WEBVTT - Instagram is Facebook's Bellwether, Lehmann Says 0:00:00.120 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.880 Bloomberg dot Com, and of course on the Bloomberg you 0:00:34.000 --> 0:00:35.720 bring an investors. I don't know if I'm beast at 0:00:35.720 --> 0:00:37.839 the house wants to speak to me. I said to him, 0:00:37.840 --> 0:00:39.720 I'm best at the house. It's so good to see you, 0:00:39.800 --> 0:00:42.519 and he said anything for Tom Keene, Well, you know 0:00:42.640 --> 0:00:47.160 it's implied. That's called an implied Pharaoh. Richard House counsel 0:00:47.200 --> 0:00:49.559 and Foreign Relations President Richard, It's always great to get 0:00:49.560 --> 0:00:54.480 your insight. You thank you, sir, I appreciate it. Let's 0:00:54.480 --> 0:00:56.880 talk about what we finally got, which was maybe a 0:00:56.880 --> 0:00:58.800 little bit of a de escalation between Europe and the 0:00:58.880 --> 0:01:01.520 United States. How did you read that, Rachel? I did 0:01:01.520 --> 0:01:04.320 read it as a de escalation. It's a it's a truce. 0:01:04.480 --> 0:01:08.200 The question with truces is whether they ultimately translate into 0:01:08.280 --> 0:01:11.640 treaties and become enduring. And we don't know whether this 0:01:11.680 --> 0:01:14.920 was simply a tactical pullback by the president because he's 0:01:14.920 --> 0:01:18.200 getting some pushback around the country. A lot of people 0:01:18.200 --> 0:01:21.320 who are part of his base, farmers, also people in manufacture, 0:01:21.319 --> 0:01:24.480 just workers are beginning to feel the direct and indirect 0:01:24.480 --> 0:01:27.360 effects of these tariffs. So we don't know whether it's 0:01:27.360 --> 0:01:30.440 simply tactical, as things so often are in this administration, 0:01:30.800 --> 0:01:33.160 or again whether this will be translated into something that 0:01:33.200 --> 0:01:35.920 will last. You've talked before about the several fronts of 0:01:35.959 --> 0:01:38.600 the United States appears to be at war with UM. 0:01:38.800 --> 0:01:41.039 One is trade, and there are other space you think 0:01:41.040 --> 0:01:43.480 it's taking place as well. UM what are you most 0:01:43.480 --> 0:01:47.319 concerned about now? The answer essentially yes, it's all of 0:01:47.360 --> 0:01:50.440 the above. There there's there's trade, which is one and 0:01:50.480 --> 0:01:53.120 the side effect also what of our fiscal stimulus and 0:01:53.120 --> 0:01:56.880 tax cutches the long term debt. I'm worried about North 0:01:56.960 --> 0:01:59.720 Korea because, among other things that is not the nuclearizing. 0:02:00.120 --> 0:02:03.240 I think there's a chance of conflict with Iran, unlike 0:02:03.320 --> 0:02:06.200 North Korea where being urged to confront Iran by our 0:02:06.240 --> 0:02:09.400 local allies and Iran doesn't have great power backers. And 0:02:09.400 --> 0:02:11.680 then domestically, I think the assault on some of our 0:02:11.720 --> 0:02:14.680 institutions in this country is also a real, real grounds 0:02:14.680 --> 0:02:16.720 for concern. I've never asked you this question. I'm gonna 0:02:16.760 --> 0:02:18.880 ask it right now. How does it rand fight wars? 0:02:19.120 --> 0:02:22.400 I mean, I remember my amateur reading of the Iran 0:02:22.560 --> 0:02:26.280 Iraq world, which was basically medieval. But how when when 0:02:26.320 --> 0:02:29.240 you say a potential conflict with Iran, what does that 0:02:29.320 --> 0:02:32.320 actually mean? Luran has many tools. That has cyber tools 0:02:32.480 --> 0:02:35.160 it would use against us. It has terrorism which it 0:02:35.200 --> 0:02:39.040 could deploy anywhere around the world. It has the Revolutionary Guards, 0:02:39.240 --> 0:02:42.920 which is essentially a power military force. It has its 0:02:43.000 --> 0:02:47.640 like a military military like tanks you know Arab Israeli 0:02:47.720 --> 0:02:50.040 sixty seven, but not at not at that level. But 0:02:50.280 --> 0:02:52.600 I mean much much more worrisome about Iran is what 0:02:52.639 --> 0:02:55.679 they could do through what's called asymmetric efforts to interfere 0:02:55.720 --> 0:02:58.800 with shipping. That for example, tankers would be very vulnerable 0:02:58.840 --> 0:03:02.079 to Iranian missile bowes and to Iranian speedboats, which could 0:03:02.080 --> 0:03:04.880 be used as territory. Do they control the Gulf of 0:03:05.680 --> 0:03:08.440 Controls too stronger word, but they could deny it temporarily 0:03:08.560 --> 0:03:10.480 to us or to anybody else. It could be they 0:03:10.480 --> 0:03:13.160 could disrupt. Now that would be a major escalation because 0:03:13.200 --> 0:03:15.880 that would put them a target on their backs, and 0:03:15.960 --> 0:03:18.520 sooner or later they would not prevail in that there's 0:03:18.560 --> 0:03:21.639 this illusion that there is an elected government that is 0:03:21.680 --> 0:03:24.480 a democracy. You really push against that, don't you. Yeah, 0:03:24.520 --> 0:03:27.080 it's almost impossible to speak about the Iranian government in 0:03:27.120 --> 0:03:30.320 the singular. It's plural. You've got a religious authority that 0:03:30.480 --> 0:03:32.880 is not elected, and then you've got political authority, but 0:03:32.960 --> 0:03:36.800 that's limited. Plus now you also have this military, ideological 0:03:36.840 --> 0:03:41.000 intelligence authorities, so you've got multiple centers of power. But 0:03:41.120 --> 0:03:43.360 still I'd say there are this fusion of the political 0:03:43.440 --> 0:03:46.040 with the religious dominates. And the people were used to 0:03:46.080 --> 0:03:49.560 dealing with ravad zarif the foreign minister, Ruhani, the president, 0:03:49.840 --> 0:03:52.480 they are clearly limited in their way. There is something 0:03:52.480 --> 0:03:54.840 broader and perhaps more pathful taking place, and I'd love 0:03:54.880 --> 0:03:57.440 your insight on it. I'm just wondering whether we've ever 0:03:57.480 --> 0:04:01.119 seen a country like the United States its voluntarily give 0:04:01.240 --> 0:04:05.400 up concede hegemonic power. If we ever seen this before, 0:04:05.760 --> 0:04:09.120 short answers, No, We're used to countries being exhausted. We 0:04:09.200 --> 0:04:13.200 saw that, say with the United Kingdom given World War One, 0:04:13.600 --> 0:04:15.720 the right that then we had the fall of the Empire. 0:04:16.279 --> 0:04:18.719 We saw it with the Soviet Union as a result 0:04:18.760 --> 0:04:21.960 of Afghanistan and the Cold war competition the United States 0:04:22.040 --> 0:04:25.640 under to some extent Barack Obama, but intensified under Donald Trump, 0:04:25.960 --> 0:04:28.000 is the first example I'm aware of and history of 0:04:28.000 --> 0:04:31.840 a country voluntarily choosing to abdicate, to walk away from 0:04:31.880 --> 0:04:34.520 a large international role. And what makes it particularly bizarre 0:04:35.000 --> 0:04:37.680 is we have benefited so much. The costs of what 0:04:37.720 --> 0:04:41.040 we've done are far outweighed by the benefits we've derived. 0:04:41.080 --> 0:04:44.880 So to simply abdicate I find without historical precedent and 0:04:44.960 --> 0:04:48.640 without rationale. Thank you so much for to be for 0:04:49.200 --> 0:04:52.520 to brief a visit on radio today, but we greatly 0:04:52.560 --> 0:04:54.960 appreciate it across our morning hours. Richard Hasses with the 0:04:55.040 --> 0:05:10.480 Council on Foreign Relations, This is our interview of the 0:05:10.560 --> 0:05:13.599 day on Facebook. And this goes back to the heritage 0:05:14.320 --> 0:05:19.080 of securities analysis of technology and it started, and I 0:05:19.120 --> 0:05:23.280 mean started forty years ago at Robertson Coleman Cybel and Weisseul. 0:05:23.360 --> 0:05:26.520 Tom Weisseul was really the one that started all of 0:05:26.560 --> 0:05:30.880 this analysis of the investment in finance of technology in 0:05:31.080 --> 0:05:34.719 San Francisco. That distilled down to his wonderful firm and 0:05:34.760 --> 0:05:38.960 then on to Montgomery Securities and John a gentleman who 0:05:39.000 --> 0:05:42.839 helps spearheads so much of this. Then a younger Mark 0:05:42.960 --> 0:05:46.919 Lehman is with us UH today who understands the heritage 0:05:46.960 --> 0:05:50.600 the found dation John of the Medlal Park in San 0:05:50.640 --> 0:05:53.440 Francisco that's blowing up this morning. Isn't it nice to 0:05:53.480 --> 0:05:55.880 have monk with us in New York? It is, and 0:05:56.000 --> 0:05:59.920 particularly because we we don't know the history of where 0:06:00.000 --> 0:06:03.520 Mark and I came from with Robertson Stevens and particularly 0:06:03.520 --> 0:06:06.839 with Tom Weissel, and you've got that heritage that Mr 0:06:06.920 --> 0:06:10.480 Zuckerberg and Miss Samberger bouncing off of this morning, Mott Lehman, 0:06:10.640 --> 0:06:13.640 JAMP Securities, the president joining us around a time. Great 0:06:13.640 --> 0:06:15.760 to have you with us with down in a pre 0:06:15.880 --> 0:06:19.520 market on Facebook. What went wrong, Mork, Well, a few 0:06:19.560 --> 0:06:22.640 things went wrong. One is uh, they clearly had um 0:06:22.800 --> 0:06:26.200 a revenue top line number that missed h the analysts 0:06:26.240 --> 0:06:29.240 expectations and you never want to see that. You combine 0:06:29.279 --> 0:06:33.680 that with expense growth that was well above expectations as well, 0:06:34.040 --> 0:06:37.040 and of course the guidance going forward which was um 0:06:37.080 --> 0:06:39.240 not wonderful and not what the street wanted to see. 0:06:39.279 --> 0:06:41.240 So put those all together with a stock that had 0:06:41.240 --> 0:06:46.000 gone up since the bowels of the Cambridge analytical scare 0:06:46.000 --> 0:06:48.479 in the first quarter in in early April, and it 0:06:48.600 --> 0:06:51.960 was just ripe for disappointment. And all those things combined. 0:06:52.120 --> 0:06:55.320 Have the stock, as you just said, down um, and 0:06:55.320 --> 0:06:56.760 and a lot of people saying I told you so. 0:06:56.839 --> 0:06:59.200 Then again, stock's gonna be flat year to date. It 0:06:59.240 --> 0:07:01.440 was up sent before this year to date. So it's 0:07:01.440 --> 0:07:03.360 not like this is uh, this is kind of a 0:07:03.360 --> 0:07:06.360 don't cry from the Argentina. But clearly this was a disappointment. 0:07:06.360 --> 0:07:09.000 We're going back to May levels and clearly it's a disappointment. 0:07:09.160 --> 0:07:11.240 And I always look at the failure of communication when 0:07:11.240 --> 0:07:14.240 we see moves this big. We haven't got a catastrophe. 0:07:14.280 --> 0:07:17.400 There isn't a crisis that's been announced. We just got 0:07:17.400 --> 0:07:18.720 the numbers and they were a little bit lower with 0:07:18.720 --> 0:07:21.880 the many people anticipated. What are we seeing on the 0:07:21.920 --> 0:07:24.720 screen relative to the news. Is it an overreaction, That's 0:07:24.720 --> 0:07:26.640 what I'm trying to get into, and whether this is 0:07:26.680 --> 0:07:29.040 the mother of all buying opportunities when a company this 0:07:29.120 --> 0:07:35.520 big with so much scope, Well, you're you're you're correct. 0:07:35.760 --> 0:07:38.640 I mean, like you said, it is down here and 0:07:38.640 --> 0:07:40.920 it is kind of flat year to date. UM. This 0:07:41.000 --> 0:07:44.760 will be the largest single uh loss of market cap 0:07:45.160 --> 0:07:48.560 in one day in the industry, and it's all my fault. 0:07:49.120 --> 0:07:51.000 The same people who are telling you I told you so, 0:07:51.040 --> 0:07:53.400 we're telling you to sell the stock at fifty undred 0:07:53.440 --> 0:07:57.480 fifty before that. UM, listen, I I My faith is 0:07:57.520 --> 0:08:00.400 in the fact that they have several platform that are 0:08:00.440 --> 0:08:05.360 still the bell Weather platforms, UM, Instagram, obviously, facebat Facebook. 0:08:05.360 --> 0:08:09.000 Still they break out the income statements of these different boltons, 0:08:09.040 --> 0:08:11.360 including they really don't when they talk about his daily 0:08:11.360 --> 0:08:14.240 average juice they talk about I think the street will 0:08:14.240 --> 0:08:16.440 probably ask for it at some point. UM. I think 0:08:16.440 --> 0:08:19.640 they're probably not going to do that soon because I 0:08:19.640 --> 0:08:22.280 think it helps them, UM compare themselves to some of 0:08:22.280 --> 0:08:25.800 their competitors they have. Although the competition between Instagram and Snapchat, 0:08:26.120 --> 0:08:28.640 I think Instagram. If you my kids, Instagram is the 0:08:28.640 --> 0:08:32.840 winner right now. Do they need to do in April eight, 0:08:33.480 --> 0:08:36.920 that is when Mr Scully took over from Mr Jobs, 0:08:36.960 --> 0:08:39.760 that they need to ring a CEO adult type into 0:08:39.800 --> 0:08:42.640 the room? You know, I don't. I'm not sure we're 0:08:42.640 --> 0:08:44.280 there yet. I think there's plenty of adults are on 0:08:44.360 --> 0:08:46.400 the table. They have had some losses, they've had some 0:08:46.480 --> 0:08:49.959 personnel losses. UM. I think Mark is clearly at the 0:08:50.000 --> 0:08:54.560 helm here. Um, he's not. Uh, I wouldn't put him 0:08:54.640 --> 0:08:57.480 in the category of needing an adult in the room. UM. 0:08:57.520 --> 0:09:02.120 But clearly they're they're very detective of what they have here. UM. 0:09:02.200 --> 0:09:04.600 And and it is a very mercantile company and lost 0:09:04.600 --> 0:09:06.880 that loose say to that. UM. But they're hiring a 0:09:06.880 --> 0:09:09.800 lot of people. They're building more and more personnel and 0:09:09.880 --> 0:09:12.280 expense pressure on that to cure some of the ills 0:09:12.280 --> 0:09:14.199 that we've talked about. I think to play for the 0:09:14.280 --> 0:09:15.959 long bowld not to play for the next quarter. You 0:09:16.000 --> 0:09:17.760 say you wouldn't put him in the category as needing 0:09:17.840 --> 0:09:19.480 an adult in the room, but many people did. It's 0:09:19.480 --> 0:09:22.240 why Sarah Sandberg is there. Quite clearly. Over the last 0:09:22.240 --> 0:09:24.800 couple of months, it's been a total failure. The response 0:09:24.880 --> 0:09:27.480 the Cambridge Analytic a scandal was slow, it was clumsy. 0:09:27.760 --> 0:09:30.120 Some people would just say it was outright pathetic. And 0:09:30.120 --> 0:09:32.199 the way they've communicated these numbers to the market is 0:09:32.240 --> 0:09:36.240 also pretty slow, clumsy, and allowsy and outright pathetic. When 0:09:36.240 --> 0:09:39.360 you see the stock down by this morning, what's clear 0:09:39.360 --> 0:09:40.880 to me is that we have a problem on our hands. 0:09:40.960 --> 0:09:42.800 There is a growth picture that the market thought was 0:09:42.840 --> 0:09:45.120 going to come through, and the company themselves are saying 0:09:45.120 --> 0:09:48.319 it's now not going to expenses rows, marchins have come 0:09:48.320 --> 0:09:50.440 in a little bit. I guess the judgment called this 0:09:50.480 --> 0:09:52.880 morning is whether you think that trend continues. Is this 0:09:52.960 --> 0:09:56.480 a company that's just resetting expectations, or are we about 0:09:56.520 --> 0:09:59.559 to see Facebook ultimately go to a more mature stage 0:09:59.559 --> 0:10:01.320 where we're gonna get the kind of growth levels we've 0:10:01.360 --> 0:10:03.360 got used to and when marchings are gonna get a 0:10:03.400 --> 0:10:05.720 little bit tight to what do you expect now? Mark? 0:10:05.880 --> 0:10:10.240 In the reset today, you're gonna see expenses bloat a 0:10:10.320 --> 0:10:13.000 little bit for now. I think given the revenue um 0:10:13.040 --> 0:10:14.720 that they're going to garner and I think that this 0:10:14.800 --> 0:10:18.200 move to the platform, obviously the online platform is still 0:10:18.200 --> 0:10:21.400 in its infancy. You are still seeing the media um 0:10:21.480 --> 0:10:24.160 spend go more and more towards online that has not anated. 0:10:24.200 --> 0:10:27.679 You saw what Google reported earlier this week, a gargantuan 0:10:27.760 --> 0:10:29.280 company that was still able to report the kind of 0:10:29.280 --> 0:10:31.200 revenue growth they have. I don't think this is a 0:10:31.320 --> 0:10:34.240 revenue diminution story. I think this is still a story 0:10:34.240 --> 0:10:37.559 of whether you've got a lot or expenses and revenues 0:10:38.080 --> 0:10:41.000 bigger story, Mark Leman with us with j MP thrilled 0:10:41.040 --> 0:10:43.079 that he's with us today with his heritage the Bank 0:10:43.160 --> 0:10:46.760 of American Securities in Tom Weissel and Montgomery as well. 0:10:47.320 --> 0:10:51.599 I just did it a fitted standard deviation study and 0:10:51.880 --> 0:10:56.400 Mr Zuckerberg is joining enjoying a four point four standard 0:10:56.480 --> 0:11:01.360 deviation dropping the stock as we speak. Everything in me 0:11:01.600 --> 0:11:05.439 says load the boat if you believe in the fundamental story. 0:11:05.880 --> 0:11:09.360 JP Morgan and just price target, somebody else adjusted, Piper 0:11:09.480 --> 0:11:13.520 Jeffrey adjusted price Target, Susquehanna want the other way and 0:11:13.640 --> 0:11:16.679 said we're long. What are you right now? Could you 0:11:16.800 --> 0:11:19.559 devolve that before your morning morning meeting. I mean, we're 0:11:19.559 --> 0:11:22.080 still positive on the story, and I think our analyst 0:11:22.160 --> 0:11:25.040 Ron Josie has been pointing out what we talked about earlier, 0:11:25.080 --> 0:11:27.280 which is there's multiple ways to win here. If you 0:11:27.400 --> 0:11:29.640 just look at the ads on Instagram and the target 0:11:29.679 --> 0:11:32.120 markets that they have, that's a huge market. It's the 0:11:32.200 --> 0:11:36.000 absolute eighteen thirty market that absolutely advertisers always can I 0:11:36.120 --> 0:11:39.560 just say, Johnny, everybody at home has glued to Instagram. Yeah, 0:11:39.640 --> 0:11:42.719 I mean, I mean they have several franchises outside of 0:11:42.760 --> 0:11:46.360 the coal product with a billion users. Messenger WhatsApp on Instagram. 0:11:46.760 --> 0:11:48.880 If you believe in the story like Mark does this morning, 0:11:48.960 --> 0:11:51.920 there's quite clearly areas way you're gonna see significant are 0:11:51.960 --> 0:11:54.680 you four point four standard deviation? This is a massive 0:11:54.760 --> 0:11:57.839 move because it's like your single best buy. It's it's 0:11:57.880 --> 0:11:59.880 certainly one at the top of our list. You also 0:12:00.080 --> 0:12:02.200 have a stock, like we said earlier, that's gone from 0:12:02.200 --> 0:12:04.840 a hundred basically a hundred and fifty a Troughton April 0:12:05.040 --> 0:12:10.000 to fifteen yesterday. Okay, so in three months, can up 0:12:10.040 --> 0:12:12.720 the script please? Days? Okay, this is so important. We're 0:12:12.760 --> 0:12:15.480 talking about the heritage mark that you carry with you 0:12:15.600 --> 0:12:19.040 from the days of tomoisel and and and Robertson Stevens 0:12:19.200 --> 0:12:23.599 and that everybody out there collapsed in a one. What 0:12:23.880 --> 0:12:27.800 was the humility lesson out of the Nasdack collapse of 0:12:27.920 --> 0:12:32.880 March of one for the San Francisco securities industry. Well, 0:12:33.440 --> 0:12:36.199 you asked a really large question that the industry had 0:12:36.280 --> 0:12:40.439 started to um morph um. The four horsemen a term 0:12:40.520 --> 0:12:43.680 that many of you know. Roberts and Stephens, Montgomery, Hamberken, 0:12:43.760 --> 0:12:45.720 Quests and Alex Brown had all been bought by larger 0:12:45.800 --> 0:12:49.120 banks um and at that time San Francisco, which was 0:12:49.200 --> 0:12:51.880 the hub of those three of those firms, Roberts and Stephens, 0:12:51.880 --> 0:12:55.120 Hamberg Montgomery have been bought by banks, and in doing so, 0:12:55.800 --> 0:12:58.559 the the core of the of those firms, which is 0:12:58.640 --> 0:13:01.719 really technology and healthcare, research and banking um started to 0:13:01.800 --> 0:13:03.640 morph and and move a little. The Nexus move to 0:13:03.679 --> 0:13:07.400 New York. And as that happened, a a vacuum was 0:13:07.440 --> 0:13:10.360 created in tandem with the fact that the market was crashing. 0:13:10.920 --> 0:13:13.959 So our firm, JMP got started at that time on 0:13:14.040 --> 0:13:16.480 the heels of that. Tom Wisele also started his firm 0:13:16.559 --> 0:13:19.520 and has since moved in emerged into Stifel. But at 0:13:19.600 --> 0:13:21.280 that time there was a little bit of a vacuum then, 0:13:21.520 --> 0:13:25.160 and San Francisco really was it was. It was a 0:13:25.240 --> 0:13:27.800 ghost town relative to the way it is today. John 0:13:27.840 --> 0:13:30.080 Farrell on our team, thank you so much for coming. 0:13:30.120 --> 0:13:33.240 And this is an extraordinary day. I didn't realize, folks 0:13:33.320 --> 0:13:36.240 that John Farrell, you said this could be the largest 0:13:36.559 --> 0:13:40.080 capitalization drop in history. I don't think we've ever had. 0:13:42.200 --> 0:13:44.520 I believe it will be a hundred billion plus today. 0:13:44.640 --> 0:13:47.719 Intel dropped I believe ninety billion at one In the 0:13:47.800 --> 0:13:50.400 old days and when the market was in two thousand 0:13:51.200 --> 0:14:06.480 thank you so much, greatly appreciated. Well, we're gonna shift 0:14:06.600 --> 0:14:09.000 right now to James Bevan, who has a tactical and 0:14:09.080 --> 0:14:12.320 strategic view of what to do with long term investment 0:14:12.360 --> 0:14:16.400 at c c l A Investment management in London. James, 0:14:16.520 --> 0:14:20.480 how do you distill three and forty two earnings reports 0:14:20.520 --> 0:14:24.080 that one day? You can't do it? So? How do 0:14:24.160 --> 0:14:26.960 you sort of keep up with the portfolios? Earn? Tom? 0:14:29.040 --> 0:14:30.600 Sorry I lost you for a moment. Could you do 0:14:30.720 --> 0:14:32.600 that again? Okay, I'll do it. You're you know, you're 0:14:32.640 --> 0:14:35.320 a pro, your own x amount of securities in the 0:14:35.480 --> 0:14:39.120 earnings madness? How do you keep up with the news flow, 0:14:39.520 --> 0:14:43.960 whether it's Facebook, American Airlines or whatever. I think keeping 0:14:44.000 --> 0:14:47.400 up the news flow is immensely easy because it's all tagged. 0:14:47.440 --> 0:14:48.920 It all comes up. You don't have to go and 0:14:49.000 --> 0:14:51.480 look for it. I think what is interesting is how 0:14:51.560 --> 0:14:54.920 does one deal with information overload? How does one read 0:14:55.040 --> 0:14:58.160 through the numbers and arrive at a decision that looks 0:14:58.200 --> 0:15:01.560 prudent without panicking with buying too much at the top. 0:15:01.960 --> 0:15:04.040 And for me, this is a matter of stepping back 0:15:04.120 --> 0:15:07.160 and taking a long term view. I worry that there 0:15:07.200 --> 0:15:10.040 are far too many investors whose time horizon is very short. 0:15:10.120 --> 0:15:12.160 The day trade is good luck to them. I think 0:15:12.200 --> 0:15:14.800 that's going to be an increasingly difficult game to play. 0:15:15.200 --> 0:15:17.920 The other issue that you will readily recognizes the companies 0:15:18.000 --> 0:15:20.920 cannot know a brief away from the public arena, so 0:15:21.200 --> 0:15:25.960 digging up real nuggets information is much harder. Real insight 0:15:26.080 --> 0:15:29.360 therefore will be very valuable. This is really important, John, 0:15:29.520 --> 0:15:33.240 the information flow today, James and I. John, remember when 0:15:33.280 --> 0:15:38.200 there was no PDF, no internet. In a ten am 0:15:38.320 --> 0:15:41.000 a cart with four heavy wheels was rolled off the 0:15:41.120 --> 0:15:46.160 elevator loaded with written reports. John, have you ever seen 0:15:46.200 --> 0:15:49.800 a written report? Hand written? No? No, No, we didn't 0:15:49.840 --> 0:15:52.720 use quill. Beven used quill. He was in London. I 0:15:52.800 --> 0:15:54.640 didn't use quill. I don't know if we go back 0:15:54.640 --> 0:15:58.760 to the twenties or not, but this information equality now 0:15:58.960 --> 0:16:01.520 is remarkable. Which is a big question, James, about whether 0:16:01.560 --> 0:16:03.400 you can actually get an edge as a stock picker 0:16:03.760 --> 0:16:07.280 in Well research heavily perhaps overly researched large cap companies, 0:16:07.320 --> 0:16:08.960 whether you have to go to MidCap to small cap 0:16:09.200 --> 0:16:12.720 to find that edge. James, I think that if you 0:16:12.800 --> 0:16:15.920 take strategic views that the street turns to ignore, you 0:16:16.080 --> 0:16:19.840 absolutely can and you identified the secular trend that has 0:16:19.880 --> 0:16:22.800 been played out with MasterCard and Visa. They're both big 0:16:22.880 --> 0:16:25.800 holdings in our portfolios because we share your view. But 0:16:25.920 --> 0:16:28.080 this is a secular growth story and it will run 0:16:28.200 --> 0:16:30.440 and run. It amazes me how many people are not 0:16:30.560 --> 0:16:32.480 stepping back and saying, well, so, what are the big 0:16:32.560 --> 0:16:35.920 picture changes going on? STARTI to which we should have leverage. 0:16:35.960 --> 0:16:38.560 What are the big picture changes conversely, which we should 0:16:38.640 --> 0:16:42.360 try to avoid because they will trip us up. Well, 0:16:42.440 --> 0:16:44.920 let's talk about the other trends then, because the payment 0:16:44.960 --> 0:16:47.520 processing companies are just ripped James, as you know, and 0:16:47.560 --> 0:16:49.640 if you've been sitting on them, you'll be doing very well. 0:16:49.760 --> 0:16:52.600 Visa is up twenty year today, MasterCard for E one, 0:16:52.680 --> 0:16:56.400 PayPal square up over a hundred percent. All of these 0:16:56.440 --> 0:16:59.000 part of the same story. What's the other trend, this 0:16:59.120 --> 0:17:01.560 secular shift that we aren't picking up on, because quite 0:17:01.560 --> 0:17:03.920 clearly many investors of court hold of that wind. What 0:17:04.000 --> 0:17:07.360 are you looking at that you think people are missing? Well, 0:17:07.440 --> 0:17:12.080 I certainly think that within the disruptive technologies generally in 0:17:12.160 --> 0:17:16.000 the field of pharmaceuticals, for example, we're not heavy in drugs. 0:17:16.080 --> 0:17:20.000 What we are interested in at diagnostics and devices. So 0:17:20.119 --> 0:17:23.680 we're looking at the companies that are able to help 0:17:24.480 --> 0:17:28.200 practitioners have a better understanding of the diseases they're looking 0:17:28.240 --> 0:17:31.280 at with their patients. Those I think of the ideas 0:17:31.280 --> 0:17:34.159 because you can see secular growth, and you can you 0:17:34.240 --> 0:17:37.600 can calculate how big that market will be and therefore, 0:17:37.640 --> 0:17:40.520 by extension, how fast earnings will grow with it. This 0:17:40.720 --> 0:17:44.879 jasp Bevan is with rates higher, I'm seeing a ton 0:17:45.160 --> 0:17:48.560 of two and three billion dollar deals. They'd already make 0:17:48.600 --> 0:17:51.760 the news visibility Farer is so huge on his TV 0:17:51.960 --> 0:17:55.120 property he won't even mention a three billion dollar deal. 0:17:55.359 --> 0:17:58.960 It's too small for John James to mention on here. 0:17:59.320 --> 0:18:01.320 But there's a time of them out there. Are we 0:18:01.400 --> 0:18:03.720 going to see an M and A frenzy as rates wolver? 0:18:05.000 --> 0:18:07.159 I certainly think we will, and I think that M 0:18:07.240 --> 0:18:09.440 and A is going to be driven in part because 0:18:09.880 --> 0:18:12.520 a number of companies are finding organic growth in a 0:18:12.640 --> 0:18:16.879 climate to slowing overall global growth increasingly hard to deliver, 0:18:17.040 --> 0:18:19.280 and they are fearful of what the market will do. 0:18:19.720 --> 0:18:21.880 They come to the table with numbers that are down, 0:18:21.960 --> 0:18:25.920 not up. What about the evaluation of these companies based 0:18:25.960 --> 0:18:32.119 on high rates? James the valuations issue I think is 0:18:32.200 --> 0:18:34.800 really important, and what I would observe in the US 0:18:34.880 --> 0:18:38.040 equity market is that the strength of corporate earnings this 0:18:38.240 --> 0:18:43.240 year means that equities have had a roughly a fifteent devaluation. 0:18:43.680 --> 0:18:46.200 To me, the case for buying US equities as strong 0:18:46.280 --> 0:18:48.920 as it's ever been. And I'm still projecting that the 0:18:49.040 --> 0:18:51.879 SMP five hundred gets to forty one points by the 0:18:52.000 --> 0:18:53.480 end of the year this year, and if not by 0:18:53.520 --> 0:18:55.480 the end of this year, certainly by the middle of next. 0:18:55.640 --> 0:18:57.960 It's way too early to sign up to the band 0:18:58.000 --> 0:19:00.600 market idea. So do you share that in musiasm for 0:19:00.640 --> 0:19:04.520 European echoities? James, No, do you know, I certainly do not. 0:19:04.800 --> 0:19:10.480 I worry about the US US economy being hotter than expected. Conversely, 0:19:10.520 --> 0:19:14.439 I worry about the European economy and being slower than expected. 0:19:14.800 --> 0:19:18.399 And that's because that the European growth story is predicated 0:19:18.520 --> 0:19:24.720 on two challenges. Export she's increasingly difficult, and also domestic growth. 0:19:24.800 --> 0:19:27.359 And the domestic growth story on the back of slowing 0:19:27.400 --> 0:19:31.480 consumption trends is really very upsetting. Jez Bevin, thank you 0:19:31.560 --> 0:19:35.159 so much, greatly appreciate your thank you. Bloomberg's surveillance to 0:19:35.480 --> 0:19:52.720 just now talk with Winthin and Brown Brothers Harman with 0:19:52.840 --> 0:19:57.440 a really unique perspective on UM Eastern European and emerging 0:19:57.520 --> 0:20:00.360 market currencies and what they signal went to. And let's 0:20:00.400 --> 0:20:04.480 talk first of all about the core question is is 0:20:04.880 --> 0:20:11.400 Chairman Powell the central banker to the emerging markets? Let's 0:20:11.400 --> 0:20:13.399 say he's in some ways he's the central banker to 0:20:13.440 --> 0:20:15.679 the world, right. I mean a lot of eyes are 0:20:15.680 --> 0:20:19.359 obviously on ecb UH this week, Big Bank, Japan, BANKAM 0:20:19.359 --> 0:20:21.200 England next week. But really the feed is still the 0:20:21.440 --> 0:20:23.879 really the main driver for global markets, and I think 0:20:23.920 --> 0:20:26.680 that's one of the reasons I remain fairly nervous, thought 0:20:26.720 --> 0:20:29.960 e M. Mr Powell. Um, they continuing with the tightening 0:20:30.000 --> 0:20:33.280 path that Michellan set forth the signal two more hikes. 0:20:33.320 --> 0:20:36.440 This here em in general does poorly in a set 0:20:36.520 --> 0:20:42.920 tightening environment. So we've got the idiosyncratic stories Argentina, Turkey, etcetera. 0:20:43.320 --> 0:20:47.160 Let me talk about Philippines, which has been extremely well 0:20:47.280 --> 0:20:50.600 managed at the one at the fifty three level, folks, 0:20:50.640 --> 0:20:53.840 this has been a much weaker Philippine Peso and then 0:20:54.359 --> 0:20:58.359 in some real stability in Philippine Peso, how are they 0:20:58.440 --> 0:21:03.320 doing that well. As you probably know, most currencies and 0:21:03.320 --> 0:21:06.680 emerging markets are are heavily managed. Uh. You know, I 0:21:06.720 --> 0:21:08.560 can really count on one and one or two hands 0:21:08.600 --> 0:21:11.360 and the number of EM currencies that are really freely tradeable. 0:21:11.960 --> 0:21:14.200 For the most part, they're heavily managed. We have a 0:21:14.320 --> 0:21:18.920 combination of UM intervention stealth intervention. Uh. We are in 0:21:18.920 --> 0:21:20.960 a tightening cycle and in many EM right now. I 0:21:21.000 --> 0:21:22.440 think that's if you want take a step back, that's 0:21:22.440 --> 0:21:25.240 to me, it's a big game changer for e M. Uh. 0:21:25.320 --> 0:21:28.520 You know, EM has benefit from zero rates around for 0:21:28.680 --> 0:21:30.720 the dark world for almost a decade if not more, 0:21:31.240 --> 0:21:33.480 and we're finally getting out of that. And because that, 0:21:33.520 --> 0:21:37.320 we're seeing a repricing of e M assets, UM equity, 0:21:37.400 --> 0:21:39.400 fixed income, exchange rates were and I think we're still 0:21:39.400 --> 0:21:42.320 in the early days adjustment. But in general I look 0:21:42.400 --> 0:21:46.480 for higher EM interest rates as well as weaker EM 0:21:46.560 --> 0:21:51.960 currencies and some combination thereof thin tell us about China 0:21:52.480 --> 0:21:58.720 monetary easing in China, you know, it's China. It's interesting. 0:21:58.840 --> 0:22:01.679 You know, they've been trying to de leverage, they've been 0:22:01.720 --> 0:22:04.920 trying to get away from the sort of debt fueled 0:22:05.040 --> 0:22:07.240 growth that we've seen over the past decade. But any 0:22:07.320 --> 0:22:09.919 time the the economy slows we get a hiccup, they 0:22:09.960 --> 0:22:12.320