1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,560 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's 5 00:00:28,560 --> 00:00:30,520 Speaker 1: bring Lindsay Bell. Why don't you start off, John? I 6 00:00:30,520 --> 00:00:32,680 Speaker 1: mean your new show is going to be called The 7 00:00:32,720 --> 00:00:34,880 Speaker 1: Real Equity, right, the Real Equity, the Real Dividend? To 8 00:00:35,080 --> 00:00:38,000 Speaker 1: do every day? Do I do that weekly? It depends. 9 00:00:38,080 --> 00:00:40,360 Speaker 1: I mean the amount of people that I've heard over 10 00:00:40,400 --> 00:00:42,120 Speaker 1: the last couple of days saying I want to buy 11 00:00:42,159 --> 00:00:44,479 Speaker 1: Europe and I'll want to buy Europe for income. I 12 00:00:44,520 --> 00:00:46,640 Speaker 1: want to buy Europe for income for the dividend. What 13 00:00:46,680 --> 00:00:49,080 Speaker 1: do you make of the argument, Lindsay, Well, I think 14 00:00:49,120 --> 00:00:51,040 Speaker 1: it just talked it. It goes to show you how 15 00:00:51,080 --> 00:00:54,000 Speaker 1: nervous people are in this environment. UM, and the valuation 16 00:00:54,040 --> 00:00:57,400 Speaker 1: in Europe has come down so significantly too. You can 17 00:00:57,640 --> 00:01:00,760 Speaker 1: actually see some good value there. Um And I think 18 00:01:00,800 --> 00:01:03,280 Speaker 1: that you're seeing in general over the last several months, 19 00:01:03,480 --> 00:01:07,240 Speaker 1: investors flocked to defensive sectors like real estate has been 20 00:01:07,400 --> 00:01:12,039 Speaker 1: in the US outperforming UM most other sectors. Uh, consumer 21 00:01:12,080 --> 00:01:14,720 Speaker 1: staples is another one that's been doing quite well. Um, 22 00:01:14,760 --> 00:01:17,000 Speaker 1: and we're looking for healthcare to pick up some slack too. 23 00:01:17,200 --> 00:01:18,760 Speaker 1: So this has been the story for me of the 24 00:01:18,840 --> 00:01:22,360 Speaker 1: last couple of months. The headline numbers scream record highs, 25 00:01:22,440 --> 00:01:25,160 Speaker 1: all time highs, and maybe tell a story of exuberance. 26 00:01:25,200 --> 00:01:29,200 Speaker 1: Beneath the surface, it's a really defensive rally, isn't it. Utilities, 27 00:01:29,280 --> 00:01:32,760 Speaker 1: consumer staples. What's the story that talked to us about it? No, 28 00:01:32,920 --> 00:01:36,160 Speaker 1: you're absolutely right. While the market overall is, you know, 29 00:01:36,720 --> 00:01:39,800 Speaker 1: hitting new all time highs. The SMP five up almost 30 00:01:39,800 --> 00:01:43,240 Speaker 1: twenty on a year to day basis, and it's trading 31 00:01:43,360 --> 00:01:46,600 Speaker 1: at a rich valuation right now, nearly eighteen times on 32 00:01:46,600 --> 00:01:49,720 Speaker 1: a Ford pe basis. So not all is cheap, but 33 00:01:49,760 --> 00:01:52,760 Speaker 1: it just doesn't feel exumer And underneath the surf attention 34 00:01:52,800 --> 00:01:56,720 Speaker 1: to your defensive call is people are putting a premium 35 00:01:56,840 --> 00:02:01,600 Speaker 1: on revenue growth in selected sectors as well. Is your 36 00:02:01,680 --> 00:02:05,240 Speaker 1: defensive call because that belief in the revenue growth is 37 00:02:05,240 --> 00:02:10,000 Speaker 1: going to disappear or diminish partially, you are revenue growth 38 00:02:10,080 --> 00:02:15,919 Speaker 1: is expected expected to slow precipitously in some sectors. I'm 39 00:02:15,919 --> 00:02:19,880 Speaker 1: buying nine or ten percent or revenue growth, and I'm 40 00:02:19,880 --> 00:02:23,400 Speaker 1: paying a huge premium for that privilege, right right exactly. 41 00:02:23,480 --> 00:02:27,040 Speaker 1: So financials or is one area. Healthcare is another area. 42 00:02:27,080 --> 00:02:30,320 Speaker 1: Healthcare has always been done extremely well from a revenue 43 00:02:30,400 --> 00:02:33,480 Speaker 1: and earnings perspective every single quarter. They don't always get 44 00:02:33,520 --> 00:02:36,320 Speaker 1: the credit for it. Um But also, you know, you 45 00:02:36,320 --> 00:02:39,120 Speaker 1: see investors flocking to your point to the tech sector 46 00:02:39,160 --> 00:02:41,760 Speaker 1: because because they do want that growth, and that's where 47 00:02:41,760 --> 00:02:45,519 Speaker 1: you're getting top line growth. Bottom line growth is expect change. 48 00:02:45,600 --> 00:02:50,600 Speaker 1: What what will change the desire on a microeconomic basis 49 00:02:50,720 --> 00:02:55,840 Speaker 1: the demand function for that tech revenue growth. You know, 50 00:02:55,919 --> 00:02:58,120 Speaker 1: I think it's going to be difficult for it to 51 00:02:58,240 --> 00:03:01,440 Speaker 1: change because tech is one sack there where investors actually 52 00:03:01,440 --> 00:03:04,760 Speaker 1: feel very comfortable. Despite the defensive sectors doing well, tech 53 00:03:04,840 --> 00:03:07,440 Speaker 1: is still the best performing sector on a year to date. 54 00:03:07,520 --> 00:03:11,120 Speaker 1: Thank you. That's important state a believe that will continue. 55 00:03:11,360 --> 00:03:14,560 Speaker 1: Yes we do. We're overweight the technology sector, will also 56 00:03:14,600 --> 00:03:18,000 Speaker 1: overweight the communication services sector, which is an interesting play 57 00:03:18,080 --> 00:03:21,880 Speaker 1: between that growth techy growth and defensive because you've got 58 00:03:21,880 --> 00:03:24,160 Speaker 1: Google and Facebook and then A T and T and 59 00:03:24,240 --> 00:03:28,080 Speaker 1: Verizon were those are the four largest companies in that sector. 60 00:03:32,560 --> 00:03:37,280 Speaker 1: So you're you're bundling Verizon together with Google, not me. 61 00:03:37,440 --> 00:03:41,080 Speaker 1: That's what the SMP five hundred is doing. The recalibration 62 00:03:41,200 --> 00:03:44,360 Speaker 1: last year where they created the communication services sector out 63 00:03:44,360 --> 00:03:50,360 Speaker 1: of the telecommunication services me neither, But what did they 64 00:03:50,360 --> 00:03:52,720 Speaker 1: do with ana kind of copper? Save me? John? Did 65 00:03:52,760 --> 00:03:56,320 Speaker 1: you see BSF this morning? Yes, imagined twice on air. 66 00:03:56,400 --> 00:04:03,400 Speaker 1: I dazzled could be fit percent. You're so gloomy levels 67 00:04:03,440 --> 00:04:07,880 Speaker 1: that blaming trade's the scapegoat for this, you know, I 68 00:04:07,880 --> 00:04:10,960 Speaker 1: don't know if it's the scapegoat. I think it's reality. 69 00:04:11,040 --> 00:04:13,600 Speaker 1: The trade is actually having an impact, and I think 70 00:04:13,600 --> 00:04:15,160 Speaker 1: this is going to be the quarter where you start 71 00:04:15,200 --> 00:04:19,320 Speaker 1: to hear corporate management teams really talk about the numerical 72 00:04:19,640 --> 00:04:23,440 Speaker 1: impact UM and they're gonna take numbers and guidance down 73 00:04:23,480 --> 00:04:25,680 Speaker 1: for the second half of the year. The second half 74 00:04:25,680 --> 00:04:28,320 Speaker 1: of the year, you have a Q four that's expecting 75 00:04:28,360 --> 00:04:32,000 Speaker 1: nearly seven percent earnings growth. That's gonna probably have to 76 00:04:32,040 --> 00:04:35,200 Speaker 1: come down if trade there's not you know, a resolution 77 00:04:35,240 --> 00:04:37,360 Speaker 1: at least on the tariffs in the near term, because 78 00:04:37,680 --> 00:04:40,880 Speaker 1: as we discussed earlier, Tom, you're seeing the economic data 79 00:04:41,400 --> 00:04:45,239 Speaker 1: in China, especially very much weakened. That's starting to bleed 80 00:04:45,279 --> 00:04:48,200 Speaker 1: into Europe and at some point it will impact the 81 00:04:48,360 --> 00:05:09,320 Speaker 1: U S Here, Lindsey, thank a good day to catch 82 00:05:09,400 --> 00:05:13,040 Speaker 1: up with our Christopher Whalen. He has a number of 83 00:05:13,040 --> 00:05:15,680 Speaker 1: books out and the one I would really highlight, folks, 84 00:05:15,760 --> 00:05:20,320 Speaker 1: is his one volume Inflated, which is a fabulous walk 85 00:05:20,400 --> 00:05:24,760 Speaker 1: through of the financial history of the United States of America. 86 00:05:24,960 --> 00:05:29,520 Speaker 1: It is a different financial history then Germany. And he 87 00:05:29,600 --> 00:05:33,040 Speaker 1: joins US now Chris Whalen on uh Deutsche Bank as well. 88 00:05:33,160 --> 00:05:35,679 Speaker 1: Just just you know, two days into the saving plan, 89 00:05:36,160 --> 00:05:39,840 Speaker 1: just your general thought and a likelihood that Deutsche Bank 90 00:05:39,880 --> 00:05:45,520 Speaker 1: can execute this plan? I think low, tom My, guess 91 00:05:45,600 --> 00:05:49,200 Speaker 1: is that what we're watching here is the final death 92 00:05:49,279 --> 00:05:53,039 Speaker 1: struggle before the bank ends up being acquired or merged. 93 00:05:53,200 --> 00:05:56,120 Speaker 1: What is the what is the reaction function that is 94 00:05:56,240 --> 00:05:58,520 Speaker 1: key here? Is it a revenue dynamic? Is it a 95 00:05:58,600 --> 00:06:04,240 Speaker 1: cost dynamic? Is it a capital raise dynamic? Capital raise 96 00:06:04,400 --> 00:06:07,080 Speaker 1: is not possible at this point. The stock is trading 97 00:06:07,120 --> 00:06:11,440 Speaker 1: below book value. All banks, at the end of the 98 00:06:11,520 --> 00:06:15,640 Speaker 1: day live or die based on profitability, not capital. They 99 00:06:15,680 --> 00:06:17,960 Speaker 1: have to have the profits to deal with problems and 100 00:06:18,040 --> 00:06:22,119 Speaker 1: keep going, as the US banks illustrated a decade ago, 101 00:06:22,880 --> 00:06:25,160 Speaker 1: and that's just not been the case in Europe as 102 00:06:25,160 --> 00:06:28,159 Speaker 1: such as Deutsche mek Toom. The whole continent has a 103 00:06:28,200 --> 00:06:32,039 Speaker 1: basic problem with bank profitability and you can see it 104 00:06:32,080 --> 00:06:34,800 Speaker 1: in the stock prices. Even Santon they are, which is 105 00:06:34,839 --> 00:06:40,600 Speaker 1: a reasonably healthy, broad based institution, is down thirty this year. 106 00:06:40,720 --> 00:06:42,640 Speaker 1: So Chris, let's talk about that. What is it about 107 00:06:42,680 --> 00:06:47,280 Speaker 1: Europe that is so difficult for a bank to make profit? Well, 108 00:06:47,320 --> 00:06:50,159 Speaker 1: the role of the state in terms of financing. You have, 109 00:06:50,560 --> 00:06:53,360 Speaker 1: you know Germany, for example, you have all different types 110 00:06:53,400 --> 00:06:57,760 Speaker 1: of state institutions that provide most of the basic finance. 111 00:06:58,400 --> 00:07:01,120 Speaker 1: You don't have an asset backs earties market as you 112 00:07:01,200 --> 00:07:04,960 Speaker 1: do in the U S which was enormously important to 113 00:07:05,080 --> 00:07:07,960 Speaker 1: helping us recover from the two thousand and eight crisis. 114 00:07:07,960 --> 00:07:11,360 Speaker 1: It came back within months, and so you you lack 115 00:07:11,480 --> 00:07:15,440 Speaker 1: these basic pieces. In Deutsche has been forced to look externally, 116 00:07:15,760 --> 00:07:19,800 Speaker 1: not in Germany for opportunities. And it's so strange when 117 00:07:19,840 --> 00:07:22,800 Speaker 1: we hear the CEO talk about going back to the 118 00:07:22,840 --> 00:07:26,119 Speaker 1: old model. Well, that's seventy years ago when they banked 119 00:07:26,200 --> 00:07:29,360 Speaker 1: small and medium sized enterprises. They have stopped doing that. 120 00:07:29,840 --> 00:07:33,040 Speaker 1: They gave up their foreign markets. The French didn't do this. 121 00:07:33,200 --> 00:07:36,080 Speaker 1: If you look at Associetation General, look at B and P. 122 00:07:36,640 --> 00:07:40,080 Speaker 1: They still have a basic lending business to small and 123 00:07:40,120 --> 00:07:44,680 Speaker 1: midsized enterprises, which gives them deposits. So Deutsche looks a 124 00:07:44,680 --> 00:07:47,640 Speaker 1: lot like City. The only difference is is that it 125 00:07:47,680 --> 00:07:51,480 Speaker 1: doesn't have a big consumer finance business as City does, 126 00:07:51,560 --> 00:07:54,640 Speaker 1: which makes a lot of money, and that is a problem. 127 00:07:54,680 --> 00:07:57,640 Speaker 1: I've often joked and and frankly I was more than 128 00:07:57,720 --> 00:08:01,000 Speaker 1: half serious. I said we should just merge Deutschan City 129 00:08:01,360 --> 00:08:04,720 Speaker 1: because they have capital markets, they have global payments, they 130 00:08:04,720 --> 00:08:07,920 Speaker 1: have some important back office functions which I've been very 131 00:08:07,960 --> 00:08:11,400 Speaker 1: concerned about. And it might make sense, but I don't 132 00:08:11,400 --> 00:08:13,480 Speaker 1: think the Germans are willing to do it. Number one. 133 00:08:14,280 --> 00:08:16,320 Speaker 1: Number two, you can't even talk about it in Europe. 134 00:08:16,480 --> 00:08:18,920 Speaker 1: The politics are so poisonous, so you can't even mention 135 00:08:18,920 --> 00:08:22,200 Speaker 1: the word bank and eight things to talk about Chris Whalen. 136 00:08:22,320 --> 00:08:25,800 Speaker 1: But there's a lot of people walking out of the 137 00:08:25,880 --> 00:08:28,520 Speaker 1: doors down on Wall Street today with cardboard boxes in 138 00:08:28,560 --> 00:08:32,280 Speaker 1: their hands. How do you go about getting another job 139 00:08:33,360 --> 00:08:36,360 Speaker 1: in New York in the mill you were in right now? 140 00:08:36,400 --> 00:08:38,640 Speaker 1: I mean, is it you just assume you're going to 141 00:08:38,720 --> 00:08:43,240 Speaker 1: go to a boutique firm well, that's certainly what I did. Um. 142 00:08:43,760 --> 00:08:47,640 Speaker 1: I have specialized on the world of mortgage finance, which 143 00:08:47,640 --> 00:08:50,000 Speaker 1: is a bit of a ghetto. Most of the public 144 00:08:50,040 --> 00:08:52,400 Speaker 1: companies that are trade well below book value that you're 145 00:08:52,400 --> 00:08:55,560 Speaker 1: a ghetto kind of guy. So it works well. Yeah, 146 00:08:55,600 --> 00:08:57,920 Speaker 1: but it's an important sector. And this is one of 147 00:08:57,920 --> 00:09:00,120 Speaker 1: the things about Deutsche Bank that most people don't know. 148 00:09:00,240 --> 00:09:03,280 Speaker 1: They're very important in the world of both residential and 149 00:09:03,320 --> 00:09:06,560 Speaker 1: commercial real estate. So these people have skill sets. You're saying, 150 00:09:06,559 --> 00:09:09,080 Speaker 1: of the eighteen thousand people, some of them have some 151 00:09:09,160 --> 00:09:13,120 Speaker 1: genuine skill sets. Yes, those that can differentiate themselves can 152 00:09:13,160 --> 00:09:16,120 Speaker 1: stay in this business. But it's eat what you killed today. Tom. 153 00:09:16,280 --> 00:09:18,840 Speaker 1: You know that the investment banks aren't handing up big 154 00:09:18,880 --> 00:09:22,440 Speaker 1: salaries anymore, and I think for most people they're gonna 155 00:09:22,440 --> 00:09:24,880 Speaker 1: have to go find something else. Do you want to 156 00:09:24,960 --> 00:09:28,200 Speaker 1: make a six percent coupon? You can do that with 157 00:09:28,280 --> 00:09:32,040 Speaker 1: Chris Whalen Chris Let's review from eight years ago. You're 158 00:09:32,160 --> 00:09:35,640 Speaker 1: courage to say, shut up and buy the banks. But 159 00:09:35,800 --> 00:09:39,600 Speaker 1: you did it through a high coupon preferred stock. How 160 00:09:39,600 --> 00:09:43,760 Speaker 1: did that work out? It works great? They're boring. I 161 00:09:43,920 --> 00:09:48,320 Speaker 1: own US Bank, I own Cities Trups, which we're awesome. 162 00:09:48,360 --> 00:09:53,000 Speaker 1: In December they were yielding double digits and Bank America preferred, 163 00:09:53,640 --> 00:09:56,640 Speaker 1: and I buy them for income. My beautiful wife has 164 00:09:56,679 --> 00:09:59,720 Speaker 1: most of my money issues a private banker, and we're 165 00:09:59,720 --> 00:10:01,880 Speaker 1: both in the world of investments, so it makes our 166 00:10:01,920 --> 00:10:04,640 Speaker 1: lives a little simpler in terms of compliance. But I 167 00:10:04,720 --> 00:10:08,320 Speaker 1: look for income. I look for idiosyncratic financials. Where are 168 00:10:08,320 --> 00:10:10,320 Speaker 1: you looking right now? I mean, if the JP Morgan 169 00:10:10,440 --> 00:10:13,640 Speaker 1: story is over and you know expercent look good earlier, 170 00:10:14,320 --> 00:10:17,080 Speaker 1: you know, is the play been made in a high 171 00:10:17,160 --> 00:10:21,800 Speaker 1: yield American banking securities for now? Yes? I think the 172 00:10:21,840 --> 00:10:25,079 Speaker 1: banks are gonna have some weakness in the near terms 173 00:10:25,080 --> 00:10:28,040 Speaker 1: simply because of interest rates, and that interest income is 174 00:10:28,040 --> 00:10:32,120 Speaker 1: slat and it will be going down again this quarter. Um. 175 00:10:32,160 --> 00:10:34,360 Speaker 1: I think there are credit concerns out there that will 176 00:10:34,400 --> 00:10:37,720 Speaker 1: cause investors to lighten up on financials after loading up 177 00:10:37,720 --> 00:10:40,720 Speaker 1: on them two years ago, and then you can go shopping. 178 00:10:41,080 --> 00:10:43,920 Speaker 1: But to me, what is in prospect is that the 179 00:10:43,960 --> 00:10:47,480 Speaker 1: FED may allow the next down cycle to chew up 180 00:10:47,520 --> 00:10:49,720 Speaker 1: many of these non banks that are competing with the 181 00:10:49,760 --> 00:10:51,760 Speaker 1: banks today, and then the banks are going to be 182 00:10:51,760 --> 00:10:54,920 Speaker 1: a huge by tom are going to end up with monopoly. 183 00:10:55,080 --> 00:10:57,160 Speaker 1: I want to go to your book Financial Stability. Where's 184 00:10:57,200 --> 00:11:00,960 Speaker 1: the instability now? Is it leverage loans? It's somewhere that 185 00:11:01,040 --> 00:11:03,840 Speaker 1: we haven't identified yet, but come on, but you're thinking 186 00:11:03,840 --> 00:11:06,839 Speaker 1: about Chris, you did this a crawl. You're doing it 187 00:11:06,880 --> 00:11:11,600 Speaker 1: at Whalen Global Advisors. Is it leverage loans? It's in bonds. 188 00:11:11,640 --> 00:11:14,000 Speaker 1: It's not directly in the banks, but the banks have 189 00:11:14,160 --> 00:11:17,760 Speaker 1: indirect exposure and that's what people worry about. Okay, Chris Whalen, 190 00:11:17,800 --> 00:11:20,439 Speaker 1: thank you so much for the update. Greatly appreciate it. 191 00:11:20,559 --> 00:11:23,240 Speaker 1: I can't say enough from a decade ago, the prescient 192 00:11:23,400 --> 00:11:28,319 Speaker 1: nature of his read through of American financial history order 193 00:11:28,400 --> 00:11:46,520 Speaker 1: Romini writing a nice forward to his book, Inflated. Can 194 00:11:46,559 --> 00:11:50,440 Speaker 1: you imagine David's loom as an ambassador for anybody? Hsv 195 00:11:50,600 --> 00:11:52,959 Speaker 1: C Global head of Currency Strategy joins us, Now do 196 00:11:53,000 --> 00:11:57,200 Speaker 1: you want that job? Blew me. I'm no ambassador. Say 197 00:11:57,200 --> 00:12:00,079 Speaker 1: it's strike luck. I think so. No, you're like the 198 00:12:00,160 --> 00:12:03,880 Speaker 1: least diplomatic currency strategist I've ever met. David. Talk to 199 00:12:03,880 --> 00:12:06,319 Speaker 1: me about the dollar. All these calls for the dollar 200 00:12:06,400 --> 00:12:10,040 Speaker 1: to go weaker, weaker, It's not happening. That's your view, 201 00:12:10,080 --> 00:12:12,959 Speaker 1: isn't it. Yeah? It's not happening. They need a bit 202 00:12:12,960 --> 00:12:16,160 Speaker 1: of a brush to scrub the egg off their faces. 203 00:12:16,280 --> 00:12:18,640 Speaker 1: Even when the market are just a couple of weeks ago, 204 00:12:18,720 --> 00:12:21,840 Speaker 1: is passing in fifty by the Fed, the dollar was 205 00:12:21,880 --> 00:12:25,000 Speaker 1: hardly selling off the dollars powerman. It's yet to stay. 206 00:12:25,040 --> 00:12:28,760 Speaker 1: It offers high yields, it's a great currency. So many 207 00:12:28,800 --> 00:12:31,720 Speaker 1: people look at rate differentials. They think the rate differentials 208 00:12:31,800 --> 00:12:35,400 Speaker 1: reassert themselves. They believe that the Federal Reserve needs to 209 00:12:35,440 --> 00:12:38,000 Speaker 1: cut rates, and that rates must narrow between the United 210 00:12:38,040 --> 00:12:40,600 Speaker 1: States and Europe, and therefore dollar weakness. Why is that 211 00:12:40,640 --> 00:12:43,280 Speaker 1: the wrong way of looking at it, David, Because at 212 00:12:43,280 --> 00:12:45,800 Speaker 1: the zero bound of interest rates, the way you rate 213 00:12:46,040 --> 00:12:49,640 Speaker 1: is not symmetrical. So the ECB can only copen and 214 00:12:49,679 --> 00:12:52,040 Speaker 1: the Fed we could cut twenty five. So let's imagine 215 00:12:52,080 --> 00:12:54,520 Speaker 1: on the same day the desire to cut and the 216 00:12:54,520 --> 00:12:56,560 Speaker 1: ECB says things are going wrong in Europe, and the 217 00:12:56,600 --> 00:12:58,280 Speaker 1: Fed goest things are going wrong in the U S 218 00:12:58,280 --> 00:13:00,360 Speaker 1: and they're both cut on the same day. The one 219 00:13:00,400 --> 00:13:02,480 Speaker 1: cuts twenty five, the other can only cut ten. Where 220 00:13:02,520 --> 00:13:05,199 Speaker 1: you're saying that's positive for euro No, it's not. They 221 00:13:05,200 --> 00:13:07,960 Speaker 1: can't cut more than ten. So that's the problem at 222 00:13:07,960 --> 00:13:10,679 Speaker 1: the zero bound of interest rates, when your negative territory, 223 00:13:10,720 --> 00:13:13,360 Speaker 1: the mount you can cut is limited, and you interest 224 00:13:13,480 --> 00:13:16,640 Speaker 1: rate deferential doll that you used to see where things are. 225 00:13:16,920 --> 00:13:19,880 Speaker 1: While you're flying this plane through financial markets, you look 226 00:13:19,880 --> 00:13:22,679 Speaker 1: at the doll. It's broken. So forget about interest rate 227 00:13:22,760 --> 00:13:25,400 Speaker 1: differentials from that perspective. But if you look at one 228 00:13:25,480 --> 00:13:27,559 Speaker 1: your money where one your money can fall a long way, 229 00:13:27,559 --> 00:13:29,800 Speaker 1: you're getting offer nearly two and one your money in 230 00:13:29,840 --> 00:13:33,440 Speaker 1: the US, guaranteed by the U S taxplayer. It's beautiful. 231 00:13:33,840 --> 00:13:36,600 Speaker 1: And what's important, folks, is this will be a podcast 232 00:13:36,720 --> 00:13:39,920 Speaker 1: with Professor Bloom and what you just heard there was 233 00:13:40,200 --> 00:13:44,440 Speaker 1: absolutely brilliant about the zero bound. Are we in a 234 00:13:44,520 --> 00:13:48,079 Speaker 1: liquidity trap? I know it's an economist question, but a 235 00:13:48,240 --> 00:13:51,440 Speaker 1: foreign exchange is a litmus paper of the system. Does 236 00:13:51,480 --> 00:13:55,200 Speaker 1: it is suggest some kind of liquidity trap where monetary 237 00:13:55,280 --> 00:13:58,640 Speaker 1: policy can't work. Well, we would argue it's even worse 238 00:13:58,679 --> 00:14:02,719 Speaker 1: than that, in the sense at according to the US administration, 239 00:14:02,800 --> 00:14:05,520 Speaker 1: now you can't use your currency as a lever and 240 00:14:05,600 --> 00:14:09,440 Speaker 1: put your problem onto another country. This is now unacceptable practice. 241 00:14:09,800 --> 00:14:11,960 Speaker 1: So before, when all the leavers were tied up, you 242 00:14:12,040 --> 00:14:14,280 Speaker 1: might do quei and that drives your currency down, and 243 00:14:14,360 --> 00:14:16,720 Speaker 1: that helps you, but now you're at risk. If you 244 00:14:16,800 --> 00:14:19,640 Speaker 1: drive your currency down deliberately against the United States, you're 245 00:14:19,680 --> 00:14:23,440 Speaker 1: at risk of a backlash. You know, the US administration 246 00:14:23,520 --> 00:14:27,160 Speaker 1: is not prepared to have the dollar as your your 247 00:14:27,560 --> 00:14:30,160 Speaker 1: your puppet, and this is changing the way we didn't 248 00:14:31,000 --> 00:14:33,760 Speaker 1: foreign exchange and it's changing the world. So that extra 249 00:14:33,880 --> 00:14:37,200 Speaker 1: lever that you thought you might have by manipulating your currency, 250 00:14:37,280 --> 00:14:39,920 Speaker 1: this has all gone also out of the toolbox, and 251 00:14:39,960 --> 00:14:43,080 Speaker 1: that puts us into a much narrower paradigm of what 252 00:14:43,240 --> 00:14:45,000 Speaker 1: you can get away with it. Davis put a little 253 00:14:45,000 --> 00:14:47,960 Speaker 1: bit more meat on that phrase backlash. What does a 254 00:14:48,000 --> 00:14:50,640 Speaker 1: backlash actually mean? How does that play out in practice? 255 00:14:50,680 --> 00:14:52,600 Speaker 1: What do they do well? We've seen that in terms 256 00:14:52,760 --> 00:14:55,920 Speaker 1: of threats of tariffs, in terms of trade wars, in 257 00:14:56,080 --> 00:14:59,640 Speaker 1: terms of you know, people countries getting upset with you 258 00:15:00,080 --> 00:15:02,960 Speaker 1: and actually doing something about it. So when Albey came 259 00:15:03,040 --> 00:15:05,800 Speaker 1: in in Japan, that did Kwie and Dollyan went from 260 00:15:05,880 --> 00:15:09,880 Speaker 1: eight twenty five, and this created some inflation in Japan, 261 00:15:09,960 --> 00:15:13,080 Speaker 1: but at someone else's cost. You can't do that anymore. 262 00:15:13,120 --> 00:15:17,320 Speaker 1: The US administration doesn't want you another country to manipulate 263 00:15:17,360 --> 00:15:20,840 Speaker 1: the dollar. At your own gain for someone else's expense, 264 00:15:20,880 --> 00:15:23,520 Speaker 1: and they say, we've had enough of this, and you 265 00:15:23,560 --> 00:15:25,840 Speaker 1: know that is the part of the backlash. And with 266 00:15:25,960 --> 00:15:29,080 Speaker 1: the unit, we've seen threats of tariffs, so you can't 267 00:15:29,160 --> 00:15:32,120 Speaker 1: just use the currency as a tool willy nilly anymore 268 00:15:32,160 --> 00:15:35,680 Speaker 1: without thinking there may be some repercussions set up the 269 00:15:35,920 --> 00:15:39,320 Speaker 1: range of some of these major pairs against your dollars 270 00:15:39,360 --> 00:15:42,880 Speaker 1: stability and even dollars strength. What does euro drift to? 271 00:15:43,280 --> 00:15:47,640 Speaker 1: What does Yan drift to? Well, we've got Euro drifting 272 00:15:47,680 --> 00:15:49,920 Speaker 1: down to one ten. We've had it the whole year, 273 00:15:50,000 --> 00:15:52,800 Speaker 1: you know, to break one ten, something new fundamental and 274 00:15:52,880 --> 00:15:55,800 Speaker 1: different tests happened and I can't see it at the moment, Tom, 275 00:15:55,840 --> 00:15:58,480 Speaker 1: I think you know, both economies struggling a little bit 276 00:15:59,000 --> 00:16:01,520 Speaker 1: dead on the devilsh side, DCB on the dovish side. 277 00:16:01,560 --> 00:16:05,280 Speaker 1: So you know, drifting down of the drifting down. You know, 278 00:16:05,360 --> 00:16:08,080 Speaker 1: these are the currencies, the dollar, you know, having a 279 00:16:08,160 --> 00:16:11,040 Speaker 1: nice little drift, a small little current, you know, which 280 00:16:11,040 --> 00:16:13,400 Speaker 1: won't carry you away play nicely in it. If you're 281 00:16:13,680 --> 00:16:15,840 Speaker 1: one of those tubes you get carried on the lazy river. 282 00:16:16,000 --> 00:16:18,760 Speaker 1: You know, tell us about sterling farall, you know, we're 283 00:16:18,800 --> 00:16:21,320 Speaker 1: trying to base season tickets to the charts me and 284 00:16:21,440 --> 00:16:25,600 Speaker 1: generals Sherman, Can I translate for you called Tottenham Hospers 285 00:16:26,080 --> 00:16:29,240 Speaker 1: the charts? Yeah, you know, you know, I mean, is 286 00:16:29,280 --> 00:16:34,760 Speaker 1: that the rate? Yeah, I mean I'm gonna enjoin on 287 00:16:34,840 --> 00:16:38,200 Speaker 1: one nineteen. You're going to be eating the beautiful prawn 288 00:16:38,280 --> 00:16:42,840 Speaker 1: sandwiches as well, coming with your beautiful dollars. So um, yeah, 289 00:16:42,920 --> 00:16:45,840 Speaker 1: look at Sterling's under pressure. People are worried about the 290 00:16:46,040 --> 00:16:49,320 Speaker 1: no Brexit scenario. There's a lot going in basically on 291 00:16:49,480 --> 00:16:52,760 Speaker 1: Parliament at the moment. We've got a leadership contest. You know, 292 00:16:52,880 --> 00:16:56,160 Speaker 1: we change the data of Brexit from basically April Fools 293 00:16:56,200 --> 00:17:00,880 Speaker 1: to Halloween and that tells you something about it. So basically, 294 00:17:00,960 --> 00:17:03,680 Speaker 1: you know, Sterling is under pressure all the time. The 295 00:17:03,800 --> 00:17:06,600 Speaker 1: only way that student is gonna really show a massive 296 00:17:06,680 --> 00:17:08,960 Speaker 1: bird is if we get some kind of deal, and 297 00:17:09,040 --> 00:17:11,119 Speaker 1: that's what we're all hoping for and that's what we 298 00:17:11,200 --> 00:17:14,639 Speaker 1: think is very still possible in the HSBC world. And 299 00:17:15,560 --> 00:17:19,680 Speaker 1: just there's the prawn sandwich brigade. Yeah. Well he just 300 00:17:19,760 --> 00:17:23,479 Speaker 1: said to me he was making little posh seats at 301 00:17:23,520 --> 00:17:25,800 Speaker 1: the point of Tottenham and you sit in the posh 302 00:17:25,840 --> 00:17:28,000 Speaker 1: seat to go buy yourself of beautiful, proud and sandwich 303 00:17:30,320 --> 00:17:32,800 Speaker 1: Sirenlex Ferguson of Manchester United. When he used to complain 304 00:17:32,840 --> 00:17:34,920 Speaker 1: about the atmosphere at Old Traffic, he would say, the 305 00:17:34,960 --> 00:17:38,359 Speaker 1: fans are sitting there eating their prawn sandwiches and aren't 306 00:17:38,359 --> 00:17:43,040 Speaker 1: making any noise. That's David Bloom is not a football 307 00:17:43,040 --> 00:17:47,600 Speaker 1: fan anyway. He likes m m A. He likes the 308 00:17:47,640 --> 00:17:51,639 Speaker 1: mixed martial arts, he likes the UFC, that kind of stuff. 309 00:17:52,119 --> 00:17:56,000 Speaker 1: I have no idea. And the sports called rugby and cricket. 310 00:17:56,040 --> 00:17:58,440 Speaker 1: I'll show you pictures one day. They played mostly in 311 00:17:58,560 --> 00:18:03,280 Speaker 1: the old Empire. David. We're going to before you cause anybo. 312 00:18:03,960 --> 00:18:22,840 Speaker 1: Thank you so m HSV strategy Tom Psly joining us 313 00:18:22,880 --> 00:18:26,119 Speaker 1: now our BC Capital Markets chief US economist Thomas. We 314 00:18:26,160 --> 00:18:28,040 Speaker 1: look ahead to Chairman Pou What are you looking for? 315 00:18:29,160 --> 00:18:32,320 Speaker 1: You know, it's this is the outstanding question at this point, 316 00:18:32,480 --> 00:18:34,880 Speaker 1: and I'll tell you what I think he should say. 317 00:18:35,040 --> 00:18:36,959 Speaker 1: I think he should say that things look really good 318 00:18:37,000 --> 00:18:39,960 Speaker 1: in the United States. We couldn't be happier with the 319 00:18:40,040 --> 00:18:45,000 Speaker 1: piece of job growth. We uh think that the economy 320 00:18:45,080 --> 00:18:47,359 Speaker 1: does not need cuts right now. Um, this is what 321 00:18:47,480 --> 00:18:50,520 Speaker 1: we think you should say. Um, it's, you know, given 322 00:18:50,600 --> 00:18:52,720 Speaker 1: what he has been sort of hinting at and when 323 00:18:52,720 --> 00:18:54,800 Speaker 1: others have been hinting at, I don't know if that 324 00:18:55,000 --> 00:18:57,320 Speaker 1: is what he is going to say, but um, that's 325 00:18:57,320 --> 00:18:59,280 Speaker 1: what he's supposed to be saying right now. This economy 326 00:18:59,280 --> 00:19:01,960 Speaker 1: does not need job cuts as job cuts you see, 327 00:19:02,160 --> 00:19:05,520 Speaker 1: just economy does not need uh pit funds eating. Um, 328 00:19:05,600 --> 00:19:08,879 Speaker 1: this economy needs I'm gonna defend that is going to 329 00:19:08,960 --> 00:19:11,960 Speaker 1: show support. Um. But at this juncture, we don't we 330 00:19:12,000 --> 00:19:14,520 Speaker 1: don't need cuts. What is the price of waiting from 331 00:19:14,640 --> 00:19:18,320 Speaker 1: July thirty one to September eighteen? I would suggest it's 332 00:19:18,440 --> 00:19:21,359 Speaker 1: next to nothing. It is absolutely next to nothing. And 333 00:19:21,560 --> 00:19:24,280 Speaker 1: again but it even begs the question Tom, it's you know, well, 334 00:19:24,400 --> 00:19:27,000 Speaker 1: do we need cuts in September? Well, I don't know, 335 00:19:27,240 --> 00:19:28,760 Speaker 1: but you know, we'll see the data. And there's a 336 00:19:28,800 --> 00:19:30,879 Speaker 1: whole group of people we talked to Tom who are 337 00:19:30,960 --> 00:19:33,600 Speaker 1: looking for a rate cut right now. But the answer is, 338 00:19:33,640 --> 00:19:35,520 Speaker 1: if you just wait six weeks, aren't we all a 339 00:19:35,600 --> 00:19:39,440 Speaker 1: lot smarter? I think that's absolutely true, and and and 340 00:19:39,560 --> 00:19:41,680 Speaker 1: I think that's a completely fair way of of of 341 00:19:41,800 --> 00:19:43,359 Speaker 1: thinking about And what I would say is, if you 342 00:19:43,440 --> 00:19:44,840 Speaker 1: do want to wait six more weeks. I think in 343 00:19:44,880 --> 00:19:46,560 Speaker 1: six four weeks you're gonna see exactly what you see 344 00:19:46,640 --> 00:19:49,160 Speaker 1: right now, which is, hey, a backdrop that actually looks 345 00:19:49,240 --> 00:19:51,880 Speaker 1: pretty decent and does not need any cuts at this point, 346 00:19:52,280 --> 00:19:54,640 Speaker 1: Tommy through an argument that they've already talked themselves into 347 00:19:54,680 --> 00:19:57,360 Speaker 1: an interest rate cut, and then we have loose financial conditions, 348 00:19:57,440 --> 00:20:00,119 Speaker 1: largely because the Federals have got us here, and now 349 00:20:00,160 --> 00:20:02,320 Speaker 1: they're in a position where if they don't cut, they're 350 00:20:02,320 --> 00:20:04,200 Speaker 1: going to face a little bit of a market santrum. 351 00:20:04,280 --> 00:20:06,479 Speaker 1: What are your thoughts on that situation? So, I think 352 00:20:06,520 --> 00:20:08,359 Speaker 1: what the market has to recognize is what, you know, 353 00:20:08,440 --> 00:20:11,480 Speaker 1: why is it tantruming right? Right? You know what what 354 00:20:11,720 --> 00:20:14,159 Speaker 1: is actually going on in the economic backdrop? You know 355 00:20:14,320 --> 00:20:16,520 Speaker 1: it's it's funny the Feds, f R b U S right, 356 00:20:16,560 --> 00:20:19,159 Speaker 1: this is there, the big macro model, right furboce um. 357 00:20:19,320 --> 00:20:21,320 Speaker 1: You know we and let me be very clear, we 358 00:20:21,560 --> 00:20:24,520 Speaker 1: don't happen to love that model. Um. It's uh and 359 00:20:24,680 --> 00:20:28,440 Speaker 1: and all models suffer from various limitations, not the least 360 00:20:28,440 --> 00:20:31,000 Speaker 1: of which is it's not the real world. Right, You're 361 00:20:31,119 --> 00:20:34,680 Speaker 1: you're creating this sort of this perfect environment um in 362 00:20:34,880 --> 00:20:36,719 Speaker 1: in a model um sort of you know, spit out 363 00:20:36,760 --> 00:20:39,399 Speaker 1: some output. But here, but let's just walk through, uh 364 00:20:39,840 --> 00:20:42,399 Speaker 1: this idea for a second. If if you were to 365 00:20:42,480 --> 00:20:48,440 Speaker 1: put a fifty basis point cut into the FEDS um model. Um, again, 366 00:20:48,560 --> 00:20:52,400 Speaker 1: all else equal, a fifty basis point cut is only 367 00:20:52,480 --> 00:20:55,080 Speaker 1: worth a couple of tends to growth. I mean that 368 00:20:55,200 --> 00:20:57,520 Speaker 1: that's actually what you would be adding to growth at 369 00:20:57,600 --> 00:21:00,440 Speaker 1: this point. So again, that sort of naturally begs a question, 370 00:21:00,520 --> 00:21:02,960 Speaker 1: you know, why are we cutting rates? Cutting rates? Begin 371 00:21:03,080 --> 00:21:06,240 Speaker 1: to what to get to? One ad from a growth perspective. 372 00:21:06,640 --> 00:21:09,680 Speaker 1: They have a meeting. The thirty one job's day is 373 00:21:09,760 --> 00:21:13,320 Speaker 1: August two, two days later, forty eight hours later. Do 374 00:21:13,480 --> 00:21:16,760 Speaker 1: they know the numbers when they have their meeting? For 375 00:21:17,000 --> 00:21:20,679 Speaker 1: which for does the Fed? Does the Federal at twelve 376 00:21:20,760 --> 00:21:25,240 Speaker 1: noon on January thirty, July thirty one? What the job 377 00:21:25,359 --> 00:21:28,920 Speaker 1: numbers are going to be at eight thirty on August two? No? No, no, 378 00:21:29,440 --> 00:21:34,080 Speaker 1: come on, I mean, look, I that number comes out 379 00:21:35,280 --> 00:21:37,840 Speaker 1: a few days later. Most of that report is compiled 380 00:21:37,880 --> 00:21:40,720 Speaker 1: at that point. UM. So sure, I mean, you know, 381 00:21:40,840 --> 00:21:44,280 Speaker 1: I think Tom, you're you're raising the right question. It's Oh, 382 00:21:44,359 --> 00:21:46,240 Speaker 1: if they cut we're gonna get a really bad jobs number. 383 00:21:46,520 --> 00:21:50,480 Speaker 1: I completely look again, I hate to be the practical 384 00:21:50,560 --> 00:21:52,200 Speaker 1: one in the in the room on this. It's fun 385 00:21:52,240 --> 00:21:55,000 Speaker 1: to be impractical. But but but let's let's just be clear. 386 00:21:55,720 --> 00:22:00,320 Speaker 1: The FED is already looking for much slower job the 387 00:22:00,400 --> 00:22:03,720 Speaker 1: whet anyone else's forecasting. Like, if you look at their forecast, 388 00:22:03,920 --> 00:22:06,560 Speaker 1: they actually had the unemployment rate rising over the course 389 00:22:06,720 --> 00:22:08,400 Speaker 1: of the next couple of years, what's their non farm 390 00:22:08,480 --> 00:22:11,680 Speaker 1: payroll equipment they are They run into a hundred thousands, 391 00:22:12,000 --> 00:22:14,280 Speaker 1: if that's exactly my point. So if you actually have 392 00:22:15,119 --> 00:22:18,280 Speaker 1: an increase in the unemployment rate over the coming couple 393 00:22:18,320 --> 00:22:20,640 Speaker 1: of years, then you necessarily write the math. The math 394 00:22:20,720 --> 00:22:23,760 Speaker 1: behind it necessarily says that you're looking for below brick 395 00:22:23,840 --> 00:22:26,200 Speaker 1: even from a job growth perspective, and brick even is, 396 00:22:26,400 --> 00:22:28,200 Speaker 1: you know, sort of some one thousand right now. So 397 00:22:28,240 --> 00:22:31,320 Speaker 1: the FED already has we got through Tom Perselli without 398 00:22:31,320 --> 00:22:33,560 Speaker 1: talking about wage growth. Tom Priselli, thank you so much, 399 00:22:33,600 --> 00:22:49,920 Speaker 1: OURBC Capital Markets A nice briefing there. Paul Sweeney is 400 00:22:50,040 --> 00:22:54,000 Speaker 1: out at the RAM. The RAM has been there since 401 00:22:54,160 --> 00:22:58,200 Speaker 1: ninety seven, sun Belly, Idaho. And you know it's like 402 00:22:58,280 --> 00:23:01,159 Speaker 1: a manly breakfast. It's like a eggs and steak and 403 00:23:01,240 --> 00:23:05,440 Speaker 1: the whole thing in a bud. Yeah, chaser for breakfast 404 00:23:05,720 --> 00:23:07,960 Speaker 1: as well, and uh, he joins us right now on 405 00:23:08,040 --> 00:23:11,440 Speaker 1: the edge of catch them in Idaho PASSWHENI why are 406 00:23:11,560 --> 00:23:16,600 Speaker 1: you in the gorgiosity of Idaho? This morning? I am 407 00:23:16,680 --> 00:23:19,560 Speaker 1: at the Allen and Company conference. Allen Company is a 408 00:23:20,040 --> 00:23:23,040 Speaker 1: a boutique investment bank really focuses on the media and 409 00:23:23,119 --> 00:23:26,680 Speaker 1: technology sectors, and they throw this conference every year in 410 00:23:26,800 --> 00:23:29,520 Speaker 1: Sun Valley and it just brings together Tom and Li says, 411 00:23:29,600 --> 00:23:35,240 Speaker 1: some of the you know, the leading players in media, entertainment, technology, telecommunications, 412 00:23:35,280 --> 00:23:37,600 Speaker 1: and they all come together here in Sun Valley to 413 00:23:37,720 --> 00:23:39,760 Speaker 1: kind of get a sense of the future trends of 414 00:23:39,840 --> 00:23:43,280 Speaker 1: their businesses. But really they come together, uh, to talk 415 00:23:43,359 --> 00:23:46,399 Speaker 1: to each other. And what happens many years is a 416 00:23:46,520 --> 00:23:50,600 Speaker 1: lot of M and A transactions are hatched, Okay Valley, 417 00:23:50,680 --> 00:23:52,719 Speaker 1: and those are things we read about during the year. 418 00:23:52,920 --> 00:23:55,959 Speaker 1: What's the level of sweat out there this year? I mean, 419 00:23:56,000 --> 00:23:58,720 Speaker 1: I know scale is in and all that, but what's 420 00:23:58,760 --> 00:24:02,480 Speaker 1: the level of sweat you've discerned already? I think it's 421 00:24:02,560 --> 00:24:05,680 Speaker 1: pretty high at here despite the low humidity. But I 422 00:24:05,720 --> 00:24:07,720 Speaker 1: think it's pretty high because I think a lot of 423 00:24:07,800 --> 00:24:11,359 Speaker 1: these media companies that have historically been the stalwarts of 424 00:24:11,440 --> 00:24:13,359 Speaker 1: this conference look around and they say, we're not just 425 00:24:13,480 --> 00:24:16,159 Speaker 1: in the media business. We're in the global technology business. 426 00:24:16,240 --> 00:24:19,280 Speaker 1: And you know, we're looking against uh, we're competing against 427 00:24:19,359 --> 00:24:23,080 Speaker 1: Facebook and Google and Apple and Amazon um. And when 428 00:24:23,160 --> 00:24:25,399 Speaker 1: you think about it in those terms, a lot of 429 00:24:25,440 --> 00:24:28,160 Speaker 1: the traditional media companies say we need to either get 430 00:24:28,400 --> 00:24:31,080 Speaker 1: bigger or we need to get out. And we've seen 431 00:24:31,160 --> 00:24:33,160 Speaker 1: over the last couple of years some big, big media 432 00:24:33,200 --> 00:24:36,639 Speaker 1: companies already decided to kind of get out. Time Warner 433 00:24:36,680 --> 00:24:39,520 Speaker 1: sold the A T and t Rupert Murdoch sold most 434 00:24:39,560 --> 00:24:43,040 Speaker 1: of his company to the Walt Disney Company. So I 435 00:24:43,080 --> 00:24:45,560 Speaker 1: think that trend is still very much play here. Well, 436 00:24:45,640 --> 00:24:47,879 Speaker 1: one thing that I'm wondering, Paul, is, first of all, 437 00:24:47,960 --> 00:24:49,480 Speaker 1: is how you get the gig to go out there, 438 00:24:49,480 --> 00:24:50,879 Speaker 1: because right now I'm looking at the weather and it 439 00:24:50,920 --> 00:24:52,960 Speaker 1: looks pretty amazing. They're not. There's not much squeaz forty 440 00:24:53,000 --> 00:24:55,840 Speaker 1: four degrees right exactly beautiful. But Paul, I I do 441 00:24:55,960 --> 00:24:59,359 Speaker 1: want to know from you, Uh. Scale can mean many things, 442 00:24:59,440 --> 00:25:01,560 Speaker 1: and we've seen from some of the big industrial companies 443 00:25:01,560 --> 00:25:03,880 Speaker 1: they've been starting to break themselves up at this point 444 00:25:03,960 --> 00:25:07,000 Speaker 1: because scale has been ineffective. What is the crucial scale 445 00:25:07,080 --> 00:25:09,880 Speaker 1: to get in media right now? Is it a content game? 446 00:25:10,280 --> 00:25:13,320 Speaker 1: Is it a you know, a bandwidth game? What is it? 447 00:25:14,400 --> 00:25:16,080 Speaker 1: It's a couple of things. Number one. I think it's 448 00:25:16,160 --> 00:25:18,120 Speaker 1: it's a content game. I think if you just think 449 00:25:18,160 --> 00:25:21,919 Speaker 1: about the uh the TV business, UM, the big disruptor 450 00:25:21,960 --> 00:25:24,480 Speaker 1: over the last five or six years has been streaming 451 00:25:24,920 --> 00:25:27,280 Speaker 1: of content. And of course when you think about streaming, 452 00:25:27,320 --> 00:25:29,920 Speaker 1: you think about Netflix and and Bob Iger the Walt 453 00:25:29,920 --> 00:25:33,040 Speaker 1: Disney company, that is his number one focus is a 454 00:25:33,160 --> 00:25:36,920 Speaker 1: Netflix and the ability to have a direct to consumer 455 00:25:37,000 --> 00:25:40,240 Speaker 1: relationship so that you can stream your content director to 456 00:25:40,440 --> 00:25:43,000 Speaker 1: consumer with with without a middleman like a Comcast or 457 00:25:43,000 --> 00:25:45,880 Speaker 1: a direct TV uh. And so we've seen the Walt 458 00:25:45,920 --> 00:25:48,399 Speaker 1: Disney company, you know, basically double the size of its 459 00:25:48,440 --> 00:25:51,240 Speaker 1: company about buying Fox just to get more content so 460 00:25:51,400 --> 00:25:55,240 Speaker 1: that they can create direct to consumer relationships much like 461 00:25:55,520 --> 00:25:58,960 Speaker 1: Netflix and and on a global scale. What are we 462 00:25:59,119 --> 00:26:02,520 Speaker 1: learning about use of debt If we've had transactions where 463 00:26:02,560 --> 00:26:05,159 Speaker 1: we've said the debts up to our eyeballs, we've got 464 00:26:05,240 --> 00:26:08,760 Speaker 1: a migrate out regional sports networks just to salvage the 465 00:26:08,880 --> 00:26:12,639 Speaker 1: debt picture, is this debt affected or can they actually 466 00:26:12,760 --> 00:26:15,919 Speaker 1: do it by you know other other m and a ways. 467 00:26:17,400 --> 00:26:21,200 Speaker 1: The media industry um really you know, enjoys a debt 468 00:26:21,359 --> 00:26:24,040 Speaker 1: because these are big pre cash flow businesses. And so 469 00:26:24,160 --> 00:26:26,520 Speaker 1: the credit markets, whether you're the JP Morgan banks or 470 00:26:26,520 --> 00:26:28,920 Speaker 1: the high yield market, Uh, they love to lend to 471 00:26:29,000 --> 00:26:31,399 Speaker 1: the media communications sector. So you take a look at 472 00:26:31,760 --> 00:26:34,040 Speaker 1: a T and T is the biggest borrower outside of 473 00:26:34,080 --> 00:26:37,160 Speaker 1: the financial sector, um and now, and that's just fine. 474 00:26:37,240 --> 00:26:39,520 Speaker 1: Comcast is also a big borrow. So these media and 475 00:26:39,520 --> 00:26:42,560 Speaker 1: tele companies they enjoy the ability to use their stock. 476 00:26:42,960 --> 00:26:45,000 Speaker 1: Also they can go to the debt markets and only 477 00:26:45,080 --> 00:26:47,680 Speaker 1: level up these businesses. Bloomberg says this morning when Paul 478 00:26:47,720 --> 00:26:50,560 Speaker 1: Sweeney and Sun Valley, Idaho, Lisa brand wants and Tom 479 00:26:50,680 --> 00:26:54,399 Speaker 1: Keane not there. This part of Bloomberg Surveillance brought you 480 00:26:54,440 --> 00:26:57,720 Speaker 1: by the Needery Breakfast and Sun Valley including are you 481 00:26:57,800 --> 00:27:02,240 Speaker 1: ready for this? Lisa Eggs black Stone. You think Steve 482 00:27:02,280 --> 00:27:06,840 Speaker 1: Schwartzman was about eggs and black Stone poached eggs with 483 00:27:06,880 --> 00:27:09,960 Speaker 1: a grilled season tomato. Thomas is English muffin top a 484 00:27:10,040 --> 00:27:14,639 Speaker 1: chop bacon, home made. I mean Schwartzman's. Schwartzman's got his 485 00:27:14,720 --> 00:27:17,280 Speaker 1: own eggs Benedict out there, Are you trying to make 486 00:27:17,359 --> 00:27:19,680 Speaker 1: me like you're trying to create strife between me and 487 00:27:19,760 --> 00:27:22,479 Speaker 1: my co hosts? We say good morning, we say good 488 00:27:24,520 --> 00:27:27,040 Speaker 1: I'm glad Tom that you brought up debt, because that 489 00:27:27,160 --> 00:27:30,640 Speaker 1: really is my question. Is there an eagerness to get 490 00:27:30,800 --> 00:27:33,960 Speaker 1: deals done now? All debt markets are super hot, while 491 00:27:34,000 --> 00:27:37,959 Speaker 1: there's less demand than there is there's less supply than 492 00:27:38,000 --> 00:27:41,600 Speaker 1: there is demand right now to buy risky assets. I 493 00:27:41,640 --> 00:27:44,440 Speaker 1: think so absolutely. I think the UH A lot of 494 00:27:44,520 --> 00:27:47,240 Speaker 1: the companies recognize that they're really in a in a 495 00:27:47,480 --> 00:27:50,879 Speaker 1: fantastic position. You're given the debt markets um and their stocks. 496 00:27:50,920 --> 00:27:53,480 Speaker 1: Many of their stocks are trading a very high valuation. 497 00:27:53,560 --> 00:27:55,920 Speaker 1: So when you think about some of these acquisitions, whether 498 00:27:55,960 --> 00:27:58,639 Speaker 1: it's AT and T or Disney making acquisitions, a lot 499 00:27:58,680 --> 00:28:00,920 Speaker 1: of these companies feel like they're in a very strong position. 500 00:28:01,000 --> 00:28:03,880 Speaker 1: Asked the private equity companies, if you know you mentioned 501 00:28:04,119 --> 00:28:07,240 Speaker 1: you know the folks of Blackstone and KKR. We've seen 502 00:28:07,320 --> 00:28:11,080 Speaker 1: Apollo out buying TV assets over the last year, and 503 00:28:11,160 --> 00:28:14,119 Speaker 1: they're doing all with debt, levering up the who's going 504 00:28:14,160 --> 00:28:17,600 Speaker 1: to advantage who's got the big who's got the biggest 505 00:28:17,640 --> 00:28:20,040 Speaker 1: pot of money out there? Is it private equity? Is 506 00:28:20,119 --> 00:28:23,720 Speaker 1: it Jeff Bezos? I mean, who's stupid rich out of 507 00:28:23,800 --> 00:28:26,920 Speaker 1: Ellen company? Right now? I think some of the technology companies, 508 00:28:26,960 --> 00:28:28,520 Speaker 1: you know, we we have, you know, there's stock prices 509 00:28:28,600 --> 00:28:30,960 Speaker 1: are so high, they're sitting on so much cash. The 510 00:28:31,080 --> 00:28:33,400 Speaker 1: bar and rates are so low. You know, every year 511 00:28:33,440 --> 00:28:35,280 Speaker 1: we come out here to the Sun Valley Conference and 512 00:28:35,320 --> 00:28:38,280 Speaker 1: the question is when will we see a big technology company, 513 00:28:38,280 --> 00:28:41,160 Speaker 1: whether it's a Facebook or Google or an Amazon, really 514 00:28:41,240 --> 00:28:43,840 Speaker 1: step up and make a you know, a huge acquisition 515 00:28:43,920 --> 00:28:47,080 Speaker 1: in the content space to kind of round out their portfolio. 516 00:28:47,120 --> 00:28:48,480 Speaker 1: We haven't seen it, but that's kind of what the 517 00:28:48,560 --> 00:28:51,200 Speaker 1: bankers here, I'm sure are, you know, pitching those deals 518 00:28:51,280 --> 00:28:53,920 Speaker 1: left and right. All right, So Paul, please look into 519 00:28:53,920 --> 00:28:57,040 Speaker 1: your Christal ball. Which mergers or acquisitions should we be 520 00:28:57,120 --> 00:28:59,960 Speaker 1: expecting to hear about. I think some of the things 521 00:29:00,160 --> 00:29:02,400 Speaker 1: will see probably in the next year. Um, you know 522 00:29:02,440 --> 00:29:03,720 Speaker 1: kind of what when you're talking to a lot of 523 00:29:03,760 --> 00:29:05,640 Speaker 1: investment bankers is they say a lot of the smaller 524 00:29:05,680 --> 00:29:10,200 Speaker 1: companies like MGM, lions Gate, even Sony Pictures, Uh, all 525 00:29:10,240 --> 00:29:13,440 Speaker 1: those are content players. Um. You look at Univision. Univision 526 00:29:13,520 --> 00:29:16,040 Speaker 1: is the largest Spanish language media company in the US. 527 00:29:16,400 --> 00:29:19,080 Speaker 1: They've actually kind of got hired some bankers and looking 528 00:29:19,120 --> 00:29:22,040 Speaker 1: for a deal and maybe even Discovery Communications. They've bought 529 00:29:22,280 --> 00:29:25,240 Speaker 1: Scripts Networks. They've gotten very big, but are they big enough? 530 00:29:25,320 --> 00:29:28,800 Speaker 1: Maybe not? Major shout out in May of this year, 531 00:29:29,680 --> 00:29:33,880 Speaker 1: Mr Iger and Disney. The peak is exactly a four 532 00:29:34,080 --> 00:29:38,200 Speaker 1: standard deviation leap in Disney shares and they put it 533 00:29:38,320 --> 00:29:40,920 Speaker 1: on two months in a row from there. Paul Sweeney 534 00:29:40,960 --> 00:29:45,240 Speaker 1: out of Allen Company, Sun Valley, Idaho. Thanks for listening 535 00:29:45,360 --> 00:29:49,880 Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews 536 00:29:49,920 --> 00:29:55,120 Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 537 00:29:55,720 --> 00:29:59,000 Speaker 1: I'm on Twitter at Tom Keane before the podcast. You 538 00:29:59,080 --> 00:30:02,480 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.