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Speaker 1: search Bloomberg Global News. Well, we just talked about Netflix
Speaker 1: coming out with its tears in terms of its ad
Speaker 1: supported streaming. Tis not tears like earlier this year for Netflix. Okay,
Speaker 1: like those tears, Yeah, I mean that was happening earlier
Speaker 1: this year. I know people were like, what, yeah, what's
Speaker 1: going on? Ats Netflix? Okay, So we mentioned that's going
Speaker 1: to launch that at supported plan on November three. That
Speaker 1: story was reported by Lucas shaw As is a most
Speaker 1: read on the Bloomberg That is in the new issue
Speaker 1: of Bloomberg Business Week, Maga Scene and that story that
Speaker 1: Netflix is coming makeover in the face of some real
Speaker 1: streaming competition. Yeah. The piece by Lucas Shaw, entertainment reporter
Speaker 1: for Blueberg News. He joins us on the phone from
Speaker 1: Los Angeles, give a follow on Twitter at Lucas Underscore Shaw,
Speaker 1: and then sign up for screen time his fantastic newsletter. Lucas,
Speaker 1: good to have you with us this afternoon. I want
Speaker 1: to go back years ago to sort of the d
Speaker 1: n a of Netflix, the way that it disrupted Blockbuster
Speaker 1: but then kind of had to disrupt itself when it
Speaker 1: really brought streaming to the masses, because I think that's
Speaker 1: a big part of your piece, because Netflix, once again,
Speaker 1: in order to succeed in this new ecosystem, has to
Speaker 1: disrupt itself one more time. Where should we start. I mean,
Speaker 1: you can start with with advertising, which is where we
Speaker 1: started earlier, because it's something that Flix has always said
Speaker 1: it would never do, uh, you know, never say Yeah,
Speaker 1: being an ad free streaming service was sort of the
Speaker 1: core part of its proposition, something that made it better
Speaker 1: than cable TV, where people were overwhelmed with ten fifteen
Speaker 1: minutes of advertising per hour. And it's really a sign
Speaker 1: of kind of the maybe not desperation, but the you know,
Speaker 1: the challenge they face here where they've just hit a
Speaker 1: wall in terms of growth over the last eighteen months
Speaker 1: and are now doing two things both advertising and charging
Speaker 1: for passwords sharing that they've long set we're not an issue.
Speaker 1: The one the one quible I take with the comparison
Speaker 1: to starting streaming, which I think is totally valid, is
Speaker 1: that if you asked the leadership of the company, they
Speaker 1: would argue that this is more of a minor alteration
Speaker 1: because they still believe in streaming. They're just making some
Speaker 1: changes to it. But that is, of course a little
Speaker 1: bit of corporate spin. Jieber's here, the editor of Bloomberg
Speaker 1: business Week magazine, and it's really timely story considering the
Speaker 1: headlines we got earlier today about netflak Netflix launching that service,
Speaker 1: and we've got some details on how much it's going
Speaker 1: to cost you. Yeah, so the Lucas. The thing that
Speaker 1: I just wanted to it's been a little bit of
Speaker 1: time talking to you, was this the culture at Netflix,
Speaker 1: and you know, Surrender's obviously been there for a while,
Speaker 1: has been the arc text of of sort of the
Speaker 1: content strategy. Um. The the thing that you know, like
Speaker 1: we said in the story, he never wanted to do,
Speaker 1: was was ads right? And so internally, I'm really curious
Speaker 1: to see how they tested this the price of this model,
Speaker 1: Like what's your early sense of just like how did
Speaker 1: they land on this particular price. Well, I think the
Speaker 1: price comes from mimicking other services. They don't like to
Speaker 1: say that out externally. You know, there was a call
Speaker 1: earlier today where a reporter asked Regg Peters, the CEO
Speaker 1: of the company, if they chose six nine a month
Speaker 1: because it's a dollar less than Disney pluses at Sero,
Speaker 1: which is seven ninths nine a month, And they said no.
Speaker 1: But I've had conversations with people at the very top
Speaker 1: of the company who said that they were modeling it
Speaker 1: a little bit after Hulu, which was sort of the
Speaker 1: first big streaming service to offer AD, one of Netflix's
Speaker 1: earliest competitors, and it's priced in a way where they
Speaker 1: believe the six nine a month, seven dollars a month
Speaker 1: plus what they'll make from advertising means that they'll make
Speaker 1: as much, if not more from an AD to your
Speaker 1: customer as they will from the premium one. To your
Speaker 1: question about culture, I just think this year, in general,
Speaker 1: the past couple of years have been very destructive towards
Speaker 1: the culture that was was pretty unique in business. Well,
Speaker 1: stick with that because one of the things that you
Speaker 1: talk about was the I will call it a debacle,
Speaker 1: which was the Quister moment where they said, you know what,
Speaker 1: we're we're gonna change the name and we're gonna turn
Speaker 1: the streaming thing into Quister and uh, you know it's Boy,
Speaker 1: did not go over well, but it speaks to this
Speaker 1: company's ability to sort of try things. Maybe you soft
Speaker 1: launched something, it doesn't go well and you pivot and boy,
Speaker 1: that last decade since the Quister thing looked really good.
Speaker 1: But one of the things you point out in the
Speaker 1: story is that there's not that many people left at
Speaker 1: the company from back then. Yeah, I mean you have
Speaker 1: to give them credit to your point about Quickster with
Speaker 1: the advertising and the passer charing. They're moving very quickly.
Speaker 1: I mean, they went from at the end of last
Speaker 1: year still not thinking they were doing advertising to standing
Speaker 1: up an AD service less than a year. They're doing
Speaker 1: it faster than Disney got there at supported tier out there.
Speaker 1: And keep in mind, Disney already has an ad supported
Speaker 1: service in Hulu, and Disney is a major player in
Speaker 1: video advertising. So there is a degree to which the
Speaker 1: company can still move incredibly quickly, and I think that's
Speaker 1: the credit to be Page Things and and Ted serandos,
Speaker 1: but a lot of the senior leadership around them has left.
Speaker 1: There's just in general, a lot of restlessness among employees.
Speaker 1: And I think there was a feeling for a long
Speaker 1: time that, you know, Netflix was the place to work
Speaker 1: if you wanted to be in in media and in
Speaker 1: some cases in tech. I mean, it was at the
Speaker 1: top of every list of most desirable company. And it's
Speaker 1: not like it's completely fallen off, but for a lot
Speaker 1: of the folks who work there, it now feels like
Speaker 1: another company because there there was forever this very unique
Speaker 1: culture that Read Tastings had built and written a book about.
Speaker 1: And while while it still there in pieces, you know,
Speaker 1: it has kind of fallen to pray to the same
Speaker 1: thing that all companies do, is they is they get scale,
Speaker 1: They just become a more corporate and traditional. So what
Speaker 1: is stuck around from that that infamous culture deck that
Speaker 1: kind of went viral years ago. The idea, you know,
Speaker 1: the company is is like a sports team, not a family, right,
Speaker 1: They'll cut people who don't who aren't taught performers. But
Speaker 1: at the same time they encourage you to go out
Speaker 1: and see how much you're worth in the marketplace and
Speaker 1: come back and you can can get a raise from
Speaker 1: Netflix that way. I mean, what parts are sticking around
Speaker 1: to you and what parts are kind of gone there?
Speaker 1: I mean it's I'd say it's it's a moderation of things, right.
Speaker 1: So the company is infamous for having radical transparency. You know.
Speaker 1: Redhastings modeled a lot of his leadership off of Ray
Speaker 1: Dahlio the Bridgewater guy um. And that comes in a
Speaker 1: couple forms. It's it's a lot of feedback, so people
Speaker 1: being very direct and blunt with one another, and also
Speaker 1: then sharing metrics and data. You know, Netflix makes pay
Speaker 1: the pay available to or excuse me, employees can see
Speaker 1: what one others making above a certain level. They share
Speaker 1: their financial results weeks before they announced them publicly with
Speaker 1: hundreds of employees, which is very rare. Um. Some of
Speaker 1: that is still sticking around. They still share some of
Speaker 1: those financial results ahead of time. They do still have
Speaker 1: to pay available to some, but you talk to employees
Speaker 1: and they say that a lot of the decision making
Speaker 1: which used to be decentralized. It used to be you
Speaker 1: wanted to empower people who are you know, VP level,
Speaker 1: relatively mid level executives to be able to buy a
Speaker 1: project or try something that just doesn't happen as much anymore.
Speaker 1: A lot of the decisions seem to be made by
Speaker 1: a few stakeholders, and people are just playing with fear
Speaker 1: more because the company is under more pression. Hey just
Speaker 1: got about thirty seconds left here. I love this line though,
Speaker 1: in your story, with all this going on, you say,
Speaker 1: it's important to note that in some ways Netflix, Netflix
Speaker 1: has never been stronger twenty seconds. Why. Uh, it's profitable,
Speaker 1: it doesn't have to borrow money anymore, and it is
Speaker 1: far and away the bigger than all these other companies
Speaker 1: which are dealing with the decline of cable DV which
Speaker 1: does not affect Netflix, which I mean, Lucas, thank you
Speaker 1: for this story perfectly timed. I mean, you think about
Speaker 1: all these other companies that are basically going through the
Speaker 1: growing pains that Netflix has gone through. Netflix built its
Speaker 1: dynasty on cheap debt and they're profitable, know how to
Speaker 1: do this. It's like, you know, to some advantage that
Speaker 1: there's a serious advantage there. Yeah, It's a great deep
Speaker 1: dive into so much. When it comes to Netflix and
Speaker 1: the changes that it's making. It's like you knew something
Speaker 1: was going on it there'd be some headlines here, Doll.
Speaker 1: I mean, get to work with people like Lucas he
Speaker 1: is amazing, Lucashaw's entertainment reporter at Bloomberg News from l
Speaker 1: A and of course the editor of Bloomberg Business Week,
Speaker 1: Deal Webber. Here in our studio. This is Bloomberg Radio.
Speaker 1: You're listening to Bloomberg Business Week with Carol Masser and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio this past Monday.
Speaker 1: You all know this, uh And depending on where you
Speaker 1: were around the country, Columbus Day and or Indigenous People's
Speaker 1: Day and on the ladder. The World Health Organization has
Speaker 1: noted that the health of Indigenous peoples is often marked
Speaker 1: by higher rates of health risks, poor health outcomes, and
Speaker 1: greater unmet needs in terms of health and social services.
Speaker 1: We've got Dr Donald Warren with US, co director of
Speaker 1: the Center for Indian Health at the Johns Hopkins Bloomberg
Speaker 1: School of Public Health. Doctor Warren joining us on the
Speaker 1: phone from Baltimore this afternoon Dr Warren, how are you
Speaker 1: doing very well? How are you doing? We're doing well. Thanks. Hey. Um,
Speaker 1: give us an idea of the health challenges facing indigenous
Speaker 1: people in this country. Um, what are what are you
Speaker 1: focused on as at the Center for Indian Health at
Speaker 1: the Johns Hopkins Bloomberg School of Public Health, which I
Speaker 1: should note is supported by Michael R. Bloomberg, the founder
Speaker 1: of Bloomberg LP and Bloomberg Philanthropies. Yeah. So we've had
Speaker 1: the Center for American Indian Health over thirty years actually,
Speaker 1: and the original work took place in Arizona and collaboration
Speaker 1: with a couple of the tribes who are facing some
Speaker 1: infectious disease issues. And at that time there were children,
Speaker 1: very young children who are dying from dehydration. So the
Speaker 1: original work was actually to develop oral rehydration therapy that
Speaker 1: eventually be game pediolite. Actually, it's a little long fact
Speaker 1: that could be like actually originated out of that work,
Speaker 1: interesting to the Johns Hopkins School of Public Health and
Speaker 1: collaboration with tribes in Arizona. And since that time or
Speaker 1: less thirty or so years, they've expanded the work to
Speaker 1: well over two tribes across the US and expanded beyond
Speaker 1: infectious disease to include things like maternal and child health
Speaker 1: as well as addressing behavioral health considerations and chronic disease.
Speaker 1: So we just recently, within the last less than one month,
Speaker 1: changed the name from the Center for American Indian Health
Speaker 1: to the Center for Indigenous Health, and we'll be having
Speaker 1: more of an international focus moving forward. Talk to us
Speaker 1: about indigenous communities in the US, in the United States
Speaker 1: or or even globally. Um, what's why is it that
Speaker 1: they're having such a tough time in terms of access
Speaker 1: to good health care and having good health outcomes. Well,
Speaker 1: each population is different, but there are some commonalities. And
Speaker 1: when we look at the indigenous populations as are the
Speaker 1: first inhabitants of various parts of the earth, and of
Speaker 1: course of the United States, that would include both American
Speaker 1: Indian and Alaska Native populations, as well as Native Hawaiian
Speaker 1: and other indigenous peoples in the Pacific Islands that are
Speaker 1: in U s territories. So we have a very diverse
Speaker 1: group of indigenous peoples in the United States, but specifically
Speaker 1: for American Indians and Alaskan Natives. What really makes us
Speaker 1: unique is that we have sovereign nations within the United States,
Speaker 1: there's actually five seventy four federally recognized sovereign tribes. So
Speaker 1: we have our own elected officials, our own governments, in
Speaker 1: many cases, our own health systems. But the big challenge
Speaker 1: is that we face terrible rates of poverty and marginalization
Speaker 1: in many of our tribes. So one of the things
Speaker 1: that we see across population served by Indian Health Service
Speaker 1: is a lot of poverty related illnesses and other socially
Speaker 1: determined health to spared ease. And unfortunately, the Indian Health
Speaker 1: Service is terribly underfunded. And if we look at just
Speaker 1: the funding for i S compared to Medicare, for example,
Speaker 1: is funded about free to four thousand dollars per patient
Speaker 1: per year. Medicare has funded a twelve thousand dollars per
Speaker 1: patient per year. So we just have a terribly underfunded
Speaker 1: health system coupled with an impoverished population. Generally speaking, Dr
Speaker 1: Warren Um, can you talk a little bit about your
Speaker 1: bio and and you know from what I've I've read
Speaker 1: um this you know medicine runs in your family. Can
Speaker 1: you talk a little bit about your background and how
Speaker 1: you bring a traditional approach to what you're doing today?
Speaker 1: Absolutely so I'm Oglala Lakota reading from Kyle, South Dakota
Speaker 1: on the Pine Bridge Indian Reservation, and I was very
Speaker 1: fortunate to grow up in a family with a lot
Speaker 1: of traditional healers and medicine men. So several uncles and
Speaker 1: a head of grandfather who were all traditional healers, and
Speaker 1: I've learned a lot about traditional Lakota approaches to health
Speaker 1: and wellness just from my own family. And it's also
Speaker 1: a ceremony family, so we have sacred ceremonies that we
Speaker 1: participate in every year and really hanging onto the beauty
Speaker 1: and the benefits of connectedness to traditional culture. In addition
Speaker 1: to that, my mom is a nurse. Um she's eighty
Speaker 1: three and still working. I like to teach her that
Speaker 1: she failed retirement. She tried to retire, still working as
Speaker 1: an educator and really helping to educate the next generation
Speaker 1: of American Indian nurses. So I've been exposed to the
Speaker 1: whole field of health care from traditional cultural perspectives as
Speaker 1: well as modern medical perspectives. And then I was very
Speaker 1: fortunately did well in school and was able to go
Speaker 1: to Stanford for medical school and Harvard for my master
Speaker 1: public Health. I've got to ask you, we've only got
Speaker 1: about a minute left. So this is not an easy thing,
Speaker 1: I know to answer, but I mean it feels like
Speaker 1: another population in the United States that gets an incredible
Speaker 1: raw deal and Indigenous people over and over again. You know,
Speaker 1: you can pick your point um is being left behind?
Speaker 1: What what big program or policy change could we do
Speaker 1: that would make a difference on the population in the
Speaker 1: United States, specifically in asking we've got about a minute. Yeah,
Speaker 1: And in the US, one of the unique considerations that
Speaker 1: most of our tribes also have treaties with the federal government,
Speaker 1: so there's a government to government relationship, and as part
Speaker 1: of those treaties, it's well documented in case law and
Speaker 1: then other examples that we have a legal treaty right
Speaker 1: to health services in the United States. So the only
Speaker 1: thing that we would ask is that the federal government
Speaker 1: live up to its treaty obligations. Much in the same
Speaker 1: way we would criticize other nations for not living up
Speaker 1: to their treaty obligations, we should actually be looking at
Speaker 1: our treaty obligations to our indigenous peoples in the US
Speaker 1: and recognize that underfunding the Indian Health Service really is
Speaker 1: a breach of those treaty obligations very interesting, um and informative.
Speaker 1: Dr Donald Warren, thank you so much, really appreciate your
Speaker 1: time today. Co director for the soon to be Center
Speaker 1: for Indigenous People at the Johns Hopkins Bloomberg School of
Speaker 1: Public Health Center for Indigenous Help People's Health, I should
Speaker 1: say uh. And of course Johns Hopkins is supported by
Speaker 1: Michael or Bloomberg founder, Bloomberg LP and Bloomberg Philanthropies. Dr
Speaker 1: Warren joining us on the phone from Baltimore, and we
Speaker 1: just want to mention be sure to check out to
Speaker 1: We've got a podcast here at Bloomberg. Rachel Adams heard.
Speaker 1: It's called Interest and they've been investigating a transfer of
Speaker 1: Native American wealth and you can find that at Bloomberg
Speaker 1: dot com or wherever you get your podcasts. This is
Speaker 1: Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes
Speaker 1: Tim Stenovic on Bloomberg Radio. Well today Bloomberg Live hosting
Speaker 1: a second day of Bloomberg invest It's an annual gathering
Speaker 1: of the leading names covering everything from cryptot to credit
Speaker 1: markets and then everything in between. And it was in
Speaker 1: person for the first time since the pandemic and comes amid,
Speaker 1: as you know, an era of lots of market volatility
Speaker 1: and uncertainty. I caught up with an exact it from
Speaker 1: the largest owner of commercial real estate globally, Kathleen McCarthy.
Speaker 1: She is the global co head of Blackstone real Estate,
Speaker 1: which has a five hundred seventy seven billion dollar portfolio
Speaker 1: and about three twenty twenty billion that is investor capital
Speaker 1: under management. Lots of talk about we began, though when
Speaker 1: I asked her how against a tough market backdrop and
Speaker 1: daily mixed signals, how things are going. It is an
Speaker 1: exciting and interesting time because, as you can see, there's
Speaker 1: different signals coming through, and I think we are better
Speaker 1: positioned than anyone to know what's really happening. We have
Speaker 1: six hundred billion dollars of real estate. We're in thirty
Speaker 1: seven different countries portfolio, though that's highly concentrated into four
Speaker 1: key themes. Eight percent of our capital is in warehouses,
Speaker 1: rental housing, lab office and hospitality investments, and what I'd
Speaker 1: say we're seeing is actually very strong fundamentals in those sectors.
Speaker 1: So when you talk about property performance, particularly for rental housing,
Speaker 1: that continues to be strong, partly because of the pressures
Speaker 1: on the for sale market with rise interest rates, logistics demands,
Speaker 1: so warehouses in the US today we are at record
Speaker 1: low vacancies, less than three percent vacancies and the markets
Speaker 1: we operate in which are the densest, most urban kind
Speaker 1: of areas, and we're also seeing very strong rent growth.
Speaker 1: So in the US and last month rent growth in
Speaker 1: our markets was thirty percent. In Canada it was even
Speaker 1: stronger fifty percent. And so I think when we when
Speaker 1: we're thinking about the real estate market, we continue to
Speaker 1: see a lot of strength. Notwithstanding there are pressures around
Speaker 1: us in terms of interest rates, an economy that the
Speaker 1: central governments are of course trying to cool uh and
Speaker 1: and persistent inflation. But we feel really well positioned for that.
Speaker 1: And i'd also highlight that I think this moment in
Speaker 1: real estate, this cycle is quite different than others we've
Speaker 1: been different. That's a good different, I mean good different.
Speaker 1: When you think about what kind of lad to real
Speaker 1: estate downturns in the past, there are really two primary factors.
Speaker 1: It was too much capital, generally in the four of debt,
Speaker 1: creating greater leverage fueling new speculative development. And it was
Speaker 1: too many cranes, too much development and really when you
Speaker 1: think about what happened in the years following the financial
Speaker 1: crisis and leading up into COVID, we really never saw
Speaker 1: those excesses come into our market. And so as we
Speaker 1: head into um, you know, period where there may be
Speaker 1: more economic headwinds, real estate actually is really well positioned
Speaker 1: from a fundamental standpoint. Economic headwinds or recession, it's very
Speaker 1: hard to call, and I'm not it's so hard. I think,
Speaker 1: you know, I think part of it is what we're
Speaker 1: seeing and and some of the things that I think
Speaker 1: the central governments are trying to to combat, which is
Speaker 1: just this continued strength that they see, low unemployment, strong
Speaker 1: rend growth, and and that is part of what the
Speaker 1: big challenges challenges ahead. So I I don't know if
Speaker 1: we're going to have a recession. I'm not an economist,
Speaker 1: but I would say there's definitely economic cooling. Are you
Speaker 1: guys having conversations internally like thinking like, hey, guys, we
Speaker 1: need to be thinking that maybe in this market, in
Speaker 1: this market, Yeah, What I would say is we've been
Speaker 1: we've been planning for a long time, and in this
Speaker 1: comes through in the portfolio we've constructed for an environment
Speaker 1: that might have been like this in terms of higher
Speaker 1: interest rates, higher inflation, and so we really focused on
Speaker 1: trying it to be in those high cash flow growth
Speaker 1: and assets. And again i'd say today we're still seeing
Speaker 1: those stronger than inflationary cash flows in our portfolio, but
Speaker 1: certainly we are always trying to position for environments that change.
Speaker 1: We've been doing this for thirty years. We've seen a
Speaker 1: lot of different environments. We thought we had seen it
Speaker 1: all and then COVID hit and hotel revenues went to zero.
Speaker 1: I'm telling you no one underwrote that where we had
Speaker 1: a pandemic um. But the great news is our portfolios
Speaker 1: are built really to try to withstand any kind of environment,
Speaker 1: and the higher than anticipated rent growth we've experienced again
Speaker 1: may kind of come down modestly, but we're we feel
Speaker 1: really well positioned for that. Distressed for you guys can
Speaker 1: be opportunity big time. We saw that after the financial
Speaker 1: crisis in terms of housing. I would say, uh, environments
Speaker 1: with distress, with volatility, with a pullback in capital markets activity.
Speaker 1: And you know we're seeing in particular much more constrained
Speaker 1: capital markets today. That tends to be a great environment
Speaker 1: for us and really for any investor who is well
Speaker 1: capitalized and who has real strength to lean on, So
Speaker 1: we have a data advantage. Our portfolio gives us more
Speaker 1: information on what's really happening that helps us build conviction
Speaker 1: around what we want to do next. And then I'd
Speaker 1: say the combination of deep experience from a large team
Speaker 1: and capital makes us well positioned to really support situations
Speaker 1: where others may be needing to sell assets, others might
Speaker 1: need liquidity, and we were able to then get in
Speaker 1: and buy high quality real estate. Alright, that was a
Speaker 1: conversation earlier at Bloomberg Live there Bloomberg Invest event Kathleen McCarthy,
Speaker 1: Global co head of Blackstone real Estate Massive Portfolio. As
Speaker 1: I mentioned largestone of commercial real estate. We covered a
Speaker 1: lot of ground. We could have stuck for another thirty
Speaker 1: forty minutes easily. But there's a lot more to that conversation.
Speaker 1: You can find it at Bloomberg Live dot com and
Speaker 1: just search on Bloomberg invest. We're good, but well, I'm
Speaker 1: eager to see what they do in this environment, like
Speaker 1: when they start seriously deploying more capital when they see
Speaker 1: valuations come down enough to do that. But they are
Speaker 1: really good at picking up distressed ousets. They bought a
Speaker 1: lot of residential housing after the financial crisis. Uh, casino
Speaker 1: in Vegas, the Cosmopolitan picked up for a song it
Speaker 1: was beaten up and then they sold it and made
Speaker 1: a really strong profit on it. So what does this
Speaker 1: cycle look like opportunity she sees globally around the market. Uh,
Speaker 1: they really double down on warehousing and distributions. She thinks
Speaker 1: there's going to be more of it. And that was
Speaker 1: something that they that was a play pre pandemic and
Speaker 1: played off and paid off really well for them. Think
Speaker 1: about the consumer shift exactly. And then as we have
Speaker 1: more companies coming back and they're gonna need, you know,
Speaker 1: distribution facilities like we talked about near shoring. On shoring,
Speaker 1: that all plays into road a journal. Yeah, but you
Speaker 1: let me drive, no, no, no no, please, I'll do the
Speaker 1: riding revals. I want to try. It's a good question.
Speaker 1: This is the Drive to the Clothes on Bluebird Radio.
Speaker 1: All right, speaking of going crazy, we're all a little
Speaker 1: bit crazy about today's market, trying to understand it. We
Speaker 1: keep getting lots of emails and thank you everybody, listeners
Speaker 1: in the Wall Street community and others who are saying,
Speaker 1: here's what we think is going on. Uh So we're
Speaker 1: gonna continue to track and we've got another voice to
Speaker 1: tell us what he thinks about the trade, because we
Speaker 1: are definitely well offer those and big swings in the
Speaker 1: equity averages today, Big swings today. Dave don Obedien is
Speaker 1: Chief investment Officer at CIBC Private Wealth Management. Dave joins
Speaker 1: us this afternoon on the phone from Baltimore. Dave, good
Speaker 1: to have you back with us. How are you doing well?
Speaker 1: Are you We're doing pretty well. We're trying to We're
Speaker 1: kind of scratching our head heads here quite a bit
Speaker 1: thinking about today's equity trade. We had some great comments
Speaker 1: from Ira Jersey earlier giving us some insight into what's
Speaker 1: going on in the bond market. How do you look
Speaker 1: at things? Well, you'd love to think this sharp turnaround
Speaker 1: was because everybody took a second look at the CPI
Speaker 1: report and said, gee, not as bad as we thought.
Speaker 1: But but we know that's not the case. It's sad
Speaker 1: um and that you know that the timing of the
Speaker 1: move late morning, that it was a rather sort of
Speaker 1: violent turnaround to the upside, and usually that suggests some
Speaker 1: kind of programmatic or algorithmic buying, So I think that's
Speaker 1: part of the story. You know, we've down six days
Speaker 1: in a row. Um. A lot of the sentiment indicators
Speaker 1: show we were sort of extreme levels of bearishness. The
Speaker 1: you know, the bullbear ratio coming into the last couple
Speaker 1: of days is about as low as it ever gets.
Speaker 1: So they have just been an oversold market. Um. Okay,
Speaker 1: I mean I'll take that as a as good an
Speaker 1: explanation as any. You don't sound like you got conviction
Speaker 1: behind it the day. I mean, does it feel you know?
Speaker 1: It's funny. I just put out a Twitter poll and
Speaker 1: I'm asking everybody again stock market bottom tweeting during the show.
Speaker 1: I am I'm a multitasker. Um. And the majority of
Speaker 1: responses say no, it's not a bottom. Almost about say
Speaker 1: yes and about say no. Idea and I had hashtag volatility.
Speaker 1: So it's it is what does a market bottoming look like?
Speaker 1: And can we say that the market bottoming that we
Speaker 1: are likely to see this time around is going to
Speaker 1: be the same as what we've seen in the past,
Speaker 1: because I do wonder how the pandemic and all the
Speaker 1: liquidity that was pumped into the market's kind of changes
Speaker 1: what it looks like, right, Yeah, I don't think a
Speaker 1: day like this signifies the market bottom. Obviously, we had
Speaker 1: a really strong market from mid June to mid August
Speaker 1: and it was just a bear market rally. But um, yeah,
Speaker 1: I think we're certainly closer to the end than the
Speaker 1: beginning of this bowl market. And we really identify three
Speaker 1: things that need to fall into place, uh, to feel
Speaker 1: confident that a new a new bowl market can can begin,
Speaker 1: and we're just to sort of do a progress The
Speaker 1: first one is we need to see clear evidence that
Speaker 1: inflation is peaked as on and is on a downward trajectory.
Speaker 1: It's safe to say we're not there yet. Um. The
Speaker 1: second one is we need to see a downside surprise
Speaker 1: on expectations for the Fed funds ring. Um. That's kind
Speaker 1: of interesting after today because we're getting there. Our view
Speaker 1: has been that the tread funds we need to go
Speaker 1: to five next year, which was way, you know, high
Speaker 1: on the consensus list. Um, but that's about where where
Speaker 1: the market is now, so we're making some progress there.
Speaker 1: The third one is I think there needs to be
Speaker 1: a more realistic outlook for corporate profits. Right the current
Speaker 1: estimate still called for an eight percent increase in corporate
Speaker 1: profits next year. That's kind of magical thinking to me,
Speaker 1: given the economic environment we're likely to see. So we
Speaker 1: actually this sounds counterintuitive, but I think we actually need
Speaker 1: to see earnings estimates come down for us to feel
Speaker 1: that that they're appropriately uh value, before we can can
Speaker 1: really begin a new pull market. So we're ways away
Speaker 1: from it. I think, how much do learning these estimates
Speaker 1: have to come down? In your opinion? Well, right, let's
Speaker 1: right now they're they're expecting to be up about eight
Speaker 1: percent versus this year numbers. UM I think will be
Speaker 1: really lucky to be flat vero and more likely slightly negative.
Speaker 1: So uh, you know, so they need to come down
Speaker 1: another we'll call it to say, dude, this is this
Speaker 1: is realistic. You know it's interesting too that you know,
Speaker 1: you're talking about um downside expectation on the Fed funds, right,
Speaker 1: and I'm looking at the warp function on interest rate
Speaker 1: probability world interest rate probability for the United States, And
Speaker 1: you know, we're just talking to Ira Jersey who thinks
Speaker 1: that pricing cuts that are being priced in right now
Speaker 1: by the markets, he thinks they're pricing it too early.
Speaker 1: In other words, that the Fed stops raising rates. Um.
Speaker 1: He thinks it's going to be later rather than earlier,
Speaker 1: and he also says they're not pricing more cuts to
Speaker 1: come later on that. I mean, do you trust kind
Speaker 1: of market indicators right now at this point? Do you
Speaker 1: feel I mean, here we have what a five percent
Speaker 1: swing in the S and P and the nasdack today
Speaker 1: and the Dow excuse me, and yet the VIX comes down.
Speaker 1: I don't know how to explain that. I can't explain
Speaker 1: it either. I think in terms of the path for
Speaker 1: for you know, Fed funds, again, our view has been
Speaker 1: they you know, funds peak at five percent um, you know,
Speaker 1: probably in the second quarter next year. Um. That you know,
Speaker 1: the work function, as you mentioned, that is saying that's
Speaker 1: about what the market now thinks. Um. But but I
Speaker 1: think that the missing piece maybe that we go for
Speaker 1: a multi month period where whatever the peak is, let's
Speaker 1: say it's five percent, it stays there and the Fed watches.
Speaker 1: There's there's you talked to a lot of market participants
Speaker 1: and there's an assumption that well, the Fed is gonna
Speaker 1: you know, do their final rate hike at one meeting
Speaker 1: and the next meeting that they're going to start to
Speaker 1: lower rate. I don't think so. So I think we're
Speaker 1: going to be stuck at that rate for for most
Speaker 1: of the second halfe as well, what would you be
Speaker 1: buying in this environment? Well, I think, um, you know,
Speaker 1: the the equity market. Our our advice generally has been
Speaker 1: to go slow in terms of putting money to work, because,
Speaker 1: as I said, we don't quite think where we're at
Speaker 1: the bottom of this this bare market. We are focused
Speaker 1: mostly on on dividend payers and in those companies that
Speaker 1: are still going to be able to grow their dividends. Um.
Speaker 1: You know, through this difficult economic environment, defense contractors, infrastructure stocks,
Speaker 1: healthcare or some of the areas you know, small caps
Speaker 1: continue to be quite attractive on a valuation basis. Now
Speaker 1: they're not going to be immune if we continue to
Speaker 1: be in a bear market environment. That they may be
Speaker 1: what leads us out when when the bull market begins,
Speaker 1: go ahead, go ahead, please So So Dave Carol asked
Speaker 1: what you'd be buying? I want to know. I mean,
Speaker 1: I know you try to explain when you'd be buying here,
Speaker 1: but in terms of time frame, how long are we
Speaker 1: going to be sort of I don't know, searching for
Speaker 1: a low here and kind of just treading water in
Speaker 1: the SMP. I think, I think for a couple more months. Again,
Speaker 1: impossible to know exactly right, but but I think we've
Speaker 1: got a couple more months of this sort of slashing
Speaker 1: back and forth, and probably with a little bit of
Speaker 1: a of a downward bias. But UM, as negative as
Speaker 1: we maybe on the economic forecast, we're actually pretty positive
Speaker 1: about equity prospects for UM for three. You know, we're
Speaker 1: likely to see a recession begin, you know, probably sometimes
Speaker 1: in the first half of three, but we know from
Speaker 1: long history that the stock market tends to bottom in
Speaker 1: the middle of the recession, sometimes even in the early
Speaker 1: stages of the recession. Not doesn't wait until the recession
Speaker 1: is over. So UM, we do think things are falling
Speaker 1: in place for a better market for equity investors, but
Speaker 1: it may not be until next year. You have to
Speaker 1: make a choice US versus non US. Where would you
Speaker 1: go right now? Who? Short term US? If you if
Speaker 1: you're a longer term investor, non US, You've got truly
Speaker 1: um inexpensive valuations. And so I think with a again
Speaker 1: a one to three year of view, non US all right, well,
Speaker 1: good to know and and certainly something to think about
Speaker 1: on a day where we're all trying to make sense
Speaker 1: of another volatile day with lots of swings. Dave don
Speaker 1: Obedie and thank you so much. He's Chief Investment Officer
Speaker 1: at CIBC Private Wealth Management, joining us on the phone
Speaker 1: from Baltimore. Thanks for listening to Bloomberg Business Week. Download
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