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Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot com, and of course on the Bloomberg You've

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Speaker 1: seen in the reports this morning. I'm sure many of

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Speaker 1: you have let me read it to you. If you haven't.

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Speaker 1: According to people with knowledge of the talks, executives of

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Speaker 1: we Work and it's launches investor Self Bank discussing whether

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Speaker 1: to shelve the I p O plans. They're not discussing

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Speaker 1: the Golden sax or JP Morgan Chase right discussing it

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Speaker 1: between themselves. Reportedly, let's bring in David Kirkpatrick show we

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Speaker 1: founder and CEO of to Economy, and I'm sure many

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Speaker 1: of you have read his book, The Facebook perspect David

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Speaker 1: is great to have you with us. Just put into

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Speaker 1: context what is happening. It's some perspective around this company

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Speaker 1: and the controversy surrounding it as they try and go public.

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Speaker 1: I would say the biggest picture context is that the

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Speaker 1: WEE Company or we Work is not a tech company,

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Speaker 1: but partly because of it's backing from soft Bank, which

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Speaker 1: is basically trying to turn everything into tech and profit

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Speaker 1: massively with their hundred plus billion dollar funds they keep raising. Uh,

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Speaker 1: they've they've somewhat deluded the world into thinking that pretty

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Speaker 1: much any company that's using an app or or some

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Speaker 1: kind of tech in order to transform an industry deserves

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Speaker 1: the same kind of evaluation as Facebook. And that's ridiculous.

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Speaker 1: So they came to the market last time in the

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Speaker 1: private funding round, the last funding round, and got two

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Speaker 1: billion dollars of investment from self bank and evaluation of

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Speaker 1: forty seven billion. Are we saying that self bank is

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Speaker 1: completely distorted private markets? I would say yes, it has.

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Speaker 1: I think that's a very good general statement. I mean,

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Speaker 1: I think Uber is another consequence of this, and I

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Speaker 1: look at what's happened since Suber's I p oh, It's

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Speaker 1: it's very related. So what happens next with this as

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Speaker 1: far as you see things, well, the interest think about

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Speaker 1: the I p O. Is this thing the contingent loan

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Speaker 1: if they have to raise three billion or else, they

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Speaker 1: don't get all this other billions from Wall Street banks.

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Speaker 1: So it's six billion dollars aligned contingent on rice and three.

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Speaker 1: So it could be that they will just lower the

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Speaker 1: valuation as far as they can, so they still can

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Speaker 1: raise three billion because they basically have to have more

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Speaker 1: cash to keep expanding, because it's a shell game in

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Speaker 1: a way. Chapter six of the Facebook Effect page becoming

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Speaker 1: becoming a company? Is this any way to becoming a company? No,

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Speaker 1: it isn't. But I will say since you mentioned my

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Speaker 1: book about Facebook, Facebook did some degree set in motion

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Speaker 1: the forces that we are seeing today. Well, primarily because

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Speaker 1: of the absolute control that Zuckerberg obtained and the idea

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Speaker 1: after that that every single tech quote unquote tech founder

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Speaker 1: ought to have complete and total control, which Adam Newman

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Speaker 1: took to an absurd Okay, but in the last week

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Speaker 1: or Mr Newman's one, well, who wanted to do the

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Speaker 1: tabloids sociable whole thing. You know, he's like Pharaoh. He's

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Speaker 1: out there doing the you know, society thing. Yeah, John Farrell,

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Speaker 1: He's doing the society. He's like Pharaoh in the Egyptian.

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Speaker 1: So it's like Pharaoh here, not rowing Pharaoh, John Pharaoh.

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Speaker 1: I meant Pharaoh in Cairo, and stay with me. Okay,

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Speaker 1: Adam Newman has been invisible the last ten days. That's blowny.

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Speaker 1: I mean, wouldn't if you were a basically a scam artist,

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Speaker 1: wouldn't you hide when people have discovered you? I mean,

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Speaker 1: you know, I mean, I'm afraid he's he's a variety

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Speaker 1: of things that he has done at that company. It's

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Speaker 1: almost too many to list. Does this break the arrogance

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Speaker 1: of Silicon Valley is a general statement. The arrogance of

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Speaker 1: Silicon Valley is being broken in real time already, and

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Speaker 1: I think Facebook contributed again to that. They've made so

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Speaker 1: many near criminal errors. Public markets will forgive governance issues

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Speaker 1: if the business model is good. So let's talk about

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Speaker 1: the business model, long term lease obligations, short term agreements

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Speaker 1: with customers. You used the word scam. Just put some

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Speaker 1: meat on those bots. I mean, it's you know, scam

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Speaker 1: is a strong word. I don't want to get to

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Speaker 1: a strong but basically, I think it's amazing that j

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Speaker 1: the JP, Morgan Chase, and Golden Sachs would back this company.

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Speaker 1: I think it makes them really culpable and is suspect

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Speaker 1: they should be shamed for this. But I come at

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Speaker 1: a time when we're possibly about to go into a

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Speaker 1: downturn which is the absolute worst time for real estate.

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Speaker 1: And all these little companies that occupy we works, they

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Speaker 1: are going to basically be, you know, many of them

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Speaker 1: out of funding, and that's exactly the wrong time to

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Speaker 1: go puvid. When you say culpable, do you mean reputationally. Yes. Look,

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Speaker 1: we're in a time when the smallest foible and somebody's

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Speaker 1: reputation behavior causes them to lose their job, you know,

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Speaker 1: be shamed. These are companies that are doing something I

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Speaker 1: think that is unconscionable. They should not have backed this

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Speaker 1: company at this kind of valuation. They shouldn't be trying

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Speaker 1: to convince investors to throw their money away. That is,

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Speaker 1: that's immoral. Well, self Bank is going for vision to

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Speaker 1: the vision to fund the Vision fund too. I'm not

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Speaker 1: saying I think they're just opportunistic. I think it's Wall Street.

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Speaker 1: Is there accounting transparent? Do we know SoftBank's true accounting?

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Speaker 1: I doubt it. I mean I'm not an expert at

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Speaker 1: SoftBank's accounting, but I doubt it. We're out of time.

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Speaker 1: You've coined something new here nearly emails and this says

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Speaker 1: I have to call him Pharaoh John from now on?

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Speaker 1: Is that my New Night. It's like King Todd, except

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Speaker 1: it's King tart spout very differently. Oh yes, really there's

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Speaker 1: a pH on that. How did you not realize? David,

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Speaker 1: Great to see you, Great to be here at some

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Speaker 1: controversial comments that David really look forward to coming along

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Speaker 1: the way on this as well. Potentially the most interesting

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Speaker 1: negative zero point zero one percent move I've ever seen

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Speaker 1: on the SMP five hundred, the worst performing names with

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Speaker 1: some of the best performing names on the day. The

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Speaker 1: best performing names was some of the worst and it's

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Speaker 1: left some people asking whether this is the beginning of

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Speaker 1: a rotation, not just inequities, but in the bond market

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Speaker 1: to one big question for bonds right now. Is it

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Speaker 1: the beginning of the reflation trade, the beginning of a

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Speaker 1: new trend, or just the correction after a monster move

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Speaker 1: through Derek Hampenny dropping by the studio m u f

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Speaker 1: G head are European at Global Markets Research. He joined

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Speaker 1: us here in New York. Good morning to Derek. Good morning.

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Speaker 1: Let's start with the question, shall we It is very

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Speaker 1: early days, It has been a couple of weeks, but

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Speaker 1: please weigh in on that big debate right now. It

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Speaker 1: is early days and I would still be leaning towards

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Speaker 1: a degree of caution in how this pans out. You know,

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Speaker 1: the scale of the move makes it understandable that we've

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Speaker 1: had some degree of correction. But you know the US

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Speaker 1: China story. You know, even if we go back into negotiations,

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Speaker 1: even if they start to kind of make progress, the

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Speaker 1: kind of big picture on certainty around trade is not

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Speaker 1: going to go away. Secondly, we believe a no deal

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Speaker 1: braggsit is on the way. Boris Johnson has had a

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Speaker 1: bad period of time, but ultimately we still think as

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Speaker 1: big picture strategies in play um. So you know, all

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Speaker 1: of that, coupled with just the fact that this was

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Speaker 1: more about positioning than anything, I think you'd have to

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Speaker 1: see some real fundamental shifts before you could get confident

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Speaker 1: about this being a longer term trend. The US thirty

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Speaker 1: year yield bottomed out at the end of August. We

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Speaker 1: were as lower as around about one ninety city group.

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Speaker 1: Since we have bottomed out is up around about ten

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Speaker 1: percent since the end of August. Off the back of

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Speaker 1: this pickup and yields. This rotation in the equity market

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Speaker 1: is getting a lot of attention, but when you talk

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Speaker 1: you highlight the same themes the same problems that took

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Speaker 1: yields down to one ninety on the US thirty year

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Speaker 1: and I assume from what you're saying, Derek, we've got

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Speaker 1: more to come through the rest of Yeah, and you know,

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Speaker 1: I look at central banks. We're going to get deeper

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Speaker 1: negative cuts from the u CB on Thursday. We think

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Speaker 1: ali and is having lower so we think Japanese strength,

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Speaker 1: Japanese end strength is ultimately going to pressure in the

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Speaker 1: b O J to potentially cutting rates. Are certainly trying

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Speaker 1: to implement some form of easing under a no deal brexit.

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Speaker 1: Are expecting two more rate cuts from the Bank of England.

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Speaker 1: So you know, all of this, it's not a particularly

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Speaker 1: positive backdrop for suggesting we've seen a turn in yields.

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Speaker 1: We've got a lot to strip out there. Let's start

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Speaker 1: with the c P and the decision on Thursday. Are

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Speaker 1: you expecting what has been described as the full package,

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Speaker 1: the right cut, the tearing, the QUI, the whole lot.

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Speaker 1: Well again, yes, but I think this comes into why

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Speaker 1: we're seeing the correction in yields because quite clearly there's

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Speaker 1: been a very concerted effort amongst e c B Council

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Speaker 1: members to shift the expectations in terms of the scale

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Speaker 1: of that package, and in particular, perhaps the quantitative easing

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Speaker 1: is where there is some division in relation to the

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Speaker 1: scale of that. So perhaps that's going to come out

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Speaker 1: at the low end of the scale twenty billion per

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Speaker 1: month something like, but no indication of a change in

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Speaker 1: the issuance limits that would kind of curtail the scale

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Speaker 1: of the program. So you know, some potential disappointment perhaps

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Speaker 1: on that, but you know, ultimately it's not going to

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Speaker 1: make a huge difference beyond the short term momentum. Do

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Speaker 1: they have a partition in the United States? Here as

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Speaker 1: the US talks about trade war, manufacturing goods, disinflation, deflation,

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Speaker 1: and then there's a buoyant service sector that Vice Chairman

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Speaker 1: Clarator would say is solid. Great, I get that, Maybe

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Speaker 1: the aggregate solid as well. That's a debate. Is the

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Speaker 1: EU structure that way as well or is it just

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Speaker 1: some no recession environment forget about the service sector goods

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Speaker 1: trade war partition? Well, you know, the one positive that

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Speaker 1: is still more or less evident in Europe is that

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Speaker 1: outside of the external related economic indicators, there has been

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Speaker 1: U positive data. And by that I mean and we

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Speaker 1: mentioned it earlier in terms of the German labor market,

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Speaker 1: but if you look at some of the domestic demand

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Speaker 1: elements across Europe, the labor market is still supporting domestic

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Speaker 1: demand to a degree. The problem is though, that of course,

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Speaker 1: the longer the external certainties last, the greater the risk

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Speaker 1: is filtering ECB delay. I mean, Farrell spend to Frankfurt

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Speaker 1: like forty two times. He's he's never had a lunch.

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Speaker 1: They're shorter than three hours. Well, I struggle to find

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Speaker 1: a restaurant in Frankfurt's have lunch in because people having

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Speaker 1: lunches for three hours. But John, I mean, I mean,

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Speaker 1: why don't they just delay? I mean, there's no debate

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Speaker 1: here about the ECB delaying. The whole debate has been

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Speaker 1: hijacked by the counter effect. You're not just at the ECB.

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Speaker 1: But the problems have to remember inflation, Like, they have

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Speaker 1: one single mandate and they are missing it pretty badly.

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Speaker 1: They are, and if they don't move. I think the

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Speaker 1: fear that they have is the fit the FED shares

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Speaker 1: is that financial conditions titan, the idea being ultimately that

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Speaker 1: if you move again, you're not going to loosen them

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Speaker 1: a whole lot more given that where spreads are at

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Speaker 1: the moment, given where credit is trading, But if you

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Speaker 1: don't move, you could have the opposite reaction, and then

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Speaker 1: you've got a much bigger problem. I guess is that

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Speaker 1: the logic is that the thinking do you think on

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Speaker 1: the Governing Council at the moment, yes, to a degree.

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Speaker 1: You know, again there their hands are tied to an

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Speaker 1: extent in terms that they have a legal mandate, and

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Speaker 1: if they continue to show forecasts that are moving in

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Speaker 1: the opposite direction, and of course the five year five

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Speaker 1: year inflation is showing, you know, record low levels, so

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Speaker 1: you know that's that's where they're and is forced. But ultimately,

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Speaker 1: you know, we all know we're reaching the end of

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Speaker 1: the kind of scale of monetaries and that can be implemented.

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Speaker 1: And as I said earlier to Tom, the pressure on

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Speaker 1: a new course of action is going to increase considerably.

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Speaker 1: And we have a new political landscape emerging in Europe

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Speaker 1: and the Mercal is leaving, we have new commission in

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Speaker 1: the U, a new ECB president. There's got to be

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Speaker 1: a change in direction towards fiscal stimulus on a concerted

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Speaker 1: and I've been so busy this morning, John I I

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Speaker 1: just brought this chart up. I saw it and the

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Speaker 1: bloomberg on the Great Jay screen they have. The plunge

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Speaker 1: in Swedish inflation is jaw dropping, I mean plunge. There's

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Speaker 1: almost no equivalent going back ten years, despite the fact

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Speaker 1: that ricks Bank has been pretty aggressive as well. Derek,

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Speaker 1: what's interesting from a foreign exchange perspective, and I'd love

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Speaker 1: your insight just around out the conversation, is that we

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Speaker 1: have seen spreads, the rate differentials between say the United

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Speaker 1: States and Europe narrow at the same time we've seen

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Speaker 1: a weaker euro. We've seen euro dollar break down a

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Speaker 1: little bit. That's not what some people would expect just

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Speaker 1: with f X one oh one, look at rate differentials,

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Speaker 1: look at currencies. That's not really worked for a while,

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Speaker 1: has it with a single currency? Why not? Derek? Well,

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Speaker 1: I think we've we've we've reached extremes, and you know,

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Speaker 1: the markets are I think to a degree acknowledging that

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Speaker 1: we've reached the zero bound. And while yeah, okay, we

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Speaker 1: can get tann basis points to any basis points, the

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Speaker 1: what's being priced in is the quantitative easing component of that,

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Speaker 1: which doesn't filter through into the right spreads to the

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Speaker 1: same degree because of course we're at the lower band

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Speaker 1: and you're getting less traction. But it doesn't then tie

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Speaker 1: with euro because of those curtailments in relation to what

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Speaker 1: the ECP can do. Uh you know. But again you

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Speaker 1: can go back to euro euro rallied to one and

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Speaker 1: it had nothing to do with spreads. So when you

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Speaker 1: reach extremes you can have you can have moves and

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Speaker 1: with intert the FED and focus as well, their reluctance

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Speaker 1: to act more aggressively is helping to keep the dollar support.

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Speaker 1: This has been a wonderful conversation, Derek. Help on you

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Speaker 1: visiting in New York ahead of Global Research. I don't

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Speaker 1: know what's your title. This week had a Global Research

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Speaker 1: in charge of Premier League nails. Are you over your

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Speaker 1: interviewing for NBC Sports for Premier A happy to be

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Speaker 1: here and not if it's talking about Arsenal, I would

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Speaker 1: I would happily do that. They look good against the Tots.

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Speaker 1: They deserve to beat the top that he called spurs

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Speaker 1: the Tarts. He said, but I watched were you at

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Speaker 1: the game? The game with my two boys? I thought

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Speaker 1: I saw you. You know, we can't afford his seats.

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Speaker 1: I mean they're like and they're close. You know, we

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Speaker 1: need to get you to a game this season. Yeah,

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Speaker 1: they catch when when? When when the election? When they

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Speaker 1: finally call it gets Arsenal, it's a derby. It's not

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Speaker 1: a derby. It's a derby derby. Arsenal looked really good.

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Speaker 1: And I got the idea where the experts are saying

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Speaker 1: they got three guys up front there they're so good

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Speaker 1: that it changes everyone that got three thirty seconds blow

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Speaker 1: the brake rich football. They've got three good upfronts. The

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Speaker 1: defenses the problem uh in the league. See how he

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Speaker 1: gets gage. He doesn't talk about you're all yeng like

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Speaker 1: this John. I know he can totally engage about his gunners,

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Speaker 1: his gunners. I didn't know that Arsenal gunners. You like that?

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Speaker 1: So we bringing George sara Velos, bringing George serious research

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Speaker 1: of Deutsche Bank Global head of Foreign Exchange Research, going

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Speaker 1: into a really interesting way tomorrow, pp I data from

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Speaker 1: the United States Thursday, CPI retail sales Friday, and an

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Speaker 1: ECP rate decision TOMPs somewhere in between. Coming up on

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Speaker 1: Thursday with a news conference with President Runkie. It is

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Speaker 1: a really sizeable week ahead, sizable week ahead in the

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Speaker 1: George in your research note, you've got all in trade

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Speaker 1: weighted price adjusted dollar. Why do you have price adjusted

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Speaker 1: dollar in your note? With the news slow that's coming up? Well,

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Speaker 1: as you say, Thursday is a really big day for

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Speaker 1: the markets in terms of the ECB, So all the

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Speaker 1: focus will be on the euro, but at least as

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Speaker 1: far as the US administration goes, I think they're focused

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Speaker 1: on broader measures and what dollar China has been doing,

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Speaker 1: and on that front, obviously they move through seven over

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Speaker 1: the summer has picked up attention. What was interesting in

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Speaker 1: August is that we saw a new bill submitted in

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Speaker 1: the Senate that was bipartisan talking about the FED now

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Speaker 1: given a mandate to weaken the dollar and to start

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Speaker 1: taxing capital inflows. So m Thursday will be all about Europe,

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Speaker 1: but I think as we go into the end of

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Speaker 1: the year and inter next the focus back into the

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Speaker 1: US and the presidential election. In John, your your summary

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Speaker 1: of the news events of partial differentials, is it about

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Speaker 1: euros stronger weaker or is it about something else stronger weaker?

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Speaker 1: Compared to you, Well, the elephant in the room right

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Speaker 1: now is China and the Chinese currency. I think kit

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Speaker 1: Juice of Solf John has done a great job of

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Speaker 1: banging the drum on this, hammering home the idea that

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Speaker 1: the biggest waiting in the trade weighted X basket of

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Speaker 1: the e C B is the Chinese currency, and the

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Speaker 1: second biggest waiting in the trade weighted fex basket of

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Speaker 1: the FED is the Chinese currency. George, just how important

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Speaker 1: is that currency move in the Chinese currency for the

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Speaker 1: majors like the Euro, like the Dollar, for the FED

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Speaker 1: and the e C big Well, it's absolutely critical. And

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Speaker 1: for me, the biggest events of the summer has actually

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Speaker 1: been just how successful the Chinese have been in managing

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Speaker 1: this move through seven. So there was a large fear

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Speaker 1: in the market that could be disorderly. You could see

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Speaker 1: reserve depletion, large capital outflows, and none of this have materialized.

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Speaker 1: That the Chinese have been very, very successful in achieving

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Speaker 1: a weaker currency, but not by more than what they want.

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Speaker 1: So in that sense, that's been a major positive for

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Speaker 1: the market, the fact that we were able to move

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Speaker 1: through that seven level over the summer, and I think

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Speaker 1: we come in September and the market is potentially looking

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Speaker 1: a bit more optimistic, and I do think that control

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Speaker 1: the Chinese have over the currency makes the light of

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Speaker 1: the ECB and the FED just a little bit easier

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Speaker 1: or surveillance. Let's use Euro just as one benchmark to

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Speaker 1: begin a set of calls. What is your call on

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Speaker 1: Euro twelve months out? Given the cacophony, have we come

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Speaker 1: out of this summer? Well, we think it will move

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Speaker 1: back above one twenties, So we think we will see

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Speaker 1: the low in Q four. And there's two sides to

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Speaker 1: that coin. The first one is European. The ECB at

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Speaker 1: the moment, I think is losing relevant. The meeting this week,

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Speaker 1: I think we'll be remembered as the last meeting where

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Speaker 1: they can really deliver anything. And we're at a point

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Speaker 1: for the ECB where less is more. So if they

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Speaker 1: over deliver, the rook is financial conditions, Titan Bank stock

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Speaker 1: drop and be precided because the CB can't deliver that much.

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Speaker 1: The Euro, I think we'll struggle to weaken and then

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Speaker 1: we go onto the U S story, which is the

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Speaker 1: other side of the coin um. First, of course, the

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Speaker 1: FED can cut a lot more. We say, if the

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Speaker 1: FED cuts through one percent, that's going to be a

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Speaker 1: big turn to the dollar. And secondly, the US presidential

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Speaker 1: election next year, you have all sorts of policies being

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Speaker 1: flown around which may potentially have a negative impact on

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Speaker 1: confidence on capex, and I think that would be a

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Speaker 1: negative driver dollar as well. John, What does Germany do

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Speaker 1: with a one tw euro? What does it do to

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Speaker 1: their automobile indust Given where autos are right now, it

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Speaker 1: certainly doesn't help. George, looking at the euro and looking

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Speaker 1: at the e c B, I sense you can gauge

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Speaker 1: some kind of disappointment coming on Thursday. What does disappointment

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Speaker 1: look like? What does that look like this Thursday with

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Speaker 1: President drag Well, that's a great question, John, in terms

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Speaker 1: of what disappointment means, because I would argue that, for instance,

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Speaker 1: if they over deliver on QUI, if they push fun

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Speaker 1: yields even lower. While that might be delivering on the

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Speaker 1: rate side, it might not be so good for bank

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Speaker 1: stocks and equities precisely because we're at the so called

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Speaker 1: rever petal rate. So yes, I do think there may

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Speaker 1: be a disappointment as far as q egos yields may

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Speaker 1: move higher, but I don't think it will be disappointment

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Speaker 1: in the conventional sense. In that you might actually see

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Speaker 1: the market like such a reaction. So the key metric

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Speaker 1: for me is really how inflation break evens behave and

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Speaker 1: how bank stocks behave, and if you end up moving higher,

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Speaker 1: I wouldn't call that an ECP disappointment, even if when

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Speaker 1: yields move up. George, let's just talk about afraid to

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Speaker 1: use their the reversal rate. It's something that's getting a

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Speaker 1: whole lot more debate and discussion over the last few

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Speaker 1: weeks coming into the CCP rate decision. Just walk us

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Speaker 1: through that concept and why it's so important for the

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Speaker 1: likes of the e CP and the likes of the

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Speaker 1: b J to consider. Well, it's absolutely critical. And the

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Speaker 1: reversal rate is the level at which beyond which if

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Speaker 1: you start easing policy ends up having the opposite effect

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Speaker 1: of what you need. So we saw that with the

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Speaker 1: back of Japan when the ease policy a couple of

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Speaker 1: years ago they went through negative banks had a very

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Speaker 1: negative reaction. We're seeing it in Europe. The correlation between

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Speaker 1: banks and yields used to be a negative one, so

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Speaker 1: yields lower. Banks used to like that, but now that

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Speaker 1: switched and yields going on, banks don't like that. Anymore.

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Speaker 1: And I think we've reached this moment of truth for

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Speaker 1: the ECB where they can't really do much. And it's

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Speaker 1: something that looks acknowledged a few days ago as well.

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Speaker 1: Are we going to have an e c B or

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Speaker 1: anybody else buying Apple shares or Amazon shares or Semen

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Speaker 1: shares or you know, name the German company. I mean,

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Speaker 1: do they have to get really creative here? All know

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Speaker 1: what the Japanese did. I think that is a possibility

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Speaker 1: and drag you may talk up these options potentially including

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Speaker 1: purchasing senior bank um senior bank bonds as well. These

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Speaker 1: are quasi fiscal type policies which involved greater redistribution. However,

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Speaker 1: it's quite a dangerous route to go down in that

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Speaker 1: once the ECB starts, for instance, buying starting to push

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Speaker 1: push as a values of wealthy people, um, it creates

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Speaker 1: very negative redistribution effect. And then want to ask the question,

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Speaker 1: why not do helicopter money? Why not give money to

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Speaker 1: poor people directly rather than buying equities. And that's a

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Speaker 1: fiscal debate, and I really think it's the fiscal side

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Speaker 1: that will resolve the growth outlook over the next couple

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Speaker 1: of years as well. As where bun Yield go and

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Speaker 1: the europe Thank you so much. Global Wall Thanks. I'm

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Speaker 1: sure we'll get that out on podcast. Is well, Tim,

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Speaker 1: you'll be relieved to know that Congress is back in sessions.

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Speaker 1: All is right with the world, and the Congress certainly

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Speaker 1: has plenty on its place. You get a sense of

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Speaker 1: kind of what Congress will be focusing on here in September.

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Speaker 1: We welcome my next guest, Nancy oh Nonovitch Agnovitch Bloomberg,

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Speaker 1: Government Congressional Leadership reporter. So, Nancy, thanks so much for

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Speaker 1: joining us. So give us a sense of kind of

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Speaker 1: what's on the to do list for Congress as it

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Speaker 1: comes back into session here, Well, play that music from

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Speaker 1: forty eight hours. The boys are back in town and

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Speaker 1: they've got just like twelve working days before they leave

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Speaker 1: town again for a break. Yeah, And so they have

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Speaker 1: to do the main thing they always do in September,

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Speaker 1: which is make sure we don't have a shutdown and

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Speaker 1: passed something to cover the government spending. And they're going

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Speaker 1: to be starting to move that next week. And that's

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Speaker 1: the main thing, because the Senate hasn't passed a single

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Speaker 1: appropriations bill. They're going to start this morning working on

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Speaker 1: a defense bill about seven billion, and then go from there.

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Speaker 1: They're all do at the White House at four o'clock

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Speaker 1: and the Senate Republicans that is, to talk to Trump

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Speaker 1: about this agenda, and the key thing is avoiding a shutdown.

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Speaker 1: And then if they can do that and they can

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Speaker 1: come back around the fifteenth of October, then maybe they

430
00:23:56,920 --> 00:24:00,480
Speaker 1: can work on that trade deal, maybe a high a bill,

431
00:24:00,960 --> 00:24:04,320
Speaker 1: a few other things, and then December is right upon them,

432
00:24:04,359 --> 00:24:06,840
Speaker 1: and then that's when they do a massive omnibus and

433
00:24:06,880 --> 00:24:09,640
Speaker 1: try to stuff as much as they can in that

434
00:24:09,680 --> 00:24:13,560
Speaker 1: package and leave town and get ready in earnest for

435
00:24:13,600 --> 00:24:17,119
Speaker 1: the election next year. So, Nancy, what are the odds

436
00:24:17,119 --> 00:24:19,680
Speaker 1: that we will have a government shutdown? I mean, this

437
00:24:19,800 --> 00:24:24,200
Speaker 1: is continued resolution presumably is a is something that will

438
00:24:24,240 --> 00:24:26,159
Speaker 1: be on number one on the on the agenda. Can

439
00:24:26,160 --> 00:24:30,800
Speaker 1: they get that passing? I think they can get that passed, because, uh,

440
00:24:30,960 --> 00:24:34,639
Speaker 1: Mitch McConnell really knows how bad these things hurt his

441
00:24:34,760 --> 00:24:37,480
Speaker 1: party when they're facing an election, and I think that's

442
00:24:37,480 --> 00:24:40,159
Speaker 1: one of the reasons or one of the messages that

443
00:24:40,200 --> 00:24:43,640
Speaker 1: they'll deliver to the president today that the thirty five

444
00:24:43,720 --> 00:24:47,120
Speaker 1: days shutdown that they had last year was very, very

445
00:24:47,200 --> 00:24:51,399
Speaker 1: bad for the party. But people can't forget these things,

446
00:24:51,440 --> 00:24:53,879
Speaker 1: but not when they're only a year away from the

447
00:24:53,960 --> 00:24:57,240
Speaker 1: presidential election. And so I think there'll be a lot

448
00:24:57,280 --> 00:25:00,320
Speaker 1: of pressure. And although Tom doesn't really like some of

449
00:25:00,320 --> 00:25:03,480
Speaker 1: these percentages and so on, I'd say, right now we're

450
00:25:03,600 --> 00:25:07,520
Speaker 1: looking at a thirty percent chance of a shutdown, but

451
00:25:07,640 --> 00:25:12,679
Speaker 1: that could grow depending on Trump. Nancy, It's called President Trump. Nancy.

452
00:25:12,680 --> 00:25:14,359
Speaker 1: Come on, you sound like you've had on a Capitol

453
00:25:14,440 --> 00:25:18,640
Speaker 1: hill for years. Nancy looked out to the chase. What matters?

454
00:25:19,320 --> 00:25:22,879
Speaker 1: Are the Redskins past their sell by date in Washington?

455
00:25:22,920 --> 00:25:25,560
Speaker 1: I mean they used to sell out. Al Hunt would

456
00:25:25,600 --> 00:25:28,399
Speaker 1: board me. I not off asleep. Al Hunt would be

457
00:25:28,400 --> 00:25:31,800
Speaker 1: beating me up on how important the Redskins are. Is

458
00:25:31,880 --> 00:25:35,879
Speaker 1: Congress still in love with the Redskins? I can't believe

459
00:25:35,880 --> 00:25:39,040
Speaker 1: that you brought up sports. Actually, you know, I was

460
00:25:39,080 --> 00:25:42,960
Speaker 1: looking at their standings today. The Redskins. It's not so good. Baltimore,

461
00:25:43,160 --> 00:25:45,560
Speaker 1: the Ravens. They are the ones that have the you know,

462
00:25:45,680 --> 00:25:48,240
Speaker 1: the momentum right now. What's a buzz on the hill?

463
00:25:48,320 --> 00:25:50,320
Speaker 1: I mean, I mean they lose to the Eagles, they

464
00:25:50,359 --> 00:25:53,359
Speaker 1: get crowned, surreally had to be medicated. They're playing the

465
00:25:53,440 --> 00:25:56,359
Speaker 1: Cowboys this week. But this used to be like, you know,

466
00:25:56,359 --> 00:26:00,000
Speaker 1: on my first days in Washington for Bloomberg, the whole

467
00:26:00,080 --> 00:26:03,560
Speaker 1: town is fixated by the Redskins. Is it done? Oh,

468
00:26:03,600 --> 00:26:07,800
Speaker 1: you're absolutely right right that Joe's eisman, all of that

469
00:26:08,080 --> 00:26:11,719
Speaker 1: is huge. Everybody wanted to go to the the Redskins games.

470
00:26:11,720 --> 00:26:14,400
Speaker 1: Nobody even talks about them these days, are they I mean,

471
00:26:14,640 --> 00:26:16,840
Speaker 1: you're the only one that would know this, Nancy Igdanovich.

472
00:26:16,880 --> 00:26:19,560
Speaker 1: Are are they going to get an appropriations built done

473
00:26:19,560 --> 00:26:24,359
Speaker 1: to build up a new stadium? Oh? No, nobody seems

474
00:26:24,359 --> 00:26:27,600
Speaker 1: to get anything built anymore. Look at the FBI. The

475
00:26:27,760 --> 00:26:31,560
Speaker 1: FBI is in that ancient brutalist building on the Ylvania

476
00:26:31,640 --> 00:26:34,760
Speaker 1: Avenue for as long as you can imagine. Now that

477
00:26:34,840 --> 00:26:37,600
Speaker 1: was Jedger Hoover's fault. Nancy Adganovitch, thank you so much

478
00:26:37,640 --> 00:26:41,520
Speaker 1: for the architectural lesson. Nancy Igdanovitch really a jewel for us.

479
00:26:42,040 --> 00:26:46,480
Speaker 1: You watch it. She has encyclopedic knowledge, yeah, of the past. Yeah,

480
00:26:46,560 --> 00:26:49,520
Speaker 1: and you know, have that insider knowledge the sources is

481
00:26:49,560 --> 00:26:51,560
Speaker 1: just extraordinary. Brings you that the color that you don't

482
00:26:51,560 --> 00:27:08,960
Speaker 1: get most other places. This is a joy and we

483
00:27:09,040 --> 00:27:12,280
Speaker 1: do this with Scott Galloway, author of The Foreign His

484
00:27:12,680 --> 00:27:15,600
Speaker 1: Paul Sweeney mentioned just a terrific Twitter follow for any

485
00:27:15,600 --> 00:27:19,520
Speaker 1: of you interested in this dovetail of our modern capitalism

486
00:27:19,520 --> 00:27:21,480
Speaker 1: with all the things that we do and buy in

487
00:27:21,600 --> 00:27:25,560
Speaker 1: technology and that we're thrilled at. Scott Galloway can continue

488
00:27:25,560 --> 00:27:29,679
Speaker 1: with us from New York University. Scott Douglas Cass is

489
00:27:29,720 --> 00:27:34,800
Speaker 1: an investor. He's visible, he's long, he's short, he trades,

490
00:27:35,200 --> 00:27:38,840
Speaker 1: He's a pinata for the Doom and Gloom Crew, etcetera, etcetera.

491
00:27:39,680 --> 00:27:43,560
Speaker 1: He is not only long Amazon, but here's a guy

492
00:27:43,640 --> 00:27:47,600
Speaker 1: that's taken to heaven forbid a long term view five years,

493
00:27:47,720 --> 00:27:51,000
Speaker 1: six years, seven year view, and Doug Cass puts a

494
00:27:51,000 --> 00:27:53,880
Speaker 1: big dollar amount on the share out the road. Can

495
00:27:53,960 --> 00:27:59,360
Speaker 1: you extrapolate forward any of this technology? Can you extrapolate

496
00:27:59,480 --> 00:28:04,720
Speaker 1: forward the future of the four? Sure? So if I

497
00:28:05,000 --> 00:28:06,800
Speaker 1: was going to write a sequel would be called The One.

498
00:28:06,920 --> 00:28:09,359
Speaker 1: And people often ask me what would be the first

499
00:28:09,400 --> 00:28:12,200
Speaker 1: trillion dollar company? And I would respond that I don't know,

500
00:28:12,320 --> 00:28:14,920
Speaker 1: but the first two trillion dollar company will be Amazon.

501
00:28:15,680 --> 00:28:18,840
Speaker 1: We've never had a company firing on twelve thousand cylinders

502
00:28:18,880 --> 00:28:21,120
Speaker 1: the way we have at firing on Amazon. I believe

503
00:28:21,160 --> 00:28:23,680
Speaker 1: the most valuable company in the world in two thousand

504
00:28:23,680 --> 00:28:27,280
Speaker 1: and twenty two or twenty three will be AWS, which

505
00:28:27,320 --> 00:28:32,119
Speaker 1: will be spun by Jeff Bezos prophylactically to stave off regulation.

506
00:28:32,200 --> 00:28:34,719
Speaker 1: In my view, so what will be the most valuable

507
00:28:34,760 --> 00:28:38,200
Speaker 1: company in the world aws and by virtue of at Amazon,

508
00:28:38,320 --> 00:28:42,000
Speaker 1: It's hard to imagine anyone threatening Amazon right now. So, Scott,

509
00:28:42,000 --> 00:28:44,440
Speaker 1: I'm glad you brought up kind of you know, expending

510
00:28:44,480 --> 00:28:47,880
Speaker 1: off AWS to fend up, potentially fend off regulators. That's

511
00:28:47,920 --> 00:28:51,680
Speaker 1: something new, I e. Regulatory oversight by US Congress, US

512
00:28:51,800 --> 00:28:55,280
Speaker 1: regulators of big tech. Historically, the US has taken a

513
00:28:55,480 --> 00:28:58,640
Speaker 1: generally a light touch to Silicon Valley. Do you think

514
00:28:58,640 --> 00:29:01,600
Speaker 1: that's fundamentally changing? If so, is that a real risk

515
00:29:01,800 --> 00:29:06,920
Speaker 1: for big tech? Oh, it's absolutely changing. Just yesterday, forty

516
00:29:06,960 --> 00:29:09,400
Speaker 1: eight states attorney general is basically everyone with forty with

517
00:29:09,520 --> 00:29:12,640
Speaker 1: Puerto Rico and California announced that they were going to

518
00:29:12,680 --> 00:29:15,560
Speaker 1: pursue any trust against Google. So the breakup a big

519
00:29:15,560 --> 00:29:18,000
Speaker 1: tech has in fact begun with the markets. I think

520
00:29:18,040 --> 00:29:21,440
Speaker 1: it wrong, Paul, is that these companies will be worth

521
00:29:21,520 --> 00:29:25,400
Speaker 1: more broken up. If you look at all the company's

522
00:29:25,440 --> 00:29:27,680
Speaker 1: post breakup, whether it was a T and T or

523
00:29:27,800 --> 00:29:30,640
Speaker 1: the e Bay spin from excuse me, the PayPal to

524
00:29:30,680 --> 00:29:34,480
Speaker 1: spin from eBay, the companies tend to unlock tremendous value.

525
00:29:34,520 --> 00:29:36,720
Speaker 1: So yes, the breakup of big tech has begun, and

526
00:29:37,160 --> 00:29:40,160
Speaker 1: also it will be good for shareholders. Okay, well you're

527
00:29:40,200 --> 00:29:42,120
Speaker 1: right at tar Bill. Do you get out front? I mean,

528
00:29:42,160 --> 00:29:44,800
Speaker 1: if you're gonna break up big tech and you you

529
00:29:44,800 --> 00:29:47,960
Speaker 1: you believe that, Professor Galloway, what is there you mentioned?

530
00:29:48,160 --> 00:29:49,680
Speaker 1: You know the cloud is going to be spun off

531
00:29:49,680 --> 00:29:52,680
Speaker 1: of Amazon. What does Apple do on the breakup of

532
00:29:52,760 --> 00:29:55,200
Speaker 1: big tech? I mean, do they really spin this stuff off?

533
00:29:56,600 --> 00:29:58,560
Speaker 1: You know? It's that's the correct question time. I think

534
00:29:58,560 --> 00:30:00,880
Speaker 1: Apple was probably the one that doesn't get broken up,

535
00:30:00,880 --> 00:30:03,440
Speaker 1: it gets regulated. I think their app store is somewhat

536
00:30:03,440 --> 00:30:05,360
Speaker 1: predatory in terms of their pricing, where you have a

537
00:30:05,360 --> 00:30:09,120
Speaker 1: company like Spotify that has a superior service, but its

538
00:30:09,120 --> 00:30:12,080
Speaker 1: growth is hamstrung by Apple, who is now growing their

539
00:30:12,160 --> 00:30:15,440
Speaker 1: music offering faster with an inferior service because they own

540
00:30:15,960 --> 00:30:18,760
Speaker 1: they have a billion pre installed devices. I don't think

541
00:30:18,760 --> 00:30:22,240
Speaker 1: Apple gets broken up because elegant anti trust not only

542
00:30:22,280 --> 00:30:26,240
Speaker 1: oxygenates the marketplace, with more competitors, but it doesn't hamstring

543
00:30:26,280 --> 00:30:28,320
Speaker 1: the company you're breaking up. And it would be difficult

544
00:30:28,320 --> 00:30:30,640
Speaker 1: to break up Apple because the question is who gets

545
00:30:31,040 --> 00:30:33,560
Speaker 1: domain over the core asset, which is the brand. So

546
00:30:33,600 --> 00:30:38,000
Speaker 1: I think Apple is probably the one that survives the breakup. So, Professor,

547
00:30:38,040 --> 00:30:40,240
Speaker 1: one of the names that is really interesting right now

548
00:30:40,360 --> 00:30:42,120
Speaker 1: is a T and T. I mean you talk about

549
00:30:42,120 --> 00:30:47,040
Speaker 1: the convergence of telecommunications media telecom, that's a T and

550
00:30:47,080 --> 00:30:49,840
Speaker 1: T with the acquisition of Direct TV and then Time Warner.

551
00:30:50,200 --> 00:30:53,120
Speaker 1: Now we've got an activist investor in there saying, wait

552
00:30:53,160 --> 00:30:54,800
Speaker 1: a minute, I don't think you guys are going down

553
00:30:54,800 --> 00:30:57,040
Speaker 1: the right road here. What do you make of kind

554
00:30:57,040 --> 00:31:00,440
Speaker 1: of the strategy? Uh that a T and T is suing?

555
00:31:01,840 --> 00:31:03,760
Speaker 1: I think it makes sense on a whiteboard, but it

556
00:31:03,800 --> 00:31:05,960
Speaker 1: doesn't look to be playing out as a consumer, and

557
00:31:06,080 --> 00:31:07,920
Speaker 1: I'm a consumer with a T and T. I don't

558
00:31:07,920 --> 00:31:10,920
Speaker 1: see how they're leveraging the content of Time Warner and

559
00:31:10,960 --> 00:31:15,160
Speaker 1: also just anytime the Jeff Bucas or Ruper Murdoch, who

560
00:31:15,200 --> 00:31:17,400
Speaker 1: I think are kind of two of the rider blue

561
00:31:17,440 --> 00:31:20,440
Speaker 1: flame thinkers sell assets at the same time, it means

562
00:31:20,480 --> 00:31:22,560
Speaker 1: you don't want to be along those assets and just

563
00:31:22,640 --> 00:31:26,480
Speaker 1: as Verizon wrote down it's purchased of Yahoo. I think

564
00:31:26,520 --> 00:31:28,480
Speaker 1: you're probably gonna see over time, A T and T

565
00:31:28,760 --> 00:31:31,160
Speaker 1: right down the assets of Time Warner, not because they're

566
00:31:31,160 --> 00:31:33,560
Speaker 1: not great assets. I just think they overpaid for him.

567
00:31:33,560 --> 00:31:37,320
Speaker 1: And it's not entirely clear from a consumer standpoint what

568
00:31:37,560 --> 00:31:41,320
Speaker 1: benefit a subscriber to their data, their data and cell

569
00:31:41,440 --> 00:31:45,160
Speaker 1: plans is getting from the same company owning HBO right now.

570
00:31:45,640 --> 00:31:47,640
Speaker 1: And that I guess that's the A T. T story

571
00:31:47,680 --> 00:31:50,080
Speaker 1: is kind of what we're emblematic of what we're seeing

572
00:31:50,080 --> 00:31:53,320
Speaker 1: in the media space, which is this pivot towards streaming,

573
00:31:53,320 --> 00:31:56,360
Speaker 1: getting a direct relationship with your consumer made so famous

574
00:31:56,360 --> 00:31:59,040
Speaker 1: by Netflix. We saw in the Walt Disney Company spend

575
00:31:59,120 --> 00:32:03,520
Speaker 1: seventy billion dollars somebody on Third Avenue sell on cell phones.

576
00:32:04,520 --> 00:32:07,360
Speaker 1: Is gonna tell Scott Gallaway the creative energy needed to

577
00:32:07,400 --> 00:32:11,040
Speaker 1: do stream exactly? I don't think so, But so, professor,

578
00:32:11,080 --> 00:32:13,200
Speaker 1: what do you think about kind of it's like the

579
00:32:13,440 --> 00:32:17,800
Speaker 1: Walt Disney Company making this major pivot towards streaming. Is

580
00:32:17,800 --> 00:32:20,400
Speaker 1: this something big media can do successfully? Or is kind

581
00:32:20,400 --> 00:32:23,440
Speaker 1: of the horse kind of left the barn already? There

582
00:32:23,440 --> 00:32:25,560
Speaker 1: are really only two companies that have a that have

583
00:32:25,720 --> 00:32:28,600
Speaker 1: landed effective counter blows against big tech. The first is

584
00:32:28,600 --> 00:32:31,120
Speaker 1: Walmart that has shown that it still has some mojo

585
00:32:31,320 --> 00:32:35,280
Speaker 1: and as landed counterpunches against Amazon, specifically with with the

586
00:32:35,400 --> 00:32:38,120
Speaker 1: curbside pick up and grocery. And the second, Paul, to

587
00:32:38,200 --> 00:32:40,920
Speaker 1: your point, is Disney and the set of assets that

588
00:32:41,040 --> 00:32:45,880
Speaker 1: Disney has with Star Wars, with Hulu, with Pixar, with Kids, Content,

589
00:32:46,040 --> 00:32:48,640
Speaker 1: with the parks, even with their Crua ships. I think

590
00:32:48,640 --> 00:32:50,880
Speaker 1: Disney is Disney is in a position to offer a

591
00:32:50,960 --> 00:32:53,920
Speaker 1: grand bargain that does in fact rival Netflix. So you're

592
00:32:54,280 --> 00:32:56,720
Speaker 1: and you also have a leader that has the credibility

593
00:32:56,760 --> 00:32:59,400
Speaker 1: to tell its board hold on everyone. We're taking profits

594
00:32:59,440 --> 00:33:02,480
Speaker 1: down because as when we say a platform or streaming

595
00:33:02,560 --> 00:33:06,920
Speaker 1: that's Latin massive investments, it's got about eight more questions,

596
00:33:06,920 --> 00:33:09,040
Speaker 1: and we're gonna do one and I'll stay here on

597
00:33:09,120 --> 00:33:11,400
Speaker 1: what all our listeners are gonna live. Paul Sweeney says,

598
00:33:11,440 --> 00:33:14,800
Speaker 1: in November and into next year, what do you see

599
00:33:14,880 --> 00:33:17,920
Speaker 1: is the outcome of streaming? Are we going to have

600
00:33:18,840 --> 00:33:21,479
Speaker 1: three streaming sources or are we going to see a

601
00:33:21,520 --> 00:33:25,440
Speaker 1: price war where we enjoy five or six streaming sources?

602
00:33:25,640 --> 00:33:31,640
Speaker 1: What's Galaway's outcome of what happens in my living room. Well, unfortunately,

603
00:33:31,720 --> 00:33:33,960
Speaker 1: it'll probably two or three big players, and there'll be

604
00:33:34,000 --> 00:33:37,360
Speaker 1: several niche players. But the unfortunate thing about tech and

605
00:33:37,440 --> 00:33:39,400
Speaker 1: where the d o J and FTC need to step

606
00:33:39,440 --> 00:33:43,000
Speaker 1: in it. Across all markets, or almost all major markets,

607
00:33:43,000 --> 00:33:46,440
Speaker 1: we're seeing a consolidation of influence and power where there's

608
00:33:46,480 --> 00:33:49,200
Speaker 1: only two or three players, and that's bad. That's bad

609
00:33:49,240 --> 00:33:51,160
Speaker 1: to the economy. I would argue the government and the

610
00:33:51,160 --> 00:33:54,080
Speaker 1: regulatory agencies have become a co conspirator and not a

611
00:33:54,080 --> 00:33:56,920
Speaker 1: countervailing force of private power. That we need to see

612
00:33:57,440 --> 00:34:00,120
Speaker 1: more affirmative d J and FTC action to ensure the

613
00:34:00,160 --> 00:34:04,160
Speaker 1: consumers still have choice in the marketplace. Get tox and toxicative.

614
00:34:04,320 --> 00:34:06,800
Speaker 1: Scott Kellaway, thank you so much, greatly appreciated on we

615
00:34:06,960 --> 00:34:10,320
Speaker 1: Company and a host of other issues, including Amazon and

616
00:34:10,360 --> 00:34:15,680
Speaker 1: the view for Thanks for listening to the Bloomberg Surveillance podcast.

617
00:34:16,040 --> 00:34:21,040
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

618
00:34:21,120 --> 00:34:25,440
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

619
00:34:25,560 --> 00:34:29,440
Speaker 1: Keane before the podcast. You can always catch us worldwide.

620
00:34:29,880 --> 00:34:30,960
Speaker 1: I'm Bloomberg Radio