1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:31,720 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well 7 00:00:31,760 --> 00:00:35,640 Speaker 1: news crossing today that on Bang Insurance Group is getting 8 00:00:35,680 --> 00:00:39,600 Speaker 1: pressured to stop buying so many assets overseas and possibly 9 00:00:39,720 --> 00:00:43,600 Speaker 1: sell the iconic Waldorf Astoria hotel in New York, which 10 00:00:43,600 --> 00:00:47,680 Speaker 1: it bought for almost two billion dollars. In with us 11 00:00:47,680 --> 00:00:49,800 Speaker 1: to talk about this is Tom or Like, chief Asia 12 00:00:49,800 --> 00:00:54,040 Speaker 1: economist for Bloomberg Intelligence, normally based in Beijing, but he 13 00:00:54,200 --> 00:00:56,720 Speaker 1: is in New York today in our eleven three oh studios. Tom, 14 00:00:56,760 --> 00:00:58,440 Speaker 1: thank you so much for joining us. I want to 15 00:00:58,440 --> 00:01:02,520 Speaker 1: start with what's behind your request by China to a 16 00:01:02,760 --> 00:01:06,720 Speaker 1: Bang and others to reduce overseas investments and to sort of, 17 00:01:06,760 --> 00:01:09,480 Speaker 1: you know, like what exactly triggered this. I think the 18 00:01:09,840 --> 00:01:11,959 Speaker 1: lens through we have through which we have to see 19 00:01:11,959 --> 00:01:16,840 Speaker 1: this is a broader attempt by China's policymakers to crack 20 00:01:16,920 --> 00:01:20,760 Speaker 1: down on financial risk and to crack down on capitalite 21 00:01:20,800 --> 00:01:24,399 Speaker 1: flows and and bank ticks both of those boxes. On 22 00:01:24,520 --> 00:01:29,160 Speaker 1: financial risk, they're issuing short term, high interest rate investment 23 00:01:29,160 --> 00:01:33,560 Speaker 1: products to finance a liquid long term assets. That's a 24 00:01:33,600 --> 00:01:38,759 Speaker 1: massive asset liability mismatch. On capital outflows, well, they're making 25 00:01:38,760 --> 00:01:41,880 Speaker 1: a bunch of purchases overseas, so it's trying to crack 26 00:01:42,000 --> 00:01:45,160 Speaker 1: down on these two areas and banging other firms are 27 00:01:45,200 --> 00:01:48,920 Speaker 1: coming very clearly into the regulators crosshairs. Tom, Can you 28 00:01:48,960 --> 00:01:52,560 Speaker 1: put this into the context of government policy in China 29 00:01:52,680 --> 00:01:55,320 Speaker 1: and their Silk Road initiative, And because they seem to 30 00:01:55,360 --> 00:01:57,880 Speaker 1: be putting a lot of money in overseas development, they 31 00:01:57,960 --> 00:02:00,360 Speaker 1: just wanted in a certain way and under a certain control. 32 00:02:01,200 --> 00:02:04,280 Speaker 1: I think China's policymakers are firm believers in their own 33 00:02:04,320 --> 00:02:08,120 Speaker 1: ability to walk and chew gum at the same time um, 34 00:02:08,200 --> 00:02:11,240 Speaker 1: and that means that they think they can pursue an 35 00:02:11,240 --> 00:02:15,440 Speaker 1: aggressive outbound investment strategy on the Belt and road building 36 00:02:15,480 --> 00:02:19,960 Speaker 1: infrastructure in Southeast Asia into Central Asia at the same 37 00:02:20,000 --> 00:02:23,480 Speaker 1: time as cracking down on what they see as the 38 00:02:23,560 --> 00:02:26,800 Speaker 1: riskier aspects of capitalite flows, as it was the case 39 00:02:26,800 --> 00:02:30,680 Speaker 1: with Ambang. So to me, this is this is really compelling. 40 00:02:31,080 --> 00:02:34,880 Speaker 1: If Unbang does sell the Waldorf Storia, which have bought 41 00:02:34,919 --> 00:02:38,160 Speaker 1: just three years ago, what other assets could it sell 42 00:02:38,440 --> 00:02:42,799 Speaker 1: And could we see a mass sale among other assets 43 00:02:42,800 --> 00:02:46,320 Speaker 1: by other companies that are engaging in similar practices. So 44 00:02:46,400 --> 00:02:48,280 Speaker 1: I think we're still a little bit in the realm 45 00:02:48,280 --> 00:02:52,320 Speaker 1: of speculation here. We have a well sourced story on 46 00:02:52,360 --> 00:02:54,880 Speaker 1: the Bloomberg terminal. On this, we so far do not 47 00:02:55,000 --> 00:02:59,600 Speaker 1: have confirmation from China's policymakers, and A Bang are certainly 48 00:02:59,600 --> 00:03:04,200 Speaker 1: not affirming that they've been required to sell their overseas assets. Um. 49 00:03:04,240 --> 00:03:06,959 Speaker 1: If it does come to that, um, then I think 50 00:03:07,040 --> 00:03:10,280 Speaker 1: we're going to see some reversal in that excitement about 51 00:03:10,400 --> 00:03:12,520 Speaker 1: real estate prices. Well, I mean, that's sort of what 52 00:03:12,560 --> 00:03:14,400 Speaker 1: I'm getting at, even if it's let's say, even if 53 00:03:14,440 --> 00:03:15,960 Speaker 1: they're not going to confirm it, or even if they 54 00:03:16,000 --> 00:03:19,440 Speaker 1: don't sell the idea that Chinese companies may avoid some 55 00:03:19,520 --> 00:03:23,600 Speaker 1: of the big purchases I'm thinking in particular property purchases 56 00:03:24,120 --> 00:03:27,040 Speaker 1: in the in the New York area, for example, or 57 00:03:27,080 --> 00:03:31,600 Speaker 1: in London. That changes the dynamic for those markets. Now, yeah, 58 00:03:31,639 --> 00:03:33,600 Speaker 1: I think that's right. I think one of the underlying 59 00:03:33,680 --> 00:03:37,040 Speaker 1: positives for global real estate markets in the last few 60 00:03:37,160 --> 00:03:40,120 Speaker 1: years has been this idea that the big Chinese buyer 61 00:03:40,480 --> 00:03:44,160 Speaker 1: in the case of the prestige project like Waldorf, or 62 00:03:44,240 --> 00:03:46,760 Speaker 1: the just the middle income Chinese buyer in the case 63 00:03:46,800 --> 00:03:49,400 Speaker 1: of run of the mill residential property is going to 64 00:03:49,480 --> 00:03:52,600 Speaker 1: be there with a wad of cash willing to drive 65 00:03:52,680 --> 00:03:55,840 Speaker 1: up prices. If that story starts to change, clearly there 66 00:03:55,840 --> 00:03:59,640 Speaker 1: are some important implications. Tom. Before you came in, you 67 00:03:59,680 --> 00:04:01,520 Speaker 1: mentioned that you know you've been in China for about 68 00:04:01,560 --> 00:04:04,680 Speaker 1: a decade, perhaps even longer. What are some of the 69 00:04:04,720 --> 00:04:08,600 Speaker 1: biggest misconceptions that you try to dispel from people who 70 00:04:08,640 --> 00:04:11,119 Speaker 1: just read the headlines or news but actually don't live 71 00:04:11,160 --> 00:04:15,040 Speaker 1: there and spend time there. I think what people underestimate 72 00:04:15,240 --> 00:04:19,960 Speaker 1: is the capacity which China's policymakers have to pull policy 73 00:04:20,040 --> 00:04:24,200 Speaker 1: levers to change the dynamic in the short term. UM 74 00:04:24,320 --> 00:04:28,000 Speaker 1: So we underestimate the power of the Chinese government. I 75 00:04:28,040 --> 00:04:31,600 Speaker 1: think people are right that China's government and China's economy 76 00:04:31,600 --> 00:04:36,120 Speaker 1: faces some really serious problems in the long term, particularly 77 00:04:36,360 --> 00:04:39,280 Speaker 1: on the over extension of the banking sess system and 78 00:04:39,320 --> 00:04:43,800 Speaker 1: the overborrowing by the corporate sector. UM what people underestimate 79 00:04:44,120 --> 00:04:47,880 Speaker 1: is the capacity of China's policymakers to move things around 80 00:04:48,120 --> 00:04:50,880 Speaker 1: in a way which delays any kind of day of reckoning. 81 00:04:51,640 --> 00:04:54,760 Speaker 1: Are we seeing any sales of assets overseas on the 82 00:04:54,800 --> 00:04:58,400 Speaker 1: part of bigger Chinese companies yet? I haven't seen any 83 00:04:58,440 --> 00:05:00,440 Speaker 1: of that so far. So so far, there's been absolutely 84 00:05:00,440 --> 00:05:02,600 Speaker 1: no evidence that this is going on in any way. 85 00:05:02,839 --> 00:05:04,479 Speaker 1: I think this is the beginning of the story, not 86 00:05:04,520 --> 00:05:07,240 Speaker 1: the end, got it? And so what about wealthy individuals? 87 00:05:07,279 --> 00:05:10,560 Speaker 1: Are they still moving money overseas or is that slowing 88 00:05:10,600 --> 00:05:13,039 Speaker 1: down a bit? So if we look at the bigger 89 00:05:13,080 --> 00:05:17,320 Speaker 1: picture on China's capital outflows, the government has really been extraordinarily, 90 00:05:17,680 --> 00:05:21,760 Speaker 1: extraordinarily successful in stemming the outflow. If you go back 91 00:05:21,800 --> 00:05:24,480 Speaker 1: to the end of two thousand and sixteen, capital light 92 00:05:24,560 --> 00:05:27,360 Speaker 1: flows were picking up again. The big fear was that 93 00:05:27,520 --> 00:05:29,800 Speaker 1: we were going to see a flood of outflows at 94 00:05:29,839 --> 00:05:32,159 Speaker 1: the start of two thousand and seventeen and we'd be 95 00:05:32,200 --> 00:05:35,719 Speaker 1: back to panic mode on China's economy. That hasn't happened. 96 00:05:36,279 --> 00:05:38,440 Speaker 1: At the end of last year, we saw the beginnings 97 00:05:38,480 --> 00:05:42,600 Speaker 1: of a crackdown on corporate and household outflows. These latest 98 00:05:42,880 --> 00:05:46,560 Speaker 1: stories on and bang h Na Dally and Wander show 99 00:05:46,600 --> 00:05:49,080 Speaker 1: an extension of that policy. And if we look at 100 00:05:49,120 --> 00:05:52,440 Speaker 1: the numbers, China's capital light flows have come right down 101 00:05:52,520 --> 00:05:54,880 Speaker 1: from fifty sixty billion dollars a month at the end 102 00:05:54,880 --> 00:05:58,880 Speaker 1: of last year, too close to imbalance in the latest data. 103 00:05:59,520 --> 00:06:01,279 Speaker 1: One of thank you very much for coming in and 104 00:06:01,320 --> 00:06:04,359 Speaker 1: spending time with us. Tom Orlick is our chief Asia 105 00:06:04,400 --> 00:06:19,839 Speaker 1: economist for Bloomberg Intelligence. We hear a lot about the 106 00:06:20,040 --> 00:06:24,640 Speaker 1: souring US Russia relations, and really underpinning it is the 107 00:06:24,720 --> 00:06:28,680 Speaker 1: ongoing investigation into President Trump. And here to give us 108 00:06:28,680 --> 00:06:31,560 Speaker 1: a little bit more color from the Russian perspective and 109 00:06:31,600 --> 00:06:35,600 Speaker 1: from a deeply knowledgeable and informed place, is Richard Khan, 110 00:06:35,680 --> 00:06:39,000 Speaker 1: managing partner at Eurasia Advisors, based in New York City, 111 00:06:39,120 --> 00:06:43,200 Speaker 1: also has offices in Moscow. And Richard, you have a 112 00:06:43,279 --> 00:06:47,320 Speaker 1: deep background with Russia, with financial dealings of all sorts 113 00:06:47,320 --> 00:06:50,000 Speaker 1: between Russia and the US, and I just want to 114 00:06:50,040 --> 00:06:52,840 Speaker 1: start with you know, how serious do you think that 115 00:06:52,880 --> 00:06:57,120 Speaker 1: this is being overblown, the Russia investigation into President Trump? 116 00:06:57,200 --> 00:06:59,520 Speaker 1: And do you think that it's not fair to say 117 00:06:59,520 --> 00:07:02,360 Speaker 1: that this is really at the heart of the ongoing 118 00:07:02,440 --> 00:07:06,120 Speaker 1: conflict between the US and Russia. I do not think 119 00:07:06,120 --> 00:07:10,080 Speaker 1: it's being overblown, Lisa. From the first time I spoke 120 00:07:10,120 --> 00:07:13,800 Speaker 1: with you, roughly a year ago, I highlighted some red flags, 121 00:07:14,520 --> 00:07:18,000 Speaker 1: mentioning people's names such as, you know, Paul Maniford and 122 00:07:18,080 --> 00:07:22,440 Speaker 1: Carter Page, folks who I felt or indicative of efforts 123 00:07:22,440 --> 00:07:25,720 Speaker 1: by the FSB to place people around Trump. And since, 124 00:07:25,800 --> 00:07:28,400 Speaker 1: and I've of course been cautious about stating what I 125 00:07:28,440 --> 00:07:31,280 Speaker 1: really think may happen in that context, but I think 126 00:07:31,320 --> 00:07:34,760 Speaker 1: we now have a pretty good picture of what's going on, 127 00:07:34,800 --> 00:07:36,640 Speaker 1: and those of us who spend time in Russia and 128 00:07:36,640 --> 00:07:40,080 Speaker 1: are familiar with the FSB tactics really have I think 129 00:07:40,200 --> 00:07:43,640 Speaker 1: very little doubt that there's a tremendous amount of fire here. 130 00:07:43,800 --> 00:07:48,080 Speaker 1: And there are a variety of criminal UH statutes that 131 00:07:48,200 --> 00:07:50,400 Speaker 1: may well have been violated that I'm sure Mueller is 132 00:07:50,440 --> 00:07:54,040 Speaker 1: looking at right what UH. I would give several examples. 133 00:07:55,280 --> 00:08:00,600 Speaker 1: One would be cyber intrusion, another, campaign finance laws, false 134 00:08:00,600 --> 00:08:05,600 Speaker 1: statements to federal agents, foreign ancient registration, f c p A, RICO, 135 00:08:05,920 --> 00:08:11,080 Speaker 1: money laundering, espionage, possible obstruction of justice. Of course, all 136 00:08:11,120 --> 00:08:13,280 Speaker 1: of these things I can give examples of in terms 137 00:08:13,280 --> 00:08:14,880 Speaker 1: of how I think they may play out, But one 138 00:08:14,920 --> 00:08:18,960 Speaker 1: simple one would be well, first, let me just say 139 00:08:19,400 --> 00:08:21,840 Speaker 1: during the time period when when we do not know 140 00:08:22,000 --> 00:08:25,680 Speaker 1: all of the facts, if there is a fire, let's 141 00:08:25,680 --> 00:08:28,960 Speaker 1: say regarding money laundering, the Russians are aware of that, 142 00:08:29,320 --> 00:08:32,320 Speaker 1: just as they were aware of the meeting in Trump Tower, 143 00:08:32,440 --> 00:08:35,640 Speaker 1: but did not disclose that during those time periods when 144 00:08:35,679 --> 00:08:38,880 Speaker 1: they know it but we do not. That's what's called compremat. 145 00:08:39,120 --> 00:08:41,720 Speaker 1: That puts the Russians in a position of having information 146 00:08:41,760 --> 00:08:45,079 Speaker 1: that's embarrassing to the President and his team and allows 147 00:08:45,160 --> 00:08:47,920 Speaker 1: them great leverage. But in the money laundering context, as 148 00:08:47,920 --> 00:08:51,280 Speaker 1: an example, I'm sure that Mueller is looking at a 149 00:08:51,400 --> 00:08:54,680 Speaker 1: very classic technique used in the high levels of Russian government, 150 00:08:55,480 --> 00:08:58,440 Speaker 1: which is the movement of capital to real estate markets 151 00:08:58,760 --> 00:09:02,280 Speaker 1: to clean money by basically by paying high prices for 152 00:09:02,440 --> 00:09:07,040 Speaker 1: real estate and eventually having the ability to sell those 153 00:09:07,160 --> 00:09:09,959 Speaker 1: assets and have the money at that point be utilized. 154 00:09:10,000 --> 00:09:13,680 Speaker 1: In Schedule three countries meeting countries which are on the screen, Well, 155 00:09:13,960 --> 00:09:17,280 Speaker 1: this all ties to two very recent developments. Because it's 156 00:09:17,320 --> 00:09:20,240 Speaker 1: clear that Congress doesn't fully trust President Trump in his 157 00:09:20,440 --> 00:09:23,319 Speaker 1: dealings with Russia. That could be an interpretation of popular 158 00:09:23,360 --> 00:09:28,760 Speaker 1: one from the sanctions that were by passing a bipartisan 159 00:09:28,960 --> 00:09:34,079 Speaker 1: fashion through Congress UH that resulted in Russia's retaliation by 160 00:09:34,080 --> 00:09:38,360 Speaker 1: ejecting the more than seven hundred diplomats that are in Russia. 161 00:09:38,440 --> 00:09:41,920 Speaker 1: And then of course there's this escalating concern about Russia's 162 00:09:41,960 --> 00:09:45,679 Speaker 1: interactions with North Korea, with Venezuela. I mean, this is 163 00:09:45,720 --> 00:09:49,080 Speaker 1: getting very complicated with Trump. I mean, how much leverage 164 00:09:49,120 --> 00:09:52,160 Speaker 1: does he have within the US even to deal with Russia, 165 00:09:52,200 --> 00:09:55,720 Speaker 1: even if Russia does have compromont on him. Well, the 166 00:09:55,760 --> 00:09:58,480 Speaker 1: way I think of it, and I look going first 167 00:09:58,520 --> 00:10:01,680 Speaker 1: say we eurased advisors. We want to see good relations 168 00:10:01,679 --> 00:10:04,480 Speaker 1: with Russia. That's what we're really about is trying to 169 00:10:04,480 --> 00:10:07,480 Speaker 1: build bridges, trying to see business move ahead, resolve problems. 170 00:10:07,840 --> 00:10:10,440 Speaker 1: But that has to start in a situation where the 171 00:10:10,520 --> 00:10:13,400 Speaker 1: United States is being represented by people who are trustworthy 172 00:10:13,440 --> 00:10:16,360 Speaker 1: and both in terms of not having complet model them, 173 00:10:16,679 --> 00:10:18,559 Speaker 1: not having been paid as some of the people around 174 00:10:18,559 --> 00:10:21,640 Speaker 1: Trump have been, and in addition being in a position 175 00:10:21,679 --> 00:10:24,240 Speaker 1: to have the confidence of the population behind you in 176 00:10:24,320 --> 00:10:27,760 Speaker 1: order to make deals. I actually view Trump right now 177 00:10:28,000 --> 00:10:32,160 Speaker 1: as the major impediment to better relations with Russia. And 178 00:10:32,280 --> 00:10:34,439 Speaker 1: I say it that way because I don't think it's 179 00:10:34,480 --> 00:10:38,600 Speaker 1: possible having Trump in power given all that we already 180 00:10:38,640 --> 00:10:40,440 Speaker 1: know about him, and I believe there will be a 181 00:10:40,480 --> 00:10:43,000 Speaker 1: great deal more that comes out. I don't think he's 182 00:10:43,040 --> 00:10:44,840 Speaker 1: going to ever going to be in a position where 183 00:10:44,840 --> 00:10:47,800 Speaker 1: people in the United States, whether they're in Congress or 184 00:10:47,840 --> 00:10:50,760 Speaker 1: just a population generally, are going to have a confidence 185 00:10:50,800 --> 00:10:53,839 Speaker 1: that he's actually acting exclusively in the best interests of 186 00:10:53,880 --> 00:10:57,800 Speaker 1: the United States, without any concern for information that people 187 00:10:57,880 --> 00:11:00,760 Speaker 1: may have on him or for his own business dealings. 188 00:11:00,800 --> 00:11:03,080 Speaker 1: And as you were just saying, Lisa, the tentacles of 189 00:11:03,120 --> 00:11:07,319 Speaker 1: this go far beyond Russia. This this comes into play 190 00:11:07,400 --> 00:11:11,040 Speaker 1: when you're dealing with relations with China, with Turkey, with Greece. 191 00:11:11,320 --> 00:11:14,640 Speaker 1: It comes into play when it comes to the undermining 192 00:11:15,080 --> 00:11:17,920 Speaker 1: of our civil society in the United States, whether in 193 00:11:17,920 --> 00:11:21,280 Speaker 1: other words, attacking anyone who is going to be part 194 00:11:21,360 --> 00:11:25,600 Speaker 1: of the accusations against him, anyone who is essentially playing 195 00:11:25,600 --> 00:11:29,280 Speaker 1: a prosecutorial role, whether that's the court system, whether it's 196 00:11:29,320 --> 00:11:33,400 Speaker 1: the media, whether it's an individuals such as Mueller. I 197 00:11:33,440 --> 00:11:36,000 Speaker 1: think he has made the decision from a fairly early 198 00:11:36,080 --> 00:11:38,680 Speaker 1: stage because he knew what was out there, that he 199 00:11:38,720 --> 00:11:42,520 Speaker 1: had to undermine these sources of attack on him, and 200 00:11:42,559 --> 00:11:44,960 Speaker 1: I think he's done that in a very broad manner 201 00:11:45,000 --> 00:11:47,320 Speaker 1: and it's extremely harmful. So it's a matter that I 202 00:11:47,320 --> 00:11:49,760 Speaker 1: think that affects all of us as he tries to 203 00:11:49,800 --> 00:11:52,040 Speaker 1: deal with these allegations, although a lot of people would 204 00:11:52,080 --> 00:11:54,560 Speaker 1: say that they have been overblown, that there has been 205 00:11:54,559 --> 00:11:58,200 Speaker 1: no proof that you know, he is generally moving forward 206 00:11:58,280 --> 00:12:00,920 Speaker 1: with the consensus of a pretty big corps of people 207 00:12:01,520 --> 00:12:03,920 Speaker 1: who think that he's still doing a good job despite 208 00:12:03,960 --> 00:12:06,800 Speaker 1: you know, some of the less popular polls, and they 209 00:12:06,840 --> 00:12:10,360 Speaker 1: have come out, and you know, he's basically put some 210 00:12:10,400 --> 00:12:13,400 Speaker 1: pretty respected people in right below him, and they certainly 211 00:12:13,800 --> 00:12:17,480 Speaker 1: like McMaster, who is absolutely respected broadly, so you could 212 00:12:17,520 --> 00:12:20,400 Speaker 1: say that, you know, they could act and negotiate to 213 00:12:20,480 --> 00:12:24,600 Speaker 1: a decent level. Well, Look, I have respect for many 214 00:12:24,640 --> 00:12:27,840 Speaker 1: people whom he's hired. I know Rex to Learsten somewhat 215 00:12:27,880 --> 00:12:29,840 Speaker 1: from having served on a board with him years ago. 216 00:12:30,040 --> 00:12:33,400 Speaker 1: And I think many people and I would assume he's 217 00:12:33,400 --> 00:12:36,200 Speaker 1: in this category trying to be helpful in the situation, 218 00:12:36,280 --> 00:12:39,640 Speaker 1: recognize that there are serious problems with Trump and many 219 00:12:39,679 --> 00:12:43,400 Speaker 1: and his team and want to be responsible and our 220 00:12:43,440 --> 00:12:46,480 Speaker 1: patriots trying to do the right thing. I'm not sure 221 00:12:46,559 --> 00:12:48,480 Speaker 1: that's going to be successful for them. And I also 222 00:12:48,520 --> 00:12:50,880 Speaker 1: don't think that at the end of the day that 223 00:12:50,880 --> 00:12:52,680 Speaker 1: that is going to be enough to over in any 224 00:12:52,679 --> 00:12:57,480 Speaker 1: way overcome the uh the undercurrents that we are now 225 00:12:57,520 --> 00:13:02,920 Speaker 1: seeing coming out in terms of actual links between Russia 226 00:13:03,320 --> 00:13:05,080 Speaker 1: and the Trump team. And as I said, I think 227 00:13:05,120 --> 00:13:07,199 Speaker 1: there's gonna be a great deal more of that. What 228 00:13:07,400 --> 00:13:09,959 Speaker 1: we look forward to your commentary and your thoughts. Richard 229 00:13:10,040 --> 00:13:14,040 Speaker 1: Kahn is the managing partner at Eurasia Advisors, speaking about 230 00:13:14,200 --> 00:13:30,000 Speaker 1: US Russia relations. All right, here to tell us what 231 00:13:30,080 --> 00:13:32,719 Speaker 1: to do with your money is Phil Orlando. He is 232 00:13:32,760 --> 00:13:36,160 Speaker 1: the chief Equity market Strategist, group head of Macro Balanced 233 00:13:36,200 --> 00:13:40,040 Speaker 1: and Growth and Income Teams at Federated Investors, and he 234 00:13:40,120 --> 00:13:42,720 Speaker 1: joins us here in our eleven trio studio. Phil, thanks 235 00:13:42,800 --> 00:13:44,600 Speaker 1: very much for being o. Hey, Pim, thanks for very 236 00:13:44,679 --> 00:13:47,080 Speaker 1: much for hearing me. So let's let's try to just 237 00:13:47,200 --> 00:13:50,040 Speaker 1: understand exactly where we are in the market right now. 238 00:13:50,240 --> 00:13:53,520 Speaker 1: And you know, we've heard these calls that equities are overvalued, 239 00:13:53,679 --> 00:13:57,080 Speaker 1: bonds don't return a lot. What are you suggesting to 240 00:13:57,120 --> 00:13:59,760 Speaker 1: your customers right now, Well, we don't think that stocks 241 00:13:59,760 --> 00:14:02,960 Speaker 1: are revalued per se. We're sitting here at about nineteen 242 00:14:03,080 --> 00:14:07,199 Speaker 1: times this year's estimated earnings of a hundred and thirty dollars. 243 00:14:07,240 --> 00:14:09,120 Speaker 1: But I gotta tell you that the earnings are just 244 00:14:09,200 --> 00:14:11,600 Speaker 1: coming in beautifully. You know. The first quarter is a 245 00:14:11,679 --> 00:14:14,880 Speaker 1: fifteen percent year every year, best quarter in five years. 246 00:14:14,920 --> 00:14:18,760 Speaker 1: Second quarter we're about sixty done. We're up about ten 247 00:14:18,800 --> 00:14:22,400 Speaker 1: eleven percent, another solid quarter. Journal this morning made a 248 00:14:22,440 --> 00:14:25,360 Speaker 1: comment that this is the best six month period we've 249 00:14:25,400 --> 00:14:29,840 Speaker 1: seen in corporate earnings since um and but how much 250 00:14:29,880 --> 00:14:32,640 Speaker 1: does that due to the weaker dollar? Well, currency is 251 00:14:32,640 --> 00:14:36,400 Speaker 1: absolutely headwind. But but you know, why do we Why 252 00:14:36,400 --> 00:14:39,920 Speaker 1: are we gonna penalize companies because the dollars weeken? They're 253 00:14:40,000 --> 00:14:42,920 Speaker 1: the large cap companies are selling more stuff overseas. That's 254 00:14:42,960 --> 00:14:45,120 Speaker 1: the environment in which they're dealing with. And if the 255 00:14:45,160 --> 00:14:49,320 Speaker 1: earnings were terrible now because of the strong dollar, uh 256 00:14:49,400 --> 00:14:51,880 Speaker 1: and and I would say, well, we've got to compensate 257 00:14:51,960 --> 00:14:54,920 Speaker 1: for the strength of the US dollar being a headwin 258 00:14:55,000 --> 00:14:57,680 Speaker 1: as opposed to tailwin, you'd say, and just just treat 259 00:14:57,720 --> 00:15:00,680 Speaker 1: the earnings as they are. That's true. We wouldn't say that. 260 00:15:01,200 --> 00:15:03,520 Speaker 1: I have to say, when you came in here and 261 00:15:03,560 --> 00:15:06,200 Speaker 1: we were gonna we were talking ahead of the segment 262 00:15:06,240 --> 00:15:08,440 Speaker 1: you were talking about, you're expecting a three to five 263 00:15:08,440 --> 00:15:11,320 Speaker 1: percent pullback. How do you think about that and how 264 00:15:11,320 --> 00:15:13,640 Speaker 1: do you sort of see that being triggered given the 265 00:15:13,640 --> 00:15:16,600 Speaker 1: fact that earnings are coming in fantastically and that there 266 00:15:17,320 --> 00:15:20,640 Speaker 1: isn't really anything that seems to shake confidence of investors. 267 00:15:20,680 --> 00:15:22,480 Speaker 1: So you're in great shape right now with the earnings 268 00:15:22,520 --> 00:15:26,000 Speaker 1: valuation at nineteen times is not that excessive. But earning 269 00:15:26,040 --> 00:15:28,280 Speaker 1: season to end in a couple of weeks and then 270 00:15:28,680 --> 00:15:32,000 Speaker 1: you know, seasonally, we've got this August September period, which, 271 00:15:32,520 --> 00:15:35,880 Speaker 1: you know, the duldrums of the summer tend to lead 272 00:15:35,920 --> 00:15:39,800 Speaker 1: to corrections. You've had a twenty move in the market since, uh, 273 00:15:39,840 --> 00:15:43,160 Speaker 1: since the election. Uh, Washington can't seem to get out 274 00:15:43,160 --> 00:15:47,320 Speaker 1: of its own way, for reasons that I still don't understand. 275 00:15:47,360 --> 00:15:50,240 Speaker 1: They keep they keep trying to pound this you know, 276 00:15:50,480 --> 00:15:53,640 Speaker 1: round peg of of healthcare into a square hole here, 277 00:15:54,560 --> 00:15:58,000 Speaker 1: as opposed to pivoting over to something that actually matters, 278 00:15:58,320 --> 00:16:02,320 Speaker 1: which is to focus on corporate tax reform and infrastructure 279 00:16:02,480 --> 00:16:05,640 Speaker 1: and repatriation, the things that will move the needle. So 280 00:16:05,680 --> 00:16:07,840 Speaker 1: at some point, maybe the market just says, you know what, 281 00:16:08,240 --> 00:16:11,840 Speaker 1: we're just frustrated as hell with the fact that this 282 00:16:11,920 --> 00:16:15,840 Speaker 1: administration can't can't shoot straight and and maybe that is 283 00:16:15,880 --> 00:16:18,480 Speaker 1: what you know, triggers a little bit of an air pocket. Well, 284 00:16:18,480 --> 00:16:20,920 Speaker 1: they might be frustrated, but if you're invested in the 285 00:16:21,000 --> 00:16:23,400 Speaker 1: SMP five hundreds, you're up more than ten percent so 286 00:16:23,440 --> 00:16:26,720 Speaker 1: far this year correct on the basis of earnings that 287 00:16:26,760 --> 00:16:29,840 Speaker 1: there's no Trump. You know. But let's say, as an investor, 288 00:16:29,880 --> 00:16:32,080 Speaker 1: you don't do you really care why it goes up. 289 00:16:32,120 --> 00:16:35,160 Speaker 1: If you're long you just are happy that you're you know, 290 00:16:35,240 --> 00:16:37,880 Speaker 1: your trade played out or your investments. Well, all right, 291 00:16:37,920 --> 00:16:40,600 Speaker 1: so at Federated investors were long term investors. And the 292 00:16:40,640 --> 00:16:43,160 Speaker 1: way we see this cycle playing out is we think 293 00:16:43,200 --> 00:16:48,160 Speaker 1: the SMP, you know, at two thousand or so last election, 294 00:16:48,600 --> 00:16:51,120 Speaker 1: we thought we had a nice clean run to three 295 00:16:51,120 --> 00:16:54,440 Speaker 1: thous and looking out into the spring of so as 296 00:16:54,520 --> 00:16:57,240 Speaker 1: as as we see that fifty percent move, we have 297 00:16:57,280 --> 00:16:59,840 Speaker 1: no problems with what's playing out. But we're not the 298 00:17:00,000 --> 00:17:03,360 Speaker 1: average investor. The average investor is looking at day to day, 299 00:17:03,360 --> 00:17:05,800 Speaker 1: week to week stuff. The hedgees are not looking out 300 00:17:05,840 --> 00:17:07,320 Speaker 1: to it for a year. Let me just challenging them, 301 00:17:07,320 --> 00:17:10,440 Speaker 1: because when you say average investor, let's just I understand 302 00:17:10,440 --> 00:17:12,280 Speaker 1: what you're saying. You know, it's like at the margin, 303 00:17:12,440 --> 00:17:15,199 Speaker 1: they may set the price on any given day. But 304 00:17:15,320 --> 00:17:17,520 Speaker 1: as you just described, if you're a long term investor, 305 00:17:17,560 --> 00:17:19,960 Speaker 1: if you're looking to make an investment now for three 306 00:17:19,960 --> 00:17:22,720 Speaker 1: to five years down the road, couldn't you be considered 307 00:17:22,720 --> 00:17:26,040 Speaker 1: to be like an actual investor as opposed to a speculator. 308 00:17:26,080 --> 00:17:27,919 Speaker 1: And if we were to get a three, five or 309 00:17:27,920 --> 00:17:31,080 Speaker 1: seven percent declined, what would you be buying? Oh, we 310 00:17:31,119 --> 00:17:34,439 Speaker 1: would absolutely be buyers. And the areas that we have 311 00:17:35,200 --> 00:17:38,560 Speaker 1: shifted our focus to post election were those areas that 312 00:17:38,600 --> 00:17:41,959 Speaker 1: are economically sensitive that we think will will benefit from 313 00:17:42,000 --> 00:17:47,399 Speaker 1: the improved economy. So technology, financial services, energy, materials, industrials, 314 00:17:47,240 --> 00:17:49,960 Speaker 1: the areas that you know will do better than the 315 00:17:50,720 --> 00:17:53,200 Speaker 1: big stable dividend pairs. So I want to go back 316 00:17:53,240 --> 00:17:55,240 Speaker 1: fil to what you were saying about the three to 317 00:17:55,359 --> 00:17:58,280 Speaker 1: five percent correction, that we're entering the dull drums period 318 00:17:58,359 --> 00:18:00,520 Speaker 1: of the year, and that typically that's a good time 319 00:18:00,560 --> 00:18:03,280 Speaker 1: for a sell off. Of course, um, that is not 320 00:18:03,520 --> 00:18:06,800 Speaker 1: enough of a catalyst that people are bored to to 321 00:18:06,840 --> 00:18:08,960 Speaker 1: trigger a sell off, because otherwise they would have sold 322 00:18:08,960 --> 00:18:12,080 Speaker 1: off a long time ago. But you know, I think 323 00:18:12,119 --> 00:18:14,160 Speaker 1: a Rist cost Rich of Black Rock was on Bloomberg 324 00:18:14,160 --> 00:18:16,600 Speaker 1: Television earlier today and he was talking about the build 325 00:18:16,680 --> 00:18:20,919 Speaker 1: up of leverage at hedge funds and other investors in 326 00:18:20,960 --> 00:18:23,919 Speaker 1: particular to buy stocks. And I have to wonder what 327 00:18:24,040 --> 00:18:27,040 Speaker 1: that means for short term interest rates. If they rise, 328 00:18:27,240 --> 00:18:30,359 Speaker 1: that leverage becomes much more expensive. Perhaps you get margin 329 00:18:30,440 --> 00:18:34,320 Speaker 1: calls or having to post a more collateral and all 330 00:18:34,320 --> 00:18:37,919 Speaker 1: of a sudden that could trigger a sell off. Do 331 00:18:38,000 --> 00:18:40,040 Speaker 1: you see that as a potential catalyst. If not, what 332 00:18:40,080 --> 00:18:42,480 Speaker 1: are some of the other potential catalysts. So Russ is 333 00:18:42,480 --> 00:18:45,800 Speaker 1: a smart guy and and looking at the leverage of 334 00:18:45,880 --> 00:18:49,119 Speaker 1: head funds, hedge funds is certainly an issue as we 335 00:18:49,200 --> 00:18:52,560 Speaker 1: look at the potential for rising interest rates. Uh. We 336 00:18:52,560 --> 00:18:55,480 Speaker 1: we know on the calendar that that we've got the 337 00:18:55,840 --> 00:18:59,240 Speaker 1: FED Dr Yellen giving a key speech at at Jackson 338 00:18:59,280 --> 00:19:02,040 Speaker 1: Hole in UH. I guess in about a month or less, 339 00:19:02,080 --> 00:19:04,480 Speaker 1: little less than a month's time, where we think she's 340 00:19:04,480 --> 00:19:08,280 Speaker 1: gonna lay out, you know, UH, a firmer plan in 341 00:19:08,440 --> 00:19:11,520 Speaker 1: terms of the Feds unwind of uh, you know, the 342 00:19:11,560 --> 00:19:13,400 Speaker 1: early stage of shrinking that four and a half trillion 343 00:19:13,440 --> 00:19:16,640 Speaker 1: dollar balance sheet. We think the Fed kicks off with that, uh, 344 00:19:16,680 --> 00:19:20,320 Speaker 1: definitively at their fo MC meeting in mid September. So 345 00:19:20,320 --> 00:19:24,719 Speaker 1: so perhaps somewhere in there the market has the reality 346 00:19:24,800 --> 00:19:26,720 Speaker 1: of the shrinking of the balance sheet, which is another 347 00:19:26,760 --> 00:19:29,560 Speaker 1: way of saying that the Fed will continue to to 348 00:19:29,680 --> 00:19:32,399 Speaker 1: withdraw accommodation from the market. Maybe maybe that is a 349 00:19:32,400 --> 00:19:36,520 Speaker 1: trigger that that that gets investors starting to take some 350 00:19:36,600 --> 00:19:39,200 Speaker 1: chips off the table. So it's really hard to sit 351 00:19:39,280 --> 00:19:42,200 Speaker 1: here and say definitively that this is the issue that's 352 00:19:42,200 --> 00:19:44,320 Speaker 1: going to trigger it. Uh, there may be three or 353 00:19:44,320 --> 00:19:46,919 Speaker 1: four things that the markets nervous about. And given the 354 00:19:46,920 --> 00:19:50,400 Speaker 1: fact that that you're you're entering sort of a typically 355 00:19:50,440 --> 00:19:53,560 Speaker 1: perilous time with the stock market having done phenomenally well. 356 00:19:54,040 --> 00:19:56,760 Speaker 1: Uh and and maybe we're just gonna, you know, nitpick 357 00:19:56,800 --> 00:20:00,560 Speaker 1: our way to a small correction. Fel gonna be nit 358 00:20:00,680 --> 00:20:02,720 Speaker 1: pick our way to that small correction. We're gonna be 359 00:20:02,760 --> 00:20:04,800 Speaker 1: doing it with a lot fewer stocks. Do you have 360 00:20:04,800 --> 00:20:08,280 Speaker 1: any thoughts on this idea that inn we had about 361 00:20:08,400 --> 00:20:12,040 Speaker 1: seventy five hundred publicly traded companies that wasn't like the 362 00:20:12,040 --> 00:20:15,520 Speaker 1: Wilshire five thousand. Right now we have about thirty five 363 00:20:15,640 --> 00:20:18,840 Speaker 1: hundred that's at the kind of fifty percent. That's just 364 00:20:19,119 --> 00:20:23,320 Speaker 1: fewer stocks to invest this maybe even growing amount of money. Uh. 365 00:20:23,760 --> 00:20:28,119 Speaker 1: That's an issue. I would think that with a stronger economy, uh, 366 00:20:28,160 --> 00:20:33,000 Speaker 1: with more business friendly fiscal policies, uh, we would start 367 00:20:33,080 --> 00:20:34,840 Speaker 1: to see a wave of I p O s that 368 00:20:34,880 --> 00:20:38,159 Speaker 1: would bring more, you know, fresh companies into the market. 369 00:20:38,359 --> 00:20:41,720 Speaker 1: Another concern to your point, Pim, and we were discussing 370 00:20:41,720 --> 00:20:44,359 Speaker 1: this at our morning meeting this morning, is that in 371 00:20:44,400 --> 00:20:46,960 Speaker 1: the past, you know, you'll remember this, you're an old 372 00:20:46,960 --> 00:20:50,240 Speaker 1: guy like me. Uh, companies when the stock price gets 373 00:20:50,240 --> 00:20:52,920 Speaker 1: to a certain level, would split the stock two four 374 00:20:53,080 --> 00:20:55,760 Speaker 1: three four. Don't they don't do that right now? Not are? 375 00:20:55,880 --> 00:20:59,159 Speaker 1: Are are? One of our Dan Paris, the head of 376 00:20:59,160 --> 00:21:03,640 Speaker 1: our strategic Vale You franchise, was bemoaning the fact that that, uh, 377 00:21:03,720 --> 00:21:06,359 Speaker 1: you know that that McDonald's is trading it. I don't know, 378 00:21:06,480 --> 00:21:08,399 Speaker 1: it's north of a hundred bucks. Was a hundred fifty 379 00:21:08,400 --> 00:21:11,560 Speaker 1: bucks right now? In the old days, you know, Uh, 380 00:21:11,800 --> 00:21:13,920 Speaker 1: companies would say, okay, we want to keep that stock 381 00:21:13,960 --> 00:21:16,000 Speaker 1: somewhere between thirty and fifty dollars a share, and you 382 00:21:16,040 --> 00:21:18,760 Speaker 1: would periodically get these two for one three for one splits. 383 00:21:18,880 --> 00:21:22,359 Speaker 1: Now everybody's working up towards a thousand dollars, you know, 384 00:21:22,560 --> 00:21:24,560 Speaker 1: Warren Buffett saying, we don't need to split the stock. 385 00:21:24,680 --> 00:21:27,479 Speaker 1: Let's just keep you know, keep Berkshire Hathaway up at 386 00:21:28,040 --> 00:21:31,439 Speaker 1: you know, these stratospheric levels. So that that also creates 387 00:21:31,440 --> 00:21:35,000 Speaker 1: an issue because the retail investor, per se, doesn't really 388 00:21:35,000 --> 00:21:36,840 Speaker 1: have the ability to buy a Hunter and hundred fifty 389 00:21:36,840 --> 00:21:40,520 Speaker 1: dollar stock. They like to buy stocks that are of share, 390 00:21:40,920 --> 00:21:42,560 Speaker 1: so they go to index funds where they can buy 391 00:21:42,560 --> 00:21:45,040 Speaker 1: them all. Phil Orlando, thank you so much for joining us. 392 00:21:45,040 --> 00:21:47,080 Speaker 1: It's always a pleasure to speaking. Thank you so much. 393 00:21:47,160 --> 00:21:49,720 Speaker 1: Enjoy the rest of your summer. Thank you too, Phill Orlando. 394 00:21:49,800 --> 00:21:54,040 Speaker 1: Chieffectuty Equity Market Strategistic Federated in Investors, joining us here 395 00:21:54,080 --> 00:22:09,600 Speaker 1: in our Bloomberg eleven three oh studios. Well he's real, 396 00:22:09,720 --> 00:22:11,960 Speaker 1: he's here with us today. Paul Sweeney US director of 397 00:22:12,000 --> 00:22:15,840 Speaker 1: Research and senior Media Internet Analysts for Bloomberg Intelligence. He 398 00:22:15,880 --> 00:22:19,520 Speaker 1: can be followed on Twitter at pt Sweeney r I 399 00:22:19,600 --> 00:22:23,919 Speaker 1: P T. Sweeney tell us about this combination Scripts, Networks 400 00:22:24,160 --> 00:22:27,119 Speaker 1: and Discovery. Why are they getting together? You know, I 401 00:22:27,119 --> 00:22:29,840 Speaker 1: think they're getting together simply to get scale in a 402 00:22:29,920 --> 00:22:33,040 Speaker 1: consolidating media business that is being disrupted by the likes 403 00:22:33,200 --> 00:22:36,560 Speaker 1: of the Netflix and Hulus and you know, all the 404 00:22:36,600 --> 00:22:40,960 Speaker 1: other types of Internet enabled commerce and entertainment. So we 405 00:22:41,000 --> 00:22:42,760 Speaker 1: saw in the last you know, a couple of years, 406 00:22:42,760 --> 00:22:45,359 Speaker 1: a lot of consolidation on the distribution side of the business. 407 00:22:45,640 --> 00:22:48,280 Speaker 1: We saw a T and T by Direct Tv, UH, 408 00:22:48,440 --> 00:22:51,200 Speaker 1: Charter Communications, by Time Warner Cable, and now I think 409 00:22:51,200 --> 00:22:53,600 Speaker 1: we're seeing kind of the flip side, some consolidation on 410 00:22:53,640 --> 00:22:56,920 Speaker 1: the content side of the media equation. UH. And this 411 00:22:57,000 --> 00:22:59,760 Speaker 1: is a deal Discovery and Scripts that investors have been 412 00:23:00,000 --> 00:23:02,080 Speaker 1: speculating on for a long time. It really makes the 413 00:23:02,119 --> 00:23:05,320 Speaker 1: most UH strategic sense. You've got two companies that are 414 00:23:05,760 --> 00:23:08,960 Speaker 1: very good, high quality cable network companies, but you know, 415 00:23:09,000 --> 00:23:12,560 Speaker 1: in this relative to the UH Foxes of the world 416 00:23:12,600 --> 00:23:14,680 Speaker 1: and the Disneys of the world, are probably a little 417 00:23:14,680 --> 00:23:17,160 Speaker 1: bit subscale. And by merging they can get a little 418 00:23:17,160 --> 00:23:19,280 Speaker 1: bit of scale to compete against some of these big distributors. 419 00:23:19,520 --> 00:23:21,439 Speaker 1: And they're hoping that people will continue to want to 420 00:23:21,480 --> 00:23:25,280 Speaker 1: watch people renovate their bedrooms for perpetuity. I want to 421 00:23:25,280 --> 00:23:28,480 Speaker 1: get a sense from you, Paul. Discovery shares down more 422 00:23:28,480 --> 00:23:31,680 Speaker 1: than six percent right after the open on this news. 423 00:23:32,000 --> 00:23:35,600 Speaker 1: Are they overpaying. UM. You know, I don't think they're overpaying, 424 00:23:35,640 --> 00:23:38,360 Speaker 1: but it's um. What happened this morning also is um 425 00:23:38,480 --> 00:23:41,800 Speaker 1: uh Scripts reported earnings that came in blow expectations, that 426 00:23:41,920 --> 00:23:44,440 Speaker 1: they pre announced their earnings in controjunction with the deal, 427 00:23:44,760 --> 00:23:47,040 Speaker 1: and they also took down their their guidance for the 428 00:23:47,080 --> 00:23:49,760 Speaker 1: remainder of the year. So it just highlighted once again 429 00:23:49,800 --> 00:23:52,840 Speaker 1: that the cable network business, UM, you know, isn't quite 430 00:23:52,920 --> 00:23:54,800 Speaker 1: as good a business as it used to be, and 431 00:23:54,840 --> 00:23:58,280 Speaker 1: in fact, the cord cutting issues are are impacting all 432 00:23:58,280 --> 00:24:02,160 Speaker 1: cable networks, including the ones that Scripts and Discovery UH. 433 00:24:02,200 --> 00:24:04,119 Speaker 1: So I think, you know, in the context of the 434 00:24:04,119 --> 00:24:07,399 Speaker 1: price tag paid in in light of the reduced estimates 435 00:24:07,400 --> 00:24:09,200 Speaker 1: for Scripts, I think some investors are taking it out 436 00:24:09,200 --> 00:24:11,359 Speaker 1: on the Discovery. But again, it just kind of highlights 437 00:24:11,400 --> 00:24:13,879 Speaker 1: one once once again the challenges that these companies, no 438 00:24:13,880 --> 00:24:16,600 Speaker 1: matter how big they're going to get, UH, will continue 439 00:24:16,640 --> 00:24:19,440 Speaker 1: to face in terms of cord cutting and the ability 440 00:24:19,480 --> 00:24:21,800 Speaker 1: that and the impact that has us on its advertising 441 00:24:21,800 --> 00:24:24,640 Speaker 1: revenue and on on on its affiliate feed revenue. Well, 442 00:24:24,680 --> 00:24:27,080 Speaker 1: does that mean that they really haven't taken the opportunity 443 00:24:27,119 --> 00:24:29,560 Speaker 1: to change the business model at all? From just relying 444 00:24:29,600 --> 00:24:34,080 Speaker 1: on advertising, specifically a lot of advertising from automobile companies. Yeah, 445 00:24:34,080 --> 00:24:37,320 Speaker 1: the the cable network business historically has been the best 446 00:24:37,359 --> 00:24:40,360 Speaker 1: part of the television advertising UH story over the last 447 00:24:40,400 --> 00:24:43,320 Speaker 1: ten to twenty years, as people spend more time with 448 00:24:43,359 --> 00:24:45,879 Speaker 1: the cable networks versus the broadcast networks. But that is 449 00:24:46,000 --> 00:24:49,760 Speaker 1: essentially played out now. The story is can these cable 450 00:24:49,800 --> 00:24:52,800 Speaker 1: networks and the broadcast networks, but particularly the cable networks, 451 00:24:53,080 --> 00:24:55,760 Speaker 1: how do they get their content to the consumers If 452 00:24:55,800 --> 00:24:57,840 Speaker 1: the consumers are cutting the cord or maybe never even 453 00:24:57,840 --> 00:25:00,080 Speaker 1: signing up for paid TV at all? How did they 454 00:25:00,160 --> 00:25:03,520 Speaker 1: get their content in front of consumers and get paid 455 00:25:03,520 --> 00:25:06,520 Speaker 1: for it through advertising or affiliate fees. So we you know, 456 00:25:06,560 --> 00:25:09,399 Speaker 1: they need to go direct to consumer, much like HBO 457 00:25:09,440 --> 00:25:12,600 Speaker 1: has gone direct to the consumer with HBO now um 458 00:25:12,680 --> 00:25:14,040 Speaker 1: and I think they need to be a part of 459 00:25:14,080 --> 00:25:16,560 Speaker 1: some of the skinny bundles that some of these consumers 460 00:25:16,560 --> 00:25:18,760 Speaker 1: are signing up for. They need to have a direct 461 00:25:18,760 --> 00:25:21,320 Speaker 1: to consumer solutions. So I think one of the expectations 462 00:25:21,400 --> 00:25:25,199 Speaker 1: is that Discovery and Scripts will pull their content and 463 00:25:25,280 --> 00:25:27,919 Speaker 1: create a direct to consumer kind of brand to go 464 00:25:28,040 --> 00:25:29,960 Speaker 1: right to the consumer, much like Netflix goes right to 465 00:25:29,960 --> 00:25:32,560 Speaker 1: the consumer with its content. Well, the market might not 466 00:25:32,640 --> 00:25:36,480 Speaker 1: be that enthusiastic about the price and especially the earnings 467 00:25:36,480 --> 00:25:39,760 Speaker 1: of Discovery, but stock traders are very happy with the 468 00:25:39,800 --> 00:25:44,119 Speaker 1: news that UH soft Bank might purchase Charter shares at 469 00:25:44,119 --> 00:25:48,080 Speaker 1: the highest level ever, up more than four percent so 470 00:25:48,160 --> 00:25:51,080 Speaker 1: far in trading. UH, can you just give us a 471 00:25:51,119 --> 00:25:55,040 Speaker 1: sense of why soft Bank would want to buy Charter? 472 00:25:55,480 --> 00:25:57,720 Speaker 1: The recent soft Bank would want to buy Charter is 473 00:25:57,760 --> 00:26:00,879 Speaker 1: because soft Bank also owns Sprint in the United States, 474 00:26:00,960 --> 00:26:03,720 Speaker 1: and Sprint is a company that is not performing well, 475 00:26:03,800 --> 00:26:06,600 Speaker 1: that is really challenged from a strategic perspective. It is 476 00:26:06,640 --> 00:26:10,480 Speaker 1: the fourth of the four wireless carriers in the United States, 477 00:26:10,520 --> 00:26:12,560 Speaker 1: so it's in a weak strategic positions, and it's in 478 00:26:12,600 --> 00:26:16,760 Speaker 1: a relatively weak financial position, and it Massa. Siro Son 479 00:26:17,280 --> 00:26:20,480 Speaker 1: believes that by combining with Charter, a much stronger company, 480 00:26:20,640 --> 00:26:24,160 Speaker 1: a company with a diversified business of video and high 481 00:26:24,160 --> 00:26:26,840 Speaker 1: speed data and landline phone, that this would be a 482 00:26:26,840 --> 00:26:30,119 Speaker 1: good way to shore up Sprint. But you know it's strange, Okay, 483 00:26:30,160 --> 00:26:34,240 Speaker 1: So SoftBank tried to get Charter to buy Sprint outright, 484 00:26:34,280 --> 00:26:36,359 Speaker 1: they said no. So now soft Bank is trying to 485 00:26:36,560 --> 00:26:41,640 Speaker 1: just buy Charter. Sprint shares not up, they are down. Well, 486 00:26:41,680 --> 00:26:43,679 Speaker 1: it's surprising to me, it is a little bit, and 487 00:26:43,720 --> 00:26:45,760 Speaker 1: I think I'm I'm actually surprised a little bit that 488 00:26:45,760 --> 00:26:47,480 Speaker 1: that Charter is up as much as it is, because 489 00:26:47,480 --> 00:26:49,800 Speaker 1: I think the there's a high level of skepticism in 490 00:26:49,840 --> 00:26:53,440 Speaker 1: the marketplace that Massa son Um can in fact pull 491 00:26:53,480 --> 00:26:56,679 Speaker 1: off by transaction and acquisition of Charter Um. You know, 492 00:26:56,800 --> 00:26:58,960 Speaker 1: if you factor in some type of premium for Charter 493 00:26:59,560 --> 00:27:02,639 Speaker 1: an ACQUA system, Charter would approach two hundred billion dollars 494 00:27:02,640 --> 00:27:05,480 Speaker 1: when you include the sixty billion dollars in debt that 495 00:27:05,560 --> 00:27:08,639 Speaker 1: Charter has. So this is a huge transaction, UH, and 496 00:27:08,640 --> 00:27:10,760 Speaker 1: it would be very difficult from also to pull off 497 00:27:10,760 --> 00:27:14,639 Speaker 1: from a financial UH perspective, even if Charter wanted to sell. 498 00:27:14,800 --> 00:27:16,960 Speaker 1: And let's remember when we talk about Charter once again, 499 00:27:16,960 --> 00:27:19,679 Speaker 1: we're talking about John Malone. He has a significant shareholder 500 00:27:20,000 --> 00:27:22,080 Speaker 1: of Charter Communications, and he would have to agree to 501 00:27:22,080 --> 00:27:24,600 Speaker 1: any deal. And I do not believe that he is 502 00:27:25,119 --> 00:27:27,800 Speaker 1: looking for an outright sale of Charter. Is he willing 503 00:27:27,840 --> 00:27:31,159 Speaker 1: to do some type of UH strategic transaction with Sprint 504 00:27:31,280 --> 00:27:33,840 Speaker 1: or with Massa son Very possible. John Malone is the 505 00:27:34,359 --> 00:27:36,679 Speaker 1: you know, a prolific deal maker. So maybe there's some 506 00:27:36,720 --> 00:27:40,679 Speaker 1: stret strategic outcome here, but I don't think an outright 507 00:27:40,680 --> 00:27:43,399 Speaker 1: acquisition of Charter is in the cards right now. Well, 508 00:27:43,480 --> 00:27:46,120 Speaker 1: I mean that's a that that's something I guess they 509 00:27:46,160 --> 00:27:48,639 Speaker 1: haven't figured out yet because they're trying to make this 510 00:27:48,680 --> 00:27:50,960 Speaker 1: deal happen. I mean, I wonder if the technology is 511 00:27:51,200 --> 00:27:53,960 Speaker 1: up to date. I know, yeah, Sprint, you know, it's 512 00:27:54,040 --> 00:27:56,200 Speaker 1: you know, I just talked to John Butler are telecom 513 00:27:56,200 --> 00:27:58,560 Speaker 1: antals here, and he made the comment to me that Sprint, 514 00:27:58,560 --> 00:28:01,480 Speaker 1: because of its uh you know, a week financial position, 515 00:28:01,480 --> 00:28:05,640 Speaker 1: has not been investing in its network. Paul Sweeney, As always, 516 00:28:05,640 --> 00:28:07,359 Speaker 1: we love hearing from you. Paul Sweeney, thank you for 517 00:28:07,440 --> 00:28:10,040 Speaker 1: joining us. He is US director of Research and senior 518 00:28:10,160 --> 00:28:17,119 Speaker 1: Media and Internet Analyst for Bloomberg Intelligence. Thanks for listening 519 00:28:17,160 --> 00:28:20,040 Speaker 1: to the Bloomberg P and L podcast. You can subscribe 520 00:28:20,040 --> 00:28:23,639 Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever 521 00:28:23,680 --> 00:28:27,199 Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter 522 00:28:27,480 --> 00:28:31,000 Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's 523 00:28:31,040 --> 00:28:34,080 Speaker 1: one before the podcast. You can always catch us worldwide 524 00:28:34,080 --> 00:28:35,040 Speaker 1: on Bloomberg Radio.