WEBVTT - Bloomberg Intelligence: Paramount Job Cuts, Hot CPI 0:00:02.960 --> 0:00:10.840 Bloomberg Audio Studios, Podcasts, radio News. You're listening to the 0:00:10.880 --> 0:00:15.040 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:15.080 --> 0:00:18.079 Eastern on Apple, Cardplay and Android Auto with the Bloomberg 0:00:18.120 --> 0:00:21.440 Business App. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:24.520 or watch us live on YouTube. 0:00:25.600 --> 0:00:28.800 You're listening to Bloomberg Intelligence. Alex Steel here Paul Sweeney 0:00:29.080 --> 0:00:32.440 recover all the industries and all the analysis from our 0:00:32.479 --> 0:00:36.120 fabulous Bloomberg Intelligence arm of analysts two thousand companies, one 0:00:36.159 --> 0:00:38.559 hundred and thirty industries all around the world. And for 0:00:38.640 --> 0:00:40.760 that we're going to focus on Paramount for a moment. 0:00:40.800 --> 0:00:42.680 That stock US down about four and a half percent. 0:00:43.479 --> 0:00:45.280 The news is that they're letting go of hundreds of 0:00:45.280 --> 0:00:49.879 employees just after an amazing number of people watch the 0:00:49.920 --> 0:00:53.400 Super Bowl on all different platforms. There's only one person 0:00:53.479 --> 0:00:55.760 that you go to for this analysis. Keith ar Monganathan, 0:00:55.880 --> 0:01:00.720 Bloomberg Intelligence analyst on US Media gets too. You have 0:01:00.720 --> 0:01:02.680 the layoffs and then you also wind up having this 0:01:02.800 --> 0:01:05.160 amazing streaming number. Walkers through your take. 0:01:07.880 --> 0:01:10.119 Yeah, I mean this is really more of course, they 0:01:10.120 --> 0:01:13.640 did have a great Super Bowl, Alex, but I think 0:01:13.680 --> 0:01:16.360 this is really more about the future outlook for the company, 0:01:16.360 --> 0:01:19.240 and that is super super bleak. Yes, it was a 0:01:19.520 --> 0:01:23.280 great night for TV advertising. We think they've gotten seven 0:01:23.360 --> 0:01:27.039 hundred million dollars in roughly about four hours. But then 0:01:27.200 --> 0:01:31.560 it's more about the spectcular challenges. I mean, throughout twenty 0:01:31.600 --> 0:01:36.240 twenty three we've seen TV advertising decline by low double digits. 0:01:36.280 --> 0:01:39.119 It was down almost thirteen percent in the latest quarter 0:01:39.160 --> 0:01:40.880 that they reported, and it's not going to get too 0:01:40.959 --> 0:01:43.520 much better. And it's not just the challenges on the 0:01:43.560 --> 0:01:46.120 TV side of the equation for them. It's also about 0:01:46.160 --> 0:01:49.040 their streaming business. And they've made good strides absolutely in 0:01:49.120 --> 0:01:52.480 terms of you know, streaming subscribers, and again I anticipate 0:01:52.520 --> 0:01:54.440 that they're going to have some good streaming numbers to 0:01:54.480 --> 0:01:57.520 report thanks to the Super Bowl. But it is burning 0:01:57.600 --> 0:02:01.160 a lot of money. Almost one point seven billion dollars 0:02:01.240 --> 0:02:04.200 is what they will report in losses for twenty twenty 0:02:04.280 --> 0:02:06.720 four and for twenty twenty three, and before that they 0:02:06.760 --> 0:02:09.399 lost about one point eight billion, So it's just been 0:02:09.480 --> 0:02:11.200 a continuous drain on the company. 0:02:12.000 --> 0:02:14.640 So Githa, the stock is down over the trailing twelve 0:02:14.680 --> 0:02:19.640 months about forty percent here, and I know there's a 0:02:19.639 --> 0:02:23.480 lot of talk around, perhaps the controlling shareholder, Sherry Redstone, 0:02:24.120 --> 0:02:26.880 will consider selling all a part of the company. What's 0:02:26.919 --> 0:02:27.640 the latest on that? 0:02:29.160 --> 0:02:31.280 So the latest actually in that saga, and this has 0:02:31.320 --> 0:02:34.560 now been an ongoing drama for many months now, Paul, 0:02:35.000 --> 0:02:38.120 the latest is that Byron Allen actually came up with 0:02:38.440 --> 0:02:40.799 a bid for all of the company, not just for 0:02:40.840 --> 0:02:44.359 the controlling stake held through National Amusements. And he actually 0:02:44.440 --> 0:02:46.920 put up a pretty good bid. You know, it was 0:02:47.240 --> 0:02:50.440 fourteen billion dollars in terms of equity, so thirty billion 0:02:50.480 --> 0:02:54.160 dollars enterprise value. We think it was a pretty fair bid. 0:02:54.360 --> 0:02:56.799 The problem is, you know, Byron Allen, I don't think 0:02:56.840 --> 0:02:59.399 anybody is taking him too seriously. He's you know, had 0:02:59.440 --> 0:03:02.960 this track of kind of coming up with these empty bids. 0:03:03.000 --> 0:03:06.560 So while it is a number, again we've not really 0:03:06.639 --> 0:03:09.600 seen a whole lot of action that we would have expected. 0:03:10.080 --> 0:03:13.480 So this is a totally unfair question to Paul. Let's 0:03:13.480 --> 0:03:16.400 pretend you're still an m and a banker here, investment banker. 0:03:16.560 --> 0:03:18.560 What would you be talking to paramount about. 0:03:18.639 --> 0:03:21.160 I would I would say, I think the best buyer here, 0:03:21.160 --> 0:03:25.280 there's a strategic buyer, maybe Warner Brothers Discovery, but both 0:03:25.280 --> 0:03:27.400 of those companies as githa wall and those balance sheets 0:03:27.400 --> 0:03:29.720 are not great. I think I would be shopping into 0:03:29.760 --> 0:03:33.399 a private equity because they're still good for free cash 0:03:33.440 --> 0:03:36.680 flows here and let them deal with it. So gethe 0:03:36.800 --> 0:03:39.320 what is what is the sense here as to I 0:03:39.360 --> 0:03:43.000 think about Paramount, I think about Warner Brothers Discovery. I 0:03:43.000 --> 0:03:45.640 don't know. I mean, what do we what is happens 0:03:45.680 --> 0:03:47.600 to these companies because it just feels like against some 0:03:47.640 --> 0:03:51.200 of the big tech companies, Uh, you know, they're just 0:03:51.240 --> 0:03:53.480 not big enough here, and you know against Netflix are 0:03:53.480 --> 0:03:54.920 just not big enough. What did they do? 0:03:56.320 --> 0:03:56.400 So? 0:03:56.440 --> 0:03:59.640 I think Warner Brothers Discovery actually had a pretty interesting 0:03:59.680 --> 0:04:03.880 move last week, Paul, which was they banded together with ESPN, 0:04:04.040 --> 0:04:08.320 Disney and Fox to kind of create this sports super 0:04:08.360 --> 0:04:10.920 app which will launch in the fall. And that's one 0:04:10.960 --> 0:04:13.560 way for them to kind of protect at least some 0:04:13.720 --> 0:04:15.880 part of their linear revenue stream, because I mean, they've 0:04:15.960 --> 0:04:18.280 kind of everybody's seeing the writing on the wall here. 0:04:17.960 --> 0:04:21.560 We're seeing cord cutting, We're seeing about ten percent of 0:04:21.640 --> 0:04:25.640 the subscriber based get eroded year after year. We've already 0:04:25.720 --> 0:04:28.800 lost thirty million subscribers. So that's one good way for 0:04:28.880 --> 0:04:31.640 them I think to kind of control their destiny a 0:04:31.640 --> 0:04:35.640 little bit in terms of distribution. Again, remember Paramount is 0:04:35.760 --> 0:04:38.880 not part of that bundle, so that again is a 0:04:38.880 --> 0:04:42.920 little bit of you know, a strike against them. But 0:04:43.680 --> 0:04:45.040 you know, you bring up a good point. I think 0:04:45.080 --> 0:04:46.640 at the end of the day, we are going to 0:04:46.640 --> 0:04:49.080 have to see consolidation. Of course, as you just pointed out, 0:04:49.120 --> 0:04:51.960 there were rumors of actually Warner Brothers, Discovery being interested 0:04:52.000 --> 0:04:54.880 in Paramount, but you're right, the market did not cheer 0:04:54.920 --> 0:04:57.560 for that. That would be about more than you know, 0:04:57.640 --> 0:05:00.080 fifty or sixty billion dollars I think in debt or 0:05:00.120 --> 0:05:03.160 those combined companies. So yeah, it is it is definitely 0:05:03.200 --> 0:05:06.000 going to be challenging, but I think consolidation is definitely 0:05:06.040 --> 0:05:06.480 on the cards. 0:05:06.520 --> 0:05:08.320 Okay, So then how does that happen? Because if like 0:05:08.400 --> 0:05:10.400 three wrongs don't make a right, and you're not gonna 0:05:10.400 --> 0:05:12.160 put all the media companies together because it's going to 0:05:12.200 --> 0:05:15.640 create more problems. So is it private equity like to 0:05:15.800 --> 0:05:19.279 split up different areas of media within the company. 0:05:20.160 --> 0:05:21.839 Yeah, I think Paramount I think one of the things 0:05:21.839 --> 0:05:23.400 has been, you know, to sell it for parts. Right, 0:05:23.440 --> 0:05:26.760 there are some parts of the company, the TV networks 0:05:26.760 --> 0:05:29.560 that could be very very attractive to private equity, as 0:05:29.600 --> 0:05:31.400 you just pointed out, because of the cash flows. Right, 0:05:31.400 --> 0:05:33.760 it's still a business. It used to throw out about 0:05:33.839 --> 0:05:36.160 six billion dollars in ebit dah, but it will still 0:05:36.160 --> 0:05:38.120 throw out about four and a half to almost close 0:05:38.160 --> 0:05:41.000 to four point eight billion dollars in ebit DA. So again, 0:05:41.360 --> 0:05:44.120 cash highly cash generative. Of course, the future you know 0:05:44.160 --> 0:05:46.720 flows don't look so great. But then there have been 0:05:46.760 --> 0:05:48.720 a lot of uh, there has been a lot of 0:05:48.720 --> 0:05:50.880 interest in the studio part of the business, right, whether 0:05:51.040 --> 0:05:53.560 that's you know, David Ellison with his guy Dance Media, 0:05:53.680 --> 0:05:56.640 maybe somebody else, maybe even an Apple. We haven't necessarily 0:05:56.720 --> 0:05:59.520 seen any of those, you know, bids kind of come 0:05:59.560 --> 0:06:02.000 to fruition, but there definitely will be a lot of interest. 0:06:02.000 --> 0:06:03.600 But I think the one thing that we kind of 0:06:03.640 --> 0:06:05.919 have to wait to get some clarity on is definitely 0:06:05.920 --> 0:06:09.240 the regulatory environment. We've seen big tech kind of really 0:06:09.320 --> 0:06:14.080 shy away from anything too splashy, but who knows, maybe 0:06:14.120 --> 0:06:16.400 when the government changes, all of that will change as well. 0:06:16.839 --> 0:06:20.520 You know, Githa, when these networks bid and pay billions 0:06:20.560 --> 0:06:23.200 of dollars for sports rights, and even if you know, 0:06:23.279 --> 0:06:25.000 you put up that seven hundred million dollars of ad 0:06:25.040 --> 0:06:27.960 revenue that you reference. You know, it's tough to make 0:06:27.960 --> 0:06:31.279 a profit on that kind of business. So what the 0:06:31.320 --> 0:06:34.840 networks have always said is, yes, but we promote other 0:06:35.040 --> 0:06:39.400 shows on our networks, and that value is really worth 0:06:39.440 --> 0:06:42.280 paying these big rights fees. But if you're promoting all 0:06:42.320 --> 0:06:44.680 these shows on the CBS network that nobody's watching because 0:06:44.720 --> 0:06:48.200 of cord cutting, how valuable is that? I mean, I 0:06:48.320 --> 0:06:51.120 thought about that they were promoting all their shows that 0:06:51.800 --> 0:06:55.400 I don't think anybody's watching because they've already cut the cord. 0:06:57.200 --> 0:07:00.360 Yeah, you're absolutely right for them, though. The one that 0:07:00.400 --> 0:07:02.360 Paramount has done really kind of well, and I don't 0:07:02.360 --> 0:07:04.120 know whether this is a plus or a minus, but 0:07:04.200 --> 0:07:06.440 it definitely helps them at least shore up. I think 0:07:06.480 --> 0:07:08.880 the total value of their assets is they've actually all 0:07:08.920 --> 0:07:12.200 of their sports properties, including the NFL. They've actually kind 0:07:12.240 --> 0:07:14.160 of leaked it outside the muddle, so they were showing 0:07:14.200 --> 0:07:16.640 it on Paramount Plus day one, and they did the 0:07:16.640 --> 0:07:18.920 same thing with the Super Bowl as well. So I 0:07:18.960 --> 0:07:20.520 think even if they're you know, even if you have 0:07:20.600 --> 0:07:23.520 cord cutters, they could make the argument that yes, you know, 0:07:23.560 --> 0:07:26.520 people can potentially sign up for that service. We saw, 0:07:26.520 --> 0:07:29.880 of course Peacock do that with that Wildcat NFL game. Again, 0:07:30.280 --> 0:07:33.560 what they know that they're losing subscribers on the PayTV bundle, 0:07:33.800 --> 0:07:36.120 so they're trying to They're trying their best, I don't 0:07:36.160 --> 0:07:38.480 know how successfully to kind of make it up on 0:07:38.520 --> 0:07:40.200 the streaming side, but you're right, I mean it is 0:07:40.320 --> 0:07:41.239 kind of the lose lose. 0:07:41.640 --> 0:07:45.080 But you know, for me, I have become addicted to Survivor. 0:07:46.520 --> 0:07:49.440 I've never seen it, and when I had a concussion, 0:07:49.920 --> 0:07:51.760 that was the show that I decided that I was 0:07:51.800 --> 0:07:53.920 going to watch. And now I'm paying like twenty five 0:07:53.960 --> 0:07:57.680 bucks a season to watch it on iTunes and I'm like, 0:07:57.720 --> 0:08:00.040 this is getting ridiculous. That's what they gotta do. I 0:08:00.040 --> 0:08:02.240 got to get people like me to then go pay 0:08:02.240 --> 0:08:04.080 for the streaming service because I'm like, wait a minute, 0:08:04.080 --> 0:08:05.960 it's spen one hundred dollars on four seasons. 0:08:05.960 --> 0:08:11.760 Certainly a great promo Survivor by more people with concussions, yes. 0:08:11.600 --> 0:08:14.200 Exactly, but I mean I'm also like, wow, that's really 0:08:14.200 --> 0:08:16.800 expensive to that is to put out there. Keitha. So 0:08:16.840 --> 0:08:19.800 what's next? Like, what are you watching pre Paramount? Now? 0:08:21.760 --> 0:08:24.040 For Paramount, it's definitely. It is an M and a place. 0:08:24.160 --> 0:08:28.320 Something has to happen. It has to happen fast. Bob Backish, 0:08:28.320 --> 0:08:30.680 the CEO, has pretty much said it. He you know, 0:08:30.720 --> 0:08:35.280 he said he's evaluating Byron Allen's proposal. Again, not sure 0:08:35.280 --> 0:08:38.120 whether that will necessarily pan out, but somebody has to 0:08:38.160 --> 0:08:40.640 come up with something and it has to happen. 0:08:40.559 --> 0:08:42.840 Quickly, all right, Keitha, thanks so much for joining us. 0:08:42.880 --> 0:08:45.000 As always, Keitha wrong and nothing. She is the media 0:08:45.040 --> 0:08:48.160 analyst Bloomberg Intelligence. Yeah, I don't know. I don't know 0:08:48.160 --> 0:08:50.080 what you do with media in general. I mean because 0:08:50.800 --> 0:08:52.720 I just don't with the cord cutting and the switch 0:08:52.800 --> 0:08:55.320 to streaming, I don't know where the profits are going, 0:08:55.440 --> 0:08:57.120 and I don't know what multiple to put on whatever 0:08:57.160 --> 0:08:58.599 profits the companies tell me they're going to have. 0:08:59.440 --> 0:09:02.280 When you're taking I mean, I'll look at somebody like us, right, 0:09:02.320 --> 0:09:04.080 I mean you started in a different world. But for me, 0:09:04.280 --> 0:09:06.760 like I'm an unair talent person, like this is where 0:09:06.800 --> 0:09:09.359 I have grown up over the last you know, twenty years. 0:09:09.640 --> 0:09:11.600 What do you do if there's like a next phase, 0:09:11.720 --> 0:09:15.000 like where do you where is the media need going. 0:09:14.840 --> 0:09:15.960 To be podcasts? 0:09:16.840 --> 0:09:17.040 Right? 0:09:17.120 --> 0:09:19.640 But at some point Armies, You laugh, because then we're 0:09:19.640 --> 0:09:21.640 going to get saturated, right then, like all the money's 0:09:21.640 --> 0:09:24.160 going to go into one thing and the pendulum switches back. However, 0:09:24.280 --> 0:09:26.200 I have been hearing about the death of linear TV 0:09:26.440 --> 0:09:29.040 for twenty years. Yes, so, and it's still kicking in 0:09:29.080 --> 0:09:29.880 some form of another. 0:09:30.000 --> 0:09:32.120 It is still it's still kicking. And we saw if 0:09:32.120 --> 0:09:36.360 you want to get a big, big, big audience, partner 0:09:36.440 --> 0:09:38.160 up with the NFL and do the Super Bowl thing 0:09:38.160 --> 0:09:39.600 one hundred and twenty five million viewers. 0:09:39.600 --> 0:09:41.560 If you're an advertiser, I'm probably not. 0:09:41.640 --> 0:09:42.160 You're probably not. 0:09:43.040 --> 0:09:45.120 But if you're an advertiser, you're like, there is no 0:09:45.280 --> 0:09:47.920 other place, full stop, where I can get that kind 0:09:47.920 --> 0:09:50.360 of reach, And seven million dollars at the end to 0:09:50.440 --> 0:09:52.319 day doesn't seem like such a bad deal in the 0:09:52.400 --> 0:09:55.559 world where everybody's audience delivery has been deluded. 0:09:57.160 --> 0:10:01.040 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:10:01.120 --> 0:10:04.640 weekdays at ten am Eastern on applecar Play and androyd 0:10:04.679 --> 0:10:07.439 Otto with the Bloomberg Business App. You can also listen 0:10:07.559 --> 0:10:10.640 live on Amazon Alexa from our flagship New York station 0:10:11.040 --> 0:10:14.920 Just Say Alexa, playing Bloomberg eleven thirty again. 0:10:15.000 --> 0:10:16.120 The Echo news of the day. 0:10:16.400 --> 0:10:18.560 CPI came in a little bit hotter than expected. We've 0:10:18.559 --> 0:10:22.079 got yields higher, the ten year treasures up about nine 0:10:22.080 --> 0:10:24.200 basis points four point two seven percent, the short ends 0:10:24.280 --> 0:10:27.320 up twelve basis points four point five nine percent. iRED 0:10:27.400 --> 0:10:32.120 Jersey joins us. Thankfully he is safe at his home office. 0:10:32.160 --> 0:10:35.680 He didn't trick that three minute drive to the Princeton office. 0:10:35.760 --> 0:10:38.000 So I were glad that you're working from home and 0:10:38.040 --> 0:10:41.080 you're safe and out there shoveling. What did you make 0:10:41.559 --> 0:10:43.280 of the CPI print, and more importantly, what do you 0:10:43.320 --> 0:10:45.280 think your friends at the Federal Reserve are going to say? 0:10:45.880 --> 0:10:48.840 A couple of things. First, let me say my school district, 0:10:48.880 --> 0:10:50.839 my daughter school district, does have a snow day today, 0:10:50.880 --> 0:10:53.800 so they are not learning online. Second, the hill in 0:10:53.840 --> 0:10:56.080 front of my house, I saw three cars slide down 0:10:56.080 --> 0:10:58.240 it because there's a sheet of ice under the snow. So, 0:10:59.440 --> 0:11:01.760 believe me, I'm glad I didn't go into the office 0:11:01.760 --> 0:11:04.640 today just because of the treachery of getting there. Yeah, 0:11:04.679 --> 0:11:08.720 today's CPI report obviously was stronger than expected, and in particular, 0:11:08.760 --> 0:11:10.880 and I think this is something we've been harping on 0:11:10.920 --> 0:11:13.840 for a little while. It's that the services component, so 0:11:13.880 --> 0:11:17.400 that what they call super core inflation, so services excluding 0:11:17.440 --> 0:11:21.360 housing services grew at over six percent on a year 0:11:21.360 --> 0:11:24.199 on year basis, and that's, you know, that's really the 0:11:24.240 --> 0:11:28.080 component that is really driving the fact that inflation is 0:11:28.240 --> 0:11:30.840 finding it very difficult to come down as quickly as 0:11:30.960 --> 0:11:33.719 I think some people had hoped. And you know, we've 0:11:33.760 --> 0:11:36.840 priced out basically not quite a whole nother cut, but 0:11:36.920 --> 0:11:40.400 we've priced out a large portion of another cut this year, 0:11:40.400 --> 0:11:43.840 and we're getting now toward the idea that maybe the 0:11:43.840 --> 0:11:46.280 FED is actually only going to cut three times this year, 0:11:46.440 --> 0:11:49.040 which is what they've been saying. There's still a lot 0:11:49.040 --> 0:11:51.160 of people and I was talking to some investors this 0:11:51.200 --> 0:11:53.000 morning who are thinking, well, why is the FED going 0:11:53.080 --> 0:11:55.640 to cut at all? If inflation keeps coming in like this? 0:11:55.679 --> 0:11:57.880 And I think that that's a reasonable question to be asking, 0:11:58.000 --> 0:12:00.520 is you know, is the Fed ever going to cut now? 0:12:00.600 --> 0:12:03.079 I think that they probably will cut at least one 0:12:03.120 --> 0:12:06.720 time before midyear, because if they don't, it'll be politically 0:12:06.760 --> 0:12:09.679 difficult for them to cut in say September, right during 0:12:09.679 --> 0:12:13.079 the election cycle, just because you know, they don't want 0:12:13.080 --> 0:12:15.960 to be seen as being political. And I think that 0:12:16.000 --> 0:12:17.480 they want to get at least one out of the way. 0:12:17.480 --> 0:12:19.160 That way they can say, well, you know, if we 0:12:19.200 --> 0:12:21.320 cut again, it's not it's not something that they haven't 0:12:21.320 --> 0:12:21.800 done already. 0:12:21.880 --> 0:12:23.360 So last week I was on TV and I brought 0:12:23.400 --> 0:12:25.800 up the risk of inflation reaccelerating, and I was almost 0:12:25.880 --> 0:12:27.880 kind of laughed off set a little bit by the guest, 0:12:29.559 --> 0:12:32.199 how much do we have to worry about a reacceleration? 0:12:32.760 --> 0:12:35.400 There is no hedging against, say, another hike, like there 0:12:35.440 --> 0:12:38.520 is no hedging against a reacceleration necessarily, do we need 0:12:38.559 --> 0:12:39.000 to start? 0:12:40.040 --> 0:12:42.440 Yeah, that's that's an interesting point. So I think there's 0:12:42.480 --> 0:12:44.080 a couple of things. One is, when you look at 0:12:44.120 --> 0:12:47.600 the composition of inflation, it's not that inflation has reaccelerated. 0:12:47.640 --> 0:12:49.360 I think you know, some people have said that to me. 0:12:49.400 --> 0:12:52.000 It's just that they didn't come down as the market expected. 0:12:52.040 --> 0:12:55.439 It's basically flat month on month more or less. The 0:12:55.840 --> 0:12:59.680 The issue I think with a the potential of another 0:12:59.760 --> 0:13:02.520 high is that you'd really need to see a meaningful 0:13:02.559 --> 0:13:07.319 acceleration in goods prices, and goods prices continue to fall 0:13:06.800 --> 0:13:10.400 at least very slightly. So the question is if we 0:13:10.440 --> 0:13:12.920 do see like supply chain issues or something like that 0:13:12.920 --> 0:13:17.280 that forces goods prices to increase another you know, even 0:13:17.320 --> 0:13:19.760 if it's just a little bit, like another percent or 0:13:19.800 --> 0:13:22.880 something like that, that will increase all of all of 0:13:22.960 --> 0:13:25.120 CPI a little bit, and that would, you know, certainly 0:13:25.240 --> 0:13:27.679 keep the Fed on the sidelines, you know, whether or 0:13:27.720 --> 0:13:29.240 not they hike. I think you need to see a 0:13:29.280 --> 0:13:32.000 string of that kind of reacceleration. And it seemed that 0:13:32.000 --> 0:13:34.360 that would be the trend in order for the Fed 0:13:34.360 --> 0:13:36.480 to hike again. But again, like we have to first 0:13:36.480 --> 0:13:38.400 price out all the cuts that are still being priced. 0:13:38.480 --> 0:13:41.040 Keep in mind, we're still pricing for the Federal Reserve 0:13:41.080 --> 0:13:42.960 to cut interest rates two hundred basis points over the 0:13:42.960 --> 0:13:45.200 next year and a half. So let we have to 0:13:45.200 --> 0:13:48.040 price that out first before we start talking about talking 0:13:48.080 --> 0:13:49.520 about the market pricing and heights. 0:13:49.880 --> 0:13:52.720 So we talk to traders here, Ira, what are they 0:13:52.760 --> 0:13:54.600 doing here? I mean it looks like they're I mean 0:13:55.280 --> 0:13:57.719 today yields are up twelve basis points on a two 0:13:57.800 --> 0:14:01.000 year Are people trading off of the are they investing 0:14:01.000 --> 0:14:02.719 off of this number? What do they trade off of 0:14:02.760 --> 0:14:03.199 this number? 0:14:03.880 --> 0:14:07.280 Well, so, investors in aggregate, it seemed to have been 0:14:07.360 --> 0:14:10.280 more or less flat to slightly underweight duration. So that 0:14:10.600 --> 0:14:14.000 means that they're basically short interest rate risk, which which 0:14:14.280 --> 0:14:16.600 means that they did pretty well today right with ten 0:14:16.640 --> 0:14:20.240 years yields up about nine basis points right now. The 0:14:20.840 --> 0:14:24.720 people had gotten long interest rates and then they started 0:14:24.760 --> 0:14:26.960 to cut those when we got under four percent. So 0:14:27.560 --> 0:14:29.440 I think things are a little bit more balanced now. 0:14:29.480 --> 0:14:31.280 I haven't talked to a lot of like traders, like 0:14:31.320 --> 0:14:33.960 high frequency traders, but the investors that I've talked to 0:14:34.000 --> 0:14:36.920 over the last couple of days certainly are you know 0:14:36.960 --> 0:14:39.200 a little bit, but they're looking for an entry point 0:14:39.280 --> 0:14:42.120 to get long rates at least a little bit. You know, 0:14:42.160 --> 0:14:44.400 they didn't like rates at three eighty, you know, well 0:14:44.440 --> 0:14:46.640 they like rates at two and at four and a quarter. 0:14:47.080 --> 0:14:51.440 Not sure, but there certainly is some appetite for people 0:14:51.480 --> 0:14:54.120 maybe to you know, shorts to cover and to get 0:14:54.200 --> 0:14:58.040 flat duration for example, and that could be coming. And 0:14:58.080 --> 0:15:00.480 there definitely is demand. You look at the auction last 0:15:00.480 --> 0:15:03.120 week and you know, you guys have been really in 0:15:03.160 --> 0:15:05.640 front of the coverage on some of the auctions. On 0:15:05.680 --> 0:15:08.640 the treasury auctions, they were really good. So there is 0:15:08.800 --> 0:15:12.479 primary demand. Right investors still want to be owned treasuries. 0:15:12.480 --> 0:15:14.560 The question is you know, how much do they want 0:15:14.560 --> 0:15:17.600 to own visa VI. The the amount of supply coming 0:15:17.640 --> 0:15:20.160 out outstanding, and it seems, you know, at least today, 0:15:20.400 --> 0:15:22.920 you know, everyone was surprised by this last thing that 0:15:22.960 --> 0:15:25.240 I have to say, most of this move, or at 0:15:25.320 --> 0:15:28.680 least half of the move in in treasuries today comes 0:15:28.680 --> 0:15:31.520 from inflation break evens. So this is the first time 0:15:31.560 --> 0:15:33.320 in the last six months or so that we've really 0:15:33.360 --> 0:15:38.120 seen inflation expectations move up significantly higher than they were, 0:15:38.240 --> 0:15:40.640 so that that's something to keep an eye on today too. 0:15:40.840 --> 0:15:43.320 So that explains and obviously also the short end is 0:15:43.320 --> 0:15:45.600 getting hit too. But I gotta say, when the numbers 0:15:45.640 --> 0:15:47.800 came out, I was like, okay, let's look at this 0:15:47.840 --> 0:15:50.040 twenty basis point move. Twenty five basis point move we're 0:15:50.040 --> 0:15:52.400 going to see and it's only twelve. I feel like 0:15:52.640 --> 0:15:56.440 this feels orderly to some extent. And is that because 0:15:56.440 --> 0:15:58.240 of those buyers that you're talking about or is it 0:15:58.280 --> 0:16:00.320 a position thing? 0:15:59.760 --> 0:16:03.080 Well, keeping mind, Alex, you know, we've priced out thirty 0:16:03.080 --> 0:16:06.640 six bass points of cuts just in the last week, 0:16:06.960 --> 0:16:10.760 so we had been selling off going into today's number, 0:16:10.840 --> 0:16:13.480 So I think part of it was people, you know, again, 0:16:13.560 --> 0:16:17.360 position squaring people getting you know, flatter the market, so 0:16:17.440 --> 0:16:20.080 you know you didn't need to see a necessarily a 0:16:20.120 --> 0:16:23.400 twenty basis point self. Really yields are probably you know, 0:16:23.440 --> 0:16:25.520 reasonably close to fair value right here. So when I 0:16:25.520 --> 0:16:27.600 say really yields, I mean the yields on tips on 0:16:27.640 --> 0:16:31.600 treasury inflation protected securities. And I've been saying, and Paul, 0:16:31.640 --> 0:16:34.320 I know I've mentioned this to you a number of 0:16:34.320 --> 0:16:36.160 times over the past couple of months. Is I think 0:16:36.160 --> 0:16:40.640 that inflation expectations, so inflation break evens, are habitually a 0:16:40.680 --> 0:16:43.200 bit too low, and I think that those do need 0:16:43.240 --> 0:16:46.000 to kind of recalibrate to the idea that hey, maybe 0:16:46.000 --> 0:16:48.440 we'll have three percent inflation for a long period of 0:16:48.480 --> 0:16:51.480 time instead of inflation continuing to come down toward two 0:16:51.480 --> 0:16:53.520 percent like the market's currently pricing. 0:16:53.760 --> 0:16:54.400 Yep, very good. 0:16:54.520 --> 0:16:57.440 We've heard that from you before. We appreciate getting your 0:16:57.480 --> 0:17:00.360 thoughts here today, iRED Jersey Gus interest Rate Strategises Forloomberg 0:17:00.360 --> 0:17:05.040 Intelligence giving us some thoughts on the CPI data. 0:17:05.359 --> 0:17:09.240 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:17:09.320 --> 0:17:12.399 weekdays at ten am Eastern on Affo car playing enroud 0:17:12.440 --> 0:17:15.520 Otto with the Bloomberg business app listen on demand wherever 0:17:15.600 --> 0:17:19.440 you get your podcasts, or watch us live on YouTube. 0:17:20.680 --> 0:17:23.760 Market selling off today. CPI print came in a little 0:17:23.760 --> 0:17:25.560 bit hotter than expected. So if you were in the 0:17:25.600 --> 0:17:27.960 camp saying I think the Fed's going to cut sooner 0:17:28.040 --> 0:17:31.320 rather than later, probably today's not your day. 0:17:31.359 --> 0:17:31.679 Here. 0:17:32.119 --> 0:17:34.000 Let's check in with somebody who does this stuff for 0:17:34.080 --> 0:17:37.240 delivering Jeffrey Cleveland. He's a chief economist that Payden and Regal, 0:17:37.359 --> 0:17:41.679 joining us on zoom from Los Angeles. So, Jeff, you know, 0:17:42.119 --> 0:17:44.840 is this a bumping a road for the dubbish FED 0:17:44.880 --> 0:17:47.720 folks or is this something more on the inflation front. 0:17:48.960 --> 0:17:51.639 I think it's probably something more. I mean, this is 0:17:52.320 --> 0:17:55.000 pretty disappointing if you thought the FED wasn't cut in 0:17:55.800 --> 0:18:00.600 March or or even may really disrupts the trend. So 0:18:00.680 --> 0:18:04.000 whether you look at core CPI up point four percent 0:18:04.080 --> 0:18:07.639 months a month, or you know, as the policy makers 0:18:07.640 --> 0:18:11.600 have counseled us, we've been looking at core services X shelter. 0:18:12.320 --> 0:18:15.399 You know that was up point nine percent month to 0:18:15.400 --> 0:18:19.679 month in January, the highest print in over two years. 0:18:20.080 --> 0:18:24.120 So that's there's some inflation pressure still in the economy. 0:18:24.160 --> 0:18:28.320 So I think this really should dampen expectations for cuts. 0:18:30.880 --> 0:18:33.439 Jeffrey. Maybe what we're learning though, is that inflation is 0:18:33.520 --> 0:18:36.200 just lumpy, that it's it's just gonna be hard. It's 0:18:36.200 --> 0:18:38.520 not gonna be a straight line down for disinflation, but 0:18:38.560 --> 0:18:42.520 it'll be sort of a volatile, evolving target. How is 0:18:42.520 --> 0:18:45.000 an economist? Do you just kind of factor that in? 0:18:46.680 --> 0:18:50.440 Yeah, So, I mean it's possible that January has has 0:18:50.480 --> 0:18:53.359 some noise. I think we saw that to pre two 0:18:53.359 --> 0:18:55.200 thousand and eight. If you go back to that era, 0:18:55.400 --> 0:18:58.840 you would often see januaries where you'd see some price increase. 0:18:58.960 --> 0:19:01.639 So maybe that's what we saw also last January January 0:19:01.680 --> 0:19:04.720 of twenty three. So it's I don't want to over 0:19:06.040 --> 0:19:09.600 overweight or over index to this particular number. So I 0:19:09.640 --> 0:19:13.000 think that's important to keep in touch, you know, in mind, 0:19:13.160 --> 0:19:15.680 it's possible by the time we get to summer that 0:19:15.880 --> 0:19:18.320 core CPI will you know, have cooled off a bit. 0:19:18.560 --> 0:19:21.280 And but I guess at that point you're still gonna 0:19:21.320 --> 0:19:24.720