1 00:00:02,600 --> 00:00:13,800 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:34,040 Speaker 1: Bloomberg dot com, and of course on the Bloomberg PIM. 5 00:00:34,040 --> 00:00:37,440 Speaker 1: Why don't you bring in our esteem guest, Uh, Stephen Whiteing. 6 00:00:37,440 --> 00:00:38,800 Speaker 1: Where this is a City group and that is a 7 00:00:38,800 --> 00:00:41,920 Speaker 1: good thing. Yes, it is. And Stephen Whiting is the 8 00:00:42,200 --> 00:00:46,519 Speaker 1: City Bank's private bank global chief investment strategist. Stephen Whiting, 9 00:00:46,520 --> 00:00:48,960 Speaker 1: thanks very much for being with us. Your note talks 10 00:00:49,000 --> 00:00:52,600 Speaker 1: about the global trade wars. You say quick deals versus 11 00:00:52,720 --> 00:00:56,000 Speaker 1: just the beginning. What do you mean by that? Well, 12 00:00:56,400 --> 00:00:59,960 Speaker 1: if you think about where we were with Treasury set 13 00:01:00,160 --> 00:01:03,600 Speaker 1: Terry Stephen Manuchin coming back saying the trade war is 14 00:01:03,640 --> 00:01:08,240 Speaker 1: on hold, we have the framework for an agreement with China. Uh, 15 00:01:08,280 --> 00:01:10,640 Speaker 1: that's a very different situation that we'll find ourselves today, 16 00:01:10,640 --> 00:01:14,800 Speaker 1: where we actually have tariffs being collected and expanding. We 17 00:01:14,800 --> 00:01:18,080 Speaker 1: were apparently fairly close to having deals wrapped up with 18 00:01:18,440 --> 00:01:23,600 Speaker 1: NAFTA reforms, but all that has been pushed now further out, 19 00:01:23,760 --> 00:01:28,240 Speaker 1: and we certainly have the prospect, at least the threatened 20 00:01:28,280 --> 00:01:31,840 Speaker 1: prospect of expanding the tariff war to the auto sector, 21 00:01:32,440 --> 00:01:36,720 Speaker 1: which with complicated products and complicated supply chains, you know, 22 00:01:36,760 --> 00:01:40,520 Speaker 1: would greatly expand uh the economic economic impact of this. 23 00:01:42,160 --> 00:01:45,160 Speaker 1: So we have have to consider really different environments. You know. 24 00:01:45,200 --> 00:01:48,280 Speaker 1: You think about how long it took for the US 25 00:01:48,680 --> 00:01:50,760 Speaker 1: to cut corporate taxes, and this is all over a 26 00:01:51,200 --> 00:01:54,120 Speaker 1: year long drama and would greatly expand the impact in 27 00:01:54,120 --> 00:01:57,400 Speaker 1: a negative way. Uh. If this does drag out and escalate, 28 00:01:57,720 --> 00:02:00,840 Speaker 1: it's really unsustainable place for this to get. Ever, you 29 00:02:00,880 --> 00:02:06,960 Speaker 1: are the expert it linking profit incorporate work into economics. 30 00:02:06,960 --> 00:02:10,440 Speaker 1: It's chapter twenty four of any volume one in economics. 31 00:02:10,440 --> 00:02:14,640 Speaker 1: Nobody read it except Steve Whiting. How do trade terrorists 32 00:02:14,840 --> 00:02:19,440 Speaker 1: actually filter in to the income statement of a given 33 00:02:19,440 --> 00:02:23,680 Speaker 1: American multinational? So this is much more important than I 34 00:02:23,720 --> 00:02:28,120 Speaker 1: think economists generally are are thinking about. If you scale 35 00:02:28,680 --> 00:02:32,440 Speaker 1: the impact of let's say twenty billion dollars and collected 36 00:02:32,840 --> 00:02:35,919 Speaker 1: tariffs against you g d P in the United States 37 00:02:35,919 --> 00:02:38,800 Speaker 1: to get tenth or percentage point, right, But if you 38 00:02:38,840 --> 00:02:42,480 Speaker 1: take twenty billion dollars out of you know, large company profits, 39 00:02:42,720 --> 00:02:45,200 Speaker 1: the number is going to be twenty times the size. 40 00:02:45,680 --> 00:02:48,600 Speaker 1: So if you think about just lost business, now again 41 00:02:48,639 --> 00:02:50,959 Speaker 1: that can be gained business for someone else, and markets 42 00:02:51,000 --> 00:02:54,240 Speaker 1: are not discriminating very well, uh to say that someone 43 00:02:54,280 --> 00:02:57,240 Speaker 1: else will get that business. But when it's lost sales, 44 00:02:57,680 --> 00:02:59,800 Speaker 1: it's going to be a much bigger drop in pro 45 00:03:00,000 --> 00:03:02,720 Speaker 1: fits because profits are marginal. You know, the scale is 46 00:03:02,800 --> 00:03:05,960 Speaker 1: much much smaller relative to sales. So that's why I 47 00:03:06,000 --> 00:03:09,840 Speaker 1: think you can see very fundamentally equity markets swing much 48 00:03:09,880 --> 00:03:13,880 Speaker 1: more uh than you will see any GDP estimate change 49 00:03:13,880 --> 00:03:16,760 Speaker 1: on the direct impact of the taras collected. So I 50 00:03:16,800 --> 00:03:18,520 Speaker 1: think a lot of economists has said, well, this is 51 00:03:18,520 --> 00:03:20,840 Speaker 1: all just a sentiment issue, but it actually is a 52 00:03:20,880 --> 00:03:26,040 Speaker 1: profit issue. Well, Stephen Whiting, Uh, profits on SMP companies 53 00:03:26,040 --> 00:03:29,280 Speaker 1: are supposed to rize. What about for the second quarter? 54 00:03:29,800 --> 00:03:34,240 Speaker 1: Revenue is estimated to grow nearly nine percent in the 55 00:03:34,360 --> 00:03:39,640 Speaker 1: same quarter. Do you still have those numbers in your outlook? 56 00:03:40,200 --> 00:03:43,120 Speaker 1: I think they will do even more than that, you know, 57 00:03:43,160 --> 00:03:46,160 Speaker 1: And that's the hard part of this year is that 58 00:03:46,240 --> 00:03:51,640 Speaker 1: we set up for a powerful, strong, probably earnings gain 59 00:03:51,800 --> 00:03:54,280 Speaker 1: for the full year. You know, profits are not going 60 00:03:54,280 --> 00:03:57,720 Speaker 1: to quickly stop growing here because of this issue. But 61 00:03:57,840 --> 00:04:01,000 Speaker 1: the threat is building further out, trade war escalates. I 62 00:04:01,000 --> 00:04:02,840 Speaker 1: think it's a very serious issue. But at the other 63 00:04:02,880 --> 00:04:05,640 Speaker 1: side of this is that the quick deal scenario, uh, 64 00:04:05,680 --> 00:04:07,760 Speaker 1: the scenario where we were a couple of months ago 65 00:04:07,800 --> 00:04:10,800 Speaker 1: with these potential deals coming through, would have very little 66 00:04:10,840 --> 00:04:13,360 Speaker 1: negative impact. And that's why markets are sort of really 67 00:04:13,400 --> 00:04:16,599 Speaker 1: binary here on this particular issue. And it's not the 68 00:04:16,640 --> 00:04:18,240 Speaker 1: only issue, because of course the FED. We could go 69 00:04:18,240 --> 00:04:21,520 Speaker 1: on numerous issues, but earnings are going to be powerful 70 00:04:21,600 --> 00:04:24,039 Speaker 1: and strong, and not just in the United States this year. 71 00:04:24,200 --> 00:04:26,880 Speaker 1: Stephen Whiting, So why is the SMP five hundred only 72 00:04:27,000 --> 00:04:29,640 Speaker 1: up four and a half percent this year? Well, it's 73 00:04:29,680 --> 00:04:33,840 Speaker 1: two things, you know, especially for the U S stock market. 74 00:04:33,880 --> 00:04:36,400 Speaker 1: We had two years in which there was anticipation of 75 00:04:36,400 --> 00:04:39,560 Speaker 1: tax cuts, and if you think about what let's say 76 00:04:39,160 --> 00:04:42,799 Speaker 1: a number in the second quarter would mean for EPs, 77 00:04:42,880 --> 00:04:45,719 Speaker 1: about one third of that will be driven by declines 78 00:04:45,760 --> 00:04:49,680 Speaker 1: and in corporate effective tax rates. So there's been this 79 00:04:49,839 --> 00:04:53,240 Speaker 1: buying ahead of it all, which certainly made this year 80 00:04:53,320 --> 00:04:56,799 Speaker 1: two more modest. We had a big plus year last 81 00:04:56,880 --> 00:05:00,240 Speaker 1: year already in anticipation, so in many respects we are 82 00:05:00,320 --> 00:05:04,760 Speaker 1: looking at two thousand nineteen EPs right in discounting movements 83 00:05:05,520 --> 00:05:08,559 Speaker 1: looking forward. The other side of this is the federal 84 00:05:08,600 --> 00:05:12,600 Speaker 1: reserve is tightening. It's requiring savings flows to finance the 85 00:05:12,680 --> 00:05:16,279 Speaker 1: US government that it was providing before earlier. Uh, and 86 00:05:16,440 --> 00:05:19,839 Speaker 1: that natural interest rate pressure, which I think has already 87 00:05:19,839 --> 00:05:21,680 Speaker 1: been seld you know in the early part of the year. 88 00:05:21,720 --> 00:05:24,640 Speaker 1: I don't think that interest rates rise amid this trade war, 89 00:05:24,960 --> 00:05:27,320 Speaker 1: but that that has already knocked down. You can see 90 00:05:27,320 --> 00:05:29,920 Speaker 1: the effect in January was not you know, a negative 91 00:05:29,920 --> 00:05:32,120 Speaker 1: from the trade war, It was interst rate pressure. What 92 00:05:32,200 --> 00:05:34,440 Speaker 1: are the partial differentials at the top light of the 93 00:05:34,440 --> 00:05:38,039 Speaker 1: income statement and take them over to the broader macro economy. 94 00:05:38,480 --> 00:05:43,480 Speaker 1: Is this about less units being sold? Is it about 95 00:05:43,800 --> 00:05:48,440 Speaker 1: price dampened because of a lower nominal GDP after the 96 00:05:48,520 --> 00:05:52,159 Speaker 1: seven percent joy we're living right now? Which matters units 97 00:05:52,320 --> 00:05:55,919 Speaker 1: or price? What units are going to be really important 98 00:05:55,960 --> 00:05:59,479 Speaker 1: for profits if you know, for example, you have to 99 00:06:00,240 --> 00:06:04,640 Speaker 1: uh price things less efficiently, if you have a lack 100 00:06:04,680 --> 00:06:08,760 Speaker 1: of choice for example, and consumers have shortages. Again, I'm 101 00:06:09,279 --> 00:06:11,479 Speaker 1: talking about this in the way that if the trade 102 00:06:11,560 --> 00:06:15,960 Speaker 1: war accelerates, you get these sorts of issues. But whether 103 00:06:16,040 --> 00:06:19,279 Speaker 1: consumers push back and you have to absorb tariffs and 104 00:06:19,279 --> 00:06:22,600 Speaker 1: profit margins is important or the worst thing is that 105 00:06:22,640 --> 00:06:25,520 Speaker 1: you actually have disruptions to supply chains, which would be 106 00:06:25,520 --> 00:06:28,159 Speaker 1: you know, a much more significant worsening than than you 107 00:06:28,200 --> 00:06:32,800 Speaker 1: see so far. But the disruptions to the ordinary, the 108 00:06:32,800 --> 00:06:37,280 Speaker 1: efficient functioning across borders is a potential issue, and that 109 00:06:37,279 --> 00:06:39,000 Speaker 1: can change over time. And you can find and you 110 00:06:39,080 --> 00:06:42,480 Speaker 1: see in some uh, some regions of the world domestic 111 00:06:42,480 --> 00:06:44,920 Speaker 1: production comes back, but there's a transition cost to that 112 00:06:45,400 --> 00:06:47,839 Speaker 1: uh and time, and there are disruptions, and the market 113 00:06:47,880 --> 00:06:50,040 Speaker 1: has to consider that. I don't think that this is 114 00:06:50,240 --> 00:06:52,960 Speaker 1: the end of the world by any means. UH. And again, 115 00:06:53,000 --> 00:06:55,160 Speaker 1: the impact could be very small. We could be quite 116 00:06:55,200 --> 00:06:59,080 Speaker 1: positive focusing right back on those earnings results if there 117 00:06:59,080 --> 00:07:02,520 Speaker 1: are resolutions to to trade issues. And the optimistic view 118 00:07:02,520 --> 00:07:04,720 Speaker 1: of this was, for example, that the US was going 119 00:07:04,760 --> 00:07:09,039 Speaker 1: to drive declines and trade barriers and improved U S exports. 120 00:07:09,720 --> 00:07:12,280 Speaker 1: But that optimistic view, I think it's a little bit 121 00:07:12,280 --> 00:07:16,640 Speaker 1: tougher here when we see retaliation accelerate. Thank you very much, 122 00:07:16,640 --> 00:07:19,960 Speaker 1: Stephen Whiting. He is global chief strategist at City, a 123 00:07:20,080 --> 00:07:38,800 Speaker 1: private bank, talking about the corporate earnings environment. A quick 124 00:07:38,880 --> 00:07:42,640 Speaker 1: start to the NATO meetings. It is perfect, It is perfect. 125 00:07:42,680 --> 00:07:45,360 Speaker 1: To speak with Robin Niblett, and I urge you folks 126 00:07:45,400 --> 00:07:48,960 Speaker 1: to go to the Chata Mouse website and see a terrific, 127 00:07:49,080 --> 00:07:53,360 Speaker 1: concise interview with Dr Niblet. Trump is heading to Europe 128 00:07:53,360 --> 00:07:56,800 Speaker 1: for an ideological battle. Did you think it would start 129 00:07:56,880 --> 00:08:00,840 Speaker 1: this quickly? No, Frank, I didn't. Um to see the 130 00:08:00,880 --> 00:08:03,720 Speaker 1: way he handled the breakfast this morning with the native 131 00:08:03,720 --> 00:08:06,800 Speaker 1: secondary generals Stenberg. It was just it was like one 132 00:08:06,800 --> 00:08:08,640 Speaker 1: of those I mean, he's used to sitting at a 133 00:08:08,680 --> 00:08:12,400 Speaker 1: cabinet table and have everyone praised him over there croissant 134 00:08:12,520 --> 00:08:15,600 Speaker 1: or breakfast or whatever. But um, it was more putinesque. 135 00:08:15,680 --> 00:08:18,520 Speaker 1: You know. Putin takes ministers to task, and he really 136 00:08:18,560 --> 00:08:20,040 Speaker 1: went for them. And of course he went for them 137 00:08:20,040 --> 00:08:22,760 Speaker 1: about Germany, not about NATO as a whole. So he 138 00:08:22,760 --> 00:08:27,080 Speaker 1: put the nature sectary general in an impossible position. Robert Niblet, 139 00:08:27,080 --> 00:08:30,040 Speaker 1: I'm wondering if you can describe why do you believe 140 00:08:30,840 --> 00:08:35,160 Speaker 1: that European leaders are surprised by the behavior and the 141 00:08:35,200 --> 00:08:38,199 Speaker 1: comments of President Donald Trump. Have they not been paying 142 00:08:38,200 --> 00:08:41,680 Speaker 1: attention since he was elected? No? I mean I think 143 00:08:41,840 --> 00:08:45,720 Speaker 1: they are used to him leading up with lots of 144 00:08:45,760 --> 00:08:50,600 Speaker 1: fire and fury. They're used to him then m recasting 145 00:08:50,640 --> 00:08:53,160 Speaker 1: what happened with fire and furies he did after the 146 00:08:53,200 --> 00:08:55,760 Speaker 1: G seven meeting, and they used to some pretty tough 147 00:08:55,840 --> 00:09:00,600 Speaker 1: language off camera, perhaps during the meetings themselves, but to 148 00:09:00,679 --> 00:09:05,080 Speaker 1: actually sort of publicize the dirty linen this way in 149 00:09:05,200 --> 00:09:07,920 Speaker 1: front of the world press right at the kickoff. I 150 00:09:07,960 --> 00:09:09,920 Speaker 1: think they're they're just having to learn to adjust even 151 00:09:09,920 --> 00:09:13,840 Speaker 1: more quickly and very difficult to do. If your countries, well, 152 00:09:14,000 --> 00:09:17,160 Speaker 1: if you're the head of one of those seven countries, 153 00:09:18,120 --> 00:09:21,960 Speaker 1: why would you not get ahead of the situation by 154 00:09:22,040 --> 00:09:24,560 Speaker 1: actually putting forth the plan that would address some of 155 00:09:24,559 --> 00:09:27,560 Speaker 1: the issues that the president has raised? Well, I see, 156 00:09:27,600 --> 00:09:30,280 Speaker 1: I think this is the the The irony here is 157 00:09:30,320 --> 00:09:35,480 Speaker 1: that they have the European members of NATO have spent 158 00:09:35,600 --> 00:09:38,320 Speaker 1: the last two to three years since the Warsaw Summit, 159 00:09:38,360 --> 00:09:42,760 Speaker 1: actually even before President Trump get a power moving slowly, 160 00:09:42,960 --> 00:09:45,520 Speaker 1: I I would say too slowly in my opinion, but 161 00:09:45,640 --> 00:09:49,000 Speaker 1: moving towards the two percent of GDP spending on defense target. 162 00:09:49,040 --> 00:09:52,680 Speaker 1: They've gone from three countries spending it to eight. Every 163 00:09:52,720 --> 00:09:55,559 Speaker 1: country across the borders raised defense spending on average, it's 164 00:09:55,559 --> 00:09:59,360 Speaker 1: been a six percent increase from the year before. They've 165 00:09:59,360 --> 00:10:02,760 Speaker 1: committed training troops to Iraq, They've committed troops to go 166 00:10:02,800 --> 00:10:06,520 Speaker 1: out to Afghanistan, They've agreed to new military commands. I 167 00:10:06,520 --> 00:10:09,520 Speaker 1: mean they're trying to jump to the Trump tune and 168 00:10:09,600 --> 00:10:11,480 Speaker 1: get ahead of the curves, so that what they were 169 00:10:11,480 --> 00:10:14,560 Speaker 1: hoping is the President Trump would arrive and say, look 170 00:10:14,559 --> 00:10:17,160 Speaker 1: at all this stuff these native countries are doing. I'm 171 00:10:17,240 --> 00:10:19,360 Speaker 1: the driver. I made this happen. But guess what he 172 00:10:19,440 --> 00:10:22,040 Speaker 1: comes around and catches them on the blind side. Your 173 00:10:22,160 --> 00:10:26,600 Speaker 1: study of history and the body of people's scholarship that 174 00:10:26,679 --> 00:10:29,680 Speaker 1: you have at Chatham House, there's a massive school of 175 00:10:29,720 --> 00:10:34,880 Speaker 1: thought which will be weighed out. This president discussed that 176 00:10:34,960 --> 00:10:38,560 Speaker 1: from a from a British or a continental standpoint. Do 177 00:10:38,720 --> 00:10:42,120 Speaker 1: they wait out Trump or do they adapt to Trump? 178 00:10:42,559 --> 00:10:45,880 Speaker 1: Or do they manage this as a permanence of the 179 00:10:45,920 --> 00:10:49,920 Speaker 1: President of the United States? So very interesting, uh question, Tom. 180 00:10:49,960 --> 00:10:52,480 Speaker 1: I think and look as the as the doctor Chatham 181 00:10:52,480 --> 00:10:55,880 Speaker 1: House coming to our Hunters anniversary in two years time. 182 00:10:55,920 --> 00:11:00,199 Speaker 1: In n most of the big think tanks, Council Formulations, Brookings, 183 00:11:00,280 --> 00:11:05,360 Speaker 1: Carnegie ourselves founded in the nineteen twenties um after the 184 00:11:05,440 --> 00:11:08,640 Speaker 1: collapual because there were no big institutions to really help 185 00:11:08,679 --> 00:11:11,160 Speaker 1: manage the world all of these think tanks such as 186 00:11:11,160 --> 00:11:13,800 Speaker 1: ours were involved in creating the Breton Woods institutions in 187 00:11:13,840 --> 00:11:17,040 Speaker 1: the forties and the fifties. And yes, you're right the 188 00:11:17,080 --> 00:11:20,720 Speaker 1: instinct to say we should wait him out and sanity 189 00:11:20,800 --> 00:11:24,240 Speaker 1: will return to an understanding the motilateralism, you know, is 190 00:11:24,720 --> 00:11:28,040 Speaker 1: the glue that helps economic prosperity rise. But right now 191 00:11:28,440 --> 00:11:30,920 Speaker 1: I think the warriors, no, maybe we're going back to 192 00:11:31,040 --> 00:11:33,560 Speaker 1: something that is more like the nineteen hundreds or the 193 00:11:33,640 --> 00:11:36,920 Speaker 1: nineteen thirties, where the institutions are going to collapse, and 194 00:11:37,000 --> 00:11:40,040 Speaker 1: we better get ready for a world in which America 195 00:11:40,080 --> 00:11:44,360 Speaker 1: will not be by europe side. And Pim, this is extraordinary. Well, 196 00:11:44,400 --> 00:11:47,720 Speaker 1: I gotta say, I was listening to some old recordings 197 00:11:47,920 --> 00:11:54,120 Speaker 1: of former Secretary of State, Secretary of Defense and chiefs 198 00:11:54,160 --> 00:11:58,880 Speaker 1: of Staff George C. Marshall talking about the Marshall Plan 199 00:11:59,400 --> 00:12:02,520 Speaker 1: and back in you know, in that time of the 200 00:12:02,559 --> 00:12:08,200 Speaker 1: President Harry Truman, and even then it really took Harry Truman, 201 00:12:08,800 --> 00:12:13,040 Speaker 1: George Marshall a whirlwind trip around the United States in 202 00:12:13,200 --> 00:12:15,599 Speaker 1: order to sell it exactly. Well, this is true, and 203 00:12:15,640 --> 00:12:18,320 Speaker 1: Ben Steele at the CFR did a great one volume 204 00:12:18,640 --> 00:12:23,640 Speaker 1: and that's recently the Marshall plan is that from another lifetime. 205 00:12:24,480 --> 00:12:27,280 Speaker 1: It's for another lifetime in the sense that Europe was 206 00:12:27,679 --> 00:12:30,680 Speaker 1: not just on his knees. It was devastated at the 207 00:12:30,800 --> 00:12:32,240 Speaker 1: end of the Second World War. I mean, am I 208 00:12:32,280 --> 00:12:34,560 Speaker 1: been a relatively short walk compared toive wars that we 209 00:12:34,600 --> 00:12:38,120 Speaker 1: see today of Afghanistan. But it absolutely with Europe and 210 00:12:38,200 --> 00:12:41,199 Speaker 1: his needs and the Communists. Communism would have come in 211 00:12:41,520 --> 00:12:43,760 Speaker 1: and taken over the bulk of Western Europe, which would 212 00:12:43,760 --> 00:12:46,200 Speaker 1: have been bad for the United States and Badford's economy. 213 00:12:46,400 --> 00:12:48,560 Speaker 1: So there was a huge self interest as long as 214 00:12:48,559 --> 00:12:50,160 Speaker 1: you could sell it to American people to do it. 215 00:12:50,160 --> 00:12:53,320 Speaker 1: And I go to back to Chancellor Miracle's emotional headline 216 00:12:53,320 --> 00:12:57,880 Speaker 1: today in her speech or comments rather about living in 217 00:12:57,920 --> 00:13:00,840 Speaker 1: East Germany under the Soviet in fle what will you 218 00:13:00,920 --> 00:13:02,840 Speaker 1: listen for quickly? What will you listen for in the 219 00:13:02,880 --> 00:13:06,480 Speaker 1: next twenty four hours in Brussels. Um, I'm gonna look 220 00:13:06,520 --> 00:13:09,240 Speaker 1: to see whether the breakfast with Staltonberg is just the 221 00:13:09,280 --> 00:13:13,440 Speaker 1: beginning of a continuing berating and battle against the rest 222 00:13:13,480 --> 00:13:16,079 Speaker 1: of Europe, or whether this is his opening point and 223 00:13:16,120 --> 00:13:18,160 Speaker 1: he Pivots is saying, you know what they're listening to me. 224 00:13:18,520 --> 00:13:21,560 Speaker 1: I think we're making good Robin Nimble Thank you so much. Again. 225 00:13:21,559 --> 00:13:24,440 Speaker 1: I can't convey enough the briefing from Dr Niblet. You 226 00:13:24,480 --> 00:13:26,760 Speaker 1: are advantage by going to Chatow House and looking for that. 227 00:13:26,800 --> 00:13:43,120 Speaker 1: I've got that out on Twitter, Rupert Burdock. Century Fox 228 00:13:43,520 --> 00:13:47,920 Speaker 1: increased its bid for the part of Sky Broadcasting that's 229 00:13:47,920 --> 00:13:52,240 Speaker 1: the pay TV operation in based in the UK. They 230 00:13:52,400 --> 00:13:55,559 Speaker 1: increased their bid to thirty two billion dollars, that is 231 00:13:55,640 --> 00:13:59,679 Speaker 1: twelve percent more than a bid from Comcast. And here 232 00:13:59,679 --> 00:14:02,720 Speaker 1: to tell us about this particular bid and how it 233 00:14:02,760 --> 00:14:06,280 Speaker 1: plays into the overall drama of the assets of twenty 234 00:14:06,320 --> 00:14:09,679 Speaker 1: one century Fox is Brian Weezer. He is the senior 235 00:14:09,720 --> 00:14:14,240 Speaker 1: analyst for Pivotal Research Group. He covers advertising, media and 236 00:14:14,280 --> 00:14:16,520 Speaker 1: the Internet, and he joins me here in our eleven 237 00:14:16,559 --> 00:14:18,840 Speaker 1: three oh studios. Brian, thank you very much for being 238 00:14:19,600 --> 00:14:24,720 Speaker 1: with us. Um. Before we get into this specific Sky bid, 239 00:14:25,560 --> 00:14:28,640 Speaker 1: can you tell me what kind of company has Disney 240 00:14:28,760 --> 00:14:33,040 Speaker 1: been for investors? Has it been a really successful investment. 241 00:14:33,400 --> 00:14:36,440 Speaker 1: If let's say you decided that Bob Iger was your 242 00:14:36,560 --> 00:14:39,520 Speaker 1: champion and you were going to put your money in Disney, 243 00:14:39,560 --> 00:14:42,600 Speaker 1: has that been a really profitable investment. That's a good question. 244 00:14:42,680 --> 00:14:44,520 Speaker 1: I mean it really just depends on when you started. 245 00:14:44,640 --> 00:14:47,120 Speaker 1: I feel like the stock hasn't really done a lot 246 00:14:47,600 --> 00:14:51,200 Speaker 1: depending on the on the day UM compared to other stocks, 247 00:14:51,200 --> 00:14:53,600 Speaker 1: it hasn't. I was looking for example of the last 248 00:14:53,720 --> 00:14:56,360 Speaker 1: eight years. Well, I mean the concern for a long 249 00:14:56,400 --> 00:14:59,440 Speaker 1: time UM really was I mean when was it mid mid? 250 00:15:00,000 --> 00:15:02,160 Speaker 1: Mean I think it was. You know, the market was 251 00:15:02,160 --> 00:15:07,040 Speaker 1: really spooked about the UM. The permanent status of ESPN 252 00:15:07,120 --> 00:15:10,400 Speaker 1: is this massive growth driver. And I think that all 253 00:15:10,400 --> 00:15:11,880 Speaker 1: of a sudden when they had to bring down a 254 00:15:11,920 --> 00:15:15,000 Speaker 1: long term guidance expectation and you know that, I think 255 00:15:15,040 --> 00:15:20,200 Speaker 1: that's when everyone brought their expectations towards reality. UM. In 256 00:15:20,280 --> 00:15:23,920 Speaker 1: subsequent periods, I think there was some relative optimism and 257 00:15:23,920 --> 00:15:27,200 Speaker 1: and in fact they said a good strategy UM. The 258 00:15:27,240 --> 00:15:30,520 Speaker 1: problem is it's an expensive one, and with all that's 259 00:15:30,560 --> 00:15:34,880 Speaker 1: going on between with Fox and the bid first Sky, 260 00:15:35,000 --> 00:15:39,200 Speaker 1: UH and Comcast out there raising the prices for everyone involved. 261 00:15:40,040 --> 00:15:42,680 Speaker 1: The problem is the amount of time it will take 262 00:15:42,720 --> 00:15:45,800 Speaker 1: to make this worthwhile is a very long time. And 263 00:15:45,840 --> 00:15:49,400 Speaker 1: the only potentially good news from this, you know, higher 264 00:15:49,640 --> 00:15:53,520 Speaker 1: bid for Sky if UH this plays out, is that 265 00:15:53,600 --> 00:15:58,800 Speaker 1: Comcast might then bid higher and then Disney at least 266 00:15:58,840 --> 00:16:02,600 Speaker 1: would get a better price on the thirty that it 267 00:16:02,640 --> 00:16:05,600 Speaker 1: will end up owning, which will help offset the amount 268 00:16:05,600 --> 00:16:10,600 Speaker 1: they're overpaying for the rest of Fox. So it's unfortunately 269 00:16:10,600 --> 00:16:12,720 Speaker 1: it's a great strategy. It's great if you've got a 270 00:16:12,720 --> 00:16:16,800 Speaker 1: ten in twenty year time horizon, they're probably well positioned 271 00:16:16,960 --> 00:16:19,000 Speaker 1: relative to alternatives. But the problem is it's just a 272 00:16:19,080 --> 00:16:23,560 Speaker 1: very expensive stock. Brian, your joy, your expertise. The reason 273 00:16:23,680 --> 00:16:26,520 Speaker 1: we drag you on as often as we can as 274 00:16:26,600 --> 00:16:30,560 Speaker 1: you link all this into what we hate, which is advertising. 275 00:16:31,520 --> 00:16:36,040 Speaker 1: All of this transaction, the billions and billions of dollars, 276 00:16:36,760 --> 00:16:41,240 Speaker 1: is predicated on the game continuing. Who is most in 277 00:16:41,360 --> 00:16:47,320 Speaker 1: doubt of their future advertising revenue? Fox, Comcast or Disney? 278 00:16:47,680 --> 00:16:50,560 Speaker 1: You know, I think Fox is arguably the one most 279 00:16:50,600 --> 00:16:52,760 Speaker 1: in doubt of their ability to compete. I mean, one 280 00:16:52,840 --> 00:16:56,600 Speaker 1: of the factors that spooked Rupert Murdoch from reporting subsequent 281 00:16:56,640 --> 00:16:59,400 Speaker 1: to the event was when you know, in India they're 282 00:16:59,440 --> 00:17:04,440 Speaker 1: at their biding UM for rights to um cricket uh 283 00:17:04,840 --> 00:17:07,080 Speaker 1: for their Indian business, and Facebook was out there with 284 00:17:07,080 --> 00:17:09,520 Speaker 1: a six I believe it was a six hundred million 285 00:17:10,000 --> 00:17:13,760 Speaker 1: UH dollar bid for this content that you know, the 286 00:17:13,840 --> 00:17:17,400 Speaker 1: market where there's about a billion dollars of revenue of 287 00:17:17,520 --> 00:17:21,440 Speaker 1: advertising revenue, and you know that I think was the 288 00:17:21,480 --> 00:17:23,639 Speaker 1: thing that made them now. Fox and and their Indian 289 00:17:23,880 --> 00:17:28,200 Speaker 1: satellite TV business ended up winning the rights to cricket. 290 00:17:28,359 --> 00:17:30,760 Speaker 1: But I think it's spooked them because of the resources 291 00:17:30,800 --> 00:17:34,560 Speaker 1: involved and for businesses that are entirely ad dependent. Ironically, 292 00:17:34,720 --> 00:17:39,439 Speaker 1: and a little reported, uh, it was last week Facebook 293 00:17:40,200 --> 00:17:45,760 Speaker 1: agreed to the English Premier League soccer rights for let's 294 00:17:45,760 --> 00:17:50,680 Speaker 1: be clear, Cambodia, Laos and Thailand, those hot advertising markets 295 00:17:51,880 --> 00:17:56,680 Speaker 1: um for two million, uh, I believe pounds for three 296 00:17:56,720 --> 00:18:00,280 Speaker 1: years in markets where again there's about a total total 297 00:18:00,320 --> 00:18:04,919 Speaker 1: of a billion dollars of annual digital advertising spending in total. 298 00:18:05,119 --> 00:18:08,280 Speaker 1: And so you have Facebook again showing they'll open up 299 00:18:08,320 --> 00:18:10,880 Speaker 1: their wallets to pay for content. Amazon will do the same. 300 00:18:10,920 --> 00:18:13,199 Speaker 1: And so I think that extent that Amazon is not 301 00:18:13,359 --> 00:18:17,800 Speaker 1: a dependent of course, um, but I think that I 302 00:18:17,920 --> 00:18:22,000 Speaker 1: belief that this growth can fuel ongoing growth is behind 303 00:18:22,600 --> 00:18:26,679 Speaker 1: or key to Facebook and Google and Amazon, um, you know, 304 00:18:26,960 --> 00:18:32,880 Speaker 1: spending for content, increasing competition. I just at the time 305 00:18:32,920 --> 00:18:35,040 Speaker 1: that we've got left, I don't know where you want 306 00:18:35,040 --> 00:18:36,720 Speaker 1: to go with this. We can go so many ways 307 00:18:37,200 --> 00:18:41,200 Speaker 1: with Brian, but You've been such an acute analyst of Twitter, 308 00:18:41,840 --> 00:18:44,199 Speaker 1: Am I right that you still have a sell on Twitter? 309 00:18:44,480 --> 00:18:47,520 Speaker 1: I do? And the irony. The irony is I consider 310 00:18:47,560 --> 00:18:50,399 Speaker 1: myself to be relatively positive about them. The problem is 311 00:18:50,440 --> 00:18:53,119 Speaker 1: that the stock has run away with itself. Investors have 312 00:18:53,160 --> 00:18:56,120 Speaker 1: traded it up because everyone's trading it up to get 313 00:18:56,119 --> 00:18:59,560 Speaker 1: optimistic about user growth and they think that that matters, 314 00:19:00,040 --> 00:19:03,360 Speaker 1: and the problem is it doesn't. UM. There is stable business, 315 00:19:03,440 --> 00:19:06,760 Speaker 1: which is fine. And you know this announcement UM or 316 00:19:06,760 --> 00:19:10,280 Speaker 1: this Washington Post piece from Friday where they announce seventy 317 00:19:10,320 --> 00:19:14,480 Speaker 1: million accounts being uh, you know it canceled. First of all, 318 00:19:14,520 --> 00:19:18,040 Speaker 1: this was misunderstood widely because an account that gets created 319 00:19:18,119 --> 00:19:21,240 Speaker 1: the same day and then gets eliminated in the same 320 00:19:21,320 --> 00:19:23,959 Speaker 1: day is never included in their monthly active users, right. 321 00:19:24,720 --> 00:19:26,960 Speaker 1: But investors kind of ran the other way, thinking, oh, 322 00:19:27,000 --> 00:19:29,960 Speaker 1: it's gonna be terrible negative, etcetera. But they user growth 323 00:19:30,000 --> 00:19:33,200 Speaker 1: expectations that fueled the stocks for Rise recently were overdone 324 00:19:33,200 --> 00:19:37,040 Speaker 1: and overstated. But the business is stable at least, Brian, 325 00:19:37,119 --> 00:19:39,760 Speaker 1: we I gotta ask you just as a comparison here, 326 00:19:39,840 --> 00:19:42,760 Speaker 1: because we talked about advertising, right, So what I did 327 00:19:42,800 --> 00:19:46,480 Speaker 1: was I looked at the performance over the last eight years, 328 00:19:46,520 --> 00:19:51,160 Speaker 1: so back to two thousand and ten, of Disney, of Comcast, 329 00:19:51,320 --> 00:19:55,000 Speaker 1: and of Netflix, because Netflix, of course a subscription business, 330 00:19:55,119 --> 00:19:58,560 Speaker 1: whether it was selling you know, renting you c d 331 00:19:58,720 --> 00:20:02,119 Speaker 1: s or whether it's streaming. Okay, So Disney over that 332 00:20:02,160 --> 00:20:05,399 Speaker 1: period a two increase in the stock price over the 333 00:20:05,480 --> 00:20:11,399 Speaker 1: last eight years, Comcast three hundred. Okay, So both of 334 00:20:11,400 --> 00:20:14,560 Speaker 1: those look pretty good. Okay, but that's over eight years. 335 00:20:14,600 --> 00:20:17,680 Speaker 1: Oh and then when you look at Netflix, Yeah, you're smiling, 336 00:20:18,040 --> 00:20:21,840 Speaker 1: and so are those investors in Netflix. Netflix has returned 337 00:20:22,080 --> 00:20:27,880 Speaker 1: two thousand, three hundred and seventy percent over that same period. 338 00:20:28,320 --> 00:20:32,160 Speaker 1: So this idea of advertising, can we just put up, 339 00:20:32,320 --> 00:20:35,760 Speaker 1: you know, a stake through the heart of advertising and say, 340 00:20:35,800 --> 00:20:38,439 Speaker 1: you know, if the content is there and people want it, 341 00:20:38,480 --> 00:20:41,160 Speaker 1: they'll pay for it. And that's not a bad model. Oh, 342 00:20:41,240 --> 00:20:43,520 Speaker 1: absolutely agree with that. I mean, although if you want 343 00:20:43,560 --> 00:20:45,399 Speaker 1: to run that chart, then run Facebook as well. And 344 00:20:45,400 --> 00:20:48,600 Speaker 1: I think Correct, which is entirely advertising dependent, and Google. 345 00:20:49,280 --> 00:20:51,480 Speaker 1: I'm not saying they can't coexist. I'm just saying that 346 00:20:51,640 --> 00:20:54,240 Speaker 1: there isn't just one mom absolutely, and by the way, 347 00:20:54,280 --> 00:20:56,360 Speaker 1: I actually think advertising is not a very good business. 348 00:20:56,560 --> 00:21:01,640 Speaker 1: I just happened to cover it. Well, clearly, you don't 349 00:21:01,720 --> 00:21:05,360 Speaker 1: have many buys and you don't have any record. You've 350 00:21:05,400 --> 00:21:07,879 Speaker 1: only got as as long as I see Nielsen's ad 351 00:21:07,880 --> 00:21:10,920 Speaker 1: buy and I just pretty yeah, which is I think 352 00:21:10,960 --> 00:21:15,320 Speaker 1: undervalued investors have overreacted to the downside there, Brian, the 353 00:21:15,400 --> 00:21:17,840 Speaker 1: view from London is different from a wonderful view of 354 00:21:17,840 --> 00:21:22,760 Speaker 1: the pim season midtown. Is Madison Avenue still there? Yeah? 355 00:21:22,800 --> 00:21:25,560 Speaker 1: I think it's a block away. Uh, you know it's 356 00:21:26,359 --> 00:21:31,880 Speaker 1: Madison Avenue is resilient. I think marketing, broadly defined, remains 357 00:21:32,080 --> 00:21:36,360 Speaker 1: a really important function. It is not, however, a marketer's 358 00:21:36,440 --> 00:21:41,119 Speaker 1: job to keep ads supported media owners in business. Sorry, 359 00:21:41,960 --> 00:21:44,040 Speaker 1: you're lucky, you guys. And Blueberg is a great example. 360 00:21:44,160 --> 00:21:46,840 Speaker 1: You're not dependent on advertising, right, That's kind of the 361 00:21:46,840 --> 00:21:49,679 Speaker 1: whole point that there are other revenue streams. There are 362 00:21:49,720 --> 00:21:52,000 Speaker 1: other ways to make a business grow. But when it 363 00:21:52,040 --> 00:21:56,159 Speaker 1: comes to solely, um having a business dependent on advertising, 364 00:21:56,280 --> 00:22:01,200 Speaker 1: over time, that becomes a less interesting business. H Brian, 365 00:22:01,240 --> 00:22:03,320 Speaker 1: thank you so much. Brian Weiser, with a good update 366 00:22:03,359 --> 00:22:05,560 Speaker 1: here on what we're going to see. And we've had 367 00:22:05,600 --> 00:22:08,200 Speaker 1: different opinions on Matthew Blocks. I'm looking for some form 368 00:22:08,240 --> 00:22:10,960 Speaker 1: of actions from the Roberts family. I guess I can 369 00:22:11,040 --> 00:22:13,359 Speaker 1: state sooner than later. Pam, I guess we'll have to 370 00:22:13,400 --> 00:22:32,240 Speaker 1: see on that. I want to shift attention because history 371 00:22:32,320 --> 00:22:34,679 Speaker 1: is one thing, but the stock market looks to the 372 00:22:34,760 --> 00:22:37,760 Speaker 1: future in order to make money. And joining us now 373 00:22:38,080 --> 00:22:41,720 Speaker 1: is investment strategist for Edward Jones Kate Warrenant. She joins 374 00:22:41,800 --> 00:22:44,520 Speaker 1: us here in our eleven three oh studios. Kate, thanks 375 00:22:44,600 --> 00:22:47,360 Speaker 1: very much for being with us, much appreciated. I want 376 00:22:47,359 --> 00:22:51,000 Speaker 1: to get right to the idea of specific companies that 377 00:22:51,119 --> 00:22:54,359 Speaker 1: you think are going to do well despite all of 378 00:22:54,400 --> 00:22:57,080 Speaker 1: the chaos and all of the headlines that Tom was 379 00:22:57,160 --> 00:23:01,040 Speaker 1: just describing. One of them has to do with technology, 380 00:23:01,080 --> 00:23:04,600 Speaker 1: and that is Microsoft. Why do you think Microsoft is 381 00:23:04,640 --> 00:23:07,800 Speaker 1: the kind of company that people ought to own? Because 382 00:23:07,840 --> 00:23:11,080 Speaker 1: we're seeing businesses and consumers shift things towards the cloud, 383 00:23:11,440 --> 00:23:14,479 Speaker 1: and Microsoft is a very competitive company in that area. 384 00:23:14,800 --> 00:23:18,920 Speaker 1: They've been basically transforming the company from what we've all 385 00:23:19,040 --> 00:23:22,360 Speaker 1: been familiar with in terms of the Windows operating systems 386 00:23:22,400 --> 00:23:26,760 Speaker 1: and PCs towards cloud computing. And it's that success that 387 00:23:26,800 --> 00:23:29,560 Speaker 1: we think continues to drive the talk price higher, but 388 00:23:29,720 --> 00:23:32,679 Speaker 1: also is something that is really not going to be 389 00:23:32,720 --> 00:23:36,119 Speaker 1: affected very much by the pace of economic growth or 390 00:23:36,320 --> 00:23:40,199 Speaker 1: by trade warries. And so that's why we think it's 391 00:23:40,280 --> 00:23:43,600 Speaker 1: very attractive company to put into your portfolio today. It's 392 00:23:43,640 --> 00:23:46,880 Speaker 1: got a dividend yield of almost two percent. We think 393 00:23:46,920 --> 00:23:49,520 Speaker 1: dividends are going to continue to grow. But it's that 394 00:23:49,800 --> 00:23:52,479 Speaker 1: really good positioning and the fact that they almost are 395 00:23:52,520 --> 00:23:55,879 Speaker 1: able to create their own growth by taking advantage of 396 00:23:56,160 --> 00:23:59,680 Speaker 1: the trend and cloud computing that we think really positions 397 00:23:59,680 --> 00:24:04,119 Speaker 1: it well. Now why Microsoft, let's say, over Amazon, because 398 00:24:04,160 --> 00:24:08,000 Speaker 1: of course Amazon Web Services a big contributor of profits. 399 00:24:08,200 --> 00:24:11,320 Speaker 1: They're in the same computing. Yes, we also have a 400 00:24:11,359 --> 00:24:15,200 Speaker 1: by rating on Amazon. We're not saying the one or 401 00:24:15,240 --> 00:24:17,080 Speaker 1: the other. We have by ratings on both. And I 402 00:24:17,119 --> 00:24:21,280 Speaker 1: think that's what's really important, which is Microsoft is something 403 00:24:21,320 --> 00:24:24,440 Speaker 1: I'm talking about because I think it's well positioned today, 404 00:24:24,480 --> 00:24:28,840 Speaker 1: but it's not Microsoft versus every other company. And I 405 00:24:28,880 --> 00:24:32,080 Speaker 1: think even more important is investors need to be looking 406 00:24:32,080 --> 00:24:34,840 Speaker 1: at their own portfolios and saying, what do I need 407 00:24:34,880 --> 00:24:37,520 Speaker 1: to add. How do I keep a very well diversified 408 00:24:37,560 --> 00:24:40,880 Speaker 1: equity portfolio with not just US large cap stocks like 409 00:24:40,960 --> 00:24:45,960 Speaker 1: Microsoft or Amazon, but also smaller companies that might be 410 00:24:46,000 --> 00:24:49,240 Speaker 1: able to benefit more from faster growth. So make sure 411 00:24:49,280 --> 00:24:52,639 Speaker 1: you're building the right portfolio for your situation, and that 412 00:24:52,720 --> 00:24:55,960 Speaker 1: if you're already overweight in technology, you're not adding Microsoft 413 00:24:56,080 --> 00:24:59,680 Speaker 1: to that. Because staying diversified across a variety of sectors 414 00:24:59,760 --> 00:25:02,160 Speaker 1: is a what's important right now? So let's talk about 415 00:25:02,160 --> 00:25:04,359 Speaker 1: another sector I want to talk about. I want you 416 00:25:04,400 --> 00:25:09,600 Speaker 1: to talk about rather Novartists. Why again, because it's a 417 00:25:09,600 --> 00:25:12,760 Speaker 1: company that's making a transition. In this case, they've done 418 00:25:12,760 --> 00:25:17,080 Speaker 1: a strategic review of their businesses and they're basically focused 419 00:25:17,160 --> 00:25:21,920 Speaker 1: much more on their pharmaceutical development business, where they've got 420 00:25:21,960 --> 00:25:26,800 Speaker 1: cell therapiest, gene therapies, basically things where they're new innovative drugs, 421 00:25:27,000 --> 00:25:30,040 Speaker 1: and we think that will drive growth over time. They've 422 00:25:30,080 --> 00:25:32,919 Speaker 1: also decided to spin off their Alcyon business we're all 423 00:25:32,960 --> 00:25:37,000 Speaker 1: familiar with their eye products UH into a separate company. Frequently, 424 00:25:37,000 --> 00:25:39,120 Speaker 1: when companies do that, it's a catalyst for the stock 425 00:25:39,200 --> 00:25:41,440 Speaker 1: to do better, and that should happen sometime in twenty 426 00:25:41,440 --> 00:25:45,520 Speaker 1: and eighteen. We're looking at Nevartes as basically well diversified. 427 00:25:45,560 --> 00:25:49,640 Speaker 1: It's got a generic drug business that's the second largest UH, 428 00:25:49,680 --> 00:25:51,800 Speaker 1: so it seems well positioned in this world where there's 429 00:25:51,800 --> 00:25:55,640 Speaker 1: a lot of uncertainty about pricing of prescription. Just heard, 430 00:25:55,640 --> 00:26:00,320 Speaker 1: for example, the President battling against Fiser and Visor pulling 431 00:26:00,320 --> 00:26:04,080 Speaker 1: back on those drug increases. Yes, and uh, that's one 432 00:26:04,080 --> 00:26:05,680 Speaker 1: of the reasons to always be looking at the drug 433 00:26:05,760 --> 00:26:09,480 Speaker 1: pipeline and thinking about what are the new drugs coming out, 434 00:26:09,840 --> 00:26:12,840 Speaker 1: because I think in many cases the pricing issues a 435 00:26:12,880 --> 00:26:16,720 Speaker 1: little less when it's something new, innovative, and where it's 436 00:26:16,760 --> 00:26:19,600 Speaker 1: really important in terms of healthcare over time. Thank you 437 00:26:19,720 --> 00:26:22,440 Speaker 1: very much for spending time with us. Kate Warren, investment 438 00:26:22,480 --> 00:26:28,040 Speaker 1: strategist for Edward Jones, speaking about nov artists and Microsoft. 439 00:26:34,520 --> 00:26:38,720 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 440 00:26:38,800 --> 00:26:44,119 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 441 00:26:44,160 --> 00:26:48,399 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before 442 00:26:48,440 --> 00:26:52,639 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.