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Speaker 3: The one of the stocks in the news is Lorel,
Speaker 3: the cosmetics company. Put us some good numbers here. Let's
Speaker 3: break it down with deb Acon. She is a luxury
Speaker 3: goods analyst for Bloomberg Intelligence. She joins us from London
Speaker 3: via Zoom So, deb Lorel Cosmetics. I've come to understand
Speaker 3: just really through the pandemic from my observation of the
Speaker 3: Sepphor store across the street from Bloomberg headquarters. People buy
Speaker 3: cosmetics like, no matter what is going on in the world.
Speaker 4: What did you learn from Loriel's numbers?
Speaker 5: Feel good factor, right, Paul?
Speaker 6: Yeah, So actually the number is I'm in above nine percent.
Speaker 6: So there was a big pickup from four Q where
Speaker 6: we had a solid first half and a shorter second half,
Speaker 6: a slower second half in twenty twenty three across the
Speaker 6: whole of the beauty industry, and so we had a
Speaker 6: big beat on the Q one just a sales number,
Speaker 6: but it was really about double digit growth in Europe.
Speaker 6: We then saw high single digit growth when we pull
Speaker 6: away anomalies in the US and then are definitely emerging
Speaker 6: markets like fifteen sixteen percent growth there. And the other
Speaker 6: side of it was that mass market is also holding
Speaker 6: up because luxury right now in beauty is difficult if
Speaker 6: you're a company like Laurel or Estel Order or Biasedov's
Speaker 6: La Prairie with exposure in skin care in China, where
Speaker 6: in trade travel retail is still stuffed with skincare, so
Speaker 6: that still takes another quarter to normalize. But elsewhere mass
Speaker 6: market passing on price and do very well across makeup,
Speaker 6: across fragrances in particular. Yeah, it's all going well.
Speaker 4: Yeah, it's interesting.
Speaker 3: And just talk to us about the cosmetics business in general. Again,
Speaker 3: I just was, you know, while everything was shutting down
Speaker 3: in New York City during the pandemic, there's a four
Speaker 3: store across the street stayed open, Number one and number two.
Speaker 3: There were people in there every day. I don't care
Speaker 3: what was going on in the world. They were there
Speaker 3: every day. Talk to us about just the overall cosmetics market,
Speaker 3: the growth characteristics of that market.
Speaker 5: So typically we look at the market.
Speaker 6: I'm as you know, I covered the luxury market too,
Speaker 6: and we're in this show. We're looking at a normalized
Speaker 6: growth rate in luxury goods of five to six percent,
Speaker 6: and you could say that we're looking at that rate too,
Speaker 6: and I'm fine to know over the last several years
Speaker 6: that the beauty industry is growing in line with the
Speaker 6: luxury industry. And that's because there's more and more premiumization
Speaker 6: and ultra high end and that is fined in the
Speaker 6: same growth rate and profitability in some cases as the
Speaker 6: luxury industry. So you typically get a three to five
Speaker 6: percent growth rate from mass market and five percent upwards
Speaker 6: on premium and then super premium and luxury type products.
Speaker 5: It's a feel good factor. It's for everyone, you know.
Speaker 6: Over the last few years, so Forest Does, for example,
Speaker 6: are within a selective retailing division which sits in Alvimh,
Speaker 6: the owner Ofly with a Tom Murray Hennessy. So and
Speaker 6: then you know, it's about making sure that the product
Speaker 6: in there is innovative. There's a lot of new products
Speaker 6: coming out. Lorel talked about AI using it to look
Speaker 6: at the scalp look of look at Skincare, their professional
Speaker 6: hair care division was really high looking at the at
Speaker 6: the hair care and the scalp and what's going on there.
Speaker 5: So it's been used.
Speaker 6: In so many ways, and also because of social media
Speaker 6: in the way that you can really get to understand
Speaker 6: how the cosmetics products are in dermatology, for example, as grown.
Speaker 6: When I look at the Loreal, twenty to thirty percent
Speaker 6: plus every quarter for since twenty twenty, so it's now
Speaker 6: become twenty percent of their business very quickly, when a
Speaker 6: couple of years ago we were talking about it being
Speaker 6: ten percent. Well, yeah, so it's it's you know, it's
Speaker 6: having belief, it's it's feel good.
Speaker 5: But it's also got like a healthy side to it
Speaker 5: as well.
Speaker 3: Well, that's what my co host Alex Steele, that's what
Speaker 3: she always says. She invests in her face now guys
Speaker 3: like John Tucker and Joe Mysek and we obviously missed
Speaker 3: that train, so that's too late.
Speaker 4: But yeah, I think that seems to be a thing.
Speaker 3: All right, deb let's step back a little bit and
Speaker 3: just talk about what you're seeing in luxury overall. If
Speaker 3: I go to the high streets in London, in Paris,
Speaker 3: how's traffic out there.
Speaker 4: How's business?
Speaker 6: I think, well, what we've seen overall, certainly Europe has
Speaker 6: really been the surprise. Now for the third quarter, we're
Speaker 6: just starting with the ending season, but now for the
Speaker 6: third quarter more robust than we expected. Again a lot
Speaker 6: of local touris because I think if we think about
Speaker 6: Europe in particular, twenty two we had the dollar over
Speaker 6: here spending strength of the dollar into Europe beginning of
Speaker 6: twenty three, and that phased out the second half twenty
Speaker 6: twenty three. But the Europeans are doing particularly well with
Speaker 6: new designs, new products, new designers. But it is really
Speaker 6: the very high end where you're getting and also what
Speaker 6: you know that quiet luxury, the view of products like
Speaker 6: Laura Piano, Brunellocution Elly. We just had their results this week,
Speaker 6: very very strong, really really decent teams growth, and so
Speaker 6: there are brands out there, but it tends to be
Speaker 6: that they really are they really are the luxury price
Speaker 6: tag and it's value for money at that price point.
Speaker 6: You don't have many of those products in your wardrobe
Speaker 6: and you're proud to wear them, and they're the ones
Speaker 6: that are driving the business. It's across all categories too,
Speaker 6: we're talking from Kashmir to very high end leather goods
Speaker 6: to high end fragrances. We're see more and more I
Speaker 6: suppose we see more and more momentum in very high
Speaker 6: end fragrances as well, with acquisitions coming through and IPOs
Speaker 6: as well.
Speaker 3: Hey, deb you know when we talk about I know,
Speaker 3: just reading your research talking to you in the past,
Speaker 3: the Chinese consumer is really a big, big, important player
Speaker 3: in the world of luxury spending, both home in China
Speaker 3: but also abroad as the Chinese consumer travels to New York,
Speaker 3: to London, two Paris in Italy for example. Talk to
Speaker 3: us about China. Is that a net positive or net negative?
Speaker 4: Where are we here?
Speaker 5: Yeah, so net negative.
Speaker 6: So if we think about let's focus pre pandemic, and
Speaker 6: we had a travel event last week in London, we're
Speaker 6: looking at.
Speaker 5: Where the Chinese consumer was.
Speaker 6: So in terms of the Chinese consumer as part of
Speaker 6: luxury goods, pre pandemic a third of the business. We
Speaker 6: now think they're back to around twenty three percent. But
Speaker 6: how that's changed in terms of geography. It used to
Speaker 6: be that they've scored less than So if we think
Speaker 6: about the luxury industry, around ten percent was Chinese spending
Speaker 6: at home. Now it's sixteen percent Chinese spending at home.
Speaker 6: So we have these conflict in numbers. China is up
Speaker 6: double digit, but China is still below where it was,
Speaker 6: and that is true. But it's the US consumer and
Speaker 6: the European consumer who've taken a lot of the slack.
Speaker 6: And that's why the industry versus twenty nineteen. Over all,
Speaker 6: the luxury goods is around thirty five to forty percent bigger.
Speaker 5: Than it was.
Speaker 4: Really.
Speaker 7: Yeah, wow, that's.
Speaker 6: How that's how you know you've you've got double digit,
Speaker 6: high single digit growth growing annually.
Speaker 3: All right, I mean I'll walk down the Penn Station
Speaker 3: today down Fifth Avenue or mont Madison Avenue and I'll
Speaker 3: see a lot of people in those stores here. All Dad,
Speaker 3: thanks so much for joining us. Their Debacon luxury Goods
Speaker 3: analys for Bloomberg Intelligence. She's based in London and she's
Speaker 3: really one of the best animals out there, covering a
Speaker 3: lot of retail. We're really focusing on the luxury space
Speaker 3: and as deb says, you know, he's been telling us
Speaker 3: that's a mid good, solid mid the mid high single
Speaker 3: digit growth business, you know, well above GDP, and that
Speaker 3: kind of goes to some of the wealth creation out
Speaker 3: there and widening gaps there in wealth inequality. It's not
Speaker 3: just in the US or in the Western markets, it's
Speaker 3: also in Asia as well, so deb gives us some
Speaker 3: of the best research out there. Loreal again, the cosmetics
Speaker 3: company reported some better than expected numbers and stock is
Speaker 3: up five percent today.
Speaker 4: It's about flat for the year.
Speaker 3: It's a big company, two hundred and forty billion euros
Speaker 3: in market caps, so just a huge company there.
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Speaker 3: Of course, the geopolitical issues globally are back on the
Speaker 3: forefront here overnight Israel retaliatory strike on Iran last night,
Speaker 3: many folks calling it a measured response, maybe proportionate, if
Speaker 3: you will.
Speaker 4: I'm not sure how the fin all that.
Speaker 3: I guess that's different for everyone. But let's check in
Speaker 3: with someone with feet on the ground, Ethan Bronner. He's
Speaker 3: the Israel Bureau chief and Senior Mid East editor for
Speaker 3: Bloomberg News. He joins us from tel Aviv via zoom Ethan,
Speaker 3: what's the feeling on the ground in tel Aviv today
Speaker 3: as it relates to Israel's strike on Iran last night?
Speaker 8: I think you described it well.
Speaker 9: I think that the view here is that it what
Speaker 9: Israel did was to sort of smack at Iran in
Speaker 9: a place that says we can get to you. There
Speaker 9: are where it hit was one of the air bases
Speaker 9: from which last weekends attack came, and also not far
Speaker 9: from nuclear sites.
Speaker 8: So the Israelies their attitude, at least their claim.
Speaker 9: I'd say the mainstream claim is that we we we
Speaker 9: we hit back in a way that said we want
Speaker 9: you to know that we can do this, and we're
Speaker 9: not going any further, and let's stop this here. There
Speaker 9: are those who are very upset that it wasn't sufficient.
Speaker 9: There are those who wanted nothing to happen. But I
Speaker 9: would say that you know, it is not being criticized
Speaker 9: too heavily except from from the far right.
Speaker 10: Right now, Yeah, Ben Ben Gavier, the hawkish national security
Speaker 10: minister in Israel, tweeting just one word week.
Speaker 9: Right, I mean that that word was a Hebrew praate
Speaker 9: word for meeting, more like lame or wimpy.
Speaker 8: Yeah, yeah, very very critical.
Speaker 10: I mean that that one word doing a lot of
Speaker 10: work here to suggest that not everyone is in agreement.
Speaker 10: And at the end of the day, Ethan, I mean,
Speaker 10: this is a big change from going Israel in ran
Speaker 10: in the shadows fighting to now out in the open
Speaker 10: and out and open conflict. So while markets are treating
Speaker 10: it as if it's over, I mean, this is a shift,
Speaker 10: isn't it.
Speaker 9: It's a shift, of course, it's in many ways a
Speaker 9: shift that began not by Israel this week, but by
Speaker 9: Iran last week.
Speaker 8: That was the beginning of the big shift.
Speaker 9: Israel has been hitting on occasion inside Iran. No one's
Speaker 9: kind of acknowledged it, but two or three occasions and
Speaker 9: where with missiles and other and drones and other occasions
Speaker 9: where they have assassinated Iranian Iran nuclear scientists and so forth.
Speaker 9: But the big change began last Saturday night when Iran said, okay,
Speaker 9: all of this stuff you guys are doing to us
Speaker 9: both of our proxies in Iraq, Seria, eleven on and
Speaker 9: so forth, and now us we're coming back at you
Speaker 9: directly that was the change, and now Israel hitting back
Speaker 9: saying we can't let this happen without some response. You know,
Speaker 9: the whole debate is should there have been a response?
Speaker 9: All week, the Americans, the French, the Germans, the British
Speaker 9: were coming by personally on the phone and saying to
Speaker 9: Prime Minister in to Tanya, who let it go.
Speaker 8: Take your win.
Speaker 9: You stopped all those attacks last Saturday.
Speaker 8: This is a win. You don't have to go back
Speaker 8: at them.
Speaker 9: But the Israelis felt they did, and this was their response.
Speaker 8: We'll see where it takes us. It isn't obvious that
Speaker 8: it's over.
Speaker 9: But the Iranians have been saying publicly today they don't
Speaker 9: think much happened and they don't see any particular need
Speaker 9: to respond.
Speaker 3: So all right, Ethan, let's get our focus back on
Speaker 3: kind of probably where it needs to be, which is
Speaker 3: in Gaza. What's the latest thinking about Israeli strategy in Gaza?
Speaker 3: It feels like a stalemate and status quo is there?
Speaker 3: What's the strategy here from the Israeli government.
Speaker 9: So they're not being exceptionally open as you can imagine
Speaker 9: in the middle of their deliberations, and there are you know,
Speaker 9: It's like a Rubik's cube. There are all these things
Speaker 9: going on at once, including, of course what's happening with
Speaker 9: around that we've just talked about. That the Israelis began
Speaker 9: their attacks six plus months ago. Recently they pulled many
Speaker 9: of their troops out, but there remains in southern Gaza,
Speaker 9: in the city of Raphach five to eight thousand Hamas
Speaker 9: troops in tunnels and so forth, and some hundred or
Speaker 9: so Israeli hostages. Israel has been repeatedly saying that it
Speaker 9: needs to go in there eventually and take them out
Speaker 9: so that Hamas can no longer be the kind of
Speaker 9: force to do what it did on October seventh, and
Speaker 9: the Americans have been saying, be careful, please don't what
Speaker 9: about all the people who are a million plus people
Speaker 9: who are taking shelter above ground in Rapha. So I
Speaker 9: think that my instinct at the moment is that there
Speaker 9: will be some time off here as we see whether
Speaker 9: this negotiation can get anywhere in Cairo about a piece
Speaker 9: about a ceasefire, and that Israel will begin to take
Speaker 9: steps to have the civilian in Rapa moved elsewhere for
Speaker 9: some kind of operation in the coming month or two
Speaker 9: its scale is very difficult for me to assess at.
Speaker 10: This point, Ethan, if I could tie these two together,
Speaker 10: does the fact that Iran has struck Israel out in
Speaker 10: the open? Is there a sense to which this gives
Speaker 10: the Israelis more I don't know, more impetus to say, look, clearly,
Speaker 10: we need to be out there and we need to
Speaker 10: be strong. And again this more hawkish attitude towards Gaza
Speaker 10: and what they say Iranian proxies.
Speaker 9: Yes, absolutely, but you see, it's like everything, it's it's
Speaker 9: not one force at worker.
Speaker 8: And so what you said is true.
Speaker 9: On the other side of the of the equation is
Speaker 9: the fact that last Saturday, all these countries, including Jordan,
Speaker 9: Saudi Arabia and other Arab states, helped Israel push Iran back.
Speaker 9: And Israel is feeling, you know, in the bosom of
Speaker 9: some kind of alliance and doesn't want.
Speaker 8: To mess that up either.
Speaker 9: So you know, I think that what it wants to
Speaker 9: do is sort of show restraint toward Iran on its
Speaker 9: mainland and get everyone to accept that it needs to
Speaker 9: do something in Gaza. And because as you say, AMASA
Speaker 9: is after all funded and paid for by Iran as well.
Speaker 4: So Ethan.
Speaker 3: You're based in Tel Aviv. You have a good sense
Speaker 3: of kind of the common person on the street. Is
Speaker 3: there any sense that among the people of Israel that
Speaker 3: there's a sense of fatigue setting in here? It's been
Speaker 3: six months here, they've basically occupied Gaza. Is there a
Speaker 3: sense of that maybe the people would like to move
Speaker 3: on to the next step.
Speaker 8: There is some of that. I don't think it's overwhelming, though.
Speaker 9: I have to tell you, Paul them and there really
Speaker 9: is a sense what happened on October seventh, it's very
Speaker 9: difficult for those abroad to grasp the sense of trauma
Speaker 9: and defeat that it created in this country, the sense
Speaker 9: that its very existence is its stake, its ability to
Speaker 9: allow people to live at the edges of its country
Speaker 9: and not feel that someone is going to come in
Speaker 9: and carve them up and unprotected. It's been so overwhelming
Speaker 9: that I think that there remains a desire here among
Speaker 9: most Israelis to quote unquote finish with Kamas and make
Speaker 9: clear to other militias, proxies and enemies not far away
Speaker 9: that Israel is willing to fight for its existence. So
Speaker 9: I don't think that a fatigue is the overwhelming sentiment,
Speaker 9: although you are right that it exists, and there are
Speaker 9: many who say, we've done what we can, let's cut
Speaker 9: a deal, let's get out.
Speaker 8: We can't do this forever. But I don't think it.
Speaker 9: I think it's still leaning in the other direction for now.
Speaker 10: Ethan, if I can quickly ask a military amateurish question,
Speaker 10: because this I don't understand, and maybe it's a minor point,
Speaker 10: but I'd just be interested to know when Israel we
Speaker 10: have reports of them launching the strikes, also a report
Speaker 10: of them striking a Syrian aerial defense position. Israel never
Speaker 10: confirms them. Their official line is always one of unconfirming.
Speaker 4: Why is that, you know?
Speaker 9: I think that their view in particular with regard to
Speaker 9: say around is that it in particular today, they view
Speaker 9: that it allows them some kind of rhetorical and strategic
Speaker 9: flexibility to not specifically say what they did. They certainly
Speaker 9: acknowledge when they attack and Lebanon and often in Syria,
Speaker 9: by the way, if they say these are his blove
Speaker 9: positions that we have taken out. That goes on in
Speaker 9: terms of the sort of scariest stuff that goes on
Speaker 9: when they take out, you know, an alleged nuclear reactor
Speaker 9: or when they do what they did today, they they
Speaker 9: have found it useful.
Speaker 8: To not to not talk about it publicly.
Speaker 9: I mean, you know, Israel has nuclear weapons, that's had
Speaker 9: them for years, it has never officially acknowledged them.
Speaker 3: Ethan, thank you so much for this reporting. Ethan Browner
Speaker 3: Israel Bureau chief and senior Mideast editor for Bloomberg News.
Speaker 3: He's based in our Tel Aviv bureau. There, so again,
Speaker 3: fluid situation there.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 3: We are here in a Bloomberg Interactive Broker studio, Danny
Speaker 3: Berger sitting in for Alex Steel, who's on holiday today
Speaker 3: and all of next week. We're here in a Bloomberg
Speaker 3: INTERACTI Brooker studio. We're streaming live on YouTube. That's the Internet,
Speaker 3: Danny YouTube, dot com search Bloomberg Podcast. Apparently that's what
Speaker 3: the kids are doing every day. We're on this YouTube thing.
Speaker 3: Tom's all over. Tom Keeney's becoming a new person here
Speaker 3: in this Internet age talking about streaming kind of internet
Speaker 3: delivery of media.
Speaker 4: It's all about Netflix.
Speaker 3: Netflix is a two hundred and fifty billion dollar market
Speaker 3: cap company. It's up seventeen percent year to date, up
Speaker 3: seventy six percent over the past twelve months, but it's
Speaker 3: down six point six percent today. I'm not sure what's
Speaker 3: going on there. I thought they had good numbers last night.
Speaker 3: But let's chicken with somebody who gets paid to understand
Speaker 3: this stuff.
Speaker 4: KEITHA.
Speaker 3: Ranganathan. She is the the media analyst of Bloomberg Intelligence.
Speaker 3: She's done in our Princeton office. Keith, I thought it
Speaker 3: was a really good quarter in terms of you know,
Speaker 3: particularly the subscriber ads.
Speaker 4: Why do you think there' stocks trading down today?
Speaker 11: Yeah, it was not just a good quarter, Paul, it
Speaker 11: was an excellent quarter. I mean, they blew out subscribers.
Speaker 11: We were expecting, you know, four and a half million
Speaker 11: subscriber ads. They came in at over nine million. It
Speaker 11: was the best first quarter ever, you know, kind of
Speaker 11: almost reminiscent of COVID times. But I think why investors
Speaker 11: are a little bit spooked ever since they reported is
Speaker 11: because they said that they're no longer going to be
Speaker 11: providing disclosure on their subscriber numbers as well as on
Speaker 11: our pools starting in the first ord of twenty twenty five.
Speaker 11: And I think what that really signals is that this
Speaker 11: company is transitioning into this more mature phase. I mean,
Speaker 11: you know, well, investors in the market likes transparency, and
Speaker 11: anytime you reduce disclosure, it really kind of causes a
Speaker 11: lot of uncertainty, a lot of anxiety.
Speaker 10: If it's entering a more mature phase. Gita, does that
Speaker 10: mean that this thing can no longer be priced as
Speaker 10: a growth stock, That the era of adding on huge
Speaker 10: amounts of subscribers growing like gangbusters, that that's over, and
Speaker 10: so this repricing in that scenario makes sense.
Speaker 11: So, you know, there are a couple of different things here.
Speaker 11: I think with the whole streaming wars and the media
Speaker 11: landscape as a whole, I mean, there has been kind
Speaker 11: of this shift away from this hyper focus on just
Speaker 11: subscriber growth. I mean, there was going to be eventually
Speaker 11: some type of a wall or some type of a ceiling.
Speaker 11: The question was where it would be Again, that question
Speaker 11: is still an open question. But I think what you
Speaker 11: have to remember with Netflix is, yes, there is going
Speaker 11: to be some limits to subscriber growth. Think we're going
Speaker 11: to see peak subscriber growth this year, it is going
Speaker 11: to start to decelerate a little bit. But I think
Speaker 11: what Netflix has managed to do being a first mover
Speaker 11: in this space is really scale and operating leverage. And
Speaker 11: we're seeing that in the profitability metrics. We're seeing that
Speaker 11: in the operating margin, We're seeing that in the free
Speaker 11: cash flow, and they are just way ahead of their peers.
Speaker 11: And so I think, you know, you know, yes, valuation
Speaker 11: might have to take a little bit of a more
Speaker 11: modest kind of approach or has to be maybe a
Speaker 11: little bit more cautious here. But at the same time,
Speaker 11: I mean, this is a very different company from your
Speaker 11: traditional media company because most of them are still losing
Speaker 11: money on their streaming business. Meanwhile, you have Netflix generating
Speaker 11: close to about nine to ten billion dollars in profit
Speaker 11: this year with a twenty five percent operating margin.
Speaker 3: Yeah, just amazing what they've done there in terms of
Speaker 3: getting to profitability, which beg begs a question at Githa,
Speaker 3: how about is there I mean, you can be a
Speaker 3: very profitable streaming company.
Speaker 4: We see that with Netflix.
Speaker 3: Do you think that paramount pluses of the world that
Speaker 3: Disney pluses the world, all the other pluses out there
Speaker 3: from the media companies, can they get to a similar
Speaker 3: level of profitability too, because right now, as you mentioned,
Speaker 3: the streaming business has been a money loser for most
Speaker 3: of the traditional media companies.
Speaker 11: Yeah, so exactly to that point, Paul. Last year, when
Speaker 11: Netflix reported about seven billion dollars in profit, all of
Speaker 11: these other streamers combined reported the exact same amount in losses.
Speaker 11: So they lost about seven billion dollars, and you know,
Speaker 11: it's going to be a little bit different story for
Speaker 11: each one of them. I don't think all of them
Speaker 11: can necessarily get to profitability. So Disney is almost on
Speaker 11: the cusp of profitability. They're probably going to break even
Speaker 11: in a couple of quarters. They have all the levers
Speaker 11: in place to kind of really make it a very
Speaker 11: profitable business. Of course, it's going to take them some
Speaker 11: time to get to the levels of a Netflix, but
Speaker 11: they definitely have the formula. When it comes to a paramount,
Speaker 11: I think that's going to be a completely different story.
Speaker 11: The company is still losing money. It will probably lose
Speaker 11: about a billion a billion two plus. They have too
Speaker 11: many other distractions going on with Warner Brothers Discovery. Yes,
Speaker 11: they did turn a slight profit last year with you know, Max,
Speaker 11: But you know, Paul, you really have to kind of
Speaker 11: look at this in the context of the Warner Brothers
Speaker 11: Discovery business. I mean HBO in its heyday, and this
Speaker 11: is HBO, which is basically turned into the streaming business.
Speaker 11: In it's heday, was generating two billion dollars in ebitdah,
Speaker 11: and last year they reported one hundred million dollars on
Speaker 11: their streaming business and ibadah. And you know, if they
Speaker 11: want the street to be excited about that, I'm not
Speaker 11: so sure. You know, investors are going to be too happy.
Speaker 11: So it's they're not going to be able to get
Speaker 11: to the level of profitability and definitely not going to
Speaker 11: be able to get to it in the timeframe that
Speaker 11: investors are hoping that they would.
Speaker 10: So Netflix might have won the battle there, but get
Speaker 10: the one battle that seems yet to have been one
Speaker 10: is who's the dominant sports streaming place. You have Netflix
Speaker 10: with the WWE rod deal, and then you have this
Speaker 10: other platform which we heard be announced earlier in this year, which,
Speaker 10: to be honest, I feel like I've heard nothing of
Speaker 10: since the ESPN, Fox, Warner Bros. Discovery. I don't even
Speaker 10: think we still know what a name is. We don't
Speaker 10: know whether it's going to happen, whether Congress will even
Speaker 10: allow it to happen. How is that shaping up in
Speaker 10: terms of who becomes the go to player to watch
Speaker 10: all of your live stream sports?
Speaker 11: Yeah, that really is is the question the question right now?
Speaker 11: And Danny, you know, you kind of really hit the
Speaker 11: nail on the head there. We're gonna have to wait
Speaker 11: and see what happens with you know, the joint venture
Speaker 11: the ESPN Fox Warner Brothers. In the meantime, Disney has
Speaker 11: also said that they will take ESPN standalone over the
Speaker 11: top in twenty twenty five. But in the meantime, you
Speaker 11: do have all these tech giants kind of making a
Speaker 11: play for sports, right Amazon I think to date has
Speaker 11: been the most aggressive. They have the Thursday night football package.
Speaker 11: You know, they've now introduced ads on their service, they
Speaker 11: have a lot of the football content from Europe, so
Speaker 11: you know, you know, they're definitely making a big play.
Speaker 11: And as you mentioned Netflix too, I think the big
Speaker 11: thing that we are kind of really watching out for
Speaker 11: is this July twentieth event where they're kind of dipping
Speaker 11: into live sports a little bit with the Mike Tyson
Speaker 11: versus Jake Paul and that kind of then gives them,
Speaker 11: I think, allows them to gauge a little bit, you
Speaker 11: know what the appetite for for live sports is, because
Speaker 11: remember again ww's is a little bit quasi sports. It
Speaker 11: is more what they call sports entertainment. But it's going
Speaker 11: to be interesting to see whether they really want to
Speaker 11: go charging, go really aggressive with sports. I think if
Speaker 11: they want to build their advertising business, I think it
Speaker 11: is a critical piece that is missing for them right now.
Speaker 11: And so there is this chatter and this speculation about
Speaker 11: whether they're even going to be this dark horse bidder
Speaker 11: for the NBA negotiations that are currently ongoing.
Speaker 3: All right, gith, let's switch gears to our good friends
Speaker 3: at Paramount. The stocks up about ten percent today. The news,
Speaker 3: I guess is Paramount shares jump as Apollo and Sony
Speaker 3: are said to weigh a joint bid out there. What's
Speaker 3: the latest there? Are we going to get some kind
Speaker 3: of deal here for some of Paramount, all of Paramount?
Speaker 4: How do you think it shakes out?
Speaker 5: I certainly hope so, Paul.
Speaker 11: I mean, it's Sony kind of getting into this equation.
Speaker 11: I think they are the most credible bidder to date,
Speaker 11: and you know, I really hope that they come in
Speaker 11: with something that kind of entices the Paramount board to
Speaker 11: engage with them, because remember the Apollo bid before for
Speaker 11: twenty six billion. I mean, there were just or at
Speaker 11: least the way management spun it was that, you know,
Speaker 11: there were all these financing concerns. So this I think definitely,
Speaker 11: you know, we'll have a lot of firepower because the
Speaker 11: sky Dance deal, that Paramount is currently engaged, and there's
Speaker 11: just been so much of backlash against that deal because
Speaker 11: what most of the common shareholders have felt is that
Speaker 11: it is only going to benefit the Redstone family, it
Speaker 11: is going to dilute all of the other shareholders. So
Speaker 11: there is all of that going on. Meanwhile, you had
Speaker 11: four board members that kind of left, you know suddenly
Speaker 11: again that kind of screams.
Speaker 5: A hard no.
Speaker 11: So the sky Dance deal as it stands right now
Speaker 11: really seems fraught with litigation risk, which is why I
Speaker 11: think Sony coming in is kind of a welcome change
Speaker 11: and investors will definitely cheer that.
Speaker 10: But to be clear, share Redstone doesn't need to let
Speaker 10: the other shareholders have a say or have a vote,
Speaker 10: right and how this goes.
Speaker 11: She doesn't need to, but she should. I mean, she
Speaker 11: does have a fiduciary responsibility.
Speaker 4: That funny.
Speaker 3: We were speaking Tom Keen and I earlier today with
Speaker 3: Chris Morangi, who's a co CIO at Gabelli Funds, and
Speaker 3: Gabelli is they own the control shares, they don't own
Speaker 3: the non voting they own the voting shares. They're the
Speaker 3: second largest owner after the Redstone trust here, and he
Speaker 3: seemed to imply that, you know, he thinks the company
Speaker 3: should treat all shareholders. I guess similarly, but again, as
Speaker 3: you mentioned, they don't have to, assuming they want to
Speaker 3: take some litigation risks.
Speaker 4: Is that kind of how you think about Akita?
Speaker 10: Yeah?
Speaker 11: I think you know, that's what they don't have to.
Speaker 11: You're absolutely right. I mean, Sherry Redstone can pretty much
Speaker 11: do whatever she wants. The problem is, you know, the
Speaker 11: other shareholders are going to definitely revolve. There's already been
Speaker 11: so much of public protest and backlash. Not that that
Speaker 11: has stopped her, but again we'll have to see.
Speaker 3: Yeah, it's amazing, and again I just rewind my investment
Speaker 3: banking clock. You know, five years, ten years, and what
Speaker 3: you could have gotten, what this company could have been
Speaker 3: paid for, or change and control, what it's been multiples
Speaker 3: of where we are today. It's just kind of sad
Speaker 3: to see how the value has declined.
Speaker 10: And probably the idea of a dual class share back
Speaker 10: then was different. People are looking at it different than
Speaker 10: they are at this very moment.
Speaker 4: Yeah, exactly.
Speaker 3: It's been something that media investors have had to deal
Speaker 3: with for a long time.
Speaker 4: Keitha wrong and nothing.
Speaker 3: She thank you so much for joining us at Githa
Speaker 3: is the media anamals for Bloomberg Intelligence, one of the
Speaker 3: best media anaals out there on the stream. We love
Speaker 3: getting a few minutes of her time joining us from
Speaker 3: the Princeton campus of Bloomberg.
Speaker 4: I've been down to the Bloomberg alses of Princeton, you know,
Speaker 4: I never have.
Speaker 10: I got to just moved back to New York, Paul,
Speaker 10: You've got to give me time. Give me time. And
Speaker 10: how you're in London for almost seven years?
Speaker 1: Wow?
Speaker 4: Yeah, yeah, back in New York.
Speaker 10: So now we'll do the bloomberg Y West road trip
Speaker 10: now that I'm back.
Speaker 4: Very good.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 4: We've talked about this market.
Speaker 3: It's rally hard off the October lows, you know, one
Speaker 3: point up about twenty five percent off those October lows,
Speaker 3: and a lot of smart market people are saying, we
Speaker 3: do need to see some pullbacks and draw downs, maybe
Speaker 3: something more than two percent to kind of it's okay
Speaker 3: for a healthy market. So here we are today, we're
Speaker 3: down about four or half maybe five percent on the
Speaker 3: S and P five round of the question is that it?
Speaker 4: I mean, is that kind of the pullback?
Speaker 3: Nicole web joins, a senior vice president financial advisor for
Speaker 3: Wealth Enhancement Group, joining us here in our Bloomberg Interactive
Speaker 3: Broker Studio. So, Nicole, what do you tell your clients
Speaker 3: these days about kind of the you know, the ups
Speaker 3: and downs of this market. Again, we've had a nice
Speaker 3: strong move off those October lows. What do you tell
Speaker 3: them about where you think this market's going to go.
Speaker 12: I mean, pauses and pullbacks are part of a healthy market.
Speaker 12: We can't run further from here. To think it would
Speaker 12: happen in a straight line is you know, that's what
Speaker 12: makes us uncomfortable. When we see things trajectory up into
Speaker 12: the right for two long that's when you start to
Speaker 12: get a little bit concerned about over enthusiasm. And so
Speaker 12: this pause for us is well warranted. I think the
Speaker 12: does the pullback have room from here? You know, I
Speaker 12: think there's a lot riding on big tech earnings and
Speaker 12: I think we can't be overly dismissive of that. It
Speaker 12: has been the defensive play for many years in a
Speaker 12: row now and there's a lot riding on that forward guidance.
Speaker 12: And we're a bit of the camp that there's probably
Speaker 12: a de acceleration of earnings from those names and an
Speaker 12: acceleration of earnings and other sectors of the market in
Speaker 12: the back half of this year. And I think you
Speaker 12: saw a little bit of that play out with Netflix
Speaker 12: and there's a big response.
Speaker 10: Yeah. Again, the irony is this idea that on the
Speaker 10: way up we're freaking out or not weps me freaking
Speaker 10: out that it can't go on and when it starts
Speaker 10: to fall, we freak out the other way. How much
Speaker 10: further will it have to fall? But it's interesting, you say,
Speaker 10: back half of the year, other companies pick up the mantle.
Speaker 10: So is this less of a sell off and more
Speaker 10: of a beginning of a leadership change?
Speaker 2: Yeah?
Speaker 10: I think.
Speaker 12: I mean, there's a lot going on in markets today,
Speaker 12: and I think it's a truly incredible time to be
Speaker 12: an investor. Anytime you see the ten year pushing five percent,
Speaker 12: you have to have a real conversation with your clients
Speaker 12: and working on our side of the business, you know,
Speaker 12: we're not beholden to only one mandate. We're cross asset
Speaker 12: for families and so to us, you have to have
Speaker 12: real conversations about excess return above expectations from equities and
Speaker 12: what you do with that. And when you have a
Speaker 12: ten year that is pushing five percent on a net
Speaker 12: real return after tax basis, you start to go, Okay, well,
Speaker 12: if I was expecting seven or eight from equities over
Speaker 12: that same ten year period, is it prudent of me
Speaker 12: now to start to think about repositioning? And so you know,
Speaker 12: I think this is one of those kind of the
Speaker 12: most overused word of twenty twenty four. This is another
Speaker 12: bifurcation of what are you doing right now? Is it
Speaker 12: a long only strategy? Are you cross asset, are you
Speaker 12: invested across all sectors? And then how are you looking at?
Speaker 12: This market today is full of opportunity for that.
Speaker 4: You have a sixty forty outlook.
Speaker 3: Sixty percent of portfolio and equities forty percent in bonds.
Speaker 3: Is that something you guys do or do you just
Speaker 3: get a little bit more creative than that?
Speaker 12: Definitely more prescriptive than that, and I would say, you know,
Speaker 12: we are big proponents of the third leg of that stool,
Speaker 12: which you know it would be in the world of
Speaker 12: alternative investments, real assets, you know, really looking at underlying risk.
Speaker 12: You know, the unique thing about equity markets today is
Speaker 12: that we have less shares available. There's just less publicly
Speaker 12: traded companies. And so when you take that into consideration,
Speaker 12: I think for people who have the access or the
Speaker 12: lack of liquidity needs. You know that private investment spectrum
Speaker 12: has been a big part of overall acid allocation.
Speaker 10: In terms of this idea that that higher yields, I
Speaker 10: get that all of a sudden have something that's an
Speaker 10: attractive alternative to equities, But just in the mechanism of
Speaker 10: that forcing equities to sell off. Is it different that
Speaker 10: the reason that we have higher yields is because the
Speaker 10: US economy is strong, and the US economy is strong
Speaker 10: enough that we don't need to cut Presumably that's again
Speaker 10: and aroundabout way a good thing for equities.
Speaker 12: Yes. So, And this is where I was saying, there's
Speaker 12: so much unpack, you know, I think this is where
Speaker 12: the story of the inversion of the yield curve, which
Speaker 12: I've been talking about, I feel like since twenty eighteen,
Speaker 12: it's just a nauseum. But what if you really break
Speaker 12: it down to what is it telling us in the moment.
Speaker 12: It's telling us that there's long, long duration demand for
Speaker 12: US treasuries, and that the growth is so strong, and
Speaker 12: that the consumer has strength to the extent that we
Speaker 12: want to slow them down. So when we think about earnings,
Speaker 12: and we think about earnings growth, which the end of
Speaker 12: the day should be a big part of the representation
Speaker 12: of the valuation of the market. Well, then when we
Speaker 12: look at not just US GDP, but we start to
Speaker 12: focus further on the IMF global growth numbers, China GDP,
Speaker 12: China stimulus, this is where I think you start to
Speaker 12: really see, Okay, yes we're in a pullback and there's
Speaker 12: still likely room for this market to grow from here,
Speaker 12: but there's going to be fits and stops to that
Speaker 12: growth trajectory you mentioned.
Speaker 3: On a fixed income side, you can get you a
Speaker 3: nice return on a two year on a ten year treasury.
Speaker 4: How about going on and taking some credit risk.
Speaker 3: Is that something you're advising your clients these days, whether
Speaker 3: it's investment grade or even high yield.
Speaker 12: Yeah, And I think you have to be both tactical
Speaker 12: and active with your fixed income portfolio, you know. I
Speaker 12: think this is where you speak to anyone who works
Speaker 12: directly on the behalf of any families. You start to
Speaker 12: really look at that you know, net after tax equivalent
Speaker 12: basis on your fixed income portfolio. And so you know,
Speaker 12: we have taken on, you know, credit risk across the spectrum,
Speaker 12: and we're just utilizing again going back to kind of
Speaker 12: that prescriptive mandate where we are a bit more creative
Speaker 12: because we work for families.
Speaker 6: Cool.
Speaker 10: I love how you put gold right now, saying that
Speaker 10: gold as an expression of discomfort. I think that's perfect
Speaker 10: because so many of us have been scratching our heads saying,
Speaker 10: what's up with gold? Is this kind of the only
Speaker 10: asset class to express that discomfort at the moment.
Speaker 12: I mean, there's a lot if you look across the
Speaker 12: commodity spectrum right now, there's a there's a lot of
Speaker 12: reasons to feel uncomfortable. I mean I I was speaking
Speaker 12: to one of our analysts. I'm like, talk to me
Speaker 12: about commodities, and he's like, drought, drought, geopolitical drought, this
Speaker 12: and I'm just like, Okay, I just got uncomfortable. How
Speaker 12: do I express my discomfort? You know, for us, gold
Speaker 12: doesn't really play a meaningful place in portfolio construction simply
Speaker 12: because you know of the components of what gold is.
Speaker 12: And so when we see a response like this, it's
Speaker 12: funny because gold can go in a couple of different ways.
Speaker 12: It can be both exuberant and it can also be discomfort,
Speaker 12: and right now we think it's an expression of discomfort
Speaker 12: across the commodity special.
Speaker 3: Dare I suggest you have a viewing bitcoin, crypto, that
Speaker 3: kind of stuff the big having when your clients, when
Speaker 3: your clients call you up and he said they want
Speaker 3: to get exposure or crypto, what do you say, you know,
Speaker 3: I think crypto.
Speaker 12: And this goes back to something we were all saying
Speaker 12: before we came on air, cryptocurrency, and I'm going to
Speaker 12: focus specifically on bitcoin, but it is a supply and
Speaker 12: demand mechanism. And so if you you know, the thing
Speaker 12: that hit me the hardest when I was learning about
Speaker 12: bitcoin over the years was, you know, if you believe
Speaker 12: that the demand for bitcoin is going to increase by
Speaker 12: more than two percent per year, because the supply is
Speaker 12: only going to increase by more than two percent per year,
Speaker 12: then you should probably be long bitcoin. I'm not saying that.
Speaker 12: That's the advice I'm giving to indigital clients. So that's
Speaker 12: our firm's thesis on cryptocurrency. But you know, I think,
Speaker 12: you know what, you always want to boil things down,
Speaker 12: boil down what markets are, boil down what bitcoin is.
Speaker 12: And at the end of the day, you know, I
Speaker 12: think this conversation about having has a lot to do
Speaker 12: with that supply and demand mechanism long term.
Speaker 3: Very good, Nicole, Thank you so much for joining us.
Speaker 3: Nicole Webb, senior vice president, the financial advisor at Wealth
Speaker 3: Enhancement Group, joining us live here in our Bloomberg Interactive
Speaker 3: Brooker Studio.
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Speaker 8: All right.
Speaker 3: A lot of market participants, a lot of market observers
Speaker 3: are saying, you know, part of a strong, healthy market
Speaker 3: is an occasional pullback, a drawdown, as the kids call it.
Speaker 4: I'm not sure.
Speaker 3: We're off about five percent here on the s and
Speaker 3: p five hundred from our recent highs. Does that qualify?
Speaker 3: It's checking with Barry Ridholts. He's a host of Masters
Speaker 3: in Business on Bloomer Radio. Is also the founder of
Speaker 3: Ritholt's Wealth of Management. He joins us via zoom here. Hey, Barry,
Speaker 3: I mean, do you ascribe to that kind of thinking
Speaker 3: that every good long term bull market needs some healthy pullbacks?
Speaker 3: And if so, are we in midst one of those.
Speaker 7: Now do you think, Wait, markets go up and down.
Speaker 7: Nobody told me about this. I thought they just went
Speaker 7: straight up and it was easy to make a ton
Speaker 7: of money. Listen, this, this is the nature of a broad,
Speaker 7: deeply participated, enormous market capitalization exchange.
Speaker 4: This is this is what happens.
Speaker 7: You know, the ideas that drive markets kind of get
Speaker 7: tested out, they catch fire for a little while, then
Speaker 7: they sort of get overlooked, and then the narrative changes
Speaker 7: and you know, we've we've figured this out. I love
Speaker 7: the expression investing is a problem that's been solved. But
Speaker 7: investing is something that takes place over decades and month
Speaker 7: to month, week to week, day to day, tick to tick.
Speaker 7: That's fairly random. There's a lot of noise and a
Speaker 7: lot of emotion that weight. We're up twenty five percent
Speaker 7: from the lows. Weight, we're down ten percent from the highs.
Speaker 7: It's everybody making their best guess as to the discounted
Speaker 7: cash flow of stocks and where profits are going to
Speaker 7: be in the future relative to the risk free red
Speaker 7: return of bonds.
Speaker 3: And Barry mentioned where profits are going to be in
Speaker 3: the future. That brings our attention to earnings. It seems
Speaker 3: like the FED story is still out there, but the
Speaker 3: FED will be maybe less active in terms of cutting
Speaker 3: rates in the near near term, So maybe focus needs
Speaker 3: to go a little bit more towards earnings. What are
Speaker 3: you looking for in terms of earning share? What are
Speaker 3: you going to be listening for anything on some of
Speaker 3: these calls?
Speaker 7: So I like to look at two things. I want
Speaker 7: to look at what is the overall all beat rate?
Speaker 7: Right most two thirds of the companies will beat earnings expectations.
Speaker 7: We always laugh at when an earnings report misses the expectations.
Speaker 7: I think everybody gets it backwards. The earnings report is
Speaker 7: the earnings report. Your forecasts were wrong. They are what
Speaker 7: it was you got it wrong. So I want to
Speaker 7: see how well how many companies are beating versus missing.
Speaker 7: I like to look at the overall level. Hey, what
Speaker 7: are we growing really? Adding three four five percent to profits?
Speaker 7: We're pretty close to all time highs for profits for
Speaker 7: the S and P five hundred. But the thing that
Speaker 7: so many people find so challenging is it's not the number,
Speaker 7: it's not the data, it's what are the earnings relative
Speaker 7: to expectations? Netflix? Is a great example. I mean, that
Speaker 7: is a spectacular earnings report, the most new subscribers in
Speaker 7: a long time, revenue profits, everything moving in the right direction,
Speaker 7: but apparently not as much as expected. And so despite
Speaker 7: you know, the really solid report, the initial response was, oh,
Speaker 7: this is disappointing, which it's always about, not the news,
Speaker 7: but how much of the news is already priced in?
Speaker 3: And to that end, Barry, what do you think of
Speaker 3: companies providing kind of point guidance, whether it's a quarter
Speaker 3: out or a year out. I mean, is that something
Speaker 3: they should be doing to kind of manage the whole
Speaker 3: process or should they just run their business and let
Speaker 3: the street take care of it.
Speaker 7: You know, I am not a big fan of you know,
Speaker 7: back in the old days when you pull, when you
Speaker 7: and I were first ye getting started, they used to
Speaker 7: be called whisper numbers. Before reg FD, a handful of
Speaker 7: favored analysts or axes on the stock would get a
Speaker 7: very quiet conversation with the CFO or the CEO. Hey,
Speaker 7: you have us at seven cents a share, you should
Speaker 7: really be close in a nine sense of share, and
Speaker 7: you know, so everybody would be low and the one
Speaker 7: guy the day before would change his estimate, and lo
Speaker 7: and behold, everybody rushes to raise and the stock takes off.
Speaker 7: That sort of nonsense from when we were youngsters, the
Speaker 7: on trading desks, that's all gone, so now everybody has
Speaker 7: to get the disclosure at.
Speaker 8: The same time.
Speaker 7: And I wonder how helpful it is being that precise.
Speaker 7: I love hearing a CEO saying, hey, listen, you know,
Speaker 7: we're expecting to see growth this quarter similar last quarter,
Speaker 7: but we don't know what's happening with fill in the blank,
Speaker 7: the war in the Middle East or the Ukraine. There
Speaker 7: seems to be a lot of inflation stuck in the
Speaker 7: in the services part of the economy. So we're going
Speaker 7: to give you a range and try not to micromanage this.
Speaker 7: And I think that's just honest, because we really don't
Speaker 7: know what the future holds. When someone pretends they're sending
Speaker 7: themselves up for failure, all.
Speaker 3: Right, Barry, I'm looking at some social media from our
Speaker 3: good friend Matt Miller, and he's now showing it looks
Speaker 3: like he's test driving the Lamborghini HURKHN Strato, and he
Speaker 3: notes that it's among the last of the naturally aspirated
Speaker 3: v tens in production.
Speaker 8: Whatever that is.
Speaker 4: Does that kind of car get your attention?
Speaker 7: So I am so I'm not a big Lambeau fan.
Speaker 7: That's not mine. It's a little too flashy for me, Paul,
Speaker 7: you know what a low key of course I am.
Speaker 7: And the Lambeau in that, like lime green, is a
Speaker 7: little too much for me. That said, I gotta give
Speaker 7: Lamborghini credit for saying, wait, a four hundred thousand dollars
Speaker 7: rocket ship, I know, Let's turn it into a decar
Speaker 7: off road racer. Let's let raise it a few inches,
Speaker 7: put some plastic cladding and high intensity light beams and
Speaker 7: some off roads and let this seven hundred horsepower monster loose,
Speaker 7: you know, in the Sahara. Kudos to them for stepping
Speaker 7: out of their comfort zone. The crazy thing about this
Speaker 7: Serrado is not only does it have a giant premium
Speaker 7: over the usual Lamborghini Hurricanes, it sold out instantly.
Speaker 2: Wow.
Speaker 7: And every time people tell me, and admittedly this is
Speaker 7: not exactly a middle class purchase, but wherever I look, cars, watches,
Speaker 7: restaurant reservations, every part time someone tells me how bad
Speaker 7: the economy is? Where do you live? And I'm not
Speaker 7: just in New York, I'm around the country pretty regularly.
Speaker 7: I was just in Salt Lake City, I was in Vegas.
Speaker 7: I was in California and not like Beverly Hills, but
Speaker 7: like middle class parts exactly.
Speaker 8: Yep.
Speaker 4: The wealth effect is it's hard.
Speaker 7: Yeah, it's hard not to look around and say, if
Speaker 7: you think this economy stays all right, we have to
Speaker 7: leave it there. But I think where you live.
Speaker 8: Barry very much.
Speaker 3: Thank you host a master's in business on Bloomberg Radio,
Speaker 3: founder of Ritholtz Wealth Management as well. Appreciate that little
Speaker 3: car talk to finish off your morning.
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