WEBVTT - Bloomberg Businessweek Weekend - February 29th, 2020 0:00:02.520 --> 0:00:06.240 This is Bloomberg Business Week from Bloomberg Radio. Hi, I'm 0:00:06.360 --> 0:00:08.800 Jason Kelley and I'm Carol Masser. Welcome to the weekend 0:00:08.920 --> 0:00:11.479 edition of Bloomberg Business Week. He'll bringing news of the week, 0:00:11.520 --> 0:00:13.520 inside from the magazine and more. And there was a 0:00:13.560 --> 0:00:16.200 lot going on this week, a very busy week, so 0:00:16.280 --> 0:00:19.640 much happening, especially in the markets. Carol, We're going to 0:00:19.760 --> 0:00:22.599 break that down for you, help you understand the market side, 0:00:22.600 --> 0:00:25.360 the economic side. It's a fast moving story to disab believe. 0:00:25.400 --> 0:00:27.800 There was a lot going on. Another ongoing story Hewlett 0:00:27.840 --> 0:00:30.240 Packard and whether or not they'll do a deal with Xerox, 0:00:30.600 --> 0:00:33.720 and they came out HP specifically came out with their earnings. 0:00:33.720 --> 0:00:36.640 But Jason, they also announced a massive fifteen billion dollar 0:00:36.880 --> 0:00:38.879 stock buy back and that was seen as a way 0:00:38.920 --> 0:00:42.040 to fend off that hostel takeover from zero. So we 0:00:42.080 --> 0:00:44.240 have a story by Austin Carr about that. Plus we 0:00:44.320 --> 0:00:47.239 catch up with Rebecca Greenfield. She oversees all of our 0:00:47.360 --> 0:00:50.320 diversity coverage. She talks about a story she has in 0:00:50.320 --> 0:00:52.760 the magazine this week, as well as news of the week, 0:00:53.040 --> 0:00:57.560 obviously the sentencing the conviction of Harvey Weinstein, plus reddits 0:00:57.600 --> 0:01:00.240 traders man, they are shaking up the stock mar Get 0:01:00.280 --> 0:01:03.040 this story by Lucawa. It's the cover story, and it 0:01:03.080 --> 0:01:05.720 takes us to a dingy corner of the internet. He went, So, 0:01:05.760 --> 0:01:09.160 we didn't have to, but let's begin with global markets. 0:01:09.200 --> 0:01:11.560 They were rocked by the spread of the coronavirus. This 0:01:11.600 --> 0:01:13.760 week we take a look at how Wall Street is 0:01:13.800 --> 0:01:17.120 looking for the right metaphor for the meltdown. Economics editor 0:01:17.200 --> 0:01:20.160 Christina lynn Blad and Market center Mike Reagan joining us 0:01:20.160 --> 0:01:22.040 now with two stories of the magazine this week, and 0:01:22.120 --> 0:01:24.399 it is all about the virus and trying to figure 0:01:24.400 --> 0:01:27.080 out the economic impact and also the market impact. Mike, 0:01:27.120 --> 0:01:29.000 we gotta start with you because we haven't seen this 0:01:29.040 --> 0:01:32.000 type of global equity sell off in some time. You're right, 0:01:32.000 --> 0:01:34.040 it's looking like right now about the worst sell off 0:01:34.120 --> 0:01:36.920 since two thousand and eighteen. And what I wrote wrote 0:01:36.959 --> 0:01:39.800 about is how it's very much calling into question what 0:01:39.840 --> 0:01:42.880 was kind of the narrative behind this pole bowl market, 0:01:42.920 --> 0:01:45.480 which is the so called wall of were In other words, 0:01:45.680 --> 0:01:47.680 you know, we were hit with the European debt crisis, 0:01:47.720 --> 0:01:50.240 we were hit with the tensions with Iran, the the 0:01:50.400 --> 0:01:53.680 trade war, and investors really love these sort of little 0:01:53.760 --> 0:01:58.000 metaphors and cliches that that boiled down a complex market 0:01:58.040 --> 0:02:00.600 into a simple notion like, oh, it's timing a wall 0:02:00.640 --> 0:02:03.720 of worry, and it would be a dead cat bounce 0:02:03.920 --> 0:02:06.920 right right. I know you guys hear these metaphors every 0:02:07.000 --> 0:02:09.880 day to take the stairs up in the elevator down, 0:02:09.919 --> 0:02:13.079 and and they're all kind of applicable right now. But 0:02:13.280 --> 0:02:17.240 I think it's important, especially now because Robert Schiller's out 0:02:17.280 --> 0:02:20.440 with a book actually the magazine excerpted not too long ago, 0:02:20.600 --> 0:02:23.600 called Narrative Economics, and it's it's basically about the notion 0:02:23.600 --> 0:02:27.480 about how these little narratives and the metaphors, uh, sort 0:02:27.520 --> 0:02:29.959 of are more important than you think in sort of 0:02:30.720 --> 0:02:33.600 dictating where the economic trends, where the market trends go. 0:02:33.919 --> 0:02:36.359 And I wonder if we're at an inflection point right 0:02:36.360 --> 0:02:39.760 now where that wall of worry made everyone a little 0:02:39.800 --> 0:02:43.560 too complacent that the Federal Reserve other central banks were there, 0:02:43.919 --> 0:02:46.360 they had our back, uh, and that it was safe 0:02:46.400 --> 0:02:50.799 to keep buying despite the scary news. Now this epidemic 0:02:51.000 --> 0:02:53.640 is much different because it's not clear what really a 0:02:53.680 --> 0:02:57.040 central bank can do seem sort of counteract this both 0:02:57.200 --> 0:03:00.359 a demand shock and a supply shock. So it's it's 0:03:00.360 --> 0:03:02.400 one of those inflection points where I think a narrative 0:03:02.440 --> 0:03:05.000 that the market had rallied on for a long time 0:03:05.120 --> 0:03:07.640 is in jeopardy of just being going up and smoke. Well, 0:03:07.680 --> 0:03:10.440 because part of what everyone needs to figure out central 0:03:10.480 --> 0:03:14.160 bankers included, and investors Christina Lindblatt, is what is the 0:03:14.200 --> 0:03:16.560 economic impact here? How do you measure it? How do 0:03:16.560 --> 0:03:19.480 you assess it? Well? Economists are also looking for stories, 0:03:19.520 --> 0:03:22.280 are going back in history and looking for episodes like 0:03:22.400 --> 0:03:25.480 this that they could use to model what the global 0:03:25.560 --> 0:03:29.320 economic impact could be. So, you know, we had the 0:03:29.360 --> 0:03:31.919 Spanish flu that was obviously one of the worst episodes. 0:03:31.960 --> 0:03:35.120 Fifty million people I believed to have died. We had 0:03:35.400 --> 0:03:39.960 the swine flu, so right now the World Health Organization 0:03:40.040 --> 0:03:43.000 has stopped short of calling it a pandemic, but people, 0:03:43.120 --> 0:03:46.920 there are people out there modeling a result of a pandemic, 0:03:47.000 --> 0:03:49.680 and we've seen, for example, Oxford economics say that could 0:03:49.680 --> 0:03:53.240 be one trillion of global output wiped out from an 0:03:53.240 --> 0:03:55.440 event like that. Yeah, And I think it's interesting, especially 0:03:55.480 --> 0:03:57.320 when we talked about in some parts of the world 0:03:57.560 --> 0:04:00.560 there were economies that were struggling before the buyers right, 0:04:00.680 --> 0:04:03.120 and whether or not this really tips them into recession 0:04:03.320 --> 0:04:06.600 Italy certainly, and Italy could tip other countries in Europe 0:04:06.600 --> 0:04:09.280 into recession. And also, you know, we were starting to 0:04:09.320 --> 0:04:12.680 feel better about the global economy because Rexit was receding, 0:04:13.000 --> 0:04:15.480 the trade wars were receiving a bit, so that it 0:04:15.600 --> 0:04:18.359 was like the expectation as was going to be a 0:04:18.440 --> 0:04:21.520 year to rebuild, and that is now really off the table. Well, 0:04:21.560 --> 0:04:24.239 and Mike, obviously, the markets were paying very close attention 0:04:24.240 --> 0:04:26.640 this week to what the President had to say about that. 0:04:26.680 --> 0:04:30.280 We know the markets are always front of mine for him. 0:04:30.480 --> 0:04:34.120 Politics and governmental response, especially here in the US plays 0:04:34.200 --> 0:04:37.840 mightily into the market story here, right. And President Trump's 0:04:37.880 --> 0:04:40.640 his own narrative has has been very influential on the 0:04:40.680 --> 0:04:44.960 market since he was elected. Obviously, you know, he's very 0:04:45.040 --> 0:04:48.080 much a cheerleader for the stock market, for the economy. 0:04:48.120 --> 0:04:50.240 But this is a story that is kind of out 0:04:50.279 --> 0:04:52.560 of his control where he cannot. He's trying very hard 0:04:52.600 --> 0:04:55.599 to control the narrative around the market, trying to keep 0:04:55.640 --> 0:04:58.680 that confidence high, trying to get people not to panic, 0:04:58.720 --> 0:05:02.279 but it's one of these occasions where it's simply largely 0:05:02.279 --> 0:05:04.840 out of his control as far as how far this 0:05:04.920 --> 0:05:08.800 spreads UH, and you know, if we're really do for 0:05:09.000 --> 0:05:11.479 a China type of situation where we see quarantines in 0:05:11.520 --> 0:05:14.719 the US UH and and more quarantines in Europe, that 0:05:14.760 --> 0:05:17.800 will really just snuff out the economic growth that's so 0:05:17.800 --> 0:05:20.760 important for the stockmark. Well, I think such a narrative 0:05:20.800 --> 0:05:22.599 for a long time was everybody saying it's not gonna 0:05:22.600 --> 0:05:24.400 be such a big deal, certainly in developed markets, and 0:05:24.400 --> 0:05:26.080 we started to see that play out. In fact, it 0:05:26.120 --> 0:05:28.680 played out in the debates UH this week that we 0:05:28.720 --> 0:05:31.680 saw among the Democratic candidates. They brought that front and center, 0:05:31.720 --> 0:05:32.960 and I feel like all of a sudden it picked 0:05:33.000 --> 0:05:34.880 up a lot of momentum here in the United States 0:05:34.920 --> 0:05:37.360 and the impact absolutely absolutely know. For a long time 0:05:37.560 --> 0:05:40.840 it was interesting when the case the cases really we're 0:05:40.880 --> 0:05:43.839 swelling and getting very serious in China. You know, the 0:05:43.880 --> 0:05:47.560 whole market narrative was that, well, it's contained the China, UH, 0:05:47.600 --> 0:05:50.560 it's not going to make it here, and clearly obviously 0:05:50.600 --> 0:05:53.279 it's leaked out of China. UM. The issue in the 0:05:53.360 --> 0:05:55.760 United States now is I don't think there's a lot 0:05:55.760 --> 0:05:59.280 of confidence in what we know about the virus state. 0:05:59.520 --> 0:06:02.800 CDC hasn't really been testing that many people. We know, 0:06:02.839 --> 0:06:05.560 there's this one case in California that they call you know, 0:06:05.720 --> 0:06:08.560 spread through the community rather than someone that was brought 0:06:08.640 --> 0:06:11.200 back from from Asia. So there are a lot of 0:06:11.279 --> 0:06:13.400 uncertainty and a lot of sort of questioning of authority 0:06:13.600 --> 0:06:16.080 of what we're really dealing with right now. One last 0:06:16.120 --> 0:06:18.640 question just quickly, China. Though it feels like we're getting 0:06:18.680 --> 0:06:20.839 maybe some containment in terms of the cases, but the 0:06:20.839 --> 0:06:23.320 economic impact. Do we have a better feel on that, Christie, 0:06:23.400 --> 0:06:26.000 not really. I think the number of cases are slowing down, 0:06:26.040 --> 0:06:28.400 but there's a particular concern. You know, at a lot 0:06:28.440 --> 0:06:31.320 of large companies people have returned to work, but smaller 0:06:31.360 --> 0:06:34.400 and medium sized uh, you know, workers in some cases 0:06:34.440 --> 0:06:36.560 are stuck back home because they went home for the 0:06:36.560 --> 0:06:39.800 New New York holidays. That's Christina, Lynn lad and Mike 0:06:39.920 --> 0:06:43.920 Reagan giving us the coronavirus story really in two ways. Obviously, 0:06:44.000 --> 0:06:47.520 economists and investors and everyone else trying to figure it out. 0:06:47.560 --> 0:06:48.960 I feel like if there's a theme this week, it's 0:06:48.960 --> 0:06:52.080 about these stories, whether it's the virus, the market, so 0:06:52.120 --> 0:06:54.280 many other things, Hewlett Packard, It's all about kind of 0:06:54.360 --> 0:06:57.520 stories that aren't quite over yet, right and we're not 0:06:57.600 --> 0:07:00.040 quite sure about the ending there. So the week it 0:07:00.160 --> 0:07:02.400 off to a rocky start investors nervous over the spread 0:07:02.400 --> 0:07:04.680 of the coronavirus, and as more companies weighed in on 0:07:04.760 --> 0:07:09.039 the impact. Jason meantime, love this story. It's about a 0:07:09.320 --> 0:07:13.280 dingy corner of the Internet and a Reddit forum with 0:07:13.360 --> 0:07:16.840 nearly a million users that's apparently become pretty much a 0:07:16.880 --> 0:07:20.880 force in the stock market. Soaked in profanity and greed. 0:07:20.960 --> 0:07:24.400 It's my favorite phrase in the magazine this week, Luke 0:07:24.440 --> 0:07:27.000 Kawa wrote it. He joins us in New York City. 0:07:27.400 --> 0:07:31.600 This is quite a little place that maybe people don't 0:07:31.600 --> 0:07:34.440 know about, that has a huge amount of influence on 0:07:34.560 --> 0:07:37.280 individual stocks at times. Yeah, this has been one of 0:07:37.320 --> 0:07:41.480 the fun new developments to track in because for years 0:07:41.520 --> 0:07:43.880 we've talked about, like one, is the retail investor going 0:07:43.920 --> 0:07:46.360 to get involved with the bowl market? Uh, you know what, 0:07:46.440 --> 0:07:49.960 are we going to have that kind of late nineties 0:07:49.960 --> 0:07:53.200 type explosion in retail activity? And it didn't quite happen 0:07:53.200 --> 0:07:55.800 maybe the way we might expect, But it's really happening 0:07:55.800 --> 0:07:58.800 in the options market, and it's happening via a lot 0:07:58.840 --> 0:08:01.600 of the companies that how a high nominal share price, 0:08:01.680 --> 0:08:04.040 So you know, your Tesla is your Amazons of the world. 0:08:04.240 --> 0:08:07.760 Perhaps retail traders cannot actually afford to buy a single 0:08:07.840 --> 0:08:10.160 share of those names, but you can kind of buy 0:08:10.160 --> 0:08:13.040 options at pennies on the dollar and make these moonshot 0:08:13.080 --> 0:08:16.000 bets that increasingly we're paying off and spurring a lot 0:08:16.040 --> 0:08:19.360 of other recommendations for moons moonshot bets. Well, take a 0:08:19.360 --> 0:08:21.560 step back, tell us about this forum. It's on Reddit, 0:08:21.680 --> 0:08:24.000 so remind everybody what Reddit is and what the forum 0:08:24.040 --> 0:08:27.240 is specifically and what's being talked about. So Reddit's kind 0:08:27.240 --> 0:08:31.160 of your your your classic internet online forum. It's divided 0:08:31.200 --> 0:08:35.320 into approximately a zillion subreddits where you deal with you know, 0:08:35.360 --> 0:08:38.160 every subject it has, you know, uh subjects. For one 0:08:38.160 --> 0:08:41.200 of my favorites is the Spoiled Survivor. I gotta I 0:08:41.200 --> 0:08:43.120 gotta find out if there's any intel about how that 0:08:43.160 --> 0:08:45.720 season is going to go. A forum for everything, for everything, 0:08:45.800 --> 0:08:48.440 for everything. So they also have this forum called Wall 0:08:48.480 --> 0:08:51.600 Street Bets, and it differs from Our Investing, which is 0:08:51.600 --> 0:08:54.600 another subreddit, and that these people are not aiming to 0:08:54.640 --> 0:08:57.920 take it as seriously. It's just really for this kind 0:08:57.960 --> 0:09:01.560 of this wild card craze, the action this shoot by 0:09:01.600 --> 0:09:04.720 the hip type of opportunities they see trading, and you know, 0:09:04.760 --> 0:09:07.720 there's a lot of a lot of profanity, as Jason 0:09:07.720 --> 0:09:10.839 alluded to a lot of lud language. It's definitely not 0:09:11.160 --> 0:09:14.640 PG thirteen rated. We can't talk about exactly right, some 0:09:14.720 --> 0:09:17.559 of the vulcarity. Yeah, there's not a lot of screenshots 0:09:17.600 --> 0:09:19.520 I could be able to post, but there's also a 0:09:19.559 --> 0:09:23.280 lot of like very smart, intelligent commentary that does seep 0:09:23.280 --> 0:09:27.119 through the cracks. I guess, So, Luke, help us understand 0:09:27.200 --> 0:09:32.200 how this works with the use of options, because you 0:09:32.200 --> 0:09:33.840 have a nice line in the story. They just get 0:09:33.880 --> 0:09:36.880 they believe they've discovered a kind of perpetual motion machine 0:09:36.920 --> 0:09:39.760 in the interplay of stocks and options. You alluded to 0:09:39.800 --> 0:09:42.959 this with the price of stocks, But how does this work? 0:09:43.000 --> 0:09:47.199 Because people really are by all accounts making money doing this, 0:09:48.120 --> 0:09:49.959 So the the interesting way to look at it or 0:09:50.040 --> 0:09:53.640 what they appear to think they've discovered. And unfortunately this 0:09:53.679 --> 0:09:57.120 came from something I wrote earlier on Tesla options and 0:09:57.200 --> 0:09:59.840 just kind of the the dynamics is that if you want, 0:10:00.000 --> 0:10:03.160 you know, if you want a fresh call option, what 0:10:03.240 --> 0:10:04.760 you'll have to do is, you know, you buy it 0:10:04.920 --> 0:10:07.600 from a dealer, a dealer is not in the business 0:10:07.880 --> 0:10:10.960 of taking directional exposure. So as soon as the dealer 0:10:11.000 --> 0:10:13.560 writes that call, the dealer is taking the other side 0:10:13.559 --> 0:10:16.360 of your position. The dealer is the facto short tesla. 0:10:16.760 --> 0:10:18.959 So what the dealer needs to do is by the 0:10:18.960 --> 0:10:21.760 the delta equivalent to get into the Greeks. We won't 0:10:21.760 --> 0:10:24.520 go too far, but by the delta equivalent amount of 0:10:24.520 --> 0:10:27.520 stock that corresponds to your call purchase, to make sure 0:10:27.520 --> 0:10:29.720 they're neutral, to make sure that if the stock goes up, 0:10:29.880 --> 0:10:32.120 the dealers protected. But if the stock goes up, the 0:10:32.120 --> 0:10:34.760 dealer does have to buy a little more. And this 0:10:35.000 --> 0:10:37.840 kind of this managing of your delta hedge is the 0:10:37.880 --> 0:10:41.199 way in which this community saw themselves as always having 0:10:41.240 --> 0:10:43.199 a get out of jail free card, is always having 0:10:43.240 --> 0:10:45.200 the greater fool to come and step in. Like in 0:10:45.200 --> 0:10:47.480 the late nineties. You just have to imagine it was there, 0:10:47.679 --> 0:10:50.160 and now they've invented a mechanism by which you know 0:10:50.240 --> 0:10:52.720 this can actually happen as long as we have the 0:10:52.800 --> 0:10:55.680 courage of our convictions to buy as many call options 0:10:55.679 --> 0:10:59.120 as humanly possible, especially in smaller names names. A lot 0:10:59.120 --> 0:11:02.400 of short interests relatively a liquid names we're going to 0:11:02.400 --> 0:11:04.720 be able to kind of force this this gamma chase 0:11:04.840 --> 0:11:06.839 on the part of dealers. Let's be specific and give 0:11:06.840 --> 0:11:08.880 an example, like I think you've wrote a story that 0:11:08.960 --> 0:11:11.840 Virgin Galactic, for instance, really wasn't on anybody's radar until 0:11:11.880 --> 0:11:15.600 these guys started talking about it. Virgin Galactic a crazy story. 0:11:15.640 --> 0:11:18.240 I think the the best example though, out of the list, 0:11:18.520 --> 0:11:21.920 would probably be lumber liquidators. So that's, you know, that's 0:11:21.960 --> 0:11:24.400 not as much of a story stock that you can 0:11:24.440 --> 0:11:28.400 get behind as you know, electric cars or a space travel, 0:11:28.440 --> 0:11:32.200 space tourism. This is really really kind of plain fair. 0:11:32.640 --> 0:11:35.640 But what was discovered is that somebody on this message 0:11:35.640 --> 0:11:38.200 board who had not posted but had been a member 0:11:38.200 --> 0:11:42.520 for three years, laid out this very elaborate, lengthy at 0:11:42.600 --> 0:11:45.160 least I I can't go into the commentary and how 0:11:45.240 --> 0:11:47.880 good or not it was, but lengthy, long thesis for 0:11:47.960 --> 0:11:52.920 lumber liquidators. The next morning, call volumes and lumber liquidators. 0:11:53.000 --> 0:11:56.000 I think they were something like seventies seven times the 0:11:56.040 --> 0:12:00.640 twenty day average. This was the only source of anyone 0:12:00.720 --> 0:12:03.880 talking about lumber liquidators at all, and that user was 0:12:03.920 --> 0:12:08.200 subsequently banned from the subreddit because even Wall Street bets said, Hey, like, 0:12:08.559 --> 0:12:10.719 we have to police our turf here. We can't let 0:12:10.720 --> 0:12:13.000 this be a ground for pure kind of pump and 0:12:13.080 --> 0:12:15.920 dump type scheme. You know. One user lamented, I wish 0:12:15.920 --> 0:12:18.439 we could just go back to losing inordinate amounts of money, 0:12:18.520 --> 0:12:20.560 because that's what you know, that's the history of of 0:12:20.559 --> 0:12:22.720 what Wall Street Bets has generally done on all of 0:12:22.720 --> 0:12:25.720 these kind of crazy calls. So where does this go 0:12:25.840 --> 0:12:28.959 from here? Luke? I mean, is this something that ultimately 0:12:29.400 --> 0:12:33.240 the SEC takes an interest in that other market regulators 0:12:33.679 --> 0:12:37.320 may examine, or is this, ultimately, as you alluded to, 0:12:38.240 --> 0:12:40.400 going to have to be self policed as so much 0:12:40.520 --> 0:12:43.800 on Reddit is. I I could see a case for 0:12:43.960 --> 0:12:46.680 regulators maybe getting involved. I could see a case for 0:12:46.720 --> 0:12:50.280 regulators thinking this is too small ball truly get into. 0:12:50.440 --> 0:12:53.360 And you know, the the activity does appear to have 0:12:53.400 --> 0:12:57.000 been relatively coordinated. I'm not sure how much of a 0:12:57.000 --> 0:12:59.520 different settle make, but I think the stepping back the 0:12:59.520 --> 0:13:01.560 big picture where does this go from here? That we 0:13:01.559 --> 0:13:04.520 should care about is the amounting evidence that you know, 0:13:04.640 --> 0:13:07.400 this is no free lunch here. There is no perpetual 0:13:07.520 --> 0:13:10.400 money machine just because you have the courage of your 0:13:10.440 --> 0:13:13.439 convictions and are loading up on call options. That doesn't 0:13:13.440 --> 0:13:15.320 mean somebody else who's a heck of a lot bigger 0:13:15.440 --> 0:13:18.040 is taking the other side. And that doesn't mean something 0:13:18.120 --> 0:13:20.840 like escalating concerns over the coronavirus can come in and 0:13:20.880 --> 0:13:24.040 just completely flip the table on you. Just the idea 0:13:24.080 --> 0:13:26.920 that we've been learning over the past few sessions is that, 0:13:27.360 --> 0:13:30.800 you know, perhaps retail, although it's exerted immense power over 0:13:30.920 --> 0:13:34.320 parts of the market this uh this year, maybe isn't 0:13:34.320 --> 0:13:36.199 always the the end all be all well. And I 0:13:36.200 --> 0:13:38.560 think that's what's interesting, right, Whether what this says about 0:13:38.559 --> 0:13:40.760 we've been constantly talking about the retail investor coming back 0:13:40.800 --> 0:13:42.960 to the market. Is it a sign just like the 0:13:43.040 --> 0:13:45.760 day traders of the nineties and you know their chat 0:13:45.840 --> 0:13:48.720 rooms right and talking up trades. Is this a sign 0:13:48.760 --> 0:13:51.040 that the retail or individual investor is kind of coming 0:13:51.080 --> 0:13:54.000 back to the market most most certainly you see it 0:13:54.360 --> 0:13:57.079 a little bit on the on just the pure equity 0:13:57.120 --> 0:14:02.240 flow side. Julian Emmanuel's at bt I has said, you know, February, 0:14:02.360 --> 0:14:05.280 retail is back. I'm seeing it in the flows. Where 0:14:05.320 --> 0:14:07.880 you're seeing it much more though, is in the options market. 0:14:07.920 --> 0:14:09.800 And one way to look at this is the average 0:14:10.200 --> 0:14:12.960 size of an options trade has gone down to just 0:14:13.200 --> 0:14:16.679 six point seven contracts. It was about twice that just 0:14:16.720 --> 0:14:20.040 a few years ago, so pretty rapid shrinkage. That's Luke Howa, 0:14:20.120 --> 0:14:21.960 who follows the stock market for us. The story in 0:14:22.000 --> 0:14:24.680 the Finance section of the magazine. But it's fascinating. It 0:14:24.720 --> 0:14:26.920 really just take us back to the nineties when we 0:14:26.960 --> 0:14:29.560 had day traders and they could really create kind of 0:14:29.560 --> 0:14:32.040 a story or a narrative in the markets. And this 0:14:32.120 --> 0:14:34.840 is kind of version of it. Right. It's answers the 0:14:34.880 --> 0:14:38.160 question what happens when you know sort of weirdos in 0:14:38.240 --> 0:14:42.240 the stock market get onto Reddit and the answer is 0:14:42.560 --> 0:14:46.120 a little bit scary. Yeah, absolutely so. News this week 0:14:46.160 --> 0:14:49.000 about HP pledging to buy back about fifteen billion dollars 0:14:49.000 --> 0:14:52.160 worth of stock, why, we'll safe to say it made 0:14:52.160 --> 0:14:56.120 shareholders a lot happier and it could potentially help fend 0:14:56.160 --> 0:14:58.720 off a hostile takeover from Xerox. But there's so many 0:14:58.720 --> 0:15:01.360 moving parts to this. Writing about Xerox and the HP 0:15:01.440 --> 0:15:03.600 battle this week is Austin Carr. He joins us right 0:15:03.600 --> 0:15:05.000 here in New York. It is a bit of a 0:15:05.040 --> 0:15:07.760 battle and the story is still being written. Although you 0:15:07.800 --> 0:15:09.280 had to write about it kind of where we are 0:15:09.600 --> 0:15:12.040 so far this week? How did you approach it? Well, 0:15:12.080 --> 0:15:14.240 there was just so many moving pieces within the last 0:15:14.280 --> 0:15:17.360 couple of months. So Enrique Laura's who's the CEO of HP, 0:15:17.560 --> 0:15:20.960 only came in November to the role, but that seemed 0:15:21.000 --> 0:15:22.880 like ages ago because they had a thirty five billion 0:15:22.880 --> 0:15:25.760 dollar hostel take over a lot of pressure from shareholders 0:15:25.760 --> 0:15:29.160 and activist investors like Carl Icon, who owns a significant 0:15:29.160 --> 0:15:32.680 stake in HP, really pushing them to merge with Xerox, 0:15:32.720 --> 0:15:35.000 which is this photo copy or giant, a hundred and 0:15:35.040 --> 0:15:37.320 thirteen year old company, and HP has sort of been 0:15:37.360 --> 0:15:39.160 pushed up against the wall to say, what are we 0:15:39.160 --> 0:15:41.320 going to do to fend off this acquisition or merger 0:15:41.640 --> 0:15:43.960 and how can we just impress our shareholders enough to 0:15:43.960 --> 0:15:46.760 remain independent. It's such an interesting story, such a kind 0:15:46.800 --> 0:15:49.000 of I feel like old time historical battle because you've 0:15:49.040 --> 0:15:52.280 got kind of you know, corporate raider, activist Carl Icon, 0:15:52.360 --> 0:15:54.160 he owned shares of both. I think he owns more 0:15:54.160 --> 0:15:56.360 of Xerox right in terms of a position, he has 0:15:56.400 --> 0:15:58.280 been pushing to get something done and he doesn't really 0:15:58.320 --> 0:16:01.440 necessarily care of Xerox by is HP or HP by Xerox. 0:16:01.440 --> 0:16:03.520 It feels like that's correct. The one thing he has 0:16:03.560 --> 0:16:06.320 signaled is that he would prefer xerox is management to 0:16:06.320 --> 0:16:09.240 to keep managing the company if they did merge. But 0:16:09.320 --> 0:16:10.920 he just wants a merger. He thinks there's a lot 0:16:10.960 --> 0:16:13.480 of synergies. You know, when you hear the word synergies, 0:16:13.520 --> 0:16:16.840 it's probably bad. That just means cost efficiencies, layoffs, things 0:16:16.880 --> 0:16:19.280 like that. They want to find overlap and there are 0:16:19.360 --> 0:16:21.640 areas to be fair where it might make sense, where 0:16:21.640 --> 0:16:24.480 areas that Xerox is stronger in versus HP and vice versa. 0:16:24.760 --> 0:16:27.320 But overall HP is a massive player. You know, this 0:16:27.400 --> 0:16:30.800 is a guard sort of colossal giant compared to Xerox, 0:16:30.840 --> 0:16:33.200 which is very tiny. But these are arguably two of 0:16:33.200 --> 0:16:35.200 the biggest innovation labs of the twentieth century, and it's 0:16:35.240 --> 0:16:38.480 really interesting to see them fight over essentially printers today. 0:16:38.640 --> 0:16:40.200 That's what I want to talk about. One last thing though, 0:16:40.200 --> 0:16:42.000 in terms of the news this week, I mean HP, 0:16:42.240 --> 0:16:45.920 with announcing earnings, announcing that buy back, they did also 0:16:46.000 --> 0:16:48.440 kind of keep the door open that they're open to 0:16:48.520 --> 0:16:51.160 maybe doing some kind of deal. Correct, Yes, that that's correct. 0:16:51.200 --> 0:16:53.960 So HP, basically I wanted to walk a fine line. 0:16:54.000 --> 0:16:56.680 They as you mentioned, they announced fifteen billion dollars and 0:16:57.040 --> 0:16:59.800 buy backs over the course of three years. They promised 0:16:59.800 --> 0:17:02.520 to really ramp up cost savings. And then they also 0:17:02.600 --> 0:17:04.879 to you know, we're open to talking about Xerox. But 0:17:04.920 --> 0:17:07.000 on the earnings call and after when I talked to Enrique, 0:17:07.160 --> 0:17:09.360 they wouldn't go into specifics. They would just say, hey, 0:17:09.359 --> 0:17:11.120 we're open to it. But I think that's just because 0:17:11.119 --> 0:17:13.600 they want to remain flexible and case shareholders don't really 0:17:13.640 --> 0:17:15.680 like this plan or the market didn't respond to it. Well. 0:17:15.840 --> 0:17:18.920 These were companies that were revered, especially HP if I 0:17:18.920 --> 0:17:21.000 think about it, but Xerox too for their R and 0:17:21.080 --> 0:17:23.359 D and being kind of at, you know, the front 0:17:23.359 --> 0:17:25.879 wave when it came to technology. Absolutely. I mean, if 0:17:25.920 --> 0:17:28.280 you look around your office right now, or your phone 0:17:28.359 --> 0:17:31.840 or computer or whatever, most of those technology gadgets innovations 0:17:31.880 --> 0:17:34.359 probably started with with Hewlett Packard, which was found in 0:17:35.119 --> 0:17:37.760 n It was the first garage startup in Silicon Valley, 0:17:37.880 --> 0:17:40.280 as well as xerox Polo Altar Research Center which is 0:17:40.280 --> 0:17:42.359 known as Xerox Park, and that's where Bill Gates and 0:17:42.359 --> 0:17:45.560 Steve Jobs went to found the graphical universe UH user 0:17:45.600 --> 0:17:48.560 interface that ended up in Windows and Mac operating systems 0:17:48.560 --> 0:17:50.880 that sparked the PC revolution. And these were the two 0:17:50.920 --> 0:17:54.119 pioneering innovation labs of the twentieth century that you know, 0:17:54.200 --> 0:17:56.920 everything from from Google X to Amazon's Lab one to 0:17:57.080 --> 0:17:59.399 six is sort of modeled themselves after, as well as 0:17:59.440 --> 0:18:02.880 every girl startup in San Francisco. UM, so it's really 0:18:02.960 --> 0:18:05.480 fascinating to see them go from that to just over 0:18:05.520 --> 0:18:09.240 the past decade or two, really narrowly focused on photo copiers, 0:18:09.280 --> 0:18:11.639 printers as well as ink. That's really their lifeblood. Well, 0:18:11.680 --> 0:18:13.679 and what's funny, Austin is and you put some numbers 0:18:13.680 --> 0:18:16.320 to this, I mean, printing is still a big business. 0:18:16.320 --> 0:18:18.600 It's it's really insane. I mean, you know, I do 0:18:18.680 --> 0:18:20.840 work for a magazine, so we're glad print is still around. 0:18:20.880 --> 0:18:24.000 I print a ton of stuff to you. But I 0:18:24.119 --> 0:18:26.640 d C the research firm estivates there's about three point 0:18:26.640 --> 0:18:30.000 two trillion pages printed every year. So just think about 0:18:30.000 --> 0:18:32.080 how many printers that takes. Just think about how much 0:18:32.119 --> 0:18:34.400 ink that takes. And and that's really where these big 0:18:34.400 --> 0:18:37.040 profits fe I mean, if I'm sure you've had the 0:18:37.040 --> 0:18:40.199 experience of going to Staples, everyone is frustrated with that, 0:18:40.400 --> 0:18:42.320 but you also got to think these printers are super cheap. 0:18:42.359 --> 0:18:43.760 You can get like a really high end printer for 0:18:43.760 --> 0:18:47.840 about sixty bucks, but then you're gonna pay thirty bucks 0:18:47.880 --> 0:18:51.640 for cartridge every two hundred pages, depending if it's color 0:18:51.720 --> 0:18:54.240 or black. Uh. And that's where the HP makes a 0:18:54.359 --> 0:18:57.240 huge amount of its process. That the printer division actually 0:18:57.320 --> 0:19:00.800 represents sixty of its profits and brought in about twelve 0:19:00.840 --> 0:19:03.879 point nine billion dollars last year. A significant amount came 0:19:03.920 --> 0:19:06.639 from incntner of all things, not exactly the most forward 0:19:06.640 --> 0:19:08.360 thinking thing, which is really funny when you think about 0:19:08.359 --> 0:19:11.600 the split up when Meg Whitman split up HP Hewlett Packard, right, 0:19:11.640 --> 0:19:13.960 and there was kind of the old business, the printing business, 0:19:14.000 --> 0:19:16.120 which nobody thought was going to do well, and then 0:19:16.119 --> 0:19:19.040 it was kind of the forward looking business, right um, 0:19:19.160 --> 0:19:20.680