WEBVTT - China's Debt Poses Much Greater Threat Than Trade 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul Sweene. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Waits, each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:23.680 at Bloomberg dot com. Seeking with bond markets and also 0:00:23.800 --> 0:00:25.960 just markets in general. I'm very pleased to say John 0:00:26.000 --> 0:00:28.560 Authors joining us right now, joining us from our Bloomberg 0:00:28.560 --> 0:00:32.760 Interactive Broker Studios. John Author, Senior editor for Bloomberg Markets. John, 0:00:32.800 --> 0:00:35.040 I want to talk about at least start with a 0:00:35.040 --> 0:00:38.080 Bank of America Maryland February Fund Manager survey that came 0:00:38.120 --> 0:00:40.720 out this morning that showed, for the first time ever 0:00:40.800 --> 0:00:44.000 in the history of this survey, UH investors thought that 0:00:44.280 --> 0:00:49.040 long emerging markets is the most crowded trade. Yes, what 0:00:49.080 --> 0:00:52.239 do you think that? I find it somewhat surprising. I 0:00:52.280 --> 0:00:54.360 think it's probably got something to do with the country 0:00:54.360 --> 0:00:57.760 of the blind. The one night Man is king um 0:00:57.800 --> 0:01:02.120 on the basis of valuation, plainly, lots of people I 0:01:02.200 --> 0:01:04.480 have to admit myself included. I've been making a point 0:01:04.480 --> 0:01:08.240 for a long time that yes, emerging markets do indeed 0:01:08.280 --> 0:01:13.080 look cheap UM. And the thing that bothers me about 0:01:13.120 --> 0:01:16.319 this and why I suspect the people are talking to 0:01:16.360 --> 0:01:18.959 be of a m l as as by saying it's 0:01:19.000 --> 0:01:21.760 not popular but crowded, is that so much of it 0:01:21.840 --> 0:01:27.200 realies on on the dollar. If you have a week dollar, 0:01:27.560 --> 0:01:31.759 then this is a really good trade. I did just 0:01:32.120 --> 0:01:37.199 check the numbers. The JP Morgan Emerging Markets Effects Index 0:01:37.440 --> 0:01:41.120 is the most sort of popular agglomeration of being diseases, 0:01:41.200 --> 0:01:48.560 up about five from a crushing horrific low set last fall. 0:01:49.400 --> 0:01:53.960 It's still about one above its nady air or nadier 0:01:54.040 --> 0:01:56.280 depending on which side of the Atlantic you are. That 0:01:56.360 --> 0:01:59.240 it was that it sets early in twenty sixteen in 0:01:59.280 --> 0:02:01.760 that very serious growth scared that we had at the 0:02:01.800 --> 0:02:06.840 beginning of surrounding China. Uh. Plainly, there's a long way 0:02:06.880 --> 0:02:10.639 to recover, but there is still quite a lot of 0:02:10.840 --> 0:02:14.440 faith put in UM in the fits to be as 0:02:14.480 --> 0:02:17.680 dubbish as it said it was recently, and in the U. 0:02:17.760 --> 0:02:20.360 S economy to continue to push the help push the 0:02:20.360 --> 0:02:23.480 dollar up. So, John, what else do you think this trade? 0:02:23.520 --> 0:02:26.680 This emerging markets trade getting crowded. Does that reflect you 0:02:26.720 --> 0:02:31.799 think investors, I guess sentiment that some trade deal with 0:02:31.880 --> 0:02:35.120 China will be achieved, tensions will come down, and that 0:02:35.160 --> 0:02:38.440 will help EM across the board. I mean, it's certainly 0:02:38.480 --> 0:02:41.919 the case that UM people are working on the assumption 0:02:42.000 --> 0:02:45.359 that the single most likely scenario is that some kind 0:02:45.400 --> 0:02:50.480 of a deal is reached because it's in the interests 0:02:50.480 --> 0:02:54.680 of both sides to do so. I think you do, however, 0:02:54.880 --> 0:02:59.320 have to call into question whether I'm not saying that 0:02:59.600 --> 0:03:02.400 the president done to his team are cynics, but they 0:03:02.440 --> 0:03:05.399 have to ask themselves. This goes back to the West Wing, 0:03:05.440 --> 0:03:08.320 which I've been binge watching while I wasn't terribly well 0:03:08.320 --> 0:03:13.520 over Christmas. The the the whether he wants an issue 0:03:14.080 --> 0:03:18.239 or a victory. If he wants an issue, maybe he 0:03:18.760 --> 0:03:23.480 pushes ahead and lets uh and and we actually get 0:03:23.880 --> 0:03:27.680 a ratcheting up of the trade confrontation with China. I 0:03:27.720 --> 0:03:31.040 don't think. I certainly think there is. And this is 0:03:31.080 --> 0:03:34.240 one of the points that that that you know that 0:03:34.240 --> 0:03:37.040 that the Trump supporters make often and I think it's 0:03:37.040 --> 0:03:39.800 probably correct, is that if you want to get China 0:03:39.880 --> 0:03:43.320 at a point of weakness, this is the best time 0:03:43.440 --> 0:03:45.680 to try to raise this point in quite a long time. 0:03:45.880 --> 0:03:48.839 You know, it's interesting to me. You talked about the dollar, right, 0:03:48.880 --> 0:03:51.080 and then we brought up the trade issue and a 0:03:51.120 --> 0:03:57.800 deal with China, which is more important. The thing that 0:03:57.840 --> 0:04:03.000 matters most um by far, I think is the underlying 0:04:03.000 --> 0:04:06.680 health of China. Uh and everything else is a symptom 0:04:06.720 --> 0:04:08.760 of ratchets off it. I like that you say that, because, 0:04:08.800 --> 0:04:11.160 in other words, you're not You're not going to just 0:04:11.200 --> 0:04:13.600 say trade and some kind of trading room, because that's 0:04:13.680 --> 0:04:15.800 kind of facile when it comes to Chin to slow 0:04:15.840 --> 0:04:18.320 down in the economy, which goes deeper and had it 0:04:18.360 --> 0:04:21.320 was sort of they're regardless. Not so long since the 0:04:21.400 --> 0:04:24.640 outgoing head of the People's Bank of China said, are 0:04:24.640 --> 0:04:26.800 we going to have a Minsky? We've got to be careful. 0:04:26.800 --> 0:04:29.479 We don't have a Minsky moment in China for the 0:04:29.560 --> 0:04:32.560 head of a central bank to use language like that. 0:04:33.080 --> 0:04:36.880 For readers, the most of the readers old newspaper man 0:04:37.000 --> 0:04:41.000 for listeners out there, For listeners out there, I'm still 0:04:41.000 --> 0:04:44.240 getting better for listeners out there, a Minsky moment. The 0:04:44.320 --> 0:04:46.760 last time we had a Minsky moment was when Lehman 0:04:46.839 --> 0:04:50.799 brothers went down. A Minsky moment is a catastrophic loss 0:04:50.839 --> 0:04:56.400 of confidence in debt. Uh central bank governors never ever 0:04:56.760 --> 0:04:59.279 ever speculate in public about whether there's going to be 0:04:59.279 --> 0:05:01.400 a Minsky moment to except the head of the second 0:05:01.400 --> 0:05:04.000 most important central bank in the planet did do so 0:05:04.080 --> 0:05:07.520 not so long ago. Uh So that's still, it seems 0:05:07.560 --> 0:05:09.760 to me, is the greatest concern. There's a very there's 0:05:09.760 --> 0:05:12.200 a cartoon that has done. It's done the rounds of 0:05:12.200 --> 0:05:15.360 social media many times from HEDGEI where you've seen this, 0:05:15.520 --> 0:05:18.359 say this, this guy on a on a on a 0:05:19.760 --> 0:05:22.839 the boat from Jaws pointing at this rather pathetic little 0:05:22.839 --> 0:05:26.640 shark going with tariffs written on it, shouting shark. Meanwhile, 0:05:26.680 --> 0:05:31.280 this giants octopus is surrounding the boat with its tentacles 0:05:31.279 --> 0:05:34.920 and pulling it down, and the octopus is marked Chinese economy. 0:05:35.480 --> 0:05:40.080 And that I think I've seen that brought up by bulls, 0:05:40.120 --> 0:05:43.600 by bears, by people who pathologically hate China, by people 0:05:43.640 --> 0:05:47.120 of perma bullish on China. That is ultimately where it is. 0:05:47.160 --> 0:05:55.159 I think trade barring real stupidity and nobody given what's 0:05:55.160 --> 0:05:58.120 going on back at home, we can't rule that out 0:05:59.720 --> 0:06:02.280 by in real stupidity. I don't think trade is as 0:06:02.279 --> 0:06:04.599 big a deal as whether China can somehow or other 0:06:04.600 --> 0:06:07.720 deal with this huge amount of credit it's got outstanding. 0:06:07.960 --> 0:06:11.159 You mentioned home. I'm assumming that's not New Jersey or 0:06:11.200 --> 0:06:13.680 Long Island. Give us twenty seconds on what you think 0:06:13.680 --> 0:06:16.039 the latest is on Brexit. The latest I think the 0:06:16.040 --> 0:06:20.960 most significant thing that Theresa May said today was that 0:06:21.200 --> 0:06:23.960 she thinks it's not going to take them the three 0:06:24.160 --> 0:06:26.520 weeks that had it had been thought it would take 0:06:26.839 --> 0:06:30.480 to clear any deal that's voted by Parliament. She says 0:06:30.480 --> 0:06:34.960 that it's possible to put it through on a fast track, 0:06:35.640 --> 0:06:39.040 which basically means that she thinks she can wait literally 0:06:39.120 --> 0:06:43.240 until one week before Britain is due to leave and 0:06:43.360 --> 0:06:45.840 put it to a vote. So we have the same 0:06:46.360 --> 0:06:49.400 tractic as before, which has always been to run out 0:06:49.440 --> 0:06:52.400 the clock, taken ever to ever greater extremes as we 0:06:52.520 --> 0:06:56.000 get to the end of the clock. So it's a mass. Basically, Yes, 0:06:56.680 --> 0:06:59.640 it's high it's high risk poker and who will blink first, 0:07:00.000 --> 0:07:01.560 But it's a high risk poker game that's going to 0:07:01.680 --> 0:07:10.200 take you know, months, years. Well, thank you so much 0:07:10.440 --> 0:07:12.880 for being with us, John author A senior editor for 0:07:13.080 --> 0:07:28.640 Bloomberg Market Well, Netflix has certainly validated the pay streaming 0:07:28.760 --> 0:07:30.520 video model, and now we've got a bunch of other 0:07:30.520 --> 0:07:33.760 media companies, including Disney, following suit. One of the real 0:07:33.840 --> 0:07:36.679 questions is is there an opportunity for a free streaming 0:07:36.720 --> 0:07:38.880 service and how can that be competitive in the marketplace. 0:07:38.920 --> 0:07:41.720 So to help us kind of answer that question, um 0:07:41.800 --> 0:07:44.720 joining us as Tara la Chapelle, Deals and media columnists 0:07:44.720 --> 0:07:46.800 for Bloomberg Opinion. She joins us in New York here 0:07:46.800 --> 0:07:50.840 in our Bloomberg Interactive Broker studio and Sarah How'sick columnist 0:07:50.840 --> 0:07:55.040 at Bloomberg Opinion. She joins us in Washington, d C. Terrence, Sarah, welcome, 0:07:55.440 --> 0:07:57.880 uh ter, give us a sense of we we know 0:07:58.000 --> 0:08:01.920 how successful the Netflix of the world is. You pay 0:08:01.920 --> 0:08:03.520 your ten twelve bucks a month and you get all 0:08:03.560 --> 0:08:07.000 this great content. Talk to us about the free streaming market. 0:08:07.040 --> 0:08:09.360 What are what are some of the opportunities there. So 0:08:09.400 --> 0:08:11.800 what we're seeing is sort of a bifurcation of this 0:08:11.920 --> 0:08:15.320 streaming market, and it's sort of nascent days where Disney 0:08:15.320 --> 0:08:16.880 and A T and T and the companies that think 0:08:16.880 --> 0:08:19.119 they have a lot of brand power and pricing power 0:08:19.160 --> 0:08:23.360 are basically trying to replicate Netflix with subscription video services 0:08:23.360 --> 0:08:25.640 of all different kinds. And then you have on the 0:08:25.640 --> 0:08:29.760 other side of the market the Roku channel to be 0:08:30.000 --> 0:08:33.120 Pluto TV, some names that may not be as well known, 0:08:33.240 --> 0:08:36.160 but they're generating a lot of subscribers, people that are 0:08:36.160 --> 0:08:38.840 looking to save money their free streaming services, which in 0:08:38.920 --> 0:08:41.480 media we know free just means AD supported. So you're 0:08:41.520 --> 0:08:45.720 the product and they're basically, you know, seeing that consumers, 0:08:45.840 --> 0:08:49.040 certain number of consumers are willing to tolerate ads and 0:08:49.320 --> 0:08:51.120 have a sort of I guess you would say mediocre 0:08:51.200 --> 0:08:54.600 service relative to like a Netflix or an HBO and 0:08:54.800 --> 0:08:56.480 be able to watch TV and not have to pay 0:08:56.520 --> 0:09:00.000 for cable and just pay their internet fees. So Sarah, 0:09:00.080 --> 0:09:02.600 come on in here to get a sense of some 0:09:02.679 --> 0:09:08.319 examples of how companies have gained market share substantially by 0:09:08.400 --> 0:09:12.839 a with this free approach while remaining solvent. Yeah. So 0:09:12.920 --> 0:09:15.280 I think that the e commerce world provides a really 0:09:15.320 --> 0:09:18.640 instructive example. Um, and this is a place where a 0:09:18.679 --> 0:09:21.760 lot of retailers have made the bet to that between 0:09:21.800 --> 0:09:25.000 when consumers are choosing between free shipping and fast shipping, 0:09:25.400 --> 0:09:27.080 that they're going to want to get it for free 0:09:27.080 --> 0:09:29.000 that they're going to want to save money. UM, and 0:09:29.080 --> 0:09:31.280 Amazon I think is the shining example of how this 0:09:31.360 --> 0:09:33.920 has paid off. That was a core promise of the 0:09:33.960 --> 0:09:37.360 Prime membership and how they brought people into that ecosystem 0:09:37.400 --> 0:09:39.560 to begin with was that people didn't want to have 0:09:39.640 --> 0:09:42.960 to pay for shipping on each transaction. And it's really 0:09:43.000 --> 0:09:45.959 interesting because an e commerce we've seen all this innovation 0:09:46.320 --> 0:09:50.120 around speed. We see same day delivery now even two 0:09:50.120 --> 0:09:53.400 hour and one hour delivery available in certain markets, but 0:09:53.520 --> 0:09:56.720 shoppers just remain wedded to free shipping. So in a 0:09:56.760 --> 0:09:59.959 survey that was conducted this holiday season by Deloitte can, 0:10:00.040 --> 0:10:02.959 sumers were asked which of the following two promises is 0:10:03.000 --> 0:10:05.920 more important to you in online shopping, free shipping or 0:10:05.920 --> 0:10:10.320 fast shipping. Of them chose free, So UM. I think 0:10:10.360 --> 0:10:12.920 it's a powerful example to the streaming world in that 0:10:13.200 --> 0:10:16.559 we've seen in e commerce consumers are willing to sacrifice 0:10:16.600 --> 0:10:19.280 speed in order to not pay money. And I think 0:10:19.280 --> 0:10:22.520 with TV we will see a cohort of consumers that's 0:10:22.520 --> 0:10:26.120 willing to sacrifice quality programming to not pay money. Yeah. 0:10:26.160 --> 0:10:28.520 I love how you guys kind of woven the whole 0:10:28.559 --> 0:10:31.679 concept of how people like free stuff free shipping and 0:10:31.720 --> 0:10:35.600 how important it's becoming into the content business because you know, 0:10:35.840 --> 0:10:38.559 it's a little bit counterintuitive just given how successful Netflix 0:10:38.600 --> 0:10:40.760 has been and even Hulu is having some success when 0:10:40.760 --> 0:10:43.840 their streaming in Amazon Prime, um tera. What kind of 0:10:44.080 --> 0:10:46.560 programming if I go to this type of service, Like 0:10:46.720 --> 0:10:48.719 let's take a look at Viacom. They just paid three 0:10:49.000 --> 0:10:50.959 forty million dollars for Pluto TV. If I were to 0:10:51.000 --> 0:10:53.640 go onto Pluto TV or something like that, what kind 0:10:53.640 --> 0:10:55.080 of content am I going to find? Yeah, I mean 0:10:55.080 --> 0:10:57.160 there's some channels you would recognize. I mean, I think 0:10:57.160 --> 0:11:00.000 Bloomberg TV is on there. Um. But yeah, I mean 0:11:00.000 --> 0:11:01.480 you're not going to get everything. And I think that's 0:11:01.480 --> 0:11:04.480 the point. You know, some networks, like smaller network owners 0:11:04.520 --> 0:11:07.160 like Viacom and Discovery which now owns scripts. You know 0:11:07.200 --> 0:11:09.160 that we're kind of feeling a little a little bit 0:11:09.240 --> 0:11:12.160 left out of these higher costs uh O T T 0:11:13.000 --> 0:11:17.240 streaming products. We're looking to these free streaming options because 0:11:17.280 --> 0:11:20.040 you know, there's their shows do generate a lot of 0:11:20.120 --> 0:11:22.880 viewers um which are important to advertisers. And to the 0:11:22.920 --> 0:11:25.200 extent that you could have a free product supported entirely 0:11:25.200 --> 0:11:27.880 by advertising. You know that serves a certain segment of 0:11:27.880 --> 0:11:31.200 the market. I mean, the especially lower income consumers, which 0:11:31.240 --> 0:11:33.720 I would hazard to guess is maybe even a growing 0:11:33.760 --> 0:11:36.000 segment of the market, so to the extent that you're 0:11:36.040 --> 0:11:39.120 trying to reach those people in a world where this 0:11:39.240 --> 0:11:43.839 Balkanization of the TV industry is making these services expensive, 0:11:43.880 --> 0:11:46.240 you know, and everyone's having to think about, well, if 0:11:46.280 --> 0:11:47.920 I want HBO, I'm going to need a T and 0:11:47.960 --> 0:11:50.319 T S product, But I want Netflix, but I also 0:11:50.360 --> 0:11:53.880 want this other thing, and well, Tara, just to that point, 0:11:53.960 --> 0:11:57.200 I have to wonder, do we see people going to 0:11:57.320 --> 0:12:02.000 these free online streaming services in lieu of the cable giants, 0:12:02.960 --> 0:12:06.120 the cored types of services, or in lieu of Netflix. 0:12:06.120 --> 0:12:08.679 In other words, who's losing the business to these to 0:12:08.800 --> 0:12:11.760 these sort of free online services. It's hard to know 0:12:11.920 --> 0:12:14.280 right now, but I imagine that what we're seeing are 0:12:14.320 --> 0:12:16.840 younger people or people looking to save money going to 0:12:16.880 --> 0:12:19.680 these free services, which means they likely have an Internet connection, 0:12:20.080 --> 0:12:22.719 maybe they still have cable, or maybe they have Netflix. 0:12:23.000 --> 0:12:25.160 But I did a survey recently, and you know, it 0:12:25.240 --> 0:12:27.680 was only a hundred or so people, but it seems 0:12:27.679 --> 0:12:30.319 like people really value Netflix. They don't value it enough 0:12:30.480 --> 0:12:33.480 to be willing to cut the cord and only have Netflix. 0:12:33.920 --> 0:12:36.559 They do want other things. So maybe a Netflix and 0:12:36.600 --> 0:12:39.079 a free live TV streaming service is a is a 0:12:39.080 --> 0:12:42.079 good little combination for some people. Um. And at the 0:12:42.120 --> 0:12:43.960 same time, they're also said that they're willing to pay 0:12:43.960 --> 0:12:46.080 more than they already do for Netflix. The average response 0:12:46.120 --> 0:12:47.880 I got when I asked about that was nineteen dollars 0:12:47.880 --> 0:12:50.400 a month. There's a lot of value in Netflix. And 0:12:50.640 --> 0:12:53.800 when I think about people trying to navigate this very jumbled, 0:12:53.840 --> 0:12:57.480 confusing marketplace and trying to save money, you know, Netflix 0:12:57.559 --> 0:12:59.880 is very simple and easy and that's sort of the 0:13:00.000 --> 0:13:02.520 beauty of it, and it's not very expensive. And then 0:13:02.559 --> 0:13:04.120 maybe you know, a free service is the way that 0:13:04.120 --> 0:13:07.480 you get your fixed with some reality TV shows. So, Sarah, 0:13:07.559 --> 0:13:10.280 what have you guys in your reporting got any sense 0:13:10.280 --> 0:13:13.240 of the advertiser support for this product? Did the advertisers 0:13:13.280 --> 0:13:17.200 view this as a viable place to put their dollars? Uh? 0:13:17.240 --> 0:13:18.960 You know, I'm not sure Tera might be a better 0:13:18.960 --> 0:13:22.040 equipped answer a question about where the advertisers are putting 0:13:22.080 --> 0:13:24.680 their dollars, but I do think that, Um, it's interesting 0:13:24.760 --> 0:13:28.679 the ripple effect of people's preferences for free control up 0:13:28.679 --> 0:13:30.760 in ways you don't even expect, and I think that 0:13:30.800 --> 0:13:32.640 will be important for the TV guys to keep in 0:13:32.679 --> 0:13:35.280 mind too. So I think in e commerce, what we've 0:13:35.280 --> 0:13:38.040 seen is this preference for free shipping has really driven 0:13:38.120 --> 0:13:41.520 folks to click and collect services where you buy something 0:13:41.559 --> 0:13:44.280 online and pick up in store. That's the most prominent 0:13:44.320 --> 0:13:46.600 reason that people choose that, and then that ends up 0:13:46.600 --> 0:13:49.679 providing this other opportunity for the retailer for what is 0:13:49.720 --> 0:13:52.480 known as attachment spending, meaning typically when people come in 0:13:52.520 --> 0:13:55.280 to pick up their online or they ended up buying 0:13:55.320 --> 0:13:57.559 twenty to four dollars worth of stuff that they didn't 0:13:57.559 --> 0:14:00.920 even realize they needed. Um. And so I think these 0:14:01.520 --> 0:14:05.120 these free programs had the opportunity to become something else 0:14:05.640 --> 0:14:08.080 for these streaming services in the same way that they 0:14:08.120 --> 0:14:10.760 did for e commerce. Tara just real quickly. I'm wondering, 0:14:10.760 --> 0:14:14.000 what about from the advertiser's perspective, are they willing to 0:14:14.160 --> 0:14:17.480 pay up on for some of these free services, given 0:14:17.520 --> 0:14:20.400 the fact that they funnel so much spending towards uh, 0:14:20.440 --> 0:14:23.440 the amazons and the things. I mean, we've got to 0:14:23.440 --> 0:14:26.240 see what kind of viewership these services get. I mean, 0:14:26.240 --> 0:14:28.840 it's still very early days. But I know via common 0:14:28.880 --> 0:14:31.440 standpoint with this Pluto deal was that you know, they 0:14:31.480 --> 0:14:34.480 have a telefay in Latin America, and you know, maybe 0:14:34.520 --> 0:14:37.680 they could marry some of their Spanish language programming with Pluto, 0:14:37.720 --> 0:14:40.480 which has a younger audience, which has a big Hispanic audience, 0:14:40.800 --> 0:14:44.240 and not a lot of advertisers are successfully targeting that 0:14:44.360 --> 0:14:46.200 right now in a very narrow way. So maybe this 0:14:46.280 --> 0:14:49.880 is an opportunity from an advertiser standpoint with this service. 0:14:49.920 --> 0:14:51.600 So I think there's like unique ways that they're looking 0:14:51.600 --> 0:14:54.480 at it and trying to meet those consumers that aren't 0:14:54.520 --> 0:14:56.880 the ones that are going to just pay for every 0:14:56.880 --> 0:14:59.160 service out there and have you know, already have every 0:14:59.160 --> 0:15:01.600 device and they've got an Xbox and they've got Apple TV. 0:15:01.720 --> 0:15:03.200 You know, there are a lot of people that don't, 0:15:03.560 --> 0:15:06.040 and so I think that's where maybe these mortgage products 0:15:06.080 --> 0:15:09.280 are going for really really interesting column Thank you so 0:15:09.360 --> 0:15:10.800 much for being with us, both of you, Tera La 0:15:10.920 --> 0:15:14.800 Chapelle Deals and media columnists Sarah HOW'SAC columnists covering the 0:15:14.920 --> 0:15:18.160 retail sector for Bloomberg Opinion. Both of you, thank you 0:15:18.240 --> 0:15:31.200 for being with us. Well, we are two days away 0:15:31.200 --> 0:15:34.160 from Valentine's Day. The pressure is building to get that 0:15:34.360 --> 0:15:37.520 right gift, and flowers always make the right gift for 0:15:37.600 --> 0:15:41.080 Valentine's Day. And who better to help us break down 0:15:41.120 --> 0:15:43.960 the business of the flowers than Chris McCann. And Chris 0:15:44.000 --> 0:15:47.320 is president and CEO of one flowers dot com. Uh. 0:15:47.320 --> 0:15:49.760 He companies based on Long Island City, but he joins 0:15:49.840 --> 0:15:52.680 us here in our Bloomberg eleven three studios. So, Chris, 0:15:53.160 --> 0:15:56.040 we are two days away from Valentine's Day, people always 0:15:56.200 --> 0:15:59.280 fall back on that classic gift of flowers. How big 0:15:59.680 --> 0:16:02.440 is Valentine's Day? That time period of Valentine's Day to 0:16:02.480 --> 0:16:04.640 your business? Every year? It's such an important day for 0:16:04.720 --> 0:16:07.560 us because it's so important to our customers, and it's 0:16:07.600 --> 0:16:09.800 a nice spike for us. It's about ten percent of 0:16:09.880 --> 0:16:13.320 out consumer floral segments annual business, but it's really only 0:16:13.400 --> 0:16:16.600 less than five percent about total companies business because today 0:16:16.640 --> 0:16:19.800 half of our businesses come from our gourmet food brands 0:16:19.840 --> 0:16:23.280 like Harry and David and Cheryl's Cookies and simply Chocolate. 0:16:23.360 --> 0:16:27.280 We really built the celebratory echo system. All right, Paul, 0:16:27.320 --> 0:16:29.440 are you buying flowers for your wife? I think I 0:16:29.520 --> 0:16:31.080 might be buying flowers for my wife. What kind of 0:16:31.080 --> 0:16:33.720 flowers are gonna be buying. Um, I'm not really sure. 0:16:33.920 --> 0:16:36.320 Maybe you know, Chris can give what's the most popular 0:16:36.320 --> 0:16:41.480 flower rangement right now and not committing. He's also very 0:16:41.600 --> 0:16:44.840 very traditional guy, so I'll recommend roses. I'll put a 0:16:44.840 --> 0:16:47.400 little spin. Trending this year is hot pink roses, So 0:16:49.240 --> 0:16:53.360 that's really wild. I'm wondering you mentioned about food. You know, 0:16:53.920 --> 0:16:56.760 is food becoming a more popular option chocolate, for example, 0:16:56.840 --> 0:17:00.000 over flowers, or is you know, as that mixed continue 0:17:00.040 --> 0:17:02.760 you just sort of more steadily skewed toward the food offerings. Well, 0:17:02.760 --> 0:17:04.840 I don't think it's instead of flowers. What we find 0:17:04.880 --> 0:17:07.840 with food offerings, especially from our brands like Harry and David, 0:17:07.880 --> 0:17:10.959 are simply chocolate that they're big around the Christmas season 0:17:11.200 --> 0:17:14.040 and the complimentary to other gifts throughout the year. Okay, 0:17:14.040 --> 0:17:16.480 hold on a second. How much has the average spending 0:17:16.480 --> 0:17:19.240 on Valentine's Day changed over time? I mean, are people 0:17:19.280 --> 0:17:21.600 just going crazy and hog wild here? I hope? So 0:17:22.920 --> 0:17:24.600 I know we have a sense of, you know, what 0:17:24.640 --> 0:17:27.639 the direction is of the overall spending. Well and expects 0:17:27.640 --> 0:17:29.719 it to be up about four or five percent this year, 0:17:29.760 --> 0:17:33.439 about a hundred and sixties six dollars on average Valentine celebration. 0:17:33.640 --> 0:17:37.080 I hope most of that includes flowers and chocolates, but 0:17:37.240 --> 0:17:39.360 it's so it's expected to be up again this year, 0:17:39.359 --> 0:17:42.640 which is very nice. And what sixty hundred and sixty 0:17:42.680 --> 0:17:48.720 six you're looking at me? Okay, interesting, Chris? So what 0:17:48.800 --> 0:17:51.479 are you seeing? You know, you've been in this business 0:17:51.840 --> 0:17:56.119 thirty years? Thirty five years? How is consumer? How's the 0:17:56.160 --> 0:17:59.720 consumer change? And how's the consumer perceives gift giving not 0:17:59.800 --> 0:18:03.040 just Valentine's Day? How the trends changed across the board. Well, 0:18:03.080 --> 0:18:05.200 what we're just seeing is that the consumers are really 0:18:05.240 --> 0:18:08.200 looking for ways to express, connect and celebrate. And then 0:18:08.240 --> 0:18:11.560 this technological world that we live in, this interconnected world, 0:18:11.760 --> 0:18:13.520 we're looking to see how do we bring the human 0:18:13.560 --> 0:18:15.879 back into the process more. And that's what we do 0:18:15.960 --> 0:18:18.760 as a company, really to help you express yourself, that 0:18:18.840 --> 0:18:22.640 we deliver smiles on your behalf. Now you're using technologies 0:18:22.640 --> 0:18:24.960 more and more to do that in all different forms, 0:18:24.960 --> 0:18:30.200 whether it be AI capabilities, whether it be voice computing capabilities, chatbots. 0:18:30.240 --> 0:18:33.080 So that continues to change and that's our job. Make 0:18:33.119 --> 0:18:36.200 it frictionless for you to express yourself, all right, So 0:18:36.520 --> 0:18:40.680 one eight hundred flowers dot com is sort of an 0:18:40.680 --> 0:18:43.760 example of how the world has changed in and of itself. 0:18:43.920 --> 0:18:46.960 One eight hundred of flowers is the telephone number. But 0:18:47.000 --> 0:18:50.600 since telephones have got out of style, dot com is there. 0:18:50.640 --> 0:18:53.600 What is the proportion of online sales versus calls and 0:18:53.640 --> 0:18:56.080 how has that shifted? So the one hundred flowers brand 0:18:56.080 --> 0:18:58.080 and some of our younger customers may not know what 0:18:58.119 --> 0:19:03.280 that means. Uh, really the numbers, the eight hundred is 0:19:03.320 --> 0:19:06.960 often a toll free number you do not know. But 0:19:07.040 --> 0:19:11.080 aboutent of that brand's business comes online, and when I 0:19:11.080 --> 0:19:13.880 say online, more and more of that coming from mobile devices. 0:19:14.080 --> 0:19:16.600 More than half of our traffic this holiday is from 0:19:16.600 --> 0:19:20.600 mobile devices. So talk to us about the supply of flowers. 0:19:20.680 --> 0:19:23.320 Where do you get your flowers? How what's going on 0:19:23.320 --> 0:19:25.399 with the cost of flowers? So I think about the 0:19:25.480 --> 0:19:29.040 business of one flowers, Your raw material costs, your cost 0:19:29.080 --> 0:19:31.800 to get sold are flowers? What's going on there? So 0:19:31.800 --> 0:19:34.879 it's very interesting in flowers as the raw material costs 0:19:34.920 --> 0:19:37.760 really haven't gone up because of technology improvements on the 0:19:37.800 --> 0:19:40.840 supply chain over the last ten years, cost have remained stable, 0:19:40.880 --> 0:19:43.560 if not down a little bit, and we import product. 0:19:43.640 --> 0:19:46.160 A lot of the flowers come from South America, Columbia 0:19:46.200 --> 0:19:49.000 and Ecuador, so of logistics get better and better. But 0:19:49.000 --> 0:19:52.280 we're also seeing an increase in domestic production over the 0:19:52.320 --> 0:19:54.480 last ten years and more and more flowers being grown 0:19:54.480 --> 0:19:57.440 domestically here in the US. I'm going to be such 0:19:57.480 --> 0:19:59.280 a debby downer. I'm gonna be made fun of this. 0:19:59.600 --> 0:20:03.480 For years. How has global warming affected that? Oh? No, 0:20:03.720 --> 0:20:06.240 we we haven't seen an effect on global warming on 0:20:06.320 --> 0:20:09.480 our flour production even where you source them. Most of 0:20:09.480 --> 0:20:11.920 the time it's sourced around the equator, which is hot 0:20:11.960 --> 0:20:14.359 to begin with. Uh So, I think we've been fine 0:20:14.400 --> 0:20:16.760 on that side of it. All, Right, what's what's how 0:20:16.840 --> 0:20:19.280 big are you guys versus? Just size out the market 0:20:19.320 --> 0:20:20.840 for me. I don't know if it's US or global, 0:20:20.880 --> 0:20:22.600 and how big are you guys in that market? So 0:20:22.640 --> 0:20:25.399 we're about overall about one point two billion of the 0:20:25.520 --> 0:20:28.439 estimates that we'll do in revenue this year. We're growing 0:20:28.520 --> 0:20:31.000 nicely with the leader in the floral category, where the 0:20:31.080 --> 0:20:33.879 leader in the gourmet food category, and now we're starting 0:20:33.920 --> 0:20:37.119 to expand into all the product categories as well, listening 0:20:37.119 --> 0:20:39.840 to our customers as to what products they will use 0:20:40.119 --> 0:20:43.919 to express, connect and celebrate. Thank you so much for 0:20:43.960 --> 0:20:47.680 being with us. Chris McCann Happy Valentine's Day, Happy Valentine's 0:20:48.359 --> 0:21:02.560 Chris McGann as CEO of what eight hundred flowers dot com. 0:21:02.560 --> 0:21:05.440 So it looks like we have a border deal potentially, 0:21:05.440 --> 0:21:08.760 which suggests that the US government will potentially remain open. 0:21:09.280 --> 0:21:11.040 To get a sense of how the credit markets are 0:21:11.080 --> 0:21:13.320 pricing in these developments, let's chat with our good friend 0:21:13.400 --> 0:21:16.479 Ira Jersey iras a chief US interest rate strategist from 0:21:16.480 --> 0:21:19.440 Bloomberg Intelligence. He comes to us from the phone from 0:21:19.440 --> 0:21:22.120 bi's headquarters in Princeton, New Jersey, or I assume it's 0:21:22.119 --> 0:21:25.320 snowing down there, Ira, does the bond market to what 0:21:25.400 --> 0:21:28.240 extent does the bond market care about what's going on 0:21:28.480 --> 0:21:31.600 with the border deal and the shutdowns and all of 0:21:31.640 --> 0:21:34.600 the uncertainty. Yeah, hey, Paul, I'm actually in Washington, d C. 0:21:34.760 --> 0:21:37.040