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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEO's, market pros and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. All right, so the story. Obviously,

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Speaker 1: we've got a dueling stories here. What is the FED

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Speaker 1: doing and what is the banking system doing? We need

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Speaker 1: some informed analysis and judgment. That's why we're bringing Neil Grossman.

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Speaker 1: He's a co founder and former CIO of t k

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Speaker 1: n G Capital. So Neil, we kind of had a

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Speaker 1: little bit of some dueling testimony yesterday with FED Chairman

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Speaker 1: Pale Secretary Yellen. What's your takeaway from the Fed's balancing

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Speaker 1: act of way, I got to fight inflation, but I've

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Speaker 1: also got a shaky, maybe banking system out there. How

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Speaker 1: do you think he did yesterday? I think he tried

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Speaker 1: to flip thread the line as best as he could.

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Speaker 1: I think the approach to saying, look, we still have

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Speaker 1: an inflation problem and we're not going to give up

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Speaker 1: on that's important. I think that's going to transmit confidence

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Speaker 1: to the market over time. But he also is willing

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Speaker 1: to say a few things. Obviously he's aware of the

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Speaker 1: banking issues. I think he sort of threw SVB under

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Speaker 1: the bus a little bit, but he was willing to

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Speaker 1: say that some of the consequences not only of what

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Speaker 1: they're doing directly with rates, but the consequences of the

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Speaker 1: impact of credit tightening and other things that are now

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Speaker 1: beginning to flow through the economy are going to have

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Speaker 1: an impact as well. And I think ultimately what they're

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Speaker 1: trying to do is slow the economy sufficiently to cut

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Speaker 1: demand and that will take pressure off prices, and I

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Speaker 1: think that's what he's hoping is going to happen. I'm

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Speaker 1: gonna actually guess that if you've watched what's happened to

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Speaker 1: commodity prices in the last few weeks, I mean, oils

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Speaker 1: drop significantly, some of the others that you're likely on

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Speaker 1: top of the po to you on your comparisons, that

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Speaker 1: we're going to occur anywhere anyway that between now in

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Speaker 1: the summertime, you're going to see some of the edge

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Speaker 1: come off of prices. And the risk is that they

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Speaker 1: take that as success too quickly, but I think they're

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Speaker 1: going to find that there is a benefit that it's

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Speaker 1: about to start to appear well, Neil. One of the

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Speaker 1: major pieces of commentary from like Barclays, from Moodies, from

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Speaker 1: a lot of people who are calling for a pause

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Speaker 1: was that the Federal Reserve doesn't necessarily need to tighten

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Speaker 1: credit conditions further because the lending practices that are coming

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Speaker 1: in the next few months are going to do the

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Speaker 1: job for it. To what extent is that true? What

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Speaker 1: kind of timeline are we looking at there? I mean,

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Speaker 1: I think it's going to happen somewhat quickly, but they're

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Speaker 1: they're going to always be offsets. For example, last time

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Speaker 1: we were talking about, Yeah, weren't you just here about

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Speaker 1: the mortgage issue, right? Yeah, Interest rates have fallen rather

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Speaker 1: significantly in the last three weeks. You're likely to start

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Speaker 1: to see, for example, refinancings show up, and you're probably

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Speaker 1: likely to see to the extent that borrowers can buy homes.

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Speaker 1: The drop in rates is going to make homeownership more affordable.

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Speaker 1: That's running through the credit system as well. But on

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Speaker 1: the other side of the coin, smaller businesses like you're

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Speaker 1: just talking about biotech. I've actually been paying a lot

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Speaker 1: of attention to the biotech space from now a couple

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Speaker 1: of years. You're watching that anti fungal stock. Well, yeah,

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Speaker 1: I'm gonna I'm gonna have to go check that myself.

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Speaker 1: But the maybe we should send it to Washington now.

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Speaker 1: But the interesting thing is if listening in I listened

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Speaker 1: to at least one or two biotech calls a week,

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Speaker 1: and it's been apparent if you actually look at how

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Speaker 1: our biotech industry funds itself, their currency of exchange is

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Speaker 1: their equity. And companies have great ideas, they spend years

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Speaker 1: trying to produce great drugs. Yeah, and along the way

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Speaker 1: they have to keep issuing stock to fund themselves. Well,

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Speaker 1: the ratepe process has made the value of that stock

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Speaker 1: sixty eighty percent less valuable. And if you've looked, it's

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Speaker 1: the market for fundraising in biotech in the last year

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Speaker 1: is almost shut down. So it's actually a microcosm of

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Speaker 1: what you started to see in the broader tech space. Yea,

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Speaker 1: and yes, so for all these little companies that all

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Speaker 1: the all the tech startups, they're the same, They're they're

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Speaker 1: the same. MONI a fan of biotech stocks. I always

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Speaker 1: say they're they're binary, right, Your drug either works or

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Speaker 1: a dozen that extermines your future. And that's why the

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Speaker 1: hedge funds love them. Uh Neil, How serious is this

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Speaker 1: banking problem in this country? How concerned are you about it? Um?

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Speaker 1: That's a hard that's a very hard question to answer

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Speaker 1: at them. I think the problems with the smaller banks

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Speaker 1: will have a very interesting economic impact. By the way,

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Speaker 1: for whatever it's worth, I was on the board of

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Speaker 1: a community bank, which was quite interest thing. I think

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Speaker 1: if we go and look at this, though, again, this

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Speaker 1: is going to all fall back on the FED. The

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Speaker 1: bottom line is the central Bank in the United States

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Speaker 1: taught people to ignore risk, to believe that that they

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Speaker 1: were never going to do anything too much. The fact

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Speaker 1: that we got interest of inflation to eight percent before

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Speaker 1: anyone even bothered to dissent and then was told I

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Speaker 1: think that when we started hiking last year in what

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Speaker 1: was it marches, that they were going to that their

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Speaker 1: projections called for rates to peak at two and a

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Speaker 1: half or two and three quarter percent in the fall,

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Speaker 1: and that was all that was going to be done.

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Speaker 1: Nobody the SVB didn't react, and you know, you're gonna

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Speaker 1: have to look at the balance sheets. Traditionally, banks we

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Speaker 1: worry about credit risk. We don't under seem to understand

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Speaker 1: that rate sensitivity irrespective of credit is a big deal.

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Speaker 1: SVB was extraordinarily exposed to move into long rates with

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Speaker 1: very well we would consider very high credit quality. Well,

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Speaker 1: let me ask you about that really quickly, because you

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Speaker 1: just said you were on a board of a community bank,

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Speaker 1: and I've been dyne asked somebody this. When you are

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Speaker 1: hedging duration risk from a market's perspective, it seems like

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Speaker 1: a fairly simple trade. Right, You shorten your short the

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Speaker 1: front end of the curve, and it feels pretty easy,

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Speaker 1: and your perpect yields go higher. Why is that so

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Speaker 1: hard if hedging costs aren't spiked. Well, well, two things.

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Speaker 1: First of all, there's look, you can hedge every risk

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Speaker 1: on a book. Yeah. Right, By the way, I also

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Speaker 1: ran a very long long day and interest rate swap book.

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Speaker 1: If you hedge, if you hedge anything everything, you end

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Speaker 1: up with no profit that to begin with. Yeah, but

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Speaker 1: you don't only hedge the short The short end is

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Speaker 1: your funding source in general. Yeah. The long end, or

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Speaker 1: the longer duration historically is where you're making your investments

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Speaker 1: traditionally steep yelk curve, positively slowly you'l curve. Is why

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Speaker 1: banks do it this way. They borrow short term and

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Speaker 1: by the way you can have you can have a

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Speaker 1: floating rate liability that that has a longer data maturity,

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Speaker 1: which is something they probably should have been thinking about.

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Speaker 1: You invest out the curve, you have positive carry, YadA, YadA, YadA,

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Speaker 1: if you're going to ignore the hedging risk what you

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Speaker 1: did out there and we were very cognizant, I mean

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Speaker 1: every board meeting was talking about where you wanted to

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Speaker 1: have your risk hedged and with these again, this is

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Speaker 1: where I think some of the problems came. As short

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Speaker 1: rates went up, the cost of their tradition, their major money.

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Speaker 1: Remember they have ten billion twelve billion of capital. They

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Speaker 1: had one hundred and eighty billion dollars of deposits. Deposits

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Speaker 1: are almost alway and I don't know what their Federal

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Speaker 1: Reserve fellow Homelown bank borrowings look like, but deposits are

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Speaker 1: basically tied to short rates. Now, demand deposits have very

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Speaker 1: low interest payments, but traditional deposits pay interest, and as

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Speaker 1: interest rates go up, that means the value of the

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Speaker 1: carry to your long investments keeps going down. Yeah, and

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Speaker 1: they just got caught between the fact that they were misheaged,

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Speaker 1: they were losing revenue stream and at the end of

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Speaker 1: the day, the real problem with SKVB is they had

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Speaker 1: four billion dollars or so of insured deposits. I'm going

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Speaker 1: to just divert for one second. One of the things

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Speaker 1: I've been listening to everyone talking about which has driven

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Speaker 1: me crazy is this argument that people shouldn't have to

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Speaker 1: have to A very popular man, Neil Grossman, is sorry

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Speaker 1: about that, that that we shouldn't have to think about

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Speaker 1: The average person shouldn't have to think about the risk

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Speaker 1: they're taking with deposits. Well, you don't. Two hundred and

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Speaker 1: fifty thousand and below no thought process. But this company

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Speaker 1: had very concentrated, large sized deposits with sophisticated institutions who

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Speaker 1: should have had known something about this, But it was

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Speaker 1: easy for them to realize that they had a problem.

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Speaker 1: The money moved very quickly, and when you lose let's

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Speaker 1: say thirty percent of your deposit, that means that that

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Speaker 1: amount of money that was supporting your investments is gone.

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Speaker 1: You have to sell investments, and that's how you get

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Speaker 1: a run on the bank and a massive drop and

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Speaker 1: against Capito Sinish about thirty seconds left here. The FED

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Speaker 1: fund futures market is pricing in rate cuts. Do you

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Speaker 1: believe the Fed will cut rates in twenty twenty three

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Speaker 1: in the absence of a stock crash? No? Okay, right,

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Speaker 1: or some or some truly existential event that creates a

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Speaker 1: situation they have no choice. Look, I don't think by

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Speaker 1: the end of the year you'll have reached anywhere near

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Speaker 1: his two percent target. And even if you do it,

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Speaker 1: you need to have it reach and be shown that

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Speaker 1: it's stable. So I think the answer is going to

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Speaker 1: be and the markets will begin to accommodate and function.

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Speaker 1: The question is is if something structurally wrong out there

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Speaker 1: that we can't see that creates that type of thing,

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Speaker 1: that we're going to start to see the economy slow.

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Speaker 1: But that's not necessarily. I'm not refinancing my mortgage anytime, SHO.

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Speaker 1: I got you, all right, Neil gross because I'm not

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Speaker 1: going to do it. So I got a four in

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Speaker 1: front of it. Neil Grossman, co founder and former CIO

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Speaker 1: of t k NNG Capital, joining us here in our

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Speaker 1: Bloomberg Interact, a broker studio. You're listening to the dam

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Speaker 1: Ken's her Line program Bloomberg Markets weekdays at ten. AMI's

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Speaker 1: Daring on Bloomberg dot Com, the I Heart Radio app

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Speaker 1: and the Bloomberg Business App. We're listening on demand wherever

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Speaker 1: you get your Podcastle's looking at this market here, just

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Speaker 1: kind of moving up higher, get, you know, kind of

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Speaker 1: retracing a little bit of some of those losses we

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Speaker 1: saw yesterday. Where do we go from here? Let's check

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Speaker 1: in with somebody who does this stuff for a living,

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Speaker 1: Jackie Bowie. She's a managing partner ahead of em EA

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Speaker 1: for Chatham Financial. She's located in London. So Jackie, thanks

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Speaker 1: so much for joining us here. How do you put

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Speaker 1: in context yesterday's trading versus what we've seen so far

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Speaker 1: this morning? Kind of a kind of one eighty to return.

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Speaker 1: How are you guys looking at it? Yeah, well, they

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Speaker 1: think the markets have seen a lot of turmoil and

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Speaker 1: fear in the last a few weeks with the banking

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Speaker 1: situation globally and with the big central banks announcements We've had,

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Speaker 1: you know, yesterday with the Fair and then today with

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Speaker 1: the Bank of England and nothing particularly scary coming out

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Speaker 1: of that. I think there's definitely a little bit of

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Speaker 1: a relief in the markets, and we see across the

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Speaker 1: intrast rate market too, which when the Fed made their

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Speaker 1: statement yesterday and again Bank of England literally out in

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Speaker 1: the last hour or so, the market reaction has been

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Speaker 1: pretty muted. So it maybe just feels like a little

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Speaker 1: bit of a sigh of relief that we may be

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Speaker 1: through some of the difficult and turmoil and the risk

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Speaker 1: of financial instability that we've had in the last few weeks. Well,

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Speaker 1: speaking of that financial instability that we've seen in the

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Speaker 1: last few weeks, how long is that going to continue?

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Speaker 1: It feels like when you're looking at these markets, they're

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Speaker 1: still moving pretty volatily. If the banking crisis is indeed,

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Speaker 1: dare I say it over or without chinxing it, how

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Speaker 1: much longer can we expect that this is going to happen? Well,

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Speaker 1: if we believe what the central banks have been telling

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Speaker 1: us in the last few days with their announcements, we

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Speaker 1: should be fairly comfortable that we've we've seen the worst

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Speaker 1: of it. With regard to you, it's not likely to

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Speaker 1: have further contained a contagion and spread throughout throughout the

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Speaker 1: rest of the financial industry and across other banks. If

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Speaker 1: you read some of the announcements from the Bank of

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Speaker 1: England today, they were very clear in trying to reinforce

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Speaker 1: the message about the liquidity positions that are in place

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Speaker 1: and overget the global central banks have continued to support

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Speaker 1: the liquidity in the markets and through the global slop lines,

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Speaker 1: which you know they've said they'll continue that through the

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Speaker 1: end of April. So there's a definite coordinated attempts to

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Speaker 1: try and allay fears in financial markets that there is

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Speaker 1: more to come. And yeah, and I guess that they

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Speaker 1: interest rate moves from the central bank. So the FED

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Speaker 1: raising last night and the Bing of England raising today

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Speaker 1: for National Bank also race today. So did there no

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Speaker 1: region central bank. So the markets that are probably interpreting

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Speaker 1: that to say, well, actually they don't seem overly concerned

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Speaker 1: about the financial instability and continue to be focused on

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Speaker 1: their inflation targets and using monetary policy to meet those

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Speaker 1: inflation targets. Hey, Jackie, as the head of em EA

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Speaker 1: at Chattam Financial, I'd love to get your opinion on

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Speaker 1: credits with ubs. What's your take now that we have

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Speaker 1: a couple of days of hindsight about that transaction and

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Speaker 1: more importantly about the health of the banking sector across Europe. Sure, well,

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Speaker 1: I think we're all still digesting the actual structure of

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Speaker 1: that transaction, and clearly there's a lot of issues arising

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Speaker 1: around how it was structured with regard to the situation

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Speaker 1: with certain bondholders, certainly from the clients that chats and advise.

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Speaker 1: What we're focused on is trying to understand how you

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Speaker 1: bs will actually absorb credits waste. You know, it's not

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Speaker 1: a small institution that it's a huge, you know, systemically important,

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Speaker 1: which is why it was rescued the way the way

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Speaker 1: that it was. So we're still just trying to understand

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Speaker 1: what the exposures are for for UBS as they take

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Speaker 1: that bank on. We've focused on the derivative markets, of course,

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Speaker 1: so that's where our main focus will be. But I think,

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Speaker 1: you know, even at a very basic level, you're taking

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Speaker 1: out one huge lender in the market, So does that

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Speaker 1: mean that in lending is going to be tighter? And

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Speaker 1: we're already seeing in credit conditions tightening across the European

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Speaker 1: banking sector as it stands at the moment. So I

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Speaker 1: think there's some concern that it will reduce credit capacity

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Speaker 1: in the market. But again there isn't any director read

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Speaker 1: across to other European banks, Jackie. Let's go a little

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Speaker 1: bit more international here and talk about the Bank of England.

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Speaker 1: Some expectation here, This could be that their potential last

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Speaker 1: right hig the ECB not really showing signs of slowing down.

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Speaker 1: What is it or who I should say is the

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Speaker 1: most hawkish central bank in the world right now, because

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Speaker 1: I just can't tell, so probably we would say the ECB.

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Speaker 1: So the European Central Bank, So they raised fifty basis

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Speaker 1: points last week and continue in their statements to be

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Speaker 1: pretty hawkish with regard to how much further in those

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Speaker 1: right rises could be. And actually, if you move away

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Speaker 1: from what the central banks are telling us in their

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Speaker 1: statements and look at what the market is pricing, you

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Speaker 1: would also come to that conclusion. There's an expectation from

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Speaker 1: the market that they said would is going to start

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Speaker 1: cutting weights they said, not saying that, in fact that

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Speaker 1: they're saying the opposite, and the same with the Bank

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Speaker 1: of England. But on the ECB side, for the European

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Speaker 1: for the Rose Zone, there is no expectation that those

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Speaker 1: rates are going to start coming back down the other side,

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Speaker 1: so certainly most hawkishness still coming from and the European

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Speaker 1: Central Bank. I would say, Jackie, what was your takeaway

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Speaker 1: from a very active afternoon in US markets yesterday with

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Speaker 1: a Secretary of the Treasure yelling speaking, and of course

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Speaker 1: we had the conference press conference and statement by FED

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Speaker 1: Chairman Jpal What was your takeaway from that collectively? Well,

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Speaker 1: I would say that the language in the statement was

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Speaker 1: definitely softer, and I think the market took that very positively,

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Speaker 1: you know, signaling that they are coming to the end

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Speaker 1: of the tightening cycle. And again you can get into

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Speaker 1: the real granularity of the exact words that were used,

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Speaker 1: and I think the exact quote was there. Maybe some

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Speaker 1: additional firm may be appropriate, you know, just that slightly

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Speaker 1: software language and certainly gates the markets and confidence that

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Speaker 1: the central banks are not very focused well, that they're

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Speaker 1: not using the financial instability as a reason to change

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Speaker 1: the monetary policy direction. Well when it comes to monetary

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Speaker 1: policy direction, though, it also feels like everyone is expecting

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Speaker 1: this to be the end of the tightening cycle, but

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Speaker 1: inflation still hasn't come down By the margin that I

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Speaker 1: think a lot of central banks are looking for. Could

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Speaker 1: we potentially see, instead of cuts in the back half,

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Speaker 1: a reacceleration of that hawkish monetary policy. I think that's

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Speaker 1: definitely a possibility. And in quite the UK have their

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Speaker 1: inflation numbers yesterday morning and they surprise to the upside.

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Speaker 1: And the concerning trend within that is that it was

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Speaker 1: the code inflation, so food pricing. Everyone's been talking about that,

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Speaker 1: the increased cost of salads in Europe and the shortages

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Speaker 1: and some of the food items. So we started to

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Speaker 1: see the improvement and inflation globally due to the fall

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Speaker 1: and the energy prices, but that's been substituted by increases

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Speaker 1: in core core inflation, which is more of a more

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Speaker 1: of a concern, you know, And I guess in the

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Speaker 1: US there's an expectation that, well, what's you know, the

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Speaker 1: feder forecasting, of course, since the inflation to decrease back

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Speaker 1: down to about three point six percent by the end

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Speaker 1: of this year and then start to get back to

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Speaker 1: that two percent target by the end of twenty twenty five.

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Speaker 1: There's a lot of things that have to go in

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Speaker 1: the right direction for that to be achieved. So yeah,

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Speaker 1: I agree with you. I don't think it's completely outside

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Speaker 1: the realms of possibility that that cup and interest rates,

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Speaker 1: if it comes, might come a little bit too early

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Speaker 1: before inflation is completely under control. All right, Jackie, thank

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Speaker 1: you so much for joining us. We really appreciate getting

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Speaker 1: some of your time and your perspective on these markets.

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Speaker 1: Jackie Bowie. She is the managing partner ahead of EA

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Speaker 1: at Chatham fan Chell, based in London. I appreciate getting

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Speaker 1: some of her time. You're listening to the tape. Ken's

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Speaker 1: are Live program Bloomberg Markets weekdays at ten am Eastern

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Speaker 1: on Bloomberg Radio, tune in app, Bloomberg dot Com, and

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Speaker 1: the Bloomberg Business App. You can also listen live on

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Speaker 1: Amazon Alexa from our flagship New York station, Just say

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Speaker 1: Alexa play Bloomberg eleven thirty. Let's piece together for these

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Speaker 1: banks out there. Pretty you know, we had maybe listen

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Speaker 1: to Chairman Pall yesterday and Secretary yelling. I'm not sure

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Speaker 1: I heard the same kind of message in terms of

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Speaker 1: the support for the banks out there. So I want

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Speaker 1: to really get a sense of what the experts think.

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Speaker 1: And Alison Williams is certainly one of those she's a

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Speaker 1: senior banks analyst for Bloomberg Intelligence. So, Alison, what did

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Speaker 1: you take away from again that dueling testimony yesterday from

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Speaker 1: FED Chairman Powell and Secretary Yelling about how they view

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Speaker 1: kind of what's going on in the US banking system.

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Speaker 1: So I think the one thing that I'd be consistent

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Speaker 1: is that they you know, they are sending trying to

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Speaker 1: send a message of confidence in the system in terms

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Speaker 1: of the FED focusing on um fighting inflation and its job.

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Speaker 1: As as to Yellen's comments, I mean her comments that

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Speaker 1: they're not looking at blanket insurance, I think does not

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Speaker 1: roll out other types of actions, and I think, you

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Speaker 1: know that maybe what's taking so long, if you will,

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Speaker 1: We've seen a lot of different people speaking um, politicians,

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Speaker 1: advisors to politicians about how they're looking about thinking about

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Speaker 1: the issue a blanket Uh. You know, obviously a blanket

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Speaker 1: insurance of all deposits would solve all of you know,

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Speaker 1: would make people feel better, but that also causes international

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Speaker 1: ramifications than to you know, all the other countries have

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Speaker 1: to do that or risk deposit flight, and also be

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Speaker 1: extremely expensive because the banks do pay for that insurance.

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Speaker 1: And ultimately that would be passed on to customers. You know,

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Speaker 1: there's also the tough part about, you know, the legality

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Speaker 1: around implementing that, about being able to change that. And

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Speaker 1: so what I think that UM regulators are more trying

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Speaker 1: to think about, our politicians are trying to think about,

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Speaker 1: is you know, is there a way to try to

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Speaker 1: target the area where the concerns are. And so it's

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Speaker 1: not at the biggest banks this time. They're they're benefiting

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Speaker 1: from a flight to safety is the presumption and some

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Speaker 1: of the reports that we see, and it's not the

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Speaker 1: smallest community banks. It's really this sort of center regional banks.

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Speaker 1: And a lot of the issue there is that you

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Speaker 1: have these banks serve small and medium businesses and a

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Speaker 1: lot of the uninsured deposits they have relate to these businesses.

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Speaker 1: So it's not like your average consumer that can diversify

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Speaker 1: and put some money here and there. It's generally, you know,

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Speaker 1: the a company that works with their lender and has

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Speaker 1: all their operating cash in one bank. And so I

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Speaker 1: think that's that's the question. How can those relationships be

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Speaker 1: preserved and yet at the same time give people comfort

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Speaker 1: that those deposits u won't be flighty Alison do we

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Speaker 1: or should we expect more consolidation in the sector. It

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Speaker 1: feels like this idea of acquisitions from First Republic and

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Speaker 1: extra financing, it really is a result of kind of

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Speaker 1: the baky turmoil that we've seen. But moving forward, does

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Speaker 1: this almost incentivize consolidation, I mean, it's consolid This is

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Speaker 1: a problem that doesn't necessarily solve the issues, if you will,

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Speaker 1: because that the main issue across all the banks, right

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Speaker 1: is that you know, these health to maturity portfolios and

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Speaker 1: the deposits supporting them, and so you know, if you

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Speaker 1: if you are just adding balance sheets together, it doesn't

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Speaker 1: make a difference until you you know, unless you get

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Speaker 1: to that level of the big secure banks. So First

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Speaker 1: Republic is obviously the one that everyone's watching, and at

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Speaker 1: the biggest banks are not allowed to acquire beyond ten percent,

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Speaker 1: So there could be a question about the next tier

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Speaker 1: of banks that you know, are these I think regulators

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Speaker 1: might want to see some uh, some of these maybe

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Speaker 1: smaller banks combine where it's not necessarily um I guess

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Speaker 1: needle moving to the extent that the deposits aren't necessarily

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Speaker 1: needle moving UM. But that also reverses the you know,

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Speaker 1: it's it doesn't. It doesn't say much for the incentive

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Speaker 1: for the larger regional banks to do these deals. So

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Speaker 1: so hopefully that may clear. I mean, I don't think

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Speaker 1: that small regional banks combining necessarily fixes or addresses the

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Speaker 1: fundamental issue. We certainly with the banks that were see

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Speaker 1: I think, you know, obviously banks buyers are able to

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Speaker 1: get those assets at attractive levels and make those attractively

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Speaker 1: economic or make it attractive economics. But First Republic one

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Speaker 1: has to presume that people are have looked at it,

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Speaker 1: or there's been discussions and somehow the economics and perhaps

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Speaker 1: the views of buyers versus sellers are not aligned. And

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Speaker 1: so I think it does. You know that there is

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Speaker 1: sort of a degree of negotiating power involved, and we

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Speaker 1: think the First Republic does stay volatile until you know,

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Speaker 1: they figure out a longer term solution. Alison yesterday, on

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Speaker 1: a interview with David rubin Sein from Carlisle Group Cities CEO,

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Speaker 1: Frasier warns that mobile money is quote a game changer

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Speaker 1: for bank runs. People can just click on that. Is

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Speaker 1: that a widespread fear within the industry or is a

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Speaker 1: recent phenomena? How did you take that? So you know

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Speaker 1: I'd say to two things that actually maybe three things

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Speaker 1: about you know that the environment today. First, UM, you know,

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Speaker 1: Jane Fraser is right that the digital does make it

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Speaker 1: much easier for people to UM move deposits from from

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Speaker 1: one bank to the other. UM. The other thing that

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Speaker 1: a lot of people are are talking about social media

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Speaker 1: and you know ten that stoke fears UM, you know,

431
00:25:32,119 --> 00:25:36,119
Speaker 1: the the equivalent yelling fire in a crowded theater, and

432
00:25:36,119 --> 00:25:40,080
Speaker 1: so it is that also a factor UM. But the

433
00:25:40,160 --> 00:25:42,960
Speaker 1: third thing I would point to is that again what

434
00:25:43,160 --> 00:25:45,960
Speaker 1: the where the issues are are more sort of these

435
00:25:46,080 --> 00:25:51,760
Speaker 1: chunkier corporate deposits UM. And so there's there's also a

436
00:25:51,840 --> 00:25:54,679
Speaker 1: focus on sort of the specific nature of some of

437
00:25:54,720 --> 00:26:00,639
Speaker 1: the banks that are UM, that work sees and that

438
00:26:00,680 --> 00:26:04,640
Speaker 1: people have concerns around. You know, if you have if

439
00:26:04,680 --> 00:26:08,080
Speaker 1: you're catering to one very specific segment of clients and

440
00:26:08,119 --> 00:26:11,560
Speaker 1: those clients are all in touch and interrelated and all

441
00:26:11,600 --> 00:26:16,040
Speaker 1: behave the same way very quickly, does that certainly increase

442
00:26:16,080 --> 00:26:20,199
Speaker 1: your risk? So, Alison, we've got about thirty seconds here.

443
00:26:20,240 --> 00:26:22,840
Speaker 1: I have to ask what comes next for the banking sector.

444
00:26:23,000 --> 00:26:27,040
Speaker 1: Is the worst of it behind us? I think I

445
00:26:27,080 --> 00:26:31,240
Speaker 1: think there's potential for volatility until we get some kind

446
00:26:31,320 --> 00:26:35,000
Speaker 1: of solution on the deposit front. I do think it's

447
00:26:35,000 --> 00:26:37,720
Speaker 1: tricky for regulators. They need to walk a fine line

448
00:26:37,720 --> 00:26:43,480
Speaker 1: in terms of doing enough to avoid people having fear

449
00:26:44,119 --> 00:26:47,080
Speaker 1: and not do too much that it actually stokes those spheres.

450
00:26:47,960 --> 00:26:50,679
Speaker 1: But you can but you can see from the stocks

451
00:26:50,680 --> 00:26:53,680
Speaker 1: and again, since we're really since the issue really is

452
00:26:53,760 --> 00:26:56,800
Speaker 1: sentiment that sort of tipping things one way or the other,

453
00:26:56,880 --> 00:27:00,560
Speaker 1: and that has the potential to drive reality. As long

454
00:27:00,600 --> 00:27:04,159
Speaker 1: as you can have this volatility, I think that I

455
00:27:04,240 --> 00:27:07,200
Speaker 1: think that the regulators do you have to think about

456
00:27:07,320 --> 00:27:10,520
Speaker 1: doing something to study those fears. All right, Alison, thank

457
00:27:10,520 --> 00:27:12,560
Speaker 1: you very much once again for taking the time out

458
00:27:12,680 --> 00:27:14,760
Speaker 1: of your busy day and getting us up to speed

459
00:27:14,800 --> 00:27:18,920
Speaker 1: on the latest state of the US banking environment. Alison

460
00:27:18,960 --> 00:27:21,760
Speaker 1: william she's his senior Global Banks and Asset Managers Analysts

461
00:27:21,760 --> 00:27:27,280
Speaker 1: for Bloomberg Intelligence, located our Princeton University Princeton office down

462
00:27:27,280 --> 00:27:31,120
Speaker 1: there in Princeton, New Jersey. You're listening to the team

463
00:27:31,280 --> 00:27:34,680
Speaker 1: Ken's are Live program Bloomberg Markets weekdays at ten am

464
00:27:34,680 --> 00:27:37,800
Speaker 1: eastering on Bloomberg dot com, the I Heart Radio app,

465
00:27:37,880 --> 00:27:40,800
Speaker 1: and the Bloomberg Business app we're listening on demand wherever

466
00:27:40,880 --> 00:27:45,520
Speaker 1: you get your podcast. Well, we heard some pretty tough

467
00:27:45,560 --> 00:27:48,320
Speaker 1: talk I think for FED Chairman Pal yesterday, as tough

468
00:27:48,320 --> 00:27:50,719
Speaker 1: as you could probably be in terms of In addition,

469
00:27:50,760 --> 00:27:52,840
Speaker 1: you know that twenty five basis point increase and they're

470
00:27:52,880 --> 00:27:55,359
Speaker 1: going to continue to fight inflation. That's going to be

471
00:27:55,440 --> 00:27:57,640
Speaker 1: job number one. But the markets not buying it. Here

472
00:27:57,640 --> 00:27:59,960
Speaker 1: looking at the FED funds futures here, so let's see

473
00:28:00,359 --> 00:28:02,040
Speaker 1: where we might be going from here in terms of

474
00:28:02,040 --> 00:28:04,080
Speaker 1: the rates. We do that with Jennifer Lee, senior Economist

475
00:28:04,119 --> 00:28:07,840
Speaker 1: and managing director be More Capital Markets and Jennifer again,

476
00:28:08,680 --> 00:28:11,760
Speaker 1: you look at the FED futures, Fed funds, few futures markets.

477
00:28:11,800 --> 00:28:14,679
Speaker 1: They're pressing in right creases like starting in like fifteen

478
00:28:14,720 --> 00:28:17,639
Speaker 1: minutes from now. I mean, how do you square that

479
00:28:17,640 --> 00:28:21,440
Speaker 1: with the rhetoric we hear from not just FED Chairman

480
00:28:21,520 --> 00:28:23,600
Speaker 1: j Pal, but also Christine Legard at the ECB a

481
00:28:23,600 --> 00:28:26,960
Speaker 1: couple of weeks ago. You know, it's uh, I can't.

482
00:28:27,080 --> 00:28:29,080
Speaker 1: I can explain it. First of all, good morning, and

483
00:28:29,320 --> 00:28:30,800
Speaker 1: if I can, just before I'm going to answer that,

484
00:28:31,119 --> 00:28:32,639
Speaker 1: I have to say that you guys gave me a

485
00:28:32,640 --> 00:28:35,000
Speaker 1: good chuckle. I need a chuckle earlier a few minutes ago,

486
00:28:35,000 --> 00:28:38,520
Speaker 1: when you're talking about the different ticker symbols with with

487
00:28:38,520 --> 00:28:41,280
Speaker 1: with wolf and I just remember the one called move

488
00:28:41,520 --> 00:28:43,760
Speaker 1: from from I don't know how many years back, could

489
00:28:43,760 --> 00:28:47,400
Speaker 1: you're in the commodity boom anyway into that um anyway.

490
00:28:47,560 --> 00:28:50,360
Speaker 1: So it's it's it's difficult to to you know, thread

491
00:28:50,360 --> 00:28:52,600
Speaker 1: the needle on this, but I think it's just their

492
00:28:52,720 --> 00:28:55,760
Speaker 1: way of installing some sort of calm, you know, saying

493
00:28:55,840 --> 00:28:57,840
Speaker 1: that we have to you know that, don't re mind,

494
00:28:57,840 --> 00:29:01,000
Speaker 1: don't forget to the market stats. We will have our

495
00:29:01,040 --> 00:29:05,000
Speaker 1: other focus besides financial stability, of course, by fighting inflation

496
00:29:05,080 --> 00:29:09,040
Speaker 1: and you know, and Leaguard's UCB, the governing Council, it

497
00:29:09,040 --> 00:29:11,680
Speaker 1: has probably been one of the most hawkish ones surprisingly

498
00:29:12,080 --> 00:29:15,680
Speaker 1: of the year and they still remain very hawkish. Um um.

499
00:29:15,800 --> 00:29:18,240
Speaker 1: The one of their own hawks, Eel from the Netherlands,

500
00:29:18,360 --> 00:29:20,240
Speaker 1: was just still the wires talking about, you know, the

501
00:29:20,480 --> 00:29:23,440
Speaker 1: great hike coming in May, and I think with the

502
00:29:23,520 --> 00:29:25,479
Speaker 1: said yesterday, you know, I think he did the right

503
00:29:25,520 --> 00:29:27,280
Speaker 1: thing with the twenty five basis point where he hike

504
00:29:27,560 --> 00:29:29,280
Speaker 1: and he's seeing less than that would have made them

505
00:29:29,280 --> 00:29:32,000
Speaker 1: look soft, to be quite frank, you know, and so

506
00:29:32,040 --> 00:29:34,320
Speaker 1: it's still putting in that twenty five basis great hike

507
00:29:34,400 --> 00:29:37,080
Speaker 1: and warning that you know, some of this credit tightening

508
00:29:37,120 --> 00:29:38,560
Speaker 1: is going to do some of the jobs for them,

509
00:29:38,600 --> 00:29:41,480
Speaker 1: but you know, again saying that inflation was too high.

510
00:29:41,480 --> 00:29:42,840
Speaker 1: And I thought that was kind of interesting in that

511
00:29:42,880 --> 00:29:45,280
Speaker 1: press not doing the press conference, but in the actual

512
00:29:45,680 --> 00:29:48,880
Speaker 1: statement itself, when they just put very simply that inflation

513
00:29:48,960 --> 00:29:53,280
Speaker 1: remains elevated. You know, Um, can't get any clearer than that. Well, Jennifer,

514
00:29:53,320 --> 00:29:56,640
Speaker 1: I I feel like that seems to be the consensus

515
00:29:56,760 --> 00:29:59,920
Speaker 1: view that the right upcoming regulations are going to kind

516
00:30:00,120 --> 00:30:03,080
Speaker 1: to do some of the Fed's job for it. But

517
00:30:03,120 --> 00:30:06,160
Speaker 1: I have to ask, aren't some of these tighter banking

518
00:30:06,320 --> 00:30:11,080
Speaker 1: standards and regulations also uh subject to congressional approval, which

519
00:30:11,080 --> 00:30:16,000
Speaker 1: we know are super speedy as always in Washington. Um, Yes,

520
00:30:16,120 --> 00:30:18,680
Speaker 1: and then yes for sure. So that that is going

521
00:30:18,720 --> 00:30:21,360
Speaker 1: to be another way of tightening a little bit more,

522
00:30:21,360 --> 00:30:23,120
Speaker 1: and it's going to make you know, probably the sector

523
00:30:23,120 --> 00:30:25,120
Speaker 1: a little bit more nervous, you know, knowing that they're

524
00:30:25,120 --> 00:30:26,960
Speaker 1: going to be watched a little closer and they'll probably

525
00:30:26,960 --> 00:30:28,880
Speaker 1: have to put a little bit more of a side. Um.

526
00:30:29,000 --> 00:30:31,920
Speaker 1: So all of this combined is going to help, you know,

527
00:30:32,040 --> 00:30:35,200
Speaker 1: tighten financial conditions a little bit more. Of course you

528
00:30:35,200 --> 00:30:37,800
Speaker 1: can't tell from today, but you know, each day there's

529
00:30:38,000 --> 00:30:40,520
Speaker 1: so much volatility, but you know, whatever the end game

530
00:30:40,600 --> 00:30:43,080
Speaker 1: is going to be, we're probably going to see tighter conditions.

531
00:30:43,080 --> 00:30:45,200
Speaker 1: And this is why you know he's they're they're banking

532
00:30:45,200 --> 00:30:47,400
Speaker 1: for just probably one more you know, as of right now,

533
00:30:47,520 --> 00:30:49,960
Speaker 1: just one more great hike um and then and then

534
00:30:50,080 --> 00:30:52,920
Speaker 1: letting see um and playing and stepping to the side

535
00:30:52,920 --> 00:30:55,120
Speaker 1: to see how things play out. But what is the

536
00:30:55,200 --> 00:30:57,720
Speaker 1: timeline on that though, to my point about the congressional

537
00:30:57,880 --> 00:31:01,200
Speaker 1: kind of um approval that it's going to take to

538
00:31:01,320 --> 00:31:04,720
Speaker 1: enforce those standards, that could take a while. And I

539
00:31:04,840 --> 00:31:07,680
Speaker 1: wonder to what extent if waiting for that kind of

540
00:31:07,680 --> 00:31:10,840
Speaker 1: credit tightening or that kind of regulation, perhaps isn't the

541
00:31:10,840 --> 00:31:13,120
Speaker 1: anticipation that's going to do the FED shop for it,

542
00:31:13,280 --> 00:31:15,200
Speaker 1: or are you going to see that kind of kick in.

543
00:31:15,720 --> 00:31:19,600
Speaker 1: I don't know next year. Oh, you know, that's that's

544
00:31:19,600 --> 00:31:21,880
Speaker 1: that's a tough question to answer. I don't think anyone's

545
00:31:21,920 --> 00:31:26,320
Speaker 1: going to expect anything to to happen overnight, let alone

546
00:31:26,320 --> 00:31:28,360
Speaker 1: by the end of the year. But I think you

547
00:31:28,360 --> 00:31:30,760
Speaker 1: know with at this point, it's going to be you know,

548
00:31:30,800 --> 00:31:33,840
Speaker 1: watching data with the FED and um and again if

549
00:31:33,840 --> 00:31:36,560
Speaker 1: the if the data remained very strong, um, you know,

550
00:31:36,640 --> 00:31:40,320
Speaker 1: then the FED could start speaking hawkishly again. Um. You know,

551
00:31:40,360 --> 00:31:42,080
Speaker 1: they're going to take it. You know, as Christine Legar

552
00:31:42,200 --> 00:31:45,040
Speaker 1: was saying, meeting, my meeting, and everything's going to be

553
00:31:45,120 --> 00:31:47,440
Speaker 1: data dependent. Like at one point last week, I think

554
00:31:47,480 --> 00:31:50,200
Speaker 1: people are asking, you know, does the data even matter anymore?

555
00:31:50,240 --> 00:31:52,920
Speaker 1: And I believe I said yes, and I still hold

556
00:31:52,960 --> 00:31:54,160
Speaker 1: to that because at the end of the day, it's

557
00:31:54,160 --> 00:31:56,000
Speaker 1: how the economy is going to fair and that's what's

558
00:31:56,000 --> 00:31:59,440
Speaker 1: going to drive the Fed's decision going forward. And Jennifer,

559
00:32:00,960 --> 00:32:02,680
Speaker 1: I wonder what where we are in terms of that

560
00:32:02,720 --> 00:32:05,760
Speaker 1: recession talk these days. I mean, I look at the

561
00:32:05,800 --> 00:32:09,040
Speaker 1: initial jobs claims today, another print below two hundred thousand

562
00:32:09,440 --> 00:32:13,880
Speaker 1: jobs market. The jobs market remains pretty darn strong here.

563
00:32:14,440 --> 00:32:16,520
Speaker 1: What is your recession call here? As we look forward

564
00:32:16,520 --> 00:32:20,000
Speaker 1: to the next several quarters. So we haven't changed it

565
00:32:20,520 --> 00:32:23,840
Speaker 1: in a while. We're still looking for that the contraction

566
00:32:23,920 --> 00:32:26,720
Speaker 1: to kick in, probably around I'm going to say mid year,

567
00:32:26,720 --> 00:32:28,600
Speaker 1: but it's probably gonna be Q two in Q three,

568
00:32:28,920 --> 00:32:31,080
Speaker 1: that's where we have our negative prints and then a

569
00:32:31,080 --> 00:32:33,440
Speaker 1: little bit of a rebound in the fourth quarter, and

570
00:32:33,480 --> 00:32:36,000
Speaker 1: we're still looking at about point seven percent goals for

571
00:32:36,080 --> 00:32:38,920
Speaker 1: this year, but certainly off to you know, four hundred

572
00:32:38,920 --> 00:32:41,960
Speaker 1: and whatever basis points of great hikes. Obviously it's starting

573
00:32:41,960 --> 00:32:44,680
Speaker 1: to take its toll, but that job market remains so

574
00:32:44,840 --> 00:32:48,520
Speaker 1: tight still. Those initial claims, you know, it's it's unvoisable

575
00:32:48,600 --> 00:32:50,600
Speaker 1: how low they are right now. But at some point

576
00:32:50,600 --> 00:32:53,720
Speaker 1: you're going to start business start seeing businesses pull back

577
00:32:54,040 --> 00:32:56,120
Speaker 1: cool a little bit on their hiring intentions, you know.

578
00:32:56,400 --> 00:32:58,400
Speaker 1: But again, we still have to work off of those

579
00:32:58,520 --> 00:33:01,360
Speaker 1: ten million job openings out there before we start you know,

580
00:33:01,400 --> 00:33:05,800
Speaker 1: getting into the bone. Well, in terms of the layoffs, again,

581
00:33:05,840 --> 00:33:08,160
Speaker 1: I want to ask about the lag because it feels

582
00:33:08,160 --> 00:33:10,080
Speaker 1: like the labor market is still incredibly tight. If you

583
00:33:10,120 --> 00:33:12,440
Speaker 1: hear what some of these companies are saying, they're not

584
00:33:12,600 --> 00:33:15,920
Speaker 1: all laying off people, some are actually hiring. And I

585
00:33:15,960 --> 00:33:19,040
Speaker 1: have to ask what is going to pop first, the

586
00:33:19,040 --> 00:33:23,680
Speaker 1: housing market or the labor market. Well, the housing market

587
00:33:23,720 --> 00:33:27,040
Speaker 1: has started to seem like it's finding a bottom, you know,

588
00:33:27,080 --> 00:33:29,560
Speaker 1: with mortgage rates. I'm still high, of course, but you know,

589
00:33:29,680 --> 00:33:32,480
Speaker 1: but they're you know, but they're you know, they seem

590
00:33:32,520 --> 00:33:34,360
Speaker 1: to be cooling off a little bit, so that's helping.

591
00:33:34,640 --> 00:33:38,560
Speaker 1: And of course we've seen some pretty decent housing releases

592
00:33:38,560 --> 00:33:41,960
Speaker 1: over the last few weeks. I'm not going to acknowledge

593
00:33:42,000 --> 00:33:43,520
Speaker 1: too much of what we thought today from new home

594
00:33:43,560 --> 00:33:46,040
Speaker 1: sales because there's such a big downal revision to the

595
00:33:46,080 --> 00:33:50,479
Speaker 1: prior months. The housing seems to have stabilized somewhat. The

596
00:33:50,560 --> 00:33:54,480
Speaker 1: job market remains strong. But again, as you say the layoffs,

597
00:33:54,480 --> 00:33:57,640
Speaker 1: I mean, um also just layoff announcements, and then it

598
00:33:57,680 --> 00:34:00,600
Speaker 1: takes time to filter system some people what could be,

599
00:34:00,640 --> 00:34:04,000
Speaker 1: you know, laying off one job and going on into another. UM.

600
00:34:04,160 --> 00:34:05,440
Speaker 1: So I think it's going to take a little bit

601
00:34:05,440 --> 00:34:08,840
Speaker 1: of time as well. But again with this expected pullback,

602
00:34:09,160 --> 00:34:12,359
Speaker 1: with rates still heading higher, and with so much talk

603
00:34:12,440 --> 00:34:15,239
Speaker 1: now about you know, something more than a mild contraction,

604
00:34:15,440 --> 00:34:17,520
Speaker 1: you know you're going to start seeing some pullback I

605
00:34:17,560 --> 00:34:22,000
Speaker 1: think in business hiring intentions. Jennifer, As an economist, how

606
00:34:22,000 --> 00:34:26,080
Speaker 1: are you viewing some of these you know, banking challenges

607
00:34:26,080 --> 00:34:29,200
Speaker 1: out there, some of these small regional banks in the

608
00:34:29,280 --> 00:34:32,560
Speaker 1: United States, the credit Swiss, the UBS issue. As an economists,

609
00:34:32,560 --> 00:34:35,680
Speaker 1: how concerned are you about the maybe the US banking system,

610
00:34:35,680 --> 00:34:41,359
Speaker 1: maybe the global banking system. UM, okay, you know, I

611
00:34:41,360 --> 00:34:44,920
Speaker 1: think I am a little concerned just given that regional banks,

612
00:34:44,960 --> 00:34:47,760
Speaker 1: you know, um I still make up a fair share

613
00:34:47,880 --> 00:34:50,920
Speaker 1: of the credit process, especially in the commercial real estate side.

614
00:34:51,120 --> 00:34:53,719
Speaker 1: But obviously we know we are in better shape than

615
00:34:53,719 --> 00:34:56,120
Speaker 1: we were, you know, back in two thousand and eight,

616
00:34:56,160 --> 00:34:59,799
Speaker 1: with more regulations, with so much more regulations in play,

617
00:35:00,160 --> 00:35:01,640
Speaker 1: and of course we're probably going to see a little

618
00:35:01,640 --> 00:35:04,040
Speaker 1: bit more on that front now, um, but at least

619
00:35:04,080 --> 00:35:06,160
Speaker 1: see a lot of these you know, as we all know,

620
00:35:06,280 --> 00:35:09,560
Speaker 1: has been very specific to these specific to these particular banks.

621
00:35:09,719 --> 00:35:12,440
Speaker 1: But unfortunately, it's all about confidence and making sure you

622
00:35:12,480 --> 00:35:16,919
Speaker 1: have confidence the entire financial industry or financial sector, which

623
00:35:16,960 --> 00:35:18,680
Speaker 1: is critical. And that's probably why you know, we saw

624
00:35:18,719 --> 00:35:21,160
Speaker 1: defense ticking in the line about how resilient the US

625
00:35:21,200 --> 00:35:23,400
Speaker 1: banking system is. The Bank of England did that as

626
00:35:23,440 --> 00:35:26,239
Speaker 1: well this morning again to instill common confidence in the

627
00:35:26,360 --> 00:35:31,120
Speaker 1: entire financial system. Who is the more important player in

628
00:35:31,280 --> 00:35:34,360
Speaker 1: these next days, arguably weeks. Is it J Powell or

629
00:35:34,400 --> 00:35:40,600
Speaker 1: is it Janet Yellen? Woo um can see, well that's

630
00:35:40,600 --> 00:35:43,799
Speaker 1: a good question. Well, Janet Yellen sort of dalls a

631
00:35:43,800 --> 00:35:46,640
Speaker 1: lot of the Hope yesterday when she you know, said

632
00:35:46,640 --> 00:35:49,000
Speaker 1: that she's sort of kaiba or poopoo the idea of

633
00:35:49,200 --> 00:35:52,759
Speaker 1: that blanket deposit coverage. But um, you know what, I

634
00:35:52,800 --> 00:35:55,400
Speaker 1: think it's gonna be both. Can I say both? You know,

635
00:35:55,680 --> 00:35:58,160
Speaker 1: because obviously you know, they always say that they CANTA.

636
00:35:58,400 --> 00:36:00,680
Speaker 1: They're not going to influence moneteer Paul see from the

637
00:36:00,840 --> 00:36:02,920
Speaker 1: from the Treasury fed share Powell. You know, it's not

638
00:36:02,920 --> 00:36:05,479
Speaker 1: going to see the government how to do their job either.

639
00:36:05,560 --> 00:36:08,080
Speaker 1: So I think both of them have to book, you know,

640
00:36:08,520 --> 00:36:10,719
Speaker 1: hand in hand in many ways. And the fact that

641
00:36:10,760 --> 00:36:12,240
Speaker 1: you know they know each other so well is probably

642
00:36:12,239 --> 00:36:14,279
Speaker 1: going to be helpful as well, um, you know, to

643
00:36:14,360 --> 00:36:18,240
Speaker 1: help things stabilize and in still more common financial markets. Jennifer,

644
00:36:18,239 --> 00:36:20,640
Speaker 1: you're up in Toronto. Love to just get the latest

645
00:36:20,640 --> 00:36:23,719
Speaker 1: from you on kind of your view of the Canadian economy.

646
00:36:23,719 --> 00:36:28,520
Speaker 1: How's the average Canadian industry feeling about things? Um? Well,

647
00:36:30,560 --> 00:36:33,200
Speaker 1: I think so far the data have been pretty decent

648
00:36:33,280 --> 00:36:35,959
Speaker 1: so far here in Canada. Um and the Vega. Canada

649
00:36:36,040 --> 00:36:38,919
Speaker 1: actually was the first major central bank to step off

650
00:36:40,080 --> 00:36:43,600
Speaker 1: the great tightening cycle and step to the sidelines. And uh,

651
00:36:43,680 --> 00:36:45,400
Speaker 1: and they're pausing. But at the same time, you know,

652
00:36:45,400 --> 00:36:47,800
Speaker 1: this is all contingent on whether or not the economy

653
00:36:47,880 --> 00:36:50,439
Speaker 1: continues to slow as the expected inflation starts to cool,

654
00:36:50,920 --> 00:36:53,359
Speaker 1: and we actually did see like our latest inflation right. Well,

655
00:36:53,400 --> 00:36:56,680
Speaker 1: everyone else is still remaining very sticky, especially in the UK.

656
00:36:56,800 --> 00:37:00,320
Speaker 1: The Canadian inflation rates flowed further um um down to

657
00:37:00,360 --> 00:37:02,960
Speaker 1: about five point two percent year a year for February, which,

658
00:37:03,239 --> 00:37:06,920
Speaker 1: by the way, it's exactly how what the UK inflation

659
00:37:07,040 --> 00:37:09,600
Speaker 1: radars right now. So I think the banking candle is

660
00:37:09,640 --> 00:37:12,279
Speaker 1: quite quite comfortable staying on the sidelines, whereas everyone else

661
00:37:12,320 --> 00:37:14,560
Speaker 1: has still got the feet on the gas a little

662
00:37:14,560 --> 00:37:17,360
Speaker 1: bit of interns or the breaks in terms of raising rates.

663
00:37:17,680 --> 00:37:19,560
Speaker 1: All right, Jennifer, thank you so much for joining us.

664
00:37:19,560 --> 00:37:23,120
Speaker 1: We always appreciate getting your perspective. Jennifer Lee, Senior economist

665
00:37:23,120 --> 00:37:28,279
Speaker 1: and Managing director at BMO Capital Markets, located up in Toronto, Ontario.

666
00:37:28,560 --> 00:37:31,160
Speaker 1: Looking at the SMP five hundred still rated at four

667
00:37:31,239 --> 00:37:34,239
Speaker 1: thousand level, up about one point six percent, holding on

668
00:37:34,280 --> 00:37:37,040
Speaker 1: to those games from earlier in the day. The Nastack

669
00:37:37,120 --> 00:37:39,520
Speaker 1: up two and a quarter percent, so big moves there

670
00:37:39,600 --> 00:37:42,760
Speaker 1: in the tech heavy Nastack. You're listening to the tape

671
00:37:42,880 --> 00:37:46,239
Speaker 1: Kens are live program Bloomberg Markets weekdays at ten am

672
00:37:46,280 --> 00:37:50,080
Speaker 1: Eastern on Bloomberg Radio, the tuning app, Bloomberg dot Com,

673
00:37:50,080 --> 00:37:52,840
Speaker 1: and the Bloomberg Business App. You can also listen live

674
00:37:52,960 --> 00:37:56,000
Speaker 1: on Amazon Alexa from our flagship New York station, Just

675
00:37:56,160 --> 00:38:02,200
Speaker 1: say Alexa Play Bloomberg eleven thirty. Ford Motor Company came

676
00:38:02,200 --> 00:38:05,640
Speaker 1: out with an announcement this morning that it expects three

677
00:38:05,760 --> 00:38:09,800
Speaker 1: billion dollar loss on electric car business in twenty twenty three,

678
00:38:09,920 --> 00:38:12,239
Speaker 1: breaking it out really for the first time. And they

679
00:38:12,239 --> 00:38:14,480
Speaker 1: also had kind of what I'm going to call, you know,

680
00:38:14,560 --> 00:38:16,799
Speaker 1: kind of a teaching if you will, with analysts and

681
00:38:16,840 --> 00:38:19,520
Speaker 1: investors here in New York to kind of show them

682
00:38:19,560 --> 00:38:21,840
Speaker 1: because they're changing the way they're presenting their financial statements.

683
00:38:21,840 --> 00:38:24,760
Speaker 1: I really want to break out and highlight the traditional

684
00:38:24,760 --> 00:38:29,000
Speaker 1: and internal combustion engine business from their EV business and

685
00:38:29,080 --> 00:38:33,000
Speaker 1: our own. Joel Levington is at that meeting. Joel Levington

686
00:38:33,120 --> 00:38:35,600
Speaker 1: is a global director of Fixed Income Research and to

687
00:38:35,680 --> 00:38:38,880
Speaker 1: see your auto and industrial credit and us at Bloomberg Intelligence,

688
00:38:38,880 --> 00:38:41,359
Speaker 1: and Joel's dialing in from this meeting. So, Joel, three

689
00:38:41,400 --> 00:38:44,960
Speaker 1: billion dollars, that sounds like real money to me. What

690
00:38:45,760 --> 00:38:48,560
Speaker 1: do you make about some of the losses that Ford

691
00:38:48,640 --> 00:38:52,000
Speaker 1: is talking about before they break even in several years. Hey, Paul,

692
00:38:52,040 --> 00:38:54,000
Speaker 1: that might be happier you fee check, but it's a

693
00:38:54,040 --> 00:38:56,399
Speaker 1: lot to me. What I would tell you is that

694
00:38:56,719 --> 00:38:59,000
Speaker 1: I think what people are more concerned about is their

695
00:38:59,080 --> 00:39:01,920
Speaker 1: target of trying to get to eight percent operating margin

696
00:39:02,000 --> 00:39:04,759
Speaker 1: by the end of twenty twenty six, more than where

697
00:39:04,760 --> 00:39:08,840
Speaker 1: they're starting, because that trajectory is really high to scale

698
00:39:08,880 --> 00:39:12,240
Speaker 1: up that much, to get pricing, to get raw material

699
00:39:12,280 --> 00:39:16,879
Speaker 1: cost reduction, and to get the design right on new

700
00:39:16,920 --> 00:39:18,719
Speaker 1: products if you can take a lot of costs out

701
00:39:18,719 --> 00:39:21,279
Speaker 1: of the products itself. So I think that's one of

702
00:39:21,320 --> 00:39:24,120
Speaker 1: the areas of skepticism that was kind of felt in

703
00:39:24,120 --> 00:39:27,920
Speaker 1: the room during the question and answer session. Well, one

704
00:39:27,960 --> 00:39:30,480
Speaker 1: of the issues for a lot of these legacy automakers

705
00:39:30,480 --> 00:39:33,920
Speaker 1: that you simply can't be as cost effective or cost competitive,

706
00:39:33,920 --> 00:39:36,440
Speaker 1: I should say with Tesla, but one of mate Tesla's

707
00:39:36,440 --> 00:39:41,440
Speaker 1: major kind of shining qualities is that their supply chain

708
00:39:41,760 --> 00:39:45,080
Speaker 1: is far more local and far more domesticated. Is that

709
00:39:45,239 --> 00:39:48,520
Speaker 1: something that Forward and some of these other automakers can

710
00:39:49,120 --> 00:39:53,399
Speaker 1: properly address, Critty, That's a great question, and I think

711
00:39:53,400 --> 00:39:56,000
Speaker 1: it's one that I would say yes, but I don't

712
00:39:56,040 --> 00:39:57,880
Speaker 1: know if they are ever going to get to the

713
00:39:58,080 --> 00:40:02,319
Speaker 1: point of matching Tesla in cost or cost capacity, or

714
00:40:02,440 --> 00:40:05,839
Speaker 1: design excellence. I think from those points of view, it

715
00:40:05,880 --> 00:40:08,759
Speaker 1: really makes Tesla of the dominant force in terms of

716
00:40:09,040 --> 00:40:11,919
Speaker 1: how they're thinking about pricing and where they want their

717
00:40:12,000 --> 00:40:14,320
Speaker 1: cars to go, and it certainly will give them a

718
00:40:14,360 --> 00:40:19,279
Speaker 1: competitive Tesla a competitive advantage over traditional linemakers like a

719
00:40:19,480 --> 00:40:23,919
Speaker 1: Board or General Motors for years to come. So, Joe

720
00:40:24,360 --> 00:40:26,520
Speaker 1: three billion dollars in losses this year, did they give

721
00:40:26,719 --> 00:40:29,280
Speaker 1: the street an estimate for when they expect to break

722
00:40:29,280 --> 00:40:33,239
Speaker 1: even on this EV business? Yeah, Paul, they expect. Well.

723
00:40:33,280 --> 00:40:35,719
Speaker 1: They gave a couple of lines of comment on that.

724
00:40:35,760 --> 00:40:39,720
Speaker 1: The first thing was that their first generation of EV products,

725
00:40:39,760 --> 00:40:43,120
Speaker 1: they expect them to be towards break even next year,

726
00:40:43,640 --> 00:40:46,200
Speaker 1: but the business to continue to report losses as they

727
00:40:46,239 --> 00:40:50,640
Speaker 1: invest in Gen two and Gen three technologies. But really

728
00:40:50,719 --> 00:40:53,640
Speaker 1: you're seeking kind of like a hockey stick, having to

729
00:40:53,760 --> 00:40:57,840
Speaker 1: happen somewhere in the twenty five and twenty six time frames.

730
00:40:58,160 --> 00:41:00,359
Speaker 1: I think that draws a lot of skepticism. I would

731
00:41:00,360 --> 00:41:03,240
Speaker 1: also say just a reporting structure itself that they're talking

732
00:41:03,280 --> 00:41:07,640
Speaker 1: about draws skepticism really because it's while the company is

733
00:41:07,680 --> 00:41:10,800
Speaker 1: doing it to create transparency in each of the different

734
00:41:10,840 --> 00:41:13,759
Speaker 1: businesses that it has. By doing that, they're giving up

735
00:41:13,840 --> 00:41:18,160
Speaker 1: the regional breakouts they have been doing it by region,

736
00:41:18,480 --> 00:41:22,759
Speaker 1: and so there's also a loss of transparency when you

737
00:41:22,800 --> 00:41:24,560
Speaker 1: switch over. And I think there are a lot of

738
00:41:25,200 --> 00:41:27,799
Speaker 1: investors just from questions that I take as well as

739
00:41:27,800 --> 00:41:31,239
Speaker 1: analysts just from the questions of the room, that you know,

740
00:41:31,360 --> 00:41:34,120
Speaker 1: don't like to see data that they had for years

741
00:41:34,719 --> 00:41:38,920
Speaker 1: suddenly go away. Well, what about other ways of for

742
00:41:39,400 --> 00:41:42,280
Speaker 1: kind of rewarding shareholders and all Paul loves talk about dividends,

743
00:41:43,000 --> 00:41:44,960
Speaker 1: which I'm about buybacks as well, which a lot of

744
00:41:44,960 --> 00:41:47,680
Speaker 1: companies are suspending all of those kind of sweeteners for

745
00:41:47,719 --> 00:41:51,640
Speaker 1: the investor. Any word on those. They didn't really talk

746
00:41:51,719 --> 00:41:56,200
Speaker 1: today pretty about about shareholder rewards at this point. They

747
00:41:56,200 --> 00:41:59,680
Speaker 1: do have a May twenty second Capital Markets Day where

748
00:41:59,680 --> 00:42:02,160
Speaker 1: I think will get more into that. But I would

749
00:42:02,160 --> 00:42:05,480
Speaker 1: say for a company that is investing heavily basically in

750
00:42:05,480 --> 00:42:08,920
Speaker 1: a startup business and the ed business, to go heavy,

751
00:42:09,040 --> 00:42:13,799
Speaker 1: especially on the dividend side, when you're using extraordinarily high

752
00:42:13,840 --> 00:42:16,719
Speaker 1: amounts of capital expenditures, probably doesn't make a lot of

753
00:42:16,760 --> 00:42:19,840
Speaker 1: sense to you know, like rapidly grow your dividend or

754
00:42:19,920 --> 00:42:22,880
Speaker 1: suddenly use a lot of capital for share of purchases,

755
00:42:22,880 --> 00:42:27,040
Speaker 1: because death financing on an auto is kind of poison

756
00:42:27,800 --> 00:42:32,480
Speaker 1: just given a CIX locality in the business. So I

757
00:42:32,560 --> 00:42:34,600
Speaker 1: guess the issue if I guess them a Ford or

758
00:42:34,640 --> 00:42:39,160
Speaker 1: GM investors, I guess I should I should not have

759
00:42:39,280 --> 00:42:43,640
Speaker 1: expectations that my profit margins can be similar to those

760
00:42:43,680 --> 00:42:46,520
Speaker 1: of Tesla. But I guess why is that? Is that

761
00:42:46,560 --> 00:42:50,640
Speaker 1: just my cost structure is different? Yeah, totally, Paul, You're

762
00:42:50,680 --> 00:42:52,719
Speaker 1: one hundred percent right, because if you think about the

763
00:42:52,800 --> 00:42:59,239
Speaker 1: traditional OEM things like operating multiple businesses or having you know,

764
00:42:59,440 --> 00:43:03,359
Speaker 1: a significant amount of product lineups. Uh, it doesn't really

765
00:43:03,400 --> 00:43:06,640
Speaker 1: fit into the Tesla model. Right. You have four cars

766
00:43:06,760 --> 00:43:09,839
Speaker 1: and you have high scale volumes, and if you look

767
00:43:09,880 --> 00:43:13,560
Speaker 1: inside the Tesla, it's designed so it doesn't have a

768
00:43:13,600 --> 00:43:15,840
Speaker 1: lot of widgets in it. All of that is cost.

769
00:43:16,200 --> 00:43:18,080
Speaker 1: And that's what I mean in terms of design on

770
00:43:18,160 --> 00:43:20,360
Speaker 1: the forward side, Like that's going to need to change

771
00:43:20,680 --> 00:43:23,480
Speaker 1: to be more Tesla like. And that's true for GM

772
00:43:23,520 --> 00:43:26,359
Speaker 1: and every other manufacturer that's going to compete against, UH,

773
00:43:27,280 --> 00:43:29,800
Speaker 1: that's going to compete against Tesla. They're all going to

774
00:43:29,880 --> 00:43:32,759
Speaker 1: have to shift how they develop products. How can they

775
00:43:32,800 --> 00:43:37,080
Speaker 1: make their battery packs smaller and more economical to compete

776
00:43:37,160 --> 00:43:41,680
Speaker 1: more effectively against the major player, which is Tesla. Of course,

777
00:43:41,680 --> 00:43:45,600
Speaker 1: Tesla doesn't have a pens, underfunded pensions and OPEV liabilities

778
00:43:45,680 --> 00:43:49,280
Speaker 1: either that the legacy autos do, which is just another

779
00:43:49,880 --> 00:43:52,879
Speaker 1: burden that that they have to fees, you know, Joel,

780
00:43:52,920 --> 00:43:57,000
Speaker 1: I find it so ironic that finally the auto industry

781
00:43:57,040 --> 00:43:59,520
Speaker 1: has gotten to the point where they can maximize profit

782
00:43:59,640 --> 00:44:03,840
Speaker 1: on a per unit basis on industrial internal combustion engines,

783
00:44:04,080 --> 00:44:07,879
Speaker 1: only producing fifteen million cars, minimizing incentives. It's never been

784
00:44:07,920 --> 00:44:11,120
Speaker 1: more profitable to make a traditional internal combustion engine car,

785
00:44:11,640 --> 00:44:14,040
Speaker 1: just at the time when the whole industry is switching

786
00:44:14,080 --> 00:44:16,120
Speaker 1: over to EV. It's it's ironic, and not in a

787
00:44:16,120 --> 00:44:19,799
Speaker 1: good way. Yeah. No, you're totally right. And I think

788
00:44:19,800 --> 00:44:22,320
Speaker 1: which you'll see from all of the autos, all the

789
00:44:22,840 --> 00:44:25,600
Speaker 1: main autos, whether they're European or US, is that this

790
00:44:25,719 --> 00:44:29,080
Speaker 1: mixed shift is really going to constrain their ability to

791
00:44:29,120 --> 00:44:31,920
Speaker 1: further grow their profitability at least for the next few years.

792
00:44:32,200 --> 00:44:34,440
Speaker 1: It's going to be a challenge to see that margin

793
00:44:34,520 --> 00:44:37,160
Speaker 1: go higher, putting aside any cyclical pressure that you're going

794
00:44:37,239 --> 00:44:41,480
Speaker 1: to feel from what feels like a recession. Maybe not

795
00:44:41,520 --> 00:44:44,160
Speaker 1: too far ahead of us. Hey, Joel, thirty seconds left.

796
00:44:44,200 --> 00:44:46,600
Speaker 1: Your credit analysts, how do you like the bonds here

797
00:44:46,640 --> 00:44:49,760
Speaker 1: at Ford? How are they looking? Yeah, well, the bonds

798
00:44:49,800 --> 00:44:53,160
Speaker 1: I'm actually you know, we don't have a biseller hole,

799
00:44:53,280 --> 00:44:55,719
Speaker 1: but we do have a green versus yellow or red

800
00:44:55,920 --> 00:44:59,200
Speaker 1: on the bonds. And really, to me, they're a combination

801
00:44:59,280 --> 00:45:02,799
Speaker 1: of defenses, highly liquid bonds with a company that wants

802
00:45:02,800 --> 00:45:04,880
Speaker 1: to get back to investment greed, but that none of

803
00:45:04,880 --> 00:45:07,799
Speaker 1: that is priced into the bonds right now. I think

804
00:45:07,800 --> 00:45:10,000
Speaker 1: that's something that they could achieve within the next two

805
00:45:10,080 --> 00:45:13,359
Speaker 1: years and maybe even the next eighteen months. So if

806
00:45:13,440 --> 00:45:16,520
Speaker 1: something like that happens, there is the potencil see the

807
00:45:16,600 --> 00:45:19,640
Speaker 1: bond tighten further right, All right, Joel, Great stuff, Really

808
00:45:19,640 --> 00:45:22,680
Speaker 1: appreciated Joe Levington. He's a global director Fixed income Research,

809
00:45:23,000 --> 00:45:26,480
Speaker 1: senior Auto and industrial credit analyst at Bloomberg Intelligence. You're

810
00:45:26,520 --> 00:45:29,920
Speaker 1: listening to the tape cans are live program Bloomberg Markets

811
00:45:30,000 --> 00:45:33,359
Speaker 1: weekdays at ten am Eastern on Bloomberg Radio, the tune

812
00:45:33,400 --> 00:45:36,319
Speaker 1: in app Bloomberg dot Com. And the Bloomberg Business app.

813
00:45:36,400 --> 00:45:39,200
Speaker 1: You can also listen live on Amazon Alexa from our

814
00:45:39,239 --> 00:45:43,240
Speaker 1: flagship New York station. Just say Alexa, play Bloomberg eleven

815
00:45:43,360 --> 00:45:48,120
Speaker 1: thirty smooths app on Apple Today. Apple to spend one

816
00:45:48,280 --> 00:45:51,799
Speaker 1: billion dollars a year on films to break into cinemas.

817
00:45:52,719 --> 00:45:56,360
Speaker 1: That's interesting. And then Apple considers bidding for English football

818
00:45:56,440 --> 00:46:00,279
Speaker 1: streaming rights. That's interesting because that's big bucks. Does this

819
00:46:00,320 --> 00:46:02,440
Speaker 1: mean for Apple they started to do a little bit

820
00:46:02,480 --> 00:46:05,200
Speaker 1: more than just dip their toe in the content business.

821
00:46:05,480 --> 00:46:07,840
Speaker 1: Let's check in with an expert or in house expert.

822
00:46:07,880 --> 00:46:12,280
Speaker 1: Githa Ranganathan is an analysts Senior analyst at Bloomberg Intelligence

823
00:46:12,360 --> 00:46:16,040
Speaker 1: covering global media. So, Gita, you and I have seen

824
00:46:16,080 --> 00:46:18,640
Speaker 1: Apple kind of dip its toe from time to time

825
00:46:18,680 --> 00:46:22,720
Speaker 1: into programming, even into sports programming. When you see Apple

826
00:46:22,840 --> 00:46:24,920
Speaker 1: on this one billion dollars a year to break into

827
00:46:25,400 --> 00:46:29,200
Speaker 1: into the cinemas, what does that tell you? They definitely

828
00:46:29,680 --> 00:46:32,719
Speaker 1: are looking to be taken much more seriously. I think Paul,

829
00:46:32,840 --> 00:46:35,600
Speaker 1: both in Hollywood and in the streaming world. So you know,

830
00:46:35,640 --> 00:46:38,399
Speaker 1: Apple obviously has made its big streaming four rate. It's

831
00:46:38,440 --> 00:46:41,480
Speaker 1: been out there now for years with its product Apple TV. Plus,

832
00:46:42,840 --> 00:46:44,960
Speaker 1: but I don't think they've really made a big dent

833
00:46:45,080 --> 00:46:47,480
Speaker 1: in terms of number of subscribers, right they probably they

834
00:46:47,480 --> 00:46:50,880
Speaker 1: haven't actually officially disclosed any numbers, but they have probably

835
00:46:50,920 --> 00:46:54,600
Speaker 1: about twenty two forty million subscribers. Those are the estimates.

836
00:46:54,880 --> 00:46:57,239
Speaker 1: You compare that to the global leader Netflix two hundred

837
00:46:57,239 --> 00:46:59,520
Speaker 1: and thirty million subscribers, or even a Disney Plus which

838
00:46:59,520 --> 00:47:02,480
Speaker 1: has a hundred and sixty two million, So they are

839
00:47:02,520 --> 00:47:04,520
Speaker 1: they obviously have a long way to go in terms

840
00:47:04,560 --> 00:47:07,040
Speaker 1: of scale. So I think what they're really looking to

841
00:47:07,040 --> 00:47:09,399
Speaker 1: do here is kind of just double down in terms

842
00:47:09,440 --> 00:47:11,680
Speaker 1: of their commitment to media, in terms of their commitment

843
00:47:11,680 --> 00:47:13,799
Speaker 1: to content. Remember this is pocket change for Apple. I

844
00:47:13,840 --> 00:47:16,920
Speaker 1: mean they have over one hundred and sixty five billion

845
00:47:16,920 --> 00:47:19,279
Speaker 1: dollars just in cash and create about you know, one

846
00:47:19,320 --> 00:47:22,200
Speaker 1: hundred and one hundred billion in annual free cash flow.

847
00:47:22,960 --> 00:47:24,759
Speaker 1: But they're really looking, I think, to be taken much

848
00:47:24,800 --> 00:47:28,919
Speaker 1: more seriously. And Gita, I think it's really interesting because

849
00:47:28,920 --> 00:47:31,120
Speaker 1: what I think of, especially in the pandemic, and how

850
00:47:31,200 --> 00:47:33,800
Speaker 1: much pressures and you know this well, Paul, the cinemas

851
00:47:33,840 --> 00:47:35,800
Speaker 1: that went through and then you think of Sale the

852
00:47:35,880 --> 00:47:39,040
Speaker 1: Top Gun last summer, right, that movie grossing over a

853
00:47:39,120 --> 00:47:41,719
Speaker 1: billion dollars second best. What are you looking at those

854
00:47:41,719 --> 00:47:45,160
Speaker 1: sales behind Avatar last year? But Kita, when you're looking

855
00:47:45,200 --> 00:47:49,439
Speaker 1: at what Apple is doing here, what exactly are they

856
00:47:49,520 --> 00:47:52,279
Speaker 1: seeing And do you think that they're expecting that we're

857
00:47:52,280 --> 00:47:56,120
Speaker 1: going to see any type of full recovery here after

858
00:47:56,160 --> 00:48:00,640
Speaker 1: all the pressure that the cinemas went through during the pandemic. Yeah,

859
00:48:00,680 --> 00:48:02,640
Speaker 1: that's a great question, and that's something that we've kind

860
00:48:02,640 --> 00:48:05,960
Speaker 1: of been grappling with. You know, this questions just been

861
00:48:05,960 --> 00:48:09,040
Speaker 1: this lingering fear about whether the box office will ever

862
00:48:09,200 --> 00:48:11,520
Speaker 1: go back to its glory days. And really the magic

863
00:48:11,600 --> 00:48:14,200
Speaker 1: number that we're looking here in the US is, you know,

864
00:48:14,239 --> 00:48:17,680
Speaker 1: eleven billion dollars. So last year we made about seven

865
00:48:17,719 --> 00:48:21,280
Speaker 1: point four billion, so still kind of thirty five percent

866
00:48:21,400 --> 00:48:24,040
Speaker 1: short of that number. This year, it looks like we're

867
00:48:24,040 --> 00:48:26,319
Speaker 1: heading to about eight and a half billion, so, you know,

868
00:48:26,360 --> 00:48:28,560
Speaker 1: slightly better than last year, but still again not at

869
00:48:28,600 --> 00:48:32,120
Speaker 1: that mark. And really there's so many factors at play here.

870
00:48:32,160 --> 00:48:34,520
Speaker 1: I mean, one of the things of Jess and Paul

871
00:48:34,560 --> 00:48:37,640
Speaker 1: has been that, you know, there hasn't really been enough product.

872
00:48:37,920 --> 00:48:39,960
Speaker 1: I mean, we've seen some of these streaming services kind

873
00:48:40,000 --> 00:48:43,040
Speaker 1: of push a lot of their titles directly to their

874
00:48:43,080 --> 00:48:45,640
Speaker 1: streaming services, so that's been one thing. And then the

875
00:48:45,719 --> 00:48:49,120
Speaker 1: COVID you know, pandemic obviously caused a lot of production delays.

876
00:48:49,120 --> 00:48:51,280
Speaker 1: It takes about two years in general to make a movie.

877
00:48:51,760 --> 00:48:54,080
Speaker 1: Obviously production was completely shut down, so we're kind of

878
00:48:54,080 --> 00:48:57,799
Speaker 1: seeing a lot of these releases pushed out. And so

879
00:48:57,880 --> 00:49:00,720
Speaker 1: with Apple kind of making this commitment, kind of following

880
00:49:00,719 --> 00:49:03,600
Speaker 1: in the footsteps of Amazon, I think it really is

881
00:49:03,600 --> 00:49:06,320
Speaker 1: a big vote of confidence just for the theatrical model

882
00:49:06,840 --> 00:49:09,080
Speaker 1: and for box office in general. I'm not sure I

883
00:49:09,120 --> 00:49:11,040
Speaker 1: can answer your question on whether they can make a

884
00:49:11,080 --> 00:49:15,720
Speaker 1: full recovery, but I think, you know, we're definitely inching

885
00:49:15,760 --> 00:49:17,840
Speaker 1: closer to that eleven billion mark just kind of with

886
00:49:17,920 --> 00:49:22,000
Speaker 1: this commitment. So, I mean, Keith, when I see this

887
00:49:22,040 --> 00:49:25,600
Speaker 1: story about Apple wanted to release films into theaters, I

888
00:49:25,640 --> 00:49:29,440
Speaker 1: think they want to be eligible for the Academy Awards.

889
00:49:29,520 --> 00:49:32,120
Speaker 1: I think they're looking for, you know, getting that pad

890
00:49:32,160 --> 00:49:35,120
Speaker 1: on the back from Hollywood. It might too cynical there,

891
00:49:35,840 --> 00:49:38,359
Speaker 1: not at all. I think you're absolutely right. In fact,

892
00:49:38,520 --> 00:49:42,040
Speaker 1: they actually did one did win the Best Picture Oscar,

893
00:49:43,400 --> 00:49:46,359
Speaker 1: while they go with quota yea, you know, so they

894
00:49:46,440 --> 00:49:51,120
Speaker 1: have kind of got some critical acclaim. They're obviously, you know,

895
00:49:51,239 --> 00:49:54,600
Speaker 1: definitely they want to kind of go after, you know,

896
00:49:54,800 --> 00:49:58,480
Speaker 1: the awards. You're absolutely right, But I think they're also

897
00:49:58,560 --> 00:50:00,600
Speaker 1: kind of trying to see if they can generate box

898
00:50:00,640 --> 00:50:02,239
Speaker 1: office because if you look at Quota, yes, it did

899
00:50:02,320 --> 00:50:04,560
Speaker 1: very well in terms of critical acclaim in terms of awards,

900
00:50:04,760 --> 00:50:06,960
Speaker 1: but it only generated about two million for them in

901
00:50:07,000 --> 00:50:09,279
Speaker 1: the box office. And so I think when they make

902
00:50:09,320 --> 00:50:12,040
Speaker 1: a bigger commitment and a bigger splash, I think that

903
00:50:12,480 --> 00:50:15,239
Speaker 1: generates some additional revenue for them as well. So, Keith,

904
00:50:15,320 --> 00:50:17,440
Speaker 1: let's step back just a little bit. Media in general.

905
00:50:18,360 --> 00:50:21,759
Speaker 1: You know, the industry is really doing a multi year

906
00:50:21,800 --> 00:50:25,799
Speaker 1: pivot from the traditional distribution model of cable TV and satellite,

907
00:50:25,840 --> 00:50:27,600
Speaker 1: where we all knew what the economics were and they

908
00:50:27,600 --> 00:50:32,200
Speaker 1: were pretty darn good, to now a streaming dependent model

909
00:50:32,239 --> 00:50:35,520
Speaker 1: where a we don't know the economics really and kind

910
00:50:35,520 --> 00:50:36,920
Speaker 1: of what we do know it doesn't seem to be

911
00:50:36,960 --> 00:50:40,360
Speaker 1: as good. What are investors doing? Do you even get

912
00:50:40,400 --> 00:50:42,839
Speaker 1: your phone calls picked up either? Does anybody even want

913
00:50:42,840 --> 00:50:45,760
Speaker 1: to ever meet with you to talk about media stocks?

914
00:50:47,320 --> 00:50:50,160
Speaker 1: They are they have fallen a little bit out of favor.

915
00:50:50,239 --> 00:50:53,160
Speaker 1: I do agree with you, Paul on that, but I think,

916
00:50:53,320 --> 00:50:55,439
Speaker 1: you know, most of the media companies now have kind

917
00:50:55,440 --> 00:50:58,520
Speaker 1: of realized that they're readjusting their strategies and kind of

918
00:50:58,560 --> 00:51:01,160
Speaker 1: cost rationalization has kind of become this big focus, not

919
00:51:01,200 --> 00:51:02,759
Speaker 1: just in media, but I think in all of tech,

920
00:51:03,480 --> 00:51:06,239
Speaker 1: and definitely I think Netflix has realized that, you know,

921
00:51:06,320 --> 00:51:09,040
Speaker 1: Disney has realized that there's a huge cost cutting program

922
00:51:09,080 --> 00:51:11,160
Speaker 1: going on to Disney right now. So all of that

923
00:51:11,320 --> 00:51:13,759
Speaker 1: is kind of now working its way into kind of

924
00:51:13,760 --> 00:51:16,160
Speaker 1: the streaming bottom line. And obviously we're seeing Netflix kind

925
00:51:16,160 --> 00:51:17,920
Speaker 1: of generate pretty healthy profits when it comes to the

926
00:51:17,920 --> 00:51:21,239
Speaker 1: streaming business. You know, Disney is still a few years out,

927
00:51:21,280 --> 00:51:24,879
Speaker 1: but I think they are all kind of definitely normalizing

928
00:51:25,440 --> 00:51:28,759
Speaker 1: the content budgets for sure, and then there's not this

929
00:51:28,920 --> 00:51:32,840
Speaker 1: mad chase for subscribers, you know, at any cost anymore.

930
00:51:33,520 --> 00:51:35,040
Speaker 1: So I think we're going to see a little bit

931
00:51:35,040 --> 00:51:36,719
Speaker 1: of a shakeout, but I think in one to two

932
00:51:36,800 --> 00:51:39,200
Speaker 1: years we are going to see a much more clear

933
00:51:39,280 --> 00:51:44,600
Speaker 1: path to profitability. So I wouldn't count out media just yet.

934
00:51:45,080 --> 00:51:47,080
Speaker 1: On the flip side of that, I was curious your

935
00:51:47,080 --> 00:51:49,880
Speaker 1: thoughts on whether we should expect to see more technology

936
00:51:49,920 --> 00:51:52,440
Speaker 1: and growth companies. When we're thinking about Apple as well

937
00:51:52,480 --> 00:51:55,280
Speaker 1: as Amazon, like you were mentioning if more will invest

938
00:51:55,320 --> 00:51:59,319
Speaker 1: to produce movies in cinemas. Oh absolutely, I think just

939
00:51:59,360 --> 00:52:01,120
Speaker 1: as we see. I mean, this is the perfect time

940
00:52:01,200 --> 00:52:03,759
Speaker 1: for Apple and Amazon to kind of double down. They

941
00:52:03,840 --> 00:52:06,560
Speaker 1: know that legacy media companies are pulling back, they know

942
00:52:06,640 --> 00:52:10,239
Speaker 1: that they're very cost conscious. Financial discipline is you know

943
00:52:10,239 --> 00:52:12,320
Speaker 1: the key mantra right now at all of these companies.

944
00:52:12,360 --> 00:52:13,880
Speaker 1: So this is really the time for them to go

945
00:52:13,960 --> 00:52:17,959
Speaker 1: after the movies, to go after sports rights, and that

946
00:52:18,080 --> 00:52:21,799
Speaker 1: they're doing exactly that. What's the latest on Netflix here?

947
00:52:21,960 --> 00:52:23,880
Speaker 1: I see the stock is a big mover up today.

948
00:52:24,320 --> 00:52:27,000
Speaker 1: Just pointed that out to me. What's is generally the

949
00:52:27,040 --> 00:52:30,200
Speaker 1: call on Netflix these days? So again with Netflix, it's

950
00:52:30,200 --> 00:52:31,760
Speaker 1: going to be a little bit of a choppy outlook

951
00:52:31,760 --> 00:52:34,720
Speaker 1: when it comes to subscribers. They're no longer issuing subscriber guidance.

952
00:52:34,880 --> 00:52:36,880
Speaker 1: So the big thing that we are waiting for with

953
00:52:37,040 --> 00:52:42,400
Speaker 1: Netflix is really this whole new password sharing crackdown that

954
00:52:42,520 --> 00:52:45,399
Speaker 1: is supposed to debut in the US in the next

955
00:52:45,400 --> 00:52:48,640
Speaker 1: few months or so. And really what then that does

956
00:52:48,840 --> 00:52:50,600
Speaker 1: is well, they might buy something, there might be some

957
00:52:50,920 --> 00:52:54,600
Speaker 1: you know, initial I think resistance from from subscribers. I

958
00:52:54,640 --> 00:52:56,200
Speaker 1: think at the end of the day, what we're getting

959
00:52:56,239 --> 00:52:59,040
Speaker 1: down to is that our poo number and really see

960
00:52:59,520 --> 00:53:02,120
Speaker 1: a react ration in revenue growth. And I think that's

961
00:53:02,160 --> 00:53:06,479
Speaker 1: really where the narrative is kind of heading. So again,

962
00:53:06,560 --> 00:53:09,000
Speaker 1: a little bit of subscriber shopping is but I think

963
00:53:09,000 --> 00:53:11,640
Speaker 1: Matt Nedwig going to see good revenue reacceleration towards the

964
00:53:11,719 --> 00:53:13,640
Speaker 1: end of the year. All right, Keithan, thank you so much.

965
00:53:13,640 --> 00:53:16,160
Speaker 1: I always appreciate getting the update with you. I think

966
00:53:16,160 --> 00:53:17,880
Speaker 1: I've cut off my kids off my camp, but I

967
00:53:17,880 --> 00:53:20,680
Speaker 1: don't know. I have a sneaky suspicion that they're still

968
00:53:20,960 --> 00:53:23,640
Speaker 1: shamming on my trying to get strict to fall. I

969
00:53:23,760 --> 00:53:26,240
Speaker 1: know I'm trying to help out Netflix. Here Keithan Ranganath,

970
00:53:26,320 --> 00:53:28,760
Speaker 1: and she covers all things media. She's a senior analyst

971
00:53:29,080 --> 00:53:31,000
Speaker 1: at Bloomberg. Can tell he's one of the best on

972
00:53:31,040 --> 00:53:34,040
Speaker 1: the street on the media space. I recommend reading her

973
00:53:34,080 --> 00:53:37,720
Speaker 1: at BET I go on the terminal. Thanks for listening

974
00:53:37,719 --> 00:53:41,200
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen

975
00:53:41,239 --> 00:53:45,520
Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer.

976
00:53:45,880 --> 00:53:49,200
Speaker 1: I'm Matt Miller I'm on Twitter at Matt Miller nineteen

977
00:53:49,280 --> 00:53:51,960
Speaker 1: seventy three and on Fall Sweeney, I'm on Twitter at

978
00:53:51,960 --> 00:53:54,839
Speaker 1: pt Sweeney. Before the podcast, you can always catch us

979
00:53:54,880 --> 00:53:56,279
Speaker 1: worldwide at Bloomberg Radio