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

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast

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Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast.

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Speaker 2: I let's getting a little bit more insight on the

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Speaker 2: macro front and the developments here. Because it's that debt

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Speaker 2: ceiling debate. It's taking over the markets, I would argue,

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Speaker 2: overshadowing some of the other stories like inflation, Chinese growth, geopolitics.

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Speaker 2: There's a lot of doom and gloom out there, but

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Speaker 2: let's not dwell on the bad. Let's bring in Bloomberg

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Speaker 2: Intelligence analysts, Audrey child Freeman, our chief g ten FX

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Speaker 2: strategist over at Bloomberg Intelligence, and Dwayne Wright, senior government

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Speaker 2: analysts with BI as well. Dwayne, I want to start

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Speaker 2: with you and talk to us a little bit about

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Speaker 2: the developments here. I believe M Kevin McCarthy has now

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Speaker 2: said that there are negotiations happening this morning. But what's

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Speaker 2: the sticking point? What can't they agree on.

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Speaker 3: Well, thanks. I think it's the same conversation we've been

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Speaker 3: having over the last or we've been hearing about over

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Speaker 3: the last couple of weeks, and this is yet another

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Speaker 3: mini storm that we think will end up before we

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Speaker 3: get to the calm. It ends up being around what

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Speaker 3: level of spending cuts do Republicans want and then they're

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Speaker 3: willing to accept. What level of spending cuts are Democrats

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Speaker 3: willing to agree to?

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Speaker 4: And there's about one.

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Speaker 3: Hundred and thirty billion dollars golf between the two parties.

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Speaker 3: You know, we're talking about going back to last year's

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Speaker 3: spending or working from this year spending. There's other policies

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Speaker 3: at play related to unspent COVID money. There's what to

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Speaker 3: do about defense spending. As much as Republicans want to

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Speaker 3: dial down or dial back the spending on discretionary spent funding,

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Speaker 3: they also want to increase spending on the defense side,

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Speaker 3: which Democrats have said is is a bit of a

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Speaker 3: non starter. And then you have all these other policies

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Speaker 3: that deal with some of the social safety net programs.

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Speaker 3: Should we have work requirements for healthcare, specifically in the

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Speaker 3: Medicaid program? Democrats have said no, and Republicans want to

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Speaker 3: expand on work requirements into healthcare. So a lot of

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Speaker 3: the sticking points that we saw that we're all in

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Speaker 3: the Republican House past bill that Democrats said no to,

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Speaker 3: those are still on the table, and those are still

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Speaker 3: the sticking points that they're trying to work through.

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Speaker 4: Audrey.

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Speaker 5: I want to bring you in here because we've seen

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Speaker 5: the dollar rising for the most part over the course

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Speaker 5: of the month of May, Bloomberg Dollar Index up again today.

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Speaker 5: I want to get your take how are markets pricing

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Speaker 5: in these debt ceiling concerns, specifically around the dollar.

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Speaker 6: So the dollar rebound has to be seen really up

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Speaker 6: to quite a long period of under performance, and the

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Speaker 6: market a couple of weeks, a few weeks ago, as

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Speaker 6: you said, started to look quite underweight dollar, and I suspect,

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Speaker 6: you know, if you go into this as the debt

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Speaker 6: ceiling deadlines looms and uncertainty continues to increase with regard

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Speaker 6: to that matter, I suspect that there will be an

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Speaker 6: incentive to close those underweight dollar position and just wait

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Speaker 6: and see what happens, because there's an element of uncertainty

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Speaker 6: on the impact that default would have on the dollar. Obviously,

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Speaker 6: it's negative, it's structurally negative. It adds onto the whole

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Speaker 6: theme of the dollarization. However, in the near term, if

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Speaker 6: that leads to financial market ternal which I suspect it would,

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Speaker 6: and that means funding problems that could actually push the

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Speaker 6: dollar higher. So I kind of feel that's one of

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Speaker 6: the reasons why the dollar has been pushing higher in

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Speaker 6: the past, in the past few weeks, but I feel

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Speaker 6: there's no strong conviction at the moment in the market.

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Speaker 2: Yeah, it feels purely defensive essentially, when you're looking at

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Speaker 2: kind of the way some of the speculative funds are

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Speaker 2: positioning Audie to follow upon that. Though, as soon as

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Speaker 2: this dollar debate kind of disappears, or there's a solution

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Speaker 2: or resolution of some sort, it's a no brainer trade

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Speaker 2: and unwinding of that essentially dollar weakness.

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Speaker 6: I think. So, However, compared to two or three months ago,

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Speaker 6: where you know, it was the compelling trade to have on,

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Speaker 6: there's a kind of fresh element of uncertainty creeping into

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Speaker 6: the market. In particular, I would mention the pace of

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Speaker 6: the Chinese economic recovery and the implications that would have

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Speaker 6: for the global economic outlook for currencies like the euro

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Speaker 6: the US dollar. So the answer to your question is yes,

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Speaker 6: but I don't. I think there's a little it's a

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Speaker 6: little bit less straightforward than it was. Let's say, you know,

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Speaker 6: in kind of early early January.

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Speaker 5: Duine, I want to bring you back in here. Talk

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Speaker 5: us through the timeline for the next couple of Oh boy,

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Speaker 5: we're running very close to that X date, that June

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Speaker 5: first X date. Talk us through the timeline of what

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Speaker 5: you're hearing from wamakers.

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Speaker 3: Well, they're still talking, and I think there's a big

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Speaker 3: question as to whether June first is the real X

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Speaker 3: date or if it's something after that. You know, up

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Speaker 3: to maybe last week or early this week, the Secretary

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Speaker 3: jan had been very strong in terms of saying June

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Speaker 3: one is the X date, and then kind of got

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Speaker 3: a little squishy, which I think served as a bit

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Speaker 3: of a pressure release valve as far as these conversations go.

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Speaker 3: But there there are going to be at some point

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Speaker 3: over the next week or so that pressure is going

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Speaker 3: to ramp up as we get to June first, and

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Speaker 3: potentially maybe get past June first. And you got to

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Speaker 3: think about it from a procedural standpoint. In the House

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Speaker 3: and even in the Senate, once a deal is reached

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Speaker 3: between the President and the Speaker, it's going to take

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Speaker 3: about three days to get out of the House. And

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Speaker 3: that's because Speaker McCarthy has said any bill that gets

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Speaker 3: passed out of the House longmakers will have three days

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Speaker 3: to review. So you have to build in seventy two hours.

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Speaker 3: You don't have to build in some more time to

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Speaker 3: potentially get it through a Senate that may not want

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Speaker 3: to move on it as quickly, depending on whether you're

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Speaker 3: on the right or left, and you don't like the

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Speaker 3: deal and you want to slow things down. And so

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Speaker 3: I think as we're looking at the timeline over the

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Speaker 3: next several days, you really need to start to see

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Speaker 3: something happen by around the first in order to really

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Speaker 3: get a bill don it and really stave off potential default.

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Speaker 2: The X date, I think such a crucial thing to

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Speaker 2: talk about, because yes, it's June first, regarding headlines right now,

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Speaker 2: the Janney Ellen reaffirms that June first deadline. But at

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Speaker 2: the end of the day, look at what some of

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Speaker 2: these Wall Street banks are saying. The range goes from

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Speaker 2: June first to June fifteenth, and then you have the

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Speaker 2: real market bears. You're saying, actually the real X state

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Speaker 2: for the markets is May twenty six, so right before

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Speaker 2: that Memorial Day weekend. Audrey Child Freeman of Bloomberg Intelligence,

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Speaker 2: we think he has always along with Dwayne Wright, thank

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Speaker 2: you as well, our senior government analyst with Bloomberg Intelligence. Folks.

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Speaker 2: The doom and gloom is just going to ramp up

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Speaker 2: from here.

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Speaker 5: Is making me a little bit scared, as he was

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Speaker 5: talking about all those how long it needs in order

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Speaker 5: to just get past these procedural votes.

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Speaker 2: Yes, I feel bad for those staffers. Stick with us.

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Speaker 2: This is Bloomberg.

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Speaker 7: You're listening to the teenth ken'sher live program Bloomberg Markets

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

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Speaker 7: iHeartRadio app, and the Bloomberg Business or listen on demand

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Speaker 7: wherever you get your podcast.

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Speaker 2: Let's bring in some experts here. Diana Rossero, Pana equity

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Speaker 2: research analyst over at Bloomberg Intelligence, joins us alongside a

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Speaker 2: personal favorite of mine and a Dallas resident. Again another

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Speaker 2: reason to love him, Brendan Case, our Bloomberg News retail reporter.

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Speaker 2: Brendan I want to start with you here the difference

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Speaker 2: between a slowing consumer and a collapsing consumer. Are we

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Speaker 2: there yet?

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Speaker 8: Well, I think that we have to stick with slowing

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Speaker 8: for the moment, and we're definitely seeing signs of that

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Speaker 8: all over the place, you know, starting with Target and Walmart,

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Speaker 8: you know, saying that last week, plenty of additional signs. Now.

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Speaker 8: Pet Co reported results today. Not a huge company obviously,

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Speaker 8: but sort of an interesting category because people tend to

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Speaker 8: spend pretty heavily on their pets. And there again, you know,

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Speaker 8: they're seeing strong business in the essentials such as food,

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Speaker 8: but a pullback from the kind of toys and leashes

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Speaker 8: that people would buy more of in good times. I

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Speaker 8: don't think that we're ready to talk about a collapse yet,

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Speaker 8: but I do think it's a watch item. And you know,

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Speaker 8: I don't think that anybody would say that we've hit

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Speaker 8: bottom at this point.

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Speaker 5: Diana Brendan just mentioned some of that discrepancy we've seen

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Speaker 5: between us spending on things like food, both for humans

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Speaker 5: and for pets. It turns out as well against the

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Speaker 5: sort of discretionary items, whether it's leashes, collars, and toys

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Speaker 5: at Petco or electronics perhaps at places like Walmart. I mean,

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Speaker 5: how much pressure does this actually put on the companies

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Speaker 5: in terms of margin, like, aren't they happy that things

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Speaker 5: that people are still buying their stuff?

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Speaker 9: Yes? So basically what I got from the call earlier

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Speaker 9: this morning from Petco was that there's a bifurcation of

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Speaker 9: the consumer. You have consumers that are very dedicated to

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Speaker 9: the health and wellness of their pets, and even on

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Speaker 9: consumables such as food, you have people trying to buy

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Speaker 9: premium food, which obviously is more expensive than regular pet food.

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Speaker 9: So there's that, but there's also that seeking for value

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Speaker 9: that you see for Target and Walmart. Now this is

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Speaker 9: obviously the second part. The seeking value is a little

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Speaker 9: bit problematic for companies because usually the essentials are lower margin.

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Speaker 9: They tend to be lower margin compared to the discretionary category.

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Speaker 9: So you will see, in addition to labor and all

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Speaker 9: of the supply chain costs increasing in the past couple

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Speaker 9: of years, you see an added pressure of lower margin

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Speaker 9: items being more in demand.

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Speaker 2: So that is then necessarily a function of that kind

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Speaker 2: of recessionary call. It feels like essentially that you're going

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Speaker 2: to start tracking the higher end consumer to more perhaps

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Speaker 2: generic goods, at least in the case of Walmart for example,

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Speaker 2: When does that slow completely from from the consumer's point

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Speaker 2: of view.

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Speaker 9: Well, I think it has to do with consumer sentiment,

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Speaker 9: has a lot in play obviously unemployment or lack thereof.

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Speaker 9: It seems that obviously this is an unusual economic quote

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Speaker 9: unquote downturn because unemployment seems to be quite low compared

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Speaker 9: to you know, previous recessions or slow Dance or something

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Speaker 9: like that. So yeah, I would say it's mostly on

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Speaker 9: a consumer consumer sentiment, and I think how comfortable they

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Speaker 9: feel with the feature sure and their ability to pay

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Speaker 9: their bills going forward.

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Speaker 5: Brendan, what have you heard from some of these executives

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Speaker 5: about the potential for the consumer to just like simply

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Speaker 5: hit a wall, stop going to stores, stop going online

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Speaker 5: simply because the inflationary pressures on their pocketbook are too much,

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Speaker 5: or or what would it take. Essentially, have any executives

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Speaker 5: kind of address this, You.

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Speaker 8: Know, I don't think that that that is something that

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Speaker 8: they've really wrung the alarm bell about. They're talking much

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Speaker 8: more about slowing and if you take a step back

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Speaker 8: from some of the kind of the big mass market

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Speaker 8: retailers for one second, you know, there's still signs of

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Speaker 8: strength out there too, you know, sort of surprisingly strong

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Speaker 8: sales at Abercrombie and Fitch. You know, we've heard about

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Speaker 8: this morning. You know, there's signs of progress even at

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Speaker 8: Cohl's right now, so more of a mixed bag than

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Speaker 8: a sense of things falling apart. But it said, if

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Speaker 8: you listen to Walmart and Target, they're both pretty cautious

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Speaker 8: about the second half. And I think that one thing

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Speaker 8: that's going through their minds is that the rate increases

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Speaker 8: from the FED tightening financial conditions. You know, a lot

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Speaker 8: of that is probably still an effect that we have

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Speaker 8: yet to feel the full force of. And so you know,

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Speaker 8: there they are taking a very cautious view, albeit without

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Speaker 8: talking about consumers just flat out hitting a wall.

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Speaker 5: Yeah, when you think of that sort of looking ahead timeline,

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Speaker 5: do you draw any consensus from what you've heard about

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Speaker 5: when things might start looking up again?

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Speaker 8: It feels like it's too soon to talk about that.

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Speaker 8: You know. It feels like the question that's in the

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Speaker 8: front of the mind for the big retailers is okay,

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Speaker 8: is this going to get worse? You know, do we

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Speaker 8: end up having a recession? If so, when it doesn't

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Speaker 8: feel as though they are talking yet about kind of

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Speaker 8: seeing you know, rays of light in the distant horizon.

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Speaker 8: It feels much more like, you know, watchful, waiting, lots

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Speaker 8: of caution and just not wanting to not wanting to

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Speaker 8: promise too much.

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Speaker 2: So Diana, in our last minute or so here talk

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Speaker 2: to us about today's earning story with Cole's kss is

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Speaker 2: the taker folks hied by about eight and a half

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Speaker 2: percent for the stock Diana about forty five seconds. What

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Speaker 2: did Coles do?

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Speaker 4: Right?

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Speaker 6: Yeah, I think.

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Speaker 9: Going back to what we said earlier, is the consumer

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Speaker 9: seeking value and having that alternative for them. It seems

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Speaker 9: that that drove a lot of their sales as well, So,

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Speaker 9: you know, like going back to what Brennan said, it's

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Speaker 9: it's consumers just being cautious and the executive of these

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Speaker 9: companies recognizing that we're you know, it's difficult out there

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Speaker 9: right now, and I think it's going to be darker

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Speaker 9: before it starts to be light again.

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Speaker 2: Brendan ten seconds, putting on the spot anythin ad.

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Speaker 8: I'm going to watch Best Buying Costco on Thursday. A

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Speaker 8: lot of signals there about discretionary spending and higher end consumers.

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Speaker 2: Well, we will definitely have you both back. We thank

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Speaker 2: you as always, Diana, Rossaropena, equity research analyst over at

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Speaker 2: Bloomberg Intelligence, and Brendan Case, our star retail reporter over

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Speaker 2: in Dallas, Texas.

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Speaker 7: You're listening to the tape cancer our live program, Bloomberg

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Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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Speaker 7: tune in app, Bloomberg dot Com.

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Speaker 4: And the Bloomberg Business App.

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Speaker 7: flagship New York station, Just say Alexa Play Bloomberg eleven thirty.

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Speaker 9: Yeah.

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Speaker 5: I've been so excited for this discussion, Creaty, because we're

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Speaker 5: going to talk about NOOM and the potential for weight

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Speaker 5: loss drugs to be part of this overall discussion on health.

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Speaker 5: We bring in Linda Anagawa, chief of Medicine, as well

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Speaker 5: as our Sam Fizzelli. He's a senior pharma analyst with

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Speaker 5: Bloomberg Intelligence. Linda, you were brought on to to expand

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Speaker 5: the ability of NOOM to bring in these weight loss drugs.

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Speaker 5: Take us through the thinking here, because this isn't NOOM

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Speaker 5: all about discipline and improving your healthiness of your lifestyle,

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Speaker 5: and yet we're turning to medication potentially to bring down

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Speaker 5: weight in people who are obese.

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Speaker 3: Yeah.

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Speaker 9: Absolutely.

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Speaker 10: I'll tell you about NeoMed, where a program dedicated to

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Speaker 10: fighting the disease of obesity using all of the best

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Speaker 10: available scientific tools that we have. And what makes us

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Speaker 10: unique is that we are still combining our suite of

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Speaker 10: personalized psychological tools along with telehealth services to help people

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Speaker 10: achieve not just the lasting weight loss, but also the

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Speaker 10: improved health outcomes.

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Speaker 5: I mean, that's so interesting because these gop one drugs

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Speaker 5: seem to really be a game changer in the overall

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Speaker 5: idea of weight loss. Whether it's ozempig, whether it's the

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Speaker 5: various other options out there, how do you fit these

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Speaker 5: in for someone who's coming to noom med. So the

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Speaker 5: introduction of the new, highly effective anti obesity medicines, without

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Speaker 5: a doubt, have revolutionized this landscape for sustainable weight loss,

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Speaker 5: you know, but for the millions of Americans taking these medications,

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Speaker 5: lasting success is really not often achievable without having that

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Speaker 5: anchor in behavioral change. I mean, as a doctor, I've

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Speaker 5: prescribed these medications hundreds of times and I've seen some

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Speaker 5: people even gain weight on them. So new med really

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Speaker 5: has the only clinical program that's built on our best

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Speaker 5: in class flagship behavior change platform. And that gives us

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Speaker 5: an incredibly powerful way to address both the biology as

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Speaker 5: well as the psychology that's necessary in the fight against obesity.

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Speaker 2: I want to bring in Sam Fizzelli here. He leads

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Speaker 2: our pharma coverage over at Bloomberg Intelligence. Sam double question here,

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Speaker 2: first set the stage for us in terms of the

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Speaker 2: landscape of the industry and of these products, and then

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Speaker 2: you know, feel free to ask one to question yourself.

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Speaker 11: Oh sure, thank you, thanks for having me on. So obviously,

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Speaker 11: there's been drugs that have been in development or used

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Speaker 11: for many years for obesity, but very few of them

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Speaker 11: have actually been successful, really commercially until recently because the

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Speaker 11: percentage of weight loss that they were giving, perhaps some

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Speaker 11: of the side effect issues that they had were just

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Speaker 11: basically not going conducive to use. Now we've got these

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Speaker 11: drugs which have got pretty good safety at least in

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Speaker 11: diabetic patients, have been used for years, not that these

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Speaker 11: doses though, and now you get significant efficacy. And I

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Speaker 11: think doctor Anagawa you've mentioned in the company's mentioned in

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Speaker 11: the press release the twelve point odd percent twelve point

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Speaker 11: four percent, I think that you get with we go

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Speaker 11: V at sixty eight weeks whereas now soon we're going

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Speaker 11: to have Lily's to zeppetite or which is the same

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Speaker 11: agent used in Munjaro for diabetes, which is clocking it

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Speaker 11: around eighteen percent proceed word just at weight loss. So

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Speaker 11: these are significant numbers, and I think both companies are

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Speaker 11: trying to even push it further. Where do you think

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Speaker 11: that would go in terms of the level of interest

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Speaker 11: Do you think there would be major switching or do

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Speaker 11: you think there's so much demand that between the two drugs,

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Speaker 11: people will take whatever they can get their hands on.

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Speaker 10: You know, I think that the landscape of these medications

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Speaker 10: is going to continue to evolve. Absolutely. Turzeppetite is going

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Speaker 10: to take us another step forward in what we are

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Speaker 10: able to offer our patients suffering from this disease. What

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Speaker 10: Neom's really looking to though, is not even what's immediately available,

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Speaker 10: but what's coming down the horizon in the next two years,

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Speaker 10: five years. And I think fundamentally, at the core of things,

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Speaker 10: we still have to remember, sorry that as good as

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Speaker 10: the drug trials look, they were all done with lifestyle

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Speaker 10: change hand and hand, and so that still fundamentally has

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Speaker 10: to be our anchor.

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Speaker 11: Oh, I absolutely agree. I think the you know, there's

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Speaker 11: no point just reducing food intake and not changing a

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Speaker 11: lifestyle to try and get more exercise, more correct eating.

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Speaker 11: So and that's I'm assuming the main push that you're

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Speaker 11: putting in there, but actually thinking about drugs because at

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Speaker 11: the end of the day, I'm a drug analyst. If

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Speaker 11: you think forward and you see these the combination of

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Speaker 11: lifestyle and the drugs, do you think it will make

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Speaker 11: a big difference to people if they didn't have to

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Speaker 11: inject themselves and one day there were some orals available.

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Speaker 11: Do you think that's that would be a big plus

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Speaker 11: for fitting into the whole regime that you were thinking about.

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Speaker 10: I definitely do. And there certainly are drugs in development

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Speaker 10: that have oral formulations, and not only will those probably

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Speaker 10: be more acceptable to patients, my other hope is that

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Speaker 10: they might be less expensive as well, which would allow

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Speaker 10: us to improve access to them or broadly.

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Speaker 5: Doctor Linda, I mean, I want to ask, because the

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Speaker 5: thing about these drugs, I guess the bad side of

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Speaker 5: these drugs is that once you're on them, it seems

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Speaker 5: like you're on them forever, or else you gain the

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Speaker 5: weight back. How do you at noon think about this,

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Speaker 5: because you know, if these drugs become a part of

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Speaker 5: that treatment option. It feels weird to be on these

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Speaker 5: drugs forever, especially when you know the weight loss that

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Speaker 5: you're hoping for. Maybe not you know that large.

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Speaker 10: It's a great question. New's point of view is that

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Speaker 10: we may be able to drive even better health improvements

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Speaker 10: than the drugs alone, because we've got significant published, peer

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Speaker 10: reviewed studies in over fifty journals that show that our

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Speaker 10: principles of psychological change, when applied to our patients and users,

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Speaker 10: actually drive better long term outcomes than the standard of care.

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Speaker 10: So I think the jury is out on whether every

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Speaker 10: single patient will absolutely need these medications.

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Speaker 11: Lifelong doctor, you interestingly segued into the idea of outcomes.

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Speaker 11: We are awaiting some controlled, sizeable data for cardiovascular risk

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Speaker 11: reduction of these drugs potentially. Do you think that's clearly

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Speaker 11: if you then add better eating and more exercise to that,

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Speaker 11: you're going to amplify that benefit. But do you think

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Speaker 11: that's really important that the drugs do show that they're

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Speaker 11: reducing cardival vascular risk. Do you think that your patients

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Speaker 11: physicians are all looking for that.

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Speaker 10: Absolutely? I mean, weight is really just one barometer and

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Speaker 10: it's not the greatest barometer of overall health. So if

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Speaker 10: there's clear cardiovascular risk reduction, I think hopefully that will

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Speaker 10: make the case for coverage by payers stronger, because that's

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Speaker 10: one of the things that does steiny us in our

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Speaker 10: attempt to treat this disease of obesity.

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Speaker 5: So one of the issues with these new drugs has

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Speaker 5: been supply shortages because people who don't necessarily qualify as

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Speaker 5: obese in a sense have been pushing for these drugs.

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Speaker 5: I mean, take Hollywood, or take just people who have

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Speaker 5: a couple extra pounds. How do you see this from

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Speaker 5: New Med's perspective as being can you deliver this drug

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Speaker 5: for people who you know, maybe don't have some of

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Speaker 5: these same medical concerns caused by obesity.

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Speaker 10: New Med is really committed to strict qualification of any

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Speaker 10: of our patients who may be seeking a prescription from us,

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Speaker 10: and one of the ways that we do this is

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Speaker 10: not just greeting people by BMI, but utilizing video visits,

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Speaker 10: which many in the space do not do as well

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Speaker 10: as metabolic blood testing. Again to help us risks stratify

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Speaker 10: which patients are more likely to achieve the best benefits

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Speaker 10: from these drugs, and for whom it's really less critical.

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Speaker 10: There's always a shared decision making process between our clinicians

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Speaker 10: and our patients, and ultimately the clinicians are the ones

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Speaker 10: who make that decision. They make that call.

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Speaker 2: Doctor Linda Onigawa, Chief Medicine over at NOOM, alongside Bi's

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Speaker 2: at Sam Fazelio. We thank you both. Is Bloomberg.

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Speaker 7: You're listening to the Team Can't Live program Bloomberg Markets

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

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Speaker 7: iHeartRadio app, and the Bloomberg Business App, or listen on

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Speaker 7: demand wherever you get your podcast.

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Speaker 2: It's all about health, but health with a twist.

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Speaker 5: Health and drugs maybe kind of encompassing this. And I'm

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Speaker 5: so interested to speak to our next guest because he

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Speaker 5: has his finger on the pulse of the marijuana industry

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Speaker 5: and stuff. I've only been back in the United States

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Speaker 5: a short period of time, and I swear I spell

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Speaker 5: weed everywhere in New York City.

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Speaker 2: It's been one of the biggest surprises Park Avenue at

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Speaker 2: five pm. Is it just it overwhelms you. It's a

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Speaker 2: truly New York experience of folks. Just so you guys know,

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Speaker 2: Smoon Foxman was in the Middle East for three years,

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Speaker 2: three and a half three and a half year she

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Speaker 2: covered all of that FIFA coverage.

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Speaker 5: Ain't no weed there illegal, It's completely illegal, and even

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Speaker 5: for medical purposes I believe, which is a medical purposes

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Speaker 5: of marijuana. Is something we're going to talk to our

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Speaker 5: next guest about because this is just an exploding space. Clearly,

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Speaker 5: everyone acknowledges that there are benefits for people who are

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Speaker 5: going through any number of health issues.

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Speaker 2: Yeah, and a fun fact, I should say it's an

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Speaker 2: exploding space now. But I think when it first kind

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Speaker 2: of I want to say, at least ticked off in

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Speaker 2: the markets, it was like twenty eighteen. The only reason

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Speaker 2: I remember that because that was one of my very

438
00:27:34,280 --> 00:27:36,359
Speaker 2: first beats at Bloomberg I was the video game in

439
00:27:36,880 --> 00:27:39,600
Speaker 2: Cannabis reporter for stocks. It's true, before it was like

440
00:27:39,600 --> 00:27:43,160
Speaker 2: an actual coverage area they gave. They gave the girl

441
00:27:43,200 --> 00:27:45,200
Speaker 2: who's never played a video game in her life video

442
00:27:45,200 --> 00:27:47,240
Speaker 2: game in cannabis stocks to cover. So that was fun.

443
00:27:47,640 --> 00:27:50,600
Speaker 2: Let's ring in our next guest, Morgan Patsia, the co

444
00:27:50,640 --> 00:27:53,800
Speaker 2: founder of Poseidon Investment Management, talking a little bit about

445
00:27:53,800 --> 00:27:55,800
Speaker 2: investing in this market. But before we do that, talk

446
00:27:55,880 --> 00:28:00,400
Speaker 2: up to us about how you got interested, where where

447
00:28:00,480 --> 00:28:02,119
Speaker 2: this kind of passion came from.

448
00:28:02,160 --> 00:28:04,960
Speaker 12: Sure, well, thank you for having me. We started my

449
00:28:05,040 --> 00:28:08,600
Speaker 12: sister and I, Emily started beside him back in twenty thirteen,

450
00:28:08,720 --> 00:28:11,879
Speaker 12: so we're about to celebrate our tenure anniversary since we

451
00:28:11,920 --> 00:28:14,560
Speaker 12: founded the company. We lost our parents to cancer when

452
00:28:14,560 --> 00:28:17,919
Speaker 12: we were young, and our parents were believers that the

453
00:28:17,920 --> 00:28:20,800
Speaker 12: war on drugs was unjust should be ended. My mom

454
00:28:20,840 --> 00:28:23,119
Speaker 12: was a nutritious she saw the health benefits of hemp

455
00:28:23,520 --> 00:28:26,679
Speaker 12: as like a superfood, and my dad thought cannabis was

456
00:28:27,040 --> 00:28:30,320
Speaker 12: something that should be a rightful choice as an American

457
00:28:30,359 --> 00:28:32,720
Speaker 12: citizen instead of just only having alcohol if you want

458
00:28:32,760 --> 00:28:34,119
Speaker 12: to just relax at the end of the day kind

459
00:28:34,160 --> 00:28:37,159
Speaker 12: of thing. And when he was in hospice, one of

460
00:28:37,200 --> 00:28:41,280
Speaker 12: the nurses offered him cannabis and that was in the nineties,

461
00:28:41,360 --> 00:28:44,920
Speaker 12: so very not okay, and so he didn't do it,

462
00:28:44,960 --> 00:28:47,000
Speaker 12: and we just felt that that was wrong, should have

463
00:28:47,000 --> 00:28:49,760
Speaker 12: been available, and shouldn't have felt a stigma or a

464
00:28:49,760 --> 00:28:52,520
Speaker 12: negative association to his family to not do something like that.

465
00:28:53,320 --> 00:28:55,160
Speaker 12: So that was why we started the firm. We saw

466
00:28:55,200 --> 00:28:58,000
Speaker 12: it as an opportunity, as an opportunity for change, but

467
00:28:58,080 --> 00:29:01,000
Speaker 12: also from a capital perspective as well.

468
00:29:01,120 --> 00:29:04,240
Speaker 5: So now you're on the investment side of this. Clearly

469
00:29:04,760 --> 00:29:09,480
Speaker 5: the regulations still differ from state to state. Is overcoming

470
00:29:09,520 --> 00:29:13,040
Speaker 5: that sort of the biggest hurdle from an investment side,

471
00:29:13,640 --> 00:29:17,880
Speaker 5: or what needs to happen to make this industry, I

472
00:29:17,880 --> 00:29:19,520
Speaker 5: guess go a little bit more mainstream.

473
00:29:20,240 --> 00:29:23,000
Speaker 12: So we are today. We're at twenty three adult use

474
00:29:23,080 --> 00:29:25,160
Speaker 12: legal states in the country. When we started there were zero.

475
00:29:26,680 --> 00:29:28,960
Speaker 12: We just have Minnesota join and there's something like I

476
00:29:28,960 --> 00:29:31,760
Speaker 12: think thirty nine medical states. But you're right, it's all patchwork.

477
00:29:32,120 --> 00:29:35,440
Speaker 12: Some states are doing it better than others. Some are thriving,

478
00:29:35,520 --> 00:29:38,120
Speaker 12: some are struggling a bit, with illicit markets still being

479
00:29:38,240 --> 00:29:42,000
Speaker 12: very prevalent. And we look at every state and analyze

480
00:29:42,760 --> 00:29:45,840
Speaker 12: if it's attractive or not from a capital deployment perspective,

481
00:29:46,160 --> 00:29:48,000
Speaker 12: and you can see it in how the companies perform.

482
00:29:48,080 --> 00:29:50,040
Speaker 12: You can look at it from their margin profiles, if

483
00:29:50,040 --> 00:29:53,560
Speaker 12: you're looking at gross margins, operating margins. Even today we're

484
00:29:53,560 --> 00:29:55,760
Speaker 12: talking about free cash flows for some of the largest,

485
00:29:55,800 --> 00:29:59,120
Speaker 12: most scaled businesses in the country. But it is a

486
00:29:59,240 --> 00:30:01,680
Speaker 12: very fragmented space. It creates a lot of opportunity for

487
00:30:01,720 --> 00:30:06,000
Speaker 12: consolidation as these businesses need to reach scale. Even though

488
00:30:06,280 --> 00:30:08,640
Speaker 12: you know ultimately the way we look at the industry

489
00:30:08,680 --> 00:30:11,240
Speaker 12: today will look drastically different in ten years, it's still

490
00:30:11,440 --> 00:30:14,960
Speaker 12: very much an emerging market. So we think even though

491
00:30:14,960 --> 00:30:17,680
Speaker 12: we've gone from zero to thirty billion in annual sales

492
00:30:17,680 --> 00:30:19,480
Speaker 12: in this country, we're still at the beginning.

493
00:30:21,040 --> 00:30:23,800
Speaker 2: Blue button. So how you said in the next ten

494
00:30:23,840 --> 00:30:25,720
Speaker 2: years or so, in the next ten years, we'll have

495
00:30:26,040 --> 00:30:29,760
Speaker 2: two maybe three new presidential elections, and how does that

496
00:30:29,880 --> 00:30:32,400
Speaker 2: change that growth prospect?

497
00:30:33,040 --> 00:30:35,800
Speaker 12: So great question and one of the biggest challenges we're

498
00:30:35,840 --> 00:30:38,240
Speaker 12: having is the states are progressing, but we need the

499
00:30:38,280 --> 00:30:41,800
Speaker 12: federal government to also proceed. And like last week, Emily

500
00:30:41,840 --> 00:30:44,880
Speaker 12: and I were just in DC meeting with senators and

501
00:30:45,680 --> 00:30:49,200
Speaker 12: trade groups and lobbyists and the like, because we have

502
00:30:49,240 --> 00:30:52,280
Speaker 12: the Safe Banking Initiative that's currently going through regular order,

503
00:30:53,160 --> 00:30:55,760
Speaker 12: first time ever hearing a banking reform in the Senate.

504
00:30:56,360 --> 00:30:58,120
Speaker 12: But we need these We need the federal government to

505
00:30:58,120 --> 00:31:00,200
Speaker 12: catch up. We need banking reform so that we're read

506
00:31:00,240 --> 00:31:02,720
Speaker 12: the same as any other business. We need tax reform.

507
00:31:02,760 --> 00:31:05,240
Speaker 12: We have this very owner's two ad tax code that

508
00:31:05,240 --> 00:31:07,160
Speaker 12: we have to deal with, So there's a lot of

509
00:31:07,160 --> 00:31:09,120
Speaker 12: work to do at the federal level and to your point,

510
00:31:09,360 --> 00:31:11,480
Speaker 12: presidential cycles. Where we fit in all of that is

511
00:31:11,800 --> 00:31:14,800
Speaker 12: a great question. But we're just trying to proceed forward,

512
00:31:14,840 --> 00:31:18,360
Speaker 12: at least from a legislative perspective and getting some primary

513
00:31:18,400 --> 00:31:22,440
Speaker 12: pieces in place, and we think that will unlock a

514
00:31:22,440 --> 00:31:24,880
Speaker 12: lot of growth. It certainly is helpful from a social

515
00:31:25,000 --> 00:31:28,520
Speaker 12: justice perspective and also from a small business and safety perspective.

516
00:31:28,680 --> 00:31:31,120
Speaker 12: Is to have the federal government finally recognize that we

517
00:31:31,160 --> 00:31:32,640
Speaker 12: are in American industry.

518
00:31:33,520 --> 00:31:36,880
Speaker 5: Would the Safe Banking Act be a good step? I

519
00:31:36,920 --> 00:31:41,600
Speaker 5: know that's something that various that seems to be gaining

520
00:31:41,600 --> 00:31:44,080
Speaker 5: a little bit of moment. Talk to me about how

521
00:31:44,120 --> 00:31:44,880
Speaker 5: important that is.

522
00:31:45,720 --> 00:31:49,520
Speaker 12: It's important because right now we are not treated the same.

523
00:31:49,840 --> 00:31:52,320
Speaker 12: We are treated at a disadvantage to every other industry

524
00:31:52,320 --> 00:31:55,560
Speaker 12: basically in this country. And that really hurts the small

525
00:31:55,560 --> 00:31:59,200
Speaker 12: businesses the most because if you're large enough, you do

526
00:31:59,280 --> 00:32:03,200
Speaker 12: have access to some primitive level banking. But we need

527
00:32:03,200 --> 00:32:06,400
Speaker 12: this from a much more from a depth perspective, and

528
00:32:06,440 --> 00:32:08,440
Speaker 12: we need to start somewhere. And so that's the way

529
00:32:08,480 --> 00:32:11,440
Speaker 12: we think about Safe Banking is this is a starting point.

530
00:32:11,440 --> 00:32:14,000
Speaker 12: It's already passed the House seven times, but This is

531
00:32:14,040 --> 00:32:16,600
Speaker 12: the first time it's actually been heard in the Senate.

532
00:32:16,920 --> 00:32:19,440
Speaker 12: We just had our first hearing last week went pretty well.

533
00:32:20,360 --> 00:32:23,240
Speaker 12: It does seem like we have a decent amount of

534
00:32:24,160 --> 00:32:28,560
Speaker 12: bipartisan support to get this through at least to a

535
00:32:28,600 --> 00:32:32,360
Speaker 12: floor vote, as long as it doesn't get expanded too much.

536
00:32:32,360 --> 00:32:34,880
Speaker 12: If it stays pretty well focused, we think it's something

537
00:32:34,880 --> 00:32:38,040
Speaker 12: that can get done. And that's what we were talking

538
00:32:38,040 --> 00:32:42,080
Speaker 12: with them about last week, and it was great to

539
00:32:42,120 --> 00:32:45,960
Speaker 12: see some of the minority groups traded groups also supporting

540
00:32:46,040 --> 00:32:48,479
Speaker 12: this initiative and saying we need to be inclusive of

541
00:32:48,520 --> 00:32:51,760
Speaker 12: capital markets because safe banking is a pretty narrow bill,

542
00:32:52,040 --> 00:32:54,360
Speaker 12: but if you think about banking and financial services, it's

543
00:32:54,400 --> 00:32:55,920
Speaker 12: kind of hard to just have a piece of it.

544
00:32:56,080 --> 00:32:58,840
Speaker 12: You need the whole thing for the whole ecosystem and

545
00:32:58,880 --> 00:33:00,080
Speaker 12: the movement of money to work.

546
00:33:02,160 --> 00:33:08,240
Speaker 5: Thinking about your investments as well, what sorts of companies

547
00:33:08,640 --> 00:33:14,920
Speaker 5: really attract your attention? Where is their development in the

548
00:33:14,920 --> 00:33:17,120
Speaker 5: marijuana space, because I feel like there are so many

549
00:33:17,360 --> 00:33:22,160
Speaker 5: growers now that's maybe the less exciting piece for many investors.

550
00:33:22,760 --> 00:33:26,040
Speaker 12: Yep, we think access is really important at this part

551
00:33:26,080 --> 00:33:28,720
Speaker 12: of the industry's life cycle. So what that means is

552
00:33:28,800 --> 00:33:31,920
Speaker 12: retail being able to get direct access to the consumer

553
00:33:32,040 --> 00:33:34,479
Speaker 12: in a legal way, because we think that is one

554
00:33:34,480 --> 00:33:37,800
Speaker 12: of the best ways of combating the illicit market and

555
00:33:38,400 --> 00:33:41,920
Speaker 12: seeing markets, you know, seeing new municipalities or new states

556
00:33:41,920 --> 00:33:44,920
Speaker 12: that open up and create programs. Michigan is a great

557
00:33:44,920 --> 00:33:46,840
Speaker 12: example of a state that has seen a high conversion

558
00:33:46,920 --> 00:33:50,080
Speaker 12: rate of taking market share from the illicit market. It's

559
00:33:50,080 --> 00:33:56,360
Speaker 12: a good program, low pricing, lots of retail accessibility.

560
00:33:54,760 --> 00:33:57,200
Speaker 2: You said, retail accessibility, which brings us kind of to

561
00:33:57,840 --> 00:34:02,640
Speaker 2: more of a institutional of embracing almost of the sector.

562
00:34:02,720 --> 00:34:04,040
Speaker 2: Why haven't we seen more of that?

563
00:34:05,200 --> 00:34:07,600
Speaker 12: Our investor base to date has been family offices and

564
00:34:07,640 --> 00:34:12,680
Speaker 12: Highnight Wath individuals. Institutions have been held largely outside because

565
00:34:12,719 --> 00:34:16,799
Speaker 12: of things like not having federal banking access, and so

566
00:34:16,880 --> 00:34:19,239
Speaker 12: that keeps a lot of institutional capital on the sidelines,

567
00:34:19,320 --> 00:34:21,520
Speaker 12: and we think that does open up for a lot

568
00:34:21,560 --> 00:34:23,839
Speaker 12: of change, and especially when you add in capital markets too.

569
00:34:24,600 --> 00:34:26,080
Speaker 12: You know, if you look at right now, the public

570
00:34:26,120 --> 00:34:30,360
Speaker 12: companies trade on the CSE, the OTC. They're not on

571
00:34:30,520 --> 00:34:33,959
Speaker 12: listed exchanges, and so their volumes are a fraction size

572
00:34:34,000 --> 00:34:36,920
Speaker 12: because of participation is a fraction of the size, and

573
00:34:36,960 --> 00:34:39,360
Speaker 12: so we think there's huge steps forward that can happen

574
00:34:39,840 --> 00:34:42,560
Speaker 12: when institutional capital can really start to participate.

575
00:34:43,560 --> 00:34:46,120
Speaker 5: Yeah, and I mean if you're a pension fund, it's

576
00:34:46,160 --> 00:34:54,000
Speaker 5: hard to go to justify to your participants. It's just

577
00:34:54,000 --> 00:34:56,840
Speaker 5: hard to go and justify that if it's not necessarily

578
00:34:56,920 --> 00:35:03,000
Speaker 5: legal everywhere. You know, there have been sort of consolidation

579
00:35:03,360 --> 00:35:09,719
Speaker 5: of some of these sellers of various cannabis products or

580
00:35:09,880 --> 00:35:15,400
Speaker 5: hemp products. How much is there some threat that pharma

581
00:35:15,520 --> 00:35:19,640
Speaker 5: will come in and start distributing more and potentially push

582
00:35:19,640 --> 00:35:21,800
Speaker 5: out the more interesting players in the space.

583
00:35:22,760 --> 00:35:25,720
Speaker 12: You know, good question. We look at pharma is largely

584
00:35:25,760 --> 00:35:29,560
Speaker 12: participating more in a traditional pharmaceutical path where they would

585
00:35:29,560 --> 00:35:32,920
Speaker 12: want to take drugs, do like the FDA and do

586
00:35:33,000 --> 00:35:35,239
Speaker 12: that kind of stuff like GW Pharma did years ago.

587
00:35:36,000 --> 00:35:40,200
Speaker 12: We see other CpG or alcohol tobacco like industries being

588
00:35:40,239 --> 00:35:43,719
Speaker 12: more attracted to run it through their similar kind of pipelines.

589
00:35:44,520 --> 00:35:48,839
Speaker 12: For example, the WSWA, I can't remember the acronym right now,

590
00:35:48,840 --> 00:35:50,400
Speaker 12: but it's the I think it's a wholesale wine and

591
00:35:50,440 --> 00:35:53,960
Speaker 12: spirits trade group. They want to be the national distributor

592
00:35:54,160 --> 00:35:56,879
Speaker 12: of cannabis. So right now they're lobbying in DC saying

593
00:35:56,880 --> 00:35:58,480
Speaker 12: we should be the ones to run this because we

594
00:35:58,520 --> 00:36:01,440
Speaker 12: already have all of this infrastructure to do that. And

595
00:36:01,960 --> 00:36:03,719
Speaker 12: understand that makes a lot of sense when we're talking

596
00:36:03,760 --> 00:36:08,640
Speaker 12: about interstate commerce post federal legalization, but right now we're still,

597
00:36:08,719 --> 00:36:11,040
Speaker 12: you know, a couple of steps behind that, talking about

598
00:36:11,080 --> 00:36:14,879
Speaker 12: retail access, getting these states legalized, and as I mentioned,

599
00:36:14,920 --> 00:36:17,520
Speaker 12: you know, banking reform, taxation. Those are we think, are

600
00:36:17,920 --> 00:36:21,520
Speaker 12: you know, steps ahead before interstate commerce?

601
00:36:21,800 --> 00:36:24,440
Speaker 2: A fascinating topic. I know Simone Foxman could probably ask

602
00:36:24,480 --> 00:36:27,040
Speaker 2: you a million more questions. Morgan Paseia, co founder, managing

603
00:36:27,040 --> 00:36:30,520
Speaker 2: partner beside An Investment Management, We thank you as always.

604
00:36:30,560 --> 00:36:31,840
Speaker 4: You're listening to the tape.

605
00:36:31,960 --> 00:36:35,319
Speaker 7: Can's our live program Bloomberg Markets weekdays at ten am

606
00:36:35,360 --> 00:36:39,480
Speaker 7: Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com.

607
00:36:39,200 --> 00:36:40,640
Speaker 4: And the Bloomberg Business App.

608
00:36:40,680 --> 00:36:43,480
Speaker 7: You can also listen live on Amazon Alexa from our

609
00:36:43,520 --> 00:36:48,160
Speaker 7: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.

610
00:36:49,400 --> 00:36:52,200
Speaker 2: As they try to really crack down. That's our next guest,

611
00:36:52,200 --> 00:36:55,040
Speaker 2: this Keith the wrong enough? Then all over that gi

612
00:36:55,160 --> 00:36:58,080
Speaker 2: the does that count as inflation? Price increases from.

613
00:36:58,040 --> 00:37:04,160
Speaker 13: Netflix typically has hasn't it. They've done a really I

614
00:37:04,200 --> 00:37:07,520
Speaker 13: think they've been really consistent in kind of raising their prices,

615
00:37:07,560 --> 00:37:10,600
Speaker 13: you know, every twelve to eighteen months, and we've kind

616
00:37:10,600 --> 00:37:14,799
Speaker 13: of seen the same I think a behavior pattern from consumers. Right,

617
00:37:14,800 --> 00:37:19,080
Speaker 13: there's always that initial backlash. You'll see cancel Netflix kind

618
00:37:19,080 --> 00:37:21,840
Speaker 13: of trending all over the place. But then eventually I

619
00:37:21,840 --> 00:37:24,160
Speaker 13: think the dust settles and people kind of come back

620
00:37:24,200 --> 00:37:26,440
Speaker 13: because they do have the content that everybody wants.

621
00:37:28,800 --> 00:37:31,440
Speaker 5: Yeah, I mean we saw some I guess weakness out

622
00:37:31,440 --> 00:37:36,439
Speaker 5: of I think Spain it was people moving away from

623
00:37:37,280 --> 00:37:41,400
Speaker 5: being Netflix subscribers simply because they, you know, because of

624
00:37:41,560 --> 00:37:46,320
Speaker 5: policies that were extra policing on using each other's accounts.

625
00:37:46,880 --> 00:37:48,600
Speaker 5: How crucial are.

626
00:37:50,320 --> 00:37:50,520
Speaker 1: Gauesse.

627
00:37:50,760 --> 00:37:53,000
Speaker 5: How big a reaction could we see in these numbers

628
00:37:53,040 --> 00:37:57,040
Speaker 5: As this comes to the United States in terms of subscribers.

629
00:37:56,680 --> 00:37:58,160
Speaker 13: I think there's going to be a lot of near

630
00:37:58,239 --> 00:38:01,040
Speaker 13: term volatility and noise. I think there's absolutely no way

631
00:38:01,080 --> 00:38:04,719
Speaker 13: to sugarcoat that. Remember, there are you know, our Netflix

632
00:38:04,760 --> 00:38:08,239
Speaker 13: has identified about one hundred million households across the world

633
00:38:08,280 --> 00:38:10,480
Speaker 13: that are currently using Netflix but not paying for it.

634
00:38:11,280 --> 00:38:13,880
Speaker 13: Over a third of those are currently in the United States.

635
00:38:14,360 --> 00:38:17,560
Speaker 13: And so this is by far their biggest market, and

636
00:38:17,840 --> 00:38:21,239
Speaker 13: so you know, the crackdown obviously, and management has said

637
00:38:21,280 --> 00:38:25,440
Speaker 13: this as well, they don't expect this to necessarily go smoothly.

638
00:38:26,440 --> 00:38:31,239
Speaker 13: They do expect some kind of resistance from customers. But

639
00:38:31,280 --> 00:38:34,000
Speaker 13: I think what they're eventually seeing. And you brought up

640
00:38:34,040 --> 00:38:37,200
Speaker 13: Spain and they had rolled out this experimental kind of

641
00:38:37,239 --> 00:38:41,880
Speaker 13: password policing in a few markets Spain and Portugal, you know,

642
00:38:41,960 --> 00:38:44,760
Speaker 13: New Zealand and Canada were some of the bigger ones.

643
00:38:44,760 --> 00:38:47,279
Speaker 13: And in Canada, what they actually did was they did

644
00:38:47,320 --> 00:38:52,279
Speaker 13: see that initial kind of negative reaction, but then you know,

645
00:38:52,440 --> 00:38:55,120
Speaker 13: customers then finally came around and they said that they

646
00:38:55,200 --> 00:38:59,400
Speaker 13: have managed to not only get back customers who canceled,

647
00:38:59,440 --> 00:39:02,160
Speaker 13: but also kind of increase the subscriber base. So I

648
00:39:02,200 --> 00:39:05,200
Speaker 13: think what they're hoping for is, you know, when this

649
00:39:05,239 --> 00:39:07,960
Speaker 13: is all, when all is said and done, it does

650
00:39:08,080 --> 00:39:12,000
Speaker 13: eventually help not only boost our pool but also the

651
00:39:12,040 --> 00:39:14,440
Speaker 13: subscriber base. But that might take a little bit of time.

652
00:39:14,719 --> 00:39:16,319
Speaker 13: I don't think it's I don't I don't think we're

653
00:39:16,360 --> 00:39:19,840
Speaker 13: necessarily going to see this in numbers like next quarter.

654
00:39:20,280 --> 00:39:22,239
Speaker 13: It's definitely going to take a while to play up so.

655
00:39:22,520 --> 00:39:24,640
Speaker 2: How does this actually work when you crack down on

656
00:39:24,960 --> 00:39:29,040
Speaker 2: password sharing, Doesn't that kind of violate privacy to some extent?

657
00:39:29,120 --> 00:39:32,520
Speaker 2: Doesn't it include kind of tracking down IP addresses and

658
00:39:32,560 --> 00:39:35,399
Speaker 2: what's your work, what's your home, what's your commute? How

659
00:39:35,400 --> 00:39:37,200
Speaker 2: does this work in practice?

660
00:39:37,480 --> 00:39:40,520
Speaker 13: I mean Netflix has already been doing that. So you know,

661
00:39:40,560 --> 00:39:43,360
Speaker 13: if you kind of sign out outside of your home,

662
00:39:43,440 --> 00:39:45,880
Speaker 13: for instance, they you know, ask you to kind of

663
00:39:45,880 --> 00:39:48,520
Speaker 13: confirm that it's you. So so they've already been doing this,

664
00:39:48,719 --> 00:39:52,200
Speaker 13: And what they're doing right now is they're trying to

665
00:39:52,239 --> 00:39:58,040
Speaker 13: identify a primary household, you know, again using that IP address,

666
00:39:58,080 --> 00:40:00,920
Speaker 13: and they're basically saying that anybody outside of that primary

667
00:40:00,960 --> 00:40:03,560
Speaker 13: household will need to pay.

668
00:40:05,760 --> 00:40:07,520
Speaker 5: One of the things I've also been interested in is

669
00:40:07,560 --> 00:40:11,120
Speaker 5: this new ad tier that you can get Netflix more

670
00:40:11,239 --> 00:40:16,759
Speaker 5: cheaply if you don't mind seeing some ads I think

671
00:40:16,840 --> 00:40:20,600
Speaker 5: lower margin business, but more subscribers. You know, how does

672
00:40:20,680 --> 00:40:23,160
Speaker 5: what is what's your forecast? In terms of how that

673
00:40:23,239 --> 00:40:24,560
Speaker 5: piece of the puzzle plays out?

674
00:40:25,120 --> 00:40:28,839
Speaker 13: Yeah, so that's again again relatively new to the advertising game.

675
00:40:29,600 --> 00:40:34,160
Speaker 13: They haven't necessarily disclosed too many metrics, although they did

676
00:40:34,200 --> 00:40:37,000
Speaker 13: give a number just a few days ago in terms

677
00:40:37,040 --> 00:40:39,440
Speaker 13: of the number of monthly active users that they have

678
00:40:39,800 --> 00:40:41,960
Speaker 13: got so far on the platform, and it was I

679
00:40:42,000 --> 00:40:46,040
Speaker 13: think fairly impressive and more than what people were expecting.

680
00:40:46,040 --> 00:40:50,760
Speaker 13: So they already have about five million monthly active users.

681
00:40:51,360 --> 00:40:54,400
Speaker 13: That translates to roughly about one to maybe one and

682
00:40:54,400 --> 00:40:58,200
Speaker 13: a half million people who are probably paying for the

683
00:40:58,239 --> 00:41:01,840
Speaker 13: advertising tier. But again that now wasn't necessarily disclosed by Netflix.

684
00:41:01,840 --> 00:41:04,960
Speaker 13: That's just an estimate that's out there. Again, it's small

685
00:41:04,960 --> 00:41:07,920
Speaker 13: potatoes compared to like the big player in the field,

686
00:41:07,920 --> 00:41:10,360
Speaker 13: which is Hulu, which probably has about twenty five million

687
00:41:10,400 --> 00:41:13,600
Speaker 13: people on the ad based here, so still long ways

688
00:41:13,680 --> 00:41:16,960
Speaker 13: to go. But Netflix itself has said that they do

689
00:41:17,080 --> 00:41:21,840
Speaker 13: expect their advertising business to eventually become bigger than Hulu,

690
00:41:21,960 --> 00:41:24,919
Speaker 13: probably contribute to about ten to fifteen percent of their

691
00:41:24,960 --> 00:41:27,799
Speaker 13: total revenue. So they are looking at this, They are,

692
00:41:27,840 --> 00:41:29,480
Speaker 13: you know, in this for the long game. They are

693
00:41:29,480 --> 00:41:32,520
Speaker 13: looking at advertising as becoming a substantial portion of their

694
00:41:32,560 --> 00:41:33,280
Speaker 13: revenue stream.

695
00:41:33,800 --> 00:41:37,520
Speaker 2: So KEITHA, do we ever see Netflix offering some sort

696
00:41:37,520 --> 00:41:40,920
Speaker 2: of products similar to that of Hulu or even cable

697
00:41:40,960 --> 00:41:43,800
Speaker 2: and that they're offering kind of live programming, live TV,

698
00:41:44,000 --> 00:41:47,440
Speaker 2: live coverage of events like I don't know the coronation

699
00:41:47,760 --> 00:41:50,520
Speaker 2: or sports or anything like that is that Netflix's future.

700
00:41:51,800 --> 00:41:55,000
Speaker 13: So they have dabbled a little bit, you know with

701
00:41:55,520 --> 00:41:58,080
Speaker 13: live programming, but I wouldn't necessarily say that they want

702
00:41:58,120 --> 00:42:02,280
Speaker 13: to go into it in a big way again, you know, Netflix,

703
00:42:02,400 --> 00:42:05,239
Speaker 13: the whole genesis of Netflix has kind of been the uh,

704
00:42:05,600 --> 00:42:08,840
Speaker 13: the anti pieces of live programming, right, it has to

705
00:42:08,880 --> 00:42:11,640
Speaker 13: be on demand. Having said that, though, I mean, you know,

706
00:42:11,640 --> 00:42:14,200
Speaker 13: I don't think they're necessarily averse to trying out things.

707
00:42:14,239 --> 00:42:17,080
Speaker 13: I mean, you know, we kind of saw you know,

708
00:42:17,160 --> 00:42:21,840
Speaker 13: different I guess, different flavors of it, whether it's you know,

709
00:42:22,080 --> 00:42:25,279
Speaker 13: a reunion for a dating series or even you know,

710
00:42:25,320 --> 00:42:28,279
Speaker 13: a baking competition, So they are trying different things. Again,

711
00:42:28,320 --> 00:42:30,560
Speaker 13: I just don't think it would necessarily be a big

712
00:42:30,600 --> 00:42:32,400
Speaker 13: focus for them going forward.

713
00:42:32,239 --> 00:42:34,279
Speaker 2: A reunion for a dating series either. Are you a

714
00:42:34,360 --> 00:42:36,759
Speaker 2: Love Island watcher? Am I sensing that?

715
00:42:38,680 --> 00:42:38,879
Speaker 13: Sure?

716
00:42:38,920 --> 00:42:42,040
Speaker 2: I am all for the work, all for the job,

717
00:42:42,160 --> 00:42:42,600
Speaker 2: I get it.

718
00:42:43,440 --> 00:42:43,720
Speaker 11: Geez.

719
00:42:44,160 --> 00:42:46,439
Speaker 2: What about the gaming piece of the equation? Netflix said

720
00:42:46,560 --> 00:42:48,360
Speaker 2: that they were kind of experimenting with that. How is

721
00:42:48,400 --> 00:42:48,840
Speaker 2: that going?

722
00:42:50,040 --> 00:42:53,480
Speaker 13: So again, we you know, it's been just like what

723
00:42:53,520 --> 00:42:55,960
Speaker 13: they've said with their advertising strategy, which is, you know,

724
00:42:56,040 --> 00:42:59,399
Speaker 13: kind of a crawl, walk run approach. It's been very

725
00:42:59,400 --> 00:43:03,080
Speaker 13: similar in the gaming field also, so again they have

726
00:43:03,239 --> 00:43:05,520
Speaker 13: not necessary so they what they have done is they've

727
00:43:05,560 --> 00:43:07,840
Speaker 13: gone out and they've bought a lot of these smaller

728
00:43:07,880 --> 00:43:12,279
Speaker 13: independence studios. They haven't made any big, splashy acquisition, and

729
00:43:12,320 --> 00:43:14,600
Speaker 13: I think the general thinking is, yes, they have a

730
00:43:14,600 --> 00:43:17,080
Speaker 13: few games on their service. I don't think it's necessarily

731
00:43:17,200 --> 00:43:19,919
Speaker 13: moved the needle in terms of membership. Maybe it has

732
00:43:20,040 --> 00:43:22,799
Speaker 13: deepened some level of engagement, but I think ultimately, if

733
00:43:22,800 --> 00:43:27,560
Speaker 13: they really want to make a big you know, if

734
00:43:27,560 --> 00:43:30,840
Speaker 13: they really want to kind of you know, move or

735
00:43:30,880 --> 00:43:34,040
Speaker 13: do something game changing in in kind of the gaming space,

736
00:43:34,719 --> 00:43:37,120
Speaker 13: I think they have to finally make an acquisition because

737
00:43:37,160 --> 00:43:42,319
Speaker 13: so far we haven't necessarily seen any significant you know,

738
00:43:42,400 --> 00:43:44,960
Speaker 13: engagement metrics or even membership metrics.

739
00:43:45,880 --> 00:43:50,319
Speaker 5: Can you speculate which acquisition or any potential targets that

740
00:43:50,360 --> 00:43:51,279
Speaker 5: they might be interested in.

741
00:43:51,320 --> 00:43:54,200
Speaker 13: It's very hard to say at this point, just kind

742
00:43:54,200 --> 00:43:57,600
Speaker 13: of given the regulatory environment out here, I'm not sure

743
00:43:57,640 --> 00:44:01,160
Speaker 13: the regulators are generally in favor of big tech or

744
00:44:01,239 --> 00:44:06,160
Speaker 13: even media tech kind of going after a big company,

745
00:44:06,160 --> 00:44:08,160
Speaker 13: which is why they've kind of kept it. But they've done.

746
00:44:08,200 --> 00:44:11,120
Speaker 13: You know, just these very very small, kind of independent studios.

747
00:44:11,120 --> 00:44:15,120
Speaker 13: They're more kind of in that build mode. But eventually,

748
00:44:15,120 --> 00:44:17,440
Speaker 13: I think everybody's fair game, right, whether it's an electronic

749
00:44:17,520 --> 00:44:20,080
Speaker 13: arts or a take too, it just it just is

750
00:44:20,120 --> 00:44:21,920
Speaker 13: going to come down to what makes the most sense

751
00:44:21,920 --> 00:44:23,239
Speaker 13: for them and their portfolio.

752
00:44:24,040 --> 00:44:26,239
Speaker 2: Keita, I gotta ask, are you a Bridgerdon fan?

753
00:44:27,239 --> 00:44:31,400
Speaker 13: I am? I absolutely loved the new season the Queen Charlotte.

754
00:44:31,560 --> 00:44:34,040
Speaker 2: Yes, oh my gosh, I'm obsessed. Someone have you seen it?

755
00:44:34,080 --> 00:44:35,759
Speaker 5: I haven't seen it, but I have read all the

756
00:44:35,760 --> 00:44:36,520
Speaker 5: Bridgerton books.

757
00:44:36,520 --> 00:44:38,880
Speaker 2: Okay, that doesn't come on. This is enough segment.

758
00:44:40,480 --> 00:44:41,080
Speaker 10: I love it.

759
00:44:41,120 --> 00:44:43,480
Speaker 2: I gotta say, I just finished Queen Charlotte and I cried,

760
00:44:43,719 --> 00:44:46,919
Speaker 2: absolutely cried. Keitha your thoughts thirty seconds.

761
00:44:47,239 --> 00:44:49,400
Speaker 13: Oh, I absolutely loved it. And I loved how they

762
00:44:49,480 --> 00:44:51,879
Speaker 13: kind of brought in that whole historical element. I mean,

763
00:44:51,920 --> 00:44:54,239
Speaker 13: this was, you know, a part of history with think

764
00:44:54,280 --> 00:44:57,239
Speaker 13: jeorsh the third. I thought it was done really really well.

765
00:44:57,280 --> 00:45:00,680
Speaker 13: The emotional aspect of course, the set's, the costume, the actors,

766
00:45:00,719 --> 00:45:04,400
Speaker 13: I mean everything. Just absolutely loved it, just like you Treaty, Yeah.

767
00:45:04,280 --> 00:45:06,719
Speaker 2: I totally. I mean I don't want to spoil it

768
00:45:06,760 --> 00:45:08,439
Speaker 2: for anyone. You guys have to go see it because

769
00:45:08,440 --> 00:45:11,080
Speaker 2: it's so different from the first two seasons that it

770
00:45:11,160 --> 00:45:12,759
Speaker 2: kind of does its ome thing. For what it's worth.

771
00:45:12,840 --> 00:45:14,920
Speaker 5: She wasn't in the books at all, I know.

772
00:45:14,960 --> 00:45:19,040
Speaker 2: But like creative creative license. Shonda Rhimes at her best,

773
00:45:19,120 --> 00:45:22,479
Speaker 2: whatever ge the wrong and athen over at Netflix excuse

774
00:45:22,520 --> 00:45:25,800
Speaker 2: me over at Bloomberg Intelligence covering Netflix, also at her best.

775
00:45:25,800 --> 00:45:29,080
Speaker 2: We thank you as always, she covers everything. She's got

776
00:45:29,080 --> 00:45:33,440
Speaker 2: her series critiques, she's got her financials down. What doesn't

777
00:45:33,480 --> 00:45:33,719
Speaker 2: she do?

778
00:45:34,120 --> 00:45:37,239
Speaker 7: You're listening to the tape Cat's are live program Bloomberg

779
00:45:37,320 --> 00:45:40,920
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

780
00:45:40,960 --> 00:45:43,040
Speaker 7: tune in app, Bloomberg dot Com.

781
00:45:42,760 --> 00:45:44,200
Speaker 4: And the Bloomberg Business App.

782
00:45:44,239 --> 00:45:47,040
Speaker 7: You can also listen live on Amazon Alexa from our

783
00:45:47,080 --> 00:45:51,440
Speaker 7: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

784
00:45:51,680 --> 00:45:54,960
Speaker 2: One of the big questions in this market zone is

785
00:45:55,400 --> 00:45:57,520
Speaker 2: what is getting priced in and what actually isn't. And

786
00:45:57,560 --> 00:45:59,960
Speaker 2: I think the consensus here is at where's the equity

787
00:46:00,080 --> 00:46:01,960
Speaker 2: markets are taking kind of a wait and see approach.

788
00:46:02,000 --> 00:46:04,200
Speaker 2: You're seeing a lot more volatility in the bond markets

789
00:46:04,840 --> 00:46:07,120
Speaker 2: and in the FX markets off the kind of debt

790
00:46:07,120 --> 00:46:07,760
Speaker 2: sealing drama.

791
00:46:08,880 --> 00:46:11,840
Speaker 5: Yeah, and I mean a lot of very interesting picture

792
00:46:11,960 --> 00:46:16,560
Speaker 5: in terms of the nearer term treasury yields, some as

793
00:46:16,640 --> 00:46:20,520
Speaker 5: high as I think six percent looking ahead for the

794
00:46:20,560 --> 00:46:24,759
Speaker 5: next couple of months or a month or so, as

795
00:46:24,800 --> 00:46:29,279
Speaker 5: we get through this debt stealing conundrum. But then you know,

796
00:46:29,320 --> 00:46:32,600
Speaker 5: we would turn to the long term fundamentals. Is the

797
00:46:32,640 --> 00:46:35,880
Speaker 5: economy headed for a recession? Obviously the debt stealing the

798
00:46:36,520 --> 00:46:40,920
Speaker 5: US defaulting might push us over the edge, But if not,

799
00:46:41,520 --> 00:46:43,480
Speaker 5: then it's a bit more of a complicated question.

800
00:46:43,880 --> 00:46:46,560
Speaker 2: It absolutely is, and perhaps one way to look at

801
00:46:46,600 --> 00:46:49,480
Speaker 2: it in addition to some of the other factors that

802
00:46:49,480 --> 00:46:51,799
Speaker 2: are affecting it. Look, we're still dealing with a very

803
00:46:52,640 --> 00:46:56,200
Speaker 2: now slowly turning hawkish Federal Reserve James Bowler Neil Kashkari

804
00:46:56,760 --> 00:46:59,200
Speaker 2: very vocal about their thoughts of BOE that's still saying

805
00:46:59,200 --> 00:47:02,040
Speaker 2: we gotta go tough on inflation, not to mention around

806
00:47:02,080 --> 00:47:04,520
Speaker 2: the world, the question of just how long this growth

807
00:47:04,560 --> 00:47:07,880
Speaker 2: is going to sustain really dominating the market story, and

808
00:47:07,920 --> 00:47:09,960
Speaker 2: I wonder if that's the narrative that's going to kind

809
00:47:09,960 --> 00:47:12,799
Speaker 2: of move to the forefront after we get past the

810
00:47:12,840 --> 00:47:15,839
Speaker 2: debt ceiling debate only a couple more days and we'll

811
00:47:15,880 --> 00:47:18,400
Speaker 2: find out. Let's talk about what the trade is here

812
00:47:18,440 --> 00:47:21,960
Speaker 2: in that framing, Cam Harvey joins us, the professor of

813
00:47:22,040 --> 00:47:24,880
Speaker 2: Finance over at the Fokway School of Business over at

814
00:47:24,960 --> 00:47:27,560
Speaker 2: Duke University. Now, I got to get this out of

815
00:47:27,600 --> 00:47:30,319
Speaker 2: the way. I am a uva alum, so I am

816
00:47:30,360 --> 00:47:34,120
Speaker 2: sworn to hate Duke. It's true. I think I'll make

817
00:47:34,200 --> 00:47:36,400
Speaker 2: I know, but I think I'll make an exception for

818
00:47:36,480 --> 00:47:38,160
Speaker 2: Cam Harvey because at the end of the day, smarts

819
00:47:38,200 --> 00:47:41,520
Speaker 2: is what matters. Professor, walk us through your take here.

820
00:47:41,680 --> 00:47:44,879
Speaker 2: Once we get past this debt ceiling story, what's the

821
00:47:44,920 --> 00:47:46,360
Speaker 2: biggest risk.

822
00:47:46,200 --> 00:47:47,600
Speaker 5: If we get past this business.

823
00:47:47,719 --> 00:47:51,719
Speaker 2: I'm well, there's an inevitability to it, Professor, what do

824
00:47:51,760 --> 00:47:52,120
Speaker 2: you think?

825
00:47:52,920 --> 00:47:57,440
Speaker 14: Yeah, it's so the situation is fairly clear to me.

826
00:47:59,640 --> 00:48:03,239
Speaker 14: So the guy that invented this model that shows that

827
00:48:03,400 --> 00:48:07,440
Speaker 14: inverted yeal curves so when the short rate is higher

828
00:48:07,480 --> 00:48:13,120
Speaker 14: than the long rate predicts recessions. And the record is

829
00:48:13,400 --> 00:48:17,240
Speaker 14: pretty impressive, eight out of eight since the mid nineteen

830
00:48:17,280 --> 00:48:22,480
Speaker 14: sixties without a fall signal, and in January we had

831
00:48:22,480 --> 00:48:27,600
Speaker 14: a full quarter of inversion in the fall of twenty two,

832
00:48:28,000 --> 00:48:33,239
Speaker 14: and the model was signaling recession, and I went on

833
00:48:33,320 --> 00:48:35,760
Speaker 14: record saying that I thought it was a false signal.

834
00:48:36,239 --> 00:48:39,520
Speaker 14: So it was about timed up a fall signal. And

835
00:48:40,120 --> 00:48:44,759
Speaker 14: the other economic dynamics looked fairly strong, especially with the

836
00:48:44,800 --> 00:48:48,399
Speaker 14: excess demand for labor. But what I said the last

837
00:48:48,440 --> 00:48:51,040
Speaker 14: time I was on the show was there was one

838
00:48:51,480 --> 00:48:55,800
Speaker 14: major caveat, and that caveat was that the FED needed

839
00:48:55,840 --> 00:49:00,840
Speaker 14: to stand down, that they've done their jobs of inflation,

840
00:49:01,400 --> 00:49:04,239
Speaker 14: and if they pushed the rates any higher at the

841
00:49:04,320 --> 00:49:08,640
Speaker 14: short end, if they increased the inversion severity, that that

842
00:49:08,760 --> 00:49:12,920
Speaker 14: would put the banking system at risk. And the FED

843
00:49:13,040 --> 00:49:16,880
Speaker 14: did not stand down, and the FED has put the

844
00:49:16,960 --> 00:49:21,400
Speaker 14: banking system at risk. We've seen in March some spectacular

845
00:49:21,760 --> 00:49:25,600
Speaker 14: failures over five hundred billion dollars of assets and banks

846
00:49:25,600 --> 00:49:29,759
Speaker 14: that went down, and I strongly suspect that there are

847
00:49:29,800 --> 00:49:34,040
Speaker 14: many other banks that have been zombified by the negative

848
00:49:34,760 --> 00:49:40,120
Speaker 14: yell curb situation just create stress in the financial system.

849
00:49:40,560 --> 00:49:44,480
Speaker 14: This means that banks are less likely to make those

850
00:49:44,520 --> 00:49:48,479
Speaker 14: important loans to businesses. There's a credit squeeze, and this

851
00:49:48,880 --> 00:49:50,200
Speaker 14: makes things worse.

852
00:49:50,880 --> 00:49:54,480
Speaker 5: Wait, I thought the regional banking crisis was over because

853
00:49:54,560 --> 00:49:58,000
Speaker 5: you know shares rallied for the last little bit, though,

854
00:49:58,000 --> 00:50:00,400
Speaker 5: I guess we're down today on the kW bank next

855
00:50:00,480 --> 00:50:05,239
Speaker 5: about one point six percent. Take me through how we

856
00:50:05,320 --> 00:50:09,520
Speaker 5: start seeing this stress again from now?

857
00:50:10,719 --> 00:50:13,839
Speaker 14: So do you really think this is over? I think

858
00:50:13,920 --> 00:50:20,000
Speaker 14: it's wishful thinking. So anytime the FED says in their

859
00:50:20,120 --> 00:50:23,440
Speaker 14: FOMC statement, oh well, the banking system is sound and

860
00:50:23,480 --> 00:50:28,640
Speaker 14: secure without providing the data. So I want to convince me.

861
00:50:28,840 --> 00:50:33,800
Speaker 14: I want to go through the bank's balance sheets and

862
00:50:34,280 --> 00:50:37,760
Speaker 14: show me that there are no other banks with negative equity,

863
00:50:37,920 --> 00:50:41,520
Speaker 14: that we don't have these zombie banks. Well, that just

864
00:50:41,640 --> 00:50:44,319
Speaker 14: isn't done, and I just don't buy it. It's cheap talk.

865
00:50:44,880 --> 00:50:48,280
Speaker 14: So I've got the data, want to release the data.

866
00:50:48,800 --> 00:50:53,239
Speaker 14: And any time that the FED is increasing rates, think

867
00:50:53,239 --> 00:50:57,160
Speaker 14: about the banking model is really simple. You pay out

868
00:50:57,520 --> 00:51:01,520
Speaker 14: to depositors, so that's the cost, and then you receive

869
00:51:02,239 --> 00:51:06,080
Speaker 14: money from your loans and your investments, saying government bonds.

870
00:51:06,640 --> 00:51:08,880
Speaker 14: So when you invert that, yeal crave. When you push

871
00:51:08,920 --> 00:51:12,000
Speaker 14: the short term rates up and the long term rates

872
00:51:12,040 --> 00:51:15,240
Speaker 14: don't go up as much, that that turns your business

873
00:51:15,239 --> 00:51:19,319
Speaker 14: model upside down. It creates stress. And indeed, what we've

874
00:51:19,360 --> 00:51:22,279
Speaker 14: seen is that some of the banks are really struggling

875
00:51:23,080 --> 00:51:26,120
Speaker 14: to increase their savings rates. So my bank is one

876
00:51:26,160 --> 00:51:29,279
Speaker 14: of the two big defail banks, and I was told

877
00:51:29,320 --> 00:51:34,080
Speaker 14: last week that the savings rate that I'm getting is

878
00:51:34,360 --> 00:51:39,040
Speaker 14: two basis points and other banks are one basis point.

879
00:51:39,719 --> 00:51:43,920
Speaker 14: And what's the result there, Well, I said, I'm going

880
00:51:44,000 --> 00:51:46,920
Speaker 14: to transfer my savings to a money market fund. So

881
00:51:46,960 --> 00:51:50,080
Speaker 14: that sucks money out of the banking system. And again

882
00:51:50,160 --> 00:51:53,399
Speaker 14: it has the same effect that it makes it more

883
00:51:53,440 --> 00:51:58,440
Speaker 14: difficult for companies to get loans when that deposit base

884
00:51:58,719 --> 00:52:01,920
Speaker 14: is taken out. So I think the banking system we

885
00:52:01,960 --> 00:52:05,440
Speaker 14: would love to think that, oh well, the regional banking

886
00:52:05,440 --> 00:52:08,640
Speaker 14: crisis is evolver. I just don't buy it. I'm much

887
00:52:08,640 --> 00:52:11,920
Speaker 14: more skeptical and I want to see the evidence, not

888
00:52:12,040 --> 00:52:12,960
Speaker 14: just the talk.

889
00:52:14,200 --> 00:52:16,680
Speaker 2: Well, professor, that's one piece of the equation. Let's go

890
00:52:16,719 --> 00:52:18,920
Speaker 2: back to kind of the economic piece of it. To

891
00:52:18,960 --> 00:52:21,040
Speaker 2: your point on the model, I want to look at

892
00:52:21,080 --> 00:52:24,160
Speaker 2: this twoes tens curve. I mean I gauge that I

893
00:52:24,200 --> 00:52:26,360
Speaker 2: will say a lot of people think is broken, and

894
00:52:26,400 --> 00:52:29,280
Speaker 2: it has been inverted for quite some time. We almost

895
00:52:29,320 --> 00:52:32,680
Speaker 2: got to that negative two hundred. I think the record

896
00:52:32,680 --> 00:52:34,239
Speaker 2: and version that we saw back in the eighties, where

897
00:52:34,239 --> 00:52:36,800
Speaker 2: a negative sixty three right now in that tues tens conversion.

898
00:52:37,400 --> 00:52:39,719
Speaker 2: But it feels like we've been talking about this recession

899
00:52:40,040 --> 00:52:43,640
Speaker 2: around the corner for about two years, Professor, what is

900
00:52:43,640 --> 00:52:44,880
Speaker 2: that recession actually going to hit?

901
00:52:46,360 --> 00:52:49,279
Speaker 14: So the model, my actual model is the ten year

902
00:52:49,280 --> 00:52:51,839
Speaker 14: minus three month that it published in nineteen eighty six,

903
00:52:52,520 --> 00:52:58,080
Speaker 14: and the lead time to recession is not fixed. It

904
00:52:58,200 --> 00:53:04,839
Speaker 14: varies between six months and eighteen months. So the ten

905
00:53:04,880 --> 00:53:10,920
Speaker 14: minus three month has been inverted seven months. So again

906
00:53:11,000 --> 00:53:14,600
Speaker 14: you need to have some historical perspective.

907
00:53:14,200 --> 00:53:14,920
Speaker 4: On this model.

908
00:53:15,640 --> 00:53:19,920
Speaker 14: It gives you advanced lead to a recession, though the

909
00:53:20,000 --> 00:53:25,640
Speaker 14: lead time isn't fixed, it's variable. And the model is

910
00:53:25,640 --> 00:53:30,239
Speaker 14: also very good at the duration of recession. So the

911
00:53:30,360 --> 00:53:34,840
Speaker 14: duration of an inversion is very closely linked to the

912
00:53:34,960 --> 00:53:38,319
Speaker 14: duration of a recession. And again we've been inverted for

913
00:53:38,440 --> 00:53:42,880
Speaker 14: seven months right now, and again it's not unusual for

914
00:53:42,920 --> 00:53:47,320
Speaker 14: this to play out well after the inversion. Indeed, sometimes

915
00:53:47,320 --> 00:53:51,920
Speaker 14: the recession starts once the curve has gone back to normal,

916
00:53:52,960 --> 00:53:54,400
Speaker 14: but the inversion happened.

917
00:53:54,080 --> 00:53:54,680
Speaker 4: In the past.

918
00:53:55,280 --> 00:53:57,399
Speaker 2: Certainly something we're going to be keeping an eye on.

919
00:53:57,680 --> 00:54:00,360
Speaker 2: We thank you as always for your time Professor, Professor

920
00:54:00,400 --> 00:54:02,560
Speaker 2: or Finance over at the Fokwell School of Business over

921
00:54:02,640 --> 00:54:07,320
Speaker 2: at Duke University, Kim Harvey. We thank you, as always.

922
00:54:11,200 --> 00:54:14,279
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can

923
00:54:14,320 --> 00:54:18,080
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever

924
00:54:18,200 --> 00:54:21,920
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

925
00:54:22,120 --> 00:54:24,160
Speaker 1: at Matt Miller nineteen seventy three.

926
00:54:24,480 --> 00:54:25,320
Speaker 14: And I'm Faull Sweeney.

927
00:54:25,360 --> 00:54:26,840
Speaker 8: I'm on Twitter at pt Sweeney.

928
00:54:26,960 --> 00:54:29,640
Speaker 1: Before the podcast, you can always catch us worldwide at

929
00:54:29,640 --> 00:54:31,399
Speaker 1: Bloomberg Radio