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Speaker 2: We mentioned some breaking news has been listening just in
Speaker 2: the last few minutes regarding the media deal that we
Speaker 2: just can't stop talking about.
Speaker 3: Yeah, and that just can't seem to get done because
Speaker 3: it goes back and forth. One of brothers Discovery planning
Speaker 3: to reject Paramount Skuidances hostile takeover bid due to concerns
Speaker 3: about financing and other terms. Let's see what our Felix
Speaker 3: Jellette has to say about this. He covers the media
Speaker 3: space for us so closely here at Bloomberg. So I
Speaker 3: do feel like that back and forth, back and forth
Speaker 3: the time to really kind of read the tea leaves.
Speaker 4: What do you make about this latest reporting.
Speaker 5: I mean, I think it's not entirely surprising, right, Paramount
Speaker 5: lost the initial round of bids and to Netflix and
Speaker 5: then came out with the public hostal offer.
Speaker 6: But it was the same offer that the.
Speaker 5: Board had already rejected, essentially, so we're all essentially waiting
Speaker 5: for them to review it again, you know, and then
Speaker 5: essentially say, oh, you know what we actually did, like
Speaker 5: the Netflix a bid more, and that'll toss the ball
Speaker 5: back into Paramount's court, and I think they're going to
Speaker 5: have to come back with a better offer, more money,
Speaker 5: something way of addressing the concerns about financing that Warner
Speaker 5: Brothers board has had all long.
Speaker 2: Does Paramounts Guidance have that money? I mean Larry Ellison's
Speaker 2: worth two hundred and forty billion dollars, Yeah, two hundred
Speaker 2: and nineteen billion dollars of that is tied up in
Speaker 2: Oracle stock.
Speaker 7: Yeah.
Speaker 5: Well, I think there's questions that have not been addressed,
Speaker 5: even though the Ellisons have said one way or another, oh,
Speaker 5: we actually did address all these concerns about the financing.
Speaker 5: You know, initially there was money from ten Cents which
Speaker 5: caused some concern that was taken out or whatever. So
Speaker 5: there were there have been adjustments made, but you know,
Speaker 5: I think at this point it's officially going to go
Speaker 5: back to them again and they'll probably have to come
Speaker 5: up with something more, whether it's more money or whatever,
Speaker 5: addressing those concerns that remain.
Speaker 3: You know, I lost track in terms of feel like
Speaker 3: the Paramount Skydance deal because it was Jared Kushner's investment
Speaker 3: firm and there was I think some Saudi investors and like,
Speaker 3: do you help me understand because it feels like I
Speaker 3: thought that was a lot of the financial offer.
Speaker 2: Like it was diversified at I felt like the rather
Speaker 2: of money to come in, well they were ponying up.
Speaker 3: It felt like a lot of money. But I'm not
Speaker 3: quite so sure because if Larry Ellison is still so
Speaker 3: important to this offer, yeah, like is it a much
Speaker 3: smaller portion it was.
Speaker 6: I mean, they've made adjustments.
Speaker 5: So it's like, I think what probably what the Warner
Speaker 5: Brothers Discovery board is saying, they want more assurance that
Speaker 5: it's from Larry Ellison, that that money feels, you know,
Speaker 5: better from a regulatory perspective if you can get the
Speaker 5: money from Ellison, the Ellison family versus these other sources
Speaker 5: that have been part of financing deal from the beginning,
Speaker 5: such as the Middle East you know Middle East money,
Speaker 5: you know money that from Tencent, Like I said that
Speaker 5: was taken out Jared Kushner, which again might help with
Speaker 5: the White House, but might raise other concerns.
Speaker 2: Yeah, I'm glad you brought that up, because Carol brought
Speaker 2: up just a few weeks ago what happened when Rupert
Speaker 2: Murdoch wanted to buy Fox and what a challenge it
Speaker 2: was for him to do that because of foreign ownership
Speaker 2: of a broadcast network and the hoops that he had
Speaker 2: to jump through in order to do that. Okay, so
Speaker 2: we I still have a lot of questions and unanswerable
Speaker 2: at this point about what this deal looks like. Let's
Speaker 2: just say, for the sake of simplicity, Netflix wins out. Yeah,
Speaker 2: Netflix actually gets these assets. Netflix gets HBO. You wrote
Speaker 2: the book on HBO. This is a wild world that
Speaker 2: we're living in. If Netflix actually gets this, what does
Speaker 2: it mean for consumers? I mean, is this is this
Speaker 2: good for us?
Speaker 6: Well?
Speaker 5: Netflix would say, oh, it's going to be great because ultimately,
Speaker 5: with lower prices, you know, we'll have you know, we'll
Speaker 5: be able to be more flexible in terms of bundling.
Speaker 6: Just consolidation, usually lower prices. That's very nice.
Speaker 2: I'm just asking I'm just asking a rhetorical question.
Speaker 5: I think you've seen a lot of voices in Hollywood
Speaker 5: raising concern immediately about Netflix taking winning this deal because
Speaker 5: it's going to be so much consolidation of power.
Speaker 6: Now Netflix has said.
Speaker 5: Well, you know, really you have to look at the
Speaker 5: broader universe of people's attention. And now people are on
Speaker 5: TikTok and they're on YouTube and all these other things.
Speaker 5: But really, in this subscription video on demand world, Netflix
Speaker 5: is already the market leader. If you add in all
Speaker 5: of these assets from HBO Max, they're going to be
Speaker 5: you know, more than four hundred million uh subscribers around
Speaker 5: the world. They're going to absolutely, so utterly dominate the
Speaker 5: subscription video business that I think people are going to
Speaker 5: be like, yeah, who are There's going to be no
Speaker 5: one else to sell to, and that's going to be
Speaker 5: for the business overall. Ultimately, it'll cost consumers more money
Speaker 5: down the lone.
Speaker 3: Yeah, that feels about right. Hey, why is this so
Speaker 3: difficult to get this done? Why is this one so difficult?
Speaker 5: Well, I mean people trying to you know, make these
Speaker 5: assets you know, more valuable from Warner Brothers Discovery for
Speaker 5: twenty years. I mean, you're going back to AOL time Warner,
Speaker 5: which again was around what the two thousands, so, you know,
Speaker 5: and then AT and T made a run at trying
Speaker 5: to make these assets work for them.
Speaker 6: Then you had Discovery come in.
Speaker 5: It's a you know, a challenge that has enticed so
Speaker 5: many different people and yet has always proven more difficult
Speaker 5: in reality than on paper for you know, decades.
Speaker 3: Now, what's the risk that somebody overpays ultimately, Like, I
Speaker 3: feel like there's there's been so much in terms of
Speaker 3: media assets, and we know the media landscape, you know
Speaker 3: better than most how it continues to change and evolved.
Speaker 4: So I'm just curious.
Speaker 5: Well, I think the idea is like, you know, you
Speaker 5: have the biggest library, you have the most selection for
Speaker 5: your viewers. It's going to drive subscribers. People are going
Speaker 5: to engage with it. You're going to you know, have
Speaker 5: more subscribers coming in. But the problem is always how
Speaker 5: do you arrange those assets? How do you arrange those
Speaker 5: shows and movies on a small app in a way
Speaker 5: that's enticing and available. I mean, I think the problem
Speaker 5: that Discovery has had with Warner Brothers Discovery is that
Speaker 5: you know, piling and all these reality shows into these
Speaker 5: into HBO, Max didn't actually increase engagement at all. In fact,
Speaker 5: it just kind of like a lot of those shows
Speaker 5: and programs just get lost in the mix and no one,
Speaker 5: no one watches them. So that's the problem is you
Speaker 5: end up paying for a bunch of things that don't
Speaker 5: actually drive engagement.
Speaker 3: Well, here's this Jared Kushner's affinity withdrawing from the Warner
Speaker 3: Brothers Takeover Battle.
Speaker 6: Yeah, okay, I mean again, that would make sense.
Speaker 5: It would lower some of the concerns from state attorney generals,
Speaker 5: anyone that like is worried about what paramount and Nellison's
Speaker 5: would do with things like CNN.
Speaker 2: If so, that makes Paramounts Guidances offer more attractive to
Speaker 2: Warner Brothers Discovery.
Speaker 5: I think it makes it simpler, and that's a little
Speaker 5: bit more attractive in terms of again, if you're willing
Speaker 5: to just if Larry Ellison will just put up the
Speaker 5: money and backs up this whole thing, that that's the
Speaker 5: easiest way.
Speaker 4: For any historical share price.
Speaker 2: So much of his wealth is tied up or he
Speaker 2: only has twenty billion rights only, but he is basically
Speaker 2: eighteen according to the Bloomberg Billionaire indecks, basically eighteen billion
Speaker 2: dollars worth of net worth that is not tied up.
Speaker 3: Wait to go back to this headline that just crossed
Speaker 3: Jared Kushner's affinity withdrawing from the Warner Brothers takeover battle.
Speaker 4: That you say makes.
Speaker 3: The paramount's guidance potentially more attractive.
Speaker 5: From the Warner Brothers Discovery Boards perspective potentially also, Yeah,
Speaker 5: although at the same time, you know, it's a two
Speaker 5: edged sword because then it's also you know, will that
Speaker 5: make it harder for the regulatory approval down the line
Speaker 5: in terms of getting approval from you know, the Department
Speaker 5: of Justice and Trump's White House. You know, will they
Speaker 5: without the sun and law involved, does that make it harder?
Speaker 5: I mean, I think there's a lot of questions on
Speaker 5: both sides of this, and it's going to continue to
Speaker 5: play out in the week's ahead.
Speaker 2: Okay, So one question that we have is about the
Speaker 2: global linear networks, because Netflix's deal does not include CNN, TNT,
Speaker 2: Cartoon Network. I mean, the list certainly goes on when
Speaker 2: it comes to these assets that not that many people
Speaker 2: really want right now. What's the fate of those If
Speaker 2: Netflix wins this bid.
Speaker 5: Well, it'll be spun off into a separate company before
Speaker 5: the bid, before the acquisition takes place.
Speaker 2: Like a publicly traded company, a separate.
Speaker 5: Publicly traded company discovered, probably called Discovery Global.
Speaker 6: That's the plant at this point.
Speaker 5: And yeah, those assets are still throwing off profits, but
Speaker 5: the viewership is the client across the board. There's a
Speaker 5: lot of other cable networks out there right Comcast is
Speaker 5: in the process of just spinning off a bunch of
Speaker 5: bits additional cable assets. So you know, at some point,
Speaker 5: does somebody come along and roll all of those assets
Speaker 5: into one company. There's probably some you know, synergies if
Speaker 5: you combine them in one place. But yeah, it's managing
Speaker 5: the declining asset over time.
Speaker 3: I just want to mention because a Bloomberg story just crossing.
Speaker 3: So Jared Kushner's Afinity partners exiting from the takeover battle
Speaker 3: for Warner Brothers Discovery. A representative for the firm said,
Speaker 3: Affinity there they say they now believe the dynamics of
Speaker 3: an investment have changed since it became involved in the process.
Speaker 4: In October.
Speaker 3: Here's a quote with two strong competitors vying to secure
Speaker 3: the future this unique American asset, Affinity has decided no
Speaker 3: longer to pursue the opportunity. We continue to believe there
Speaker 3: is a strong strategic rationale for Paramount's offer.
Speaker 5: Right, Well, I mean that's the thing is. I think
Speaker 5: when you put Jared Kushner in the mix. On the
Speaker 5: one head again, you think, oh, maybe they'll improve their
Speaker 5: ability to get it through regular Tory concerns faster under
Speaker 5: Trump's administration. On the other hand, it raises all these
Speaker 5: other political objections from progressive states, including California and New York,
Speaker 5: where a lot of entertainment assets are located. So yeah,
Speaker 5: there's there's definitely problems of bolt.
Speaker 2: Well, even without Affinity Partners, Paramount's offer is being bankrolled
Speaker 2: by a list of influential Middle Eastern investors, Saudi Arabia's
Speaker 2: public Investment Fund, Qatar Investment Authority, as well as a
Speaker 2: little known group from Abu Dhabi called Limad Holding Company.
Speaker 2: Kushner had does have strong ties to at least he
Speaker 2: founded Affinity in twenty twenty one with funding from sovereign
Speaker 2: wealth funds from the region. Carol, as you say, it's complicated.
Speaker 3: It's complicated this one is, which means it will be
Speaker 3: coming because it ain't over yet either, not Felix Jillette.
Speaker 4: Thank you so much, So appreciated.
Speaker 3: Felix, of course covering the media space for us, as
Speaker 3: we said, wrote the book on HBO.
Speaker 2: Yeah, the book It's Not TV The Spectacular, Rise, Revolution
Speaker 2: and Future of HBO. Get that book now if you
Speaker 2: haven't read.
Speaker 4: Felix is media and entertainment editor. So thank you so much.
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 2: up after this.
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Speaker 4: Live on YouTube.
Speaker 3: We're going to stay on the macro with a financial
Speaker 3: sector emphasis and great to have back with us.
Speaker 4: Chris Whale and chairman of Whale and Global Advisors. He
Speaker 4: worked at the New.
Speaker 3: York FED in the eighties. He's testified before Congress and
Speaker 3: the SEC. Worked on Wall Street. I forgot that you
Speaker 3: worked at bear Stearns.
Speaker 4: And some other.
Speaker 3: Written many books and also served on the Economic Advisory
Speaker 3: Committee of FINRA for over a decade.
Speaker 4: And you also ward consultants of billions.
Speaker 5: Was that right?
Speaker 7: Yes? It was great fun they were buying a bank.
Speaker 4: They were buying a bank, and they wanted to know.
Speaker 7: Yeah, they were trying to you know, finagle regulators. It
Speaker 7: was a typical billions kind of script.
Speaker 2: Well, out of the entire resume that Carol just mentioned,
Speaker 2: was that the most fun working on Billions?
Speaker 7: No, I think the most fun was early days working
Speaker 7: at bear Stearns in London, you know, selling bonds. That
Speaker 7: was a lot of fun. We had a blast.
Speaker 4: Well tell us about like it's funny.
Speaker 3: You know, I love talking with someone like you because
Speaker 3: you have seen just kind of how the financial sector
Speaker 3: has changed a lot, Chris right, and the stress points
Speaker 3: that we've seen, certainly the financial crisis and elsewhere when
Speaker 3: you look at We just talked with Mike about some
Speaker 3: of the macro backdrop, and we've talked with you about
Speaker 3: specific risks.
Speaker 4: But does it feel comfortable today.
Speaker 3: Kind of the environment in your view compared to what
Speaker 3: we've seen in the past.
Speaker 8: No.
Speaker 7: I was going through the third quarter numbers for the
Speaker 7: big bank holding companies, which the FED just released. Yeah,
Speaker 7: day seventy five after the quarter closed. That's the best
Speaker 7: that they can do, and it's eerie. The credit costs
Speaker 7: are trending down the asset returns, thank god, or getting
Speaker 7: back to normal about one point five percent. But there's
Speaker 7: a lot we don't see, and that's what's worrying people.
Speaker 7: Whether you talk about oracle, where you talk about private credit,
Speaker 7: what people are worried about today is what they don't
Speaker 7: see in the data because they know that a lot
Speaker 7: of this is being fudged. And that's what worries me
Speaker 7: as well. What do you think is being fudged things
Speaker 7: like loan losses. There's a lot of forbearance here in
Speaker 7: New York City for multi family apartments. Our new mayor
Speaker 7: is threatening to start taking over buildings the landlords are
Speaker 7: not keeping up to his standards. Well, the city in
Speaker 7: New York can't afford to take care of them either,
Speaker 7: and so we have this accumulation of pressures, mostly caused
Speaker 7: by inflation, mostly caused by our friends at the FED.
Speaker 7: But in their defense, why did they do that? Because
Speaker 7: we told everybody they didn't have to pay their loans
Speaker 7: and their rent for two years during COVID. People forget that.
Speaker 7: In the mortgage industry. In March of twenty twenty, we
Speaker 7: were all looking at one another going, what are we
Speaker 7: going to do. This is after President Trump the player
Speaker 7: of the emergency and said you don't have to pay
Speaker 7: your bills. Yeah, well, the FED came to to rescue
Speaker 7: by dropping raised to zero because of a surge of home
Speaker 7: lending activity record volumes, and that float was borrowed to
Speaker 7: help everybody pay their bills.
Speaker 3: So why aren't we seeing more stress in the credit
Speaker 3: markets and why are we seeing records on Wall Street?
Speaker 4: And like it sounds like then some disconnect.
Speaker 7: I think part of the reason that the Street has
Speaker 7: been doing well listed stocks is because you have a
Speaker 7: lot of liquidity coming out of private markets. Going back
Speaker 7: into more liquid markets makes sense, right. Private equity, private
Speaker 7: credit is a mess, and we all know this. Something
Speaker 7: like fifteen percent of private equity companies in the US
Speaker 7: are paying in cond rather than in cash.
Speaker 3: So you notice waiting for the year to like the
Speaker 3: exits and for things to move on.
Speaker 7: There's a lack of demand from banks for loans except
Speaker 7: in one category, non depository financial companies, which is another
Speaker 7: way of saying private equity funds, credit shops like Areas
Speaker 7: and Apollo. They're the ones that have been aggressively expanding
Speaker 7: their business using money in part from banks. So the
Speaker 7: banks are now the facilitators. And what does this remind
Speaker 7: us of Carol the two thousands? Right right, it's the
Speaker 7: same thing. You have non bank intermediation, relying on the
Speaker 7: bond market, equity markets, and bank credit, and the thing
Speaker 7: is eventually they're going to stumble, and that's what everybody's
Speaker 7: worried about it.
Speaker 4: So what does that stumble look like?
Speaker 2: What is the shoe that drops?
Speaker 7: It looks like First Brands, Hello, we're defaulting. And most
Speaker 7: people had never focused on that company. It was a private,
Speaker 7: totally institutional play. The same thing with Tricolor auto lender
Speaker 7: that you know half of their customers were illegal aliens.
Speaker 7: Nobody had ever focused on this. It was an institutional
Speaker 7: story that suddenly surged.
Speaker 2: So you think those two instances are canaries in the
Speaker 2: coal mine.
Speaker 7: I think they are typical of what we're going to
Speaker 7: see more in the future, which is you're going to
Speaker 7: see more of the missteps in the institutional, non public market,
Speaker 7: which was supposedly better. Remember everybody was selling us the
Speaker 7: idea that private was better than public. No, we have
Speaker 7: public markets because they were open and relatively liquid.
Speaker 3: Chris, you know, after the Jamie Diamond cockroach comment that
Speaker 3: there were many members in the private world that came
Speaker 3: out or a few, I should say that came on
Speaker 3: our air, and that seemed to say, hey, listen, things
Speaker 3: are fine, and I understand many would say they're talking
Speaker 3: their book, But you know, are.
Speaker 4: They systemic risks?
Speaker 3: Like what's the exposure with the traditional financial sector when
Speaker 3: it comes to the private markets, Because I think that's
Speaker 3: what we care most about right now.
Speaker 7: I think the private players can fail tomorrow. It will
Speaker 7: cause a bit of kurfluffle and volatility in the markets.
Speaker 7: But are they systemic like a big bank. No, But
Speaker 7: the big banks will take their lumps too, because they
Speaker 7: are lending indirectly into these structures. They tend to take
Speaker 7: the most senior positions, but that may not save them.
Speaker 7: You see the assumption that Okay, I'm senior and three
Speaker 7: quarters of the stack is below me, and therefore I'm okay.
Speaker 7: That may not work this time around because you have
Speaker 7: leverage on leverage on leverage in some of these deals.
Speaker 3: So when so when like the big banks report again,
Speaker 3: we're getting ready for another earning.
Speaker 4: Cycle, right, you know, we'll get that, you know, in
Speaker 4: early early January.
Speaker 3: So what do we look for for things like that,
Speaker 3: like what do you look for The.
Speaker 7: New yors are going to be wonderful. That's what worries me,
Speaker 7: you know, just as an analyst. We were supposed to
Speaker 7: have a recession last year. Credit losses largely peaked last
Speaker 7: year third fourth quarter. Yeah, they've been coming down since then.
Speaker 7: So if you look at the picture, you say, God,
Speaker 7: everything is great. You don't see a lot of utilization.
Speaker 7: You don't see a lot of demand from the banks
Speaker 7: for credit. They've got a ton of unused credit out
Speaker 7: there that they wish people would use. But so you
Speaker 7: don't see stress in the published numbers, where you see
Speaker 7: stresses when you talk to professionals, when you read the
Speaker 7: really interesting media like Bloomberg and others to cover some
Speaker 7: of these stories. There was a great piece in the
Speaker 7: Ft over the last week talking about Altus, a company
Speaker 7: that Jamie Dimond came to the rescue of paid off
Speaker 7: their most restrictive loans so that they go out and
Speaker 7: borrow more money. So like and all of the credit
Speaker 7: guys that you're talking about looked at Jamie Dimond and
Speaker 7: they're going, hello, what are you doing. Yeah, so he's
Speaker 7: an enabler of bad behavior. Because Jamie has to go
Speaker 7: out and make money too, in a market where there
Speaker 7: isn't a lot of you know what I would call
Speaker 7: quality demand, Which reminds me of.
Speaker 4: What would happen in the Great Financial Crisis.
Speaker 3: Of people saying, I know it's getting messy and ugly,
Speaker 3: but there was it. The CEO of City at the time,
Speaker 3: I think who I came out and made some comment
Speaker 3: about I got to be in it.
Speaker 4: Like, oh no, that's right, Yeah, that was the I
Speaker 4: can't think of the.
Speaker 7: Temporary CEO Whoah, you know replaced John Reid.
Speaker 4: But I'm just saying, like this idea of like feeling
Speaker 4: like you have to be in it the pressure of it,
Speaker 4: yes and no.
Speaker 7: I think that some institutions have the common sense to
Speaker 7: pull back and say no, others don't. I'll give you
Speaker 7: an example P and C. P and C has the
Speaker 7: lowest loss rate in the top seven banks. They've always
Speaker 7: also got one of the lowest funding costs. That's a
Speaker 7: fairly well run half trillion dollar bank that has managed
Speaker 7: to avoid risk. I think often by saying no, the
Speaker 7: street wanted them to get more involved in certain things
Speaker 7: like prime brokerage, dealing with private equity funds that sort
Speaker 7: of thing, and they said no. So I think there
Speaker 7: are institutions that are very well run in this market.
Speaker 7: But again, the banks are underutilized because the non bank
Speaker 7: financial companies have stolen their march and they are going
Speaker 7: to the customer and they're using wholesale funding from the
Speaker 7: big banks, and they're in turn disintermediating them.
Speaker 2: At the same time, christ we want to talk a
Speaker 2: little bit about AI too in the time that we
Speaker 2: have left. We've talked about it with you before circular financing.
Speaker 2: We're not sure how it all plays out in the
Speaker 2: economy and what it has to do with productivity and
Speaker 2: with economic growth. Weighing in on AI in its potential
Speaker 2: economic impact. Ken Griffin of Citadel speaking with Bloomberg's Danny
Speaker 2: Berger a little earlier today at a conference in Paris.
Speaker 2: Check out what he said.
Speaker 9: I think there is some chance that we will see
Speaker 9: meaningful progress in this field that will change the calculation
Speaker 9: that i'm or calculus that I'm setting forth, Like there
Speaker 9: are so many bright people in their twenties and thirties
Speaker 9: trying to unlock trying to unlock true intelligence, that this
Speaker 9: does create the environment in which a breakthrough may happen.
Speaker 9: But I think that generit of AI as we know
Speaker 9: today will have a very pointed, but relatively limited impact
Speaker 9: on the broader economy.
Speaker 2: Appointed but relatively limited impact on the broader economy. Ken
Speaker 2: Griffin of Citadel earlier today, What in your view is
Speaker 2: the impact of AI on this economy?
Speaker 7: I think it's incremental better search tools. You know, we're writers,
Speaker 7: So is he right?
Speaker 4: I think he?
Speaker 7: And frankly I read a lot of the long haired
Speaker 7: stuff on AI. So of the people in the scientific community,
Speaker 7: and they tell you the same thing. Because this is
Speaker 7: a third or four fifth time that we have talked
Speaker 7: about AI. You go back to the seventies and the eighties.
Speaker 7: Remember Watson IBM, which was a fiasco, but it was
Speaker 7: their way of showing what new technology could do. But
Speaker 7: is it creating general intelligence?
Speaker 5: Now?
Speaker 7: So it was all this waste?
Speaker 2: Is all this waste?
Speaker 7: No, it's marketing, you know, never Yeah, but.
Speaker 4: That's a lot of market to spend.
Speaker 7: Yeah, but that's Look, everything in the US economy is
Speaker 7: about marketing, Okay, it doesn't matter what it is. And
Speaker 7: if it's attached to a stock, then you know it's marketing.
Speaker 7: In video, I've made a ton of money on in video.
Speaker 7: I'm very grateful to mister Wang, but is he going
Speaker 7: to have changed the world. No, what we're doing is
Speaker 7: building a lot of infrastructure. We're spending a ton of money,
Speaker 7: not so much on building AI, but preparing to have
Speaker 7: the capacity to do it, mostly by studying the past.
Speaker 7: To me, that's not AI. AI is when a machine
Speaker 7: can start to observe what's around it and react and
Speaker 7: determine what to do next based on what it sees,
Speaker 7: not because of you know, it's studied our language for
Speaker 7: the last fifty years, so you're.
Speaker 3: Understood, Like the whole idea of AI is all the
Speaker 3: data that's put in from the past.
Speaker 4: You think that, Okay, that's your take, Well we have
Speaker 4: Are you still in on video?
Speaker 7: No? I got out, I got out. I wrote it up.
Speaker 7: It's split. I wrote it up again. It's split. But
Speaker 7: it gets to be a third of my portfolio. I've
Speaker 7: got to take the money and run, you know. With
Speaker 7: all due respect to Jim Kramer, who I'm very grateful
Speaker 7: to for getting me into the stock, but.
Speaker 2: It sounds like you're saying that this that we're in
Speaker 2: a bubble with, at least with the spat of course
Speaker 2: we are.
Speaker 7: That's what humans do. That's what marks what happens when
Speaker 7: they follow the shiny object. What happens when the bubble pops.
Speaker 7: We're going to see that a lot of the spend
Speaker 7: for AI will not be compensated with revenue growth that's
Speaker 7: going to help to pay it off. An oracle I think, unfortunately,
Speaker 7: a great company is the poster child for this. They
Speaker 7: were following the crowd. They decided to double down and
Speaker 7: do even more. And the truth of the matter is
Speaker 7: one large language model. If all of the tech companies
Speaker 7: had gotten together and said, look, let's do this together, right, right.
Speaker 7: But the other problem I think is the metaphors that
Speaker 7: we use in this conversation is race with China. The
Speaker 7: Chinese don't use metaphors like that. When you listen to
Speaker 7: them talk about AI. It's part of a broader range
Speaker 7: of initiatives that they're trying to use to give them
Speaker 7: an advantage in the global economy. They don't see it
Speaker 7: as a race. This is all marketing hype, and we
Speaker 7: have to differentiate between the technology and the sell. Okay,
Speaker 7: it's like we used to say about a IBM. Never
Speaker 7: mistake sales with delivery.
Speaker 4: No all right, we gotta leave it there. Thank you, Billy,
Speaker 4: appreciate it my pleasure.
Speaker 3: Chris Well and Chairman of Whale and Global Advisors, joining
Speaker 3: us here in studio.
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 2: up after this.
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch
Speaker 1: us live weekday afternoons from two to five Easter and
Speaker 1: listen on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 3: Hey, we talked about the market, the US jobs market
Speaker 3: earlier with Michael McKee. It's sluggish, not rapidly deteriorating. And
Speaker 3: we did see that data that came out saw traders
Speaker 3: refraining from boosting bets on your term fed rate cuts,
Speaker 3: setting stock slower and bonds wavering.
Speaker 4: So we're not you know, it's not like.
Speaker 3: All of a sudden traders are saying, Okay, we're going
Speaker 3: to get more rate cuts because of that labor data
Speaker 3: we got this morning.
Speaker 2: Yeah, a reduction is fully priced ined by mid next year,
Speaker 2: you should not. But we're not seeing those bets go.
Speaker 4: Up, no, exactly.
Speaker 3: I'm curious to see what our next guest has to say,
Speaker 3: specifically about the US labor market. Let's head to the
Speaker 3: Bloomberg News Bureau in DC to someone well known to
Speaker 3: our Bloomberg audience. She was formerly chief economist over at
Speaker 3: ZIP Recruiter. She's Uliah Pollock and she's chief economists for
Speaker 3: the US Department of Labor. Julia, Good to have you
Speaker 3: back here on Bloomberg. How worried are you about rising unemployment?
Speaker 8: I'm not so This report over states understates the strength
Speaker 8: of the labor market right now because there are two
Speaker 8: huge temporary distortions at play in the data here. The
Speaker 8: first is one hundred thousand or more federal workers who
Speaker 8: took the fork and came off payrolls and some of
Speaker 8: them have gone into temporary frictional unemployment. And the second
Speaker 8: big distortion in this report is the Schumer shutdown, which
Speaker 8: forced nine hundred thousand federal workers off the job. But
Speaker 8: it also led to weakness in the private sector because
Speaker 8: it forced work stoppages for federal contractors and led to
Speaker 8: temporary layoffs there. So I expect the unemployment rate to
Speaker 8: jump back down very soon.
Speaker 2: What about the youth unemployment right the rising and rising
Speaker 2: youth unemployment. Are you concerned about that?
Speaker 8: So you know the unemployment rate is exactly where it
Speaker 8: was when President Trump first took office in his first term,
Speaker 8: and he has a track record of bringing it all
Speaker 8: the way down to three point five percent. We have
Speaker 8: a bigger challenge this time because of the Biden inflation hangover,
Speaker 8: which forced the Fed to slam the brakes on the economy,
Speaker 8: and that has hurt marginal workers the most. But we
Speaker 8: are setting the stage for a huge comeback in twenty
Speaker 8: twenty six and beyond with the One Big Beautiful Bill Act,
Speaker 8: which has hugely stimulative policies, and you'll see those macro
Speaker 8: stimulative effects build into twenty twenty six. They are things
Speaker 8: like like expensing fast and accelerated, full and accelerating expensing
Speaker 8: for business investments, no tax on tips, no tax on overtime,
Speaker 8: no tax on social security.
Speaker 3: So, Julie, if I may just jump in, just because
Speaker 3: we only have about five minutes left here. So it
Speaker 3: sounds to you like that there's and we've heard this
Speaker 3: certainly from guests here on Bloomberg, more liquidity coming into
Speaker 3: the market, things to support economic growth. It sounds like
Speaker 3: you said that the labor picture is actually better than
Speaker 3: what the data showed, So it sounds to me then
Speaker 3: that the FED is correct, Jay Powell is correct and
Speaker 3: being are you know, actually forgive me what your sounding
Speaker 3: like you're saying is that maybe the FED doesn't need
Speaker 3: then ultimately to be cutting rates. That things actually look
Speaker 3: pretty rosy for twenty twenty six.
Speaker 8: So I think the reason that UH employment growth, the
Speaker 8: job growth slowed so dramatically between mid twenty twenty two
Speaker 8: and mid twenty twenty four is that rates were high.
Speaker 8: And the longer rates stay restrictive, the more of the
Speaker 8: economy gets hurt, the more businesses have to refinance, the
Speaker 8: double the rate, the more families go out there and
Speaker 8: try to buy a home and find that it's just unaffordable.
Speaker 8: So rates right now are still restrictive, and they are
Speaker 8: still a problem for much of the economy.
Speaker 4: But you said were you said you weren't concerned about
Speaker 4: rising unemployment. So I'm a little confused.
Speaker 8: Well, the FED has a duel mandate full employment on
Speaker 8: the one hand, and price stability, and this president has
Speaker 8: shown that his policies delivered both. In the first Trump administration,
Speaker 8: we had non inflationary growth, and you can do that
Speaker 8: with policies that don't throw fuel on the fire of
Speaker 8: demand and restrict supply, but do the exact opposite. So
Speaker 8: through deregulation, through reshoring incentives, we're going to see this
Speaker 8: labor market take off again and in a non inflationary way.
Speaker 2: Well, on the resharing part of this motivation for resharing
Speaker 2: on sharing, imposing tariffs to bring back the Midwest, to
Speaker 2: revitalize what many consider the American dream. Secretary Bessett has
Speaker 2: said it's been harmed by global trade. The manufacturing industry,
Speaker 2: though it keeps shedding workers, when can we expect the
Speaker 2: data to reflect progress that the administration is trying to
Speaker 2: make in restoring that American dream.
Speaker 8: So the economy shed manufacturing jobs for about two years
Speaker 8: before President Trump took office. Again, this latest report shows
Speaker 8: the largest increase in construction jobs in over a year.
Speaker 8: And that's really the front end of those investments in
Speaker 8: mining and energy and manufacturing, and there is signal that
Speaker 8: manufacturing job growth will pick up.
Speaker 3: So, okay, you know, you look at the labor market,
Speaker 3: I mean in terms of initiatives that will potentially help the.
Speaker 4: US labor market.
Speaker 3: You know, the conversation around artificial intelligence at your j
Speaker 3: Powell even addressed it in saying it hasn't impacted US
Speaker 3: jobs yet, So I'm just curious how are you factoring
Speaker 3: that into as you look at some of the upcoming
Speaker 3: moves the President ramping up in terms of hiring people
Speaker 3: to really focused on technology AI specifically in the administration,
Speaker 3: so looking to make more investments so that the US
Speaker 3: certainly has a dominant role. I'm just curious how then
Speaker 3: you factor that into your estimates for the impact on
Speaker 3: the US labor market.
Speaker 8: Well, the AI boom is driving huge demand for workers
Speaker 8: in the skills trades, in advanced manufacturing, and of course
Speaker 8: workers with AI skills, and it is our job at
Speaker 8: the Labor Department to ensure that US workers are prepared
Speaker 8: for those jobs of the future. For the first time,
Speaker 8: labor policy and education policy of pulling in the same direction.
Speaker 8: We've aligned labor and education for the first time ever,
Speaker 8: and we are now focusing very heavily on getting workers
Speaker 8: access to job connected training that sets them up for
Speaker 8: in demand jobs and that doesn't push them to expensive
Speaker 8: degrees that leave them with nowhere to go.
Speaker 2: Let's talk personnel a little bit. We're curious about why
Speaker 2: it's taken so long to make another nomination as BLS commissioner.
Speaker 2: Is your name in the ring? Is your hat in
Speaker 2: the ring?
Speaker 8: I have no idea. You'd have to ask the President.
Speaker 2: That would you if you were asked, would you serve
Speaker 2: as that?
Speaker 7: Well?
Speaker 8: I think there is a tremendous amount of work to
Speaker 8: do there tracking AI's labor impact, improving the timeliness, the granularity,
Speaker 8: the accuracy of the data, and I have at the
Speaker 8: Labor Department made it my priority to push forward a
Speaker 8: very aggressive labor market data modernization agenda that puts workers
Speaker 8: and learners first and gives them more access to the
Speaker 8: data collected on them. So right now, I love partnering
Speaker 8: with the BLS on all of those kinds of initiatives,
Speaker 8: and I am happy to serve in whatever role the
Speaker 8: President sees fit.
Speaker 2: If we're thinking just thirty seconds, but if we're thinking
Speaker 2: about previous commissioners, how will this nominee or this next
Speaker 2: commissioner be different just twenty seconds?
Speaker 8: Thanks, I have no idea, but I think that whoever
Speaker 8: comes in has a very clear mandate from the President
Speaker 8: to put workers, learners at the center of what we do,
Speaker 8: to change the data paradigm to a real time data paradigm,
Speaker 8: and to make sure that the data is accurate and
Speaker 8: has the utmost integrity.
Speaker 3: All right, Julia, thank you so much. Julia Apollo chiep
Speaker 3: economists for the US Department of Labor.
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 2: up after this.
Speaker 1: You're listening to the Bloomberg Business Week Daily podcast. Catch
Speaker 1: us live weekday afternoons from two to five Easter and
Speaker 1: listen on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 10: I've been driving on that man's went on.
Speaker 4: Well, let's take a drive. Drive, yeah, drive, Can you.
Speaker 5: Just focus on driving, focus on the roasting your.
Speaker 4: Car, drive, boss, because I'm asking to you, you just
Speaker 4: taking place in the draft.
Speaker 7: Just drive, baby.
Speaker 4: Let's see this is the drive to the clothes.
Speaker 1: But we're going we don't need road.
Speaker 3: On Bloomberg Radio, all right, everybody, We are just about
Speaker 3: eighteen minutes away from the closing bell on Wall Street.
Speaker 3: Carol Master Timstanevik live across Bloomberg platforms here at Bloomberg headquarters,
Speaker 3: and we're seeing some buying as we get closer to
Speaker 3: the closing bell here and I'm just looking at what
Speaker 3: you've got an S and P five hundred though that's
Speaker 3: still a little bit lower down about five points here,
Speaker 3: but definitely off its worst levels of the session. Now's
Speaker 3: that one hundred, now one hundred and seven points to
Speaker 3: the upside, tim and that's good for a game of
Speaker 3: about four tenths of a percent.
Speaker 2: All right, Let's bring in Larry Patowski's co founder and
Speaker 2: managing partner and portfolio manager of good Haven Capital Management.
Speaker 2: He joins us here in the Bloomberg Interactive Brokers studio
Speaker 2: in person, in the flesh.
Speaker 10: In person. It is nice to be here in this
Speaker 10: studio with you both.
Speaker 2: Great, it's been many years.
Speaker 10: Last time, it's been a long time. Then we do
Speaker 10: this remotely. It seems like the two of you are
Speaker 10: having a lot more fun in the studio than I
Speaker 10: am in my office in New Jersey. Plus you have
Speaker 10: the unlimited snacks you know in the lobby, so I figured,
Speaker 10: what the heck comes?
Speaker 2: Well, You're welcome anytime, and thanks for braving the cold
Speaker 2: for coming in. Hey, we want to talk about Berkshire Hathaway.
Speaker 2: We want to talk about Lenar, but I want to
Speaker 2: talk about the macro economy and sort of what the
Speaker 2: outlook looks like for twenty twenty six, and the market
Speaker 2: environment looks like for twenty twenty six. How are you
Speaker 2: thinking about the new year and asset allocation?
Speaker 10: I am thinking that the market, there's plenty of pockets
Speaker 10: in the market that are expensive. The market overall is
Speaker 10: certainly not cheap. The economy seems okay. And I have
Speaker 10: the luxury, which I have it a little easier than
Speaker 10: you folks. You have to, you know, every day, every minute,
Speaker 10: have a somewhat of a thoughtful conclusion on everything. I
Speaker 10: have the luxury.
Speaker 4: You are so wrong about that.
Speaker 10: I get that's luxury saying I don't know, and nobody's
Speaker 10: yelling at me if I say I don't know. So
Speaker 10: I look at the landscape and say, it is what
Speaker 10: it is. But we've been fortunate. It good even to
Speaker 10: be able to, you know, keep turning over rocks and
Speaker 10: finding things that are undervalued. And I think the portfolio
Speaker 10: itself is attractive.
Speaker 3: Is it still hard to be your value MidCap player?
Speaker 3: Is it still hard to be a value player. I'm
Speaker 3: looking at the fun up about eight percent year to date.
Speaker 3: Three year, we're looking at average annual returns of almost
Speaker 3: twenty percent, which puts you in the ninety seventh percentile
Speaker 3: five year about sixteen percent on average anually according to
Speaker 3: Bloomberg data, ninety eight percentile. So longer term some really
Speaker 3: outperformance there.
Speaker 4: But is it harder right now?
Speaker 10: To still it's always hard. I mean it's always hard,
Speaker 10: and you if you want to outperform over the long term,
Speaker 10: you can't outperform over every period. But it's always hard.
Speaker 10: But you should enjoy continuing to look under rocks and
Speaker 10: you should expect. As I've written to people for a
Speaker 10: long time, you know, there's periods of you know, the
Speaker 10: three and five year which you call at which we appreciate,
Speaker 10: or you know, numbers we're proud of, and you know,
Speaker 10: we think the portfolio is set up very nicely on
Speaker 10: an go forward basis. But it's always hard. But it's
Speaker 10: always also interesting and it's never boring.
Speaker 2: Okay, So let's talk about some of these individual stocks.
Speaker 2: I want to start with Leonar and the opportunity that
Speaker 2: you see with Lennard. It's one of the biggest holdings
Speaker 2: in the fund.
Speaker 10: Why are you bullish coming out of the Great Financial Crisis?
Speaker 10: It appears that we have still been undersupplied in single
Speaker 10: family homes. You can believe whichever statistic you want, is
Speaker 10: there a two million undisplayed three four five? And so
Speaker 10: isn't that.
Speaker 3: Amazing how we went from oversupply and empty homes to undersupply?
Speaker 3: Oh you know White, You know, you don't.
Speaker 10: Usually go to other extremes and sometimes they stay there
Speaker 10: and everybody remembers how bad that period was. But the
Speaker 10: other interesting thing, you know, there's so many fast changing
Speaker 10: parts of the economy out there, and in good Haven
Speaker 10: we often say it ourselves, wait, what's not changing? What
Speaker 10: industry might not be changing that fast that I could
Speaker 10: have a strong view of what it might look like
Speaker 10: in three, five, seven, ten years. Single family housing. Lenore
Speaker 10: is the second biggest builder after Wharton.
Speaker 2: It is a lower price point than some of the
Speaker 2: competitors two.
Speaker 10: Hundred thousand dollars price but you know, so are you
Speaker 10: know Horton Poulte, you know, or a lot of them
Speaker 10: are in the ranged hole is a million bucks. But
Speaker 10: the industry and Lenora, you know, I think is leading
Speaker 10: the way is becoming what we would call a better business,
Speaker 10: higher returns on capital, higher returns on equity. They have
Speaker 10: taken what was a historic balance sheet that had a
Speaker 10: lot of land and they've spun that out, so and
Speaker 10: they're now repurchasing shares in a material way. And I
Speaker 10: think your timing is very good to have me on
Speaker 10: to discuss this because they report earnings after the close today.
Speaker 10: The near term we expect to be somewhat tepid. That's
Speaker 10: an opportunity potentially, So you have a business that now
Speaker 10: has the ability to earn high returns on capital, repurchase shares,
Speaker 10: the price earnings multiple. Maybe they earn around eight books
Speaker 10: for a little while, but the opportunity is that if
Speaker 10: they embark and continue to succeed in the strategy they've
Speaker 10: embarked on, you could imagine earnings at twenty bucks or
Speaker 10: so a couple of years down the road as margins
Speaker 10: return to twenty twenty four levels, units are up five
Speaker 10: six percent, you know, a year on average, and the
Speaker 10: share kind of comes down.
Speaker 3: Why are they in a position to show and get
Speaker 3: better return on capital?
Speaker 4: Higher return on capital because it's spinatically.
Speaker 10: Because they've taken a balance sheet which had a lot
Speaker 10: of land, and they've spun that out into a company
Speaker 10: called Milrow, and now they've got a leaner balance sheet, okay,
Speaker 10: which gives them the ability to have higher returns on capital.
Speaker 10: They're not tying up so much capital in land okay,
Speaker 10: And they also will generate free cash flow throughout the cycle.
Speaker 10: The industry was a little boom and bust historically when
Speaker 10: they you know, they didn't really generate cash except when
Speaker 10: they shrunk. And so here is and this is a
Speaker 10: very well articulated, well throwed out plan. Again, the near
Speaker 10: term should be a bit tepid, but so what, I
Speaker 10: think you're creating a better business model for the long term.
Speaker 4: And so Larry.
Speaker 3: It has more to do with their strategy versus a
Speaker 3: lower rate environment or people finally getting off the fence
Speaker 3: and buying homes.
Speaker 4: It's a little bit of every strategy.
Speaker 10: But I think the bigger players in the industry are
Speaker 10: in different ways embracing becoming better businesses. And the other
Speaker 10: interesting thing is that if I gave you one hundred
Speaker 10: million bucks and I said go compete with Lenar, with Horton,
Speaker 10: with Poulte, with MVR, with Toll, I think it would
Speaker 10: be very hard to do. So I think these companies
Speaker 10: the new home market has taken share from the existing
Speaker 10: home market because they have levers to pull. They have
Speaker 10: leverage and buying supplies and operating and marketing.
Speaker 4: It's hard to be new.
Speaker 10: It's hard. It's hard to not admire where they're going.
Speaker 2: Before we let you go, we got to get you
Speaker 2: awayh on On, Berkshire, Hathaways. It's your top holding in
Speaker 2: the fund. Greg Abel takes the reins next year. You're okay,
Speaker 2: you're keeping all your shares.
Speaker 10: We are for sure keeping all our shares. We made
Speaker 10: Berkshire a very big holding in the covid Or. Our
Speaker 10: return since then have been strong. This is a management
Speaker 10: team and a board with decades and decades of success.
Speaker 10: I think it is appropriate to assume that mister Buffett
Speaker 10: and the late mister Munger, after sixty years of great decisions,
Speaker 10: have made a thoughtful decision on succession, and you have
Speaker 10: to admire how well it's been laid out and articulated
Speaker 10: in the selfless way. Mister Buffett is stepping aside and
Speaker 10: letting mister Abel write the letter, be on the podium
Speaker 10: at the meeting, letting him really, you know, write candy
Speaker 10: right if you will, let them, let him run the show.
Speaker 10: So we are. We admire how it's been done, and
Speaker 10: we think it's the kind of thing where you should
Speaker 10: give them the medefit of the doubt that it is
Speaker 10: a sensible and well thought out plan which we do well.
Speaker 1: Fun.
Speaker 4: Have you in studio? Yeah, come again sooner I will.
Speaker 2: We would love it and help yourself to any snacks.
Speaker 10: I'm going to load up my backpack.
Speaker 6: Old school. You're not the only one to do that.
Speaker 10: Old school.
Speaker 4: I love God, I love the popcorn.
Speaker 3: Larry pitcass Sky, co founder, managing partner, portfolio manager, Goodhaven Capital.
Speaker 4: Manage it right here in studio.
Speaker 1: This is the Bloomberg Businessweekdaily podcast, available on Apple, Spotify,
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