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Speaker 2: Yeah, let's bring in Eric Clark. He's chief investment officer
Speaker 2: of the ra Acuvest Global Advisors, about one point two
Speaker 2: billion dollars in assets under management, portfolio manager too of
Speaker 2: the Alpha Brand's logo ETF. He covers about two hundred
Speaker 2: consumer stocks, including Netflix. It's the eleventh biggest holding in
Speaker 2: the logo ETF. Eric joins us from San Diego, which
Speaker 2: I understand. It's like sixty nine degrees there. It's not
Speaker 2: like here, Eric, where the high today was twenty one degrees.
Speaker 3: So don't rub it in. Yeah.
Speaker 4: I don't even know.
Speaker 2: Why you guys like watch Netflix in San Diego. You
Speaker 2: just should be playing outside all the time. A decline
Speaker 2: of four percent after hours right now, are you buying
Speaker 2: more Netflix?
Speaker 5: I will buy more Netflix tomorrow, absolutely, because it's seventy
Speaker 5: five here by the way, Oh my bad.
Speaker 3: Thanks, thanks very much for that. We're done with this interview.
Speaker 3: All right, So why are you going to be buying tomorrow?
Speaker 5: Well, you know, bigger picture, nothing's really changed with the business.
Speaker 5: It's just that people have left Netflix stock because of
Speaker 5: the Warner Brothers the time that it takes to get
Speaker 5: a deal done like this. So people just say, I
Speaker 5: just don't want to have my money tied up in
Speaker 5: something that's going to be a little more uncertain than
Speaker 5: maybe quote dead money. That's the opportunity. So the stock's
Speaker 5: down over thirty percent and business is still doing really well.
Speaker 5: And at this point where the stock is now, I
Speaker 5: don't even think it matters what the outcome of the
Speaker 5: Warner Brothers deal is. You're just getting the stock at
Speaker 5: a great price here, So we'll just have to be patient,
Speaker 5: that's all.
Speaker 6: Are you?
Speaker 2: Are you saying that the Warner Brothers Discovery deal will
Speaker 2: happen Netflix will get.
Speaker 5: That That one is a little tough because there are
Speaker 5: the unknowns of the regulatory part. I think generally speaking,
Speaker 5: I agree with the concept that Netflix really is competing
Speaker 5: with all of our time, not just you know, other streamers,
Speaker 5: or cable. It's YouTube and TikTok and Instagram, et cetera.
Speaker 5: But within the streaming, within the quote, you know, kind
Speaker 5: of core cable TV viewing, they obviously are the dominant one.
Speaker 5: It's just there's much more than just streaming and and
Speaker 5: there's room for every brand here. You know, Netflix is
Speaker 5: the first place that people generally start that gives them
Speaker 5: that pricing power, and then we bolt on the paramount
Speaker 5: for the landman and you know Mayor of Kingstown, et cetera.
Speaker 5: And you know, HBO, Max, et cetera. But you know,
Speaker 5: the assets and Warner are so powerful and they are
Speaker 5: in the best hands with Netflix. It's impossible to know
Speaker 5: about the regulatory stuff.
Speaker 3: But Eric, what if Netflix doesn't get Warner Brothers, do
Speaker 3: you still like Netflix going forward or do you think
Speaker 3: then there is this would be a big loss. We've
Speaker 3: done some reporting. I think we've had some stories that say,
Speaker 3: you know, this is going to help shape Hollywood, you know,
Speaker 3: for years to come whoever gets this property. So I'm
Speaker 3: just curious. If they don't get it, Netflix does not
Speaker 3: get it, then what.
Speaker 5: Well, I think they're just going to go back to
Speaker 5: the same playbook that has you know, driven seventeen percent
Speaker 5: annual subscriber growth for the last decade. I mean, they're
Speaker 5: just nobody can compete with them on the content spend.
Speaker 5: So they're just going to go back to doing the spending.
Speaker 5: Maybe they do some tuck in acquisitions. It's you know,
Speaker 5: it's it's hard to know, but you know, you have
Speaker 5: to give management the benefit of the doubt. They've done,
Speaker 5: generally speaking, a pretty amazing job building this brand, and
Speaker 5: so you have to assume that they're going to continue
Speaker 5: making solid decisions and you're getting it. You know, a
Speaker 5: stock that's thirty percent off the highs with strong free
Speaker 5: cash flow. I know they will continue to grow margins,
Speaker 5: they will continue to grow subscriber growth, the ad teers
Speaker 5: growing like a weed. So there's just a lot to
Speaker 5: like here. So I love this thing on a dip,
Speaker 5: you know.
Speaker 2: I'm looking at the note the most the ten most
Speaker 2: to watch movies from the second half of twenty twenty
Speaker 2: five Carol k Pop, Demon Hunter is Happy, Gilmore Too, Frankenstein,
Speaker 2: My Oxford. I did not see one of these.
Speaker 3: I know, I was just thinking movies. Wait, the Woman
Speaker 3: and caviin ten A House of Dynamite.
Speaker 4: Those are movies not shows. Oh okay, okay, and even
Speaker 4: the top.
Speaker 2: Ten shows didn't see a single one of them. Wednesday,
Speaker 2: Stranger Things, five, Untamed, Squid Games, Stranger Things, Eric. This
Speaker 2: is interesting the way that people watched the different seasons
Speaker 2: of Stranger Things in the second half of the year
Speaker 2: in anticipation for season five. In the second half of
Speaker 2: the year, Stranger with different different seasons of Stranger Things
Speaker 2: were three of the top ten shows most watched on Netflix.
Speaker 2: So is that an Is that an issue for Netflix
Speaker 2: moving forward? That's it for Stranger Things?
Speaker 5: No, I don't think so. They will continue to bring
Speaker 5: out other stuff. I mean, they're just so good at
Speaker 5: this concept. I mean, listen, if they get Warner that's
Speaker 5: even better because there's so much more that they can
Speaker 5: do to refresh that entire library.
Speaker 2: Oh so you're saying, you're saying, like, okay, Happy Gilmore
Speaker 2: two was in there, so maybe like another version of
Speaker 2: a classic HBO show or another version of classic Warner
Speaker 2: Brothers movies.
Speaker 4: Is that what you're saying? I think there.
Speaker 5: I think you know, you get a bunch of creative
Speaker 5: people in a room and they take something, let's say,
Speaker 5: let's say Sopranos for instance, what could we do to
Speaker 5: refresh sopranos in the same theme. There's just so many,
Speaker 5: so many things that they could potentially do.
Speaker 2: Hard to see again, because you need the budget and
Speaker 2: nobody else has the budget. Does does Paramount Skuydance If
Speaker 2: they get the assets, do they have the creatives, do
Speaker 2: they have the budget to do?
Speaker 5: I think they catalogue what you think Netflix could do.
Speaker 5: I don't think that they can compete with Netflix. And
Speaker 5: remember they get they're still going to have a metric
Speaker 5: ton of debt to deal with. So I look at
Speaker 5: this like a private equity owner. If I owned Warner
Speaker 5: and that was my baby, who would I love to
Speaker 5: be able to sell that library to that would put
Speaker 5: it in the best shape for the rest of time.
Speaker 5: And that's clearly Netflix. It is not Paramount Sky.
Speaker 4: Okay, all right?
Speaker 3: So top of mind on the call with analysts and investors,
Speaker 3: Eric like, what is it that you know we need
Speaker 3: to be asking this company right now or is it
Speaker 3: just really all about their pursuit of Warner Brothers.
Speaker 5: Well, I just think that there's obviously just a lot
Speaker 5: of noise, and there's a lot of assumptions, there's a
Speaker 5: lot of assumptions and a lot of industries like AI too.
Speaker 5: But I think that if you widen the lens, nothing
Speaker 5: has changed. It's still an important part of people's consumption.
Speaker 5: It's still an absolute creak, easy, good value. Even at
Speaker 5: twenty five bucks. I mean, I go out to dinner
Speaker 5: in San Diego and you get a drink and a
Speaker 5: half and it's twenty five bucks. I can watch an
Speaker 5: unlimited amount of content on Netflix, so's there's still a
Speaker 5: lot of value there. And you know, recurring revenue, business
Speaker 5: global in size and scope, you know, reaching kids as
Speaker 5: well as my mom at eighty three male female. I mean,
Speaker 5: like there's just a lot to love about a business
Speaker 5: like this. And I feel the same way about Spotify too.
Speaker 5: Similar you know, similar business, slightly different category, but for
Speaker 5: the same reason. And Spotify is off thirty five percent too.
Speaker 3: You know, it's interesting too they talk about you know,
Speaker 3: we've already begun to launch video podcasts from our partnerships
Speaker 3: with Spotify, The Ringer, iHeartMedia and Barstool Sports, and I've
Speaker 3: just announced two new original podcasts with Pete Davis in
Speaker 3: The Comedian and NFL read Legend Michael Irvin. So, like,
Speaker 3: you know, we talked too about just podcast taking off.
Speaker 3: Now it's not just audio anymore. It's video. So is
Speaker 3: this a big opportunity for this company or just a
Speaker 3: nice side business.
Speaker 5: No, I think it's a big I think it's a
Speaker 5: big opportunity. I don't know about you guys, but I
Speaker 5: I can consume five, ten, ten times more content when
Speaker 5: I can listen to it in the car and you know,
Speaker 5: listen to it on a bike rider or whatever. It's
Speaker 5: not just about reading anymore. People want audiobooks, they want music,
Speaker 5: they want videos, they want podcasts. There's just there's there's
Speaker 5: so much opportunity, and both of these brands have just
Speaker 5: a wild opportunity, you know, long term gathering subscribers and
Speaker 5: bolting on new opportunities that drive operating efficiencies, add AI
Speaker 5: to the to the mix, and in more engagement, better profitability.
Speaker 5: There's there's just a lot of lot to like, and
Speaker 5: you don't often get a compounder on sale like both
Speaker 5: of these companies, So you should take advantage of it
Speaker 5: if you can look through some of the short term
Speaker 5: you know kind of noise.
Speaker 4: Eric love Netflix.
Speaker 3: Hey, before you go, I think we'd be remiss considering
Speaker 3: the day that we've had, we've seen selling, broad based selling,
Speaker 3: and we're trying to make sense of geopolitics, news out
Speaker 3: of the White House, Greenland. There's lots of stuff. We
Speaker 3: love talking to you, Amazon, Taiwan, Semi Apple, Alphabet Service now, Walmart,
Speaker 3: Liberty Media. These are among your top holdings anything in
Speaker 3: terms of how you think about the potential for opportunity
Speaker 3: in this investment environment. Anything changing just quickly before we go.
Speaker 5: Nothing's changing too much. It's still important for consumption as
Speaker 5: well as the consumption supply chain. You know, who's allowing
Speaker 5: all of this consumption to happen when you combine the two.
Speaker 5: That's the logo ETF and it's a pretty pretty interesting
Speaker 5: compounder type of portfolio that's still pretty concentrated at thirty
Speaker 5: thirty names.
Speaker 4: All right, Eric, always good to see you.
Speaker 5: Thanks for great to see you hanging out with this.
Speaker 4: Going to come out here, yes, yeah, we will.
Speaker 3: Side. I think the studio is about ten degrees.
Speaker 2: We were out there last year and it was actually
Speaker 2: like kind of June gloom when we were out in
Speaker 2: San Diego. Was it kind of Oh it was, yeah,
Speaker 2: I don't know it was, but you know, I remember,
Speaker 2: you know.
Speaker 3: I can't remember last week at this.
Speaker 2: Point, Netflix shares. Let's stay on this. The company shares
Speaker 2: fell in the after hours as much as five point
Speaker 2: one percent this after it forecasts first quarter EPs below
Speaker 2: the average analyssessment. The company also plans deposits share buybacks
Speaker 2: in an effort to accumulate cash to fund the pending
Speaker 2: acquisition of Warner Brothers. I want to bring in Bloomberg
Speaker 2: Intelligence senior media analyst Getha Ranganoth, and she joins us
Speaker 2: from Princeton, New Jersey, where Bloomberg Intelligence headquarters are. Getha,
Speaker 2: just your your takeaway from this report. The outlook is
Speaker 2: a concern spending on content. Got to tell you this
Speaker 2: is like an age old story for Netflix, right, the
Speaker 2: concern about, oh, you guys are spending way too much.
Speaker 2: We could have had this discussion a dozen years.
Speaker 4: Ago, I know.
Speaker 7: And yes, content spending, so it was up about seven
Speaker 7: percent sent in twenty twenty five. They're projecting about a
Speaker 7: ten percent increase in content spent going into twenty twenty six.
Speaker 7: And then of course you have the cost related to
Speaker 7: the Warner Brothers deal. And I think it's not just
Speaker 7: the cost site right, yes, operating margin, the guidance of
Speaker 7: tim looks a little bit light. It's below thirty two percent.
Speaker 7: I think the street was looking for something like closer
Speaker 7: to thirty three percent. But also the ad revenue, you know,
Speaker 7: definitely not bad, but not gangbusters. So this is the
Speaker 7: very first time that they've actually reported advertising revenue. They
Speaker 7: said it was about a one and a half billion
Speaker 7: dollars in twenty twenty five. They expect to double that
Speaker 7: in going into twenty twenty six. Again, definitely not bad
Speaker 7: given that you know, this company made its foray into
Speaker 7: adds just a few years ago versus all of the
Speaker 7: other media giants, but again, not really a number to
Speaker 7: kind of get too too thrilled about.
Speaker 2: Was So that's not an I was just going to ask,
Speaker 2: is that in line or below or above the expectations
Speaker 2: that you've been making of late. I mean, a nice
Speaker 2: to get some new data from the company, especially yeah,
Speaker 2: in the recent quarters that you know, they're not doing
Speaker 2: the same sort of disclosures they have in the past.
Speaker 7: No, absolutely, I mean, so really twenty twenty so you know,
Speaker 7: as we kind of zoom out and we just take
Speaker 7: a look at Netflix, So twenty twenty four was all
Speaker 7: about subscriber growth, right, they had about forty two million
Speaker 7: new subscribers. Twenty twenty five was all about pricing, right,
Speaker 7: huge price increases. Again, pretty stable subscriber growth. They obviously
Speaker 7: did add close to almost twenty five million subscribers. But
Speaker 7: in twenty twenty six, as we kind of looked at
Speaker 7: twenty twenty six, here was like the big head scratcher, right,
Speaker 7: what is the big growth catalyst for this company going
Speaker 7: into twenty twenty six, And that's really where people were wondering,
Speaker 7: whether you know, that's why they had to buy Warner.
Speaker 7: And of course one of the big things that everybody
Speaker 7: was looking for was AD revenue. Again, it has gotten
Speaker 7: off to I would say, an okay start, but slightly
Speaker 7: on the lower side than I think people were expecting.
Speaker 7: People who were probably expecting something closer to about two
Speaker 7: to two and a half billion dollars in twenty twenty five.
Speaker 7: So definitely I think fell slightly lower than general expectations.
Speaker 3: You know, I always think about Giza, like what's the
Speaker 3: next markets or how much more is they're out there?
Speaker 3: And in their company release they talk about, you know,
Speaker 3: we relish competition, work to earn more of our consumer's attention,
Speaker 3: and they say despite our success over the years, our
Speaker 3: share of TV time remains below ten percent in the
Speaker 3: major markets in which we operate. And then they said,
Speaker 3: for example, according to Nielsen in December, our share of
Speaker 3: US TV time reached an all time high nine percent
Speaker 3: point five points year every year, yet linear TV still
Speaker 3: comprises over forty percent of US TV screen time. You know,
Speaker 3: is this just blowing smoke or is it really that
Speaker 3: there is still a lot out there for either Netflix
Speaker 3: or Amazon or some others to still grab when it
Speaker 3: comes to screen time.
Speaker 8: Oh.
Speaker 7: Absolutely, there is still a lot more room for streaming
Speaker 7: to grow, and I think it absolutely will. So I
Speaker 7: think one of the big things that we've seen, especially
Speaker 7: towards the end of twenty twenty five and going more
Speaker 7: into twenty twenty six, is that, you know, most of
Speaker 7: the Marquee Sports properties are now moving to streaming. So
Speaker 7: obviously you have the big launch of ESPN.
Speaker 1: Uh.
Speaker 7: You know, for the very first time in the history
Speaker 7: of television, all of the Marquet sports are now available
Speaker 7: for people to watch on streaming. They don't have to
Speaker 7: subscribe to a PATV bundle anymore, and I think that
Speaker 7: makes a huge difference. You know, consumer behavior is changing
Speaker 7: it's changing rapidly, and so obviously there is you know,
Speaker 7: a lot more room for a Netflix, for an Amazon,
Speaker 7: as you pointed out, but also equally for a YouTube
Speaker 7: to grow. And this is where you have this whole,
Speaker 7: this whole debate with AI, right, because as AI comes
Speaker 7: in and kind of democratizes content creation, you have more
Speaker 7: and more user generated content. Are people going to be
Speaker 7: spending more time on YouTube and less time with like
Speaker 7: premiere platforms like a Netflix, like and hbos.
Speaker 3: I've just seen junk is obsessed with YouTube.
Speaker 2: Yeah, but but not with the AI junk. I mean
Speaker 2: social feeds. Have you seen anything good? I mean good,
Speaker 2: nothing creative?
Speaker 3: It's like the junk with AI you're talking, You're not talking,
Speaker 3: you too, like.
Speaker 4: The junkiest junk You.
Speaker 7: Cannot out there? Not yet, Tim, But I think just
Speaker 7: give it about a year or two and I think
Speaker 7: soon we're going to be seeing pretty high quality stuff
Speaker 7: come out. I mean, I know some of the industry
Speaker 7: experts have basically projected that that, you know, another two
Speaker 7: to two and a half years you will see the
Speaker 7: first high quality, fully AI generated movie you know, come out.
Speaker 7: So again have to wait and watch, but definitely a
Speaker 7: possibility and definitely something Netflix is preparing for.
Speaker 4: I wonder what that looks like.
Speaker 2: I wonder I've watched some stuff that felt like it
Speaker 2: was written by Chad GBT.
Speaker 4: That's why I.
Speaker 3: Can't wait till like pretty bad something and put you know,
Speaker 3: Tim and K Pop Demon Hunters or something. Wouldn't that
Speaker 3: be fun?
Speaker 7: Are on Dancing with the Stars challenge?
Speaker 3: It'd be great. It like just taking an AI generated
Speaker 3: Tim and putting, Yeah, my kids love the America's Top Model.
Speaker 4: All right, we got to go either.
Speaker 2: Ranging Ath and senior media analyst at Bloomberg Intelligence. Stay
Speaker 2: with us more from Bloomberg BusinessWeek Daily coming up after this.
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Speaker 2: Great to add back with us on all this and more.
Speaker 2: Bob Michael He's Chief investment Officer and head of Global
Speaker 2: fixed Income, Currency and Commodities at Japan Morgan Asset Management,
Speaker 2: also co chair of the Asset Management Investment Committee, a
Speaker 2: member of the Asset and Wealth Management Operating Committee, and
Speaker 2: the Asset Management Operating.
Speaker 4: Committee joint for you dude in the studio.
Speaker 2: Perfect Data have you, whether we're talking about Japan, whether
Speaker 2: we're talking about what's going on in Europe. I kind
Speaker 2: of want to start uh with the President's latest assaults
Speaker 2: on European allies and market reaction that we are seeing.
Speaker 2: Is the talk actually turn into something that our allies
Speaker 2: are concerned about?
Speaker 4: I think?
Speaker 6: So it feels very chaotic again. So bess And is
Speaker 6: right to refer back to April of last year when
Speaker 6: there was a panic. I know last night I went
Speaker 6: to bed in a panic and woke up in one
Speaker 6: and it didn't get any better because of Japan, because
Speaker 6: of so many things. We thought the President was going
Speaker 6: to Davos to talk about housing and credit card affordability.
Speaker 6: Suddenly now it's become about greenland affordability. How are we
Speaker 6: going to buy or take it? And how are the
Speaker 6: European countries going to finance us or are we going
Speaker 6: to re tararf them? And it seems crazy, except that
Speaker 6: things have a way of happening which people didn't think
Speaker 6: would happen. So you have to back away and do
Speaker 6: you risk a bet Japan. I don't know if that
Speaker 6: necessarily came out of the blue. But we're now faced
Speaker 6: with that where the bond markets become unanchored because they're
Speaker 6: going to be snap elections and everyone's going to compete
Speaker 6: for fiscal stimulus. If we're looking at the bond markets
Speaker 6: and assessing all of these things, it feels that the
Speaker 6: fiscal austerity which everyone embraced after the Great Financial Crisis
Speaker 6: is out the window. It's now borrow and spend. There
Speaker 6: seems to be plenty of capital around to finance it,
Speaker 6: and a backup in yield may not be so bad. So, yeah,
Speaker 6: things are a bit chaotic, and the markets do feel
Speaker 6: a bit panicked.
Speaker 3: So Bob, you know, there's chaos, there's chaotic moves, there's
Speaker 3: de risking, and then there's de risking. So is this
Speaker 3: like a short term think Until we really figure out
Speaker 3: how much of what the president is saying is just
Speaker 3: rhetoric or the first negotiating ploy or something that sticks
Speaker 3: around longer and impacts the investment landscape longer, it's.
Speaker 6: Hard to know. I would have liked to have heard
Speaker 6: something at one o'clock. Instead, it's sounding like a domestic
Speaker 6: victory lap. Then bord Air Force one and head to
Speaker 6: Davos and deal with a whole international array of problems.
Speaker 6: And my guess is the administration is going to put
Speaker 6: everyone on their heels and negotiate the best deal. Whether
Speaker 6: it's Greenland, whether it's Venezuela, whether it's tariffs, whether it's
Speaker 6: with China.
Speaker 4: Who knows.
Speaker 3: Should the President be taking a victory lap based on
Speaker 3: what you've seen in the past year.
Speaker 6: If I'm purely objective and sit here in January and
Speaker 6: say we're heading into twenty twenty six with some momentum.
Speaker 6: We closed out the fourth quarter pretty strong. We're expecting
Speaker 6: somewhere either side of two and a half percent for
Speaker 6: GDP and inflation in the US. The US is collecting
Speaker 6: some tariffs, the effective rates about sixteen, so that's a
Speaker 6: source of revenue. The markets are at highs, and that
Speaker 6: momentum looks like it's going to continue. So yeah, I
Speaker 6: think you can claim that if you want to.
Speaker 2: A chance though, that the bond market and you know,
Speaker 2: perhaps even the equity market are overreacting that the president.
Speaker 2: You know, for much of last year there was the
Speaker 2: taco trade, the idea that what the President said wasn't
Speaker 2: necessarily what ended up happening and I think you know
Speaker 2: that so called Liberation Day tariffs are a perfect example.
Speaker 6: Of that we're entitled to overreact. I think we've been
Speaker 6: pretty well behaved for a while. Volatility metrics have been
Speaker 6: abnormally low. We're allowed to throw our toys out of
Speaker 6: the prem every so often. I think this is a
Speaker 6: message from market participants to the administration. We can only
Speaker 6: go so far, and they've got to figure out where
Speaker 6: the line is. I think what Beson forgot to include was, yeah,
Speaker 6: the market had to fit in April, and then they
Speaker 6: backed off of a lot of things and then calm ensued,
Speaker 6: we need to hear some of the same kinds of things.
Speaker 4: We should know.
Speaker 2: The President is still making comment of the press conference.
Speaker 2: We'll go back to it when he does take questions
Speaker 2: from the press. You can see it right there on
Speaker 2: the screen, and also check it out on Live Go
Speaker 2: on the Bloomberg terminal. You mentioned the reaction back in April.
Speaker 2: I believe the technical term the President used was the
Speaker 2: bond market got a bit yippy. Is the bond market
Speaker 2: yippie now?
Speaker 6: Not yet? If you look at Japan, Japan has a
Speaker 6: whole host of domestic things to deal with, so that's
Speaker 6: become unanchored when I look at the US market, Yeah,
Speaker 6: we've backed up a little bit, but you know what,
Speaker 6: We've got a FED funds rated at about three and
Speaker 6: five eighths the two years within touching distance of that.
Speaker 6: You've got somewhat of a normal steepness to the yolker
Speaker 6: from FED funds to two's to the ten year and
Speaker 6: the thirty year. It all feels pretty orderly now, a
Speaker 6: bit of a pause. So I actually think things feel okay.
Speaker 3: Anytime I feel like Bob, we pull up geopolitics and
Speaker 3: people are like, well, who holds US treasuries? And we've
Speaker 3: got a story on the Bloomberg that talks about European
Speaker 3: countries holding trillions of dollars of US bonds and stock,
Speaker 3: some of which sit with public sector funds. And so
Speaker 3: there's you know, the speculation that could our allies or
Speaker 3: even folks like China or something like sell US debt?
Speaker 3: Is there really any alternative into US debt?
Speaker 6: Realistically, No, there is not, And we did this about
Speaker 6: a year ago. We went through this in March April May.
Speaker 6: We spent a lot of time talking to our clients,
Speaker 6: particularly our non US clients. They looked at everything and
Speaker 6: came back to when you look at the US debt markets,
Speaker 6: which includes governments, but it's corporates, it's securitized, no other marks.
Speaker 6: Markets have the depth and the breath. They have confidence
Speaker 6: in the country. They're not willing to abandon it. They
Speaker 6: see the presidency as to two year terms when you
Speaker 6: throw in the midterm election elections, so they're willing to
Speaker 6: ride through it. I don't think there will be wholesale
Speaker 6: selling of US treasury debt.
Speaker 2: So you're referring to the Danish pension fund academic or pension, Yes.
Speaker 3: That's and that's a small but I just in general,
Speaker 3: like I think about we've talked about it in terms
Speaker 3: of China, just any you know that this is a
Speaker 3: great lever that foreign investors or foreign governments could pull
Speaker 3: against the US. But the reality is they're not likely
Speaker 3: too because there kind of is no alternatives.
Speaker 6: We had a lot of very large non US clients
Speaker 6: look at alternatives and line up plans if we were
Speaker 6: to sell this, this is where we would go, and
Speaker 6: they paused putting more money into US bonds, but they
Speaker 6: didn't take any out, and by the end of the
Speaker 6: summer they were putting money back in again.
Speaker 2: We're speaking with Bob Michael, chief investment officer, head of
Speaker 2: the Global Fixed Income, Currency and Commodities Group for JP
Speaker 2: Morgan Asset Management. The President still speaking at the White House.
Speaker 2: We do expect him to take questions too in just
Speaker 2: a little while. Back to this pension because Anders Sheldy
Speaker 2: cited this is the fund. Chief investment officer cited Trump's
Speaker 2: talk of taking over Greenland, concerns about fiscal discipline and
Speaker 2: a weaker dollar for reasons for the decision. You don't
Speaker 2: buy the fiscal discipline and the weaker dollar part of this.
Speaker 2: You think this is just political.
Speaker 3: Is there?
Speaker 6: Where is their fiscal discipline now? It's hard to find it,
Speaker 6: Like go to the old stalwarts Germany not there. Look
Speaker 6: at what Japan could and couldn't do. That seems to
Speaker 6: have been abandoned now. The US for sure will see
Speaker 6: who the next fed share is, but it sure ain't
Speaker 6: going to be the next Paul Volker walking in. So
Speaker 6: I think fiscal discipline is a thing of the past,
Speaker 6: and there is a feeling that deficits can be financed.
Speaker 6: In Japan is kind of telling us you can get
Speaker 6: to three hundred percent life still good.
Speaker 3: So when do we pay the piper on this global
Speaker 3: lack of fiscal discipline? I think about Andrew Russorkin, who
Speaker 3: was just on to talk about his book nineteen twenty nine,
Speaker 3: and we talked about, you know, crises in particular in general,
Speaker 3: and that leverage and debt. Right, these are the things
Speaker 3: that get us into trouble, whether we're an individual, a company,
Speaker 3: or a country or ken. So is that potentially the
Speaker 3: next crisis, just the lack of fiscal discipline globally or
Speaker 3: do we just kind of continue to go along here?
Speaker 6: So I read nineteen twenty nine very engrossing. I don't
Speaker 6: see the problems that existed then here today. I don't
Speaker 6: see the rampant leverage throughout the system which is becoming problematic.
Speaker 6: It can't be it can't be served as it's being written.
Speaker 3: Even on a government or software level.
Speaker 6: Yeah, it's not happening at the government or sovereign level.
Speaker 6: And that new tool called QUE allows that to perpetuate.
Speaker 8: Right.
Speaker 3: Well, that's but that's the point. Like I think about
Speaker 3: years ago, I remember not doing an interview, a business
Speaker 3: news interview or markets interview without talking up about the
Speaker 3: US government debt and then it went away and now
Speaker 3: we are back again. So like I guess, I think
Speaker 3: we kind of continue to try and find out when
Speaker 3: is it really a problem. Certainly as rates go higher,
Speaker 3: it becomes more expensive to service, certainly here in the US.
Speaker 3: But I'm just wondering, like when I.
Speaker 6: Think when it gets thrown away. I started the business
Speaker 6: in eighty one, I work through the twin deficits. I
Speaker 6: was taught the US will never be allowed to finance
Speaker 6: itself below ten percent again, and we promptly drop from
Speaker 6: sixteen percent to three tents of a percent, and in
Speaker 6: the Clinton era, suddenly you know, the deficit was gone.
Speaker 6: We look at where the money is being spent, and
Speaker 6: we may not always agree where it's being spent, but
Speaker 6: it does create some productivity. We talk to all the
Speaker 6: municipalities that are accessing the various programs they can. They're
Speaker 6: actually going in taking capital, they're hiring people, they're consuming resources,
Speaker 6: and they're investing in their townships or their states, or
Speaker 6: their cities or whatever it can be. Ultimately, that generates
Speaker 6: activity that gets taxed, and I think that's what we
Speaker 6: saw in the late eighties into the early nineties.
Speaker 2: Last question, I'm going to make you push ahead to
Speaker 2: our conversation with Robert Kaplan Vice Cheric Goldman, and we're
Speaker 2: going to be hearing from him in just a few minutes.
Speaker 2: On the FED, polymarket has Kevin Warsh as the favorite
Speaker 2: for the nomination. In fact, Rick Reader is now number two,
Speaker 2: which is interesting to see. Who has the bond market
Speaker 2: priced in as the next FED chair.
Speaker 6: I don't think the bond market has a great idea.
Speaker 6: Reader's number two. For me. I've known him for close
Speaker 6: to forty years. I think he'd be an excellent fetchair.
Speaker 6: I think he'd be somebody very different. Let's get a
Speaker 6: true bond markets practitioner in there who's had to live
Speaker 6: with the aftermath of FED decisions. So I'm certainly a
Speaker 6: supporter of his, But he's number two behind Bessant is
Speaker 6: still my number one. I think the President is still
Speaker 6: stalling and trying to negotiate with Besson. I don't see
Speaker 6: worsh too hawkish. Hassett's got to be removed because of
Speaker 6: the DJ and Waller. I don't know that the administration
Speaker 6: feels they can control Waller. So you know, Rick Rick
Speaker 6: is the you know, shining night that comes in out
Speaker 6: of left field, smart guy will do the right thing,
Speaker 6: but I still think it's best was the number one.
Speaker 4: Not expecting to hear that thing.
Speaker 3: Whether it's best at a reader or whomever will be
Speaker 3: independent or that depends.
Speaker 6: I've never fully believed that they're independent because they're political appointees,
Speaker 6: so they get appointed for their core views. I believe
Speaker 6: when they're in office that they always try to do
Speaker 6: the best thing. But some believe that fiscal austerity is
Speaker 6: the best policy, and other beliefs that a lower cost
Speaker 6: of funding and economic activity and monitorism will help stimulate
Speaker 6: the economy.
Speaker 3: That discussion around the table right means something right, and
Speaker 3: all those different voices. Your voice always means a lot
Speaker 3: to us.
Speaker 4: Thank you so much, really happy to be here, A
Speaker 4: great day for it.
Speaker 3: We thought that on our planning call, We're like, we're
Speaker 3: so glad he's here today. But Michael B Well, we
Speaker 3: really appreciate Chief Investment Officer, head of Global Fixed Income,
Speaker 3: Currency Commodities over at JP Morgan Asset and Management.
Speaker 4: Stay with us.
Speaker 2: More from Bloomberg Business Week Daily coming up after this.
Speaker 1: You're listening to the Bloomberg Business Week Daily podcast. Catch
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Speaker 3: Hey one of the stories and not stories but reality
Speaker 3: in terms of the global trade borrowers venturing back into
Speaker 3: Europe's marketplace for debt today, though some companies staying away
Speaker 3: amid the tensions with the US of a Greenland. And
Speaker 3: that's after we saw global bond sales having their biggest
Speaker 3: ever start two year as borrowers of every stripe seized
Speaker 3: on investors insatiable appetite for risk. US alone, that first
Speaker 3: full week of the year was one of the busiest
Speaker 3: for US corporate debt sales on record, and risk premiums
Speaker 3: we saw staying low even amid heavy issuance, but the
Speaker 3: amount of bonds cheetering on the brink of junk surging
Speaker 3: last year. That's according to JP Morgan Chase. They put
Speaker 3: this out a little bit more than a week ago
Speaker 3: at least, and we included it in our reporting. So
Speaker 3: we want to kind of dig a little bit deeper
Speaker 3: into this market.
Speaker 2: It's time now for a weekly Women, Money and Power,
Speaker 2: where we speak with some of the most influential women
Speaker 2: from across the business world. We've got Joanna Diegos with US,
Speaker 2: co founder of bond Blocks. It's the ETF issue focus
Speaker 2: on fixed income, more than seven billion dollars in assets
Speaker 2: under management. We spent a lot of time in sort
Speaker 2: of the first forty five minutes of the program today
Speaker 2: talking about what's happening overseas and US Treasury market reaction.
Speaker 2: I want I want to focus a little bit on
Speaker 2: corporate credit and the outlook in twenty twenty six. Carol
Speaker 2: mentioned some of the sort of the busyness that we've
Speaker 2: seen already this year, But what is the outlook on
Speaker 2: corporate credit right now?
Speaker 8: Yeah, I think we would say it's the same red
Speaker 8: thread we've seen over the last three years in corporate credit,
Speaker 8: and that is the resiliency of American companies and the
Speaker 8: depth that they're issuing, even all the way down onto
Speaker 8: high yield. You're seeing you know, lower or average default rates.
Speaker 8: People can count on the fundamentals of these firms year
Speaker 8: over year. So these these companies have started you know,
Speaker 8: pre pandemic with really good foundations and their fundamentals, and
Speaker 8: that's continued. So the resiliency of the economy, of the
Speaker 8: strength is actually the story when you see those tight spreads.
Speaker 8: What we focus on at bomb blocks is your ability
Speaker 8: to trade or your ability to access different points of
Speaker 8: income for risk across all the acid classes and fixed income.
Speaker 3: We'll talk to us about flows in apt that you've seen,
Speaker 3: maybe as you wrapped up the end of last year,
Speaker 3: and then what you've seen as we kicked off twenty
Speaker 3: twenty six as we did. Was it Mike who said
Speaker 3: that folks have been saying it's like already felt like
Speaker 3: a decade here in twenty twenty six, So give us
Speaker 3: a little comparison.
Speaker 8: Yeah, I think twenty twenty five, you know, more record
Speaker 8: years in my space, in my industry, tfs are an
Speaker 8: incredible tool for people to access fixed income markets. It
Speaker 8: just continues to grow.
Speaker 3: But where did they Where did you see most of
Speaker 3: the money coming in? You're still last year and then
Speaker 3: lot what's changing this year?
Speaker 8: Kard of strength, It's sort of a familiar story, a
Speaker 8: ton of strength in shorter duration assets. People look for,
Speaker 8: you know, the most attractive yield and risk combination they
Speaker 8: can and it's shorter duration has been a huge category
Speaker 8: for ETFs and it can it needs to be so
Speaker 8: really strong growth in corporates your previous too, commentators talked
Speaker 8: about how you know, towards the middle and the end
Speaker 8: of the year, people were still looking at the strength
Speaker 8: of corporate debt. In EHFS, it was the same story.
Speaker 8: And then we're seeing on our desk we talk a
Speaker 8: lot to clients about public versus private debt and how
Speaker 8: to access that. So a lot of conversations, a lot
Speaker 8: of interest in how to compliment existing bomb portfolios with
Speaker 8: other sources of yield, or looking for a way to
Speaker 8: enhance yield on.
Speaker 2: The public side of the ten year yield getting our
Speaker 2: attention at least today four twenty nine where it is
Speaker 2: right now. You were shocked to see it that.
Speaker 3: High, well, hitting you know, four point three percent right
Speaker 3: on the tenure. I was a little surprised. I mean,
Speaker 3: it could be five percent and we have you know,
Speaker 3: but I was kind of surprised.
Speaker 2: Yeah, the recent move higher that we've seen, why has
Speaker 2: that been.
Speaker 8: I think that you know, in all these bouts of volatility. Again,
Speaker 8: as we've looked over the long term, we've seen the
Speaker 8: tenure approach five percent a few times, and it just
Speaker 8: represents the concern and look, you know, hopefully structurally the
Speaker 8: yeld curve is changing towards your rates being higher in
Speaker 8: the long end and shorter on the short and lower on.
Speaker 3: Which makes more sense. But you kind of get yeah,
Speaker 3: in terms of the short term volatility that we continue
Speaker 3: to see, whether it's a white house strategy that is
Speaker 3: certainly upending.
Speaker 8: Yeah, I mean that that is embedded. You know, there's
Speaker 8: there's going to be you know, the terrafs are now
Speaker 8: embedded in the outlook in twenty twenty six. For investors,
Speaker 8: volatility is always on now and in the equity markets,
Speaker 8: what we like to call people's attention to is that
Speaker 8: a year like last year, if you aren't looking at
Speaker 8: fixed income and you aren't looking at bonds and how
Speaker 8: to add more income into your portfolios to offset volatility,
Speaker 8: like you're missing out on these huge cushions.
Speaker 3: Which was like I feel like it's been the talk
Speaker 3: for the last year or so or a couple of
Speaker 3: years right where you think about what you can get
Speaker 3: on a US treasury right in terms of yield and
Speaker 3: return and lock it in, Like why wouldn't you, especially
Speaker 3: if you're thinking longer term. A lot of your offerings
Speaker 3: obviously are within the US treasury market. You guys do
Speaker 3: do some emerging market right, Yeah, what kind of activity
Speaker 3: have you seen right now? I'm looking I think five point.
Speaker 8: Emerging market as a category, and fix income was the
Speaker 8: best performing category across fixed income last year, so a
Speaker 8: lot of interest in dollar denominated debt and then also
Speaker 8: just getting non US exposure was.
Speaker 3: A trade last year.
Speaker 8: So what we think is important across fix income is
Speaker 8: just understanding how you position your bet or how you
Speaker 8: position the way you think about that. And one thing
Speaker 8: about emerging market debt is is typically very very long
Speaker 8: dated debt, So there's an implicit two things going on.
Speaker 8: There's a relationship to the US dollar, and then there's
Speaker 8: also just the duration risk in there and and interest
Speaker 8: rate risk. So what we try to do is like
Speaker 8: update that space because people really do want to be shorter,
Speaker 8: and that's something that I think.
Speaker 3: So it's active in terms of the change in terms
Speaker 3: of composition, well it's an index, it is, it's just.
Speaker 5: A shorter draation.
Speaker 8: I think that appeals to people to think about, like
Speaker 8: how do you think about a forty year exposure and
Speaker 8: should you be dialing that back? In these markets this
Speaker 8: is a simple one to ten year exposure, And I
Speaker 8: think that's that's what's going on in fixed income markets
Speaker 8: as they relate to equity markets in your portfolio. Is
Speaker 8: now people really understand the maybe pain of interest rate
Speaker 8: risk and what can happen when raids zoom up, and
Speaker 8: what you're anticipating for this year if rates continue to
Speaker 8: go down, but we think that's going to be very
Speaker 8: moderate this year.
Speaker 2: We're going to be speaking with them like grafeo Bloomberg
Speaker 2: News process or reporter in just a few minutes, and
Speaker 2: she's written a lot about ETFs and how competitive the
Speaker 2: space is. I mean, it's just I don't have to
Speaker 2: tell you or anyone watching or listening. There's so many
Speaker 2: ETFs out there. Do you plan to launch any new
Speaker 2: ETFs this year?
Speaker 8: Yeah, we have some in registration.
Speaker 2: Where's the white space, like where's that? Where the areas
Speaker 2: where that hadn't be covered?
Speaker 6: Well? I think like a.
Speaker 8: Big innovation from last year was private credit and Emily's
Speaker 8: family is written it a ton on private credits, you know,
Speaker 8: And and the reason is is because ETFs someme to
Speaker 8: touch places that you need more transparency in, you want
Speaker 8: to have access in and liquidity, and so those are
Speaker 8: the spaces that people put time and effort in terms
Speaker 8: of innovation, and I don't think that that's done. I
Speaker 8: think that the important work in how you can access
Speaker 8: alternative yields. Alternative returns is important to ETF investors because
Speaker 8: ETFs are used in big, broad swaths of wealth portfolios
Speaker 8: and they need to be more precise. Markets are more precise,
Speaker 8: the modern markets are more precise, and so adding an
Speaker 8: ability to add private credit has been has been the talks.
Speaker 8: She's written a lot about it. Is it private credit?
Speaker 8: Is not private credit? Our product, Our private credit product
Speaker 8: PCMM was the first to give you access to middle
Speaker 8: market exposures and you know completely, So it's a pure
Speaker 8: approach and that's what clients are really buzzing about when
Speaker 8: we're talking to them about what to do next.
Speaker 7: Am I right?
Speaker 3: In terms of assets about one hundred and eighty.
Speaker 8: Eighty seven million? Yeah, And it's surprisingly like that's the
Speaker 8: leader in the category in terms of like adoption, and
Speaker 8: that's sort of I think the next frontier is improving
Speaker 8: people's exposure to that in their portfolios and improving their
Speaker 8: perception of what is in a private credit ETF.
Speaker 3: All right, gott to leave it there, Johanna thank you
Speaker 3: so much, Johanna Goyaugos. She is co founder at Bond Blocks.
Speaker 3: They've got about seven billion in acids under management. Joining
Speaker 3: us right here in our studio.
Speaker 2: This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
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