Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust and independent registered investment advisors to the two
Speaker 1: and four trillion dollars. Why learn more and find your
Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course, on the Bloomberg. David Gurry here with Tom
Speaker 1: Keene on Bloomberg Surveillant's Good morning, everybody. It's a Thursday,
Speaker 1: October and a lot of news, suffice to say this morning,
Speaker 1: let's tick through some of it. Twitter expected to release
Speaker 1: third quarter earnings this morning at seven o'clock. Wall Street
Speaker 1: Time will bring you those numbers as they crossed the
Speaker 1: Bloomberg and I want to bring in Paul Sweeney. He's
Speaker 1: the head of North American research at Bloomberg Intelligence. Paul,
Speaker 1: A lot to talk about here, but give us what
Speaker 1: you're gonna be keeping an eye on here when the
Speaker 1: numbers cross. Well, I think for Twitter it's um just
Speaker 1: a question of is there any evidence whatsoever that Jack
Speaker 1: Dorsey has been able to find the secret sauce that
Speaker 1: will try to reinvigorate the user growth at the company,
Speaker 1: which could give investors some lifeline to kind of hang
Speaker 1: on too, to see about whether there will be any
Speaker 1: kind of revenue growth in the future for this company. Really,
Speaker 1: over the last uh several quarters, we haven't seen any
Speaker 1: evidence that they've been able to find a product fixed,
Speaker 1: a technology fix, a marketing fix that can reignite user
Speaker 1: growth there. And so the really question is if they
Speaker 1: can't do that, what does the company do? It just
Speaker 1: went through a round of m and a speculation and
Speaker 1: a lot of the potential buyers walked away. So investors
Speaker 1: are really left with, you know, what what do I
Speaker 1: do with this name? All right? Those numbers crossing the
Speaker 1: Bloomberg now looking at third quarter revenues six and sixteen
Speaker 1: million dollars, third quarter adjusted earnings preciere thirteen since the
Speaker 1: estimate was nine cents, and an announcement here the Twitter
Speaker 1: is cutting up to nine percent of jobs. Will continue
Speaker 1: to go through those those numbers series. There's one statistic here,
Speaker 1: David that just sticks out. In fall Sweeney advertising revenue,
Speaker 1: an increase of six percent year over year is Twitter
Speaker 1: and industrial company. I was gonna say that kind of
Speaker 1: sounds like a radio company or a TV company. Uh,
Speaker 1: you know we're used to seeing you know, you think
Speaker 1: about it. Uh, Internet advertising in general is growing about fifteen.
Speaker 1: Advertising on social media is growing upwards of thirty and
Speaker 1: so you see numbers coming out across Facebook and Snapchat
Speaker 1: just put out some more numbers in terms of and
Speaker 1: they're putting up some huge numbers. So when you see
Speaker 1: a six percent number out of Twitter, that just really
Speaker 1: tells the story. What is that? What's been the fallout
Speaker 1: from Twitter putting itself up on the block and having
Speaker 1: all the suitors walk away here, What's what's the what's
Speaker 1: the company's next step in light of that happening. Yeah,
Speaker 1: that was extraordinarily disappointing for them. I mean they actually
Speaker 1: kind of engaged in the process a little bit. They
Speaker 1: hired some advisors. Uh, they put out a little bit
Speaker 1: of a process out there, so a number of players
Speaker 1: were able to look at it. So it's clearly from
Speaker 1: their perspective disappointing that that no one really stepped up
Speaker 1: here is interesting. When salesforce dot Com was reported to
Speaker 1: be the leading bidder, Their stocked sank dramatically, and a
Speaker 1: lot of their very big investors went right to the
Speaker 1: CEO and said, this is not a transaction. We want
Speaker 1: you to do up six right now and very early
Speaker 1: trading post. There's a sentence in here which goes to
Speaker 1: your decades of experience. In light of the reorganization of
Speaker 1: the company's salesforce, the company is not providing specific revenue
Speaker 1: guidance for the fourth quarter and for the full year
Speaker 1: two thousand and sixteen. How does the sell side guy
Speaker 1: do his job if he's not getting top of line guidance. Well,
Speaker 1: they have to go back and do some roll up
Speaker 1: to sleeves and try to figure out what's going on here.
Speaker 1: And I suspect that you're gonna see estimates come down
Speaker 1: on the street. Typically analysts will take the most conservative
Speaker 1: view they can. UM, and you know so and again
Speaker 1: it's it's it's not so much about the numbers for
Speaker 1: this company. Almost at this point, UM, I think the
Speaker 1: next you know question for investors and and and for
Speaker 1: management is there is there a price, any price, that
Speaker 1: you will sell this company. And I think when the
Speaker 1: initial round of M and A speculation came around the
Speaker 1: stock was much higher level UM and you know, you
Speaker 1: could have been a twenty billion dollar price tag to
Speaker 1: get this company. Uh. Now the stock is down around
Speaker 1: twelve billion dollars in terms of equity valuation UM and
Speaker 1: so I think at some point there may be a
Speaker 1: buyer here, simply because there aren't that many social media
Speaker 1: platforms out there that are up and running, uh and
Speaker 1: that have the impact that Twitter does in fact have
Speaker 1: in the marketplace. So I think it's some price this
Speaker 1: will be of interest to either tech buyer like a
Speaker 1: Google or you know, some somebody else. Color for us,
Speaker 1: the hype and hyperbole with you and your team measure
Speaker 1: every day with the fact that this company makes twenty
Speaker 1: eight cents in the dollar adjusted EBITDAL margin off of
Speaker 1: gap revenue to be somewhere in the vicinity of a
Speaker 1: lot of our listeners are going, wait a minute, these
Speaker 1: guys are coining money. Amazon isn't. Why is Twitter dog
Speaker 1: of dogs? It's uh yeah, simply, Uh, this is a
Speaker 1: tech company. And if you're a tech investor, uh, you're
Speaker 1: looking for top line growth. It's as simple as that.
Speaker 1: And and most tech investors feel like we can grow
Speaker 1: our way into profitability. What we're looking for, and what
Speaker 1: we're paying for is unit growth um and it's top
Speaker 1: line revenue growth and so and you know, uh, Twitter
Speaker 1: had this coming out of the I P O and
Speaker 1: we saw the stock trade. Well, Facebook still has it,
Speaker 1: Google still has it, Amazon still has it. But this
Speaker 1: is a name that's kind of run out of steam.
Speaker 1: Qualit Calm. Money's cheap. I think if I add eighty
Speaker 1: billion in fifty billion, I get over a tenth of
Speaker 1: a trillion dollars just two big mergers. I mean, it's
Speaker 1: just chasing the low interest rates. The money's here, let's go.
Speaker 1: Let's go to your end, isn't it. Yeah. I think
Speaker 1: you know this qual Calm deal, the A T and
Speaker 1: T Time Warner deal. It's interesting here. I think these
Speaker 1: are real transactions. These are strategic transactions. Uh you know,
Speaker 1: in the case of a T and T really recognizing
Speaker 1: that they need to put a content uh pipe into
Speaker 1: their distribution system. And I think in a case for Qualcom,
Speaker 1: they're looking for distribution away from the phone market. So
Speaker 1: these are strategic driven trip transactions. But you're right, they're
Speaker 1: absolutely fueled in very large part by the low cost
Speaker 1: of capital. In the case of a T and t
Speaker 1: half of that transaction will be funded by debt. And
Speaker 1: you know, it's just amazing that JP Morgan and Bank
Speaker 1: of American Maryland stepped up with a forty billion dollar
Speaker 1: bridge alone, the biggest to be done in the marketplace.
Speaker 1: UH So they feel very confident that they can refinance
Speaker 1: that money on that. That's you know, the bridge loans
Speaker 1: carry very big fees because they are the banks are
Speaker 1: assuming a lot of market risk, so they will get
Speaker 1: paid on on the fees on the bridgeland. Plus you
Speaker 1: know they will be part of the uh the group
Speaker 1: that will underwrite the bonds that will put in more
Speaker 1: permanent financing to take out. In the old days, it
Speaker 1: was a six percent business, So you made six percent
Speaker 1: on onether and six percent of forty gazillions a lot
Speaker 1: of money. It's not six, but it's still do they
Speaker 1: make a stick in the parlance, do they make I'm
Speaker 1: not sure exactly what fees are gonna get here, but
Speaker 1: these are very profitable instruments for the banks. When they
Speaker 1: step up and put capital, they absolutely will get paid for,
Speaker 1: particularly now that they have to put so much capital
Speaker 1: side on their bouncy from a regulatory perspective, So they
Speaker 1: will certainly price their capital accordingly. And these are still
Speaker 1: very uh attractive deals for the banks, but because they
Speaker 1: are assuming a lot of risk here in case of
Speaker 1: JP Morgan to be of a but you know they
Speaker 1: will also make fees on the back end by doing
Speaker 1: coming to the bond market and taking out this this bridge.
Speaker 1: So well, not a whole lot of room here for
Speaker 1: consolidation in the social media space, as you say, the
Speaker 1: same thing holds truing the semiconductor space and that right, yeah,
Speaker 1: I think so. Um you know on Entrini of Austin,
Speaker 1: who cover semis for US, has been extraordinarily busier the
Speaker 1: past couple of years has just been a tremendous amount
Speaker 1: of consolidation in that space. Um So, you know, again
Speaker 1: a lot of strategic driven tran transactions here. It's not
Speaker 1: just because of cheap money. Um So when when you
Speaker 1: when you start to see the private equity players come
Speaker 1: into the marketplace, that's when you know that these are
Speaker 1: more financially driven deals versus strategic. Real quick here snap
Speaker 1: announcing it's going public yesterday, the parent company of Snapchat.
Speaker 1: Why now, and what do you make the numbers? Yeah,
Speaker 1: it's the numbers over that we're seeing. Uh, you know,
Speaker 1: there's not a lot of public numbers out on Snapchat,
Speaker 1: but what we've seen are just some extraordinary growth rates
Speaker 1: in terms of, you know, the kind of the metrics
Speaker 1: that investors are used to seeing from these social sites. Uh,
Speaker 1: user growth, daily user growth, mobile user growth, and then
Speaker 1: top line advertising. So the valuations that Bloomberg News reported
Speaker 1: yesterday of thirty five billion dollars huge valuations because their
Speaker 1: last private round, I think about six months ago value
Speaker 1: the company at eighteen billion dollars. So again the valuation
Speaker 1: numbers in Silicon Valley, if you still are putting up
Speaker 1: the top line growth, you can get the valuation. You're
Speaker 1: working a strange we do. Mr Graham and Mr Dodd
Speaker 1: and Mr Coddle wouldn't know this world. Yeah, they they
Speaker 1: don't think they were aware of, you know, kind of
Speaker 1: the capital that would be a massed at in Silicon
Speaker 1: Valley searching for the next big They wouldn't be snapping
Speaker 1: Mr Rubens starting over to Carlisle Group looking for another raise.
Speaker 1: Here as they say, Paul Sweeney, thank you so much.
Speaker 1: Just brilliant here with Twitter, David Gurroud's a great deal
Speaker 1: of seth masters with us, would they be alligned spur
Speaker 1: Instein uh in the in the idea that we've been
Speaker 1: talking about yields and yield dynamics into two thousand seventeen,
Speaker 1: and it's an interesting linkage of everything we talked about
Speaker 1: in economics and over into foreign exchange and over almost
Speaker 1: into our politics as well. Absolutely seth looking at your
Speaker 1: most recent note ALIGNE stood out to me. You said,
Speaker 1: you've got to have only the bond exposure you need
Speaker 1: nothing more easier said than done. That's a pretty difficult
Speaker 1: thing to figure out, it really is, and of course
Speaker 1: it very much depends on exactly what your objectives might be.
Speaker 1: I think the problem is in the past, it wasn't
Speaker 1: such a sensitive variable. You could afford to take a
Speaker 1: little bit more exposure and things that were safe, especially
Speaker 1: in bonds, and still get a reasonable yield and not
Speaker 1: have to worry a lot about risk. But today having
Speaker 1: too much in bonds can be a big risk for people,
Speaker 1: both because the yields are so low you're not getting
Speaker 1: a lot there, and because with interest race likely to
Speaker 1: rise over the next several years, you have price risk too.
Speaker 1: Looking at these super long term bonds, fifty year bonds
Speaker 1: in Italy hundred your bonds in Spain. What do you
Speaker 1: make of that? Is that trend going to to continue? Well,
Speaker 1: I think those issuers are selling those bonds now because
Speaker 1: they can, and from their perspective it's rational. The question
Speaker 1: is the buyers and why are they doing this. I
Speaker 1: think in some cases their institutions that are trying to
Speaker 1: lock in a long term mas set to match a
Speaker 1: long term liability, or at least that's what their their
Speaker 1: intention is. The risk of this creates for everybody else
Speaker 1: is that those issues go into the indices. And now
Speaker 1: if you're if you buy a bondy TF, you're getting
Speaker 1: a decent amount of exposure to very very long duration.
Speaker 1: The duration of all of the bonding disease has been
Speaker 1: creeping up over the last few years, especially outside of
Speaker 1: the US, but here in the US two at a
Speaker 1: time when we would say it actually makes sense to
Speaker 1: be on the shorter side a little bit of the
Speaker 1: duration spectrum. So we think that this is a great
Speaker 1: an example of why you don't necessarily, as an investor,
Speaker 1: necessarily benefit just from being passive just looking at the
Speaker 1: bond space overall. Going into the ECB meeting last week,
Speaker 1: there was a lot of talk of bond scarcity. How's
Speaker 1: that playing out in your world? I think that the
Speaker 1: fact that there is bond scarcity in some parts of
Speaker 1: the world where central banks are buying up, literally vacuuming
Speaker 1: up almost everything that there is, especially the Eurozone and
Speaker 1: uh in Japan, that that's one of the reasons why
Speaker 1: yields have remained so incredibly low. There are also, I
Speaker 1: think some investors who are still much more worried about
Speaker 1: deflation risk than inflation risk. But when the sentiment changes,
Speaker 1: I think that we will start to see a shift
Speaker 1: in the investor behavior. And we know that many of
Speaker 1: the central banks are now trying to figure out how
Speaker 1: to extract extricate themselves from this posture. And it's interesting,
Speaker 1: your south is not only the great bull market and
Speaker 1: bonds price up, yield down in the extraordinary years of
Speaker 1: ONA and in twelve, and certainly this year looks to
Speaker 1: be the same. You look at where bonds are turning
Speaker 1: just looking at one major bund index from the Lehman bottom,
Speaker 1: or you look at the Bloomberg Barclays Global Aggregate Index,
Speaker 1: you know, the old Lehman index. I mean, most people
Speaker 1: don't realize the bullmarket in bonds is equivalent or superior
Speaker 1: to the bullmarket inequities. Right. Well, the the total it turns,
Speaker 1: of course to aren't as high as the bullmark in equities,
Speaker 1: but then again you wouldn't expect that. But you're absolutely
Speaker 1: right in terms of it's how unusual it is. Um
Speaker 1: it is extremely unusual, and it's been going on for
Speaker 1: a very long time. It's been if you really think
Speaker 1: about it, it's been about a thirty five year bull market,
Speaker 1: and it's mathematically impossible for it to continue. Because okay,
Speaker 1: what is your advice to an institutional portfolio forget about
Speaker 1: a retail clients and our retail listeners who are in
Speaker 1: financial repression. What do the pros do? Do they buy
Speaker 1: dividend paying stocks prefers? Well, I think that they that's
Speaker 1: what they have been doing, and that's a trap because
Speaker 1: here's the problem. If you buy a stock because it
Speaker 1: has yield, that means you're buying a bond like stock
Speaker 1: that tends to have more inflation interest rate sensitivity than
Speaker 1: the average stock. And I totally understand why people might
Speaker 1: do that because the yield on stocks today is higher
Speaker 1: than the yield on most bonds, and there are many
Speaker 1: stocks that have yields that are in the four four
Speaker 1: and a half percent range. But the problem you will
Speaker 1: have is when in fact interest rates begin to move up,
Speaker 1: those are the stocks that will be most at risk.
Speaker 1: And here's the way to think about that. Um. In general,
Speaker 1: stocks have to be sensitive to interest rates because the
Speaker 1: interest rate is essentially the way you discount future cash
Speaker 1: flows from any investment. So in the case of a
Speaker 1: stock that is mostly trading on its earnings and how
Speaker 1: much you value those earnings, that effect is significant, but
Speaker 1: not determinative. If a stock is trading on its yield, though,
Speaker 1: how much of those are paid out, then it's all
Speaker 1: about what that interest rate is. And if the interstrate
Speaker 1: was even a slight it up, many of these yielding
Speaker 1: box will get crushed. Seth, thank you so much, Seth.
Speaker 1: Maisters who maybe this morning greatly greatly appreciated Who you
Speaker 1: put your trust in matters. Investors have put their trust
Speaker 1: in independent registered investment advisors to the two and of
Speaker 1: four trillion dollars. Why they see their roles to serve,
Speaker 1: not sell. That's why Charles Schwab is committed to the
Speaker 1: success over seven thousand independent financial advisors who passionately dedicate
Speaker 1: themselves to helping people achieve their financial goals. Learn more
Speaker 1: and find your independent advisor dot com. David Bring in
Speaker 1: Iron Jersey. He helps us out pretty much every six
Speaker 1: weeks or so with our FED showing interest rate that's
Speaker 1: coming up. By the way, we should say, there's a
Speaker 1: meeting on the horizon, right, Yeah, they haven't. I don't go.
Speaker 1: They won't let me go to the there's a meeting,
Speaker 1: but Bloomberg doesn't let me go to the meeting meetings
Speaker 1: to get ready for the show. Just keep the spontaneity up. Anyways,
Speaker 1: I Jerseys here, here's a portfolio manager at Oppenheimer Funds.
Speaker 1: As you say, we talked to him a lot about
Speaker 1: US treasuries. He's going to talk about Brazil a little
Speaker 1: bit to them. Excited to hear your thoughts on on
Speaker 1: that as well. Actually, let's let's start there. Let's look
Speaker 1: look at emerging markets. And we've had a change of
Speaker 1: power here. We have an interim president Michelle Timmerson. He's
Speaker 1: not going to run in two thousand and eighteen. Uh,
Speaker 1: there's been the political crisis. They say that now they
Speaker 1: say that. Now I was gonna say, we'll see what
Speaker 1: happens there. But he's made a lot of promises about
Speaker 1: cleaning things up, and there's a lot of cleaning up
Speaker 1: to do. Are you optimistic that that's going to happen
Speaker 1: down in Brazilian? Yeah, we are. Um. You know, one
Speaker 1: of the things that that we look at when we
Speaker 1: look at the politics of the situation is what's the
Speaker 1: likelihood that you're going to have a friendlier congress where
Speaker 1: they're going to be able to get their fiscal house
Speaker 1: in order. Um. There is there is some optim is
Speaker 1: hum that that that's going to happen. Some of the
Speaker 1: promises that were made might be a little bit of
Speaker 1: a stretch, but if they can get most of the
Speaker 1: way there, then that's very positive for them. Um. And
Speaker 1: And you know, from a bond market's perspective, it's things
Speaker 1: like what's going on with inflation. Inflation is coming down there,
Speaker 1: what's going on with bond issue once? Will they be
Speaker 1: able to actually hit their fiscal targets? We think they'll
Speaker 1: come close. Um. So, so all of those things make
Speaker 1: the environment for buying bonds that are still trading at
Speaker 1: double digits UM pretty pretty attractive. Now. It's not for
Speaker 1: the faint of heart, you don't want to you know,
Speaker 1: jump in with both feet, UM. So you need to
Speaker 1: manage risks and and make it part of a larger
Speaker 1: portfolio UM, which is uh, you know, diversified um broadly speaking.
Speaker 1: But but we do like Brazil and we do think
Speaker 1: that uh, you know, we're overweight in both our emerging
Speaker 1: markets local debt fund and our and our international bond funds. Well,
Speaker 1: let's return to the interimness of this presidency. As an investor,
Speaker 1: does that make things easier or harder? If this guy
Speaker 1: is able to right the ship knowing that he's gonna
Speaker 1: be out in two thousand eighteen, doesn't that interes do
Speaker 1: some some new uncertainty? Yeah, it does because you don't
Speaker 1: know necessarily who's going to be the next who's gonna
Speaker 1: be the next leader. There's no air apparent necessarily, so
Speaker 1: so we watch those things. But you know, it is
Speaker 1: it is the elections two years away, so we're still
Speaker 1: looking for at least a little bit of stability in
Speaker 1: the interim. And like I said before, you know, you
Speaker 1: never know, if all of a sudden he becomes very popular,
Speaker 1: there is the possibility that there could be a um,
Speaker 1: you know, that we could know, at least one candidate
Speaker 1: who might run for run for office, and and quite frankly,
Speaker 1: it's you know, will we see stability in places like Congress?
Speaker 1: Is corruption over in Brazil? You know, it's it's hard
Speaker 1: to know that without being in the inner workings. But
Speaker 1: but at least there are some positives. You know. One
Speaker 1: of the things that we've always liked about Brazil is
Speaker 1: that the governmental institutions continue to be a positive and
Speaker 1: they continue to operate the way you're supposed to. I mean,
Speaker 1: you don't have a president, you know, the the Justice
Speaker 1: Department um going after a sitting president with weak institutions.
Speaker 1: So because they're strong institutions, we think that Brazil is
Speaker 1: likely to get through this in decent order. You mentioned inflation.
Speaker 1: What else are central bank policymakers wrestling with in Brazil
Speaker 1: right now? Well, well, both growth and inflation. You know,
Speaker 1: one of the one of the issues that they had
Speaker 1: for a while, and one of the reasons why they
Speaker 1: had been hiking interest rates was to try and fight
Speaker 1: inflation and get inflation down and to try and make
Speaker 1: sure that the real which really their currency, the Brazilian real,
Speaker 1: was the kind of the big stabilizer and really was
Speaker 1: the instrument that was hard hardest hit by the politics
Speaker 1: of Brazil. Um, you know now that you have a
Speaker 1: situation where the politics is over now the central bank
Speaker 1: and focus more on growth and inflation. Inflation is coming down.
Speaker 1: Inflation was double digits, it's likely to be you know,
Speaker 1: highest single digits now. But um, but that means that
Speaker 1: you've already had one rate cut and you're likely to
Speaker 1: get more and that should bring interest rates lower. How
Speaker 1: do you and this is so great with your experience
Speaker 1: a credit suite. See now you're over with a good
Speaker 1: international people at Oppenheimer Funds. How does an investor know
Speaker 1: that his manager is managing the currency risk? If you
Speaker 1: look at the Brazilian equity markets, it's stunning the difference
Speaker 1: if you're in Brazil real or in US dollars. Yeah, so,
Speaker 1: so you know that's that's a choice and a preference. Um.
Speaker 1: You know there are um, some investors who fully hedge
Speaker 1: their portfolio as other investors who don't. UM. In our
Speaker 1: in our international bond fund, we actively manage our currency exposure.
Speaker 1: So UM, we say, okay, what is the dollar cycle?
Speaker 1: So we first look, okay, what's the dollar broadly doing?
Speaker 1: And then if we think that the dollar is going
Speaker 1: to be appreciating against most currencies as it as it
Speaker 1: quite frankly has for the last couple of years, um,
Speaker 1: then we say, okay, well, which currencies are likely to
Speaker 1: do the best and worst? Because one of the things
Speaker 1: about currencies in particular is that it's a relative game. Uh.
Speaker 1: You know, you can say, oh, the dollar is gonna
Speaker 1: do great, but then you know, I'm you know, this
Speaker 1: might be that one currency out there that actually does
Speaker 1: better than against the dollar. So so you need to
Speaker 1: make sure that you do your homework, that you look
Speaker 1: at every country, You look at all of the crosses,
Speaker 1: you look at you know how, um, not only is
Speaker 1: is the U S faring, but how are the our
Speaker 1: counterparties faring? Um? So you know, how is Europe doing
Speaker 1: visa vi the US? You know, And and with currencies,
Speaker 1: a big theme had been for a long time this
Speaker 1: policy divergence idea where the FED would be hiking and
Speaker 1: the Bank of Japan and a lot of other central
Speaker 1: banks would be easy monetary policy. And and that's kind
Speaker 1: of fallen a little bit by the wayside, which is
Speaker 1: the reason why you've seen some stability actually and currency
Speaker 1: markets for for the last six months or so after
Speaker 1: after the dollar was very weak in the first quarter,
Speaker 1: there was so much exuberant surrounding Argentina's returned to to
Speaker 1: the bond markets. Do you do you share that? Are
Speaker 1: you excited about the prospects in Argentina? Well, there's so
Speaker 1: certainly things in Argentina have improved quite a lot. I
Speaker 1: think one of the you know, one of the things
Speaker 1: that we're looking at is how much issuance is they're
Speaker 1: going to be out of not only the sovereign, but
Speaker 1: out of prints, out of the municipalities and and out
Speaker 1: of a lot of other government institutions there and where.
Speaker 1: So we're a little bit worried on the supply side. Um.
Speaker 1: You know. One of of things that is is that
Speaker 1: you can say fundamentally we like it, um you know,
Speaker 1: we the technicals might be a little challenge. The question
Speaker 1: is where are things priced. Are things priced for a
Speaker 1: heavy supply load or are they not? And you know
Speaker 1: what's going on in Argentina and lately with with spreads
Speaker 1: acting the way they have is we don't think it's
Speaker 1: you know, all of the risks are exactly priced in
Speaker 1: So there they are and probably will be some opportunities,
Speaker 1: but we were using more caution in a place like Argentina,
Speaker 1: somewhat more so now than we are Brazil. Bring us
Speaker 1: back to our next section on the United States, we've
Speaker 1: been sort of devoid of the Dutch go silliness. I mean,
Speaker 1: any chance this November meeting, when we visit with you,
Speaker 1: is there any chance we get the mother of all surprises?
Speaker 1: I don't think so. Um, certainly the market doesn't think so.
Speaker 1: We're pricing in, basically, you know, as close to a
Speaker 1: zero percent chance as the market ever prices in for
Speaker 1: such things. Um. You know, the motus aprandite of this
Speaker 1: particular FED is not the surprise markets. You know. One
Speaker 1: of the Janet Yellen's things is when she was the
Speaker 1: chair of their communications committee for the for the Board
Speaker 1: of Governors, was, look, we want to give the market
Speaker 1: as much information as we can. They you know, in
Speaker 1: some ways it's probably too much information, um, because it's
Speaker 1: can it's confused and modeled the um, you know, moddeled
Speaker 1: the message somewhat, I think, But um, but the chances next,
Speaker 1: what's important about next week is how did they change
Speaker 1: the statement in their own nuanced way that they always
Speaker 1: do to prepare us for what might be coming in December.
Speaker 1: So do they do they upgrade their assessment of the economy.
Speaker 1: Do they continue on the exact same path, which probably
Speaker 1: means that they hi in December at least I think
Speaker 1: so um? Or do they do they downgrade the economy
Speaker 1: and say, hey, some of the data has been a
Speaker 1: little bit, a little bit concerning um. So so it's
Speaker 1: that little bit of nuance that the markets are gonna
Speaker 1: latch onto and you know they'll be you know, one sentence,
Speaker 1: one phrase in there that can uh, that can change
Speaker 1: market perceptions quite a lot. Here we go again, exactly
Speaker 1: every six weeks. It's the first time Ira jar Jersey
Speaker 1: has ever been with us for a dead meeting. It's
Speaker 1: it's crazy, but we'll do that. Well, we're looking forward
Speaker 1: to Michael McKee will be in Washington giving us perspective.
Speaker 1: And I think no news conference. We should say, yeah,
Speaker 1: no news conference. But but I would say to everyone
Speaker 1: where whatever you're doing that afternoon of November two, right,
Speaker 1: I would pay attention. I just never say I've been
Speaker 1: burnt badly not paying attention to FED meetings. So I
Speaker 1: I really do look forward to it. I aroh, One
Speaker 1: of the things we talked to Seth Masters of ABE
Speaker 1: about this earlier is the idea of longer duration. Everybody
Speaker 1: is so desperate that the new five years is seven,
Speaker 1: the new ten years is twelve or fifteen, and critically
Speaker 1: the new thirty year piece is in the case of
Speaker 1: Austria's seventy years, that must end ugly. It did for Napoleon.
Speaker 1: I'm gonna suggest maybe it will for us as well well.
Speaker 1: So I think the the underappreciated risk, particularly by individual
Speaker 1: and is how much duration risk is out there? Um So,
Speaker 1: to your point, like a seventy year bond actually doesn't
Speaker 1: have that much more duration risk than a thirty year bond,
Speaker 1: And you say, well, how can that be. It's a
Speaker 1: it's one of the one of the magics of bond math.
Speaker 1: But at the end of the day, um the fact
Speaker 1: that you have a lot more people buying longer UH
Speaker 1: maturity assets and there for longer duration assets, they're taking
Speaker 1: more more interest rate risk. So when you buy a
Speaker 1: ten year bond and interest rates go up one percent,
Speaker 1: you can lose about nine percent of your money. If
Speaker 1: you buy a thirty year bond, it's more than double that.
Speaker 1: So you're you know, you really take a whole lot
Speaker 1: of interest rate risk when you are buying these longer
Speaker 1: duration assets. But but basically, the you know, central banks
Speaker 1: are forcing you to do that because if you're yield
Speaker 1: hungry at all and you want some income from a
Speaker 1: fixed income investment, you need to go out there for
Speaker 1: to find positive yields in many kinds. It was beautifully
Speaker 1: explained why we love to have you, um, But the
Speaker 1: distinction there is because we're so yield hungry. When new
Speaker 1: bonds are issued that are longer maturity bonds, the yield
Speaker 1: is much lower than it should be, right well, because
Speaker 1: demand is so strong and high for them. And that's
Speaker 1: and when you say should be, you know, we have
Speaker 1: all kinds of models. We say, okay, you know, nominal
Speaker 1: GDP should be where your tenure uh bond should be,
Speaker 1: which means that we're still probably somewhere like a hundred
Speaker 1: basis points or a hundred and fifty basis points rich.
Speaker 1: My model says we're closer to forty basis points rich
Speaker 1: on the tenure, so um, you know, not not so
Speaker 1: so crazy far away. But but regardless, the fact is
Speaker 1: that supplied demand dynamics or such that you know, you
Speaker 1: you wind up having this this insatiable thirst for any
Speaker 1: yield anywhere when you know when I always use the
Speaker 1: WB function on Bloomberg every morning just to say, hey,
Speaker 1: you know how things moved overnight. And when you look
Speaker 1: at the United Kingdom with their tenure yield at one
Speaker 1: point to two percent, and then you go down and
Speaker 1: you say, if you're in Germany it's now four basis
Speaker 1: points zero point one four percent. That's not very exciting.
Speaker 1: So you have to go to thirty years if you
Speaker 1: want any yield in Euro or take more more risk,
Speaker 1: like by buying a peripheral bond like like Spain or Portugal.
Speaker 1: I a Bloomberg dollars spout here. The strong dollar, how
Speaker 1: long is it going to continue? Well? So, so we
Speaker 1: think that the dollar might have one more run up
Speaker 1: um as the market prices for a few more fed
Speaker 1: hikes UM. But but generally speaking, we think we've probably
Speaker 1: seen the end. We've probably seen the dollar highs uh
Speaker 1: in general. UM. So we're looking for the dollar to turn.
Speaker 1: You know, if if if the world had played out
Speaker 1: exactly to our forecast from a year ago, we thought
Speaker 1: that the dollar would have turned already because we'd have
Speaker 1: some central banks that actually, instead of easing, would be
Speaker 1: um on hold and maybe the next move would actually
Speaker 1: be tightening. So um so, so we think we're nearing
Speaker 1: the end. We're probably at at a plateau here, so
Speaker 1: we don't expect a whole lot from the dollar generally
Speaker 1: over the near term. Very quickly. Cleveland FED service sectors
Speaker 1: three point two percent Cleveland FED as a core a
Speaker 1: curving up on a on a log y axis, it's quadratic.
Speaker 1: There's some acceleration to non goods inflation. Is that change
Speaker 1: the dialogue in the next six months? So so services
Speaker 1: inflation was that one of the things that that was
Speaker 1: lagging for a long time, it's not known and and
Speaker 1: now you have services inflation picking up and that can
Speaker 1: be more sustainable and given that we are services based economy,
Speaker 1: we think it will if you look at core inflation,
Speaker 1: so you look at whether it's it's the feds UH
Speaker 1: preferred measure, the core PC deflator or the or core
Speaker 1: c P I. You're looking at at things that are
Speaker 1: close to the Fed's target. Now the question is in
Speaker 1: in this you know yelling's optimal control environment. Do how
Speaker 1: long do they run that higher than their two percent
Speaker 1: target before they say, hey, we need to hike a
Speaker 1: little bit faster than we have been. Um. They're willing
Speaker 1: to do it a little bit more, um, but but
Speaker 1: it's gonna take some time. A Jersey, thank you so
Speaker 1: much with the Oppenheimer Funds. Look forward to seeing you
Speaker 1: here in a number of days with the dead Meat.
Speaker 1: It'll be a live show November. David Girl, This is
Speaker 1: a really important thing in economics. In its Old world
Speaker 1: new world. There's level and there's growth rate. And as
Speaker 1: a general statement, Old world England, Europe are much more
Speaker 1: better at level analysis in the U S which looks
Speaker 1: at the rate of change for a second, rivet etcetera, etcetera.
Speaker 1: Ken set up lives in the same world in equity
Speaker 1: research with ever core and Ken good morning. And what
Speaker 1: I look at is when I look at the level
Speaker 1: of Twitter profitability, anybody would say just shut up and
Speaker 1: buy it. But the rate of growth of core revenue
Speaker 1: build and I compare it to Facebook April up fifty
Speaker 1: something like that, and that number today just stunned me.
Speaker 1: Up percent, Twitter is basically a no growth entity, isn't
Speaker 1: it right? And I think if you look at the
Speaker 1: North America ad growth it actually declined to per cent,
Speaker 1: so coming from International advertising UM, which is a smaller
Speaker 1: base UM, as well as some of their licensing fees
Speaker 1: and other spline. May I suggest is a heart and
Speaker 1: I think everybody knows I'm a hardcore Twitter user. You
Speaker 1: flood the thing with the ads like everybody else, and
Speaker 1: then you get clowns like me to pony up an
Speaker 1: annual subscription to make the ads go away? Is that
Speaker 1: the dummest thing is that the dumbest things slice bread? Yeah,
Speaker 1: I think that would be tough because I think that
Speaker 1: what would happen is you'd leave an opportunity for Facebook
Speaker 1: and others who are trying to do more in the
Speaker 1: area of broadcast to say, just come over here. There's
Speaker 1: no ads, right, and there's no subscription price. Jack Dorsey
Speaker 1: on the call a few minutes ago, saying it's his
Speaker 1: goal to get to GAP profitability in two thousand seventeen.
Speaker 1: From what we've seen today, from what we've seen of
Speaker 1: this company here over the last few quarters. How how
Speaker 1: likely is that to happen? Do you think? UM? I
Speaker 1: think it's I do think it's it's it's likely. UM.
Speaker 1: They announced the nine percent restructuring um and basically saying
Speaker 1: that they're going to narrow the number of sales channels
Speaker 1: from three down to two. Now, maybe that sounds a
Speaker 1: bit like Yahoo and kind of you know, past years,
Speaker 1: but um, I think Anthony is bringing the experience that
Speaker 1: he has, you know, from Goldman Sax and looking into
Speaker 1: this business and saying, Okay, right now, it doesn't look
Speaker 1: very expensive on the basis of revenues right as as
Speaker 1: a multiple, but it does look very expensive when you're
Speaker 1: talking about earnings, particularly because of the stock based comference involved.
Speaker 1: So I think, um, you know, part of them going
Speaker 1: through this process to drive that profitability I think would
Speaker 1: potentially make Twitter more attractive to a potential suitor. Can
Speaker 1: you bring up Anthony Noo, chief financial officer at Twitter
Speaker 1: when you're looking at the management of Twitter right now?
Speaker 1: He's playing an outsize role here. Of course, Jack Dorsey
Speaker 1: doing a number of things at once, but Anthony Nodo
Speaker 1: here is is really driving a lot of the changes
Speaker 1: of Twitter. Um, maybe from from a you know, from
Speaker 1: an operational standpoint, but I think in terms of the vision,
Speaker 1: I think Jack is still very involved. He talked a
Speaker 1: lot on this call about machine learning and artificial intelligence
Speaker 1: and how they're applying it to notifications and home timeline
Speaker 1: and ultimately the onboarding and dissemination of tweets. Um. You know,
Speaker 1: they cited that as a reason why you know, their
Speaker 1: their daily active user growth has been able to accelerate
Speaker 1: over the last three quarters. Um and and and to
Speaker 1: Tommy your point, you know, that's what ultimately would also
Speaker 1: help drive better click through rate and performance of the
Speaker 1: ads and ultimately drive what average advertisers are willing to
Speaker 1: pay for that traffic. I mean this the ideas of
Speaker 1: Bolton folks. Google eighty eighty billion dollars of revenue versus
Speaker 1: three billion of Twitter. If you're rounding conveniently help me here,
Speaker 1: Mr Sena, with a very sensitive issue, which is a
Speaker 1: lot of people really upset with a tumbler like porn light,
Speaker 1: porn stuff we really don't want to see, except et cetera.
Speaker 1: What's Mr Dorse you gonna do about it? I've heard
Speaker 1: a lot about that from people in the last six months. UM,
Speaker 1: and it's seeing that flow into Twitter. You're saying, yeah,
Speaker 1: I think there's been a tumbler. Yeah. I mean they
Speaker 1: spent some time on the call talking about safety as
Speaker 1: being a very important priority for them, and um and
Speaker 1: they said to basically stay tuned. By the next quarter,
Speaker 1: you're going to hear new measures if they're rolling out
Speaker 1: to address some of that, and I'm sure that will
Speaker 1: be included. Um. But yeah, it certainly didn't help Tumbler
Speaker 1: um when tumbler was looking to be sold, and um,
Speaker 1: you know, I think it's you know, yeah who still
Speaker 1: still took the chance. Um but um but I think
Speaker 1: it is still a state. Why I'm gonna pick on Google,
Speaker 1: Why Google would buy Twitter. I mean, it's a it's
Speaker 1: an inconsequential bold on except in certain industries like what
Speaker 1: David and I do are addicted to him. Well, I think,
Speaker 1: you know, Google would likely face certain um anti trust
Speaker 1: hurdles because you're talking about a very large ad platform,
Speaker 1: even though it doesn't really compare to Google and scale.
Speaker 1: You know, you know, once you after Google and Facebook,
Speaker 1: you know, everyone sort of drops down in scale quite
Speaker 1: a bit. Um. Plus, you could argue that Twitter is
Speaker 1: in some respects of search Engine because of the real
Speaker 1: time nature of it. I think though the messaging aspect
Speaker 1: is broadcasting messaging, all of those are sort of hard
Speaker 1: businesses to sort of just break into and I think
Speaker 1: Google has tried many times and has had kind of,
Speaker 1: you know, limited success. So if you know, Twitter is
Speaker 1: very well known. You listen, you know, you watch the
Speaker 1: elections and people are talking about Facebook and Twitter and
Speaker 1: Facebook and Twitter. Right to have Google, um essentially have
Speaker 1: one of those two tools where people are essentially coming
Speaker 1: together and understanding the content all around them, UM, would
Speaker 1: be a good thing for for Google. UM. I just
Speaker 1: think that there's a question about price and ultimately you know,
Speaker 1: regulatory can Your background is in media. Let me take
Speaker 1: advantage of that to to ask you for your reaction
Speaker 1: to the A T and T Time Warner deal. How
Speaker 1: much sense that makes what it says about the media
Speaker 1: environment right now? UM, it's interesting, it's um. Yeah, when
Speaker 1: I worked I worked at Time Warner years ago during
Speaker 1: when they announced the AOL Time Warner merger. UM, and
Speaker 1: you know, and I think, is you kind of fast
Speaker 1: forward um today? Um, definitely that the industry is changing,
Speaker 1: and I think it does require a combination of content
Speaker 1: and distribution heft um together and to try and creating
Speaker 1: an experience for users is less complicated, UM, you know,
Speaker 1: less cluttered with you know, different packages that you have
Speaker 1: to buy, etcetera. You just want to clean log in,
Speaker 1: you watch the show that you want to watch when
Speaker 1: you want to watch it, etcetera. I'm just not sure
Speaker 1: that that combination will change all that much, you know,
Speaker 1: given probably the concessions that need to be made from
Speaker 1: a regulatory standpoint where to go through, and ultimately just
Speaker 1: even the commercial agreements that are in place. UM, that
Speaker 1: would mean that you probably have years before you can
Speaker 1: enact really any real change for the consumer. Ken, Santa,
Speaker 1: let's go to arbitrage one and one. Mr Altmon would
Speaker 1: like you to speak about that this morning. Can you
Speaker 1: acquire shares in Twitter for the takeout? UM? I can't
Speaker 1: know you, no, I know you come on Ken, you're
Speaker 1: restricted from everything including cars Indians. But should our audience
Speaker 1: acquire shares at this giveaway price pending an acquisition managed
Speaker 1: by ever cor? Oh? Well, you know, it's difficult for
Speaker 1: us to speak on the acquisition element, you know, specifically,
Speaker 1: but I would say that coming out of this call
Speaker 1: and looking at there's results, they do feel improved versus
Speaker 1: the prior to quarters that we've seen. UM, even though
Speaker 1: you're seen improvement off sort of the lower expectation. Faith,
Speaker 1: But that was a fabulous no. You don't have to
Speaker 1: say anymore consent. Your general counsel was standing over your
Speaker 1: left shoulder, answered that you did a really good job.
Speaker 1: Thank you, folks. I was busting ken chops because there's
Speaker 1: a lot of delicacies in the business about what a
Speaker 1: securities analyst can it cannot say. Did we do a
Speaker 1: good job there? With with Abercard on Twitter, that was
Speaker 1: really interesting. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever
Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene.
Speaker 1: David Gura is at David Gura. Before the podcast, you
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