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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moven news.

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Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 3: We are joined now by Brian moynihan. He's chair and

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Speaker 3: CEO of Bank of America. Brian, thanks for being here.

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Speaker 3: We're here for the Aspen Economic Strategy Group meetings, of

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Speaker 3: which you are apart. It is about the economy, and

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Speaker 3: last time we talked, you were projecting at Bank of

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Speaker 3: America a recession, mild recession, maybe Q four in the

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Speaker 3: Q one next year. You've changed your mind.

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Speaker 4: Why?

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Speaker 5: Well, first of all, it's a great setting. It's a

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Speaker 5: beautiful setting, and there's a lot of great people here

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Speaker 5: to talk about the economy. But our team basically has

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Speaker 5: moved from a slight recession to no recession. And so

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Speaker 5: in the early next year first quarter, second quarter they

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Speaker 5: had a slight negative quarters they now having positive one

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Speaker 5: percent and a half of percent positive, but more importantly

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Speaker 5: behind that is what's really going on. In terms of

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Speaker 5: the unemployment rate projections, they're now four point three peak

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Speaker 5: unemployment in the latter part of twenty four early twenty five.

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Speaker 5: You're saying that's sort of an unemployment was slow down,

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Speaker 5: which is really what's going on, and we can talk

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Speaker 5: more about it, but that's what's really going on is

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Speaker 5: people employed, they have money, they're spending money, and the

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Speaker 5: FED is trying to slow down the economy, and it

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Speaker 5: looks like we're reaching a pretty good equo.

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Speaker 3: Aby you've said, it's hard to have a recession when

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Speaker 3: you've got unemployment in the foes, that's all.

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Speaker 4: They hard to do.

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Speaker 3: But what are you seeing in terms of jobs? Is

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Speaker 3: there any softening in the market at all? Are that

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Speaker 3: you're seeing at Bank America or more broadly, well, if

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Speaker 3: you look.

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Speaker 5: At if you talked to our clients, you sort of

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Speaker 5: see very specialized roles. Welders are still in high demand,

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Speaker 5: even because construction is going on in the IRA and

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Speaker 5: all the different building That's one thing, but in general,

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Speaker 5: if you take our companies example, last year this time

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Speaker 5: it was a great resignation. Turnover was back up to

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Speaker 5: fifteen percent, which was higher than pre pandemic. It's now

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Speaker 5: down to seventy eight percent. Last year we heard thirty

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Speaker 5: seven hundred people in the month of June. This year

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Speaker 5: hard nine hundred, I mean. And yet headcount keeps drifting down,

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Speaker 5: and so I think a lot of employers are doing

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Speaker 5: that same thing, which is managing headcount carefully.

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Speaker 6: And that's why you've.

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Speaker 5: Seen job openings drop by twenty percent in the last

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Speaker 5: twelve months or so. It doesn't mean people laying a

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Speaker 5: lot of people off. That's happening here and there, really

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Speaker 5: specialized industries, but people are being much more of conservative

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Speaker 5: their employment. Last year, it was your post to every

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Speaker 5: job known de mand because you didn't know what was

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Speaker 5: going to happen. Now, with the lower turnover, the labor

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Speaker 5: market is a lot looser this year that was last year,

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Speaker 5: although the unemployment rate is still low.

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Speaker 3: One of the things you have a lot of vantage

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Speaker 3: into is consumer spending. At back of America, what are

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Speaker 3: you seeing in consumer spending? The commersumer seems to still

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Speaker 3: be spending, maybe softening a little bit, But how much

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Speaker 3: dry powder do they have? Because we had thought that

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Speaker 3: a lot of excess savings they can still express. We're

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Speaker 3: now hearing for example, credit card bounces are really going up.

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Speaker 4: Yeah.

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Speaker 5: So if you think about a consumer, it's their wages

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Speaker 5: and wage growth, it's the money they have in their

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Speaker 5: accounts from the stimulus and other things that went into

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Speaker 5: their accounts during the pandemic. It's their ability to borrow,

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Speaker 5: and then it's a rate at which they have to

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Speaker 5: pay to borrow. And so if you think about all that,

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Speaker 5: what we see is consumer spending. If we were talking

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Speaker 5: last year's time, it was ten percent year every year,

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Speaker 5: and that was inconsistent with a low inflation economy. That

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Speaker 5: now is down to five percent. So you've seen to

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Speaker 5: drop by half and so year to date it's five percent.

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Speaker 5: Month of July it's four and a half percent, so

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Speaker 5: you're seeing it slow down. And what is spending at

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Speaker 5: in the month of July is consistent.

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Speaker 6: With a lower inflation.

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Speaker 5: It's very much like it was in seventeen, eighteen and

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Speaker 5: nineteen as a FED raised rates in economy sort of

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Speaker 5: settled in. And so I think there's always been this

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Speaker 5: battle between the consumer and the FED, and the consumer

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Speaker 5: has pushed the won the battle back a bit, but

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Speaker 5: they got to be careful of overwinning it now and

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Speaker 5: now the risk really goes to overtightening and slowing down

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Speaker 5: the consumer too much, and then we would have a recession.

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Speaker 3: Well, let me take the flip side of that a second.

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Speaker 3: I want to talk about soft landing. Also, some people

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Speaker 3: are saying maybe they won't won't have a landing now

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Speaker 3: is what's the risk actually of inflation reaccelerating here because

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Speaker 3: they haven't gone far enough.

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Speaker 5: Well, I think I think our economy is sincs A.

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Speaker 5: Chances that are low, and I think I agree that

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Speaker 5: personally and our team under Cannas Browning Platt is one

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Speaker 5: of the best teams in business and they're good at

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Speaker 5: But what there's see what the drag of higher rates

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Speaker 5: comes through very quickly in housing instantaneously transmitted car purchases,

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Speaker 5: things which happen faster. But with a line share, the

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Speaker 5: mortgage is half for more undred three percent, And you

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Speaker 5: really think about only half of the who people who

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Speaker 5: live in America have a mortgage. It tied up in

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Speaker 5: our housing they rent and other things it's rent and

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Speaker 5: its new home purchases. Those both are UNDERTA those have

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Speaker 5: now mitigated. So you're seeing inflation come under control. Even

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Speaker 5: these places are rate sensive. What you haven't seen is

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Speaker 5: the impact in corporate Yet that's still ahead of us.

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Speaker 5: Because corporations, barring costs went up, they're starting to their

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Speaker 5: activity is that they're using the lines less, which means

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Speaker 5: they are finding less opportunities which overcome that borrowing cost.

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Speaker 5: They're being more conservative on their debt. They've got to

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Speaker 5: refinance some stuff. Good news is a lot of finance

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Speaker 5: at lower rates and that has turned to it.

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Speaker 6: But commercial real.

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Speaker 5: Estate, the debate is so a lot of the fiscal drag,

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Speaker 5: the drag from raising rates is still ahead of us.

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Speaker 5: And that's why I think people forgetting that. They're still

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Speaker 5: a pretty constraining lending conditions are tighter. Just at the

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Speaker 5: Senior Loan Officers survey.

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Speaker 6: Just said it.

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Speaker 5: So the impact is more in front of us for

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Speaker 5: some of the rate increases and behind us. Yet you're

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Speaker 5: seeing it already tip inflation flattening out, not down yet

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Speaker 5: with flattening out, and we still say it takes till

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Speaker 5: twenty five to get back to the target rates.

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Speaker 3: What does all that mean for Bank of America the

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Speaker 3: way you run your business. You had a very strong quarter,

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Speaker 3: particularly in trading and sales last quarter. Are you doubling

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Speaker 3: down on that or are you being a little more conservative.

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Speaker 5: Well, the trading and sales team, Jimmy Tomorrow, the team

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Speaker 5: have done a great job and they had the best

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Speaker 5: first half they've had and we've earned fifteen billion dollars

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Speaker 5: plus in the first half of this year. The team's

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Speaker 5: performing strong, the credits in great shape. Stress test just

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Speaker 5: went on and our losses were lower than they were

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Speaker 5: last year. And we're been the lowest of our peers

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Speaker 5: for almost every year except for one. Have the last

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Speaker 5: twelve or thirteen stress tests. So you put that all together,

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Speaker 5: we're well prepared for whatever comes at us, and that's

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Speaker 5: what we do. Jimmy and the team had done a

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Speaker 5: great job in training, but about three or four years ago,

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Speaker 5: first under Tom Montaggon and Jimmy took over all the trading.

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Speaker 5: We increased the size of balance, the scope, the capitol,

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Speaker 5: committed to business, the talent, and they've been able to

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Speaker 5: get a good payback on that. You know, the way

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Speaker 5: they do it is, you know, we made money every

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Speaker 5: trading day. If you look back across the last several years,

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Speaker 5: it's very rare. Maybe a couple of times a quarter

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Speaker 5: will lose money. We just basically the team runs a

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Speaker 5: great business and they're doing a great job.

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Speaker 3: The markets woke up yesterday to announcement of the Fitch

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Speaker 3: downgrade in the US sovereign debt and there's a debate

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Speaker 3: debate about whether that was the right timing, was the

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Speaker 3: right thing, and the bomb marker now is actually responding

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Speaker 3: a little bit to that. What's your take on that

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Speaker 3: D rating?

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Speaker 5: Well, I think it's a bit of a non event

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Speaker 5: in the sense that, you know, the US has the

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Speaker 5: ability to pay its debts and has shown that ability.

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Speaker 5: It's sometimes interesting how we get there with a debt

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Speaker 5: ceiling increase and things like that, but they get there.

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Speaker 5: It's the strongest economy world by a lot. It's the

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Speaker 5: biggest economy, strongest economy. It's worth capital comes to them

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Speaker 5: from around the world. Great incentives in the US for

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Speaker 5: companies around the world to invest and grow here at

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Speaker 5: the IRA, the Infrastructure Act, A, Chips Act, et cetera,

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Speaker 5: et cetera. The tax rates are lower, which makes it

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Speaker 5: more competitive. So I don't worry about the fundamental ability

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Speaker 5: of PAARA debts. But if you separate the downgrade into

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Speaker 5: two PAGs, is one is you know, sort of the

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Speaker 5: debts that continue to accumulate, and will they start to

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Speaker 5: outstrip the growth in the economy because right now, with inflation,

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Speaker 5: they've been kept at a lower level. That's a question. And

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Speaker 5: then secondly, is their willingness to deal with that, and

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Speaker 5: that's that's an honest debate. But the two sides have

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Speaker 5: to have that debate, and that's a political process and

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Speaker 5: they have to have it. But the reality is the

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Speaker 5: action downgrades a person holds three hundred million dollars more treasuries,

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Speaker 5: it doesn't change our opinion of the US's credit winess.

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Speaker 3: Well what about that holding the US treasure Because as

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Speaker 3: you suggest, there is an issue at some point down

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Speaker 3: the road, it's not clear what it would be. I mean,

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Speaker 3: you talk about the process, the political process, it doesn't

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Speaker 3: give a lot of comfort. That's one of the things

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Speaker 3: that Fitch said, Actually, you know, we got a problem,

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Speaker 3: but also we got a process that doesn't seem to

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Speaker 3: be able to deal with it.

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Speaker 5: Yeah, And I think that goes back to the structural

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Speaker 5: changes in America. You know, the demographics, the demands on

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Speaker 5: social security and the t you know so called and

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Speaker 5: title what's over time as a percentage demands, Those are

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Speaker 5: serious issues. That you know, the political process and the

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Speaker 5: citizenry has to be involved in not solvable in ten minutes.

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Speaker 5: And so that's all good, and that's what we're talking

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Speaker 5: about here at the Aspen Economic Strategy Group. You know,

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Speaker 5: what are the thought processes between balancing those outcomes better?

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Speaker 5: But you know, those are long term questions. In the

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Speaker 5: near term, there's much bigger risk of some of the

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Speaker 5: things that go on outside the United States to the

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Speaker 5: economies of the world than there is inside the United States.

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Speaker 5: We're growing, people are employed, people are spending, and that's

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Speaker 5: good news, and that will get mean that the fiscal

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Speaker 5: receipts of the US will stay a little stronger on

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Speaker 5: a relative basis.

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Speaker 3: How much is it supported simply by the strength of

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Speaker 3: the US dollar. That is to say, people tend to

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Speaker 3: turn to dollars when in doubt.

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Speaker 5: They should because it's you know, it's a safe haven.

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Speaker 5: It's what commerce is conducted in because in the day,

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Speaker 5: the consumption power of the United States drives economies around

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Speaker 5: the world. Therefore there's you know, US consumers spend dollars.

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Speaker 5: So if you're selling stuff in dollars, you got to

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Speaker 5: be exposed a dollar. And so I think the idea

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Speaker 5: of some of this debate about reserve currency status. It's

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Speaker 5: been tightening in the flight to quality, and the US

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Speaker 5: tends to come. Now ten year bonds moved up and

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Speaker 5: everybody gets built up. We're talking about the difference between

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Speaker 5: you know, three eighty three ninety and four ten, four twenty.

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Speaker 5: These are not very big moves in a grand scheme

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Speaker 5: of things. It is tapping quickly, and people get excited

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Speaker 5: about who trade bond is living from the grander impact

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Speaker 5: in economy. Those moves are needed to get the Ultimately,

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Speaker 5: they old curve has to get back and sink or

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Speaker 5: else we aren't taming the inflation or we're going to

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Speaker 5: drive into a recession.

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Speaker 3: When you talk about the strengthening the US dollar, is

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Speaker 3: it stronger today as a reserve currency globally than it

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Speaker 3: was ten twenty years ago?

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Speaker 5: And if so, why because I think the opportunities in

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Speaker 5: the US are the strongest. And that's why, you know,

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Speaker 5: with a great financial system we have, with a great

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Speaker 5: set of companies and innovation, we have the research universities,

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Speaker 5: we have the things like if we keep investing in

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Speaker 5: all that and let capitalism and you know, United States

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Speaker 5: style capitalism drive the US will always be a favorite

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Speaker 5: place because other places are struggling with different systems that

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Speaker 5: proved not to be as beneficial, with less innovation, less

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Speaker 5: ability tackle problems, and so yes, it's interesting from time

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Speaker 5: to time all what goes on. But if you think about,

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Speaker 5: you know, think about the late sixties to now, we've

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Speaker 5: doubled them around. People work United States. We were supposed

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Speaker 5: to be taken over by japan ankeeers. The computers are

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Speaker 5: going to get rid of all the people. The people

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Speaker 5: are still working. You know, we had to more in Vietnam.

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Speaker 5: We had the political constitutional crist This and Nixon presidency.

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Speaker 5: You had an oil and bar. All that stuff happened

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Speaker 5: in the early seventies and still a dec you know,

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Speaker 5: fifty years later, we have twice as many people work

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Speaker 5: in this country.

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Speaker 3: Since we talked last, Brian, and we now have the

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Speaker 3: proposed regulations on capital requirements from the federal bank regulators.

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Speaker 3: We talked before and you said one hundred basis points,

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Speaker 3: as I recall, a difference in the capital requirements would

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Speaker 3: amount one hundred fifty billion dollars lest year loan. Now

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Speaker 3: we have the proposals. What would it mean for Bank

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Speaker 3: of America and for our banking system.

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Speaker 5: Well, what it does is it's not to get too

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Speaker 5: technical in the grand skiving things, but it changes the

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Speaker 5: calculation of risk WEDED asets RWA. And so the idea

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Speaker 5: is that the estimates by the FED is it's fifteen

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Speaker 5: to twenty percent of our WA increase. When you do that,

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Speaker 5: then ten percent of our WA at X and ten

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Speaker 5: percent of our WA at one point one times X

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Speaker 5: means you have to have more capital, and so the

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Speaker 5: amount of capital goes up. That then constraints leny because

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Speaker 5: you can't do anything with that capital. If you did,

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Speaker 5: then you'd have more rw and you have to have

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Speaker 5: more capital. So so but I think if you step back,

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Speaker 5: this industry is well capitalized. It just proved it again

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Speaker 5: in another crisis. It's well managed, it's well rked related.

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Speaker 5: You've had successive FED regime chairs and people working in

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Speaker 5: a chair supervision vice chair over the years say the

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Speaker 5: capital's adequate. Industry, it's well it's well managed as well.

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Speaker 5: Capities they'll be. Banks will fail, they fail, they failed

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Speaker 5: throughout history.

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Speaker 4: That happens.

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Speaker 5: But since the financial crisis, more people under the tent

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Speaker 5: because the issue of the financial crisis a lot of

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Speaker 5: stuff wasn't a tent. The problem is if you get

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Speaker 5: the capital regulations of banking system too tight, you push

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Speaker 5: stuff back outsides of tent. And that's a concern. So

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Speaker 5: as I look at it, one, give a set of.

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Speaker 6: Rules, we'll live with it.

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Speaker 5: Two, it won't you know, bank Americal adjustice business model

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Speaker 5: to make it work. But what's been interesting about this

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Speaker 5: is it's competitive position United States versus Europe and others.

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Speaker 5: This is making the bank industry, all banks less competitive

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Speaker 5: to mid sized US companies than foreign banks are to

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Speaker 5: mid sized US companies participating in a sing globe of

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Speaker 5: supply chains in those countries. That's that's more of a

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Speaker 5: trade question and a balance of power question.

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Speaker 4: That's one.

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Speaker 5: And then second, I'm surprised by the amount of descent

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Speaker 5: that the governors of Federal Reserve. I've been working on

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Speaker 5: Federal Reserve stuff for my whole or forty years now,

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Speaker 5: and I was just surprised the amount of debate, which

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Speaker 5: shows you that you know, whether it's mortgage loans one side,

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Speaker 5: whether it's a tax benefits for and treatment for energy

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Speaker 5: clean energy investments, or whether it's the basic trading and

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Speaker 5: things like that there's been a lot of water that's

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Speaker 5: got to go over the dam here to get these

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Speaker 5: rules right, because there's a debate even among the governors

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Speaker 5: themselves about what the right answer is.

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Speaker 3: Over the years. Brian, you said there's a role for regulation,

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Speaker 3: and you'll live with the regulation as you say you

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Speaker 3: will with capital parts. But what is the problem it's

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Speaker 3: being addressed. That's what I don't quite understand. You talked

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Speaker 3: about the crisis we had back in March with the banks.

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Speaker 3: I'm not sure this addresses that well.

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Speaker 5: And that's been the debate, and that's go read the

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Speaker 5: descents and the debate in the things. So strong regulation

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Speaker 5: is important. Rapid growth in banks tends to come from

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Speaker 5: things that turn out to be not so interesting after

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Speaker 5: the fact, and so I think, you know that's the

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Speaker 5: thing they need to sort of come to a common

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Speaker 5: agreement on Basil three. Across the world. We're just applying

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Speaker 5: it with much more rigidity and requirements. And so if

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Speaker 5: you look at the largest bank in France, UK and Germany,

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Speaker 5: they have about half the capital requirements in the largest

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Speaker 5: banks in US do. So that could send a competitive

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Speaker 5: question and so I think people just have to look

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Speaker 5: at it seriously look at it relative to what we're

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Speaker 5: trying to do here. We want the strongest banking industry.

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Speaker 5: Our banking stry has better returns, has better things. But

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Speaker 5: on the other hand, our multiples are half or less

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Speaker 5: than the SMP multiples. There's a reason for that, which

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Speaker 5: as investors or say, wait a second, if the capital

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Speaker 5: demands don't stop, we aren't sure that we can continue

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Speaker 5: to invest. So there's a little bit of a counter

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Speaker 5: veil here that people have to pay attention to it.

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Speaker 5: And then back to your point, every hundred base of

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Speaker 5: points of capitals, one hundred fifteen hundred billion less loans

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Speaker 5: we at Bank America could do, and this applies across

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Speaker 5: what they can't be done other places. Those companies aren't

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Speaker 5: that size.

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Speaker 3: Man, Brian, thank you so much for spending times. Really

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Speaker 3: appreciate it.

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Speaker 4: That's Brian moynan.

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Speaker 3: He is the share in CEO of Bank of America.

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Speaker 7: You're listening to the team Ken's our live program Bloomberg

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Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot Com,

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Speaker 7: the iHeartRadio app and the Bloomberg Business app, or listening

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Speaker 7: on demand wherever you get your podcasts.

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Speaker 8: We did have another Central Bank decision today. Earlier the

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Speaker 8: Bank of England did raise interest rates to a fresh

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Speaker 8: fifteen year high and raising its key rate to five

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Speaker 8: and a quarter percent. Here and really, as far as

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Speaker 8: the central bankers, they're signaling how the UK still faces

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Speaker 8: a longer period of higher rates. So we want to

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Speaker 8: get straight to our next guest, A Vanias stav Rukiva,

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Speaker 8: who's an economics professor at London Business School, joining us

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Speaker 8: on zoom to break down this latest decision from the BOE.

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Speaker 8: What's your takeaway from this.

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Speaker 9: Hi, it's a pleasure to be here. I think we

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Speaker 9: expected them to hike, given that the core APN numbers

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Speaker 9: is still very high at six point nine percent.

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Speaker 10: Also, it's a bit.

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Speaker 9: Embarrassing for Bank of England to be essentially the central

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Speaker 9: bank of an advanced economy with the highest CPI numbers

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Speaker 9: at this point. I don't think they had a choice

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Speaker 9: but to hike.

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Speaker 1: Professor, here in US, we're seeing inflation come down pretty significantly,

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Speaker 1: although some people call there some areas of stickiness. If

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Speaker 1: you will give us a sense of what's driving the

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Speaker 1: inflation in the UK and why is it perhaps a

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Speaker 1: little bit more stubborn to bring down than in other

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Speaker 1: parts of the world.

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Speaker 9: I think the difference between the UK and the US

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Speaker 9: is around the wage inflation. So the UK is particularly

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Speaker 9: problematic because it got hit by Brexit at the same time,

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Speaker 9: which of course limited the inflow of workers from the Urozone.

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Speaker 9: But also they have other structural problems. So we know

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Speaker 9: that the number of people that long term ill and

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Speaker 9: they cannot return to the labor force is significantly higher

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Speaker 9: in the UK than in other countries. Actually some of

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Speaker 9: the numbers are as high as half a million. Moreover,

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Speaker 9: we are seeing a lot most strikes, of course in

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Speaker 9: the UK. We don't really see that in the US,

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Speaker 9: and they're justified because there were decades of austerity and

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Speaker 9: public sector wages are very y low. I don't think

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Speaker 9: these trends are going to go away. So for example,

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Speaker 9: the fact that they approved public sector wage increase of

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Speaker 9: six percent, given the even you know, course CPR inflation

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Speaker 9: is seven percent, I don't think public sector workers are

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Speaker 9: going to be side with these wages. So I do

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Speaker 9: think that actually strikes are going to continue and this

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Speaker 9: is going to feed into higher wage inflation. Also, wage

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Speaker 9: inflation in the private sector is above seven percent, so

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Speaker 9: wage inflation is the biggest problem in the UK in

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Speaker 9: my opinion.

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Speaker 8: How has also the inflation picture impacted other economies in Europe.

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Speaker 9: So the Eurozone is quite interesting because there is massive

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Speaker 9: hetroogeneta across different countries in the Eurozone. So this is

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Speaker 9: the usual problem when you have a single central bank

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Speaker 9: and many different business cycles. So we know the southern

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Speaker 9: European countries, for example, the inflation rates is significantly lower

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Speaker 9: than Germany, and then you have Eastern EU operator inflation

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Speaker 9: is still very very high. So historically CB has tended

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Speaker 9: to put a higher weight on Germany, oversized weight on Germany,

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Speaker 9: and that has been a problem as well, a political

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Speaker 9: economy problem. And now they're going to have the same problem,

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Speaker 9: right which which economy are going to target when you're

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Speaker 9: fighting inflation. Of course, we're seeing the Eurozone is not

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Speaker 9: really growing at the moment, I mean, at best, their

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Speaker 9: flood the forecast forizationion and you know, the probability of

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Speaker 9: soft lending is much lower in the Eurozone and in

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Speaker 9: the UK relative to the US, So the picture is

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Speaker 9: much gloomier for the eurozones and people even think that

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Speaker 9: maybe they've overdone it at this point. It's unclear how

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Speaker 9: it's going to develop, but it's going to be a

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Speaker 9: biggest struggle given the heatorginating business cycles that we see

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Speaker 9: in the Eurozone.

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Speaker 1: One of the challenges I guess for the Eurozone that's

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Speaker 1: perhaps a little bit more pronounced, is it ties with China.

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Speaker 1: It's reliance on China, but primarily as a trading partner.

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Speaker 1: What's the feeling there, how that will develop because obviously

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Speaker 1: here in the US the tensions continue to be escalated.

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Speaker 9: Yeah, and demand essentially hasn't really recovered in China, right,

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Speaker 9: So the forecast for China and not particularly optimistic. So

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Speaker 9: definitely this is putting a drug on exporting countries such

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Speaker 9: as Germany in particular, and we're seeing that effectively. The

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Speaker 9: growth in Germany is definitely lower, So it will play

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Speaker 9: a factor. I'll be surprised if you don't see at

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Speaker 9: least a mild recession in the Eurozone for sure.

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Speaker 8: How do you think when you're looking at more global

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Speaker 8: central bank policy, when the FED potentially is close to

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Speaker 8: being done, but then you have these other central banks

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Speaker 8: that still have to be aggressive. Can the US economy

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Speaker 8: still be resilient and shielded from these other economies also the.

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Speaker 9: US is a fairly close to economy. So the main

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Speaker 9: way through which the US is connected to essentially our

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Speaker 9: economies is through financial intermediation. Right, so essentially financial markets

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Speaker 9: at global so to the extent that their disruption outside

437
00:18:41,640 --> 00:18:43,520
Speaker 9: of the US, they're going to affect it, But trade

438
00:18:43,800 --> 00:18:46,520
Speaker 9: is more second order for the US. Now, I'm a

439
00:18:46,560 --> 00:18:50,280
Speaker 9: little bit less of the opinion that the US is

440
00:18:50,359 --> 00:18:53,560
Speaker 9: necessarily completely out of the woods. So this soft lending

441
00:18:53,880 --> 00:18:57,280
Speaker 9: narrative about the US is a bit surprising because they

442
00:18:57,320 --> 00:19:00,560
Speaker 9: still have core CPI of four point eight percent, so

443
00:19:00,640 --> 00:19:03,560
Speaker 9: it's not two percent. I am of the opinion that

444
00:19:03,680 --> 00:19:06,240
Speaker 9: is going to be significantly harder for them to get

445
00:19:06,280 --> 00:19:08,639
Speaker 9: it down to two percent. And the problem is the

446
00:19:08,680 --> 00:19:12,280
Speaker 9: following so markets effectively uprising in the soft lending they

447
00:19:12,320 --> 00:19:14,960
Speaker 9: are expecting, you know, the economy is doing better than

448
00:19:15,000 --> 00:19:19,000
Speaker 9: expected as a result. Actually we're seeing that the credit spread,

449
00:19:19,080 --> 00:19:23,639
Speaker 9: so the difference between the high yield corporate debt and

450
00:19:24,119 --> 00:19:26,080
Speaker 9: let's say the treasure is this thing is actually narrowing

451
00:19:26,480 --> 00:19:29,320
Speaker 9: despite the fact that we're increasing interest rates. So that's

452
00:19:29,400 --> 00:19:33,080
Speaker 9: very surprising, and it's showing that actually risk appetite is growing,

453
00:19:33,760 --> 00:19:37,640
Speaker 9: particularly for US assets, and that is making the job

454
00:19:37,720 --> 00:19:41,040
Speaker 9: of the FED harder. Right, So if your credit spreads

455
00:19:41,320 --> 00:19:44,680
Speaker 9: getting more narrow, even if you're increasing base rates, you're

456
00:19:44,720 --> 00:19:48,120
Speaker 9: not that contractionary if you wish, unless at some point

457
00:19:48,119 --> 00:19:50,920
Speaker 9: we start seeing more defaults. So the component, of course,

458
00:19:50,920 --> 00:19:53,040
Speaker 9: you can decompose credit spreads into a component which is

459
00:19:53,080 --> 00:19:56,080
Speaker 9: kind of risk premium risk, aversion component, and component due

460
00:19:56,119 --> 00:19:59,359
Speaker 9: to default risk. If default risk increases and as a

461
00:19:59,400 --> 00:20:01,919
Speaker 9: result credit the increase, then we're going to you know,

462
00:20:02,000 --> 00:20:05,480
Speaker 9: find that essentially growth is going to slow down.

463
00:20:05,320 --> 00:20:06,760
Speaker 10: In the US, but that's not self lending.

464
00:20:07,119 --> 00:20:09,520
Speaker 9: That is going to be profitty recessionary. So I don't

465
00:20:09,560 --> 00:20:12,080
Speaker 9: see how we're going to go down to two percent

466
00:20:12,480 --> 00:20:14,159
Speaker 9: without a recession in the US. But there is a

467
00:20:14,200 --> 00:20:17,000
Speaker 9: second option, which is that the FED actually doesn't really

468
00:20:17,080 --> 00:20:19,439
Speaker 9: care to rush to go down to two percent, and

469
00:20:19,480 --> 00:20:21,600
Speaker 9: they're just going to wait to the next for the

470
00:20:21,640 --> 00:20:24,439
Speaker 9: next shock. Right, So we get another shock which is

471
00:20:24,480 --> 00:20:26,760
Speaker 9: just going to slow down negative demandsion that is going

472
00:20:26,760 --> 00:20:28,880
Speaker 9: to slow down the economy, which is not monetary policy,

473
00:20:29,280 --> 00:20:31,320
Speaker 9: and inflation is going to come down. For example, we

474
00:20:31,359 --> 00:20:35,000
Speaker 9: have elections around the corner, which market's not talking about,

475
00:20:35,040 --> 00:20:38,480
Speaker 9: but elections come with high uncertainty. High uncertainty slows down investment,

476
00:20:38,480 --> 00:20:40,600
Speaker 9: which naturally is going to slow down demand as well.

477
00:20:41,200 --> 00:20:45,080
Speaker 9: So yes, I'm less clear on the soft lending scenario

478
00:20:45,080 --> 00:20:47,440
Speaker 9: in the US than some other market participants.

479
00:20:47,800 --> 00:20:49,439
Speaker 1: All right, doctor, thank you so much for joining us.

480
00:20:49,440 --> 00:20:51,520
Speaker 1: Always appreciate getting your perspective.

481
00:20:51,640 --> 00:20:54,720
Speaker 7: You're listening to the tape cancer on line program Bloomberg

482
00:20:54,800 --> 00:20:58,680
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, Tune

483
00:20:58,720 --> 00:21:00,560
Speaker 7: it up, Bloomberg dot Com.

484
00:21:00,240 --> 00:21:01,720
Speaker 4: And the Bloomberg Business App.

485
00:21:01,720 --> 00:21:04,560
Speaker 7: You can also listen live on Amazon Alexa from our

486
00:21:04,560 --> 00:21:10,480
Speaker 7: flagship New York station Just Say Alexa, play Bloomberg eleven thirty.

487
00:21:10,040 --> 00:21:12,240
Speaker 1: Jess Met and Paul Sweeney here in our Bloomberg Interactive

488
00:21:12,240 --> 00:21:15,359
Speaker 1: Broker Studio, streaming live on YouTube. Go over to YouTube

489
00:21:15,400 --> 00:21:17,440
Speaker 1: and check it out. You can search Bloomberg Global News

490
00:21:17,440 --> 00:21:19,840
Speaker 1: and that's where you'll find this markets. I think they're

491
00:21:19,840 --> 00:21:21,480
Speaker 1: going to turn positive by the end of the day.

492
00:21:21,480 --> 00:21:23,280
Speaker 1: This market just feels like it wants to go hired.

493
00:21:23,280 --> 00:21:25,720
Speaker 1: It's coming off the laws. But what do I know.

494
00:21:26,160 --> 00:21:27,960
Speaker 1: Let's check in with a professional who does this stuff

495
00:21:27,960 --> 00:21:31,840
Speaker 1: for living. Phil Phillip Colemark, Managing Partner and Global strategist

496
00:21:31,920 --> 00:21:34,880
Speaker 1: for MRB Partners Canadian Canadian.

497
00:21:35,160 --> 00:21:36,200
Speaker 11: We've picked that up pretty quick.

498
00:21:36,359 --> 00:21:36,560
Speaker 7: Phil.

499
00:21:36,600 --> 00:21:39,159
Speaker 1: Thanks for joining us here in our Bloomberg Interactive Broker studio.

500
00:21:39,840 --> 00:21:42,639
Speaker 1: You know twenty twenty two is ugly. There was nowhere

501
00:21:42,680 --> 00:21:45,359
Speaker 1: to go stocks, bonds, a sixty to forty portfolio. You

502
00:21:45,400 --> 00:21:50,080
Speaker 1: got crushed only Lisa Bromwits, who owns a big barrel

503
00:21:50,080 --> 00:21:50,640
Speaker 1: of oil.

504
00:21:50,440 --> 00:21:50,959
Speaker 12: In her apartment.

505
00:21:51,000 --> 00:21:53,800
Speaker 1: They made money l last year, but this year a

506
00:21:53,840 --> 00:21:54,280
Speaker 1: lot better.

507
00:21:54,840 --> 00:21:55,440
Speaker 11: What do you guys?

508
00:21:55,520 --> 00:21:58,200
Speaker 1: What's your market call at MRB Partners right here?

509
00:21:58,560 --> 00:22:00,719
Speaker 13: Yeah, we've been we've been away from the recession call,

510
00:22:00,800 --> 00:22:02,200
Speaker 13: so we've been favorable on equities.

511
00:22:02,240 --> 00:22:03,000
Speaker 11: We continue to be.

512
00:22:03,119 --> 00:22:05,280
Speaker 13: I mean I think people are capitulating away from that call.

513
00:22:05,480 --> 00:22:07,720
Speaker 13: They've gone to the soft landing call. Now I caveate

514
00:22:07,760 --> 00:22:10,280
Speaker 13: that with bond yields here, keep an eye on them

515
00:22:10,280 --> 00:22:13,919
Speaker 13: because they're they're rushing in against their October highs. And

516
00:22:14,160 --> 00:22:16,439
Speaker 13: as long as they remain capped, you've got a window

517
00:22:16,520 --> 00:22:18,880
Speaker 13: or that sweet spot for for equities where you've got

518
00:22:19,520 --> 00:22:23,040
Speaker 13: you know, economic upgrade and yet you capped yields. We

519
00:22:23,080 --> 00:22:24,640
Speaker 13: start to blow through that, which I think we will

520
00:22:24,720 --> 00:22:26,200
Speaker 13: later probably this year. Then it starts to get a

521
00:22:26,240 --> 00:22:28,560
Speaker 13: bit rocky for equities again, particularly for some of those

522
00:22:28,600 --> 00:22:30,440
Speaker 13: high flyers that are longer duration assets.

523
00:22:30,800 --> 00:22:33,639
Speaker 8: And besides this Fitch downgrade, a lot of this movement,

524
00:22:33,720 --> 00:22:36,160
Speaker 8: especially with tech and growth corners of the market this week,

525
00:22:36,240 --> 00:22:38,959
Speaker 8: were really driven after the US Treasury did boost its

526
00:22:39,040 --> 00:22:41,840
Speaker 8: quarterly sales when it comes to those bond sales to

527
00:22:41,880 --> 00:22:44,920
Speaker 8: help really finance that surge in the budget deficits, which, obviously,

528
00:22:45,359 --> 00:22:47,800
Speaker 8: to your point, since bond yields hire and really pressure

529
00:22:47,840 --> 00:22:50,600
Speaker 8: those stocks. What's kind of your view here as far

530
00:22:50,680 --> 00:22:53,280
Speaker 8: as where you think EU markets could go in the

531
00:22:53,320 --> 00:22:56,359
Speaker 8: shorter term, because I'm kind of wondering if this was

532
00:22:56,400 --> 00:22:59,080
Speaker 8: an opportunity for some people who may have bought some

533
00:22:59,160 --> 00:23:01,800
Speaker 8: of these high fly names, whether it's in Nvidia and

534
00:23:01,840 --> 00:23:03,520
Speaker 8: some of these other chip stocks this year that have

535
00:23:03,560 --> 00:23:06,320
Speaker 8: really taken off, to maybe sell those and potentially buy

536
00:23:06,320 --> 00:23:07,080
Speaker 8: the dip later on.

537
00:23:07,560 --> 00:23:09,760
Speaker 13: Yeah, I think very much. We've had a big rally

538
00:23:09,760 --> 00:23:13,120
Speaker 13: in some of those higher flying names. They were really

539
00:23:13,200 --> 00:23:14,879
Speaker 13: leading the market the whole year, so there's a bit

540
00:23:14,880 --> 00:23:17,520
Speaker 13: of profit taking going on. I think the key will

541
00:23:17,520 --> 00:23:19,080
Speaker 13: be really is keeping the eye on that ten year

542
00:23:19,119 --> 00:23:22,439
Speaker 13: treasury here, because they are very much linked to it.

543
00:23:22,440 --> 00:23:25,720
Speaker 13: We had a situation where we had lower cap bondields

544
00:23:25,720 --> 00:23:29,239
Speaker 13: after the twenty twenty two issue really from October, and

545
00:23:29,280 --> 00:23:31,840
Speaker 13: that capping has allowed some of these higher flying, longer

546
00:23:31,920 --> 00:23:33,440
Speaker 13: duration assets sort of to take off.

547
00:23:34,240 --> 00:23:35,600
Speaker 11: Now we're seeing that come back up.

548
00:23:35,600 --> 00:23:37,000
Speaker 13: We saw a lot of the bond yield back up

549
00:23:37,000 --> 00:23:38,760
Speaker 13: in May, then we saw a digestion phase, and now

550
00:23:38,760 --> 00:23:41,120
Speaker 13: we're seeing a brush with the highs. So we've seen

551
00:23:41,320 --> 00:23:43,640
Speaker 13: people go from the recession call in deep raightcuts to

552
00:23:43,680 --> 00:23:46,200
Speaker 13: pushing out that recession call was never our view, but

553
00:23:46,560 --> 00:23:48,639
Speaker 13: pushing it out to next year and looking for the

554
00:23:48,680 --> 00:23:51,800
Speaker 13: rate cuts there. There is an inconsistency there though that

555
00:23:52,320 --> 00:23:54,800
Speaker 13: costa capital. The economic data is telling you the cost

556
00:23:54,800 --> 00:23:58,800
Speaker 13: of capital is not biting. The household sector, employment or

557
00:23:58,840 --> 00:24:01,879
Speaker 13: even housing starting to re accelerate here. So if the

558
00:24:01,880 --> 00:24:04,160
Speaker 13: cost of capital is not biting, then that means interest

559
00:24:04,200 --> 00:24:06,520
Speaker 13: rates or more likely bond yields will eventually go higher.

560
00:24:06,840 --> 00:24:09,920
Speaker 13: At that point, some of those long duration assets will

561
00:24:09,920 --> 00:24:11,080
Speaker 13: come at a selling pressure.

562
00:24:11,359 --> 00:24:13,800
Speaker 8: What is the pain point specifically safe We're looking at

563
00:24:13,800 --> 00:24:16,680
Speaker 8: the tenure because it is trading around right below four

564
00:24:16,680 --> 00:24:19,800
Speaker 8: point two percent, highest level since November of twenty twenty two.

565
00:24:20,520 --> 00:24:21,879
Speaker 11: Yeah, I think a decisive breakout.

566
00:24:21,920 --> 00:24:24,320
Speaker 13: We've flirted with this a little bit and pulled back

567
00:24:24,320 --> 00:24:25,960
Speaker 13: in in terms of the bond yield. I think a

568
00:24:26,000 --> 00:24:28,439
Speaker 13: decisive breakout we start to blow through those levels. I

569
00:24:28,440 --> 00:24:31,560
Speaker 13: think that takes us into uncharted territory again. So I

570
00:24:31,560 --> 00:24:34,399
Speaker 13: think the equity investors were comfortable as long as they

571
00:24:34,400 --> 00:24:37,040
Speaker 13: could sort of get it go from the recession camp

572
00:24:37,080 --> 00:24:41,080
Speaker 13: to the soft landing camp, if you will, And so

573
00:24:41,200 --> 00:24:43,359
Speaker 13: the idea being as the growth would improve and cost

574
00:24:43,359 --> 00:24:45,080
Speaker 13: of capital wasn't going to be biting. That was sort

575
00:24:45,119 --> 00:24:47,679
Speaker 13: of your goldilocks or sweet spat scenario. If we go

576
00:24:47,760 --> 00:24:51,000
Speaker 13: from the soft landing cap a camp into either bondield's

577
00:24:51,000 --> 00:24:53,960
Speaker 13: breakup or the no landing camp, so to speak, which

578
00:24:54,000 --> 00:24:55,840
Speaker 13: would push those yields up and bring out some of

579
00:24:55,840 --> 00:24:58,480
Speaker 13: those rate cuts in twenty twenty four, and then yields

580
00:24:58,520 --> 00:25:01,040
Speaker 13: break higher. A decisive breakout I think gets us back

581
00:25:01,040 --> 00:25:03,639
Speaker 13: into that uncharted territory. It puts a lot of volatility

582
00:25:03,680 --> 00:25:06,680
Speaker 13: back in across financial asset markets. And in that case,

583
00:25:07,080 --> 00:25:09,240
Speaker 13: given that we're flirting here, you know, our advice to

584
00:25:09,960 --> 00:25:12,639
Speaker 13: our clients is to stick where you've got a bigger valuation.

585
00:25:12,720 --> 00:25:16,640
Speaker 13: Discount and sectors that are less exposed to that higher

586
00:25:16,640 --> 00:25:18,280
Speaker 13: interest rate environment. So it kind of pulls you back

587
00:25:18,280 --> 00:25:19,600
Speaker 13: out at tech right now and puts you back into

588
00:25:19,600 --> 00:25:20,720
Speaker 13: financials and things like that.

589
00:25:21,119 --> 00:25:23,520
Speaker 1: So, you know, I'm looking at the world interest rate

590
00:25:23,560 --> 00:25:28,280
Speaker 1: probability function on the Bloomberg terminal warp. It's been wrong forever,

591
00:25:28,320 --> 00:25:30,480
Speaker 1: so who knows. But I mean, you know, kind of

592
00:25:30,480 --> 00:25:33,440
Speaker 1: saying starting next year, starting the cut rates, it doesn't

593
00:25:33,480 --> 00:25:34,520
Speaker 1: sound like you're in that camp.

594
00:25:34,760 --> 00:25:36,200
Speaker 11: No, I mean, we haven't been in that camp.

595
00:25:36,200 --> 00:25:38,760
Speaker 13: And the problem with that campus is always seems to

596
00:25:38,760 --> 00:25:40,520
Speaker 13: be one year out you cut rates, that we're going

597
00:25:40,560 --> 00:25:42,840
Speaker 13: to head into recession. It's easy for forecasts and people

598
00:25:42,880 --> 00:25:45,240
Speaker 13: to say, well, we've we're normalizing interest rates, and it's not.

599
00:25:45,440 --> 00:25:47,440
Speaker 13: We're not in a recession today clearly from the data,

600
00:25:47,480 --> 00:25:49,640
Speaker 13: but a year out we will be, and so they

601
00:25:49,720 --> 00:25:51,600
Speaker 13: keep pushing that out. We've seen two years of that

602
00:25:51,680 --> 00:25:53,280
Speaker 13: pushing out. At the beginning of this year, we're in

603
00:25:53,359 --> 00:25:56,240
Speaker 13: rate cuts now, right, and and so we've pushed that

604
00:25:56,280 --> 00:25:57,520
Speaker 13: out to the beginning of next year, and now we

605
00:25:57,560 --> 00:26:00,560
Speaker 13: pushed it into mostly backloaded to the second half of

606
00:26:00,600 --> 00:26:04,320
Speaker 13: next year. The real issue, though, is has the cost

607
00:26:04,359 --> 00:26:07,200
Speaker 13: of capital started to jeopardize the economy. So, in other words,

608
00:26:07,200 --> 00:26:09,560
Speaker 13: for the rate cut cycle to occur, you have to

609
00:26:09,600 --> 00:26:11,320
Speaker 13: have something that's really going to damage the economy, and

610
00:26:11,400 --> 00:26:13,040
Speaker 13: right now that data is telling you that interest rates

611
00:26:13,040 --> 00:26:14,960
Speaker 13: aren't that catalyst. So unless you're calling for a different

612
00:26:15,000 --> 00:26:17,960
Speaker 13: black swan event, then then there's not a case for

613
00:26:18,000 --> 00:26:18,520
Speaker 13: the FED to cut.

614
00:26:18,600 --> 00:26:20,120
Speaker 11: And it may be a case where inflation comes down

615
00:26:20,119 --> 00:26:20,720
Speaker 11: for the FED to go.

616
00:26:20,640 --> 00:26:24,240
Speaker 13: On hold, but unless you're getting weakness in the economy

617
00:26:24,400 --> 00:26:27,520
Speaker 13: based on previous rate cuts, then there's no case for

618
00:26:27,560 --> 00:26:29,800
Speaker 13: the cuts. And I know there's a lot of people

619
00:26:29,880 --> 00:26:32,760
Speaker 13: saying that there's this hope for soft landing, which brings

620
00:26:32,760 --> 00:26:35,000
Speaker 13: down inflation enough to allow the FED to take the

621
00:26:35,080 --> 00:26:35,720
Speaker 13: pressure off.

622
00:26:36,080 --> 00:26:37,840
Speaker 11: But reality is is that a.

623
00:26:37,720 --> 00:26:41,160
Speaker 13: Big chunk of that PC inflation a basket is core

624
00:26:41,320 --> 00:26:44,440
Speaker 13: services x housing and that's linked to wages. So unless

625
00:26:44,440 --> 00:26:46,560
Speaker 13: you're getting a recession, there's really no hope that we're

626
00:26:46,560 --> 00:26:48,840
Speaker 13: coming back down to the near the two percent target.

627
00:26:49,040 --> 00:26:50,960
Speaker 8: Do you expect to see because you were talking about

628
00:26:51,040 --> 00:26:53,960
Speaker 8: value earlier, particularly some of these more cyclical quarters of

629
00:26:53,960 --> 00:26:56,800
Speaker 8: the market that have picked up pace since the beginning

630
00:26:56,840 --> 00:26:58,800
Speaker 8: of June, whether you're looking at small caps or even

631
00:26:58,920 --> 00:27:02,000
Speaker 8: just within the S and P five hundred, say industrials

632
00:27:02,040 --> 00:27:04,560
Speaker 8: trading around records also materials. Do you think they can

633
00:27:04,760 --> 00:27:08,360
Speaker 8: basically take the baton from tech and growth that had

634
00:27:08,400 --> 00:27:10,800
Speaker 8: really obviously outperformed in the first half of the year.

635
00:27:11,040 --> 00:27:11,240
Speaker 4: Yeah.

636
00:27:11,240 --> 00:27:14,520
Speaker 13: I think that's largely been our bet, is that you

637
00:27:14,560 --> 00:27:17,200
Speaker 13: would end up as long as bond yields remain seemingly

638
00:27:17,240 --> 00:27:19,480
Speaker 13: calm and didn't just swike higher here, then you ended

639
00:27:19,560 --> 00:27:22,439
Speaker 13: up with a situation where growth expectations have been revised up,

640
00:27:22,480 --> 00:27:26,480
Speaker 13: and really the sweet spot for your longer duration I

641
00:27:26,480 --> 00:27:30,119
Speaker 13: guess your growth stocks is when you're in sluggish or

642
00:27:30,240 --> 00:27:33,800
Speaker 13: weakish recessionary growth and lower interest rates. If you're coming

643
00:27:33,800 --> 00:27:35,760
Speaker 13: away from that and you're getting into a broader, better

644
00:27:35,800 --> 00:27:38,520
Speaker 13: growth back drop, it rotates back to value in general.

645
00:27:38,880 --> 00:27:40,639
Speaker 13: The caveat is is that you'd like to have that

646
00:27:40,720 --> 00:27:43,000
Speaker 13: happen in a constructive manner, where it takes that baton

647
00:27:43,040 --> 00:27:45,960
Speaker 13: as you just characterize, and leads the market higher. I

648
00:27:45,960 --> 00:27:47,800
Speaker 13: think that can happen as long as the bond market

649
00:27:47,840 --> 00:27:50,520
Speaker 13: doesn't become disruptive. If we start to see a material

650
00:27:50,520 --> 00:27:52,639
Speaker 13: spike up, say we blow through the highs and yields

651
00:27:52,680 --> 00:27:54,200
Speaker 13: and we start to see that get run as people

652
00:27:54,240 --> 00:27:56,280
Speaker 13: start to dump their treasury holdings, then I think we're

653
00:27:56,280 --> 00:27:58,520
Speaker 13: going to be into a rocky period for that rotation

654
00:27:58,600 --> 00:28:00,679
Speaker 13: might occur, but just not in such a structive manner.

655
00:28:00,760 --> 00:28:01,560
Speaker 11: What do you think is the.

656
00:28:01,520 --> 00:28:04,040
Speaker 8: Specific level for the ten year for instance, like around

657
00:28:04,040 --> 00:28:06,720
Speaker 8: four and a half percent above that to really recalibrate

658
00:28:07,040 --> 00:28:08,280
Speaker 8: tech and growth stocks.

659
00:28:08,480 --> 00:28:10,080
Speaker 11: Yeah, I think that's probably a good target.

660
00:28:10,119 --> 00:28:11,520
Speaker 13: I mean, I think we're going to ultimately have to

661
00:28:11,520 --> 00:28:14,760
Speaker 13: go higher before we actually get into really a growth

662
00:28:14,760 --> 00:28:18,320
Speaker 13: in pinging or impediment sort of area. But I think

663
00:28:18,359 --> 00:28:20,000
Speaker 13: if we start to push through that, I think it

664
00:28:20,040 --> 00:28:21,840
Speaker 13: was like four twenty four to twenty five was the

665
00:28:21,920 --> 00:28:23,840
Speaker 13: high we start to break decisively above. So you get

666
00:28:23,880 --> 00:28:26,280
Speaker 13: to four fifty, I think you're going to start to

667
00:28:26,280 --> 00:28:28,439
Speaker 13: see that rotation occur like we saw in twenty twenty two.

668
00:28:28,520 --> 00:28:30,200
Speaker 13: You're also going to see a lot of volatility come

669
00:28:30,200 --> 00:28:32,000
Speaker 13: into the index. I wouldn't want to call it at

670
00:28:32,000 --> 00:28:33,840
Speaker 13: twenty twenty two, but we make it an echo effect

671
00:28:33,880 --> 00:28:36,080
Speaker 13: or a taste of that. As people get into that

672
00:28:36,160 --> 00:28:38,480
Speaker 13: uncharted territory, then they start to work worry about growth

673
00:28:38,520 --> 00:28:41,600
Speaker 13: again or the outlook again, but I think that rotation

674
00:28:41,680 --> 00:28:44,080
Speaker 13: starts to facilitate itself as we start to punch higher.

675
00:28:44,120 --> 00:28:46,280
Speaker 1: So what are you guys doing with emerging markets?

676
00:28:46,640 --> 00:28:50,320
Speaker 13: Yeah, we like emerging Asia particular. I mean, most of

677
00:28:50,320 --> 00:28:52,440
Speaker 13: our US is a very expensive market, so we've been

678
00:28:52,520 --> 00:28:55,520
Speaker 13: rotating away from the United States, especially in a context

679
00:28:55,560 --> 00:28:57,680
Speaker 13: of a broadening growth better growth BACKDOB.

680
00:28:57,880 --> 00:28:59,720
Speaker 11: A lot of our bets has been in the Euro area.

681
00:29:00,240 --> 00:29:03,080
Speaker 13: We have we also have an exposure and that's where

682
00:29:03,080 --> 00:29:04,160
Speaker 13: the earnings power is on.

683
00:29:04,200 --> 00:29:06,280
Speaker 1: And it is a euro call evaluation call.

684
00:29:06,680 --> 00:29:07,800
Speaker 11: Yeah, it's a valuation call.

685
00:29:07,840 --> 00:29:10,320
Speaker 13: But you've also got relative out performance in earnings right now,

686
00:29:10,600 --> 00:29:13,520
Speaker 13: so your earnings are out performing the global aggregate. So

687
00:29:13,560 --> 00:29:16,440
Speaker 13: you've got some tailwinds from a value and a fundamental story.

688
00:29:16,640 --> 00:29:20,600
Speaker 13: We do like emerging markets, specifically Emerging Asia. We think

689
00:29:20,640 --> 00:29:24,040
Speaker 13: that you know, the China reopening element should eventually help

690
00:29:24,040 --> 00:29:27,200
Speaker 13: in terms of growth and earnings within the area. We

691
00:29:27,240 --> 00:29:30,120
Speaker 13: also think the semiconductor cycle is getting towards a low

692
00:29:30,160 --> 00:29:30,880
Speaker 13: and we'll start to see the.

693
00:29:30,840 --> 00:29:31,480
Speaker 11: EBB the other way.

694
00:29:31,560 --> 00:29:34,400
Speaker 13: So there's some support, which is a lot of beta

695
00:29:34,440 --> 00:29:37,840
Speaker 13: to non Chinese Asian markets. So so we have a

696
00:29:37,880 --> 00:29:39,280
Speaker 13: mild overweight in Emerging Asia.

697
00:29:39,360 --> 00:29:41,840
Speaker 1: All right, good stuff. Philip Colemore, thanks for joining us

698
00:29:41,840 --> 00:29:44,320
Speaker 1: live here in our Bloomberg Interactive Brokeerst Studio. Philip is

699
00:29:44,360 --> 00:29:49,160
Speaker 1: a managing partner and a global strategist with m RB Partners.

700
00:29:49,880 --> 00:29:51,080
Speaker 4: You're listening to the team.

701
00:29:51,440 --> 00:29:55,560
Speaker 7: Ken's a live program Bloomberg Markets weekdays at ten am Eastern.

702
00:29:55,400 --> 00:29:58,320
Speaker 4: On Bloomberg dot Com, the iHeartRadio.

703
00:29:57,720 --> 00:30:00,960
Speaker 7: App and the Bloomberg Business App or listening demand wherever

704
00:30:00,960 --> 00:30:02,120
Speaker 7: you get your podcast.

705
00:30:04,320 --> 00:30:06,560
Speaker 1: Let's bring on our next guest, Jenniferree. She's a senior

706
00:30:06,600 --> 00:30:10,200
Speaker 1: litigation analyst focused on antitrust at Bloomberg Intelligence. She joins

707
00:30:10,240 --> 00:30:12,680
Speaker 1: us via zoom and she's got some work out because

708
00:30:12,720 --> 00:30:15,760
Speaker 1: our good friends at Amazon, who again report earnings after

709
00:30:15,800 --> 00:30:18,120
Speaker 1: the clothes, they've got a little bit of an issue

710
00:30:18,120 --> 00:30:20,959
Speaker 1: with the Federal Trade Commission here, Jen, thanks so much

711
00:30:21,000 --> 00:30:24,040
Speaker 1: for joining us here. Can you just summarize what the

712
00:30:24,160 --> 00:30:27,000
Speaker 1: FTC is doing with Amazon right now?

713
00:30:27,960 --> 00:30:28,280
Speaker 14: Sure?

714
00:30:28,360 --> 00:30:30,320
Speaker 10: Thanks so much for having me. I mean, you know,

715
00:30:30,400 --> 00:30:32,120
Speaker 10: this has been so anticipated.

716
00:30:32,360 --> 00:30:35,440
Speaker 15: I feel like I've been writing about this coming lawsuit

717
00:30:35,480 --> 00:30:38,560
Speaker 15: against Amazon by the FDC for about two years. And

718
00:30:38,600 --> 00:30:40,800
Speaker 15: you know the reason, Paul, why we all knew this

719
00:30:40,920 --> 00:30:43,880
Speaker 15: is because the current chair of the FDC, Lenacon, has

720
00:30:43,880 --> 00:30:46,880
Speaker 15: been a vocal Amazon foe. I mean, in fact, she

721
00:30:46,960 --> 00:30:51,040
Speaker 15: published a big paper where she basically described all the

722
00:30:51,080 --> 00:30:53,959
Speaker 15: ways that she thinks Amazon is a monopolist and behaves

723
00:30:53,960 --> 00:30:57,280
Speaker 15: in an anti competitive manner and it damages competition and

724
00:30:57,320 --> 00:30:59,920
Speaker 15: it's bad for consumers. And so I think there was

725
00:31:00,120 --> 00:31:02,840
Speaker 15: expectation that once she came into the FTC, she could

726
00:31:02,880 --> 00:31:06,200
Speaker 15: launch an investigation. In fact, it was launched before she

727
00:31:06,280 --> 00:31:09,600
Speaker 15: even started, I should say, but that investigation will culminate

728
00:31:09,600 --> 00:31:11,520
Speaker 15: in a lawsuit. And now we're seeing some news that

729
00:31:11,560 --> 00:31:15,440
Speaker 15: this lawsuit's coming, possibly in August. It'll be for monopolization

730
00:31:15,600 --> 00:31:19,200
Speaker 15: most likely, which is, you know, one half of sort

731
00:31:19,200 --> 00:31:20,280
Speaker 15: of the antitrust world.

732
00:31:20,280 --> 00:31:21,600
Speaker 10: The other half is price fixing.

733
00:31:21,640 --> 00:31:24,200
Speaker 15: But this is going to be about Amazon's conduct, and

734
00:31:24,240 --> 00:31:26,200
Speaker 15: I do think it's going to be aggressive and wide

735
00:31:26,280 --> 00:31:30,200
Speaker 15: ranging and probably seek ask a judge to try to

736
00:31:30,240 --> 00:31:32,000
Speaker 15: break up parts of the company's business.

737
00:31:32,120 --> 00:31:34,280
Speaker 8: Really, do we have any sort of scope of the

738
00:31:34,440 --> 00:31:36,600
Speaker 8: timetable and how long this could take?

739
00:31:37,760 --> 00:31:39,320
Speaker 10: You know what, It's going to take a long time.

740
00:31:39,400 --> 00:31:41,360
Speaker 15: And it's funny because there will be a lot of

741
00:31:41,400 --> 00:31:43,680
Speaker 15: news and honestly, then we're going to hear nothing because

742
00:31:43,720 --> 00:31:47,320
Speaker 15: these take so long. I mean, the complaint will come out,

743
00:31:47,440 --> 00:31:50,200
Speaker 15: it'll get started, and then what happens is the companies

744
00:31:50,240 --> 00:31:52,680
Speaker 15: go through what's called the motion to dismissed process, which

745
00:31:52,720 --> 00:31:54,760
Speaker 15: could take up to a year, where they try to

746
00:31:54,800 --> 00:31:57,080
Speaker 15: at least get some of the complaints, some of the

747
00:31:57,080 --> 00:31:59,320
Speaker 15: claims and the complaint thrown out, and then they get

748
00:31:59,320 --> 00:32:01,680
Speaker 15: into the discover base, which can go a year or

749
00:32:01,680 --> 00:32:05,080
Speaker 15: more before they really get into sort of the nuts

750
00:32:05,120 --> 00:32:08,760
Speaker 15: and bolts of the litigation, summary, judgment, and trial. So honestly,

751
00:32:09,040 --> 00:32:12,080
Speaker 15: we're looking at two years probably more could be three

752
00:32:12,160 --> 00:32:15,120
Speaker 15: years before there's even a first decision, which could then

753
00:32:15,200 --> 00:32:15,800
Speaker 15: be appealed.

754
00:32:16,160 --> 00:32:18,680
Speaker 1: So jen are they looking at the retail side of

755
00:32:18,720 --> 00:32:21,840
Speaker 1: Amazon as opposed to the web services side, or are

756
00:32:21,840 --> 00:32:25,640
Speaker 1: they looking at it in its entirety. Where's really the

757
00:32:25,680 --> 00:32:28,360
Speaker 1: focus here and what are some of the concerns that

758
00:32:28,440 --> 00:32:29,440
Speaker 1: the FTC has.

759
00:32:30,080 --> 00:32:31,600
Speaker 15: I think the main focus is going to be about

760
00:32:31,640 --> 00:32:34,280
Speaker 15: the platform and the way they treat third party sellers.

761
00:32:33,960 --> 00:32:34,640
Speaker 10: In the platform.

762
00:32:34,800 --> 00:32:36,720
Speaker 15: They could get into cloud too, but I think this

763
00:32:36,800 --> 00:32:40,560
Speaker 15: is mostly about the platform, right and about first whether

764
00:32:40,600 --> 00:32:43,840
Speaker 15: they have provisions and contracts with third party sellers that

765
00:32:43,960 --> 00:32:47,080
Speaker 15: prevent those third party sellers from offering their product outside

766
00:32:47,080 --> 00:32:50,080
Speaker 15: of Amazon at a lower price that Amazon has to

767
00:32:50,080 --> 00:32:52,320
Speaker 15: get the best price. You know, this is a pretty

768
00:32:52,360 --> 00:32:54,720
Speaker 15: common It's called the most favored nations clause, and it's

769
00:32:54,720 --> 00:32:58,080
Speaker 15: actually pretty commonly used in business. But in this case,

770
00:32:58,360 --> 00:33:01,400
Speaker 15: because it is more expensive seller to sell on Amazon

771
00:33:01,480 --> 00:33:04,720
Speaker 15: then let's say its own website or maybe on Etsy.

772
00:33:05,480 --> 00:33:08,800
Speaker 15: What the consumers and some state attorney generals that have

773
00:33:08,840 --> 00:33:11,040
Speaker 15: already sued about this have said is that it causes

774
00:33:11,080 --> 00:33:14,600
Speaker 15: prices to go up on Amazon and on websites outside Amazon.

775
00:33:14,720 --> 00:33:16,600
Speaker 10: I think that's probably going to be in their paul.

776
00:33:17,040 --> 00:33:18,120
Speaker 10: And then I also.

777
00:33:17,960 --> 00:33:21,560
Speaker 15: Think some allegation that the third party sellers on the

778
00:33:21,600 --> 00:33:25,720
Speaker 15: site are either punished or rewarded for using other Amazon services,

779
00:33:25,760 --> 00:33:29,239
Speaker 15: like their fulfillment services or like advertising on Amazon, so

780
00:33:29,320 --> 00:33:32,240
Speaker 15: that they're sort of bundling or tying these products together,

781
00:33:33,200 --> 00:33:36,160
Speaker 15: and that to really get good sales on the website,

782
00:33:36,240 --> 00:33:38,560
Speaker 15: you're sort of forced to buy other services. I think

783
00:33:38,560 --> 00:33:41,200
Speaker 15: that'll be in there too. Cloud might be as well,

784
00:33:41,240 --> 00:33:43,680
Speaker 15: but it might be a little premature. I think the

785
00:33:43,760 --> 00:33:47,320
Speaker 15: FTC has an open cloud industry investigation and they're looking

786
00:33:47,320 --> 00:33:49,680
Speaker 15: at Amazon as part of that that could be a

787
00:33:49,720 --> 00:33:51,760
Speaker 15: new complaint that comes down the road, or that could

788
00:33:51,760 --> 00:33:52,400
Speaker 15: be part of this.

789
00:33:53,280 --> 00:33:55,960
Speaker 8: What presidents has been said, if any, for other companies

790
00:33:56,000 --> 00:34:00,560
Speaker 8: in a particular situation like this, really.

791
00:34:00,360 --> 00:34:02,680
Speaker 10: Good question, because there are very few precedents.

792
00:34:02,760 --> 00:34:06,240
Speaker 15: Honestly, there have been very few over the years lawsuits

793
00:34:06,280 --> 00:34:09,400
Speaker 15: brought by an enforcer, the Department of Justice or the

794
00:34:09,400 --> 00:34:13,279
Speaker 15: Federal Trade Commission against a company from anopolization. And the

795
00:34:13,440 --> 00:34:15,360
Speaker 15: really big one, the one we kind of think of

796
00:34:15,400 --> 00:34:18,000
Speaker 15: as the Bible, was a case the Department of Justice

797
00:34:18,000 --> 00:34:20,840
Speaker 15: brought against Microsoft back in the nineteen nineties and it

798
00:34:20,920 --> 00:34:23,800
Speaker 15: ultimately resolved. I think it's something like two thousand or

799
00:34:23,880 --> 00:34:27,080
Speaker 15: two thousand and one now. Having said that, the FTC

800
00:34:27,200 --> 00:34:30,680
Speaker 15: did suit Qualcom monopolization just a few years ago and

801
00:34:30,719 --> 00:34:34,280
Speaker 15: they lost over the way Qualcom was licensing its chips.

802
00:34:34,840 --> 00:34:37,520
Speaker 15: It wasn't as big a case as Microsoft, it didn't

803
00:34:37,520 --> 00:34:39,960
Speaker 15: get quite as much press, and they weren't seeking to

804
00:34:39,960 --> 00:34:42,640
Speaker 15: have Qualcom broken up, which is kind of a big deal.

805
00:34:43,040 --> 00:34:44,640
Speaker 10: So there's very little.

806
00:34:45,560 --> 00:34:48,440
Speaker 15: There are private suits, but there really is very little precedent,

807
00:34:48,560 --> 00:34:52,160
Speaker 15: and mostly there's not a lot of precedent with plaintiffs

808
00:34:52,160 --> 00:34:53,400
Speaker 15: winning these kinds of cases.

809
00:34:53,640 --> 00:34:55,919
Speaker 10: They can win. They can win. It's hard.

810
00:34:56,280 --> 00:35:00,000
Speaker 1: So what's the consensus here among legal experts like yourself,

811
00:35:00,000 --> 00:35:04,359
Speaker 1: one is antitrusting. What's reasonable out look for the ft

812
00:35:04,360 --> 00:35:06,520
Speaker 1: C here at this point?

813
00:35:07,760 --> 00:35:10,400
Speaker 15: You know, Paul, I, this is how I think about

814
00:35:10,400 --> 00:35:12,560
Speaker 15: this suit. I think there's a lot of risk because

815
00:35:12,560 --> 00:35:14,600
Speaker 15: it won't settle. The FDC is not going to settle.

816
00:35:14,640 --> 00:35:17,040
Speaker 15: That's the first thing. And secondly, they're trying to get

817
00:35:17,040 --> 00:35:19,080
Speaker 15: a breakup, and you know what, you go into court

818
00:35:19,160 --> 00:35:19,799
Speaker 15: asking for that.

819
00:35:19,920 --> 00:35:22,200
Speaker 10: If everything falls into place, you get the right judge,

820
00:35:22,440 --> 00:35:23,719
Speaker 10: maybe you get something like that.

821
00:35:23,800 --> 00:35:26,680
Speaker 15: I think it would be overturned on appeal. I think

822
00:35:26,760 --> 00:35:30,360
Speaker 15: some of these allegations actually might have merit, for instance,

823
00:35:31,040 --> 00:35:33,640
Speaker 15: perhaps the use of the most Favored Nation clauses, or

824
00:35:33,680 --> 00:35:36,719
Speaker 15: perhaps even you know, if it's true that they sort

825
00:35:36,719 --> 00:35:39,000
Speaker 15: of forced sellers in order to really get sales in

826
00:35:39,040 --> 00:35:42,160
Speaker 15: the platform, to also buy their fulfillment services or advertise

827
00:35:42,200 --> 00:35:44,319
Speaker 15: on the site. You know that one might have some

828
00:35:44,440 --> 00:35:46,759
Speaker 15: merit to in terms of any inter trust violation. But

829
00:35:46,760 --> 00:35:48,920
Speaker 15: at the end of the day, when you ask what

830
00:35:48,960 --> 00:35:51,759
Speaker 15: are the remedies, what are the remedies for these violations?

831
00:35:52,120 --> 00:35:55,120
Speaker 15: A judge is really told from the Microsoft suit from

832
00:35:55,120 --> 00:35:58,080
Speaker 15: that big precedent that you use the remedy that's the

833
00:35:58,160 --> 00:35:59,200
Speaker 15: least drastic.

834
00:35:58,840 --> 00:36:01,279
Speaker 10: That's going to fix the problem. And in my mind,

835
00:36:01,280 --> 00:36:02,479
Speaker 10: there are a lot of remedies out.

836
00:36:02,400 --> 00:36:04,960
Speaker 15: There that are behavioral in nature, that are much less

837
00:36:05,000 --> 00:36:08,480
Speaker 15: drastic than structural that would fix the problem, for instance,

838
00:36:08,640 --> 00:36:11,440
Speaker 15: a firewall, or for instance just saying you can't discriminate

839
00:36:11,440 --> 00:36:15,439
Speaker 15: against sellers anymore based on which of their products they

840
00:36:15,560 --> 00:36:19,360
Speaker 15: use or buy. And in fact, those kinds of remedies

841
00:36:19,360 --> 00:36:21,640
Speaker 15: are already being used in the UK and in Europe.

842
00:36:21,960 --> 00:36:24,480
Speaker 15: UK and Europe have the same complaints about Amazon, and

843
00:36:24,520 --> 00:36:27,440
Speaker 15: Amazon is settling those cases and offering up exactly those

844
00:36:27,520 --> 00:36:31,239
Speaker 15: kinds of remedies, and those regulators who are absolutely as

845
00:36:31,239 --> 00:36:35,040
Speaker 15: aggressive as the USFTC are accepting those remedies. So when

846
00:36:35,080 --> 00:36:37,319
Speaker 15: I think about this, I think about way down the road,

847
00:36:37,920 --> 00:36:40,799
Speaker 15: even if the FDC wins pieces of it, they won't

848
00:36:40,840 --> 00:36:44,200
Speaker 15: win all of it. The remedy is likely not to

849
00:36:44,239 --> 00:36:47,080
Speaker 15: be particularly substantial or impactful to the company.

850
00:36:47,480 --> 00:36:49,120
Speaker 10: That's kind of how I view the long.

851
00:36:49,080 --> 00:36:51,600
Speaker 1: Term outlook pole and that's kind of I think the

852
00:36:52,080 --> 00:36:54,319
Speaker 1: market music is again the stocks of fifty percent year

853
00:36:54,360 --> 00:36:54,600
Speaker 1: to date.

854
00:36:54,640 --> 00:36:58,000
Speaker 8: But we'll right I'm actually curious, what's the likelihood that

855
00:36:58,040 --> 00:36:59,320
Speaker 8: the FTC would settle.

856
00:37:00,840 --> 00:37:02,799
Speaker 15: I think it's very very low. This is not a

857
00:37:02,840 --> 00:37:06,560
Speaker 15: settling FTC. They have expressed that overtly they're not interested

858
00:37:06,560 --> 00:37:11,239
Speaker 15: in settling, particularly mergers, and this is a big deal.

859
00:37:11,360 --> 00:37:14,560
Speaker 15: This is their case. This is the one Leona Cohn

860
00:37:14,640 --> 00:37:18,200
Speaker 15: wants to make her name on. She is absolutely gunning

861
00:37:18,239 --> 00:37:20,239
Speaker 15: for Amazon. I think in the same way that the

862
00:37:20,239 --> 00:37:22,880
Speaker 15: Departner of Justice is kind of gunning for Google. And

863
00:37:23,000 --> 00:37:25,960
Speaker 15: when you're really going all out and you really want

864
00:37:26,000 --> 00:37:28,960
Speaker 15: to try to get that breakup, I don't think you're

865
00:37:28,960 --> 00:37:29,879
Speaker 15: going to sell.

866
00:37:30,000 --> 00:37:32,160
Speaker 1: Hey, Jen, thanks so much for bringing this to our attention.

867
00:37:32,520 --> 00:37:34,640
Speaker 1: Amazon big story here. It's going to be a long

868
00:37:34,880 --> 00:37:37,520
Speaker 1: term story. As they tend to be on the legal side,

869
00:37:38,000 --> 00:37:40,320
Speaker 1: general stay on top of it as we will. Jenry,

870
00:37:40,560 --> 00:37:44,600
Speaker 1: Senior at Litigation Analysts covering antitrust for Bloomberg Intelligence.

871
00:37:45,080 --> 00:37:48,200
Speaker 7: You're listening to the tape Ken's Are Live program Bloomberg

872
00:37:48,280 --> 00:37:51,840
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

873
00:37:51,920 --> 00:37:53,879
Speaker 7: tune in app, Bloomberg dot Com, and.

874
00:37:53,840 --> 00:37:55,160
Speaker 4: The Bloomberg Business app.

875
00:37:55,200 --> 00:37:58,000
Speaker 7: You can also listen live on Amazon Alexa from our

876
00:37:58,040 --> 00:38:02,400
Speaker 7: flagship New York station, just say Alexa play Bloomberg eleven thirty.

877
00:38:04,000 --> 00:38:07,680
Speaker 8: Keetha Raganathan, who's one of our great strategists here at

878
00:38:07,680 --> 00:38:10,960
Speaker 8: Bloomberg Intelligence, US media analysts at the firm, joining us

879
00:38:10,960 --> 00:38:14,040
Speaker 8: on Zoom to discuss that. But also first I wanted

880
00:38:14,080 --> 00:38:16,680
Speaker 8: to start off with what's happening with Lionsgate buying E

881
00:38:16,880 --> 00:38:20,520
Speaker 8: one and the news there so, hasbro actually sold Inner

882
00:38:20,560 --> 00:38:23,359
Speaker 8: TV one film and its TV unit to lions Gate

883
00:38:23,440 --> 00:38:26,239
Speaker 8: for three hundred and seventy five million dollars in cash

884
00:38:26,360 --> 00:38:29,799
Speaker 8: plus the assumption of its loans. Geita walk us through

885
00:38:29,800 --> 00:38:31,919
Speaker 8: this details when it comes to this deal.

886
00:38:33,160 --> 00:38:37,120
Speaker 14: Yeah, absolutely so. Lionsgate, as you just pointed out, bought that.

887
00:38:37,800 --> 00:38:41,040
Speaker 14: It's basically some film and TV production capabilities that they

888
00:38:41,040 --> 00:38:44,200
Speaker 14: have brought from Entertainment One. And of course Entertainment One

889
00:38:44,760 --> 00:38:46,879
Speaker 14: is really well known for you know, all of its

890
00:38:46,920 --> 00:38:50,720
Speaker 14: preschool brands, right, whether it was Pepa Big or PJ Masks,

891
00:38:50,880 --> 00:38:53,080
Speaker 14: you know, my Little Pony. But you know, none of

892
00:38:53,120 --> 00:38:56,480
Speaker 14: those brands have been have been sold to Lionsgates. So

893
00:38:56,520 --> 00:38:59,520
Speaker 14: this is really more you know, film and TV production

894
00:38:59,600 --> 00:39:03,960
Speaker 14: especially gives them a lot of capacity to make unscripted content.

895
00:39:04,080 --> 00:39:06,040
Speaker 14: And if you kind of think about lions Gate. I mean,

896
00:39:06,080 --> 00:39:09,880
Speaker 14: this is one of the few independent studios that is

897
00:39:09,920 --> 00:39:12,000
Speaker 14: still available kind of in Hollywood if you look at

898
00:39:12,040 --> 00:39:13,600
Speaker 14: all of the other studios they're part of, you know,

899
00:39:13,600 --> 00:39:17,480
Speaker 14: these bigger conglomerates, whether it's Warner or Disney or Paramount.

900
00:39:17,719 --> 00:39:19,920
Speaker 14: So this is this is a company that has you know,

901
00:39:19,960 --> 00:39:23,440
Speaker 14: obviously they have a great library, over seventeen thousand titles.

902
00:39:24,160 --> 00:39:25,560
Speaker 14: They come up with some you know, they have some

903
00:39:25,600 --> 00:39:27,840
Speaker 14: pretty good franchises, you know, whether it's The Hunger Games

904
00:39:27,920 --> 00:39:30,120
Speaker 14: or The Twilight or even John Wick. So they do

905
00:39:30,200 --> 00:39:32,440
Speaker 14: have some good franchises, and they could be a great

906
00:39:33,000 --> 00:39:35,319
Speaker 14: add on for you know, a huge tech company, you know,

907
00:39:35,360 --> 00:39:38,400
Speaker 14: maybe an Apple or an Amazon or a Google. And

908
00:39:38,440 --> 00:39:40,799
Speaker 14: what they're trying to do is to really kind of

909
00:39:41,719 --> 00:39:44,440
Speaker 14: find more value in their assets. So they currently have

910
00:39:44,520 --> 00:39:47,880
Speaker 14: a film studio and they also have a cable network

911
00:39:48,160 --> 00:39:51,040
Speaker 14: division called Stars, but they're in the process of separating

912
00:39:51,040 --> 00:39:53,480
Speaker 14: those two businesses so that they can kind of unlock value.

913
00:39:53,480 --> 00:39:55,279
Speaker 14: And I think what they're trying to do here is

914
00:39:55,320 --> 00:39:58,080
Speaker 14: kind of really beef up their studio assets so that

915
00:39:58,080 --> 00:40:00,719
Speaker 14: it could fetch them premium valuation when they decide to.

916
00:40:01,160 --> 00:40:04,359
Speaker 1: Sell all right, getha, We're about to kick off some

917
00:40:04,640 --> 00:40:06,799
Speaker 1: big earnings for the media companies. And actually today we

918
00:40:06,840 --> 00:40:10,440
Speaker 1: had Warner Brothers Discovery. They took their guidance down a

919
00:40:10,480 --> 00:40:13,360
Speaker 1: little bit, but talk to us about Warner Brothers Discovery

920
00:40:13,360 --> 00:40:16,000
Speaker 1: because that's one of the leading media companies now with

921
00:40:16,080 --> 00:40:19,160
Speaker 1: David Zasov as CEO, it's right up there trying to

922
00:40:19,160 --> 00:40:21,759
Speaker 1: buy for some leadership position in their global media space.

923
00:40:21,800 --> 00:40:24,200
Speaker 1: What do we learn today from Warner Brothers Discovery.

924
00:40:24,800 --> 00:40:28,080
Speaker 14: Yeah, I'm actually a little bit surprised, Paul at the reaction.

925
00:40:28,239 --> 00:40:29,920
Speaker 14: I think it's almost a little bit of an overreaction

926
00:40:30,000 --> 00:40:33,719
Speaker 14: because the results that they reported were stellar. So the

927
00:40:33,800 --> 00:40:36,359
Speaker 14: one metric I think that everybody is focused on these

928
00:40:36,400 --> 00:40:38,600
Speaker 14: days in the media world is free cash flow and

929
00:40:38,640 --> 00:40:41,040
Speaker 14: they absolutely blew it out of the water. So we

930
00:40:41,040 --> 00:40:43,480
Speaker 14: were expecting about nine hundred million to about a billion

931
00:40:43,480 --> 00:40:45,440
Speaker 14: and free cash flow for the second quarter. They came

932
00:40:45,440 --> 00:40:46,680
Speaker 14: in at one point seven billion.

933
00:40:46,960 --> 00:40:47,240
Speaker 4: Wow.

934
00:40:47,280 --> 00:40:48,960
Speaker 14: Of course, they got a little bit of a boost

935
00:40:48,960 --> 00:40:50,960
Speaker 14: from the writer's strike. They did say that about one

936
00:40:51,000 --> 00:40:53,279
Speaker 14: hundred million boost, and they do expect to see a

937
00:40:53,280 --> 00:40:55,560
Speaker 14: similar level of free cash flow again in three Q.

938
00:40:56,120 --> 00:40:58,440
Speaker 14: So as far as you know, profitability metrics are concerned,

939
00:40:58,440 --> 00:41:01,200
Speaker 14: you know, free cash flows concerned. I think it was

940
00:41:01,200 --> 00:41:04,080
Speaker 14: absolutely stellar. Now, what they did do is they kind

941
00:41:04,080 --> 00:41:06,759
Speaker 14: of walked back expectations a little bit just because of

942
00:41:06,800 --> 00:41:08,920
Speaker 14: the strike. So, you know, they said that they're not

943
00:41:09,000 --> 00:41:11,080
Speaker 14: completely sure whether they're going to be able to release

944
00:41:11,360 --> 00:41:13,600
Speaker 14: the rest of the slate as they had planned, so

945
00:41:13,640 --> 00:41:15,600
Speaker 14: there's a little bit of uncertainty. And then, of course,

946
00:41:15,600 --> 00:41:18,680
Speaker 14: the tv AD market continues to be very, very choppy,

947
00:41:18,719 --> 00:41:21,919
Speaker 14: so they had a thirteen percent decline in linear tv

948
00:41:22,040 --> 00:41:24,480
Speaker 14: AD revenue, and it doesn't seem to be getting much

949
00:41:24,520 --> 00:41:26,799
Speaker 14: better over the second half. So I think all of

950
00:41:26,840 --> 00:41:28,680
Speaker 14: those factors kind of weighed a little bit. But as

951
00:41:28,680 --> 00:41:31,759
Speaker 14: far as two Q results go, it was it was spectacular.

952
00:41:32,160 --> 00:41:35,759
Speaker 8: Looking ahead to Disney's earnings results next Wednesday after the

953
00:41:35,760 --> 00:41:38,719
Speaker 8: closing bell, if you look at its prior quarter, it's

954
00:41:39,000 --> 00:41:43,320
Speaker 8: direct to consumer segment, which obviously includes that flagship Disney

955
00:41:43,360 --> 00:41:45,879
Speaker 8: Plus streaming service, actually suffered a loss of more than

956
00:41:46,280 --> 00:41:49,200
Speaker 8: six hundred and fifty million dollars. What are you looking

957
00:41:49,280 --> 00:41:52,279
Speaker 8: ahead to for the outlook when it comes to Disney's report.

958
00:41:53,080 --> 00:41:54,960
Speaker 14: Yes, and Disney, I don't think it's going to be

959
00:41:54,960 --> 00:41:58,640
Speaker 14: so much about you know, the quarterly metrics as more

960
00:41:58,680 --> 00:42:01,719
Speaker 14: about strategic direct You know, I don't think this this

961
00:42:01,800 --> 00:42:04,239
Speaker 14: quarter is really going to do anything in terms of,

962
00:42:05,480 --> 00:42:07,719
Speaker 14: you know, the numbers itself. I think it's really going

963
00:42:07,800 --> 00:42:11,239
Speaker 14: to be more about what Bob Eigers says about what

964
00:42:11,320 --> 00:42:13,400
Speaker 14: he's planning for ESPN, and there's been so much of

965
00:42:13,400 --> 00:42:17,279
Speaker 14: speculation about what he's planning to get to streaming craftability.

966
00:42:17,320 --> 00:42:20,000
Speaker 14: You brought that six hundred and fifty million loss number.

967
00:42:20,600 --> 00:42:21,600
Speaker 10: Actually their streaming.

968
00:42:21,360 --> 00:42:23,920
Speaker 14: Losses are expected to go up a little bit for

969
00:42:24,520 --> 00:42:27,360
Speaker 14: this quarter, but that's not really the point. The point is,

970
00:42:27,400 --> 00:42:28,360
Speaker 14: you know, what are they going to do with the

971
00:42:28,400 --> 00:42:31,680
Speaker 14: linear TV assets? What are their plans you know for Hulu?

972
00:42:32,360 --> 00:42:35,480
Speaker 14: So it's really more strategic direction that we're kind of

973
00:42:35,600 --> 00:42:38,120
Speaker 14: going to be looking for when Disney reports next week.

974
00:42:38,200 --> 00:42:42,719
Speaker 8: So how does the whole Bourbenheimer situation also affect their strategy?

975
00:42:42,719 --> 00:42:43,320
Speaker 11: Have to ask?

976
00:42:44,520 --> 00:42:44,719
Speaker 4: Yeah.

977
00:42:44,760 --> 00:42:46,920
Speaker 14: So I think what it tells us is that Disney's

978
00:42:46,920 --> 00:42:49,799
Speaker 14: content engine is clearly broken, right because we can talk

979
00:42:49,840 --> 00:42:53,200
Speaker 14: about you know, maybe you know, box office demand kind

980
00:42:53,200 --> 00:42:55,640
Speaker 14: of flagging a little bit, but it doesn't really look

981
00:42:55,640 --> 00:42:57,120
Speaker 14: that way. I mean, if you look at the movies

982
00:42:57,400 --> 00:42:59,440
Speaker 14: the top movies this year, whether it was a super

983
00:42:59,440 --> 00:43:02,279
Speaker 14: Mario that came out from Universal, you look at you

984
00:43:02,320 --> 00:43:05,880
Speaker 14: know obviously Barbie Oppenheimer, all of them doing really really well.

985
00:43:06,440 --> 00:43:09,920
Speaker 14: So it really looks like the Disney franchises have gotten tired, right,

986
00:43:09,960 --> 00:43:12,640
Speaker 14: whether it's Marvel, whether it's you know, Star Wars, and

987
00:43:12,640 --> 00:43:16,759
Speaker 14: their animation studio has really had a string of misfires.

988
00:43:17,719 --> 00:43:21,920
Speaker 14: The leading animation studio today is you know, surprisingly it

989
00:43:22,000 --> 00:43:24,960
Speaker 14: is Universal. They've had they've had a string of his

990
00:43:25,120 --> 00:43:28,080
Speaker 14: they're doing really really well. So definitely there has to

991
00:43:28,120 --> 00:43:31,680
Speaker 14: be a huge reset in the film division, and it's

992
00:43:31,719 --> 00:43:33,560
Speaker 14: going to be interesting to see what, you know, mister

993
00:43:33,600 --> 00:43:35,520
Speaker 14: Traiger has to say when they report.

994
00:43:35,760 --> 00:43:37,759
Speaker 1: I mean, I never thought i'd hear those words of

995
00:43:37,760 --> 00:43:40,399
Speaker 1: Githa because I thought their movie strategy which is set

996
00:43:40,480 --> 00:43:44,320
Speaker 1: forever just mining all the films out of Marvel and

997
00:43:44,440 --> 00:43:47,680
Speaker 1: Pixar and all those types of things. But boy, that's

998
00:43:47,760 --> 00:43:50,920
Speaker 1: if that's in fact the case, that's that's really big

999
00:43:51,080 --> 00:43:53,160
Speaker 1: for this stock, and it really puts the pressure on

1000
00:43:53,160 --> 00:43:57,840
Speaker 1: Bob Iger. It's interesting has a company kind of admitted

1001
00:43:57,840 --> 00:43:59,960
Speaker 1: that or is that just kind of a you know,

1002
00:44:00,239 --> 00:44:01,279
Speaker 1: kind of a conservative take.

1003
00:44:02,800 --> 00:44:06,160
Speaker 14: I think they have somewhat admitted to it, which is

1004
00:44:06,200 --> 00:44:08,520
Speaker 14: why we're kind of you know, they kind of had

1005
00:44:08,520 --> 00:44:11,160
Speaker 14: a pause on some of their Star Wars properties, they're

1006
00:44:11,200 --> 00:44:14,440
Speaker 14: delaying some of their you know, other releases. I think definitely,

1007
00:44:14,760 --> 00:44:18,239
Speaker 14: you know, Barbieger is taking a hard look. But again,

1008
00:44:18,280 --> 00:44:20,680
Speaker 14: Paul Is you very well know you know, content production

1009
00:44:20,760 --> 00:44:22,520
Speaker 14: takes a while. I mean, if you want to make

1010
00:44:22,560 --> 00:44:24,520
Speaker 14: a good film, it's going to take three to four

1011
00:44:24,560 --> 00:44:27,360
Speaker 14: to five years. So this, you know, he has to

1012
00:44:27,400 --> 00:44:29,239
Speaker 14: be in this for the long haul, and that kind

1013
00:44:29,239 --> 00:44:31,759
Speaker 14: of explains why, you know, he extended his contract as well.

1014
00:44:31,760 --> 00:44:35,520
Speaker 14: I think it totally makes sense. But definitely, clearly something

1015
00:44:35,560 --> 00:44:38,480
Speaker 14: has to happen on the content front to kind of reinvigorate,

1016
00:44:38,560 --> 00:44:40,480
Speaker 14: re energize all of these franchises.

1017
00:44:40,719 --> 00:44:42,719
Speaker 1: What are the companies saying. You kind of just brought

1018
00:44:42,719 --> 00:44:45,799
Speaker 1: it up earlier, But these strikes, the writer strike and

1019
00:44:45,840 --> 00:44:49,000
Speaker 1: the actor strike, I mean, they got to get resolved

1020
00:44:49,080 --> 00:44:52,640
Speaker 1: like now. But I don't hear any sense of compromise

1021
00:44:52,680 --> 00:44:53,640
Speaker 1: from either side here.

1022
00:44:54,719 --> 00:44:54,959
Speaker 9: Yeah.

1023
00:44:54,960 --> 00:44:57,880
Speaker 14: I mean again, you know, as you had mentioned earlier,

1024
00:44:57,920 --> 00:45:00,120
Speaker 14: So the first thing David Zaslav said on the All

1025
00:45:00,120 --> 00:45:02,640
Speaker 14: today was, you know, we need to get these strikes

1026
00:45:02,680 --> 00:45:05,719
Speaker 14: sorted out. That's what Netflix said as well, So you know,

1027
00:45:05,800 --> 00:45:08,879
Speaker 14: obviously it is of paramount importance. They need to get

1028
00:45:08,880 --> 00:45:11,960
Speaker 14: it done. But again haven't really heard anything. Just as

1029
00:45:11,960 --> 00:45:14,640
Speaker 14: you said, as of right now, the only good thing

1030
00:45:14,640 --> 00:45:16,520
Speaker 14: that it's doing for all of these companies is it's

1031
00:45:16,520 --> 00:45:20,160
Speaker 14: really bomboosting. We're free cash flow numbers. But come twenty

1032
00:45:20,200 --> 00:45:22,920
Speaker 14: twenty four, it's going to be a blood bath, especially

1033
00:45:23,000 --> 00:45:25,959
Speaker 14: when you have a complete, you know pause. In terms

1034
00:45:25,960 --> 00:45:27,880
Speaker 14: of the content pipeline, do you think.

1035
00:45:27,719 --> 00:45:30,799
Speaker 8: That Barbenheimer can crush box office for a third week

1036
00:45:30,840 --> 00:45:31,279
Speaker 8: in a row.

1037
00:45:32,040 --> 00:45:34,360
Speaker 14: I absolutely think so. I mean there's going to be

1038
00:45:34,400 --> 00:45:37,840
Speaker 14: a few new films obviously this weekend, you know, Teenage Mutant, Ninja, Turtles,

1039
00:45:38,239 --> 00:45:41,520
Speaker 14: Meg Too again don't stand a chance at all by

1040
00:45:41,520 --> 00:45:43,719
Speaker 14: the end of this week, and Zaslav actually mentioned this

1041
00:45:43,760 --> 00:45:45,680
Speaker 14: on the call. They expect Barbie to cross a billion

1042
00:45:45,719 --> 00:45:49,160
Speaker 14: dollars at the global box office. So it's just been spectacular.

1043
00:45:49,320 --> 00:45:52,240
Speaker 1: What are the theater operators saying about the movie business

1044
00:45:52,280 --> 00:45:53,000
Speaker 1: in the future that.

1045
00:45:54,920 --> 00:45:58,040
Speaker 14: So they are actually so obviously this has really played

1046
00:45:58,120 --> 00:46:01,239
Speaker 14: well for you know, the operators. We've seen kind of

1047
00:46:01,239 --> 00:46:04,360
Speaker 14: box office estimates go up a little bit of course

1048
00:46:04,400 --> 00:46:07,759
Speaker 14: there are clouds on the horizon, Paul with those strikes,

1049
00:46:07,840 --> 00:46:11,000
Speaker 14: so again it's a little bit iffy still, but I

1050
00:46:11,040 --> 00:46:13,759
Speaker 14: think in general the sentiment seems to be good. I

1051
00:46:13,760 --> 00:46:15,719
Speaker 14: think what this The one thing that comes out of,

1052
00:46:16,000 --> 00:46:18,439
Speaker 14: you know, the Barbie success, is that people really want

1053
00:46:18,440 --> 00:46:21,040
Speaker 14: to go see original movies. They want to see something new,

1054
00:46:21,040 --> 00:46:23,359
Speaker 14: they want to see something fresh, and if you make

1055
00:46:23,440 --> 00:46:25,680
Speaker 14: good content, people will definitely.

1056
00:46:25,280 --> 00:46:27,840
Speaker 1: Go all right, Keitha, thanks so much once again for

1057
00:46:27,920 --> 00:46:29,680
Speaker 1: joining us. Bring us up to date on all things

1058
00:46:29,840 --> 00:46:32,840
Speaker 1: going on in the global media space. Githa Raganathan. She

1059
00:46:33,080 --> 00:46:36,320
Speaker 1: is the senior media analysty covers a lot more of

1060
00:46:36,320 --> 00:46:39,239
Speaker 1: the media at Bloomberg Intelligence base down there holding down

1061
00:46:39,280 --> 00:46:40,680
Speaker 1: the Ford in our Princeton studio.

1062
00:46:40,719 --> 00:46:43,960
Speaker 7: Down there, you're listening to the tape cancer Live program

1063
00:46:44,000 --> 00:46:47,960
Speaker 7: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,

1064
00:46:48,080 --> 00:46:50,319
Speaker 7: the tune in app, Bloomberg dot Com, and the.

1065
00:46:50,280 --> 00:46:51,479
Speaker 4: Bloomberg Business App.

1066
00:46:51,520 --> 00:46:54,319
Speaker 7: You can also listen live on Amazon Alexa from our

1067
00:46:54,360 --> 00:47:00,120
Speaker 7: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

1068
00:47:00,960 --> 00:47:03,320
Speaker 8: Who better to talk with us about this latest earnings

1069
00:47:03,320 --> 00:47:06,600
Speaker 8: report than Will Lansing CEO of Fico, who's here to

1070
00:47:06,640 --> 00:47:10,080
Speaker 8: discuss the earnings results as well as what's happening with

1071
00:47:10,120 --> 00:47:12,560
Speaker 8: the outlook with the industry. Will thanks so much for

1072
00:47:12,719 --> 00:47:15,760
Speaker 8: joining Paul and myself walk us through with this latest

1073
00:47:15,760 --> 00:47:16,440
Speaker 8: earnings report.

1074
00:47:18,160 --> 00:47:21,759
Speaker 12: Well, it's it's been a really good quarter, it's been

1075
00:47:21,760 --> 00:47:23,760
Speaker 12: a good year, and frankly, it's been.

1076
00:47:23,600 --> 00:47:24,840
Speaker 6: A good decade for Fico.

1077
00:47:26,280 --> 00:47:29,520
Speaker 12: What's happened in the most recent quarter is that our

1078
00:47:29,560 --> 00:47:32,319
Speaker 12: software business has really taken it off, and we can

1079
00:47:32,360 --> 00:47:34,680
Speaker 12: talk a little bit about how the software business has

1080
00:47:34,719 --> 00:47:38,200
Speaker 12: evolved from the scores business that you're probably familiar with,

1081
00:47:39,360 --> 00:47:41,440
Speaker 12: and then our scores business is as strong as it's

1082
00:47:41,440 --> 00:47:44,120
Speaker 12: ever been. In the combination of these two businesses, which

1083
00:47:44,160 --> 00:47:48,560
Speaker 12: is really what Fyco's made of. Scores and software is

1084
00:47:48,719 --> 00:47:52,120
Speaker 12: driving the growth, big revenue growth, and we have new offering,

1085
00:47:52,200 --> 00:47:57,400
Speaker 12: the Fyco Decision Platform, and that's growing over fifty percent

1086
00:47:57,440 --> 00:47:57,799
Speaker 12: a year.

1087
00:47:57,880 --> 00:48:01,200
Speaker 6: So it's just been just a great story.

1088
00:48:01,960 --> 00:48:05,839
Speaker 1: So Will, I'm a stock jockey myself and I'm you know,

1089
00:48:05,880 --> 00:48:08,359
Speaker 1: Fico is a name we've used forever. It's been thrown around.

1090
00:48:08,360 --> 00:48:09,839
Speaker 1: Anytime we're going to get a loan, we think about

1091
00:48:09,880 --> 00:48:12,440
Speaker 1: where's our fight Gosco. What's our fight? Go Score and

1092
00:48:12,480 --> 00:48:16,360
Speaker 1: looking at your company went public in nineteen eighty seven,

1093
00:48:17,280 --> 00:48:20,040
Speaker 1: So it's just amazing hit all time high today on

1094
00:48:20,080 --> 00:48:22,520
Speaker 1: your stock price. But when public at nineteen eighty seven,

1095
00:48:23,040 --> 00:48:26,399
Speaker 1: lead manager Hambroock and Quist, who I remember quite well,

1096
00:48:26,440 --> 00:48:28,960
Speaker 1: they were leading investment bank on the West Coast, doing

1097
00:48:29,000 --> 00:48:31,120
Speaker 1: a lot of smart deals, including this one. In hindsight,

1098
00:48:31,800 --> 00:48:33,440
Speaker 1: so we'll talk to us. I think we're all kind

1099
00:48:33,440 --> 00:48:35,919
Speaker 1: of familiar with the Scores business. Talk to us about

1100
00:48:35,920 --> 00:48:38,600
Speaker 1: the software business. What is that business for you guys,

1101
00:48:38,840 --> 00:48:42,000
Speaker 1: and what are the key drivers? Well, maybe just a

1102
00:48:42,040 --> 00:48:45,400
Speaker 1: little bit of history to be able to frame appslware

1103
00:48:45,440 --> 00:48:48,080
Speaker 1: business because it evolved from our Scores business. So the

1104
00:48:48,080 --> 00:48:50,919
Speaker 1: company was found in nineteen fifty six by a mathematician

1105
00:48:51,000 --> 00:48:54,239
Speaker 1: and an engineer and their idea was pretty simple one.

1106
00:48:54,280 --> 00:48:55,160
Speaker 6: It was, let's use.

1107
00:48:55,080 --> 00:48:58,799
Speaker 12: Data to make more informed, fact based decisions. And if

1108
00:48:58,800 --> 00:49:01,960
Speaker 12: we can do that, you know, we can you know,

1109
00:49:02,000 --> 00:49:04,279
Speaker 12: we can lower the cost of making these decisions. We

1110
00:49:04,280 --> 00:49:07,319
Speaker 12: can make better, more precise decisions. And at the time

1111
00:49:07,360 --> 00:49:10,239
Speaker 12: we were really an analytics consulting firm and we would

1112
00:49:10,280 --> 00:49:11,880
Speaker 12: take any kind of work that came along, any kind

1113
00:49:11,880 --> 00:49:16,560
Speaker 12: of optimization work. Anything that required data to drive a decision,

1114
00:49:16,880 --> 00:49:20,799
Speaker 12: we were interested. We rapidly evolved through the fifties and

1115
00:49:20,840 --> 00:49:25,440
Speaker 12: sixties to doing custom projects for banks, for financial institutions

1116
00:49:25,480 --> 00:49:29,239
Speaker 12: who actually had big dollar value decisions to make, and

1117
00:49:29,280 --> 00:49:31,479
Speaker 12: so it made sense for them to invest in trying

1118
00:49:31,520 --> 00:49:33,960
Speaker 12: to make a better decision. And so for the first

1119
00:49:34,040 --> 00:49:37,640
Speaker 12: thirty forty years of fiko's existence, we were doing custom

1120
00:49:37,719 --> 00:49:42,359
Speaker 12: projects for different banks and also other industries, but a

1121
00:49:42,360 --> 00:49:45,600
Speaker 12: lot of banks. In nineteen eighty seven, we partnered with

1122
00:49:46,160 --> 00:49:50,319
Speaker 12: Equifax and launched the first kind of industry wide score,

1123
00:49:50,320 --> 00:49:52,800
Speaker 12: and the idea was, you know, we're doing these credit

1124
00:49:52,840 --> 00:49:55,960
Speaker 12: scores individually bank by bank, why don't we produce a

1125
00:49:56,040 --> 00:49:59,279
Speaker 12: score that the entire industry can use and it'll lower

1126
00:49:59,320 --> 00:50:01,600
Speaker 12: the costs of a evaluating credit, it will make credit

1127
00:50:01,600 --> 00:50:04,640
Speaker 12: more accessible to more people. And that was what kind

1128
00:50:04,680 --> 00:50:06,960
Speaker 12: of drove us to this idea in eighty seven and

1129
00:50:07,000 --> 00:50:11,640
Speaker 12: of launching an industry wide score. We rapidly followed that

1130
00:50:11,719 --> 00:50:19,440
Speaker 12: score with scores with Experience and TransUnion, and so suddenly

1131
00:50:19,440 --> 00:50:23,480
Speaker 12: we had multiple scores available to evaluate credit with and

1132
00:50:23,520 --> 00:50:25,239
Speaker 12: they were all built on the same kinds of data

1133
00:50:25,239 --> 00:50:28,800
Speaker 12: sets that the data comes from the credit bureaus, and

1134
00:50:29,680 --> 00:50:32,640
Speaker 12: most importantly they were fungible. It was the same oddset

1135
00:50:32,719 --> 00:50:35,040
Speaker 12: score ratio for a score where it was produced by

1136
00:50:35,080 --> 00:50:38,920
Speaker 12: Equifax or Experience or TransUnion, and so you can imagine

1137
00:50:38,920 --> 00:50:39,080
Speaker 12: that was.

1138
00:50:39,120 --> 00:50:40,360
Speaker 6: Quite popular with the lenders.

1139
00:50:41,160 --> 00:50:43,279
Speaker 12: They loved the idea of a low cost way to

1140
00:50:43,320 --> 00:50:46,120
Speaker 12: evaluate credit and to leverage any of the three credit

1141
00:50:46,120 --> 00:50:47,120
Speaker 12: bureaus credit files.

1142
00:50:48,320 --> 00:50:50,799
Speaker 6: So that was kind of the first half of.

1143
00:50:50,760 --> 00:50:53,960
Speaker 12: Fiko's life was with building these kinds of custom projects

1144
00:50:53,960 --> 00:50:57,319
Speaker 12: and then eventually building an industry wide score. Along the way,

1145
00:50:57,360 --> 00:50:59,560
Speaker 12: we came to a view that we should try to

1146
00:51:00,480 --> 00:51:04,640
Speaker 12: reduce this analytic ip that we have to software, because

1147
00:51:05,160 --> 00:51:07,080
Speaker 12: it's not just a credit file. You can look at

1148
00:51:07,080 --> 00:51:08,600
Speaker 12: a lot of different kinds of data to make a

1149
00:51:08,719 --> 00:51:11,799
Speaker 12: credit decision, and so we built software to do that,

1150
00:51:12,600 --> 00:51:15,800
Speaker 12: and the idea was we'd get returns to scale software

1151
00:51:15,880 --> 00:51:18,600
Speaker 12: returns as opposed to just being kind of an analytics

1152
00:51:18,640 --> 00:51:21,320
Speaker 12: body shot, right, And that was successful also, and we

1153
00:51:21,719 --> 00:51:24,319
Speaker 12: wound up becoming the pre eminent player in credit card

1154
00:51:24,320 --> 00:51:28,280
Speaker 12: fraud detection and a very strong player and originations and collections,

1155
00:51:28,400 --> 00:51:32,439
Speaker 12: recovery and customer communication virtually all the kind of key

1156
00:51:32,480 --> 00:51:35,800
Speaker 12: functions around undwriting and risk and a bank.

1157
00:51:36,680 --> 00:51:37,040
Speaker 4: This is.

1158
00:51:38,520 --> 00:51:39,640
Speaker 6: I'm sorry, go ahead, Jeff.

1159
00:51:39,760 --> 00:51:42,120
Speaker 8: I was curious because, obviously, since this is Bloomberg and

1160
00:51:42,120 --> 00:51:44,960
Speaker 8: we like to see what's ahead for the economy, I

1161
00:51:45,040 --> 00:51:47,279
Speaker 8: was curious as far as the analytics and what you're

1162
00:51:47,280 --> 00:51:49,719
Speaker 8: seeing when it comes to Americans and their credit and

1163
00:51:49,719 --> 00:51:53,000
Speaker 8: their credit scores, how that translates into either what you're

1164
00:51:53,080 --> 00:51:55,600
Speaker 8: viewing as far as the amount of people trying to

1165
00:51:55,600 --> 00:51:58,600
Speaker 8: take out loans and what that could mean for approval,

1166
00:51:58,640 --> 00:52:01,960
Speaker 8: as far as how that into the economy and consumer

1167
00:52:02,000 --> 00:52:04,160
Speaker 8: credit at this point.

1168
00:52:04,360 --> 00:52:06,279
Speaker 12: Well, you know, people are as interested in credit as

1169
00:52:06,280 --> 00:52:09,440
Speaker 12: they've ever been. Obviously, interest rates are higher and mortgage

1170
00:52:09,480 --> 00:52:13,160
Speaker 12: buyes are down a bit because of that, but there

1171
00:52:13,160 --> 00:52:14,799
Speaker 12: are very few people who are not interested in what

1172
00:52:14,800 --> 00:52:17,879
Speaker 12: their credit score means, and because it drives the price

1173
00:52:17,920 --> 00:52:20,520
Speaker 12: of credit, and it drives access to credit, and so

1174
00:52:20,600 --> 00:52:22,960
Speaker 12: we have a new found, i'd say, over the last

1175
00:52:22,960 --> 00:52:28,239
Speaker 12: ten years, sensitivity and awareness of the impact of a

1176
00:52:28,280 --> 00:52:33,560
Speaker 12: credit score on of your life. What we're seeing is

1177
00:52:34,080 --> 00:52:36,960
Speaker 12: as much appetite for credit scores as we've ever had.

1178
00:52:37,600 --> 00:52:39,719
Speaker 12: We're selling more scores than we ever have, and the

1179
00:52:39,719 --> 00:52:41,640
Speaker 12: industry relies on them very heavily.

1180
00:52:43,080 --> 00:52:47,120
Speaker 1: So we'll thirty seconds left here. What's the key issue

1181
00:52:47,160 --> 00:52:49,040
Speaker 1: that you're getting across to your shareholders these days?

1182
00:52:49,080 --> 00:52:53,319
Speaker 12: The number one issue, well, you know, our shareholders are

1183
00:52:53,360 --> 00:52:55,759
Speaker 12: well familiar with our Scores business and how strong it is,

1184
00:52:55,800 --> 00:52:58,600
Speaker 12: what powerful franchise it is. It's the industry standard and

1185
00:52:58,640 --> 00:53:04,160
Speaker 12: the cornerstone for US credit economy. Our software business, which

1186
00:53:04,239 --> 00:53:08,040
Speaker 12: is built on this decisioning platform, is very powerful, and

1187
00:53:07,719 --> 00:53:10,160
Speaker 12: that's also driving on our stock price. We've had this

1188
00:53:10,200 --> 00:53:14,480
Speaker 12: phenomenal run over the last decade over thirty percent cumulative

1189
00:53:15,320 --> 00:53:20,239
Speaker 12: return CAUFIN annual growth rate and twenty four x over

1190
00:53:20,280 --> 00:53:23,319
Speaker 12: the last decade in our stock price appreciation. So that's

1191
00:53:23,360 --> 00:53:26,759
Speaker 12: driven by recognition of the software or the software as

1192
00:53:26,800 --> 00:53:27,560
Speaker 12: well as listeners.

1193
00:53:27,719 --> 00:53:29,800
Speaker 1: All right, hey, well thanks for coming on. Really appreciate

1194
00:53:29,840 --> 00:53:32,320
Speaker 1: getting a few minutes of your time. Will Lansing, thanks.

1195
00:53:32,080 --> 00:53:35,560
Speaker 2: For listening to the Bloomberg Markets podcast. You can subscribe

1196
00:53:35,600 --> 00:53:39,320
Speaker 2: and listen to interviews at Apple Podcasts or whatever podcast

1197
00:53:39,360 --> 00:53:42,919
Speaker 2: platform you prefer. I'm Matt Miller. I'm on Twitter at

1198
00:53:42,960 --> 00:53:44,680
Speaker 2: Matt Miller nineteen seventy three.

1199
00:53:45,120 --> 00:53:47,560
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.

1200
00:53:47,600 --> 00:53:50,279
Speaker 1: Before the podcast, you can always catch US worldwide at

1201
00:53:50,280 --> 00:53:52,040
Speaker 1: Bloomberg Radio,