Surveillance: Growth Overall Is Coming Down, Weinberg Says

a global manufacturing slump? Putting a reality check on this weekend's trade thrus across Asia and Europe manufacturing p m ice sticking in contraction territory for an original take, uous sound pleased to say that joining us in the studio is Carl Winburg, High Frequency Economics chief economist and found a good morning to Carl, Good morning. I know you've got a different take on this. Do you think the p m I s through the year have been somewhat misleading?

Just walk us through the thinking over the high frequency at the moment, Car, let's just take a deep breath, all right, Mark, It's p m s are new and they're not statistically tested. They can't be there only twelve years old. So to put full credit, to put put full belief confidence in what they're saying is a mistake.

You really want to look at the trusted indicators, the ones that have been around for a long time, like Germany's IFO Index, like the ECS European Commissions Economic Confidence INDSEASE, and they've been signaling an economic downturn and an industrial downturn for over a year now. It's been right there for everyone to see. And market meanwhile has been above fifty and they've been saying, well, the economy has been growing, when the hard data are showing us that it's not

so industrial. To me, at least to our readers at High Frequency Economics, industrial recession in Europe is not news, all right. It's an ongoing story. It's not a problem, it's a fact. And the question we're talking about is when is it going to end? And there's no sign of it from indices that we trust, like the IFO Index, the European Economic Confidence Index, Japan's ton Kan out this morning down or it's been down for over a year now. Alright.

Just have to look at the hard data and the surveys that are tested to see that that's been the case. There has been somewhat of a divergence through various economies between what is happening with manufacturing and what is happening with services. Europe is a fantastic example of that. We haven't seen much side of a bleed through from a really soft manufacturing sector into a somewhat resilient services sector.

What do you see at the moment, CALP Well, the risk, of course is that services are to some extent dependent upon industry, all right, Industry subcontracts out services, right, the big factory has a services company run its cafeteria and clean the factory floors, so that a downturn and industry is important, even though industry is only a relatively small part of the picture. So the question we're seeing right now is that growth overall is coming down, employment growth

is slowing. We'll be looking for that and releases this week from Europe. We saw a little bit of it in Japan last week, and we're looking for services to to slow down in parallel with industry, bringing GDP down to a halt or possibly even a contraction. Monetary policy in its a loneness fix this in Europe absolutely not, for a number of reasons. Reason number one is that the monetary stimulus that has been given to Europe by the ECB over the last five years has not been

transmitted into the economy because banks aren't lending. Number two, monetary policy has stopped out the ECB despite Mr Drags, I'll call it bluster, all right, has very few of any tools left available to you. But critically, and Carl, this is where your expert. Is monetary policy stopped out across all of the Pacific rim? I mean, forget about major players like Japan. Is it stopped out in Singapore?

Look at the Australian shock over the weekend of the new low rates John in Australia the I mean Italian two year under two percent this morning. But is monetary policy stopped out in Australia or Singapore? Now there are exceptions. Australia is certainly one of them. But even they're down to one in a quarter percent on the cash raid

and their bond yields are at historic lows. You know, when you get bond yields down lower than they've ever been before, all right, you get them lower than inflation, you get borrowing rates below inflation. Money is now free. And when money is free and the economy doesn't grow, you sort of reached the limit as to what monetary policy can do. I think that the RBA governor Philip Low has joined voices with Mario Draggi has bin choices with all the central bank over you're saying it's time

for fiscal policy to add something to this. Fiscal policy is the missing way. Karl Weinberg, high frequency economics. Where this this is with futures up thirty two down, futures up two hundred fifty three. How does an economist like you interpret a bowl market in equities the vixed thirteen point nine three? How what's the prism of equity valuations that you see? Well? What are the alternatives? Tom? Right? You look at bond yo olds all right, and they're

not very attractive. You go to Europe and you have to pay the government to hold your money safely for a year or two or three or five, all right, you have negative of interest rates, so that the alternatives are not particularly attractive to equities right now. So a lot of money is it's a wall of money being

funneled into it all. So I think the key question for us Tom through the week is are you willing do you have the tolerance the stomach to sit through and look through the weaker data that might come in the coming months. Do you have the stomach to sit through and look through the weaker revisions to earn It's going you make it in the coming months as one, starting with Jobs Day on Friday, the celebration of the colonies in the War of the Rebellion that happened in

seventeen seventies six is on Thursday. I'll be working Friday. Are you in working Friday? We're both stays. Job stay, John Tucker, will you be Here's biscuit demand. Absolutely, we're all going to be Friday. So Carl, let's talk about that. A lot of people are worried that in the coming months we will get worst data, we will get negative earnings revisions for some of these companies, some of the

large mega caps here in the United States. Is that something you anticipate, something you sent to see happen in the nice coming months. Well, the the the profit picture is complex, but certainly the macroeconomics don't seem to be supporting growth of profits. That's about as far as we can go at high frequency economics on the employment side.

All right, Well, we have a very mixed picture in the United States right now, and this Friday's report has particularly big significance because we've got those bad numbers behind us, and the question is what kind of numbers lie ahead

of us. The weakness in the labor market are are has not been confirmed by the weekly claims data, So our chief US economists at High Frequency Economics GUMO Sullivan is saying the jury is still out on what's really happening in the labor market, whether we've had some aberrational reports or whether we have a new trend. So we're watching. We will be watching not only the employment report, but also the weekly claims data on sixty thousand. John Farrell's

our Monday number on non farm payrolls. That's what's interesting that will get tweaked over the next couple of days. A synthesis of thirty or fifty whatever the number of economists is, what do you think it comes down like from We've been told again and again and again that we can't keep up the two k month after month after month, but we've actually sustained a really decent pace of jobs growth in America. Is not something you can can see continuing at the moment, well, you know it

can only continue so far. Quest the unemployment rate has a three handle on it and it can't go down forever. And this, of course, if we just take a deep breath and look backward. Why did the Fed high rates and tightened monetary conditions to begin with, It was because it was concerned that at the current rate of employment growth that we would run out of workers in a

due course and lead to an inflation episode. So to some extent, a slow down in growth and the slowdown in jobs is what the FED really wanted to see. What's unexplicable right now, what we don't have a good story for is why it's taking so long for wages to respond. And we're expecting a little bit of up taking the wages component, but not enough to keep the Fed happy. Quick funal question called anything about the weekend

has changed anything for you? And the time at high frequency? No, I mean the President Trump got what he wanted, you know, he got the talk started again. But the Chinese really gave up nothing, al right, it was total concession on the part of the US. They just agreed to come back. Was at two am Saturday morning, I looked at my phone and said, I don't believe what I'm looking at. Well, what were you looking at? All? Right? The Chinese agreed

to come back to the table all right. They were away from the table, all right, and Trump went there to ask them to come back to the table. All right. So when you have that dynamic, alright, the question is what do you have to give up? So he gave up some degrees of freedom on tariffs, he gave up some of the restrictions on Huawei, and the Chinese said, okay,

we'll come back to that. But though he didn't he there's nothing specific and the Chinese press has yet to report anything coming out of that meeting in terms of thank you. This is an important interview for anybody on Global Wall Street. And we can dovetail it right into the Brookfield, Genesee, Wyoming. That's real estate behind a train company. Robert Perfusak does a quarterly visit with us. He is with Jones Day, but that barely describes his history of

actual normal size transactions. I would go back, of course, to the important transaction of Continental and United. The airline business in America's all bought. Profusis fault and he joins us uh this morning, explain the difference in your world of Jones Day two mega deals versus the actual deals that never make the headlines. Well that there are a lot of deals in this last quarter in particular that didn't that are not stillborn. I don't think they're just

not happening yet. And one of the things that the thing that you've been talking about so much all morning, about the uncertainty of everything, that's been the main factor. Um, there there is an end. There is I think, not a crisis, but there there's a fair amount of confidence. There's not a crisis of confidence there's a fair amount of concern among CEOs right now. You know, it's chart of the week last week, and this is why you were going on your sabbatical, Morgan Stanley with a chart

of business confidence stunning. I saw that. I saw that. I saw the chart. I don't know what the inputs into the chart, but we've seen the c suite confidence on various survey indicators roll over. Bob. I know many investors that are struggling to make an investment decision with a time arising longer than five seconds because of this trade story. How difficult is it right now for the c suites have the confidence to execute on a big transaction. Well, it is. It is difficult because on a big deal.

Companies and their directors certainly know that there's a potential for criticism. Look at and a dark oh right now with um? What what's going going went on with occidental um? And you're making long term decisions in a in a difficult environment. Now, can people see through the fog of all this stuff? Sure? Sometimes, And there are plenty of deals that were announced that that that have been well

received in the marketplace. Um, But we're in a difficult environment right now, and so you know, lots of directors are urging caution when CEO comes in and so I got this great idea. But one thing is we we shouldn't overlook that lots and lots of deals are still getting done. Um, lots of them. It's down on a year on your basis, but still the market is very active right now. There's always two extremes to every conversation. At one extreme, it's a C suite that doesn't have

the confidence to do anything. At the other extreme, Patrick Draught, he slapping at premium on southa base and a billionaire takes the public company private. This is already a company that is by definition quite toppy, and therefore this guy comes in and takes it of it, and then some people the lazy analysis here and from me from the outside looking in the easy arguments constructors. This feels toppy, but it was the truth just somewhere in between, that

things are still okay and transactions are getting done. Oh sure, there's lots and lots of deals getting done if I don't haven't seen the numbers yet, but my guess was going in this weekend a number of deals basis be down for the first six months something like that, but that's still on a on a basis, on a basis, it's huge. There are eleven twelve thousand deals a year they get done. So it's not like this isn't like two thousand nine or something like that, where there's no capital,

there's no anything. It's just that people are more cautious. It's like it's like the equity markets. It's it's no really, this Bob it is. It is a question if the Federal Serve cuts interest rates, if boring costco love it, does that change an I think in the decision making process of any of these guys. Not really, it changes

the math and it makes modeling easier. I mean, like you know, at these were ten years around, covering around two hundred as you mentioned, you know, that's that's almost free. And then when you think about it, and uh, the debt capital markets beyond the bank markets, you know they were difficult at the year end when the equity markets were difficult, but they're great right now. The desperation and healthcare seems unique. And I know it's you know, Washington

and legislation. Now there's Abby Abbott Labs, Abby Pharmaceuticals and Botox whatever they took out. I can't remember the name right now, Elegant, excuse me. And there's Etna and you know that whole blow up as well. Is it a rational industry right now? Is healthcare irrational business? Well, it's a business. It's got a lot of it's under a lot of pressure, it's it's it's in the vortex of politics,

it's got all these things to deal with. Yet you know, when you look at the contribution to the to the economy of this country, it's huge. It's a huge part of the Did you see how I didn't know the name of Elegant because when when you were gone, and it is sabbatical, this was a source of Can we just get us out of the way. Do you know how many people wrote to me last week and said, Tom keeps banging on about you being on vacation has given you a really hard time. You've had more vacation

than me this year. That was my first week off of the year. Really, that was my first week off of the I would I would have never guessed though there's a Tom Keene vacation index. Do you remember the last summer when Tom missed every single payrolls Friday. I skipped every payroll through the whole of summer. Yeah, I just actually arranging so that doesn't happen. And now we've cleared things up, you can get conversation. Tell us about the law business right now. Are you having trouble retaining

young Turks at Jones Day? No, it's a it's it really hasn't changed. Um, the business is good. There's lots and lots of I mean, the quality of the people coming out of stol Heard's stunning when I think about what I have been able to compete in that environment and exactly on speak four languages and their resumes are fabulous. Um, But you know, the law business, it's not you know, it's not like going to a startup tech company or

something like that. But that's actually the benefit. It's stable and when you come out of a big time university with tons of debt, you know you can pay that down. Ye tell us about the dynamic of Jones Day in Washington and all of legal in Washington. Is it gearing up for? Is it's stable? What's the dynamic among legal lobby in Washington. Well, we don't We don't participate in the political side of things. We don't have a lobbying

practice per se. But yeah, I mean, you know, just the part of the the the hysteria of everything that goes on today. I guess it's born by the media nowhere in events, but it just gets in your face. There's tremendous abount of activities, you know, John, outside the Saint Region spar in Washington, Long Vertical Room, it looks like an officer Jones, you are responsible for stereo in every single bar that you walk into. That as well. Have you ever been for a drink with Tom Bob? Actually,

actually I've been once. Yes. Did it get messy quite quickly? Yes? I never, I never. I don't even try keeping up. The drinks start coming and I stop. I just stopped, and then I walk away very quickly. It's um an experience, it's an experience, Thank you, thank you so much. Bout PROFU sick with us is a CU three. Look. So the summary I get your bot Prefu sick is you've got some optimism into the second and a half, but boy,

you've got some distractions in Washington. Yeah, that's that's right. UM. When we live in an environment where we're constantly bombarded by what's happening in these national capitals, it's just we were, of course here, so we think about Washington. It's not just Washington and everything we're doing right now about PUS. Thank you, I'm so much durable goods. I would suggest as more important than usual on Wednesday to Lindsay Panks

about it Dark chief Economists, Staple's chief economists. It's a blur of data, Lindsay, and we all agree this time is different. What is different about your day to day

analysis this week of America's economy? Well, I think it's increasingly important because we know the FED is watching the data and as they told us that's the latest l MC meeting, they're poised and ready to make a change in policy, But they're not yet contents, meaning that they do acknowledge some of the weakness bubbling underneath the surface, but they'd really like to see more evidence of that slowdown.

And so the feed is going to be watching each and every data point that we get between now and the July meeting within increased scrutinate. If we get uh, my father would call it a Mouldi number, if we get a really bad number, aren't they hugely advantaged to get out front with a rate cut immediately so they're not pressured with a fifty basis point foolishness the end

of the month. They are. But at the same time, the set is not going to adjust policy based on one data point, agreed, So they're going to be looking at the underlying trend. It has the trend in the data been deteriorating for quite some time? I would argue yes, but FET officials don't quite seem as convinced as I am, or not as convinced as the market is. John and your sabbatical. We did have some constructive data points on

income and spending. I mean, they weren't bang up, but to God's point, there's been a few constructive data points. I've spoked some people at Morgan Standing recently, Lindsay, and one thing they worry about its corporate margins and how companies will respond to the threat of smaller corporate margins and whether they'll pull the lever that says cut the labor force, lind Do you seek any sign of that happening at the small and medium sized company level, any

signs of job cuts starting to emerge in this economy? Oh, I think all we need to look at is last month's employment report, and there's very clear indication that businesses are having an increased difficult time passing on increases and costs directly onto the consumer, and so they're having to circumvent a lot of that pressure by finding ways to reduce costs at home, meaning find those cost efficiencies in

many cases meaning layoffs or lower wages or both. And I do think that this is going to be an ongoing trend that we continue to see, particularly if we don't see the latest in trade negotiations actually pan out into an extended truth or some sort of long term of agreement. At ten businesses were able to eat that cost and this is going to be increasingly difficult. Lindsey

look us through durable goods. I say this because I think durable goods and inventories are what I would call secondary or indeed tertiary market economic data points that no one cares about until they do care about it. Right now is one of those times walk us through how you interpret these longer than three year goods in America. Well, I I think durable goods investment is always an important education.

It's certainly from a corporate standpoint, but I would I would say that we really need to get into the weeds when we're looking at the durable goods, well, yes, is important, but we really need to look at durable goods um X transportation so excluding aircraft UH production, and that is a proxy, that's a proxy for corporate investment when we look at that isolated component, and what we

see is that corporations, yes, they're still investing. But again, when we look at capital goods excluding aircraft and defense, I should say, this really gives us an underlying sense of whether or not businesses are willing to invest. And we continue to see this very minimally positive trend. So again, corporate dollars still being put to work. But This really highlights a hesitancy and a really a heightened level of uncertainty when we look at the longer term trajectory for

the economy. When businesses are feeling confident, when they're happy about the growth prospects of the economy or their particular sector, they're very willing to loosen those corporate purse strings and put capital to work. On the flip side, when they're not confident and they're concerned about the prospects for the U S economy, they pull back and what we have been seeing is very minimally positive months of investment or

outright negative business investment. So this is something also that the FETE is watching at corporations are investing, they're not hiring. Thank you for the reefing dr pgs with stifle uh this morning text box are rallying before the market opens here. We had some you know on the on the news coming out of Osaka that perhaps the U. S and China will be going back to the negotiating table that helps our good friends out in Silicon Valley, particularly the

guys at Apple Computer, the folks at Apple. Uh Dan ives as a managing director covering all things t MT for FBR Capital Markets. Uh And and Dan, just give us a sense. First of all, thanks so much for joining us, but give us a sense of what you think this could mean for Apple, because Apple's kind of been, I guess the poster child for tech regulation or tech tariffs. Yeah, they're the pusher child, especially in the US China trade battle.

And you know, the Street does a many yelling fire in a crowd theater and I'd say about two tours of earnings has almost been taken off the street's whisper number. And I think when you wokle what happened, this is a goldilocks scenario for Apple, and we believe ultimately they could add about twenty dos per share to the name over the coming months if the China ultimately ends up. The bark's worse in the bite. So it's interesting when you think about Apple and the tariff scenario, they kind

of got hit by a double whammy. I e. They sell almost of their revenue comes from China. Plus they manufacture the phones and the pads and all that kind of stuff in China, so you know, it really was a big issue for them. So how do you think they're going to kind of adjust to what might be easing discussions here. Are they going to turn back kind of there, let's build stuff outside of China scenario? Yeah, I mean ultimately that's where the key. I mean, we

we believe that was a poker game. And ultimately, even best case five December cent production could go to an India, Vietnam in the eighteen months if the billion of tariffs never happened, they do not move in one iPhone addage China, and ultimately I think they could even double down there as you're seeing with macroduction now moving to China. So that's key on the supply chain. The demand side, I think the street is still a glass half empty in terms of what's going to come out of China from

demand perspective. Is there a pro quality with nationalistic view? So that's right right now, we believe this is a major step in the right direction. Still, more with the chop with all the gloom on Apple, is it a gloom where they lose market share or is it an industry softness? Which is it nothing? Right now? The smartphone industry, you've seen it go into maturity, and I think right now the questions for Apple is can that incremental growth

come out of China. iPhones over the next twelve months are going to come out of China. So I think partially it's Apples specific, but then there is a broad view of the sector. That's why right now for them, services is key to that value O bleep. But Dan, what's so important here is what I'll call margin elasticity. Do they have the ability to manipulate on unit and price to maintain margins even if there is a China slowdown. Well, if there's a significant China slowdown, it definitely is going

to hurt them. But I do think they have flexibility from a price perspective in China to stimulate demand and for a company generates sixty billion in free cash or they have that flexibility. And that's right now what investors on when it comes to China. Well said in paulse Tweeney. This is incredibly important because I think to a lot of our listeners, they don't understand I don't understand the the mix, as they say in the conference, calls between

unit sales and price and always that's a mystery, isn't it. Yeah, particularly now that Apple doesn't disclose the unit sales like they used to. So guys folks like at Dan, i'ves you know, put it makes their job a little bit more difficult. So Dan. One of the issues that I think investors had with this whole trade tension issue and Tireff issue is that the what what you know, the wadwei risk for Apple? I e. That China puts Apple on some blacklist and that really would impact Apple. Do

you think that is off the table? Are still on the table? Yeah, we we continue to do it. That was a conspiracy theory where you're going to see people in the streets putting iPhones on fire, which we thought was never going to happen, and now that basically gets put to rest in our opinion, which is that's the first step. Next step is obviously no tariffs, and it comes down to demand. That's why if you're if you're

Tim Cook last night, you're popping the ship. It's interesting the uh, you know, do you think Apple is still going to move ahead with you know, maybe greater urgency on contingency plans even if we don't have an issue with in the near term it it's seems like this might be a long term risk for Apple and other tech players. Look, I think they have essentially bet the farm with Fox con in China and giving the supply chain. When you look at Vietnam or India, Brazil, that is

not a good alternator for them. They might take TO three and put into other countries, but realistically, for now, I would equally how Apple uses no different orderer GM moving out at Detroit if they ever moved out of China. Give us your price target, Dan ives again on Apple. I just want to get there too, thirty five price targain. We continue to think this this is a name has significant upside here. Thanks so much, Danna. I eaven with us today on Apple. Thanks for listening to the Bloomberg

Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio S