1 00:00:00,080 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,559 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. The 5 00:00:33,760 --> 00:00:37,519 Speaker 1: big theme though, it is what is happening in emerging markets, 6 00:00:37,520 --> 00:00:41,000 Speaker 1: with Turkey's financial markets very much sinking, the Lyra hitting 7 00:00:41,040 --> 00:00:43,639 Speaker 1: a record low, bond yeal hitting a fresh record high, 8 00:00:43,680 --> 00:00:47,440 Speaker 1: the tenure yeard preaching for the first time ever, and 9 00:00:47,520 --> 00:00:50,199 Speaker 1: yet investors are confronted with the sound of silence, the 10 00:00:50,280 --> 00:00:53,800 Speaker 1: central Bank and government so fast seemingly nowhere to be seen. 11 00:00:54,120 --> 00:00:56,319 Speaker 1: Joining us here in New York is Gabrielle Santos, JP 12 00:00:56,400 --> 00:00:59,560 Speaker 1: Morgan Asset Management, Global market Strategist. Good morning to Gabby, 13 00:00:59,680 --> 00:01:02,240 Speaker 1: getting morning. So where are they west? The government, west, 14 00:01:02,280 --> 00:01:04,959 Speaker 1: the central Bank. That's that's a big question, right, I mean, 15 00:01:05,000 --> 00:01:07,720 Speaker 1: if we remember how this all started for Turkey really 16 00:01:07,840 --> 00:01:10,200 Speaker 1: was mid April when the dollar started to strengthen, and 17 00:01:10,240 --> 00:01:12,840 Speaker 1: it really brought out the emerging markets that we're seen 18 00:01:12,880 --> 00:01:16,480 Speaker 1: as particularly vulnerable, Turkey being one of them, Argentina being another. 19 00:01:16,600 --> 00:01:19,360 Speaker 1: That's spoken of in the same breath with a similar 20 00:01:19,440 --> 00:01:23,160 Speaker 1: current account deficit in US dollar debt. Now, Argentina has 21 00:01:23,200 --> 00:01:26,880 Speaker 1: taken steps right and big steps. It's raised interest rates, 22 00:01:26,959 --> 00:01:30,120 Speaker 1: it's set up a large physical austerity program, it's sought 23 00:01:30,160 --> 00:01:33,480 Speaker 1: help from the I m F. Whereas Turkey we haven't 24 00:01:33,520 --> 00:01:37,440 Speaker 1: heard anything. And so that's where I think sentiment is very, 25 00:01:37,520 --> 00:01:39,399 Speaker 1: very tricky and Turkey now and we need to see 26 00:01:39,400 --> 00:01:41,880 Speaker 1: some sort of steps from them in order to improve 27 00:01:42,240 --> 00:01:45,720 Speaker 1: investor sentiment. Have we entered the classic E M doom 28 00:01:45,760 --> 00:01:50,080 Speaker 1: loop where the currency weekends markedly, worries starts to rise 29 00:01:50,120 --> 00:01:53,560 Speaker 1: about the debt being financial? Do you know the doom loop? Tom? 30 00:01:53,560 --> 00:01:55,880 Speaker 1: Welcome back, by the way. That's an entrance too into 31 00:01:55,880 --> 00:01:57,920 Speaker 1: the show. Do you start with good morning or just 32 00:01:58,040 --> 00:02:00,000 Speaker 1: jump in doom loop? Do you know what a doom loop? 33 00:02:00,200 --> 00:02:02,800 Speaker 1: What does the doom loop? The feedback loop and negative 34 00:02:02,840 --> 00:02:05,600 Speaker 1: self fulfilling feedback loop. You don't know what wants to 35 00:02:05,600 --> 00:02:09,600 Speaker 1: talking about traffic the South. I think Mrs Kean was 36 00:02:09,680 --> 00:02:11,880 Speaker 1: mentioned in that to me. I think you were in 37 00:02:11,919 --> 00:02:13,760 Speaker 1: the doom loop in the cane house that we can 38 00:02:13,840 --> 00:02:16,560 Speaker 1: talk about that in a continuous and this becomes self 39 00:02:16,600 --> 00:02:20,720 Speaker 1: fulfilling gabby in the sense of the currency weakens, people 40 00:02:20,760 --> 00:02:22,920 Speaker 1: start to worry about the debt being refinanced, and it 41 00:02:22,919 --> 00:02:25,160 Speaker 1: feeds back into a wikied currency, so the wikied currency 42 00:02:25,200 --> 00:02:28,280 Speaker 1: begets a wicked coouncy. And we have been seeing that, right, 43 00:02:28,520 --> 00:02:30,680 Speaker 1: I would say, for for a few emerging markets over 44 00:02:30,720 --> 00:02:32,680 Speaker 1: the past few months. And that's where you do need 45 00:02:32,720 --> 00:02:35,560 Speaker 1: some sort of action to break that loop, right for 46 00:02:35,639 --> 00:02:38,560 Speaker 1: investors to feel like we are in a vulnerable position 47 00:02:38,680 --> 00:02:41,600 Speaker 1: right now, but there are actual steps being taken to 48 00:02:41,720 --> 00:02:44,880 Speaker 1: improve so that the future looks a little bit brighter 49 00:02:44,880 --> 00:02:47,280 Speaker 1: than it does right now. With the tapestry over that 50 00:02:47,560 --> 00:02:51,000 Speaker 1: is this width between a booming United States and a 51 00:02:51,000 --> 00:02:55,360 Speaker 1: few selected economies and everybody else. I mean, I get 52 00:02:55,400 --> 00:02:59,560 Speaker 1: the idea that select em countries are idiosyncratic, but I 53 00:02:59,639 --> 00:03:02,000 Speaker 1: know all of our audience is saying, yeah, but wait 54 00:03:02,000 --> 00:03:04,680 Speaker 1: a minute, we're booming and they're not. At some point 55 00:03:04,680 --> 00:03:06,960 Speaker 1: that catches up with you, right, And I do think 56 00:03:07,040 --> 00:03:10,560 Speaker 1: that's one of the major drivers behind this very very 57 00:03:10,560 --> 00:03:13,440 Speaker 1: strong dollar rally we've seen since mid April, the idea 58 00:03:13,520 --> 00:03:16,000 Speaker 1: that the US is booming compared to the rest of 59 00:03:16,040 --> 00:03:18,080 Speaker 1: the world. But there's one thing that we can do, 60 00:03:18,080 --> 00:03:20,400 Speaker 1: which is look in the rear view mirror and notice 61 00:03:20,440 --> 00:03:23,240 Speaker 1: that dynamic. And there's another in terms of looking over 62 00:03:23,280 --> 00:03:25,920 Speaker 1: the next six eighteen months and think, well, is this 63 00:03:26,000 --> 00:03:29,200 Speaker 1: dynamic going to hold? Is the US going to continue 64 00:03:29,240 --> 00:03:31,680 Speaker 1: to boom so much compared to the rest of the world. 65 00:03:32,080 --> 00:03:34,160 Speaker 1: And we would argue that four percent g d P 66 00:03:34,400 --> 00:03:37,080 Speaker 1: was a one time occurrence, that is not going to 67 00:03:37,120 --> 00:03:39,320 Speaker 1: be the dynamic and that be done smoothly, or do 68 00:03:39,360 --> 00:03:41,560 Speaker 1: we get brutal moves assuming that I mean someday we're 69 00:03:41,560 --> 00:03:44,200 Speaker 1: gonna come out. Let's say you're right, and Bruce Casman's right, 70 00:03:44,560 --> 00:03:46,320 Speaker 1: and someday we're gonna come out and go, oh, we're 71 00:03:46,320 --> 00:03:48,880 Speaker 1: not going to do three point eight or four percent GDP. 72 00:03:49,040 --> 00:03:50,840 Speaker 1: The run rate is going to be two point x 73 00:03:50,920 --> 00:03:54,640 Speaker 1: or whatever it is. The assumption is that happens with controlled, 74 00:03:54,720 --> 00:03:58,800 Speaker 1: measured moves, and these other asset classes, including the stock 75 00:03:58,840 --> 00:04:02,360 Speaker 1: market says who, So, I do think there there is 76 00:04:02,400 --> 00:04:05,840 Speaker 1: to be fair right and understanding in the investment community 77 00:04:05,880 --> 00:04:09,440 Speaker 1: that four percent is not sustainable. But there is still 78 00:04:09,480 --> 00:04:12,119 Speaker 1: a bit of a focus on three percent growth over 79 00:04:12,160 --> 00:04:15,520 Speaker 1: the next twelve months. But our view is that that 80 00:04:15,680 --> 00:04:18,680 Speaker 1: is not a permanent shift in terms of potential growth 81 00:04:18,720 --> 00:04:21,960 Speaker 1: that we do decelerate down to two percent in the 82 00:04:22,000 --> 00:04:26,640 Speaker 1: second half of and the sooner we start focusing on that, um, 83 00:04:26,680 --> 00:04:29,680 Speaker 1: the smoother the process can be in terms of dollar 84 00:04:29,720 --> 00:04:33,320 Speaker 1: adjustment and market adjustment. The thing when you're advising clients 85 00:04:33,360 --> 00:04:37,400 Speaker 1: on portfolio mix or what to do with new cash, etcetera. 86 00:04:37,800 --> 00:04:41,680 Speaker 1: The basic idea is the United States. To borrow phrase 87 00:04:41,720 --> 00:04:44,520 Speaker 1: from Mr Farrell, which I love to do, we're doom 88 00:04:44,520 --> 00:04:49,640 Speaker 1: loop free, right um. Doom is a is a strong word, 89 00:04:51,320 --> 00:04:54,080 Speaker 1: but other than that, we're doom loop free, right Um. 90 00:04:54,120 --> 00:04:57,520 Speaker 1: I do think that, to use another d word, right, 91 00:04:57,600 --> 00:05:00,200 Speaker 1: that there is a deceleration that we see in the 92 00:05:00,320 --> 00:05:03,640 Speaker 1: US over the next twelve and eighteen months, and so 93 00:05:03,839 --> 00:05:07,320 Speaker 1: US assets, the shining star over the past six months 94 00:05:07,600 --> 00:05:10,680 Speaker 1: won't shine so bright in that kind of scenario compared 95 00:05:10,720 --> 00:05:13,200 Speaker 1: to the rest of the world, especially if you compare 96 00:05:13,200 --> 00:05:16,360 Speaker 1: it to emerging markets, which was coming from a very 97 00:05:16,400 --> 00:05:19,080 Speaker 1: tricky spot there for many many years and has the 98 00:05:19,120 --> 00:05:22,920 Speaker 1: potential to keep accelerating over the next couple of years. 99 00:05:23,160 --> 00:05:25,520 Speaker 1: What were seeing in Turkey? Do you see contagent risk? 100 00:05:27,080 --> 00:05:30,240 Speaker 1: So at the moment, we do not, right, And I 101 00:05:30,279 --> 00:05:32,640 Speaker 1: do think that there is an understanding that Turkey is 102 00:05:32,680 --> 00:05:36,000 Speaker 1: a very particular case. Here we mentioned its vulnerabilities in 103 00:05:36,120 --> 00:05:39,120 Speaker 1: terms of current account dollar DAD as well as it's 104 00:05:39,320 --> 00:05:44,480 Speaker 1: uh we could call it an orthodox approach towards economic policy. 105 00:05:44,520 --> 00:05:46,800 Speaker 1: I think that there is an understanding that other emerging 106 00:05:46,800 --> 00:05:50,760 Speaker 1: markets are different. Um, there is an understanding that, you know, 107 00:05:50,800 --> 00:05:54,360 Speaker 1: we shouldn't punish all emerging markets to that same extent. 108 00:05:54,640 --> 00:05:56,480 Speaker 1: I thought it was really interesting what we got from 109 00:05:56,560 --> 00:06:00,160 Speaker 1: China f X reserves overnight. Many people thought they'd see 110 00:06:00,120 --> 00:06:02,200 Speaker 1: a decline. We didn't. We got a slight rise in 111 00:06:02,279 --> 00:06:04,520 Speaker 1: China effects reserves. What's the signal you take from that 112 00:06:04,560 --> 00:06:07,039 Speaker 1: gaping So if we think about why we were so 113 00:06:07,160 --> 00:06:10,480 Speaker 1: concerned about China's effects reserves, why this release took on 114 00:06:10,560 --> 00:06:13,920 Speaker 1: a whole new importance in our calendars. It was really 115 00:06:14,040 --> 00:06:18,680 Speaker 1: during when we started to see yu want depreciation, and 116 00:06:18,720 --> 00:06:21,280 Speaker 1: there was a concern that the Chinese government was using 117 00:06:21,360 --> 00:06:23,920 Speaker 1: up a lot of its effects reserves to shore up 118 00:06:23,920 --> 00:06:28,280 Speaker 1: the currency to have a controlled depreciation of the currency, right, 119 00:06:28,320 --> 00:06:30,839 Speaker 1: And so it's it's very very positive to have seen 120 00:06:30,920 --> 00:06:33,799 Speaker 1: over the past couple of years much more stable effects reserves. 121 00:06:34,080 --> 00:06:36,400 Speaker 1: It sends the signal that there isn't an out of 122 00:06:36,480 --> 00:06:40,159 Speaker 1: controlled depreciation in the yuan, so we do feel generally, 123 00:06:40,160 --> 00:06:44,359 Speaker 1: I would say okay with the outlook for China, especially 124 00:06:44,360 --> 00:06:46,200 Speaker 1: in the second half of the year. We have seen 125 00:06:46,240 --> 00:06:50,480 Speaker 1: a lot of fiscal and monetary easing over the past 126 00:06:50,560 --> 00:06:52,960 Speaker 1: few weeks and that should feed through to it to 127 00:06:53,000 --> 00:06:57,080 Speaker 1: an acceleration in Chinese expect Do you expect to see 128 00:06:57,160 --> 00:07:01,239 Speaker 1: more more easing? I think right which China is always 129 00:07:01,240 --> 00:07:05,000 Speaker 1: a bit of a balance between trying to ensure uh 130 00:07:05,160 --> 00:07:08,400 Speaker 1: some good economic growth at the same time not give 131 00:07:08,480 --> 00:07:12,280 Speaker 1: up completely on reforms of when we think about all 132 00:07:12,280 --> 00:07:14,000 Speaker 1: of the credit that China has build up, so I 133 00:07:14,000 --> 00:07:16,360 Speaker 1: think it's it's a tough balancing act and as long 134 00:07:16,360 --> 00:07:19,280 Speaker 1: as the economy starts to pick up, then the Chinese 135 00:07:19,280 --> 00:07:22,800 Speaker 1: government won't want to do too much and just just 136 00:07:22,960 --> 00:07:24,920 Speaker 1: very quickly here. I mean, the vics spiked down to 137 00:07:25,000 --> 00:07:27,680 Speaker 1: ten point five two today. But once again in the 138 00:07:27,800 --> 00:07:31,239 Speaker 1: US markets, all the doom and gloom guys have been wrong. 139 00:07:31,760 --> 00:07:34,440 Speaker 1: Have you ever seen anything like this or like John 140 00:07:34,640 --> 00:07:38,000 Speaker 1: to me, it's Friday. Everybody publishes on Friday their doom 141 00:07:38,040 --> 00:07:40,960 Speaker 1: and gloom article of the week, and I'm sure sometimes 142 00:07:41,000 --> 00:07:46,800 Speaker 1: they'll be right, But the fact is the VIX is 143 00:07:46,800 --> 00:07:50,360 Speaker 1: eleven point zero one under with a ten handle earlier. 144 00:07:50,400 --> 00:07:53,360 Speaker 1: I mean, how do you deal with that professionally, because 145 00:07:53,400 --> 00:07:55,200 Speaker 1: I know you're getting it from clients, right. We do, 146 00:07:55,400 --> 00:07:57,680 Speaker 1: we do, and and to be fair, we want to 147 00:07:57,680 --> 00:08:00,280 Speaker 1: focus on the risk. We want to think through them. 148 00:08:00,320 --> 00:08:02,360 Speaker 1: But at the same time, we also want to take 149 00:08:02,400 --> 00:08:05,600 Speaker 1: a look at what current situations are. Right. And if 150 00:08:05,640 --> 00:08:07,680 Speaker 1: you look at the backdrop for the US market, it's 151 00:08:07,680 --> 00:08:11,040 Speaker 1: a solid economic backdrop. We spoke about deceleration, but it's 152 00:08:11,040 --> 00:08:15,040 Speaker 1: still expansion. It's still growth. It's not recession, um and 153 00:08:15,040 --> 00:08:17,600 Speaker 1: and as a result, profit growth can continue at a 154 00:08:17,720 --> 00:08:20,520 Speaker 1: very very healthy pace. UM. So we do try to 155 00:08:20,520 --> 00:08:22,920 Speaker 1: think through the risk. The one we are still focusing 156 00:08:22,960 --> 00:08:25,960 Speaker 1: on our trade tensions, um. But we don't want to 157 00:08:26,000 --> 00:08:29,000 Speaker 1: react to rashly, right as as long as the current 158 00:08:29,000 --> 00:08:32,480 Speaker 1: fundamentals look positive. Okay, this has been great. Get Real Scientists. 159 00:08:32,520 --> 00:08:51,800 Speaker 1: Thank you so much, greatly, thank you so much this morning. John. 160 00:08:52,160 --> 00:08:54,040 Speaker 1: I don't know what your favorite team is. I don't 161 00:08:54,040 --> 00:08:56,560 Speaker 1: know what Steve Major's favorite team is, but I think 162 00:08:56,600 --> 00:08:59,360 Speaker 1: you both don't like Arsenal Right, you'll bring in Mr 163 00:08:59,440 --> 00:09:02,040 Speaker 1: Major and I Steve supports it's West Ham isn't it, Steve. 164 00:09:02,960 --> 00:09:05,840 Speaker 1: That's right, John, you're a happy man looking forward to 165 00:09:05,880 --> 00:09:08,600 Speaker 1: the season. Yes, I'm looking forward to it, looking forward 166 00:09:08,600 --> 00:09:11,880 Speaker 1: to the scene, Steve Major, East London's finest. There you go. 167 00:09:14,000 --> 00:09:17,199 Speaker 1: I'm trying to teach it. HSBC's global head of Fixed 168 00:09:17,200 --> 00:09:19,560 Speaker 1: Income Research, Johning us Now, Steve, what are we getting 169 00:09:19,559 --> 00:09:21,960 Speaker 1: wrong in the fixed income market? Still that you have 170 00:09:22,000 --> 00:09:25,560 Speaker 1: to spend a lot of time explaining the clients. Well, 171 00:09:25,600 --> 00:09:29,199 Speaker 1: the five percent number was quite funny this morning. I'm 172 00:09:29,240 --> 00:09:32,920 Speaker 1: not sure whether the JP Morgan Research department have written 173 00:09:32,960 --> 00:09:36,400 Speaker 1: anything that's got a five percent. Believe they have not. 174 00:09:38,160 --> 00:09:40,959 Speaker 1: And I'm just wondering what would happen here, Whether if 175 00:09:41,000 --> 00:09:43,880 Speaker 1: Stuart Gulliver had done that, our ex head so now 176 00:09:43,920 --> 00:09:46,080 Speaker 1: it's John Flint. If John Flint had done that, I 177 00:09:46,120 --> 00:09:49,360 Speaker 1: wonder what would have happened here? What would you have said, Steve? 178 00:09:49,400 --> 00:09:52,439 Speaker 1: What would you have said if well done that a 179 00:09:52,520 --> 00:09:55,079 Speaker 1: couple of years ago. There's a fair bit of a 180 00:09:55,120 --> 00:09:57,320 Speaker 1: fair bit of work get into these research reports and 181 00:09:57,360 --> 00:09:59,760 Speaker 1: they're done with some consideration. It doesn't make them right. 182 00:10:00,040 --> 00:10:02,960 Speaker 1: We could always be wrong. But you know, I'm beholden 183 00:10:03,000 --> 00:10:05,880 Speaker 1: to my colleagues to justify everything I say and think, 184 00:10:05,960 --> 00:10:09,160 Speaker 1: and if I go across the line, they'll pull me back. 185 00:10:09,720 --> 00:10:12,920 Speaker 1: So we've got a published number that's two point three, 186 00:10:13,120 --> 00:10:15,800 Speaker 1: and that number hasn't changed for the last twelve months, 187 00:10:15,800 --> 00:10:19,120 Speaker 1: and every day of the week I'm out there defending it. 188 00:10:19,320 --> 00:10:23,040 Speaker 1: The thing is with botons, the forecasts aren't wrong until 189 00:10:23,080 --> 00:10:26,319 Speaker 1: we get to the forecast date. And our forecast is 190 00:10:26,400 --> 00:10:28,080 Speaker 1: for the end of this year and the end of 191 00:10:28,120 --> 00:10:30,280 Speaker 1: next year, and I'm thinking, look, I'm not wrong yet, 192 00:10:30,880 --> 00:10:34,000 Speaker 1: and to be right, you just need the yield to 193 00:10:34,080 --> 00:10:38,000 Speaker 1: be lower than the forward is implying. So this year 194 00:10:38,200 --> 00:10:41,920 Speaker 1: we've had a hundred and fifty trading days and only 195 00:10:42,000 --> 00:10:45,760 Speaker 1: on nine days did the US tenure treasury close at 196 00:10:45,840 --> 00:10:49,280 Speaker 1: three or above. So if you've been sure the tenure 197 00:10:49,320 --> 00:10:52,000 Speaker 1: treasury is, it's been quite painful for most of the 198 00:10:52,040 --> 00:10:56,280 Speaker 1: time you've given up the coupon. So look, five PC. 199 00:10:56,600 --> 00:10:59,240 Speaker 1: It's a number the FED says they're going to go 200 00:10:59,280 --> 00:11:02,240 Speaker 1: to about They're not saying they're going to go to four. 201 00:11:02,679 --> 00:11:05,319 Speaker 1: To have a five ten year yield. The Fed's got 202 00:11:05,320 --> 00:11:07,760 Speaker 1: to be at for and change, and you've gotta have 203 00:11:07,760 --> 00:11:11,800 Speaker 1: inflation going above the FED target. That might be a 204 00:11:11,840 --> 00:11:14,400 Speaker 1: possible scenario for the future, but I wouldn't give it 205 00:11:14,480 --> 00:11:17,880 Speaker 1: a probability of waiting of more than five or ten percent. 206 00:11:18,559 --> 00:11:23,000 Speaker 1: I would attach at probability to the idea that the 207 00:11:23,000 --> 00:11:26,319 Speaker 1: FED stops at one of the next two or three meetings. 208 00:11:27,240 --> 00:11:30,160 Speaker 1: And you when you when you wait all those scenarios up, 209 00:11:30,280 --> 00:11:32,720 Speaker 1: you end up with a forecast that has a two handle, 210 00:11:33,200 --> 00:11:35,280 Speaker 1: not a five handle to stay a lot to one 211 00:11:35,320 --> 00:11:37,280 Speaker 1: pank Here, let's just pick up on the point about 212 00:11:37,280 --> 00:11:40,199 Speaker 1: the Federal Reserve. What's going to problem? What's the catalyst 213 00:11:40,280 --> 00:11:43,560 Speaker 1: for them to stop in the next two or three meetings. Well, look, 214 00:11:43,559 --> 00:11:45,760 Speaker 1: the way I describe it, Johns has been plenty already 215 00:11:45,840 --> 00:11:48,760 Speaker 1: this year. It's like a bucket filling up and at 216 00:11:48,760 --> 00:11:52,080 Speaker 1: some stage to bucket just overflows. So if you imagine 217 00:11:52,160 --> 00:11:54,840 Speaker 1: that bucket you've got, you call it a bucket in America, 218 00:11:55,200 --> 00:11:59,280 Speaker 1: I think whatever it is a bucket. You have this 219 00:11:59,559 --> 00:12:03,240 Speaker 1: radio London. Yeah, so you have you have a you 220 00:12:03,280 --> 00:12:07,040 Speaker 1: have a leaking roof, and you have drip drip, you know, 221 00:12:07,200 --> 00:12:10,040 Speaker 1: the drops of rain water fill the bucket up. At 222 00:12:10,040 --> 00:12:12,880 Speaker 1: some stage it overflows. For me this year, it started 223 00:12:12,920 --> 00:12:16,960 Speaker 1: with FRA O I S. Then there was the cryptocurrency collapse, 224 00:12:17,360 --> 00:12:21,240 Speaker 1: then there was reverse fix, and just about every emerging 225 00:12:21,360 --> 00:12:26,080 Speaker 1: market sequentially has been in play. Is there a common denominator, 226 00:12:26,440 --> 00:12:29,240 Speaker 1: I ask you, And what the answer to me is, Yes, 227 00:12:29,679 --> 00:12:33,559 Speaker 1: there's there's a huge d leverage. The FED is exporting 228 00:12:33,760 --> 00:12:37,000 Speaker 1: a tightening of financial conditions around the rest of the world, 229 00:12:37,480 --> 00:12:40,560 Speaker 1: and all of the tourist money that has flown from 230 00:12:40,679 --> 00:12:45,480 Speaker 1: one game to another has been sucked out. So so yes, 231 00:12:46,000 --> 00:12:49,160 Speaker 1: the the tightening of policy in the US has consequences, 232 00:12:49,200 --> 00:12:51,400 Speaker 1: and we can see it everywhere. And you go to Turkey, 233 00:12:51,520 --> 00:12:55,040 Speaker 1: go to go to China. You have a look at 234 00:12:55,080 --> 00:12:57,720 Speaker 1: what's happening in these markets that they've all been there, 235 00:12:58,480 --> 00:13:01,720 Speaker 1: you know, in the last few months. It started with Argentina, 236 00:13:01,920 --> 00:13:06,600 Speaker 1: it went through various points along the way, Mexico, Indonesia, India, 237 00:13:07,040 --> 00:13:09,680 Speaker 1: most recently it's Turkey that that's the one if one's 238 00:13:09,720 --> 00:13:12,960 Speaker 1: talking about, but also China. All of these markets are 239 00:13:13,000 --> 00:13:16,160 Speaker 1: in focus. And I think it's because of the tightening 240 00:13:16,160 --> 00:13:18,640 Speaker 1: of financial conditions that the US is exporting to the 241 00:13:18,640 --> 00:13:21,320 Speaker 1: rest of the world. And so you asked me what 242 00:13:21,400 --> 00:13:24,400 Speaker 1: stops the FED. I just think a few more drips 243 00:13:24,440 --> 00:13:27,800 Speaker 1: in the buckets and it will overflow, and you know 244 00:13:27,800 --> 00:13:30,760 Speaker 1: that the traditional reaction function would be a strong dollar. 245 00:13:31,080 --> 00:13:35,360 Speaker 1: That's starting to happen in some in some ways, or 246 00:13:35,400 --> 00:13:37,840 Speaker 1: it's the incoming data. And as there are a bunch 247 00:13:37,880 --> 00:13:41,760 Speaker 1: of economists in the FED who are looking at incoming data, 248 00:13:41,920 --> 00:13:44,920 Speaker 1: it might take weaker data to bang them on the 249 00:13:44,960 --> 00:13:48,280 Speaker 1: back of the head to wake them up. But to me, 250 00:13:49,040 --> 00:13:52,800 Speaker 1: it's incredulous to just think that nothing happens. So let's 251 00:13:52,800 --> 00:13:57,480 Speaker 1: talk about thirty a US. How should you position elsewhere? 252 00:13:58,640 --> 00:14:01,360 Speaker 1: Long duration in the US you have to be long 253 00:14:01,559 --> 00:14:04,880 Speaker 1: long to us with with with a continued flattening bias, 254 00:14:04,960 --> 00:14:07,480 Speaker 1: because look, I'm not denying the Fed's going to hike 255 00:14:07,520 --> 00:14:11,559 Speaker 1: in September. They might even hike in December. Although we'll 256 00:14:11,559 --> 00:14:14,800 Speaker 1: have to look at the post midterm election emprovement. We 257 00:14:14,880 --> 00:14:16,560 Speaker 1: have to we have to look at what Italy does 258 00:14:16,840 --> 00:14:19,680 Speaker 1: to this bucket of water that's filling up. Well, I 259 00:14:19,720 --> 00:14:21,600 Speaker 1: go to the Book of Water. But Steve, this is 260 00:14:21,640 --> 00:14:24,480 Speaker 1: important and this is for Global Wall Street folks. Duration 261 00:14:24,600 --> 00:14:27,720 Speaker 1: is the length of the bun. How brave are you 262 00:14:28,480 --> 00:14:33,520 Speaker 1: to buy price higher yield lower is measured out the 263 00:14:33,640 --> 00:14:37,840 Speaker 1: yield curve. How far out are you willing to go, well, 264 00:14:37,920 --> 00:14:40,800 Speaker 1: I'd keep going into the ten year plus. You would 265 00:14:40,800 --> 00:14:43,960 Speaker 1: go into ten year plus. Yeah, ten year plus. The 266 00:14:44,320 --> 00:14:47,200 Speaker 1: worry at the moment for people in the very long 267 00:14:47,320 --> 00:14:50,360 Speaker 1: end is that you've got some stuff coming up in 268 00:14:50,360 --> 00:14:54,440 Speaker 1: September October around the tax reform and how the pension's 269 00:14:54,480 --> 00:14:59,480 Speaker 1: market is that some people are worried about some steepening 270 00:14:59,640 --> 00:15:02,720 Speaker 1: and you're you're not concerned, Steve Major about the fiscal polity. 271 00:15:03,800 --> 00:15:07,520 Speaker 1: It's the buying opportunity. Any cheapness is of buying opportunity. Look, look, 272 00:15:07,600 --> 00:15:10,240 Speaker 1: ten year plast this year, you've been pretty safe sitting there. 273 00:15:10,560 --> 00:15:12,800 Speaker 1: You haven't had that many bad days and you grab 274 00:15:13,280 --> 00:15:17,480 Speaker 1: and I get yeah, so you know, as long as 275 00:15:17,520 --> 00:15:19,640 Speaker 1: you don't too much. I think the first few weeks 276 00:15:19,640 --> 00:15:22,360 Speaker 1: of this year were bad for the bond guys. But 277 00:15:22,360 --> 00:15:24,800 Speaker 1: but the last six months, so that takes me back 278 00:15:24,840 --> 00:15:28,800 Speaker 1: into sort of late Joan early fab. They've been fine, 279 00:15:29,200 --> 00:15:32,280 Speaker 1: but not moved. It's been in a range. How long 280 00:15:32,400 --> 00:15:35,880 Speaker 1: do you feel I mean, I mean, do you feel 281 00:15:35,920 --> 00:15:38,720 Speaker 1: like a lonely car here of Laurie yields you and Gary. 282 00:15:38,840 --> 00:15:41,920 Speaker 1: I do feel I do feel. I do feel quite lonely, 283 00:15:41,960 --> 00:15:44,480 Speaker 1: and I've just I've continued to add to my long 284 00:15:44,560 --> 00:15:47,680 Speaker 1: position on weakness. So you know, I don't change the view. 285 00:15:48,560 --> 00:15:51,200 Speaker 1: And actually it's not because I've got my head stuck 286 00:15:51,200 --> 00:15:54,240 Speaker 1: in the standards, because I believe it. And actually, in 287 00:15:54,320 --> 00:15:57,400 Speaker 1: my experience, the best forecasts that we've ever had have 288 00:15:57,560 --> 00:16:00,960 Speaker 1: normally involved as being quite lonely, and it's normally a 289 00:16:01,000 --> 00:16:04,120 Speaker 1: good sign. When when people start to say you're wrong 290 00:16:04,520 --> 00:16:06,480 Speaker 1: and and you start to look like a bit of 291 00:16:06,520 --> 00:16:10,440 Speaker 1: a loony when people think you're mad, then then it's 292 00:16:10,440 --> 00:16:13,400 Speaker 1: normally a good sign. So we're getting to the point 293 00:16:13,400 --> 00:16:15,440 Speaker 1: now where we are the Mavericks on our own, and 294 00:16:15,520 --> 00:16:18,120 Speaker 1: I'm quite happy with that. Giving Tom Kine some ideas 295 00:16:18,120 --> 00:16:21,960 Speaker 1: there they please don't makes you thank you so much. Really, 296 00:16:22,160 --> 00:16:24,480 Speaker 1: we're gonna lead our podcast, I hope today with this 297 00:16:24,600 --> 00:16:39,720 Speaker 1: really wonderful. We have a lot of funny here. It's 298 00:16:39,760 --> 00:16:41,600 Speaker 1: sort of like after the Market. I know, I'm supposed 299 00:16:41,640 --> 00:16:45,560 Speaker 1: to talk Zello or this or Turkishly or forget about it. 300 00:16:46,040 --> 00:16:50,600 Speaker 1: City Group has done a brilliant analysis of what is 301 00:16:50,680 --> 00:16:53,040 Speaker 1: permeating your house. Now for those of you have a 302 00:16:53,080 --> 00:16:56,320 Speaker 1: certain vintage uh you know, there's a seventy eight record 303 00:16:56,360 --> 00:16:57,880 Speaker 1: in the needle that you have to put in and 304 00:16:58,040 --> 00:17:01,840 Speaker 1: you know it prick your finger. And then there was LPs, 305 00:17:01,960 --> 00:17:04,199 Speaker 1: and then there was cassettes and c d s and 306 00:17:04,560 --> 00:17:08,159 Speaker 1: CDs were lousy, then CDs were good, and now they're streaming. 307 00:17:08,200 --> 00:17:10,680 Speaker 1: Is a City group has really looked at the state 308 00:17:10,720 --> 00:17:13,520 Speaker 1: of the music business. Tim Signers joins us right now 309 00:17:13,560 --> 00:17:15,920 Speaker 1: ahead of their European You've forgot eight tracks by the way, 310 00:17:15,960 --> 00:17:18,159 Speaker 1: oh you excuse me, I forgot eight tracks that was 311 00:17:18,240 --> 00:17:21,960 Speaker 1: underneath the um the glove compartment as well. Tom. When 312 00:17:21,960 --> 00:17:25,760 Speaker 1: you put this report together with five six seven City Group, guys, 313 00:17:26,040 --> 00:17:30,040 Speaker 1: what was the number one surprise with the new economics 314 00:17:30,119 --> 00:17:36,320 Speaker 1: of the music business? Really cool? Thanks for having me, Tom. Yeah, well, 315 00:17:36,359 --> 00:17:38,879 Speaker 1: I'm going to say there's two surprises. I think, you know. 316 00:17:38,960 --> 00:17:42,560 Speaker 1: The first one actually was I think we've got accustomed 317 00:17:42,600 --> 00:17:44,960 Speaker 1: to the idea that the music industry was challenged. You know, 318 00:17:45,000 --> 00:17:47,760 Speaker 1: we've heard a lot about how rewarded music was under pressure, 319 00:17:48,000 --> 00:17:51,720 Speaker 1: but actually the music music industries in relatively good health. 320 00:17:51,760 --> 00:17:56,320 Speaker 1: It's growing in pasted its historic peak kutchures two thousand 321 00:17:56,400 --> 00:18:01,600 Speaker 1: and six. In the US, consumers are spending three billion 322 00:18:01,640 --> 00:18:04,920 Speaker 1: dollars a year on music in some way, shape or form. 323 00:18:05,320 --> 00:18:09,040 Speaker 1: The issue is only a tiny fraction of that goes 324 00:18:09,080 --> 00:18:11,440 Speaker 1: to the artist. I think that's the real killer point 325 00:18:11,480 --> 00:18:15,760 Speaker 1: from this. We it's going up, but it's around of 326 00:18:15,840 --> 00:18:18,200 Speaker 1: industry revenues end up with the artist, which is much 327 00:18:18,280 --> 00:18:21,639 Speaker 1: much lower than you'd expect the talent to be getting 328 00:18:21,720 --> 00:18:23,560 Speaker 1: based on what we see another industry. Well, this has 329 00:18:23,600 --> 00:18:25,520 Speaker 1: been true and it used to be seven percent and 330 00:18:25,560 --> 00:18:28,520 Speaker 1: now it's up to a week double digit statistic. But 331 00:18:28,600 --> 00:18:31,199 Speaker 1: the bottom line is, am I right that in the 332 00:18:31,240 --> 00:18:34,639 Speaker 1: modern music business, the talent only gets it from gate 333 00:18:34,800 --> 00:18:38,160 Speaker 1: from concerts, and that means it's only a certain percentage 334 00:18:38,160 --> 00:18:41,040 Speaker 1: of the talent. If you're an artist that doesn't have gait, 335 00:18:41,160 --> 00:18:45,280 Speaker 1: you don't survive, do you exactly right? I mean, the 336 00:18:45,280 --> 00:18:47,800 Speaker 1: main main driver of it moving up over time is 337 00:18:49,119 --> 00:18:52,280 Speaker 1: is exactly that. It's it's it's the rise and um 338 00:18:52,520 --> 00:18:55,600 Speaker 1: in live events and as you say, that disproportionately benefits 339 00:18:55,600 --> 00:18:58,080 Speaker 1: the big artist. But what it also speaks to is 340 00:18:58,119 --> 00:19:01,440 Speaker 1: that is just how complex this industry is. You've got 341 00:19:01,840 --> 00:19:04,440 Speaker 1: we call it the blob, but you know, the music industry, 342 00:19:04,520 --> 00:19:07,840 Speaker 1: there are so many different intermediaries, all breaking their own cut, 343 00:19:08,240 --> 00:19:11,720 Speaker 1: and that's really where we're likely to see disruption in 344 00:19:11,760 --> 00:19:15,400 Speaker 1: are you? Where? Where is the disruption for record companies 345 00:19:15,480 --> 00:19:18,560 Speaker 1: that used to be twenty or thirty record companies and 346 00:19:18,600 --> 00:19:22,560 Speaker 1: there's always a maverick one like Reprise Records, or you 347 00:19:22,600 --> 00:19:25,480 Speaker 1: know a couple of the British record companies as well 348 00:19:26,080 --> 00:19:28,960 Speaker 1: Stigwood and their crew a million years ago. But where 349 00:19:29,000 --> 00:19:31,880 Speaker 1: are the record companies right now? Does anybody still care 350 00:19:32,200 --> 00:19:36,080 Speaker 1: about Columbia and the big red dot. Yeah, no, I 351 00:19:36,080 --> 00:19:39,200 Speaker 1: think that's there's still very big companies and still very 352 00:19:39,200 --> 00:19:43,119 Speaker 1: important players. And certainly when we think about their control 353 00:19:43,200 --> 00:19:46,199 Speaker 1: of catalog, it's it's obviously very very strong, but it 354 00:19:46,240 --> 00:19:48,560 Speaker 1: really is a question about what's going to look like 355 00:19:48,640 --> 00:19:52,360 Speaker 1: in five, ten, fifteen years time. Remember those record labels. 356 00:19:52,960 --> 00:19:56,520 Speaker 1: The big thing they had was they owned recording facilities, 357 00:19:56,520 --> 00:19:59,879 Speaker 1: which were really difficult to to to to organize your 358 00:20:00,000 --> 00:20:02,520 Speaker 1: of as an artist. But most artists can now record 359 00:20:02,560 --> 00:20:05,960 Speaker 1: musics on a laptop. You know. They owned manufacturing facilities 360 00:20:06,000 --> 00:20:07,919 Speaker 1: to make the eight tracks from the vinyl that we 361 00:20:07,920 --> 00:20:09,520 Speaker 1: were talking about, but you don't need that books you 362 00:20:09,560 --> 00:20:13,560 Speaker 1: can distribute online, and of course they owned marketing and distribution, 363 00:20:13,760 --> 00:20:16,600 Speaker 1: and obviously artists can do a lot of that work themselves, 364 00:20:16,600 --> 00:20:19,800 Speaker 1: so it's it's really not about the the legacy business, 365 00:20:19,800 --> 00:20:21,879 Speaker 1: which is still quite robust and the value of catalog 366 00:20:22,000 --> 00:20:25,159 Speaker 1: quite high. It's about where's the business going forward? And 367 00:20:26,160 --> 00:20:28,560 Speaker 1: do you as an artist really need to use a 368 00:20:28,680 --> 00:20:32,040 Speaker 1: legacy record label in order to to make money in 369 00:20:32,080 --> 00:20:35,160 Speaker 1: recorded music? And increasingly it looks, you know, the answer 370 00:20:35,160 --> 00:20:41,520 Speaker 1: to that is well not really. Could the Beatles happen today? Absolutely, 371 00:20:41,560 --> 00:20:44,840 Speaker 1: I think you know the Beatles, you know, we've seeing 372 00:20:44,840 --> 00:20:47,840 Speaker 1: lots of exciting new artists are very dynamic and exciting time. 373 00:20:47,880 --> 00:20:49,600 Speaker 1: I think the big thing is, you know, would the 374 00:20:49,600 --> 00:20:52,359 Speaker 1: Beatles need to sign up with a with a with 375 00:20:52,400 --> 00:20:54,840 Speaker 1: a with a record labor because they do it themselves 376 00:20:55,600 --> 00:20:58,640 Speaker 1: and and and you're seeing a number of interesting artists 377 00:20:58,640 --> 00:21:03,000 Speaker 1: that are doing in exactly that Macilmore Chance the Rapper. 378 00:21:03,080 --> 00:21:06,400 Speaker 1: These are all artists who have built their own director 379 00:21:06,440 --> 00:21:10,240 Speaker 1: consumer business models and and there much better off financially 380 00:21:10,280 --> 00:21:12,680 Speaker 1: for it. I mean, I'm watching right now with our studios, 381 00:21:12,680 --> 00:21:14,959 Speaker 1: folks of the stack of TV is always keeping us 382 00:21:15,200 --> 00:21:16,840 Speaker 1: and the rest of the news and ad for Kenny 383 00:21:16,880 --> 00:21:20,000 Speaker 1: Chesney of Nashville out with three or four opening acts 384 00:21:20,000 --> 00:21:23,600 Speaker 1: doing the Arena tour. I mean, those those rare acts 385 00:21:23,640 --> 00:21:26,320 Speaker 1: are still bringing in tons of money, whether it was 386 00:21:26,320 --> 00:21:30,680 Speaker 1: Arianna Grande at the Manchester Concert or Mr Chesney doing 387 00:21:30,720 --> 00:21:33,560 Speaker 1: it in New York City. I mean, the big arenas 388 00:21:33,600 --> 00:21:37,439 Speaker 1: still matter, don't they Absolutely? I mean the big the 389 00:21:37,480 --> 00:21:40,159 Speaker 1: big driver of the industry growth and the way that 390 00:21:40,200 --> 00:21:43,240 Speaker 1: we define it, and certainly the big driver of artists 391 00:21:43,320 --> 00:21:47,200 Speaker 1: share of industry is live events. Absolutely. And I think 392 00:21:47,560 --> 00:21:50,320 Speaker 1: one of the things that is striking about the music 393 00:21:50,359 --> 00:21:54,320 Speaker 1: industry that stands is just how stratified it is. By 394 00:21:54,640 --> 00:21:58,399 Speaker 1: and large, record labels are still record labels. Constant promoters 395 00:21:58,440 --> 00:22:01,800 Speaker 1: are still constant promoters. Distribute platforms are still distribution platforms. 396 00:22:01,800 --> 00:22:03,760 Speaker 1: And I think one of the big things that we 397 00:22:03,800 --> 00:22:07,320 Speaker 1: think will happen as disruption impact is you'll see more 398 00:22:07,480 --> 00:22:10,840 Speaker 1: vertical integration and actually live events is probably going to 399 00:22:10,920 --> 00:22:13,080 Speaker 1: be the big area of focus, and companies like Live 400 00:22:13,160 --> 00:22:16,480 Speaker 1: Nation um set to benefit from that because that's the 401 00:22:16,560 --> 00:22:20,600 Speaker 1: area ultimately the artists are focusing on, and ultimately the 402 00:22:20,640 --> 00:22:23,119 Speaker 1: area that the other players in the music industry are 403 00:22:23,119 --> 00:22:25,320 Speaker 1: going to watch to bring into the folds. In the time, 404 00:22:25,359 --> 00:22:28,080 Speaker 1: we've got left, We've got Spotify, we've got Apple Music, 405 00:22:28,119 --> 00:22:30,879 Speaker 1: we've got Amazon trying to get into streaming. Does City 406 00:22:30,880 --> 00:22:33,919 Speaker 1: Group have a prediction of who wins the streaming battle? 407 00:22:35,359 --> 00:22:38,600 Speaker 1: Um Look, the big point we make on streaming is 408 00:22:38,960 --> 00:22:42,680 Speaker 1: simply that it's not clear any of them will ever 409 00:22:42,720 --> 00:22:45,480 Speaker 1: make a really sustainable return. The big question is, of course, 410 00:22:45,760 --> 00:22:51,520 Speaker 1: whether this matters for companies like Apple, Google, Amazon, ten cents. Um. 411 00:22:51,560 --> 00:22:54,080 Speaker 1: It may well be that music is just the tool 412 00:22:54,160 --> 00:22:56,639 Speaker 1: to drive engagement and loyalty for other parts of the 413 00:22:57,040 --> 00:23:00,600 Speaker 1: of the of their platform. The fundamentally that makes life 414 00:23:00,800 --> 00:23:03,439 Speaker 1: very very difficult for the stand alone players who have 415 00:23:03,640 --> 00:23:06,159 Speaker 1: to try and make a return on on on the 416 00:23:06,200 --> 00:23:10,040 Speaker 1: basis that it's a stand alone business and that who 417 00:23:10,119 --> 00:23:14,240 Speaker 1: we think is a factor that will drive um vertical 418 00:23:14,240 --> 00:23:16,600 Speaker 1: integration or at least have pushed towards it. But the question, 419 00:23:16,640 --> 00:23:19,960 Speaker 1: of course is whether this is organic and happens slowly 420 00:23:20,000 --> 00:23:24,360 Speaker 1: over time, or is inorganic and involved. Umman, what what 421 00:23:24,680 --> 00:23:27,920 Speaker 1: just one final question if we could and if your 422 00:23:28,000 --> 00:23:31,840 Speaker 1: brieferst on YouTube, it's it's been there's YouTube TV now, 423 00:23:31,840 --> 00:23:33,360 Speaker 1: which a lot of people have told me is too 424 00:23:33,359 --> 00:23:36,720 Speaker 1: expensive in that But can Google in YouTube play in 425 00:23:36,760 --> 00:23:39,320 Speaker 1: the streaming world or is it just sort of the 426 00:23:39,440 --> 00:23:42,679 Speaker 1: haphazard feel of finding a song on YouTube that it 427 00:23:42,720 --> 00:23:47,160 Speaker 1: seems to be right now. Yeah, well I M alphabet 428 00:23:47,240 --> 00:23:49,600 Speaker 1: or Google is is covered by my colleague Mark May. 429 00:23:49,720 --> 00:23:54,040 Speaker 1: But the point he makes is that the size of 430 00:23:54,119 --> 00:23:57,439 Speaker 1: music within this sort of alphabet complex is relatively small. 431 00:23:57,520 --> 00:24:00,240 Speaker 1: You know, YouTube generates about seventeen billion dollars of AD 432 00:24:00,240 --> 00:24:02,840 Speaker 1: revenue and we we estimate about three billion of that 433 00:24:02,960 --> 00:24:05,760 Speaker 1: is music related, so it's substantially five per cent of 434 00:24:05,840 --> 00:24:08,520 Speaker 1: the total, but you know it is it is an 435 00:24:08,560 --> 00:24:12,639 Speaker 1: important area of focus. Um uh. They need to improve 436 00:24:12,760 --> 00:24:15,600 Speaker 1: user engagement and time spent on the platform, and there 437 00:24:15,600 --> 00:24:17,680 Speaker 1: are a lot of other players sort of pushing hard 438 00:24:17,720 --> 00:24:21,080 Speaker 1: in that to try and use music as a as 439 00:24:21,119 --> 00:24:25,160 Speaker 1: I say, something to engage users on their platforms. So 440 00:24:25,760 --> 00:24:29,600 Speaker 1: even though it's small there economically, we do think it's 441 00:24:29,600 --> 00:24:31,919 Speaker 1: going to be a key focus for the group. I 442 00:24:31,960 --> 00:24:34,520 Speaker 1: congratulate you guys and going outside the box. It's great 443 00:24:34,560 --> 00:24:36,080 Speaker 1: to see. I mean, there's a lot of these things 444 00:24:36,160 --> 00:24:40,320 Speaker 1: that are contrived. This report from City Group is not contrived. 445 00:24:40,800 --> 00:24:44,000 Speaker 1: It's a very serious look at again a forty three 446 00:24:44,080 --> 00:24:48,639 Speaker 1: billion large business. Thank you Tim single Hearst for joining us, 447 00:24:48,640 --> 00:24:51,719 Speaker 1: and you mentioned Mark me. Their internet analyst Jim Suva 448 00:24:52,040 --> 00:24:55,280 Speaker 1: Wing in here as well Alicia yeah as and and 449 00:24:55,400 --> 00:24:58,200 Speaker 1: many others as well on the music business from City Group. 450 00:24:58,560 --> 00:25:01,160 Speaker 1: We protect the copyrate of all of our guests. Please 451 00:25:01,200 --> 00:25:06,360 Speaker 1: get that. Please get that report from your City Group representative. 452 00:25:06,400 --> 00:25:23,199 Speaker 1: Tom Singlehurst was City Group. Thank you so much. We 453 00:25:23,200 --> 00:25:26,440 Speaker 1: thought we'd dragged Steve Weisman nine on a summer's day 454 00:25:27,280 --> 00:25:29,840 Speaker 1: really to talk about one stock, of course, Mr Iceland 455 00:25:29,880 --> 00:25:34,399 Speaker 1: with Newberger Berman and someone who looks at things long 456 00:25:34,600 --> 00:25:38,359 Speaker 1: and short as well. Steve, how did you discover zello? 457 00:25:39,040 --> 00:25:42,280 Speaker 1: How did you you know within the matrix of a 458 00:25:42,400 --> 00:25:46,040 Speaker 1: thousand stocks or five thousand stocks? How did you wander 459 00:25:46,080 --> 00:25:51,560 Speaker 1: into zillo um? You know, there are lots of different 460 00:25:51,560 --> 00:25:54,119 Speaker 1: ways to find stock. Sometimes you find them on yourselves, 461 00:25:54,160 --> 00:25:57,760 Speaker 1: sometimes people given to them give them to you. This 462 00:25:57,840 --> 00:26:01,080 Speaker 1: was a stock that's been covered by a cell side 463 00:26:01,080 --> 00:26:04,280 Speaker 1: analyst named Brad Safilo at a small boutique called p 464 00:26:04,400 --> 00:26:07,520 Speaker 1: A A Research. I've known him for years. He's an 465 00:26:07,520 --> 00:26:10,760 Speaker 1: excellent analyst. You know, sometimes he's right, sometimes he's wrong, 466 00:26:10,800 --> 00:26:13,520 Speaker 1: but he's always incredibly interesting and does incredible research. And 467 00:26:13,800 --> 00:26:15,879 Speaker 1: he put me onto this. What you heard there from 468 00:26:15,960 --> 00:26:19,320 Speaker 1: Mr Eisman, Folks is the way pros used the cell side. 469 00:26:19,320 --> 00:26:22,320 Speaker 1: Whether the right or wrong isn't the litmus test. They 470 00:26:22,400 --> 00:26:26,000 Speaker 1: always want to be intrigued right or wrong. Do you 471 00:26:26,119 --> 00:26:29,120 Speaker 1: treat a stock that you're cautious on that you could 472 00:26:29,200 --> 00:26:34,119 Speaker 1: short differently when it's a smaller stock like Zillo versus 473 00:26:34,119 --> 00:26:38,920 Speaker 1: some genormous company, Um, not necessarily. I mean, if the 474 00:26:38,960 --> 00:26:41,600 Speaker 1: stock has a very very heavy short interest, I tend 475 00:26:41,680 --> 00:26:45,840 Speaker 1: not to want to let people know that. I'm sure 476 00:26:45,960 --> 00:26:49,200 Speaker 1: this has a fairly large short interest, but I think 477 00:26:49,240 --> 00:26:52,639 Speaker 1: it's there's some things happening that make it incredibly ripe 478 00:26:53,560 --> 00:26:56,240 Speaker 1: for being short. I mean to sound significantly today, but 479 00:26:56,320 --> 00:26:58,720 Speaker 1: I think it has much more downside. Well, okay, short 480 00:26:58,800 --> 00:27:02,439 Speaker 1: interest is about thirty and a half percent. What about 481 00:27:02,680 --> 00:27:07,080 Speaker 1: Zillo causes you to be bearish? Well, there are two 482 00:27:07,240 --> 00:27:10,480 Speaker 1: things that came out that that that I want to 483 00:27:10,520 --> 00:27:12,760 Speaker 1: focus on. Two things. One thing that was discussed on 484 00:27:12,800 --> 00:27:15,760 Speaker 1: the call, and one thing that was not so Zillo 485 00:27:16,200 --> 00:27:19,240 Speaker 1: is largest businesses you go on the website to look 486 00:27:19,280 --> 00:27:21,359 Speaker 1: for look to buy a home. That's not what I 487 00:27:21,400 --> 00:27:24,320 Speaker 1: want to focus on. They got into a business several 488 00:27:24,359 --> 00:27:26,679 Speaker 1: months ago. They announced that they were going to go 489 00:27:27,000 --> 00:27:32,040 Speaker 1: and invest their own capital and buy houses. And then, 490 00:27:32,160 --> 00:27:34,160 Speaker 1: by the way, I described it on your on your 491 00:27:34,200 --> 00:27:36,439 Speaker 1: show two weeks ago, I said, and I said and 492 00:27:36,520 --> 00:27:41,120 Speaker 1: flipped them, and they had projected that they were going 493 00:27:41,240 --> 00:27:46,880 Speaker 1: to generate about twenty to forty million dollars in revenue 494 00:27:46,960 --> 00:27:51,040 Speaker 1: this year. I'm sorry to two D fifty five million 495 00:27:51,160 --> 00:27:55,840 Speaker 1: revenue this year, and they reduced it to um. Just 496 00:27:56,800 --> 00:27:59,160 Speaker 1: people just do that again because people aren't writing it down, 497 00:27:59,240 --> 00:28:02,920 Speaker 1: but but we are. Just they were going, they said 498 00:28:02,920 --> 00:28:06,359 Speaker 1: they were going to generate a D twenty five to 499 00:28:06,520 --> 00:28:09,960 Speaker 1: two hundred and fifty five million in revenue from this 500 00:28:10,040 --> 00:28:14,080 Speaker 1: business this year, which they just started, and now they've 501 00:28:14,080 --> 00:28:18,800 Speaker 1: lowered that guidance to twenty million. When asked on the 502 00:28:18,880 --> 00:28:25,800 Speaker 1: call why, they said that they were giving people offers, 503 00:28:26,640 --> 00:28:29,359 Speaker 1: but it was taking much longer for those offers to 504 00:28:29,359 --> 00:28:33,399 Speaker 1: be accepted. Now, I what I said on your show 505 00:28:33,640 --> 00:28:35,800 Speaker 1: was I thought this is a horrible business because I 506 00:28:35,800 --> 00:28:42,280 Speaker 1: thought this it was cyclical, capital intensive, um and low margin. 507 00:28:42,880 --> 00:28:45,000 Speaker 1: And after listening to that call, I take it back. 508 00:28:45,040 --> 00:28:49,520 Speaker 1: It's not a horrible business. Business that is potentially disastrous 509 00:28:49,560 --> 00:28:54,200 Speaker 1: because what they basically described is that they are offering 510 00:28:54,280 --> 00:28:57,680 Speaker 1: consumers a free put. In other words, they give it, 511 00:28:58,000 --> 00:29:00,600 Speaker 1: let's say it consumer puts his house on for three 512 00:29:00,680 --> 00:29:04,560 Speaker 1: hundred thousand dollars. Zilla will offer a ten percent, let's say, 513 00:29:04,560 --> 00:29:07,720 Speaker 1: a ten percent discount two D seventy thousand dollars. And 514 00:29:07,840 --> 00:29:11,240 Speaker 1: what's happening is these are not distressed sellers, and these 515 00:29:11,240 --> 00:29:14,920 Speaker 1: sellers are taking that offer, and basically they're shopping it. 516 00:29:15,040 --> 00:29:18,680 Speaker 1: They're looking for a better price, and essentially what Zilla 517 00:29:18,840 --> 00:29:22,600 Speaker 1: is doing is offering consumer the seller a free put. 518 00:29:22,920 --> 00:29:25,120 Speaker 1: The reason why this is so bad is that they're 519 00:29:25,120 --> 00:29:29,720 Speaker 1: going to be horribly adversely selected. Think about it this way. 520 00:29:29,960 --> 00:29:33,880 Speaker 1: The house, for most Americans is the major store of 521 00:29:34,000 --> 00:29:37,920 Speaker 1: their wealth. So Zillo shows up with that two hundred 522 00:29:38,000 --> 00:29:42,240 Speaker 1: seventy thousand dollar offer. Now, why would a non distressed 523 00:29:42,320 --> 00:29:47,640 Speaker 1: seller sell their home for two hundred seventy thousand dollars 524 00:29:47,640 --> 00:29:50,400 Speaker 1: if they're not distressed. If the house is worth three 525 00:29:50,440 --> 00:29:54,800 Speaker 1: hundred thousand dollars, there's only two possibilities for that. Either one, 526 00:29:55,360 --> 00:29:58,480 Speaker 1: Zillo has missed priced the house and it's not worth 527 00:29:58,480 --> 00:30:02,400 Speaker 1: two d seventy thousand dollars. Is it's worth less, or 528 00:30:02,960 --> 00:30:05,760 Speaker 1: there's something wrong with the house and maybe on the 529 00:30:06,120 --> 00:30:10,400 Speaker 1: surface it's worth three dollars, but it requires considerable repairs 530 00:30:10,440 --> 00:30:14,880 Speaker 1: and maybe it's only worth two dollars, and so the 531 00:30:15,000 --> 00:30:21,280 Speaker 1: seller now accepts the the prices Zilo, which is too high. 532 00:30:21,960 --> 00:30:26,040 Speaker 1: So I cannot think of a single business ever that 533 00:30:26,160 --> 00:30:29,880 Speaker 1: can function by offering sellers a free put. It it 534 00:30:30,240 --> 00:30:32,280 Speaker 1: be like going to Goldman Sacks and say, hey, I 535 00:30:32,320 --> 00:30:35,760 Speaker 1: own X amount of IBM stock. I want to buy 536 00:30:35,800 --> 00:30:39,880 Speaker 1: some puts to protect my position. What will you charge 537 00:30:39,920 --> 00:30:43,080 Speaker 1: before him? And Goldman says nothing. Well, of course I'm 538 00:30:43,120 --> 00:30:47,200 Speaker 1: gonna take that. That that is essentially Zilo is creative. 539 00:30:48,720 --> 00:30:52,680 Speaker 1: I mean, you describe nothing pretty straightforward. What I don't 540 00:30:52,800 --> 00:30:55,840 Speaker 1: understand it. They think somehow they're going to crack some 541 00:30:56,080 --> 00:30:58,719 Speaker 1: crazy code. But I don't think they understand that by 542 00:30:58,800 --> 00:31:02,040 Speaker 1: offering a free put their being adversely selective. Let me 543 00:31:02,120 --> 00:31:03,880 Speaker 1: just continue for a second, because there's something that was 544 00:31:04,000 --> 00:31:06,520 Speaker 1: not discussed on the call, which in some ways I 545 00:31:06,560 --> 00:31:13,239 Speaker 1: think is equally as important. Um. On June, Zillo did 546 00:31:13,280 --> 00:31:15,760 Speaker 1: an equity offering and they raised hundreds of millions of 547 00:31:15,840 --> 00:31:24,200 Speaker 1: dollars between June and and August six last night, there 548 00:31:24,280 --> 00:31:28,560 Speaker 1: was considerable and there has been insider selling, and now 549 00:31:28,840 --> 00:31:32,280 Speaker 1: less only a little bit more than a month after 550 00:31:32,440 --> 00:31:37,880 Speaker 1: doing that offering, the company has has reduced guide insignificantly, 551 00:31:38,040 --> 00:31:40,000 Speaker 1: and as of today the stock is down right now 552 00:31:40,160 --> 00:31:43,360 Speaker 1: seventeen and a half percent. Now, this is a little 553 00:31:43,360 --> 00:31:45,440 Speaker 1: bit of what did they know and when did they 554 00:31:45,520 --> 00:31:49,680 Speaker 1: know it? Um, maybe they did not know that they 555 00:31:49,720 --> 00:31:52,520 Speaker 1: were going to reduce guide in significantly on Dune twenty eight, 556 00:31:52,760 --> 00:31:55,760 Speaker 1: but it seems to me that that's a question that 557 00:31:55,880 --> 00:31:58,480 Speaker 1: needs to be addressed by management and was not raised 558 00:31:58,520 --> 00:32:01,280 Speaker 1: on the call, and it needs to be raised. I 559 00:32:01,320 --> 00:32:03,800 Speaker 1: think they raised about three d and seventy million in 560 00:32:03,920 --> 00:32:08,440 Speaker 1: that offering, correct, They they raised it at seven and 561 00:32:08,520 --> 00:32:12,400 Speaker 1: the rock is now correct seem Thank you so much, 562 00:32:12,440 --> 00:32:15,800 Speaker 1: greatly appreciated his thoughts on Zilla. We really focused there 563 00:32:15,840 --> 00:32:25,440 Speaker 1: on one security uh this time around. Thanks for listening 564 00:32:25,560 --> 00:32:30,080 Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews 565 00:32:30,120 --> 00:32:35,320 Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 566 00:32:35,920 --> 00:32:39,200 Speaker 1: I'm on Twitter at Tom Keane before the podcast, you 567 00:32:39,280 --> 00:32:42,680 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.