WEBVTT - Is Amazon's MGM Deal Just Another Whole Foods? 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.720 at Bloomberg dot com slash podcast. Well, we're waiting news 0:00:22.760 --> 0:00:26.520 on a potential deal in the media space. Amazon reportedly 0:00:26.600 --> 0:00:30.120 is and talks to acquire the film studio MGM. The 0:00:30.120 --> 0:00:32.599 reported price tag is up to uh perhaps as high 0:00:32.600 --> 0:00:36.640 as nine billion dollars. Let's break down this potential deal 0:00:36.880 --> 0:00:40.040 with Mark Douglas. He's the CEO of Steelhouse. Mark. Thanks 0:00:40.080 --> 0:00:41.919 so much for joining us here. You know, I look 0:00:41.960 --> 0:00:45.080 at Amazon and the gajillion dollar you know, almost a 0:00:45.080 --> 0:00:48.480 two trillion dollar market cap, got tremendous amounts of cash 0:00:48.520 --> 0:00:51.280 on the balance sheet. Why are they You know, you 0:00:51.280 --> 0:00:53.560 can look at MGM. It's a great, great film studio, 0:00:53.560 --> 0:00:56.800 tremendous history, lots of great content, but it's kind of 0:00:56.840 --> 0:00:59.240 small in the scheme of things. If if Amazon is 0:00:59.240 --> 0:01:03.040 really serious about the content business and maybe really compete 0:01:03.040 --> 0:01:05.160 against Netflix and Disney, why don't they go out and 0:01:05.240 --> 0:01:09.080 buy something big like maybe even a Netflix or Disney 0:01:09.120 --> 0:01:11.479 at the very least something like a Viacom CBS. Why 0:01:11.480 --> 0:01:13.760 are they just kind of dipping their toe here with 0:01:13.959 --> 0:01:17.160 a nine billion dollar deal for MGM. Yeah, So I 0:01:17.200 --> 0:01:21.200 think that's the question that everyone has. And Amazon is 0:01:21.280 --> 0:01:24.679 in the streaming business with Amazon Prime. But I think 0:01:24.720 --> 0:01:27.800 if you were to asked, you know, virtually anyone really 0:01:28.560 --> 0:01:32.560 um to name a streaming service, you would be hard 0:01:32.600 --> 0:01:35.600 pressed to anyone to actually name Prime as as one 0:01:35.600 --> 0:01:38.440 of those services. Because people get Prime to get their 0:01:38.680 --> 0:01:42.560 packages delivered for free, not in order to watch movie 0:01:42.600 --> 0:01:46.119 content and other content. And so that's the lemmon um 0:01:46.160 --> 0:01:49.720 Amazon has. And and they're really not um investing in 0:01:49.760 --> 0:01:54.160 any huge way with this deal. I think most people expected, 0:01:54.240 --> 0:01:57.880 but there aren't you know, excited about it. The Prime 0:01:58.000 --> 0:02:00.240 layout is even worse than the Netflix layout out in 0:02:00.320 --> 0:02:04.400 terms of, you know, the user interface. I mean, both 0:02:04.400 --> 0:02:06.840 are pretty bad. I don't know why they can't match Apple, 0:02:06.960 --> 0:02:12.639 But um, what would be the best way then? Uh, 0:02:12.919 --> 0:02:14.959 do you think an acquisition is the best way for 0:02:15.040 --> 0:02:17.880 Amazon to do better in that space? Do you think, um, 0:02:18.120 --> 0:02:20.560 they is there a specific target that you have in 0:02:20.600 --> 0:02:24.040 mind mark. Yeah, well, I think the deal that Discovery did, 0:02:24.080 --> 0:02:27.080 what's the deal to do because you know, HBO Max 0:02:27.639 --> 0:02:31.240 is if you want, yeah, if you want to give viewers, 0:02:31.720 --> 0:02:35.400 it starts with original content. And even that's not enough. 0:02:35.520 --> 0:02:39.200 Apple spends more money on original content than anyone and 0:02:39.200 --> 0:02:41.800 and and you know, name a show that you love 0:02:42.440 --> 0:02:44.960 on on Apple TV Plus. So I think you know, 0:02:45.040 --> 0:02:48.600 both these companies have, you know, huge amounts of money. 0:02:49.120 --> 0:02:52.080 They both spend. Apple is at least spending in the 0:02:52.200 --> 0:02:55.120 area that they're hoping finally breaks through and get them 0:02:55.120 --> 0:02:59.000 that big hits that that you know, essentially gets all 0:02:59.000 --> 0:03:01.560 the viewers to get side. It was like a handmade 0:03:01.600 --> 0:03:04.720 tale or in the past, the Game of Thrones and 0:03:04.880 --> 0:03:07.480 things like that. But Amazon is not even doing that. 0:03:07.560 --> 0:03:09.600 So I think, can I just say ted Lasso is 0:03:09.639 --> 0:03:12.920 really underrated. I just finished season one based on your 0:03:12.960 --> 0:03:15.880 recommendation there, managed I just don't think people know how 0:03:16.120 --> 0:03:21.040 funny it is. It's smart, but it's also kind of heartwarming. UM. 0:03:21.320 --> 0:03:25.160 I mean, it's not like a VP or a Silicon Valley, um. 0:03:25.200 --> 0:03:27.800 But it's really really good. They did they just didn't 0:03:27.800 --> 0:03:29.840 They don't get the recognition mark for that, do they? 0:03:30.000 --> 0:03:33.080 Or for Like for All Mankind also was quite good. 0:03:33.080 --> 0:03:37.000 That just doesn't get the credit. Yeah, well, I mean 0:03:37.280 --> 0:03:40.760 I agree in some sense, but you know, I'm I'm 0:03:40.760 --> 0:03:45.480 watching Startup one nextli you know, costs a lot less money. Um, someone, 0:03:45.520 --> 0:03:47.000 I don't think a lot of people know about the 0:03:47.080 --> 0:03:51.560 great show. So Netflix cranked out these shows, yeah literally 0:03:51.640 --> 0:03:56.120 five weeks that people love, and they have incredible technology 0:03:56.160 --> 0:03:59.400 to figure out what their users want to see. And meanwhile, 0:03:59.520 --> 0:04:01.800 Apple has got a fire hose of money they just 0:04:01.880 --> 0:04:05.240 bring around Hollywood and yeah, and and they're just not 0:04:05.360 --> 0:04:08.040 getting the same result. And the Amazon is now doing 0:04:08.080 --> 0:04:09.839 the same and they're not going to get the same 0:04:09.880 --> 0:04:13.440 with dot Well. Tera La Chapelle Bloomberg Opinion Columns is 0:04:13.440 --> 0:04:16.320 out with a great another great column today looking at 0:04:16.400 --> 0:04:18.760 this potential deal and saying, hey, you know, you think 0:04:18.800 --> 0:04:21.800 about the Whole Foods business that didn't wasn't really a 0:04:21.800 --> 0:04:26.320 game changer for for Amazon or even the industry. Um, 0:04:26.400 --> 0:04:28.200 And she's kind of saying, hey, this deal kind of 0:04:28.360 --> 0:04:30.560 feels like a Whole Foods where they're not really all in. 0:04:31.080 --> 0:04:34.760 But boy, you look market some of these other companies, Um, 0:04:35.520 --> 0:04:37.840 you know what is this Vicom, CBS do what does 0:04:37.880 --> 0:04:40.839 the Fox do. I mean, we thought you just wonder 0:04:40.880 --> 0:04:44.040 with you know, market caps that are seven billion dollars 0:04:44.040 --> 0:04:47.160 that they just don't seem like they're competitive enough in 0:04:47.240 --> 0:04:50.120 terms of scale and kind of where the world's going again. 0:04:50.160 --> 0:04:52.240 You look, you mentioned the the A, T and T 0:04:52.400 --> 0:04:56.200 and Discovery deal. Yeah, well, I mean it starts with vision. 0:04:56.440 --> 0:04:59.640 If you ask anyone in Amazon what is this deal 0:04:59.720 --> 0:05:02.640 going accomplished? I don't think they're going to give you 0:05:02.680 --> 0:05:05.640 a visionary or exciting result. But if you ask the 0:05:05.839 --> 0:05:09.600 head of Discovery what he what he's going to accomplish? 0:05:09.640 --> 0:05:12.200 What his vision? I think he knows and he's willing 0:05:12.200 --> 0:05:14.480 to put his solids on the table and the effort 0:05:14.560 --> 0:05:16.800 to accomplish it. And so if you want to win 0:05:16.839 --> 0:05:21.920 in Hollywood, all the biggest players, Netflix, Disney with Disney Plus, 0:05:22.240 --> 0:05:25.000 now Discovery, what they're doing with HBO, Max and the 0:05:25.040 --> 0:05:28.080 other assets they bought, they all share one common threat, 0:05:28.400 --> 0:05:31.680 you know, a thread, which is they have visions, they 0:05:31.720 --> 0:05:34.760 have original content, and they have huge libraries about the 0:05:34.800 --> 0:05:36.719 content to go with it. And if you want to 0:05:36.720 --> 0:05:38.719 be a real player, you need all of those ships 0:05:38.800 --> 0:05:42.480 on the table. Does the sports aspect help at Amazon? 0:05:42.560 --> 0:05:44.480 They're getting Are they getting Thursday night football? I think 0:05:44.520 --> 0:05:46.400 they are getting Thursday at football in Prime? Right? Does 0:05:46.440 --> 0:05:50.200 that help a lot or um? I mean it forces 0:05:50.279 --> 0:05:52.159 me to go use the you know, they go to 0:05:52.200 --> 0:05:54.599 the website of that content I want to watch. So 0:05:54.640 --> 0:05:57.640 in that sense it does help, But I don't see 0:05:57.880 --> 0:06:02.039 anyone can say that immeasurably increases put print of Amazon 0:06:02.360 --> 0:06:05.919 or anyone is leaving watching you know that that that 0:06:06.120 --> 0:06:08.960 NFL content and is now you know, basically going to 0:06:09.040 --> 0:06:12.640 consume more hours on Prime Menu? Are so? So it helps, 0:06:12.680 --> 0:06:16.159 it helps, you know, in terms of some awareness, but 0:06:16.240 --> 0:06:18.000 I don't think it really moves them up the food 0:06:18.040 --> 0:06:21.159 chain in terms of their position in the strands market. Hey, Mark, 0:06:21.240 --> 0:06:24.080 you you know as Steelhouse. You guys work with a 0:06:24.080 --> 0:06:27.400 lot of advertisers, a lot of brands. What are the advertisers? 0:06:27.400 --> 0:06:30.880 What is Madison Avenue saying about all those consolidation in 0:06:30.920 --> 0:06:33.880 the media spaces a good thing? Is it something to 0:06:33.920 --> 0:06:35.880 be concerned about? What are you hearing? Yeah? I think 0:06:35.960 --> 0:06:38.640 I mean remember for the advertisers, what they want is 0:06:38.800 --> 0:06:42.800 good at supported content. Right, So you have streaming subscription 0:06:42.839 --> 0:06:46.640 supported content that's Netflix, and then you have ad supported content, 0:06:46.720 --> 0:06:49.480 which is what Discovery and other a number of other 0:06:50.120 --> 0:06:53.320 companies are doing. And so those advertisers, I think they 0:06:53.400 --> 0:06:56.680 like these deals, you know, because there's a lot of 0:06:56.720 --> 0:06:59.440 revenue has to be generating that keeps these studios and 0:06:59.480 --> 0:07:02.919 everything firmly seeded and ad supported content, which the brands 0:07:02.960 --> 0:07:08.520 need in order to reach them doing. Baseball is dying. 0:07:09.480 --> 0:07:12.160 I wonder you're not a huge fan, right, but I 0:07:12.200 --> 0:07:14.720 wonder what you think about the Major League Baseball if 0:07:14.720 --> 0:07:17.160 you just ask quickly, because it's like every game is 0:07:17.160 --> 0:07:20.120 a no hitter and um, the average is down to 0:07:20.200 --> 0:07:24.120 two thirties or something. Um, is is this in your 0:07:25.440 --> 0:07:28.960 in your window at all? Here? Mark, I wouldn't say 0:07:29.000 --> 0:07:31.280 I'm not a huge fan. I actually loved the game 0:07:31.680 --> 0:07:34.600 and love a really good game. So I think what 0:07:34.800 --> 0:07:37.560 you're articulating is it's getting harder and harder to find. 0:07:39.040 --> 0:07:41.800 And so I think, you know, baseball is always going 0:07:41.840 --> 0:07:45.040 to be part of Americana, and I think the league 0:07:45.160 --> 0:07:49.360 just has to, you know, really, um, make bringing the 0:07:49.360 --> 0:07:53.000 players and and and have the rules and everything. Give 0:07:53.080 --> 0:07:55.880 us short, exciting games and they will get all the 0:07:55.960 --> 0:07:59.360 viewers they need, all right, Mark, Thanks very much, Mark Douglas. 0:07:59.760 --> 0:08:02.119 They are he is the CEO of Steelhouse. I always 0:08:02.120 --> 0:08:03.760 bring up baseball with him because I know he grew 0:08:03.840 --> 0:08:08.280 up right across the street from Yankee Stadium and became 0:08:08.280 --> 0:08:13.880 a Mets, became a Mets fan. All right, this is Bloomberg. 0:08:17.600 --> 0:08:20.520 Let's bring in Mark roberts Is Um Paul was saying, 0:08:20.520 --> 0:08:23.679 he's a co founder and owner of eleven eleven hotel 0:08:23.760 --> 0:08:28.400 and residences in Miami, and Mark, let me first ask 0:08:28.440 --> 0:08:30.440 you a question. We've talked to a lot of hotel 0:08:31.040 --> 0:08:35.280 and restaurant owners and operators throughout UM the Southeast to 0:08:35.559 --> 0:08:38.120 have told us it's very difficult to hire people right 0:08:38.200 --> 0:08:42.439 now if you had the same experience. Yes, we've had 0:08:42.480 --> 0:08:45.120 a little little issue with the hiring at the beginning, 0:08:45.800 --> 0:08:48.319 but because our strong brand, our strong name, and our 0:08:48.360 --> 0:08:51.880 recognition and people understand when they worked for us to 0:08:52.040 --> 0:08:54.800 be very lucrative, We've had a lot of people showing 0:08:54.840 --> 0:08:56.920 up in the last couple of weeks and we're gonna 0:08:56.960 --> 0:09:00.200 have a full staff probably another week or two, will 0:09:00.200 --> 0:09:02.640 be fully staffed. With the first Yeah, I have to 0:09:02.720 --> 0:09:05.480 hire them, then you have to some culture, and then 0:09:05.520 --> 0:09:07.520 you have to train them. But will have a full 0:09:07.760 --> 0:09:11.360 staff ready and rare and to go very shortly. So 0:09:11.520 --> 0:09:13.960 market there's I know you have here. An eleven eleven 0:09:14.440 --> 0:09:17.600 brand in Miami talked us about the Miami market. It's 0:09:17.600 --> 0:09:19.840 just gotta be one of the hottest markets in the country. 0:09:20.080 --> 0:09:22.439 Talk to us about how it's kind of evolved over 0:09:22.480 --> 0:09:25.840 the course of the last fourteen months. Sure, well eleven 0:09:25.920 --> 0:09:28.160 Hotel and Residents of course is leading the charge, but 0:09:28.320 --> 0:09:33.079 we sold out basically almost uh million dollars in real 0:09:33.200 --> 0:09:36.880 estate just under a month. And Miami has become such 0:09:36.920 --> 0:09:40.319 a hot market for a bunch of reasons. I think 0:09:40.360 --> 0:09:44.960 people first started moving to Miami because of the tax situation, 0:09:45.080 --> 0:09:47.720 get always from high pastes. I think they also like 0:09:47.760 --> 0:09:52.560 the political atmosphere, pro business uh. And then they get 0:09:52.600 --> 0:09:56.160 to Miami and they understand the quality of light is unbelievable. 0:09:56.200 --> 0:09:58.720 All of a sudden, they're boating around the water, the 0:09:58.760 --> 0:10:02.560 weather has been fantastic. Stick All they see is uh people, 0:10:02.720 --> 0:10:05.600 you know, feeling good, working out. And then they get 0:10:05.640 --> 0:10:08.280 there and they start seeing that business is booming. The 0:10:08.320 --> 0:10:11.280 restaurant like almost every restaurant you can name that there's 0:10:11.400 --> 0:10:15.800 lines to get in, there's you know, everybody's selling the condo, 0:10:15.920 --> 0:10:18.600 U interest selling things, are renting houses are selling it's 0:10:18.880 --> 0:10:22.320 crazy prices on multiples of what they want for just 0:10:22.400 --> 0:10:24.680 a year, a year and a half ago. And I 0:10:24.760 --> 0:10:28.640 really believe that New York and these other areas like 0:10:28.679 --> 0:10:32.400 San Francisco, l A, Chicago, the major stages are losing 0:10:32.400 --> 0:10:35.160 all these people. Uh, people are coming to Miami and 0:10:35.240 --> 0:10:38.520 understand of Miami's much more than just the tourist place. Now, 0:10:38.559 --> 0:10:41.439 Miami's coming the most major city there is probably in 0:10:41.480 --> 0:10:44.240 the world, and it's really grown up to be what's 0:10:44.240 --> 0:10:46.600 gonna be the epicenter of business. I mean, all the 0:10:46.679 --> 0:10:49.800 text that's coming in there now is just incredible. And 0:10:49.800 --> 0:10:52.360 and you know it's restaurants as restaurants. See all the 0:10:52.400 --> 0:10:56.240 other restaurants are being successful. Um for instance, like Carbone 0:10:56.280 --> 0:10:59.359 came down from New York. They're opening up twenty new restaurants. 0:11:00.360 --> 0:11:02.719 All it's like a stampede. It's like it's like a 0:11:03.240 --> 0:11:08.160 herd mentality, and everybody sees the numbers, and the numbers 0:11:08.160 --> 0:11:11.040 per square foot is just incredible, and I do everybody 0:11:11.280 --> 0:11:14.160 is shattering records. And and you know, as you know, 0:11:14.440 --> 0:11:16.800 the restaurant guys follow the restaurant guys, So there's an 0:11:16.840 --> 0:11:20.560 influx of top top top restaurants. I'm surely been called 0:11:20.559 --> 0:11:23.439 a col in every center of the universe. So so 0:11:23.480 --> 0:11:26.760 what have you done too? Because it's not a hotel 0:11:26.760 --> 0:11:29.280 in residents just the beginning for eleven and eleven, you've 0:11:29.280 --> 0:11:32.360 got UM one of the most famous, I guess nightclub 0:11:32.480 --> 0:11:36.280 spots in the US. Everybody wants to go and see. 0:11:36.320 --> 0:11:40.720 You've got shows with DJ's rappers. But you've got burlesque, 0:11:40.679 --> 0:11:44.880 You've got trapeeze acts. You've got also other UM products 0:11:44.920 --> 0:11:49.079 like your own vodka brand. How how are you branching 0:11:49.120 --> 0:11:53.480 out into into this economy. Well, we're doing is we've 0:11:53.480 --> 0:11:57.599 become such a strong name recognition amongst really almost to 0:11:57.800 --> 0:12:02.559 all sectors. Uh, the lifestyle, you live your life, live 0:12:02.600 --> 0:12:05.200 a better life. So what we're doing is we've now 0:12:05.320 --> 0:12:09.080 form to separate I P Division Intellectual Property Division, and 0:12:09.120 --> 0:12:11.040 we're stamping that up and we're going to create a 0:12:11.120 --> 0:12:13.679 multi multibillion dollar brand. How are we going to do that? 0:12:14.240 --> 0:12:16.640 Eleven hotel and residences. When we open them up all 0:12:16.640 --> 0:12:20.640 over the world, we're gonna be Uh, we're branding. The 0:12:20.720 --> 0:12:23.640 vodka is unbelievable. We just launched it this year and 0:12:23.720 --> 0:12:26.839 Nicky Simptons is my partner's wife is a CEO, is 0:12:26.840 --> 0:12:30.840 doing a tremendous job, and we literally and all over Florida. 0:12:30.880 --> 0:12:34.200 We're dominating Florida and we're gonna be taking that vodka 0:12:34.320 --> 0:12:37.920 national soon. And you know, for first year, I think 0:12:37.920 --> 0:12:40.600 we're breaking rectors there everybody. The vodka, by the way, 0:12:40.600 --> 0:12:44.080 won the Double Gold Award in San Francisco last month. 0:12:44.360 --> 0:12:46.840 It's the top award for a spirit. So the taste 0:12:46.880 --> 0:12:49.560 is unbelievable. So you always have to have the quality. 0:12:49.880 --> 0:12:52.840 People know that eleven stands for quality. When you're dealing 0:12:52.840 --> 0:12:56.920 with eleven, you're gonna first class, first not top quality. 0:12:57.440 --> 0:13:00.160 It's could be the best, and that's really what will 0:13:00.160 --> 0:13:03.120 relate to it. And of course all ips are built 0:13:03.160 --> 0:13:06.280 on the brand and brand awareness, which we have incredible 0:13:06.440 --> 0:13:09.480 brand awareness and per square foot, but the most profitable 0:13:09.920 --> 0:13:12.160 nightclub in the world by far, I don't think anybody's 0:13:12.160 --> 0:13:14.760 even close for only thirteen thousand square feet, even though 0:13:14.800 --> 0:13:18.200 people think it's huge. Um, but like you said, the 0:13:18.280 --> 0:13:20.800 lines have been around the block. I mean we literally 0:13:20.800 --> 0:13:23.360 have five hundred to a thousand people waiting to get 0:13:23.360 --> 0:13:30.160 in now uh charges sometimes and people paying no problem. Well, no, no, 0:13:30.240 --> 0:13:32.679 we've we've believe it or not, we've been having like 0:13:32.679 --> 0:13:36.640 two hundred covered charges just because we've been having great acts, 0:13:36.640 --> 0:13:38.400 the aerial acts, and we would spend a lot of 0:13:38.400 --> 0:13:42.880 money to make sure the experience inside is people leave 0:13:42.880 --> 0:13:45.280 there thinking they've got value. So we spent a lot 0:13:45.280 --> 0:13:48.320 of money, you know, putting on the shows and making 0:13:48.440 --> 0:13:52.600 sure we have a great service and staff feel very professional. 0:13:53.320 --> 0:13:57.640 It looks easy, but it it takes a lot of work. Work. Hey, Mark, 0:13:57.920 --> 0:13:59.839 thank you so much for joining us. We really appreciate you. 0:13:59.840 --> 0:14:01.880 Take in the time. Mark Roberts, co founder and owner 0:14:02.160 --> 0:14:05.920 of an eleven eleven hotel and residents in Miami. Uh, 0:14:06.000 --> 0:14:09.440 certainly the Miami has been just an incredibly hot market, 0:14:09.880 --> 0:14:15.000 really accelerated during this pandemic. Well, it seems like over 0:14:15.000 --> 0:14:18.160 the last several days inflation concerns in the market place 0:14:18.280 --> 0:14:20.720 are waning just a little bit. I'm looking at the 0:14:20.720 --> 0:14:24.760 ten year here here one point five seven seven percent. 0:14:24.880 --> 0:14:28.600 That's off a couple of basis basis points today. Uh, 0:14:28.680 --> 0:14:31.120 let's see how things are going in the municipal bond market, 0:14:31.120 --> 0:14:33.520 which which has been one of one of the hottest 0:14:33.520 --> 0:14:36.640 markets out there. Michael Jay's chief US Public Policy and 0:14:36.760 --> 0:14:39.800 municipal strategies from Morgan Stanley joins us. Michael talked to 0:14:39.880 --> 0:14:43.800 us about the bond market has had such a great run, Um, 0:14:43.840 --> 0:14:46.520 there are some inflation fears out there in the market place, 0:14:46.840 --> 0:14:48.960 maybe ebbing a little bit over the past several days. 0:14:49.400 --> 0:14:51.760 How's the municipal bond market reacted to that? Yeah, I 0:14:51.760 --> 0:14:55.080 think the municipal bond market is not really reflecting any 0:14:55.360 --> 0:14:58.280 meaningful concern about inflation at the moment. Actually think the 0:14:58.280 --> 0:15:02.880 place to start here is at credit quality in the market, unabashedly, 0:15:03.440 --> 0:15:06.440 year over years, substantially improved and probably will continue to 0:15:06.520 --> 0:15:10.840 improve meaningfully. But the challenge now is that a lot 0:15:10.880 --> 0:15:12.760 of that good news is already in the price. You've 0:15:12.760 --> 0:15:16.360 got saluations no matter how you slice it, UH yield 0:15:16.480 --> 0:15:22.640 ratios versus treasuries, quality spreads, all kind of pre COVID tights, 0:15:22.680 --> 0:15:24.960 and so what that means is that if you've got 0:15:24.960 --> 0:15:28.040 good fundamentals and they're going to continue to improve, but 0:15:28.480 --> 0:15:31.560 relative valuations are pretty tight, it's probably something outside the 0:15:31.640 --> 0:15:34.400 municipal bond market that would have to make things cheapen up. 0:15:34.920 --> 0:15:36.560 And this is why we say we don't think there 0:15:36.560 --> 0:15:39.360 really particularly price for inflation. If you've got some meaningful 0:15:39.640 --> 0:15:43.000 um upside inflation or the said had to start talking 0:15:43.000 --> 0:15:46.680 about tapering sooner. Our concern would be in that scenario 0:15:46.760 --> 0:15:49.200 that you could get a bear steepening of the treasury curve. 0:15:49.480 --> 0:15:53.160 Mini market historically is not done well in those situations. 0:15:53.160 --> 0:15:56.680 It tends to lead to outflows. And because it's a 0:15:56.760 --> 0:16:00.680 long only market UM dominated by long only sters, you 0:16:00.720 --> 0:16:02.800 tend to get cheapness on the back end of that. 0:16:03.120 --> 0:16:05.200 So in some ways we think the real wistom uni 0:16:05.240 --> 0:16:07.360 market is some of these inflation prints. Even though it 0:16:07.360 --> 0:16:09.720 wouldn't tell you much about credit quality. It wouldn't tell 0:16:09.760 --> 0:16:14.480 you that credit quality is getting any worse. Sorry, my 0:16:14.520 --> 0:16:18.480 microphone is off. Okay, so credit quality um. And we 0:16:18.560 --> 0:16:22.200 kind of all braced ourselves for a difficult time here 0:16:22.480 --> 0:16:25.440 pre pandemic or during the pandemic, and it hasn't happened. 0:16:25.840 --> 0:16:29.080 Do you expect any changes throughout the next quarter or two? 0:16:30.720 --> 0:16:33.040 Not particularly, And I mean you know I traveled the 0:16:33.040 --> 0:16:36.160 same journey you did. We put out an initial estimate 0:16:36.200 --> 0:16:39.800 around this time last year of what the cumulative fifty 0:16:39.880 --> 0:16:43.280 state budget shortfall is going to be versus the revenue 0:16:43.440 --> 0:16:45.680 estimate in our base case was about two hundred and 0:16:45.760 --> 0:16:50.080 seventy billion dollars um. That number appears to be on 0:16:50.120 --> 0:16:53.520 paper now we're still counting things substantially lower. And then, 0:16:53.560 --> 0:16:56.160 of course, on top of that, in the COVID released 0:16:56.160 --> 0:16:59.200 bill earlier this year, the federal government appropriated three hundred 0:16:59.200 --> 0:17:02.400 and fifty billion dollars of AIDS. So in the state 0:17:02.400 --> 0:17:05.600 and local sector, you've got plenty of money to cover 0:17:05.680 --> 0:17:09.280 potential shortfalls. The money that was appropriated via UM the 0:17:09.320 --> 0:17:13.080 other A packages put plenty of money to the hospital system, 0:17:13.119 --> 0:17:18.080 the airport system, So this is a sector. Broadly speaking, 0:17:18.160 --> 0:17:21.119 most municipal sectors are not just writing the v shaped 0:17:21.119 --> 0:17:24.439 economic recovery. They were also given plenty of cash by 0:17:24.440 --> 0:17:27.720 the federal government, and so you wouldn't expect to see 0:17:28.119 --> 0:17:32.119 anything directionally negative show up on income statements or balance 0:17:32.119 --> 0:17:36.480 sheets over the course of this year. Michael, where are 0:17:36.520 --> 0:17:39.520 you guys seeing value here in a bond market? Where 0:17:39.520 --> 0:17:42.399 are you guys spending some time? You know, it's tough 0:17:42.480 --> 0:17:45.679 because a lot of the value has been squeezed out here. 0:17:45.680 --> 0:17:49.119 On a relative basis. The sectors that we still like 0:17:49.320 --> 0:17:53.679 here are airports and higher education. So certainly that the 0:17:53.760 --> 0:17:56.240 relative yield you can get here is not nearly as 0:17:56.320 --> 0:17:58.760 much as it was during the pandemic or the high 0:17:58.800 --> 0:18:01.119 of the pandemic. Of these are sectors where there's a 0:18:01.160 --> 0:18:06.320 lot of concern about their economic model relies on population density, 0:18:06.320 --> 0:18:09.919 on people being together. Um So in some ways you 0:18:09.920 --> 0:18:14.119 saw their fundamentals decrease the most. Uh. And here we 0:18:14.160 --> 0:18:16.280 think the trajectory out of the pandemic is going to 0:18:16.320 --> 0:18:19.439 benefit the fundamentals. They're the most. So there's a little 0:18:19.440 --> 0:18:22.000 bit of extra yeld breast there. And frankly, we just 0:18:22.040 --> 0:18:24.480 think that when there isn't the market's not giving you 0:18:24.520 --> 0:18:26.720 a lot of spread to go credit picking, you might 0:18:26.720 --> 0:18:28.440 as well put things in your portfolio you think have 0:18:28.560 --> 0:18:34.560 the sharpest positive fundamental trajectory. I'm curious to know about 0:18:34.640 --> 0:18:37.040 your your career, Michael Um. I don't want to get 0:18:37.080 --> 0:18:40.600 too personal, but I think it's fascinating. You studied um 0:18:40.840 --> 0:18:44.560 political economy at Georgetown, public affairs at Austin. Then you 0:18:44.640 --> 0:18:47.440 want you're a chloral fellow, went to Fitch. Then you're 0:18:47.480 --> 0:18:49.320 on the by side, And how do you get from 0:18:49.359 --> 0:18:53.959 there to here? Yeah? I don't know. Actually, I mean 0:18:54.040 --> 0:18:56.000 a little at a little bit of luck, a little 0:18:56.000 --> 0:18:59.639 bit of accident, happenstance. I mean, I think for me, 0:19:00.440 --> 0:19:04.520 UM municipal market was always fascinating because it was about 0:19:04.640 --> 0:19:08.879 taking the numbers that are in financial statements and seeing 0:19:08.880 --> 0:19:11.400 through to what the actual policy choices that were being 0:19:11.440 --> 0:19:13.720 made were. And then really, I think to be any 0:19:13.880 --> 0:19:16.840 to be a good municipal credit analysts, you really have 0:19:17.000 --> 0:19:21.320 to have a forecasting ability about national policy, tax policy, 0:19:21.359 --> 0:19:24.439 healthcare policy, etcetera. And that's a skill set that that 0:19:24.600 --> 0:19:29.360 then translated into broader public policy forecasting for other markets. 0:19:29.440 --> 0:19:33.480 So unconventional path as supposed but have worked out well. 0:19:33.520 --> 0:19:36.920 I just think it's fascinating because you have that public 0:19:37.080 --> 0:19:40.720 policy background and now we're in a situation where we're 0:19:40.760 --> 0:19:44.760 looking at you know, trillions of dollars in fiscal spending 0:19:44.880 --> 0:19:49.240 and even more in Fed assistance. And I mean really, um, 0:19:49.480 --> 0:19:52.000 really a paradigm shift in the way on the US 0:19:52.040 --> 0:19:54.760 economy is operated from a government level. Right, we went 0:19:54.840 --> 0:19:59.320 from the Reagan years making smaller government, deregulating, and and 0:19:59.359 --> 0:20:01.960 now forty years later we're just turning a correer here. 0:20:02.600 --> 0:20:08.040 Does that inform your investment strategy? Well, I mean absolutely. 0:20:08.080 --> 0:20:11.000 I think as an investor you sort of learn to 0:20:11.359 --> 0:20:13.400 if you if you want to track these things correctly, 0:20:13.560 --> 0:20:15.800 to take your personal views about what you want to 0:20:15.880 --> 0:20:19.160 happen in Washington, d C. Or any other state capital 0:20:19.240 --> 0:20:21.520 out of it, and you focus on what will happen. 0:20:22.359 --> 0:20:27.080 And right now, we have a very polarized electorate in 0:20:27.119 --> 0:20:32.560 the US and therefore a disincentive to bipartisanship. And what 0:20:32.600 --> 0:20:35.600 it tells you is that the when one party or 0:20:35.640 --> 0:20:38.760 the other has control, that's the only are sort of 0:20:39.160 --> 0:20:42.040 likely the best time to get any legislation done. And 0:20:42.200 --> 0:20:45.760 legislation tends to get done only in the way that 0:20:45.880 --> 0:20:48.239 all members of a party can agree upon. So when 0:20:48.280 --> 0:20:51.960 you overlay on what you're talking about on fiscal policy, uh, 0:20:52.000 --> 0:20:55.199 it means that when Republicans have been in power, they 0:20:55.240 --> 0:20:56.959 can all agree on tax cuts, you tend to get 0:20:57.000 --> 0:21:00.400 fiscal expansion that way. When Democrats are empower, they can 0:21:00.440 --> 0:21:02.800 all agree on the spending side, less so on the 0:21:02.840 --> 0:21:05.760 tax side. And until the electorate is going to punish 0:21:05.760 --> 0:21:10.280 someone for deficit spending, maybe because you actually see inflation 0:21:10.720 --> 0:21:15.280 impacting people's disposable income, well then the incentives is just 0:21:15.359 --> 0:21:18.399 kind of keep pushing the deficit wider. So that's what 0:21:18.480 --> 0:21:21.040 sets up for the for the spending that you've seen 0:21:21.080 --> 0:21:22.479 so far this year and that we think is going 0:21:22.520 --> 0:21:24.960 to continue. All right, Michael, thanks very much for joining 0:21:25.040 --> 0:21:27.200 us pleasure having on the program. Michael jesus their chief 0:21:27.280 --> 0:21:30.680 US public policy and unique strategist at Morgan Stanley. I 0:21:30.720 --> 0:21:33.480 remember he did a great podcast with Ritholts Masters in 0:21:33.520 --> 0:21:37.080 Business Podcasts a few years ago that that I loved, 0:21:37.119 --> 0:21:39.160 So I'm glad we got to get him on This 0:21:39.920 --> 0:21:46.040 is Bloomberg. You know, since the beginning of this pandemic, 0:21:46.160 --> 0:21:48.760 you know, when the markets across the board just created 0:21:48.880 --> 0:21:52.840 one market showed incredible resiliency, it just amazed me. That's 0:21:52.880 --> 0:21:55.560 the real estate market, whether it's existing homes, new homes, 0:21:55.920 --> 0:21:58.720 housing starts. You know, the numbers were generally really strong 0:21:58.760 --> 0:22:01.880 throughout the pandemic, and we got some more data today, 0:22:01.920 --> 0:22:03.880 but it's just an amazing market. Let's kind of dig 0:22:03.920 --> 0:22:06.159 into it. We can do that with Craig Gimmona. He's 0:22:06.160 --> 0:22:08.640 a real estate reporter for Bloomberg News. He actually joins 0:22:08.720 --> 0:22:12.040