Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg The
Speaker 1: Top News this morning, Lisa does come from China. I'm
Speaker 1: cutting the car import duty on passenger cast from previously. Um.
Speaker 1: It's news and it's a big move. It is a
Speaker 1: big move. The question is who will it help? Is
Speaker 1: it going to more likely help Tesla? Is it going
Speaker 1: to more likely help European carmakers. They also say that
Speaker 1: they're going to increase some of their agricultural purchases, and
Speaker 1: the US is saying that they're probably not going to
Speaker 1: impose some of the pariffs that they had talked about earlier.
Speaker 1: My question is with all of this, what's tradeable here? Right?
Speaker 1: I mean, how how much you actually rely on these
Speaker 1: sorts of tea leaves that are coming from Washington, d C.
Speaker 1: And here to answer that for US is Bill Blaine.
Speaker 1: He is Mint Partners, a fixed and come strategist and
Speaker 1: head of capital markets. Bill come on in here, can
Speaker 1: you just give us your sense of whether any headlines
Speaker 1: that we've gotten with respect to China and U s
Speaker 1: trade negotiations have actually made you want to trade anything. Um,
Speaker 1: good morning. It's all part of the ongoing narrative. I
Speaker 1: suppose it's very easy to find negative confirmation bias in
Speaker 1: practically anything that's to do with global geopolitical news these days.
Speaker 1: So when you do get something that sounds positive, like
Speaker 1: your Treasury secretary saying the trade war is over, or
Speaker 1: the Chinese making such a conciliatory gesture, you would expect
Speaker 1: that markets would go soaring high words on the good news.
Speaker 1: But in act, that rally we had yesterday in the
Speaker 1: US stock market was just about the least convincing thing
Speaker 1: I've ever seen. Volumes were tiny, and it petered out
Speaker 1: during the day. John, that's a technical term. Is that?
Speaker 1: Is that a technical term? Bill? What? Which one? Which
Speaker 1: one of my many? Yeah, least convincing lest least convincing
Speaker 1: ever since last week? But what what was I'm convincing
Speaker 1: about it? Bill? And what's I'm convincing about? The moves
Speaker 1: that we've seen in the volume was absolutely tiny. It
Speaker 1: opened up much higher and then just range traded through
Speaker 1: the day. So do you think this is it? Bill?
Speaker 1: Do you think the market is unconvinced of what can
Speaker 1: happen with China in the United States? So ultimately is
Speaker 1: your view that what happens with China in the United
Speaker 1: States isn't of importance at this point? People always overestimate
Speaker 1: the effects del politics or politics. What you need to
Speaker 1: do is draw what the long term is going to be.
Speaker 1: And I'm actually very positive on the long term. What's
Speaker 1: really going on in terms of the US China called
Speaker 1: trade war, is about negotiating new terms of trade which
Speaker 1: are long term going to be very very positive. We're
Speaker 1: going to see the issue of IP addressed. We're going
Speaker 1: to see a complete change in the way that trade
Speaker 1: has done, not just between China and the US, but
Speaker 1: we're going to see negotiations all around the world, especially
Speaker 1: here in the UK where we need to make new friends. Yeah,
Speaker 1: you have quite quite something positive in your porridge. You know,
Speaker 1: in your morning note that you put out last week,
Speaker 1: you you blamed us. You said that we just like
Speaker 1: bad news because it's what sells, and then people are
Speaker 1: focusing on that um but that we've got it all
Speaker 1: wrong and things are great. I wouldn't say things are great,
Speaker 1: but things are far less bad than than a lot
Speaker 1: of the negative bias would have us believe. Al Right,
Speaker 1: so give us a sense, given the fact that we
Speaker 1: do have a strengthening dollar, that we have seen you know,
Speaker 1: some increasing jitters and emerging markets and some other places.
Speaker 1: You know, is that wrong? I mean, do you think
Speaker 1: that that we can just have, you know, yield rise
Speaker 1: and you know in the US and ever else, stay
Speaker 1: calm and this is all fine and a great normalization
Speaker 1: or does anything keep you up at night? Oh gosh,
Speaker 1: there's so many things keep me up at night just now.
Speaker 1: Lots of things to worry about, and there are so
Speaker 1: many inconsistencies in this market. But if we we go
Speaker 1: to the basics, there's three things I think like the
Speaker 1: basics of where we should be market wise. Just now,
Speaker 1: it is clear that interest rates are going to normalize.
Speaker 1: We are into a bond bear market. The problem is
Speaker 1: parts of that bear market don't yet realize it. So
Speaker 1: we've got the incredible situation where investment grade bonds issued
Speaker 1: by the most likely people to pay you back are
Speaker 1: actually the worst performing part of the market, whereas the
Speaker 1: high yield market, ie those who are least likely to
Speaker 1: pay you back are outperforming the people who will pay
Speaker 1: you back, and that just doesn't make any sense to me. Um,
Speaker 1: then we've got people worried about stock markets because if
Speaker 1: bond rates rise, that's bad for stocks, where we were
Speaker 1: a long way from that being a real concern. But
Speaker 1: then I think we're also seeing completely new parts of
Speaker 1: the market marriage for instance, the alternative sector investing in
Speaker 1: real assets, which provides you with natural inflation hedges because
Speaker 1: you own a real asset, and that's very important in
Speaker 1: the world where we see the oil prices have now
Speaker 1: effectively doubled since the low. And remember when oil prices
Speaker 1: hit forty dollars, we were all telling ourselves this was
Speaker 1: the new long term future for oil. Well, guess what.
Speaker 1: We're back up to eighty and I guess we're going
Speaker 1: to go higher from here because the world changes, and
Speaker 1: the world is an incredibly complex place, and it is changing.
Speaker 1: And let's pick up on the first point, the issuing
Speaker 1: credit right now, it's not just that junk is outperforming,
Speaker 1: it's the junkiest part of junk that is outperforming. It's
Speaker 1: been the triple cs. What is the message, the signal
Speaker 1: that someone experienced in the world of credit like yourself,
Speaker 1: takes from that this year. Um, well, what's signal? Well,
Speaker 1: you know what, John, I've been doing this so long
Speaker 1: that nothing surprises me anymore. What worries me more than
Speaker 1: high yield is why people are involved in high yield. Now.
Speaker 1: There are lots of people who understand high yield perfectly.
Speaker 1: What's worrying me is the number of yield tourists who
Speaker 1: ten years ago would be buying triple A sovereign paper,
Speaker 1: who are now buying triple C paper, and even worse,
Speaker 1: are buying triple B paper that one little step above
Speaker 1: junk status in the expectation that it's an investment grade
Speaker 1: piece of paper. Now they're going to get a terrible
Speaker 1: shock when interest rates really start to bite and we
Speaker 1: start to see an awful lot of companies going into
Speaker 1: a downgrade cycle because we are still lagging when it
Speaker 1: comes to downgrades. So to what extent, Bill, is there
Speaker 1: significant right risk in high yield that perhaps people aren't appreciating.
Speaker 1: That's a very very good question. My own view is
Speaker 1: that there is significant risk that a lot of zombie
Speaker 1: companies that have been there are highly levered in the
Speaker 1: bond markets and the leverage lending markets are going to
Speaker 1: experience difficulties, but that could be overcome if we see
Speaker 1: real economic performance that enables these companies to do better.
Speaker 1: My warrior is that we are going to remain in
Speaker 1: this kind of new normal, slow recovery rather than stellar
Speaker 1: growth environment, and that's very negative for a lot of
Speaker 1: over leverage companies as rates starts to seriously rise. Bill Blank,
Speaker 1: great to catch out with you. A good friend of
Speaker 1: mine from back in London who haven't been able to
Speaker 1: speak to for a long long time. So Bill, we
Speaker 1: finally got to do it on radio live. Bill blame
Speaker 1: Mint Partners, Fixed incomes strategist and head of capital Markets,
Speaker 1: always greing to catch out with you. It's not a
Speaker 1: pop quiz as such. But of the twenty eight point
Speaker 1: nine million automobiles sold in China last year, do you
Speaker 1: know how many were imported? Uh? No, I do not,
Speaker 1: but I'm going to guess a smart proportional. It was
Speaker 1: four point two percent. There you go, by the way.
Speaker 1: Four So I don't think that we fully appreciated the
Speaker 1: intimacy of your connections that you catch up with people. Well,
Speaker 1: I've got to do so I have no time to
Speaker 1: pick up the phone. There's real life, those lovely heart
Speaker 1: to hearts that if you don't know Bill Blaine on
Speaker 1: pretty much every credit desk in London, if you've been
Speaker 1: around for a couple of decades, at some point you've
Speaker 1: worked with Bill builds that well connected in credit markets
Speaker 1: in the city. So it's always great to get bills
Speaker 1: inside because so many people have worked alongside Bill. So
Speaker 1: we'll have listeners in the city of London right now
Speaker 1: in a world of credit that probably no Bill at
Speaker 1: some point from somewhere, and they'll be catching up with
Speaker 1: him the same way that you are. Precisely, I'm ready
Speaker 1: pleased to say that joining us now is a giant
Speaker 1: in advertising. He ran USLS for Google. He is the
Speaker 1: former CEO of a o L. He now serves as
Speaker 1: the CEO of OATH, overseeing a o L and Yahoo
Speaker 1: for the Rising, it's Tim Armstrock, the OATH CEO, and Tim,
Speaker 1: I didn't realize that you're a journalist back in the day,
Speaker 1: Back in the day Boston Local News point five years ago.
Speaker 1: So should we start there and have a chat about
Speaker 1: journalism just to begin, Are we seeing the death of
Speaker 1: click bait? Is that finally happening. Tim. I think what
Speaker 1: you've seen is you're seeing a flight to quality right now.
Speaker 1: And one of the great things that's happening on the
Speaker 1: Internet mobile right now is as the services are getting
Speaker 1: more and more focused on not having fake news and
Speaker 1: really consumer trust, that's going to have all the algorithms
Speaker 1: change underneath how news gets distributed, and you're going to
Speaker 1: find that journalism as going to come up in the ecosystem,
Speaker 1: you know, very quickly. Back in two thousand nine, Google
Speaker 1: release something called the Panda release on the Web Index
Speaker 1: which put higher quality up and I think what you're
Speaker 1: seeing now is the quote unquote Panda release for the
Speaker 1: rest of the Internet and social and so I'm very bullish.
Speaker 1: Even if you look at this all the services in
Speaker 1: the last six seven months, all of them have been
Speaker 1: putting higher quality journalism up to the top of the
Speaker 1: consumer front end. And that's great, great for journalism. Um,
Speaker 1: there's a dirty secret though, that quality journalism actually costs money,
Speaker 1: and you're seeing an increasing number of outlets, including this one,
Speaker 1: recognized that and start charging people to see their articles.
Speaker 1: And wondering how that challenges you from a distributor model,
Speaker 1: given the fact that so many headlines lead to pay walls. Yeah,
Speaker 1: so we're in a process right now. Our our future
Speaker 1: will have advertising models and also subscription models for content UM.
Speaker 1: But I would also say one thing that's really great
Speaker 1: about what you just said is that consumer time is
Speaker 1: really important, and I think consumers optimize their time around it.
Speaker 1: So if consumers willing to pay for content UM, I
Speaker 1: think that's a good signal. And second of all, I
Speaker 1: think on the ads model, the quality UM will force
Speaker 1: advertising to get higher quality as well. Overall, so this
Speaker 1: whole whole trend will have improvements on both sides of
Speaker 1: the business. You talked about subscription model, and one thing
Speaker 1: the number of outlets have tried to do is pull
Speaker 1: together a bunch of the major media outlets and offer
Speaker 1: a sort of joint subscription to all of them. That's
Speaker 1: struggled to get all of them on board. I'm wondering,
Speaker 1: have you tried that, are you going to try that?
Speaker 1: What progress is there to be made in that front. Yeah.
Speaker 1: One of the things that we're heavily thinking through is
Speaker 1: a much deeper membership model where where members will uh
Speaker 1: you know, basically get more and more benefits from us.
Speaker 1: And we have a billion consumers, so we have access
Speaker 1: to a lot of consumer scale. Um, the biggest thing
Speaker 1: that we want out of the future of the media
Speaker 1: system and journalism is to basically have we're big investors
Speaker 1: in high quality journalism is for our journalists and our
Speaker 1: partner We have about forty publishing partners for all of
Speaker 1: the biggest scale access they can and whether that's paid,
Speaker 1: whether it's a subscription model, or whether it's through ads.
Speaker 1: One of the things we're innovating right now on the
Speaker 1: front end a lot is how do we have more
Speaker 1: consumers on more types of high quality content more constantly.
Speaker 1: In the summer, we're gonna launch for super channels and news, sports, finance,
Speaker 1: and entertainment, and that will give our partners plus our
Speaker 1: content direct access on mobile to some of the highest
Speaker 1: quality journalism in the world. We just announced to do
Speaker 1: with Samsung two weeks ago to put our brands directly
Speaker 1: on Samsung phones, and so you know, our we're a
Speaker 1: company that's investing in what you're talking about, So our
Speaker 1: job is to get it on the biggest distribution we
Speaker 1: possibly can. Seem it just feels like we're a bit
Speaker 1: of a tipping point at the moment. With Mark Zuckerberg
Speaker 1: on his apology tour on the way they've used data
Speaker 1: and the way they've essentially made money through advertising as well.
Speaker 1: Have we reached a tipping point? Have we reached saturation
Speaker 1: so to speak? After years of immense growth of places
Speaker 1: like Google, Facebook, etcetera. Are we there now? Yeah? We'll
Speaker 1: just say, you know, there's something physical happening this week
Speaker 1: in the digital world, which is GDPR, you know, launching
Speaker 1: in Europe. And that's a that's a real physical change
Speaker 1: the way that the internet and mobile works in Europe.
Speaker 1: It's also going to cascade across the rest of the world.
Speaker 1: So what you're seeing in Europe this week of the
Speaker 1: reviews with Mark Zuckerberg is really the start of what
Speaker 1: I would say is I would call it almost reverse
Speaker 1: commerce with consumers, where consumers have had all their data
Speaker 1: on servers and now data is going to start to
Speaker 1: be transferred back to the consumer. We built our dashboards
Speaker 1: a year ago thinking this was going to happen globally,
Speaker 1: so we're we're our business model in the future will
Speaker 1: allow consumers to own their data transact on their data,
Speaker 1: and that's a super important change. And by the way,
Speaker 1: that's why this week is getting a lot of attention,
Speaker 1: but there's actually a big physical change that many people
Speaker 1: don't know about happening this week. Well, you talk about
Speaker 1: transact on their data. I want to pick up on
Speaker 1: that because that's a really compelling point. In other words,
Speaker 1: people might be able to get paid for giving their
Speaker 1: data over to certain advertisers. That might take the revenue
Speaker 1: away from you, right because advertisers can just go direct
Speaker 1: to the consumer, uh and pay them. How concerned are
Speaker 1: you about that? UM and our business model, We're not concerned.
Speaker 1: To add, businesses between a probably eight hundred billion and
Speaker 1: trillion dollar industry, much of it is built on not
Speaker 1: direct to consumer right now, going through really large third parties,
Speaker 1: we can be one of the largest directed consumer businesses
Speaker 1: and facilitate that. So I think our model actually is
Speaker 1: going to get advantaged in this change because we have
Speaker 1: access directly on people's mobile phones. We have access directly
Speaker 1: to a billion consumers, So you're going to offer them
Speaker 1: money by way of the advertisers act as a broker
Speaker 1: for them kind of we uh. We believe in the
Speaker 1: future there will be more economic models for consumers to
Speaker 1: to make money or get value directly from their data,
Speaker 1: which is not at scale out there right now, so
Speaker 1: so we we I think that's one of the things
Speaker 1: that we're hopeful that that will innovate. Tim what the
Speaker 1: advertisers sank you at the moment. If you take Facebook
Speaker 1: as an example, a couple of months ago, people were
Speaker 1: worried if they were in the stock whether the advertisers
Speaker 1: would run UM. Next sign of that actually happening, what
Speaker 1: do they signed to you? So the advertisers, you know,
Speaker 1: again the big digital players. If you're an advertiser, you
Speaker 1: have pretty much have to be in digital state with consumers.
Speaker 1: So I think over time a lot of the advertisers
Speaker 1: will say they want to have some of the changes
Speaker 1: they've been talking about, but the reality that they're continuing
Speaker 1: to spend um. I was just on the phone yesterday
Speaker 1: with our new president CEO, Guru uh with the head
Speaker 1: of strategy Form, one of the largest brands in the world.
Speaker 1: Actually when we're taught, we had this exact conversation with them,
Speaker 1: and that you know, the brand said to us, there's
Speaker 1: three things they're really interested in. One is direct to
Speaker 1: consumer relationships. Two is using their data effectively. They have
Speaker 1: tons of data but don't know how to use it.
Speaker 1: And three is how do they basically add non commoditized value.
Speaker 1: Some of the digital channels they go through take all
Speaker 1: the value away from them, and the consumer thinks the
Speaker 1: platform has the value and not the brand. So you know,
Speaker 1: our business right now is to take those three items
Speaker 1: direct the consumer data and how to decommoditize the ad
Speaker 1: system and build that. And that's a differentiator from us
Speaker 1: from Google and Facebook. Let's wrap things up by talking
Speaker 1: about your business. It's been a year, I believe since
Speaker 1: oath came about and I laughed at you want to
Speaker 1: air and said, really, Tim, And you said to me,
Speaker 1: give it time, you'll get used to it. And I
Speaker 1: guess I've got used to it a little bit. Do
Speaker 1: you have your three word oath yet? I don't? Should
Speaker 1: I have? You have to have one? Yea, you have
Speaker 1: to have a Mine is never give up you guys,
Speaker 1: You each everybody in your company have Everyone has an oath,
Speaker 1: and not just everyone in our company. Now our partners
Speaker 1: and customers are starting to come up with them. They laugh. No.
Speaker 1: They By the way, if you go around people meaningfully,
Speaker 1: on their email signatures or on the walls around the office,
Speaker 1: put their oath up and you would be a surprised.
Speaker 1: How you know, thirteen thousand people come up with three
Speaker 1: word ohs that are just amazing and very personal to them.
Speaker 1: So it's actually become a big part. What would it be,
Speaker 1: Let's go, mets, let's go. That's a perfect One's gonna
Speaker 1: have to come up with a com Well, next time
Speaker 1: I come back, I promise I'll have that house business doing.
Speaker 1: What are you excited about at the moment? UH, Super
Speaker 1: excited about what we're doing, both on the brand experience
Speaker 1: the side. So we have tech Crunch Disrupt coming up
Speaker 1: in September and San Francisco. It's at the Mosconi Center,
Speaker 1: which is the largest convention center there. So that's gone
Speaker 1: from a startup when we bought it now to being
Speaker 1: one of the most influential tech brands. We have can
Speaker 1: coming up with all the global advertisers in France. A
Speaker 1: couple of weeks we're launching a new UH add uh
Speaker 1: system basically there. So we're excited about all the work
Speaker 1: that's gotten done and more importantly excited about the fact
Speaker 1: that the companies came together. You know, we have a
Speaker 1: clear strategy of building brands people love and UH. I
Speaker 1: think as you go through the summer and into the fall.
Speaker 1: The proof points we've gone through a construction zone into
Speaker 1: something that will look like a finished product. And UH,
Speaker 1: just really excited about the thirteen thousand people and the
Speaker 1: billion consumers we have and putting them at the center
Speaker 1: of everything that we're doing. I promised to come up
Speaker 1: with a three word if I gets cans um with
Speaker 1: the See there you go. Tim, never never give us.
Speaker 1: I always learned something when Tim joins us and whenever
Speaker 1: I list since to him. Truly a jihant in advertising,
Speaker 1: and I mean that sim is trying to catch up
Speaker 1: with you. Thank you, sim Anstrom, the o CEO. Since
Speaker 1: the March Lows, the shares of Facebook have gained more
Speaker 1: than twenty and today members of the European Parliament are
Speaker 1: going to get the chance to question Facebook Chief executive
Speaker 1: Mark Zuckerberg about everything from Cambridge Analytica as well as
Speaker 1: Europe's new privacy rules. Here to help us understand what's
Speaker 1: going on at Facebook is David Kirkpatrick. He is the
Speaker 1: author of The Facebook Effect, and he is also the
Speaker 1: chief executive and the founder of Teconomy. David Kirkpatrick, what
Speaker 1: do you believe Mark Zuckerberg will try to get across
Speaker 1: to EU regulators. Hey, thanks toim Well. I think the
Speaker 1: main thing he's going to get across is please don't
Speaker 1: mess with me, um. And what he will do how
Speaker 1: he will do that is by saying he's sorry. Um.
Speaker 1: It's I think some of his testimony has already been
Speaker 1: reported publicly where he's planning to apologize and say they
Speaker 1: need to do better, that they're taking responsibility, blah blah blah.
Speaker 1: It's pr one oh one, and an effort simply too,
Speaker 1: I would say, deflect attention and try to minimize the
Speaker 1: significance of the inquiry. Generally, So, David, uh, some pretty
Speaker 1: negative on Facebook and you have been and with respect
Speaker 1: to their data disclosures, their data usage and uh and
Speaker 1: sort of the lack of a quick fix to some
Speaker 1: of the problems that people have pointed out for many years.
Speaker 1: And yet what should they be doing right now that
Speaker 1: would put them in better standing? To you? They should
Speaker 1: be much more transparent than their beings. They should be
Speaker 1: having a much more ongoing dialogue where they're much more
Speaker 1: open to really explaining, taking input from They should be
Speaker 1: asking others what they should do rather than saying what
Speaker 1: they're that they're going to do the right thing and
Speaker 1: leaving it to an opaque process for that to be determined.
Speaker 1: And I want to clarify I'm actually not negative on Facebook.
Speaker 1: I'm I consider myself quite knowledgeable about them, but I
Speaker 1: think among their critics, I'm somewhat unusual in that I
Speaker 1: still argue Facebook as fundamentally a very positive force in
Speaker 1: society and has a lot of wonderful characteristics. But I
Speaker 1: believe that when it comes to their political impact and
Speaker 1: also to a similar in a similar way, their impact
Speaker 1: on the privacy of individuals, they have been extremely cavalier
Speaker 1: over an extremely long time, and they refuse to even
Speaker 1: think about taking to even use the word responsibility until
Speaker 1: the Russian electoral manipulation scandal arose in the United States
Speaker 1: UM and the Cambridge Analytica thing that followed UM and
Speaker 1: and they've really changed their tune for what seemed to
Speaker 1: me to be pr reasons rather than a genuine desire
Speaker 1: to take stock of and take responsibility for the inordinate
Speaker 1: weight they have in public discourse around the world. They
Speaker 1: are in an absolutely unique position as a commercial company
Speaker 1: that is in effect the public square in many many
Speaker 1: countries and that is probably fundamentally untenable, but at a minimum,
Speaker 1: it is something that requires a much more robust dialogue
Speaker 1: between the company and the public, which they have been
Speaker 1: resisting and continued to resist. David Kirkpatrick, is it at
Speaker 1: all possible? And I'm just you know, I have no
Speaker 1: detailed knowledge of their own technology systems, but that the
Speaker 1: company is just technically overwhelmed by their success and the
Speaker 1: scale of the issue. I mean, I read last I
Speaker 1: guess it was the last plow weeks that they took
Speaker 1: down something like a half a billion accounts and I
Speaker 1: was staggered by that number. And yet that doesn't seem
Speaker 1: to be a big deal when it comes to their
Speaker 1: daily operations. Are they just over their heads? Well, that's
Speaker 1: a great question, Tim, And that number shocked me also
Speaker 1: considering that they claimed to have two point two billion
Speaker 1: active users. They did say recently that they took down
Speaker 1: half a billion fake fake accounts is what they said
Speaker 1: they took down, and that was the first time they'd
Speaker 1: ever disclosed the number of fake accounts they were taking down.
Speaker 1: It seemed discordant with the active user number. And I
Speaker 1: don't again, though they won't really answer questions about things
Speaker 1: like this. This is just the kind of thing I mean,
Speaker 1: it doesn't really make sense. It's almost impossible for outsiders
Speaker 1: like us to assess what capabilities they do have because
Speaker 1: they are very high handed and they have extraordinary high
Speaker 1: opinion of their own technical competence. And from their standpoint,
Speaker 1: they would say, oh, no, we're not overwhelmed, absolutely not.
Speaker 1: But in reality, I think looking in from the outside,
Speaker 1: it's easy to imagine that they may be. And here's
Speaker 1: an example where I think they are. If I might
Speaker 1: just slightly take a different subject slightly, um, look at
Speaker 1: the way they've expanded in literally every country around the world.
Speaker 1: Then look at the fact that in many many of
Speaker 1: the countries where they refuse to update their growth in
Speaker 1: any way, where they simply allowed themselves and encourage themselves
Speaker 1: to grow rapidly, they have absolutely no local language expertise.
Speaker 1: So in countries like Myanmar, for example, UM, which is
Speaker 1: one that's been very well documented, or Sri Lanka where
Speaker 1: they have no local language speakers speak that the monitor
Speaker 1: content their their service has been used in extremely toxic
Speaker 1: political ways, even as they're accepting large amounts of advertising
Speaker 1: revenue from the government from bad actors, from good actors
Speaker 1: from all spectrums of the political scene, which that's the
Speaker 1: way they work. Aybody advertises on Facebook. They have no
Speaker 1: ability to monitor that. To me, that's fundamentally irresponsible that
Speaker 1: they let themselves grow in that way and they don't
Speaker 1: have the capability to manage it. So in that sense,
Speaker 1: they are overwhelmed. So, David, you raise a really interesting point,
Speaker 1: and I want to build on that because Bloomberg News
Speaker 1: Report today talked a little bit about what Zuckerberg plans
Speaker 1: to emphasize when he does testify in front of European officials.
Speaker 1: He plans to emphasize his investments in an artificial intelligence
Speaker 1: research lab in Paris and data centers in Sweden. Given
Speaker 1: the fact that your point, perhaps they may be a
Speaker 1: little overwhelmed or not capable of monitoring things appropriately at
Speaker 1: this point in the eyes of many who are concerned,
Speaker 1: is this the right tac to take? Well, it's a
Speaker 1: good tax to take, but it's not sufficient. It's it's
Speaker 1: definitely a good direction. They do contribute to the economy massively,
Speaker 1: and obviously they will capture the attention of European legislators
Speaker 1: to that degree. There. You know, they say they employe
Speaker 1: ten thousand people in the EU. But let's keep in
Speaker 1: mind these this company is gonna make close to twenty
Speaker 1: billion dollars in net profit this year. I mean, these
Speaker 1: guys are not hurting. They could do anything they want,
Speaker 1: and they you know, of course, there are a huge
Speaker 1: political and and and economic force, and they want to
Speaker 1: brag about that. But again it's a matter of what
Speaker 1: is sufficient what is insufficient, And I think it's very
Speaker 1: complicated because we've never seen a commercial company with this
Speaker 1: combination of political and social power and profits. I mean,
Speaker 1: either one of them. We haven't seen either one. We've
Speaker 1: never seen a company with net margins at a fifty
Speaker 1: five billion dollar annual revenue runway, and we've never seen
Speaker 1: a commercial company that has this kind of weight in
Speaker 1: the social discourse around the world. These are bizarre, unprecedented
Speaker 1: developments that the world has to take stock of much
Speaker 1: more methodically, and the company is resisting that. That's my point, David,
Speaker 1: thank you so much for joining us. Dovid Kirkpatrick David Kirkpatrick,
Speaker 1: the Techonomy chief executive, talking about Facebook's apology tour. He
Speaker 1: lows J C. Penny dynamic. Today you can see j C.
Speaker 1: Petty shares uh down more than four percent as it
Speaker 1: announces that it's CEO Marvin Ellison is leaving abruptly, taking
Speaker 1: the top job at home improvement retailer lows Low shares
Speaker 1: up just a bit. I want to bring in puna'm
Speaker 1: goyle who covers all these things for us for Bloomberg
Speaker 1: Intelligence and Punam, what's your reaction to this? Do we
Speaker 1: have any sense why Marvin Ellison is leaving j C. Penny?
Speaker 1: I mean, I mean, look, I think you know, for him,
Speaker 1: he's had such an extensive background in the home space
Speaker 1: with home Depot that this probably is a great opportunity
Speaker 1: for him to go to lows Um. That said, you
Speaker 1: know where that leaves j C. Penny is in a
Speaker 1: bit of a tight spot because now what right he's
Speaker 1: he's implemented all this diversification with the extension of big
Speaker 1: ticket appliances, furniture and so forth. Who's going to come
Speaker 1: in and take a position? Um and and what will
Speaker 1: they do? Will they keep that vision or will they
Speaker 1: change it completely similar to Ron Johnson did prior Now,
Speaker 1: Marvin Allison is in a sense returning to the home
Speaker 1: improvement world because previous to his employment at j C. Penny.
Speaker 1: He was in charge of the Home Depot's US stores,
Speaker 1: that is correct, and he worked for Target previous to that. Correct,
Speaker 1: So he's got all the experience necessary to make Lows
Speaker 1: a real powerhouse. Well, I mean he has the experience
Speaker 1: that he could transfer to loads very easily. Will affix
Speaker 1: Lows or not? As a separate question, so there's a
Speaker 1: question whether Ellison was truly effective j C. Penny. He
Speaker 1: joined in, assumed the top job. A year later, the
Speaker 1: company still hasn't done well. In fact, if you ask
Speaker 1: most people when the last time they went to low J. C.
Speaker 1: Penny was, they probably would shake their heads, squint their
Speaker 1: eyes and thank or I'll say, what is J C. Penny?
Speaker 1: Uh So, so why hasn't he been successful? You know?
Speaker 1: And I guess it's not that he hasn't been successful.
Speaker 1: He stopped the bleeding at G C. Penny. Right, If
Speaker 1: you look prior to two thous fourteen, seems your sales
Speaker 1: were declining in the high single digits a double digit range.
Speaker 1: He um turned them positive in the following two years,
Speaker 1: but that was because of easy comparisons. In seventeen, really
Speaker 1: sales were just unchanged, so he didn't grow sames to sales,
Speaker 1: and that's really where the issue is, and and part
Speaker 1: of that comes from just not being able to turn
Speaker 1: apparel um. Fifty percent of j C. Penny sales are
Speaker 1: more come from apparel. He's done a great job at
Speaker 1: home in Sephora and Salon and so forth, but at
Speaker 1: the end of the day, it's really apparel. It comes
Speaker 1: down to apparel, and that's where he's been slow to
Speaker 1: make good progress. Well, would the progress that he had
Speaker 1: made involved downsizing j C. Penny even more? I think so.
Speaker 1: I mean, my view has been that j C. Penny
Speaker 1: needs to trim more stories. We had that announcement of
Speaker 1: of a little over a hundred doors um prior to
Speaker 1: last year, and you know, since then they only announced
Speaker 1: eight story closings for this year and the sleep still
Speaker 1: over a hundred stories is too big in my view,
Speaker 1: is j C. Penney going to finally go under? Ever?
Speaker 1: I don't know. You know, your guest is as good
Speaker 1: as mine on that. I mean, like, honestly, this just
Speaker 1: to view this from from the credit market standpoint for
Speaker 1: a second, because uh, that's my my home turf. I mean,
Speaker 1: people have been trying to short j C. Penny forever
Speaker 1: and you go to the derivatives traders. I mean J C.
Speaker 1: Penny is the risk trade. If you think the world's
Speaker 1: going to fall apart, but bet against j C. Penny.
Speaker 1: It will be the first shoe to drop. It has failed. Somehow,
Speaker 1: this thing crawled along and yet it has you know,
Speaker 1: at this point from a brand recognition standpoint, I don't know.
Speaker 1: I don't know, but but I've been hearing that about
Speaker 1: Spears for a decade and that's right, so so so
Speaker 1: I don't have an answer for that. But you know,
Speaker 1: to his credit, I mean, yes, as long as they
Speaker 1: can keep re cash fold positive. You know, I'd ask
Speaker 1: your credit the animals stock question. But I think I
Speaker 1: think the key is really if sales declined from here,
Speaker 1: then I think they're in a little bit of more trouble.
Speaker 1: But if they can hold study, close more doors, improve
Speaker 1: the apparel pad, I think that's really the opportunity here.
Speaker 1: I guess what I'm trying to get at here is,
Speaker 1: let's say they close more stores than they have to
Speaker 1: beef up their presence online. What do they offer at
Speaker 1: this point, uh that Amazon can't or that any other
Speaker 1: retailer really cannot offer, with possibly even better, better computer
Speaker 1: programming and a better display and a fresher start and
Speaker 1: less overhead. I mean, the the the advantage they have
Speaker 1: as their private brand right and if um, you're a
Speaker 1: shopper of St. John's Bay, you can't get that on Amazon.
Speaker 1: So as long as they continue to drive traction and
Speaker 1: their private brands, there's a place for those brands, and
Speaker 1: someone will be looking for them and shopping their stories.
Speaker 1: They just need to really amplify that more. And I
Speaker 1: think that's what struggle has been. UM. We think the
Speaker 1: apparel reset could provide them some opportunity there, but with
Speaker 1: this shake up and Marvin Ellison leaving, they're just a
Speaker 1: huge distraction in front of them, and and that gets
Speaker 1: me concerned. Well, can you turn your attention now to
Speaker 1: what's going on at Lows? What are the issues there?
Speaker 1: I mean, are they going to have to offer a
Speaker 1: greater variety of window blinds or maybe they're going to
Speaker 1: have to beef up their selection of frigid air or
Speaker 1: whirlpool appliances. What is the issue at Lows? So um
Speaker 1: Lows whose team a shock covers you know, talking to her,
Speaker 1: it's it's more a competitive issue, right the home depot
Speaker 1: is a pretty big competitor of theirs, and they're doing
Speaker 1: really well, and cutting prices isn't necessarily always the answer.
Speaker 1: So Marvin, I don't think he needs to diversify the
Speaker 1: product base. Really is what he did in J. C. Penny,
Speaker 1: which is bringing new categories. I think there's going to
Speaker 1: be execution UM issues that he'll need to work through there,
Speaker 1: like what I mean, what are the specifics of those?
Speaker 1: Maybe price? You know, UM, A lot of it comes
Speaker 1: down to price and promotions. Alright, I want to I
Speaker 1: want to shift gears a little bit because while we
Speaker 1: are sort of ragging on J C. Penny and I'm
Speaker 1: being a little unfair, but I just feel like people
Speaker 1: have been waiting for this thing to die for a
Speaker 1: long time and it really hasn't. UM. I want to
Speaker 1: shift to Coals because they reported earnings and they demonstrated
Speaker 1: that the turnaround is gaining some steam, shares rising as
Speaker 1: much as six percent and early trading. So what are
Speaker 1: they doing right that J C. Penny is doing wrong? Sure?
Speaker 1: So Coles Um Coles induced many two completely different stories
Speaker 1: right here, we have UM Saintster sales were up by
Speaker 1: three point six percent earlier this morning, and that was encouraging,
Speaker 1: and that's why the shears probably traded up pre market.
Speaker 1: But as you're listening to the call which I was
Speaker 1: on earlier m prior to talking to you, you know,
Speaker 1: a lot of that three point six percent came from
Speaker 1: a shift in the friends and family event. And that's
Speaker 1: where the question is, So how much of it was
Speaker 1: the friends and family versus structural growth in the comp number? Yes,
Speaker 1: so I should point out that now the shares are
Speaker 1: down more than five percent after that that call. But
Speaker 1: so that are we basically just seeing a time when
Speaker 1: discounting is everything. Still discounting is still everything. But it
Speaker 1: really comes down to execution and having the right products
Speaker 1: and driving traffic to the stories. You know, with the
Speaker 1: shift to online with Amazon and everything else that's going
Speaker 1: on in retail, the struggle is really to get the
Speaker 1: traffic in and then to improve conversion by having the
Speaker 1: right product. And for apparel, you really need to have
Speaker 1: something exciting, something different, and you need to provide some
Speaker 1: sort of experience to get that consumer to stay engaged
Speaker 1: with you. Putnam is It also worth noting that if
Speaker 1: you go to calls, you see a huge number of
Speaker 1: third party brands, whether it's Doctors or Glory of Underbuilt
Speaker 1: or even Adidas Plus. You find them doing a lot
Speaker 1: with third party offerings. For example, Carnival the cruise line
Speaker 1: offers their cruises through Coals, whereas if you go to
Speaker 1: j C Penny, it's trying to promote a lot of
Speaker 1: j C Penny brands, although there are some ads for Sephora,
Speaker 1: but by and large it's j C Penny exclusives. Yeah.
Speaker 1: I mean, all department stores have high private label penetration,
Speaker 1: which is their own brand. So for Coals and j
Speaker 1: C Penny it's still a large percentage of their sales.
Speaker 1: And UM j C Penny probably a little more than Coals,
Speaker 1: but UM Coals, as you know, just launched under our
Speaker 1: Marina partnership, so they're they're trying to beef up their
Speaker 1: national brand presence, which helps them get more traffic into
Speaker 1: the doors. Um for j C Penny to focus on
Speaker 1: the national label side has been more with big ticket items,
Speaker 1: whether it's home furniture or stuff like Salon and Sephora. Alright, well,
Speaker 1: I guess we're gonna leave it there. I want to
Speaker 1: thank you very much. Punam Goyle our Bloomberg retail analysts
Speaker 1: for Bloomberg Intelligence. Thanks for listening to the Bloomberg Surveillance podcast.
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Speaker 1: I'm Bloomberg Radio