Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's
Speaker 1: go to someone who's been here longer than the first
Speaker 1: day to help me. Diana Moa thrilled that she could
Speaker 1: join us with JP Morkan Asset Management today. Dane, if
Speaker 1: you were writing a research note for a dummy like
Speaker 1: me today, as Mr Farrell just mentioned, what's the salient
Speaker 1: point indicated by yield? Right now? What's the yield thing
Speaker 1: that our listeners need to know about. They are saying that, um,
Speaker 1: the FED needs to act, and they need to act
Speaker 1: um into a deeper cutting cycle. So I think um,
Speaker 1: John's actually nailed it. It's the sense that if they're
Speaker 1: waiting for uncertainties to be resolved come July, if those
Speaker 1: uncertainties are unresolved, they might start to look as if
Speaker 1: they're behind the curves. And I think the bond market
Speaker 1: is starting to first that in a bit are we
Speaker 1: are we really? When everything is sata and done here
Speaker 1: with the oddities of GDP and growth, are we really
Speaker 1: setting ourselves up for a Bruce Casman economy? I mean,
Speaker 1: even though the FED won't admit it is the zeitgeist
Speaker 1: now a US one point five percent, except nobody will
Speaker 1: talk about it. Well, you can't discount that given where
Speaker 1: bonds deals are globally, right, we have an increasing stock
Speaker 1: of negative guielding bonds um Once more, we have ECB
Speaker 1: indicating that they're willing to go farther into negative rates.
Speaker 1: You have the bug against starting to state that they're
Speaker 1: willing to consider all tools in the context of what's
Speaker 1: happening externally. So beyond this economy, I think a low
Speaker 1: bond yield environment is actually here for now. Yeah, wells
Speaker 1: as John and I was wrong, you were right. So
Speaker 1: we should cut that and replay it every morning and
Speaker 1: put it in a highlight real Danna is great to
Speaker 1: have you with us on the program. You run an
Speaker 1: e M fund, You're in and out of the market.
Speaker 1: That's why I love talking to you about what is
Speaker 1: happening in emerging markets right now. There is a belief
Speaker 1: that people will be staffed for income, they will be
Speaker 1: pushed to go out somewhere Danna. Will they be pushed
Speaker 1: to go back into em in a more pronounced way
Speaker 1: than maybe we have seen over the last twelve months.
Speaker 1: I think they will. We've already seen a lot of
Speaker 1: money coming back into the hard currency so sovereign hard
Speaker 1: currency debt in the last few months. What we're starting
Speaker 1: to see now is with the dollar turning a lot
Speaker 1: more interest in local markets. So that's been the bit
Speaker 1: that's been lugging flows because of we've come from an
Speaker 1: eight year dollar bull trend. I think as as the
Speaker 1: belief that we've seen the pick in the dollar builds momentum,
Speaker 1: investors will look beyond our dollars in non needed assets
Speaker 1: and to those emergine market economies that need to be
Speaker 1: cutting rates where you still get paid at descent pickup
Speaker 1: in yield um. I think for me it's just pretty
Speaker 1: much a no brainer. If you think the dollar has picked,
Speaker 1: what kind of yield can we pick up at the moment?
Speaker 1: Dina in local currency, so the index level yielded about
Speaker 1: five point eight percent. But then within that these stories, um,
Speaker 1: you can go to a market like South Africa where
Speaker 1: you're getting paid close to temp scent. On the longer
Speaker 1: end of the curve UM on a story that's still decent. UM.
Speaker 1: You can look at places like Mexico, which I think
Speaker 1: is really interesting right now. Um. Historically the Mexican rate
Speaker 1: rate cup would move one to one with the FED.
Speaker 1: They haven't really done that time round because of what's
Speaker 1: been happening with the trade. So I think that's probably
Speaker 1: one that could reply reprice quite aggressively and you get
Speaker 1: paid around seven and a half eight percent to own
Speaker 1: Mexican bonds. Diana very quickly. The equity market, so many
Speaker 1: people feel so behind the railly what's the mood in
Speaker 1: the bond market? It are people? Do they feel way
Speaker 1: behind what the industries are doing? UM. I'd say generally
Speaker 1: fixed income investors have traded this rally well because we
Speaker 1: came in quite cautious into the start of the year. UM.
Speaker 1: I think the disconnected is equities are rallying UM, and
Speaker 1: bonds are rallying. But for you know, you'd expect these
Speaker 1: things to move in different directions. UM. So everyone came
Speaker 1: into the year cautious, actives kept going actives. Investors filled
Speaker 1: they've missed that we came in cautious, we were long duration,
Speaker 1: and that trade has worked out Dynamo. Thank you so much.
Speaker 1: Appreciate right now we want to pause an investment. If
Speaker 1: you are behind, if you're looking at indicas the markets.
Speaker 1: I'm looking at sp X right now. Year to date up,
Speaker 1: um and I got market, Kevin, Where did that? Somebody's
Speaker 1: been playing with my screen. Um, I'm falling apart year
Speaker 1: to date of SPX. This is the interview of the day.
Speaker 1: William Smade buys Value. He is in the nineti percentile
Speaker 1: plus across all sorts of timelines. He's hitting the ball
Speaker 1: out of the hedge fund park. He joins us now
Speaker 1: from our studios in London. Bill Smede, let's back up
Speaker 1: and look at it. How did you perform so well?
Speaker 1: How are you garnering double digit performance where so many
Speaker 1: others are falling behind? Well, I I thank you very
Speaker 1: much for the kindness. The main thing that we're doing,
Speaker 1: I think different than most of the value community is
Speaker 1: most value buyers going and try to buy a fifty
Speaker 1: cent dollar and then in the next year and a
Speaker 1: half of it goes to ninety cents they sell it automatically.
Speaker 1: We're trying to buy outstanding companies when they get to
Speaker 1: be a fifty cent dollar and then hope to hold
Speaker 1: them for a long long time. And if there's anything
Speaker 1: that's helped in the last ten years, it's holding your
Speaker 1: winners to a fault so that that that's that's a blessing.
Speaker 1: Once in a great while, you'll round trip a stock.
Speaker 1: You'll you'll buy it at fifty, it'll go to a hundred,
Speaker 1: and I'll go it all the way back to fifty.
Speaker 1: But most of all the time, most most of the time,
Speaker 1: the mathematics of common stock investing are that when you're wrong,
Speaker 1: you can only lose a hundred percent of what you
Speaker 1: put in if you paid cash. But if you're right,
Speaker 1: you can go up many times your money. And those
Speaker 1: three and five and seven and ten beggars make a
Speaker 1: huge difference over a ten year times. Jenni Ferroll what
Speaker 1: he just said there, you can take down to people
Speaker 1: trading five intervals or five year interviews. We heard this
Speaker 1: the other day. It's incredibly important to let your winners go.
Speaker 1: Remember the rebalancing interview we had with a gentleman. Yeah,
Speaker 1: number of weeks ago. Yeah, I remember, he's on your
Speaker 1: che chevon Steve Chevalon nailed Bill Smede one a one,
Speaker 1: so Bill. Let's talk about the smide Value Fund. It's
Speaker 1: got about a billion dollars in assets. Just north of that.
Speaker 1: You've returned a round about fifteen percent year today. And
Speaker 1: what you guys do is pick fifteen to thirty companies
Speaker 1: rather so twenty five to thirty companies within that portfolio.
Speaker 1: But talk to me about why that's the optimal number
Speaker 1: for you guys in that fund. Really good question, uh.
Speaker 1: I think of the benefit of diversification and common stock
Speaker 1: ownership comes with the twentie security. So we have over
Speaker 1: fifty of our portfolio the top ten. Think of us
Speaker 1: as a producer of a play or a producer of movies.
Speaker 1: We audition actors and actresses uh, based on our eight
Speaker 1: criteria for a common stock selection. If they enter the portfolio,
Speaker 1: then in the first three years they're basically on probation
Speaker 1: to see what kind of audience they can draw. And
Speaker 1: you move move up the ladder in our portfolio by
Speaker 1: your success because we let our winners run. So you
Speaker 1: might think, and typically we might start with a two
Speaker 1: percent position and maybe go up to three if we
Speaker 1: have a lot of confidence, and then five or six
Speaker 1: years later, if you've been successful, you might work your
Speaker 1: way up into the top ten. How does that strategy
Speaker 1: work in a legitimate correction, plus moving to a bear market?
Speaker 1: Forget about the gloom and negative What does the elasticity
Speaker 1: of your portfolio if you're down sp X? Wonderful question
Speaker 1: by only good one of the day Bill enjoy it. Yeah. So,
Speaker 1: our eight criteria for common stock selection are mostly qualitative,
Speaker 1: so wide mode, long history of profitability, consistently high free
Speaker 1: cash flow, shareholder friendliness, strong balance sheet, et cetera. So
Speaker 1: most of the eight criteria qualitative. When you get in
Speaker 1: difficult markets and they're virtually guaranteed to come, those qualitative
Speaker 1: characteristics allow you to be patient in that environment. By
Speaker 1: the way, since you asked it. The other thing that's
Speaker 1: really helped us the last three to five years is
Speaker 1: we're back to what we used to be before the
Speaker 1: O seven to oh nine to bacle, because in O
Speaker 1: seven at O nine, the normal qualitative things did not
Speaker 1: protect you, because the hedge funds had to sell what
Speaker 1: they could sell because they couldn't sell what they couldn't sell,
Speaker 1: and since they had to sell what they could sell,
Speaker 1: we owned what they could sell. Now on the decline
Speaker 1: in August through December, of last year, we outperformed. In
Speaker 1: in May, when the market fell sharply, we outperformed. We're
Speaker 1: back to the normal historical ability of quality or dividend
Speaker 1: yield to defend you on the downside, which makes us
Speaker 1: very excited for the future because we're very positive about
Speaker 1: what we're doing. The price rings ratio discount to the
Speaker 1: SNP is among the highest we've had. But but we're
Speaker 1: also conscious of fact that the chart of the day
Speaker 1: for Bloomberg is momentum has blistered value. Uh and and
Speaker 1: momentum is due for a come up in sometime in
Speaker 1: the next year or two. So let's talk about where
Speaker 1: the opportunities on right now for you guys. You want
Speaker 1: buying small caps that people have never heard of, and
Speaker 1: you're buying large caps, So wont me through a company
Speaker 1: names and White you like these companies right now? Well,
Speaker 1: let's just be in the news. Uh CBS is talking
Speaker 1: about getting remarried to Viacom, and there are there's some
Speaker 1: rumors out there that they would like very much for
Speaker 1: David Zasloft that runs Discovery Inc. To To run a
Speaker 1: a three headed monster rather than the two headed monster.
Speaker 1: We don't necessarily think That's a great idea because the
Speaker 1: big behemoth market compization companies, the Amazons and Apples and
Speaker 1: and uh Netflix, their biggest problem is they're they're just
Speaker 1: pretenders in content. They're just pretending that their content producers
Speaker 1: and and the best UH profit margins in the entire
Speaker 1: industry are unscripted television. UH and and UH. I might
Speaker 1: add that, Joseph Mr. Seed, that's right. In intercom, the
Speaker 1: guy that the manor owner of Intercom is loading the boat.
Speaker 1: He's buying up every every share of intercomy cam, so
Speaker 1: he agrees with you completely. So unscripted television has ten
Speaker 1: percent of the cost of of of of scripted TV
Speaker 1: and movies. And so here are these tech companies who
Speaker 1: are loaded with confidence, loaded with arrogance, and they're spending
Speaker 1: money in Hollywood like drunken sailors on leave when the
Speaker 1: truth of it is they could pay seventy dollars a
Speaker 1: share to buy the premier UH content UH in television,
Speaker 1: which is h G t V, food network, travel channels,
Speaker 1: Catch Shark week, I D You're you're on a roll bill?
Speaker 1: I got a Bloomberg's Surveillance bill, s U. Harvey, we're
Speaker 1: doing a direct listing, Um, Bill, I got time for
Speaker 1: one more question. What are the hedge funds getting wrong?
Speaker 1: You are one of those humble guys. I've ever met
Speaker 1: your truly folks. Clock and David Harrow numbers you're likeentile percentile.
Speaker 1: All these smart guys off Madison Avenue and Mayfair are
Speaker 1: getting crushed. What are they doing wrong? Well, there's there
Speaker 1: are thousands of people that want to make money in
Speaker 1: six to twelve month durations and they all have access
Speaker 1: to massive computer power. And the problem is the laws
Speaker 1: of supply and demand haven't changed. There's hardly anyone that
Speaker 1: wants to work in five to ten youre durations and
Speaker 1: and so by what we've been left the five to
Speaker 1: ten year duration to a few other players, and there's
Speaker 1: not much there now. The negative is the capital should
Speaker 1: be coming to us, and that has not been the case.
Speaker 1: Uh that there's net outflows even among meritorious her strategies.
Speaker 1: Yester carlike con Oxy Darko Ana Darko overpaid by Oxy.
Speaker 1: Did you look at that transaction? Uh, we're researching it.
Speaker 1: And by the way, Icon has been following us around
Speaker 1: for the last five or six years and others. Yeah,
Speaker 1: Carl's out in Central Park with his two dogs walking around.
Speaker 1: He's not following Bill smeed, you think he's following you? No,
Speaker 1: just kidding. He happened to be an activist in a
Speaker 1: number of stocks that we already owned. So the bottom
Speaker 1: line is uh, since value looks extremely attractive relative to momentum,
Speaker 1: I don't think they overpaid for Anadarko. Thank you, Bill,
Speaker 1: sat appreciate a huge response if you're an economist, without question,
Speaker 1: the easy thing to do as a market economist, he's
Speaker 1: to blame your bond guys, blame your equity guys, Jannet
Speaker 1: Henry is professional and not doing this because our bond
Speaker 1: guys and our equity guys have been on the edge
Speaker 1: of perfect No one combined has that a bond equity
Speaker 1: house call like the Hong Kong and Shanghai Banking Corporation
Speaker 1: in the last I'm going to say eight months. She'll
Speaker 1: tell me to the month, maybe longer than that. The
Speaker 1: Steve Major Ben Laidler tandem has been lights out, Jane.
Speaker 1: What is it like to work with those guys? How
Speaker 1: did they influence Laidler's optimism on equity? Steve Major nailing
Speaker 1: lower interest rates? What does that do to shape your
Speaker 1: forecast day to day. Well, Tom, we all talk to
Speaker 1: each other, you know, and I think the economic view
Speaker 1: for the last few years, especially the lower for longer call,
Speaker 1: we work very close with speed Major. We've been of
Speaker 1: the view for the last five years at the pickup
Speaker 1: and wage growth was going to be very slow, very gradual,
Speaker 1: for a number of reasons to do with labor market disruption.
Speaker 1: And must admit over the last year or so that
Speaker 1: the kind of optimism on bonds and optimism on equities
Speaker 1: seem to fit a little oddly, And to be honest,
Speaker 1: over the last few weeks, I've been surprised myself at
Speaker 1: the extent to which everything is good news for the
Speaker 1: equity market. If the Fed cutting rates because things are
Speaker 1: going wrong, that's good news for equities. But if we
Speaker 1: get a trade deal, that's good news for equities, whereas
Speaker 1: the bond market obviously is much more kewed towards the
Speaker 1: downside risks on global ground. Does a traditional punchball model
Speaker 1: work And if it is, where's the punch ball right
Speaker 1: now overflowing on the floor. UM, I think it's it's
Speaker 1: it's difficult, Um, you know, it's going into the meeting
Speaker 1: yesterday of the Fed, it was how can the Fed
Speaker 1: out of the market? What could they possibly do? Um?
Speaker 1: You know, we thought maybe if they cut rates in June,
Speaker 1: the market maybe even happier. But it was almost the
Speaker 1: perfect set of dots. It's basically, are you know, suggesting
Speaker 1: that most of the Fed, you know, nearly half of
Speaker 1: the Fed is now ready to cut rates by fifty
Speaker 1: basis points this year, but there's no pre commitment to
Speaker 1: actually do it. Their growth numbers were good, they were
Speaker 1: not downgraded, they were edged up. Unemployment rate was edged down.
Speaker 1: But we seem to be now on their projections in
Speaker 1: this perfect world where they're about to cut interest rates
Speaker 1: because inflation is lower than expected. Are we yeah? I
Speaker 1: think there's a lot of optimism priced into the equity market.
Speaker 1: Are we too close to a liquidity trap? Or is
Speaker 1: it something different this time? Let's say, Okay, it's premature,
Speaker 1: I guess, but it's radio Come on, stay with me here.
Speaker 1: It's premature, I get there. But if we get one
Speaker 1: to nobody's looking forward. But what if it happens three
Speaker 1: rate cuts? Are we right back to where we were
Speaker 1: in oh eight or nine ten. I think a liquidity
Speaker 1: trap is when no one is borrowing, no matter how
Speaker 1: low or negative interest rate. It's very clear that corporate
Speaker 1: sector has been borrowing in the US for the last
Speaker 1: few years. And we've seen the resurgence in mortgage refinancing
Speaker 1: in the US as long term interest rates have come down.
Speaker 1: I don't think the US is in an aquidity trap.
Speaker 1: I think what the US is seeing is that, of course,
Speaker 1: inflation in the US is influenced by global developments. And
Speaker 1: that was a lot of what we heard yesterday. It
Speaker 1: was about global uncertainties, global p m s, and they
Speaker 1: matter to what are uncertainties to me? They are less
Speaker 1: data dependent, less function, less reaction function in much more
Speaker 1: things tangible like trade and trade war. Is that what
Speaker 1: we mean by modern uncertainties? I think yeah, trade is
Speaker 1: a big part of it. And you know, a lot
Speaker 1: of the slowed the way in which trade has impacted
Speaker 1: the trade trade wars has impacted over the last year
Speaker 1: has been on investments. We've seen a slowdown in demand
Speaker 1: for capital goods. We've also seen particular things related to
Speaker 1: the auto sector and to the semiconductor sector. Industry is
Speaker 1: very weak, and the longer industry is weak, the greater
Speaker 1: the likelihood that that does feed through into employment and
Speaker 1: into consumer spending, which, let's be honest, is the real
Speaker 1: area of resilience. Even in the Euro Area. Over the
Speaker 1: course of last year, consumer spending has still been pretty
Speaker 1: solid because unemployment rates and weight growth is now at
Speaker 1: the highest level for a decade. Okay, wage growth is
Speaker 1: the highest level, but a lot of America feels the anks.
Speaker 1: This is a really interesting point, and that there's a
Speaker 1: part of America not participating. And there's another part which
Speaker 1: Chairman Paul mentioned yesterday. We're you know, consumer data is
Speaker 1: pretty good, service sector is pretty good, etcetera. Is that
Speaker 1: going to be the surprise staggering the September eighteenth, whatever
Speaker 1: that two meetings out is, is that we still get
Speaker 1: good consumer data. Maybe we get okay, unemployment numbers. Yes,
Speaker 1: I think, well that's already in the FED Central forecast
Speaker 1: to some degree. Of course, we just had another solid
Speaker 1: initial jobless claims. They fell to a new lower level.
Speaker 1: So I think what the Fed was saying yesterday is that,
Speaker 1: you know, the lower the unemployment falls, the greater the
Speaker 1: likelihood that more and more people who have not so
Speaker 1: far benefited from the recovery do start to benefit. But
Speaker 1: it would appear that just a continuation of the solid
Speaker 1: consumer data is not for the FED to remain on hold.
Speaker 1: It is still that global weakness and what it means
Speaker 1: for global inflation, and therefore US inflation will be what
Speaker 1: tips the balanced for the FED if it cuts right. So,
Speaker 1: Jani Hearry, you're saying with our question, Jeron Pal's central
Speaker 1: banker to the world, that's what I'm hearing. Yes, yes,
Speaker 1: it is. And remember last year there was a lot
Speaker 1: of the FED tightening on the back of strong US growth,
Speaker 1: which was helped along by fiscal stimulus. Because it was
Speaker 1: out said tightening that impacted on the rest of the
Speaker 1: world and contributed to the slow down and growth elsewhere
Speaker 1: in the world. My first question the Vice Chairman Clara
Speaker 1: tomorrow has to be on his word salad. I associate
Speaker 1: that with the vice chairman. We heard Chairman Pile talk
Speaker 1: about salad yesterday. What would be your question, Janet Henry
Speaker 1: for the vice chairman. My my question for the Vice
Speaker 1: chairman is, uh, well, I suppose a lot of it
Speaker 1: would still be to do with the labor market, and
Speaker 1: this is something that talked about in his recent speech.
Speaker 1: You know, economists always talk about the stars it's all
Speaker 1: in the stars. Be our star. The neutral rate, um,
Speaker 1: and you star is the new thing, the maximum level
Speaker 1: of employment. They don't know what that is. Um Clarada
Speaker 1: actually mentioned that it would be. He now think it's
Speaker 1: you know, around four percent, possibly below. We're already below
Speaker 1: four percent. How low does he think unemployment in the
Speaker 1: US without wage growth picking up? Jeneen, I'm gonna give
Speaker 1: you a shout out if I get to that question
Speaker 1: with Vice Chairman Clarata. But this is important, folks, and
Speaker 1: and and Jenneh Henry, this is just so key. Is
Speaker 1: you star in this dream of a perfect unemployment rate?
Speaker 1: Is a tangible and an agg regated basis? Or are
Speaker 1: we so polarized that we have two or even three
Speaker 1: Americas and we really can't get there even if we
Speaker 1: want to get there. It is, But also it matters
Speaker 1: for how this whole expansion plays out. You know, we've
Speaker 1: become used to over the last few decades of most
Speaker 1: FED tightening cycles being a response too higher than expected inflation.
Speaker 1: They have to squeeze inflation out of the system. That
Speaker 1: requires a sharper slowdown. If we are now back in
Speaker 1: this world whereas you know, you're alluding to you've got
Speaker 1: different parts of the labor market seeing some pick up
Speaker 1: in wage growth. If that's coming through more through the
Speaker 1: profits cycle, it's back to an old fashioned business cycle.
Speaker 1: You could see different parts of the economy and being
Speaker 1: affected in a different way, and that means that it's
Speaker 1: it's not necessarily just about the response to inflation, but
Speaker 1: we could still get areas of the economy slowing down
Speaker 1: because they're the parts that are being hit more on
Speaker 1: the profit snide. This has been wonderful, Jenna Henry think
Speaker 1: of so much. Hs BC sure over day Bloomberg opinion
Speaker 1: columnists covering all things technology really wanted to get her
Speaker 1: thoughts on Slack. That company's raising capital today? I should
Speaker 1: know Tom that Bloomberg Beta, the venture capital arm of
Speaker 1: Bloomberg LP, is an investor in Slacks. Make that disclosure,
Speaker 1: yep um So again Slack raising capital? Can you just
Speaker 1: give it? Walk us through kind of what's happening today?
Speaker 1: Who's raising capital? Is it? How this you know? Listening
Speaker 1: this direct listing is different from an I P O. Well,
Speaker 1: the way it's different is that they're actually not raising capital.
Speaker 1: The company is not raising The company is not raising capital.
Speaker 1: So Basically, you know, Slack over the years as a
Speaker 1: private company has issued about five hundred million shares in
Speaker 1: its lifetime, and basically today it declares those five million
Speaker 1: shares are in essence available for trade. So the company
Speaker 1: is not selling new shares to to a new crop
Speaker 1: of investors, as typically happens in an I p O.
Speaker 1: It's simply decides two days the day that we become
Speaker 1: a public company, and it makes shares available for trade.
Speaker 1: So people who previously owned Slack shares when the company
Speaker 1: was private are now able in principle at least to
Speaker 1: to sell those shares to willing buyers, and buyers are
Speaker 1: going to line up potentially to purchase those shares, and
Speaker 1: we'll see what happens. How many of million will end
Speaker 1: up in new hands. It's a good question. So part
Speaker 1: of the issue with a direct listing, right is that
Speaker 1: it's a little bit less controlled than an I p O.
Speaker 1: So it's not like the company can say we determine
Speaker 1: that thirty million shares trading. It's not. It's manipulated. What
Speaker 1: way is it manipulated? And in what way is an ippulia? Well,
Speaker 1: you know, stop it, they're going out toad, They're making
Speaker 1: a fictitious pricing up and they're launching this puppy, right, Yes,
Speaker 1: I agree with you. I do not really see the
Speaker 1: point yet of direct listings, thank you. Can we have
Speaker 1: her back tomorrow? Thank you. I mean, it's supposed to
Speaker 1: be this kind of more pure less financially manipulated process
Speaker 1: than an IPO controlled by the masters of Wall Street.
Speaker 1: But it's not really that. As Tom said, right the
Speaker 1: bank there are bankers that are getting paid tens of
Speaker 1: millions of dollars in fees by the company, and they're
Speaker 1: going out to people who own shares of Slack and saying,
Speaker 1: how about selling some shares? How many are you thinking?
Speaker 1: What price are you looking for? And it's doing a
Speaker 1: similar thing to prospective buyers, and those kinds of conversations
Speaker 1: starts to look a lot like what happens in an
Speaker 1: IPO process, that fake, manipulated, controlled by the masters of
Speaker 1: Wall Street IPO process. So um to me right now,
Speaker 1: a direct listing looks like a solution in search of
Speaker 1: a problem. But I am open to the possibility that
Speaker 1: there really is. Um Well already called me a cynic,
Speaker 1: and I guess I have to live one of the
Speaker 1: ways again. One of the ways it is different from
Speaker 1: slacks perspective is it's less costly and the fees are
Speaker 1: so there. Again, Slack is paying I cannot remember the number,
Speaker 1: but it's something like five million dollars in return for
Speaker 1: raising no new capital. Right so you're paying banker fees,
Speaker 1: not that much less than you'd pay in an I
Speaker 1: P O. But the company is not making any money
Speaker 1: from this process. So again, right now, a direct listing
Speaker 1: is a novel thing. It probably requires a little bit
Speaker 1: more work than it might in two or three years
Speaker 1: if this process becomes more normalized. But right now a
Speaker 1: direct listing is not true. You have been through this,
Speaker 1: sin sure as an expert on this, and we make
Speaker 1: jokes folks about she's truly lights out. It's sort of
Speaker 1: kind of like a Dutch auction where you go out
Speaker 1: and find a price. Do we know how they actually
Speaker 1: get to twenty six dollars? Again, if one on one,
Speaker 1: I think a lot of it is very similar to
Speaker 1: an I p O process that you have conversations with
Speaker 1: potential sellers of stock and potential buyers of stock, and
Speaker 1: you figure out what they're what it seems that they're
Speaker 1: willing to so they're basically doing an end around SEC
Speaker 1: process of a red herring to discover price, which is
Speaker 1: what you do with a standard initial public golf freak.
Speaker 1: I don't want to say that anyone's violating any rules.
Speaker 1: You know, this is still a process. This is still
Speaker 1: a process that is governed by a SEC rules. Like
Speaker 1: you know, Slack filed a perspectus as they would in
Speaker 1: an I p O. Um they have yea, you know,
Speaker 1: they have regulated conversations with potential investors. So this is
Speaker 1: all on the up and up. But again my issue
Speaker 1: is just that this is supposed to be some kind
Speaker 1: of holier than now, more pure process than an I
Speaker 1: p O and I do not yet see those merits.
Speaker 1: Can we ask one question about the actual company today?
Speaker 1: The company? Yes, what makes now? This is a you know,
Speaker 1: there's so much remote working today and you've got to
Speaker 1: have these video conferences and Bloomer's got its own system
Speaker 1: which works great. Um, what makes this company so special?
Speaker 1: Their technology? Look, Slack, it is good technology, and it's
Speaker 1: particularly useful on mobile devices, which was less true of
Speaker 1: many of its predecessors. But I will say I was
Speaker 1: having a conversation with somebody yesterday about Slack and the
Speaker 1: fact that there were a number of very similar software
Speaker 1: companies that started around the same time as Slack. Think
Speaker 1: about companies like Yammer, which was bought by Microsoft, or
Speaker 1: Jive Software, a company that went public um a few
Speaker 1: years ago, or Chatter, which is owned by Salesforce. Cisco
Speaker 1: had a workplace chat product. There were lots of these
Speaker 1: kind of Facebook for work whatever you want to call
Speaker 1: them products, and almost all of them either died or
Speaker 1: essentially irrelevant in the journal did they share they had
Speaker 1: that great compared attracts of actually paying subscriptions of d
Speaker 1: verses two million from Microsoft. I mean, the revenue girls
Speaker 1: vectors are declining, the grow the down, the income statement
Speaker 1: vectors are declining. Let's let's flip it over. I'm gung
Speaker 1: ho on Slack. Why well, look, they do have six
Speaker 1: hundred thousand paying organizations, which is, you know, not nothing.
Speaker 1: Even maybe it's nothing compared to Microsoft and all of
Speaker 1: the customers that they have. But this is a software
Speaker 1: that has caught on relatively quickly in a relatively large
Speaker 1: number of organizations. The the advantage of software as a service,
Speaker 1: you know, this kind of subscription software. The reason investors
Speaker 1: love that business model so much is. It's very easy
Speaker 1: to understand. You have companies paying money every month or
Speaker 1: every year for a product. You can kind of model
Speaker 1: it out. You can see the retention rates and the
Speaker 1: ability to upgrade those customers. Look, investors may have gotten
Speaker 1: carried away about this whole category of software, but there
Speaker 1: is something real happening. There are new kinds of technology
Speaker 1: that are catching on. In single best conversations, Today's shore
Speaker 1: Overday is always thank you so much. Thanks for listening
Speaker 1: to the Bloomberg Saveillance podcast. Subscribe and listen to interviews
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Speaker 1: I'm on Twitter at Tom Keane before the podcast. You
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