Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Terminal and the Bloomberg Business app. Steves with us around
Speaker 2: the table. Steve, good Morning's here, Good morning. I'm going
Speaker 2: to ask you then, first question, who wins?
Speaker 3: So caveat first. Okay, I'm not speaking for Newburger Berman.
Speaker 3: I'm speaking just for myself. I don't want to get
Speaker 3: into trouble. And what I'm about to say is just
Speaker 3: pure political analysis. And the analogy I'll draw is to
Speaker 3: the financial crisis. You know, in August of two thousand
Speaker 3: and seven, the subprime paper market collapse, and at that point,
Speaker 3: when you look back on it, the financial crisis was baked.
Speaker 3: Everything else was completely inevitable. So I think that it
Speaker 3: is completely inevitable at this point that Donald Trump will
Speaker 3: win every single swing state and we'll get elected. And
Speaker 3: the reason I think this way we'll unfold is part
Speaker 3: one of the story is that the protesters and all
Speaker 3: the universities are becoming the face of the Democratic Party.
Speaker 3: But that's not one hundred percent at this point. But
Speaker 3: what's going to solidify it is in August at the
Speaker 3: Democratic Convention, which is in Chicago. Ironically, you'll see all
Speaker 3: these protesters again, and a lot of them will be
Speaker 3: screaming in yelling things like not just at the Israel,
Speaker 3: but death to America because they can't help themselves, and
Speaker 3: the country will be a polled and that'll be it.
Speaker 4: It'll be over.
Speaker 2: Let's say, you right, Crystal Bull dead on. Next question
Speaker 2: is what do I do with that information? And when
Speaker 2: do I put the trades on? And what are the trades?
Speaker 2: How do you sort of I.
Speaker 3: Would say, you do largely nothing, because I don't think
Speaker 3: that whether Trump wins or Biden wins has any real
Speaker 3: impact on the economy at all. You know, there'll be
Speaker 3: things that people will will want to trade, which I'm
Speaker 3: not going to talk about because I haven't put on.
Speaker 4: Those straights yet.
Speaker 3: Because it's because it's too early. But there'll be things
Speaker 3: to do, but that'll just be short term trade.
Speaker 2: Some investing. Can I jump in? That's what I'm interested in.
Speaker 2: You said it's too early, when it's the right time
Speaker 2: to really think about expressing these as trades.
Speaker 3: Oh, I think when in August, when at the convention,
Speaker 3: when this one when I said happens happens, everybody will
Speaker 3: realize that that's the case.
Speaker 1: So you said that it doesn't really matter who gets elected. Yes,
Speaker 1: that's fascinating to me because some people are saying that
Speaker 1: Donald Trump would put on pretty significant tariffs, particularly to China,
Speaker 1: and that this would increase inflation sort of de facto
Speaker 1: in the United States. I see you rolling your eyes.
Speaker 1: You can respond in a second. And then at the
Speaker 1: same time you're going to have, you know, the tax cuts, reinstadts.
Speaker 3: And dogs will be lying together and it will be
Speaker 3: end of the world and doom, gloom and whatever lunging together.
Speaker 1: I don't know, it could usum gloom depending on your view.
Speaker 2: But what do you make of this?
Speaker 1: Why do you discount this?
Speaker 3: I mean, do I think that Donald Trump would increase
Speaker 3: tarifts to China?
Speaker 5: Sure?
Speaker 3: Do I think that would have a massive inflationary impact
Speaker 3: in the United States.
Speaker 4: I think that's ridiculous.
Speaker 3: So you know, on the margin, would it impact you know,
Speaker 3: for example, I'll give you a company, First Solar, So
Speaker 3: First Solar sells solar panels to utilities. Now, they're already
Speaker 3: massive tarists that are helping them. Now, could Trump increase
Speaker 3: the tariffs or make them longer so that stock would
Speaker 3: do better? Could be But you know the price of
Speaker 3: T shirts going to go up, as a price of
Speaker 3: food going to go up. No, I mean you have
Speaker 3: to remember that the United States is of all the
Speaker 3: developed world, the United States is the most insular economy
Speaker 3: of any.
Speaker 4: Of any developed world.
Speaker 3: So the fact that tariffs will go on in China,
Speaker 3: big deal.
Speaker 6: But one thing you recently spoke about was infrastructure spending,
Speaker 6: and how do you like all of those trains? What
Speaker 6: happens to all of that if Trump becomes elected because
Speaker 6: all that is attached to the Biden administration.
Speaker 3: Well true, but a don't forget that the solar tariffs
Speaker 3: were put on by Trump Originally, most more than fifty
Speaker 3: percent of all the government spending is actually going to
Speaker 3: Red States. So I don't think he's going to want
Speaker 3: to mess with his own voters. Could there be tinkering
Speaker 3: at the edges?
Speaker 5: Sure?
Speaker 3: Are there enough votes in the United States Senate to
Speaker 3: repeal the IIJ Act and the IRA Act not even close?
Speaker 4: So you know, rhetoric, You'll hear lots of rhetoric.
Speaker 3: About repealing the IRA or changing the IRA, and you
Speaker 3: know stocks will move on that. But at the end
Speaker 3: of the day, nothing will happen.
Speaker 1: So spending will continue, Yes, tax cuts will get extended,
Speaker 1: Tariffs on the margin will be there. This to me
Speaker 1: raises questions that a lot of people have talked about,
Speaker 1: which is a deficit not going away at the time
Speaker 1: where you're going to have to see some of the
Speaker 1: issue ins numbers really start to pick up. You seem
Speaker 1: to discount that too.
Speaker 5: You don't think.
Speaker 4: That's one hundred percent not an issue?
Speaker 1: Oka, You don't think the deficit issues.
Speaker 4: Not inn is shot.
Speaker 5: So can I tell you why?
Speaker 3: Look, I'm not an economist. I can only say this
Speaker 3: that the people who have been complaining about the deficit,
Speaker 3: and I like to call them the OI, the deficit people, Okay.
Speaker 2: Because that's what it sounds, that's what they sound like.
Speaker 3: I literally have been literally been saying O the deficit
Speaker 3: for forty years. Okay, forty years now. Look, in my business,
Speaker 3: being too early is the equivalent of being wrong. But
Speaker 3: in my business, when you're too early, you're a year
Speaker 3: too early. You're two years too early, You're not forty
Speaker 3: years too early. When you're forty years too early, you
Speaker 3: probably should just shut up and keep your mouth shut.
Speaker 4: But I would say this that the sign that.
Speaker 5: The OI the deficit group.
Speaker 3: Will be right is when rates actually go up a lot.
Speaker 4: Until then, everybody should just keep quiet.
Speaker 1: But how do you know when that's going to happen.
Speaker 3: It will be on the show and you'll say, wow,
Speaker 3: long term rates went up fifty basis points in one day,
Speaker 3: and then it will sound so.
Speaker 4: Natural right after forty fifty years. Until then it's not relevant.
Speaker 1: Well, but this, to me is a real question because
Speaker 1: people increasingly are focused on this in the market. People
Speaker 1: who actually can determine what those rates are can send
Speaker 1: those rates to up fifty.
Speaker 4: Bases treasuries, Well, there are rates going up.
Speaker 1: There was a time when you're talking, so they're doing
Speaker 1: so you think, are you basically saying that you are
Speaker 1: long long term rates? Because you think that all of
Speaker 1: this discussion about OI the deficit is still way too early,
Speaker 1: and all these people are.
Speaker 4: Become a meme. Now I hope. So I just literally
Speaker 4: just made it out. It's really good. So answer the
Speaker 4: question I lost the train of Okay, Well.
Speaker 7: I'm just saying, you know, if you you know, at
Speaker 7: what point do you say, Okay, if we think that
Speaker 7: the discussion of OI the deficit is overblown, go into
Speaker 7: long treasuries, buy them.
Speaker 1: Because all the people who are worried about that are
Speaker 1: going to be proven wrong.
Speaker 3: I mean, look, I'm not really a bond person. I'm
Speaker 3: more of a stock jockey. So what caused the market
Speaker 3: to go down? In twenty twenty two? The FED raised
Speaker 3: rates five hundred basis points. I don't think the Fed's
Speaker 3: going to be raising rates. Do I think the Fed's
Speaker 3: going to cut rates? Maybe? I actually do think it
Speaker 3: doesn't really matter because if they cut, their only cutting
Speaker 3: a little bit. They're not certainly not cutting five hundred
Speaker 3: basis points. You know, people like to talk about it
Speaker 3: on Fed Day as if you know, Moses came down
Speaker 3: from Sinai with the tablets and let let's examine whether
Speaker 3: the ten commandments are on there, because we'll look at
Speaker 3: whether there was Oh, there was a comma removed.
Speaker 4: That's so significant.
Speaker 5: Let's buy the.
Speaker 4: S and P.
Speaker 2: You know miss that.
Speaker 4: He said, bah, wow, what does that mean? So then
Speaker 4: you say, oh, you know what, it's not relevant.
Speaker 1: Okay, So you don't necessarily see the potential rate cutting
Speaker 1: cycle is particularly relevant to your stock picking.
Speaker 3: At the same time, there is no aggressive rate cycle
Speaker 3: coming of cutting that would matter. If the FED is
Speaker 3: going to cut rates once twice to tinker at the edges.
Speaker 2: We can live five percent, it's the message.
Speaker 3: We seem to be living just fine with it right now.
Speaker 3: The economy is fine, which is I think is a
Speaker 3: surprise to everybody.
Speaker 2: It rais an important question. I was listening to the
Speaker 2: podcast you did with Tracy and Joe. It's fantastic, by
Speaker 2: the way, and if you haven't listened to it at home,
Speaker 2: you should do odd lots. And you talked about good
Speaker 2: times is for storytelling bad times, it's for the focus
Speaker 2: on a bandance sheet. Is this a good time?
Speaker 3: Or it's definitely a good time? And I'll just repeat
Speaker 3: what I said on that show because I like it.
Speaker 3: Is it There are three great themes of our time.
Speaker 3: There's ai, there's everything having to do with infrastructure, and
Speaker 3: there's crypto, and I believe in the first two and
Speaker 3: I don't believe in the third.
Speaker 2: Why not the third?
Speaker 3: Look, the crypto is there's two questions with respect to crypto.
Speaker 3: Is is it a currency? And if it's a currency,
Speaker 3: should you own it? So let's skip the first part.
Speaker 3: But that's like that's like, you know, is it a
Speaker 3: currency is like having an dis question about how many
Speaker 3: angels dance on the head of a pin.
Speaker 4: You know, there's no structure to it.
Speaker 3: So okay, So if it's a currency, why should you
Speaker 3: own it? So let's ask the people who own crypto
Speaker 3: why do they own it? They all say the same thing.
Speaker 3: They say, fear currency all the deficit people's definitely gonna
Speaker 3: be a memere my first meme. Yeah, and it's so
Speaker 3: it's a hedge against the demise of fear currency. You know,
Speaker 3: cats and dogs one day will lie together, you'll be
Speaker 3: in a kay, but at least you'll have your crypto.
Speaker 3: It's like digital gold. That's that's the thesis. So okay,
Speaker 3: let's let's take them at their word. So if that's
Speaker 3: the thesis, then on days where everybody's worried about inflation,
Speaker 3: they're worried about the deficit, and NASDAK is down.
Speaker 4: Three hundred points and interest.
Speaker 5: Rates are up. Crypto should be up.
Speaker 3: And on days where everybody's feeling great and video is
Speaker 3: up and NASDAK is up and rates are down and
Speaker 3: nobody cares about inflation, Crypto should be down.
Speaker 4: And does it act that way?
Speaker 5: It does not.
Speaker 3: It acts exactly the opposite of its own these It's
Speaker 3: correlation to NAASAC is like seventy five percent. So to me,
Speaker 3: it's just another way for people to speculate on speculating.
Speaker 3: So what do I do that there's no data point
Speaker 3: of research that says that it's right or that it's wrong.
Speaker 1: So at this point you don't like crypto debt whatever.
Speaker 4: I never have, but I'm not short. I don't short
Speaker 4: it because there's something to short.
Speaker 1: How do you get an edge at a time where
Speaker 1: everyone loves ai and where everyone's scouring for the place.
Speaker 3: One example of a stock that I think eventually will
Speaker 3: become a great AI play, which I mean the whole
Speaker 3: thing about getting an edge I think is overrated. Because
Speaker 3: most people have all the facts. It's a question of
Speaker 3: how you interpret the facts. I mean, people think that
Speaker 3: I had some sort of unbelievable edge about the subprime
Speaker 3: mortgage sector. I had the same facts that everybody else had,
Speaker 3: I just looked at them differently. So you know, right now,
Speaker 3: everybody's focused on Nvidia and a MD and data centers.
Speaker 3: But one day, and that day is not too far
Speaker 3: from now, there will be a lot of AI apps
Speaker 3: that you and I will use, and we're not going
Speaker 3: to use them at a data center in the cloud.
Speaker 3: We're going to want to use them on our phone
Speaker 3: because that we wanted at the head end right here.
Speaker 3: So at that point there's going to be I think
Speaker 3: an entire new sales cycle of phones laptops that are
Speaker 3: going to need to be upgraded to be able to
Speaker 3: do all this stuff that eventually we will want to do.
Speaker 4: That's Apple.
Speaker 1: So you're buying Apple aggressively.
Speaker 3: Well, we've owned it for a long time and we
Speaker 3: continue to own it now. But it's not it's not
Speaker 3: actionable at this second because that hasn't been an app.
Speaker 3: What app I don't know. When it shows up, I'll
Speaker 3: let you know, but until then, but at that point,
Speaker 3: the phone I have, the new phone, that phone is
Speaker 3: not going to be probably it's probably not going to
Speaker 3: be capable to do some of the apps that you're
Speaker 3: going to want to do.
Speaker 2: It appears, and that's the direction of travel. I know
Speaker 2: you've talked about this in the past. I'd love to
Speaker 2: hear it again. The electricity grid. Yes, the demand on
Speaker 2: electricity in this country, given where policy is, EVS, where
Speaker 2: AI is going, how great is it going to be?
Speaker 2: We in a position to supply it.
Speaker 3: So the utility budget CAPEX budgets go up every single
Speaker 3: year they update them. They do like a three year
Speaker 3: forward look and the that comes out you know January
Speaker 3: when they report, and the utility budgets three year budgets
Speaker 3: are up twenty percent. That's an enormous, enormous sum. They're
Speaker 3: going to go up even more because the U n
Speaker 3: VIDA MD chips are use a lot more electricity than
Speaker 3: the CPUs do, so there's even more pressure on the grid.
Speaker 3: So the cycle of you know, improving the grid, building
Speaker 3: you know, green type of utility struck is whether it's
Speaker 3: wind and solar or just upgrading what you have, is
Speaker 3: going to go on for a very very long time.
Speaker 3: I've just mentioned one stock that I've talked about before,
Speaker 3: you know, I mean what.
Speaker 5: Do utilities do.
Speaker 3: They send you electricity and they send you a bill,
Speaker 3: but when they actually have to do something, they hire
Speaker 3: somebody to do it. So when you hear that utility
Speaker 3: A is in creeping, it's increasing its CAPEX budget, and
Speaker 3: it is building a solar whatever or a gas whatever,
Speaker 3: nine times out of ten they hire a company called Quanta,
Speaker 3: which is the largest utility related engineering company in the country.
Speaker 3: We've owted for a long time. But what I would say,
Speaker 3: the amusing thing is I'm on the quarterly call.
Speaker 4: Every quarter, and every quarter the CEO looks happier, and
Speaker 4: you think I couldn't look happier.
Speaker 3: Because he was so happy last quarter, but even happier
Speaker 3: today because he has so much business he can't do
Speaker 3: it all.
Speaker 2: That's the winner. Is there a loser? Is there a
Speaker 2: short for you an active show?
Speaker 3: I'm not talking about shorts, No. I mean I do
Speaker 3: a little shorting for myself, but that's it.
Speaker 2: Could you think of a theme that associated with that
Speaker 2: where there could be a group of companies that would
Speaker 2: lose in that world?
Speaker 3: Well, I would say just as an uber theme about
Speaker 3: companies that I probably would not invest in.
Speaker 4: Okay, are you know the stock set did really well.
Speaker 3: Call it twenty eighteen nineteen twenty twenty one. Were the
Speaker 3: very high revenue growth, negative earnings companies, kind of like
Speaker 3: venture public venture capital companies. Those got destroyed in twenty
Speaker 3: twenty two, down literally seventy five to ninety percent. You
Speaker 3: know they've come back, but you know, when you're down
Speaker 3: seventy five to ninety percent and then you go up
Speaker 3: fifty percent, it doesn't look so good on a chart.
Speaker 3: I would just avoid those companies until it becomes very
Speaker 3: clear that they actually have real business models where they
Speaker 3: can actually make money.
Speaker 2: In just a moment, we'll catch up with our alyst
Speaker 2: of Bloomberg Intelligence on the World Disney company. That stock
Speaker 2: is down by about five percent this morning. Can we
Speaker 2: squeeze in a question on Marvel? Yes we can, which
Speaker 2: you have some expertise? I do this co say she
Speaker 2: could go a whole lot longer than maybe it.
Speaker 4: Could go for hours? What do you a background? I'm
Speaker 4: going to brag a little bit.
Speaker 3: I own one of the largest digital comic book collections
Speaker 3: on planet Earth. It's eleven thousand comics on my iPad
Speaker 3: and I've read all eleven thousand, So I could write
Speaker 3: a dissertation on doctor Strange that would go for two
Speaker 3: hundred pages.
Speaker 4: Read it, Yes, you probably would be very interesting.
Speaker 2: Maybe they should make it into So the problem.
Speaker 4: With Marvel movies to me is that.
Speaker 3: They had a great story and it ended and Iron
Speaker 3: Man is dead, Captain America is ninety and Thor is
Speaker 3: and this.
Speaker 4: Really upsets me. And I really am serious about this.
Speaker 3: They made Thor into a comedic comedic buffoon, and it
Speaker 3: was always one of my favorite comics. So Thor being
Speaker 3: a comedic buffoon I find extremely upsetting. This is Hamsworth, yes,
Speaker 3: and there's no story anymore.
Speaker 4: They they don't.
Speaker 3: They had a story where they had all these different
Speaker 3: different tangents, but it all wove down into one eventual
Speaker 3: story and then it was over and they had been
Speaker 3: unable to find a new story. And the problem is
Speaker 3: that their three gate characters are gone. So even if
Speaker 3: they had a story, we would want to go watch.
Speaker 3: I would just say with final say this as an example,
Speaker 3: the last Guardians of the Galaxy movie was unwatchable.
Speaker 2: Steve Weisman with This World Disney Review. Steve Weisman of
Speaker 2: Newberger Berment, Stay this is great, It's going to see it.
Speaker 2: I'm pleased to say that. Joining us with his view
Speaker 2: on things is Mark Sandy of Moody's Analytics. Mark, it's
Speaker 2: been too long, sir, Thanks very much for catching up
Speaker 2: with this this morning. Why is the concern in your words,
Speaker 2: around inflation being above target? Why is that concern misplaced?
Speaker 8: Well, I think inflation's at target appropriately measured at least
Speaker 8: underlying inflation.
Speaker 9: You know, I think if.
Speaker 8: It's very problematic measuring the cost of housing services, particularly
Speaker 8: owner's equivalent rent, and if you look at harmonized inflation
Speaker 8: exclude OEER, we're there, and we've been there for quite
Speaker 8: some time, so, you know, I think the FED should
Speaker 8: be focused on the underlying rate of inflation, trying to
Speaker 8: abstract from the vagaries of the data, the ups and
Speaker 8: downs and all around. That's why they look at core
Speaker 8: excluding food and energy. But at this point in time,
Speaker 8: i'd also exclude OEER, and if you do that, we're there,
Speaker 8: and we've been again.
Speaker 9: We've been there for you know, six nine months.
Speaker 8: So to me, it feels like the FED has achieved
Speaker 8: its goal. It's mandated. We're at full employments of four
Speaker 8: percent unemployment, and we're at we're at target on inflation
Speaker 8: and inflation expectations are nailed down to that two percent target.
Speaker 8: So I think, to me, all the everything's pointing brain
Speaker 8: for FED, for the FED to start cutting rates here.
Speaker 2: Why do you think they don't talk about it in
Speaker 2: the same way.
Speaker 8: I think it's a matter of credibility. I think they said, look,
Speaker 8: we're getting this is this is our number. We're looking
Speaker 8: at core consumer expenditure to flatter. That's our target. That's
Speaker 8: the benchmark we're using for underlying inflation. We said we're
Speaker 8: going to get to two percent, and we're going to
Speaker 8: get there because they want to ensure that they are.
Speaker 9: Credible going forward. I get it.
Speaker 8: I understand that, and that's why I don't think they're
Speaker 8: going to move until later in the year, probably around September.
Speaker 8: That seems like the most logical point where they'd start
Speaker 8: cutting rates. But you know they are running a risk
Speaker 8: by doing so.
Speaker 9: I mean, it keeps.
Speaker 8: I do think the federal funds rate target at five
Speaker 8: and a half percent is high, and it's putting a
Speaker 8: lot of pressure on the banking system, financial system in
Speaker 8: broader economy, and they run the risk of breaking something.
Speaker 9: So they're taking a chance here. But I think at
Speaker 9: the end of the day.
Speaker 8: They want to make sure that they you know, they
Speaker 8: did what they're saying, they said they're going to do.
Speaker 8: They're going to hit two percent on the core PCEE
Speaker 8: to flatter Mark.
Speaker 1: If Tom Mark herey, he would say, let's rip up
Speaker 1: the script because I'm getting a lot of hate mail
Speaker 1: from people who might fall into the OI the deficit camp.
Speaker 1: And we did just have Steve iispin on and he
Speaker 1: basically said, all the concern, the gloom and doom about
Speaker 1: the US deficit is what we've heard for the past
Speaker 1: thirty or forty years of OI the deficit at everyone's
Speaker 1: kitchen table, and it won't really matter, doesn't matter for
Speaker 1: now economically.
Speaker 2: Do you agree or do.
Speaker 1: You think that the deficit is actually an economic concern
Speaker 1: going forward for this government at a time where we
Speaker 1: could be heading into potentially a less positive growth scenario
Speaker 1: than what we've had.
Speaker 8: Yeah, I think it matters. The deficits in debt matter.
Speaker 8: I mean when the reason what happened in the past,
Speaker 8: we said OI because all the you know, if you
Speaker 8: if we didn't change something, then we would have a problem.
Speaker 9: But we change something.
Speaker 8: You know, if you go back and look at previous
Speaker 8: historical points where the deficit that we're becoming a realisue
Speaker 8: like the early mid nineteen nineties would be good, good,
Speaker 8: good case study. We responded collectively, we came together, and
Speaker 8: we did what was necessary in terms of taxes and
Speaker 8: in terms of spending to rein it in and put
Speaker 8: things on a more sustainable path. Here we are today.
Speaker 8: You know, right now, I don't think deficits in debt matter.
Speaker 8: But look look at the forecast, and I think the
Speaker 8: forecasts are you know, pretty reasonable. Take the Congressional Budget
Speaker 8: Office forecast, the by person the non person group that
Speaker 8: does the budgeting, and if we don't change something, that
Speaker 8: that to GDP goes from one hundred percent. And by
Speaker 8: the way, that's a lot higher than it was twenty
Speaker 8: twenty five years ago.
Speaker 9: Twenty twenty five years ago was about half that.
Speaker 8: So we're a one hundred percent to GDP and all
Speaker 8: the trend lines look pretty bad. So we should say, OI,
Speaker 8: we got to change this, and hopefully we come together
Speaker 8: and change it. But of course, you know, in the
Speaker 8: fracture of politics, local environment that we live in, it
Speaker 8: just feels like that's going to be a pretty heavy lift, which.
Speaker 1: Raises a question, at what point it becomes reality. People
Speaker 1: have worried about it for a long time, but it's
Speaker 1: not going to be reality until yields actually materially shift
Speaker 1: higher in a way that's putted for the US government,
Speaker 1: And that speaks to some of these concerns. Do you
Speaker 1: see that on the horizon. Do you have a sense
Speaker 1: of what that rate would be where it becomes unduly
Speaker 1: punitive to the US government in terms of interest expenses,
Speaker 1: and where that takes money away.
Speaker 9: From Yeah, we're already it's getting a lot uncomfortable, right.
Speaker 8: I mean, if you look at interest payments, the federal
Speaker 8: government's interest payments, it's I think that we're truly dollars
Speaker 8: now anally, and that's I think we just passed the
Speaker 8: amount we spend on defense, and that's the first time
Speaker 8: I think that's ever happened, right, I mean, that feels weird.
Speaker 8: I mean, we're spending more on interest payments on our
Speaker 8: debt than our own national defense. So I think, you know,
Speaker 8: pressure is starting rice. But you know, here's the thing.
Speaker 8: I don't think the deficits and debt are a clip event.
Speaker 8: It's not like you come up to a clip and
Speaker 8: you go over. It's a corrosive on the economy, and
Speaker 8: as debt levels continue to rise, interest rates will continue
Speaker 8: to rise. A lot of empirical work trying to understand
Speaker 8: what the relationship is. But here's a good rule of thumb.
Speaker 8: For every percentage point increasing the debt to GDP ratio,
Speaker 8: so you go from one hundred percent that to GDP
Speaker 8: to say one hundred and ten percent, that adds a
Speaker 8: basis point. So you go one hundred one hundred ten percent,
Speaker 8: that adds ten basis points to that ten year treasury yield.
Speaker 9: You know, it's not perfectly right, but that's roughly right.
Speaker 9: And the other thing I'd say is.
Speaker 8: Jargony is nonlinear, meaning going from you know, one hundred
Speaker 8: percent that to gb to one ten is one thing.
Speaker 8: Going from one fifty to one sixty that's a totally
Speaker 8: different thing. So you know, I don't think, at least
Speaker 8: for the foreseeable future, we've got to clip ahead of us.
Speaker 9: But you know, this is a corrosive on our economy's
Speaker 9: ability to grow.
Speaker 6: Mark, I want to ask you about the labor market
Speaker 6: because you mentioned how we are running a tight labor market.
Speaker 6: The Conference Board recently came out and consumers were less
Speaker 6: concerned actually about inflation. They were concerned about cracks in
Speaker 6: the labor market. Is it concerning to you when you
Speaker 6: look through this data? I mean the last survey, the
Speaker 6: response rate was fifty four point nine percent, lowess since
Speaker 6: two thousand and two.
Speaker 9: You mean the survey rate survey you're asking about.
Speaker 6: Yeah, do we have no correct read on this data?
Speaker 5: Yeah?
Speaker 9: No, it bothers me. Yeah, and it's getting worse and worse.
Speaker 8: And you know, if you go look at the other
Speaker 8: I think the Jolt survey, the Job Opening Labor Turner survey,
Speaker 8: we're down to like a third of respondents, you know,
Speaker 8: getting back. So absolutely, and this goes to it's a
Speaker 8: broader point. You know, all the surveys that we look
Speaker 8: at and all the polls that we're looking at, they're
Speaker 8: increasingly less reliable. So yeah, I think this is a
Speaker 8: this is a big problem and why al data in
Speaker 8: third party data sources are becoming more important because you know,
Speaker 8: we can't rely on the surveys. They're just much more
Speaker 8: particularly month to month. And this gets to the you know,
Speaker 8: the inflation persistence in the first quarter. You know that
Speaker 8: that's just a bunch of in my view, technical factors
Speaker 8: or usual effects and perhaps survey issues, seasonal adjustment issues.
Speaker 8: So it just you know, complicates using data the way
Speaker 8: we have been using data month to month to set
Speaker 8: for example, monetary policy.
Speaker 2: Mark, we'd love you for you on an immigration as well,
Speaker 2: this has been a big theme over the last few
Speaker 2: months and some people, in fact, quite a few guests
Speaker 2: on this program basically saying ways have stayed low even
Speaker 2: with these really decent, tremendous payrolls figures because of immigration. Mark,
Speaker 2: do you see it in quite the same way?
Speaker 4: I do?
Speaker 5: I do.
Speaker 8: I mean, there's obviously the immigration and what's going on
Speaker 8: into southern border is a real challenge for a lot
Speaker 8: of communities across the country. But the one clear benefit,
Speaker 8: particularly in this point in time when the liver market
Speaker 8: it's very tight, business been struggling to find and.
Speaker 9: Retain workers is the surge and immigration.
Speaker 8: And you know, there's a real clear link between immigration
Speaker 8: where those immigrants are going if you look across industries
Speaker 8: like leisure and hospitality or retailing and wage growth in
Speaker 8: those industries. So I think we can connect those dots
Speaker 8: and I think this has been very important. So it
Speaker 8: allows this immigration allows the economy to grow more quickly
Speaker 8: and at the same time take pressure off of inflation.
Speaker 9: So I think the particularly fortuitous and really important.
Speaker 8: And you know, if there's one thing we can do
Speaker 8: to address our long term fiscal problems, and it would
Speaker 8: be to have a rational immigration policy, because if we
Speaker 8: can have more immigrants and you know, the right kind
Speaker 8: of immigrants, it's like a really power economic growth, then
Speaker 8: that's going to solve a lot of problems, including our
Speaker 8: long term fiscal problems. And we won't say oi, we
Speaker 8: won't have to say oi, we've got to cut spending
Speaker 8: and raised taxes. We got a stronger economy, it's generating
Speaker 8: those tax revenues. Then we need to finance our government.
Speaker 2: I like how that's catching on. Macat. You just want
Speaker 2: to finish on this question. It's an utum one if
Speaker 2: it is important for what's happened in wages in very
Speaker 2: specific sectors and industries. What happens if bordering counters dropped,
Speaker 2: which they have based on the information we got yesterday,
Speaker 2: they've dropped by quite a bit. What happens next.
Speaker 8: Well, the lever mark is going to tighten up and
Speaker 8: it's put pressure on wages unless we see continued moderation
Speaker 8: and demand, and then I think we will. You know,
Speaker 8: I think that will happen here because interest rates are high.
Speaker 8: At five and a half percent fund rate target, I
Speaker 8: do believe is restrictive, and it becomes more restrictive over time.
Speaker 8: I mean, one reason why it hasn't bit really hard
Speaker 8: so far is that households and businesses did a really
Speaker 8: good job locking in the previously record low interest rates.
Speaker 8: But that only works for you know period of time
Speaker 8: is more households and businesses face higher interest rates, you know,
Speaker 8: they're going to start to pull back. So I think
Speaker 8: the economy will slow and you know, even with less immigration,
Speaker 8: I think the FED will be in a position to
Speaker 8: cut interest rates.
Speaker 2: Your verse and Mank, this is interesting, always good to
Speaker 2: hear from you, MANK, Sandy, that of Moody's analytics always
Speaker 2: catching on, you know, it's that good.
Speaker 5: Oi.
Speaker 1: Yeah, we don't have to say oi anymore, according to him, ours, Andy.
Speaker 2: Do you wonder for to catch up with you once again?
Speaker 2: I want to begin, if we may, talking about the
Speaker 2: theme part business and the consumer price tolerance that you see.
Speaker 2: Do you still have that pricing power at a time
Speaker 2: where many companies are reporting that yes, there is upper
Speaker 2: rent stability, but maybe some low rent fragility around the consumer.
Speaker 10: Yeah, good morning, great to be with you all. Yeah,
Speaker 10: I actually believe we do. If we sort of zoom
Speaker 10: out a little bit. The quarter was really a strong
Speaker 10: one for US, seventeen percent of I growth, thirty percent
Speaker 10: EPs growth.
Speaker 5: That's what led us to raise guidance.
Speaker 10: To twenty five percent EPs growth for the full year,
Speaker 10: which is obviously quite strong.
Speaker 5: Two big stories I think here. Number one, you were just.
Speaker 10: Talking about our experiences business was up ten percent on
Speaker 10: a revenue basis, twelve percent on an AY basis, and
Speaker 10: the parks business was actually up thirteen percent on OI,
Speaker 10: So we do feel.
Speaker 5: Good about that.
Speaker 10: Obviously, I watch other stocks report and have seen that
Speaker 10: the value consumer is really struggling a bit and making
Speaker 10: choices right now.
Speaker 5: We're not really seeing as.
Speaker 10: Much of that in our portfolio of products. The other
Speaker 10: positive for US is obviously the streaming service. Last year,
Speaker 10: we lost about six hundred million dollars. This year we're
Speaker 10: about break even and we saw twelve percent revenue growth,
Speaker 10: So we're encouraged by the progress we've made in that
Speaker 10: business in a relatively short period of time.
Speaker 1: Here, you said that you're not seeing that kind of
Speaker 1: price sensitivity, how much could you increase prices in from here?
Speaker 5: It's a great question.
Speaker 10: We took prices up a little bit in the beginning
Speaker 10: of this year and didn't want to see much of
Speaker 10: an impact. So as to what the future brings, We're
Speaker 10: obviously very judicious with the way that we price. We
Speaker 10: want to provide access to as many guests as we
Speaker 10: possibly can, but we do believe that the great experiences
Speaker 10: we provide people are willing to pay for it.
Speaker 2: Here, let's talk about the streaming business just a little
Speaker 2: bit more and more specifically, if we can Hulu. I
Speaker 2: want to get into Hulu and the future of that business.
Speaker 2: Can we just start with something like the likes of
Speaker 2: Taranaga and Showgun on Hulu. How impressive that content actually was.
Speaker 2: When you have something like that a big hit, How
Speaker 2: does it translate in some gains for the company? How
Speaker 2: does it fall to the bottom line?
Speaker 5: Yeah, it really does create two things.
Speaker 10: Number One, it brings new subscribers in right, we call
Speaker 10: them for subscribers. Those types of jows do pull people
Speaker 10: into the service, and then once they're into the service,
Speaker 10: they realize just the great amount of content that's out there,
Speaker 10: so that those shows also tend to increase stickiness over time.
Speaker 10: So from both perspectives, they're truly additive. And the other
Speaker 10: piece of it that's terrific I think is it really
Speaker 10: does integrate well with the linear business as well. We
Speaker 10: use these different windows to choose when to show things,
Speaker 10: whether it's on FX or whether it's on ABC, and
Speaker 10: then into the streaming service. So we were actually getting
Speaker 10: quite good at reaching different audiences, streaming being a bit
Speaker 10: of a younger audience, the linear business being a bit of.
Speaker 5: A more mature audience.
Speaker 10: It gives us the ability to reach the most people,
Speaker 10: which is obviously terrific from an advertising and a subscriber process.
Speaker 2: That sets up brilliant the conversation about the future of Hulu, Hugh,
Speaker 2: So let's talk about it. A report yesterday from Reuter's
Speaker 2: that JP Morgan has valued the company for you close
Speaker 2: to twenty seven point five billion Morgan Stanley value when
Speaker 2: wholy for Comcast at more than forty billion? Is that
Speaker 2: an accurate assessment of where things are? They also reported
Speaker 2: that we're looking for an independent valuation now to try
Speaker 2: and close the gap. Could you just update us and
Speaker 2: tell us if that's an accurate representation of the current
Speaker 2: state of affairs.
Speaker 10: Yeah, so we have a well defined process in terms
Speaker 10: of how this is going to play its way out.
Speaker 10: Beyond that, I'm not going to comment on that right now.
Speaker 10: One of the sciplines I have, as I talk about
Speaker 10: M and A, when it's done, not before it's done.
Speaker 2: Too early to talk about a timeline, Hugh, A little
Speaker 2: bit too early. So here, let's talk about going forward
Speaker 2: from here where the big opportunities are for the streaming business.
Speaker 4: OK.
Speaker 10: I think there are a multitude of opportunities. Number one
Speaker 10: great programming, and that's an advantage that we have in
Speaker 10: our Disney portfolio because we create so much of our
Speaker 10: own IP. Number two is driving engagement, and bundling clearly
Speaker 10: does that, whether it's with sports, whether it's down in
Speaker 10: Latin America, we're actually putting sports, General Entertainment and Disney
Speaker 10: Plus together, or the tile that we added to the
Speaker 10: Hulu tile on Disney Plus. So that bundling is clearly
Speaker 10: an opportunity. Third is password sharing. That's an opportunity for us.
Speaker 10: We think it's pretty substantial and it's going to drive growth.
Speaker 10: Fourth is distribution cost. We do think by going direct
Speaker 10: to consumer, we can actually both build a stronger relationship
Speaker 10: with the consumer and also reduce our costs. And then
Speaker 10: fifth is technology clearly an opportunity in terms of recommendation engines.
Speaker 10: As we put all of that together, we're pretty well
Speaker 10: convinced that this is going to be a great growth
Speaker 10: business for the Disney Company for a.
Speaker 5: Long long time.
Speaker 6: Here you mentioned a number of things there, including password sharing.
Speaker 6: How much do you expect all of those initiatives you
Speaker 6: just mentioned to save money? What's the cost benefit of
Speaker 6: all of that?
Speaker 10: Yeah, I mean things like password sharing obviously drive additional
Speaker 10: revenue growth. Things like distribution costs do save money for you.
Speaker 10: In addition to that, things like recommendation engines and direct
Speaker 10: to consumer marketing tends to reduce churn, which allows you
Speaker 10: to reduce marketing costs. So there really is some synergy
Speaker 10: between the revenue benefits and the cost benefits.
Speaker 5: But overall, we're looking.
Speaker 10: To make this into a great business, not just a
Speaker 10: growth business, but a great margin business for.
Speaker 5: The company as well, Hugh.
Speaker 1: Over the past six months, we've been talking about the
Speaker 1: cost cutting operations in Disney. Have we finished some of
Speaker 1: the shrinking, have we finished the pairing back and are
Speaker 1: you back on some sort of growth trajectory.
Speaker 10: We are definitely back of growth trajectory. That said, we're
Speaker 10: always going to be looking hard at our cost structure,
Speaker 10: in particular looking to reduce costs where perhaps they add
Speaker 10: less value than they used to and redeploy some of
Speaker 10: that money back into the business so that we can
Speaker 10: actually grow the balance of the business. So I think
Speaker 10: that's a never ending exercise of looking for ways to
Speaker 10: be more efficient as a company so that you can
Speaker 10: invest in your future.
Speaker 1: When you talk about growing, where is that growth focused on?
Speaker 5: Geographically?
Speaker 1: We know that in the US you've got a very
Speaker 1: strong parks business. In Europe there also is a parks presence.
Speaker 1: But in Asia, in particular in China, that has been
Speaker 1: a growth area. Is it still How much can that
Speaker 1: be a bright spot at a time of increasing geopolitical tensions?
Speaker 10: Yeah, I do think not just China, but all of
Speaker 10: Asia represent growth opportunities for us, both in terms of
Speaker 10: the streaming service and select markets as well as in
Speaker 10: terms of the parks and cruises business. So we do
Speaker 10: see good growth opportunities there. Europe and Latin America continue
Speaker 10: to be good growth opportunities and make no mistake North America.
Speaker 5: We're not done growing yet.
Speaker 10: We still think there are terrific opportunities here for us
Speaker 10: right at home.
Speaker 6: When it comes to Asia Pacific, is it domestic demand
Speaker 6: within those countries, specifically China, or is it tourists in
Speaker 6: the region.
Speaker 10: Combination of both. I wouldn't tie it to one or
Speaker 10: the other. I think it's a combination of both.
Speaker 6: And when you look at China, to Lisa's point, you know,
Speaker 6: we're going into a very heated political election coming up
Speaker 6: in November, very hot rhetoric regarding China. Is it becoming
Speaker 6: more challenging to deal with authorities in Beijing and business
Speaker 6: on the ground given the increased geopolitical tensions.
Speaker 5: It has not been for us.
Speaker 10: You know, one of the benefits of what we do
Speaker 10: for a living is, you know, we make people smile.
Speaker 10: We bring them happiness, right, we bring them the most
Speaker 10: magical place on earth. Candidly, the government's investing in infrastructure
Speaker 10: to make it easier for guests to get to and
Speaker 10: from the park. We're continuing to invest in that park
Speaker 10: in order to drive growth.
Speaker 5: It's doing better now than it ever has.
Speaker 10: So we're the fortunate beneficiaries of bringing people joy in
Speaker 10: a world that needs it.
Speaker 2: Here, we've got to talk about the NBA deal as well.
Speaker 2: Can you talk to us about that? And it is
Speaker 2: going to be much high up. How do you make
Speaker 2: money from something like that? I just want to understand
Speaker 2: the numbers business of all of this.
Speaker 10: Yeah, So the NBA, we're in the middle of discussions
Speaker 10: right now. So again I don't comment on specific deals
Speaker 10: until they're done.
Speaker 5: What I would tell you is two things.
Speaker 10: Number One, we've had a long, long, productive relationship with
Speaker 10: the NBA. We've been infitted from it, and clear the
Speaker 10: NBA has benefited as well.
Speaker 5: I expect that that'll continue.
Speaker 10: Number Two, We'll always continue to look at the balance
Speaker 10: of our rights portfolio, and as things come up, we'll
Speaker 10: decide whether we want to continue with them in the
Speaker 10: current form, reduce them, or even in some cases, perhaps
Speaker 10: not continue to carry them anymore. So I think we'll
Speaker 10: balance the portfolio rights and we'll get the things that
Speaker 10: we need as the thirty five percent market shareholder in
Speaker 10: the sports business to continue to make ESPN the true
Speaker 10: leader in sports.
Speaker 2: You said you won't comment on deals until they're done,
Speaker 2: but maybe you'll comment on other people's deals. Can we
Speaker 2: do that Sony paramount? How would that impact Hollywood? Is
Speaker 2: that something you'd depose?
Speaker 5: You know, it's funny. I don't have a real comment
Speaker 5: on that one.
Speaker 2: I didn't expect you to, but we have to ask you.
Speaker 2: You've got to leave it there. It's going to catch up,
Speaker 2: Sir Hugh Johnson. There the Disney CFO. This is the
Speaker 2: Bloomberg Surveillance Podcast, bringing you the best in markets, economics,
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