Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prices.
Speaker 1: The economy is in the process of rebounding. Will the
Speaker 1: futteral reserve have its own digital currency? The financial stories
Speaker 1: that cheap hard work. Many people think the eels are
Speaker 1: just going to keep marching up. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's minds inflation through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary
Speaker 1: Bryan Wynahan back of America, Will Smart, CEO of Charlie
Speaker 1: Sharp Bloomberg wool Street Week with David Weston from Bloomberg Radio.
Speaker 1: Strong earnings. Trump fears that the variant will slow down
Speaker 1: the recovery, and so we continue on our upward path.
Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston. And
Speaker 1: that near panic attack from the first part of the week,
Speaker 1: along with the quick midweek recovery, were reflected in equity markets,
Speaker 1: where the SMP on Monday dropped the most in two months,
Speaker 1: only to recover to reach for new highs ending the
Speaker 1: week over and the NASDAK reaching towards fifteen thousand, while
Speaker 1: the flight is safety early in the week led to
Speaker 1: the ten year yield treasury yield dropping below one and
Speaker 1: fifteen basis points and then climbing back to end the
Speaker 1: week a bit higher actually than it was back on Monday.
Speaker 1: Todays through the drama of the week, we welcome now
Speaker 1: RuPaul bin Sally. She's Aerial Investments, chief investment officer of
Speaker 1: International and Global Equities and author of non Conventional Investing,
Speaker 1: Being Right when everyone Else is Wrong, and my colleague
Speaker 1: Gina Martin Adams. She's chief equity strategist for Bloomberg Intelligence.
Speaker 1: So welcome to both of you. Gina, let me start
Speaker 1: with you explained to me what happened this week, because
Speaker 1: it was pretty dramatic. It was a relatively volatile week,
Speaker 1: particularly after you know, six months of pretty much continuous
Speaker 1: games in the equity market. To have a little bit
Speaker 1: of volatility felt a bit uncomfortable for many investors. That's
Speaker 1: certainly what we did see. I think you accurately captured,
Speaker 1: David is the market and gyrating around the delta variant,
Speaker 1: as well as inflation expectations. Maybe a little bit of
Speaker 1: worries carry over from last week, which was more about
Speaker 1: global central banks earnings playing a part of the story.
Speaker 1: But when we when we really dig into the details,
Speaker 1: we actually find the companies that reported earnings over the
Speaker 1: course of the last week have not received derived any
Speaker 1: benefit from those reports. So certainly we are in the
Speaker 1: midst of a lot of mayhem, I would say, in
Speaker 1: the market where investors seem to have kind of lost
Speaker 1: their footing. I think it's a continuation. Frankly, it's what's
Speaker 1: been happening since May, when inflation expectations peaked, When we
Speaker 1: started to price in peak growth coming over the summer,
Speaker 1: we lost a lot of leadership on the index, and
Speaker 1: that really took hold over the course of the last
Speaker 1: couple of weeks with a lot of get on again,
Speaker 1: off again trading. So, RuPaul, you wrote the book non
Speaker 1: Conventional Investing, explain the non conventional approach to what's going
Speaker 1: on right now, because the conventional wisdom, I think is
Speaker 1: we thought we were all going to rush back in
Speaker 1: a lot of fears about inflation. Now I think we're
Speaker 1: not quite as sure. But what's the non conventional take
Speaker 1: on what's happening? David, thank you for that, And just
Speaker 1: to correct you, it's non consensus investing. Uh and known
Speaker 1: to be a contrarian. So here's I think a couple
Speaker 1: of things to note. One is that equity markets, I
Speaker 1: think are paying more attention to the credit markets, and
Speaker 1: rightly so, because the credit markets tend to be much
Speaker 1: more prescient about you know, future economic outlook, which ultimately
Speaker 1: then drives profit outlook for the equities. And the big
Speaker 1: dichotomy that's occurred in the last couple of weeks in
Speaker 1: the indust rate environment, where the tenure bond rate has
Speaker 1: been correcting against all expectations and against all punditory views,
Speaker 1: which I'm going to call, you know, all the consensus
Speaker 1: views that industrates would rise, they actually did the opposite.
Speaker 1: They fell, And frankly, inflation has not been higher than
Speaker 1: the statistics have reported. CPO was over five percent. So
Speaker 1: you have a record level of negative real rates and
Speaker 1: that's putting a bid onto equity markets, which is why
Speaker 1: every time you see any kind of pullback, they go
Speaker 1: right back up. And also, I think, you know, to
Speaker 1: Gina's point, it's also caused for rotation in the market.
Speaker 1: People who all gung ho about value making big comeback
Speaker 1: that was the consensus reflation trade. Well, guests, what that's
Speaker 1: been put to pay with what the industrates are telling
Speaker 1: us that inflation is not likely to get out of control,
Speaker 1: and that also caused rotation into group stocks versus value stocks.
Speaker 1: So let's come back to you on this and I
Speaker 1: take the points non consensus. I beg your partner on
Speaker 1: the non conventional non consensus. But but how much of
Speaker 1: the equity valuation right now is just supported by the
Speaker 1: interest rates being so terribly low? I mean, we a
Speaker 1: lot of people are saying we're going towards the to
Speaker 1: the two level on the ten year yield, and instead we,
Speaker 1: as I said, drip that down below a hundred fifteen
Speaker 1: basis points. I think we're about now. Well, I think
Speaker 1: you have to think about equities relative to bonds in
Speaker 1: a longer term scope. I mean, we got the point
Speaker 1: back in May where the equity risk premium relative to
Speaker 1: bonds had fallen out of its fourth quintile really for
Speaker 1: the first time in more than a decade, which said
Speaker 1: to a lot of investors, hey, look at but he's
Speaker 1: relative to bonds are no longer offering us quite as
Speaker 1: extreme value as they did. At the same time, inflation
Speaker 1: expectations started started to turn over, and then the story
Speaker 1: was written from there right by Monday's clothes, that equity
Speaker 1: risk premium relative to bonds had finally reached back into
Speaker 1: the fourth quintile, offering investors an opportunity to buy into
Speaker 1: a dip in the equity market for the first time
Speaker 1: in quite a while. And I think we did see that.
Speaker 1: Now the question remains as to how much we should
Speaker 1: be paying for equities globally, how much we should be
Speaker 1: paying for US equities relative to rest of world equities
Speaker 1: and the like. But I think that fundamental shift is
Speaker 1: important to note that. You know, we've been sitting in
Speaker 1: this fourth quintele for so long, and the relative value
Speaker 1: of equities in comparison to bonds is has been incredibly compelling,
Speaker 1: But we lost a little bit of that in that
Speaker 1: really strong rip into May. Now it came back with
Speaker 1: the sell off that we that we've seen, and investors
Speaker 1: took advantage all. One of the things I took away
Speaker 1: from your book, the non consensus investing book, was you
Speaker 1: like to manage risk rather than return. You focused on
Speaker 1: not losing money as much or more than you do
Speaker 1: on making money. So in this world, what is the
Speaker 1: risk we need to avoid as an investor? Spot on
Speaker 1: David Uh. You know, to Gina's point, I think a
Speaker 1: lot of investors are thinking about putting money to work
Speaker 1: in equities simply based on a relative valuation trade. I
Speaker 1: think they should look at absolute value, intrinsic value, not relative.
Speaker 1: I think both equity and credit markets are quite overvalued,
Speaker 1: and frankly, instead of just looking at the earnings multiples
Speaker 1: on stocks, which is what most equity investors do, they
Speaker 1: should actually stop being attention to the debt multiple. Thanks
Speaker 1: to rupap and Sally of Aerial Investments and Gina Martin
Speaker 1: Adams from Bloomberg Intelligence. Coming up, Treasury Secretary Janet Yellen
Speaker 1: had her eye on cryptocurrencies this week, even as bitcoin
Speaker 1: dip back below thirty dollars. We talk with economists Ken
Speaker 1: Rogoff of Harvard about the future of crypto and what
Speaker 1: regulators are likely to do about it. That's next on
Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. Thirty thousand dollars.
Speaker 1: That was the level in focus for bitcoin this week.
Speaker 1: The cryptocurrency fell along with equities early in the week
Speaker 1: as concerns of the spread of the delta variant rattled investors.
Speaker 1: Here's FED chair J. Powell. We see bitcoin going up
Speaker 1: in value and down in value, so it's it's a
Speaker 1: you know, it's a at times, it's felt like a
Speaker 1: somewhat frothy market. Bitcoin is down about fift from the
Speaker 1: April peak, a sign that the bubble may be deflating.
Speaker 1: I think something in the neighborhood of fifteen thousand dollars
Speaker 1: is where we're going to end up. And uh, you know,
Speaker 1: given all the uncertainty and the new competition from new
Speaker 1: coins and everything else, Uh, you know, I think that
Speaker 1: there's more downside to go. That's Scott Minored of Guggenheim.
Speaker 1: Crypto speculators are losing steam. Volumes for cryptocurrency spots and
Speaker 1: derivatives have slipped to their lowest since December. Here's JP
Speaker 1: Morgan's Mary Callaghan urdos. Digital currencies are new, and in general,
Speaker 1: digital currencies are being debated as to whether they're an
Speaker 1: asset class or not. But the volatility that you see
Speaker 1: in it today it is just has to play itself
Speaker 1: out over time. Elon Musk gave bitcoin a temporary boost
Speaker 1: at the b Word conference hosted this week by the
Speaker 1: Crypto Council for Innovation, saying he personally owns bitcoin, Ethereum
Speaker 1: and dogecoin, while Tesla and SpaceX both own bitcoin. Cryptocurrencies
Speaker 1: plunged in May after Musk said Tesla would stop accepting
Speaker 1: bitcoin as a form of payment because of the energy
Speaker 1: used to mine bitcoin. And we wonder a little bit
Speaker 1: more diligence. UM, so you can quote uh, that's the
Speaker 1: concom with deep so of renewable entine usage is most
Speaker 1: likely UH are sort of or above designs UM, and
Speaker 1: that there is that that that there is a friend
Speaker 1: towards increasing that number UM and if so then tells
Speaker 1: it we'll resume bitcoin accepting bitcoin. Bitcoin status is a
Speaker 1: store of value is one of the things that separates
Speaker 1: bitcoin believers from skeptics. I don't completely buy the whole thing.
Speaker 1: You're essentially saying that we're going to create a store
Speaker 1: of value and a medium of exchange around something that
Speaker 1: only exists inside of a computer somewhere. It's not a
Speaker 1: physical asset that Steve Rattner of will It Advisers. Treasury
Speaker 1: Secretary Yelling is among those who wants more scrutiny of cryptocurrencies.
Speaker 1: This week, she convened a meeting of regulators and policymakers
Speaker 1: to discuss the growth of stable coins and the potential
Speaker 1: risks to consumers. I think cryptocurrencies we don't really have
Speaker 1: an adequate framework to deal with different issues that they
Speaker 1: um pose from a regulatory perspective. One of those who's
Speaker 1: raised at least some questions about the future of cryptocurrencies
Speaker 1: and whether regulators in the long run can just let
Speaker 1: them run is Ken Rogoff. He's professor of public policy
Speaker 1: and of economics at Harvard University. So, professor, thank you
Speaker 1: so much for being with us. As I say, I
Speaker 1: don't want to put working without. You've expressed some skepticism.
Speaker 1: But where this all is going. One of the things
Speaker 1: we just heard there is there's just so much volatility involved.
Speaker 1: On the other hand, there's something called stable coin. I
Speaker 1: guess stable coin is tethered to specific fiat currencies to
Speaker 1: try to eliminate some of that volatility. Yeah, there are
Speaker 1: a lot of different kinds of stable points, but the
Speaker 1: basic idea is something that you can exchange for a
Speaker 1: dollar and fiat currency, just like you used to be
Speaker 1: able to exchange gold. Of course, then you're not speculating
Speaker 1: on it in the same way, but the ideas to
Speaker 1: try to get stable coins some of the attractive pseudo
Speaker 1: anonymous properties that bitcoin nows, which is I think a
Speaker 1: lot of the underlying appeal at the same time. And
Speaker 1: my understanding is theoretically stable coins says, whoever is issuing
Speaker 1: these has those dollars or yen or whatever reserved against
Speaker 1: those to tie to them. How do we make sure
Speaker 1: that happens? And is that really what Janet Yell is
Speaker 1: concerned about, is she meets with regulators. Well, I don't
Speaker 1: think that's the only thing she's concerned about. I mean,
Speaker 1: I think regulators are very late to the game here
Speaker 1: in general and thinking about cryptocurrencies. They should have been
Speaker 1: thinking about it years ago. Uh. Certainly the stable coins
Speaker 1: are not necessarily stable. That's a long history of fixed
Speaker 1: exchange rates. It's the same thing. Uh, you make money
Speaker 1: by using the money that you're supposedly holding an escoro
Speaker 1: and speculating. It doesn't always go well. It leaves you
Speaker 1: vulnerable to attack. I actually think in the very long run,
Speaker 1: if stable coins UH persist, and I think the central
Speaker 1: banks are more sympathetic to them than anything else, they
Speaker 1: probably will need access to the central banks balance sheet,
Speaker 1: just like banks do to deal with runs. So give
Speaker 1: us this perspective. The spectrum here from bitcoin to stable
Speaker 1: coin to a central bank digital currency is that is
Speaker 1: it inevitable we're heading towards central bank digital digital currency.
Speaker 1: I think it's inevitable we're heading towards central bank digital currency.
Speaker 1: But it's not the same thing. And I've heard Governor
Speaker 1: Powell say, well, we want to take away, you know,
Speaker 1: some of the appeal of bitcoin. No, you won't, um yes,
Speaker 1: for doing certain digital transactions. It may be more convenient
Speaker 1: than using master card or you know, other things, and
Speaker 1: we may be headed that way. But obviously, if it's
Speaker 1: issued by the central bank, it's very hard to have
Speaker 1: the same kind of pseudonymity that you can get with bitcoins.
Speaker 1: So I mean, I think they I believe they need
Speaker 1: to sharply regulate the anonymous cryptocurrencies. I know a lot
Speaker 1: of people in the cryptocurrency world probably hate me for
Speaker 1: saying that, but I do think it's coming, and we're
Speaker 1: probably headed towards some world in which, at least under duress,
Speaker 1: the government can fairly easily find out about transactions, even
Speaker 1: if it's not monitoring them constantly. Well, I wonder about
Speaker 1: just the mechanics that regulation, because I think a lot
Speaker 1: of transactions in bitcoin or another cryptocurrency are done offshore,
Speaker 1: they're done through corporations that are not US corporations, and
Speaker 1: they're done, as you say, pseudonymously. So how do you
Speaker 1: regulate that? Is it possible? Well, it's a good question.
Speaker 1: I've been thinking about it a lot for a long time. Uh.
Speaker 1: You know, you can't totally shut it down. If North
Speaker 1: Korea and Russia and Iran decide they're going to use it,
Speaker 1: that provides a home for it. What you can do
Speaker 1: is make it much harder to you, say, to buy
Speaker 1: tesla uh in advanced countries, probably in China, that that
Speaker 1: prevents it from having the same value. I've actually always
Speaker 1: been careful not to say bitcoin is going to zero
Speaker 1: like many people nor over Bini for example, has you know, emphatically,
Speaker 1: because I don't think it's I don't think that's going
Speaker 1: to happen. But I think as the guard rails tighten, uh,
Speaker 1: its appeal is going to go down. Maybe its value
Speaker 1: is going to go down. Who knows. Thanks to Ken
Speaker 1: Rogoff of Harvard coming up, we look at the Robin Hood,
Speaker 1: I p O with the former CEO of E Trade,
Speaker 1: Carl Rossner. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. Robin Hood's Reddit Army will soon be able
Speaker 1: to own a piece of the retail trading app, as
Speaker 1: the company plans to list on the NASDAC under the
Speaker 1: ticker h O O D and says it's market cap
Speaker 1: may reach as high as thirty five billion dollars. Here
Speaker 1: is Robin Hood, CEO of Vlad Tennis. I think you
Speaker 1: can look at our our vision broadly and say that
Speaker 1: right now about half of US households invests. We'd like
Speaker 1: to get that number up to plus percent. Investing should
Speaker 1: be as ubiquitous as shopping online. It should just be
Speaker 1: something that people do. Robin Hood will join the ranks
Speaker 1: of coin Base, worth about forty seven billion dollars and
Speaker 1: Charles Schwab, which bought competitor t d Ameritrade and has
Speaker 1: a market value of about one billion dollars. The most
Speaker 1: important lesson is just we're seeing what technology is doing
Speaker 1: in terms of transforming the markets. Access to information, um
Speaker 1: the ability to trade, empowering smaller investors is something that
Speaker 1: is very real. That's Brady Dugan of Exos Financial. Robin
Speaker 1: Hood boom during the pandemic by providing easy access to
Speaker 1: retail investors, playing a starring role in the meme stock
Speaker 1: frenzy that took off in Annuary. Here's Robin and CEO
Speaker 1: of lad Tenef being questioned by New York Congresswoman Alexandria
Speaker 1: Akazia Cortez. Robin Hood is a for profit business. Doesn't
Speaker 1: that mean that trading on robin Hood isn't actually free
Speaker 1: to begin with? I think we've proven that otherwise by
Speaker 1: making this the standard model by which brokerage is operate now.
Speaker 1: It's monthly active users have more than doubled in the
Speaker 1: past year, with seventeen point seven million as of the
Speaker 1: first quarter, up from eight point six million in the
Speaker 1: same period. In the robin Hood I p O comes
Speaker 1: just a month after FINRA imposed a nearly seventy million
Speaker 1: dollar fine in the company. That's a record for the watchdog.
Speaker 1: FINRA claims the trading app mislaed its customers about margin
Speaker 1: trading and had lapses in its oversight of technology and
Speaker 1: approvals for options traders. Take us through the phenomenon that
Speaker 1: is robin Hood and how it fits into the much
Speaker 1: larger picture of retail investing. Welcome now, Karl Rossner. He's
Speaker 1: former CEO of E Trade. So Carl, thank you so
Speaker 1: much for being with us. Really a pre created without
Speaker 1: regard to the specifics of robin Hood, because we don't
Speaker 1: know what's gonna happen exactly're gonna go public, We don't
Speaker 1: know the circumstances. Give us a sense of this robber,
Speaker 1: this retail trade phenomenon. Is it here to stay? It's exploded?
Speaker 1: Has it not? It has? And and thanks for having me, David.
Speaker 1: I think the way that I look at it, I mean,
Speaker 1: Gina just said it on the last segment. The retail household,
Speaker 1: you know, during the pandemic and otherwise was flushed with cash.
Speaker 1: So what what do you start to do? You say, Okay,
Speaker 1: I'm gonna get in on some of the stock trading
Speaker 1: and I'm gonna understand how to do it. And robin
Speaker 1: Hood has created a phenomenal customer acquisition machine. The way
Speaker 1: that they put the app together, how easy they make
Speaker 1: it to trade, how easy they make it to open
Speaker 1: an account. It's seamless, you know, it's very well done
Speaker 1: in terms of having that beginner trader really have the
Speaker 1: opportunity to go in and buy some shares. So you know,
Speaker 1: there is some there are some different things that you know,
Speaker 1: we should talk about in terms of the risks involved
Speaker 1: to the you know, to that first time investor. But
Speaker 1: you know, I plaud them in terms of the customer
Speaker 1: acquisition and just the explosive growth they've demonstrated over the
Speaker 1: past two years. So I want to talk about the
Speaker 1: risk which just before we get to that, to pick
Speaker 1: up on what you just said, how much of this
Speaker 1: is because we were trapped at home and a lot
Speaker 1: of people, particularly frankly maybe some younger people got some
Speaker 1: checks from the government they wanted to put him somewhere. Ye.
Speaker 1: So I think it's to be seen in terms of
Speaker 1: how many stick around and how many continue to do
Speaker 1: this post pandemic. But I do believe that it's here
Speaker 1: to stay. And once you show individuals and you start
Speaker 1: to educate them on dealing with their finances and how
Speaker 1: simple it can be once you start with a bank
Speaker 1: account and budgeting, and then understanding where stocks and bonds
Speaker 1: and other asset classes can fit. As you continue to
Speaker 1: grow and become a more savvy investor. I think places
Speaker 1: like robin Hood have really open doors for people, so
Speaker 1: I do expect a great deal of that to stick around.
Speaker 1: So give us a minuteor two on the risks. And
Speaker 1: as we talk about the risk, one thing I'd like
Speaker 1: to focus on is it a risk to the investor,
Speaker 1: which is serious we want to take about. Or is
Speaker 1: there a larger risk to the system that goes beyond
Speaker 1: the individual investor who might lose their money. So so
Speaker 1: I think there are both actually, so just taking the
Speaker 1: the individual investor first, which has always been, you know,
Speaker 1: my focus, I think that first and foremost, there has
Speaker 1: to be the education they have to understand that when
Speaker 1: you invest in stocks, when you invest in crypto or
Speaker 1: other asset classes, there's a complete risk of loss. Right
Speaker 1: over the past couple of years, and and sort of
Speaker 1: the growth that we've seen some of the meme stocks,
Speaker 1: the amount of money that can be made on trades,
Speaker 1: it's been rather fantastic upside for everyone involved. So you
Speaker 1: see your friend makes some money, what are you gonna do.
Speaker 1: You take that stimulus check, you take the extra dollars,
Speaker 1: you open up a robin Hood account, and you get
Speaker 1: on the train right and you continue to make money,
Speaker 1: but there is that downside risk, and it's that downside
Speaker 1: that I think it's incumbent upon all of us work
Speaker 1: in financial services to really help that new retail investor
Speaker 1: understand what it is that you're doing, Understand the options
Speaker 1: that they have to invest to trade. Does that fit
Speaker 1: with their overall profile? Is that part of their budget?
Speaker 1: Can they actually afford to lose the money they just
Speaker 1: put in the stock market? And we've all seen indications
Speaker 1: of those dollars turning very quickly from the profit to
Speaker 1: a serious loss, and that can be very damaging if
Speaker 1: those are the only funds that you have in your
Speaker 1: bank account. So so that that's sort of the individual side,
Speaker 1: and I just hope that we continue as as a
Speaker 1: group to focus on on education more so than gamification.
Speaker 1: Thank you, Carl. That's former E tre CEO Carl Rossner.
Speaker 1: Coming up. Does Netflix keep on going now that we're
Speaker 1: able to get out of our living rooms again? We
Speaker 1: talked with tech investor Roger mcnabie about why he is
Speaker 1: still a believer. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. Netflix was out with its earnings this week,
Speaker 1: and it under impressed investors because the growth pattern didn't
Speaker 1: look quite as robust as it has in recent quarters,
Speaker 1: but also raises questions about these big tech companies have
Speaker 1: come from almost nowhere, but what their future is in
Speaker 1: terms of growth, but also frankly in terms of government
Speaker 1: regulation potentially. We're welcome now somebody who comes from this industry.
Speaker 1: He is Roger mcnamei. He is a co founder of
Speaker 1: Elevation Partners, and of course he is the author of
Speaker 1: the famous book Is Sucked about his experience with Facebook,
Speaker 1: and yes, I think it's fair to say some questions
Speaker 1: he raises about Facebook. Thank you, Roger very much for
Speaker 1: being with us. First, let's start with Netflix, and I
Speaker 1: understand you actually own some Netflix. You like the company,
Speaker 1: so give us your sense about where a Netflix is
Speaker 1: and where it's going. So, David, I think the big
Speaker 1: issue for Netflix is that they won round one of
Speaker 1: the streaming wars, and that has forced every major media
Speaker 1: company into the marketplace. And as I think investors, no, well,
Speaker 1: Disney and Apple, HBO have come in with really strong offerings,
Speaker 1: and Hulu and others are coming up as well, and
Speaker 1: so from Netflix point of view, they've gone from having
Speaker 1: the space to themselves to having to compete against people
Speaker 1: who have real libraries, real content, and are generally speaking,
Speaker 1: very well financed. And to me, the sense earlier this summer,
Speaker 1: you know, over the last couple of months, that quarantine
Speaker 1: was coming to an end and that the pandemic was over,
Speaker 1: meant people were going to watch a lot less TV
Speaker 1: than they were watching when they were quarantined at home.
Speaker 1: So it's not surprising that this quarter showed a lot
Speaker 1: lower growth in new subscribers. But I'm afraid that the
Speaker 1: pandemic isn't over and that Netflix is still the strongest
Speaker 1: player in that marketplace. So I do expect the company
Speaker 1: to rebound from this, and I think the future is
Speaker 1: still bright, albeit with a lot more competition than it
Speaker 1: had in the past. Yeah, Roger, I must say it
Speaker 1: certainly is the strongest in this space. The question is
Speaker 1: cann't maintain that or not, because as you say, a
Speaker 1: lot of people will come in. Warren Buffet likes to
Speaker 1: talk about a motor around the business. Does it have
Speaker 1: a motor around the business or is the more just
Speaker 1: spending money hand over fist and new content can to
Speaker 1: keep that up well. To be clear, that strategy has
Speaker 1: worked unbelievably well, and I don't know why it would stop.
Speaker 1: I think they have really large advantages there, you know,
Speaker 1: relative to Disney in particular, and actually I think this
Speaker 1: is true of HBO as well. Netflix really does have
Speaker 1: a new programming advantage, and I think they understand their
Speaker 1: audience better and they just have a lot more experience
Speaker 1: of doing this now. At the same time, I think
Speaker 1: there are other markets in which they can expand their
Speaker 1: testing things around games. I think that, you know, conceptually,
Speaker 1: you could imagine them eventually getting into other forms of streaming,
Speaker 1: you know, podcasting or music or whatever. And I don't
Speaker 1: think that they're locked into anything now. I think the
Speaker 1: brand is really good. I think that the team there's
Speaker 1: just demonstrated time and again that they have a much
Speaker 1: clearer understanding of what the audience needs than any one
Speaker 1: else does, and I think that's still true. At the
Speaker 1: same time, we have to be cognizant of the fact
Speaker 1: that not everybody is going to wind up with an
Speaker 1: infinite number of streaming um streaming subscriptions, so Netflix is
Speaker 1: going to have slower growth eventually. But I think it's
Speaker 1: going to remain an extraordinarily high profit margin business and
Speaker 1: I think it's position in the marketplace will remain solid
Speaker 1: even with all the competition that's out there. Roger, you
Speaker 1: raised the issue you mentioned gaming for example, does Netflix
Speaker 1: have to have while i'll call a second arrow in
Speaker 1: its quiver. I mean, certainly you talk about Disney, what
Speaker 1: everything would strengthen Otherwise they've got several lines of business
Speaker 1: that can really cross subsidize and really support them through
Speaker 1: lean times. Does Netflix have to go the way perhaps
Speaker 1: for of Uber when they said let's be Uber eats,
Speaker 1: not just Uber Well, to be clear, I think Luber
Speaker 1: is a terrible business, and each time they're expanding, they're
Speaker 1: looking for a market that is going to have legs
Speaker 1: for a long period of time. I think Uber is frankly,
Speaker 1: you know, the triumph of unlimited capital over a terrible
Speaker 1: business idea. The the situation Netflix is couldn't be more different.
Speaker 1: It's a very substantial business, and I think the question
Speaker 1: is less do they need the air on the quiver?
Speaker 1: Rather are their errors that they could put in their
Speaker 1: quiver if they want. And I think the answer to
Speaker 1: that's an emphatic yes. At the same time, again, I
Speaker 1: think investors need to be changing their expectations for these
Speaker 1: large Czech tech companies. I don't think the kind of
Speaker 1: growth rates we've seen in recent years are going to
Speaker 1: be sustainable. And this isn't just about streaming. I think
Speaker 1: that's gonna be true everywhere. Roger. We also have a
Speaker 1: government in Washington it's paying a fair amount of attention
Speaker 1: to big tech companies, including places like Google and Facebook
Speaker 1: and Amazon. What kind of risk or even opportunities could
Speaker 1: that post and let me there is one possibility with
Speaker 1: you when it comes to Netflix. We have this executive
Speaker 1: order out that's really from the President saying he doesn't
Speaker 1: like rgers very much these days. But that benefit Netflix
Speaker 1: because as the largest player, it may make it more
Speaker 1: difficult for some of the other players to get together
Speaker 1: to challenge it. So, David, I think that the situation
Speaker 1: with the government is really different today than it was
Speaker 1: even six months ago. So the Biden administration brought a
Speaker 1: professor from Colombia named Tim Woo into the Council of
Speaker 1: Economic Advisors. It then appointed Lena Khan, a tech reformer,
Speaker 1: to be the head of the Federal Trade Commission and
Speaker 1: had announced it was going to appoint Jonathan Cantor to
Speaker 1: be the head of the Anti Trust Division of the
Speaker 1: Justice Department. These are three extraordinary people, all serious tech reformers,
Speaker 1: and I think what investors need to understand is that
Speaker 1: anti trust is the most pro growth form of government
Speaker 1: intervention on Earth. Historically, it's been fantastic for investors. It
Speaker 1: does require changing your investment strategy, but what winds up
Speaker 1: happening afterwards is the target companies tend to growth more slowly,
Speaker 1: but they still grow, and then you get whole new
Speaker 1: industries that come out of the history of that in
Speaker 1: technology has been a hundred percent of the time, and
Speaker 1: he trust has led to a new industry and great
Speaker 1: new wealth opportunities for investors. So we should be embracing it,
Speaker 1: not fighting it. The problem in tech and this is
Speaker 1: really a huge issue for the Internet platforms, but I
Speaker 1: think it's much broader than that effects artificial intelligence, It
Speaker 1: affects facial recognition. A lot of the new technologies we
Speaker 1: see out there that there are serious consumer safety issues,
Speaker 1: and I think the industry is today where the chemicals
Speaker 1: industry was in fifties, where the garment industry was when
Speaker 1: it depended on child labor. You know, where the food
Speaker 1: and drug industries were before the creation of the f DA,
Speaker 1: when food and pharmaceuticals were unsafe, Where the railroad industry
Speaker 1: was before the regulation of that industry. So I think
Speaker 1: this is it's the right time. That this industry has
Speaker 1: undermined public health by amplifying disinformation about the pandemic. It
Speaker 1: has undermined democracy by being platforms for the creation of
Speaker 1: things like Q and on and also the insurrection. And
Speaker 1: these are really serious issues, and I think the thing
Speaker 1: that investors need to do is to recognize that there
Speaker 1: are at least three tangents that the Biden administration can
Speaker 1: do without any kind of new legislation. There is an
Speaker 1: antitrust case that the Attorney General of Texas has created
Speaker 1: against Google and Facebook for price fixing in the advertising market.
Speaker 1: That is a really serious issue. And if the federal
Speaker 1: government takes on that case, they can pursue it as
Speaker 1: a felony. And price fixing is the worst economic crime
Speaker 1: you can commit, and so the standard remedy is three
Speaker 1: plus years in prison for each count. And if I
Speaker 1: read the Texas case properly, there are two counts they're
Speaker 1: affecting the executives at Google and Facebook. That's a huge dealing.
Speaker 1: Investors haven't focused on that at all. Where that's really
Speaker 1: really good advice certain people should taken into account and
Speaker 1: decide making their investment decsions. Thank you so much to
Speaker 1: Roger mcnamey. He is co founder of Elevation Partners. Finally,
Speaker 1: one more thought, when is a delicacy just a pain
Speaker 1: in the neck. Pity the poor organizers of the Tokyo Olympics.
Speaker 1: When Tokyo one it's bid back, there was no way
Speaker 1: for it to know that it would be in the
Speaker 1: middle of a once in a century pandemic. And let's
Speaker 1: be frank, as great an honor as it may be,
Speaker 1: it's not always been a great business proposition for those
Speaker 1: cities holding Olympics. But then the pandemic hit and pretty
Speaker 1: much no one wanted to travel to Tokyo a year ago,
Speaker 1: or for that matter, anywhere else, so Tokyo had to
Speaker 1: be postponed a year, upping the cost to over fifteen
Speaker 1: billion dollars. And those those are the official numbers. A
Speaker 1: government audit suggests it may be more like twenty five
Speaker 1: billion dollars, and it's not just the expenses. COVID is
Speaker 1: hitting the top line as well. A COVID surge in
Speaker 1: Japan means that there won't be anyone in the stands,
Speaker 1: leading to a loss of some eight hundred million dollars
Speaker 1: in revenue. But despite it all, Tokyo has stayed the course,
Speaker 1: even sticking to its brand name. Although that means that
Speaker 1: Tokyo will actually be held in and the games have begun,
Speaker 1: complete with all those COVID tests and quarantine and some
Speaker 1: athletes testing positive and having to drop out. And if
Speaker 1: all that weren't enough, now they have to contend with oysters. Yes,
Speaker 1: I said, oysters. It turns out that the waterway where
Speaker 1: the canoeing and rowing events will take place may be
Speaker 1: infested with rogue oysters. According to the Washington Posts, a
Speaker 1: trial run back in showed that the devices that they
Speaker 1: have to have in the water that's to prevent waves
Speaker 1: from ruining the competition, while all those devices were sinking.
Speaker 1: When Irish went down to investigate, they found thirteen metric
Speaker 1: tons or over thirty one thousand pounds of oysters had
Speaker 1: attached themselves to the equipment. They've now spent about one
Speaker 1: point three million dollars that's so far to keep the
Speaker 1: equipment on top of the water rather than under it,
Speaker 1: but there's no guaranteed that it's all gonna work. It's
Speaker 1: not much of a consolation that this particular type of oyster,
Speaker 1: the maga kei or Pacific oyster, is considered by some
Speaker 1: to be among the best in the world to eat.
Speaker 1: They don't want to eat them, they just want to
Speaker 1: keep them out of the way. But then again, maybe
Speaker 1: they shouldn't be eating them anyway. July doesn't have an
Speaker 1: R in it, does it? That does it? For this
Speaker 1: episode of Wall Street Week, I'm David Weston. This is Bloomberg.
Speaker 1: See you next week.