Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
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Speaker 1: Let's talk to John Murphy. He does this stuff for
Speaker 1: a living. He's Bloomberg Intelligence analysts. He's based in London.
Speaker 1: He's trying to help poor Sam Fazelli, you know, with
Speaker 1: his research. We appreciate John joining the team a few
Speaker 1: years ago. John, talk to us about Prometheus. Here, what
Speaker 1: is MERK buying for ten point eight billion dollars?
Speaker 3: Yeah, sure, nice to join you. Yeah, what are they buying.
Speaker 3: They're essentially buying one product, and it's a bit of
Speaker 3: a gamble, some people might might suggest. But what we've
Speaker 3: seen is we've seen phase two data in two indications
Speaker 3: that both ritable bow disease indications Crone's disease and ultrative colitis.
Speaker 3: Those data look very interesting, they look very competitive for
Speaker 3: an see viewpoint. If and this is the key thing,
Speaker 3: if they were to repeat those data in phase three.
Speaker 3: Were probably not going to see that data till mid
Speaker 3: twenty twenty five. And assuming there's a good safety profile,
Speaker 3: then you're going to start seeing analysts put multi billion
Speaker 3: dollar numbers in there in their spreadsheets. You're going to
Speaker 3: start seeing high single digit billion dollars in their spreadsheets,
Speaker 3: on which basis, ten point eight billion dollars will look
Speaker 3: like a great, great deal. The converse is clearly true here.
Speaker 1: Hey, John, just give me kind of the broad strokes.
Speaker 1: How does a biotech analyst value a company like Prometheus?
Speaker 1: I mean, before you know, like your close Friday with
Speaker 1: an equity value a little over five billion dollars, do
Speaker 1: you guys just go out there and say, hey, I
Speaker 1: think the size of the market potentially is this, and
Speaker 1: I think this drug could get X percent of this market,
Speaker 1: and therefore I sign a multiple that way?
Speaker 4: I mean, how do you guys do that?
Speaker 5: Yeah?
Speaker 3: I mean I think early on, a lot of this
Speaker 3: is finger and the air stuff, right, and early on,
Speaker 3: you're you're looking at the management team, you're looking at
Speaker 3: the mechanism action, and you look at the disease air
Speaker 3: Later on, and this is where these guys are now.
Speaker 3: Later on you're looking at the clinical data and you're
Speaker 3: comparing it with other products out there in the marketplace.
Speaker 3: So we know in IBD there's a lot of big
Speaker 3: drugs out there, Humera right nor to twenty billion dollars
Speaker 3: for example. So you look at the data and you
Speaker 3: compare and contrast there and versus those products. At the moment,
Speaker 3: this looks pretty competitive. So that's kind of where you
Speaker 3: are now. The next step then, of course, is a
Speaker 3: company like Prometheus is going to be able to get out,
Speaker 3: going to be able to do the Phase three itself,
Speaker 3: it's going to be able to market the drug. Now
Speaker 3: they've got a big guy on board putting their arm around,
Speaker 3: and they've got Merk on board, and so again people
Speaker 3: are going to start allocating greater value to the products
Speaker 3: and to the company on the back of that.
Speaker 6: Well, can we talk about the Merk side of this
Speaker 6: deal here, because we're coming off I think a couple
Speaker 6: of months ago Pfizer and Ciegen was the big biotech
Speaker 6: deal that everyone was talking about. From when it comes
Speaker 6: from Merks perspective, this is not probably going to be
Speaker 6: the last acquisition that they make. How much cash do
Speaker 6: they have on their balery. How much root do they
Speaker 6: have to work with to diversify their pipeline.
Speaker 3: Right, that's a great question, that's absolutely spot on In
Speaker 3: terms of the commentary, I think, first for context here,
Speaker 3: the key thing is Mert this year is going to
Speaker 3: have the world's biggest selling drug, key Truder, a cancer
Speaker 3: drug that goes off patent in twenty twenty eight when
Speaker 3: it's going to be selling thirty three billion dollars. It's
Speaker 3: about forty four percent of merk sales. So if MERK
Speaker 3: doesn't have some products to replace that, it's going to
Speaker 3: have a massive hole in its earnings. So we saw,
Speaker 3: for example, MERK did a deal with acce on spent
Speaker 3: eleven half billion dollars in twenty twenty one. You'll remember
Speaker 3: they missed out and see gen Fires have taken siege
Speaker 3: and now we've seen Prometheus today. There are going to
Speaker 3: be more deals to follow from Merk because their strategy
Speaker 3: or part of their strategy, is to make sure they
Speaker 3: have additional growth legs when key Truder goes off. Pattern
Speaker 3: in terms of how do they pay for these things,
Speaker 3: what goes on in the balance sheet, Merk's throwing off
Speaker 3: over twenty billion dollars of operating free cash flow annually.
Speaker 3: So these sort of deals are deals they can very
Speaker 3: straightforwardly do. They may pay cash, they may raise a
Speaker 3: bit of a debt in the marketplace, but it's not
Speaker 3: the sort of thing that's going to impact the credit
Speaker 3: rating of a company like this.
Speaker 1: John, you know what we've all been dealing with in
Speaker 1: the macro over you know, the last you know, you know,
Speaker 1: six months, maybe even more, is just a tightening of
Speaker 1: credit out there, tough to raise capital, cost of capital
Speaker 1: going higher for everybody in the marketplace. What does that
Speaker 1: mean for the biotech space? If I've got a really
Speaker 1: cool drug idea, or if I've got the science, can
Speaker 1: I go out there and raise money for the early
Speaker 1: early trials or is that a real tough go these days?
Speaker 3: It really is a tough go these days. Absolutely, and
Speaker 3: it's and it's tougher and tougher. And you can look
Speaker 3: at it from two points of view. You can say,
Speaker 3: if you're that biotech, what you really have to have,
Speaker 3: ideally is you have to have hopefully some clinical data
Speaker 3: at the very least, you have to have a very
Speaker 3: good concept and a strong management and a credible management
Speaker 3: management team in the absence of it becomes very, very tough,
Speaker 3: and that's when you look at the other side of
Speaker 3: the coin. Then big farmer starts looking down and they
Speaker 3: can start to maybe cherry pick some of these better
Speaker 3: assets because, as you rightly say, they're raising capital in
Speaker 3: this market is a real tough ask. Of course, for
Speaker 3: the farmer guys, they're so cash generative, it's something relatively
Speaker 3: straightforward for them.
Speaker 6: Well, when you're talking about just M and A activity
Speaker 6: in general here, I mean, it feels like it's always
Speaker 6: going to be in these bigger players' best interests to diversify.
Speaker 6: We're hearing it from Mark, we're hearing it from Pfizer,
Speaker 6: Maderna as well post COVID vaccine. But is the M
Speaker 6: and A activity in any way indicative of kind of
Speaker 6: the macroeconomic conditions that you're seeing or is this something
Speaker 6: that's very specific to biotech.
Speaker 3: Yeah, I don't think it relates to the macroeconomic side
Speaker 3: of things. What I focus on really is the patent cycle.
Speaker 3: Remember that drug companies are when they bring a drug
Speaker 3: to market, a drug has a twenty year pattern life,
Speaker 3: it's probably taking ten years to get to market. That
Speaker 3: means every ten years, on average, half of them business
Speaker 3: they have to regenerate or find from somewhere else. And
Speaker 3: what we're seeing is between twenty twenty three and twenty
Speaker 3: thirty there's nearly four hundred billion, four hundred billion of
Speaker 3: annual sales potentially exposed to generics. So you've got a
Speaker 3: lot of these players, some of the ones you just
Speaker 3: mentioned there, you've got fiser merk of artists for example.
Speaker 3: I being very very vocal indeed about having to do deals,
Speaker 3: not huge deals, not like the ones that we saw
Speaker 3: in the late eighties where that were buying other large companies,
Speaker 3: but really deals that bring in product portfolio and late
Speaker 3: stage assets and more lock on deals. But we would
Speaker 3: expect to see a lot more deals in this kind
Speaker 3: of high single digit billion dollars going forward. But we
Speaker 3: don't think that today necessarily marks any sort of sea
Speaker 3: change at all. This is very much in keeping with
Speaker 3: the strategy the murk of an announced to the market already.
Speaker 1: Hey, John, if I'm a merch shareholder, do I care
Speaker 1: whether they come up with the next big drugs internally
Speaker 1: through their R and D or they go out and
Speaker 1: buy it.
Speaker 7: Do I care?
Speaker 3: No? Short short shop aren't, So no, I don't think so.
Speaker 3: I think some investors like to see it coming through internally,
Speaker 3: But at the end of the day, why does that matter.
Speaker 3: If you're the smartest out there in terms of accessing
Speaker 3: new technology or accessing new part line, that's as good
Speaker 3: as doing it in the house yourself.
Speaker 1: I mean it's interesting. I mean because there's Mark spending
Speaker 1: thirteen billion on our R and D.
Speaker 6: Yeah, thirty seconds, hear very quickly. What about the regulatory action.
Speaker 6: It feels like the consensus here is that this is
Speaker 6: going to have zero hurdles, So I.
Speaker 3: Think, yeah, that's a very important point. Regulator in FTC
Speaker 3: and FTC have clearly looked like they're going to be
Speaker 3: more aggressive. However, there's no obvious overlap. Pier MERK doesn't
Speaker 3: have a big presence in immunology. Slightly different to when
Speaker 3: you looked at, for example, when we looked at fires
Speaker 3: a siege and we did see some potential over that
Speaker 3: learing bladder cancer. But this looks like it ought to
Speaker 3: be clearing regulatory hurdles without any major issues.
Speaker 1: All right, John, thank you so much for joining us. Really,
Speaker 1: I really appreciate getting your insight. John Murphy, longtime pharmaceutical
Speaker 1: analyst on the street, spent a lot of time in
Speaker 1: Gold and Sachs. He joined Bloomberg Intelligence fore years ago.
Speaker 1: So they've got a top notch healthcare team at Bloomberg Intelligence,
Speaker 1: got folks in the US, in London with the Sam
Speaker 1: Fazelli and John Murphy, and a good team in Asia
Speaker 1: as well, So we got it covered all over the
Speaker 1: place from every angle on the healthcare side. John Murphy
Speaker 1: pharmaceutical anamals with Bloomberg Intelligence based in London. MRK buying
Speaker 1: Prometheus biotech company ten point eight billion dollars. Nice little
Speaker 1: trade for a Monday morning.
Speaker 5: You're listening to the team ken'shar Live program Bloomberg Markets
Speaker 5: weekdays at ten am Eastern on Bloomberg dot Com, the
Speaker 5: iHeartRadio app, and the Bloomberg Business App, or listen on
Speaker 5: demand wherever you get your podcasts.
Speaker 1: Earnings are happening. Focus turns to earnings, folks, also turns
Speaker 1: to dividends. A lot of folcus saying we need to
Speaker 1: pay more attention to dividends and focus on them going
Speaker 1: forward in this higher industrade environment. Austin Grath, founder and
Speaker 1: CIO of Opal Capital, joins us. Austin talk to us
Speaker 1: about kind of how you guys view dividends, How does
Speaker 1: that factor into your investment thesis.
Speaker 8: So we view dividends as a critical component to investor returns,
Speaker 8: and we do that for a number of reasons, but
Speaker 8: I think the biggest reason is just the dividends of contributed.
Speaker 8: You know, depending on when you look back in the past,
Speaker 8: it's contributed anywhere between kind of forty and sixty percent
Speaker 8: of returns when you look at dividends and the reinvestment
Speaker 8: of those dividends. So we think that investors that tend
Speaker 8: to look to those parts of the market will end
Speaker 8: up benefiting over time. We think the reason that that
Speaker 8: exists is is because it's the good signaling mechanism for
Speaker 8: management teams. Management teams that are willing to distribute some
Speaker 8: of their cash fload to investors in the form of
Speaker 8: dividends and grow that distribution over time tend to show
Speaker 8: that they're confident and their business going forward. And the
Speaker 8: business is that do this also happen to be a
Speaker 8: relatively high quality company. So we think it puts investors
Speaker 8: in a pretty good kind of section of the market
Speaker 8: if they focus on dividend paying companies.
Speaker 6: Talk to us a little bit about that phrase high
Speaker 6: quality company. Are we looking at it from a kind
Speaker 6: of cash perspective? How much cash do some of these
Speaker 6: companies have on their balance sheet? For example, I think
Speaker 6: in twenty twenty it was Techo was all the rage
Speaker 6: because of that liquidity option. How do you value high
Speaker 6: quality at a time when that cash is diminishing.
Speaker 8: Yeah, so high quality is kind of subjective and everyone
Speaker 8: has a different definition. Some people say high quality is
Speaker 8: just high free cashual yield, and you know that that
Speaker 8: can be true in some situations, but company pre castule
Speaker 8: yield can vary over time, and so we really look
Speaker 8: for companies that both have found balance sheet, they have
Speaker 8: the ability to generate attractive free flows through the cycle.
Speaker 8: So it's not just kind of commodities companies that have
Speaker 8: a ton of free cash flow because they're in the
Speaker 8: right part of the pricing cycles for the commodity. But
Speaker 8: we want companies that have that balance sheet strength and
Speaker 8: stability to pay a decent dividend through the cycle and
Speaker 8: also grow the dividend. And then finally it comes down
Speaker 8: to the really subjective measures is speaking with management and
Speaker 8: understanding kind of what their ability and willingness to pay
Speaker 8: dividends is so companies like some of these tech companies
Speaker 8: that have a lot of cash, they may be considered
Speaker 8: high quality, but then they end up putting that cash
Speaker 8: into a bunch of kind of moonshot projects that may
Speaker 8: not be that helpful for investors. And so we like
Speaker 8: to focus on companies who are focused on investing for
Speaker 8: the long term, but also focused on putting money towards
Speaker 8: investments that have high returns on capital and aren't just
Speaker 8: kind of kind of shooting for the moon hoping that
Speaker 8: you know, whether whatever it is, kind of flying cars
Speaker 8: or you know, space exploration or or whatever they're putting
Speaker 8: money into, hoping it turns into a proper business at
Speaker 8: some point in the future.
Speaker 1: Austin, speaking of dividends, the banks have begun reporting earnings,
Speaker 1: and you think about some of these big banks and
Speaker 1: they have did with dividend yields of three to four percent. Here,
Speaker 1: what did you see from some of the bank earnings
Speaker 1: so far? And have you changed your view towards the banks?
Speaker 8: Yeah, So the bank earnings is really interesting because it
Speaker 8: kind of highlights what we think is going to be
Speaker 8: a theme through the first quarter reporting cycle. So a
Speaker 8: lot of banks didn't really so the economy or the
Speaker 8: economic data was relatively positive for a little over two
Speaker 8: thirds of the quarter, and so when you look back
Speaker 8: at what banks are reporting, they're reporting on the first quarter,
Speaker 8: which was a relatively positive economic environment. We think most
Speaker 8: banks and most companies will actually turn in relatively acceptable
Speaker 8: reports in the first quarter. We think investors should really
Speaker 8: focus on what management teams are saying about the quarters
Speaker 8: to come, as the dislocation in the market seem to
Speaker 8: have started in March, and we think management teams will
Speaker 8: start preparing for that and start preparing investors for that
Speaker 8: with some of their commentary, and there will be kind
Speaker 8: of winners and losers. We saw JP Morgan was one
Speaker 8: of the big winners from the dislocation, and some of
Speaker 8: the smaller banks are not necessarily reporting catastrophic results, but
Speaker 8: they're alluding to less earning power going forward, and we
Speaker 8: think that the risk at current valuation levels.
Speaker 6: Can We talk a little bit about buybacks here, because
Speaker 6: it feels like a lot of companies again who are
Speaker 6: still sitting on cash and issue ins etc. That they
Speaker 6: had from twenty twenty and twenty one, are actually still
Speaker 6: buying back their stock despite talking about risks and layoffs
Speaker 6: and kind of macroeconomic gloom and doom. What happens to buybacks.
Speaker 8: It's an interesting question. Some of the biggest buyer backs
Speaker 8: of shares for the large technology companies, and they tend
Speaker 8: to buy back a lot of their shares to offset
Speaker 8: dilution associated with compensation for employees. There's actually no we
Speaker 8: could talk about the tax on buybacks. There's no tax
Speaker 8: associated with the return of the buybacks for share for
Speaker 8: management compensation. There will be a one percent tax on
Speaker 8: buybacks that actually reduced share count. It's more of a
Speaker 8: discretionary payment. So we think if if the economy really
Speaker 8: does turn south, you might see those buybacks slow down
Speaker 8: or even stop in many situations. But you do have
Speaker 8: a lot of tech companies that are kind of forced
Speaker 8: to buy back shares to make up for the dilution
Speaker 8: that will take place if they don't buy back shares
Speaker 8: just because of the way that they compensate their employees.
Speaker 1: So also when you look at a company like Apple,
Speaker 1: here's a company one hundred and sixty five billion dollars
Speaker 1: of cash on its balance sheet, annual free cash flow
Speaker 1: of about one hundred billion dollars a year for the
Speaker 1: next couple of years, yet they pay no dividend.
Speaker 7: Yes, they have a massive buyback, but no dividend.
Speaker 1: I mean, does that surprise you because it seems like
Speaker 1: they could put out a two or three percent dividend
Speaker 1: yield and attract a whole new group of income seeking investors.
Speaker 1: When you see a company like Apple, how do you
Speaker 1: kind of view that?
Speaker 8: Yeah, we look at that as management doesn't really value
Speaker 8: a dividend. They value buybacks more than dividends. Over time,
Speaker 8: we think that that might change. One of the changes
Speaker 8: we see is potentially with the buy back tax that
Speaker 8: was put in place. There has been talk about increasing that.
Speaker 8: I think that President Biden mentioned it around the State
Speaker 8: of the Union speech, to the extent that the government
Speaker 8: starts to increase buy back taxes. We think that dividends
Speaker 8: become relatively more attractive because you don't have the significant
Speaker 8: difference in tax situation between dividends and buybacks, and we
Speaker 8: think more companies will start distributing cash flows in the
Speaker 8: form of dividends going forward. One thought on the Apple situation,
Speaker 8: and actually many tech tech companies out there, is just
Speaker 8: they haven't necessarily hit a point in their life cycle
Speaker 8: where investors are expecting them to distribute that cash. We
Speaker 8: think over time, if investors pressure for a higher dividend,
Speaker 8: you will get more serious consideration for management teams.
Speaker 1: All right, Austin, thanks so much for joining us. Always
Speaker 1: love talking about stocks and dividends and companies dividend policies,
Speaker 1: because a lot of folks are saying this next decade
Speaker 1: is the decade of the dividend.
Speaker 7: We've heard that a.
Speaker 1: Couple of times from a couple investors. Austin Graff, He's
Speaker 1: a founder and CIO of Opal Capital. Before that, he
Speaker 1: was an equity analyst at PIMCO.
Speaker 5: You're listening to the tape cats are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune in app, Bloomberg dot com, and the Bloomberg Business App.
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Speaker 5: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
Speaker 1: If you think about over the last year, year and
Speaker 1: a half, at least, to me, the most widely used
Speaker 1: term reference on Ernie's conference causes has been AI. Every
Speaker 1: company's talking about AI, artificial intelligence, how it's impacting their business,
Speaker 1: how they're using it, and I think most investors don't
Speaker 1: even know what it is. They're trying to figure out
Speaker 1: what is it? How does it impact the companies that
Speaker 1: I invest in. We figured we go to a professional
Speaker 1: here who does this stuff, Ashley Still. She's a senior
Speaker 1: vice president and general manager for creative Cloud and document
Speaker 1: Cloud at a little tech company out in California called Adobe. Ashley,
Speaker 1: thank you so much for joining us.
Speaker 4: Let's just start off.
Speaker 1: I would love to get your definition of what is
Speaker 1: AI and then how does it apply to some of
Speaker 1: the businesses that Adobe is in.
Speaker 9: Well, first, thanks for having me, and you know, at Adobe,
Speaker 9: our mission is to help everyone bring their CreatiVision to life,
Speaker 9: and we certainly believe that AI gives us a huge
Speaker 9: opportunity to do that, for professionals and non professionals to like. So,
Speaker 9: you know, AI simply for me, is when algorithms kind
Speaker 9: of are aiding software to do tasks, and it often
Speaker 9: helps automate repetitive, monotonous activities that traditionally humans have undertaken.
Speaker 9: And one of the areas that we're really focused on
Speaker 9: right now is an error of AI called generative AI,
Speaker 9: and that enables people, you know, it's services like chat
Speaker 9: GPT or Dolly, and Adobe just introduced a service called
Speaker 9: Adobe Firefly that enables you to simply just enter text
Speaker 9: and the models and algorithm produce images based on the
Speaker 9: text that you've written. And so obviously this enables a
Speaker 9: huge opportunity for people to express their ideas and create
Speaker 9: content in new in different ways.
Speaker 6: So how does that align with kind of just the
Speaker 6: broader text space. I guess I mean, I'm thinking of
Speaker 6: it as chat gpt is the easiest example of it.
Speaker 6: It kind of makes sense that alphabet would hop into
Speaker 6: what the Microsoft would happen to it because they have
Speaker 6: search engines and that makes it kind of an easier alignment.
Speaker 6: But then how do other companies within the tech space
Speaker 6: adopt it? It feels like AI and chash ebt even
Speaker 6: is a very wide umbrella. Can you give us some
Speaker 6: more examples?
Speaker 9: Absolutely? So, you know, for Adobe, we see this is
Speaker 9: a huge opportunity to aid editing. If you think about
Speaker 9: what our tools do, whether it's video or imaging or
Speaker 9: photography or design, our tools enable creative professionals or marketers
Speaker 9: to produce content. And they might do that with starting
Speaker 9: with images or graphics that they've created themselves, or you know,
Speaker 9: if you're a large company, you're probably licensing content as well.
Speaker 9: This is a huge opportunities another source of content. Think
Speaker 9: of it that way, where if you're in Photoshop and
Speaker 9: you need to add an element to a design that
Speaker 9: you're working on, instead of going and and you know
Speaker 9: finding it in your files or from a colleague, you
Speaker 9: can literally just produce it on the fly. So it
Speaker 9: is again a powerful tool to help with editing. On
Speaker 9: the marketing side, again, it enables marketers in more text
Speaker 9: examples to create copy and and you know, one of
Speaker 9: the big trends in digital and for companies is personalization
Speaker 9: and a lot of content and experiences are being created
Speaker 9: in order for businesses to have more relevant experiences for
Speaker 9: their customers. And humans can't produce enough content to get
Speaker 9: to true one to one personalization, and so AI is
Speaker 9: going to be a really important again tool in the
Speaker 9: in the tool chest to achieve true personalization and and
Speaker 9: unlocks the power of digital.
Speaker 1: Hey, Ashley, you know, as more and more companies and
Speaker 1: individuals for that matter, embrace artificial intelligence, there's concerns out
Speaker 1: there about control, having control over AI, what it can do.
Speaker 1: How do you guys at Adobe think about that and
Speaker 1: manage that risk.
Speaker 9: Yes, So it is incredibly important as content is produced
Speaker 9: in more and more ways, right by both humans as
Speaker 9: well as algorithms and machines, for to have transparency. And
Speaker 9: again I think there's whether you think of it as
Speaker 9: control or transparency. Ultimately, consumers have to trust the content
Speaker 9: that they're seeing, whether it's from a brand and a
Speaker 9: marketing context, whether it's from news organizations. And Adobe founded
Speaker 9: along with you now nine hundred partners an initiative called
Speaker 9: the Content Authenticity Initiative, And what this really focuses on
Speaker 9: is transparency for digital content. And we do that by
Speaker 9: adding metadata to content as it's being edited and produced,
Speaker 9: and that enables news site, businesses, et cetera to provide
Speaker 9: that transparency to the consumer to just be clear, was
Speaker 9: this content created with the help of generative AI, How
Speaker 9: was this content edited?
Speaker 5: Right?
Speaker 9: Is it real or is it fake? So we're really
Speaker 9: focused on transparency with both AI, but just in general
Speaker 9: with digital content, are.
Speaker 6: You all worried about regulatory pushback or scrutiny from Washington
Speaker 6: or even scrutiny from kind of your demographic as well
Speaker 6: as more and more people are talking about adopting AI,
Speaker 6: it feels like there's privacy concerns associated with them. How
Speaker 6: are you thinking out that?
Speaker 9: Well, one of we believe very strongly that everybody participating
Speaker 9: in I in AI needs to take a responsible approach
Speaker 9: and so, for example, at Adobe, what we've done is
Speaker 9: we only train our models on content that we have
Speaker 9: a license to right or content that's on the Internet
Speaker 9: where the license has expired. And we believe this is
Speaker 9: really important because a lot of people don't want their
Speaker 9: content to be used in training. You know, we represent
Speaker 9: the creative community, and there are many people in the
Speaker 9: creative community who don't want their style kind of quote
Speaker 9: unquote stolen from them, and so we do believe it's
Speaker 9: important to take a very responsible approach. And there's also
Speaker 9: parts of the law that are very unclear right where
Speaker 9: you know, copyright in the age your AI will evolve
Speaker 9: right now, again with generative AI, if an artist produces
Speaker 9: work through text prompts, there's no ability to copyright that work.
Speaker 9: So there are definitely areas where the law will need
Speaker 9: to evolve, and we think it's important as well that
Speaker 9: companies are responsible and how they're sourcing data for AI.
Speaker 1: Hey Ashley, Thank you so much for taking the time
Speaker 1: to join us. We really appreciate kind of getting the
Speaker 1: benefit of your wisdom on AI artificial intelligence. Actually still
Speaker 1: senior vice president, General Manager Creative Cloud and document Cloud
Speaker 1: at Adobe.
Speaker 5: You're listening to the team Ken's are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg dot com,
Speaker 5: the iHeartRadio app and the Bloomberg Business app, or listen
Speaker 5: on demand wherever you get your podcasts.
Speaker 1: We're in a thick of bank earning season that means
Speaker 1: talked to Hermit Chan. We talked to him a lot.
Speaker 1: I'm kind of tired of this guy, but he covers
Speaker 1: the regional banks. He's really really good at one of
Speaker 1: the top guys on the street. But we're also joined
Speaker 1: now by Neil SIPs, equity research analysts the Bloomberg Intelligence
Speaker 1: He's a proud at University of Dayton flyer.
Speaker 7: Neil.
Speaker 1: The last time I saw you you were in Asso
Speaker 1: shit working with Alison Williams. That they promoted you to analyst.
Speaker 10: Yeah, that's right, that happened. Yeah, And you know, I
Speaker 10: think many years of kind of getting into the details
Speaker 10: of some of some of those bigger banks you get
Speaker 10: a lot of experience and a lot of understanding, you
Speaker 10: know what all these business lines are are driven by
Speaker 10: and ultimately how these businesses are positioned.
Speaker 4: All right, So what did you see from Schwab today?
Speaker 1: And then you know, I'll ask you for your thoughts
Speaker 1: later on kind of what we saw Friday from some
Speaker 1: of the bigger banks.
Speaker 4: Which would you see from Schwab today?
Speaker 7: Yeah?
Speaker 10: Sure, so I think from Schwab, you know, from the
Speaker 10: from the start, you see the strength of their business.
Speaker 10: You see return on equity and access to twenty percent,
Speaker 10: you see pre tax margin above forty percent. Ultimately saw
Speaker 10: the net interest margin decline this quarter sequentially, and that's
Speaker 10: the biggest question for investors is what's going on with deposits.
Speaker 10: Ultimately what we saw as deposits decline on the platform
Speaker 10: by about forty billion this quarter.
Speaker 4: That accelerated from the That's huge, right, Yeah, that's huge.
Speaker 4: Of anything's big, but I mean when it's money, that's really.
Speaker 10: Yeah, And for Schwab specifically, I mean that's that's sort
Speaker 10: of the proposition of how they make money is ultimately
Speaker 10: the uninvested cash in their clients accounts is what ultimately
Speaker 10: gets reinvested. Into securities on the balance sheet, and that's
Speaker 10: really the driver of net interest margin. When those deposits leave,
Speaker 10: you start having issues on the liquidity front, and that's
Speaker 10: kind of the question and what the you know what.
Speaker 10: The CEO was trying to quell some of those concerns
Speaker 10: today with of how they're going to provide funding going
Speaker 10: forward as deposits leave.
Speaker 6: Herman hop on into this conversation. Herman again, that guy
Speaker 6: her Hobbins is the conversation talks to us a little
Speaker 6: about what we can actually expect from these earnings. I
Speaker 6: think Thursday is the big day where we're getting the
Speaker 6: majority of the regional banker earnings. What is or is
Speaker 6: there a kind of one bank or two or three
Speaker 6: that you're really paying attention to. Last Friday it was
Speaker 6: all about JP Morgan. Obviously, I think tomorrow it's going
Speaker 6: to be off's a bit all the big three, But
Speaker 6: on the regional basis, what's what's on your radar? Yeah?
Speaker 11: Sure, So Wednesday and Thursdays are the big days for
Speaker 11: the regional bank reporting for the first quarter. We had
Speaker 11: mm T report today, PNC on Friday. The biggest issue
Speaker 11: in the focus is going to be on deposits. As
Speaker 11: Neil mentioned earlier, where are we on deposits? How do
Speaker 11: they stack with the rest of the group. The best
Speaker 11: so far has been JP Morgan and then M and
Speaker 11: T was actually showing steady and stable deposits, which is
Speaker 11: a great sign. We're still waiting on some of the
Speaker 11: others that the numbers look maybe a bit poor on,
Speaker 11: which would be somebody like Western Alliance and banks like
Speaker 11: First Republic. But we're probably hoping to see pretty stable
Speaker 11: the maybe down a little bit for deposits across the group.
Speaker 1: Can you up on Friday some of the big banks
Speaker 1: reported I was not here. I was driving all over
Speaker 1: the central coast of California. I missed it. But it
Speaker 1: was the story there for a lot of these bigger banks.
Speaker 1: And will it continue to be this positive net interest
Speaker 1: margin stories? That one of the key things that you're
Speaker 1: looking at.
Speaker 10: Yeah, and I think the question is still just surrounds deposits,
Speaker 10: and particularly when you're looking at some of the some
Speaker 10: of those larger players, the JP Morgan's Bank of Americas
Speaker 10: of the World, they're the ones who are perhaps you know,
Speaker 10: winning some of that share of deposits. As you see
Speaker 10: things kind of reshuffle between institutions, and so ultimately the
Speaker 10: question is that and obviously as we have you know,
Speaker 10: objectively higher interest rates, now the question is what's going
Speaker 10: to happen with loan growth as you you know, get
Speaker 10: to these elevated levels on short term interest rates, and
Speaker 10: then particularly when you look at investment banking, that continues
Speaker 10: to remain slow, whereas trading was benefited by some of
Speaker 10: that rate volatility.
Speaker 6: Well, Neil a follow upon the loan growth story because
Speaker 6: it feels like there's kind of this cash twenty two
Speaker 6: on the one hand, and it's this big influx of
Speaker 6: deposits that Jamie Diamond, I believe on Friday, Paul, you
Speaker 6: missed this part. Jamie Diamond had.
Speaker 4: A lot to say.
Speaker 6: I'm sure on Friday, but Jamie Dimond said, look, by
Speaker 6: the end of the year, that's going to reverse. This
Speaker 6: is a temporary measure. But then on the other hand,
Speaker 6: you have the loan growth, which is also song. So
Speaker 6: that does that mean by the end of the year
Speaker 6: everything that's being viewed as a major positive for the
Speaker 6: big banks is just gonna fade away?
Speaker 10: Yeah, Well, I think it's it's it's sort of difficult
Speaker 10: to say. I think there's a lot of variables between
Speaker 10: now and the end of the year, and a lot
Speaker 10: of that's going to ultimately play out into what we
Speaker 10: see in terms of loan growth, what the benefit of
Speaker 10: interest rates is. And I even think you know, Herman
Speaker 10: Chan may actually have you know, better insight on that
Speaker 10: as it relates to kind of the loan growth that
Speaker 10: you're seeing, perhaps more so at commercial versus consumer at
Speaker 10: some of his banks.
Speaker 11: Yeah, I would say that commercial lending is still fairly strong.
Speaker 11: You saw some growth from M and C in terms
Speaker 11: of C and I growth, so that's a positive sign.
Speaker 11: We're still waiting on guidance furmenty the calls going on
Speaker 11: right now, but that'll be the big driver a sentiment
Speaker 11: going forward. Overall, it seems like credit availability could could
Speaker 11: weaken a bit given the fact that we're seeing higher
Speaker 11: deposit costs and banks needing to pay up for deposits
Speaker 11: to retain those relationships. That probably could spur some weaker
Speaker 11: demand going forward, and we've seen that across some consumer
Speaker 11: lending types already with auto loans, those rates on the
Speaker 11: auto loans are already driving something to the effect of
Speaker 11: seven percent, which creates some sticker. Stock Shop for a
Speaker 11: lot of the potential buyers of cars these days. So
Speaker 11: that's something that we're looking into going ahead for the
Speaker 11: rest of the year.
Speaker 1: You know, what are the big banks saying about kind
Speaker 1: of the capital markets business? Are they kind of saying,
Speaker 1: you know, don't get your hopes up for twenty twenty three,
Speaker 1: We'll think about twenty four.
Speaker 10: Yeah. I think unfortunately, it's sort of been a kicking
Speaker 10: the can down the road on you know, we expect
Speaker 10: it to continue to get better at some point, but
Speaker 10: when that's some point is you know, we're not too certain,
Speaker 10: and you just look at kind of metrics of volatility,
Speaker 10: where interest rates are, the uncertainty around interest rates the economy,
Speaker 10: it's just challenging for capital raising to happen. It's challenging
Speaker 10: for deals to take place when there's still not clarity
Speaker 10: on ultimately where interest rates are going to be going forward.
Speaker 10: And so I think, you know, twenty twenty four is
Speaker 10: sort of where they're starting to push those you know,
Speaker 10: those guidances of you know, potential for hope.
Speaker 1: All right, Like many people, Neil, I'm I'm a fan
Speaker 1: at Jamie Diamond, but his stock just went up another notch.
Speaker 7: In my mind, telling his managing.
Speaker 4: Directors to be back five days a week.
Speaker 1: Has there been any what's the feedback that you've heard,
Speaker 1: maybe even on the call Jamie Diamond's comments to it.
Speaker 7: Have you heard any feedback there?
Speaker 1: And we'll expect other banks to follow suit because a
Speaker 1: lot of times Jamie kind of leads the pack.
Speaker 10: Yeah. Yeah, he can tend to be a bell weather.
Speaker 10: And I think you know, to that extent, perhaps it's
Speaker 10: it's more focused on that senior talent, and you want
Speaker 10: to have those people in the office, particularly for the
Speaker 10: benefits of those that are junior below them, because ultimately
Speaker 10: that's you know, that's how you're going to foster that culture,
Speaker 10: which we know is incredibly important in investment banking, ultimately
Speaker 10: driving relationships for the business. And so as you ultimately
Speaker 10: see you know, work from home being phased out a
Speaker 10: little bit, it may start at the higher ranks and
Speaker 10: ultimately feed down into the lowers. And of course, you know,
Speaker 10: we'll see if this does bleed into the other banks
Speaker 10: and others, as ultimately that can sort of be a
Speaker 10: competing factor for talent.
Speaker 6: The only reason Paul Swen is a fan of Herman
Speaker 6: Chan the only reason because he comes in five days
Speaker 6: a week.
Speaker 7: Yeah, he brings it.
Speaker 11: The best ability is availability.
Speaker 4: Oh well, the best ability is availability that one.
Speaker 6: Put it on a shirt to it on Paul's forehead. Herman,
Speaker 6: your take, then, I mean, let's just continue with that thing.
Speaker 6: And that's the take from the big banks. Is it
Speaker 6: that important for the regional banks in.
Speaker 11: Terms of folks coming in? I think there's still a
Speaker 11: lot of work from home mentality So well, we haven't
Speaker 11: heard directive from the CEOs on down. So if the
Speaker 11: Jamie Diamond issue of making folks coming in, at least
Speaker 11: from the MD level, you could see some of the
Speaker 11: regionals sort of follow suit, But we haven't heard of
Speaker 11: any of the more mandated coming into the office, at
Speaker 11: least not yet.
Speaker 6: Herman, really quickly, I want to ask you about buybacks specifically.
Speaker 6: I think I asked you this last week. I had
Speaker 6: a fantastic answer. It's worth repeating. When you're looking at
Speaker 6: some of the valuations of these regional stocks, they are
Speaker 6: trading far below their kind of normal or average price
Speaker 6: to book ratios. Isn't that a no brainer for these
Speaker 6: regional banks to buy back their stock.
Speaker 11: It makes it really enticing because our group, the regional
Speaker 11: bank group that I cover, it's training about one times
Speaker 11: tangible book value adjusted for the AOCI, so really low
Speaker 11: levels attractive levels. We're still in a bit of uncertainty though.
Speaker 11: PNC came out on Friday and said they were halting
Speaker 11: buybacks until they get more clarity on maybe uncertainly from
Speaker 11: the market and also from the regulators. So until we
Speaker 11: see some of that clarity uppear, it seems like there
Speaker 11: could be some less activity from a buyback standpoint. There
Speaker 11: are others that have really strong capital ratios that we cover.
Speaker 11: M and T is one. East Wests is another that
Speaker 11: really have strong capital and operating really well that could
Speaker 11: continue to do buybacks. So it'll be a mix, all.
Speaker 1: Right, Gens, thanks so much for joining us. Herman Chan,
Speaker 1: who has saved our bacon many times over the last month,
Speaker 1: helping us get through what has been a stressful time
Speaker 1: for some of these regional banks. Herman Chan, Bloomberg Intelligence
Speaker 1: senior animals covering those regional banks, and Neil SIPs Man,
Speaker 1: what a strong first show on my show, Neil Safe's
Speaker 1: Equity Research Annals Bloomberg Intelligence. We trained him up and
Speaker 1: here he is put out some great research and helping
Speaker 1: us understand what's going on with the banks.
Speaker 5: You're listening to the tape Cat's are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 5: You can also listen live on Amazon Alexa from our
Speaker 5: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 1: Looking at the Big Take story, you know, we're all
Speaker 1: big fans of the Big Takes story because they are
Speaker 1: really usually usually very very interesting topics, but always deeply,
Speaker 1: deeply reported. In today's is no different, and it goes
Speaker 1: to the headline interest only loans to Hampton's set in
Speaker 1: pale First Republic. That does not sound good there, So
Speaker 1: let's talk to Jenny surname surname Surrain. I'm sorry, Jase Shrain,
Speaker 1: thank you for Bloomberg News. She was one of the
Speaker 1: reporters on this story. And you think about these big Jenny,
Speaker 1: you got to the ham Does not that I go
Speaker 1: there because I'm a Jersey shore guy. You think about
Speaker 1: the Hampton Is to see these big, big homes.
Speaker 7: They're not all cash.
Speaker 1: They're getting up some big mortgages associated with those and
Speaker 1: I would think for a banker that would be good business.
Speaker 1: Talk to us about First Republican and the business they
Speaker 1: were doing out in the Hamptons.
Speaker 12: Yeah, no, I think you're exactly right. You know, for
Speaker 12: years and years, First Republicans really focused on banking more
Speaker 12: of these wealthy consumers. And so in our reporting we
Speaker 12: learned that a big chunk of the mortgage business that
Speaker 12: they did with with wealthy individuals was actually comes in
Speaker 12: the form of interest only mortgages. So that means that
Speaker 12: for the first ten years of that lunch.
Speaker 1: I'm still a thing I thought that was like banned
Speaker 1: after the Great Financial Crisis.
Speaker 12: So it's interesting because they kind of reached this level
Speaker 12: of infamy because bankers were offering them to lower income
Speaker 12: consumers who wouldn't be able to keep up with the payments,
Speaker 12: you know, once that interest only period ended. And so
Speaker 12: this was kind of a new take on maybe an
Speaker 12: old foe, and it was really meant to, yeah, be
Speaker 12: away to get their claws into these wealthy consumers and
Speaker 12: hopefully get more of their banking business generally. So they
Speaker 12: had this large wealth management arm and lots of other
Speaker 12: things that they could offer them, and so This was
Speaker 12: like the sweetheart deal that they could do to just
Speaker 12: sort of sink their claws in early and beg more
Speaker 12: of these folks.
Speaker 6: Also, Jenny welcome back. By the way, she was just
Speaker 6: in London for three months. I think, cool, very exciting stuff. Yeah,
Speaker 6: great pictures on Instagram just saying very well, how was that?
Speaker 12: By the way, it was awesome, It was really good.
Speaker 12: I mean it was interesting because I was there for
Speaker 12: the first three months of the year and so watching
Speaker 12: the US banking crisis and then kind of being involved
Speaker 12: in the European banking crisis with Credit Sweeze. It was
Speaker 12: interesting to kind of have a different, different seat at
Speaker 12: the table.
Speaker 6: Very very cool. So bringing it back stateside though, we
Speaker 6: were talking about First Republic, who fills that slot with
Speaker 6: First Public? Are there other candidates here that could maybe
Speaker 6: take some of that market share?
Speaker 12: Yeah, you know, it's interesting. They're not pulling back as
Speaker 12: far as we know. So these guys did this more
Speaker 12: than anyone else. But other banks do offer these products,
Speaker 12: So that should be one thing we're careful about is that,
Speaker 12: you know, JP Morgan does this. Others do too. It's
Speaker 12: a big business and I think the problem with these
Speaker 12: loans now is that as First Republic looks to get
Speaker 12: a capital in fusion or potentially looks for a buyer
Speaker 12: to kind of help it shore up and get a
Speaker 12: little bit better here. That's why this has become a
Speaker 12: problem because these loans, while they perform great and they
Speaker 12: have all these wealthy customers attached to them, carry a
Speaker 12: lot of interest rate risk, and so as interest rates
Speaker 12: go up, the value of these loans goes down, and
Speaker 12: so for any buyer that would be a problem looking
Speaker 12: to fill that balance sheet hole.
Speaker 1: So is First repubably looking to kind of work its
Speaker 1: way out of this? Is that kind of what they've
Speaker 1: been telling people, because it seems like, I don't know,
Speaker 1: if you're buying a house in Hampton's you're.
Speaker 4: Probably a pretty good credit. Yeah, I wouldn't mind. I
Speaker 4: could take all that risk at a certain price.
Speaker 7: Maybe.
Speaker 12: Well, the problem is that it's just become such a
Speaker 12: big hole. So, you know, we're in the middle of
Speaker 12: regional bank earning season, so you're hearing a lot of
Speaker 12: these guys talk about the unrealized losses on the bonds
Speaker 12: on their balance sheet, which has become a huge problem
Speaker 12: at First Republic. That's a problem too, but it's not
Speaker 12: nearly as big of a problem as the losses unrealized
Speaker 12: to be sure, on these mortgages that they've made, and
Speaker 12: so as they looked for a potential buyers, they look
Speaker 12: at a M and A deal. What we've heard is
Speaker 12: that this is the thing that's causing a lot of
Speaker 12: folks to balk and say, you know, this is just
Speaker 12: too big. You know, even if they paid zero dollars
Speaker 12: a share, they'd still have thirteen billion dollars of a
Speaker 12: hole that they would need to fill, and so it's
Speaker 12: just an untenable deal.
Speaker 6: Are there other regions that are seeing similar things? I mean,
Speaker 6: we associate as New Yorkers, we associate and New Jersey first, yes,
Speaker 6: on associate the Hamptons with that kind of obviously very
Speaker 6: very wealthy share. But are we seeing similar stories coming
Speaker 6: out of I don't know, Miami, San Francisco, other wealthier
Speaker 6: parts of the country.
Speaker 12: Yeah, no, we when we looked at the data underlying
Speaker 12: these mortgages, we've figured out that they actually they had
Speaker 12: a really big presence in the Hamptons and certain wealthy
Speaker 12: neighborhoods in New York. You know, the Upper West Side
Speaker 12: was a popular destination Tribeca another one. But then yeah,
Speaker 12: beyond that, you know, we looked at southern California. There
Speaker 12: was a lot in the Wine country of California, in
Speaker 12: Silicon Valley, you know, where all these tech billionaires are
Speaker 12: being minted. So this was definitely not just a New
Speaker 12: York thing. But yes, obviously for the Bloomberg consumer that
Speaker 12: was a popular one.
Speaker 1: Yeah, because I'm looking at I mean, in this story
Speaker 1: and people you can find the story at Bloomberg dot com,
Speaker 1: slash Big Take or ni Space Big Take, go on
Speaker 1: the terminal and you're going to take a look at
Speaker 1: this because I got some great maps, like kind of
Speaker 1: heat maps of northern California, southern California around La the
Speaker 1: Hampton's Manhattan and you guys have it kind of heat
Speaker 1: map this show kind of where the concentration is and
Speaker 1: of some of these loans. And boy, you look at
Speaker 1: the southern California and the one that shows up the
Speaker 1: brightest on the heat map is Beverly Hills.
Speaker 6: So I wonder who lives there and yeah, just a
Speaker 6: few billionaires.
Speaker 1: So all right, so what's next for this bank here?
Speaker 1: I mean, is there a certain timeframe where you know
Speaker 1: they've got to do something because the markets not really
Speaker 1: buying in on it.
Speaker 12: Yeah, no, I think you know, the big thing that
Speaker 12: we're looking forward to is their earnings next week, because
Speaker 12: that's when we'll really get the first look at just
Speaker 12: how big the deposit outflows have been in the last month.
Speaker 12: You know, you hear it anecdotally, and we talked to
Speaker 12: lots of big customers who've said that they've pulled their funds.
Speaker 12: But at the same time they had, you know, the
Speaker 12: biggest US banks do a deposit infusion at thirty billion
Speaker 12: dollars and so that was really meant to shore them up,
Speaker 12: give them more time to eventually either have a capital
Speaker 12: infusion or find a buyer. So yeah, I'm next Monday,
Speaker 12: I think is.
Speaker 1: Is that's when they read that's when first Republican that
Speaker 1: they dance exactly.
Speaker 12: Yeah, So that's our first that's our next real look
Speaker 12: at under the hood and kind of what's going on
Speaker 12: with these guys, because we really haven't gotten that many
Speaker 12: on the record updates from them in the last month
Speaker 12: or so that this has been a crisis.
Speaker 4: All right, So what other I mean, it seems like
Speaker 4: this and I really want to get your take.
Speaker 1: It seems like the crisis aspect of this turmoil we've
Speaker 1: been dealing with the banking space in the US, it's
Speaker 1: passed or we've been to you know, too early on that.
Speaker 12: I think it's I think it's early. I mean, I
Speaker 12: think we So the biggest thing is that a lot
Speaker 12: of the bank that we're most worried about haven't reported
Speaker 12: earnings yet. And the big fear that I think folks
Speaker 12: have is that they might miff on the disclosure aspect.
Speaker 12: So we've seen that a few times already, where a
Speaker 12: bank is even pre reported and maybe not given investors
Speaker 12: exactly the data or information they wanted, and it's kind
Speaker 12: of caused a whole new calamity. And so I think
Speaker 12: that will be the big key test, especially I think
Speaker 12: Innesday and Thursday. We have a lot coming up next
Speaker 12: Monday obviously with the First Republic, it'll be a big
Speaker 12: key test that really, you know, do they not only
Speaker 12: do they say, you know, numbers that inspire confidence, but
Speaker 12: do they say it in the right way? Do they
Speaker 12: release the right numbers and right And so I think
Speaker 12: that's the big question.
Speaker 1: All right, you were the former editor in chief of
Speaker 1: the Daily tar Herol, So I have to make sure,
Speaker 1: I get my facts straight. Your basketball team started the
Speaker 1: season preseason ranked number one in the country and they
Speaker 1: didn't even go to the tournament. And I don't think
Speaker 1: that's times has that happened? Oh, it had never happened before. Then,
Speaker 1: So are you guys even gonna suit up a team
Speaker 1: next year?
Speaker 4: To face my duties or what we are?
Speaker 12: We're gonna suit up a team. I mean, I hope
Speaker 12: it goes better this year. I honestly think that for
Speaker 12: most our Hills the season before when we will feel
Speaker 12: good for kind of at least a few more So.
Speaker 1: I am a big fan of Hubert Davis. I liked
Speaker 1: him and when he played for Carolina, I liked it.
Speaker 1: When he was with the Knicks. What's the feeling down
Speaker 1: in Chapel Hill about Hubert Davis in terms of boy
Speaker 1: that was kind of embarrassing.
Speaker 12: Yeah, I mean that wasn't his team, so you know
Speaker 12: that was still Roy's team. I think I think we
Speaker 12: give him a few more seasons. I mean, we're not.
Speaker 12: We don't throw babies out with the bathwater down in
Speaker 12: job Well. We give people times to season up.
Speaker 1: All right, So you're gonna they're gonna have a team.
Speaker 1: We can confirm that. Will you go down to any games?
Speaker 12: You know what, I don't have any plans to go
Speaker 12: down to games this year.
Speaker 4: I need to make some he needs to do tickets.
Speaker 7: Just come to me.
Speaker 4: I can set yup, be all set to go. We'll
Speaker 4: put you right there, right in a defectory the Cameron crazy.
Speaker 12: I don't think I would enjoy that.
Speaker 1: And we have another with yeah, did you ever go
Speaker 1: to a basketball game?
Speaker 4: No? Did you go to a football game?
Speaker 8: No?
Speaker 7: Wow?
Speaker 6: I just I'm not a sports coal not even.
Speaker 1: I mean the little VA boys get their suit and
Speaker 1: tis coats and ties on, they look.
Speaker 6: All nice and so embarrassing.
Speaker 12: I'm not. I'm not.
Speaker 6: Look, I'm not a very kind of college spirit, kind
Speaker 6: of gal.
Speaker 4: So I just never never did.
Speaker 7: All right.
Speaker 4: I did go to.
Speaker 6: Plenty of soccer games though, and swim meets, because you know, all.
Speaker 4: Right, good stuff.
Speaker 1: Jenny Serene, financial reporter for Bloomberg News. Uh, and I
Speaker 1: think the feather in her cap is a former editor
Speaker 1: in chief of the Daly Tar Hill. That is a
Speaker 1: big job, not kidding, you know, for those college papers,
Speaker 1: and the Deli Tar.
Speaker 7: Hill is an excellent paper.
Speaker 1: And be editor in chief there is pretty pretty cool too,
Speaker 1: So that's good stuff. Jenny Serene big take story out
Speaker 1: there with her team. Check it out bloomerked Slash Big tape.
Speaker 5: You're listening to the tape. Catch are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 5: You can also listen live on Amazon Alexa from our
Speaker 5: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 7: All right, here's a headline that got my attention.
Speaker 1: The pig still hasn't fully exited the python. And I think,
Speaker 1: having read it, the pig in this case is the
Speaker 1: pandemic and the you know, the economic hit from the pandemic.
Speaker 7: So I don't know.
Speaker 1: That's my best guest, John Authors, he's the author, He's
Speaker 1: the one to blame for this. He's the senior editor
Speaker 1: at Bloomberg Opinion. One of our favorite folks to chat with. John,
Speaker 1: talk to us about this. The pig still hasn't fully
Speaker 1: exited the python? What are you talking about?
Speaker 3: Okay?
Speaker 13: If you go down to I think it's the last
Speaker 13: paragraph boy of the main peace before you get my
Speaker 13: interesting piece about soccer refereeing in England in the spital Yes,
Speaker 13: it's about It's about the pandemic and obviously it's created
Speaker 13: a very big shock, big reaction, you know, like a
Speaker 13: tsunami or something like that. The idea that that that
Speaker 13: something has been hit very hard and it will create turbulence,
Speaker 13: will create waves for a while afterwards.
Speaker 6: Uh.
Speaker 13: And because this is being reflected through human behavior, it's
Speaker 13: that much harder to predict exactly how those waves are
Speaker 13: going to work. But it's obvious we still haven't got
Speaker 13: through that now. The particular point that I was making
Speaker 13: their concerns and concerns tech where there was a lot
Speaker 13: of spending brought forward during the worst days of the pandemic,
Speaker 13: and that has raised some Varish people to suggest that
Speaker 13: this we like the the Y two K incidents for
Speaker 13: those who who remember it, that that when companies splurged
Speaker 13: on it spending ahead of the millennium because they were
Speaker 13: worried about what would happen when o'clock moved from ninety
Speaker 13: nine to zero zero, and one of the one of
Speaker 13: the consequences of that was that spending was much lower
Speaker 13: on it than it had been expected several years thereafter.
Speaker 13: But that's one of the concerns at the moment that
Speaker 13: we'll find that that peak hasn't excited the python yet.
Speaker 13: That but companies are still in fact able to reduce
Speaker 13: their spending to where they were. Yeah, so that's that's
Speaker 13: that's the python.
Speaker 6: It's quite the image. Also, Paul, did you know that
Speaker 6: when I first I think early early days of meeting
Speaker 6: John Authors speaking of pythons, I was a producer on
Speaker 6: television this is what four years ago maybe, and I
Speaker 6: would reduce John author segments and he this was during
Speaker 6: like Brexit or something, negotiations were happening or something along
Speaker 6: those lines, and he explained Brexit to me through the
Speaker 6: lens of Monty Python. And that is my earliest memory
Speaker 6: of John Author's And then I went to go sit
Speaker 6: by him and learned plenty about Monty Python and market.
Speaker 13: I think it was the Ministry of again both either
Speaker 13: that's all the black Knights who didn't know he was beaten.
Speaker 6: All this rings bells for sure.
Speaker 9: Anyway, John, listen, let's.
Speaker 6: Let's talk about what's going on in France right now. Look, you,
Speaker 6: I think one of the best parts about your columns
Speaker 6: you kind of have a take on everything, and I
Speaker 6: want to get your take on France in particular because
Speaker 6: as I am getting more educated on the matter of
Speaker 6: kind of pension reform and the labor strikes that I've
Speaker 6: been told happen every year in France and around around
Speaker 6: the country, talk to us a little bit about why
Speaker 6: this time the pension reform is such a big deal.
Speaker 13: Okay, the pension reform is such a big deal because, well,
Speaker 13: there are a number of different layers to this. Obviously,
Speaker 13: it's a very important test of Emmanuel MacColl who has
Speaker 13: really been the only modern style technocrat who tries to
Speaker 13: rescue ideology and certainly tries to rescue populism, who has
Speaker 13: managed to stay successful within Europe, who got himself elected
Speaker 13: the second time, and he has now staked an immense
Speaker 13: amount on this. And it's a country where the far right,
Speaker 13: the from Nacionale, is very strong. So that's one leg
Speaker 13: of this, that is the political There's also the fact
Speaker 13: that France has always been I could almost illustrate this
Speaker 13: with you from Monty Pays. The thinking about this that
Speaker 13: that that France has always been very much more prepared
Speaker 13: to take to the streets than other Western European nations
Speaker 13: that it's it's it's it's part of the culture. As
Speaker 13: you were saying that that that that you might get
Speaker 13: labor unrested, but they're also that much more prepared to
Speaker 13: to demonstrate and to fight, and a little bit like
Speaker 13: John Clees playing the extremely rude Frenchman addressing the knights
Speaker 13: in Monty Python and the Holy Grail, which you can
Speaker 13: look up later and then. But I think the most
Speaker 13: important point is France has a very generous national pension scheme,
Speaker 13: but the French are much less bothered about a nanny state,
Speaker 13: about a strong state than most other of the big
Speaker 13: western capitalist nations. And raising the retirement age by two
Speaker 13: years is has really got them. And this is something
Speaker 13: that is likely to be necessary across the world because
Speaker 13: we're all subject to the same demographics. And this is
Speaker 13: an interesting case study in what happens when you really
Speaker 13: try to bite the metal and reduce retirement benefits retirement
Speaker 13: costs in a big developed economy. That is the key
Speaker 13: worrying point to this. That's what is what it could
Speaker 13: portend for the rest that the Macon has said, and
Speaker 13: I guess you have to say, it's the courage to
Speaker 13: do what any good technocraft would say, you need to
Speaker 13: do and try to grasp the issue of reducing pentry costs,
Speaker 13: but let's see if he can do it.
Speaker 6: So the retirement age now from sixty two to sixty four.
Speaker 6: And initially when this was brought to attention, Aminel Macron
Speaker 6: was going to do this, you know laterally this wasn't
Speaker 6: going to be put to a vote until, of course,
Speaker 6: the protests first came on. John talked to us a
Speaker 6: little bit about any sort of market fall out here,
Speaker 6: because inevitably, if you've changed the pension reform, that has
Speaker 6: a very real impact on the French national budget, and
Speaker 6: therefore you would think on the sovereign debt as well.
Speaker 6: Are we seeing any kind of market reaction?
Speaker 13: What is the trade here? Not significantly, I think. I mean,
Speaker 13: what's easy interesting is that French bond spreads spreads compartments
Speaker 13: of French bonds have increased a little. But we're talking
Speaker 13: about compared to the kind of spreads we've seen it
Speaker 13: on Italian or Spanish debt at different times, countries that
Speaker 13: really did look as though they could conceivably leave the Eurozone.
Speaker 13: It's still nothing much too much to consider. You can
Speaker 13: see that it's a problem that markets are are taking
Speaker 13: notice of. But I would say that the markets are
Speaker 13: not at this point a critical player in the French
Speaker 13: drama in the way that they have been, says most
Speaker 13: noticeably in Italy. If you have, if you have a
Speaker 13: clear cut political defeat, which I'm not predicting, but if
Speaker 13: you did, if you had to, if the pension retirement
Speaker 13: age stays exactly where it is, a Macron admits he's
Speaker 13: beaten both on the political and army economics, and that's
Speaker 13: going to be pretty seriously bad for French debts. Yes, definitely,
Speaker 13: we haven't got there yet.
Speaker 1: Hey, John, just you got about it a minute left.
Speaker 1: I know you're on holiday last week from reading your columns, and.
Speaker 7: I believe you're in England. Yes, talk to us.
Speaker 1: What's your takeaway from talking to families and friends and
Speaker 1: hanging out at the pubs housing average Englishmen feeling? Are
Speaker 1: Englishman feeling these days? You know, will post Brexit, post COVID,
Speaker 1: post all that stuff.
Speaker 13: I mean, I've actually had sort of lots of cheerful
Speaker 13: conversations with people in the last week, which is nice
Speaker 13: to know. I think that Brexits as a whole, it's
Speaker 13: very difficult because obviously I was always against it. I
Speaker 13: think the country is very slowly but clearly coming around
Speaker 13: to the view that it was a mistake. And we'll
Speaker 13: see how long that will happen. And I think you're
Speaker 13: still talking about decades before there could be any attempt
Speaker 13: to rejoin. But there is a things have not improved.
Speaker 13: In fact, they've got worse since since Brexit, and that's
Speaker 13: becoming more apparent.
Speaker 1: All right, good stuff, John, Thanks so much for joining us.
Speaker 1: Always appreciate getting your perspective. John Authores. He's a senior
Speaker 1: editor at Bloomberg Opinion Scott. He writes a lot of stuff,
Speaker 1: a lot of really interesting stuff, so you can check
Speaker 1: that on Bloomberg dot com slash opinion John's work and
Speaker 1: plus all the other opinion writers as well, and also
Speaker 1: on OPI n go on the Bloomberg Ternel to get
Speaker 1: all that great Bloomberg opinion pieces out there.
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
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Speaker 4: I'm Matt Miller.
Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three.
Speaker 1: And I'm Faull Sweeney. I'm on Twitter at pt Sweeney
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