WEBVTT - Apple Makes the Right Move at the Right Time: Wedbush's Ives 0:00:01.360 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.200 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:10.360 we bring you interviews from CEO, market pros, and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Find the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple Podcasts or wherever you listen to podcasts, 0:00:17.000 --> 0:00:21.760 and on Bloomberg dot com. Let's talk a little technology 0:00:21.840 --> 0:00:24.279 to talk Apple, let's talk Uber And who better to 0:00:24.320 --> 0:00:26.960 do that with than Dan Ives Dance and Managing director 0:00:27.000 --> 0:00:30.040 for equity research at web Bush Securities. Uh, really one 0:00:30.080 --> 0:00:33.400 of our go to voices on all things technology. Dance, 0:00:33.440 --> 0:00:35.920 thanks so much for joining us here. Interesting news. I 0:00:35.960 --> 0:00:37.920 just kind of read a news story just a couple 0:00:37.960 --> 0:00:41.400 of minutes ago about Apple talking about bundling some of 0:00:41.479 --> 0:00:44.200 their services here, what can you tell us about what's 0:00:44.240 --> 0:00:47.120 actually going on with Apple and some of their services 0:00:47.159 --> 0:00:50.680 businesses which are a key to the future of this company. Yeah, 0:00:50.720 --> 0:00:52.560 and you hit the nail on the head in terms 0:00:52.640 --> 0:00:56.040 of services being so significant. That's a sixty billion dollar 0:00:56.120 --> 0:00:59.760 revenue stream next year. And I think the bundling, it's 0:00:59.760 --> 0:01:03.080 just a massively smart move by Cooking Cupertino. I think 0:01:03.160 --> 0:01:06.800 ultimately this could increase services revenues by another five to 0:01:06.920 --> 0:01:10.520 seven percent. In terms of it's all that monetizing that 0:01:10.680 --> 0:01:14.039 golden installed based That's what Apple is doing. They're very 0:01:14.080 --> 0:01:17.600 similar many ways what Amazon done with the Amazon Prime. 0:01:19.280 --> 0:01:22.080 What would they look like, because as I understand it, 0:01:22.600 --> 0:01:25.600 you know, some of them are kind of bundled already. 0:01:25.680 --> 0:01:27.560 Know you get like three or three months of this 0:01:27.760 --> 0:01:31.160 if you you know, if you're subscribed to that, and 0:01:31.440 --> 0:01:36.640 you know, maybe not exactly monthly bundling, but something similar. Yeah, 0:01:36.640 --> 0:01:39.360 I think this is really take a step back if 0:01:39.360 --> 0:01:42.920 you think about gaming, music, ultimately video you know, Apple 0:01:43.000 --> 0:01:46.040 TV plus, you know, as well as potentially iCloud and 0:01:46.120 --> 0:01:49.440 some other package services in there. I mean, as they 0:01:49.440 --> 0:01:54.640 have continued to expand their offerings, they have more content 0:01:54.720 --> 0:01:56.400 to sell and I think that's just going to increase 0:01:56.480 --> 0:01:59.280 over time. And what this is really doing, it's putting 0:01:59.680 --> 0:02:02.680 really more of a fence around their backyard, just monetized 0:02:02.760 --> 0:02:06.760 the installation and ultimately pricing it. At points where media 0:02:06.880 --> 0:02:09.760 consumer was not going to go for one or two 0:02:09.800 --> 0:02:12.280 of the bundles like an Apple News, now they will, 0:02:12.680 --> 0:02:16.160 and especially in the pandemic backdrop with the work from 0:02:16.280 --> 0:02:19.280 home and many you know, continuing to to kind of 0:02:19.280 --> 0:02:22.000 access things remotely. This is the right move at the 0:02:22.080 --> 0:02:24.520 right time for them. Hey, Dan, I want to switch 0:02:24.520 --> 0:02:26.560 gears a little bit and talk about just the gig 0:02:26.600 --> 0:02:30.440 economy writ large week again. We got some jobless numbers today, 0:02:30.520 --> 0:02:35.600 But thinking about Uber and California, UM California is talking 0:02:35.600 --> 0:02:39.359 about I guess reclassifying some of those gig workers like 0:02:39.400 --> 0:02:43.480 an Uber and Lifted drivers into employees. This is a 0:02:43.600 --> 0:02:49.080 fundamental risk to these companies, isn't it. It's not just 0:02:49.160 --> 0:02:52.280 the black cloud. It's really a future business model risk 0:02:52.760 --> 0:02:55.080 to the overall gig economy with the Uber and Lift 0:02:55.120 --> 0:02:58.120 frotain center, and it continues to be a head scratcher 0:02:58.200 --> 0:03:00.600 for many you know, if you mean many of the 0:03:00.680 --> 0:03:03.639 drivers that we've talked to you even over the last year, 0:03:04.000 --> 0:03:06.079 they don't want to be employees. That's why they work 0:03:06.120 --> 0:03:10.160 for Uber Uber itself. If they ever had to reclassify them, 0:03:10.560 --> 0:03:13.080 that could be upwards a four to five million of 0:03:13.080 --> 0:03:16.040 incremental costs per year. Obviously they're gonna fight through the 0:03:16.080 --> 0:03:18.880 court system as well as in the ballot box. But 0:03:19.000 --> 0:03:21.640 the fear is is in terms of what California is doing. 0:03:22.120 --> 0:03:25.080 It's a Pandora's box situation where other states and cities 0:03:25.120 --> 0:03:28.359 will file. Right now, we think VARs worsen the fight. 0:03:28.520 --> 0:03:31.800 But if this continues down the road and ultimately Uber 0:03:31.840 --> 0:03:34.400 that's why they might have to temporarily get out of California. 0:03:35.240 --> 0:03:38.400 It's fascinating. Will it be a president for other companies? 0:03:38.480 --> 0:03:41.960 You think? Well, I think when you think about gig economy, 0:03:42.000 --> 0:03:45.160 that's the word because it's starts to ubern Live and 0:03:45.200 --> 0:03:48.080 there's a cascading impact, and I think there's a lot 0:03:48.080 --> 0:03:50.880 of unintended consequences here, which is part of the big 0:03:50.880 --> 0:03:54.520 worry as California has gone down this head scratching route. 0:03:55.440 --> 0:03:57.960 And when you think about the gay economy, you're talking 0:03:58.040 --> 0:04:01.680 about something that's created millions of jobs and now many 0:04:01.680 --> 0:04:04.840 of them could be at risk, even on the contractor 0:04:04.840 --> 0:04:08.200 employee debate, and that continues to be a frustration, not 0:04:08.320 --> 0:04:11.880 just for the companies but obviously for investors as right 0:04:11.920 --> 0:04:14.520 now that continues to be the need to risk around 0:04:14.600 --> 0:04:17.039 these names. Yeah, so it's interesting. I mean, I guess 0:04:17.120 --> 0:04:20.240 the the argument there is clearly, hey, these folks are working, 0:04:20.240 --> 0:04:24.600 but they're not getting benefits. For example, what's the what's 0:04:24.640 --> 0:04:27.800 the argument from UH you know, the ubers and lifts 0:04:27.800 --> 0:04:31.880 and the other gig companies. The argument is, if an 0:04:31.920 --> 0:04:36.039 employee in the state of California's eye that wants to 0:04:36.080 --> 0:04:38.960 work ten hours a week, what do they do? You know, 0:04:39.000 --> 0:04:41.279 there's many of them. Like the flexible schedule might be 0:04:41.279 --> 0:04:44.320 a second job, it might be actually income for a 0:04:44.480 --> 0:04:47.800 student that's looking to save money for college. Stain. The 0:04:47.839 --> 0:04:52.160 frustration from their perspective is the flexibility is the nature 0:04:52.279 --> 0:04:55.719 of the driver model, and most drivers do not want that. 0:04:55.760 --> 0:05:00.080 And that's that's ultimately the heart of the gig econ me, 0:05:00.160 --> 0:05:03.359 which is why this is such a bewildering issue. Of Course, 0:05:03.400 --> 0:05:05.880 at a time, in a once in a hundre your 0:05:05.960 --> 0:05:09.600 pandemic where the gig economy, we believe, based on our 0:05:09.640 --> 0:05:14.599 survey work of consumers will not get into an uber 0:05:14.680 --> 0:05:18.120 or lift to a vaccines found just given safety issues. 0:05:18.400 --> 0:05:21.919 Will there be consolidation among some of these types of 0:05:21.960 --> 0:05:24.800 companies you know, Uber Lift, and of course you have 0:05:24.920 --> 0:05:29.480 other companies in the gig economy competing too. I mean, 0:05:29.480 --> 0:05:32.800 I think you will start to see some consolidation on 0:05:32.839 --> 0:05:35.440 the smaller side. Uber and Wift, I think they go 0:05:35.520 --> 0:05:38.520 about it alone. That's why profitability is so important, and 0:05:38.520 --> 0:05:41.400 that's what we've talked about yesterday. But right now to 0:05:41.440 --> 0:05:45.840 herculean but bill battle for many of these companies as 0:05:45.880 --> 0:05:48.240 they get through this environment. I do believe on the 0:05:48.240 --> 0:05:50.719 other side they will be able to navigate, but for 0:05:50.839 --> 0:05:54.120 right now, this continues to be just a massive headwind 0:05:54.120 --> 0:05:56.560 that they're facing down before we go. I have one 0:05:56.720 --> 0:05:59.800 question for you. Of all of your companies in your 0:06:00.000 --> 0:06:02.480 of the universe, the only underperform you have is on 0:06:02.640 --> 0:06:04.800 Slack Technologies, which I would have thought might have been 0:06:04.800 --> 0:06:08.560 doing pretty okay in this environment. Why own the performance? 0:06:08.560 --> 0:06:14.000 Slack a great company, obviously work from home name. Our 0:06:14.040 --> 0:06:17.200 biggest issue with Slack is the stocks had a great run. 0:06:17.600 --> 0:06:20.360 I just think with Microsoft and Redmond and teens, that's 0:06:20.400 --> 0:06:23.000 going to be a very difficult market for them to 0:06:23.080 --> 0:06:26.880 further penetrates. They go after Microsoft, a great company. It 0:06:27.040 --> 0:06:29.000 just comes down to, is a great company a great 0:06:29.000 --> 0:06:32.839 stock at this valuation. That's why we're cautious at Slack 0:06:32.880 --> 0:06:36.039 at these levels. I hear that, all right, and thank 0:06:36.080 --> 0:06:39.680 you and thanks for being so open about that particular question. 0:06:39.720 --> 0:06:43.720 I appreciated Don Ives, equity analysts at wed Bush Securities 0:06:43.760 --> 0:06:48.240 joining us it is time for Bloomberg Opinion, and for 0:06:48.440 --> 0:06:50.960 that now we bring in one of our favorite opinion columnists, 0:06:51.000 --> 0:06:53.840 and Neil Ferguson, a senior fellow at the Hoover Institution 0:06:54.120 --> 0:06:56.880 and of course Bloomberg columnist, among many many other roles 0:06:56.920 --> 0:06:59.600 that he plays in society and has played over the 0:06:59.680 --> 0:07:03.679 years in academia and elsewhere. His latest column is TikTok 0:07:03.760 --> 0:07:06.960 is a super weapon in China's Culture War. Neil, thanks 0:07:07.000 --> 0:07:10.440 for joining. I want to read out the first couple 0:07:10.440 --> 0:07:12.760 of lines of your column. It's hard to get past 0:07:12.760 --> 0:07:15.920 the initial share inality of TikTok. I spent half an 0:07:15.920 --> 0:07:17.920 hour trying to make sense of the endless feed of 0:07:18.000 --> 0:07:20.640 video snippets of ordinary people doing daft things with their 0:07:20.680 --> 0:07:23.720 dogs or in their kitchens or in the gym. That's 0:07:23.720 --> 0:07:27.000 the background. If TikTok is so inane, how has it 0:07:27.040 --> 0:07:30.040 become such a cultural lever in the sense that it's 0:07:30.040 --> 0:07:33.680 mobilized K pop fans to register for Donald Trump's Tulsa rally. 0:07:33.760 --> 0:07:36.640 It's been a pandemic favorite and suddenly, as you say, 0:07:36.680 --> 0:07:38.680 it's now got something to do with Cold War two. 0:07:40.160 --> 0:07:42.640 That's right. Well on my initial reaction, As you can tell, 0:07:42.760 --> 0:07:45.440 from the opening of the column was give me a break, 0:07:46.640 --> 0:07:50.800 it's not serious. I did some some thorough research, as 0:07:50.840 --> 0:07:53.560 a middle aged man should when confronted with an app 0:07:53.640 --> 0:07:57.800 popular with the young. My kids and I got some 0:07:57.880 --> 0:08:00.840 interesting feedback. My eight year old son said, Hey, check 0:08:00.840 --> 0:08:04.360 out the Dancing Weasel, but my twenty one year old 0:08:04.400 --> 0:08:07.800 son said, woe, it's it's toxic. I don't go near it, 0:08:07.840 --> 0:08:11.000 and that was an interesting clue. I think the key 0:08:11.040 --> 0:08:14.680 here is to recognize that this is a Chinese owned 0:08:14.920 --> 0:08:20.000 app powered by artificial intelligence that is incredibly appealing and 0:08:20.120 --> 0:08:25.280 indeed addictive to teenagers, and half of American teenagers have 0:08:25.560 --> 0:08:30.480 used TikTok. When they use it, what they're doing is 0:08:30.600 --> 0:08:35.400 essentially providing the app with data, and the app also 0:08:35.559 --> 0:08:38.640 looks for other data about them. It doesn't just sit 0:08:38.679 --> 0:08:43.000 there passively. We know from other reports that that TikTok 0:08:43.360 --> 0:08:47.559 is pretty good, rather like Facebook getting data about users 0:08:47.600 --> 0:08:50.560 from any source it can online. And so the key 0:08:50.679 --> 0:08:54.600 argument here is that we've essentially created a portal are 0:08:54.640 --> 0:08:57.320 allowed to be created, the portal through which young Americans 0:08:57.400 --> 0:09:03.000 provide all kinds of personal data, potentially embarrassing even compromising 0:09:03.080 --> 0:09:05.800 data to a Chinese controlled app. And the critical point 0:09:05.920 --> 0:09:09.600 is that TikTok is owned by a Chinese company, byite Dance, 0:09:09.920 --> 0:09:13.800 and any Chinese internet company is legally obliged to make 0:09:13.920 --> 0:09:17.640 data all data available to the Chinese government, that is, 0:09:17.679 --> 0:09:20.920 the Chinese Communist Party. And that's why this apparently silly 0:09:20.960 --> 0:09:25.480 trivial app actually is a problem, and we can't simply 0:09:25.600 --> 0:09:28.320 let it carry on the way it is, which is 0:09:28.880 --> 0:09:34.320 essentially becoming the most popular app amongst amongst young Americans. 0:09:34.360 --> 0:09:37.520 So neil I believe TikTok's response would be, hey, all 0:09:37.559 --> 0:09:40.600 of the data is on servers. None of those servers 0:09:40.679 --> 0:09:46.800 are in China. Um is that a valid kind of response. No, 0:09:46.880 --> 0:09:50.040 it's not, because it doesn't really matter where the servers are. 0:09:50.240 --> 0:09:54.440 If if she didn't, Pink calls up Uh and says, hey, 0:09:54.960 --> 0:09:59.440 we want to check out data on X because bite 0:09:59.520 --> 0:10:03.880 dance is compelled by Chinese law to to to comply, 0:10:04.200 --> 0:10:07.000 then there would be no There would be no way 0:10:07.000 --> 0:10:10.000 of their saying no. I mean, I think to be fair. 0:10:10.080 --> 0:10:13.079 John J. Ming, who is the founder of bike Dance 0:10:13.160 --> 0:10:17.000 and who had the vision to see TikTok's potential, you know, 0:10:17.080 --> 0:10:20.800 he gets a lot of credit as an entrepreneur and visionary. 0:10:20.920 --> 0:10:24.199 Facebook failed to make an app as good as this. 0:10:24.320 --> 0:10:26.920 Facebook was trying to get video right, and it missed 0:10:26.960 --> 0:10:29.440 the key point, which is that if you just let 0:10:30.040 --> 0:10:33.520 users do the content and let the AI pick the 0:10:33.559 --> 0:10:36.040 best content, you'll crush it. So you've got to give 0:10:36.120 --> 0:10:38.280 him credit as an entrepreneur, and you should give him 0:10:38.280 --> 0:10:42.760 credit also because I don't think personally he is an authoritarian. 0:10:42.880 --> 0:10:45.719 But the reality is he's a Chinese citizen. It's a 0:10:45.800 --> 0:10:48.440 Chinese company, the Chinese Communist Party. What's the data, It 0:10:48.440 --> 0:10:51.079 doesn't matter where the servers are. And by the way, 0:10:51.320 --> 0:10:55.280 you know TikTok says and it's user agreement that if 0:10:55.320 --> 0:10:59.240 you hand over data then its parent company bike Dance 0:10:59.240 --> 0:11:01.760 will have access the data. So they are open about that, 0:11:02.200 --> 0:11:04.240 and now I think is the crux of the matter. 0:11:04.400 --> 0:11:06.280 Although as you say, you know this has to be 0:11:06.360 --> 0:11:09.040 seen in a broader context. I think I would be 0:11:09.120 --> 0:11:11.880 less exercised about all this if it wasn't for the 0:11:11.920 --> 0:11:15.200 fact that we know China is now engaged in a 0:11:15.280 --> 0:11:21.480 pretty active campaign online and offline to exert influence in 0:11:21.520 --> 0:11:24.560 American culture. Really the way the Russians did back in 0:11:24.600 --> 0:11:29.079 twenty sixteen and We've seen active efforts by the Chinese 0:11:29.120 --> 0:11:34.199 government on Twitter on other platforms too, so disinformation about 0:11:34.200 --> 0:11:37.320 COVID nineteen. So this has to be seen in that context. 0:11:37.640 --> 0:11:40.280 It's not as if the Chinese government is playing no 0:11:40.920 --> 0:11:44.280 part in our culture war. It is actively involved in 0:11:44.320 --> 0:11:49.280 trying to sow disinformation in American public discourse. Neil, we 0:11:49.559 --> 0:11:53.520 finally have a tickets in Joe Biden, Kamala Harris. If 0:11:53.720 --> 0:11:57.400 that turns out to be the next you know, inhabitants 0:11:57.440 --> 0:12:01.280 of the White House and the of All Office, and 0:12:01.559 --> 0:12:03.560 you know various wings of the West of the West 0:12:03.600 --> 0:12:06.360 Wing and the East Wing, and so what have you. 0:12:06.559 --> 0:12:10.360 What happens with the China relationship, Well, I think from 0:12:10.440 --> 0:12:15.720 the vantage points of China, Biden presidency has become a 0:12:15.760 --> 0:12:19.400 lot more repealing than a continuation of the Trump presidency, 0:12:19.480 --> 0:12:22.800 because although Donald Trump started off trying to have a 0:12:22.880 --> 0:12:26.160 close personal relationship with t and thing, since the trade 0:12:26.160 --> 0:12:30.560 war started in ten things have gone rapidly downhill. And 0:12:30.600 --> 0:12:34.040 I argued at the beginning of last year that we 0:12:34.040 --> 0:12:36.120 were in Cold War two and we should, you know, 0:12:36.160 --> 0:12:39.600 stop kidding ourselves. So I think from the Chinese vantage point, 0:12:39.960 --> 0:12:42.400 they just want to get through to November three and 0:12:42.520 --> 0:12:47.040 hope that that they get an altogether less hawkish president. 0:12:47.280 --> 0:12:50.440 Kamala Harris is an interesting pick for Biden. I think 0:12:50.440 --> 0:12:53.839 from the vantage point of the tech sector, it's a 0:12:53.960 --> 0:12:56.920 kind of sigh of relief because although she's been known 0:12:56.960 --> 0:13:00.240 for her pretty aggressive questioning on Congressional committe he is 0:13:00.280 --> 0:13:03.400 in truth, I think she is as friendly a vice 0:13:03.440 --> 0:13:06.720 presidential candidate a Silicon Valley could have hoped for. So 0:13:06.840 --> 0:13:08.839 from that point of view, I think the risk of 0:13:08.880 --> 0:13:13.640 aggressive antitrust and other actions probably goes down if Biden 0:13:13.679 --> 0:13:16.000 Harris is the winning ticket. Neil, we just had the 0:13:16.000 --> 0:13:18.480 president's call reporters into the Oval office and we will 0:13:18.520 --> 0:13:20.560 could likely be hearing from him in a few moments. 0:13:20.600 --> 0:13:23.679 But there is a headline now that there is an 0:13:23.840 --> 0:13:28.200 historic deal to normalize relations between Israel and the United 0:13:28.280 --> 0:13:31.160 Arab Emirates. I'm curious as to your thoughts about how 0:13:31.160 --> 0:13:33.720 the Middle East will be reshaped, if at all, given 0:13:34.520 --> 0:13:38.520 that Israel has this new normalized relationship apparently with the 0:13:38.559 --> 0:13:42.360 United Arab Emirates. Well, this has been kind of cooking 0:13:42.480 --> 0:13:46.920 quietly for a while. Most attention has been elsewhere, and 0:13:46.960 --> 0:13:51.000 of course substantial sections the media are skeptical about the 0:13:51.040 --> 0:13:54.760 President's Middle East policy and have been from the very outset, 0:13:54.880 --> 0:13:58.440 But in reality, there's been a massive realignment in the 0:13:58.520 --> 0:14:01.480 region in the last three and years, and I think 0:14:01.480 --> 0:14:05.240 the Trump administration has done something at least to contribute 0:14:05.240 --> 0:14:08.000 to that, the main alignment being but a whole bunch 0:14:08.080 --> 0:14:11.160 of our countries, led by the U a E. Have 0:14:11.320 --> 0:14:16.880 been looking to normalize relations with Israel and focus regional 0:14:17.480 --> 0:14:21.480 security policy on Iran, which poses a threat not only 0:14:21.560 --> 0:14:25.240 to Israel but two Sunni majority states. So I think 0:14:25.280 --> 0:14:28.240 this is important and I think it actually is a 0:14:28.280 --> 0:14:31.200 success for President Trump. That don't expect to read that 0:14:31.320 --> 0:14:33.720 in the New York Times of the Washington Post this week. 0:14:34.440 --> 0:14:38.320 Neil Ferguson, senior fellow at Hoover Institution and a Bloomberg 0:14:38.320 --> 0:14:44.000 opinion calumnist. A m C right there reopening and it's 0:14:44.000 --> 0:14:46.080 been a big story this morning. Mark Lazie the other 0:14:46.120 --> 0:14:48.160 day talking about how he was looking at a MCS 0:14:48.280 --> 0:14:52.160 secured debt. And that's what I want to start with 0:14:52.200 --> 0:14:55.480 when I bring in Sally Bakewell, who's a corporate finance reporter, 0:14:55.640 --> 0:14:57.880 because one of her stories in the last couple of days, 0:14:58.040 --> 0:15:00.160 most of America is being shot out of the great 0:15:00.320 --> 0:15:03.520 borrowing binge. Ever, and this is why Mark Lazie is 0:15:03.560 --> 0:15:07.760 looking at the types of things like AMC secured debt. Sally, 0:15:07.880 --> 0:15:11.200 tell us what exactly you mean by the fact that many, 0:15:11.240 --> 0:15:15.880 many great companies are actually not able to borrow these days, Hi, Funnie. Yeah, 0:15:15.880 --> 0:15:18.240 AMC is actually a really great example that you bring 0:15:18.360 --> 0:15:22.760 up there, because like a number of companies airlines, hotels, 0:15:23.280 --> 0:15:27.320 cruise lines, it's been absolutely devastated or it had been 0:15:27.320 --> 0:15:29.960 devastated by the virus. The virus of course whites out 0:15:30.400 --> 0:15:35.320 the revenue of it and many consumer facing companies UM. 0:15:35.320 --> 0:15:38.080 And what they've been able to do, however, because they're 0:15:38.120 --> 0:15:41.080 big companies that can tack the bond market is go 0:15:41.360 --> 0:15:45.440 straight there and they've found willing invested to pay debt 0:15:45.760 --> 0:15:50.280 because the debt markets have effectively been back stopped by 0:15:50.400 --> 0:15:55.800 the vast kind of Federal reserve guerrilla UM and it's 0:15:55.840 --> 0:15:58.680 pledged to use it near limitless balance sheet to buy 0:15:58.720 --> 0:16:02.120 corporate bonds, and so that hasn't enabled all these companies 0:16:02.280 --> 0:16:06.920 kind of almost without too much discrimination, all of them 0:16:06.920 --> 0:16:09.280 have been able to hit the bond market. And we 0:16:09.360 --> 0:16:14.400 saw another fantastic example of the kind of limitless nature 0:16:14.440 --> 0:16:18.440 of it today with Apple, which is of course of 0:16:18.840 --> 0:16:21.760 a great blue ship company that would lenders would fall 0:16:21.760 --> 0:16:24.520 over themselves to Lento. But it's it's in the same 0:16:24.800 --> 0:16:27.360 group of big companies. They can hit the bond market, 0:16:27.440 --> 0:16:30.280 bond market no matter what, UM. But on the other 0:16:30.400 --> 0:16:35.160 side of that, that kind of tremendous liquidity opportunity is 0:16:35.240 --> 0:16:39.000 not mirrored for smaller firms, and that's how we're getting 0:16:39.000 --> 0:16:41.560 the fact that they're missing out. Yeah. So sadly, the 0:16:41.560 --> 0:16:44.800 smaller firms, mid sized firms, they depend less on the 0:16:44.840 --> 0:16:48.960 capital markets, more on their local banks. Are are bank lenders, 0:16:49.640 --> 0:16:53.040 and I guess they're being prudent saying, boy, in this pandemic, 0:16:53.080 --> 0:16:57.000 I gotta be tighter on my credit standards. Is that 0:16:57.080 --> 0:17:00.760 kind of what's happening here? Absolutely, that's what's happening. UM. 0:17:00.960 --> 0:17:05.000 There was a recent loan officers survey of UM some 0:17:05.040 --> 0:17:08.240 of the biggest banks where they found that loans have 0:17:08.400 --> 0:17:11.760 been tightening at the fastest pace or at the most 0:17:12.000 --> 0:17:15.520 since at least the financial crisis, and prices have gone 0:17:15.600 --> 0:17:19.240 up to so for smaller companies, they can't access the 0:17:19.280 --> 0:17:23.440 bond market, where this enormous amount of liquidity is squashing around, UM, 0:17:23.480 --> 0:17:26.760 and it's harder for them to get loan. Now, on 0:17:26.840 --> 0:17:30.439 the flip side, the Federal Reserve has come up with 0:17:30.480 --> 0:17:34.639 these other lending programs. It has the main Street Lending program, 0:17:34.680 --> 0:17:38.240 it has the Paycheck Protection program. But those have drawn 0:17:38.280 --> 0:17:43.359 criticisms for being quite difficult to access, for being complex. 0:17:43.680 --> 0:17:47.000 And actually, Paul, you raised that point. Banks don't necessarily 0:17:47.040 --> 0:17:51.000 want to be involved in them because they don't feel 0:17:51.000 --> 0:17:54.080 that they're being compensated for the risk of lending to 0:17:54.200 --> 0:17:57.560 companies that potentially if you don't know if they will 0:17:57.600 --> 0:18:01.960 be around in the next year, Sally, what happens to 0:18:02.040 --> 0:18:04.040 these companies you just said they may not be around 0:18:04.040 --> 0:18:06.560 in the next year. But there are also options like, 0:18:06.680 --> 0:18:11.680 for example, going to quote unquote vulture investors. Right, yeah, 0:18:11.720 --> 0:18:14.800 and that is another world, um, that we are seeing 0:18:14.960 --> 0:18:19.080 varying degrees of activity. Um. Of course, there are all 0:18:19.160 --> 0:18:22.840 the direct lenders, there are the distressed funds UM to 0:18:23.040 --> 0:18:26.639 varying degrees. They are jumping in opportunities. But you know 0:18:26.720 --> 0:18:30.760 that comes at the price too, So it's it's there 0:18:30.880 --> 0:18:33.199 is money there, but you probably have to pay up 0:18:33.240 --> 0:18:36.480 for it, um. And but a lot of firms a 0:18:36.480 --> 0:18:41.200 lot of investors are definitely seizing on on that opportunity 0:18:41.280 --> 0:18:45.679 as other lenders for trend so sally. This kind of 0:18:45.680 --> 0:18:48.840 causing the question again the role of the bank, the 0:18:48.920 --> 0:18:52.399 local bank. This is the time when their customers really 0:18:52.720 --> 0:18:57.800 need them. What are the banks say they are? I 0:18:57.880 --> 0:19:01.040 think they're a bit tied, because of course they have 0:19:01.240 --> 0:19:05.240 to be more risk averse. They are building up their 0:19:05.320 --> 0:19:09.719 lost provisions because they know what well they know that 0:19:09.760 --> 0:19:13.080 we don't know, um what exactly is down the road. 0:19:13.280 --> 0:19:16.399 And after the last financial crisis, which they were the 0:19:16.440 --> 0:19:20.360 epicenter of, they of course have become a lot more 0:19:20.480 --> 0:19:24.320 risk averse. Um. But then they are under this kind 0:19:24.359 --> 0:19:27.120 of pressure from the Federal Reserve two, which is trying 0:19:27.160 --> 0:19:29.720 to coax them to lend to these small and medium 0:19:29.720 --> 0:19:32.199 sized firms, which is so important to the economy. And 0:19:32.240 --> 0:19:35.040 of course you know it's it's important for banks too 0:19:35.040 --> 0:19:38.399 that those firms thrive. Um. But I think you know, 0:19:38.400 --> 0:19:41.040 when I was talking to people for this story, um, 0:19:41.080 --> 0:19:44.320 they said, you know, if you're a good customer, um, 0:19:44.359 --> 0:19:47.840 without too much risk, you know, people might banks don't 0:19:47.880 --> 0:19:51.040 necessarily want to lend to you anyway. They want to 0:19:51.080 --> 0:19:54.679 get the fees they want to get the sort of 0:19:55.280 --> 0:19:57.679 you know, higher interest rates, so you know they're in 0:19:57.680 --> 0:20:00.920 a tight spot for sure. Yeah, exactly, Sally Bakeball, thanks 0:20:00.920 --> 0:20:03.560 so much for joining us. Really appreciate a fascinating story here. Again, 0:20:03.640 --> 0:20:06.119 big companies like Apple and so on barring and historically 0:20:06.160 --> 0:20:08.120 low rates, but a lot of small and midsized businesses 0:20:08.440 --> 0:20:11.600 really finding it hard to get credit here in this pandemic, 0:20:11.640 --> 0:20:18.240 so fascinating story. Sally Bakewell, corporate financial reporter for Bloomberg News. Well, 0:20:18.280 --> 0:20:20.040 it is going to be a slightly different back to 0:20:20.080 --> 0:20:23.120 school retail season this year, if it exists at all. 0:20:23.280 --> 0:20:26.960 Let's ask somebody who has been following this and presumably 0:20:27.119 --> 0:20:30.960 has some data and at least much much better informed 0:20:31.040 --> 0:20:34.080 about what's going on out there than me. Arthur Zachowitz 0:20:34.520 --> 0:20:37.719 is Women's Where Daily executive editor. Arthur, thank you so 0:20:37.840 --> 0:20:40.920 much for joining us. What are you seeing this August 0:20:40.920 --> 0:20:43.120 as we know approach what would have been a new 0:20:43.160 --> 0:20:47.359 school year. Well, well, thanks for having me first. You know, 0:20:47.440 --> 0:20:49.600 I think what we're seeing is a lot of uncertainty 0:20:49.680 --> 0:20:53.560 and caution. Right, So, the National Retail Federation put ups 0:20:53.560 --> 0:20:56.080 some of you know, kind of estimates on back to 0:20:56.119 --> 0:20:58.880 school and they're looking at almost thirty four billion dollars 0:20:59.480 --> 0:21:03.359 impact sales versus twenty six billion last year, and the 0:21:03.359 --> 0:21:05.359 pulp bulk of that is is about ten billion in 0:21:05.440 --> 0:21:08.240 online sales. But you know, honestly, you know, I think 0:21:08.280 --> 0:21:11.199 that's kind of magical thinking, given you know what's occurring 0:21:11.200 --> 0:21:13.480 in the market right now. Yeah, Arthur, I mean, do 0:21:13.520 --> 0:21:16.840 we even have a sense of what percentage of KATE 0:21:16.960 --> 0:21:19.719 through twelve students in the US will actually be going 0:21:19.760 --> 0:21:23.359 back physically to school as opposed to remote learning? Yet again, 0:21:23.359 --> 0:21:24.920 I know some parts of the South and the West 0:21:24.960 --> 0:21:27.119 have actually and they have gone back to school, but 0:21:27.200 --> 0:21:30.040 we have a sense of what percentage nationwide. Uh, you know, 0:21:30.040 --> 0:21:32.000 I don't know that that's a great question. I know 0:21:32.080 --> 0:21:35.520 that you know, there are plans in place in certain states, say, 0:21:35.760 --> 0:21:38.800 you know, like New York, for example, has three different scenarios, 0:21:39.119 --> 0:21:41.280 you know, with many of the schools, and they just decided, 0:21:41.680 --> 0:21:43.560 you know, a couple of school districts in uh in 0:21:43.600 --> 0:21:47.359 the Hudson Valley for example, just decided to do online only. 0:21:47.400 --> 0:21:49.720 So we don't really know, and that's part of the uncertainty. 0:21:50.280 --> 0:21:52.359 I think that you know, you're seeing Plus you know, 0:21:52.400 --> 0:21:55.240 we heard I think New Roman may excuse me, new 0:21:55.359 --> 0:21:58.800 brands said that they're a little um, you know, cautious 0:21:58.840 --> 0:22:01.240 because the consumer's caution and just you know, as far 0:22:01.320 --> 0:22:03.120 as like what to buy in the shopping lists haven't 0:22:03.200 --> 0:22:06.200 even come through for a lot of school districts across 0:22:06.240 --> 0:22:10.199 the country. So this uncertainty again in the market. What 0:22:10.520 --> 0:22:13.160 runs are you hearing from that are very concerned about 0:22:13.160 --> 0:22:17.239 their future? Arthur Well, I think, um, you know, we've 0:22:17.240 --> 0:22:19.960 seen a lot of retail bankruptcies. Obviously, it seems like 0:22:19.960 --> 0:22:22.919 every other day there's another retailer going out of business. 0:22:22.960 --> 0:22:25.400 And and what's driving that is you know a lot 0:22:25.480 --> 0:22:29.840 of you know, online sales and a reluctance like consumers 0:22:29.880 --> 0:22:32.800 to go into physical stores. But you know, as far 0:22:32.840 --> 0:22:34.960 as like who's gonna you know, play out the best 0:22:35.640 --> 0:22:38.080 through the holidays and through you know, back to school, 0:22:38.560 --> 0:22:41.280 I think Target is is well positioned, right, That's that 0:22:41.480 --> 0:22:44.000 sort of that one stuff shop. You know that moms 0:22:44.080 --> 0:22:48.879 feels comfortable you know, getting essentials, getting food, getting you know, apparel, 0:22:49.040 --> 0:22:51.320 getting gifts. Uh, you know, they could go in and 0:22:51.320 --> 0:22:54.040 out in a relatively you know, safe environment that they're 0:22:54.080 --> 0:22:56.720