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Speaker 2: All right, We've got just a whole slew of economic
Speaker 2: data here, and the question for a lot of folks
Speaker 2: is to what extent is that going to impact the
Speaker 2: Federal Reserve going forward?
Speaker 3: Here?
Speaker 2: We've got a FED meeting next week on the seventh,
Speaker 2: and then the meeting in December. What's the FED going
Speaker 2: to do? Fortunately for us, we have somebody who does
Speaker 2: this stuff for a living. We actually pay him to
Speaker 2: do this stuff, Ira Jersey. He's the best on the street.
Speaker 2: He's our US interest rate strategist. We appreciate getting a
Speaker 2: few minutes of this time interpret some of the economic
Speaker 2: data we've seen recently, maybe some of the remarks we've
Speaker 2: heard from some of these FED folks. How do you
Speaker 2: think the Fed's going to act over the next several meetings?
Speaker 4: Yeah, yeah, so I think it's shifted actually over the
Speaker 4: last month or so, given the strength of the data
Speaker 4: and in fact today's this morning's personal income and spending numbers,
Speaker 4: along with the PC deflator, the consumption deflator that we
Speaker 4: received will allow the Fed Reserve to be somewhat less
Speaker 4: dubbish than they were at the September meeting. So our
Speaker 4: expectation now is at the Fed will cut next week.
Speaker 4: The market's fully priced for it. The Fed, you know,
Speaker 4: they don't want to lose face. They just cut fifty
Speaker 4: bases points, so I think that they'll cut again. But
Speaker 4: the big important announcement is probably going to come during
Speaker 4: the press conference, where Jay Powell will kind of very
Speaker 4: maybe not so subtly hint that the Fed Reserve might
Speaker 4: skip the December meeting and then reevaluate if they're going
Speaker 4: to go in December. So the market's not fully priced
Speaker 4: for that yet. The market's still priced for better than
Speaker 4: even odds that they're going to cut in December, but
Speaker 4: I suspect that those odds will come off pretty dramatically.
Speaker 5: Now that would be definitely an interesting things to see.
Speaker 2: The press conference, of which we'll have you know, Michael
Speaker 2: McKee will be there and you know he'll be there
Speaker 2: and we'll gate the full reporting.
Speaker 5: Yeah, but as we're looking at these numbers that came out.
Speaker 5: I mean, there's still a bit of stickiness in terms
Speaker 5: of the core PCE, but overall PCE does seem to
Speaker 5: be trending lower, which of course we do know that consumers, investors,
Speaker 5: and the FED want to see how are you kind
Speaker 5: of viewing this data and the importance of it, especially
Speaker 5: since we do know that this is the Fed's preferred
Speaker 5: measure for inflation here.
Speaker 4: Sure, so the feder Reserve and j Palace you've mentioned
Speaker 4: this in some recent speeches, that they focus on headline
Speaker 4: PC deflator, right, that's their preferred measure. That's a two
Speaker 4: point one percent, two percent of their target, so you know,
Speaker 4: call it done deal there. But as you noted, the
Speaker 4: core inflation measure is meaningfully higher than that at two
Speaker 4: point seven percent, which is largely driven by housing prices
Speaker 4: and the year and year change in housing prices, which
Speaker 4: still continue to be relatively sticky. But even that started
Speaker 4: to come off a little bit. And the big thing
Speaker 4: that I look at is some of the details and
Speaker 4: components in here. So you know, as soon as this
Speaker 4: data came out at eight thirty at eight by eight
Speaker 4: thirty five, I was updating a bunch of the charts
Speaker 4: and nerdiness that I do in parsing out this data.
Speaker 4: And if you look at services inflation, services inflation has
Speaker 4: been the single biggest driver, and that's been slowing pretty
Speaker 4: significantly over the last couple of months, and compared to
Speaker 4: a year ago, it's it's much much lower in fact,
Speaker 4: or slower, I should say, it's still growing, right, Prices
Speaker 4: are still going up, they're just going up a lot,
Speaker 4: a lot less than they had been before. And I
Speaker 4: think that the Federal Reserve is going to look at
Speaker 4: that and say, okay, look, if services inflation is actually
Speaker 4: rolling over and not going to be as big of
Speaker 4: a driver of inflation going forward, then that means that
Speaker 4: over time, core inflation will continue to come down. And yeah,
Speaker 4: you know, quite frankly, if core inflation is sticky at
Speaker 4: two and a half percent, that's fine for the Fed.
Speaker 4: The Fed just doesn't want that to go up, right,
Speaker 4: like I call it. Over three percent is unacceptable to
Speaker 4: the Fed. But you know, kind of hovering around two
Speaker 4: and a half percent would be absolutely fine as long
Speaker 4: as you have goods prices that aren't going up very
Speaker 4: quickly at all, which is the other aspect of this, right,
Speaker 4: which is why the election next week might actually have
Speaker 4: some impact, but not in the near term. It's much
Speaker 4: longer term impact, like do tariffs increase increased prices of goods?
Speaker 4: Which goods have been one of the bright points of
Speaker 4: the inflation data of.
Speaker 3: Late All Right, our Jersey, thank you so much.
Speaker 2: We appreciate that our Jersey chief you wus interest rate
Speaker 2: strategists for Bloomberg Intelligence appreciate getting a few minutes of
Speaker 2: his time.
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Speaker 2: Keith wrong enough and getha is the media analyst at
Speaker 2: Bloomberg Intelligency Space down in Princeton, New Jersey. Keith, A
Speaker 2: lot to talk to you about today. Let's start with Comcast.
Speaker 2: Was this announcement by the company that they're considering spelling
Speaker 2: off their cable networks? Was it expected by the street
Speaker 2: and do you think it could be a good move.
Speaker 6: I'm not so sure. If it was expected by the street,
Speaker 6: I mean, we've always known, especially from a timing perspective, Paul,
Speaker 6: I mean, we've always known Comcast is itching to do
Speaker 6: something when it comes to M and A, and especially
Speaker 6: as far as their NBC media business is concerned. You're
Speaker 6: absolutely right in pointing out that this is a segment
Speaker 6: that has been affected very adversely by court cutting. They're
Speaker 6: losing about eight to ten percent of their subscriber base
Speaker 6: every year and that has kind of really weighed on
Speaker 6: you know, both advertising revenue as well as distribution revenue,
Speaker 6: which is affiliate fees for the cable networks. Remember, they
Speaker 6: have some very good cable networks, whether it's USA, whether
Speaker 6: it's the Golf Channel, whether it's MSNBC. But again, across
Speaker 6: the board, you know, we've seen ratings pressure, we've seen
Speaker 6: advertising pressure, we've seen affiliate fee pressure. And so this
Speaker 6: is them basically saying, yeah, we need to do something
Speaker 6: about this, and we need to kind of spin this
Speaker 6: because this is really weighing on the valuation of the
Speaker 6: entire company.
Speaker 5: Keep it. Talk to me about Peacock. What's going on there?
Speaker 5: Is that a good business for the company.
Speaker 6: The Peacock is you know, Comcasts and NBC solution streaming solution,
Speaker 6: and they've had some pretty good success. But again, if
Speaker 6: you're kind of looking at streaming as a as a
Speaker 6: subscriber scale game, Nora, well they're they're really far behind.
Speaker 6: So they have about thirty six thirty seven million subscribers.
Speaker 6: I mean every time they have a sports programming boost,
Speaker 6: either with the Olympics or you know, with a with
Speaker 6: an NFL playoff game, so they do kind of get
Speaker 6: those little bumps. But again, when you're comparing Peacock at
Speaker 6: you know, thirty seven million subscribers to Netflix at two
Speaker 6: hundred and eighty two million, I mean, there's just no comparison.
Speaker 6: So it's not a scalable solution, but it is a
Speaker 6: good solution nevertheless, for Comcasts at the time at the
Speaker 6: time being.
Speaker 2: You know, I've been a big fan of Comcasts as
Speaker 2: a stock for thirty plus years. The management family, the
Speaker 2: Roberts family there at Comcasts, Mister Roberts back in the day.
Speaker 2: What's the future of this company, Githa, how do people
Speaker 2: look at this commpany because you know, the cable their
Speaker 2: cable TV business, they're entertainment businesses. Is you talked about
Speaker 2: the cord cutting. Everybody who's got you know, what's the
Speaker 2: future of this company?
Speaker 6: Do you think I think the future of the company
Speaker 6: still remains very strong, Paul.
Speaker 7: So.
Speaker 6: Yes, they are a vertically integrated media company. They have
Speaker 6: both distribution as well as content. Majority of their IBADA,
Speaker 6: as you pointed out, comes from their cable connectivity business
Speaker 6: eighty percent of their IBADA and that part of the
Speaker 6: business has been you know, on you know, suffering from
Speaker 6: a little bit of a slowdown because broadband subscriber growth
Speaker 6: has really been hurt because of a lot of competition
Speaker 6: from both fiber as well as fixed wireless access. But
Speaker 6: it looks like there might be a slight turnaround, So
Speaker 6: there are some green shoots there and at the end
Speaker 6: of the day, while even if it might not be
Speaker 6: a big growth business, I think it will be a
Speaker 6: stable business and Comcast will be able to drive pretty healthy,
Speaker 6: you know, both revenue gains as well as you know,
Speaker 6: a load of mid single digit EBADA gains. Now, where
Speaker 6: you know kind of investors really struggle is what are
Speaker 6: they going to do with the end see asset And
Speaker 6: yes again now there it looks like they're evaluating some
Speaker 6: strategic options with the cable network business. But the studio
Speaker 6: is doing really well, and the theme parts, while suffering
Speaker 6: from some softness recently, will kind of see a reversal
Speaker 6: next year because they're opening one of their most ambitious
Speaker 6: projects ever in Orlando, Epic Universe, which will basically double
Speaker 6: their footprint in Orlando.
Speaker 7: Yeah.
Speaker 2: I saw a big gone through the airport recently down
Speaker 2: in Orlando, tons of advertising for this new Universal park.
Speaker 2: And we saw some people where did I say? We
Speaker 2: were at the hotel Alex Steele and I for something
Speaker 2: and the people came down. No, they came from England
Speaker 2: just for the Universal Parks to Orlando. They didn't go
Speaker 2: to the Disney properties, which you're fascinating.
Speaker 8: This is back up. They were in separate rooms and
Speaker 8: it was a business trip, business.
Speaker 3: Trip, Thank you, thank you.
Speaker 5: Well, I wanted to move over to Peloton. I mean,
Speaker 5: of course, we did hear that news today that Ford's
Speaker 5: executive Peter Stern will be the next CEO of Peloton.
Speaker 5: They're really hoping that he will lead a turnaround. Of course,
Speaker 5: we know that this has really been a struggling company here.
Speaker 5: What has been the general sentiment? I mean, I'm seeing
Speaker 5: shares up substantially more than twenty percent in trading today.
Speaker 6: Yeah, so I mean, you know, the sentiment obviously has
Speaker 6: has turned and it has shifted to a more positive sentiment.
Speaker 6: Of course, with this new announcement of a CEO, I
Speaker 6: think the street kind of now really expects an articulation
Speaker 6: off kind of this future of the future strategic direction
Speaker 6: for the company, the vision for the brand, and how
Speaker 6: this new CEO is going to go about accomplishing that.
Speaker 6: But in the interim, even as they've kind of waited,
Speaker 6: you know, for this new person to come on board,
Speaker 6: they've done a lot of things to kind of rite
Speaker 6: the ships. So one of the biggest problems for Peloton,
Speaker 6: along with you know, the softness in demand, has been
Speaker 6: you know, a very kind of bulky cost base, which
Speaker 6: led to a lot of losses, a lot of cash burn,
Speaker 6: and they've really kind of righted the ship there, if
Speaker 6: you will. So we saw them posting profitability that came
Speaker 6: in well about what consensus was expecting. They've raised their
Speaker 6: guidance for a justiny bit du for you know, fiscal
Speaker 6: twenty twenty five. Again, free cash flow as positive, So
Speaker 6: a lot of things to to cheer. But again, I
Speaker 6: think the ultimate question for this company is what is
Speaker 6: really the endgame for Peloton? Will they have sustainable demand,
Speaker 6: will they have sustainable free cash flow? Or is this
Speaker 6: just going to be kind of an m and A play.
Speaker 3: So where do we go from here?
Speaker 2: Because you mentioned the free cash loan, and I'm looking
Speaker 2: at the FA function on the Bloomberg terminal and the
Speaker 2: company forecasted for the first time in many, many years.
Speaker 2: Maybe it's history free cashual positive in our fiscal twenty
Speaker 2: five and even more free casual positive fiscal twenty six.
Speaker 2: So it sounds like maybe, as you mentioned, they've righted
Speaker 2: the ship. But is this a standalone company gether or
Speaker 2: to investors feel like it could be part of something bigger,
Speaker 2: bigger experiential company.
Speaker 6: I mean, Paul, there have been so many rumors about
Speaker 6: Peloton kind of ultimately being you know this this attractive
Speaker 6: MNA candidate, whether you know it's it could make sense
Speaker 6: for an Apple, whether it could make sense for Amazon.
Speaker 6: Over the past few months, there have actually been some
Speaker 6: rumblings about whether it makes sense for private equity, especially
Speaker 6: with all this focus on cost cuts. So that's still
Speaker 6: kind of a little bit of a wait and watch.
Speaker 6: I'm not so sure it really makes sense as a
Speaker 6: standalone company unless this new CEO has some really grand
Speaker 6: vision in terms of introducing new modalities, in terms of
Speaker 6: really resuscitating the demand, because you know, we're seeing subscribers
Speaker 6: kind of fall off quarter after quarter, and that really
Speaker 6: is the question. Yes, they are going to be you know,
Speaker 6: free cash flow positive in twenty twenty five and twenty
Speaker 6: twenty six, but that's really more by right sizing costs.
Speaker 6: At the end of the day, they have to grow
Speaker 6: their top line and you know that is where we're
Speaker 6: kind of still struggling.
Speaker 3: All right, Githa, thanks so much for that.
Speaker 2: Keith Ranganath, and she covers all of the media space
Speaker 2: for Bloomberg Intelligency space on our Princeton, New Jersey offices PEM.
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Speaker 3: Alalu Aganga joins us.
Speaker 2: She's the US Chief Investment Officer at Mercer, joining us
Speaker 2: here in our studio.
Speaker 3: We appreciate you coming in.
Speaker 2: What do you make of this market when you talk
Speaker 2: to your clients because we've got people are telling me
Speaker 2: we've got an election next week, so I think that's
Speaker 2: kind of important. We've got earnings coming out like crazy
Speaker 2: this week. What's kind of the message you go out
Speaker 2: to your clients with these.
Speaker 1: Days right now?
Speaker 9: Hang tight, so you know, when you think of the elections,
Speaker 9: at least for us our clients as we say they're
Speaker 9: long term investors. There are a couple of things though
Speaker 9: with regards to elections that are top of mind. And
Speaker 9: the first is just uncertainty, and it's uncertainty around where
Speaker 9: you allocate capital, because for us, if you're tying up
Speaker 9: money for years and years and years and a policy
Speaker 9: change happens, that could affect your investments. So things like infrastructure,
Speaker 9: clean tech spending, you know, those areas that were attractive
Speaker 9: during the Inflation Reduction Act. Of any aspect of that changes,
Speaker 9: that's one issue. And then another thing that is top
Speaker 9: of mind for clients is the potential for tariffs like
Speaker 9: that is a big topic right now, depending on where
Speaker 9: that goes, and it's either that'll increase you're spending if
Speaker 9: you're an operating entity, those types of things, and the
Speaker 9: impact on the portfolio is is my portfolio generating enough,
Speaker 9: so top of mind in those two categories.
Speaker 5: So when we think about next week and the potential outcome,
Speaker 5: are there any particular sectors that you're keeping an eye
Speaker 5: on depending on either presidential win.
Speaker 9: Well, we've actually most recently taken risk off the table.
Speaker 9: We were overweight equities just broadly going into these types
Speaker 9: of events because of the volatility and uncertainty. It's a
Speaker 9: close race as we know it. So we've moved back
Speaker 9: to tactically neutral across the board. So where at market weights,
Speaker 9: no real sector, no real geographic overweight going into this
Speaker 9: fixed income.
Speaker 3: I mean, I don't know what's going on out there.
Speaker 2: I mean I got a feathers cutting rates that I've
Speaker 2: got yields going up. So I don't know what are
Speaker 2: you doing in fixed InCom space or you're sticking with
Speaker 2: the treasure market. It takes some credit risk. How do
Speaker 2: you think about it?
Speaker 9: You know, when people throughout fixed income broadly, it plays
Speaker 9: like five roles in the portfolio, right, So diversification, income, inflation, protection,
Speaker 9: you name it for us. When folks are thinking about
Speaker 9: fixed income, they're really thinking in terms of diversification, and
Speaker 9: then we are we're encouraging clients to look more at
Speaker 9: non traditional strategies. Right, So where rates are today, hedge
Speaker 9: fund strategies, if you build a well diversified one, can
Speaker 9: actually really be more impactful in your portfolio than your
Speaker 9: traditional fixed income. Treasury correlation is negative point three too
Speaker 9: point five, but the rest is actually zero to positive
Speaker 9: positive correlation s equities. Where rates are today, it has
Speaker 9: a direct impact on companies bottom lines and funding and
Speaker 9: those types of things. Long short strategies for hedge funds
Speaker 9: do well in this type of rate environment, even though
Speaker 9: it's decreasing the trend. Following strategies are doing well as well.
Speaker 9: So those are some of the things that we're talking
Speaker 9: to clients about if they're looking for diversification that they
Speaker 9: traditionally go to fixed income for.
Speaker 5: I mean, how are you thinking about data right now?
Speaker 5: Of course, we had PCE coming out this morning, and
Speaker 5: when we think about it, this year, we've really seen
Speaker 5: a brab browley. Of course we're seeing a breather today,
Speaker 5: but we do have the S and P five hundred
Speaker 5: up twenty percent year today. So how are you really
Speaker 5: viewing this data? Inflation? What is the consensus right now?
Speaker 9: So for all the data points that are going in.
Speaker 9: We're piecing everything together to make the case. And we've
Speaker 9: been seeing this for some time around a soft landing, right. So,
Speaker 9: if you start with GDP data consensus was three point one,
Speaker 9: it came in what two point eight for the quarter,
Speaker 9: but that's still you know, that's still pretty decent. That's strong.
Speaker 9: Then if you go into the inflation numbers, CPI I
Speaker 9: think was like call it two point four for September
Speaker 9: non farm payroll at the start of the month. So
Speaker 9: the September numbers was like twenty five hundred or something
Speaker 9: like that. We've got numbers out tomorrow, so we'll see.
Speaker 9: But those three, coupled with the fifty basis point rate
Speaker 9: cut that happened, right like, all of the data points
Speaker 9: are still consistent with the fact that we are gently landing.
Speaker 5: So when you're thinking about data more broadly, where is
Speaker 5: your focus? Are we looking at job data or inflation data?
Speaker 5: Seems as though there's been a shift more recently.
Speaker 9: It's a mosaic because what we found is there's just
Speaker 9: no one data point that has predictive power for you
Speaker 9: from an investment standpoint. We've tested a number of different things,
Speaker 9: so it's both piecing the data together and then what
Speaker 9: is the interpretation for that point. We also look at
Speaker 9: commodity data right like, right now, geopolitics is somewhat front
Speaker 9: and center across the board, and that affects commodity, so
Speaker 9: we're watching that as well. So what we do gradually
Speaker 9: is as each piece of data comes in, we start
Speaker 9: getting a sense for where the trends are going and
Speaker 9: using that in addition to the earnings that are coming out.
Speaker 9: You know, for example, like we're looking at where earnings
Speaker 9: forecasts are and if you think of the US other
Speaker 9: than a small handful, like the earnings growth numbers aren't fantastic,
Speaker 9: you know, the magnificent seven maybe, but for the rest
Speaker 9: not so much.
Speaker 2: So what do you think this market needs to see
Speaker 2: out of earnings? We're kind of kind of in the
Speaker 2: middle of the earning season here do we need to
Speaker 2: see big It feels like we need to see big
Speaker 2: beats because we've got the market selling off. Nastak off
Speaker 2: two percent today on Microsoft and meta numbers I thought
Speaker 2: were pretty good but maybe just a little weak, and
Speaker 2: that's enough for the market to sell off.
Speaker 9: It's still tech though. If you were to think of
Speaker 9: the broader. You know, we need to see it expand
Speaker 9: beyond a specific category to be you know, more excited
Speaker 9: than we are now. Granted we're sitting here with the
Speaker 9: SMP where it is right, So the question is how
Speaker 9: consistent is it? And can it last?
Speaker 5: Do you see this rally lasting? Do you see it
Speaker 5: having further to run?
Speaker 9: The thing about heck is that it continues to push
Speaker 9: the frontier right, so as you have more capex, more data,
Speaker 9: more innovation like never say never like those the bet
Speaker 9: against that has surely been wrong. But we will say,
Speaker 9: looking at valuations relative to history, we are at extremely
Speaker 9: stretched levels. So back to how we allocate capital for
Speaker 9: the longer term. If we're looking at our forward looking
Speaker 9: capital markets assumptions, for example, where we see longer term equities,
Speaker 9: especially US and more and more firms are coming out
Speaker 9: with numbers that are not as high as they have been. Right,
Speaker 9: So it's like what we've seen the last decade. Do
Speaker 9: we expect this type this magnitude going forward? We haven't
Speaker 9: seen it, and we're not convinced.
Speaker 2: How about alternative investments? How do they figure into your
Speaker 2: outlook these days? I'm surprised when I go to see
Speaker 2: and visit with registered investment advisors representing their institutional clients
Speaker 2: that their clients are asking for it and they want
Speaker 2: something more than just two to five percent allocation. Kind
Speaker 2: of surprises me. It gets me a little nerve respect.
Speaker 2: How do you guys at an institution level think about alternatives?
Speaker 9: So the first part about it is assessing your liquidity profile.
Speaker 9: Even you know you're talking about individuals, but if you
Speaker 9: start thinking how much cash.
Speaker 5: Do I need?
Speaker 9: As we talk about cash planning with a number of organizations,
Speaker 9: especially operational ones, do you have enough cash for the
Speaker 9: first one year, eighteen months, maybe two years of operations?
Speaker 9: Then beyond that, let's start thinking of a waterfall. So
Speaker 9: where primaries in private equity has the longest tail, maybe
Speaker 9: private credit is six years, seven years. Can you withstand
Speaker 9: that We talked about hedge funds redemptions as quarterly for some,
Speaker 9: so it's more building out that profile real estate value
Speaker 9: add funds for seven years. So the place for private
Speaker 9: investments is along the waterfall for liquidity, and that's really
Speaker 9: how we encourage clients that think about it, and then
Speaker 9: more importantly, what type of role are they playing in
Speaker 9: your portfolio?
Speaker 5: Is now the time for small caps. How are you
Speaker 5: all thinking about small caps right now?
Speaker 9: We have had some decent luck and small caps. However,
Speaker 9: the breakout of small cap companies, especially today, it has
Speaker 9: a decent number of what we call non earners right so,
Speaker 9: like the growth stories that will grow into some of
Speaker 9: these multiples in valuations, small cap stocks are also levered
Speaker 9: towards rates and are pretty sensitive in that regard to
Speaker 9: rates coming down. Okay, I guess it's good, but where
Speaker 9: we've seen the delivering of the earnings has been more
Speaker 9: large cap. However, from an active management standpoint, that's where
Speaker 9: you need the active managers to sort of sift through
Speaker 9: the index to be able to find those types of opportunities.
Speaker 9: So with active management, yes, just as an index could
Speaker 9: be a bit more challenging.
Speaker 2: We are seeing again the Nastak off two percent today.
Speaker 2: I mean, does that tell you that are you concerned
Speaker 2: about the valuation of this market here? Because again I
Speaker 2: Lemmet and Microsoft numbers are pretty good but bloom, so we.
Speaker 9: Are definitely not excited about valuations here. It's elevated. No
Speaker 9: matter what historical metric you look at it, it's pretty high.
Speaker 9: You know, off two percent todays is definitely not enough
Speaker 9: to be able to bring it back. So the valuations
Speaker 9: you're elevated, Is this where we would be overweight today. No,
Speaker 9: as they said, we're neutral, So valuations are elevated. It's
Speaker 9: one of the additional data points that we're looking at
Speaker 9: as you evaluate across your other portfolio the areas that
Speaker 9: could be more attractive, hence private markets.
Speaker 3: Yeah, very good.
Speaker 2: Alla Adana, thank you so much for joining us US
Speaker 2: chief investment officer at Mercer giving us some thoughts on
Speaker 2: these markets.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: It is never a good news day for a company
Speaker 2: when they re pull their guidance, not buying, no, not
Speaker 2: much you want to Investors don't like that, and just
Speaker 2: ask the good folks at es Day Lauder. They pulled
Speaker 2: their guidance. They got some challenges in their business. They
Speaker 2: called out China. But the stock falls the most on record.
Speaker 2: We're now down the lowest level since twenty fourteen, so real,
Speaker 2: real challenging day for Esday. Lotter goes to the whole
Speaker 2: luxury space. We've seen us all off in the luxury space.
Speaker 2: So when you want to talk luxury goods, there's only
Speaker 2: one place to go to. Deborah aChn, luxury goods analysts
Speaker 2: for Bloomberg Intelligence. She's based in London. She knows these companies.
Speaker 3: Backwards and forwards.
Speaker 2: Deb what's your take on the news coming out of
Speaker 2: ESDA Latder today.
Speaker 10: I think it was.
Speaker 7: Another case of outgoing management making promises in the market
Speaker 7: and the investors starting to really believe it after we
Speaker 7: saw some improvements coming through from the restructure program. So
Speaker 7: how this stood. We know steal Order are really heavily
Speaker 7: exposed in Asia Pacific, particularly in China and in travel
Speaker 7: retail across Asia. In skincare, they're more exposed than any
Speaker 7: of the peer group. And no, we've had negative and
Speaker 7: comment in the marketplace from the peer group that China
Speaker 7: is not doing so well, that it's even down versus
Speaker 7: where it was from a couple of months ago. The
Speaker 7: view really was that Estelaudry in August had said along
Speaker 7: with the others, that it would be a slightly odd
Speaker 7: They hoped it would be a slightly improved in market,
Speaker 7: and that just hits them hard. They have a new
Speaker 7: CEO coming in in January, and so they've given Q
Speaker 7: two guidance which is way below consensus expectation on EPs
Speaker 7: and also a minus six to minus eight percent on
Speaker 7: organic sales growth for two Q when the market looks
Speaker 7: for flat. So there's a lot to do, not just
Speaker 7: in Asia, but elsewhere.
Speaker 5: I mean, for this company, the results were significantly worse
Speaker 5: than expected. I mean, we saw the guidance withdrawn for
Speaker 5: the four year guidance and then also a forty seven
Speaker 5: percent percent dividend cut, and I'm saying shares of the
Speaker 5: company down fifty two percent. But when I'm looking at
Speaker 5: Wall Street analyst readings, we're seeing seven buys and twenty
Speaker 5: five holds in zero cells. So I'm curious there, I mean,
Speaker 5: is there's still some hope left in the market in
Speaker 5: terms of this company being able to see a turnaround
Speaker 5: further to be seventy eight percent of Wall Streets saying
Speaker 5: to hold, but zero people saying to sell.
Speaker 7: Right, so we've seen it's been two and a half
Speaker 7: years in the making that we're looking for this transition
Speaker 7: and return to growth. We've seen margins move from mid
Speaker 7: twenty percent down to lo teens, down to single digit
Speaker 7: and that's where we sit today. And the expectation was
Speaker 7: really because of the exposure into Asia, particularly China, that
Speaker 7: we would see some improvement coming through and that we're
Speaker 7: on the precipice of this and we're just not seeing that.
Speaker 7: So I already imagine, you know, there'll be rethink on
Speaker 7: where we go, and certainly it's about structural fix it's
Speaker 7: about really the new CEO coming in with a new program,
Speaker 7: which is really I must say, we are seeing some
Speaker 7: improvements from a LI based on growth margin. Some improvements
Speaker 7: should come through and operate in. There are new much
Speaker 7: more social media type events taking place. They're doing very
Speaker 7: well with some of their brands in the US on
Speaker 7: Amazon Beauty online Store, so that's starting to come through.
Speaker 7: But there's so much to do, and one of the
Speaker 7: big things is to reposition themselves so they're not as
Speaker 7: exposed in Asia in the long term. That's what the
Speaker 7: investor has to decide in terms of the time in
Speaker 7: on that on where they really see the base.
Speaker 2: And also pressuring the stock. I'm sure is the fact
Speaker 2: that the company did cut its dividend. It says to
Speaker 2: create financial flexibility for its incoming leadership team, but clearly.
Speaker 3: The dividend cuts impacting it as well.
Speaker 2: Hey, deb, as a financial analyst, you look at all
Speaker 2: the levers on revenue, the levers on costs. Where do
Speaker 2: you think this new Managin team should be focusing. Is
Speaker 2: it repositioning their brand or is it just simply doing
Speaker 2: it more efficiently cutting costs.
Speaker 7: Maybe when we think about in terms of the cost structure,
Speaker 7: there is some movement they can get out of there.
Speaker 7: So they have a big program running which will cost
Speaker 7: seven hundred million, and in the end they're looking for
Speaker 7: benefit of one point one to one point four billion,
Speaker 7: So they're guide into the top end of that cost cut,
Speaker 7: and I would imagine on the back of that they
Speaker 7: come somewhere near the bottom end when it comes to
Speaker 7: the savings they get over the program, probably not to
Speaker 7: twenty six but into twenty seven. So there are some
Speaker 7: savings to come through. But I think it's our reposition
Speaker 7: in what they have been closer to the market, understanding
Speaker 7: the consumer better, pulling in a younger audience. They're doing
Speaker 7: it small steps, small steps, but then the competition is
Speaker 7: getting ahead, so there's a lot going on. It's more
Speaker 7: about talking to the market, to the consumer and building
Speaker 7: up from the top line down.
Speaker 2: All right, very good, Debacon, you are an expert on
Speaker 2: all things luxury, Debacon, She's a luxury good. Janos for
Speaker 2: Bloomberg Intelligence joining us from London via zoom.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast live weekdays at
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Speaker 1: Alexa playing Bloomberg eleven thirty.
Speaker 3: Men Deep Sing Darkens to the door.
Speaker 5: I love it.
Speaker 3: We have him to play.
Speaker 2: Maybe for the sell off today, I thought the Meta
Speaker 2: and Microsoft numbers were pretty solid.
Speaker 5: We need to hear his lips.
Speaker 3: Let's see what he has to say. Man Deep Sing Meta, Microsoft.
Speaker 2: Just summarize kind of what you think the market's reaction
Speaker 2: is today to these earnings. We're seeing a sell off
Speaker 2: in those names and in the broader market. How do
Speaker 2: you view this tech numbers from last night?
Speaker 10: Yeah, I mean the setup was very different from Alphabet
Speaker 10: in the sense that expectations were much higher, and in
Speaker 10: this case, I think with Microsoft at least they quantified
Speaker 10: the AI services contribution being ten billion dollars by next quarter,
Speaker 10: so that's huge. Still. You know, when it comes to Azure,
Speaker 10: the fact that growth is not accelerating solved with Google Cloud.
Speaker 10: It makes you wonder, you know, if Capex is growing
Speaker 10: fifty percent, why is it not translating into faster Azure growth?
Speaker 10: Even though thirty three percent is a very solid number,
Speaker 10: but you want to see that acceleration which we saw
Speaker 10: with Google.
Speaker 5: So, I mean, coming into this earning season when we
Speaker 5: were thinking about the market more broadly expectations, it seems
Speaker 5: as though the bar was a little bit lower, so
Speaker 5: it should be a little bit easier for companies to
Speaker 5: be How are we thinking about tech earning season as
Speaker 5: a whole and how much we expect it to really
Speaker 5: drive the S and P five hundreds gains?
Speaker 10: Yeah, I mean, look at the first two MAC seven
Speaker 10: with Tesla and Alphabet, the bar was much lower. They
Speaker 10: came out with very good numbers and.
Speaker 3: You saw the stock reaction.
Speaker 10: In the case of Meta and Microsoft, the expectations were higher,
Speaker 10: and I would say Meta is somewhat different in the
Speaker 10: sense that they have their all large angrid model, they
Speaker 10: have their lead when it comes to you know, generative AI,
Speaker 10: but they don't have a separate AI revenue line like
Speaker 10: you see with you know, Microsoft or with Alphabet. And
Speaker 10: that's where you know, if they say, you know, Kapex
Speaker 10: is going to significantly increase for twenty twenty five without
Speaker 10: really quantifying how significant it will be, whether it's going
Speaker 10: to be twenty percent which is the consensus number, or
Speaker 10: thirty percent of fifty percent, nobody knows. And that's what
Speaker 10: I think created that uncertainty around Meta's Capex spin. And
Speaker 10: we saw what happened in three Q of twenty twenty
Speaker 10: two where they had a very similar print, but they
Speaker 10: actually quantified that significant and you know, the stock dropped
Speaker 10: twenty percent after that, So clearly there is some nervousness
Speaker 10: and uncertainty around their Capex spin.
Speaker 2: I've Meta off about the three percent here today in training,
Speaker 2: looking at the shares of Microsoft off about five point
Speaker 2: eight percent, all right after the close tonight.
Speaker 3: A couple more of your name's Apple and Amazon. What
Speaker 3: should we be looking for for each of these names?
Speaker 10: I mean, again, the bar is much lower for Apple,
Speaker 10: So talking about you know how Tesla and Alphabet did well.
Speaker 10: The bar is lower for Apple. The problem with I
Speaker 10: think Apple is in terms of catalysts. They don't really
Speaker 10: have a catalyst for you know, a big beat and
Speaker 10: rais because China and you know other markets, you're not
Speaker 10: gonna see a big Apple refreshed cycle that everyone has
Speaker 10: been waiting for. Apple intelligence is a driver, but it
Speaker 10: will be more qualitative.
Speaker 3: You're not again Bloomberg intelligence. I know what that is?
Speaker 2: So they copied us basically sounds like it.
Speaker 3: What is it again? That their.
Speaker 10: Exactly the chip inside the phone, So they don't rely
Speaker 10: on in video GPUs. They actually do it on their
Speaker 10: chip which resides in the phone, and that's their Apple playbook.
Speaker 10: They vertically integrate. They don't really rely on anyone else.
Speaker 10: And it's just it's taking time to you know, really
Speaker 10: drive that top line.
Speaker 5: So what's going on? DoorDash?
Speaker 10: Right?
Speaker 5: I know? DoorDash? We have uber eat or I don't DoorDash.
Speaker 5: See you know I grew lub you forget I'm a
Speaker 5: premium member.
Speaker 3: Oh I didn't.
Speaker 5: This is maybe I shouldn't said that on air.
Speaker 3: I'll let you cook.
Speaker 5: I should, I should, I should cook more. I'm working
Speaker 5: on it, guys, But how much market shared does DoorDash
Speaker 5: have in comparison to say it's competitors Uber Eats and
Speaker 5: grub Hub.
Speaker 10: I mean, they are a category leader when it comes
Speaker 10: to online delivery, and I think what they've done successfully
Speaker 10: is to expand into adjacent markets without spending a lot
Speaker 10: on acquisitions, which is what Uber did and it hurt
Speaker 10: their margins for a while. So in the case of DoorDash,
Speaker 10: it's been mostly organic and now there's partnership with Lyft.
Speaker 10: I mean, I think Lift needed it more than DoorDash,
Speaker 10: but it does help, you know, DoorDash being that category
Speaker 10: leader in the delivery and now getting it's foreign invite sharing.
Speaker 5: I'm looking at shares a DoorDash of fifty seven percent
Speaker 5: this year.
Speaker 3: Yeah, just amazing. It's got a market cap.
Speaker 10: Six It's an amazing management team, is that right? That
Speaker 10: really you listen to the call so much clarity. They
Speaker 10: do what they say on the call, and it's just
Speaker 10: I think they've built that credibility with investors.
Speaker 3: It's you know, offspring number four.
Speaker 2: John in college, I saw a couple of door dashes
Speaker 2: charges on the credit card.
Speaker 3: I stopped.
Speaker 2: The card was frozen for a week, and I said, no,
Speaker 2: get off your keysture and walk over mc Donalds and
Speaker 2: get your quarter.
Speaker 5: Patter with with these share games, maybe I need to
Speaker 5: switch to door Dash.
Speaker 3: Maybe we leave party.
Speaker 2: So put it put in the context for John Tucker,
Speaker 2: he's thinking about this food delivery business Uber Eats versus
Speaker 2: door door Dash.
Speaker 10: I mean they had the playbook here is to do
Speaker 10: everything in last mile delivery and have you pay you know,
Speaker 10: ten dollars fifteen dollars subscription fee like your Amazon Prime.
Speaker 10: But Amazon Prime isn't catering to you know, ride sharing
Speaker 10: and food delivery. So that's where they want to be.
Speaker 10: That indispensable subscription, that monthly subscription that you may have
Speaker 10: to pay.
Speaker 5: And you do this, okay, but listen grub Hub, if
Speaker 5: you have Amazon Prime, you get the premium membership for free.
Speaker 5: I started it out as a student a while years ago,
Speaker 5: and then it transitioned into Amazon Prime.
Speaker 8: And once they have your credit card number, the only
Speaker 8: option is to cancel the card. You can't just freeze
Speaker 8: it because they'll keep charging it.
Speaker 3: Exactly.
Speaker 8: I made the misake of actually time to call them.
Speaker 2: Exactly all right, Seeing he covers all everything in the
Speaker 2: technology space.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: You talk a lot about AI is a big driver
Speaker 2: for not just the big tech stocks, but just for
Speaker 2: the market everything for all it seems like. But there's
Speaker 2: downsites and you know, there's concern out there. And I
Speaker 2: think back to the writer strike in Hollywood earlier this year,
Speaker 2: and one of the big big issues for them, in
Speaker 2: addition getting paid more was protections from an AI. You know,
Speaker 2: they want to somebody come in in. Some AI bought
Speaker 2: writing a script for the next show.
Speaker 5: You know, thank you.
Speaker 2: It's a big legal issue. That's why we like to
Speaker 2: talk to smart people like Ronnie a set Home. She
Speaker 2: is a managing partner for set Home Law Group. Ronnie,
Speaker 2: let's talk about AI and music. Can AI create music?
Speaker 11: It can and it has. I don't really I don't
Speaker 11: know if the listeners followed this story. But Ghostwriter, which
Speaker 11: is a great name for this quote unquote artist created
Speaker 11: a song using Drake and the Weekend. Although I don't
Speaker 11: know what the Weekend's calling himself right now, but at
Speaker 11: the time, the Weekend's voice and there was obviously no
Speaker 11: permission granted by these artists, and he created a song
Speaker 11: called Heart on My Sleeve. Whether or not the song
Speaker 11: is good doesn't really matter from legal first, and that's
Speaker 11: the scary part with AI. It's not just a learning tool.
Speaker 11: We hear about it in books and scripts, you know,
Speaker 11: reading and then creating overly inspired text. Now AI is
Speaker 11: learning your voice, your tone. We already have deep fakes
Speaker 11: out there, but now they're taking away somebody's livelihood and
Speaker 11: then god forbid, the messaging is not what the artist intended.
Speaker 11: It can be a big mess at the same time,
Speaker 11: you know, the Beatles just came out with a new
Speaker 11: song and they were able to isolate John Lennon's voice
Speaker 11: in order to create something new. So if you're using
Speaker 11: AI and music to enhance something that you own or
Speaker 11: you have permission to use, that's fantastic. But from a
Speaker 11: legal perspective, we have laws you have to follow. But
Speaker 11: then we have just you know, regular decency and morality,
Speaker 11: and you know, perhaps we can write a script for
Speaker 11: that in case people don't know about it.
Speaker 5: Definitely, And it's funny that you brought up the Drake
Speaker 5: situation because that's what I was immediately thinking back to
Speaker 5: Drake and Kendrick Mr. We're having this back and forth
Speaker 5: that Drake used Tupac's voice as a synthetic voice through AI.
Speaker 5: What can you do about this? What is the resolve here?
Speaker 11: I mean, unfortunately, you can't peremptorily stop somebody. I mean, yes,
Speaker 11: you can have a contract that tells someone you can't
Speaker 11: use my voice, or you can't use this estate's you know, property. However,
Speaker 11: we really need to explain to people what they can
Speaker 11: and cannot do legally, because the law allows you to
Speaker 11: protect yourself contractually and then you know, post problem through
Speaker 11: demand letters and litigation. But that can be very expensive. Perhaps,
Speaker 11: you know, Drake can afford that, but maybe new artists cannot.
Speaker 3: So what are you advising your clients?
Speaker 2: Like, if I'm a new artist and I'm signing a contract,
Speaker 2: I now have to have language in there that says
Speaker 2: you cannot take my any of my content, voice, my lyrics, anything.
Speaker 3: Yeah.
Speaker 11: So we do work on a lot of releases for celebrities.
Speaker 11: Quasi celebrities, artists, you know, you name it, and the
Speaker 11: language is to be extremely broad. Right you're doing a
Speaker 11: show like I'm doing this show, and you have unfettered
Speaker 11: riots to use a snippet of this program, the entire program, etc.
Speaker 11: So now we're adding that if AI is being utilized,
Speaker 11: first of all, we want to see information relative to
Speaker 11: how it's being utilized. Are you using it to enhance
Speaker 11: in case I sound a little scratchy or I have
Speaker 11: a lot of ums, or are you going to use
Speaker 11: my voice and put me on some other show I
Speaker 11: don't know about. So we're tightening the language a little
Speaker 11: bit and asking beforehand for the company's policy with respect
Speaker 11: to AI. And if you're dealing with a large company,
Speaker 11: you know, like Bloomberg, that's relatively easy. However, it's impossible
Speaker 11: to peremptorily stop individuals who are just really great at
Speaker 11: using technology, who may be somewhat anonymous.
Speaker 5: How are some of the big dogs like Universal, Sony Music,
Speaker 5: Warner Music, how are they thinking about this? I mean,
Speaker 5: especially if you think about it on a more drastic scale,
Speaker 5: could this at any point begin to threaten music sales?
Speaker 5: If somebody else can just make a song using this
Speaker 5: person's voice on their own I.
Speaker 11: Think it threatens more of the artist. So, you know,
Speaker 11: we went through something similar about who owns what with
Speaker 11: Prints right at one point in time, he couldn't use
Speaker 11: his own name because he didn't own his name, and
Speaker 11: he didn't necessarily own the music that was produced under
Speaker 11: that name. So a company like Universal you know Music
Speaker 11: could I don't know, but could have verbiage in their
Speaker 11: agreements with the artists that say we essentially own your voice,
Speaker 11: and if that's the case, they could create new works
Speaker 11: using their voice. So it's very important for whoever it
Speaker 11: is that's a creative to protect the essence.
Speaker 3: Of who they are.
Speaker 2: You know, I was always shocked as self side research channels,
Speaker 2: I didn't own any of the content created. I didn't
Speaker 2: own the earnings models, yes, that I created, which are
Speaker 2: the backbone of my franchise and any analysts franchise. So
Speaker 2: when I would leave job A to go to job B,
Speaker 2: my models were on a floppy disc that I took
Speaker 2: with me, which effectively was not what was illegal. Yes,
Speaker 2: that is correct, And I went to the next firm
Speaker 2: the next day and loaded those same models up, put
Speaker 2: a new name on top of it.
Speaker 3: And there I'm off and running. But this has taken
Speaker 3: it to the nth degree.
Speaker 11: It is thank you for telling me only about past crimes,
Speaker 11: because I can help you with future crimes. Yes, it
Speaker 11: is illegal, and oftentimes, depending on the rank that you're
Speaker 11: in in the organization, they'll make you sign some kind
Speaker 11: of you know, waiver release, not a noncompete, just a
Speaker 11: waiver and release of whatever it is that you've created,
Speaker 11: and they call it a work made for hire. And
Speaker 11: then if you're going to another large institution, in their
Speaker 11: offer letter, they likely have some verbiage that says you
Speaker 11: promise not to use any material that you have no
Speaker 11: authority to use while you're here, because they don't want
Speaker 11: to get in trouble, because they don't want to get
Speaker 11: that continuing obligations letter, which is a fancy term lawyers
Speaker 11: use to send a letter to the new company and
Speaker 11: just say hello, beware, we think that you may have
Speaker 11: information to which you're not entitled. So think twice about
Speaker 11: hiring X or Y.
Speaker 5: Right, what about a minute less? Will the music industry
Speaker 5: face any sort of job displacement from this?
Speaker 11: I think so? I think, you know, music producers really
Speaker 11: have to worry the artists now uses the producer to
Speaker 11: help make the song you know, perfect, whatever that means.
Speaker 11: But they may not need these producers if they have
Speaker 11: the right technology, they can just use the AI producer.
Speaker 11: And that's a very different use of AI, and that
Speaker 11: use of AI is not illegal, at least not yet.
Speaker 3: All right.
Speaker 2: I mean, we're seeing all of our content again, from
Speaker 2: the writers in Hollywood to now music to everything.
Speaker 3: Else you can think of.
Speaker 2: I think it just feels like anything that content is
Speaker 2: being created in the industry at this point, I can
Speaker 2: go in there and even so, yeah, I have to
Speaker 2: see Ronnie Settham, managing partner Seed hom Law Group.
Speaker 3: We always love talking to Ronnie it.
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