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Speaker 2: Our focus shifts now to the latest development when it
Speaker 2: comes to Russia's invasion of Ukraine. The two countries wrapped
Speaker 2: up a second round of talks, these happening in Istanbul,
Speaker 2: but they failed to bring the two sides closer to
Speaker 2: ending the war. They laid the groundwork for a new
Speaker 2: exchange of prisoners. However, the Russian delegation handed over peace
Speaker 2: proposals that include Kiev surrendering control of territory it still
Speaker 2: holds in four partially occupied regions. This according to a
Speaker 2: Ukrainian official. We did also hear from the Ukrainian Defense
Speaker 2: Minister who said that Key demanded an unconditional truce for more.
Speaker 2: We bring in doctor angelas Stent. She's senior fellow at
Speaker 2: the Brookings Institution. She's also former National Intelligence Officer for
Speaker 2: Russia and Your Asia at the National Intelligence Council. She
Speaker 2: also served in the Office of Policy and Planning at
Speaker 2: the US Department of State, and she's author of the
Speaker 2: book that came out in twenty nineteen. It's called Putin's World,
Speaker 2: Russia against the West and with the Rush. She joins
Speaker 2: us from Washington, DC, Doctor Stent, good to see you.
Speaker 2: It's been about a month since we last connected. I
Speaker 2: do want to start with peace negotiations, but before that
Speaker 2: kind of get to the context of what happened over
Speaker 2: the weekend, the drone attack, so called Operations Spiderweb. Russia
Speaker 2: and Ukraine are each saying different things about what exactly happened,
Speaker 2: the damage, what was destroyed. Zelenski did say that about
Speaker 2: a third of the strategic cruise missile carriers at airfields
Speaker 2: were hit. How does this complicate negotiations, Well.
Speaker 3: I think you may remember that President Trump told the
Speaker 3: President Zelensky at that unfortunate meeting in the Oval Office
Speaker 3: that Ukraine quote unquote had no cards. I think this
Speaker 3: was really an amazing operation. It had been planned for
Speaker 3: one and a half years, we heard from the President Zelenski,
Speaker 3: and it shows that Ukraine does have some cards. It
Speaker 3: was capable of destroying these Russian strategic bombers that were
Speaker 3: being used to hail bombs on civilian and targets and
Speaker 3: infrastructure in Ukraine. And these, by the way, are old
Speaker 3: Soviet era planes and they can't be replaced, so it'll
Speaker 3: take Russia some time to rebuild to acquire some more
Speaker 3: of these strategic bombers. It doesn't necessarily change the course
Speaker 3: of the whole war, but it certainly shows that Ukraine
Speaker 3: can fight back, that it's very good at this kind
Speaker 3: of advanced warfare, using the drones and trucks if you're
Speaker 3: like the Trojan trucks as they've been called, and really
Speaker 3: apparently taking the Russians and everyone else by surprise. But
Speaker 3: as you said, you know today's talks, they exchange agreed
Speaker 3: to exchange more prisoners, which is very important. But there's
Speaker 3: been absolutely no more progress made on approaching a ceasefire,
Speaker 3: any kind of an end to the fighting than that was,
Speaker 3: you know, when President Trump first took office.
Speaker 4: I want to get to that ceasefire, but just briefly,
Speaker 4: were there are there. I'm wondering if there's geopolitical implications
Speaker 4: of this attack beyond just how it affects Russia's war
Speaker 4: with Ukraine, but how this could potentially affect Russia's relationships
Speaker 4: with other countries.
Speaker 3: Well, it has major implications for warfare in general. Some
Speaker 3: people are now saying that what Ukrainian really did was
Speaker 3: to help NATO, because it makes it less likely at
Speaker 3: least that in the immediate future, Russia would be able
Speaker 3: to attack a DATO member. But it has implications even
Speaker 3: for the United States. I mean, if you can now
Speaker 3: destroy planes and other military hardware through the use of
Speaker 3: drones like that, people are going to have to rethink
Speaker 3: where they position things and how they conduct warfare. So
Speaker 3: it potentially has major implications really for the way that
Speaker 3: countries fight wars in the twenty first century.
Speaker 2: But this was a difficult thing for Ukraine to pull off.
Speaker 2: I mean, some of the reporting around it indicates that
Speaker 2: this was over a year in planning processes. They were
Speaker 2: able to get drones into the country and then have
Speaker 2: them take off simultaneously to attack different strategic assets of
Speaker 2: the country. This is not an easy thing to do,
Speaker 2: doctor sten.
Speaker 3: No, no, no, I mean it took a lot of
Speaker 3: meticulous planning. Obviously, the Ukrainians had people inside Russia who
Speaker 3: helped with this. President Zelenski last night and his address
Speaker 3: said that some of these people were located very close
Speaker 3: to a major headquarters for the Russian domestic intelligence services.
Speaker 3: But it just shows you that this is a war
Speaker 3: that partly resembles World War One and trench warfare, but
Speaker 3: it is also a very high tech, twenty first century,
Speaker 3: cutting edge type of warfare, of which we will see
Speaker 3: more in the future.
Speaker 4: So where does this leave us now? Because the two
Speaker 4: nations spoke today, but it doesn't seem like they're any
Speaker 4: closer to making progress towards a ceasefire.
Speaker 3: No they are not. I mean Vadimia Putin is not
Speaker 3: interested in a ceasefire at the moment. Russia has been
Speaker 3: taking incrementally more territory in the past few months. It's
Speaker 3: also sustained very high numbers of casualties as it takes
Speaker 3: this territory. But he is, I think determined to continue
Speaker 3: with this war. Most people believe it's going to go
Speaker 3: on at least for this year, if not into next year.
Speaker 3: But the negotiations will continue because Putin has understood that
Speaker 3: if Russia doesn't take part in negotiations, than the prospects
Speaker 3: for improving US Russian relations, which President Trumpet promised him
Speaker 3: go down significantly. So I think we'll see. I know
Speaker 3: they've already said they're going to have another negotiation, not
Speaker 3: in a not too distant future. They may continue to
Speaker 3: talk about these humanitarian issues again, very important issues, the
Speaker 3: exchange of prisoners, particularly disabled ones. But that doesn't mean
Speaker 3: that the fighting is going to stop anytime soon.
Speaker 2: Doctor Stam, We're getting a question from some folks who
Speaker 2: are watching listening right now, want your view on over
Speaker 2: three years in on your four of this war, when
Speaker 2: many thought it would last a couple of weeks, what
Speaker 2: you view as the original cause of this war.
Speaker 3: The original cause of this war is that Vladimir Putin
Speaker 3: has never accepted the collapse of the Soviet Union. He
Speaker 3: has never accepted that Ukrainians are a separate people, that
Speaker 3: they should have a separate country. He believes that they
Speaker 3: should be part of Russia. He wrote that explicitly in
Speaker 3: a July twenty twenty one five thousand word essay that
Speaker 3: he penned about Ukraine. So the root cause of the
Speaker 3: war is that the Russia believes and the Putin believes,
Speaker 3: that it should control Ukraine and that Ukraine shouldn't have
Speaker 3: any choice in moving westward, in joining Western institutions. So
Speaker 3: that's the original cause of the war. A lot of
Speaker 3: the discussion we hear about NATO enlargement causing it, that's
Speaker 3: not the cause of the war. I mean, the reason
Speaker 3: that Putin didn't like NATO, didn't want NATO to enlarge
Speaker 3: is because if Ukraine had been a member of NATO
Speaker 3: and Russia had attacked Ukraine, then it would have been
Speaker 3: involved potentially in a large scale, possibly nuclear war with NATO.
Speaker 3: So that's not NATO is not the root cause of
Speaker 3: the war. It's Putin's desire and the desire of many
Speaker 3: people around him to reconquer Ukraine.
Speaker 2: Doctor Sten, you know, we started the interview by you
Speaker 2: saying that this drone strike over the weekend was proof
Speaker 2: that Ukraine does indeed have the cards. Do they have
Speaker 2: the cards to force Russia to negotiate in a way
Speaker 2: that does not include actually giving up part of its
Speaker 2: Ukraine's owned territory.
Speaker 3: So I would say they do not have those cards.
Speaker 3: I think what they had the cards is to make
Speaker 3: Russia understand that it's going to be more difficult as
Speaker 3: the fight goes on. But I think the only way
Speaker 3: to get the Russians to negotiate more seriously would be
Speaker 3: two things. One, there is a fairly robust sanctions bill
Speaker 3: that eighty one senators bipartisan in the Senate support, and
Speaker 3: that Senators Graham and Bloomothal who were just in Kiev,
Speaker 3: said that they would possibly pass this week. Hasn't happened yet,
Speaker 3: we'll see, but they would be Those would be very
Speaker 3: punishing sanctions on Russia. And it would be for the
Speaker 3: Trump administration to resume supplying Ukraine with the weapons and
Speaker 3: the financial assistance it needs to continue fighting Russia in
Speaker 3: such a way that Putin might have to understand that
Speaker 3: his maximum demands cannot be met and that he would
Speaker 3: be willing to make some compromises in the demands that
Speaker 3: the Russians are making.
Speaker 4: Just thirty seconds, but what's your current thinking on how
Speaker 4: the war ends.
Speaker 3: Eventually, it will end in a negotiation, and there will
Speaker 3: be a negotiation clearly where both sides will have to
Speaker 3: compromise and both sides will have to move back from
Speaker 3: their maximum demands. But I think neither side is at
Speaker 3: the situation yet where they're willing to make those compromises.
Speaker 2: Doctor stan always appreciate you taking the time in joining
Speaker 2: us here on a Bloomberg Business Weekdaily. Doctor Angela Stent,
Speaker 2: Senior Fellow at the Brookings Institution, also the author of
Speaker 2: the twenty nineteen book Putin's World, Russia.
Speaker 5: Against the West and with the Rest.
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Speaker 2: President Donald Trump and Chinese President Shiji Ping are likely
Speaker 2: to speak this week, the White House said, as the
Speaker 2: world's two largest economies remain locked in trade at turmoil.
Speaker 2: From where we bring in Jennifer Welch, Bloomberg Economics Chief
Speaker 2: geoeconomics analyst.
Speaker 5: She joins us from Washington.
Speaker 2: Jennifer, I just want to start with the lay of
Speaker 2: the land right now, because we're a little over a
Speaker 2: month away from the end of this ninety day pause
Speaker 2: that the President had laid out for every country that
Speaker 2: it's negotiating with around the world. What is the average
Speaker 2: tariff rate that we should keep in mind for goods
Speaker 2: that are coming from China into the US right now.
Speaker 7: Well, the moment, the US effective terif rate on China
Speaker 7: is closer to forty percent with the ninety day pause
Speaker 7: on the higher reciprocal tariffs that came into play after
Speaker 7: April second, after the tip for tap between Washington and Beijing.
Speaker 7: But as the calls lead up has indicated, those wheels
Speaker 7: are starting to fall off of that truth and we
Speaker 7: might see tensions come to a boil well before that
Speaker 7: ninety day period is to end. And I think the
Speaker 7: threatening there is whether or not terror rates are going
Speaker 7: to go back up again once that ninety day truth ends,
Speaker 7: will there be an extension of it to allow for
Speaker 7: a larger deal on trade. At the moment, the lines
Speaker 7: are pointing pretty negative.
Speaker 2: You know, I was sitting in the studio with Tom
Speaker 2: Kane doing Bloomberg surveillance a couple of weeks ago, and
Speaker 2: in one single day we spoke to two analysts and
Speaker 2: this was before this was before the ninety day truce.
Speaker 2: We spoke to two analysts who told us that within
Speaker 2: weeks we were going to see empty shelves here in
Speaker 2: the US. It doesn't seem like that has materialized. Yes,
Speaker 2: there's been a pause at this point. Are you based
Speaker 2: on the research that you see the folks that you
Speaker 2: talk to, are you seeing that still a concern given
Speaker 2: that so much of what we buy in the US
Speaker 2: comes from China.
Speaker 7: I think the ninety day pause allowed for companies that
Speaker 7: had already been surging orders in advance of Liberation Day,
Speaker 7: anticipating that terrorists were going to go up, allows them
Speaker 7: to continue to make orders and through at least this
Speaker 7: ninety day period. So it has bought some space, and
Speaker 7: it has bought some time. They are facing higher prices,
Speaker 7: but they are not facing the kinds of exorbitant prices
Speaker 7: at one hundred and forty five percent teriffreight that we
Speaker 7: were in mad to late April that would have made
Speaker 7: many of those orders cost prohibitive. So I think it
Speaker 7: has bought some space, and that's why we haven't seen
Speaker 7: empty shells. We may still see price pikes though, because
Speaker 7: that's thirty eight percent effective terriff. That's a high rate,
Speaker 7: higher certainly than where we were before a second. But
Speaker 7: I think it has avoided some of the shortages that
Speaker 7: we're concerned about before this truce was reached in Geneva.
Speaker 4: I'm wondering if in your observations these you know maybe
Speaker 4: some cracks in the trade truce beginning to show how
Speaker 4: much of that is just a normal part of a
Speaker 4: negotiation between two of the world's largest economies.
Speaker 7: I think given the experience of the first years China
Speaker 7: trade war at this point in time, I would say
Speaker 7: history suggest that this isn't surprising. In that trade war,
Speaker 7: we saw multiple what I would call potential off MPs
Speaker 7: where both parties had the opportunity to take a step
Speaker 7: down from trade tension, that were either bypassed or only
Speaker 7: lasted a temporary period of time. And we also saw
Speaker 7: multiple rounds of escalation and tit for tat even when
Speaker 7: it seemed likely that the two parties are maybe reaching
Speaker 7: an agreement of stories. Ultimately, it took two years from
Speaker 7: the initiation of tariffs to the conclusion of the deal
Speaker 7: in the form of the Phase one deal and that
Speaker 7: trade war for terrorists to come down, and even then
Speaker 7: the Phase one deal didn't last very long before attension
Speaker 7: starts to psych again. I think that helps explain the
Speaker 7: backdround for today's trade talks, where there's deep levels of
Speaker 7: distrust on both sides. Both sides, as you're applying, are
Speaker 7: still looking to gain leverage even though they've agreed to
Speaker 7: this truce, and that's probably part of the reason Beijing
Speaker 7: has been slow to peel back these expert controls on
Speaker 7: rare earth and other critical minerals of the US has
Speaker 7: complained about. That's leverage that Beijing wants to continue to
Speaker 7: retain in addition to the administrative challenges appealing back expert controls,
Speaker 7: and on the US side, there are a number of
Speaker 7: stats in the United States wants to take as part
Speaker 7: of its competition with China outside the trade domain. And
Speaker 7: from Washington's perspective, a trade truth doesn't mean that a
Speaker 7: degree to pause all of that. But from Beijing's perspective,
Speaker 7: I'm not going to agree to something in the trade
Speaker 7: arena when you're hitting me on expert controls or on
Speaker 7: student pieces. At the same time.
Speaker 4: House White House Press Secretary Caroline Lovett told reporters today
Speaker 4: that I'm just going to quote it. I can confirm
Speaker 4: that the two leaders will likely talk this week. Of course,
Speaker 4: referring to Trump and Chinese President Jiji and paying this
Speaker 4: would be the first time since they spoke, correct since
Speaker 4: Trump took office. What would this mean.
Speaker 7: It would be the first time that we know of
Speaker 7: they've spoken since he took office. President Trump has indicated
Speaker 7: that they spoke at some other point in time, but
Speaker 7: he hasn't provided specifics of it, and there was never
Speaker 7: a readout from it, so we don't really know if
Speaker 7: that call ever happened. I think it's highly unlikely that Beijing,
Speaker 7: in this atmosphere would agree to a leader level call.
Speaker 7: From Beijing's perspective, that's just incredibly risky. They don't want
Speaker 7: to put President Being in a position where he could
Speaker 7: be embarrassed or surprised in the way that some other
Speaker 7: foreign leaders in meeting or talking with Trump happened. Their
Speaker 7: preferred mo is for the leaders to meet and to
Speaker 7: talk once they have something to announce, which usually requires
Speaker 7: more progress thant working levels. Obviously, that flies in the
Speaker 7: face of President Trump's preferred approach, where he likes to
Speaker 7: work things out with his counterparts, and that often is
Speaker 7: a faster path to resolving differences. And so if a
Speaker 7: phone call happens this week, I think that is a
Speaker 7: good thing for trade negotiations. That probably will help restart
Speaker 7: momentum or at least clear the error in a way
Speaker 7: in which these tensions are kind of boiling on the
Speaker 7: back burner, But I think a call is unlikely, and
Speaker 7: what that means is that tensions could continue to boil
Speaker 7: because they're only being addressed really at lower levels, and
Speaker 7: it would take a higher level engagement to put them
Speaker 7: to rest or at least to put them into the
Speaker 7: background to the point where they're not interfering with talks further.
Speaker 7: So my anticipation is, despite what the White House Press
Speaker 7: Secretary saide, I'd be very surprised if a phone called,
Speaker 7: did it happen, And I'd be, as a result, very
Speaker 7: surprised if we had a quick resolution to this current
Speaker 7: period of tividual first of decision kind of containing the
Speaker 7: left things boil and works them out.
Speaker 8: At the lower levels.
Speaker 2: Hey, Jennifer, we're going to try to fix your mic
Speaker 2: a little bit. But Emily, one thing that I wanted
Speaker 2: to talk about with Jennifer we've got a couple minutes left,
Speaker 2: hoping we can fix the connection is who has leverage
Speaker 2: in this negotiation. I mean, China has the rare earth
Speaker 2: capacity for refining these rare earth elements. We've talked about
Speaker 2: that with Jodo quite a bit, and Gracelyn Baskren over
Speaker 2: at the Centerer for Strategic and international studies. They also
Speaker 2: have the stuff that we want to buy as consumers,
Speaker 2: but we have the consumers, Jennifer, I want to go
Speaker 2: back to you and bring you back in here. Who
Speaker 2: has the leverage when it comes to this negotiation.
Speaker 7: So in a sense, both sides have leverage. Obviously from
Speaker 7: the US perspective, they are China's single largest market in
Speaker 7: the world, and there are very limited options for Beijing
Speaker 7: to shift those goods to other locations. At the same time,
Speaker 7: manufacturing is increasingly a very important part of the Chinese economy.
Speaker 7: It has been for decades, but especially in light of
Speaker 7: their property bubble and some of the other challenges that
Speaker 7: they have had with consumer sentiment. At this moment in time,
Speaker 7: with their other economic weaknesses, manufacturing becomes an even more
Speaker 7: important part of China's growth hopes. On the other hand,
Speaker 7: for the US, the weakness is really in terms of
Speaker 7: consumer dependence on Chinese goods that there aren't a lot
Speaker 7: of alternative options or it is certainly not within US
Speaker 7: consumers price preferences, and so both sides are going to
Speaker 7: face incredible pain here if terrists resume. Higher levels for
Speaker 7: China will be in the form of dropped exports, as
Speaker 7: a result, the impact it's likely to have on factories,
Speaker 7: and in course of that and impact on jobs. On
Speaker 7: the US side, it's going to be in terms of
Speaker 7: much higher prices for US consumers, to the point where
Speaker 7: some goods might not be available and there aren't ready
Speaker 7: alternatives for those goods. So both sides certainly have an
Speaker 7: incentive to avoid a return to higher attentions here. But
Speaker 7: at the same time, the depth and deep persistence of
Speaker 7: these trade tensions against the backdrop of distress makes avoiding
Speaker 7: that outcome a real challenge.
Speaker 2: Jennifer Welch, Bloomberg Economics Chief geoeconomics analyst, joining us this
Speaker 2: afternoon from Washington.
Speaker 8: I'll bet you let me drive. Oh no, no, no, no,
Speaker 8: this is not a toy, honey, please hovels. I want
Speaker 8: to try it.
Speaker 1: It's a good question, good tribes, this is the drive
Speaker 1: to the clothes.
Speaker 8: Punk's amusing well, Trier run to dawn.
Speaker 5: On Bloomberg Radio, and look at that.
Speaker 2: We're just about nineteen minutes from the close of equity trading,
Speaker 2: as we just heard from Jordan Fitzgerald, about three tens
Speaker 2: of one percent. But a strong day for tech right now.
Speaker 2: The NASDAC Hire by six tens of one percent.
Speaker 5: The Dow is flat.
Speaker 2: Let's bring in Allan Zaffern. He's co founder and managing
Speaker 2: partner at i EQ Capital about thirty six point eight
Speaker 2: billion dollars in assets under management. He joins us once
Speaker 2: again from Foster City, California. Good to have you back
Speaker 2: on the program. We haven't spoken since Wow, just after
Speaker 2: the tariff pause, so mid April twenty or no, yeah,
Speaker 2: just after the tariff pause, I should say, Allen, it's
Speaker 2: been quite a while since we've last spoken with you.
Speaker 2: Good to have you with us this afternoon. That's exactly
Speaker 2: where I want to start, because we're gonna get to
Speaker 2: the FED in a minute. We're going to get to
Speaker 2: sort of acid allocation. Now, maybe it's different than a
Speaker 2: few months ago, but with regard to US trade negotiations,
Speaker 2: in your view, how do you thinks stand right now?
Speaker 8: Well, first of all, Tim and anially, thanks for having
Speaker 8: me on the show. Look, it's unclear. Right on the
Speaker 8: one hand, our administration is talking to China and arguing
Speaker 8: that they're going to delay the imposition of some of
Speaker 8: these terrorists. But then the next thing you hear is
Speaker 8: there's again conversations about maybe it's not going to be
Speaker 8: so easy. So the last we heard is President Trump
Speaker 8: will talk with the head of China later this week,
Speaker 8: and the intention is to get the conversations back on track.
Speaker 8: If you have the two largest economies in the globe
Speaker 8: not acting well with one another, clearly that's a negative globally.
Speaker 8: And so I think on a short term basis, where
Speaker 8: this market is headed. Stock market is measuring the ability
Speaker 8: of our administration to get its way to some degree
Speaker 8: with some imposition to terifts while not being too problematic
Speaker 8: or hurtful to other countries administrations, so that we can
Speaker 8: work out face saving agreements on both sides of the
Speaker 8: oceans or both sides of the country. So that's that's
Speaker 8: the game. Are we going to find some middle ground
Speaker 8: that enables the US to argue it's one in the
Speaker 8: imposition of some tariffs for the benefit of protecting our
Speaker 8: domestic industries, but to the same token in a way
Speaker 8: such that other countries administrations can have face saving agreements
Speaker 8: on behalf of their own cities. That's the game to
Speaker 8: play right now in terms of tariffs.
Speaker 4: I saw a note this morning. I'm blanking on who
Speaker 4: who wrote it, but the analyst was mentioning how it
Speaker 4: seems like markets aren't reacting as strongly on Monday mornings
Speaker 4: when we get news over the weekend about US China relations,
Speaker 4: which we did get this weekend. It's not like we
Speaker 4: saw a massive drop coming in Monday morning. What do
Speaker 4: you make of that? Are are investors getting tired of
Speaker 4: all of the headlines about tariffs and the trade war?
Speaker 4: Are or are there actually real developments here that kind
Speaker 4: of signal meaningful progress that could be good for the
Speaker 4: equity market.
Speaker 8: I think it's a little of both. First of all,
Speaker 8: I actually think there's a tremendous amount of cash still
Speaker 8: on the sidelines, which just goes all the way back
Speaker 8: to the stimulus that was created as an effort to
Speaker 8: fight COVID.
Speaker 5: You you still think there's still cash on the sideway sidelines?
Speaker 9: Yeah?
Speaker 3: I do, I do.
Speaker 5: Who's got it?
Speaker 4: There's like a record in money market Yes, right, I.
Speaker 5: Know there's it did money market funds.
Speaker 2: But I'm thinking it more of like like who has
Speaker 2: who still has you know, thousand dollars or whatever we
Speaker 2: got from PPP or from those emergency COVID funds.
Speaker 8: Well, that's a whole nother conversation. We could get into.
Speaker 8: But I think the most affluent portions of the US
Speaker 8: citizenry have significant well which has only grown since COVID,
Speaker 8: and they have ample amounts of cash to put to
Speaker 8: work on dips. That's why I think he keeps seeing
Speaker 8: the buy the dip mentality on top of that, As
Speaker 8: to your question, Emily, on top of that, I think
Speaker 8: what you're seeing is people are coming to a conclusion
Speaker 8: that the current US administration is it only has a
Speaker 8: tolerance for so much pain in the markets before it's
Speaker 8: going to revert back to a more amenimal set of
Speaker 8: tariffs that the global economies can tolerate. In a world
Speaker 8: in which we have ten percent on average tariffs imposed
Speaker 8: by the US not ideal, but it's a global economy
Speaker 8: that can still grow, if even at a slightly lower
Speaker 8: rate than it would have otherwise. That's dramatically different than
Speaker 8: a world with thirty percent tariffs, which puts probably US
Speaker 8: into a global recession.
Speaker 7: So I think.
Speaker 8: Investors have concluded the administration is teasing out the middle
Speaker 8: ground and therefore is not reacting to the day to
Speaker 8: day headlines as to fifty percent tariffs on steel or
Speaker 8: whatever product or service of the week that they're going
Speaker 8: to talk about. I think the investors are more discerning
Speaker 8: and realizing it's probably not going to be as bad
Speaker 8: as it was feared when we had our dramatic drop
Speaker 8: in early April.
Speaker 2: Allan, when do we start to see those those actual
Speaker 2: tariffs make their way into actual prices that we're paying
Speaker 2: for stuff.
Speaker 8: You're actually starting to see it a bit because producers
Speaker 8: are in service providers already anticipating some of that, but
Speaker 8: we haven't seen the bulk of that yet.
Speaker 2: And in fact, is that just because we're making our
Speaker 2: way through inventory, Like you know, we heard from the
Speaker 2: retailers earlier this week or earlier that last month, I
Speaker 2: should say in this most recent earnings round that they're
Speaker 2: still working through inventory that they had pre tariffs.
Speaker 5: Is that why?
Speaker 8: That's a large part of it?
Speaker 5: Okay.
Speaker 8: The other issue concerned though, is imagine a world in
Speaker 8: which everyone's holding off on offering the products out of
Speaker 8: a concern if and when and how the terriffs show up.
Speaker 8: So there's also a bit of front running right where
Speaker 8: products are going out the door as quickly as possible
Speaker 8: in avoidance of the tariff being imposed on that. So
Speaker 8: when you may see some dramatic step step shifts up
Speaker 8: in prices if in fact TIFFs become legislated into law.
Speaker 8: So there it depends on the product and service from
Speaker 8: the country.
Speaker 5: What do you think is most at risk?
Speaker 8: Well, I think most at risk are really where we're
Speaker 8: trying to protect, are a creator of a fair playing field.
Speaker 8: So it's anything from importation of energy services too oddly
Speaker 8: enough things at risk like the notion that maybe foreigners
Speaker 8: are going to get taxed on investments in the US.
Speaker 8: That's an easy one to impose on foreigners. It doesn't
Speaker 8: hurt us, so you're going to see the reverse, and
Speaker 8: then we don't know how to predict if other countries
Speaker 8: will impose those costs back on US investors to non
Speaker 8: US investments. That might be the next step we haven't
Speaker 8: seen yet.
Speaker 2: Hey, I want to shift cares a little bit before
Speaker 2: we go. Just get your word on what you're seeing
Speaker 2: with alternatives right now. Private credit and private equity. Venture
Speaker 2: capital certainly is a relatively large portion of the way
Speaker 2: you invest the money that you manage. What's the opportunity
Speaker 2: there right now and how has it changed in the
Speaker 2: recent months.
Speaker 8: As really it's to private credit, we have not seen
Speaker 8: a lot so. Interestingly enough, despite concerns about economic slowdowns,
Speaker 8: let alone recession fears, we're seeing little if any evidence
Speaker 8: that there's any degradation or decline, and the ability of
Speaker 8: private companies to pay their debts, meaning private credit, in
Speaker 8: our mind, still is a highly attractive asset class, yielding
Speaker 8: much higher annual income streams than what you can buy
Speaker 8: from the public bond markets. In the privates arena secondary investments,
Speaker 8: when you're the buyer of someone else's illiquid investment, we
Speaker 8: think you're going to see more and more of it
Speaker 8: for two reasons. Most recently, there's news that a lot
Speaker 8: of the universities are finding themselves having too much ill liquidity,
Speaker 8: finding a need to raise cash for potential will increase
Speaker 8: in tax rates on their returns on their investments, and
Speaker 8: so they're coming to the markets with portfolios of investments
Speaker 8: that secondary en buyers, the second investors can buy at
Speaker 8: a discount.
Speaker 5: Okay, that's we're seeing a lot more of that.
Speaker 8: We're probably going to see it.
Speaker 2: Alan zaffrin Ieq Capital, thanks for joining us.
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Speaker 2: Shares of Stars sored twenty seven percent on a Friday,
Speaker 2: this after the company set it out at five hundred
Speaker 2: and thirty thousand streaming subscribers in the US during the
Speaker 2: fiscal fourth quarter. The company is now a standalone entity.
Speaker 2: It separated from Lionsgate Studios and began trading independently last month.
Speaker 2: It's got a market cap now just north of three
Speaker 2: hundred million dollars. Today, it gives back some of those
Speaker 2: gains from Friday chars following as much as fourteen percent,
Speaker 2: down nine point four percent as we speak. We're joined
Speaker 2: here in the Bloomberg Business Week studio by Jeffrey Here.
Speaker 2: She's president and CEO of Stars. Jeffrey, good to see you,
Speaker 2: Welcome investors, welcomed the streaming additions in the fourth quarter.
Speaker 2: You increase total subscribers in the US by close to
Speaker 2: two percent. You attributed that to the premiere of the
Speaker 2: fourth season of Raising Canaan. What's in the product pipeline
Speaker 2: right now, the content pipeline that will continue with the growth.
Speaker 9: Well, thanks for having me. It's good to be here
Speaker 9: this afternoon. We have a great slate in twenty five.
Speaker 9: You know, we're coming off a strike effected year where
Speaker 9: we only had three big tempole shows and so that
Speaker 9: created a little kind of gaps in our content. And
Speaker 9: so what you see as we roll into twenty five
Speaker 9: is we've got five big shows coming. We have BMF
Speaker 9: which premieeres this weekend, which is a fifty cent show,
Speaker 9: one of our biggest shows. So we're excited about that
Speaker 9: premiere this weekend. We rolled that into Outlander prequel called
Speaker 9: Bood of My Blood, which I think the fans will
Speaker 9: really like.
Speaker 2: This is why Carol is going to be so mad
Speaker 2: she's not here today. She's like, the biggest Outlander fan
Speaker 2: are out Yeah, that's okay, this tell her.
Speaker 10: We'll tell her the prequels.
Speaker 9: You know, twenty years prior to the first season of Outlander.
Speaker 9: It's back in Scotland. It's Clan Lauren. It's two romance stories,
Speaker 9: so it's how each of the leads of Outlander's parents
Speaker 9: met and fell in love. So one of the stories
Speaker 9: of Romeo and Juliette story rival Clans Forbidden Love. The
Speaker 9: other is a World War one you know, with a
Speaker 9: gentleman on the front and a woman reading the letters,
Speaker 9: and it's a phenomenal tale.
Speaker 10: There aren't any.
Speaker 9: Books, and so the fan base it's all new to them,
Speaker 9: and so I think it's gonna be a really great show.
Speaker 9: We come back with a fan favorite from twelve years
Speaker 9: of called and Spartacus, which is going to be you know,
Speaker 9: I was talking to a producer on the way down here.
Speaker 9: He's because it's coming back. I'm like this fall and
Speaker 9: so that's gonna be and the Stephen D. Knight's doing that,
Speaker 9: it's gonna be as good as, if not better than
Speaker 9: the original. We come back with Force, which is one
Speaker 9: of our power spin offs, and then back into Canaan,
Speaker 9: so real strong ear of content. We wrap that with
Speaker 9: you know, big movies from Lionsgate like Ballerina, and then
Speaker 9: Universal has a couple of movies coming off Penheimer. So
Speaker 9: it's really great portfolio of content coming this.
Speaker 10: You were pretty excited.
Speaker 4: Talk about your target demographic because it's it's not every
Speaker 4: single person that wants to watch TV, right.
Speaker 9: Yeah, Look, we're really trying to be complementary to all
Speaker 9: the broad Bay streamers. We've in twenty sixteen when we
Speaker 9: launched our app. What we saw from the data, and
Speaker 9: it was the first time we really got data Honor subscribers,
Speaker 9: it was that women was driving our business and so
Speaker 9: we leaned in significantly into that. And so our content
Speaker 9: is really only focused on women and underrepresented audiences, and
Speaker 9: not only on screen, but in the director's chair, in
Speaker 9: the writer's room, all the way through the office. Seventy
Speaker 9: percent of my direct reports of women in eighty percent
Speaker 9: of women of color. And so it's really a network
Speaker 9: for buying about women and underrepresented audience is run by
Speaker 9: women and underrepresented audiences.
Speaker 2: So you see yourself trying to broaden out the content
Speaker 2: to bring in more people, or I make it a
Speaker 2: bigger tent, or is this the niche you want to
Speaker 2: focus on.
Speaker 5: Look, it's not.
Speaker 2: I'm not saying it's a niche. It's a huge target market.
Speaker 2: But like Emily said, the other streamers want to have everything.
Speaker 9: Yeah, Look, they want to be all things that everybody
Speaker 9: and they're competing with themselves, and we really are focused on,
Speaker 9: like I said, women are underrepresented audience. We think that
Speaker 9: TAM and the US is about eighty million households. We're
Speaker 9: sitting at twenty million households today, So we think there's
Speaker 9: a lot of room to go. And if women in
Speaker 9: is a niche, which are forty nine point six percent
Speaker 9: of the planet small, then I'm happy to have everybody
Speaker 9: else focus everywhere else and let us do what we're doing.
Speaker 9: So we'll continue to be complementary. We'll continue to really
Speaker 9: be the destination of content, our rated adult scripted content
Speaker 9: for women, and so we feel good about that.
Speaker 4: So you don't have ads right now on the streaming
Speaker 4: correct platform, how do you grow revenue then if you
Speaker 4: don't have ads, So.
Speaker 9: I think there's really three ways we can go revenue,
Speaker 9: and we'll think we'll grow revenue one to three percent
Speaker 9: over in you know, in the next short term period.
Speaker 9: Want to subscriber growth. Like I said, we've got a
Speaker 9: lot of tam still out there today. You saw that
Speaker 9: in the first quarter we were the base one point
Speaker 9: eight percent in the US, and so we think there's
Speaker 9: a lot of opportunity and as these broadbay streamers continue
Speaker 9: to compete, it'll look a lot like the old world
Speaker 9: where you have stars sold as an add on or
Speaker 9: buy this service and get stars included. So we think
Speaker 9: there's a real opportunity for us to kind of replicate
Speaker 9: that unique position we had in the traditional world on
Speaker 9: in the new digital world we are today.
Speaker 5: So you're saying, look out for bundles.
Speaker 10: Lookout for bunchs.
Speaker 8: Do you have any Now?
Speaker 9: We are the most bundled service in the space today.
Speaker 9: We have five bundles. We are about to launch another
Speaker 9: one this week. In the first quarter, we had a
Speaker 9: be Et Stars bundle on Amazon. We had an HBO
Speaker 9: Max Stars Bundle on Amazon. We've actually bundled BritBox into
Speaker 9: The Stars app was the first one we've bundled into ourselves.
Speaker 9: So where we are, we are set up to bundle
Speaker 9: with almost everyone.
Speaker 5: What's a bundle you're working on? I can't tell you
Speaker 5: that today, but in your but describe it.
Speaker 2: For us, Like in an ideal world, these are these
Speaker 2: you know, we went through a few years, about a
Speaker 2: decade ago, where the major telecom companies were bundling this stuff.
Speaker 2: If you subscribe to AT and tier Verizon, you get
Speaker 2: you know, X or Y for free. That was that
Speaker 2: was unique in the context of Okay, you're paying for
Speaker 2: a cell phone plan, you're getting content for free.
Speaker 5: What world do you want to see?
Speaker 9: I think the nice thing about bundles I think everybody
Speaker 9: looks at it and says, well, for the consumer, they
Speaker 9: get a discount and the companies get stickier. What really
Speaker 9: makes the bundle unique and special for the companies is
Speaker 9: you're lining at your content slates together. So for example,
Speaker 9: last quarter with HBO Max, the White Lotus launched in February.
Speaker 9: They didn't have a big show launch in March, but
Speaker 9: we had raising Canaan launch in March.
Speaker 10: So when you put those.
Speaker 9: Together, you have two big premiers working with each other
Speaker 9: to continue to drive subscribeer acquisition. So when we look
Speaker 9: at the landscape that's out there today, we look at
Speaker 9: content that's either complementary or you know, folks that are
Speaker 9: servicing the other side of the household that we're not.
Speaker 9: And if you can put our service with their service
Speaker 9: and complete the loop for the household, it's a really
Speaker 9: compelling bundle for consumers.
Speaker 4: Tim mentioned this is your relatively new as a public company.
Speaker 4: It's been not even a month right from separating from
Speaker 4: Lionsgate Studios. Talk a little bit more about just how
Speaker 4: that split is going to help Stars now.
Speaker 9: You know, I think the board three years ago looked
Speaker 9: at the combined company and said investors like a simplicity
Speaker 9: and story, and the fact that you had a studio
Speaker 9: and a network together wasn't then simple, and it was
Speaker 9: hard to figure out where to put your investment dollars.
Speaker 9: I think investors like to invest in content or distribution
Speaker 9: and not kind.
Speaker 10: Of a hybrid.
Speaker 9: And if they are going to put it in a hybrid,
Speaker 9: such a small cap company, the point you put money
Speaker 9: into Comcast or NBC Universal as a higher Disney as
Speaker 9: a hybrid there and so rightly so made the decision
Speaker 9: to put the two companies to put value back on
Speaker 9: each of the companies. I think you've seen that in
Speaker 9: the stock performance on both Line and Stars over the last.
Speaker 10: Couple of weeks.
Speaker 9: But ultimately allows us to focus on what we do best,
Speaker 9: which is really put great content on the air, own
Speaker 9: our own content, and drive our subscriber base to ultimately
Speaker 9: drive profit and return money. We've got a fifteen percent
Speaker 9: margin today. When we get into a steady state in
Speaker 9: twenty six, we'll convert seventy percent of that to un
Speaker 9: lever free cash flow. So profitable business generating a lot
Speaker 9: of cash for investors, and we think it's a very
Speaker 9: investable business.
Speaker 5: Go ahead.
Speaker 4: I'm curious when you say own your own content, what
Speaker 4: does it actually mean in practice that it's only on
Speaker 4: your platform and you would never sell it to others?
Speaker 4: Do you own the production supply chain as well?
Speaker 7: How does that work?
Speaker 9: So today everything that we have on Stars is exclusive
Speaker 9: to Stars for a period of time. It's a window
Speaker 9: that when you like Lin's Outlander from Sony, you get
Speaker 9: an exclusive window where they can't sell it to somebody
Speaker 9: else domestically against you because we're only us in Canada,
Speaker 9: but your license, you're renting that content for a period
Speaker 9: of time. When you have ownership economics, not only can
Speaker 9: you control costs better because you're actually in their daily
Speaker 9: making it controlling the cost.
Speaker 10: But you create other revenue streams.
Speaker 9: So for today, I don't if Outlander gets to be
Speaker 9: sold internationally, that money gets to Sony. If I own
Speaker 9: then the show, I can actually put revenue streams on
Speaker 9: international sales and second window domestically, or I can net
Speaker 9: the cost down so it allows us as we turn
Speaker 9: the slate over and get to half the slate in
Speaker 9: twenty seven, being Stars owned, we can start to drive
Speaker 9: margin for the business, which ultimately should be multiple expansion.
Speaker 2: You're coming to this business or you're at the helm
Speaker 2: of this as an independent business at a time when
Speaker 2: cord cutting is just absolutely rampant right now. I mean
Speaker 2: when just a few years ago this was for you,
Speaker 2: it was a one hundred percent PayTV supported business, That's
Speaker 2: what Stars was was. Now seventy percent of the revenue
Speaker 2: comes from You're still exposed to cord cutting headwinds for
Speaker 2: about thirty percent of the company.
Speaker 5: How do you combat that?
Speaker 2: Like, how do you make up for the cord cutting
Speaker 2: revenue that you will inevitably lose with streaming?
Speaker 10: So two things.
Speaker 9: One, I still think there's a lot of opportunity for
Speaker 9: us on the linear side because remember we're not a
Speaker 9: fully distributed ad supported network, and so there's still opportunity
Speaker 9: for us trying to grow the business. And as you
Speaker 9: see with DirecTV, with skinning your bundles and Charter now
Speaker 9: leaning back into video, I still think there's an opportunity
Speaker 9: for us to play in the bundle world on the
Speaker 9: linear side to drive growth for the business. There eighty
Speaker 9: percent of all of our customers, whether they're on digital,
Speaker 9: linear or a la carte or revshare, which means two things. One,
Speaker 9: we're making money for our partners, but two people chose
Speaker 9: Stars because they wanted the content, and so the content
Speaker 9: has to work. And so at the end of the day,
Speaker 9: as long as the content continues to outperform and be
Speaker 9: some of the biggest shows on television, will grow the
Speaker 9: business on both sides.
Speaker 2: Emily mentioned that you don't have advertising. There were years
Speaker 2: when I was covering Netflix when they were saying, we're
Speaker 2: never going to do advertising. We're never going to do advertising.
Speaker 2: And look what they're doing now, they're doing advertise. Are
Speaker 2: you ever going to do advertising?
Speaker 9: I don't think we're going to ever do advertising with
Speaker 9: the Stars content. It's you know, we don't have a
Speaker 9: lot of content. We have about ten originals so called
Speaker 9: one hundred hours of content. It's called six hundred minutes
Speaker 9: of advertising. It's very our rated, it's very adult. So
Speaker 9: it cuts a lot of the advertisers that won't advertise
Speaker 9: on our service. But I do think, you know, we
Speaker 9: build our own app, we have our own data stacked,
Speaker 9: is very scalable, and that gives us the opportunity to
Speaker 9: actually help other linear networks that are marooned on the
Speaker 9: linear side, that don't have a digital future, and actually
Speaker 9: use some commercial deals where we could actually take the
Speaker 9: linear feed, turn it into digital, launch it next to
Speaker 9: the Stars app, and have an advertising supported business next
Speaker 9: to our subscription business and take some of the economics
Speaker 9: on behalf of our partners.
Speaker 2: So essentially, what you're saying is you could have maybe
Speaker 2: a less expensive consumer version that is ad supported in
Speaker 2: certain areas.
Speaker 5: When when would that be?
Speaker 10: You know, right now we're like we said, we're three
Speaker 10: or four weeks. It's about separation.
Speaker 9: Right now, we're really focused on set of making sure
Speaker 9: we're setting up the business, talking to investors, making sure
Speaker 9: everybody understands the growth story.
Speaker 10: And I think eventually the two to dot zero will
Speaker 10: come pretty soon.
Speaker 7: Cool.
Speaker 4: Do you feel in this environment that you have pricing
Speaker 4: power because this is a space where consumers there's so
Speaker 4: many options for what you get for your streaming.
Speaker 3: I know some people it's like.
Speaker 4: I already have Max, I already have Netflix, and I
Speaker 4: have Hulu. There's just a lot of choice and a
Speaker 4: lot of times people judge on price.
Speaker 9: Yeah, so you know, as a complimentary service, we've always
Speaker 9: wanted to be prices significantly below the broad bay streamer.
Speaker 9: So you know, Netflix without ads is twenty four dollars.
Speaker 9: I think Hulus around eighteen or nineteen, we're at eleven.
Speaker 9: So as long as they keep continuing to raise that price,
Speaker 9: it gives us the ability to raise underneath it. Because
Speaker 9: in the consumer's mind, anything that is you know that much,
Speaker 9: it has that much gap. People see that as a
Speaker 9: complementary decision versus the competitive decision. So we always want
Speaker 9: to be significantly below the broad based streamer. So I
Speaker 9: do think we'll have some pricing power. We've done two
Speaker 9: rat increases over the last two years. I think that's
Speaker 9: something will take a pause on for a while and
Speaker 9: get back to just pure subscriber growth for a way
Speaker 9: to grow, but we reserve the right to do some increases.
Speaker 10: In the future.
Speaker 2: Emily raises the question about pricing power when it comes
Speaker 2: to consumers. What about the pricing power that you have
Speaker 2: to compete with the huge companies such as Amazon, Netflix,
Speaker 2: Max and the likes. When you're out there bidding up content,
Speaker 2: how do you compete?
Speaker 10: So it's interesting.
Speaker 9: I think we have a specific mission, you know, we
Speaker 9: really focus on women and underrepresented audiences, and we were
Speaker 9: just out in a very competitive bid for a book
Speaker 9: called All Fours, which has really taken America by storm,
Speaker 9: and the forty something women in America.
Speaker 10: And when we went out and met with Mirandos.
Speaker 9: July, who's the author, because we are so are rated,
Speaker 9: we are adult, we allow the author and the writers
Speaker 9: to go where they naturally, authentically would go, versus pulling
Speaker 9: stuff back for her the only destination to really put
Speaker 9: her book to bring it to life on TV as
Speaker 9: authentically as she wanted to do with Stars. And so
Speaker 9: we are able to win that competitive bid because of
Speaker 9: the mission that we have and I think you see
Speaker 9: that not only in content, but when we hire folks.
Speaker 9: People come to Stars because they understand that we have
Speaker 9: a point of view and we have a mission, and
Speaker 9: they want to be a part of that. And so
Speaker 9: it's been very helpful having a specific lane and really
Speaker 9: kind of leaning into that in a way that is
Speaker 9: very deep and authentic.
Speaker 5: Jeffrey Hirsh, thanks for joining us, for having me.
Speaker 2: Yeah, goodness to you, everybody, President and CEO of Stars
Speaker 2: joining us here in the Bloomberg BusinessWeek Studio.
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