WEBVTT - U.S. Heading Towards A Second Contraction: BE's Riccadonna 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.200 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:10.360 we bring you interviews from CEO, market pros, and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Find the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple Podcasts or wherever you listen to podcasts, 0:00:17.000 --> 0:00:20.720 and on Bloomberg dot Com. Jonathan Farrow. They're speaking with 0:00:20.880 --> 0:00:23.400 Larry Cudlow, Director of the National Economic Council, ending it 0:00:23.480 --> 0:00:26.200 with a nice little good luck, I suppose to the 0:00:26.239 --> 0:00:29.440 incoming administration and people who will be in similar posts, 0:00:29.440 --> 0:00:33.360 and pole really obviously what we might have expected, Larry 0:00:33.520 --> 0:00:36.040 downplaying the weak parts of this reward and playing of 0:00:36.280 --> 0:00:38.400 the stronger parts of this reward. And no one is 0:00:38.400 --> 0:00:42.519 doubting that there are some you know strength, yes to 0:00:42.880 --> 0:00:45.199 look at here, Yeah, exactly right. And I think the 0:00:45.479 --> 0:00:48.239 you know we heard from from Larry Cudlow there, you know, 0:00:48.640 --> 0:00:51.640 acknowledging that the you know this, this way of coronavirus 0:00:51.840 --> 0:00:54.440 is impacting the economy, but trying to find, uh, you know, 0:00:54.520 --> 0:00:58.240 some areas of strengthen economy, whether it's housing, whether it's 0:00:58.240 --> 0:01:00.560 consumer spending. Looks like the consumer is going to be 0:01:00.600 --> 0:01:02.959 spending here this holiday season here, But you know, when 0:01:03.000 --> 0:01:04.760 you take a look at the labor market here, it 0:01:04.880 --> 0:01:07.120 remains very, very challenging. And I think a lot of 0:01:07.120 --> 0:01:10.360 the concerns from economists, you know, how much of this is, 0:01:10.680 --> 0:01:12.640 you know a little bit more on the permanent side 0:01:13.200 --> 0:01:15.960 versus temporary in terms of the joblessness. Well, let's ask 0:01:16.040 --> 0:01:18.039 somebody else who we haven't spoken to in Ohile and 0:01:18.040 --> 0:01:20.960 who were excited to have back. Carl Rickadonna joined us. 0:01:21.000 --> 0:01:22.840 What a little present for the end of the year. 0:01:23.160 --> 0:01:26.559 Carl is a chief US economist of course for Bloomberg Economics, 0:01:26.560 --> 0:01:29.360 and Carl, it is fantastic to have you back. Also, 0:01:29.480 --> 0:01:32.880 I have to wonder what you're thinking coming back in 0:01:32.920 --> 0:01:35.480 this kind of environment, with the job market that is very, 0:01:35.680 --> 0:01:39.959 very different from just a few months ago. Absolutely good 0:01:40.040 --> 0:01:42.120 morning at you both, and thanks for having me back 0:01:42.160 --> 0:01:46.240 on You know, I have to draw some real distinctions 0:01:46.640 --> 0:01:52.160 with what Larry cut Low was suggesting, saying that in 0:01:52.200 --> 0:01:54.960 the interview he said that the job number was a 0:01:55.040 --> 0:02:00.080 wee bit below what was expected. That two thousand a 0:02:00.080 --> 0:02:02.680 pretty big number. So the old expression close enough for 0:02:02.760 --> 0:02:06.720 government work, I guess applied to something and you thinks there. Uh, 0:02:07.240 --> 0:02:09.320 and also he said, you know, this is a good 0:02:09.320 --> 0:02:12.800 report for the holiday season, and whatnot. The only the 0:02:12.800 --> 0:02:15.000 only person who liked this for the holiday season is 0:02:15.040 --> 0:02:18.320 the grinch. I mean, we saw a very sharp decline 0:02:18.360 --> 0:02:21.799 in retail hiring. That's such an important job engine at 0:02:21.800 --> 0:02:25.160 this time of year, and that is just endemic of 0:02:25.360 --> 0:02:29.280 or emblematic of, you know, the type of heartbreaking we're 0:02:29.320 --> 0:02:32.519 seeing in the economy right now. The service sector absolutely 0:02:32.639 --> 0:02:36.680 clobbered UH in that today's report, a big down shift. 0:02:37.200 --> 0:02:41.160 We had this reopening boom over the last several months, 0:02:41.560 --> 0:02:43.560 and as we look at the details of this report, 0:02:43.639 --> 0:02:46.680 we can see that basically came to an end in 0:02:46.760 --> 0:02:51.600 today's data. And unfortunately, UH, the November jobs report was 0:02:51.720 --> 0:02:56.480 talied much the recent surge and case counts and UH 0:02:56.680 --> 0:03:01.160 lockdown measures. So whatever November looked like, know already that 0:03:01.280 --> 0:03:03.840 December is going to be far, far weaker. So this 0:03:03.880 --> 0:03:08.119 is the start of a very chilly winter season four 0:03:08.320 --> 0:03:11.480 the labor market in general and also for the economy. 0:03:11.600 --> 0:03:14.240 I don't see holiday cheer in this report, that's to 0:03:14.280 --> 0:03:17.760 be sure. Yeah. One of the really disconcerting aspects of 0:03:17.800 --> 0:03:19.359 it is, you know, the really bad news in the 0:03:19.400 --> 0:03:22.920 unemployment is for those twenty seven weeks or longer. That 0:03:23.000 --> 0:03:26.000 rose to three point nine four million people, and the 0:03:26.080 --> 0:03:29.080 average duration in weeks is now at twenty three point 0:03:29.120 --> 0:03:32.760 two So it really goes to the issue Carl. A 0:03:32.840 --> 0:03:36.160 lot of this unemployment, which maybe we initially thought might 0:03:36.200 --> 0:03:38.480 be temporary at the beginning of the pandemic, is looking 0:03:38.480 --> 0:03:42.360 more and more permanent, and that raises some big issues. Well, 0:03:42.440 --> 0:03:44.560 I do think that that much of that unemployment is 0:03:44.600 --> 0:03:46.880 going to be temporary, but the temporary spell is going 0:03:46.920 --> 0:03:49.400 to last a lot longer. It's going to last until 0:03:49.720 --> 0:03:52.960 basically the spring saw, until we've had a reopening of 0:03:53.000 --> 0:03:56.720 the economy and broad distribution of the vaccine. The alarming 0:03:56.800 --> 0:04:00.240 number there is that twenty six week threshold because as 0:04:00.520 --> 0:04:04.320 unemployed individuals start to approach the twenty six week mark, 0:04:04.760 --> 0:04:07.920 then they start to drop out of state unemployment benefits. 0:04:07.920 --> 0:04:10.960 So there have been some extensions and some special programs, 0:04:11.240 --> 0:04:14.400 although those are due to expire for the most part 0:04:14.760 --> 0:04:16.960 at the end of this year unless they get additional 0:04:16.960 --> 0:04:20.840 fiscal support from Congress and the White House. So there 0:04:20.960 --> 0:04:23.800 is a very real problem here that we're approaching an 0:04:23.880 --> 0:04:28.080 income cliff as those who are out of work are 0:04:28.120 --> 0:04:30.760 facing the expiration of benefits and that will be a 0:04:31.040 --> 0:04:34.520 real drag on the economy at a time when really, 0:04:34.520 --> 0:04:37.479 as we look at our models, it's consumer spending that 0:04:37.600 --> 0:04:40.640 is doing all of the heavy lifting for the economy. So, Carl, 0:04:40.800 --> 0:04:43.960 you know, we constantly have people on that are actually 0:04:44.000 --> 0:04:47.200 you know, talking up the economy and and and respected economists. 0:04:47.200 --> 0:04:49.960 I'm not just talking you know, money managers or what 0:04:50.000 --> 0:04:51.919 have you, who are looking at the market itself continuing 0:04:51.960 --> 0:04:55.679 to go up. But very few people are actually sounding 0:04:55.680 --> 0:04:59.279 the alarm on an economic cliff. They're saying that the 0:04:59.320 --> 0:05:02.039 economy is bound see back faster than we thought that. Yeah, 0:05:02.040 --> 0:05:05.680 there may be another short dip into recessionary territory, but 0:05:06.200 --> 0:05:08.240 really it's a K shaped economy and it's only one 0:05:08.320 --> 0:05:11.720 part of the labor force or the economy that will 0:05:11.839 --> 0:05:15.680 feel the worst of this. Do you agree with those sentiments. 0:05:16.640 --> 0:05:21.360 I think the the the incessant rally in the equity 0:05:21.400 --> 0:05:25.680 market has created an inpriating haze over the economic outlaw. 0:05:26.160 --> 0:05:30.440 So the reality is here that we are heading towards 0:05:30.560 --> 0:05:33.520 a second contraction in the economy. It could be starting 0:05:33.520 --> 0:05:37.040 in December. It most likely will be concentrated in the 0:05:37.040 --> 0:05:40.480 first quarter of the year, we are looking for a contraction. 0:05:40.520 --> 0:05:43.839 I know some other big shops are looking for economic 0:05:43.839 --> 0:05:47.120 contractions in the first quarter. So there's this optimism that yes, 0:05:47.160 --> 0:05:50.360 a vaccine is coming, so eventually we'll be out of 0:05:50.400 --> 0:05:54.520 this uh, this muck, this swoon. But the real question, 0:05:54.560 --> 0:05:57.160 for the more pressent question, is how deep of a 0:05:57.200 --> 0:05:59.760 downturn we're going to have in the meantime while we 0:05:59.760 --> 0:06:02.480 wait for the vaccines to be broadly distributed, while we 0:06:02.480 --> 0:06:06.599 wait for economic stimulus to help the economy, and also 0:06:06.720 --> 0:06:09.119 for just the general reopening to happen in the spring. 0:06:09.480 --> 0:06:12.000 If we're talking about a half a percentage point contraction 0:06:12.040 --> 0:06:15.960 in the first quarter, which is our current estimate, that's manageable. 0:06:16.120 --> 0:06:18.919 We can muddle through. But if things go poorly and 0:06:18.920 --> 0:06:21.479 there's no guarantee that will have a perfect execution here, 0:06:21.800 --> 0:06:24.200 you can have a much deeper contraction, and that creates 0:06:24.200 --> 0:06:27.719 a whole additional slew of folks who can't pay rent 0:06:27.760 --> 0:06:30.520 and mortgages. Of it are missed in the financial contraction 0:06:30.680 --> 0:06:35.039 and corporate bankruptcies. So Carl, we saw Jonathan Paraoll just 0:06:35.080 --> 0:06:38.360 minutes ago with UH Larry Cudlow trying to press Mr. 0:06:38.400 --> 0:06:41.640 Cudlow on um stimulus and kind of where are we 0:06:41.680 --> 0:06:44.960 in stimulus and what's the White House perspective. Just from 0:06:44.960 --> 0:06:48.159 my listen, I didn't really get any sense that anything 0:06:48.240 --> 0:06:51.160 is imminent. What do you guys kind of discounting in 0:06:51.279 --> 0:06:58.120 your models as to the stimulus size scope and maybe timing, well, 0:06:58.160 --> 0:07:00.560 the stimulus has to be put in play before the 0:07:00.640 --> 0:07:02.080 end of the year or there's going to be a 0:07:02.160 --> 0:07:07.360 real problem with that household finances, especially those of the unemployed. 0:07:07.760 --> 0:07:10.920 Uh that that's a big issue, but there's also additional 0:07:11.000 --> 0:07:14.480 problems for small businesses, which are the dominant engine of 0:07:14.600 --> 0:07:17.920 job growth. Uh. And also the issue that Larry Cutlo 0:07:18.040 --> 0:07:22.760 really didn't want to address was aid for states and municipalities. 0:07:22.800 --> 0:07:25.000 And it's easy to say, well, we should punish the 0:07:25.040 --> 0:07:31.080 Blue states because they have under funded pension plans and whatnot. Nonetheless, 0:07:31.120 --> 0:07:34.200 the fact of the matter is economic growth over the 0:07:34.280 --> 0:07:39.800 last several decades is driven by urban centers, by cities 0:07:39.960 --> 0:07:43.280 the New York's, the Boston's, and Los Angeles. Uh, those 0:07:43.320 --> 0:07:46.600 cities are are you know, we're moving towards a service sector, 0:07:47.200 --> 0:07:50.320 service dominated economy, and it's all happening in the cities 0:07:50.400 --> 0:07:53.440 in the Tech Center San Francisco, for example. If we 0:07:53.560 --> 0:07:57.520 leave those cities out to drive and their transit systems 0:07:57.600 --> 0:08:01.400 are are impaired and other infrastruct your issues are unresolved 0:08:01.720 --> 0:08:04.600 and they can't fully reopen, that is absolutely going to 0:08:04.640 --> 0:08:07.480 impair the recovery as well. So we have to be 0:08:07.560 --> 0:08:10.240 very careful that we're not too stingy with stimulus, and 0:08:10.280 --> 0:08:12.560 we pay the cost as we did back in two 0:08:12.560 --> 0:08:16.480 thousand in the next couple of years by being too 0:08:16.480 --> 0:08:20.760 stingy and therefore cramping the extent that the pace of 0:08:20.800 --> 0:08:23.360 the economic recuple very briefly, Carl, were out of time. 0:08:23.400 --> 0:08:26.840 But if the incoming administration is much more inclined to 0:08:26.880 --> 0:08:28.760 do something like this, will they be able to get 0:08:28.800 --> 0:08:32.280 it through and quickly? Well, I'll answer that question on 0:08:32.360 --> 0:08:34.600 January Stiff, when we know the results of the Georgia 0:08:34.679 --> 0:08:37.560 runoff collection we're looking at split Congress. Then it's going 0:08:37.600 --> 0:08:41.120 to be a very stingy stimulus site here. Isn't that 0:08:41.360 --> 0:08:44.240 really something else? Carl? Thank you those of reality there 0:08:44.320 --> 0:08:47.200 from Carl RICKA Donna telling us that we're heading towards 0:08:47.240 --> 0:08:49.880 a second contraction. We just we just are, and that 0:08:50.000 --> 0:08:53.800 this inebriating haze is the market which keeps going higher, 0:08:53.800 --> 0:08:56.640 and we cannot let that impact what we think of 0:08:56.679 --> 0:09:00.000 the economic fundamentals, which are obvious ball Yeah, they really are. 0:09:00.040 --> 0:09:02.120 And in the job Stata today kind of just put 0:09:02.120 --> 0:09:06.319 an underline to that issue, and you know Carl's analysis, 0:09:06.440 --> 0:09:09.280 you know, suggesting that we really the economy really needs 0:09:09.280 --> 0:09:12.559 fiscal stumius before the end of this calendar year when 0:09:12.600 --> 0:09:14.920 some of these programs do are set to expire. It 0:09:14.920 --> 0:09:18.480 really goes to uh kind of the timing challenge for 0:09:18.640 --> 0:09:21.080 Congress in the White House, and the fact that economic 0:09:21.120 --> 0:09:24.319 growth is driven by urban centers really struck with me too. 0:09:24.360 --> 0:09:27.439 That's what Carl said there, and it's just so true. 0:09:27.440 --> 0:09:34.079 It's a geographic imperative as much as anything else. Well, 0:09:34.080 --> 0:09:36.360 now it is time to have a look at e 0:09:36.559 --> 0:09:41.240 s G Environmental, social and governance investing, and there's so 0:09:41.360 --> 0:09:43.760 much chatter about e s G going on that we 0:09:43.800 --> 0:09:46.800 need to sort of orient ourselves within what part of 0:09:46.840 --> 0:09:51.400 this investment management area we're looking at. Let's bring in 0:09:51.480 --> 0:09:54.040 Christie Hill, who's head of America's Asset Management and global 0:09:54.080 --> 0:09:57.600 head of e s G for PGM real Estate one 0:09:57.640 --> 0:10:01.000 hundred two billion dollars in assets under management. So, Christie, 0:10:01.080 --> 0:10:03.640 help us here, it's great to speak with you. Help 0:10:03.720 --> 0:10:08.640 us understand how you can be a real estate investor 0:10:09.320 --> 0:10:11.320 in the E s G space. What does that mean 0:10:13.040 --> 0:10:15.199 you for? For us in real estate and E SG, 0:10:15.559 --> 0:10:18.959 it really is about, I would say, assessing the risks 0:10:19.200 --> 0:10:22.200 um that we viewed through the through the s G lens. 0:10:22.200 --> 0:10:26.640 So it's about thinking about climate change and understanding not 0:10:26.760 --> 0:10:29.400 just your you know, your impacts or the impacts of 0:10:29.440 --> 0:10:32.560 sea level rise, but really thinking thoughtfully about all of 0:10:32.600 --> 0:10:36.280 the impacts of climate change, your physical, social transitional and 0:10:36.760 --> 0:10:39.880 understanding not only you know how they're going to impact 0:10:39.920 --> 0:10:43.480 you insurance markets and how mass migration is going to 0:10:43.559 --> 0:10:48.280 be impacting our markets, or how evolving regulatory involving environments 0:10:48.320 --> 0:10:51.280 are going to change our environment. It's about understanding the 0:10:51.320 --> 0:10:54.280 impact on the real estate, but also understanding the financial 0:10:54.360 --> 0:10:57.080 impact on the real estate UM. So I think for 0:10:57.160 --> 0:11:01.199 us it's about trying to really intensely do due diligence 0:11:01.240 --> 0:11:03.960 to assess our risk and make sure that we're being 0:11:03.960 --> 0:11:06.599 thoughtful in our approach so that we can devise strategies 0:11:06.640 --> 0:11:10.720 to mitigate it. So, Christie, how have you change your 0:11:10.760 --> 0:11:14.800 investment process as you factor in E s G elements 0:11:15.160 --> 0:11:19.640 into your analysis. You know, it's it's constantly evolving, and 0:11:19.640 --> 0:11:22.480 the more we learn UM, the more that investment process 0:11:22.520 --> 0:11:25.679 evolved with it. So it's about making sure we're you know, 0:11:25.760 --> 0:11:28.160 kind of a little bit too to my comment before 0:11:28.320 --> 0:11:32.720 making sure we're considering all of the proper factors and 0:11:32.760 --> 0:11:35.840 all of the appropriate risks up front UM, so that 0:11:35.920 --> 0:11:39.200 we can not just quantify them prior to prior to 0:11:39.280 --> 0:11:41.800 making that investment, but so that we can allow that 0:11:41.960 --> 0:11:46.520 diligence to inform our strategy operationally moving forward. How has 0:11:46.559 --> 0:11:49.480 the pandemic changed how you look at investments and what 0:11:49.559 --> 0:11:55.840 you do? You know, I think the pandemic has impacted 0:11:55.840 --> 0:11:57.200 the one thing we've been able to see is that 0:11:57.240 --> 0:12:01.800 this pandemic has impacted different sector is very differently UM, 0:12:01.920 --> 0:12:04.400 and we can see that there have been clear winners 0:12:04.440 --> 0:12:07.920 and losers. So I think for us UM, it's it's 0:12:07.960 --> 0:12:10.920 forced us to take a step back and be thoughtful. 0:12:10.960 --> 0:12:12.560 The last thing that we want to do from an 0:12:12.600 --> 0:12:16.600 investment perspective is the reactionary UM. So I think it's 0:12:16.600 --> 0:12:20.000 caused us to pause UM with the asset classes that 0:12:20.040 --> 0:12:22.160 we think are going to be more affected by this 0:12:22.240 --> 0:12:25.200 in the near term, UM. But it's also hasn't It 0:12:25.240 --> 0:12:28.439 hasn't stopped us from pursuing investments UM where we think 0:12:28.480 --> 0:12:31.800 there's clarity and opportunity. So Christie, you know, one of 0:12:31.800 --> 0:12:34.640 the issues that people are thinking about as it relates 0:12:34.679 --> 0:12:38.240 to real estate resulting from this pandemic is the change 0:12:38.240 --> 0:12:42.199 in the work home a dynamic more people working from home, uh, 0:12:42.280 --> 0:12:45.040 suggesting that maybe the need for office space and the 0:12:45.080 --> 0:12:47.640 big towers and the urban centers is not what it 0:12:47.720 --> 0:12:52.280 was pre pandemic. How are you guys thinking about that? Well, 0:12:52.400 --> 0:12:55.800 certainly the office of the future is topic du jur 0:12:56.040 --> 0:12:58.880 during COVID, and I think it's very much an example 0:12:58.960 --> 0:13:02.280 of UM as cliche as this may sound, example of 0:13:02.280 --> 0:13:06.199 COVID accelerating and already existing trend. We've been talking about 0:13:06.679 --> 0:13:09.319 real remote work dynamics UM for a long time. This 0:13:09.440 --> 0:13:12.839 technology has enabled that, and certainly, you know COVID now 0:13:12.880 --> 0:13:15.560 forcing everybody to be remote is really shining a bright 0:13:15.640 --> 0:13:18.240 light on it. UM. I think it's a little too 0:13:18.240 --> 0:13:20.960 soon to say what that impact is going to be. 0:13:21.160 --> 0:13:24.719 I mean, you hear a lot of alternate, alternate scenarios, 0:13:25.240 --> 0:13:28.000 more more, more square footage with fewer people less square 0:13:28.000 --> 0:13:31.760 footage altogether. UM. We certainly believe there is going to 0:13:31.800 --> 0:13:35.000 be demand for office UM long into the future. This 0:13:35.040 --> 0:13:37.280 is something we're looking into as a tenant as well 0:13:37.320 --> 0:13:39.480 as an owner. UM. But I think we're trying to 0:13:39.559 --> 0:13:43.000 be pragmatic in our approach. We know that there's going 0:13:43.040 --> 0:13:46.000 to be greater flexibility needed in the future. UM, but 0:13:46.080 --> 0:13:48.920 certainly believe that that demand for for office real estate 0:13:49.040 --> 0:13:52.679 is not going away. So I presume you're everywhere, right, Christie. 0:13:52.679 --> 0:13:56.360 You're involved probably all over the world and in most 0:13:56.440 --> 0:14:01.040 United States. But are there geographies that you're considering being 0:14:01.120 --> 0:14:04.440 less bullish on now and others that you're considering, you know, 0:14:04.520 --> 0:14:08.480 moving into UM. You know, for from an E s 0:14:08.559 --> 0:14:11.320 G perspective, certainly my purview is global. From the asset 0:14:11.360 --> 0:14:14.200 management perspective, I'm very much focused in the US. But 0:14:14.760 --> 0:14:16.640 I don't think that, you know, when we think about 0:14:16.679 --> 0:14:19.120 E s G. The concept, you know, when we think 0:14:19.120 --> 0:14:23.520 about E s G resiliency isn't necessarily about saying, because 0:14:23.560 --> 0:14:26.480 there is a challenged area, we're not going to go there. 0:14:26.800 --> 0:14:30.200 It really is about making sure that if we're identifying 0:14:30.200 --> 0:14:33.000 that challenge up front, so that we can identify a 0:14:33.040 --> 0:14:35.840 strategy to mitigate that challenge, and there may be places 0:14:35.840 --> 0:14:41.400 where that presents opportunity. So Christie has as E s G. Uh, 0:14:41.480 --> 0:14:43.960 you know the growth of s G in your analysis 0:14:43.960 --> 0:14:47.920 that caused you to either, uh maybe overweights a sector 0:14:48.080 --> 0:14:50.720 or underweight a sector. Has it really changed how you've 0:14:51.000 --> 0:14:54.400 actually put money to work? You know. E s G 0:14:54.520 --> 0:14:57.680 is something that we think is applicable across all sectors, 0:14:57.760 --> 0:14:59.960 and we want to look at E s Q factors, 0:15:00.320 --> 0:15:04.440 factors and risks across each sector. So I don't think 0:15:04.440 --> 0:15:07.440 it's it's at this point, it's nothing that or nothing 0:15:07.440 --> 0:15:08.920 has come out of it that said we're going to 0:15:08.960 --> 0:15:10.360 do this or we're not going to do this. It's 0:15:10.360 --> 0:15:14.320 about making sure we're applying um kind of that that 0:15:14.440 --> 0:15:17.400 E s G filter equally across all of our asset 0:15:17.440 --> 0:15:19.400 classes to make sure that we have a strong s 0:15:19.480 --> 0:15:23.320 G strategy, despite sector, despite region. Christie Hill, thank you 0:15:23.360 --> 0:15:25.200 so much for joining us. We appreciate it. Christy Hill 0:15:25.240 --> 0:15:28.440 is the head of America's asset management and global head 0:15:28.480 --> 0:15:31.440 of E s G for p JIM Real Estate. They 0:15:31.440 --> 0:15:35.440 have about one two billion dollars and assets under management, 0:15:35.480 --> 0:15:38.600 so they certainly have a good feel for the real 0:15:38.720 --> 0:15:40.920 estate market. And of course as you think about some 0:15:40.960 --> 0:15:42.960 of this commercial real estate, one of the big issues 0:15:43.080 --> 0:15:47.440 is what will be retail footprints um for certain retailers. 0:15:47.480 --> 0:15:50.080 Number one, Number two, what is the work dynamic going 0:15:50.120 --> 0:15:52.040 to be? What is the office dynamic going to look 0:15:52.080 --> 0:15:58.040 like going forward? Is as much real square footage really needed? Well, 0:15:58.080 --> 0:16:01.960 it was a big, big week in the media world. 0:16:02.360 --> 0:16:04.360 Warner Brothers, one of the biggest media companies, one of 0:16:04.360 --> 0:16:07.080 the biggest film and television studios, and announced this week 0:16:07.120 --> 0:16:10.920 that is going to release all of its films on 0:16:11.240 --> 0:16:15.720 HBO Max streaming service the same day they hit theaters. 0:16:15.800 --> 0:16:18.280 This is a big, big change for the movie business. 0:16:18.320 --> 0:16:20.120 Let's get some details. We can do that with Tara 0:16:20.200 --> 0:16:24.160 La Chapelle, Bloomberg Opinion media columnists. So, Tara, big news 0:16:24.240 --> 0:16:27.360 from Warner What do you think their strategy is here? Well, 0:16:27.400 --> 0:16:29.720 you know, I think right now, with theaters still a 0:16:29.760 --> 0:16:32.480 lot of them being closed because of COVID, they're looking 0:16:32.480 --> 0:16:35.320 at next year and saying, yes, there's vaccines around the corner, 0:16:35.440 --> 0:16:38.480 but it's still too students really have any visibilities. So 0:16:39.000 --> 0:16:40.880 you want people to see these movies that you spend 0:16:40.880 --> 0:16:43.000 a ton of money on. You want people to subscribe 0:16:43.040 --> 0:16:45.320 to HBO Max. So if your a T n T 0:16:45.480 --> 0:16:47.880 and you're looking at that, you're thinking, well, I should 0:16:47.920 --> 0:16:50.160 just put the movies on HBO Max. And I think 0:16:50.200 --> 0:16:52.080 that's a really smart decision. It's it's going to be 0:16:52.080 --> 0:16:55.880 painful for movie theaters because those that are open. I 0:16:55.880 --> 0:16:57.200 think a lot of people are probably just going to 0:16:57.320 --> 0:16:59.280 choose to watch from home if they have that option. 0:16:59.360 --> 0:17:02.400 And HBO Max costs fifteen dollars a month. If you're 0:17:02.400 --> 0:17:04.560 getting a new movie every few weeks, I mean that 0:17:04.640 --> 0:17:06.520 starts to look like a pretty good value, you know, 0:17:06.760 --> 0:17:09.960 from being really expensive to being kind of compelling. So 0:17:10.200 --> 0:17:11.960 I think what they're doing is smart, but it's just 0:17:12.040 --> 0:17:13.560 it is going to be painful for the movie theater 0:17:13.600 --> 0:17:16.280 industry and to be cure of these movies only stay 0:17:16.280 --> 0:17:18.879 on for a month, so you have a limited viewing window, 0:17:19.119 --> 0:17:21.919 let's say, and they're also in theaters at the same time. 0:17:22.240 --> 0:17:24.240 The question I think, Tara is whether this is going 0:17:24.240 --> 0:17:26.919 to be a permanent move on the part of Warner Brothers, 0:17:27.000 --> 0:17:29.520 or whether they will revert to having, you know, a 0:17:29.560 --> 0:17:33.160 theatrical window first once vaccines are available to the whole world. 0:17:34.240 --> 0:17:37.040 Warner Brothers is saying that this is a unique one 0:17:37.200 --> 0:17:40.400 year thing. I I just don't see it being bad. 0:17:40.400 --> 0:17:43.160 I think even if they are planning it that way now, 0:17:43.640 --> 0:17:45.840 by this time next year, it's going to be pretty 0:17:45.840 --> 0:17:50.119 clear that streaming is the most important product. It's something 0:17:50.160 --> 0:17:52.720 they really have to keep pushing with, especially with all 0:17:52.760 --> 0:17:55.840 the competition they have from Disney, Netflix and others. So 0:17:55.880 --> 0:17:57.520 I think by this time next year, we're going to 0:17:57.560 --> 0:17:59.320 be looking at this and saying this is probably going 0:17:59.400 --> 0:18:01.640 to be permanent. Maybe it doesn't look exactly this way, 0:18:01.640 --> 0:18:04.720 and maybe they have to bend sousastrical windows a little 0:18:04.720 --> 0:18:07.960 bit to keep that relationship. But I just I think 0:18:08.400 --> 0:18:10.720 more and more people want to watch movies from home, 0:18:10.800 --> 0:18:12.800 and it would just be silly for these companies to 0:18:12.880 --> 0:18:16.560 ignore that. So Tarrett seems to me. I'm not sure 0:18:16.560 --> 0:18:18.560 if they've released any the economics here, but it seems 0:18:18.560 --> 0:18:20.640 to me they're Warner is going to take a big 0:18:20.680 --> 0:18:23.240 financial hit here, at least in the near term. It 0:18:23.320 --> 0:18:25.480 seems like if they spend a hundred million dollars on 0:18:25.520 --> 0:18:28.399 a movie, Okay, I pay fifteen bucks through HBO Max 0:18:28.440 --> 0:18:30.199 and my family could sit in on the sofa and 0:18:30.240 --> 0:18:32.000 see it. But if I were taking a family of 0:18:32.080 --> 0:18:34.560 four to the theater, they'd be fifty in revenue as 0:18:34.560 --> 0:18:38.600 opposed to fifteen. What are they saying about the profitability 0:18:38.800 --> 0:18:42.520 impact for the strategy for next year. Well, they're avoiding 0:18:42.560 --> 0:18:44.560 saying too much of anything about it, but you're right, 0:18:44.600 --> 0:18:46.080 it's clear that they're going to lose a lot of 0:18:46.080 --> 0:18:48.280 money on this, but I think they see it as 0:18:48.320 --> 0:18:51.879 probably worth it. You know, it's very expensive to even 0:18:51.920 --> 0:18:55.040 just promote these movies, and the box office really helps off. 0:18:55.040 --> 0:18:56.399 That's that and that's how they make a lot of 0:18:56.440 --> 0:18:58.879 their money. But if you're putting it on a streaming service, 0:18:58.920 --> 0:19:00.320 it makes me wonder if you need get to do 0:19:00.400 --> 0:19:02.400 so much promoting. If if people kind of just get 0:19:02.400 --> 0:19:04.320 in the habit of knowing there's always going to be 0:19:04.359 --> 0:19:06.560 a new big movie on HBO Max, maybe you don't 0:19:06.560 --> 0:19:09.200 need to spend as much. Maybe over time this becomes 0:19:09.200 --> 0:19:12.359 a little bit more of a feasible, practical strategy. But 0:19:12.520 --> 0:19:14.640 for next year, certainly this is going to be very 0:19:14.680 --> 0:19:17.199 costly for the company. I just don't think that shareholders 0:19:17.200 --> 0:19:19.520 will be so worried about it because Disney is doing 0:19:20.040 --> 0:19:23.560 similar things. They're really prioritizing streaming, even though it is 0:19:23.640 --> 0:19:26.040 losing money, and I think it's just because people know 0:19:26.240 --> 0:19:29.360 over time the goal is get as many subscribers as 0:19:29.400 --> 0:19:32.199 you can, increase engagement as much as you can, and 0:19:32.240 --> 0:19:35.159 then eventually the profits will follow. So it's kind of 0:19:35.200 --> 0:19:38.800 a long term that. Does it force other studios to 0:19:38.800 --> 0:19:41.760 do the same? MC down twenty now in the last 0:19:41.760 --> 0:19:44.879 two days. Yeah, I think it's a shot across about 0:19:44.880 --> 0:19:49.000 at Disney, especially UM. I think that there's definitely something 0:19:49.040 --> 0:19:53.280 to being first here and first to something inevitable. Uh So, 0:19:53.320 --> 0:19:55.720 I think that other companies will have to do something similar, 0:19:55.720 --> 0:19:57.840 and a lot of them were moving in that direction 0:19:57.920 --> 0:20:01.160 in some ways. You know, Mulan went straight to Disney 0:20:01.160 --> 0:20:04.879 Plus for a thirty dollar fee. Earlier this year, Comcast 0:20:04.920 --> 0:20:09.080 shortened it's um NBC universal window with AMC theaters, So 0:20:09.200 --> 0:20:11.480 I think the theater is probably kind of expected something 0:20:11.520 --> 0:20:14.760 like this, but it's still it's still painful, and there's 0:20:14.800 --> 0:20:17.640 not really much they can do right now. Yeah, it's 0:20:17.640 --> 0:20:20.639 just you know, is pointing out these theater stocks have 0:20:20.680 --> 0:20:22.920 really been under pressure for a long time now, particularly 0:20:22.960 --> 0:20:25.560 with some of this most recent news. Is there any 0:20:25.640 --> 0:20:27.920 scenario I just kind of wonder what the future is 0:20:28.440 --> 0:20:33.560 for theaters. Does every town need multiplexes throughout town? I mean, 0:20:33.600 --> 0:20:36.760 what's the expectation. Is this kind of the the death knell, 0:20:36.840 --> 0:20:40.399 if you will, for I guess the theater footprint in 0:20:40.400 --> 0:20:43.160 this country as we know it now. Yeah, I think 0:20:43.200 --> 0:20:46.520 everyone kind of wants some sort of decision made on that, 0:20:46.600 --> 0:20:48.920 like is this the end of theaters or or are 0:20:48.920 --> 0:20:50.399 they going to be sign And I think it's somewhere 0:20:50.400 --> 0:20:52.320 in the middle, Like it's not so black and white. 0:20:52.320 --> 0:20:56.960 It's that theaters. Probably we don't need forty thousand screens 0:20:57.000 --> 0:20:59.760 around the country, you know, six thousand theaters. We don't 0:20:59.800 --> 0:21:02.159 need all of that, But a lot of people do 0:21:02.240 --> 0:21:04.400 like going to the movies. They probably don't go frequently 0:21:04.520 --> 0:21:06.800 enough to support the industry at the size of that 0:21:07.000 --> 0:21:09.520 and the amount of investment that these theater companies have 0:21:09.600 --> 0:21:12.080