1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma wits. Each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money. Whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,959 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:22,160 Speaker 1: at Bloomberg dot com. Disney reports earnings after the close 8 00:00:22,200 --> 00:00:25,639 Speaker 1: and one of the most fascinating aspects of the US 9 00:00:25,720 --> 00:00:27,800 Speaker 1: media business global media businesses. How a lot of these 10 00:00:27,800 --> 00:00:31,560 Speaker 1: traditional media companies are trying to pivot to more technology 11 00:00:31,640 --> 00:00:35,199 Speaker 1: driven streaming companies, trying to get that valuation from Netflix. 12 00:00:35,200 --> 00:00:37,680 Speaker 1: And there's one banker out there who's making it all 13 00:00:37,840 --> 00:00:42,519 Speaker 1: happen for the technology side of the media business, and 14 00:00:42,520 --> 00:00:45,199 Speaker 1: that's Terry Kwaja, founder and CEO of Luma Partners Investment 15 00:00:45,200 --> 00:00:48,239 Speaker 1: banking based here in New York. I used to work 16 00:00:48,240 --> 00:00:50,120 Speaker 1: with Terry back in the day at Solomon Brothers and 17 00:00:50,400 --> 00:00:52,600 Speaker 1: First Boston when he was putting all the traditional media 18 00:00:52,640 --> 00:00:55,200 Speaker 1: companies together back in the day. Now he's kind of 19 00:00:55,200 --> 00:00:59,320 Speaker 1: working with the new wave of technology driven media companies. 20 00:00:59,320 --> 00:01:01,040 Speaker 1: So Terry so much for joining us here in our 21 00:01:01,040 --> 00:01:04,120 Speaker 1: Bloomberg Interactive Brooker Studio. So again, let's start with a 22 00:01:04,160 --> 00:01:07,959 Speaker 1: company like a Disney. These companies are really trying to 23 00:01:08,040 --> 00:01:11,959 Speaker 1: transform themselves from the old model based upon advertising and 24 00:01:12,240 --> 00:01:16,640 Speaker 1: subscription revenue to streaming. Can they do it? Yeah? Great 25 00:01:16,680 --> 00:01:20,160 Speaker 1: to be with you, Paul and Lisa. So here we 26 00:01:20,240 --> 00:01:22,840 Speaker 1: are in the middle of what is one of the 27 00:01:22,959 --> 00:01:26,280 Speaker 1: largest industries. Right there's over a hundred billion dollars of 28 00:01:26,319 --> 00:01:30,720 Speaker 1: advertising and probably another hundred and fifty billion and paid 29 00:01:30,760 --> 00:01:34,840 Speaker 1: dollars that support the sort of TV slash you know, 30 00:01:35,040 --> 00:01:39,480 Speaker 1: video media channel. And all of a sudden, these massive 31 00:01:39,560 --> 00:01:46,319 Speaker 1: companies with enormous market caps you know the names Comcast, Disney, Charter, Uh, etcetera, 32 00:01:46,600 --> 00:01:51,960 Speaker 1: all have a crisis beyond existential crisis as they effectively 33 00:01:52,000 --> 00:01:55,200 Speaker 1: have to swap out their engines while keeping the plane 34 00:01:55,360 --> 00:01:58,000 Speaker 1: in the air. Right, they got to support those market 35 00:01:58,040 --> 00:02:01,960 Speaker 1: caps with a fundamental change not only in the technology 36 00:02:02,000 --> 00:02:05,680 Speaker 1: of the delivery of their media and advertising, but also 37 00:02:06,160 --> 00:02:10,560 Speaker 1: the channel in which consumers have chosen to consume their content. Right, 38 00:02:10,600 --> 00:02:13,480 Speaker 1: So the idea being that they're moving online, and the 39 00:02:13,560 --> 00:02:16,200 Speaker 1: question is with something like what Disney is doing so far, 40 00:02:16,639 --> 00:02:20,040 Speaker 1: they've been rewarded more than other companies for investing even 41 00:02:20,080 --> 00:02:22,840 Speaker 1: though it's not going to make money. How long can 42 00:02:22,880 --> 00:02:25,400 Speaker 1: that continue at a time when there are big questions 43 00:02:25,480 --> 00:02:28,399 Speaker 1: about how much subscribers are willing to pay and how 44 00:02:28,400 --> 00:02:32,480 Speaker 1: many services they're willing to subscribe to. So, look, Lisa, 45 00:02:32,520 --> 00:02:34,640 Speaker 1: I think this is early days. So I think all 46 00:02:34,760 --> 00:02:40,600 Speaker 1: the people looking at the immediate subscriber uh new subscribers 47 00:02:40,600 --> 00:02:44,760 Speaker 1: and the subscriber churn numbers of say Disney's uh Disney 48 00:02:44,760 --> 00:02:48,280 Speaker 1: plus App, I think it's way too early to be 49 00:02:48,400 --> 00:02:51,359 Speaker 1: looking at that. I don't think we're there in terms of, 50 00:02:51,639 --> 00:02:54,920 Speaker 1: you know, the value proposition. There are still content that 51 00:02:54,960 --> 00:02:57,880 Speaker 1: hasn't gone exclusive onto Disney. So there's still is some 52 00:02:58,200 --> 00:03:01,680 Speaker 1: you know, distribution rights on other platforms. We can't fully 53 00:03:01,760 --> 00:03:04,040 Speaker 1: judge it yet. And let's face it, we're still in 54 00:03:04,080 --> 00:03:08,840 Speaker 1: the early days where they're providing subscription a cross promotions. 55 00:03:09,000 --> 00:03:10,640 Speaker 1: It's it's kind of free, right, you know, if you 56 00:03:10,880 --> 00:03:14,320 Speaker 1: buy an iPhone, you get Apple TV if you you know, 57 00:03:14,360 --> 00:03:18,160 Speaker 1: Disney has cross promotions with Verizon. So we're in the 58 00:03:18,280 --> 00:03:24,800 Speaker 1: early fanfare days of um of streaming, the streaming wars. 59 00:03:24,800 --> 00:03:27,040 Speaker 1: In fact, you know, we're at the peak of the 60 00:03:27,080 --> 00:03:29,760 Speaker 1: streaming wars, and we will be at the peak for 61 00:03:29,800 --> 00:03:31,760 Speaker 1: the rest of the year. Think about it. When large 62 00:03:31,800 --> 00:03:35,600 Speaker 1: companies have an existential threat and and a rationale to 63 00:03:35,640 --> 00:03:38,600 Speaker 1: get a consumer product out, they market the but Jesus 64 00:03:38,640 --> 00:03:42,400 Speaker 1: out of it. Just remember last fall when Disney Plus 65 00:03:42,480 --> 00:03:45,640 Speaker 1: was announced and Apple TV was announced. And this year 66 00:03:45,680 --> 00:03:50,320 Speaker 1: we've got um NBC with Peacock, we have um HBO 67 00:03:50,400 --> 00:03:52,440 Speaker 1: A t T with HBO Max, and we've got Quimby. 68 00:03:52,520 --> 00:03:54,880 Speaker 1: So we are going to be in peak streaming wars 69 00:03:55,080 --> 00:03:58,480 Speaker 1: all through and beyond. So, Terry, you spent a lot 70 00:03:58,520 --> 00:04:01,600 Speaker 1: of time with the avert hasing technology companies, companies that 71 00:04:01,680 --> 00:04:06,040 Speaker 1: make the digital advertising marketplace work. They interacted obviously, that's 72 00:04:06,040 --> 00:04:09,280 Speaker 1: really the engines of the big advertising giants like Google, 73 00:04:09,400 --> 00:04:13,240 Speaker 1: like Facebook, like Amazon. Do you expect the technology companies, 74 00:04:13,240 --> 00:04:16,600 Speaker 1: those big technology companies, uh that have all that cash, 75 00:04:16,680 --> 00:04:19,760 Speaker 1: all that free cash flow, to maybe get into the 76 00:04:19,800 --> 00:04:23,640 Speaker 1: media business itself, into the content business in a bigger way. Well, 77 00:04:24,279 --> 00:04:27,360 Speaker 1: I believe they're gonna play a major role. And listen, 78 00:04:27,640 --> 00:04:32,000 Speaker 1: if you set this up as inevitably, it is a dichotomy, 79 00:04:32,160 --> 00:04:34,600 Speaker 1: a war where it is called streaming wars after all, Right, 80 00:04:34,680 --> 00:04:38,359 Speaker 1: it's a war, not even just amongst the streaming choices, 81 00:04:38,440 --> 00:04:43,560 Speaker 1: but between big media and big tech. And and big 82 00:04:43,560 --> 00:04:46,280 Speaker 1: tech has four major advantages. They've got, as you mentioned, 83 00:04:46,520 --> 00:04:49,360 Speaker 1: market cap and cash on the balance sheet up the wazoo. 84 00:04:49,440 --> 00:04:53,320 Speaker 1: They I mean, they can they vastly outscale the big 85 00:04:53,360 --> 00:04:55,359 Speaker 1: media companies, and the big media companies are trying to 86 00:04:55,400 --> 00:04:57,600 Speaker 1: catch up by doing all these you know, traditional mergers 87 00:04:57,640 --> 00:05:00,080 Speaker 1: just to garner enough scale. But even still they you 88 00:05:00,200 --> 00:05:04,240 Speaker 1: not compare to big tech. Second is they've got Ui downpat. 89 00:05:04,279 --> 00:05:08,120 Speaker 1: I mean, your user experience on Apple products or on 90 00:05:08,240 --> 00:05:12,440 Speaker 1: Netflix is just so much different than your average cable company. Um, 91 00:05:12,480 --> 00:05:14,960 Speaker 1: even the more advanced ones like Comcast x one, it 92 00:05:15,080 --> 00:05:17,720 Speaker 1: just it just doesn't compare. They they've got those kind 93 00:05:17,720 --> 00:05:22,040 Speaker 1: of chops. Um. So, there are just so many elements 94 00:05:22,120 --> 00:05:24,279 Speaker 1: why Big tech. And by the way, they have the 95 00:05:24,320 --> 00:05:28,000 Speaker 1: technology at their court. They were born digital. So the 96 00:05:28,040 --> 00:05:30,960 Speaker 1: big media companies, and this is the part where I 97 00:05:30,960 --> 00:05:32,560 Speaker 1: put up my hand and say, thank you very much, 98 00:05:33,160 --> 00:05:37,360 Speaker 1: need technology. There's not technology native to them. They have 99 00:05:37,440 --> 00:05:41,440 Speaker 1: to be able to avail their content across the channels 100 00:05:41,480 --> 00:05:44,200 Speaker 1: that consumers want, which is O, T, T and digital. 101 00:05:44,240 --> 00:05:47,440 Speaker 1: And to do that right there's so much complication. There's 102 00:05:47,440 --> 00:05:49,640 Speaker 1: a loom escape, which is a diagram of all the 103 00:05:49,640 --> 00:05:52,000 Speaker 1: players in the space, you know, because let's think about it, 104 00:05:52,120 --> 00:05:55,120 Speaker 1: right across all these channels of linear addressable O, T, 105 00:05:55,120 --> 00:05:57,200 Speaker 1: T and digital. I'm getting a headache just talking about it. 106 00:05:57,440 --> 00:06:00,719 Speaker 1: You know, there's different parameters and identifying who a person is, 107 00:06:00,720 --> 00:06:03,920 Speaker 1: there's different technologies to deliver the ads. It is just 108 00:06:04,200 --> 00:06:08,240 Speaker 1: a whole bunch of conflation that needs to be sorted out. Terry, 109 00:06:08,279 --> 00:06:11,640 Speaker 1: I'm struck by your expertise being absolutely perfect on a 110 00:06:11,720 --> 00:06:14,960 Speaker 1: daylight today for a variety of reasons. You specialize in 111 00:06:15,040 --> 00:06:18,920 Speaker 1: coming up with valuations of what companies may become and 112 00:06:18,960 --> 00:06:21,520 Speaker 1: as they become the future, and I would love to 113 00:06:21,560 --> 00:06:25,400 Speaker 1: get your perspective on Tesla because right now nobody can 114 00:06:25,440 --> 00:06:29,719 Speaker 1: justify that the valuation based on current fact. How does 115 00:06:29,800 --> 00:06:33,680 Speaker 1: one go about understanding value at a time of transformation? 116 00:06:33,720 --> 00:06:37,280 Speaker 1: And a company that harbor is at least a dream, 117 00:06:37,320 --> 00:06:41,159 Speaker 1: if not a reality. So what what? What you're referring to, Lisa, 118 00:06:41,440 --> 00:06:48,880 Speaker 1: is the complex art of valuing innovation. And I call 119 00:06:48,960 --> 00:06:53,880 Speaker 1: it art because because for most mature companies with demonstrable 120 00:06:53,960 --> 00:06:56,680 Speaker 1: financials and revenue and cash flow that we can all 121 00:06:56,680 --> 00:07:00,479 Speaker 1: analyze and compared to other similar companies. Most of the 122 00:07:00,560 --> 00:07:02,720 Speaker 1: valuation work we do in those kind of companies I 123 00:07:02,760 --> 00:07:05,840 Speaker 1: would refer to put in the category of science, right, 124 00:07:06,000 --> 00:07:09,720 Speaker 1: the science of its math. It's comparables and plus or minus. 125 00:07:09,720 --> 00:07:13,360 Speaker 1: You know, you're kind of gonna get it right or 126 00:07:13,640 --> 00:07:17,840 Speaker 1: right ish when you start talking about the kind of 127 00:07:17,880 --> 00:07:20,120 Speaker 1: companies that actually that I deal with, that you know, 128 00:07:20,160 --> 00:07:22,600 Speaker 1: get sold for like twenty times revenue, And people say 129 00:07:22,600 --> 00:07:25,240 Speaker 1: to me, why did so and so pay twenty times 130 00:07:25,280 --> 00:07:27,760 Speaker 1: revenue for that business? And my answer is because they 131 00:07:27,800 --> 00:07:30,840 Speaker 1: didn't twenty times revenue. That it's not as though they 132 00:07:30,880 --> 00:07:33,840 Speaker 1: did it as a multiplier. To get to the valuation. 133 00:07:34,480 --> 00:07:37,400 Speaker 1: We started with what is this worth to you figure 134 00:07:37,400 --> 00:07:41,240 Speaker 1: out the valuation, and then it's it's division to find 135 00:07:41,280 --> 00:07:43,680 Speaker 1: out what the multiple was. So when you look at 136 00:07:44,000 --> 00:07:47,160 Speaker 1: a company like Tesla, I mean, it's basically the future. 137 00:07:47,160 --> 00:07:49,320 Speaker 1: How do you value the future? I mean, if you 138 00:07:49,360 --> 00:07:52,360 Speaker 1: were to ask people, you know, rational people, you know, 139 00:07:52,680 --> 00:07:56,239 Speaker 1: are we moving towards an e you know, an electronic future? 140 00:07:56,320 --> 00:07:59,200 Speaker 1: The answers yes. So it's just hard to nail down. 141 00:07:59,240 --> 00:08:01,520 Speaker 1: It's not science. Terry Kawaja. We've got to have you 142 00:08:01,560 --> 00:08:04,560 Speaker 1: back and talking energy. I think about talking about this topic. 143 00:08:04,760 --> 00:08:07,600 Speaker 1: I honestly it's it's such a pleasure having you from 144 00:08:07,640 --> 00:08:10,520 Speaker 1: every perspective. Terry Kawaja, founder and chief executive officer of 145 00:08:10,600 --> 00:08:13,600 Speaker 1: Luma Partners Investment Banking in New York, talking about the 146 00:08:13,600 --> 00:08:28,120 Speaker 1: intersection of big tech, big media, and big dreams at 147 00:08:28,120 --> 00:08:31,040 Speaker 1: a time of the everything rally, and perhaps we're still 148 00:08:31,080 --> 00:08:34,439 Speaker 1: in goldilocks territory. Perhaps we're at the very end of it. 149 00:08:34,760 --> 00:08:37,559 Speaker 1: There is a question of whether to buy junk bonds. 150 00:08:37,559 --> 00:08:39,200 Speaker 1: Certainly a lot of people are doing so, with a 151 00:08:39,240 --> 00:08:43,040 Speaker 1: record volume of global junk bond issuance. In January, joining 152 00:08:43,080 --> 00:08:45,000 Speaker 1: us down to discussed the road ahead for risk your 153 00:08:45,000 --> 00:08:48,800 Speaker 1: assets within the fixed income world and beyond. Uh Tad Revel, 154 00:08:48,920 --> 00:08:51,679 Speaker 1: chief investment officer for fixed income at TCW, which has 155 00:08:51,840 --> 00:08:54,400 Speaker 1: a hundred and seventy five billion dollars under management. Tad 156 00:08:54,679 --> 00:08:56,240 Speaker 1: the reason why I wanted to start there. I know 157 00:08:56,320 --> 00:08:59,679 Speaker 1: you've been barished on high yield for a while. Morning 158 00:08:59,720 --> 00:09:02,800 Speaker 1: again some of the risk. I'm wondering what you make 159 00:09:03,040 --> 00:09:05,880 Speaker 1: of the issuance that we've seen of late, including for example, 160 00:09:05,920 --> 00:09:09,600 Speaker 1: a pick Toggle deal that is being marketed today to 161 00:09:10,120 --> 00:09:15,720 Speaker 1: finance a private equity dividend payout. That's probably all the 162 00:09:15,760 --> 00:09:18,840 Speaker 1: commentary that that you need a pick toggle to finance 163 00:09:19,440 --> 00:09:24,400 Speaker 1: a dividend to UH to private equity sponsors and LPs. 164 00:09:24,440 --> 00:09:30,320 Speaker 1: So we haven't seen obviously that level of indiscriminate issuance 165 00:09:30,360 --> 00:09:32,760 Speaker 1: in the junk bond market probably since the end of 166 00:09:32,760 --> 00:09:35,880 Speaker 1: the last cycle. So I mean, first of all, a 167 00:09:35,920 --> 00:09:39,319 Speaker 1: couple of maybe bigger picture statements about the the below 168 00:09:39,360 --> 00:09:43,800 Speaker 1: investment grade marketplace. We we plumbed the low and spreads 169 00:09:44,080 --> 00:09:46,880 Speaker 1: UH seemingly about three or four weeks ago the start 170 00:09:46,920 --> 00:09:48,320 Speaker 1: of the year. We came into the year with a 171 00:09:48,320 --> 00:09:52,840 Speaker 1: lot of euphoria. Spreads are actually about sixty seventy basis 172 00:09:52,920 --> 00:09:56,480 Speaker 1: points wider, so we're we went very quickly from the 173 00:09:56,480 --> 00:09:59,680 Speaker 1: low three hundreds to the high three hundreds. So there 174 00:09:59,679 --> 00:10:01,600 Speaker 1: are there's a lot of cross currents going on in 175 00:10:01,600 --> 00:10:03,600 Speaker 1: the market. There seems to be a lot more risk 176 00:10:03,679 --> 00:10:06,520 Speaker 1: discrimination going in the market, which is to say that 177 00:10:06,800 --> 00:10:10,520 Speaker 1: the double bees have done actually quite a bit better 178 00:10:10,559 --> 00:10:13,920 Speaker 1: than UH than than the triple ceas and UM. The 179 00:10:14,240 --> 00:10:19,680 Speaker 1: market is allowing a lot of semi excessive type of 180 00:10:19,720 --> 00:10:22,360 Speaker 1: transactions to occur, such as the one you alluded to, 181 00:10:22,880 --> 00:10:25,199 Speaker 1: and on the other hand, it's become also rather skeptical 182 00:10:25,520 --> 00:10:29,199 Speaker 1: of some of the more levered business models out there 183 00:10:29,200 --> 00:10:33,520 Speaker 1: as well. So, Ted, I know from past discussions with you, UH, 184 00:10:33,559 --> 00:10:36,000 Speaker 1: you know, you cite the concern that we are at 185 00:10:36,040 --> 00:10:39,400 Speaker 1: the tail end of the economic cycle. What are you 186 00:10:39,440 --> 00:10:42,040 Speaker 1: seeing in terms of credit quality? Uh, maybe in the 187 00:10:42,120 --> 00:10:44,680 Speaker 1: portfolio that in your portfolio, or some of the new 188 00:10:44,760 --> 00:10:49,480 Speaker 1: deals coming to the market. Well, the UH, I guess 189 00:10:49,480 --> 00:10:52,520 Speaker 1: a good starting places to start by thinking about how 190 00:10:52,640 --> 00:10:56,640 Speaker 1: much leverage is embedded now in the in the credit 191 00:10:56,679 --> 00:11:00,520 Speaker 1: markets generally you've seen moving away from I yield for 192 00:11:00,520 --> 00:11:05,439 Speaker 1: a moment there, there's something like twenty of the investment 193 00:11:05,440 --> 00:11:09,360 Speaker 1: grade corporate debt market that's now sporting leverage ratios reported 194 00:11:09,440 --> 00:11:13,320 Speaker 1: leverage ratios of more than four four turns, meaning more 195 00:11:13,320 --> 00:11:16,439 Speaker 1: than four units of debt forever unit of earnings. That's 196 00:11:16,480 --> 00:11:19,679 Speaker 1: significant because, you know, while this is a vast generalization, 197 00:11:19,800 --> 00:11:21,880 Speaker 1: I think it's probably fair to say this that if 198 00:11:21,880 --> 00:11:24,240 Speaker 1: you were walking down the street trip and fell into 199 00:11:24,360 --> 00:11:28,400 Speaker 1: the office of a major rating agency and the first 200 00:11:28,480 --> 00:11:30,720 Speaker 1: questions out of their mouth was we've never met you before, 201 00:11:30,760 --> 00:11:32,520 Speaker 1: but tell us about how much leverage is on your 202 00:11:32,520 --> 00:11:35,040 Speaker 1: balance sheet. If you said to them, oh, I've got 203 00:11:35,080 --> 00:11:37,200 Speaker 1: less than two turns of leverage, less than two units 204 00:11:37,200 --> 00:11:39,960 Speaker 1: of debt forever unit of earnings, they'd probably say to you, 205 00:11:39,960 --> 00:11:41,960 Speaker 1: you're probably investment grade. I don't need to know a 206 00:11:41,960 --> 00:11:44,079 Speaker 1: whole lot more about you, but when you're at about 207 00:11:44,080 --> 00:11:47,319 Speaker 1: four turns of leverage, it's probably more like, well, you'd 208 00:11:47,360 --> 00:11:50,040 Speaker 1: better tell me a really good story about your your 209 00:11:50,080 --> 00:11:52,840 Speaker 1: your business management, and so forth for you not to 210 00:11:52,880 --> 00:11:56,080 Speaker 1: be below investment grade. The point being is that with 211 00:11:56,160 --> 00:11:59,560 Speaker 1: such a large cohort of the investment grade market as 212 00:11:59,559 --> 00:12:03,280 Speaker 1: I alluded to, over four turns of leverage, the risk 213 00:12:03,520 --> 00:12:06,679 Speaker 1: of reprising what we've seen in prior cycles, which is 214 00:12:06,760 --> 00:12:09,920 Speaker 1: that basically somewhere between maybe a quarter to a half 215 00:12:10,480 --> 00:12:13,720 Speaker 1: of the triple B marketplace tends to suffer down grade 216 00:12:13,760 --> 00:12:17,400 Speaker 1: into below investment Great, you're probably already in that territory. 217 00:12:17,520 --> 00:12:21,000 Speaker 1: So what can you say is that as long as 218 00:12:21,160 --> 00:12:23,720 Speaker 1: people are willing to extrapolate and say tomorrow will be 219 00:12:23,760 --> 00:12:26,600 Speaker 1: like yesterday and the cycle will never turn, and the 220 00:12:26,640 --> 00:12:29,400 Speaker 1: FEDS all powerful and all that, um, you probably don't 221 00:12:29,400 --> 00:12:32,719 Speaker 1: have to worry about the rating cycle turning more pernicious. 222 00:12:32,760 --> 00:12:35,240 Speaker 1: But it will at some point because all of the tender, 223 00:12:35,280 --> 00:12:37,440 Speaker 1: so to speak, is already piled up there. So what 224 00:12:37,440 --> 00:12:41,400 Speaker 1: are you doing in terms of buying and selling? Well, um, 225 00:12:41,679 --> 00:12:44,199 Speaker 1: we don't. We try not to respond too much to 226 00:12:44,320 --> 00:12:46,560 Speaker 1: obviously to the day to day noise. Is that the 227 00:12:46,559 --> 00:12:49,280 Speaker 1: way we have always held ourselves out is that you 228 00:12:49,280 --> 00:12:53,040 Speaker 1: should probably think about the asset price cycle as uh, 229 00:12:53,280 --> 00:12:56,000 Speaker 1: you know, roughly speaking, the way we've typically characterized it. 230 00:12:56,000 --> 00:12:58,800 Speaker 1: It has three phases to it. So in the early 231 00:12:58,840 --> 00:13:01,880 Speaker 1: phase you're supposed to be all in in terms of risk, 232 00:13:02,440 --> 00:13:04,960 Speaker 1: at least as as it relates to a fixed income investor, 233 00:13:05,120 --> 00:13:08,360 Speaker 1: because it's a big beta trade. Is that everything trades wide, 234 00:13:08,559 --> 00:13:11,440 Speaker 1: and everything trades wide because everybody got their their fingers 235 00:13:11,480 --> 00:13:14,320 Speaker 1: burnt in the last de leveraging. And so you go 236 00:13:14,400 --> 00:13:18,160 Speaker 1: down the capital structure, you take on a liquid investments, 237 00:13:18,200 --> 00:13:21,079 Speaker 1: you sell convexity risk wherever you find it. It's probably 238 00:13:21,080 --> 00:13:23,560 Speaker 1: gonna work out because even if you did your fundamental 239 00:13:23,600 --> 00:13:27,000 Speaker 1: analysis wrong, probably isn't gonna hurt you when you get 240 00:13:27,040 --> 00:13:30,640 Speaker 1: to the late cycle. The question that we pose to ourselves, 241 00:13:30,640 --> 00:13:32,760 Speaker 1: but we would pose it to anybody is should you 242 00:13:32,800 --> 00:13:36,839 Speaker 1: be underwriting credit risk counterparty risk? The same way in 243 00:13:36,880 --> 00:13:39,920 Speaker 1: the late cycle as you should in the early cycle. Now, 244 00:13:40,040 --> 00:13:42,120 Speaker 1: if you're a momentum investor, you say, well, of course 245 00:13:42,120 --> 00:13:45,280 Speaker 1: you should. If anything, maybe you should pile on more. Well, 246 00:13:45,760 --> 00:13:49,319 Speaker 1: the value perspective says, no, you shouldn't. You're supposed to 247 00:13:49,320 --> 00:13:51,280 Speaker 1: be in the late cycle. You're supposed to go back 248 00:13:51,320 --> 00:13:56,480 Speaker 1: to UH the old Ben Ben Graham dictum about bonds, 249 00:13:56,480 --> 00:13:59,560 Speaker 1: that it's negative selection and you want to avoid the 250 00:13:59,600 --> 00:14:02,800 Speaker 1: more sess of levels of risk taking. So what do 251 00:14:02,840 --> 00:14:05,840 Speaker 1: you do? Okay, you don't put your portfolio in cash, 252 00:14:05,960 --> 00:14:09,280 Speaker 1: but you probably go as follows. You need liquidity in 253 00:14:09,320 --> 00:14:11,599 Speaker 1: the late cycle, so you should have some treasuries and 254 00:14:11,640 --> 00:14:15,560 Speaker 1: agency mortgages, which, by the way, UH agency mortgages have 255 00:14:15,720 --> 00:14:21,400 Speaker 1: actually fairly attractive spread levels. UH. For for just sort 256 00:14:21,400 --> 00:14:25,480 Speaker 1: of ordinary run of the mill yield, there are at 257 00:14:25,520 --> 00:14:29,720 Speaker 1: least a relatively good UH sampling of opportunities in the 258 00:14:29,760 --> 00:14:33,520 Speaker 1: investment grade universe. Just because that market at large is 259 00:14:33,560 --> 00:14:37,480 Speaker 1: significantly levered doesn't mean that opportunities don't come along. Um 260 00:14:37,640 --> 00:14:40,080 Speaker 1: they do. I mean a year year and a half ago, 261 00:14:40,600 --> 00:14:43,680 Speaker 1: the blowout in ge spreads may have five five and 262 00:14:43,680 --> 00:14:46,040 Speaker 1: a half turns of leverage. There were some issues and 263 00:14:46,080 --> 00:14:48,640 Speaker 1: concerns that people had, but at three hundred and fifty 264 00:14:48,680 --> 00:14:51,960 Speaker 1: basis points over treasuries, you're being paid for it. Today. 265 00:14:52,400 --> 00:14:57,200 Speaker 1: Fast forward, the investment grade market is treasuries. You have 266 00:14:57,240 --> 00:14:58,960 Speaker 1: to be really selective about what you do, but you 267 00:14:58,960 --> 00:15:02,160 Speaker 1: should own some. And then you're supposed to go back 268 00:15:02,200 --> 00:15:04,800 Speaker 1: to the to the premise that we said earlier, which 269 00:15:04,840 --> 00:15:07,160 Speaker 1: is what are you not supposed to be owning? Because 270 00:15:07,400 --> 00:15:09,680 Speaker 1: the last thing a fixed income manager I think really 271 00:15:09,720 --> 00:15:14,680 Speaker 1: wants to report back to investment committee's boards shareholders is 272 00:15:15,160 --> 00:15:18,200 Speaker 1: you gave me all this discretion. You trusted me, and 273 00:15:18,320 --> 00:15:20,040 Speaker 1: you know I bought a bunch of bonds and they're 274 00:15:20,040 --> 00:15:23,600 Speaker 1: down forty fifty points and they're not coming back. But sorry, 275 00:15:23,720 --> 00:15:26,760 Speaker 1: you know you should keep me on on board anyway. Um, 276 00:15:26,800 --> 00:15:29,760 Speaker 1: I think it's implicit in the mandate for a fixed 277 00:15:29,800 --> 00:15:33,360 Speaker 1: income manager at least. I mean this luck not trying 278 00:15:33,400 --> 00:15:35,720 Speaker 1: to legislate for the world. But this is our view 279 00:15:35,720 --> 00:15:38,840 Speaker 1: of it, is that that's part of the expectation that 280 00:15:38,880 --> 00:15:40,800 Speaker 1: you'll be prudent in the late cycle and kind of 281 00:15:40,800 --> 00:15:43,720 Speaker 1: greedy in the early cycle. It's just warrant buffett in 282 00:15:43,800 --> 00:15:46,280 Speaker 1: bonds exactly. Hey, Tad, thanks so much. For joining us. 283 00:15:46,280 --> 00:15:50,360 Speaker 1: Tad Rivelle, chief investment officer for fixed income at TCW 284 00:15:50,560 --> 00:15:53,680 Speaker 1: hundred semi five billion dollars under management based in Los Angeles, 285 00:15:53,720 --> 00:16:08,360 Speaker 1: with a consistent conservative view of the fixed income markets. Recently, 286 00:16:08,480 --> 00:16:11,960 Speaker 1: Warren Buffett throw in the towel on his newspaper holding, 287 00:16:12,080 --> 00:16:15,080 Speaker 1: saying he just didn't see this business turning around. There 288 00:16:15,160 --> 00:16:19,280 Speaker 1: is a big existential question facing the entire newspaper industry 289 00:16:19,520 --> 00:16:22,240 Speaker 1: and on the front lines of it, John Founding, founder 290 00:16:22,280 --> 00:16:25,800 Speaker 1: and managing principle at Methusela Advisors. He joins us here 291 00:16:25,840 --> 00:16:28,640 Speaker 1: in our Bloomberg Interactive at Broker Studios, and John, I 292 00:16:28,640 --> 00:16:30,960 Speaker 1: see are on the front lines because you've advised UH 293 00:16:31,160 --> 00:16:34,480 Speaker 1: clear Channel Communications on the eighteen billion dollar buyout Disney 294 00:16:34,560 --> 00:16:37,520 Speaker 1: Company on his two thousand and six sale of ABC Radio. 295 00:16:37,920 --> 00:16:41,320 Speaker 1: I'm trying to understand what the new model will be 296 00:16:41,720 --> 00:16:45,520 Speaker 1: to save an industry that by almost all measures, is dying. 297 00:16:46,360 --> 00:16:51,640 Speaker 1: It's a huge question, Um, thanks for having me. Look, 298 00:16:51,680 --> 00:16:53,400 Speaker 1: the newspaper industry is going to have to remake the 299 00:16:53,440 --> 00:16:56,080 Speaker 1: revenue model. You can't have a revenue model which was 300 00:16:56,200 --> 00:17:01,080 Speaker 1: essentially sent advertising based in subscription based, have the advertising 301 00:17:01,080 --> 00:17:04,880 Speaker 1: side of it go away piece by piece. First digital. First, 302 00:17:04,920 --> 00:17:08,840 Speaker 1: digital killed classifieds, which was the highest profit component of 303 00:17:08,840 --> 00:17:13,119 Speaker 1: the advertising model. Then run of Press came under gigantic pressure. 304 00:17:13,160 --> 00:17:15,920 Speaker 1: So the digital impact in this industry, as it is 305 00:17:15,960 --> 00:17:19,800 Speaker 1: in many industries, far far deeper, and until they replace 306 00:17:19,920 --> 00:17:22,720 Speaker 1: that with a bigger subscription side, meaning the users of 307 00:17:22,760 --> 00:17:25,520 Speaker 1: the content pay for the content, the newspaper industry is 308 00:17:25,560 --> 00:17:28,360 Speaker 1: in deep, deep trouble, all right, So the users. We've 309 00:17:28,400 --> 00:17:31,040 Speaker 1: seen a couple of success stores in New York Times, 310 00:17:31,440 --> 00:17:33,720 Speaker 1: you know, maybe the Wall Street Journal, dot com, FT 311 00:17:33,920 --> 00:17:38,280 Speaker 1: dot com, a couple of national, global brands have created 312 00:17:38,359 --> 00:17:40,520 Speaker 1: that kind of model of subscription model. It's been the 313 00:17:40,520 --> 00:17:42,640 Speaker 1: savior of the New York Times company. But we haven't 314 00:17:42,680 --> 00:17:45,360 Speaker 1: seen many successors or any success stories at the more 315 00:17:45,480 --> 00:17:48,520 Speaker 1: local level. So what is the future? This is a 316 00:17:48,560 --> 00:17:51,520 Speaker 1: public policy question. What is the future of local journalism. 317 00:17:51,840 --> 00:17:54,480 Speaker 1: It's a it's a huge question for the local paper 318 00:17:54,520 --> 00:17:56,200 Speaker 1: that's not the New York Times, the Times as a 319 00:17:56,320 --> 00:17:59,959 Speaker 1: national asset. Now, truth be told, the vast, vast majority 320 00:18:00,040 --> 00:18:02,240 Speaker 1: readers of the New York Times are New York centric 321 00:18:02,480 --> 00:18:05,560 Speaker 1: or sophisticated urban readers. The largest paper in America, I 322 00:18:05,560 --> 00:18:08,000 Speaker 1: believe it or not, as USA Today. USA Today is 323 00:18:08,080 --> 00:18:11,320 Speaker 1: the largest distribution paper. Um. Yeah, because it has a 324 00:18:11,400 --> 00:18:13,200 Speaker 1: deal with all the hotels and they can stick it 325 00:18:13,240 --> 00:18:15,000 Speaker 1: in front of it. That's true. It's it's that free 326 00:18:15,000 --> 00:18:16,880 Speaker 1: paper that's under your your door. But it is still 327 00:18:16,880 --> 00:18:18,920 Speaker 1: read in lots of places and picked up in airports 328 00:18:18,960 --> 00:18:21,400 Speaker 1: and in hotels. And yet it doesn't make it doesn't 329 00:18:21,400 --> 00:18:23,359 Speaker 1: really make money. It was an asset of Ghanette. They 330 00:18:23,400 --> 00:18:26,760 Speaker 1: built it great, um great scope doesn't make money. The 331 00:18:26,880 --> 00:18:30,760 Speaker 1: question becomes, what would happen if these papers, the Denver Post, 332 00:18:30,840 --> 00:18:34,000 Speaker 1: the Saltily Tribune, the Chicago Tribune, the Atlantic Constitution, if 333 00:18:34,000 --> 00:18:37,160 Speaker 1: they go away, And that's the existential question. They could 334 00:18:37,160 --> 00:18:39,400 Speaker 1: go away, with the exception of a few of these 335 00:18:39,440 --> 00:18:42,720 Speaker 1: places that are owned by very wealthy parents. The Cox family, 336 00:18:42,800 --> 00:18:44,560 Speaker 1: extremely wealthy, is not gonna let go of at land At. 337 00:18:44,600 --> 00:18:47,240 Speaker 1: Jeff Bezos has bought the Washington Post to preserve it 338 00:18:47,280 --> 00:18:49,480 Speaker 1: as an asset. But if if, if you don't find 339 00:18:49,480 --> 00:18:52,920 Speaker 1: a billionaire who wants to run each giant local daily 340 00:18:52,960 --> 00:18:56,720 Speaker 1: paper as a mission, you have to change who's making 341 00:18:56,760 --> 00:18:58,199 Speaker 1: money on it. And the right way to change it 342 00:18:58,280 --> 00:19:00,720 Speaker 1: is look at how much money is being made by Google, Acebook, Twitter, 343 00:19:00,800 --> 00:19:04,760 Speaker 1: and the digital giants who have access and use all 344 00:19:04,800 --> 00:19:06,879 Speaker 1: of this content and don't pay a dime for it, 345 00:19:07,280 --> 00:19:10,439 Speaker 1: nothing for it. That to me is criminal. And the 346 00:19:10,480 --> 00:19:12,520 Speaker 1: newspaper industry let the mayor out of the barn, as 347 00:19:12,560 --> 00:19:15,080 Speaker 1: they say, a long time ago, fifteen years ago, when 348 00:19:15,080 --> 00:19:18,240 Speaker 1: they should have asserted their copyright privileges and said, don't 349 00:19:18,280 --> 00:19:21,280 Speaker 1: touch my stuff unless you pay me. And instead, the 350 00:19:21,280 --> 00:19:24,960 Speaker 1: newspaper industry, like everyone else, thought that access to digital 351 00:19:25,000 --> 00:19:27,800 Speaker 1: traffic and volume of digital traffic would be the nirvana. Alright, 352 00:19:27,800 --> 00:19:29,159 Speaker 1: so how do you corral the mayor? How do you 353 00:19:29,200 --> 00:19:31,159 Speaker 1: get it back in the newspaper industry has to do. 354 00:19:31,440 --> 00:19:33,880 Speaker 1: It's like it's like the patient who has a terrible 355 00:19:34,200 --> 00:19:37,879 Speaker 1: cancer and needs chemotherapy. It's an ugly, ugly experience, but 356 00:19:37,880 --> 00:19:40,399 Speaker 1: they're going to have to do it. Six of digital 357 00:19:40,400 --> 00:19:44,320 Speaker 1: traffic on daily papers in America or more is generated 358 00:19:44,480 --> 00:19:47,119 Speaker 1: and coming out of Google, Facebook, Twitter and the digital 359 00:19:47,160 --> 00:19:52,000 Speaker 1: platforms sending traffic to those papers. Therefore, the digital traffic 360 00:19:52,040 --> 00:19:56,560 Speaker 1: manager at the Albany Paper or the Buffalo Paper gets 361 00:19:56,560 --> 00:19:59,200 Speaker 1: a call from his publisher saying, we've told those platforms 362 00:19:59,240 --> 00:20:01,320 Speaker 1: not to not to put our stuff up on their 363 00:20:01,320 --> 00:20:03,240 Speaker 1: side anymore. And that guy at the top of his 364 00:20:03,240 --> 00:20:04,760 Speaker 1: head blows off because he's like, well, how am I 365 00:20:04,760 --> 00:20:06,760 Speaker 1: going to have it be a business? There has to 366 00:20:06,760 --> 00:20:10,199 Speaker 1: be a negotiated solution where instead of using all of 367 00:20:10,240 --> 00:20:13,359 Speaker 1: that content for free, they actually pay something into the industry. 368 00:20:13,359 --> 00:20:15,040 Speaker 1: And there are perfectly good models for this. In the 369 00:20:15,119 --> 00:20:18,320 Speaker 1: music industry, there are there are models where users of 370 00:20:18,520 --> 00:20:21,919 Speaker 1: music content pay reasonable license fees for the use of 371 00:20:21,960 --> 00:20:25,440 Speaker 1: that whether to the songwriter or the artist or the performer. UM. 372 00:20:25,480 --> 00:20:28,159 Speaker 1: In the television industry, we've seen real payments go to 373 00:20:28,200 --> 00:20:31,160 Speaker 1: the television stations from the cable guys who are using 374 00:20:31,200 --> 00:20:34,080 Speaker 1: the signal. People. Forget, fifteen years ago there was no 375 00:20:34,119 --> 00:20:36,919 Speaker 1: such payment. Last year, the cable guys paid twelve billion 376 00:20:36,960 --> 00:20:39,840 Speaker 1: dollars to the television stations for use of their signal. 377 00:20:40,119 --> 00:20:43,840 Speaker 1: Why shouldn't the digital platforms do the same? In one minute, 378 00:20:43,840 --> 00:20:47,520 Speaker 1: what's the fair use collective? Fair use collective as a concept? UM, 379 00:20:47,520 --> 00:20:50,879 Speaker 1: It's an idea UM that we've been supportive of, and 380 00:20:50,920 --> 00:20:53,720 Speaker 1: the News Media Alliance in Washington has been supportive of. 381 00:20:54,040 --> 00:20:58,400 Speaker 1: It is a It is a position that the industry 382 00:20:58,400 --> 00:21:00,679 Speaker 1: comes together and a little bit like the music industry, 383 00:21:00,680 --> 00:21:03,560 Speaker 1: which uses b M I and ascap as the intermediary something, 384 00:21:03,560 --> 00:21:06,119 Speaker 1: whether it's the Faious Collective or something else, acts as 385 00:21:06,200 --> 00:21:09,840 Speaker 1: the representative and negotiating on mass with Google, Facebook, Twitter, 386 00:21:09,880 --> 00:21:12,560 Speaker 1: Apple and people that are using the stuff for free, 387 00:21:12,960 --> 00:21:15,359 Speaker 1: and gets a fair license payment and then distributes that 388 00:21:15,440 --> 00:21:18,000 Speaker 1: license payment out to all the papers in a manner 389 00:21:18,040 --> 00:21:20,919 Speaker 1: that's reasonable and commensurate with what they generate. Obviously, the 390 00:21:20,920 --> 00:21:23,240 Speaker 1: New York Times of the World, the Washington Post, they're 391 00:21:23,240 --> 00:21:25,160 Speaker 1: going to get a significant piece of that because they're 392 00:21:25,160 --> 00:21:27,520 Speaker 1: they're They're what people are reading. But all of these 393 00:21:27,560 --> 00:21:30,719 Speaker 1: papers needed. Imagine a world where the Chicago just Chicago 394 00:21:30,760 --> 00:21:33,600 Speaker 1: Tribune disappears in terms of doing coverage on the state 395 00:21:33,600 --> 00:21:36,159 Speaker 1: House in Illinois, or the Denver Post doesn't exist. We 396 00:21:36,200 --> 00:21:38,720 Speaker 1: are not far from that world, and so the farious 397 00:21:38,720 --> 00:21:41,560 Speaker 1: collective idea is that these license payments have to be 398 00:21:41,560 --> 00:21:46,160 Speaker 1: distributed across the industry to sustain these papers. John, thanks 399 00:21:46,160 --> 00:21:48,280 Speaker 1: for coming in and sharing that commentary with us. Those 400 00:21:48,280 --> 00:21:49,960 Speaker 1: thoughts so with us. It's really fascinating. I think it 401 00:21:49,960 --> 00:21:51,520 Speaker 1: really goes to the heart of the matter kind of 402 00:21:51,560 --> 00:21:55,320 Speaker 1: a public policy issue. Is local journalism required in the 403 00:21:55,359 --> 00:21:58,399 Speaker 1: democracy And a lot of people obviously would say absolutely 404 00:21:58,440 --> 00:22:01,280 Speaker 1: it is a certainly required, but given what happened in 405 00:22:01,320 --> 00:22:04,080 Speaker 1: the digital world, a lot of these papers are at risk. Well, 406 00:22:04,080 --> 00:22:06,159 Speaker 1: there's also a business question, how do they make money 407 00:22:06,320 --> 00:22:08,200 Speaker 1: and at a time when people aren't really willing to 408 00:22:08,240 --> 00:22:10,720 Speaker 1: pay for it and classified aren't really a thing in 409 00:22:10,760 --> 00:22:13,840 Speaker 1: the same kind of way where where it's the model. Yeah, 410 00:22:13,840 --> 00:22:16,679 Speaker 1: so John and others are thinking about that model. John Shoes, 411 00:22:16,680 --> 00:22:19,840 Speaker 1: founder and managing Principle Advisors based here in New York City, 412 00:22:19,880 --> 00:22:23,520 Speaker 1: joining us here in our Bloomberg Interactive Broker's studio talking 413 00:22:23,520 --> 00:22:26,200 Speaker 1: about that issue. So we had Terry Kawaja, former colleague 414 00:22:26,440 --> 00:22:29,119 Speaker 1: John's on earlier talking about some of the digital aspects 415 00:22:29,119 --> 00:22:31,119 Speaker 1: of business. But the other end of the equation is 416 00:22:31,320 --> 00:22:33,920 Speaker 1: some of the traditional media companies, the print media companies, 417 00:22:33,960 --> 00:22:36,800 Speaker 1: the local journalists have to figure out a business model, 418 00:22:37,119 --> 00:22:39,920 Speaker 1: uh that supports those businesses. Not you know, we only 419 00:22:39,960 --> 00:22:41,200 Speaker 1: have the New York Times and a couple of the 420 00:22:41,240 --> 00:22:44,439 Speaker 1: big papers that have made profits on the digital business 421 00:22:44,480 --> 00:22:56,959 Speaker 1: that needs to change for journalism. Were typically check in 422 00:22:57,119 --> 00:23:00,480 Speaker 1: around this time with our Bloomberg Opinion columnists. Today, we're 423 00:23:00,520 --> 00:23:03,119 Speaker 1: so lucky to have John authors with us, a senior 424 00:23:03,240 --> 00:23:06,280 Speaker 1: editor for Bloomberg Markets and also a Bloomberg opinion columnist 425 00:23:06,320 --> 00:23:08,800 Speaker 1: here in our interactive Broker Studios and John, the reason 426 00:23:08,840 --> 00:23:11,040 Speaker 1: why I'm particularly excited to have you, I'm always excited 427 00:23:11,080 --> 00:23:15,120 Speaker 1: to have you, is because I'm trying to to understand 428 00:23:15,200 --> 00:23:18,960 Speaker 1: the narrative around the coronavirus. Right now. We shifted from 429 00:23:19,000 --> 00:23:24,159 Speaker 1: a fear factor type of translation here too by the 430 00:23:24,240 --> 00:23:28,479 Speaker 1: dip Goldilocks kind of reversion. How should we understand this? 431 00:23:29,200 --> 00:23:32,800 Speaker 1: Okay um. First of all, plainly, it has all the 432 00:23:32,840 --> 00:23:35,399 Speaker 1: classic aspects of a black swan. I'm not saying the 433 00:23:35,440 --> 00:23:38,520 Speaker 1: damage that has done so far count Councer as a 434 00:23:38,560 --> 00:23:41,640 Speaker 1: black swan. But there is the risk of something where 435 00:23:41,640 --> 00:23:49,000 Speaker 1: we simply cannot estimate the probability of a very serious outcome, 436 00:23:49,240 --> 00:23:52,240 Speaker 1: and we're not sure exactly how expensive that very serious 437 00:23:52,240 --> 00:23:58,359 Speaker 1: outcome could be. So you have that automatically is exactly 438 00:23:58,359 --> 00:24:01,080 Speaker 1: the kind of thing that that markets find it very 439 00:24:01,119 --> 00:24:07,760 Speaker 1: difficult to price. Now, what you have at present is 440 00:24:07,920 --> 00:24:12,679 Speaker 1: a belief that we were in the beginning stages of 441 00:24:12,680 --> 00:24:15,920 Speaker 1: a reflation recycle at the end of last year. Whether 442 00:24:16,000 --> 00:24:17,760 Speaker 1: how much of that is down to phase one of 443 00:24:17,800 --> 00:24:20,920 Speaker 1: the trade deal is is an interesting question, But there 444 00:24:20,920 --> 00:24:24,240 Speaker 1: were any number of measures from markets, commodities, bonds, et cetera, 445 00:24:24,359 --> 00:24:29,240 Speaker 1: suggesting reflation. And at this point, what we do know 446 00:24:29,560 --> 00:24:32,959 Speaker 1: about the coronavirus is that it is going to have 447 00:24:33,200 --> 00:24:38,920 Speaker 1: a pretty serious effect on Chinese growth. Cannot be otherwise. 448 00:24:39,040 --> 00:24:43,400 Speaker 1: They're closing factories, they're shutting down transport. This is plainly 449 00:24:43,520 --> 00:24:48,400 Speaker 1: a significant deal for China. Now that is is leading 450 00:24:48,600 --> 00:24:56,159 Speaker 1: to the calculation that it actually reinforces um. It's a 451 00:24:56,200 --> 00:24:59,000 Speaker 1: difficult way to I struggled with how to put this 452 00:24:59,200 --> 00:25:03,879 Speaker 1: tastefully in my column. But it's like gold I'm just 453 00:25:03,920 --> 00:25:09,719 Speaker 1: addressing the nature. It's golden if goldilocks, it's not goldilocks. Normally, 454 00:25:09,800 --> 00:25:12,760 Speaker 1: a Goldilocks is an economy that's not too hot that 455 00:25:12,840 --> 00:25:14,639 Speaker 1: you have to raise rates, but not too cold that 456 00:25:14,640 --> 00:25:17,840 Speaker 1: you don't get the growth to help investors. At this point, 457 00:25:18,160 --> 00:25:22,040 Speaker 1: Goldilocks is dealing with a virus rather than with the 458 00:25:22,080 --> 00:25:26,240 Speaker 1: three bears. And while the while the virus is out there, 459 00:25:26,280 --> 00:25:29,840 Speaker 1: while the effect on Chinese growth is out there, that 460 00:25:30,040 --> 00:25:35,240 Speaker 1: locks banks central banks into the kind of low rate, 461 00:25:35,520 --> 00:25:39,919 Speaker 1: easy money policy that means that we can continue with 462 00:25:40,280 --> 00:25:43,159 Speaker 1: there is no alternative. We've got to buy stocks. That 463 00:25:43,359 --> 00:25:47,320 Speaker 1: is the narrative that is running markets at present, I 464 00:25:47,320 --> 00:25:52,560 Speaker 1: would say, and the only way that will be overturned 465 00:25:52,640 --> 00:25:56,960 Speaker 1: within American markets outside of China is if we get 466 00:25:57,000 --> 00:26:01,720 Speaker 1: a serious breakout beyond Chinese shore. But clearly, I guess 467 00:26:01,760 --> 00:26:05,959 Speaker 1: what's confusing me is the ripple effects of the slowing 468 00:26:06,119 --> 00:26:08,879 Speaker 1: Chinese economy. What it means for you know, markets in 469 00:26:08,920 --> 00:26:11,879 Speaker 1: Europe and and all the trading partners the US and included. 470 00:26:11,920 --> 00:26:15,479 Speaker 1: It seems like the global g d P hit could 471 00:26:15,600 --> 00:26:20,600 Speaker 1: in certain scenarios be materially impacted. And that is kind 472 00:26:20,600 --> 00:26:23,040 Speaker 1: of what I'm concerned. The markets aren't discounting at the moment. 473 00:26:23,960 --> 00:26:27,199 Speaker 1: I would say that they are to an extent in 474 00:26:27,240 --> 00:26:29,160 Speaker 1: that if you take a look at the bond markets, 475 00:26:29,640 --> 00:26:32,600 Speaker 1: they are in a classic defensive crouch for things to 476 00:26:32,640 --> 00:26:36,480 Speaker 1: be very bad. And if you look at w T 477 00:26:36,600 --> 00:26:40,199 Speaker 1: I on your on your on this very show twenty 478 00:26:40,200 --> 00:26:43,520 Speaker 1: four hours ago managed to get below fifty dollars per 479 00:26:43,560 --> 00:26:48,960 Speaker 1: per barrel um. Similarly, if you look at industrial metals, 480 00:26:48,960 --> 00:26:51,560 Speaker 1: which is we're trying to really is critical that the 481 00:26:51,600 --> 00:26:56,280 Speaker 1: copper gold ratio is coming close to you know, it's 482 00:26:56,320 --> 00:27:01,280 Speaker 1: lowest in many decades, so that is being it is 483 00:27:01,320 --> 00:27:05,360 Speaker 1: showing up in markets. I suppose you still have the 484 00:27:05,440 --> 00:27:11,440 Speaker 1: issue ahead of us that this really is a horrific 485 00:27:11,600 --> 00:27:16,480 Speaker 1: within China. So it's not just a percentage point of 486 00:27:16,680 --> 00:27:19,040 Speaker 1: Chinese growth, which is a big deal anyway, but it 487 00:27:19,119 --> 00:27:22,520 Speaker 1: really is the factor that brings an end to the 488 00:27:22,600 --> 00:27:25,720 Speaker 1: Chinese growth story altogether for a while, and that we're 489 00:27:25,760 --> 00:27:29,439 Speaker 1: not that we're not ready for h And then you 490 00:27:29,520 --> 00:27:32,879 Speaker 1: do have again the issue that that that it truly 491 00:27:32,920 --> 00:27:35,320 Speaker 1: breaks out around the rest of the world, and that 492 00:27:35,560 --> 00:27:38,720 Speaker 1: is not something that is priced in. You know, the 493 00:27:38,880 --> 00:27:40,879 Speaker 1: SMP is whatever it is two percent below side that 494 00:27:40,920 --> 00:27:43,960 Speaker 1: that is not priced in at all. That's still a risk. 495 00:27:44,040 --> 00:27:46,240 Speaker 1: But as far as I can see at this moment, 496 00:27:46,520 --> 00:27:48,879 Speaker 1: we don't have good enough information to start pricing it 497 00:27:48,920 --> 00:27:52,560 Speaker 1: in anyway. So I don't know that I can have 498 00:27:52,600 --> 00:27:56,080 Speaker 1: any great issues of people being complacent about that. John 499 00:27:56,119 --> 00:27:58,920 Speaker 1: Arthur's thanks so much for joining us. We always appreciate 500 00:27:59,200 --> 00:28:03,040 Speaker 1: your viewpoint. John Authors is senior editor for Bloomberg Markets. 501 00:28:03,080 --> 00:28:05,200 Speaker 1: Joining us here on our Bloomberg Interactive Broker studio, and 502 00:28:05,240 --> 00:28:07,320 Speaker 1: of course you can read John's work and all of 503 00:28:07,320 --> 00:28:11,040 Speaker 1: the work from our fine Bloomberg opinion columnists at Bloomberg 504 00:28:11,080 --> 00:28:14,480 Speaker 1: dot com, slash Opinion and on the Terminal at O P. I. 505 00:28:14,880 --> 00:28:17,639 Speaker 1: N Go on the Ternel. They do great work and 506 00:28:17,920 --> 00:28:20,520 Speaker 1: we love having them as a resource for Bloomberg Radio. 507 00:28:21,240 --> 00:28:23,480 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 508 00:28:23,640 --> 00:28:26,240 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts 509 00:28:26,320 --> 00:28:29,320 Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney. I'm 510 00:28:29,320 --> 00:28:31,879 Speaker 1: on Twitter at pt Sweeney. I'm Lisa A. Bram Woyds. 511 00:28:31,920 --> 00:28:34,920 Speaker 1: I'm on Twitter at Lisa A. Bramloits one before the podcast. 512 00:28:34,960 --> 00:28:37,560 Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio.