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Speaker 3: Hey, folks, you want to get back to that breaking
Speaker 3: news story involving Warner Brothers Discovery planning to reject a
Speaker 3: takeover bit from Paramount Skuydance after the company amended the
Speaker 3: terms of its offer. This breaking news story by our
Speaker 3: own Lucas Shaw, Lucas's Bloomberg News Managing editor of Media
Speaker 3: and Entertainment, also the writer of the screen Time newsletter.
Speaker 3: He joins us from I Believe the West Coast. I'm Lucas.
Speaker 3: The back and forth continues. Give us an update here.
Speaker 4: Yeah, so, so those who who haven't been paying extra
Speaker 4: close attention, Paramount has now made seven or eight bids
Speaker 4: for Warner Brothers Discovery. This was the latest sinciment public
Speaker 4: with its offer a couple of weeks ago. The main
Speaker 4: difference with this bid was that it kind of addressed
Speaker 4: concerns about whether Larry Allison, who along with his son
Speaker 4: David controls Paramount, was fully backstopping the bid, which he is,
Speaker 4: but Warner Brothers says it is still not enough. They
Speaker 4: haven't made a final decision. The board will meet next week.
Speaker 4: They'll likely be a filing next week when they make
Speaker 4: that decision. But Paramount hasn't really increased its offer in
Speaker 4: a few weeks. It keeps amending it by sort of
Speaker 4: tweaking things around the margins, and I think the Warner
Speaker 4: Brothers board is waiting to see if Paramount wants to
Speaker 4: offer more money because they still feel like they're deal
Speaker 4: with Netflix is better.
Speaker 5: Yeah, so Lucas, why not just say that then?
Speaker 1: Why not just say this is not valuing the company
Speaker 1: highly enough and give us more money? Why add the
Speaker 1: part that they're not really sure about the financing? And
Speaker 1: it seems like that's a little bit aggressive to you know,
Speaker 1: a group of bidders that were already panting on potentially
Speaker 1: launching a lawsuit over this.
Speaker 6: Yeah.
Speaker 4: I mean, they've I think tried to enumerate a number
Speaker 4: of concerns about the Paramount bids so that it gives
Speaker 4: them cover given the threat of lawsuits, and that Paramount
Speaker 4: has been on kind of this public campaign, right They've
Speaker 4: had one of their big shareholders, Jerry Carnally, went on
Speaker 4: a very popular podcast and talked about why he thought
Speaker 4: that the Warner Brothers board was making the wrong decision.
Speaker 4: They have appealed directly to shareholders, They've threatened lawsuits. So
Speaker 4: Warner Brothers has created a pretty substantive paper trail laying
Speaker 4: out many concerns to explain it. It gives them, It gives
Speaker 4: Paramount more to do. They don't understand why. I think
Speaker 4: Paramount's not just saying we'll match. We'll kind of agree
Speaker 4: to everything Netflix has agreed to and here's even more money.
Speaker 4: That seems to be where Warner Brothers is at right now.
Speaker 3: I mean, do we have any indication Lucas of what
Speaker 3: really Warner Brothers wants and what they think. Is it
Speaker 3: just coming down to money or is it actually who
Speaker 3: is the buyer?
Speaker 6: Money's the biggest thing they know.
Speaker 4: The Paramount offer and the Netflix offer are fairly comparable.
Speaker 4: A lot of it depends on how much of value
Speaker 4: you assigned to the cable networks at Warner Brothers zones
Speaker 4: that's you know, CNN, TNT, among many others. Warner Brothers
Speaker 4: thinks they're worth more than Paramount, hence the disagreement. I
Speaker 4: think there's some concerns about Paramount as a buyer because look,
Speaker 4: Paramount is a very small company, right. If they didn't
Speaker 4: have the Allison's behind them, this would not be a
Speaker 4: deal that it could contemplate. But it does have one
Speaker 4: of the wealthiest families in the world behind them, and
Speaker 4: that helps get the deal done. But what does that mean,
Speaker 4: or I guess I should say, what does Paramount look.
Speaker 6: Like At the end of it?
Speaker 4: It is still a company sitting on a bunch of
Speaker 4: kind of troubled cable networks and some studio and some
Speaker 4: streaming services that are kind of in the third tier.
Speaker 6: Netflix.
Speaker 4: You know you're getting You're getting the most valuable company
Speaker 4: in the entertainment business, some one that's been run very well,
Speaker 4: and so I think they feel good about that deal.
Speaker 4: There are also some concerns about the limitations that Paramount
Speaker 4: would place on Warner Brothers in the interim period if
Speaker 4: they were to do that deal. Limitations around what they
Speaker 4: could do with their debt. We saw this play out
Speaker 4: actually with the Allison's in Paramount where they kind of
Speaker 4: got in some fights with the leadership at Paramount, including
Speaker 4: and also with the creators.
Speaker 6: Of South Park over what they should do.
Speaker 4: It's up to a third party, I guess, to decide
Speaker 4: if a lot of these are window dressing and it's
Speaker 4: really just all about the money, I would assume that,
Speaker 4: you know, at the end of the day, most of
Speaker 4: these deals are about who offers us the most money.
Speaker 4: If Paramount came and offered thirty three dollars share, thirty
Speaker 4: four dollars to share, thirty five dollars share, that get
Speaker 4: the deal done.
Speaker 1: I was just going to say, it feels like, you know,
Speaker 1: they want to go with Netflix, and they just will
Speaker 1: go with Netflix. But I guess if Paramount there's a
Speaker 1: price for everything, right, Paramount will be able to do
Speaker 1: this deal if it meets a certain price goal. But
Speaker 1: where will the biding stop. Because Netflix could probably raise
Speaker 1: some more.
Speaker 5: Money too for this.
Speaker 3: Well.
Speaker 4: I think that's one of the kind of concerns or
Speaker 4: things that Paramount is trying to work through. Right, If
Speaker 4: they are going to come back and offer more money,
Speaker 4: how do they do that in a way where they
Speaker 4: don't just end up in another bidding war that they lose.
Speaker 4: I think they felt like they long felt like they
Speaker 4: were the favorite to win this. They were surprised by
Speaker 4: how aggressively Netflix came after it. They certainly share your
Speaker 4: belief that the Warner Brothers board just prefers the Netflix offer.
Speaker 4: And so if you're a paramount and you come back
Speaker 4: and you only increase your bid by two or three
Speaker 4: dollars a share, that's something that Netflix could probably match
Speaker 4: if you have to increase. If you increase it by
Speaker 4: even more, some of those Netflix shareholders might balk and say,
Speaker 4: why are we doing this? Because you've already seen the
Speaker 4: share price of Netflix go down over the last few
Speaker 4: weeks as investors are worried about how much they're doing
Speaker 4: this deal and what this deal means for the company.
Speaker 3: We thought it would carry over into twenty twenty six,
Speaker 3: and it looks like it will all right. Lucas good stuff.
Speaker 3: As always really appreciated that. Lucas Shaw, he's managing editor
Speaker 3: Media and Entertainment here at Bloomberg News and also writer
Speaker 3: of the screen Time newsletter, really the keeper of the
Speaker 3: screen Time universe. Joining us there from Los Angeles.
Speaker 6: Stay with us.
Speaker 7: More from Bloomberg Business Week Daily coming up after this.
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Speaker 1: Staying on the markets, now, on the minutes that just
Speaker 1: came out.
Speaker 5: Obviously, Ross Mayfield joins us.
Speaker 1: He's investment strategist and Baird Private Wealth Management. Ross, obviously
Speaker 1: you haven't had a chance to parse the minutes. But
Speaker 1: is there anything from what you heard in the last
Speaker 1: few minutes that would concern you or that would give
Speaker 1: you any more clarity about the path ahead for the Fed?
Speaker 7: No, there's a lot to parse. I think a couple
Speaker 7: key takeaways. The division is obviously not unprecedented, but fairly
Speaker 7: unprecedented for the last decade plus, and I don't think
Speaker 7: that replacing Fetcher pal is going to alleviate that. So
Speaker 7: I think at some point in twenty twenty six we'll
Speaker 7: start to see pressures at the long end of the
Speaker 7: curve again. Even in this bull market, the equity market
Speaker 7: has responded. When you've ten year yields press up towards
Speaker 7: five percent. I don't know if we'll get there or not,
Speaker 7: but I do think that at some point the bond
Speaker 7: market will start to worry again about the politicization of
Speaker 7: the FED and what that might mean for rates. You know,
Speaker 7: the other key thing I think is, you know, the FED,
Speaker 7: by cutting in December, gives them room to not cut
Speaker 7: in January and then get to March, when we will
Speaker 7: have several more months of clean data. We'll kind of
Speaker 7: get to work through all of the shutdown idiosyncrasies and
Speaker 7: get a better picture of things as they.
Speaker 6: Move towards neutral.
Speaker 7: Of course, all assuming that we don't have another government
Speaker 7: that's going to say before then.
Speaker 1: We hope, right we don't know what's going to happen
Speaker 1: at the end of January, but hopefully there won't be
Speaker 1: a repeat. So ross would you be more concerned right
Speaker 1: now about inflation coming down the pike, particularly with the
Speaker 1: one big beautiful bill taking effect, or the labor market,
Speaker 1: which at least so far doesn't appear to be materially weakening,
Speaker 1: but there are some signs and there are very definitely
Speaker 1: people out there that are very concerned about it.
Speaker 7: I'm far more concerned about the late I think the
Speaker 7: FED is doing the right thing by kind of resuming
Speaker 7: cutting mode to at least get to neutral, if not
Speaker 7: go a little bit below it. In twenty twenty six,
Speaker 7: the uptick in the unemployment rate, some of the jolts
Speaker 7: and some of the survey data that we've seen is
Speaker 7: quite concerning. And then on the flip side, yes, inflation
Speaker 7: is sticky above two percent, but we really have never
Speaker 7: had inflation kind of just hover around two percent for
Speaker 7: a long period of time or even a medium period
Speaker 7: of time. You've got rents coming down, you've got energy
Speaker 7: costs under control. There might be some upside pressure from tariffs,
Speaker 7: but I do think that the major concern about tariffs
Speaker 7: is a bit overblown, or that's what the data would
Speaker 7: say at this point, so much more concerned about the
Speaker 7: labor market. And so I do think that the FED
Speaker 7: is directionally right to be cutting, though I understand most
Speaker 7: of the members see it as a very close call.
Speaker 3: Hey, you know, Ross, I just want to get into
Speaker 3: you have done some work, you guys, and put out
Speaker 3: a note and you talk about eight themes heading into
Speaker 3: the new year, everything from data center electricity consumption to
Speaker 3: ROI return on investment. Out of all of the AI spend,
Speaker 3: You look at what's going on in tariffs, you talk about,
Speaker 3: you know, kind of references back to the dot com bubble,
Speaker 3: and you also talk about fitzcher J. Powell. So I'm
Speaker 3: just curious. We can't go through all eight of them,
Speaker 3: but give us one or two that you think have
Speaker 3: to be top of mind in the new year.
Speaker 6: Yeah, so I'll give too quickly.
Speaker 7: I think the biggest thing next year, as we talk
Speaker 7: about inflation and in a midterm year, is going to
Speaker 7: be data centers and the price of electricity. This has
Speaker 7: already been kind of a burbling theme, but I think
Speaker 7: it'll come to a head next year.
Speaker 6: I think we'll see to the extent that it's possible.
Speaker 7: Government intervention in regulating or getting energy prices under control,
Speaker 7: especially in a midterm year when we know that inflation
Speaker 7: has been such a hot button political issue.
Speaker 6: Hotie, I did that.
Speaker 3: Do you expect the president to say, Hey, everybody stop
Speaker 3: doing the AI spend, which is a major initiative for
Speaker 3: their administration.
Speaker 6: How do we do that?
Speaker 7: I think the administration, at least in the near term,
Speaker 7: will lean on deregulation to kind of get some costs
Speaker 7: in control that's been a theme in more traditional fossil
Speaker 7: fuel energy sector as well.
Speaker 6: But obviously the.
Speaker 7: Administration can't risk losing the AI race to adversaries like China,
Speaker 7: so you can't stop. But I do think that they're
Speaker 7: going to be very hyper sensitive to electricity inflation when
Speaker 7: they won an election in twenty twenty two or I'm
Speaker 7: sorry on twenty twenty four on the back of you know, inflation, affordability,
Speaker 7: cost of living that has people sew up in arms.
Speaker 7: The other point I would just make is I think
Speaker 7: that the concerns about a bubble, while they make sense
Speaker 7: to me, I think we are so far from a
Speaker 7: bubble at this point, especially the dot com corolarry. You know,
Speaker 7: we're in a nice bowl market. The market is roughly
Speaker 7: doubled off the October twenty twenty two lows, but if you,
Speaker 7: you know, overlay it with what the market did in
Speaker 7: the late nineties, I mean, the market went up eightfold
Speaker 7: into the two thousand top. I don't think that the
Speaker 7: sentiment is bubbly. I don't think that the price action
Speaker 7: is bubbly, and I think that the fundamentals of the
Speaker 7: underlying companies show that this is just a ball market
Speaker 7: driven by profits and not a bubble.
Speaker 1: Well, that will be very good news to a lot
Speaker 1: of people out there that are investors.
Speaker 5: What about the metals, is there a bubble? There are
Speaker 5: we in bubble territory for any of them, gold, silver,
Speaker 5: or any of them?
Speaker 7: To me, gold was you know, we were talking about
Speaker 7: an AI bubble at a time when the real bubble
Speaker 7: and markets was in gold.
Speaker 6: Now it's deflated a bit.
Speaker 7: You know, we had the parabolic price move into the fall,
Speaker 7: a bit of consolidation here, and you tend to see that,
Speaker 7: you know, whether it's in gold or other assets, you
Speaker 7: have a parabolic price move goes vertical, you need a
Speaker 7: period to.
Speaker 6: Consolidate, to reset sentiments.
Speaker 7: So I think, you know, over the intermediate term, you know,
Speaker 7: bullishness on metals and using it as a diversification part
Speaker 7: of a portfolio makes a lot of sense. But I
Speaker 7: don't know that we resume that uptrend maybe until the
Speaker 7: middle of twenty twenty six. I think there's some sentiment
Speaker 7: that has to be reset and price action that has
Speaker 7: to be consolidated. But it certainly had a lot more
Speaker 7: signs of a bubble over the summer than we're seeing
Speaker 7: in ass socks right now.
Speaker 5: Still have today, So there's a bubble.
Speaker 6: I'll take that.
Speaker 3: It's crazy, right, all right, good stuff, so appreciate it.
Speaker 3: Thanks so much for joining us. Ross Mayfield investment strategist
Speaker 3: over at bear To Private Wealth Management.
Speaker 2: This is the Bloomberg Business Week Daily Podcast. Listen live
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Speaker 3: All right, everybody, we're back on Bloomberg Markets. Carol Masser
Speaker 3: along with Bonnie Quinn live here at Bloomberg Headquarters. There
Speaker 3: is a lot going on geopolitically, was this past year,
Speaker 3: will be probably again in twenty twenty six. Here's just
Speaker 3: a few of our stories that have crossed the Bloomberg
Speaker 3: On this Tuesday, the United Arab airmitz Emirates excuse me
Speaker 3: said it well, withdraw forces from Yemen following a flare
Speaker 3: up intensions with Gulf ally Saudi Arabia over military operations
Speaker 3: in the conflict hit country. You've got u Essentral Command
Speaker 3: coming out saying US forces and partners killed or captured
Speaker 3: nearly twenty five is state operatives following large scale air
Speaker 3: strikes across Syria earlier this month, and then also European
Speaker 3: leaders held a call to talk about Ukraine after Russia
Speaker 3: said it would revise its negotiating position, claiming Ukrainian drones
Speaker 3: targeted a residence of President Vladimir Putin. There's a lot
Speaker 3: going on, so good to have back with us. Ed Price.
Speaker 3: He's senior Fellow non Resident at NYU. Former British trade official,
Speaker 3: he has advised members of the European and British parliaments.
Speaker 3: He also teaches jiu jitsu in New York, which I
Speaker 3: had no idea.
Speaker 5: I did not know that either.
Speaker 1: Yeah, I'm going to be useful in trade, seriously useful
Speaker 1: in your trade talks.
Speaker 8: Now it would have been yes, if you're allowed to wrestle.
Speaker 6: But there, I don't know.
Speaker 3: We've seen that in some I feel like Parliament's overseas,
Speaker 3: maybe in Asia. Hey how are you?
Speaker 8: I'm good, thank you very well.
Speaker 3: How are you doing okay? Like it's amazing that we
Speaker 3: are here in December. It was a year that felt
Speaker 3: like we had weeks that would never end and a
Speaker 3: year that would never end. And yet here we are.
Speaker 3: How's the world doing right now? And what are the
Speaker 3: what are the parts of the world that you're watching
Speaker 3: most closely? What are the leaders that you were watching
Speaker 3: or who are well?
Speaker 9: I mean, I'm always watching President Donald Trump. He lives
Speaker 9: in my head rent free, and I think that's probably
Speaker 9: true a lot of people. And then of course Putin
Speaker 9: I'm watching Putin Zelenski and that nexus. It's interesting that
Speaker 9: I'm not really watching Shijinpin at the moment, which.
Speaker 5: I know should you be.
Speaker 1: I mean, we saw those exercises the last two days.
Speaker 1: It's really popping off again if you like. I mean,
Speaker 1: is he just prodding the Japanese and the US or
Speaker 1: is he actually working on a plan?
Speaker 8: Well, I think he's biding his time.
Speaker 9: And someone like me who is always very excitable about
Speaker 9: the downside, and I could list all the times I've
Speaker 9: got that run. I'm always watching China for its potential
Speaker 9: invasion of Taiwan, and it does seem this year and
Speaker 9: in the last few years that that doesn't seem as
Speaker 9: imminent as you'd think. Now, you're right to point out
Speaker 9: that there's visual data and there's military data that would
Speaker 9: suggest otherwise. But I think that's probably part of the strategy,
Speaker 9: as you suggest, to ratchet up the pressure and remind
Speaker 9: Japan and remind the United States that China has this
Speaker 9: new foundability. It doesn't necessarily mean that if it deploys
Speaker 9: its forces, it will employ them. So my conclusion after
Speaker 9: a while is that I've probably been a bit hysterical
Speaker 9: about the China Taiwan issue.
Speaker 1: Well, no, but there is a deadline on it, right,
Speaker 1: I mean, she's being once that's done at the back
Speaker 1: end of a ten year plan.
Speaker 5: But yeah, continued Carl, No.
Speaker 6: No, no, you continue, Well, I mean again, it's for me.
Speaker 8: I thought for a few years that it was imminent.
Speaker 8: I mean, I've said this before.
Speaker 9: The reason I think it isn't is that China understands
Speaker 9: that you can't just float a force over the one
Speaker 9: hundred and twenty miles to the west coast of Taiwan
Speaker 9: without also.
Speaker 8: Confronting the Americans. So it's harder than they think.
Speaker 3: I think, who do you think fears President Trump? Who
Speaker 3: do you really think considers he and the United States
Speaker 3: still an ally?
Speaker 9: Well on the first one, who fears him? Vulnerable members
Speaker 9: of our labor market, possibly Spanish speaking people who are
Speaker 9: here in good faith, working hard to create the GDP
Speaker 9: that we need to confront China or Russia. That's a
Speaker 9: bad thing if your labor market is shrinking and afraid
Speaker 9: in the geopolitical confrontation. And the second part of your
Speaker 9: question is I think who respects him?
Speaker 6: Yes?
Speaker 8: Well, I mean, I mean I'm exhaling. I don't know
Speaker 8: that he's respected.
Speaker 3: Because you listen, we talk about your relationships that you've had,
Speaker 3: certainly in the UK and with European officials. I'm assuming
Speaker 3: you still have confidence and folks that you talk to.
Speaker 3: I mean, do they fear him, do they respect him?
Speaker 3: Do they consider him? Certainly members of NATO still an ally.
Speaker 8: Well, I can't speak for NATO.
Speaker 9: I mean I was in the economic side of government,
Speaker 9: but yes, rendering them anonymous. Friends of mine who are
Speaker 9: still serving in various parts of the world do not
Speaker 9: respect President Donald Trump. And they don't respect him for
Speaker 9: one reason, which is that, whereas Nixon presented a very
Speaker 9: effective mad madman routine, Donald Trump doesn't actually stick to
Speaker 9: his guns. And if you go through his record, I
Speaker 9: mean I was talking in the green room about Liberation Day.
Speaker 9: Every single time he's said thus far, and no further
Speaker 9: or this will happen.
Speaker 8: You know, if X happens, why will happen?
Speaker 9: It hasn't really, So I think that people have now
Speaker 9: sort of realized that there's no incentive with him to
Speaker 9: do as he asks necessarily because he doesn't follow through.
Speaker 3: Well, so is it just is it so that the
Speaker 3: bark is worse than the bike ultimately for President Trump?
Speaker 3: I mean yeah, right at times, Van, we've certainly felt
Speaker 3: the bite Liberation Day in markets, investors struck Iran.
Speaker 8: Yeah, he's struck Iran. But I mean I've put it
Speaker 8: like this before.
Speaker 9: Seddy Roosevelt famously said, speaks softly and carry a big stick. Yeah,
Speaker 9: And it seems that President Trump, with as much respect
Speaker 9: as I can muster, speaks incoherently and sort of occasionally
Speaker 9: carries a stick. And you can't infer, as a rival
Speaker 9: power or an adversary or even an ally, exactly what
Speaker 9: his behaviors are going to be, right.
Speaker 1: But that's what makes it so terrifying, especially if you're
Speaker 1: of Venezuela and you know there's so many warships, carriers
Speaker 1: and troops basically stationed off your coast. What's going to
Speaker 1: happen with Venezuela. Ed.
Speaker 9: Whatever we do, we are damaging our power. Whatever we
Speaker 9: do in showing hard power in the way that we
Speaker 9: are and moving away from soft power, we are reducing
Speaker 9: the overall power of the United States. That's because the
Speaker 9: hard power of the United States is in part based
Speaker 9: on our soft power. People like us, they trust us,
Speaker 9: they lend us money, and we definance a military. So
Speaker 9: I don't know exactly what's going to happen in Venezuela.
Speaker 9: I imagine there's going to be more extra judicial killings,
Speaker 9: but at some point that is going to seep into
Speaker 9: the market for US debt, and at some point people
Speaker 9: are going to notice in the next decade.
Speaker 5: Why hazard not so far?
Speaker 1: I mean, for a president who said we're not getting
Speaker 1: involved internationally in any international wars, We're you know, in Russia, Ukraine,
Speaker 1: we're in not Well, we're not in Taiwan yet, but
Speaker 1: maybe we would be Nigeria, Venezuela.
Speaker 5: I mean, where else is so many going on?
Speaker 9: Well, in striking people from the air, that's the Obama playbook,
Speaker 9: So I think there's some continuity there with President Trump.
Speaker 9: He hasn't put boots on the ground, so that would
Speaker 9: be the marker for a real sea change in his
Speaker 9: policy if he put boots on the ground in Venezuela.
Speaker 9: But back to the point on treasuries, I mean, I
Speaker 9: think that the dollar is on a structural course to
Speaker 9: some form of run on the dollar, some form of
Speaker 9: massive correction this century, perhaps even in the next quarter century,
Speaker 9: and that is going to be very difficult for economic
Speaker 9: policy makers to deal with.
Speaker 3: Is that why we've seen gold go up? Like, what's
Speaker 3: your take on the gold trade or do you have one? Well?
Speaker 9: I mean, I mean I think as the dollar smile
Speaker 9: potentially weakens, it won't completely go away, but it will fade. Yeah,
Speaker 9: people are going to want what they consider to be
Speaker 9: safe for assets. I think that's gold. I think that's
Speaker 9: been bitcoin, even though the course bitcoin has you know,
Speaker 9: speculation attached to it. But what I really scratched my
Speaker 9: head about is if there was a new thesystem emerged
Speaker 9: that there were too many dollars in existence per se,
Speaker 9: what exactly would the economic policy response be. It couldn't
Speaker 9: be the response that we or in the two thousand
Speaker 9: and eight crisis, which was constantive easing. It would have
Speaker 9: to be some sort of second Folca shock and that
Speaker 9: would be disastrous. So I don't know why the treasury
Speaker 9: market isn't more inliquid I would have expected it to be,
Speaker 9: but that is the trend.
Speaker 6: I would foresee, what's the biggest risk to the world?
Speaker 1: Is it?
Speaker 3: You know, there's a big risk to the world. There's
Speaker 3: a big risk to the United States. Take whichever one
Speaker 3: you want.
Speaker 9: The United States right now is the biggest risk to
Speaker 9: the world, as expressed in the world that the United
Speaker 9: States built. And the United States has become the first country,
Speaker 9: as far as I can see, in history, to voluntarily
Speaker 9: dismantle its empire and to voluntarily annoy its own allies.
Speaker 3: Can I ask you something. I worked with someone from
Speaker 3: the UK, and she said, you have a young country.
Speaker 3: This kind of stuff's going to happen. Talk to me
Speaker 3: about the history of the United Kingdom and how it
Speaker 3: has changed. So, how does this moment in time, We've
Speaker 3: only got about forty five seconds or a minute left here,
Speaker 3: How do you think possibly this moment in time fits
Speaker 3: into US history?
Speaker 9: Well, the United States has always had a decision between
Speaker 9: a system of government based on block which is essentially consent,
Speaker 9: and this is something the ideas that Jefferson copied or Hobbs,
Speaker 9: and the bigger that America has got, the more that
Speaker 9: you've seen some American characters in history say hold on,
Speaker 9: the president should be stronger and stronger, he should become
Speaker 9: Leviathan that the Hobbs writes about. And this is what
Speaker 9: the Trumpian moment is. Are we going to continue down
Speaker 9: a consensus based model of governance or are we in
Speaker 9: fact going to see a much much stronger executive emerge?
Speaker 3: And I would say midterms, certainly in the next election,
Speaker 3: will give us an idea, yes, of where we go next.
Speaker 5: Yes, we're going to have to have you come back
Speaker 5: in again. It's such a pleasure to have you in studio.
Speaker 8: Thank you.
Speaker 1: Yeah, Christ senior fellow at New York University, and our
Speaker 1: thanks to him. Really just running the gamut there of
Speaker 1: all of the theaters of I don't want to say
Speaker 1: theaters of war, but theaters let's say our stress points,
Speaker 1: stress hotspots exactly.
Speaker 6: Yeah, stay with us.
Speaker 7: More from Bloomberg Business Week Daily coming up after this.
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Speaker 3: All right, gonna keep on the markets here as we've
Speaker 3: got about just to shy of a minute, sh a
Speaker 3: minute wishful thinking. No, we have about an hour to
Speaker 3: go here and then one more dat tomorrow. We do
Speaker 3: have just two trading days left, two closes to get through.
Speaker 6: Here.
Speaker 3: Our next guest reminds us that the US market has
Speaker 3: had a great year, but has lagged other major markets.
Speaker 3: It's always a good perspective to kind of pull out
Speaker 3: from the US and see what's gone on around around
Speaker 3: the world with moren the year that was and what
Speaker 3: maybe in store in twenty twenty six with US. As
Speaker 3: Melissa Brown, head of Investment Decision Research over at Simcorpse,
Speaker 3: she joins us here in studio, I always like we're like, oh,
Speaker 3: look what the US has done, considering everything that was
Speaker 3: thrown at it this year, and yet take us through
Speaker 3: global market performances, because if you widen out, you see
Speaker 3: some real outperformance.
Speaker 6: You you absolutely do.
Speaker 10: That's not to say that US market has not been
Speaker 10: unusually strong this year. It's just that markets outside the
Speaker 10: develop markets excluding the US have been much stronger, and
Speaker 10: emerging markets have been even stronger than that. So you know,
Speaker 10: we've seen just huge strength across the globe, with the
Speaker 10: US kind of you know, towards.
Speaker 3: The back of the pack. It's interesting do you think, well, okay,
Speaker 3: so do you think that continues in twenty twenty six
Speaker 3: or how are you gauging what has happened this year
Speaker 3: and is it an indication of what could happen next year.
Speaker 6: Well, you know, if you.
Speaker 10: Look back historically at annual returns, so we've had if
Speaker 10: you know, unless something really changes between now and tomorrow,
Speaker 10: we'll have about a three year return of about twenty
Speaker 10: percent on average each year. That kind of strength three
Speaker 10: years in a row the US market, I'm talking about
Speaker 10: the US market. Yes, that kind of strength three years
Speaker 10: in a row is typically followed by lower than average returns.
Speaker 10: In fact, when it's happened, going back for you know,
Speaker 10: the one hundred years we have data, it's about half
Speaker 10: the time the market's been down in the subsequent year
Speaker 10: and about half the time the market's been up. But
Speaker 10: on average, it's the return is about a third of
Speaker 10: the long term average return.
Speaker 5: Well, we also saw huge gains outside the US.
Speaker 1: So if you were a prudent investor, would you say, look,
Speaker 1: there's a lot of unknowns about the US right now.
Speaker 1: Sure there are a lot of knowns about margin markets too,
Speaker 1: but maybe I'll just dip my toe in there better.
Speaker 10: I would agree with that sentiment because I you know,
Speaker 10: the world outside the US had landed for many years,
Speaker 10: I think for about twenty years, so I think it's
Speaker 10: just starting its catch up phase. And assuming that companies
Speaker 10: can report decent earnings, that economies stay real strong, I
Speaker 10: think outside the US, you know, certainly offers a lot
Speaker 10: of opportunities. The problem comes, I think, is if the
Speaker 10: US market falls apart, in which case you know, nobody
Speaker 10: is immune, nobody is a mune exactly.
Speaker 1: Well, then would you want to rotate a little bit
Speaker 1: into the bond universe, for example, or something a little
Speaker 1: bit safe for I mean I would have said gold,
Speaker 1: but gold has just been on so much of a
Speaker 1: tearr that I'm not sure that would be wise either.
Speaker 10: I mean, I also worry a little bit about the
Speaker 10: bond market because I think it really you know, I
Speaker 10: think if the FED is too aggressive in cutting rates, yeah,
Speaker 10: everybody is going to start to worry about longer term inflation,
Speaker 10: and we're going to see longer rates going up, so
Speaker 10: I don't think that's going to be at least right now.
Speaker 10: You don't want to invest in bonds, Melissa.
Speaker 3: You guys wrote a piece that looked at historically annual
Speaker 3: returns and you called it forget the FED, forget the
Speaker 3: AI trade, forget earnings, inflation, market concentration. What do statistics
Speaker 3: tell us about the US market in twenty twenty six.
Speaker 3: Do you feel like at this that you have a
Speaker 3: good batch of statistics to figure out twenty twenty six
Speaker 3: or do we have to wait a little bit.
Speaker 10: Well, you know, on the one hand, you could say
Speaker 10: past performance is no indication of future exactly into which
Speaker 10: any of us in this business know we say all
Speaker 10: the time. But on the other hand, if you think
Speaker 10: about it, intuitively, the market has been so strong, valuations
Speaker 10: are quite high. So unless we can come up with
Speaker 10: unusually good earnings growth, when at the same time inflation
Speaker 10: stays tame, employment stays strong, so we have the consumers
Speaker 10: staying in the market, it's intuitively it's hard to imagine
Speaker 10: how we could get another year of twenty percent plus returns.
Speaker 1: And yet, as I was saying to Herod earlier, if
Speaker 1: we get just eight percent of a return. Now it's
Speaker 1: going to feel like so disappointing, isn't it.
Speaker 10: It will when in fact it's probably not that bad,
Speaker 10: particularly you know, in a relatively low inflation environment, the
Speaker 10: real return is still pretty good.
Speaker 1: So if momentum is shifting, where would you look to
Speaker 1: in the market. I mean, are we're going to see
Speaker 1: a broad rotation into everything else the four hundred ninety
Speaker 1: three or will there be winners there too?
Speaker 2: Well?
Speaker 10: I think there will be winners there. I mean, the
Speaker 10: AI trade hasn't gone away. I think it's going to
Speaker 10: broaden out though, to companies who are adopting AI in
Speaker 10: you know, in some way. I think, you know, if
Speaker 10: that can help their margins and uh and just you know,
Speaker 10: help their overall earnings. I think that's we can see
Speaker 10: some running out running out, but it probably needs to
Speaker 10: be selective. I don't think we I would say, you know,
Speaker 10: sell the mag seven and buy everything else. At this point,
Speaker 10: I think we still need to see what happens.
Speaker 1: What are clients What are clients asking you most? I mean,
Speaker 1: after they ask you the AI GOESSI.
Speaker 10: Well, you know, we're in the business of forecasting volatility
Speaker 10: more than forecasting returns, and the big question is why
Speaker 10: is volatility so low? It seems like there's so much
Speaker 10: on certainty out there, whether it's geopolitical or economic.
Speaker 3: Mixed right now at fourteen, yeah.
Speaker 10: VIX at fourteen. Our risk models are at you know,
Speaker 10: they're not at all time lows, but they're much they're
Speaker 10: lower than average.
Speaker 3: All right, Melissa, I'm your client. Why is it so low? Well,
Speaker 3: I think I'm not really his our client playing, but
Speaker 3: why is it so low? Why I much complacency.
Speaker 10: I think one of the reasons is that you actually
Speaker 10: stocks are not moving together. You have low correlations, so
Speaker 10: you have the days the mag seven does well and
Speaker 10: everything else doesn't. Or maybe it's you know, it's a
Speaker 10: tech move versus everything else. But stocks have very low correlations,
Speaker 10: so that translates into, yes, the market has been going up,
Speaker 10: but it's been going up little bits every day. You're
Speaker 10: not getting these huge surges in returns, and I think
Speaker 10: that's one reason that both the VIS and models that
Speaker 10: predict volatility as we run continue to see volatility staying very.
Speaker 5: Low on the move index as well multi year lows.
Speaker 1: Thank you so much for joining fascinating conversation there That
Speaker 1: is Melissa Brown joining us in studio. She's head of
Speaker 1: investment decision Research at some for in New Year.
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