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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.

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Speaker 2: Join us each day for insight from the best and economics, geopolitics,

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Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 2: Spotify and anywhere you get your podcasts, and always on

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Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 2: Jeremy Stretch of CIBC as he considers these headlines, not

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Speaker 2: much movement in the market. I've got ero one oh

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Speaker 2: five forty, Jeremy. A key question to me is simple,

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Speaker 2: and that is the idea of what two percent means.

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Speaker 2: These are different economies, different nations. Do you look at

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Speaker 2: it as two point zero percent? Is the ECB Bundesbank

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Speaker 2: hope two point two percent while the FEDS two percent

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Speaker 2: is two point eight percent?

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Speaker 3: Well, of course, the Eurozone is a difficult beast to manage,

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Speaker 3: and I think President Leguard is very mindful of that because,

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Speaker 3: as we've touched upon, there is a very different degree

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Speaker 3: of performance and activity in a number of the different

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Speaker 3: economies across the zone. Now, the Eurozone and ECB is

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Speaker 3: aiming to get back inflation to that two percent target

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Speaker 3: threshold over the medium term. I think it was notable

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Speaker 3: that obviously inflation in September did fall a little fast

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Speaker 3: and the ECB had been expecting.

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Speaker 4: And as I say, I think.

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Speaker 3: The next meeting in December will prove to be particularly

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Speaker 3: instructive as we get forecasts out to twenty twenty six

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Speaker 3: for the first time, but also looking at those longer

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Speaker 3: run inflation expectations and if those are back towards the

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Speaker 3: two percent threshold in aggregate across the whole of the zone, and.

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Speaker 4: That of course is the difficulty.

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Speaker 3: We will still get divergence in the individual nations, but

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Speaker 3: as an aggregate measure, the ECB is going to be

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Speaker 3: aiming to get back to that two percent target threshold

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Speaker 3: over the course of the next two years.

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Speaker 2: Jeremy, I'm going to go to a wonderful moment I

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Speaker 2: had with the August and here from Leon Jean Claude Trichet,

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Speaker 2: and he talked to me about transmission, the diffusement of

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Speaker 2: an economy across borders. Europe doesn't have the transmission mechanisms

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Speaker 2: of America, do they.

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Speaker 3: Well, there is obviously one of the inadequacies of the

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Speaker 3: Eurozone project is the you know, the difficulties on the

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Speaker 3: fiscal side on a relative basis that the US obviously

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Speaker 3: has because the US has the you know, the federal system,

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Speaker 3: and we do get that disperse into federal funds across

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Speaker 3: the fiscal dynamics. So we are in a situation where

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Speaker 3: the plumbing, if you like, in terms of the Eurozone economy,

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Speaker 3: in terms of monetary and fiscal policy is very diverse

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Speaker 3: because of course fiscal dynamics, and that's still much more

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Speaker 3: at the behest of national governments. But I think the

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Speaker 3: other interesting dynamic to consider as we move into twenty

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Speaker 3: twenty four is that the Eurozone is thinking about bringing

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Speaker 3: back those fiscal thresholds that were put on or suspending

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Speaker 3: during the COVID period, and that will be an interesting

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Speaker 3: dynasm to add to the rinkle about fragmentation risk, and

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Speaker 3: that of course is one of the big concerns that

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Speaker 3: the ECB has to be mindfulwed even if prisident, Legard

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Speaker 3: will try and downplay any concerns at this particular.

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Speaker 1: Poet, Jeremy Stretch, thank you so much.

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Speaker 2: October thirty, Apple to announce new MacBook pros I should

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Speaker 2: say Lindsay Piaggs is pleased with that because as she

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Speaker 2: ran her Excel spreadsheet on the American economy at burn

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Speaker 2: Up or MacBook a couple days ago, Doctor piags it

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Speaker 2: joins us now from Stifel as well. How hard is

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Speaker 2: it to put together an Excel spreadsheet with the mysteries

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Speaker 2: of this American economy.

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Speaker 5: Well, it's typically difficult, but it's become increasingly difficult with

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Speaker 5: all of these ancillary factors that are coming in that

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Speaker 5: are virtually impossible to model. We do have a lot

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Speaker 5: of international factors that are impacting the market's expectations. We

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Speaker 5: do have now unprecedented fiscal variables that we're trying to

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Speaker 5: account for. But I think right now the market is

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Speaker 5: very much discounting that third quarter number, focusing onstead on

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Speaker 5: the latest central bank decisions the BOC the ECB as

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Speaker 5: a proxy for what to expect from the Fed next week,

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Speaker 5: suggesting that developed central banks around the world, despite still

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Speaker 5: elevated inflation, are starting to pull back in anticipation of

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Speaker 5: a slower level of longer term growth. So the market

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Speaker 5: very much anticipating the Fed maybe moving to the sideline

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Speaker 5: for certainly a prolonged period of time, but maybe indefinitely

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Speaker 5: at this point.

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Speaker 6: So, lindsay, just to crystallize what you're saying, are you

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Speaker 6: saying that the Fed can kind of look through what

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Speaker 6: we're getting out of this blowout GDP print, or at

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Speaker 6: least that's the market's expectation.

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Speaker 7: No, that's the market's expectation.

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Speaker 5: But remember the market has been preemptively calling an end

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Speaker 5: to FED rate hikes for the past two years and

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Speaker 5: wrongly pricing in rate cuts. The Fed, however, has been

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Speaker 5: very clear beating drum of higher for longer, very consistent

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Speaker 5: in their message, and I think when we look at

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Speaker 5: some of the underlying data in the Q three report,

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Speaker 5: the resilience of businesses, the resilience of the consumer, and yes,

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Speaker 5: to Lisa's point, we have seen a little bit of

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Speaker 5: an uptick in claims, particularly continuing claims, but broadly speaking,

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Speaker 5: the labor market is still extremely tight. So the FED

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Speaker 5: is looking at all of these data juxtaposed with inflation

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Speaker 5: that's still too high. I think the Committee is going

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Speaker 5: to have a very difficult time selling a prolonged period

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Speaker 5: of a pause. I think there is still more work

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Speaker 5: to be done before they reach a sufficiently restrictive level

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Speaker 5: to ensure that we remain on a disinflationary trend back

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Speaker 5: to two percent.

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Speaker 6: Well, Linda, you're getting of what I've been wondering about.

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Speaker 6: Of course, this is a very binary question, and we

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Speaker 6: live in a shades of gray world. But when you

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Speaker 6: think about the just raft of numbers that we got

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Speaker 6: this morning, you take a look at to blow out

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Speaker 6: GDP print, but then you look at initial jobless claims

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Speaker 6: a little bit higher. What's the stronger signal there? Which

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Speaker 6: one should we be focusing on?

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Speaker 5: Oh, the consumer, certainly, And I understand that this is

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Speaker 5: backward looking, but remember claims are extremely volatile, and we

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Speaker 5: don't want to look at one data point, but rather

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Speaker 5: the underlying trend in claims, which is still extremely low,

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Speaker 5: still signaling that tight labor market or tight labor market conditions,

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Speaker 5: which is going to continue to perpetuate the ability for

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Speaker 5: upward pressure on wages, extending that to further purchasing power

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Speaker 5: for the consumer in the marketplace, suggesting again the backbone

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Speaker 5: of the economy, the underlying support of the economy, i e.

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Speaker 5: The consumer remains resilient.

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Speaker 8: There's been a real angst to underpinning some of the

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Speaker 8: recent sell off in the bond market. The longer end

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Speaker 8: that hasn't been tied to the Fed at all. It's

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Speaker 8: been tied to a widening deficit and likely increasing spending.

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Speaker 8: How much is the FED going to find itself increasingly

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Speaker 8: at odds with fiscal spending because you talk about the

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Speaker 8: need potentially for the Feds do more. How much is

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Speaker 8: the strength that we're seeing in the gd preprint tied

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Speaker 8: directly to that government spending.

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Speaker 5: Oh? Absolutely, this is one of the problems when monetary

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Speaker 5: policy and fiscal policy are moving in opposite directions, that's

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Speaker 5: going to force the Fed's hand to take an even

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Speaker 5: firmer position to counteract that expansion of government outlays. Now,

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Speaker 5: we do know that federal stimulus has largely concluded, but

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Speaker 5: there's other fiscal stimulus that's coming down the pipeline as

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Speaker 5: a result of legislation that was passed over the last

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Speaker 5: twelve to eighteen months, be that infrastructure spending, the IRA,

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Speaker 5: the Chips Act, and other spatterings of state and local

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Speaker 5: stimulus that is still being spent on constituents. So there

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Speaker 5: is still a lot of purchasing power, a lot of

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Speaker 5: borrowing and investment power out in the marketplace that the

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Speaker 5: FED is desperately trying to drain out of the system.

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Speaker 5: But again, the more that we see monetary and fiscal

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Speaker 5: policy moving in opposite directions, the more that becomes a

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Speaker 5: barrier for the FED to achieve its goal of price stability.

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Speaker 7: Lindsay. A lot of people are writing in.

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Speaker 8: They're saying that I didn't really have a right to

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Speaker 8: be confused because it's core PCE. When you look at

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Speaker 8: the actual inflation, yes, you're seeing growth, but it is

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Speaker 8: disinflation stare you are seeing a reduced pace of growth

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Speaker 8: when you strip out energy and food. How much credence

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Speaker 8: do you give the idea that we got in this

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Speaker 8: gdpreprint a core PCE read two point four percent.

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Speaker 7: Is that the sort of number to hinge off.

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Speaker 5: It's certainly encouraging, But again, when we look at some

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Speaker 5: of the other data metrics, when we look at headline

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Speaker 5: pc when we look at the headline CPI, we're not

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Speaker 5: seeing this clear downward trend of disinflation. Now, of course,

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Speaker 5: monetary policy is not based on headline price pressures. We

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Speaker 5: strip out those volatile food and energy composedonents.

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Speaker 2: Lindsay piigs a stiff very near her good conversation with

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Speaker 2: US year Edward Mills. Hugely experienced. He is at Raymond

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Speaker 2: James with far more has legit committee, an individual congresspeople's

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Speaker 2: skills in Washington, particularly working with Maloney of.

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Speaker 1: New York ed Mills.

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Speaker 2: This new speaker the uproar that I hear, and yet

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Speaker 2: your research note says he can drive to the center.

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Speaker 2: How does the gentleman from Louisiana move the Republicans to

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Speaker 2: a doable center.

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Speaker 9: I think it's going to be a tough task. I

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Speaker 9: think Tom the thing that I am most focused on

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Speaker 9: with the news speaker is how quickly at the end

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Speaker 9: it happens. In DC things appear impossible right up until

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Speaker 9: the moment it's inevitable. So having a unified Republican caucus

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Speaker 9: is not something we would have thought. But the big

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Speaker 9: question in my mind is this is a speaker who

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Speaker 9: has not been vetted, and as he is vetted, how

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Speaker 9: does he come out of that vet?

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Speaker 10: What type of narrative about his leadership?

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Speaker 9: And I think what we're talking about is for him

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Speaker 9: to keep that, for him to keep the seat, for

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Speaker 9: him to be able to govern.

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Speaker 10: Do you need to.

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Speaker 9: Find the middle, because what we've seen is that the

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Speaker 9: fringe does not support many legislative packages, and that's paralysis.

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Speaker 1: Help me with the sequence here.

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Speaker 2: Course before Kart is November seventeenth and a government shut

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Speaker 2: down prior to the defense allocations you mentioned, the first

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Speaker 2: task of Senate House House Senate is well war funding

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Speaker 2: if you will. Is that going to be before November seventeen?

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Speaker 9: I think it's kind of a toss up between the two.

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Speaker 9: I think to start with the November seventeenth deadline, Tom.

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Speaker 10: We're not going to have a government shut down.

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Speaker 9: It looks like we are going to punt government funding

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Speaker 9: either into January or maybe as far as April. But

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Speaker 9: in doing that there will be the conversation about defense funding.

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Speaker 9: The President has sent up to Congress a robust supplemental package,

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Speaker 9: and what we're hearing is the Senate will want to

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Speaker 9: have a strong, by hardistan vote on that, trying to

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Speaker 9: put pressure on the House, not differentiating aid for Ukraine

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Speaker 9: from Israel or Taiwan.

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Speaker 8: So how do you understand the fact that Mike Johnson

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Speaker 8: has made a real important issue of his cutting the deficit,

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Speaker 8: and yet there are all of these requests to finance

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Speaker 8: some pretty big military expenditures. How much is that going

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Speaker 8: to be a sticking point that makes it uncertain whether

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Speaker 8: we get this aid across. We were speaking earlier with

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Speaker 8: John Lieber of Eurasia and he was saying, we're going

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Speaker 8: to get it passed. Are you as confident?

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Speaker 9: I am confident that will get something passed. I think

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Speaker 9: that the big question is timing in the scale of.

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Speaker 10: This, Lisa.

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Speaker 9: When you go back to some of the other pushes

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Speaker 9: to become speaker, this was probably most out in the

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Speaker 9: focus during.

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Speaker 10: The push for Jim Jordan.

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Speaker 9: The only way some of the defense hawks within the

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Speaker 9: Republican Caucus who were willing to support him and the

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Speaker 9: expectation is the only reason why they're willing to sport Johnson.

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Speaker 10: Was that they needed to get a guarantee on a.

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Speaker 9: Robust defense bill extra defense funding in the Defense Authorization

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Speaker 9: Act before the end of the year. That group is

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Speaker 9: far greater than the ord needed to keep that speakership.

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Speaker 9: So if he wants to keep that speakership, he's been

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Speaker 9: against that Defense aid in the past, and especially voted

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Speaker 9: against Ukraine aid, but the geopolitical environment's very different now

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Speaker 9: in his political position is completely changed and ed.

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Speaker 7: To do all that.

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Speaker 6: You made the point that Johnson really needs to find

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Speaker 6: the middle here. But if he doesn't, I was speaking

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Speaker 6: to Henrietta Treys Yester and she made the point that

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Speaker 6: the Senate is still functional. That's the saving grace because

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Speaker 6: at the end of the day, the House will do

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Speaker 6: what the Senate tells it to do.

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Speaker 10: You agree with that logic largely.

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Speaker 9: I think when you see the Senate, if they pass

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Speaker 9: something with eighty ninety votes, it's not a politically tenable

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Speaker 9: position not to even have a vote on that in

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Speaker 9: the House. And if you were to have a vote

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Speaker 9: on something that ascid with eighty or ninety of one

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Speaker 9: hundred votes in the Senate, in the House is near

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Speaker 9: guaranteed to have a majority go to the president's desk.

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Speaker 9: And I do think Johnson has a little bit of

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Speaker 9: leeway here where he doesn't have the baggage of some

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Speaker 9: of the previous ones. So some of the first fights,

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Speaker 9: which will be government funding and defense funding, he's not

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Speaker 9: necessarily going to get blamed for the position that Republicans

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Speaker 9: are in because he's new to the job.

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Speaker 1: Hey, you know, Ed Mills, I look at this.

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Speaker 2: I was taking ann Rey hoard in three to zero two,

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Speaker 2: which is advanced Civics lessons inside the Beltleigh, and I

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Speaker 2: guess every speaker has a lot of power. Is he

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Speaker 2: going to blow up the leadership of the Republican Party

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Speaker 2: or is he going to attach himself to, say the

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Speaker 2: hockey player from Minnesota and the others.

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Speaker 9: Well, I think he's going to attach himself to the

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Speaker 9: majority leader. I think i'd go back to the last

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Speaker 9: time we had a speaker that no one really had

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Speaker 9: heard of, which was Speaker Hasser. And you have the

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Speaker 9: most empowered majority leader of in decades with Tom Delay

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Speaker 9: when you saw him have the press constraints and there

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Speaker 9: was some booze by Virginia Fox. What I was watching

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Speaker 9: is Steve Scalise, the majority leader from his state of Louisiana,

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Speaker 9: was standing right behind him and told him exactly what

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Speaker 9: he said. He said, next question, let's talk about policy.

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Speaker 9: Then Mike Johnson said, next question. So he is a

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Speaker 9: lockstep with the current majority.

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Speaker 1: And that is the Edmills perspectives.

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Speaker 2: It's so valuable with Raymond James, Edmills, thank you so much.

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Speaker 8: Meta shares not diverging from the rest of the complex,

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Speaker 8: shares falling after the company warned a quote uncertain revenue

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Speaker 8: outlook for next year.

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Speaker 7: This was the dominant narrative.

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Speaker 8: Even though the tech giant beat expectations on third quarter revenue.

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Speaker 8: All of this dashing hopes for a long term recovery

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Speaker 8: in the company's advertising business. It's spending, though aggressively in

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Speaker 8: other areas and artificial intelligence and virtual reality. It raises

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Speaker 8: this question, you know, what are people hinging onto just

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Speaker 8: this hope of uncertainty or expectation of uncertainty that we

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Speaker 8: all know just Instagram?

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Speaker 1: You know, it's just Instagram. It's it's what Storm's doing

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Speaker 1: over at Instagram.

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Speaker 8: Plus six classics, mandeep sexy technology analytics.

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Speaker 1: Through Instagram and Go. That's a short.

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Speaker 7: Bloomberg Intelligence joining us.

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Speaker 8: Now, Mandy, what does it tell you that they came

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Speaker 8: out with really good earnings at least on the fundamental

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Speaker 8: basis that they say that there's uncertainty and that they

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Speaker 8: share sell off.

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Speaker 11: Well, so I think they gave a pretty broad guidance

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Speaker 11: thirteen to twenty four percent for next quarter. When you

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Speaker 11: see that sort of white guidance, you know, you know

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Speaker 11: the company is not sure and they didn't have that

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Speaker 11: sort of uncertain guidance on the expense side, So they

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Speaker 11: said reality labs losses would mount, and I think fear

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Speaker 11: that company is really feeling the investors is not giving

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Speaker 11: them markers around what they're actually doing. I mean, losing

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Speaker 11: fifteen billion dollars a year on reality labs and not

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Speaker 11: telling what you are investing in. Because we know Apple

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Speaker 11: has a new virtual reality headset. It didn't take them

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Speaker 11: fifteen billion dollars to make that headset. So clearly they

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Speaker 11: are investing in something that nobody knows, and I think

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Speaker 11: that's the uncertain How is.

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Speaker 2: AI different for Zuckerberg than AI is different for Google

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Speaker 2: where AI is different for Microsoft.

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Speaker 11: So there is an overlap between Google and Meta's version

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Speaker 11: of AI versus Microsoft's.

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Speaker 1: And microsofce corporate. I got to get a job done.

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Speaker 11: Let's go Yeah, and what's Meta's AI is? You are

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Speaker 11: consuming Instagram feeds, Facebook feeds, I mean the average user is,

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Speaker 11: and so how can AI enhance that experience both for

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Speaker 11: the consumer as well as for the creator who's creating

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Speaker 11: content for the feed? And AI can offer you a

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Speaker 11: lot of tools to generate images based on text description.

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Speaker 11: So there's a lot that AI can do in messaging,

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Speaker 11: think of customer service, you know WhatsApp.

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Speaker 2: So this AI and Instagram. I don't buy it AI

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Speaker 2: and Amazon this afternoon. What is Josie going to spin

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Speaker 2: on AI? Amazon?

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Speaker 11: I mean amazonal story hardboard box is about compute training

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Speaker 11: the models. Everyone wants these GPUs to train their large

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Speaker 11: language model.

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Speaker 2: They're buying AI from Microsoft. I saw that ten days

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Speaker 2: ago or so, right.

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Speaker 11: Yeah, well they are upgrading their three sixty five on

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Speaker 11: Prime version to Microsoft.

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Speaker 1: So completely lost.

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Speaker 11: And so that's the thing about the generative AI wave

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Speaker 11: that it is quite broad and every company can use

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Speaker 11: it in different ways. Some companies are focusing on training models,

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Speaker 11: some are focused on inferencing use cases.

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Speaker 1: And you don't even know what this is, Cady. It

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Speaker 1: feels like a Morcan mindy skip. You know, Robin Williams

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Speaker 1: is going no, no, no, no. I just everybody's got

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Speaker 1: a different definition of.

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Speaker 11: AI or I guess they're trying to play for a

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Speaker 11: different part of this large pie that everyone sees with generator.

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Speaker 1: Save me.

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Speaker 6: Let's talk about something we all know. Let's talk about

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Speaker 6: the cloud business at Amazon.

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Speaker 7: Of course AWS.

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Speaker 6: You saw sales growth there slow to a record low

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Speaker 6: in the second quarter. We know that the cloud business

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Speaker 6: was why Alphabet had such a.

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Speaker 7: Bad day yesterday.

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Speaker 6: What are we going to see out of the cloud

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Speaker 6: business at Amazon?

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Speaker 11: I mean, the good thing is expectations are lower for Amazon,

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Speaker 11: and we're talking about mid teen's growth for AWS, and yes,

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Speaker 11: it has the largest base in cloud, but everyone perceives

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Speaker 11: them to be behind with generative AI workloads. That may

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Speaker 11: not be the case, and so there is room for

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Speaker 11: an upside as long as they prove to the street

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Speaker 11: that you know, they are catching up with Jenai and

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Speaker 11: offering the compute that everyone needs to train their models.

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Speaker 7: And not to go back in time.

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Speaker 6: But you think about what happened at Alphabet, I mean,

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Speaker 6: I'm just stuck on the share price move yesterday down

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Speaker 6: almost ten percent, worst day since March twenty twenty. Is

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Speaker 6: that an overreaction?

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Speaker 7: Was it that bad with Alphabet?

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Speaker 11: It definitely feels felt like an overreaction, simply because the

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Speaker 11: search business actually did remarkably well, and unlike Meta, which

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Speaker 11: continues to see ad pricing declined, Alphabet saw an ad

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Speaker 11: pricing increase, which is a positive sign. It's an auction mechanism,

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Speaker 11: so advertisers are bidding up for your ads. And there

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Speaker 11: was talk about uncertainty yesterday around the Middle East war

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Speaker 11: and everything that will draw down the advertisers spending. But

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Speaker 11: clearly Alphabet had a positive print on the search side

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Speaker 11: and the cloud side.

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Speaker 1: Really the expectations were.

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Speaker 11: Too high, So I think that's where Amazon may have

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Speaker 11: an advantage going into the print.

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Speaker 8: I want to try to understand the psychology of the

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Speaker 8: investor base in some of these tech names, because it's

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Speaker 8: been shifting over time and we've seen that. What are

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Speaker 8: we learning about what the key triggers are going to

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Speaker 8: be to buy and what the key triggers are going

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Speaker 8: to be to sell after the games that we've seen

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Speaker 8: so far this year.

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Speaker 11: I mean, look, the cost of capital is going up,

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Speaker 11: and so I think the days of spending fifteen billion

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Speaker 11: dollars a year on moonshots are probably gone even for

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Speaker 11: larger companies, as long as they keep deliver bring you know,

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Speaker 11: twenty percent plus growth meta for Meta. Everyone is okay

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Speaker 11: with them spending on reality labs. The moment that growth decelerates,

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Speaker 11: that's when that fifteen billion dollar loss really becomes a

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Speaker 11: sticking point for free cash flow.

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Speaker 8: Is that the reason why you expect things for Amazon

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Speaker 8: to be positive because they have that infrastructure AWS, which

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Speaker 8: is the major player in the cloud space, they have

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Speaker 8: that revenue coming in, they have Tom Keynes offspring buying

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Speaker 8: lots of boxes.

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Speaker 7: How much is that really going to play into a.

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Speaker 8: Positive that could offset some of the negativity that we're

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Speaker 8: hearing from the likes of ups this morning.

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Speaker 11: Clearly, I think everyone believes that, you know, digital transformation,

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Speaker 11: generative AI. These are secular trends, and right now, I

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Speaker 11: think for Meta to spend thirty billion dollars in capex

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Speaker 11: and not have a cloud business or something equivalent is

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Speaker 11: also sticking out because that could have been a key

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Speaker 11: source of diversification for them.

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Speaker 1: This is an arch question.

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Speaker 2: Do you and Anna rod Rana see the cloud business?

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Speaker 2: I have no idea what I'm saying when you see

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Speaker 2: the cloud business? Is it a classicdopoly or triopoly or

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Speaker 2: can there be a set you know, number five sixty

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Speaker 2: seven players. I just don't buy it.

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Speaker 11: I mean, right now it's a triopoly and Oracle actually

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Speaker 11: is investing a lot in building it's cloud investing.

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Speaker 2: But do you believe people can grab share and come

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Speaker 2: down and make a fundamental free cash flow generation or

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Speaker 2: is it going to squeeze into a triapoly?

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Speaker 12: No?

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Speaker 11: I think you can, because right now the compute. Nature

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Speaker 11: of compute is changing, so it's not CPUs consumed on

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Speaker 11: the cloud anymore, it's GPUs, different types of accelerators, different

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Speaker 11: types of databases, and that's where if you don't have

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Speaker 11: a legacy business, which Microsoft does, I think Google has

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Speaker 11: an advantage. Amazon has an advantage that they don't have

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Speaker 11: a legacy business, and that's where they can keep building that.

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Speaker 2: Joining us right now, John Fair on assignment, Kavin Greifeld

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Speaker 2: with us this morning.

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Speaker 1: Michael Nathanson joins.

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Speaker 2: This is senior research analyst at Mofatt Nathanson on a

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Speaker 2: pluthor of things. Lisa, why don't you drag in Nathanson

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Speaker 2: here on Facebook because you know the story better than

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Speaker 2: I do?

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Speaker 7: All right, Michael, thank you for joining us.

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Speaker 8: I want to start with the one note of caution

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Speaker 8: that really drove all of the price action. They came

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Speaker 8: out and said, we don't know what's going to happen.

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Speaker 8: What else is new advertising? Who knows? Oh my goodness,

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Speaker 8: the stock fell. How realistic is this or instructive of

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Speaker 8: what we can expect in the year to come.

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Speaker 12: Yeah, I was disappointed by that fact that the market

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Speaker 12: took that comment around with him. These guys just put

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Speaker 12: up twenty three percent AGROTH in a quarter and a

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Speaker 12: year ago. People were thinking this business was dead, right,

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Speaker 12: all the momentum is behind them. They called out a

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Speaker 12: little bit of choppiness because what's happening in the Middle East.

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Speaker 4: But I don't think it was that big of a deal.

443
00:22:51,320 --> 00:22:53,560
Speaker 4: I mean, their guidance is still pretty strong.

444
00:22:53,880 --> 00:22:56,120
Speaker 12: So I think this is This is an amazing story

445
00:22:56,119 --> 00:22:57,719
Speaker 12: in terms of Tom and T Mobile.

446
00:22:58,119 --> 00:23:00,399
Speaker 4: This could be. This could be the second story. People

447
00:23:00,440 --> 00:23:00,800
Speaker 4: have just.

448
00:23:00,880 --> 00:23:04,280
Speaker 12: Underestimated the strength of a business model. The recover it

449
00:23:04,280 --> 00:23:04,840
Speaker 12: has been amazing.

450
00:23:04,960 --> 00:23:06,359
Speaker 8: There's been a lot of There's been a lot of

451
00:23:06,400 --> 00:23:09,439
Speaker 8: questions though around just in general the online advertising business,

452
00:23:09,520 --> 00:23:11,960
Speaker 8: especially at a time where all of the content creators

453
00:23:12,000 --> 00:23:14,879
Speaker 8: are facing off with consumers that really don't like advertising

454
00:23:14,880 --> 00:23:17,040
Speaker 8: and are willing to spend to avoid it.

455
00:23:17,240 --> 00:23:18,840
Speaker 7: How much are we seeing.

456
00:23:18,560 --> 00:23:21,680
Speaker 8: With respect to consolidation of market share at the likes

457
00:23:21,680 --> 00:23:24,520
Speaker 8: of Meta at a time when Google also saw an

458
00:23:24,560 --> 00:23:26,480
Speaker 8: increase in ads bend despite.

459
00:23:26,119 --> 00:23:27,080
Speaker 7: Their cloud issues.

460
00:23:27,720 --> 00:23:30,800
Speaker 8: What does that tell us about the overall market versus

461
00:23:30,840 --> 00:23:33,040
Speaker 8: just consolidation with the leaders?

462
00:23:33,440 --> 00:23:37,760
Speaker 12: Okay, big picture, those two companies, the growth rates of

463
00:23:37,840 --> 00:23:39,760
Speaker 12: Meta and Alphabet are back to where.

464
00:23:39,640 --> 00:23:41,560
Speaker 4: They were in early twenty two.

465
00:23:42,160 --> 00:23:44,280
Speaker 12: So if you remember the past couple of quarters, there's

466
00:23:44,320 --> 00:23:47,879
Speaker 12: all kinds of worries about e commerce slowing. It's getting

467
00:23:47,880 --> 00:23:52,640
Speaker 12: better about changes to Apple's IDFA system that's been fixed.

468
00:23:53,760 --> 00:23:55,600
Speaker 12: So it says to you like the market's actually really

469
00:23:55,680 --> 00:24:00,520
Speaker 12: healthy and that you're seeing kind of the structural tailwinds

470
00:24:00,560 --> 00:24:03,359
Speaker 12: and online gaming discontinue.

471
00:24:03,440 --> 00:24:03,600
Speaker 4: Right.

472
00:24:03,640 --> 00:24:06,640
Speaker 12: We had a very tough compare in twenty twenty two

473
00:24:07,000 --> 00:24:07,840
Speaker 12: that's now behind you.

474
00:24:07,880 --> 00:24:09,600
Speaker 4: So I felt pretty good about the health of this

475
00:24:09,640 --> 00:24:13,119
Speaker 4: business with the scale. Prayers for a snap for a

476
00:24:13,119 --> 00:24:15,320
Speaker 4: Twitter go luck to you. It's not going to happen,

477
00:24:15,400 --> 00:24:15,560
Speaker 4: you know.

478
00:24:15,640 --> 00:24:18,560
Speaker 2: Michael math is a congratulations. Netflix has done a double.

479
00:24:18,680 --> 00:24:20,080
Speaker 2: It's off Mark Mahaney.

480
00:24:20,160 --> 00:24:22,520
Speaker 1: What's he know? He's going up another one hundred dollars on.

481
00:24:22,520 --> 00:24:27,159
Speaker 2: Netflix review for us, the winner of streaming is Netflix

482
00:24:27,320 --> 00:24:31,120
Speaker 2: and a Microsoft equivalent, even at thirty eight times earnings.

483
00:24:32,400 --> 00:24:33,440
Speaker 4: It's a good question, Tom.

484
00:24:33,480 --> 00:24:38,119
Speaker 12: It's different than Microsoft because you don't have the operating

485
00:24:38,200 --> 00:24:40,399
Speaker 12: leverage you know, longer term, right, so you have to

486
00:24:40,440 --> 00:24:43,440
Speaker 12: keep investing in content. The great thing about software models

487
00:24:43,520 --> 00:24:45,320
Speaker 12: is that incremental margins are massive.

488
00:24:45,720 --> 00:24:48,600
Speaker 4: Once you build it, you get the benefit of scale.

489
00:24:49,080 --> 00:24:51,560
Speaker 4: In media for the most part.

490
00:24:51,760 --> 00:24:53,560
Speaker 12: In the streaming model, you have to keep an investing

491
00:24:53,560 --> 00:24:56,680
Speaker 12: in content, so they'll have margin leverage, but nowhere near

492
00:24:56,680 --> 00:24:58,720
Speaker 12: the same margin leverage of what we saw last night

493
00:24:58,720 --> 00:24:59,919
Speaker 12: with Meadow or Microsoft.

494
00:25:00,320 --> 00:25:03,159
Speaker 4: So but in streaming there a winner. It's because it's.

495
00:25:03,040 --> 00:25:05,600
Speaker 12: Such a tough business for everyone that's not in Netflix

496
00:25:05,680 --> 00:25:06,080
Speaker 12: right now.

497
00:25:06,359 --> 00:25:09,119
Speaker 4: So it's really there's one winner. There's Disney, and then

498
00:25:09,119 --> 00:25:09,760
Speaker 4: there's everyone.

499
00:25:10,080 --> 00:25:11,960
Speaker 12: Disney's not even a winner yet, and they're going to

500
00:25:12,080 --> 00:25:14,280
Speaker 12: just churning cash flow to get your attention.

501
00:25:14,600 --> 00:25:15,960
Speaker 1: Yeah, I mean, you know, I just brought up the

502
00:25:16,000 --> 00:25:16,680
Speaker 1: Disney chart.

503
00:25:16,760 --> 00:25:18,960
Speaker 2: You know, I just do we do this for Michael Nathanson,

504
00:25:19,040 --> 00:25:21,520
Speaker 2: folks to give him, give him a little bit of

505
00:25:21,600 --> 00:25:25,200
Speaker 2: angst here on a Thursday morning, Michael Nathans and Disney

506
00:25:25,320 --> 00:25:28,080
Speaker 2: is back to twenty fourteen pricing.

507
00:25:28,920 --> 00:25:32,600
Speaker 1: Help yeap, When does it turn You've been wrong, wrong, wrong.

508
00:25:32,800 --> 00:25:35,560
Speaker 2: It's been like the New York Yankees. It's a disaster.

509
00:25:35,800 --> 00:25:39,159
Speaker 2: I say, when does thank you? When does Disney Chern?

510
00:25:40,080 --> 00:25:40,240
Speaker 4: Can?

511
00:25:40,280 --> 00:25:40,680
Speaker 11: I say?

512
00:25:40,720 --> 00:25:41,120
Speaker 4: Upgraded?

513
00:25:41,160 --> 00:25:43,640
Speaker 12: When Bob Eyer came back in ninety bucks And it's

514
00:25:43,680 --> 00:25:44,800
Speaker 12: just been painful to me.

515
00:25:44,960 --> 00:25:46,440
Speaker 4: So thank you Tom for reminding me.

516
00:25:46,440 --> 00:25:48,200
Speaker 1: It's good, so we do about it.

517
00:25:48,200 --> 00:25:51,760
Speaker 12: It's got exactly and sell and sell houses in the suburbs.

518
00:25:51,880 --> 00:25:54,080
Speaker 4: So here's what here's what I think is going to happen.

519
00:25:54,400 --> 00:25:57,399
Speaker 12: Twenty twenty four is a year of they have to

520
00:25:57,440 --> 00:26:01,760
Speaker 12: consolidate Hulu and Disney plus margins and streaming or negative

521
00:26:02,320 --> 00:26:05,400
Speaker 12: netflixes are in the twenties. To me, it's about streaming

522
00:26:05,440 --> 00:26:08,440
Speaker 12: profitability in twenty twenty four, and they have to get

523
00:26:08,480 --> 00:26:10,960
Speaker 12: who in house, which is going to happen by hopefully

524
00:26:10,960 --> 00:26:13,080
Speaker 12: the end of the year. So I've a lost hope

525
00:26:13,080 --> 00:26:16,000
Speaker 12: in Disney. I think that is again, I think this

526
00:26:16,040 --> 00:26:17,800
Speaker 12: is your meta in twenty four. I mean a year

527
00:26:17,840 --> 00:26:21,280
Speaker 12: ago people were killing the stock, and I think that

528
00:26:21,359 --> 00:26:23,119
Speaker 12: Disney could be a great stock in twenty four, but

529
00:26:23,200 --> 00:26:26,120
Speaker 12: you need to get streaming margins up to a level

530
00:26:26,160 --> 00:26:28,760
Speaker 12: that people start caring about, which is gonna take some time.

531
00:26:28,920 --> 00:26:32,040
Speaker 6: Well, Michael, it's really interesting to hear this conversation because

532
00:26:32,040 --> 00:26:33,960
Speaker 6: you're still a buy on Disney. Okay, it could be

533
00:26:33,960 --> 00:26:36,640
Speaker 6: a great stock in twenty twenty four, But to meditate

534
00:26:36,640 --> 00:26:39,480
Speaker 6: a little bit longer on your Netflix comments, you're still

535
00:26:39,520 --> 00:26:41,040
Speaker 6: neutral on the stock.

536
00:26:41,080 --> 00:26:42,640
Speaker 7: What would bump you up to a buy.

537
00:26:43,960 --> 00:26:44,560
Speaker 4: Bump m to.

538
00:26:44,640 --> 00:26:47,720
Speaker 12: Buy would be to have earnings numbers because evaluation to

539
00:26:47,800 --> 00:26:51,000
Speaker 12: Thomas point to me is it's pretty full. Look at

540
00:26:51,040 --> 00:26:54,800
Speaker 12: it versus Google, Alphabet or Meta. To me, it's having

541
00:26:54,840 --> 00:26:57,640
Speaker 12: faith and numbers that are above consensus. And I think

542
00:26:57,640 --> 00:26:59,399
Speaker 12: we all have the same numbers now we pretty much

543
00:26:59,440 --> 00:27:01,800
Speaker 12: a model with the companies told us there's no way

544
00:27:01,840 --> 00:27:03,800
Speaker 12: to doubt it at this point, So you know, pretty

545
00:27:03,840 --> 00:27:06,480
Speaker 12: much we're just debating multiple at this point. I don't

546
00:27:06,520 --> 00:27:09,080
Speaker 12: think people have a real edge on earnings. And our

547
00:27:09,200 --> 00:27:12,760
Speaker 12: numbers pretty much were consensus. We're at Meta and other names.

548
00:27:13,080 --> 00:27:15,080
Speaker 12: We've been above consensus and that's been our call.

549
00:27:15,359 --> 00:27:15,560
Speaker 3: You know.

550
00:27:15,600 --> 00:27:17,840
Speaker 4: We we have conviction that numbers are wrong.

551
00:27:18,119 --> 00:27:21,280
Speaker 12: To the upside, we will get very aggressive about the

552
00:27:21,280 --> 00:27:21,760
Speaker 12: buy rating.

553
00:27:22,040 --> 00:27:24,639
Speaker 6: And when it comes to Netflix and the streaming business

554
00:27:24,720 --> 00:27:27,800
Speaker 6: in general, how does Netflix maintain market share here?

555
00:27:27,880 --> 00:27:30,240
Speaker 7: Does that really all just come back to the content slate?

556
00:27:31,440 --> 00:27:32,200
Speaker 4: Well, it's interesting.

557
00:27:32,560 --> 00:27:35,520
Speaker 12: You know, when they built their business, they borrowed other

558
00:27:35,560 --> 00:27:37,840
Speaker 12: people's content, and we were writing for many years and

559
00:27:37,920 --> 00:27:38,680
Speaker 12: that was a dumb idea.

560
00:27:38,720 --> 00:27:41,080
Speaker 4: So they would rent the office, they would rent friends.

561
00:27:41,720 --> 00:27:44,960
Speaker 4: Given the state of media, you're starting to see evidence that.

562
00:27:44,880 --> 00:27:47,440
Speaker 12: They could go back to renting other people's content, which

563
00:27:47,480 --> 00:27:49,520
Speaker 12: is a very cost effective way to build a business.

564
00:27:49,720 --> 00:27:51,680
Speaker 12: So what can happen longer term is that they could

565
00:27:51,720 --> 00:27:54,480
Speaker 12: blend from making all these originals, which is a much

566
00:27:54,520 --> 00:27:58,679
Speaker 12: tougher business, to renting people's movies and TV shows and

567
00:27:58,880 --> 00:28:01,560
Speaker 12: given and again the state of media companies, that can happen.

568
00:28:01,760 --> 00:28:03,719
Speaker 12: You know, I don't think Disney will do that, but

569
00:28:03,800 --> 00:28:07,480
Speaker 12: you know, Warners, Paramount, you know, NBC Universal talked about

570
00:28:07,480 --> 00:28:08,520
Speaker 12: licensing more content.

571
00:28:08,960 --> 00:28:10,640
Speaker 8: Michael, what do you expected to hear after the bell

572
00:28:10,680 --> 00:28:14,520
Speaker 8: when we get Amazon earnings, particularly around the acquisition of

573
00:28:14,600 --> 00:28:18,240
Speaker 8: content having to do with sports. NFL the last sort

574
00:28:18,280 --> 00:28:19,840
Speaker 8: of death now for cable.

575
00:28:20,560 --> 00:28:23,560
Speaker 12: Right, So Mike Morton covers Amazon for us. He's very

576
00:28:23,560 --> 00:28:27,359
Speaker 12: bullish on next year's margin opportunity. They're going to be

577
00:28:27,400 --> 00:28:29,720
Speaker 12: looking at the NBA. Right, So the NFL has gone

578
00:28:29,760 --> 00:28:31,840
Speaker 12: well for them, The ratings are up in a really

579
00:28:32,040 --> 00:28:34,600
Speaker 12: strong amount this year, and the NBA is the next

580
00:28:34,600 --> 00:28:37,359
Speaker 12: big package for grabs, and there's a good chance that

581
00:28:37,359 --> 00:28:39,720
Speaker 12: they can get a slate of games, you know, getting

582
00:28:39,720 --> 00:28:41,200
Speaker 12: out Tuesday or Thursday night games.

583
00:28:41,440 --> 00:28:42,840
Speaker 4: So I think they're going to tell you that, Look,

584
00:28:42,880 --> 00:28:44,360
Speaker 4: it's going well you see.

585
00:28:44,200 --> 00:28:46,080
Speaker 12: This as a chance, to your point to really distance

586
00:28:46,080 --> 00:28:48,080
Speaker 12: remediate cable networks thein thing.

587
00:28:48,120 --> 00:28:50,280
Speaker 4: They're going to go for it. So you know, Amazon

588
00:28:50,360 --> 00:28:53,080
Speaker 4: to us is.

589
00:28:51,640 --> 00:28:54,280
Speaker 12: Is really in the second or third position behind ESPN

590
00:28:54,600 --> 00:28:55,880
Speaker 12: for getting the next set of big rights.

591
00:28:55,880 --> 00:28:57,200
Speaker 4: Here for Sports.

592
00:28:56,880 --> 00:28:59,800
Speaker 1: Award winning Michael Nathanson was just decades of good good

593
00:28:59,800 --> 00:29:00,920
Speaker 1: news is here.

594
00:29:03,640 --> 00:29:07,480
Speaker 2: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and

595
00:29:07,600 --> 00:29:11,800
Speaker 2: anywhere else you get your podcasts. Listen live every weekday

596
00:29:12,080 --> 00:29:15,560
Speaker 2: starting at seven am Eastern. I'm Bloomberg dot Com, the

597
00:29:15,680 --> 00:29:20,239
Speaker 2: iHeartRadio app tune In, and the Bloomberg Business app. You

598
00:29:20,280 --> 00:29:24,280
Speaker 2: can watch us live on Bloomberg Television and always I'm

599
00:29:24,320 --> 00:29:25,400
Speaker 2: the Bloomberg Terminal.

600
00:29:25,800 --> 00:29:30,000
Speaker 1: Thanks for listening. I'm Tom Keen, and this is Bloomberg