Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple podcast or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. I want to get
Speaker 1: over right now to Keith Rogan Nathan. She is our
Speaker 1: US media analyst for Bloomberg Intelligence. And of course we've
Speaker 1: got to talk more about what's going on with Disney.
Speaker 1: It's a big move today, and as Abigail points out,
Speaker 1: um it's a big move in general. Kind of are
Speaker 1: they winning this issue with Nelson Pelts or have they
Speaker 1: both won? Everyone's a winner, Githa, what do you think? Yeah?
Speaker 1: I agree, I think everyone is a winner. I mean
Speaker 1: a Pell's got what he wanted, uh, which is, you know,
Speaker 1: the stock price moved higher. And I think it's you know,
Speaker 1: just kind of even though it's a somewhat of an
Speaker 1: I think an unwelcome distraction for Disney when they had
Speaker 1: so much going on. It really kind of up to
Speaker 1: Bob Iger on his does and and forced him to
Speaker 1: kind of come up with the plan that he did,
Speaker 1: which he articulated yesterday, really kind of putting them now
Speaker 1: on that path to to sustainable earnings growth and profitability
Speaker 1: in the streaming business, two things that you know, investors
Speaker 1: really wanted to see very badly. Also striking to me
Speaker 1: about the earnings picture, specifically that you're seeing a pretty
Speaker 1: decent rebound in Parks in their parks business as opposed
Speaker 1: to a miss on their subscriber business. Talk to us
Speaker 1: about that divergence. It doesn't feel like we can call
Speaker 1: Disney and Media tech company anymore. I agree, pretty. I mean,
Speaker 1: if you look at just their operating results from from
Speaker 1: what they posted yesterday, hundred percent of their operating income
Speaker 1: now comes from the parks division. So I feel like
Speaker 1: it Parks still continues to be such a yes, a
Speaker 1: hundred percent. Um. You know, all of their operating income
Speaker 1: is generated by Parks because you know, whatever the linear
Speaker 1: networks were generating in operating income that was offset by
Speaker 1: the losses and the streaming division. Um, so Media really
Speaker 1: is net zero for them at this point. Um, and
Speaker 1: so everything is Sparks, and I feel like it is
Speaker 1: somewhat miss uh. I don't want to say misunderstood, but
Speaker 1: definitely underappreciated because it is such a big part of
Speaker 1: their profit equation. And what we're seeing is not just
Speaker 1: the comeback in parks, right, but we're seeing the sustained momentum.
Speaker 1: So you're looking at attendance, it was up eleven You
Speaker 1: look at a capita spending that was up last year,
Speaker 1: it was up over pre pandemic levels. But even if
Speaker 1: you look at the fiscal first quarter, it was again
Speaker 1: up about you know, eight percent or so, so again
Speaker 1: steady growth. And if you just look at US park
Speaker 1: margins thirty, I mean this was record high margins. So
Speaker 1: really they are you know, I want to say, firing
Speaker 1: on all cylinders, whether it's you know, revenue growth, whether
Speaker 1: it's extracting efficiencies in terms of costs um so Parks
Speaker 1: definitely is is just such uh you know, alliance share
Speaker 1: of the profits there for them at Disney. If I listen,
Speaker 1: I feel like they're leaving some money on the table
Speaker 1: because if I get HBO streaming, I get everything that
Speaker 1: HBO offers, or when I get Netflix or Amazon Prime,
Speaker 1: I get all of the products they offer over the
Speaker 1: box with my little app. But ESPN. If I get
Speaker 1: ESPN Plus, then I get like Division three softball and
Speaker 1: maybe some Ivy League quidditch games. Like, why is it
Speaker 1: that I can't get all of ESPN without having to
Speaker 1: fork out money that I'm that I'm unwilling to pay
Speaker 1: for some stupid old school cable package. Yeah, this is
Speaker 1: really the conundrum really for for Disney and for actually
Speaker 1: the whole media industry. Man, and you bring up a
Speaker 1: really good point. They are not able to go in
Speaker 1: or or I should say, all in on streaming when
Speaker 1: it comes to ESPN, just because ESPN really defines the
Speaker 1: linear TV bundle. So if ESPN or when ESPN makes
Speaker 1: that complete shift to uming, uh, that's pretty much the
Speaker 1: depth of the traditional TV bundle as we know it,
Speaker 1: because all of the sports rights, all of the content,
Speaker 1: you know, is with that linear ESPN networking. Remember, it
Speaker 1: still throws out about three and a half four billion
Speaker 1: dollars in cash flow year after years. So this is
Speaker 1: really a very important part of the profit story for them,
Speaker 1: or at at least it has been. It is going
Speaker 1: to be a diminishing part of it, but it has
Speaker 1: been for a long time, and they don't want to
Speaker 1: do anything to exacerbate card cutting because there still is value.
Speaker 1: I mean, even if it's generating lower IBADA, it's still
Speaker 1: throwing out cash and that that's important for business, at
Speaker 1: least for the businesses, especially when you know streaming is
Speaker 1: still um in a loss making phase. But couldn't they
Speaker 1: I mean, I would pay twenty hours a month if
Speaker 1: I could see real ESPN streaming and not have to
Speaker 1: buy a cable bundle for it. Do they make more
Speaker 1: than that on an so on a cable bundle, They're
Speaker 1: making about twelve dollars per subscriber. So so they had
Speaker 1: to do this, they had to take baby steps here,
Speaker 1: and they already did that. So they have the ESPN too,
Speaker 1: I'm sorry, the ESPN Plus product, which is you know,
Speaker 1: which really has all the non market content as you
Speaker 1: should be called n Yeah, yeah, good point, but it's
Speaker 1: all you know, the tier two sports. Uh. And the
Speaker 1: reason they can't get the n F, you can't get
Speaker 1: the NFL or you know, the the NBA or the
Speaker 1: MLB is because they want you to come back to
Speaker 1: the traditional TV package because they're they're still asking distributors
Speaker 1: to pay that twelve dollar fee per subscriber. UM. So
Speaker 1: it's gonna be interesting. I mean pricing is going to
Speaker 1: be the biggest sticking point when it comes to that,
Speaker 1: you know, streaming product. Where are they going to price
Speaker 1: ESPN plus? You know, our customers used at twenty dollars.
Speaker 1: I mean, I don't know how many customers would be
Speaker 1: willing to pay twenty dollars. So that is really something
Speaker 1: that they need to evalue it very closely. But I
Speaker 1: think just with them kind of separating out ESPN as
Speaker 1: as a segment by itself kind of definitely paved the
Speaker 1: way for them to do something much strategic with it,
Speaker 1: either you know, a spin a sale or or that
Speaker 1: big bush into streaming, maybe combining it with supports betting.
Speaker 1: We have to wait and watch. I have betting drives
Speaker 1: viewership for sure. Keith, thanks so much for joining us. KEITHA.
Speaker 1: Royan Nathan. There are US media analysts for Bloomberg Intelligence
Speaker 1: walking us through what's going on with Disney. We've all
Speaker 1: heard about quiet quitting, and surely it's on the rise
Speaker 1: now in bonus season. If you don't get what you
Speaker 1: want and you can't get a raise, you're less likely
Speaker 1: to quit your job, but you might as well just
Speaker 1: not give up anymore. UM. Quiet hiring is a term
Speaker 1: I've never heard before until now, and that's why we're
Speaker 1: gonna bring in Emily Rose, Senior director of Research at
Speaker 1: Gartner um n y I C ticker I T for
Speaker 1: Gartner if you want to check out the business there. Emily,
Speaker 1: thanks so much for joining us. What is quiet hiring
Speaker 1: so quiet hiring is how organizations are addressed in the
Speaker 1: fact that we've got a massive talent shortage while also
Speaker 1: some economic uncertainty by using the talent they have in
Speaker 1: house or contractors to add get the skills they need
Speaker 1: where they need the most without adding full time headcount.
Speaker 1: So they so they they're outsourcing, well, it could be
Speaker 1: outsourcing UM, but usually what we're actually seeing is a
Speaker 1: lot more of Okay, this part of the business is
Speaker 1: incredibly important to us. We're going to move talent over
Speaker 1: to make it happen. UM. You've seen examples from the
Speaker 1: airline industry where anyone who has an office job is
Speaker 1: being paid extra to take a shift as a bag
Speaker 1: of chandler Um or if it's not operational priorities, it
Speaker 1: might be strategic priorities. To say a business decides we
Speaker 1: desperately need data scientists. We know the hiring kinmeline for
Speaker 1: them is maybe nine months long or longer. So rather
Speaker 1: than cut our goals for the year and say we're
Speaker 1: just not going to meet them because we couldn't get
Speaker 1: the talent we need, We're going to go take some
Speaker 1: analysts from HR and Marketing who have some of the
Speaker 1: skills that we need and move them over and have
Speaker 1: them do some of the data science work and then
Speaker 1: either upskill them, maybe run them through a quick boot camp,
Speaker 1: or redesign the work a little bit so that either
Speaker 1: a contractor or someone else with the organization can do
Speaker 1: the parts of the role. But we can't do contractors.
Speaker 1: That's the thing I understand the bringing in contract work
Speaker 1: that makes sense and nothing new, um is are we
Speaker 1: in an environment where people are scared to add to
Speaker 1: headcount for you know Wall Street reasons. You don't see
Speaker 1: stocks jump when you add seven thousand people. You do
Speaker 1: see stocks jump when you cut seven thousand people. Is
Speaker 1: that why they might want to do this quietly? Exactly?
Speaker 1: So this is essentially a response to the fact that
Speaker 1: Wall Streets watching, Your stakeholders are watching and and not
Speaker 1: wanting to have massively high labor costs just skyrocket at
Speaker 1: this particular point in time, but also the fact that
Speaker 1: the work still needs to get done. So does that
Speaker 1: shop up in something like the seventeen thousand jobs we
Speaker 1: were got reported on on Friday. Is that something that's
Speaker 1: showing up in the data or is this kind of
Speaker 1: a great spot or a blind spot for the labor economy. Um,
Speaker 1: So this is something that you might not necessarily see
Speaker 1: in the job's numbers, because if someone's moving internally, um,
Speaker 1: it doesn't necessarily look like a job was added, but
Speaker 1: they are affecting that. Assuming that this goes well for
Speaker 1: someone and they're able to perform in the role, they're
Speaker 1: going to be more likely to stay at the organization
Speaker 1: and maybe move upwards, which is going to then, of
Speaker 1: course keep them from hopefully joining the labor market and
Speaker 1: going to another organization and raise their pay. Right because
Speaker 1: if I'm middle management but also a baggage handler, I'm
Speaker 1: going to want more me for that. You know, if
Speaker 1: I'm an analyst, but now I'm a data scientist, I
Speaker 1: feel like we deserve a bump. Yes, especially because data
Speaker 1: scientists are notoriously well paid compared to your typical HR
Speaker 1: marketing analyst. So this is somewhere where organizations have to
Speaker 1: see the that side of the coin. It's not enough
Speaker 1: to say we're gonna move you over because it's a
Speaker 1: strategic priority. So that's quiet hiring to pay people, So
Speaker 1: that's quiet hiring. Emily, what is the extremely loud hiring
Speaker 1: that we saw last Friday. What's going on with this
Speaker 1: labor market where we just continue to add more jobs
Speaker 1: than expected even as the Fed tries to raise rates
Speaker 1: and tighten financial conditions, and we see a florry of
Speaker 1: pink slips coming out of the West Coast and the
Speaker 1: Magic Kingdom. Yeah, so I can't speak to specific organizations,
Speaker 1: but in general with these layoffs, they're actually strikingly as
Speaker 1: difficult as they might be for the people going through
Speaker 1: them and their colleagues who are left behind, they are
Speaker 1: a small percentage of the workforce and so they make
Speaker 1: a lot of news, but they don't actually have a
Speaker 1: massive impact on a lot of our jobs numbers. And
Speaker 1: what we are seeing is that and the reason the
Speaker 1: jobs numbers are going up is pointing to that talent
Speaker 1: shortage that's driving quiet hiring, which is people desperately need
Speaker 1: talent and are constantly adding it. But what about the
Speaker 1: intangibles here, things like more sickly, unlimited sick days, more
Speaker 1: vacation time, whatever. The other intangibles are that a lot
Speaker 1: of these unions, for example, are really pushing for or
Speaker 1: how do you even factor that in so creating Those
Speaker 1: are actually great examples of how an organization might go
Speaker 1: about compensating someone or a group of people that they're
Speaker 1: moving over when they don't necessarily have the budget to
Speaker 1: do a massive compensation change. Maybe it's a one time bonus,
Speaker 1: maybe it's more flexibility, maybe it's more um pto. Whatever
Speaker 1: it is, you have to compensate people. As you value
Speaker 1: them enough to move them over, you're gonna want to
Speaker 1: keep them. But does that then have the same effect like,
Speaker 1: for example, is there a tradeoff then like I will
Speaker 1: be willing to take less pay as as Matt brings
Speaker 1: up if you give me these added benefits. Is there
Speaker 1: a way to see that trade off? Oh? Absolutely, And
Speaker 1: you can actually quantify it, so you can look at
Speaker 1: something and say, Dave pto is worth this much in salary,
Speaker 1: both in terms of what people are actually able to
Speaker 1: willing to trade off, so how they perceive it, and
Speaker 1: also what is the dollar value to the organization love
Speaker 1: to see that equation. Let's talk about raises and bonuses, UM,
Speaker 1: you know, beyond Wall Street, just generally in the American economy,
Speaker 1: as so many people are hired, um, and as we
Speaker 1: see so much UH inflation, employees are gonna want bumps.
Speaker 1: But I guess employers are going to be a little
Speaker 1: bit worried about the possible recession that that we're heading into,
Speaker 1: so there is likely to want to give those boosts
Speaker 1: to salary. What what are you seeing? We are seeing
Speaker 1: that the annual raise, particularly if it's the cost of
Speaker 1: living as opposed to a merit raise, is less than
Speaker 1: the current state of inflation in general. But of course
Speaker 1: accepting if there's a a union agreement that requires it
Speaker 1: to be tagged to annual inflation rates UM. So we
Speaker 1: are seeing that, And then associated with that is the
Speaker 1: lower that rate is UM, the more likely that organization
Speaker 1: is to see turnover. What does that then? Is that
Speaker 1: equivalent across all sectors? Are you seeing that or even
Speaker 1: the concept of quiet hiring more predominant in certain parts
Speaker 1: of the economy. So I would say that quiet hiring
Speaker 1: is a little bit less predominant right now in some
Speaker 1: of the larger tech organizations that are having layoffs because
Speaker 1: they are obviously dealing with a slightly different situation than
Speaker 1: a talent shortage. But for most organizations, we see this
Speaker 1: a lot. It's in some ways it's a little bit
Speaker 1: easier to do on site with on site workers. But
Speaker 1: we see this for desk based workers, we see this
Speaker 1: for deathless workers. We see this across industries. Where it's
Speaker 1: easier to do is where you have multiple business units.
Speaker 1: So say you can move someone when you decide to
Speaker 1: d prioritize a business unit, you can move people to
Speaker 1: the business unit you've prioritized. It's a little bit harder
Speaker 1: if you're extremely small as an organization. So coming back
Speaker 1: to the office, you mentioned desk less or desk spake
Speaker 1: space workers. Um is coming back to the office. I
Speaker 1: mean everyone's going to have to do or have we
Speaker 1: entered a new normal where a lot of people are
Speaker 1: going to work from home multiple days a week. I
Speaker 1: just wonder, because you know, if we do hit a recession,
Speaker 1: I've heard a lot of people say that's when companies
Speaker 1: are going to make people come back. They can try. Um,
Speaker 1: what we've seen is that that has not worked. So
Speaker 1: saying you're going to come back to the office. Here
Speaker 1: the days of the week we want to see you.
Speaker 1: Is they're very few situations where I've talked to clients
Speaker 1: about this and they've said it's going great. And part
Speaker 1: of it is that you have to actually explain now
Speaker 1: why someone should be coming into the office if they
Speaker 1: don't need to, and recognizing that actually by working remotely,
Speaker 1: they're saving on their transportation costs, their lunches, all of
Speaker 1: the different wear and tear on their clothing, and there
Speaker 1: their car or however they're getting into the office. All
Speaker 1: of these little things that add up, and also the
Speaker 1: convenience in many cases of working from home. So if
Speaker 1: you want to bring people into the office, one you
Speaker 1: may need to actually compensate them even more to get
Speaker 1: them there. But also you're gonna want to design those
Speaker 1: in office days very intentionally so that you're actually giving
Speaker 1: people a reason to want to be there. So rather
Speaker 1: than come into the office and do exactly what you're
Speaker 1: doing at home, just because we think it would be
Speaker 1: really nice if you somehow saw other people who you
Speaker 1: may not see because they may not have the same
Speaker 1: in office day as you. They need the actually organizations
Speaker 1: need to be saying when you're in the office, this
Speaker 1: is what we want from you. Here's how we've planned
Speaker 1: your day so that you will get these experiences we're
Speaker 1: looking for. All Right, Emily, great having on the program.
Speaker 1: Thanks so much for joining us. These topics I think
Speaker 1: are interesting too. Very many people for for for for
Speaker 1: some obvious reasons. Let's get over to Mike Vogel, saying
Speaker 1: right now he joins us from Cap Trust, where he's
Speaker 1: chief investment officer and managing director. Mike, what do you
Speaker 1: think of this rally that we've seen from the October lows.
Speaker 1: I'm hearing a growing chorus of warnings from you know,
Speaker 1: very traditionally conservative parts of Wall Street. Yeah, it's a
Speaker 1: great question. Matt it Crety, thanks for having on. I
Speaker 1: think I think the issue is, you know, you're just
Speaker 1: talking about the recession and the inverted yield curve. You know,
Speaker 1: there's pretty much everything is pointing towards slower economic output
Speaker 1: coming for the rest of this year except for employment. Right,
Speaker 1: We've we've every time the eeld curves and lay inverted,
Speaker 1: we've had a recession, but we've never had a recession
Speaker 1: with employment this strong. So which one of those two
Speaker 1: is gonna win out. That's that's the battle on Wall
Speaker 1: Street today as we're talking, um, you know, the the rally,
Speaker 1: we think is a little bit of a knee jerk
Speaker 1: reaction from from just a you know, horrible, no good,
Speaker 1: very bad year last year and twenty two. And as
Speaker 1: a result, we've we've seen you know, the sort of
Speaker 1: the January effect on steroids a little bit. Um. We're
Speaker 1: we're we're of the belief that inflation is peaked, the
Speaker 1: Federal Reserve isn't going to be as aggressive as as
Speaker 1: um you know, we sort of thought that were going
Speaker 1: to be three or four months ago, and I think
Speaker 1: you're seeing that in the equity markets. But um, we
Speaker 1: we still believe that at some point, weaker earnings, softer
Speaker 1: economic growth, and and um high valuations are going to
Speaker 1: end up causing some problems and ingestion for the market
Speaker 1: this year. So we're just trying to be really patient
Speaker 1: and spick our spots when we want to add. But why,
Speaker 1: but why do we see you know, if we're seeing
Speaker 1: all these um, you know, bad signs in the data. Um,
Speaker 1: in terms of economic growth, why do we see such
Speaker 1: huge games and hiring. Well, that's that's exactly the dilemma.
Speaker 1: We've never seen this before. And you know, we're having
Speaker 1: we're having a discussion in our offices this morning about
Speaker 1: about this very things like what what has changed about
Speaker 1: the employment picture? Maybe it's the fluidity or lack of
Speaker 1: friction and employment. You can go, Hey, if you lose
Speaker 1: your job, you can go become an uber driver by
Speaker 1: four o'clock that afternoon. Right, There's there's the there's the
Speaker 1: ability to bounce around and move. We've had we've had
Speaker 1: people leaving the job market on on sort of different
Speaker 1: in a different end, right, the demographic spectrum. The older
Speaker 1: workers have left, uh in a lot of ways. Is
Speaker 1: there something different? I don't think we have an answer
Speaker 1: to this. We're just positing the question. Is there something
Speaker 1: different about the about the employment market in today's world
Speaker 1: that is changing the to use a technical word, the
Speaker 1: Phillips curve that the federal reserve uses, right, are we
Speaker 1: going to see a recession while employment stays high? We're
Speaker 1: are we going to see employments say high and pull
Speaker 1: us out and not allow us to go into recession?
Speaker 1: All of those things are on the table, and and
Speaker 1: and you know, for for people who are simply saying,
Speaker 1: you know, this is a one directional market. Now the
Speaker 1: Feds cut rates, and we're gonna the Feds going to
Speaker 1: cut rates, and and you know, the long term part
Speaker 1: of the curves is much lower now, and therefore you
Speaker 1: can bid up prices on the equity markets. We we
Speaker 1: just think that's that's just not how it's gonna play. Cratty.
Speaker 1: I've always loved the idea that if you lose your job,
Speaker 1: that's a recession. If I lose my job, that's a depression.
Speaker 1: But if neither one of us loses our jobs, Mike,
Speaker 1: let's apply all of those great questions to uh, the
Speaker 1: the market here. I mean, Matt started off this segment
Speaker 1: by talking about this two tons in version. Do you
Speaker 1: put any stock in it? Do you believe that this
Speaker 1: is still the signal it was, say ten years ago.
Speaker 1: Let's be clear, right, it's really it's really simple to
Speaker 1: get causality reversed. Um, it's not yield curve that causes
Speaker 1: a recession. It's a signal of some things that are
Speaker 1: going on in the markets that mostly the federal reserve
Speaker 1: tightening interest rates, that that has historically has led to recession.
Speaker 1: So don't you know don't confuse causality here. They're they're
Speaker 1: very often temporal or contemporaneous, so it's it's important to
Speaker 1: keep that clear. Just because we were in an in
Speaker 1: an inverted yield curve doesn't mean that we're gonna go
Speaker 1: in recession. It just means the FED has been aggressive
Speaker 1: because we had this a bout of inflation. It's also
Speaker 1: hard to separate out the impact of COVID that we've had.
Speaker 1: We've never been through this cycle before. We're still dealing
Speaker 1: with the ripples and after effects of COVID, you know,
Speaker 1: the COVID, the COVID rock that was thrown into the
Speaker 1: pond here is still creating big waves and and and
Speaker 1: having impact on labor markets and on on on inflation
Speaker 1: and so on. So that that is all that is
Speaker 1: all playing out, and our jobs market participants and analysis
Speaker 1: just sort of sorts through that and come up with
Speaker 1: our best estimate for where we might play where this
Speaker 1: might play out. But again, you don't need to look
Speaker 1: any further than we've we've you know, recessions have been
Speaker 1: have been signaled every time by an inverted yield curve,
Speaker 1: and we've never had a recession when employments this strong,
Speaker 1: which which of those two immovable forces are gonna are
Speaker 1: going to be proved to be movable? Right? So what
Speaker 1: do you do as an investor right now? I mean,
Speaker 1: if you're building a portfolio for say a new client
Speaker 1: comes in with a million bucks, where do you where
Speaker 1: do you put it? Yeah? Well, let let me give
Speaker 1: you a little context. So last year we were we
Speaker 1: were in really good shape. We were we felt super
Speaker 1: smart and super confident and super smug about about how
Speaker 1: well we did for clients because we were very conservative
Speaker 1: and and and and you know, um expected the markets
Speaker 1: of struggle. Um. Now, the problem is that same sense
Speaker 1: of smugness has become a quickly of fear of missing
Speaker 1: out because we're still conservatively positioned. So you know, full
Speaker 1: full disclosure here, right, those who felt super smart last
Speaker 1: year are feeling pretty stupid this year. And that's the
Speaker 1: way Marcus work, of course. And and um, so the
Speaker 1: question is in and I sort of sort of led
Speaker 1: with this a bit a minute ago that while the
Speaker 1: markets generating FOMO and it's gradually pulling people into the market, um,
Speaker 1: we're we're still remaining fairly conservative on our We have
Speaker 1: a we have a fairly high cash position, and are
Speaker 1: all equity portfolios for example. Um And and we're we're
Speaker 1: holding onto that because we just think we're gonna get
Speaker 1: opportunity later in the year. We just think that at
Speaker 1: some point, falling earnings and they are falling, right, the
Speaker 1: estimates are coming down. Um. You know, the FED, the
Speaker 1: Fed's work is probably mostly done. We'll see if they
Speaker 1: get to five five and a quarter, maybe even five
Speaker 1: and a half if employment stays high. But inflation seems
Speaker 1: to have come off really hard. Um And and you
Speaker 1: know that holds that whole mix, that holds stew is
Speaker 1: gonna end up creating some air pockets in the markets
Speaker 1: at some point. And and we we will likely, depending
Speaker 1: on facts and circumstances, get more aggressive when we get
Speaker 1: that chance. All right, Mike, thanks so much. Michael Olgising,
Speaker 1: their chief investment officer and managing director at Cap Trust,
Speaker 1: talk to us about some other earning stories. For example,
Speaker 1: Kellogg came out today. Uh maker. I think of them
Speaker 1: as the maker of corn flakes. Oh my god. Kayley
Speaker 1: Lines is leaving the building right now. I'm watching, We're
Speaker 1: watching out the Interactive broker studio. Kayley Lines is moving
Speaker 1: to Washington, d C. Today was her last day in
Speaker 1: the New York studio. This is really sad, guys. She
Speaker 1: is a She is a like what is it a
Speaker 1: super star? A Hallmark? I think of Bloomberg Television. Fun fact,
Speaker 1: before I wasn't hired at Bloomberg, I called up Kayley
Speaker 1: and I was like, Kayley, will help me with the
Speaker 1: interview to get this job. And she did. From my
Speaker 1: Charletsville dorm room at u v A. Right because it
Speaker 1: gives you. And almost half of Bloomberg staff worldwide went
Speaker 1: to u v A. It's just me. Did you go
Speaker 1: to uv A too? I did not. I went to
Speaker 1: Texas A. Wow, congratulations were going to a different college
Speaker 1: and everyone else. All right, let's get back to Kellogg
Speaker 1: corn flakes maker. Um, they came out with earnings today.
Speaker 1: What do you see? Yeah, so it's sales actually rose
Speaker 1: about twelve percent. So when you're thinking of Kellogg, you're
Speaker 1: thinking rice, crispies, cereal, cheese at crackers. Um. It's also
Speaker 1: has been raising its prices, similar to see these other
Speaker 1: consumer goods makers to really offset these higher costs. But
Speaker 1: that's something that is stuck out when you're looking at
Speaker 1: these these companies right now that how they're continuing to
Speaker 1: deal with it, some of them better more so than others.
Speaker 1: But as far as when it comes to the package
Speaker 1: good companies, that's been a big focus. And then something
Speaker 1: I wanted to point out, Matt, because I know you
Speaker 1: like to keep an eye on what happens with these
Speaker 1: auto makers, a Tesla in particular. I mean, we already
Speaker 1: had their earnings recently, but it actually it's stock has
Speaker 1: doubled from its low that was touched in early January,
Speaker 1: so it's basically up over a percent from its lows
Speaker 1: last year. That stock actually had plunged sixty five percent.
Speaker 1: A lot of that is on different optimism as far
Speaker 1: as these uh Actually the Biden administration said it will
Speaker 1: expand this newly revamped EV tax credit to allow SUVs
Speaker 1: costing up to eighty thousand dollars to receive those types
Speaker 1: of credits. But I know you focus a lot when
Speaker 1: it comes to the automakers. So it's curious kind of
Speaker 1: your thoughts on Tesla, what's going on there and this
Speaker 1: big rebound obviously we've seen this year compared to what
Speaker 1: had happened. The thing is, these are seven thousand, five
Speaker 1: hundred dollar rebates for buying logri cars. So this is
Speaker 1: a material amount of money for most consumers, right, and
Speaker 1: if you're going to buy a car that costs you know,
Speaker 1: forty fifty thousand dollars, that's a huge um. Yes, and
Speaker 1: so uh, the government has been so slow to come
Speaker 1: out with these rules. I want to buy a bmw
Speaker 1: X five right now. They make a hybrid version of it,
Speaker 1: and I'm just waiting to see if I'm really going
Speaker 1: to be eligible, because the worst thing would be to
Speaker 1: buy the car and then to find out from my
Speaker 1: accountant at the end of the year or the beginning
Speaker 1: next year, oh no, you're not eligible, and now the
Speaker 1: car costs me sevent more. I think Tesla is going
Speaker 1: through this same thing. Um. You know, a lot of
Speaker 1: the even American carmakers, if they don't get the right
Speaker 1: percentage of materials um in the battery from you know,
Speaker 1: North American or US friendly nations, they're not going to
Speaker 1: get the rebate. And so no one really knows what's
Speaker 1: going on. So it's hugely important that we get that direction.
Speaker 1: Jeff menton Uh from Texas and m thank you so
Speaker 1: much for joining us. Also, she's in charge of stocks
Speaker 1: coverage for Bloomberg News. Let's get to a couple of
Speaker 1: socks stories right now. We talked about Kellogg a little bit,
Speaker 1: and Jennet Jennifer Bartosh is going to join us on
Speaker 1: that senior industry analyst UM for Bloomberg Intelligence. Also talk
Speaker 1: a little bit about gaming and lodging because Hilton came
Speaker 1: out beating estimates as well as resilient consumers and uh
Speaker 1: paid up in an increase in corporate travel, pushed hotel
Speaker 1: prices higher as well. Um, thanks so much for joining us.
Speaker 1: Brian and jen Let's start with Hilton because we haven't
Speaker 1: really really gone through the story yet. Brian, what is it? So?
Speaker 1: You know, Hilton had a good quarter as well as
Speaker 1: a pretty favorable outlook for next year going I should say,
Speaker 1: for this year. Uh, you know, there's a little bit
Speaker 1: of note of caution that they're accounting for the possibility
Speaker 1: of a of a second half twenty three slow down.
Speaker 1: Our economic recession doesn't stop them from having very nice
Speaker 1: games and net rooms and and revenue per available room.
Speaker 1: But overall, you know, pacing nicely both in terms of
Speaker 1: both leisure and business travel. What does that that mean
Speaker 1: for something like when we're talking about consumer and the
Speaker 1: willingness to spend is Hilton basically telling us that we're
Speaker 1: in the clear. I don't think they're saying necessarily were
Speaker 1: in the clear. We've come a long way, particularly in
Speaker 1: markets like the US and europri in terms of revenue
Speaker 1: per rail room increasing. That's all acknowledging that if we
Speaker 1: have economic slowdown in the second half, we could kind
Speaker 1: of slow at the margin. Also from a global perspective,
Speaker 1: Bear in mind, while I think the removal of travel
Speaker 1: restrictions in China will eventually help in the short term,
Speaker 1: you know, China revenue for available room still deeply underwater
Speaker 1: relative to pre pandemic. Well, elso, mostly because the initial
Speaker 1: effect of the relaxation of travel curse has been kind
Speaker 1: of a new round of COVID nineteen outbreaks. Well, Jennifer,
Speaker 1: hop on in here and give us a little bit
Speaker 1: more insight on kind of your take on on all
Speaker 1: of this, is that do you share that assessment that
Speaker 1: this is maybe not the all clear signal. Well, I
Speaker 1: think that we see a lot of mixed signals, and
Speaker 1: it really depends on what group of consumers you're looking at. Um,
Speaker 1: there is really a bifurcation in the in the US
Speaker 1: consumer and so those that are more well off or
Speaker 1: that are you know, involved with business travel UM, you know,
Speaker 1: those those signals may be strong. UM. For those who
Speaker 1: are at the lower end of the income spectrum, it's
Speaker 1: still a complicated story. And food inflation in particular, along
Speaker 1: with just overall higher cost of living has has really
Speaker 1: crimped budgets and made people a lot more cautious about
Speaker 1: where they're spending and how they're spending well. And you
Speaker 1: can see that difference in the stocks right because Hilton
Speaker 1: is up like twenty percent year to date. I know
Speaker 1: we're only at the beginning of February, but Kellogg is
Speaker 1: off five and a half percent year to date. Now
Speaker 1: the picture looks different UM last year, right, Hilton had
Speaker 1: a down year I think last year UM and Kellogg
Speaker 1: had had a strong year last year. Jen, Why do
Speaker 1: you see that bifurcation in terms of the stockments. But
Speaker 1: when you when you're looking at the companies and the
Speaker 1: space in which they play, UM, you know, the consumer
Speaker 1: has gotten less and less tolerant of higher priced food
Speaker 1: and so people at one point had pantries that were
Speaker 1: overflowing with goods so that they could go and they
Speaker 1: could select things at any given time to cook and prepare.
Speaker 1: They're much more selective now. Pantry sizes in kitchens are
Speaker 1: smaller UM, and people are being more selective about what
Speaker 1: they're buying and trying to control that food spent because
Speaker 1: of that high food inflation and the sense that prices
Speaker 1: are just too high UM and so that's impacting these
Speaker 1: package truth companies that didn't impact the retailers involved in
Speaker 1: the space that such as the grocer's UM and companies
Speaker 1: like Walmart and and her Target as well. We'll hop
Speaker 1: back in here, um Brian and talk to us a
Speaker 1: little bit about I guess the dynamic that gen is
Speaker 1: talking about. She's talking about it from a commodity perspective,
Speaker 1: but it feels like even a company like Hilton, for example,
Speaker 1: even the travel companies are going to be dealing with
Speaker 1: those margin pressures as well. Walk us with the numbers
Speaker 1: on that. That's definitely been a concern, although there was
Speaker 1: a comment on the Hilton earnings call which just ended
Speaker 1: that they're seeing a little bit maybe some moderation and
Speaker 1: some of the wage cost pressures of the tight labor market,
Speaker 1: which may very well reflect what we see happening. For example,
Speaker 1: in other sectors like retail, where maybe you know, some
Speaker 1: staffing levels are being normalized after a kind of the
Speaker 1: COVID demand impact. So if anything, although labor cost pressures
Speaker 1: throughout the service industry remain an issue, we may see
Speaker 1: a little bit of relief as in fact, you know,
Speaker 1: there's a little bit of flak in terms of the
Speaker 1: labor market. What's the outlook for these companies if we
Speaker 1: hit a big recession. I imagine Brian um, fewer people
Speaker 1: are going to check into Hilton it's a higher end
Speaker 1: hotel obviously, and more people are going to be eating
Speaker 1: corn flakes. I would agree with that. Yeah, Hilton has
Speaker 1: you know, first part does have high and hotels that
Speaker 1: also has a lot of kind of a comedy economy
Speaker 1: and limited service brand, so they kind of played the
Speaker 1: full spectrum of the market. You know, they are still
Speaker 1: expecting revenue for eloping room to be up on average
Speaker 1: three verses, so you're definitely looking for an up year,
Speaker 1: but it's probably gonna come more from North American and
Speaker 1: Europe than Asia, and there is factoring in the possibility
Speaker 1: that the room rate uh support of all that growth
Speaker 1: may slacken off a little bit in the second half
Speaker 1: if we do have a recession, and they're allowing for
Speaker 1: that possibility, but at least we go into the first half.
Speaker 1: You know, certainly with the man conditions in North America
Speaker 1: feeling quite favorable compared to where we were a year
Speaker 1: or two back. I'm glad you mentioned the North America
Speaker 1: piece of the equation because we have, of course, we're
Speaker 1: covering Disney earnings for example, all rarning long and one
Speaker 1: of the big stories there is the US versus International
Speaker 1: component does about Hilton from an international perspective, So you know,
Speaker 1: the trends really were were quite mixed. If you look
Speaker 1: at the trends in the quarter just reported, you know,
Speaker 1: the revenue prevailable room compared to let's say the four
Speaker 1: Q nineteen before the pandemic, it was up eight percent
Speaker 1: in the US, it was up to that benchmark in Europe,
Speaker 1: but it was down in Asia, and that's because China
Speaker 1: was down thirty seven percent. So again there's really some
Speaker 1: quite significant disparities across regions. If you compare, for example,
Speaker 1: the fourth quarter of twenty two to the fourth quarter
Speaker 1: of jen what about um Kellogg, How do they look
Speaker 1: when you divide them up by regions? I always think of, uh,
Speaker 1: you know, corn flakes is North American product, but I
Speaker 1: know that they sell that race Christy's and everything else
Speaker 1: overseas as well. They do. And when you look at
Speaker 1: the international portrait for for kellog Um, there are pockets
Speaker 1: of very strong growth which include Latin America and parts
Speaker 1: of they're emerging markets segment, especially in Africa and in Asia. UM.
Speaker 1: The region that's most pressured out of their entire global
Speaker 1: business right now is Europe UM. And part of that
Speaker 1: is still stemming from uh, you know, issues related to
Speaker 1: the Ukraine Russia war UM, but it's also that the
Speaker 1: consumer in Europe has been pulling back faster than in
Speaker 1: other regions, and so they're seeing that those customers are
Speaker 1: even more stressed um than we're seeing in in areas
Speaker 1: like the United States. All right, Jen, thanks so much
Speaker 1: for joining us. Jen Bartasha is there from Bloomberg Intelligence
Speaker 1: as well as Brian Egger also Bloomberg Intelligence. He covers
Speaker 1: gaming and lodging for us. I want to get to
Speaker 1: Matt Smith right now. He's an investment director at Ruffer
Speaker 1: and he joins us here in our interactive broker studio,
Speaker 1: even though he's normally a globe trotting master of the universe.
Speaker 1: Why are you here, Matt In in New York right now?
Speaker 1: I'm here as the manager of the fund we launched
Speaker 1: for US clients at the beginning of last Yet, what
Speaker 1: what's the fun focus on? So? Ruffer is a single
Speaker 1: strategy firm. We are the biggest global macro fund you've
Speaker 1: never heard of, at thirty two billion dollars. So this
Speaker 1: fund follows our single strategy and makes it available to
Speaker 1: US clients for the first time. What is that strategy?
Speaker 1: Good question. We are looking to deliver positive absolute returns.
Speaker 1: So isn't that what off helping? Well, there's a pretty
Speaker 1: big focus on relative returns out there. We're trying to
Speaker 1: not lose money. That's our primary goal, which seems almost
Speaker 1: comically unambitious, But it turns out that if you can
Speaker 1: do that and deliver decent returns on top, you will
Speaker 1: compound pretty powerfully. So you're not still worried about a benchmark.
Speaker 1: You're mainly worried about the zero bound. You don't want
Speaker 1: to go below it. That's correct, That which means what
Speaker 1: a lot less risk? I would imagine It means that
Speaker 1: we start portfolio construction from the perspective of risk minimization
Speaker 1: rather than return maximization, which is what most people would
Speaker 1: would think to do. Okay, so you're a macro fund.
Speaker 1: Where are you putting your money right now? So I
Speaker 1: think you can break it down into three different places.
Speaker 1: Are key structural trade, which I'm going to put in
Speaker 1: the FED capitulation bucket, is that no central bank in
Speaker 1: developed markets has got the political or popular mandate to
Speaker 1: genuinely get rid of inflation. They are all having a go,
Speaker 1: but we think when push comes to shove, the pain
Speaker 1: of dealing with inflation is still much greater than the
Speaker 1: pain of inflation itself, and that will take some time
Speaker 1: until that changes. So what does the portfolio result of
Speaker 1: that look like. It's an allocation to thirty and fifty
Speaker 1: year US and UK inflation link bonds. So really what
Speaker 1: we want is the inflation expectation which currently sits it
Speaker 1: around too that the breaking and we think that that
Speaker 1: reflects the market's belief in total FED credibility. And as
Speaker 1: that gets called into questions as people think, okay, inflation
Speaker 1: is not going to be two over the long term,
Speaker 1: maybe it could be three or four, those assets should
Speaker 1: should do pretty well. Did you hear David Rubenstein talking
Speaker 1: to j Pale the other day. He was like, why
Speaker 1: not three? Three seems good to me? Three doesn't seem
Speaker 1: good to me. Two doesn't even seem good to me.
Speaker 1: But I don't like inflation at all. But Rubenstein actually
Speaker 1: asked that question right, He said, like, why are we
Speaker 1: even shooting for two percent? Is that even a fair
Speaker 1: global standard of how It's like, well, that's the standard,
Speaker 1: he said. He said, why is it? And pal said
Speaker 1: because it's the global standard. There wasn't a better answer
Speaker 1: than that, just it is what it is. I think
Speaker 1: one of the most entertaining dynamics is that Wall Street,
Speaker 1: like cell side inflation expectations are totally in line with that,
Speaker 1: and it looks a bit like one of the SpaceX
Speaker 1: rocket endings. So you know, these SpaceX rockets come down
Speaker 1: from the outer atmosphere and they land on a boat
Speaker 1: perfectly Wall Street inflation expectations come down from twelve ten
Speaker 1: eight down to two and they just sit there. And
Speaker 1: I think if you go and YouTube failed SpaceX landings,
Speaker 1: you've got a lot of hits. You know, there's a
Speaker 1: lot of videos of when that went wrong. It seems
Speaker 1: to us extremely unlikely that they will be able to
Speaker 1: bring inflation down to two and it'll just stay there.
Speaker 1: Can I ask the mechanics of these investments? Thirty two
Speaker 1: billion dollars there's a lot of money, I mean for
Speaker 1: me and pretty that's a lot, I guess in the
Speaker 1: global treasuries market it's slightly less. But isn't there a
Speaker 1: liquidity issue with that? Even that some in terms of
Speaker 1: investing did the short answers? No? Uh, we play in
Speaker 1: pretty liquid global asset classes. That affords us, you know,
Speaker 1: plenty of room for maneuver. But I don't know. If
Speaker 1: you remember Jeremy Irons in important call, he says you've
Speaker 1: got to be either the fastest, the cleverest, or you've
Speaker 1: got to cheat. Um, we are not going to be
Speaker 1: the fastest, and we certainly don't cheat. I'm not saying
Speaker 1: we're the cleverest. But what we try to do is
Speaker 1: position in advance of where people want to end up,
Speaker 1: so we're always prepared for bad market outcomes. That means
Speaker 1: that liquidity normally historically has come to us at times
Speaker 1: of crisis, rather than us chasing some different positioning that
Speaker 1: we wish we had when things go wrong. I have
Speaker 1: a listener question for for for Matt here, I was
Speaker 1: told by my spies that you were speaking to John
Speaker 1: Arthur's before you came to our studio and grace us
Speaker 1: with your presence. He writes in and said John Arthur's
Speaker 1: he was very famous for having written for the f
Speaker 1: T for years and years years, very famous, full stop.
Speaker 1: I think yes, that's fair, which is yeah. I kind
Speaker 1: of pulled like a Madonna slash Mosis, thinking John Arthur's
Speaker 1: everyone else who years. Anyways, he's asking what the pressure
Speaker 1: from governments on inflation fighting could actually be. Is there
Speaker 1: an analogy to Nixon leaving Breton Woods? In so Nixon
Speaker 1: left putting you on spot Mat He always brings up
Speaker 1: Bredon Woods, just for Nixon left Bredon Woods because he
Speaker 1: couldn't hold the peg to gold because the the tightening
Speaker 1: he would have needed to do to keep the dollar
Speaker 1: on gold would have collapsed the U s economy, So
Speaker 1: he chose an easier path of no gold peg and
Speaker 1: inflation higher. Clearly, the US government today is not going
Speaker 1: to repeg to gold. That would definitely lead to some
Speaker 1: pretty bad economic outcomes quite quickly. Um, I don't think
Speaker 1: they're going to be able to tighten significantly. Either they
Speaker 1: are just going to continue solving problems with more spending,
Speaker 1: and that's what leaves you with higher structural insertion. So
Speaker 1: it's not just about the FED. I would have asked
Speaker 1: about a Vulcar analogy, but that's only monetary policy, right,
Speaker 1: and you're looking at this and a much more holistic way.
Speaker 1: I do think that the FED is actually it's not
Speaker 1: an irrelevance, but I think it's not where you should
Speaker 1: be looking for. How to position your portfolio structure is
Speaker 1: your time horizon. So we're trying to avoid losing money
Speaker 1: on a rolling twelve months basis. But the way we
Speaker 1: do that is to put in structural assets that we
Speaker 1: think are critical for protecting capital and then kind of
Speaker 1: encase them in other assets that allow to be agnostic
Speaker 1: to timing. So short answer is we deliberately don't have one,
Speaker 1: because predicting the future is easy so long as you
Speaker 1: don't have to predict when the future is going to happen.
Speaker 1: So um And and in terms of the FED being
Speaker 1: say less relevant, Um, you don't look at the Vulcar
Speaker 1: scenario and say that that FED was able to withstand
Speaker 1: political pressures that were you know, ten x what Jerome
Speaker 1: Pale if not a hundred x what Jerome Pale faces. Now,
Speaker 1: it doesn't that that FED was enabled to do what
Speaker 1: it did by political support. So everyone wants to be
Speaker 1: volca in advance, right, every central banker would want to
Speaker 1: run prudent monetary policy that you need a Reagan behind
Speaker 1: you exactly. So after ten years of being fed up
Speaker 1: with inflation uh V four, you had the Whip inflation.
Speaker 1: Now the wind campaign didn't work. It was only after
Speaker 1: the whole large sways that the voter base said, we're
Speaker 1: really sick of this. We'd like to elect someone with
Speaker 1: who's going to support or docks Montrey policy, supply side
Speaker 1: reform hammed on both sides Atlantic Thatcher and Reagan. The
Speaker 1: results were pretty clear. I don't see that right now.
Speaker 1: The government in Europe is supporting people facing rising prices,
Speaker 1: facing inflation with more money. In the US, it's the
Speaker 1: same if you have a high gasoline price or heating bill.
Speaker 1: You know the States are handing out stimulus. So yeah,
Speaker 1: I saw the German inflation print was lower today because
Speaker 1: Germany just picked up everybody's bills last which is not
Speaker 1: really helpful right in the long run, works for a while,
Speaker 1: but exactly in the long term. So that's why in
Speaker 1: the long term you run out of other people's money.
Speaker 1: Were you about to say that I was not, but
Speaker 1: I should have been. That's I believe a British quote.
Speaker 1: That's Margaret that you know it's it's for us. It's
Speaker 1: a fantastic heads as well as a return seeking opportunity.
Speaker 1: If INFLA expectations rise a lot, or people realize that
Speaker 1: the FED doesn't have the political support to titan properly,
Speaker 1: then it's premiuted to rise a lot in the bond market,
Speaker 1: in the equity market, cross asset um, so for us
Speaker 1: have some of that protection. There are some good return
Speaker 1: opportunities out there, but for the most part, you know,
Speaker 1: a five cent risk free rate is it's kind of competing. Matt.
Speaker 1: It was great having in the studio. Thanks so much
Speaker 1: for coming by, Matt Smith, investment director at Ruffer. Thanks
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
Speaker 1: Matt Miller three on Boll Sweeney, I'm on Twitter at
Speaker 1: pt Sweeney before the podcast. You can always catch us
Speaker 1: worldwide at Bloomberg Radio t