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Speaker 1: Welcome to the Bloomberg's Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz Jaily. 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. To find Bloomberg Surveillance on Apple podcast, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg terminal.

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Speaker 1: Right now, Kristen barely joins us, and she has an

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Speaker 1: exceptionally important single sentence of courage in her research. Note

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Speaker 1: anytime the index has sold off by more than the

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Speaker 1: three year future return has an average of forty Kristen,

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Speaker 1: this is off the bounce. How do you know when

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Speaker 1: to step in and go along? It's it's a really

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Speaker 1: really hard decision, and we can understand why people are

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Speaker 1: naturally nervous given everything that's going on. But I think

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Speaker 1: for those investors that are able to take a long

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Speaker 1: term view, and three years isn't necessarily a long term view,

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Speaker 1: the data is in your favor and and time it's

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Speaker 1: certainly on your side. So exactly as you said, Tom,

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Speaker 1: the three year forward return. Any time that we've seen

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Speaker 1: the SMP five hundred sell off by more than twenty

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Speaker 1: five percent has always been positive and has averaged a

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Speaker 1: to Google return of five years. It's actually talk to

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Speaker 1: times on your side. There are buying opportunities here. Talk

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Speaker 1: to us at City Group about the huge advantage you have.

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Speaker 1: And I'm gonna pick on Jim Suva today, but there's

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Speaker 1: Horrowits and the rest of them. You've got the security

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Speaker 1: analysts talking day today today with the corporations. Now ban

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Speaker 1: came out of Bank of America said business is good

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Speaker 1: J and J is giving some form of decent forward guidance.

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Speaker 1: What are you hearing from your research staff about corporations

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Speaker 1: are weathering this moment? Yeah, so we've been coming into

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Speaker 1: Q three earnings and you will talking about this a

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Speaker 1: little bit earlier. The bar has been revised down and

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Speaker 1: said pretty low, so we could see some of those

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Speaker 1: counter trend rallies on the back of it. But what

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Speaker 1: are we watching and what are we listening for in earnings?

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Speaker 1: All about the consumer? So obviously that was a key

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Speaker 1: point in financial earnings, just listening to is the consumer strong?

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Speaker 1: Are they continuing to spend? I think there's a nuance

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Speaker 1: here though, so as we see credit card balances increase,

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Speaker 1: as we're looking at spending patterns. There's a big difference

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Speaker 1: between nominal and real numbers here, and so inflation is

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Speaker 1: impacting our consumers. They are impacting spending patterns, and so

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Speaker 1: inflation benefits top line revenue growth. So we have to

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Speaker 1: get down to those unit numbers and see whether they're

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Speaker 1: spending on the same things and whether they're buying the

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Speaker 1: same quantity. And that's something that can flow through to

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Speaker 1: earnings and put pressure in on Q four and going

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Speaker 1: into as well. Christen, I'm still stuck on the first

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Speaker 1: point here talking about history and not necessarily predicting the future,

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Speaker 1: but being a guide for perhaps it is a good

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Speaker 1: time to invest just based on how much stocks have

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Speaker 1: gone down, And I do ask is this time different?

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Speaker 1: I mean, does that give you enough conviction in its

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Speaker 1: own right to go all in with risk if you

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Speaker 1: have a longer time horizon. So to be fair here,

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Speaker 1: and so we are actually defensively positioned. We're fully invested,

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Speaker 1: but defensively positioned in this market. We believe that these

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Speaker 1: markets require patients, diversification and discipline, so we don't want

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Speaker 1: investors all in cash, and so in our portfolios we're

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Speaker 1: actually overweight fixed income. Ever since we saw. I mean

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Speaker 1: the tenure right now at four percent for investors who

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Speaker 1: are in cash, and you even look out at six

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Speaker 1: months te bills yielding close to four percent. We want

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Speaker 1: to basically increase those yields and see opportunities and fixed

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Speaker 1: income in investment, grade, in in government, in munis, and

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Speaker 1: even in prefers where we see some opportunity as opposed

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Speaker 1: to going long financial stocks. Getting that yield and preferreds

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Speaker 1: of high single digits is something that's attractive and can

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Speaker 1: combat some of the impacts of inflation. So how much

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Speaker 1: are you going to the long end of the curve?

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Speaker 1: And I go there because a lot of people have

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Speaker 1: been hesitant saying, yeah, perhaps skills are close to their peak,

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Speaker 1: but not quite yet, because we have seen the whole

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Speaker 1: curve shift up again and again again. It depends on

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Speaker 1: the risk applicate of the investor. I would say the

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Speaker 1: sweet spot right now, because we could continue to see

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Speaker 1: some volatility is probably out about two to five years.

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Speaker 1: And most of our investors are long individual bonds, so

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Speaker 1: that ability to be able to hold. And we have

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Speaker 1: to remember that even just two years ago we had

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Speaker 1: forty of the world's government dead was negative yielding so

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Speaker 1: seeing some of these yields out five years pit mid

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Speaker 1: single digits and slightly more is an area where we're

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Speaker 1: comfortable and we're comfortable holding and withstanding some of that

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Speaker 1: mark to market movement. Yeah, but in the bills portfolio

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Speaker 1: right now, I think of the great Margie Patella on this.

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Speaker 1: How do you judge between forget about sixty theory, it's

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Speaker 1: all gone down in flames. How do you judge between

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Speaker 1: bonds and equities? Our equity has given your enthusiasm the

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Speaker 1: new bond. Yeah, so I think this is why we're

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Speaker 1: actually pretty balanced, are in pretty defensive. So we do

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Speaker 1: think that we are going to see pe grades. We

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Speaker 1: do think that we are going to see peak inflation.

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Speaker 1: But what you're going to see dominate over the next

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Speaker 1: couple of months is volatility, and so you will see

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Speaker 1: these type of counter trend rallies. Like we mentioned. If

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Speaker 1: you are playing that long game, there are certainly opportunities,

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Speaker 1: But if you're someone who's looking right at the short term,

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Speaker 1: what you want to have is that balance. Because Q

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Speaker 1: four so Q four in U S equities going back

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Speaker 1: to Night of the Time has generated positive returns and

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Speaker 1: an average of four point four percent it is the

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Speaker 1: best quarter for US equities of any quarter throughout the

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Speaker 1: year if we have some surprises and earnings as well.

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Speaker 1: But where do you want to be positioned there? You

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Speaker 1: want to be positioned in dividend growers. You want to

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Speaker 1: be positioned in sectors that will be able to withstand

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Speaker 1: the recession. This is why you hear a lot about healthcare.

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Speaker 1: Health Care is a sector that's been able to consistently

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Speaker 1: grow earnings the past four recessions at a clip. THEMA

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Speaker 1: eight percent. Consumer staples is supposed to five percent, So

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Speaker 1: you're not searching too much there, but you still have

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Speaker 1: exclosure to equities. What about high quality big tech? I

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Speaker 1: mean we're coming into that season. I think it's October

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Speaker 1: is when we get Apple learn is what about big tech?

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Speaker 1: So high quality big tex you were talking about this thrilier.

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Speaker 1: We have to look at the international exposure, We have

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Speaker 1: to look at at the pressure in terms of just

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Speaker 1: how strong the dollar is. Overall. That being said, in technology,

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Speaker 1: there's a huge difference between profitable tech and unprofitable tech.

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Speaker 1: When we think of unprofitable tech, I like to think

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Speaker 1: of that as a call option on an unknown future.

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Speaker 1: So in long term secular bowl markets and low interest

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Speaker 1: rate environments that call option on an unknown future is

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Speaker 1: much more palatable than in this type of market conditions.

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Speaker 1: So even when I was talking about the dividend growers,

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Speaker 1: these types of companies exist within technology as well, and

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Speaker 1: you could make the argument that a lot of the

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Speaker 1: profitable tech we're going to be looking for those signs

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Speaker 1: of not only margin compression, but we're also going to

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Speaker 1: be looking for signs of durable demand. Which of these

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Speaker 1: companies continue to have durable demand, whether that's a partner

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Speaker 1: that's in software. Christen, awesome to hear from you, as

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Speaker 1: always Christin Piddley that a city Global West Management. Let

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Speaker 1: us continue right now, and we do so and celebrate

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Speaker 1: the holiday season. We begin Thanksgiving with Jerome Schneider, Managing Director.

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Speaker 1: I had a short term portfolio management an adviser and

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Speaker 1: Thanksgiving dinner at Pimco and here on Bloomberg Surveillance as well.

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Speaker 1: How's your year been? Short term paper is a place

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Speaker 1: to hide, right, It's busy, It's quite busy, and absolutely

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Speaker 1: short term paper is a place to hide. I think

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Speaker 1: the nuances a short term paper really are with the

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Speaker 1: story is about for two thousand twenty two in actually

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Speaker 1: two thousand twenty three, folks, as you've highlighted before is

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Speaker 1: cash is not necessarily as democratic as people would like

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Speaker 1: to think. And well cash is king the crown jewel

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Speaker 1: of how you want to think about it is really

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Speaker 1: more nuanced than that. Yes, bank deposits are some cases

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Speaker 1: slowly moving. Higher T bills may offer some attraction, but

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Speaker 1: the reality is they're treating act quite rich in some

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Speaker 1: cases thirty to fifty basis points through benchmark rates, meaning

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Speaker 1: what the FED is expected to be at. So there's

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Speaker 1: other value if you actually want to be more appropriately

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Speaker 1: highlighting and thinking where interest rates should be headed based

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Speaker 1: upon Fed expectation. PIMCO meeting that you have out there,

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Speaker 1: the tenant meeting, whatever the legendary meeting is, what do

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Speaker 1: you say about the short term space and dollar ill

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Speaker 1: liquidity worldwide? There was no other theme, Well, there's there's

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Speaker 1: a reality of what we're thinking about is that we

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Speaker 1: are facing a change where people need to digest the

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Speaker 1: changing cost of capital, and the notion of liquidity is

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Speaker 1: one that has been more prolific. People are concerned about

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Speaker 1: liquidity has been sort of a call word, if you will,

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Speaker 1: but it means very different things to very different people,

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Speaker 1: and I think that's the consequence of when we want

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Speaker 1: to think about the marketplace. You have macro economic liquidity,

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Speaker 1: you have liquidity concerns driven to quantitative tightening. You have

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Speaker 1: haircut concerns and marginal requirement concerns, which we've clearly it's

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Speaker 1: seen within England, and more importantly as the as the

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Speaker 1: economy progresses to more of a state of concerns about growth,

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Speaker 1: then we're gonna see other tightening, ratchets of illiquidity and haircuts.

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Speaker 1: Those are the liquidity fact thats we really need to

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Speaker 1: be paying attention to. So from a starting place at

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Speaker 1: PIMCO and everybody else, we have relatively judicious high amounts

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Speaker 1: of liquidity, preventative liquidity, defensive liquidity. But the key then

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Speaker 1: comes into how do you use it? How do you

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Speaker 1: think about it opportunistically given the uncertain outcome, given the

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Speaker 1: growth environment, given the slow GDP but perhaps shallow but

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Speaker 1: longer recession that we think at PIMCO, And then ultimately

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Speaker 1: how do we then extrapolate that to value in the future.

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Speaker 1: So it's all about really how does liquidity translate to

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Speaker 1: volatility within the marketplace and how do investors absorb that

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Speaker 1: volatility properly? The problem for a lot of people in

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Speaker 1: the market right natural roum, as you know, is when

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Speaker 1: you expect that to be liquidity in an act of

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Speaker 1: class where there should be liquidity and then there is not. Right.

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Speaker 1: Can you talk to us about what's happening in the

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Speaker 1: treasury market? We know that last week the Treasury reached

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Speaker 1: out to a group of individual is to try to

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Speaker 1: he has this connection with a group of individuals in

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Speaker 1: the market. They spake to they try and get feedback

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Speaker 1: about what's going gone. One thing they asked about was

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Speaker 1: whether they should buy back certain securities to improve the

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Speaker 1: liquidity and the functioning of the market. What do you

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Speaker 1: say back to that there's there's This has actually been

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Speaker 1: top of mind, not just simply over the past few months,

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Speaker 1: and we published a paper at PINCO sort of highlighting this,

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Speaker 1: suggesting some all to all trading and actually elicited some

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Speaker 1: pretty positive constructive dialogue within the marketplace. That's a function

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Speaker 1: aspect of where you want to think about where the

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Speaker 1: market and how the market is digesting actual functional, high

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Speaker 1: quality assets is a concern, but it's also an opportunity

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Speaker 1: for investors those investors they can really think about how

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Speaker 1: to maneuver around these higher cost of capital and more importantly,

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Speaker 1: the opportunity sets because of the wider bit offers. So

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Speaker 1: what I would suggest is, yes, it's a transformation from

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Speaker 1: what we've been used to over the past one to

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Speaker 1: two decades. And it is a concern when you think

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Speaker 1: about some of the curtailments that you have more regulatory

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Speaker 1: and sort of functional framework, But as an active manager,

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Speaker 1: you're going to incorporate it and find opportunities to incorporate it.

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Speaker 1: And it just might simply mean that, yes, there's more

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Speaker 1: volatile volatility, but you're gonna have to be more convicted

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Speaker 1: and have longer holding periods. So there are two different

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Speaker 1: things here. There's one about the treasury possibly buying back debt,

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Speaker 1: and then there's investors acting as liquidity providers and stepping

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Speaker 1: in and the all to all and disintermediating banks. Is

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Speaker 1: that what you're saying that if the banks were not

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Speaker 1: necessarily the ones that were there, and you had a

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Speaker 1: platform where you could really make markets in real time,

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Speaker 1: that that would possibly be a more effective way providing

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Speaker 1: liquidity to this market. Well, I think liquidity in general

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Speaker 1: isn't necessarily a democratic process. And so when you think

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Speaker 1: about it, there's different layers of liquidity within the marketplace,

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Speaker 1: and we're suggesting is you have more degrees of freedom

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Speaker 1: than maybe perhaps that's better for the market liquidity as

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Speaker 1: you go for it. It doesn't necessarily mean that people

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Speaker 1: have a view or a more constructive you are a

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Speaker 1: less CONSTRUCTI view of where the market is headed. The

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Speaker 1: market is the market, but when we think about it,

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Speaker 1: that broader based landscape is we're really trying to head

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Speaker 1: in that regard. I mean, while the Bank of America

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Speaker 1: Fund Manager survey showed that investors are holding the highest

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Speaker 1: cash piles going back to two thousand and one, and

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Speaker 1: we hear that from everyone. You know, cash is your friend.

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Speaker 1: You want to be liquid, you want to be nimble.

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Speaker 1: Is your experience, And it's just flooding in that people

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Speaker 1: are coming to you and basically just saying, please give

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Speaker 1: us anything you can to give us a sense of

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Speaker 1: what our income could be, how to be safe, and

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Speaker 1: you're sort of overwhelmed or is it not really the case?

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Speaker 1: You know? Where the problem is LESA is that people

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Speaker 1: are focused on looking and driving in the rear view

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Speaker 1: mirror and the reality is that as you're thinking about

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Speaker 1: where it is to come, they're so focused on what

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Speaker 1: has happened in the past one to two quarters they

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Speaker 1: don't necessarily have the ability to look out the front

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Speaker 1: window and see the opportunity set that perhaps that cash

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Speaker 1: and more importantly fixed income provides in this landscape. One

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Speaker 1: of the concerns that you have is obviously growth. One

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Speaker 1: of the concerns you have is sort of does the

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Speaker 1: risk parity element of having interest rate exposure duration offset

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Speaker 1: some credit risk taking and broader risk taking with inequity markets,

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Speaker 1: And maybe those correlations don't hold at this moment, but

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Speaker 1: if they do re emerge, then there's some different opportunity sets.

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Speaker 1: And the higher, the higher rate of environment we're finding

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Speaker 1: in right now is actually the setting of the table

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Speaker 1: or something that's very different than we had for the

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Speaker 1: past few years, in decades. So don't keep looking in

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Speaker 1: the review mirror. Ultimately, in that review mirror is not

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Speaker 1: just two quarters, it's a decade's worth of zero rights

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Speaker 1: negative rights QA. When I hear you talk and I

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Speaker 1: get the sense that you think this is something that's

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Speaker 1: going to hang around, well just one year, twelve months,

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Speaker 1: that this is something we need to adjust to. It's

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Speaker 1: going to be unlikely that we get back to a

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Speaker 1: zero rate level for you know, in a flat yolk

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Speaker 1: curve like we've been witnessing. Is a two year note

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Speaker 1: at twenty five basis points seems to be something that's

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Speaker 1: out in the past. But what I do think is

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Speaker 1: going to happen is that when you see where we

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Speaker 1: are at least for the next one to two years,

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Speaker 1: a higher inflationary print. When you're a PC that might

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Speaker 1: level out about three point five percent closer to two percent.

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Speaker 1: That means front and rates are probably going to be

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Speaker 1: in this vicinity for some period of time, and investors

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Speaker 1: should be comfortable with that. In that notion obviously has

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Speaker 1: onset effects of what happens with equity markets, risk taking,

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Speaker 1: and things like that, but fundamentally, this is a higher

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Speaker 1: rate level and investors need to think about the value

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Speaker 1: of fixed income in this environment, not just because of

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Speaker 1: higher rates, but because of its complementary effects to total

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Speaker 1: portfolio alt Well, that's where I wanted to go to

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Speaker 1: to short term, guy, let's go we could long term.

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Speaker 1: Does the actually assumption shift we've been going from eight

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Speaker 1: percent to six percent? Good news? In terms of cash

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Speaker 1: imputed into plans. Are we going the other way now

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Speaker 1: where we're gonna have a higher actuarial assumption of our

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Speaker 1: retirement plans? Yeah, Tom. Ultimately, investors are gonna look for

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Speaker 1: different sources of how to produce total return. What we've

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Speaker 1: focused on is declining interest rates happened over the previous

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Speaker 1: three decades with simply that lower rates spread on higher

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Speaker 1: capital appreciation opportunities. That calculus has fundamentally changed, and so

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Speaker 1: the total return composition is not just on capital appreciation.

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Speaker 1: It's on the ability to carry and earn income with

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Speaker 1: us through dividend income or income from bonds in the

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Speaker 1: traditional sense. And that is quite honestly one of the

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Speaker 1: things that investors who are maybe new to the markets

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Speaker 1: or the past decades so need to be thinking about.

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Speaker 1: So a lot of factors are putting us back into

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Speaker 1: a more traditional nineteen seventies, eighties and early nineties mindset,

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Speaker 1: not only how to trade markets from a liquid perspective,

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Speaker 1: but also how to think about constructing portfolios. When was

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Speaker 1: the last time we sat around the table together? Isn't

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Speaker 1: this nice? It's going to see? It was more and

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Speaker 1: more in town for the Yankees, t k no, no, no,

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Speaker 1: just just happened to the Yankees are playing that he's

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Speaker 1: in town. Total coincidence. Okay, I'm sorry to accuse you

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Speaker 1: for being in town for the Yankees. I'm here to

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Speaker 1: give tricky advice. Of course, Jo Schnyder and Pimcoke great

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Speaker 1: to see it. Let's talk about the raped market. We

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Speaker 1: can talk about QT, and let's talk about Sterling. We'll

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Speaker 1: do that with Kit Juke's chief FX strategistics sock Gen.

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Speaker 1: Kit help me out here. So when a report that

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Speaker 1: QT gets delayed, Sterling climbs to session highs through one fourteen.

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Speaker 1: On the pushback from the Bank of England, sterling falls

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Speaker 1: to session those Kit am I to believe that QT

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Speaker 1: is somehow sterling negative if and delaying QUT is somehow

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Speaker 1: sterling positive based on a price action, That's what it's

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Speaker 1: telling me. What do you make of that? I think

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Speaker 1: the price actually tells you. By the time you've had

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Speaker 1: two conflicting messages within one morning, the second one coming

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Speaker 1: at the start of a guilt auction, everybody's looking at

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Speaker 1: the UK and said, please, please, please, can you get

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Speaker 1: the messaging right to us? We are all confused because

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Speaker 1: you know what, what we need for the currency, what

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Speaker 1: we need for the market, is for the volatility to

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Speaker 1: go away, for everything to calm down, and to put

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Speaker 1: this kind of period of massive uncertainty behind us. So

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Speaker 1: contradictory reports just don't help in that regard at this

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Speaker 1: point in time. I mean, the most confusing thing of all.

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Speaker 1: Next would be and that, although they're not planning on

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Speaker 1: delaying the start of QUT, if they go on and

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Speaker 1: do it anyway because of the volatility and the guilt

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Speaker 1: market at some point in the next couple of weeks,

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Speaker 1: and then we'll then we're full circle. I thought you

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Speaker 1: maybe some people should say less. I thought, you know,

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Speaker 1: today was really lovely and it was very indeterminate. It

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Speaker 1: was like, we need to wait, we need to wait. Now.

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Speaker 1: What what do you do with a straw dollar reality,

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Speaker 1: given the unsettled nous of your note? Can you go

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Speaker 1: the other way and call finally week dollar or do

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Speaker 1: you just sit here? I wish I could, But that's

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Speaker 1: why I think that what we do is we get

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Speaker 1: stuck with less volatility. I mean, you know that there

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Speaker 1: are two problems with with looking for a week dollar.

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Speaker 1: One is you just have to embrace the idea that

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Speaker 1: we're going to have the softest of soft landings in

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Speaker 1: the United States and everything's going to be fine and lovely,

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Speaker 1: and the equity bulls are right. And the difficulty with

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Speaker 1: that is if the economy doesn't slow, they'll they'll hike more,

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Speaker 1: not less, and we're going to get a very very

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Speaker 1: inverted curve by Christmas at this rate. So that that's

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Speaker 1: the first tip, and the second one, frankly is still

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Speaker 1: Russia Ukraine. The whole problem that we have out there

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Speaker 1: that how how do I turn around in Europe and

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Speaker 1: say I want to sell the dollar? Shall I buy?

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Speaker 1: Shall I buy the pound? Shall I buy the euro?

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Speaker 1: When I'm getting newspaper reports about Yeah, if we have

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Speaker 1: cold days in the middle of winter in January February,

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Speaker 1: you're gonna have to light slow going to go out

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Speaker 1: um that that you know, have we priced that in

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Speaker 1: properly yet? I'm not sure? So it could We could

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Speaker 1: get stuck here, I guess that's the that's the end

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Speaker 1: conclusion of that until we get the next trend, and

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Speaker 1: the next trend might be kicked off by the next

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Speaker 1: leg up. Inten you not just quickly. Jordan Rochester resign

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Speaker 1: yesterday of Nomura, and he was talking about how, yeah,

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Speaker 1: central banks are important, but really it's about the economic

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Speaker 1: trajectory and right now, more of an austerity kind of

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Speaker 1: approach from fiscal policymakers in the UK will lead to

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Speaker 1: a deeper recession and that means a more negative outcome

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Speaker 1: for the pound. Is that the kind of rash now

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Speaker 1: that you think is what you should be following? How

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Speaker 1: much is the economy really the main driver here? I

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Speaker 1: think the economy becomes one once we start focusing on

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Speaker 1: the policy because it's not as important and the economy

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Speaker 1: is heading into a recession that could last a long time.

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Speaker 1: And yes, to the extent of that, you know that

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Speaker 1: there's a sort of a wisdom out there that says

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Speaker 1: what you need to do when your financial position as

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Speaker 1: a country, your fiscal positions poor, is tighten fiscal policy

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Speaker 1: really aggressively, and you know in the hope that will

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Speaker 1: improve it as opposed to get yourself any chance of

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Speaker 1: growing out of your fiscal problems. Then then we start

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Speaker 1: looking more like Japan every second, and so you know

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Speaker 1: that that's pretty scary for a country like the UK

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Speaker 1: with the current account deficit and for sterling so yeah,

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Speaker 1: it's not a great picture. Um. I think the only

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Speaker 1: piece about Sterling right now is you know we're priced

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Speaker 1: for a lot of bad news. Sterling can be held

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Speaker 1: down here. I don't know how much further it can

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Speaker 1: fall unless something really negative happens. What I still can't

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Speaker 1: see is the policies that would let the economy do

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Speaker 1: better than expected and people start looking around and saying, hey,

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Speaker 1: you know this thing a cheap asset that I want

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Speaker 1: to buy. Final question, can Arsenal win the league? No,

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Speaker 1: it's flat out no. Are you saying no because you're

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Speaker 1: worried that if you say yes, it won't happen. I'm

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Speaker 1: saying no because Manchester City of the best side in

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Speaker 1: that lead. Whatever happened at the weekend, thank you. We

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Speaker 1: need to get an update on entertainment always. We can

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Speaker 1: do this with Krackten and Michael Nathanson of Moffat Nathan

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Speaker 1: Center division of SVB, and we're thrilled at the well

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Speaker 1: caught Nathanson could join us at this morning. Michael, I'm

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Speaker 1: gonna digress here to when the thund you heard was

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Speaker 1: me falling off my chair is Mr Murdoch wants to

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Speaker 1: piece umpty Dumpty back together again. What did you think

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Speaker 1: when you saw young Murdoch said, let's bring it back

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Speaker 1: together again. Yeah, that was not the other playbook we

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Speaker 1: wanted to see. We have a buying Fox. Robert Fisherman

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Speaker 1: covers it are viewing foxes. It's the it's a pure

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Speaker 1: play on sports and news, which we think is the

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Speaker 1: glue of the bundle. And they're not wasting their money

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Speaker 1: fighting streaming wars. Right Tom's a very clean story. We

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Speaker 1: thought at some point they would sell Fox to private

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Speaker 1: equity or another another media company. So here, I think

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Speaker 1: what the narrative is from here is the company that

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Speaker 1: the company is gonna need approved from the majority of

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Speaker 1: the minorities. And I don't think that's coming because I

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Speaker 1: think our clients we talked to who own Box are

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Speaker 1: not happy with this decision. We'll see, we'll see what

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Speaker 1: comes next. There's probably a second a second leg of

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Speaker 1: the story right there. Put them together and then do

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Speaker 1: something with those assets, which we're waiting to hear more

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Speaker 1: from the Murdocks of what's their intention after they combined

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Speaker 1: these two companies. Just because of the calendar, I've got

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Speaker 1: to go to Netflix. They're teetering on three legs. Someone

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Speaker 1: even say a two legged table is well, what will

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Speaker 1: you listen for from Netflix today? Okay, so they're introducing

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Speaker 1: an advertising tier for six in the fourth quarter. What

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Speaker 1: I want to hear is why are they so confident

433
00:21:42,960 --> 00:21:44,960
Speaker 1: that that there won't be as spin down as they

434
00:21:45,040 --> 00:21:48,639
Speaker 1: say in the UK from a higher price point down

435
00:21:48,720 --> 00:21:51,040
Speaker 1: to this new tier, which would be very dilutive in

436
00:21:51,040 --> 00:21:54,719
Speaker 1: the near term for for for revenue for users. So

437
00:21:54,880 --> 00:21:57,399
Speaker 1: I'd like to hear why they're so confident that this

438
00:21:57,440 --> 00:22:01,440
Speaker 1: will not be in the near term very diluted of strategy, right,

439
00:22:01,480 --> 00:22:04,719
Speaker 1: that's to us, you know, given the drop, their dropping

440
00:22:04,800 --> 00:22:07,919
Speaker 1: price and as as we talked earlier, you know, they

441
00:22:07,920 --> 00:22:10,640
Speaker 1: don't have the same grip on users as they once did.

442
00:22:11,240 --> 00:22:13,560
Speaker 1: I think there's a risk that there's a spin down here. Michael.

443
00:22:13,600 --> 00:22:16,119
Speaker 1: How much are you looking at the potential for some

444
00:22:16,200 --> 00:22:20,520
Speaker 1: of these media Darling's the online streaming services, certainly during

445
00:22:20,520 --> 00:22:23,160
Speaker 1: the pandemic at least being acquired by the likes of Walmart,

446
00:22:23,760 --> 00:22:25,959
Speaker 1: being acquired by the likes of Apple, and this has

447
00:22:26,000 --> 00:22:32,679
Speaker 1: been something increasingly rumored about. Yeah, we're The challenge we

448
00:22:32,760 --> 00:22:35,720
Speaker 1: have is some of these companies are family held. You

449
00:22:35,760 --> 00:22:40,720
Speaker 1: know Tom mentioned the Murdochs. The red Stones control Paramount Global,

450
00:22:41,160 --> 00:22:44,760
Speaker 1: NBCU is controlled by the Roberts family. There has to

451
00:22:44,800 --> 00:22:47,800
Speaker 1: be capitulation, which we don't see yet. Right everyone thinks

452
00:22:47,840 --> 00:22:51,440
Speaker 1: they have the right strategy of bleeding linear and investing

453
00:22:51,480 --> 00:22:54,480
Speaker 1: in streaming. At some point, we think in the next

454
00:22:54,480 --> 00:22:57,239
Speaker 1: twelve months twenty four months, there will be capitulation. Your

455
00:22:57,320 --> 00:23:00,320
Speaker 1: companies will realize that they have the wrong st agy.

456
00:23:00,359 --> 00:23:02,119
Speaker 1: They don't have the balance sheet to make us pivot

457
00:23:02,240 --> 00:23:06,159
Speaker 1: there under undersized, and maybe there'll be some M and A.

458
00:23:06,320 --> 00:23:09,320
Speaker 1: But you know that's not our working thesis right now.

459
00:23:09,400 --> 00:23:13,080
Speaker 1: Right there has to be some level of realization that

460
00:23:13,320 --> 00:23:16,280
Speaker 1: these strategies are just not going to work. Right, Like,

461
00:23:16,560 --> 00:23:19,520
Speaker 1: you have four or five large players in streaming with

462
00:23:19,960 --> 00:23:22,760
Speaker 1: much better positions. So the people who are lagging have

463
00:23:22,840 --> 00:23:24,760
Speaker 1: to have to get out, and I'm much where they're

464
00:23:24,720 --> 00:23:26,040
Speaker 1: ready to do that right now. So how do you

465
00:23:26,080 --> 00:23:28,280
Speaker 1: think the ones that need to get out? Actually, yeah,

466
00:23:28,400 --> 00:23:32,480
Speaker 1: well you would say that Peacock Paramount there has to

467
00:23:32,520 --> 00:23:36,320
Speaker 1: be some combination that would be Comcast and Paramount level

468
00:23:36,680 --> 00:23:39,359
Speaker 1: that they've done well within the US, but they're really

469
00:23:39,400 --> 00:23:42,200
Speaker 1: not They're not going to scale to that higher level

470
00:23:42,600 --> 00:23:44,520
Speaker 1: with a profitable business model, they're gonna need to find

471
00:23:44,520 --> 00:23:48,399
Speaker 1: somebody to combine combined streaming assets. So it happens to

472
00:23:48,440 --> 00:23:52,560
Speaker 1: Warner's w B d um. You know, like the market

473
00:23:52,680 --> 00:23:54,439
Speaker 1: is really worried about the debt load there. There's a

474
00:23:54,480 --> 00:23:57,399
Speaker 1: true asset value of that company, but the debtload is

475
00:23:57,480 --> 00:24:00,960
Speaker 1: scaring people away. So you would say those three companies

476
00:24:01,000 --> 00:24:03,760
Speaker 1: need to figure out some path forward, maybe consolidation, to

477
00:24:03,800 --> 00:24:05,960
Speaker 1: get some some more scale. Michael, do you think that

478
00:24:06,000 --> 00:24:08,719
Speaker 1: Disney is making the cable package the cable bundle all

479
00:24:08,760 --> 00:24:12,560
Speaker 1: over again with Hulo? Is that where that's coming They're

480
00:24:12,600 --> 00:24:15,720
Speaker 1: trying to write so they have Disney plus hul plus

481
00:24:16,000 --> 00:24:19,720
Speaker 1: Hulu and ESPN plus you're John, are you know? Our

482
00:24:19,720 --> 00:24:22,360
Speaker 1: concern is the cable bundle is the best product we've

483
00:24:22,359 --> 00:24:26,840
Speaker 1: ever seen or from from an economic standpoint. Right, everyone's

484
00:24:26,840 --> 00:24:28,720
Speaker 1: paying the same amount of money, no one's watching the

485
00:24:28,720 --> 00:24:31,360
Speaker 1: same amount of channels. You have to be very very

486
00:24:31,400 --> 00:24:35,199
Speaker 1: careful not to further disrupt that bundle. I think Disney

487
00:24:35,200 --> 00:24:37,360
Speaker 1: things long term. We have the goods that we can

488
00:24:37,400 --> 00:24:42,080
Speaker 1: replicate the product, but the economics of that new offering

489
00:24:42,200 --> 00:24:45,120
Speaker 1: are going to be so below them. What we're coming from,

490
00:24:45,280 --> 00:24:47,080
Speaker 1: and I think it'd be really, really careful, but they

491
00:24:47,119 --> 00:24:49,919
Speaker 1: have the pieces in place. I'm just hoping that the

492
00:24:50,000 --> 00:24:53,439
Speaker 1: speed to change is slower by them. Maybe what they

493
00:24:53,480 --> 00:24:55,359
Speaker 1: want to do. Michael, we didn't have you on for

494
00:24:55,400 --> 00:24:58,639
Speaker 1: all this chet chat Yankees Cleveland cut to the chase.

495
00:25:00,600 --> 00:25:03,399
Speaker 1: Tom the guy behind me. I wish he was pitching tonight,

496
00:25:03,560 --> 00:25:06,440
Speaker 1: right or today I'm worried about I'm worried about the

497
00:25:06,480 --> 00:25:09,840
Speaker 1: bullpen is as everyone is right, it's not the bullpen

498
00:25:09,880 --> 00:25:14,399
Speaker 1: of number forty two behind me. He's satisfied with that response.

499
00:25:14,480 --> 00:25:22,040
Speaker 1: I am radio. It was great. Mr rivera behind as well. Michael.

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00:25:22,040 --> 00:25:24,919
Speaker 1: Thank you. Michael Knightthensen of Moffatt nine and Sin. This

501
00:25:25,000 --> 00:25:28,800
Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us

502
00:25:28,840 --> 00:25:32,080
Speaker 1: live weekdays from seven to ten a m. Eastern. I'm

503
00:25:32,080 --> 00:25:36,320
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

504
00:25:36,440 --> 00:25:41,280
Speaker 1: to nine am for insight from the best in economics, finance, investment,

505
00:25:41,440 --> 00:25:46,439
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

506
00:25:46,560 --> 00:25:50,359
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

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00:25:50,480 --> 00:25:54,639
Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg