1 00:00:02,440 --> 00:00:09,160 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:09,200 --> 00:00:13,360 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:13,400 --> 00:00:16,360 Speaker 1: Eastern on Apple card playing Android Auto with the Bloomberg 4 00:00:16,440 --> 00:00:19,759 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:19,960 --> 00:00:22,360 Speaker 1: or watch us live on YouTube. 6 00:00:23,160 --> 00:00:25,520 Speaker 2: All right, We've got just a whole slew of economic 7 00:00:25,600 --> 00:00:28,560 Speaker 2: data here, and the question for a lot of folks 8 00:00:28,600 --> 00:00:31,160 Speaker 2: is to what extent is that going to impact the 9 00:00:31,160 --> 00:00:32,480 Speaker 2: Federal Reserve going forward? 10 00:00:32,520 --> 00:00:32,640 Speaker 3: Here? 11 00:00:32,640 --> 00:00:35,159 Speaker 2: We've got a FED meeting next week on the seventh, 12 00:00:35,720 --> 00:00:37,800 Speaker 2: and then the meeting in December. What's the FED going 13 00:00:37,880 --> 00:00:40,720 Speaker 2: to do? Fortunately for us, we have somebody who does 14 00:00:40,760 --> 00:00:42,519 Speaker 2: this stuff for a living. We actually pay him to 15 00:00:42,520 --> 00:00:45,479 Speaker 2: do this stuff, Ira Jersey. He's the best on the street. 16 00:00:45,479 --> 00:00:47,839 Speaker 2: He's our US interest rate strategist. We appreciate getting a 17 00:00:47,840 --> 00:00:51,200 Speaker 2: few minutes of this time interpret some of the economic 18 00:00:51,280 --> 00:00:54,160 Speaker 2: data we've seen recently, maybe some of the remarks we've 19 00:00:54,200 --> 00:00:56,640 Speaker 2: heard from some of these FED folks. How do you 20 00:00:56,680 --> 00:00:59,120 Speaker 2: think the Fed's going to act over the next several meetings? 21 00:01:00,120 --> 00:01:04,240 Speaker 4: Yeah, yeah, so I think it's shifted actually over the 22 00:01:04,360 --> 00:01:06,959 Speaker 4: last month or so, given the strength of the data 23 00:01:06,959 --> 00:01:10,240 Speaker 4: and in fact today's this morning's personal income and spending numbers, 24 00:01:10,560 --> 00:01:15,120 Speaker 4: along with the PC deflator, the consumption deflator that we 25 00:01:15,200 --> 00:01:18,080 Speaker 4: received will allow the Fed Reserve to be somewhat less 26 00:01:18,480 --> 00:01:22,560 Speaker 4: dubbish than they were at the September meeting. So our 27 00:01:22,600 --> 00:01:24,640 Speaker 4: expectation now is at the Fed will cut next week. 28 00:01:24,680 --> 00:01:27,160 Speaker 4: The market's fully priced for it. The Fed, you know, 29 00:01:27,319 --> 00:01:29,039 Speaker 4: they don't want to lose face. They just cut fifty 30 00:01:29,080 --> 00:01:31,640 Speaker 4: bases points, so I think that they'll cut again. But 31 00:01:32,120 --> 00:01:34,759 Speaker 4: the big important announcement is probably going to come during 32 00:01:34,760 --> 00:01:38,960 Speaker 4: the press conference, where Jay Powell will kind of very 33 00:01:39,959 --> 00:01:43,240 Speaker 4: maybe not so subtly hint that the Fed Reserve might 34 00:01:43,240 --> 00:01:46,320 Speaker 4: skip the December meeting and then reevaluate if they're going 35 00:01:46,360 --> 00:01:49,560 Speaker 4: to go in December. So the market's not fully priced 36 00:01:49,560 --> 00:01:52,520 Speaker 4: for that yet. The market's still priced for better than 37 00:01:52,520 --> 00:01:54,400 Speaker 4: even odds that they're going to cut in December, but 38 00:01:54,640 --> 00:01:57,760 Speaker 4: I suspect that those odds will come off pretty dramatically. 39 00:01:58,280 --> 00:02:02,360 Speaker 5: Now that would be definitely an interesting things to see. 40 00:02:02,960 --> 00:02:06,040 Speaker 2: The press conference, of which we'll have you know, Michael 41 00:02:06,080 --> 00:02:08,280 Speaker 2: McKee will be there and you know he'll be there 42 00:02:08,320 --> 00:02:09,440 Speaker 2: and we'll gate the full reporting. 43 00:02:09,600 --> 00:02:11,400 Speaker 5: Yeah, but as we're looking at these numbers that came out. 44 00:02:11,400 --> 00:02:13,240 Speaker 5: I mean, there's still a bit of stickiness in terms 45 00:02:13,240 --> 00:02:16,360 Speaker 5: of the core PCE, but overall PCE does seem to 46 00:02:16,360 --> 00:02:19,920 Speaker 5: be trending lower, which of course we do know that consumers, investors, 47 00:02:20,000 --> 00:02:22,440 Speaker 5: and the FED want to see how are you kind 48 00:02:22,440 --> 00:02:24,840 Speaker 5: of viewing this data and the importance of it, especially 49 00:02:24,880 --> 00:02:27,000 Speaker 5: since we do know that this is the Fed's preferred 50 00:02:27,000 --> 00:02:28,280 Speaker 5: measure for inflation here. 51 00:02:29,360 --> 00:02:32,200 Speaker 4: Sure, so the feder Reserve and j Palace you've mentioned 52 00:02:32,200 --> 00:02:36,000 Speaker 4: this in some recent speeches, that they focus on headline 53 00:02:36,200 --> 00:02:38,760 Speaker 4: PC deflator, right, that's their preferred measure. That's a two 54 00:02:38,760 --> 00:02:41,400 Speaker 4: point one percent, two percent of their target, so you know, 55 00:02:41,720 --> 00:02:45,720 Speaker 4: call it done deal there. But as you noted, the 56 00:02:46,320 --> 00:02:49,000 Speaker 4: core inflation measure is meaningfully higher than that at two 57 00:02:49,040 --> 00:02:52,960 Speaker 4: point seven percent, which is largely driven by housing prices 58 00:02:52,960 --> 00:02:55,440 Speaker 4: and the year and year change in housing prices, which 59 00:02:55,480 --> 00:02:58,840 Speaker 4: still continue to be relatively sticky. But even that started 60 00:02:58,880 --> 00:03:00,960 Speaker 4: to come off a little bit. And the big thing 61 00:03:01,000 --> 00:03:02,800 Speaker 4: that I look at is some of the details and 62 00:03:02,840 --> 00:03:04,760 Speaker 4: components in here. So you know, as soon as this 63 00:03:05,080 --> 00:03:07,160 Speaker 4: data came out at eight thirty at eight by eight 64 00:03:07,280 --> 00:03:09,600 Speaker 4: thirty five, I was updating a bunch of the charts 65 00:03:09,600 --> 00:03:12,880 Speaker 4: and nerdiness that I do in parsing out this data. 66 00:03:12,919 --> 00:03:15,960 Speaker 4: And if you look at services inflation, services inflation has 67 00:03:16,000 --> 00:03:19,640 Speaker 4: been the single biggest driver, and that's been slowing pretty 68 00:03:19,919 --> 00:03:23,359 Speaker 4: significantly over the last couple of months, and compared to 69 00:03:23,400 --> 00:03:25,880 Speaker 4: a year ago, it's it's much much lower in fact, 70 00:03:26,639 --> 00:03:28,799 Speaker 4: or slower, I should say, it's still growing, right, Prices 71 00:03:28,800 --> 00:03:30,400 Speaker 4: are still going up, they're just going up a lot, 72 00:03:30,560 --> 00:03:32,880 Speaker 4: a lot less than they had been before. And I 73 00:03:32,880 --> 00:03:34,720 Speaker 4: think that the Federal Reserve is going to look at 74 00:03:34,720 --> 00:03:37,520 Speaker 4: that and say, okay, look, if services inflation is actually 75 00:03:37,560 --> 00:03:40,240 Speaker 4: rolling over and not going to be as big of 76 00:03:40,240 --> 00:03:42,760 Speaker 4: a driver of inflation going forward, then that means that 77 00:03:42,800 --> 00:03:45,600 Speaker 4: over time, core inflation will continue to come down. And yeah, 78 00:03:45,600 --> 00:03:47,600 Speaker 4: you know, quite frankly, if core inflation is sticky at 79 00:03:47,600 --> 00:03:49,680 Speaker 4: two and a half percent, that's fine for the Fed. 80 00:03:49,840 --> 00:03:51,600 Speaker 4: The Fed just doesn't want that to go up, right, 81 00:03:51,920 --> 00:03:55,880 Speaker 4: like I call it. Over three percent is unacceptable to 82 00:03:55,920 --> 00:03:58,160 Speaker 4: the Fed. But you know, kind of hovering around two 83 00:03:58,200 --> 00:04:00,839 Speaker 4: and a half percent would be absolutely fine as long 84 00:04:00,880 --> 00:04:03,480 Speaker 4: as you have goods prices that aren't going up very 85 00:04:03,520 --> 00:04:06,200 Speaker 4: quickly at all, which is the other aspect of this, right, 86 00:04:06,240 --> 00:04:08,680 Speaker 4: which is why the election next week might actually have 87 00:04:08,800 --> 00:04:11,320 Speaker 4: some impact, but not in the near term. It's much 88 00:04:11,360 --> 00:04:15,680 Speaker 4: longer term impact, like do tariffs increase increased prices of goods? 89 00:04:15,720 --> 00:04:18,400 Speaker 4: Which goods have been one of the bright points of 90 00:04:18,440 --> 00:04:19,400 Speaker 4: the inflation data of. 91 00:04:19,440 --> 00:04:21,160 Speaker 3: Late All Right, our Jersey, thank you so much. 92 00:04:21,160 --> 00:04:23,240 Speaker 2: We appreciate that our Jersey chief you wus interest rate 93 00:04:23,279 --> 00:04:26,719 Speaker 2: strategists for Bloomberg Intelligence appreciate getting a few minutes of 94 00:04:26,720 --> 00:04:27,239 Speaker 2: his time. 95 00:04:28,520 --> 00:04:32,400 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 96 00:04:32,480 --> 00:04:36,040 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 97 00:04:36,040 --> 00:04:38,839 Speaker 1: Auto with the Bloomberg Business app. You can also listen 98 00:04:38,920 --> 00:04:42,040 Speaker 1: live on Amazon Alexa from our flagship New York station. 99 00:04:42,400 --> 00:04:45,159 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 100 00:04:46,080 --> 00:04:48,960 Speaker 2: Keith wrong enough and getha is the media analyst at 101 00:04:49,000 --> 00:04:52,320 Speaker 2: Bloomberg Intelligency Space down in Princeton, New Jersey. Keith, A 102 00:04:52,360 --> 00:04:55,560 Speaker 2: lot to talk to you about today. Let's start with Comcast. 103 00:04:56,080 --> 00:04:58,599 Speaker 2: Was this announcement by the company that they're considering spelling 104 00:04:58,640 --> 00:05:01,279 Speaker 2: off their cable networks? Was it expected by the street 105 00:05:01,480 --> 00:05:03,000 Speaker 2: and do you think it could be a good move. 106 00:05:03,520 --> 00:05:05,760 Speaker 6: I'm not so sure. If it was expected by the street, 107 00:05:05,839 --> 00:05:09,680 Speaker 6: I mean, we've always known, especially from a timing perspective, Paul, 108 00:05:09,720 --> 00:05:12,000 Speaker 6: I mean, we've always known Comcast is itching to do 109 00:05:12,080 --> 00:05:15,480 Speaker 6: something when it comes to M and A, and especially 110 00:05:15,640 --> 00:05:19,080 Speaker 6: as far as their NBC media business is concerned. You're 111 00:05:19,080 --> 00:05:21,560 Speaker 6: absolutely right in pointing out that this is a segment 112 00:05:21,600 --> 00:05:24,360 Speaker 6: that has been affected very adversely by court cutting. They're 113 00:05:24,400 --> 00:05:27,400 Speaker 6: losing about eight to ten percent of their subscriber base 114 00:05:27,440 --> 00:05:30,160 Speaker 6: every year and that has kind of really weighed on 115 00:05:30,320 --> 00:05:33,440 Speaker 6: you know, both advertising revenue as well as distribution revenue, 116 00:05:33,440 --> 00:05:36,080 Speaker 6: which is affiliate fees for the cable networks. Remember, they 117 00:05:36,120 --> 00:05:39,800 Speaker 6: have some very good cable networks, whether it's USA, whether 118 00:05:39,839 --> 00:05:43,720 Speaker 6: it's the Golf Channel, whether it's MSNBC. But again, across 119 00:05:43,760 --> 00:05:46,960 Speaker 6: the board, you know, we've seen ratings pressure, we've seen 120 00:05:47,040 --> 00:05:50,160 Speaker 6: advertising pressure, we've seen affiliate fee pressure. And so this 121 00:05:50,200 --> 00:05:52,280 Speaker 6: is them basically saying, yeah, we need to do something 122 00:05:52,360 --> 00:05:53,960 Speaker 6: about this, and we need to kind of spin this 123 00:05:54,040 --> 00:05:56,599 Speaker 6: because this is really weighing on the valuation of the 124 00:05:56,760 --> 00:05:57,520 Speaker 6: entire company. 125 00:05:58,120 --> 00:06:00,479 Speaker 5: Keep it. Talk to me about Peacock. What's going on there? 126 00:06:00,560 --> 00:06:02,159 Speaker 5: Is that a good business for the company. 127 00:06:02,640 --> 00:06:07,040 Speaker 6: The Peacock is you know, Comcasts and NBC solution streaming solution, 128 00:06:07,760 --> 00:06:10,560 Speaker 6: and they've had some pretty good success. But again, if 129 00:06:10,600 --> 00:06:13,279 Speaker 6: you're kind of looking at streaming as a as a 130 00:06:13,320 --> 00:06:17,599 Speaker 6: subscriber scale game, Nora, well they're they're really far behind. 131 00:06:17,640 --> 00:06:20,320 Speaker 6: So they have about thirty six thirty seven million subscribers. 132 00:06:20,360 --> 00:06:23,680 Speaker 6: I mean every time they have a sports programming boost, 133 00:06:23,680 --> 00:06:25,599 Speaker 6: either with the Olympics or you know, with a with 134 00:06:25,640 --> 00:06:29,279 Speaker 6: an NFL playoff game, so they do kind of get 135 00:06:29,400 --> 00:06:33,440 Speaker 6: those little bumps. But again, when you're comparing Peacock at 136 00:06:33,480 --> 00:06:36,040 Speaker 6: you know, thirty seven million subscribers to Netflix at two 137 00:06:36,120 --> 00:06:39,839 Speaker 6: hundred and eighty two million, I mean, there's just no comparison. 138 00:06:39,960 --> 00:06:42,839 Speaker 6: So it's not a scalable solution, but it is a 139 00:06:42,839 --> 00:06:45,599 Speaker 6: good solution nevertheless, for Comcasts at the time at the 140 00:06:45,600 --> 00:06:46,239 Speaker 6: time being. 141 00:06:46,120 --> 00:06:47,840 Speaker 2: You know, I've been a big fan of Comcasts as 142 00:06:47,880 --> 00:06:51,240 Speaker 2: a stock for thirty plus years. The management family, the 143 00:06:51,720 --> 00:06:55,800 Speaker 2: Roberts family there at Comcasts, Mister Roberts back in the day. 144 00:06:57,200 --> 00:06:59,320 Speaker 2: What's the future of this company, Githa, how do people 145 00:06:59,360 --> 00:07:02,400 Speaker 2: look at this commpany because you know, the cable their 146 00:07:02,600 --> 00:07:05,360 Speaker 2: cable TV business, they're entertainment businesses. Is you talked about 147 00:07:05,360 --> 00:07:08,599 Speaker 2: the cord cutting. Everybody who's got you know, what's the 148 00:07:08,600 --> 00:07:09,480 Speaker 2: future of this company? 149 00:07:09,480 --> 00:07:12,080 Speaker 6: Do you think I think the future of the company 150 00:07:12,080 --> 00:07:13,520 Speaker 6: still remains very strong, Paul. 151 00:07:13,680 --> 00:07:13,760 Speaker 7: So. 152 00:07:13,840 --> 00:07:16,600 Speaker 6: Yes, they are a vertically integrated media company. They have 153 00:07:16,800 --> 00:07:20,840 Speaker 6: both distribution as well as content. Majority of their IBADA, 154 00:07:20,880 --> 00:07:24,640 Speaker 6: as you pointed out, comes from their cable connectivity business 155 00:07:24,640 --> 00:07:27,000 Speaker 6: eighty percent of their IBADA and that part of the 156 00:07:27,040 --> 00:07:29,640 Speaker 6: business has been you know, on you know, suffering from 157 00:07:29,680 --> 00:07:32,640 Speaker 6: a little bit of a slowdown because broadband subscriber growth 158 00:07:33,000 --> 00:07:35,400 Speaker 6: has really been hurt because of a lot of competition 159 00:07:35,480 --> 00:07:37,920 Speaker 6: from both fiber as well as fixed wireless access. But 160 00:07:38,000 --> 00:07:40,160 Speaker 6: it looks like there might be a slight turnaround, So 161 00:07:40,200 --> 00:07:42,920 Speaker 6: there are some green shoots there and at the end 162 00:07:42,960 --> 00:07:44,760 Speaker 6: of the day, while even if it might not be 163 00:07:44,880 --> 00:07:46,840 Speaker 6: a big growth business, I think it will be a 164 00:07:46,840 --> 00:07:50,560 Speaker 6: stable business and Comcast will be able to drive pretty healthy, 165 00:07:51,440 --> 00:07:53,920 Speaker 6: you know, both revenue gains as well as you know, 166 00:07:54,240 --> 00:07:56,960 Speaker 6: a load of mid single digit EBADA gains. Now, where 167 00:07:57,160 --> 00:07:59,240 Speaker 6: you know kind of investors really struggle is what are 168 00:07:59,240 --> 00:08:01,480 Speaker 6: they going to do with the end see asset And 169 00:08:01,640 --> 00:08:04,240 Speaker 6: yes again now there it looks like they're evaluating some 170 00:08:04,280 --> 00:08:07,160 Speaker 6: strategic options with the cable network business. But the studio 171 00:08:07,240 --> 00:08:10,560 Speaker 6: is doing really well, and the theme parts, while suffering 172 00:08:10,600 --> 00:08:15,000 Speaker 6: from some softness recently, will kind of see a reversal 173 00:08:15,080 --> 00:08:17,880 Speaker 6: next year because they're opening one of their most ambitious 174 00:08:17,960 --> 00:08:22,120 Speaker 6: projects ever in Orlando, Epic Universe, which will basically double 175 00:08:22,160 --> 00:08:23,840 Speaker 6: their footprint in Orlando. 176 00:08:24,240 --> 00:08:24,440 Speaker 7: Yeah. 177 00:08:24,440 --> 00:08:26,280 Speaker 2: I saw a big gone through the airport recently down 178 00:08:26,280 --> 00:08:29,840 Speaker 2: in Orlando, tons of advertising for this new Universal park. 179 00:08:29,920 --> 00:08:32,679 Speaker 2: And we saw some people where did I say? We 180 00:08:32,679 --> 00:08:35,520 Speaker 2: were at the hotel Alex Steele and I for something 181 00:08:35,640 --> 00:08:38,160 Speaker 2: and the people came down. No, they came from England 182 00:08:39,000 --> 00:08:41,120 Speaker 2: just for the Universal Parks to Orlando. They didn't go 183 00:08:41,160 --> 00:08:43,240 Speaker 2: to the Disney properties, which you're fascinating. 184 00:08:43,800 --> 00:08:46,200 Speaker 8: This is back up. They were in separate rooms and 185 00:08:46,240 --> 00:08:47,840 Speaker 8: it was a business trip, business. 186 00:08:47,520 --> 00:08:50,319 Speaker 3: Trip, Thank you, thank you. 187 00:08:51,160 --> 00:08:53,000 Speaker 5: Well, I wanted to move over to Peloton. I mean, 188 00:08:53,000 --> 00:08:55,080 Speaker 5: of course, we did hear that news today that Ford's 189 00:08:55,160 --> 00:08:59,560 Speaker 5: executive Peter Stern will be the next CEO of Peloton. 190 00:08:59,600 --> 00:09:02,680 Speaker 5: They're really hoping that he will lead a turnaround. Of course, 191 00:09:02,679 --> 00:09:04,760 Speaker 5: we know that this has really been a struggling company here. 192 00:09:05,200 --> 00:09:06,920 Speaker 5: What has been the general sentiment? I mean, I'm seeing 193 00:09:06,960 --> 00:09:10,080 Speaker 5: shares up substantially more than twenty percent in trading today. 194 00:09:11,520 --> 00:09:13,680 Speaker 6: Yeah, so I mean, you know, the sentiment obviously has 195 00:09:13,720 --> 00:09:16,240 Speaker 6: has turned and it has shifted to a more positive sentiment. 196 00:09:16,360 --> 00:09:19,320 Speaker 6: Of course, with this new announcement of a CEO, I 197 00:09:19,320 --> 00:09:22,320 Speaker 6: think the street kind of now really expects an articulation 198 00:09:22,600 --> 00:09:26,120 Speaker 6: off kind of this future of the future strategic direction 199 00:09:26,280 --> 00:09:29,240 Speaker 6: for the company, the vision for the brand, and how 200 00:09:29,360 --> 00:09:32,160 Speaker 6: this new CEO is going to go about accomplishing that. 201 00:09:32,480 --> 00:09:34,920 Speaker 6: But in the interim, even as they've kind of waited, 202 00:09:35,360 --> 00:09:37,920 Speaker 6: you know, for this new person to come on board, 203 00:09:38,160 --> 00:09:39,720 Speaker 6: they've done a lot of things to kind of rite 204 00:09:39,720 --> 00:09:41,880 Speaker 6: the ships. So one of the biggest problems for Peloton, 205 00:09:42,000 --> 00:09:45,200 Speaker 6: along with you know, the softness in demand, has been 206 00:09:45,480 --> 00:09:49,040 Speaker 6: you know, a very kind of bulky cost base, which 207 00:09:49,120 --> 00:09:52,240 Speaker 6: led to a lot of losses, a lot of cash burn, 208 00:09:52,559 --> 00:09:55,480 Speaker 6: and they've really kind of righted the ship there, if 209 00:09:55,480 --> 00:09:59,360 Speaker 6: you will. So we saw them posting profitability that came 210 00:09:59,360 --> 00:10:02,720 Speaker 6: in well about what consensus was expecting. They've raised their 211 00:10:02,760 --> 00:10:05,120 Speaker 6: guidance for a justiny bit du for you know, fiscal 212 00:10:05,160 --> 00:10:08,600 Speaker 6: twenty twenty five. Again, free cash flow as positive, So 213 00:10:08,679 --> 00:10:11,960 Speaker 6: a lot of things to to cheer. But again, I 214 00:10:11,960 --> 00:10:14,640 Speaker 6: think the ultimate question for this company is what is 215 00:10:14,679 --> 00:10:18,280 Speaker 6: really the endgame for Peloton? Will they have sustainable demand, 216 00:10:18,280 --> 00:10:21,000 Speaker 6: will they have sustainable free cash flow? Or is this 217 00:10:21,120 --> 00:10:22,720 Speaker 6: just going to be kind of an m and A play. 218 00:10:23,559 --> 00:10:24,520 Speaker 3: So where do we go from here? 219 00:10:24,559 --> 00:10:26,199 Speaker 2: Because you mentioned the free cash loan, and I'm looking 220 00:10:26,240 --> 00:10:28,440 Speaker 2: at the FA function on the Bloomberg terminal and the 221 00:10:28,520 --> 00:10:32,040 Speaker 2: company forecasted for the first time in many, many years. 222 00:10:32,040 --> 00:10:35,079 Speaker 2: Maybe it's history free cashual positive in our fiscal twenty 223 00:10:35,120 --> 00:10:38,840 Speaker 2: five and even more free casual positive fiscal twenty six. 224 00:10:38,960 --> 00:10:41,200 Speaker 2: So it sounds like maybe, as you mentioned, they've righted 225 00:10:41,240 --> 00:10:44,360 Speaker 2: the ship. But is this a standalone company gether or 226 00:10:44,400 --> 00:10:47,200 Speaker 2: to investors feel like it could be part of something bigger, 227 00:10:47,240 --> 00:10:49,480 Speaker 2: bigger experiential company. 228 00:10:49,880 --> 00:10:52,000 Speaker 6: I mean, Paul, there have been so many rumors about 229 00:10:52,040 --> 00:10:55,360 Speaker 6: Peloton kind of ultimately being you know this this attractive 230 00:10:55,440 --> 00:10:58,800 Speaker 6: MNA candidate, whether you know it's it could make sense 231 00:10:58,800 --> 00:11:00,960 Speaker 6: for an Apple, whether it could make sense for Amazon. 232 00:11:01,280 --> 00:11:03,360 Speaker 6: Over the past few months, there have actually been some 233 00:11:03,440 --> 00:11:06,440 Speaker 6: rumblings about whether it makes sense for private equity, especially 234 00:11:06,480 --> 00:11:09,320 Speaker 6: with all this focus on cost cuts. So that's still 235 00:11:09,400 --> 00:11:11,439 Speaker 6: kind of a little bit of a wait and watch. 236 00:11:11,520 --> 00:11:14,200 Speaker 6: I'm not so sure it really makes sense as a 237 00:11:14,200 --> 00:11:18,560 Speaker 6: standalone company unless this new CEO has some really grand 238 00:11:18,679 --> 00:11:21,560 Speaker 6: vision in terms of introducing new modalities, in terms of 239 00:11:21,600 --> 00:11:25,600 Speaker 6: really resuscitating the demand, because you know, we're seeing subscribers 240 00:11:25,640 --> 00:11:28,600 Speaker 6: kind of fall off quarter after quarter, and that really 241 00:11:28,679 --> 00:11:31,240 Speaker 6: is the question. Yes, they are going to be you know, 242 00:11:31,280 --> 00:11:33,600 Speaker 6: free cash flow positive in twenty twenty five and twenty 243 00:11:33,600 --> 00:11:37,480 Speaker 6: twenty six, but that's really more by right sizing costs. 244 00:11:37,640 --> 00:11:38,800 Speaker 6: At the end of the day, they have to grow 245 00:11:38,840 --> 00:11:41,680 Speaker 6: their top line and you know that is where we're 246 00:11:41,720 --> 00:11:42,640 Speaker 6: kind of still struggling. 247 00:11:42,960 --> 00:11:44,439 Speaker 3: All right, Githa, thanks so much for that. 248 00:11:44,520 --> 00:11:46,920 Speaker 2: Keith Ranganath, and she covers all of the media space 249 00:11:47,640 --> 00:11:50,880 Speaker 2: for Bloomberg Intelligency space on our Princeton, New Jersey offices PEM. 250 00:11:55,480 --> 00:11:59,360 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 251 00:11:59,440 --> 00:12:02,760 Speaker 1: weekdays ten am Eastern on Apple Car, playing Android Otto 252 00:12:02,880 --> 00:12:05,840 Speaker 1: with the Bloomberg Business app. Listen on demand wherever you 253 00:12:05,880 --> 00:12:09,559 Speaker 1: get your podcasts, or watch us live on YouTube. 254 00:12:10,200 --> 00:12:11,520 Speaker 3: Alalu Aganga joins us. 255 00:12:11,520 --> 00:12:14,840 Speaker 2: She's the US Chief Investment Officer at Mercer, joining us 256 00:12:14,840 --> 00:12:15,520 Speaker 2: here in our studio. 257 00:12:15,520 --> 00:12:16,640 Speaker 3: We appreciate you coming in. 258 00:12:18,240 --> 00:12:19,719 Speaker 2: What do you make of this market when you talk 259 00:12:19,760 --> 00:12:21,840 Speaker 2: to your clients because we've got people are telling me 260 00:12:21,840 --> 00:12:23,840 Speaker 2: we've got an election next week, so I think that's 261 00:12:23,920 --> 00:12:27,760 Speaker 2: kind of important. We've got earnings coming out like crazy 262 00:12:28,200 --> 00:12:30,760 Speaker 2: this week. What's kind of the message you go out 263 00:12:30,760 --> 00:12:32,040 Speaker 2: to your clients with these. 264 00:12:31,920 --> 00:12:33,880 Speaker 1: Days right now? 265 00:12:34,640 --> 00:12:39,080 Speaker 9: Hang tight, so you know, when you think of the elections, 266 00:12:39,280 --> 00:12:42,120 Speaker 9: at least for us our clients as we say they're 267 00:12:42,160 --> 00:12:45,240 Speaker 9: long term investors. There are a couple of things though 268 00:12:45,240 --> 00:12:47,439 Speaker 9: with regards to elections that are top of mind. And 269 00:12:47,520 --> 00:12:50,840 Speaker 9: the first is just uncertainty, and it's uncertainty around where 270 00:12:50,880 --> 00:12:54,719 Speaker 9: you allocate capital, because for us, if you're tying up 271 00:12:55,679 --> 00:12:58,400 Speaker 9: money for years and years and years and a policy 272 00:12:58,520 --> 00:13:03,840 Speaker 9: change happens, that could affect your investments. So things like infrastructure, 273 00:13:04,040 --> 00:13:07,920 Speaker 9: clean tech spending, you know, those areas that were attractive 274 00:13:08,000 --> 00:13:10,880 Speaker 9: during the Inflation Reduction Act. Of any aspect of that changes, 275 00:13:10,920 --> 00:13:14,680 Speaker 9: that's one issue. And then another thing that is top 276 00:13:14,720 --> 00:13:18,440 Speaker 9: of mind for clients is the potential for tariffs like 277 00:13:18,480 --> 00:13:21,480 Speaker 9: that is a big topic right now, depending on where 278 00:13:21,520 --> 00:13:26,560 Speaker 9: that goes, and it's either that'll increase you're spending if 279 00:13:26,559 --> 00:13:28,840 Speaker 9: you're an operating entity, those types of things, and the 280 00:13:28,920 --> 00:13:31,880 Speaker 9: impact on the portfolio is is my portfolio generating enough, 281 00:13:32,000 --> 00:13:34,000 Speaker 9: so top of mind in those two categories. 282 00:13:34,080 --> 00:13:36,439 Speaker 5: So when we think about next week and the potential outcome, 283 00:13:36,559 --> 00:13:39,040 Speaker 5: are there any particular sectors that you're keeping an eye 284 00:13:39,120 --> 00:13:41,800 Speaker 5: on depending on either presidential win. 285 00:13:42,679 --> 00:13:46,240 Speaker 9: Well, we've actually most recently taken risk off the table. 286 00:13:46,280 --> 00:13:49,960 Speaker 9: We were overweight equities just broadly going into these types 287 00:13:50,000 --> 00:13:52,760 Speaker 9: of events because of the volatility and uncertainty. It's a 288 00:13:52,760 --> 00:13:56,120 Speaker 9: close race as we know it. So we've moved back 289 00:13:56,160 --> 00:13:59,720 Speaker 9: to tactically neutral across the board. So where at market weights, 290 00:14:00,200 --> 00:14:03,880 Speaker 9: no real sector, no real geographic overweight going into this 291 00:14:04,480 --> 00:14:05,120 Speaker 9: fixed income. 292 00:14:05,200 --> 00:14:06,720 Speaker 3: I mean, I don't know what's going on out there. 293 00:14:06,760 --> 00:14:08,480 Speaker 2: I mean I got a feathers cutting rates that I've 294 00:14:08,520 --> 00:14:11,760 Speaker 2: got yields going up. So I don't know what are 295 00:14:11,800 --> 00:14:13,480 Speaker 2: you doing in fixed InCom space or you're sticking with 296 00:14:13,480 --> 00:14:15,680 Speaker 2: the treasure market. It takes some credit risk. How do 297 00:14:15,679 --> 00:14:16,280 Speaker 2: you think about it? 298 00:14:16,480 --> 00:14:20,000 Speaker 9: You know, when people throughout fixed income broadly, it plays 299 00:14:20,040 --> 00:14:25,400 Speaker 9: like five roles in the portfolio, right, So diversification, income, inflation, protection, 300 00:14:25,600 --> 00:14:28,840 Speaker 9: you name it for us. When folks are thinking about 301 00:14:28,880 --> 00:14:31,600 Speaker 9: fixed income, they're really thinking in terms of diversification, and 302 00:14:31,680 --> 00:14:34,760 Speaker 9: then we are we're encouraging clients to look more at 303 00:14:34,840 --> 00:14:39,440 Speaker 9: non traditional strategies. Right, So where rates are today, hedge 304 00:14:39,520 --> 00:14:42,600 Speaker 9: fund strategies, if you build a well diversified one, can 305 00:14:42,640 --> 00:14:45,440 Speaker 9: actually really be more impactful in your portfolio than your 306 00:14:45,440 --> 00:14:48,360 Speaker 9: traditional fixed income. Treasury correlation is negative point three too 307 00:14:48,360 --> 00:14:50,920 Speaker 9: point five, but the rest is actually zero to positive 308 00:14:51,640 --> 00:14:55,480 Speaker 9: positive correlation s equities. Where rates are today, it has 309 00:14:55,520 --> 00:14:58,880 Speaker 9: a direct impact on companies bottom lines and funding and 310 00:14:58,920 --> 00:15:02,600 Speaker 9: those types of things. Long short strategies for hedge funds 311 00:15:02,640 --> 00:15:04,880 Speaker 9: do well in this type of rate environment, even though 312 00:15:04,880 --> 00:15:09,800 Speaker 9: it's decreasing the trend. Following strategies are doing well as well. 313 00:15:09,880 --> 00:15:11,400 Speaker 9: So those are some of the things that we're talking 314 00:15:11,400 --> 00:15:15,000 Speaker 9: to clients about if they're looking for diversification that they 315 00:15:15,040 --> 00:15:16,400 Speaker 9: traditionally go to fixed income for. 316 00:15:17,560 --> 00:15:19,160 Speaker 5: I mean, how are you thinking about data right now? 317 00:15:19,240 --> 00:15:21,760 Speaker 5: Of course, we had PCE coming out this morning, and 318 00:15:21,840 --> 00:15:24,200 Speaker 5: when we think about it, this year, we've really seen 319 00:15:24,200 --> 00:15:26,200 Speaker 5: a brab browley. Of course we're seeing a breather today, 320 00:15:26,560 --> 00:15:28,320 Speaker 5: but we do have the S and P five hundred 321 00:15:28,440 --> 00:15:31,240 Speaker 5: up twenty percent year today. So how are you really 322 00:15:31,360 --> 00:15:35,120 Speaker 5: viewing this data? Inflation? What is the consensus right now? 323 00:15:35,320 --> 00:15:37,880 Speaker 9: So for all the data points that are going in. 324 00:15:38,000 --> 00:15:42,720 Speaker 9: We're piecing everything together to make the case. And we've 325 00:15:42,760 --> 00:15:45,200 Speaker 9: been seeing this for some time around a soft landing, right. So, 326 00:15:45,280 --> 00:15:49,320 Speaker 9: if you start with GDP data consensus was three point one, 327 00:15:49,360 --> 00:15:51,800 Speaker 9: it came in what two point eight for the quarter, 328 00:15:52,080 --> 00:15:54,960 Speaker 9: but that's still you know, that's still pretty decent. That's strong. 329 00:15:55,920 --> 00:15:59,480 Speaker 9: Then if you go into the inflation numbers, CPI I 330 00:15:59,520 --> 00:16:02,680 Speaker 9: think was like call it two point four for September 331 00:16:03,840 --> 00:16:07,000 Speaker 9: non farm payroll at the start of the month. So 332 00:16:07,040 --> 00:16:10,440 Speaker 9: the September numbers was like twenty five hundred or something 333 00:16:10,480 --> 00:16:12,800 Speaker 9: like that. We've got numbers out tomorrow, so we'll see. 334 00:16:13,080 --> 00:16:16,200 Speaker 9: But those three, coupled with the fifty basis point rate 335 00:16:16,280 --> 00:16:19,120 Speaker 9: cut that happened, right like, all of the data points 336 00:16:19,160 --> 00:16:22,280 Speaker 9: are still consistent with the fact that we are gently landing. 337 00:16:22,800 --> 00:16:25,920 Speaker 5: So when you're thinking about data more broadly, where is 338 00:16:25,960 --> 00:16:29,760 Speaker 5: your focus? Are we looking at job data or inflation data? 339 00:16:29,800 --> 00:16:31,680 Speaker 5: Seems as though there's been a shift more recently. 340 00:16:31,920 --> 00:16:35,160 Speaker 9: It's a mosaic because what we found is there's just 341 00:16:35,200 --> 00:16:37,840 Speaker 9: no one data point that has predictive power for you 342 00:16:37,920 --> 00:16:40,640 Speaker 9: from an investment standpoint. We've tested a number of different things, 343 00:16:40,640 --> 00:16:44,000 Speaker 9: so it's both piecing the data together and then what 344 00:16:44,080 --> 00:16:47,000 Speaker 9: is the interpretation for that point. We also look at 345 00:16:47,040 --> 00:16:51,120 Speaker 9: commodity data right like, right now, geopolitics is somewhat front 346 00:16:51,120 --> 00:16:54,240 Speaker 9: and center across the board, and that affects commodity, so 347 00:16:54,280 --> 00:16:57,080 Speaker 9: we're watching that as well. So what we do gradually 348 00:16:57,120 --> 00:16:59,360 Speaker 9: is as each piece of data comes in, we start 349 00:16:59,360 --> 00:17:02,920 Speaker 9: getting a sense for where the trends are going and 350 00:17:03,040 --> 00:17:05,440 Speaker 9: using that in addition to the earnings that are coming out. 351 00:17:05,800 --> 00:17:08,200 Speaker 9: You know, for example, like we're looking at where earnings 352 00:17:08,200 --> 00:17:11,480 Speaker 9: forecasts are and if you think of the US other 353 00:17:11,600 --> 00:17:15,400 Speaker 9: than a small handful, like the earnings growth numbers aren't fantastic, 354 00:17:15,600 --> 00:17:17,880 Speaker 9: you know, the magnificent seven maybe, but for the rest 355 00:17:17,960 --> 00:17:18,520 Speaker 9: not so much. 356 00:17:18,920 --> 00:17:20,880 Speaker 2: So what do you think this market needs to see 357 00:17:20,880 --> 00:17:22,080 Speaker 2: out of earnings? We're kind of kind of in the 358 00:17:22,119 --> 00:17:23,639 Speaker 2: middle of the earning season here do we need to 359 00:17:23,680 --> 00:17:26,720 Speaker 2: see big It feels like we need to see big 360 00:17:26,720 --> 00:17:29,159 Speaker 2: beats because we've got the market selling off. Nastak off 361 00:17:29,160 --> 00:17:32,360 Speaker 2: two percent today on Microsoft and meta numbers I thought 362 00:17:32,359 --> 00:17:34,880 Speaker 2: were pretty good but maybe just a little weak, and 363 00:17:35,080 --> 00:17:36,360 Speaker 2: that's enough for the market to sell off. 364 00:17:36,440 --> 00:17:38,520 Speaker 9: It's still tech though. If you were to think of 365 00:17:38,560 --> 00:17:41,920 Speaker 9: the broader. You know, we need to see it expand 366 00:17:42,000 --> 00:17:46,120 Speaker 9: beyond a specific category to be you know, more excited 367 00:17:46,119 --> 00:17:48,600 Speaker 9: than we are now. Granted we're sitting here with the 368 00:17:48,680 --> 00:17:53,240 Speaker 9: SMP where it is right, So the question is how 369 00:17:53,280 --> 00:17:55,159 Speaker 9: consistent is it? And can it last? 370 00:17:55,720 --> 00:17:57,639 Speaker 5: Do you see this rally lasting? Do you see it 371 00:17:57,720 --> 00:17:58,680 Speaker 5: having further to run? 372 00:17:59,280 --> 00:18:01,359 Speaker 9: The thing about heck is that it continues to push 373 00:18:01,400 --> 00:18:04,240 Speaker 9: the frontier right, so as you have more capex, more data, 374 00:18:04,240 --> 00:18:07,160 Speaker 9: more innovation like never say never like those the bet 375 00:18:07,160 --> 00:18:10,960 Speaker 9: against that has surely been wrong. But we will say, 376 00:18:11,000 --> 00:18:14,080 Speaker 9: looking at valuations relative to history, we are at extremely 377 00:18:14,119 --> 00:18:17,840 Speaker 9: stretched levels. So back to how we allocate capital for 378 00:18:17,880 --> 00:18:20,520 Speaker 9: the longer term. If we're looking at our forward looking 379 00:18:21,000 --> 00:18:25,000 Speaker 9: capital markets assumptions, for example, where we see longer term equities, 380 00:18:25,160 --> 00:18:28,960 Speaker 9: especially US and more and more firms are coming out 381 00:18:28,960 --> 00:18:33,000 Speaker 9: with numbers that are not as high as they have been. Right, 382 00:18:33,040 --> 00:18:35,399 Speaker 9: So it's like what we've seen the last decade. Do 383 00:18:35,440 --> 00:18:39,240 Speaker 9: we expect this type this magnitude going forward? We haven't 384 00:18:39,280 --> 00:18:41,680 Speaker 9: seen it, and we're not convinced. 385 00:18:42,480 --> 00:18:45,119 Speaker 2: How about alternative investments? How do they figure into your 386 00:18:45,119 --> 00:18:47,600 Speaker 2: outlook these days? I'm surprised when I go to see 387 00:18:48,040 --> 00:18:51,920 Speaker 2: and visit with registered investment advisors representing their institutional clients 388 00:18:52,400 --> 00:18:54,920 Speaker 2: that their clients are asking for it and they want 389 00:18:55,280 --> 00:18:58,400 Speaker 2: something more than just two to five percent allocation. Kind 390 00:18:58,400 --> 00:19:00,399 Speaker 2: of surprises me. It gets me a little nerve respect. 391 00:19:00,520 --> 00:19:03,320 Speaker 2: How do you guys at an institution level think about alternatives? 392 00:19:03,440 --> 00:19:07,400 Speaker 9: So the first part about it is assessing your liquidity profile. 393 00:19:07,480 --> 00:19:09,919 Speaker 9: Even you know you're talking about individuals, but if you 394 00:19:09,960 --> 00:19:12,560 Speaker 9: start thinking how much cash. 395 00:19:12,240 --> 00:19:12,920 Speaker 5: Do I need? 396 00:19:13,760 --> 00:19:16,960 Speaker 9: As we talk about cash planning with a number of organizations, 397 00:19:17,040 --> 00:19:19,919 Speaker 9: especially operational ones, do you have enough cash for the 398 00:19:19,920 --> 00:19:23,119 Speaker 9: first one year, eighteen months, maybe two years of operations? 399 00:19:23,160 --> 00:19:27,159 Speaker 9: Then beyond that, let's start thinking of a waterfall. So 400 00:19:27,560 --> 00:19:30,960 Speaker 9: where primaries in private equity has the longest tail, maybe 401 00:19:30,960 --> 00:19:34,760 Speaker 9: private credit is six years, seven years. Can you withstand 402 00:19:34,800 --> 00:19:37,639 Speaker 9: that We talked about hedge funds redemptions as quarterly for some, 403 00:19:38,520 --> 00:19:41,320 Speaker 9: so it's more building out that profile real estate value 404 00:19:41,320 --> 00:19:45,119 Speaker 9: add funds for seven years. So the place for private 405 00:19:45,160 --> 00:19:49,520 Speaker 9: investments is along the waterfall for liquidity, and that's really 406 00:19:49,560 --> 00:19:51,679 Speaker 9: how we encourage clients that think about it, and then 407 00:19:51,720 --> 00:19:54,399 Speaker 9: more importantly, what type of role are they playing in 408 00:19:54,440 --> 00:19:55,240 Speaker 9: your portfolio? 409 00:19:55,880 --> 00:19:57,520 Speaker 5: Is now the time for small caps. How are you 410 00:19:57,520 --> 00:19:59,400 Speaker 5: all thinking about small caps right now? 411 00:20:00,000 --> 00:20:04,919 Speaker 9: We have had some decent luck and small caps. However, 412 00:20:05,000 --> 00:20:08,200 Speaker 9: the breakout of small cap companies, especially today, it has 413 00:20:08,240 --> 00:20:10,960 Speaker 9: a decent number of what we call non earners right so, 414 00:20:11,080 --> 00:20:14,399 Speaker 9: like the growth stories that will grow into some of 415 00:20:14,400 --> 00:20:17,520 Speaker 9: these multiples in valuations, small cap stocks are also levered 416 00:20:17,520 --> 00:20:21,240 Speaker 9: towards rates and are pretty sensitive in that regard to 417 00:20:21,400 --> 00:20:24,280 Speaker 9: rates coming down. Okay, I guess it's good, but where 418 00:20:24,280 --> 00:20:27,719 Speaker 9: we've seen the delivering of the earnings has been more 419 00:20:27,800 --> 00:20:31,600 Speaker 9: large cap. However, from an active management standpoint, that's where 420 00:20:31,600 --> 00:20:34,280 Speaker 9: you need the active managers to sort of sift through 421 00:20:34,400 --> 00:20:36,920 Speaker 9: the index to be able to find those types of opportunities. 422 00:20:36,960 --> 00:20:40,440 Speaker 9: So with active management, yes, just as an index could 423 00:20:40,440 --> 00:20:41,400 Speaker 9: be a bit more challenging. 424 00:20:42,160 --> 00:20:45,359 Speaker 2: We are seeing again the Nastak off two percent today. 425 00:20:45,400 --> 00:20:48,240 Speaker 2: I mean, does that tell you that are you concerned 426 00:20:48,280 --> 00:20:50,359 Speaker 2: about the valuation of this market here? Because again I 427 00:20:50,480 --> 00:20:54,199 Speaker 2: Lemmet and Microsoft numbers are pretty good but bloom, so we. 428 00:20:55,080 --> 00:21:00,800 Speaker 9: Are definitely not excited about valuations here. It's elevated. No 429 00:21:00,840 --> 00:21:04,040 Speaker 9: matter what historical metric you look at it, it's pretty high. 430 00:21:04,040 --> 00:21:06,160 Speaker 9: You know, off two percent todays is definitely not enough 431 00:21:06,160 --> 00:21:08,679 Speaker 9: to be able to bring it back. So the valuations 432 00:21:08,680 --> 00:21:12,560 Speaker 9: you're elevated, Is this where we would be overweight today. No, 433 00:21:13,320 --> 00:21:16,719 Speaker 9: as they said, we're neutral, So valuations are elevated. It's 434 00:21:16,760 --> 00:21:19,359 Speaker 9: one of the additional data points that we're looking at 435 00:21:19,960 --> 00:21:22,600 Speaker 9: as you evaluate across your other portfolio the areas that 436 00:21:22,640 --> 00:21:24,640 Speaker 9: could be more attractive, hence private markets. 437 00:21:24,760 --> 00:21:25,400 Speaker 3: Yeah, very good. 438 00:21:25,560 --> 00:21:28,000 Speaker 2: Alla Adana, thank you so much for joining us US 439 00:21:28,160 --> 00:21:31,120 Speaker 2: chief investment officer at Mercer giving us some thoughts on 440 00:21:31,320 --> 00:21:32,320 Speaker 2: these markets. 441 00:21:33,480 --> 00:21:37,359 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 442 00:21:37,440 --> 00:21:40,960 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 443 00:21:41,000 --> 00:21:43,760 Speaker 1: Auto with the Bloomberg Business App. You can also listen 444 00:21:43,880 --> 00:21:46,960 Speaker 1: live on Amazon Alexa from our flagship New York station, 445 00:21:47,320 --> 00:21:50,840 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 446 00:21:51,280 --> 00:21:54,800 Speaker 2: It is never a good news day for a company 447 00:21:54,800 --> 00:21:57,399 Speaker 2: when they re pull their guidance, not buying, no, not 448 00:21:57,480 --> 00:21:59,639 Speaker 2: much you want to Investors don't like that, and just 449 00:21:59,720 --> 00:22:01,960 Speaker 2: ask the good folks at es Day Lauder. They pulled 450 00:22:01,960 --> 00:22:04,440 Speaker 2: their guidance. They got some challenges in their business. They 451 00:22:04,440 --> 00:22:08,840 Speaker 2: called out China. But the stock falls the most on record. 452 00:22:09,000 --> 00:22:12,520 Speaker 2: We're now down the lowest level since twenty fourteen, so real, 453 00:22:12,680 --> 00:22:15,080 Speaker 2: real challenging day for Esday. Lotter goes to the whole 454 00:22:15,119 --> 00:22:17,160 Speaker 2: luxury space. We've seen us all off in the luxury space. 455 00:22:17,320 --> 00:22:18,840 Speaker 2: So when you want to talk luxury goods, there's only 456 00:22:18,960 --> 00:22:22,600 Speaker 2: one place to go to. Deborah aChn, luxury goods analysts 457 00:22:22,600 --> 00:22:26,520 Speaker 2: for Bloomberg Intelligence. She's based in London. She knows these companies. 458 00:22:26,119 --> 00:22:26,920 Speaker 3: Backwards and forwards. 459 00:22:27,440 --> 00:22:29,960 Speaker 2: Deb what's your take on the news coming out of 460 00:22:30,080 --> 00:22:31,000 Speaker 2: ESDA Latder today. 461 00:22:31,560 --> 00:22:32,119 Speaker 10: I think it was. 462 00:22:32,119 --> 00:22:37,720 Speaker 7: Another case of outgoing management making promises in the market 463 00:22:37,800 --> 00:22:41,080 Speaker 7: and the investors starting to really believe it after we 464 00:22:41,160 --> 00:22:45,040 Speaker 7: saw some improvements coming through from the restructure program. So 465 00:22:45,080 --> 00:22:49,119 Speaker 7: how this stood. We know steal Order are really heavily 466 00:22:49,160 --> 00:22:53,480 Speaker 7: exposed in Asia Pacific, particularly in China and in travel 467 00:22:53,520 --> 00:22:57,360 Speaker 7: retail across Asia. In skincare, they're more exposed than any 468 00:22:57,440 --> 00:23:00,520 Speaker 7: of the peer group. And no, we've had negative and 469 00:23:00,920 --> 00:23:04,439 Speaker 7: comment in the marketplace from the peer group that China 470 00:23:04,640 --> 00:23:08,000 Speaker 7: is not doing so well, that it's even down versus 471 00:23:08,000 --> 00:23:10,840 Speaker 7: where it was from a couple of months ago. The 472 00:23:10,960 --> 00:23:14,040 Speaker 7: view really was that Estelaudry in August had said along 473 00:23:14,080 --> 00:23:16,120 Speaker 7: with the others, that it would be a slightly odd 474 00:23:16,119 --> 00:23:18,240 Speaker 7: They hoped it would be a slightly improved in market, 475 00:23:18,640 --> 00:23:21,160 Speaker 7: and that just hits them hard. They have a new 476 00:23:21,200 --> 00:23:25,040 Speaker 7: CEO coming in in January, and so they've given Q 477 00:23:25,080 --> 00:23:31,680 Speaker 7: two guidance which is way below consensus expectation on EPs 478 00:23:31,800 --> 00:23:34,399 Speaker 7: and also a minus six to minus eight percent on 479 00:23:34,560 --> 00:23:37,440 Speaker 7: organic sales growth for two Q when the market looks 480 00:23:37,480 --> 00:23:39,840 Speaker 7: for flat. So there's a lot to do, not just 481 00:23:39,880 --> 00:23:41,040 Speaker 7: in Asia, but elsewhere. 482 00:23:41,720 --> 00:23:45,080 Speaker 5: I mean, for this company, the results were significantly worse 483 00:23:45,119 --> 00:23:48,359 Speaker 5: than expected. I mean, we saw the guidance withdrawn for 484 00:23:48,480 --> 00:23:52,160 Speaker 5: the four year guidance and then also a forty seven 485 00:23:52,240 --> 00:23:55,080 Speaker 5: percent percent dividend cut, and I'm saying shares of the 486 00:23:55,080 --> 00:23:57,720 Speaker 5: company down fifty two percent. But when I'm looking at 487 00:23:57,800 --> 00:24:02,200 Speaker 5: Wall Street analyst readings, we're seeing seven buys and twenty 488 00:24:02,240 --> 00:24:05,960 Speaker 5: five holds in zero cells. So I'm curious there, I mean, 489 00:24:06,040 --> 00:24:09,159 Speaker 5: is there's still some hope left in the market in 490 00:24:09,240 --> 00:24:11,440 Speaker 5: terms of this company being able to see a turnaround 491 00:24:11,640 --> 00:24:14,639 Speaker 5: further to be seventy eight percent of Wall Streets saying 492 00:24:14,680 --> 00:24:17,160 Speaker 5: to hold, but zero people saying to sell. 493 00:24:17,240 --> 00:24:20,040 Speaker 7: Right, so we've seen it's been two and a half 494 00:24:20,119 --> 00:24:22,560 Speaker 7: years in the making that we're looking for this transition 495 00:24:23,600 --> 00:24:27,520 Speaker 7: and return to growth. We've seen margins move from mid 496 00:24:27,560 --> 00:24:31,520 Speaker 7: twenty percent down to lo teens, down to single digit 497 00:24:31,600 --> 00:24:34,560 Speaker 7: and that's where we sit today. And the expectation was 498 00:24:34,600 --> 00:24:39,359 Speaker 7: really because of the exposure into Asia, particularly China, that 499 00:24:39,440 --> 00:24:42,760 Speaker 7: we would see some improvement coming through and that we're 500 00:24:42,800 --> 00:24:46,719 Speaker 7: on the precipice of this and we're just not seeing that. 501 00:24:46,800 --> 00:24:49,439 Speaker 7: So I already imagine, you know, there'll be rethink on 502 00:24:49,520 --> 00:24:53,080 Speaker 7: where we go, and certainly it's about structural fix it's 503 00:24:53,119 --> 00:24:56,800 Speaker 7: about really the new CEO coming in with a new program, 504 00:24:56,840 --> 00:24:58,919 Speaker 7: which is really I must say, we are seeing some 505 00:24:59,040 --> 00:25:02,480 Speaker 7: improvements from a LI based on growth margin. Some improvements 506 00:25:02,480 --> 00:25:05,560 Speaker 7: should come through and operate in. There are new much 507 00:25:05,600 --> 00:25:09,640 Speaker 7: more social media type events taking place. They're doing very 508 00:25:09,640 --> 00:25:11,840 Speaker 7: well with some of their brands in the US on 509 00:25:12,040 --> 00:25:16,400 Speaker 7: Amazon Beauty online Store, so that's starting to come through. 510 00:25:16,720 --> 00:25:18,280 Speaker 7: But there's so much to do, and one of the 511 00:25:18,320 --> 00:25:21,680 Speaker 7: big things is to reposition themselves so they're not as 512 00:25:21,720 --> 00:25:24,679 Speaker 7: exposed in Asia in the long term. That's what the 513 00:25:24,760 --> 00:25:28,280 Speaker 7: investor has to decide in terms of the time in 514 00:25:28,359 --> 00:25:30,520 Speaker 7: on that on where they really see the base. 515 00:25:30,560 --> 00:25:32,920 Speaker 2: And also pressuring the stock. I'm sure is the fact 516 00:25:32,960 --> 00:25:35,280 Speaker 2: that the company did cut its dividend. It says to 517 00:25:35,280 --> 00:25:39,040 Speaker 2: create financial flexibility for its incoming leadership team, but clearly. 518 00:25:38,720 --> 00:25:40,600 Speaker 3: The dividend cuts impacting it as well. 519 00:25:40,760 --> 00:25:43,360 Speaker 2: Hey, deb, as a financial analyst, you look at all 520 00:25:43,400 --> 00:25:47,439 Speaker 2: the levers on revenue, the levers on costs. Where do 521 00:25:47,480 --> 00:25:49,520 Speaker 2: you think this new Managin team should be focusing. Is 522 00:25:49,560 --> 00:25:52,920 Speaker 2: it repositioning their brand or is it just simply doing 523 00:25:52,960 --> 00:25:54,480 Speaker 2: it more efficiently cutting costs. 524 00:25:54,520 --> 00:25:58,320 Speaker 7: Maybe when we think about in terms of the cost structure, 525 00:25:58,359 --> 00:26:00,720 Speaker 7: there is some movement they can get out of there. 526 00:26:00,760 --> 00:26:03,440 Speaker 7: So they have a big program running which will cost 527 00:26:03,760 --> 00:26:06,359 Speaker 7: seven hundred million, and in the end they're looking for 528 00:26:06,440 --> 00:26:08,960 Speaker 7: benefit of one point one to one point four billion, 529 00:26:09,040 --> 00:26:11,200 Speaker 7: So they're guide into the top end of that cost cut, 530 00:26:11,480 --> 00:26:13,240 Speaker 7: and I would imagine on the back of that they 531 00:26:13,280 --> 00:26:16,080 Speaker 7: come somewhere near the bottom end when it comes to 532 00:26:16,119 --> 00:26:18,960 Speaker 7: the savings they get over the program, probably not to 533 00:26:19,040 --> 00:26:21,800 Speaker 7: twenty six but into twenty seven. So there are some 534 00:26:21,840 --> 00:26:25,159 Speaker 7: savings to come through. But I think it's our reposition 535 00:26:25,240 --> 00:26:28,480 Speaker 7: in what they have been closer to the market, understanding 536 00:26:28,480 --> 00:26:31,880 Speaker 7: the consumer better, pulling in a younger audience. They're doing 537 00:26:31,920 --> 00:26:35,159 Speaker 7: it small steps, small steps, but then the competition is 538 00:26:35,160 --> 00:26:37,600 Speaker 7: getting ahead, so there's a lot going on. It's more 539 00:26:37,640 --> 00:26:42,080 Speaker 7: about talking to the market, to the consumer and building 540 00:26:42,160 --> 00:26:43,359 Speaker 7: up from the top line down. 541 00:26:43,640 --> 00:26:46,239 Speaker 2: All right, very good, Debacon, you are an expert on 542 00:26:46,280 --> 00:26:48,560 Speaker 2: all things luxury, Debacon, She's a luxury good. Janos for 543 00:26:48,560 --> 00:26:59,720 Speaker 2: Bloomberg Intelligence joining us from London via zoom. 544 00:26:56,400 --> 00:27:01,040 Speaker 1: You're listening to the Bloomberg Intelligence Podcast live weekdays at 545 00:27:01,040 --> 00:27:04,399 Speaker 1: ten am Eastern on applecar Play and Android Auto with 546 00:27:04,400 --> 00:27:07,280 Speaker 1: a Bloomberg Business app. You can also listen live on 547 00:27:07,359 --> 00:27:10,600 Speaker 1: Amazon Alexa from our flagship New York station. Just say 548 00:27:10,720 --> 00:27:15,720 Speaker 1: Alexa playing Bloomberg eleven thirty. 549 00:27:14,560 --> 00:27:16,200 Speaker 3: Men Deep Sing Darkens to the door. 550 00:27:17,000 --> 00:27:17,480 Speaker 5: I love it. 551 00:27:17,520 --> 00:27:18,440 Speaker 3: We have him to play. 552 00:27:18,480 --> 00:27:20,840 Speaker 2: Maybe for the sell off today, I thought the Meta 553 00:27:20,840 --> 00:27:22,560 Speaker 2: and Microsoft numbers were pretty solid. 554 00:27:22,640 --> 00:27:23,520 Speaker 5: We need to hear his lips. 555 00:27:24,440 --> 00:27:27,639 Speaker 3: Let's see what he has to say. Man Deep Sing Meta, Microsoft. 556 00:27:27,680 --> 00:27:30,359 Speaker 2: Just summarize kind of what you think the market's reaction 557 00:27:30,520 --> 00:27:32,720 Speaker 2: is today to these earnings. We're seeing a sell off 558 00:27:32,760 --> 00:27:35,159 Speaker 2: in those names and in the broader market. How do 559 00:27:35,200 --> 00:27:36,680 Speaker 2: you view this tech numbers from last night? 560 00:27:37,080 --> 00:27:40,520 Speaker 10: Yeah, I mean the setup was very different from Alphabet 561 00:27:40,560 --> 00:27:44,000 Speaker 10: in the sense that expectations were much higher, and in 562 00:27:44,040 --> 00:27:48,040 Speaker 10: this case, I think with Microsoft at least they quantified 563 00:27:48,080 --> 00:27:52,320 Speaker 10: the AI services contribution being ten billion dollars by next quarter, 564 00:27:52,440 --> 00:27:56,120 Speaker 10: so that's huge. Still. You know, when it comes to Azure, 565 00:27:56,560 --> 00:28:01,320 Speaker 10: the fact that growth is not accelerating solved with Google Cloud. 566 00:28:01,800 --> 00:28:04,240 Speaker 10: It makes you wonder, you know, if Capex is growing 567 00:28:04,280 --> 00:28:09,119 Speaker 10: fifty percent, why is it not translating into faster Azure growth? 568 00:28:09,119 --> 00:28:12,040 Speaker 10: Even though thirty three percent is a very solid number, 569 00:28:12,280 --> 00:28:14,720 Speaker 10: but you want to see that acceleration which we saw 570 00:28:14,800 --> 00:28:15,280 Speaker 10: with Google. 571 00:28:15,800 --> 00:28:17,639 Speaker 5: So, I mean, coming into this earning season when we 572 00:28:17,680 --> 00:28:21,000 Speaker 5: were thinking about the market more broadly expectations, it seems 573 00:28:21,080 --> 00:28:22,879 Speaker 5: as though the bar was a little bit lower, so 574 00:28:22,920 --> 00:28:25,600 Speaker 5: it should be a little bit easier for companies to 575 00:28:25,640 --> 00:28:29,000 Speaker 5: be How are we thinking about tech earning season as 576 00:28:29,040 --> 00:28:31,040 Speaker 5: a whole and how much we expect it to really 577 00:28:31,160 --> 00:28:32,959 Speaker 5: drive the S and P five hundreds gains? 578 00:28:33,400 --> 00:28:35,560 Speaker 10: Yeah, I mean, look at the first two MAC seven 579 00:28:35,720 --> 00:28:39,960 Speaker 10: with Tesla and Alphabet, the bar was much lower. They 580 00:28:39,960 --> 00:28:42,720 Speaker 10: came out with very good numbers and. 581 00:28:42,680 --> 00:28:43,960 Speaker 3: You saw the stock reaction. 582 00:28:44,440 --> 00:28:48,920 Speaker 10: In the case of Meta and Microsoft, the expectations were higher, 583 00:28:49,000 --> 00:28:52,360 Speaker 10: and I would say Meta is somewhat different in the 584 00:28:52,400 --> 00:28:56,040 Speaker 10: sense that they have their all large angrid model, they 585 00:28:56,080 --> 00:28:59,400 Speaker 10: have their lead when it comes to you know, generative AI, 586 00:28:59,720 --> 00:29:03,160 Speaker 10: but they don't have a separate AI revenue line like 587 00:29:03,200 --> 00:29:06,400 Speaker 10: you see with you know, Microsoft or with Alphabet. And 588 00:29:06,440 --> 00:29:10,160 Speaker 10: that's where you know, if they say, you know, Kapex 589 00:29:10,240 --> 00:29:13,720 Speaker 10: is going to significantly increase for twenty twenty five without 590 00:29:13,840 --> 00:29:17,640 Speaker 10: really quantifying how significant it will be, whether it's going 591 00:29:17,720 --> 00:29:20,320 Speaker 10: to be twenty percent which is the consensus number, or 592 00:29:20,400 --> 00:29:23,960 Speaker 10: thirty percent of fifty percent, nobody knows. And that's what 593 00:29:24,120 --> 00:29:28,280 Speaker 10: I think created that uncertainty around Meta's Capex spin. And 594 00:29:28,320 --> 00:29:30,960 Speaker 10: we saw what happened in three Q of twenty twenty 595 00:29:30,960 --> 00:29:33,720 Speaker 10: two where they had a very similar print, but they 596 00:29:33,800 --> 00:29:37,680 Speaker 10: actually quantified that significant and you know, the stock dropped 597 00:29:37,720 --> 00:29:41,440 Speaker 10: twenty percent after that, So clearly there is some nervousness 598 00:29:41,440 --> 00:29:43,360 Speaker 10: and uncertainty around their Capex spin. 599 00:29:43,640 --> 00:29:47,160 Speaker 2: I've Meta off about the three percent here today in training, 600 00:29:47,240 --> 00:29:50,080 Speaker 2: looking at the shares of Microsoft off about five point 601 00:29:50,080 --> 00:29:51,840 Speaker 2: eight percent, all right after the close tonight. 602 00:29:52,440 --> 00:29:56,160 Speaker 3: A couple more of your name's Apple and Amazon. What 603 00:29:56,240 --> 00:29:58,000 Speaker 3: should we be looking for for each of these names? 604 00:29:58,080 --> 00:30:00,680 Speaker 10: I mean, again, the bar is much lower for Apple, 605 00:30:00,840 --> 00:30:03,960 Speaker 10: So talking about you know how Tesla and Alphabet did well. 606 00:30:04,040 --> 00:30:07,040 Speaker 10: The bar is lower for Apple. The problem with I 607 00:30:07,040 --> 00:30:10,640 Speaker 10: think Apple is in terms of catalysts. They don't really 608 00:30:10,680 --> 00:30:12,920 Speaker 10: have a catalyst for you know, a big beat and 609 00:30:13,040 --> 00:30:17,640 Speaker 10: rais because China and you know other markets, you're not 610 00:30:17,760 --> 00:30:21,960 Speaker 10: gonna see a big Apple refreshed cycle that everyone has 611 00:30:22,000 --> 00:30:26,280 Speaker 10: been waiting for. Apple intelligence is a driver, but it 612 00:30:26,320 --> 00:30:27,520 Speaker 10: will be more qualitative. 613 00:30:27,560 --> 00:30:31,360 Speaker 3: You're not again Bloomberg intelligence. I know what that is? 614 00:30:31,480 --> 00:30:34,880 Speaker 2: So they copied us basically sounds like it. 615 00:30:34,720 --> 00:30:36,240 Speaker 3: What is it again? That their. 616 00:30:37,640 --> 00:30:42,240 Speaker 10: Exactly the chip inside the phone, So they don't rely 617 00:30:42,360 --> 00:30:45,800 Speaker 10: on in video GPUs. They actually do it on their 618 00:30:45,920 --> 00:30:49,760 Speaker 10: chip which resides in the phone, and that's their Apple playbook. 619 00:30:49,800 --> 00:30:53,800 Speaker 10: They vertically integrate. They don't really rely on anyone else. 620 00:30:53,840 --> 00:30:58,000 Speaker 10: And it's just it's taking time to you know, really 621 00:30:58,080 --> 00:30:59,200 Speaker 10: drive that top line. 622 00:30:59,320 --> 00:31:00,560 Speaker 5: So what's going on? DoorDash? 623 00:31:00,800 --> 00:31:00,880 Speaker 10: Right? 624 00:31:00,960 --> 00:31:04,800 Speaker 5: I know? DoorDash? We have uber eat or I don't DoorDash. 625 00:31:04,880 --> 00:31:06,959 Speaker 5: See you know I grew lub you forget I'm a 626 00:31:07,000 --> 00:31:07,880 Speaker 5: premium member. 627 00:31:08,200 --> 00:31:09,120 Speaker 3: Oh I didn't. 628 00:31:10,080 --> 00:31:11,720 Speaker 5: This is maybe I shouldn't said that on air. 629 00:31:11,840 --> 00:31:13,560 Speaker 3: I'll let you cook. 630 00:31:14,800 --> 00:31:17,120 Speaker 5: I should, I should, I should cook more. I'm working 631 00:31:17,160 --> 00:31:20,080 Speaker 5: on it, guys, But how much market shared does DoorDash 632 00:31:20,120 --> 00:31:23,320 Speaker 5: have in comparison to say it's competitors Uber Eats and 633 00:31:23,360 --> 00:31:23,840 Speaker 5: grub Hub. 634 00:31:24,600 --> 00:31:27,360 Speaker 10: I mean, they are a category leader when it comes 635 00:31:27,400 --> 00:31:30,920 Speaker 10: to online delivery, and I think what they've done successfully 636 00:31:31,000 --> 00:31:35,320 Speaker 10: is to expand into adjacent markets without spending a lot 637 00:31:35,360 --> 00:31:38,560 Speaker 10: on acquisitions, which is what Uber did and it hurt 638 00:31:38,640 --> 00:31:41,200 Speaker 10: their margins for a while. So in the case of DoorDash, 639 00:31:41,240 --> 00:31:44,920 Speaker 10: it's been mostly organic and now there's partnership with Lyft. 640 00:31:45,040 --> 00:31:47,760 Speaker 10: I mean, I think Lift needed it more than DoorDash, 641 00:31:47,840 --> 00:31:51,600 Speaker 10: but it does help, you know, DoorDash being that category 642 00:31:51,680 --> 00:31:56,560 Speaker 10: leader in the delivery and now getting it's foreign invite sharing. 643 00:31:56,600 --> 00:31:59,480 Speaker 5: I'm looking at shares a DoorDash of fifty seven percent 644 00:31:59,560 --> 00:32:00,000 Speaker 5: this year. 645 00:32:00,160 --> 00:32:02,280 Speaker 3: Yeah, just amazing. It's got a market cap. 646 00:32:02,480 --> 00:32:05,440 Speaker 10: Six It's an amazing management team, is that right? That 647 00:32:05,600 --> 00:32:08,640 Speaker 10: really you listen to the call so much clarity. They 648 00:32:08,680 --> 00:32:11,320 Speaker 10: do what they say on the call, and it's just 649 00:32:11,720 --> 00:32:14,120 Speaker 10: I think they've built that credibility with investors. 650 00:32:14,200 --> 00:32:15,960 Speaker 3: It's you know, offspring number four. 651 00:32:16,040 --> 00:32:19,120 Speaker 2: John in college, I saw a couple of door dashes 652 00:32:19,560 --> 00:32:21,040 Speaker 2: charges on the credit card. 653 00:32:21,520 --> 00:32:22,160 Speaker 3: I stopped. 654 00:32:22,200 --> 00:32:25,800 Speaker 2: The card was frozen for a week, and I said, no, 655 00:32:26,520 --> 00:32:28,680 Speaker 2: get off your keysture and walk over mc Donalds and 656 00:32:28,720 --> 00:32:29,520 Speaker 2: get your quarter. 657 00:32:29,560 --> 00:32:31,680 Speaker 5: Patter with with these share games, maybe I need to 658 00:32:31,720 --> 00:32:32,800 Speaker 5: switch to door Dash. 659 00:32:32,880 --> 00:32:34,000 Speaker 3: Maybe we leave party. 660 00:32:34,040 --> 00:32:35,880 Speaker 2: So put it put in the context for John Tucker, 661 00:32:36,000 --> 00:32:38,680 Speaker 2: he's thinking about this food delivery business Uber Eats versus 662 00:32:38,760 --> 00:32:39,360 Speaker 2: door door Dash. 663 00:32:40,400 --> 00:32:43,760 Speaker 10: I mean they had the playbook here is to do 664 00:32:43,880 --> 00:32:47,200 Speaker 10: everything in last mile delivery and have you pay you know, 665 00:32:47,280 --> 00:32:50,840 Speaker 10: ten dollars fifteen dollars subscription fee like your Amazon Prime. 666 00:32:51,120 --> 00:32:54,640 Speaker 10: But Amazon Prime isn't catering to you know, ride sharing 667 00:32:54,800 --> 00:32:57,840 Speaker 10: and food delivery. So that's where they want to be. 668 00:32:57,880 --> 00:33:02,120 Speaker 10: That indispensable subscription, that monthly subscription that you may have 669 00:33:02,160 --> 00:33:02,440 Speaker 10: to pay. 670 00:33:02,760 --> 00:33:06,400 Speaker 5: And you do this, okay, but listen grub Hub, if 671 00:33:06,440 --> 00:33:09,880 Speaker 5: you have Amazon Prime, you get the premium membership for free. 672 00:33:10,360 --> 00:33:13,200 Speaker 5: I started it out as a student a while years ago, 673 00:33:13,520 --> 00:33:15,480 Speaker 5: and then it transitioned into Amazon Prime. 674 00:33:16,120 --> 00:33:18,880 Speaker 8: And once they have your credit card number, the only 675 00:33:18,920 --> 00:33:22,040 Speaker 8: option is to cancel the card. You can't just freeze 676 00:33:22,080 --> 00:33:23,760 Speaker 8: it because they'll keep charging it. 677 00:33:24,000 --> 00:33:24,520 Speaker 3: Exactly. 678 00:33:24,640 --> 00:33:28,440 Speaker 8: I made the misake of actually time to call them. 679 00:33:27,840 --> 00:33:30,680 Speaker 2: Exactly all right, Seeing he covers all everything in the 680 00:33:30,720 --> 00:33:31,560 Speaker 2: technology space. 681 00:33:33,080 --> 00:33:36,960 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 682 00:33:37,040 --> 00:33:40,080 Speaker 1: weekdays at ten am Eastern on Apple card Play and 683 00:33:40,080 --> 00:33:43,360 Speaker 1: Android Auto with the Bloomberg Business. You can also listen 684 00:33:43,480 --> 00:33:46,560 Speaker 1: live on Amazon Alexa from our flagship New York station 685 00:33:46,920 --> 00:33:49,720 Speaker 1: Just Say Alexa playing Bloomberg eleven thirty. 686 00:33:50,920 --> 00:33:53,080 Speaker 2: You talk a lot about AI is a big driver 687 00:33:53,280 --> 00:33:55,160 Speaker 2: for not just the big tech stocks, but just for 688 00:33:55,240 --> 00:33:57,760 Speaker 2: the market everything for all it seems like. But there's 689 00:33:57,800 --> 00:34:00,720 Speaker 2: downsites and you know, there's concern out there. And I 690 00:34:00,760 --> 00:34:04,280 Speaker 2: think back to the writer strike in Hollywood earlier this year, 691 00:34:04,320 --> 00:34:06,240 Speaker 2: and one of the big big issues for them, in 692 00:34:06,240 --> 00:34:10,680 Speaker 2: addition getting paid more was protections from an AI. You know, 693 00:34:10,719 --> 00:34:12,879 Speaker 2: they want to somebody come in in. Some AI bought 694 00:34:13,000 --> 00:34:14,439 Speaker 2: writing a script for the next show. 695 00:34:14,480 --> 00:34:15,080 Speaker 5: You know, thank you. 696 00:34:15,200 --> 00:34:16,719 Speaker 2: It's a big legal issue. That's why we like to 697 00:34:16,719 --> 00:34:18,840 Speaker 2: talk to smart people like Ronnie a set Home. She 698 00:34:18,960 --> 00:34:21,760 Speaker 2: is a managing partner for set Home Law Group. Ronnie, 699 00:34:21,840 --> 00:34:27,360 Speaker 2: let's talk about AI and music. Can AI create music? 700 00:34:28,200 --> 00:34:31,640 Speaker 11: It can and it has. I don't really I don't 701 00:34:31,640 --> 00:34:35,560 Speaker 11: know if the listeners followed this story. But Ghostwriter, which 702 00:34:35,600 --> 00:34:40,360 Speaker 11: is a great name for this quote unquote artist created 703 00:34:40,520 --> 00:34:44,080 Speaker 11: a song using Drake and the Weekend. Although I don't 704 00:34:44,120 --> 00:34:46,120 Speaker 11: know what the Weekend's calling himself right now, but at 705 00:34:46,120 --> 00:34:49,600 Speaker 11: the time, the Weekend's voice and there was obviously no 706 00:34:49,680 --> 00:34:53,840 Speaker 11: permission granted by these artists, and he created a song 707 00:34:53,920 --> 00:34:57,239 Speaker 11: called Heart on My Sleeve. Whether or not the song 708 00:34:57,480 --> 00:35:01,799 Speaker 11: is good doesn't really matter from legal first, and that's 709 00:35:01,840 --> 00:35:04,399 Speaker 11: the scary part with AI. It's not just a learning tool. 710 00:35:04,440 --> 00:35:06,520 Speaker 11: We hear about it in books and scripts, you know, 711 00:35:06,600 --> 00:35:12,400 Speaker 11: reading and then creating overly inspired text. Now AI is 712 00:35:12,480 --> 00:35:16,320 Speaker 11: learning your voice, your tone. We already have deep fakes 713 00:35:16,320 --> 00:35:20,680 Speaker 11: out there, but now they're taking away somebody's livelihood and 714 00:35:20,680 --> 00:35:24,240 Speaker 11: then god forbid, the messaging is not what the artist intended. 715 00:35:25,520 --> 00:35:28,160 Speaker 11: It can be a big mess at the same time, 716 00:35:28,840 --> 00:35:30,680 Speaker 11: you know, the Beatles just came out with a new 717 00:35:30,719 --> 00:35:34,040 Speaker 11: song and they were able to isolate John Lennon's voice 718 00:35:34,040 --> 00:35:36,839 Speaker 11: in order to create something new. So if you're using 719 00:35:36,880 --> 00:35:40,080 Speaker 11: AI and music to enhance something that you own or 720 00:35:40,120 --> 00:35:43,120 Speaker 11: you have permission to use, that's fantastic. But from a 721 00:35:43,200 --> 00:35:47,480 Speaker 11: legal perspective, we have laws you have to follow. But 722 00:35:47,520 --> 00:35:50,320 Speaker 11: then we have just you know, regular decency and morality, 723 00:35:50,960 --> 00:35:53,080 Speaker 11: and you know, perhaps we can write a script for 724 00:35:53,120 --> 00:35:55,040 Speaker 11: that in case people don't know about it. 725 00:35:55,120 --> 00:35:56,960 Speaker 5: Definitely, And it's funny that you brought up the Drake 726 00:35:57,000 --> 00:35:59,360 Speaker 5: situation because that's what I was immediately thinking back to 727 00:36:00,080 --> 00:36:02,360 Speaker 5: Drake and Kendrick Mr. We're having this back and forth 728 00:36:02,400 --> 00:36:06,200 Speaker 5: that Drake used Tupac's voice as a synthetic voice through AI. 729 00:36:06,840 --> 00:36:09,400 Speaker 5: What can you do about this? What is the resolve here? 730 00:36:10,560 --> 00:36:15,399 Speaker 11: I mean, unfortunately, you can't peremptorily stop somebody. I mean, yes, 731 00:36:15,480 --> 00:36:17,919 Speaker 11: you can have a contract that tells someone you can't 732 00:36:18,000 --> 00:36:22,760 Speaker 11: use my voice, or you can't use this estate's you know, property. However, 733 00:36:22,880 --> 00:36:26,439 Speaker 11: we really need to explain to people what they can 734 00:36:26,600 --> 00:36:29,840 Speaker 11: and cannot do legally, because the law allows you to 735 00:36:29,840 --> 00:36:33,959 Speaker 11: protect yourself contractually and then you know, post problem through 736 00:36:34,440 --> 00:36:38,600 Speaker 11: demand letters and litigation. But that can be very expensive. Perhaps, 737 00:36:38,719 --> 00:36:42,440 Speaker 11: you know, Drake can afford that, but maybe new artists cannot. 738 00:36:43,120 --> 00:36:45,120 Speaker 3: So what are you advising your clients? 739 00:36:45,160 --> 00:36:48,240 Speaker 2: Like, if I'm a new artist and I'm signing a contract, 740 00:36:48,640 --> 00:36:50,640 Speaker 2: I now have to have language in there that says 741 00:36:51,520 --> 00:36:57,080 Speaker 2: you cannot take my any of my content, voice, my lyrics, anything. 742 00:36:57,239 --> 00:36:57,439 Speaker 3: Yeah. 743 00:36:57,440 --> 00:37:02,480 Speaker 11: So we do work on a lot of releases for celebrities. 744 00:37:02,560 --> 00:37:06,160 Speaker 11: Quasi celebrities, artists, you know, you name it, and the 745 00:37:06,320 --> 00:37:09,200 Speaker 11: language is to be extremely broad. Right you're doing a 746 00:37:09,239 --> 00:37:12,640 Speaker 11: show like I'm doing this show, and you have unfettered 747 00:37:12,719 --> 00:37:16,919 Speaker 11: riots to use a snippet of this program, the entire program, etc. 748 00:37:17,560 --> 00:37:21,759 Speaker 11: So now we're adding that if AI is being utilized, 749 00:37:21,800 --> 00:37:24,799 Speaker 11: first of all, we want to see information relative to 750 00:37:24,840 --> 00:37:27,080 Speaker 11: how it's being utilized. Are you using it to enhance 751 00:37:27,520 --> 00:37:30,239 Speaker 11: in case I sound a little scratchy or I have 752 00:37:30,280 --> 00:37:33,839 Speaker 11: a lot of ums, or are you going to use 753 00:37:33,920 --> 00:37:36,400 Speaker 11: my voice and put me on some other show I 754 00:37:36,400 --> 00:37:38,759 Speaker 11: don't know about. So we're tightening the language a little 755 00:37:38,800 --> 00:37:43,160 Speaker 11: bit and asking beforehand for the company's policy with respect 756 00:37:43,160 --> 00:37:45,840 Speaker 11: to AI. And if you're dealing with a large company, 757 00:37:46,200 --> 00:37:51,319 Speaker 11: you know, like Bloomberg, that's relatively easy. However, it's impossible 758 00:37:51,440 --> 00:37:56,040 Speaker 11: to peremptorily stop individuals who are just really great at 759 00:37:56,080 --> 00:37:59,239 Speaker 11: using technology, who may be somewhat anonymous. 760 00:38:00,000 --> 00:38:02,960 Speaker 5: How are some of the big dogs like Universal, Sony Music, 761 00:38:03,080 --> 00:38:05,640 Speaker 5: Warner Music, how are they thinking about this? I mean, 762 00:38:06,040 --> 00:38:08,560 Speaker 5: especially if you think about it on a more drastic scale, 763 00:38:08,640 --> 00:38:11,080 Speaker 5: could this at any point begin to threaten music sales? 764 00:38:11,080 --> 00:38:13,319 Speaker 5: If somebody else can just make a song using this 765 00:38:13,360 --> 00:38:14,719 Speaker 5: person's voice on their own I. 766 00:38:14,680 --> 00:38:17,680 Speaker 11: Think it threatens more of the artist. So, you know, 767 00:38:17,719 --> 00:38:21,520 Speaker 11: we went through something similar about who owns what with 768 00:38:21,920 --> 00:38:24,520 Speaker 11: Prints right at one point in time, he couldn't use 769 00:38:24,560 --> 00:38:27,640 Speaker 11: his own name because he didn't own his name, and 770 00:38:27,800 --> 00:38:30,879 Speaker 11: he didn't necessarily own the music that was produced under 771 00:38:30,880 --> 00:38:35,040 Speaker 11: that name. So a company like Universal you know Music 772 00:38:35,680 --> 00:38:38,719 Speaker 11: could I don't know, but could have verbiage in their 773 00:38:38,719 --> 00:38:43,440 Speaker 11: agreements with the artists that say we essentially own your voice, 774 00:38:43,480 --> 00:38:46,840 Speaker 11: and if that's the case, they could create new works 775 00:38:46,920 --> 00:38:49,799 Speaker 11: using their voice. So it's very important for whoever it 776 00:38:49,920 --> 00:38:54,200 Speaker 11: is that's a creative to protect the essence. 777 00:38:53,920 --> 00:38:54,560 Speaker 3: Of who they are. 778 00:38:55,200 --> 00:38:58,480 Speaker 2: You know, I was always shocked as self side research channels, 779 00:38:58,600 --> 00:39:01,280 Speaker 2: I didn't own any of the content created. I didn't 780 00:39:01,280 --> 00:39:04,359 Speaker 2: own the earnings models, yes, that I created, which are 781 00:39:04,400 --> 00:39:07,880 Speaker 2: the backbone of my franchise and any analysts franchise. So 782 00:39:07,920 --> 00:39:10,319 Speaker 2: when I would leave job A to go to job B, 783 00:39:10,880 --> 00:39:13,560 Speaker 2: my models were on a floppy disc that I took 784 00:39:13,600 --> 00:39:17,760 Speaker 2: with me, which effectively was not what was illegal. Yes, 785 00:39:17,840 --> 00:39:19,719 Speaker 2: that is correct, And I went to the next firm 786 00:39:19,760 --> 00:39:21,839 Speaker 2: the next day and loaded those same models up, put 787 00:39:21,840 --> 00:39:22,759 Speaker 2: a new name on top of it. 788 00:39:22,800 --> 00:39:25,919 Speaker 3: And there I'm off and running. But this has taken 789 00:39:25,920 --> 00:39:26,920 Speaker 3: it to the nth degree. 790 00:39:27,000 --> 00:39:29,480 Speaker 11: It is thank you for telling me only about past crimes, 791 00:39:29,520 --> 00:39:32,759 Speaker 11: because I can help you with future crimes. Yes, it 792 00:39:32,880 --> 00:39:36,799 Speaker 11: is illegal, and oftentimes, depending on the rank that you're 793 00:39:36,840 --> 00:39:40,960 Speaker 11: in in the organization, they'll make you sign some kind 794 00:39:41,000 --> 00:39:44,200 Speaker 11: of you know, waiver release, not a noncompete, just a 795 00:39:44,200 --> 00:39:46,440 Speaker 11: waiver and release of whatever it is that you've created, 796 00:39:46,760 --> 00:39:48,440 Speaker 11: and they call it a work made for hire. And 797 00:39:48,480 --> 00:39:52,560 Speaker 11: then if you're going to another large institution, in their 798 00:39:52,600 --> 00:39:57,360 Speaker 11: offer letter, they likely have some verbiage that says you 799 00:39:57,440 --> 00:39:59,680 Speaker 11: promise not to use any material that you have no 800 00:39:59,680 --> 00:40:02,560 Speaker 11: authority to use while you're here, because they don't want 801 00:40:02,600 --> 00:40:04,720 Speaker 11: to get in trouble, because they don't want to get 802 00:40:05,080 --> 00:40:09,120 Speaker 11: that continuing obligations letter, which is a fancy term lawyers 803 00:40:09,200 --> 00:40:11,480 Speaker 11: use to send a letter to the new company and 804 00:40:11,520 --> 00:40:15,799 Speaker 11: just say hello, beware, we think that you may have 805 00:40:15,880 --> 00:40:19,240 Speaker 11: information to which you're not entitled. So think twice about 806 00:40:19,280 --> 00:40:20,200 Speaker 11: hiring X or Y. 807 00:40:20,480 --> 00:40:23,719 Speaker 5: Right, what about a minute less? Will the music industry 808 00:40:23,920 --> 00:40:26,160 Speaker 5: face any sort of job displacement from this? 809 00:40:26,719 --> 00:40:29,880 Speaker 11: I think so? I think, you know, music producers really 810 00:40:29,920 --> 00:40:34,640 Speaker 11: have to worry the artists now uses the producer to 811 00:40:34,760 --> 00:40:37,840 Speaker 11: help make the song you know, perfect, whatever that means. 812 00:40:37,840 --> 00:40:40,319 Speaker 11: But they may not need these producers if they have 813 00:40:40,400 --> 00:40:43,840 Speaker 11: the right technology, they can just use the AI producer. 814 00:40:43,880 --> 00:40:46,839 Speaker 11: And that's a very different use of AI, and that 815 00:40:47,040 --> 00:40:49,640 Speaker 11: use of AI is not illegal, at least not yet. 816 00:40:50,320 --> 00:40:50,640 Speaker 3: All right. 817 00:40:50,680 --> 00:40:53,080 Speaker 2: I mean, we're seeing all of our content again, from 818 00:40:52,880 --> 00:40:55,799 Speaker 2: the writers in Hollywood to now music to everything. 819 00:40:55,440 --> 00:40:56,680 Speaker 3: Else you can think of. 820 00:40:57,000 --> 00:40:59,200 Speaker 2: I think it just feels like anything that content is 821 00:40:59,239 --> 00:41:01,759 Speaker 2: being created in the industry at this point, I can 822 00:41:01,800 --> 00:41:05,239 Speaker 2: go in there and even so, yeah, I have to 823 00:41:05,239 --> 00:41:08,839 Speaker 2: see Ronnie Settham, managing partner Seed hom Law Group. 824 00:41:09,040 --> 00:41:11,320 Speaker 3: We always love talking to Ronnie it. 825 00:41:11,920 --> 00:41:16,440 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify, 826 00:41:16,640 --> 00:41:19,839 Speaker 1: and anywhere else you get your podcasts. Listen live each 827 00:41:19,840 --> 00:41:23,240 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot Com, 828 00:41:23,320 --> 00:41:26,760 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 829 00:41:26,840 --> 00:41:29,960 Speaker 1: You can also watch us live every weekday on YouTube 830 00:41:30,080 --> 00:41:31,920 Speaker 1: and always on the Bloomberg terminal