Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
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Speaker 1: at Bloomberg dot com slash podcast.
Speaker 2: I let's getting a little bit more insight on the
Speaker 2: macro front and the developments here. Because it's that debt
Speaker 2: ceiling debate. It's taking over the markets, I would argue,
Speaker 2: overshadowing some of the other stories like inflation, Chinese growth, geopolitics.
Speaker 2: There's a lot of doom and gloom out there, but
Speaker 2: let's not dwell on the bad. Let's bring in Bloomberg
Speaker 2: Intelligence analysts, Audrey child Freeman, our chief g ten FX
Speaker 2: strategist over at Bloomberg Intelligence, and Dwayne Wright, senior government
Speaker 2: analysts with BI as well. Dwayne, I want to start
Speaker 2: with you and talk to us a little bit about
Speaker 2: the developments here. I believe M Kevin McCarthy has now
Speaker 2: said that there are negotiations happening this morning. But what's
Speaker 2: the sticking point? What can't they agree on.
Speaker 3: Well, thanks. I think it's the same conversation we've been
Speaker 3: having over the last or we've been hearing about over
Speaker 3: the last couple of weeks, and this is yet another
Speaker 3: mini storm that we think will end up before we
Speaker 3: get to the calm. It ends up being around what
Speaker 3: level of spending cuts do Republicans want and then they're
Speaker 3: willing to accept. What level of spending cuts are Democrats
Speaker 3: willing to agree to?
Speaker 4: And there's about one.
Speaker 3: Hundred and thirty billion dollars golf between the two parties.
Speaker 3: You know, we're talking about going back to last year's
Speaker 3: spending or working from this year spending. There's other policies
Speaker 3: at play related to unspent COVID money. There's what to
Speaker 3: do about defense spending. As much as Republicans want to
Speaker 3: dial down or dial back the spending on discretionary spent funding,
Speaker 3: they also want to increase spending on the defense side,
Speaker 3: which Democrats have said is is a bit of a
Speaker 3: non starter. And then you have all these other policies
Speaker 3: that deal with some of the social safety net programs.
Speaker 3: Should we have work requirements for healthcare, specifically in the
Speaker 3: Medicaid program? Democrats have said no, and Republicans want to
Speaker 3: expand on work requirements into healthcare. So a lot of
Speaker 3: the sticking points that we saw that we're all in
Speaker 3: the Republican House past bill that Democrats said no to,
Speaker 3: those are still on the table, and those are still
Speaker 3: the sticking points that they're trying to work through.
Speaker 4: Audrey.
Speaker 5: I want to bring you in here because we've seen
Speaker 5: the dollar rising for the most part over the course
Speaker 5: of the month of May, Bloomberg Dollar Index up again today.
Speaker 5: I want to get your take how are markets pricing
Speaker 5: in these debt ceiling concerns, specifically around the dollar.
Speaker 6: So the dollar rebound has to be seen really up
Speaker 6: to quite a long period of under performance, and the
Speaker 6: market a couple of weeks, a few weeks ago, as
Speaker 6: you said, started to look quite underweight dollar, and I suspect,
Speaker 6: you know, if you go into this as the debt
Speaker 6: ceiling deadlines looms and uncertainty continues to increase with regard
Speaker 6: to that matter, I suspect that there will be an
Speaker 6: incentive to close those underweight dollar position and just wait
Speaker 6: and see what happens, because there's an element of uncertainty
Speaker 6: on the impact that default would have on the dollar. Obviously,
Speaker 6: it's negative, it's structurally negative. It adds onto the whole
Speaker 6: theme of the dollarization. However, in the near term, if
Speaker 6: that leads to financial market ternal which I suspect it would,
Speaker 6: and that means funding problems that could actually push the
Speaker 6: dollar higher. So I kind of feel that's one of
Speaker 6: the reasons why the dollar has been pushing higher in
Speaker 6: the past, in the past few weeks, but I feel
Speaker 6: there's no strong conviction at the moment in the market.
Speaker 2: Yeah, it feels purely defensive essentially, when you're looking at
Speaker 2: kind of the way some of the speculative funds are
Speaker 2: positioning Audie to follow upon that. Though, as soon as
Speaker 2: this dollar debate kind of disappears, or there's a solution
Speaker 2: or resolution of some sort, it's a no brainer trade
Speaker 2: and unwinding of that essentially dollar weakness.
Speaker 6: I think. So, However, compared to two or three months ago,
Speaker 6: where you know, it was the compelling trade to have on,
Speaker 6: there's a kind of fresh element of uncertainty creeping into
Speaker 6: the market. In particular, I would mention the pace of
Speaker 6: the Chinese economic recovery and the implications that would have
Speaker 6: for the global economic outlook for currencies like the euro
Speaker 6: the US dollar. So the answer to your question is yes,
Speaker 6: but I don't. I think there's a little it's a
Speaker 6: little bit less straightforward than it was. Let's say, you know,
Speaker 6: in kind of early early January.
Speaker 5: Duine, I want to bring you back in here. Talk
Speaker 5: us through the timeline for the next couple of Oh boy,
Speaker 5: we're running very close to that X date, that June
Speaker 5: first X date. Talk us through the timeline of what
Speaker 5: you're hearing from wamakers.
Speaker 3: Well, they're still talking, and I think there's a big
Speaker 3: question as to whether June first is the real X
Speaker 3: date or if it's something after that. You know, up
Speaker 3: to maybe last week or early this week, the Secretary
Speaker 3: jan had been very strong in terms of saying June
Speaker 3: one is the X date, and then kind of got
Speaker 3: a little squishy, which I think served as a bit
Speaker 3: of a pressure release valve as far as these conversations go.
Speaker 3: But there there are going to be at some point
Speaker 3: over the next week or so that pressure is going
Speaker 3: to ramp up as we get to June first, and
Speaker 3: potentially maybe get past June first. And you got to
Speaker 3: think about it from a procedural standpoint. In the House
Speaker 3: and even in the Senate, once a deal is reached
Speaker 3: between the President and the Speaker, it's going to take
Speaker 3: about three days to get out of the House. And
Speaker 3: that's because Speaker McCarthy has said any bill that gets
Speaker 3: passed out of the House longmakers will have three days
Speaker 3: to review. So you have to build in seventy two hours.
Speaker 3: You don't have to build in some more time to
Speaker 3: potentially get it through a Senate that may not want
Speaker 3: to move on it as quickly, depending on whether you're
Speaker 3: on the right or left, and you don't like the
Speaker 3: deal and you want to slow things down. And so
Speaker 3: I think as we're looking at the timeline over the
Speaker 3: next several days, you really need to start to see
Speaker 3: something happen by around the first in order to really
Speaker 3: get a bill don it and really stave off potential default.
Speaker 2: The X date, I think such a crucial thing to
Speaker 2: talk about, because yes, it's June first, regarding headlines right now,
Speaker 2: the Janney Ellen reaffirms that June first deadline. But at
Speaker 2: the end of the day, look at what some of
Speaker 2: these Wall Street banks are saying. The range goes from
Speaker 2: June first to June fifteenth, and then you have the
Speaker 2: real market bears. You're saying, actually the real X state
Speaker 2: for the markets is May twenty six, so right before
Speaker 2: that Memorial Day weekend. Audrey Child Freeman of Bloomberg Intelligence,
Speaker 2: we think he has always along with Dwayne Wright, thank
Speaker 2: you as well, our senior government analyst with Bloomberg Intelligence. Folks.
Speaker 2: The doom and gloom is just going to ramp up
Speaker 2: from here.
Speaker 5: Is making me a little bit scared, as he was
Speaker 5: talking about all those how long it needs in order
Speaker 5: to just get past these procedural votes.
Speaker 2: Yes, I feel bad for those staffers. Stick with us.
Speaker 2: This is Bloomberg.
Speaker 7: You're listening to the teenth ken'sher live program Bloomberg Markets
Speaker 7: weekdays at ten am Eastern on Bloomberg dot Com, the
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Speaker 2: Let's bring in some experts here. Diana Rossero, Pana equity
Speaker 2: research analyst over at Bloomberg Intelligence, joins us alongside a
Speaker 2: personal favorite of mine and a Dallas resident. Again another
Speaker 2: reason to love him, Brendan Case, our Bloomberg News retail reporter.
Speaker 2: Brendan I want to start with you here the difference
Speaker 2: between a slowing consumer and a collapsing consumer. Are we
Speaker 2: there yet?
Speaker 8: Well, I think that we have to stick with slowing
Speaker 8: for the moment, and we're definitely seeing signs of that
Speaker 8: all over the place, you know, starting with Target and Walmart,
Speaker 8: you know, saying that last week, plenty of additional signs. Now.
Speaker 8: Pet Co reported results today. Not a huge company obviously,
Speaker 8: but sort of an interesting category because people tend to
Speaker 8: spend pretty heavily on their pets. And there again, you know,
Speaker 8: they're seeing strong business in the essentials such as food,
Speaker 8: but a pullback from the kind of toys and leashes
Speaker 8: that people would buy more of in good times. I
Speaker 8: don't think that we're ready to talk about a collapse yet,
Speaker 8: but I do think it's a watch item. And you know,
Speaker 8: I don't think that anybody would say that we've hit
Speaker 8: bottom at this point.
Speaker 5: Diana Brendan just mentioned some of that discrepancy we've seen
Speaker 5: between us spending on things like food, both for humans
Speaker 5: and for pets. It turns out as well against the
Speaker 5: sort of discretionary items, whether it's leashes, collars, and toys
Speaker 5: at Petco or electronics perhaps at places like Walmart. I mean,
Speaker 5: how much pressure does this actually put on the companies
Speaker 5: in terms of margin, like, aren't they happy that things
Speaker 5: that people are still buying their stuff?
Speaker 9: Yes? So basically what I got from the call earlier
Speaker 9: this morning from Petco was that there's a bifurcation of
Speaker 9: the consumer. You have consumers that are very dedicated to
Speaker 9: the health and wellness of their pets, and even on
Speaker 9: consumables such as food, you have people trying to buy
Speaker 9: premium food, which obviously is more expensive than regular pet food.
Speaker 9: So there's that, but there's also that seeking for value
Speaker 9: that you see for Target and Walmart. Now this is
Speaker 9: obviously the second part. The seeking value is a little
Speaker 9: bit problematic for companies because usually the essentials are lower margin.
Speaker 9: They tend to be lower margin compared to the discretionary category.
Speaker 9: So you will see, in addition to labor and all
Speaker 9: of the supply chain costs increasing in the past couple
Speaker 9: of years, you see an added pressure of lower margin
Speaker 9: items being more in demand.
Speaker 2: So that is then necessarily a function of that kind
Speaker 2: of recessionary call. It feels like essentially that you're going
Speaker 2: to start tracking the higher end consumer to more perhaps
Speaker 2: generic goods, at least in the case of Walmart for example,
Speaker 2: When does that slow completely from from the consumer's point
Speaker 2: of view.
Speaker 9: Well, I think it has to do with consumer sentiment,
Speaker 9: has a lot in play obviously unemployment or lack thereof.
Speaker 9: It seems that obviously this is an unusual economic quote
Speaker 9: unquote downturn because unemployment seems to be quite low compared
Speaker 9: to you know, previous recessions or slow Dance or something
Speaker 9: like that. So yeah, I would say it's mostly on
Speaker 9: a consumer consumer sentiment, and I think how comfortable they
Speaker 9: feel with the feature sure and their ability to pay
Speaker 9: their bills going forward.
Speaker 5: Brendan, what have you heard from some of these executives
Speaker 5: about the potential for the consumer to just like simply
Speaker 5: hit a wall, stop going to stores, stop going online
Speaker 5: simply because the inflationary pressures on their pocketbook are too much,
Speaker 5: or or what would it take. Essentially, have any executives
Speaker 5: kind of address this, You.
Speaker 8: Know, I don't think that that that is something that
Speaker 8: they've really wrung the alarm bell about. They're talking much
Speaker 8: more about slowing and if you take a step back
Speaker 8: from some of the kind of the big mass market
Speaker 8: retailers for one second, you know, there's still signs of
Speaker 8: strength out there too, you know, sort of surprisingly strong
Speaker 8: sales at Abercrombie and Fitch. You know, we've heard about
Speaker 8: this morning. You know, there's signs of progress even at
Speaker 8: Cohl's right now, so more of a mixed bag than
Speaker 8: a sense of things falling apart. But it said, if
Speaker 8: you listen to Walmart and Target, they're both pretty cautious
Speaker 8: about the second half. And I think that one thing
Speaker 8: that's going through their minds is that the rate increases
Speaker 8: from the FED tightening financial conditions. You know, a lot
Speaker 8: of that is probably still an effect that we have
Speaker 8: yet to feel the full force of. And so you know,
Speaker 8: there they are taking a very cautious view, albeit without
Speaker 8: talking about consumers just flat out hitting a wall.
Speaker 5: Yeah, when you think of that sort of looking ahead timeline,
Speaker 5: do you draw any consensus from what you've heard about
Speaker 5: when things might start looking up again?
Speaker 8: It feels like it's too soon to talk about that.
Speaker 8: You know. It feels like the question that's in the
Speaker 8: front of the mind for the big retailers is okay,
Speaker 8: is this going to get worse? You know, do we
Speaker 8: end up having a recession? If so, when it doesn't
Speaker 8: feel as though they are talking yet about kind of
Speaker 8: seeing you know, rays of light in the distant horizon.
Speaker 8: It feels much more like, you know, watchful, waiting, lots
Speaker 8: of caution and just not wanting to not wanting to
Speaker 8: promise too much.
Speaker 2: So Diana, in our last minute or so here talk
Speaker 2: to us about today's earning story with Cole's kss is
Speaker 2: the taker folks hied by about eight and a half
Speaker 2: percent for the stock Diana about forty five seconds. What
Speaker 2: did Coles do?
Speaker 4: Right?
Speaker 6: Yeah, I think.
Speaker 9: Going back to what we said earlier, is the consumer
Speaker 9: seeking value and having that alternative for them. It seems
Speaker 9: that that drove a lot of their sales as well, So,
Speaker 9: you know, like going back to what Brennan said, it's
Speaker 9: it's consumers just being cautious and the executive of these
Speaker 9: companies recognizing that we're you know, it's difficult out there
Speaker 9: right now, and I think it's going to be darker
Speaker 9: before it starts to be light again.
Speaker 2: Brendan ten seconds, putting on the spot anythin ad.
Speaker 8: I'm going to watch Best Buying Costco on Thursday. A
Speaker 8: lot of signals there about discretionary spending and higher end consumers.
Speaker 2: Well, we will definitely have you both back. We thank
Speaker 2: you as always, Diana, Rossaropena, equity research analyst over at
Speaker 2: Bloomberg Intelligence, and Brendan Case, our star retail reporter over
Speaker 2: in Dallas, Texas.
Speaker 7: You're listening to the tape cancer our live program, Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com.
Speaker 4: And the Bloomberg Business App.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Speaker 9: Yeah.
Speaker 5: I've been so excited for this discussion, Creaty, because we're
Speaker 5: going to talk about NOOM and the potential for weight
Speaker 5: loss drugs to be part of this overall discussion on health.
Speaker 5: We bring in Linda Anagawa, chief of Medicine, as well
Speaker 5: as our Sam Fizzelli. He's a senior pharma analyst with
Speaker 5: Bloomberg Intelligence. Linda, you were brought on to to expand
Speaker 5: the ability of NOOM to bring in these weight loss drugs.
Speaker 5: Take us through the thinking here, because this isn't NOOM
Speaker 5: all about discipline and improving your healthiness of your lifestyle,
Speaker 5: and yet we're turning to medication potentially to bring down
Speaker 5: weight in people who are obese.
Speaker 3: Yeah.
Speaker 9: Absolutely.
Speaker 10: I'll tell you about NeoMed, where a program dedicated to
Speaker 10: fighting the disease of obesity using all of the best
Speaker 10: available scientific tools that we have. And what makes us
Speaker 10: unique is that we are still combining our suite of
Speaker 10: personalized psychological tools along with telehealth services to help people
Speaker 10: achieve not just the lasting weight loss, but also the
Speaker 10: improved health outcomes.
Speaker 5: I mean, that's so interesting because these gop one drugs
Speaker 5: seem to really be a game changer in the overall
Speaker 5: idea of weight loss. Whether it's ozempig, whether it's the
Speaker 5: various other options out there, how do you fit these
Speaker 5: in for someone who's coming to noom med. So the
Speaker 5: introduction of the new, highly effective anti obesity medicines, without
Speaker 5: a doubt, have revolutionized this landscape for sustainable weight loss,
Speaker 5: you know, but for the millions of Americans taking these medications,
Speaker 5: lasting success is really not often achievable without having that
Speaker 5: anchor in behavioral change. I mean, as a doctor, I've
Speaker 5: prescribed these medications hundreds of times and I've seen some
Speaker 5: people even gain weight on them. So new med really
Speaker 5: has the only clinical program that's built on our best
Speaker 5: in class flagship behavior change platform. And that gives us
Speaker 5: an incredibly powerful way to address both the biology as
Speaker 5: well as the psychology that's necessary in the fight against obesity.
Speaker 2: I want to bring in Sam Fizzelli here. He leads
Speaker 2: our pharma coverage over at Bloomberg Intelligence. Sam double question here,
Speaker 2: first set the stage for us in terms of the
Speaker 2: landscape of the industry and of these products, and then
Speaker 2: you know, feel free to ask one to question yourself.
Speaker 11: Oh sure, thank you, thanks for having me on. So obviously,
Speaker 11: there's been drugs that have been in development or used
Speaker 11: for many years for obesity, but very few of them
Speaker 11: have actually been successful, really commercially until recently because the
Speaker 11: percentage of weight loss that they were giving, perhaps some
Speaker 11: of the side effect issues that they had were just
Speaker 11: basically not going conducive to use. Now we've got these
Speaker 11: drugs which have got pretty good safety at least in
Speaker 11: diabetic patients, have been used for years, not that these
Speaker 11: doses though, and now you get significant efficacy. And I
Speaker 11: think doctor Anagawa you've mentioned in the company's mentioned in
Speaker 11: the press release the twelve point odd percent twelve point
Speaker 11: four percent, I think that you get with we go
Speaker 11: V at sixty eight weeks whereas now soon we're going
Speaker 11: to have Lily's to zeppetite or which is the same
Speaker 11: agent used in Munjaro for diabetes, which is clocking it
Speaker 11: around eighteen percent proceed word just at weight loss. So
Speaker 11: these are significant numbers, and I think both companies are
Speaker 11: trying to even push it further. Where do you think
Speaker 11: that would go in terms of the level of interest
Speaker 11: Do you think there would be major switching or do
Speaker 11: you think there's so much demand that between the two drugs,
Speaker 11: people will take whatever they can get their hands on.
Speaker 10: You know, I think that the landscape of these medications
Speaker 10: is going to continue to evolve. Absolutely. Turzeppetite is going
Speaker 10: to take us another step forward in what we are
Speaker 10: able to offer our patients suffering from this disease. What
Speaker 10: Neom's really looking to though, is not even what's immediately available,
Speaker 10: but what's coming down the horizon in the next two years,
Speaker 10: five years. And I think fundamentally, at the core of things,
Speaker 10: we still have to remember, sorry that as good as
Speaker 10: the drug trials look, they were all done with lifestyle
Speaker 10: change hand and hand, and so that still fundamentally has
Speaker 10: to be our anchor.
Speaker 11: Oh, I absolutely agree. I think the you know, there's
Speaker 11: no point just reducing food intake and not changing a
Speaker 11: lifestyle to try and get more exercise, more correct eating.
Speaker 11: So and that's I'm assuming the main push that you're
Speaker 11: putting in there, but actually thinking about drugs because at
Speaker 11: the end of the day, I'm a drug analyst. If
Speaker 11: you think forward and you see these the combination of
Speaker 11: lifestyle and the drugs, do you think it will make
Speaker 11: a big difference to people if they didn't have to
Speaker 11: inject themselves and one day there were some orals available.
Speaker 11: Do you think that's that would be a big plus
Speaker 11: for fitting into the whole regime that you were thinking about.
Speaker 10: I definitely do. And there certainly are drugs in development
Speaker 10: that have oral formulations, and not only will those probably
Speaker 10: be more acceptable to patients, my other hope is that
Speaker 10: they might be less expensive as well, which would allow
Speaker 10: us to improve access to them or broadly.
Speaker 5: Doctor Linda, I mean, I want to ask, because the
Speaker 5: thing about these drugs, I guess the bad side of
Speaker 5: these drugs is that once you're on them, it seems
Speaker 5: like you're on them forever, or else you gain the
Speaker 5: weight back. How do you at noon think about this,
Speaker 5: because you know, if these drugs become a part of
Speaker 5: that treatment option. It feels weird to be on these
Speaker 5: drugs forever, especially when you know the weight loss that
Speaker 5: you're hoping for. Maybe not you know that large.
Speaker 10: It's a great question. New's point of view is that
Speaker 10: we may be able to drive even better health improvements
Speaker 10: than the drugs alone, because we've got significant published, peer
Speaker 10: reviewed studies in over fifty journals that show that our
Speaker 10: principles of psychological change, when applied to our patients and users,
Speaker 10: actually drive better long term outcomes than the standard of care.
Speaker 10: So I think the jury is out on whether every
Speaker 10: single patient will absolutely need these medications.
Speaker 11: Lifelong doctor, you interestingly segued into the idea of outcomes.
Speaker 11: We are awaiting some controlled, sizeable data for cardiovascular risk
Speaker 11: reduction of these drugs potentially. Do you think that's clearly
Speaker 11: if you then add better eating and more exercise to that,
Speaker 11: you're going to amplify that benefit. But do you think
Speaker 11: that's really important that the drugs do show that they're
Speaker 11: reducing cardival vascular risk. Do you think that your patients
Speaker 11: physicians are all looking for that.
Speaker 10: Absolutely? I mean, weight is really just one barometer and
Speaker 10: it's not the greatest barometer of overall health. So if
Speaker 10: there's clear cardiovascular risk reduction, I think hopefully that will
Speaker 10: make the case for coverage by payers stronger, because that's
Speaker 10: one of the things that does steiny us in our
Speaker 10: attempt to treat this disease of obesity.
Speaker 5: So one of the issues with these new drugs has
Speaker 5: been supply shortages because people who don't necessarily qualify as
Speaker 5: obese in a sense have been pushing for these drugs.
Speaker 5: I mean, take Hollywood, or take just people who have
Speaker 5: a couple extra pounds. How do you see this from
Speaker 5: New Med's perspective as being can you deliver this drug
Speaker 5: for people who you know, maybe don't have some of
Speaker 5: these same medical concerns caused by obesity.
Speaker 10: New Med is really committed to strict qualification of any
Speaker 10: of our patients who may be seeking a prescription from us,
Speaker 10: and one of the ways that we do this is
Speaker 10: not just greeting people by BMI, but utilizing video visits,
Speaker 10: which many in the space do not do as well
Speaker 10: as metabolic blood testing. Again to help us risks stratify
Speaker 10: which patients are more likely to achieve the best benefits
Speaker 10: from these drugs, and for whom it's really less critical.
Speaker 10: There's always a shared decision making process between our clinicians
Speaker 10: and our patients, and ultimately the clinicians are the ones
Speaker 10: who make that decision. They make that call.
Speaker 2: Doctor Linda Onigawa, Chief Medicine over at NOOM, alongside Bi's
Speaker 2: at Sam Fazelio. We thank you both. Is Bloomberg.
Speaker 7: You're listening to the Team Can't Live program Bloomberg Markets
Speaker 7: weekdays at ten am Eastern on Bloomberg dot Com, the
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Speaker 7: demand wherever you get your podcast.
Speaker 2: It's all about health, but health with a twist.
Speaker 5: Health and drugs maybe kind of encompassing this. And I'm
Speaker 5: so interested to speak to our next guest because he
Speaker 5: has his finger on the pulse of the marijuana industry
Speaker 5: and stuff. I've only been back in the United States
Speaker 5: a short period of time, and I swear I spell
Speaker 5: weed everywhere in New York City.
Speaker 2: It's been one of the biggest surprises Park Avenue at
Speaker 2: five pm. Is it just it overwhelms you. It's a
Speaker 2: truly New York experience of folks. Just so you guys know,
Speaker 2: Smoon Foxman was in the Middle East for three years,
Speaker 2: three and a half three and a half year she
Speaker 2: covered all of that FIFA coverage.
Speaker 5: Ain't no weed there illegal, It's completely illegal, and even
Speaker 5: for medical purposes I believe, which is a medical purposes
Speaker 5: of marijuana. Is something we're going to talk to our
Speaker 5: next guest about because this is just an exploding space. Clearly,
Speaker 5: everyone acknowledges that there are benefits for people who are
Speaker 5: going through any number of health issues.
Speaker 2: Yeah, and a fun fact, I should say it's an
Speaker 2: exploding space now. But I think when it first kind
Speaker 2: of I want to say, at least ticked off in
Speaker 2: the markets, it was like twenty eighteen. The only reason
Speaker 2: I remember that because that was one of my very
Speaker 2: first beats at Bloomberg I was the video game in
Speaker 2: Cannabis reporter for stocks. It's true, before it was like
Speaker 2: an actual coverage area they gave. They gave the girl
Speaker 2: who's never played a video game in her life video
Speaker 2: game in cannabis stocks to cover. So that was fun.
Speaker 2: Let's ring in our next guest, Morgan Patsia, the co
Speaker 2: founder of Poseidon Investment Management, talking a little bit about
Speaker 2: investing in this market. But before we do that, talk
Speaker 2: up to us about how you got interested, where where
Speaker 2: this kind of passion came from.
Speaker 12: Sure, well, thank you for having me. We started my
Speaker 12: sister and I, Emily started beside him back in twenty thirteen,
Speaker 12: so we're about to celebrate our tenure anniversary since we
Speaker 12: founded the company. We lost our parents to cancer when
Speaker 12: we were young, and our parents were believers that the
Speaker 12: war on drugs was unjust should be ended. My mom
Speaker 12: was a nutritious she saw the health benefits of hemp
Speaker 12: as like a superfood, and my dad thought cannabis was
Speaker 12: something that should be a rightful choice as an American
Speaker 12: citizen instead of just only having alcohol if you want
Speaker 12: to just relax at the end of the day kind
Speaker 12: of thing. And when he was in hospice, one of
Speaker 12: the nurses offered him cannabis and that was in the nineties,
Speaker 12: so very not okay, and so he didn't do it,
Speaker 12: and we just felt that that was wrong, should have
Speaker 12: been available, and shouldn't have felt a stigma or a
Speaker 12: negative association to his family to not do something like that.
Speaker 12: So that was why we started the firm. We saw
Speaker 12: it as an opportunity, as an opportunity for change, but
Speaker 12: also from a capital perspective as well.
Speaker 5: So now you're on the investment side of this. Clearly
Speaker 5: the regulations still differ from state to state. Is overcoming
Speaker 5: that sort of the biggest hurdle from an investment side,
Speaker 5: or what needs to happen to make this industry, I
Speaker 5: guess go a little bit more mainstream.
Speaker 12: So we are today. We're at twenty three adult use
Speaker 12: legal states in the country. When we started there were zero.
Speaker 12: We just have Minnesota join and there's something like I
Speaker 12: think thirty nine medical states. But you're right, it's all patchwork.
Speaker 12: Some states are doing it better than others. Some are thriving,
Speaker 12: some are struggling a bit, with illicit markets still being
Speaker 12: very prevalent. And we look at every state and analyze
Speaker 12: if it's attractive or not from a capital deployment perspective,
Speaker 12: and you can see it in how the companies perform.
Speaker 12: You can look at it from their margin profiles, if
Speaker 12: you're looking at gross margins, operating margins. Even today we're
Speaker 12: talking about free cash flows for some of the largest,
Speaker 12: most scaled businesses in the country. But it is a
Speaker 12: very fragmented space. It creates a lot of opportunity for
Speaker 12: consolidation as these businesses need to reach scale. Even though
Speaker 12: you know ultimately the way we look at the industry
Speaker 12: today will look drastically different in ten years, it's still
Speaker 12: very much an emerging market. So we think even though
Speaker 12: we've gone from zero to thirty billion in annual sales
Speaker 12: in this country, we're still at the beginning.
Speaker 2: Blue button. So how you said in the next ten
Speaker 2: years or so, in the next ten years, we'll have
Speaker 2: two maybe three new presidential elections, and how does that
Speaker 2: change that growth prospect?
Speaker 12: So great question and one of the biggest challenges we're
Speaker 12: having is the states are progressing, but we need the
Speaker 12: federal government to also proceed. And like last week, Emily
Speaker 12: and I were just in DC meeting with senators and
Speaker 12: trade groups and lobbyists and the like, because we have
Speaker 12: the Safe Banking Initiative that's currently going through regular order,
Speaker 12: first time ever hearing a banking reform in the Senate.
Speaker 12: But we need these We need the federal government to
Speaker 12: catch up. We need banking reform so that we're read
Speaker 12: the same as any other business. We need tax reform.
Speaker 12: We have this very owner's two ad tax code that
Speaker 12: we have to deal with, So there's a lot of
Speaker 12: work to do at the federal level and to your point,
Speaker 12: presidential cycles. Where we fit in all of that is
Speaker 12: a great question. But we're just trying to proceed forward,
Speaker 12: at least from a legislative perspective and getting some primary
Speaker 12: pieces in place, and we think that will unlock a
Speaker 12: lot of growth. It certainly is helpful from a social
Speaker 12: justice perspective and also from a small business and safety perspective.
Speaker 12: Is to have the federal government finally recognize that we
Speaker 12: are in American industry.
Speaker 5: Would the Safe Banking Act be a good step? I
Speaker 5: know that's something that various that seems to be gaining
Speaker 5: a little bit of moment. Talk to me about how
Speaker 5: important that is.
Speaker 12: It's important because right now we are not treated the same.
Speaker 12: We are treated at a disadvantage to every other industry
Speaker 12: basically in this country. And that really hurts the small
Speaker 12: businesses the most because if you're large enough, you do
Speaker 12: have access to some primitive level banking. But we need
Speaker 12: this from a much more from a depth perspective, and
Speaker 12: we need to start somewhere. And so that's the way
Speaker 12: we think about Safe Banking is this is a starting point.
Speaker 12: It's already passed the House seven times, but This is
Speaker 12: the first time it's actually been heard in the Senate.
Speaker 12: We just had our first hearing last week went pretty well.
Speaker 12: It does seem like we have a decent amount of
Speaker 12: bipartisan support to get this through at least to a
Speaker 12: floor vote, as long as it doesn't get expanded too much.
Speaker 12: If it stays pretty well focused, we think it's something
Speaker 12: that can get done. And that's what we were talking
Speaker 12: with them about last week, and it was great to
Speaker 12: see some of the minority groups traded groups also supporting
Speaker 12: this initiative and saying we need to be inclusive of
Speaker 12: capital markets because safe banking is a pretty narrow bill,
Speaker 12: but if you think about banking and financial services, it's
Speaker 12: kind of hard to just have a piece of it.
Speaker 12: You need the whole thing for the whole ecosystem and
Speaker 12: the movement of money to work.
Speaker 5: Thinking about your investments as well, what sorts of companies
Speaker 5: really attract your attention? Where is their development in the
Speaker 5: marijuana space, because I feel like there are so many
Speaker 5: growers now that's maybe the less exciting piece for many investors.
Speaker 12: Yep, we think access is really important at this part
Speaker 12: of the industry's life cycle. So what that means is
Speaker 12: retail being able to get direct access to the consumer
Speaker 12: in a legal way, because we think that is one
Speaker 12: of the best ways of combating the illicit market and
Speaker 12: seeing markets, you know, seeing new municipalities or new states
Speaker 12: that open up and create programs. Michigan is a great
Speaker 12: example of a state that has seen a high conversion
Speaker 12: rate of taking market share from the illicit market. It's
Speaker 12: a good program, low pricing, lots of retail accessibility.
Speaker 2: You said, retail accessibility, which brings us kind of to
Speaker 2: more of a institutional of embracing almost of the sector.
Speaker 2: Why haven't we seen more of that?
Speaker 12: Our investor base to date has been family offices and
Speaker 12: Highnight Wath individuals. Institutions have been held largely outside because
Speaker 12: of things like not having federal banking access, and so
Speaker 12: that keeps a lot of institutional capital on the sidelines,
Speaker 12: and we think that does open up for a lot
Speaker 12: of change, and especially when you add in capital markets too.
Speaker 12: You know, if you look at right now, the public
Speaker 12: companies trade on the CSE, the OTC. They're not on
Speaker 12: listed exchanges, and so their volumes are a fraction size
Speaker 12: because of participation is a fraction of the size, and
Speaker 12: so we think there's huge steps forward that can happen
Speaker 12: when institutional capital can really start to participate.
Speaker 5: Yeah, and I mean if you're a pension fund, it's
Speaker 5: hard to go to justify to your participants. It's just
Speaker 5: hard to go and justify that if it's not necessarily
Speaker 5: legal everywhere. You know, there have been sort of consolidation
Speaker 5: of some of these sellers of various cannabis products or
Speaker 5: hemp products. How much is there some threat that pharma
Speaker 5: will come in and start distributing more and potentially push
Speaker 5: out the more interesting players in the space.
Speaker 12: You know, good question. We look at pharma is largely
Speaker 12: participating more in a traditional pharmaceutical path where they would
Speaker 12: want to take drugs, do like the FDA and do
Speaker 12: that kind of stuff like GW Pharma did years ago.
Speaker 12: We see other CpG or alcohol tobacco like industries being
Speaker 12: more attracted to run it through their similar kind of pipelines.
Speaker 12: For example, the WSWA, I can't remember the acronym right now,
Speaker 12: but it's the I think it's a wholesale wine and
Speaker 12: spirits trade group. They want to be the national distributor
Speaker 12: of cannabis. So right now they're lobbying in DC saying
Speaker 12: we should be the ones to run this because we
Speaker 12: already have all of this infrastructure to do that. And
Speaker 12: understand that makes a lot of sense when we're talking
Speaker 12: about interstate commerce post federal legalization, but right now we're still,
Speaker 12: you know, a couple of steps behind that, talking about
Speaker 12: retail access, getting these states legalized, and as I mentioned,
Speaker 12: you know, banking reform, taxation. Those are we think, are
Speaker 12: you know, steps ahead before interstate commerce?
Speaker 2: A fascinating topic. I know Simone Foxman could probably ask
Speaker 2: you a million more questions. Morgan Paseia, co founder, managing
Speaker 2: partner beside An Investment Management, We thank you as always.
Speaker 4: You're listening to the tape.
Speaker 7: Can's our live program Bloomberg Markets weekdays at ten am
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Speaker 2: As they try to really crack down. That's our next guest,
Speaker 2: this Keith the wrong enough? Then all over that gi
Speaker 2: the does that count as inflation? Price increases from.
Speaker 13: Netflix typically has hasn't it. They've done a really I
Speaker 13: think they've been really consistent in kind of raising their prices,
Speaker 13: you know, every twelve to eighteen months, and we've kind
Speaker 13: of seen the same I think a behavior pattern from consumers. Right,
Speaker 13: there's always that initial backlash. You'll see cancel Netflix kind
Speaker 13: of trending all over the place. But then eventually I
Speaker 13: think the dust settles and people kind of come back
Speaker 13: because they do have the content that everybody wants.
Speaker 5: Yeah, I mean we saw some I guess weakness out
Speaker 5: of I think Spain it was people moving away from
Speaker 5: being Netflix subscribers simply because they, you know, because of
Speaker 5: policies that were extra policing on using each other's accounts.
Speaker 5: How crucial are.
Speaker 1: Gauesse.
Speaker 5: How big a reaction could we see in these numbers
Speaker 5: As this comes to the United States in terms of subscribers.
Speaker 13: I think there's going to be a lot of near
Speaker 13: term volatility and noise. I think there's absolutely no way
Speaker 13: to sugarcoat that. Remember, there are you know, our Netflix
Speaker 13: has identified about one hundred million households across the world
Speaker 13: that are currently using Netflix but not paying for it.
Speaker 13: Over a third of those are currently in the United States.
Speaker 13: And so this is by far their biggest market, and
Speaker 13: so you know, the crackdown obviously, and management has said
Speaker 13: this as well, they don't expect this to necessarily go smoothly.
Speaker 13: They do expect some kind of resistance from customers. But
Speaker 13: I think what they're eventually seeing. And you brought up
Speaker 13: Spain and they had rolled out this experimental kind of
Speaker 13: password policing in a few markets Spain and Portugal, you know,
Speaker 13: New Zealand and Canada were some of the bigger ones.
Speaker 13: And in Canada, what they actually did was they did
Speaker 13: see that initial kind of negative reaction, but then you know,
Speaker 13: customers then finally came around and they said that they
Speaker 13: have managed to not only get back customers who canceled,
Speaker 13: but also kind of increase the subscriber base. So I
Speaker 13: think what they're hoping for is, you know, when this
Speaker 13: is all, when all is said and done, it does
Speaker 13: eventually help not only boost our pool but also the
Speaker 13: subscriber base. But that might take a little bit of time.
Speaker 13: I don't think it's I don't I don't think we're
Speaker 13: necessarily going to see this in numbers like next quarter.
Speaker 13: It's definitely going to take a while to play up so.
Speaker 2: How does this actually work when you crack down on
Speaker 2: password sharing, Doesn't that kind of violate privacy to some extent?
Speaker 2: Doesn't it include kind of tracking down IP addresses and
Speaker 2: what's your work, what's your home, what's your commute? How
Speaker 2: does this work in practice?
Speaker 13: I mean Netflix has already been doing that. So you know,
Speaker 13: if you kind of sign out outside of your home,
Speaker 13: for instance, they you know, ask you to kind of
Speaker 13: confirm that it's you. So so they've already been doing this,
Speaker 13: And what they're doing right now is they're trying to
Speaker 13: identify a primary household, you know, again using that IP address,
Speaker 13: and they're basically saying that anybody outside of that primary
Speaker 13: household will need to pay.
Speaker 5: One of the things I've also been interested in is
Speaker 5: this new ad tier that you can get Netflix more
Speaker 5: cheaply if you don't mind seeing some ads I think
Speaker 5: lower margin business, but more subscribers. You know, how does
Speaker 5: what is what's your forecast? In terms of how that
Speaker 5: piece of the puzzle plays out?
Speaker 13: Yeah, so that's again again relatively new to the advertising game.
Speaker 13: They haven't necessarily disclosed too many metrics, although they did
Speaker 13: give a number just a few days ago in terms
Speaker 13: of the number of monthly active users that they have
Speaker 13: got so far on the platform, and it was I
Speaker 13: think fairly impressive and more than what people were expecting.
Speaker 13: So they already have about five million monthly active users.
Speaker 13: That translates to roughly about one to maybe one and
Speaker 13: a half million people who are probably paying for the
Speaker 13: advertising tier. But again that now wasn't necessarily disclosed by Netflix.
Speaker 13: That's just an estimate that's out there. Again, it's small
Speaker 13: potatoes compared to like the big player in the field,
Speaker 13: which is Hulu, which probably has about twenty five million
Speaker 13: people on the ad based here, so still long ways
Speaker 13: to go. But Netflix itself has said that they do
Speaker 13: expect their advertising business to eventually become bigger than Hulu,
Speaker 13: probably contribute to about ten to fifteen percent of their
Speaker 13: total revenue. So they are looking at this, They are,
Speaker 13: you know, in this for the long game. They are
Speaker 13: looking at advertising as becoming a substantial portion of their
Speaker 13: revenue stream.
Speaker 2: So KEITHA, do we ever see Netflix offering some sort
Speaker 2: of products similar to that of Hulu or even cable
Speaker 2: and that they're offering kind of live programming, live TV,
Speaker 2: live coverage of events like I don't know the coronation
Speaker 2: or sports or anything like that is that Netflix's future.
Speaker 13: So they have dabbled a little bit, you know with
Speaker 13: live programming, but I wouldn't necessarily say that they want
Speaker 13: to go into it in a big way again, you know, Netflix,
Speaker 13: the whole genesis of Netflix has kind of been the uh,
Speaker 13: the anti pieces of live programming, right, it has to
Speaker 13: be on demand. Having said that, though, I mean, you know,
Speaker 13: I don't think they're necessarily averse to trying out things.
Speaker 13: I mean, you know, we kind of saw you know,
Speaker 13: different I guess, different flavors of it, whether it's you know,
Speaker 13: a reunion for a dating series or even you know,
Speaker 13: a baking competition, So they are trying different things. Again,
Speaker 13: I just don't think it would necessarily be a big
Speaker 13: focus for them going forward.
Speaker 2: A reunion for a dating series either. Are you a
Speaker 2: Love Island watcher? Am I sensing that?
Speaker 13: Sure?
Speaker 2: I am all for the work, all for the job,
Speaker 2: I get it.
Speaker 11: Geez.
Speaker 2: What about the gaming piece of the equation? Netflix said
Speaker 2: that they were kind of experimenting with that. How is
Speaker 2: that going?
Speaker 13: So again, we you know, it's been just like what
Speaker 13: they've said with their advertising strategy, which is, you know,
Speaker 13: kind of a crawl, walk run approach. It's been very
Speaker 13: similar in the gaming field also, so again they have
Speaker 13: not necessary so they what they have done is they've
Speaker 13: gone out and they've bought a lot of these smaller
Speaker 13: independence studios. They haven't made any big, splashy acquisition, and
Speaker 13: I think the general thinking is, yes, they have a
Speaker 13: few games on their service. I don't think it's necessarily
Speaker 13: moved the needle in terms of membership. Maybe it has
Speaker 13: deepened some level of engagement, but I think ultimately, if
Speaker 13: they really want to make a big you know, if
Speaker 13: they really want to kind of you know, move or
Speaker 13: do something game changing in in kind of the gaming space,
Speaker 13: I think they have to finally make an acquisition because
Speaker 13: so far we haven't necessarily seen any significant you know,
Speaker 13: engagement metrics or even membership metrics.
Speaker 5: Can you speculate which acquisition or any potential targets that
Speaker 5: they might be interested in.
Speaker 13: It's very hard to say at this point, just kind
Speaker 13: of given the regulatory environment out here, I'm not sure
Speaker 13: the regulators are generally in favor of big tech or
Speaker 13: even media tech kind of going after a big company,
Speaker 13: which is why they've kind of kept it. But they've done.
Speaker 13: You know, just these very very small, kind of independent studios.
Speaker 13: They're more kind of in that build mode. But eventually,
Speaker 13: I think everybody's fair game, right, whether it's an electronic
Speaker 13: arts or a take too, it just it just is
Speaker 13: going to come down to what makes the most sense
Speaker 13: for them and their portfolio.
Speaker 2: Keita, I gotta ask, are you a Bridgerdon fan?
Speaker 13: I am? I absolutely loved the new season the Queen Charlotte.
Speaker 2: Yes, oh my gosh, I'm obsessed. Someone have you seen it?
Speaker 5: I haven't seen it, but I have read all the
Speaker 5: Bridgerton books.
Speaker 2: Okay, that doesn't come on. This is enough segment.
Speaker 10: I love it.
Speaker 2: I gotta say, I just finished Queen Charlotte and I cried,
Speaker 2: absolutely cried. Keitha your thoughts thirty seconds.
Speaker 13: Oh, I absolutely loved it. And I loved how they
Speaker 13: kind of brought in that whole historical element. I mean,
Speaker 13: this was, you know, a part of history with think
Speaker 13: jeorsh the third. I thought it was done really really well.
Speaker 13: The emotional aspect of course, the set's, the costume, the actors,
Speaker 13: I mean everything. Just absolutely loved it, just like you Treaty, Yeah.
Speaker 2: I totally. I mean I don't want to spoil it
Speaker 2: for anyone. You guys have to go see it because
Speaker 2: it's so different from the first two seasons that it
Speaker 2: kind of does its ome thing. For what it's worth.
Speaker 5: She wasn't in the books at all, I know.
Speaker 2: But like creative creative license. Shonda Rhimes at her best,
Speaker 2: whatever ge the wrong and athen over at Netflix excuse
Speaker 2: me over at Bloomberg Intelligence covering Netflix, also at her best.
Speaker 2: We thank you as always, she covers everything. She's got
Speaker 2: her series critiques, she's got her financials down. What doesn't
Speaker 2: she do?
Speaker 7: You're listening to the tape Cat's are live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com.
Speaker 4: And the Bloomberg Business App.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 2: One of the big questions in this market zone is
Speaker 2: what is getting priced in and what actually isn't. And
Speaker 2: I think the consensus here is at where's the equity
Speaker 2: markets are taking kind of a wait and see approach.
Speaker 2: You're seeing a lot more volatility in the bond markets
Speaker 2: and in the FX markets off the kind of debt
Speaker 2: sealing drama.
Speaker 5: Yeah, and I mean a lot of very interesting picture
Speaker 5: in terms of the nearer term treasury yields, some as
Speaker 5: high as I think six percent looking ahead for the
Speaker 5: next couple of months or a month or so, as
Speaker 5: we get through this debt stealing conundrum. But then you know,
Speaker 5: we would turn to the long term fundamentals. Is the
Speaker 5: economy headed for a recession? Obviously the debt stealing the
Speaker 5: US defaulting might push us over the edge, But if not,
Speaker 5: then it's a bit more of a complicated question.
Speaker 2: It absolutely is, and perhaps one way to look at
Speaker 2: it in addition to some of the other factors that
Speaker 2: are affecting it. Look, we're still dealing with a very
Speaker 2: now slowly turning hawkish Federal Reserve James Bowler Neil Kashkari
Speaker 2: very vocal about their thoughts of BOE that's still saying
Speaker 2: we gotta go tough on inflation, not to mention around
Speaker 2: the world, the question of just how long this growth
Speaker 2: is going to sustain really dominating the market story, and
Speaker 2: I wonder if that's the narrative that's going to kind
Speaker 2: of move to the forefront after we get past the
Speaker 2: debt ceiling debate only a couple more days and we'll
Speaker 2: find out. Let's talk about what the trade is here
Speaker 2: in that framing, Cam Harvey joins us, the professor of
Speaker 2: Finance over at the Fokway School of Business over at
Speaker 2: Duke University. Now, I got to get this out of
Speaker 2: the way. I am a uva alum, so I am
Speaker 2: sworn to hate Duke. It's true. I think I'll make
Speaker 2: I know, but I think I'll make an exception for
Speaker 2: Cam Harvey because at the end of the day, smarts
Speaker 2: is what matters. Professor, walk us through your take here.
Speaker 2: Once we get past this debt ceiling story, what's the
Speaker 2: biggest risk.
Speaker 5: If we get past this business.
Speaker 2: I'm well, there's an inevitability to it, Professor, what do
Speaker 2: you think?
Speaker 14: Yeah, it's so the situation is fairly clear to me.
Speaker 14: So the guy that invented this model that shows that
Speaker 14: inverted yeal curves so when the short rate is higher
Speaker 14: than the long rate predicts recessions. And the record is
Speaker 14: pretty impressive, eight out of eight since the mid nineteen
Speaker 14: sixties without a fall signal, and in January we had
Speaker 14: a full quarter of inversion in the fall of twenty two,
Speaker 14: and the model was signaling recession, and I went on
Speaker 14: record saying that I thought it was a false signal.
Speaker 14: So it was about timed up a fall signal. And
Speaker 14: the other economic dynamics looked fairly strong, especially with the
Speaker 14: excess demand for labor. But what I said the last
Speaker 14: time I was on the show was there was one
Speaker 14: major caveat, and that caveat was that the FED needed
Speaker 14: to stand down, that they've done their jobs of inflation,
Speaker 14: and if they pushed the rates any higher at the
Speaker 14: short end, if they increased the inversion severity, that that
Speaker 14: would put the banking system at risk. And the FED
Speaker 14: did not stand down, and the FED has put the
Speaker 14: banking system at risk. We've seen in March some spectacular
Speaker 14: failures over five hundred billion dollars of assets and banks
Speaker 14: that went down, and I strongly suspect that there are
Speaker 14: many other banks that have been zombified by the negative
Speaker 14: yell curb situation just create stress in the financial system.
Speaker 14: This means that banks are less likely to make those
Speaker 14: important loans to businesses. There's a credit squeeze, and this
Speaker 14: makes things worse.
Speaker 5: Wait, I thought the regional banking crisis was over because
Speaker 5: you know shares rallied for the last little bit, though,
Speaker 5: I guess we're down today on the kW bank next
Speaker 5: about one point six percent. Take me through how we
Speaker 5: start seeing this stress again from now?
Speaker 14: So do you really think this is over? I think
Speaker 14: it's wishful thinking. So anytime the FED says in their
Speaker 14: FOMC statement, oh well, the banking system is sound and
Speaker 14: secure without providing the data. So I want to convince me.
Speaker 14: I want to go through the bank's balance sheets and
Speaker 14: show me that there are no other banks with negative equity,
Speaker 14: that we don't have these zombie banks. Well, that just
Speaker 14: isn't done, and I just don't buy it. It's cheap talk.
Speaker 14: So I've got the data, want to release the data.
Speaker 14: And any time that the FED is increasing rates, think
Speaker 14: about the banking model is really simple. You pay out
Speaker 14: to depositors, so that's the cost, and then you receive
Speaker 14: money from your loans and your investments, saying government bonds.
Speaker 14: So when you invert that, yeal crave. When you push
Speaker 14: the short term rates up and the long term rates
Speaker 14: don't go up as much, that that turns your business
Speaker 14: model upside down. It creates stress. And indeed, what we've
Speaker 14: seen is that some of the banks are really struggling
Speaker 14: to increase their savings rates. So my bank is one
Speaker 14: of the two big defail banks, and I was told
Speaker 14: last week that the savings rate that I'm getting is
Speaker 14: two basis points and other banks are one basis point.
Speaker 14: And what's the result there, Well, I said, I'm going
Speaker 14: to transfer my savings to a money market fund. So
Speaker 14: that sucks money out of the banking system. And again
Speaker 14: it has the same effect that it makes it more
Speaker 14: difficult for companies to get loans when that deposit base
Speaker 14: is taken out. So I think the banking system we
Speaker 14: would love to think that, oh well, the regional banking
Speaker 14: crisis is evolver. I just don't buy it. I'm much
Speaker 14: more skeptical and I want to see the evidence, not
Speaker 14: just the talk.
Speaker 2: Well, professor, that's one piece of the equation. Let's go
Speaker 2: back to kind of the economic piece of it. To
Speaker 2: your point on the model, I want to look at
Speaker 2: this twoes tens curve. I mean I gauge that I
Speaker 2: will say a lot of people think is broken, and
Speaker 2: it has been inverted for quite some time. We almost
Speaker 2: got to that negative two hundred. I think the record
Speaker 2: and version that we saw back in the eighties, where
Speaker 2: a negative sixty three right now in that tues tens conversion.
Speaker 2: But it feels like we've been talking about this recession
Speaker 2: around the corner for about two years, Professor, what is
Speaker 2: that recession actually going to hit?
Speaker 14: So the model, my actual model is the ten year
Speaker 14: minus three month that it published in nineteen eighty six,
Speaker 14: and the lead time to recession is not fixed. It
Speaker 14: varies between six months and eighteen months. So the ten
Speaker 14: minus three month has been inverted seven months. So again
Speaker 14: you need to have some historical perspective.
Speaker 4: On this model.
Speaker 14: It gives you advanced lead to a recession, though the
Speaker 14: lead time isn't fixed, it's variable. And the model is
Speaker 14: also very good at the duration of recession. So the
Speaker 14: duration of an inversion is very closely linked to the
Speaker 14: duration of a recession. And again we've been inverted for
Speaker 14: seven months right now, and again it's not unusual for
Speaker 14: this to play out well after the inversion. Indeed, sometimes
Speaker 14: the recession starts once the curve has gone back to normal,
Speaker 14: but the inversion happened.
Speaker 4: In the past.
Speaker 2: Certainly something we're going to be keeping an eye on.
Speaker 2: We thank you as always for your time Professor, Professor
Speaker 2: or Finance over at the Fokwell School of Business over
Speaker 2: at Duke University, Kim Harvey. We thank you, as always.
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