WEBVTT - Paul Sweeney on Amazon's New Delivery Service 0:00:05.800 --> 0:00:08.719 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.280 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 0:00:32.360 --> 0:00:35.200 Amazon wants the jet smarter, actually wants to jet smarter 0:00:35.360 --> 0:00:38.120 and deliver your package is more quickly. Here to tell 0:00:38.200 --> 0:00:41.960 us about Amazon's foray into the world of delivery directly 0:00:42.080 --> 0:00:44.760 to the customer is our own Paul Sweeney. He is 0:00:44.760 --> 0:00:49.320 the director of Research North America for Bloomberg Intelligence. And Paul, 0:00:49.520 --> 0:00:51.960 does this mean that you can't get your brown boxes 0:00:52.040 --> 0:00:54.200 fast enough that Amazon has to go out and have 0:00:54.280 --> 0:00:58.360 its own planes deliver them directly to you? Yeah? It 0:00:58.360 --> 0:01:01.120 certainly is, particularly around the holiday time when you know 0:01:01.120 --> 0:01:04.360 they really their system really spaces capacity issues. So this 0:01:04.480 --> 0:01:07.120 is just another example of um, you know, Amazon trying 0:01:07.160 --> 0:01:09.640 to get more control over the logistics of its business, 0:01:10.120 --> 0:01:12.320 uh in the delivery of its products, you know, trying 0:01:12.360 --> 0:01:15.920 to get more products to consumers faster. So we see 0:01:15.959 --> 0:01:20.000 them make significant investments in their distribution centers, their fulfillment centers, 0:01:20.200 --> 0:01:23.360 and they're even getting into the transportation business, uh, you know, 0:01:23.360 --> 0:01:26.959 potentially with trucks. They've actually leased a lot of planes 0:01:27.040 --> 0:01:31.080 to compete with FedEx and ups and even cargo ships. 0:01:31.160 --> 0:01:34.520 So Jeff Bezos is putting his money where his mouth is. Well, 0:01:34.800 --> 0:01:37.880 can they really create a much more efficient system of 0:01:37.920 --> 0:01:41.600 distribution than the FedEx is of the world, considering how 0:01:41.600 --> 0:01:43.360 long they've been in the business and how much reach 0:01:43.440 --> 0:01:47.120 they have. No, I don't think so. I think FedEx 0:01:47.160 --> 0:01:50.480 and and ups will still be the backbone of the 0:01:50.480 --> 0:01:53.360 delivery system of Amazon products. But you know, there's certain 0:01:53.360 --> 0:01:56.400 times of the year in certain markets where I think 0:01:56.400 --> 0:01:59.040 Amazon feels like they need a little bit more flexibility 0:01:59.080 --> 0:02:02.080 than what the existing to distribution platform can provide them, 0:02:02.120 --> 0:02:03.960 so to the extent that they can fill in some 0:02:04.040 --> 0:02:06.680 of the cracks, um, you know, maybe provide a little 0:02:06.680 --> 0:02:10.520 bit more flexibility, particularly during times of peak demand. UM, 0:02:10.600 --> 0:02:14.520 whether that's in terms of transportation or warehousing or fulfillment UM. 0:02:14.720 --> 0:02:16.640 I think Amazon is just trying to see if they 0:02:16.680 --> 0:02:19.679 can supplement what's already in the marketplace. Hey, Paul, wonder 0:02:19.680 --> 0:02:21.920 if you could tell people How does it work that 0:02:22.000 --> 0:02:25.280 if you're a third party seller through Amazon and you 0:02:25.600 --> 0:02:30.920 have Amazon store your products at their warehouse? What happens? 0:02:30.960 --> 0:02:34.400 Explain how that relationship works and the connection between this 0:02:34.760 --> 0:02:39.400 this initiative. Sure, so the fulfillment by Amazon or fba 0:02:39.600 --> 0:02:42.280 is has actually become a huge business for Amazon. More 0:02:42.320 --> 0:02:44.400 than half the products that they sell on Amazon dot 0:02:44.440 --> 0:02:48.600 com or from third party providers where Amazon does all 0:02:48.639 --> 0:02:51.960 the warehousing and distribution of those products. Uh. So you 0:02:52.000 --> 0:02:53.840 may be going to l ob dot com, but a 0:02:53.840 --> 0:02:57.920 lot of the logistics warehousing uh in this distribution of 0:02:57.919 --> 0:03:01.400 the product is actually handled by Amazon for a fee 0:03:02.000 --> 0:03:05.560 that gives Amazon a greater ability to to deliver more 0:03:05.639 --> 0:03:09.560 products um faster Uh two more consumers. And that's kind 0:03:09.560 --> 0:03:12.160 of you know, what has been their value proposition? Paul? 0:03:12.200 --> 0:03:15.799 How much more is Amazon spending on shipping now than 0:03:15.880 --> 0:03:19.400 say a few years ago as it tries to ramp 0:03:19.520 --> 0:03:25.919 up its promises of one hour delivery or one day um, 0:03:26.120 --> 0:03:28.359 a lot of money. Um. You know, every single four 0:03:28.600 --> 0:03:31.600 we see this company, Yeah, every single quarter was either 0:03:31.720 --> 0:03:34.239 company put up popline revenue growth, which is what the 0:03:34.280 --> 0:03:37.920 investors are looking for north of um. Yet we see 0:03:37.960 --> 0:03:42.480 the expenses for this company grow also North So where 0:03:42.480 --> 0:03:45.080 are those investments going. Those investments are going, you know, 0:03:45.640 --> 0:03:47.560 like we've seen over the last several years, two more 0:03:48.040 --> 0:03:52.640 fulfillment centers, more warehouses, more trucks, more people again to 0:03:52.680 --> 0:03:56.040 try to get the products closer to the end of market. Um, 0:03:56.040 --> 0:03:57.680 and all that takes a lot of money. And Jeff 0:03:57.720 --> 0:03:59.920 Bezos has you know, has the benefit in the mark 0:04:00.040 --> 0:04:03.280 place where investments have given them a very long leash 0:04:03.360 --> 0:04:06.760 to develop that business at the expensive near term profitability. 0:04:06.840 --> 0:04:08.880 So uh, you know, I think we should expect to 0:04:08.880 --> 0:04:12.119 see Amazon continue to make these kinds of investments, uh 0:04:12.120 --> 0:04:14.880 in their business, um, you know, and you know, hopefully 0:04:14.880 --> 0:04:17.400 profits will come down the line. Hey, Paul, I don't 0:04:17.400 --> 0:04:19.480 want to be too simplistic about this, but would this 0:04:19.560 --> 0:04:23.560 be positive for companies like Boeing and GE companies that 0:04:23.720 --> 0:04:27.320 make aircraft? I mean, I remember last year, right, didn't Boeing, 0:04:27.560 --> 0:04:31.200 Uh they agreed to operate an air cargo not Boeing, 0:04:31.200 --> 0:04:34.479 I beg your pardon, the Air Transport Services Group. They 0:04:34.600 --> 0:04:38.200 would did an air cargo deal with Amazon twenty Boeing 0:04:38.279 --> 0:04:41.360 seven six seven freighter aircraft. This has gonna be good 0:04:41.400 --> 0:04:44.839 for airlines pilots and everybody associated with the aerospace industry 0:04:44.920 --> 0:04:48.120 or am I wrong? Uh? You you're right? Um. I 0:04:48.160 --> 0:04:51.480 think as more and more product um, more and more 0:04:51.520 --> 0:04:55.000 retail sales you know, are done online, that really puts 0:04:55.000 --> 0:04:57.039 a lot of stress on the distribution system. You're not 0:04:57.080 --> 0:04:59.040 just you know, going to the local mall and buying 0:04:59.040 --> 0:05:01.719 your product. You're relying upon a global distribution system to 0:05:01.720 --> 0:05:04.160 get it to you. And that includes aircraft. And so, 0:05:04.560 --> 0:05:06.920 you know, George Ferguson, who covers the airline industry for US, 0:05:06.960 --> 0:05:08.680 has been talking about some of the strength in the 0:05:08.800 --> 0:05:12.520 aircraft leasing market as some of the you know, a 0:05:12.560 --> 0:05:15.880 positive long term play, uh drive drivative play on the 0:05:15.920 --> 0:05:18.640 growth of e commerce. Paul Sweeney, thank you so much 0:05:18.680 --> 0:05:20.840 for joining us. We always love speaking with you. Paul 0:05:20.880 --> 0:05:37.520 Sweeney is director of North American Research for Bloomberg Intelligence. Well, 0:05:37.560 --> 0:05:41.120 the world's business jet fleet continued to grow last year. 0:05:41.120 --> 0:05:44.520 In two thousand sixteen, it expanded by about two and 0:05:44.520 --> 0:05:47.680 a half percent to more than twenty one thousand aircraft. 0:05:48.000 --> 0:05:49.960 And here to tell us about the industry and some 0:05:50.080 --> 0:05:52.400 of those twenty one jets is Brad Stewart. He's the 0:05:52.440 --> 0:05:56.120 chief executive of exo jet. Brad, thanks for being with us. 0:05:56.320 --> 0:05:59.120 Let's jump right in and tell us about the you know, 0:05:59.120 --> 0:06:02.240 an exo jet and the aircraft market. Before we get 0:06:02.279 --> 0:06:03.839 to the demand side, I want you to tell me 0:06:03.880 --> 0:06:06.800 about the supply of jets and what you're seeing in 0:06:06.839 --> 0:06:10.599 the industry overall. Well, great to be back with you, Pim. Uh, 0:06:10.720 --> 0:06:13.360 you know, these are these are different questions that um, 0:06:14.400 --> 0:06:16.040 you know, I think are long term trends that you've 0:06:16.080 --> 0:06:19.840 seen really since the global financial crisis. Uh. Planes, as 0:06:19.880 --> 0:06:22.279 you said, there's a lot of them. Uh, there's you know, 0:06:22.320 --> 0:06:26.480 in my opinion, always been too many the O E MS, Bombardier, uh, 0:06:26.560 --> 0:06:30.000 text drawn you know, you name it, continue to manufacture 0:06:30.040 --> 0:06:32.880 planes and and that produces this this glut that exists. 0:06:33.279 --> 0:06:35.520 What you've seen in the last six to twelve months, 0:06:35.520 --> 0:06:37.360 that was a little bit of tightening and what they 0:06:37.360 --> 0:06:40.120 call new inventory. So planes that are you know, three 0:06:40.120 --> 0:06:43.320 to five years since make you're seeing a reduction in 0:06:43.360 --> 0:06:46.400 the amount of airplanes there for sale. Therefore a little 0:06:46.400 --> 0:06:49.200 bit of tightening in the in the price points, and overall, 0:06:49.240 --> 0:06:51.719 I think you're seeing a drift towards a healthier supply 0:06:51.839 --> 0:06:54.640 demand marketplace. But the long term trend of there being 0:06:54.640 --> 0:06:57.000 too many airplanes out there for the level of demand, 0:06:57.720 --> 0:07:01.320 both for full airplanes and for charter um continues. Let's 0:07:01.320 --> 0:07:05.120 talk about the charter market from the demand side. I'm curious, 0:07:05.200 --> 0:07:09.600 have you seen an uptick in wealthier individuals looking to 0:07:09.800 --> 0:07:12.240 book private flights or or what sort of the trend 0:07:12.320 --> 0:07:15.560 there no doubt and say what you will about you know, 0:07:15.640 --> 0:07:20.280 the social impact of the wealthy getting wealthier, but um 0:07:20.440 --> 0:07:23.080 as um as we've seen over the last couple of years, 0:07:23.520 --> 0:07:26.840 demand for private aviation, the hours flow and the cycle's 0:07:26.840 --> 0:07:29.760 phone is up two to three times GDP. So we're 0:07:29.760 --> 0:07:32.560 seeing you know, five six seven percent, depending on how 0:07:32.600 --> 0:07:35.480 you want to plice the marketplace. But there's no doubt 0:07:35.520 --> 0:07:40.520 that consumption of and demand for private aviation is continuing 0:07:40.560 --> 0:07:43.040 to grow at at a pretty sustained clip. Right. Can 0:07:43.080 --> 0:07:44.880 you give us some sense, can you give some numbers 0:07:44.960 --> 0:07:48.320 to this as far as the number of flights on 0:07:48.880 --> 0:07:53.520 privately privately chartered UH aircraft or just a number of 0:07:53.520 --> 0:07:57.280 people who normally do this. It's it's staggering actually when 0:07:57.320 --> 0:07:59.800 when you step back, so we think in terms of hours, 0:07:59.840 --> 0:08:01.960 we think that sort of accounts for you know, short 0:08:01.960 --> 0:08:06.600 flights versus long flights. Last year, private aviation flew about 0:08:06.640 --> 0:08:10.400 three million hours within North America. UM, and we're seeing 0:08:10.440 --> 0:08:12.400 that that number up, you know, like I said, five 0:08:12.480 --> 0:08:15.000 or six percent year on year. So it's a it's 0:08:15.040 --> 0:08:19.000 a massive number at a wide swath of you know, 0:08:19.040 --> 0:08:21.480 everything from turbo props at the very low end flying 0:08:21.520 --> 0:08:23.920 you know, forty five minute to an hour flight up 0:08:23.920 --> 0:08:27.080 to you know, your ultralong range G six fifty Global 0:08:27.120 --> 0:08:30.600 Express to so you know, seven X type aircraft. UM. 0:08:30.680 --> 0:08:33.319 But but a big market flying a lot of hours, 0:08:33.480 --> 0:08:36.400 growing quickly. I was going to ask you which in 0:08:36.440 --> 0:08:38.360 more demand, but I guess you're telling me that everything 0:08:38.400 --> 0:08:41.080 from turbo prop, you've got the small cabin, mid size, 0:08:41.160 --> 0:08:44.280 large cabin, they're all in demand. Well, there's a little 0:08:44.280 --> 0:08:46.920 bit of an interesting kind of barbell seam that you're seeing. UM. 0:08:46.960 --> 0:08:49.520 And I think the jet smarters of the world, our 0:08:49.600 --> 0:08:53.280 partner wheels up at the low end, are driving significant 0:08:53.320 --> 0:08:55.839 demand for the for the smaller cabin plane. And then 0:08:55.840 --> 0:09:00.640 you're seeing the global fortune hundred, the wealthy, the global 0:09:00.679 --> 0:09:04.600 elite really drifting towards this ultra long range large cabin. 0:09:04.720 --> 0:09:06.080 So there's a little bit of a barbell in the 0:09:06.080 --> 0:09:08.800 growth profile. The smaller planes in the in the much 0:09:08.880 --> 0:09:11.560 larger private jets are the ones growing, not at the 0:09:11.600 --> 0:09:14.280 expense of but you know, there's there's clearly a difference 0:09:14.320 --> 0:09:17.480 between the midsize and super midsize. Yeah, there's there's there's 0:09:17.520 --> 0:09:20.520 definitely a difference between the Dessault seven X yeah, and 0:09:20.559 --> 0:09:23.839 maybe something else. Um, you know, Brad. One of the 0:09:23.920 --> 0:09:27.040 questions it always comes up, I would imagine, is air 0:09:27.040 --> 0:09:29.840 traffic control and the f a A and the effort 0:09:29.840 --> 0:09:34.080 on behalf of the government perhaps to privatize, uh, the 0:09:34.160 --> 0:09:37.120 air traffic control system. What have you heard and what 0:09:37.200 --> 0:09:39.880 are you hearing? Yeah, there's a bunch of different themes 0:09:39.880 --> 0:09:41.640 that go on within that. You know. The first is 0:09:41.679 --> 0:09:44.080 that the technology. So I think most people who follow 0:09:44.160 --> 0:09:47.320 the industry closely know that there's a there's a real 0:09:47.440 --> 0:09:51.480 focus on modernizing the technology. So there's this requirement by 0:09:51.559 --> 0:09:54.160 that all planes that are for for charter or higher 0:09:54.520 --> 0:09:57.280 or on a d s B compliance. Um. So there's 0:09:57.480 --> 0:10:00.240 the right actions are being taken. Um. Not going to 0:10:00.360 --> 0:10:03.160 drift into the politics of whether, um, you know ATC 0:10:03.320 --> 0:10:06.520 should be privatized or not. In my opinion, they're doing 0:10:06.559 --> 0:10:08.559 a good job they're making the right steps. Is it 0:10:08.640 --> 0:10:11.280 as quick as we'd all like? Um? You know, I 0:10:11.280 --> 0:10:14.360 don't think it really ever is um? But but it's okay. 0:10:14.440 --> 0:10:17.680 But Brad, there's a larger question here, which is traffic 0:10:17.679 --> 0:10:20.920 in general can be really tough, especially at popular airports. 0:10:20.920 --> 0:10:23.560 How do you get around that with chartered flights? Well, 0:10:23.559 --> 0:10:25.560 I think this is one of the big benefits of 0:10:25.600 --> 0:10:29.040 flying private. So um, you know, look at the major 0:10:29.080 --> 0:10:33.040 markets the Try State and southern California. What you see 0:10:33.080 --> 0:10:36.640 is most private aviation flights, the vast majority in fact, 0:10:36.760 --> 0:10:40.679 or actually going into airports that are not either um 0:10:40.840 --> 0:10:43.840 commercial at all or certainly not dominated by commercials. So 0:10:44.240 --> 0:10:47.160 flying private actually works around that quite a bit. Um. 0:10:47.200 --> 0:10:48.920 You know. Obviously there's a little bit of a hangover 0:10:48.960 --> 0:10:51.400 effect when there's congestion at l A X or JFK, 0:10:51.880 --> 0:10:55.520 but by and large private sort of circumvents that that 0:10:55.720 --> 0:10:58.800 sort of pinch point, if you will, Thank you so 0:10:58.840 --> 0:11:02.360 much for joining us. Brad's Stewart, chief executive officer of 0:11:02.679 --> 0:11:07.480 XO Jet talking about chartered aircraft and pim Fox, let 0:11:07.559 --> 0:11:10.800 me just tell you eight thousand five dollars an hour 0:11:10.960 --> 0:11:13.000 for some of these of flights or a flight hour, 0:11:13.160 --> 0:11:15.880 so not cheap. But evidently there are lots of people 0:11:15.920 --> 0:11:18.120 willing to uh, willing to sell that out. But it 0:11:18.160 --> 0:11:21.080 comes with pillows, blankets, and I think whatever you'd like 0:11:21.160 --> 0:11:23.199 to eat. Yeah, I don't think that's the peel. I 0:11:23.240 --> 0:11:25.280 mean yes, but I think that it's the idea of 0:11:25.320 --> 0:11:27.160 not having to take your shoes off, and take your 0:11:27.240 --> 0:11:29.839 jacket off, and and have somebody patch you up and 0:11:29.880 --> 0:11:32.720 down and then still might be three hours late because 0:11:32.720 --> 0:11:47.160 of a delay him. You know, there was a report 0:11:47.200 --> 0:11:49.840 put out by JP Morgan that caught my attention. It 0:11:49.920 --> 0:11:54.160 was by quantitative and derivative strategist Marco Kolonovic, and he 0:11:54.240 --> 0:11:58.240 was saying that he is expecting a potential quote great 0:11:58.360 --> 0:12:02.760 liquidity crisis when the central banks start withdrawing cash from 0:12:02.800 --> 0:12:06.000 the system, shrinking their balance sheets, possibly as soon as 0:12:06.040 --> 0:12:09.200 early next year or later this year. This will lead 0:12:09.280 --> 0:12:14.520 off a substantial crisis in markets. And here to weigh 0:12:14.559 --> 0:12:17.440 in on that as Bruce Biddles, his chief investment strategist 0:12:17.720 --> 0:12:21.560 at BAIRED and he joins us from the lovely Sarasota, Florida. Bruce, 0:12:21.679 --> 0:12:23.560 thank you so much for joining us. Do you agree 0:12:24.360 --> 0:12:27.440 with this assessment that there is the potential for a 0:12:27.559 --> 0:12:31.360 quote great liquidity crisis. Well, I'm not so sure I 0:12:31.360 --> 0:12:33.480 would use the term great, but I certainly could see 0:12:33.520 --> 0:12:38.319 a liquidity problem um eight or nine years ago when 0:12:38.360 --> 0:12:41.320 the when the central banks began quantitative using, they were 0:12:41.320 --> 0:12:45.760 adding liquidity to the system. Now the US and Canada 0:12:45.800 --> 0:12:48.199 both have withdrawn from that, So now there's a slight 0:12:48.280 --> 0:12:50.920 tightening there. But if you look at what's going on 0:12:50.960 --> 0:12:54.720 in Europe and Japan and elsewhere quantitative using, he is 0:12:54.720 --> 0:12:59.080 still robust and adding liquidity and very large amounts to 0:12:59.120 --> 0:13:01.640 the system. And a lot of that liquidity that has 0:13:01.720 --> 0:13:05.320 generated overseas find its way into our markets as well. 0:13:05.440 --> 0:13:07.880 So at this point I don't see a problem. Now. 0:13:08.440 --> 0:13:11.679 With that said, if the European central banks all of 0:13:11.720 --> 0:13:16.240 a sudden realize that their economies are surging and inflation 0:13:16.320 --> 0:13:21.160 is beginning to resurface, and they begin to cut back, 0:13:21.280 --> 0:13:23.520 then I can see certainly where the markets could be 0:13:23.520 --> 0:13:27.360 in jeopardy because quantitative easing in zero percent indust rates 0:13:27.400 --> 0:13:29.880 have been a very very strong support for the market 0:13:30.559 --> 0:13:34.040 throughout most of this pollmarket. Do you believe, Bruce, that 0:13:34.160 --> 0:13:38.680 if indeed that accommodation is withdrawn, that corporate earnings are 0:13:38.720 --> 0:13:43.880 going to more clearly drive asset prices. Well, there's there's 0:13:43.920 --> 0:13:46.760 no question about that. I think that's almost by necessity 0:13:46.800 --> 0:13:49.840 giving the evaluations we're seeing in this market, I mean 0:13:49.880 --> 0:13:53.200 evaluations today or as so as we've seen in oh 0:13:53.320 --> 0:13:56.440 in two thousand, two thousand and seven. I mean, they're 0:13:56.440 --> 0:13:59.839 really stretched here. So it's going to be um up 0:13:59.840 --> 0:14:03.240 to corporate earnings to close that gap. Now. I think 0:14:03.240 --> 0:14:07.120 that why the markets are acting so so so powerful 0:14:07.240 --> 0:14:10.520 right here in the past month or so is because 0:14:10.559 --> 0:14:14.400 the economy is stronger than most economists believe. You can 0:14:14.400 --> 0:14:17.280 look at the I s M numbers today, the non 0:14:17.280 --> 0:14:21.000 manufacturing numbers the best is two thousand and four or five. 0:14:21.600 --> 0:14:24.960 The manufacturing I s M number the best two thousand 0:14:25.800 --> 0:14:29.960 four or five as well, and um and that's before 0:14:30.040 --> 0:14:33.280 you get the potential for a tax um cut here, 0:14:33.880 --> 0:14:37.600 which would spur the economy even further. So the markets 0:14:37.600 --> 0:14:41.600 are really I would say, depending greatly corporation, you're coming 0:14:41.640 --> 0:14:46.000 through in the next UM year certainly given these evaluations, 0:14:46.000 --> 0:14:48.520 and I think given the economy and what we're seeing 0:14:48.520 --> 0:14:51.440 in terms of inflation now we're starting to see some 0:14:51.520 --> 0:14:56.680 pickup in pricing pressures. So if if these corporations can 0:14:56.960 --> 0:15:01.440 can indeed raise prices, and we saw that today with Netflix, 0:15:01.880 --> 0:15:05.560 if they can indeed raise prices and maintain or increase 0:15:05.680 --> 0:15:09.000 their top line growth, then you're looking at a very 0:15:09.080 --> 0:15:13.560 very strong bottom line growth potential. Bruce, are you thinking 0:15:13.560 --> 0:15:15.720 in line with many others out there that in this 0:15:15.840 --> 0:15:22.560 environment US stocks? Good bet. Yeah. I've been a proponent 0:15:22.600 --> 0:15:24.880 of the US market now for quite a while. I 0:15:24.920 --> 0:15:27.480 know the European markets and some others are out performing 0:15:27.480 --> 0:15:31.560 this year, but that's been the exception for the past 0:15:31.600 --> 0:15:34.520 five six years. The US markets have out performed everybody, 0:15:34.560 --> 0:15:36.880 and I think it at the end of the day 0:15:36.880 --> 0:15:39.680 that's going to continue. So, Bruce, is the best way 0:15:39.680 --> 0:15:43.880 to get exposure through a broad index fund of US 0:15:43.960 --> 0:15:48.040 stocks like SP five hundred, tracker nasdac UH and just 0:15:48.120 --> 0:15:52.360 go through it that way? Or is this more selective time? 0:15:52.960 --> 0:15:56.840 I think it's a more selective time. If the market 0:15:56.880 --> 0:16:01.120 is being driven by um stronger economic growth, then you 0:16:01.200 --> 0:16:03.400 want to be in those sectors that are that will 0:16:03.520 --> 0:16:06.400 that will benefit the most, and of course they would 0:16:06.440 --> 0:16:10.440 be the material sector, the industrial sector, and if interest 0:16:10.480 --> 0:16:11.840 rates are going to go up, and be in the 0:16:11.920 --> 0:16:14.560 financials as well. And if you look at the last 0:16:14.560 --> 0:16:18.080 six months, the leading sectors in the market have been 0:16:18.120 --> 0:16:23.360 those that are closely tied to the economy. Bruce, you know, 0:16:23.400 --> 0:16:25.160 I know that you are a veteran of the industry. 0:16:25.160 --> 0:16:29.320 You worked at J C. Bradford, also at Thomas Haven 0:16:29.720 --> 0:16:36.000 Bots treating options. In your experience, what advice or guidance 0:16:36.040 --> 0:16:40.120 would you give people to separate the news, however awful 0:16:40.240 --> 0:16:43.720 or terrible, or catastrophic or upsetting it might be, from 0:16:43.800 --> 0:16:49.080 what actually drives asset values. Well, UM, money is a 0:16:49.120 --> 0:16:52.560 lifeblood of Wall Street, and that's what eventually drives the markets. 0:16:52.640 --> 0:16:55.360 It's a supplied demand situation, the same it would be 0:16:55.840 --> 0:16:59.400 in business and UM with all little liquidity that the 0:16:59.400 --> 0:17:02.760 Central Bank have added over the years, UM certainly there's 0:17:02.800 --> 0:17:07.119 been a lot of demand side build up and also 0:17:07.480 --> 0:17:09.800 a lot of domain has come from corporate buy backs 0:17:09.800 --> 0:17:12.919 the last five or six seven years. And if the 0:17:13.000 --> 0:17:15.600 tech proposal is going to get to go through this 0:17:15.680 --> 0:17:18.440 year or early next year, and we're going to bring 0:17:18.520 --> 0:17:20.960 back two or two and a half trillion dollars, some 0:17:21.080 --> 0:17:22.680 of that money is going to find its way into 0:17:22.680 --> 0:17:26.720 buy backs again. So with that in mind, I think 0:17:26.760 --> 0:17:30.119 you maintain your asset allocation where it is despite these 0:17:30.200 --> 0:17:33.040 high valuations. So Bruce, when you come into the office 0:17:33.040 --> 0:17:36.160 every day in a period like this, we're seeing such 0:17:36.240 --> 0:17:41.720 low volatility and such low movements, small movements in markets broadly. 0:17:42.040 --> 0:17:45.720 What are the first five things you look at? Well, 0:17:46.400 --> 0:17:49.679 two things I think the most important for the market. 0:17:51.040 --> 0:17:53.959 One on a particularly short term basis, and that is 0:17:54.000 --> 0:17:58.600 the markets typically don't get into trouble unless investors become 0:17:58.880 --> 0:18:03.560 extremely optimate stick and um. In this ball market since 0:18:03.600 --> 0:18:07.320 two thousand and nine, I mean, optimism has come in 0:18:07.359 --> 0:18:10.479 from time to time, but it's never been widespread or 0:18:10.520 --> 0:18:13.359 deep deeply seated. As soon as the market pulls back 0:18:13.359 --> 0:18:16.080 for a couple of days, all of a sudden, sentiment 0:18:16.160 --> 0:18:21.040 returns to uh. There's skepticism around right pessimism. What I'm 0:18:21.040 --> 0:18:23.359 looking for here is if we're going to see a 0:18:23.440 --> 0:18:26.080 top in the market anytime soon, and a lot of 0:18:26.080 --> 0:18:29.200 folks are pointing to two thousand and eighteen, is being 0:18:29.920 --> 0:18:34.719 um potentially problematic. We look for either sentiment to become 0:18:34.760 --> 0:18:40.880 excessively bullish or to interest rates the rise significantly. And 0:18:40.880 --> 0:18:43.959 and so those are the two things I'm watching, particularly 0:18:44.080 --> 0:18:47.320 rates now because for the first time we're starting to 0:18:47.320 --> 0:18:50.480 see some pricing pressures. The bond market is starting to 0:18:50.520 --> 0:18:53.000 react to that a little bit. But I think if 0:18:53.040 --> 0:18:55.480 the ten uere yield got above three percent, I think 0:18:55.520 --> 0:18:58.960 that would be a big negative for the markets. Above 0:18:59.000 --> 0:19:02.920 three above three sent yes, No, And you do believe 0:19:02.920 --> 0:19:05.800 that the markets already priced in this tax reform or 0:19:05.920 --> 0:19:09.400 tax cut because it continues to go up every day. 0:19:09.480 --> 0:19:13.600 So I mean it's getting priced in, and probably when 0:19:13.640 --> 0:19:16.920 it when it's finally passed, it will be fully priced in. 0:19:16.960 --> 0:19:19.680 And I wouldn't be surprised if the markets reacted negatively. 0:19:19.720 --> 0:19:21.600 Then all right, I want to thank you very much 0:19:21.600 --> 0:19:25.000 for joining us. Bruce Biddles is the chief investment strategist 0:19:25.320 --> 0:19:39.639 for Bear. Right now, I want to turn our attention 0:19:39.680 --> 0:19:42.600 to Facebook. There have been a lot of pretty scathing 0:19:42.840 --> 0:19:47.320 comments made about the company by congressmen and others, particularly 0:19:47.400 --> 0:19:51.480 about its lack of regulating some of the Russia linked 0:19:51.560 --> 0:19:57.000 advertisements that targeted a wide variety of different people leading 0:19:57.080 --> 0:20:00.720 up to the October US November you a selection. I 0:20:00.760 --> 0:20:02.960 want to bring a David Garritty, CEO of g v 0:20:03.160 --> 0:20:06.359 A Research, to talk about what the implications are for 0:20:06.480 --> 0:20:10.560 Facebook going forward if they are regulated more tightly. This 0:20:10.640 --> 0:20:14.000 is going to be really expensive, won't it. Well. Certainly, 0:20:14.119 --> 0:20:16.560 Facebook as a company has tried to focus on having 0:20:16.600 --> 0:20:20.879 a very lean model, very much depending upon software algorithms 0:20:21.240 --> 0:20:24.280 in terms of managing its platform, and what's being called 0:20:24.320 --> 0:20:27.080 for here is for Facebook really to put in place 0:20:27.160 --> 0:20:30.600 more of a human element so as to effectively review 0:20:30.760 --> 0:20:34.280 and curate content that's actually going on to its site. 0:20:34.760 --> 0:20:37.520 So from that standpoint, the human costs of running this 0:20:37.560 --> 0:20:40.639 business arguably are going to be going up. Certainly, they 0:20:40.640 --> 0:20:44.399 don't necessarily process information as fast as Facebook might like, 0:20:44.520 --> 0:20:46.960 so it might slow things down from the standpoint of 0:20:47.000 --> 0:20:50.840 a user experience. But relative to the issue of interference 0:20:50.960 --> 0:20:54.720 in political campaigns, I mean, this is a necessary step. Well, David, 0:20:54.720 --> 0:20:58.440 you think it's going to be successful, Uh, that remains 0:20:58.480 --> 0:21:00.399 to be seen. I think that we're in a situation 0:21:00.560 --> 0:21:02.560 here where, you know, Facebook obviously has grown to be 0:21:02.600 --> 0:21:06.000 a platform where you've got two billion average monthly users 0:21:06.040 --> 0:21:08.520 on it um. You know, is this a platform that's 0:21:08.520 --> 0:21:11.840 potentially grown out of the ability of management to control 0:21:11.920 --> 0:21:15.479 it um, you know, away from issues of just you know, 0:21:15.480 --> 0:21:18.480 bringing more people on board to review and control. I mean, 0:21:18.520 --> 0:21:20.480 that doesn't seem realistic, does it? I mean, come on, 0:21:20.480 --> 0:21:22.680 you're gonna get human beings to review all the stuff 0:21:22.720 --> 0:21:24.960 that's on the Internet, because it's not just Facebook, you 0:21:25.000 --> 0:21:28.160 know that, it's also Google, it's any social media site. 0:21:28.160 --> 0:21:31.760 Because once they start to aggregate the information, it's incredibly 0:21:31.800 --> 0:21:33.879 difficult to figure out where it goes, and no one 0:21:34.040 --> 0:21:36.359 is able to even figure out whether the information is 0:21:36.440 --> 0:21:39.680 accurate or not. Well, I mean, certainly that's you know, 0:21:39.800 --> 0:21:41.840 these are all very legitimate points, and the question is, 0:21:41.880 --> 0:21:44.400 you know, can we develop technology tools to assist these 0:21:44.440 --> 0:21:48.520 people to essentially move along and have greater accuracy at 0:21:48.560 --> 0:21:50.720 a faster rate of speed. There are other issues to 0:21:50.760 --> 0:21:53.639 look at for Facebook away from just the issue of 0:21:53.680 --> 0:21:57.800 the election interference in the Senate and House Intelligence Committee activities. 0:21:58.000 --> 0:22:02.040 We've also had movement taking place in Congress with regards 0:22:02.080 --> 0:22:06.520 to prosecution for sex crimes or providing information to support 0:22:06.560 --> 0:22:09.399 sex trafficking. There is a movement in Congress to allow 0:22:09.440 --> 0:22:12.480 a law wherein state attorney generals and district attorneys would 0:22:12.480 --> 0:22:15.120 have the ability to sue Facebook as well as other 0:22:15.160 --> 0:22:19.120 Internet companies, other social media companies. Obviously, this is something 0:22:19.160 --> 0:22:22.800 that raises a significant litigation risk for the company. So 0:22:22.880 --> 0:22:25.159 we're not only looking here at an issue where we 0:22:25.240 --> 0:22:27.640 need to put more human elements in place, but some 0:22:27.720 --> 0:22:31.959 of the litigation risk profile around Facebook maybe materially changing 0:22:31.960 --> 0:22:36.000 as well. David, Are any of these risks to Facebook's 0:22:36.200 --> 0:22:39.359 fundamental business model? Are any of them being priced into 0:22:39.400 --> 0:22:43.040 its stock price? I think we're still in a situation 0:22:43.119 --> 0:22:44.920 right now, getting into the fourth quarter of the year 0:22:44.920 --> 0:22:46.960 where you know, you've had a very solid performance out 0:22:46.960 --> 0:22:48.960