Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: Jai Ley. 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 Right now.
Speaker 1: Truly one of America's authorities on this one of the
Speaker 1: world's authorities out imposing with his public service at the
Speaker 1: Bank of England is now of course running the shop
Speaker 1: at the Peterson Institute as well. Adam, I'm gonna cut
Speaker 1: to the chase. This is a massive victory lap for
Speaker 1: Olivier Blanchard. He was half a decade, if not more,
Speaker 1: out front on this concept. What does Olivier Blanchard said
Speaker 1: of this historic moment. I don't have anything public from
Speaker 1: the Vier to say. I hope you'll have him on
Speaker 1: to speak for himself, Tom, But I think all of
Speaker 1: us said Peterson, and all of us have been engaging
Speaker 1: in monetary policy. View this as a victory that since
Speaker 1: maybe a decade ago, certainly since we've been asking the
Speaker 1: FED and the other major central banks to recognize the
Speaker 1: reality that the inflation response to unemployment is much lower.
Speaker 1: It's meaning a flatter Phillips curven than. I thought that
Speaker 1: there is reason in distributional terms for equity as well
Speaker 1: as economic efficiency to push the economy hot, that the
Speaker 1: NEHRU was being too precisely incorrectly estimated and relied on
Speaker 1: too much. And we've seen in a series of steps
Speaker 1: from chair Pal, Vice Chair Clarata, lit Brainerd and others
Speaker 1: them moving towards this more reality based monitor. I think
Speaker 1: it's a huge step. The Latin phrases here are ex
Speaker 1: ante an ex post let's translated on a Monday morning,
Speaker 1: which is I think of a Georgia school. Richard Timberlake,
Speaker 1: Robert McTier and others saying, look, you've got to wait
Speaker 1: to see the evidence before you move. Is this a
Speaker 1: fed that can actually get out front of events or
Speaker 1: do they completely capitulate to an after the fact policy.
Speaker 1: I think they are rationally deciding that being ex anti
Speaker 1: oriented wasn't working. And the biggest thing you can take
Speaker 1: away from chair Pal's remarks is this sense of pragmatism,
Speaker 1: and the only reason not to be pragmatic is fear
Speaker 1: of instability, which doesn't seem to be in the car.
Speaker 1: I mean remember, Thomas, you've said, as everyone is said
Speaker 1: the Fed, as the quotes from the federals are bank
Speaker 1: presidents you had on the clips, the FED is undershot
Speaker 1: its inflation target, undershot its forecast for years. So the
Speaker 1: idea that somehow this ex anti preemptive approach is working
Speaker 1: was a mistake. And I think there were others, including
Speaker 1: Charlie Evans of at Chicago, Larry Summers, myself, Olivier who
Speaker 1: you mentioned, who we're talking about things like wait till
Speaker 1: inflation appears. And as I cited in a recent blog post,
Speaker 1: the Nobel Laureate Bob Solo was debating that favor of
Speaker 1: experimenting on lower unemployment against John Taylor's rules back and
Speaker 1: they're running. This argument has been there, and I really
Speaker 1: want to emphasize here Mr Evans of Chicago Folks, who's
Speaker 1: been extremely articulate and laying this out as a public official,
Speaker 1: obviously president of Chicago Fed, ad imposing to me what's
Speaker 1: so important here is not so much the theory of
Speaker 1: John B. Taylor of Stanford, but the granularity and data
Speaker 1: dependence of Alan Greenspan and the idea of a measured approach.
Speaker 1: Should we fear being less measured. No. I think, if anything,
Speaker 1: this is a move back towards the green span of
Speaker 1: the mid nineties, that you are increasing discretion at the
Speaker 1: same time you're increasing a commitment to what you're calling granularity,
Speaker 1: which is real world, real time data. You can't do
Speaker 1: it totally without there, you can't do it totally without
Speaker 1: some discipline. But the whole point of inflation targeting, which Bernankee,
Speaker 1: Louboch Michigan, and I argued now twenty years ago, was
Speaker 1: that it's trying to calibrate a right balance between discretion
Speaker 1: and rules and anchor your expectations through transparency, through a
Speaker 1: discourse with the public and markets about what's really going on.
Speaker 1: And that's Greenspan wasn't great on the discourse part, but
Speaker 1: he was good on the rest of it. We've been sorry. Well,
Speaker 1: we're writing for Robert Samuelson to publish a course at
Speaker 1: the Washington Post and his great one volume, a nice,
Speaker 1: good read on Walter Heller in the time of the sixties,
Speaker 1: and it goes to this phrase stop go policy, where yeah,
Speaker 1: you're more you're more ad hoc, you're more looser in
Speaker 1: your policy. But do we risk the stop go volatility
Speaker 1: of pol let's see that we witnessed in the late
Speaker 1: sixties into the seventies. We risk it slightly, but I
Speaker 1: don't think it's a realistic risk, and especially compared to
Speaker 1: what we've already seen, not a risk, which is the
Speaker 1: kind of secular stagnation and the lack of traction of
Speaker 1: monetary policy, and most of all, as chair Poal I
Speaker 1: think has rightly put it, or I rephrase chair Pal,
Speaker 1: they left potential employment gains on the table for years
Speaker 1: for no good purpose. And again ex anti ex post
Speaker 1: x anti. You can understand why they were changed, why
Speaker 1: those decisions were made, even though some of us aregued
Speaker 1: against them, but the ex post is clear that they
Speaker 1: were leaving output employment opportunities, convergence in real wages across
Speaker 1: racial groups on the table out of fear for inflation.
Speaker 1: That didn't come that. This issue is if this flips
Speaker 1: us into a high inflation world of say the Phillips
Speaker 1: curved king, like my colleague Joe Gannon and Kristin Forbes are,
Speaker 1: it's pretty easy for the Fed to go back and
Speaker 1: raise right. So I don't view this as that risky path.
Speaker 1: People will say that the next post they're going to
Speaker 1: find out it's not imposing. Right now history is being
Speaker 1: made with an American delegation and Mr Kusher on board.
Speaker 1: L all One is well out over the southern southeastern
Speaker 1: Saudi Peninsula, making the bank turn into Abu Dhabi. This
Speaker 1: is the politics of a fractious region hinged together by
Speaker 1: central banking and finance. Tell us about not the integrity,
Speaker 1: but tell us about the solidity of the central banks
Speaker 1: of the United Arab Emirates. I'm not an expert on
Speaker 1: that region, but I do know that they together with
Speaker 1: the central banks and BRAIN and Saudi, they they are
Speaker 1: professionally run, they are part of the central banking community,
Speaker 1: and they of course have been running this coordinated peg
Speaker 1: on the doll and this is where it all comes together.
Speaker 1: Other because you have the FED continuing to anchor worldwide
Speaker 1: use of the dollar. The other way this Middle Eastern
Speaker 1: issue comes in those um is the US government, increasingly
Speaker 1: under Trump but also with democratic use and encouragement, keeps
Speaker 1: overusing unilateral financial sanctions. And if they keep doing that,
Speaker 1: you you you overuse it. Then you incentivize places like Foudy,
Speaker 1: like the UA about to mention China and Russia to
Speaker 1: get out from under the dollar and out from under
Speaker 1: the US financial system, and that's going to be something
Speaker 1: to watch and coming years. The FED can make it
Speaker 1: attractive to being the dollar, but the U. S Government
Speaker 1: of using the role of the dollar and overusing sanctions
Speaker 1: can make it very unattractive. And that's when you start
Speaker 1: getting alternatives being put forward. Go back to Carney's speech
Speaker 1: at Jackson Hole a year ago. Dr Posen, thank you
Speaker 1: so much, always informative adam posing of the Peterson Institute.
Speaker 1: Right now we migrate to a discussion here in an
Speaker 1: important discussion of the view forward given equity valuations. We
Speaker 1: do that with Sebastian page of t ro Price. Sebastian,
Speaker 1: I've got to rip up the script here and go
Speaker 1: to your hugely anticipated book out in November. Beyond diversification.
Speaker 1: This has been a huge theme of my work here recently.
Speaker 1: Are we over diversified? Just simply, Sebastian, to the heart
Speaker 1: of your book. Are we too diversified and too diffuse
Speaker 1: in our potential return? I don't think we are. In fact,
Speaker 1: to me, it's very simple. Diversification fails exactly when we
Speaker 1: needed the most, and we've just lived through this during
Speaker 1: COVID now you know this, most investors know this, But
Speaker 1: in the book I argue that the magnitude and the
Speaker 1: prevalence of the failure of diversification is very much underestimated
Speaker 1: and buy investment pros. And you know, every time we
Speaker 1: get crisis like the one we just had in a
Speaker 1: big market sell off, people seem surprised that correlations that
Speaker 1: are normally in the zero to fift range jump to
Speaker 1: the nine plus percent range. There are huge investment implications
Speaker 1: to that. Tom, your question is about are we over diversified?
Speaker 1: I would say I don't think so, but I don't
Speaker 1: think that we are well diversified either. With a focus
Speaker 1: on those market sell offs, those tail risks, if you will.
Speaker 1: Is Mr Buffett buying into diversification with his five trading companies.
Speaker 1: These are the historic companies of Japan with an absolutely unique,
Speaker 1: some would say over diversified, hyper risk managed industrial structure.
Speaker 1: Is that a constructive diversification? I think he is because
Speaker 1: he's getting international diversification and it's not hear what he's
Speaker 1: doing with the current series, but he's also potentially getting
Speaker 1: exposure to that factor, and he also remains quite diversified
Speaker 1: if you think about it, with his cash buffer, and
Speaker 1: the whole idea is that when Marcus sell off, the
Speaker 1: way you think you're diversified really doesn't play out. And
Speaker 1: I keep coming back to this idea of of downside
Speaker 1: versus upside diversifications. On Buffett's case, I think here he's
Speaker 1: increasing what I would call it good aspect of diversification,
Speaker 1: which is global diversification. There's also a question of whether
Speaker 1: bonds provide the same sort of diversification. Just crossing the Bloomberg,
Speaker 1: I should mention that German the German inflation rate fell
Speaker 1: to negative zero point one percent versus the expectation for
Speaker 1: a rise of zero point one percent, giving an ongoing
Speaker 1: bid to German debt US treasuries. This idea of no
Speaker 1: inflation going forward is the sixty four any portfolio dead, Lisa,
Speaker 1: We've been debating the role of treasuries in particular as
Speaker 1: diversifiers and investors portfolios. We all know that when markets
Speaker 1: sell off, risk assets sell off together, even if in
Speaker 1: normal times they have different fundamental That leaves you with
Speaker 1: the duration factor. The role of treasuries and portfolios. When
Speaker 1: we hit the zero bound, treasuries are not as good
Speaker 1: a diversifier as they as you would expect or as
Speaker 1: you would need them to be. I looked at the
Speaker 1: nominal yield on the Barclays Global aggregate this morning, and
Speaker 1: I know on the show you like to talk about
Speaker 1: nominal versus real yield, but let's just stick the nomenal
Speaker 1: yield ninety one basis points on my Bloomberg this morning, right,
Speaker 1: nine one basis points on the Barclays Global aggregate. So
Speaker 1: if we get a sell off, there's high valuations, markets
Speaker 1: are fragile, we're going through on certain recovery. If we
Speaker 1: get a sell off, what kind of rally can we
Speaker 1: get in bonds when the starting yield is ninety one
Speaker 1: basis points? Well, and that goes to the Warren buffet beat,
Speaker 1: the basic diversification as the place to look for income.
Speaker 1: How much is the currency play the main play here,
Speaker 1: the look for some sort of haven and the yen
Speaker 1: being that Sowart versus U S bonds. Yeah, I think
Speaker 1: you have to begin to look through asset classes to
Speaker 1: the underlying factors. So currencies can play a role in diversification,
Speaker 1: but you also have to begin to think about hedging strategies.
Speaker 1: You have to begin to think about more dynamics strategies
Speaker 1: like directly managing your volatility. All these different approaches, including
Speaker 1: active management and the long short investing, become more important
Speaker 1: in the portfolio in a world where you don't get
Speaker 1: much diversification from your trashuries. Semester too short of visit
Speaker 1: will have to do this again, and of course this
Speaker 1: autumn will have a celebration of his book Beyond Diversification
Speaker 1: Sebastian page with tro Price. Right now, this is a
Speaker 1: really important interview, she writes in fancy medical journals. Mercedes
Speaker 1: Karnathon is a Northwestern University professor of medicine. There with
Speaker 1: the workout of Stanford and North Carolina over the years,
Speaker 1: and we're thrilled she could join us. And I don't
Speaker 1: want to talk fancy medicine professor, I want to talk
Speaker 1: your glorious interview with w L S in Chicago back
Speaker 1: in June, where someone is knowledgeable as you worried about
Speaker 1: the sweat of what you do with your kids in
Speaker 1: this pandemic to get them to socially interact. We are
Speaker 1: back to school now, who's doing back to school best?
Speaker 1: You know? Those questions are really critical and I find
Speaker 1: it to be critical across our society and medicine, as
Speaker 1: well as how it contributes to our economy. So the
Speaker 1: places that are going to do the best with returning
Speaker 1: to school safely are going to be those locations where
Speaker 1: the community spread is fairly low. And that's because what
Speaker 1: we can expect to see within a school is a
Speaker 1: reflection of what's currently circulating in the community. And so
Speaker 1: in places such as Florida and Georgia and Texas, which
Speaker 1: coincidentally open schools the earliest and try to open schools
Speaker 1: amidst high case rates in the community, we see a
Speaker 1: lot of reports of outbreaks. I'm very hopeful that places
Speaker 1: such as the Northeast that are opening up early in September,
Speaker 1: we'll have a different experience because their community burden is lower.
Speaker 1: But do your very emotional article for w l S
Speaker 1: and Chicago, folks. It was really something about the sweat
Speaker 1: of parents with young children, like, actually, what do you
Speaker 1: do in London? They are begging for people to them
Speaker 1: back to the office. People up there, Dr Carnathon are
Speaker 1: afraid to go to work. And I want to say, folks,
Speaker 1: Bloomberg has been phenomenal with me and Lisa about getting
Speaker 1: us safely to work every day Pharaoh, they don't give
Speaker 1: a damn about but me and Lisa, they'd be really
Speaker 1: really good about. Dr Carnathon, Are we over doing this?
Speaker 1: Should we get back to work? And get back to work?
Speaker 1: Now you have the challenge of getting back to work
Speaker 1: is whether or not we can actually find somewhere for
Speaker 1: young children to go. I have a five and seven
Speaker 1: year old who will be home all day with me today,
Speaker 1: So what I get done is very questionable. And I
Speaker 1: think businesses feel this, and they see this, and they
Speaker 1: walk their employees back and rightly so. However, for the
Speaker 1: millions of working parents who've got extremely young children who
Speaker 1: can't stay alone, that's not going to be feasible without
Speaker 1: some sort of notable intervention, Dr Carnathon. At the heart
Speaker 1: of this question is how much we know about the
Speaker 1: transmission of COVID nineteen. Do we have a sense of
Speaker 1: just how contagious it is whether you're outside or inside. Yes.
Speaker 1: What we know so far, and it's certainly emerging, is
Speaker 1: that rates of transmission are lower when you're outside because
Speaker 1: the air droplets they get dispersed a little more. We
Speaker 1: know that protecting ourselves wearing masks can prevent the spread
Speaker 1: in cases where we can't socially distance, and some of
Speaker 1: those cases are going to be workplaces, and they're going
Speaker 1: to be schools and as well as hospitals. You think
Speaker 1: about workers within a hospital setting. We haven't seen the
Speaker 1: extremely high numbers of infected medical personnel as of late
Speaker 1: that we saw back in early March. So we know
Speaker 1: that protective equipment does work, and that's what we're going
Speaker 1: to need to be able to get people back to
Speaker 1: work in inside settings. You know, Tom, The reason why
Speaker 1: I asked this is because I was out and about
Speaker 1: in the city over the weekend and there are tons
Speaker 1: of people outside and they're eating at restaurants and they're
Speaker 1: not exactly socially distanced, And yet we haven't really seen
Speaker 1: the upsurge in cases, and some people are questioning whether
Speaker 1: this is herd immunity. Some people are saying, well, there
Speaker 1: just isn't the same sort of transmissionary outside. Still a
Speaker 1: question tomes Lisa. But to your point in folks, I
Speaker 1: was a guest of the New York Islanders this weekend,
Speaker 1: so so sort of the social life that Lisa lives
Speaker 1: that I don't live in my sequestion. Then, But Lisa,
Speaker 1: what's so important. I want you to go to Dr
Speaker 1: Carnathon on this, Lisa. What is so important here is
Speaker 1: if we're socializing like that on the street, why can't
Speaker 1: we socialize like that at the office? Well? And and
Speaker 1: Dr Carnathon have we seen I mean to Tom's point,
Speaker 1: is it's safe to be less than six ft apart
Speaker 1: without a mask when you're outside? And is it possible
Speaker 1: that if you are six feet in the office you're fine?
Speaker 1: Me six feet was a number that was generated based
Speaker 1: on a few experiments and based on evidence suggesting an
Speaker 1: appropriate distance. We know for sure that these respiratory droplets
Speaker 1: can travel further than six ft. You know, when we
Speaker 1: think about setting such as the choir, the outbreaks that
Speaker 1: happened in Washington State around a choir practice, or when
Speaker 1: you're shouting or exercising and breathing heavily, six ft isn't
Speaker 1: going to be sufficient. Whether it's going to be sufficient
Speaker 1: for eating indoors, that's not entirely clear. I know that
Speaker 1: I wouldn't roll the dice on that in an indoor setting.
Speaker 1: And similarly, workplaces are very different. It's very different if
Speaker 1: you have a private office than if you're working in
Speaker 1: a cubicle or other shared space. Dr Karne thought, I
Speaker 1: want to switch gears here. We do this on Bloomberg Surveillance.
Speaker 1: Stay with us. And I'm not going to ask you
Speaker 1: cubs white socks. That would be too stressful, but because
Speaker 1: maybe okay, but not that stressful, not that stressful. But
Speaker 1: I do want to talk about what you have been doing.
Speaker 1: You have been a leader in the framework, the mental
Speaker 1: framework of women to have a vision of a champion.
Speaker 1: That's a title from another book that you didn't write.
Speaker 1: Give us an update right now. And what you see
Speaker 1: in women's sports in framing women to be more intrinsically competitive. Yeah,
Speaker 1: you know, that's another favorite of mine as a former
Speaker 1: athlete and raising young children, one of whom as a girl. Um,
Speaker 1: I think it's really critically important that we emphasize to
Speaker 1: women the importance of learning to compete, of not being
Speaker 1: afraid to beat someone else and being unapologetic about it.
Speaker 1: You know, the last thing you'd want would be a
Speaker 1: world leader or a CFO who feels shy or hesitant
Speaker 1: about beating someone. And I think a lot of those
Speaker 1: lessons about competition are learned through sports, So I think
Speaker 1: it's critically important that girls get out there, they get
Speaker 1: on the field and they learn to compete. And for
Speaker 1: everyone sports isn't going to be their thing. But there
Speaker 1: are other competitive venues. Yeah, there's a debate, not a sport,
Speaker 1: but certainly competitive. They're the arts where you need to
Speaker 1: be your best and quite often you're going to be
Speaker 1: ranked by subjective criteria. So having the competition, the competitive spirit,
Speaker 1: having the focus to be able to practice to be
Speaker 1: your best, I think that's critically important, especially for women.
Speaker 1: Dr Knne from Thank You so much, greatly appreciated. She
Speaker 1: is a professor at Northwestern University on the pandemic and
Speaker 1: on some of the social aspects of our path forward
Speaker 1: right now and this is gonna be a lot of fun.
Speaker 1: Is Michael Dows, who's iconic at Wilson, And all you
Speaker 1: need to know is if it's a grass court, there's
Speaker 1: a certain ball, or a clay court like the French Open,
Speaker 1: a certain ball, and then there's hard court tennis and
Speaker 1: Wilson and Michael does have on that for over four decades.
Speaker 1: You use Wilson tennis balls, you do nothing else, and
Speaker 1: you believe in innovation. He was so good out at
Speaker 1: the United States Tennis Association dragged him pe pre pandemic
Speaker 1: over into their combine to keep tennis magic going, and
Speaker 1: he's been given a pandemic. We're thrilled that Mr Dallas
Speaker 1: could join us with Miss Azararenka in the background screaming
Speaker 1: every third hit as well. Michael, congratulations on keeping it going.
Speaker 1: What have you learned from the other sports about what
Speaker 1: not to do if this us open? Well, not to
Speaker 1: take it lightly and Tom les and thanks for having
Speaker 1: me on the show today. And it is true. Victoria's
Speaker 1: back here hitting the way, so hopefully it's not too noisy.
Speaker 1: But what we learned is we've got to take this
Speaker 1: serious and and never take anything for granted, and have
Speaker 1: great partnership and teamwork with the pro Tours, but more
Speaker 1: importantly the government right the federal government, the City of
Speaker 1: New York, in the State of government. There was a
Speaker 1: lot of moving parts and we had to pull all
Speaker 1: this together to assure a safe and healthy tournament. There
Speaker 1: are jump conditions for tennis. It's always been that kind
Speaker 1: of sport. There was a guy named James Connors who
Speaker 1: had a Wilson to two thousand racket a few years
Speaker 1: ago and level the way the sport was played. Are
Speaker 1: you at a point of innovation now? Is tennis ready
Speaker 1: for a new jump condition of skill and speed? Oh?
Speaker 1: I think the game is completely evolved over the years.
Speaker 1: The amount of athleticism is incredible. But having said that,
Speaker 1: it's a sport for all. If you think about it,
Speaker 1: tennis is one of the few sports you can start
Speaker 1: when you're five or six years old and you can
Speaker 1: play all the way into your eighties. We host tournaments
Speaker 1: from tenna nunners to eighty and over, so it's not
Speaker 1: only the greatest athletes in the world, but it's all
Speaker 1: people can play our sport. Micah, It's interesting when you
Speaker 1: think about tennis. You think of two people at opposite
Speaker 1: sides of the court, They're going to be naturally socially distanced.
Speaker 1: What have some of the challenge has been for you
Speaker 1: to bring some of these tennis professionals, the legends of
Speaker 1: the world together at a time of the raging pandemic
Speaker 1: that you really hadn't thought about before. Yeah, it was
Speaker 1: a real lot of international cooperation and working with the
Speaker 1: pro Tour. Did you think about it. We have players
Speaker 1: from over sixty countries, so the dynamics we had to
Speaker 1: work with are quite a bit different than the professional
Speaker 1: leagues here in the US, so we had to get
Speaker 1: collaboration from several governments in Europe not just get the
Speaker 1: athletes in, but to assure we can get him back
Speaker 1: to Europe after the tournament. And again we had to
Speaker 1: work with the City of New York and the State
Speaker 1: of New York to make sure our health protocols were
Speaker 1: buttoned down and perfect to run this tournament. So, Mike,
Speaker 1: there's been a lot of controversy over crowd noise. Tom
Speaker 1: Keane has demonstrated his own version of crowd noise and
Speaker 1: in tennis it's polite clapping and things like that. Are
Speaker 1: you just gonna have it silent or are you going
Speaker 1: to engage in some sort of crowd environment that's manufactured. Personally,
Speaker 1: I'm a fan of crowd noise, so the more crowd
Speaker 1: noise we have, the better. But for this year, obviously
Speaker 1: without fans on site, we've partnered with one of our partners, IBM,
Speaker 1: to come up with taking crowd noise from last year.
Speaker 1: They they run their AI magic to it and this
Speaker 1: year it's going to simulate the crowd noise from last year.
Speaker 1: So we think it's gonna be pretty unique versus some
Speaker 1: of what some of the other sports have done. At
Speaker 1: this point, Mike, how are you going to get America
Speaker 1: back into tennis? You've got ms Azarenka of Belarus batting
Speaker 1: the ball around behind you, making a horrific racket, her
Speaker 1: hero Stefe, her hero Steffie Graph, etcetera, etcetera. But there's
Speaker 1: this crying need to get America re engaged in what
Speaker 1: is now an international sport. How do you do it?
Speaker 1: Butn't completely agree. More tennis is so important to us
Speaker 1: through to US tennis, we have to get it going.
Speaker 1: But what I'm excited about, in a strange way, the
Speaker 1: pandemic could be what Billy Jean King and Body Riggs
Speaker 1: were for tennis in the seventies. The pandemic could be
Speaker 1: got and what. So we just got some statistics fact
Speaker 1: that tennis participation in the US for entry level players
Speaker 1: has doubled in the last three months. So if you
Speaker 1: think about it, when you were in quarantine, you didn't
Speaker 1: get any exercise, you didn't socialize with anyone, and you
Speaker 1: didn't have really a lot of intellecttion stimulation. As you
Speaker 1: go out to tennis courts, you can have all those benefits.
Speaker 1: We saw mass merchant tennis racket sales for entry level
Speaker 1: tennis rack it's nearly double in the last three months,
Speaker 1: So we see tennis coming out of this potentially with
Speaker 1: a big boom again. Well, Mike, to that point, have
Speaker 1: you seen a pretty big financial hit from the lack
Speaker 1: of live games and in games that could be broadcast.
Speaker 1: Are you seeing actually a boom on the other side
Speaker 1: because of the ability to do this sport with some
Speaker 1: social distancing. Yeah. I mean as far as the industry,
Speaker 1: it's coming back strong after being shut down for about
Speaker 1: sixty days, and as I mentioned, entry level tennis is
Speaker 1: where it's really taking up. Specific to the USC, it
Speaker 1: is a challenge this year without fans, our revenue or
Speaker 1: net income, I should say, it will be down about
Speaker 1: so it's it's a big hit for us this year.
Speaker 1: But even with that, we've had some reserves. Fortunately in
Speaker 1: our lines of credit, we're able to continue and still
Speaker 1: offer pretty equivalent prize money to last year and keep
Speaker 1: the operation going. Michael, the only way we're gonna keep
Speaker 1: this going is next time instead of as a renk,
Speaker 1: I want John mckin rowing the background warming up and
Speaker 1: that will make it good. Mr Dallas is with the
Speaker 1: United States Tennis Association. Our chief executive officer and executive director, Michael,
Speaker 1: thank you so much. Our next guests with a little
Speaker 1: shop that has been investing in tech media telecom names
Speaker 1: successfully for decades. Chris Maranghi, Gabelly Funds CO Chief investment Officer,
Speaker 1: joins us here. Chris, thanks so much for joining us
Speaker 1: once again. Let's start with some of those high flying
Speaker 1: tech names that have experienced something that we don't talk
Speaker 1: about too often, which is stock splits. We've had Apple,
Speaker 1: We've had Tesla split their stocks. You're a grizzled veteran
Speaker 1: on the institutional money management side. Do you care about
Speaker 1: this stuff? Well, first of all, thank you for having me.
Speaker 1: That's great to be here. UM, so of course we care. Um.
Speaker 1: You know, stock splits don't impact the value of the company.
Speaker 1: They shouldn't impact the price of a company, but as
Speaker 1: we're seeing with Apple this morning, they probably do. Behavioral economics,
Speaker 1: behavioral finance has been a very powerful force for as
Speaker 1: long as the markets have been trading, and um, for
Speaker 1: whatever reason, investors are putting a higher price on on
Speaker 1: Apple this morning, even though the fundamentals really haven't changed.
Speaker 1: All Right, so you at the good folks at Gabelly,
Speaker 1: you've been in these tech names, these media names, these
Speaker 1: telecom names for since the beginning here, and they've been
Speaker 1: the real drivers of the market here. How do you
Speaker 1: feel about some of these names, the fag plus names here.
Speaker 1: Had they gotten out over their skis or are the
Speaker 1: fundamentals still they're supporting these names? Well, these were unquestionally
Speaker 1: great companies, strong cash flow, wide modes, all the kind
Speaker 1: of things that we as value investors and people seeking
Speaker 1: quality would look for. But yes, the prices obviously have
Speaker 1: gone parabolic um in some cases um over the last
Speaker 1: several months, and they probably have gotten out under their skis.
Speaker 1: Apple at a mirror one trillion dollar valuation, you could
Speaker 1: probably justify kind of twenty times twelve times free cash
Speaker 1: flow UM. At two trillion, I think it's harder to do.
Speaker 1: It's still a wonderful company, but I think investors are
Speaker 1: discounting most of the upside that's left in that stock
Speaker 1: at this point. Are we going to see more stock splits?
Speaker 1: I mean, as like lemons off a cliff, somebody goes, hey,
Speaker 1: they did it, we gotta do it? Is that how
Speaker 1: it works? It generally does, although you know you're probably
Speaker 1: not going to see them from something you like Brokeshire Hathaway.
Speaker 1: I think what you're going to see, potentially depending on
Speaker 1: what happens with the election, are more special dividends. I
Speaker 1: think that's something that you'll see this wall. We saw
Speaker 1: that in the last Well describe that to it. That's
Speaker 1: that's that's a mass. I mean, good Belly wouldn't say that. Maringue,
Speaker 1: he would say that, Paul. But what's a special dividend?
Speaker 1: Is it special? It is? And we've seen a few
Speaker 1: of them. Um, Liberty is Liberty Media, John Malone's company.
Speaker 1: John is a very tax sufficient investor, perhaps the most
Speaker 1: taxes sensitive other than Warren Buffett. And you know this
Speaker 1: would be an effort to distribute cash to shareholders at
Speaker 1: more favorable rates. Um, with the assumption that all kinds
Speaker 1: of tax rates are going up next year. Chris, how
Speaker 1: what do you guys? How are you guys thinking about
Speaker 1: the markets right here? Where do you see value here?
Speaker 1: We've had again that the dramatic pullback in March and
Speaker 1: April of the markets as a pandemic really shocked the market.
Speaker 1: And then thanks to the Federal Reserve and some other moves.
Speaker 1: We've had a sharp, sharp rebound of the market back
Speaker 1: to or near all time highs. Where do you guys
Speaker 1: see value right now? Yeah, so we're seeing value really
Speaker 1: in the in the smaller end of the market. Um,
Speaker 1: it's where we tend to concentrate, have concentrated over many decades.
Speaker 1: And you know, you've got the Russell two thousand value
Speaker 1: which reflects the smaller stocks still down fift and the
Speaker 1: quarter of the stocks are down. So you know, a
Speaker 1: lot of the stocks and that index is not rebounded, um.
Speaker 1: And you know, depending on the trajectory of economic recovery. Um,
Speaker 1: they're bargains. Their bargains today, they're based on our outlook.
Speaker 1: You know, I look, Chris at what Mr Buffet has
Speaker 1: done here, and it hearkens back without even a legitimate
Speaker 1: comparison to the huge conglomerates of another time in place.
Speaker 1: And maybe that was American companies trying to be like
Speaker 1: the Japanese. You look on the surface, dollar converted, the
Speaker 1: dividends are ample, The dividend growth is certainly there for
Speaker 1: some of these Japanese companies, and they've got remarkable free
Speaker 1: cash flow. Because I was thunderstruck at how low the
Speaker 1: capex was of these hugely established things. Does that attract
Speaker 1: a vailue guy like you? It certainly has. Japan unfortunately
Speaker 1: has been a bit of a value trap exactly. Um.
Speaker 1: And you know, we thought ebonomics would change things, and
Speaker 1: it has gradually changed things, although at a Japanese pace
Speaker 1: which sends to be very slow. So yeah, I think
Speaker 1: this is a This is this investment by perture Hathaway
Speaker 1: in these Japanese training companies is a significant event for
Speaker 1: a number of reasons, including perhaps it's a signal that
Speaker 1: and perhaps a catalyst itself that things might change in
Speaker 1: the Japanese corporate market. I mean, Paul, I am I'm
Speaker 1: looking at about to fall off my chair. How about
Speaker 1: a five point three three percent yield? Let me go,
Speaker 1: let am I in? Yeah, I guess I'm in dollar
Speaker 1: equivalency five point three three percent yield, five year, thirteen
Speaker 1: percent dividend growth in playing eighties, six thousand people. And
Speaker 1: the pe is when Marangue was in his ute. I mean,
Speaker 1: the it's a nine and based off I guess some
Speaker 1: ugly growth, it's a sixteen. That's an outrageous valuation, Paul,
Speaker 1: it is, and I think that's rich the things that
Speaker 1: attracted Mr Buffett as a value investor. So, Chris, I
Speaker 1: know you and and and Mary have been uh invested
Speaker 1: all across the media space for decades. What's your view
Speaker 1: of media today? Um? Is there a It just seems
Speaker 1: like it's never been more uncertain given the last four
Speaker 1: or five six months as consumer behaviors change. How do
Speaker 1: you kind of view some of the traditional media verticals. Yeah, so,
Speaker 1: you know, we split the market as many due between
Speaker 1: distribution and content, and obviously the distribution side has done
Speaker 1: quite well. Those are the cable companies erstwhile cable companies
Speaker 1: now known as broadband infrastructure companies, and their future I
Speaker 1: think is as bright as ever. We've proven how important
Speaker 1: broadband is to the household, and they have enormous pricing power. Uh.
Speaker 1: In that, the question comes in on the content companies
Speaker 1: and um, you know, obviously the old way of doing business,
Speaker 1: the old Hollywood machine is changed and probably changed forever. UM.
Speaker 1: A lot of the content companies that grew around the
Speaker 1: growth of cable distribution, the viacoms and A M C
Speaker 1: s UH and Discoveries of the world, have some significant
Speaker 1: challenges that have gotten worse during this crisis, secular challenges,
Speaker 1: cord cutting popular than known, and that's not going to change.
Speaker 1: But they're trying to change themselves and they're they're going
Speaker 1: to get there. The question is what do you want
Speaker 1: to pay for that on a risk adjusted basis? And
Speaker 1: some of those companies I think remain attractive given given
Speaker 1: where they trade. Christy, you, I mean, this is a
Speaker 1: question I asked Paul, but instead I'm gonna ask you,
Speaker 1: Chris Marangy. If you bring in a dollar of streaming
Speaker 1: monthly income, what are the income statement margins on that? Like?
Speaker 1: Do they do they bring down to the middle line?
Speaker 1: I mean, is it that profitable? Well, at the moment,
Speaker 1: it's not. It's not. These are generally subscale businesses. The
Speaker 1: way the old media model was probably the profit maximizing model.
Speaker 1: That is, you've got monthly recurring revenue, it's paid to
Speaker 1: you by the cable company, and then you've got money
Speaker 1: from advertising. Um In most of the streaming models, not all. Peacock,
Speaker 1: which is contast model, is an advertising base model, but
Speaker 1: most of them are to exclude advertising. So you've excluded
Speaker 1: somebody very revenue stream and you're expecting consumers to pay
Speaker 1: a premium in effect for at content and at the
Speaker 1: moment um, you know, at six at six seven dollars,
Speaker 1: things like Disney Plus are not are not particularly profitable,
Speaker 1: and the question is can they raise prices Netflix did
Speaker 1: and become more profitable over time, and they probably can,
Speaker 1: but again that is a there's a multi year process.
Speaker 1: I mean, Paul, I just don't get it. I mean,
Speaker 1: I'm looking at my TV and folks, I'm like the
Speaker 1: biggest amateur of this anybody out there, I mean, you know,
Speaker 1: I you know, you're paying everybody, you know. I just
Speaker 1: thought it was like talking about Mandalorian, which is old news.
Speaker 1: I guess I didn't even know about Baby Yoda, you know.
Speaker 1: But but does anybody make money at this Paul Sweeney, Well,
Speaker 1: I think we're starting to see in the US, and
Speaker 1: Chris knows, well, Uh, the US for Netflix is profitable
Speaker 1: and uh, you know, but the problem for a lot
Speaker 1: of these other issues is, as Chris mentioned, their subscale. Uh,
Speaker 1: and so the revenue is not there to pay for
Speaker 1: this huge programming bill that they have, so right now
Speaker 1: the answer is no. Hopefully they can scale into it.
Speaker 1: And Chris Tom asked me a question just just a
Speaker 1: few minutes ago about the few ture of movie theaters.
Speaker 1: Are we ever going to go back to the movie theaters?
Speaker 1: Were starting to see some states open up their movie theaters,
Speaker 1: and I'm just not sure about the future of people
Speaker 1: going back to the theaters now that they've spent five, six,
Speaker 1: seven months in their homes and they've got all these
Speaker 1: streaming services. Yeah, for somebody like me with a big family, UM,
Speaker 1: it's certainly a lot more cost effective to stay home
Speaker 1: and Netflix. Um. But yeah, you know the experience of
Speaker 1: going out to a theater, going to dinner, and that
Speaker 1: I think it's still valuable and people are gonna go
Speaker 1: back to the theaters when this is over, but it's
Speaker 1: certainly probably a lower um, lower attendance. And obviously the
Speaker 1: exhibition companies have a lot of debt themselves, so they've
Speaker 1: got to work through some of their issues as we
Speaker 1: go along. Very good, uh, Christopher, and thank you so much,
Speaker 1: greatly appreciate that their optimism from Cabelly looking at the markets.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter, at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.