Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. We're
Speaker 1: gonna digressing out of one of our monthly joys, which
Speaker 1: is Foreign Affairs magazine. I don't know how Gideon Rose
Speaker 1: does it. Johnny gets out front of the zeitgeist with
Speaker 1: Trump's Middle East this month. It is a spectacular essay.
Speaker 1: And John, what is so trenchant? Here? Is? A few
Speaker 1: years back, Mr Rose wrote an essay why we always
Speaker 1: fight the last battle? And there's the news. Say, there's
Speaker 1: the news flow of the last few days, including Mr
Speaker 1: Putin and Mr Ari Juan shaking hands, not over an
Speaker 1: Olympic medal in soci So getting this talk about it.
Speaker 1: If there's one take away from this addition, what would
Speaker 1: that be? Uh? Well, that the Middle East is going
Speaker 1: back into its historical mode of a local region in
Speaker 1: which the local power powers play a great game of
Speaker 1: jockeying among each other, with occasional outsiders coming in to
Speaker 1: back them. With the US essentially signaling first with Obama
Speaker 1: and then with Trump that it was going to pull out.
Speaker 1: What we're actually seeing is the local powers adjusting to
Speaker 1: a Middle East without the United States playing a major role.
Speaker 1: And so in America this is couched as oh, the
Speaker 1: Russians are coming in, or we've a been in the
Speaker 1: curves and all that's true. But from the local powers,
Speaker 1: the larger picture is, Okay, the Americans aren't really going
Speaker 1: to be here or be able to be counted on
Speaker 1: to protect us, So we have to make our own
Speaker 1: deals with the locals in the region. And so when
Speaker 1: the Iranians send a signal to the saudiast and Americans
Speaker 1: by arranging the drone bombing of the Saudi oil fields
Speaker 1: as a signal you keep messing with us and we
Speaker 1: will can we can hurt you, then the Americans don't
Speaker 1: do anything one If the Saudis realized from that, we
Speaker 1: cannot afford to anger Iran because they can come and
Speaker 1: blow us up next time. Even worse, so the Saudis
Speaker 1: mute their response and start making an accommodation with Iran.
Speaker 1: Same thing with the Israelis, who are now making deals
Speaker 1: with the Russians to protect their interests in Syria because
Speaker 1: the United States is no longer able to protect the
Speaker 1: Israelis from the problems in Syria. So essentially what you're
Speaker 1: seeing is the emergence of a post American Middle East. Uh,
Speaker 1: even quicker than we thought would happen. Well, let's talk
Speaker 1: about that. The broadest strategy in the region hinged on
Speaker 1: two big alliances, one with the Israelis, another with the Saudis.
Speaker 1: Did the Saudis look a little lonely now, yes, exactly. So.
Speaker 1: The fact is that the Trump administration wanted to have
Speaker 1: its cake and eat it too. It wanted to continue
Speaker 1: to walk away from the region and not get Americans
Speaker 1: trapped in endless wars blah blah blah blah blah. Uh.
Speaker 1: And at the same time, it wanted to confront Iran
Speaker 1: and avoid the consequences of justicely walking away. So it
Speaker 1: tried to essentially contract out US diplomacy in the region
Speaker 1: and US strategy in the region to its two powerful proxies,
Speaker 1: Israel and Saudi Arabia, and said, well, you guys can
Speaker 1: confront Iran, Israel in the Levant and Saudi in the Gulf,
Speaker 1: and we'll back you and we'll give you whatever you
Speaker 1: want to contract out that job. The problem is that
Speaker 1: the locals were very clever, took the American UH offer
Speaker 1: and got whatever they wanted with their local conflicts. But
Speaker 1: they actually can't counter Iran because the Saudis are essentially
Speaker 1: a rich gas station without a strong military, their prey
Speaker 1: not a counterweight. And these and the Israeli's are off
Speaker 1: on the side of the region because no, the Arab
Speaker 1: powers won't allie with them formally because of the Palestinian issue.
Speaker 1: And so essentially what has happened now is the Israelis
Speaker 1: and the Saudis played the Americans got what they wanted
Speaker 1: over the last couple of years, and now see the
Speaker 1: Americans walking away, leaving them with gains they've had. NBS
Speaker 1: is strong and in power and has established authoritarian control.
Speaker 1: Netanyaho has gotten a whole bunch of things that he wanted.
Speaker 1: And yet now the question is will the US be
Speaker 1: there in the long run to protect against the Iranians.
Speaker 1: And I think the answer is now that the Iranians
Speaker 1: and sorry, the Saudis and the Israelis are starting to think, okay,
Speaker 1: we need to make deals with the Russians, with the
Speaker 1: Iranians because we can't count in the Americans. The United
Speaker 1: States is pulling back. Why is this administration sending troops
Speaker 1: to Saudi Arabia Because it can't pull back completely from
Speaker 1: the region. And what Trump would like to do is
Speaker 1: unwind American commitments. But at the heart of those commitments,
Speaker 1: the external ones seem disposable. It doesn't really bother many
Speaker 1: Americans except for the dishonor about what we're doing to
Speaker 1: the Kurds. But the point is the courage, the front
Speaker 1: line of defense. If you keep good northern Syria, if
Speaker 1: you keep going further and further away, eventually you get
Speaker 1: to Saudi Arabia, and that's the world's gas station. You
Speaker 1: have to protect it for the stability of the global economy.
Speaker 1: And so the problem is not the first places you
Speaker 1: withdraw from. It's when you start taking out those things.
Speaker 1: When you play the game of Jenga, when you're left
Speaker 1: at the bottom, if you have no other pieces there,
Speaker 1: you're screwed very quickly. Michael Durant and you're Wonderful Magazine.
Speaker 1: Why seeding land will not bring peace? Are we building
Speaker 1: a twenty mile wide new gaza strip between Syria and Turkey?
Speaker 1: So the most interesting part actually no, because we're essentially
Speaker 1: allowing the locals to deal with it. And the difference
Speaker 1: there is the outside powers aren't going to play. It
Speaker 1: will be the local powers uh Russia, Syria, Turkey. Um.
Speaker 1: The interesting thing about the Palestinian issue is that has
Speaker 1: been kept alive for several decades because of the external
Speaker 1: involvement of other powers and the international system, including Turkey,
Speaker 1: including Turkey and their refugee. The fact is that the
Speaker 1: most interesting thing we've learned from this issue, at least
Speaker 1: for me, is that nobody cares about the Palestinians anymore.
Speaker 1: Because the Trump policy has essentially given Israel everything it
Speaker 1: wanted and nobody has acted to it. We gotta leave
Speaker 1: it there. It is a triumph. Gideon Rose, in his
Speaker 1: team at Foreign Affairs magazine Trump's Middle East. We've been
Speaker 1: following Brexit since the Suez Canal crisis, and I must say, John,
Speaker 1: to cut to the chase. That was actually a good one.
Speaker 1: This is my favor. It's a good one. I watched
Speaker 1: the Crown. Come on, Anthony's a good I know, you
Speaker 1: know there's that scene in Lawrence of Arabia where he's
Speaker 1: out starving in the desert, drying and Boomy comes over.
Speaker 1: There's a screen door and the boom. There's a suisque
Speaker 1: now and then the music. My eyes just thinking of you.
Speaker 1: This is really good. I was twive years or something. UM.
Speaker 1: This is my favorite Brexit guest, my absolute favorite Brexit
Speaker 1: guest from Cambridge University, The Big Financial Launch. Katherine Barnard,
Speaker 1: The UK in a Changing Europe. Senior Fellow, Katherine, Great
Speaker 1: to have you with us on the program. Talk to
Speaker 1: me about what happened in the House of Commons in
Speaker 1: the last twenty four hours and what's happening right now. Well,
Speaker 1: it's remarkable. I mean, this is voice. Johnson became Prime
Speaker 1: Minister in the summer. He said he was going to
Speaker 1: get Brexit done. The only way he gets Brexit done
Speaker 1: was to revise the deal that Treason Maine had entered into. UM.
Speaker 1: He successfully did that last week. In facts it's primarily
Speaker 1: Treason Mains deal but with knobs On and the knobs
Speaker 1: relate to Northern Ireland. Because they have he's changed the
Speaker 1: position on Northern Ireland. It's no longer a backstop, a
Speaker 1: sort of default position, insurance position. What he's done is
Speaker 1: create a special situation for Northern Ireland and he said, right,
Speaker 1: we need to put that to a vote and that
Speaker 1: and then that vote failed. Um. But um. What did
Speaker 1: he was forced to do as a result is right
Speaker 1: to the EU and say we want an extension. He
Speaker 1: did that very grudgingly, as he was obliged to do
Speaker 1: it nder what's called the ben Act. And if you remember,
Speaker 1: he sent three letters on Saturday night to say I'm
Speaker 1: forced to ask an extension. I don't really want it,
Speaker 1: but I'm asking for one anyway. And then this week
Speaker 1: he tabled the WEB now the webs another bit of jargon,
Speaker 1: the web as the Withdrawn Implementation Bill. Um, and we
Speaker 1: got it on late Monday night. It's a hundred and
Speaker 1: ten pages long. It's eiddishly complicated, really difficult legal text.
Speaker 1: And m he said, right, MPs, you've got three days
Speaker 1: to negotiate or to to rule on this. You can
Speaker 1: discuss it for three days, and that is it. MPs
Speaker 1: were very cross and so there was what's called something
Speaker 1: really very dull but a motion on how to actually
Speaker 1: manage this process and he lost that too. But what
Speaker 1: he did win, and he doesn't have a great record
Speaker 1: of winning votes, he did win what was called the
Speaker 1: second reading vote, which basically said grudging we like this deal.
Speaker 1: That's the good news. So now we have this situation
Speaker 1: on whether they can agree on the time to discuss
Speaker 1: the overall bill, and Catherine, I wonder if they can
Speaker 1: do that. There was a suggestion before these votes yesterday
Speaker 1: that perhaps the Prime Minister just withdraws the whole thing
Speaker 1: and calls an election. That hasn't happened. What do you
Speaker 1: think the next steps are, Well, that's the question. So
Speaker 1: at the moment, if you think about this in terms
Speaker 1: of the game of ping pong, the ball is currently
Speaker 1: in the e US court because the eu've got to
Speaker 1: decide whether they'll grant the extension that for as Johnson
Speaker 1: so grudgingly and ungraciously asked for on Saturday night. All
Speaker 1: of the omens look reasonably good that they will do. Remember,
Speaker 1: they've got to act unanimously. President mcron, the a French president,
Speaker 1: is being really quite cross for about this and saying
Speaker 1: not very keen on granting an extension because the Brits
Speaker 1: can't get their house in order. As you've helpfully pointed out,
Speaker 1: that's been going on since the time of Sewers and
Speaker 1: the friendship had enough. But I think it's likely they
Speaker 1: will grant the extension till the thirty one January. Then
Speaker 1: the big question is will be won election and what
Speaker 1: effect might the fact that we haven't left had on
Speaker 1: the Tory prospects in the election. Catherine Bernard with us
Speaker 1: a British legal scholar, which barely describes her accomplishments. She
Speaker 1: is a fellow of Trinity College at Cambridge. Professor Barnard,
Speaker 1: I am looking at the complexities of the parliamentary voting
Speaker 1: system and Constituencies Act of two thousand and eleven. Is
Speaker 1: all of this insanity coming out of this revolutionary change
Speaker 1: in Parliament eight years ago? Well, partly you're right, but
Speaker 1: there's another act that has really changed the dynamics, and
Speaker 1: that's the Sixth Term of Parliament's Act. And that Act says,
Speaker 1: in order to call an election out of sequence that
Speaker 1: we know we have elections every five years, you need
Speaker 1: to have two thirds majority in Parliament. And we're in
Speaker 1: a very unusual situation because usually the Opposition are jumping
Speaker 1: up and down saying, oh, yes, we absolutely want an
Speaker 1: election because we want to replace you lot in government.
Speaker 1: But this time Labor is saying, actually, we're not very keen,
Speaker 1: one because it's good to keep Boris Johnson dangling on
Speaker 1: the string, and secondly because Labors not actually convinced it
Speaker 1: would win the election if there was one. So, Catherine,
Speaker 1: let's talk about where we have actually made some progress
Speaker 1: in the last six weeks. The Prime Minister has gone
Speaker 1: from saying that he would rather be dead in a
Speaker 1: ditch than remain in the EU but loot beyond October
Speaker 1: thirty one with or without a deal, and now he
Speaker 1: is saying that we will leave the EU with this deal.
Speaker 1: I think that's the big takeaway for a lot of people,
Speaker 1: not just for markets, but just more broadly, that the
Speaker 1: chances of a hard Brexit so to speak, may not
Speaker 1: have completely been reserve holved, but they have receded and
Speaker 1: quite marked the Catherine, would you agree with that. I
Speaker 1: agree they receded on the one of October. It's not
Speaker 1: clear when they've receded on the thirty one January, assuming
Speaker 1: that's a date for the extension. It's also not clear
Speaker 1: even if we can overcome those hurdles and the web,
Speaker 1: remember that's the domestic piece of legislation giving effect to
Speaker 1: Boris Johnson, treason may feel that even the web goes through.
Speaker 1: What we do is we go into what's called a
Speaker 1: period of transition, which is essentially status quo, but there
Speaker 1: is a big trap door at the end of that transition,
Speaker 1: and if there's no future deal concluded, that's on what
Speaker 1: the future relationship that we end up with no deal
Speaker 1: at that moment, and that's what some of the remainder
Speaker 1: orban no no deal politicians are really worried about. At
Speaker 1: this moment. Do the other parties, besides a diminished labor
Speaker 1: and the Conservatives, that all the other parties do they
Speaker 1: have quote unquote power? Do they have a a in
Speaker 1: the process forward? Well, they do because until a single
Speaker 1: party gets majority in Parliament, they hold the balance of power.
Speaker 1: And the party you need to watch particularly is the DUP,
Speaker 1: the Democratic Union because they only have ten seats. But
Speaker 1: remember they were in what's called a confidence and supply
Speaker 1: agreement with the Conservatives and that gave the Conservatives of
Speaker 1: their majority before one were thrown out of the Conservative part.
Speaker 1: What's interesting is DUP very cross with Boris Johnpson at
Speaker 1: the moment. They don't like his new deal, and yesterday
Speaker 1: on the motion they voted against to the man the
Speaker 1: Conservative position Catherine Barnard, thank you so much, from Cambridge
Speaker 1: University as well. She has prodigious math chops with black Rock.
Speaker 1: We lee with us right now and John, A lot
Speaker 1: of this is the dynamics in the known unknowns within
Speaker 1: the fixed in com market. Can we agree John before
Speaker 1: we go to Wally, that there's a new belief in
Speaker 1: a lower rate regime over the last ninety days, over
Speaker 1: the last year. I think that's been cemented in a
Speaker 1: lot of people's minds. The other story we've got to
Speaker 1: talk about it is just the amount of flows into
Speaker 1: Europe of all places. Waite joining us now black Rock
Speaker 1: head of Ice shares a mere investment strategy M E
Speaker 1: M E A you know with Mia. Yeah, they're like
Speaker 1: a but but they didn't have that. Yeah, Okay, these
Speaker 1: are conversations we can do in a commercial broke Okay, Wiley,
Speaker 1: that just don't go there. Let's talk about Europe and
Speaker 1: the inflow. Shall we your thoughts on what we have
Speaker 1: seen through September into October? And why? Um? Yeah, wish
Speaker 1: I could join your other conversation during the commercial break. Yes,
Speaker 1: we're starting to speak or maybe not. Um, Yes, we're
Speaker 1: starting to see inflows into European equities. And this is
Speaker 1: really um notable and important because on a year today basis,
Speaker 1: we're still having closed to a hundred billion dollars out
Speaker 1: of European equities and the flows are only starting to
Speaker 1: tentatively come back. In part of that have to do
Speaker 1: with the fact that some of the uh non risks
Speaker 1: to markets incrementally improving. So if you think about the
Speaker 1: US China trade, the escalation, if you think about the Brexit,
Speaker 1: incremental improvements that has boosted sentiments. But we're talking about
Speaker 1: really coming from very very low base because most of
Speaker 1: the investors that we stick to under own Europe under
Speaker 1: on European aquitis, specifically record outflows followed by record inflows.
Speaker 1: Real what does that say about how fragile sentiment is
Speaker 1: at the moment, Well, it's very junky, right, So if
Speaker 1: we have this interview yesterday, this time will be totally
Speaker 1: talking about very very different mood music compared to what
Speaker 1: we are speaking to today. So even this, like a
Speaker 1: matter of twenty four hours, can change sentiments completely, which
Speaker 1: is why we think that it is so important to
Speaker 1: build portfolio resilience no matter how good you feel, no
Speaker 1: matter how good market feel, especially given how much treasury
Speaker 1: and European government bonds have pulled back in recent weeks,
Speaker 1: they actually offer interesting entry point to build that portfolio
Speaker 1: resilience which you're going to need for a long time.
Speaker 1: We should point out a mia folks is a wonderful
Speaker 1: abbreviation actually really works for Europe, the Middle East and Africa.
Speaker 1: That's used across all of global Wall Street and Walie.
Speaker 1: Of course out of I shares that well, we're jogging free.
Speaker 1: I didn't know. That's amazing how Wikipedia can save me. Really,
Speaker 1: when I look at this and I want to go
Speaker 1: back again to this important five pages of the I
Speaker 1: m F. Everybody is a yielder had right now and
Speaker 1: other nations are loading up on US high yield and
Speaker 1: even moderate yield paper. Is that a source of concern
Speaker 1: for you? Do you see just this addiction to I've
Speaker 1: gotta own US paper? Um? Yes, we have seen a
Speaker 1: lot of demand for optically higher ulding US fixed income markets,
Speaker 1: and that applies to high but it applies to government
Speaker 1: bonds as well. Speaking to India investors here based in Europe,
Speaker 1: the level of income that one can get is significantly
Speaker 1: lower than than than than what one can get in
Speaker 1: the US. But the important UH concerned consideration here is
Speaker 1: also haging costs. Right when it comes to fixing income,
Speaker 1: especially when it comes to investing in developed market fix
Speaker 1: income exposures, clients oftentimes have to hatch back into their
Speaker 1: base currency. So the optical you'd pick up then that
Speaker 1: that one gets actually get eroded quite a lot when
Speaker 1: you convert US exposure back to your Euro based currency,
Speaker 1: which is why that the demand is there, but not crazily.
Speaker 1: So now back to US high market UH with we
Speaker 1: have seen actually influenced into the US high old market
Speaker 1: and whilst too much frost should be a source of concern,
Speaker 1: but if you look at the default profile, it's not
Speaker 1: biking even at this point in the in the in
Speaker 1: the late cycle, and given the very the nine founding environments,
Speaker 1: we definitely pay a lot of attention to it, but
Speaker 1: currently not a significant source of stress. What's the foreign
Speaker 1: bid like in European fixed income right now? What what's
Speaker 1: the foreign what's the foreign bid? The foreign demand in
Speaker 1: European fixed income strong? Yeah, absolutely, um. Some of the
Speaker 1: clients that we speak to in APEX, for example, Japanese
Speaker 1: investors have been a consistent source of the deed uh
Speaker 1: a buyer also sovereign Semichael European government bonds. Even when
Speaker 1: you converted back into Japanese, YENNI looks and it looks,
Speaker 1: it still looks attractive. And frankly, domestic investors are also
Speaker 1: buying fixed income. You think about first of November, Quey
Speaker 1: starts again. Um, that should sustain the demand for government bonds.
Speaker 1: But as a corporate bound high grade, well, thank you
Speaker 1: so much. It is with black Rock. We greatly appreciate
Speaker 1: her times this morning. We always inform here at Bloomberg Surveillance.
Speaker 1: As we look at email, we would also note ABA
Speaker 1: is the first names the letter acronymic kind of thing
Speaker 1: of Agnetha, Bjorn, Benny and Annie Freed. Why why I
Speaker 1: just we want to inform we got an email. I'm
Speaker 1: not gonna lie. Actually didn't know that. Actually I didn't
Speaker 1: know that either. Okay, here's what we're gonna do it
Speaker 1: by popular claim, we are thrilled to bring you Mr Galloway,
Speaker 1: Scott Galloway at my book of the Year a couple
Speaker 1: of years ago on before, I still recommend to throw
Speaker 1: it at the nearest smart child you have and say
Speaker 1: shut up and read this on all this technology and
Speaker 1: the way he writes and abruptly hits you over the
Speaker 1: head an Amazon, and he is needless to saying out front,
Speaker 1: what are we calling it? That we disaster, that we
Speaker 1: can do, we work whatever? Can? We give him a
Speaker 1: massive shout out before we bring him in because Scott
Speaker 1: won't say this about himself. Scott has been so so
Speaker 1: critical of this company, and I've seen the amount of
Speaker 1: abuse he's taken from the Silicon Valley guys who have
Speaker 1: tried to push back aggressively. Of the last two Unicorn crew,
Speaker 1: Scott was right, the Union crew with debt the Union,
Speaker 1: the Unicorn with debt wrong. I want to bring its
Speaker 1: got Nascot got away n y U Stone Professor, Good
Speaker 1: morning to Scott, good morning and thanks for the kind words.
Speaker 1: How do you think this ends? Uh? My guess is
Speaker 1: I think this is more a cautionary tale that's historic.
Speaker 1: I think the company will either be a nice little
Speaker 1: coat working space it's worth three to five billion, or
Speaker 1: we have some sort of restructuring in a year to
Speaker 1: eighteen months. It's still a company with forty three billion
Speaker 1: dollars in long term obligations over fifteen years, and it's
Speaker 1: difficult to see how this company survives and cuts cost
Speaker 1: cuts costs as fast as they need to, so either
Speaker 1: as much smaller company or bankruptcy. In two thousand and twenty,
Speaker 1: Scott in the blame game, a lot of people are
Speaker 1: just looking at Adam Newman. How much attention should we
Speaker 1: be paying to the likes of soft bank and the
Speaker 1: Vision Fund. Well, you know, Adam Newman makes for a
Speaker 1: more interesting story, but the reality is if you tell
Speaker 1: a thirty year old male that he's Jesus Christ, who's
Speaker 1: inclined to believe you the fiducia wait wait, wait, wait,
Speaker 1: wait do we do that? Was Pharaoh? Every day? Every day?
Speaker 1: Ignore and Scott carry on place. Yeah, look, the fiduciaries here,
Speaker 1: we're not acting as fiduciaries. And at some point the
Speaker 1: limited partners are going to ask uh Massioshi san, you know,
Speaker 1: how can you give somebody one point seven billion dollars
Speaker 1: which is more than eBay paid for PayPal to get
Speaker 1: out of the way. So that's what you could pay
Speaker 1: severance two employees. This is the big learning here will
Speaker 1: be the dual class shareholder structures combined with the idolatry
Speaker 1: of innovators needs more scrutiny that power corrupts, and they
Speaker 1: put too much power in the hands of one individual
Speaker 1: and that was out of him. Tim Colpin and Shuley
Speaker 1: Ran have a brilliant essay. Washington Post picked it up
Speaker 1: as well off Bloomberg Opinion and and and it goes
Speaker 1: to Galloway one on one, which is we work will
Speaker 1: be an associate of soft Bank. The accounting is really suspect.
Speaker 1: And the announcements of the last number of hours, including
Speaker 1: a five million dollar consultant fee, could that happen to
Speaker 1: an American corporation if soft Bank was American, given their
Speaker 1: general counsel, given their outside council, and given any kind
Speaker 1: of accountancy and regulation. You know, I don't, I don't
Speaker 1: know the accounting. This is definitely gonna be one of
Speaker 1: the history books and we'll be teaching about this in
Speaker 1: accounting classes for a long time because they figured out
Speaker 1: a way to give commissions to fill up their office
Speaker 1: and then figured out a way to turn those commissions
Speaker 1: from expenses into revenues. So the accountant here has just
Speaker 1: gotten crazy. That the cultural divider. The most interesting thing
Speaker 1: here in terms of it contrast and cultures is I
Speaker 1: do believe This will go down as the most expensive
Speaker 1: or costly exercise and saving face in the history of
Speaker 1: the private markets, because there really isn't a bowl case
Speaker 1: or an economic case for putting seven or eight billion
Speaker 1: dollars in good capital after bad here. And the reason
Speaker 1: that soft Bank did it is this isn't as an
Speaker 1: investment as much, and we work as it is an
Speaker 1: investment in trying to safe base, or repair or buttress
Speaker 1: the reputation of soft Bank and Vision one fund. This
Speaker 1: economically makes no sense, Scott. We were weeks away from
Speaker 1: retail getting absolutely host and getting caught picking up all
Speaker 1: of this mess for themselves. In an I p O.
Speaker 1: Some people asking as to whether there is more than
Speaker 1: one we work Scott, you called out, we work quite
Speaker 1: correctly given the events of the last month. As you
Speaker 1: look around yourself right now, do you see any more
Speaker 1: any more big issues brewing ousewhere well the place to look,
Speaker 1: quite frankly, is the same judgment, the same algorithms for
Speaker 1: decision making around we work in that as a disaster
Speaker 1: that went from forty eight billion dollars to eight generously
Speaker 1: in about forty five days, and that is still look
Speaker 1: at softbanks other investments I Think. If you were to
Speaker 1: try and sniff out other real estate soft bank backed
Speaker 1: real estate companies, you would find Oil, the Indian based
Speaker 1: company that is trying to roll up budget hotels that
Speaker 1: has a twenty five year old founder who had it's
Speaker 1: borrowed money against his own stock to be part of
Speaker 1: a one and a half billion dollars round that no
Speaker 1: one else but the founder, and of course soft Think
Speaker 1: would invest in. I think the I buying space, specifically
Speaker 1: open Door, that is using algorithms to buy real estate
Speaker 1: and what is typically a very nuanced local market, deserves
Speaker 1: more scrutiny. And then there's the crazy three million dollars
Speaker 1: into a company called wag so you can have an
Speaker 1: AFT to get somebody walk your dog. There's definitely Scott
Speaker 1: Galloway twenty seconds Airbnb, How unicorny is Airbnb this morning?
Speaker 1: I actually think Airbnb is one of the winners. Tom
Speaker 1: Cargons is strong hair, positive, positive margins, very strong modes
Speaker 1: both global global demands and global supply. I do not
Speaker 1: think Airbnb is no we work. This is wonderful. Scott Galloway,
Speaker 1: thank you so much, congratulations on a driving for the
Speaker 1: global Wall Street Conversation. This is important, and it usually
Speaker 1: comes into a stack of world class researcher Michael Nathanson
Speaker 1: with us writing with MOFA. Nathanson, it's just first glass.
Speaker 1: Paul Sweeney has lined up with all sorts of intelligent questions.
Speaker 1: Michael Nathanson, you are such a stud Mrs Keane said,
Speaker 1: can you just start the interview today with one question?
Speaker 1: She wants to know? Is kemball Roy for real? In Succession?
Speaker 1: Do you watch this showever? Is it accurate? Is Kendall
Speaker 1: that big of a tool? I think it's you know,
Speaker 1: I think it's a bit of exaggeration. But you know,
Speaker 1: someone said to me, Michael Jordan's was a great basketball player,
Speaker 1: doesn't mean his sounds a great basketball player, right? So
Speaker 1: really yeah, So this whole idea of like legacy and
Speaker 1: succession in media, unfortunately that's part of the industry, right,
Speaker 1: It's passed on down. There's no guarantee that year. So
Speaker 1: when you was a the mother of all content, King's
Speaker 1: grizzled pros, when you watch Succession, it rings true. It
Speaker 1: rings true. The whole pivot of old media new media.
Speaker 1: You have to consolidate quickly. It's like this past season
Speaker 1: was really wait quickly here, well, because you know the
Speaker 1: walls are closing and media needs to consolidate, right, and
Speaker 1: do you want to buy new old TV stations? Do
Speaker 1: you want to get at it? Like? How do you
Speaker 1: fix your empire to get ready for Have you been
Speaker 1: on a yacht that big? I think he has several times. So, Michael,
Speaker 1: you know the big thing you've been covering. You've been
Speaker 1: covering to media sector for such a long time, and
Speaker 1: you know it's really at a pivotal time for the
Speaker 1: media companies as they try to pivot towards technology and streaming,
Speaker 1: and probably no greater example as Walt Disney Company what
Speaker 1: they're trying to do. Give us your sense of how
Speaker 1: you think media will make that transition. Yeah, it's going
Speaker 1: to be really, really lumpy. So it starts with the
Speaker 1: question Tom always asked us, which is what does court
Speaker 1: cutting look like? What's the future for the bundle? So
Speaker 1: right now, let's call it about eight million people who
Speaker 1: pay for a monthly video subscription. We think that falls
Speaker 1: the sixty million subs. Okay, the sixty million subscribers were there.
Speaker 1: They care about the Toronto Maple Leafs, they care about
Speaker 1: Premier League soccer, They care about the NHL, the NFL,
Speaker 1: Bloomberg News. They'll be there for sports and news, right.
Speaker 1: So that means you'll lose a ton of subscribers you
Speaker 1: have now, if you have assets that play in the
Speaker 1: live sports and news business, you'll be fine. So Disney
Speaker 1: has ESPN, Fox which we like, has Fox News, Fox Sports,
Speaker 1: the long tail of entertainment networks. Anything you're gonna watch
Speaker 1: that's entertainment based will be on demand, right. So then
Speaker 1: the world's gonna shrink for kale networks. At the same time,
Speaker 1: there's gonna be this war we're watching now to play
Speaker 1: in the on demand space. Right. So Netflix was the
Speaker 1: first mover than Hulu and Amazon. Now at Disney, Apple, right,
Speaker 1: cbsl access just more and more pressure to fight for
Speaker 1: that spot opportunity, right, Does that makes sense? Yeah? Yeah.
Speaker 1: So one of the things Tom and I, you know,
Speaker 1: always talk about because Tom is afraid he's he's spending.
Speaker 1: He pays so many bills every month and he's got
Speaker 1: so many streaming bills. He doesn't know what's going on
Speaker 1: in his bank accounts all direct you know, payment, he
Speaker 1: doesn't know what's going on. So how many payments will
Speaker 1: people make for streaming services. Do you think rethink on
Speaker 1: average U be four to five streaming services, right, there
Speaker 1: be four to five products, maybe three to four. But
Speaker 1: what's gonna happen is in homes have given up the bundle,
Speaker 1: they'll have surplus surplus spending, right because basically they've traded
Speaker 1: down from a hundred dollar bundle and to maybe four
Speaker 1: or five products that will costs, right, So you're gonna
Speaker 1: have extra opportunities to spend from households that have spun
Speaker 1: down spun out right. At the same time, what's gonna
Speaker 1: happen is Tom's not gonna go to the movies as much.
Speaker 1: He's definitely not buying home videos anymore. He's not gonna
Speaker 1: buy you know, he's gonna stream his music. So there's
Speaker 1: beginning to see an erosion and consumer spending in categories
Speaker 1: where technology is disrupted. So he'll find excess, you know,
Speaker 1: savings from things that he no longer does. So the
Speaker 1: long history media is I would have said to you
Speaker 1: five ten years ago you have said how much more
Speaker 1: can the bundle price and go up? And we would
Speaker 1: have said it goes up five percent every year because
Speaker 1: you can't find succession away from the bundle, right, So
Speaker 1: I I p is very very you know, it's got
Speaker 1: pricing power. Give it to me. The entire hinge here
Speaker 1: is the belief by well meaning executives the younger people
Speaker 1: who don't use this stuff will shift and use it
Speaker 1: when they get older. How certain is that foundational gospel
Speaker 1: that's no longer a foundational gospel? That's not certainty. I
Speaker 1: think twenty three year old will or will not shifty years.
Speaker 1: They will not become us when they become our age.
Speaker 1: They just will not. Right, You go to anyone who's
Speaker 1: a college kid, look at their dorm structure versus ten
Speaker 1: years ago dorms. There's no TV sets anywhere, right, it's
Speaker 1: all it's all laptop, it's iPad. They're just going to
Speaker 1: basically hang a connected TV set on the wall, not
Speaker 1: paid for cable or satellite, and use apps, use apps
Speaker 1: to watch what they want. Maybe they'll use the parents apps. Right,
Speaker 1: they just basically share passwords and put it on. Really yeah,
Speaker 1: Like the whole point Tom is like we we're gonna
Speaker 1: see basically a race to the bottom. Like your point
Speaker 1: of there has been life cycles and people usually follow
Speaker 1: their previous generation's behavior. That's broken down that's not going
Speaker 1: to Is there a profit for anyone on the race
Speaker 1: to the bottom? I think no, you know, the next
Speaker 1: three or four or five years. That is my big
Speaker 1: worry that we don't have a profit here. You know,
Speaker 1: Netflix has never actually created free cash flow. You know
Speaker 1: that there's never been free cash generation. But the bond
Speaker 1: market is there for Netflix. Why is the bond market
Speaker 1: there for Netflix if they've never developed free cash flow?
Speaker 1: It's on the edge of weak company, right, because there's
Speaker 1: the belief embedded in the equity that cash flow positives
Speaker 1: around the corner. Okay, like Comcast flipped the switch and
Speaker 1: they did that. The Roberts family executed that on the
Speaker 1: edge of brilliant, right, do you have the same confidence
Speaker 1: that content greaders can do a Comcast? They will have
Speaker 1: to be slowing top line growth and slowing content spending. Right.
Speaker 1: It's you've got the decision is going to have to
Speaker 1: be when the top land starts to slow, you have
Speaker 1: to basically hit the brakes on content spending. But we
Speaker 1: don't see that anywhere at the moment. Obviously, it just
Speaker 1: continuing to go up like crazy, and uh, you know
Speaker 1: it's gonna get it even worse. Now with Disney coming
Speaker 1: to Marketplace and all these other streaming services. So just
Speaker 1: before I know, so Disney, you to let you know
Speaker 1: with what we have in our model, we think Disney
Speaker 1: is gonna lose in this current year four point six
Speaker 1: billion dollars in FIST year twenty on streaming and that's
Speaker 1: part of their guys six billion dollars. Yes, she just
Speaker 1: figured it out. You're dressed like Connor Roy. I mean
Speaker 1: he is you set the casual thing going. Yeah, you know,
Speaker 1: since they left Sanford Bernstein, they just the whole mode
Speaker 1: is changed. I mean he and Craig used to be
Speaker 1: buttoned down, sharp, you could be here presentable, you know.
Speaker 1: Now it's like succession like that's in Senior Ann's joining
Speaker 1: us here in studio. We appreciate him coming in and
Speaker 1: giving us his time. Lots to talk about in this
Speaker 1: media space. Lots of convergence, lots of consolidation, lots of
Speaker 1: big companies getting even bigger, lots of bills that Tom
Speaker 1: is paying for various kids around the world. He does
Speaker 1: not even sure what he's paying for, but he's writing
Speaker 1: the checks. Nonetheless, Thanks for listening to the Bloomberg Surveillance Podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio