WEBVTT - Netflix to Boost Program Spending in 2026, Crimping Profit 

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business

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<v Speaker 1>news as it happens. The Bloomberg Business Week Daily Podcast

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<v Speaker 1>with Carol Masser and Tim Stenebek on Bloomberg Radio.

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<v Speaker 2>Yeah, let's bring in Eric Clark. He's chief investment officer

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<v Speaker 2>of the ra Acuvest Global Advisors, about one point two

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<v Speaker 2>billion dollars in assets under management, portfolio manager too of

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<v Speaker 2>the Alpha Brand's logo ETF. He covers about two hundred

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<v Speaker 2>consumer stocks, including Netflix. It's the eleventh biggest holding in

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<v Speaker 2>the logo ETF. Eric joins us from San Diego, which

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<v Speaker 2>I understand. It's like sixty nine degrees there. It's not

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<v Speaker 2>like here, Eric, where the high today was twenty one degrees.

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<v Speaker 3>So don't rub it in. Yeah.

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<v Speaker 4>I don't even know.

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<v Speaker 2>Why you guys like watch Netflix in San Diego. You

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<v Speaker 2>just should be playing outside all the time. A decline

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<v Speaker 2>of four percent after hours right now, are you buying

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<v Speaker 2>more Netflix?

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<v Speaker 5>I will buy more Netflix tomorrow, absolutely, because it's seventy

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<v Speaker 5>five here by the way, Oh my bad.

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<v Speaker 3>Thanks, thanks very much for that. We're done with this interview.

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<v Speaker 3>All right, So why are you going to be buying tomorrow?

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<v Speaker 5>Well, you know, bigger picture, nothing's really changed with the business.

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<v Speaker 5>It's just that people have left Netflix stock because of

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<v Speaker 5>the Warner Brothers the time that it takes to get

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<v Speaker 5>a deal done like this. So people just say, I

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<v Speaker 5>just don't want to have my money tied up in

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<v Speaker 5>something that's going to be a little more uncertain than

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<v Speaker 5>maybe quote dead money. That's the opportunity. So the stock's

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<v Speaker 5>down over thirty percent and business is still doing really well.

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<v Speaker 5>And at this point where the stock is now, I

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<v Speaker 5>don't even think it matters what the outcome of the

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<v Speaker 5>Warner Brothers deal is. You're just getting the stock at

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<v Speaker 5>a great price here, So we'll just have to be patient,

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<v Speaker 5>that's all.

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<v Speaker 6>Are you?

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<v Speaker 2>Are you saying that the Warner Brothers Discovery deal will

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<v Speaker 2>happen Netflix will get.

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<v Speaker 5>That That one is a little tough because there are

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<v Speaker 5>the unknowns of the regulatory part. I think generally speaking,

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<v Speaker 5>I agree with the concept that Netflix really is competing

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<v Speaker 5>with all of our time, not just you know, other streamers,

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<v Speaker 5>or cable. It's YouTube and TikTok and Instagram, et cetera.

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<v Speaker 5>But within the streaming, within the quote, you know, kind

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<v Speaker 5>of core cable TV viewing, they obviously are the dominant one.

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<v Speaker 5>It's just there's much more than just streaming and and

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<v Speaker 5>there's room for every brand here. You know, Netflix is

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<v Speaker 5>the first place that people generally start that gives them

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<v Speaker 5>that pricing power, and then we bolt on the paramount

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<v Speaker 5>for the landman and you know Mayor of Kingstown, et cetera.

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<v Speaker 5>And you know, HBO, Max, et cetera. But you know,

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<v Speaker 5>the assets and Warner are so powerful and they are

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<v Speaker 5>in the best hands with Netflix. It's impossible to know

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<v Speaker 5>about the regulatory stuff.

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<v Speaker 3>But Eric, what if Netflix doesn't get Warner Brothers, do

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<v Speaker 3>you still like Netflix going forward or do you think

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<v Speaker 3>then there is this would be a big loss. We've

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<v Speaker 3>done some reporting. I think we've had some stories that say,

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<v Speaker 3>you know, this is going to help shape Hollywood, you know,

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<v Speaker 3>for years to come whoever gets this property. So I'm

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<v Speaker 3>just curious. If they don't get it, Netflix does not

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<v Speaker 3>get it, then what.

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<v Speaker 5>Well, I think they're just going to go back to

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<v Speaker 5>the same playbook that has you know, driven seventeen percent

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<v Speaker 5>annual subscriber growth for the last decade. I mean, they're

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<v Speaker 5>just nobody can compete with them on the content spend.

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<v Speaker 5>So they're just going to go back to doing the spending.

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<v Speaker 5>Maybe they do some tuck in acquisitions. It's you know,

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<v Speaker 5>it's it's hard to know, but you know, you have

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<v Speaker 5>to give management the benefit of the doubt. They've done,

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<v Speaker 5>generally speaking, a pretty amazing job building this brand, and

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<v Speaker 5>so you have to assume that they're going to continue

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<v Speaker 5>making solid decisions and you're getting it. You know, a

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<v Speaker 5>stock that's thirty percent off the highs with strong free

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<v Speaker 5>cash flow. I know they will continue to grow margins,

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<v Speaker 5>they will continue to grow subscriber growth, the ad teers

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<v Speaker 5>growing like a weed. So there's just a lot to

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<v Speaker 5>like here. So I love this thing on a dip,

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<v Speaker 5>you know.

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<v Speaker 2>I'm looking at the note the most the ten most

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<v Speaker 2>to watch movies from the second half of twenty twenty

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<v Speaker 2>five Carol k Pop, Demon Hunter is Happy, Gilmore Too, Frankenstein,

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<v Speaker 2>My Oxford. I did not see one of these.

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<v Speaker 3>I know, I was just thinking movies. Wait, the Woman

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<v Speaker 3>and caviin ten A House of Dynamite.

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<v Speaker 4>Those are movies not shows. Oh okay, okay, and even

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<v Speaker 4>the top.

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<v Speaker 2>Ten shows didn't see a single one of them. Wednesday,

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<v Speaker 2>Stranger Things, five, Untamed, Squid Games, Stranger Things, Eric. This

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<v Speaker 2>is interesting the way that people watched the different seasons

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<v Speaker 2>of Stranger Things in the second half of the year

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<v Speaker 2>in anticipation for season five. In the second half of

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<v Speaker 2>the year, Stranger with different different seasons of Stranger Things

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<v Speaker 2>were three of the top ten shows most watched on Netflix.

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<v Speaker 2>So is that an Is that an issue for Netflix

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<v Speaker 2>moving forward? That's it for Stranger Things?

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<v Speaker 5>No, I don't think so. They will continue to bring

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<v Speaker 5>out other stuff. I mean, they're just so good at

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<v Speaker 5>this concept. I mean, listen, if they get Warner that's

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<v Speaker 5>even better because there's so much more that they can

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<v Speaker 5>do to refresh that entire library.

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<v Speaker 2>Oh so you're saying, you're saying, like, okay, Happy Gilmore

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<v Speaker 2>two was in there, so maybe like another version of

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<v Speaker 2>a classic HBO show or another version of classic Warner

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<v Speaker 2>Brothers movies.

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<v Speaker 4>Is that what you're saying? I think there.

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<v Speaker 5>I think you know, you get a bunch of creative

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<v Speaker 5>people in a room and they take something, let's say,

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<v Speaker 5>let's say Sopranos for instance, what could we do to

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<v Speaker 5>refresh sopranos in the same theme. There's just so many,

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<v Speaker 5>so many things that they could potentially do.

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<v Speaker 2>Hard to see again, because you need the budget and

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<v Speaker 2>nobody else has the budget. Does does Paramount Skuydance If

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<v Speaker 2>they get the assets, do they have the creatives, do

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<v Speaker 2>they have the budget to do?

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<v Speaker 5>I think they catalogue what you think Netflix could do.

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<v Speaker 5>I don't think that they can compete with Netflix. And

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<v Speaker 5>remember they get they're still going to have a metric

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<v Speaker 5>ton of debt to deal with. So I look at

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<v Speaker 5>this like a private equity owner. If I owned Warner

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<v Speaker 5>and that was my baby, who would I love to

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<v Speaker 5>be able to sell that library to that would put

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<v Speaker 5>it in the best shape for the rest of time.

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<v Speaker 5>And that's clearly Netflix. It is not Paramount Sky.

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<v Speaker 4>Okay, all right?

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<v Speaker 3>So top of mind on the call with analysts and investors,

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<v Speaker 3>Eric like, what is it that you know we need

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<v Speaker 3>to be asking this company right now or is it

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<v Speaker 3>just really all about their pursuit of Warner Brothers.

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<v Speaker 5>Well, I just think that there's obviously just a lot

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<v Speaker 5>of noise, and there's a lot of assumptions, there's a

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<v Speaker 5>lot of assumptions and a lot of industries like AI too.

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<v Speaker 5>But I think that if you widen the lens, nothing

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<v Speaker 5>has changed. It's still an important part of people's consumption.

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<v Speaker 5>It's still an absolute creak, easy, good value. Even at

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<v Speaker 5>twenty five bucks. I mean, I go out to dinner

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<v Speaker 5>in San Diego and you get a drink and a

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<v Speaker 5>half and it's twenty five bucks. I can watch an

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<v Speaker 5>unlimited amount of content on Netflix, so's there's still a

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<v Speaker 5>lot of value there. And you know, recurring revenue, business

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<v Speaker 5>global in size and scope, you know, reaching kids as

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<v Speaker 5>well as my mom at eighty three male female. I mean,

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<v Speaker 5>like there's just a lot to love about a business

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<v Speaker 5>like this. And I feel the same way about Spotify too.

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<v Speaker 5>Similar you know, similar business, slightly different category, but for

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<v Speaker 5>the same reason. And Spotify is off thirty five percent too.

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<v Speaker 3>You know, it's interesting too they talk about you know,

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<v Speaker 3>we've already begun to launch video podcasts from our partnerships

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<v Speaker 3>with Spotify, The Ringer, iHeartMedia and Barstool Sports, and I've

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<v Speaker 3>just announced two new original podcasts with Pete Davis in

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<v Speaker 3>The Comedian and NFL read Legend Michael Irvin. So, like,

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<v Speaker 3>you know, we talked too about just podcast taking off.

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<v Speaker 3>Now it's not just audio anymore. It's video. So is

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<v Speaker 3>this a big opportunity for this company or just a

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<v Speaker 3>nice side business.

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<v Speaker 5>No, I think it's a big I think it's a

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<v Speaker 5>big opportunity. I don't know about you guys, but I

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<v Speaker 5>I can consume five, ten, ten times more content when

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<v Speaker 5>I can listen to it in the car and you know,

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<v Speaker 5>listen to it on a bike rider or whatever. It's

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<v Speaker 5>not just about reading anymore. People want audiobooks, they want music,

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<v Speaker 5>they want videos, they want podcasts. There's just there's there's

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<v Speaker 5>so much opportunity, and both of these brands have just

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<v Speaker 5>a wild opportunity, you know, long term gathering subscribers and

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<v Speaker 5>bolting on new opportunities that drive operating efficiencies, add AI

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<v Speaker 5>to the to the mix, and in more engagement, better profitability.

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<v Speaker 5>There's there's just a lot of lot to like, and

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<v Speaker 5>you don't often get a compounder on sale like both

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<v Speaker 5>of these companies, So you should take advantage of it

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<v Speaker 5>if you can look through some of the short term

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<v Speaker 5>you know kind of noise.

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<v Speaker 4>Eric love Netflix.

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<v Speaker 3>Hey, before you go, I think we'd be remiss considering

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<v Speaker 3>the day that we've had, we've seen selling, broad based selling,

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<v Speaker 3>and we're trying to make sense of geopolitics, news out

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<v Speaker 3>of the White House, Greenland. There's lots of stuff. We

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<v Speaker 3>love talking to you, Amazon, Taiwan, Semi Apple, Alphabet Service now, Walmart,

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<v Speaker 3>Liberty Media. These are among your top holdings anything in

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<v Speaker 3>terms of how you think about the potential for opportunity

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<v Speaker 3>in this investment environment. Anything changing just quickly before we go.

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<v Speaker 5>Nothing's changing too much. It's still important for consumption as

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<v Speaker 5>well as the consumption supply chain. You know, who's allowing

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<v Speaker 5>all of this consumption to happen when you combine the two.

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<v Speaker 5>That's the logo ETF and it's a pretty pretty interesting

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<v Speaker 5>compounder type of portfolio that's still pretty concentrated at thirty

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<v Speaker 5>thirty names.

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<v Speaker 4>All right, Eric, always good to see you.

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<v Speaker 5>Thanks for great to see you hanging out with this.

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<v Speaker 4>Going to come out here, yes, yeah, we will.

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<v Speaker 3>Side. I think the studio is about ten degrees.

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<v Speaker 2>We were out there last year and it was actually

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<v Speaker 2>like kind of June gloom when we were out in

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<v Speaker 2>San Diego. Was it kind of Oh it was, yeah,

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<v Speaker 2>I don't know it was, but you know, I remember,

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<v Speaker 2>you know.

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<v Speaker 3>I can't remember last week at this.

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<v Speaker 2>Point, Netflix shares. Let's stay on this. The company shares

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<v Speaker 2>fell in the after hours as much as five point

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<v Speaker 2>one percent this after it forecasts first quarter EPs below

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<v Speaker 2>the average analyssessment. The company also plans deposits share buybacks

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<v Speaker 2>in an effort to accumulate cash to fund the pending

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<v Speaker 2>acquisition of Warner Brothers. I want to bring in Bloomberg

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<v Speaker 2>Intelligence senior media analyst Getha Ranganoth, and she joins us

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<v Speaker 2>from Princeton, New Jersey, where Bloomberg Intelligence headquarters are. Getha,

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<v Speaker 2>just your your takeaway from this report. The outlook is

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<v Speaker 2>a concern spending on content. Got to tell you this

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<v Speaker 2>is like an age old story for Netflix, right, the

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<v Speaker 2>concern about, oh, you guys are spending way too much.

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<v Speaker 2>We could have had this discussion a dozen years.

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<v Speaker 4>Ago, I know.

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<v Speaker 7>And yes, content spending, so it was up about seven

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<v Speaker 7>percent sent in twenty twenty five. They're projecting about a

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<v Speaker 7>ten percent increase in content spent going into twenty twenty six.

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<v Speaker 7>And then of course you have the cost related to

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<v Speaker 7>the Warner Brothers deal. And I think it's not just

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<v Speaker 7>the cost site right, yes, operating margin, the guidance of

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<v Speaker 7>tim looks a little bit light. It's below thirty two percent.

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<v Speaker 7>I think the street was looking for something like closer

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<v Speaker 7>to thirty three percent. But also the ad revenue, you know,

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<v Speaker 7>definitely not bad, but not gangbusters. So this is the

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<v Speaker 7>very first time that they've actually reported advertising revenue. They

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<v Speaker 7>said it was about a one and a half billion

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<v Speaker 7>dollars in twenty twenty five. They expect to double that

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<v Speaker 7>in going into twenty twenty six. Again, definitely not bad

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<v Speaker 7>given that you know, this company made its foray into

0:11:44.120 --> 0:11:46.720
<v Speaker 7>adds just a few years ago versus all of the

0:11:46.800 --> 0:11:51.600
<v Speaker 7>other media giants, but again, not really a number to

0:11:51.679 --> 0:11:53.480
<v Speaker 7>kind of get too too thrilled about.

0:11:53.840 --> 0:11:55.760
<v Speaker 2>Was So that's not an I was just going to ask,

0:11:55.840 --> 0:11:58.479
<v Speaker 2>is that in line or below or above the expectations

0:11:58.480 --> 0:12:00.960
<v Speaker 2>that you've been making of late. I mean, a nice

0:12:00.960 --> 0:12:03.680
<v Speaker 2>to get some new data from the company, especially yeah,

0:12:03.920 --> 0:12:05.800
<v Speaker 2>in the recent quarters that you know, they're not doing

0:12:05.840 --> 0:12:09.679
<v Speaker 2>the same sort of disclosures they have in the past.

0:12:10.160 --> 0:12:13.520
<v Speaker 7>No, absolutely, I mean, so really twenty twenty so you know,

0:12:13.520 --> 0:12:15.240
<v Speaker 7>as we kind of zoom out and we just take

0:12:15.240 --> 0:12:17.160
<v Speaker 7>a look at Netflix, So twenty twenty four was all

0:12:17.160 --> 0:12:19.920
<v Speaker 7>about subscriber growth, right, they had about forty two million

0:12:20.000 --> 0:12:23.200
<v Speaker 7>new subscribers. Twenty twenty five was all about pricing, right,

0:12:23.320 --> 0:12:26.680
<v Speaker 7>huge price increases. Again, pretty stable subscriber growth. They obviously

0:12:26.679 --> 0:12:29.960
<v Speaker 7>did add close to almost twenty five million subscribers. But

0:12:30.000 --> 0:12:31.800
<v Speaker 7>in twenty twenty six, as we kind of looked at

0:12:31.800 --> 0:12:34.439
<v Speaker 7>twenty twenty six, here was like the big head scratcher, right,

0:12:34.520 --> 0:12:36.839
<v Speaker 7>what is the big growth catalyst for this company going

0:12:36.840 --> 0:12:39.760
<v Speaker 7>into twenty twenty six, And that's really where people were wondering,

0:12:39.800 --> 0:12:41.840
<v Speaker 7>whether you know, that's why they had to buy Warner.

0:12:42.120 --> 0:12:43.880
<v Speaker 7>And of course one of the big things that everybody

0:12:43.920 --> 0:12:47.040
<v Speaker 7>was looking for was AD revenue. Again, it has gotten

0:12:47.080 --> 0:12:50.720
<v Speaker 7>off to I would say, an okay start, but slightly

0:12:50.760 --> 0:12:52.840
<v Speaker 7>on the lower side than I think people were expecting.

0:12:52.840 --> 0:12:55.400
<v Speaker 7>People who were probably expecting something closer to about two

0:12:55.440 --> 0:12:57.880
<v Speaker 7>to two and a half billion dollars in twenty twenty five.

0:12:58.120 --> 0:13:02.000
<v Speaker 7>So definitely I think fell slightly lower than general expectations.

0:13:02.040 --> 0:13:03.840
<v Speaker 3>You know, I always think about Giza, like what's the

0:13:03.880 --> 0:13:06.280
<v Speaker 3>next markets or how much more is they're out there?

0:13:06.320 --> 0:13:09.120
<v Speaker 3>And in their company release they talk about, you know,

0:13:09.200 --> 0:13:12.319
<v Speaker 3>we relish competition, work to earn more of our consumer's attention,

0:13:12.880 --> 0:13:15.000
<v Speaker 3>and they say despite our success over the years, our

0:13:15.040 --> 0:13:17.400
<v Speaker 3>share of TV time remains below ten percent in the

0:13:17.440 --> 0:13:20.440
<v Speaker 3>major markets in which we operate. And then they said,

0:13:20.480 --> 0:13:23.120
<v Speaker 3>for example, according to Nielsen in December, our share of

0:13:23.200 --> 0:13:25.920
<v Speaker 3>US TV time reached an all time high nine percent

0:13:26.840 --> 0:13:29.559
<v Speaker 3>point five points year every year, yet linear TV still

0:13:29.600 --> 0:13:33.319
<v Speaker 3>comprises over forty percent of US TV screen time. You know,

0:13:33.720 --> 0:13:36.120
<v Speaker 3>is this just blowing smoke or is it really that

0:13:36.200 --> 0:13:38.760
<v Speaker 3>there is still a lot out there for either Netflix

0:13:38.880 --> 0:13:41.840
<v Speaker 3>or Amazon or some others to still grab when it

0:13:41.840 --> 0:13:43.680
<v Speaker 3>comes to screen time.

0:13:44.559 --> 0:13:44.719
<v Speaker 8>Oh.

0:13:44.760 --> 0:13:47.480
<v Speaker 7>Absolutely, there is still a lot more room for streaming

0:13:47.480 --> 0:13:49.599
<v Speaker 7>to grow, and I think it absolutely will. So I

0:13:49.600 --> 0:13:51.560
<v Speaker 7>think one of the big things that we've seen, especially

0:13:51.600 --> 0:13:53.719
<v Speaker 7>towards the end of twenty twenty five and going more

0:13:53.720 --> 0:13:56.560
<v Speaker 7>into twenty twenty six, is that, you know, most of

0:13:56.600 --> 0:13:59.640
<v Speaker 7>the Marquee Sports properties are now moving to streaming. So

0:13:59.640 --> 0:14:02.160
<v Speaker 7>obviously you have the big launch of ESPN.

0:14:02.840 --> 0:14:03.080
<v Speaker 1>Uh.

0:14:03.160 --> 0:14:04.680
<v Speaker 7>You know, for the very first time in the history

0:14:04.679 --> 0:14:07.239
<v Speaker 7>of television, all of the Marquet sports are now available

0:14:07.280 --> 0:14:09.440
<v Speaker 7>for people to watch on streaming. They don't have to

0:14:09.440 --> 0:14:11.800
<v Speaker 7>subscribe to a PATV bundle anymore, and I think that

0:14:11.960 --> 0:14:14.800
<v Speaker 7>makes a huge difference. You know, consumer behavior is changing

0:14:14.840 --> 0:14:18.360
<v Speaker 7>it's changing rapidly, and so obviously there is you know,

0:14:18.800 --> 0:14:22.480
<v Speaker 7>a lot more room for a Netflix, for an Amazon,

0:14:22.520 --> 0:14:25.600
<v Speaker 7>as you pointed out, but also equally for a YouTube

0:14:25.960 --> 0:14:28.000
<v Speaker 7>to grow. And this is where you have this whole,

0:14:28.160 --> 0:14:31.480
<v Speaker 7>this whole debate with AI, right, because as AI comes

0:14:31.480 --> 0:14:34.760
<v Speaker 7>in and kind of democratizes content creation, you have more

0:14:34.760 --> 0:14:37.760
<v Speaker 7>and more user generated content. Are people going to be

0:14:37.800 --> 0:14:40.880
<v Speaker 7>spending more time on YouTube and less time with like

0:14:41.000 --> 0:14:44.520
<v Speaker 7>premiere platforms like a Netflix, like and hbos.

0:14:44.840 --> 0:14:49.120
<v Speaker 3>I've just seen junk is obsessed with YouTube.

0:14:48.680 --> 0:14:51.800
<v Speaker 2>Yeah, but but not with the AI junk. I mean

0:14:52.120 --> 0:14:57.560
<v Speaker 2>social feeds. Have you seen anything good? I mean good,

0:14:57.680 --> 0:14:58.360
<v Speaker 2>nothing creative?

0:14:58.520 --> 0:15:01.400
<v Speaker 3>It's like the junk with AI you're talking, You're not talking,

0:15:01.480 --> 0:15:02.920
<v Speaker 3>you too, like.

0:15:03.160 --> 0:15:05.600
<v Speaker 4>The junkiest junk You.

0:15:05.520 --> 0:15:08.880
<v Speaker 7>Cannot out there? Not yet, Tim, But I think just

0:15:08.920 --> 0:15:10.800
<v Speaker 7>give it about a year or two and I think

0:15:10.920 --> 0:15:13.720
<v Speaker 7>soon we're going to be seeing pretty high quality stuff

0:15:13.760 --> 0:15:15.240
<v Speaker 7>come out. I mean, I know some of the industry

0:15:15.240 --> 0:15:18.200
<v Speaker 7>experts have basically projected that that, you know, another two

0:15:18.240 --> 0:15:20.360
<v Speaker 7>to two and a half years you will see the

0:15:20.400 --> 0:15:24.960
<v Speaker 7>first high quality, fully AI generated movie you know, come out.

0:15:25.040 --> 0:15:27.960
<v Speaker 7>So again have to wait and watch, but definitely a

0:15:27.960 --> 0:15:30.320
<v Speaker 7>possibility and definitely something Netflix is preparing for.

0:15:30.640 --> 0:15:31.720
<v Speaker 4>I wonder what that looks like.

0:15:31.800 --> 0:15:34.880
<v Speaker 2>I wonder I've watched some stuff that felt like it

0:15:34.920 --> 0:15:36.120
<v Speaker 2>was written by Chad GBT.

0:15:36.320 --> 0:15:37.960
<v Speaker 4>That's why I.

0:15:37.920 --> 0:15:40.360
<v Speaker 3>Can't wait till like pretty bad something and put you know,

0:15:40.680 --> 0:15:43.240
<v Speaker 3>Tim and K Pop Demon Hunters or something. Wouldn't that

0:15:43.280 --> 0:15:43.640
<v Speaker 3>be fun?

0:15:43.920 --> 0:15:48.160
<v Speaker 7>Are on Dancing with the Stars challenge?

0:15:48.360 --> 0:15:51.200
<v Speaker 3>It'd be great. It like just taking an AI generated

0:15:51.240 --> 0:15:55.000
<v Speaker 3>Tim and putting, Yeah, my kids love the America's Top Model.

0:15:57.120 --> 0:15:58.280
<v Speaker 4>All right, we got to go either.

0:15:58.320 --> 0:16:02.360
<v Speaker 2>Ranging Ath and senior media analyst at Bloomberg Intelligence. Stay

0:16:02.400 --> 0:16:05.840
<v Speaker 2>with us more from Bloomberg BusinessWeek Daily coming up after this.

0:16:10.040 --> 0:16:13.920
<v Speaker 1>You're listening to the Bloomberg Business Week Daily Podcast. Catch

0:16:14.000 --> 0:16:16.680
<v Speaker 1>us live weekday afternoons from two to five East during

0:16:16.880 --> 0:16:20.800
<v Speaker 1>Listen on Applecarplay and Android Auto with the Bloomberg Business app,

0:16:20.960 --> 0:16:23.080
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0:16:23.760 --> 0:16:26.240
<v Speaker 2>Great to add back with us on all this and more.

0:16:26.400 --> 0:16:29.080
<v Speaker 2>Bob Michael He's Chief investment Officer and head of Global

0:16:29.080 --> 0:16:32.320
<v Speaker 2>fixed Income, Currency and Commodities at Japan Morgan Asset Management,

0:16:32.360 --> 0:16:34.560
<v Speaker 2>also co chair of the Asset Management Investment Committee, a

0:16:34.560 --> 0:16:37.240
<v Speaker 2>member of the Asset and Wealth Management Operating Committee, and

0:16:37.240 --> 0:16:38.880
<v Speaker 2>the Asset Management Operating.

0:16:38.600 --> 0:16:41.720
<v Speaker 4>Committee joint for you dude in the studio.

0:16:43.120 --> 0:16:45.840
<v Speaker 2>Perfect Data have you, whether we're talking about Japan, whether

0:16:45.840 --> 0:16:48.520
<v Speaker 2>we're talking about what's going on in Europe. I kind

0:16:48.520 --> 0:16:52.600
<v Speaker 2>of want to start uh with the President's latest assaults

0:16:53.080 --> 0:16:57.680
<v Speaker 2>on European allies and market reaction that we are seeing.

0:16:58.440 --> 0:17:01.600
<v Speaker 2>Is the talk actually turn into something that our allies

0:17:01.920 --> 0:17:02.840
<v Speaker 2>are concerned about?

0:17:04.400 --> 0:17:04.760
<v Speaker 4>I think?

0:17:04.800 --> 0:17:10.040
<v Speaker 6>So it feels very chaotic again. So bess And is

0:17:10.160 --> 0:17:13.240
<v Speaker 6>right to refer back to April of last year when

0:17:13.280 --> 0:17:16.320
<v Speaker 6>there was a panic. I know last night I went

0:17:16.359 --> 0:17:18.760
<v Speaker 6>to bed in a panic and woke up in one

0:17:19.240 --> 0:17:22.639
<v Speaker 6>and it didn't get any better because of Japan, because

0:17:22.640 --> 0:17:25.360
<v Speaker 6>of so many things. We thought the President was going

0:17:25.400 --> 0:17:29.760
<v Speaker 6>to Davos to talk about housing and credit card affordability.

0:17:30.040 --> 0:17:34.119
<v Speaker 6>Suddenly now it's become about greenland affordability. How are we

0:17:34.240 --> 0:17:37.000
<v Speaker 6>going to buy or take it? And how are the

0:17:37.040 --> 0:17:40.120
<v Speaker 6>European countries going to finance us or are we going

0:17:40.200 --> 0:17:44.919
<v Speaker 6>to re tararf them? And it seems crazy, except that

0:17:45.440 --> 0:17:48.600
<v Speaker 6>things have a way of happening which people didn't think

0:17:48.680 --> 0:17:52.560
<v Speaker 6>would happen. So you have to back away and do

0:17:52.640 --> 0:17:55.560
<v Speaker 6>you risk a bet Japan. I don't know if that

0:17:55.680 --> 0:17:59.160
<v Speaker 6>necessarily came out of the blue. But we're now faced

0:17:59.200 --> 0:18:03.359
<v Speaker 6>with that where the bond markets become unanchored because they're

0:18:03.400 --> 0:18:07.200
<v Speaker 6>going to be snap elections and everyone's going to compete

0:18:07.240 --> 0:18:12.159
<v Speaker 6>for fiscal stimulus. If we're looking at the bond markets

0:18:12.200 --> 0:18:15.760
<v Speaker 6>and assessing all of these things, it feels that the

0:18:15.760 --> 0:18:20.879
<v Speaker 6>fiscal austerity which everyone embraced after the Great Financial Crisis

0:18:21.320 --> 0:18:25.280
<v Speaker 6>is out the window. It's now borrow and spend. There

0:18:25.280 --> 0:18:28.160
<v Speaker 6>seems to be plenty of capital around to finance it,

0:18:28.600 --> 0:18:33.040
<v Speaker 6>and a backup in yield may not be so bad. So, yeah,

0:18:33.240 --> 0:18:36.119
<v Speaker 6>things are a bit chaotic, and the markets do feel

0:18:36.200 --> 0:18:37.040
<v Speaker 6>a bit panicked.

0:18:37.080 --> 0:18:40.800
<v Speaker 3>So Bob, you know, there's chaos, there's chaotic moves, there's

0:18:40.880 --> 0:18:43.239
<v Speaker 3>de risking, and then there's de risking. So is this

0:18:43.359 --> 0:18:47.040
<v Speaker 3>like a short term think Until we really figure out

0:18:47.320 --> 0:18:49.639
<v Speaker 3>how much of what the president is saying is just

0:18:50.280 --> 0:18:55.040
<v Speaker 3>rhetoric or the first negotiating ploy or something that sticks

0:18:55.080 --> 0:18:58.280
<v Speaker 3>around longer and impacts the investment landscape longer, it's.

0:18:58.080 --> 0:19:00.400
<v Speaker 6>Hard to know. I would have liked to have heard

0:19:00.440 --> 0:19:04.959
<v Speaker 6>something at one o'clock. Instead, it's sounding like a domestic

0:19:05.240 --> 0:19:09.000
<v Speaker 6>victory lap. Then bord Air Force one and head to

0:19:09.119 --> 0:19:13.600
<v Speaker 6>Davos and deal with a whole international array of problems.

0:19:13.920 --> 0:19:18.040
<v Speaker 6>And my guess is the administration is going to put

0:19:18.080 --> 0:19:22.320
<v Speaker 6>everyone on their heels and negotiate the best deal. Whether

0:19:22.400 --> 0:19:27.240
<v Speaker 6>it's Greenland, whether it's Venezuela, whether it's tariffs, whether it's

0:19:27.240 --> 0:19:27.840
<v Speaker 6>with China.

0:19:28.440 --> 0:19:29.040
<v Speaker 4>Who knows.

0:19:29.240 --> 0:19:31.560
<v Speaker 3>Should the President be taking a victory lap based on

0:19:31.560 --> 0:19:32.800
<v Speaker 3>what you've seen in the past year.

0:19:34.840 --> 0:19:38.960
<v Speaker 6>If I'm purely objective and sit here in January and

0:19:39.000 --> 0:19:43.560
<v Speaker 6>say we're heading into twenty twenty six with some momentum.

0:19:44.000 --> 0:19:48.320
<v Speaker 6>We closed out the fourth quarter pretty strong. We're expecting

0:19:48.440 --> 0:19:51.359
<v Speaker 6>somewhere either side of two and a half percent for

0:19:51.520 --> 0:19:56.440
<v Speaker 6>GDP and inflation in the US. The US is collecting

0:19:56.760 --> 0:20:01.320
<v Speaker 6>some tariffs, the effective rates about sixteen, so that's a

0:20:01.440 --> 0:20:06.480
<v Speaker 6>source of revenue. The markets are at highs, and that

0:20:06.600 --> 0:20:11.119
<v Speaker 6>momentum looks like it's going to continue. So yeah, I

0:20:11.640 --> 0:20:15.000
<v Speaker 6>think you can claim that if you want to.

0:20:15.680 --> 0:20:18.919
<v Speaker 2>A chance though, that the bond market and you know,

0:20:18.960 --> 0:20:22.560
<v Speaker 2>perhaps even the equity market are overreacting that the president.

0:20:23.000 --> 0:20:24.960
<v Speaker 2>You know, for much of last year there was the

0:20:25.000 --> 0:20:29.200
<v Speaker 2>taco trade, the idea that what the President said wasn't

0:20:29.200 --> 0:20:31.639
<v Speaker 2>necessarily what ended up happening and I think you know

0:20:31.680 --> 0:20:35.000
<v Speaker 2>that so called Liberation Day tariffs are a perfect example.

0:20:34.680 --> 0:20:37.720
<v Speaker 6>Of that we're entitled to overreact. I think we've been

0:20:37.800 --> 0:20:41.840
<v Speaker 6>pretty well behaved for a while. Volatility metrics have been

0:20:42.000 --> 0:20:45.359
<v Speaker 6>abnormally low. We're allowed to throw our toys out of

0:20:45.400 --> 0:20:48.879
<v Speaker 6>the prem every so often. I think this is a

0:20:49.040 --> 0:20:54.160
<v Speaker 6>message from market participants to the administration. We can only

0:20:54.200 --> 0:20:57.160
<v Speaker 6>go so far, and they've got to figure out where

0:20:57.200 --> 0:21:01.959
<v Speaker 6>the line is. I think what Beson forgot to include was, yeah,

0:21:02.200 --> 0:21:04.880
<v Speaker 6>the market had to fit in April, and then they

0:21:05.040 --> 0:21:08.640
<v Speaker 6>backed off of a lot of things and then calm ensued,

0:21:08.960 --> 0:21:12.000
<v Speaker 6>we need to hear some of the same kinds of things.

0:21:11.800 --> 0:21:12.200
<v Speaker 4>We should know.

0:21:12.280 --> 0:21:14.399
<v Speaker 2>The President is still making comment of the press conference.

0:21:14.440 --> 0:21:16.640
<v Speaker 2>We'll go back to it when he does take questions

0:21:16.720 --> 0:21:18.119
<v Speaker 2>from the press. You can see it right there on

0:21:18.119 --> 0:21:19.520
<v Speaker 2>the screen, and also check it out on Live Go

0:21:19.920 --> 0:21:25.200
<v Speaker 2>on the Bloomberg terminal. You mentioned the reaction back in April.

0:21:26.000 --> 0:21:28.119
<v Speaker 2>I believe the technical term the President used was the

0:21:28.119 --> 0:21:30.640
<v Speaker 2>bond market got a bit yippy. Is the bond market

0:21:30.720 --> 0:21:31.240
<v Speaker 2>yippie now?

0:21:33.119 --> 0:21:37.239
<v Speaker 6>Not yet? If you look at Japan, Japan has a

0:21:37.320 --> 0:21:41.000
<v Speaker 6>whole host of domestic things to deal with, so that's

0:21:41.119 --> 0:21:44.600
<v Speaker 6>become unanchored when I look at the US market, Yeah,

0:21:44.640 --> 0:21:47.320
<v Speaker 6>we've backed up a little bit, but you know what,

0:21:47.720 --> 0:21:50.320
<v Speaker 6>We've got a FED funds rated at about three and

0:21:50.440 --> 0:21:53.720
<v Speaker 6>five eighths the two years within touching distance of that.

0:21:54.119 --> 0:21:58.120
<v Speaker 6>You've got somewhat of a normal steepness to the yolker

0:21:58.280 --> 0:22:01.439
<v Speaker 6>from FED funds to two's to the ten year and

0:22:01.520 --> 0:22:05.639
<v Speaker 6>the thirty year. It all feels pretty orderly now, a

0:22:05.680 --> 0:22:10.920
<v Speaker 6>bit of a pause. So I actually think things feel okay.

0:22:11.200 --> 0:22:14.119
<v Speaker 3>Anytime I feel like Bob, we pull up geopolitics and

0:22:14.119 --> 0:22:16.600
<v Speaker 3>people are like, well, who holds US treasuries? And we've

0:22:16.640 --> 0:22:18.600
<v Speaker 3>got a story on the Bloomberg that talks about European

0:22:18.640 --> 0:22:21.679
<v Speaker 3>countries holding trillions of dollars of US bonds and stock,

0:22:21.760 --> 0:22:24.000
<v Speaker 3>some of which sit with public sector funds. And so

0:22:24.080 --> 0:22:28.080
<v Speaker 3>there's you know, the speculation that could our allies or

0:22:28.119 --> 0:22:31.800
<v Speaker 3>even folks like China or something like sell US debt?

0:22:31.960 --> 0:22:35.600
<v Speaker 3>Is there really any alternative into US debt?

0:22:35.840 --> 0:22:41.000
<v Speaker 6>Realistically, No, there is not, And we did this about

0:22:41.040 --> 0:22:44.120
<v Speaker 6>a year ago. We went through this in March April May.

0:22:44.560 --> 0:22:47.240
<v Speaker 6>We spent a lot of time talking to our clients,

0:22:47.520 --> 0:22:51.760
<v Speaker 6>particularly our non US clients. They looked at everything and

0:22:51.840 --> 0:22:55.520
<v Speaker 6>came back to when you look at the US debt markets,

0:22:55.560 --> 0:23:00.000
<v Speaker 6>which includes governments, but it's corporates, it's securitized, no other marks.

0:23:00.000 --> 0:23:04.120
<v Speaker 6>Markets have the depth and the breath. They have confidence

0:23:04.320 --> 0:23:07.840
<v Speaker 6>in the country. They're not willing to abandon it. They

0:23:07.880 --> 0:23:11.639
<v Speaker 6>see the presidency as to two year terms when you

0:23:11.720 --> 0:23:15.320
<v Speaker 6>throw in the midterm election elections, so they're willing to

0:23:15.480 --> 0:23:18.399
<v Speaker 6>ride through it. I don't think there will be wholesale

0:23:18.440 --> 0:23:20.640
<v Speaker 6>selling of US treasury debt.

0:23:20.720 --> 0:23:25.320
<v Speaker 2>So you're referring to the Danish pension fund academic or pension, Yes.

0:23:25.200 --> 0:23:28.080
<v Speaker 3>That's and that's a small but I just in general,

0:23:28.119 --> 0:23:30.040
<v Speaker 3>like I think about we've talked about it in terms

0:23:30.080 --> 0:23:32.800
<v Speaker 3>of China, just any you know that this is a

0:23:32.840 --> 0:23:36.880
<v Speaker 3>great lever that foreign investors or foreign governments could pull

0:23:36.920 --> 0:23:40.280
<v Speaker 3>against the US. But the reality is they're not likely

0:23:40.440 --> 0:23:43.240
<v Speaker 3>too because there kind of is no alternatives.

0:23:43.480 --> 0:23:47.680
<v Speaker 6>We had a lot of very large non US clients

0:23:48.160 --> 0:23:52.440
<v Speaker 6>look at alternatives and line up plans if we were

0:23:52.480 --> 0:23:55.480
<v Speaker 6>to sell this, this is where we would go, and

0:23:55.520 --> 0:23:59.200
<v Speaker 6>they paused putting more money into US bonds, but they

0:23:59.200 --> 0:24:02.040
<v Speaker 6>didn't take any out, and by the end of the

0:24:02.040 --> 0:24:04.439
<v Speaker 6>summer they were putting money back in again.

0:24:04.920 --> 0:24:07.920
<v Speaker 2>We're speaking with Bob Michael, chief investment officer, head of

0:24:07.960 --> 0:24:10.560
<v Speaker 2>the Global Fixed Income, Currency and Commodities Group for JP

0:24:10.680 --> 0:24:15.720
<v Speaker 2>Morgan Asset Management. The President still speaking at the White House.

0:24:16.080 --> 0:24:18.600
<v Speaker 2>We do expect him to take questions too in just

0:24:18.640 --> 0:24:21.600
<v Speaker 2>a little while. Back to this pension because Anders Sheldy

0:24:21.680 --> 0:24:25.800
<v Speaker 2>cited this is the fund. Chief investment officer cited Trump's

0:24:25.800 --> 0:24:28.480
<v Speaker 2>talk of taking over Greenland, concerns about fiscal discipline and

0:24:28.520 --> 0:24:31.520
<v Speaker 2>a weaker dollar for reasons for the decision. You don't

0:24:31.520 --> 0:24:34.240
<v Speaker 2>buy the fiscal discipline and the weaker dollar part of this.

0:24:34.320 --> 0:24:35.600
<v Speaker 2>You think this is just political.

0:24:36.960 --> 0:24:37.359
<v Speaker 3>Is there?

0:24:37.400 --> 0:24:41.400
<v Speaker 6>Where is their fiscal discipline now? It's hard to find it,

0:24:41.560 --> 0:24:46.800
<v Speaker 6>Like go to the old stalwarts Germany not there. Look

0:24:46.840 --> 0:24:50.720
<v Speaker 6>at what Japan could and couldn't do. That seems to

0:24:50.800 --> 0:24:54.880
<v Speaker 6>have been abandoned now. The US for sure will see

0:24:54.880 --> 0:24:57.600
<v Speaker 6>who the next fed share is, but it sure ain't

0:24:57.600 --> 0:25:00.560
<v Speaker 6>going to be the next Paul Volker walking in. So

0:25:00.680 --> 0:25:03.879
<v Speaker 6>I think fiscal discipline is a thing of the past,

0:25:04.359 --> 0:25:07.879
<v Speaker 6>and there is a feeling that deficits can be financed.

0:25:07.920 --> 0:25:10.400
<v Speaker 6>In Japan is kind of telling us you can get

0:25:10.440 --> 0:25:12.480
<v Speaker 6>to three hundred percent life still good.

0:25:12.560 --> 0:25:14.640
<v Speaker 3>So when do we pay the piper on this global

0:25:14.720 --> 0:25:17.680
<v Speaker 3>lack of fiscal discipline? I think about Andrew Russorkin, who

0:25:17.720 --> 0:25:19.640
<v Speaker 3>was just on to talk about his book nineteen twenty nine,

0:25:19.640 --> 0:25:23.480
<v Speaker 3>and we talked about, you know, crises in particular in general,

0:25:23.520 --> 0:25:26.120
<v Speaker 3>and that leverage and debt. Right, these are the things

0:25:26.119 --> 0:25:28.840
<v Speaker 3>that get us into trouble, whether we're an individual, a company,

0:25:28.920 --> 0:25:32.159
<v Speaker 3>or a country or ken. So is that potentially the

0:25:32.200 --> 0:25:35.760
<v Speaker 3>next crisis, just the lack of fiscal discipline globally or

0:25:35.800 --> 0:25:37.680
<v Speaker 3>do we just kind of continue to go along here?

0:25:38.560 --> 0:25:43.080
<v Speaker 6>So I read nineteen twenty nine very engrossing. I don't

0:25:43.119 --> 0:25:47.359
<v Speaker 6>see the problems that existed then here today. I don't

0:25:47.400 --> 0:25:53.960
<v Speaker 6>see the rampant leverage throughout the system which is becoming problematic.

0:25:54.119 --> 0:25:58.040
<v Speaker 6>It can't be it can't be served as it's being written.

0:25:57.880 --> 0:25:59.960
<v Speaker 3>Even on a government or software level.

0:26:00.520 --> 0:26:03.560
<v Speaker 6>Yeah, it's not happening at the government or sovereign level.

0:26:03.640 --> 0:26:09.720
<v Speaker 6>And that new tool called QUE allows that to perpetuate.

0:26:09.880 --> 0:26:10.080
<v Speaker 8>Right.

0:26:10.119 --> 0:26:12.200
<v Speaker 3>Well, that's but that's the point. Like I think about

0:26:12.440 --> 0:26:15.159
<v Speaker 3>years ago, I remember not doing an interview, a business

0:26:15.160 --> 0:26:18.760
<v Speaker 3>news interview or markets interview without talking up about the

0:26:18.880 --> 0:26:21.280
<v Speaker 3>US government debt and then it went away and now

0:26:21.280 --> 0:26:23.040
<v Speaker 3>we are back again. So like I guess, I think

0:26:23.080 --> 0:26:25.520
<v Speaker 3>we kind of continue to try and find out when

0:26:25.640 --> 0:26:28.560
<v Speaker 3>is it really a problem. Certainly as rates go higher,

0:26:28.560 --> 0:26:31.640
<v Speaker 3>it becomes more expensive to service, certainly here in the US.

0:26:31.680 --> 0:26:33.120
<v Speaker 3>But I'm just wondering, like when I.

0:26:33.040 --> 0:26:36.040
<v Speaker 6>Think when it gets thrown away. I started the business

0:26:36.119 --> 0:26:39.960
<v Speaker 6>in eighty one, I work through the twin deficits. I

0:26:40.119 --> 0:26:42.800
<v Speaker 6>was taught the US will never be allowed to finance

0:26:42.840 --> 0:26:46.440
<v Speaker 6>itself below ten percent again, and we promptly drop from

0:26:46.600 --> 0:26:50.520
<v Speaker 6>sixteen percent to three tents of a percent, and in

0:26:50.560 --> 0:26:55.480
<v Speaker 6>the Clinton era, suddenly you know, the deficit was gone.

0:26:56.040 --> 0:26:58.800
<v Speaker 6>We look at where the money is being spent, and

0:26:58.840 --> 0:27:02.159
<v Speaker 6>we may not always agree where it's being spent, but

0:27:02.520 --> 0:27:06.719
<v Speaker 6>it does create some productivity. We talk to all the

0:27:06.800 --> 0:27:11.840
<v Speaker 6>municipalities that are accessing the various programs they can. They're

0:27:11.920 --> 0:27:17.320
<v Speaker 6>actually going in taking capital, they're hiring people, they're consuming resources,

0:27:17.720 --> 0:27:21.840
<v Speaker 6>and they're investing in their townships or their states, or

0:27:21.880 --> 0:27:26.520
<v Speaker 6>their cities or whatever it can be. Ultimately, that generates

0:27:26.600 --> 0:27:29.400
<v Speaker 6>activity that gets taxed, and I think that's what we

0:27:29.480 --> 0:27:32.840
<v Speaker 6>saw in the late eighties into the early nineties.

0:27:32.960 --> 0:27:34.840
<v Speaker 2>Last question, I'm going to make you push ahead to

0:27:34.840 --> 0:27:38.520
<v Speaker 2>our conversation with Robert Kaplan Vice Cheric Goldman, and we're

0:27:38.520 --> 0:27:40.200
<v Speaker 2>going to be hearing from him in just a few minutes.

0:27:40.200 --> 0:27:43.880
<v Speaker 2>On the FED, polymarket has Kevin Warsh as the favorite

0:27:44.080 --> 0:27:48.840
<v Speaker 2>for the nomination. In fact, Rick Reader is now number two,

0:27:48.920 --> 0:27:52.159
<v Speaker 2>which is interesting to see. Who has the bond market

0:27:52.160 --> 0:27:53.840
<v Speaker 2>priced in as the next FED chair.

0:27:56.640 --> 0:27:59.800
<v Speaker 6>I don't think the bond market has a great idea.

0:28:00.600 --> 0:28:04.000
<v Speaker 6>Reader's number two. For me. I've known him for close

0:28:04.040 --> 0:28:07.360
<v Speaker 6>to forty years. I think he'd be an excellent fetchair.

0:28:07.440 --> 0:28:10.879
<v Speaker 6>I think he'd be somebody very different. Let's get a

0:28:11.000 --> 0:28:15.000
<v Speaker 6>true bond markets practitioner in there who's had to live

0:28:15.080 --> 0:28:20.639
<v Speaker 6>with the aftermath of FED decisions. So I'm certainly a

0:28:20.680 --> 0:28:24.399
<v Speaker 6>supporter of his, But he's number two behind Bessant is

0:28:24.440 --> 0:28:27.840
<v Speaker 6>still my number one. I think the President is still

0:28:27.880 --> 0:28:32.240
<v Speaker 6>stalling and trying to negotiate with Besson. I don't see

0:28:32.320 --> 0:28:37.560
<v Speaker 6>worsh too hawkish. Hassett's got to be removed because of

0:28:37.800 --> 0:28:43.040
<v Speaker 6>the DJ and Waller. I don't know that the administration

0:28:43.280 --> 0:28:48.720
<v Speaker 6>feels they can control Waller. So you know, Rick Rick

0:28:48.920 --> 0:28:52.240
<v Speaker 6>is the you know, shining night that comes in out

0:28:52.320 --> 0:28:55.600
<v Speaker 6>of left field, smart guy will do the right thing,

0:28:55.680 --> 0:28:58.160
<v Speaker 6>but I still think it's best was the number one.

0:28:58.440 --> 0:29:00.239
<v Speaker 4>Not expecting to hear that thing.

0:29:00.280 --> 0:29:02.480
<v Speaker 3>Whether it's best at a reader or whomever will be

0:29:02.560 --> 0:29:04.440
<v Speaker 3>independent or that depends.

0:29:04.800 --> 0:29:09.680
<v Speaker 6>I've never fully believed that they're independent because they're political appointees,

0:29:10.120 --> 0:29:13.640
<v Speaker 6>so they get appointed for their core views. I believe

0:29:13.680 --> 0:29:17.320
<v Speaker 6>when they're in office that they always try to do

0:29:17.520 --> 0:29:23.360
<v Speaker 6>the best thing. But some believe that fiscal austerity is

0:29:23.400 --> 0:29:27.160
<v Speaker 6>the best policy, and other beliefs that a lower cost

0:29:27.200 --> 0:29:31.760
<v Speaker 6>of funding and economic activity and monitorism will help stimulate

0:29:31.800 --> 0:29:32.520
<v Speaker 6>the economy.

0:29:32.640 --> 0:29:35.440
<v Speaker 3>That discussion around the table right means something right, and

0:29:35.480 --> 0:29:38.240
<v Speaker 3>all those different voices. Your voice always means a lot

0:29:38.280 --> 0:29:38.600
<v Speaker 3>to us.

0:29:38.600 --> 0:29:40.320
<v Speaker 4>Thank you so much, really happy to be here, A

0:29:40.320 --> 0:29:41.160
<v Speaker 4>great day for it.

0:29:42.480 --> 0:29:44.080
<v Speaker 3>We thought that on our planning call, We're like, we're

0:29:44.120 --> 0:29:47.000
<v Speaker 3>so glad he's here today. But Michael B Well, we

0:29:47.000 --> 0:29:49.480
<v Speaker 3>really appreciate Chief Investment Officer, head of Global Fixed Income,

0:29:49.520 --> 0:29:52.280
<v Speaker 3>Currency Commodities over at JP Morgan Asset and Management.

0:29:53.360 --> 0:29:54.120
<v Speaker 4>Stay with us.

0:29:54.200 --> 0:29:57.120
<v Speaker 2>More from Bloomberg Business Week Daily coming up after this.

0:30:01.280 --> 0:30:05.160
<v Speaker 1>You're listening to the Bloomberg Business Week Daily podcast. Catch

0:30:05.240 --> 0:30:07.880
<v Speaker 1>us live weekday afternoons from two to five eas during

0:30:07.920 --> 0:30:11.360
<v Speaker 1>this listen on Applecarplay and Android Auto with the Bloomberg

0:30:11.400 --> 0:30:14.320
<v Speaker 1>Business app, or watch us live on YouTube.

0:30:15.160 --> 0:30:18.200
<v Speaker 3>Hey one of the stories and not stories but reality

0:30:18.200 --> 0:30:20.520
<v Speaker 3>in terms of the global trade borrowers venturing back into

0:30:20.560 --> 0:30:25.040
<v Speaker 3>Europe's marketplace for debt today, though some companies staying away

0:30:25.120 --> 0:30:27.479
<v Speaker 3>amid the tensions with the US of a Greenland. And

0:30:27.520 --> 0:30:30.560
<v Speaker 3>that's after we saw global bond sales having their biggest

0:30:30.560 --> 0:30:33.320
<v Speaker 3>ever start two year as borrowers of every stripe seized

0:30:33.320 --> 0:30:37.200
<v Speaker 3>on investors insatiable appetite for risk. US alone, that first

0:30:37.200 --> 0:30:39.200
<v Speaker 3>full week of the year was one of the busiest

0:30:39.240 --> 0:30:42.200
<v Speaker 3>for US corporate debt sales on record, and risk premiums

0:30:42.480 --> 0:30:45.720
<v Speaker 3>we saw staying low even amid heavy issuance, but the

0:30:45.760 --> 0:30:48.280
<v Speaker 3>amount of bonds cheetering on the brink of junk surging

0:30:48.360 --> 0:30:50.920
<v Speaker 3>last year. That's according to JP Morgan Chase. They put

0:30:50.920 --> 0:30:52.640
<v Speaker 3>this out a little bit more than a week ago

0:30:52.640 --> 0:30:54.680
<v Speaker 3>at least, and we included it in our reporting. So

0:30:54.720 --> 0:30:56.200
<v Speaker 3>we want to kind of dig a little bit deeper

0:30:56.200 --> 0:30:56.880
<v Speaker 3>into this market.

0:30:56.960 --> 0:30:58.880
<v Speaker 2>It's time now for a weekly Women, Money and Power,

0:30:58.920 --> 0:31:00.840
<v Speaker 2>where we speak with some of the most influential women

0:31:00.840 --> 0:31:04.120
<v Speaker 2>from across the business world. We've got Joanna Diegos with US,

0:31:04.120 --> 0:31:06.920
<v Speaker 2>co founder of bond Blocks. It's the ETF issue focus

0:31:06.960 --> 0:31:10.000
<v Speaker 2>on fixed income, more than seven billion dollars in assets

0:31:10.080 --> 0:31:12.600
<v Speaker 2>under management. We spent a lot of time in sort

0:31:12.640 --> 0:31:14.960
<v Speaker 2>of the first forty five minutes of the program today

0:31:14.960 --> 0:31:18.160
<v Speaker 2>talking about what's happening overseas and US Treasury market reaction.

0:31:18.520 --> 0:31:20.320
<v Speaker 2>I want I want to focus a little bit on

0:31:20.400 --> 0:31:23.520
<v Speaker 2>corporate credit and the outlook in twenty twenty six. Carol

0:31:23.560 --> 0:31:26.800
<v Speaker 2>mentioned some of the sort of the busyness that we've

0:31:26.800 --> 0:31:30.280
<v Speaker 2>seen already this year, But what is the outlook on

0:31:30.320 --> 0:31:31.200
<v Speaker 2>corporate credit right now?

0:31:31.320 --> 0:31:33.320
<v Speaker 8>Yeah, I think we would say it's the same red

0:31:33.360 --> 0:31:36.080
<v Speaker 8>thread we've seen over the last three years in corporate credit,

0:31:36.120 --> 0:31:39.160
<v Speaker 8>and that is the resiliency of American companies and the

0:31:39.200 --> 0:31:42.400
<v Speaker 8>depth that they're issuing, even all the way down onto

0:31:42.440 --> 0:31:47.240
<v Speaker 8>high yield. You're seeing you know, lower or average default rates.

0:31:47.320 --> 0:31:50.720
<v Speaker 8>People can count on the fundamentals of these firms year

0:31:50.760 --> 0:31:55.440
<v Speaker 8>over year. So these these companies have started you know,

0:31:55.520 --> 0:31:58.520
<v Speaker 8>pre pandemic with really good foundations and their fundamentals, and

0:31:58.560 --> 0:32:01.880
<v Speaker 8>that's continued. So the resiliency of the economy, of the

0:32:01.920 --> 0:32:05.480
<v Speaker 8>strength is actually the story when you see those tight spreads.

0:32:06.400 --> 0:32:09.200
<v Speaker 8>What we focus on at bomb blocks is your ability

0:32:09.320 --> 0:32:12.959
<v Speaker 8>to trade or your ability to access different points of

0:32:13.000 --> 0:32:16.400
<v Speaker 8>income for risk across all the acid classes and fixed income.

0:32:16.520 --> 0:32:19.040
<v Speaker 3>We'll talk to us about flows in apt that you've seen,

0:32:19.440 --> 0:32:21.680
<v Speaker 3>maybe as you wrapped up the end of last year,

0:32:21.680 --> 0:32:23.240
<v Speaker 3>and then what you've seen as we kicked off twenty

0:32:23.240 --> 0:32:25.480
<v Speaker 3>twenty six as we did. Was it Mike who said

0:32:25.480 --> 0:32:28.600
<v Speaker 3>that folks have been saying it's like already felt like

0:32:28.640 --> 0:32:30.880
<v Speaker 3>a decade here in twenty twenty six, So give us

0:32:30.880 --> 0:32:31.720
<v Speaker 3>a little comparison.

0:32:31.880 --> 0:32:34.560
<v Speaker 8>Yeah, I think twenty twenty five, you know, more record

0:32:34.640 --> 0:32:37.560
<v Speaker 8>years in my space, in my industry, tfs are an

0:32:37.560 --> 0:32:40.360
<v Speaker 8>incredible tool for people to access fixed income markets. It

0:32:40.480 --> 0:32:41.600
<v Speaker 8>just continues to grow.

0:32:41.680 --> 0:32:43.320
<v Speaker 3>But where did they Where did you see most of

0:32:43.320 --> 0:32:45.280
<v Speaker 3>the money coming in? You're still last year and then

0:32:45.360 --> 0:32:46.479
<v Speaker 3>lot what's changing this year?

0:32:46.520 --> 0:32:48.640
<v Speaker 8>Kard of strength, It's sort of a familiar story, a

0:32:48.640 --> 0:32:52.880
<v Speaker 8>ton of strength in shorter duration assets. People look for,

0:32:53.080 --> 0:32:56.400
<v Speaker 8>you know, the most attractive yield and risk combination they

0:32:56.440 --> 0:32:59.080
<v Speaker 8>can and it's shorter duration has been a huge category

0:32:59.080 --> 0:33:00.760
<v Speaker 8>for ETFs and it can it needs to be so

0:33:01.920 --> 0:33:09.880
<v Speaker 8>really strong growth in corporates your previous too, commentators talked

0:33:09.920 --> 0:33:11.960
<v Speaker 8>about how you know, towards the middle and the end

0:33:11.960 --> 0:33:13.960
<v Speaker 8>of the year, people were still looking at the strength

0:33:13.960 --> 0:33:17.280
<v Speaker 8>of corporate debt. In EHFS, it was the same story.

0:33:17.720 --> 0:33:20.400
<v Speaker 8>And then we're seeing on our desk we talk a

0:33:20.400 --> 0:33:24.000
<v Speaker 8>lot to clients about public versus private debt and how

0:33:24.000 --> 0:33:27.239
<v Speaker 8>to access that. So a lot of conversations, a lot

0:33:27.240 --> 0:33:31.200
<v Speaker 8>of interest in how to compliment existing bomb portfolios with

0:33:31.280 --> 0:33:33.880
<v Speaker 8>other sources of yield, or looking for a way to

0:33:34.040 --> 0:33:35.000
<v Speaker 8>enhance yield on.

0:33:34.960 --> 0:33:37.400
<v Speaker 2>The public side of the ten year yield getting our

0:33:37.440 --> 0:33:40.360
<v Speaker 2>attention at least today four twenty nine where it is

0:33:40.440 --> 0:33:43.200
<v Speaker 2>right now. You were shocked to see it that.

0:33:43.200 --> 0:33:46.040
<v Speaker 3>High, well, hitting you know, four point three percent right

0:33:46.080 --> 0:33:47.920
<v Speaker 3>on the tenure. I was a little surprised. I mean,

0:33:48.200 --> 0:33:50.600
<v Speaker 3>it could be five percent and we have you know,

0:33:50.640 --> 0:33:51.880
<v Speaker 3>but I was kind of surprised.

0:33:52.040 --> 0:33:54.600
<v Speaker 2>Yeah, the recent move higher that we've seen, why has

0:33:54.640 --> 0:33:55.200
<v Speaker 2>that been.

0:33:55.720 --> 0:33:58.480
<v Speaker 8>I think that you know, in all these bouts of volatility. Again,

0:33:58.480 --> 0:34:00.680
<v Speaker 8>as we've looked over the long term, we've seen the

0:34:00.720 --> 0:34:03.400
<v Speaker 8>tenure approach five percent a few times, and it just

0:34:03.520 --> 0:34:06.560
<v Speaker 8>represents the concern and look, you know, hopefully structurally the

0:34:06.600 --> 0:34:08.920
<v Speaker 8>yeld curve is changing towards your rates being higher in

0:34:08.960 --> 0:34:11.600
<v Speaker 8>the long end and shorter on the short and lower on.

0:34:11.600 --> 0:34:14.439
<v Speaker 3>Which makes more sense. But you kind of get yeah,

0:34:14.520 --> 0:34:17.120
<v Speaker 3>in terms of the short term volatility that we continue

0:34:17.160 --> 0:34:19.600
<v Speaker 3>to see, whether it's a white house strategy that is

0:34:19.640 --> 0:34:20.600
<v Speaker 3>certainly upending.

0:34:20.680 --> 0:34:24.080
<v Speaker 8>Yeah, I mean that that is embedded. You know, there's

0:34:24.280 --> 0:34:26.440
<v Speaker 8>there's going to be you know, the terrafs are now

0:34:26.480 --> 0:34:30.080
<v Speaker 8>embedded in the outlook in twenty twenty six. For investors,

0:34:30.960 --> 0:34:34.960
<v Speaker 8>volatility is always on now and in the equity markets,

0:34:35.000 --> 0:34:37.239
<v Speaker 8>what we like to call people's attention to is that

0:34:37.600 --> 0:34:40.440
<v Speaker 8>a year like last year, if you aren't looking at

0:34:40.480 --> 0:34:42.480
<v Speaker 8>fixed income and you aren't looking at bonds and how

0:34:42.480 --> 0:34:46.080
<v Speaker 8>to add more income into your portfolios to offset volatility,

0:34:46.160 --> 0:34:48.360
<v Speaker 8>like you're missing out on these huge cushions.

0:34:48.000 --> 0:34:49.719
<v Speaker 3>Which was like I feel like it's been the talk

0:34:49.760 --> 0:34:51.440
<v Speaker 3>for the last year or so or a couple of

0:34:51.520 --> 0:34:54.240
<v Speaker 3>years right where you think about what you can get

0:34:55.360 --> 0:34:57.920
<v Speaker 3>on a US treasury right in terms of yield and

0:34:57.920 --> 0:35:00.760
<v Speaker 3>return and lock it in, Like why wouldn't you, especially

0:35:00.800 --> 0:35:03.120
<v Speaker 3>if you're thinking longer term. A lot of your offerings

0:35:03.120 --> 0:35:06.080
<v Speaker 3>obviously are within the US treasury market. You guys do

0:35:06.080 --> 0:35:10.000
<v Speaker 3>do some emerging market right, Yeah, what kind of activity

0:35:10.040 --> 0:35:13.120
<v Speaker 3>have you seen right now? I'm looking I think five point.

0:35:12.400 --> 0:35:14.880
<v Speaker 8>Emerging market as a category, and fix income was the

0:35:14.880 --> 0:35:17.719
<v Speaker 8>best performing category across fixed income last year, so a

0:35:17.760 --> 0:35:21.600
<v Speaker 8>lot of interest in dollar denominated debt and then also

0:35:21.760 --> 0:35:24.440
<v Speaker 8>just getting non US exposure was.

0:35:25.360 --> 0:35:26.359
<v Speaker 3>A trade last year.

0:35:26.480 --> 0:35:29.840
<v Speaker 8>So what we think is important across fix income is

0:35:29.840 --> 0:35:33.520
<v Speaker 8>just understanding how you position your bet or how you

0:35:33.520 --> 0:35:35.440
<v Speaker 8>position the way you think about that. And one thing

0:35:35.480 --> 0:35:38.359
<v Speaker 8>about emerging market debt is is typically very very long

0:35:38.440 --> 0:35:41.719
<v Speaker 8>dated debt, So there's an implicit two things going on.

0:35:41.800 --> 0:35:44.319
<v Speaker 8>There's a relationship to the US dollar, and then there's

0:35:44.400 --> 0:35:48.120
<v Speaker 8>also just the duration risk in there and and interest

0:35:48.160 --> 0:35:51.279
<v Speaker 8>rate risk. So what we try to do is like

0:35:51.440 --> 0:35:54.320
<v Speaker 8>update that space because people really do want to be shorter,

0:35:55.000 --> 0:35:56.120
<v Speaker 8>and that's something that I think.

0:35:56.320 --> 0:35:58.399
<v Speaker 3>So it's active in terms of the change in terms

0:35:58.400 --> 0:36:01.040
<v Speaker 3>of composition, well it's an index, it is, it's just.

0:36:00.920 --> 0:36:01.720
<v Speaker 5>A shorter draation.

0:36:02.000 --> 0:36:04.200
<v Speaker 8>I think that appeals to people to think about, like

0:36:04.239 --> 0:36:07.480
<v Speaker 8>how do you think about a forty year exposure and

0:36:07.520 --> 0:36:10.440
<v Speaker 8>should you be dialing that back? In these markets this

0:36:10.480 --> 0:36:13.080
<v Speaker 8>is a simple one to ten year exposure, And I

0:36:13.120 --> 0:36:16.480
<v Speaker 8>think that's that's what's going on in fixed income markets

0:36:16.640 --> 0:36:19.400
<v Speaker 8>as they relate to equity markets in your portfolio. Is

0:36:19.480 --> 0:36:23.200
<v Speaker 8>now people really understand the maybe pain of interest rate

0:36:23.320 --> 0:36:26.200
<v Speaker 8>risk and what can happen when raids zoom up, and

0:36:26.239 --> 0:36:29.080
<v Speaker 8>what you're anticipating for this year if rates continue to

0:36:29.120 --> 0:36:31.040
<v Speaker 8>go down, but we think that's going to be very

0:36:31.120 --> 0:36:32.319
<v Speaker 8>moderate this year.

0:36:32.520 --> 0:36:34.800
<v Speaker 2>We're going to be speaking with them like grafeo Bloomberg

0:36:34.840 --> 0:36:36.600
<v Speaker 2>News process or reporter in just a few minutes, and

0:36:36.640 --> 0:36:40.759
<v Speaker 2>she's written a lot about ETFs and how competitive the

0:36:40.800 --> 0:36:42.600
<v Speaker 2>space is. I mean, it's just I don't have to

0:36:42.600 --> 0:36:45.080
<v Speaker 2>tell you or anyone watching or listening. There's so many

0:36:45.080 --> 0:36:47.600
<v Speaker 2>ETFs out there. Do you plan to launch any new

0:36:47.640 --> 0:36:48.480
<v Speaker 2>ETFs this year?

0:36:49.200 --> 0:36:50.680
<v Speaker 8>Yeah, we have some in registration.

0:36:51.280 --> 0:36:53.520
<v Speaker 2>Where's the white space, like where's that? Where the areas

0:36:53.560 --> 0:36:55.360
<v Speaker 2>where that hadn't be covered?

0:36:55.840 --> 0:36:56.680
<v Speaker 6>Well? I think like a.

0:36:56.640 --> 0:36:59.760
<v Speaker 8>Big innovation from last year was private credit and Emily's

0:37:00.520 --> 0:37:03.239
<v Speaker 8>family is written it a ton on private credits, you know,

0:37:03.320 --> 0:37:06.400
<v Speaker 8>And and the reason is is because ETFs someme to

0:37:06.400 --> 0:37:10.359
<v Speaker 8>touch places that you need more transparency in, you want

0:37:10.360 --> 0:37:12.960
<v Speaker 8>to have access in and liquidity, and so those are

0:37:13.000 --> 0:37:15.120
<v Speaker 8>the spaces that people put time and effort in terms

0:37:15.160 --> 0:37:17.719
<v Speaker 8>of innovation, and I don't think that that's done. I

0:37:17.719 --> 0:37:20.720
<v Speaker 8>think that the important work in how you can access

0:37:20.760 --> 0:37:25.600
<v Speaker 8>alternative yields. Alternative returns is important to ETF investors because

0:37:25.600 --> 0:37:30.440
<v Speaker 8>ETFs are used in big, broad swaths of wealth portfolios

0:37:30.800 --> 0:37:33.520
<v Speaker 8>and they need to be more precise. Markets are more precise,

0:37:33.600 --> 0:37:37.600
<v Speaker 8>the modern markets are more precise, and so adding an

0:37:37.640 --> 0:37:40.359
<v Speaker 8>ability to add private credit has been has been the talks.

0:37:40.400 --> 0:37:42.120
<v Speaker 8>She's written a lot about it. Is it private credit?

0:37:42.160 --> 0:37:45.880
<v Speaker 8>Is not private credit? Our product, Our private credit product

0:37:45.880 --> 0:37:49.120
<v Speaker 8>PCMM was the first to give you access to middle

0:37:49.160 --> 0:37:52.880
<v Speaker 8>market exposures and you know completely, So it's a pure

0:37:53.120 --> 0:37:56.279
<v Speaker 8>approach and that's what clients are really buzzing about when

0:37:56.280 --> 0:37:57.719
<v Speaker 8>we're talking to them about what to do next.

0:37:57.800 --> 0:37:58.160
<v Speaker 7>Am I right?

0:37:58.200 --> 0:38:00.839
<v Speaker 3>In terms of assets about one hundred and eighty.

0:38:01.040 --> 0:38:04.719
<v Speaker 8>Eighty seven million? Yeah, And it's surprisingly like that's the

0:38:04.800 --> 0:38:08.239
<v Speaker 8>leader in the category in terms of like adoption, and

0:38:08.280 --> 0:38:11.480
<v Speaker 8>that's sort of I think the next frontier is improving

0:38:12.000 --> 0:38:15.719
<v Speaker 8>people's exposure to that in their portfolios and improving their

0:38:15.760 --> 0:38:19.080
<v Speaker 8>perception of what is in a private credit ETF.

0:38:19.120 --> 0:38:20.799
<v Speaker 3>All right, gott to leave it there, Johanna thank you

0:38:20.840 --> 0:38:25.200
<v Speaker 3>so much, Johanna Goyaugos. She is co founder at Bond Blocks.

0:38:25.400 --> 0:38:27.919
<v Speaker 3>They've got about seven billion in acids under management. Joining

0:38:27.960 --> 0:38:29.160
<v Speaker 3>us right here in our studio.

0:38:30.000 --> 0:38:35.360
<v Speaker 2>This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,

0:38:35.480 --> 0:38:37.640
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0:38:38.080 --> 0:38:41.480
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0:38:41.800 --> 0:38:45.520
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0:38:45.760 --> 0:38:48.759
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