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Speaker 2: All right, everybody, we begin this hour though, with the
Speaker 2: most read story on the Bloomberg in the past sixty minutes.
Speaker 2: President Trump said he would refrain from imposing tariffs on
Speaker 2: goods from European nations of posting his effort to take
Speaker 2: possession of Greenland, citing a framework for a future deal.
Speaker 2: I put quotations because those are his words. He was
Speaker 2: reached regarding the island. So we're talking about the island,
Speaker 2: of course, of Greenland. So it was kind of like
Speaker 2: a wait, what moment for a bunch of us because
Speaker 2: the President has been for days leading up to Davos
Speaker 2: talking about acquiring that island, so maybe he found an
Speaker 2: off ramp.
Speaker 3: So let's see what Nick Watams has to say.
Speaker 2: Bloomberg News National Security Team leader Nick Watams is in
Speaker 2: the Bloomberg DC News Bureau.
Speaker 3: It was Nick.
Speaker 2: It felt like a little bit like a wait what moment,
Speaker 2: Although we did have some market observers yesterday saying that,
Speaker 2: you know, the President's going to figure out a way
Speaker 2: out of this. How do you read what's you read
Speaker 2: on this right?
Speaker 4: I mean, it's one of those things that's a little
Speaker 4: bit shocking, but not entirely surprising. We've definitely been through
Speaker 4: this before where the Trump administration of the President himself
Speaker 4: ratchet so pressure, says he's going to impose tariffs and
Speaker 4: then backs down right at the last minute. The big
Speaker 4: question is going to be what this framework agreement will be,
Speaker 4: what it will entail, what will happen to Greenland, because
Speaker 4: the President was quite explicit in his comments today that
Speaker 4: he wants Greenland as US territory, so what the back
Speaker 4: down is going to be there, But also then, of course,
Speaker 4: what happened in the future, because we've been in this
Speaker 4: cycle so many times where he escalates tensions, backs down,
Speaker 4: and then escalates a tensions again, and it's a sort
Speaker 4: of rinse and repeat situation. So markets are certainly happy,
Speaker 4: but I don't think there's any indication at least that
Speaker 4: I'm seeing that we're anywhere near out of the woods,
Speaker 4: and you won't see the President just ratchet pressure up
Speaker 4: once again as a negotiating tool if this framework deal,
Speaker 4: once the details become more specific, aren't really to his liking.
Speaker 5: Well, he did make a comment earlier today in his
Speaker 5: speech at Davos Nick that he wouldn't use force. And
Speaker 5: I'm wondering if which is great, as you know, we
Speaker 5: don't want I just want to say, like, we don't
Speaker 5: want conflict here. I think I can say that, But
Speaker 5: is there another way to do this? If somebody who
Speaker 5: is not selling something says they're not interested in selling
Speaker 5: that thing to you, like I don't understand the how
Speaker 5: to thread that needle, right?
Speaker 4: I mean to me, the most likely scenario is that
Speaker 4: you would see the US put more military assets in Greenland.
Speaker 4: Of course, that's something that the US has been allowed
Speaker 4: to do for many decades. In fact, over the decades,
Speaker 4: the US has drastically scaled back its military presence in Greenland,
Speaker 4: and Greenland and Denmark have absolutely no objection to the
Speaker 4: US bolstering military assets that bases all up and down
Speaker 4: the island and putting essentially as much as they want there.
Speaker 4: What you heard from the President today as well was
Speaker 4: this mention of Golden Dome, which his so far unproven
Speaker 4: essentially missile interceptor system that he wants to put in
Speaker 4: place at a cost of many, many billions of dollars.
Speaker 4: So it's possible that what happened here is that Greenland,
Speaker 4: NATO and Denmark all sort of said, Okay, we're going
Speaker 4: to be willing for you to station Golden Dome there,
Speaker 4: and that was enough to mollify him. But you know,
Speaker 4: as usual with these things, clear how much the president
Speaker 4: knows about the history of US basing on Greenland, what
Speaker 4: he's allowed to do, and what he's not allowed to do.
Speaker 4: So it's entirely possible, for example, that they presented to
Speaker 4: him this thing that might be seen as a big concession,
Speaker 4: but was something he could already do in the first place. So,
Speaker 4: needless to say, we're trying to sort all that out
Speaker 4: right now.
Speaker 3: Yeah, it's my brain hurts a little bit, Nick, because
Speaker 3: I do feel like I'm sorry. Are you laughing at me?
Speaker 5: He's laughing at me, No, but it just feels like
Speaker 5: I'm just sad that your brain hurts.
Speaker 2: Where did we what did we get? What did we
Speaker 2: achieve as a nation, And I just think about some serious.
Speaker 3: Situations that are still going on around the world.
Speaker 2: Some Americans would say, we're still dealing with a war
Speaker 2: between Russia and Ukraine, Ukraine and Ally, right, or you know,
Speaker 2: we still have stuff going on in the Middle East,
Speaker 2: we still have stuff going on in Minneapolis, Minnesota, our
Speaker 2: home in front. I'm just trying to understand the amount
Speaker 2: of time and you know, spent on something like this,
Speaker 2: and I'm not quite sure what we got as a
Speaker 2: nation out of that, and as an American what we
Speaker 2: got out.
Speaker 4: Of that, right, I mean, well, I think on the
Speaker 4: one hand, you have the president's view, which is he
Speaker 4: sees this pressure dialing up, ratcheting up the pressure as
Speaker 4: a legitimate and successful strategy. Mean, you look at NATO itself,
Speaker 4: and he has one of the foreign policy achievements he
Speaker 4: has had, according to the administration, at least, is this
Speaker 4: idea of getting other NATO countries to commit to spending
Speaker 4: five percent of GDP on defense.
Speaker 6: And that's not.
Speaker 4: Something they would have done, certainly not at this pace,
Speaker 4: unless he had done that. So, you know, he may
Speaker 4: see this as something where the US gets an increased
Speaker 4: presence on Greenland has the ability to install Golden Dome,
Speaker 4: bolster its military presence, and portray this essentially as a
Speaker 4: win under the knowledge that a lot of people, certainly
Speaker 4: his base, are not going to look back and say, well, hey,
Speaker 4: you guys could have done that anyway, and you could
Speaker 4: have done it without all of this chaos and drama
Speaker 4: and brinksmanship with an ally. But you can be sure
Speaker 4: that he is going to portray this as a win,
Speaker 4: and the result may likely be that the US will
Speaker 4: have an increased military presence in Greenland, which is something
Speaker 4: that folks on both sides of the aisle. There are
Speaker 4: certainly voices who would advocate that that's an important thing
Speaker 4: to do.
Speaker 2: Yeah, and maybe all the cards are being laid out
Speaker 2: on the table. It may feels kind of messy, but
Speaker 2: there's certainly a lot that's out there at this point.
Speaker 5: Tips Nick, before we let you go, Article five, the
Speaker 5: collective defense clause for NATO, just remind everybody when it
Speaker 5: has been invoked and who benefited from.
Speaker 4: That, right, Well, I mean, so the President has said
Speaker 4: repeatedly that the US gets nothing from NATO. Obviously, the
Speaker 4: time that Article five was in voked was after the
Speaker 4: September eleventh attack, and a lot of NATO countries came
Speaker 4: to the US's eight and you saw participation by NATO
Speaker 4: forces in Afghanistan was really the big one. Of course,
Speaker 4: it would have been an extraordinary and chaotic situation if
Speaker 4: the US had decided to attack Greenland, and you would
Speaker 4: have essentially had to have had NATO invoking Article five
Speaker 4: against one of its own members, and then you would
Speaker 4: have essentially seen the total dissolution of NATO.
Speaker 6: So, at least for today.
Speaker 4: January late January twenty twenty six, we are not going
Speaker 4: to see the dissolution of NATO. But who knows what
Speaker 4: the President is going to say in the next day
Speaker 4: or two.
Speaker 2: Well, investors certainly like that, and probably like even more
Speaker 2: that we're not going to see more tariffs coming down.
Speaker 3: Nick Wadhams, thank you so much.
Speaker 2: Nick, of course, Bloomberg News National Security Team leader out
Speaker 2: there in our DCBREA.
Speaker 5: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 5: up after this.
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Speaker 5: Netflix shares tumbled earlier in the session by as much
Speaker 5: as six percent off their lows. Now as we see
Speaker 5: some buying across risk assets late into the trading day,
Speaker 5: Netflix shares down about two point nine percent right now,
Speaker 5: the stock taking a hit after the company issued a
Speaker 5: disappointing forecast for earnings in the months ahead as it
Speaker 5: spends more on programming and works to close it's eighty
Speaker 5: two point seven billion dollar deal with Warner Brothers Discovery.
Speaker 5: For more, let's bring in Alisha Reese, Senior vice president
Speaker 5: of equity Research. She covers media entertainment at Weblish Securities
Speaker 5: more than five billion dollars in assets under management. She
Speaker 5: joins us from Lake Oswego, Oregon. LISHA, welcome back to
Speaker 5: the program. You know, we were talking yesterday before the
Speaker 5: call about the idea of content spend sending shares lower.
Speaker 5: And it's like a story that we could have told
Speaker 5: about Netflix a dozen years ago, because this is always
Speaker 5: you know, apart from members and maybe get that number anymore.
Speaker 5: That's what in the past has moved the company's stock.
Speaker 5: Is that what happened this time or is it something different?
Speaker 7: There are a few different elements here going on.
Speaker 8: So you know, Netflix does give the engagement numbers now,
Speaker 8: and you know, after not giving subscriber numbers for most
Speaker 8: of the year, they did give their subscriber numbers. But
Speaker 8: the subscriber numbers are really where we expected them to be.
Speaker 8: There was no surprise there. I think, you know, there
Speaker 8: was some disappointment. And how much advertising revenue that Netflix
Speaker 8: was able to squeeze out of a quarter is as
Speaker 8: big as Q four. When you had you know, all
Speaker 8: those live events including NFL games on Christmas, some boxing matches,
Speaker 8: and of course stranger things, and you had a lot
Speaker 8: of you know, people coming onto the service and a
Speaker 8: lot more engagement around those events. Netflix should have been
Speaker 8: able to get some pretty significant advertising revenue.
Speaker 7: They did get decent amount.
Speaker 8: Advertising revenue did grow two and a half times year
Speaker 8: of a year, and they do expect another doubling in
Speaker 8: twenty six to about three billion dollars. And that's satisfactory,
Speaker 8: but it's not you know, exciting just yet. You know,
Speaker 8: there's still a significant growth opportunity for Netflix in advertising,
Speaker 8: and I think the hurdle so far has been just
Speaker 8: that they haven't had the data stack and the attribution
Speaker 8: available for advertisers significant enough for them to really, you know,
Speaker 8: do all of the campaigns.
Speaker 7: That they would like to do.
Speaker 8: They have great alternatives right now across social media and
Speaker 8: other connected TV items, but Netflix is really catching up
Speaker 8: on this and I do think that they'll be able
Speaker 8: to exploit that opportunity in the coming year, in year.
Speaker 2: Or two, So advertising being the big surge Alicia, when
Speaker 2: it comes to boosting the top line, the revenue line.
Speaker 8: Yeah, I think that's their biggest opportunity in the coming years.
Speaker 8: Twenty six is the first year where that's really meaningful.
Speaker 8: It's a meaningful contributor to its growth opportunity. And I
Speaker 8: you know, the three billion dollar market that they set
Speaker 8: for themselves, they can easily surpass that if they get
Speaker 8: all of the pieces in place, and that excessive content
Speaker 8: spen or what might look excessive content spend relative to
Speaker 8: the engagement will look a lot more reasonable if a
Speaker 8: lot of that engagement is on the ad tier. Now,
Speaker 8: they said that they're planning to do some price increases
Speaker 8: in the year, and I think that's going to be
Speaker 8: mainly on the premium tiers, trying to urge more of
Speaker 8: its users over to the advertising tier, which is significantly cheaper.
Speaker 8: If they get a lot of that engagement on the
Speaker 8: ad tier and a lot more advertisers in front of them,
Speaker 8: that results in profitability.
Speaker 5: The eighty two point seven billion dollar deal for Warner
Speaker 5: Brothers Discovery predict predict this for us. Does Netflix get
Speaker 5: these assets?
Speaker 8: The regulatory process is going to be long drawn out
Speaker 8: and very difficult.
Speaker 5: Why do you think that in this in this world?
Speaker 8: Well, yeah, well there's two different sides of it. On
Speaker 8: the one side, there's the consumer side. It's going to
Speaker 8: be hard for Netflix to argue that, you know, the
Speaker 8: likes of YouTube that you know, billions on YouTube are
Speaker 8: real competitors. You know, you do have some subscribers, but
Speaker 8: it's a significantly lower portion. Not all media is going
Speaker 8: to be, you know, considered a competitor. If you only
Speaker 8: have real competitors in their Netflix does have significant market share,
Speaker 8: and we'll have quite a bit when they have HBO.
Speaker 7: On the other side, it's content.
Speaker 8: As a content buyer, it's going to consolidate power pretty
Speaker 8: significantly for you know, against producers of content, and so it'll.
Speaker 7: Give Netflix almost too much.
Speaker 8: You know, collective power against those producers and how much
Speaker 8: they'll spend on content. So it does diminish some power
Speaker 8: in Hollywood potentially, and you know the prosecutors will be
Speaker 8: able to argue that.
Speaker 2: Alicia, you've got an outperform. You've had an outperform for
Speaker 2: a while. I think you've moved around the target price.
Speaker 2: Right now, you're looking for about one hundred and fifteen
Speaker 2: a share on Netflix, So that's some room to the upside.
Speaker 2: I mean, the stock right now trading just under eighty
Speaker 2: five dollars this year?
Speaker 3: Is it?
Speaker 2: Though we just talked about you stress that the revenue
Speaker 2: is certainly going to be a big opportunity for this company.
Speaker 2: AD revenue growth. Is that what gets it to the
Speaker 2: target or there other things?
Speaker 3: Is that?
Speaker 2: Is it also the completion of the deal. And if
Speaker 2: that deal doesn't happen, then what what does the story
Speaker 2: the growth story look like for Netflix going forward? Is
Speaker 2: add revenue enough or do they need that deal to
Speaker 2: help with that growth in the AD revenue?
Speaker 8: So my price target does not include Warner Brothers at
Speaker 8: this time, and it won't until the deal closes. Right now,
Speaker 8: I'm you know, my my assumption is that they're going
Speaker 8: to just continue operating as Netflix at least for the
Speaker 8: next you know, year plus during the regulatory process. So
Speaker 8: my one hundred and fifty dollars price target if one
Speaker 8: year out includes only Netflix and its own you know
Speaker 8: internal opportunity with AD revenue growth and so you know,
Speaker 8: should that deal go through, that will you know, significantly
Speaker 8: improve Netflix's ability to leverage its AD stack, which by
Speaker 8: then should be you know, absolutely booming. So I do
Speaker 8: think there's a lot of upside opportunity with or without
Speaker 8: Warner Brothers at this point.
Speaker 5: Okay, what happens though if a competitor gets it. You said,
Speaker 5: there's still a lot of upside even if.
Speaker 8: Content gets more expensive. Yeah, yeah, that is that is
Speaker 8: the issue. You know, Netflix has been making a lot
Speaker 8: of partnerships and content you know, they made their one
Speaker 8: with Sony recently.
Speaker 7: Of course, they have their you know, content deal with.
Speaker 8: Warner Brothers, and they've seen how successful that content library
Speaker 8: is foreign Netflix on Netflix, and so owning the content
Speaker 8: makes a lot of sense. It'll save them a lot
Speaker 8: of money on those content costs. If somebody else gets
Speaker 8: the content, it could potentially be more expensive, but Netflix
Speaker 8: buys that content, plenty of content from paramount already, so
Speaker 8: you know, it's it's just a matter of will Netflix
Speaker 8: continue to spend this much on you know, procuring content
Speaker 8: through licensing deals and then producing its own content and
Speaker 8: a combination of that in a combination of international content
Speaker 8: as well. It certainly can, you know, it just would
Speaker 8: be a little bit more profitable, especially if they're able
Speaker 8: to leverage that content against a global you know base
Speaker 8: that that utilize this advertising.
Speaker 5: Okay, so years ago Netflix said, all we're doing, you know,
Speaker 5: is sending DVDs to people, and that's our business. Then
Speaker 5: they you know, quick Stir and the whole spin off,
Speaker 5: and that didn't end up happening. But then they're like, Okay,
Speaker 5: now all we're doing is focusing on on demand streaming.
Speaker 5: We're never gonna do sports, We're never gonna do anything live.
Speaker 5: If they throw all that out the window, they're doing
Speaker 5: everything right now, they're doing advertising these to say we
Speaker 5: never do advertising. What is left for Netflix to do,
Speaker 5: at least from a content perspective. If they're doing games,
Speaker 5: if they're doing sports, if they're doing these live one
Speaker 5: off events, if they're doing the live not one off
Speaker 5: events and getting actually rights to broadcast sports, if they're
Speaker 5: if they're doing podcasts, what's left.
Speaker 8: Yeah, I mean, there's a lot left in terms of
Speaker 8: gaming cloud gaming. They have a really big opportunity there
Speaker 8: as cloud gaming becomes more pervasive on connected TVs, they
Speaker 8: have a good opportunity.
Speaker 7: Just given their global base and the number of games
Speaker 7: out there.
Speaker 8: They can do a lot with that. I think they
Speaker 8: could become a really important platform for gaming. You know,
Speaker 8: similar to you know, some of the consoles. They can
Speaker 8: operate as such, you know, licensing in a lot of
Speaker 8: really quality, you know, high quality gaming content and then
Speaker 8: leveraging their own IP as they see fit. You know,
Speaker 8: there are a lot of other opportunities in sports to
Speaker 8: your point, they don't have to you know, they can
Speaker 8: do one off events. They can do you know, WWE,
Speaker 8: which has been really successful for them.
Speaker 7: They're going to do, you know, the baseball in Japan.
Speaker 7: I think that's a really important step for them.
Speaker 8: And it doesn't have to be global, it can be localized.
Speaker 8: They can also leverage their global base to bring sports
Speaker 8: that are not big in certain regions to those regions
Speaker 8: and and you know, create a larger fan base around
Speaker 8: the world. You know, take Gaelic football to the US,
Speaker 8: for instance. You know, that could work. There are a
Speaker 8: lot of different opportunities within those I think podcasts. You know,
Speaker 8: the whole idea is to have content that will appeal
Speaker 8: to everyone of their subscriber households and keep everyone engaged.
Speaker 7: And however they need to do, that is what.
Speaker 4: They're going to do.
Speaker 5: Alichari, Senior Vice president of equity Research covering media Entertainment
Speaker 5: at web Bush Securities. Stay with us more from Bloomberg
Speaker 5: Business Week Daily coming up after this.
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Speaker 5: Also on the President's radar, has moved to ban institutional
Speaker 5: investors from buying single family homes, the latest proposal from
Speaker 5: the administration to address housing affordability ahead of this year's
Speaker 5: midterm elections. Actually signed an executive order on this yesterday.
Speaker 5: The President address housing affordability in his speech in Davos
Speaker 5: earlier today.
Speaker 9: Time you make it more and more and more affordable
Speaker 9: for somebody to buy house cheaply, you are actually hurting
Speaker 9: the value of those houses.
Speaker 4: Now, if I want to really crush the housing market.
Speaker 6: I could do that so fast to be good by houses,
Speaker 6: but you would destroy a lot of people that already
Speaker 6: have houses.
Speaker 5: Thus, President Trump earlier today, Jonathan Reckford knows what it
Speaker 5: takes to build affordable housing. You CEO of Habitat for Humanity.
Speaker 5: He joins us from the World Economic Forum in Davos, Switzerland. Jonathan,
Speaker 5: good to have you on the program. Is you know,
Speaker 5: we spoke a lot last week about institutional investors owning
Speaker 5: single family homes in the US, and the data are
Speaker 5: out there. It's actually a small percentage of the homes
Speaker 5: in the US are owned by institutional investors. In your view,
Speaker 5: would banning these folks from owning single family homes ease
Speaker 5: the housing crisis in the US?
Speaker 6: Well, first, we're just pleased the administration is talking about housing,
Speaker 6: and I think the housing crisis is such a huge
Speaker 6: issue in the US and globally. I'm glad it's on
Speaker 6: the agenda here at Davos as well. And we would
Speaker 6: say that now that middle class families children cannot afford housing,
Speaker 6: the more invisible housing crisis has become visible. We need
Speaker 6: We haven't taken a stance on the issue that you've
Speaker 6: just raised. We still want to look at the details.
Speaker 6: There are certain markets nationally it's a very small percent
Speaker 6: There's small certain markets like Atlanta, Charlotte, a few others
Speaker 6: where it's a meaningful percentage. But that's only one small
Speaker 6: piece of the broader housing issue. And what we really
Speaker 6: have is a supply problem. We have a massive shortage,
Speaker 6: particularly at the low end of the market, starter homes,
Speaker 6: and so our view is creating a lot more supply
Speaker 6: on the starter home side would not actually damage home
Speaker 6: values in the middle and upper ends because we have
Speaker 6: such a shortage right now. In fact, if we work
Speaker 6: more on the demand side without increasing supply, we'll drive
Speaker 6: house costs up further and it won't really solve the
Speaker 6: housing crisis. So we need really a little bit of everything.
Speaker 6: We do need demand side solutions, but the most important
Speaker 6: thing is to increase the supply of houses at the
Speaker 6: low end of the market.
Speaker 3: You know, I have to I don't always understand.
Speaker 2: I mean, I understand giving developers breaks and tax breaks
Speaker 2: to build in certain areas that maybe need some juice
Speaker 2: and some help, right to get a kind of back
Speaker 2: and bring back a community, bring back a city, bring
Speaker 2: back a town. But I'm amazing, like tax abatements that
Speaker 2: still get given in areas where things are good without
Speaker 2: any maybe provisions to make sure that there is housing
Speaker 2: for everybody in the community, not just the wealthier folks.
Speaker 3: So how do we really fix this?
Speaker 2: I mean, I just don't understand what's the incentive to
Speaker 2: developers or builders to really help out here, and is
Speaker 2: that what.
Speaker 3: It needs to be.
Speaker 6: I do think it requires incentives, but also requirements, and
Speaker 6: the best model anywhere in the world is mixed income,
Speaker 6: mixed use, where families can be close to where they
Speaker 6: need to go to work and where they have economic opportunity.
Speaker 6: But we haven't planned that way, and I think there's
Speaker 6: no magic bullet. But there are a whole series of
Speaker 6: things that can help. And I agree with you if
Speaker 6: they're incentives that should come with expectations of mixed income,
Speaker 6: or that they're because the math is tough. COVID was
Speaker 6: kind of a perfect storm on affordability. So the gap
Speaker 6: between what a cost to build a unit of housing
Speaker 6: for habitat or for a private developer and what a
Speaker 6: family can afford is the widest in history. So we
Speaker 6: do have a real math problem, and I think there
Speaker 6: are different ways to solve it. We've seen at the
Speaker 6: local and state level. First, you can make it faster
Speaker 6: and easier to build. That doesn't cost cities a lot
Speaker 6: of money, but can make a big difference for builders
Speaker 6: and developers. You can address zoning at the local level,
Speaker 6: get rid of parking minimums, increased density, get a minimum
Speaker 6: lot size. There's a lot of nineteen eighty strategies that
Speaker 6: aren't relevant today that would increase supply. You can do
Speaker 6: accessory dwelling units at the federal level. I think incentives,
Speaker 6: but incentives tied to building at the starter home level
Speaker 6: and increasing the supply, so discounted financing. As the Senate
Speaker 6: has a good bill we supported on the Road to housing.
Speaker 6: The House has a strong bill as well. I think
Speaker 6: there is bipartisan support for doing something on housing, so
Speaker 6: we're enthusiastic administration wants to support it. We know it's
Speaker 6: one of the biggest drivers right now. One in three
Speaker 6: families in the world lives inadequate or substandard housing. One
Speaker 6: in six families in America is spending over half their
Speaker 6: income on housing right now. So the level of cost
Speaker 6: burden families is the highest it's ever been, and a
Speaker 6: lot of historically affordable markets have more than doubled over
Speaker 6: the last six years.
Speaker 5: I think one of the challenges that you raised is
Speaker 5: the local level, and if this stuff is left in
Speaker 5: the control of voters, you oftentimes see pushback against zoning.
Speaker 5: This so called nimbi's not in my backyard. We only
Speaker 5: have thirty seconds left. But how do you get local
Speaker 5: officials to push through this stuff that doesn't end up
Speaker 5: being very popular with people already?
Speaker 6: I think you have to make the moral and the
Speaker 6: economic argument where we're seeing as employers can't hire work
Speaker 6: because they can't afford housing. That starts to turn the pressure.
Speaker 6: If you ask almost any mare in America now, for
Speaker 6: the last three years, housing has been at the top
Speaker 6: of the list of their issues. Governors now would say
Speaker 6: housing is the top of the list. You see conservative
Speaker 6: governors trying to reduce local zoning because they can't get
Speaker 6: enough workers for their new factories or newly recruited jobs.
Speaker 6: So I think it does take getting hearts and minds
Speaker 6: and think about it doesn't have to be housing everywhere,
Speaker 6: but we need density, more density around transit and thoughtful density,
Speaker 6: and I think we have good models for that.
Speaker 2: Jonathan, safe travels and please come back soon. We'd love
Speaker 2: to continue this with us. Jonathan Reckford, CEO Habitat for Humanity.
Speaker 3: This is Bloomberg.
Speaker 5: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 5: up after this.
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch
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Speaker 1: Business app, or watch us live on YouTube to come.
Speaker 2: Yeah, eighteen minutes to go, just under eighteen minutes.
Speaker 3: I kind of have lost track today.
Speaker 2: It's been a weird hour and a half or so,
Speaker 2: if you will, in terms of we've obviously been focusing
Speaker 2: a lot, lot of Davos, the President speaking, and then
Speaker 2: we did see some comments when it comes to Greenland,
Speaker 2: and we did see equities certainly moving higher, so some
Speaker 2: enthusiasm coming back into the markets. But it's been a
Speaker 2: lot again in a twenty four hour news cycle.
Speaker 5: I want to bring in Gregory Peters, Co, Chief investment
Speaker 5: Officer of PGIM Fixed Income. The firm has about a
Speaker 5: one and a half trillion dollars in AUM, more than
Speaker 5: a trillion at pGEM Fixed Income. He joins us here
Speaker 5: in the Bloomberg Interactive broker's studio. I had to kind
Speaker 5: of rip up the intro that we were going to
Speaker 5: do for you because a lot has happened just in
Speaker 5: the last half hour. I want to start with the
Speaker 5: Greenland comments because it moved treasuries long end took another
Speaker 5: leg higher. In late trading, President Trump said he reached
Speaker 5: the framework deal on Greenland after speaking with NATO Secretary
Speaker 5: General Mark Ruda at Davos. The view of US treasuries
Speaker 5: right now, did it change for you at all this week?
Speaker 5: With the pushback from some Europeans who say the US
Speaker 5: is not worth investing in right now, it's not credit worthy.
Speaker 5: The President's changing dialogue about Greenland? Is it nois or
Speaker 5: is it meaningful?
Speaker 10: I think it's both.
Speaker 9: So just because there hasn't been a sustained reaction today
Speaker 9: doesn't mean there's not medium to longer term implications. You know,
Speaker 9: I do believe that over time you'll see less enthusiasm
Speaker 9: to invest in US treasuries.
Speaker 10: Will that happen right now? No?
Speaker 9: You know, you see it in the TICK data, you
Speaker 9: see it in other data. The flows are still pretty
Speaker 9: sizable into you know, treasuries.
Speaker 10: But now what we're seeing, what we're hearing.
Speaker 9: Particularly outside of the US, is just less enthusiasm and
Speaker 9: this quote unquote passive allocation away from treasury, So you're
Speaker 9: just less likely.
Speaker 5: Why less enthusiasm? What are the reasons given?
Speaker 9: Well, it manifests itself through this notion of risk slash
Speaker 9: term premium, right, you know the back end, and if
Speaker 9: you kind of look at the US versus you know,
Speaker 9: other jurisdictions, it's still pretty flat. You know, Japan's a
Speaker 9: classic example which there's been a massive repricing oh SQL
Speaker 9: that that takes money out of treasuries into jgbs as well.
Speaker 9: And so what we're seeing and hearing from Japanese investors
Speaker 9: is that the finance for a very very long time,
Speaker 9: it's more advantageous for them to remain in their local
Speaker 9: market instead of going outside.
Speaker 10: So that's one factor.
Speaker 9: But you know, these things just take time, and everyone
Speaker 9: wants this immediacy, this snap reaction, and I don't think
Speaker 9: the market works that way. It's too large of a
Speaker 9: market and it's too well entrenched. But it's over time
Speaker 9: will get a better sense.
Speaker 3: So what does that mean then for the USL curve
Speaker 3: over time?
Speaker 10: Well, I think the curve is poised to steep end.
Speaker 10: If you look at the US curve as.
Speaker 9: An example, it's stole, not even at like the average
Speaker 9: steep levels, and it seems to me the risk out
Speaker 9: there is above average. You look at other places globally
Speaker 9: curves are steeper. You look at the fiscal trajectory that
Speaker 9: points to a steeper curve. You look at you know,
Speaker 9: inflation dynamics, you know, being just more robust, and what
Speaker 9: we saw, you know, the previous ten years. So I
Speaker 9: think all these things point to a steeper curve. And
Speaker 9: you know, that's kind of my view and the bias there.
Speaker 3: What gets us there and how quickly do we get
Speaker 3: there in terms?
Speaker 9: Well, you know I knew exactly that, but these things
Speaker 9: do take time, right, So it's not going to be
Speaker 9: immediate impact. So my thought, my view, our view is
Speaker 9: that over the course of this year, you'll just see
Speaker 9: it continued steepening. So even though the markets responded a
Speaker 9: lot this week, there's a lot of informational content in
Speaker 9: the price section. So you mentioned the markets have rallied
Speaker 9: in the face of kind of the latest news, but
Speaker 9: it's still hasn't completely retraced, right, So now what you're
Speaker 9: seeing is these more negative moves more pronounced than the
Speaker 9: positive and it's not being offset one for one. I
Speaker 9: think there's value in seeing that, and I think that
Speaker 9: tells you a lot about the trend.
Speaker 7: Is this.
Speaker 2: If it was a different administration, different policies, would we
Speaker 2: see this trade? Would we see this conversation? And I
Speaker 2: guess I'm going back to Greg thinking about how much
Speaker 2: of this has to do with the fiscal situation of
Speaker 2: the United States government. It's not other countries have similar
Speaker 2: problems or some problems, but I keep thinking about the
Speaker 2: US situation.
Speaker 3: Yeah, So is it something.
Speaker 2: Again specific to policies that we are seeing in this
Speaker 2: White House or is it No, it's something that's been
Speaker 2: building in the US government fiscal house.
Speaker 10: It's both.
Speaker 9: I mean, you look at you you look at the
Speaker 9: US fiscal situation. It is just you know, continuing to worsen,
Speaker 9: all right, And so there was a step function higher
Speaker 9: during the pandemic. That's a global phenomena, as you mentioned.
Speaker 9: So fiscal is a problem everywhere, which somewhat perversely helps
Speaker 9: out the US in a way. But you know, I
Speaker 9: do think, you know, the latest fiscal stimulus coming through
Speaker 9: comes out of cost. And then I do think just
Speaker 9: how policy is being conducted has an impact on foreign investors,
Speaker 9: and you put it all together, and I think that's
Speaker 9: what matters. So it's not a single event, it's a
Speaker 9: bunch of things put together.
Speaker 5: Well, we're here, we're sort of hearing this rhetoric come
Speaker 5: out of folks at Davos. We've got a great story
Speaker 5: that does a round up of this on the Bloomberg terminal.
Speaker 5: One of those p get Gopinath, formerly of the IMF,
Speaker 5: said it's clear that investors no longer consider the US
Speaker 5: the secure borrower that it once was.
Speaker 3: Is she right?
Speaker 9: I think that's a little melodramatic and I don't think
Speaker 9: that's right. But at the end of the day, the
Speaker 9: more debt to GDP you have, the worser fiscal finances are,
Speaker 9: the closer you are to that tipping point. One of
Speaker 9: the scary aspects about this type of environment is that
Speaker 9: there is no magical number things. Just markets move, investors
Speaker 9: lose faith, and you can't pinpoint exactly the precise.
Speaker 10: Time around it.
Speaker 9: But if we learned anything what happened in France, UK,
Speaker 9: even you know now in Japan, is the tie of
Speaker 9: having kind of heightened debt to GDP with just called
Speaker 9: administrative political instability has a tendency of you know, wreaking
Speaker 9: havoc on the bond market.
Speaker 2: I do just think about, especially in the US situation,
Speaker 2: we talk about the birth rate going down and aging
Speaker 2: population tapping into more you know, safety nets if you will.
Speaker 3: It just we've seen this picture before, right you think.
Speaker 2: About Japan and some other nations. It just feels like
Speaker 2: a lot of nations are moving towards this are pushback
Speaker 2: against immigration, and I just I'm curious at a time
Speaker 2: where certainly more Americans are relying on the financial markets
Speaker 2: for retirement and things like, it just feels a little
Speaker 2: messy and a little ugly here of how this all
Speaker 2: kind of ultimately plays out.
Speaker 9: Yeah, I mean it's always you know, filling darkest or
Speaker 9: worse when you're going through it. But you know, there's
Speaker 9: a lot of positives going on as well. You know,
Speaker 9: there's lots of focus on you know, AI as an example,
Speaker 9: and what does that mean for productivity? And if you
Speaker 9: just think about productivity, productivity through the lens of death sustainability,
Speaker 9: if you get fifty basis points of uplift and productivity,
Speaker 9: that actually changes the whole fiscal trajectory. You go from
Speaker 9: kind of a baseline of one hundred and seventy percent
Speaker 9: of GDP down to about one hundred and seventeen percent.
Speaker 9: So there are some real positives here as well. But
Speaker 9: you know, on the immigration side, you're quite right. We've
Speaker 9: seen this story elsewhere. We saw it in Japan, We're
Speaker 9: definitely going to see it in China.
Speaker 10: We see it across Europe.
Speaker 9: And what has been a saving grace for the US
Speaker 9: from an economic standpoint, this is not a political statement.
Speaker 9: From an economic standpoint, has been actually immigration.
Speaker 5: Oh yeah, you just have to look at the numbers.
Speaker 5: I mean, it's not a political statement at all. We
Speaker 5: talked about this this all the time, so absent that
Speaker 5: what happens.
Speaker 10: Well, then we're very similar to these European countries.
Speaker 3: I got to ask you about the FED.
Speaker 2: It seems like the President did make some comments and
Speaker 2: saying I'm down to three, I'm down to two, I'm
Speaker 2: down to one, but he hasn't mentioned it's been I know,
Speaker 2: we've heard this for the last month or so. What's
Speaker 2: your comfort in feeling that whoever whomever gets this job,
Speaker 2: it will be still an independent FED and we keep
Speaker 2: report reminding everybody it's one vote, but it's a FED
Speaker 2: chair vote and their ability to maybe sway other members
Speaker 2: of the Federal Reserve. Do you have confidence it still
Speaker 2: remained an independent FED.
Speaker 10: I think what we saw last week was crucial.
Speaker 9: The pushback from Powell, the pushback from policymakers across the aisle,
Speaker 9: business leaders and alike, I think had this perversely positive effect.
Speaker 10: On keeping the independence.
Speaker 9: But I think it's also important to remind yourselves that
Speaker 9: independence isn't a binary function, right, It's a continuum. Yeah,
Speaker 9: so one person chair in and of itself will not
Speaker 9: dramatically shift the FED. But you know, credibility is key
Speaker 9: there and if you have a more credible FED chair
Speaker 9: to pull individuals along, then that's you know, helpful. And
Speaker 9: the mirror example is a good one where you know,
Speaker 9: he has been kind of an outlier at each meeting
Speaker 9: and his ability to kind of coalesce and pull people
Speaker 9: with him just just hasn't been there, right, And so
Speaker 9: I think that is quite telling.
Speaker 5: The short list does that include people who are independent?
Speaker 5: In your view er, could be or will be independent?
Speaker 10: I don't know.
Speaker 9: I you know, I do have faith in institution, but
Speaker 9: you know, the way this whole poler game has been conducted.
Speaker 9: I mean, it has to be called in a question,
Speaker 9: but ultimately I think it does hold. And you know,
Speaker 9: you're a FED chair, you know, you worry about your legacy,
Speaker 9: you know, and I think just being a puppet for
Speaker 9: the administration is something that I don't think anyone wants.
Speaker 10: As part of their legacy. So hope springs with Turner
Speaker 10: on this one.
Speaker 2: The one thing I would say, though, important that we
Speaker 2: do because we think about the mandate and inflation, because
Speaker 2: it does feel like we're going to see inflationary pressures persist,
Speaker 2: and that is something that we have to ensure that
Speaker 2: We've got a FED that you know, wants to deal
Speaker 2: with that and keep it in check.
Speaker 9: And that's absolutely essential. So one of the risk factors
Speaker 9: that we have for this year is this overheating scenario.
Speaker 9: There's a lot of stimulus coming through the system. You know,
Speaker 9: as we mentioned, if you have easier financial conditions that
Speaker 9: pushes it through. You have rates lower that pushes it through,
Speaker 9: and the tendency will be for inflation to move higher.
Speaker 9: It's already above the two percent target. And if there's
Speaker 9: a perception by the market that the FED is ignoring inflation.
Speaker 9: Then they're basically waging war against their own credibility and
Speaker 9: that'll manifest itself in the marketplace through steeper curves, higher
Speaker 9: term premium and five year five year break even is
Speaker 9: a really important measure, and it hasn't moved to be
Speaker 9: fair because to me, that's the ultimate FED credibility measure.
Speaker 9: And if you look at that measure, it's.
Speaker 2: Unmoved right Without it, though, you would see a lot
Speaker 2: of nervousness and volatility, no doubt about it.
Speaker 9: Because credibility is tried to inflation, right, so exactly one
Speaker 9: big guess or the other, and so to ignore it is.
Speaker 10: Ignoring at your own peril.
Speaker 3: Super appreciate it. Thank you so much.
Speaker 10: Thank you for having Gregory.
Speaker 2: Peters Co, Chief Investment Officer pageon fixed income joining us
Speaker 2: right here in studio.
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