WEBVTT - PCE Preview and Streaming Wars 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:47.239 the Bloomberg Terminal, and the Bloomberg Business app. If you 0:00:47.640 --> 0:00:50.479 have a tour duty at the Feller Reserve Bank of Richmond, 0:00:51.080 --> 0:00:53.000 that means you have a certain cast. 0:00:54.080 --> 0:00:55.760 It's called fresh Water. 0:00:56.200 --> 0:00:59.959 Or title Economics, and it goes really interesting theories dot 0:01:00.000 --> 0:01:02.280 and they're the late Marvin good Friend was one of 0:01:02.280 --> 0:01:05.760 the academics that led so much of that. And you 0:01:05.760 --> 0:01:08.520 you know, you get the fed Richmond with all of 0:01:08.520 --> 0:01:11.880 its history, it's heritage. You can do that out of 0:01:12.000 --> 0:01:14.160 Washington and Lee University, which is you know, it's a 0:01:14.200 --> 0:01:17.200 short drive. You know, you get the carriage, you know, 0:01:17.240 --> 0:01:19.920 the two horse carriage and yep, you go up there, 0:01:19.920 --> 0:01:21.640 and of course you do it with some hard nosed 0:01:21.720 --> 0:01:26.600 University of Chicago economic Stephen Stanley joins us now right 0:01:26.640 --> 0:01:27.520 now with cent Tender. 0:01:27.600 --> 0:01:29.319 What was it like at the Richmond Fed. 0:01:29.440 --> 0:01:32.560 I've done so much work with them, including visiting, and 0:01:32.920 --> 0:01:35.120 you know their history. They used to write these the 0:01:35.280 --> 0:01:38.880 Edgeworth Box, forty two pages on the Edgeworth Box. What 0:01:39.040 --> 0:01:42.160 was it like walking in to the Federal Reserve Bank 0:01:42.200 --> 0:01:44.520 of Richmond out of Washington Lee in Chicago. 0:01:44.720 --> 0:01:45.960 Well, well, first of all, I have to say, I 0:01:45.959 --> 0:01:47.720 feel like I'm on this is your life, this is 0:01:48.000 --> 0:01:51.040 this is a great but yeah, it was great. It 0:01:51.120 --> 0:01:54.880 was a fantastic place to start my career. Marvin was 0:01:54.880 --> 0:01:57.440 was one of my mentors, and I learned so much, 0:01:58.280 --> 0:02:00.240 you know, it was Yeah, it was fantas. 0:02:00.240 --> 0:02:03.520 Is there underlying real economy theory valid? Or is there 0:02:03.560 --> 0:02:06.760 something to the saltwater economics of the Charles River? 0:02:07.400 --> 0:02:08.320 Well? I think so. 0:02:08.480 --> 0:02:12.079 Back in the day, you know, going back decades, the 0:02:12.200 --> 0:02:15.840 Richmond FED was definitely one of the monitorists banks, and 0:02:15.880 --> 0:02:18.480 that of course, you know, the theories there have evolved, 0:02:18.520 --> 0:02:25.280 but I certainly think that the framework that I got 0:02:25.440 --> 0:02:27.840 has helped me a lot So does. 0:02:27.600 --> 0:02:29.760 The FRED have a framework? Now? 0:02:29.919 --> 0:02:33.960 I don't if it's neo Monitorist, neo Kayesian, neo Stanley, 0:02:34.480 --> 0:02:37.639 I don't care. But all of our you know, Paul 0:02:37.680 --> 0:02:39.639 and I get mail on this every least it gets 0:02:39.720 --> 0:02:42.800 mail on this. The bottom line is is there a plan? 0:02:43.120 --> 0:02:44.640 Is there a framework? Well? 0:02:44.680 --> 0:02:46.680 I think the closest thing they have to that would 0:02:46.680 --> 0:02:49.840 be the board staff in their models, which I mean, 0:02:50.040 --> 0:02:53.440 broadly speaking, I would say, are kind of, as you say, 0:02:53.520 --> 0:02:56.400 neo Kayesian. I think the Phillips curve gets a lot 0:02:56.440 --> 0:02:59.000 of weight at the FED, even though publicly the FED 0:02:59.040 --> 0:03:02.280 will kind of itself from that. That has always been 0:03:02.400 --> 0:03:04.919 a load star for the FED. But I think there's 0:03:04.960 --> 0:03:09.440 also a lot of pragmatism now, which you know is 0:03:09.600 --> 0:03:13.720 good and bad. I think it's good that people are flexible, 0:03:13.720 --> 0:03:15.880 but at the same time, it sometimes does feel like 0:03:15.919 --> 0:03:20.119 there isn't really a strong framework from which to through 0:03:20.160 --> 0:03:21.720 which to interpret the data. 0:03:22.240 --> 0:03:24.520 So how do you think the FED is interpreting that 0:03:24.600 --> 0:03:26.880 data these days? I mean they say they're data dependent, 0:03:27.320 --> 0:03:30.040 and the data, particularly the inflation data will wapstick at 0:03:30.040 --> 0:03:32.880 the PCE on Friday, But it's kind of reared its 0:03:32.880 --> 0:03:34.680 head a little bit more over the last few months. 0:03:34.920 --> 0:03:36.520 Do you think it's enough for the FED that you say, 0:03:37.520 --> 0:03:39.080 I think we're just going to sit on the sidelines 0:03:39.080 --> 0:03:39.920 and see what happens. 0:03:40.320 --> 0:03:42.520 Well, here's how I would frame it up. So for 0:03:42.560 --> 0:03:46.080 about eighteen months, roughly the end of last year, you 0:03:46.160 --> 0:03:48.760 heard Terman Powell over and over again saying, we think 0:03:48.760 --> 0:03:51.800 we're going to need to see a period of subpar growth, 0:03:52.440 --> 0:03:54.520 slackening in the labor market if we're going to get 0:03:54.560 --> 0:03:57.160 inflation where we want it down to two percent on 0:03:57.200 --> 0:04:00.120 a sustainable basis. And then you had that period in 0:04:00.120 --> 0:04:02.600 the second half of last year when growth was really strong, 0:04:02.640 --> 0:04:05.600 but the inflation numbers were still coming down, and I 0:04:05.640 --> 0:04:08.040 think they got a little bit enamored by that, and 0:04:08.120 --> 0:04:11.720 all of a sudden in January you heard Powell essentially say, 0:04:11.760 --> 0:04:13.520 we think maybe we can have our cake and eat 0:04:13.520 --> 0:04:13.800 it too. 0:04:13.800 --> 0:04:14.000 Here. 0:04:14.040 --> 0:04:16.839 We think the economy can just rip along and inflation 0:04:16.960 --> 0:04:18.920 is magically going to make its way to two percent. 0:04:19.040 --> 0:04:21.359 And I think the data so far this year has 0:04:21.400 --> 0:04:22.760 been a bit of a slap in the face to 0:04:23.120 --> 0:04:23.919 that optimism. 0:04:24.160 --> 0:04:28.320 Are you concerned that this economy? I mean, it seems 0:04:28.360 --> 0:04:30.760 like again I took a couple of business classes at 0:04:30.760 --> 0:04:33.440 the University Richmond. I feel like i'm economics classes. I 0:04:33.480 --> 0:04:36.719 feel like i'm you know, I can stayed in opinion 0:04:36.720 --> 0:04:40.159 on economics. Is this soft landing? Have they landed this 0:04:40.200 --> 0:04:42.560 soft landing? Or do you think there's a risk that 0:04:42.600 --> 0:04:44.279 maybe it's gonna a little bit bumpier maybe? 0:04:44.400 --> 0:04:47.440 Well, I mean we've certainly made good progress on that front, 0:04:47.480 --> 0:04:50.000 but I don't think you can declare victory until inflation 0:04:50.120 --> 0:04:51.440 is actually back to two percent. 0:04:51.760 --> 0:04:54.560 Now, what's the two percent number? When did that come about? 0:04:54.640 --> 0:04:56.160 I never heard about that until like a couple of 0:04:56.200 --> 0:04:58.159 years ago. Yeah, and then people started talking about two 0:04:58.160 --> 0:04:58.720 what's wrong with two? 0:04:58.760 --> 0:04:59.719 When I had for three percent? 0:05:00.520 --> 0:05:04.840 So, you know, the the in theory price stability you 0:05:04.839 --> 0:05:06.520 would think would bean zero insplation. 0:05:06.680 --> 0:05:09.279 Okay, but there are two issues. 0:05:09.320 --> 0:05:12.000 One is the the there's you know, economists will tell 0:05:12.000 --> 0:05:15.280 you that there the inflation data are biased, so the 0:05:15.400 --> 0:05:18.760 true price stability number is probably somewhere between a half 0:05:18.760 --> 0:05:21.640 percent and one percent. And secondly, and more importantly, I 0:05:21.640 --> 0:05:25.039 think the FED has been spooked over the last several 0:05:25.200 --> 0:05:28.960 cycles by getting captured in the zero bound, and they 0:05:28.960 --> 0:05:31.400 want to stay away from that as much as they can. 0:05:31.480 --> 0:05:35.720 And so a little higher inflation takes them further. 0:05:35.480 --> 0:05:37.880 Away from the zero bound on average Earth. 0:05:37.880 --> 0:05:40.560 Thing the last two days has been the stimulus. 0:05:41.360 --> 0:05:42.440 How does it unwine? 0:05:42.520 --> 0:05:45.880 Ruscher Shearmer with a brilliant piece in the ft today, 0:05:46.120 --> 0:05:49.120 iconic at Morgan Stanley and his work at the Rockefeller Foundation. 0:05:50.000 --> 0:05:54.320 Now just just wonderful trying to figure out this mystery 0:05:54.400 --> 0:05:57.440 of the glide path of what I'm going to invent 0:05:57.480 --> 0:06:01.000 this word this morning. You could steal it, Steve stimulus. 0:06:01.400 --> 0:06:04.720 What's your framework for how many quarters we need to 0:06:04.800 --> 0:06:08.480 migrate out to de stimulize from the pandemic? 0:06:08.800 --> 0:06:12.719 Yeah, well, I think for me it's at this point 0:06:12.760 --> 0:06:16.080 it's not as much the pandemic anymore in the sense 0:06:16.160 --> 0:06:18.960 that the the you know, I think there's still a 0:06:19.000 --> 0:06:22.080 lot of fiscal stimulus in the system, but the bulk 0:06:22.120 --> 0:06:24.640 of it is not coming from the pandemic programs. It's 0:06:24.640 --> 0:06:27.679 coming from the things that were passed afterward, the infrastructure agreed. 0:06:27.839 --> 0:06:28.119 Agree. 0:06:28.279 --> 0:06:31.520 Blanchard has talked about the three levels of stimulus. Yeah, okay, 0:06:31.560 --> 0:06:32.839 so what's your timeline on this? 0:06:33.600 --> 0:06:33.800 Wow? 0:06:33.839 --> 0:06:38.400 I mean these programs that we just ticked off have 0:06:38.720 --> 0:06:41.080 multi year spending paths, So I think it's a while. 0:06:41.080 --> 0:06:43.039 I mean, what I would really like to see is 0:06:43.040 --> 0:06:45.000 I'd like to see some fiscal discipline. I mean, we're 0:06:45.040 --> 0:06:46.960 running two trillion dollars a year budget. 0:06:46.960 --> 0:06:48.880 Depth there there's the Richmond. 0:06:48.920 --> 0:06:50.920 That's it. We need to We got to end the interview. 0:06:50.920 --> 0:06:53.080 But it's good with the Federal Reserve Bank of Richmond, 0:06:53.120 --> 0:06:54.440 Steve's family with us. 0:07:04.560 --> 0:07:07.520 What we're gonna do here, folks, is there's usual. 0:07:07.240 --> 0:07:09.880 Blah blah blah blah, like where are we in, what's 0:07:09.920 --> 0:07:12.640 housing inflation going to do? And maybe what the international 0:07:12.680 --> 0:07:17.080 thing is? And then there's a memo that just stops you. 0:07:18.120 --> 0:07:19.360 In your tracks. 0:07:19.440 --> 0:07:22.160 Terry Weissman with us right now to say he's had 0:07:22.160 --> 0:07:23.040 a global currency. 0:07:23.040 --> 0:07:23.800 He's interest rate. 0:07:23.720 --> 0:07:28.560 Strategy at Macquarie barely describes decades of experience. Back to 0:07:28.640 --> 0:07:32.520 Fortress Schwartz at bear Stearns a few years ago. I 0:07:32.640 --> 0:07:35.160 was stopped and I was thinking of David folkerts Lando 0:07:35.200 --> 0:07:39.600 of Deutsche Bank the day after Putin invaded Ukraine. And 0:07:39.720 --> 0:07:45.080 here you are with a definitive, piercing note. Let's repeat 0:07:45.160 --> 0:07:50.240 what we've already said. Wars are inflationary? Are we missing 0:07:50.320 --> 0:07:53.600 the forest from somewhere out there? The trees. Is all 0:07:53.640 --> 0:07:57.360 of this inflation we're talking about. Maybe we had a 0:07:57.400 --> 0:08:02.520 war in a pandemic, but these wars are inflationary full stop. 0:08:03.160 --> 0:08:05.440 Yeah, this is not the shouldn't be a mystery to 0:08:06.160 --> 0:08:08.280 most people, Tom. I think if you look at the 0:08:08.320 --> 0:08:10.360 history of inflations in the US and where we've had 0:08:10.360 --> 0:08:13.960 big spikes, it was during Korea, right. We had a 0:08:14.040 --> 0:08:16.920 demobilization after World War Two and inflation fell. But when 0:08:17.000 --> 0:08:18.960 Korea started, we had a big inflation in the US. 0:08:19.000 --> 0:08:21.840 And then we had an inflation again in the intensification 0:08:21.920 --> 0:08:23.920 of the Vietnam War in the late sixties. And then 0:08:23.960 --> 0:08:26.880 we had an inflation again in nineteen seventy three, which 0:08:26.920 --> 0:08:29.800 coincided with the Arab Azareeli war of the time. And 0:08:29.800 --> 0:08:32.880 we had an inflation again with the First Gulf War, right, 0:08:32.960 --> 0:08:35.600 and we had an inflation again with Russia and Ukraine. 0:08:35.960 --> 0:08:39.199 I mean, this is this Optically, you look at these 0:08:39.320 --> 0:08:41.680 charts and you look at what coincides with these wars, 0:08:41.720 --> 0:08:43.400 it has to be it is these spikes and inflation. 0:08:43.480 --> 0:08:45.280 You have to conclude that there has something to do. 0:08:45.320 --> 0:08:48.280 There's something to do with the idea that wars cause inflation. 0:08:48.640 --> 0:08:50.319 I think, you know, you can talk about what the 0:08:50.440 --> 0:08:55.000 channels are, but supply side disruptions, right, So an important 0:08:55.000 --> 0:08:55.480 aspect of that. 0:08:55.559 --> 0:08:57.920 I mean, you know, I'm still going at WT crude oil, 0:08:58.080 --> 0:08:59.959 you know, or actually Brent crude were down to bad 0:09:00.040 --> 0:09:02.600 eighty six. We were up to close over ninety here, 0:09:03.320 --> 0:09:06.120 So how do you factor that? And what's happening in Ukraine, 0:09:06.160 --> 0:09:08.800 what's happening in the Middle East. We passed another bill 0:09:08.880 --> 0:09:12.280 for also to fund some issues in Taiwan. How does 0:09:12.360 --> 0:09:14.160 that factor into your research and kind of how you 0:09:14.240 --> 0:09:16.719 view kind of rates, how you view currencies. 0:09:16.920 --> 0:09:18.880 Yeah, let me say that a lot of economists tend 0:09:18.960 --> 0:09:22.600 to discount the importance of oil prices in the overall 0:09:22.679 --> 0:09:27.240 inflation picture and in respect to the Fed's policy outlook. 0:09:27.559 --> 0:09:29.800 And the reason for that is also simple. It's not 0:09:30.000 --> 0:09:32.400 part of core inflation. We like to think of energy 0:09:32.440 --> 0:09:34.920 and the energy complex sitting outside of core, and we 0:09:35.080 --> 0:09:37.920 like to think that when oil prices go up, it's 0:09:37.960 --> 0:09:40.040 going to be temporary, in part because it is a 0:09:40.040 --> 0:09:43.000 supply side shock that drives these prices from time to time. 0:09:43.440 --> 0:09:47.120 I tend to fight against that view. And here's the reason. 0:09:47.600 --> 0:09:51.120 If you are a labor union and you're sitting in 0:09:51.120 --> 0:09:54.920 front of your employer and you're demanding higher wages. You're 0:09:54.920 --> 0:09:58.440 not going to say I don't eat food and I 0:09:58.440 --> 0:10:01.440 don't consume energy. You're going to say, I want my 0:10:01.559 --> 0:10:04.080 wage increase based on the basket that I consume in 0:10:04.120 --> 0:10:06.160 that basket very much. For the average work in the 0:10:06.240 --> 0:10:09.760 United States is energy intensive and is food intensive. So 0:10:10.520 --> 0:10:14.000 even though core may be a better reflection of underlying inflation, 0:10:14.559 --> 0:10:17.360 when headline goes up, you have to imagine that workers 0:10:17.400 --> 0:10:19.880 are going to pressure their employers for higher wages, and 0:10:19.920 --> 0:10:22.600 to the extent that wages cause inflation, that in itself 0:10:22.640 --> 0:10:23.400 becomes inflation. 0:10:23.600 --> 0:10:25.800 They in herited you. What you're hearing there, folks, this 0:10:25.840 --> 0:10:28.440 is critical the path here. There was a guy named 0:10:28.520 --> 0:10:32.800 Lawrence Kudlow million years ago before he was a ginormous 0:10:32.840 --> 0:10:36.439 TV star. I love busting Larry's jobs. And he held 0:10:36.559 --> 0:10:39.600 courted Bear Stearns and people threw apples and rocks at 0:10:39.679 --> 0:10:42.640 him because he was working in the nominal space. And 0:10:42.640 --> 0:10:47.920 then malpass In writing in Weissman, they were working in 0:10:47.920 --> 0:10:51.120 the nominal. They had respect for the nominal space besides 0:10:51.160 --> 0:10:54.679 a convenience and crutch of real Right now, do we 0:10:54.880 --> 0:10:59.439 under emphasize the nominal space and the persistency of a 0:10:59.520 --> 0:11:00.880 higher ne nominal GDP. 0:11:02.360 --> 0:11:05.400 No, I actually don't think we do to the extent 0:11:05.440 --> 0:11:09.240 that we are that the world central banks are inflation targeters, 0:11:09.240 --> 0:11:11.480 it implies that they are very much looking at the 0:11:11.520 --> 0:11:15.320 nominal space. Now, if nominal GDP were to rally a 0:11:15.400 --> 0:11:18.240 lot and real GDP were not to rally a lot, 0:11:18.440 --> 0:11:21.120 you'd effectively have what is called an inflation problem, presumably 0:11:21.160 --> 0:11:23.679 driven by a supply side shock. You could make a 0:11:23.679 --> 0:11:26.840 case that the central banks should not respond to a 0:11:26.880 --> 0:11:29.880 supply side driven increase in inflation to the same extent that 0:11:29.920 --> 0:11:33.920 they would a real demand positive demand shock increase that 0:11:33.920 --> 0:11:36.880 that causes inflation. But that's exactly the point that I 0:11:36.920 --> 0:11:39.880 was trying to contest earlier, And the reason is because 0:11:39.920 --> 0:11:43.320 inflation expectations matter. At least the conventional wisdom is that 0:11:43.320 --> 0:11:45.520 they do. Banks believe that they do. 0:11:45.679 --> 0:11:48.800 What does inflation expectations The synthesis of. 0:11:48.800 --> 0:11:51.480 That tell you right now that they're not high enough 0:11:51.520 --> 0:11:54.160 to cause panic at the FED. But there is this 0:11:54.280 --> 0:11:58.040 risk that if oil prices stay high indefinitely because of 0:11:58.080 --> 0:12:03.440 these issues regarding supply side chalks, the war, climate change, demography, 0:12:03.440 --> 0:12:06.680 et cetera, even deglobalization that they may at some point 0:12:06.800 --> 0:12:08.680 start to drift higher. 0:12:09.880 --> 0:12:12.480 I could be a currency trader. I'm just long the dollar. 0:12:12.600 --> 0:12:14.320 Give me a bare case for the dollar. I mean, 0:12:14.360 --> 0:12:15.480 I could do this for a living. 0:12:16.480 --> 0:12:20.280 So the bare case for the dollar, if there's a 0:12:20.320 --> 0:12:22.880 structural one, is that the dollar will no longer be 0:12:23.000 --> 0:12:25.880 at some point, and no one knows when the world's 0:12:25.960 --> 0:12:30.120 reserve currency. Now we are already seeing signs that this 0:12:30.280 --> 0:12:35.480 is manifest. We see, of course, we see China accumulating gold. Well, 0:12:35.480 --> 0:12:38.120 that's telling you that they may not like the dollar anymore. 0:12:38.160 --> 0:12:41.280 We certainly see the Russians moving away from dollar reserves. 0:12:41.280 --> 0:12:44.360 We've seen the Venezuelans do that. Now the bold case 0:12:44.400 --> 0:12:46.520 for the dollar as well. You can dismiss these countries 0:12:46.520 --> 0:12:49.199 because they're, you know, part of this I don't want 0:12:49.200 --> 0:12:51.320 to say access of evil obviously, but they're not on 0:12:51.400 --> 0:12:54.080 the same side of the fence as the US. But 0:12:54.240 --> 0:12:57.160 to the extent that we get a bipolarity in this world, 0:12:57.160 --> 0:13:00.120 that we really get a true a new Berlin Wall 0:13:00.160 --> 0:13:02.760 that goes up between the West and the rest, you 0:13:02.840 --> 0:13:04.720 have to imagine that that's going to be bad for 0:13:04.760 --> 0:13:07.440 the dollar, because the dollar has benefited in this era 0:13:07.559 --> 0:13:11.079 of globalization. Anything that tends to reduce the amount of 0:13:11.080 --> 0:13:13.440 globalization tends to be bad for the dollar. And that 0:13:13.520 --> 0:13:15.280 new Berlin Wall would be bad for the dollar. 0:13:15.360 --> 0:13:17.000 What are we gonna see in GDP here in a 0:13:17.000 --> 0:13:17.640 couple of days? 0:13:18.280 --> 0:13:19.560 Does a quarry of a view. 0:13:19.480 --> 0:13:22.720 On usgd Yeah, it's going to stay robust, does it? 0:13:23.000 --> 0:13:25.520 Do we have a pinpoint view on quarter ones? 0:13:25.600 --> 0:13:25.800 Yeah? 0:13:25.800 --> 0:13:28.120 On quarter one's results, I think we're at about two 0:13:28.160 --> 0:13:29.960 point five percent, if not my sake, in two point 0:13:29.960 --> 0:13:31.760 four two point five annualized robust. 0:13:31.880 --> 0:13:32.120 Yeah. 0:13:32.280 --> 0:13:34.520 Yeah, and that's very close to consensus. If you look 0:13:34.520 --> 0:13:36.480 at some of these GDP now estimates that come out 0:13:36.520 --> 0:13:38.400 of some of the reserve banks are fed, they're a 0:13:38.440 --> 0:13:39.160 little bit higher. 0:13:39.679 --> 0:13:39.880 Uh. 0:13:39.920 --> 0:13:41.680 And again if they are, if it is going to 0:13:41.679 --> 0:13:43.360 be strong, it's going to be driven by consumption. 0:13:43.760 --> 0:13:45.600 This is fab as Terry Weiss would thank you so 0:13:45.679 --> 0:13:48.880 much and congratulations on a really thought provoking note in 0:13:48.960 --> 0:13:54.119 your team. It's just blunt, folks, Wars lead to inflation. 0:13:59.280 --> 0:14:03.160 If you're seeing your consultant at Deloitte, yep, that gives 0:14:03.200 --> 0:14:05.920 you a twisted perspective. I mean, it's not like you know, 0:14:05.960 --> 0:14:09.040 complains a lot's CFA combine. It's not like you know, 0:14:09.720 --> 0:14:11.600 you know, you come out of King's College, you get 0:14:11.640 --> 0:14:16.199 some parchment modern history in Oxford that sets you up 0:14:16.240 --> 0:14:17.839 for this, the streaming wars. 0:14:17.840 --> 0:14:19.000 Why don't you bring in our. 0:14:18.920 --> 0:14:22.040 Next victim, I'll tell you. One of the top media 0:14:22.080 --> 0:14:24.600 analysts in the city of London, covering all the European 0:14:25.160 --> 0:14:28.280 media sector for many years as Ian Whittaker, Managing director 0:14:28.320 --> 0:14:31.840 and owner of Liberty Sky Advisors. He's based in London, 0:14:32.400 --> 0:14:34.360 joining us here in New York City doing a little 0:14:34.360 --> 0:14:36.480 tour here in the US. Ian, thanks so much for 0:14:36.560 --> 0:14:39.440 coming into our studio. We appreciate it. We have some 0:14:39.640 --> 0:14:43.720 really good numbers that blew Tom keenan I away from Netflix. 0:14:43.880 --> 0:14:48.480 I mean, is this streaming business? Netflix can certainly make 0:14:48.520 --> 0:14:50.600 a lot of money. How about the other media companies, 0:14:50.640 --> 0:14:54.560 the Disney's, the Paramounts, the Tom's favorite, Warner Brothers, Discovery. 0:14:55.280 --> 0:14:56.840 What's happening in the streaming business? 0:14:57.280 --> 0:15:00.880 So thanks very much too for having the Thanks very 0:15:00.960 --> 0:15:04.760 much Tom as well. I think if you look at streaming, 0:15:04.960 --> 0:15:06.680 if you look at long term view, it's absolutely right. 0:15:06.680 --> 0:15:10.040 Netflix is numbers on a Q one basis absolutely fantastic. 0:15:10.160 --> 0:15:13.000 Really hard to disagree where anything they did. 0:15:13.320 --> 0:15:15.160 I think if you actually look at. 0:15:15.040 --> 0:15:17.800 Sort of some of the underlying things sort of within 0:15:17.880 --> 0:15:19.520 there and some of the details and some of the 0:15:19.520 --> 0:15:22.520 things they didn't mention, big question marks. You take away, 0:15:22.600 --> 0:15:26.400 as been mentioned, information on subscriber growth in twenty twenty 0:15:26.400 --> 0:15:29.800 five Honors. What does that say games that had been 0:15:29.840 --> 0:15:33.000 talked about as a big strategy sort of for them 0:15:33.040 --> 0:15:36.200 to grow revenues. Nothing on the call whatsoever in terms 0:15:36.200 --> 0:15:38.640 of that, And the games games industry is quite tough 0:15:38.640 --> 0:15:39.080 at the moment. 0:15:39.520 --> 0:15:39.960 Sports. 0:15:40.120 --> 0:15:42.600 You listen to what they're saying at the moment, definitely 0:15:42.640 --> 0:15:45.160 sounds as though there is a shift in terms of 0:15:45.160 --> 0:15:47.160 their strategy in sports, but they're going to have to 0:15:47.160 --> 0:15:49.160 spend big ye if they're going to do this. So 0:15:49.520 --> 0:15:52.560 there's a range of different questions. I think the fundamental 0:15:52.560 --> 0:15:55.280 issue for the streaming business is this what the big 0:15:55.320 --> 0:15:59.120 media companies have done. I think they've be placed a 0:15:59.160 --> 0:16:02.120 model that we're extremely well with it for them for 0:16:02.160 --> 0:16:04.880 the number of years, and they sort of jumped into 0:16:04.920 --> 0:16:08.840 streaming into a business model that quite frankly is not 0:16:09.200 --> 0:16:12.560 sort of not great longer term, and I think we'll 0:16:12.600 --> 0:16:14.480 look back in probably five to ten years time. I 0:16:14.520 --> 0:16:16.640 would say, this'll be one of those business case studies 0:16:17.040 --> 0:16:20.000 where people would say, why didn't the major media companies, 0:16:20.000 --> 0:16:22.080 the business warns, et cetera, taken a little bit more 0:16:22.080 --> 0:16:25.440 time before they jumped on the streaming bandwagon, because if 0:16:25.480 --> 0:16:30.680 you look at it, streaming penetration is flatlining in many countries. Yeah, 0:16:30.920 --> 0:16:35.720 I think fundamental mistake that the streaming executives made, particularly 0:16:35.720 --> 0:16:38.040 big media companies, was to treat the rest of the 0:16:38.080 --> 0:16:40.280 world as though it was the US in terms of 0:16:40.320 --> 0:16:43.760 the same dynamics. Absolutely not the case whatsoever, even in 0:16:43.800 --> 0:16:46.360 the market like Curek, which is quite similar and so forth. 0:16:46.760 --> 0:16:48.040 And now you see all of them, what are they 0:16:48.080 --> 0:16:52.240 focusing on trying to reduce losses? Yep, Okay, well that's great, 0:16:52.280 --> 0:16:55.160 but that's not a growth strategy moving forward. So I 0:16:55.160 --> 0:16:58.520 think if I look on a longer term basis, sure 0:16:58.560 --> 0:17:03.400 there's a little bit of confidence for streaming, but longer term, 0:17:03.480 --> 0:17:05.680 I think it's the dynamics still difficult. 0:17:05.800 --> 0:17:08.520 So you look at a company like Paramount, for example, 0:17:08.560 --> 0:17:10.480 which back in the day you and I recall when 0:17:10.480 --> 0:17:14.119 Paramount was a slash Viacom slash CBS was a great company, 0:17:14.320 --> 0:17:18.440 was a blue chip media company. They can't give themselves 0:17:18.480 --> 0:17:22.320 away these days. I mean, what happens to a company 0:17:22.640 --> 0:17:25.840 like a paramount as they try to navigate to this 0:17:25.920 --> 0:17:27.280 streaming world. 0:17:27.680 --> 0:17:29.560 Well, I think again it sort of comes back to 0:17:29.600 --> 0:17:32.800 this point that for many of these companies, what they 0:17:32.800 --> 0:17:34.879 did was pushed in. What they didn't think about was 0:17:34.920 --> 0:17:37.840 what exactly was the long game here. The smartest one 0:17:37.920 --> 0:17:40.040 and this is not this is something that's been said 0:17:40.040 --> 0:17:42.919 by others as well, but the smartest sort of company 0:17:42.920 --> 0:17:45.639 on the entertainment space was solely because what I said was, 0:17:45.680 --> 0:17:47.679 you know what, we cannot compete in terms of being 0:17:47.680 --> 0:17:50.879 a mass market streaming player. It actually makes sense for 0:17:51.040 --> 0:17:53.160 us to sell our content to other players the arms 0:17:53.160 --> 0:17:55.880 dealer in that that has been used multiple times as well. 0:17:56.280 --> 0:17:58.639 You look at someone like a paramount, that's exactly what 0:17:58.680 --> 0:18:01.400 the strategy for somebody like a parent should be. Free 0:18:01.400 --> 0:18:02.320 cash flow generation. 0:18:03.000 --> 0:18:05.880 Great, So, well, sell the book, I get it, sell 0:18:05.920 --> 0:18:08.600 the catalog, I get it. But to me, there's a 0:18:08.640 --> 0:18:11.920 fundamental issue in the train wreck of Paul Sweeney's world, 0:18:12.280 --> 0:18:15.600 and that is the intangible assets and bad will and 0:18:15.640 --> 0:18:20.920 the balance sheets. These numbers are in my amateur opinion, jenormous. 0:18:21.520 --> 0:18:23.919 Is the shock that's coming that they're going to have 0:18:23.960 --> 0:18:25.680 to udjust intangibles down. 0:18:26.720 --> 0:18:26.960 Yeah. 0:18:27.119 --> 0:18:29.440 I mean that's a great question and the answer is 0:18:29.440 --> 0:18:32.000 probably yes. The point being, I think if you were 0:18:32.040 --> 0:18:35.760 to ask, if you to ask all these streaming executives, 0:18:35.960 --> 0:18:40.080 all the top CEOs of these companies that on this 0:18:40.240 --> 0:18:42.600 truth about where they think the streaming business would go, 0:18:43.400 --> 0:18:47.760 I think they fundamentally recognize that essentially the endgame is 0:18:47.800 --> 0:18:51.000 not looking good. The problem becomes for many of them 0:18:51.520 --> 0:18:54.600 in terms of a reputation. They've gone to the market 0:18:54.640 --> 0:18:57.239 and sold this sort of story for years, and I 0:18:57.240 --> 0:18:59.200 think many of them will find it very difficult to 0:18:59.240 --> 0:19:01.880 actually step out of that. That's going to be really 0:19:01.880 --> 0:19:04.320 the big issue. I think what will happen is that 0:19:04.400 --> 0:19:06.720 you'll get a continuation in the story, people saying, look, 0:19:06.720 --> 0:19:08.720 there's growth coming over the next three to five years. 0:19:09.720 --> 0:19:11.760 But at some point these pay he's going to have 0:19:11.760 --> 0:19:12.280 to buite the bubble. 0:19:12.440 --> 0:19:14.239 Are you Are you in New York on your way 0:19:14.280 --> 0:19:16.280 to LA to help close the paramount dealers? 0:19:17.200 --> 0:19:20.520 I make some news to that. I'm always available for quit. 0:19:20.520 --> 0:19:22.240 I have to go that talk to us about the 0:19:22.240 --> 0:19:24.320 global advertising business. I think you have a lot of 0:19:24.359 --> 0:19:27.920 experience with the big ad agencies in London in New York. 0:19:27.960 --> 0:19:31.760