Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's
Speaker 1: start with Greg battle Shower, b MP parable US head
Speaker 1: of Equity and Derivative Strategy. Good money to Greg wove
Speaker 1: on it. Have we seen the wash out, the clean
Speaker 1: out of sentiment or you're still waiting for that big moment? No,
Speaker 1: I don't think so. I mean we've been looking at
Speaker 1: thirty forty on the SMP. The two day moving average
Speaker 1: is something where we may see a little bit more
Speaker 1: of a line in the sand. Drawn We've had a
Speaker 1: massive move in the last couple of days nepoties, but
Speaker 1: it has only been two days of de risking. We
Speaker 1: came into this last week with markets at all time
Speaker 1: highs UM. We wrote a piece at the start of
Speaker 1: this year where we highlighted some of the irrational exuberance,
Speaker 1: some of the stretch grows valuations of growth stocks, the
Speaker 1: stretch valuation of equity markets generally, so a two day
Speaker 1: correction I don't think it's nearly enough to wash out
Speaker 1: some of the positioning consensus has had it all beaten
Speaker 1: out of it over the last week or so with
Speaker 1: the V shaped recovery. Haven't heard much about that in
Speaker 1: the last twenty four hours. Is that dumb dusted? Have
Speaker 1: we moved on from that? UM? I don't know, really.
Speaker 1: It depends how the data unfold. It depends what happens
Speaker 1: with the virus. It depends what happens with the FED.
Speaker 1: If you have if you have a situation where the
Speaker 1: virus does not impact the US consumer, doesn't impact the
Speaker 1: US labor market, and you get a reaction from the FED.
Speaker 1: That's the type of environment that drives a V shaped recovery.
Speaker 1: If the labor market or the U S consumer slow considerably,
Speaker 1: then I think we're in for a much kind of
Speaker 1: more sustained, turbulent time suffering the biggest losses here because
Speaker 1: there was a story about how leverage hedge funds ticked
Speaker 1: up dramatically right before the sell off, I think it's
Speaker 1: not contained just in the hedge fund community. When we
Speaker 1: look at positioning statistics, whether it's kind of retail or
Speaker 1: leverage in terms of systematic strategy these institutional investors. It
Speaker 1: looks like the momentum and the rally that we've had
Speaker 1: over the last um, yeah, ten years, but suddenly the
Speaker 1: last six months or so has drawn a lot of
Speaker 1: people into the equity markets. I think there's a lot
Speaker 1: of leverage, and that's why we've seen such a kind
Speaker 1: of sharp reverse in the last couple of days. What
Speaker 1: are you looking forward to determine catharsis? I think that
Speaker 1: already we have to see what happens in terms of
Speaker 1: the data, what happens in terms of the FED. I
Speaker 1: think it's far too early to expect equity markets to
Speaker 1: find a level. I think we're going to see some
Speaker 1: volatility over next Because that was a public answer, I mean,
Speaker 1: give us the truth here. What are we gonna see
Speaker 1: in terms of catharsis? What's the bet on the street
Speaker 1: right now? I mean, if people position given two difficult
Speaker 1: days down, I don't think two days is enough for
Speaker 1: positioning to wash out. So I think we're going to
Speaker 1: get much more volatility. You know, you mentioned that we're
Speaker 1: seeing the future start to bounce a little bit a
Speaker 1: little bit this morning. We expect volatility. It's not going
Speaker 1: to move in a straight line, we could easily get
Speaker 1: kind of a decent update, but that could easily be
Speaker 1: followed by another couple of down days. So I think
Speaker 1: we're going to see a lot more volatility before pauseing
Speaker 1: washes out. For the final question, really really quickly March eighteen.
Speaker 1: As things stand your view right now, did the FED
Speaker 1: go or do they wait? I think they're more likely
Speaker 1: to wait, But it's going to be data dependent. It's
Speaker 1: going to depend on the evolution of not just what
Speaker 1: happens in terms of the virus the data, but also
Speaker 1: what happens in terms of market You sound like a
Speaker 1: FED official. Great, great catch up with the great battle
Speaker 1: there of BNP Paramo, Johann Sebastian and Jack joytis now
Speaker 1: Rio Tinto CEO. J is fantastic to have you with us.
Speaker 1: So let's just get into the business in China straight away.
Speaker 1: What are the customers talent you right now? Yeah, good morning. First,
Speaker 1: as you said, China consform more than fifty percent of
Speaker 1: the ver so we're spending a lot of time discussing
Speaker 1: to our Chinese customer and suppliers. We discussed with around
Speaker 1: two hundreds of those in the last forty eight hours.
Speaker 1: Where whether situation. Where the situation is today is there
Speaker 1: is clearly uncertainty. However, two things which is important from
Speaker 1: all perspective. One is all the books of which is
Speaker 1: our men coming, are full and we're moving the product
Speaker 1: to China without any issues whatsoever. That's the first point.
Speaker 1: The second point is if I take a more medium
Speaker 1: term view, when I look at the back end of
Speaker 1: this year, we have no doubt and we've got all
Speaker 1: the signals that the Chinese government will implement a similars package.
Speaker 1: I've already started and from past history, when the Chinese
Speaker 1: implement similar package is going to be pre intense in
Speaker 1: terms of communities, which could be a very good piece
Speaker 1: of news. So someone such no issues as we're having
Speaker 1: this conversation, but we acknowledge that could be uncertainty and
Speaker 1: we are prepared for it. John, I want to cut
Speaker 1: to the chase, and there was a terrific Bloomberg opinion
Speaker 1: piece out on this earlier today. You've got a seven
Speaker 1: percent year, You've got massive dividend growth over the last
Speaker 1: five years. What is the elasticity of the responsiveness of
Speaker 1: the board to what you do with the dividend in
Speaker 1: the future. That's a very good question. But as you
Speaker 1: remember in twenty in early twenty sixteents, we have changed
Speaker 1: our policy to move from to move toward the variable policy.
Speaker 1: And the police is very clear forty two sixty percent
Speaker 1: of the underlying earnings through the cycle. In the last
Speaker 1: few years we were always above the policy. And if
Speaker 1: you look what we have declared yesterday, it's sixty percent
Speaker 1: of the earnings aspect the policy plus a special dividend
Speaker 1: of one billion dollars which was which would take us.
Speaker 1: So the LS city city is very clear, it's directly
Speaker 1: linked to the earnings. Okay, but I want to go
Speaker 1: to your science of years ago and frankly your mining engineering.
Speaker 1: What's your ex access and the dividend? How many weeks,
Speaker 1: how many quarters of this shock the supply shock? Can
Speaker 1: you stand to keep the dividends strong? As there a
Speaker 1: point where you do have to change the dividend policy.
Speaker 1: I don't think we'll have an issue with the dividend
Speaker 1: policy per se, because it's a valuable policy. That's one aspect. Now.
Speaker 1: The second point, which is more important from a real
Speaker 1: stone point, is if I look at the quality of
Speaker 1: my assets, which are low costs, which are the lowest
Speaker 1: in the in the in the in the industry, plus
Speaker 1: the quality of malin balance sheet is I've got no
Speaker 1: issue whatsoever to continue the reverse supervalue for shoulders as
Speaker 1: we've done for us four years, because in the last
Speaker 1: four years we have deriverse thirty three six billion dollars
Speaker 1: of cash return to our shoulders. Right now, I'm looking
Speaker 1: at the inventories in China and China steal inventorious have
Speaker 1: expanded to a record high due to the disruption from
Speaker 1: the coronavirus and the halt in building. How much more
Speaker 1: do you think that iron ore prices have to drop
Speaker 1: here if the coronavirus is not contained in the near term.
Speaker 1: That's a very good question. I can't answer on prices
Speaker 1: otherwise the lawyers would kill me as always, so I
Speaker 1: can't do that. However, what is very interesting in the
Speaker 1: last few weeks, whe the government or wh this steal
Speaker 1: industry has done, they have shut down most of the
Speaker 1: e F converters which are primarily scraped based in other
Speaker 1: produced steel. But the blast furnaces which are using I know,
Speaker 1: have not. I've only slowed down. And if you look
Speaker 1: at the volumes going into China, if you look at
Speaker 1: the inventory of I know at the post they have
Speaker 1: not moved and as I said to them, my other
Speaker 1: books on I know are absolutely sold out, and I'm
Speaker 1: moving everything to China ches I think everyone but to see.
Speaker 1: And that's going in one place, stock piles inventories, and
Speaker 1: it's not going to get deployed anytime. So so let's
Speaker 1: talk about that. You're saying you're gonna get stimulus out
Speaker 1: of China. What kind of stimulus? Where is it going
Speaker 1: to go? I think the stimulus will may be slightly
Speaker 1: different from the past because, as I said, so far,
Speaker 1: the crisis in China is about services, about construction, about
Speaker 1: the back end of the matter, factoring that they're gonna
Speaker 1: have to support all those aspects of the economy. But
Speaker 1: I've got to know that they will invest a little
Speaker 1: more or even more on the infrastructure as they've done
Speaker 1: in the past, because that's the best way for them
Speaker 1: to stimulus, to stimulate the economy, and it's commutely rich.
Speaker 1: So second half of this year, I'm not too concern. JS.
Speaker 1: Always great to get your your fantastic to have you
Speaker 1: with us on the program this morning. That's Jane Sebastian Jacques.
Speaker 1: They re outIn so CEO joining us on the LCES
Speaker 1: in China. We've got them on the phone, so we've
Speaker 1: got to go there. Folks. There are people that do
Speaker 1: medicine from a distance, and then there's someone like Mr Whitworth, James.
Speaker 1: Jimmy Whitworth is with the London School of Hygiene and
Speaker 1: Tropical Medicine and John, without question, he has done the
Speaker 1: most in Africa. You can talk about it. You can
Speaker 1: put a piece of chalk in your hand and run
Speaker 1: a course on a lecture, and then there is the
Speaker 1: going and doing of it. And Jimmy Witworth has done
Speaker 1: viruses like nobody else on a plan. Fantastic to have
Speaker 1: Jimmy with us now, London School a higiena Tropical medicine,
Speaker 1: professor of International Public health, professor, fantastic to have you
Speaker 1: with us. From the market's perspective, and I asked this
Speaker 1: question exclusively from the perspective of investors right now, there
Speaker 1: is a lack of faith in the ability to contain
Speaker 1: this virus, that perhaps this is broken out to Europe
Speaker 1: and beyond the United States, maybe it's already here. Professor,
Speaker 1: put that into some context from your point of view,
Speaker 1: where are we? Well? Thank you for that and thank
Speaker 1: you further at fulsome introduction, Very appreciative. I think we're
Speaker 1: in a very worrying situation at the moment. We have
Speaker 1: a situation I think where in China, with very heroic
Speaker 1: and strong public health measures, they have been able to
Speaker 1: get the outbreak. They're more or less contained. It's all
Speaker 1: going on, but it's not expanding at anything like the
Speaker 1: rate that it was, which is good. But the worry
Speaker 1: is that it has now spilled over into a number
Speaker 1: of other countries and regions in the world. So in
Speaker 1: the Middle East we have this focus in Iran, which
Speaker 1: is worrying because that's getting into countries which have very
Speaker 1: poor health systems, places like Afghanistan and Pakistan. And we've
Speaker 1: got an expansion of cases in Italy, which is also
Speaker 1: crossing borders and I think threatens Western Europe more more generally.
Speaker 1: And the thing is, this is an infectious disease. It
Speaker 1: does not recognize international borders and will spread wherever people move.
Speaker 1: What's the worst case scenario that you see as somewhat likely, um,
Speaker 1: I think that there is sustained transmission that occurs all
Speaker 1: over the globe. I'm worried particularly about what might happen
Speaker 1: in Sub Saharan Africa, where not only have we got
Speaker 1: um weak health systems and surveillance systems and the like,
Speaker 1: but we also have people who have a lot of
Speaker 1: other infectious diseases HIV and tuberculosis and so on, and
Speaker 1: it might well spread there. So it's really important that
Speaker 1: we put in the facilities that we can there. The
Speaker 1: stereotypes that we have, Professor Whitworth, they're so strong, I
Speaker 1: mean it goes back to seventy one and Stanley and
Speaker 1: Livingston in Africa, and you know some of us watched
Speaker 1: the Spencer Spencer Tracy movie long ago. Those stereotypes are
Speaker 1: embedded in. One is those viruses over there are more
Speaker 1: virulent than what we face. Do you know the virulency
Speaker 1: of this virus. Is it equivalent to what you've seen
Speaker 1: in Africa or is it a more common virus. I
Speaker 1: think there are two things to look at here. One
Speaker 1: is how transmissible it is, and secondly is how virulent
Speaker 1: it is. And those things sometimes go in parallel, but
Speaker 1: sometimes don't, and this is a virus where they don't.
Speaker 1: So I'd say this is pretty highly transmissible. For every
Speaker 1: person who's infected, on average, between two and three other
Speaker 1: people will get infected from that person if nothing is done.
Speaker 1: So that's that's the challenge for public health authorities. In
Speaker 1: terms of its virulence, it isn't as bad as many
Speaker 1: other diseases. So something like eighty or more percent of
Speaker 1: people who are infected will have mild illness and will
Speaker 1: recover and it will be no problem. But we have
Speaker 1: fifteen or twent of people who are infected who get
Speaker 1: severe disease. These are people who need to be hospitalized
Speaker 1: and on average they're staying in hospital for something like
Speaker 1: ten to fourteen days, which is a long time and
Speaker 1: puts a big strain on health services. And of of
Speaker 1: all the people who are infected, one or two percent
Speaker 1: may die. Professor, it sounds absolutely tragic. And forgive me
Speaker 1: because we only have thirty seconds left. But why the
Speaker 1: wh not calling this a pandemic um They say that
Speaker 1: that's an informal term. If people want to use it,
Speaker 1: that's fine. They do not formally declare pandemics. They've called
Speaker 1: it a public health emergency of international concern, and that's
Speaker 1: as high a level of severity as they go, professor,
Speaker 1: Thank you so much. Jimmy Whitworth was We're just thrilled
Speaker 1: with the team's ability to bring in these true experts
Speaker 1: of Professor Whitworth with the London School of Hygiene and
Speaker 1: Tropical Medicine and professor of International Public Health. But he
Speaker 1: is really one of the world's access and not just
Speaker 1: a bowl up but like four and five and six
Speaker 1: things that camp notes from Africa. He needs no introduction.
Speaker 1: Of course, is my work at Davos for years has
Speaker 1: been important to Bloomberg Surveillance. It is Rubini Macro associated
Speaker 1: is New York University, and we're through the professor Rubini
Speaker 1: could join us this morning. Noria, I'm gonna cut to
Speaker 1: the chase. You are one of the great old World
Speaker 1: voices out there, your heritage of the Middle Eastern of course,
Speaker 1: coming over to all your work in Italy years ago.
Speaker 1: Would you travel to Italy today? Oh yeah, I would
Speaker 1: travel to Italy today, but I think that that would
Speaker 1: take with me a mask, because of course, this is
Speaker 1: a global pandemic I spread to Italy. And by the way,
Speaker 1: I worry about the fact that today the help ministers
Speaker 1: of Italy Germany, Francis you said that the borders of
Speaker 1: Europe are gonna remain open if you think about in
Speaker 1: thousand fifteen when those the wave of refugees, the sh
Speaker 1: Treaty was effectively blocked. You couldn't go from county country
Speaker 1: without checks. Today we have a much more serious problem.
Speaker 1: There is that it's gonna spread from Italy parts of Europe,
Speaker 1: and they say everything is fine. It's a bit of
Speaker 1: a paradox. I want to pass between what all of
Speaker 1: our listeners and viewers know. It just supply side economics,
Speaker 1: which is almost a theology. I don't want to get
Speaker 1: into the theory now, you've always pushed against that theory
Speaker 1: and a supply shock within the geometry of basic economics.
Speaker 1: Have we ever seen in a modern day of supply
Speaker 1: shock like we're living right now. Well, there were supply
Speaker 1: shocks in the seventies, when you had the Ald shocks
Speaker 1: in seventy three after you Ki Poor War, seventeen revolution,
Speaker 1: and Iraqi manson of Kuwait. Those were the shocks that
Speaker 1: reduce growth and increased inflation. So we had supply shocks
Speaker 1: were negative, But we're related to geopolitical shocks in the
Speaker 1: Middle East. This is a different type of a supply shock,
Speaker 1: is still staculation. It reduces growth, increases cost and inflation,
Speaker 1: but it is a supply shock is negative. So Professor,
Speaker 1: up until two days ago, one could argue that the
Speaker 1: equity markets were kind of just shrugging off this coronavirus,
Speaker 1: where if you look at the commodity markets, we had
Speaker 1: some pretty significant pullbacks. You look at the bond market,
Speaker 1: yields of plunging to new loads even after the two days.
Speaker 1: So if you've had any equity markets over the last
Speaker 1: two days, how do you think financial markets are they
Speaker 1: properly discounting the risk associated the global GDP growth from
Speaker 1: this virus? Potentially? Um No, I don't think so, for
Speaker 1: at least four reasons. Reason number one, this is a
Speaker 1: global pandemics. You're gonna spread not only to Europe, but
Speaker 1: to Asia and even to the United States. Like the
Speaker 1: CDC warrant, that's going to be massive. Second, the idea
Speaker 1: there's going to be a peak of the shock to
Speaker 1: the global economy being by the end of the first
Speaker 1: quarter doesn't make sense if you think about supply chain shocks,
Speaker 1: trade channels, confidence, what's gonna happen to capacts, to consumer confidence?
Speaker 1: The impact is going to be into second quarter three.
Speaker 1: Everybody said we shape recovery that's also also total utter nonsense. Uh,
Speaker 1: the Chinese economy is gonna contract the analyzed rate of
Speaker 1: at least two percent analyze of eight but within the
Speaker 1: quarter of two percent, even if there is a V shap,
Speaker 1: recovering grows eight percent, that is well above the six
Speaker 1: of before the crisis. You're gonna have growth in China
Speaker 1: going this year from six to four. If the V
Speaker 1: shape means that in the second and turn and fourth
Speaker 1: quarter grows goes back to six percent. With a shock
Speaker 1: to the first quarter, Chinese growth is gonna be two
Speaker 1: point five percent. So the best we can expect from
Speaker 1: China is four at the most likely two point five percent.
Speaker 1: When now markets are estimating the Chinese gods are gonna
Speaker 1: go from six to five and a half. So markets
Speaker 1: are delusional first about the impact on Chinese growth and
Speaker 1: the impact on the global calling. Final point, people hope
Speaker 1: that central banks of physical police is going to come
Speaker 1: to the rescue physical policy. That is not much space
Speaker 1: that are lags and central banks are running out of bullets.
Speaker 1: Certainly BJ centrally, the e c B centrally, what's happening
Speaker 1: right now in Japan Italy implies that not much that
Speaker 1: I can do. I know you're shortlisted for governor the FED.
Speaker 1: Here when the person gets through his next ranch of
Speaker 1: a point all the cut. I would never take the
Speaker 1: job from Trump, or any job from Trump none ever,
Speaker 1: nor the cut to the chase cultul a code a
Speaker 1: legit front level mathematics economists, so cut rates now, and
Speaker 1: a lot of other people, including the vice chairman, say not.
Speaker 1: What's the efficacy of a rate cut right now? Whenever
Speaker 1: you have a negative supply shock, the damages global supply chains,
Speaker 1: cutting interest rates is not going to make much of
Speaker 1: a difference. Of course, the market is going to rarey
Speaker 1: on news of that cut or news that the cut
Speaker 1: is coming. But once then the economics pill over, the
Speaker 1: financials plovers, and the other spillovers become severe. Doing twenty
Speaker 1: five business points even fifty business points, but the fact
Speaker 1: is not going to make any difference. And the problem
Speaker 1: right now is that the contagion the pandemics already in Japan,
Speaker 1: is already in Italy, in Europe. And what's the room
Speaker 1: that b o J and e CB have going to
Speaker 1: minus sixty for the ECB, minus twenty for the b
Speaker 1: o J, and what ten business points even twenty business
Speaker 1: points of more getting rate is going to make in
Speaker 1: the face of a massive negative supply shock close to nothing.
Speaker 1: So what do you think China needs to do should
Speaker 1: do to support its economy given what's happened there. Well,
Speaker 1: you know, the intelligent Chinese economist say, we already that
Speaker 1: this major shock. The worst thing we could do is
Speaker 1: another round of massive monetary, physical and credit stimulus. Because
Speaker 1: every time there is a growth shock, they do another
Speaker 1: round of that. There is more that more leverage, more
Speaker 1: over capacity, and more economic damage that eventually leads to
Speaker 1: the risk of a financial crisis in China. So the
Speaker 1: sensible Chinese economies say, unfortunately, there's a growth chok. Yes,
Speaker 1: we have to backstop those that are been heard, provide
Speaker 1: maybe income relief, make sure that most firms, especially the
Speaker 1: smaller ones, don't go bankrupt. But that's the extent of
Speaker 1: the support we will we want to give. This is
Speaker 1: a negative supply shock. We'll have to accept the shock
Speaker 1: and the consequences of it and try to admild the
Speaker 1: economic response. If you do more of that, then the
Speaker 1: risk that that that becomes unsustainable. Even what's the risk
Speaker 1: of helicopter money, I mean, Hong Kong today is gonna
Speaker 1: try it out ten Tho, Hong Kong, which you know
Speaker 1: enough to get three drinks at the embark demandering. Great,
Speaker 1: but what what is there efficacy to helicopter money, the
Speaker 1: true cash stimulus. Well, whenever there's going to be the
Speaker 1: global and the next global recession, I'm sure that monetary
Speaker 1: policy and physical is gonna become more unconventional invariant of
Speaker 1: helicopter drop of money m M T. People's qui or
Speaker 1: what bernankei or star fish and the folks that black
Speaker 1: Cluck suggests that is essential variance of helicopter drop is
Speaker 1: going to be implemented. My point is that if there's
Speaker 1: a demand shock, monitoring physical stimulus outs you. If you
Speaker 1: have a negative supply shock like the seventhies, we did
Speaker 1: the monitor is stimulus. We did the physical stimulus and
Speaker 1: ended up with high that and e inflation. So even
Speaker 1: if you do the helicopter drop, it may not as
Speaker 1: much of an impact in a situation which the shock
Speaker 1: is a negative supply Rather than seconds you have in
Speaker 1: the f T today, I haven't had time to read it.
Speaker 1: What do you say, cut, you know, save me some
Speaker 1: time here in our well, you know four points that
Speaker 1: I briefly made that one with the global point right now,
Speaker 1: it's a pandemic. It's a global pandemic. The economic game
Speaker 1: pact is gonna be much more severe. Is not gonna
Speaker 1: be a V shaped recovery. Chinese Girl's gonna be at
Speaker 1: best two point five percent, the global economisharply, and the
Speaker 1: policy of response is not going to make the difference.
Speaker 1: You looked hand arrested. I'm always travel I just came
Speaker 1: back from five weeks all over the world, but not
Speaker 1: in China. Very good nor being stay away from me
Speaker 1: with Rebedia associates greatly appreciate it. Where we're gonna do
Speaker 1: right now, folks, is do politics, but try to do
Speaker 1: it in a different way. We're all exhausted by the
Speaker 1: what is pundentry and that we see there, the gaming
Speaker 1: of the polls, etcetera. And we thought we'd haul in
Speaker 1: here an academic that's not only spent time looking at
Speaker 1: the broader picture of the American political fabric, but actually
Speaker 1: has really delved into the machinery of politics. One of
Speaker 1: her great efforts as core concepts in American government. It
Speaker 1: is real basic look at the basic process of what
Speaker 1: we do in politics, Uh. Jenny's Ano joins us right
Speaker 1: now from my own in college and of course a
Speaker 1: Bloomberg contributor here this political season. Wonderful to have you here,
Speaker 1: so good to be here wearing blue? Was that for
Speaker 1: the debate last night? Did Red take the victory off
Speaker 1: the blue debate last night? No, you're right, I should
Speaker 1: be wearing purple or something that doesn't indicate some kind
Speaker 1: of partisanship. No, it was just the dress I found.
Speaker 1: How much did Mr Trump uh win the debate last night?
Speaker 1: I ranked him as as one of the big winners
Speaker 1: last night. Um, the Democrats, you know, and this is
Speaker 1: not about the candidates necessarily, but this process does not
Speaker 1: work to the benefit of the Democratic Party or any
Speaker 1: of those candidates up there, and as a result, he
Speaker 1: continues to win. Is this salvation for everybody against the
Speaker 1: senator from Vermont? Just what you mentioned, which is the
Speaker 1: purpleness of Texas, the purpleness of California. I mean, is
Speaker 1: they go to Super Tuesday? Is that really the heart
Speaker 1: of the matters. The moderates have to find a way
Speaker 1: to actually get tangible votes. Well, the moderates have to
Speaker 1: get votes. There are moderates in the Democratic Party they
Speaker 1: are the biggest contingent of the party. But what has
Speaker 1: to happen is you can't have five moderates running against
Speaker 1: Bernie Sanders because he will come away even with the
Speaker 1: plurality every time. Ny what are they going to do?
Speaker 1: Get into a room at asside who drops out? I mean,
Speaker 1: let's get real, how does this work? Well? I think
Speaker 1: you know, there's gonna have to be pressure from the
Speaker 1: party that those moderates who are polling in the single
Speaker 1: digits leave the race. So I think Amy Klobisher, Pete Buddha,
Speaker 1: I mean, people I like enormously, but you can't keep
Speaker 1: doing this because what they're doing is they are they
Speaker 1: care about the moderates winning this thing. They've got to
Speaker 1: get out of the race. Right. You're not pulling your
Speaker 1: blame the process. You don't think that there's anything that
Speaker 1: the candidates themselves could do at the debate to turn
Speaker 1: the attention in a positive way towards the Democrats. Is
Speaker 1: that the implication here, I think it's very, very tough
Speaker 1: given this process. You know, if if we think about,
Speaker 1: you know, in a business, if you're hiring somebody for
Speaker 1: a job, and I always say to students, if you're
Speaker 1: hiring an accountant and you say, I'm going to hire
Speaker 1: you if you run the fastest mile. That's essentially what
Speaker 1: we're doing. We're asking you to be president, but we're
Speaker 1: judging you on things that won't make you a good president.
Speaker 1: So there's a huge fissure within the way we hire
Speaker 1: for this job. But this has been the process for
Speaker 1: time and Memoriam, why is this time different? Um, it's
Speaker 1: not different. It's been the process ins about the early
Speaker 1: nineteen seventies, and we've long had for academics. This has
Speaker 1: long been the bane of our existence, that the way
Speaker 1: that we elect presidents. But it's gotten worse as we
Speaker 1: have moved towards in democratizing this process quite frankly and
Speaker 1: giving this thing over to primaries. People say, oh, primaries
Speaker 1: are democratic. Turnout is incredibly low in these primaries. You
Speaker 1: get the most extreme voters out there, they vote, and
Speaker 1: you get the kind of chaos that we're seeing, and
Speaker 1: then you ask these people to do the impossible, which
Speaker 1: is get out on this stage and battle this thing out. Jenny,
Speaker 1: to what degrade, do you think this party is really
Speaker 1: failing to display a real showing of humility to understand
Speaker 1: what is actually going on here in the same way
Speaker 1: that the Republican Party did four years ago. That it's
Speaker 1: easy to sit here and say that Senator Sanders wouldn't
Speaker 1: make a good candidate for a whole variety of reasons,
Speaker 1: but failing to understand ultimately what he's tapping into here.
Speaker 1: It's tapping into a broader and broader base as this
Speaker 1: campaign goes on. Are we failing to do that? I
Speaker 1: think the Democratic Party. Yeah, Like like any party has
Speaker 1: a lot of different components to it, and one of
Speaker 1: those is the base that Bernie Sanders is speaking to.
Speaker 1: But I would say the party has to look at
Speaker 1: the reality. The reality is this race will be decided
Speaker 1: and about six moderate states. You go to Florida and
Speaker 1: praising Fidel Castro is not a winning message to beat
Speaker 1: Donald Trump in twenty twenty. It's simply not. So he
Speaker 1: does have a base. The Democrats need to understand what
Speaker 1: is activating that base, But they also need to be
Speaker 1: realistic about how you win this thing in November. Everyone
Speaker 1: who's voting should know that. They should know that. And
Speaker 1: I don't want to insult the base that I want
Speaker 1: to insult the electorate of any kind Democrats more Republican,
Speaker 1: but they understand that they're not idiots. They should know
Speaker 1: that already. But they're still voting for him. And by
Speaker 1: the way, if you look at the polls, as you know,
Speaker 1: they still think he's one of the better candidates to
Speaker 1: take on the President of the United States in November.
Speaker 1: So the question is we keep doing this, we keep
Speaker 1: failing to understand what is actually going on here. These
Speaker 1: are educated people voting for this man. I imagine many
Speaker 1: of them have college degrees. They know the situation in Florida,
Speaker 1: the relationship with Cuba, and yet they go to the
Speaker 1: poll in Nevada, they go to the polls at South Carolina,
Speaker 1: and they vote for him. Yeah, but let's keep in
Speaker 1: mind again when you're looking at the primary vote, this
Speaker 1: is the most extreme members of both parties. So you
Speaker 1: get Canadida. Let's be clear, Bernie Sanders is an independent.
Speaker 1: He's not even a Democrat similar to Donald Trump. And
Speaker 1: so the party has lost control of this process long before,
Speaker 1: by the way, and that will continue to do they
Speaker 1: get back control once they get to an adult, hi,
Speaker 1: high money process like Super Tuesday. I mean, is it
Speaker 1: literally a jump condition out of the vote in the
Speaker 1: next day, everything is different for the party. I don't
Speaker 1: think so. I mean, you know, at this point, I
Speaker 1: think if you're going to look at the numbers, Bernie
Speaker 1: Sanders has the greatest chance to get the delegate count.
Speaker 1: He needs to wrap this up without a contested convention.
Speaker 1: I think that's the reality. But let's be clear, this
Speaker 1: is not just about the presidency. It's about the House,
Speaker 1: it's about the Senate, and it's about the If you're
Speaker 1: a Democrat, it should be about the future of the party,
Speaker 1: and this is where they have the John. I didn't
Speaker 1: think that there was a feeling of disrespect of Bernie
Speaker 1: Sanders last night. It was more just saying he didn't
Speaker 1: get anything done. I don't think that there was a
Speaker 1: sense of a lack of I'm talking about the coverage.
Speaker 1: I'm talking about the pundits that reflect on all of this.
Speaker 1: This party has had four years to prepare for this moment.
Speaker 1: They squandered most of at four years chasing the president,
Speaker 1: trying to impeach him, and criticizing him every day. You
Speaker 1: watch the same channels as I do. The left wing
Speaker 1: brigade go out there day after day after the president,
Speaker 1: and yet here we are and let me tell you,
Speaker 1: if Vice President Joe Biden was leading in Nevada, in
Speaker 1: New Hampshire, in Iowa, we wouldn't be talking about the process.
Speaker 1: There's the problem. I would say this, this is it, Tom,
Speaker 1: And I'm looking at this as what it marges from
Speaker 1: this debate, and it's the idea that you have, on
Speaker 1: one hand electability and on the other hand, the fact
Speaker 1: that people want change and trying to reflect that zeitguys
Speaker 1: that you're talking about and those two things are appealing
Speaker 1: to two very bifurcated segments of the population. And that's
Speaker 1: what we're feeling coming out of these debates. When we
Speaker 1: look at this, I guess we've got to get past
Speaker 1: the South Carolina vote. What do you predict on Monday,
Speaker 1: or for that matter, on Sunday next. I think the
Speaker 1: numbers show that probably Bernie Sanders has about a forty
Speaker 1: shot at this point of getting what he needs. He
Speaker 1: did so well with the Latino vote, for instance, in Nevada.
Speaker 1: If he can replicate that aaces like California and Texas,
Speaker 1: he can keep racking up the delicate lead. Obviously, Super
Speaker 1: Tuesday has about one third of the delegates up now.
Speaker 1: I would not predict what's going to happen, but I
Speaker 1: would say the probability is narrow that he is going
Speaker 1: to do okay, But again it depends. Jennie Sano, thank
Speaker 1: you so much with Bloomberg Politics of course helping us
Speaker 1: here ione ecology. Right now nationwide, the wonderful Congressman from
Speaker 1: South Carolina, Mr. Clyburne is setting up his endorsement off
Speaker 1: of last night's debate, and of course he is a
Speaker 1: huge influence with the African American vote in the state
Speaker 1: of South Carolina. Will bring that to you when we
Speaker 1: see it. He's now introducing people with smiles around one
Speaker 1: of the things that's going to change at the Walt
Speaker 1: Disney Company, Paul is where they do the conference call
Speaker 1: with the cell side, and I just want to say
Speaker 1: it's gonna be great to see Michael Nathanson taking that
Speaker 1: call with the Parks guy on Splash Mountain. I can
Speaker 1: see going down that log too on Splash Mountain by
Speaker 1: holder Michael Nathan said Moffat Nansenson, founding partner and senior
Speaker 1: research anelist. Michael, thanks so much for joining us on
Speaker 1: the phone here boy the news last night. I'll to
Speaker 1: speak for myself. Took me by surprise. What do you
Speaker 1: make of the news we heard? Yeah, Paul Tom good morning. Um,
Speaker 1: you're not alone. It took us all by surprise, right,
Speaker 1: you had to earning this call two weeks ago, that
Speaker 1: I was on the radio with you guys two weeks
Speaker 1: ago talking about and there's not another bit of news
Speaker 1: for a couple of weeks or months. So it's just weird.
Speaker 1: Then the middle of February they decided to announce that change,
Speaker 1: and everyone's trying to figure out, like why, what, what
Speaker 1: is significant about this timing? So we were surprised by
Speaker 1: the timing. But you know, Bob had been very clear
Speaker 1: that his time was coming, was coming up, that he
Speaker 1: was done with with this with his job, his last contract.
Speaker 1: We thought there would be a change, but probably later
Speaker 1: in the year. So it's really about the timing of
Speaker 1: the of the change, anouncement, the timing, but wasn't the
Speaker 1: change itself. So Michael tell us a little bit about Bob.
Speaker 1: What do you know about him? Okay, So Bob cha
Speaker 1: Peck is someone who has a long career at the
Speaker 1: Walt Disney Company. He worked at home video when home
Speaker 1: video was really important to home to Walt Disney. He
Speaker 1: worked in sumer products. Uh and some product is a
Speaker 1: very very important sect segment. It's highly profitable. And then
Speaker 1: he moved over to the parks business. And the parks
Speaker 1: business for all the focus on ESPN and the parks
Speaker 1: business is the single biggest driver of Walt disney earnings growth. Right,
Speaker 1: so the U S parks are about three percent of
Speaker 1: profitability and the parks business. What Chapick did is he
Speaker 1: put through a surge pricing like Uber, where they raised
Speaker 1: pricing during peak times and lower pricing dynamically during slow times.
Speaker 1: That never was the case they would have one price
Speaker 1: for all seasons. Uh. So they put out of capital
Speaker 1: on the in the ground, they built new new rides
Speaker 1: and new exhibits, and they really drove price. So he
Speaker 1: has a very long background there, and I think it's
Speaker 1: it's it's a good choice. It's it's a natural choice
Speaker 1: for me to see happen here. Is this a partition
Speaker 1: that it's this August company is comfortable with Walt Disney.
Speaker 1: Is the Bob iger in Roy Disney will be the
Speaker 1: new gentleman. Yeah, that's a that's a great question. Um.
Speaker 1: You know when when ire Tom and Ira was putting
Speaker 1: that role. No one really knew what tooks about from
Speaker 1: from Bob Iyer, right, there was a lot of chatter
Speaker 1: about he was the wrong guy. You know, there's a
Speaker 1: book written. There's a book written all about Sweeney. Sweeney
Speaker 1: wrote a four page research report along report at that time. Yeah,
Speaker 1: I think he downgraded it on on the Bob Iger
Speaker 1: higher right. You know, um so Tom, we don't know.
Speaker 1: I think what Disney has become is there are these
Speaker 1: centers of content excellence that you know, we'll live on.
Speaker 1: You know when when bob Iger has gone right, you've
Speaker 1: got Pixar mass It's incredible, right, And and the question is,
Speaker 1: you know, does every vertical have a leader with the
Speaker 1: right vision game plan? And I and I kind of
Speaker 1: think that that where they are now is they made
Speaker 1: a lot of tough decisions. They moved into digital distribution.
Speaker 1: It took profitability down. I almost think like they gas
Speaker 1: need to pretty much be able to pivot and adjust
Speaker 1: their models when they see things change, so that content creation,
Speaker 1: to me is now pushed out to the brand themselves.
Speaker 1: And Bob bob Iger was a great capital allocator and
Speaker 1: deciding where to go. But I don't think one person
Speaker 1: could actually run this company the way you Yeah, that's
Speaker 1: why I think. So, Michael, let's talk about what the
Speaker 1: big pivot for the Walt Disney Company really over the
Speaker 1: last couple of years has been towards streaming. That's kind
Speaker 1: of the future of the company. And that got a
Speaker 1: lot of investors and just watchers thinking that the guy
Speaker 1: who runs that business, Kevin Mayor would be probably the
Speaker 1: most likely to get the NOD. What do you think
Speaker 1: happened there and what kind of signal does this send
Speaker 1: and what do you think of what Kevin's future might
Speaker 1: be within the company? Yeah, Paul, that's a really good,
Speaker 1: good question. Um. After the last quarter where they put
Speaker 1: up millions saw in one quarter, roughly half of Netflix
Speaker 1: in a quarter, the speculation was like, hey, Kevin is
Speaker 1: now in pull position. But you know, the parks and
Speaker 1: to products are a big driver of this company. Kevin's
Speaker 1: just started operationally for the past one or two years. Um,
Speaker 1: I think Japook represents more of the legacy Disney business.
Speaker 1: And you know the parks business is at DTC business, right.
Speaker 1: You know, Parks is the only business at Disney before
Speaker 1: DTC was built. They actually knew the customers you know,
Speaker 1: they had credit cards on on on Thoma's family, right
Speaker 1: like that, that is that's the only business I actually
Speaker 1: knew who was walking in the door. So I think
Speaker 1: he has more DTC than meets the eye direct a consumer. Yeah,
Speaker 1: so Tom, it's it's it's the ability to to identify
Speaker 1: you and your family and then market and up sell
Speaker 1: you and the parks. You know, it has proven that
Speaker 1: year and year out they can take money out of
Speaker 1: your pocketbook better than anybody. Here's my experience on Disney.
Speaker 1: One of the middle child used to go to Lacrosse
Speaker 1: camp down there for a quote unquote week and then
Speaker 1: I figured out a week was four and a half days.
Speaker 1: That's a Disney that's a Disney model. Paul Michael, what
Speaker 1: do you think the legacy will be for Bob Iger? Well,
Speaker 1: it's funny. Years ago, a couple of years ago, I
Speaker 1: time I sat down and he's like, Tom said me,
Speaker 1: is this a Jack Welch legacy? Right? Does he does?
Speaker 1: Whoever gets this hand after Bob just never rise. You know,
Speaker 1: the legacy of of Welch just shadowed everyone. I think
Speaker 1: the legacy of Iger, you know, is and will be
Speaker 1: incredibly strong. Right for a person who basically was courageous
Speaker 1: in doing the right thing for the company, not for
Speaker 1: the short term, but for the long term. His his acquisitions,
Speaker 1: which you could go out Ham and Paul, I'm on
Speaker 1: the record when he bought Pixar and Marvel stretched our
Speaker 1: head were like the r O I doesn't work. So
Speaker 1: I think the legacy of this is a guy who
Speaker 1: courageously built a company into what it is today. He
Speaker 1: took down earnings to pretty much build it going forward
Speaker 1: by investing in director consumer businesses. I think his legacy
Speaker 1: is gonna be great. I really do. I think, you know,
Speaker 1: And I'm sad because it's one of the true legends
Speaker 1: in our industry. And he was a spokesperson for all
Speaker 1: of media and that spokesperson is gone. How much work
Speaker 1: do they have on the integration with the Fox properties.
Speaker 1: A lot of work, Tom, and that's that's why the
Speaker 1: time is interesting, because that integration needs to get done.
Speaker 1: The Fox assets on the studio side, the film studio
Speaker 1: have been very disappointing. They have a business in India.
Speaker 1: Star are very important and they want to roll out
Speaker 1: Disney in Disney Plus in India. There's a lot of
Speaker 1: integration to be done, and that deals less than a
Speaker 1: year old. So that's why the timing to Paul's first
Speaker 1: question is surprising, because integration is key. Right now for
Speaker 1: that Fox, I'm confused. I mean, like, I get the
Speaker 1: idea of movies don't matter, but then you just said
Speaker 1: they do matter because Fox has been disappointing. Our movies profitable.
Speaker 1: Oh for all, Disney Company. Disney has three billion dollars
Speaker 1: of EBITDA. They were, you know, in a in the
Speaker 1: studio business. They had eleven billion of box last year.
Speaker 1: You know, they are the only company that actually prints
Speaker 1: money consistently in the film business. So if you asked
Speaker 1: me about the film studios, they don't matter. But at Disney,
Speaker 1: the film studios then spin out consumer products, they spend rides,
Speaker 1: they spin out businesses. They do matter for Disney. I mean,
Speaker 1: I mean people like they got they got Vet Bill
Speaker 1: at home, his hair done up like baby Yoda, and
Speaker 1: you know, like Mandalorian or whatever it's called. What is
Speaker 1: that property actually worth? I mean, if that's Iger Swansong
Speaker 1: here and creative, that's been a home run, hasn't it. Yeah,
Speaker 1: without a dad, I mean, we don't know how many
Speaker 1: of those subs that signed up for Disney. Plus we're
Speaker 1: there for the Mandalorian. Right. But but if you think
Speaker 1: about they paid four billion for Star Wars, for for Lucasfilm,
Speaker 1: four billion for marvel Um, you know the Mandalorian is
Speaker 1: gonna be a subset of four billion. But those assets
Speaker 1: drive engagement, right, That's they realized in a cluttered media world,
Speaker 1: having those brands stand out didn't drive engagement. They change
Speaker 1: the hair or in the damn dog's and Michael last question,
Speaker 1: just you know, the stock has been under pressure. I
Speaker 1: think coronavirus getting a lot of uh play there at
Speaker 1: the Walt Dassy company frame out how you viewing it?
Speaker 1: Uh the impact on their theme parks and their other businesses. Well, Paul,
Speaker 1: A couple of weeks ago in the More in the
Speaker 1: early morning hours, I spoke to to Tom and John
Speaker 1: and we talked about coronavirus and that point it was
Speaker 1: restricted to China. So I made the maybe the two
Speaker 1: you know too quick remarketing. Look, you know those theme
Speaker 1: parks don't represent more than of the profitability of Walt
Speaker 1: Disney companies. I'm not worried about Chinese parks. Well, Japan
Speaker 1: is another park that creates you know, earnings growth, and
Speaker 1: so does the US business, which is the biggest you
Speaker 1: know when the biggest drivers. So as the fear spread,
Speaker 1: I do worry. Then the short run you're gonna have
Speaker 1: earnings revisions in the US, people not wanting to travel,
Speaker 1: and so you know, my first rule of thumb and
Speaker 1: media is earnings revisions drive stock. So in the short run,
Speaker 1: this coronavirusphere is a is a huge headline risk for
Speaker 1: this company. They're the only one in media and have
Speaker 1: that risk unfortunately, Michael, thank you so much. Michael Nathanson.
Speaker 1: Where us the MOFA Nathan's and wonderful v mind. Again,
Speaker 1: we protect the copyright of all of our guests. You
Speaker 1: can get this important report on Disney through Matha Nathanson.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane Before
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Speaker 1: Radio