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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg

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Speaker 1: dot com, and of course, on the Bloomberg Terminal. Craig Moffatt,

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Speaker 1: Michael Nathanson of Moffitt Knightsinson, the founders and senior research analyst. Craig,

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Speaker 1: it was just on Friday, I said, you and I

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Speaker 1: don't get to talk enough, and here we are talking

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Speaker 1: about the potential for a deal. Your reaction to this one. Look,

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Speaker 1: I think it's it's inevitable. Um, it is a clear

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Speaker 1: concession of defeat for a T and T. It just

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Speaker 1: didn't work. Um, they paid too much. And by the way,

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Speaker 1: congratulations to Ed for some terrific reporting over the weekend. Um.

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Speaker 1: But now I guess the question is, we know some

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Speaker 1: cash has to come back to a T and T,

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Speaker 1: but does enough cash come back to a T and

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Speaker 1: T that it offsets the amount of debt that this

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Speaker 1: company is supported for them so that they don't come

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Speaker 1: out even more leveraged. Than they went in UM and

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Speaker 1: I'm I'm not sure they can do that. You know,

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Speaker 1: you have to lever a T T S levered at

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Speaker 1: four times, so they're going to have to lever the

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Speaker 1: new entity at more than four times E but DOT

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Speaker 1: or else, even spinning it off makes the leverage problem

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Speaker 1: at the stub left behind even worse instead of better. Craig,

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Speaker 1: We've got to talk about what on Earth went wrong,

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Speaker 1: Kit before we get into the details, the nitty gritty

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Speaker 1: of the future. What on Earth went wrong? Kit? Three

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Speaker 1: years ago? Any five billion for these assets? Well, so

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Speaker 1: two things went wrong. First the strategy went wrong, and

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Speaker 1: second the price went wrong. But on the strategy, this

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Speaker 1: is a company that said they understood that the legacy

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Speaker 1: media business was about to enter a period of secular

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Speaker 1: secular decline. Well, why on earth do you buy assets

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Speaker 1: that are about to end are a period of secular decline?

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Speaker 1: That they said that about Direct TV, and then they

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Speaker 1: said that about Warner Media. So strategically it never made

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Speaker 1: any sense, and then they made it worse by overpaying.

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Speaker 1: So they came out of this business woefully over levered.

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Speaker 1: And this is a company that is in the telecom

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Speaker 1: business where there's a tremendous need for capital investment, and

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Speaker 1: if you can't make the capital investment, your core business

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Speaker 1: falls behind. And I think they're at least coming to

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Speaker 1: terms with now they have to clean up the mess.

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Speaker 1: But it's it's incredible. They spent close to two hundred

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Speaker 1: billion dollars on these two companies combined, a hundred seventy

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Speaker 1: billion dollars on these two companies combined UM and and

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Speaker 1: then now they're selling them. As I said, there won't

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Speaker 1: be a real price on this exit UM but but

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Speaker 1: it's clear that they've they've lost horrifically on both transactions.

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Speaker 1: Michael Nathanson, is this the right way to clean up

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Speaker 1: the mess? I think it's good morning. By the way,

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Speaker 1: I think it's the only way to clean up this mess,

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Speaker 1: because you know, going through the potential other partners usually

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Speaker 1: no one else. There's no one else. I'm surprised by

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Speaker 1: its timing because you know, I think HBO Max has

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Speaker 1: potential to create more value, but h T T couldn't wait.

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Speaker 1: So I think this this is a really good outcome

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Speaker 1: for Discovery. That's my take on it. Well, but do

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Speaker 1: you think that Discovery will be able Michael to charge

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Speaker 1: the amount that would be necessary for subscription fees for

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Speaker 1: streaming to compete with the likes of Netflix with this acquisition,

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Speaker 1: or do you think that this also could be conviewed

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Speaker 1: as just an ongoing mistake adding to the mess that

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Speaker 1: was already created. Well least, you know, I was just

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Speaker 1: looking at the market cap for Netflix and Disney and

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Speaker 1: h HBO Max. I'd say it in the same league

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Speaker 1: long term as those asthlets like it haven't gotten there

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Speaker 1: yet because they're not global. I think you have a

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Speaker 1: call option. If you're John Malone, David's havevall you're looking

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Speaker 1: at that says, look, we have a hundred whatever the

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Speaker 1: valuation is, it's a call option getting HBO Max to

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Speaker 1: that upper league. And they have Discovery Plus, which is

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Speaker 1: a you know, it's a lower tier product that would

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Speaker 1: be helped by CNN. So for them, like, why why not?

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Speaker 1: You know, this isn't expensive, I know they manage it well.

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Speaker 1: Money is cheap, So you know, given where Disney has

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Speaker 1: moved to on streaming hopes, why wouldn't you try this? Michael,

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Speaker 1: I'll come back to in a second and ask you

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Speaker 1: about the competition that would come from this particular tie

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Speaker 1: up for Netflix, for the Walt Disney Company, for Amazon

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Speaker 1: Prime too. But Craig t and say, what does the

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Speaker 1: future look like now for you for this company? So so,

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Speaker 1: they are a business that is now back to being

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Speaker 1: a telecom business. They have a wireless business. And by

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Speaker 1: the way, in that they look a lot like Verizon.

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Speaker 1: They're about uh, not quite as skewed wireless as eighteen

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Speaker 1: as Verizon, because they still have a meaningful wire line business. Um.

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Speaker 1: But their their service revenue growth excluding the pass through

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Speaker 1: selling of equipment is negative one per cent and there

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Speaker 1: and their EPA dog growth rate in the last s

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Speaker 1: quarter was negative five point seven um and uh, and

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Speaker 1: they're levered at four times ibadah and the rating agencies

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Speaker 1: have said that the downgrade threshold is three point seven times.

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Speaker 1: So um. So they are still facing an enormously steep

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Speaker 1: uphill challenge, a massive challenge in the years ahead, and

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Speaker 1: a massive challenge for the spinoff as well, Mike Gold

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Speaker 1: compete with what already exists. Only last week we were

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Speaker 1: talking about the pull forward, the challenges for the World Disneys,

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Speaker 1: for the Netflix of this world, and now we're talking

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Speaker 1: about a new entrant into the sphere at tie up

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Speaker 1: at least if something that already exists. Michael, just walk

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Speaker 1: me through how you think this looks in a couple

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Speaker 1: of years time, and whether we've got to that point

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Speaker 1: where consumers are already looking around and saying I don't

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Speaker 1: need more than two Yeah. Well, Johnny, the bundle is

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Speaker 1: going to keep loosing subscribers, right, so you have lest

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Speaker 1: people scribing to the bundle, and you know, I think

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Speaker 1: what the Story plus you're gonna have to do is

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Speaker 1: take News CNN News and the turn of sports assets,

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Speaker 1: put him into this very plus right and make it

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Speaker 1: a low enough price subscription product with advertising that keeps

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Speaker 1: it within a range of consideration. Right, that's what's going

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Speaker 1: to have to happen, like a tender fricteen dollar product

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Speaker 1: supportable advertising as well. So you know, to us, which

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Speaker 1: you know, in the near term, no doubt what we

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Speaker 1: said last week still holds true. Pulled forward reopening, you

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Speaker 1: can see the stowing subscriptions. You're seeing that right now.

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Speaker 1: Longer term, as more people cut the cord, this is

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Speaker 1: the only way after both of these companies, right, they

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Speaker 1: have to do this, Greig. That is the long term

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Speaker 1: perhaps a view for the streaming industry. For the telecom industry,

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Speaker 1: what is the long term view? We are moving away

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Speaker 1: from a sort of media mixed model that we saw

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Speaker 1: that both all of the major telecoms try. We're moving

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Speaker 1: towards five G. We're moving towards the potential for infrastructure

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Speaker 1: spending by the federal government. What's going to be the

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Speaker 1: narrative that's driving the next ten years of telecom in

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Speaker 1: the US? YEA, at least you're you're right. I guess

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Speaker 1: the narrative right now will is whether five G will

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Speaker 1: actually prove to UM to offer the opportunity for new revenues,

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Speaker 1: or whether it's just more of the same. You know,

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Speaker 1: having done this for for longer than I'd care to admit,

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Speaker 1: every time you go through one of these cycles, there

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Speaker 1: is the hope and the dream that this particular cycle,

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Speaker 1: whether it's two G, three G, four G, now five G,

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Speaker 1: will have all these new revenues associated with it that

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Speaker 1: the old cycles didn't have UM and therefore it will

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Speaker 1: get to be a fundamentally better business UM. And I

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Speaker 1: think that's the hope this time around, that that with

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Speaker 1: five G, whether it's that some of the buzzwords now

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Speaker 1: of mobile edge, compute and all those kinds of things.

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Speaker 1: Will those be new sources of revenue. M Let's hope so,

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Speaker 1: because otherwise you're still in the business of just selling

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Speaker 1: connectivity for a price. And unfortunately, the capital investment requirement

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Speaker 1: goes higher and higher and higher each generation, and the

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Speaker 1: revenue historically has not. Michael, just before we got what

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Speaker 1: do you think Bob J. Pecks thinking waking up this morning?

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Speaker 1: Bob Shaves tingling up this morning? We probably need some

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Speaker 1: more some more content, right, we probably need some more

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Speaker 1: contents and even broadened out. Give me plus a bit.

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Speaker 1: Do you think it? Take a look at No, No, no, this,

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Speaker 1: I think Craig and I'm I'm gone for Craig for second.

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Speaker 1: I know you hate that when I do that, John,

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Speaker 1: But I think if I'm you know, if I'm Comcast

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Speaker 1: upon Brian Roberts, I wake up, is not concerned, like

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Speaker 1: it's not his problem. Yeah, Brian Roberts, Right, Craig is

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Speaker 1: going to have to think about what if you do

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Speaker 1: now it's a It's a real problem for Comcast because

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Speaker 1: they find themselves in the same position that Discovery was

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Speaker 1: in before this steal, and that A. T and T

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Speaker 1: was in before the Steel which is the streaming future

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Speaker 1: for them. It's Peacock is subscale to to really compete,

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Speaker 1: and this is potentially the last bite at the apple

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Speaker 1: to get the scale that you need to be a

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Speaker 1: serious player. So now what do you do if these

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Speaker 1: two walk down the aisle and sign THENK Craig, do

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Speaker 1: we get coverage A muffin Nights and sent absolutely and

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Speaker 1: it will be Michael's coverage and then you won't have

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Speaker 1: to wonder which the two well guys, guys, I finally

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Speaker 1: get some more marketing camp the past three years given

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Speaker 1: a Craig and viacom discover want to call Dr Phil seriously,

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Speaker 1: Tom goes on leave and then here we have this

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Speaker 1: dueling app We're gonna work it out exactly, Michael Craig,

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Speaker 1: It's gonna catch you out, Craig Moffett, Michael Nyson of Moffett,

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Speaker 1: nice and sin. This is a joy, and this truly

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Speaker 1: is a joy. Heather Boucher, a member of President Biden's

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Speaker 1: Council of Economic Advisors, joining US now after the President

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Speaker 1: did release an announcement talking about a child tax credit

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Speaker 1: as part of the American Rescue Plan that would start

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Speaker 1: going out very soon to families that qualify eight percent

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Speaker 1: of children in the United States automatically do fall under

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Speaker 1: this provision. Heather, can you give us a sense of

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Speaker 1: what this child attacks credit actually is and why you

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Speaker 1: think it's important. Well, thank you, Lisa. You know, it's

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Speaker 1: really exciting today that the President has announced that this

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Speaker 1: new child tax credit will be directly deposited in most

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Speaker 1: accounts for families with children starting July fift That will

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Speaker 1: be about three dollars for children under the age of

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Speaker 1: six and two fifty for families with children over the

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Speaker 1: age of six. That's up to those amounts. And so

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Speaker 1: this has been an important part of the American Rescue

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Speaker 1: Plan to help families, especially help families with children, which

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Speaker 1: we know have these higher expenses than other families, but

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Speaker 1: help them make ends meet. And um, it's very exciting

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Speaker 1: that these payments instead of coming once a year with

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Speaker 1: your tax refund, they'll actually be directly deposited or sent

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Speaker 1: out every month from starting in July. So this is

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Speaker 1: part of the three eighty eight billion dollar American Rescue Plan,

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Speaker 1: which is only funded for so long. Basically these will

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Speaker 1: run out and it really raises a question how much

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Speaker 1: is this a template for what the Biden and Mr

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Speaker 1: Ration is trying to accomplish later in the year as

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Speaker 1: it moves towards some of its Child and Families agenda.

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Speaker 1: I think that that is a great way of thinking

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Speaker 1: about it. You know, we thought it was really important

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Speaker 1: to do this this year, um, coming out of this crisis,

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Speaker 1: when so many families have been struggling so much. But

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Speaker 1: this is a really good policy in general. You know,

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Speaker 1: a lot of other countries provide child allowances, and the

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Speaker 1: Child tax Credit is a version of that. They can

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Speaker 1: help families when they need that extra help the most,

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Speaker 1: and it helps all kinds of families. UM. So any

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Speaker 1: any child can can get this tax credit, so it

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Speaker 1: will be an important support for family budgets. Now, of course,

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Speaker 1: as you mentioned, Li said, this needs to be extended,

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Speaker 1: and it's included in the American Families Plan that the

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Speaker 1: President launched just a couple of weeks ago. So if

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Speaker 1: this is used as a template, and just John Farrel

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Speaker 1: has been talking about this a lot as far as

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Speaker 1: what the cutoffs are, how categories are going to be

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Speaker 1: defined by income in order to receive supplemental aid or

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Speaker 1: perhaps higher taxes on the other side, and for the

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Speaker 1: American rest you plan, it was a hundred and sixty

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Speaker 1: thousand dollars for couples filing jointly in eighty thousands for

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Speaker 1: individual Is that the annual salary that you expect to

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Speaker 1: be the basis of additional plans later this year from

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Speaker 1: the Biden administration. Well, all of this is still work

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Speaker 1: in progress. Um, we're just getting the program up and running,

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Speaker 1: but certainly that is a starting place because that's what

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Speaker 1: we're already doing. Um, these decisions will be negotiated in

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Speaker 1: the months to come. But I think it's really important

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Speaker 1: to keep in mind that all kinds of families need

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Speaker 1: help when they have little kids, and we know that

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Speaker 1: families experience this extra burden, and so this is support

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Speaker 1: that will help them. You know. One of the things

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Speaker 1: that's actually most exciting about this particular proposal is that

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Speaker 1: scholars estimate that it will have a significant reduction in

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Speaker 1: child poverty, and particularly child poverty for black and Latino children.

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Speaker 1: And so I'm eager to see how that works in

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Speaker 1: the months to come, to see the data come in.

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Speaker 1: But I think it's a it's a really important policy

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Speaker 1: that we can get out there for all of those

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Speaker 1: families who need it. As somebody who has raised to boys,

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Speaker 1: I understand, and with childcare, you know what a juggle

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Speaker 1: that is and how challenging, frankly, how expensive it is.

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Speaker 1: There is a question when you say the data rolling in,

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Speaker 1: what data are you going to be looking for to

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Speaker 1: view this as a success to help push whatever additional

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Speaker 1: programs Biden plans to outline in future plans. Well, in

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Speaker 1: the years to come, we'll be able to see this

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Speaker 1: show up in the income statistics that the Census Bureau collects. Now,

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Speaker 1: we won't get those numbers um for uh, you know,

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Speaker 1: until far into two but so hopefully we will have

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Speaker 1: passed the American Families Plan before then, but certainly we'll

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Speaker 1: be watching that data as it comes in to see

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Speaker 1: what happens to child poverty in the United States. You know,

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Speaker 1: the United States has tired child poverty than most other

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Speaker 1: countries of our economic level, and this is an important

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Speaker 1: step forward to really helping those families with children make

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Speaker 1: ends meet. It's a noble goal and just sort of

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Speaker 1: broadening out to the American Rescue Plan. There is a

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Speaker 1: question of how well it's working at frankly, how much

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Speaker 1: it might be hindering into actually some of the recovery.

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Speaker 1: And I'm thinking in particular about the unemployment benefits, the

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Speaker 1: idea that the enhanced jobless benefits have some people argue

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Speaker 1: kept people away from the workforce because they earned more

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Speaker 1: staying at home than going back to work. How much

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Speaker 1: you considering ramifications like that, how much do you buy

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Speaker 1: that argument? Well, the rescue plan that was put in

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Speaker 1: place at the beginning of the year was designed to

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Speaker 1: help us get through the pandemic, and we're not out

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Speaker 1: of the woods yet. Almost six and ten adults have

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Speaker 1: received at least one vaccine shot, and we know that

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Speaker 1: only about a quarter of people in their twenties and

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Speaker 1: about a third of folks in their thirties have received

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Speaker 1: their vaccines. So as we're getting everybody the shots, getting

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Speaker 1: folks back into the labor force, those unemployment benefits are

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Speaker 1: an important lifeline for those folks who are not yet

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Speaker 1: back at work. So we need to make sure that

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Speaker 1: that we provide people what they need while they're out

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Speaker 1: of work, while they're searching for a job. Of course,

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Speaker 1: we're still more than eight million jobs below where we

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Speaker 1: were pre pandemic. Jobs are starting to come back, and

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Speaker 1: we've had a lot of progress there, but we still

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Speaker 1: have a long ways to go, and that's what unemployment

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Speaker 1: benefits are for, to help people um while they're searching

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Speaker 1: for work and to help folks during this pandemic Heather.

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Speaker 1: Just to sort of wrap up here, though, we got

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Speaker 1: that retail sales report on Friday that was highly disappointing,

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Speaker 1: and some people pointed to the fact that some of

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Speaker 1: these jobs cannot be filled. They cannot find the workers

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Speaker 1: to come back to fill those rules, and that is

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Speaker 1: what is what's hampering some of the sales. Otherwise will

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Speaker 1: be taking place to encourage commerce. I mean, how much

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Speaker 1: do you weigh these factors as you do the way

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Speaker 1: the health considerations but also the economic ramifications. Well, here's

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Speaker 1: the thing, we don't want to make too much about

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Speaker 1: any one month's data point on the plus or the

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Speaker 1: negative side. We know that this recovery is going to

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Speaker 1: be a little bit bumpy. We turned off the economy

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Speaker 1: really quickly in the spring of and we're turning it

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Speaker 1: back on now and so giving ourselves the time for

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Speaker 1: everyone to get their shots, to get back into the

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Speaker 1: labor force, to to address the supply chain constraints that

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Speaker 1: we know are happening across the economy. This is what's

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Speaker 1: happening right now. But um, you know, when we look

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Speaker 1: at the at the trends and the you know, the

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Speaker 1: larger you know, when you put all the data together,

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Speaker 1: what you see is an economy that's moving in the

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Speaker 1: right direction. Created over five thousand jobs per month over

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Speaker 1: the past three months. That's more than the sixty per

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Speaker 1: months in the three months prior. And um, you know,

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Speaker 1: we're moving in the right direction. So I think that

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Speaker 1: it seems like the policies are working. It's helping families

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Speaker 1: and businesses get up and running, and that was the goal.

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Speaker 1: And now we just need to get those vaccines out

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Speaker 1: and then make sure that we're connecting those workers back

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Speaker 1: to employers. Heather Bouche, thank you so much for being

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Speaker 1: with us and taking the time. Heather Bouchet, Council of

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Speaker 1: Economic Advisors, a member for President Biden, joining us now

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Speaker 1: place to say. It's vince Reinhart Melon Chief Economists. Vince

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Speaker 1: it is tough for economists right now to get a

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Speaker 1: decent rate on this ECCO to me and come up

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Speaker 1: with an estimate for what happens next. Let's just start there.

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Speaker 1: How difficult it is to forecast this economy at the moment, Vince,

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Speaker 1: our inflection points are terrible. Remember g forces come into

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Speaker 1: play when you're making a sharp turn, and we are

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Speaker 1: definitely on the upside of the of the v for

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Speaker 1: activity to the point that we have to worry about,

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Speaker 1: you know, technical matters and things that macroeconomists just usually

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Speaker 1: wave their hands over, importantly, bottlenecks. You opened it, well,

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Speaker 1: just go back to Friday's data for the US industrial

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Speaker 1: production good but a little disappointing because of bottlenecks in

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Speaker 1: the auto industry. Then we get the Michigan Inflation Expectations

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Speaker 1: Survey with the eye popping increase in the one year

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Speaker 1: ahead inflation expectations and five year ahead three point one percent.

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Speaker 1: That sounds to me like above the setter reserves goal.

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Speaker 1: We have higher prices, Vince. The question some people are asking,

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Speaker 1: I'll ask it a few. Do you have any sympathy

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Speaker 1: for the argument the higher prices now, whether they are

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Speaker 1: driven by bottle bottlenecks, supply issues, et cetera, lay the

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Speaker 1: foundations for higher prices in the future. I think if

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Speaker 1: that's the risk the FEDS bad, is that the effects

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Speaker 1: of you know, the effects of base effects and bottlenecks

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Speaker 1: will be a temporary uh increase in prices, but it

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Speaker 1: doesn't change the trend. The thing you should worry about

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Speaker 1: is there increases in prices of goods and services that

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Speaker 1: are very salient to households. Just ask somebody about how

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Speaker 1: much it cost to fill fill up the tank of gas,

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Speaker 1: or how they're doing and get im plywood or is

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Speaker 1: their new car coming in? UH. Those pricing increases may

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Speaker 1: lead them to increase inflation expectations and increases inflation expectations

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Speaker 1: to use the feds favorite phrase is what anchors inflation?

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Speaker 1: So if expectations go up, we'll get a re anchoring

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Speaker 1: to something above the Fed's goal. Evince and just to

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Speaker 1: see how this could play out. It leads to people

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Speaker 1: demanding more in wages or holding out for a higher

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Speaker 1: salary because otherwise they cannot afford the basic staples that

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Speaker 1: they go out and they buy every day. How much

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Speaker 1: is that's? What? That what's happening? I mean people often

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Speaker 1: say that it's people on the lowest tier of income

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Speaker 1: UH that get hit the hardest when you get this

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Speaker 1: kind of inflation. Is that still true this time around?

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Speaker 1: Given some of the price increases the wage increases that

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Speaker 1: we've seen, particularly on the lower end of the scale. Okay, so,

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Speaker 1: so generally inflation is thought to be very regressive. That

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Speaker 1: was the lesson in the nineteen seventies because people with

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Speaker 1: more income and more wealth can figure out ways to

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Speaker 1: shield their assets from inflation of facts, and they probably

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Speaker 1: have more pricing power to reset their own wages and salaries.

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Speaker 1: Not so at the lower end, uh of the income spectrum,

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Speaker 1: because low income people also just don't have a whole

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Speaker 1: lot of wealth. Uh So, inflation is is pretty prenacious

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Speaker 1: in that regard and has a change No, not really

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Speaker 1: incoming inequalities only gotten worse. So one would think that

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Speaker 1: meant that the rising part has even more means to

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Speaker 1: shield themselves from from inflation. Uh So, in fact, the

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Speaker 1: inflation is going to be eating into the real wages

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Speaker 1: of low income households. Is inflation going to lead to

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Speaker 1: this sort of virtuous cycle where people actually spend more

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Speaker 1: of their money since it's probably going to be worth

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Speaker 1: more now in goods and services than later, or is

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Speaker 1: it going to lead to a dampening effect on the economy,

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Speaker 1: like what we're seeing in the housing market, where you're

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Speaker 1: seeing the actual sales slow due to the high prices.

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Speaker 1: So those high prices probably reflect the inability to actually

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Speaker 1: get all the all those goods. Think about the empty

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Speaker 1: auto lots that that are both slowing car production outright

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Speaker 1: decline last month because they can't get the chips and

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Speaker 1: auto sales but also reading to price increases for for

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Speaker 1: use cars. Uh, that that's the bottleneck effect. There are

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Speaker 1: two other effects when is timing. As you say, if

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Speaker 1: you think prices are going to be higher next month,

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Speaker 1: don't you want to buy the good or service this month? Um,

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Speaker 1: households have a lot of wear with all to spend.

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Speaker 1: So you that what that may mean is the boom

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Speaker 1: part of our rebound is even more vigorous. Then the

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Speaker 1: last effect is the more permanent one, which is people

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Speaker 1: just spend resources trying to avoid the effects of inflation.

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Speaker 1: And that's just as economists say a dead weight loss.

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Speaker 1: Vince always grit to catch up with you say on

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Speaker 1: the story at the moment and send up as to

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Speaker 1: common want you Vince Ryanan that Melon chief economist, Thank

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Speaker 1: you said. Let's bring a CHET and I more than

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Speaker 1: Stanley chief Global economists Chet and arguably even a team

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Speaker 1: with one of the biggest codes I think for economists

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Speaker 1: in the last twelve months, just to be out there bold, constructive, confident,

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Speaker 1: optimistic about the future where many people weren't. That call

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Speaker 1: is played out most people on board. What's next, Charon, Well, John,

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Speaker 1: I think the next one is that we're going to

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Speaker 1: see a big pickup in the capic cycle globally. Um

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Speaker 1: that's in the US as well as the rest of

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Speaker 1: the world. And in terms of the numbers that we

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Speaker 1: are highlighting is that the CAPEX numbers globally will rise

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Speaker 1: by about twenty one percent by end of twenty twenty

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Speaker 1: two compared to pre COVID levels, and in the US

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Speaker 1: it will rise by sixteen percent compared to pre COVID levels.

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Speaker 1: And this is something that we have not seen in

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Speaker 1: the last five cycles. In fact, even in the nineties,

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Speaker 1: which was known to be the last big capic cycle.

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Speaker 1: We're going to do better than the nineties cycle as well.

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Speaker 1: So yeah, looking forward to a strong pickup in CAPEX

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Speaker 1: now going forward. That will be the key driver to

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Speaker 1: our global growth story, which still remains constructive as well. Jonathan,

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Speaker 1: how much could this capital expenditure boot GDP globally for

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Speaker 1: the years after the rebound that we're seeing currently, So Lisa,

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Speaker 1: it will be it will depend upon the infrastructure spending

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Speaker 1: more than the topics that were expecting to see pick

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Speaker 1: up in terms of business topics. UH. And together with

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Speaker 1: this UH structural shift in infrastructure spending that is going

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Speaker 1: to come up as well as the pickup in capex,

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Speaker 1: we think the global GDP could be boosted about two

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Speaker 1: tents on a structural basis. So that's the assumption. But

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Speaker 1: really I think the biggest story is you know that

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Speaker 1: this is going to be strong twelve months or eighteen

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00:23:38,160 --> 00:23:41,520
Speaker 1: months because of this pickup in campics, how will shareholders respond?

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00:23:41,520 --> 00:23:43,119
Speaker 1: I mean, right now, just based on the A T

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00:23:43,240 --> 00:23:46,920
Speaker 1: and T and Discovery transaction, it seems like investors want

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00:23:46,960 --> 00:23:49,760
Speaker 1: to see bold moves. They reward them if they see

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00:23:49,800 --> 00:23:53,560
Speaker 1: the potential for market share creation. Do you get the

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00:23:53,600 --> 00:23:57,119
Speaker 1: sense that investors really want capital expenditures and are much

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Speaker 1: more willing to to endure perhaps less of a cushion

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Speaker 1: of cash. Well, I think this is going to be

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Speaker 1: an extremely different environment compared to what we had seen

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Speaker 1: in two thousand tril to fifteen, when there was a

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00:24:10,400 --> 00:24:13,679
Speaker 1: global store down and there were secular stagnation type of

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00:24:13,800 --> 00:24:16,760
Speaker 1: risk looming in the backdrop. Now, what this means for

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00:24:16,840 --> 00:24:19,280
Speaker 1: investors is that the capex take up will need that

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00:24:19,359 --> 00:24:21,639
Speaker 1: you're going to be going through a stronger growth and

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00:24:21,760 --> 00:24:26,720
Speaker 1: higher inflation or call it higher pricing power, higher nominal returns.

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00:24:26,760 --> 00:24:28,639
Speaker 1: So one has to think about it more from the

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00:24:28,680 --> 00:24:32,439
Speaker 1: perspective of the overall return profile in the economy that

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00:24:32,480 --> 00:24:34,760
Speaker 1: you're going to see for the corporate sector, and I

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00:24:34,800 --> 00:24:37,600
Speaker 1: think that's what will be looked at by investors. So

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00:24:37,680 --> 00:24:40,840
Speaker 1: if you are investing for growth and you are going

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00:24:40,880 --> 00:24:43,399
Speaker 1: to get that top line groad, I would think that

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00:24:43,440 --> 00:24:46,760
Speaker 1: the investors should be rewarding those companies when they take

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00:24:46,840 --> 00:24:49,320
Speaker 1: up a capex in a big rate. It shouldn't. Being

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00:24:49,359 --> 00:24:51,600
Speaker 1: familiar with your research, you had said previously that you

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00:24:51,640 --> 00:24:55,520
Speaker 1: think these inflation pressures price pressures will persist in the

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00:24:55,640 --> 00:24:57,479
Speaker 1: next year. Is that still your view and how does

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00:24:57,520 --> 00:25:02,680
Speaker 1: it reconcile with this big capex cycle your ex necting, Yeah, Jonathan, So,

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00:25:02,720 --> 00:25:05,720
Speaker 1: I think in some ways the big pickup in caps

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00:25:05,800 --> 00:25:10,600
Speaker 1: will put additional pressures on inflation. Outlook. The video to

466
00:25:10,640 --> 00:25:13,280
Speaker 1: think about this is that this pickup in investment will

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00:25:13,359 --> 00:25:16,880
Speaker 1: drive demand for labor and it is coming in much

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00:25:16,960 --> 00:25:19,880
Speaker 1: faster than the previous cycle, and so you are going

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00:25:19,920 --> 00:25:23,199
Speaker 1: to see tighter labor markets with pickup in investment. And

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00:25:23,240 --> 00:25:27,080
Speaker 1: at the same time, we are going through some accelerated restructuring,

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00:25:27,119 --> 00:25:30,199
Speaker 1: which means that the natural rate of unemployment has moved higher.

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00:25:30,840 --> 00:25:34,639
Speaker 1: And additionally, this cycle, as you know, we've seen a

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00:25:34,720 --> 00:25:37,800
Speaker 1: large amount of job losses in the low income segment,

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00:25:38,440 --> 00:25:41,320
Speaker 1: and therefore when the FED is looking at the headline

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00:25:41,320 --> 00:25:45,000
Speaker 1: and employment, it is going to overstay overestimate the underlying

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00:25:45,040 --> 00:25:49,880
Speaker 1: slack and pursue a easier monetary policy for longer. They

477
00:25:49,880 --> 00:25:53,080
Speaker 1: are all looking for inclusive growth and want to have

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00:25:53,320 --> 00:25:55,840
Speaker 1: a high pressure economy which will bring back that low

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00:25:55,880 --> 00:25:59,440
Speaker 1: income segment back into workforce. But that what that will

480
00:25:59,520 --> 00:26:01,640
Speaker 1: mean is from a demand side you have a big

481
00:26:01,640 --> 00:26:04,080
Speaker 1: pressure with job strong job growth, and on the supply

482
00:26:04,160 --> 00:26:07,760
Speaker 1: side you have these v structuring aspects which will put

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00:26:07,760 --> 00:26:11,240
Speaker 1: wage pressures and therefore inflation will also come back much earlier.

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00:26:11,280 --> 00:26:12,960
Speaker 1: And just got at this point just to jumping because

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00:26:13,000 --> 00:26:14,159
Speaker 1: you only have a couple of minutes left. There was

486
00:26:14,160 --> 00:26:15,719
Speaker 1: a few assumptions there, and I want to pick up

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00:26:15,720 --> 00:26:17,200
Speaker 1: on one because I think it's got a lot of

488
00:26:17,200 --> 00:26:20,479
Speaker 1: paper's attention to nirou What do you think that is?

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00:26:20,840 --> 00:26:23,320
Speaker 1: Some people question whether even had a three handle in

490
00:26:23,359 --> 00:26:25,040
Speaker 1: the last cycle. Where do you think it is right now?

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00:26:25,119 --> 00:26:27,840
Speaker 1: Unemployment at six point? What are you even the thing

492
00:26:27,880 --> 00:26:30,919
Speaker 1: calling for that to kick in? So we think that,

493
00:26:30,960 --> 00:26:33,000
Speaker 1: you know, around four and a half five percent is

494
00:26:33,040 --> 00:26:37,200
Speaker 1: when you should see typically wage pressures building up. That's

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00:26:37,240 --> 00:26:39,840
Speaker 1: in all the previous cycle that we have seen that

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00:26:40,480 --> 00:26:43,960
Speaker 1: wage growth picking up. But in this cycle, because of

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00:26:44,080 --> 00:26:47,960
Speaker 1: this restructuring happening in an accelerated manner and we are

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00:26:48,119 --> 00:26:51,320
Speaker 1: hitting that low level of unemployment much earlier in the cycle.

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Speaker 1: We think it should be assumed to be about sixty

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00:26:53,840 --> 00:26:57,840
Speaker 1: two and fifty basis point higher, depending upon how bad

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00:26:57,960 --> 00:27:00,640
Speaker 1: is the permanent job losses that I'm going to incur

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00:27:00,760 --> 00:27:03,760
Speaker 1: in different sectors. So you know, call it around five

503
00:27:03,800 --> 00:27:06,119
Speaker 1: and a half percent is when you should see wage

504
00:27:06,119 --> 00:27:10,439
Speaker 1: pressure sticking up. Uh. And then it is uncertain about

505
00:27:10,480 --> 00:27:14,159
Speaker 1: there's uncertainty around what is that you know, part of

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00:27:14,200 --> 00:27:17,280
Speaker 1: the workforce, which is which is really going to be

507
00:27:17,520 --> 00:27:20,200
Speaker 1: you know, taking time to come back get retrained. So

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00:27:20,520 --> 00:27:24,480
Speaker 1: it will depend upon that range uh of time that

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00:27:24,560 --> 00:27:26,680
Speaker 1: it is taking to get back workers to work Chad

510
00:27:26,720 --> 00:27:29,440
Speaker 1: and fascinating stuff. As always, the team coming together and

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00:27:29,480 --> 00:27:31,560
Speaker 1: giving us some things to think about. Chad and I

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Speaker 1: that Morkan Stanley, Chief Global Columnists. This is the Bloomberg

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00:27:35,680 --> 00:27:40,040
Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from

514
00:27:40,080 --> 00:27:43,480
Speaker 1: seven to ten am Eastern on Bloomberg Radio and on

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00:27:53,480 --> 00:27:58,120
Speaker 1: And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

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Speaker 1: Bloomberg dot com, and of course on the terminal. I'm

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00:28:01,920 --> 00:28:04,520
Speaker 1: Tom keene In. This is Bloomer