1
00:00:02,400 --> 00:00:06,760
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

2
00:00:11,680 --> 00:00:15,480
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

3
00:00:15,520 --> 00:00:18,720
Speaker 2: with Lisa Bromwitz and Amrie Hortenn. Join us each day

4
00:00:18,760 --> 00:00:22,320
Speaker 2: for insight from the best in markets, economics, and geopolitics

5
00:00:22,440 --> 00:00:24,920
Speaker 2: from our global headquarters in New York City. We are

6
00:00:24,960 --> 00:00:27,680
Speaker 2: live on Bloomberg Television weekday mornings from six to nine

7
00:00:27,720 --> 00:00:31,319
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

8
00:00:31,320 --> 00:00:33,960
Speaker 2: anywhere else you listen, and as always on the Bloomberg

9
00:00:34,040 --> 00:00:35,880
Speaker 2: Terminal and the Bloomberg Business app.

10
00:00:36,280 --> 00:00:39,680
Speaker 3: Vincent Reinhart of b n Y Intment Investments Vincent.

11
00:00:39,720 --> 00:00:40,440
Speaker 1: What do you make of this?

12
00:00:41,479 --> 00:00:45,440
Speaker 3: The GDP number rising four point three percent for the

13
00:00:45,479 --> 00:00:46,040
Speaker 3: third quarter.

14
00:00:47,280 --> 00:00:49,560
Speaker 4: There's a lot of action in the rear view mirror,

15
00:00:49,640 --> 00:00:53,360
Speaker 4: isn't there. I think part of what it does is

16
00:00:53,560 --> 00:00:56,440
Speaker 4: make you wonder why the Federal Reserve felt the need

17
00:00:56,560 --> 00:01:00,760
Speaker 4: to buy three quarters percentage worth of insurance by cutting

18
00:01:00,840 --> 00:01:05,280
Speaker 4: rates in September. But that was more about employment. What

19
00:01:05,319 --> 00:01:10,600
Speaker 4: it does is worse than the disconnect we're having between

20
00:01:11,600 --> 00:01:15,840
Speaker 4: our view of aggregate demand growing at such a rapid

21
00:01:15,920 --> 00:01:20,039
Speaker 4: rate and employment, which is pretty sluggish.

22
00:01:20,920 --> 00:01:24,240
Speaker 3: Do you think that given this information is so stale

23
00:01:24,319 --> 00:01:25,960
Speaker 3: it's not going to make a difference. Or do you

24
00:01:26,000 --> 00:01:28,440
Speaker 3: think FED officials will look at this and take this

25
00:01:28,560 --> 00:01:33,000
Speaker 3: information on with them as they consider and recalibrate what they.

26
00:01:32,880 --> 00:01:35,000
Speaker 1: Should do in terms of interest rates in January?

27
00:01:35,760 --> 00:01:40,280
Speaker 4: Well, the important point you made was FED officials. Remember

28
00:01:40,360 --> 00:01:45,039
Speaker 4: they're pretty divided that it was a close call in

29
00:01:45,160 --> 00:01:51,000
Speaker 4: terms of the overall nineteen FMC participants about the last

30
00:01:51,080 --> 00:01:55,120
Speaker 4: rate cut. That means that almost half of them can

31
00:01:55,680 --> 00:01:59,240
Speaker 4: look at this data point and say, why exactly were

32
00:01:59,280 --> 00:02:02,400
Speaker 4: we doing what we were doing. So I think it

33
00:02:02,480 --> 00:02:09,280
Speaker 4: does matter, and what it does is just heightened this

34
00:02:10,080 --> 00:02:11,200
Speaker 4: really split.

35
00:02:11,840 --> 00:02:16,519
Speaker 5: Within Federal Reserve official boom evins. I'm talking to my buddy,

36
00:02:16,560 --> 00:02:17,440
Speaker 5: Joe Bruce Swailes.

37
00:02:17,480 --> 00:02:20,480
Speaker 6: He's an economist down in Austin at RSM, and he

38
00:02:20,840 --> 00:02:26,040
Speaker 6: sees a decoupling between the strong growth numbers that we're

39
00:02:26,080 --> 00:02:31,760
Speaker 6: seeing strong real final private demand and weak hiring as AI,

40
00:02:32,320 --> 00:02:35,880
Speaker 6: you know, eats in eats up jobs and maybe we

41
00:02:35,919 --> 00:02:38,120
Speaker 6: get robotics replacing people as well.

42
00:02:38,560 --> 00:02:39,639
Speaker 5: You know, longer.

43
00:02:39,360 --> 00:02:44,440
Speaker 6: Term, what can cutting rates do for that kind of

44
00:02:44,600 --> 00:02:47,400
Speaker 6: slow down and hiring? I mean, if AI is taking jobs,

45
00:02:47,480 --> 00:02:50,360
Speaker 6: even if you bring rates down fifty seventy five basis points.

46
00:02:51,040 --> 00:02:53,880
Speaker 5: Is it going to matter, Well, you do a little

47
00:02:53,880 --> 00:02:55,639
Speaker 5: phone meeting in the runway.

48
00:02:56,120 --> 00:03:00,000
Speaker 4: The FED bought insurance. You're exactly right, and the question

49
00:03:00,639 --> 00:03:04,360
Speaker 4: is how expensive is that insurance, And the cost of

50
00:03:04,400 --> 00:03:09,440
Speaker 4: it is that it'll be a little longer to get

51
00:03:09,520 --> 00:03:15,960
Speaker 4: for them to the goal of two percent inflation next year. Now,

52
00:03:17,080 --> 00:03:24,960
Speaker 4: if you're facing this enormous supply headwind on output on

53
00:03:25,320 --> 00:03:31,440
Speaker 4: rather labor andwind right a headwind on labor and tailwind

54
00:03:31,680 --> 00:03:36,280
Speaker 4: for demand, there's not a lot that the overnight federal

55
00:03:36,320 --> 00:03:38,800
Speaker 4: funds rate can do. And I think you are right.

56
00:03:39,800 --> 00:03:45,000
Speaker 6: Is two percent truly the Fed's target, because it doesn't

57
00:03:45,040 --> 00:03:48,880
Speaker 6: look like they take that very seriously since we're fifty

58
00:03:48,960 --> 00:03:53,000
Speaker 6: percent above it. I mean, CPI, I guess you could

59
00:03:53,040 --> 00:03:56,160
Speaker 6: say came in lighter than that in the last reading,

60
00:03:56,200 --> 00:03:58,800
Speaker 6: but there was so much noise it might as well

61
00:03:58,840 --> 00:04:00,600
Speaker 6: be at three.

62
00:04:01,400 --> 00:04:04,560
Speaker 4: Well, they never admit that. You don't give up on

63
00:04:04,640 --> 00:04:08,640
Speaker 4: your goal when you're far far away from it. So

64
00:04:08,680 --> 00:04:14,720
Speaker 4: that's why chair pal vigorously defends two percent and denies

65
00:04:15,120 --> 00:04:20,040
Speaker 4: any idea that they've changed their goal. I think two

66
00:04:20,080 --> 00:04:25,240
Speaker 4: percent is a long run aspiration, and what we've seen

67
00:04:25,480 --> 00:04:29,440
Speaker 4: over the last three months in particular, is that they're

68
00:04:29,520 --> 00:04:33,760
Speaker 4: willing to put off that achievement to buy a little

69
00:04:33,800 --> 00:04:34,440
Speaker 4: more insurance.

70
00:04:35,080 --> 00:04:35,799
Speaker 1: When it comes.

71
00:04:35,680 --> 00:04:38,360
Speaker 3: To this GDP data, we just got it' I'm already

72
00:04:38,360 --> 00:04:40,960
Speaker 3: getting a lot of messages from viewers, Vincent who are

73
00:04:40,960 --> 00:04:43,680
Speaker 3: talking about the fact that if it's possible that CPI

74
00:04:43,960 --> 00:04:46,719
Speaker 3: was inaccurate, do you think that it's possible that GDP

75
00:04:46,960 --> 00:04:50,360
Speaker 3: data also has some inaccuracies in as well.

76
00:04:50,800 --> 00:04:54,160
Speaker 4: The answer to the question are there problems with government

77
00:04:54,560 --> 00:04:58,640
Speaker 4: statistics is always yes. And in this particular case, if

78
00:04:58,640 --> 00:05:01,960
Speaker 4: we're not confident about prices that they may be softer

79
00:05:02,240 --> 00:05:06,640
Speaker 4: in measurement than they actually are, then real activity is

80
00:05:06,760 --> 00:05:11,880
Speaker 4: going to be stronger because you're dividing nominal activity, which

81
00:05:11,880 --> 00:05:16,919
Speaker 4: you're pretty confident about by a mismeasured price level. So

82
00:05:17,200 --> 00:05:20,599
Speaker 4: I think there was always an upside tail risk to

83
00:05:21,560 --> 00:05:25,560
Speaker 4: this GDP print. It turned out to be even further upside.

84
00:05:25,839 --> 00:05:30,000
Speaker 6: I wonder what you make a policy that seems stimulative

85
00:05:30,480 --> 00:05:33,160
Speaker 6: in the new year. Right, we've got the tax refunds

86
00:05:33,160 --> 00:05:34,400
Speaker 6: coming from the one.

87
00:05:34,279 --> 00:05:35,760
Speaker 5: Big beautiful bill.

88
00:05:36,880 --> 00:05:39,360
Speaker 6: You know, we're dumping tens of billions of dollars out

89
00:05:39,400 --> 00:05:42,800
Speaker 6: of helicopters on farmers in the Midwest because the Chinese

90
00:05:42,839 --> 00:05:46,680
Speaker 6: aren't buying soybeans, and now President Trump wants to send

91
00:05:46,880 --> 00:05:51,880
Speaker 6: I guess some kind of warrior dividend to soldiers did too,

92
00:05:52,000 --> 00:05:54,920
Speaker 6: as well as a tariff dividend to most of most

93
00:05:54,960 --> 00:06:00,360
Speaker 6: American people. While tariffs are pushing prices higher, that set

94
00:06:00,440 --> 00:06:03,320
Speaker 6: us up for a bad inflation picture, and the FED

95
00:06:03,320 --> 00:06:05,359
Speaker 6: cutting rates obviously a bad inflation picture.

96
00:06:05,400 --> 00:06:08,159
Speaker 5: In twenty twenty six, I do.

97
00:06:08,040 --> 00:06:13,240
Speaker 4: Believe that tariffs ultimately passed through to consumer prices. And

98
00:06:13,600 --> 00:06:16,599
Speaker 4: two things have happened. One is we haven't seen all

99
00:06:16,640 --> 00:06:21,320
Speaker 4: the pass through of the increase in tariffs we've already gotten,

100
00:06:21,960 --> 00:06:24,680
Speaker 4: and that over the course of the year, the effective

101
00:06:24,760 --> 00:06:28,919
Speaker 4: tariff rate kept rising. So you're exactly right, there's more

102
00:06:29,080 --> 00:06:33,080
Speaker 4: tariff feed through the consumer prices. That's why in our

103
00:06:33,120 --> 00:06:37,479
Speaker 4: own forecast we think that the insurance the feeder reserve

104
00:06:37,600 --> 00:06:41,039
Speaker 4: bought by cutting rates will be expensive next year. It's

105
00:06:41,080 --> 00:06:45,559
Speaker 4: going to even further delay get into a two percent goal.

106
00:06:46,520 --> 00:06:50,880
Speaker 4: But you know better, recognize, Matt, that Congress set up

107
00:06:51,000 --> 00:06:55,279
Speaker 4: the FED for exactly this tension by giving it a

108
00:06:55,360 --> 00:06:59,760
Speaker 4: dual mandate. It's supposed to foster maximum employment and stable

109
00:07:01,120 --> 00:07:06,240
Speaker 4: in an environment in which, yeah, you're not happy with inflation.

110
00:07:06,839 --> 00:07:09,760
Speaker 4: It's not at its goal of two percent, but it's

111
00:07:09,800 --> 00:07:13,120
Speaker 4: a lot closer to two percent than it was previously.

112
00:07:13,800 --> 00:07:19,800
Speaker 4: It weighs deviations on the employment mandate a little more heavily,

113
00:07:20,440 --> 00:07:23,680
Speaker 4: and in this case it's potential deviations. It's just worried

114
00:07:23,720 --> 00:07:27,960
Speaker 4: about the slowness of the employment growth, the low hire,

115
00:07:28,120 --> 00:07:30,720
Speaker 4: low fire labor market.

116
00:07:31,000 --> 00:07:31,840
Speaker 1: When it comes to inflation.

117
00:07:31,840 --> 00:07:33,920
Speaker 3: Though, we hear from the Treasury Secretary yesterday he said,

118
00:07:33,960 --> 00:07:37,200
Speaker 3: once it's re anchored, there should be a discussion about

119
00:07:37,280 --> 00:07:38,480
Speaker 3: targeting a range.

120
00:07:38,680 --> 00:07:40,080
Speaker 1: Do you think that's appropriate, Vincent?

121
00:07:41,840 --> 00:07:46,640
Speaker 4: So, in effect, the feeder reserves hasn't been at two

122
00:07:46,680 --> 00:07:50,960
Speaker 4: percent in a long time, and only in passing. For

123
00:07:51,000 --> 00:07:56,800
Speaker 4: a long stretch before two thousand and twenty, inflation was

124
00:07:57,160 --> 00:08:01,720
Speaker 4: below the federal reserves goal. A range makes sense, it

125
00:08:01,760 --> 00:08:06,920
Speaker 4: works for other economies. And you know, the reality is

126
00:08:07,640 --> 00:08:13,320
Speaker 4: the federers are asserted two percent was its numerical definition

127
00:08:13,440 --> 00:08:18,000
Speaker 4: of inflation, after getting frustrated that it couldn't have a

128
00:08:18,040 --> 00:08:22,200
Speaker 4: good conversation with its leaders, i e. The Congress about

129
00:08:22,280 --> 00:08:26,320
Speaker 4: how to make specific the goal. So yes, I think

130
00:08:26,440 --> 00:08:31,600
Speaker 4: if the Treasury is signaling it's time to think hard

131
00:08:31,680 --> 00:08:34,600
Speaker 4: about what the federal reserve goal should be. That that

132
00:08:34,640 --> 00:08:36,160
Speaker 4: should be welcome, Vince.

133
00:08:36,200 --> 00:08:39,240
Speaker 6: I wonder what your take is on where the tenure

134
00:08:39,480 --> 00:08:40,280
Speaker 6: yield is going.

135
00:08:40,320 --> 00:08:41,200
Speaker 5: I keep having this.

136
00:08:41,200 --> 00:08:44,880
Speaker 6: Fight with chat GPT, which tells me that the bond

137
00:08:44,960 --> 00:08:48,240
Speaker 6: vigilantes are back. But I'm looking at four seventeen on

138
00:08:48,320 --> 00:08:51,160
Speaker 6: the tenure and like seventy points on the twos tens.

139
00:08:51,240 --> 00:08:53,920
Speaker 6: It doesn't look that bad to me. Do you think

140
00:08:53,960 --> 00:08:55,120
Speaker 6: yield are going to go higher?

141
00:08:56,880 --> 00:09:00,760
Speaker 4: So you know that's that's always a deep frustration, right.

142
00:09:00,840 --> 00:09:04,520
Speaker 4: I come from a family in which we all worry

143
00:09:04,559 --> 00:09:11,400
Speaker 4: about the federal debt and the untep tethered path for

144
00:09:12,160 --> 00:09:18,280
Speaker 4: the deficits. We all worry about central bank independence, what's

145
00:09:18,320 --> 00:09:21,840
Speaker 4: going to happen as the federals are changes next year.

146
00:09:22,200 --> 00:09:24,640
Speaker 4: But the fact is you don't really see it much

147
00:09:24,679 --> 00:09:29,439
Speaker 4: in inflation and inflation inflation expectations. Markets aren't really pricing

148
00:09:29,520 --> 00:09:33,440
Speaker 4: in a lot a lot of worries. I think we're

149
00:09:33,440 --> 00:09:38,280
Speaker 4: in an environment in which employment is close to maximum,

150
00:09:38,440 --> 00:09:43,319
Speaker 4: inflation is not that far away from the long run goal,

151
00:09:44,040 --> 00:09:48,720
Speaker 4: and so we're pretty much priced for an economy that's

152
00:09:48,840 --> 00:09:54,160
Speaker 4: performing well, we haven't been stressed, and what you worry about.

153
00:09:54,160 --> 00:09:57,839
Speaker 4: What I worry about is exactly what will happen when

154
00:09:57,880 --> 00:10:01,079
Speaker 4: we're stressed, and bond markets are are particularly good at

155
00:10:01,080 --> 00:10:04,040
Speaker 4: pricing in an unknown future stress.

156
00:10:05,720 --> 00:10:08,560
Speaker 2: Stay with us multiple inpex Savanna's coming up.

157
00:10:08,720 --> 00:10:09,240
Speaker 5: Off to this.

158
00:10:18,360 --> 00:10:21,280
Speaker 3: Dan Scale of Morgan Stanley Wealth Management says the outlook

159
00:10:21,280 --> 00:10:24,439
Speaker 3: into twenty twenty six remains constructive, supported by increased m

160
00:10:24,440 --> 00:10:28,280
Speaker 3: and a broadening out of earnings growth, AI diffusion, deregulation

161
00:10:28,640 --> 00:10:30,000
Speaker 3: and fiscal stimulus.

162
00:10:30,080 --> 00:10:31,960
Speaker 1: Dan, thank you so much for joining us to see Amy.

163
00:10:32,000 --> 00:10:33,360
Speaker 1: I want to first get your reaction. What's going on

164
00:10:33,400 --> 00:10:34,560
Speaker 1: with this GDP number.

165
00:10:34,960 --> 00:10:37,160
Speaker 3: No one was expecting this big of a print, this

166
00:10:37,240 --> 00:10:40,040
Speaker 3: high of a print increase at four point three percent

167
00:10:40,160 --> 00:10:43,440
Speaker 3: that followed three point eight percent growth. What's going on here?

168
00:10:43,480 --> 00:10:47,240
Speaker 3: We actually seeing a robust economy. There's some data distortion, yes.

169
00:10:47,080 --> 00:10:50,000
Speaker 7: So I think what we're seeing is this paradigm shift continue.

170
00:10:50,000 --> 00:10:52,520
Speaker 7: And we've seen this over the last several years where

171
00:10:52,520 --> 00:10:55,240
Speaker 7: when you look at the majority of spending in the economy,

172
00:10:55,240 --> 00:10:59,319
Speaker 7: what's driving the economy, it's AI spending, its services powered

173
00:10:59,320 --> 00:11:03,000
Speaker 7: by high income consumers and all of those cohorts continue

174
00:11:03,040 --> 00:11:06,040
Speaker 7: to hum along really strongly. So there's really been no

175
00:11:06,240 --> 00:11:08,199
Speaker 7: change in that aspect of the economy.

176
00:11:08,400 --> 00:11:12,200
Speaker 3: We see the entire yield curve shift higher swing just

177
00:11:12,280 --> 00:11:13,200
Speaker 3: off this report.

178
00:11:13,320 --> 00:11:15,880
Speaker 7: What does that mean for the depth asty So it's

179
00:11:15,920 --> 00:11:18,560
Speaker 7: not particularly positive, and we may hear an update in

180
00:11:18,600 --> 00:11:21,280
Speaker 7: the coming weeks related to the Supreme Court ruling related

181
00:11:21,280 --> 00:11:24,800
Speaker 7: to the Emergency Power authority or not. And so look,

182
00:11:24,840 --> 00:11:27,439
Speaker 7: I think be careful what you wish for Emory, because

183
00:11:27,800 --> 00:11:30,760
Speaker 7: higher yields is not necessarily supportive of higher multiples.

184
00:11:31,120 --> 00:11:35,600
Speaker 6: But we I mean, I'm assuming the reaction is because

185
00:11:35,640 --> 00:11:38,040
Speaker 6: this number is so high, there's much less of a

186
00:11:38,160 --> 00:11:40,760
Speaker 6: chance that the Fed cuts rates in January. So you

187
00:11:40,800 --> 00:11:42,680
Speaker 6: might as well buy the paper that's there now rather

188
00:11:42,720 --> 00:11:43,840
Speaker 6: than the paper post cut.

189
00:11:44,000 --> 00:11:45,720
Speaker 7: Yeah, I think that makes sense, Matt, And it's good

190
00:11:45,720 --> 00:11:47,840
Speaker 7: to see you as well. And look, we've been saying

191
00:11:48,280 --> 00:11:51,000
Speaker 7: persistently that the five to seven year part of the

192
00:11:51,040 --> 00:11:54,040
Speaker 7: curve is where we see value. We had been hesitant

193
00:11:54,080 --> 00:11:56,920
Speaker 7: to extend that much out on the duration side of things.

194
00:11:57,240 --> 00:11:59,280
Speaker 7: And look, I think on the equity front, just coming

195
00:11:59,320 --> 00:12:01,280
Speaker 7: back to stock, I think it's going to be a

196
00:12:01,320 --> 00:12:04,680
Speaker 7: continuation of this cyclical rotation that we've seen really in

197
00:12:04,720 --> 00:12:06,679
Speaker 7: the past one to two months.

198
00:12:06,480 --> 00:12:11,640
Speaker 6: We do have increasingly bullish expectations for earnings in twenty

199
00:12:11,679 --> 00:12:13,760
Speaker 6: twenty six. I mean, it's not like the FED is

200
00:12:13,760 --> 00:12:16,800
Speaker 6: the only thing that drives markets, right. Obviously, the real

201
00:12:16,840 --> 00:12:19,760
Speaker 6: economy is important, and I'm hearing from economists been talking

202
00:12:19,760 --> 00:12:22,520
Speaker 6: to Joe Bruce wlis here in my IB chat that

203
00:12:22,800 --> 00:12:25,680
Speaker 6: he still sees strong growth, strong final demand.

204
00:12:26,240 --> 00:12:29,120
Speaker 7: Listen, if we're running out of seven percent nominal GDP,

205
00:12:29,559 --> 00:12:31,679
Speaker 7: we would hope that the average company is going to

206
00:12:31,720 --> 00:12:35,040
Speaker 7: see revenues increase, right, because there's some correlation there. But

207
00:12:35,120 --> 00:12:37,439
Speaker 7: I think the big catalyst for next year, Matt, is

208
00:12:37,480 --> 00:12:40,840
Speaker 7: all about AI monetization. We've been waiting for good doo

209
00:12:41,120 --> 00:12:43,680
Speaker 7: in terms of when does AI spread out from the

210
00:12:43,760 --> 00:12:46,000
Speaker 7: mag seven to the rest of the fortune one hundred

211
00:12:46,320 --> 00:12:48,640
Speaker 7: and Frankly, I think that's where we could see upside surprise.

212
00:12:48,720 --> 00:12:51,640
Speaker 6: Lys Can I just say that this goes along with

213
00:12:51,800 --> 00:12:57,839
Speaker 6: Joe's decoupling theory. So if that's what's driving higher corporate profits, right,

214
00:12:57,920 --> 00:12:59,240
Speaker 6: it's not going to help labor.

215
00:12:59,320 --> 00:13:00,960
Speaker 5: We're not going to see a lot of hiring on

216
00:13:01,000 --> 00:13:02,440
Speaker 5: the back of that, No doubt.

217
00:13:02,440 --> 00:13:03,320
Speaker 4: It's an excellent point.

218
00:13:03,320 --> 00:13:05,720
Speaker 7: And look, we've observed over the last six months a

219
00:13:05,800 --> 00:13:09,480
Speaker 7: huge divergence between jolts and jobs opening and the SMP.

220
00:13:09,920 --> 00:13:11,679
Speaker 7: And so we do feel like in terms of that

221
00:13:11,720 --> 00:13:14,679
Speaker 7: phrase again paradigm shifts that's going on in the equity

222
00:13:14,679 --> 00:13:15,320
Speaker 7: market as well.

223
00:13:15,400 --> 00:13:17,680
Speaker 5: Ultimately, we think stocks follow earning.

224
00:13:17,760 --> 00:13:20,439
Speaker 7: So while we could see some marginal degradation on the

225
00:13:20,520 --> 00:13:22,360
Speaker 7: labor front, we don't think it's going to matter as

226
00:13:22,440 --> 00:13:23,440
Speaker 7: much this time around.

227
00:13:23,559 --> 00:13:25,640
Speaker 3: And you only have one FED cut baked in for

228
00:13:25,720 --> 00:13:29,400
Speaker 3: next year. If we're seeing get unemployment rate that goes higher,

229
00:13:30,040 --> 00:13:35,480
Speaker 3: how does the FED calibrate for that AI induced job losses?

230
00:13:35,840 --> 00:13:37,040
Speaker 5: Such a tough question.

231
00:13:37,120 --> 00:13:39,920
Speaker 7: And look, the FED is an uncharted territory, no doubt,

232
00:13:40,400 --> 00:13:42,520
Speaker 7: the old playbook doesn't apply as much. When we talk

233
00:13:42,520 --> 00:13:45,600
Speaker 7: about an economy that's powered by high income consumers, they're

234
00:13:45,640 --> 00:13:48,560
Speaker 7: not as rayed sensitive. So by cutting too much, you

235
00:13:48,679 --> 00:13:52,280
Speaker 7: run the risk of creating too much inflation, thereby hurting

236
00:13:52,360 --> 00:13:55,520
Speaker 7: the ninety percent of the population that is inflation sensitive.

237
00:13:55,880 --> 00:13:57,679
Speaker 7: And so look, Emery, if I think we're going to

238
00:13:57,720 --> 00:13:59,480
Speaker 7: be surprised it's going to be that the FED doesn't

239
00:13:59,480 --> 00:14:00,840
Speaker 7: cut as much next year.

240
00:14:01,000 --> 00:14:02,280
Speaker 1: How difficult is that going to be?

241
00:14:02,320 --> 00:14:05,760
Speaker 3: Politically, given the fact that the one question the President

242
00:14:05,800 --> 00:14:07,960
Speaker 3: at least I have reporting on he asked last time

243
00:14:08,000 --> 00:14:10,680
Speaker 3: around for individuals who wanted to become FED chair, was

244
00:14:11,000 --> 00:14:12,160
Speaker 3: are you going to cut interest rates?

245
00:14:12,760 --> 00:14:15,320
Speaker 7: And look, I think it's very thorny issue. Obviously it's

246
00:14:15,360 --> 00:14:18,920
Speaker 7: above my pay grade. But my speculation is whoever is

247
00:14:18,960 --> 00:14:21,680
Speaker 7: in the chair is going to be Dubvish leaning. So

248
00:14:21,720 --> 00:14:24,960
Speaker 7: the short end, no doubt, is likely to perhaps stay

249
00:14:25,000 --> 00:14:28,560
Speaker 7: politically influenced, but it doesn't also entail the long end following,

250
00:14:28,840 --> 00:14:30,200
Speaker 7: and so we may be kind of stuck in the

251
00:14:30,280 --> 00:14:32,080
Speaker 7: mud in terms of this higher for longer long end.

252
00:14:32,120 --> 00:14:34,480
Speaker 6: Yeah, this is I think the concern of many that

253
00:14:34,560 --> 00:14:37,240
Speaker 6: the long end will continue to rise towardston slock from

254
00:14:37,280 --> 00:14:39,040
Speaker 6: Apollo putting out a chart this morning.

255
00:14:39,080 --> 00:14:41,640
Speaker 5: Everybody reads his charts showing.

256
00:14:41,320 --> 00:14:45,400
Speaker 6: That global yields could pull the US treasury yield higher.

257
00:14:45,640 --> 00:14:48,920
Speaker 6: This is really a conundrum for the FED, for the administration,

258
00:14:49,000 --> 00:14:49,400
Speaker 6: isn't it?

259
00:14:49,720 --> 00:14:50,320
Speaker 5: Absolutely?

260
00:14:50,360 --> 00:14:52,240
Speaker 7: And to your point on global yields, look at what's

261
00:14:52,280 --> 00:14:54,640
Speaker 7: going on in Japan, right, So we're in a phase

262
00:14:54,680 --> 00:14:58,160
Speaker 7: here where Japan is seeing two percent long bonds and

263
00:14:58,520 --> 00:15:00,720
Speaker 7: that could have some upward drift higher and thus kind

264
00:15:00,720 --> 00:15:02,160
Speaker 7: of take global yields along with it.

265
00:15:02,240 --> 00:15:04,960
Speaker 6: How does this stock market deal with I don't know

266
00:15:05,160 --> 00:15:08,800
Speaker 6: what the correct phrase is, but an increasingly ca shaped economy,

267
00:15:08,880 --> 00:15:11,160
Speaker 6: right because that sort of sounds like it's happening.

268
00:15:11,000 --> 00:15:12,200
Speaker 5: So it's an excellent question.

269
00:15:12,280 --> 00:15:15,760
Speaker 7: The stock market's response over the last several years has

270
00:15:15,800 --> 00:15:18,600
Speaker 7: been increased narrowing up until this year. This is the

271
00:15:18,600 --> 00:15:20,880
Speaker 7: first year where we've seen the mag seven go from

272
00:15:20,920 --> 00:15:24,240
Speaker 7: a monolith everything up in tandem to a peloton where

273
00:15:24,240 --> 00:15:28,120
Speaker 7: there's actual differentiation between the mag seven. Money center banks

274
00:15:28,120 --> 00:15:30,840
Speaker 7: are leading, and finally you've seen healthcare leading as of

275
00:15:30,840 --> 00:15:32,880
Speaker 7: the last three months. So I think what the market

276
00:15:32,920 --> 00:15:35,800
Speaker 7: is saying is that earnings matter more than ever right now,

277
00:15:36,040 --> 00:15:39,160
Speaker 7: and even though we're in this extremely unique economic and

278
00:15:39,560 --> 00:15:42,920
Speaker 7: kind of socioeconomic paradigm shift, I think earnings are going

279
00:15:42,960 --> 00:15:44,320
Speaker 7: to be what drives stock prices.

280
00:15:44,440 --> 00:15:46,960
Speaker 3: What do you make of the potential policies we're going

281
00:15:47,000 --> 00:15:48,720
Speaker 3: to get next year. I know we're going to get

282
00:15:48,760 --> 00:15:51,320
Speaker 3: the tax refunds with the Treasury Secretary loves to talk about.

283
00:15:51,360 --> 00:15:52,720
Speaker 3: You think that's going to be huge, But a lot

284
00:15:52,720 --> 00:15:55,720
Speaker 3: of people say, actually, consumers know that that's coming, so

285
00:15:55,760 --> 00:15:58,640
Speaker 3: they're spending now the President, though, is also talking about

286
00:15:58,640 --> 00:16:00,720
Speaker 3: two thousand dollars.

287
00:16:00,120 --> 00:16:01,240
Speaker 1: If dividend checks.

288
00:16:01,600 --> 00:16:03,800
Speaker 3: Is this all going to create a more complicated picture

289
00:16:03,800 --> 00:16:06,320
Speaker 3: when it comes to inflation, It could very well.

290
00:16:06,360 --> 00:16:08,880
Speaker 7: And frankly, going back to our earlier thread related to

291
00:16:09,360 --> 00:16:13,880
Speaker 7: monetary poly monetary policy helping kind of middle income consumers,

292
00:16:14,080 --> 00:16:16,040
Speaker 7: we actually do think it's going to be more on

293
00:16:16,040 --> 00:16:18,680
Speaker 7: the fiscal side, And frankly, some of this may not

294
00:16:18,880 --> 00:16:21,840
Speaker 7: coincidentally be timed in front of the midterms next year,

295
00:16:21,840 --> 00:16:24,880
Speaker 7: where affordability and some of these other strains are starting

296
00:16:24,920 --> 00:16:28,440
Speaker 7: to percolate in surveys and actual voting results, and so

297
00:16:28,560 --> 00:16:31,320
Speaker 7: we think again, fiscal policy is going to run it

298
00:16:31,360 --> 00:16:32,000
Speaker 7: hot next year.

299
00:16:33,520 --> 00:16:37,200
Speaker 2: Stay with US multile Impex Savanna's coming up off to this.

300
00:16:46,160 --> 00:16:49,720
Speaker 3: Stocks on pause after closing near record highs. Mona Mahajan

301
00:16:49,880 --> 00:16:52,800
Speaker 3: of Edward Jones with a constructive outlook for next year,

302
00:16:52,920 --> 00:16:57,200
Speaker 3: writing elevated tech valuations, improving liquidity and better earnings momentum

303
00:16:57,240 --> 00:17:02,280
Speaker 3: across cyclicals, midcaps and international equity support a potential rotation,

304
00:17:02,480 --> 00:17:05,440
Speaker 3: Mona joins US Now, Mona, what gives you the confidence

305
00:17:05,480 --> 00:17:08,280
Speaker 3: that we're actually going to see a real rotation when

306
00:17:08,280 --> 00:17:10,800
Speaker 3: it comes to equities because we have been here before,

307
00:17:10,880 --> 00:17:13,000
Speaker 3: we have seen a lot of fall starts.

308
00:17:13,600 --> 00:17:15,000
Speaker 1: Yeah, it's a great call out.

309
00:17:15,040 --> 00:17:18,800
Speaker 8: Look, it's year three now of growth outperforming value of

310
00:17:18,920 --> 00:17:22,680
Speaker 8: technology and AI leading the charge higher. But one thing

311
00:17:22,720 --> 00:17:25,399
Speaker 8: that we watched carefully is, of course earnings growth and

312
00:17:25,480 --> 00:17:29,320
Speaker 8: earnings growth for twenty twenty six. First we think continues

313
00:17:29,359 --> 00:17:32,080
Speaker 8: to look like it will head towards double digits. But

314
00:17:32,119 --> 00:17:34,639
Speaker 8: the good news is underneath the surface there is both

315
00:17:34,720 --> 00:17:37,680
Speaker 8: tech and non tech parts of market that is driving

316
00:17:37,680 --> 00:17:39,960
Speaker 8: that charge higher. And that is a difference from what

317
00:17:40,000 --> 00:17:42,199
Speaker 8: we've seen in twenty twenty five and really in the

318
00:17:42,240 --> 00:17:44,919
Speaker 8: last couple of years, where it is the tech earnings

319
00:17:44,920 --> 00:17:47,560
Speaker 8: that have driven most of the S and P corporate profits.

320
00:17:47,920 --> 00:17:51,399
Speaker 8: So next year, more balance between growth, cyclical and value

321
00:17:51,480 --> 00:17:54,000
Speaker 8: driving earnings growth higher. And by the way, as we

322
00:17:54,040 --> 00:17:56,560
Speaker 8: think about a FED that is cutting rates, that is

323
00:17:56,560 --> 00:18:00,880
Speaker 8: an environment where valuations tend to expand see that much

324
00:18:00,880 --> 00:18:03,800
Speaker 8: scope for valuation expansion in the tech and growth parts

325
00:18:03,840 --> 00:18:06,520
Speaker 8: of the market. They've already seen some of that occur,

326
00:18:06,680 --> 00:18:09,720
Speaker 8: but we do see potentially that scope for valuation expansion

327
00:18:09,720 --> 00:18:12,040
Speaker 8: in that four ninety three. So a couple of factors

328
00:18:12,040 --> 00:18:14,439
Speaker 8: that could drive that part of the market higher and

329
00:18:14,520 --> 00:18:15,360
Speaker 8: drive that rotation.

330
00:18:15,840 --> 00:18:17,320
Speaker 5: Does the Fed need to be cutting rates?

331
00:18:17,359 --> 00:18:19,480
Speaker 6: I mean, if we're at three plus percent in terms

332
00:18:19,520 --> 00:18:23,359
Speaker 6: of GDP growth, A lot of Republicans are saying maybe four.

333
00:18:23,440 --> 00:18:26,320
Speaker 6: I saw Art Laugher on Fox yesterday say five percent

334
00:18:28,040 --> 00:18:31,840
Speaker 6: and inflation is at three unless you believe the last

335
00:18:31,880 --> 00:18:34,280
Speaker 6: set of CPI numbers that we got, Does the Fed

336
00:18:34,320 --> 00:18:35,480
Speaker 6: really need to be cutting rates?

337
00:18:36,280 --> 00:18:36,480
Speaker 4: Yeah?

338
00:18:36,520 --> 00:18:39,359
Speaker 8: You know, look, we don't think that's a prerequisite for

339
00:18:39,400 --> 00:18:42,800
Speaker 8: the markets to continue to perform. Well here we know that,

340
00:18:43,200 --> 00:18:45,520
Speaker 8: in fact, the economy has grown. When the FED was

341
00:18:45,560 --> 00:18:48,960
Speaker 8: at four and a quarter five percent, we have not seen,

342
00:18:49,119 --> 00:18:51,160
Speaker 8: you know, some of those recessionary conditions over the last

343
00:18:51,160 --> 00:18:54,040
Speaker 8: couple of years that many economists had been calling for.

344
00:18:54,160 --> 00:18:56,960
Speaker 8: So as we look towards twenty twenty six, where the

345
00:18:56,960 --> 00:18:59,639
Speaker 8: Fed has brought rates down to under four percent, now

346
00:19:00,240 --> 00:19:03,159
Speaker 8: we think the base case and what markets are pricing,

347
00:19:03,160 --> 00:19:05,959
Speaker 8: which is one or two more potential rate cuts, is

348
00:19:06,119 --> 00:19:08,960
Speaker 8: a reasonable kind of base case scenario for twenty twenty

349
00:19:09,000 --> 00:19:12,439
Speaker 8: six if you think inflation kind of ends in this

350
00:19:12,560 --> 00:19:16,800
Speaker 8: two and a half percent range or lands there. Typically

351
00:19:16,840 --> 00:19:19,760
Speaker 8: the FED likes to bring Fed funds rate about seventy

352
00:19:19,760 --> 00:19:21,840
Speaker 8: five to one hundred basis points above that level, So

353
00:19:22,040 --> 00:19:23,760
Speaker 8: kind of three and a half percent seems like a

354
00:19:23,760 --> 00:19:25,200
Speaker 8: fair value for the Fed funds rate.

355
00:19:25,320 --> 00:19:27,520
Speaker 6: By the way, Mona, we've seen I think one hundred

356
00:19:27,520 --> 00:19:30,800
Speaker 6: and seventy five basis points of rate cuts since September

357
00:19:30,840 --> 00:19:34,520
Speaker 6: of twenty four, and in that time, the ten year yield.

358
00:19:34,440 --> 00:19:36,600
Speaker 5: Is up like fifty or sixty basis points.

359
00:19:36,760 --> 00:19:38,720
Speaker 6: And Tourist and Slock from Apollo out with a note

360
00:19:38,720 --> 00:19:45,080
Speaker 6: today showing that we have German yields rising, Japanese Japanese

361
00:19:45,160 --> 00:19:49,440
Speaker 6: yields rising, really highlighting the concern that a lot of

362
00:19:49,440 --> 00:19:52,680
Speaker 6: people share global yields are going to continue to pull

363
00:19:53,000 --> 00:19:55,760
Speaker 6: us longer term yields up. Does that worry you as well?

364
00:19:56,600 --> 00:19:59,280
Speaker 8: Yeah, you know, look, our outlook for twenty twenty six

365
00:19:59,320 --> 00:20:01,439
Speaker 8: calls for a ten that stays in this four to

366
00:20:01,480 --> 00:20:03,040
Speaker 8: four and a half percent range.

367
00:20:03,560 --> 00:20:05,040
Speaker 1: We think, you know, the long.

368
00:20:04,920 --> 00:20:07,440
Speaker 8: End of the yield curve will be driven by one

369
00:20:07,520 --> 00:20:11,680
Speaker 8: better economic fundamentals in the US, but two global markets,

370
00:20:11,680 --> 00:20:15,280
Speaker 8: as you noted, are also expected to see a real

371
00:20:15,359 --> 00:20:18,439
Speaker 8: meaningful pickup in earnings growth next year as well. So

372
00:20:18,480 --> 00:20:22,240
Speaker 8: there are global factors that are driving the US yield higher. Now,

373
00:20:22,320 --> 00:20:25,280
Speaker 8: keep in mind four four and a half percent if

374
00:20:25,320 --> 00:20:28,000
Speaker 8: you look over a fifteen year horizon, this is still

375
00:20:28,000 --> 00:20:31,000
Speaker 8: towards the high end of a ten year yield versus

376
00:20:31,040 --> 00:20:31,679
Speaker 8: that history.

377
00:20:31,760 --> 00:20:33,760
Speaker 1: And for investors that are.

378
00:20:33,640 --> 00:20:36,920
Speaker 8: In retirement near retirement, we're just looking for income. We're

379
00:20:37,000 --> 00:20:41,600
Speaker 8: still looking at a pretty attractive value from an investment

380
00:20:41,640 --> 00:20:45,480
Speaker 8: grade type bond market. Where you are getting four percent

381
00:20:45,600 --> 00:20:47,840
Speaker 8: yield is close to you know, that six seven percent

382
00:20:48,040 --> 00:20:50,320
Speaker 8: all in income that you'd like to see, and by

383
00:20:50,320 --> 00:20:51,560
Speaker 8: the way, above the rate of.

384
00:20:51,480 --> 00:20:52,240
Speaker 1: Inflation as well.

385
00:20:52,280 --> 00:20:54,400
Speaker 8: So we think balanced portfolios make a lot of sense

386
00:20:54,440 --> 00:20:55,720
Speaker 8: heading into twenty twenty six.

387
00:20:55,960 --> 00:20:58,479
Speaker 3: When it comes to inflation, the debate isn't over, As

388
00:20:58,880 --> 00:21:01,119
Speaker 3: you mentioned in your nodes. What do you make of

389
00:21:01,160 --> 00:21:04,199
Speaker 3: what we've heard recently from Beth Hammeck saying that she

390
00:21:04,320 --> 00:21:06,919
Speaker 3: wants to maintain policy right now and she's going to

391
00:21:06,920 --> 00:21:09,920
Speaker 3: be a voting member next year, maintain policy right now

392
00:21:09,920 --> 00:21:11,640
Speaker 3: because she is concerned about inflation.

393
00:21:12,880 --> 00:21:15,639
Speaker 8: Yeah, you know, I think generally what we're seeing is

394
00:21:16,160 --> 00:21:18,560
Speaker 8: two parts of inflation, as we know, the goods inflation

395
00:21:18,680 --> 00:21:21,760
Speaker 8: and the services inflation. And the goods basket of CPI

396
00:21:21,920 --> 00:21:23,560
Speaker 8: is about a third of the basket, and we think

397
00:21:23,600 --> 00:21:26,760
Speaker 8: there is potential for upward pressure, especially in that first

398
00:21:26,800 --> 00:21:29,880
Speaker 8: half the year, as some of those terror rates continue

399
00:21:30,240 --> 00:21:32,360
Speaker 8: to flow through to the end markets and the end

400
00:21:32,359 --> 00:21:35,159
Speaker 8: consumer and consumer prices. But on the other hand, we

401
00:21:35,240 --> 00:21:38,480
Speaker 8: have the services inflation, and that's largely driven by shelter

402
00:21:38,560 --> 00:21:41,080
Speaker 8: and rent about seventy five percent of the basket. We

403
00:21:41,200 --> 00:21:43,360
Speaker 8: think there is a reasonable case to be made that

404
00:21:43,400 --> 00:21:46,760
Speaker 8: there could be at least some stabilization and even downward

405
00:21:46,800 --> 00:21:49,960
Speaker 8: pressure there, especially as some of the trends we've seen

406
00:21:50,000 --> 00:21:52,400
Speaker 8: recently in rent prices and home prices start to flow

407
00:21:52,440 --> 00:21:56,159
Speaker 8: through the CPI basket. And so we remain comfortable that

408
00:21:56,200 --> 00:21:59,359
Speaker 8: inflation hovers in this two and a half percent range.

409
00:21:59,400 --> 00:22:04,600
Speaker 8: We don't see necessarily reaccelerating unless there is some exogenous

410
00:22:04,600 --> 00:22:06,680
Speaker 8: shock to the system. So we think two and a

411
00:22:06,720 --> 00:22:09,000
Speaker 8: half to three percent remains a reasonable base case for

412
00:22:09,040 --> 00:22:11,720
Speaker 8: next year on inflation. We think that still gives the

413
00:22:11,760 --> 00:22:13,639
Speaker 8: Fed a little bit of room to bring rates, as

414
00:22:13,680 --> 00:22:15,280
Speaker 8: we talked about to that three and a half percent

415
00:22:15,280 --> 00:22:16,000
Speaker 8: Fed funds rate.

416
00:22:16,160 --> 00:22:18,400
Speaker 1: I think the consumer can hold up in that environment.

417
00:22:20,000 --> 00:22:21,960
Speaker 8: Yeah, you know, we think the consumer is held up

418
00:22:21,960 --> 00:22:25,080
Speaker 8: in an environment even more severe than that over the

419
00:22:25,200 --> 00:22:27,840
Speaker 8: last year or two, and as rates move lower that

420
00:22:27,880 --> 00:22:31,119
Speaker 8: should be supportive of of course consumer borrowing costs and

421
00:22:31,560 --> 00:22:34,200
Speaker 8: corporate borring costs, especially in the short end of the curve.

422
00:22:35,040 --> 00:22:37,960
Speaker 8: But as we know in the US, you know, many

423
00:22:38,000 --> 00:22:40,200
Speaker 8: have talked about this the ke shaped consumer or the

424
00:22:40,240 --> 00:22:43,840
Speaker 8: bifurcated consumer, and we know that low and middle income

425
00:22:43,920 --> 00:22:48,000
Speaker 8: consumer is still perhaps struggling a bit to keep up

426
00:22:48,040 --> 00:22:52,280
Speaker 8: after years of elevated inflation. But in the US, it

427
00:22:52,359 --> 00:22:55,240
Speaker 8: is really the middle and upper income consumer that drive

428
00:22:55,400 --> 00:22:58,199
Speaker 8: economic growth, and they of course have benefited from the

429
00:22:58,200 --> 00:23:02,680
Speaker 8: wealth effects of better stock market prices, stabilization in home prices,

430
00:23:02,680 --> 00:23:06,639
Speaker 8: in real estate, and so overall we're seeing the economic

431
00:23:06,680 --> 00:23:09,760
Speaker 8: growth pictures stabilize and even improve in recent years.

432
00:23:10,800 --> 00:23:14,280
Speaker 2: Stay with us multiple impex Savannah's coming up off to this.

433
00:23:22,920 --> 00:23:26,439
Speaker 3: Warner Brothers reviewing Paramount's beefed up bid after receiving Larry

434
00:23:26,440 --> 00:23:32,000
Speaker 3: Ellison's forty billion dollars personal guaranteed backstop the offer. The board, however,

435
00:23:32,160 --> 00:23:36,760
Speaker 3: not modifying its position, continuing to support Netflix competing bid.

436
00:23:36,920 --> 00:23:39,720
Speaker 3: Peter Subpino of Wolf Research joins us now for more.

437
00:23:40,240 --> 00:23:41,720
Speaker 1: Peter, I don't know where to start.

438
00:23:41,920 --> 00:23:44,119
Speaker 3: I cannot wait to watch the movie of how this

439
00:23:44,320 --> 00:23:46,040
Speaker 3: saga absolutely unfolded.

440
00:23:46,400 --> 00:23:48,119
Speaker 1: Who do you think is actually going to win out

441
00:23:48,160 --> 00:23:48,560
Speaker 1: in the end?

442
00:23:49,640 --> 00:23:52,520
Speaker 9: First, I want to crazy or not transition from obesity

443
00:23:52,600 --> 00:23:56,560
Speaker 9: drugs to studios beefing up on buying each other. We

444
00:23:56,640 --> 00:23:59,359
Speaker 9: think Paramount has a slight edge in what is a

445
00:23:59,440 --> 00:24:02,800
Speaker 9: really tight horse race. These horses are neck and neck.

446
00:24:03,600 --> 00:24:06,000
Speaker 9: The bids are tricky to compare. They're just a dollar

447
00:24:06,040 --> 00:24:08,760
Speaker 9: apart if you adjust for the various ways you should

448
00:24:08,840 --> 00:24:12,520
Speaker 9: adjust them. The Warner board seems to be thinking about

449
00:24:12,560 --> 00:24:15,640
Speaker 9: this like a house sale. Pretend you're selling your house

450
00:24:15,680 --> 00:24:19,800
Speaker 9: and there are multiple bidders. Price matters, and certainty of

451
00:24:19,920 --> 00:24:22,600
Speaker 9: getting the money matters, and that's where this process is

452
00:24:22,680 --> 00:24:23,040
Speaker 9: hung up.

453
00:24:24,119 --> 00:24:28,600
Speaker 3: So where the money matters, though, if you have Larry

454
00:24:28,640 --> 00:24:32,720
Speaker 3: Ellison not just backing this by forty billion dollars, they're

455
00:24:32,760 --> 00:24:36,800
Speaker 3: also talking about an increased offer when it comes to

456
00:24:36,880 --> 00:24:39,639
Speaker 3: the regulatory fee if this was to break down.

457
00:24:40,480 --> 00:24:42,880
Speaker 1: If this doesn't move, the board will anything.

458
00:24:44,760 --> 00:24:47,760
Speaker 9: So the board, in addition to being worried about price,

459
00:24:48,480 --> 00:24:51,600
Speaker 9: is also thinking about the condition in which the business

460
00:24:51,680 --> 00:24:56,600
Speaker 9: would exist if whatever deal they choose doesn't close. Both

461
00:24:56,640 --> 00:25:01,000
Speaker 9: of these bids face regulatory scrutiny. It's hard to forecast.

462
00:25:01,359 --> 00:25:07,360
Speaker 9: I mean, it's Trump and the plans for cost reductions

463
00:25:08,000 --> 00:25:10,639
Speaker 9: with the among inside of these two bids are very different.

464
00:25:10,720 --> 00:25:15,000
Speaker 9: So Paramount has planned six billion of cost reductions and

465
00:25:15,040 --> 00:25:18,640
Speaker 9: Netflix has planned three billion of cost reductions. And Netflix

466
00:25:19,200 --> 00:25:22,200
Speaker 9: plan is much more focused on streaming and technology costs,

467
00:25:22,560 --> 00:25:25,359
Speaker 9: while Paramount's plan is more focused on studio savings. And

468
00:25:25,880 --> 00:25:29,440
Speaker 9: that's where the Warner board gains comfort from Netflix because

469
00:25:29,440 --> 00:25:32,280
Speaker 9: they imagine if this deal were not to close, the

470
00:25:32,359 --> 00:25:35,280
Speaker 9: studio business would be healthier a year or two in

471
00:25:35,320 --> 00:25:35,760
Speaker 9: the future.

472
00:25:36,520 --> 00:25:40,400
Speaker 6: Peter, it does seem like the board doesn't matter as

473
00:25:40,440 --> 00:25:43,359
Speaker 6: much if you're going directly to shareholders, right, And that's

474
00:25:43,440 --> 00:25:48,440
Speaker 6: the one element that they didn't move. Paramount didn't move here.

475
00:25:48,480 --> 00:25:50,760
Speaker 6: I mean, shareholders don't really care that much if there's

476
00:25:50,800 --> 00:25:53,119
Speaker 6: a five point eight or a five point six or

477
00:25:53,160 --> 00:25:56,240
Speaker 6: a five point nine billion dollar breakup fee, Like, give

478
00:25:56,280 --> 00:25:58,760
Speaker 6: me the money, right, if it's thirty dollars a share

479
00:25:58,760 --> 00:26:00,720
Speaker 6: and make it thirty three. If that's not enough to

480
00:26:00,720 --> 00:26:03,040
Speaker 6: make it thirty five, why don't they just raise their offer?

481
00:26:04,600 --> 00:26:07,919
Speaker 9: We think that they will, and the stock market, the

482
00:26:08,040 --> 00:26:12,320
Speaker 9: arbitrage market, that is currently setting Warner Brothers price is

483
00:26:12,400 --> 00:26:16,960
Speaker 9: saying that Paramount or somebody will increase the offer price

484
00:26:17,560 --> 00:26:20,840
Speaker 9: in the meantime, though, the Paramount board needed to and did,

485
00:26:21,840 --> 00:26:24,640
Speaker 9: at least to an extent, address the Warner board's concerns

486
00:26:24,680 --> 00:26:30,000
Speaker 9: about certainty, and so the updated offer yesterday involved different

487
00:26:30,080 --> 00:26:33,840
Speaker 9: language about the financial guarantee from the Ellison family, and

488
00:26:33,880 --> 00:26:38,320
Speaker 9: it also involved a different language about revocability, which is

489
00:26:38,320 --> 00:26:42,320
Speaker 9: an arcane issue that matters to the Warner board. We

490
00:26:42,359 --> 00:26:46,639
Speaker 9: wonder about the language relating to material adverse changes. The

491
00:26:46,680 --> 00:26:50,720
Speaker 9: board also changed language about interim operating in financial controls

492
00:26:50,800 --> 00:26:53,600
Speaker 9: by Paramount. So they're getting into the details of contract

493
00:26:53,680 --> 00:26:55,760
Speaker 9: language to try to strike the best deal they can,

494
00:26:55,840 --> 00:26:57,560
Speaker 9: and price probably comes next.

495
00:26:58,119 --> 00:27:00,800
Speaker 6: It's interesting that they're still trying to appease the board

496
00:27:01,160 --> 00:27:02,440
Speaker 6: in a hostile takeover.

497
00:27:03,040 --> 00:27:05,480
Speaker 5: I wonder about the employees.

498
00:27:05,480 --> 00:27:08,200
Speaker 6: To your point, you know that Paramount wants to cut

499
00:27:08,240 --> 00:27:10,639
Speaker 6: six billion in costs in Netflix only three billion.

500
00:27:10,680 --> 00:27:12,480
Speaker 5: Of course, Netflix is not looking at.

501
00:27:12,359 --> 00:27:15,800
Speaker 6: The entire asset, right that would be split off or

502
00:27:15,800 --> 00:27:17,520
Speaker 6: the cable elements would be split off.

503
00:27:18,280 --> 00:27:21,280
Speaker 5: Michael Wolfe told me at one point.

504
00:27:21,000 --> 00:27:24,200
Speaker 6: That the creative community, though, is behind Paramount because they

505
00:27:24,280 --> 00:27:27,359
Speaker 6: believe that David Ellison wants to make movies and show

506
00:27:27,400 --> 00:27:32,360
Speaker 6: them in theaters, right, Whereas Netflix clearly has an adversity

507
00:27:32,520 --> 00:27:35,639
Speaker 6: that they want to be streaming everything and if it

508
00:27:35,680 --> 00:27:38,240
Speaker 6: goes to the theater, maybe for a week before streaming

509
00:27:38,320 --> 00:27:40,360
Speaker 6: released or at the same time, so it's a very

510
00:27:40,359 --> 00:27:41,160
Speaker 6: different scenario.

511
00:27:42,600 --> 00:27:47,159
Speaker 9: Theaters are a consideration for the Hollywood community, as is

512
00:27:47,200 --> 00:27:51,879
Speaker 9: the existence of a third studio based streaming service. So

513
00:27:51,960 --> 00:27:55,800
Speaker 9: imagine the streaming industry a few years from now, as

514
00:27:55,840 --> 00:28:00,000
Speaker 9: linear TV continues its gradual but inexorable decline and streaming

515
00:28:00,119 --> 00:28:04,159
Speaker 9: continues to rise. With this combination, it seems credible to

516
00:28:04,240 --> 00:28:08,280
Speaker 9: expect the paramount Warner entity to compete head to head

517
00:28:08,280 --> 00:28:12,399
Speaker 9: with Netflix and Disney among the streaming services that are

518
00:28:12,440 --> 00:28:15,080
Speaker 9: based in Hollywood. And then there's of course the native

519
00:28:15,240 --> 00:28:19,479
Speaker 9: technology companies Apple, Amazon, YouTube, which are going to do

520
00:28:19,520 --> 00:28:22,720
Speaker 9: their things. Their models are somewhat different. Without this deal.

521
00:28:22,760 --> 00:28:25,400
Speaker 9: If Netflix follows up Warner, it's possible that that list

522
00:28:25,440 --> 00:28:28,480
Speaker 9: of Hollywood based streaming services will end up being two

523
00:28:28,600 --> 00:28:29,400
Speaker 9: major companies.

524
00:28:29,600 --> 00:28:32,199
Speaker 1: Matt, You've got very passionate there. Do you still go

525
00:28:32,200 --> 00:28:34,280
Speaker 1: to the theaters? Have you seen any good movies recently?

526
00:28:34,400 --> 00:28:34,760
Speaker 5: I do.

527
00:28:35,000 --> 00:28:38,920
Speaker 6: I've seen one battle after another twice in the theater.

528
00:28:39,280 --> 00:28:41,280
Speaker 1: I've also seen that excellence.

529
00:28:41,400 --> 00:28:43,600
Speaker 5: I go to a lot of movies, probably once a week.

530
00:28:44,120 --> 00:28:44,400
Speaker 1: Peter.

531
00:28:45,040 --> 00:28:49,400
Speaker 3: On that note, if Netflix loses or Paramount loses, where

532
00:28:49,440 --> 00:28:51,600
Speaker 3: do you think each of them will look, given the

533
00:28:51,600 --> 00:28:54,400
Speaker 3: fact that they wanted these assets so badly, is there

534
00:28:54,440 --> 00:28:55,600
Speaker 3: anywhere else they can go?

535
00:28:56,640 --> 00:28:59,040
Speaker 9: Well, I'm so glad that you asked, because we've been

536
00:28:59,080 --> 00:29:02,800
Speaker 9: writing for years and with more intensity in the last year,

537
00:29:03,360 --> 00:29:06,840
Speaker 9: that NBC Universal really needs to do something for a

538
00:29:06,840 --> 00:29:10,000
Speaker 9: lot of the same reasons that Paramount needs to do something.

539
00:29:10,040 --> 00:29:13,720
Speaker 9: And NBC Universal has a very comfortable home inside of

540
00:29:13,720 --> 00:29:18,000
Speaker 9: the Comcast conglomerate, but as a media business, it is

541
00:29:18,080 --> 00:29:21,360
Speaker 9: both a wonderful producer of films and television and theme

542
00:29:21,400 --> 00:29:25,840
Speaker 9: parks and also quite subscale from a direct to consumer

543
00:29:26,200 --> 00:29:30,960
Speaker 9: distribution standpoint. And so whoever doesn't win, Warner Brothers ought

544
00:29:31,000 --> 00:29:32,560
Speaker 9: to go out and try to do a deal with

545
00:29:32,640 --> 00:29:36,320
Speaker 9: Brian Roberts, which is really difficult to do because Roberts

546
00:29:36,080 --> 00:29:38,760
Speaker 9: has about thirty two percent of the votes at Comcast

547
00:29:38,840 --> 00:29:41,960
Speaker 9: and the history of liking his conglomerate structure.

548
00:29:43,280 --> 00:29:46,840
Speaker 2: This is the Bloomberg Seventans podcast, bringing you the best

549
00:29:46,840 --> 00:29:50,160
Speaker 2: in market economics, angiot politics. You can watch the show

550
00:29:50,240 --> 00:29:53,160
Speaker 2: live on Bloomberg TV weekday mornings from six am to

551
00:29:53,320 --> 00:29:57,080
Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify,

552
00:29:57,200 --> 00:29:59,440
Speaker 2: or anywhere else you listen, and as always, on the

553
00:29:59,440 --> 00:30:01,400
Speaker 2: Blouebooks Aminal and the Bloomberg Bars.

554
00:30:01,520 --> 00:30:01,840
Speaker 5: This out

555
00:30:06,040 --> 00:30:06,440
Speaker 4: Mm hmm