1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 2 00:00:09,200 --> 00:00:12,720 Speaker 1: with Jonathan Ferroll and Lisa o Brawmowitz Jay Lee. We 3 00:00:12,840 --> 00:00:16,760 Speaker 1: bring you insight from the best and economics, finance, investment, 4 00:00:17,079 --> 00:00:22,400 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, 5 00:00:22,800 --> 00:00:31,160 Speaker 1: Bloomberg dot com and of course on the Bloomberg Terminal. Davos, Switzerland. 6 00:00:31,480 --> 00:00:35,080 Speaker 1: Are David Weston with James Gorman. David, thank you so much. 7 00:00:35,120 --> 00:00:37,320 Speaker 1: Tim Well, I don't hear what you're calling car Lissa o'bramowitz, 8 00:00:37,360 --> 00:00:39,360 Speaker 1: and we do, indeed have James Gorman, the chair and 9 00:00:39,560 --> 00:00:41,760 Speaker 1: CEO of Morgan Stanley said, James, thanks so much for 10 00:00:41,840 --> 00:00:44,519 Speaker 1: joining us here in Dabos. Your earnings came out everybody 11 00:00:44,520 --> 00:00:46,280 Speaker 1: pay attention to him. And I heard a story you 12 00:00:46,320 --> 00:00:48,240 Speaker 1: can tell it's true or not that once some time 13 00:00:48,240 --> 00:00:50,879 Speaker 1: ago you're recruiting senior executives that you know. Wealth management 14 00:00:50,880 --> 00:00:53,160 Speaker 1: may not be as exciting, but over time you do better, 15 00:00:53,280 --> 00:00:55,279 Speaker 1: more steady. Is that what we saw? I noticed your 16 00:00:55,280 --> 00:00:57,960 Speaker 1: stock one up six percent when when Goldman's went down 17 00:00:57,960 --> 00:01:00,120 Speaker 1: six pers on the same day. Well, firstly, thank for 18 00:01:00,200 --> 00:01:03,040 Speaker 1: having us um you know it was a good day 19 00:01:03,080 --> 00:01:05,800 Speaker 1: because I told our board a couple of years ago 20 00:01:05,880 --> 00:01:09,560 Speaker 1: what I'd really like to see selfishly is a very 21 00:01:09,560 --> 00:01:11,759 Speaker 1: difficult environment. I don't want to see it for the country. 22 00:01:11,800 --> 00:01:14,000 Speaker 1: I mean it's not fair, but but for Morgan Sending, 23 00:01:14,040 --> 00:01:17,640 Speaker 1: because I wanted to prove the business model would do 24 00:01:17,840 --> 00:01:21,120 Speaker 1: fine when things are really difficult. And in fact we 25 00:01:21,200 --> 00:01:26,959 Speaker 1: had our second best year ever in revenues and net income, 26 00:01:28,360 --> 00:01:31,760 Speaker 1: third best in EPs in our history. So you know 27 00:01:31,800 --> 00:01:35,399 Speaker 1: what what it proved was the volatility of the markets business. 28 00:01:35,400 --> 00:01:38,480 Speaker 1: Everybody understands the volatively of underwriting I p o s 29 00:01:38,520 --> 00:01:41,840 Speaker 1: are not happening when things are very uncertain, trading on 30 00:01:41,880 --> 00:01:45,039 Speaker 1: the like. But what we proved is by having you know, 31 00:01:45,120 --> 00:01:48,440 Speaker 1: between five and six three and dollars of people's money 32 00:01:48,480 --> 00:01:52,440 Speaker 1: under management that is stable. And that's that was the 33 00:01:52,480 --> 00:01:55,040 Speaker 1: design twelve years ago and we've got there. One thing 34 00:01:55,080 --> 00:01:57,240 Speaker 1: that you said was you are planning to expand some 35 00:01:57,320 --> 00:01:59,320 Speaker 1: of the wealth management aspect even as you cut back 36 00:01:59,360 --> 00:02:03,360 Speaker 1: other parts of the business acquired each trade eating vance. 37 00:02:03,720 --> 00:02:07,120 Speaker 1: Is there another acquisition that you're trying to target or 38 00:02:07,200 --> 00:02:09,799 Speaker 1: is it going to be just sort of organic growth. No, 39 00:02:09,960 --> 00:02:11,680 Speaker 1: I think it's a mix of both. I mean we 40 00:02:11,720 --> 00:02:15,079 Speaker 1: started off with Smith Bunney fourteen years ago. Then we 41 00:02:15,160 --> 00:02:21,080 Speaker 1: acquite a wonderful little company in Calgary, Canada called Sling, 42 00:02:21,200 --> 00:02:25,000 Speaker 1: which did all the sort of workplace stock plan businesses 43 00:02:25,960 --> 00:02:27,960 Speaker 1: for a lot of the SMP companies. Then we bought 44 00:02:27,960 --> 00:02:30,240 Speaker 1: each Trade. Then we bought Eating Vans, and we bought 45 00:02:30,240 --> 00:02:33,079 Speaker 1: Masa West, which is another company. So we've we've been 46 00:02:33,200 --> 00:02:35,280 Speaker 1: we've been building them, and those opportunities come up, we 47 00:02:35,440 --> 00:02:38,080 Speaker 1: keep we keep acquiring those spaces. Is a room for 48 00:02:38,120 --> 00:02:43,520 Speaker 1: another large acquisition, there's always room, um, But we like 49 00:02:43,680 --> 00:02:47,320 Speaker 1: things that aren't balance sheet intensive. We like things that 50 00:02:47,440 --> 00:02:51,959 Speaker 1: help grow scale in spaces that we understand and um, 51 00:02:52,000 --> 00:02:54,200 Speaker 1: you know, we like things when we know what the 52 00:02:54,280 --> 00:02:57,320 Speaker 1: capital picture looks like. So we you know, at the moment, 53 00:02:57,360 --> 00:03:00,480 Speaker 1: we've been quite aggressive with our buy back. Doubled our 54 00:03:00,560 --> 00:03:02,600 Speaker 1: dividend two years ago, we increased the eleven per cent 55 00:03:02,680 --> 00:03:06,560 Speaker 1: last year. But we're also dealing with changing regulatory environment. 56 00:03:06,960 --> 00:03:10,560 Speaker 1: So you're managing between what are the capital demands regulators require, 57 00:03:11,000 --> 00:03:14,320 Speaker 1: how do you distribute it through dividends and through buy backs, 58 00:03:14,400 --> 00:03:16,040 Speaker 1: and then what do you need to do to invest 59 00:03:16,040 --> 00:03:18,320 Speaker 1: in the business. And part of that investment, of course, 60 00:03:18,440 --> 00:03:21,839 Speaker 1: his acquisitions, so it's a multi sort of chess game 61 00:03:21,919 --> 00:03:24,320 Speaker 1: that we're playing. James said, it was some there were 62 00:03:24,320 --> 00:03:26,400 Speaker 1: some difficulties, and you were happy that you could manage 63 00:03:26,400 --> 00:03:28,920 Speaker 1: those difficulties and show that your map model works. Some 64 00:03:29,000 --> 00:03:32,360 Speaker 1: of the difficulties were highly leveraged loans for some acquisitions 65 00:03:32,360 --> 00:03:36,040 Speaker 1: and things like that. Is that crimping your ability going 66 00:03:36,120 --> 00:03:38,440 Speaker 1: forward to make some of those highly leveraged loans. Are 67 00:03:38,480 --> 00:03:42,120 Speaker 1: you changing the risk calculus? No, we've We've been I 68 00:03:42,160 --> 00:03:47,080 Speaker 1: would say um urd conservative over the last two years. 69 00:03:47,400 --> 00:03:50,240 Speaker 1: In fact, it was September I think September year, year 70 00:03:50,280 --> 00:03:52,440 Speaker 1: and a half ago that I met with the management 71 00:03:52,440 --> 00:03:54,960 Speaker 1: committee and said, let's let's all just pull it in 72 00:03:55,080 --> 00:03:58,400 Speaker 1: five ten per cent, right um and our our w 73 00:03:58,480 --> 00:04:02,200 Speaker 1: A is a risk weighted asset. It's actually declined at 74 00:04:02,200 --> 00:04:04,960 Speaker 1: the end of the year. So we did that, and 75 00:04:05,080 --> 00:04:08,880 Speaker 1: so within the leverage loan space, again ear a little conservative, 76 00:04:08,920 --> 00:04:11,240 Speaker 1: but we have a large portfolio obviously going to take 77 00:04:11,280 --> 00:04:14,120 Speaker 1: some losses in these markets. Within that they are absorbed 78 00:04:14,120 --> 00:04:16,760 Speaker 1: in our numbers, but you're also generating a lot of 79 00:04:16,760 --> 00:04:19,760 Speaker 1: interest income, a lot of fees on it. So I balanced, David, 80 00:04:19,800 --> 00:04:22,400 Speaker 1: I think we're reasonably well positioned, but we're definitely not 81 00:04:22,400 --> 00:04:24,440 Speaker 1: trying to be aggressive in this environment. There is one 82 00:04:24,520 --> 00:04:29,320 Speaker 1: high profile loan that rhyme with Twitter that we're going 83 00:04:29,400 --> 00:04:31,719 Speaker 1: to have to talk about, the Twitter loan that I 84 00:04:31,760 --> 00:04:35,080 Speaker 1: know Morgan Stanley lead on. Could Morgan Stanley end up 85 00:04:35,120 --> 00:04:40,440 Speaker 1: owning Twitter? Could Morgan that I've never been asked that question. No, 86 00:04:40,640 --> 00:04:42,640 Speaker 1: we could not end up owning true. Do you play 87 00:04:42,640 --> 00:04:45,560 Speaker 1: on offloading those loans or do you just flater that? Firstly, 88 00:04:45,560 --> 00:04:48,080 Speaker 1: Twitter is a great company, and and let's be fair, 89 00:04:48,120 --> 00:04:51,080 Speaker 1: Elon musk Is is one of the greatest entrepreneurs and 90 00:04:51,120 --> 00:04:53,960 Speaker 1: business people you know, in the last century, and that's 91 00:04:54,000 --> 00:04:56,599 Speaker 1: something that's something exaggeration. Look what he did. Just take 92 00:04:56,800 --> 00:05:01,000 Speaker 1: the boring company alone, let alone SpaceX, let alone Tesla. 93 00:05:01,360 --> 00:05:05,640 Speaker 1: I mean this, this person has extraordinary capabilities. Twitter is 94 00:05:05,640 --> 00:05:09,680 Speaker 1: a great company. Obviously, it's gone through restructuring. Um uh, 95 00:05:09,800 --> 00:05:11,599 Speaker 1: you know, it's it's part of our I'm not going 96 00:05:11,680 --> 00:05:15,160 Speaker 1: to talk about the specific loan position we have, but 97 00:05:15,839 --> 00:05:19,320 Speaker 1: we're very comfortable with that position. So there are things 98 00:05:19,400 --> 00:05:21,400 Speaker 1: we don't know about the economy going forward. One thing 99 00:05:21,440 --> 00:05:24,080 Speaker 1: that people see the reasonably coveted the rates are gonna 100 00:05:24,080 --> 00:05:25,760 Speaker 1: be higher interest rates are going to be higher than 101 00:05:25,800 --> 00:05:28,080 Speaker 1: they have been in the past. How does that basic 102 00:05:28,160 --> 00:05:30,760 Speaker 1: fact change your business? How do you manage your business 103 00:05:30,800 --> 00:05:33,120 Speaker 1: differently when you've got rates at four or five six 104 00:05:33,160 --> 00:05:35,800 Speaker 1: percents that have zero to one half percent? Well, we 105 00:05:35,839 --> 00:05:38,640 Speaker 1: had we had an artificial environment, you know. I remember 106 00:05:38,640 --> 00:05:40,480 Speaker 1: when I came to the United States. I mean obviously 107 00:05:40,560 --> 00:05:43,200 Speaker 1: as as an unsecured student, it wasn't a great credit 108 00:05:43,560 --> 00:05:47,000 Speaker 1: and the bank loan reflected it. I paid My first 109 00:05:47,000 --> 00:05:49,599 Speaker 1: mortgage was fourteen and a half percent. So we've lived 110 00:05:49,600 --> 00:05:51,880 Speaker 1: in a sort of we've lived in a surreal world 111 00:05:51,960 --> 00:05:55,000 Speaker 1: for a decade, which is the legacy of the financial crisis. 112 00:05:55,040 --> 00:05:57,680 Speaker 1: To get the economy back to where it was, central 113 00:05:57,680 --> 00:06:00,359 Speaker 1: governments around the world kept rates nes eerra and along 114 00:06:00,440 --> 00:06:03,679 Speaker 1: came COVID, which delayed what would have been a natural 115 00:06:03,760 --> 00:06:07,320 Speaker 1: rising rates clearly. Then long came the Russian invasion the Ukraine, 116 00:06:07,400 --> 00:06:10,599 Speaker 1: which further delayed it. Finally you turned the corner in 117 00:06:10,640 --> 00:06:14,360 Speaker 1: two thousand two, mid twenty two, when the Federal Reserve 118 00:06:14,480 --> 00:06:18,479 Speaker 1: and other central banks around the world, um not by coordination, 119 00:06:18,720 --> 00:06:21,479 Speaker 1: just by need, had to normalize rates back to neutral. 120 00:06:21,720 --> 00:06:24,280 Speaker 1: They've gone higher than that. They had to go higher 121 00:06:24,320 --> 00:06:26,400 Speaker 1: in order to take some of the fluff house the economy. 122 00:06:26,520 --> 00:06:28,680 Speaker 1: So I see it as sort of a natural consequence. 123 00:06:28,720 --> 00:06:32,440 Speaker 1: I don't think of it's particularly alarming, a natural consequence. 124 00:06:32,520 --> 00:06:35,159 Speaker 1: But which parts of Morgan Stands business are hurt by 125 00:06:35,240 --> 00:06:37,520 Speaker 1: higher rates and which are helped by higher rates? Well? 126 00:06:37,560 --> 00:06:41,599 Speaker 1: Were benefit net interest income? In the wealth business, we 127 00:06:41,800 --> 00:06:46,479 Speaker 1: you know, we manage over dollars to deposits um and 128 00:06:46,640 --> 00:06:51,679 Speaker 1: you know rate rate volatility obviously helps your macro trading 129 00:06:51,680 --> 00:06:55,760 Speaker 1: businesses in foreign exchange in rates. It hurts companies trying 130 00:06:55,760 --> 00:06:58,080 Speaker 1: to wanting to do deals because the cost of financing 131 00:06:58,440 --> 00:07:01,200 Speaker 1: is higher. It hurts your marginal loan business people bring 132 00:07:01,240 --> 00:07:04,360 Speaker 1: down their margin loans because it's more expensive. So there 133 00:07:04,360 --> 00:07:08,120 Speaker 1: there gifts and gets, if you will. But what I 134 00:07:08,200 --> 00:07:10,440 Speaker 1: loved about the performance of the business last year, which 135 00:07:10,440 --> 00:07:13,880 Speaker 1: again wasn't a record uh but was a great year, 136 00:07:14,240 --> 00:07:16,960 Speaker 1: was that with those gifts and gets, we came out 137 00:07:17,000 --> 00:07:21,640 Speaker 1: in a position of ROTC and attracted over three hundred 138 00:07:21,680 --> 00:07:25,360 Speaker 1: billion of new money from clients. Here Davos, there seems 139 00:07:25,360 --> 00:07:28,000 Speaker 1: to be an incredible amount of optimism and people have 140 00:07:28,040 --> 00:07:30,840 Speaker 1: noted the shift in tone and that suddenly things seem 141 00:07:30,920 --> 00:07:33,640 Speaker 1: to be moving around the corner, and I had asked 142 00:07:33,680 --> 00:07:35,440 Speaker 1: you, you you know, do you think it's overplayed? You said, 143 00:07:35,440 --> 00:07:37,720 Speaker 1: you're the most optimistic person you know, So why are 144 00:07:37,720 --> 00:07:41,120 Speaker 1: you so optimistic? What does optimistic look like here? Well, 145 00:07:41,440 --> 00:07:43,400 Speaker 1: you know, I've seen I've seen a lot of cycles 146 00:07:43,400 --> 00:07:47,400 Speaker 1: in my career, and I've seen some really really dark periods. 147 00:07:47,400 --> 00:07:52,040 Speaker 1: You know, the financial crisis after September eleven, even though 148 00:07:52,120 --> 00:07:55,760 Speaker 1: you know the early recessions in the US, the market 149 00:07:55,840 --> 00:07:57,640 Speaker 1: bust and seven year I go back up a lot 150 00:07:57,720 --> 00:08:00,680 Speaker 1: olderan you. I go back a long way and and um, 151 00:08:00,880 --> 00:08:03,520 Speaker 1: you know, I think what we've been through if you 152 00:08:03,600 --> 00:08:07,240 Speaker 1: stack up the negative stuff that happened, first land war 153 00:08:07,280 --> 00:08:11,200 Speaker 1: in Europe in forty years, first global pandemic in a century, 154 00:08:12,280 --> 00:08:14,520 Speaker 1: first lamb or in Europe in seventy years, first global 155 00:08:14,600 --> 00:08:18,880 Speaker 1: pandemic in a century, and highest rate increase because of 156 00:08:18,920 --> 00:08:22,680 Speaker 1: inflation in forty years, that's a lot to throw up people. 157 00:08:23,360 --> 00:08:26,440 Speaker 1: And where are we now? So bad? That debate is 158 00:08:26,520 --> 00:08:28,600 Speaker 1: will it be a recession? Will it be shortened? Shall 159 00:08:28,920 --> 00:08:32,720 Speaker 1: nobody's saying we're going depression right, everybody's saying we can 160 00:08:32,800 --> 00:08:34,760 Speaker 1: kind of deal with this. And two things I think 161 00:08:34,800 --> 00:08:37,840 Speaker 1: have changed in the last month, which has caused this 162 00:08:38,360 --> 00:08:41,200 Speaker 1: echo chamber we live in here and doub us where 163 00:08:41,160 --> 00:08:43,720 Speaker 1: everybody's basically repeating back to each other what they've heard 164 00:08:43,760 --> 00:08:46,680 Speaker 1: from the last person. Let's be honest. I'm not hopefully, 165 00:08:46,760 --> 00:08:52,600 Speaker 1: but most people are. Is two things have changed. Number One, 166 00:08:52,640 --> 00:08:55,959 Speaker 1: the inflation numbers are definitely there's clear evidence inflation has 167 00:08:55,960 --> 00:08:59,480 Speaker 1: in fact peaked and is coming down right how quickly 168 00:08:59,600 --> 00:09:01,520 Speaker 1: whether it will get us to two percent and when 169 00:09:01,920 --> 00:09:04,880 Speaker 1: remains the debate, but it is clearly the slope of 170 00:09:04,920 --> 00:09:07,800 Speaker 1: the line is positive. Is to everybody's favorite. And the 171 00:09:07,840 --> 00:09:11,680 Speaker 1: second is not just the opening up of China, but 172 00:09:11,960 --> 00:09:16,640 Speaker 1: China has embraced the rest of the world more aggressively 173 00:09:16,800 --> 00:09:19,000 Speaker 1: in the last few weeks, witnessed by the Vice Premier 174 00:09:19,120 --> 00:09:22,280 Speaker 1: meeting with Treasury Secretary yell on this morning things this 175 00:09:22,320 --> 00:09:25,120 Speaker 1: morning um in a way that we haven't seen for 176 00:09:25,200 --> 00:09:27,800 Speaker 1: some time. So the big question coming out of the 177 00:09:27,920 --> 00:09:32,120 Speaker 1: Party Congress and President she uh you know, being real 178 00:09:32,400 --> 00:09:36,520 Speaker 1: reelected by the Congress was where does China go from here? 179 00:09:37,640 --> 00:09:42,320 Speaker 1: Does common prosperity mean effectively dividing the pie up so 180 00:09:42,440 --> 00:09:45,400 Speaker 1: everybody gets a piece of it, or by growing the pie? 181 00:09:45,559 --> 00:09:47,640 Speaker 1: And what we're seeing is the tilter is now from 182 00:09:47,960 --> 00:09:50,120 Speaker 1: divide the pie to grow the pipe. Does that mean 183 00:09:50,160 --> 00:09:53,800 Speaker 1: you've got more confidence to expand in China? We've We've 184 00:09:53,840 --> 00:09:56,520 Speaker 1: got We've got a very good business in Greater China. Obviously, 185 00:09:56,559 --> 00:09:59,800 Speaker 1: we have a huge business in Hong Kong. Um, and 186 00:10:00,080 --> 00:10:02,200 Speaker 1: we you know, we continue to have I think on 187 00:10:02,240 --> 00:10:04,320 Speaker 1: the main land up to a thousand people in various 188 00:10:04,520 --> 00:10:07,320 Speaker 1: various functions. But no, I think we need to see 189 00:10:07,320 --> 00:10:11,240 Speaker 1: a little more clarity of Chinese policy, a little more 190 00:10:11,280 --> 00:10:16,320 Speaker 1: you know, sober discussion around global trade relations. Um. And uh, 191 00:10:16,400 --> 00:10:19,040 Speaker 1: you know, right now, I think we're certainly in in 192 00:10:19,120 --> 00:10:23,840 Speaker 1: a watch, but tilting more positive than we would have 193 00:10:23,880 --> 00:10:25,920 Speaker 1: been three six months ago. We've come all the way 194 00:10:25,920 --> 00:10:27,240 Speaker 1: over the Switzer and I'm struck at least by the 195 00:10:27,280 --> 00:10:29,679 Speaker 1: fact that and I'll talk about Washington to be a 196 00:10:29,720 --> 00:10:31,920 Speaker 1: debt ceiling a lot of concerning I hear two things. 197 00:10:32,120 --> 00:10:35,360 Speaker 1: One is it's ridiculous, and two is it would be catastrophic. 198 00:10:35,840 --> 00:10:37,679 Speaker 1: What is your reaction that's saying, how do you take 199 00:10:37,679 --> 00:10:42,319 Speaker 1: into account the possibility of US default? Well, um, it 200 00:10:42,520 --> 00:10:45,040 Speaker 1: was a Churchill who said the Americans eventually get it 201 00:10:45,120 --> 00:10:50,439 Speaker 1: right after, you know, and I can't remember thee. Yeah, so, um, 202 00:10:50,760 --> 00:10:57,800 Speaker 1: you know, I'm confident that I'm confident that uh, politics 203 00:10:57,880 --> 00:11:00,840 Speaker 1: will finally get to the right place on this. I'm 204 00:11:00,920 --> 00:11:03,640 Speaker 1: confident about that because the the other option is just 205 00:11:03,720 --> 00:11:06,080 Speaker 1: not an option. One thing, as the people have also 206 00:11:06,080 --> 00:11:08,120 Speaker 1: been talking about, is the new normal for work from home. 207 00:11:08,480 --> 00:11:10,480 Speaker 1: We heard a bit of a retracement from City Group 208 00:11:10,720 --> 00:11:14,400 Speaker 1: in an interview that David did here with Jane Fraser. 209 00:11:14,760 --> 00:11:16,800 Speaker 1: What's the new normal? Is it coming into the office 210 00:11:16,800 --> 00:11:19,240 Speaker 1: four days a week, Is it flexible? Is it work 211 00:11:19,320 --> 00:11:22,640 Speaker 1: from home more freely? I think it's very very specific 212 00:11:22,679 --> 00:11:26,320 Speaker 1: to what you do. Um. You know, if you're a 213 00:11:26,480 --> 00:11:30,760 Speaker 1: tax attorney, UM, who doesn't work with other teams, then 214 00:11:30,760 --> 00:11:32,559 Speaker 1: obviously you can spend a lot more time by yourself. 215 00:11:32,600 --> 00:11:34,520 Speaker 1: Doesn't matter if you're in office or not. I mean, 216 00:11:34,559 --> 00:11:37,080 Speaker 1: there are different kinds of jobs. Is where I'd start with. 217 00:11:37,440 --> 00:11:41,600 Speaker 1: The main point is post COVID, we learned you can function. 218 00:11:41,640 --> 00:11:43,640 Speaker 1: I ran Morgan Centy for three months from my home 219 00:11:43,640 --> 00:11:48,640 Speaker 1: office seventy three people, so that's it's pretty remarkable. We 220 00:11:48,720 --> 00:11:50,800 Speaker 1: proved you actually can do it by not going into 221 00:11:50,840 --> 00:11:53,199 Speaker 1: the office. But should you do it by not going 222 00:11:53,240 --> 00:11:56,360 Speaker 1: to the office? Now that clearly to me, the big answer, 223 00:11:56,679 --> 00:12:00,320 Speaker 1: big answer that is no, Um, we won't put the 224 00:12:00,320 --> 00:12:02,360 Speaker 1: genie back in the bottle. Five days in the office 225 00:12:02,400 --> 00:12:04,720 Speaker 1: for everybody's not going to happen again. For some people, 226 00:12:04,720 --> 00:12:07,880 Speaker 1: of course, and Morgan standing, we're kind of business univate 227 00:12:08,000 --> 00:12:10,959 Speaker 1: business unit, it's three or four days in the office. 228 00:12:10,720 --> 00:12:13,040 Speaker 1: My rule has always been on this. If you're not 229 00:12:13,120 --> 00:12:16,559 Speaker 1: spending a majority of your working time in the company 230 00:12:16,559 --> 00:12:20,480 Speaker 1: of your colleagues, you are missing out on mentorship, on development, 231 00:12:20,880 --> 00:12:24,320 Speaker 1: on EQ, on just reading the signals of being in 232 00:12:24,360 --> 00:12:27,400 Speaker 1: a meeting and watch how people you know, handle the 233 00:12:27,520 --> 00:12:30,400 Speaker 1: stresses that go on and the you know, the unspoken 234 00:12:30,679 --> 00:12:34,120 Speaker 1: body language and so on. So it's three or four 235 00:12:34,200 --> 00:12:36,679 Speaker 1: days a week. I don't think that changes in a hurry. 236 00:12:36,840 --> 00:12:39,000 Speaker 1: Some people in some businesses are trading for is a 237 00:12:39,080 --> 00:12:41,040 Speaker 1: cheek to job. You go in there there five days 238 00:12:41,080 --> 00:12:44,280 Speaker 1: a week. So it's very business specific. But my my 239 00:12:44,400 --> 00:12:47,199 Speaker 1: golden rule is don't put the genie back in the bottle. 240 00:12:47,280 --> 00:12:50,640 Speaker 1: You can't. On the other hand, it's not a complete 241 00:12:50,760 --> 00:12:53,160 Speaker 1: This is not an employee choice. They don't get to 242 00:12:53,200 --> 00:12:55,640 Speaker 1: choose their compensation, they don't get to choose their promotion. 243 00:12:55,679 --> 00:12:57,800 Speaker 1: They don't get to choose stay home five days a week. 244 00:12:58,120 --> 00:13:00,600 Speaker 1: I want them with other employees at least three or 245 00:13:00,600 --> 00:13:02,640 Speaker 1: four days. So, James, you've talked about some of the 246 00:13:02,640 --> 00:13:05,560 Speaker 1: responses with the CEO, which are formidable alcant in capital 247 00:13:05,559 --> 00:13:07,600 Speaker 1: making sure you're right there people sitting around corners. One 248 00:13:07,640 --> 00:13:10,800 Speaker 1: of the jobs is succession for every good CEO, and 249 00:13:10,840 --> 00:13:12,600 Speaker 1: we've seen it done well. We've seen it done that 250 00:13:12,640 --> 00:13:14,160 Speaker 1: so well. A couple of years ago you said, maybe 251 00:13:14,160 --> 00:13:17,600 Speaker 1: three more years. How do you approach the question of succession? 252 00:13:17,640 --> 00:13:19,319 Speaker 1: How do you set it up for the good of 253 00:13:19,360 --> 00:13:24,079 Speaker 1: the institution of Morgan Stanley very intentionally. Firstly, you should 254 00:13:24,160 --> 00:13:27,440 Speaker 1: always have a sort of an envelope for God forbid 255 00:13:28,160 --> 00:13:31,200 Speaker 1: something horrible happens. We've done that from a very first 256 00:13:31,200 --> 00:13:34,800 Speaker 1: board meeting in January of two thousand and ten. Um. 257 00:13:34,880 --> 00:13:38,480 Speaker 1: But more realistically, you plan a generation people who can 258 00:13:38,480 --> 00:13:41,600 Speaker 1: take over with Morgan. Sandy have now three executives whoper 259 00:13:41,679 --> 00:13:45,440 Speaker 1: replace me. They're all very, very talented executives and we're 260 00:13:45,440 --> 00:13:47,560 Speaker 1: trying to fill out their skill base and ultimately the 261 00:13:47,600 --> 00:13:50,400 Speaker 1: board will decide who is the best qualified to run 262 00:13:50,679 --> 00:13:54,000 Speaker 1: our particular company. At this point in time, I'm extremely 263 00:13:54,040 --> 00:13:57,600 Speaker 1: intentional about it. Um, I would definitely step down. I'm 264 00:13:57,600 --> 00:13:59,400 Speaker 1: not I'm not going to stand this job for life. 265 00:13:59,440 --> 00:14:01,960 Speaker 1: I've no us in that and it's unhealthy for our 266 00:14:02,040 --> 00:14:04,760 Speaker 1: organ the way we're constructed. Right, We've we've got to 267 00:14:04,800 --> 00:14:06,800 Speaker 1: focus on what's right for Morgan sounding and it's to 268 00:14:06,840 --> 00:14:09,520 Speaker 1: grow the next generation. I work on a ten year 269 00:14:09,520 --> 00:14:12,839 Speaker 1: and twenty year plan in talent planning, and that's how 270 00:14:12,880 --> 00:14:14,840 Speaker 1: far out I'm thinking about it. And you know, I've 271 00:14:14,840 --> 00:14:18,480 Speaker 1: been in this job, well, this is my four ent years, 272 00:14:18,480 --> 00:14:20,880 Speaker 1: so I've had plenty of opportunity to developed folks. And 273 00:14:21,360 --> 00:14:24,040 Speaker 1: the great news is, David, we've got some unbelievable talent. 274 00:14:24,440 --> 00:14:26,240 Speaker 1: JS Garman, thank you so much for being with us, 275 00:14:26,440 --> 00:14:39,840 Speaker 1: the head of Morgan Stanley, We're gonna get some good 276 00:14:39,840 --> 00:14:43,160 Speaker 1: news later this summer. The debt ceiling standoff looms in Washington. 277 00:14:43,400 --> 00:14:46,760 Speaker 1: Bloomberg Opinions. Bill Dudley wrote the following, the debt limit 278 00:14:46,840 --> 00:14:52,120 Speaker 1: doesn't contribute meaningfully to fiscal discipline. It encourages political grandstanding. 279 00:14:52,440 --> 00:14:55,080 Speaker 1: It risked the default of the world's wealthiest and most 280 00:14:55,120 --> 00:14:58,760 Speaker 1: powerful nation, Tom it should be abolished. The words are 281 00:14:58,760 --> 00:15:02,240 Speaker 1: built Dudley on Bloomberg a strong strong language. William Dudley 282 00:15:02,280 --> 00:15:04,720 Speaker 1: is an important economist, yes, the former president of New 283 00:15:04,800 --> 00:15:07,320 Speaker 1: York FED, but someone more than any of the Feds 284 00:15:07,320 --> 00:15:11,000 Speaker 1: stealed in the grind of market economics and actually working 285 00:15:11,080 --> 00:15:14,800 Speaker 1: day to day through policy realities. Bill Dudley joins us 286 00:15:15,160 --> 00:15:19,080 Speaker 1: this morning writing for Bloomberg Opinion, A huge contributor. Bill, 287 00:15:19,120 --> 00:15:21,280 Speaker 1: I was talking with our Michael McKee and this goes 288 00:15:21,320 --> 00:15:23,880 Speaker 1: back to McKelvey and you on the fiscal state of 289 00:15:23,920 --> 00:15:28,480 Speaker 1: the nation at Goldman Sachs in two thousand eleven and 290 00:15:28,520 --> 00:15:31,440 Speaker 1: even more recently in two thousand and fifteen, the Fed 291 00:15:31,600 --> 00:15:37,280 Speaker 1: was proactive in modeling out debt ceiling outcomes. Do you 292 00:15:37,320 --> 00:15:40,520 Speaker 1: just presume they will do that this time? And how 293 00:15:40,560 --> 00:15:44,960 Speaker 1: wild your own Powell and Company assist Congress in measuring 294 00:15:45,000 --> 00:15:49,080 Speaker 1: those tail risks? I will definitely be contingency playing. What 295 00:15:49,080 --> 00:15:51,720 Speaker 1: do you do if there was a default on the debt? 296 00:15:51,760 --> 00:15:55,720 Speaker 1: What do you do if there's non default? But prioritize payments? 297 00:15:56,200 --> 00:15:57,960 Speaker 1: The way it works is, if you actually run out 298 00:15:57,960 --> 00:16:01,360 Speaker 1: of money, the treasural just what payments to present to 299 00:16:01,400 --> 00:16:05,680 Speaker 1: the Fed. Presumably the treasure will decide to prioritize debt 300 00:16:06,000 --> 00:16:08,800 Speaker 1: repayment and interest payments, so there isn't a technical to 301 00:16:08,840 --> 00:16:11,440 Speaker 1: fall and then the FED will basically honor the payments 302 00:16:11,480 --> 00:16:13,880 Speaker 1: that the that the Treasury presents. But what the Fed 303 00:16:13,920 --> 00:16:16,480 Speaker 1: can do also is actually shore up market functioning and 304 00:16:16,520 --> 00:16:19,120 Speaker 1: the treasury market. Uh. What we saw in two thousand 305 00:16:19,200 --> 00:16:22,520 Speaker 1: eleven is the treasury market got unset, very unsettled as 306 00:16:22,560 --> 00:16:24,720 Speaker 1: we got close to the deadline. People don't want to 307 00:16:24,720 --> 00:16:27,360 Speaker 1: buy treasury bills. That are worrying. Right around the time 308 00:16:27,400 --> 00:16:30,560 Speaker 1: when the debt limit could be binding money market funds, 309 00:16:30,800 --> 00:16:33,320 Speaker 1: there were outflows from treasury money market funds into commercial 310 00:16:33,360 --> 00:16:36,240 Speaker 1: banks and so the Fed FED does have a responsibility 311 00:16:36,240 --> 00:16:38,880 Speaker 1: here to try to preserve market functioning. And there's also 312 00:16:38,920 --> 00:16:42,120 Speaker 1: the question, of course of the debt auctions themselves. The 313 00:16:42,160 --> 00:16:45,320 Speaker 1: Treasury is auctions the debt, but the Fed actually runs 314 00:16:45,320 --> 00:16:48,120 Speaker 1: the auction process, and it's really important. And we have 315 00:16:48,200 --> 00:16:51,040 Speaker 1: those auctions that there are more bids than what's on offer. 316 00:16:51,320 --> 00:16:53,600 Speaker 1: If if there if there were not enough bids, uh, 317 00:16:53,800 --> 00:16:56,400 Speaker 1: an auction would fail and that would be a terrible 318 00:16:56,400 --> 00:16:59,920 Speaker 1: blow to the financial markets. Yeah, I look at this bill, 319 00:17:00,000 --> 00:17:01,960 Speaker 1: and I'm gonna go to your Berkeley Economics and the 320 00:17:02,000 --> 00:17:04,679 Speaker 1: great Berry Iken Green and what he said about gold 321 00:17:04,720 --> 00:17:08,720 Speaker 1: and the emotion of gold. How do you respond to 322 00:17:08,840 --> 00:17:12,320 Speaker 1: the moral consequences of our debt? The emotion of the 323 00:17:12,480 --> 00:17:15,760 Speaker 1: right And they had a huge response to your Bloomberg essay, 324 00:17:15,880 --> 00:17:19,240 Speaker 1: the moral consequences of this debt. How do you respond 325 00:17:19,280 --> 00:17:23,040 Speaker 1: to that like Iken Green would respond to gold? Well, 326 00:17:23,200 --> 00:17:25,800 Speaker 1: very simple. Uh. The point is that, look what's happened 327 00:17:25,800 --> 00:17:28,840 Speaker 1: to death in deadness over the last twenty thirty years Sword, 328 00:17:29,119 --> 00:17:32,080 Speaker 1: even though we've had this debt limit ceiling in place 329 00:17:32,920 --> 00:17:35,359 Speaker 1: all during that time. So the debt limits clearly doesn't 330 00:17:35,520 --> 00:17:39,400 Speaker 1: restrain spending. We've tripled the amount of government debt relative 331 00:17:39,600 --> 00:17:42,840 Speaker 1: to the economy over the last thirty or forty years, 332 00:17:42,880 --> 00:17:44,840 Speaker 1: and you know, so the debt limit is not really 333 00:17:44,840 --> 00:17:48,439 Speaker 1: doing much to actually constrain things. Uh, As I think 334 00:17:48,440 --> 00:17:50,040 Speaker 1: you don't really want to mess around with the credit 335 00:17:50,080 --> 00:17:52,160 Speaker 1: worthiness of the United States, because if you do mess 336 00:17:52,160 --> 00:17:54,600 Speaker 1: around with it, even if you avert a disaster in 337 00:17:54,640 --> 00:17:57,479 Speaker 1: the end, it can have consequences. In two thousand and eleven, 338 00:17:57,520 --> 00:17:59,240 Speaker 1: the debt limit was raised at the end of the 339 00:17:59,320 --> 00:18:01,560 Speaker 1: day in a time and barely in a timely way, 340 00:18:01,960 --> 00:18:06,200 Speaker 1: and yet the SMP downgraded the reading in the United 341 00:18:06,200 --> 00:18:08,919 Speaker 1: States from triple A to double A plus. So there 342 00:18:09,000 --> 00:18:11,840 Speaker 1: was a consequence even when there wasn't a technical default 343 00:18:12,359 --> 00:18:14,760 Speaker 1: on the dead But will you experienced this when you 344 00:18:14,760 --> 00:18:17,400 Speaker 1: were at the FED. My McKay was talking to us earlier. 345 00:18:17,520 --> 00:18:21,160 Speaker 1: You just messaged me said the f WEMC in game 346 00:18:21,240 --> 00:18:24,320 Speaker 1: down possible FED responses to a default. What did you 347 00:18:24,320 --> 00:18:27,360 Speaker 1: think you could do back then? Well, I think there's 348 00:18:27,359 --> 00:18:28,840 Speaker 1: a couple of things that I can do that FA 349 00:18:28,920 --> 00:18:31,720 Speaker 1: can basically tell tell market participants that we're going to 350 00:18:31,840 --> 00:18:34,760 Speaker 1: continue to engage in the treasury market, will take you know, 351 00:18:34,760 --> 00:18:37,840 Speaker 1: we'll take defaulted securities as collateral just as well as 352 00:18:38,119 --> 00:18:40,880 Speaker 1: the securities that haven't defaulted. You know, you don't want 353 00:18:40,880 --> 00:18:43,760 Speaker 1: the market to start to really uh lock up because 354 00:18:43,800 --> 00:18:46,800 Speaker 1: people can't raise money against treasury collateral because they're worth 355 00:18:46,840 --> 00:18:49,800 Speaker 1: that collateral could be in default. So the FED is 356 00:18:49,800 --> 00:18:52,320 Speaker 1: basically said, we're going to treat, We're gonna treat, We're 357 00:18:52,359 --> 00:18:55,320 Speaker 1: gonna take defaulted treasure securities and all our operations. The 358 00:18:55,320 --> 00:18:58,400 Speaker 1: only difference wing defaulted securities and non defaulted securities would 359 00:18:58,400 --> 00:19:01,560 Speaker 1: be we value default as curious at market prices. So 360 00:19:01,600 --> 00:19:03,400 Speaker 1: the FED basically saying we're going to keep the repo 361 00:19:03,520 --> 00:19:05,920 Speaker 1: market functioning. We're gonna keep the treasury build market functioning. 362 00:19:06,160 --> 00:19:08,280 Speaker 1: Now things got bad enough, the Feder Reserve could also 363 00:19:08,520 --> 00:19:12,280 Speaker 1: engage in, you know, in interventions in the secondary treasury market. 364 00:19:12,320 --> 00:19:13,880 Speaker 1: They can actually coming in and buy, like we saw 365 00:19:14,720 --> 00:19:17,320 Speaker 1: during the early stages of the COVID pandemic. FED would 366 00:19:17,359 --> 00:19:18,960 Speaker 1: not want to do that because they don't want to 367 00:19:19,000 --> 00:19:22,119 Speaker 1: get involved in the middle of a political controversy. But 368 00:19:22,160 --> 00:19:24,879 Speaker 1: if the treasury market really started to melt down, the 369 00:19:24,920 --> 00:19:27,480 Speaker 1: FED would probably come in and and and participate in 370 00:19:27,480 --> 00:19:29,720 Speaker 1: the secondary market. The FED can't do anything about the 371 00:19:29,760 --> 00:19:33,360 Speaker 1: auctions themselves because the FED is precluded from buying directly 372 00:19:33,400 --> 00:19:35,639 Speaker 1: from the U. S. Treasury. So but let's just build 373 00:19:35,640 --> 00:19:37,560 Speaker 1: on this. The attitude of people on Wall Street, as 374 00:19:37,600 --> 00:19:40,640 Speaker 1: you know and we're all familiar with, is that this happens, 375 00:19:40,920 --> 00:19:43,240 Speaker 1: we get through it, and if it gets dicey, guess 376 00:19:43,240 --> 00:19:45,360 Speaker 1: what we do. We buy treasuries now. But you get 377 00:19:45,359 --> 00:19:47,280 Speaker 1: all those kinks of various tennis at the very front 378 00:19:47,320 --> 00:19:49,960 Speaker 1: end of the curve on tables, but they'll ultimately people 379 00:19:50,000 --> 00:19:53,720 Speaker 1: still buy treasuries. Do you see that change in whatsoever? 380 00:19:54,760 --> 00:19:57,600 Speaker 1: I think that that's what generally happens, and I think 381 00:19:57,640 --> 00:20:00,080 Speaker 1: that's mostly right. I mean, basically what people assume that 382 00:20:00,160 --> 00:20:01,359 Speaker 1: is that there's gonna be a lot of drawing, but 383 00:20:01,359 --> 00:20:04,280 Speaker 1: at the end of dead limit will be raised in time. Now, 384 00:20:04,320 --> 00:20:06,639 Speaker 1: So what that what that means is if all, if 385 00:20:06,680 --> 00:20:09,040 Speaker 1: we mess up, even just one time and don't raise 386 00:20:09,040 --> 00:20:10,680 Speaker 1: the debt in the timely way, it's gonna be a 387 00:20:10,800 --> 00:20:14,639 Speaker 1: huge market surprise. So you go from the probability of 388 00:20:14,640 --> 00:20:18,199 Speaker 1: default is you know, point zero one percent to all 389 00:20:18,200 --> 00:20:20,480 Speaker 1: of a sudden there is a technical default, be a 390 00:20:20,600 --> 00:20:24,720 Speaker 1: huge blow to financial markets. Bill tell me about our 391 00:20:24,840 --> 00:20:27,840 Speaker 1: ratios is compared to the maximum doom and gloom of 392 00:20:27,920 --> 00:20:32,160 Speaker 1: Japanese ratios. To our listeners and viewers in a debt 393 00:20:32,200 --> 00:20:35,400 Speaker 1: ceiling debate, the three or the four or the five 394 00:20:35,560 --> 00:20:39,439 Speaker 1: ratios that matter? Are we fiscally constrained or are we 395 00:20:39,480 --> 00:20:42,600 Speaker 1: doing okay? Well? I think the big difference between US 396 00:20:42,600 --> 00:20:45,280 Speaker 1: and Japan is we very much depend on the kindness 397 00:20:45,280 --> 00:20:47,879 Speaker 1: of strangers that could hold our our government debt. The 398 00:20:48,000 --> 00:20:50,200 Speaker 1: U s is run as you know, current account deficits 399 00:20:50,240 --> 00:20:53,400 Speaker 1: for you know, decades, and so a lot of the 400 00:20:53,480 --> 00:20:56,560 Speaker 1: US assets are held by foreigners. Foreigners don't have to 401 00:20:56,600 --> 00:20:59,280 Speaker 1: hold US debt obviously, and so there is a risk 402 00:20:59,320 --> 00:21:01,480 Speaker 1: that they can just idea that maybe the US isn't 403 00:21:01,480 --> 00:21:05,920 Speaker 1: sell credit worthy, well their credit worthy. And I guess 404 00:21:05,960 --> 00:21:08,600 Speaker 1: we're gonna you know, as John mentions, Wall Street says, Okay, 405 00:21:08,640 --> 00:21:10,840 Speaker 1: let's get through this in the autumn and move on. 406 00:21:10,920 --> 00:21:14,200 Speaker 1: And you suggest there could be a singular damage given 407 00:21:14,240 --> 00:21:17,919 Speaker 1: one screw up. What is the proactive process of secretary 408 00:21:18,040 --> 00:21:21,920 Speaker 1: yelling not to get John, not to get a bipartisan support. 409 00:21:21,960 --> 00:21:25,560 Speaker 1: That's impossible, But what is the proactive process of secretary 410 00:21:25,640 --> 00:21:31,560 Speaker 1: yelling to solve this before the autumn angst? Well, I 411 00:21:31,560 --> 00:21:33,200 Speaker 1: guess what you have to do is convinced us a 412 00:21:33,320 --> 00:21:36,639 Speaker 1: number of Republicans, more moderate Republics to come over the 413 00:21:36,640 --> 00:21:38,959 Speaker 1: fence and join Democrats and raising the te liment in 414 00:21:38,960 --> 00:21:41,840 Speaker 1: a timely way. But I just want to wrap things 415 00:21:41,880 --> 00:21:43,640 Speaker 1: up with the recent economic dates if we can, because 416 00:21:43,640 --> 00:21:46,440 Speaker 1: we have about sixty seconds late left with you. The 417 00:21:46,560 --> 00:21:49,320 Speaker 1: recent survey data bill, how much weight would you put 418 00:21:49,359 --> 00:21:51,639 Speaker 1: on it? What we sank in the I M what 419 00:21:51,680 --> 00:21:55,040 Speaker 1: we saw an empire manufacturing earlier this week. Yeah, things 420 00:21:55,080 --> 00:21:57,639 Speaker 1: are definitely weaker, although I think part of this is 421 00:21:57,680 --> 00:22:00,239 Speaker 1: just the rotation away from goods back to service is 422 00:22:00,520 --> 00:22:02,320 Speaker 1: and I think we really need to see the January 423 00:22:02,400 --> 00:22:04,600 Speaker 1: data because we don't know how much, you know, Christmas 424 00:22:04,640 --> 00:22:06,639 Speaker 1: sales were distorted by the fact that people bought a 425 00:22:06,720 --> 00:22:09,960 Speaker 1: lot of stuff uh in prior years during the pandemic. 426 00:22:10,320 --> 00:22:12,639 Speaker 1: So I want to see what the January looks like, 427 00:22:12,720 --> 00:22:15,000 Speaker 1: January data looks like, and then I'll have a better 428 00:22:15,040 --> 00:22:18,119 Speaker 1: sense of whether this Christmas weakness is just, you know, 429 00:22:18,119 --> 00:22:21,120 Speaker 1: a lull, or whether it's something more serious. How would 430 00:22:21,119 --> 00:22:23,159 Speaker 1: you change your thoughts going into the next dem C 431 00:22:23,359 --> 00:22:25,240 Speaker 1: meeting if you were still there? Is there's doing anything 432 00:22:25,240 --> 00:22:28,280 Speaker 1: to change your thoughts about the pace the ultimate destination. 433 00:22:29,160 --> 00:22:31,800 Speaker 1: They've They've made it very clear that basis points at 434 00:22:31,800 --> 00:22:34,359 Speaker 1: the next meeting, and the weaker inflation data and weaker 435 00:22:34,400 --> 00:22:37,879 Speaker 1: activity data confirms that. I think that's almost certain that 436 00:22:37,880 --> 00:22:41,000 Speaker 1: they're gonna do another basis points move in March, and 437 00:22:41,000 --> 00:22:43,479 Speaker 1: then they may may maybe the main meetings up for grabs. 438 00:22:43,560 --> 00:22:45,399 Speaker 1: But you know, I think it's gonna be hard for 439 00:22:45,440 --> 00:22:49,280 Speaker 1: them to stop because if they stop, financial conditions are 440 00:22:49,280 --> 00:22:52,639 Speaker 1: going to ease and the montefit is gonna lessen. But 441 00:22:52,840 --> 00:22:54,800 Speaker 1: this was great as always, Thanks for squeezing that end. 442 00:22:54,800 --> 00:22:57,000 Speaker 1: At the end, we appreciate it. Build down the performer 443 00:22:57,040 --> 00:23:03,000 Speaker 1: New York Fed President. We can catch up with Great 444 00:23:03,000 --> 00:23:05,680 Speaker 1: Battle now, the US head of Equity and Derivative Strategy 445 00:23:05,800 --> 00:23:07,560 Speaker 1: for at BNP parent part, Greg Battle, We've got to 446 00:23:07,640 --> 00:23:11,000 Speaker 1: leave with this. Thirty four hundred on the SMP year 447 00:23:11,119 --> 00:23:12,919 Speaker 1: end is your price target. You're not looking for that 448 00:23:13,000 --> 00:23:15,280 Speaker 1: dip and rip. You're just looking for a dip your 449 00:23:15,320 --> 00:23:18,280 Speaker 1: rent on the SMP. You are the most bearish strategist 450 00:23:18,320 --> 00:23:20,480 Speaker 1: on the street right now that we track. So Greg, 451 00:23:20,560 --> 00:23:23,600 Speaker 1: let's start there. Talk to me about the journey to 452 00:23:23,760 --> 00:23:28,639 Speaker 1: thirty four hundred. Yeah, good morning. Well, I think the 453 00:23:29,040 --> 00:23:31,520 Speaker 1: target itself is less of an out wider than it seems, 454 00:23:31,520 --> 00:23:34,159 Speaker 1: because when you look through the forecast that many strategies 455 00:23:34,240 --> 00:23:37,480 Speaker 1: have for the first half of this year, similar to US, 456 00:23:37,560 --> 00:23:40,119 Speaker 1: people are looking for recessionary price action and for the 457 00:23:40,160 --> 00:23:42,560 Speaker 1: equity market to make new loads. Where our view is 458 00:23:42,560 --> 00:23:45,080 Speaker 1: a little bit differentiated is we're not looking for the 459 00:23:45,080 --> 00:23:47,840 Speaker 1: type of V shaped recovery that we saw back in twenty. 460 00:23:48,119 --> 00:23:49,720 Speaker 1: We think there's going to be a harder environment to 461 00:23:49,760 --> 00:23:52,480 Speaker 1: see fiscal and monetary response um and we think that 462 00:23:52,560 --> 00:23:54,720 Speaker 1: leads us to an equity market that can have some 463 00:23:54,840 --> 00:23:57,760 Speaker 1: healthy declines this year. The BNP Perry Bus hallmark here 464 00:23:57,840 --> 00:24:00,639 Speaker 1: is to understoot g d P of oys write about 465 00:24:00,680 --> 00:24:03,520 Speaker 1: that you've never gone with the boom crew if you 466 00:24:03,600 --> 00:24:06,000 Speaker 1: are Gregg, and that all devolves down to the x acts. 467 00:24:06,119 --> 00:24:10,600 Speaker 1: Is the timeline? Give us the timeline of this equity weakness? 468 00:24:10,760 --> 00:24:14,280 Speaker 1: Is it one quarter? Is it quarters? Or really can 469 00:24:14,280 --> 00:24:19,280 Speaker 1: you get out into the depths of two thousand twenty four? Well, 470 00:24:19,280 --> 00:24:21,960 Speaker 1: I mean, obviously we've seen some pretty big declines in 471 00:24:21,960 --> 00:24:24,359 Speaker 1: the last calendar year that was far more of a 472 00:24:24,400 --> 00:24:27,320 Speaker 1: story of multiple compression than it was recessionary price action. 473 00:24:27,560 --> 00:24:29,280 Speaker 1: What we're looking for in the first half this year 474 00:24:29,359 --> 00:24:31,919 Speaker 1: is recessionary price action. We think that can start with 475 00:24:31,960 --> 00:24:34,800 Speaker 1: this current earning season. We've seen some bad economic data 476 00:24:35,160 --> 00:24:37,760 Speaker 1: this week. Um, we've seen now CoA after the bell 477 00:24:37,960 --> 00:24:41,159 Speaker 1: yesterday which was a little bit of a troubling release, 478 00:24:41,320 --> 00:24:43,040 Speaker 1: and we think this earning season over the next couple 479 00:24:43,080 --> 00:24:44,960 Speaker 1: of weeks could be a challenge. But really, when we 480 00:24:45,000 --> 00:24:48,119 Speaker 1: fast forward three months to Q one earning season, we 481 00:24:48,160 --> 00:24:49,960 Speaker 1: think that could be really the point of which the 482 00:24:50,000 --> 00:24:52,720 Speaker 1: economic data is really decelerating and we could see some 483 00:24:52,760 --> 00:24:55,960 Speaker 1: real capitulation in terms of earnings forecasts. So the next 484 00:24:55,960 --> 00:24:58,399 Speaker 1: two earning season we think could be the most troubling. 485 00:24:58,440 --> 00:25:01,320 Speaker 1: Frequties What does this placement bets right now? When you 486 00:25:01,320 --> 00:25:03,800 Speaker 1: look at the cross moments around the equity market and 487 00:25:03,840 --> 00:25:07,560 Speaker 1: particularly skew when you look at the fancy derivative chat, 488 00:25:07,760 --> 00:25:10,240 Speaker 1: what does it say about the bet that's being placed 489 00:25:10,359 --> 00:25:14,000 Speaker 1: right now. Well, I think what we see in the 490 00:25:14,040 --> 00:25:16,880 Speaker 1: equity vall market is a little bit of a reflection 491 00:25:16,880 --> 00:25:18,960 Speaker 1: of what we've seen more broadly in the acting market, 492 00:25:18,960 --> 00:25:21,359 Speaker 1: which is a more constructive start to the year. We 493 00:25:21,400 --> 00:25:24,240 Speaker 1: saw the VIX trade down to an eighteen handle, which 494 00:25:24,280 --> 00:25:26,840 Speaker 1: is kind of very low relative to where it's been 495 00:25:27,000 --> 00:25:29,680 Speaker 1: over the last year UM, and that's really reflective of 496 00:25:29,760 --> 00:25:34,560 Speaker 1: this kind of China reopening, warmer winter in Europe UM 497 00:25:34,600 --> 00:25:37,960 Speaker 1: starting to translate into some short covering into the US, 498 00:25:38,000 --> 00:25:41,159 Speaker 1: which people are starting to weave into a narrative of 499 00:25:41,200 --> 00:25:44,120 Speaker 1: maybe this elusive stuff landing is coming. But we think 500 00:25:44,119 --> 00:25:46,240 Speaker 1: that's pretty inconsistent with the data. I mean, when we 501 00:25:46,280 --> 00:25:50,520 Speaker 1: look at the data this week, retail sales, industrial production, 502 00:25:50,680 --> 00:25:54,720 Speaker 1: Empire manufacturing, UM, this is data that is decelerating aggressively. 503 00:25:54,960 --> 00:25:57,600 Speaker 1: So we think there's some signs of complacency, and I 504 00:25:57,640 --> 00:26:00,080 Speaker 1: think the VIX sub twenty has been a pretty a 505 00:26:00,119 --> 00:26:01,960 Speaker 1: bad signal for the equity market other of the part. 506 00:26:02,000 --> 00:26:03,640 Speaker 1: So there is a bit of pushback against this view. 507 00:26:03,640 --> 00:26:06,200 Speaker 1: It comes from Neil Data over naissance Macro. We caught 508 00:26:06,240 --> 00:26:07,719 Speaker 1: up with him a little bit later, a little bit 509 00:26:07,760 --> 00:26:10,399 Speaker 1: earlier this week. Just listen to what he had to say. Greg, 510 00:26:10,600 --> 00:26:14,640 Speaker 1: the manufacturing data undeniably week. You mentioned the IP data yesterday. 511 00:26:14,840 --> 00:26:17,920 Speaker 1: But why does this continue? He asks? Aircraft and autos 512 00:26:17,960 --> 00:26:20,520 Speaker 1: have a lot of momentum. The dollars sold off, supporting 513 00:26:20,520 --> 00:26:23,959 Speaker 1: the exports and manufactured goods, and global growth has rebounded. 514 00:26:24,080 --> 00:26:27,000 Speaker 1: Neil is pushing this idea that we could have a 515 00:26:27,040 --> 00:26:29,720 Speaker 1: more resilient economy than some people expect. Greg, what would 516 00:26:29,720 --> 00:26:34,080 Speaker 1: you say to that. I think we've had an incredibly 517 00:26:34,119 --> 00:26:36,960 Speaker 1: aggressive tightening cycle from the Fed, and we know these 518 00:26:37,000 --> 00:26:39,720 Speaker 1: things acts with these kind of long and variable lags, 519 00:26:39,760 --> 00:26:41,520 Speaker 1: as they say, and I think we're going to bite 520 00:26:41,560 --> 00:26:43,720 Speaker 1: some of the pain this year. So Kyl Rocord on 521 00:26:43,800 --> 00:26:47,280 Speaker 1: our economics team point to the idea of nominal GDP 522 00:26:47,480 --> 00:26:50,720 Speaker 1: falling below FED funds as something that historically has really 523 00:26:50,760 --> 00:26:54,200 Speaker 1: been a signal for deceleration in terms of economic momentum. 524 00:26:54,320 --> 00:26:56,520 Speaker 1: They expect that to happen at the start of the 525 00:26:56,560 --> 00:26:59,760 Speaker 1: second quarter, just when Q one earnings are being delivered. 526 00:27:00,080 --> 00:27:02,320 Speaker 1: When we look at things from a more bottom month perspective, 527 00:27:02,640 --> 00:27:06,840 Speaker 1: there's undoubtedly been a real deceleration in terms of earnings 528 00:27:06,840 --> 00:27:10,119 Speaker 1: forecast momentum. We've seen it sequentially that each earning season 529 00:27:10,200 --> 00:27:12,919 Speaker 1: has seen downgrades a little larger than the last. We 530 00:27:12,920 --> 00:27:14,960 Speaker 1: think we're going to get bigger downgrades as we moved 531 00:27:14,960 --> 00:27:16,879 Speaker 1: through the next couple of weeks in this earning season, 532 00:27:17,080 --> 00:27:19,200 Speaker 1: and we think we get bigger downrades than that as 533 00:27:19,200 --> 00:27:21,119 Speaker 1: we moved through Q one earnings. So I think the 534 00:27:21,119 --> 00:27:23,960 Speaker 1: outlook is challenging. Greg. How important is history here as well? 535 00:27:24,160 --> 00:27:26,240 Speaker 1: We mentioned June and Emmanual have ever court a little 536 00:27:26,240 --> 00:27:28,640 Speaker 1: bit earlier this morning when he said this line here, 537 00:27:28,920 --> 00:27:31,119 Speaker 1: no bear market has ever bottened before the start of 538 00:27:31,200 --> 00:27:35,880 Speaker 1: a recession. Does that weigh on you too? Yeah? Absolutely, 539 00:27:35,920 --> 00:27:38,120 Speaker 1: I think that's a great stat We produced a piece 540 00:27:38,119 --> 00:27:40,560 Speaker 1: before we went back and looked at every recession and 541 00:27:40,600 --> 00:27:42,720 Speaker 1: bear market over the last hundred years, and that was 542 00:27:42,760 --> 00:27:45,119 Speaker 1: indeed one of the takeaways that we've seen when we 543 00:27:45,160 --> 00:27:47,359 Speaker 1: look at recessionary bear markets, and we do think we 544 00:27:47,400 --> 00:27:49,600 Speaker 1: have a recession this year. They tend to be deep 545 00:27:49,640 --> 00:27:52,320 Speaker 1: and they tend to be very long. We've gone back 546 00:27:52,359 --> 00:27:55,440 Speaker 1: and studied all of these crashes. We see some notable 547 00:27:55,440 --> 00:27:57,840 Speaker 1: similarities between where we are today and where we were 548 00:27:57,920 --> 00:28:00,359 Speaker 1: in the early two thousand's. That was a born market 549 00:28:00,400 --> 00:28:04,400 Speaker 1: that was driven very much by multiple compression, retail participation, 550 00:28:04,440 --> 00:28:07,440 Speaker 1: tech and grow stocks. Lad very similar to the ball 551 00:28:07,440 --> 00:28:09,920 Speaker 1: market we experienced prior to last year, and that on 552 00:28:10,080 --> 00:28:12,119 Speaker 1: wind was long, it was deep, and we see a 553 00:28:12,119 --> 00:28:14,440 Speaker 1: lot of similarities of that to where we are today. Greg, 554 00:28:14,480 --> 00:28:19,000 Speaker 1: your shop has an absolutely original heritage in China, folks. 555 00:28:19,000 --> 00:28:23,040 Speaker 1: This goes back well into the nineteen century BMP, Perry 556 00:28:23,119 --> 00:28:27,080 Speaker 1: Bar and China. Can there can there boom? Can there 557 00:28:27,119 --> 00:28:30,600 Speaker 1: predicted boom? Can their end of COVID? Can their new 558 00:28:30,760 --> 00:28:34,240 Speaker 1: five or six percent GDP growth? Can that overcome the 559 00:28:34,280 --> 00:28:39,200 Speaker 1: equity gloom? Well? I think we've obviously seen the power 560 00:28:39,240 --> 00:28:41,800 Speaker 1: of the reopening trade in the US and that's certainly 561 00:28:41,840 --> 00:28:45,040 Speaker 1: been the driver this year of this more constructive start 562 00:28:45,080 --> 00:28:48,120 Speaker 1: for equity markets globally. I think that we would question 563 00:28:48,160 --> 00:28:50,400 Speaker 1: a little bit about whether that's going to be sufficient 564 00:28:50,440 --> 00:28:53,080 Speaker 1: alone to offset some of the headwinds that we see 565 00:28:53,120 --> 00:28:56,120 Speaker 1: here domestically in the US. But it certainly raises the 566 00:28:56,200 --> 00:28:59,600 Speaker 1: question of relative performance globally and equities um and this 567 00:28:59,640 --> 00:29:01,920 Speaker 1: is one of the reasons why I'm more comfortable with 568 00:29:01,920 --> 00:29:05,240 Speaker 1: this Barrish view for US equities, and that in the 569 00:29:05,280 --> 00:29:09,000 Speaker 1: case that we're wrong on the global macro economic outlook 570 00:29:09,040 --> 00:29:11,840 Speaker 1: and global growth is stronger, we think there are regions 571 00:29:11,880 --> 00:29:14,400 Speaker 1: other than the US that are likely to lead that 572 00:29:14,480 --> 00:29:19,040 Speaker 1: charge higher spive and is the kill Gregg Mattle FBNP 573 00:29:19,040 --> 00:29:21,360 Speaker 1: parent Bunk Greg, thank you, sir, Thank you very much. 574 00:29:31,800 --> 00:29:34,320 Speaker 1: We go math on a Thursday here twenty six minutes 575 00:29:34,360 --> 00:29:38,800 Speaker 1: before economic data. Alicia Levine holds high ground and mathematical 576 00:29:38,840 --> 00:29:42,240 Speaker 1: acuity and looking at equity and capital markets with b 577 00:29:42,360 --> 00:29:44,760 Speaker 1: and why melon today, I'm gonna go Matthew on you 578 00:29:44,920 --> 00:29:47,600 Speaker 1: right now, and let's go into Tony and calculus first 579 00:29:47,600 --> 00:29:50,800 Speaker 1: and second, deservative, what's a convexity out there that mostly 580 00:29:50,840 --> 00:29:54,400 Speaker 1: has your attention? What's the accelerated force that scares you? 581 00:29:54,760 --> 00:29:57,720 Speaker 1: What scares me is really the pricing in of the 582 00:29:57,800 --> 00:30:00,280 Speaker 1: soft landing that has happened since the beginn ning of 583 00:30:00,320 --> 00:30:03,200 Speaker 1: the year. Because as you know, it's not actually what 584 00:30:03,280 --> 00:30:06,600 Speaker 1: happens in the data that moves markets, it's what's already 585 00:30:06,640 --> 00:30:09,280 Speaker 1: priced in. So everyone was defensive. By the end of 586 00:30:09,280 --> 00:30:13,080 Speaker 1: the year, we flipped over China, reopening the growth impulse. 587 00:30:13,520 --> 00:30:15,720 Speaker 1: You know, tex is going to make a resurgence. Yields 588 00:30:15,720 --> 00:30:18,960 Speaker 1: are going lower, great for stocks, great for multiples. The 589 00:30:19,040 --> 00:30:22,680 Speaker 1: soft landing is out there, and it simply wasn't priced 590 00:30:22,680 --> 00:30:24,840 Speaker 1: in at all. Then we moved towards that, and I 591 00:30:24,840 --> 00:30:28,000 Speaker 1: think that's ultimately the risk. And in the end, the 592 00:30:28,200 --> 00:30:31,000 Speaker 1: peak FED funds rate, as priced by the market is 593 00:30:31,040 --> 00:30:34,160 Speaker 1: about fifty basis points less than we think we're going. 594 00:30:34,760 --> 00:30:38,440 Speaker 1: That's the issue. It's not that the market is necessarily wrong. 595 00:30:38,560 --> 00:30:41,520 Speaker 1: It's that if it is wrong, the reaction is not 596 00:30:41,640 --> 00:30:44,480 Speaker 1: going to be a pleasant one. In equities with my 597 00:30:44,520 --> 00:30:46,520 Speaker 1: phrase last year, the gravity has returned, you know, the 598 00:30:46,600 --> 00:30:48,640 Speaker 1: sharp ratio of risk free rate and all that. He's 599 00:30:48,640 --> 00:30:53,960 Speaker 1: got a book magisterial and misunderstood called anti fragile, which 600 00:30:54,000 --> 00:30:57,320 Speaker 1: is the mathematics of what you don't see because you 601 00:30:57,400 --> 00:31:00,200 Speaker 1: don't have skin in the game, which leads of the 602 00:31:00,320 --> 00:31:04,520 Speaker 1: shadow banking debate. What's the mystery out there in the 603 00:31:04,560 --> 00:31:08,040 Speaker 1: bet that's being made for two. The bet that's being 604 00:31:08,080 --> 00:31:14,760 Speaker 1: made is that the macro story from carries over to 605 00:31:14,880 --> 00:31:20,000 Speaker 1: twenty three, meaning that if the second derivative on inflation 606 00:31:21,160 --> 00:31:25,760 Speaker 1: is negative, that is lower growth rates or even this deflation, 607 00:31:26,320 --> 00:31:30,040 Speaker 1: that that will rally the market. That is the problem, 608 00:31:30,080 --> 00:31:34,080 Speaker 1: because the bond market has already priced in the recession, 609 00:31:34,680 --> 00:31:40,360 Speaker 1: has already priced in lower inflation. And with that, if 610 00:31:40,400 --> 00:31:43,280 Speaker 1: you're only looking at multiple expansion as a way to 611 00:31:43,400 --> 00:31:48,760 Speaker 1: rally the market, when most market participants are assuming that 612 00:31:48,840 --> 00:31:51,840 Speaker 1: earnings have to come in, that's the problem. The story 613 00:31:51,920 --> 00:31:54,640 Speaker 1: this year is the earnings risk and the recession risk, 614 00:31:55,080 --> 00:31:58,840 Speaker 1: not the inflation risk anymore. That that second derivative is clear, 615 00:31:58,880 --> 00:32:01,160 Speaker 1: has been clear for several months. It's being driven by 616 00:32:01,440 --> 00:32:04,400 Speaker 1: a drop in commodity prices, a drop in the goods pricing. 617 00:32:04,840 --> 00:32:07,440 Speaker 1: That's been clear. But you can only go so far 618 00:32:07,600 --> 00:32:11,760 Speaker 1: on that. And that's the dance, the dance between lower yields, 619 00:32:11,920 --> 00:32:15,200 Speaker 1: lower inflation prints. But ultimately, if you're getting to two 620 00:32:15,240 --> 00:32:18,240 Speaker 1: or three percent, it's because you have a recession. Tech 621 00:32:19,000 --> 00:32:21,880 Speaker 1: have circularly challenges some of those names. So there's you know, 622 00:32:22,040 --> 00:32:24,480 Speaker 1: we've talked about this, you know, for the last few 623 00:32:24,520 --> 00:32:29,200 Speaker 1: months the multiples there are still too high. In every cycle, 624 00:32:29,720 --> 00:32:33,960 Speaker 1: there is that moment where leadership shifts. It typically is 625 00:32:34,000 --> 00:32:37,200 Speaker 1: caused by a recession or some kind of an event, 626 00:32:37,320 --> 00:32:39,920 Speaker 1: and you see it very clearly. What happened here was 627 00:32:40,040 --> 00:32:43,880 Speaker 1: sort of that excitement of multiples and tech and you know, 628 00:32:44,200 --> 00:32:47,680 Speaker 1: exponential growth, and then it started tipping over by the 629 00:32:47,680 --> 00:32:53,240 Speaker 1: middle of twenty one more towards the value industrials, materials, commodities. 630 00:32:53,520 --> 00:32:55,800 Speaker 1: So we think the next cycle, I'm not saying for 631 00:32:55,840 --> 00:32:59,040 Speaker 1: the next year, but for the next cycle, the growth 632 00:32:59,120 --> 00:33:02,280 Speaker 1: stocks simply will be more challenged because that they were 633 00:33:02,280 --> 00:33:05,040 Speaker 1: the leaders before. And if you go back fifty sixty, 634 00:33:05,080 --> 00:33:09,120 Speaker 1: seventy years, they're very clear cycles of outperformance and the 635 00:33:09,280 --> 00:33:12,920 Speaker 1: break tends to come around recessions or big events, and 636 00:33:13,280 --> 00:33:15,840 Speaker 1: COVID was one of those events, and the slowdown is 637 00:33:15,840 --> 00:33:19,040 Speaker 1: one of those events. Raging change change phrase I think 638 00:33:19,040 --> 00:33:21,320 Speaker 1: sounding a dollar of Microsoft's been pretty clear about it. 639 00:33:21,320 --> 00:33:24,400 Speaker 1: They're not hiding. The Microsoft CEO this wait, Tom at 640 00:33:24,440 --> 00:33:26,680 Speaker 1: Davos the following words, and I keep saying this. They 641 00:33:26,680 --> 00:33:28,880 Speaker 1: are not hiding. They're telling you this loud and clear 642 00:33:28,920 --> 00:33:31,600 Speaker 1: in their actions with job cuts. In their words, here's 643 00:33:31,600 --> 00:33:34,160 Speaker 1: the quote during the pandemic, there was a rapid acceleration. 644 00:33:34,440 --> 00:33:36,560 Speaker 1: I think we're going to go through a face today 645 00:33:36,680 --> 00:33:39,520 Speaker 1: where there is some amount of normalization in demand. Alicia. 646 00:33:39,520 --> 00:33:41,320 Speaker 1: They're just telling us up front, aren't they that you 647 00:33:41,320 --> 00:33:44,800 Speaker 1: don't You don't fire people when you have growth ahead 648 00:33:44,800 --> 00:33:48,200 Speaker 1: of you. You fire people when growth is slowing, and 649 00:33:48,280 --> 00:33:51,680 Speaker 1: so were The message we're getting from this particular sector 650 00:33:52,080 --> 00:33:54,200 Speaker 1: is that growth is slowing. We've seen it in the 651 00:33:54,200 --> 00:33:56,719 Speaker 1: stock prices. That's not all tech, but you still have 652 00:33:56,720 --> 00:34:00,280 Speaker 1: stacks that are trading at sixty times forward earnings always 653 00:34:00,320 --> 00:34:03,320 Speaker 1: have to come down. They tend to be concentrated at 654 00:34:03,320 --> 00:34:06,200 Speaker 1: the top of the market, concentrated at the in top 655 00:34:06,240 --> 00:34:09,520 Speaker 1: of the index of the SMP. So ultimately that's a 656 00:34:09,600 --> 00:34:14,200 Speaker 1: tough place to be relatively. You're not all in cash, No, no, 657 00:34:14,520 --> 00:34:16,920 Speaker 1: we are not in cash. We don't. We don't do that, 658 00:34:17,280 --> 00:34:21,200 Speaker 1: but we don't, so we we We recently raised our 659 00:34:21,239 --> 00:34:23,880 Speaker 1: exposure to fix income. We did that at the end 660 00:34:23,960 --> 00:34:27,080 Speaker 1: of last year. We're implementing it this year. We have 661 00:34:27,480 --> 00:34:31,480 Speaker 1: um tilted our equity exposure to me to be more 662 00:34:31,600 --> 00:34:34,240 Speaker 1: value oriented and to look at some of those names 663 00:34:34,239 --> 00:34:37,200 Speaker 1: that are underneath the surface, not the top ten names 664 00:34:37,200 --> 00:34:40,360 Speaker 1: that everybody's probably still has in their portfolios hoping that 665 00:34:40,400 --> 00:34:42,880 Speaker 1: they're going to outperform this year. So we're looking at 666 00:34:42,960 --> 00:34:45,560 Speaker 1: more value. We're looking at growth at a reasonable price, 667 00:34:46,160 --> 00:34:50,120 Speaker 1: tech names that have earnings and dividends on cash flow. 668 00:34:50,440 --> 00:34:53,160 Speaker 1: That's great, that's what's going to work this year. It's 669 00:34:53,160 --> 00:34:56,080 Speaker 1: simply the growth at at any price won't work. And 670 00:34:56,080 --> 00:34:58,760 Speaker 1: and that story was last year and that will continue 671 00:34:58,800 --> 00:35:01,879 Speaker 1: in this cycle. If you remember, if you remember after 672 00:35:01,960 --> 00:35:05,600 Speaker 1: two thousand, nobody wanted to own tech for about seven years, 673 00:35:05,800 --> 00:35:09,959 Speaker 1: very hard tech rally here. Not the same thing here, 674 00:35:10,120 --> 00:35:13,600 Speaker 1: but there is a there. The leadership will not be here, 675 00:35:13,640 --> 00:35:16,200 Speaker 1: and the lesson will be hard, hard learned. That's going 676 00:35:16,200 --> 00:35:18,640 Speaker 1: to compromise the index in a massive way, isn't it massive? 677 00:35:18,840 --> 00:35:20,880 Speaker 1: You can still make money in the different sectors. We 678 00:35:21,280 --> 00:35:24,319 Speaker 1: like industrials, we like materials. We're still we're so long 679 00:35:24,800 --> 00:35:27,279 Speaker 1: energy because we think. Let's just by the way, let's 680 00:35:27,320 --> 00:35:29,879 Speaker 1: talk about the fact that w T I quietly went 681 00:35:29,920 --> 00:35:33,160 Speaker 1: from sevent z. We've been talking about it. You haven't 682 00:35:33,160 --> 00:35:36,640 Speaker 1: been watching, but we've been talking about that. She listens 683 00:35:36,640 --> 00:35:38,720 Speaker 1: and watches every day time. What are you talking about? 684 00:35:39,280 --> 00:35:44,240 Speaker 1: I just I think what the studio. This is just awesome. 685 00:35:44,239 --> 00:35:46,279 Speaker 1: Thanks for making the effort, makes a massive difference. So 686 00:35:46,320 --> 00:35:49,719 Speaker 1: great to be here. That's because time's up. Tom just 687 00:35:49,719 --> 00:35:52,239 Speaker 1: getting towards the end, start to be rude as well. Yeah, 688 00:35:52,239 --> 00:35:55,040 Speaker 1: I just it's my job to rend you in sometimes Laicia, 689 00:35:55,080 --> 00:36:02,880 Speaker 1: Thank you Leia, and right now and this is what 690 00:36:02,920 --> 00:36:05,200 Speaker 1: we do with Bloomberg Surveillance. We want to bring you 691 00:36:05,560 --> 00:36:09,600 Speaker 1: experience on the cell side on people advising and doing 692 00:36:09,680 --> 00:36:13,920 Speaker 1: securities research. She is a legend in the business. She 693 00:36:14,040 --> 00:36:17,960 Speaker 1: is Jessica reef Airlic. She's media and entertainment analyst at 694 00:36:18,000 --> 00:36:21,080 Speaker 1: Bank of America and long ago and far away, she 695 00:36:21,120 --> 00:36:25,080 Speaker 1: would put out a ten page effort for OpCo and 696 00:36:25,120 --> 00:36:27,920 Speaker 1: we would all have to stop and read every word 697 00:36:28,080 --> 00:36:32,080 Speaker 1: and every sensitivity analysis of her work. Now she has 698 00:36:32,120 --> 00:36:35,400 Speaker 1: a new war. It's the streaming wars. And we're honored 699 00:36:35,400 --> 00:36:38,520 Speaker 1: for Global Wall Street to take notes this morning. Jessica, 700 00:36:38,880 --> 00:36:42,000 Speaker 1: thrilled to have you here and honored. How bad are 701 00:36:42,000 --> 00:36:45,120 Speaker 1: the streaming wars? Well, first of all, thank you for 702 00:36:45,160 --> 00:36:47,759 Speaker 1: having me and thank you for remembering open minded. That's 703 00:36:47,800 --> 00:36:51,799 Speaker 1: a long time ago. Um, you know, it's with the 704 00:36:51,840 --> 00:36:55,200 Speaker 1: exception of Netflix, everybody is losing a lot of money, 705 00:36:55,640 --> 00:36:59,319 Speaker 1: but it's it's critical that the traditional media companies make 706 00:36:59,360 --> 00:37:04,480 Speaker 1: the trans linear pay TV universe is declining and declining quickly. Um, 707 00:37:04,560 --> 00:37:07,799 Speaker 1: and the viewers are going to streaming. They want to 708 00:37:07,840 --> 00:37:10,840 Speaker 1: watch what they want, when they want, and so ratings 709 00:37:10,880 --> 00:37:14,920 Speaker 1: it down dramatically and the ad dollars will follow. Jessica, 710 00:37:15,080 --> 00:37:18,200 Speaker 1: I look at your optimism on streaming, and I'm gonna 711 00:37:18,239 --> 00:37:21,040 Speaker 1: go to the most troubled let's call it David Zaslov's 712 00:37:21,120 --> 00:37:24,880 Speaker 1: Warner Brothers Digital w b D. You're you're at lunch 713 00:37:24,880 --> 00:37:28,280 Speaker 1: with him at the Sunset Tower Hotel. What's your question? 714 00:37:28,320 --> 00:37:30,279 Speaker 1: Does have love? And frankly for the rest of the 715 00:37:30,320 --> 00:37:33,960 Speaker 1: industry about what's the rate of change here? What's the 716 00:37:34,040 --> 00:37:38,719 Speaker 1: speed forward for the streaming wars Well, they're a little 717 00:37:38,719 --> 00:37:41,440 Speaker 1: bit different, so that's an interesting company to pick up. 718 00:37:42,760 --> 00:37:45,440 Speaker 1: W b D. Warner Brothers Discovery will launch their combined 719 00:37:45,480 --> 00:37:48,719 Speaker 1: service in Q two, and we don't know exactly what 720 00:37:48,800 --> 00:37:51,439 Speaker 1: they will look like, how it will be priced. Um, 721 00:37:51,480 --> 00:37:54,799 Speaker 1: do they keep Discovering? Plus? Do they do? They keep 722 00:37:54,840 --> 00:37:57,160 Speaker 1: it all the carpet also integrated because there's a very 723 00:37:57,239 --> 00:38:03,200 Speaker 1: loyal following. Gosh, how but remember Warner Brothers Discovery has 724 00:38:03,320 --> 00:38:07,959 Speaker 1: an enormous library. It's not just Warner Brothers TV and film, 725 00:38:08,040 --> 00:38:11,560 Speaker 1: but they also have all the lie So when they launched, 726 00:38:11,640 --> 00:38:15,240 Speaker 1: our expectations, they'll have news, they'll have sports, they'll have entertainment, 727 00:38:15,239 --> 00:38:18,279 Speaker 1: they'll have documentaries, they'll have you know, nonfiction. So that's 728 00:38:18,320 --> 00:38:21,000 Speaker 1: a little bit different. The ones who have launched already, 729 00:38:21,239 --> 00:38:25,000 Speaker 1: like Paramount Plus or Peacock or Disney Plus. You can 730 00:38:25,040 --> 00:38:29,120 Speaker 1: see their numbers. They're losing billions of dollars um, you know, 731 00:38:29,200 --> 00:38:34,400 Speaker 1: and again the loss But Jessica, to your enthusiasm on 732 00:38:34,480 --> 00:38:37,479 Speaker 1: Netflix and to get to this afternoon or Mandalorian coming 733 00:38:37,480 --> 00:38:40,440 Speaker 1: out for Disney Plus to save the day, When do 734 00:38:40,600 --> 00:38:44,560 Speaker 1: they get to profit? What is your ex axis at 735 00:38:44,600 --> 00:38:49,520 Speaker 1: Bank of America when they finally turned profitable. Well, in 736 00:38:49,560 --> 00:38:51,759 Speaker 1: the case of Netflix, they are profitable. So they are 737 00:38:51,800 --> 00:38:54,919 Speaker 1: at a completely different level than all of the other 738 00:38:55,000 --> 00:38:59,239 Speaker 1: traditional media companies who have kind of joined the party later. Um, 739 00:38:59,280 --> 00:39:03,160 Speaker 1: there are massive losses um. In the case of Wonder 740 00:39:03,200 --> 00:39:05,920 Speaker 1: Brothers Discovery, the losses of peaked to twenty two. In 741 00:39:05,960 --> 00:39:09,720 Speaker 1: the case of losses should be this year, Paramount Plus 742 00:39:09,719 --> 00:39:13,719 Speaker 1: and others next it's kind of a long road to 743 00:39:13,880 --> 00:39:17,520 Speaker 1: profitability um and the margins and the business will see 744 00:39:17,600 --> 00:39:20,960 Speaker 1: what they really are ultimately are they can they climb? 745 00:39:21,000 --> 00:39:23,799 Speaker 1: You know, can they scale up beyond that? But it's 746 00:39:23,880 --> 00:39:27,560 Speaker 1: clear that the economics will be will be far worse 747 00:39:27,600 --> 00:39:31,480 Speaker 1: than the PayTV you know, the traditional pat I got 748 00:39:31,520 --> 00:39:34,000 Speaker 1: eight ways to go here, Jessica, I mean, I mean, 749 00:39:34,040 --> 00:39:36,000 Speaker 1: there's so much to talk about in the firm, and 750 00:39:36,080 --> 00:39:39,200 Speaker 1: of the loss is being taken. I think I've got 751 00:39:39,200 --> 00:39:42,360 Speaker 1: to go to the heritages. We see right now debated 752 00:39:42,400 --> 00:39:47,520 Speaker 1: at Disney over Fox. Mr uh Mr Pelts is in 753 00:39:47,560 --> 00:39:50,920 Speaker 1: there knocking around and others, and it's about a gentleman 754 00:39:50,960 --> 00:39:54,799 Speaker 1: in his nineties, Rupert Murdoch. What is your outcoming? Wh 755 00:39:54,800 --> 00:39:57,279 Speaker 1: If I was having coffee with you and Gordon Crawford, 756 00:39:57,600 --> 00:40:01,719 Speaker 1: I'd say, what is the outcome for the Murdoch Empire 757 00:40:01,960 --> 00:40:06,160 Speaker 1: five years from now? How do you visualize that? Well? 758 00:40:06,400 --> 00:40:09,840 Speaker 1: I think Rupert Murdoch has proven to be the smartest 759 00:40:09,880 --> 00:40:13,560 Speaker 1: person in Hollywood. He sold at the peak and the 760 00:40:13,600 --> 00:40:16,360 Speaker 1: assets that had kept are the live assets, so lives, 761 00:40:17,520 --> 00:40:20,319 Speaker 1: live sports, and they're doing very very well. Obviously, there 762 00:40:20,320 --> 00:40:24,719 Speaker 1: are cyplical headwinds in advertising and secular a TV, but 763 00:40:24,800 --> 00:40:27,720 Speaker 1: they are not losing billions of dollars and streaming like others. 764 00:40:27,760 --> 00:40:30,919 Speaker 1: So Fox is in a very different position because they're 765 00:40:31,000 --> 00:40:34,160 Speaker 1: much smaller. They bite size. They could be broken up, 766 00:40:34,360 --> 00:40:36,480 Speaker 1: or they have a great balanty, they could buy something, 767 00:40:36,920 --> 00:40:40,279 Speaker 1: So they're in a completely different position than the other 768 00:40:40,320 --> 00:40:45,040 Speaker 1: companies that you mentioned, whether it's Disney or Paramount or Comcast. 769 00:40:45,080 --> 00:40:48,680 Speaker 1: With NBCU, this might sound like a ramp, but perhaps 770 00:40:48,800 --> 00:40:50,640 Speaker 1: because it is. Tom and I were both having this 771 00:40:50,719 --> 00:40:52,920 Speaker 1: rand Jessica a little bit early this morning. This was 772 00:40:52,960 --> 00:40:56,319 Speaker 1: meant to improve the user experience, It hasn't. It was 773 00:40:56,360 --> 00:41:00,520 Speaker 1: meant to be cheaper, It isn't. Jessica has become increasing expensive. 774 00:41:00,560 --> 00:41:01,960 Speaker 1: We all look at what we pay now for the 775 00:41:02,040 --> 00:41:04,160 Speaker 1: streaming caps and it adds up so way, way more 776 00:41:04,400 --> 00:41:06,560 Speaker 1: than what we were paying for cable. How does all 777 00:41:06,640 --> 00:41:11,280 Speaker 1: of that And jess could you think obviously consumers should 778 00:41:11,280 --> 00:41:13,080 Speaker 1: have probably seen with the cable but that you know, 779 00:41:13,160 --> 00:41:15,440 Speaker 1: kind of the that's over. I mean, that's you know, 780 00:41:15,520 --> 00:41:19,080 Speaker 1: like the trendline is there. We'll see where cable levels out. 781 00:41:19,120 --> 00:41:22,440 Speaker 1: But you're right, and that's why the biggest issue facing 782 00:41:22,520 --> 00:41:26,239 Speaker 1: streaming is charm and consumers. It's very easy to turn 783 00:41:26,320 --> 00:41:29,520 Speaker 1: on off and on and off. These services unlike cable 784 00:41:29,520 --> 00:41:31,719 Speaker 1: where you have to wait for, you know, a serviceman 785 00:41:31,840 --> 00:41:34,920 Speaker 1: to come and disconnect. Take yourself top box, Um, this 786 00:41:35,000 --> 00:41:36,800 Speaker 1: is it's just easy to go on and off. And 787 00:41:36,920 --> 00:41:41,520 Speaker 1: so that's part of comics to streaming. Jessica, you and 788 00:41:41,560 --> 00:41:43,560 Speaker 1: I lived this. I remember Dennis Leabo. It's a d 789 00:41:43,760 --> 00:41:46,000 Speaker 1: LJ doing the same thing as one of the dumbest 790 00:41:46,000 --> 00:41:48,000 Speaker 1: things I ever did. Folks leave it. What's told me 791 00:41:48,280 --> 00:41:50,120 Speaker 1: that you're gonna have to pay fifty dollars a month 792 00:41:50,160 --> 00:41:52,000 Speaker 1: for cable? And I told me it was nuts, and 793 00:41:52,000 --> 00:41:54,799 Speaker 1: of course I was totally wrong. Let's take it back 794 00:41:54,840 --> 00:41:57,320 Speaker 1: to the guy that invented this is Brian Roberts and 795 00:41:57,360 --> 00:42:01,480 Speaker 1: the Roberts family. It Comcast. What is traditional cable do 796 00:42:02,560 --> 00:42:05,840 Speaker 1: to get back to the persistent cash flows that they enjoyed? 797 00:42:05,840 --> 00:42:10,600 Speaker 1: To me, it's done well, briand percent a great Brian 798 00:42:10,680 --> 00:42:14,840 Speaker 1: Roberts is one of the smartest people I know. And um, 799 00:42:14,880 --> 00:42:17,160 Speaker 1: you know, they've done an amazing job. They're very suit 800 00:42:17,200 --> 00:42:20,480 Speaker 1: when they do deals. They they've seen around Corners. Peacock 801 00:42:20,560 --> 00:42:23,480 Speaker 1: actually launched they were the first a vod service. Um 802 00:42:23,640 --> 00:42:26,840 Speaker 1: their content you know. I mean, they haven't invested in 803 00:42:26,880 --> 00:42:28,600 Speaker 1: content the way some of the others have, and they 804 00:42:28,640 --> 00:42:31,719 Speaker 1: haven't had those losses either. But as far as you know, 805 00:42:31,800 --> 00:42:35,359 Speaker 1: the video business, it's shrinking for them. But they've been 806 00:42:35,560 --> 00:42:39,080 Speaker 1: very creative and strong and broadbany out. So their broadband 807 00:42:39,080 --> 00:42:42,600 Speaker 1: businesses is um you know, it's much larger than video. 808 00:42:43,160 --> 00:42:46,719 Speaker 1: And they've also been more aggressive in terms of trying 809 00:42:46,760 --> 00:42:49,920 Speaker 1: to capture viewers and make it easier for them to 810 00:42:49,960 --> 00:42:52,879 Speaker 1: watch all apps in one service. I'm sorry the time 811 00:42:52,920 --> 00:42:56,160 Speaker 1: wint to deal one a cable was the government wouldn't 812 00:42:56,160 --> 00:42:58,399 Speaker 1: allow them to do it. Having Comcast in New York 813 00:42:58,440 --> 00:43:00,680 Speaker 1: would have been an amazing thing because it's they really 814 00:43:00,719 --> 00:43:05,560 Speaker 1: made television doing very easy. Jessica, John's gotta say goodbye. 815 00:43:05,640 --> 00:43:08,160 Speaker 1: But Jessica, to be honest, all we want to know 816 00:43:08,320 --> 00:43:11,520 Speaker 1: is do you have the power to get English football, 817 00:43:11,680 --> 00:43:15,960 Speaker 1: Premier League football on one streaming service? Can you fix 818 00:43:16,000 --> 00:43:18,800 Speaker 1: that for us? I don't know about that, but it 819 00:43:19,080 --> 00:43:21,400 Speaker 1: isn't a lot of it on Peacock. It is a 820 00:43:21,400 --> 00:43:22,960 Speaker 1: lot of it, But then you've got a guess, is 821 00:43:23,000 --> 00:43:26,880 Speaker 1: it on Peacock? Gonna find it on? Who do you want? 822 00:43:27,040 --> 00:43:29,120 Speaker 1: It was down this year because it was on Amazon 823 00:43:29,160 --> 00:43:33,280 Speaker 1: and old Amazon. Jessica, thank you. This was great. Continue 824 00:43:33,280 --> 00:43:36,440 Speaker 1: this conversation, Jessica refel like the banks for America Securities. 825 00:43:36,440 --> 00:43:39,759 Speaker 1: Thank you very much. This is the Bloomberg Surveillance Podcast. 826 00:43:40,000 --> 00:43:43,360 Speaker 1: Thanks for listening. Join us live weekdays from seven to 827 00:43:43,440 --> 00:43:47,520 Speaker 1: ten AMI Eastern on Bloomberg Radio and on Bloomberg Television 828 00:43:47,880 --> 00:43:51,879 Speaker 1: each day from six to nine AM for insight from 829 00:43:51,880 --> 00:43:56,480 Speaker 1: the best in economics, finance, investment, and international relations. And 830 00:43:56,560 --> 00:44:01,040 Speaker 1: subscribe to the Surveillance podcast on Apple pie cast, SoundCloud, 831 00:44:01,200 --> 00:44:04,799 Speaker 1: Bloomberg dot com, and of course on the terminal. I'm 832 00:44:04,840 --> 00:44:14,759 Speaker 1: Tom keene In. This is Bloomberg m