Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. We're
Speaker 1: beginning them with a story of volatility. The volatility appears
Speaker 1: to be on the front pages of most of the
Speaker 1: international newspapers. You don't really see it in the market.
Speaker 1: In the United States, the VIX index very briefly traded
Speaker 1: with an eleven handle this morning. So where is the vault?
Speaker 1: I feel like it's seen again. Let's bring into Bias
Speaker 1: Left Kovic, City Chief US equity strategist. Good morning to Bias,
Speaker 1: Good morning, I'm very well the front pages of most
Speaker 1: of the newspapers freaking out as they usually do. To Bias.
Speaker 1: Don't see it in the market, do you not? Really? Um?
Speaker 1: You mentioned the VIX. We we track our Panicky four
Speaker 1: a model, which is more a proprietary model looking at positioning,
Speaker 1: and we're seeing kind of neutral levels. Back if you
Speaker 1: went to January, everybody was really excited and that's kind
Speaker 1: of fallen off with some inflation fears back in February,
Speaker 1: and investors now are getting buffetted, if you like, by
Speaker 1: concerns on let's say trade. But on the other side,
Speaker 1: they're saying, hey, earnings are pretty good, buybacks are pretty good,
Speaker 1: so they're not that rattled. No, so we have this
Speaker 1: story where the secular growth story holds up. You see
Speaker 1: that in tech, where the earnings have been terrific. Text
Speaker 1: stocks all time highs, and that's that record high small
Speaker 1: caps in the United States off the back of a
Speaker 1: stronger domestic economy that russell at all time high. So
Speaker 1: set me up for summer. To b us your note
Speaker 1: this morning, tourists often head out for summer. I read
Speaker 1: that earlier in the week. Yeah, a lot of that
Speaker 1: had to do with we got this little fear last
Speaker 1: week around Italy and everybody kind of bolted from cyclicals.
Speaker 1: They backed off their financials as bond yields moved in
Speaker 1: kind of as a as a function of the safe
Speaker 1: have and trade. So investors don't have great conviction in
Speaker 1: their positions. The one area they do is intact where
Speaker 1: they feel very comfortab about the long term growth story.
Speaker 1: But my only argument there would be everybody knows that already.
Speaker 1: You know, what's your incremental piece of good news. It's
Speaker 1: going to drive those stocks even higher. You mentioned small
Speaker 1: caps wasn't a risk trade, it was a dollar trade.
Speaker 1: As the dollar went up, it kind of dragged the
Speaker 1: small caps up with them. They're they're very sensitive to
Speaker 1: those currency moves. So it's not even that people are
Speaker 1: that excited about the small cap growth domestic economy story,
Speaker 1: because I could have made that argument three or four
Speaker 1: or five months ago and they weren't participating in the
Speaker 1: same way. So it's more a currency issue. In general,
Speaker 1: investors have been kind of looking for something that's going
Speaker 1: to get them really excited. You can't cough until John coughs,
Speaker 1: and he can't cough till I cough. Well, I think
Speaker 1: everybody will ever again. If you can find me good
Speaker 1: allergy medicine, I'm buying that stock. Tom Tom Kane has
Speaker 1: got some good meds I have, And you know it's
Speaker 1: it's it's shaking forever um Tobias. When we look at
Speaker 1: the spirit of the equity markets, there's got to be
Speaker 1: an opportunity, it's got to be a value. Which sector
Speaker 1: is the one where you go? You know this hasn't
Speaker 1: moved like Amazon. There's a real opportunity here either to
Speaker 1: make a total return or to protect myself of things
Speaker 1: fall apart, which is that sector. So if I have
Speaker 1: to think about protect they're a little different. If I
Speaker 1: have to think about protection, it's it's things like farm
Speaker 1: in biotech where they really drive to beat of a
Speaker 1: different drummer, and it's a function of pipelines, FDA approval,
Speaker 1: those kind of factors. Um. They're they're defensive and in
Speaker 1: the in the generic sense, but they also have this
Speaker 1: kind of relationship to increase volatility if we get it um.
Speaker 1: On the other side, I think areas like energy have
Speaker 1: been left a bit in the dust here. People have
Speaker 1: have very low conviction in the ability for the industry
Speaker 1: to maintain profitability and at the same time that the
Speaker 1: industry can't actually put in more production in the premium
Speaker 1: basin right now because there's all these pipeline bottlenecks. I mean,
Speaker 1: all Street Journal had a great charter lumber. Today, I
Speaker 1: took it off the Bloomberg terminal and did inflation adjusted lumber,
Speaker 1: and we're really very peaky. Are we seeing a commodity
Speaker 1: turn including oil, including lumber, etcetera. So I know that
Speaker 1: you followed Morse's work pretty closely at City, and they
Speaker 1: do believe that commodities are are probably an interesting area
Speaker 1: to go. The one risk would be very powerful dollar
Speaker 1: that would hurt commodities. UM, we don't see the reason
Speaker 1: for a very powerful dollars. I don't see a particularly
Speaker 1: great reason for for a horrible dollar either. So we're
Speaker 1: gonna kind of trade around here, and that gives commodities
Speaker 1: the ability to UH to continue moving higher. So we
Speaker 1: do like material stocks as well, but energies one where
Speaker 1: I think investors have extremely low belief in the disciplined
Speaker 1: industry UM, which almost can't get undisciplined in its capital
Speaker 1: spending activity in midwestern Texas simply because they can't move
Speaker 1: the oil right now, can we spend a little bit
Speaker 1: a on talking about another convictions right? Um sector convictions
Speaker 1: right for a lot of people, financials, and it just
Speaker 1: isn't delivering. Um. You spend a little bit of time
Speaker 1: researching this over the last week, and I mentioned the
Speaker 1: last few years as well, just why isn't that delivering?
Speaker 1: Why is it a story of seven seen and the
Speaker 1: eight seen? So so I think part of the reason
Speaker 1: for financials, and I can't necessarily tell you what everybody thinks,
Speaker 1: but I think part of the reason for financials is
Speaker 1: that UM it's viewed as an industry potentially under attack,
Speaker 1: similarly retail, similar to energy with technology changes, so fintech
Speaker 1: the idea that you could, you know, pay without using
Speaker 1: your credit card and some other system for whatever product
Speaker 1: you want to buy, that they're being bypassed. The same
Speaker 1: thing on the lending side, if you go to some
Speaker 1: of the you know, crowdfunding lending UM alternatives. We think
Speaker 1: that's all fair and dandy and that people who have
Speaker 1: this perspective, But the big story in our mind is
Speaker 1: a pickup that's coming in in commercial industrial lending. That
Speaker 1: usually has about a six quarter lag from when you
Speaker 1: see change and lending standards. So if you were all
Speaker 1: back in late in early twenty six rather there was
Speaker 1: a lot of pressure around the energy sector causing disruption
Speaker 1: in credit markets, and that showed up in terms of
Speaker 1: learning activity in the latter part of last year. Six
Speaker 1: quarters later. That started inflecting in the first quarter, and
Speaker 1: we would expect a meaningful improvement in the next couple
Speaker 1: of three quarters in learning activity for commercial industrial loans.
Speaker 1: That's a function of M and A. It's a function
Speaker 1: of of major capital aspenditures that you can't go out
Speaker 1: and borrow ten billion dollars in some crowdfunding aspect, you
Speaker 1: have to go to the syndicates of the banks. It's
Speaker 1: the tax plan a big factor. It helps at the margin.
Speaker 1: So one of the really distinctive and divergent trends, as
Speaker 1: we saw in May, the Senior Loan Officer survey from
Speaker 1: the Followerserve Board come out showing further easing and credit
Speaker 1: standards in an environment where we're seeing Wait a minute,
Speaker 1: but the feather raising rates bonules are higher, credit spreads
Speaker 1: of widened some degree. Um. Isn't that kind of the
Speaker 1: exact opposite direction. Um. So what a lot of banks
Speaker 1: told you when they got the tax cuts was that
Speaker 1: they would use about half of the savings and the
Speaker 1: tax cuts to be more competitive and provide better terms
Speaker 1: to corporate lenders. And that's exactly what they seem to
Speaker 1: be doing. Levich Greta can't shop me this morning. Cities
Speaker 1: chief US equity strategist with a cough like the rest
Speaker 1: of us with us John Taft, he is vice chairman
Speaker 1: of Baird among other services, working with RBC and Mini
Speaker 1: Eppo shops before that, but much more. Also on his
Speaker 1: important book of X number of years ago called Stewardship, which,
Speaker 1: to give you a perspective, Taft the Republican at a
Speaker 1: blurb from one B. Frank Barney Frank. How did that
Speaker 1: come about? How did Barney Frank? You know, you look
Speaker 1: at the back of the book and you go Barney
Speaker 1: Frank's telling us shot up and read John Taft, how
Speaker 1: did that happen? Yeah? And he wrote about how surprised
Speaker 1: it was that John Taft had something he felt worth endorsing.
Speaker 1: Actually it came about because during the financial crisis, I
Speaker 1: testified to his committee in favor of a fiduciary standard
Speaker 1: of care for financial advisors providing advice to individual investors.
Speaker 1: And uh, well, you say, what a shock. But Tom, today,
Speaker 1: almost ten years later, we're still debating whether that's a
Speaker 1: good idea. Why do we need a fiduciary care act?
Speaker 1: If we have prudent man rule from Mr Putnam a
Speaker 1: few years before the test And this has been the
Speaker 1: debate going on for the last ten years. Here's what's
Speaker 1: what's happening today. Though we're in a good place anyway,
Speaker 1: that's how Barney Frank came to came to normally around
Speaker 1: the fiduciary standard. But what's happened is the SEC was
Speaker 1: given by Barney Frank and his committee the authority to
Speaker 1: write a fiduciary rule. They didn't. Then the Department of
Speaker 1: Labor under Tom Perez came in and wrote a rule
Speaker 1: that quite frankly, I would think was one of the
Speaker 1: worst pieces of financial regulation to come out of the
Speaker 1: financial crisis that now has been thrown out by a court.
Speaker 1: And mercifully, the SEC under Jay Clayton is stepping through
Speaker 1: the four and there and they've proposed regulation best interest
Speaker 1: exactly what you're talking about, the Putnam formulation. Why do
Speaker 1: you need a financial finucier rule If there's a regulation
Speaker 1: saying you have to put clients interests first without regard
Speaker 1: to your own financial situation, that's what the SEC is doing.
Speaker 1: The SEC knows what he's doing. And finally we may
Speaker 1: get a rule that has a uniform and higher level
Speaker 1: of investor protection than we've had in the past. That'll
Speaker 1: be good for everybody, good for the industry, and good
Speaker 1: for clients. And you mentioned Jake Clayton and he's we've
Speaker 1: had him in for interviews and also of course his
Speaker 1: work at the Economic Club of New York. And I
Speaker 1: would mention the chairman Levitt is a fan of what
Speaker 1: he's seas in Germany, Clayton, and that speaks to normalcy
Speaker 1: within regulation, normalcy within Washington, and it speaks to a
Speaker 1: normalcy which is the fabric of the Taft family going
Speaker 1: back to President and Chief Justice taff and frankly long
Speaker 1: before that as well. Do you see a normalcy out
Speaker 1: there within political and financial America right now? I so
Speaker 1: I'm gonna answer the question yes, but I mean yes
Speaker 1: and no. So here's what I mean. If you look
Speaker 1: at the political UH dialogue, the process, the dysfunctionality UH
Speaker 1: at the highest levels of our political leadership, you would say, no,
Speaker 1: we're as far away from what my family represented in
Speaker 1: their six decades of public services you can get. On
Speaker 1: the other hand, if you look at the actual policies
Speaker 1: coming out, in particular in the financial sector. So a
Speaker 1: year ago, Secretary of Treasury and the new oution signaled
Speaker 1: what the Trump Administration's going to do, and they've been
Speaker 1: executing it. And guess what, it actually makes sense. It's
Speaker 1: reasonable and appropriate. The pendulum of financial regulation swung much
Speaker 1: too far to the excessive side of the equations to
Speaker 1: financial crisis, and now we're just correcting it back to
Speaker 1: a level that's appropriate. But you listen to the Elizabeth
Speaker 1: Warrens of the Earth world and it's like the end
Speaker 1: of Western humanity. I want to go back to incentives here,
Speaker 1: which is something you've had to deal with across wealth
Speaker 1: management at over we C and with your stewardship Bart.
Speaker 1: And that is the idea that I hear this from
Speaker 1: people all the time, and that executives today are so
Speaker 1: incentivized off of their income statement and off of profit
Speaker 1: that labor is not getting their fair share. If we
Speaker 1: gone is a pendulum gone so far that executives are
Speaker 1: only representing themselves. The issue greater good, the issue that
Speaker 1: financial institutions have been dealing with since the partnership model
Speaker 1: went away, since people who own and ran financial services
Speaker 1: firm no longer had their own capital at risk, is
Speaker 1: the agency problem. There's an asymmetric ward system, i e.
Speaker 1: The chance to make lots of money if things go well,
Speaker 1: but you lose nothing if things go poorly. That is
Speaker 1: the asymmetric compensation system that prevails today at Wall Street.
Speaker 1: One of the things that I've experienced recently, Tom, since
Speaker 1: I went back to work at Robert W. Beard, which
Speaker 1: is a hundred percent owned by its employees, is having
Speaker 1: your own capital at risk again. And you know what,
Speaker 1: it makes a complete difference. Um, it's not reasonable to
Speaker 1: expect that today, but we need incentive systems that recreate
Speaker 1: that with this. John Taft of Minneapolis, of course, and
Speaker 1: his good work. John Ferrell, my colleague, really doesn't understand
Speaker 1: the Minnesota vikings, so we have them reading I Did
Speaker 1: It my Way, A remarkable journey to the Hall of
Speaker 1: Fame by Bud Grant. But within that, John, is the idea,
Speaker 1: John Farrell, that that London global Wall Street is different.
Speaker 1: Do you do, John Taft, do you distinguished between how
Speaker 1: we're doing this in America between what we're seeing in
Speaker 1: the city in London. I don't. I don't know the
Speaker 1: London environment. I can tell you that how you do
Speaker 1: things in New York is different from the heartland. How
Speaker 1: you do things in the Heartland. You asked me that
Speaker 1: question on on your show earlier today. In other words, uh,
Speaker 1: we keep focusing on a half dozen financial institutions based
Speaker 1: here in New York or in a major financial system guilt.
Speaker 1: There are tens of thousands of financial institutions across the
Speaker 1: country who have their own capital at risk and who
Speaker 1: serve middle market and individual clients. And that's the Wall
Speaker 1: Street that we don't pay attention to. Is that true
Speaker 1: in England? Is that? Is it a London focus or
Speaker 1: is it just like Canada more consolidate And there's very
Speaker 1: much London focus in the UK across the board, and
Speaker 1: not just in finance. That's been the accusation against the
Speaker 1: UK for ages. Just to wrap things up with you, John,
Speaker 1: you mentioned Senator Warren and her pushing back against a
Speaker 1: little bit of deregulation to what extent is there still
Speaker 1: just a political football and about points scoring. I think
Speaker 1: it's entirely a political football and about point scoring, because
Speaker 1: if you look at what's going on in deregulation, honestly done,
Speaker 1: it is tweaking. It is not whole scale scaling back
Speaker 1: do Frank and the tweaks are appropriate, and the tweaks
Speaker 1: will remove irritance and impediments to financial institution in tuitions
Speaker 1: doing what they're supposed to do, which is to facilitate
Speaker 1: economic growth. John' taft. Great to have a bit of
Speaker 1: presidential blood around the table in New York City, great
Speaker 1: great grandfather John. Yes, amazing, And it was also Chief
Speaker 1: Justice John Ferro. This is a real distinguishing feature. Yeah,
Speaker 1: that's what he really wanted to do, but he did
Speaker 1: the the the political band first. Right to have you
Speaker 1: with us, Bunce, Chairman of BET, Thank you very much.
Speaker 1: Shannon O'Neil has been wonderful and Latin American studies on Mexico,
Speaker 1: but much more on overall Latin America on some of
Speaker 1: the dynamics here. She's at the Council on Foreign Relations
Speaker 1: where she is the Nelson and David Rockefeller Senior Fellow
Speaker 1: for Latin American Studies, and we're honored that she can
Speaker 1: join us now this morning. Shannon, is Brazil just simply
Speaker 1: the usual Brazilian politics or is there something else going
Speaker 1: on this time? Well, good morning, Tom, nice to join you.
Speaker 1: You know, it makes a bit of both. There are
Speaker 1: particular things that are happening right now. We have seen
Speaker 1: some very serious strikes go nationwide. Truckers pull over and
Speaker 1: stop delivering goods, to the point where millions of chickens
Speaker 1: were dying because there was no feed. Airplanes weren't taking
Speaker 1: off because there was no fuel. So we've seen some
Speaker 1: immediate disruptions in the economy, but it's also these bigger
Speaker 1: fundamental issues that I think investors are finally looking at
Speaker 1: the ones you mentioned. And Brazil has incredibly high debt
Speaker 1: to GDP ratio, so as people look to rising interest
Speaker 1: rates the United States and more globally, this is a
Speaker 1: country that's going to get hit hard. Well, Shannon, I
Speaker 1: think you bring up an important point because a lot
Speaker 1: of people look at Brazil. I think that the story
Speaker 1: of the last ten years was a commodity story, but
Speaker 1: actually a lot of the growth came off the back
Speaker 1: of credit, didn't it, Shannon. It did. Credit was a
Speaker 1: big part of a consumption was a real engine for
Speaker 1: Brazil for many of these years. We saw through that
Speaker 1: the two thousands, you know, thirty million people come into
Speaker 1: the middle class, start buying those first refrigerators and cars
Speaker 1: and other kinds of appliances and the like. And now
Speaker 1: that has been fading. Um. So that engine um was
Speaker 1: that dying part of the recessions they've gone through, and
Speaker 1: the real question is can they pull back out of it, um,
Speaker 1: and can they really restart that engine. His Trump trade
Speaker 1: action and discourse allowed an entree for China into Brazil,
Speaker 1: or at the margin, a greater China investment into Brazil.
Speaker 1: China has been investing in Brazil all along, but primarily
Speaker 1: in their natural resources, both in the actual resources themselves
Speaker 1: and then somewhat in the logistics to get those resources
Speaker 1: out of Brazil and to China. So you know, energy
Speaker 1: and soy and beef and all sorts of things to
Speaker 1: to provide for the Chinese people, but in also their market.
Speaker 1: So that's really where they are thinking about investing. But
Speaker 1: the fact of the United States is closing itself and
Speaker 1: go into more protection stands means Brazil has been looking elsewhere.
Speaker 1: They first have been looking towards their neighbors and to
Speaker 1: the EU. But if those countries don't respond, and they
Speaker 1: will look to China. Okay, But you know not that
Speaker 1: you're looking at the currency day to day on your
Speaker 1: Bloomberg gap on your cell phone, Shannon. But M and
Speaker 1: I see some dynamics in Argentina. We see the horror true,
Speaker 1: you know, no jokes. I mean of Venezuela. The stability
Speaker 1: of the region is suspect to say the least, is
Speaker 1: it business is usual in Latin America. Are we really
Speaker 1: waiting here for some exogenous or endogenous shock to upset
Speaker 1: this very large nation of Brazil. Well, this year in
Speaker 1: Latin America, two out of every three voters is going
Speaker 1: to the polls to elect a new president. And most
Speaker 1: of these are not going to be incumbents. There's not
Speaker 1: re election, so the new people coming in. So this
Speaker 1: is a really pivotal moment in the region. And as
Speaker 1: you mentioned, there are these big problems. Most voters are
Speaker 1: going to go to the poll for domestic reasons. So
Speaker 1: when you think about Brazil, they are going to go
Speaker 1: because they're tired of recession, They're tired of the corruption
Speaker 1: of their political class. They're going quite angry, and they're
Speaker 1: looking for someone to vote for as an outsider. And
Speaker 1: that is really the challenge because Brazil in order to
Speaker 1: manage it, in order to work with Congress to get
Speaker 1: the structural reforms that Brazil needs and investors want things
Speaker 1: like pension reform, and they're like, you have to have
Speaker 1: this compromise. I think that too, is why we're seeing
Speaker 1: the rail being hit. People are looking towards two thousand
Speaker 1: eighteen for Brazil, and they're seeing more paralysis on the
Speaker 1: policy side. Shannon, with us with the Console Foreign Relations
Speaker 1: and and for briefings on so many of these topics.
Speaker 1: You can really start with the website of Mr Hassa's
Speaker 1: Council on Foreign Relations. Shannon, you wrote a definitive post
Speaker 1: literally within the last forty eight hours. Mexico knows how
Speaker 1: to fight a trade war. Does Mr Trump know that?
Speaker 1: Is he aware that Mexico and their brethren to the north,
Speaker 1: the Canadians, actually may have a cogent in organized response
Speaker 1: to Trump's NAFTA discussions. I don't know if he was
Speaker 1: prepared for it, but I can tell you that the
Speaker 1: Midwest farmers and they act businesses, they definitelyly know that
Speaker 1: Mexico and Canada have a few cards up their sleeve.
Speaker 1: And already we've seen Mexico step forward and and targets
Speaker 1: specific congressional district and specific products. So it's potatoes and
Speaker 1: apples and cheese and pork and specific products. So we're
Speaker 1: starting to see that, and you're going to see members
Speaker 1: of Congress already their constituents start calling them saying, look,
Speaker 1: we we have these big tariffs on our product. Can
Speaker 1: you do something. I mean, I mean within this is
Speaker 1: the age old question of now versus when you were
Speaker 1: first studying this years ago. And I go back again,
Speaker 1: folks to a piece on mercatilism a few days ago
Speaker 1: from Katherine Rample and the Washington Post. And Katherine Rample
Speaker 1: makes a distinction of Finnish goods policies versus inputs policies.
Speaker 1: Describe your expertise, and you've written about this in your
Speaker 1: books of the input back and forth at the Mexican border.
Speaker 1: But one of the interesting things that nafta broad about,
Speaker 1: which we don't talk a lot about, but it's not
Speaker 1: just that we import and export to each other, but
Speaker 1: what we're sending back and forth are what are called
Speaker 1: intermediate goods. So the pieces and parts that will come
Speaker 1: together to make a car or a plane or medical
Speaker 1: devices are a whole host of things. And that has
Speaker 1: allowed companies off in US companies but off on Mexican
Speaker 1: companies to create things that are better and cheaper and
Speaker 1: able to compete with goods from China or the Europe
Speaker 1: or anywhere else in the world. And these terrorists that
Speaker 1: Trump is putting in on steel and aluminum, and perhaps
Speaker 1: the ones that come after. That is disrupting this process.
Speaker 1: And the challenge is it's going to make US companies
Speaker 1: less competitive visa v the products that are made in
Speaker 1: places like Asia, and that is what is breaking down
Speaker 1: with these beginning parrats. Your classic Two Nations Indivisible ends
Speaker 1: with a chapter which is deciding our mutual future. I'm
Speaker 1: not sure that the president administration is a mutual future
Speaker 1: with Mexico. Let's flip it. Does Mexico have a mutual
Speaker 1: future with the United States of America or is it
Speaker 1: just simply they don't have a choice. There is destiny
Speaker 1: and geography, so they will always be tied to the
Speaker 1: United States. But they will begin to pivot away from
Speaker 1: the United States, and we have will start seeing that.
Speaker 1: On trade, they just revamped and modernize their trade agreement
Speaker 1: with the European Union. Um they will start looking towards China.
Speaker 1: They'll start looking more broadly if we don't treat them well.
Speaker 1: And they too, are going about to go through an
Speaker 1: election in their country, and we could see a very
Speaker 1: different slate of bureaucrats and others that will not be
Speaker 1: quite as forgiving of the United States and some of
Speaker 1: our eccentricities. Recently, in terms of rhetoric towards that nation.
Speaker 1: So I think we're gonna see a real change in
Speaker 1: US Mexico relations going forward. Shannon, thank you so much.
Speaker 1: The council formulations of Rockefeller Senior Fellow really definitive on
Speaker 1: Mexico and of course on Brazil. Yeah, it is a
Speaker 1: joy as always to have Kenna Letta walked through the
Speaker 1: door Pim Fox in Orlando and Tom Keene in New York.
Speaker 1: And he has a wonderful new book out on the
Speaker 1: advertising business and of course on media, which is as
Speaker 1: we all know, exploding and blowing up in that and
Speaker 1: it's a piercing read called Frenemies, the epic destruction disruption
Speaker 1: of the ad business and everything else and the everything
Speaker 1: else we'll talk about. But on this historic day, taking
Speaker 1: us back to nineteen, Mrs Robinson was number one for
Speaker 1: Simon and Garfunkele and every single family in America in
Speaker 1: June of nine. In the spring of nine was reeling.
Speaker 1: Is the only other way Ken that I can put it,
Speaker 1: including the Pim Fox family and the time Keene family,
Speaker 1: from the events of the moment you were living them
Speaker 1: in real time as a young buck working for one
Speaker 1: Robert Fitzgerald Kennedy, weren't you. You were not in Los
Speaker 1: Angeles on the state, you know. I was at the
Speaker 1: old Shelburne Hotel and working for Bobby Kennedy and helping
Speaker 1: working with others to help him be victorious the New
Speaker 1: York state primary in a couple of weeks after California.
Speaker 1: We had a meeting that night with his natural national organizer,
Speaker 1: Jack English and some others, and they're probably seven or
Speaker 1: eight people in the room, and we actually were worried
Speaker 1: because despite the bump he was getting from the victory
Speaker 1: in California, were worried that he was being sandwiched between
Speaker 1: Jeane McCarthy on the left of him in New York
Speaker 1: and hug Humphrey on the right of him, and with
Speaker 1: with regular Democrats, and we worried that maybe Bobby Kennedy
Speaker 1: couldn't win in New York. And but we were going
Speaker 1: to organize like hell over the next two weeks. And
Speaker 1: we went to bed probably at one o'clock, and then
Speaker 1: we were awakened at two or three in the morning
Speaker 1: with the news. I take great issue with the way
Speaker 1: Robert F. Kennedy is treated in the movies and in
Speaker 1: the television today to the portrayals of Robert F. Kennedy.
Speaker 1: Capture the Robert F. Kennedy that you knew. Well, I
Speaker 1: didn't really know him that well. I was, I was
Speaker 1: in my twenties and and um, I mean I spent
Speaker 1: a little time with him, but very little time. I
Speaker 1: think if I walked down the street, you wouldn't recognize me.
Speaker 1: But okay, but you know you were within the zeitgey stomach.
Speaker 1: Come on, yeah, no, I was. I gave up a
Speaker 1: job to go to work for him, so I I
Speaker 1: believed in him, and I some of it is captured.
Speaker 1: I mean Tim Tim m Um and no, no Tim Russey,
Speaker 1: not not Tim Russet. But um, what's his name? Chris
Speaker 1: Matthews wrote a book, celebratory book about Robert. Uh. There've
Speaker 1: been other books, I mean the best probably his author,
Speaker 1: Lessenger's biography, Robert Kennedy. Uh. Does he get the full
Speaker 1: at it? I don't know. I mean it seems to
Speaker 1: me he's an iconic figure today and in that sense
Speaker 1: does get the credit and the show he deserves to be.
Speaker 1: What was St. Patrick's Cathedral like? It was actually amazing,
Speaker 1: it was it was mobbed, It was very, very hot,
Speaker 1: and my job that day was to rotate every fifteen
Speaker 1: minutes the people who stood around the casket of Bobby Kennedy.
Speaker 1: And I'll never forget it um, because it was so
Speaker 1: stultifyingly hot. And and Prince Bradsley well Um, who was
Speaker 1: married to Jacqueline and Ass's sister, he came and he
Speaker 1: stood at the casket and a beautiful light blue shirt
Speaker 1: and suit and hair immacate lee comb and within fifteen
Speaker 1: minutes he had dissolved into sweat. And then we all
Speaker 1: left the church. Is a very moving Teddy Kennedy gave
Speaker 1: a wonderful speech, and we got on the train and
Speaker 1: went to Washington. And as you sped by people on
Speaker 1: the Amtrak train sitting there, people would just lined up,
Speaker 1: thousands of people all the way down to Washington on
Speaker 1: the on the train beside the train tracks. It's a
Speaker 1: moving death. Kennell LETTA strangely, I remember that day because
Speaker 1: my mother and father took me as a young seven
Speaker 1: year old to stay in front of St. Patrick's Cathedral
Speaker 1: on that Saturday, and uh, I remember hearing through the
Speaker 1: doors Andy Williams seeing the battle him of the Republic,
Speaker 1: and uh, I'm wondering if you could just describe what
Speaker 1: that spring was like because Martin Luther King had just
Speaker 1: been assassinated in April, Bobby Kennedy had only decided to run.
Speaker 1: I believe it was in March, and this, uh, the
Speaker 1: assassination of Bobby Kennedy at the Ambassador Hotel in Los
Speaker 1: Angeles was coming in the very you know, late evening
Speaker 1: early morning of June June five. What was it like
Speaker 1: that spring? Well, you know, the thing you have to
Speaker 1: overlay over all of this is the Vietnam War and
Speaker 1: and the anger among the populace, not just that Martin
Speaker 1: Luther King being assassinated and then of course Robert Kennedy
Speaker 1: being assassinated, but this feeling that the country was being
Speaker 1: assassinated by this war where eventually over fifty thou Americans
Speaker 1: lost their lives uh in the needless war, and people
Speaker 1: were protesting, and people are angry, so angry at President
Speaker 1: Lyndon Johnson that he was he was compelled to step
Speaker 1: down and say I will not run for re election,
Speaker 1: so angry that they allowed Richard Nixon uh to win
Speaker 1: election over you. Bert Humphrey. Uh, they were angry with you.
Speaker 1: But Humphrey for supporting Lyndon Johnson. So it was it
Speaker 1: was a country just split apart, much as it is today.
Speaker 1: Uh over you know, people who like Trump and people
Speaker 1: who don't. UM. So it was it was a it
Speaker 1: was an uncomfortable time and then caused civil rights um
Speaker 1: and and after Martin Luther King's death, it was people were,
Speaker 1: you know, protesting and angry. And then of course Robert
Speaker 1: Kennedy did this miraculous thing in Indiana where he stood
Speaker 1: up before a largely black audience and talked movingly about
Speaker 1: Martin Luther King and his death and how the way
Speaker 1: to celebrate his life is not to destroy property and protests,
Speaker 1: but to join the political and political struggle to change America.
Speaker 1: Kennel let her. You grew up in Coney Island. You've
Speaker 1: described yourself as a semi juvenile delinquent whose fastball, I
Speaker 1: believe is what got you into State University of Oswego. Uh.
Speaker 1: Do you miscovering politics? We're gonna talk about your book,
Speaker 1: But do you miscovering politics? No? I I don't. I
Speaker 1: love doing it. I mean I have a graduate degree
Speaker 1: in political science and I thought that would be my life,
Speaker 1: you know, in government. Um, State part maybe foreign diplomat. Um.
Speaker 1: And then you know, your life takes these twists, and
Speaker 1: suddenly I'm writing about the media and I love doing that.
Speaker 1: We're gonna come back and talk. There's a lot of
Speaker 1: there's some empty offices at the State Department right now.
Speaker 1: We had to guess yesterday, Canner said, Mr Prompeo is
Speaker 1: so concerned he had to bring a third of the
Speaker 1: CIA over just to get through the coming weeks. It
Speaker 1: was so I would never get past Donald Trump. I don't.
Speaker 1: I'm just trying to think of you taking a meeting
Speaker 1: with the President the United States. No, I've I've had
Speaker 1: my meeting Trump when he was here. Yeah, well you
Speaker 1: know very quickly here. What was it like meeting with
Speaker 1: citizen Trump? Well, citizen Trump back in the in the
Speaker 1: seventies and eighties. Um, I remember writing a profile of
Speaker 1: Roy Kone was one of his hero his mentor, and
Speaker 1: and who is probably the single most disgusting him being
Speaker 1: I've ever met and and Donald Trump kept saying to me,
Speaker 1: he's my match. Everything I learned from him, and what
Speaker 1: did he learn from roycon attack? Never apology, gizs sue
Speaker 1: the masters don't pay you a bill, fim Fox in Orlando.
Speaker 1: I'm Tom Kennan, New York and with this Kennel Letta
Speaker 1: the new must treat I will have to read it
Speaker 1: cover to cover very selfishly because it's about the media
Speaker 1: business and about the ad business. Friend of mees Front
Speaker 1: of Me is the epic consruption of the ad business.
Speaker 1: And Ken, I hit your world in your book three
Speaker 1: days ago when I had a bit part in the
Speaker 1: background on Billions on Showtime and the response from the
Speaker 1: family and you know people was was stunning. I mean,
Speaker 1: all the rules are broken by Netflix, by Showtime, by HBO.
Speaker 1: Is that the beginning of the trend? And just simply
Speaker 1: Kenna Letta with the Front of Me is out there.
Speaker 1: Where are we in five years? Well, that's a really
Speaker 1: good question. And if I were arrogant enough to try
Speaker 1: and answer, predict where we'd be in finn You wrote
Speaker 1: the book and you don't know. I don't know, and
Speaker 1: know as anyone I interviewed, and I interviewed over four people.
Speaker 1: The truth is it's changing so fast and people are
Speaker 1: throwing stuff up against the wall to see what sticks.
Speaker 1: That there's a bet that the ads, which are deemed
Speaker 1: to be interrupted and annoying, particularly on your cell phone.
Speaker 1: Um that what you have to do is don't do
Speaker 1: an AD, but do a service. So you offer someone something.
Speaker 1: Can we know you're walking via Barney's. You know, we
Speaker 1: know you bought a sport jacket two weeks ago. If
Speaker 1: you walk two blocks to the Barney's now, we'll give
Speaker 1: you twenty off on your next sport jacket. And you say,
Speaker 1: is that an AD or is that an offer they're
Speaker 1: offering me? And it may be attractive. On the other hand,
Speaker 1: you may say, how the hell they know so much
Speaker 1: about me. The art theme of all the people you
Speaker 1: talked to in your book, including Sir Martin Soil and
Speaker 1: others in the ad business, is this bat and wonderment
Speaker 1: of what young kids will do. Old people watch old media.
Speaker 1: It's off a cliff with the young people. What will
Speaker 1: the young people do when they're older? Well, we know,
Speaker 1: we don't know what they'll do with Oh, we know
Speaker 1: what they're doing now. And one of the things they're
Speaker 1: doing now is that Americans, many of them young and
Speaker 1: technologically proficient, use ad block to block ads on their
Speaker 1: cell phones. We also know that people who have PVRs,
Speaker 1: according to Nielsen, of them who record a program skip
Speaker 1: the ads. That's and they know, we know they watch
Speaker 1: things like Roku and Netflix and HBO and shown don't
Speaker 1: have ads that don't have ads so and and YouTube
Speaker 1: that often doesn't have that. So so they're growing up
Speaker 1: younger people in a world where advertising becomes less important
Speaker 1: and in fact is perceived not as a subsidy for media,
Speaker 1: which it really is, but as an annoyance. Can I
Speaker 1: let us? In the book you speak about really a
Speaker 1: lot of different conflicting emotions that exist, and that is
Speaker 1: one of the things that advertising tries to do, which
Speaker 1: is to tug at people's emotions and generate emotions. Um,
Speaker 1: what what are emotions? What feelings did you come out
Speaker 1: of after writing the book? Well, I mean I came
Speaker 1: out as as I look close sleeve at the ads.
Speaker 1: So many ads, including the celebrated ads super Bowl ads,
Speaker 1: or the Coca Cola little Kids standing on a hill,
Speaker 1: which which was the end scene of of Madman, the
Speaker 1: show Madman, I felt, I felt, I feel that emotionally
Speaker 1: manipulative and they annoy me. Um. On the other hand,
Speaker 1: there are brilliant ads that you go back to the
Speaker 1: Volkswagen ad that Bill Bernback created or leave these Rybred ads.
Speaker 1: They were brilliant ads. So there are brilliant people who
Speaker 1: do some brilliant ads. And there are people, however, who
Speaker 1: do who try to emotionally manipulate you. And for me,
Speaker 1: I don't know whether I'm typical of the public, but
Speaker 1: it bothers me a lot. Are are brilliant people capable
Speaker 1: of running these huge advertising slash media companies today since
Speaker 1: they have so many divisions with so many pieces, Well,
Speaker 1: it depends on what they're brilliant at. I mean, you
Speaker 1: take Martin Sorrel, who was who in my last chapter
Speaker 1: of the book, I said, Mr sorl you're gonna be
Speaker 1: seventy three. When do you think you might step down?
Speaker 1: He said, they'll have to shoot me to get him out.
Speaker 1: Get me out, And in fact they did shoot him,
Speaker 1: and a couple months ago he was in the news. Today.
Speaker 1: I should point out where his old company, w PP
Speaker 1: may go after him for setting up a new company
Speaker 1: because he's got some form of noncompete. But you know,
Speaker 1: Martin Sorrel is a brilliant guy who created the largest
Speaker 1: advertising holding company in the world WPP. On the other hand,
Speaker 1: it's a company that owns four hundred other companies. He
Speaker 1: had no CEO, so he had basically, you know, hundreds
Speaker 1: of people basically reporting to That's too much even for
Speaker 1: someone who as talented as he is. The nexus of
Speaker 1: Keno Letta is a nexus of your your present book
Speaker 1: Freenemies with Googled, which I think you sold a few
Speaker 1: copies of. I mean it became a required read. Google
Speaker 1: has searched forward in Google and Facebook and others are
Speaker 1: capturing the vast majority of the marginal revenue growth and
Speaker 1: profit within digital in digital of it? How how does
Speaker 1: the industry break that ownership of Google and Facebook digital excellence.
Speaker 1: One of the things that betting on is that Amazon,
Speaker 1: which appears to be entering aggressively the advertising business, will
Speaker 1: become a competitor to Glue and Facebook, and therefore giving
Speaker 1: them a little leverage over Facebook. Jeff Bezos sophron of
Speaker 1: me of everybody but the president, I mean the president
Speaker 1: thinks of him as an enemy number he they are,
Speaker 1: I mean they're all front of me is I mean,
Speaker 1: everyone is getting to everyone else's business. One of the
Speaker 1: reasons I came up with that title is that if
Speaker 1: you're an ad agency today and you advertise, they on
Speaker 1: the new York Times or on Bloomberg. Well, Bloomberg and
Speaker 1: the New York Times are in the advertising business too.
Speaker 1: You're creating ads for clients and going and bypassing the agency,
Speaker 1: by the way, so a pr agencies, so a clients
Speaker 1: who say I'm going to do it in the house.
Speaker 1: And then the biggest front of me, of course, as
Speaker 1: I said before, is the public. So everyone is surrounded
Speaker 1: by Jeff Bezo if he gets into advertising, is going
Speaker 1: to go directly to to clients bypassing the agencies and
Speaker 1: by the way, competing against Facebook and Google. Do subscriptions
Speaker 1: replace advertising? No? And the reason they don't. The one
Speaker 1: thing that Hillary Clinton and and Donald Trump agreed on
Speaker 1: the two thousand sixteen campaign is that the American middle
Speaker 1: class and the working class, the majority of Americans, their
Speaker 1: income has been frozen for the last ten years. They
Speaker 1: can't afford more subscriptions. The average subscriber in this country
Speaker 1: pays about subscriptions and that doesn't coude include electricity and telephone.
Speaker 1: They can't afford it. Maybe we can afford more subscriptions,
Speaker 1: but they can't. Advertising is makes things free. Of Facebook's
Speaker 1: revenues come from advertising, almost Google's does you're gonna you
Speaker 1: think Facebook can get away with charging people. I don't think. So.
Speaker 1: You started the book with a speech, really you You
Speaker 1: talked about a speech that the former head of Media
Speaker 1: com John Mandel, gave to a group of marketers. Why
Speaker 1: did Why did you start there? I started there because
Speaker 1: for for several reasons. One is, what he was doing
Speaker 1: is basically laying out a speech of why clients shouldn't
Speaker 1: trust advertising agencies because they had secret agendas to make
Speaker 1: money at the client's expense, and that level of mistrust
Speaker 1: permeates the advertising marketing world, and I thought that was
Speaker 1: a way to crystallize that which which lays the groundwork
Speaker 1: for other chapters in the book where that mistrust plays
Speaker 1: it large ale. The other reason is one of my
Speaker 1: major characters in the book is felled by the name
Speaker 1: of Michael Casson, who is the ultimate powerbroker in that world.
Speaker 1: Not well known outside, but in that world is charming
Speaker 1: guy who represents everybody, whispers in everyone's ear. Because of speech,
Speaker 1: like Jonathan Mandel, a lot of agencies said we had
Speaker 1: to review not agencies, A lot of clients that we
Speaker 1: have to review our agencies and maybe change our agencies
Speaker 1: who they hire to do that. Michael cass, I mean
Speaker 1: with within. This is as we started this conversation is
Speaker 1: where are we going to be in five years? Let's
Speaker 1: bring it even closer. Where are we going to be
Speaker 1: the end of the year. What are you trying to
Speaker 1: observe in advertising slash media that gives you the next
Speaker 1: marginal piece of information is that the Disney merger, the
Speaker 1: Disney Fox battle with Comcast. No, I think. I think
Speaker 1: the thing to watch for is what does government do? Um?
Speaker 1: I think will government say we are concerned about privacy,
Speaker 1: We're gonna maybe we should copy what the European Union
Speaker 1: has done in well, Michael and Extio says today Facebook's
Speaker 1: playing with fire with this Chinese data issue. They certainly are,
Speaker 1: and and that's part of the So one question is
Speaker 1: will they do something about privacy and the a the
Speaker 1: amount of data that companies like Facebook and Google can collect. Secondly,
Speaker 1: will they say this monopoly issue here? I mean here
Speaker 1: they are going after a T and t on the
Speaker 1: monopoly issue. They shouldn't be allowed to buy Time Warner, well,
Speaker 1: it should? Should Facebook be allowed to purchase a company
Speaker 1: like Instagram that that basically the potential fete to the
Speaker 1: kind of let out with front of me is I
Speaker 1: will read it cover to cover the epic disruption of
Speaker 1: the ad business and uh, kind of a lot of
Speaker 1: Thank you so much today, your comments on RFK as
Speaker 1: well on fifty years on from an assassination in Los Angeles,
Speaker 1: and thanks for listening to the Bloomberg Surveillance podcast. Subscribe
Speaker 1: and listen to interviews on Apple Podcasts, SoundCloud, or whichever
Speaker 1: podcast platform you prefer. I'm on Twitter at Tom Keane
Speaker 1: before the podcast. You can always catch us worldwide. I'm
Speaker 1: Bloomberg Radio