WEBVTT - Disney-Fox Deal Would Be Defining Legacy For Bob Iger: Sweeney 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:34.040 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. So 0:00:34.080 --> 0:00:37.760 it sounds like Comcast has fallen out of the running 0:00:37.760 --> 0:00:40.920 to buy some assets of twenty one century Fox, which 0:00:40.960 --> 0:00:45.040 leaves Walt Disney Company as the remaining suitor here and 0:00:45.040 --> 0:00:48.440 they are expected to announce a deal any day. Now 0:00:48.520 --> 0:00:50.920 Here to talk about that is Paul Sweeney, US director 0:00:50.960 --> 0:00:55.960 of Research and senior Media and Internet analyst for Bloomberg Intelligence. Paul, 0:00:56.040 --> 0:00:59.240 you have been covering this company for twenty seven years. 0:00:59.440 --> 0:01:03.440 You know this place inside and out. What exactly is 0:01:03.520 --> 0:01:08.800 Disney going to go after Century currently has and why? Well, 0:01:08.840 --> 0:01:11.199 this is a If they buy these assets from twenty 0:01:11.440 --> 0:01:14.320 century Fox, it will be a obviously a significant deal, 0:01:14.480 --> 0:01:17.759 you know, probably fifties sixty billion dollars of value there um. 0:01:17.800 --> 0:01:20.440 But it's really going to be the defining legacy deal 0:01:20.520 --> 0:01:22.840 for Bob Eiger. Uh just in the past two or 0:01:22.880 --> 0:01:25.720 three years, the media business has been tremendously disrupted by 0:01:25.760 --> 0:01:28.959 the Netflix is of the world and the whole unbundling 0:01:28.959 --> 0:01:31.400 and a chord cutting associated with the pay TV package. 0:01:31.440 --> 0:01:35.080 That's really upended everybody's business model, including UH, the Walt 0:01:35.080 --> 0:01:38.600 Disney Company, and the mighty ESPN. So if you're Bob Eiger, um, 0:01:38.640 --> 0:01:41.040 you really have to position your company for the next 0:01:41.080 --> 0:01:43.480 ten to twenty years. And I think the way they 0:01:43.520 --> 0:01:44.960 feel like they need to do that as they need 0:01:45.000 --> 0:01:46.760 to do a couple of things when they need to 0:01:46.800 --> 0:01:49.760 bulk up on even more content, even though Disney arguably 0:01:49.800 --> 0:01:52.120 has the best content in the world. By buying the 0:01:52.160 --> 0:01:55.600 twenty century Fox Film and Television Studio, you get even 0:01:55.640 --> 0:01:59.400 more UH film and television production, plus an amazing library. 0:01:59.640 --> 0:02:03.200 They can use that content to create our program their 0:02:03.240 --> 0:02:05.760 direct to consumer offering that they announced for next year 0:02:05.840 --> 0:02:08.520 their version of Netflix. UM. You also get a lot 0:02:08.560 --> 0:02:12.880 of international assets too, big assets one in Sky for 0:02:13.000 --> 0:02:17.160 Europe and Star India in India, which really helps Disney 0:02:17.280 --> 0:02:20.160 increase its international exposure, which I think they've been under 0:02:20.200 --> 0:02:23.760 exposed internationally before in terms of their percentage of operating income. 0:02:23.840 --> 0:02:25.840 So that's a big plus for them. And then third 0:02:25.919 --> 0:02:28.519 is they get a controlling interest in Hulu, which is 0:02:28.600 --> 0:02:31.440 a direct competitor to Netflix, and maybe you know, having 0:02:31.560 --> 0:02:34.680 direct control over Hulu will allow Disney to really drive 0:02:34.760 --> 0:02:36.839 that business afford and try to make that a much 0:02:37.040 --> 0:02:40.079 bigger competitor to Netflix. So do we have any idea 0:02:40.160 --> 0:02:43.480 why Comcast dropped out because we talked a lot about 0:02:43.560 --> 0:02:47.200 why the acquisition of the Sky Network in particular was 0:02:47.280 --> 0:02:50.440 really beneficial for Comcast. Yeah, yeah, I think Comcast and 0:02:50.600 --> 0:02:52.960 Verison was also mentioned there. I think kind of from 0:02:53.000 --> 0:02:55.919 the get go, the Murdochs have kind of sent out 0:02:56.000 --> 0:02:58.000 some signals that they prefer to sell their assets to 0:02:58.080 --> 0:03:02.560 Disney for a variety of reasons, some regulatory um and 0:03:02.720 --> 0:03:05.080 some cultural. I think the cultural one is that the 0:03:05.160 --> 0:03:08.320 rumors that James Murdoch, who was CEO of twenty one 0:03:08.360 --> 0:03:12.399 century Fox, will get a leadership role within Disney, potentially 0:03:12.840 --> 0:03:15.320 setting himself up for, in an ideal world in his mind, 0:03:15.360 --> 0:03:18.520 to be a successor to Bob Eiger, is real. It 0:03:18.639 --> 0:03:21.720 seems incredibly far fetched that a the Murdox would ever 0:03:21.760 --> 0:03:23.840 sell their company and be that they would ever quote 0:03:23.880 --> 0:03:27.400 unquote work for anybody else but we're in very crazy 0:03:27.480 --> 0:03:30.640 times here in the media space. And uh and I 0:03:30.680 --> 0:03:34.200 think if you're Disney, one of the real shortfalls into 0:03:34.200 --> 0:03:37.040 disney story is that they do not have a succession 0:03:37.080 --> 0:03:39.680 plan for Bob Biker. They had a very well defined 0:03:39.680 --> 0:03:41.240 one up until two or three years ago when it 0:03:41.280 --> 0:03:43.920 all fell apart, and since then they've been scrambling and 0:03:43.920 --> 0:03:46.280 they have not been able to identify, you know, an 0:03:46.280 --> 0:03:48.840 external candidate or an internal candidate, and it doesn't really 0:03:48.880 --> 0:03:51.480 seem to be anybody on the horizon. So this might 0:03:51.880 --> 0:03:53.840 fulfill one of their needs if it all were to 0:03:53.880 --> 0:03:56.880 work out. So crazier things seems to have happened, but 0:03:56.880 --> 0:03:58.720 this would certainly be right at the top. What do 0:03:58.720 --> 0:04:00.480 you think the price tag is going to be for Disney? 0:04:00.680 --> 0:04:03.000 It depends kind of what assets they buy. But you 0:04:03.000 --> 0:04:05.000 know the numbers that we've run, um, you know, you've 0:04:05.040 --> 0:04:08.080 put all the assets together that presumably that they're looking at. 0:04:08.120 --> 0:04:10.840 It could be fifty to sixty billion dollars of enterprise value. 0:04:10.920 --> 0:04:13.480 So um. And then what Fox will be left with 0:04:13.520 --> 0:04:15.840 would be kind of a remain code, which would be 0:04:15.920 --> 0:04:21.760 the Fox News cable network, the Fox uh broadcast network. UM. 0:04:21.800 --> 0:04:23.760 And you know, a couple of other assets there, and 0:04:23.800 --> 0:04:25.839 that would be in the Fox Sports one, and that 0:04:25.839 --> 0:04:29.080 would be a much much smaller company. Um. And then 0:04:29.080 --> 0:04:30.880 the question be what do the Murdochs do with that 0:04:31.040 --> 0:04:33.600 smaller company? Uh And then I think the expectations they 0:04:33.640 --> 0:04:37.719 would probably re emerge it into uh News Corporation, which 0:04:37.760 --> 0:04:40.920 is the company that houses all of their print businesses, 0:04:40.960 --> 0:04:43.279 the Wall Street Journal and all their papers around the world. 0:04:43.520 --> 0:04:45.640 Maybe create a little bit of a bigger company that way. 0:04:45.680 --> 0:04:47.840 So there's lots of pieces out there. The bankers are 0:04:47.839 --> 0:04:50.960 working crazy hours, I'm sure trying to make sure everybody, 0:04:51.080 --> 0:04:53.640 uh you know, all the pieces fit together. I'm just 0:04:53.680 --> 0:04:55.960 trying to wrap my head around James Murdoch and the 0:04:55.960 --> 0:04:59.640 cultural fit or lack thereof with Disney. That's that's kind 0:04:59.640 --> 0:05:01.440 of mind Bogle, It really is. And you know that 0:05:01.560 --> 0:05:05.159 Disney being the family uh friendly company and and Fox 0:05:05.320 --> 0:05:08.480 uh you know, on across all of its portfolio assets 0:05:08.560 --> 0:05:10.039 kind of being much more at their own edge in 0:05:10.120 --> 0:05:13.280 terms of the programming that it's studio produces, the TV shows, 0:05:13.440 --> 0:05:16.039 the Bart Simpsons of the world, and uh so they're 0:05:16.200 --> 0:05:20.200 very very different culturally. UM. But I think the the 0:05:20.240 --> 0:05:24.320 assets that uh, you know, Disney would be buying I 0:05:24.360 --> 0:05:26.400 think actually would fit very well with the company. And 0:05:26.400 --> 0:05:28.159 then what remains to be seeing how the other people 0:05:28.160 --> 0:05:31.359 fit in and frankly, I mean maybe Disney wants that diversity, 0:05:31.400 --> 0:05:34.120 that sort of edge. I'm just wondering about the timing 0:05:34.279 --> 0:05:36.680 when you think Disney is going to announce this, Well, 0:05:36.680 --> 0:05:39.080 this is very interesting the company. I'm I'm about to 0:05:39.080 --> 0:05:41.600 head out to Burbank on Thursday morning after Disney They're 0:05:41.640 --> 0:05:43.520 having an analyst meeting there where they were going to 0:05:43.920 --> 0:05:46.839 kind of uh screen their new Star Wars movie, which 0:05:46.880 --> 0:05:48.560 is gonna be a big driver for their company and 0:05:48.600 --> 0:05:50.320 their for their stock, they hope. So that was already 0:05:50.360 --> 0:05:53.320 established for Thursday. I think what they'd like to do 0:05:53.400 --> 0:05:55.200 is once, since they already have their analysts and their 0:05:55.200 --> 0:05:57.800 investors in the room at at in the Burbank studio, 0:05:57.960 --> 0:06:00.479 is let's announce the deal then, and you know, let's 0:06:00.480 --> 0:06:03.159 bring the Murdoch h Robert and his son's up on 0:06:03.200 --> 0:06:05.280 stage and let's try to really sell this deal as 0:06:05.320 --> 0:06:07.279 a as a great deal. And I think that's the 0:06:07.320 --> 0:06:10.320 event that Disney would like to to to do there. 0:06:10.520 --> 0:06:12.560 Nobody does events better than Disney, so I think that's 0:06:12.600 --> 0:06:14.040 kind of how they like to announce the deal to 0:06:14.080 --> 0:06:16.360 the world. Yeah, my heart's really bleeding for you. He's 0:06:16.360 --> 0:06:19.560 gonna go out to California to watch movies, to watch 0:06:19.680 --> 0:06:23.960 the premiere of Star Wars and having an amazing presentation, 0:06:24.080 --> 0:06:27.920 an incredibly interesting announcement, hang out with your friends, and uh, 0:06:28.240 --> 0:06:31.120 go out for a few drinks. Well, Paul Sweeney, it's 0:06:31.160 --> 0:06:34.640 been real. Please bring me back a souvenir. Absolutely. Paul Sweeney, 0:06:34.720 --> 0:06:37.640 US director of Research and senior Media and Internet Analyst 0:06:37.839 --> 0:06:57.800 for Bloomberg Intelligence. I'm struck by the high yield bond market. 0:06:58.040 --> 0:07:02.039 How people have been calling for its demise for almost 0:07:02.040 --> 0:07:04.239 a decade now, almost as soon as it started surging 0:07:04.279 --> 0:07:06.960 after the after the credit crisis. And yet here we 0:07:07.000 --> 0:07:10.280 are with another year of pretty impressive gains, up more 0:07:10.320 --> 0:07:12.600 than seven percent so far this year, following a seventeen 0:07:12.640 --> 0:07:14.960 and a half percent game last year. So what's ahead 0:07:14.960 --> 0:07:17.000 for next year? And uh has it already gotten to 0:07:17.080 --> 0:07:19.960 be too good to be true? Should we expect losses? 0:07:20.200 --> 0:07:23.160 Here to explain it all to us is Ken Monahan. 0:07:23.360 --> 0:07:26.520 He is Director of high Yield for a Moondi Pioneer 0:07:26.560 --> 0:07:29.360 in Durham, North Carolina. Nobody joins us here in our 0:07:29.400 --> 0:07:32.640 New York studios. So, Ken, what's your projection for next year? 0:07:32.880 --> 0:07:35.760 You know, Lisa m our crystal ball at this point 0:07:35.880 --> 0:07:40.840 is so foggy it looks more like a snow globe. So, um, well, 0:07:40.840 --> 0:07:42.840 we're we're we're working on it. You know, I think 0:07:42.880 --> 0:07:44.880 that the first half of next year is much easier 0:07:44.880 --> 0:07:47.200 to predict than the than the back half. And I 0:07:47.240 --> 0:07:49.320 think the first half of the year, you know, today 0:07:49.320 --> 0:07:52.320 we're waiting for news from the FED. Our expectation is 0:07:52.360 --> 0:07:55.520 we're going to get several more moves, probably three next year. Uh. 0:07:55.560 --> 0:07:57.120 And the question is what the e c B does 0:07:57.160 --> 0:07:59.320 as well, and what kind of an impact that ultimately 0:07:59.360 --> 0:08:01.760 will have a high yield marketplace. So you think that 0:08:01.920 --> 0:08:04.960 still the high yield bond market is highly dependent on 0:08:05.160 --> 0:08:08.360 actions of the central banks more than anything else. I 0:08:08.400 --> 0:08:10.600 think that I'm not saying highly dependent. I think that 0:08:10.600 --> 0:08:13.640 that's just one major variable. And with rates as low 0:08:13.720 --> 0:08:16.800 as they are, we haven't been in this situation before. 0:08:17.240 --> 0:08:20.040 You know, theoretically the high yield market should earn should 0:08:20.040 --> 0:08:22.400 earn its coupon next year, so it should earn somewhere 0:08:22.400 --> 0:08:24.920 around five percent plus or minus a little bit the 0:08:24.960 --> 0:08:28.240 current high yield bond market is currently yielding about five 0:08:28.280 --> 0:08:30.520 and three quarters percent. As you indicated, it earned a 0:08:30.560 --> 0:08:32.760 little bit more than seven percent this year if you 0:08:32.800 --> 0:08:35.720 look at the Bloomberg Barkley's index. I don't think it 0:08:35.720 --> 0:08:37.560 will match that next year, but if it earned a 0:08:37.600 --> 0:08:40.600 five percent return, that would be actually pretty reasonable. Um. 0:08:40.679 --> 0:08:43.720 The question really is is how much headwinds do we 0:08:43.800 --> 0:08:46.400 have out there and to what extent is the well 0:08:46.440 --> 0:08:50.360 the activities of central banks contribute to that. So moving 0:08:50.360 --> 0:08:53.199 beyond the macro story, one thing that I found fascinating 0:08:53.280 --> 0:08:55.480 this year is that within the high elk bond market, 0:08:55.920 --> 0:09:00.120 you've seen a number of potholes. Companies are just all 0:09:00.120 --> 0:09:05.240 out of bed suddenly tank uh. There have been some resurrections. 0:09:05.360 --> 0:09:07.600 We look at Valiant, for example, which seems to be 0:09:07.640 --> 0:09:12.040 doing all right. But going into next year, which companies 0:09:12.240 --> 0:09:16.400 do you expect to be the next potholes? Well, I'm 0:09:16.440 --> 0:09:19.400 not going to name specific companies. There are certainly industries. 0:09:20.200 --> 0:09:22.920 There's certainly industries that were watching. You know, Telecom is 0:09:22.960 --> 0:09:26.400 an obvious one. Retail I think is an obvious one 0:09:26.480 --> 0:09:28.000 as well. So in other words, you don't think the 0:09:28.040 --> 0:09:32.000 retail carnage is over. I think that the juggernaut known 0:09:32.000 --> 0:09:35.520 as aman Amazon is going to continue. Um. Having said that, 0:09:35.720 --> 0:09:38.559 I don't think we were as nervous as some uh 0:09:38.640 --> 0:09:41.480 you know, coming out of the third quarters numbers, or 0:09:41.640 --> 0:09:44.040 really the second quarters numbers, which are perhaps a bit weaker, 0:09:44.360 --> 0:09:46.880 and people had panicked and a lot of the retail 0:09:47.000 --> 0:09:51.439 names had sold off. I don't think, um, Amazon is 0:09:51.440 --> 0:09:54.160 going to replace the entire retail market. Uh. You know, 0:09:54.160 --> 0:09:56.800 I said to my analysts earlier this year, I said, 0:09:56.840 --> 0:10:00.200 you know, I've lived through environments where Internet was post 0:10:00.240 --> 0:10:04.480 to replace automo auto car dealers. Uh. And then um, 0:10:05.559 --> 0:10:08.599 the flat screen TVs in our home, We're going to 0:10:08.679 --> 0:10:11.600 replace all the movie theaters. And yet those businesses continue. 0:10:11.880 --> 0:10:14.520 It doesn't mean they don't have to re reconnect or 0:10:14.559 --> 0:10:17.320 re engineer their businesses, but it doesn't mean that they 0:10:17.360 --> 0:10:19.880 go out of business either. Well, and with telecom, before 0:10:19.880 --> 0:10:23.440 I let you go into other sectors that you see 0:10:23.440 --> 0:10:27.040 as as potentially experiencing some pain next year. Telecom is 0:10:27.040 --> 0:10:30.840 fascinating because you have some behemoths like I Heart Communications 0:10:30.880 --> 0:10:34.080 that's trying to bang out some kind of debt restructuring agreement. 0:10:34.080 --> 0:10:36.800 And then you also have Sprint, which with its on 0:10:36.960 --> 0:10:39.480 and off again, a deal with T Mobile that fell through. 0:10:39.880 --> 0:10:42.040 Left at the altar, that's right, left at the altar. 0:10:42.080 --> 0:10:44.600 There's a question of how it can continue in the 0:10:44.640 --> 0:10:49.040 future alone, without a bigger footprint and without better technology. 0:10:49.040 --> 0:10:51.120 It does not have the cash, it has tons of debt. 0:10:51.240 --> 0:10:54.360 What is Masio show uh Masioshi's son going to do 0:10:54.840 --> 0:10:57.319 from soft Bank, the big investor? Right? These are all 0:10:57.400 --> 0:10:59.679 huge questions. But you think that the route that we've 0:10:59.720 --> 0:11:02.120 seen and frontier, the route we've seen so far this 0:11:02.240 --> 0:11:04.440 year is not over. Is that what you're saying. I 0:11:04.480 --> 0:11:06.200 still think we're gonna get We're gonna have a very 0:11:06.240 --> 0:11:09.400 bumpy road in telecom for two thousand and eighteen. But 0:11:09.480 --> 0:11:12.000 doesn't mean if the sector can't earn a good return. 0:11:12.080 --> 0:11:14.240 In fact, because if you look at where the yields 0:11:14.280 --> 0:11:16.520 are for that sector right now, and those bonds are 0:11:16.559 --> 0:11:19.560 trading at pretty significant discounts to bar So if we 0:11:19.600 --> 0:11:21.880 can get, for example, some asset sales from some of 0:11:21.880 --> 0:11:24.600 the large players in that space, UH, if our friends 0:11:24.760 --> 0:11:28.160 spent sprint connect with somebody else or some how able 0:11:28.200 --> 0:11:33.760 to monetize or show value for their enormous bandwidth, uh, 0:11:33.800 --> 0:11:37.240 that that could change the the outlook for the sector 0:11:37.280 --> 0:11:39.480 in terms of returns. So one big question that I 0:11:39.559 --> 0:11:43.400 have is the field of triple B rated companies has 0:11:43.520 --> 0:11:46.680 expanded pretty wild wildly in the past few years. This 0:11:46.760 --> 0:11:49.680 is the lowest rung of investment rate. Yes, what is 0:11:49.720 --> 0:11:52.880 the likelihood in your mind that they will get downgraded 0:11:52.920 --> 0:11:55.719 to high yield and that you could see a rush 0:11:55.840 --> 0:11:59.640 of debt kind of move into your world that is unexpected? Well, 0:11:59.679 --> 0:12:01.319 if you if you look at a couple of things, 0:12:01.400 --> 0:12:03.480 it's interesting you bring this up because there's two things 0:12:03.520 --> 0:12:06.280 we would note. One, if you look at the at 0:12:06.320 --> 0:12:10.440 the percentage of corporate debt outstanding that's investment grade versus GDP, 0:12:11.280 --> 0:12:14.760 it's exploded, uh since the end of the recession, so 0:12:14.800 --> 0:12:17.360 it's moved up by about threefold. If you look at 0:12:17.360 --> 0:12:19.559 the percentage of high yield that it's increased as well, 0:12:19.600 --> 0:12:22.160 but by a much smaller percentage. So there's a lot 0:12:22.200 --> 0:12:25.120 more investment great debt that's been issued. A lot of 0:12:25.160 --> 0:12:27.920 it's been used as well, particularly for triple V companies, 0:12:27.960 --> 0:12:32.160 for shareholder friendly activity, so whether it's repurchasing shares or 0:12:32.200 --> 0:12:35.839 paying out dividends or for acquisitions, and those are the 0:12:35.840 --> 0:12:37.800 places you're right where you could have this risk of 0:12:37.840 --> 0:12:40.480 downgrade going forward. I'm so interested in this. Thank you 0:12:40.520 --> 0:12:42.160 so much for joining us. I could talk about this 0:12:42.240 --> 0:12:44.480 all day long with you. Ken Monahan, co director of 0:12:44.520 --> 0:12:47.000 High Yield at a Mundi pioneer, talking about what to 0:12:47.040 --> 0:12:50.120 expect next year. We shinned up his crystal ball and 0:12:50.160 --> 0:12:52.480 we got some insight. It's really interesting to me that 0:12:52.520 --> 0:12:55.240 the telecom route is not over. We will be discussing 0:12:55.240 --> 0:13:13.680 more about this. I'm sure a lot of people think 0:13:13.800 --> 0:13:17.600 of the Federal Reserve as being an independent body that 0:13:17.800 --> 0:13:23.119 is trying to maintain financial stability and keep the economy afloat. 0:13:23.520 --> 0:13:27.560 Desmond King and Oxford University professor seeks to dispel that 0:13:27.720 --> 0:13:31.760 notion with his new book, FED Power, How Finance Wins. 0:13:31.760 --> 0:13:34.720 It was published last month and it was co authored 0:13:34.760 --> 0:13:38.200 along with Lawrence Jacobs. Desmond joins us. Now it Doesmond, 0:13:38.200 --> 0:13:40.480 thank you so much for being with us. Can you 0:13:40.520 --> 0:13:44.320 just start. Can you just start with this idea that 0:13:44.480 --> 0:13:46.720 a lot of people have with the FED as a 0:13:46.800 --> 0:13:50.959 neutral player, and explain why you think that is inaccurate. 0:13:52.679 --> 0:13:55.719 The FED is clearly trying to make decisions on the 0:13:55.760 --> 0:13:58.960 basis of objective economic data and to do the best 0:13:59.000 --> 0:14:02.640 to manage the economy. But but the way in which 0:14:02.760 --> 0:14:08.200 this occurs is more tightly related to financial markets and 0:14:08.400 --> 0:14:11.439 to the needs of certain economic interests than is commonly 0:14:11.480 --> 0:14:16.720 recognized UM. And we developed this argument really about the 0:14:16.760 --> 0:14:20.960 feds um extraordinary response to the recession in two thousand 0:14:21.040 --> 0:14:24.320 and eight and the way in which it UM began 0:14:24.680 --> 0:14:29.840 the processes and the unconventional monitary measures, including, for instance, 0:14:30.120 --> 0:14:33.840 UM propping up money financial institutions and then going into 0:14:33.880 --> 0:14:39.400 this expanse of quantitative easing process. These are measures which 0:14:39.680 --> 0:14:46.040 UM are never scrutinized by UM a body such as 0:14:46.040 --> 0:14:49.880 Congress to ask whether they are the most appropriate, or 0:14:49.920 --> 0:14:52.840 they are measures which may or may not have various 0:14:53.040 --> 0:14:59.000 unexpected distributional consequences. So the idea here is that because 0:14:59.080 --> 0:15:04.120 the FED took these moves that directly propped up big banks, 0:15:04.160 --> 0:15:07.560 it shows that they're biased toward a market in which 0:15:07.920 --> 0:15:11.120 the biggest banks are the way they are and dominate 0:15:11.200 --> 0:15:14.960 finance and are not open to another way of the 0:15:15.000 --> 0:15:18.400 system running. Is that correct? Yes, I think biases may 0:15:18.400 --> 0:15:21.440 be a very too stronger term. But UM, in the 0:15:21.480 --> 0:15:24.560 way in which it responded, there were other options, for instance, 0:15:24.560 --> 0:15:27.120 trying to do more for the mortgage market, for the 0:15:27.120 --> 0:15:32.040 relief of mortgage holders UM, who had been allowed to 0:15:32.240 --> 0:15:35.840 acquire many borrowers have been allowed to acquire mortgages which 0:15:35.840 --> 0:15:39.600 they couldn't afford in the six to seven years before 0:15:39.680 --> 0:15:42.560 the crisis of two thousand and eight, which was in 0:15:42.680 --> 0:15:46.680 large part a regulatory failure UM and then when it 0:15:46.760 --> 0:15:50.880 acted in this dramatic way since two thousands and eight UM, 0:15:50.960 --> 0:15:54.360 we we think in the book that the processes of 0:15:54.400 --> 0:15:58.440 accountability around this were really very weak and remain quite weak, 0:15:58.960 --> 0:16:02.880 and we have at the moment then a situation which 0:16:03.360 --> 0:16:07.440 central banking is really in quite a new era. And 0:16:07.440 --> 0:16:09.240 it's not just the FED that the FED is by 0:16:09.240 --> 0:16:11.720 far the most important. The supplies also to the ECB 0:16:11.880 --> 0:16:15.560 and the Bank of England in terms of its there 0:16:15.600 --> 0:16:20.800 interventions in the financial markets through quantitent of easing. The 0:16:21.400 --> 0:16:24.120 sorts of measures that have been undertaken would be more 0:16:24.760 --> 0:16:27.400 commonly associated with fiscal policy, or at least they have 0:16:27.440 --> 0:16:33.080 fiscal policy implications in a way which moves beyond traditional 0:16:33.160 --> 0:16:36.880 understandings of monetary policy. Well, so I'm wondering what are 0:16:37.040 --> 0:16:40.800 the measures that should be taken to have better oversight 0:16:41.240 --> 0:16:45.440 of the federals serve and other central banks for that matter. Well, 0:16:45.840 --> 0:16:52.000 I think we need to think about who is appointed 0:16:52.040 --> 0:16:55.200 to the federal banks. Whether there might be a broader 0:16:55.320 --> 0:17:00.280 range of UM members of the FOMC, for instance, who 0:17:01.000 --> 0:17:07.160 are more familiar with different aspects of financial markets. UM. 0:17:07.280 --> 0:17:11.080 Whether there should be UM members of the economics profession 0:17:11.160 --> 0:17:14.840 who aren't quite so much part of the consensus about 0:17:14.880 --> 0:17:19.439 monetary policy. UM. So, whether there might be independent reviews 0:17:19.480 --> 0:17:24.120 of the Congress by sorry, by the Congress of UM 0:17:24.160 --> 0:17:27.240 of federal policy. You know, this is tricky because we're 0:17:27.240 --> 0:17:29.600 coming at this at a moment when a lot of 0:17:29.640 --> 0:17:32.720 people have raised concerns that the FED will become even 0:17:32.760 --> 0:17:36.840 more political in the US, given some of the demands 0:17:37.240 --> 0:17:39.080 on what we would like to see from growth from 0:17:39.119 --> 0:17:41.600 our from our current president. So, uh, you know, it's 0:17:41.600 --> 0:17:43.320 sort of tricky when you start to say, well, they 0:17:43.320 --> 0:17:49.560 should have more oversight from potentially political operatives. Right, Yes, 0:17:49.680 --> 0:17:52.119 I think it is, and I'm fully alert to that, 0:17:52.240 --> 0:17:56.440 and I entirely agree with you. But central banks are now, 0:17:56.640 --> 0:18:00.600 including the FED, are part of a of a quite 0:18:00.640 --> 0:18:04.640 extraordinary financialization system that has occurred in the last three 0:18:04.680 --> 0:18:08.560 decades UM. And so the way they operate, the importance 0:18:08.600 --> 0:18:12.400 of markets, the way that policies have effects on markets 0:18:12.520 --> 0:18:14.960 is deeper than it was, so we in some sense 0:18:14.960 --> 0:18:18.920 I have to think about new institutions of accountability. There 0:18:19.000 --> 0:18:21.320 is a there's a very strong argument that you know, 0:18:21.400 --> 0:18:24.919 Congress dominates the FED, that that the idea that the 0:18:24.960 --> 0:18:28.280 FED is independent is a myth, and that this is 0:18:28.280 --> 0:18:31.119 a common scholarly view, and that the Congress is able 0:18:31.160 --> 0:18:35.960 to um really exercise powerful control over it. I think 0:18:36.000 --> 0:18:37.920 if you look at history it's rather different. The The 0:18:38.520 --> 0:18:40.680 FED has been very good at maintaining itself as as 0:18:40.720 --> 0:18:46.480 a neutral technical agency or UM and showing its capacity 0:18:46.520 --> 0:18:49.920 to develop policies as it thinks most appropriate. But it's 0:18:49.960 --> 0:18:54.120 hard to see processes of accountability there in these institutions. 0:18:55.160 --> 0:18:57.680 Thank you so much for joining us, and your book 0:18:57.800 --> 0:19:01.600 is fascinating and it's certainly emily right now, Desmond King. 0:19:02.320 --> 0:19:06.240 Andrew W. Mellon, Professor of American Government at Oxford University, 0:19:06.320 --> 0:19:09.960 joining us from Oxford UH. He is the co author 0:19:10.000 --> 0:19:13.919 of a new book, Fedpower, How Finance Wins. A fascinating 0:19:14.040 --> 0:19:17.359 argument and an important one at a time when the 0:19:17.520 --> 0:19:36.760 FED is changing hands with respect to the chairmanship. It 0:19:36.920 --> 0:19:40.040 is time to throw our crystal ball to Chicago, where 0:19:40.119 --> 0:19:43.399 Jack Avalan is. He is chief investment officer at BEMO 0:19:43.680 --> 0:19:47.960 Private Bank, which overseas about sixty eight billion dollars. Jack, 0:19:48.000 --> 0:19:50.240 thank you so much for joining us. We've been talking 0:19:50.240 --> 0:19:54.160 about what to expect for eighteen and uh the most 0:19:54.200 --> 0:19:56.560 important question of the day, of course, is are you 0:19:56.600 --> 0:20:01.439 going to be buying bitcoin? I don't know it. I 0:20:01.560 --> 0:20:06.160 can't afford it. All right, in all seriousness, next year, 0:20:06.560 --> 0:20:10.119 a lot of people are seeing pretty sanguine economic pretty 0:20:10.240 --> 0:20:16.040 sanguine economic backdrop, synchronized growth. Pick the phrase that you will. 0:20:16.080 --> 0:20:19.000 What's your most contrarian call for the year. I'm going 0:20:19.040 --> 0:20:21.480 to say that, you know, if I'm looking for things 0:20:21.560 --> 0:20:24.800 that could potentially upset the apple cart, it's it's going 0:20:24.840 --> 0:20:28.480 to be a trade. Um. You know, we still have 0:20:28.720 --> 0:20:33.159 these open items on NAFTA and some other trade agreements outstanding. 0:20:33.320 --> 0:20:36.600 And I can't think of a single economist who stood 0:20:36.640 --> 0:20:40.120 up and said, you know, ending our current trade agreements 0:20:40.400 --> 0:20:43.960 going to help our economy. UM. So you know we 0:20:44.040 --> 0:20:47.880 still have, um, you know, some of these lingering issues outstanding. 0:20:47.920 --> 0:20:50.560 And I guess i'd call that contrarian in that, you know, 0:20:50.600 --> 0:20:53.240 that's the one thing that could you know, run counter 0:20:53.359 --> 0:20:57.280 to this, uh, you know, positive momentum on on growth. Alright, 0:20:57.359 --> 0:20:59.920 So as an investment manager, how do you head you 0:21:00.080 --> 0:21:02.520 endst that risk? Well, I'm not sure I want to 0:21:02.560 --> 0:21:05.720 do too much of that right yet. Um, these are 0:21:05.800 --> 0:21:08.320 things I'm gonna be watching for. I'm watching for that 0:21:08.880 --> 0:21:12.399 any indications there. But we're still gonna you know, stay 0:21:12.440 --> 0:21:17.920 in um. Uh, we're watching for inflation. Um also um, 0:21:17.920 --> 0:21:20.520 but we we believe we're not going to really run 0:21:20.520 --> 0:21:24.960 out of production capacity or even labor capacity until probably 0:21:25.359 --> 0:21:28.200 mid two nineteen. So I think you know, right now, 0:21:28.240 --> 0:21:30.720 our base case scenario is that we're still in the clear. 0:21:30.760 --> 0:21:34.000 We're bunting along and around, you know, a little bit 0:21:34.040 --> 0:21:38.159 more than potential GDP. While this is the one of 0:21:38.160 --> 0:21:41.080 the longest recoveries that we've had on record, it certainly 0:21:41.080 --> 0:21:44.920 the shallowest and so um, you know, it's it's uh, 0:21:45.240 --> 0:21:47.920 certainly recovery not built on a lot of excesses, which 0:21:47.960 --> 0:21:50.119 is its probably a good thing. So Jack, if you 0:21:50.200 --> 0:21:52.960 are watching for inflation, I take that to mean that 0:21:53.000 --> 0:21:55.680 you expected to pick up more next year. How are 0:21:55.720 --> 0:21:59.199 you positioning to capture some of the gains from that 0:21:59.359 --> 0:22:02.000 and to avoid some of the losses that say, may 0:22:02.040 --> 0:22:06.280 come with the longest the longest term bonds. Right. UM, 0:22:06.359 --> 0:22:10.359 So right now, we're you know, still somewhat um, you know, 0:22:10.920 --> 0:22:14.960 under our target duration. So you know, we we are 0:22:16.280 --> 0:22:21.919 you know, somewhat cautious there. I think what we're watching for, 0:22:21.920 --> 0:22:25.720 for example, any evidence that the European Central Bank uh 0:22:25.960 --> 0:22:30.960 takes it's it's uh photoph the accelerator would perhaps uh, 0:22:31.080 --> 0:22:33.800 you know, raise rates in Europe. You know, keep in mind, 0:22:33.880 --> 0:22:36.840 one of the main reasons we believe why the tenure 0:22:36.880 --> 0:22:40.399 treasuries two point three, seven or two point four and 0:22:40.480 --> 0:22:44.040 not three or more is because the German bonded zero 0:22:44.040 --> 0:22:47.760 point three. Uh. So as we start to see rates 0:22:47.800 --> 0:22:52.159