Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jay Leye. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, Suncloud, Bloomberg
Speaker 1: dot Com and of course on the Bloomberg termament. Let's
Speaker 1: have a conversation with Jared Bernstein u S Council of
Speaker 1: Economic Advisors Member. Jared, we appreciate your ongoing transparency off
Speaker 1: the back of a huge effort to deliver at one
Speaker 1: point nine trillion dollar plan. Let's start with this, how
Speaker 1: unique this moment is and why a unique approach is required. Yeah,
Speaker 1: it's a great question. Uh. The American Rescue Plan, which
Speaker 1: we expect to pass the Congress any moment now, is
Speaker 1: certainly one of the most consequential and one of the
Speaker 1: most progressive pieces of legislation in in in Reese Intoor
Speaker 1: even distant American history. We're talking about getting four hundred
Speaker 1: dollars in checks out to almost a hundred and sixty
Speaker 1: million American families, and those checks start going out the
Speaker 1: door days after signage. Uh. In fact, speaking of deadlines, UH,
Speaker 1: in just a few days, about eleven million Americans risk
Speaker 1: the potential of losing enhanced unemployment benefits if we don't
Speaker 1: extend them, which is of course at the heart of
Speaker 1: the American rescue plan. And then there's of course the
Speaker 1: crucial issue of finally gaining control of this virus, producing,
Speaker 1: distributing the vaccine, getting shots and arms so we can
Speaker 1: get to the other side of this crisis and launch
Speaker 1: a robust, reliable, and inclusive recovery. The shock is different,
Speaker 1: yet we have been conditioned by the previous cycle, and
Speaker 1: the lessons learned from the previous cycle being applied to
Speaker 1: this one, not Yad. That's something I'm struggling with. We've
Speaker 1: been conditioned by the previous cycle that we need to
Speaker 1: do more because the recovery was so so shallow. If
Speaker 1: the shock is different, why are the lessons that we've
Speaker 1: learned previously? Person, and to this one, I think the
Speaker 1: critical lesson there is the one you've said, and I
Speaker 1: don't think that, if anything, the magnitude of the shock
Speaker 1: would would really emphasize that lesson, which is that our
Speaker 1: tendency has been to do too little, not to do
Speaker 1: too much. You know, when I came up in this business,
Speaker 1: there was no such thing as a jobless recovery. You
Speaker 1: had these more v shaped dynamics, and you know, a
Speaker 1: bunch of folks refurlowed from the factory. The shotka went
Speaker 1: into the rear view mirror, and a bunch of folks
Speaker 1: came back. Now, we've had these sluggish, jobless recoveries that
Speaker 1: often set up UH an expansion that underperforms. That's not
Speaker 1: the way Joe Biden wants to see his administration get
Speaker 1: out of the gate. And with the American rescue plan
Speaker 1: behind us, we think again, especially with getting the finally,
Speaker 1: getting this virus behind us is so critical to launching
Speaker 1: not a wait and see, not an on to get
Speaker 1: off again kind of recovery, but a reliable recovery that
Speaker 1: would be durable. Dr Burston, good morning, thrilled to have
Speaker 1: you with us today. You did a front line interview
Speaker 1: and the heat of the financial crisis talking about you
Speaker 1: guys in hair. In a recession, your critics will say
Speaker 1: you are manufacturing a boom economy with this stimulus, and
Speaker 1: they will then go on to say you are manufacturing
Speaker 1: new higher inflation. Defend the administration. Sure, Well, first of all,
Speaker 1: I don't hear too many of those voices outside of
Speaker 1: partisan Republicans. Um even even some economists who've been worrying
Speaker 1: about overheating and critical of the magnitude of the package
Speaker 1: have recognized the support and recognized and support the importance
Speaker 1: of rescue and relief. But let's talk about your inflation question.
Speaker 1: I want to tell you about the three sas Okay,
Speaker 1: you ready for the three s is spending, slack, and savings.
Speaker 1: So spending, by which I mean spend out. Uh. The
Speaker 1: spend out of the American Rescue plan does not occur
Speaker 1: in one month or two months. It is true, and
Speaker 1: it's very important that the checks and the unemployment insurance,
Speaker 1: the enhanced benefits get out very quickly, right out the door.
Speaker 1: But the planets spends out over a couple of years.
Speaker 1: So some of the folks on kind of the overheating
Speaker 1: team don't recognize the spend out pattern. Then there's slack, Okay,
Speaker 1: there is still way more slack in this labor market time.
Speaker 1: And I think your question implied. We have an unemployment
Speaker 1: rate for African Americans of nine point nine percent, eight
Speaker 1: point five percent for Hispanics. Nine point five million jobs
Speaker 1: in the whole still that's deeper than the deepest part
Speaker 1: of the Great Recession. And then of course savings the
Speaker 1: other suh. Some of these benefits, some of these uh,
Speaker 1: parts of the American rescue plan will be at least
Speaker 1: initially saved by people who will then use it to
Speaker 1: meet accumulated debts, say from rents and mortgage forbearance. That
Speaker 1: too puts downward pressure on price pressures. But Jared, we've
Speaker 1: had a number of economists come on and say that
Speaker 1: that was actually perhaps a bit overstated, that actually consumers
Speaker 1: are not as indebted as they have been in the past,
Speaker 1: There isn't as much debt to pay down. That is
Speaker 1: one argument, but there's another argument saying, yes, the depth
Speaker 1: of this crisis was deeper in some ways in the
Speaker 1: last crisis, but it was very different and the bounce
Speaker 1: back has been much faster than economists are predicting. What
Speaker 1: makes you confident that that isn't a sign that we're
Speaker 1: going to get some sort of growth that was going
Speaker 1: to be turbocharged and the inflation also with it. That
Speaker 1: will be a very different picture than what we've seen
Speaker 1: in the past ten years. Yeah. Well, first of all,
Speaker 1: let me talk about the debt issue. And for that,
Speaker 1: you know, you might want to consult with our good
Speaker 1: friend Mark Zandy, who has been tracking a very specific
Speaker 1: type of that, which is the type I've had in mind,
Speaker 1: and that's for people who've been benefiting from rent moratoriums
Speaker 1: and mortgage forbearance. This type of debt is uh, I think,
Speaker 1: quite escalated right now, and it's precisely the type of debt.
Speaker 1: And there's some evidence for this that folks are using
Speaker 1: these benefits to spend down. You know, eviction risk is
Speaker 1: still upon the land, and and and the American Rescue
Speaker 1: Plan addresses that head on. Now. You talked about the
Speaker 1: pace of the recovery. Every forecast I've seen has a
Speaker 1: couple of things common to it. One is that we
Speaker 1: will grow above trend this year and next year. And
Speaker 1: that is precisely the kind of growth rates that the
Speaker 1: American Rescue Plan is supposed to set off again in
Speaker 1: a reliable sense, because we finally put the virus behind us,
Speaker 1: We've safely opened schools, we've gotten families and business as
Speaker 1: a relief they need. But these forecasts also showed heat, yes,
Speaker 1: heat in terms of interest and inflation rates, but not overheat.
Speaker 1: And I think that's the key, j before we let
Speaker 1: you go in about thirty seconds, if you can, something
Speaker 1: you've been finding for for a long long time will
Speaker 1: not be in this bill that goes through the House today.
Speaker 1: It's a high minimum white what's the administration's message to
Speaker 1: progressive members of the House who didn't get what they
Speaker 1: want either. President Biden was disappointed by the ruling of
Speaker 1: the Senate parliamentarian to keep this out of the bill. However,
Speaker 1: that doesn't mean he's at all putting this fight behind him,
Speaker 1: and in fact, he continues to be extremely committed. I
Speaker 1: got an email this morning to that effect, and I
Speaker 1: won't divulge what it's said, but I will say that
Speaker 1: the administration remains that the administration, our administration remains absolutely
Speaker 1: committed to finding a path forward on a fifteen dollar
Speaker 1: minimum wage, and that's going to be work that you'll
Speaker 1: hear a lot more about going forward, Jared. Hopefully we'll
Speaker 1: hear from you soon. This is truly a big, big
Speaker 1: effort down in Washington, d c. And it deserves transparency,
Speaker 1: and I'm pleased we're getting it from you today. Jared Bernstein, there,
Speaker 1: the U. S. Council of Economic Advisors member, let's bring
Speaker 1: it Bruce Cansman's som JP Morgan, chief Economist and head
Speaker 1: of Global Economic Research, Bruce Great to catch obvious. Typically
Speaker 1: we'd start with the analysis, then we get to the forecast.
Speaker 1: Can we just start with the call? What is the
Speaker 1: call from you and the team for this year? So
Speaker 1: we've got the US economy growing at a six and
Speaker 1: a half percent pace UM with the middle part of
Speaker 1: the year uge almost nine growth for the next two quarters.
Speaker 1: I would just want to emphasize the global dimension of
Speaker 1: what's happening here. The US is lifting largely a physical stimulus,
Speaker 1: but we don't want to ignore the lifting you get
Speaker 1: in Western Europe coming as the virus starts to fade
Speaker 1: as the vaccines come on. That's as big a lift
Speaker 1: in our forecast. So we have both the U S
Speaker 1: and Western Europe booming over the next couple of quarters,
Speaker 1: and our mobility and disease are suggesting that that lift
Speaker 1: in Europe started in February. That's right where I want
Speaker 1: to go, Dr Kasmin, and I'll go to Columbia University.
Speaker 1: Let's de tell your world leading market economics with the
Speaker 1: academics of Xavier sale E Martin. If I look at
Speaker 1: growth economics right now, How does the stimulus actually work
Speaker 1: and the emerging markets of Professor salet E Martin or
Speaker 1: in the JP Morgan world, how does it actually diffuse worldwide? Well,
Speaker 1: that's an interesting question, and I think what we're going
Speaker 1: to see is just the dominant effect of of spending
Speaker 1: in the US and Western Europe, which is gonna be
Speaker 1: sucking in imports from the rest of the world. Um,
Speaker 1: that is gonna lift everybody, but there are offsets in
Speaker 1: terms of higher interest rates, in terms of central banks
Speaker 1: in emerging markets, not the FED of course, beginning to
Speaker 1: move towards tight policy. The net effect of this is
Speaker 1: a very clear positive. The other reaction, which I think
Speaker 1: is important is China. They've had a very successful recovery.
Speaker 1: They're gonna sit on the demand they get from the
Speaker 1: rest of the world and tighten policy here. So Chinese
Speaker 1: demand is gonna slow, being somewhat of an offset against
Speaker 1: it otherwise booming global growth picture brus How much is
Speaker 1: this to recovery from some of the lost productivity, the
Speaker 1: lost growth that we saw in and how much are
Speaker 1: we entering a new cycle of potential inflation. Well, the
Speaker 1: way we've been thinking about this is to recognize that
Speaker 1: there is a huge bounce that's coming as we normalize,
Speaker 1: as we get bottleneck pressures, as we're seeing commodity prices.
Speaker 1: So the inflation pick up here looks to us like
Speaker 1: it's gonna bring us and global inflation possibly to the
Speaker 1: highest space we've seen in a decade. I want to
Speaker 1: fade that. I think there's a lot of temporary forces
Speaker 1: that are gonna start to dissipate as we get later
Speaker 1: in the year. However, I think behind the scenes, what
Speaker 1: we're seeing is committed pol sees. We're seeing with this stimulus,
Speaker 1: a very healthy balance sheet on the part of the
Speaker 1: household sector. We're seeing the interaction of FED policy and
Speaker 1: fiscal policy. So I want to buy the reflationary trend,
Speaker 1: and I want to fade the bounce that we're going
Speaker 1: to see in the next few months, which is going
Speaker 1: to weigh over state the degree to which this is changing. Bruce,
Speaker 1: do you think that will be the dominant market narrative
Speaker 1: later this year when we get that better data And
Speaker 1: I keep going back to this story because it's so
Speaker 1: important the data will get better. We can only agree
Speaker 1: on that. Whether you bearish or bullish, what the bears
Speaker 1: believe is that the inflation starts to run away and
Speaker 1: that the market starts to tighten up and then bring
Speaker 1: forward FED hikes as well. Do you think everyone else
Speaker 1: gets your view of the world, or enough people get
Speaker 1: to that view. I think there's no doubt as we
Speaker 1: go through the next number of months and we see
Speaker 1: inflation spikeire as we see these huge growth numbers, the
Speaker 1: debate is going to be are we gonna overshoot our inflation?
Speaker 1: Is the FED going to have to move earlier? I
Speaker 1: think the FED is going to be an anchor here,
Speaker 1: basically telling us that at least until the end of
Speaker 1: twenty two, they're on hold here. They're not gonna change.
Speaker 1: They're they're thinking anytime soon. And I think if we're right,
Speaker 1: what we're gonna see is the inflation numbers settled down,
Speaker 1: but I think in an underlying sense show signs that
Speaker 1: it is moving higher here. So I think the bottom
Speaker 1: line here is that we're gonna definitely buy this as
Speaker 1: a very different event than what we saw after the
Speaker 1: global financial crisis. But we've got to get through this scare,
Speaker 1: and I don't doubt that there's gonna be a lot
Speaker 1: of talk about whether inflation is getting out of control
Speaker 1: here verse I mentioned the X axis, the timeline moments ago.
Speaker 1: Michael Faroli has been a great leader on potential g
Speaker 1: d P. What's the Chasman timeline to get back to
Speaker 1: two potential g d P? Are we grossly off? Is
Speaker 1: it much farther out than we think? I think that's
Speaker 1: a really hard one, Tom, And we're kind of struggling
Speaker 1: with trying to figure out the lasting implications of what's
Speaker 1: what's happening here. Um. There are clearly some negatives here
Speaker 1: in terms of having created disclok asians, scarring in the
Speaker 1: labor market that are going to continue here for some time. Um.
Speaker 1: But at the same time, we're getting a boost to growth.
Speaker 1: It's not only lifting growth back to its previous level,
Speaker 1: it's actually raising it above the path we were on.
Speaker 1: And there's some real possibilities here that that dynamic, if
Speaker 1: it's sustained, creates positive factors. Our potential growth estimates for
Speaker 1: the US are one and a half. We haven't changed
Speaker 1: that yet, but I have to say I'm somewhat agnostic
Speaker 1: about what the next couple of years are going to
Speaker 1: deliver on that front. Bruce always get to see you
Speaker 1: and great to catch you out, Bruce Kasman that Jap Morgan,
Speaker 1: chief economist and the head of Global Economic Research. This
Speaker 1: is a joy on. On March tenths we get out
Speaker 1: front of what is possibly my book of the summer.
Speaker 1: I'm not willing to say that yet, but boy does
Speaker 1: James Travinis go to the top of the pile. Ad
Speaker 1: Mr Venus provides value as Bloomberg opinion. Calumness, the former
Speaker 1: NATO Supreme Commander, We're thrilled that you could join us
Speaker 1: with Ackerman and Tavita's two thousand thirty four. It's the
Speaker 1: three o the three page novel that begs to be
Speaker 1: read now. Ad was Tavidas, thank you so much for
Speaker 1: joining us. The banner that begins your book is chilling.
Speaker 1: It is a March day in two thousand thirty four
Speaker 1: in our United States Navy is in the South China Sea,
Speaker 1: looking and staring at China. Is there a risk here
Speaker 1: that we need to wait for war with China before
Speaker 1: two thousand thirty four? Low risk over the next few years.
Speaker 1: But the reason we set the book about fifteen years
Speaker 1: in the future, Tom, is because that's when the trend
Speaker 1: lines really start to look difficult, shall we say. Chinese
Speaker 1: cyber capability goes up, their maritime capability goes up, their
Speaker 1: ability to employ stealth, their determination to hold on to
Speaker 1: the South China Sea where the novel opens. It could
Speaker 1: be a collision, It could be a miscalculation. We ought
Speaker 1: to worry about it. In twenty thirty four is a
Speaker 1: cautionary tale on page six. I think this is so important, John,
Speaker 1: the couple sliding in a couple of beers at the
Speaker 1: Old Abbott Grill or the hay Adams Bar, and then
Speaker 1: they came back later. I mean, forget about that, John,
Speaker 1: this is outrageous where stravitas. John Farrell is going to
Speaker 1: the fiction of someone having cocktails at the hay Adam Hotel.
Speaker 1: So much Tom, because this is the same approach that
Speaker 1: you have in foreign relations. This wall, Admiral, were set
Speaker 1: that scene at the Willard Hotel, which also has a
Speaker 1: great ground driving bar. So there we go. Well, my
Speaker 1: d C bars not to work. I'm sure you've shared
Speaker 1: a drink with Tom at several of those bars as well, Admiral.
Speaker 1: Looking forward and how this relationship evolves, There has been
Speaker 1: talk and I believe it came from the South China
Speaker 1: Morning Post and just yesterday in the last twenty four
Speaker 1: hours that there could be a meeting with the top
Speaker 1: end boys between the United States and China, potentially in Alaska.
Speaker 1: How do you think this relationship resets, what's the approach
Speaker 1: and how is it different to what we saw with
Speaker 1: the previous administration. I think you'll see the Biden team
Speaker 1: work from a script, if you will, they'll create a
Speaker 1: strategy that will put together military deterrence, diplomacy, economic tools,
Speaker 1: cultural tools, strategic communication, and above all work with our allies.
Speaker 1: That's the formula here. The Trump administration was very episodic,
Speaker 1: very tactical. I think you're going to see a more
Speaker 1: strategic approach. That's what we need. This is the big
Speaker 1: strategic challenge of this part of the centry. What's the objective?
Speaker 1: What do you think the objective should be. I think
Speaker 1: a strategy ought to see to confront where we must
Speaker 1: and we can't turn over the entire South China Sea
Speaker 1: to China as territorial waters, which they claim. We've got
Speaker 1: to confront them there, but we have to cooperate wherever
Speaker 1: we can. We have to find zones of cooperation example
Speaker 1: the environment, example, prepare for the next pandemic, example, work
Speaker 1: together on medical diplomacy in the developing world, so confront
Speaker 1: where we must cooperate where we can, Let's avoid the
Speaker 1: scenario at all costs. Admiral, you're giving me permission to
Speaker 1: go with gloomy what ifs, which is basically what I
Speaker 1: like to do with my pastime. And I'm wondering as
Speaker 1: you look towards what some of the risks are. I'm curious,
Speaker 1: what does a world war look like in a post
Speaker 1: nuclear era. It's going to include cyber as a significant component,
Speaker 1: particularly by the end of this decade, as quantum computing
Speaker 1: collides with what we think of traditionally as cyber bits,
Speaker 1: ones and zeros, and computing much more complicated, opens many
Speaker 1: more abilities. Stealth will be even better than it is now.
Speaker 1: Space will be an important component. That's why the United
Speaker 1: States created as Space Force. And finally, you're going to
Speaker 1: see good old fashioned naval conflict here because, uh, for
Speaker 1: better or for worse, We're not going to get into
Speaker 1: a land war with China. It's going to be played
Speaker 1: out in the scenarios of the need more than anywhere else.
Speaker 1: Do you think that the United States has both the
Speaker 1: intellectual capacity in the government jobs that need to be
Speaker 1: filled in order to prepare ourselves for some of the
Speaker 1: cyber attacks, as well as the investment on the private
Speaker 1: side towards some of these resources. You put your finger
Speaker 1: on the key element here, which is private public cooperation.
Speaker 1: The government can't do this by itself. A good first
Speaker 1: step would be to create a cyber force, just like
Speaker 1: our Space Force was created a year or so ago.
Speaker 1: But secondly, there has to be pretty seamless cooperation across
Speaker 1: this enormous threat surface that we're facing. So we've got
Speaker 1: work to do in that regarding and we're gonna have
Speaker 1: to compete Hart with Silicon Valley to bring that talent
Speaker 1: to bear on this problem in cyber James, the shocking
Speaker 1: immediacy of this book two thousand thirty four, from your
Speaker 1: heritage of coming out of San Diego on a boat
Speaker 1: when you were a kid, and of course also Elliott
Speaker 1: Ackerman's wonderful word, the realism of this is tangible. Is
Speaker 1: our US Navy too ready to do what's in two
Speaker 1: thousand thirty four? Yes, and they are already at sea.
Speaker 1: The challenge is going to be numbers of ships. And
Speaker 1: even now this makes surprise you tom but China has
Speaker 1: more warships than the United States does. Ours are more capable.
Speaker 1: We have those big, beautiful nuclear aircraft carriers. China is
Speaker 1: gaining air speed in this regard where I don't mean
Speaker 1: to interrupt bed, but this is so important. We've lost
Speaker 1: Hong Kong. We can't show the flag there anymore. I
Speaker 1: believe where is our harbor is? We base affairs out
Speaker 1: of the South China Sea. We're gonna be forward time
Speaker 1: from Guas and that's gonna be the board based. Remember
Speaker 1: it used to be Pearl Harbor. Now you're all the
Speaker 1: way forward to Guam. And a second important piece of
Speaker 1: this is up in Tokyo Bay, ironically enough, where the
Speaker 1: World War two ended. That's our large just naval base
Speaker 1: in the Pacific is in a place called Yakuska, Japan.
Speaker 1: In Tokyo Bay. That's where the seventh Fleet is based.
Speaker 1: They will go forward. They'll also operate out of bases
Speaker 1: in South Korea. It's good to have allies in this one, admirable.
Speaker 1: I want to finish out by what you think this
Speaker 1: is going. You've told about the objective, and I think
Speaker 1: it's really important to understand where things aheading and whether
Speaker 1: we can just slow them down, or whether we can
Speaker 1: change the outcome. Do you think the outcome is already
Speaker 1: predetermined now? I do not, although we ought to be concerned.
Speaker 1: If we look back in history, so often when there
Speaker 1: is an established power Athens confronted by a rising power Sparta,
Speaker 1: or an established power the United Kingdom a hundred years
Speaker 1: ago challenged by a rising Kaiser's Germany, so often those
Speaker 1: scenarios do lead to war. We can still avoid this.
Speaker 1: That's why we wrote four to lay out a cautionary tale.
Speaker 1: We need a strategy to do that that employs all
Speaker 1: elements of US national power. And we need to understand
Speaker 1: China better. Today China knows us better, we know China.
Speaker 1: We have work to do, Admiral, before we let you go.
Speaker 1: Why a novel? And why now? I believe this is
Speaker 1: your first novel ever. Tom just may haveron it tried
Speaker 1: to throw it out at John, you did try to
Speaker 1: throw it. I just want to confirm that George Clooney
Speaker 1: is gonna play Strevitas, Leonardo DiCaprio is gonna play Lieutenant Faroh.
Speaker 1: Come on, It's a no brainer, all right? So I
Speaker 1: fix in because in fiction we can allow ourselves to
Speaker 1: imagine the future. If I'd written a dry as dust
Speaker 1: policy kind of book interest items, but this reaches the
Speaker 1: big audience and want to let people know this is
Speaker 1: a real danger. James to Venus, how is our new
Speaker 1: defense secretary doing? I forgot his name? Secretary Lloyd Austin,
Speaker 1: one of my contemporary is a wonderful officer. He's opted
Speaker 1: to a terrific start by being steady, by being very
Speaker 1: concerned about the people in the forest. He's a real
Speaker 1: expert on the Middle East. He's gonna be spending a
Speaker 1: lot of time focusing on the Pacific. I'm not sure
Speaker 1: if the President's listening. Go no sophisticated to human, So
Speaker 1: I'll give you that apple James to the President doesn't listen,
Speaker 1: But the two dogs are in front of the screen
Speaker 1: every morning. And good luck with the book release and
Speaker 1: we look forward to catching up with you soon. Apple
Speaker 1: James to vidis that of bloom Bug opinion columnist. Then
Speaker 1: fulminates how Supreme allied Commanda. Then it is now a
Speaker 1: joy and annual visit for us with Craig Moffatt and
Speaker 1: Michael Nathanson of Moffatt Nathanson, the founding partners legendary at
Speaker 1: Sanford Bernstein. If you got your hands on their Black
Speaker 1: Book years ago, you read it cover to cover. In
Speaker 1: this folks, more than ever, we've spoken with Moffatt and
Speaker 1: with Nathanson the importance of our homes, our TVs. Our kids,
Speaker 1: and what the future is for media. This is must
Speaker 1: listen for Global Wall Street. I don't even know who
Speaker 1: to begin with. I think Craig Moft is better looking. Michael,
Speaker 1: I'm going with Craig. Oh my god, start the time. No, no,
Speaker 1: you're never going to hear that where this Craig I
Speaker 1: was thunderstruck in your neck of the woods, wire and
Speaker 1: all that at the cord cutting that's going on when
Speaker 1: the pandemics over, do we continue to cut the chord? Sure,
Speaker 1: of course we do. And first of all, thank you
Speaker 1: for having us on. It's always a pleasure for us
Speaker 1: to do this as well, so so thank you and
Speaker 1: thanks for the kind words. And look, of course we're
Speaker 1: going to continue to the cord cut. And I think
Speaker 1: what Michael and I have been writing a lot about
Speaker 1: over the last year is that this has now become
Speaker 1: almost a self fulfilling prophecy. We talked about two vicious
Speaker 1: cycles that have started in chord cutting, where first it
Speaker 1: was about sports, where the sports contract x are are
Speaker 1: fixed for the programmers, their prices therefore keep going up.
Speaker 1: They have no choice but to push those price increases
Speaker 1: through to the distributors cable and satellite operators, who therefore
Speaker 1: raise their prices and make it less and less attractive
Speaker 1: for anybody who's not a sports fan. Those customers leave,
Speaker 1: That drives the price even higher for the customers who
Speaker 1: were left, and you get this kind of this self
Speaker 1: fulfilling doom loop of more and more customers leaving. Now
Speaker 1: you're augmenting that with the media companies themselves getting rewarded
Speaker 1: for taking their best content and moving it over to
Speaker 1: their direct to consumer platforms Spot and a BOD and
Speaker 1: so that too is starting to accelerate, and you're strip
Speaker 1: mining the traditional ecosystem. So there's I think we're past
Speaker 1: the point of no return for this transition and cutting
Speaker 1: now just moves all the way to Spot and a
Speaker 1: BOD for non sports. Michael Nathans, and since our last
Speaker 1: joint visit with the two of you, what I have
Speaker 1: been thunderstruck by is you know, I'll make it narrow
Speaker 1: the courage of Mr Iger at Disney, the courage of
Speaker 1: people to be bold. Do we see more Iger like
Speaker 1: courage in the coming quarters? Oh? With that a doubt, Tom.
Speaker 1: They've been rewarded for that vision and that courage, and
Speaker 1: everyone is now going to emulate Disney because Wall Street
Speaker 1: has rewarded Disney for the execution of that vision, and
Speaker 1: people want the same narrative for their stocks. Right. So,
Speaker 1: in the past couple of months, Discovery, Viacom have all
Speaker 1: joined you know this bandwagon, Peacock, and Comcast, and as
Speaker 1: Craig said, because is going to accelerate all the media
Speaker 1: companies going to in their own word, you know, world's
Speaker 1: accelerate growth as well, and followed Disney down the same path. Cleig,
Speaker 1: you said something that was really important non sports. This
Speaker 1: was his key phrase because right now Cable is holding
Speaker 1: onto sports and there is a question of how much
Speaker 1: of a lock grip Cable has on sports, especially as
Speaker 1: Amazon I think inks a Thursday Night exclusive deal with
Speaker 1: the NFL. What's your vision going out one to three
Speaker 1: years in the relationship, Craig, you know what, I'm going
Speaker 1: to defer to Michael. He's really the expert on sports.
Speaker 1: Um and I think Michael has done a lot of
Speaker 1: really interesting works. So Michael, I'll let you answer that one.
Speaker 1: Thanks Craig, and thanks LUSA. Um So our view is
Speaker 1: that only the biggest events the NFL um X Thursday Night,
Speaker 1: Major League Baseball playoffs, NT Double A Playoffs, the biggest
Speaker 1: events will stay in the ecosystem. But you're starting to see,
Speaker 1: as you said, Li said, the chipping away of the course,
Speaker 1: you know, course sports. So Amazon's taking a package. You'll
Speaker 1: probably see the NHL do some deals over the top
Speaker 1: of other with other companies. So the bundle is going
Speaker 1: to still have core sports in it, but now sports
Speaker 1: fans will have to maybe pick other streaming platforms to
Speaker 1: get you know, secondary sports. So it's going to basically,
Speaker 1: I think, lead to more and more inflation for consumers
Speaker 1: when it comes to the cost of of of the video. Basically, well,
Speaker 1: there's raises a question, Craig, just in terms of at
Speaker 1: what point people are going to cut the core to
Speaker 1: have you done any research in sort of the price
Speaker 1: point at which people decide forget it it's just not
Speaker 1: worth it. Well, I don't sorry, I was just gonna
Speaker 1: say at least I don't think you can say it's
Speaker 1: it's just price anymore, because, as Michael was describing the
Speaker 1: vision of Disney, as the companies are rewarded for putting
Speaker 1: their best content on their direct consumer platforms. It's more
Speaker 1: than just price. It's it's about the product itself. And
Speaker 1: you know, we've done some work on the video value
Speaker 1: chain that says you have to really think about, um,
Speaker 1: what what is coming being the aggregation of individual shows
Speaker 1: rather than the aggregation of cable networks, and cable networks
Speaker 1: themselves sort of disappear. And in that world, it is
Speaker 1: really hard to say there's a floor for for cord cutting.
Speaker 1: If you define cord cutting as who's buying the traditional
Speaker 1: bundle of cable networks, there has to be a bundle
Speaker 1: of cable networks to buy for that to have a floor. Well, Michael, please,
Speaker 1: my will jump in. Okay. So our core thesis had
Speaker 1: always been there's the U S population that's a sports
Speaker 1: and news fan. As long as sports a new stad
Speaker 1: in the bundle, the bundle will survive. But now you're
Speaker 1: starting to see that fragmentation of people putting their sports
Speaker 1: on their own services and in the bundle, and that's
Speaker 1: going to lead to real you know, the acceleration of
Speaker 1: court kind. I want to get to the lessons learned here,
Speaker 1: and I can go to Warner Brothers and all that
Speaker 1: mass with HBO, but I want to start the two
Speaker 1: of you and Craig. Let me start with you. Maybe
Speaker 1: that's wrong, but I'm gonna go there because Nathanson is
Speaker 1: better looking than you. Craig, and and and what what
Speaker 1: I wouldn't want to say, Craig is a T and T.
Speaker 1: What a train wreck you published? It was a train wreck.
Speaker 1: We all knew it was going to be a train wreck.
Speaker 1: What were the lessons learned from a T and T
Speaker 1: s effort to go into the moffat Nathan's world? Well,
Speaker 1: the the lesson is when you overpay for for declining assets,
Speaker 1: bad stuff happens, right. I mean, I don't know that
Speaker 1: it has anything it tells you anything all that specific
Speaker 1: about media as much as it does. You know, it
Speaker 1: wasn't It wasn't a mystery when they bought direct TV
Speaker 1: that they were overpaying for an asset that was poised
Speaker 1: to decline. We wrote it at the time, and lost
Speaker 1: of other people knew it at the time. They doubled
Speaker 1: down in part because they got into so much trouble
Speaker 1: on the direct TV deal that that they their dividend
Speaker 1: once again looked questionable, and they had to then spend
Speaker 1: even more to buy Time Warner. And in retrospect, remember
Speaker 1: what Time Warner was. It had some wonderful assets like HBO,
Speaker 1: but it was still mostly a collection of cable networks
Speaker 1: that too now looks like it is a declining business
Speaker 1: that they paid much for. So so now they the
Speaker 1: problem they've got right now is the balance sheet, and
Speaker 1: and they have had that balance sheet problem for a while,
Speaker 1: and I don't see how they grow out of it.
Speaker 1: But Michael, to me, the major lesson here is the
Speaker 1: creative side. Disnety you know, hit a home run with
Speaker 1: mandalor In and John favor I get all that. Do
Speaker 1: you see any evidence financial types can do creative I
Speaker 1: don't observe it. No, tom See, I was gonna say
Speaker 1: and jump on Craig's answer. The other lesson is you
Speaker 1: can't have a T and T management leading creative companies, right,
Speaker 1: And I think there's a certain degree of viewers that
Speaker 1: they had that they could run all these businesses and
Speaker 1: you can't write creating businesses. And the way that Disney approaches.
Speaker 1: Their business is unique, right, and that is why Disney
Speaker 1: has been able to scale so quickly. And I think,
Speaker 1: you know, I think slowly, but surely we on the
Speaker 1: street have realized that not every management team is the same.
Speaker 1: And you see it in the outcome. I think you
Speaker 1: hit something, Tom that's hard to measure, hard to distinguish,
Speaker 1: but you know when you see it, right, And that
Speaker 1: I think is the other lesson of a T and
Speaker 1: T time warner. At the end of the day, it's
Speaker 1: a great point because remember, this is not the first
Speaker 1: time they've done that. The old timers like me, the
Speaker 1: telcos tried to get into the media business back in
Speaker 1: the late ninety nineties and it failed miserably for all
Speaker 1: the reasons that Michael was just saying. Right, these companies
Speaker 1: do not do well in managing creative businesses. Yeah, guys,
Speaker 1: we're on a time. Let's do this again. Okay, let's
Speaker 1: do this again. This is like affecting every single listener,
Speaker 1: every single viewer. We do MafA Nathan's and where that's
Speaker 1: their wonderful research. I do want to point out, don't
Speaker 1: ask Lisa me for their research. We protect the copyright
Speaker 1: of all of our guests, if you have any interest
Speaker 1: in international markets, This is, without question, our interview of
Speaker 1: the day, the interview of the moment. We had Bruce
Speaker 1: Casman on earlier of JP Morgan as leadership in economics,
Speaker 1: and he needs to understand the minutia of em. He
Speaker 1: turns to Gabriella Santos of JP Morgan Asset Management as
Speaker 1: an aside. She speaks fourteen languages. Gabriella, wonderful to have
Speaker 1: you on today. The Chinese stock market is down for
Speaker 1: team percent. It is truly plunged. Why thank you, Tom
Speaker 1: in English is one of those languages, So we're good. Um.
Speaker 1: In terms of the Chinese stock market, we have seen
Speaker 1: a correction from those February highs Um. I think it
Speaker 1: has very much to do with a similar story to
Speaker 1: what's happening in the Nasdaq in the US. Chinese markets
Speaker 1: are extremely growthy, they're very geared towards technology innovation, and
Speaker 1: they did extremely well last year during the pandemic, top
Speaker 1: performing market thirty percent, so came into this year with
Speaker 1: elevated valuations. So I think all you're seeing in Chinese
Speaker 1: markets is just a correction from a very very good
Speaker 1: year last What everybody wants to know Gabriella as your
Speaker 1: reset on emerging markets. You talk about a tug of war.
Speaker 1: There's many tug of wars in many different parts of EM.
Speaker 1: Can you stay in e M, can you add new
Speaker 1: cash to e M? Or you do? Or do you
Speaker 1: dashed to America? Now? Emerging markets is for US both
Speaker 1: cyclically and structurally UH and overweight in portfolios UM. But
Speaker 1: I think it's it's important to understand how emerging markets
Speaker 1: have changed. UH. So it's a different Emerging markets at
Speaker 1: the beginning of this cycle than it was at the
Speaker 1: beginning of the last cycle. It is an index that
Speaker 1: is a lot more growthy UH. It has a similar
Speaker 1: percentage of tech to the US about a quarter of
Speaker 1: the index. It has six percent exposure to growthy regions
Speaker 1: like China, Korean, Taiwan. So you can get a correction
Speaker 1: and broader e M markets when you have a correction
Speaker 1: and growth. If you're looking for cyclicality and emerging markets,
Speaker 1: you have to do that actively. You can't just rely
Speaker 1: on the benchmark. So for US, EM is really about
Speaker 1: alpha this year, it's really leaning into some cyclical areas
Speaker 1: of emerging markets. For example in China, right it's playing
Speaker 1: the consumer recovery in China this year through consumer discretionary
Speaker 1: as well as Chinese banks playing the improvement in credit growth,
Speaker 1: especially for small and medium sized companies. Can emerging markets
Speaker 1: rally if the dollar doesn't keep weakening, Yeah, So I
Speaker 1: think the dollar has always been critical for emerging markets,
Speaker 1: and it's really a function of why the dollar is moving.
Speaker 1: So there are really two extremes that cause the dollar
Speaker 1: to strengthen, and neither of those are good for e M.
Speaker 1: On one side, it's the US doing better than everybody
Speaker 1: else or US exceptionalism. We've had some of that here
Speaker 1: at the beginning of the year. And the other extreme
Speaker 1: is the US doing too poorly, and I was having
Speaker 1: fears of some sort of issue in the US and
Speaker 1: broader global economy. We've kind of been toggling between these
Speaker 1: two extremes causing dollar strength. Ultimately, though, we think this
Speaker 1: is just a pause and what should be a broader
Speaker 1: cycle dollar weakness as we get to the sweet spot
Speaker 1: where the US is doing well but so is the
Speaker 1: rest of the global economy. So think it's a pause
Speaker 1: in em before we get a broader rally again. And
Speaker 1: this goes into your call where you said we see
Speaker 1: a positive setup for risk acids over the next twelve
Speaker 1: to eighteen months. The question is, and to me, this
Speaker 1: is the key question. How quickly we move to mid cycle?
Speaker 1: What are you looking at? What are the benchmarks that
Speaker 1: you're looking at you determine the answer to that question.
Speaker 1: It's fascinating. This cycle is so different than the cycle
Speaker 1: we had last time, just the speed through which we're
Speaker 1: moving at. In terms of the economy, we look at
Speaker 1: the unemployment rate as a measure of where we are
Speaker 1: in the cycle, and we think we'll hit uh, you know,
Speaker 1: go back to full employment over two years from peak
Speaker 1: to full employment. Remember that took ten years during the
Speaker 1: last cycle. So we're moving very fast here through the
Speaker 1: economic cycle. Now, the cycle doesn't end when we reach
Speaker 1: full employment, but it does slow down back to potential.
Speaker 1: In terms of the market even faster. Uh. It took
Speaker 1: us six months to reach all time highs again instead
Speaker 1: of five years, which is what took us last time.
Speaker 1: So I think we're also a broaching a more mature
Speaker 1: phase of the market cycle. Were return to auderate and
Speaker 1: there are a lot more related to earnings growth. I mean,
Speaker 1: we're missed Gabriella, if I didn't ask you about Brazil.
Speaker 1: We had Lula once, we have Lula again. We've got
Speaker 1: Brazilian real and retreat. It's one of my great great
Speaker 1: miscalls of my my career. I was totally wrong on
Speaker 1: Lula and the prosperity of Brazil. Can he do it again? So?
Speaker 1: I think that's the big question and investors, if you
Speaker 1: look at the way the Brazilian rail has been weakening
Speaker 1: or long term bond yields have been moving, I think
Speaker 1: investors are answering no to that question. Um. And and
Speaker 1: it's all about the kind of team that a potential
Speaker 1: president Lula could get together. And there's a perception that
Speaker 1: this time around things are so polarized, um, that we
Speaker 1: would really see a less orthodox team than the first
Speaker 1: time around. So I really think the balance of risks
Speaker 1: for Latin America has worse than significantly related to local politics. Gabby,
Speaker 1: thank you grant to catch you up coming science so
Speaker 1: stat of J. T. Mulgan Asset Management. This is the
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays
Speaker 1: from seven to ten am Eastern on Bloomberg Radio and
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Speaker 1: Tom Keene, and this is Bloomberg.