WEBVTT - Surveillance: BOE Decision & Apple Earnings Preview 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.440 the Bloomberg Terminal and the Bloomberg Business App. What a 0:00:30.520 --> 0:00:33.200 joy to see her in London. Sree Kachigovin and joins 0:00:33.240 --> 0:00:37.800 us right now, senior research economists at Aberdeen three. I'm 0:00:37.840 --> 0:00:43.120 absolutely fascinated by how the US stands alone, how Jerome 0:00:43.200 --> 0:00:49.599 Powell yesterday stood alone with massive stimulus leading into massive 0:00:49.680 --> 0:00:55.520 real GDP. Does the United Kingdom, where Governor Bailey stands now, 0:00:55.920 --> 0:00:58.160 do they need stimulus to keep it going? 0:01:00.120 --> 0:01:03.520 I think stimulus would probably not be a good idea 0:01:03.640 --> 0:01:07.000 at this point. Really, what we want to tackle is inflation. 0:01:07.200 --> 0:01:07.360 Now. 0:01:07.360 --> 0:01:10.440 The Bank of England have a very challenging backdrop. Growth 0:01:10.480 --> 0:01:15.120 outlook is weakening, but we still have very elevated inflation pressures. 0:01:15.480 --> 0:01:21.200 Now inflation is past the peak, it has started to decelerate. However, 0:01:22.240 --> 0:01:26.200 energy costs are still quite elevated. The headline inflation is 0:01:26.200 --> 0:01:29.880 still very high. And also we have even though those 0:01:30.280 --> 0:01:33.440 multi price based effects will start to unwind over time, 0:01:34.000 --> 0:01:38.039 we still have very sticky core services and wage pressures 0:01:38.040 --> 0:01:41.319 in place. So stimulus right now would not be a 0:01:41.319 --> 0:01:45.000 good idea for the UK. Now it's not restrictive fiscal 0:01:45.600 --> 0:01:49.200 background at the moment, but further stimulus would actually not be. 0:01:49.160 --> 0:01:52.880 Helpful with the Here's a fun fact from the Bloomberg 0:01:52.920 --> 0:01:55.800 News story that Lucy White wrote for US. Ben Bernanke 0:01:55.920 --> 0:01:58.280 actually attended the Bank of England's meeting as an observer. 0:01:58.320 --> 0:02:01.160 It's part of his review into the UK central banks 0:02:01.160 --> 0:02:05.120 forecasting communications. And of course this comes as Bailey has 0:02:05.160 --> 0:02:08.680 faced some criticism that they didn't move quickly enough to 0:02:09.040 --> 0:02:11.880 respond to inflation. Sree, can you compare and contrast the 0:02:11.919 --> 0:02:15.040 efficacy of communication at the BAIE versus the FED. 0:02:16.760 --> 0:02:19.079 I think, as we mentioned earlier, there was a conversation 0:02:19.120 --> 0:02:23.240 about group think. There is a split within the within 0:02:23.280 --> 0:02:25.280 the Bank of England, and I think the communication has 0:02:25.320 --> 0:02:28.480 been quite clear from the various members. We've had the 0:02:28.600 --> 0:02:33.880 arguments for staying on hold, the arguments for perhaps another 0:02:34.080 --> 0:02:37.200 an additional hike, and all of those are quite consistent 0:02:37.320 --> 0:02:40.640 actually with the data that we're seeing. But it seems 0:02:40.680 --> 0:02:44.640 that on the whole we are witnessing switch towards a 0:02:44.639 --> 0:02:47.600 focus on growth and the weaker activity data and some 0:02:47.720 --> 0:02:51.320 greater faith in terms of inflation actually passed the peak 0:02:51.600 --> 0:02:55.640 and decelerating from here. So we're also seeing there. So 0:02:55.800 --> 0:02:58.560 we have a signal from the split in the vote, 0:02:58.760 --> 0:03:01.320 and we also have that signal well, very very clear 0:03:01.360 --> 0:03:03.720 in terms of rates are going to be on hold 0:03:03.760 --> 0:03:07.760 for a meaningful period of time, even if, as we expect, 0:03:08.320 --> 0:03:11.040 the economy enters a recession, rates are going to remain 0:03:11.120 --> 0:03:14.639 quite elevated. And that's quite a burden for small companies 0:03:14.639 --> 0:03:18.200 in particular who are much more sensitive to the rate cycle. 0:03:18.520 --> 0:03:21.520 They are facing a profit squeeze. There is a bit 0:03:21.560 --> 0:03:24.079 of an issue there in terms of future business investment 0:03:24.720 --> 0:03:27.240 and so there are a number of challenges there, particularly 0:03:27.280 --> 0:03:29.959 for the smaller, smaller firms. So that's something that the 0:03:30.000 --> 0:03:32.040 Bank of England are going to have to really be 0:03:32.160 --> 0:03:32.640 wary of. 0:03:33.000 --> 0:03:35.880 Yeah, credit availability for small firm is always an issue, 0:03:35.920 --> 0:03:39.880 whether it's stateside or across the pond street. When it 0:03:39.960 --> 0:03:43.240 comes to the stimulus versus austerity debate, that time was 0:03:43.280 --> 0:03:46.240 referencing how does the Bank of England's decision to keep 0:03:46.320 --> 0:03:48.920 rates on hold for a second straight meeting and warn 0:03:48.960 --> 0:03:51.760 about a possible recession, warn about the need to perhaps 0:03:51.840 --> 0:03:54.760 raise rates in the future of inflation reaccelerates. How does 0:03:54.800 --> 0:03:58.360 that restrain or limit the government's options when it comes 0:03:58.440 --> 0:04:00.400 to supporting the economy. 0:04:01.000 --> 0:04:03.080 I think the government is also very aware, and we 0:04:03.120 --> 0:04:06.080 have heard from Sunak p at the Prime Minister. We 0:04:06.120 --> 0:04:09.560 have heard that there is a focus on inflation even 0:04:09.600 --> 0:04:12.600 within the government. Yes, they do have an election coming up, 0:04:12.760 --> 0:04:16.320 but they're worried about stimulus too soon and too much 0:04:16.320 --> 0:04:18.559 stimulus too soon. So I think they're going to pair 0:04:18.600 --> 0:04:23.159 back on any measures that are going to fuel inflation. Further, 0:04:23.240 --> 0:04:25.960 I think that's also concerned from them, get every challenging 0:04:25.960 --> 0:04:28.320 decision for them, given that there is an election on 0:04:28.360 --> 0:04:28.960 the horizon. 0:04:29.920 --> 0:04:32.960 Are all the gains in the United Kingdom focused on London? 0:04:33.360 --> 0:04:35.120 I mean, I mean, is it like, you know, the 0:04:35.120 --> 0:04:39.320 dominance of Paris and France. Are all the economic gains 0:04:39.400 --> 0:04:42.520 which you have been tangible here have they been focused 0:04:42.600 --> 0:04:43.719 on the south of England? 0:04:45.000 --> 0:04:47.120 Well, there has been a big debate for a number 0:04:47.160 --> 0:04:51.400 of years with regards to the regional disparities, and that 0:04:51.560 --> 0:04:53.920 was something that for a few years there have been 0:04:54.040 --> 0:04:56.600 some focus on what are the policies that can help 0:04:57.240 --> 0:05:03.200 level up the economic outlook. However, it has been quite 0:05:03.279 --> 0:05:05.760 challenging in order to do that with the pandemic recovery 0:05:05.760 --> 0:05:10.080 from the pandemic. And I think the leveling up policies 0:05:10.120 --> 0:05:13.479 may be, you know, they're on the horizon in the future, 0:05:13.720 --> 0:05:17.280 but right now, really the focus is quite narrow. That 0:05:17.440 --> 0:05:21.960 regional disparity, unfortunately, is still very much there. 0:05:22.360 --> 0:05:25.000 Christrie, thank you so much. Cut your govid in with 0:05:25.080 --> 0:05:31.800 us with Aberdeen joining us now. On the other points 0:05:31.800 --> 0:05:35.680 in the Wars of Washington, Gregory Vellier, he's chief US 0:05:35.880 --> 0:05:40.560 Policy Strategistic AGF Investments. Greg I believe it is November, 0:05:41.440 --> 0:05:45.400 that's twelve months away from an election. Take the drama 0:05:45.600 --> 0:05:49.880 of October in our many wars and fold it into 0:05:49.880 --> 0:05:53.599 how things change twelve months before an election. How does 0:05:53.720 --> 0:05:58.200 your world change given the pending one year out election. 0:05:59.040 --> 0:06:01.880 Well, good morning time. So many unknowns. I'd say one 0:06:01.960 --> 0:06:06.880 big one is Benjamin Netanaihu. If you saw the extraordinary 0:06:06.920 --> 0:06:09.719 story in the New York Times on Monday talking about 0:06:09.720 --> 0:06:13.880 how Israel and Netanaihu were blindsided by Hamas they got 0:06:13.960 --> 0:06:17.719 totally caught off guard. There's going to be recriminations. I 0:06:17.720 --> 0:06:21.640 think that has to be looked at very carefully. There's 0:06:22.040 --> 0:06:26.120 the FED and there's this continuing fight in the House 0:06:26.200 --> 0:06:30.520 between fairly moderate Republicans and the right wing. That fight 0:06:30.600 --> 0:06:32.919 is about to resume within days. 0:06:33.520 --> 0:06:36.320 Right, But you've got a right wing Speaker of the House. Now, 0:06:36.400 --> 0:06:38.680 shouldn't that restore some order in the House. 0:06:39.680 --> 0:06:42.240 One would think Scarlet wouldn't one, But I'm not quite 0:06:42.320 --> 0:06:46.119 sure about that. I think that even a handful four 0:06:46.279 --> 0:06:50.480 or five House Republicans could block this next spending bill. 0:06:50.920 --> 0:06:53.080 And there are Republicans in the House who don't want 0:06:53.120 --> 0:06:55.880 to spend money on Ukraine, as you guys know, and 0:06:56.120 --> 0:07:00.240 some lukewarm attitudes toward Israel. But the big fights still 0:07:00.320 --> 0:07:03.039 is a budget. We have a budget deadline in about 0:07:03.040 --> 0:07:05.120 two weeks and they're not close to being done. 0:07:05.360 --> 0:07:09.200 Yeah, and so we're watching that November seventeenth deadline very carefully. 0:07:09.400 --> 0:07:12.040 I want to get your take also on what the 0:07:12.120 --> 0:07:15.480 economy means for the presidential election tries. It might The 0:07:15.480 --> 0:07:18.800 White House has been selling Bidenomics, but it's not doing 0:07:19.160 --> 0:07:22.520 very well. When consumers are feeling pretty sour. What does 0:07:22.520 --> 0:07:25.680 the current FED policy mean for the economy in twenty 0:07:25.720 --> 0:07:26.280 twenty four. 0:07:27.400 --> 0:07:30.280 Well, I think there's maybe some relief among consumers that 0:07:30.600 --> 0:07:33.240 the FED didn't raise race. But I thought you and 0:07:33.280 --> 0:07:36.640 Tom a few minutes ago hit it perfectly talking about 0:07:36.680 --> 0:07:39.280 food prices. I mean, food prices are up. What did 0:07:39.320 --> 0:07:41.480 you guys say, nineteen percent cumulative? 0:07:41.560 --> 0:07:43.360 Yeah, over three years. 0:07:43.520 --> 0:07:47.040 Over three years, But that leaves an awful lot of people, 0:07:47.080 --> 0:07:50.480 maybe not us, but leaves an awful lot of people 0:07:50.560 --> 0:07:52.960 discouraged that this is not improving. 0:07:53.480 --> 0:07:56.600 Yeah. What's important there, Scarlett, is the USDA with this 0:07:56.640 --> 0:07:59.680 is really good data from the US Department of Agriculture. 0:08:00.080 --> 0:08:03.160 They say that for the have nots of America, it's 0:08:03.160 --> 0:08:07.320 not third world, but thirty percent of their compensation is 0:08:07.400 --> 0:08:08.440 going to food. 0:08:08.400 --> 0:08:10.600 Which means thirty percent of their conversation is not going 0:08:10.600 --> 0:08:14.440 to discretionary spending or anything else that usually supports the economy. Greg, 0:08:14.480 --> 0:08:16.720 I want to bring it back once again to FED 0:08:16.760 --> 0:08:19.280 policy in the economy in twenty twenty four because J. 0:08:19.440 --> 0:08:22.960 Powell's term expires as FED chaer in early twenty twenty six. 0:08:23.040 --> 0:08:26.200 So whoever wins the twenty four to four election, would 0:08:26.200 --> 0:08:29.200 get to pick the next FED chair. What does that 0:08:29.280 --> 0:08:32.520 mean to you? And I bring this up because if 0:08:32.559 --> 0:08:36.880 Donald Trump wins the nomination, yes he nominated Powell as fedchair, 0:08:36.960 --> 0:08:39.559 but he also nominated Judy Shelton as a FED governor. 0:08:40.280 --> 0:08:40.480 Yeah. 0:08:41.120 --> 0:08:44.080 I think if Biden wins, obviously he'll try to keep 0:08:44.760 --> 0:08:48.000 at Jerome Powell. If Trump wins, he will fire and 0:08:48.000 --> 0:08:50.599 get rid of Powell as quickly as possible, and that 0:08:50.720 --> 0:08:53.560 will I think cost some anxiety for the markets. You know, 0:08:53.640 --> 0:08:56.000 one other quick point I would make about what we 0:08:56.040 --> 0:08:58.199 could see in the next year or so that maybe 0:08:58.240 --> 0:09:00.640 is outside of the box. I go to piece this 0:09:00.720 --> 0:09:05.360 morning on Robert F. Kennedy Junior. There's a new poll 0:09:05.400 --> 0:09:09.760 out overnight from Quinnipiac showing him a twenty two percent 0:09:10.240 --> 0:09:12.439 that I was surprised. I think a lot of people 0:09:12.480 --> 0:09:14.800 were surprised to see that. And I do think that 0:09:15.120 --> 0:09:19.679 he will take away from Joe Biden, young people, independence, 0:09:19.800 --> 0:09:21.960 African Americans, environmentalists. 0:09:22.640 --> 0:09:23.040 Robert F. 0:09:23.120 --> 0:09:25.520 Kennedy Jr. Is not going to be the next president, 0:09:25.760 --> 0:09:27.320 but he may determine who will be. 0:09:28.080 --> 0:09:41.720 Craig Villie, thank you so much. With AGF investments, we 0:09:41.760 --> 0:09:43.720 can rip up the script with a gentleman that worked 0:09:43.720 --> 0:09:47.319 in the macroeconomic section at the FED. Jonathan Pingle joins 0:09:47.320 --> 0:09:51.000 the course with UBS, their chief US economists, John I'm sorry, 0:09:51.080 --> 0:09:53.839 I got to go here, and Julia Cornado XBMB Perry 0:09:53.880 --> 0:09:56.240 by Macro turns his way out in front of this. 0:09:56.640 --> 0:10:03.080 Are we completely misguessing the efficiency, the productivity, the technological 0:10:03.160 --> 0:10:07.120 advancement of America? Are we just flat out to pessimistic? 0:10:09.720 --> 0:10:12.480 Well, I mean it's hard to know what the expectations are, 0:10:12.559 --> 0:10:15.760 right there aren't that many people as in the weeds 0:10:15.960 --> 0:10:20.760 on productivity, you know, on the immigration rebound as Julia, 0:10:20.800 --> 0:10:22.440 and you know, give Julia a lot of props since 0:10:22.440 --> 0:10:26.280 we were at the board together a year long time ago. 0:10:27.440 --> 0:10:29.160 But I would say two things, and Sheer Powell touched 0:10:29.160 --> 0:10:32.199 on this yesterday. One is, you know, we have been 0:10:32.440 --> 0:10:36.120 seeing a pretty impressive rebound and labor supply and that's 0:10:36.160 --> 0:10:40.199 been both the combination of you know, a significant improvement 0:10:40.240 --> 0:10:42.600 and net international migration coming. 0:10:42.360 --> 0:10:43.959 Out of the pandemic. 0:10:44.760 --> 0:10:48.160 In addition to you know, some groups like prime age 0:10:48.160 --> 0:10:51.240 women punching out new all time highs and their labor 0:10:51.240 --> 0:10:54.600 force participation rates. And you know, we've certainly been writing 0:10:54.640 --> 0:10:56.880 about that, and Julia's done a good job as well 0:10:57.280 --> 0:10:59.560 on the productivity stuff. Though we do have to remember 0:10:59.600 --> 0:11:04.520 that productivity was incredibly weak as we went through the 0:11:04.520 --> 0:11:07.240 pandemic and immediately coming out, so we did have a 0:11:07.240 --> 0:11:10.560 fair amount of catch up to do. And when we 0:11:10.600 --> 0:11:13.920 look at sort of the longer run trends after today's data, 0:11:14.120 --> 0:11:16.319 just mathematically you are going to be a little bit 0:11:16.320 --> 0:11:18.720 above the longer run trends. So it is good news, 0:11:19.440 --> 0:11:22.800 but you're actually really still not that far from what 0:11:22.880 --> 0:11:26.199 we were seeing pre COVID. But I will say together, 0:11:26.400 --> 0:11:30.920 I think it's right. We're seeing nominal wage gains slow, 0:11:31.200 --> 0:11:34.080 and some of that is these supply side improvements and 0:11:34.200 --> 0:11:36.640 unit labor costs dropping. You know, we were forecasting a 0:11:36.679 --> 0:11:39.040 seven to ten drop. You know that is the result 0:11:39.120 --> 0:11:42.760 of the slowness we saw in average hourly earnings combined 0:11:42.800 --> 0:11:46.480 with basically five percent GDP growth in the third quarter. 0:11:46.520 --> 0:11:48.040 So that's a good supply side story. 0:11:48.280 --> 0:11:51.240 Tell me about course services. The chairman didn't talk about 0:11:51.280 --> 0:11:53.920 it much yesterday, but are we seeing a service sector 0:11:54.120 --> 0:11:59.040 disinflation to give confidence to an outright goods deflation? 0:12:00.720 --> 0:12:01.079 We are? 0:12:01.160 --> 0:12:04.240 I mean, we've had We've had some positive news on 0:12:04.320 --> 0:12:07.080 the core services over the last several months, but I 0:12:07.080 --> 0:12:10.640 would say we're sort of not out of the woods yet, 0:12:10.720 --> 0:12:12.559 right Like, you know, I think that's one of the 0:12:12.600 --> 0:12:15.880 reasons Chair Powell yesterday, you know, and Mike McKee did 0:12:15.880 --> 0:12:17.640 a great job with his you know, trying to pin 0:12:17.760 --> 0:12:21.160 the chair down on the objective versus subjective decision. But 0:12:21.520 --> 0:12:24.040 what we want to see is a little bit more 0:12:24.080 --> 0:12:27.600 slowing in the labor market in order to see more 0:12:27.640 --> 0:12:31.199 slowing in those components of inflation, because if we look 0:12:31.200 --> 0:12:33.920 at the ECI, it does look like wage gains are 0:12:34.040 --> 0:12:38.040 still a little too risk to be consistent with sustainable 0:12:38.080 --> 0:12:40.640 two percent inflation. So I do think the Chair and 0:12:40.679 --> 0:12:42.520 Mike was just saying this, they do need to get 0:12:42.520 --> 0:12:45.760 the labor market to slow here if they are going 0:12:45.800 --> 0:12:48.960 to achieve their mandate and restore price stability. 0:12:49.240 --> 0:12:51.320 All right, this is clearly a big, big week for 0:12:51.480 --> 0:12:55.160 labor market data. You had ADP employment change jolts and 0:12:55.200 --> 0:12:58.240 of course jobless claims this morning. Unit labor costs as 0:12:58.280 --> 0:13:01.440 well in productivity. We know that the UAW has come 0:13:01.480 --> 0:13:03.600 to agreements with the automakers, but if you are an 0:13:03.760 --> 0:13:06.960 union organizer and I'm thinking of the Actors Guild, for instance, 0:13:06.960 --> 0:13:09.240 that is still on strike. What is your takeaway from 0:13:09.240 --> 0:13:11.480 the flood of data that we've gotten on the labor 0:13:11.520 --> 0:13:12.240 market right now? 0:13:13.520 --> 0:13:15.960 Well, land market's still tight, right so you know, so 0:13:16.240 --> 0:13:17.760 you know, even I mean, and I don't really think 0:13:17.800 --> 0:13:19.960 you need to look much beyond the unemployment rate at 0:13:19.960 --> 0:13:22.160 three point eight percent to say, you know, the nation's 0:13:22.200 --> 0:13:24.840 at full employment and markets are tight, and you know 0:13:24.880 --> 0:13:26.960 you've got a point here where there might be some 0:13:27.040 --> 0:13:31.480 bargaining power for workers. The other interesting thing about a 0:13:31.600 --> 0:13:34.840 number of these strikes is there are a lot of 0:13:35.000 --> 0:13:38.840 non wage issues at stake. You know, you're talking about, 0:13:38.960 --> 0:13:41.080 you know, the use of AI for the actors, you're 0:13:41.120 --> 0:13:43.960 talking about, you know, the shift to electric vehicles amongst 0:13:43.960 --> 0:13:46.840 the UAW. And that's actually been sort of an interesting 0:13:46.960 --> 0:13:50.240 aspect where, you know, a lot of these labor negotiations 0:13:50.280 --> 0:13:53.760 it's not just about the wages, you know, it's really 0:13:53.760 --> 0:13:57.920 also about sort of these changing industry dynamics that they 0:13:57.920 --> 0:13:59.400 want to protect their workers from. 0:13:59.760 --> 0:14:01.559 So how does that show up in the data, How 0:14:01.559 --> 0:14:04.840 does that show up in the economy in what's measurable. 0:14:05.480 --> 0:14:07.800 Well, we should definitely see the impact of the UAW 0:14:07.960 --> 0:14:12.920 strike tomorrow. In tomorrow's data, you know, the BLS released 0:14:12.920 --> 0:14:15.680 their strike report. You know, between the strikes the Big 0:14:15.720 --> 0:14:18.360 Three and Mac Trucks, that should be about a thirty 0:14:18.480 --> 0:14:22.720 thousand job reduction in motor vehicle and parts assemblies employment. 0:14:22.760 --> 0:14:24.840 You'll see it in Table B and B one of 0:14:24.880 --> 0:14:28.120 the employment situation release. So we should definitely see that 0:14:28.240 --> 0:14:33.320 way on the employer report tomorrow, but that'll rebound in 0:14:33.400 --> 0:14:36.200 the subsequent in the subsequent report. And I think the 0:14:36.200 --> 0:14:39.360 bigger picture is that you have put in place for 0:14:39.440 --> 0:14:42.360 some of these contracts, you know, a return to things 0:14:42.520 --> 0:14:46.280 like you know, cost of living adjustments, et cetera. So 0:14:46.360 --> 0:14:49.600 this should generally mean for these workers somewhat firmer wage 0:14:49.640 --> 0:14:51.880 gains over the next few years than would have otherwise 0:14:51.920 --> 0:14:52.440 been the case. 0:14:52.600 --> 0:14:55.760 Jonathan Tingle, thank you for the brief, particularly there quickly 0:14:55.800 --> 0:15:00.040 on advancing productivity is with UBS. I love saying this 0:15:00.160 --> 0:15:07.760 the Union Bank of Switzerland. We're going to get complicated 0:15:07.800 --> 0:15:11.120 here and straighten this out. Hulu being taken out by Disney. 0:15:11.560 --> 0:15:17.040 Brian robertson Comcast unloading the Dogkeetha Ranganathen of Bloomberg Intelligence 0:15:17.120 --> 0:15:22.720 is truly encyclopedic on this near nine billion dollar that transaction. Getha, 0:15:22.800 --> 0:15:27.119 I'm lost here. Is Comcast happy today that they unloaded 0:15:27.120 --> 0:15:29.960 the stock or is this the deal of a lifetime 0:15:30.000 --> 0:15:30.840 for mister Eiger? 0:15:31.920 --> 0:15:33.840 So this is this is, as you just pointed out 0:15:33.880 --> 0:15:36.480 on this is a pretty complicated transaction. All that we 0:15:36.600 --> 0:15:41.080 got yesterday was that Disney is definitely buying out comcast 0:15:41.240 --> 0:15:44.760 thirty three percent stake. So Disney already owns two thirds 0:15:44.800 --> 0:15:48.320 of Hulu, so we know for certain that Comcast is 0:15:48.360 --> 0:15:52.120 offloading it who Disney is buying it? Now the biggest 0:15:52.200 --> 0:15:54.880 question here is going to be price. So we know 0:15:55.000 --> 0:15:59.200 the floor value was set at twenty seven billion. Disney 0:15:59.200 --> 0:16:01.560 actually came out yes, they're saying that they do expect 0:16:01.560 --> 0:16:05.240 to make that initial payment of you know, eight it's 0:16:05.240 --> 0:16:08.720 actually nine billion minus some capital calls, which which is 0:16:08.720 --> 0:16:11.760 why you get the eight point six billion. But really 0:16:11.320 --> 0:16:13.840 the point is going to be how much greater than 0:16:13.880 --> 0:16:16.000 twenty seven billion is the valuation going to be? And 0:16:16.040 --> 0:16:17.880 that is where all of the complexity is going to 0:16:17.920 --> 0:16:19.160 arise over the next few months. 0:16:19.200 --> 0:16:21.720 I mean, John Pharaoh is addicted to Hulu. He's just 0:16:22.000 --> 0:16:25.400 you know, he like binge watches Love Island USA and 0:16:25.440 --> 0:16:28.880 the rest of it. GITHA doesn't matter who watches this 0:16:29.000 --> 0:16:32.840 stuff in this transaction or is this just people distant 0:16:32.840 --> 0:16:34.240 from what we watch every day? 0:16:35.200 --> 0:16:38.480 I mean, Hulu has forty eight million subscribers some so 0:16:38.600 --> 0:16:42.360 it is a very very successful streaming service. You're absolutely right. 0:16:42.360 --> 0:16:44.400 It has a very deep catalog of classics. 0:16:44.760 --> 0:16:47.720 It has all of us Keith, You're not going to 0:16:47.800 --> 0:16:51.600 sell surveillances audience. The Love Island USA is a classic. 0:16:51.960 --> 0:16:55.920 Continue well, it has you know, it has a lot 0:16:55.960 --> 0:16:57.840 of the must watch shows, right you brought up the 0:16:57.840 --> 0:17:01.120 Bear Only Murders in the Building is show. It has 0:17:01.160 --> 0:17:03.760 a lot of shows that come up from broadcast TV, 0:17:03.880 --> 0:17:07.200 so it's a great catch up service. And it also 0:17:07.320 --> 0:17:11.120 has kind of this live Hulu Plus live option as well. 0:17:11.160 --> 0:17:13.320 So there are a lot of different flavors that it offers. 0:17:13.600 --> 0:17:16.000 But I think the biggest thing for Disney is really 0:17:16.040 --> 0:17:18.520 the ad component of it. If there is any streaming 0:17:18.560 --> 0:17:22.480 service out there that has got advertising right, it is Hulu. 0:17:22.520 --> 0:17:24.560 We know that Netflix is struggling with that right now, 0:17:24.640 --> 0:17:26.480 so is Disney Plus. So are a lot of the 0:17:26.600 --> 0:17:29.840 established services. Amazon is looking to bring an advertising service. 0:17:29.920 --> 0:17:33.440 Hulu is the one established brand already bringing in about 0:17:33.480 --> 0:17:36.000 three three and a half billion dollars in AD revenue. 0:17:36.280 --> 0:17:39.840 So that infrastructure is a gold mine and is super 0:17:39.920 --> 0:17:41.359 valuable to Disney. 0:17:41.280 --> 0:17:43.280 And for that reason, Hulu is one of the few 0:17:43.320 --> 0:17:46.800 profitable streamers. Netflix of course another profitable streamer here. But 0:17:47.359 --> 0:17:51.080 what is it about the ad packaging that Hulu has 0:17:51.080 --> 0:17:54.119 figured out. As a consumer of Hulu, it's really frustrating 0:17:54.160 --> 0:17:56.679 to see the same Tom Brady hurts commercial over and 0:17:56.720 --> 0:17:57.240 over again. 0:17:58.000 --> 0:18:00.600 No, you're absolutely right, But at the same time, I mean, 0:18:00.720 --> 0:18:03.959 this is a company, you know, obviously they have They 0:18:04.000 --> 0:18:06.720 are the ones that have ads, that have had ads 0:18:06.720 --> 0:18:09.480 on now for the longest period of time. They've built 0:18:09.520 --> 0:18:12.840 all these different they've built very a very very robust 0:18:12.920 --> 0:18:15.440 AD stack, and they've also kind of made all these 0:18:15.600 --> 0:18:19.119 different you know, relationships with advertisers. Of course, you have 0:18:19.200 --> 0:18:22.320 the larger Disney brand as well at work there, but 0:18:22.400 --> 0:18:24.080 that is something where they've really been able to crack 0:18:24.119 --> 0:18:25.919 the code. I mean, Hulu is one service where you 0:18:26.000 --> 0:18:28.800 have majority of you know, the consumers on the on 0:18:28.880 --> 0:18:31.680 the ads supported option, which is what has made it such, 0:18:32.200 --> 0:18:35.080 you know, so successful in what it's set out to do. 0:18:35.840 --> 0:18:39.000 Disney says it has enough cash and credit to buy Hulu, 0:18:39.040 --> 0:18:41.640 whereas Comcasts will be using the proceeds to boost its 0:18:42.000 --> 0:18:47.399 accelerate its stock repurchase program. When this financial transaction is completed, 0:18:47.880 --> 0:18:50.000 does it move the needle at all for either Disney 0:18:50.040 --> 0:18:50.919 or Comcast stock. 0:18:51.600 --> 0:18:54.000 I think it definitely moves the needle for Disney because 0:18:54.040 --> 0:18:57.080 this removes a key overhang. Remember, there are so many 0:18:57.080 --> 0:19:01.520 strategic questions that are still kind of pending for Barb Biger, 0:19:01.600 --> 0:19:04.720 whether it's the future of ESPN, whether it's the sale 0:19:04.760 --> 0:19:07.479 of the ABC network, and so, you know, kind of 0:19:07.560 --> 0:19:10.320 just closing this deal with Hulu and then integrating it 0:19:10.359 --> 0:19:13.840 with Disney Plus, I think just removes a key overhang 0:19:13.880 --> 0:19:14.280 for the stock. 0:19:14.520 --> 0:19:17.080 Five years out, do they mate. Do you see Hulu 0:19:17.119 --> 0:19:20.040 combined with Disney Plus to really take on Netflix as 0:19:20.040 --> 0:19:22.320 a combined adult in kids' entity. 0:19:22.880 --> 0:19:26.320 Absolutely, I think that is what the plan is. I mean, 0:19:26.400 --> 0:19:27.919 at the end of the day, they are looking to 0:19:28.000 --> 0:19:31.240 get synergies across the board in their streaming product because 0:19:31.240 --> 0:19:33.440 Disney Plus is still losing money. It is still going 0:19:33.480 --> 0:19:35.240 to lose about two and a half three billion dollars 0:19:35.280 --> 0:19:37.520 this year. But I think when you combine this we're 0:19:37.520 --> 0:19:39.480 looking at savings of at least one one and a 0:19:39.520 --> 0:19:42.800 half billion dollars. I think it's definitely going to accelerate 0:19:42.880 --> 0:19:44.320 streaming crafitability for Disney. 0:19:44.600 --> 0:19:47.639 Synergy to me means rebundling, So you're going to have 0:19:47.720 --> 0:19:50.560 to pay some big, heftier price to get all these 0:19:50.600 --> 0:19:52.879 different channels or streamers into twenty. 0:19:52.920 --> 0:19:55.800 That's what Paul Sweeney would say as well. What I'm 0:19:55.840 --> 0:19:59.640 fascinated by is when we're all said and done with this. 0:20:00.320 --> 0:20:03.200 I mean, there's Hulu and there's Disney Plus, and they're 0:20:03.240 --> 0:20:06.119 going to merge and they're gonna take on Netflix. Keitha, 0:20:06.240 --> 0:20:09.000 do you see a true duopoly out there? Is that 0:20:09.040 --> 0:20:10.240 where streaming is heading? 0:20:10.760 --> 0:20:13.239 It definitely is heading there, Tom, There's no doubt about it. 0:20:13.240 --> 0:20:15.639 I mean Netflix is far ahead of the competition. They 0:20:15.680 --> 0:20:18.159 have almost two hundred and fifty million subscribers. We do 0:20:18.240 --> 0:20:20.119 see them getting to three hundred million over you know, 0:20:20.160 --> 0:20:21.960 maybe the next few years. But yes, this is kind 0:20:22.000 --> 0:20:25.840 of very much turning into you know, Netflix versus Disney 0:20:25.880 --> 0:20:32.360 versus most probably Amazon. So yeah, maybe a tryal Max HBO. Yeah, 0:20:32.480 --> 0:20:36.920 that's a tough one, you know, Hbo Max. You know, 0:20:37.320 --> 0:20:39.240 she's got to be a second tier. 0:20:39.080 --> 0:20:40.840 Service, second tier look at it. 0:20:40.920 --> 0:20:44.040 She's just like, Wow, you know what's so bad about that? 0:20:44.119 --> 0:20:47.280 And this goes, this goes with Discovery Plus and Max 0:20:47.320 --> 0:20:48.600 and all that is. You know where am I going 0:20:48.640 --> 0:20:50.840 to see ninety day fiance? 0:20:51.040 --> 0:20:52.160 I know you're addicted to it. 0:20:52.240 --> 0:20:55.000 If it doesn't work, O Githa ruganof and thank you 0:20:55.080 --> 0:21:08.440 so much. I think I learned something there. Pierre Farragu 0:21:08.520 --> 0:21:12.920 wrote the Black Books for Bernstein and Technology for years. Yes, 0:21:13.040 --> 0:21:17.240 he's got a fancy title Global Technology Infrastructure at New Street, 0:21:17.240 --> 0:21:19.720 but the answer is once and forever he will always 0:21:19.800 --> 0:21:24.320 own the Black Books over at Alliance Bernstein Peer. Thank you, Pierre, 0:21:24.400 --> 0:21:26.960 Thank you so much for joining us. And you have 0:21:27.080 --> 0:21:31.040 been cautious on Apple. Is now a time to buy 0:21:31.080 --> 0:21:34.520 the shares? After the lassitude that we've seen over the 0:21:34.600 --> 0:21:35.520 last twelve months. 0:21:38.000 --> 0:21:42.280 I would have liked to say yes, but unfortunately, and 0:21:42.320 --> 0:21:43.920 the reason why I would have liked to say yes 0:21:44.040 --> 0:21:47.120 is because sentiment is very very low on the name. 0:21:47.160 --> 0:21:50.160