1 00:00:00,080 --> 00:00:12,960 Speaker 1: Ye, Welcome to the Bloomberg Surveillance podcast. I'm Tom Keane. 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Daily we bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,640 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. Four 5 00:00:33,680 --> 00:00:36,479 Speaker 1: months ago, there was a modest press release out of 6 00:00:36,560 --> 00:00:40,640 Speaker 1: Think Tank America's would with the Peterson Institute brand. It 7 00:00:40,720 --> 00:00:43,960 Speaker 1: was a wonderful press release. Douglas Irwin and Mary Lovely 8 00:00:44,240 --> 00:00:48,519 Speaker 1: joined Peterson Institute for International Economics. Many of you will 9 00:00:48,560 --> 00:00:53,960 Speaker 1: know Professor Irwin of Dartmouth, perhaps fewer very Lovely of 10 00:00:54,040 --> 00:01:01,440 Speaker 1: Syracuse University, who is absolutely definitive on intellectual transfer across nations, 11 00:01:01,440 --> 00:01:04,640 Speaker 1: and she joins us this morning with the Peterson Institute 12 00:01:05,160 --> 00:01:08,800 Speaker 1: on tariffs and such. Mary, what's the number one thing 13 00:01:09,000 --> 00:01:14,000 Speaker 1: we get wrong in our tariff analysis or discussion two 14 00:01:14,040 --> 00:01:20,600 Speaker 1: thousand eighteen vintage. I think the biggest misconception is the 15 00:01:20,720 --> 00:01:23,800 Speaker 1: extent to which the trade between the United States and 16 00:01:24,080 --> 00:01:29,600 Speaker 1: China happens via multinationals by a foreign firms operating in China. 17 00:01:29,720 --> 00:01:33,680 Speaker 1: To a large extent, it is uh supply chain trade. 18 00:01:35,000 --> 00:01:38,440 Speaker 1: What does that mean? Is that just more amorphous or 19 00:01:38,520 --> 00:01:40,920 Speaker 1: harder to get our hands on that it's within the 20 00:01:40,959 --> 00:01:44,920 Speaker 1: menu facture of products. Well, it has a lot of 21 00:01:44,959 --> 00:01:49,000 Speaker 1: implications for how the us UH is either helped or 22 00:01:49,080 --> 00:01:52,440 Speaker 1: hurt by these tariffs. First of all, when we when 23 00:01:52,440 --> 00:01:54,720 Speaker 1: we place tariffs on these types of goods, we're not 24 00:01:55,160 --> 00:01:59,120 Speaker 1: we're almost indirectly trying to get at the Chinese were 25 00:01:59,280 --> 00:02:04,240 Speaker 1: first off, hitting mainly our allies operations in China. Secondly, 26 00:02:04,240 --> 00:02:07,640 Speaker 1: we're hurting our own corporations, the companies that employ people 27 00:02:07,640 --> 00:02:11,359 Speaker 1: in the United States by raising their costs. Because the 28 00:02:12,520 --> 00:02:15,560 Speaker 1: overwhelming majority of the goods that were hit with tariffs 29 00:02:15,560 --> 00:02:18,959 Speaker 1: are inputs to our production processes. I mean, Katherine Rampole 30 00:02:19,000 --> 00:02:21,840 Speaker 1: in the Washington Post has made this huge distinction, folks, 31 00:02:22,320 --> 00:02:26,200 Speaker 1: between finished goods and inputs. Give us an example of 32 00:02:26,240 --> 00:02:28,680 Speaker 1: what an input would be is that like a distributor 33 00:02:28,760 --> 00:02:32,200 Speaker 1: in a car. Absolutely, it could be a distributor to car. 34 00:02:32,680 --> 00:02:36,560 Speaker 1: It could be semiconductors that we originally exported to China 35 00:02:36,639 --> 00:02:39,400 Speaker 1: coming back to us after they've been tested and packaged. 36 00:02:40,000 --> 00:02:44,040 Speaker 1: It can be auto parts, although primarily it's not. Primarily 37 00:02:44,040 --> 00:02:47,880 Speaker 1: it's electronics. Let's go right there. We make a semiconductor 38 00:02:47,919 --> 00:02:52,000 Speaker 1: in California, it gets shipped to China. Or what do 39 00:02:52,000 --> 00:02:54,240 Speaker 1: they do? They bless it and pour holy water on it? 40 00:02:54,280 --> 00:02:56,880 Speaker 1: What do they I doubt if it's holy Water town. 41 00:02:57,160 --> 00:02:59,720 Speaker 1: What do they do? They test it, they package it, 42 00:02:59,800 --> 00:03:02,079 Speaker 1: they send it back in a suran rap thing. It 43 00:03:02,200 --> 00:03:05,480 Speaker 1: comes off a thing in Long Beach. And that's the 44 00:03:05,520 --> 00:03:10,240 Speaker 1: input that's taking jobs away from America right Well, in 45 00:03:10,320 --> 00:03:13,840 Speaker 1: the rhetoric it is. In reality, it's not firms that 46 00:03:13,840 --> 00:03:16,440 Speaker 1: that have off short have added jobs in the US. 47 00:03:16,560 --> 00:03:18,560 Speaker 1: The problem is that there are different jobs than the 48 00:03:18,639 --> 00:03:21,800 Speaker 1: jobs that are that are destroyed by changes in the 49 00:03:21,800 --> 00:03:25,680 Speaker 1: global economy. So the jobs are moving towards the more 50 00:03:25,760 --> 00:03:28,799 Speaker 1: highly skilled folks. They're moving away from sort of the 51 00:03:28,880 --> 00:03:32,160 Speaker 1: use of physical labor. But at the same time, we're 52 00:03:32,200 --> 00:03:35,600 Speaker 1: seeing exactly the same changes happening with changes in technology 53 00:03:35,680 --> 00:03:37,960 Speaker 1: and firms and and we've all heard a great deal 54 00:03:38,000 --> 00:03:42,960 Speaker 1: about coming robotization of the factory floor. So technology shocks 55 00:03:42,960 --> 00:03:45,160 Speaker 1: are hitting us at the same time that China has 56 00:03:45,200 --> 00:03:48,720 Speaker 1: opened up and also made it easier to offshore to them. 57 00:03:48,720 --> 00:03:51,040 Speaker 1: So Mary, you say China's opened up to what extent 58 00:03:51,120 --> 00:03:54,119 Speaker 1: has the Chinese economy opened up over the last decade? 59 00:03:54,920 --> 00:03:58,360 Speaker 1: The Chinese economy has opened up quite dramatically. They lowered 60 00:03:58,400 --> 00:04:02,200 Speaker 1: their tariffs quite a bit uh to well below ten 61 00:04:02,240 --> 00:04:05,720 Speaker 1: percent with the agreement that was made between the US 62 00:04:05,760 --> 00:04:07,560 Speaker 1: and China for them to join the w t O. 63 00:04:08,240 --> 00:04:11,240 Speaker 1: They've opened up in terms of decreasing the number of 64 00:04:11,280 --> 00:04:14,800 Speaker 1: sectors in which you have to participate in a joint 65 00:04:14,880 --> 00:04:18,040 Speaker 1: venture to invest in China. We hear a lot about 66 00:04:18,120 --> 00:04:21,480 Speaker 1: joint ventures and how they're the conduit forward technological theft 67 00:04:21,480 --> 00:04:25,400 Speaker 1: from the United States, but in fact they've decreased dramatically 68 00:04:25,400 --> 00:04:27,320 Speaker 1: the number of sectors in which you need to have 69 00:04:27,400 --> 00:04:31,720 Speaker 1: a joint venture. And recently uh Sheet and Ping mentioned 70 00:04:32,120 --> 00:04:35,080 Speaker 1: or offered to open up the automobile sector to wholly 71 00:04:35,120 --> 00:04:37,279 Speaker 1: owned subsidiary Mary. Would it be fair to say that 72 00:04:37,279 --> 00:04:39,800 Speaker 1: they've opened up things they've started to dominate. For instance, 73 00:04:39,800 --> 00:04:42,960 Speaker 1: the auto sector is a great example. For many manufacturers. 74 00:04:42,960 --> 00:04:47,080 Speaker 1: They've had to take the manufacturing position to China to 75 00:04:47,200 --> 00:04:50,360 Speaker 1: avoid the import tariffs, and now the Chinese are looking 76 00:04:50,400 --> 00:04:54,440 Speaker 1: at removing import tariffs or at least luring imports tariffs 77 00:04:54,480 --> 00:04:56,919 Speaker 1: on imports. It's not as if those manufacturers that have 78 00:04:56,960 --> 00:04:58,800 Speaker 1: already moved to China and now going to move back 79 00:04:58,839 --> 00:05:01,240 Speaker 1: to Europe or move to the Nazis States as it 80 00:05:01,320 --> 00:05:04,640 Speaker 1: that's stuck that. Uh, well, I think they want to 81 00:05:04,680 --> 00:05:06,400 Speaker 1: be there. I think they want to serve the market. 82 00:05:06,760 --> 00:05:09,560 Speaker 1: As far as are they dominating the auto industry? The 83 00:05:09,640 --> 00:05:13,600 Speaker 1: US imports only about a billion dollars worth of of 84 00:05:13,600 --> 00:05:16,479 Speaker 1: of vehicles from China, and yet we export more than 85 00:05:16,560 --> 00:05:20,080 Speaker 1: ten billion. So are they dominating autos? No? I certainly 86 00:05:20,080 --> 00:05:21,920 Speaker 1: don't want to trade in my car for a car 87 00:05:22,000 --> 00:05:24,919 Speaker 1: that's made holy in China. So I think this idea 88 00:05:24,960 --> 00:05:28,520 Speaker 1: that they're dominating already is getting way ahead of ourselves 89 00:05:28,520 --> 00:05:34,200 Speaker 1: by several decades. Your core research is on intellectual transfer 90 00:05:34,839 --> 00:05:39,080 Speaker 1: between China and US. Give us that dynamic. Right now, 91 00:05:39,200 --> 00:05:42,960 Speaker 1: They in droves are sending their kids over here at 92 00:05:43,000 --> 00:05:48,400 Speaker 1: different levels of brightness to study. Do they all go home? No, 93 00:05:48,560 --> 00:05:51,400 Speaker 1: they don't, although you know more will go home with 94 00:05:51,440 --> 00:05:55,520 Speaker 1: the changes in uh US policies. But there's lots of 95 00:05:55,600 --> 00:05:59,080 Speaker 1: avenues by which technology transfer is happening, including what we 96 00:05:59,160 --> 00:06:02,960 Speaker 1: call intellectual attorneys. Not only the return of of students 97 00:06:03,000 --> 00:06:05,640 Speaker 1: who have received you know, a Bachelor of Science or 98 00:06:05,680 --> 00:06:09,320 Speaker 1: a Bachelor of Arts, but of course PhDs and highly 99 00:06:09,360 --> 00:06:12,800 Speaker 1: skilled professionals. So This is happening at all levels, in 100 00:06:12,839 --> 00:06:15,560 Speaker 1: all sectors. It's happening in my own field, which is 101 00:06:15,640 --> 00:06:20,839 Speaker 1: higher education, where the Chinese are wooing back very skilled people. Um. 102 00:06:20,880 --> 00:06:25,200 Speaker 1: There's no international laws against this. You're able to, uh, 103 00:06:25,240 --> 00:06:29,599 Speaker 1: you know, offer higher salaries or better housing subsidies to 104 00:06:29,680 --> 00:06:32,640 Speaker 1: people if you want. So that's one way. Other ways, 105 00:06:32,720 --> 00:06:37,200 Speaker 1: or of course they're enticing corporations to bring technology to China. 106 00:06:37,279 --> 00:06:39,320 Speaker 1: This is something we don't really want to talk about. 107 00:06:39,360 --> 00:06:42,160 Speaker 1: We want to talk about theft and other things. But 108 00:06:42,360 --> 00:06:47,240 Speaker 1: many corporations do transfer technology voluntarily. The Chinese offer you know, 109 00:06:47,320 --> 00:06:52,039 Speaker 1: ready fields for factories or for you know, high tech businesses. UM. 110 00:06:52,160 --> 00:06:55,080 Speaker 1: And the the opening up, the growth of the market 111 00:06:55,120 --> 00:06:59,479 Speaker 1: there is very attractive. Let's say it there you so 112 00:06:59,560 --> 00:07:03,080 Speaker 1: much great, appreciate it, very lovely with the Peterson Institute. 113 00:07:03,120 --> 00:07:24,000 Speaker 1: From our studios in Washington to this morning, Douglas Peebles 114 00:07:24,080 --> 00:07:27,000 Speaker 1: is with us with a B alliance Bernstein in fix 115 00:07:27,040 --> 00:07:29,200 Speaker 1: ting What do you actually do? Do you? Are you 116 00:07:29,280 --> 00:07:31,600 Speaker 1: running money? Are you are you in the mail room 117 00:07:31,640 --> 00:07:33,880 Speaker 1: clipping coupons? What do you do for a B? Well 118 00:07:33,880 --> 00:07:35,840 Speaker 1: those two things are sort of one and the same 119 00:07:35,880 --> 00:07:39,280 Speaker 1: these days. Um, but yeah, I'm the chief investment officer 120 00:07:39,320 --> 00:07:41,920 Speaker 1: for the fixed income group. I've been at a b 121 00:07:42,520 --> 00:07:45,440 Speaker 1: UH and its affiliates forty one years. I know that's 122 00:07:45,440 --> 00:07:47,080 Speaker 1: where I wanted, exactly where I wanted to go. You 123 00:07:47,120 --> 00:07:50,680 Speaker 1: and I remember when fixed income at trouble competing with 124 00:07:50,800 --> 00:07:54,720 Speaker 1: CDs and other manipulated coupon products, and then there was 125 00:07:54,760 --> 00:07:57,120 Speaker 1: a point where everybody was a genius and total return 126 00:07:57,280 --> 00:08:00,800 Speaker 1: was easy. He's easy with your wonder for three decades 127 00:08:00,840 --> 00:08:03,840 Speaker 1: of experience, what's the mood this year? They just clip 128 00:08:03,880 --> 00:08:06,360 Speaker 1: the coupon and say thank you? Well. I think two 129 00:08:06,360 --> 00:08:09,800 Speaker 1: thousand eighteen is really a transition year, UM. And we've 130 00:08:09,840 --> 00:08:13,800 Speaker 1: had the main influence on all financial markets over the 131 00:08:13,880 --> 00:08:17,680 Speaker 1: last ten years has been monetary policy. And and the 132 00:08:17,720 --> 00:08:19,880 Speaker 1: reason I call it a transition year is we have 133 00:08:19,920 --> 00:08:24,280 Speaker 1: a transition of monetary policy. And the Fed has two 134 00:08:24,400 --> 00:08:27,400 Speaker 1: levers now in which they tighten policy, and they're using 135 00:08:27,440 --> 00:08:30,160 Speaker 1: both of them. They're they're now shrinking their balance sheet 136 00:08:30,440 --> 00:08:34,439 Speaker 1: and they're obviously raising interest rates, which we saw last week. UM. 137 00:08:34,480 --> 00:08:38,240 Speaker 1: I think what happened globally last week of importance is 138 00:08:38,280 --> 00:08:42,160 Speaker 1: that Drag and team decided that they were going to 139 00:08:42,440 --> 00:08:45,720 Speaker 1: be more dubbish for longer, and and I think that 140 00:08:45,720 --> 00:08:48,640 Speaker 1: that kept the fixed income markets under wrap, and that 141 00:08:48,679 --> 00:08:51,520 Speaker 1: will probably continue to do so for the for at 142 00:08:51,600 --> 00:08:54,640 Speaker 1: least for the summer um. But this transition is in place, 143 00:08:55,160 --> 00:08:58,640 Speaker 1: and you know, we we tom we we look back 144 00:08:58,679 --> 00:09:00,920 Speaker 1: and say, okay, I and when the ten year note 145 00:09:01,000 --> 00:09:04,400 Speaker 1: was was ten eleven, but the five year note today 146 00:09:04,679 --> 00:09:07,280 Speaker 1: is just under three percent, and I think that that's 147 00:09:07,320 --> 00:09:10,320 Speaker 1: what the new normal is in terms of what is 148 00:09:10,760 --> 00:09:14,400 Speaker 1: a respectable return and can two or three percent compete 149 00:09:14,400 --> 00:09:17,720 Speaker 1: for capital? Are there any signs of credit stress right now? Well, 150 00:09:17,720 --> 00:09:20,640 Speaker 1: I don't think there's any particular signs in the marketplace 151 00:09:21,040 --> 00:09:23,760 Speaker 1: in terms of credit stress. But that's the worry, right, 152 00:09:23,800 --> 00:09:27,280 Speaker 1: I mean, we have we have certain signals. UH we 153 00:09:27,400 --> 00:09:30,960 Speaker 1: use a combination of quantitative and fundamental factors. The fundamental 154 00:09:31,000 --> 00:09:33,800 Speaker 1: team has been saying rightfully so that we are late 155 00:09:33,840 --> 00:09:35,960 Speaker 1: in the credit cycle for a long period of time. 156 00:09:36,600 --> 00:09:40,880 Speaker 1: We have very very highly levered, particularly investment grade companies 157 00:09:40,880 --> 00:09:44,920 Speaker 1: relative to history. And then a very important signal that 158 00:09:44,960 --> 00:09:47,040 Speaker 1: we follow is the flattening of the yield curve. And 159 00:09:47,080 --> 00:09:51,000 Speaker 1: that flattening of the yield curve historically has meant UH 160 00:09:51,440 --> 00:09:54,040 Speaker 1: rain in on risk because that's not in good environment 161 00:09:54,040 --> 00:09:56,280 Speaker 1: for risk taking. I've heard this a lot right in 162 00:09:56,320 --> 00:09:58,719 Speaker 1: on risk. Do you actually see that in the positioning 163 00:09:59,000 --> 00:10:01,040 Speaker 1: of west some of these fun zon right now? Because 164 00:10:01,240 --> 00:10:03,360 Speaker 1: people will come on the program with me and they'll say, 165 00:10:03,559 --> 00:10:05,880 Speaker 1: it's conte day risk. Because you've pointed out there's a 166 00:10:05,920 --> 00:10:08,400 Speaker 1: competition for capital. You can just buy treasuries at the 167 00:10:08,400 --> 00:10:10,640 Speaker 1: front end. You don't have to take as much duration risk, 168 00:10:10,679 --> 00:10:12,760 Speaker 1: you don't have to take as much credit risk. I 169 00:10:12,800 --> 00:10:15,880 Speaker 1: hate that cooler law. People actually acting on it well. 170 00:10:15,920 --> 00:10:18,040 Speaker 1: I think if you look at the mutual fund flows, 171 00:10:18,080 --> 00:10:20,800 Speaker 1: the fixed income flows are in outflow mode right now. 172 00:10:21,480 --> 00:10:23,280 Speaker 1: I'm not sure what they're doing with their money. My 173 00:10:23,280 --> 00:10:26,720 Speaker 1: my guess is they're not buying CDs. I do think 174 00:10:26,760 --> 00:10:29,840 Speaker 1: that they're they're actually more often than not moving out 175 00:10:29,880 --> 00:10:32,360 Speaker 1: the risk spectrum, but not in the fixed income world. 176 00:10:32,720 --> 00:10:35,040 Speaker 1: The only place where they're moving out the risk spectrum 177 00:10:35,040 --> 00:10:38,360 Speaker 1: in the fixed income world is in the floating rate. 178 00:10:38,400 --> 00:10:42,040 Speaker 1: The bank loans the the new nirvana at the moment, 179 00:10:42,080 --> 00:10:44,720 Speaker 1: if you will, And and that's because they're so afraid 180 00:10:44,720 --> 00:10:47,920 Speaker 1: of interest rate risk um And I think that when 181 00:10:47,960 --> 00:10:51,400 Speaker 1: people look at bond markets and their bond investments. They 182 00:10:51,440 --> 00:10:53,840 Speaker 1: really have to break it down into between what is 183 00:10:53,880 --> 00:10:57,720 Speaker 1: my risk reducing bond portfolio and what is my return 184 00:10:57,720 --> 00:11:02,120 Speaker 1: seeking bond portfolio. And bank owns, for example, are in 185 00:11:02,720 --> 00:11:06,200 Speaker 1: our opinion and should be in the return seeking don't 186 00:11:06,280 --> 00:11:10,079 Speaker 1: worry about duration if you're a high yield investor, right, 187 00:11:10,160 --> 00:11:12,720 Speaker 1: what you should worry about duration, which is the interest 188 00:11:12,800 --> 00:11:17,360 Speaker 1: rate risk if you're a risk mitigating investor. Now, one 189 00:11:17,360 --> 00:11:20,240 Speaker 1: thing that hasn't changed in this environment is the negative 190 00:11:20,280 --> 00:11:25,200 Speaker 1: correlation between treasuries and risk markets. And and are recommendation 191 00:11:25,280 --> 00:11:28,400 Speaker 1: to people is with this transition in place from the 192 00:11:28,440 --> 00:11:32,520 Speaker 1: central bank, particularly the FED move back into more balance. 193 00:11:33,000 --> 00:11:35,680 Speaker 1: So don't be so afraid of duration. I don't think. 194 00:11:36,000 --> 00:11:38,840 Speaker 1: I don't think that that's the fear that most people 195 00:11:38,840 --> 00:11:41,160 Speaker 1: should have, even though they do one thing. We john 196 00:11:41,400 --> 00:11:43,840 Speaker 1: correct me if I'm wrong, but we're way too full 197 00:11:43,880 --> 00:11:47,120 Speaker 1: faith and credit focused. And then we look at high yield, 198 00:11:47,600 --> 00:11:50,520 Speaker 1: and then there's the in between the investment grade paper. 199 00:11:50,960 --> 00:11:54,120 Speaker 1: What's the in between risk look like? Well? I think 200 00:11:54,160 --> 00:11:56,760 Speaker 1: the in between risk looks fine as long as the 201 00:11:56,800 --> 00:11:59,600 Speaker 1: economy is strong. So, for example, if you look at 202 00:11:59,600 --> 00:12:03,800 Speaker 1: the investor grade market, the investment grade average credit quality 203 00:12:03,840 --> 00:12:05,760 Speaker 1: has never been as low as it is right now. 204 00:12:06,120 --> 00:12:08,840 Speaker 1: So why is that. It's not because the economy has 205 00:12:08,880 --> 00:12:13,400 Speaker 1: been doing, you know, so awful. It's because the average 206 00:12:13,480 --> 00:12:17,360 Speaker 1: CFO in the marketplace has now decided instead of running 207 00:12:17,360 --> 00:12:20,760 Speaker 1: their balance sheet at a single A rating, they want 208 00:12:20,800 --> 00:12:23,720 Speaker 1: to move it down to a triple B. Yeah, they're 209 00:12:23,720 --> 00:12:26,760 Speaker 1: they're issuing bonds to buy backstop. Is that what Comcast 210 00:12:26,800 --> 00:12:29,600 Speaker 1: is doing? But they're not going Yeah. Look, I think 211 00:12:29,679 --> 00:12:32,520 Speaker 1: each and every company is different. I'm looking at it 212 00:12:32,559 --> 00:12:36,200 Speaker 1: as a as a macro position, and from a macro position, 213 00:12:36,800 --> 00:12:40,920 Speaker 1: the CFOs have been rewarded for doing this, right, I mean, 214 00:12:40,960 --> 00:12:43,840 Speaker 1: that's that's That's just the way it's been. Will that continue? 215 00:12:44,480 --> 00:12:46,760 Speaker 1: We that's why we want to reign inst case a 216 00:12:46,800 --> 00:12:49,920 Speaker 1: really interesting point. You write an important concept. You've said 217 00:12:49,960 --> 00:12:52,640 Speaker 1: we're nswering the latter stages of the cycle, and we 218 00:12:52,640 --> 00:12:54,199 Speaker 1: can have a separate debate on where we are on 219 00:12:54,240 --> 00:12:57,200 Speaker 1: the cycle. But let's assume that's true. At this point, 220 00:12:57,440 --> 00:13:00,560 Speaker 1: we've got the government livering up and you've got corporate 221 00:13:00,600 --> 00:13:03,719 Speaker 1: America adding leverage as well. What does it mean when 222 00:13:03,720 --> 00:13:07,840 Speaker 1: the government and corporate America at leverage this light in 223 00:13:07,840 --> 00:13:10,640 Speaker 1: the cycle well, I think there's two things. I think 224 00:13:10,679 --> 00:13:12,600 Speaker 1: that this when we look at the cycle, we have 225 00:13:12,679 --> 00:13:15,679 Speaker 1: to separate the credit cycle and the economic cycle, and 226 00:13:15,720 --> 00:13:19,040 Speaker 1: we are, one could argue, fairly early in the economic cycle, 227 00:13:19,080 --> 00:13:22,000 Speaker 1: but late in the credit cycle, and that is something 228 00:13:22,040 --> 00:13:24,560 Speaker 1: that we haven't seen before. And the laboring up on 229 00:13:24,600 --> 00:13:27,480 Speaker 1: the government side is the second half of this grand 230 00:13:27,480 --> 00:13:30,640 Speaker 1: experiment we talked about. Monetary policy is the first half. 231 00:13:30,960 --> 00:13:33,640 Speaker 1: The second half is we've never seen fiscal thrust to 232 00:13:33,760 --> 00:13:37,880 Speaker 1: this large in an economy that's already operating at full employment. 233 00:13:38,360 --> 00:13:42,240 Speaker 1: So I would imagine that we're gonna, you know, continue 234 00:13:42,240 --> 00:13:46,400 Speaker 1: to do okay until the economy doesn't do so well, 235 00:13:46,440 --> 00:13:48,960 Speaker 1: and we don't think that's for a while yet. Dug 236 00:13:49,040 --> 00:13:52,920 Speaker 1: one final question, if we could in terms of the 237 00:13:53,040 --> 00:13:56,800 Speaker 1: actual assumption of fixed income you mentioned three before. There's 238 00:13:56,800 --> 00:13:58,559 Speaker 1: still a lot of people out there they just say 239 00:13:58,600 --> 00:14:01,080 Speaker 1: I can't live on that. Well, again, he goes back 240 00:14:01,120 --> 00:14:03,680 Speaker 1: to how much debt has been issued, and so if 241 00:14:03,720 --> 00:14:06,280 Speaker 1: we have real interest rates right now that are at 242 00:14:06,320 --> 00:14:10,800 Speaker 1: one percent, or nominal rates at three percent, we would 243 00:14:10,800 --> 00:14:14,920 Speaker 1: think that with so much debt outstanding, the old assumptions 244 00:14:15,040 --> 00:14:18,040 Speaker 1: of let's say a four percent real rate or of 245 00:14:18,240 --> 00:14:21,440 Speaker 1: five or six percent nominal rate. They probably don't work anymore. 246 00:14:22,000 --> 00:14:24,040 Speaker 1: People think you so much. Mr. People's with a B 247 00:14:24,920 --> 00:14:43,280 Speaker 1: fixed income this morning, without question, this is my interview 248 00:14:43,320 --> 00:14:45,760 Speaker 1: of the day. I might point out it maybe my 249 00:14:45,920 --> 00:14:49,240 Speaker 1: interview of the week, and even Carlos gudierres I could 250 00:14:49,320 --> 00:14:52,360 Speaker 1: suggest it could be my interview of the year. Four 251 00:14:52,440 --> 00:14:55,360 Speaker 1: or five years ago, long ago and far away, the 252 00:14:55,440 --> 00:14:58,760 Speaker 1: former Secretary of Commerce and I did an interview on 253 00:14:58,920 --> 00:15:03,640 Speaker 1: short notice the day a one immigration debate in America collapse, 254 00:15:03,760 --> 00:15:07,280 Speaker 1: and I clearly remember Mr Secretary speaking to you at 255 00:15:07,280 --> 00:15:11,400 Speaker 1: that time, and we do it again today. Is one 256 00:15:11,440 --> 00:15:15,480 Speaker 1: first lady Mrs Bush, and another first lady Mrs Trump, 257 00:15:16,080 --> 00:15:20,520 Speaker 1: say stop. Have you ever seen anything like what we're 258 00:15:20,520 --> 00:15:25,240 Speaker 1: doing at our border? Carlos Gutiers, I've never seen it. 259 00:15:25,440 --> 00:15:27,920 Speaker 1: I've read that if we go back far enough in 260 00:15:27,920 --> 00:15:32,040 Speaker 1: our history, we've had moments where families have been divided. 261 00:15:32,120 --> 00:15:35,800 Speaker 1: We know that happened during slavery, it happened somewhat during 262 00:15:36,000 --> 00:15:40,840 Speaker 1: some of the Chinese immigration, but it never, ever, ever 263 00:15:41,320 --> 00:15:45,480 Speaker 1: is something that we can get used to. The images 264 00:15:45,520 --> 00:15:49,600 Speaker 1: are heartbreaking, and it's just hard to imagine that this 265 00:15:49,680 --> 00:15:52,320 Speaker 1: is the US. Your father was an enemy of the 266 00:15:52,360 --> 00:15:55,840 Speaker 1: state of Cuba. How did you come into this country 267 00:15:55,960 --> 00:15:59,480 Speaker 1: and were you separated at the border? We flew in, 268 00:15:59,640 --> 00:16:03,120 Speaker 1: We who in as a family on a Pan American 269 00:16:03,160 --> 00:16:06,600 Speaker 1: airlines into Miami, and I'll tell you we felt so welcome. 270 00:16:07,840 --> 00:16:10,520 Speaker 1: I felt like people wanted me to be here, and 271 00:16:10,680 --> 00:16:15,160 Speaker 1: people wanted me to succeed. Conservatives in those worried about 272 00:16:15,160 --> 00:16:18,040 Speaker 1: the future of America. In one way, I would say 273 00:16:18,080 --> 00:16:21,640 Speaker 1: that's fine because the Good Years were educated, etcetera, etcetera. 274 00:16:21,800 --> 00:16:23,920 Speaker 1: But so many of these people that are at the 275 00:16:23,960 --> 00:16:28,400 Speaker 1: border and the language that used as appalling, they're not 276 00:16:28,520 --> 00:16:32,840 Speaker 1: Carlos Goodyears. Can we make a distinction at the Texas 277 00:16:32,960 --> 00:16:37,360 Speaker 1: border between that the smart, the haves, and the less 278 00:16:37,520 --> 00:16:41,400 Speaker 1: fortunate and make a separation of parents and children. You know, 279 00:16:41,440 --> 00:16:45,480 Speaker 1: I don't think history makes that distinction. Uh. So many 280 00:16:45,560 --> 00:16:49,760 Speaker 1: immigrants came over uh from all over the world, starting 281 00:16:49,760 --> 00:16:54,120 Speaker 1: in Europe. Many were he literate, many had very low schooling. 282 00:16:54,240 --> 00:16:57,760 Speaker 1: But you know what, their kids went to school, became lawyers, 283 00:16:57,760 --> 00:17:01,480 Speaker 1: and became tweachers and became business people. I believe that 284 00:17:01,520 --> 00:17:05,439 Speaker 1: happens to every generation of immigrants. Full disclosure, Folks, my 285 00:17:05,480 --> 00:17:07,840 Speaker 1: middle name. They came over in handcuffs. It was a 286 00:17:07,880 --> 00:17:11,359 Speaker 1: few years ago, John Farrell, there was a small civil 287 00:17:11,359 --> 00:17:13,639 Speaker 1: war in England. I believe it was at the time. 288 00:17:14,280 --> 00:17:17,359 Speaker 1: It was back. Thank goodness you came, Tom. I know, 289 00:17:17,400 --> 00:17:20,360 Speaker 1: I look at look at that call us. What would 290 00:17:20,400 --> 00:17:22,159 Speaker 1: we have done every morning with that Tom, that's a 291 00:17:22,240 --> 00:17:25,480 Speaker 1: great example of the power of immigration. Or a few 292 00:17:25,560 --> 00:17:28,040 Speaker 1: years and as some listeners thinking, that's a great example 293 00:17:28,040 --> 00:17:32,800 Speaker 1: as to why we shouldn't let people in not be 294 00:17:32,840 --> 00:17:36,480 Speaker 1: a good argument. So tell tell us, uh, Mr Secretary, 295 00:17:36,560 --> 00:17:39,719 Speaker 1: what your Republican party needs to do. There's two pieces 296 00:17:39,760 --> 00:17:42,879 Speaker 1: of legislation in But what leadership do you need from 297 00:17:42,920 --> 00:17:51,240 Speaker 1: President Trump? How do the Republicans make this their constructive issue? Well, yeah, 298 00:17:51,280 --> 00:17:55,000 Speaker 1: the Republican Party is almost indistinguishable. We look more like 299 00:17:55,200 --> 00:18:01,440 Speaker 1: a right wing European party. Populus, not to concerned about business, 300 00:18:01,680 --> 00:18:04,920 Speaker 1: anti immigrant, you know, every everything that the US has 301 00:18:04,920 --> 00:18:07,439 Speaker 1: not been. UM, and I do think we need to 302 00:18:07,440 --> 00:18:10,879 Speaker 1: get back to where we have always been. The American dream. 303 00:18:11,000 --> 00:18:15,680 Speaker 1: Immigration is the American dream, free enterprise. Business, businesses can't 304 00:18:15,680 --> 00:18:18,760 Speaker 1: find enough workers. That's just that's the first reason why 305 00:18:18,760 --> 00:18:22,359 Speaker 1: we need immigration. But um, it is indistinguishable, and we 306 00:18:22,440 --> 00:18:24,080 Speaker 1: have to get back, and I think this is all 307 00:18:24,119 --> 00:18:28,240 Speaker 1: about leadership. Tom Uh. You know, the Democrats had President Obama, 308 00:18:28,320 --> 00:18:31,360 Speaker 1: he changed the party, that looked like he had changed 309 00:18:31,440 --> 00:18:34,840 Speaker 1: the trend of history. Well, now we have President Trump. Uh, 310 00:18:34,880 --> 00:18:37,600 Speaker 1: it's all about leadership, and it's not going to happen 311 00:18:37,640 --> 00:18:40,920 Speaker 1: inside the party. It's going to happen through the leadership 312 00:18:41,000 --> 00:18:43,200 Speaker 1: of one person in the coming days. Do you think 313 00:18:43,240 --> 00:18:46,760 Speaker 1: that this could rupture his relationship with his attorney general, 314 00:18:47,160 --> 00:18:50,560 Speaker 1: who has led the charge on this. Uh, it could, 315 00:18:50,840 --> 00:18:53,800 Speaker 1: it could. It could happen, because you know, it's interesting 316 00:18:53,840 --> 00:18:57,640 Speaker 1: that everyone but the president is taking responsibility for this. 317 00:18:58,280 --> 00:19:01,239 Speaker 1: So if he is looking for a scapegoat, there's no 318 00:19:01,240 --> 00:19:03,679 Speaker 1: one better than Jeff Sessions, given that they already have 319 00:19:03,840 --> 00:19:08,400 Speaker 1: a a very strained relationship. But I just don't see 320 00:19:08,400 --> 00:19:11,480 Speaker 1: how this can continue. And the photographs will continue. We've 321 00:19:11,520 --> 00:19:13,200 Speaker 1: all seen some of the photographs that will come out 322 00:19:13,240 --> 00:19:15,440 Speaker 1: today and that's you know, it's going to be the 323 00:19:15,480 --> 00:19:18,400 Speaker 1: cover of magazines all over the world, the cover of newspapers. 324 00:19:18,840 --> 00:19:21,479 Speaker 1: This isn't good for us. Give us an update. One 325 00:19:21,520 --> 00:19:24,040 Speaker 1: final question, if you wouldn't, we're saying with the politics 326 00:19:24,080 --> 00:19:27,840 Speaker 1: with Carlos goodyears on Cuba, and the transfer from a 327 00:19:27,920 --> 00:19:32,679 Speaker 1: generational castro regime. Are you optimistic the Cuba can find 328 00:19:33,600 --> 00:19:37,920 Speaker 1: a place beyond the two Castros? Yes, I believe that 329 00:19:38,040 --> 00:19:42,400 Speaker 1: Cuba is going through gradual change, but it is change, 330 00:19:43,000 --> 00:19:46,080 Speaker 1: and they will continue to go down that direction. They 331 00:19:46,080 --> 00:19:50,840 Speaker 1: will continue to have to allow private businesses. I think 332 00:19:50,880 --> 00:19:54,679 Speaker 1: that's pretty much irreversible. The irony is that, you know, 333 00:19:54,760 --> 00:19:58,359 Speaker 1: we're trying to make friends with North Korea, but here's 334 00:19:58,440 --> 00:20:02,080 Speaker 1: Cuba going U in the in the right direction. Economically, 335 00:20:02,080 --> 00:20:05,959 Speaker 1: They're ninety miles away, and we've got crippling sanctions on Cuba. 336 00:20:06,119 --> 00:20:11,199 Speaker 1: So uh, it's very contradicting. Greatly honor to have you 337 00:20:11,280 --> 00:20:14,440 Speaker 1: with us today, Secretary Goodiers, thank you always use the commerce. 338 00:20:15,400 --> 00:20:20,760 Speaker 1: Just a timely and important discussion on these issues. John. 339 00:20:20,840 --> 00:20:25,480 Speaker 1: I can certainly say the combination of the morning note 340 00:20:25,520 --> 00:20:28,960 Speaker 1: from Mr Velier in the morning note from Mr Allen 341 00:20:29,480 --> 00:20:34,680 Speaker 1: was stunning. The two together, it was absolutely stunning, and 342 00:20:34,720 --> 00:20:37,640 Speaker 1: I think it was domestically speaking, this is something that's 343 00:20:37,720 --> 00:20:40,520 Speaker 1: sort of I've had taken everything else I would take 344 00:20:40,600 --> 00:20:43,040 Speaker 1: tried for sure, very quickly on Friday and through the 345 00:20:43,040 --> 00:20:46,200 Speaker 1: weekend till that was a wonderful conversation. You can hear 346 00:20:46,240 --> 00:20:48,919 Speaker 1: Carlos Goodiers. We'll do that on our podcast out in 347 00:20:48,960 --> 00:21:04,920 Speaker 1: a bit. You can talk to Paul Sweeney for somewhere 348 00:21:04,960 --> 00:21:07,960 Speaker 1: between two three and even four hours today on any 349 00:21:08,040 --> 00:21:10,400 Speaker 1: number of topics. I want to touch on a couple 350 00:21:10,400 --> 00:21:13,040 Speaker 1: of topics here and then get over, of course, to 351 00:21:13,040 --> 00:21:18,120 Speaker 1: the business of Fox, Disney and comcause, Paul, the soccer 352 00:21:18,359 --> 00:21:22,480 Speaker 1: on TV is incredibly controlled by FIFA, the video and 353 00:21:22,560 --> 00:21:26,560 Speaker 1: they pay huge fees Fox and Telemundo and all that. 354 00:21:27,200 --> 00:21:29,399 Speaker 1: Is that going to change by the time the next 355 00:21:29,440 --> 00:21:33,280 Speaker 1: World Cup comes around? No? I think the you know, 356 00:21:33,320 --> 00:21:36,919 Speaker 1: World Cup rights, sports rights globally, but certainly the NFL 357 00:21:36,920 --> 00:21:40,520 Speaker 1: and the US and Premier League in the UK and 358 00:21:40,520 --> 00:21:43,280 Speaker 1: then World Cup rights across the globe continue to go 359 00:21:43,359 --> 00:21:45,479 Speaker 1: up in value. You know, I think the rate of 360 00:21:45,560 --> 00:21:48,639 Speaker 1: increase might be slowing. And the reason I say that 361 00:21:48,760 --> 00:21:51,040 Speaker 1: is because the pay TV business and much of the 362 00:21:51,080 --> 00:21:53,639 Speaker 1: Western world is slowing, and so the feet you know, 363 00:21:53,680 --> 00:21:56,560 Speaker 1: the fees that these networks can charge consumers are passed 364 00:21:56,560 --> 00:21:59,240 Speaker 1: along to consumers I think are peaking, if not completely 365 00:21:59,280 --> 00:22:01,440 Speaker 1: peaked as in the U S. So how much more 366 00:22:01,480 --> 00:22:04,160 Speaker 1: can ESPN or Fox for to pay for US rights? 367 00:22:04,680 --> 00:22:06,920 Speaker 1: I think remains to be seen. But you know, we've 368 00:22:06,920 --> 00:22:10,840 Speaker 1: certainly been in an environment with tremendous rights inflation, and uh, 369 00:22:11,119 --> 00:22:12,679 Speaker 1: you know, we just don't really see any end in 370 00:22:12,680 --> 00:22:14,480 Speaker 1: sight at the moment. But you know, you could certainly 371 00:22:14,480 --> 00:22:16,240 Speaker 1: look out over the next four to five years and 372 00:22:16,359 --> 00:22:18,680 Speaker 1: and expect to see it at least the rate of 373 00:22:18,720 --> 00:22:22,600 Speaker 1: growth slow. I mean, I saw Germany Mexico, the Germany 374 00:22:22,320 --> 00:22:26,359 Speaker 1: in Germany rather they had share, which is a number 375 00:22:26,400 --> 00:22:31,160 Speaker 1: I can't even fathom that that that's so it's so high. 376 00:22:31,359 --> 00:22:34,160 Speaker 1: Is this where the stupid money comes in? The Amazons 377 00:22:34,160 --> 00:22:37,640 Speaker 1: and the rest of them with jillions of inflated dollars, 378 00:22:37,640 --> 00:22:41,720 Speaker 1: do they come in? And I think, did these typical carriers, Yeah, 379 00:22:41,880 --> 00:22:43,880 Speaker 1: I think you will. I think you know, Amazon dipped 380 00:22:43,920 --> 00:22:46,520 Speaker 1: their toe into the English Premier League. They've dipped their 381 00:22:46,520 --> 00:22:49,359 Speaker 1: toe into NFL, and as Facebook and some others, and 382 00:22:49,760 --> 00:22:51,719 Speaker 1: you know, I think the belief is from a certainly 383 00:22:51,760 --> 00:22:54,159 Speaker 1: from the leagues around the world, is to extend the 384 00:22:54,359 --> 00:22:56,480 Speaker 1: espns and the Foxes. The world stepped back a little 385 00:22:56,520 --> 00:22:59,840 Speaker 1: bit because their businesses are challenge income will be that 386 00:23:00,040 --> 00:23:02,760 Speaker 1: the technology companies with bottomless pockets, and I think that's 387 00:23:02,800 --> 00:23:05,280 Speaker 1: the hope for the leagues and the players and the 388 00:23:05,320 --> 00:23:09,640 Speaker 1: teams and all that. Okay, next team before Disney, Fox Comcast, 389 00:23:10,080 --> 00:23:13,080 Speaker 1: The Incredible is brought in a hundred eight zillion dollars. 390 00:23:13,480 --> 00:23:15,880 Speaker 1: You know they're gonna bring in double triple that over time. 391 00:23:15,920 --> 00:23:17,280 Speaker 1: I don't know if it's going to be the biggest 392 00:23:17,320 --> 00:23:21,359 Speaker 1: movie ever. I'll let you decide. Well, who gets that money? 393 00:23:21,840 --> 00:23:24,760 Speaker 1: When they say The Incredibles two brings in a hundred 394 00:23:24,800 --> 00:23:29,040 Speaker 1: and eighty million, how is that divided up? Yeah, well, 395 00:23:29,160 --> 00:23:32,000 Speaker 1: roughly half goes to the theater distributors in the US. 396 00:23:32,800 --> 00:23:36,680 Speaker 1: Outside the US, uh, probably more than half goes, probably 397 00:23:37,680 --> 00:23:40,600 Speaker 1: goes the theater distributors. The remainder goes to the studio, 398 00:23:40,680 --> 00:23:42,560 Speaker 1: and then the studio takes the money and then the 399 00:23:42,560 --> 00:23:46,240 Speaker 1: creative Hollywood accounting comes in. And it's always a question 400 00:23:46,280 --> 00:23:48,280 Speaker 1: if you're a star and you have back end of 401 00:23:48,280 --> 00:23:49,680 Speaker 1: the movie, how much do I get if for a 402 00:23:49,720 --> 00:23:52,480 Speaker 1: movie that made a billion dollars? And um, But that's 403 00:23:52,520 --> 00:23:54,240 Speaker 1: where it kind of gets split up between the theater 404 00:23:54,280 --> 00:23:57,159 Speaker 1: operators and the studio operators. So you know, you know 405 00:23:57,200 --> 00:23:59,560 Speaker 1: it's been a This Incredible too was just you know, 406 00:23:59,560 --> 00:24:01,880 Speaker 1: it was a good at first movie, A long time 407 00:24:01,920 --> 00:24:03,680 Speaker 1: between the first and second movie, and they were really 408 00:24:03,720 --> 00:24:06,120 Speaker 1: surprised about how strong the second installment was. And so 409 00:24:06,200 --> 00:24:09,880 Speaker 1: the ninety million that you're presuming in the US went 410 00:24:10,000 --> 00:24:14,280 Speaker 1: to quote unquote the studio. I believe Disney Pixar. You 411 00:24:14,359 --> 00:24:16,879 Speaker 1: as a pro really don't know how that's divvied up, 412 00:24:17,119 --> 00:24:20,399 Speaker 1: do you. It's it's it's it's tough. But the the 413 00:24:20,440 --> 00:24:23,119 Speaker 1: studio at the Walt Disney Studios has some of the 414 00:24:23,160 --> 00:24:26,760 Speaker 1: highest margins in the industry, so they're able to you know, uh, 415 00:24:27,280 --> 00:24:31,040 Speaker 1: they financed most of their deals themselves because they're very, 416 00:24:31,160 --> 00:24:34,560 Speaker 1: very sure in the long term profitability of those things, 417 00:24:34,600 --> 00:24:37,200 Speaker 1: and that allows them to take higher cuts of the movie. 418 00:24:37,240 --> 00:24:39,560 Speaker 1: And so what we've seen over time is that Disney 419 00:24:39,760 --> 00:24:42,560 Speaker 1: the studio is one of the more profitable studios in Hollywood. Conversely, 420 00:24:42,600 --> 00:24:46,040 Speaker 1: Paramounts one of the least profitable. A good colleague of 421 00:24:46,040 --> 00:24:48,720 Speaker 1: ours and giving us wisdom is Brian Weezer over Pivotal. 422 00:24:48,760 --> 00:24:51,320 Speaker 1: He goes to a cell today and Disney Paul Sweeney, 423 00:24:51,359 --> 00:24:53,879 Speaker 1: I don't want you to do buy hold Cell. But 424 00:24:54,080 --> 00:24:56,679 Speaker 1: the idea of Fox moon Shot, they're the one in 425 00:24:56,760 --> 00:25:00,919 Speaker 1: play Disney moon Shot. Relative to come cast let's go 426 00:25:00,960 --> 00:25:03,960 Speaker 1: to the other side of the equation, is Comcast dirt cheap? 427 00:25:05,160 --> 00:25:07,800 Speaker 1: Uh Comcast is pretty cheap. But one of the reasons, 428 00:25:07,800 --> 00:25:09,639 Speaker 1: particularly a free cash flow basis, but one of the 429 00:25:09,680 --> 00:25:12,159 Speaker 1: reasons it is cheap is because investors are concerned that 430 00:25:12,160 --> 00:25:15,520 Speaker 1: they are going to overpay for content, most notably twenty 431 00:25:15,760 --> 00:25:19,800 Speaker 1: century Fox and maybe Sky. They're using all cash um 432 00:25:20,000 --> 00:25:21,960 Speaker 1: and I think the concern is that's going to lever 433 00:25:22,119 --> 00:25:24,760 Speaker 1: up their balance sheet, really retard their ability to invest 434 00:25:24,800 --> 00:25:27,520 Speaker 1: in their core business going forward, and certainly reduce the 435 00:25:27,840 --> 00:25:29,760 Speaker 1: amount of money they have for buying back stock, which 436 00:25:29,800 --> 00:25:32,680 Speaker 1: is what Comcast shareholders have really become accustomed to. How 437 00:25:32,720 --> 00:25:36,639 Speaker 1: do you and Bloomberg Intelligence respond to hear from the 438 00:25:36,640 --> 00:25:39,919 Speaker 1: Cell side in this case Moffatt and Nathanson that you know, 439 00:25:40,000 --> 00:25:43,439 Speaker 1: that's great if you're gonna lever up, lever up and 440 00:25:43,480 --> 00:25:46,320 Speaker 1: just either go private or you know, buy back a 441 00:25:46,400 --> 00:25:49,280 Speaker 1: ton of stock. How do you respond to that? Yeah, 442 00:25:49,280 --> 00:25:51,800 Speaker 1: it would certainly be more creative. One one could argue 443 00:25:51,800 --> 00:25:55,879 Speaker 1: buying Comcast down here than than buying uh Century Fox. 444 00:25:55,920 --> 00:25:58,640 Speaker 1: But of course, if you're Brian Roberts, you're thinking very 445 00:25:58,640 --> 00:26:00,800 Speaker 1: long term, You're thinking that you're companies can be one 446 00:26:00,800 --> 00:26:02,720 Speaker 1: of the two or three companies out of the media 447 00:26:02,760 --> 00:26:05,359 Speaker 1: world to really compete against the the Netflix is and 448 00:26:05,400 --> 00:26:07,280 Speaker 1: the Googles and the facebooks, and it's it's it's really 449 00:26:07,320 --> 00:26:09,600 Speaker 1: between him and Bob Iger and uh, you know, we'll 450 00:26:09,640 --> 00:26:10,840 Speaker 1: see who went at the end of the day. So 451 00:26:10,840 --> 00:26:12,840 Speaker 1: there there in an auction room like a soth of 452 00:26:12,880 --> 00:26:17,920 Speaker 1: Bee's or Crispi's Fine and Christie's and and there auction 453 00:26:18,040 --> 00:26:21,600 Speaker 1: in Comcast has clearly made the decision, as you say 454 00:26:21,640 --> 00:26:25,080 Speaker 1: to lever Up, is that Disney's wild card. They go 455 00:26:25,200 --> 00:26:28,520 Speaker 1: the Comcast way, and we have a balance sheet free 456 00:26:28,520 --> 00:26:31,960 Speaker 1: for all. Yeah, we've actually modeled out the current Disney deal, 457 00:26:32,040 --> 00:26:33,840 Speaker 1: the all stock deal for Fox, and we actually have 458 00:26:33,880 --> 00:26:37,560 Speaker 1: it a little bit dilutive to Disney's earnings. And it's 459 00:26:37,600 --> 00:26:39,840 Speaker 1: kind of the weird math here is that the more 460 00:26:39,920 --> 00:26:41,600 Speaker 1: cash that they put into the extent they want to 461 00:26:41,600 --> 00:26:44,679 Speaker 1: put in cash, it actually becomes less dilutive and actually 462 00:26:44,720 --> 00:26:46,640 Speaker 1: becomes a little bit of creative. The more debt they 463 00:26:46,640 --> 00:26:50,040 Speaker 1: put on UM. So I think Disney has a lot 464 00:26:50,119 --> 00:26:52,960 Speaker 1: more flexibility three point for Century Fox from a balance 465 00:26:53,000 --> 00:26:55,439 Speaker 1: sheet perspective. So and and and again, I also make 466 00:26:55,440 --> 00:26:57,840 Speaker 1: the point that even though Brian Roberts is a obviously 467 00:26:57,840 --> 00:27:00,639 Speaker 1: a very credible buyer and really wants the assets, I 468 00:27:00,680 --> 00:27:02,800 Speaker 1: think Disney and Bob Bigger want them just a little 469 00:27:02,840 --> 00:27:05,280 Speaker 1: bit more. I mean, this is fascinating, folks, and want 470 00:27:05,359 --> 00:27:08,320 Speaker 1: Mr Sweeney goes to there was, you know, not my 471 00:27:08,440 --> 00:27:11,680 Speaker 1: informed back of the envelope, but my hunch. And at 472 00:27:11,720 --> 00:27:14,080 Speaker 1: the real surprise here is they can be the same 473 00:27:14,760 --> 00:27:17,680 Speaker 1: and just lever up. And I mean to be clear here, 474 00:27:17,760 --> 00:27:22,280 Speaker 1: Disney's got tons of room to lever up, don't they. Yeah, 475 00:27:22,359 --> 00:27:25,000 Speaker 1: they really do. So Comcast is a little bit more levered. 476 00:27:25,040 --> 00:27:27,240 Speaker 1: But and if they were to do an all cash 477 00:27:27,280 --> 00:27:29,600 Speaker 1: deal as currently structured, to take them north of four 478 00:27:29,640 --> 00:27:32,240 Speaker 1: times at the cash flow, which is higher than where 479 00:27:32,240 --> 00:27:33,880 Speaker 1: they like to be, higher than where the market likes 480 00:27:33,880 --> 00:27:36,200 Speaker 1: them to be. They like to be down around two times. 481 00:27:36,560 --> 00:27:39,080 Speaker 1: Even if if Disney were to put half this deal 482 00:27:39,200 --> 00:27:42,000 Speaker 1: in cash, it's still be just about a little bit 483 00:27:42,080 --> 00:27:44,280 Speaker 1: less than three times at the cash flow. So they 484 00:27:44,280 --> 00:27:46,359 Speaker 1: have much more fanatical muxibility that I think they have 485 00:27:46,400 --> 00:27:49,280 Speaker 1: strategic comparative a little bit more. But you know, you 486 00:27:49,320 --> 00:27:52,399 Speaker 1: can't discount Comcast at all. Brian Roberts is in a 487 00:27:52,480 --> 00:27:55,520 Speaker 1: very aggressive strategic thinker, and I don't think he'll walk away. 488 00:27:55,560 --> 00:27:57,400 Speaker 1: I think there will be several rounds of bidding here. 489 00:27:58,040 --> 00:27:59,639 Speaker 1: But at the end of the day, I think Disney 490 00:28:00,000 --> 00:28:02,639 Speaker 1: walks away with it. Why why are there several rounds? 491 00:28:02,680 --> 00:28:04,520 Speaker 1: I mean if you extrapolate out, I mean, is this 492 00:28:04,640 --> 00:28:07,280 Speaker 1: just you know, linear algebra, folks on a log of 493 00:28:07,320 --> 00:28:11,400 Speaker 1: rhythmic y axis. You extrapolated out, Paul, and you come 494 00:28:11,400 --> 00:28:13,720 Speaker 1: to a terminal value point and you just say, look, 495 00:28:14,160 --> 00:28:17,320 Speaker 1: here's our stupid bid. I mean, why goes through multiple 496 00:28:17,680 --> 00:28:21,160 Speaker 1: tranches of bidding. Yeah, that that might happen. They might 497 00:28:21,200 --> 00:28:24,720 Speaker 1: put their you know best and final offers on the table. 498 00:28:25,440 --> 00:28:27,919 Speaker 1: I think there might be some discussions behind the scenes 499 00:28:27,920 --> 00:28:30,360 Speaker 1: about maybe carving up some of the assets of one 500 00:28:30,400 --> 00:28:33,560 Speaker 1: Century and Sky that might, you know, allow them to 501 00:28:33,600 --> 00:28:35,840 Speaker 1: walk away each with a little bit of victory. But 502 00:28:36,000 --> 00:28:37,639 Speaker 1: I don't think that's going to be the case. I 503 00:28:37,640 --> 00:28:40,680 Speaker 1: think both of these bidders here want the whole Enchilada, 504 00:28:40,760 --> 00:28:44,160 Speaker 1: including sky Um and so I think there's going to 505 00:28:44,200 --> 00:28:46,840 Speaker 1: be lots of mechanicians back and forth. So so are 506 00:28:46,880 --> 00:28:50,560 Speaker 1: you leaving today, Paul at one to watch Tunisia England? 507 00:28:50,600 --> 00:28:53,920 Speaker 1: Like everyone else I'm actually in London as we speak, 508 00:28:54,480 --> 00:28:56,600 Speaker 1: so you're going to be in an evenings. I didn't 509 00:28:56,640 --> 00:28:59,800 Speaker 1: know you were in Pharaoh. Pharaoh has a doctor's appointment 510 00:29:00,000 --> 00:29:03,800 Speaker 1: and he does. Paul Sweenie, thank you so much. Evening 511 00:29:03,880 --> 00:29:07,320 Speaker 1: viewing of Tunisia England, and probably over at the net 512 00:29:07,360 --> 00:29:10,200 Speaker 1: which is like right next to our gorgeous offices and 513 00:29:10,480 --> 00:29:15,000 Speaker 1: I'm sure that's where Mr Sweeney is. Wisconstin as well. 514 00:29:21,600 --> 00:29:25,840 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 515 00:29:25,880 --> 00:29:31,200 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 516 00:29:31,240 --> 00:29:35,480 Speaker 1: platform you prefer. I'm on Twitter at Tom Keene before 517 00:29:35,520 --> 00:29:39,360 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg 518 00:29:39,440 --> 00:29:39,680 Speaker 1: Radio