WEBVTT - Big Take: Xi Jinping's Capitalist Smackdown 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.520 at Bloomberg dot com slash podcast. All right, we are 0:00:22.800 --> 0:00:27.160 going to talk about she Jing Ping's capitalist SmackDown Sparks 0:00:27.400 --> 0:00:29.760 one trillion Dollar Reckoning. That's the title of the Big 0:00:29.800 --> 0:00:32.520 Take today and Tom Orlick, one of the authors, joins 0:00:32.640 --> 0:00:35.879 us to discuss UM. And it's been such an interesting 0:00:36.479 --> 0:00:40.240 process to watch. Tom. So many people have different ideas 0:00:40.240 --> 0:00:43.680 of what's going on, from the ant U I p 0:00:43.880 --> 0:00:48.559 O to UM, what happened with d D and now 0:00:49.120 --> 0:00:53.400 with the ed tech UM move. The question is is 0:00:53.400 --> 0:00:57.520 it about you know, Uh Jing Ping's grip on power 0:00:58.120 --> 0:01:02.320 or is this really about UM data security? Or could 0:01:02.320 --> 0:01:05.000 it be about supporting the middle class? What do you see? 0:01:05.840 --> 0:01:09.680 I think it's all of the above. UM Si Jinping 0:01:10.160 --> 0:01:14.319 in twenty two will be looking for the NOD to 0:01:14.840 --> 0:01:19.200 take a third term as president, the term as chair 0:01:19.240 --> 0:01:23.240 of the Communist Party so building public support ahead of 0:01:23.240 --> 0:01:26.640 that is crucial. At the same time, I think this 0:01:26.720 --> 0:01:30.039 is a Chinese government which is willing to wield the 0:01:30.160 --> 0:01:35.119 kind of the big stick of authoritarian power in order 0:01:35.160 --> 0:01:38.640 to try and deliver on some social priorities. So that 0:01:38.720 --> 0:01:43.480 includes national security, making sure that sensitive data isn't leaking 0:01:43.560 --> 0:01:47.280 over oversure. It also means taking a big swing at 0:01:47.319 --> 0:01:51.400 the monopoly power of companies like Ali Baba, ten Cent, 0:01:51.800 --> 0:01:55.560 making sure that workers, making sure that smaller startups get 0:01:55.560 --> 0:01:59.120 a fair shake. So there's kind of the crackdown within 0:01:59.400 --> 0:02:03.440 the market targeting private sector companies. How does that then 0:02:03.480 --> 0:02:08.120 translate into the Chinese economy? So I think what we're 0:02:08.160 --> 0:02:11.119 seeing is a Chinese government which is willing to take 0:02:11.160 --> 0:02:14.880 a short term blow to the markets, maybe even a 0:02:14.919 --> 0:02:18.800 short term blow to growth, in order to deliver on 0:02:18.919 --> 0:02:23.400 what they see as more important long term development priorities. 0:02:23.880 --> 0:02:26.520 They'll take a swing at some of the biggest tech 0:02:26.720 --> 0:02:30.919 entrepreneurs in the country, Jack mar of Ali Baba first 0:02:31.000 --> 0:02:35.440 among them, because they think that having a having big 0:02:35.440 --> 0:02:39.840 monopolies strangling competition in the economy is not going to 0:02:39.880 --> 0:02:42.720 be good for China's longer term growth, not going to 0:02:42.760 --> 0:02:46.359 be good for China's squeezed middle class. How do we 0:02:46.440 --> 0:02:50.560 know when this is over? I mean, or what's the 0:02:50.600 --> 0:02:55.120 next shooter drop? That's a really good question. So we've 0:02:55.160 --> 0:02:59.639 already had China's regulators come out swinging against the big 0:02:59.680 --> 0:03:05.280 tech companies Ali Baba, May Juan, the giant delivery company 0:03:05.480 --> 0:03:09.040 d D China's answer to Uber. We've seen them coming 0:03:09.280 --> 0:03:12.640 coming out swinging against property. One of the big frustrations 0:03:12.639 --> 0:03:16.040 for China's middle class is that property prices too expensive. 0:03:16.120 --> 0:03:18.639 They can't get their first hand on the bottom rung 0:03:18.720 --> 0:03:21.480 of the property ladder, and they've come out swinging against 0:03:21.639 --> 0:03:24.840 ed tech. The concern there is that children are spending 0:03:24.880 --> 0:03:27.919 too much time and parents are spending too much money 0:03:28.240 --> 0:03:31.959 on the educational rat race. Where do they go next, Well, 0:03:32.720 --> 0:03:38.320 one possibility could be the private medical industry. China's households 0:03:38.320 --> 0:03:40.160 they want to educate their children, they want to buy 0:03:40.160 --> 0:03:42.520 a house, they want to be healthy, and so I 0:03:42.520 --> 0:03:47.240 think it's quite likely that China's policymakers, China's regulators will 0:03:47.280 --> 0:03:50.680 take a close look at private healthcare providers next, try 0:03:50.680 --> 0:03:53.800 and make sure they're not gauging Chinese households, trying to 0:03:53.800 --> 0:03:57.000 make sure they're delivering quality care. How does the US 0:03:57.040 --> 0:04:01.920 fit into all of this time? So historically, for the 0:04:02.000 --> 0:04:05.400 last forty years, we had a trajectory where China was 0:04:05.480 --> 0:04:08.560 moving towards being a more market based economy and a 0:04:08.600 --> 0:04:13.080 more open economy, and that meant closer ties with the US. 0:04:13.520 --> 0:04:16.960 What's happened in the last four or five years, especially 0:04:17.200 --> 0:04:21.360 since the Trump administration had their turn in the White House, 0:04:21.760 --> 0:04:24.920 is that China has realized, you know what, we're facing 0:04:24.920 --> 0:04:28.920 a more hostile global environment. We're facing a US which 0:04:28.960 --> 0:04:32.880 is going to impose trade tariffs, impost sanctions, try and 0:04:33.000 --> 0:04:36.920 ally with other countries to sort of put limits on 0:04:36.960 --> 0:04:40.360 our tech development. And what that's done is it's put 0:04:40.520 --> 0:04:44.520 China into kind of defense mode. And so we're seeing 0:04:44.600 --> 0:04:47.280 China saying, you know what, maybe we don't want our 0:04:47.320 --> 0:04:50.359 tech companies to I p O in the United States. 0:04:50.640 --> 0:04:53.680 Maybe we need to do more to boost self sufficiency 0:04:53.680 --> 0:04:57.159 at home in terms of our ownership of key technologies 0:04:57.560 --> 0:05:01.800 and in terms of who's financing our develop so and 0:05:01.839 --> 0:05:05.000 I mean the the for me, the most interesting thing 0:05:05.040 --> 0:05:07.520 is that one man, or at least the head of 0:05:07.560 --> 0:05:10.560 the party, can do this right. He doesn't have to 0:05:10.680 --> 0:05:15.039 deal with all the special interests and lobbyists that we'll 0:05:15.120 --> 0:05:19.000 keep will hold America back, possibly in trying to improve 0:05:19.000 --> 0:05:21.680 what we've we've got going on here. Same I'm sure 0:05:21.680 --> 0:05:25.520 it's two in the UK, etcetera across Western democracies. How 0:05:25.560 --> 0:05:28.440 powerful is j Ping? Do I just see it that 0:05:28.480 --> 0:05:33.120 way or is he really the man? Well? I mean, 0:05:33.200 --> 0:05:35.640 she who must be obeyed was the kind of the 0:05:35.720 --> 0:05:39.360 joke when she Jinping came into power and sort of 0:05:39.520 --> 0:05:43.080 started wielding the big stick of authoritarian governance to get 0:05:43.080 --> 0:05:47.200 things done. I mean, certainly she is an incredibly powerful leader, 0:05:47.440 --> 0:05:50.360 probably the most powerful leader China has had since chair 0:05:50.520 --> 0:05:54.599 and Mao. But that comparison with Chairman Marrow, of course, 0:05:55.000 --> 0:06:00.240 also highlights some of the risks with an authoritarian governance system. Yes, 0:06:00.360 --> 0:06:03.800 we might look enviously at a Chinese system that can 0:06:03.880 --> 0:06:08.240 get things done really quickly, pushed past vested interests that 0:06:08.320 --> 0:06:12.520 try and block reforms, but let's not forget that authoritarian 0:06:12.560 --> 0:06:15.880 governments can get things right really quickly. They can also 0:06:15.960 --> 0:06:20.840 get things wrong really quickly as well, just quickly. Because 0:06:20.880 --> 0:06:23.080 we did get p M I s from China over 0:06:23.120 --> 0:06:27.160 the weekend, What do you make of the deceleration in 0:06:27.320 --> 0:06:30.560 growth there has it been over exaggerated. So there's a 0:06:30.600 --> 0:06:33.880 couple of things going on, Caylee. So the first one 0:06:33.960 --> 0:06:37.800 is kind of a normalization of China's growth. China was 0:06:37.839 --> 0:06:40.839 first into the COVID shock, also first out of the 0:06:40.880 --> 0:06:44.120 covid shock. They had their period of rapid acceleration at 0:06:44.160 --> 0:06:48.240 the end of twenty and the beginning of now great 0:06:48.360 --> 0:06:51.720 is steadying back towards a more normal level. The more 0:06:51.760 --> 0:06:54.760 troubling thing, though, is that we've also now got the 0:06:54.839 --> 0:06:58.280 virus coming back in different parts of China, some cases 0:06:58.320 --> 0:07:01.520 in Nanjing, some cases in Wuhan, which you remember was 0:07:01.560 --> 0:07:05.359 the epicenter of the virus last year. That return of 0:07:05.400 --> 0:07:08.920 the virus is prompting more controls on what people can do, 0:07:09.040 --> 0:07:12.720 more social distancing, and that is also weighing on growth 0:07:12.800 --> 0:07:15.960 heading into the second half. All right, Tom, thanks very much. 0:07:16.000 --> 0:07:20.800 Tom Warlock joining us there with his story Jumping's capitalist 0:07:20.880 --> 0:07:24.600 SmackDown sparks a trillion dollar reckoning. That is our big 0:07:24.600 --> 0:07:26.160 take for the day. You can check that out in 0:07:26.160 --> 0:07:29.920 the Bloomberg terminal if you like, Just type NI big 0:07:29.960 --> 0:07:35.960 take Go Now. I want to bring in David Cats 0:07:36.040 --> 0:07:41.000 right now. He joins us from Matrix Asset Advisors, where 0:07:41.000 --> 0:07:44.000 he is the chief investment officer, and David. We're just 0:07:44.080 --> 0:07:48.280 hearing from Dave Wilson about the optimism in this market. 0:07:48.360 --> 0:07:53.520 We're seeing targets raised left and right. Earnings are are 0:07:53.600 --> 0:07:56.360 proving out eighty nine percent growth from the same quarter 0:07:56.520 --> 0:07:59.760 last year. What do you think, I mean, how much 0:07:59.800 --> 0:08:03.600 for there can we see stocks continue to run well? 0:08:03.640 --> 0:08:07.280 We think the underlying environment is quite positive. The economy 0:08:07.360 --> 0:08:09.360 is very much on the mend. As you just said, 0:08:09.480 --> 0:08:13.800 Earnings for companies have been very strong. That level of 0:08:13.840 --> 0:08:16.880 beating consensus is probably the best we've seen in over 0:08:16.920 --> 0:08:20.080 a decade. And interestingly the beats have been in ten 0:08:20.120 --> 0:08:23.120 and twenty cents per share rather than one and two cents. 0:08:23.160 --> 0:08:24.680 So there are a lot of good things out there, 0:08:24.960 --> 0:08:27.600 and interest rates are low. Having said that, you've had 0:08:27.640 --> 0:08:30.920 an enormous rally over the last twelve and fifteen months, 0:08:31.160 --> 0:08:32.800 so we think a lot of those good things are 0:08:32.840 --> 0:08:36.480 priced into the market. From here. We're expecting a good 0:08:36.520 --> 0:08:39.800 deal of volatility, both good and bad. We think you 0:08:39.920 --> 0:08:43.640 probably will have some delta scares and some other geopolitical scares. 0:08:43.920 --> 0:08:46.679 We'd be buyers into the weakness. We would not chase 0:08:46.800 --> 0:08:50.559 rallies like today. We think ultimately stocks and the year 0:08:50.679 --> 0:08:52.920 higher than they are today, but we do expect some 0:08:53.120 --> 0:08:55.840 rotations of things that haven't worked to do better and 0:08:55.880 --> 0:08:58.800 some of the hottest areas to slow down. So, David, 0:08:58.800 --> 0:09:01.080 when you're thinking about the puity market outlook, do you 0:09:01.120 --> 0:09:03.880 just have to make a decision to ignore whatever bonds 0:09:03.880 --> 0:09:06.120 are doing. I'm looking at a tenure yield now down 0:09:06.120 --> 0:09:11.680 around one. Yeah, we don't get it. On the bond side. 0:09:11.720 --> 0:09:14.360 The economy is robust, inflation is picking up, and we 0:09:14.400 --> 0:09:17.600 think that the bond rates and yields lower is an outlier. 0:09:17.679 --> 0:09:21.040 And if anything, if you own intermediate or long term bonds, 0:09:21.080 --> 0:09:23.800 we think this is a great time to be selling, 0:09:24.000 --> 0:09:27.520 locking in your profit and shortening maturities. From a stock 0:09:27.559 --> 0:09:30.680 market perspective, on one hand, it's very good when you 0:09:30.720 --> 0:09:33.360 have low interest rates like this because it makes stocks 0:09:33.400 --> 0:09:36.840 that much more competitive, and we don't think the bond 0:09:36.840 --> 0:09:39.920 market is really for telling a slowdown in the economy 0:09:40.000 --> 0:09:43.440 or really any significant issues. Let's talk about some of 0:09:43.480 --> 0:09:47.120 your top stock picks. Um, what are you most excited 0:09:47.120 --> 0:09:48.920 about when you come to the office or when you 0:09:49.000 --> 0:09:53.240 when you're talking to a client. What what gets you 0:09:53.280 --> 0:09:55.679 going well, it's an odd thing. The things that have 0:09:55.800 --> 0:09:58.520 worked over the last year are probably what we're least 0:09:58.520 --> 0:10:00.640 excited about because a lot of the good things are 0:10:00.679 --> 0:10:02.920 already in their stock prices. So we've got a lot 0:10:02.960 --> 0:10:06.319 of technology that's had a great run. We're less enthusiastic 0:10:06.400 --> 0:10:09.360 from here. So what we're most excited about our companies 0:10:09.360 --> 0:10:11.200 that really haven't done a lot in terms of the 0:10:11.200 --> 0:10:13.840 stock price, but the businesses are very good. So we 0:10:13.920 --> 0:10:16.280 like the financials a lot here. They've had a good 0:10:16.360 --> 0:10:18.200 run in the first six months, they slowed down in 0:10:18.200 --> 0:10:20.600 the last month. We think that's a poise that refreshes, 0:10:20.840 --> 0:10:22.720 and we think you can buy companies like Bank of 0:10:22.760 --> 0:10:25.600 New York, M and T Bank, p n C, Truest 0:10:25.720 --> 0:10:28.360 all very good. We also like healthcare, which has been 0:10:28.360 --> 0:10:31.800 an absolute dog in the last seven months. We think 0:10:31.840 --> 0:10:34.400 that's boys to do better. And there are a few 0:10:34.520 --> 0:10:37.839 overlooked technology companies like a Cisco or a five Serve 0:10:38.240 --> 0:10:41.720 that we think of good long term prospects um but 0:10:41.880 --> 0:10:45.120 really haven't had this type of rally that technology overall has. 0:10:45.679 --> 0:10:48.720 How do you think about pricing power when factoring you 0:10:48.720 --> 0:10:50.160 know what stocks you want to own, what you're going 0:10:50.200 --> 0:10:53.800 to put in a portfolio, especially considering the pretty serious 0:10:54.000 --> 0:10:57.520 input cost elevation we are seeing a number of companies 0:10:57.559 --> 0:11:00.600 talking about in their earning skulls. Well, it looks like 0:11:00.760 --> 0:11:04.559 most companies feel that they can raise prices. They're just 0:11:04.600 --> 0:11:06.680 as a one or two quarter legs. So if you 0:11:06.720 --> 0:11:09.719 look at the consumer staples, for example, many of them 0:11:09.760 --> 0:11:14.400 have lowered expectations for the year because prices rose quicker 0:11:14.600 --> 0:11:18.240 than they were able to raise their own prices. We 0:11:18.280 --> 0:11:20.520 think ultimately there's going to be a catch up there, 0:11:20.559 --> 0:11:22.840 so you just want to be aware of it. But again, 0:11:22.960 --> 0:11:25.200 even in terms of some of the consumer staples, we 0:11:25.240 --> 0:11:27.960 think you can put money in, uh, simply because the 0:11:28.000 --> 0:11:30.160 stocks haven't done a lot and they're cheaper than they've 0:11:30.200 --> 0:11:32.480 been in a very long time. So a company like 0:11:32.559 --> 0:11:36.440 Coca Cola or Kimberly Clark or Kellogg, we think are 0:11:36.920 --> 0:11:40.439 very fairly priced with good prospects over the next eighteen months, 0:11:40.440 --> 0:11:44.120 and again when the economy ultimately slows down, those stocks 0:11:44.120 --> 0:11:47.920 could become attractive to investors. Again, what about Viacom, You've 0:11:47.920 --> 0:11:51.880 got that on your list, um, And I'm just wondering 0:11:51.960 --> 0:11:56.440 if the reopening has anything in store for Viacom because 0:11:56.480 --> 0:11:59.880 you know, obviously we were all stuck inside watching their content, 0:12:00.040 --> 0:12:02.880 but now we can actually get out. Well, we think 0:12:02.920 --> 0:12:05.679 that certain players will not do as well as people 0:12:05.679 --> 0:12:07.559 get out, But in terms of Viacom, they have a 0:12:07.679 --> 0:12:10.680 robust movie business, and that movie business is going to 0:12:10.760 --> 0:12:14.160 get a lot better, So we don't think they're hurt 0:12:14.240 --> 0:12:16.679 by the reopening play. We think on the margin is 0:12:16.720 --> 0:12:19.520 probably a little bit better and it's a very interesting company. 0:12:19.559 --> 0:12:22.800 Here stock said about ten times earnings. We think they 0:12:22.920 --> 0:12:26.600 definitely are going to be a winner in the streaming space. 0:12:26.679 --> 0:12:29.920 You get CBS, which is a great business, uh and 0:12:30.000 --> 0:12:32.440 Paramount which is a great business, and you're not paying 0:12:32.480 --> 0:12:35.199 a whole lot for it, so we think ultimately somebody 0:12:35.240 --> 0:12:38.280 could buy them or the stock is worth sixty to seventy, 0:12:38.320 --> 0:12:40.640 so we think it's a low risk investment. We had 0:12:40.640 --> 0:12:43.480 owned Viacom earlier this year. We had bought it um 0:12:43.679 --> 0:12:45.800 a year or two ago. We sold it anywhere from 0:12:45.840 --> 0:12:48.880 sixty to a hundred. When the stock came down in 0:12:49.000 --> 0:12:51.560 the end of March, we rebought our entire position and 0:12:51.600 --> 0:12:54.600 continue to add to it. Here, David, thanks very much, 0:12:54.640 --> 0:12:58.760 David Katz. They're talking to us from Matrix Asset Advisors, 0:12:58.760 --> 0:13:02.960 where he is chief investment Officer. David Kats and the 0:13:03.000 --> 0:13:06.640 Cats family also own those stocks that we were talking about. 0:13:06.720 --> 0:13:10.880 Just in the interest of full disclosure, this is Bloomberg. 0:13:13.200 --> 0:13:16.000 Let's talk a little bit. What's going on in European markets. 0:13:16.040 --> 0:13:19.720 We're looking at UM. Well, we saw bigger gains I 0:13:19.720 --> 0:13:22.840 guess in European markets across the board than we than 0:13:22.960 --> 0:13:27.400 we have in US markets today. UM. But the question 0:13:27.520 --> 0:13:30.280 is are there bigger gains to come, especially if you 0:13:30.280 --> 0:13:33.480 believe the reopening trade UM has yet to really hit. 0:13:33.800 --> 0:13:36.920 Tim craig Head joins US. He is a senior strategist, 0:13:36.960 --> 0:13:40.080 Senior European strategist, also the director of Research Content for 0:13:40.080 --> 0:13:43.880 Bloomberg Intelligence. So, Tim, Um, what's your read through what 0:13:44.040 --> 0:13:46.360 especially when you look at earnings in Europe versus earnings 0:13:46.360 --> 0:13:52.920 in the US. So Matt Um, We're we're pretty constructive 0:13:53.080 --> 0:13:55.679 if you look towards you look out towards the end 0:13:55.720 --> 0:14:00.880 of the year, the next several months, UM set August decide, UM, 0:14:01.080 --> 0:14:05.480 we think that you've got global economic recovery UM that 0:14:05.559 --> 0:14:11.959 transitions to expansion. We we are in the transitionary inflation 0:14:12.080 --> 0:14:15.360 camp as opposed to the persistent inflation camp. We think 0:14:15.400 --> 0:14:20.080 companies can manage through it, and that sets up a 0:14:20.120 --> 0:14:24.760 pretty good backdrop, especially for companies that are cyclically oriented. Um. 0:14:25.080 --> 0:14:29.040 You know, two Q results themselves are fed into a 0:14:29.160 --> 0:14:32.760 lot of good evidence supporting this sort of construct in 0:14:32.800 --> 0:14:35.880 our mind. Well, and earnings growth has been really solid 0:14:35.960 --> 0:14:38.440 to tim on the stocks that centered. I'm looking at 0:14:38.440 --> 0:14:40.960 average earnings growth of the companies reported thus far of 0:14:41.000 --> 0:14:44.240 a hundred and seventy six percent. I mean that is wild, 0:14:44.600 --> 0:14:49.480 and you're seeing revisions upward, revisions accelerating as well. How 0:14:49.560 --> 0:14:51.240 big of a drop off are we going to see 0:14:51.360 --> 0:14:55.400 in the third and fourth quarter? Though? Yeah, Um, it's 0:14:55.720 --> 0:14:58.640 it's a good it's a good point. Um, we're about 0:14:58.720 --> 0:15:03.920 it on our account. Um. Uh, we're about three quarters done. 0:15:04.440 --> 0:15:09.800 If you look at market cap um having reported, Um, 0:15:09.840 --> 0:15:13.440 you know our number, and we're calculating it slightly differently 0:15:13.440 --> 0:15:16.720 as a hundred. But the important point is that when 0:15:16.760 --> 0:15:20.480 we started the earnings reporting period that number was a 0:15:20.560 --> 0:15:24.160 hundred and thirties. So it's accelerated through the results period. 0:15:24.520 --> 0:15:28.000 And interesting another stat for you, UM, we're looking at 0:15:28.240 --> 0:15:35.400 roughly sixty having beat estimates having missed now European earnings 0:15:35.520 --> 0:15:40.400 are are typically a lot more blocked than in the US, 0:15:40.960 --> 0:15:45.840 where you know, US companies moved to to keep expectations 0:15:45.880 --> 0:15:49.640 low and beat UM. That doesn't happen so much over here. 0:15:49.680 --> 0:15:53.520 So these are these are extraordinary. UM, there is no doubt. 0:15:53.640 --> 0:15:56.160 You have to see a slowdown and as you get 0:15:56.200 --> 0:15:58.920 into three Q and four Q. But it's not so 0:15:59.040 --> 0:16:03.040 much the slowdown because the market already knows that. UM. 0:16:03.120 --> 0:16:07.200 In our mind, it's that revisions continue to tick up. 0:16:07.360 --> 0:16:10.960 And it's not only revisions to overall two thousand, twenty 0:16:11.040 --> 0:16:14.640 one and twenty two earnings. They are up UM. And 0:16:14.720 --> 0:16:17.920 that's true costs most of the European major markets. But 0:16:18.400 --> 0:16:24.080 actually even margin expectations are rising, which is particularly surprising 0:16:24.120 --> 0:16:27.600 giving some of the concerns that others have been voicing 0:16:27.640 --> 0:16:31.640 about inflation, and you know it's going to hit margins, 0:16:31.480 --> 0:16:35.400 It's true, except for consumer staples. That's a problem. UM. 0:16:36.600 --> 0:16:42.680 What's the problem with consumer staples? Yeah? From yeah, I'm well, 0:16:42.720 --> 0:16:44.520 I mean, from our perspective, they just don't have the 0:16:44.560 --> 0:16:50.600 economic leverage to be able to manage through UM rising costs. UM. 0:16:50.680 --> 0:16:54.280 I mean to to us, that's the one segment of 0:16:54.800 --> 0:16:59.400 the market UM, where the whole sort of cost inflation 0:16:59.640 --> 0:17:04.680 higher or raw material costs is more problematic and interesting enough, 0:17:04.720 --> 0:17:08.000 if we look at two Q results, that's the one 0:17:08.000 --> 0:17:11.480 place that actually are showing negative earnings growth, I mean 0:17:11.520 --> 0:17:14.280 through down one percent as opposed to the overall market 0:17:14.320 --> 0:17:19.879 up whatever D sixty UM. So they stand out and 0:17:20.080 --> 0:17:24.400 evaluations aren't cheap either. Can we talk about buy boxing dividends. 0:17:25.320 --> 0:17:31.080 Are we going to keep seeing those increased? Yeah? Quick 0:17:31.119 --> 0:17:35.280 answer is we think so UM and yes, you'll see 0:17:35.800 --> 0:17:41.359 what the results were seeing show UM better free cash flow, 0:17:41.840 --> 0:17:47.320 better cash generation UM. Importantly, then you've got to think 0:17:47.320 --> 0:17:51.520 about where is that being utilized and M and A 0:17:51.720 --> 0:17:54.760 is going to happen. We've done some interesting work on that. 0:17:55.440 --> 0:17:58.280 Capex is gonna happen. We need that to have a 0:17:58.320 --> 0:18:02.320 sustained economic recovery UM. In addition to some of these 0:18:02.359 --> 0:18:05.800 policy measures like the European Recovery Fund or the US 0:18:05.840 --> 0:18:12.520 Infrastructure Plan, et cetera. But importantly, shareholder renumeration is coming 0:18:12.560 --> 0:18:15.919 back to dividends, buy backs are on a rising. A 0:18:15.960 --> 0:18:20.240 big thing in Europe has been the restriction on financials, 0:18:20.320 --> 0:18:25.080 specifically banks um UH dividends and buy backs and that's 0:18:25.080 --> 0:18:28.760 being lifted by the ECB. Um. You know, nice announcement 0:18:28.800 --> 0:18:35.280 by HSBC just today with their results um actually bringing 0:18:35.400 --> 0:18:40.600 forward um uh their announcement relative to what we had 0:18:40.600 --> 0:18:43.560 not thought was going to happen until next year. So 0:18:43.680 --> 0:18:45.679 I think it's a good news. The other one I 0:18:45.680 --> 0:18:48.320 would mention to you that I think it's interesting are 0:18:48.359 --> 0:18:52.880 the commodities um, the miners and the oils which are 0:18:52.960 --> 0:18:56.880 so big. For example, for the foot see um, they're 0:18:56.920 --> 0:19:00.720 still being restrained on their capex, their bump ben dividends 0:19:00.720 --> 0:19:03.560 and buy back, which is great. And if they can 0:19:03.640 --> 0:19:07.000 restrain the capex, then you've got an opportunity for a 0:19:07.080 --> 0:19:11.360 more sustained UM sort of price environment for them, as 0:19:11.359 --> 0:19:14.360 opposed to thinking it's going to be bloom bust. All right, Tim, 0:19:14.400 --> 0:19:16.960 thanks very much for joining us. Really appreciate Tim Craighead, 0:19:17.359 --> 0:19:22.159 their senior European Strategy director of Research content for Bloomberg Intelligence, 0:19:22.160 --> 0:19:27.720 talking to us about the earnings landscape in Europe. This 0:19:28.920 --> 0:19:35.320 is Bloomberg. That would have been the big take, but 0:19:35.400 --> 0:19:40.480 we are talking now to Marcus Ashworth. Excuse me, Marcus, pleasure. 0:19:40.520 --> 0:19:41.760 I can be a big take if you want me 0:19:41.760 --> 0:19:44.600 to be, or even a big fake. No, no, no, 0:19:45.000 --> 0:19:47.960 you're the real deal. And now I remember we're gonna 0:19:48.000 --> 0:19:51.760 talk about the stay at home economy to stay at 0:19:51.800 --> 0:19:55.880 home recovery. Are we stuck there? What is your big 0:19:55.920 --> 0:19:59.600 take on that issue? Well, I'm I'm actually getting an 0:19:59.640 --> 0:20:02.639 increased worried, as I say, sitting at home rather than 0:20:02.680 --> 0:20:05.760 in the office. And I was in the office on Friday, 0:20:05.800 --> 0:20:08.639 but you know, it shocked me how empty everything was 0:20:09.160 --> 0:20:12.800 around the city of London. The tubes, the the subway, 0:20:12.880 --> 0:20:16.159 that the trains, shops which are closed. I mean, this 0:20:16.400 --> 0:20:19.119 is I know it's summer, and I know it's still 0:20:19.160 --> 0:20:21.720 theoretically in some pandemic, but we're supposed to have had 0:20:21.800 --> 0:20:25.040 Freedom Day in the UK. It really hasn't happened. It's 0:20:25.080 --> 0:20:27.159 been a damp squib and I think what worries me 0:20:27.240 --> 0:20:32.359 is that damp I have heard that phrase more times 0:20:32.400 --> 0:20:35.640 in the last week, considering that I never does everybody 0:20:35.640 --> 0:20:37.760 know what a dance squib is? I'm not sure our 0:20:37.840 --> 0:20:41.439 American listeners necessarily do, and I think a lot of 0:20:41.440 --> 0:20:44.800 British people don't even really know what a dance squib is. Marcus, 0:20:44.800 --> 0:20:47.680 care to explain something it doesn't like very well? Should 0:20:47.680 --> 0:20:50.080 we say squire is something you used to like something else, 0:20:50.680 --> 0:20:53.520 say firewoks like that. No, it just means that you know, 0:20:53.600 --> 0:20:55.280 it's not going to go off. It's not gonna go bang, 0:20:55.320 --> 0:20:57.720 and nothing's gonna happen. And you know, we've we've got 0:20:57.800 --> 0:21:02.320 to worry here because you know, the train lines are empty, 0:21:02.680 --> 0:21:05.720 the cities are are empty, and that's because people are 0:21:05.800 --> 0:21:10.600 not going back into into the city centers, which means restaurants, hospitality, etcetera. 0:21:10.880 --> 0:21:13.040 None of it flows, none of it works. Now we're 0:21:13.080 --> 0:21:15.480 seeing a lot of sectors doing better than they were before. 0:21:16.160 --> 0:21:18.440 That's because you know, but they will mean revert back 0:21:18.480 --> 0:21:20.960 to normal. Normal restaurant bookings are going to stay high 0:21:21.040 --> 0:21:24.840 forever um all the zoom meetings, etcetera. But it's the 0:21:24.840 --> 0:21:27.159 stuff which isn't going to get back to it's that 0:21:27.359 --> 0:21:30.399 stuck at ninety or now and they need an extra 0:21:30.440 --> 0:21:32.960 boost and they're not getting it. And the government ought 0:21:33.040 --> 0:21:35.840 to get a bit clever. Well, isn't this just the 0:21:35.920 --> 0:21:37.919 idea of the new normal that we can never go 0:21:38.040 --> 0:21:41.119 back to pre COVID. Well, I mean that's what we 0:21:41.119 --> 0:21:42.879 want to try and avoid. I'm not saying anything should 0:21:42.880 --> 0:21:44.560 go back to how it was. I'm saying a better 0:21:44.600 --> 0:21:46.520 way of doing it. We can all talk forever about 0:21:46.600 --> 0:21:50.040 build back better and all the other platitudes, but you're 0:21:50.040 --> 0:21:52.760 gonna get people back into the city mostly, and you've 0:21:52.760 --> 0:21:55.359 got to get people away from hunkering down and feeling 0:21:55.400 --> 0:21:57.960 scared of going back into society and a normal life. 0:21:57.960 --> 0:22:00.600 Otherwise there will be permanent scarring and you won't be 0:22:00.640 --> 0:22:02.760 able to get that back, and that's a mistake. I 0:22:02.840 --> 0:22:04.560 think that there are better things that can be done, 0:22:04.840 --> 0:22:09.080 particularly even if it minds subsidizing commuter fairs and e g. 0:22:09.320 --> 0:22:11.679 Tourists coming into the center of London. It can be 0:22:11.720 --> 0:22:13.439 done for the rest of this year or for a 0:22:13.520 --> 0:22:15.720 few months. They did a thing would eat Out to 0:22:15.760 --> 0:22:18.600 help out last summer. It perhaps they worked too well, 0:22:18.840 --> 0:22:20.840 being a super spreader event, but it got people back 0:22:20.880 --> 0:22:23.359 into restaurants and bars, and the government needs to do 0:22:23.440 --> 0:22:25.760 something similar. I'm sure where London goes it will be 0:22:25.800 --> 0:22:27.560 exact the same in New York City from what everyone 0:22:27.560 --> 0:22:32.120 tells me. So there's there there. Surely there are pieces 0:22:32.119 --> 0:22:34.280 of this that are going to stay with us forever, right, 0:22:34.280 --> 0:22:37.560 I mean, are people going to be masking forever? Are 0:22:37.600 --> 0:22:41.040 we going to be getting boosters forever. That's not your concern. 0:22:41.119 --> 0:22:45.080 Your concern is, uh, I'm trying to think of a 0:22:45.080 --> 0:22:48.879 corner shop in London. Gregg's will no longer be open 0:22:48.960 --> 0:22:52.560 for sausage rolls all day. It's it's not just that, 0:22:52.680 --> 0:22:54.919 it's just that we're not careful. We're going to end 0:22:54.960 --> 0:22:57.840 up with a halfway house whereby it's not going to 0:22:58.080 --> 0:23:02.040 satisfy and then enclosed the econom me recovery we could 0:23:02.400 --> 0:23:04.800 and should be having, and that the ends days get 0:23:04.840 --> 0:23:06.879 the engine of the economy going, which means people moving 0:23:06.920 --> 0:23:09.919 around doing things. You sure the store means you can 0:23:09.920 --> 0:23:11.960 do a three day week, or you can work from home. 0:23:12.080 --> 0:23:15.000 Sometimes that doesn't mean we lose all the benefits of 0:23:14.800 --> 0:23:16.520 what of what we've seen in the last year or two, 0:23:16.720 --> 0:23:19.800 but we really ought to get the economy functioning as 0:23:19.840 --> 0:23:23.760 best we can, and that means transportation, it means well. 0:23:23.800 --> 0:23:26.080 But if we're working, we're only working three days a 0:23:26.080 --> 0:23:29.280 week in the office. And I've noticed here, Marcus, the 0:23:29.359 --> 0:23:32.520 same things that you noticed there. Um, it's much worse 0:23:32.520 --> 0:23:35.520 than in Berlin. I say, I walk around our headquarters 0:23:35.520 --> 0:23:40.080