WEBVTT - Netflix Shares At Risk As New Competition Heats Up (Podcast) 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Wicks. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penil podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.720 at Bloomberg dot com. Well, one of the big stories 0:00:22.720 --> 0:00:27.360 in media and entertainment investing is can anybody compete with Netflix? 0:00:27.400 --> 0:00:30.200 And we're seeing some companies make some big moves. We've seen, 0:00:30.240 --> 0:00:33.159 most notably the Walt dis new company by twenty one 0:00:33.280 --> 0:00:35.559 century Fox from more than seventy billion dollars in an 0:00:35.600 --> 0:00:38.320 effort to compete against Netflix. So let's talk media and 0:00:38.400 --> 0:00:41.680 entertainment stocks. We are pleased to welcome Lara Martin. Lar's 0:00:41.680 --> 0:00:44.240 senior analyst for Needham Company. She's based in l a 0:00:44.360 --> 0:00:46.479 but she joins us here in a Bloomberg eleventh three 0:00:46.520 --> 0:00:49.320 oh studio in New York. Laura, thanks for being with us. 0:00:49.320 --> 0:00:53.760 So can anybody compete with Netflix? What is your view 0:00:53.800 --> 0:00:55.480 on Netflix? To begin with? Because you are one of 0:00:55.520 --> 0:00:58.200 the few analysts out there that is not planning the 0:00:58.240 --> 0:01:00.680 table on Netflix. Yeah, right, So I find it's hard 0:01:00.680 --> 0:01:02.279 to make money when you agree with the crowd, So 0:01:02.320 --> 0:01:04.520 I take the hate mail that comes with being negative 0:01:04.520 --> 0:01:09.080 on Netflix. Um. So my concern about Netflix is that, um, 0:01:09.120 --> 0:01:11.400 they're get about to get They've been a monopolist with 0:01:11.480 --> 0:01:14.360 other people's programming for most of the last seven years, 0:01:14.760 --> 0:01:16.800 and now they're going to get companies competing with them 0:01:16.800 --> 0:01:19.399 that not only have deeper pockets, but also have a 0:01:19.440 --> 0:01:22.800 lower marketing cost and a lower content cost because they 0:01:22.800 --> 0:01:25.480 own their own libraries. So in the case of Disney 0:01:25.520 --> 0:01:27.480 and Warner Brothers, which is now owned by A T 0:01:27.600 --> 0:01:29.959 and T, they have fifty years of program and they've 0:01:30.000 --> 0:01:32.240 already paid for an amortized so it's a lower cost 0:01:32.280 --> 0:01:34.680 of content because Netflix has to pay cash for all 0:01:34.720 --> 0:01:37.640 their original content. And then each of those companies has 0:01:37.640 --> 0:01:40.720 sisters subsidiaries that they can advertise for free. So Disney 0:01:40.760 --> 0:01:43.039 owns ABC, they can put their own thirty second spot 0:01:43.120 --> 0:01:46.520 telling you that Disney Entertainment exists. Netflix has to buy 0:01:46.560 --> 0:01:50.040 every single spot of paid media, so it's so they 0:01:50.160 --> 0:01:52.360 so both of those companies have a lower cost of 0:01:52.400 --> 0:01:55.120 content and a lower marketing cost in the case of Apple, 0:01:55.160 --> 0:01:57.160 which spent ninety minutes sort of talking about their news 0:01:57.160 --> 0:01:59.760 streaming service. They do fifty billion dollars a year free 0:01:59.760 --> 0:02:02.960 cash flow. Netflix spends thirteen and has to borrow three 0:02:03.000 --> 0:02:06.160 of it. If actually Apple started spending thirteen billion, you 0:02:06.200 --> 0:02:09.320 wouldn't notice because they still have forty billion to buy 0:02:09.360 --> 0:02:12.760 in shares or paid dividends. Well, which raises a question, 0:02:12.880 --> 0:02:15.080 because this is speculation that we've heard from a number 0:02:15.080 --> 0:02:19.680 of people. Could Apple end up buying Netflix? Could Netflix 0:02:19.760 --> 0:02:24.440 actually get some sort of cash infusion from a third party? Um, 0:02:24.480 --> 0:02:26.320 maybe I think it is. I think it would be 0:02:26.360 --> 0:02:28.560 more likely that in the end, Apple will try to 0:02:28.600 --> 0:02:31.359 do it itself at the highest brand level. And it's 0:02:31.440 --> 0:02:33.799 much more likely that the brand consistency is because of 0:02:33.800 --> 0:02:35.840 the Walt It was would be with the Walt Disney company, 0:02:35.880 --> 0:02:38.280 which it could buy, and they're similar brand strength. And 0:02:38.280 --> 0:02:40.079 as you know, you know, Bob Iger's on the Apple 0:02:40.120 --> 0:02:42.160 board and Steve Jobs was on, So more likely that 0:02:42.200 --> 0:02:45.840 Apple would buy Disney. And the problem with Netflix is 0:02:45.960 --> 0:02:48.320 the day you buy Netflix, you lose read hastings at 0:02:48.320 --> 0:02:50.079 Ted Surranda's So I don't know what you think the 0:02:50.120 --> 0:02:52.760 value of Netflix is without those top five managers that 0:02:52.880 --> 0:02:55.359 founded it twenty five years ago. But it's a lot 0:02:55.440 --> 0:02:58.320 less because those people are extraordinary, and they won't be 0:02:58.320 --> 0:03:01.119 employees because they're gonna be with billions of dollars. So 0:03:01.400 --> 0:03:03.120 let's go back to that Walt Disney deal, probably the 0:03:03.160 --> 0:03:05.000 biggest M and A trade we've seen in the media 0:03:05.040 --> 0:03:07.240 space in a long time. We never thought we'd see 0:03:07.280 --> 0:03:09.440 Rubert Murdoch sell. At least I didn't think we'd ever 0:03:09.440 --> 0:03:12.320 see Rupert Murdoch sell this company. Do you think Disney 0:03:12.360 --> 0:03:16.600 now has the assets to compete against Netflix and the 0:03:16.680 --> 0:03:18.960 Amazons and the facebooks and the Apples of the world. 0:03:19.000 --> 0:03:22.360 And I'll point out that Disney has an investor meeting 0:03:22.440 --> 0:03:25.600 next week April eleven, world presumably they'll unveil some more 0:03:25.919 --> 0:03:28.560 details about their streaming business. Yes, I do. I do 0:03:28.639 --> 0:03:31.320 think it's large enough because actually content creation is a 0:03:31.360 --> 0:03:34.079 core competence of Disney. I do think you need twenty 0:03:34.080 --> 0:03:36.680 four by seven programming. What we've seen with ww E, 0:03:36.840 --> 0:03:39.400 which went first into the over the top streaming, is 0:03:39.440 --> 0:03:41.520 you have to have ten thousand hours in your library. 0:03:41.520 --> 0:03:44.960 When you launch, Disney had all Triple A titles, but 0:03:45.000 --> 0:03:47.160 it didn't have any ten thousand hours. Now they have 0:03:47.240 --> 0:03:49.680 that ten thousand hours, so I think they have a 0:03:49.760 --> 0:03:52.880 really legitimate streaming service. And a lot of the content 0:03:52.960 --> 0:03:56.480 that you guys everybody's watching on Netflix is coming off 0:03:56.480 --> 0:04:00.000 and moving to the Walt Disney Entertainment channel while Netflix 0:04:00.040 --> 0:04:02.520 is raising their price to you. So the concerns about 0:04:02.600 --> 0:04:05.080 Netflix are legitimate, and there's something that we've heard from 0:04:05.120 --> 0:04:08.360 other people as well. Uh, The question is how does 0:04:08.360 --> 0:04:11.720 an investor value those risks, because right now we're looking 0:04:11.720 --> 0:04:15.880 at Netflix shares uh that are valued at three give 0:04:16.000 --> 0:04:19.239 or take, and I'm just wondering where the correct value 0:04:19.360 --> 0:04:21.760 should be given some of these pressures that really are 0:04:21.800 --> 0:04:24.120 coming more online now in a way that they never 0:04:24.160 --> 0:04:26.600 have before. Right Well, the number that I think is 0:04:26.640 --> 0:04:29.800 the most telling is Netflix trades at ten times revenue. 0:04:30.279 --> 0:04:34.280 Apple trades at sixteen times earnings. So if you had 0:04:34.279 --> 0:04:36.840 to back one of them, anything that goes wrong at 0:04:36.880 --> 0:04:39.760 Netflix and your ten times, the next closest fang is 0:04:39.800 --> 0:04:42.919 eight times, and that's Facebook, so it's gonna stop at eight. 0:04:43.000 --> 0:04:46.479 And then you know, Disney trades at three. Interesting, so 0:04:46.680 --> 0:04:48.920 it's just really overvalue. It's interesting. One of the things 0:04:48.960 --> 0:04:52.080 that you know about Netflix, I think I think it's 0:04:52.080 --> 0:04:53.920 been driving this stock really over the years has been 0:04:53.920 --> 0:04:56.039 the subscriber growth. So the question is they have, you know, 0:04:56.120 --> 0:04:59.560 some hundred fifty millions some subscribers globally. That seems like 0:04:59.600 --> 0:05:03.400 a heads start, even for an Apple, even for a Disney. 0:05:03.920 --> 0:05:06.719 Um do you think there's room in this streaming market 0:05:06.880 --> 0:05:10.200 for multiple streamers? I mean, how many checks are people 0:05:10.240 --> 0:05:12.040 going to be writing every month? Well, so I think 0:05:12.040 --> 0:05:14.080 that actually is the best question in media right now, 0:05:14.080 --> 0:05:16.800 because the average home gets three over the top services, 0:05:16.839 --> 0:05:20.160 including skinny bundles. If you think that number stays at three, 0:05:20.680 --> 0:05:23.240 then what happens is the incumbent Netflix, which has sixty 0:05:23.279 --> 0:05:26.120 million U S subs, must be losing subs to Warner 0:05:26.320 --> 0:05:29.080 or Apple or Disney, which means their U sub growth 0:05:29.120 --> 0:05:32.880 goes negative. Now, can you sustain atten multiple of revenue 0:05:32.920 --> 0:05:35.839 when your U S subs are negative, even if you 0:05:35.880 --> 0:05:38.360 can grow, even if you can grow your international subs 0:05:38.839 --> 0:05:41.479 fasterd offset, which you might not be able to. And 0:05:41.520 --> 0:05:43.560 I don't think a growth investor can take a negative 0:05:43.600 --> 0:05:45.479 sub growth, even if it's just in the US. But 0:05:45.520 --> 0:05:47.240 these are a lot of ifs, right, And there's a 0:05:47.360 --> 0:05:50.080 question of the cost point too. And the fact that 0:05:50.120 --> 0:05:53.000 Netflix has developed a lot of original programming that a 0:05:53.040 --> 0:05:54.840 lot of people really like, right, I mean, it's not 0:05:54.880 --> 0:05:58.760 that they're completely reliant on Disney subscriptions. So what do 0:05:58.800 --> 0:06:00.559 you think I mean, is there any kind of early 0:06:00.600 --> 0:06:06.320 indication of how many individual packages customers are willing to 0:06:06.320 --> 0:06:09.520 pay for? Well, I think here's here's a logical consumer behavior. 0:06:09.560 --> 0:06:11.920 There is no incentive for you to sign up for longer, 0:06:12.760 --> 0:06:15.520 more months for Netflix. So when bird Box comes out 0:06:15.560 --> 0:06:17.720 and it's hit, you can pay ten dollars watch it all, 0:06:17.920 --> 0:06:20.479 turn it off, go to the Walt Disney Company, watch 0:06:20.480 --> 0:06:22.040 all the stuff you want to watch. Turn it off. 0:06:22.080 --> 0:06:24.560 Go to Warner Brothers for ten dollars, watch it turn 0:06:24.600 --> 0:06:27.200 it off. You know that the marketers in the room 0:06:27.320 --> 0:06:29.240 are going to give you a discount if you buy 0:06:29.240 --> 0:06:31.400 a bundle, if you take three months or six months, 0:06:31.440 --> 0:06:33.200 they're going to try to lock you in for longer 0:06:33.279 --> 0:06:36.000 because that's a better business model. Netflix gives you no 0:06:36.080 --> 0:06:39.400 incentive not to come watch what's hot and leave after 0:06:39.440 --> 0:06:42.360 thirty days. Laura Martin, thank you so much for joining us. 0:06:42.400 --> 0:06:44.200 We will not be setting you hate mail. We think 0:06:44.240 --> 0:06:46.760 your views are really compelling. Thank you, Laura Martin is 0:06:46.760 --> 0:06:49.520 senior analystic need Um and Company, joining us here in 0:06:49.560 --> 0:07:08.360 our Bloomberg Interactive Broker's studios. Let's talk oil. W t 0:07:08.560 --> 0:07:11.560 I is up nearly from its December load to over 0:07:11.600 --> 0:07:14.920 sixty two a barrel. What's driving this rise and how 0:07:15.000 --> 0:07:17.440 high can it go? Fortunately, our next guest has an 0:07:17.440 --> 0:07:21.280 opinion on that. We welcome Jason Shanker. Jason as president 0:07:21.280 --> 0:07:25.040 of Prestige Economics, also chairman of the Futurist Institute and 0:07:25.120 --> 0:07:29.120 a Bloomberg Opinion contributor contributor. He's based in Austin, Texas, 0:07:29.320 --> 0:07:31.480 Keep it weird, but he joins us in our Bloomberg 0:07:31.480 --> 0:07:34.840 eleventh three Yoh studios. Jason, welcome. So again we've had 0:07:34.880 --> 0:07:38.960 this big roller coaster for oil, you know, crashing there 0:07:39.000 --> 0:07:41.160 in the fourth quarter last year, but then staging is 0:07:41.320 --> 0:07:44.760 really strong rally here. What's driving it? Well, I think 0:07:44.760 --> 0:07:46.720 there's a couple of fundamental things we need to look 0:07:46.760 --> 0:07:50.120 at with oil, and the first is really important. Here's 0:07:50.160 --> 0:07:52.400 what's going on with Chinese growth. China's the biggest net 0:07:52.400 --> 0:07:54.560 importer in the world at grood Oil. Uh there were 0:07:54.560 --> 0:07:58.679 a few months of consecutive monthly contractions in Chinese manufacturing. 0:07:58.920 --> 0:08:01.680 If you look at the private compiled Session Manufacturing Index, 0:08:01.880 --> 0:08:05.040 and we actually closed in November sort of mid November, 0:08:05.680 --> 0:08:09.760 below levels that we hadn't seen on the downside uh 0:08:09.960 --> 0:08:12.720 in terms of a down trend since the last Chinese 0:08:12.800 --> 0:08:17.960 manufacturing recession started in December. So crossing below those technicals 0:08:18.000 --> 0:08:22.000 in the middle of November of and really important, we 0:08:22.160 --> 0:08:25.840 rose above those levels just this past week because that 0:08:26.200 --> 0:08:28.560 Chinese manufacturing p m I number that came out on 0:08:28.600 --> 0:08:33.040 Sunday night surprising number back above fifty after three contractions, 0:08:33.120 --> 0:08:35.679 So should be no surprise. Biggest net importer in the 0:08:35.720 --> 0:08:38.760 world of crude oil is expanding again and crude oil 0:08:38.800 --> 0:08:42.800 prices close above those recessionary type prices. So how much 0:08:42.960 --> 0:08:46.400 upside does oil have from here, given the fact that 0:08:46.480 --> 0:08:50.760 China does seem to be at least stopping the slowdown 0:08:50.800 --> 0:08:52.760 if you will, well, I think there's a little bit 0:08:52.760 --> 0:08:55.079 more upside here. We actually saw upside for price during 0:08:55.080 --> 0:08:57.520 the year, even though this Chinese manufacturing recession was going 0:08:57.559 --> 0:09:01.199 on all the all the brief a quarter long. We 0:09:01.280 --> 0:09:03.400 think that the really most important thing people need to 0:09:03.440 --> 0:09:05.839 know is that the U S summer driving season is 0:09:05.880 --> 0:09:07.920 one of the most critical things that drives oil prices 0:09:08.200 --> 0:09:10.240 presented was always presenting upside risk. I you want to 0:09:10.280 --> 0:09:11.960 qu two. We now see a little more upside risk. 0:09:12.120 --> 0:09:14.600 So before we would have set prices maybe sixties sixty five, 0:09:14.640 --> 0:09:18.080 now sixty five to seventy just reference, we're talking w 0:09:18.200 --> 0:09:20.040 T I, which is currently sixty two and a half 0:09:20.600 --> 0:09:23.560 sixty two fifty in terms of price prepared. So you 0:09:23.600 --> 0:09:26.280 see that going up to a range of six to seventy. Yeah, 0:09:26.280 --> 0:09:28.920 we could easily see that because this summer's driving season 0:09:29.040 --> 0:09:31.800 is likely to be the biggest summer driving season in history. 0:09:32.000 --> 0:09:33.720 Last year was the biggest. This year is gonna be 0:09:33.760 --> 0:09:36.559 even bigger. Right, we think wage inflation most recent job 0:09:36.559 --> 0:09:39.280 report up three point four percent year on year, unemployment 0:09:39.360 --> 0:09:42.280 rate three percent. Everybody's got jobs, everybody's got money. They're 0:09:42.320 --> 0:09:45.040 gonna be going places this summer with their families. So 0:09:45.160 --> 0:09:47.240 no matter what happens with China, you were always going 0:09:47.280 --> 0:09:50.120 to get some support at least until the September contract 0:09:50.200 --> 0:09:52.640 role in the middle of July. All right, So that's demand. 0:09:52.880 --> 0:09:55.320 Very bullish on the demand from your perspective, But isn't 0:09:55.320 --> 0:09:57.160 there a lot of supply? Aren't they pumping up this 0:09:57.280 --> 0:09:59.320 shale oil faster and they can even get it to 0:09:59.360 --> 0:10:01.840 the terminal. Right, So there's a lot of supply for oil, 0:10:01.880 --> 0:10:03.880 which is why oil was slower to recover than a 0:10:03.920 --> 0:10:06.839 number of industrial medals after the Chinese manufacturing recession that 0:10:06.920 --> 0:10:11.920 lasted from December until June. Other things rose faster because 0:10:11.960 --> 0:10:13.920 there was a lot more supply of oil, but it's 0:10:13.920 --> 0:10:18.080 still rose on trend from mid until uh we saw 0:10:18.120 --> 0:10:21.280 that pull back then and significantly in October and the November. 0:10:22.640 --> 0:10:24.880 So yeah, it's gonna be a bit more dampen than 0:10:24.960 --> 0:10:28.000 other commodities because we have a higher supply situation, but 0:10:28.040 --> 0:10:30.800 commodities are bought and not sold, and so big summer 0:10:30.880 --> 0:10:34.160 driving season means refineries are going to be consuming a 0:10:34.160 --> 0:10:36.560 lot of oil to meet that demand. And of course, 0:10:36.600 --> 0:10:39.559 if China can even remain just above fifty, we're gonna 0:10:39.559 --> 0:10:42.880 be in in this uh all arranging Q two Why 0:10:42.880 --> 0:10:46.760 not higher than well? This is right? So could we 0:10:46.840 --> 0:10:50.080 in spike to see things higher. Yeah, it's possible, but 0:10:50.240 --> 0:10:52.440 part of the reason we we may not see it 0:10:52.520 --> 0:10:56.400 higher is because we still have China in a um 0:10:57.240 --> 0:10:59.680 right in still tepid growth. There's still questions what's gonna 0:10:59.720 --> 0:11:02.439 happen and trade ward things still going on, right, that's 0:11:02.480 --> 0:11:05.479 a deal. And of course in Europe, right, Eurozone manufacturing 0:11:05.520 --> 0:11:09.200 contracted significantly for a second consecutive month. This is a 0:11:09.240 --> 0:11:11.880 bigger concern. This is obviously outside the Brexit stuff, but 0:11:11.920 --> 0:11:15.000 this is Eurozone manufacturing was an all time recording. Because 0:11:15.040 --> 0:11:17.360 you know that we don't necessarily want to talk about Brexit, right, 0:11:17.400 --> 0:11:19.480 well yeah, you know, but but but what's going into 0:11:19.520 --> 0:11:22.240 the Eurozone is is much more than than what's going 0:11:22.240 --> 0:11:24.280 on with Brexit, right, you're being monetary union kind of 0:11:24.559 --> 0:11:27.560 a separate deal. But euros of manufacturing was an all 0:11:27.600 --> 0:11:32.120 time record high in December, slid all last year, and 0:11:32.160 --> 0:11:34.800 that wasn't because of bregit concerns. So that was the 0:11:34.920 --> 0:11:37.920 end of quantitative ease incoming and the Europeans couldn't do it. 0:11:37.960 --> 0:11:40.880 And they still have negative deposit rates. And so now 0:11:40.960 --> 0:11:43.839 we see the ECB going more devish. They're gonna kick 0:11:43.880 --> 0:11:46.520 it back up later in the year. And but but 0:11:46.600 --> 0:11:49.280 between now and then, um, you know, there's some risk 0:11:49.360 --> 0:11:50.880 and that's something that kind of limits some of the 0:11:51.000 --> 0:11:54.560 upside for say commodities that are consumed on a global basis. Yes, 0:11:54.640 --> 0:11:56.440 sounds I'm glad you brought up Europe because you know, 0:11:56.480 --> 0:11:59.800 obviously that looks like China is stabilizing and maybe getting 0:11:59.840 --> 0:12:02.000 some green shoots of growth there. But Europe, as you 0:12:02.080 --> 0:12:07.160 just mentioned, very weak across your being, including Germany. So 0:12:07.400 --> 0:12:10.200 to what extent, what's the risk in your opinion that 0:12:10.480 --> 0:12:14.080 European growth could weaken even further? Yeah, so there there 0:12:14.200 --> 0:12:16.680 is the potential for this. We saw this a few 0:12:16.760 --> 0:12:19.840 years ago when the European Central Bank tried to reduce 0:12:19.920 --> 0:12:22.839 the central bank balance sheet from around three point one 0:12:22.880 --> 0:12:25.360 trilling euros to two and as we know now it's 0:12:25.360 --> 0:12:28.200 closer to four and a half because that failed miserably. 0:12:28.240 --> 0:12:31.360 Even apparently trying to slow the expansion of the balance 0:12:31.360 --> 0:12:35.480 sheet or stopping it is failing miserably. So this means 0:12:35.559 --> 0:12:40.040 that more quantitative ease in coming. Until, though that happens, 0:12:40.600 --> 0:12:44.640 you could see a bit more downside, very responsive economy 0:12:44.640 --> 0:12:48.480 to that stimulus. Very What's interesting to me is everyone 0:12:48.559 --> 0:12:51.439 sort of just expects the US economy as a given 0:12:51.800 --> 0:12:55.280 to continue chugging along and accelerating this year. And I 0:12:55.360 --> 0:12:59.040 actually I was looking this morning at the City US 0:12:59.120 --> 0:13:02.160 Economic Surprise Index, which is at its lowest level since 0:13:02.160 --> 0:13:04.920 two thousand seventeen, which sort of, uh, to put this 0:13:04.960 --> 0:13:10.160 into English, means that the greatest proportion of economic reports 0:13:10.160 --> 0:13:15.160 are coming out below analysts expectation in the United States, UH, 0:13:15.240 --> 0:13:18.760 since two thousand and seventeen. And I'm just wondering, you know, 0:13:18.880 --> 0:13:23.280 especially given the FEDS reluctance to make any move whatsoever, 0:13:23.960 --> 0:13:26.160 is the U s economy weaker than people expect or 0:13:26.280 --> 0:13:29.960 think right now? So I think there are some concerns 0:13:30.000 --> 0:13:33.960 people need to be aware of. I would hearken back 0:13:34.000 --> 0:13:36.640 to Ben Bernanke's quote at beginning of January that business 0:13:36.640 --> 0:13:39.400 cycles don't die, they get murdered or don't have old age, 0:13:39.440 --> 0:13:43.000 they get murdered. And if we were to um, like inspector, 0:13:43.040 --> 0:13:46.400 we know around up the usual suspects, what would they be, Well, 0:13:46.400 --> 0:13:49.440 the usual suspects might be. Um, you know the fact 0:13:49.440 --> 0:13:50.839 that in twenty eight team we had more I p 0:13:50.960 --> 0:13:52.920 o s of companies with negative earnings than in in 0:13:52.960 --> 0:13:56.120 the history of ever. Right, So that's you know that 0:13:56.240 --> 0:13:59.000 that's something right, So so these these you know, that's 0:13:59.040 --> 0:14:00.960 maybe a thing. Right. If we were to say, okay, 0:14:01.000 --> 0:14:03.319 we learned our lesson in the housing bubble, right, and 0:14:03.600 --> 0:14:06.120 the financial crisis, but maybe we forgot the lessons of 0:14:06.160 --> 0:14:08.720 two thousand, two thousand one. It was a long time ago, 0:14:09.360 --> 0:14:12.120 times ago. A lot of folks on the street, we're 0:14:12.200 --> 0:14:15.560 not working time right, So that that's the thing. The 0:14:15.559 --> 0:14:17.120 other thing, of course, is if we look at some 0:14:17.120 --> 0:14:19.840 of the economic data, we we also do see slower 0:14:19.880 --> 0:14:23.320 growth in October. You know, we have seen these higher 0:14:23.320 --> 0:14:25.720 interest rates. We were expecting four rate hikes last year 0:14:25.760 --> 0:14:27.520 because of a year and year base effect for inflation. 0:14:27.920 --> 0:14:30.560 This year we were expecting zero. We're not gonna get 0:14:30.560 --> 0:14:33.280 any of this year. And that's also a base on 0:14:33.400 --> 0:14:35.760 a year on year effective inflation. That the other usual 0:14:35.800 --> 0:14:38.440 suspect than there is the FED where they behind the curve, 0:14:38.560 --> 0:14:41.000 now they ahead of the curve. Are they responding to 0:14:41.080 --> 0:14:44.480 slowly to inflation risk? You know that that's also a thing. 0:14:44.560 --> 0:14:47.120 But I think business investment is at risk this year, 0:14:47.520 --> 0:14:50.240 and we saw a recession in business investment. Most people forget, 0:14:50.240 --> 0:14:54.560 and we could see a US business investment investment recession 0:14:54.640 --> 0:14:57.240 sometime this year. But we still spec one potent GDP 0:14:57.360 --> 0:15:01.200 overall for the year, far below some of the higher 0:15:01.200 --> 0:15:05.720 expectations of economists. But growth nonetheless, that's fairly solid. Jason Shanko, 0:15:05.800 --> 0:15:09.480 president of Prestige Economics, also the chairman of the Futurist 0:15:09.480 --> 0:15:28.240 Institute and a Bloomberg Opinion contributor. In June of two 0:15:28.240 --> 0:15:31.760 thousand twelve, Roja Gupta, a former CEO of McKinsey, was 0:15:31.800 --> 0:15:35.120 convicted of insider trading associated with a Galleon hedge fund 0:15:35.160 --> 0:15:38.600 scandal and sentenced to two years in prison. The Galleon 0:15:38.720 --> 0:15:42.120 founder was also convicted and sent to prison. Mr Gupta 0:15:42.200 --> 0:15:45.200 was released in two thousand sixteen and has since published 0:15:45.240 --> 0:15:48.960 his new memoir, Untiled Mind Without Fear. We sat down 0:15:48.960 --> 0:15:51.680 with Mr Gupta earlier this week to discuss his conviction 0:15:51.960 --> 0:15:54.600 and time in prison, and started things off by asking 0:15:54.680 --> 0:15:57.480 him why write the book? Well, let me first say 0:15:57.520 --> 0:16:01.000 why is not written? Which is not try to relitigate 0:16:01.080 --> 0:16:04.720 the case or to convince lots of people. I'm innocent. 0:16:05.040 --> 0:16:07.840 I just wanted to present my viewpoint which I had 0:16:08.560 --> 0:16:12.480 steadfastly maintained my silence because the matter was sub judice 0:16:12.680 --> 0:16:15.240 till the beginning of this year, and I wanted to 0:16:15.240 --> 0:16:19.080 honor the tradition of not saying anything while my appeals 0:16:19.080 --> 0:16:22.480 were going on. So I decided to write my story, 0:16:23.120 --> 0:16:27.920 uh one to you know, get my story out in 0:16:27.960 --> 0:16:32.120 my own words. Second, I actually wanted to write a 0:16:32.200 --> 0:16:37.480 broader story than just the trial, because in many ways, 0:16:37.520 --> 0:16:40.800 I've had an interesting life. Everybody has an interesting life, 0:16:40.800 --> 0:16:44.000 but I also had an interesting life, and there many 0:16:44.440 --> 0:16:46.800 lessons learned from it. There were many ups and downs, 0:16:47.720 --> 0:16:50.440 and I wanted to write it for young people who 0:16:50.480 --> 0:16:53.800 could relate to pieces of it, you know. And I 0:16:53.840 --> 0:16:58.120 wanted to write in a very direct, you know, personal style, 0:16:58.240 --> 0:17:02.200 giving what I was feeling and going through these experiences, 0:17:02.800 --> 0:17:06.159 and hopefully some lessons will come out of that, not 0:17:06.280 --> 0:17:09.160 only in terms of this last few years, but also 0:17:09.760 --> 0:17:14.600 my own professional career and my childhood, my my life philosophy. 0:17:14.880 --> 0:17:17.400 And you did have a dramatic rise to the top 0:17:17.480 --> 0:17:21.720 of the corporate world until this, uh, this conviction one 0:17:21.720 --> 0:17:24.800 of the largest insider trading cases in the United States. 0:17:24.840 --> 0:17:27.160 Who you say in the book that you felt wronged 0:17:27.760 --> 0:17:30.360 by what happened and that you feel like the true 0:17:31.320 --> 0:17:35.000 villains of the crisis and of financial markets have not 0:17:35.200 --> 0:17:39.520 been prosecuted. Who are the real villains? I mean, those 0:17:39.560 --> 0:17:42.040 of your report on the financial markets would know better. 0:17:42.200 --> 0:17:45.119 I mean I can say one simple fact. You know, 0:17:46.240 --> 0:17:49.920 all we did in the aftermath of the financial crisis 0:17:50.080 --> 0:17:55.120 is h make big fines for banks, which of course 0:17:55.160 --> 0:17:59.480 the shareholders ended up paying for, and the executives kept 0:17:59.520 --> 0:18:03.159 all the abovenesses and all their money they made. And 0:18:03.200 --> 0:18:06.840 this was the biggest crisis in American history for a 0:18:06.880 --> 0:18:11.520 long time. Thousands and thousands of people lost their jobs, 0:18:12.160 --> 0:18:16.960 they lost their pensions, they lost their homes, and banks 0:18:17.000 --> 0:18:23.200 were held accountable for misdeeds fraud even and yet no 0:18:23.240 --> 0:18:26.800 one in the senior management of any of the banks 0:18:27.040 --> 0:18:31.040 who found accountable. Do you think that senior bank executive, 0:18:31.040 --> 0:18:36.000 senior financial executives should in fact going to jail. You 0:18:36.080 --> 0:18:38.600 tell me when when a bank is find billions of 0:18:38.640 --> 0:18:41.960 dollars in admits to fraud human beings? Do that right? 0:18:42.000 --> 0:18:46.359 No machines are doing this fraud or this bad practices. 0:18:46.480 --> 0:18:51.080 So yes, of course I don't think we've held the 0:18:51.080 --> 0:18:54.960 executives at that time had been held accountable to this day, 0:18:55.000 --> 0:18:57.679 you maintain your innocence. What do you believe the courts 0:18:57.720 --> 0:19:03.879 got wrong? What? As you know, well, insider trading implies 0:19:03.960 --> 0:19:09.119 that actual insider information was passed, second, that there was 0:19:09.119 --> 0:19:15.600 criminal intent, Third, that there was consequential benefit and they 0:19:15.640 --> 0:19:19.640 couldn't prove any of it. There was only some circumstantial 0:19:19.720 --> 0:19:23.800 evidence in timing of calls, but there was They recorded 0:19:23.920 --> 0:19:27.040 rather Rutnam for eighteen months. There was not a single 0:19:27.080 --> 0:19:32.359 conversation between us that passed any insider information. There was 0:19:32.400 --> 0:19:37.719 no emails, there were no witnesses, so there was Yet 0:19:37.760 --> 0:19:41.080 they convicted you, you appealed. I'm saying, you're saying, you 0:19:41.119 --> 0:19:43.760 know what they got wrong. They didn't meet any of 0:19:43.800 --> 0:19:48.280 the criteria right. And second, there were twenty two people 0:19:48.280 --> 0:19:50.679 convicted in the Galleon case or related I don't know 0:19:50.760 --> 0:19:52.720 what the exact number is. Every one of them had 0:19:52.800 --> 0:19:56.399 a quid pro co arrangement with raj. How is it 0:19:56.480 --> 0:19:59.760 that I'm the only person who had no benefit, no arrangement, nothing. 0:20:00.000 --> 0:20:04.960 It was jail like jail by and large was okay, 0:20:05.000 --> 0:20:09.200 except for the fact that you know, as they say, 0:20:09.560 --> 0:20:14.399 power corrups and absolute power cerrups absolutely, and the prison 0:20:14.440 --> 0:20:17.760 system is run as if they have absolute power. And 0:20:17.840 --> 0:20:24.200 they sent me to solitary confinement three times, one time 0:20:24.240 --> 0:20:30.479 for seven weeks with no severn wis why, uh, you 0:20:30.480 --> 0:20:34.159 can buy towels in the commissary in prison? Right? I 0:20:34.160 --> 0:20:36.359 had a bad back, So when you sit in chairs. 0:20:36.400 --> 0:20:40.760 I rolled up two towels and stitched them for a 0:20:40.800 --> 0:20:45.600 little pillow support pillow. And they came and searched my 0:20:45.600 --> 0:20:50.640 my little bunk area, and they found nothing except that pillow. 0:20:50.960 --> 0:20:53.040 The towel rolled up was sitting on the bottom of 0:20:53.040 --> 0:20:58.240 my bed. And the guy said, well, this is tampering 0:20:58.280 --> 0:21:02.320 with government property. And so they sent me to salitary 0:21:02.359 --> 0:21:08.240 confinement for seven weeks. And you know, if there is 0:21:08.320 --> 0:21:12.480 anything I would say, please get that out to the 0:21:12.480 --> 0:21:15.280 world that this the prison system is run like that. 0:21:16.200 --> 0:21:19.959 It's terrible. They want you to, you know, go and 0:21:20.040 --> 0:21:22.719 hang your head and be repentant, and you know, they 0:21:22.760 --> 0:21:26.160 don't treat you like human beings. In many of the time, 0:21:26.920 --> 0:21:30.000 solity confinement you would think is a very quiet kind 0:21:30.040 --> 0:21:33.840 of place. Everybody is in a single cell and so on. No, 0:21:34.040 --> 0:21:37.760 it's absolutely the noisiest place in prison because there are 0:21:38.359 --> 0:21:41.640 steel doors and walls, and people are going crazy. They're 0:21:41.680 --> 0:21:45.920 banging streel doors, they're shouting there right now. It's it's 0:21:46.119 --> 0:21:50.639 u and defines more than two weeks a solitary confinement 0:21:50.760 --> 0:21:55.080 as severe torture and had seven at seven and this 0:21:55.200 --> 0:21:57.840