Speaker 1: Welcome to the Bloomberg Panel podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahmas. Each day we
Speaker 1: bring you the most noteworthy and useful interviews for you
Speaker 1: and your money, whether at the grocery store or the
Speaker 1: trading floor. Find a Bloomberg penl podcast on Apple podcast
Speaker 1: or wherever you listen to podcasts, as well as at
Speaker 1: Bloomberg dot com. Let's bring in Max Abel, centrefinance reporter
Speaker 1: for us here at Bloomberg, to give a sense of
Speaker 1: what his big takeaway has been so far from the hearing.
Speaker 1: So Max, well, look, I have to say, these executives
Speaker 1: look confident, they look unrattled. I don't know a few
Speaker 1: folks are watching, but it opened. The hearing is opened
Speaker 1: with Maxine Waters trying to sort of like rabbit tat tat,
Speaker 1: go through a lightning round, a lightning round. That's right,
Speaker 1: it was a lightning round. She was um interrupting them.
Speaker 1: They were sort of interrupting each other, she was plowing
Speaker 1: through questions. I mean it was fascinating and as a
Speaker 1: viewer and a live blogger here for the Bloomber Terminal,
Speaker 1: I mean, honestly, it was exciting. But there has not
Speaker 1: been um and there have not been any bombshells there.
Speaker 1: There hasn't been anything scandalous and exciting. There hasn't even
Speaker 1: been a moment as um shocking as when Manuchin told
Speaker 1: Maxine Waters just in the last forty eight hours, you
Speaker 1: know that she had to bang her gabble as as
Speaker 1: the Treasury Secretary told her um not long ago. You know,
Speaker 1: the reality is it's been um relatively predictable, nothing crazy.
Speaker 1: So Max, what would be a successful day here for
Speaker 1: these CEOs sitting in front of the Congress people, Well,
Speaker 1: remember what this hearing is. It's it's about accountability, and
Speaker 1: if they can leave today giving Congress a sense that
Speaker 1: you know, these banks are manageable, they're relatively ethical, and
Speaker 1: you know that what they're trying to do is help
Speaker 1: the country and helps the economy rather than trying to
Speaker 1: hurt the country and hurt the economy, which was I
Speaker 1: think it's fair to say, is a picture that that
Speaker 1: critics had in their mind, you know, not long ago,
Speaker 1: in the wake of the fine into crisis, that that
Speaker 1: counts as his success. But you know, it's also possible
Speaker 1: that Congress members will get in somebody blows over things
Speaker 1: like investments in guns or forced arbitration, or by the way,
Speaker 1: a lack of diversity. What we're seeing is, you know,
Speaker 1: seven white men standing in a row, just like in
Speaker 1: the tobacco hearings in the nineties. I'm wondering if that's
Speaker 1: going to come up later today. It's interesting Lloyd Blank
Speaker 1: find the former chief executive of Goldman Sachs just tweeting out, boy,
Speaker 1: I really missed my old job. Exclamation point, exclamation point,
Speaker 1: exclamation point, and he was he was quoting a tweet
Speaker 1: from the New York Post of lawmakers grilling Wall Street
Speaker 1: big wigs over risks to the U S economy. It
Speaker 1: does sort of highlight how being the CEO of a
Speaker 1: major Wall Street bank is increasingly political, and it is
Speaker 1: a political role. And it is interesting to note this
Speaker 1: at a time when Wells Fargo is looking for another
Speaker 1: head and you know, what is that role at this point?
Speaker 1: I mean, can you talk a little bit about that.
Speaker 1: Well the reason that Wells Fargo is looking for a
Speaker 1: new chief executive officer is because the last one did
Speaker 1: a pretty infamous job when he was hauled before Congress
Speaker 1: not too long ago. Politics are a part of of
Speaker 1: of Wall Street and Wall Street is a part of politics.
Speaker 1: One thing that we've been tracking on the live blog
Speaker 1: is that, um, even Democrats like Caroline Maloney and and
Speaker 1: especially Republicans, some of their top donors, in some cases,
Speaker 1: their literal top donors over their political careers are banks
Speaker 1: or a bank lobbying group. You know, politics and finance
Speaker 1: are really intertwined in the United States, and I think
Speaker 1: the starkest reminder of that is that some of these
Speaker 1: ceo s, you know, some some of the banks that
Speaker 1: they worked for, would not be functioning companies if it
Speaker 1: hadn't been for the bailout. Um, and now it's now,
Speaker 1: oh my gosh, it's eleven years ago, it's more than
Speaker 1: decade ago. So politics are it's just a crucial part
Speaker 1: of of of what happens on Wall Street. But so far,
Speaker 1: it feels like that, um, these executives have the upper hand.
Speaker 1: They they sort of um, they just seem relatively calm
Speaker 1: and comfortable. So Max, let's let's take a look at
Speaker 1: Jamie Diamond. It seems like a lot of the questions
Speaker 1: are going to him. He's taking in some cases the
Speaker 1: lead here. How do you think his performance has been
Speaker 1: so far? Well, First of all, you also have to
Speaker 1: give a shout out to Maxine Waters performance. She opened
Speaker 1: this by saying, I've read that you all you executives
Speaker 1: are going to try to rely on Jamie Diamond taking
Speaker 1: the microphone, and I'm not going to allow that. So
Speaker 1: she she preempted Diamond was feeling the spotlight for too long,
Speaker 1: which you know, I just have to say I thought
Speaker 1: was fascinating. Diamond is such an important influential character on
Speaker 1: Wall Street. I mean, first of all, all of the
Speaker 1: executives here are essentially, you know, pups compared to Jamie Diamond.
Speaker 1: We have you know, Solomon who took his job you know,
Speaker 1: months ago. We have Charlie Sharf up on up on
Speaker 1: sitting sitting a couple of seats away. Sharf was basically
Speaker 1: Diamond's protege at JP Morgan um and then he lost
Speaker 1: his job and and and ended up an executive elsewhere
Speaker 1: at Wells Fargo. By the way, um My, my excellent
Speaker 1: colleague Hannah did did a rundown of all the people
Speaker 1: who might take over the CEO spot it Wells Fargo,
Speaker 1: and a couple of them are people who now work
Speaker 1: or have worked for Jamie Diamond. So he's just such
Speaker 1: a powerful, such an influential figure. You know, he's also
Speaker 1: just in a superficial sense, he's just also a really
Speaker 1: magnetic guy. You know, he captures the attention of the room,
Speaker 1: which is why I want to listeners that, well, why
Speaker 1: is a complicated question, but I want to warrant folks that, um,
Speaker 1: Michelle Davis and I wrote about a really interesting sort
Speaker 1: of ecosystem of protesters who've been following Jamie Diamond around.
Speaker 1: You know, he's magnetic not only in the sense that
Speaker 1: he attracts um you know, fans, he's magnetic in the
Speaker 1: sense that he also attracts critics. And we we wrote
Speaker 1: about critics who have been falling around the United States,
Speaker 1: which is why I think it's fair to say that
Speaker 1: later this afternoon, it's totally possible we're going to hear
Speaker 1: from from Chase critics. Um in in hearing itself. All right,
Speaker 1: So let's switch gears a little bit, because this all
Speaker 1: comes ahead of bank earnings, and that'll get kicked off
Speaker 1: talking about Jamie Diamond, JP Morgan. It will be among
Speaker 1: the first to report alongside Walls Fargo, and I'm just
Speaker 1: wondering how that backdrop complicates these hearings, the fact that
Speaker 1: banks are expected to report uh subdued numbers at best,
Speaker 1: especially due to a lack of volumes in fixed income
Speaker 1: trading and just in general feeling of malaise in markets
Speaker 1: during the first quarter. How does that affect these hearings?
Speaker 1: You know, I think that you can't take your eye
Speaker 1: off the ball of of the big picture, which is
Speaker 1: that the banks um are still so remarkably profitable. You know,
Speaker 1: over the last um a few years, they've gotten, they've
Speaker 1: gotten bigger, they've they've they've quite literally made more money
Speaker 1: than they've ever made before. And I think that it
Speaker 1: will be hard for Wall Street to plead um tough
Speaker 1: times or to focus on fear um when just I
Speaker 1: think that it would be easy for ban critics just
Speaker 1: to point out just just a simple scale of how
Speaker 1: big they've gotten and and how and how lucrative their
Speaker 1: businesses have been, even if the short term outlook might
Speaker 1: might look starker than I'd like. So, Max, where do
Speaker 1: you think, and you've mentioned that this morning session was
Speaker 1: relatively a tame where do you think, uh, some of
Speaker 1: these banks CEOs could be exposed here in front of
Speaker 1: the committee. Well, you know, one change we've seen recently,
Speaker 1: after after Michelle Davis and I wrote wrote that story
Speaker 1: that I mentioned about the ecosystem of skers, is that
Speaker 1: UM JP Morgan came out and they said, you know,
Speaker 1: actually we're no longer going to do business. We're no
Speaker 1: longer going to fund private prisons. UM. And you know,
Speaker 1: I have to say, as a journalist who had written
Speaker 1: about the subject only a few months earlier, I was
Speaker 1: really surprised. It was sort of amazing to see UM
Speaker 1: the powerful kind of change their ways thanks to the
Speaker 1: actions of of of relatively powerless critics that JP Morgan
Speaker 1: made a decision that they were going to change. It
Speaker 1: would be fascinating if private prisons come up again. It'll
Speaker 1: be fascinating to see how much UM attention climate change
Speaker 1: Cole uh Guns get. We saw David Solomon talk about
Speaker 1: not funding I believe, you know, bum bumber stock. You know,
Speaker 1: any of these things could become big, big, big attention
Speaker 1: grabbing headlines, even even a relatively boring subject that's close
Speaker 1: to my heart because I've been reporting on it here
Speaker 1: at Bloomberg News. Arbitration force arbitration that came up once.
Speaker 1: You know, it's totally possible that that will get some
Speaker 1: more oxygen. Again, I think the question is, though you
Speaker 1: know how how long the oxygen lasts? Just real quick here,
Speaker 1: can you tell us the sort of nuts and bolts
Speaker 1: of what's at stake with the arbitration issue. Yeah, honestly,
Speaker 1: I'm strilled that you would ask so force arbutration was
Speaker 1: basically a subject that no one really cared about only
Speaker 1: a few years ago. Even though arbitration, which if if
Speaker 1: listeners don't know, it's basically kind of like a parallel
Speaker 1: shadow system. You know, it's separate from courts, it's a
Speaker 1: privatized justice system, and it essentially was just kind of
Speaker 1: tiny only a few decades ago, but it's it's now gigantic.
Speaker 1: You know, if you're listening to this and you have
Speaker 1: a job, the chances are you have also signed an
Speaker 1: arbitration agreement that means you can't see your boss, and
Speaker 1: certainly if you're a customer of these banks, there's also
Speaker 1: a good chance you've also signed an arbitration agreement, which
Speaker 1: which would mean that you won't be able to sue
Speaker 1: these firms. And that caused a great amount of consternation
Speaker 1: among critics um who care about both employees and consumers. Now,
Speaker 1: the banks will say, or employers will say, arbitration is,
Speaker 1: you know, affair system. It's cheaper. It's kind of less embarrassing,
Speaker 1: you know, because if someone has a has a claim,
Speaker 1: you know, it doesn't have to go into court. You
Speaker 1: can sort of keep it, keep it relatively quiet. The
Speaker 1: rub there is it in the ME two era. Arbitration
Speaker 1: helps explain why you haven't seen as many harassment claims. Um,
Speaker 1: you don't fall under the spotlight because as you might otherwise,
Speaker 1: because they get trapped in the arbitration system. That's the
Speaker 1: kind of thing I'll be looking forward to seeing. We'll
Speaker 1: be looking forward to reading. Max Abelson. We're gonna have
Speaker 1: to stop it there. Thank you so much for joining
Speaker 1: us on short notice. We appreciate it. Max Abelson from
Speaker 1: Bloomberg News covering all things financials. Our next guest has
Speaker 1: a very interesting theory how we can be come better investors.
Speaker 1: We could become better investors not by playing the cards
Speaker 1: were dealt any harder, but by playing the other players
Speaker 1: at the table a lot smarter. Ben Hunt, co founder,
Speaker 1: chief investment officer of Second Foundation Partners, joins us. He's
Speaker 1: also creator an author of Epsilon theory joins us from
Speaker 1: reading Connecticut. Ben, thanks so much for joining us. Start
Speaker 1: off by just giving us your theory about how we
Speaker 1: can become better investors. You bet, Paul great, great to
Speaker 1: be on with you and Lisa. You know what I
Speaker 1: mean when I say that we need to play the
Speaker 1: players rather than just play the cards. Is I think
Speaker 1: it's really important again, whether you're playing poker or you're
Speaker 1: playing the markets, to step back and and understand what
Speaker 1: what are the stories that at the poker table people
Speaker 1: are telling you with their bets and their bluffs, and
Speaker 1: in markets? What are the stories that we are reading
Speaker 1: in the financial media? What what? What are the what
Speaker 1: are the drums that Wall Street is beating? And I
Speaker 1: think if you step back and you try to look
Speaker 1: at that, you can give you a real edge up
Speaker 1: and understanding where markets are going and how you can
Speaker 1: play a better game. So give us a sense of
Speaker 1: what that means today. I mean, what is the drum
Speaker 1: that Wall Street is beating right now? It's the narrative? Sure, sure, well,
Speaker 1: let me start with the drums that aren't beating, because
Speaker 1: last year this time last year, we had strong drum beating,
Speaker 1: a strong narrative that inflation was back and rearing its head,
Speaker 1: that there were concerns about that that coming back. And
Speaker 1: then at the end of the spring, going into the
Speaker 1: summer and certainly last fall, you had the the trade
Speaker 1: war narrative that uh, you know, we're on the verge
Speaker 1: of of of a real global economic slow down, if
Speaker 1: not collapse, and leading to the sharp decline you saw
Speaker 1: in risk assets last fall and then culminating in December.
Speaker 1: But what you saw in December was a resurgence of
Speaker 1: our old friend, the narrative that central banks are large
Speaker 1: and in charge, the narrative that central banks have got
Speaker 1: your back. And so far this year in tooth I
Speaker 1: was in nineteen, that has absolutely been that dominant narrative
Speaker 1: that whatever happens in the world right, whatever happens around Brexit,
Speaker 1: or whatever happens with China, or whatever happens anywhere, that
Speaker 1: the Fed, the ECB, the central banks of the world,
Speaker 1: that they've got your back. So, Ben, what as you
Speaker 1: take a look at the other players at the table
Speaker 1: right now, what are you learning? What are you thinking about?
Speaker 1: Where you I think opportunities lie? Yeah, Well, what's interesting
Speaker 1: is that is that while the you know, the central
Speaker 1: bank narrative. The this this this idea that that the
Speaker 1: FED and foremost of all of them, has got your back.
Speaker 1: You know, this isn't new, right, We've been we've been
Speaker 1: We've seeing the promotion this narrative and the reality of it, frankly,
Speaker 1: but but it is a lot of the narrative here,
Speaker 1: the belief that the FED is there to to support markets.
Speaker 1: You know, we've been seeing this for the better part
Speaker 1: of the decade. Now. What's what's interesting to me is
Speaker 1: is not that that narrative shows any sign of weakening,
Speaker 1: because it's it's not, if anything, when you look at
Speaker 1: what the White House is saying and in you know,
Speaker 1: in terms of really trying to push the FED to
Speaker 1: do more to stimulate right, to do more easing rather
Speaker 1: than tightening. You know, I don't think that this, this
Speaker 1: drum beating, whether it's from the White House or from
Speaker 1: the Wall Street, is going to go away at all.
Speaker 1: But I'll tell you this, I do see it changing.
Speaker 1: And then the way I see it evolving is away
Speaker 1: from all central banks linking arms and doing this together.
Speaker 1: And more and more you're seeing stories in the narrative
Speaker 1: about a competition, particularly around currencies, particularly between the US
Speaker 1: and Europe. So practically, what does this mean in terms
Speaker 1: of it Practically, it means that that that both the
Speaker 1: ECB and the FED are going to take steps to
Speaker 1: weaken their currencies. As an investor, like what should investor
Speaker 1: to do well? For investors, it depends way what aspect
Speaker 1: you're you're thinking about investing. So if you're looking the
Speaker 1: fixed income market, I think you've got a real chance
Speaker 1: here that, uh, the the inflation narrative will start to
Speaker 1: pick up again because the U s economy is frankly strong,
Speaker 1: and the FED is going to do more to weaken,
Speaker 1: not to tighten. So that's if you're if you're looking
Speaker 1: at anything that's going to be inflation sensitive, and if
Speaker 1: you're looking at stuff that's right sensitive, especially on the
Speaker 1: long end, you know that's that's a that's a negative
Speaker 1: thing to happen. But if you're looking for stocks, look,
Speaker 1: I mean both in the Europe and and and here
Speaker 1: in the States, both central banks are going to do
Speaker 1: more of what they've been doing, which is very supportive
Speaker 1: for equity markets. So Ben just kind of going back
Speaker 1: to your theory a little bit, is it, And I'm
Speaker 1: just kind of reading through a little bit is this
Speaker 1: kind of a a new way to kind of look
Speaker 1: at money flows. You know, I want to go, I
Speaker 1: want to hit more. They ain't kind of thing. Well,
Speaker 1: it's it's it's an old idea, really, I mean the
Speaker 1: it's it's the old idea that and this goes back to,
Speaker 1: you know, how people played the game of markets back
Speaker 1: in the thirties and the forties and the fifties and
Speaker 1: the sixties. It's really looking at where is the money going?
Speaker 1: Who are the other players on Wall Street? Including who
Speaker 1: are the players like at the FED and the White
Speaker 1: House and the like. And frankly, it's not looking less
Speaker 1: at fundamentals, but realizing that in this sort of world,
Speaker 1: the fundamentals mean less and these money flows mean a
Speaker 1: lot more. So how do you factor in the algos,
Speaker 1: the quantitative funds that are doing ostensibly a lot of
Speaker 1: the trading and equities and frankly increasingly even in the
Speaker 1: bond markets. I just have to wonder, you know, people
Speaker 1: when there's price action that doesn't make sense or seems
Speaker 1: you know, overly need jerk, people just said, you know, say, oh,
Speaker 1: it's the algals. How do you how do you work
Speaker 1: with them? Playing poker? Against you. Well, yeah, that's right.
Speaker 1: Well I'll say two things. So, so, most most of
Speaker 1: the algos that are out there are not what i'll
Speaker 1: call fast twitch investors. They're they're they're barges, right, so
Speaker 1: they can rebalance monthly, they rebalance slowly, and so there
Speaker 1: they really are like a barge and they follow along.
Speaker 1: I'm trying to say is that at the margins, it
Speaker 1: actually makes the importance of discretionary investors, people who listen
Speaker 1: to this radio show and do something, people who are
Speaker 1: you know, managing a discretionary fund. When you when you're
Speaker 1: when you're when you're in the river with a lot
Speaker 1: of barges, it actually provides a lot more room for
Speaker 1: the the speedboats to to to make an impact. Right.
Speaker 1: So it's it's it's interesting that you're right that that
Speaker 1: more of the dollar volume, more of the money flows
Speaker 1: in terms of absolute amounts, is handled with these i'll
Speaker 1: call them kind of barge like algorithms, but they follow along.
Speaker 1: And so it really is is it's interesting to me,
Speaker 1: is that the human money, I think, can actually make
Speaker 1: more of a difference. And so what I'm trying to
Speaker 1: look at is is what is the human money doing
Speaker 1: and what is the behavior of investors. That's where I
Speaker 1: think you need to go in terms of playing the player.
Speaker 1: So Ben, you know, one of the things that's interesting
Speaker 1: for active investors over the last several years the impact
Speaker 1: of social media as a way to kind of track
Speaker 1: investors sentiment, who's paying attention to what stocks, to what stories?
Speaker 1: And Bloomberg has a lot of functionality on the terminal
Speaker 1: to help terminal users kind of track that is that
Speaker 1: kind of a twenty one century way or an analogy
Speaker 1: to kind of money flows or reading the tape from
Speaker 1: days of viewer. It's similar. But I'll but I'll tell
Speaker 1: you this when you're looking at social media. You know,
Speaker 1: we talked about influencers a lot, right, and and that
Speaker 1: that corollary for markets is it's not how many people
Speaker 1: are talking about something, whether we're you know, whether it's
Speaker 1: social media or or it's uh, you know, television or newspaper,
Speaker 1: it's who is talking about it. So it's it's it's
Speaker 1: really I think much more important to follow the influencers because,
Speaker 1: as the name implies, they really do have an influence.
Speaker 1: We really are hardwired to respond to this stuff. And
Speaker 1: that's true if you're you know, a Twitter follower, or
Speaker 1: on or on Instagram and you're following an influencer, or
Speaker 1: if you're listening to this show or two to end
Speaker 1: the financial media, and you know J Powell decides to
Speaker 1: come out and say something. So I'll say this, when
Speaker 1: we're looking at media and we're looking at these signals
Speaker 1: that come out of the narrative, it's less important to
Speaker 1: see how many people are saying something, and much more
Speaker 1: important to say who is saying something. Ben Hunt, thank
Speaker 1: you so much for being with us. Ben Hunt, co
Speaker 1: founder and chief investment officer of Second Foundation Partners. Well,
Speaker 1: the right hailing business is going to get even more
Speaker 1: crowded in the US public apprigity markets. First we had
Speaker 1: Lift going public, and now news is coming out that
Speaker 1: Uber is right behind like a a file in the
Speaker 1: next day or two. But as I look at Lift here,
Speaker 1: the stock is down six point two percent today to
Speaker 1: sixty three dollars to share. Notable that it is well
Speaker 1: below it's seventy two I p O price. So at
Speaker 1: least the first right sharing investors are not feeling the love.
Speaker 1: Let's talk about the space in general. It's a lot
Speaker 1: going on. We welcome Man Deep sing Man Deep is
Speaker 1: a senior tech industry annalys for Bloomberg Intelligence. He ran
Speaker 1: literally ran to see us here in a Bloomberg Interactive
Speaker 1: broker studio. He did take a car. Okay, sorry, I'll
Speaker 1: be all week. So man, Deep, let's start with what
Speaker 1: we'll get to Uber. But let's start with Lift. It's
Speaker 1: not the I p O they were looking for, right
Speaker 1: what do what do you think is going on here?
Speaker 1: I think and I compare Lift to Uber. Uber is
Speaker 1: definitely the iconic brand, you know, with scale that's probably
Speaker 1: more brand value than you know, anybody else out there
Speaker 1: in the right sharing space. So it really reflects the
Speaker 1: pressure you know, as an investor, as a right sharing investor,
Speaker 1: which one would you pick? And my guess is, you know,
Speaker 1: given of Uber is much more diversified, it has got
Speaker 1: a lot more value generation potential than Lift. Now, the
Speaker 1: difference between Lift and Uber is, you know, when you
Speaker 1: look at take rates or average revenue provider, Lift is
Speaker 1: probably going to be better because of its niche focus.
Speaker 1: But that's not what investors are going to focus on
Speaker 1: because this space is not profitable at all. So it
Speaker 1: doesn't matter, you know, even if Lift, it just doesn't
Speaker 1: matter money you're baking it? Who cares? I love this
Speaker 1: image of Lift coming out and putting their I p
Speaker 1: O on the market, getting their thing, and then Uber
Speaker 1: coming in with you know, two big guns, like shooting
Speaker 1: at the sky, being like here we come. I'm wondering.
Speaker 1: So the estimate is that they're going to get about
Speaker 1: ten billion dollars in the year's biggest ip O. Do
Speaker 1: you think it's gonna be over under? Do you think
Speaker 1: it seems like it's being fairly valued? How do we
Speaker 1: even assess the value of a company that makes no
Speaker 1: money and has so in this case, from what we
Speaker 1: have learned so far, Uber is about five times bigger
Speaker 1: than Lift in terms of bookings, in terms of revenue.
Speaker 1: So the fact that they're trying to raise ten billion
Speaker 1: makes sense because Lift phrases raised for two billion dollars
Speaker 1: close to billion dollars in the ip So from that perspective,
Speaker 1: it makes sense. And my guesses they would have probably
Speaker 1: eleven of their float as well, so it will be
Speaker 1: you know, oversubscribed, that would be my best guess, and
Speaker 1: it would kind of have a similar first day trading
Speaker 1: uh like Lift. But it remains to be seen how
Speaker 1: it will trade. You know, a month or two down
Speaker 1: the line. Given all the focus on profitability and cash burn, alright,
Speaker 1: let's let's go to those fundamental things like profitability and
Speaker 1: cash burn. Um so lay after people? Why. I guess
Speaker 1: what Lisa and I've heard from fund managers that we've
Speaker 1: talked to on the show, is there really is a
Speaker 1: concern about that path the profitability. It's maybe more so
Speaker 1: and they we we thought about when Facebook and Google
Speaker 1: were coming public. What's different about these companies and makes
Speaker 1: it difficult to really envision that path of profitability. I
Speaker 1: think the biggest problem with right sharing business in general
Speaker 1: is the economies of scale are missing. So when I
Speaker 1: look at the cost structure, there is no fixed cost
Speaker 1: structure for right sharing. The cost grow as you're scaling
Speaker 1: the business, which is unheard off. And you look at
Speaker 1: you know, any other businesses with scale and fixed cost structure,
Speaker 1: you get operating leverage. That's not happening in case off Lift,
Speaker 1: that's not happening in case of Uber, which is five
Speaker 1: times bigger than Lift. So when will they see the
Speaker 1: economies of scale? When will the cost structure be stabilized
Speaker 1: so that you see operating leverage? And yeah, who knows
Speaker 1: right and Deep thing. We're speaking with senior tech industry
Speaker 1: analysts for Bloomberg Intelligence. Ben Deep, I'm wondering, Uh, you know,
Speaker 1: you say that maybe investors will start to care about
Speaker 1: cash burn and making money a month or two after
Speaker 1: the I p O. Why don't they care about it
Speaker 1: before buying into the I p O? I mean, I
Speaker 1: know this is crazy, but why are they gonna wait,
Speaker 1: you know, a month to care the euphoria around an
Speaker 1: iconic brand? I mean think of Were as a global brand.
Speaker 1: This is like as big as Amazon investors here with
Speaker 1: actual money, right, I mean euphoria, I get it, But
Speaker 1: I mean why would they care later? Am I crazy? This?
Speaker 1: This is what having been in an I p O banker,
Speaker 1: what happens is you get the scarcity value of surrounding
Speaker 1: initial public offering and you're you're afraid to miss out.
Speaker 1: So it's you know, I really want to own X
Speaker 1: number shares, so I'm gonna go put an indication interest
Speaker 1: of ten x and then I then oh boy, I
Speaker 1: got two shares and now what do I do with them?
Speaker 1: So there's some of those issues, But I mean, I
Speaker 1: guess it's interesting for LIFT. They did go first before Uber,
Speaker 1: I guess most people thought it was an advantage, but
Speaker 1: maybe not in hindsight. Well, I mean it was an
Speaker 1: advantage because they owned the narrative for the time and
Speaker 1: they were able to raise the IPO pricing. Remember Lift
Speaker 1: raise the ip of pricing. They were priced at the
Speaker 1: high end, and the stock had a good pop the
Speaker 1: first day. The problem is this is happening too close.
Speaker 1: You know, right after a lift, Uber is announcing it's
Speaker 1: as one within two weeks of that, and so there's
Speaker 1: already been a lot of focus in terms of the
Speaker 1: path to profitability. So it begs the question, how quickly
Speaker 1: can they get there? Okay, I want to ask the
Speaker 1: Flip question, which is didn't hurt Uber to come second
Speaker 1: in the sense that lifts I p O is down,
Speaker 1: you know, and you are seeing a rocky kind of
Speaker 1: start to the whole share share registration. So I'm just wondering,
Speaker 1: you know, for Uber's sake, could people say, you know,
Speaker 1: I kind of was burned on Lift. I'm not gonna
Speaker 1: I'm not gonna feel as euphoric. I think it Uber
Speaker 1: the brand value ements. It's just the I think people
Speaker 1: are going to invest in Uber for for its brand
Speaker 1: or its value generation potential, and they're going to view
Speaker 1: it the same way as an Amazon or Facebook or
Speaker 1: one of these you know, big companies. So let's talk
Speaker 1: about evaluation a little bit. Where where did Lift come public?
Speaker 1: Give us kind of a metric, and then maybe where
Speaker 1: do you think Uber is going to come in above that?
Speaker 1: Below that? Yeah? So Lift traded initially at about ten
Speaker 1: times strilling twelve months sales. That now, that was at
Speaker 1: the very high end. I think in case of Uber,
Speaker 1: it's reasonable to expect that they will trade at the
Speaker 1: ten time sales metric as well. So that should take
Speaker 1: them above the hundred billion dollar market cap. And uh yeah,
Speaker 1: that's that's a reasonable expectation. So I want to go
Speaker 1: to something. You just said that Uber is going to
Speaker 1: be in the same camp as Amazon. Is that right?
Speaker 1: I mean, in other words, what is the barrier to
Speaker 1: entry with ridesharing company other than recognition and the downloads
Speaker 1: of the app on on people's smartphones. It seems like
Speaker 1: the barrier to entry is bigger with Amazon. That is
Speaker 1: for Uber. Well, right, sharing is a consolidated space, so
Speaker 1: you may hear about new companies coming up, you know,
Speaker 1: trying to cater to a knit segment, but right now,
Speaker 1: right sharing, the way I look at it, globally, there
Speaker 1: are four to five players. Soft Bank is an investor
Speaker 1: in almost all of them, and it's a very consolidated market, which,
Speaker 1: to be very honest, helps should help them with the
Speaker 1: profitability aspect. And a new entrant can have, you know,
Speaker 1: create the same kind of scale, and they don't have
Speaker 1: the same data as Uber and Lift have around the drivers,
Speaker 1: around riders, around city, so that's a competitive advantage. I
Speaker 1: think about the one of the pushbacks that we heard,
Speaker 1: not just for Lift and Uber but the other tech
Speaker 1: um companies in generalists is the super voting stock and
Speaker 1: the control that puts into the founders. Is that something
Speaker 1: that you think is a real investor concern or most
Speaker 1: people just pretty sanguente about it. So I think that
Speaker 1: should play out favorably for the Uber i p O.
Speaker 1: The fact that they don't have special voting rights, the
Speaker 1: fact that you know, everybody is an equal investor or
Speaker 1: will be an equal investor in Uber, I think should
Speaker 1: be favorable for the Uber i p O. But I
Speaker 1: think with Lift, given its niche focus, having control with
Speaker 1: the founders isn't such a bad thing. I think they
Speaker 1: can steer where they're going with monetization and expansion, and
Speaker 1: that may not be a bad thing. What about the
Speaker 1: regulatory risks here the idea that you have a lot
Speaker 1: of cities pushing back, especially because of cab drivers that
Speaker 1: are getting put out of business. Do you see that
Speaker 1: as being a material threat that is incalculable and concerning
Speaker 1: for investors that are overcome by their euphoria. Evidently absolutely, Yeah, Yeah,
Speaker 1: it is a big threat and something where Uber has
Speaker 1: seen a lot of lawsuits and so far as the
Speaker 1: settlements they have had have been for smaller amounts, So
Speaker 1: I don't think it's that big offer risks, but you
Speaker 1: never know if if a big city like New York
Speaker 1: or San Francisco comes up with a verdict that goes
Speaker 1: against them, this is a huge threat. Okay, So it's
Speaker 1: not just Uber. We've got some other tech IPOs coming
Speaker 1: up in the next quarter or two. What else are
Speaker 1: you and the b I tech team looking at? So,
Speaker 1: pinterest is obviously a big one. You know there there
Speaker 1: is a food delivery company, Postmates, that's likely to go public,
Speaker 1: and we just published some research around you know, right
Speaker 1: sharing companies likely to acquire food delivery because the top
Speaker 1: line growth for right sharing is so much better. They
Speaker 1: have such a long runway compared to food delivery, which
Speaker 1: is much smaller, and they don't have the scale. So
Speaker 1: we think right sharing will be the consolidators. The Ubers
Speaker 1: and Lift will eventually end up buying a lot of
Speaker 1: food delivery companies and consolidated this space even further. And
Speaker 1: those are seamless and and things like that. Those are
Speaker 1: the ones, and they're going to become uh, they're gonna
Speaker 1: fall under Uber and Lift. That's a really interesting thesis
Speaker 1: and that actually makes a whole lot of sense. Those
Speaker 1: smart people and Bloomberg Intelligence do the right that smart
Speaker 1: research you can find on the Bloomberg terminal. B I
Speaker 1: go all right, man Dave Saying, senior tech industry analyzed
Speaker 1: FORRE you go joining us here and active progress. Guys
Speaker 1: Welleen has been a risk on environment, no doubt about that.
Speaker 1: Stocks and bonds of both staging strong raunies after that
Speaker 1: very week. And to to get a sense of where
Speaker 1: there are values in interest rates and in the currency markets,
Speaker 1: we welcome to our next guest, ed Al Husseini, senior
Speaker 1: interest rate and currency analysts for Columbia, thread Needle Investments.
Speaker 1: He joins us from hopefully sunny in warm Minneapolis, Minnesota,
Speaker 1: But somehow I doubt it. Um so, ed, just give
Speaker 1: us a sense from your perspectives, you step back and
Speaker 1: look at the global landscape for interest rates where I'm
Speaker 1: sorry for currencies. Where are you seeing value now across
Speaker 1: the various currencies? Sure, yeah, so we've had um you know,
Speaker 1: the headroom has shrunk a little bit in terms of
Speaker 1: you know, currency valuation. I would say the broad pressed
Speaker 1: and this has been our position for some time now,
Speaker 1: is that the dollar continues to be quite attractive. First,
Speaker 1: it's a it's a largely positive carry trade versus most
Speaker 1: of the developed market piers. And second, when we look
Speaker 1: at growth differentials, you know, despite the fact that we've
Speaker 1: had a slowdown here in the US, growth outside the
Speaker 1: US it looks looks particularly weak, you know, particularly in
Speaker 1: Europe and Asia. So that differential continues to skew in
Speaker 1: favor of the dollar. So being long dollar versus versus
Speaker 1: the Euro looks attractive. And then if you look at
Speaker 1: the smaller open economies within the developed market space that
Speaker 1: are starting to ease to accommodate for that slowdown and
Speaker 1: global growth. You're looking at Sweden, You're looking at Canada,
Speaker 1: you're looking at Australia. Those currencies continue to look quite
Speaker 1: vulnerable as well. Let's just set the record straight. Minneapolis
Speaker 1: and spring is absolutely beauty, full and ed. Please support
Speaker 1: Minneapolis because I lived near there not so long ago,
Speaker 1: and it is absolutely a beautiful, beautiful city except for
Speaker 1: in the winter when it's thirty. But I want, I
Speaker 1: want to take the other side of this, the Euro
Speaker 1: side of this, and talk about positioning, because you're right
Speaker 1: that it does make sense that that Europe is weakening
Speaker 1: more than the US, so on a relative basis, the
Speaker 1: dollar seems like it should uh strengthen versus the euro.
Speaker 1: And yet the short euro positioning is so crowded right now.
Speaker 1: How do you sort of reconcile that or are you
Speaker 1: concerned about that? It's a stretch trade. There's there's no
Speaker 1: way around that. I think I think it's absolutely correct
Speaker 1: to be concerned. Um I think at this point you
Speaker 1: don't want to front run the data to aggressively in
Speaker 1: the sense that if you do expect there to be
Speaker 1: some some global reflation coming back onto the table in
Speaker 1: the second half of the year, it does make sense
Speaker 1: to start getting along the door at least cut cut
Speaker 1: your daughter alongs UM. But you don't want to run
Speaker 1: front to run that too aggressively in an environment where
Speaker 1: the ECB is still very much firmly focused on on
Speaker 1: easing policy while the feed is essentially sitting on its head. Interesting,
Speaker 1: So as we think about Sterling, um sitting here one
Speaker 1: let's go to the dark side. If we have a
Speaker 1: hard Brexit, where do you think that goes? I mean
Speaker 1: the correct answers, I have no clue. Um, It's honest,
Speaker 1: it's an exceptionally difficult UM, you know, set up for
Speaker 1: for the Sterling. At the moment um. You know, we
Speaker 1: have had some some some more positive you know, noise
Speaker 1: in in the political set up. In the course of
Speaker 1: the past a couple of weeks, the probability of that
Speaker 1: of that hard exit, at least in the short term,
Speaker 1: seems to have diminished. Um. Whether you're able to trade
Speaker 1: on it, uh is very difficult, and it is a
Speaker 1: currency where people a position both ways. But those trading
Speaker 1: ranges are exceptionally tight right now. UH, you know, whether
Speaker 1: you look at the spot space or or or the
Speaker 1: option space. So it's UM, it's a very difficult trade
Speaker 1: to set up. So I want to scarce a little
Speaker 1: bit too interest rates. Because every analyst and economists who
Speaker 1: we speak to, or not everyone, but the vast majority
Speaker 1: say that the bond market is priced in too much
Speaker 1: pessimism in the United States, given how much the U
Speaker 1: S economy is growing, and yet bond yields continue to fall.
Speaker 1: So who is right and is it true? Do you
Speaker 1: agree with the idea that there is too much pessimism
Speaker 1: baked into where treasure yields are today? I don't think so,
Speaker 1: And I think we're right about fair. I think versus
Speaker 1: where we were, you know, say three to six months ago,
Speaker 1: there's definitely a lot less value in the longer end
Speaker 1: of the curve, so being exposed to treasury duration is
Speaker 1: less attractive at this stage. Um, And I think the
Speaker 1: value is shifted to being long in in the front's end,
Speaker 1: so that the cash to the two year segment of
Speaker 1: the curve. Uh. That's the way I would set it
Speaker 1: up in terms of you know, the long und trading
Speaker 1: around two fifty right now, it's sort of the medium
Speaker 1: term range has been to thirty five to fifty five. Uh,
Speaker 1: that's very much fair given the rampdown and growth and
Speaker 1: inflation that we've seen, and I think the inflation picture
Speaker 1: to me is much more troubling. Core inflation, you know,
Speaker 1: continues to weaken. Momentum broke somewhere in the middle of
Speaker 1: last year, and and and as continued to weaken since then,
Speaker 1: despite the fact that the economy is is relatively healthy
Speaker 1: um and the Fed's ability to get inflation up beyond
Speaker 1: two percent is quite limited. In other words, the risk
Speaker 1: that inflation moves to the upside are quite limited. This
Speaker 1: has brought down the ceiling on rates across the curve
Speaker 1: um in our minds. You know, when we look at
Speaker 1: sort of the fair value trading range for the tenure
Speaker 1: or twelve months out somewhere between two fifty and two
Speaker 1: seventy five. So uh, you know, there's not a ton
Speaker 1: of value, but I think it's it's very close to fair.
Speaker 1: Very good. Ed al Husay any senior interest rates and
Speaker 1: currency and I'll from Columbia, Thread Needle Investments from Lovely Springtime, Minneapolis, Minnesota.
Speaker 1: At thanks so much for joining us. Thanks for listening
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
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Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
Speaker 1: I'm Lisa A. Bram Woyds. I'm on Twitter at Lisa A.
Speaker 1: Bram Woyits one before the podcast. You can always catch
Speaker 1: us worldwide. I'm Bloomberg Radio