Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Lee. 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: PBOC Weekend. It's fixing below beyond six point seven today
Speaker 1: for the first time since the currency began tumbling in June.
Speaker 1: Joining me to discuss, I pleased to say as Joseph Quinland,
Speaker 1: Bank of America, head of Market Strategy for US Trust
Speaker 1: and he joins us here in New York. Joseph, good
Speaker 1: morning to you. Your thoughts on what is happening with
Speaker 1: the Chinese currency. Well, I think there's some weakness there, Jonathan,
Speaker 1: in the sense at the central banks trying to buffer growth.
Speaker 1: We saw six point seven percent for a second quarter
Speaker 1: UM but when I don't think there's gonna be too
Speaker 1: dramatic a decline in the currency because remember, Chinese exports
Speaker 1: as a percentage GDP are not as large as it
Speaker 1: used to be. China's more consumption led growth. So I
Speaker 1: think maybe it's a signal to the US administration that
Speaker 1: there's ways to play the trade game, and this might
Speaker 1: be one of them. But I'm not looking for any
Speaker 1: serious breakdown of the FX market with China. I was
Speaker 1: just Dum corresponding with Bob sin Chavamhurst Pipon who are
Speaker 1: pointed out that perhaps this move in dolly uan is
Speaker 1: much stronger than justified by general dollar strength. More broadly, Um,
Speaker 1: is that something you would agree with? Um? And so
Speaker 1: it's it's it's he's suggesting that it's more about China weakness. Yeah,
Speaker 1: I mean, I think that's part of the story, but
Speaker 1: that I think it's weighing on what the Chinese are thinking.
Speaker 1: But at the end of the day, what money investors
Speaker 1: don't realize is that the consumer is driving the Chinese economy,
Speaker 1: not exports and investments. So it's part and part of
Speaker 1: the easy but it's not gonna be overdone. What seems
Speaker 1: to be driving the Chinese economy more consistently, whether it's
Speaker 1: the consumer or exports, it's the credit impulse of China. Um.
Speaker 1: China's credit impulse has rolled over quite dramatically in the
Speaker 1: last twelve months. Do you see that turning around? No,
Speaker 1: I mean maybe alleviating, pulling back a little bit here
Speaker 1: because you're right there, there's been a huge push by
Speaker 1: the by the administration, the officials in China to tighten
Speaker 1: up the credit conditions. There's a lot of bad loans
Speaker 1: I've got to deal with, So maybe modest easy, but
Speaker 1: nothing going back to like you know, say, double digit
Speaker 1: credit expansion. This morning was saying some mod risk aversion
Speaker 1: futures are lower. Where you see the paintings in the
Speaker 1: commodity market, we had copper stath of six thouns and
Speaker 1: dollars a ton um. We see brent and w T
Speaker 1: and depressure once again this morning. Why is twenty eighteen
Speaker 1: and the weakness that we see in the Chinese currency
Speaker 1: different to what we saw in the summer and early well.
Speaker 1: One reason why because we think we're longer in the cycle,
Speaker 1: that we're going closer to the end of the business
Speaker 1: cycle globally, as opposed to two thousand and fifteen, there
Speaker 1: was still a lot of monetary expansion. The FED was
Speaker 1: still blowing out the balance sheet back then. So we're
Speaker 1: in an error now in a world where there's more
Speaker 1: central big tightening. Although I think we're going alleviated here.
Speaker 1: That makes it the print this time. So when you
Speaker 1: look at dollar denominated risk overseas and emergent markets in
Speaker 1: particular to trillion dollars in debt, and that has investors concerned.
Speaker 1: What's really cool here is I get to work with
Speaker 1: John Farrell, who, like you, mentioned copper. I haven't looked
Speaker 1: at copper since time began. And the answer is it's
Speaker 1: off a cliff. Now. Is it doing a soybean? No,
Speaker 1: and we call it dr copper. Each of these commodities
Speaker 1: tells us a different thing. How does a grizzled veteran
Speaker 1: like you use copper is a measurement of the global economy? Well,
Speaker 1: I use it time to look out, say, twelve months
Speaker 1: from exactly longer longer. So I think, you know, I
Speaker 1: think we're I think what copper maybe may be suggesting
Speaker 1: is that we're at the peak of global growth right now,
Speaker 1: and when you look out twelve months, it's gonna be
Speaker 1: at least three and a half, maybe closer to three
Speaker 1: as opposed to four where we are now. John, I'm
Speaker 1: gonna do a ballet here and get the chart out
Speaker 1: on Twitter, Bluebird Radio you'll see it first. But John,
Speaker 1: it's really simple. There's been a declining copper from two
Speaker 1: thousand eleven to Trump. I mean, it's just that simple.
Speaker 1: And then we got the Trump pop and boy have
Speaker 1: we adjusted. I mean, you know, can we use a
Speaker 1: fancy word, it's Italian go on on a Fibonaci basis
Speaker 1: here we go. We're like not halfway back? Should I
Speaker 1: put it in English? Fibonacci had coached the Italian team
Speaker 1: that would have made the world done. But the answer
Speaker 1: is we're not back. But I'm sorry, John, You're bringing
Speaker 1: up copper is a big deal. And I would say
Speaker 1: just the magnitude of the move and the space of
Speaker 1: time has happened in um. This is since early June,
Speaker 1: we've had an eighteen percent move in copper. That is brutal.
Speaker 1: That's brutal, and maybe and it is suggesting that out
Speaker 1: of the European Union, you know, a big economy, you're
Speaker 1: seeing more of a slowdown than what we expected. I
Speaker 1: think that could be the big story related commandities, is
Speaker 1: a significant pullback in your European growth. What's gonna put
Speaker 1: d c B back and play and what they do next?
Speaker 1: So for US based investors, I think listening to this
Speaker 1: program right now, they're wondering how insulated are we in
Speaker 1: dollars denominating assets at home domestically from all of these
Speaker 1: pressures that are emerging abroad. We've got some were insulated
Speaker 1: to a degree, particularly small cap stocks, but you're gonna
Speaker 1: see a lot of You're already seeing the guidance from
Speaker 1: the big multinationals. There's pressures building, worker shortages, material costs
Speaker 1: are rising. The best thing a US investor could do
Speaker 1: if they want to feel create that insulated portfolio, just
Speaker 1: stay mid small caps. Noise news in the earning cycle.
Speaker 1: In the earnings quarter is is always really really difficult
Speaker 1: to get through. Is it a convenient scapegoat or something
Speaker 1: that's actually hitting the bottom line. I get what it
Speaker 1: hits Alcoa. We see it in the outcome of Alcoa projections.
Speaker 1: That's obvious to me. But for the others, no, I
Speaker 1: think it's too early. I mean, they're using and I
Speaker 1: won't see is using an excuse. They're using as a
Speaker 1: red red flag. They're signaling their costs are going up.
Speaker 1: They're going to pass it on the consumers if they can.
Speaker 1: We'll see that's not a given. So I think really
Speaker 1: here early stay in the middle of the summer. There
Speaker 1: we could see some bigger problems, bigger issues in the
Speaker 1: fall in the fourth course, So how is chair Hower
Speaker 1: meant to respond to all of this? Because the Federal
Speaker 1: Reserve at the out of the year set us up
Speaker 1: for three hikes, and as the year progress, they set
Speaker 1: us up for full Um. I'm wondering whether it was
Speaker 1: the right ideas, sat right, the right path as these
Speaker 1: risks of building in the background. Well, I would agree
Speaker 1: with that because you can always extend it in two
Speaker 1: thousand nineteen. You can let the cycle run. And that's
Speaker 1: the key issue. You don't you don't have to numerically
Speaker 1: put down a market if they have to do x
Speaker 1: amount per calendar year. Let the cycle run. If we're
Speaker 1: got to do more in two thousand nineteen, that's gonna
Speaker 1: be key. We saw Johnson and Johnson with I guess
Speaker 1: they did, okay, make make up band aids, great again,
Speaker 1: economy and then a little bit of a Ford view
Speaker 1: that was self, where where's your working revenue number in
Speaker 1: your head? I mean as a blended nominal GDP number
Speaker 1: seven percent was so Q two wasn't and I think
Speaker 1: you know time that could have been the peak. But
Speaker 1: but where do how do but once you're at the peak.
Speaker 1: Where's the plateau? Do we stay above three and a
Speaker 1: quarter percent of growth? Add on some inflation? So I
Speaker 1: think the revenue growth is still going to run, say
Speaker 1: six for a lot for a lot of sectors. But
Speaker 1: the key is what investors are worried about, like, Okay,
Speaker 1: this is as good as it gets. Where do we
Speaker 1: go from here? And do I want to sell or
Speaker 1: want to reallocate? John what do they call band aids
Speaker 1: in the United Kingdom? I mean they call it wrench.
Speaker 1: They call them plasteras plasters. I didn't know that. You
Speaker 1: didn't plasters? Yeah, plastic Johnson and Johnson makes plastics by
Speaker 1: a plastic. Yeah, I did not, folks, I learned John Tucker.
Speaker 1: Isn't it amazing what we learned every day from young Pharrell?
Speaker 1: I tell you what plasters? You're really throwing some sh
Speaker 1: at me this morning? You deserve? Why do I deserve it? Well?
Speaker 1: I don't know. I mean I'm in a twelve step
Speaker 1: process to leave the World Cup. When are you getting
Speaker 1: to step twelve? We want how is this going to take?
Speaker 1: I don't know step three? As when we ran out
Speaker 1: of beer? You know, so I'm getting I can help
Speaker 1: you out with the beer. Yeah, I'm Simpsons free get good.
Speaker 1: It's like music to my ears. Okay, and um you
Speaker 1: know like I mean, Fiberacci could look good working for
Speaker 1: the Italians to get them to Okay, what does it
Speaker 1: win four years from now? And the cutter because right, yeah,
Speaker 1: it'll be in the wind. What about the heat, it's
Speaker 1: going to be in the winter still, what about Yeah,
Speaker 1: well we were promised their conditioned stadiums. I don't know
Speaker 1: if they're following through on that, John Tucker, do you
Speaker 1: see that we're doing the World Cup right now? Air
Speaker 1: conditioned stadiums and it's over though, right? Oh you Rich
Speaker 1: Truman ways and it says there may be less scoring.
Speaker 1: What if I done to you today? Why? Why are
Speaker 1: we doing this again? Why are we doing the World
Speaker 1: Cup again? We're not We're just a dancing Joe Quillan,
Speaker 1: Thank you so much for Joe. I want to repeat
Speaker 1: this on radio. Can you acquire shares this morning? Yes,
Speaker 1: we're buyers. What we're seeing opportunities in the market here,
Speaker 1: whether it's a healthcare, energy, there's some good values out there. Aerospace.
Speaker 1: We like cybersecurity. If you're worried about Russia, cybersecurity Joe,
Speaker 1: Joe Quillan long plasters this morning? Is that okay? Very much?
Speaker 1: Thank you Joe, thanks for tolerating us. Do you know
Speaker 1: how many times have said that this year John fare
Speaker 1: and are looking at stronger dollar and it started out like, yeah,
Speaker 1: a lift, And this morning it's a real lift. And
Speaker 1: it's not yen yen one thirteen oh four. I think
Speaker 1: yen would be like one thirteen forty. No, it's it's
Speaker 1: it's more like a e m field with a real
Speaker 1: euro weakness as well. It's a careful concoction, which means
Speaker 1: we need we need to go to London and Queen
Speaker 1: Victoria Station. Justina Lee joins us working for Bloomberg in
Speaker 1: the area of foreign exchange. Justina, the red men By
Speaker 1: has been weaker and weaker and weaker. Do we know why?
Speaker 1: Is it? Speculation? Is a covering of the stronger red
Speaker 1: men by? Bet? Is it flows? What is it? Right?
Speaker 1: Of course, overnight we got a stronger dollar, but that's
Speaker 1: not just it. This morning we saw the People's Bank
Speaker 1: of China weekend it's fixing beyond six point seven, and
Speaker 1: earlier people kind of saw that as a line in
Speaker 1: the sand. So now investors are wondering whether China is
Speaker 1: actually tolerating more you in weakness, you know, to boost
Speaker 1: the boost the economy. And of course there's also news
Speaker 1: that Chinese banks are being offered cash and given instructions
Speaker 1: to boost lending. So it seems like there are signs
Speaker 1: that maybe China is willing to ease monetary conditions a
Speaker 1: little bit. What I love that phrase, and you say
Speaker 1: it with the glow that you learn from New York
Speaker 1: University being given instructions? What actually happens? Who's who's giving
Speaker 1: instructions to who? Right? I mean, it's coming from the
Speaker 1: Banking and insurance regulator and it's just one of those
Speaker 1: things that you only get in China. Well, the statement
Speaker 1: they said that they said was that you know, they
Speaker 1: want Chinese banks to earnestly lower financing costs for smaller banks.
Speaker 1: And so we don't necessarily know what goes on the scenes,
Speaker 1: but you know, if you're a Chinese bank and you're
Speaker 1: getting this instruction from your regulator, I think you should
Speaker 1: know what to do. And of course, can we conclude
Speaker 1: can we conclude now, Justina, just to jump in that
Speaker 1: we are we're moving to a PBOC that has an
Speaker 1: easing bias. Now, well, I think it's kind of hard
Speaker 1: to say, because in recent years we've seen that the
Speaker 1: PBOC doesn't exactly like to use headline tools like the
Speaker 1: interest rate cut or deposit rate cuts anymore. But it
Speaker 1: seems like it's moving slightly towards an easing bias, if
Speaker 1: I can, If I can even say that, So the
Speaker 1: credit impulse of China is something we discussed out of
Speaker 1: in the program. What we've seen over the last couple
Speaker 1: of years is this big deleveraging effort. Is that starting
Speaker 1: to bottom out? Do they have to put from in
Speaker 1: the town on that Justina to some extent, Well, it
Speaker 1: seems like relative to you know, last year, they are
Speaker 1: sacrificing some of their leveraging objectives in order to cushion
Speaker 1: the rest of their economy from this trade war. But
Speaker 1: I think they still seem kind of cautious about sending
Speaker 1: a very strong easing signal. What does the streets say?
Speaker 1: I mean, John and I have noticed not only the
Speaker 1: polarity of of yen call say uh Nomura and Jordan
Speaker 1: Rochester with a polar opposite view from some of the
Speaker 1: you know, X number of handle moves to weaker young
Speaker 1: that we've seen. What does the cell side say about
Speaker 1: red Memby? Is there a one way bet here? Well,
Speaker 1: I think opinions are still quite divergent. You know. It
Speaker 1: also depends a lot on what you think of the dollar,
Speaker 1: because I think what a lot of analysts would point
Speaker 1: out is that if you look at the past patterns
Speaker 1: of what the PBOC does, they never really want un
Speaker 1: weakness to get out of hand. You know, we've seen
Speaker 1: in the years after the unit evaluation in two thousand
Speaker 1: and fifteen that they were very wary of capital outflows.
Speaker 1: So maybe if things get out of hand, the PBFC
Speaker 1: will step in and of course bake out the firepower. John,
Speaker 1: I know that re Memby is out about two point
Speaker 1: two standard deviations, so maybe we're on the edge of
Speaker 1: out of hand. We've we've had a big move. But
Speaker 1: I just wanted to Bob sinch bolt this up to
Speaker 1: me earlier on an email from MPST Pierpont and just
Speaker 1: in a place way in whether the move we've seen
Speaker 1: is more than justified by the general dollar strength that
Speaker 1: we've seen. More broadly, and what I mean by that is,
Speaker 1: are we seeing anything abnormal in the Chinese currency against
Speaker 1: the backdrop of dollar strength. More broadly, is Dolly went
Speaker 1: higher than otherwise would be well. Of course overnight you
Speaker 1: could say the dollar strength has had a big impact
Speaker 1: on what the un UM did this morning. But I
Speaker 1: mean it's not like the dollar has really been surging.
Speaker 1: But you know, if you put the dollar spot chart
Speaker 1: next to the un chart, it's quite obvious that you know,
Speaker 1: the un is rekening on its own regardless of what
Speaker 1: the dollar is doing. Brilli interesting only thank you so much,
Speaker 1: greatly appreciated off for London desk on for Change. Kurt
Speaker 1: Hartman was us with Wells Fargo and of course with
Speaker 1: the years with Wells Capital Management, their global chief investment officer,
Speaker 1: and and it's wonderful to have you here as an
Speaker 1: institutional guy. When we look at this transaction, do you
Speaker 1: suggest do you suggest that it was just a silly
Speaker 1: valuation where guys like you say to Comcast to shareholders,
Speaker 1: this is dumb, don't do it. I don't think it's
Speaker 1: a silly valuation. I think that Disney had the upper
Speaker 1: handle along, but obviously asset prices were getting pretty high,
Speaker 1: so I think everyone on a ratio price to even time,
Speaker 1: I mean, it was getting silly. Right, Well, it's getting
Speaker 1: very high. But I think it also shows you the
Speaker 1: tremendous value a lot of these media assets. Right, do
Speaker 1: these people? Do you have the power? You you're good competitors,
Speaker 1: black Rock Fidelity. Do you have the power to tell
Speaker 1: corporate titans what to do? Well, we have the power
Speaker 1: in terms of what we buy and sell and also
Speaker 1: in terms of our proxy voting. So I think that
Speaker 1: obviously that plays in. But um, you know, I think
Speaker 1: this was a very rational decision by all sides. Come
Speaker 1: kissed up, um, twenty century Fox negative is well, you
Speaker 1: folded this off air into a discussion of Telephone and
Speaker 1: Time Warner, which I think is going to become Warner Media.
Speaker 1: I haven't figured out the naming. It's like alphabet google.
Speaker 1: I can't figure it out. But the answer is I'm
Speaker 1: enjoying a six percent dividend with Telephone. I mean, the
Speaker 1: media game right now. The capitalization of it and the
Speaker 1: valuation of it is odd, isn't it? It is? And uh,
Speaker 1: you know we own obviously own this stocks in the index.
Speaker 1: But you look at something like a T and T,
Speaker 1: you know, six and a quarter dividend yield nine p
Speaker 1: you know, yere over a year free cash flow and
Speaker 1: you say this is cheap. Obviously it's got integration risk
Speaker 1: with Time Warner, and it's got litigration risk in terms
Speaker 1: of the adjustice apartment challenging the merger. But I think look,
Speaker 1: mergers are in vogue again and vertical integration, especially in
Speaker 1: the media, is going to continue. But did discipline rain here?
Speaker 1: This is really important and that it's visible. It's in
Speaker 1: the media. We talked to all these great annalys major
Speaker 1: shout out, might I add, folks to Craig Moffatt of
Speaker 1: Moffatt Nathans and Pim jump in here as you can.
Speaker 1: You and I were sitting here with Mr Moffatt and
Speaker 1: he was the first one as an expert on Comcast
Speaker 1: who said, you know what the stocks down for a reason.
Speaker 1: I mean Craig was way out front. Oh yes, absolutely,
Speaker 1: I mean he was. He was very clear about it
Speaker 1: and so with the investors. Um. But just the point
Speaker 1: if you if you don't mind about a T and T,
Speaker 1: but the stock has taken a huge hit. I mean
Speaker 1: the stock mean six and a quarter percent is great,
Speaker 1: but the stock your capital has declined. But kirk on
Speaker 1: a T and T with a six percent dividend. Are
Speaker 1: you buying it strategically for a bounce or is an
Speaker 1: underlying value as they morphed into a meeting whatever they're
Speaker 1: gonna morph into nobody, nobody really knows do well. To
Speaker 1: Pim's point, I mean, look, it's got hit pretty hard.
Speaker 1: I think a lot of that is the litigation risk
Speaker 1: and secution risk on Time Warner. But you know, you've
Speaker 1: got to be a contrarian investing, So I just look
Speaker 1: at the fundamental assets and the other thing that it's
Speaker 1: it's shown me is that a Time Warner obviously a
Speaker 1: great franchise, And um, look at the as you were
Speaker 1: talking earlier, look at the valuations and how they're being
Speaker 1: bit up. I made a joke in my TV script
Speaker 1: yesterday the opening when we're doing all this double negative
Speaker 1: malarchy about gap accounting and going over to that word adjusted,
Speaker 1: which maybe is like the late nineties ProForma. Do we
Speaker 1: know the goodwill or bad will on media balance sheets?
Speaker 1: On the balance sheet, folks, is it's intangible fiction called goodwill? Media? People?
Speaker 1: When I talked about this, they get upset because they
Speaker 1: say it's a tangible asset? Is it? Look? I am
Speaker 1: am not a specifically expert on media, but I think that. Yeah,
Speaker 1: but I think look goodwill is always somewhat of a guess.
Speaker 1: So I think again, what's hard about this is, you know,
Speaker 1: it's very difficult to anticipate the future value. But one
Speaker 1: thing that's clear to me, whatever your good will, these
Speaker 1: franchises have tremendous value. And looking again at Comcast with
Speaker 1: a dividend two point and sprightly, Brian Roberts like fo
Speaker 1: five year dividend growth rate, with yields up and with
Speaker 1: cash tangible. I think it was a New York Times
Speaker 1: today with a killer article on libor that world's back.
Speaker 1: Are we looking at dividends and dividend growth to the
Speaker 1: correct prism right now? Or do we need to adjust
Speaker 1: back to something where it competes with yield? Well, I
Speaker 1: think you have to look at value stocks right now.
Speaker 1: In other words, I think you have to look at
Speaker 1: things like free cash flow and what do how strange
Speaker 1: pim how how strange look at free cash flow? Oh? Yes, century,
Speaker 1: I mean you have to remember what's very interesting to
Speaker 1: me in terms of dislocations. Growth has beaten value for
Speaker 1: ten straight Yeah, I love that. And I'll tell you
Speaker 1: what's interesting the last time this happened, this is a
Speaker 1: little bit of a scary thought, was the ten years
Speaker 1: before the Great Depression and the ten years before the
Speaker 1: tech bubble. That's a quote of the months where half
Speaker 1: of it's what you say it again, this is so
Speaker 1: in the last time this happened was the ten year
Speaker 1: period before the Great Depression and the ten year period
Speaker 1: before the tech bubble in the early two thousand era.
Speaker 1: So look, if you're a contrarian again, you've got to
Speaker 1: go to mean reversion. You've got to say value stocks
Speaker 1: are cheap here and value is going to mean revert.
Speaker 1: Should I can I go to a Boston shout out here?
Speaker 1: I mean, it's not Margie patell who's you know, one
Speaker 1: of your giants. You know Margaie knows David Tripple, who
Speaker 1: was a force of Pioneer Group. I had this conversation
Speaker 1: over a cup of coffee and a coffee shop with
Speaker 1: Dave Tripple a million years ago about that sustainability of
Speaker 1: growth being value. So say it a third time, folks,
Speaker 1: This is a real clinic with Kirk Hartman. You get
Speaker 1: a run of growth being beating value, and you've least
Speaker 1: got to be aware of it right, Oh absolutely, And look,
Speaker 1: these things go in cycles. If you look at factors
Speaker 1: in terms of momentum growth value, they certainly go in cycles.
Speaker 1: And we have had a tremendous growth run. And you know,
Speaker 1: at some point you have to think it's going to
Speaker 1: mean revert to to Man Winkler's great column on Amazon
Speaker 1: the other day. Is the Amazon avail, You're a growth stuck.
Speaker 1: It's hard to say, but I can tell you it's
Speaker 1: a long duration asset. Right. It's very hard because you're
Speaker 1: buying the business model in my mind, I mean at
Speaker 1: a hundred fifty or whatever it's. You know, obviously you're
Speaker 1: buying it for the uh, you know, the underlying value
Speaker 1: of the franchise. But it's hard on a on a
Speaker 1: metric basis to look at these One final question, Kirk Hartman,
Speaker 1: did you buy anything on Prime Day? I bought dog
Speaker 1: biscuits for I was traveling. So I got home and
Speaker 1: I said, I gotta do a Prime Day because everybody
Speaker 1: else is doing it. So I bought little, you know,
Speaker 1: dog tasty kind of thing, you know what. Nothing I'm
Speaker 1: proud they taste. I don't please. Yeah, we're going there,
Speaker 1: you know. And Pim and I we have the same
Speaker 1: camp bills for a children, so we're down to eating
Speaker 1: dog biscuits. You didn't buy anything in Prime Day? I didn't.
Speaker 1: It's American, I know, but I was traveling, so you know,
Speaker 1: it's hard to buy things when you're traveling. Kirk Carbon,
Speaker 1: thank you so much. Really appreciate this. Is he's not
Speaker 1: supposed to comment on individual stocks, so I greatly appreciate
Speaker 1: the media comments with a stock. Craig Moffatt of Moffatt
Speaker 1: Nathans and Craig, congratulations on absolutely nailing the game theory.
Speaker 1: If you would of what Mr Roberts would do. You
Speaker 1: have always said you were suspect about this transaction. Let's
Speaker 1: immediate drive it forward. Can you acquire shares of Comcast
Speaker 1: this morning? Well? Thanks thanks for saying that, but I
Speaker 1: don't think I was the only one to figure out
Speaker 1: that trunk hast had gotten itself wrong footed on this UM.
Speaker 1: But but you know, look, I would like to say
Speaker 1: this is a green light to go and acquire Comcast shares,
Speaker 1: but um, but this was at this point reasonably widely
Speaker 1: expected And the real question now is you still don't
Speaker 1: know UM whether they are going to win or lose.
Speaker 1: Sky Um. Investors are going to be very happy that
Speaker 1: there they've lost fox Um, but investors would be even
Speaker 1: happier if they lost both and would go back to
Speaker 1: being a cable company, which is what investors always wanted
Speaker 1: them to be in the first place. And we just
Speaker 1: don't know the answer to that. Today's press release from
Speaker 1: Comcast says they still want Sky, but whether they can
Speaker 1: win it versus Disney is unclear. Within that is going
Speaker 1: after Sky, and do I understand that's a two part transaction.
Speaker 1: They've got to take the Disney part and the Sky part. Well,
Speaker 1: it's a little more complicated. Disney in this case, Fox
Speaker 1: has it Foxes bidding for the rest of Sky that
Speaker 1: it doesn't own, but is effectively bidding as a proxy
Speaker 1: for Disney because Disney within by the whole thing. Um
Speaker 1: they already correct, that's right. Comcast is now the leading
Speaker 1: bidder though for Um they've got technically got an offer
Speaker 1: for the whole thing. But they would buy the minority steak,
Speaker 1: and you would end up with an ownership steak in
Speaker 1: that scenario. That's the same as what you have today.
Speaker 1: It's just that now Comcast would own the majority and
Speaker 1: Disney would end up being a minority investor. Now there's
Speaker 1: been some speculation that if that's the way things turn out,
Speaker 1: that you might see some kind of a of a
Speaker 1: swap of Comcast ownership in UH in Hulu, which would
Speaker 1: then be a minority interest UM for plus plus uh
Speaker 1: uh some cash for UM for the rest of Sky UM.
Speaker 1: But again that's all It's still all speculation because we
Speaker 1: don't really know whether Disney is going to increase its
Speaker 1: bid for Sky for the rest of Sky or not.
Speaker 1: Craig moffatt from a strategic point of view, what makes
Speaker 1: the most sense for Comcast. Well, I guess it depends
Speaker 1: on who you ask, because obviously my answer is different
Speaker 1: than Brian Roberts. Bryan Robert's answer is they really want
Speaker 1: to get Sky. My to would be you're better off
Speaker 1: without Sky. You know. The problem for me is my
Speaker 1: suspicion is Comcast is trying to convince itself that Sky
Speaker 1: is something that it isn't um. Sky is a global
Speaker 1: distribution platform that, if you look at it from Comcast
Speaker 1: point of view, has a lot of proprietary content, things
Speaker 1: like HBO and Showtime and Disney and the Premier League soccer. UM.
Speaker 1: That is that is the basis of of becoming something
Speaker 1: like a global O T T provider like Netflix. What
Speaker 1: what Sky really is though, is a satellite TV company.
Speaker 1: And we've seen what happens to satellite TV companies because
Speaker 1: fundamentally their distribution technology is obsolete, and so the tension
Speaker 1: between those two things. Can you transition from being uh
Speaker 1: rapidly obsolescing satellite TV platform to being a next generation
Speaker 1: OTT provider fast enough that you can beat the expiration
Speaker 1: date on a lot of that proprietary contract is the
Speaker 1: challenge that Comcast would face, and I don't think investors
Speaker 1: at Comcast are particularly enthusiastic about taking on that challenge.
Speaker 1: Do you and your colleague Michael Nathanson have a price
Speaker 1: to ebitda Mr Iger ponied up after Comcast a bit
Speaker 1: up the price? I mean, folks, this is the comparison
Speaker 1: of the value of the transaction down the income as
Speaker 1: compared to down the income statement with a little bit
Speaker 1: of balance sheet ballet. What's the price to Mr Iger
Speaker 1: will enjoy in acquiring these assets. Well, remember that there
Speaker 1: will be synergies, but there will also be some divestitures. Okay,
Speaker 1: So to give me two numbers, presynergy excuse me, folks,
Speaker 1: we don't use the word synergy, Bloomberg surveillance. After cost
Speaker 1: cuts and slashing, what will be the two ratios? Well,
Speaker 1: it's going to depend on on what he can get
Speaker 1: for or the regional sports networks that are going to
Speaker 1: have to be divested, But I think it's it's likely
Speaker 1: that the multiple will come out to be something like
Speaker 1: twelve to thirteen times net of all of that. Not stupid. Yeah, high,
Speaker 1: but not stupid Comcast, you know. And that was the
Speaker 1: problem for Comcast is Comcast because of because it had
Speaker 1: gotten footed, would have had to end because of the
Speaker 1: regulatory challenges, probably would have had to bid at least
Speaker 1: into the low forties. If Disney had matched it, that
Speaker 1: would have put Comcast in order to win into the
Speaker 1: mid to high forties. And then you're talking about fourteen
Speaker 1: times after synergies. That's crazy. Quickly, pim because I know
Speaker 1: you want to get a question two years ago, see
Speaker 1: if a level two they are so influenced by Moffatt,
Speaker 1: they had a question on price to Ibada, a cheap,
Speaker 1: be expensive, and a third choice was high but not high,
Speaker 1: but not stupid. I'm gonna copyright that one. That's Yeah,
Speaker 1: be careful there, um, Craig. While all this is going on,
Speaker 1: I do assume that there are other companies that are
Speaker 1: going about their business, such as Netflix. Any thoughts on
Speaker 1: anybody else who maybe is taking advantage of all the
Speaker 1: focus on takeover an acquisition to actually just run their
Speaker 1: business and make a lot of money. Well, you know,
Speaker 1: I'm always a little suspicious of those arguments about X,
Speaker 1: Y or Z company was quote unquote distracted because of
Speaker 1: m and am the CFO and the CEO may be
Speaker 1: worried about the distraction, but generally speaking to people who
Speaker 1: run the business on a day to day basis, are
Speaker 1: are probably not all that distracted. So I'm never all
Speaker 1: that sympathetic to those kinds of arguments. Um, you know,
Speaker 1: the real question for for Netflix, I think, um, and
Speaker 1: it's covered by my partner Michael, But Michael and I
Speaker 1: have I think very similar views on Netflix that the
Speaker 1: real tension here is just Netflix is clearly going to
Speaker 1: be very, very big, But there's a debate about how
Speaker 1: how secure is the mode around Netflix's business. Is sheer
Speaker 1: size in the media business going to create an impenetrable
Speaker 1: mode or is it just going to create a big
Speaker 1: business and they're going to be potentially other big businesses
Speaker 1: as well, And those are two very different outcomes, because
Speaker 1: if it is the latter, there's no reason to believe
Speaker 1: that the returns on capital in just another big business
Speaker 1: without an impenetrable mode will be exceptionally high. And right
Speaker 1: now Netflix is priced for exceptionally high returns. And so
Speaker 1: that it's a worthy debate, and you're going to find
Speaker 1: out a lot based on now that Disney is getting
Speaker 1: foxed and Disney effectively pursues something like a similar strategy
Speaker 1: just quickly. This is not like doing an A O
Speaker 1: L is it. I mean? You know we're not talking
Speaker 1: Time Warner a world quality here are we? No? No, no, no,
Speaker 1: these are Disney, you know has to be. And again
Speaker 1: it's Michael's company to cover. But but Disney has to
Speaker 1: be given a lot of credit for having put the
Speaker 1: strategy in place and having executed very deliberately around during
Speaker 1: the assets to pursue the strategy that want to pursue. Craig,
Speaker 1: thank you, thank you for coming on with us. We'll
Speaker 1: look for notes from off at Nathanson to their clients
Speaker 1: coming up. Thanks for listening to the Bloomberg surveillance podcast.
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