Speaker 1: This is Bloomberg Wall Street Week. The global push into infrastructure,
Speaker 1: breaking the IPO logjam in text, the financial stories that
Speaker 1: shape our work, cutting inflation without losing jobs. Do we
Speaker 1: need rate cuts and if so, how many? Investing in
Speaker 1: the time of geopolitical.
Speaker 2: Turmoil Through the eyes of the most influential voices.
Speaker 1: Ten Rogueff Economists of Harvard, former FDIC had Shila Bert
Speaker 1: ge CEO, Larry Kulp, San Francisco fed President Mary Daily.
Speaker 2: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: No summer break for fighting in Ukraine and the Middle East,
Speaker 1: changes at the top of Japan, Thailand and Starbucks and
Speaker 1: the US government malls breaking up Google. This is Bloomberg
Speaker 1: Wall Street Week. I'm David Weston this week. Greg Peters
Speaker 1: of PGM on how bond etf are transforming the fixed
Speaker 1: income market.
Speaker 3: So I think the growth is just beginning.
Speaker 1: Zach Liscow of Yale on the hurdles facing the Biden
Speaker 1: administration's race to build infrastructure.
Speaker 4: Has a longstanding difficulty building infrastructure.
Speaker 1: And Jonathan Klein at Hang Media on why legacy media
Speaker 1: companies are having so much trouble.
Speaker 5: It's a problem with the industry that they find themselves in.
Speaker 1: We start with the US CPI numbers out this week
Speaker 1: and welcome Jan Hattias Goldman Sachs chief economists to take
Speaker 1: us through what they tell us about the economy. So welcome,
Speaker 1: it's great to have you here. Jan. What did we
Speaker 1: learn this week about use economy?
Speaker 6: It's great to be here. I think the information we've
Speaker 6: gotten this week has been very encouraging on the growth side,
Speaker 6: mostly good news, another drop in jobless claims and clearly
Speaker 6: stronger than expected retail sales number that was very reassuring
Speaker 6: in light of the weaker employer I'M report for July
Speaker 6: and the concerns around the consumer at the bottom up
Speaker 6: level in some of the earnings reports. In the macro data,
Speaker 6: we're not seeing the consumer softening sharply, and I think
Speaker 6: that's the probably number one takeaway as far as economic
Speaker 6: activity is concerned. There were also some more mixed numbers
Speaker 6: from industrial production and housing starts, but I would put
Speaker 6: more weight on the consumption news than on those.
Speaker 1: We also are down to a two number starting with
Speaker 1: the two at least number on the headline CPI. So
Speaker 1: are we getting inflation and control? Is it going to
Speaker 1: continue in your opinion.
Speaker 6: I am very optimistic that inflation is largely in the
Speaker 6: rearview mirror. If we look at the July core PCE
Speaker 6: estimate that we get on the basis of CPI, PPI
Speaker 6: and import prices, we are at thirteen basis points, which
Speaker 6: is yet another sign that we're on our way back
Speaker 6: to two percent. Now in terms of year on year
Speaker 6: rates for core PC inflation, it's going to be difficult
Speaker 6: to make a lot of headway in the second half
Speaker 6: of the year because the year on year comparisons are
Speaker 6: becoming more difficult. We have very low sequential inflation rates
Speaker 6: in twenty twenty three, but I think on a three
Speaker 6: month annualized basis and a lot of the underlying trend
Speaker 6: measures are saying we're pretty close to two percent and
Speaker 6: this is no longer a major.
Speaker 1: Issue for monetary policy. Is always the case, there are
Speaker 1: some ups and downs, some things that are a little better,
Speaker 1: things that are little work was under the headline numbers,
Speaker 1: But what about housing? Did I give you any pause?
Speaker 1: And with respect to how much control we're getting over inflation, well.
Speaker 6: I think the rent numbers were a little higher than
Speaker 6: expected in the in the most recent release but if
Speaker 6: I look at the trend in rent, we are seeing
Speaker 6: a deceleration in rent in owner's equivalent rent. There are
Speaker 6: some alternative indicators from the Cleveland Fed and the Labor
Speaker 6: Department that look that breakdown rents into new leases and
Speaker 6: existing leases. Those are showing a clear trend towards improvement.
Speaker 6: And I think just based on our modeling of how
Speaker 6: new lease prices translate into the overall CPI numbers, there
Speaker 6: is a very high confidence that we'll see ongoing, gradual,
Speaker 6: gradual improvement. The other point I'd make on inflation is
Speaker 6: what are we seeing on the labor market. We've seen
Speaker 6: the labor market rebalance. The unemployment rate is drifted up
Speaker 6: to four point three percent. We've seen very large declines
Speaker 6: in job openings and quits. We've seen a very material
Speaker 6: deceleration in wage growth. The latest average hourly earnings number
Speaker 6: was only three point six percent, and that basically says
Speaker 6: we no longer have a significant labor cost issue. Unit
Speaker 6: labor costs were up only half a percent on a
Speaker 6: year on year basis in the second quarter. So all
Speaker 6: of that is very encouraging.
Speaker 1: Where are you right now on the possibility of recession?
Speaker 1: We started the year, a lot of economists were really
Speaker 1: almost predicting recession. Larry Summers, for example, this program is
Speaker 1: saying it's more than fifty percent likely. That's changed over
Speaker 1: the course of the year. Where are you on there
Speaker 1: right now?
Speaker 6: So we've been at we were at fifteen percent coming
Speaker 6: into the year. We lifted that from fifteen to twenty
Speaker 6: five percent on a twelve month forward basis after the
Speaker 6: employment numbers for July. Not only because of the employment numbers,
Speaker 6: we also had seen a couple of higher initial jobless
Speaker 6: claims numbers. We've seen a you know, some week survey evidence,
Speaker 6: we'd have some negative anecdotal information about the economy and
Speaker 6: the consumer in some of the earnings reports. So we
Speaker 6: lifted it somewhat, but I'd say twenty five basis points
Speaker 6: is still, of course, well below fifty still somewhat below
Speaker 6: the consensus. You know, I'd say at the margin, what
Speaker 6: we've seen over the last two weeks has been encouraging.
Speaker 6: So I think the likelihood is that that twenty five
Speaker 6: percent is going to come down again. I would like
Speaker 6: to see a little bit more information, especially again the
Speaker 6: next employment report, just given the predictive value that we've
Speaker 6: seen historically from labor market information for recession. That's encapsulated
Speaker 6: in the so called sum rule that if you see
Speaker 6: a half a percentage point increase on a year on
Speaker 6: year basis in the unemployment rate, historically, that's been a
Speaker 6: very strong recession predictor.
Speaker 1: I think there are some good.
Speaker 6: Reasons why that rule may not hold in problem doesn't
Speaker 6: hold in the current environment, in particular the fact that
Speaker 6: we've seen a very large increase in the labor force,
Speaker 6: very large increase in immigration, and that's really, in our
Speaker 6: view with the main reason for why we've seen in
Speaker 6: a higher unemployment rate. Employment is still growing at a
Speaker 6: good pace despite this latest somewhat softer number. Overall, still
Speaker 6: see very strong employment growth, and so it just seems
Speaker 6: like a different type of increase in the unemployment rate.
Speaker 6: That's probably not as predictive over a session, but it's
Speaker 6: hard to be sure. And that's why we are hedgering
Speaker 6: a little bit more.
Speaker 1: Yeah, and it's such a treat to have you on
Speaker 1: Well Street. We thank you for being here. As Jan
Speaker 1: Hatzias of Goldman Sachs. The market continued it's rebound, with
Speaker 1: the S and P five hundred having its best week
Speaker 1: of the year, adding three point nine percent to end
Speaker 1: the week at fifty five fifty four, putting it just
Speaker 1: under the median number the Bloomberg Elves are projected for
Speaker 1: the end of the year. The Nantnag did even better,
Speaker 1: adding five point two nine percent on the week, while
Speaker 1: the yield on the tenure was down six basis points
Speaker 1: to end the week at three point eight eight percent.
Speaker 1: Take us through the week in the market. We welcome
Speaker 1: back now kristin Bitterly City, head of Wealth at work,
Speaker 1: So welcome back. Great to have you, always hear Chris,
Speaker 1: So give us your stance about what happened. We've been
Speaker 1: through a wild ride over the last two weeks. And
Speaker 1: take us inside city. How did your shop react when
Speaker 1: all of us who are running around saying, oh, emergency
Speaker 1: rate cut?
Speaker 3: Sure, of course.
Speaker 7: I think what's interesting is at City Wealth, we've actually
Speaker 7: been pretty resolute in terms of our views this year.
Speaker 7: We started out this year thinking that we would get
Speaker 7: three interest rate cuts of about twenty five basis points,
Speaker 7: and that those cuts would not begin until the second half.
Speaker 5: Of the year.
Speaker 7: And so even though we've seen this wild repraising of
Speaker 7: rates throughout the course of the past couple of months,
Speaker 7: and we could even say year to date. We just
Speaker 7: thought that the FED would not get the data that
Speaker 7: they needed to confidently start cutting rates. And so what
Speaker 7: happened last week was pretty wild because I think the
Speaker 7: market once again got ahead of itself in terms of
Speaker 7: is there going to be an emergency cut?
Speaker 5: Are we locking in.
Speaker 7: A fifty base point cut? I think we're still at
Speaker 7: twenty five basis points because of this economic data that
Speaker 7: we're seeing. We'll get a good piece of economic data
Speaker 7: and then we'll get one that maybe is a little concerning.
Speaker 7: Take today, for example, we have the consumer sentiment data
Speaker 7: that came out better than expected, and then we had
Speaker 7: the data around construction that was worse than expected. So
Speaker 7: I think we're going to see this volatility in the data.
Speaker 7: But the good news is that inflation is on the
Speaker 7: trajectory that the FED needs, and that the labor when
Speaker 7: you look at the labor market, it's cooling, not contracting,
Speaker 7: And I think that's a sweet spot in terms of
Speaker 7: the Fed's position to be able to start cutting.
Speaker 1: Where are we in earnings because that drives a awful
Speaker 1: lot of stock prices.
Speaker 7: And that was another reason why last week. So just
Speaker 7: take like August third, for example, that really horrible day
Speaker 7: in the market, where if you got out on that
Speaker 7: date you would have actually missed out on a pretty
Speaker 7: substantial rally of about seven percent in the S and
Speaker 7: P five hundred since then, But the reason for it
Speaker 7: is earnings have actually been really resilient. If we go
Speaker 7: back to last year, last year we had about seven
Speaker 7: out of the eleven sectors in the S and P
Speaker 7: five hundred that we're experiencing in earnings recession. This year,
Speaker 7: we actually expect ten out of those eleven sectors at
Speaker 7: city to turn to earnings profitability. So earnings have actually surprised,
Speaker 7: and what we're seeing is really a broadening out of
Speaker 7: that story. It is no longer uniquely a magnificent seven story.
Speaker 7: We're starting to see it come through in earnings across
Speaker 7: various sectors, which is actually a reason to stay invested.
Speaker 5: Well.
Speaker 1: So we're going to ask exactly how many people are
Speaker 1: fully invested still at this point, because, as you point out,
Speaker 1: if on August third you'd gone to cash, you'd be
Speaker 1: sad right now to what extends there's still cash on
Speaker 1: the sidelines.
Speaker 7: I think there's still significant cash on the sidelines. You
Speaker 7: could look to money market funds and the flows that
Speaker 7: have come into money market funds as an example of that.
Speaker 7: So the latest numbers that I saw were about six
Speaker 7: point three trillion dollars in money market funds, and that
Speaker 7: doesn't include cash held in deposit accounts and other types
Speaker 7: of bank products. So when we think of other catalysts
Speaker 7: for the market, just think about this. If we do
Speaker 7: start to experience interest rate cuts, what's going to happen
Speaker 7: is all of that cash that is no longer receiving
Speaker 7: a five percent five percent plus interest rate is going
Speaker 7: to look for places to reinvest, and it's going to
Speaker 7: be a balance across equity markets and fixing come market.
Speaker 1: Chris, I don't want to let you go about before
Speaker 1: we talk about your new positions since we've seen your
Speaker 1: last You have a new position. Congratulations that, thank you
Speaker 1: so much. What it is, how is it different? Yeah?
Speaker 7: So I'm running our wealth at work business globally for City,
Speaker 7: and what that is is it's really workplace wealth solutions.
Speaker 7: This started with an area of our business that we've
Speaker 7: actually been dominating and had for over five decades, which
Speaker 7: is our law firm group. So where we bank entry
Speaker 7: level associates through to senior partners and institutional capital. And
Speaker 7: what's unique about it is it really brings the perspective
Speaker 7: of not only knowing you personally in terms of your
Speaker 7: wealth journey, but also looking through how is your industry
Speaker 7: impacted by various trends. So it's knowing your business and
Speaker 7: how to advise you professionally but also personally. And we've
Speaker 7: expanded that on a global base, says, but also looking
Speaker 7: at other segments like asset managers, professional services, and just
Speaker 7: other segments and sectors of different types of companies. So
Speaker 7: really exciting. But thanks for asking about it.
Speaker 1: Menaging the choir, We like lawyers here at Walls. We
Speaker 1: got to tell you. Thank you so much. Chris, great
Speaker 1: to have you with us. Thank you. Kristin Bitterly of
Speaker 1: City coming up. The Biden administration is proud of the
Speaker 1: over one trillion dollars in infrastructure it got enacted. We
Speaker 1: go through how long it will take before we see
Speaker 1: the results with Zach Liskau of the Yale Law School.
Speaker 4: If you look at government spending, our research and developments,
Speaker 4: we are behind pure countries, and we're behind where we.
Speaker 5: Used to be.
Speaker 1: That's next on Wall Street Week on Bloomberg.
Speaker 2: This is Bloomberg Wall Street Week with David Weston from
Speaker 2: Bloomberg Radio.
Speaker 1: This is Wall Street Week. I'm David Weston. The Biden
Speaker 1: administration prides itself on the investment it's making in clean
Speaker 1: energy and semiconductors, but it is having a little bit
Speaker 1: of trouble getting the money out the door. And one
Speaker 1: of the biggest beneficiaries, that's Intel, has announced large job
Speaker 1: cuts and the need to protect its cash pile. Yale
Speaker 1: Law Professor Zach Liscow, former Chief Economists at the OMB,
Speaker 1: has studied infrastructure investment and challenges in making it work,
Speaker 1: and we welcome now to a Wall Street Week. So, professor,
Speaker 1: thank you so much for being here. It's great to
Speaker 1: have you here. You have studied the question of you know,
Speaker 1: it's a good thing to have the intention of getting
Speaker 1: infrastructure investments made, it's a little harder to get it done,
Speaker 1: at least in the United States of America. What are
Speaker 1: the some of the impediments to that that the Biden
Speaker 1: administration may be facing right now.
Speaker 4: Yeah, great question, A pleasure to be here. So first
Speaker 4: I want to say a little bit on what we
Speaker 4: see on the ground now. So if you're talking about manufacturing,
Speaker 4: things actually look really good. What we're seeing is investments
Speaker 4: in manufacturing, building structures. It's the current levels of that
Speaker 4: are roughly double what they were from the period between
Speaker 4: twenty twenty nineteen. So we are just blowing out of
Speaker 4: the water the amount of investment.
Speaker 5: That we're making in manufacturing.
Speaker 4: This is a real terms adjusting for inflation, so a
Speaker 4: lot is getting built in terms of manufacturing, but the
Speaker 4: different kinds of investment. We also are making a big
Speaker 4: push and infrastructure and in particular things like transportation. And
Speaker 4: this is not because of this particular administration, but the
Speaker 4: US just has a long standing difficulty in building infrastructure,
Speaker 4: transportation infrastructure and cost effective ways. If you look at
Speaker 4: urban rail, so you know, within a city and it's
Speaker 4: on a rail, and you compare the US to other
Speaker 4: high media income countries on a per mile basis, the
Speaker 4: US ends.
Speaker 5: About two and a half times as much from iile.
Speaker 4: You compare to the lowest cost countries in Europe, countries
Speaker 4: like Spain, we spend about six times as much from ILE.
Speaker 1: And you know this is not good, Zach asked, someone
Speaker 1: who's studied this as an economist as well as a lawyer.
Speaker 1: I really studied the question of infrastructure. Let's go back
Speaker 1: to where you started. Is there a big difference between
Speaker 1: sort of the true public infrastructure if I can talk
Speaker 1: it that way, highways, rails, you know, water, electrical grid
Speaker 1: and things like that. On the one hand, and they
Speaker 1: had some things that the government may get involved in
Speaker 1: at least in subsidizing and really encouraging. But that also
Speaker 1: private corporations do. I mean, when you talk about building semiconductors,
Speaker 1: that's something typically United States we let private companies do.
Speaker 1: Is there a different way to approach those two questions.
Speaker 4: Yeah, So, you know, roads are public goods, makes a
Speaker 4: lot of sense for the government to be in charge
Speaker 4: of building them. Would be very problematic of a private
Speaker 4: company on the road in front of my street and
Speaker 4: we're like holding me each time I wanted to enter
Speaker 4: my house. That that would be a bad way of
Speaker 4: running things. So it makes a lot of sense to
Speaker 4: have the government owned the roads, the highways, and then
Speaker 4: to set contact out to the private sector to actually
Speaker 4: have them built. There's a whole different thing going on
Speaker 4: with manufacturing there makes we do not want the government
Speaker 4: to be the one actually building the semiconductors. We want
Speaker 4: the private sector to be doing that. You know, those
Speaker 4: are not public goods. Those are goods that are exchanged
Speaker 4: in you know, competitive markets. And for those you know
Speaker 4: we have in the case of chips, to say a
Speaker 4: national security reason to onshore those and us to provide
Speaker 4: government subsidies to provide them. There are climate reasons to
Speaker 4: provide subsidies to come to bring about the green economy
Speaker 4: in terms of energy production. And so I think it's
Speaker 4: good to take these two different approaches for transportation infrastructure,
Speaker 4: government designs it and it manages it, and then to
Speaker 4: have subsidies for these other private sector things which are
Speaker 4: often in manufacturing.
Speaker 1: Let me think, for Zach Liscal of the Yale Law School.
Speaker 1: Professor Liscow's paper for the Aspen Economic Strategy Group will
Speaker 1: be out of this fall. Arcley's launched the first ever
Speaker 1: bond ETF in Canada back in two thousand and what
Speaker 1: started out as a novelty has grown to be an
Speaker 1: over two trillion dollar asset class, changing the entire market
Speaker 1: to take us through fixed income ETFs and why they've
Speaker 1: grown so big. We're welcome now. Greg Peters, Cocio of
Speaker 1: PGM Fixed Income. Greg great to have you back with us.
Speaker 1: Thanks for being here, Thanks for having me, David, So
Speaker 1: take us to this world of bond ETFs. So a
Speaker 1: lot of us think about it in terms of stocks,
Speaker 1: but it's going to be quite a substantial part of
Speaker 1: the market.
Speaker 8: It is, and I think it's a poised to grow
Speaker 8: even more. As we talked about earlier, the global fixed
Speaker 8: income market is one hundred and twenty trillion, and so
Speaker 8: two trillion seems like a drop in the ocean. So
Speaker 8: I think the growth is just beginning. But I think
Speaker 8: the important aspect of ETF for bond investors is that
Speaker 8: it's changed how the market trades, and it's created more
Speaker 8: liquidity in the marketplace.
Speaker 3: And POSTGFC, it's allowed.
Speaker 8: To bond investors, I guess, to reliquify in ways that
Speaker 8: they didn't imagine prior to.
Speaker 1: So why has it grown so big? And you mentioned
Speaker 1: the Great Financial Crisis? There is that part of the cause,
Speaker 1: in the sense that there was a lot of regulations
Speaker 1: that came in after that that really made it a
Speaker 1: little harder for some of the dealers to keep big
Speaker 1: balance sheets.
Speaker 3: That's precisely right.
Speaker 8: The dealer balance sheets were really constrained post GFC. Through
Speaker 8: you know, the alphabet soup of different kind of regulations,
Speaker 8: and it really hurt the end investor because you, as
Speaker 8: a fix income manager, have to go through the dealer
Speaker 8: in order to transact. The ETF platform I call it
Speaker 8: the chassis. The infrastructure allows through the redeem and create
Speaker 8: process trading of individual bonds and ways that were unimaginable before.
Speaker 8: And so this, this you know, revolutionary, evolutionary type of
Speaker 8: process has really allowed fixing them to reliquify and trade
Speaker 8: much better.
Speaker 1: You mentioned one of the effects is increased liquidity. Back
Speaker 1: during the pandemic March of twenty twenty, we had some
Speaker 1: problems with liquidity. Do the body taps hold out? Is
Speaker 1: the possibility that they will be able to take through
Speaker 1: some of those rough patches.
Speaker 8: I hope, So you know, one event doesn't you know,
Speaker 8: make a declarative statement, of course, But it was really
Speaker 8: interesting back in March of twenty twenty, voice trading effectively
Speaker 8: shut down, and what you saw was through ETF and
Speaker 8: electronic trading, which is still only.
Speaker 3: About forty forty five.
Speaker 8: Percent, and the entire fixed income universe traded levels that
Speaker 8: we haven't seen before. So we had record levels of
Speaker 8: volumes at a time when it was really difficult, almost
Speaker 8: impossible to transact elsewhere. So I think that is a testament,
Speaker 8: of course, but each crisis is a little different. You
Speaker 8: just don't know, but I think the early signs are
Speaker 8: actually quite positive.
Speaker 1: You mentioned voice trading versus electronic trading, which is one
Speaker 1: of the advents here. As I understand it, stocks are
Speaker 1: more likely to be traded electronically rather than through voice.
Speaker 1: Why is the fixed income market behind in that is
Speaker 1: a matter of timing or are there's some inherent differences
Speaker 1: in bonds in part because there are so many different
Speaker 1: kinds of them, but that really keep you from doing
Speaker 1: more electronic transfer with bonds.
Speaker 3: I think it's a little bit of both.
Speaker 8: I think historically the fix and come market has been
Speaker 8: known late adopters. Also at the same time, as you mentioned,
Speaker 8: you know, unlike a single stock, you have multiple bonds
Speaker 8: off the name.
Speaker 3: So use IBM as an example. There's only one equity
Speaker 3: security to trade, but.
Speaker 8: You could have anywhere from fifty to you know, almost
Speaker 8: one hundred different cu SIPs of IBM. So it's just
Speaker 8: the complexity is just much more difficult, and the market
Speaker 8: is much more segmented as well. So I just think
Speaker 8: it's about time because if you think about complexity, that's
Speaker 8: where computers and machinery and algorithms can really.
Speaker 3: Add a lot of value. It's just been slow to
Speaker 3: adopt who.
Speaker 1: Are the most likely customers for the ETF. You think
Speaker 1: they're going to keep growing the bond ETFs, but who
Speaker 1: are the people are to target customers for.
Speaker 8: Yeah, So what's interesting about the bond ETF market is.
Speaker 3: That if you look at particularly relative to the.
Speaker 8: Equity side, is institutional bond managers like myself and ourselves
Speaker 8: a PGM that actually utilize that security. So it's much
Speaker 8: more of an institutional vehicle on the fixed income side,
Speaker 8: whereas on the equity side is much more retail driven.
Speaker 3: So we'll see how that changes over time.
Speaker 8: But the way that you know, active money managers like
Speaker 8: ourselves think.
Speaker 3: About these passive ETFs, it's.
Speaker 8: A way of kind of modulating your liquidity, modulating your
Speaker 8: portfolio risk in a more seamless efficient manner.
Speaker 3: So that's why it's taken off as a.
Speaker 1: Big manager of fixed income here at PGM. Do you
Speaker 1: tend to trade in individual bonds or is this in
Speaker 1: whole portfolios that move at the same time.
Speaker 8: It's both so so you tie ETFs that infrastructure to
Speaker 8: what you're seeing through electronic trading, namely portfolio trading, which
Speaker 8: is not a q SIP driven trade, it's a characteristic
Speaker 8: driven trade. And so you now can trade you know,
Speaker 8: up to one hundred some odd names in package form
Speaker 8: and get liquidity, whereas before David you had to kind
Speaker 8: of on the phone call individual and trade lock by lot,
Speaker 8: and that was just grossly inefficient and really difficult to prosecute.
Speaker 8: So the packaging has been the key risk transfer piece
Speaker 8: to it all.
Speaker 1: Well, we said it's gone from a couple hundred million
Speaker 1: up to two trillion dollars. Now, how big can it get?
Speaker 1: Where's the sky here that could growth?
Speaker 3: That's an excellent question.
Speaker 8: I'm not sure if you talk to some of the
Speaker 8: the real ETF advocates, you know, the sky's the limit,
Speaker 8: of course, but I think there's real scope for it
Speaker 8: to grow and to continue to grow. The issue around
Speaker 8: fixed income is the fragmentation of fixed income. Right, so
Speaker 8: we talked about one hundred and twenty trillion globally.
Speaker 3: You have various.
Speaker 8: Government securities, you have corporates, you have high yield, you
Speaker 8: have levered loans, you have all these different products.
Speaker 3: You have privates as well.
Speaker 8: And so it's not homogeneous, right, and so I think
Speaker 8: it makes it much more difficult to kind of finally
Speaker 8: put a number on it.
Speaker 3: But I still think growth is upon us.
Speaker 1: What are the risks in this growth and bondy ts
Speaker 1: as you see it? Are there risks out there we
Speaker 1: should be at least thinking about.
Speaker 8: I think there's always risks of what I think. The
Speaker 8: one risk that I think about is, you know, do
Speaker 8: you have such an over reliance upon this one aspect?
Speaker 8: So if you think about kind of the ETF infrastructure
Speaker 8: and the create redeemed process, it's it's a handful of
Speaker 8: names that's determined by the provider, and so does that
Speaker 8: cannibalize other parts of the marketplace over time? And as
Speaker 8: if that shuts down, does that have an amplifying cascading
Speaker 8: effect across the system?
Speaker 3: So the truth in the matter is we don't know.
Speaker 3: It hasn't been tested.
Speaker 8: We haven't had a credit cycle in a very long time,
Speaker 8: so there's still a lot of tests that.
Speaker 3: We need to kind of go through. So we shall see.
Speaker 1: Okay, Greg, it's always great to have you this. Thank
Speaker 1: you so much for coming back on Wall Street Week.
Speaker 1: That is Greg Peters of p JIM coming up. It's
Speaker 1: not easy these days to be running a legacy media company.
Speaker 1: We talk with Jonathan Klein of Hanging Media about what's
Speaker 1: broken and what can be done to fix it. That's
Speaker 1: next on Wall Street Week on Bloomberg.
Speaker 2: This is Bloomberg Wall Street Week with David Weston from
Speaker 2: Bloomberg Radio.
Speaker 1: This is Wall Street Week. I'm David Weston. Media companies
Speaker 1: have been much in the news recently, and not always
Speaker 1: in a good way, as both Warner Brothers, Discovery and
Speaker 1: Paramount have taken big write downs on their linear assets,
Speaker 1: and prospects for streaming services remain at best uncertain. To
Speaker 1: take us through the ups and the downs, welcome back,
Speaker 1: Jonathan Klein, co founder of Hanging Media and former president
Speaker 1: of CNN. Jonathan's always great to have you with us.
Speaker 1: But our business, if I can call it that way,
Speaker 1: the media business, boy, has it changed. But start, for example,
Speaker 1: with Warner Brothers Discovery, which is really taking it right now.
Speaker 1: Their stock value is down, They've got a lot of debt,
Speaker 1: over forty billion dollars in debt. What do you do?
Speaker 1: There is a problem with the strategy of the execution.
Speaker 9: It's a problem with the industry that they find themselves in,
Speaker 9: is what it is. And this goes way beyond just
Speaker 9: Warner Brothers Discovery. So you know, in their case, they've
Speaker 9: got to swim in the same waters as every legacy
Speaker 9: media company. They've got a lot of brands, they've got
Speaker 9: a lot of assets. The main driver of their profit
Speaker 9: has been the cable TV networks T and D, DDS, CNN, etc.
Speaker 9: And just a raw amount of revenue available to cable
Speaker 9: TV driven businesses has shrunk considerably.
Speaker 5: The other component of their business, the studio business.
Speaker 4: Same thing.
Speaker 9: Just the pool of money available for them and all
Speaker 9: of their competitors to make has shrunk. Subscriber fees that
Speaker 9: the cable distributors are paying have shrunk because viewers have left,
Speaker 9: so you're monthly income on a per subscriber basis has plummeted.
Speaker 9: And as a result, also advertising revenues have plummeted.
Speaker 5: And so of course you've got to redrench, you've got
Speaker 5: to make cuts. They're all doing it.
Speaker 9: You mentioned, Paramount just began their wave of layoffs, their
Speaker 9: latest wave of layoffs today, and even Axios, which is
Speaker 9: a digital only business, they've been through their biggest layoff
Speaker 9: in the past couple of weeks. So in general, media
Speaker 9: is really coming to terms with the reality that it's
Speaker 9: more than ever an industry dominated by the tech giants,
Speaker 9: the Apples and the Amazons and the certainly Google, which
Speaker 9: owns YouTube, which is a monster. The industry is dominated
Speaker 9: by those players, and there's just less opportunity for content creators.
Speaker 1: So what do you do in that environment if you're
Speaker 1: running with these big media companies. I mean, I think
Speaker 1: both of our experiences, it's awfully hard to cut yourself
Speaker 1: a success. You may have to cut, but it's hard
Speaker 1: to get to success by cutting often. You then start
Speaker 1: to think about deals, and John Malone, after all, is
Speaker 1: the force behind the throne there at one of the Discovery.
Speaker 1: Are there deals that could be done, consolidation deals that
Speaker 1: might make things better?
Speaker 9: Well, you're going to probably look to your left and
Speaker 9: your right to see who's in the same boat. I
Speaker 9: think that was their original strategy at Discovery when they
Speaker 9: did the acquisition of WarnerMedia, was to get bigger, big
Speaker 9: enough that they can maybe be the biggest kid on
Speaker 9: the block and dictate the terms of other acquisitions and.
Speaker 5: Start doing roll ups of other players. Now they're not
Speaker 5: the biggest kid on the block.
Speaker 9: Now their market cap has taken such a severe hit
Speaker 9: that the deal numbers themselves are going to be much smaller.
Speaker 9: But that's what's going to have to happen, is consolidation
Speaker 9: for all of these guys. You have a new team
Speaker 9: coming into Paramount, David Ellison and Jeff Shell, who's so sharp.
Speaker 9: They at least have the benefit of beginner's mind, that is,
Speaker 9: they can look at that Paramount portfolio of companies in
Speaker 9: a fresh way. And they also don't have the legacy
Speaker 9: relationships inside the company, and they can maybe make some
Speaker 9: tougher decisions.
Speaker 5: But it's tricky moving forward.
Speaker 9: One of others, Discovery is going to have to find
Speaker 9: consolidation partners, merger partners. And just last month in Sun
Speaker 9: Valley at the Big Media Conference, you know, David Zaslav
Speaker 9: was bemoaning the excessive government regulation in his mind, you know,
Speaker 9: that prevents them from making mergers too easily.
Speaker 1: So it's one thing to get bigger. People like to
Speaker 1: get bigger, what about also getting smaller In this respect,
Speaker 1: Netflix has done pretty well for itself with basically, if
Speaker 1: I can put it this way, a movie studio hooked
Speaker 1: down to a streaming service without all those pesky linear
Speaker 1: ch channels that you and I have worked with through
Speaker 1: the year. Is that a strategy to say, let's double
Speaker 1: down on the production and the streaming and let's get
Speaker 1: rid of the businesses or do something about the business.
Speaker 1: They aren't going anywhere, They're not growing.
Speaker 9: Netflix has had the advantage always of being a tech
Speaker 9: first company that applied that technology to media content and distribution.
Speaker 9: At first just distribution, and now they're in the content
Speaker 9: business as well.
Speaker 5: And their market cap is what twenty times.
Speaker 9: That of Warner Brothers Discovery at this point, and so
Speaker 9: they've got that inherent advantage. The problem is that everything
Speaker 9: we're seeing today is the result of the impact of
Speaker 9: technology on content distribution. We went from cable and broadcast
Speaker 9: to internet distribution of content. What's about to happen now
Speaker 9: is the massive disruption of content production.
Speaker 5: Thanks to a guide.
Speaker 9: There's just going to be more and more, less and
Speaker 9: less expensive content out there, and the legacy companies cannot
Speaker 9: really play in that space. You can't turn Warner Brothers
Speaker 9: into YouTube. YouTube is able to sit there and just
Speaker 9: allow all their users to post whatever they want and
Speaker 9: in the time that we're talking, they're probably going to
Speaker 9: be a million new videos posted to YouTube just in
Speaker 9: this short time frame, and they can just sit back
Speaker 9: and present it to everyone. And at the same time,
Speaker 9: the other power that a YouTube has is all that
Speaker 9: data collection, all that information about who's hosting, what they post,
Speaker 9: who's watching, what they watch, when they leave, when they
Speaker 9: come back. So the YouTube possesses this vast trove of
Speaker 9: audience insight that they can then re funnel back into
Speaker 9: their marketing decisions, their programming decisions. What do we buy
Speaker 9: Do we buy the NFL Sunday ticket package? Yes we do,
Speaker 9: they've decided, right, and now they can analyze behaviors around
Speaker 9: that as they make other decisions about getting into other.
Speaker 5: Aspects of sports rights.
Speaker 9: Pretty soon you've got these giants now competing for the
Speaker 9: same content that's been driving the legacy players for the
Speaker 9: last several decades sports news, right.
Speaker 5: And now they're taking all that away.
Speaker 9: From the legacy players as well their way out of
Speaker 9: this to a degree, they can supply programming as they
Speaker 9: resumed doing with the HBO programming and also of the
Speaker 9: Max programming. They can start to supply others with that
Speaker 9: programming as well, and just settle into that niche of
Speaker 9: being a content supplier.
Speaker 5: But the issue is that the.
Speaker 9: Kind of content that younger viewers are consuming in droves
Speaker 9: is not the fancy studio productions. It's mister Beasts on YouTube.
Speaker 9: It's rudimentary shot on a cell phone and the audience
Speaker 9: loves that. And you know, that's the history of disruption
Speaker 9: in all businesses. Cheaper, easier, more accessible tends to win
Speaker 9: the day it gets a foothold, and then it expands
Speaker 9: up into more expensive and so you've got your subscription
Speaker 9: tiers of YouTube as well if you want to watch that.
Speaker 9: But that's how the castle laws collapse around the legacy players.
Speaker 1: It is a tough business. Jonathan, thank you so much.
Speaker 1: It's always great to have you here to explain it
Speaker 1: to us. That is Jonathan Klein of Hang Media. Plato
Speaker 1: taught that when there is an income tax, the just
Speaker 1: man will pay more and the unjust less on the
Speaker 1: same amount of income. But however we feel about justice,
Speaker 1: let's face it, none of us really looks forward to
Speaker 1: paying the income taxes we owe. And so when we're
Speaker 1: in an election season, our candidates go out of their
Speaker 1: way to promise they'll cut our taxes if only we'll
Speaker 1: vote for them. Former President Trump touts the tax cuts
Speaker 1: he got through back in twenty seventeen, taxes that by
Speaker 1: their terms, we're supposed to go away for individuals next year,
Speaker 1: but the mister Trump promises he'll make permanent if he's
Speaker 1: elected to another term.
Speaker 10: Instead of a Biden tax cic, I'll give you a
Speaker 10: Trump middle class, upper class, lower class, business class, big
Speaker 10: tax cut.
Speaker 5: You're gonna have the.
Speaker 10: Biggest tax cut on day one.
Speaker 11: We will throw out Biden comics and we will reinstate Meganomics.
Speaker 1: Mister Trump's running mate jd Vance proposes even more tax breaks,
Speaker 1: in the form of a child tax credit. He'd take
Speaker 1: up to five thousand dollars a year. Jd Vance is
Speaker 1: calling for a higher minimum age. What is he going
Speaker 1: to hire Lena con next, I'm not sure when on
Speaker 1: Sunday morning television to call for an expanded child tax credit.
Speaker 1: This urged to cut our taxes and injected a rare
Speaker 1: moment of by person agreement into the election when the
Speaker 1: former president said he'd eliminate taxes on tips paid to
Speaker 1: service staff.
Speaker 11: And remember, what I'm going to do is something that
Speaker 11: nobody has ever even thought about doing no tax on
Speaker 11: tips for all of you waitresses, for all of you
Speaker 11: caddies at Darrel.
Speaker 1: His opponent, Vice President Harris second of the motion.
Speaker 9: When I am president, we will continue our fight for
Speaker 9: working families of.
Speaker 1: America, including to raise the minimum wage and eliminate taxes
Speaker 1: on tips for service and hospitality workers, leaving mister Trump
Speaker 1: to cry foul because the Democrats have stolen his idea.
Speaker 1: But she truly is a radical.
Speaker 11: She's flip flopping on everything to get elected. After she
Speaker 11: gets elected, it all goes right back to where it was.
Speaker 1: But let's get back to that justice part of paying
Speaker 1: our taxes, or at least making sure we're doing our part.
Speaker 1: It will come as no surprise that we have a
Speaker 1: deficit problem in the United States, one that puts at
Speaker 1: risk what our children will inherit from us.
Speaker 9: You can't leave your children a negative bequest unless you're
Speaker 9: doing it through the government, and that's what we're basically doing,
Speaker 9: because we're leaving our children to negative bequest by running
Speaker 9: up the debt.
Speaker 1: And as much as people like to talk about fixing
Speaker 1: the deficit through spending cuts alone.
Speaker 9: We're already on track to spend more on interest Stavis
Speaker 9: than we are for national defense, and regrettably, none of
Speaker 9: these guys appos you anything about it.
Speaker 1: Most experts tell us that we're going to need someone
Speaker 1: to pay more taxes someplace if we're to get our
Speaker 1: fiscal house in order, which brings us to a possible
Speaker 1: example of Plato's just man. One of the richest men around,
Speaker 1: Warren Buffett, has long complained that, if anything, he pays
Speaker 1: too little in.
Speaker 12: Taxes right now because of loo Pauls and shelters in
Speaker 12: the tax code, a quarter of all millionaires pay lower
Speaker 12: tax rates than millions of.
Speaker 1: Middle class households. Right now, Warren Buffett.
Speaker 12: Pays a lower tax rate than a secretary.
Speaker 1: This week we learned that mister Buffett has taken concrete
Speaker 1: action to help us out at least a bit with
Speaker 1: our national deficit. When he sold off a good portion
Speaker 1: of Berkshire Hathaway's stake and Apple, he ran up a
Speaker 1: tax bill of some fifteen billion dollars. That may seem
Speaker 1: like a high price to pay for a shrewd investment,
Speaker 1: But as Doug con my baby tax professor back at Michigan,
Speaker 1: baby tax is what we call tax one, as opposed
Speaker 1: to the much more difficult corporate tax course. As Doug
Speaker 1: taught us all those years ago, the good news about
Speaker 1: paying income taxes is that they're always less than the
Speaker 1: money you made. And in the case of Warren Buffett,
Speaker 1: he owes that fifteen billion dollars on a nice gain
Speaker 1: of fifteen nine billion dollars, and maybe it will leave
Speaker 1: a bit of the tax burden on those less able
Speaker 1: to afford it.
Speaker 9: Missus Gilmour owes the irs two hundred and seventy thousand dollars.
Speaker 5: We're going to have to sell the house to someone else.
Speaker 5: But she's an old lady. I mean, look at her,
Speaker 5: she's old.
Speaker 1: That does it. For this episode of Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week.