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Speaker 3: Vincent Reinhart of b n Y Intment Investments Vincent.
Speaker 1: What do you make of this?
Speaker 3: The GDP number rising four point three percent for the
Speaker 3: third quarter.
Speaker 4: There's a lot of action in the rear view mirror,
Speaker 4: isn't there. I think part of what it does is
Speaker 4: make you wonder why the Federal Reserve felt the need
Speaker 4: to buy three quarters percentage worth of insurance by cutting
Speaker 4: rates in September. But that was more about employment. What
Speaker 4: it does is worse than the disconnect we're having between
Speaker 4: our view of aggregate demand growing at such a rapid
Speaker 4: rate and employment, which is pretty sluggish.
Speaker 3: Do you think that given this information is so stale
Speaker 3: it's not going to make a difference. Or do you
Speaker 3: think FED officials will look at this and take this
Speaker 3: information on with them as they consider and recalibrate what they.
Speaker 1: Should do in terms of interest rates in January?
Speaker 4: Well, the important point you made was FED officials. Remember
Speaker 4: they're pretty divided that it was a close call in
Speaker 4: terms of the overall nineteen FMC participants about the last
Speaker 4: rate cut. That means that almost half of them can
Speaker 4: look at this data point and say, why exactly were
Speaker 4: we doing what we were doing. So I think it
Speaker 4: does matter, and what it does is just heightened this
Speaker 4: really split.
Speaker 5: Within Federal Reserve official boom evins. I'm talking to my buddy,
Speaker 5: Joe Bruce Swailes.
Speaker 6: He's an economist down in Austin at RSM, and he
Speaker 6: sees a decoupling between the strong growth numbers that we're
Speaker 6: seeing strong real final private demand and weak hiring as AI,
Speaker 6: you know, eats in eats up jobs and maybe we
Speaker 6: get robotics replacing people as well.
Speaker 5: You know, longer.
Speaker 6: Term, what can cutting rates do for that kind of
Speaker 6: slow down and hiring? I mean, if AI is taking jobs,
Speaker 6: even if you bring rates down fifty seventy five basis points.
Speaker 5: Is it going to matter, Well, you do a little
Speaker 5: phone meeting in the runway.
Speaker 4: The FED bought insurance. You're exactly right, and the question
Speaker 4: is how expensive is that insurance, And the cost of
Speaker 4: it is that it'll be a little longer to get
Speaker 4: for them to the goal of two percent inflation next year. Now,
Speaker 4: if you're facing this enormous supply headwind on output on
Speaker 4: rather labor andwind right a headwind on labor and tailwind
Speaker 4: for demand, there's not a lot that the overnight federal
Speaker 4: funds rate can do. And I think you are right.
Speaker 6: Is two percent truly the Fed's target, because it doesn't
Speaker 6: look like they take that very seriously since we're fifty
Speaker 6: percent above it. I mean, CPI, I guess you could
Speaker 6: say came in lighter than that in the last reading,
Speaker 6: but there was so much noise it might as well
Speaker 6: be at three.
Speaker 4: Well, they never admit that. You don't give up on
Speaker 4: your goal when you're far far away from it. So
Speaker 4: that's why chair pal vigorously defends two percent and denies
Speaker 4: any idea that they've changed their goal. I think two
Speaker 4: percent is a long run aspiration, and what we've seen
Speaker 4: over the last three months in particular, is that they're
Speaker 4: willing to put off that achievement to buy a little
Speaker 4: more insurance.
Speaker 1: When it comes.
Speaker 3: To this GDP data, we just got it' I'm already
Speaker 3: getting a lot of messages from viewers, Vincent who are
Speaker 3: talking about the fact that if it's possible that CPI
Speaker 3: was inaccurate, do you think that it's possible that GDP
Speaker 3: data also has some inaccuracies in as well.
Speaker 4: The answer to the question are there problems with government
Speaker 4: statistics is always yes. And in this particular case, if
Speaker 4: we're not confident about prices that they may be softer
Speaker 4: in measurement than they actually are, then real activity is
Speaker 4: going to be stronger because you're dividing nominal activity, which
Speaker 4: you're pretty confident about by a mismeasured price level. So
Speaker 4: I think there was always an upside tail risk to
Speaker 4: this GDP print. It turned out to be even further upside.
Speaker 6: I wonder what you make a policy that seems stimulative
Speaker 6: in the new year. Right, we've got the tax refunds
Speaker 6: coming from the one.
Speaker 5: Big beautiful bill.
Speaker 6: You know, we're dumping tens of billions of dollars out
Speaker 6: of helicopters on farmers in the Midwest because the Chinese
Speaker 6: aren't buying soybeans, and now President Trump wants to send
Speaker 6: I guess some kind of warrior dividend to soldiers did too,
Speaker 6: as well as a tariff dividend to most of most
Speaker 6: American people. While tariffs are pushing prices higher, that set
Speaker 6: us up for a bad inflation picture, and the FED
Speaker 6: cutting rates obviously a bad inflation picture.
Speaker 5: In twenty twenty six, I do.
Speaker 4: Believe that tariffs ultimately passed through to consumer prices. And
Speaker 4: two things have happened. One is we haven't seen all
Speaker 4: the pass through of the increase in tariffs we've already gotten,
Speaker 4: and that over the course of the year, the effective
Speaker 4: tariff rate kept rising. So you're exactly right, there's more
Speaker 4: tariff feed through the consumer prices. That's why in our
Speaker 4: own forecast we think that the insurance the feeder reserve
Speaker 4: bought by cutting rates will be expensive next year. It's
Speaker 4: going to even further delay get into a two percent goal.
Speaker 4: But you know better, recognize, Matt, that Congress set up
Speaker 4: the FED for exactly this tension by giving it a
Speaker 4: dual mandate. It's supposed to foster maximum employment and stable
Speaker 4: in an environment in which, yeah, you're not happy with inflation.
Speaker 4: It's not at its goal of two percent, but it's
Speaker 4: a lot closer to two percent than it was previously.
Speaker 4: It weighs deviations on the employment mandate a little more heavily,
Speaker 4: and in this case it's potential deviations. It's just worried
Speaker 4: about the slowness of the employment growth, the low hire,
Speaker 4: low fire labor market.
Speaker 1: When it comes to inflation.
Speaker 3: Though, we hear from the Treasury Secretary yesterday he said,
Speaker 3: once it's re anchored, there should be a discussion about
Speaker 3: targeting a range.
Speaker 1: Do you think that's appropriate, Vincent?
Speaker 4: So, in effect, the feeder reserves hasn't been at two
Speaker 4: percent in a long time, and only in passing. For
Speaker 4: a long stretch before two thousand and twenty, inflation was
Speaker 4: below the federal reserves goal. A range makes sense, it
Speaker 4: works for other economies. And you know, the reality is
Speaker 4: the federers are asserted two percent was its numerical definition
Speaker 4: of inflation, after getting frustrated that it couldn't have a
Speaker 4: good conversation with its leaders, i e. The Congress about
Speaker 4: how to make specific the goal. So yes, I think
Speaker 4: if the Treasury is signaling it's time to think hard
Speaker 4: about what the federal reserve goal should be. That that
Speaker 4: should be welcome, Vince.
Speaker 6: I wonder what your take is on where the tenure
Speaker 6: yield is going.
Speaker 5: I keep having this.
Speaker 6: Fight with chat GPT, which tells me that the bond
Speaker 6: vigilantes are back. But I'm looking at four seventeen on
Speaker 6: the tenure and like seventy points on the twos tens.
Speaker 6: It doesn't look that bad to me. Do you think
Speaker 6: yield are going to go higher?
Speaker 4: So you know that's that's always a deep frustration, right.
Speaker 4: I come from a family in which we all worry
Speaker 4: about the federal debt and the untep tethered path for
Speaker 4: the deficits. We all worry about central bank independence, what's
Speaker 4: going to happen as the federals are changes next year.
Speaker 4: But the fact is you don't really see it much
Speaker 4: in inflation and inflation inflation expectations. Markets aren't really pricing
Speaker 4: in a lot a lot of worries. I think we're
Speaker 4: in an environment in which employment is close to maximum,
Speaker 4: inflation is not that far away from the long run goal,
Speaker 4: and so we're pretty much priced for an economy that's
Speaker 4: performing well, we haven't been stressed, and what you worry about.
Speaker 4: What I worry about is exactly what will happen when
Speaker 4: we're stressed, and bond markets are are particularly good at
Speaker 4: pricing in an unknown future stress.
Speaker 2: Stay with us multiple inpex Savanna's coming up.
Speaker 5: Off to this.
Speaker 3: Dan Scale of Morgan Stanley Wealth Management says the outlook
Speaker 3: into twenty twenty six remains constructive, supported by increased m
Speaker 3: and a broadening out of earnings growth, AI diffusion, deregulation
Speaker 3: and fiscal stimulus.
Speaker 1: Dan, thank you so much for joining us to see Amy.
Speaker 1: I want to first get your reaction. What's going on
Speaker 1: with this GDP number.
Speaker 3: No one was expecting this big of a print, this
Speaker 3: high of a print increase at four point three percent
Speaker 3: that followed three point eight percent growth. What's going on here?
Speaker 3: We actually seeing a robust economy. There's some data distortion, yes.
Speaker 7: So I think what we're seeing is this paradigm shift continue.
Speaker 7: And we've seen this over the last several years where
Speaker 7: when you look at the majority of spending in the economy,
Speaker 7: what's driving the economy, it's AI spending, its services powered
Speaker 7: by high income consumers and all of those cohorts continue
Speaker 7: to hum along really strongly. So there's really been no
Speaker 7: change in that aspect of the economy.
Speaker 3: We see the entire yield curve shift higher swing just
Speaker 3: off this report.
Speaker 7: What does that mean for the depth asty So it's
Speaker 7: not particularly positive, and we may hear an update in
Speaker 7: the coming weeks related to the Supreme Court ruling related
Speaker 7: to the Emergency Power authority or not. And so look,
Speaker 7: I think be careful what you wish for Emory, because
Speaker 7: higher yields is not necessarily supportive of higher multiples.
Speaker 6: But we I mean, I'm assuming the reaction is because
Speaker 6: this number is so high, there's much less of a
Speaker 6: chance that the Fed cuts rates in January. So you
Speaker 6: might as well buy the paper that's there now rather
Speaker 6: than the paper post cut.
Speaker 7: Yeah, I think that makes sense, Matt, And it's good
Speaker 7: to see you as well. And look, we've been saying
Speaker 7: persistently that the five to seven year part of the
Speaker 7: curve is where we see value. We had been hesitant
Speaker 7: to extend that much out on the duration side of things.
Speaker 7: And look, I think on the equity front, just coming
Speaker 7: back to stock, I think it's going to be a
Speaker 7: continuation of this cyclical rotation that we've seen really in
Speaker 7: the past one to two months.
Speaker 6: We do have increasingly bullish expectations for earnings in twenty
Speaker 6: twenty six. I mean, it's not like the FED is
Speaker 6: the only thing that drives markets, right. Obviously, the real
Speaker 6: economy is important, and I'm hearing from economists been talking
Speaker 6: to Joe Bruce wlis here in my IB chat that
Speaker 6: he still sees strong growth, strong final demand.
Speaker 7: Listen, if we're running out of seven percent nominal GDP,
Speaker 7: we would hope that the average company is going to
Speaker 7: see revenues increase, right, because there's some correlation there. But
Speaker 7: I think the big catalyst for next year, Matt, is
Speaker 7: all about AI monetization. We've been waiting for good doo
Speaker 7: in terms of when does AI spread out from the
Speaker 7: mag seven to the rest of the fortune one hundred
Speaker 7: and Frankly, I think that's where we could see upside surprise.
Speaker 6: Lys Can I just say that this goes along with
Speaker 6: Joe's decoupling theory. So if that's what's driving higher corporate profits, right,
Speaker 6: it's not going to help labor.
Speaker 5: We're not going to see a lot of hiring on
Speaker 5: the back of that, No doubt.
Speaker 4: It's an excellent point.
Speaker 7: And look, we've observed over the last six months a
Speaker 7: huge divergence between jolts and jobs opening and the SMP.
Speaker 7: And so we do feel like in terms of that
Speaker 7: phrase again paradigm shifts that's going on in the equity
Speaker 7: market as well.
Speaker 5: Ultimately, we think stocks follow earning.
Speaker 7: So while we could see some marginal degradation on the
Speaker 7: labor front, we don't think it's going to matter as
Speaker 7: much this time around.
Speaker 3: And you only have one FED cut baked in for
Speaker 3: next year. If we're seeing get unemployment rate that goes higher,
Speaker 3: how does the FED calibrate for that AI induced job losses?
Speaker 5: Such a tough question.
Speaker 7: And look, the FED is an uncharted territory, no doubt,
Speaker 7: the old playbook doesn't apply as much. When we talk
Speaker 7: about an economy that's powered by high income consumers, they're
Speaker 7: not as rayed sensitive. So by cutting too much, you
Speaker 7: run the risk of creating too much inflation, thereby hurting
Speaker 7: the ninety percent of the population that is inflation sensitive.
Speaker 7: And so look, Emery, if I think we're going to
Speaker 7: be surprised it's going to be that the FED doesn't
Speaker 7: cut as much next year.
Speaker 1: How difficult is that going to be?
Speaker 3: Politically, given the fact that the one question the President
Speaker 3: at least I have reporting on he asked last time
Speaker 3: around for individuals who wanted to become FED chair, was
Speaker 3: are you going to cut interest rates?
Speaker 7: And look, I think it's very thorny issue. Obviously it's
Speaker 7: above my pay grade. But my speculation is whoever is
Speaker 7: in the chair is going to be Dubvish leaning. So
Speaker 7: the short end, no doubt, is likely to perhaps stay
Speaker 7: politically influenced, but it doesn't also entail the long end following,
Speaker 7: and so we may be kind of stuck in the
Speaker 7: mud in terms of this higher for longer long end.
Speaker 6: Yeah, this is I think the concern of many that
Speaker 6: the long end will continue to rise towardston slock from
Speaker 6: Apollo putting out a chart this morning.
Speaker 5: Everybody reads his charts showing.
Speaker 6: That global yields could pull the US treasury yield higher.
Speaker 6: This is really a conundrum for the FED, for the administration,
Speaker 6: isn't it?
Speaker 5: Absolutely?
Speaker 7: And to your point on global yields, look at what's
Speaker 7: going on in Japan, right, So we're in a phase
Speaker 7: here where Japan is seeing two percent long bonds and
Speaker 7: that could have some upward drift higher and thus kind
Speaker 7: of take global yields along with it.
Speaker 6: How does this stock market deal with I don't know
Speaker 6: what the correct phrase is, but an increasingly ca shaped economy,
Speaker 6: right because that sort of sounds like it's happening.
Speaker 5: So it's an excellent question.
Speaker 7: The stock market's response over the last several years has
Speaker 7: been increased narrowing up until this year. This is the
Speaker 7: first year where we've seen the mag seven go from
Speaker 7: a monolith everything up in tandem to a peloton where
Speaker 7: there's actual differentiation between the mag seven. Money center banks
Speaker 7: are leading, and finally you've seen healthcare leading as of
Speaker 7: the last three months. So I think what the market
Speaker 7: is saying is that earnings matter more than ever right now,
Speaker 7: and even though we're in this extremely unique economic and
Speaker 7: kind of socioeconomic paradigm shift, I think earnings are going
Speaker 7: to be what drives stock prices.
Speaker 3: What do you make of the potential policies we're going
Speaker 3: to get next year. I know we're going to get
Speaker 3: the tax refunds with the Treasury Secretary loves to talk about.
Speaker 3: You think that's going to be huge, But a lot
Speaker 3: of people say, actually, consumers know that that's coming, so
Speaker 3: they're spending now the President, though, is also talking about
Speaker 3: two thousand dollars.
Speaker 1: If dividend checks.
Speaker 3: Is this all going to create a more complicated picture
Speaker 3: when it comes to inflation, It could very well.
Speaker 7: And frankly, going back to our earlier thread related to
Speaker 7: monetary poly monetary policy helping kind of middle income consumers,
Speaker 7: we actually do think it's going to be more on
Speaker 7: the fiscal side, And frankly, some of this may not
Speaker 7: coincidentally be timed in front of the midterms next year,
Speaker 7: where affordability and some of these other strains are starting
Speaker 7: to percolate in surveys and actual voting results, and so
Speaker 7: we think again, fiscal policy is going to run it
Speaker 7: hot next year.
Speaker 2: Stay with US multile Impex Savanna's coming up off to this.
Speaker 3: Stocks on pause after closing near record highs. Mona Mahajan
Speaker 3: of Edward Jones with a constructive outlook for next year,
Speaker 3: writing elevated tech valuations, improving liquidity and better earnings momentum
Speaker 3: across cyclicals, midcaps and international equity support a potential rotation,
Speaker 3: Mona joins US Now, Mona, what gives you the confidence
Speaker 3: that we're actually going to see a real rotation when
Speaker 3: it comes to equities because we have been here before,
Speaker 3: we have seen a lot of fall starts.
Speaker 1: Yeah, it's a great call out.
Speaker 8: Look, it's year three now of growth outperforming value of
Speaker 8: technology and AI leading the charge higher. But one thing
Speaker 8: that we watched carefully is, of course earnings growth and
Speaker 8: earnings growth for twenty twenty six. First we think continues
Speaker 8: to look like it will head towards double digits. But
Speaker 8: the good news is underneath the surface there is both
Speaker 8: tech and non tech parts of market that is driving
Speaker 8: that charge higher. And that is a difference from what
Speaker 8: we've seen in twenty twenty five and really in the
Speaker 8: last couple of years, where it is the tech earnings
Speaker 8: that have driven most of the S and P corporate profits.
Speaker 8: So next year, more balance between growth, cyclical and value
Speaker 8: driving earnings growth higher. And by the way, as we
Speaker 8: think about a FED that is cutting rates, that is
Speaker 8: an environment where valuations tend to expand see that much
Speaker 8: scope for valuation expansion in the tech and growth parts
Speaker 8: of the market. They've already seen some of that occur,
Speaker 8: but we do see potentially that scope for valuation expansion
Speaker 8: in that four ninety three. So a couple of factors
Speaker 8: that could drive that part of the market higher and
Speaker 8: drive that rotation.
Speaker 5: Does the Fed need to be cutting rates?
Speaker 6: I mean, if we're at three plus percent in terms
Speaker 6: of GDP growth, A lot of Republicans are saying maybe four.
Speaker 6: I saw Art Laugher on Fox yesterday say five percent
Speaker 6: and inflation is at three unless you believe the last
Speaker 6: set of CPI numbers that we got, Does the Fed
Speaker 6: really need to be cutting rates?
Speaker 4: Yeah?
Speaker 8: You know, look, we don't think that's a prerequisite for
Speaker 8: the markets to continue to perform. Well here we know that,
Speaker 8: in fact, the economy has grown. When the FED was
Speaker 8: at four and a quarter five percent, we have not seen,
Speaker 8: you know, some of those recessionary conditions over the last
Speaker 8: couple of years that many economists had been calling for.
Speaker 8: So as we look towards twenty twenty six, where the
Speaker 8: Fed has brought rates down to under four percent, now
Speaker 8: we think the base case and what markets are pricing,
Speaker 8: which is one or two more potential rate cuts, is
Speaker 8: a reasonable kind of base case scenario for twenty twenty
Speaker 8: six if you think inflation kind of ends in this
Speaker 8: two and a half percent range or lands there. Typically
Speaker 8: the FED likes to bring Fed funds rate about seventy
Speaker 8: five to one hundred basis points above that level, So
Speaker 8: kind of three and a half percent seems like a
Speaker 8: fair value for the Fed funds rate.
Speaker 6: By the way, Mona, we've seen I think one hundred
Speaker 6: and seventy five basis points of rate cuts since September
Speaker 6: of twenty four, and in that time, the ten year yield.
Speaker 5: Is up like fifty or sixty basis points.
Speaker 6: And Tourist and Slock from Apollo out with a note
Speaker 6: today showing that we have German yields rising, Japanese Japanese
Speaker 6: yields rising, really highlighting the concern that a lot of
Speaker 6: people share global yields are going to continue to pull
Speaker 6: us longer term yields up. Does that worry you as well?
Speaker 8: Yeah, you know, look, our outlook for twenty twenty six
Speaker 8: calls for a ten that stays in this four to
Speaker 8: four and a half percent range.
Speaker 1: We think, you know, the long.
Speaker 8: End of the yield curve will be driven by one
Speaker 8: better economic fundamentals in the US, but two global markets,
Speaker 8: as you noted, are also expected to see a real
Speaker 8: meaningful pickup in earnings growth next year as well. So
Speaker 8: there are global factors that are driving the US yield higher. Now,
Speaker 8: keep in mind four four and a half percent if
Speaker 8: you look over a fifteen year horizon, this is still
Speaker 8: towards the high end of a ten year yield versus
Speaker 8: that history.
Speaker 1: And for investors that are.
Speaker 8: In retirement near retirement, we're just looking for income. We're
Speaker 8: still looking at a pretty attractive value from an investment
Speaker 8: grade type bond market. Where you are getting four percent
Speaker 8: yield is close to you know, that six seven percent
Speaker 8: all in income that you'd like to see, and by
Speaker 8: the way, above the rate of.
Speaker 1: Inflation as well.
Speaker 8: So we think balanced portfolios make a lot of sense
Speaker 8: heading into twenty twenty six.
Speaker 3: When it comes to inflation, the debate isn't over, As
Speaker 3: you mentioned in your nodes. What do you make of
Speaker 3: what we've heard recently from Beth Hammeck saying that she
Speaker 3: wants to maintain policy right now and she's going to
Speaker 3: be a voting member next year, maintain policy right now
Speaker 3: because she is concerned about inflation.
Speaker 8: Yeah, you know, I think generally what we're seeing is
Speaker 8: two parts of inflation, as we know, the goods inflation
Speaker 8: and the services inflation. And the goods basket of CPI
Speaker 8: is about a third of the basket, and we think
Speaker 8: there is potential for upward pressure, especially in that first
Speaker 8: half the year, as some of those terror rates continue
Speaker 8: to flow through to the end markets and the end
Speaker 8: consumer and consumer prices. But on the other hand, we
Speaker 8: have the services inflation, and that's largely driven by shelter
Speaker 8: and rent about seventy five percent of the basket. We
Speaker 8: think there is a reasonable case to be made that
Speaker 8: there could be at least some stabilization and even downward
Speaker 8: pressure there, especially as some of the trends we've seen
Speaker 8: recently in rent prices and home prices start to flow
Speaker 8: through the CPI basket. And so we remain comfortable that
Speaker 8: inflation hovers in this two and a half percent range.
Speaker 8: We don't see necessarily reaccelerating unless there is some exogenous
Speaker 8: shock to the system. So we think two and a
Speaker 8: half to three percent remains a reasonable base case for
Speaker 8: next year on inflation. We think that still gives the
Speaker 8: Fed a little bit of room to bring rates, as
Speaker 8: we talked about to that three and a half percent
Speaker 8: Fed funds rate.
Speaker 1: I think the consumer can hold up in that environment.
Speaker 8: Yeah, you know, we think the consumer is held up
Speaker 8: in an environment even more severe than that over the
Speaker 8: last year or two, and as rates move lower that
Speaker 8: should be supportive of of course consumer borrowing costs and
Speaker 8: corporate borring costs, especially in the short end of the curve.
Speaker 8: But as we know in the US, you know, many
Speaker 8: have talked about this the ke shaped consumer or the
Speaker 8: bifurcated consumer, and we know that low and middle income
Speaker 8: consumer is still perhaps struggling a bit to keep up
Speaker 8: after years of elevated inflation. But in the US, it
Speaker 8: is really the middle and upper income consumer that drive
Speaker 8: economic growth, and they of course have benefited from the
Speaker 8: wealth effects of better stock market prices, stabilization in home prices,
Speaker 8: in real estate, and so overall we're seeing the economic
Speaker 8: growth pictures stabilize and even improve in recent years.
Speaker 2: Stay with us multiple impex Savannah's coming up off to this.
Speaker 3: Warner Brothers reviewing Paramount's beefed up bid after receiving Larry
Speaker 3: Ellison's forty billion dollars personal guaranteed backstop the offer. The board, however,
Speaker 3: not modifying its position, continuing to support Netflix competing bid.
Speaker 3: Peter Subpino of Wolf Research joins us now for more.
Speaker 1: Peter, I don't know where to start.
Speaker 3: I cannot wait to watch the movie of how this
Speaker 3: saga absolutely unfolded.
Speaker 1: Who do you think is actually going to win out
Speaker 1: in the end?
Speaker 9: First, I want to crazy or not transition from obesity
Speaker 9: drugs to studios beefing up on buying each other. We
Speaker 9: think Paramount has a slight edge in what is a
Speaker 9: really tight horse race. These horses are neck and neck.
Speaker 9: The bids are tricky to compare. They're just a dollar
Speaker 9: apart if you adjust for the various ways you should
Speaker 9: adjust them. The Warner board seems to be thinking about
Speaker 9: this like a house sale. Pretend you're selling your house
Speaker 9: and there are multiple bidders. Price matters, and certainty of
Speaker 9: getting the money matters, and that's where this process is
Speaker 9: hung up.
Speaker 3: So where the money matters, though, if you have Larry
Speaker 3: Ellison not just backing this by forty billion dollars, they're
Speaker 3: also talking about an increased offer when it comes to
Speaker 3: the regulatory fee if this was to break down.
Speaker 1: If this doesn't move, the board will anything.
Speaker 9: So the board, in addition to being worried about price,
Speaker 9: is also thinking about the condition in which the business
Speaker 9: would exist if whatever deal they choose doesn't close. Both
Speaker 9: of these bids face regulatory scrutiny. It's hard to forecast.
Speaker 9: I mean, it's Trump and the plans for cost reductions
Speaker 9: with the among inside of these two bids are very different.
Speaker 9: So Paramount has planned six billion of cost reductions and
Speaker 9: Netflix has planned three billion of cost reductions. And Netflix
Speaker 9: plan is much more focused on streaming and technology costs,
Speaker 9: while Paramount's plan is more focused on studio savings. And
Speaker 9: that's where the Warner board gains comfort from Netflix because
Speaker 9: they imagine if this deal were not to close, the
Speaker 9: studio business would be healthier a year or two in
Speaker 9: the future.
Speaker 6: Peter, it does seem like the board doesn't matter as
Speaker 6: much if you're going directly to shareholders, right, And that's
Speaker 6: the one element that they didn't move. Paramount didn't move here.
Speaker 6: I mean, shareholders don't really care that much if there's
Speaker 6: a five point eight or a five point six or
Speaker 6: a five point nine billion dollar breakup fee, Like, give
Speaker 6: me the money, right, if it's thirty dollars a share
Speaker 6: and make it thirty three. If that's not enough to
Speaker 6: make it thirty five, why don't they just raise their offer?
Speaker 9: We think that they will, and the stock market, the
Speaker 9: arbitrage market, that is currently setting Warner Brothers price is
Speaker 9: saying that Paramount or somebody will increase the offer price
Speaker 9: in the meantime, though, the Paramount board needed to and did,
Speaker 9: at least to an extent, address the Warner board's concerns
Speaker 9: about certainty, and so the updated offer yesterday involved different
Speaker 9: language about the financial guarantee from the Ellison family, and
Speaker 9: it also involved a different language about revocability, which is
Speaker 9: an arcane issue that matters to the Warner board. We
Speaker 9: wonder about the language relating to material adverse changes. The
Speaker 9: board also changed language about interim operating in financial controls
Speaker 9: by Paramount. So they're getting into the details of contract
Speaker 9: language to try to strike the best deal they can,
Speaker 9: and price probably comes next.
Speaker 6: It's interesting that they're still trying to appease the board
Speaker 6: in a hostile takeover.
Speaker 5: I wonder about the employees.
Speaker 6: To your point, you know that Paramount wants to cut
Speaker 6: six billion in costs in Netflix only three billion.
Speaker 5: Of course, Netflix is not looking at.
Speaker 6: The entire asset, right that would be split off or
Speaker 6: the cable elements would be split off.
Speaker 5: Michael Wolfe told me at one point.
Speaker 6: That the creative community, though, is behind Paramount because they
Speaker 6: believe that David Ellison wants to make movies and show
Speaker 6: them in theaters, right, Whereas Netflix clearly has an adversity
Speaker 6: that they want to be streaming everything and if it
Speaker 6: goes to the theater, maybe for a week before streaming
Speaker 6: released or at the same time, so it's a very
Speaker 6: different scenario.
Speaker 9: Theaters are a consideration for the Hollywood community, as is
Speaker 9: the existence of a third studio based streaming service. So
Speaker 9: imagine the streaming industry a few years from now, as
Speaker 9: linear TV continues its gradual but inexorable decline and streaming
Speaker 9: continues to rise. With this combination, it seems credible to
Speaker 9: expect the paramount Warner entity to compete head to head
Speaker 9: with Netflix and Disney among the streaming services that are
Speaker 9: based in Hollywood. And then there's of course the native
Speaker 9: technology companies Apple, Amazon, YouTube, which are going to do
Speaker 9: their things. Their models are somewhat different. Without this deal.
Speaker 9: If Netflix follows up Warner, it's possible that that list
Speaker 9: of Hollywood based streaming services will end up being two
Speaker 9: major companies.
Speaker 1: Matt, You've got very passionate there. Do you still go
Speaker 1: to the theaters? Have you seen any good movies recently?
Speaker 5: I do.
Speaker 6: I've seen one battle after another twice in the theater.
Speaker 1: I've also seen that excellence.
Speaker 5: I go to a lot of movies, probably once a week.
Speaker 1: Peter.
Speaker 3: On that note, if Netflix loses or Paramount loses, where
Speaker 3: do you think each of them will look, given the
Speaker 3: fact that they wanted these assets so badly, is there
Speaker 3: anywhere else they can go?
Speaker 9: Well, I'm so glad that you asked, because we've been
Speaker 9: writing for years and with more intensity in the last year,
Speaker 9: that NBC Universal really needs to do something for a
Speaker 9: lot of the same reasons that Paramount needs to do something.
Speaker 9: And NBC Universal has a very comfortable home inside of
Speaker 9: the Comcast conglomerate, but as a media business, it is
Speaker 9: both a wonderful producer of films and television and theme
Speaker 9: parks and also quite subscale from a direct to consumer
Speaker 9: distribution standpoint. And so whoever doesn't win, Warner Brothers ought
Speaker 9: to go out and try to do a deal with
Speaker 9: Brian Roberts, which is really difficult to do because Roberts
Speaker 9: has about thirty two percent of the votes at Comcast
Speaker 9: and the history of liking his conglomerate structure.
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Speaker 5: This out
Speaker 4: Mm hmm