WEBVTT - Alberto Gallo on How the American Dream Turned into Greed and Inequality 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.440 Along with my co host Lisa A. Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:31.200 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 0:00:31.240 --> 0:00:33.800 There's a story that caught my eye, how the American 0:00:33.920 --> 0:00:37.239 Dream turned into greed and inequality. It was authored by 0:00:37.280 --> 0:00:40.720 Alberto Gallo, portfolio manager and head of macro Strategies at 0:00:40.720 --> 0:00:45.840 Algebra's Investments Limited in London, and he joins us now. Alberto, 0:00:45.960 --> 0:00:49.040 I thought this was a fascinating piece that you authored. 0:00:49.240 --> 0:00:53.479 The main point was that monetary policies have sort of 0:00:53.560 --> 0:00:57.720 patched over a lot of sort of policy deficits and 0:00:57.880 --> 0:01:00.960 have allowed the weakest links to just hack on credit 0:01:01.440 --> 0:01:05.679 at the expense of actually improving their place in society. 0:01:05.720 --> 0:01:08.440 Can you give us a sense of what has caused 0:01:08.480 --> 0:01:10.160 us and what has allowed this and what the potential 0:01:10.160 --> 0:01:15.000 consequences are. Good morning, Lisa. We have seen as investors 0:01:15.040 --> 0:01:17.600 in the market every day every month in the last 0:01:17.680 --> 0:01:21.840 nine years, markets rising, but our struggle is that this wealth, 0:01:21.959 --> 0:01:25.320 this benefit hasn't reached the real economy. There's a big 0:01:25.360 --> 0:01:27.720 divide between Wall Street and Main Street. And in the 0:01:27.880 --> 0:01:31.240 end it's negative for everyone because we have seen that 0:01:31.360 --> 0:01:35.440 countries become more and more split as they have and 0:01:35.480 --> 0:01:40.200 they have not followed different political directions. Um. And also geographically, 0:01:40.240 --> 0:01:42.360 you have areas which are very rich versus areas that 0:01:42.400 --> 0:01:44.840 are very poor, like the West and East Coast versus 0:01:44.880 --> 0:01:47.360 the Midwest, or in the in the UK, London versus 0:01:47.360 --> 0:01:50.760 the rest of the country. So you have a very 0:01:50.880 --> 0:01:54.160 usset rich but wage poor recovery. You have countries that 0:01:54.240 --> 0:01:57.200 look very good in GDP terms, but look very bad 0:01:57.320 --> 0:02:01.480 in the distribution of this wealth. The trickle down is 0:02:01.480 --> 0:02:06.960 is some is an illusion, uh, and it generates political instability, Alberto, 0:02:07.080 --> 0:02:12.000 Is this any different than it's always been? No, because 0:02:12.120 --> 0:02:16.480 we are at the endpoint of a very long dead supercycle. 0:02:17.240 --> 0:02:20.960 We started using credit to boost wealth with Nixon, with 0:02:21.120 --> 0:02:25.520 Freddie May Fanny mac being created and privatized, with the 0:02:25.600 --> 0:02:29.640 idea that you could replace productivity with a loan. The 0:02:29.680 --> 0:02:33.720 American dream would be possible. You could go to university, 0:02:33.800 --> 0:02:36.520 you can get a student loan, you could get a 0:02:36.560 --> 0:02:40.440 mortgage just because Uncle Sam would help you to get that. 0:02:40.520 --> 0:02:43.440 But then what happened is that all the tuition fees 0:02:43.480 --> 0:02:45.720 started to go up, all the house prices started to 0:02:45.760 --> 0:02:48.120 go up, and then you needed even more credit. So 0:02:48.200 --> 0:02:52.800 they started really with the baby boomer generation, which and 0:02:52.919 --> 0:02:58.240 with the government subsidy to private debt, which generated a 0:02:58.280 --> 0:03:01.280 growth in debt to GDP private debt to GDP from 0:03:02.360 --> 0:03:08.280 four So we used four dollars of debt private debt 0:03:08.520 --> 0:03:12.800 to generate to to grow GDP GDP group, but private 0:03:12.840 --> 0:03:16.960 debt outgrew GDP by four times between the sixties and 0:03:17.040 --> 0:03:19.760 the two eight crisis. The US did it first, then 0:03:19.760 --> 0:03:22.280 it was Europe done China in the last ten years. 0:03:22.840 --> 0:03:25.240 The question is now you're at the end of the game. 0:03:25.480 --> 0:03:29.639 Because interest rates are records low. You can't lower interest 0:03:29.680 --> 0:03:32.079 rates even more so central banks have bought twenty three 0:03:32.280 --> 0:03:35.360 dollars of assets around the world, but this is effectively 0:03:35.360 --> 0:03:39.240 a debasement of money. Remember money is credit and credit 0:03:39.280 --> 0:03:42.720 means faith in the system. When you depreciate money by 0:03:42.760 --> 0:03:46.080 increasing the value of all the assets that money can buy, 0:03:46.360 --> 0:03:50.120 you implicitly depreciate faith in the financial system, which is 0:03:50.160 --> 0:03:52.760 why people today are looking at buying bitcoin and buying 0:03:52.800 --> 0:03:55.280 gold or buying alternatives because they think that will be 0:03:55.320 --> 0:03:58.880 even more q E and their money will be less 0:03:58.920 --> 0:04:02.760 worth in the future. Uh. These are all shortcuts, um 0:04:02.960 --> 0:04:06.280 for what politicians should have done, investing in productivity, investing 0:04:06.320 --> 0:04:10.440 in education, giving everyone an opportunity, and we are I'm 0:04:10.800 --> 0:04:13.440 sad today to see that politicians are cutting taxes for 0:04:13.480 --> 0:04:17.320 the rich rather than investing in productivity. Alberto, is this 0:04:17.520 --> 0:04:20.760 something you see as just a phenomenon of the last 0:04:20.839 --> 0:04:24.600 fifty years, because you know, post a pre World War Two, 0:04:25.120 --> 0:04:28.800 there were very few opportunities for financial assistance from the 0:04:28.880 --> 0:04:33.719 government for just about anything. So I don't understand exactly 0:04:33.720 --> 0:04:37.080 where this American dream that you're describing comes from, except 0:04:37.160 --> 0:04:40.120 if you agree that it is an anomaly as a 0:04:40.200 --> 0:04:42.560 result of the victory of the United States after the 0:04:42.600 --> 0:04:44.520 Second World War, Because I mean, if you go back 0:04:44.560 --> 0:04:48.200 a hundred years, hardly anybody owned their own home, and 0:04:48.240 --> 0:04:51.880 now homeownership is let's say six However, we got here 0:04:52.200 --> 0:04:55.120 and previously you had to put down a down payment 0:04:55.120 --> 0:04:59.320 of about fifty So whatever the financial rigamarole, I'm wondering, 0:04:59.480 --> 0:05:03.280 is it better now because we've appreciated people's lives and 0:05:03.320 --> 0:05:06.000 maybe depreciated the value of money at the same time. 0:05:07.080 --> 0:05:11.200 I in my view, we need to think about what's 0:05:11.240 --> 0:05:14.839 the dream that we want? Is it about home ownership? 0:05:14.960 --> 0:05:18.360 Does ome ownership make you happy? And today many young 0:05:18.360 --> 0:05:23.279 people can't afford to buy a house um for example. Um, 0:05:23.320 --> 0:05:26.280 but maybe we have substituted the idea of a dream, 0:05:26.360 --> 0:05:30.680 the idea of home ownership, UM with with happiness. While 0:05:31.040 --> 0:05:34.560 happiness is really linked to social mobility, to the chances 0:05:34.640 --> 0:05:37.799 you have in life to end up in a better 0:05:37.960 --> 0:05:41.080 position than your parents. And data today shows that social 0:05:41.080 --> 0:05:43.359 mobility is actually lower in the US than it is 0:05:43.400 --> 0:05:46.400 in Scandinavia for example, or in some other European countries 0:05:46.760 --> 0:05:51.120 that have a much less dynamic economy. And more importantly, um, 0:05:51.160 --> 0:05:53.440 even if you think that you may make it to 0:05:53.560 --> 0:05:57.240 get to the one percent regardless of where you're born, Um, 0:05:57.400 --> 0:06:00.040 do you want to be in a society where, in 0:06:00.200 --> 0:06:04.400 particular the bottom cannot afford uh food? You know? Or 0:06:04.440 --> 0:06:07.960 in the UK one third of children living poverty. Do 0:06:08.040 --> 0:06:10.880 you want to be the successful person in a society 0:06:10.880 --> 0:06:15.360 which is deeply divided and where nurses are on food banks? 0:06:16.080 --> 0:06:18.280 So this this is I think the question we need 0:06:18.320 --> 0:06:21.120 to ask all there too, just real quick, do you 0:06:21.120 --> 0:06:23.760 think they were close to the breaking point at this 0:06:23.520 --> 0:06:28.200 at this at this juncture. I think the question we 0:06:28.279 --> 0:06:33.000 are increasing economists are asking themselves is about, you know, 0:06:33.040 --> 0:06:34.880 some of the assumptions that we use in the last 0:06:34.920 --> 0:06:38.120 twenty thirty years, and politicians, on the other hand, are 0:06:38.160 --> 0:06:43.880 capitalizing on this inequality and this anger. Paradoxically, the irony 0:06:43.960 --> 0:06:45.360 is that in the UK and the U S, which 0:06:45.400 --> 0:06:50.560 are the most flexible economic systems, we have seen more 0:06:50.720 --> 0:06:54.839 political protest vote, more anti establishment votes with you know, 0:06:54.839 --> 0:07:00.000 the Trump administration and Brexit. But these um political moves, 0:07:00.160 --> 0:07:04.240 the movements sometimes are associated with policies that are are 0:07:04.400 --> 0:07:19.800 long term. We have been waiting for general electrics, grand 0:07:19.920 --> 0:07:23.960 vision for how to proceed going forward after a pretty 0:07:24.000 --> 0:07:27.480 horrible year. And here to explain to us, just to 0:07:27.480 --> 0:07:30.200 give us a review of what this plan looks like, 0:07:30.280 --> 0:07:33.120 is Brook Sutherland, an m and a columnist for Bloomberg 0:07:33.240 --> 0:07:35.560 Goad Fly. Brooke, thank you so much for joining us. 0:07:35.560 --> 0:07:37.560 I know today has been a crazy day for you. 0:07:37.680 --> 0:07:40.440 The stock market is responding to ges plan, with the 0:07:40.520 --> 0:07:44.480 shares down more than five cent. You had written long 0:07:44.520 --> 0:07:47.280 ago GE needs to cut its dividend and it will. 0:07:48.080 --> 0:07:51.080 Is this plan still not enough? It's not. And I 0:07:51.120 --> 0:07:54.320 think you know, when we initially saw the dividend cut 0:07:54.400 --> 0:07:56.320 this morning, I was thinking, Okay, well this is good. 0:07:56.320 --> 0:07:58.920 They're being dramatic about it. It It was a fifty cut. 0:07:59.000 --> 0:08:01.280 That was what people were facting and what they sort 0:08:01.320 --> 0:08:03.920 of needed to do. And then they came out with 0:08:03.960 --> 0:08:07.120 their slide deck with their numbers. And when you sort 0:08:07.160 --> 0:08:10.360 of drill down into what those numbers are, I think 0:08:10.400 --> 0:08:12.280 you have to wonder if they did go far enough 0:08:12.360 --> 0:08:14.120 or if maybe they should have cut the divid in more. 0:08:14.680 --> 0:08:17.160 And you know, I think that's raising questions for people. 0:08:17.200 --> 0:08:19.760 I think the other thing is that Flannery promised this 0:08:20.280 --> 0:08:28.480 comprehensive review and we didn't. Yeah. Sorry, um. And if 0:08:28.640 --> 0:08:30.560 you know, he I believe him when he says he 0:08:30.640 --> 0:08:33.760 really drilled down through these businesses and looked at you know, 0:08:33.920 --> 0:08:36.920 units within businesses and everything. But what we got is 0:08:37.000 --> 0:08:40.480 kind of I mean, like, you know, they're talking about 0:08:40.480 --> 0:08:43.720 getting rid of the industrial solutions business, which is great 0:08:43.760 --> 0:08:46.560 because they've already sold that, so then you know it's 0:08:46.600 --> 0:08:50.800 not new. And they're talking about lighting and transportation and 0:08:50.840 --> 0:08:53.320 these are all sort of ancillary businesses that people were 0:08:53.320 --> 0:08:58.320 already expecting them to divest. There's no real new surprising, 0:08:58.480 --> 0:09:00.920 you know, grab your attention at AGY here, and I 0:09:00.960 --> 0:09:03.240 think you know what that means is that we're just 0:09:03.280 --> 0:09:06.680 basically looking at a few years of a really tough 0:09:06.800 --> 0:09:10.520 slog at GE. They're committed to staying in markets like power, 0:09:10.920 --> 0:09:12.760 and power is not going to get better for at 0:09:12.840 --> 0:09:15.160 least a few years, even by g s own admission, 0:09:15.320 --> 0:09:18.560 and you know, some analysts worry it might not ever 0:09:18.640 --> 0:09:20.640 get better. It might just sort of trend down to 0:09:20.760 --> 0:09:24.720 this new normal of lower profitability. And I think you know, 0:09:24.800 --> 0:09:27.720 if you were looking for radical change, this this is 0:09:27.760 --> 0:09:30.720 not it. What about the sell off of the majority 0:09:30.800 --> 0:09:35.640 stake in Baker Hughes. That's new ish, But gees prior 0:09:35.720 --> 0:09:38.400 management had communicated that a spinoff of that or some 0:09:38.440 --> 0:09:42.240 sort of investor was possible when they announced this deal, 0:09:42.320 --> 0:09:45.360 and that's something that investors have been speculating about basically 0:09:45.400 --> 0:09:47.640 ever since they decided that they were going to buy 0:09:47.640 --> 0:09:50.920 the Baker Hughes business and emerge it in this combined entity. 0:09:51.040 --> 0:09:54.640 So this is the first time ge has publicly said, yes, 0:09:54.679 --> 0:09:57.520 we're looking at that, but they've sort of indicated it's possible, 0:09:57.559 --> 0:10:00.800 and people have been expecting that to come, so, you know, 0:10:00.880 --> 0:10:03.880 I think that is a good step, but that's also 0:10:03.920 --> 0:10:05.280 not the kind of thing that they're going to be 0:10:05.320 --> 0:10:07.800 able to do tomorrow. They own, you know, nearly six 0:10:08.480 --> 0:10:10.920 of this business. If you sold that all right now, 0:10:10.920 --> 0:10:12.600 you're not going to get a great price for it. 0:10:12.800 --> 0:10:14.320 Um They're going to have to do it in stages. 0:10:14.360 --> 0:10:15.880 They probably have to wait a while for some of 0:10:15.920 --> 0:10:20.280 these commodity markets to recover. I'm wondering about whether they're 0:10:20.280 --> 0:10:23.040 gonna have to cut the divid in more. I think 0:10:23.200 --> 0:10:25.000 that that is sort of the question, and I you know, 0:10:25.040 --> 0:10:27.880 I don't think we would expect anything, you know, in 0:10:27.920 --> 0:10:29.920 the coming months or anything like that. I think a 0:10:29.960 --> 0:10:32.560 lot of it's going to depend on how team plays out. 0:10:32.559 --> 0:10:35.240 But when you look at those numbers, I think it 0:10:35.240 --> 0:10:37.360 does make you nervous. And even after they cut it, 0:10:37.360 --> 0:10:39.600 they're still going to have one of the highest dividend 0:10:39.600 --> 0:10:43.800 payout ratios among high grade industrials. Talking about high grade, 0:10:44.480 --> 0:10:47.000 I know that g E is on watch for downgrade, 0:10:47.040 --> 0:10:48.920 and you know that I'm obsessed with bonds, so I 0:10:48.960 --> 0:10:52.240 was looking at their von price action and in fact, 0:10:52.440 --> 0:10:54.840 the market is treating them as though they have already 0:10:54.840 --> 0:10:58.680 been downgraded to the lowest rung of investment grade. I 0:10:58.720 --> 0:11:01.440 have to think that's also a headwind because that raises 0:11:01.440 --> 0:11:05.240 their borrowing costs going forward. No, absolutely, and you know 0:11:05.280 --> 0:11:08.840 they're borrowing about six billion to front pay their pension 0:11:09.160 --> 0:11:11.920 um and you know, but you can't just keep going 0:11:12.120 --> 0:11:14.920 to the vond market to keep your business going so 0:11:16.600 --> 0:11:20.560 well fair enough, but um, yeah, you know. I I 0:11:20.679 --> 0:11:22.880 just think that there was so much hype for this event, 0:11:22.920 --> 0:11:24.800 and part of that is g s own fault. I mean, 0:11:24.800 --> 0:11:26.920 the way that they set this up. This November date 0:11:26.920 --> 0:11:29.360 has been on the calendar since September, and then we 0:11:29.400 --> 0:11:32.240 had that horrible earnings report and they kept promising to wait, 0:11:32.240 --> 0:11:34.240 wait with us until we get to November. We're gonna 0:11:34.280 --> 0:11:37.679 tell you this grand plan. And it's basically a reiteration 0:11:37.920 --> 0:11:40.160 with maybe a little bit more details here and there 0:11:40.160 --> 0:11:42.400 of what they said on that third quarter earnings call. 0:11:42.760 --> 0:11:45.840 And so you know, they sort of set themselves up 0:11:45.840 --> 0:11:48.199 for this where they really sort of promised something grand 0:11:48.360 --> 0:11:51.160 and this is not This is not it. I mean, 0:11:51.200 --> 0:11:53.200 this is maybe the best that they can do, and 0:11:53.240 --> 0:11:56.120 maybe this is the what they think is right, But 0:11:56.160 --> 0:11:57.640 this is not the kind of thing that's going to 0:11:57.679 --> 0:12:00.840 be a magic fix for g stock. Is there a 0:12:01.880 --> 0:12:05.120 is there a thought you have about the compensation plan 0:12:05.240 --> 0:12:08.080 that has been announced because they seem to at least 0:12:08.120 --> 0:12:10.120 be putting their own money where their mouth is in 0:12:10.240 --> 0:12:14.240 terms of compensation. Is going to be in stock? No 0:12:14.320 --> 0:12:17.280 more of these long term performance awards, well, some of 0:12:17.280 --> 0:12:19.800 it's going to be in stock, more of it than 0:12:19.840 --> 0:12:21.640 it was before. I think, you know, that's certainly going 0:12:21.679 --> 0:12:24.199 to be a good step. UM. A lot of investors 0:12:24.200 --> 0:12:26.960 were looking at these big payouts that that former executives 0:12:26.960 --> 0:12:30.199 got in cash at times when the company was struggling, 0:12:30.200 --> 0:12:34.120 when you know, what's stock price was not delivering for investors. UM. 0:12:34.200 --> 0:12:36.480 So I think that certainly was a watch item. I 0:12:36.520 --> 0:12:38.320 think this is a good step. I do think you 0:12:38.360 --> 0:12:40.120 have to wonder if down the road there's going to 0:12:40.160 --> 0:12:43.000 be any sort of clawbacks of what was paid to 0:12:43.080 --> 0:12:48.120 former executives UM and if that should be including perhaps 0:12:48.400 --> 0:12:51.000 I mean, you know, I don't think anything has been 0:12:51.040 --> 0:12:53.640 proposed yet, but I know this is something that investors 0:12:53.640 --> 0:12:56.120 I've talked to are wondering about and whether there's any 0:12:56.160 --> 0:12:58.800 grounds there. UM or you know, the head of the 0:12:58.840 --> 0:13:01.280 power business, Steve Bowles. He ran that business for a 0:13:01.360 --> 0:13:05.160 very long time, and John Flannery is basically saying it 0:13:05.240 --> 0:13:08.000 was his fault. It was poor execution. You know, power 0:13:08.080 --> 0:13:11.240 is a troubled market, but we were worse off than 0:13:11.240 --> 0:13:13.360 other people in the power market because of the way 0:13:13.360 --> 0:13:16.200 we handled that business. Well, investors seem to agree with you. 0:13:16.280 --> 0:13:19.160 The shares of Gear down more than five percent right now. 0:13:19.280 --> 0:13:21.680 Thanks very much for being with us. Brook Sutherland is 0:13:21.960 --> 0:13:25.600 m and A. Thomas Bloomberg Gadfly. All things mergers and 0:13:25.679 --> 0:13:43.160 acquisitions much appreciated. Not shopping on Ali Baba Group holding site, 0:13:43.280 --> 0:13:45.600 well you were one of the few, not one of 0:13:45.640 --> 0:13:49.520 the many. The site generated more than twenty five billion 0:13:49.600 --> 0:13:54.680 dollars in sales in China's Singles Day, the perhaps largest 0:13:54.720 --> 0:13:56.920 retail shopping day in the world. Here to tell us 0:13:56.920 --> 0:13:59.840 more about it is Shura over Day. Our technology columnist 0:14:00.000 --> 0:14:03.200 are Bloomberg gad Fly and you can follow Shira on 0:14:03.240 --> 0:14:06.320 Twitter at Shira over Day. Of course, shar thanks for 0:14:06.360 --> 0:14:10.239 coming into the studio. What is why is this so important? 0:14:11.040 --> 0:14:15.480 So Ali Baba essentially created this fake shopping holiday which 0:14:15.480 --> 0:14:18.320 they hold on November eleven every year, and it is 0:14:18.360 --> 0:14:22.760 basically sort of a celebration of shopping and frankly, it's 0:14:22.800 --> 0:14:24.960 a marketing event for Ali Blab, but it's a way 0:14:25.000 --> 0:14:28.160 to draw attention to themselves from all across the globe 0:14:28.480 --> 0:14:32.920 from these enormous sums of sales that they do every year. Yeah, well, 0:14:32.920 --> 0:14:34.840 I mean they're not alone, right, because Amazon also has 0:14:34.880 --> 0:14:37.760 Cyber Monday. I mean, why not create an artificial holiday 0:14:37.760 --> 0:14:40.360 to to have people spend money on your site. The 0:14:40.400 --> 0:14:44.480 fact though, that people spent twenty five point three billion 0:14:44.480 --> 0:14:46.920 dollars in sales is remarkable now, I mean, can you 0:14:46.920 --> 0:14:48.880 put this in a perspective and is this just sort 0:14:48.880 --> 0:14:51.440 of a blow away as far as what people were expecting. 0:14:51.720 --> 0:14:54.400 It is a staggering number. And we should remember that 0:14:54.960 --> 0:14:59.160 China is the largest um market in the in the world, 0:14:59.360 --> 0:15:03.000 both for or electronic commerce and for a number of 0:15:03.000 --> 0:15:05.080 people on the internet, so the numbers in China are 0:15:05.080 --> 0:15:09.320 always going to be big. But billion is roughly equivalent 0:15:09.360 --> 0:15:13.840 to the total quarterly sales on eBay, so and that 0:15:13.880 --> 0:15:15.520 was done in a single day, So it's a lot. 0:15:15.880 --> 0:15:19.680 But it's also important to remember that Ali Baba, unlike Amazon, 0:15:19.760 --> 0:15:24.240 to which it's frequently compared doesn't make money directly from 0:15:24.320 --> 0:15:27.000 merchandise sales, or doesn't make the majority of its money 0:15:27.000 --> 0:15:30.560 from merchandise sales. It makes money from the merchants who 0:15:30.640 --> 0:15:35.640 advertise to make those sales on ali Baba. So the 0:15:35.760 --> 0:15:39.920 actual total daily sales, even on a marketing day, are 0:15:40.000 --> 0:15:44.680 not really that material to Ali Baba. Do they make 0:15:44.760 --> 0:15:47.840 money in terms of margin on this kind of stuff? 0:15:47.840 --> 0:15:50.520 I mean because that you can have a artificial shopping day, 0:15:50.560 --> 0:15:53.000 cut the prices, you get great sales, and then you 0:15:53.040 --> 0:15:56.000 go back to the other three something days of the 0:15:56.080 --> 0:15:58.400 year and you realize, although you gotta make up for 0:15:58.440 --> 0:16:00.880 that one bad day we had. Well, I think the 0:16:00.880 --> 0:16:04.120 better question is do the merchants who sell their stuff 0:16:04.160 --> 0:16:06.360 through ali Baba make money? And I don't know, and 0:16:06.400 --> 0:16:09.160 I think it probably varies a lot by merchant um. Again, 0:16:09.240 --> 0:16:12.560 because ali Baba is not selling products directly, it's more 0:16:12.560 --> 0:16:16.400 of a middleman. For companies that are selling directly to consumers, 0:16:16.440 --> 0:16:19.040 their sales tend to be pretty profitable because they're they're 0:16:19.120 --> 0:16:21.600 essentially making money from advertising, which is a high margin 0:16:21.640 --> 0:16:25.080 business for most digital media companies are digital advertising companies. 0:16:25.240 --> 0:16:27.960 So Shara, you know me really well, and I imagine 0:16:27.960 --> 0:16:30.280 you were expecting me to ask about bonds because Ali 0:16:30.360 --> 0:16:33.280 Baba is selling some and the US asking me about 0:16:34.720 --> 0:16:37.040 flow flow your mind. Um, but you know Ali Baba 0:16:37.120 --> 0:16:41.960 selling seven billion dollars in US dollar denominated bonds pricing 0:16:42.000 --> 0:16:45.080 at some point this week. This is the first sale 0:16:45.280 --> 0:16:48.840 of the company in the U S Why they just 0:16:48.880 --> 0:16:51.280 sold all this like material? They? I mean they why 0:16:51.280 --> 0:16:53.400 do they need money? I mean, I think the answer 0:16:53.480 --> 0:16:56.400 to any tech companies selling debt these days is because 0:16:56.440 --> 0:17:01.160 they can. Um that we've seen the the last few years. Um. 0:17:01.320 --> 0:17:05.399 Now seven the top seven companies in the public companies 0:17:05.440 --> 0:17:09.120 in the world by stock market value or all tech companies, um. 0:17:09.359 --> 0:17:12.000 And you know investors see that and are willing to 0:17:12.040 --> 0:17:15.960 loan money to these companies because of their enormous size, profitability, 0:17:16.000 --> 0:17:18.800 and market power. Right. But you know, if I could 0:17:18.800 --> 0:17:21.399 borrow money at a four percent rate or four and 0:17:21.400 --> 0:17:23.720 a half percent rate, unless I'm going to use it 0:17:23.800 --> 0:17:26.040 for something, it's a drag, right, I mean, is it 0:17:26.200 --> 0:17:29.000 going to be for refinancing debt? Is it that they're 0:17:29.000 --> 0:17:32.160 going to build out operations in the US. Is there 0:17:32.200 --> 0:17:34.520 a sense of what it's going to be going toward? Right, 0:17:34.560 --> 0:17:37.080 whether it's true that Ali Baba does have debt that 0:17:37.160 --> 0:17:39.520 they're trying to refinance, so certainly that's part of it, 0:17:39.560 --> 0:17:41.720 and they weren't very explicit about what they will do 0:17:41.760 --> 0:17:43.840 with the money. But it's also true that Ali Baba 0:17:43.960 --> 0:17:47.440 has been an acquisitive company. They invest a lot, both 0:17:47.520 --> 0:17:50.400 in startups and in other companies around the world, not 0:17:50.480 --> 0:17:53.000 so much in the United States, but um certainly in 0:17:53.040 --> 0:17:55.679 their home country and in places like the Middle East. 0:17:56.040 --> 0:17:59.520 And this is a company that has global ambitions. Again, 0:17:59.560 --> 0:18:04.879 maybe not US ambitions, but um global US ambitions. You know. 0:18:04.920 --> 0:18:08.280 One of the things I noted about this particular Singles 0:18:08.359 --> 0:18:11.680 Day is that Ali Baba has rolled out a kind 0:18:11.680 --> 0:18:16.720 of artificial intelligence fashion aid as well as an artificial 0:18:16.800 --> 0:18:20.800 reality game. So in a variety of restaurants, and I 0:18:20.840 --> 0:18:25.280 believe in some select malls, you can go online, you 0:18:25.400 --> 0:18:29.560 play an artificial reality game, you earn coupons that are 0:18:29.600 --> 0:18:34.360 then valid for shopping on Ali Baba's site. I'm wondering 0:18:34.440 --> 0:18:37.760 is that something of a strategy that could be adopted 0:18:37.800 --> 0:18:40.080 in the United States. I mean, we don't see anything 0:18:40.160 --> 0:18:44.680 like that, this merging of online shopping, but with online 0:18:44.720 --> 0:18:47.240 game playing in the real world. So I think two things. 0:18:47.359 --> 0:18:51.679 One is that artificial intelligence and virtual reality, these are 0:18:51.720 --> 0:18:54.639 sort of buzzwords that every company is going to dabble 0:18:54.680 --> 0:18:57.840 in UM and TBD whether that will be an effective 0:18:57.840 --> 0:19:02.080 sales strategy. But the second point is that I think 0:19:02.359 --> 0:19:04.600 ali Baba to the extent that we have not really 0:19:04.720 --> 0:19:08.200 seen here in the US. They have been very savvy 0:19:08.240 --> 0:19:13.080 about uniting online and physical commerce, and again in a 0:19:13.119 --> 0:19:15.199 way that even a company like a smart company like 0:19:15.240 --> 0:19:18.240 Amazon has not really done, including in groceries by the way, 0:19:18.320 --> 0:19:21.320 where Ali Baba is trying to sort of do that 0:19:21.440 --> 0:19:24.200 merging that Amazon is also trying to do a physical 0:19:24.200 --> 0:19:27.200 grocery shopping and digital grocery shopping. Of course, ali Baba 0:19:27.240 --> 0:19:28.879 also has the benefit of not having to deal with 0:19:29.000 --> 0:19:31.479 different security and privacy rules, and they can use all 0:19:31.520 --> 0:19:36.440 of their data to monopolize their client customer. The Chinese 0:19:36.440 --> 0:19:40.160 technology giants have certain advantages that US tech giants don't have. True, 0:19:40.280 --> 0:19:43.040 that's the diplomatic way of putting it. Shira Day, thank 0:19:43.040 --> 0:19:45.600 you so much for joining us. As always, Shira Ovidate, 0:19:45.640 --> 0:19:49.520 technology columnist for Bloomberg gad Flyer. Stuff is great. Read 0:19:49.520 --> 0:20:05.080 it Bloomberg dot com, slash goad fly shares of Mattel 0:20:05.280 --> 0:20:09.280 soaring up more than the stock of Hasbro, up about 0:20:09.280 --> 0:20:12.920 six and a half percent. Will these two toymakers come together, Well, 0:20:13.000 --> 0:20:16.280 let's bring in Sarah Halzac, our retail columnist our Bloomberg 0:20:16.320 --> 0:20:19.840 gad Fly, and she joins us from our Bloomberg studios 0:20:19.920 --> 0:20:23.280 in Washington, d C. Sarah, what can you tell us 0:20:23.280 --> 0:20:27.040 about this potential merger? We're gonna see hot wheels driving 0:20:27.040 --> 0:20:30.240 around the monopoly board soon. Yeah, I think there's a 0:20:30.240 --> 0:20:32.760 good chance of it. And here's why. The toy industry 0:20:32.960 --> 0:20:35.440 is really in a place of big change right now, 0:20:35.640 --> 0:20:38.440 and I think Hasbro and Mattel could confront it better together. 0:20:38.840 --> 0:20:40.720 So one thing is that these companies are having to 0:20:40.760 --> 0:20:43.879 develop new core competencies. As we all know, play is 0:20:43.920 --> 0:20:48.119 getting more digital. They can't just make molded plastic blocks anymore. Um. 0:20:48.280 --> 0:20:51.720 They have to learn how to make YouTube videos, apps, 0:20:51.960 --> 0:20:54.360 and even get onto the big screen, as Hasbro has 0:20:54.400 --> 0:20:56.879 done with My Little Pony movie. So they have to 0:20:56.920 --> 0:20:58.560 learn how to do new things and they can probably 0:20:58.560 --> 0:21:01.960 do that better together. Well, I'm just wondering, Sarah, why 0:21:02.000 --> 0:21:06.040 this didn't happen earlier, because the retail industry and even 0:21:06.080 --> 0:21:09.560 the toy industry has been under pressure for a while. Yeah, 0:21:09.600 --> 0:21:11.920 it's a good question, Um, but I think one thing 0:21:11.960 --> 0:21:14.840 we can consider is how the toy industry in particular 0:21:14.880 --> 0:21:19.919 has been looking, and in fact, were blockbuster years for 0:21:19.920 --> 0:21:22.600 the industry. I think was its best year in over 0:21:22.640 --> 0:21:24.840 a decade. And you had a number of different things 0:21:24.840 --> 0:21:27.760 fueling that. It's a really strong year for movies. For example, 0:21:27.840 --> 0:21:30.560 that was when Star Wars first came back after about 0:21:30.560 --> 0:21:33.879 ten years of no new films. You had properties like shopkins, 0:21:33.960 --> 0:21:35.760 You had all sorts of things that were sort of 0:21:35.960 --> 0:21:38.520 a rising tide lifting all boats in the toy industry, 0:21:38.760 --> 0:21:41.600 sort of making things look good and making tough decisions 0:21:41.600 --> 0:21:45.119 like this look less urgent. Is this going. Is this 0:21:45.160 --> 0:21:50.120 potential combination going to affect companies that the license their 0:21:50.160 --> 0:21:53.680 products and their brands to the toy makers in order 0:21:53.720 --> 0:21:56.720 to make their products, whether it is a Disney or 0:21:56.760 --> 0:22:00.680 a movie maker. Yeah, I think that's still kind of 0:22:00.760 --> 0:22:04.200 clarifying itself, to be honest, because, um, it is true 0:22:04.200 --> 0:22:06.760 that they'll have some competing licenses. One will have a 0:22:06.760 --> 0:22:09.359 license for d C comics, one will have a license 0:22:09.359 --> 0:22:13.040 for Marvel comics, and sort of what challenges that presents 0:22:13.119 --> 0:22:14.960 or what weakal issues that presents that they were to 0:22:15.000 --> 0:22:18.240 get together, I think is still clarifying at this point. 0:22:18.600 --> 0:22:20.600 Do you have a sense of whether the Toys r 0:22:20.640 --> 0:22:25.359 US bankruptcy kind of pushed this into high gear. I 0:22:25.400 --> 0:22:27.760 think it's fair to say that it probably did in 0:22:28.080 --> 0:22:30.720 the sense that, you know, Mittel really took a bath 0:22:30.760 --> 0:22:34.720 after its latest earnings report, um, when sales just plummeted, 0:22:34.760 --> 0:22:37.120 and they attributed about half of that decline in North America. 0:22:37.160 --> 0:22:41.600