Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 1: to be kept in separate offices in Washington. Claudia Sam
Speaker 1: joins us right now. Former Feederiserve economists with a blistering
Speaker 1: note yesterday on America's economic growth. You're channeling Michigan's Justin
Speaker 1: Wolfers at Claudia yesterday, and it goes off a five
Speaker 1: handle on GDP? Why is America so miserable? If we're
Speaker 1: popping four and a half five percent real GDP? Throw
Speaker 1: on the Claudia sim inflation. Why are we so miserable
Speaker 1: with seven percent nominal GDP?
Speaker 2: That's a tough one, right.
Speaker 3: There can, and there have been in the past, disconnects
Speaker 3: between the kind of numbers that we see about the
Speaker 3: total economy and what families are telling us about how.
Speaker 2: Things are going and where they think things are going.
Speaker 3: Sometimes families are correct, right, we don't want to discount this.
Speaker 3: And yet at this point we have gotten number, like
Speaker 3: just all kinds of readings on what's going on right now,
Speaker 3: and they look really good. So it's been a real
Speaker 3: slog since the pandemic began. Inflation has been high, but
Speaker 3: like things are good, especially the labor market.
Speaker 1: Tourist and Slack writes a beef note to Day to
Speaker 1: Apollo and it sums up the consensus of the FED.
Speaker 1: We're returning to two percent. Le Guards said that in
Speaker 1: Marrakesh we have to get back to two percent, I
Speaker 1: believe to paraphrase. And the Richmond Fed has a model
Speaker 1: which is a higher our start. Is this a Fed
Speaker 1: that's going to have the facts change when they change
Speaker 1: or they change when the facts change.
Speaker 3: Yeah, what we've seen so far is inflation is coming down, right,
Speaker 3: Like if we had seen it still sticking or going up,
Speaker 3: then okay, fine, our star's hired.
Speaker 2: They got to do more. Probably that is not what
Speaker 2: we've seen.
Speaker 3: All of these models are based on past historical relationships,
Speaker 3: and we're writing the playbook here and the FED has
Speaker 3: shown themselves capable of rewriting the playbook. They did that
Speaker 3: after the Great Recession, so they're going to go where
Speaker 3: the data takes them. But it's really tough when the
Speaker 3: typical guideposts just aren't working the way they.
Speaker 4: Have Chlouddie, what do you make of the fact that
Speaker 4: the Beige Book and other anecdotal data really has pointed
Speaker 4: to a real softening, a slow down pain I felt
Speaker 4: among the consumers, and the heart TATA keeps coming out
Speaker 4: surprisingly strong again and again and again.
Speaker 3: Right, I don't look at the latest numbers that we've seen,
Speaker 3: particularly that five percent GDP growth it appears we're headed
Speaker 3: at and say, oh, things are accelerating, We're going back
Speaker 3: up to where we are. I think this is a
Speaker 3: sign that we're bumping around a pretty good place in
Speaker 3: terms of a sustainable recovery. Obviously that's not going to
Speaker 3: be felt by everyone. You can absolutely find people to
Speaker 3: give very heartbreaking stories about what has happened to them.
Speaker 3: And yet we do have to look at the totality
Speaker 3: of data and it's like across the board looking really good,
Speaker 3: like we could keep up a sustainable pace that looks
Speaker 3: a lot like, if not a little better than where
Speaker 3: we were before.
Speaker 2: The pandemic.
Speaker 4: So do you think that this is becoming problematic for
Speaker 4: the inflation story?
Speaker 5: Right?
Speaker 4: I mean, in other words, is this growth incompatible with
Speaker 4: inflation continuing to go down to two percent? Or are
Speaker 4: you basically arguing but it doesn't matter if we get
Speaker 4: back down to two percent and that that really needs
Speaker 4: to be what perhaps fetcher J.
Speaker 6: Powell talks about today.
Speaker 3: We're going back to two percent like the Fed. The
Speaker 3: Fed is absolutely capable of getting us there, and they
Speaker 3: may get a little too antsy and we get there
Speaker 3: with a lot of disruption and potentially a recession. I
Speaker 3: don't question that target. It's as made up as three
Speaker 3: percent would be. So you know, there's nothing magical here.
Speaker 3: We haven't seen signs of this being difficult. Inflation is
Speaker 3: still chipping away down. It's a different story if we
Speaker 3: start getting stuck, and then you've got to think harder
Speaker 3: about what's next.
Speaker 1: What is so with all our good analysis of recession
Speaker 1: and Michael McKee with us in Washington as well to
Speaker 1: the two of you, I've got one question. Mike. Let
Speaker 1: me start with you. Our audience on radio and television
Speaker 1: is looking at a mortgage rate of eight percent. It's
Speaker 1: either outright shock or how do we adjust to that?
Speaker 1: Is citizens, how do we adjust to that within our
Speaker 1: daily life? From where you sit, Mike, is the fedaware
Speaker 1: that a thirty year mortgage is eight percent?
Speaker 7: Oh? Of course they are, and I've talked to many
Speaker 7: of them about that, and they do recognize it is
Speaker 7: a bit of a problem in conundrum because they've raised
Speaker 7: rates and sort of killed the housing market because they're
Speaker 7: in a different situation than we have been since I
Speaker 7: can remember, where their rate increases are so much higher
Speaker 7: than what we but were able to take out mortgages
Speaker 7: at that Nobody wants to sell their houses. The thought
Speaker 7: seems to be that if they start coming back down,
Speaker 7: they will get to a level, maybe in the threes,
Speaker 7: where mortgage rates will come down to four or five percent,
Speaker 7: and people might start buying again because that won't seem
Speaker 7: too bad.
Speaker 8: But yeah, that's going to take a.
Speaker 1: While, obviously, Claudia, bring us over to academics as well.
Speaker 1: You're writing the next paper at Jackson Hole here on
Speaker 1: the American housing market. Are we at a point, Lisa
Speaker 1: and I've talked about this. Are we at a point
Speaker 1: where for elites like you, the housing market doesn't matter?
Speaker 3: Not just for me, right, there were a lot of
Speaker 3: people that refinanced or purchase housing when we had a
Speaker 3: very low interest rate. I mean, the housing market has
Speaker 3: been very disrupted, both in a really good place and
Speaker 3: now in a really bad place. This has been a
Speaker 3: tough cycle. And those who timed it properly, and there
Speaker 3: were millions of Americans who refinance their homes. They're in
Speaker 3: a good place right now, and like you said, it
Speaker 3: does make it treat.
Speaker 2: They don't want to sell. They don't want to let
Speaker 2: go of that.
Speaker 1: Lisa, we're completely colored by this in New York City,
Speaker 1: which is a completely wacko original housing market. To me,
Speaker 1: this is the art we have to live in our houses.
Speaker 1: I believe that. You know, like every month it's a
Speaker 1: mortgage payment or a rent payment, And these numbers, to me,
Speaker 1: have a greater effect than anything else.
Speaker 8: We talk about.
Speaker 1: Eight percent mortgage filters into everybody's pocketbook.
Speaker 4: It affects our mobility and their willingness to move, especially
Speaker 4: given the fact that it's going to be unaffordable for
Speaker 4: the vast majority of people to do so. Claudia, I
Speaker 4: just want to bring that together full circle with this
Speaker 4: idea of the conundrum that a lot of investors have
Speaker 4: right now. Are we seeing a world that can manage
Speaker 4: with five percent rates and keep the growth profile that
Speaker 4: you're talking about and that we're just seeing today with
Speaker 4: claims coming in the lowest since January. Is that what
Speaker 4: we are witnessing.
Speaker 3: It's too soon to tell, but we are absolutely setting
Speaker 3: up what could be. You know, the really important piece
Speaker 3: of this would be productivity picks up.
Speaker 2: That we're talking about growth.
Speaker 3: Is not just quarter to quarter, but we can really
Speaker 3: sustain it at a higher rate, then we can deal
Speaker 3: with the higher interust rates.
Speaker 2: There are some glimmers of hope.
Speaker 3: I mean, that's all productivity looks like right now in
Speaker 3: the data.
Speaker 2: But that's the path.
Speaker 3: And then we need Chair Powel to have a green
Speaker 3: span moment and be like, you know, growth has picked up,
Speaker 3: but we're not there yet.
Speaker 2: He shouldn't do that today when he does the Q and.
Speaker 8: A, when we're there.
Speaker 6: This is great, Claudie s thank you so much, Marques
Speaker 6: for one place to say, joined us around now, Secretary
Speaker 6: esp fantastic to catch up with you, sir. As always,
Speaker 6: I wanted to lean on your experience in the administration.
Speaker 6: We've seen some landmark accords come out of the Trump administration,
Speaker 6: the Abraham Accords, just establishing diplomatic relations between israelom places
Speaker 6: we never thought we would. We were hopeful that was
Speaker 6: going to take place with Saudi Arabia and Israel. It hasn't.
Speaker 6: Mark Are wee learning that there is some forces in
Speaker 6: the Middle East that just don't want peace?
Speaker 9: Yes, of course we do, and that is Iran principally,
Speaker 9: and then the proxy groups around the region that they
Speaker 9: support Hamas, has Blah, the Hutis, the Shia militia.
Speaker 10: Groups in Iraq.
Speaker 9: Look, I think a big part of what motivated Hamas
Speaker 9: to attack at this time and the way they did,
Speaker 9: was the fact that the normalization accord between the Saudis
Speaker 9: and Israelis was moving forward, albeit slowly, but moving forward.
Speaker 9: And of course if it was concluded on the terms
Speaker 9: that we knew that were leaking out, that would have
Speaker 9: meant a tremendous shift of power back to the Palestinian authority,
Speaker 9: which of course we know the Hamas is.
Speaker 10: Opposed to.
Speaker 9: Right, there's friction between Fatah and Hamas, and of course
Speaker 9: the Hamas's benefactors Iran would also be hurt by normalization
Speaker 9: because you'd finally see an alignment or an emerging alignment
Speaker 9: between the Arab States and Israel against Persia against Iran.
Speaker 9: So I think those are principal reasons why this attack happened.
Speaker 1: At this time, the political battle will be engaged to
Speaker 1: look back to twenty twenty. Hindsight Secretary, what I'm fascinated
Speaker 1: by is how we prosecute a military affair with Israeli forces. Okay, fine,
Speaker 1: against terrorist groups. We've never really done this, have we.
Speaker 9: Well, I mean, you could argue that our response after
Speaker 9: nine to eleven when we went into Afghanistan first to
Speaker 9: displace the Taliban and then of course the pursuit of
Speaker 9: al Qaeda and eventually ISIS et cetera, was part of that.
Speaker 9: We of course, yes, we went after ISIS in Syria
Speaker 9: as well, So but I get your point. Look, it's
Speaker 9: very tough. You have an army built for big, heavy,
Speaker 9: conventional fights, an extraordinary soft capability, going into a heavily populated,
Speaker 9: dense area, trying to root out militants among the public,
Speaker 9: and having to fight in multiple dimensions right on the ground,
Speaker 9: above the ground and below the ground, and it's going
Speaker 9: to be quite a bloody and messy affair.
Speaker 1: What would do screaming eagles do I mean, you know,
Speaker 1: you've got tangible experience here. Do they do a massive
Speaker 1: bombardment I'll of World War two, say, and then go in?
Speaker 1: Or do you expect them to prosecute something different?
Speaker 9: Look, I think we've seen the bombardment so far. At
Speaker 9: some point they're going to have to move in and
Speaker 9: go street by street, block by block. I think part
Speaker 9: of the reason why you see so many air strikes
Speaker 9: is they're rubbling buildings. I will tell you know, you
Speaker 9: refer back to my time with the one hundred and
Speaker 9: first Airborne when we were in southern Iraq at the
Speaker 9: Gulf four. We want to avoid cities because city fighting
Speaker 9: is really tough. It consumes a lot of soldiers, not
Speaker 9: just those you lose, but you have to leave people behind.
Speaker 9: And again when you're fighting in multiple dimensions, this is
Speaker 9: really tough. So I think they go block by block,
Speaker 9: being very careful to avoid civil civilian casualties.
Speaker 10: At some point they occupy.
Speaker 9: But the really big question that we don't know yet
Speaker 9: is what's the end state. What happens when they're done,
Speaker 9: Because at some point they're going to pull out. They
Speaker 9: want to pull out and do what vacuum do you create?
Speaker 9: Do you somehow politically get the Palestinian authority to come in?
Speaker 9: Is there some type of inter Arab peace peace keeping
Speaker 9: group that comes in. Those are the big unanswered questions.
Speaker 9: What does the end state look like?
Speaker 4: Secretary, you were Defense secretary under the former President Trump.
Speaker 4: How would have his response been different to what we're
Speaker 4: seeing today.
Speaker 10: I'm not sure that it would be different in this moment.
Speaker 9: I would argue that it would be different with regard
Speaker 9: to Ukraine and other countries, but with thee Israel, given
Speaker 9: the close connections between our countries, our peoples, so much
Speaker 9: to share between our two countries, I'm not sure it
Speaker 9: would be that much different. Although I would say that
Speaker 9: I think Trump would probably take a harder line and
Speaker 9: a more public line against Iran.
Speaker 10: I've argued for that in the past.
Speaker 9: I know Secretary of State Pompeo has, and I would
Speaker 9: like to see more from the Biden administration about connecting
Speaker 9: the dots back to Iran, because I think at the
Speaker 9: end of the day, while Israel can go in and
Speaker 9: decapitate Jumas and try and suppress them, unless you deal
Speaker 9: with the country Iran again, who's funding and training and
Speaker 9: supporting them. Then I think Jimas just crops back up
Speaker 9: over time.
Speaker 4: How do you deal with Iran? I mean this has
Speaker 4: been one of the big quagmi for a lot of nations,
Speaker 4: especially given that people want to avoid World War three.
Speaker 10: Yeah.
Speaker 9: Look, I'm not arguing for strikes on Iran right now,
Speaker 9: but I do think we should see a consensus some
Speaker 9: more emerging first between the Western democracies United States, Europe
Speaker 9: and elsewhere about really finally.
Speaker 10: Tightening down economic sanctions on Iran.
Speaker 9: You could go after their energy exports and I know
Speaker 9: what that does to the energy markets, and then you
Speaker 9: could talk about further isolation of them. I just don't
Speaker 9: think we've seen a concerted effort over the past five, six,
Speaker 9: seven years, and certainly over the past couple. In fact,
Speaker 9: some would argue that the administration has been so eager
Speaker 9: to find a nuclear deal with Iran that we've given
Speaker 9: them too much.
Speaker 10: And look, there's a good case to be.
Speaker 9: Made for that, but I think we finally we need
Speaker 9: to recognize that Iran is at the root of all
Speaker 9: these problems.
Speaker 6: As Secretary asker, if we can finish on drawing on
Speaker 6: your experience, what do you suppose is happening right now?
Speaker 6: What we're going to think from the outside looking in
Speaker 6: is a period of intense deploymacy, a troop build up,
Speaker 6: seemingly on the brink of a full ground invasion. What
Speaker 6: do you suppose is happening right now on the ground
Speaker 6: and what do you think going to see in a
Speaker 6: coming weeks and months.
Speaker 9: Look, I think from the Israeli side, they're gathering intelligence,
Speaker 9: they're prepping their forces, they're talking about their battle plans,
Speaker 9: doing some final training and making sure they know the
Speaker 9: game plan to go in and how they're going to
Speaker 9: deal with it.
Speaker 10: I think that's happening at that level.
Speaker 9: At the same time, they're reinforcing their northern front with
Speaker 9: regard to Hesblo and southern Leblon, and they also have
Speaker 9: to keep a presence in the West Bank in case
Speaker 9: that rises up. I think President Binen's done make good
Speaker 9: moves moving the carrier strike groups into the eastern med
Speaker 9: The Marines will soon be following in there as well.
Speaker 9: But one thing that has been talked about is this, Look,
Speaker 9: if Hesbelah opens up a front in the north, we're
Speaker 9: going to get involved. We have to at this point,
Speaker 9: given what we've said about deterring Hesbla, Iran and others,
Speaker 9: and so if Hesblah opens up a real front there,
Speaker 9: i'd see American involvement happening with tomahawks, strikes, maybe airstrikes,
Speaker 9: But we have to talk about that. And as you know,
Speaker 9: there's the grander chessboard out there with regard to diplomacy.
Speaker 10: Please to see Tony blinking going around the region.
Speaker 9: I think it's important that we try and keep that
Speaker 9: Saudi Israeli normalization deal on hold, make sure it's not dead.
Speaker 9: At some point we're going to resurrect that because in
Speaker 9: my view, if Jimas and Iran hates that deal, those
Speaker 9: are two good reasons to pursue it, and I think
Speaker 9: it would really change the dynamics of the region.
Speaker 6: You got about a minute left. If we could explore
Speaker 6: the following, I think it would be beneficial. Is Turkey
Speaker 6: the missing linkit? Where does Turkey stand in all of this?
Speaker 10: Turkey stands in every place.
Speaker 9: I mean, they straddle multiple fences right they're criticizing Israel
Speaker 9: right now. They obviously have a large Muslim population, but
Speaker 9: they're also active in southern Turkey, northern Iraq, going after
Speaker 9: our friends and partners there. I mean, they play this
Speaker 9: game multiple angles. You know, on one hand, they're with
Speaker 9: us in NATO, but he's supporting PUT in another areas.
Speaker 9: And of course what we're not talking about is there's
Speaker 9: a conflict emerging between Armenia and Azerbaijan not too far away.
Speaker 9: So you see the world fracturing here in these different
Speaker 9: spots at this time, and they it all traces its
Speaker 9: roots back decades.
Speaker 6: In many cases, I'm with you, some of these key
Speaker 6: issues just totally off the radar right now. Let's catch
Speaker 6: up again soon. Marquesper There, the former US Defense Secretary
Speaker 6: and author of a sacred oath can scarce them with
Speaker 6: us CIO at the New h Wath Camerack go in morning.
Speaker 2: Good morning.
Speaker 6: Let's talk about a struggle for those airlines at the moment.
Speaker 6: Is that just one sector? Does that tell you something
Speaker 6: about consumer discretation respend in more broadly? What is it?
Speaker 2: Yeah? Where's the ZEMPIC when you need it?
Speaker 11: I think that what we're seeing here is this dynamic
Speaker 11: that we are still very much in a late cycle economy,
Speaker 11: that there are winners and there are losers. There are
Speaker 11: those with pricing power and those without pricing power. You
Speaker 11: see it this morning, Netflix pricing power, Tesla no pricing power.
Speaker 11: That has something to do with small ticket item versus
Speaker 11: large ticket item, but it also has to do with
Speaker 11: interest rates and the cost of capital makes the operating
Speaker 11: environment more difficult. So in late cycle you have to
Speaker 11: be hyper selective when you're picking your equities because there
Speaker 11: will be those that stumble, I love love love your note.
Speaker 1: You go right to the top line. You look at
Speaker 1: the nominal GDP inflation overlay. You've got the Magnificent seven
Speaker 1: sales growth up something like thirty five percent year of
Speaker 1: a year. Nobody's talking about the top line.
Speaker 11: Yeah, it's extraordinary, and part of that top line is
Speaker 11: because they have that great pricing power. Some of that
Speaker 11: is skewed by Nvidia. It's pretty wild. And Video is
Speaker 11: going to grow earnings by one thousand percent this quarter,
Speaker 11: one thousand percent. But even if you remove in Video
Speaker 11: that the Magnificent seven will still be growing earnings by
Speaker 11: sixty percent. So if you take out the Magnificent seven
Speaker 11: from this quarter's earnings, earnings would be down four percent
Speaker 11: versus the down one percent to flat that's currently projected.
Speaker 4: Is that priced aunority.
Speaker 11: I think it is. I think it is to an
Speaker 11: extent because you've seen so much multiple expansion. It doesn't
Speaker 11: mean that these still aren't great companies, but if you
Speaker 11: look at the direction of growth, it slows materially going
Speaker 11: into next year. What you see is in video, for example,
Speaker 11: one thousand percent goes to thirty three percent. You see
Speaker 11: similar decelerations for other Magnificent seven names. The market cares
Speaker 11: about second derivatives, so I think it'll be a really
Speaker 11: interesting test for leadership next year as we see that deceleration.
Speaker 4: John was asking about American airlines and whether some of
Speaker 4: the disappointments that we've seen from America and from United
Speaker 4: are specific to this sector or whether there's a broader
Speaker 4: withdrawal from consumer spending that you're seeing on the ground.
Speaker 4: Is there a dissonance between some of the official data
Speaker 4: and the anecdotal data like what we got in the
Speaker 4: Beige Book that points to a much more substantial slowing down.
Speaker 11: Yeah, there is dissidents there. There's also within the credit
Speaker 11: card data that was the big head scratcher. All the
Speaker 11: credit card data seem to point to a slowing and
Speaker 11: consumer of demand. We did not see that. Of course,
Speaker 11: in retail sales. The best explanation I've heard of that
Speaker 11: is because the measurement period was after the credit card
Speaker 11: data was starting to roll over. So I think what
Speaker 11: we're starting to see is at the margin, consumer spending
Speaker 11: is starting to soften, but it's not broad enough yet
Speaker 11: that it's falling off a cliff. And part of that
Speaker 11: is just because the labor market still remains so tight
Speaker 11: and wage growth still remains rather robust.
Speaker 1: So what's your prescription except for load the boat on apple?
Speaker 1: Julian Emmanuel writes a piercing note today with Edheimen at
Speaker 1: Evercore Isi. They still are on recession twenty twenty four,
Speaker 1: but he says a defensive tilt is essential. Do you
Speaker 1: agree or can you be more optimistic and buy shares today?
Speaker 11: I think the defensives are certainly washed out right now.
Speaker 11: You look at big, huge put option buying within the staples,
Speaker 11: for example. Utilities are very washed up, but there's still
Speaker 11: very much in down trends. Our preferred way is to
Speaker 11: say we're willing to own cyclical names as long as
Speaker 11: they're high quality, meaning companies that have good balance sheets
Speaker 11: have strong free cash flow, but the overlay on that
Speaker 11: has to be valuation discipline, because the higher you go
Speaker 11: in valuation, the more you have room to fall as
Speaker 11: valuations come in, as growth X spectations come in.
Speaker 6: Let's finish where you started a zenpic. You seen in
Speaker 6: the performance of some of these packaged foodstocks. Yeah, brutal,
Speaker 6: it's brutal Mondale's tom than something like twenty percent is
Speaker 6: the peak earlier this year? How much is that stock
Speaker 6: that company going to change this market?
Speaker 11: Look, I think that as long as what you're seeing
Speaker 11: is this shoot first, ask questions later, meaning that you're
Speaker 11: pricing in an impact of something that probably is going
Speaker 11: to take very many years to play out. And the
Speaker 11: fact that Walmart was already calling it out as far
Speaker 11: as weaker sales, that seems to be a really convenient
Speaker 11: excuse as to what they're seeing. So I don't want
Speaker 11: to I wouldn't want to praise all of that in
Speaker 11: I think that's one of the reasons why Staples likely
Speaker 11: are over sold at this point. It doesn't necessarily mean
Speaker 11: that they're going to lead the market in an up trend,
Speaker 11: but there's some of that kind of inverse of what
Speaker 11: you're seeing in the optimism around the medical.
Speaker 6: So excuse not a reason yeah, yeah, okay, excuse brama,
Speaker 6: not a reason.
Speaker 1: When we are thrilled to bring a Seemasha chief global strategist,
Speaker 1: principal asset Management and seeing me and the zeitgeist this morning.
Speaker 1: Is something changed yesterday? Maybe something changed over the last
Speaker 1: forty eight hours? Is it nonlinear? Is it quadratic? Is
Speaker 1: there convexity? Did something change in the last day.
Speaker 5: It certainly feels like there is a different level of
Speaker 5: momentum going on in the market at the moment. We
Speaker 5: do think we're getting closer to a top certainly. You know,
Speaker 5: we've had a long help view. We've discussed this many
Speaker 5: times with you. We are expecting a slow down. It
Speaker 5: is definitely not showing any signs of coming through at
Speaker 5: this stage. I think that's what really bond yields are
Speaker 5: responding to at this point. But of course, a further
Speaker 5: that yields rise, the greater the chance out of slowdowns
Speaker 5: can be even deeper. Now, momentum can take you pretty far,
Speaker 5: and there's a number of other factors, as you know
Speaker 5: you've discussed in the program many times over again, deficit
Speaker 5: issue in Spanka Japan. Things that probably mean that the
Speaker 5: flaw for bon DALs is higher. Bersinally, we do think
Speaker 5: that as soon as you do get clear evidence of
Speaker 5: economics slow down, and as as long as we get
Speaker 5: a very clear signal from the Fed, whether it's Powell
Speaker 5: today or later on, that should really mark the peak
Speaker 5: for TENU bond yiles.
Speaker 1: Okay, Well, what I'm going to do, folks is give
Speaker 1: you the perspective, but not all at once. We're going
Speaker 1: to drip these data points in to show the losses
Speaker 1: that are being taken. Just since early April, the ten
Speaker 1: year yield has down in price twelve shocking percent. So
Speaker 1: see me your question if you were doing the interview
Speaker 1: today and that David Weston, do you say to Chairman Powell, Sir,
Speaker 1: are you even aware of the acceleration of higher yields?
Speaker 5: Well, I think it's a it's a bit unfair because
Speaker 5: actually for the Fed, just like the rest of us,
Speaker 5: we're all trying to decipher what is driving this tenure
Speaker 5: that this move up in bond yields. Is it ten premier,
Speaker 5: is it the move up in neutral rates? And that
Speaker 5: is going to be really important for how the Fed
Speaker 5: moves on in its decision. Now it's very difficult to
Speaker 5: figure out exactly what proportion is driven by which so equally,
Speaker 5: I think the Federal Reserve themselves are trying to figure
Speaker 5: it out. You hear it from a number of speakers
Speaker 5: over the past couple of weeks, is that that is
Speaker 5: what they're trying to figure out. And as long as
Speaker 5: they don't have an answer to that, then probably does
Speaker 5: make sense for the Fed to stone hold. But of course,
Speaker 5: you know, there's so many risks on either side that
Speaker 5: each moment that we don't know is somewhat damaging to
Speaker 5: financial markets and potentially to the economy as well.
Speaker 4: Sima, do you consider treasury is still to be a
Speaker 4: haven asset.
Speaker 10: Gouse?
Speaker 5: You know, looking at the way that things are moving
Speaker 5: in the last twenty four hours, I think you do
Speaker 5: have to question that certainly, you know, given what's been
Speaker 5: going on from a geopolitical front, and the fact that
Speaker 5: treasury yields continue to rise, and the fact that actually
Speaker 5: gold has rallied, you know, it does set that question.
Speaker 5: But I think the thing is, at the moment, the
Speaker 5: market is so specifically focused on the strength of the
Speaker 5: economy what the Fed is going to do, that they're
Speaker 5: almost thinking about the safe havens as other assets. Now,
Speaker 5: let's get beyond this phase of uncertainty with regards to
Speaker 5: the bond market, and yeah, I do think treasuries will
Speaker 5: return as a safe haven's choice. But at this point
Speaker 5: in time, there's so many different forces which are buffeting
Speaker 5: the bond space that it's difficult to really say with
Speaker 5: great conviction that today treasuries are your safe haven.
Speaker 4: There's an irony baked into a lot of the conversations
Speaker 4: that we've been having with certain investment managers who are
Speaker 4: saying that risk assets are the new havens that essentially
Speaker 4: corporate America and the corporations that have immunized their balance
Speaker 4: sheets are essentially in better financial shape than the US
Speaker 4: government than a lot of the sothern governments that used
Speaker 4: to be the star warts.
Speaker 6: Do you believe that?
Speaker 4: Do you think the traditional risk assets, including some of
Speaker 4: the stocks that have the highest flyers, are increasingly the
Speaker 4: haven assets of the moment.
Speaker 6: Well, I think that's.
Speaker 5: True to some extent, and you definitely do hear that
Speaker 5: from clients in the way that they're talking about it.
Speaker 5: It's ignol think by any means. It's very very specific.
Speaker 5: You know, people want the big balance you. They want
Speaker 5: something which they know is going to provide stability, and
Speaker 5: something specifically that they know is you know, they have
Speaker 5: some understanding over a longer term, so you know they
Speaker 5: look at the short term the ticket this is very difficult,
Speaker 5: but at least for a longer term period there are
Speaker 5: secular trends that we can put our trust in. So yes,
Speaker 5: from that perspective, maybe there are a few corporates who
Speaker 5: have that strength and most importantly we'll be able to
Speaker 5: withstand any further opper pressure from treasuries. But it is
Speaker 5: a very difficult environment for investors, I think today, and
Speaker 5: actually it just makes more sense in that case to
Speaker 5: try and look beyond as difficult as it is, to
Speaker 5: try and look beyond near the next month, two three
Speaker 5: months and try and have a bit of a six
Speaker 5: month one year outfit that is very important today.
Speaker 1: Yes, I mean you had a tour duty of Treasury
Speaker 1: and you were very aware obviously with principal global of
Speaker 1: the United Kingdom bond dibaccle, debt, tobaccle, pension, tobaccle of
Speaker 1: a number of corners ago. Do you feel we're at
Speaker 1: a point of instant insitutional risk where the degrees of
Speaker 1: freedom of buy managers with actual assumptions can't get it
Speaker 1: done and we become unstable within our conservative institutional money.
Speaker 5: Utterly. That is a question I've been getting a lot
Speaker 5: of within the last twenty four hours as you're getting
Speaker 5: close to that five percent point. That is the main question.
Speaker 5: But I have to said, we are not detecting any
Speaker 5: clear signs of financial stress. These numbers are certainly I
Speaker 5: guess concerning We actually think that the system can withstand
Speaker 5: rates getting to five and a half percent. The most
Speaker 5: important point, of course, is how quickly are That's important Seman.
Speaker 1: You're saying that financial system can we stand and move
Speaker 1: to a ten year US five point five zero percent.
Speaker 5: As long as it is backed up by strong economic growth.
Speaker 5: So again it comes back to what is driving yields higher.
Speaker 5: If it's because the strength of the years economy is
Speaker 5: that resilient, our inflation is maybe a little bit content,
Speaker 5: then yeah, I think that the system can can stand it.
Speaker 10: But I also have.
Speaker 5: To clarify here as well that look, with financial risks,
Speaker 5: it's typically not in the area that you're looking at.
Speaker 5: So it's probably not going to be from the pension system.
Speaker 5: It probably won't even from the banking system, because it
Speaker 5: has been ring fenced from by the effect. So you know,
Speaker 5: typically financial risks, as they arise, when they arise, it's
Speaker 5: in the place that you're not looking. So we have
Speaker 5: to be a little bit humble about this, and investors
Speaker 5: everywhere have to be saying, you know, maybe we can't
Speaker 5: see any risks today, but there has to be some
Speaker 5: kind of defense within your portfolios potentially to kind of
Speaker 5: withstand anything that could arise as obs get closer and
Speaker 5: closer to that point where where their frictions.
Speaker 6: Start to come up, saying we've got to leave it
Speaker 6: there of principles management. Netflix shares gaining in the pre
Speaker 6: market after reporting its best subscriber growth in years is.
Speaker 6: The company also announcing it's raising prices for customers in
Speaker 6: the US, UK and France. Brian Weezer and Madison and
Speaker 6: Wall running this. Although a fifteen percent price increase is significant,
Speaker 6: I know that it's likely the case that many, if
Speaker 6: not most, of Netflix Is subscribers consume enough content to
Speaker 6: justify this cost, given the high volume of time spent
Speaker 6: Tom with the platform.
Speaker 1: Yeah, we're brain over this weekend, and he looked up
Speaker 1: at the keynose. You know, we just had the CFO
Speaker 1: there styling from Netflix.
Speaker 8: John, am I losing it?
Speaker 1: Ere do I need to get out of the suit
Speaker 1: and bowt tie and get into full Patagonia.
Speaker 6: It's like that's the Midtown uniform and I'm against it.
Speaker 6: I hate it. I saw two chaps walk across Park
Speaker 6: Avenue yesterday in their Midtown uniform, the Patagonia vests.
Speaker 7: No.
Speaker 4: My favorite part of this entire show is when you start,
Speaker 4: you know, going through an issue, and all of a sudden,
Speaker 4: Tom just is like.
Speaker 9: Going to the list, flowing through.
Speaker 1: Guy for Netflix is going.
Speaker 6: Full mid doown for mid time uniform.
Speaker 8: That's all there is.
Speaker 6: If your stocks out, you can get away with it.
Speaker 6: Get whatever you want, okay, if the stalks down, put
Speaker 6: on a suit, okay.
Speaker 1: Right, We're gonna help you with your house. The streaming
Speaker 1: John Farrell trying to cut down his cable TV bill
Speaker 1: by I don't know, thirty percent or something like that.
Speaker 1: Brian Weezer has been brilliant on this principal senior media
Speaker 1: analyst Madison and Wall and he's really at an arch
Speaker 1: theme for a decade, which is don't give up on TV?
Speaker 8: Do you still hold that theme?
Speaker 1: No? You know TV? It's it's like finally done.
Speaker 8: Yeah, we're over.
Speaker 12: I mean I wrote something yesterday earlier this week where
Speaker 12: I calculated that the total amount of TV AD inventory
Speaker 12: is going to fall by about twenty four percent at
Speaker 12: least under curtainservatives.
Speaker 8: Where's it go It goes away.
Speaker 12: People don't get as many ads going forward, because even
Speaker 12: if people subscribe to an AD tier, they're not going
Speaker 12: to get the same AD loads. But not that many
Speaker 12: people are going to subscribe to ads tiers in the
Speaker 12: first place. They're going to take the increases and prices.
Speaker 12: They're going to cut their pay TV subscriptions to fund it.
Speaker 1: When you look at this in a broad sense, Michael
Speaker 1: Mabusian seventeen eighteen years ago on the concentration of digital product,
Speaker 1: Are we just going to concentrate down to two or
Speaker 1: three survivors?
Speaker 12: I think that that's possible. I think there are going
Speaker 12: to be four or five. More likely just a lot
Speaker 12: of very low profit players. But here's the big thing.
Speaker 12: A lot of people are thinking about that. Most of
Speaker 12: them can be global if they bother to invest in it.
Speaker 12: Netflix will, Disney will, We're not sure what Warner Discovery
Speaker 12: is doing. We're not sure how much comcasts will they are,
Speaker 12: but I think that's the big thing that they can
Speaker 12: play at a global level. So low profit but double
Speaker 12: or triple the revenue, that's still a good business.
Speaker 6: Do you remember the death of the PC?
Speaker 7: Oh?
Speaker 6: Yeah, it used to be that line that every person
Speaker 6: who wrote that headline wrote it on a PC. Slightly,
Speaker 6: I'd run it. We're talking about the death of TV
Speaker 6: on TV, Yeah, what lives on?
Speaker 1: Well?
Speaker 6: To be clear, sports.
Speaker 8: Paid TV keeps growing. Okay, people will pay for it.
Speaker 12: It's advertising on television that is going to continue to decline, decline, decline, decline,
Speaker 12: but consumers will pay for it.
Speaker 6: So let's go to the Walt Disney company. Leave them
Speaker 6: and what do they do?
Speaker 12: That's such a mess. I mean, here's the thing. Separating
Speaker 12: the network and the stations is kind of ridiculous. Septaring
Speaker 12: the stations makes sense. You don't need that legacy infrastructure.
Speaker 12: Think about how you're going to position this company to
Speaker 12: merge with someone else. Having a regulated business like the
Speaker 12: broadcast stations combined with the network makes no sense.
Speaker 8: Firstly, I don't know where they're going to go.
Speaker 12: They don't seem to have a very clear true north
Speaker 12: like they used to in twenty eighteen.
Speaker 6: What do you think I like you was doing then,
Speaker 6: just saying come to me with some ideas.
Speaker 12: I think so I wonder I have a theory that
Speaker 12: he was getting really good advice from a team he
Speaker 12: built up over the course of fifteen years prior to
Speaker 12: twenty eighteen. You could tell they had clarity in what
Speaker 12: they were doing, and if they stuck to it, maybe
Speaker 12: it would have been worth less than it was in
Speaker 12: twenty eighteen, but it would have been a great fifty
Speaker 12: year business. Now it's strategically all over the place. Are
Speaker 12: they going to split ESPN?
Speaker 8: What about A and E? I mean, there's.
Speaker 12: All these businesses that they just don't have clarity around.
Speaker 1: Lisa helped me at your house. In my house, nobody
Speaker 1: watches Disney. Plus they're glued to Netflix.
Speaker 2: Yeah, but how old?
Speaker 4: Okay, right, I mean how much this is a demographic issue.
Speaker 1: Disney survive on the kids.
Speaker 7: You know.
Speaker 12: Well, To be clear, there is a very direct relationship
Speaker 12: between shaff spend on content and share of viewing. Sounds
Speaker 12: kind of obvious, but if you increase the amount you
Speaker 12: spend on content, you'll get more viewing, right, And so
Speaker 12: if that follows, if Disney doubles the spend that they
Speaker 12: have on actual programming, they will get more viewership.
Speaker 4: Once the pushback point when you do have consumers that
Speaker 4: say I'm not going to pay for that, is there have.
Speaker 2: We seen anyone breach that? Or is this basically the
Speaker 2: sky's the.
Speaker 4: Limit we're going to be paying, you know, one thousand
Speaker 4: dollars a month for our our entertainment.
Speaker 8: You're hitting on some things.
Speaker 12: I thought we're kind of obvious in twenty eighteen when
Speaker 12: I had to sell on Disney back then. But the
Speaker 12: point I was making was the cost for these services
Speaker 12: will be so much higher because you're going to churn.
Speaker 12: So Netflix can raise their prices fifteen percent, but churn
Speaker 12: is going to go up too. Marketing is going to
Speaker 12: go up. The content delivery, of course, we're always going
Speaker 12: to be higher.
Speaker 10: When you talk about churn.
Speaker 4: This basically means that people are going to leg in
Speaker 4: when they see content that they like, and they're going
Speaker 4: to like showing the.
Speaker 8: Backing series and get out you're done.
Speaker 4: And suits repeatedly like Tom and John do every night.
Speaker 4: But I'm curious religiously about whether we also learn something
Speaker 4: from password sharing and that crackdowns on that do not
Speaker 4: lead to a drop off in revenues. In fact, you
Speaker 4: just capture more. Is this going to lead to a
Speaker 4: broad policing of all the people out there who are
Speaker 4: still using their parents subscriptions when they're thirty three?
Speaker 8: I think so.
Speaker 12: And the more aggressive that Netflix or any streaming service
Speaker 12: is in doing that. Again, it's going to lead to
Speaker 12: higher prices paid by consumers. But again there's this pool
Speaker 12: right now of one hundred billion dollars being spent on
Speaker 12: legacy PayTV services, it's only thirty billion being spent on streaming.
Speaker 12: That's a lot of money to shift.
Speaker 6: And TOELM and I talk about the bundo, the return
Speaker 6: of the bundo. What does the future look like? Is
Speaker 6: it the past?
Speaker 12: I think it will look a lot like the past.
Speaker 12: I've called it John McCain's dream, right, remember explain that? Okay,
Speaker 12: two thousand and three, right, who was chairman of the
Speaker 12: House or the House Energy Committee.
Speaker 8: They were trying to create an a la carte world.
Speaker 8: Do you remember this.
Speaker 12: Basically, they were trying to make it possible so you
Speaker 12: could sign up, sign off for a given network.
Speaker 8: That was a big deal in the cable industry.
Speaker 12: People like me. I was a cable outside deutsch Bank.
Speaker 12: At the time, we were saying this is crazy. It's
Speaker 12: going to actually cause a worse business going to make
Speaker 12: consumers are going to pay more, less marketing, less diversity
Speaker 12: of content, blah blah blah. Well, here we are twenty
Speaker 12: years later and we got it. It's just at a
Speaker 12: slightly more aggregated level. But it's not positive for the
Speaker 12: economics of the business. Consumers might feel better about it,
Speaker 12: but they're going to pay more for the privilege.
Speaker 1: What does sports do? I mean, sports is still megabox.
Speaker 1: It seems to me that's all people watch sports in
Speaker 1: the weather and I'm Bloomberg surveillance, But what does sports do?
Speaker 12: Sports is in a real worry right now because if
Speaker 12: basically the only people who are going to access sports
Speaker 12: are going to be those who keep with the PayTV bundle,
Speaker 12: you've got to really like your sports because you're going
Speaker 12: to be paying one hundred and fifty or two hundred
Speaker 12: dollars a month exactly exactly, and I don't know it.
Speaker 1: Suns up at five hundred a month for English football.
Speaker 12: Disney put out ak last night with breaking out ESPN
Speaker 12: for the first time. Fun reading just to see just
Speaker 12: exactly how big. It is not a shocker on the sizing,
Speaker 12: but you know, their positioning to do something with.
Speaker 8: That outset, which they probably should. Sports is the problem.
Speaker 12: Is sports risks going the way of boxing, right, not
Speaker 12: that bad, but in the way that boxing used to
Speaker 12: be this broad reaching thing that everyone access and consumed,
Speaker 12: and then it became pay per view and then stopped
Speaker 12: having casual fans.
Speaker 1: Some of us had pro wrestling and Gorgeous. You know,
Speaker 1: you get to get to the weekend just so you
Speaker 1: could watch thirty minutes in black and I.
Speaker 6: Wish you could see from space, as he's discussed in
Speaker 6: from Wrestling Gorgeous.
Speaker 10: You do not watch serious religion and then the shit
Speaker 10: came on.
Speaker 6: There's a very interesting negotiation taking place in Italy with
Speaker 6: Italian football. There is a push by some of these
Speaker 6: leagues to go direct to the consumer, not to sound
Speaker 6: the rights, but go direct to the consumer. And I
Speaker 6: think you alluded to that slightly with boxing.
Speaker 8: Yeah.
Speaker 6: Is that the future for American sports?
Speaker 8: Yeah? I think many of them are going to end
Speaker 8: up doing something like that.
Speaker 6: So the NFL is going to have its own network,
Speaker 6: its own TV network and just pushes the game straight
Speaker 6: at it to be.
Speaker 12: Clear, they may, they will still prefer to sell to
Speaker 12: multiple rights holders, and those multiple rights holders will end
Speaker 12: up praising it very, very high. Right, But the point is,
Speaker 12: if right now fifty sixty percent of the population might
Speaker 12: consume a little bit of sports, half of those people
Speaker 12: are passionate about the sports, half are kind of indifferent
Speaker 12: that in different group won't pay.
Speaker 4: There's a bigger question at our putting that, which is
Speaker 4: how much of the money goes to the content creators?
Speaker 4: Right the sports members, the athletes versus the writers versus
Speaker 4: artificial intelligence. Is there a sense that a greater proportion
Speaker 4: of the money will go to the creators?
Speaker 8: Isn't this the perplexing thing?
Speaker 12: With the strikes going on, the amount of spending on
Speaker 12: content has only gone up now. I think it's actually
Speaker 12: the showrunners who have been benefiting disproportionally. Jerry Bruckheimer's is
Speaker 12: Shonda Rhimes, et cetera. That I think is where a lot.
Speaker 8: Of the mine is going. And the distribution of talent
Speaker 8: around the world.
Speaker 12: I mean, think of how many people in England are
Speaker 12: now acting in a series running in the US right
Speaker 12: as an example, or all over the world, the talent
Speaker 12: has been distributed, and so the spending on content has
Speaker 12: been spread. It's like a lot of other industries where
Speaker 12: we see offshoring in agencies or in other industries. It's
Speaker 12: the same thing for Hollywood. It's just the people in
Speaker 12: Los Angeles aren't necessarily the beneficiaries.
Speaker 6: So you've put in an an Englishman acting in a
Speaker 6: series exactly in the US is just acting this kind
Speaker 6: of this.
Speaker 2: Is the Bloomberg series.
Speaker 8: What it is?
Speaker 6: I'm warming a brama? You meccan moncol No? Please, Madison's
Speaker 6: that an offensive thing to sign? Okay, all right, interesting,
Speaker 6: let's look at those phones from Get to see it.
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