WEBVTT - Bloomberg Wall Street Week: Davis, Malik, Wolf 0:00:00.240 --> 0:00:05.000 This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes. 0:00:05.040 --> 0:00:07.400 The economy is in the process of rebounding. Will the 0:00:07.400 --> 0:00:10.479 Federal Reserve have its own digital currency? The financial stories 0:00:10.520 --> 0:00:12.879 that chief hard work. Many people think the eels are 0:00:12.880 --> 0:00:15.080 just going to keep marching up. We have more spending 0:00:15.120 --> 0:00:17.160 coming out of Congress. One of the big questions I 0:00:17.200 --> 0:00:19.880 think on investor's mind inflations through the eyes of the 0:00:19.920 --> 0:00:23.560 most influential voices. Larry Summer is the former Treasury Secretary, 0:00:23.640 --> 0:00:27.240 Bryan Wynahan back of America, Will sar Ceo, Charlie Sharp, 0:00:27.360 --> 0:00:31.560 Bloomberg wool Street Week with David Weston from Bloomberg Radio. 0:00:32.280 --> 0:00:35.760 The dawn days of Summer meet, a busy newsweek and 0:00:35.800 --> 0:00:39.440 the markets take it all in stride. This is Bloomberg 0:00:39.440 --> 0:00:42.280 Wall Street Week. I'm David Weston, take us through the 0:00:42.280 --> 0:00:44.760 week in the markets. Welcome down, Nancy Davis. She's chief 0:00:44.760 --> 0:00:48.120 investment officer and managing partner at Quadratic Capital Management. And 0:00:48.159 --> 0:00:51.640 Sarah Mallick, chief investment officer for equities at Nouvene. So, Sara, 0:00:51.760 --> 0:00:54.959 let me start with you on the equity side. Despite 0:00:55.000 --> 0:00:56.400 all the news that came out and there was some 0:00:56.600 --> 0:00:59.360 up and down. The equity market just kept going up, 0:00:59.400 --> 0:01:02.360 although not quite as fast as it had. Equity markets 0:01:02.360 --> 0:01:05.480 and bond markets definitely became disconnected this week. This is 0:01:05.520 --> 0:01:09.400 around the great debate around economic data and also inflation. 0:01:09.480 --> 0:01:13.280 We saw a cooler CPI data, hotter PPI data. Our 0:01:13.360 --> 0:01:16.319 view is that the cooler CPI data wins out because 0:01:16.360 --> 0:01:19.480 the factors driving that down are more permanent. Well, the 0:01:19.520 --> 0:01:21.959 PPI data is hotter, but that's around the one time 0:01:22.000 --> 0:01:25.080 reopening other data points we watched this week for the 0:01:25.120 --> 0:01:30.039 infrastructure package billion in new spending that's good for industrials. 0:01:30.120 --> 0:01:32.399 And then of course consumer sentiment coming in at the 0:01:32.440 --> 0:01:36.040 lowest level in a decade. If you look at consumer sentiment, 0:01:36.319 --> 0:01:39.039 it's not always tied to consumer spending. We saw low 0:01:39.120 --> 0:01:42.119 numbers in the fourth quarter of while equity markets still 0:01:42.160 --> 0:01:45.840 produce positive returns, we're watching economic data like the Conference 0:01:45.840 --> 0:01:49.560 Board data, which remains over one standard deviation above its mean. Nancy, 0:01:49.640 --> 0:01:51.040 let's turn to you, because you've made something of a 0:01:51.160 --> 0:01:54.360 name for yourself in investing in and around inflation, really 0:01:54.400 --> 0:01:56.200 knowing how to take this into account as an investor, 0:01:56.400 --> 0:01:59.200 What do you make of those CPI and PPI numbers 0:01:59.240 --> 0:02:02.080 which seem to go a bit in different directions this week. Well, 0:02:02.080 --> 0:02:04.160 I think if you look at the long term trend, 0:02:04.200 --> 0:02:08.880 if we start at say the first quarter of UE, 0:02:09.480 --> 0:02:12.280 you know, the ten year yield was one seventy five, 0:02:12.440 --> 0:02:16.280 and then we've had four CPI prints well above the 0:02:16.280 --> 0:02:19.480 two percent target from the Fed. We had four point 0:02:19.520 --> 0:02:23.720 to first, then five, then to five point four prints, 0:02:23.800 --> 0:02:25.840 and you would kind of scratch your head. And if 0:02:25.880 --> 0:02:28.639 you had a crystal ball at the start of Q 0:02:28.880 --> 0:02:31.600 two and you knew the CPI prints were going to 0:02:31.680 --> 0:02:35.240 come in that much higher than two percent, what would 0:02:35.280 --> 0:02:39.040 most rational people do. You would sell bonds because you 0:02:39.040 --> 0:02:42.400 would think yields would be going higher. But it's opposite 0:02:42.480 --> 0:02:45.120 day in the markets, and yields have done nothing but 0:02:45.200 --> 0:02:49.120 go lower um with all these higher CPI prints. So 0:02:49.160 --> 0:02:53.040 I think there's definitely something screwy going on in the 0:02:53.080 --> 0:02:57.160 markets where nobody believes inflation is actually going to be here, 0:02:57.200 --> 0:03:00.360 because why would you be walking up your capital To 0:03:00.639 --> 0:03:03.240 your point, David, that the ten years under one point 0:03:03.240 --> 0:03:06.120 three percent right now, that doesn't make any sense if 0:03:06.160 --> 0:03:10.880 you actually believe that inflation is coming. But Sarah, you're 0:03:10.880 --> 0:03:13.280 an equities person, not a bond person. But how much 0:03:13.320 --> 0:03:15.160 of the support of the equities markets that we're seeing 0:03:15.320 --> 0:03:18.040 is exactly because what Nancy was talking about, because yields 0:03:18.080 --> 0:03:20.400 actually have been very tame. People were talking about to 0:03:20.760 --> 0:03:23.520 two point oh I'm talking about on the tenure. That's 0:03:23.560 --> 0:03:26.840 definitely very makes equities look more attractive from an equity 0:03:26.880 --> 0:03:30.040 portfolio point of view. We're definitely saying you need to 0:03:30.040 --> 0:03:32.680 become more selective here. First of all, you need to 0:03:32.680 --> 0:03:34.800 look for those companies that have the pricing power to 0:03:34.880 --> 0:03:38.520 overcome these inflationary costs. We're also seeing profit margins at 0:03:38.520 --> 0:03:41.840 about decade highs for companies, so these companies also need 0:03:41.880 --> 0:03:44.200 to be able to raise prices in order to drive 0:03:44.240 --> 0:03:47.040 their margins higher. Areas that we think are attractive are 0:03:47.080 --> 0:03:50.120 actually small caps. They're now training at the largest discount 0:03:50.360 --> 0:03:53.640 to large caps that we've seen since September. They're back 0:03:53.640 --> 0:03:56.880 at valuation levels of January. They tend to do well 0:03:56.920 --> 0:04:00.160 in periods of rising inflation and interest rates, and like 0:04:00.240 --> 0:04:04.320 industrials because as that infrastructure package kicks in, industrials will 0:04:04.360 --> 0:04:06.880 have that cyclical tail when behind them to help them 0:04:06.880 --> 0:04:09.800 grow their businesses and increase their profit margins well and 0:04:09.840 --> 0:04:12.280 it's not just the infrastructure package. We now have the 0:04:12.320 --> 0:04:14.080 Democrats in the senat at least saying we want it 0:04:14.080 --> 0:04:17.320 would like another three point five percent incremental spending in 0:04:17.320 --> 0:04:20.040 that sort of second wave, the build back Better plan, 0:04:20.200 --> 0:04:22.800 as President Biden calls it. So So, Sarah, if in 0:04:22.839 --> 0:04:25.360 fact that comes to pass, and forget the three point five, 0:04:25.360 --> 0:04:27.560 so it's just two or two point five, What does 0:04:27.600 --> 0:04:30.120 that mean potentially for investors? I mean for investors, I 0:04:30.120 --> 0:04:33.119 think it means we have more confidence in economic growth 0:04:33.120 --> 0:04:36.440 going forward. If you look at third year past, the 0:04:36.480 --> 0:04:39.599 recession market turns actually tend to be pretty strong. We 0:04:39.600 --> 0:04:42.320 see high single digit earnings growth next year. That's not 0:04:42.360 --> 0:04:45.080 recessionary levels. It's not where you would be for a 0:04:45.120 --> 0:04:49.160 bear market. We think that drives markets higher rather than evaluations, 0:04:49.400 --> 0:04:51.520 and that's supported by economic growth. Now, we do have 0:04:51.560 --> 0:04:53.880 two headwinds next year. One is how are we going 0:04:53.920 --> 0:04:56.640 to pay for that infrastructure and all that spending. Probably 0:04:56.760 --> 0:04:59.719 higher taxes that's going to negatively impact that earnings growth 0:04:59.800 --> 0:05:02.680 none or And also we need to worry about taper timing. 0:05:02.880 --> 0:05:05.320 The FED has been taking baby steps the words taper timing. 0:05:05.560 --> 0:05:08.400 We think they're watching August payroll data. If that looks 0:05:08.440 --> 0:05:10.719 as high as July data, Um, we think the FED 0:05:10.720 --> 0:05:14.320 could announce tapering in September and start tapering in early two. 0:05:14.600 --> 0:05:17.080 But as long as the yield curve doesn't flatten, we 0:05:17.120 --> 0:05:19.920 think that markets can remain with positive returns even through 0:05:19.960 --> 0:05:23.480 tapering and higher interest rates. So, Nancy, I don't want 0:05:23.480 --> 0:05:24.919 to misquote you, but I think you said the market 0:05:24.920 --> 0:05:26.560 a little bit screwy, I think was the word you 0:05:27.160 --> 0:05:29.640 given what the CPI numbers have been being and what 0:05:29.720 --> 0:05:31.800 the year over year inflation is despite the fact people 0:05:31.800 --> 0:05:33.520 don't think it's gonna come. How much of that do 0:05:33.560 --> 0:05:35.840 you think, maybe because of the delta variant, that people 0:05:35.880 --> 0:05:39.760 are really subdued, And we had really stunning numbers at 0:05:39.760 --> 0:05:41.920 the end of the week on the consumer confidence out 0:05:41.920 --> 0:05:43.400 of the University of Michigan and lowest I think in 0:05:43.400 --> 0:05:46.279 eleven years. How much of that is really constraining? So 0:05:46.440 --> 0:05:49.039 what we otherwise might have with consumer spending, well, I 0:05:49.040 --> 0:05:52.200 think to Sarah's point, um, the yield curve is the 0:05:52.240 --> 0:05:56.080 most important measure to be watching. It's very forward looking, 0:05:56.600 --> 0:06:00.800 and since the feds June FM Cement meeting, we've had 0:06:00.839 --> 0:06:04.320 the largest flattening in the forward yield curve since a 0:06:04.400 --> 0:06:08.160 financial crisis, and that should be ringing, you know, ringing 0:06:08.200 --> 0:06:12.680 the alert for equity and credit investors because corporates are 0:06:12.760 --> 0:06:16.680 priced to perfection. Right, everybody is expecting growth, everybody is 0:06:16.720 --> 0:06:19.719 expecting earnings per share. But what if we actually have 0:06:20.200 --> 0:06:24.480 higher labor costs or shortages of goods and services, or 0:06:24.480 --> 0:06:28.760 shipping delays, all those things. Um, the guild curve is expecting. 0:06:29.080 --> 0:06:33.000 UH has had a massive flattening. And um, that's also 0:06:33.040 --> 0:06:37.880 because the market has priced in the FED hiking rates. Okay, 0:06:37.880 --> 0:06:39.360 thank you so much to both of you that Sara 0:06:39.400 --> 0:06:42.840 Manic of New Vine and Nancy Davis of Quodai Capital Management. 0:06:42.880 --> 0:06:44.400 Great to have you with us on Wall Street Week. 0:06:44.800 --> 0:06:48.320 Coming up, the enigma that is the labor market. Is 0:06:48.400 --> 0:06:50.839 it possible that we are seeing a shift in power 0:06:50.920 --> 0:06:54.120 back towards the labor side of the ledger? We ask 0:06:54.200 --> 0:06:57.440 Steve Rattner of will It Advisors. That's next on Wall 0:06:57.440 --> 0:07:07.000 Street Week on Bloomberg. This is Bloomberg Wall Street Week 0:07:07.200 --> 0:07:11.920 with David Weston from Bloomberg Radio. The pandemic disrupted employment 0:07:12.000 --> 0:07:15.559 around the world, and as the economy recovers, we can't 0:07:15.600 --> 0:07:17.800 assume that we'll go back to working the way we 0:07:17.840 --> 0:07:21.200 did before. We've added millions of jobs since the low point, 0:07:21.400 --> 0:07:24.160 but the unemployment rate in the US is still above 0:07:24.240 --> 0:07:28.680 five and taken as a proportion of the population, employment 0:07:28.760 --> 0:07:32.560 is actually close to a four decade low. Here's Bloomberg 0:07:32.600 --> 0:07:36.800 Opinion columnist Bill Dudley. One hand, the labor supply seems tight. 0:07:37.080 --> 0:07:38.760 On the other hand, when you chip judged by the 0:07:38.840 --> 0:07:40.880 number of jobs were short from where we were in February, 0:07:41.640 --> 0:07:44.360 the rate still seems like a bit of slack in 0:07:44.520 --> 0:07:47.320 US labor marketing. It's a trend that's affecting companies from 0:07:47.360 --> 0:07:50.560 services to Wall Street. A range of firms are raising 0:07:50.640 --> 0:07:54.520 salaries and paying bonuses, while others are offering perks like 0:07:54.640 --> 0:07:57.920 a free Peloton bike or an all expenses paid vacation. 0:07:58.440 --> 0:08:00.920 We're definitely trying to do the bad job to attract 0:08:01.000 --> 0:08:04.960 the widest array of talent possible. Competition is important, and 0:08:05.040 --> 0:08:07.119 we've always, i think, been a leader in that area. 0:08:07.520 --> 0:08:11.240 That's Blackstones John Gray. Inflation and the labor market go 0:08:11.440 --> 0:08:15.160 hand in hand. Higher prices lead workers to ask for raises, 0:08:15.520 --> 0:08:19.160 and as we get back toward full employment, employers may 0:08:19.280 --> 0:08:22.480 have no choice but to pay them here's Larry Summers. 0:08:22.880 --> 0:08:28.080 I think we're not far from full employment. We're within 0:08:28.360 --> 0:08:31.120 nine months or a year, certainly maybe less than that 0:08:31.880 --> 0:08:36.720 of getting uh to full employment. And now the pandemic 0:08:36.760 --> 0:08:39.079 has added a new dimension to the traditional back and 0:08:39.240 --> 0:08:42.360 forth over pay and hours. Now there's the option of 0:08:42.440 --> 0:08:46.120 working from home as well. Bloomberg's John author says it 0:08:46.200 --> 0:08:49.079 wouldn't be the first time that a pandemic strengthened the 0:08:49.160 --> 0:08:52.360 hand of labor at the expense of capital. One of 0:08:52.440 --> 0:08:56.480 the reasonable lessons from history about pandemics, not that we've 0:08:56.520 --> 0:08:58.559 had too many pandemics that exactly like this one, was 0:08:58.679 --> 0:09:01.800 that it does tends to strengthen the hands of labor 0:09:02.360 --> 0:09:06.559 compared to capital. That's Bloomberg's John authors. A University of 0:09:06.640 --> 0:09:10.160 Chicago study suggests that if employers try to make employees 0:09:10.280 --> 0:09:12.839 work from home five days a week, more than a 0:09:12.960 --> 0:09:17.920 third of their workforce may just quit. Here's Barkley's Just Staley. 0:09:18.240 --> 0:09:21.040 You know that physical presence I think is important for people, 0:09:21.400 --> 0:09:23.240 but also the pandemic has taught us that we can 0:09:23.280 --> 0:09:26.520 be quite flexible. Steve Brodner has spent his professional career 0:09:26.760 --> 0:09:29.960 looking at the balance between labor and capital. First as 0:09:29.960 --> 0:09:33.199 a successful banker on Wall Street, then as leading the 0:09:33.280 --> 0:09:37.040 efforts to renegotiate and restructure the auto industry under President Obama, 0:09:37.400 --> 0:09:40.079 and now as chairman and CEO of Will and Advisors, 0:09:40.280 --> 0:09:43.520 which invests the personal and philanthropic assets of Michael Bloomberg, 0:09:43.720 --> 0:09:47.680 the founder and principal shareholder of our parent company. Steve, 0:09:47.720 --> 0:09:49.640 thank you so much for being back on Wall Street week. 0:09:49.880 --> 0:09:51.760 So let me ask you how we can have what 0:09:51.880 --> 0:09:53.800 we have right now in the labor industry. We have 0:09:54.120 --> 0:09:56.240 more than four million new jobs we've created the last 0:09:56.280 --> 0:09:59.800 six months. We have at the same time a record 0:10:00.040 --> 0:10:03.560 were job openings, and yet we have the lowest percentage 0:10:03.800 --> 0:10:06.200 of people actually employed in the of the old war 0:10:06.360 --> 0:10:09.480 population in something like forty years. David, As you said, 0:10:09.520 --> 0:10:12.200 I have been watching this for forty years actually as 0:10:12.240 --> 0:10:15.360 it happens myself, and we've never seen I've never seen 0:10:15.440 --> 0:10:17.920 anything quite like it. I think this will be an 0:10:18.000 --> 0:10:20.120 enormous amount of grisp for the mill of economists to 0:10:20.160 --> 0:10:23.240 study in the years going forward. But essentially, yes, there's 0:10:23.280 --> 0:10:25.760 strong demand for labor. The country at least so far 0:10:26.240 --> 0:10:29.080 has been reopening, in large part thanks to the federal 0:10:29.120 --> 0:10:31.760 government and all the stimulus and yet a large number 0:10:31.760 --> 0:10:34.719 of Americans are reluctant to go back to work for 0:10:34.760 --> 0:10:36.640 a variety of reasons. There's a lot of polling down 0:10:36.720 --> 0:10:39.199 on this. Some of it is our health concerns. Some 0:10:39.360 --> 0:10:41.719 of it is the fact that they've decided simply to 0:10:41.800 --> 0:10:44.280 leave the labor force and retire. Some of it has 0:10:44.400 --> 0:10:47.880 expanded unemployment benefits that actually pay some people more for 0:10:48.000 --> 0:10:50.959 not working than they were getting working. And a lot 0:10:51.040 --> 0:10:53.679 of it, though, is the fact that people's balance sheets, 0:10:53.720 --> 0:10:56.679 the household balance sheets, are in extraordinarily good shape. You 0:10:56.800 --> 0:10:59.160 had an enormous amount of financial support from the federal 0:10:59.200 --> 0:11:03.160 government last year. Total income earned by Americans, including federal 0:11:03.240 --> 0:11:06.560 transfer payments, was actually a trillion dollars above what would 0:11:06.600 --> 0:11:09.480 normally have occurred last year, and households spent about a 0:11:09.559 --> 0:11:12.400 trillion dollars less than they would normally spend last year. 0:11:12.880 --> 0:11:15.040 And so people don't have to go back to work 0:11:15.080 --> 0:11:17.240 because in many case, and I obviously I'm giving you 0:11:17.320 --> 0:11:20.360 broad generalizations. There are plenty of exceptions in both directions, 0:11:20.760 --> 0:11:24.640 but on an aggregate basis, households are in extraordinarily good shape, 0:11:24.640 --> 0:11:26.560 and many people don't have to go back to work, 0:11:26.800 --> 0:11:30.079 and they're choosing not to before this pandemic. I think 0:11:30.160 --> 0:11:32.320 some people might have said, it's sort of a buyer's market. 0:11:32.360 --> 0:11:34.920 If we make the employer the buyer, that basically they 0:11:34.960 --> 0:11:38.120 can largely dictate the term. The bargaining position was really 0:11:38.160 --> 0:11:41.040 stronger for the employer. Is it possible that's shifted because 0:11:41.080 --> 0:11:45.199 the pandemic, Well, as I think it's shifted for the moment, 0:11:45.280 --> 0:11:48.120 I'm not sure it's shifted forever. It shifted for the 0:11:48.200 --> 0:11:50.720 moment for the reasons that I just described that people. 0:11:50.880 --> 0:11:54.240 I think in general, again broad generalizations, people have the 0:11:54.280 --> 0:11:56.680 wherewithal to not go back to work, and so they 0:11:56.760 --> 0:11:58.719 are able, to a greater degree than they have in 0:11:58.760 --> 0:12:01.760 the past, as you suggest, dictate the terms under which 0:12:01.800 --> 0:12:03.920 they're going to go back to work. That should be 0:12:04.000 --> 0:12:08.600 a somewhat transitory effect. People can't can't spend their savings forever. 0:12:08.720 --> 0:12:11.400 At some point, most Americans need to go back to work, 0:12:11.440 --> 0:12:13.079 and they will have to go back to work. But 0:12:13.240 --> 0:12:15.199 in the short run, what's going on, as you well 0:12:15.280 --> 0:12:19.320 know and everybody knows, is that employers are raising pay, 0:12:19.760 --> 0:12:21.920 especially for people at the bottom, which is in many 0:12:21.960 --> 0:12:24.240 ways welcome news to try to get them to come 0:12:24.240 --> 0:12:26.880 back to work, And as you also said, we have 0:12:27.040 --> 0:12:29.320 created a lot of your jobs so slowly but surely 0:12:29.679 --> 0:12:31.840 they are coming back, and I would expect that trend 0:12:31.920 --> 0:12:35.880 to continue over time. It's early going, and you know, 0:12:35.960 --> 0:12:37.800 the danger is better than I have trying to make 0:12:37.920 --> 0:12:40.760 long term projections off of single data points. At the 0:12:40.840 --> 0:12:42.920 same time, what do you think about the work from 0:12:43.000 --> 0:12:47.080 home phenomenon? Has it injected into the negotiation between labor 0:12:47.280 --> 0:12:49.319 and management a new element Where it used to be 0:12:49.440 --> 0:12:52.280 mainly about pay and hours, now we have where we're 0:12:52.280 --> 0:12:54.040 gonna be working from We see a lot of people saying, 0:12:54.080 --> 0:12:55.760 you know what, I'm going to go back, but only 0:12:55.800 --> 0:12:58.800 if I can work from home. There's no question. Again, 0:12:58.880 --> 0:13:01.360 the polling data brings a lot of this out. There's 0:13:01.400 --> 0:13:04.040 no question that the work from home and just a 0:13:04.200 --> 0:13:06.680 lot of things that relate to the pandemic, this extraordinary, 0:13:06.720 --> 0:13:09.440 once in a century event have changed the way people 0:13:09.520 --> 0:13:12.079 think about many of these things. And yes, there's no 0:13:12.240 --> 0:13:15.720 question from the data that people are putting a greater 0:13:15.920 --> 0:13:17.760 value on the ability to work from home. And if 0:13:17.800 --> 0:13:20.319 they're for many of them, if they're choosing between two jobs, 0:13:20.480 --> 0:13:22.120 one of which they're allowed to work from home, one 0:13:22.160 --> 0:13:24.480 of which they're not. They're more likely to choose the 0:13:24.559 --> 0:13:26.880 one in which they can work from home. But that's 0:13:26.920 --> 0:13:29.120 okay for employers too. For many of these people, you 0:13:29.200 --> 0:13:31.160 can work from home. But as I said, I do 0:13:31.280 --> 0:13:34.000 think in the fullness of time, the luxury that people 0:13:34.040 --> 0:13:37.360 have today, which I'm fine with and thrilled by being 0:13:37.360 --> 0:13:39.480 able to make these kinds of choices, will diminish, and 0:13:39.559 --> 0:13:41.680 people are going to be in a position where they're 0:13:41.679 --> 0:13:43.439 going to need to work, and the jobs will be 0:13:43.520 --> 0:13:45.520 what the jobs are. Some of them can be done remotely, 0:13:45.600 --> 0:13:47.960 but many of them can. Steve, let's inject one other 0:13:48.040 --> 0:13:50.320 element into this that you know well, and that's organized labor. 0:13:50.400 --> 0:13:53.400 Certainly you dealt with that when you restructure the auto industry. 0:13:53.920 --> 0:13:56.760 President Biden and his administration have made a priority of 0:13:56.960 --> 0:14:00.520 really advancing the cause for organized labor, which had happened 0:14:00.520 --> 0:14:02.600 would reverse something that's been going on for some time. 0:14:02.640 --> 0:14:04.679 We're done to just over ten I think of the 0:14:04.760 --> 0:14:08.280 private workforce that's organized right now under a union. Is 0:14:08.360 --> 0:14:10.960 it possible for the by administration to turn that around? 0:14:11.320 --> 0:14:13.840 I think they can make some difference. There's no question 0:14:14.000 --> 0:14:17.040 that the balance of power has had shifted over the 0:14:17.120 --> 0:14:20.840 last forty years away from organized labor and two employers, 0:14:21.720 --> 0:14:25.880 labor share of of of profits and the economy had 0:14:25.960 --> 0:14:28.880 dropped to a relatively low level. Corporate profits have been 0:14:28.880 --> 0:14:33.160 incredibly strong a real way just had not done particularly well. 0:14:33.560 --> 0:14:36.160 And so yes, it is it is both necessary and 0:14:36.280 --> 0:14:39.200 possible to begin to shift that around that. Steve Rutner 0:14:39.280 --> 0:14:42.960 from will It Advisers. Coming up, Disney comes roaring back 0:14:43.040 --> 0:14:46.040 from COVID. But was it old fashioned theme parks or 0:14:46.200 --> 0:14:48.560 was it the high tech streaming? We talked with media 0:14:48.600 --> 0:14:51.640 executive and entrepreneur Michael Wolfe of Activating That's coming up 0:14:51.680 --> 0:15:07.520 next on Wall Street Week on Bloomberg. This is Bloomberg 0:15:07.600 --> 0:15:11.840 Wall Street Week with David Weston from Bloomberg Radio. Streaming 0:15:11.880 --> 0:15:15.040 giants like Netflix and Disney were among the few winners 0:15:15.200 --> 0:15:18.240 during the pandemic as lockdowns forced people to stay home. 0:15:18.680 --> 0:15:21.840 But Netflix earnings last month raised some questions, some initial 0:15:21.880 --> 0:15:23.880 questions at least about whether it was just a blip 0:15:24.200 --> 0:15:27.040 or a long term trend. This week, Disney show that 0:15:27.200 --> 0:15:29.960 it could keep the momentum going with better than expected 0:15:30.000 --> 0:15:33.920 subscriber growth for its Disney Plus streaming service. Michael Wolfe 0:15:34.080 --> 0:15:37.080 has served as president of and CEO of MTV, on 0:15:37.160 --> 0:15:39.320 the board of Yahoo, and is the co founder and 0:15:39.440 --> 0:15:42.760 CEO of Activate, which advises tech and media companies. Michael, 0:15:42.800 --> 0:15:45.080 great to have you, the guru of media and tech. 0:15:45.520 --> 0:15:47.760 So first of all, it's start with Disney and a 0:15:47.840 --> 0:15:51.160 basic question at this point as an investor, do you 0:15:51.360 --> 0:15:53.640 invest in Disney as a tech sack or a media 0:15:53.680 --> 0:15:55.680 sack because, as you and I both know, the multiples 0:15:55.760 --> 0:15:58.680 quite different. Yeah. I mean when when you think about 0:15:58.720 --> 0:16:02.680 when investors are cited about they're starting to look at, yes, 0:16:02.760 --> 0:16:07.440 the hundred and sixteen million in total subscribers globally, which 0:16:07.520 --> 0:16:11.440 compares to Netflix at two millions, So they're getting they're 0:16:11.480 --> 0:16:15.080 getting up there. If you look historically Disney with trading 0:16:15.160 --> 0:16:20.000 in the same neighborhood as Netflix and and Amazon really 0:16:20.080 --> 0:16:24.040 in the fifties. Um. Going forward, Um, it looks like 0:16:24.120 --> 0:16:27.680 they're trading and around thirty seven if UM, and and 0:16:27.800 --> 0:16:31.240 someone that just has questions about their ability to execute 0:16:31.640 --> 0:16:35.240 with Bob jay Pick in place, who Bob is incredibly 0:16:35.320 --> 0:16:39.160 exquisited execution. Um, there's a lot of upside in the 0:16:39.200 --> 0:16:40.840 stock if they were to hit the same kind of 0:16:40.960 --> 0:16:45.480 multiples as Netflix and Amazon. You're talking between thirty the 0:16:45.600 --> 0:16:49.200 fifty pers and increase in shareholder value for this company. 0:16:49.760 --> 0:16:52.480 But Michael reason my question mind the question of there's 0:16:52.480 --> 0:16:54.840 a lot to the Disney beyond streaming. They have the 0:16:54.920 --> 0:16:56.640 theme parks, they have the cruise ships, they have a 0:16:56.680 --> 0:16:59.640 television network. After all, they said that is that ballast 0:16:59.760 --> 0:17:01.640 at the sort of rights the ship if it might 0:17:01.680 --> 0:17:03.880 go off, or does it limit their upside because when 0:17:03.880 --> 0:17:06.159 you talk about Netflix, for example, they have pretty much 0:17:06.160 --> 0:17:09.560 all their eggs in one basket, which is the tech basket. Right, 0:17:10.080 --> 0:17:13.720 Disney has a great deal more to play with and 0:17:14.200 --> 0:17:16.440 and and a great deal more to underwrite their risk 0:17:16.560 --> 0:17:21.000 from streaming. The fact is that the parks are back delta, 0:17:21.160 --> 0:17:24.720 no doubt delta. We should see a stunning recovery from 0:17:24.880 --> 0:17:27.880 in the parks, a lot of other places, and their 0:17:27.920 --> 0:17:31.439 business are doing well. But let's remember, compared to Netflix, 0:17:31.800 --> 0:17:35.800 they have licensing and merchandizing this, they have the theme parks, 0:17:36.200 --> 0:17:39.399 they can create other shows, they can create other networks, 0:17:39.880 --> 0:17:44.040 so they're fundamentally in a better position than Netflix in 0:17:44.080 --> 0:17:46.440 a lot of ways. You're similar to Amazon, which is 0:17:46.640 --> 0:17:50.520 streaming is the only part of the picture, and and 0:17:50.840 --> 0:17:53.960 the revenue mix. So we've been talking about Netflix and 0:17:54.080 --> 0:17:56.720 Amazon and Disney. There so other players out there, right, 0:17:57.200 --> 0:18:00.920 We have people like a Comcast for example, we have 0:18:01.040 --> 0:18:04.480 BA CBS. We had other players discovering Goodness Notes, which 0:18:04.480 --> 0:18:06.600 is going through a big transaction. So what is the 0:18:06.720 --> 0:18:09.760 future of the business overall? What sort of consolidation wanted 0:18:09.800 --> 0:18:11.720 me to see? After all, I think Disney got there 0:18:11.760 --> 0:18:13.960 in park Is Baby really bellied up to the bar 0:18:14.200 --> 0:18:17.360 and bought all those assets from Fox. Well, he bought 0:18:17.400 --> 0:18:20.600 the assets from Fox, but he also barred Lucasfilm with 0:18:20.720 --> 0:18:24.960 Star Wars. He bought Marvel with um the entire Marvel 0:18:25.040 --> 0:18:28.600 cinematic universe. And so you see what we're gonna see 0:18:28.640 --> 0:18:34.000 as it continued in consolidation frenzy among the major media companies. 0:18:34.480 --> 0:18:38.040 If you look over time, what what's happened is every 0:18:38.119 --> 0:18:42.359 new wave of technology has driven um changes in the 0:18:42.480 --> 0:18:45.960 composition of this industry, but it's actually increased revenue in 0:18:46.040 --> 0:18:49.560 the industry. So, um, you some of the things that 0:18:49.640 --> 0:18:52.280 are driving it is the growth of streaming, but it's 0:18:52.280 --> 0:18:55.560 also some others. One is the decline in in cable, 0:18:56.000 --> 0:19:00.840 and cable has been the driver of revenue growth and profitability, 0:19:00.880 --> 0:19:05.720 and all these companies, increased rise of connected TV. Within 0:19:05.800 --> 0:19:08.520 a couple of years, practically every American home will have 0:19:08.640 --> 0:19:11.720 a connected TV, whether it's a Roku or it's a 0:19:11.880 --> 0:19:16.000 video and UM. But also it's this need to compete 0:19:16.040 --> 0:19:20.359 against Amazon and Google and Facebook and Apple, and so 0:19:20.560 --> 0:19:23.920 we're gonna see a lot more consolidation. Each of these 0:19:24.000 --> 0:19:26.080 companies one way the other is going to have their 0:19:26.119 --> 0:19:30.159 own streaming services. I'm very upbeat about what does Warner 0:19:30.240 --> 0:19:32.959 Discovery will be able to do. I believe that between 0:19:33.040 --> 0:19:36.440 Discovery Plus and HBO Max they will also get to 0:19:36.520 --> 0:19:41.400 two million UM subscribers will worldwide. So so, Michael, much 0:19:41.440 --> 0:19:43.320 are all the consolidation thus far, I would say is 0:19:43.359 --> 0:19:46.240 within sort of the media space. What about even outside 0:19:46.240 --> 0:19:49.360 of that space? People say maybe Apple should buy CBS 0:19:49.480 --> 0:19:51.480 or by Comcast or something. Do you expect it to 0:19:51.560 --> 0:19:53.880 go beyond just the four corners of the media world 0:19:53.920 --> 0:19:57.760 as they consolidate in the streaming world? Um. Yes, the 0:19:58.240 --> 0:20:01.480 first of all week the Amazon's eight billion dollar acquisition 0:20:01.600 --> 0:20:05.359 of MGM, and once approved, it is Apple practice to 0:20:05.960 --> 0:20:10.400 a massive library historically of shows and also the ability 0:20:10.440 --> 0:20:14.160 to produce going forward. But I expect that every one 0:20:14.240 --> 0:20:17.200 of the technology companies will one way or the other 0:20:17.800 --> 0:20:23.320 find themselves into production, either television or films. And the 0:20:23.480 --> 0:20:24.920 results of that is they're not going to be able 0:20:24.960 --> 0:20:28.800 to build these services just on a new production. They're 0:20:28.800 --> 0:20:31.840 going to build a lot of it on on libraries. Uh. 0:20:31.960 --> 0:20:34.320 And if you also look at the amount of money 0:20:34.440 --> 0:20:38.000 that each of these companies are spending, Apple TV Plus 0:20:38.119 --> 0:20:41.600 is costing billions of dollars a year um. It isn't 0:20:41.680 --> 0:20:46.600 It is really a part of the entire Apple ecosystem 0:20:46.640 --> 0:20:49.520 and support so many of the things. So we will 0:20:49.640 --> 0:20:52.880 see mergers between these companies. Thank you so much. It's 0:20:52.880 --> 0:20:55.120 great to have you with us. As Michael Well of Activist. 0:20:55.520 --> 0:20:57.720 Coming up, we wrap up the week with our special 0:20:57.760 --> 0:21:01.600 contributor Larry Summers of Harvard. That's next on Wall Street 0:21:01.640 --> 0:21:11.040 Week on Bloomberg. This is Bloomberg Wall Street Week with 0:21:11.200 --> 0:21:14.320 David Weston from Bloomberg Radio. As we come to the 0:21:14.440 --> 0:21:16.320 end of the week, we've turned to our special contributor, 0:21:16.320 --> 0:21:18.200 to Larry Summers, to really bring out some of the 0:21:18.240 --> 0:21:20.720 most important things of the week. Larry, Welcome, it's great 0:21:20.720 --> 0:21:22.560