WEBVTT - We Have Seen a Doom Loop in EM, Santos Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.559 Bloomberg dot Com, and of course on the Bloomberg. The 0:00:33.760 --> 0:00:37.519 big theme though, it is what is happening in emerging markets, 0:00:37.520 --> 0:00:41.000 with Turkey's financial markets very much sinking, the Lyra hitting 0:00:41.040 --> 0:00:43.639 a record low, bond yeal hitting a fresh record high, 0:00:43.680 --> 0:00:47.440 the tenure yeard preaching for the first time ever, and 0:00:47.520 --> 0:00:50.199 yet investors are confronted with the sound of silence, the 0:00:50.280 --> 0:00:53.800 central Bank and government so fast seemingly nowhere to be seen. 0:00:54.120 --> 0:00:56.319 Joining us here in New York is Gabrielle Santos, JP 0:00:56.400 --> 0:00:59.560 Morgan Asset Management, Global market Strategist. Good morning to Gabby, 0:00:59.680 --> 0:01:02.240 getting morning. So where are they west? The government, west, 0:01:02.280 --> 0:01:04.959 the central Bank. That's that's a big question, right, I mean, 0:01:05.000 --> 0:01:07.720 if we remember how this all started for Turkey really 0:01:07.840 --> 0:01:10.200 was mid April when the dollar started to strengthen, and 0:01:10.240 --> 0:01:12.840 it really brought out the emerging markets that we're seen 0:01:12.880 --> 0:01:16.480 as particularly vulnerable, Turkey being one of them, Argentina being another. 0:01:16.600 --> 0:01:19.360 That's spoken of in the same breath with a similar 0:01:19.440 --> 0:01:23.160 current account deficit in US dollar debt. Now, Argentina has 0:01:23.200 --> 0:01:26.880 taken steps right and big steps. It's raised interest rates, 0:01:26.959 --> 0:01:30.120 it's set up a large physical austerity program, it's sought 0:01:30.160 --> 0:01:33.480 help from the I m F. Whereas Turkey we haven't 0:01:33.520 --> 0:01:37.440 heard anything. And so that's where I think sentiment is very, 0:01:37.520 --> 0:01:39.399 very tricky and Turkey now and we need to see 0:01:39.400 --> 0:01:41.880 some sort of steps from them in order to improve 0:01:42.240 --> 0:01:45.720 investor sentiment. Have we entered the classic E M doom 0:01:45.760 --> 0:01:50.080 loop where the currency weekends markedly, worries starts to rise 0:01:50.120 --> 0:01:53.560 about the debt being financial? Do you know the doom loop? Tom? 0:01:53.560 --> 0:01:55.880 Welcome back, by the way. That's an entrance too into 0:01:55.880 --> 0:01:57.920 the show. Do you start with good morning or just 0:01:58.040 --> 0:02:00.000 jump in doom loop? Do you know what a doom loop? 0:02:00.200 --> 0:02:02.800 What does the doom loop? The feedback loop and negative 0:02:02.840 --> 0:02:05.600 self fulfilling feedback loop. You don't know what wants to 0:02:05.600 --> 0:02:09.600 talking about traffic the South. I think Mrs Kean was 0:02:09.680 --> 0:02:11.880 mentioned in that to me. I think you were in 0:02:11.919 --> 0:02:13.760 the doom loop in the cane house that we can 0:02:13.840 --> 0:02:16.560 talk about that in a continuous and this becomes self 0:02:16.600 --> 0:02:20.720 fulfilling gabby in the sense of the currency weakens, people 0:02:20.760 --> 0:02:22.920 start to worry about the debt being refinanced, and it 0:02:22.919 --> 0:02:25.160 feeds back into a wikied currency, so the wikied currency 0:02:25.200 --> 0:02:28.280 begets a wicked coouncy. And we have been seeing that, right, 0:02:28.520 --> 0:02:30.680 I would say, for for a few emerging markets over 0:02:30.720 --> 0:02:32.680 the past few months. And that's where you do need 0:02:32.720 --> 0:02:35.560 some sort of action to break that loop, right for 0:02:35.639 --> 0:02:38.560 investors to feel like we are in a vulnerable position 0:02:38.680 --> 0:02:41.600 right now, but there are actual steps being taken to 0:02:41.720 --> 0:02:44.880 improve so that the future looks a little bit brighter 0:02:44.880 --> 0:02:47.280 than it does right now. With the tapestry over that 0:02:47.560 --> 0:02:51.000 is this width between a booming United States and a 0:02:51.000 --> 0:02:55.360 few selected economies and everybody else. I mean, I get 0:02:55.400 --> 0:02:59.560 the idea that select em countries are idiosyncratic, but I 0:02:59.639 --> 0:03:02.000 know all of our audience is saying, yeah, but wait 0:03:02.000 --> 0:03:04.680 a minute, we're booming and they're not. At some point 0:03:04.680 --> 0:03:06.960 that catches up with you, right, And I do think 0:03:07.040 --> 0:03:10.560 that's one of the major drivers behind this very very 0:03:10.560 --> 0:03:13.440 strong dollar rally we've seen since mid April, the idea 0:03:13.520 --> 0:03:16.000 that the US is booming compared to the rest of 0:03:16.040 --> 0:03:18.080 the world. But there's one thing that we can do, 0:03:18.080 --> 0:03:20.400 which is look in the rear view mirror and notice 0:03:20.440 --> 0:03:23.240 that dynamic. And there's another in terms of looking over 0:03:23.280 --> 0:03:25.920 the next six eighteen months and think, well, is this 0:03:26.000 --> 0:03:29.200 dynamic going to hold? Is the US going to continue 0:03:29.240 --> 0:03:31.680 to boom so much compared to the rest of the world. 0:03:32.080 --> 0:03:34.160 And we would argue that four percent g d P 0:03:34.400 --> 0:03:37.080 was a one time occurrence, that is not going to 0:03:37.120 --> 0:03:39.320 be the dynamic and that be done smoothly, or do 0:03:39.360 --> 0:03:41.560 we get brutal moves assuming that I mean someday we're 0:03:41.560 --> 0:03:44.200 gonna come out. Let's say you're right, and Bruce Casman's right, 0:03:44.560 --> 0:03:46.320 and someday we're gonna come out and go, oh, we're 0:03:46.320 --> 0:03:48.880 not going to do three point eight or four percent GDP. 0:03:49.040 --> 0:03:50.840 The run rate is going to be two point x 0:03:50.920 --> 0:03:54.640 or whatever it is. The assumption is that happens with controlled, 0:03:54.720 --> 0:03:58.800 measured moves, and these other asset classes, including the stock 0:03:58.840 --> 0:04:02.360 market says who, So, I do think there there is 0:04:02.400 --> 0:04:05.840 to be fair right and understanding in the investment community 0:04:05.880 --> 0:04:09.440 that four percent is not sustainable. But there is still 0:04:09.480 --> 0:04:12.119 a bit of a focus on three percent growth over 0:04:12.160 --> 0:04:15.520 the next twelve months. But our view is that that 0:04:15.680 --> 0:04:18.680 is not a permanent shift in terms of potential growth 0:04:18.720 --> 0:04:21.960 that we do decelerate down to two percent in the 0:04:22.000 --> 0:04:26.640 second half of and the sooner we start focusing on that, um, 0:04:26.680 --> 0:04:29.680 the smoother the process can be in terms of dollar 0:04:29.720 --> 0:04:33.320 adjustment and market adjustment. The thing when you're advising clients 0:04:33.360 --> 0:04:37.400 on portfolio mix or what to do with new cash, etcetera. 0:04:37.800 --> 0:04:41.680 The basic idea is the United States. To borrow phrase 0:04:41.720 --> 0:04:44.520 from Mr Farrell, which I love to do, we're doom 0:04:44.520 --> 0:04:49.640 loop free, right um. Doom is a is a strong word, 0:04:51.320 --> 0:04:54.080 but other than that, we're doom loop free, right Um. 0:04:54.120 --> 0:04:57.520 I do think that, to use another d word, right, 0:04:57.600 --> 0:05:00.200 that there is a deceleration that we see in the 0:05:00.320 --> 0:05:03.640 US over the next twelve and eighteen months, and so 0:05:03.839 --> 0:05:07.320 US assets, the shining star over the past six months 0:05:07.600 --> 0:05:10.680 won't shine so bright in that kind of scenario compared 0:05:10.720 --> 0:05:13.200 to the rest of the world, especially if you compare 0:05:13.200 --> 0:05:16.360 it to emerging markets, which was coming from a very 0:05:16.400 --> 0:05:19.080 tricky spot there for many many years and has the 0:05:19.120 --> 0:05:22.920 potential to keep accelerating over the next couple of years. 0:05:23.160 --> 0:05:25.520 What were seeing in Turkey? Do you see contagent risk? 0:05:27.080 --> 0:05:30.240 So at the moment, we do not, right, And I 0:05:30.279 --> 0:05:32.640 do think that there is an understanding that Turkey is 0:05:32.680 --> 0:05:36.000 a very particular case. Here we mentioned its vulnerabilities in 0:05:36.120 --> 0:05:39.120 terms of current account dollar DAD as well as it's 0:05:39.320 --> 0:05:44.480 uh we could call it an orthodox approach towards economic policy. 0:05:44.520 --> 0:05:46.800 I think that there is an understanding that other emerging 0:05:46.800 --> 0:05:50.760 markets are different. Um, there is an understanding that, you know, 0:05:50.800 --> 0:05:54.360 we shouldn't punish all emerging markets to that same extent. 0:05:54.640 --> 0:05:56.480 I thought it was really interesting what we got from 0:05:56.560 --> 0:06:00.160 China f X reserves overnight. Many people thought they'd see 0:06:00.120 --> 0:06:02.200 a decline. We didn't. We got a slight rise in 0:06:02.279 --> 0:06:04.520 China effects reserves. What's the signal you take from that 0:06:04.560 --> 0:06:07.039 gaping So if we think about why we were so 0:06:07.160 --> 0:06:10.480 concerned about China's effects reserves, why this release took on 0:06:10.560 --> 0:06:13.920 a whole new importance in our calendars. It was really 0:06:14.040 --> 0:06:18.680 during when we started to see yu want depreciation, and 0:06:18.720 --> 0:06:21.280 there was a concern that the Chinese government was using 0:06:21.360 --> 0:06:23.920 up a lot of its effects reserves to shore up 0:06:23.920 --> 0:06:28.280 the currency to have a controlled depreciation of the currency, right, 0:06:28.320 --> 0:06:30.839 And so it's it's very very positive to have seen 0:06:30.920 --> 0:06:33.799 over the past couple of years much more stable effects reserves. 0:06:34.080 --> 0:06:36.400 It sends the signal that there isn't an out of 0:06:36.480 --> 0:06:40.159 controlled depreciation in the yuan, so we do feel generally, 0:06:40.160 --> 0:06:44.359 I would say okay with the outlook for China, especially 0:06:44.360 --> 0:06:46.200 in the second half of the year. We have seen 0:06:46.240 --> 0:06:50.480 a lot of fiscal and monetary easing over the past 0:06:50.560 --> 0:06:52.960 few weeks and that should feed through to it to 0:06:53.000 --> 0:06:57.080 an acceleration in Chinese expect Do you expect to see 0:06:57.160 --> 0:07:01.239 more more easing? I think right which China is always 0:07:01.240 --> 0:07:05.000 a bit of a balance between trying to ensure uh 0:07:05.160 --> 0:07:08.400 some good economic growth at the same time not give 0:07:08.480 --> 0:07:12.280 up completely on reforms of when we think about all 0:07:12.280 --> 0:07:14.000 of the credit that China has build up, so I 0:07:14.000 --> 0:07:16.360 think it's it's a tough balancing act and as long 0:07:16.360 --> 0:07:19.280 as the economy starts to pick up, then the Chinese 0:07:19.280 --> 0:07:22.800 government won't want to do too much and just just 0:07:22.960 --> 0:07:24.920 very quickly here. I mean, the vics spiked down to 0:07:25.000 --> 0:07:27.680 ten point five two today. But once again in the 0:07:27.800 --> 0:07:31.239 US markets, all the doom and gloom guys have been wrong. 0:07:31.760 --> 0:07:34.440 Have you ever seen anything like this or like John 0:07:34.640 --> 0:07:38.000 to me, it's Friday. Everybody publishes on Friday their doom 0:07:38.040 --> 0:07:40.960 and gloom article of the week, and I'm sure sometimes 0:07:41.000 --> 0:07:46.800 they'll be right, But the fact is the VIX is 0:07:46.800 --> 0:07:50.360 eleven point zero one under with a ten handle earlier. 0:07:50.400 --> 0:07:53.360 I mean, how do you deal with that professionally, because 0:07:53.400 --> 0:07:55.200 I know you're getting it from clients, right. We do, 0:07:55.400 --> 0:07:57.680 we do, and and to be fair, we want to 0:07:57.680 --> 0:08:00.280 focus on the risk. We want to think through them. 0:08:00.320 --> 0:08:02.360 But at the same time, we also want to take 0:08:02.400 --> 0:08:05.600 a look at what current situations are. Right. And if 0:08:05.640 --> 0:08:07.680 you look at the backdrop for the US market, it's 0:08:07.680 --> 0:08:11.040 a solid economic backdrop. We spoke about deceleration, but it's 0:08:11.040 --> 0:08:15.040 still expansion. It's still growth. It's not recession, um and 0:08:15.040 --> 0:08:17.600 and as a result, profit growth can continue at a 0:08:17.720 --> 0:08:20.520 very very healthy pace. UM. So we do try to 0:08:20.520 --> 0:08:22.920 think through the risk. The one we are still focusing 0:08:22.960 --> 0:08:25.960 on our trade tensions, um. But we don't want to 0:08:26.000 --> 0:08:29.000 react to rashly, right as as long as the current 0:08:29.000 --> 0:08:32.480 fundamentals look positive. Okay, this has been great. Get Real Scientists. 0:08:32.520 --> 0:08:51.800 Thank you so much, greatly, thank you so much this morning. John. 0:08:52.160 --> 0:08:54.040 I don't know what your favorite team is. I don't 0:08:54.040 --> 0:08:56.560 know what Steve Major's favorite team is, but I think 0:08:56.600 --> 0:08:59.360 you both don't like Arsenal Right, you'll bring in Mr 0:08:59.440 --> 0:09:02.040 Major and I Steve supports it's West Ham isn't it, Steve. 0:09:02.960 --> 0:09:05.840 That's right, John, you're a happy man looking forward to 0:09:05.880 --> 0:09:08.600 the season. Yes, I'm looking forward to it, looking forward 0:09:08.600 --> 0:09:11.880 to the scene, Steve Major, East London's finest. There you go. 0:09:14.000 --> 0:09:17.199 I'm trying to teach it. HSBC's global head of Fixed 0:09:17.200 --> 0:09:19.560 Income Research, Johning us Now, Steve, what are we getting 0:09:19.559 --> 0:09:21.960 wrong in the fixed income market? Still that you have 0:09:22.000 --> 0:09:25.560 to spend a lot of time explaining the clients. Well, 0:09:25.600 --> 0:09:29.199 the five percent number was quite funny this morning. I'm 0:09:29.240 --> 0:09:32.920 not sure whether the JP Morgan Research department have written 0:09:32.960 --> 0:09:36.400 anything that's got a five percent. Believe they have not. 0:09:38.160 --> 0:09:40.959 And I'm just wondering what would happen here, Whether if 0:09:41.000 --> 0:09:43.880 Stuart Gulliver had done that, our ex head so now 0:09:43.920 --> 0:09:46.080 it's John Flint. If John Flint had done that, I 0:09:46.120 --> 0:09:49.360 wonder what would have happened here? What would you have said, Steve? 0:09:49.400 --> 0:09:52.439 What would you have said if well done that a 0:09:52.520 --> 0:09:55.079 couple of years ago. There's a fair bit of a 0:09:55.120 --> 0:09:57.320 fair bit of work get into these research reports and 0:09:57.360 --> 0:09:59.760 they're done with some consideration. It doesn't make them right. 0:10:00.040 --> 0:10:02.960 We could always be wrong. But you know, I'm beholden 0:10:03.000 --> 0:10:05.880 to my colleagues to justify everything I say and think, 0:10:05.960 --> 0:10:09.160 and if I go across the line, they'll pull me back. 0:10:09.720 --> 0:10:12.920 So we've got a published number that's two point three, 0:10:13.120 --> 0:10:15.800 and that number hasn't changed for the last twelve months, 0:10:15.800 --> 0:10:19.120 and every day of the week I'm out there defending it. 0:10:19.320 --> 0:10:23.040 The thing is with botons, the forecasts aren't wrong until 0:10:23.080 --> 0:10:26.319 we get to the forecast date. And our forecast is 0:10:26.400 --> 0:10:28.080 for the end of this year and the end of 0:10:28.120 --> 0:10:30.280 next year, and I'm thinking, look, I'm not wrong yet, 0:10:30.880 --> 0:10:34.000 and to be right, you just need the yield to 0:10:34.080 --> 0:10:38.000 be lower than the forward is implying. So this year 0:10:38.200 --> 0:10:41.920 we've had a hundred and fifty trading days and only 0:10:42.000 --> 0:10:45.760 on nine days did the US tenure treasury close at 0:10:45.840 --> 0:10:49.280 three or above. So if you've been sure the tenure 0:10:49.320 --> 0:10:52.000 treasury is, it's been quite painful for most of the 0:10:52.040 --> 0:10:56.280 time you've given up the coupon. So look, five PC. 0:10:56.600 --> 0:10:59.240 It's a number the FED says they're going to go 0:10:59.280 --> 0:11:02.240 to about They're not saying they're going to go to four. 0:11:02.679 --> 0:11:05.319 To have a five ten year yield. The Fed's got 0:11:05.320 --> 0:11:07.760 to be at for and change, and you've gotta have 0:11:07.760 --> 0:11:11.800 inflation going above the FED target. That might be a 0:11:11.840 --> 0:11:14.400 possible scenario for the future, but I wouldn't give it 0:11:14.480 --> 0:11:17.880 a probability of waiting of more than five or ten percent. 0:11:18.559 --> 0:11:23.000 I would attach at probability to the idea that the 0:11:23.000 --> 0:11:26.319 FED stops at one of the next two or three meetings. 0:11:27.240 --> 0:11:30.160 And you when you when you wait all those scenarios up, 0:11:30.280 --> 0:11:32.720 you end up with a forecast that has a two handle, 0:11:33.200 --> 0:11:35.280 not a five handle to stay a lot to one 0:11:35.320 --> 0:11:37.280 pank Here, let's just pick up on the point about 0:11:37.280 --> 0:11:40.199 the Federal Reserve. What's going to problem? What's the catalyst 0:11:40.280 --> 0:11:43.560 for them to stop in the next two or three meetings. Well, look, 0:11:43.559 --> 0:11:45.760 the way I describe it, Johns has been plenty already 0:11:45.840 --> 0:11:48.760 this year. It's like a bucket filling up and at 0:11:48.760 --> 0:11:52.080 some stage to bucket just overflows. So if you imagine 0:11:52.160 --> 0:11:54.840 that bucket you've got, you call it a bucket in America, 0:11:55.200 --> 0:11:59.280 I think whatever it is a bucket. You have this 0:11:59.559 --> 0:12:03.240 radio London. Yeah, so you have you have a you 0:12:03.280 --> 0:12:07.040 have a leaking roof, and you have drip drip, you know, 0:12:07.200 --> 0:12:10.040 the drops of rain water fill the bucket up. At 0:12:10.040 --> 0:12:12.880 some stage it overflows. For me this year, it started 0:12:12.920 --> 0:12:16.960 with FRA O I S. Then there was the cryptocurrency collapse, 0:12:17.360 --> 0:12:21.240 then there was reverse fix, and just about every emerging 0:12:21.360 --> 0:12:26.080 market sequentially has been in play. Is there a common denominator, 0:12:26.440 --> 0:12:29.240 I ask you, And what the answer to me is, Yes, 0:12:29.679 --> 0:12:33.559 there's there's a huge d leverage. The FED is exporting 0:12:33.760 --> 0:12:37.000 a tightening of financial conditions around the rest of the world, 0:12:37.480 --> 0:12:40.560 and all of the tourist money that has flown from 0:12:40.679 --> 0:12:45.480 one game to another has been sucked out. So so yes, 0:12:46.000 --> 0:12:49.160 the the tightening of policy in the US has consequences, 0:12:49.200 --> 0:12:51.400 and we can see it everywhere. And you go to Turkey, 0:12:51.520 --> 0:12:55.040 go to go to China. You have a look at 0:12:55.080 --> 0:12:57.720 what's happening in these markets that they've all been there, 0:12:58.480 --> 0:13:01.720 you know, in the last few months. It started with Argentina, 0:13:01.920 --> 0:13:06.600 it went through various points along the way, Mexico, Indonesia, India, 0:13:07.040 --> 0:13:09.680 most recently it's Turkey that that's the one if one's 0:13:09.720 --> 0:13:12.960 talking about, but also China. All of these markets are 0:13:13.000 --> 0:13:16.160 in focus. And I think it's because of the tightening 0:13:16.160 --> 0:13:18.640 of financial conditions that the US is exporting to the 0:13:18.640 --> 0:13:21.320 rest of the world. And so you asked me what 0:13:21.400 --> 0:13:24.400 stops the FED. I just think a few more drips 0:13:24.440 --> 0:13:27.800 in the buckets and it will overflow, and you know 0:13:27.800 --> 0:13:30.760 that the traditional reaction function would be a strong dollar. 0:13:31.080 --> 0:13:35.360 That's starting to happen in some in some ways, or 0:13:35.400 --> 0:13:37.840 it's the incoming data. And as there are a bunch 0:13:37.880 --> 0:13:41.760 of economists in the FED who are looking at incoming data, 0:13:41.920 --> 0:13:44.920 it might take weaker data to bang them on the 0:13:44.960 --> 0:13:48.280 back of the head to wake them up. But to me, 0:13:49.040 --> 0:13:52.800 it's incredulous to just think that nothing happens. So let's 0:13:52.800 --> 0:13:57.480 talk about thirty a US. How should you position elsewhere? 0:13:58.640 --> 0:14:01.360 Long duration in the US you have to be long 0:14:01.559 --> 0:14:04.880 long to us with with with a continued flattening bias, 0:14:04.960 --> 0:14:07.480 because look, I'm not denying the Fed's going to hike 0:14:07.520 --> 0:14:11.559 in September. They might even hike in December. Although we'll 0:14:11.559 --> 0:14:14.800 have to look at the post midterm election emprovement. We 0:14:14.880 --> 0:14:16.560 have to we have to look at what Italy does 0:14:16.840 --> 0:14:19.680 to this bucket of water that's filling up. Well, I 0:14:19.720 --> 0:14:21.600 go to the Book of Water. But Steve, this is 0:14:21.640 --> 0:14:24.480 important and this is for Global Wall Street folks. Duration 0:14:24.600 --> 0:14:27.720 is the length of the bun. How brave are you 0:14:28.480 --> 0:14:33.520 to buy price higher yield lower is measured out the 0:14:33.640 --> 0:14:37.840 yield curve. How far out are you willing to go, well, 0:14:37.920 --> 0:14:40.800 I'd keep going into the ten year plus. You would 0:14:40.800 --> 0:14:43.960 go into ten year plus. Yeah, ten year plus. The 0:14:44.320 --> 0:14:47.200 worry at the moment for people in the very long 0:14:47.320 --> 0:14:50.360 end is that you've got some stuff coming up in 0:14:50.360 --> 0:14:54.440 September October around the tax reform and how the pension's 0:14:54.480 --> 0:14:59.480 market is that some people are worried about some steepening 0:14:59.640 --> 0:15:02.720 and you're you're not concerned, Steve Major about the fiscal polity. 0:15:03.800 --> 0:15:07.520 It's the buying opportunity. Any cheapness is of buying opportunity. Look, look, 0:15:07.600 --> 0:15:10.240 ten year plast this year, you've been pretty safe sitting there. 0:15:10.560 --> 0:15:12.800 You haven't had that many bad days and you grab 0:15:13.280 --> 0:15:17.480 and I get yeah, so you know, as long as 0:15:17.520 --> 0:15:19.640 you don't too much. I think the first few weeks 0:15:19.640 --> 0:15:22.360 of this year were bad for the bond guys. But 0:15:22.360 --> 0:15:24.800 but the last six months, so that takes me back 0:15:24.840 --> 0:15:28.800 into sort of late Joan early fab. They've been fine, 0:15:29.200 --> 0:15:32.280 but not moved. It's been in a range. How long 0:15:32.400 --> 0:15:35.880 do you feel I mean, I mean, do you feel 0:15:35.920 --> 0:15:38.720 like a lonely car here of Laurie yields you and Gary. 0:15:38.840 --> 0:15:41.920 I do feel I do feel. I do feel quite lonely, 0:15:41.960 --> 0:15:44.480 and I've just I've continued to add to my long 0:15:44.560 --> 0:15:47.680 position on weakness. So you know, I don't change the view. 0:15:48.560 --> 0:15:51.200 And actually it's not because I've got my head stuck 0:15:51.200 --> 0:15:54.240 in the standards, because I believe it. And actually, in 0:15:54.320 --> 0:15:57.400 my experience, the best forecasts that we've ever had have 0:15:57.560 --> 0:16:00.960 normally involved as being quite lonely, and it's normally a 0:16:01.000 --> 0:16:04.120 good sign. When when people start to say you're wrong 0:16:04.520 --> 0:16:06.480 and and you start to look like a bit of 0:16:06.520 --> 0:16:10.440 a loony when people think you're mad, then then it's 0:16:10.440 --> 0:16:13.400 normally a good sign. So we're getting to the point 0:16:13.400 --> 0:16:15.440 now where we are the Mavericks on our own, and 0:16:15.520 --> 0:16:18.120 I'm quite happy with that. Giving Tom Kine some ideas 0:16:18.120 --> 0:16:21.960 there they please don't makes you thank you so much. Really, 0:16:22.160 --> 0:16:24.480 we're gonna lead our podcast, I hope today with this 0:16:24.600 --> 0:16:39.720 really wonderful. We have a lot of funny here. It's 0:16:39.760 --> 0:16:41.600 sort of like after the Market. I know, I'm supposed 0:16:41.640 --> 0:16:45.560 to talk Zello or this or Turkishly or forget about it. 0:16:46.040 --> 0:16:50.600 City Group has done a brilliant analysis of what is 0:16:50.680 --> 0:16:53.040 permeating your house. Now for those of you have a 0:16:53.080 --> 0:16:56.320 certain vintage uh you know, there's a seventy eight record 0:16:56.360 --> 0:16:57.880 in the needle that you have to put in and 0:16:58.040 --> 0:17:01.840 you know it prick your finger. And then there was LPs, 0:17:01.960 --> 0:17:04.199 and then there was cassettes and c d s and 0:17:04.560 --> 0:17:08.159 CDs were lousy, then CDs were good, and now they're streaming. 0:17:08.200 --> 0:17:10.680 Is a City group has really looked at the state 0:17:10.720 --> 0:17:13.520 of the music business. Tim Signers joins us right now 0:17:13.560 --> 0:17:15.920 ahead of their European You've forgot eight tracks by the way, 0:17:15.960 --> 0:17:18.159 oh you excuse me, I forgot eight tracks that was 0:17:18.240 --> 0:17:21.960 underneath the um the glove compartment as well. Tom. When 0:17:21.960 --> 0:17:25.760 you put this report together with five six seven City Group, guys, 0:17:26.040 --> 0:17:30.040 what was the number one surprise with the new economics 0:17:30.119 --> 0:17:36.320 of the music business? Really cool? Thanks for having me, Tom. Yeah, well, 0:17:36.359 --> 0:17:38.879 I'm going to say there's two surprises. I think, you know. 0:17:38.960 --> 0:17:42.560 The first one actually was I think we've got accustomed 0:17:42.600 --> 0:17:44.960 to the idea that the music industry was challenged. You know, 0:17:45.000 --> 0:17:47.760 we've heard a lot about how rewarded music was under pressure, 0:17:48.000 --> 0:17:51.720 but actually the music music industries in relatively good health. 0:17:51.760 --> 0:17:56.320 It's growing in pasted its historic peak kutchures two thousand 0:17:56.400 --> 0:18:01.600 and six. In the US, consumers are spending three billion 0:18:01.640 --> 0:18:04.920 dollars a year on music in some way, shape or form. 0:18:05.320 --> 0:18:09.040 The issue is only a tiny fraction of that goes 0:18:09.080 --> 0:18:11.440 to the artist. I think that's the real killer point 0:18:11.480 --> 0:18:15.760 from this. We it's going up, but it's around of 0:18:15.840 --> 0:18:18.200 industry revenues end up with the artist, which is much 0:18:18.280 --> 0:18:21.639 much lower than you'd expect the talent to be getting 0:18:21.720 --> 0:18:23.560 based on what we see another industry. Well, this has 0:18:23.600 --> 0:18:25.520 been true and it used to be seven percent and 0:18:25.560 --> 0:18:28.520 now it's up to a week double digit statistic. But 0:18:28.600 --> 0:18:31.199 the bottom line is, am I right that in the 0:18:31.240 --> 0:18:34.639 modern music business, the talent only gets it from gate 0:18:34.800 --> 0:18:38.160 from concerts, and that means it's only a certain percentage 0:18:38.160 --> 0:18:41.040 of the talent. If you're an artist that doesn't have gait, 0:18:41.160 --> 0:18:45.280 you don't survive, do you exactly right? I mean, the 0:18:45.280 --> 0:18:47.800 main main driver of it moving up over time is 0:18:49.119 --> 0:18:52.280 is exactly that. It's it's it's the rise and um 0:18:52.520 --> 0:18:55.600 in live events and as you say, that disproportionately benefits 0:18:55.600 --> 0:18:58.080 the big artist. But what it also speaks to is 0:18:58.119 --> 0:19:01.440 that is just how complex this industry is. You've got 0:19:01.840 --> 0:19:04.440 we call it the blob, but you know, the music industry, 0:19:04.520 --> 0:19:07.840 there are so many different intermediaries, all breaking their own cut, 0:19:08.240 --> 0:19:11.720 and that's really where we're likely to see disruption in 0:19:11.760 --> 0:19:15.400 are you? Where? Where is the disruption for record companies 0:19:15.480 --> 0:19:18.560 that used to be twenty or thirty record companies and 0:19:18.600 --> 0:19:22.560 there's always a maverick one like Reprise Records, or you 0:19:22.600 --> 0:19:25.480 know a couple of the British record companies as well 0:19:26.080 --> 0:19:28.960 Stigwood and their crew a million years ago. But where 0:19:29.000 --> 0:19:31.880 are the record companies right now? Does anybody still care 0:19:32.200 --> 0:19:36.080 about Columbia and the big red dot. Yeah, no, I 0:19:36.080 --> 0:19:39.200 think that's there's still very big companies and still very 0:19:39.200 --> 0:19:43.119 important players. And certainly when we think about their control 0:19:43.200 --> 0:19:46.199 of catalog, it's it's obviously very very strong, but it 0:19:46.240 --> 0:19:48.560 really is a question about what's going to look like 0:19:48.640 --> 0:19:52.360 in five, ten, fifteen years time. Remember those record labels. 0:19:52.960 --> 0:19:56.520 The big thing they had was they owned recording facilities, 0:19:56.520 --> 0:19:59.879 which were really difficult to to to to organize your 0:20:00.000 --> 0:20:02.520 of as an artist. But most artists can now record 0:20:02.560 --> 0:20:05.960 musics on a laptop. You know. They owned manufacturing facilities 0:20:06.000 --> 0:20:07.919 to make the eight tracks from the vinyl that we 0:20:07.920 --> 0:20:09.520 were talking about, but you don't need that books you 0:20:09.560 --> 0:20:13.560 can distribute online, and of course they owned marketing and distribution, 0:20:13.760 --> 0:20:16.600 and obviously artists can do a lot of that work themselves, 0:20:16.600 --> 0:20:19.800 so it's it's really not about the the legacy business, 0:20:19.800 --> 0:20:21.879 which is still quite robust and the value of catalog 0:20:22.000 --> 0:20:25.159 quite high. It's about where's the business going forward? And 0:20:26.160 --> 0:20:28.560 do you as an artist really need to use a 0:20:28.680 --> 0:20:32.040 legacy record label in order to to make money in 0:20:32.080 --> 0:20:35.160 recorded music? And increasingly it looks, you know, the answer 0:20:35.160 --> 0:20:41.520 to that is well not really. Could the Beatles happen today? Absolutely, 0:20:41.560 --> 0:20:44.840 I think you know the Beatles, you know, we've seeing 0:20:44.840 --> 0:20:47.840 lots of exciting new artists are very dynamic and exciting time. 0:20:47.880 --> 0:20:49.600 I think the big thing is, you know, would the 0:20:49.600 --> 0:20:52.359 Beatles need to sign up with a with a with 0:20:52.400 --> 0:20:54.840 a with a record labor because they do it themselves 0:20:55.600 --> 0:20:58.640 and and and you're seeing a number of interesting artists 0:20:58.640 --> 0:21:03.000 that are doing in exactly that Macilmore Chance the Rapper. 0:21:03.080 --> 0:21:06.400 These are all artists who have built their own director 0:21:06.440 --> 0:21:10.240 consumer business models and and there much better off financially 0:21:10.280 --> 0:21:12.680 for it. I mean, I'm watching right now with our studios, 0:21:12.680 --> 0:21:14.959 folks of the stack of TV is always keeping us 0:21:15.200 --> 0:21:16.840 and the rest of the news and ad for Kenny 0:21:16.880 --> 0:21:20.000 Chesney of Nashville out with three or four opening acts 0:21:20.000 --> 0:21:23.600 doing the Arena tour. I mean, those those rare acts 0:21:23.640 --> 0:21:26.320 are still bringing in tons of money, whether it was 0:21:26.320 --> 0:21:30.680 Arianna Grande at the Manchester Concert or Mr Chesney doing 0:21:30.720 --> 0:21:33.560 it in New York City. I mean, the big arenas 0:21:33.600 --> 0:21:37.439 still matter, don't they Absolutely? I mean the big the 0:21:37.480 --> 0:21:40.159 big driver of the industry growth and the way that 0:21:40.200 --> 0:21:43.240 we define it, and certainly the big driver of artists 0:21:43.320 --> 0:21:47.200 share of industry is live events. Absolutely. And I think 0:21:47.560 --> 0:21:50.320 one of the things that is striking about the music 0:21:50.359 --> 0:21:54.320 industry that stands is just how stratified it is. By 0:21:54.640 --> 0:21:58.399 and large, record labels are still record labels. Constant promoters 0:21:58.440 --> 0:22:01.800 are still constant promoters. Distribute platforms are still distribution platforms. 0:22:01.800 --> 0:22:03.760 And I think one of the big things that we 0:22:03.800 --> 0:22:07.320 think will happen as disruption impact is you'll see more 0:22:07.480 --> 0:22:10.840 vertical integration and actually live events is probably going to 0:22:10.920 --> 0:22:13.080 be the big area of focus, and companies like Live 0:22:13.160 --> 0:22:16.480 Nation um set to benefit from that because that's the 0:22:16.560 --> 0:22:20.600