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Speaker 2: This is Bloomberg business Weekdaily reporting from the magazine that
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Speaker 2: and trends shaping today's complex economy. Plus global business, finance
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Speaker 2: Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 3: We also have some questions about things like private credits,
Speaker 3: private markets, what happens next there? So that is our backdrop.
Speaker 3: Let's talk about the alternative investing landscape. We've got Micreen
Speaker 3: with US portfolio manager and chief strategist at the old
Speaker 3: strategy Ria Simplify Asset Management. They offer an array of
Speaker 3: ETFs and funds. Mike, good to have you here.
Speaker 4: With Tim and me.
Speaker 3: As we have just about two hours to go and
Speaker 3: we wrap up trading here in the United States, ALT
Speaker 3: investing some clear winners and losers. What trends do you
Speaker 3: think might carry into twenty twenty six.
Speaker 5: Well, I think one of the trends has been really
Speaker 5: critical and it has been introduced with the alternative ETF space,
Speaker 5: which really didn't emerge until twenty twenty tied to regulatory changes.
Speaker 5: Things like managed futures and actually trend following are one
Speaker 5: of the tools that has made its way over into
Speaker 5: the ETF space. That has been a leading area of
Speaker 5: interest as people look to diversify from the traditional bond
Speaker 5: equity mix. That's one area where I continually emphasize that
Speaker 5: you're trying not to actually outsmart the market. You're trying
Speaker 5: to recognize that there's information being diffused that you don't
Speaker 5: necessarily have at that point. So that trend following is
Speaker 5: one area. I think other areas that we're seeing increased
Speaker 5: demand for various forms of income. Those take the form
Speaker 5: of derivative tradings, things like call overwriting strategies or put
Speaker 5: selling strategies that are designed to enhance income, or it
Speaker 5: can take the form of things like a hedged high
Speaker 5: yield credit FID, which is one that I manage at
Speaker 5: Simplify asset management, that is designed to reduce the risk
Speaker 5: associated with the uncertainty of areas like high yield with
Speaker 5: credit spreads relatively tight, you want that fixed income exposure
Speaker 5: and that income generation. But we're really not certain how
Speaker 5: the economy is going to play out in twenty twenty six.
Speaker 5: Does a slowdown continue or does it reaccelerate. It's a
Speaker 5: good place to think about other ways to protect some
Speaker 5: of the some of the risks that you have in
Speaker 5: the portfolio.
Speaker 1: So what do you think it's going to do?
Speaker 5: I think unfortunately I heard you talking about the S.
Speaker 6: And P and the lead in. Yeah, you know, I've
Speaker 6: spent a lot of time around bull market. Yeah.
Speaker 5: Well, actually, I think the most important statistic is if
Speaker 5: you pull up the statistics to show asset class performance.
Speaker 5: We're actually now, I believe in nine out of the
Speaker 5: past ten years that large cap momentum and growth orientation
Speaker 5: has been the place to be. Unfortunately, as you know,
Speaker 5: that echoes the work that I do around the impact
Speaker 5: of passive investing in markets. People are largely shunted into
Speaker 5: momentum and cap focused indices by virtue of the way
Speaker 5: we structure our retirement system in the United States.
Speaker 6: Unless we see a.
Speaker 5: Significant change in the economy, it's just really hard to
Speaker 5: bet that that's not going to happen.
Speaker 7: Yet again, Yeah, I you know that.
Speaker 3: I love that you went there, Mike, because I can't
Speaker 3: tell you how many years, several years in a row,
Speaker 3: where people said momentum trade is over the big tech
Speaker 3: you know, megacaps done, It's time to go into some
Speaker 3: of the value names, smaller caps. And yet you know,
Speaker 3: here we are a third year in a row.
Speaker 6: Oh you saw this.
Speaker 1: Every year for the last five years. Well, we doing
Speaker 1: the show with you.
Speaker 3: We see the outperformance. But when I look at the
Speaker 3: economy around me, what impacts my world? A lot of
Speaker 3: those megacap names are largely what I spend a lot
Speaker 3: of time with on a daily basis.
Speaker 5: I think there's some truth to that, but I think
Speaker 5: it also feeds back in both directions.
Speaker 7: Right, given a very.
Speaker 5: Very low cost of capital, we're seeing the impact that
Speaker 5: that has on the investments that these companies can make.
Speaker 7: That means that Amazon.
Speaker 5: Can go out and make acquisitions, or Google can make
Speaker 5: the roughly fifteen hundred acquisitions it's made over the past
Speaker 5: seven years. This puts them in front of you, regardless
Speaker 5: of whether they earned that place initially.
Speaker 1: Michael, I keep getting these emails from whatever formally high
Speaker 1: yield savings account that I had I'll call the highyield
Speaker 1: savings account that tells me that the APR is going down.
Speaker 1: You know, the yield is going down as a result
Speaker 1: of the FED lowering rates, and as a result of
Speaker 1: rates coming down, that money that's in money markets, that's
Speaker 1: in high yield savings accounts, where it's going, where's it going?
Speaker 5: Well, where we're really seeing that money trend is one
Speaker 5: it continues to grow.
Speaker 6: So despite the fact that the.
Speaker 5: Yields are following, money market funds continue to hit new
Speaker 5: highs in terms of assets. That is a byproduct of
Speaker 5: the money market yield in and of itself. After nearly
Speaker 5: a decade of roughly zero yields, suddenly people are getting.
Speaker 6: Three to five percent on those.
Speaker 5: Over the past several years, that's created significant additional income,
Speaker 5: which is meant that money doesn't have to be spent
Speaker 5: in other areas, particularly for those who are starting with money.
Speaker 5: The money can't really leave the money market funds because
Speaker 5: when you go to buy, somebody else is going to
Speaker 5: sell and receive the assets as well. What can happen,
Speaker 5: and what historically causes those assets to fall is either
Speaker 5: the loss of the underlying asset bonds, default companies go bankrupt,
Speaker 5: et cetera. That requires injections of cash that take the
Speaker 5: former primary securities, or we see a surge in new
Speaker 5: issuance things like IPOs, credit for new investment purposes, et cetera.
Speaker 5: It's that latter part that I think we're actually going
Speaker 5: to really see in twenty twenty six. We continue to
Speaker 5: see astonishing demand for investment grade debt. Some of it
Speaker 5: is increasingly questionable how investment grade it is going into
Speaker 5: areas like data centers, but that is an area where
Speaker 5: we are continuing to see significant inflows into the fixed
Speaker 5: income space.
Speaker 3: Well, that's what I want to ask you, you know,
Speaker 3: just going on your website looking at some of the
Speaker 3: company ETFs that you guys offer out there.
Speaker 1: It is an array.
Speaker 3: It's government money market, managed futures, volatility, premium focus, high yield, healthcare,
Speaker 3: Tesla volt Tesla Revolution, ETF, energy, infrastructure, gold, Bitcoin, China.
Speaker 3: These are some of the things that we're going to
Speaker 3: tackle over the next three hours. I am curious about,
Speaker 3: as we were getting near the end of the year,
Speaker 3: were you guys noticing any interesting trends in terms of
Speaker 3: flows in and out of some of these spaces, especially
Speaker 3: after a year where whether it was gold, whether it
Speaker 3: was some of the commodities, whether it was you know,
Speaker 3: some of the healthcare names and others that may have
Speaker 3: run up over twenty twenty five.
Speaker 5: Well, there's a couple of areas, and our growth is
Speaker 5: largely organic and driven by that innovation. We've seen tremendous
Speaker 5: inflows into areas like money market funds. We actually introduced
Speaker 5: a money market ETF in the past year. That's power
Speaker 5: a significant quantity of growth. Our fixed income strategy, the
Speaker 5: high yield strategy that I run, has done well and
Speaker 5: has attracted significant assets over the course of the year.
Speaker 5: Our other areas in fixed income where we offer differential
Speaker 5: exposure to coupon yields in things like mortgages buying new
Speaker 5: issue mortgages as compared to the seasoned index, that has
Speaker 5: been a beneficiary. The areas that we've seen that have
Speaker 5: been I think more alternative in their construction. We have
Speaker 5: a true ESG Healthcare Fund run by my good friend
Speaker 5: Mike Taylor. Mike donates all the proceeds associated with that
Speaker 5: to the Susan G. Coman Foundation, so it's truly giving.
Speaker 5: You know, it's doing good. By doing good, It's performed
Speaker 5: fantastically well. That area of healthcare is starting to attract
Speaker 5: attention as technology starts to lose a little bit of
Speaker 5: its luster. The other area that I mentioned was the
Speaker 5: managed future space that is now our largest strategy and
Speaker 5: has really been a source of continued growth.
Speaker 3: All right, Well, hopefully we can continue talking about that
Speaker 3: certainly in the new year. Happy new year, Mike, Thank
Speaker 3: you so much. Mike Green, portfolio manager, chief strategist over
Speaker 3: at Simplify Asset Management. Joining us here on this Wednesday.
Speaker 1: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 1: up after this.
Speaker 2: You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
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Speaker 3: All right, so we want to talk a little bit
Speaker 3: more about retail, more on the trends, the consumption habits,
Speaker 3: and also the role of technology increasingly that may shape
Speaker 3: what goes on in the consumer space in the new year.
Speaker 3: Joining us right now is Laura Champaigne. She's Tabor Asset
Speaker 3: Management's director of research and consumer sector head, joining Tim
Speaker 3: and me right here in studio.
Speaker 8: Welcome, Welcome, Thanks Carol, thanks for having me.
Speaker 3: How are you thinking about twenty twenty five when it
Speaker 3: comes to the retail space?
Speaker 8: Twenty twenty five has been interesting. I think some of
Speaker 8: the trends like strengthen apparel and accessories likely extended to
Speaker 8: next year. We're excited about GLP ones moving to oral,
Speaker 8: not just injectables, so people have to buy new clothes
Speaker 8: if they're changing side.
Speaker 1: I was just going to say what is that doing
Speaker 1: for retail? But you answered the question right there, right
Speaker 1: right close.
Speaker 8: New size exactly, and new clothes may as well have
Speaker 8: new accessories to go with it. So we're focused in
Speaker 8: on apparel. We think they're interesting things happening. You mentioned Nike.
Speaker 8: I think at an earlier segment they are desperate and
Speaker 8: eager to grow again, which puts pressure on Adidas, that
Speaker 8: puts pressure on Hoka on on running. So I think
Speaker 8: that'll be an interesting sector to watch these guys duke
Speaker 8: it out there. We saw so much Nike at Burlington
Speaker 8: last yesterday in the store. In the store Burlington had
Speaker 8: three in caps of Nike and not the weird ones,
Speaker 8: not the Dorito's partnership.
Speaker 3: What does that tell you that they're offloading stuff that
Speaker 3: just wasn't selling.
Speaker 8: It's a weird time of year, right, so it's a
Speaker 8: clearance time of year, and it may be that or
Speaker 8: it may be that Nike will grow sales wherever they
Speaker 8: can and off price. The three big off pricers are
Speaker 8: top ten footwear retailers.
Speaker 1: Now does that dilute the brand at all? To be
Speaker 1: so focused on off price?
Speaker 6: I think it.
Speaker 8: Dilutes the brand and potentially it dilutes the returns. So
Speaker 8: I think investors are really focused at this moment on sales.
Speaker 8: Them trying to turn sales positive, but margins will be lower.
Speaker 8: The reason the previous management team focused so much on
Speaker 8: direct was to maximize profit. We'll see how the market
Speaker 8: views it next year, but I would guess footwar's less
Speaker 8: profitable in twenty twenty six.
Speaker 1: Okay, I want to go back to this thing you
Speaker 1: said about GLP ones because I actually haven't cool right now?
Speaker 6: Very cool?
Speaker 1: As a society. Are we losing collectively losing so much
Speaker 1: weight that we are all changing our closets, we have
Speaker 1: to all get new clothes. I mean, is that how
Speaker 1: widespread these GLP ones are?
Speaker 7: You know?
Speaker 8: As a CNEC, I'll tell you that we lose weight
Speaker 8: and then we gain it back. So most people don't
Speaker 8: stay on the GLP one.
Speaker 6: Well, if they don't.
Speaker 1: This was explained to me I'd read this somewhere. The
Speaker 1: criticism of having to stay on these is like, well,
Speaker 1: if you stop working out, you get out of shape too,
Speaker 1: So you have to think about it like that.
Speaker 8: Most of the analysts we've talked to on the GLP
Speaker 8: ones say that when people stop GLP ones they might
Speaker 8: be eligible again in nine months.
Speaker 1: Do they stop them because they're no longer eligible?
Speaker 8: They stop them because they're expensive. So some of the
Speaker 8: moves that people are making to make these drugs cheaper
Speaker 8: may help people stay on them longer term. Also injectable,
Speaker 8: it's a big deal to shift towards oral we think.
Speaker 1: So don't throw away the clothes, because that's what I tell.
Speaker 6: You, my husband. I've never thrown them on.
Speaker 1: You into it.
Speaker 6: Hey.
Speaker 3: The thing, though, I want to say is that a
Speaker 3: lot of the glp ones are actually for people who
Speaker 3: are diabetics, and so they tend to stay on them
Speaker 3: longer or forever because it's in managing the disease unless
Speaker 3: they ultimately don't need it anymore. But those are It's
Speaker 3: also a market where people are losing weight dramatically, and
Speaker 3: so I mean that is a big sector of our economy,
Speaker 3: or a big sector of our population.
Speaker 8: We also think that apparel has benefiting in part because
Speaker 8: you mentioned Whirlpool earlier. Big ticket appliance is flooring. Those
Speaker 8: sales are way down. Mattresses trying to turn a corner.
Speaker 8: Furniture too, and we hope they do next year. But
Speaker 8: since those segments have been down and they've been such
Speaker 8: a big part of this consumer discretionary budget, it's left
Speaker 8: room for people to buy more apparel.
Speaker 1: I just looked at the credit card statement. My wife
Speaker 1: not only rejoined Costco today but put in a big
Speaker 1: order as well. That's what she's doing Costco for twenty
Speaker 1: twenty six. Things looking good.
Speaker 8: Costco has been losing ground to Walmart, and it's a
Speaker 8: slightly different customer, although Walmart is gaining with higher income consumers.
Speaker 8: Costco took tariffs to heart in a serious way, which
Speaker 8: meant that they had less decor for holiday. I've been
Speaker 8: in there once again yesterday, a lot less furniture than
Speaker 8: they usually have this time of year.
Speaker 4: I think that.
Speaker 3: So, what do you mean they took it to heart
Speaker 3: that they didn't plan.
Speaker 8: I mean that they canceled orders and they stopped buying
Speaker 8: some categories that they used to buy, so they had
Speaker 8: maybe a third as many Christmas trees as they normally
Speaker 8: would and are trying to make it up with like
Speaker 8: baked goods and wine, which they're awesome at. But I
Speaker 8: think it's tough when you take so many big ticket
Speaker 8: items out of the store.
Speaker 3: Talk to us, Oh good.
Speaker 1: Just still on Costco is I was looking, I was
Speaker 1: actually planning out tomorrow and I was thinking, maybe we
Speaker 1: could actually do our Costco order tomorrow. They're closed on
Speaker 1: New Year's Day? Is that pretty rare in retail these days?
Speaker 8: It's rare in retail, But Costco is there at Costco
Speaker 8: where you want to work, like, they pay well, they
Speaker 8: take holidays, they pay good health care. I mean recently
Speaker 8: they started disclosing their regional profit trends. They're barely profitable
Speaker 8: in the US. It's just the membership fees. So anything
Speaker 8: you can buy from there, you really should. They make
Speaker 8: most of their money in their international location.
Speaker 3: Looking at Costco down about five and a half percent
Speaker 3: year to date, Walmart is up almost twenty four percent
Speaker 3: year to date. What is it that Walmart has kind
Speaker 3: of figured out? Is it the digital Is it also
Speaker 3: kind of playing to a higher end consumer on some level?
Speaker 8: It's that and it's also and they work hand in hand,
Speaker 8: so the way they're using tech and AI, A lot
Speaker 8: of it's the back end making their deliveries so fast
Speaker 8: and helping them carry the right products so better merchandising.
Speaker 8: They'll deliver to your house, so if you don't enjoy
Speaker 8: the Walmart shopping experience, you can just wait for the truck.
Speaker 8: So that's bringing in higher income customers, staying really sharp
Speaker 8: on prices, being able to watch, you know, real time
Speaker 8: competitors price.
Speaker 1: That's where you get your gold bars.
Speaker 3: That's where I get my gold bars. Yeah, and I
Speaker 3: have them delivered. Hey, bringing the truck unpacked. What's the
Speaker 3: what's the retail category that you find most interesting right now?
Speaker 8: I think beauty is going to have a resurgence. I
Speaker 8: think that that we've been in.
Speaker 3: Another Stepoora that I go into just outside our office
Speaker 3: is often packed, and you.
Speaker 8: Check out Alta when you're not in Manhattan because they
Speaker 8: are also packed.
Speaker 1: In cover story just in the last couple of months
Speaker 1: on this Amanda Mall wrote about multi success remarkable.
Speaker 8: And carrying a good mix of beauty, skincare, healthcare which
Speaker 8: which others are, hair care which others don't. Do you know,
Speaker 8: Sophora's really focused in on makeup, and Alta does a
Speaker 8: great job of carrying like mid tier brands.
Speaker 1: So who are the winners in the space in twenty
Speaker 1: twenty six.
Speaker 8: Yeah, we like Alta look for kids, and we're seeing
Speaker 8: a lot more kids in makeup. Five below I think
Speaker 8: is a winner. I think five below had great price
Speaker 8: points on You say kids.
Speaker 3: Are you talking like eight year olds?
Speaker 7: I'm talking a lot eight to eighteen, So.
Speaker 6: I guess that's kids.
Speaker 8: Yeah, yeah, I know, but I do see them in
Speaker 8: Alta and I see them in five below in that
Speaker 8: kind of lipstick area, you know, and also buying the
Speaker 8: fake that they had some great fake Kelly's yesterday when
Speaker 8: I was in stores, and of course the Alhambra. They're
Speaker 8: really good at, you know, making it look luxurious for
Speaker 8: the little kids.
Speaker 3: We led talking about Carvana, which has just taken off
Speaker 3: in a big way this year. eBay was up Whirlpool,
Speaker 3: as you mentioned, best Buy to the downside, any of
Speaker 3: those names that you think are worth noting, and.
Speaker 8: Best Buy, we're still concerned about. The data we see
Speaker 8: does not look great for them, and they got some
Speaker 8: help with the new gaming systems this year that probably
Speaker 8: doesn't recur, so best Buy it once again. Walmart taking
Speaker 8: consumer electronics very seriously in gaining with a higher income customer.
Speaker 7: It's not good news for best Buy.
Speaker 1: Give us a big prediction for next year. What happens.
Speaker 3: We're saying, getting asks what's the best day to shop
Speaker 3: at TJX when they get the new delivery.
Speaker 8: You know what, I think that that victorious secret gets
Speaker 8: its momentum back next year.
Speaker 3: You know, Dana Telsey talked about Victoria's Secret with us too,
Speaker 3: that they seem to be going through a redo.
Speaker 8: And we don't need them to be massively successful for
Speaker 8: the stock to work. They're peak. They were selling forty
Speaker 8: five percent of all brawls and units in the US.
Speaker 8: They're down to twenty percent. Move up to twenty five
Speaker 8: or thirty you know, new closed, new sizes, new undergarments.
Speaker 1: All right there it is. That's what we're going to end.
Speaker 1: That's the prediction. Well, hopefully we see you less than
Speaker 1: a year from now. But happy new year, Laura, thanks
Speaker 1: so much for joining us. Laura champai and is Tabor
Speaker 1: Asset and Management's Director of Research and the Consumer sector head.
Speaker 2: This is the Bloomberg Business Week Daily Podcast listen live
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Speaker 3: Gotta say, though, Tim, If I had a nickel for
Speaker 3: every time I said AI or artificial intelligence.
Speaker 1: You'd almost be able to share afford a sheriff in video.
Speaker 3: I would not be here probably no. No, love my job,
Speaker 3: love my job. But you just think about how many
Speaker 3: times every conversation, even over the last couple of days.
Speaker 3: As we get ready to wrap up twenty twenty five
Speaker 3: artificial intelligence. Just in our world, there are questions about
Speaker 3: the spend, the buildout and so on and so forth.
Speaker 3: But curious to see what our next guest has to
Speaker 3: say about all of this. Manos Kuko metes He is
Speaker 3: CEO of UMI. He previously led the science and engineering
Speaker 3: for Google Cloud's Natural language services, while also bootstrapping and
Speaker 3: leading the Google Cloud jen Ai efforts. He has been
Speaker 3: working on Jenai system since twenty sixteen Microsoft and then
Speaker 3: a Meta Man. It's great to have you here on
Speaker 3: Bloomberg Business Week and Bloomberg Markets a reminder that AI
Speaker 3: has been around for a long time. So I'm curious
Speaker 3: when you look at where we are today, how do
Speaker 3: you put it into perspective and what's kind of the
Speaker 3: significance of what happened in twenty twenty five after what's
Speaker 3: been three NonStop years of talking about AI and AI investing.
Speaker 7: Yeah, Carol, and think than your remounts for having me.
Speaker 4: As you mentioned, I've been working on AI since tw
Speaker 4: thousand and sixteen, or actually even earlier than that. Twenty
Speaker 4: sixteen was the first time I tried with some of
Speaker 4: Michael founders to me when we're still at Microsoft to
Speaker 4: build something like bet back in twenty sixteen, but it
Speaker 4: was just a little bit pretty much sure, And as
Speaker 4: you mentioned, in the last couple of years has been
Speaker 4: tremendous progress. I mean, it's especially you know five, it's
Speaker 4: been moving forward and advancing at the breakneck speed that
Speaker 4: it's hard to keep up to and very exciting at
Speaker 4: the same time.
Speaker 3: Do you buy all of the momentum? Do you believe
Speaker 3: that the spend and the build out it's going to
Speaker 3: continue at this level or that there's going to be
Speaker 3: some hiccups, especially when it comes to power finding the
Speaker 3: necessary power to keep all of these data centers going.
Speaker 4: I think that it's very likely they're going to be
Speaker 4: some hiccups.
Speaker 7: As you mentioned.
Speaker 4: Definitely we can build data centers, but it's not enough
Speaker 4: power to power them, then we can't use them. That's
Speaker 4: definitely a challenge that is yet to be solved. But
Speaker 4: if I were to look in twenty twenty six, I
Speaker 4: think a bigger hiccup that I foresee is going to
Speaker 4: be coming in twenty twenty six, or it maybe a
Speaker 4: little bit later. But if it's later, it's going to
Speaker 4: be only because of the sun cast fallacy. Is some
Speaker 4: AI bubbles popping. I don't think we're in AI bubble,
Speaker 4: but I think there's some companies like Open Ai, Anthropic
Speaker 4: and others that increasingly they're going to start looking like
Speaker 4: the losing horse. And I think they're going to be
Speaker 4: hiccups in any infrastructure they aspired to build and any
Speaker 4: funding they aspire to collect.
Speaker 1: It hasn't been a difficult for these companies to raise
Speaker 1: funding up till now, but you think next year it
Speaker 1: could be tough.
Speaker 4: I think things are going to be getting harder and harder.
Speaker 4: I think it's about time, and it's already happening. Investors
Speaker 4: that are coming to realize, even though it may be
Speaker 4: hard for them, because again of all the sound casts
Speaker 4: and all the billions that pour into supporting these companies,
Speaker 4: that they are actually looking increasingly.
Speaker 7: Like the losing horses. I don't think.
Speaker 4: I think the the code read that OpenAI declared a
Speaker 4: couple of weeks ago was highly justifiable. There is, you know, heemuth,
Speaker 4: a much bigger player that can have all the talent
Speaker 4: that open ai hasn't much more, that's making four hundred
Speaker 4: billion revenue per year as opposed to losing ten billion
Speaker 4: a year.
Speaker 7: That's in a much better position.
Speaker 4: It has the full stack across the research that chips,
Speaker 4: the models, the applications, in a much better position to
Speaker 4: win this.
Speaker 1: We're going to be speaking of Josh We're going to
Speaker 1: be speaking to Josh win Grove in just a minute.
Speaker 1: Before we do that, I just just set us up
Speaker 1: for that conversation with where the US is compared to
Speaker 1: the rest of the world when it comes to this
Speaker 1: technology and what the US needs to do very briefly
Speaker 1: in order to be the leader here.
Speaker 4: Yes, so I think we may be doing good now
Speaker 4: in terms of the closed models, and this is important
Speaker 4: for us to be doing well. But I think we
Speaker 4: are missing on the most important AI battleground and this
Speaker 4: is open source AI.
Speaker 7: I foresee.
Speaker 4: Looking in twenty twenty six, we've been talking to many
Speaker 4: enterprises from the smallers to the largest ones right and
Speaker 4: one trend that is clear is more and more than
Speaker 4: moving towards open models. And unfortunately this is now primarily
Speaker 4: by Alibaba's Qua model as oppose to a US one.
Speaker 4: So that's I think the most important battleground that we
Speaker 4: need to win. More and more enterprises as they're much
Speaker 4: shooting with their use of the NAI. They're moving from
Speaker 4: large of the self and the inferentiated close models like
Speaker 4: ZPT Claude or Zemini that was building at Google.
Speaker 7: They're more and more moving.
Speaker 4: Towards small specialized custom models are the optimus for the
Speaker 4: use case, and that's the bullyground dot AI needs to win.
Speaker 7: All right, we shall see.
Speaker 3: We shall see what twenty twenty six brings when it
Speaker 3: comes to open versus closed Manas, thank you so much,
Speaker 3: Manos Kuka.
Speaker 7: Meet us.
Speaker 3: He is CEO of UMI, joining us right here on Bloomberg.
Speaker 1: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 1: up after this.
Speaker 2: If you're listening to the Bloomberg Business Weekdaily podcast, catch
Speaker 2: us live weekday afternoons from two to five pm Eastern.
Speaker 2: Listen on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 2: or watch us live on YouTube.
Speaker 3: Let's get a little bit deeper though, into this media mania.
Speaker 3: Ross Gerber is with us. He's co founder, president CEO
Speaker 3: of Gerbert Kawasaki Wealth and Investment Management out there on
Speaker 3: the West Coast. So good to have you here. Happy
Speaker 3: New Year to you, Ross.
Speaker 9: Happy New Year. I'm happy to be spending the last
Speaker 9: day of the trading year with you.
Speaker 6: Guys.
Speaker 3: Well, we love our conversations with you, and and it's
Speaker 3: fun to be talking about this with you. I mean,
Speaker 3: you did join Bloomberg recently, and I just asked Chris
Speaker 3: about it. This idea about whoever wins Warner Brothers will
Speaker 3: define the future of Hollywood. Chris made the point that
Speaker 3: whoever gets it, it's going to be a rough twenty
Speaker 3: twenty six or twenty twenty seven for that company. How
Speaker 3: do you see it? Talk to us a little bit
Speaker 3: about this.
Speaker 6: Well, he used it.
Speaker 9: Chris used the term that I've used about Warner too,
Speaker 9: which is called the Albatross, and albatross is you know,
Speaker 9: this thing around your neck that constantly driving you nuts
Speaker 9: and never helps you, right. I think it was Ryan
Speaker 9: and the Ancient Mariner where that book was the Albatross
Speaker 9: was from. But the reality is Warner has never made
Speaker 9: anybody any money ever since the old days, since Steve
Speaker 9: Ross started it, you know, And so every buyer of
Speaker 9: Warner Brothers has regretted it, and I think the buyer
Speaker 9: of Warner Brothers here will will ultimately regret paying what
Speaker 9: they're paying for this, because this is really a battle
Speaker 9: for control of the last piece of asset, you know,
Speaker 9: on the monopoly board of Hollywood. And it's a pretty
Speaker 9: good asset, but it's a difficult one at best.
Speaker 6: And Netflix didn't need it.
Speaker 9: But the last thing they we're going to do is
Speaker 9: seed all those assets to Paramount and really create a
Speaker 9: real competitor to them to them by letting zaslof and
Speaker 9: and Ellison team up against Netflix. So in the end
Speaker 9: now they're you know, they're both paying a ton for it.
Speaker 9: The Netflix deal is better structured and it has much
Speaker 9: lower cost of capital, and it involves stock and I
Speaker 9: think it's just a better deal for it, and.
Speaker 1: They're not getting those legacy they wouldn't be getting the
Speaker 1: Legacy TV Networks.
Speaker 6: Yeah, you don't get the legacy cable.
Speaker 9: The only reason Ellison wants the legacy cable is to
Speaker 9: shut down CNNs for Trump, you know. And so that's
Speaker 9: kind of behind the scenes of all this is this
Speaker 9: battle for CNN. And you know, the truth is Hastings
Speaker 9: as a Democrat and and Netflix is more of a
Speaker 9: liberal company, and so you know they want to save
Speaker 9: CNN the way it is and just not be dealing
Speaker 9: with this.
Speaker 6: That's not their business.
Speaker 9: Where Ellison really has more than just money on his
Speaker 9: mind here. This is about power and certainly that's where
Speaker 9: the support from the Trump administration comes for the Ellison
Speaker 9: bid is because he wants to kill soon N.
Speaker 6: So we'll go ahead.
Speaker 1: Well, Russ, we only have a couple a few minutes,
Speaker 1: so I want to make sure we got all the questions.
Speaker 1: And on the Netflix side of things, if Netflix doesn't
Speaker 1: succeed in getting this, is that seen in your view
Speaker 1: as ultimately a win for shareholders? After all, Netflix shares
Speaker 1: are lower after making this bid for Warner Brothers Discovery.
Speaker 9: You know, I've made a lot of money in Netflix
Speaker 9: stock over the last decade, and I love the company
Speaker 9: and I think it's one of the best assets you
Speaker 9: could own. But we sold some of our Netflix when
Speaker 9: this deal went down, because the valuation of Netflix is
Speaker 9: predicated on the business model that they have today, and
Speaker 9: by buying warners, if they succeed, it changes the business model,
Speaker 9: and I think they deserve a lower pe ratio if
Speaker 9: there are going to be a traditional studio with all
Speaker 9: this clunkiness and also lack of clarity of what that
Speaker 9: future brings. Now, they can make great movies and it's
Speaker 9: huge success, or they can make crap and it's a
Speaker 9: big loss.
Speaker 6: You know. But we saw what happened to Disney after
Speaker 6: they absorbed Fox.
Speaker 9: It was much harder than anybody thought to make this profitable,
Speaker 9: and now they.
Speaker 6: Finally are getting it together. This is years later.
Speaker 9: So I always thought that Netflix was just bidding it
Speaker 9: up so that, you know, Ellison would just overpay substantially
Speaker 9: for this asset and be stuck with it in the end,
Speaker 9: and then Netflix wins anyways, and.
Speaker 6: That's what ultimately.
Speaker 9: If Elson wants the asset, he's going to have to
Speaker 9: pay ten billion more for it, and that's the only
Speaker 9: way Warner Brothers will go for this, And.
Speaker 6: So I do actually expect them to do that at
Speaker 6: some point.
Speaker 9: And then if Netflix like loses, they really win, and
Speaker 9: that would bring the stock price back, you know, back
Speaker 9: to one hundred and twenty and all that kind of stuff.
Speaker 6: But it would also be great.
Speaker 9: For their overall business because they wouldn't have to put
Speaker 9: all this capital to work at much lower returns.
Speaker 3: So ross do you expect what one more offer from Paramount,
Speaker 3: another higher offer, and then that's it? And then Netflix
Speaker 3: says I'm out.
Speaker 9: Well, I think that you know, they got, you know,
Speaker 9: Daddy Ellison to side off and say, you know, I'll
Speaker 9: pay for this if my kid actually gets this deal,
Speaker 9: not just say I'm going to pay for it, I'm
Speaker 9: actually going to pay for it. And then secondly, what's
Speaker 9: another ten billion to the Allison's You know, when you're
Speaker 9: worth hundreds of billions of dollars, another ten billion is.
Speaker 6: Likeyh, I don't know a pizza, you know costs to them.
Speaker 9: So I think the real issue is they're vastly overpaying
Speaker 9: for the asset, even out one hundred billion, so it's
Speaker 9: just like ten billion down the drain that goes to Zaslav.
Speaker 9: And boy, these these payoffs that Zaslov and the executives
Speaker 9: getting are for hundreds of hundreds of millions of dollars.
Speaker 9: So something's going to happen. And I just don't see
Speaker 9: Ellison going away that easy. And I think Netflix would
Speaker 9: be satisfied with them vastly overpaying and walking away.
Speaker 6: So we'll see I've been wrong.
Speaker 9: I was wrong about this in the beginning because I
Speaker 9: didn't think Netflix would bit, But we'll see how badly
Speaker 9: Netflix really wants to win versus just win the game
Speaker 9: of business.
Speaker 3: Can I ask you? And maybe this is something that's certainly,
Speaker 3: of course near and dear our hearts as we are
Speaker 3: in the media and news business, and that has changed
Speaker 3: dramatically over the last ten twenty years, and I just
Speaker 3: do wonder how this plays out and what it means
Speaker 3: for these cable news channels or even these network channels,
Speaker 3: where it does seem like they are being even politicized
Speaker 3: more than ever. It's not just kind of the venue
Speaker 3: of cable, but we're now seeing kind of regular linear
Speaker 3: really being politicized. The problems in that as we think
Speaker 3: about the importance of news and media in our world
Speaker 3: or is it not so important because everybody's on social media,
Speaker 3: although that has its problems too.
Speaker 9: Right, right, So you know where a lot of people
Speaker 9: are watching your Bloomberg is on YouTube, and I know
Speaker 9: you guys have a YouTube channel that's very active because
Speaker 9: I get all these alerts of every time you post
Speaker 9: my stuff on YouTube. And we all know that media
Speaker 9: organizations are smart to be reposting stuff on YouTube because
Speaker 9: that's where people are watching. And by that matter, I'm
Speaker 9: a big Google investor as well. I think when you
Speaker 9: look at people my age or below, the way people
Speaker 9: consume media is one hundred percent different news media than
Speaker 9: my age or above. You know, so my mom is
Speaker 9: still watching CNN, you know, but nobody I know who
Speaker 9: is younger watches CNN unless they're in an airport. So
Speaker 9: that's when I get most of the calls from my
Speaker 9: friends is when I'm on CNN. Is when they're in
Speaker 9: the airport and they're like, oh, I saw you in
Speaker 9: the airport. You know, I'm like, wow, that's great. And
Speaker 9: the other place I'm really popular is in gyms and
Speaker 9: country clubs where they still watch CNBC or have it on.
Speaker 6: But in real life, when I'm on a YouTube show.
Speaker 9: One hundred people are like, oh I saw your YouTube show,
Speaker 9: and da da da da da. So it's the world
Speaker 9: has changed and the media landscape is changing. Cable is dead.
Speaker 9: It's just a dying thing. So if I'm a news organization,
Speaker 9: I have to repurpose my content for social media and
Speaker 9: have five or six different platforms that I'm putting out
Speaker 9: my content, and then I'll get the result that I
Speaker 9: want by having enough views. But being on cable TVs.
Speaker 1: So Russ, we only have thirty seconds left and then
Speaker 1: we're gonna do some news and then we'll come back
Speaker 1: and get more time with you on Tesla. But if
Speaker 1: that's the case, then then what happens if Paramount or
Speaker 1: if Paramount doesn't get the bid Netflix does. What happens
Speaker 1: to the cable assets?
Speaker 9: Very briefly, Well, it'll be spun off like Versont and
Speaker 9: Versont is the Comcast cable assets, and you know where
Speaker 9: that goes.
Speaker 6: Where are these ships with no future go?
Speaker 9: I don't know, but it's smart for those companies to
Speaker 9: jettison those declining yet profitable assets because in five years,
Speaker 9: maybe last, they'll probably be worth almost nothing.
Speaker 6: So yeah, I'm.
Speaker 9: Sad to say that, I don't think people are gonna
Speaker 9: be watching cable TV in five and ten years.
Speaker 1: Ros Gerber, We're gonna come back to you. We got
Speaker 1: to leave it there for now, because the closing ball
Speaker 1: is happening soon. Ross Gerbert, co founder, president CEO of
Speaker 1: Gerbert Kawasaki Wealth Management.
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