WEBVTT - Surveillance: Facebook Worries With Nathanson 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa A. Bramowitz Jailey, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:22.440 international relations. Find Bloomberg Surveillance on Apple Podcast, sun Cloud, 0:00:22.840 --> 0:00:26.320 Bloomberg dot Com, and of course on the Bloomberg terminal. 0:00:30.320 --> 0:00:32.280 The stuff tailing a couple of themes here right now 0:00:32.280 --> 0:00:34.800 on tech earnings, my essay of the Year Ian Bremer 0:00:34.840 --> 0:00:38.120 in Foreign Affairs Magazine, and the power in the strength 0:00:38.159 --> 0:00:40.960 of all these big tech companies, just a fabulous look 0:00:41.280 --> 0:00:43.880 at where we're heading. And then John fulled that into 0:00:43.920 --> 0:00:47.279 the power and the strength of Cooper Tino to say no, 0:00:47.720 --> 0:00:51.400 we make the rules for our users, particularly of iPhones. 0:00:51.720 --> 0:00:53.800 And then you go to the power and strength and 0:00:54.000 --> 0:00:57.520 shock of Snap. John. We witnessed that last week very 0:00:57.600 --> 0:01:00.360 clearly her at spend at Snap to what degree I 0:01:00.400 --> 0:01:02.920 don't know, that stock absolutely created and then we start 0:01:02.960 --> 0:01:05.119 to think about what it would mean for Facebook too. 0:01:05.400 --> 0:01:08.199 Let's have that conversation now with Michael Nathanson, the founding 0:01:08.240 --> 0:01:12.160 partner and senior research analyst at Moffatt Nathanson. Michael, let's 0:01:12.200 --> 0:01:14.360 start there. I've talked a lot over the last week 0:01:14.360 --> 0:01:16.840 about the supply chain disruptions, the fact that people might 0:01:16.840 --> 0:01:18.960 not want to spend because they can't meet the additional 0:01:19.000 --> 0:01:22.280 demand that spending might deliver. Let's talk about the change 0:01:22.319 --> 0:01:25.360 of Apple, how much it's surprised the c suite is Snap, 0:01:25.360 --> 0:01:27.120 and what it might mean later this week for some 0:01:27.120 --> 0:01:30.600 of the big tap players. Yeah, good morning, Jonathan. I 0:01:30.640 --> 0:01:33.400 think that was the story at Snap last week. You know, 0:01:33.440 --> 0:01:36.600 it was nice to blame supply chains, but I think 0:01:36.680 --> 0:01:39.600 they didn't They didn't see the risk coming from those 0:01:39.680 --> 0:01:43.559 Apple changes on privacy protection. They were saying up until 0:01:43.560 --> 0:01:45.560 the last quarter, things are fine, we have this to 0:01:45.680 --> 0:01:49.600 not worry, whereas Facebook was warning everyone. So supply chains 0:01:49.640 --> 0:01:53.840 definitely hurt autos and iPhone sales and technology sales. But 0:01:54.000 --> 0:01:56.320 I think that was a convenient excuse for while was 0:01:56.360 --> 0:01:59.880 probably misunderstanding the risks that Apple or we're bringing to 0:02:00.080 --> 0:02:03.400 or business. That's the power of it all. Michael is 0:02:03.600 --> 0:02:07.680 Netflix part of this group. I found it interesting that 0:02:07.840 --> 0:02:11.679 Dr Bremer left it out of the essay. After Netflix 0:02:11.720 --> 0:02:15.560 the subscribers. The mystery of streaming, which you cover better 0:02:15.600 --> 0:02:22.000 than anyone, is net. Does Netflix have power. Netflix has 0:02:22.200 --> 0:02:26.239 power because they spend eighteen million dollars a year in 0:02:26.320 --> 0:02:31.040 content and their strategy is to basically just wifeless shot 0:02:31.120 --> 0:02:34.519 every new content every day, and it's hard to compete 0:02:34.560 --> 0:02:37.240 with that. But their business, you know, we've argued the past, 0:02:37.320 --> 0:02:41.520 doesn't have the same mode as Microsoft, Apple, Facebook, Google, Amazon, Right, 0:02:41.520 --> 0:02:44.600 they're a different beast, you know, the fang that fang 0:02:44.639 --> 0:02:47.800 acronym has being created. They're in it, but I don't 0:02:47.800 --> 0:02:50.040 think they're in the same business and the same type 0:02:50.040 --> 0:02:53.359 of mode protection that the other big five have. Um 0:02:53.600 --> 0:02:57.040 So it's in the conversation, but such a different business 0:02:57.040 --> 0:03:00.120 model than the other companies. We've got eighteen questions. It's 0:03:00.240 --> 0:03:03.040 very quickly here Michael Nathans, and before the others jump in, 0:03:03.440 --> 0:03:07.959 what's your single best buy now out an institutional short 0:03:08.080 --> 0:03:11.320 term of three years, Which of these myriad of names 0:03:11.800 --> 0:03:15.640 is the one that gets you excited? This will surprise you, 0:03:15.720 --> 0:03:18.680 I'd say Facebook, which is you know, printing results tonight, 0:03:18.760 --> 0:03:22.080 We're expecting a very tough quarter in terms of forward 0:03:22.080 --> 0:03:25.160 guide into the Apple effects supplied. Shandon comments is Jonathan 0:03:25.240 --> 0:03:28.280 was referencing, but the sluck training out of markup multiple 0:03:29.120 --> 0:03:31.840 next year's numbers, and it seems to us that they're 0:03:31.840 --> 0:03:35.240 so well positioned even with all those headwinds. Uh, you know, 0:03:35.320 --> 0:03:37.680 for years and years of double digit top line growth. 0:03:37.800 --> 0:03:40.440 So it's Facebook, which I know is counted to a 0:03:40.480 --> 0:03:43.080 current consensus. This I really think we need to dig 0:03:43.120 --> 0:03:44.920 into a little bit more. You've got a price target 0:03:44.920 --> 0:03:47.400 of four hundred and twenty dollars on the Facebook shares, 0:03:47.680 --> 0:03:50.200 a really significant gain from where we are right now. 0:03:50.240 --> 0:03:52.240 And this comes despite some of the disclosures that we're 0:03:52.280 --> 0:03:55.560 seeing dribbled out from the whistleblower that's been testifying in Washington, 0:03:55.680 --> 0:03:58.400 d C. What we'll get it to four hundred and 0:03:58.440 --> 0:04:01.680 twenty dollars share made all of this blowback amid the 0:04:01.720 --> 0:04:04.320 Apple privacy rules at a time when the shares are 0:04:04.320 --> 0:04:09.880 simply okay. So, Lisa, I've covered the stock for a while. 0:04:10.200 --> 0:04:14.360 There are times when you go through these uh intense 0:04:14.440 --> 0:04:18.520 spotlights and regulatory and business model pressures. I just think 0:04:18.600 --> 0:04:21.680 it's going to be quarters and quarters of good top 0:04:21.760 --> 0:04:25.520 line growth and it's meaning expectations. And I tell you 0:04:25.680 --> 0:04:29.039 there's been times in the past where we've seen the 0:04:29.080 --> 0:04:32.119 spotlight from d C and regulators, never whistle blowers before 0:04:32.680 --> 0:04:34.599 and the stock has powers through because they've got a 0:04:34.600 --> 0:04:38.240 great business model even with the changes the Apple changes. 0:04:38.720 --> 0:04:42.520 If you want to reach people for digital advertising, Facebook 0:04:42.600 --> 0:04:44.960 is one of two or three places to go, and 0:04:45.000 --> 0:04:47.480 that's where the growth is coming from. So you know, 0:04:47.600 --> 0:04:50.880 I know it's not it's not comfortable to recommend Facebook 0:04:50.880 --> 0:04:53.640 here given all we've learned about the company, but the 0:04:53.680 --> 0:04:57.359 business model is really really well well protected giving the 0:04:57.480 --> 0:05:01.720 long term headwinds started. Tell when is that the industry saying, Michael, 0:05:01.800 --> 0:05:04.200 you're making a really important point here that last week 0:05:04.240 --> 0:05:06.159 everyone took us look at what Snap had to say 0:05:06.160 --> 0:05:08.919 and they said, oh my goodness, any company that relies 0:05:08.920 --> 0:05:12.159 in advertising digital advertising is going to get sunk by 0:05:12.320 --> 0:05:16.000 supply chain disruptions. Are you saying that narrative is completely wrong, 0:05:16.240 --> 0:05:19.839 that those advertisers will keep advertising and that those companies 0:05:19.880 --> 0:05:23.120 that have adequately protected against the Apple privacy rules will 0:05:23.160 --> 0:05:26.560 be the ones that succeed. Yes, I'm not saying that 0:05:26.560 --> 0:05:29.680 the supply chain risks are not real. I'm not saying 0:05:29.680 --> 0:05:31.719 that the I d f A Apple changes are not real. 0:05:32.279 --> 0:05:36.160 But Facebook has spent you know, fifteen months warning us 0:05:36.600 --> 0:05:40.160 investing in solutions. They have great first party data there 0:05:40.160 --> 0:05:43.320 are different business and Snap. Where the weakness was seen 0:05:43.320 --> 0:05:46.920 at Snap was on app downloads and mobile games. Facebook 0:05:46.960 --> 0:05:50.479 has ten million advertisers, right, so there's no no doubt 0:05:50.520 --> 0:05:52.520 in the near term the pressures will be there from 0:05:52.560 --> 0:05:56.279 Apple changes and supply chain disruptions, however big they are. 0:05:56.800 --> 0:05:59.080 But Tom's in a three year view. I have a 0:05:59.080 --> 0:06:01.800 stock training out of mar Multiple that's growing well on 0:06:01.839 --> 0:06:03.919 nexis of the market. Seems to me that that's the 0:06:03.960 --> 0:06:06.320 place you want to invest in, right, So that's the 0:06:06.440 --> 0:06:08.720 leaves of your concerns and things you've raised or there. 0:06:09.000 --> 0:06:11.160 I think Facebook has thought about this for a long 0:06:11.200 --> 0:06:13.719 time now, and they've done things to try to mitigate 0:06:13.760 --> 0:06:17.000 the damage from from Apple's changes. Michael, let's just finish 0:06:17.040 --> 0:06:19.359 on this just quickly. What would it take do you 0:06:19.440 --> 0:06:23.240 think for advertisers on Facebook to go somewhere else and 0:06:23.279 --> 0:06:25.159 pull back and say, you know what, this just feels 0:06:25.200 --> 0:06:27.760 really toxic and that's not a platform I want my 0:06:27.800 --> 0:06:31.760 company to be a part of anymore. What would it take? Okay? So, Jonathan, 0:06:31.800 --> 0:06:35.080 there are two types of advertisers their brand advertisers who 0:06:35.120 --> 0:06:38.279 are there to amplify their their message and their brand 0:06:38.320 --> 0:06:41.560 and to be around content that they like. I see 0:06:41.600 --> 0:06:43.920 that as a big risk. You know that Facebook averages 0:06:44.000 --> 0:06:46.599 or brand advertisers will leave, but that's a small portion 0:06:46.680 --> 0:06:50.680 of their ad base. The other the core portions performance 0:06:50.680 --> 0:06:54.640 advertisers who are putting out messages where they want a response, 0:06:55.120 --> 0:06:59.440 an app, download a site to visit, or purchase checkout. Um. 0:06:59.560 --> 0:07:01.880 Until the r o I in turn investment starts to 0:07:01.880 --> 0:07:05.440 really wane, they will keep spending. They're not there for 0:07:05.520 --> 0:07:08.640 the branding elements of Facebook. They're there to push a 0:07:08.800 --> 0:07:13.200 commerce activity. So John, until that weekends, really weekends, they're 0:07:13.200 --> 0:07:16.600 gonna spend, right, It's it's supply demand. The problem is 0:07:16.640 --> 0:07:18.920 there there are not a lot of places to go 0:07:19.280 --> 0:07:21.920 outside of Facebook to reach that many. And it's more 0:07:21.920 --> 0:07:24.040 than the Facebook, its Instagram as well. Right, So there's 0:07:24.080 --> 0:07:27.600 a broad, broad patch up consumers out there who have 0:07:27.760 --> 0:07:31.400 historically clicked to buy, click to download, click to rent 0:07:31.480 --> 0:07:34.880 something thanks to Facebook. Right. So until that really weakens, 0:07:35.560 --> 0:07:38.239 they have them. That final point is so important, Michael, 0:07:38.240 --> 0:07:40.240 He's trying to catch up as always, sir, Thank you, 0:07:40.480 --> 0:07:51.280 Michael Nathanson. There of Moffatt Nathanson, John prea miser, spends 0:07:51.320 --> 0:07:54.200 eight hours a day on Facebook, right. She joins us 0:07:54.200 --> 0:07:57.920 now on rights and not on Facebook and head of 0:07:58.000 --> 0:08:01.400 race strategy at TV Securities Prayer. You can skype this one. 0:08:01.760 --> 0:08:03.920 It's the Fed black oup areod. The chairman had the 0:08:04.000 --> 0:08:06.240 last word, the final word. What do we learn from 0:08:06.280 --> 0:08:10.280 Chairman poal Prayer? So I think he's managing expectations here 0:08:10.360 --> 0:08:13.680 that inflation even though they haven't really pulled back from 0:08:13.720 --> 0:08:16.280 the talk of transitory noticed that he didn't bring it 0:08:16.360 --> 0:08:18.840 up at all. I think they're telling us that inflation 0:08:18.920 --> 0:08:21.680 supply chain issues are gonna last for a while. He 0:08:21.760 --> 0:08:25.240 didn't talk about hiking sooner though, so I think if 0:08:25.280 --> 0:08:29.000 the market has repriced the hiking cycles significantly, And what 0:08:29.040 --> 0:08:31.400 we heard from chair Paul, we also heard that from 0:08:31.440 --> 0:08:34.920 Secretary Yellin over the weekend, was that inflation supply chain 0:08:35.000 --> 0:08:38.880 issues are likely to last well into two twenty two. 0:08:39.160 --> 0:08:40.839 So I think they're trying to tell us, look, this 0:08:40.960 --> 0:08:43.120 is going to be with us for a while, but 0:08:43.400 --> 0:08:46.240 and and the fair is going to taper very soon. 0:08:46.280 --> 0:08:50.040 So so we expect an announcement next week, but that 0:08:50.160 --> 0:08:52.600 the hikes are still you know, further out, and the 0:08:52.640 --> 0:08:55.960 market is absolutely calling the Fed's bluff. I would say 0:08:56.000 --> 0:08:58.760 global interest rates are calling the central bank bluff and 0:08:58.800 --> 0:09:01.280 saying that they will be forced in to start hiking 0:09:01.360 --> 0:09:04.800 much sooner. I actually think that you know, inflation will 0:09:04.840 --> 0:09:07.520 at some point decelerate next year, at some points apply 0:09:07.640 --> 0:09:09.480 to you, in issues will go away. We think there's 0:09:09.480 --> 0:09:12.560 a lot of labor market slack. So we're actually uh 0:09:12.640 --> 0:09:16.679 pushing back against this move in front and rates decelerate 0:09:16.840 --> 0:09:19.000 though to what And this is really the issue as 0:09:19.000 --> 0:09:21.079 you look at tenure break evens bumping up against the 0:09:21.120 --> 0:09:23.800 highest since two thousand and five, this idea that people, 0:09:23.920 --> 0:09:26.000 yes are seeing a lower inflation rate than we are 0:09:26.000 --> 0:09:29.320 seeing now, but still north of two and a half percent. 0:09:29.440 --> 0:09:32.160 At what point does the FEDS start to pay attention 0:09:32.200 --> 0:09:35.040 to that and actually treat that as the right way 0:09:35.280 --> 0:09:38.920 to view longer term inflation. Sure, so I think, you know, 0:09:39.080 --> 0:09:41.560 we've been used to the last twenty years of much 0:09:41.640 --> 0:09:45.320 lower inflation. Maybe the next decade is going to be 0:09:45.520 --> 0:09:47.959 a two percent type inflation here, Maybe we're going to 0:09:48.000 --> 0:09:49.800 be in a two to three percent range. I think 0:09:49.800 --> 0:09:51.880 what the Fed's going to watch four is these long 0:09:51.960 --> 0:09:55.000 term inflation expectations, five year five year break events, are 0:09:55.000 --> 0:09:59.240 they looking unanchored? I think that's an extremely important aspect, 0:09:59.240 --> 0:10:01.400 and the other ones got to be wage inflation. You know. 0:10:01.440 --> 0:10:03.760 I think the big question is has the labor market 0:10:03.800 --> 0:10:07.640 structurally changed as this great resignation. Is that going to 0:10:07.679 --> 0:10:10.400 remain or people going to come back? We feel very 0:10:10.440 --> 0:10:12.679 strongly that people who have left the labor force are 0:10:12.679 --> 0:10:14.559 going to a lot of them are going to come back. 0:10:14.600 --> 0:10:17.120 I mean people who have retired, maybe not, but others 0:10:17.120 --> 0:10:19.440 are going to come back. At some point, those savings 0:10:19.480 --> 0:10:22.120 are going to run out. So if we just um, 0:10:22.160 --> 0:10:24.400 you know, start to stabilize, start to head lower at 0:10:24.480 --> 0:10:27.280 least uh the rate of wage inflation, I think that 0:10:27.360 --> 0:10:30.360 could give the FED confidence that there is labor markets 0:10:30.440 --> 0:10:33.160 lack and you know, raising interest rates to try and 0:10:33.240 --> 0:10:37.160 solve a supply chain issue is not the solution. Raising 0:10:37.720 --> 0:10:41.199 rates to solve the labor market being tight. I think absolutely, 0:10:41.520 --> 0:10:43.840 um you know that will be the response. I think 0:10:43.880 --> 0:10:45.800 it's going to actually come down to the labor market 0:10:45.840 --> 0:10:49.040 slack or their perception exactly. It's right where I wanted 0:10:49.080 --> 0:10:51.080 to go before you came on air. I was looking 0:10:51.120 --> 0:10:53.600 at the e C I, the blended folks wage and 0:10:53.679 --> 0:10:57.560 benefits dynamic, and it really hasn't broken out when you 0:10:57.679 --> 0:11:02.240 fold in your interest rate work with TV securities economists work. 0:11:02.480 --> 0:11:06.319 Do you suggest a breakout the true nominal and even 0:11:06.400 --> 0:11:11.880 positive real wage inflation or can you not say that? Yeah, actually, 0:11:11.960 --> 0:11:14.000 I'm glad you bring up e C I. We prefer 0:11:14.080 --> 0:11:16.520 the e c I over the average early learnings because 0:11:16.559 --> 0:11:20.960 average earl learnings picking up. You know, when people move jobs, 0:11:21.080 --> 0:11:23.920 they should uh earn a higher rate. E C I 0:11:24.040 --> 0:11:26.040 is actually looking at if I've had the same job 0:11:26.080 --> 0:11:28.560 over the last year, has my wage? Have my wages 0:11:28.600 --> 0:11:30.959 gone up? So I think this whole idea of how 0:11:31.000 --> 0:11:33.280 the labor market is structurally changing. I think e CI 0:11:33.320 --> 0:11:36.040 does a much better job. We think that people are 0:11:36.080 --> 0:11:38.640 going to return. It just would take a while people 0:11:38.679 --> 0:11:41.440 have moved. There are frictions in the labor market at 0:11:41.520 --> 0:11:43.880 some point when people come back. That e c I is, 0:11:44.760 --> 0:11:48.160 I would say about a much more comprehensive measure. We 0:11:48.200 --> 0:11:51.480 don't see wage inflation picking up at all for for 0:11:51.600 --> 0:11:53.600 a while, which is why we have the first Federate 0:11:53.640 --> 0:11:56.000 hike only late two thousand twenty three. So I think 0:11:56.320 --> 0:11:59.520 front end of off the rate market globally, but the 0:11:59.520 --> 0:12:01.880 particular in the US. I think it's very attractive. I 0:12:01.920 --> 0:12:04.640 think people should move not take duration risk the Fed's 0:12:04.640 --> 0:12:07.880 about to paper, but move out from buying tents into 0:12:07.880 --> 0:12:10.640 fives threes. I think the FED is a long way 0:12:10.720 --> 0:12:13.280 here um from hiking interest Do you think we've priced 0:12:13.280 --> 0:12:16.199 too much into the belly of the curve, right? I? 0:12:16.200 --> 0:12:18.280 I think so yes. I think we've priced a lot 0:12:18.360 --> 0:12:20.400 in the front end. That end point of the hiking 0:12:20.400 --> 0:12:22.400 cycle is not moving higher. I think the market is 0:12:22.440 --> 0:12:25.080 really confused that the FED might have to start hiking, 0:12:25.600 --> 0:12:28.760 but can the economy withstand much higher interest rates? Which 0:12:28.800 --> 0:12:31.480 is why what is surprising to me is the end 0:12:31.520 --> 0:12:34.040 point of the hiking cycles only one point six one 0:12:34.080 --> 0:12:36.120 and a half. I mean, what the FED want to 0:12:36.160 --> 0:12:38.400 start raising rates? If all they can do is rise 0:12:38.640 --> 0:12:40.840 you raise it to one and a half, that's what 0:12:40.960 --> 0:12:43.040 looks odd. So I think the belly may have a 0:12:43.080 --> 0:12:45.560 little bit more room to rise. That very front end, 0:12:45.600 --> 0:12:47.839 which is much more about the start of the hiking cycle. 0:12:47.880 --> 0:12:51.480 I think that is the most miss priced. Pray, thank you, 0:12:51.600 --> 0:12:54.720 pray Mira Dailey Securities. I guess on the rights market 0:12:54.760 --> 0:13:02.440 pushing back against the right heights h I mean. Silverman 0:13:02.800 --> 0:13:06.480 is equity derivative strategist at RBC Capital Markets. All you 0:13:06.559 --> 0:13:09.880 need to know is your research notes are really sophisticated 0:13:10.280 --> 0:13:12.679 and have loads of Greek letters. She looks at the 0:13:12.760 --> 0:13:16.120 cross moments, skew, crotosis and the rest of it and 0:13:16.240 --> 0:13:18.960 distills it down to shut up and hold, or shut 0:13:19.040 --> 0:13:21.560 up and buy or maybe go to cash. She joins, 0:13:22.080 --> 0:13:25.240 this morning, Amy Wull on rated change and on delta, 0:13:25.400 --> 0:13:28.600 not the convexity, not the second derivative. You are all 0:13:28.800 --> 0:13:34.559 first derivative. This earnings week. Why look, you know this 0:13:34.760 --> 0:13:38.240 is really the week the market reports, right, so you 0:13:38.320 --> 0:13:41.559 know you basically have the big megacaptech fan names, and 0:13:41.960 --> 0:13:45.240 and those five names really make up of the SMP. 0:13:45.520 --> 0:13:49.280 So the folks who are using options right now, uh Tom, 0:13:49.640 --> 0:13:53.680 particularly for this Friday's weekly expiration, what are they playing there? 0:13:53.720 --> 0:13:57.160 Either trying to hedge you know, this movement in touch 0:13:57.240 --> 0:13:59.839 which could result in a movement in the market. Um 0:14:00.040 --> 0:14:02.640 where they're doing it individually, But these make acap names 0:14:02.679 --> 0:14:06.439 are really driving the market overall because of their size. 0:14:06.520 --> 0:14:09.000 I want to give our audiences on radio and television, Amy, 0:14:09.080 --> 0:14:12.040 will the idea here of what is in your research notes. 0:14:12.160 --> 0:14:14.640 Let's take Apple, we could take any other name, folks, 0:14:15.040 --> 0:14:17.000 And I want to talk about the delta, the rate 0:14:17.040 --> 0:14:19.800 of change, and also what you see in the cross moments. 0:14:20.160 --> 0:14:24.000 Take Apple now and if somebody wants to go long 0:14:24.760 --> 0:14:29.080 or somebody wants to hedge their long, how rich is 0:14:29.120 --> 0:14:32.280 the derivatives market of Apple and folks, Just to be clear, 0:14:32.440 --> 0:14:36.800 delta is not an airline. Well, it is an airline, 0:14:36.840 --> 0:14:40.400 but in the context of options, it's also the sensitivity 0:14:40.680 --> 0:14:44.440 of option price. Uh, two changes in the soft price, 0:14:44.480 --> 0:14:47.040 and obviously that's what we're looking for, especially when there's 0:14:47.040 --> 0:14:51.000 an event tom Surprisingly, you know, Apple options are not 0:14:51.280 --> 0:14:54.360 that expensive. We compare it to all its comps that 0:14:54.440 --> 0:14:57.080 are reporting, we compared to the market, we compare it 0:14:57.120 --> 0:15:00.440 to its own realized utility over time, and heading into 0:15:00.480 --> 0:15:04.320 those earnings, Apple options are fairly inexpensive. And the other 0:15:04.480 --> 0:15:09.000 thing is the amount of demand for hedges is actually declining, 0:15:09.800 --> 0:15:11.920 which we think is interesting, you know, given that it 0:15:12.040 --> 0:15:14.200 was kind of at the center of the storm around 0:15:14.240 --> 0:15:18.240 the privacy issues that obviously led into Snap and into 0:15:18.360 --> 0:15:21.240 other tech names that we saw last week. So amy 0:15:21.360 --> 0:15:23.720 taking a step back, does that mean that people are 0:15:23.800 --> 0:15:27.400 pretty optimistic heading into these tech earnings that basically, uh, 0:15:27.560 --> 0:15:29.480 they think that a lot of the bad news and 0:15:29.560 --> 0:15:32.680 the potential discrepancies that have stemming from some of the 0:15:32.720 --> 0:15:36.920 supply chain disruptions have all been priced in. Yeah, you 0:15:36.960 --> 0:15:39.240 know when we look to the options market. That was 0:15:39.400 --> 0:15:42.720 one of my takeaways intoitigular after last week. I'll give 0:15:42.720 --> 0:15:47.280 you one example. Snap obviously down, you know, on earnings, 0:15:47.360 --> 0:15:50.040 but if you actually look to the derivatives market has 0:15:50.080 --> 0:15:52.960 now gone into skewing version. Just to translate that, that 0:15:53.080 --> 0:15:56.840 means that demand for calls is now outweighing the demand 0:15:56.920 --> 0:16:00.480 for puts. That's a fairly abnormal event that isn't always 0:16:00.520 --> 0:16:04.040 happened in options, and it's signaling kind of an extreme 0:16:04.160 --> 0:16:07.360 level of bullishness. We're also seeing that in Facebook as well. 0:16:07.480 --> 0:16:10.120 We're seeing that in Apple. So you know, look, people 0:16:10.440 --> 0:16:12.880 can be wrong in the options market just as they 0:16:12.920 --> 0:16:15.480 are in the stock market, but the sentiment is certainly 0:16:15.600 --> 0:16:18.680 shifting more bullish ahead of this week. Amy, one of 0:16:18.720 --> 0:16:20.720 the wonderful things that you do is you track the 0:16:20.800 --> 0:16:24.000 correlations and try to understand what the triggers are. And 0:16:24.120 --> 0:16:26.720 here we are heading into tech earnings at a time 0:16:26.880 --> 0:16:31.160 when there's increasing bearishness around bonds right about around duration, 0:16:31.440 --> 0:16:34.120 and typically tech has been viewed as the most duration 0:16:34.280 --> 0:16:37.840 heavy area. How do you view the correlation with people's 0:16:37.960 --> 0:16:40.880 view on the rates market with tech sentiment at a 0:16:40.960 --> 0:16:45.640 time when they've been posting blockbuster earnings. Yeah, it's a 0:16:45.720 --> 0:16:49.520 great question, and obviously kind of also the Tenok view 0:16:49.640 --> 0:16:51.800 related to that is that tech is kind of at 0:16:51.840 --> 0:16:54.760 the center of this growth versus value trade, just as 0:16:54.800 --> 0:16:58.160 it is compared to bonds as well. I'll say one 0:16:58.240 --> 0:17:00.920 thing right now, you know, correlations will tend to break 0:17:00.960 --> 0:17:04.160 down a little simply because we're going into earnings, which 0:17:04.200 --> 0:17:07.440 tends to be an extremely id using cradic event. So 0:17:07.560 --> 0:17:10.439 if there was any time for that dispersion to appear 0:17:10.480 --> 0:17:12.560 in the market, it would be now. But I do 0:17:12.760 --> 0:17:14.920 think that as we head back into year end that 0:17:15.119 --> 0:17:18.040 becomes something that people watch very closely. Just where tech 0:17:18.200 --> 0:17:20.879 is compared to the bond related e T s like 0:17:20.920 --> 0:17:23.520 a T L T H y G and LQUB, can 0:17:23.600 --> 0:17:27.480 you do them a derivative analysis of the moon shot 0:17:27.760 --> 0:17:30.640 up we went above eight hundred, down, we went on Tesla, 0:17:30.840 --> 0:17:34.840 and now up through ninety one. This morning on the 0:17:34.880 --> 0:17:37.600 shat Scar article, I should notice Mr Jonas at Morgan 0:17:37.680 --> 0:17:41.560 Stanley raising his price target as well. Can you Amy, 0:17:41.600 --> 0:17:46.159 who's Silverman do a Greek letter analysis of something as 0:17:46.200 --> 0:17:52.240 original as Tesla. I love Tesla from an options respective, 0:17:52.320 --> 0:17:55.600 and the reason is it's just become its own special animal. 0:17:55.800 --> 0:17:58.119 You know, we have we have five hundreds with thousand 0:17:58.160 --> 0:18:00.720 stocks that we watched all the time, Tom and occasionally 0:18:00.800 --> 0:18:03.240 we just have to put Tesla in its own special bucket. 0:18:03.920 --> 0:18:06.080 One thing I'll tell you on Tesla right now, it's 0:18:06.160 --> 0:18:09.159 equist you one of your favorite words like demand for 0:18:09.240 --> 0:18:12.760 put protection had been really really high. It dropped a 0:18:12.800 --> 0:18:15.280 little bit after earnings. But what I think is interesting 0:18:15.480 --> 0:18:18.600 is it's still pretty high and earnings are over right, 0:18:18.720 --> 0:18:21.280 So so what what is the market kind of concerned 0:18:21.280 --> 0:18:23.800 about on Tesla? Just just before I started this call 0:18:23.920 --> 0:18:26.720 with you, you know, we saw the Hurts announcement on Tesla, 0:18:26.840 --> 0:18:29.760 so maybe that changes today. Thank you Eric Shatzker for 0:18:29.840 --> 0:18:32.400 that reporting. And I mean, well, what's so important here? 0:18:32.760 --> 0:18:34.159 And folks, I don't want to get to in the 0:18:34.240 --> 0:18:38.760 weeds here, but if you have a continued hedge value 0:18:38.880 --> 0:18:42.920 to Tesla, at some point up they have to cover. 0:18:43.560 --> 0:18:47.680 Is there a convexity opportunity in Tesla where we see 0:18:47.680 --> 0:18:53.639 an acceleration higher is busted? Trades are covered yep. So 0:18:54.000 --> 0:18:56.879 so you know you're you're referring to kind of what 0:18:57.000 --> 0:19:00.159 people referred to both the gamma hammer or the gamma squeets, 0:19:00.600 --> 0:19:02.639 where you know, a lot of the times when you 0:19:02.880 --> 0:19:06.159 see that um inversion in skew right, that call demand 0:19:06.200 --> 0:19:09.600 again outweighing that put demand its forces dealers who are 0:19:09.640 --> 0:19:11.800 doing delta hedges on the other side, because dealers are 0:19:11.840 --> 0:19:14.600 trying to not take directional bets right there, trying to 0:19:14.720 --> 0:19:17.800 not take bets on delta. They're simply trying to facilitate 0:19:18.600 --> 0:19:21.440 people on both sides that there's extreme call buying. You 0:19:21.480 --> 0:19:24.840 can essentially see more stock up situations because of that 0:19:25.320 --> 0:19:28.720 that Greek letter gamma, that gamma squeeze that's happening in Tesla. 0:19:29.280 --> 0:19:30.879 Before we let you go, Amy, i'd love to get 0:19:30.920 --> 0:19:33.640 a gauge of just how active traders have been going 0:19:33.680 --> 0:19:35.800 into the earning season. The idea that we've gotten so 0:19:35.880 --> 0:19:38.040 many of the gains that the year is almost over, 0:19:38.520 --> 0:19:42.240 especially as people recalibrate their expectations for FED policy. How 0:19:42.359 --> 0:19:45.200 much is activity increasing. Is there's this idea that this 0:19:45.320 --> 0:19:48.200 is the last hurrah, this week of earnings before people 0:19:48.280 --> 0:19:53.120 basically pack up their bags and go on vacation. Yeah, 0:19:53.359 --> 0:19:56.359 we've seen a lot of institutional activity. We've seen a 0:19:56.440 --> 0:19:59.160 lot of hedging in q q ques ahead of this week. 0:19:59.200 --> 0:20:01.280 I think a lot of that related just simply how 0:20:01.440 --> 0:20:04.680 large a market cap is recording in this week alone. 0:20:04.800 --> 0:20:07.680 Obviously we see the traditional year and hedging, but you know, 0:20:07.800 --> 0:20:11.080 we have seen a drop off LISA in retail demand. So, 0:20:11.640 --> 0:20:14.440 you know, retail which was busy trading call options to 0:20:14.680 --> 0:20:18.160 kind of insane degrees last year during the pandemic, that's 0:20:18.200 --> 0:20:20.040 dropped off a lot. You know, I think they're busy 0:20:20.240 --> 0:20:24.080 trading cryptocurrencies now, but you know that activity has lessened 0:20:24.680 --> 0:20:28.320 much more than it was at this point last year. Ammy, 0:20:28.400 --> 0:20:30.560 thank you as O wise Emmy with Silverman. That the 0:20:30.600 --> 0:20:34.360 wonderful Emmy with Silverman ILLBC Capital Markets on a big 0:20:34.480 --> 0:20:44.040 wag for big tech. This is really important, folks. Two 0:20:44.720 --> 0:20:46.800 pages and for the first time in ages, I'm gonna 0:20:46.840 --> 0:20:49.840 say it's a cover to cover read Foreign Affairs magazine. 0:20:49.920 --> 0:20:52.399 Dan Kurtz Phelan joined us right now. It's on his 0:20:52.480 --> 0:20:58.639 wheelhouse China, and it is absolutely spectacular. Let's get to it. Dan, congratulations, 0:20:58.720 --> 0:21:00.480 So let me start with my essay of the Year 0:21:00.920 --> 0:21:04.000 by Dr Bremer of Eurasia Group. He sits there and 0:21:04.119 --> 0:21:09.880 folds in the technology companies into your international relations, explain 0:21:10.080 --> 0:21:15.760 the international relations of Amazon. That's right, so so Ian 0:21:15.920 --> 0:21:18.639 Bremer's contribution here is not just to point out what 0:21:18.800 --> 0:21:22.080 we all know, which is that tech companies are hugely important, 0:21:22.119 --> 0:21:24.600 that they are major actors in shaping the world, but 0:21:24.680 --> 0:21:26.639 they've really risen to the point where they are like 0:21:26.800 --> 0:21:29.920 states themselves. And what this means is that when you 0:21:30.000 --> 0:21:33.919 look at the big players, not just Amazon and Alphabet 0:21:33.960 --> 0:21:37.040 and Facebook and the American players, but also the big 0:21:37.119 --> 0:21:40.480 Chinese tech companies and big tech companies elsewhere, which model 0:21:40.600 --> 0:21:44.359