1 00:00:05,800 --> 00:00:08,719 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,280 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 7 00:00:32,360 --> 00:00:35,200 Speaker 1: Amazon wants the jet smarter, actually wants to jet smarter 8 00:00:35,360 --> 00:00:38,120 Speaker 1: and deliver your package is more quickly. Here to tell 9 00:00:38,200 --> 00:00:41,960 Speaker 1: us about Amazon's foray into the world of delivery directly 10 00:00:42,080 --> 00:00:44,760 Speaker 1: to the customer is our own Paul Sweeney. He is 11 00:00:44,760 --> 00:00:49,320 Speaker 1: the director of Research North America for Bloomberg Intelligence. And Paul, 12 00:00:49,520 --> 00:00:51,960 Speaker 1: does this mean that you can't get your brown boxes 13 00:00:52,040 --> 00:00:54,200 Speaker 1: fast enough that Amazon has to go out and have 14 00:00:54,280 --> 00:00:58,360 Speaker 1: its own planes deliver them directly to you? Yeah? It 15 00:00:58,360 --> 00:01:01,120 Speaker 1: certainly is, particularly around the holiday time when you know 16 00:01:01,120 --> 00:01:04,360 Speaker 1: they really their system really spaces capacity issues. So this 17 00:01:04,480 --> 00:01:07,120 Speaker 1: is just another example of um, you know, Amazon trying 18 00:01:07,160 --> 00:01:09,640 Speaker 1: to get more control over the logistics of its business, 19 00:01:10,120 --> 00:01:12,320 Speaker 1: uh in the delivery of its products, you know, trying 20 00:01:12,360 --> 00:01:15,920 Speaker 1: to get more products to consumers faster. So we see 21 00:01:15,959 --> 00:01:20,000 Speaker 1: them make significant investments in their distribution centers, their fulfillment centers, 22 00:01:20,200 --> 00:01:23,360 Speaker 1: and they're even getting into the transportation business, uh, you know, 23 00:01:23,360 --> 00:01:26,959 Speaker 1: potentially with trucks. They've actually leased a lot of planes 24 00:01:27,040 --> 00:01:31,080 Speaker 1: to compete with FedEx and ups and even cargo ships. 25 00:01:31,160 --> 00:01:34,520 Speaker 1: So Jeff Bezos is putting his money where his mouth is. Well, 26 00:01:34,800 --> 00:01:37,880 Speaker 1: can they really create a much more efficient system of 27 00:01:37,920 --> 00:01:41,600 Speaker 1: distribution than the FedEx is of the world, considering how 28 00:01:41,600 --> 00:01:43,360 Speaker 1: long they've been in the business and how much reach 29 00:01:43,440 --> 00:01:47,120 Speaker 1: they have. No, I don't think so. I think FedEx 30 00:01:47,160 --> 00:01:50,480 Speaker 1: and and ups will still be the backbone of the 31 00:01:50,480 --> 00:01:53,360 Speaker 1: delivery system of Amazon products. But you know, there's certain 32 00:01:53,360 --> 00:01:56,400 Speaker 1: times of the year in certain markets where I think 33 00:01:56,400 --> 00:01:59,040 Speaker 1: Amazon feels like they need a little bit more flexibility 34 00:01:59,080 --> 00:02:02,080 Speaker 1: than what the existing to distribution platform can provide them, 35 00:02:02,120 --> 00:02:03,960 Speaker 1: so to the extent that they can fill in some 36 00:02:04,040 --> 00:02:06,680 Speaker 1: of the cracks, um, you know, maybe provide a little 37 00:02:06,680 --> 00:02:10,520 Speaker 1: bit more flexibility, particularly during times of peak demand. UM, 38 00:02:10,600 --> 00:02:14,520 Speaker 1: whether that's in terms of transportation or warehousing or fulfillment UM. 39 00:02:14,720 --> 00:02:16,640 Speaker 1: I think Amazon is just trying to see if they 40 00:02:16,680 --> 00:02:19,679 Speaker 1: can supplement what's already in the marketplace. Hey, Paul, wonder 41 00:02:19,680 --> 00:02:21,920 Speaker 1: if you could tell people How does it work that 42 00:02:22,000 --> 00:02:25,280 Speaker 1: if you're a third party seller through Amazon and you 43 00:02:25,600 --> 00:02:30,920 Speaker 1: have Amazon store your products at their warehouse? What happens? 44 00:02:30,960 --> 00:02:34,400 Speaker 1: Explain how that relationship works and the connection between this 45 00:02:34,760 --> 00:02:39,400 Speaker 1: this initiative. Sure, so the fulfillment by Amazon or fba 46 00:02:39,600 --> 00:02:42,280 Speaker 1: is has actually become a huge business for Amazon. More 47 00:02:42,320 --> 00:02:44,400 Speaker 1: than half the products that they sell on Amazon dot 48 00:02:44,440 --> 00:02:48,600 Speaker 1: com or from third party providers where Amazon does all 49 00:02:48,639 --> 00:02:51,960 Speaker 1: the warehousing and distribution of those products. Uh. So you 50 00:02:52,000 --> 00:02:53,840 Speaker 1: may be going to l ob dot com, but a 51 00:02:53,840 --> 00:02:57,920 Speaker 1: lot of the logistics warehousing uh in this distribution of 52 00:02:57,919 --> 00:03:01,400 Speaker 1: the product is actually handled by Amazon for a fee 53 00:03:02,000 --> 00:03:05,560 Speaker 1: that gives Amazon a greater ability to to deliver more 54 00:03:05,639 --> 00:03:09,560 Speaker 1: products um faster Uh two more consumers. And that's kind 55 00:03:09,560 --> 00:03:12,160 Speaker 1: of you know, what has been their value proposition? Paul? 56 00:03:12,200 --> 00:03:15,799 Speaker 1: How much more is Amazon spending on shipping now than 57 00:03:15,880 --> 00:03:19,400 Speaker 1: say a few years ago as it tries to ramp 58 00:03:19,520 --> 00:03:25,919 Speaker 1: up its promises of one hour delivery or one day um, 59 00:03:26,120 --> 00:03:28,359 Speaker 1: a lot of money. Um. You know, every single four 60 00:03:28,600 --> 00:03:31,600 Speaker 1: we see this company, Yeah, every single quarter was either 61 00:03:31,720 --> 00:03:34,239 Speaker 1: company put up popline revenue growth, which is what the 62 00:03:34,280 --> 00:03:37,920 Speaker 1: investors are looking for north of um. Yet we see 63 00:03:37,960 --> 00:03:42,480 Speaker 1: the expenses for this company grow also North So where 64 00:03:42,480 --> 00:03:45,080 Speaker 1: are those investments going. Those investments are going, you know, 65 00:03:45,640 --> 00:03:47,560 Speaker 1: like we've seen over the last several years, two more 66 00:03:48,040 --> 00:03:52,640 Speaker 1: fulfillment centers, more warehouses, more trucks, more people again to 67 00:03:52,680 --> 00:03:56,040 Speaker 1: try to get the products closer to the end of market. Um, 68 00:03:56,040 --> 00:03:57,680 Speaker 1: and all that takes a lot of money. And Jeff 69 00:03:57,720 --> 00:03:59,920 Speaker 1: Bezos has you know, has the benefit in the mark 70 00:04:00,040 --> 00:04:03,280 Speaker 1: place where investments have given them a very long leash 71 00:04:03,360 --> 00:04:06,760 Speaker 1: to develop that business at the expensive near term profitability. 72 00:04:06,840 --> 00:04:08,880 Speaker 1: So uh, you know, I think we should expect to 73 00:04:08,880 --> 00:04:12,119 Speaker 1: see Amazon continue to make these kinds of investments, uh 74 00:04:12,120 --> 00:04:14,880 Speaker 1: in their business, um, you know, and you know, hopefully 75 00:04:14,880 --> 00:04:17,400 Speaker 1: profits will come down the line. Hey, Paul, I don't 76 00:04:17,400 --> 00:04:19,480 Speaker 1: want to be too simplistic about this, but would this 77 00:04:19,560 --> 00:04:23,560 Speaker 1: be positive for companies like Boeing and GE companies that 78 00:04:23,720 --> 00:04:27,320 Speaker 1: make aircraft? I mean, I remember last year, right, didn't Boeing, 79 00:04:27,560 --> 00:04:31,200 Speaker 1: Uh they agreed to operate an air cargo not Boeing, 80 00:04:31,200 --> 00:04:34,479 Speaker 1: I beg your pardon, the Air Transport Services Group. They 81 00:04:34,600 --> 00:04:38,200 Speaker 1: would did an air cargo deal with Amazon twenty Boeing 82 00:04:38,279 --> 00:04:41,360 Speaker 1: seven six seven freighter aircraft. This has gonna be good 83 00:04:41,400 --> 00:04:44,839 Speaker 1: for airlines pilots and everybody associated with the aerospace industry 84 00:04:44,920 --> 00:04:48,120 Speaker 1: or am I wrong? Uh? You you're right? Um. I 85 00:04:48,160 --> 00:04:51,480 Speaker 1: think as more and more product um, more and more 86 00:04:51,520 --> 00:04:55,000 Speaker 1: retail sales you know, are done online, that really puts 87 00:04:55,000 --> 00:04:57,039 Speaker 1: a lot of stress on the distribution system. You're not 88 00:04:57,080 --> 00:04:59,040 Speaker 1: just you know, going to the local mall and buying 89 00:04:59,040 --> 00:05:01,719 Speaker 1: your product. You're relying upon a global distribution system to 90 00:05:01,720 --> 00:05:04,160 Speaker 1: get it to you. And that includes aircraft. And so, 91 00:05:04,560 --> 00:05:06,920 Speaker 1: you know, George Ferguson, who covers the airline industry for US, 92 00:05:06,960 --> 00:05:08,680 Speaker 1: has been talking about some of the strength in the 93 00:05:08,800 --> 00:05:12,520 Speaker 1: aircraft leasing market as some of the you know, a 94 00:05:12,560 --> 00:05:15,880 Speaker 1: positive long term play, uh drive drivative play on the 95 00:05:15,920 --> 00:05:18,640 Speaker 1: growth of e commerce. Paul Sweeney, thank you so much 96 00:05:18,680 --> 00:05:20,840 Speaker 1: for joining us. We always love speaking with you. Paul 97 00:05:20,880 --> 00:05:37,520 Speaker 1: Sweeney is director of North American Research for Bloomberg Intelligence. Well, 98 00:05:37,560 --> 00:05:41,120 Speaker 1: the world's business jet fleet continued to grow last year. 99 00:05:41,120 --> 00:05:44,520 Speaker 1: In two thousand sixteen, it expanded by about two and 100 00:05:44,520 --> 00:05:47,680 Speaker 1: a half percent to more than twenty one thousand aircraft. 101 00:05:48,000 --> 00:05:49,960 Speaker 1: And here to tell us about the industry and some 102 00:05:50,080 --> 00:05:52,400 Speaker 1: of those twenty one jets is Brad Stewart. He's the 103 00:05:52,440 --> 00:05:56,120 Speaker 1: chief executive of exo jet. Brad, thanks for being with us. 104 00:05:56,320 --> 00:05:59,120 Speaker 1: Let's jump right in and tell us about the you know, 105 00:05:59,120 --> 00:06:02,240 Speaker 1: an exo jet and the aircraft market. Before we get 106 00:06:02,279 --> 00:06:03,839 Speaker 1: to the demand side, I want you to tell me 107 00:06:03,880 --> 00:06:06,800 Speaker 1: about the supply of jets and what you're seeing in 108 00:06:06,839 --> 00:06:10,599 Speaker 1: the industry overall. Well, great to be back with you, Pim. Uh, 109 00:06:10,720 --> 00:06:13,360 Speaker 1: you know, these are these are different questions that um, 110 00:06:14,400 --> 00:06:16,040 Speaker 1: you know, I think are long term trends that you've 111 00:06:16,080 --> 00:06:19,840 Speaker 1: seen really since the global financial crisis. Uh. Planes, as 112 00:06:19,880 --> 00:06:22,279 Speaker 1: you said, there's a lot of them. Uh, there's you know, 113 00:06:22,320 --> 00:06:26,480 Speaker 1: in my opinion, always been too many the O E MS, Bombardier, uh, 114 00:06:26,560 --> 00:06:30,000 Speaker 1: text drawn you know, you name it, continue to manufacture 115 00:06:30,040 --> 00:06:32,880 Speaker 1: planes and and that produces this this glut that exists. 116 00:06:33,279 --> 00:06:35,520 Speaker 1: What you've seen in the last six to twelve months, 117 00:06:35,520 --> 00:06:37,360 Speaker 1: that was a little bit of tightening and what they 118 00:06:37,360 --> 00:06:40,120 Speaker 1: call new inventory. So planes that are you know, three 119 00:06:40,120 --> 00:06:43,320 Speaker 1: to five years since make you're seeing a reduction in 120 00:06:43,360 --> 00:06:46,400 Speaker 1: the amount of airplanes there for sale. Therefore a little 121 00:06:46,400 --> 00:06:49,200 Speaker 1: bit of tightening in the in the price points, and overall, 122 00:06:49,240 --> 00:06:51,719 Speaker 1: I think you're seeing a drift towards a healthier supply 123 00:06:51,839 --> 00:06:54,640 Speaker 1: demand marketplace. But the long term trend of there being 124 00:06:54,640 --> 00:06:57,000 Speaker 1: too many airplanes out there for the level of demand, 125 00:06:57,720 --> 00:07:01,320 Speaker 1: both for full airplanes and for charter um continues. Let's 126 00:07:01,320 --> 00:07:05,120 Speaker 1: talk about the charter market from the demand side. I'm curious, 127 00:07:05,200 --> 00:07:09,600 Speaker 1: have you seen an uptick in wealthier individuals looking to 128 00:07:09,800 --> 00:07:12,240 Speaker 1: book private flights or or what sort of the trend 129 00:07:12,320 --> 00:07:15,560 Speaker 1: there no doubt and say what you will about you know, 130 00:07:15,640 --> 00:07:20,280 Speaker 1: the social impact of the wealthy getting wealthier, but um 131 00:07:20,440 --> 00:07:23,080 Speaker 1: as um as we've seen over the last couple of years, 132 00:07:23,520 --> 00:07:26,840 Speaker 1: demand for private aviation, the hours flow and the cycle's 133 00:07:26,840 --> 00:07:29,760 Speaker 1: phone is up two to three times GDP. So we're 134 00:07:29,760 --> 00:07:32,560 Speaker 1: seeing you know, five six seven percent, depending on how 135 00:07:32,600 --> 00:07:35,480 Speaker 1: you want to plice the marketplace. But there's no doubt 136 00:07:35,520 --> 00:07:40,520 Speaker 1: that consumption of and demand for private aviation is continuing 137 00:07:40,560 --> 00:07:43,040 Speaker 1: to grow at at a pretty sustained clip. Right. Can 138 00:07:43,080 --> 00:07:44,880 Speaker 1: you give us some sense, can you give some numbers 139 00:07:44,960 --> 00:07:48,320 Speaker 1: to this as far as the number of flights on 140 00:07:48,880 --> 00:07:53,520 Speaker 1: privately privately chartered UH aircraft or just a number of 141 00:07:53,520 --> 00:07:57,280 Speaker 1: people who normally do this. It's it's staggering actually when 142 00:07:57,320 --> 00:07:59,800 Speaker 1: when you step back, so we think in terms of hours, 143 00:07:59,840 --> 00:08:01,960 Speaker 1: we think that sort of accounts for you know, short 144 00:08:01,960 --> 00:08:06,600 Speaker 1: flights versus long flights. Last year, private aviation flew about 145 00:08:06,640 --> 00:08:10,400 Speaker 1: three million hours within North America. UM, and we're seeing 146 00:08:10,440 --> 00:08:12,400 Speaker 1: that that number up, you know, like I said, five 147 00:08:12,480 --> 00:08:15,000 Speaker 1: or six percent year on year. So it's a it's 148 00:08:15,040 --> 00:08:19,000 Speaker 1: a massive number at a wide swath of you know, 149 00:08:19,040 --> 00:08:21,480 Speaker 1: everything from turbo props at the very low end flying 150 00:08:21,520 --> 00:08:23,920 Speaker 1: you know, forty five minute to an hour flight up 151 00:08:23,920 --> 00:08:27,080 Speaker 1: to you know, your ultralong range G six fifty Global 152 00:08:27,120 --> 00:08:30,600 Speaker 1: Express to so you know, seven X type aircraft. UM. 153 00:08:30,680 --> 00:08:33,319 Speaker 1: But but a big market flying a lot of hours, 154 00:08:33,480 --> 00:08:36,400 Speaker 1: growing quickly. I was going to ask you which in 155 00:08:36,440 --> 00:08:38,360 Speaker 1: more demand, but I guess you're telling me that everything 156 00:08:38,400 --> 00:08:41,080 Speaker 1: from turbo prop, you've got the small cabin, mid size, 157 00:08:41,160 --> 00:08:44,280 Speaker 1: large cabin, they're all in demand. Well, there's a little 158 00:08:44,280 --> 00:08:46,920 Speaker 1: bit of an interesting kind of barbell seam that you're seeing. UM. 159 00:08:46,960 --> 00:08:49,520 Speaker 1: And I think the jet smarters of the world, our 160 00:08:49,600 --> 00:08:53,280 Speaker 1: partner wheels up at the low end, are driving significant 161 00:08:53,320 --> 00:08:55,839 Speaker 1: demand for the for the smaller cabin plane. And then 162 00:08:55,840 --> 00:09:00,640 Speaker 1: you're seeing the global fortune hundred, the wealthy, the global 163 00:09:00,679 --> 00:09:04,600 Speaker 1: elite really drifting towards this ultra long range large cabin. 164 00:09:04,720 --> 00:09:06,080 Speaker 1: So there's a little bit of a barbell in the 165 00:09:06,080 --> 00:09:08,800 Speaker 1: growth profile. The smaller planes in the in the much 166 00:09:08,880 --> 00:09:11,560 Speaker 1: larger private jets are the ones growing, not at the 167 00:09:11,600 --> 00:09:14,280 Speaker 1: expense of but you know, there's there's clearly a difference 168 00:09:14,320 --> 00:09:17,480 Speaker 1: between the midsize and super midsize. Yeah, there's there's there's 169 00:09:17,520 --> 00:09:20,520 Speaker 1: definitely a difference between the Dessault seven X yeah, and 170 00:09:20,559 --> 00:09:23,839 Speaker 1: maybe something else. Um, you know, Brad. One of the 171 00:09:23,920 --> 00:09:27,040 Speaker 1: questions it always comes up, I would imagine, is air 172 00:09:27,040 --> 00:09:29,840 Speaker 1: traffic control and the f a A and the effort 173 00:09:29,840 --> 00:09:34,080 Speaker 1: on behalf of the government perhaps to privatize, uh, the 174 00:09:34,160 --> 00:09:37,120 Speaker 1: air traffic control system. What have you heard and what 175 00:09:37,200 --> 00:09:39,880 Speaker 1: are you hearing? Yeah, there's a bunch of different themes 176 00:09:39,880 --> 00:09:41,640 Speaker 1: that go on within that. You know. The first is 177 00:09:41,679 --> 00:09:44,080 Speaker 1: that the technology. So I think most people who follow 178 00:09:44,160 --> 00:09:47,320 Speaker 1: the industry closely know that there's a there's a real 179 00:09:47,440 --> 00:09:51,480 Speaker 1: focus on modernizing the technology. So there's this requirement by 180 00:09:51,559 --> 00:09:54,160 Speaker 1: that all planes that are for for charter or higher 181 00:09:54,520 --> 00:09:57,280 Speaker 1: or on a d s B compliance. Um. So there's 182 00:09:57,480 --> 00:10:00,240 Speaker 1: the right actions are being taken. Um. Not going to 183 00:10:00,360 --> 00:10:03,160 Speaker 1: drift into the politics of whether, um, you know ATC 184 00:10:03,320 --> 00:10:06,520 Speaker 1: should be privatized or not. In my opinion, they're doing 185 00:10:06,559 --> 00:10:08,559 Speaker 1: a good job they're making the right steps. Is it 186 00:10:08,640 --> 00:10:11,280 Speaker 1: as quick as we'd all like? Um? You know, I 187 00:10:11,280 --> 00:10:14,360 Speaker 1: don't think it really ever is um? But but it's okay. 188 00:10:14,440 --> 00:10:17,680 Speaker 1: But Brad, there's a larger question here, which is traffic 189 00:10:17,679 --> 00:10:20,920 Speaker 1: in general can be really tough, especially at popular airports. 190 00:10:20,920 --> 00:10:23,560 Speaker 1: How do you get around that with chartered flights? Well, 191 00:10:23,559 --> 00:10:25,560 Speaker 1: I think this is one of the big benefits of 192 00:10:25,600 --> 00:10:29,040 Speaker 1: flying private. So um, you know, look at the major 193 00:10:29,080 --> 00:10:33,040 Speaker 1: markets the Try State and southern California. What you see 194 00:10:33,080 --> 00:10:36,640 Speaker 1: is most private aviation flights, the vast majority in fact, 195 00:10:36,760 --> 00:10:40,679 Speaker 1: or actually going into airports that are not either um 196 00:10:40,840 --> 00:10:43,840 Speaker 1: commercial at all or certainly not dominated by commercials. So 197 00:10:44,240 --> 00:10:47,160 Speaker 1: flying private actually works around that quite a bit. Um. 198 00:10:47,200 --> 00:10:48,920 Speaker 1: You know. Obviously there's a little bit of a hangover 199 00:10:48,960 --> 00:10:51,400 Speaker 1: effect when there's congestion at l A X or JFK, 200 00:10:51,880 --> 00:10:55,520 Speaker 1: but by and large private sort of circumvents that that 201 00:10:55,720 --> 00:10:58,800 Speaker 1: sort of pinch point, if you will, Thank you so 202 00:10:58,840 --> 00:11:02,360 Speaker 1: much for joining us. Brad's Stewart, chief executive officer of 203 00:11:02,679 --> 00:11:07,480 Speaker 1: XO Jet talking about chartered aircraft and pim Fox, let 204 00:11:07,559 --> 00:11:10,800 Speaker 1: me just tell you eight thousand five dollars an hour 205 00:11:10,960 --> 00:11:13,000 Speaker 1: for some of these of flights or a flight hour, 206 00:11:13,160 --> 00:11:15,880 Speaker 1: so not cheap. But evidently there are lots of people 207 00:11:15,920 --> 00:11:18,120 Speaker 1: willing to uh, willing to sell that out. But it 208 00:11:18,160 --> 00:11:21,080 Speaker 1: comes with pillows, blankets, and I think whatever you'd like 209 00:11:21,160 --> 00:11:23,199 Speaker 1: to eat. Yeah, I don't think that's the peel. I 210 00:11:23,240 --> 00:11:25,280 Speaker 1: mean yes, but I think that it's the idea of 211 00:11:25,320 --> 00:11:27,160 Speaker 1: not having to take your shoes off, and take your 212 00:11:27,240 --> 00:11:29,839 Speaker 1: jacket off, and and have somebody patch you up and 213 00:11:29,880 --> 00:11:32,720 Speaker 1: down and then still might be three hours late because 214 00:11:32,720 --> 00:11:47,160 Speaker 1: of a delay him. You know, there was a report 215 00:11:47,200 --> 00:11:49,840 Speaker 1: put out by JP Morgan that caught my attention. It 216 00:11:49,920 --> 00:11:54,160 Speaker 1: was by quantitative and derivative strategist Marco Kolonovic, and he 217 00:11:54,240 --> 00:11:58,240 Speaker 1: was saying that he is expecting a potential quote great 218 00:11:58,360 --> 00:12:02,760 Speaker 1: liquidity crisis when the central banks start withdrawing cash from 219 00:12:02,800 --> 00:12:06,000 Speaker 1: the system, shrinking their balance sheets, possibly as soon as 220 00:12:06,040 --> 00:12:09,200 Speaker 1: early next year or later this year. This will lead 221 00:12:09,280 --> 00:12:14,520 Speaker 1: off a substantial crisis in markets. And here to weigh 222 00:12:14,559 --> 00:12:17,440 Speaker 1: in on that as Bruce Biddles, his chief investment strategist 223 00:12:17,720 --> 00:12:21,560 Speaker 1: at BAIRED and he joins us from the lovely Sarasota, Florida. Bruce, 224 00:12:21,679 --> 00:12:23,560 Speaker 1: thank you so much for joining us. Do you agree 225 00:12:24,360 --> 00:12:27,440 Speaker 1: with this assessment that there is the potential for a 226 00:12:27,559 --> 00:12:31,360 Speaker 1: quote great liquidity crisis. Well, I'm not so sure I 227 00:12:31,360 --> 00:12:33,480 Speaker 1: would use the term great, but I certainly could see 228 00:12:33,520 --> 00:12:38,319 Speaker 1: a liquidity problem um eight or nine years ago when 229 00:12:38,360 --> 00:12:41,320 Speaker 1: the when the central banks began quantitative using, they were 230 00:12:41,320 --> 00:12:45,760 Speaker 1: adding liquidity to the system. Now the US and Canada 231 00:12:45,800 --> 00:12:48,199 Speaker 1: both have withdrawn from that, So now there's a slight 232 00:12:48,280 --> 00:12:50,920 Speaker 1: tightening there. But if you look at what's going on 233 00:12:50,960 --> 00:12:54,720 Speaker 1: in Europe and Japan and elsewhere quantitative using, he is 234 00:12:54,720 --> 00:12:59,080 Speaker 1: still robust and adding liquidity and very large amounts to 235 00:12:59,120 --> 00:13:01,640 Speaker 1: the system. And a lot of that liquidity that has 236 00:13:01,720 --> 00:13:05,320 Speaker 1: generated overseas find its way into our markets as well. 237 00:13:05,440 --> 00:13:07,880 Speaker 1: So at this point I don't see a problem. Now. 238 00:13:08,440 --> 00:13:11,679 Speaker 1: With that said, if the European central banks all of 239 00:13:11,720 --> 00:13:16,240 Speaker 1: a sudden realize that their economies are surging and inflation 240 00:13:16,320 --> 00:13:21,160 Speaker 1: is beginning to resurface, and they begin to cut back, 241 00:13:21,280 --> 00:13:23,520 Speaker 1: then I can see certainly where the markets could be 242 00:13:23,520 --> 00:13:27,360 Speaker 1: in jeopardy because quantitative easing in zero percent indust rates 243 00:13:27,400 --> 00:13:29,880 Speaker 1: have been a very very strong support for the market 244 00:13:30,559 --> 00:13:34,040 Speaker 1: throughout most of this pollmarket. Do you believe, Bruce, that 245 00:13:34,160 --> 00:13:38,680 Speaker 1: if indeed that accommodation is withdrawn, that corporate earnings are 246 00:13:38,720 --> 00:13:43,880 Speaker 1: going to more clearly drive asset prices. Well, there's there's 247 00:13:43,920 --> 00:13:46,760 Speaker 1: no question about that. I think that's almost by necessity 248 00:13:46,800 --> 00:13:49,840 Speaker 1: giving the evaluations we're seeing in this market, I mean 249 00:13:49,880 --> 00:13:53,200 Speaker 1: evaluations today or as so as we've seen in oh 250 00:13:53,320 --> 00:13:56,440 Speaker 1: in two thousand, two thousand and seven. I mean, they're 251 00:13:56,440 --> 00:13:59,839 Speaker 1: really stretched here. So it's going to be um up 252 00:13:59,840 --> 00:14:03,240 Speaker 1: to corporate earnings to close that gap. Now. I think 253 00:14:03,240 --> 00:14:07,120 Speaker 1: that why the markets are acting so so so powerful 254 00:14:07,240 --> 00:14:10,520 Speaker 1: right here in the past month or so is because 255 00:14:10,559 --> 00:14:14,400 Speaker 1: the economy is stronger than most economists believe. You can 256 00:14:14,400 --> 00:14:17,280 Speaker 1: look at the I s M numbers today, the non 257 00:14:17,280 --> 00:14:21,000 Speaker 1: manufacturing numbers the best is two thousand and four or five. 258 00:14:21,600 --> 00:14:24,960 Speaker 1: The manufacturing I s M number the best two thousand 259 00:14:25,800 --> 00:14:29,960 Speaker 1: four or five as well, and um and that's before 260 00:14:30,040 --> 00:14:33,280 Speaker 1: you get the potential for a tax um cut here, 261 00:14:33,880 --> 00:14:37,600 Speaker 1: which would spur the economy even further. So the markets 262 00:14:37,600 --> 00:14:41,600 Speaker 1: are really I would say, depending greatly corporation, you're coming 263 00:14:41,640 --> 00:14:46,000 Speaker 1: through in the next UM year certainly given these evaluations, 264 00:14:46,000 --> 00:14:48,520 Speaker 1: and I think given the economy and what we're seeing 265 00:14:48,520 --> 00:14:51,440 Speaker 1: in terms of inflation now we're starting to see some 266 00:14:51,520 --> 00:14:56,680 Speaker 1: pickup in pricing pressures. So if if these corporations can 267 00:14:56,960 --> 00:15:01,440 Speaker 1: can indeed raise prices, and we saw that today with Netflix, 268 00:15:01,880 --> 00:15:05,560 Speaker 1: if they can indeed raise prices and maintain or increase 269 00:15:05,680 --> 00:15:09,000 Speaker 1: their top line growth, then you're looking at a very 270 00:15:09,080 --> 00:15:13,560 Speaker 1: very strong bottom line growth potential. Bruce, are you thinking 271 00:15:13,560 --> 00:15:15,720 Speaker 1: in line with many others out there that in this 272 00:15:15,840 --> 00:15:22,560 Speaker 1: environment US stocks? Good bet. Yeah. I've been a proponent 273 00:15:22,600 --> 00:15:24,880 Speaker 1: of the US market now for quite a while. I 274 00:15:24,920 --> 00:15:27,480 Speaker 1: know the European markets and some others are out performing 275 00:15:27,480 --> 00:15:31,560 Speaker 1: this year, but that's been the exception for the past 276 00:15:31,600 --> 00:15:34,520 Speaker 1: five six years. The US markets have out performed everybody, 277 00:15:34,560 --> 00:15:36,880 Speaker 1: and I think it at the end of the day 278 00:15:36,880 --> 00:15:39,680 Speaker 1: that's going to continue. So, Bruce, is the best way 279 00:15:39,680 --> 00:15:43,880 Speaker 1: to get exposure through a broad index fund of US 280 00:15:43,960 --> 00:15:48,040 Speaker 1: stocks like SP five hundred, tracker nasdac UH and just 281 00:15:48,120 --> 00:15:52,360 Speaker 1: go through it that way? Or is this more selective time? 282 00:15:52,960 --> 00:15:56,840 Speaker 1: I think it's a more selective time. If the market 283 00:15:56,880 --> 00:16:01,120 Speaker 1: is being driven by um stronger economic growth, then you 284 00:16:01,200 --> 00:16:03,400 Speaker 1: want to be in those sectors that are that will 285 00:16:03,520 --> 00:16:06,400 Speaker 1: that will benefit the most, and of course they would 286 00:16:06,440 --> 00:16:10,440 Speaker 1: be the material sector, the industrial sector, and if interest 287 00:16:10,480 --> 00:16:11,840 Speaker 1: rates are going to go up, and be in the 288 00:16:11,920 --> 00:16:14,560 Speaker 1: financials as well. And if you look at the last 289 00:16:14,560 --> 00:16:18,080 Speaker 1: six months, the leading sectors in the market have been 290 00:16:18,120 --> 00:16:23,360 Speaker 1: those that are closely tied to the economy. Bruce, you know, 291 00:16:23,400 --> 00:16:25,160 Speaker 1: I know that you are a veteran of the industry. 292 00:16:25,160 --> 00:16:29,320 Speaker 1: You worked at J C. Bradford, also at Thomas Haven 293 00:16:29,720 --> 00:16:36,000 Speaker 1: Bots treating options. In your experience, what advice or guidance 294 00:16:36,040 --> 00:16:40,120 Speaker 1: would you give people to separate the news, however awful 295 00:16:40,240 --> 00:16:43,720 Speaker 1: or terrible, or catastrophic or upsetting it might be, from 296 00:16:43,800 --> 00:16:49,080 Speaker 1: what actually drives asset values. Well, UM, money is a 297 00:16:49,120 --> 00:16:52,560 Speaker 1: lifeblood of Wall Street, and that's what eventually drives the markets. 298 00:16:52,640 --> 00:16:55,360 Speaker 1: It's a supplied demand situation, the same it would be 299 00:16:55,840 --> 00:16:59,400 Speaker 1: in business and UM with all little liquidity that the 300 00:16:59,400 --> 00:17:02,760 Speaker 1: Central Bank have added over the years, UM certainly there's 301 00:17:02,800 --> 00:17:07,119 Speaker 1: been a lot of demand side build up and also 302 00:17:07,480 --> 00:17:09,800 Speaker 1: a lot of domain has come from corporate buy backs 303 00:17:09,800 --> 00:17:12,919 Speaker 1: the last five or six seven years. And if the 304 00:17:13,000 --> 00:17:15,600 Speaker 1: tech proposal is going to get to go through this 305 00:17:15,680 --> 00:17:18,440 Speaker 1: year or early next year, and we're going to bring 306 00:17:18,520 --> 00:17:20,960 Speaker 1: back two or two and a half trillion dollars, some 307 00:17:21,080 --> 00:17:22,680 Speaker 1: of that money is going to find its way into 308 00:17:22,680 --> 00:17:26,720 Speaker 1: buy backs again. So with that in mind, I think 309 00:17:26,760 --> 00:17:30,119 Speaker 1: you maintain your asset allocation where it is despite these 310 00:17:30,200 --> 00:17:33,040 Speaker 1: high valuations. So Bruce, when you come into the office 311 00:17:33,040 --> 00:17:36,160 Speaker 1: every day in a period like this, we're seeing such 312 00:17:36,240 --> 00:17:41,720 Speaker 1: low volatility and such low movements, small movements in markets broadly. 313 00:17:42,040 --> 00:17:45,720 Speaker 1: What are the first five things you look at? Well, 314 00:17:46,400 --> 00:17:49,679 Speaker 1: two things I think the most important for the market. 315 00:17:51,040 --> 00:17:53,959 Speaker 1: One on a particularly short term basis, and that is 316 00:17:54,000 --> 00:17:58,600 Speaker 1: the markets typically don't get into trouble unless investors become 317 00:17:58,880 --> 00:18:03,560 Speaker 1: extremely optimate stick and um. In this ball market since 318 00:18:03,600 --> 00:18:07,320 Speaker 1: two thousand and nine, I mean, optimism has come in 319 00:18:07,359 --> 00:18:10,479 Speaker 1: from time to time, but it's never been widespread or 320 00:18:10,520 --> 00:18:13,359 Speaker 1: deep deeply seated. As soon as the market pulls back 321 00:18:13,359 --> 00:18:16,080 Speaker 1: for a couple of days, all of a sudden, sentiment 322 00:18:16,160 --> 00:18:21,040 Speaker 1: returns to uh. There's skepticism around right pessimism. What I'm 323 00:18:21,040 --> 00:18:23,359 Speaker 1: looking for here is if we're going to see a 324 00:18:23,440 --> 00:18:26,080 Speaker 1: top in the market anytime soon, and a lot of 325 00:18:26,080 --> 00:18:29,200 Speaker 1: folks are pointing to two thousand and eighteen, is being 326 00:18:29,920 --> 00:18:34,719 Speaker 1: um potentially problematic. We look for either sentiment to become 327 00:18:34,760 --> 00:18:40,880 Speaker 1: excessively bullish or to interest rates the rise significantly. And 328 00:18:40,880 --> 00:18:43,959 Speaker 1: and so those are the two things I'm watching, particularly 329 00:18:44,080 --> 00:18:47,320 Speaker 1: rates now because for the first time we're starting to 330 00:18:47,320 --> 00:18:50,480 Speaker 1: see some pricing pressures. The bond market is starting to 331 00:18:50,520 --> 00:18:53,000 Speaker 1: react to that a little bit. But I think if 332 00:18:53,040 --> 00:18:55,480 Speaker 1: the ten uere yield got above three percent, I think 333 00:18:55,520 --> 00:18:58,960 Speaker 1: that would be a big negative for the markets. Above 334 00:18:59,000 --> 00:19:02,920 Speaker 1: three above three sent yes, No, And you do believe 335 00:19:02,920 --> 00:19:05,800 Speaker 1: that the markets already priced in this tax reform or 336 00:19:05,920 --> 00:19:09,400 Speaker 1: tax cut because it continues to go up every day. 337 00:19:09,480 --> 00:19:13,600 Speaker 1: So I mean it's getting priced in, and probably when 338 00:19:13,640 --> 00:19:16,920 Speaker 1: it when it's finally passed, it will be fully priced in. 339 00:19:16,960 --> 00:19:19,680 Speaker 1: And I wouldn't be surprised if the markets reacted negatively. 340 00:19:19,720 --> 00:19:21,600 Speaker 1: Then all right, I want to thank you very much 341 00:19:21,600 --> 00:19:25,000 Speaker 1: for joining us. Bruce Biddles is the chief investment strategist 342 00:19:25,320 --> 00:19:39,639 Speaker 1: for Bear. Right now, I want to turn our attention 343 00:19:39,680 --> 00:19:42,600 Speaker 1: to Facebook. There have been a lot of pretty scathing 344 00:19:42,840 --> 00:19:47,320 Speaker 1: comments made about the company by congressmen and others, particularly 345 00:19:47,400 --> 00:19:51,480 Speaker 1: about its lack of regulating some of the Russia linked 346 00:19:51,560 --> 00:19:57,000 Speaker 1: advertisements that targeted a wide variety of different people leading 347 00:19:57,080 --> 00:20:00,720 Speaker 1: up to the October US November you a selection. I 348 00:20:00,760 --> 00:20:02,960 Speaker 1: want to bring a David Garritty, CEO of g v 349 00:20:03,160 --> 00:20:06,359 Speaker 1: A Research, to talk about what the implications are for 350 00:20:06,480 --> 00:20:10,560 Speaker 1: Facebook going forward if they are regulated more tightly. This 351 00:20:10,640 --> 00:20:14,000 Speaker 1: is going to be really expensive, won't it. Well. Certainly, 352 00:20:14,119 --> 00:20:16,560 Speaker 1: Facebook as a company has tried to focus on having 353 00:20:16,600 --> 00:20:20,879 Speaker 1: a very lean model, very much depending upon software algorithms 354 00:20:21,240 --> 00:20:24,280 Speaker 1: in terms of managing its platform, and what's being called 355 00:20:24,320 --> 00:20:27,080 Speaker 1: for here is for Facebook really to put in place 356 00:20:27,160 --> 00:20:30,600 Speaker 1: more of a human element so as to effectively review 357 00:20:30,760 --> 00:20:34,280 Speaker 1: and curate content that's actually going on to its site. 358 00:20:34,760 --> 00:20:37,520 Speaker 1: So from that standpoint, the human costs of running this 359 00:20:37,560 --> 00:20:40,639 Speaker 1: business arguably are going to be going up. Certainly, they 360 00:20:40,640 --> 00:20:44,399 Speaker 1: don't necessarily process information as fast as Facebook might like, 361 00:20:44,520 --> 00:20:46,960 Speaker 1: so it might slow things down from the standpoint of 362 00:20:47,000 --> 00:20:50,840 Speaker 1: a user experience. But relative to the issue of interference 363 00:20:50,960 --> 00:20:54,720 Speaker 1: in political campaigns, I mean, this is a necessary step. Well, David, 364 00:20:54,720 --> 00:20:58,440 Speaker 1: you think it's going to be successful, Uh, that remains 365 00:20:58,480 --> 00:21:00,399 Speaker 1: to be seen. I think that we're in a situation 366 00:21:00,560 --> 00:21:02,560 Speaker 1: here where, you know, Facebook obviously has grown to be 367 00:21:02,600 --> 00:21:06,000 Speaker 1: a platform where you've got two billion average monthly users 368 00:21:06,040 --> 00:21:08,520 Speaker 1: on it um. You know, is this a platform that's 369 00:21:08,520 --> 00:21:11,840 Speaker 1: potentially grown out of the ability of management to control 370 00:21:11,920 --> 00:21:15,479 Speaker 1: it um, you know, away from issues of just you know, 371 00:21:15,480 --> 00:21:18,480 Speaker 1: bringing more people on board to review and control. I mean, 372 00:21:18,520 --> 00:21:20,480 Speaker 1: that doesn't seem realistic, does it? I mean, come on, 373 00:21:20,480 --> 00:21:22,680 Speaker 1: you're gonna get human beings to review all the stuff 374 00:21:22,720 --> 00:21:24,960 Speaker 1: that's on the Internet, because it's not just Facebook, you 375 00:21:25,000 --> 00:21:28,160 Speaker 1: know that, it's also Google, it's any social media site. 376 00:21:28,160 --> 00:21:31,760 Speaker 1: Because once they start to aggregate the information, it's incredibly 377 00:21:31,800 --> 00:21:33,879 Speaker 1: difficult to figure out where it goes, and no one 378 00:21:34,040 --> 00:21:36,359 Speaker 1: is able to even figure out whether the information is 379 00:21:36,440 --> 00:21:39,680 Speaker 1: accurate or not. Well, I mean, certainly that's you know, 380 00:21:39,800 --> 00:21:41,840 Speaker 1: these are all very legitimate points, and the question is, 381 00:21:41,880 --> 00:21:44,400 Speaker 1: you know, can we develop technology tools to assist these 382 00:21:44,440 --> 00:21:48,520 Speaker 1: people to essentially move along and have greater accuracy at 383 00:21:48,560 --> 00:21:50,720 Speaker 1: a faster rate of speed. There are other issues to 384 00:21:50,760 --> 00:21:53,639 Speaker 1: look at for Facebook away from just the issue of 385 00:21:53,680 --> 00:21:57,800 Speaker 1: the election interference in the Senate and House Intelligence Committee activities. 386 00:21:58,000 --> 00:22:02,040 Speaker 1: We've also had movement taking place in Congress with regards 387 00:22:02,080 --> 00:22:06,520 Speaker 1: to prosecution for sex crimes or providing information to support 388 00:22:06,560 --> 00:22:09,399 Speaker 1: sex trafficking. There is a movement in Congress to allow 389 00:22:09,440 --> 00:22:12,480 Speaker 1: a law wherein state attorney generals and district attorneys would 390 00:22:12,480 --> 00:22:15,120 Speaker 1: have the ability to sue Facebook as well as other 391 00:22:15,160 --> 00:22:19,120 Speaker 1: Internet companies, other social media companies. Obviously, this is something 392 00:22:19,160 --> 00:22:22,800 Speaker 1: that raises a significant litigation risk for the company. So 393 00:22:22,880 --> 00:22:25,159 Speaker 1: we're not only looking here at an issue where we 394 00:22:25,240 --> 00:22:27,640 Speaker 1: need to put more human elements in place, but some 395 00:22:27,720 --> 00:22:31,959 Speaker 1: of the litigation risk profile around Facebook maybe materially changing 396 00:22:31,960 --> 00:22:36,000 Speaker 1: as well. David, Are any of these risks to Facebook's 397 00:22:36,200 --> 00:22:39,359 Speaker 1: fundamental business model? Are any of them being priced into 398 00:22:39,400 --> 00:22:43,040 Speaker 1: its stock price? I think we're still in a situation 399 00:22:43,119 --> 00:22:44,920 Speaker 1: right now, getting into the fourth quarter of the year 400 00:22:44,920 --> 00:22:46,960 Speaker 1: where you know, you've had a very solid performance out 401 00:22:46,960 --> 00:22:48,960 Speaker 1: of what people have been calling the fang stocks, of 402 00:22:49,000 --> 00:22:52,359 Speaker 1: which Facebook clearly is the first. And from that standpoint, 403 00:22:52,920 --> 00:22:54,479 Speaker 1: maybe if we see a sell off here, it may 404 00:22:54,480 --> 00:22:56,080 Speaker 1: not happen until the end of the year. But I 405 00:22:56,080 --> 00:22:57,960 Speaker 1: think right now we're seasonally at a point in time 406 00:22:58,000 --> 00:23:01,159 Speaker 1: where portfolio managers are very much you know, inclined to 407 00:23:01,160 --> 00:23:04,280 Speaker 1: continue favoring their winners, and Facebook so far this year 408 00:23:04,320 --> 00:23:05,880 Speaker 1: has been a winner. So I think if there's any 409 00:23:05,880 --> 00:23:09,080 Speaker 1: precipitous fall off, we may not necessarily see it immediately, 410 00:23:09,240 --> 00:23:11,080 Speaker 1: but we need to set ourselves up to think about 411 00:23:11,080 --> 00:23:13,720 Speaker 1: what's going to happen in the first quarter of well. 412 00:23:13,760 --> 00:23:15,920 Speaker 1: I mean, because David, I'm thinking about it from from 413 00:23:15,920 --> 00:23:19,359 Speaker 1: one perspective. Yes, we can't really oversee everything that goes 414 00:23:19,440 --> 00:23:22,960 Speaker 1: on the Internet. But Facebook could have given a better 415 00:23:23,000 --> 00:23:28,520 Speaker 1: disclosure about which, uh funding sources were behind different advertisements, right, 416 00:23:28,520 --> 00:23:30,280 Speaker 1: I mean, that's been sort of the proposal that's put 417 00:23:30,320 --> 00:23:34,280 Speaker 1: out there. That is expensive, and that would also raise 418 00:23:34,400 --> 00:23:38,320 Speaker 1: questions about the efficacy of the ads in that given 419 00:23:38,480 --> 00:23:42,400 Speaker 1: that framework. Meanwhile, litigation risk is is massive and compliance 420 00:23:42,440 --> 00:23:44,360 Speaker 1: officers required with that. I mean, it seems like those 421 00:23:44,400 --> 00:23:47,760 Speaker 1: are real imminent risks. They are eminent risks, but they 422 00:23:47,760 --> 00:23:50,159 Speaker 1: do depend upon how quickly you know, Congress is going 423 00:23:50,200 --> 00:23:52,560 Speaker 1: to be acting, and as we know, Congress doesn't necessarily 424 00:23:52,600 --> 00:23:55,439 Speaker 1: move all that quickly. Uh, these things take time. But 425 00:23:55,840 --> 00:23:59,080 Speaker 1: hence the point. I would also say that look forward 426 00:23:59,119 --> 00:24:02,400 Speaker 1: more towards the first quarter of you know, these are 427 00:24:02,800 --> 00:24:07,760 Speaker 1: discussions that are unfolding now how this is implemented into regulation, 428 00:24:08,080 --> 00:24:11,879 Speaker 1: into possibly new legislation. That'll take time. So we have 429 00:24:11,920 --> 00:24:14,359 Speaker 1: to keep a very close sign what's taking place on 430 00:24:14,560 --> 00:24:17,119 Speaker 1: Capitol Hill as far as what the risks are for 431 00:24:17,359 --> 00:24:20,480 Speaker 1: Facebook stock in the first half of next year. All right, well, 432 00:24:20,520 --> 00:24:22,520 Speaker 1: let's look at some of the risks, because you know, 433 00:24:22,960 --> 00:24:26,880 Speaker 1: November first, we're all going to be watching hearings because Google, Twitter, Facebook, 434 00:24:26,920 --> 00:24:28,880 Speaker 1: they've all said that They're going to be appearing at 435 00:24:28,880 --> 00:24:32,880 Speaker 1: a public hearing UH in Washington to address these very issues. 436 00:24:33,440 --> 00:24:37,000 Speaker 1: What would do be the stock valuation of let's say Facebook, 437 00:24:37,000 --> 00:24:40,520 Speaker 1: if it was in some way a regulated utility or 438 00:24:40,640 --> 00:24:42,679 Speaker 1: was considered a public utility. I mean, it would be 439 00:24:42,680 --> 00:24:45,520 Speaker 1: a very profitable utility. Twelve and a half more than 440 00:24:45,600 --> 00:24:49,679 Speaker 1: twelve and a half billion in annual profits on you know, 441 00:24:49,720 --> 00:24:52,280 Speaker 1: just north of thirty three billion dollars of sales. That's 442 00:24:52,280 --> 00:24:55,800 Speaker 1: a pretty good number, no, without a doubt. But the 443 00:24:55,840 --> 00:24:57,480 Speaker 1: issue you have to look at here is it would 444 00:24:57,480 --> 00:25:00,000 Speaker 1: be not just a regulated utility in the United States, 445 00:25:00,000 --> 00:25:02,399 Speaker 1: it also on all the other markets where it's operating. 446 00:25:02,800 --> 00:25:06,120 Speaker 1: So from that standpoint, you're looking compliance costs which are 447 00:25:06,160 --> 00:25:12,240 Speaker 1: going to be unfolded across its global operations. And you know, arguably, 448 00:25:12,640 --> 00:25:14,560 Speaker 1: is it going to serve to slow the growth rate 449 00:25:15,080 --> 00:25:19,240 Speaker 1: for Google? I mean for Facebook, Um, that may that 450 00:25:19,400 --> 00:25:21,439 Speaker 1: may actually happen, but I think it's certainly going to 451 00:25:21,480 --> 00:25:24,320 Speaker 1: cut into what their profit margins are. And I think, 452 00:25:24,520 --> 00:25:26,119 Speaker 1: you know, if it does service slow the growth, then 453 00:25:26,119 --> 00:25:27,960 Speaker 1: you see the multiple start to come under pressure. But 454 00:25:28,000 --> 00:25:31,480 Speaker 1: I think you know, near term earnings expectations for the 455 00:25:31,560 --> 00:25:33,680 Speaker 1: third quarter, I think you are safe for the fourth 456 00:25:33,760 --> 00:25:36,240 Speaker 1: quarter probably as well. But it's more in terms as 457 00:25:36,240 --> 00:25:39,320 Speaker 1: we look forward towards that we have to take into 458 00:25:39,320 --> 00:25:43,280 Speaker 1: account these changing elements and how do they affect the evaluation. David, 459 00:25:43,400 --> 00:25:46,960 Speaker 1: have you taken note of a change in tone by 460 00:25:47,119 --> 00:25:52,880 Speaker 1: Facebook's leadership as some of these issues become front and center. Well, 461 00:25:52,920 --> 00:25:55,199 Speaker 1: I think in this regard, you know, if we go 462 00:25:55,280 --> 00:25:58,760 Speaker 1: back and see what Mark Zuckerberg, Facebook CEO had said 463 00:25:58,800 --> 00:26:01,280 Speaker 1: after the November twenty team election, when he said, that's 464 00:26:01,320 --> 00:26:04,479 Speaker 1: pretty crazy idea, you know, if Russia was actually meddling 465 00:26:04,520 --> 00:26:06,480 Speaker 1: to where he is now, I think we're in a 466 00:26:06,560 --> 00:26:09,520 Speaker 1: situation where management is really behind this. They need to 467 00:26:09,520 --> 00:26:13,000 Speaker 1: get themselves out in front and basically say not that 468 00:26:13,040 --> 00:26:15,639 Speaker 1: they're just going to hire a thousand people, you know, 469 00:26:15,760 --> 00:26:18,400 Speaker 1: to try to review what's going on in the way 470 00:26:18,400 --> 00:26:21,560 Speaker 1: of ads and such and content. But I think that 471 00:26:21,600 --> 00:26:25,639 Speaker 1: there needs to be something more strategic being done by Zukerberg. 472 00:26:25,720 --> 00:26:27,200 Speaker 1: This is going to be a moment where he really 473 00:26:27,240 --> 00:26:30,640 Speaker 1: needs to mature, arguably as a leader, because clearly he's 474 00:26:30,760 --> 00:26:33,000 Speaker 1: very much under the scrutiny of Congress, and he's under 475 00:26:33,000 --> 00:26:36,920 Speaker 1: the scrutiny of other governments. Elsewhere around the world. You 476 00:26:37,040 --> 00:26:40,399 Speaker 1: mentioned we're talking obviously about Facebook. Is Google? Do you 477 00:26:40,400 --> 00:26:44,360 Speaker 1: believe in the same area on Twitter both. I mean, 478 00:26:44,359 --> 00:26:46,480 Speaker 1: all three companies that are being called to testify in 479 00:26:46,600 --> 00:26:49,639 Speaker 1: public before the sent Intelligence Committee on November one are 480 00:26:49,720 --> 00:26:53,040 Speaker 1: clearly very very much in the crosshairs. One might argue though, 481 00:26:53,480 --> 00:26:55,800 Speaker 1: that with respect to Facebook, and to the extent to 482 00:26:55,800 --> 00:26:59,840 Speaker 1: which you know increasingly high percentage of people are depending 483 00:27:00,040 --> 00:27:03,280 Speaker 1: on Facebook as their primary news source, that it's Facebook 484 00:27:03,320 --> 00:27:06,120 Speaker 1: that's really probably most in the cross here's coming out 485 00:27:06,160 --> 00:27:08,320 Speaker 1: of this in terms of these three companies. I want 486 00:27:08,320 --> 00:27:10,080 Speaker 1: to thank you very much for spending time with us. 487 00:27:10,560 --> 00:27:13,159 Speaker 1: David Garty, of course, is the principle of g v 488 00:27:13,320 --> 00:27:16,679 Speaker 1: A Research, and he spends a lot of time on 489 00:27:17,000 --> 00:27:22,280 Speaker 1: you analyzing the tech sector. Thanks for listening to the 490 00:27:22,320 --> 00:27:25,440 Speaker 1: Bloomberg P and L podcast. You can subscribe and listen 491 00:27:25,440 --> 00:27:29,600 Speaker 1: to interviews at Apple Podcasts, SoundCloud or whatever podcast platform 492 00:27:29,680 --> 00:27:33,560 Speaker 1: you prefer. I'm pim Fox, I'm on Twitter at pim Fox, 493 00:27:33,880 --> 00:27:37,400 Speaker 1: I'm on Twitter at Lisa Abramo wits one. Before the podcast, 494 00:27:37,440 --> 00:27:40,040 Speaker 1: you can always catch us worldwide on Bloomberg Radio.