but it was something that I think they kind of stumble upon um and we're still understanding about how this actually really works. And you know, recent literature that has come out of the last decade or so, it's interesting, but still hasn't led to the next There's no blockbuster there. I mean revelm it is, it's a massive drugs, but Revelment is already on the market right right with the

follow ones. We've not seen a good following yet. You know, you're work in Western New York at are at Rochester Institute of Technology, and that of course means the University of Rochester next door in Strong Memorial Hospital. There's a million Strong Memorial hospitals out there. We're in the old days. You did research for big farmer companies to go right where pim Fox was, which is Blockbusters. Is there a desperation in this transaction because those nostalgic old days are over?

I mean, I don't think the nostalgic all days are really over. There's still Blockbusters out there. But I think what the rationale for Bristol was that they had cash to deploy. And this is uh, you know Selgians right now, just business, very cash generative, and I think they will look at this is a financial They're buying a cash flow. Absolutely from a portfolio standpoint, we don't see a lot

of actual sense of overlap. But the sensibility here. Do you sense any relief from Celgene shareholders that oh my goodness, thanks, Oh yeah, thank my lucky stars, someone is buying the company. Yeah. So one of the things we've been seeing lately is that the valuations of Celgen prior to this deal, already um factored in a potential early reblement generic earlier than anticipated um and assigning very little value to the pipeline investments.

Were pretty much hate selling the stock exactly. Well, then, who affect this merger besides Morgan Stanley and m U f G are doing the financing of seventy four billion large. Did Bristol Myers go, we gotta do this or did Selgin go wow? Two thousand and eighteen was harsh, Let's go.

I don't know. I mean, I think from Celgian management management perspective, which the company I actually cover, um, they were looking for an out and said the other well said the other alternative was that they had to deliver consistently on upcoming catalysts. And the last twelve eighteen months

has shown that they sucked at that. I mean, pim you do all the fancy financial I'm just gonna point out twenty four thousand warm bodies at Bristol Myers SQUIB and Selgin has seventy, so just on an employee basis, it's one third one fourth. Besize ostika. When you look at Bristol Myers Squib, their drug up Divo, that's what really This is the immune harvesting, heart harnessing cancer drug. Right this is the one that is supposed to help your immune system fight cancer. How much of Bristol Myers

Squib is based on that? Um? Right now? Bristol mines my colleagues, Sam Fizzeli CAUs that stuck. It's basically optival and eloquence are the two main products, and optivos the Yeah, it's it's a big, massive product for them. They need that to succeed and they want to do havething, but they also need Mirk not to come out with a rival drug. Well, mIRC already has right and and they lost the lead position to mark on that too. That's all you can. I ask a dumb question. Are these

seventy thousand dollars a year drugs? I mean, all these fancy drugs were talking about it? These the one that are breaking people. Financial toxicity is a real concern today. Um we we we. In cancer, everyone talks about the side effects of chemo, but financial toxicy is something basically the patients have to sell their assets, take on loans if they can't afford the drugs. The drugs are amazing,

don't get me wrong. And we've covered is that nausea immunotherapy is beautiful, but it comes at a big cost. The Selgen you have those drugs as well, or Selgon doing something that's cheaper, more accessible. Well, Revelment is a imminomodulatory drug. Um it's I wouldn't call it necessarily immunotherapy like the pd ones like that, like the optivo, the or the or the key Truda, but it also has other drugs that like like it's a cell therapy pipeline

that it got from from Juno. That is that you're taking a T cell out of your body engineering and slapping back in. That's called car T cells. That's imminotherapy as well, and that's competition. That is a totally different ball game. But I mean, that's the stuff that's going for four d plus dollars for a single treatment, right, I mean, I think key Truda is somewhere around forty or fifty dollars, and it depends where it's sold in Australia and and and also depending on on the dosing

it's it's around that. Like the melanoma treatment. Did you just say one treatment was four hundred dollars? Yeah? Can I ask a dumb question who pays for that? Patients who want a chance of a cure four hundred thousand dollars. It's a slow ramp up, but a competitor to sell jan which is Gilia. They bought this company called Kite and they were one of the first companies to launch a carti cell therapy on the market. That's what it goes for just on the phone, A thou dollars. What

will their competitors do today? Everyone, you know, comparing to b m Y and you know, I'm so old, I think of old pharma. But how did the competitors respond to this transaction we saw this morning. That's a great question and the only good one of the days. I don't know. I mean because because now Bristol, this combined entity is going to compete against guilliads and Novati is

a carti cell therapy. They're going to continue to compete against Merk on the pd ones and trying to unroash and As trying to on the pd ones and the other immino therapies like the antibodies. So this is gonna be an interesting company once all the dust settles. I think we did more jargon in this interview and in four minutes with the that we did. All right, well, I'm going to cancel out the jargon because I'm just going to mention truda. You may recall that former President

Jimmy Carter was diagnosed with melanoma with cancer. This is the drug. He says that he took that saved his life. That's right. This is the promise of immunotherapy, both the traditional antibodies like k truda and optivo as well as the cart cell therapy is like um like Kimria and yes Carter uh. These drugs for the patient's way. It works. You have amazing survival that you have. It's it's unprecedented. Yeah. Well, I mean he was only diagnosed once the tumor had

spread to his brain. Yeah, and I need even work then exactly say he knows everything about this is great. I learned a huge amount here. Artica Gouda Warden, I thank you so much. He's with Bloomberg Intelligence. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio