WEBVTT - Netflix's Business Model Is a Ticket to Bankruptcy, Bibb Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.159 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Right now, 0:00:32.200 --> 0:00:35.640 there is a lot of focus on media companies, particularly 0:00:35.720 --> 0:00:41.160 as the shift from cable networks to online advertising takes hold, 0:00:41.200 --> 0:00:43.200 and we are very lucky to have with us today. 0:00:43.440 --> 0:00:47.360 Porter bib managing partner Media Tech Capital Partners in New York. 0:00:47.360 --> 0:00:50.680 He is better known as being the first publisher of 0:00:50.800 --> 0:00:53.720 Rolling Stone. He has been on both sides of the industry, 0:00:53.760 --> 0:00:55.920 from the content side at Rolling Stone as well as 0:00:56.320 --> 0:00:59.880 being an investment banker specializing in media, entertainment and to 0:01:00.040 --> 0:01:03.680 chnology ventures. H Porter, thank you so much for joining us. Uh. 0:01:03.760 --> 0:01:08.480 You know, after Time Warner reported earnings yesterday, shares across 0:01:08.520 --> 0:01:12.720 the board of Walt Disney, twenty Century Fox, CBS, Viacom 0:01:12.840 --> 0:01:17.160 all fell because Time warners showed that they expect AD 0:01:17.240 --> 0:01:22.280 sales that were far below where analysts were expecting. A 0:01:22.319 --> 0:01:24.200 bit yes, a bit. Well they were a bit, but 0:01:24.360 --> 0:01:26.839 but the trend that was already down, that's right, already 0:01:26.880 --> 0:01:30.360 ratcheted down. I'm wondering, in five years, do you think 0:01:30.400 --> 0:01:33.160 that these behemous Walt Disney, twenty for Century, Fox, etcetera. 0:01:33.640 --> 0:01:38.680 Will all exist as independent companies. I think that's unlikely. 0:01:38.959 --> 0:01:42.720 UM NBC already is not an independent company. ABC is 0:01:42.760 --> 0:01:47.280 already not an independent company. You have CBS UH standing alone, 0:01:47.319 --> 0:01:52.000 and Fox and Fox foxes desperately trying to become a 0:01:52.040 --> 0:01:56.880 global media company with the rest of Sky Broadcasting, which 0:01:56.960 --> 0:02:00.360 they're trying to acquire in the UK. So they answer 0:02:00.360 --> 0:02:02.400 is no, they're not going to be any more independent 0:02:02.480 --> 0:02:08.320 linear networks standing alone anymore. Porter Who are the big advertisers? 0:02:08.320 --> 0:02:10.639 Are they automobile companies? I mean, are they the ones 0:02:10.680 --> 0:02:13.880 that really power most of this ad revenue. Historically that 0:02:13.919 --> 0:02:17.960 has been the case. It's it's packaged goods products like 0:02:18.520 --> 0:02:23.000 Procter and Gamble or Gillette, UH and autos. But today 0:02:23.040 --> 0:02:26.480 they are not the big advertisers. Big advertisers are UH, 0:02:26.560 --> 0:02:35.640 Internet companies like Travago, insurance companies, UM and pharmaceutical products. 0:02:35.680 --> 0:02:40.280 And basically because they they little known secret is that 0:02:40.360 --> 0:02:45.120 The people who are watching linear television are baby boomers 0:02:45.200 --> 0:02:48.799 and and beyond, and they're the prime prospects for all 0:02:48.919 --> 0:02:51.640 this pharma and the meds. It's true whenever I watch 0:02:51.720 --> 0:02:53.480 certain shows that my husband and they have, you know, 0:02:53.560 --> 0:02:55.840 add after ad if every disease you can think about, 0:02:55.880 --> 0:02:59.120 I think maybe we're not the demographic they're trying to reach. 0:02:59.600 --> 0:03:01.680 You know. I don't know why they have that golden 0:03:01.680 --> 0:03:05.320 retriever in every yet either, but that's enough. I'm waiting 0:03:05.320 --> 0:03:09.800 for Congress to say, we can make a health program 0:03:09.840 --> 0:03:13.400 work if we just eliminate the hundreds of millions of 0:03:13.440 --> 0:03:17.519 dollars that each farmer company is spending on on television advertising. Well, 0:03:17.639 --> 0:03:20.760 so let's talk about whether there is anything that could 0:03:20.840 --> 0:03:24.440 revive the ad sales for these companies or is this 0:03:24.520 --> 0:03:28.560 just the beginning of it even more rapid decline. Well, 0:03:28.600 --> 0:03:32.480 it's it's a transition, it's not a decline. Advertising actually 0:03:32.560 --> 0:03:37.280 is up. The upfronts that that the major networks have 0:03:37.520 --> 0:03:43.600 just experienced. UH posted a low single digit UH increase 0:03:43.640 --> 0:03:47.240 in terms of total advertising sold and also the cost 0:03:47.280 --> 0:03:50.480 for a thousand the rates that they're charging. The real 0:03:50.760 --> 0:03:53.600 message though, is that those rates are twenty five or 0:03:53.640 --> 0:03:58.280 thirty below what they were even five years ago. So 0:03:58.760 --> 0:04:02.080 that's that's because the audience, the network audience of linear 0:04:02.120 --> 0:04:06.600 television networks is shrinking faster than the cable cutters are 0:04:06.640 --> 0:04:10.480 are cutting out of cable television pay TV and going 0:04:10.520 --> 0:04:13.400 to the internet. Porter, I wanted to throw a couple 0:04:13.400 --> 0:04:15.760 of names at you and just get your thoughts. Start 0:04:15.760 --> 0:04:21.000 off with Amazon. Well, Amazon is probably the smartest player 0:04:21.120 --> 0:04:23.080 right now, and they they are one of the new 0:04:23.120 --> 0:04:28.080 media companies. You have Google, Facebook, Netflix, um, uh and Amazon. 0:04:28.360 --> 0:04:34.720 And Amazon is essentially using Amazon Prime as a an 0:04:34.760 --> 0:04:40.840 inducement to buy products through uh Amazon's network, uh and 0:04:40.839 --> 0:04:46.279 and offering you entertainment and media content that is actually terrific. 0:04:46.400 --> 0:04:52.200 And Amazon Prime now has a hundred million subscribers paying 0:04:52.240 --> 0:04:57.200 the same price as as Netflix charges and get and 0:04:57.200 --> 0:05:00.520 and the bonuses you get free shipping if you buy 0:05:00.560 --> 0:05:05.320 anything through the Amazon network. So uh, they're they're probably 0:05:05.560 --> 0:05:11.640 the most uh lucrative and potentially most profitable player in 0:05:11.680 --> 0:05:17.520 the new media world. Netflix net. Netflix has also got 0:05:17.560 --> 0:05:21.360 about a hundred million subscribers uh in the US, and 0:05:21.400 --> 0:05:24.880 they're growing there. There's their static here, but they're growing 0:05:24.920 --> 0:05:28.720 globally because they're they're new, and they're they're offering uh 0:05:29.520 --> 0:05:33.760 a unique product, streaming product that hasn't been introduced in 0:05:33.880 --> 0:05:35.479 most of the rest of the world. So they will 0:05:35.520 --> 0:05:40.040 continue to grow, but financially or economically, Netflix is is 0:05:40.200 --> 0:05:45.840 not sustainable. The model that they have uh is uh 0:05:45.920 --> 0:05:49.840 it's it's it's a ticket to bankruptcy because they own 0:05:50.120 --> 0:05:53.720 right now off balance sheet more than twenty billion dollars 0:05:53.760 --> 0:05:58.200 of liabilities for content that they're buying, contracting, or creating 0:05:58.560 --> 0:06:02.240 as original content, and the subscriber base is not going 0:06:02.279 --> 0:06:07.560 to support that. Netflix will have to, in my opinion, uh, 0:06:07.680 --> 0:06:11.640 introduce advertising, which will all of a sudden send the 0:06:11.680 --> 0:06:16.200 subscriber numbers through the floor. Well back up, because this 0:06:16.279 --> 0:06:18.839 is actually quite a big deal. You're saying that netflix 0:06:18.920 --> 0:06:23.320 Is current business model is a ticket to bankruptcy and 0:06:23.400 --> 0:06:26.960 that they are going to have to start advertising, at 0:06:27.000 --> 0:06:30.440 which point they will attract fewer users, which is not 0:06:31.160 --> 0:06:33.120 which is infeasible. So in other words, they're bankruptcy. No 0:06:33.160 --> 0:06:37.360 matter what, advertiser are going to drive subscribers away. So 0:06:37.400 --> 0:06:40.240 in other words, you think that they're doomed. I think 0:06:40.279 --> 0:06:44.599 that they're a target for acquisition by a Google and Amazon, 0:06:44.760 --> 0:06:48.359 A Facebook or one of the telecoms they do not 0:06:48.520 --> 0:06:52.440 have economically a sustainable business model, but right now be 0:06:52.520 --> 0:06:56.039 incredibly expensive for any of those behemoths to acquire Netflix, 0:06:56.080 --> 0:06:58.719 and they could potentially build out some of their own contexts. 0:06:58.760 --> 0:07:01.919 Why nobody is making offers for Netflix because their stock 0:07:01.960 --> 0:07:05.719 price and the pe is so extraordinarily high, but that 0:07:05.720 --> 0:07:11.400 that will not support uh high level going forward. When 0:07:11.400 --> 0:07:14.400 do you think this sort of hits a tipping point? 0:07:14.400 --> 0:07:16.680 Because so far people seem to have endless appetite for 0:07:16.720 --> 0:07:23.640 Netflix's debt and for anything that Netflix does. As we're 0:07:23.720 --> 0:07:27.520 in a transition period right now, linear television is still 0:07:27.560 --> 0:07:31.960 attracting significant audience, and it's a huge amount of advertising, 0:07:32.160 --> 0:07:35.640 even though that advertising is in decline UH and the 0:07:35.640 --> 0:07:40.760 cost per thousand is plummeting as well. But everybody is 0:07:41.520 --> 0:07:43.520 if you're a major advertiser and you want to reach 0:07:43.600 --> 0:07:48.720 a significant audience, you're going to buy network television. Netflix 0:07:48.960 --> 0:07:53.600 is offering more and more television content and drawing away 0:07:53.680 --> 0:07:59.560 the audiences from the linear networks. And and that's because 0:07:59.600 --> 0:08:05.120 it's seven's affordable, and and it's very easy to go 0:08:05.240 --> 0:08:09.320 in and out. But nobody talks about the turn at Netwick. Netflix. 0:08:09.360 --> 0:08:13.160 They never release any numbers. They don't really tell you 0:08:13.200 --> 0:08:17.920 how many people, UM use somebody else's password. Um, there 0:08:18.200 --> 0:08:21.280 are probably another ten or fifteen percent of people who 0:08:21.360 --> 0:08:24.800 don't pay for Netflix and who won't if there's advertising 0:08:24.840 --> 0:08:27.040 that comes in. So I would say in the next 0:08:27.080 --> 0:08:29.720 three to five years, you're gonna see Netflix hit the wall, 0:08:30.040 --> 0:08:32.400 and then the stock price is going to come down 0:08:32.480 --> 0:08:34.960 and somebody's going to pick up the pieces. Thank you 0:08:35.080 --> 0:08:36.880 very much for coming in and being with us. Porter 0:08:36.960 --> 0:08:40.440 bib is managing partner of Media Tech Capital Partners. You 0:08:40.440 --> 0:08:56.720 can follow him on Twitter at Porter three. All right, 0:08:56.760 --> 0:08:58.760 let's visit with someone who knows a lot about hedge 0:08:58.760 --> 0:09:01.960 funds and alternative investor and strategies. Ron Biscardi is the 0:09:01.960 --> 0:09:05.560 co founder and the chief executive of Context Capital Partners 0:09:05.800 --> 0:09:08.160 and he joins us here in our studio. Ron, thanks 0:09:08.240 --> 0:09:10.640 very much for coming in, Thanks for having them tell 0:09:10.679 --> 0:09:14.360 people what is Context Capital Partners and just add in 0:09:14.720 --> 0:09:17.679 the summits that you put together so they understand that 0:09:17.760 --> 0:09:23.040 it's more than just a standalone company. Sure so, Context 0:09:23.120 --> 0:09:27.360 Capital Partners is a an alternative investment specialist. Uh we 0:09:27.440 --> 0:09:32.200 in essence, launch and accelerate alternative fund products, So we 0:09:32.240 --> 0:09:36.240 work in private equity structures, hedge fund structures. We launched 0:09:36.240 --> 0:09:39.560 a liquid alternatives platform a few years ago, and of course, 0:09:39.800 --> 0:09:42.440 UH one of the centerpieces now of our entire business 0:09:42.480 --> 0:09:46.760 model is context Summits, which is our conference UH that 0:09:46.880 --> 0:09:51.720 focuses exclusively on capital introduction. So these are events where 0:09:51.760 --> 0:09:54.920 investors from around the world are coming together with hedge 0:09:54.920 --> 0:09:59.439 fund managers and alternative managers to go through a one 0:09:59.480 --> 0:10:01.720 on one me format where they get to spend a 0:10:01.720 --> 0:10:04.600 half hour with each other and learn about each other 0:10:04.640 --> 0:10:06.520 and figure out if there's a match, and if there is, 0:10:06.559 --> 0:10:09.320 they can spend more time following the event speed dating 0:10:09.360 --> 0:10:13.160 basically speedype left spe right. As part of one of 0:10:13.200 --> 0:10:16.480 the recent conferences that you held, you did a survey 0:10:16.520 --> 0:10:18.880 which I thought was pretty interesting, and this conference was 0:10:18.920 --> 0:10:22.440 held earlier this year in Barcelona. I believe in UH, 0:10:22.600 --> 0:10:25.360 and I thought that the results of this survey we're 0:10:25.440 --> 0:10:29.720 fascinating because it showed that an increasing number of small 0:10:29.800 --> 0:10:34.560 family offices and wealthy individuals are are gravitating toward new 0:10:34.640 --> 0:10:38.800 funds rather than the big established ones. And I thought 0:10:38.840 --> 0:10:40.800 that was interesting. Why can you talk a little bit 0:10:40.800 --> 0:10:45.439 about how pervasive this desire for smaller startups is so 0:10:45.520 --> 0:10:48.880 I absolutely I can tell you that what's been interesting 0:10:49.480 --> 0:10:52.440 to watch is how each one of our summits events 0:10:52.440 --> 0:10:56.400 has grown over the attendance in the prior year, in 0:10:56.440 --> 0:10:58.760 the midst of one of the worst periods for hedge 0:10:58.760 --> 0:11:01.560 fund performance, and I think the reason for that is 0:11:01.679 --> 0:11:06.120 twofold number one. After the crash, you saw investors largely 0:11:06.720 --> 0:11:10.320 uh flee to safety. Uh They wanted to allocate into 0:11:10.320 --> 0:11:12.920 the asset class, but they only wanted to do so 0:11:13.040 --> 0:11:15.640 into the biggest funds. So the largest funds in the 0:11:15.679 --> 0:11:19.520 industry accumulated the vast majority of assets following the crash, 0:11:19.600 --> 0:11:22.120 and I think that has changed. I think investors are 0:11:22.160 --> 0:11:25.559 now more focused on returns. They're more focused on making 0:11:25.600 --> 0:11:29.720 sure they're getting alpha with their investment, and that has 0:11:29.840 --> 0:11:33.560 led them to go downstream more towards smaller funds. So 0:11:33.679 --> 0:11:35.640 this is interesting because a lot of people say that 0:11:35.679 --> 0:11:38.400 in this current environment, the idea of the big macro 0:11:38.559 --> 0:11:41.600 bet is losing its allure. It's also not performing particularly 0:11:41.600 --> 0:11:45.160 well and on average. So is this sort of indications 0:11:45.440 --> 0:11:50.080 an indication that investors see more value in smaller funds 0:11:50.120 --> 0:11:54.480 that can target specific smaller opportunities over bigger ones that 0:11:54.480 --> 0:11:56.640 are forced to go for go bigger, go home with 0:11:56.880 --> 0:12:00.320 large bets. Yeah. I think that's exactly what's happening. I 0:12:00.360 --> 0:12:04.560 think most investors believe that it is generally easier to 0:12:04.600 --> 0:12:07.960 find alpha and generate alpha in smaller, niche er strategies. 0:12:08.240 --> 0:12:10.480 And some of the top hedge funds in the world 0:12:10.520 --> 0:12:12.520 are largest hedge funds in the world. It's just like 0:12:12.559 --> 0:12:16.120 turning an aircraft carrier trying to run these things. So, uh, 0:12:16.160 --> 0:12:19.520 they have obviously underperformed as a as a group, and 0:12:19.559 --> 0:12:21.920 I think that's a big part of the driver behind 0:12:22.000 --> 0:12:25.680 investors coming downstream. Does any of your money go into 0:12:25.679 --> 0:12:28.080 any of these strategies? Oh? Yes, I mean in in 0:12:28.280 --> 0:12:32.280 the core business, uh, where we're launching and accelerating funds, 0:12:32.480 --> 0:12:35.000 we do a few things. First, we deploy capital. You know, 0:12:35.040 --> 0:12:37.959 that's largely why everyone wants to talk to us. Uh. 0:12:38.000 --> 0:12:40.400 And you say deploy capital. Is that the people who 0:12:40.440 --> 0:12:44.439 you invite you think are great and you've invested with them. Yeah. 0:12:44.640 --> 0:12:47.760 So in on the asset management side of the business, 0:12:48.000 --> 0:12:52.280 we are actually accelerating and launching new fund products with 0:12:52.320 --> 0:12:55.480 the portfolio managers who run those funds. So our partner 0:12:55.520 --> 0:12:59.679 capital at context goes into those those specific products and 0:12:59.720 --> 0:13:03.240 then as necessary, will also wrap services around them so 0:13:03.320 --> 0:13:06.319 that their institutional quality on day one, because that has 0:13:06.360 --> 0:13:09.600 also changed post crash. Precrash, you could start in your 0:13:09.600 --> 0:13:11.960 apartment in this business with five or ten million bucks 0:13:11.960 --> 0:13:15.439 and accumulate money over time. But nowadays they really want 0:13:15.440 --> 0:13:19.520 to see a real business with compliance and technology and investment. 0:13:19.559 --> 0:13:23.679 Was that the Jensen partners combination that you did, so Jensen, 0:13:23.760 --> 0:13:27.840 Our partnership with Jensen was really about sort of bringing 0:13:27.880 --> 0:13:31.880 another offering to this marketplace and adding to our ecosystem. 0:13:31.960 --> 0:13:36.520 So Jensen specializes in search for marketing executives in particular, 0:13:36.960 --> 0:13:39.840 and obviously all the funds who are attending our events 0:13:39.880 --> 0:13:42.920 are in the market trying to get better at marketing. 0:13:43.000 --> 0:13:45.120 So we thought that was a really nice complement to 0:13:45.160 --> 0:13:48.839 the Summits business, providing that search capability as well. So 0:13:48.960 --> 0:13:52.560 what are some of the smaller niche businesses that are 0:13:52.679 --> 0:13:57.160 popular right now? Uh? So, you know, you can't look 0:13:57.200 --> 0:14:00.440 anywhere in the hedge fund industry without people talking about 0:14:00.520 --> 0:14:04.480 quant I mean it's really become uh must have in 0:14:04.520 --> 0:14:08.160 certain categories. And the you know, whether they are small 0:14:08.160 --> 0:14:11.160 funds are big funds. At our events, the quant strategies 0:14:11.200 --> 0:14:13.880 are collecting lots of meetings. You know, the the average 0:14:13.880 --> 0:14:17.240 meeting count that our Miami Flagship event in February was 0:14:17.280 --> 0:14:20.280 about twenty, but the quant strategies, a lot of them 0:14:20.280 --> 0:14:23.920 were thirty to thirty five. What what what? What? What 0:14:24.640 --> 0:14:26.880 would count as a quant strategy? And if they use 0:14:26.920 --> 0:14:29.600 an algorithm, does that mean that they could call themselves quants? 0:14:30.920 --> 0:14:33.040 I mean, you know, I guess at the simplest level 0:14:33.160 --> 0:14:38.600 that's true, but uh, there are certain strategies where it's 0:14:38.680 --> 0:14:42.320 just a human can't compete with a computer. And I 0:14:42.400 --> 0:14:46.680 think if you don't have a quant capability, uh that 0:14:46.800 --> 0:14:49.560 you can demonstrate to investors that you have an expertise 0:14:49.600 --> 0:14:52.320 in you're just not gonna You're not going to accumulate. 0:14:52.760 --> 0:14:57.480 Do the investors understand the models generally speaking? Probably not so. 0:14:57.560 --> 0:15:01.280 Like basically the wheel here there based sickly saying, okay, 0:15:01.400 --> 0:15:04.680 you've handed me a document. Everybody has invested, we love you, 0:15:04.720 --> 0:15:06.880 we think you're very smart. You've got twenty pH d 0:15:07.040 --> 0:15:10.000 s on staff, And by the way, here are your 0:15:10.040 --> 0:15:12.960 back tested results. Because I haven't been in business long enough, 0:15:13.280 --> 0:15:16.920 and go ahead, there's my money. So I think this 0:15:16.960 --> 0:15:19.840 came out of a survey we did in Miami. Investors 0:15:20.000 --> 0:15:23.040 really are focused on your investment process. To your point, 0:15:23.040 --> 0:15:25.760 pen they can't really evaluate the code. I mean some 0:15:25.840 --> 0:15:29.000 are trying to hire software developers to actually dig into 0:15:29.040 --> 0:15:31.720 the code when the when the manager will let them. 0:15:31.720 --> 0:15:35.160 But in general they're focused on an investment process because 0:15:35.280 --> 0:15:38.560 if you have a good process, you can weather lots 0:15:38.560 --> 0:15:41.080 of different markets. I think to look at just the 0:15:41.120 --> 0:15:43.840 performance of a back test or anything like that in 0:15:43.920 --> 0:15:48.040 isolation is probably a mistake, because every strategy will encounter 0:15:48.040 --> 0:15:50.200 a market where it doesn't work, and you need to 0:15:50.240 --> 0:15:52.520 know that the team is prepared to deal with that 0:15:52.600 --> 0:15:57.120 when it occurs. Just really quick. Any emerging market strategy 0:15:57.160 --> 0:16:00.440 is getting hot right now. UH so at in our 0:16:01.160 --> 0:16:05.000 European survey, UH there was more interest from investors just 0:16:05.040 --> 0:16:10.480 slightly in UH developed market equities, and so nothing that 0:16:10.520 --> 0:16:13.360 immediately comes to mind for me. Thank you so much 0:16:13.400 --> 0:16:16.040 for joining us. Ron Biscardi, co founder and chief executive 0:16:16.040 --> 0:16:22.240 officer of Context Capital Partners in chief basically UH couple 0:16:22.400 --> 0:16:26.640 maker between hedge funds and big wealthy institutions. UH. The 0:16:26.680 --> 0:16:30.640 Allocator Trends report on Europe from this year's meeting is 0:16:30.680 --> 0:16:34.080 really quite interesting and demonstrates a lot of counter intuitive 0:16:34.280 --> 0:16:37.320 trends and Lisa A. Bram Woid's, along with pim Fox, 0:16:37.720 --> 0:16:53.600 this is Blueberg. Right now, I'm looking at a British 0:16:53.680 --> 0:16:57.000 pound versus the Euro that is down as its weakest 0:16:57.200 --> 0:17:01.760 level since October. Comes after Bank of England's Mark Carney 0:17:01.800 --> 0:17:04.399 said basically the economy is at the mercy of Brexit 0:17:04.760 --> 0:17:07.880 and downgraded his expectations for growth. To get a little 0:17:07.920 --> 0:17:10.080 bit better perspective, I want to bring in Mark Chandler, 0:17:10.320 --> 0:17:13.159 Global Head of Currency Strategy at Brown Brothers Harriman in 0:17:13.200 --> 0:17:16.080 New York City. Mark, thank you so much for joining us. 0:17:16.359 --> 0:17:19.399 You know, we have seen this pervasive weakness in the pound, 0:17:19.480 --> 0:17:22.480 which is pretty close at this point to the lowest 0:17:22.720 --> 0:17:25.760 level since two thousand nine versus the euro. How much 0:17:25.800 --> 0:17:28.680 further can it weaken? And a good question. I think 0:17:28.680 --> 0:17:31.000 that what was saying, really it's not just sterling weakness 0:17:31.040 --> 0:17:33.639 here or the dollars weakness, but we're really seeing euro 0:17:33.760 --> 0:17:36.159 strength as well. To me that really the move did 0:17:36.200 --> 0:17:38.439 not begin because it woul happened in the UK, but 0:17:38.480 --> 0:17:41.879 it really began in April when it became clear that 0:17:42.000 --> 0:17:45.520 this populoust nationalist wave was not really sweeten across the world. 0:17:45.640 --> 0:17:48.520 That was primarily a U. S UK event, and that 0:17:48.640 --> 0:17:50.359 Europe was going to turn its back on it. And 0:17:50.359 --> 0:17:52.679 that's what happened. As soon as Kim claid that mccon 0:17:52.800 --> 0:17:55.280 was going to win, the euros took off and really 0:17:55.280 --> 0:17:58.359 hasn't looked back. And so this is still for me, 0:17:58.440 --> 0:18:01.440 I think partly the Euro over But you know, back 0:18:01.640 --> 0:18:05.040 in two thousand and eight, two thousand and nine euro 0:18:05.160 --> 0:18:09.359 sterling got above. You just said that the euro, that 0:18:09.440 --> 0:18:12.280 the euro has overshot, so you're expecting it to reverse 0:18:12.320 --> 0:18:14.720 at some point. Yes, I think that what we saw, 0:18:14.760 --> 0:18:17.400 you know, you know, one of the big drivers now 0:18:17.680 --> 0:18:20.840 UH that has put the bottom on sterling was the 0:18:20.880 --> 0:18:24.800 softer than expected us I s M for the service sector. 0:18:25.160 --> 0:18:29.840 Well today the Eurozone reported it's weakest p M I 0:18:30.119 --> 0:18:35.480 composite UH form basically over a year. And so I 0:18:35.520 --> 0:18:38.800 think that the mcclem story is so that the bloom 0:18:38.880 --> 0:18:41.240 is off the rose there, he's the honeymoon is over. 0:18:41.520 --> 0:18:45.440 I think we people have exaggerated how how close the 0:18:45.440 --> 0:18:48.840 the e c B is to really exiting their policies. 0:18:49.280 --> 0:18:51.760 I know the leading you had you quote someone someone 0:18:51.840 --> 0:18:54.639 is talking from Bloomberg talking about how other central banks 0:18:54.640 --> 0:18:57.840 are getting are like signingly that they also are getting done. 0:18:57.880 --> 0:18:59.919 But I think what we're gonna get in September is 0:19:00.000 --> 0:19:02.560 the ECB to say that they're not done. They're not 0:19:02.600 --> 0:19:04.760 done expanding their balance sheet this year, but they will 0:19:04.760 --> 0:19:08.320 continue to buy bonds, perhaps at a slower pace, through 0:19:08.359 --> 0:19:10.960 the first half of next year. The US balance sheet 0:19:11.000 --> 0:19:14.280 is going to be shrinking, probably beginning in October, but 0:19:14.480 --> 0:19:17.280 I think could raise rates again in December, could raise 0:19:17.359 --> 0:19:21.119 rates again early next year before the ECB even gets 0:19:21.160 --> 0:19:24.480 done with expanding their balance sheet or raising rates. Hey Mark, 0:19:24.520 --> 0:19:27.240 I'm wondering if you could explain who or what group 0:19:27.359 --> 0:19:31.000 of traders actually moves the needle when it comes to 0:19:31.160 --> 0:19:34.440 exchange rates. And I'm thinking about dollar euro right now, 0:19:34.680 --> 0:19:38.000 because we're at one eighteen and if you've got this 0:19:38.119 --> 0:19:42.399 bid underneath bonds coming from the European Central Bank, you 0:19:42.440 --> 0:19:46.280 can make the argument that that's not a really natural situation. 0:19:47.680 --> 0:19:50.680 Well yeah, I mean so, I think it depends on 0:19:50.720 --> 0:19:52.600 the time from that you're looking at. I often find 0:19:52.600 --> 0:19:54.960 and that's why I tracked the commitmentive traders that you 0:19:54.960 --> 0:19:58.280 can use on Bloomberg I p SP or the c 0:19:58.480 --> 0:20:01.439 O T function because I think in the short term, uh, 0:20:01.480 --> 0:20:04.879 the speculators and have a big role to play in 0:20:04.920 --> 0:20:08.120 a sort of momentum traders, trend followers. But what's also 0:20:08.160 --> 0:20:12.080 happening this year, PAIM is that global investors, the clients 0:20:12.119 --> 0:20:15.760 here at Broun, these are real money, These are mutual funds, 0:20:15.800 --> 0:20:18.760 asset managers, unit trust and what these people have been 0:20:18.800 --> 0:20:21.720 doing have been the big play has been buying European 0:20:21.800 --> 0:20:25.720 stocks on an unheedged basis and buying emerging market stocks. 0:20:25.800 --> 0:20:28.320 And so I think that those those portfolio flows are 0:20:28.320 --> 0:20:30.600 more of a medium term uh more, more of a 0:20:30.600 --> 0:20:33.640 medium term driver, you know, markets. It's interesting when you're 0:20:33.640 --> 0:20:36.920 talking about different flows. I have to think about recent 0:20:37.000 --> 0:20:40.679 data showing that foreign investors have increased their purchases of 0:20:40.920 --> 0:20:44.120 US bonds in part because of the weaker dollar gives 0:20:44.160 --> 0:20:46.800 them a more attractive price point. It makes me wonder, 0:20:46.800 --> 0:20:50.080 at what point will that end up causing more dollar strength, 0:20:50.160 --> 0:20:52.119 just because if there is more demand flooding in you 0:20:52.160 --> 0:20:56.680 would expect that to be a sort of corollary consequence. Yeah, 0:20:56.720 --> 0:20:59.199 I know, you're right, that's that's always the funny thing 0:20:59.200 --> 0:21:00.919 I have to find with the closes. It's almost like 0:21:00.960 --> 0:21:03.639 for me, like an onion and the closer I. The 0:21:03.640 --> 0:21:05.840 closer I look at it, take off a layer and 0:21:05.920 --> 0:21:09.679 peel back. I just have more layers. Like very I 0:21:09.720 --> 0:21:13.520 think money is very much mysterious like that, especially these flows, 0:21:13.560 --> 0:21:16.040 but in general, I think that the the problem is 0:21:16.080 --> 0:21:19.159 that when the dollar is weak like it is like 0:21:19.200 --> 0:21:22.359 it has been in the last several months, foreign central 0:21:22.400 --> 0:21:26.480 banks typically buy the dollar from the basically buying it 0:21:26.520 --> 0:21:29.919 from the private sector, and so the central bank ownership 0:21:29.920 --> 0:21:32.439 of treasuries which is going up. There's another important function 0:21:32.440 --> 0:21:34.240 that you have on Bloomberg where you can track the 0:21:34.280 --> 0:21:37.600 Federal Reserve acts of custodian for foreign central banks and 0:21:37.640 --> 0:21:41.280 their holdings of treasuries and mortgage backed securities. It has 0:21:41.320 --> 0:21:44.200 been going up quite sharply this year, particularly for China 0:21:44.200 --> 0:21:47.440 and Japan. China and Japan, but also you know, I'm 0:21:47.440 --> 0:21:49.720 not sure in these we think that in the pick data, 0:21:50.280 --> 0:21:53.600 but in the Federal Reserve custody we don't. Really it's 0:21:53.600 --> 0:21:56.960 not public who which central banks used the Federal Reserve 0:21:57.000 --> 0:21:59.760 as a custodian. I personally be surprised if China was 0:21:59.800 --> 0:22:03.360 a user of the federal reserves, custodial services, but any 0:22:03.400 --> 0:22:05.879 of it. It's true that central banks have been buying 0:22:05.920 --> 0:22:08.679 more treasuries, and they've been buying them because the market 0:22:08.680 --> 0:22:11.200 wants to sell them. The market wants to sell the dollars, 0:22:11.520 --> 0:22:13.640 and the central banks ACIEM like those dollars and put 0:22:13.680 --> 0:22:15.920 them into treasuries. We gotta leave it there, But I 0:22:15.960 --> 0:22:18.240 want to thank you very much. Mark Chandler, Global head 0:22:18.280 --> 0:22:21.959 of Currency Strategy, Brown Brothers Harriman. He can be followed 0:22:22.000 --> 0:22:37.720 on Twitter at Mark making Sense. I want to turn 0:22:37.760 --> 0:22:40.080 out to trade between the United States and China. And 0:22:40.119 --> 0:22:43.320 Caitlyn Webber are a government analyst for global trade policy 0:22:43.320 --> 0:22:46.280 for Bloomberg Intelligence. Caitlin, thank you very much for being 0:22:46.480 --> 0:22:49.760 with us. Tell us the current state of US China 0:22:49.840 --> 0:22:54.159 trade relations and what is at stake for both sides. Well, 0:22:54.200 --> 0:22:58.320 at this point we're really seeing UM that relationship has 0:22:58.320 --> 0:23:00.640 it cheerated a lot, really over the last month or so. 0:23:01.080 --> 0:23:03.199 It's interesting because in the first six months of the 0:23:03.280 --> 0:23:07.480 year UM it looked like the relationship was improving. Trump 0:23:07.480 --> 0:23:11.240 the Trump administration declined to name China currency manipulator after 0:23:11.640 --> 0:23:14.840 threatening to do so on the campaign trail. Trump Trump 0:23:14.880 --> 0:23:21.639 administration really linked UM that trade relationship with China, UM 0:23:22.160 --> 0:23:26.359 oftensibly trying to help ease tensions on the Korean peninsula, 0:23:26.440 --> 0:23:31.000 try to rein in Piyongyang. Over the past months, UM, 0:23:31.040 --> 0:23:35.720 after we saw North Korea test to intercontinental ballistic missiles, 0:23:36.359 --> 0:23:38.560 you saw that, you saw President Trump come out and 0:23:38.600 --> 0:23:41.720 say you were disappointed in China that they haven't been 0:23:41.720 --> 0:23:45.760 successful in sort of controlling North Korea. More. UM, we 0:23:45.840 --> 0:23:48.760 think that we could potentially see some actions on trade 0:23:48.800 --> 0:23:52.160 and so UM. There are a couple of investigations that 0:23:52.200 --> 0:23:55.359 have already been launched on steal an aluminum against that 0:23:55.400 --> 0:23:58.680 really target China, And over the past couple of days 0:23:58.680 --> 0:24:00.920 have been there's been a lot of porting that there 0:24:01.320 --> 0:24:05.200 will be potentially another investigation launched, this time going after 0:24:05.600 --> 0:24:11.000 alleged Chinese violation of US intellectual property. Well, Caitlin, I'd 0:24:11.040 --> 0:24:14.639 love to get some details on the progress that US 0:24:14.760 --> 0:24:19.000 officials have made on this whole Bioamerica steel plan that 0:24:19.119 --> 0:24:22.640 President Trump has touted. I mean, how far along are 0:24:22.680 --> 0:24:24.920 we on that type of initiative or has it fallen 0:24:24.920 --> 0:24:29.280 by the wayside. It seems to have fallen by the wayside, 0:24:29.280 --> 0:24:31.679 at least in the attention that it's getting when that 0:24:32.040 --> 0:24:35.080