Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
Speaker 1: along with my co host Lisa Brahma wits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Disney reports earnings after the close
Speaker 1: and one of the most fascinating aspects of the US
Speaker 1: media business global media businesses. How a lot of these
Speaker 1: traditional media companies are trying to pivot to more technology
Speaker 1: driven streaming companies, trying to get that valuation from Netflix.
Speaker 1: And there's one banker out there who's making it all
Speaker 1: happen for the technology side of the media business, and
Speaker 1: that's Terry Kwaja, founder and CEO of Luma Partners Investment
Speaker 1: banking based here in New York. I used to work
Speaker 1: with Terry back in the day at Solomon Brothers and
Speaker 1: First Boston when he was putting all the traditional media
Speaker 1: companies together back in the day. Now he's kind of
Speaker 1: working with the new wave of technology driven media companies.
Speaker 1: So Terry so much for joining us here in our
Speaker 1: Bloomberg Interactive Brooker Studio. So again, let's start with a
Speaker 1: company like a Disney. These companies are really trying to
Speaker 1: transform themselves from the old model based upon advertising and
Speaker 1: subscription revenue to streaming. Can they do it? Yeah? Great
Speaker 1: to be with you, Paul and Lisa. So here we
Speaker 1: are in the middle of what is one of the
Speaker 1: largest industries. Right there's over a hundred billion dollars of
Speaker 1: advertising and probably another hundred and fifty billion and paid
Speaker 1: dollars that support the sort of TV slash you know,
Speaker 1: video media channel. And all of a sudden, these massive
Speaker 1: companies with enormous market caps you know the names Comcast, Disney, Charter, Uh, etcetera,
Speaker 1: all have a crisis beyond existential crisis as they effectively
Speaker 1: have to swap out their engines while keeping the plane
Speaker 1: in the air. Right, they got to support those market
Speaker 1: caps with a fundamental change not only in the technology
Speaker 1: of the delivery of their media and advertising, but also
Speaker 1: the channel in which consumers have chosen to consume their content. Right,
Speaker 1: So the idea being that they're moving online, and the
Speaker 1: question is with something like what Disney is doing so far,
Speaker 1: they've been rewarded more than other companies for investing even
Speaker 1: though it's not going to make money. How long can
Speaker 1: that continue at a time when there are big questions
Speaker 1: about how much subscribers are willing to pay and how
Speaker 1: many services they're willing to subscribe to. So, look, Lisa,
Speaker 1: I think this is early days. So I think all
Speaker 1: the people looking at the immediate subscriber uh new subscribers
Speaker 1: and the subscriber churn numbers of say Disney's uh Disney
Speaker 1: plus App, I think it's way too early to be
Speaker 1: looking at that. I don't think we're there in terms of,
Speaker 1: you know, the value proposition. There are still content that
Speaker 1: hasn't gone exclusive onto Disney. So there's still is some
Speaker 1: you know, distribution rights on other platforms. We can't fully
Speaker 1: judge it yet. And let's face it, we're still in
Speaker 1: the early days where they're providing subscription a cross promotions.
Speaker 1: It's it's kind of free, right, you know, if you
Speaker 1: buy an iPhone, you get Apple TV if you you know,
Speaker 1: Disney has cross promotions with Verizon. So we're in the
Speaker 1: early fanfare days of um of streaming, the streaming wars.
Speaker 1: In fact, you know, we're at the peak of the
Speaker 1: streaming wars, and we will be at the peak for
Speaker 1: the rest of the year. Think about it. When large
Speaker 1: companies have an existential threat and and a rationale to
Speaker 1: get a consumer product out, they market the but Jesus
Speaker 1: out of it. Just remember last fall when Disney Plus
Speaker 1: was announced and Apple TV was announced. And this year
Speaker 1: we've got um NBC with Peacock, we have um HBO
Speaker 1: A t T with HBO Max, and we've got Quimby.
Speaker 1: So we are going to be in peak streaming wars
Speaker 1: all through and beyond. So, Terry, you spent a lot
Speaker 1: of time with the avert hasing technology companies, companies that
Speaker 1: make the digital advertising marketplace work. They interacted obviously, that's
Speaker 1: really the engines of the big advertising giants like Google,
Speaker 1: like Facebook, like Amazon. Do you expect the technology companies,
Speaker 1: those big technology companies, uh that have all that cash,
Speaker 1: all that free cash flow, to maybe get into the
Speaker 1: media business itself, into the content business in a bigger way. Well,
Speaker 1: I believe they're gonna play a major role. And listen,
Speaker 1: if you set this up as inevitably, it is a dichotomy,
Speaker 1: a war where it is called streaming wars after all, Right,
Speaker 1: it's a war, not even just amongst the streaming choices,
Speaker 1: but between big media and big tech. And and big
Speaker 1: tech has four major advantages. They've got, as you mentioned,
Speaker 1: market cap and cash on the balance sheet up the wazoo.
Speaker 1: They I mean, they can they vastly outscale the big
Speaker 1: media companies, and the big media companies are trying to
Speaker 1: catch up by doing all these you know, traditional mergers
Speaker 1: just to garner enough scale. But even still they you
Speaker 1: not compare to big tech. Second is they've got Ui downpat.
Speaker 1: I mean, your user experience on Apple products or on
Speaker 1: Netflix is just so much different than your average cable company. Um,
Speaker 1: even the more advanced ones like Comcast x one, it
Speaker 1: just it just doesn't compare. They they've got those kind
Speaker 1: of chops. Um. So, there are just so many elements
Speaker 1: why Big tech. And by the way, they have the
Speaker 1: technology at their court. They were born digital. So the
Speaker 1: big media companies, and this is the part where I
Speaker 1: put up my hand and say, thank you very much,
Speaker 1: need technology. There's not technology native to them. They have
Speaker 1: to be able to avail their content across the channels
Speaker 1: that consumers want, which is O, T, T and digital.
Speaker 1: And to do that right there's so much complication. There's
Speaker 1: a loom escape, which is a diagram of all the
Speaker 1: players in the space, you know, because let's think about it,
Speaker 1: right across all these channels of linear addressable O, T,
Speaker 1: T and digital. I'm getting a headache just talking about it.
Speaker 1: You know, there's different parameters and identifying who a person is,
Speaker 1: there's different technologies to deliver the ads. It is just
Speaker 1: a whole bunch of conflation that needs to be sorted out. Terry,
Speaker 1: I'm struck by your expertise being absolutely perfect on a
Speaker 1: daylight today for a variety of reasons. You specialize in
Speaker 1: coming up with valuations of what companies may become and
Speaker 1: as they become the future, and I would love to
Speaker 1: get your perspective on Tesla because right now nobody can
Speaker 1: justify that the valuation based on current fact. How does
Speaker 1: one go about understanding value at a time of transformation?
Speaker 1: And a company that harbor is at least a dream,
Speaker 1: if not a reality. So what what? What you're referring to, Lisa,
Speaker 1: is the complex art of valuing innovation. And I call
Speaker 1: it art because because for most mature companies with demonstrable
Speaker 1: financials and revenue and cash flow that we can all
Speaker 1: analyze and compared to other similar companies. Most of the
Speaker 1: valuation work we do in those kind of companies I
Speaker 1: would refer to put in the category of science, right,
Speaker 1: the science of its math. It's comparables and plus or minus.
Speaker 1: You know, you're kind of gonna get it right or
Speaker 1: right ish when you start talking about the kind of
Speaker 1: companies that actually that I deal with, that you know,
Speaker 1: get sold for like twenty times revenue, And people say
Speaker 1: to me, why did so and so pay twenty times
Speaker 1: revenue for that business? And my answer is because they
Speaker 1: didn't twenty times revenue. That it's not as though they
Speaker 1: did it as a multiplier. To get to the valuation.
Speaker 1: We started with what is this worth to you figure
Speaker 1: out the valuation, and then it's it's division to find
Speaker 1: out what the multiple was. So when you look at
Speaker 1: a company like Tesla, I mean, it's basically the future.
Speaker 1: How do you value the future? I mean, if you
Speaker 1: were to ask people, you know, rational people, you know,
Speaker 1: are we moving towards an e you know, an electronic future?
Speaker 1: The answers yes. So it's just hard to nail down.
Speaker 1: It's not science. Terry Kawaja. We've got to have you
Speaker 1: back and talking energy. I think about talking about this topic.
Speaker 1: I honestly it's it's such a pleasure having you from
Speaker 1: every perspective. Terry Kawaja, founder and chief executive officer of
Speaker 1: Luma Partners Investment Banking in New York, talking about the
Speaker 1: intersection of big tech, big media, and big dreams at
Speaker 1: a time of the everything rally, and perhaps we're still
Speaker 1: in goldilocks territory. Perhaps we're at the very end of it.
Speaker 1: There is a question of whether to buy junk bonds.
Speaker 1: Certainly a lot of people are doing so, with a
Speaker 1: record volume of global junk bond issuance. In January, joining
Speaker 1: us down to discussed the road ahead for risk your
Speaker 1: assets within the fixed income world and beyond. Uh Tad Revel,
Speaker 1: chief investment officer for fixed income at TCW, which has
Speaker 1: a hundred and seventy five billion dollars under management. Tad
Speaker 1: the reason why I wanted to start there. I know
Speaker 1: you've been barished on high yield for a while. Morning
Speaker 1: again some of the risk. I'm wondering what you make
Speaker 1: of the issuance that we've seen of late, including for example,
Speaker 1: a pick Toggle deal that is being marketed today to
Speaker 1: finance a private equity dividend payout. That's probably all the
Speaker 1: commentary that that you need a pick toggle to finance
Speaker 1: a dividend to UH to private equity sponsors and LPs.
Speaker 1: So we haven't seen obviously that level of indiscriminate issuance
Speaker 1: in the junk bond market probably since the end of
Speaker 1: the last cycle. So I mean, first of all, a
Speaker 1: couple of maybe bigger picture statements about the the below
Speaker 1: investment grade marketplace. We we plumbed the low and spreads
Speaker 1: UH seemingly about three or four weeks ago the start
Speaker 1: of the year. We came into the year with a
Speaker 1: lot of euphoria. Spreads are actually about sixty seventy basis
Speaker 1: points wider, so we're we went very quickly from the
Speaker 1: low three hundreds to the high three hundreds. So there
Speaker 1: are there's a lot of cross currents going on in
Speaker 1: the market. There seems to be a lot more risk
Speaker 1: discrimination going in the market, which is to say that
Speaker 1: the double bees have done actually quite a bit better
Speaker 1: than UH than than the triple ceas and UM. The
Speaker 1: market is allowing a lot of semi excessive type of
Speaker 1: transactions to occur, such as the one you alluded to,
Speaker 1: and on the other hand, it's become also rather skeptical
Speaker 1: of some of the more levered business models out there
Speaker 1: as well. So, Ted, I know from past discussions with you, UH,
Speaker 1: you know, you cite the concern that we are at
Speaker 1: the tail end of the economic cycle. What are you
Speaker 1: seeing in terms of credit quality? Uh, maybe in the
Speaker 1: portfolio that in your portfolio, or some of the new
Speaker 1: deals coming to the market. Well, the UH, I guess
Speaker 1: a good starting places to start by thinking about how
Speaker 1: much leverage is embedded now in the in the credit
Speaker 1: markets generally you've seen moving away from I yield for
Speaker 1: a moment there, there's something like twenty of the investment
Speaker 1: grade corporate debt market that's now sporting leverage ratios reported
Speaker 1: leverage ratios of more than four four turns, meaning more
Speaker 1: than four units of debt forever unit of earnings. That's
Speaker 1: significant because, you know, while this is a vast generalization,
Speaker 1: I think it's probably fair to say this that if
Speaker 1: you were walking down the street trip and fell into
Speaker 1: the office of a major rating agency and the first
Speaker 1: questions out of their mouth was we've never met you before,
Speaker 1: but tell us about how much leverage is on your
Speaker 1: balance sheet. If you said to them, oh, I've got
Speaker 1: less than two turns of leverage, less than two units
Speaker 1: of debt forever unit of earnings, they'd probably say to you,
Speaker 1: you're probably investment grade. I don't need to know a
Speaker 1: whole lot more about you, but when you're at about
Speaker 1: four turns of leverage, it's probably more like, well, you'd
Speaker 1: better tell me a really good story about your your
Speaker 1: your business management, and so forth for you not to
Speaker 1: be below investment grade. The point being is that with
Speaker 1: such a large cohort of the investment grade market as
Speaker 1: I alluded to, over four turns of leverage, the risk
Speaker 1: of reprising what we've seen in prior cycles, which is
Speaker 1: that basically somewhere between maybe a quarter to a half
Speaker 1: of the triple B marketplace tends to suffer down grade
Speaker 1: into below investment Great, you're probably already in that territory.
Speaker 1: So what can you say is that as long as
Speaker 1: people are willing to extrapolate and say tomorrow will be
Speaker 1: like yesterday and the cycle will never turn, and the
Speaker 1: FEDS all powerful and all that, um, you probably don't
Speaker 1: have to worry about the rating cycle turning more pernicious.
Speaker 1: But it will at some point because all of the tender,
Speaker 1: so to speak, is already piled up there. So what
Speaker 1: are you doing in terms of buying and selling? Well, um,
Speaker 1: we don't. We try not to respond too much to
Speaker 1: obviously to the day to day noise. Is that the
Speaker 1: way we have always held ourselves out is that you
Speaker 1: should probably think about the asset price cycle as uh,
Speaker 1: you know, roughly speaking, the way we've typically characterized it.
Speaker 1: It has three phases to it. So in the early
Speaker 1: phase you're supposed to be all in in terms of risk,
Speaker 1: at least as as it relates to a fixed income investor,
Speaker 1: because it's a big beta trade. Is that everything trades wide,
Speaker 1: and everything trades wide because everybody got their their fingers
Speaker 1: burnt in the last de leveraging. And so you go
Speaker 1: down the capital structure, you take on a liquid investments,
Speaker 1: you sell convexity risk wherever you find it. It's probably
Speaker 1: gonna work out because even if you did your fundamental
Speaker 1: analysis wrong, probably isn't gonna hurt you when you get
Speaker 1: to the late cycle. The question that we pose to ourselves,
Speaker 1: but we would pose it to anybody is should you
Speaker 1: be underwriting credit risk counterparty risk? The same way in
Speaker 1: the late cycle as you should in the early cycle. Now,
Speaker 1: if you're a momentum investor, you say, well, of course
Speaker 1: you should. If anything, maybe you should pile on more. Well,
Speaker 1: the value perspective says, no, you shouldn't. You're supposed to
Speaker 1: be in the late cycle. You're supposed to go back
Speaker 1: to UH the old Ben Ben Graham dictum about bonds,
Speaker 1: that it's negative selection and you want to avoid the
Speaker 1: more sess of levels of risk taking. So what do
Speaker 1: you do? Okay, you don't put your portfolio in cash,
Speaker 1: but you probably go as follows. You need liquidity in
Speaker 1: the late cycle, so you should have some treasuries and
Speaker 1: agency mortgages, which, by the way, UH agency mortgages have
Speaker 1: actually fairly attractive spread levels. UH. For for just sort
Speaker 1: of ordinary run of the mill yield, there are at
Speaker 1: least a relatively good UH sampling of opportunities in the
Speaker 1: investment grade universe. Just because that market at large is
Speaker 1: significantly levered doesn't mean that opportunities don't come along. Um
Speaker 1: they do. I mean a year year and a half ago,
Speaker 1: the blowout in ge spreads may have five five and
Speaker 1: a half turns of leverage. There were some issues and
Speaker 1: concerns that people had, but at three hundred and fifty
Speaker 1: basis points over treasuries, you're being paid for it. Today.
Speaker 1: Fast forward, the investment grade market is treasuries. You have
Speaker 1: to be really selective about what you do, but you
Speaker 1: should own some. And then you're supposed to go back
Speaker 1: to the to the premise that we said earlier, which
Speaker 1: is what are you not supposed to be owning? Because
Speaker 1: the last thing a fixed income manager I think really
Speaker 1: wants to report back to investment committee's boards shareholders is
Speaker 1: you gave me all this discretion. You trusted me, and
Speaker 1: you know I bought a bunch of bonds and they're
Speaker 1: down forty fifty points and they're not coming back. But sorry,
Speaker 1: you know you should keep me on on board anyway. Um,
Speaker 1: I think it's implicit in the mandate for a fixed
Speaker 1: income manager at least. I mean this luck not trying
Speaker 1: to legislate for the world. But this is our view
Speaker 1: of it, is that that's part of the expectation that
Speaker 1: you'll be prudent in the late cycle and kind of
Speaker 1: greedy in the early cycle. It's just warrant buffett in
Speaker 1: bonds exactly. Hey, Tad, thanks so much. For joining us.
Speaker 1: Tad Rivelle, chief investment officer for fixed income at TCW
Speaker 1: hundred semi five billion dollars under management based in Los Angeles,
Speaker 1: with a consistent conservative view of the fixed income markets. Recently,
Speaker 1: Warren Buffett throw in the towel on his newspaper holding,
Speaker 1: saying he just didn't see this business turning around. There
Speaker 1: is a big existential question facing the entire newspaper industry
Speaker 1: and on the front lines of it, John Founding, founder
Speaker 1: and managing principle at Methusela Advisors. He joins us here
Speaker 1: in our Bloomberg Interactive at Broker Studios, and John, I
Speaker 1: see are on the front lines because you've advised UH
Speaker 1: clear Channel Communications on the eighteen billion dollar buyout Disney
Speaker 1: Company on his two thousand and six sale of ABC Radio.
Speaker 1: I'm trying to understand what the new model will be
Speaker 1: to save an industry that by almost all measures, is dying.
Speaker 1: It's a huge question, Um, thanks for having me. Look,
Speaker 1: the newspaper industry is going to have to remake the
Speaker 1: revenue model. You can't have a revenue model which was
Speaker 1: essentially sent advertising based in subscription based, have the advertising
Speaker 1: side of it go away piece by piece. First digital. First,
Speaker 1: digital killed classifieds, which was the highest profit component of
Speaker 1: the advertising model. Then run of Press came under gigantic pressure.
Speaker 1: So the digital impact in this industry, as it is
Speaker 1: in many industries, far far deeper, and until they replace
Speaker 1: that with a bigger subscription side, meaning the users of
Speaker 1: the content pay for the content, the newspaper industry is
Speaker 1: in deep, deep trouble, all right, So the users. We've
Speaker 1: seen a couple of success stores in New York Times,
Speaker 1: you know, maybe the Wall Street Journal, dot com, FT
Speaker 1: dot com, a couple of national, global brands have created
Speaker 1: that kind of model of subscription model. It's been the
Speaker 1: savior of the New York Times company. But we haven't
Speaker 1: seen many successors or any success stories at the more
Speaker 1: local level. So what is the future? This is a
Speaker 1: public policy question. What is the future of local journalism.
Speaker 1: It's a it's a huge question for the local paper
Speaker 1: that's not the New York Times, the Times as a
Speaker 1: national asset. Now, truth be told, the vast, vast majority
Speaker 1: readers of the New York Times are New York centric
Speaker 1: or sophisticated urban readers. The largest paper in America, I
Speaker 1: believe it or not, as USA Today. USA Today is
Speaker 1: the largest distribution paper. Um. Yeah, because it has a
Speaker 1: deal with all the hotels and they can stick it
Speaker 1: in front of it. That's true. It's it's that free
Speaker 1: paper that's under your your door. But it is still
Speaker 1: read in lots of places and picked up in airports
Speaker 1: and in hotels. And yet it doesn't make it doesn't
Speaker 1: really make money. It was an asset of Ghanette. They
Speaker 1: built it great, um great scope doesn't make money. The
Speaker 1: question becomes, what would happen if these papers, the Denver Post,
Speaker 1: the Saltily Tribune, the Chicago Tribune, the Atlantic Constitution, if
Speaker 1: they go away, And that's the existential question. They could
Speaker 1: go away, with the exception of a few of these
Speaker 1: places that are owned by very wealthy parents. The Cox family,
Speaker 1: extremely wealthy, is not gonna let go of at land At.
Speaker 1: Jeff Bezos has bought the Washington Post to preserve it
Speaker 1: as an asset. But if if, if you don't find
Speaker 1: a billionaire who wants to run each giant local daily
Speaker 1: paper as a mission, you have to change who's making
Speaker 1: money on it. And the right way to change it
Speaker 1: is look at how much money is being made by Google, Acebook, Twitter,
Speaker 1: and the digital giants who have access and use all
Speaker 1: of this content and don't pay a dime for it,
Speaker 1: nothing for it. That to me is criminal. And the
Speaker 1: newspaper industry let the mayor out of the barn, as
Speaker 1: they say, a long time ago, fifteen years ago, when
Speaker 1: they should have asserted their copyright privileges and said, don't
Speaker 1: touch my stuff unless you pay me. And instead, the
Speaker 1: newspaper industry, like everyone else, thought that access to digital
Speaker 1: traffic and volume of digital traffic would be the nirvana. Alright,
Speaker 1: so how do you corral the mayor? How do you
Speaker 1: get it back in the newspaper industry has to do.
Speaker 1: It's like it's like the patient who has a terrible
Speaker 1: cancer and needs chemotherapy. It's an ugly, ugly experience, but
Speaker 1: they're going to have to do it. Six of digital
Speaker 1: traffic on daily papers in America or more is generated
Speaker 1: and coming out of Google, Facebook, Twitter and the digital
Speaker 1: platforms sending traffic to those papers. Therefore, the digital traffic
Speaker 1: manager at the Albany Paper or the Buffalo Paper gets
Speaker 1: a call from his publisher saying, we've told those platforms
Speaker 1: not to not to put our stuff up on their
Speaker 1: side anymore. And that guy at the top of his
Speaker 1: head blows off because he's like, well, how am I
Speaker 1: going to have it be a business? There has to
Speaker 1: be a negotiated solution where instead of using all of
Speaker 1: that content for free, they actually pay something into the industry.
Speaker 1: And there are perfectly good models for this. In the
Speaker 1: music industry, there are there are models where users of
Speaker 1: music content pay reasonable license fees for the use of
Speaker 1: that whether to the songwriter or the artist or the performer. UM.
Speaker 1: In the television industry, we've seen real payments go to
Speaker 1: the television stations from the cable guys who are using
Speaker 1: the signal. People. Forget, fifteen years ago there was no
Speaker 1: such payment. Last year, the cable guys paid twelve billion
Speaker 1: dollars to the television stations for use of their signal.
Speaker 1: Why shouldn't the digital platforms do the same? In one minute,
Speaker 1: what's the fair use collective? Fair use collective as a concept? UM,
Speaker 1: It's an idea UM that we've been supportive of, and
Speaker 1: the News Media Alliance in Washington has been supportive of.
Speaker 1: It is a It is a position that the industry
Speaker 1: comes together and a little bit like the music industry,
Speaker 1: which uses b M I and ascap as the intermediary something,
Speaker 1: whether it's the Faious Collective or something else, acts as
Speaker 1: the representative and negotiating on mass with Google, Facebook, Twitter,
Speaker 1: Apple and people that are using the stuff for free,
Speaker 1: and gets a fair license payment and then distributes that
Speaker 1: license payment out to all the papers in a manner
Speaker 1: that's reasonable and commensurate with what they generate. Obviously, the
Speaker 1: New York Times of the World, the Washington Post, they're
Speaker 1: going to get a significant piece of that because they're
Speaker 1: they're They're what people are reading. But all of these
Speaker 1: papers needed. Imagine a world where the Chicago just Chicago
Speaker 1: Tribune disappears in terms of doing coverage on the state
Speaker 1: House in Illinois, or the Denver Post doesn't exist. We
Speaker 1: are not far from that world, and so the farious
Speaker 1: collective idea is that these license payments have to be
Speaker 1: distributed across the industry to sustain these papers. John, thanks
Speaker 1: for coming in and sharing that commentary with us. Those
Speaker 1: thoughts so with us. It's really fascinating. I think it
Speaker 1: really goes to the heart of the matter kind of
Speaker 1: a public policy issue. Is local journalism required in the
Speaker 1: democracy And a lot of people obviously would say absolutely
Speaker 1: it is a certainly required, but given what happened in
Speaker 1: the digital world, a lot of these papers are at risk. Well,
Speaker 1: there's also a business question, how do they make money
Speaker 1: and at a time when people aren't really willing to
Speaker 1: pay for it and classified aren't really a thing in
Speaker 1: the same kind of way where where it's the model. Yeah,
Speaker 1: so John and others are thinking about that model. John Shoes,
Speaker 1: founder and managing Principle Advisors based here in New York City,
Speaker 1: joining us here in our Bloomberg Interactive Broker's studio talking
Speaker 1: about that issue. So we had Terry Kawaja, former colleague
Speaker 1: John's on earlier talking about some of the digital aspects
Speaker 1: of business. But the other end of the equation is
Speaker 1: some of the traditional media companies, the print media companies,
Speaker 1: the local journalists have to figure out a business model,
Speaker 1: uh that supports those businesses. Not you know, we only
Speaker 1: have the New York Times and a couple of the
Speaker 1: big papers that have made profits on the digital business
Speaker 1: that needs to change for journalism. Were typically check in
Speaker 1: around this time with our Bloomberg Opinion columnists. Today, we're
Speaker 1: so lucky to have John authors with us, a senior
Speaker 1: editor for Bloomberg Markets and also a Bloomberg opinion columnist
Speaker 1: here in our interactive Broker Studios and John, the reason
Speaker 1: why I'm particularly excited to have you, I'm always excited
Speaker 1: to have you, is because I'm trying to to understand
Speaker 1: the narrative around the coronavirus. Right now. We shifted from
Speaker 1: a fear factor type of translation here too by the
Speaker 1: dip Goldilocks kind of reversion. How should we understand this?
Speaker 1: Okay um. First of all, plainly, it has all the
Speaker 1: classic aspects of a black swan. I'm not saying the
Speaker 1: damage that has done so far count Councer as a
Speaker 1: black swan. But there is the risk of something where
Speaker 1: we simply cannot estimate the probability of a very serious outcome,
Speaker 1: and we're not sure exactly how expensive that very serious
Speaker 1: outcome could be. So you have that automatically is exactly
Speaker 1: the kind of thing that that markets find it very
Speaker 1: difficult to price. Now, what you have at present is
Speaker 1: a belief that we were in the beginning stages of
Speaker 1: a reflation recycle at the end of last year. Whether
Speaker 1: how much of that is down to phase one of
Speaker 1: the trade deal is is an interesting question, But there
Speaker 1: were any number of measures from markets, commodities, bonds, et cetera,
Speaker 1: suggesting reflation. And at this point, what we do know
Speaker 1: about the coronavirus is that it is going to have
Speaker 1: a pretty serious effect on Chinese growth. Cannot be otherwise.
Speaker 1: They're closing factories, they're shutting down transport. This is plainly
Speaker 1: a significant deal for China. Now that is is leading
Speaker 1: to the calculation that it actually reinforces um. It's a
Speaker 1: difficult way to I struggled with how to put this
Speaker 1: tastefully in my column. But it's like gold I'm just
Speaker 1: addressing the nature. It's golden if goldilocks, it's not goldilocks. Normally,
Speaker 1: a Goldilocks is an economy that's not too hot that
Speaker 1: you have to raise rates, but not too cold that
Speaker 1: you don't get the growth to help investors. At this point,
Speaker 1: Goldilocks is dealing with a virus rather than with the
Speaker 1: three bears. And while the while the virus is out there,
Speaker 1: while the effect on Chinese growth is out there, that
Speaker 1: locks banks central banks into the kind of low rate,
Speaker 1: easy money policy that means that we can continue with
Speaker 1: there is no alternative. We've got to buy stocks. That
Speaker 1: is the narrative that is running markets at present, I
Speaker 1: would say, and the only way that will be overturned
Speaker 1: within American markets outside of China is if we get
Speaker 1: a serious breakout beyond Chinese shore. But clearly, I guess
Speaker 1: what's confusing me is the ripple effects of the slowing
Speaker 1: Chinese economy. What it means for you know, markets in
Speaker 1: Europe and and all the trading partners the US and included.
Speaker 1: It seems like the global g d P hit could
Speaker 1: in certain scenarios be materially impacted. And that is kind
Speaker 1: of what I'm concerned. The markets aren't discounting at the moment.
Speaker 1: I would say that they are to an extent in
Speaker 1: that if you take a look at the bond markets,
Speaker 1: they are in a classic defensive crouch for things to
Speaker 1: be very bad. And if you look at w T
Speaker 1: I on your on your on this very show twenty
Speaker 1: four hours ago managed to get below fifty dollars per
Speaker 1: per barrel um. Similarly, if you look at industrial metals,
Speaker 1: which is we're trying to really is critical that the
Speaker 1: copper gold ratio is coming close to you know, it's
Speaker 1: lowest in many decades, so that is being it is
Speaker 1: showing up in markets. I suppose you still have the
Speaker 1: issue ahead of us that this really is a horrific
Speaker 1: within China. So it's not just a percentage point of
Speaker 1: Chinese growth, which is a big deal anyway, but it
Speaker 1: really is the factor that brings an end to the
Speaker 1: Chinese growth story altogether for a while, and that we're
Speaker 1: not that we're not ready for h And then you
Speaker 1: do have again the issue that that that it truly
Speaker 1: breaks out around the rest of the world, and that
Speaker 1: is not something that is priced in. You know, the
Speaker 1: SMP is whatever it is two percent below side that
Speaker 1: that is not priced in at all. That's still a risk.
Speaker 1: But as far as I can see at this moment,
Speaker 1: we don't have good enough information to start pricing it
Speaker 1: in anyway. So I don't know that I can have
Speaker 1: any great issues of people being complacent about that. John
Speaker 1: Arthur's thanks so much for joining us. We always appreciate
Speaker 1: your viewpoint. John Authors is senior editor for Bloomberg Markets.
Speaker 1: Joining us here on our Bloomberg Interactive Broker studio, and
Speaker 1: of course you can read John's work and all of
Speaker 1: the work from our fine Bloomberg opinion columnists at Bloomberg
Speaker 1: dot com, slash Opinion and on the Terminal at O P. I.
Speaker 1: N Go on the Ternel. They do great work and
Speaker 1: we love having them as a resource for Bloomberg Radio.
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