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Red Sea, Markets, and Media · Bloomberg Intelligence

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Speaker 2: I think we need to go over to the Red
0:57
Speaker 2: Seat at the latest reporting on tensions in the Red
1:00
Speaker 2: Sea and its impact on the global oil. Brendan Murray
1:03
Speaker 2: joins us here Bloomberg News reporter out of London, Brendan,
1:07
Speaker 2: I'm seeing an article on the Bloomberg Colonel Bloomberg news hop.
1:11
Speaker 2: ULG Lloyd, a big, big global shipper. They're continuing to
1:15
Speaker 2: reroute their ships away from the Red Sea.
1:18
Speaker 3: What's the latest right, Well, there still seems to be
1:22
Speaker 3: the risk of attacks sailing through the Red Sea. The
1:26
Speaker 3: latest was an MSc ship that was attacked yesterday. So
1:31
Speaker 3: hapag Lloyd is taking the stance that we're still going
1:35
Speaker 3: to divert around Africa. These that would not take the
1:38
Speaker 3: shortcut through the Suez Canal, seeing too much risk of
1:41
Speaker 3: doing so. These ships are carrying anywhere from a half
1:45
Speaker 3: a billion dollars to a couple of billion dollars in cargo,
1:48
Speaker 3: not to mention the you know, the serious risks to
1:50
Speaker 3: their crews.
1:51
Speaker 4: So many of these big.
1:52
Speaker 3: Shipping companies are saying it's still too risky to take
1:56
Speaker 3: the chance. So they're they're making that extra twenty five
1:59
Speaker 3: percent a journey that's twenty five percent longer than it
2:03
Speaker 3: otherwise would be. They're still continuing to make that decision
2:07
Speaker 3: and the number of ships that are diverting is still.
2:08
Speaker 5: Rising well and Brendan, this is despite the US's efforts
2:12
Speaker 5: through a maritime task force to make sure that merchant
2:14
Speaker 5: vessels are protected, that any drones potentially shot down by
2:18
Speaker 5: or sent by the Hoothies would be shot down. So
2:21
Speaker 5: is anyone feeling protected enough to go through the Red
2:24
Speaker 5: Seat right now? Is there any real activity?
2:27
Speaker 4: Well heard?
2:28
Speaker 3: We had a statement also from Marisk, which is the
2:30
Speaker 3: number two global container shipping line, that said they're preparing
2:35
Speaker 3: to resume sailing across the Red Sea as soon as
2:39
Speaker 3: it's appropriate. Now when that is, we don't know, but
2:43
Speaker 3: at least they're sounding like they're willing to take that
2:49
Speaker 3: to take that trip as soon as they can get
2:51
Speaker 3: assurances that their ships will be secure. That was a
2:55
Speaker 3: turnaround from a week ago when they said they were
2:58
Speaker 3: calling on the US, in the UK and other countries
3:02
Speaker 3: to provide more protection. So we're seeing sort of incremental
3:06
Speaker 3: steps back toward the direction of sailing through the Suez again,
3:10
Speaker 3: but still it's not happening on any large scale.
3:14
Speaker 2: I see Brendan from some Bloomberg Intelligence research that spot
3:17
Speaker 2: rates for container shipping have jumped twenty six percent over
3:21
Speaker 2: the past few weeks. Who pays that higher cost, Well,
3:25
Speaker 2: that the cargo.
3:26
Speaker 4: Owners pay that cost.
3:27
Speaker 3: These get added on and surcharges and other sort of
3:31
Speaker 3: incremental costs that the shipping lines charge them. Ultimately, the
3:38
Speaker 3: customers of transport services pay those and they in turn
3:43
Speaker 3: past those two consumers in one way or the other eventually.
3:47
Speaker 3: So twenty six percent increase is not an enormous spike
3:51
Speaker 3: higher when you look at shipping rates have plunged seventy
3:55
Speaker 3: five percent this year, but it's still a turnaround from
3:59
Speaker 3: the steady erod of freight rates that we've seen throughout
4:02
Speaker 3: the year, and one that the shipping companies frankly would welcome.
4:05
Speaker 3: They can't really make money at rates the way they
4:08
Speaker 3: were three weeks ago, but now they're kind of back
4:11
Speaker 3: in the profit making zone.
4:13
Speaker 5: So Brendan, obviously there's a cost calculation here in terms
4:16
Speaker 5: of what the impact of this waterway, which is so
4:20
Speaker 5: crucial in terms of maritrine trade being blocked, is. But
4:22
Speaker 5: it also to your point you were making earlier about
4:25
Speaker 5: the time it takes to go around the coast of
4:27
Speaker 5: Africa instead, is about time, especially when we think about
4:31
Speaker 5: how supply chains were so snarled back during the heart
4:34
Speaker 5: of COVID days, are we going to see any of
4:37
Speaker 5: that backups and ports as all of these ships are
4:39
Speaker 5: taking longer to arrive at their destinations or is it
4:42
Speaker 5: likely to be a bit smoother than we experienced a
4:45
Speaker 5: few years ago.
4:46
Speaker 3: Well, it all depends on how long this lasts. I mean,
4:49
Speaker 3: we're seeing hundreds and hundreds of ships diverting. Now those
4:52
Speaker 3: are all going to be late in their ports of
4:54
Speaker 3: the original ports of destination. All that cargo is going
4:57
Speaker 3: to have to be rerouted new schedules for for delivery
5:01
Speaker 3: and pick up with trucks and trains, and so we'll
5:05
Speaker 3: see an initial jolt to supply chains. But in truth,
5:09
Speaker 3: supply chains have been pretty resilient. They and absorbed a
5:12
Speaker 3: lot of these, even the biggest shocks. So we'll we'll
5:15
Speaker 3: see some initial initial disruptions uh in the in the
5:20
Speaker 3: coming weeks, and if it gets resolved and shipping continues
5:23
Speaker 3: through the Suez Canal, the likelihood is this won't leave
5:27
Speaker 3: a huge, huge dent on the on the global economy
5:30
Speaker 3: or global trade more broadly, But initially it's going to
5:33
Speaker 3: be painful, especially come January, when one of the peak
5:37
Speaker 3: shipping seasons of the year happens as retailers look to
5:40
Speaker 3: restock after the holidays.
5:42
Speaker 2: Brendan Ultimately, who decides when it is safe to transit
5:46
Speaker 2: the Red Sea is that the US Navy is the
5:47
Speaker 2: shipping companies themselves who decides.
5:51
Speaker 3: Well, it sounds like the shipping companies themselves are making
5:54
Speaker 3: this decision based based in large part on the signals
5:57
Speaker 3: they're getting from the forces in the area.
6:00
Speaker 4: Uh.
6:01
Speaker 3: It's there are a few containerships going through. Uh and
6:06
Speaker 3: you know, as we saw yesterday with the MSc ship
6:08
Speaker 3: that you know, they're they're getting attacked by drones and
6:10
Speaker 3: rockets and other things. Uh So the shipping companies, though,
6:14
Speaker 3: are taking their queue from their insurance companies that are saying, look,
6:17
Speaker 3: it's it's it's too it's too costly for us, it's
6:20
Speaker 3: going to be too We're going to raise your premium
6:22
Speaker 3: if you want to do that. So it's a there's
6:24
Speaker 3: a trade off that they're that they're weighing, and ultimately, uh,
6:28
Speaker 3: you know, higher higher insurance costs will will sort of
6:31
Speaker 3: dictate some of those decisions.
6:33
Speaker 2: All right.
6:33
Speaker 5: Brendan Murray, thanks so much for joining us from London.
6:35
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Speaker 5: Another good title though is executive editor, and I'm pleased
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Speaker 5: to say our your executive editor for Energy in Commodities.
7:02
Speaker 5: Will Kennedy is joining us now also from London, to
7:04
Speaker 5: talk through how this is translating into oil markets. It's
7:08
Speaker 5: actually interesting, Will, You had oil closing at the highest
7:11
Speaker 5: level in about a month yesterday, coming off those levels
7:14
Speaker 5: a touch today, we're now at eighty dollars and sixty
7:16
Speaker 5: five cents for a barrel of Brent crude. Should we
7:19
Speaker 5: be expecting this to resonate more with the oil market
7:22
Speaker 5: or traders just expecting that this is going to be
7:25
Speaker 5: a very short term impact that ultimately doesn't fundamentally change
7:28
Speaker 5: anything that much.
7:31
Speaker 4: Good morning, Katy. I think it has had an impact,
7:33
Speaker 4: to be honest. Oil prices are high where they were.
7:36
Speaker 4: They fallen really quite sharply early in December, and they've
7:40
Speaker 4: rallied against this news. In the Red Sea. Let's still
7:45
Speaker 4: below where they were at the beginning of the four
7:49
Speaker 4: when they were close to one hundred dollars, but they
7:51
Speaker 4: have run it. I think it does make people nervous.
7:53
Speaker 4: It makes people nervous that the conflicts that we're seeing
7:56
Speaker 4: in the Middle East could spread. Clearly the huts who
8:00
Speaker 4: are responsible for this attacks as sponsored by a rob
8:04
Speaker 4: as is the mass in the gards of strips, so
8:07
Speaker 4: that wider regional tension remains, and it does make oil
8:10
Speaker 4: traders nervous. But I think there are a couple of
8:13
Speaker 4: reasons why the reaction perhaps hasn't been stronger. Oral markets
8:16
Speaker 4: remain fairly well supplied globally, and a lot of the
8:23
Speaker 4: oil coming through the Red Sea is destined for customer.
8:30
Speaker 4: Is Russian oil destined Vasia, and it's unlikely the Russian
8:32
Speaker 4: oal perhaps would be a target of these attacks, So
8:37
Speaker 4: there are reasons why they that people aren't so nervous
8:41
Speaker 4: about oil tankers in the Red Sea. And finally, Saudi
8:45
Speaker 4: Arabia and its allies of OPEK, especially their moments, retain
8:50
Speaker 4: a good amount of spare capacity, which means that if
8:54
Speaker 4: the situation were to worse and that there are policy
8:56
Speaker 4: responsibles that OPEC could make, And I think that means
8:59
Speaker 4: that some of the sting of geopolitics or oil prices
9:03
Speaker 4: is removed at the moment.
9:05
Speaker 2: Well before this latest flare up in the Red Sea
9:08
Speaker 2: oil preces had been trading Lord and WTI crude oil
9:10
Speaker 2: was below seventy Where is the market now in terms
9:14
Speaker 2: of assessing demand here? It appears that the US economy
9:19
Speaker 2: at least may be in for a soft landing. Where's
9:22
Speaker 2: the sense of demand over the next three to six
9:24
Speaker 2: to twelve months.
9:25
Speaker 4: Yeah, I think we should start that conversation ball by
9:28
Speaker 4: talking about demand this year, which has been a lot
9:30
Speaker 4: stronger than many people expected. It'd be bounded infamily sharply
9:33
Speaker 4: in China, as China was the last major economy to
9:36
Speaker 4: come out of COVID, It's been very healthy in the
9:39
Speaker 4: United States. As you say, the economy continues to do well.
9:42
Speaker 4: People continue to drive, and they continue to demand goods
9:47
Speaker 4: that are transported by trucks. I think that demand has
9:53
Speaker 4: been much stronger than many people expected, and if the
9:56
Speaker 4: economy does have that soft landing, there's every reason to
9:58
Speaker 4: expect that demand will continue to be fairly strong. It
10:02
Speaker 4: might not be as strong as I have been this year,
10:04
Speaker 4: because I think that coming out of COVID in China
10:06
Speaker 4: effect was particularly strong. We had that really big snapback.
10:09
Speaker 4: But you know, we may add more than a million
10:10
Speaker 4: pounds a year day next year. That's the sort of
10:14
Speaker 4: forecast that you were looking at, And that's a fairly
10:16
Speaker 4: healthy increase in demand by historical standards. So the question
10:21
Speaker 4: then becomes what happens with supply and is it more
10:24
Speaker 4: than matched with supply and that balance. But I think
10:27
Speaker 4: you'll like to point out for that as people think
10:29
Speaker 4: about the market next year, that strength in demand is
10:33
Speaker 4: one of the key questions that they're thinking about.
10:35
Speaker 5: But to your point, will about supply, We've obviously learned
10:38
Speaker 5: within the last several weeks that shaled this year in
10:41
Speaker 5: the US far exceeded expectations in terms of what they
10:44
Speaker 5: were able to produce in twenty twenty three. It's OPEC
10:47
Speaker 5: really that has been more restrictive. The saudis really the
10:50
Speaker 5: ones leading that is, they would like to keep prices elevated.
10:53
Speaker 5: If indeed that demand picture you're painting does come true
10:56
Speaker 5: in twenty twenty four and you see an uptick in demand,
10:58
Speaker 5: should we expect that OPA is necessarily going to respond
11:02
Speaker 5: by putting more out there on the market. Are they
11:04
Speaker 5: likely to try to keep things as tight as possible, so.
11:08
Speaker 4: They agreed to they agree to cut more in the
11:11
Speaker 4: recent meeting in the beginning of December, and the Saudis
11:14
Speaker 4: themselves were not contributing to that, but other members agree
11:17
Speaker 4: to pair that production or fore go increases that they
11:20
Speaker 4: had already agreed in the case of they liked our members.
11:22
Speaker 4: I think what that means is that Opek will want
11:24
Speaker 4: to say that to see that play out in the
11:26
Speaker 4: first quarter. When we last spoke to the Saudi Energy minister,
11:29
Speaker 4: he said they were willing to keep those curves in
11:31
Speaker 4: place beyond the first quarter to see demand titan. So
11:36
Speaker 4: I think when you put that together, they are likely
11:38
Speaker 4: to put more oil in the market in the short term.
11:42
Speaker 4: They really would like to see these cuts work and
11:45
Speaker 4: they would like to see the market tightened, so they
11:49
Speaker 4: will be patient to wait for that to happen before
11:51
Speaker 4: they before they think about putting many more well back
11:55
Speaker 4: into the market.
11:56
Speaker 2: Despite some of the at least warmer temperatures here in
11:58
Speaker 2: the US, we are in peak heating season. Here will
12:01
Speaker 2: goes the sense how things are in Europe turned out
12:04
Speaker 2: better than expected last winter. What's the situation for this winter?
12:08
Speaker 4: Yeah, we haven't. We've had a bit of cold winter.
12:11
Speaker 4: I mean here in the UK it's been an incredibly warm,
12:13
Speaker 4: wet and windy winter. And that kind of weather means
12:17
Speaker 4: that energy supplies are fairly ample for two reasons. One,
12:22
Speaker 4: it doesn't put a huge strain on gas demand because
12:24
Speaker 4: people aren't needing it to heat their homes or heating
12:27
Speaker 4: all demand. And two, all this wind means that we're
12:29
Speaker 4: generating a huge amount of power through wind through the
12:33
Speaker 4: you know, I think I looked this morning and the
12:34
Speaker 4: UK was producing more than sixty percent of its power
12:37
Speaker 4: demand through wind turbines. So you put that together and
12:40
Speaker 4: it means that if that weather continues, we should come
12:43
Speaker 4: through this winter in fairly good shape. And in fact,
12:46
Speaker 4: people are fairly confident this winter wold be too bad.
12:49
Speaker 4: There are above average levels of gas supply and as
12:54
Speaker 4: we say, we haven't had a big coal slap yet,
12:56
Speaker 4: but that could of course change weather is under all right.
13:01
Speaker 2: Well, Kennedy, thank you so much.
13:02
Speaker 3: We appreciate it.
13:03
Speaker 4: Well.
13:03
Speaker 2: Kennedy, Senior Managing editor over there in lundon covering all
13:06
Speaker 2: things on the energy front.
13:07
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13:27
Speaker 7: Really, there is still so much geopolitics a play trade
13:30
Speaker 7: to be digesting all of it and it's impact on
13:32
Speaker 7: the market.
13:33
Speaker 2: Yeah, we are seeing yields move though. We've got the
13:34
Speaker 2: ten year treasury off about eight basis points three point
13:37
Speaker 2: eight one percent. Boy, it wasn't that long ago we
13:40
Speaker 2: had the tenure was trading north of five percent there,
13:43
Speaker 2: So big big move in racers saying mortgage rates come down.
13:46
Speaker 2: That was important for Kaylee Lions as she's house hunting
13:49
Speaker 2: and she liked to see those rates come down even more.
13:51
Speaker 2: Let's get a sense of maybe where these markets are going,
13:54
Speaker 2: because it's been such a move just over the last
13:57
Speaker 2: seven eight nine weeks here, big big moves up in
13:59
Speaker 2: the acquity markets, moves down in yields. I'm not sure
14:02
Speaker 2: how many people kind of saw that on their Bingo card.
14:04
Speaker 2: But Nancy Tangler joins us. She's the CIO of Laffer
14:08
Speaker 2: Tangler investments joining us via zoom here. Nancy, boy, this
14:12
Speaker 2: move we've had over the last eight nine weeks has
14:14
Speaker 2: really been something to marvel at. What do you make
14:17
Speaker 2: of it?
14:18
Speaker 8: Well, I love the bingo card analogy. I never had
14:23
Speaker 8: much luck with that myself, But yeah, I think a
14:26
Speaker 8: couple things.
14:26
Speaker 4: Paul.
14:27
Speaker 8: We wrote a piece on October thirty first that said
14:29
Speaker 8: opportunity in every difficulty, And at the beginning of last
14:32
Speaker 8: year we wrote a piece that said of this year
14:35
Speaker 8: that we thought investors were being way too pessimistic and
14:39
Speaker 8: that we expected to see the markets do much better
14:42
Speaker 8: than most thought. We don't do market forecasts for the
14:45
Speaker 8: year end, but we did say in the October thirty
14:47
Speaker 8: one piece we thought we'd see a rally and not
14:50
Speaker 8: expecting this much of a rally. To be sure, I
14:53
Speaker 8: think you've got a lot.
14:54
Speaker 4: Of things going on.
14:55
Speaker 8: It's not just the FED, it's you know, the money
14:58
Speaker 8: on the sidelines, it's creeping in window dressing. But I
15:01
Speaker 8: do think that stocks, if you look at the multiple
15:04
Speaker 8: you're at fifteen times fifteen point three times S and
15:07
Speaker 8: p X fang with fang you're at seventeen times next
15:10
Speaker 8: year's earnings, that that is not super lofty, and I
15:14
Speaker 8: think we have the opportunity to move up from here
15:16
Speaker 8: with some choppiness in the first quarter.
15:18
Speaker 7: I always love Nancy your notes in particular, and I
15:22
Speaker 7: think back to sort of the October thirty first note.
15:24
Speaker 7: I think back to some of the quotes you use
15:27
Speaker 7: in Winston Churchill in particular, you say, a pessimists is
15:29
Speaker 7: the difficulty and every opportunity, and optimisty is the opportunity
15:32
Speaker 7: and every difficulty. So be the optimist, and I know
15:35
Speaker 7: you are one. What are some of the difficulties that
15:37
Speaker 7: you're going to be keeping a keen eye on as
15:39
Speaker 7: you try and assert some of the optimism.
15:42
Speaker 8: Well, I love your Winston Churchill, Caroline, so I quote
15:46
Speaker 8: him at every opportunity.
15:48
Speaker 9: Yeah.
15:48
Speaker 8: So, I think one of the biggest concerns is is
15:50
Speaker 8: inflation licks. Now we know that the core number, the
15:54
Speaker 8: PCE number, has been coming down, but the sticky inflation
15:57
Speaker 8: number at per the Atlanta feed is still very high.
16:00
Speaker 8: And if you look at historical numbers back in the
16:02
Speaker 8: seventies and period where we had inflation restart, it's pretty
16:07
Speaker 8: positively correlated. Now we're at the turning point. So whether
16:11
Speaker 8: or not that happens remains to be seen. But I
16:15
Speaker 8: think the other thing I'm quite concerned about is the
16:17
Speaker 8: Red Sea And if you look at the good news
16:20
Speaker 8: in the PMIS, it's that delivery times have come down,
16:23
Speaker 8: but they're about to go up if we have to
16:26
Speaker 8: continue to go in alternate routes for shipping. So that's
16:30
Speaker 8: something on our radar. We're also we're not concerned about earnings.
16:34
Speaker 8: We think margins are going to continue to improve. That
16:37
Speaker 8: was the good news story in the second half of
16:39
Speaker 8: this year, and so we think that continues. Managements have
16:42
Speaker 8: done an excellent job because most of them refinanced before
16:46
Speaker 8: rates went up, But I haven't been particularly complementary of
16:50
Speaker 8: the FED, and they can still screw this up.
16:53
Speaker 7: In my view, we are going to go into Red
16:57
Speaker 7: Sea in a moment, but I want to go back
16:59
Speaker 7: to some of the ex I'm so pleased you bring
17:01
Speaker 7: to our technology shows on the odd occasion that we're
17:04
Speaker 7: lucky enough to welcome you on NANCI. You are someone
17:06
Speaker 7: who you might not think that the Fed's always doing
17:09
Speaker 7: that great, but you are pretty focused on certain leadership,
17:12
Speaker 7: and you've called out certain tech companies are done particularly
17:14
Speaker 7: well in this environment. What of breadth in technology. You've
17:19
Speaker 7: been trying to say, Look, it's not just all about
17:20
Speaker 7: these seven killer stocks. There are others to be had.
17:23
Speaker 7: Do you still believe in that area being able to
17:25
Speaker 7: lead US high for twenty twenty four?
17:27
Speaker 8: I do, Caroline. The total addressable market for generative AI
17:31
Speaker 8: cloud digital transition is enormous. It's in the trillions of dollars,
17:36
Speaker 8: and so the question becomes, who are going to be
17:38
Speaker 8: the leader or who are going to be the survivors
17:40
Speaker 8: and the thrivers in this environment. We still think you
17:43
Speaker 8: want to own a couple of the fang names, but
17:45
Speaker 8: there are much broader places to be focused on some
17:48
Speaker 8: old economy tech like Oracle. I don't know, I call
17:51
Speaker 8: Broadcom the poor man's Nvidia. That that is one place
17:56
Speaker 8: that we think still has plenty of room to run.
17:58
Speaker 8: We've started looking at you new names, which you can't
18:01
Speaker 8: talk about because we're in the process of buying them,
18:03
Speaker 8: but I shortly talk about them. And I think you
18:06
Speaker 8: want to remain overweight this group, but we are also
18:09
Speaker 8: overweight industrials. And our big move at the end in
18:12
Speaker 8: the fall of twenty twenty two was to add to
18:14
Speaker 8: consumer discretionary in tech, and those two have been two
18:18
Speaker 8: of the three best performing sectors this year. I think
18:20
Speaker 8: there's still opportunities in consumer discretionary as well.
18:24
Speaker 2: Well, that's kind of where I wanted to go, Nancy,
18:25
Speaker 2: because it may surprise you to find out that I
18:28
Speaker 2: am not long that magnificent socks seven stocks in twenty
18:32
Speaker 2: twenty three. So what do I do in twenty four.
18:33
Speaker 2: Do I try to chase those names a big tech
18:37
Speaker 2: growth or do I, I don't know, try to find
18:39
Speaker 2: some value somewhere else.
18:41
Speaker 8: Well, Paul, you know what's so interesting is that if
18:42
Speaker 8: you look at the valuations compared to the nineties, and
18:45
Speaker 8: I think when I was on with you last Caroline,
18:47
Speaker 8: I talked about that this market is an analog or
18:51
Speaker 8: the nineties is an analog to this market. A lot
18:53
Speaker 8: of similarities in terms of inflation, high rates and inverted
18:56
Speaker 8: yield curve, of soft landing a war, and those valuations.
19:01
Speaker 8: I mean, all you have to do is look at Microsoft.
19:02
Speaker 8: It was training at the end of the nineties at
19:05
Speaker 8: fifty plus times peak earnings and it's currently at somewhere
19:09
Speaker 8: between twenty eight and thirty times forward earnings. These are
19:11
Speaker 8: not peak earnings for the company. So I think there
19:14
Speaker 8: are spots like I'm less enamored though I know people
19:17
Speaker 8: love Meta. It's not one of our top picks, But
19:20
Speaker 8: would I continue to add to Microsoft here or Amazon
19:24
Speaker 8: is a name that we think is probably our top
19:26
Speaker 8: pick in that space for next year. Yeah, I think
19:29
Speaker 8: you use weakness and you just be disciplined. You don't
19:32
Speaker 8: chase any of them. The last thing I'll say is,
19:34
Speaker 8: if you look at Nvidia on a forward multiple basis,
19:38
Speaker 8: it's pretty cheap compared to what you might think since
19:42
Speaker 8: the stock has doubled. It's in the the mid twenty
19:44
Speaker 8: five range. So I think those are all names that
19:47
Speaker 8: you can use as opportunistically to round out holdings. Don't
19:51
Speaker 8: chase anything because the market will pull back. We'll get
19:55
Speaker 8: a correction, and that's when you step in and buy
19:58
Speaker 8: with you know, both hands.
20:00
Speaker 2: Correction, Nancy, to the extent we want to buy with
20:01
Speaker 2: both hands at some point this year. Will it be
20:03
Speaker 2: earnings based? I mean, you look at the S and
20:05
Speaker 2: P five hundred. Earnings expectations are about twelve to thirteen
20:08
Speaker 2: percent for twenty twenty four. It feels a little frothy
20:11
Speaker 2: to me. Do you think there's material earnings risk in
20:13
Speaker 2: this market?
20:15
Speaker 4: Well?
20:16
Speaker 8: What I well, I think the dollars coming down, so
20:19
Speaker 8: that will help some of the multinationals. I think it
20:21
Speaker 8: will con I mean it has come down, it will
20:22
Speaker 8: continue to come down. But I'm not sure about that
20:27
Speaker 8: because if you look at the companies that we've just
20:31
Speaker 8: been talking about, they have not only been guiding up,
20:34
Speaker 8: but they've been expanding margins. I mean, there will be
20:37
Speaker 8: companies that miss earnings and they will be punished. Oracle
20:41
Speaker 8: just missed guidance and so it was punished, and we
20:44
Speaker 8: use that as an opportunity to add to holdings because
20:47
Speaker 8: we think long term, these are the companies that you
20:50
Speaker 8: want to own in a slowing growth environment and a
20:52
Speaker 8: tight labor market where technology spend is how companies get productivity.
20:57
Speaker 8: So I think we may be surprised, but remember, and
20:59
Speaker 8: you know this is what I do. Analysts are wrong
21:01
Speaker 8: to the tune of about two thirds of the time.
21:04
Speaker 9: It's a quarter.
21:06
Speaker 8: So we know to the upside and the downside. So
21:08
Speaker 8: I think what you have to just be ready to
21:10
Speaker 8: do is you have your list, and if they do disappoint,
21:13
Speaker 8: you step in and you add to those names.
21:15
Speaker 7: Naci Tangler, it is always such a joy to have
21:18
Speaker 7: you on the show with our CIO of Lafatanga Investments,
21:21
Speaker 7: wishing you a wonderful new year, and I'm sure we'll
21:23
Speaker 7: be having you across our network soon in January.
21:27
Speaker 6: You're listening to the tape canser our live program Bloomberg
21:30
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
21:34
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21:37
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21:47
Speaker 2: Boy. We were just talking about the value of sports,
21:49
Speaker 2: and it's just some red headline across the Bloomberg terminal.
21:52
Speaker 2: NBA approves Dallas Maverick's sale to Miriam Adelson. That is
21:56
Speaker 2: the from the gaming Adlson family in Vegas. So again
21:59
Speaker 2: a big news, big dollars, and that's kind of what
22:02
Speaker 2: we're seeing in sports, no doubt about it. Let's bring
22:05
Speaker 2: in someone I've known for a long time and one
22:07
Speaker 2: of the smartest voices in the global media space, Ian Whitaker,
22:11
Speaker 2: Managing director and owner at Liberty Sky Advisors. He's based
22:15
Speaker 2: in London. So let's start with kind of the number
22:19
Speaker 2: one issue I think for most investors out look at
22:21
Speaker 2: global media, it's like, what's the new world order? It's streaming,
22:27
Speaker 2: I guess, But who are the companies that can survive this?
22:30
Speaker 2: How do you think this is going to plug out
22:32
Speaker 2: in twenty twenty four?
22:34
Speaker 9: Yeah, well, thanks very for the very kind words. I mean,
22:39
Speaker 9: I think you have to go back to the fundamentals here.
22:41
Speaker 9: If you look who's going to be the ultimate winners
22:43
Speaker 9: of this game, I think he is going to be
22:45
Speaker 9: the tech company simply because they have the deep pockets
22:48
Speaker 9: that the other players do not. I think what you're
22:51
Speaker 9: going to find is that some of the players, like
22:53
Speaker 9: a Disney, a Comcast, probably also Warner, will have to
22:57
Speaker 9: now stay in the streaming market because essentially those companies
23:00
Speaker 9: what they made was a big, big strategic mistake several
23:04
Speaker 9: years ago, which is really to go in all in
23:07
Speaker 9: on streaming, and I think, you know the consequences of
23:10
Speaker 9: that are still rippling through the market. I think there
23:13
Speaker 9: will have to be consolidation that will eventually come through.
23:16
Speaker 9: I think Warner power Mount deal possibly gets some with
23:19
Speaker 9: the next twelve months, so I'd be slightly longer with that.
23:22
Speaker 9: But I would say in terms of who who has
23:25
Speaker 9: deep pockets. It's really the Apples, the Amazons and so forth.
23:30
Speaker 9: One thing I would say, and I think this is
23:32
Speaker 9: important because all these streaming companies, and I think it's
23:35
Speaker 9: one of the other big mistakes that they also made
23:37
Speaker 9: as well. They looked at the world from a very
23:40
Speaker 9: US centric point of view and they thought that essentially,
23:43
Speaker 9: you know, the dynamics.
23:44
Speaker 4: Of what would work in the US would.
23:46
Speaker 9: Work globally, and therefore it made sense to go after
23:49
Speaker 9: big subscribing numbers globally. It doesn't Europe pass structurally lower penetration,
23:54
Speaker 9: structly lower RPO the the US market, And if you
23:57
Speaker 9: look what's happened with the Premier League rights for example,
24:00
Speaker 9: sort of you're talking there about the NBA rights and
24:03
Speaker 9: what's happening. None of the tech companies actually sort of
24:06
Speaker 9: bit aggressively for the Premier League rightes in the UK.
24:09
Speaker 9: The dynamics, the economics of it just don't work. So
24:12
Speaker 9: I think what we're going to see here is increasingly
24:15
Speaker 9: with streaming that effectively, there's going to be the realization
24:19
Speaker 9: that different models work in different geographical markets.
24:23
Speaker 2: So Ian, you know, I've pitched every tech company, basically
24:27
Speaker 2: every media company that's out there for twenty five years
24:29
Speaker 2: and I've gotten no bites whatsoever. Really, you know, I'm
24:33
Speaker 2: wondering if they can just stay on the sidelines and
24:36
Speaker 2: let some of these media companies just beat each other
24:37
Speaker 2: over the head and then pick up the content on
24:40
Speaker 2: the cheap. I'm just not sure the appetite for Silicon
24:43
Speaker 2: value to come into Hollywood.
24:45
Speaker 9: Yeah, I think that's I think that's a very good point.
24:48
Speaker 9: If you look at when if you look at the
24:50
Speaker 9: various maneuvers that have gone on Apple, Essentially, yes, it's
24:54
Speaker 9: got into films, so it's been very selective. Amazon bought MGM,
24:57
Speaker 9: but that hasn't been a major push that has come through.
25:00
Speaker 9: Interesting one would be what Netflix would do. I mean,
25:02
Speaker 9: for me, sort of Netflix joining in the Powermount apposition
25:05
Speaker 9: talks and makes sense for Netflix. There's a number of
25:08
Speaker 9: sort of areas that a tie in there would actually
25:11
Speaker 9: help out on things. The analogy I've used in the past,
25:14
Speaker 9: I've been using this for several years now, is that
25:16
Speaker 9: what you've gotten streaming is if you want a historical analogy,
25:20
Speaker 9: it's sort of akin to World War One. But what
25:22
Speaker 9: you've got is that you've got the major media companies.
25:24
Speaker 9: As you say, essentially bashing each other over the heads,
25:27
Speaker 9: really exhausting themselves into a state where quite frankly, it's
25:32
Speaker 9: very very hard to actually make major games and actually
25:35
Speaker 9: sort of wink convincingly. And then if you look actually
25:40
Speaker 9: what happened in World War One, the Americans came in
25:43
Speaker 9: and effectively sort of of one being die to the
25:45
Speaker 9: last players in the game. And that's essentially where we
25:48
Speaker 9: are with the tech companies now that the Apples, the Amazons,
25:51
Speaker 9: the Googles, and so forth, particularly in the US market
25:55
Speaker 9: when it comes to sports, Yeah, they really now sort
25:58
Speaker 9: of let everyone else exhaust them. I can now just
26:01
Speaker 9: march in and really take up the spoils. So I think,
26:04
Speaker 9: particularly in the US, I would say the tech companies
26:07
Speaker 9: you would say, would be the ultimate winners. I think
26:09
Speaker 9: when it's globally, I think the picture is a lot more.
26:13
Speaker 9: It's a lot more varied. Europe, for example, I think
26:17
Speaker 9: the freeware broadcast is there. Yet there are different viewing habits,
26:21
Speaker 9: there's different ways of paying for PATV and so forth.
26:24
Speaker 9: But I think most of the major established media companies
26:27
Speaker 9: really made a massive strategic Kevin is something I've been
26:30
Speaker 9: saying for several years in going full on into the
26:33
Speaker 9: streaming model, which quite frankly destroyed a lot of the
26:37
Speaker 9: infrastructure that had worked so well for several decades.
26:40
Speaker 7: Okay, So, playing devil's advocate, you sit down with a
26:43
Speaker 7: CEO of the legacy media companies. Many of them would say, look,
26:47
Speaker 7: from a standing start, I've now built a business that's
26:50
Speaker 7: several billions. Yes, you might not say streaming is working,
26:53
Speaker 7: but I've managed to make it a significant revenue driver.
26:56
Speaker 7: What would you say to that.
26:58
Speaker 9: Well, it may be a significant revenue, but from an analyst,
27:01
Speaker 9: you know, from an analytical standpoint, financial market standpoint, what
27:03
Speaker 9: people care about the profits? Yeah, and you look at
27:06
Speaker 9: the courting basis. You've got Warner, which is made a
27:09
Speaker 9: slight profit. Netflix, as you say, is the only one
27:12
Speaker 9: that so far has managed to make a consistent operating
27:15
Speaker 9: profit moving forwards and so on. But it's free cash
27:18
Speaker 9: flow isn't particularly sort of, I mean, it's okay, but
27:21
Speaker 9: when you look against its peers, definitely not huge and
27:25
Speaker 9: so forth. I think you've got sort of You've got
27:27
Speaker 9: several ways you can approach this. You can say, look,
27:31
Speaker 9: we made a fundamental strategic error here in really going
27:35
Speaker 9: for long into streaming we now actually have the courage
27:38
Speaker 9: to step back and say, you know what, maybe maybe
27:42
Speaker 9: we actually need to exit this game. For me, the
27:45
Speaker 9: smartest player when it came the smartest media company when
27:48
Speaker 9: it came to what happened with streaming with Sony, Yeah,
27:51
Speaker 9: and Sony decided we're not getting involved. We're just going
27:54
Speaker 9: to license our contents to everyone else. An effective day
27:56
Speaker 9: with the arms dealer ian.
27:58
Speaker 7: Yeah, to use that analogy, though, I've heard that lot
28:00
Speaker 7: of late be an arms dealer, be an arms dealer.
28:02
Speaker 7: A lot of these companies don't want to be arms dealer.
28:04
Speaker 7: They don't think that it's lucrative enough. They don't want
28:06
Speaker 7: to just be supplying content. Why would they not want that?
28:10
Speaker 4: Well, I think a.
28:11
Speaker 9: Lot of it is essentially they've been invested in the
28:14
Speaker 9: streaming pattern. They've said, they've gone down for several years
28:17
Speaker 9: now down this route. As you say, they've built an infrastructure.
28:20
Speaker 9: They in many cases they realign their companies really to
28:23
Speaker 9: focus on primarily.
28:24
Speaker 4: On the streaming operations and so forth.
28:26
Speaker 9: It's a very very hard job for companies to step
28:28
Speaker 9: back and say, you know what, maybe we made a
28:31
Speaker 9: mistake here, Maybe we need to re align again. Shareholders
28:34
Speaker 9: don't like it. Investors don't like it, Yeah, simply because
28:37
Speaker 9: it raises questions about the quality of the management and
28:39
Speaker 9: the decisions they've taken as well. I think one way
28:42
Speaker 9: to look at this is to say, yeah, flip it round.
28:45
Speaker 9: What exactly is going to change with the streaming model
28:49
Speaker 9: that will suddenly make it a hugely more profitable model.
28:52
Speaker 9: And the question is, when you look at things at
28:54
Speaker 9: the moment, you can't really look at anything that will
28:56
Speaker 9: say there's a real.
28:57
Speaker 4: Game changer here.
28:59
Speaker 2: All right, Well, here's a game changer in Bloomberg Intelligence
29:01
Speaker 2: is that with some research saying with around six billion
29:03
Speaker 2: dollars in estimated twenty twenty four losses, Apple TV Plus
29:07
Speaker 2: will lose eighty percent more on its streaming business than
29:10
Speaker 2: Disney Paramount, NBC, and Warner Brothers Discovery combined. So you
29:15
Speaker 2: talk about an mptity that can spend like crazy and
29:19
Speaker 2: just let everybody else kind of fall by the wayside.
29:21
Speaker 2: So Ian I got to ask you, when you talk
29:23
Speaker 2: to institutional investors, why is anybody buying any of these
29:28
Speaker 2: big media names. I just don't get it.
29:31
Speaker 9: Well, I think what you've got, I mean, it's a
29:35
Speaker 9: very good question. I think there are several elements here.
29:38
Speaker 9: If you look particularly at the US media companies, they
29:41
Speaker 9: do have other assets that are performing well. Disney, for example,
29:43
Speaker 9: theme parks theme parks sector have done very well. They
29:47
Speaker 9: do have very very good historical content assets. And is
29:51
Speaker 9: to go back to the point before about being the
29:53
Speaker 9: arms dealer. You know what you've got to hear if
29:55
Speaker 9: you look, for example, in terms of streaming, it's always
29:57
Speaker 9: the old shows that seem to perform the best. The
30:00
Speaker 9: new shows effectively are you know, they come out, they
30:04
Speaker 9: get lauded, and then they get forgotten off and within
30:06
Speaker 9: six to nine.
30:07
Speaker 7: Months we're all back to listening to suits again on
30:09
Speaker 7: a different type.
30:10
Speaker 9: Of device exactly. And that's the whole point. And I
30:13
Speaker 9: think for what you've got for many of these play
30:16
Speaker 9: for many investors here is what they're thinking is at
30:20
Speaker 9: some point it will all come out right. And the
30:22
Speaker 9: problem becomes with that is that it doesn't come out
30:26
Speaker 9: right automatically. You've got to take the companies and the
30:29
Speaker 9: managements and they've actually got to take active measures to
30:33
Speaker 9: make sure that they go down in the right route.
30:35
Speaker 9: And I look at all the certainly I look at
30:38
Speaker 9: the legacy media companies and I look at what they're
30:40
Speaker 9: doing at the moment. I think, you know, Water Discovery,
30:43
Speaker 9: I think you know they they have started to sort
30:45
Speaker 9: of go on the right route by saying, Okay, we
30:48
Speaker 9: won't let the streaming tail wag the the WBD dog.
30:52
Speaker 9: I think Comcast has its broadband business, and that's different.
30:55
Speaker 9: I look at Disney, I think strategically and in terms
30:58
Speaker 9: of some of the decisions they've made, they really been
31:00
Speaker 9: poured in several different directions. And I look at Powermount,
31:03
Speaker 9: I just think, as an independent sort of entity, how
31:06
Speaker 9: does that actually sort of survive in the certainly in
31:09
Speaker 9: the streaming anyway, How does the survivor over the longer term?
31:12
Speaker 4: Yep.
31:12
Speaker 9: Personally, I also think there's a question mark over here
31:16
Speaker 9: over Netflix. Yes, Netflix has done very well. It's making profits,
31:20
Speaker 9: it is, it's got a global presence, but quite frankly,
31:23
Speaker 9: when you look at his historical content, it doesn't really
31:26
Speaker 9: have that much.
31:27
Speaker 4: This is why I made the.
31:27
Speaker 9: Point before about maybe Netflix looking at Powermount, and again
31:30
Speaker 9: I go to this sort of total addressful market picture
31:33
Speaker 9: if you look accord to Canto in the US as
31:36
Speaker 9: for penetration is probably around eighty five eighty six percent.
31:39
Speaker 9: If you look at Europe, there are clear signs that
31:42
Speaker 9: is even in the most markets you know, it's flatlining
31:44
Speaker 9: around sixty five percent in somewhere like the UK, aust
31:48
Speaker 9: as well. And this is the other thing that gets
31:50
Speaker 9: missed with these streaming models. It's not just about subscriber numbers,
31:53
Speaker 9: it's about the average revenue per user, and that is
31:56
Speaker 9: much lower outside the US. So again you've got those
32:00
Speaker 9: dynamics as well.
32:01
Speaker 2: Ian, great stuff. Thanks thanks for breaking it down for US.
32:04
Speaker 2: Ian Whittaker, Managing director and owner at Liberty Skuy Advisors
32:08
Speaker 2: over in London. Been covered in the media industry for
32:10
Speaker 2: Decades's got great perspective. Appreciate getting a few minutes of
32:13
Speaker 2: his time.
32:15
Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can
32:18
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
32:22
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
32:26
Speaker 1: at Matt Miller nineteen seventy three.
32:28
Speaker 2: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.
32:31
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32:34
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