00:00:02 Speaker 1: Bloomberg Audio Studios. Podcasts Radio News. 00:00:11 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. 00:00:27 Speaker 1: Eastern. 00:00:28 Speaker 2: Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App. We begin this hour with stocks and yields holding steady ahead of more earnings and inflation data later this morning. Marvin Lowe of State Street writing, while recent data has thrown a bit of cold water on the strength of the economy, we don't find a reason to fade the view that the Fed will still need to tighten before year end. Marvin joins us now for more. Marvin, good morning, sir. It's good to see you. Do you expect to get a guide from Kevin Walsh in a few days' time on that? 00:00:59 Speaker 3: You know what? 00:01:01 Speaker 4: We're not going to hear from him with regard to what he thinks September is going to look like or even December is going to look like. All we can hope for is that we get a little bit more sense into what his thinking is, how the Fed's going to actually approach the concept of the reaction function, and really to give the market a little bit more comfort that July is not the way the Fed operates and not the way the new chairman operates. 00:01:28 Speaker 2: How do you think the Fed operates and the new chairman operates? 00:01:31 Speaker 4: Well, you know, I think it's still, you know, generally as divided as we saw at the beginning of this year. Those opinions are out there. You know, certainly the data has given the Fed a little bit more room to think about things. But you continue to have half of the committee that thinks that there is a fairly low hurdle with which they should hike rates. And I think that that winds up being the theme that we take into the latter part of this year. 00:01:59 Speaker 5: To your point, Marvin, we even heard from Susan Collins, somebody who previously had been in the hold camp. Yesterday, she had an essay where it seemed to be a bit more hawkish, saying that the onus is on the inflation data to keep getting better for her to remain on hold. Otherwise, it might be appropriate to tighten. Where is the inflation coming from if it isn't coming from oil prices, if it isn't coming from some of these supply-side shocks? 00:02:22 Speaker 6: Yeah, I mean, for sure. 00:02:23 Speaker 4: After five plus years of this kind of embedded inflation, that is the concern of the Fed. Forward guidance and forward expectations around inflation is ultimately the self-fulfilling prophecy. And I think that that's the risk, that we've got a Fed that theoretically is remaining patient in the face of an inflation target, which is starting to mean nothing. And that is influences both the services part of the economy, which certainly is the bigger part of what we wind up generating wealth from in this country. And it's something that standing on the sidelines becomes less and less acceptable. 00:03:00 Speaker 5: Isn't this a data story, though, and less of a Kevin Warsh story? I mean, what can you learn from Kevin Warsh that gives you a sense of whether or not the degree to which they are prepared to hike rates later this year? 00:03:11 Speaker 4: Yeah, I mean, certainly data is always going to be an important part of this discussion. And we've got this kind of little bit of soft patch in the middle of the summer. We'll see what August inflation looks like. Our readings kind of around August inflation kind of in a more real-time perspective is that it is coming back to a certain degree. So that hat is not completely shoved back in the bag. But it also is a story about U.S. 00:03:38 Speaker 7: Growth. 00:03:38 Speaker 4: It also is a story about demand for duration capital in the U.S. 00:03:44 Speaker 1: And globally. 00:03:45 Speaker 4: And what we need to learn from Warsh is how he parses the data as well as kind of this R-star capital demand perspective. And, you know, clearly the Treasury Secretary is throwing his hat in the ring around that longer-term duration story and that broader demand for capital. And for me, it's always been part of why we need to think about tightening, and. 00:04:07 Speaker 1: That hasn't changed. 00:04:08 Speaker 2: Marvin, do you care that Drucker Miller used AI? way in place. That's where the buzz. 00:04:12 Speaker 4: Is right now. 00:04:13 Speaker 6: Yeah, I don't. 00:04:15 Speaker 4: I loved your conversation because I have the same on the trading desk every day. I still write all of my work. I find that the actual writing helps me think. I think my analysis improves as a result of that. So call me a Luddite. I'm not necessarily willing to allow it to write my analysis. But Stanley Druckenmiller is has all the street credit that is needed. And it's fine that he uses AI. 00:04:41 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. A small move in the grand scheme of things, but a stronger economy and a slightly hotter economy. If you look at the strength, personal income better than expected, personal spending better than expected. And as for the heat, PCE coming in just a bit firmer than anticipated on the headline. One more payrolls report on the 4th, a week later, a CPI print. Stephanie Roth of Wolf Research joins us now for more. Stephanie, good morning. 00:05:16 Speaker 1: Good morning. 00:05:17 Speaker 2: Have you seen enough to stop this Fed from hiking in September? 00:05:20 Speaker 7: Yes, I think so. I mean, barely so, but I think so. I mean, today's core PC just barely rounded down to 0.2. It's 0.2455, so we almost got a 0.3, which would have potentially rattled markets just to some extent as everybody sees their Bloomberg screen. I think we're in an environment where the data will look a little bit cooler in the next couple of prints, such that the Fed can avoid hiking and. 00:05:40 Speaker 1: Do it credibly. 00:05:42 Speaker 7: So we're going to see another round of inflation data. That will probably come in on the softer side. The seasonals are in our favor. 00:05:49 Speaker 1: The Fed officials all know that at the end of September, we're going to get. 00:05:53 Speaker 7: Some revisions to how they're calculating PCE. In today's print, portfolio management was up 5.6%. That is a piece of the inflation data that's going to change in a couple of in a couple of weeks, therefore it might bring some downward pressure to the data. 00:06:09 Speaker 1: So overall, we're likely to see. 00:06:11 Speaker 7: An environment where the labor market data look a little bit softer from here and the inflation data also cool such that they can just sort of wait and see and therefore they don't ultimately have to hike. 00:06:21 Speaker 2: Are you looking for a wait and see speech on Friday? 00:06:24 Speaker 7: Yeah, I think he's not going to say a whole lot. I mean, granted, of course, it's not Q & A, which is what tends to sort of create some market volatility. He'll probably correct some of the. 00:06:33 Speaker 1: Points that the market didn't like last time. 00:06:35 Speaker 7: He'll probably talk about 2% is for sure the inflation target. We're not looking at changing the inflation measures, at least at this point. He'll correct the reasons as to why they did not end up hiking in July. They were probably looking for softer inflation data. And then outside of that, I don't think we're going to hear a whole lot. 00:06:53 Speaker 5: Do you think that the emphasis still will be on remaining on hold, that otherwise this would be a Fed that would be desiring to hike rates? In other words, are we going to see the hawk still dominate the discussion, even with a non-speech from Kevin Warsh and this sort of assumption that he's going to try to remain on hold as long as possible? 00:07:11 Speaker 7: I think to some extent, but the data have very much been in their favor. I mean, if you look at the last two months, we've had two consecutive months of softer inflation data. We've had employment data that's mixed, if not somewhat concerning to some extent on the headline level. In the next print, we'll probably see a bit of a tick up in the unemployment rate with payrolls running at an okay pace. So they're not really going to be in the same urgency to hype that they felt in July. And we're in an environment where wage inflation is pretty sluggish and therefore it's not feeding into inflation. 00:07:40 Speaker 5: Are we just justifying why we're reacting so strongly to oil prices? I mean, essentially, is this a bond market that's being dictated by oil and people are running around fanatically saying, it's not just oil, it's all these other things. Then oil prices go down and it's like, oh, look at this, it's inflation and oil helps. 00:07:55 Speaker 1: To some extent, I think you're right. 00:07:56 Speaker 7: I mean, I was surprised the extent to which yields didn't reflect the softer inflation data that we've seen, because the data couldn't have been cooler for the most part in the last couple of months, yet yields continued to back up. And, you know, of course, people talk about supply and the deficit and all these dynamics that haven't really changed in the last couple of months, yet you see yields continue to back up. So certainly we saw the moves yesterday seem to be oil-related. I think it's a combination of things. When people wake up after Labor Day, we'll probably be in an environment where the data comes more into focus, then focus on a Fed that's not likely to hike, and therefore yields can come down a bit. 00:08:32 Speaker 5: Where is inflation the most problematic? Take out oil prices that are somewhat volatile. I know it's difficult because it impedes in a lot of different areas. Is AI-related inflation problematic? Are we seeing inflation in other areas that suggests that it's becoming more pervasive in the psychology and in commerce? 00:08:50 Speaker 7: So when we think about the reasons as to why core inflation has been elevated this year, I would say it's three things. It's been the Iran war, which at this point, we're kind of seeing a bouncing around in oil, but kind of somewhat stable at this point. 00:09:02 Speaker 1: It's been tariffs, which are going to be rolling off the data. And you're, in fact, you're. 00:09:05 Speaker 7: Starting to see some companies come out and say they're using some tariff refunds to. 00:09:09 Speaker 1: Offset some prices. 00:09:11 Speaker 5: Not with Sydney, Canada. 00:09:12 Speaker 1: Right. Fair. And then the big thing has been the chips. 00:09:16 Speaker 7: So I think by far the biggest thing we should be watching is on the AI-related inflation because that's a piece that hasn't fully worked its way through the data at this point. We think for the most part we've seen the impact flow through into computers and accessories and that type of thing. But it's possible there's another piece of the AI puzzle that pops up in the inflation data that we're not necessarily aware of at this point. This is the part that could be still adding some inflationary pressure. The other two factors are very much moving into disinflationary territory looking ahead. 00:09:46 Speaker 2: I just saw a headline from Bath & Body Works. They saw approximately $ 80 million in 2Q tariff refunds. So many of those companies got money back. How different would this conversation have been? We'd be this close to 0.3. You said it. How different would this conversation have been if we did get a 0.3? 00:10:02 Speaker 7: Funny enough, I mean, it's just, I mean, it's fractions of a basis point here. I think the conversation would be different. 00:10:07 Speaker 2: Isn't that really silly? 00:10:08 Speaker 1: Completely, no question. But it's just this, like, mental model. 00:10:11 Speaker 7: And you see, you know, you look on your Bloomberg screen, which is rounded to, you know, to one decimal, and it's 0.2, so we can all breathe a sigh of relief. 00:10:18 Speaker 1: But you're right. 00:10:19 Speaker 7: I think we would be talking more about yields rising a bit on the back of the data if we had just rounded up, you know, slightly to 0.3. I think the conversation would be modestly different. 00:10:29 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. Let's talk about something less risky than investing in open AI, apparently. Private capital piling into sports with at least five U.S. professional teams striking deals to change ownership just this summer. Investors fueling record valuations with more than 96 billion flowing to the asset class since 2018. Mark Heim is the CEO of Capital Investment Corp and has stakes in teams across the NFL, MLB and Premier League, telling Puck News recently... At today's valuations, there's meaningfully less downside risk in owning a piece of the Lakers than a piece of open AI. Mark, I'm pleased to say, join us now for more. Mark, welcome to the program. Quite a provocative quote, but I'm going to build on it and ask you this question, Mark. Do you think in some ways this is the one part of the entertainment industry that might well be insulated from what happens with AI? 00:11:24 Speaker 6: For sure. 00:11:25 Speaker 3: First of all, it's great to be with you guys. For sure, this is much more insulated from AI than most parts of the entertainment industry. Sports and music are the two things that bring us together at scale. 00:11:41 Speaker 6: AI is not going to change that. The drama and. 00:11:44 Speaker 3: The excitement and the communal experience of coming together to watch your favorite team isn't going away. In fact, I would argue it's only going to grow as people have more time and more money. They're going to go and try to do stuff like this and have these kind of experiences. 00:12:00 Speaker 2: Mark, let's talk about opportunities then for investment. I was reading through the transcript of that interview that you did with Park News. And within that, you reflected on that opportunity to get a franchise in Philadelphia, I believe, Mark, to get exposure to the NBA back then. Is there a similar opportunity that's available right now compared to the one that you passed up back then? 00:12:21 Speaker 6: No. 00:12:22 Speaker 3: To invest in the 76ers at a $ 250 million valuation? No. I mean, look, back then, sports teams have always had a bit of being valued on the business, traditional business valuations. and a bit on intangible things, whether people wanted it because they loved the sports or the experience, or because they viewed it as a store of value and uncorrelated assets, always had that mix. 00:12:49 Speaker 6: What's happened over time is that the. 00:12:51 Speaker 3: Amount of the valuation that's now the intangible part, the uncorrelated part, the store of value, has grown so much. And that's why I don't know what the 76ers would be worth today, but it's at least 20 times as much. And in the major sports, you're not going to find that again. 00:13:09 Speaker 5: Mark, a lot of people were decrying the Middle Eastern money that was going into soccer, in particular football. in Europe as distorting valuations so as to make it absolutely unaffordable to get involved if you are an investor, at least not attractive multiples. Do you see that kind of dynamic starting to happen in any other regions? Is that something that you are following closely? 00:13:33 Speaker 3: Well, I mean, look, it is getting harder and harder for all kinds of people to be the majority owner of these teams. You see the prices. You showed the logos of the five trades in the U.S. But what's interesting is at the same time the prices are going up, what is driving a lot of it is actually a much more vibrant market today. for minority owner stakes, limited partner stakes in these teams. And the amount of capital that people are investing to take those minority stakes is growing. And so the headline price is going up. The majority owner ticket price is also going up. But a lot of the capital is actually coming from the people in the cap structure around the majority owner. 00:14:19 Speaker 5: Do you have aspirations to become a control owner for any particular. 00:14:24 Speaker 3: Well, I do own the tennis tournament in Washington that just ended, which really was my childhood dream. I was a ball kid at the tournament, and I'm fortunate enough. 00:14:35 Speaker 6: That I do own that, and I. 00:14:37 Speaker 3: As you noted, I'm an investor in the Commanders and the Orioles and Leeds United. 00:14:41 Speaker 6: And I love that. 00:14:43 Speaker 3: I love both being the control owner in a big event that means a lot to me, but I also actually enjoy being a supportive minority owner in the other things. 00:14:52 Speaker 2: Mark, can we talk about Premier League football? You mentioned Leeds United. I'm always fascinated by the American perspective on this. When you look at the franchise value of, say, the Seattle Seahawks, close to $ 10 billion. 00:15:03 Speaker 3: Right. 00:15:03 Speaker 2: Without any disrespect to these Seattle Seahawks, I think that we can sit here and safely say that on a global basis, Manchester United is a far more visible franchise. And yet for some reason, These American franchises are able to generate that much more brand value and attract that much more money. And they seem to be valued at a higher level, a bigger premium, if you will, Mark, compared to English football, Mark. What gives? What explains that? 00:15:30 Speaker 6: It's such a fascinating question. 00:15:32 Speaker 3: And actually, the other thing I would add is actually now if you look at MLS franchises, Some of them are more than Premier League teams. And you would say, well, how is that possible? It really comes down to two things. One is the economic model for European football teams is not that great. Even the ones that generate the most revenue don't generate very much at all of a bottom line. And so that's one. But the other huge one is relegation risk. And it's best shown when you compare a league like MLS that doesn't have relegation risk and you look at the ones that do. It's a huge discount because not only, obviously, the prestige drops if you get relegated, but you lose a massive amount of revenue at all when that happens. And so a huge amount of the difference, I think, is explained by actually relegation risk. 00:16:26 Speaker 2: Can we pick up on that, Mark, and just apply it to, say, Leeds United? Leeds United is one of those clubs that always runs the risk of being relegated in the Premier League. It takes a lot of investment to stay up. You've managed to do that. Mark, does that affect and influence how you run the club? compared to, say, how you'd run a franchise in America. And for those not in your world, can you give us examples? 00:16:47 Speaker 3: Yeah. So, first of all, I'm not in the control. I mean, the team is run terrifically well by a group of executives affiliated with actually the San Francisco 49ers. 00:16:59 Speaker 6: They do a great job. 00:17:00 Speaker 3: And I'm not in the weeds with them on that one. But we talk a lot and I see it. And, well, it does have a huge implication on how you run the team because you When you're relegated, you lose 200 million pounds of revenue over two years. And then when you come back in, you get that back. And so when you're in that zone, it's a lot harder to have long-term planning the way you do in an American traditional sports franchise because you have this revenue uncertainty both ways. Now, We had a great season last year. We finished mid-table. We're feeling really good now. You start to see how you can start to invest. And in fact, once we got promoted, we announced meaningful stadium expansion plan to Ellen Road, our home stadium, which you wouldn't have done while you were relegated. But when you get promoted and you believe you're going to stay up, then you get the revenue certainty that then actually lets you invest in all parts of the club, including the stadium. 00:18:00 Speaker 5: Mark? Since you're on the other side of this discussion, often on this show we'll talk about ticket prices, whether it's to the U.S. Open or whether it was to the World Cup. We'll say the prices are just too high. How do you balance the actual price of tickets versus the revenues that you get from other streams of advertising and beyond from just having the most eyeballs possible? 00:18:23 Speaker 6: Yeah, that's a great question. 00:18:25 Speaker 3: Obviously, it's a hot topic this week already because of the U.S. 00:18:28 Speaker 6: Open and some of the ticket prices there. 00:18:31 Speaker 3: Look, I view our ownership in these teams as caretakers for community assets. You really these teams or these events means so much to so many people. I think you have a real obligation to finding ways to making them accessible for everyone in your community. And I think that there is a business part of it, that it's good business. But far beyond that, it really is part of your responsibility as the owner. is to make sure that people can attend these events. 00:19:00 Speaker 6: And so you've got to find ways. Now, there's a lot of ways to it. 00:19:04 Speaker 3: Some sessions in a tennis tournament are less popular than others. So you can offer cheaper tickets. You can allocate tickets to certain groups. The challenge, and this is what happened at the U.S. Open, is with an incredibly liquid and easily transferable secondary market, if you sell tickets cheap to someone, it's very hard to regulate them not putting them back on the market and getting the market price. 00:19:29 Speaker 6: And that's a bit of what's going on here. 00:19:31 Speaker 3: Even the most well-intentioned owners who do this end up not able to accomplishing their goal because people, it's so easy these days once you get a. 00:19:40 Speaker 6: So it's a challenge, but you saw the U.S. 00:19:43 Speaker 3: Open found a way to get 1,000 tickets in the hands of New Yorkers. We do similar things with the community. Our tennis tournament is. 00:19:50 Speaker 6: in. 00:19:50 Speaker 3: We do the same thing with the commanders. I really think it is part of your responsibility as an owner. The other thing I would say that I think happened this week at the U.S. Open and is happening is it's so easy to put tickets on the market that. 00:20:06 Speaker 3: When your days or weeks out from an event, people will just put the ticket on the market with an aspirational price. And so the headline looks really bad. The reality is... As the event gets closer, usually the prices come down. 00:20:21 Speaker 6: It's not as bad. But that headline of people going online and seeing these prices, I think, you know, obviously upsets people. 00:20:30 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6 a.m. to 9 a.m. 00:20:41 Speaker 1: Eastern. 00:20:41 Speaker 2: Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal, and the Bloomberg Business App.