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CPI, Markets, and Telecom (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. Look who just darkened
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Speaker 1: the Door? Tim Craighead. He is a director of research
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Speaker 1: for Bloomberg Intelligence. He's based in London. Uh. He's been
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Speaker 1: a Bloomberg Intelligence for thirteen years. Uh, since the absolute
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Speaker 1: beginning of Bloomberg Intelligence. Prior to that, he was a
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Speaker 1: Goldman Sachs for like twenty years, a managing director doing
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Speaker 1: god knows what over there um. But he's been picking
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Speaker 1: stocks for a long time. He's seen some good names,
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Speaker 1: some bad names. Tim is joints us here in a
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Speaker 1: Bloomberg in Actor Brooker Studio. Tim Europe, we think of
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Speaker 1: the US market, Oh my goodness, at SMP five PC
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Speaker 1: last year it was just a brutal year. Talk to
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Speaker 1: us about European stocks last year and kind of what
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Speaker 1: the alok is for this year. Absolutely, thanks for having
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Speaker 1: me on Um, Matt, you look great. Thank you. I
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Speaker 1: love the beard. Thank you. You're one of the few.
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Speaker 1: So they they Europe certainly was under pressure last year,
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Speaker 1: but it wasn't under nearly the pressure that the SMP
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Speaker 1: five was UM, and obviously NAZAC was even worse. UM,
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Speaker 1: so you're ape out performed interestingly from the bottom of
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Speaker 1: last October where there was a trading low in Europe.
1:29
Speaker 1: It's like over here, uh, European markets are up six
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Speaker 1: UM the foot see as the biggest market within the
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Speaker 1: within Europe is up. So there's there's been a nice
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Speaker 1: move there. And you know, there's been this battle evaluation
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Speaker 1: versus earnings UM. Last year, evaluation one earning state really high.
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Speaker 1: Surprisingly so UM evaluation just got crushed with rising interest rates.
2:00
Speaker 1: Since October, we've actually seen earnings roll over. We've had
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Speaker 1: five percent negative revision in two thousand twenty three earnings
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Speaker 1: estimates for the stock six hundred. But the market's risen
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Speaker 1: because evaluation is now looking out towards the two thousand
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Speaker 1: twenty four recovery, and valuations also in Europe are much
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Speaker 1: lower than valuations here. Right on the S and P
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Speaker 1: five hundred. The other day, I was looking at it
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Speaker 1: was almost nineteen percent again right, nineteen times earnings excuse me,
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Speaker 1: and UM Europe was more like twelve. It's twelve twelve
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Speaker 1: and a half times forward UM currently for the stock
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Speaker 1: six hundred, the foot seas at ten point four. Now,
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Speaker 1: the issue for is you've have explained to me over
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Speaker 1: the years and as I read your research from you
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Speaker 1: and your team, is Europe the UK have a much
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Speaker 1: lower weighting and technology versus the US markets, and that
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Speaker 1: accounts for the valuation differential and the performance. Yeah. Absolutely so.
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Speaker 1: We we put out a note last week. Two things
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Speaker 1: I think of note relative to to this UM. One
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Speaker 1: was on valuation specifically and and oriented towards the foot
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Speaker 1: Sea given that it trades at such a low multiple.
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Speaker 1: And you know, the comment was essentially you can find
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Speaker 1: it on the terminal. You know, it's it's cheap for
3:16
Speaker 1: a reason. And you know you've got big components of
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Speaker 1: energy and materials and banks which trade at lower multiples.
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Speaker 1: Especially with the energy and materials, it essentially peak earnings
3:26
Speaker 1: and so therefore multiples UM and it's got zero tech
3:31
Speaker 1: will one percent tech UM. So it's just a dramatically
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Speaker 1: different proposition. And that whole idea that we've talked about
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Speaker 1: in terms of value investing versus growth investing. Europe broadly,
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Speaker 1: the foot See specifically, is more value oriented than say
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Speaker 1: the US, and it plays into an environment where interest
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Speaker 1: rates and inflation, even if they're coming off peak, are
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Speaker 1: still at relatively elevated levels. And I tend to think
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Speaker 1: of the U s as as heavy and Europe as
4:01
Speaker 1: oil heavy. And I guess if you're heavy in any
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Speaker 1: one sector, that would lead to more volatility, right, less diversity, UM.
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Speaker 1: But I don't think Europe is really as it's really
4:13
Speaker 1: the Footsie that's oil heavy, right, because they have a
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Speaker 1: roll up shell British Petroleum UM, and it's the rest
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Speaker 1: of York just has like Total well it's Total and
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Speaker 1: and and SAL and and E and I. But it's
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Speaker 1: it's five of the market for the stock six hundred,
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Speaker 1: even including the UK UM, where the Footsie is about ten,
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Speaker 1: so it's it's definitely heavier there. I would say that
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Speaker 1: Europe is still commodity heavy relative to your relative to
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Speaker 1: the US, but there it's it's part metals and mining,
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Speaker 1: which again is heavy in the UK, but in Europe
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Speaker 1: broadly the continent it's chemicals and Yeah, that's one of
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Speaker 1: those things where right now that's a question is to
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Speaker 1: whether that's pressure point or an opportunity becau as you know,
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Speaker 1: our energy prices higher or low, which is an input
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Speaker 1: cost by the US is I mean, how much of
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Speaker 1: the S of the S and P is tech? It's
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Speaker 1: like fifercent right, Well, it's more than that. And if
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Speaker 1: you include e commerce is tech. And if you include
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Speaker 1: the Internet which is in media, and you take that
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Speaker 1: whole conglomeration, it's still call it three percent of the
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Speaker 1: mark all right? For for all our listeners, I'll point out,
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Speaker 1: just as an aside that Tim and Matt obviously go
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Speaker 1: to the same barber, and we'll just leave it at that.
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Speaker 1: Um So, Tim, as we look ahead to what are
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Speaker 1: your end you know, to the ribbing bald men get
5:37
Speaker 1: we're people to Paul, people to exactly Tam, what are
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Speaker 1: our things here? As we look to the UK and
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Speaker 1: your Yeah, I think you know, a big issue for
5:49
Speaker 1: for the region is going to be no no surprise
5:53
Speaker 1: what happens to energy where it was a much bigger
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Speaker 1: shock than it was over here. And thank god we've
6:02
Speaker 1: had a warm winter so far. It's not good for
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Speaker 1: skiing in the Alps. What there's no snow right now?
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Speaker 1: It's horrible. Didn't you just go skiing there was snow
6:13
Speaker 1: when in the US we're just delu California cannot dig
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Speaker 1: out from all this. Although I was in Vermont for
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Speaker 1: New Year's and that wasn't so hot, never never was.
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Speaker 1: But nonetheless, so I think energy rolling over is a huge,
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Speaker 1: big deal from the standpoint of reducing some of that
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Speaker 1: um threat um that could have really put a spanner
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Speaker 1: in the work, so to speak, for the economy. And
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Speaker 1: you know, that's lifting you know, the opportunities we can
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Speaker 1: look towards two thousand twenty four unless something stupid happens
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Speaker 1: between Russian Tchin to reopening. Like when I think of
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Speaker 1: some of the European companies that I think of Semens,
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Speaker 1: it's the big german manufacturing, I say, I was that
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Speaker 1: that's a second one, that is a it's I think
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Speaker 1: it is more leverage to Europe because of its industrial, consumer,
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Speaker 1: discretionary um commodity base that feeds into a China reopening.
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Speaker 1: And the Europeans have just gotten along with miracle. Will
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Speaker 1: hold a call with Shiji and Ping and they're nice
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Speaker 1: to each other. It's different than the Trump China relationship. Now,
7:20
Speaker 1: the Biden China relationship has been very adversary, uh and adversarial.
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Speaker 1: I think that's that's that's where you go, thank you uh.
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Speaker 1: And the Europeans have been courting China, you know, um,
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Speaker 1: we have been angry at them for that, but now
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Speaker 1: they're going to reap the benefits of both their relationships
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Speaker 1: with China and global warning. Both of those things turn
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Speaker 1: out to be good for democracy. It's kind of crazy.
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Speaker 1: I do think that we've had lots of discussions about
7:47
Speaker 1: this that it pushed came to shove and you had
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Speaker 1: two spheres of influence. Germany will leg in with Europe
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Speaker 1: and will leg into the US sphere as opposed to
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Speaker 1: the Chinese sphere. But there's definitely plane both sides where possible.
8:02
Speaker 1: I think another big theme is just you know, talking
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Speaker 1: to climate change and whatever else. It's just what happens
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Speaker 1: on the whole sort of infrastructure green approach. It's a
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Speaker 1: big issue within the energy market, not only because there
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Speaker 1: are pure plays there, but you've got the big energy
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Speaker 1: exposure and what are they doing from the recycling of
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Speaker 1: their capital. They're not they're not digging new holes in
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Speaker 1: the ground for oil. They're putting it into renewables in
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Speaker 1: various ways, and it's a pretty interesting theme. Good stuff
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Speaker 1: coming out of Europe, coming out of the UK. Tim
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Speaker 1: Craig Headies Director Research and Senior European strategist for Bloomberg Intelligence.
8:37
Speaker 1: He's based in London, Queen Victoria Street. Just an awesome,
8:41
Speaker 1: awesome building, uh, that we have in Bloomberg in London.
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Speaker 1: But he's here in New York this week. How cool
8:46
Speaker 1: is that. Robert Teeter, head of Investment policy and Strategy
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Speaker 1: at Silver Crest Asset Managers, joins us here in studio,
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Speaker 1: as does Jay Hatfield, CEO of Infrastructural Capital Advisors. So, Jake,
9:00
Speaker 1: we saw the inflation data today. It looks like it's moderating.
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Speaker 1: What does that mean to you, Well, we're far more
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Speaker 1: bullish than um certainly the Federal Reserve on inflation and
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Speaker 1: some market participants, because we really look at CPI dash R,
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Speaker 1: which is our own index for inflation, which sounds exotic,
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Speaker 1: but all it really is is just the way cp
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Speaker 1: was calculated before. So instead of using the BLS is
9:28
Speaker 1: highly lagged shelter component, we use case shoulder and that
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Speaker 1: index and you can verify this on the terminal leads
9:36
Speaker 1: the shelter component by twelve months with a sevent correlation.
9:40
Speaker 1: I'd like that chart. I'll make the charge. Yet, that's
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Speaker 1: that's interesting, Bob. What do you think I mean? Um,
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Speaker 1: inflation seems to be In hindsight, it looks like inflation
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Speaker 1: was transitory, and maybe I'm too early to say that,
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Speaker 1: but just a year later, well, I think there's been
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Speaker 1: a few different cycles within inflation. Certainly energies one, shelters one,
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Speaker 1: the goods components one, services as another. They're all in
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Speaker 1: their own cycles, all a little bit different in terms
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Speaker 1: of their transitory nature. To me, the key thing is
10:09
Speaker 1: that the past few months, the month over month figures
10:11
Speaker 1: have been coming down significantly. I think that gives the
10:14
Speaker 1: FED a little more flexibility. So while they'll continue hiking,
10:16
Speaker 1: it's in smaller amounts. They might then proceed to a pause,
10:19
Speaker 1: and then I think they have a bit more flexibility
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Speaker 1: if the economy weakens to change policy, because they're able
10:24
Speaker 1: to point to those metrics that improvements have been coming.
10:27
Speaker 1: And so I think when we see them acknowledge that publicly,
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Speaker 1: that'll be a signal that their mindset is we have
10:31
Speaker 1: started to hear speakers come out. Bostick the other day
10:35
Speaker 1: was like, wait until CP I maybe I'd be down
10:37
Speaker 1: with five. Then yesterday I think Susan Collins came out
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Speaker 1: and said I'm feeling twenty five, and today Harker was like,
10:44
Speaker 1: twenty five looks good. So I guess they're trying to
10:48
Speaker 1: tell us, not all voting members obviously, but that you know,
10:52
Speaker 1: February first could be twenty five rather than fifty. But
10:55
Speaker 1: they're definitely not going to pivot and cut right because
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Speaker 1: then they would lose credibility all over again. That's right.
11:01
Speaker 1: I think they've earned a lot of credibility. They've they've
11:03
Speaker 1: clearly indicated that they would prefer to be tougher rather
11:06
Speaker 1: than weaker. They'd rather make the mistake of hiking too
11:08
Speaker 1: much for too long. So I do think the basis
11:11
Speaker 1: point hikes will continue, although I thought the comments today
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Speaker 1: from Parker acknowledging that the days of seventy five are
11:16
Speaker 1: long behind us, we're also encouraging. I think in the
11:18
Speaker 1: past there had maybe been some fear that those type
11:20
Speaker 1: of hikes might continue, and I think that's starting to
11:22
Speaker 1: fade into the background. But by the way, isn't that
11:24
Speaker 1: a better mistake to make. Ja I mean, I heard
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Speaker 1: someone this morning say the FED made a mistake, you know,
11:30
Speaker 1: by not raising rates early, and now they're making another
11:33
Speaker 1: mistake by raising rates for too long. But um, making
11:37
Speaker 1: a mistake and allowing inflation into the picture, real inflation,
11:40
Speaker 1: that's a big mistake, whereas making a mistake that causes
11:44
Speaker 1: a recession tightening a little too much, it's not a
11:46
Speaker 1: huge mistake. Well, that's a great representation of the Fed's view.
11:50
Speaker 1: We don't agree with it, okay, because no, Matt, you're wrong.
11:55
Speaker 1: Just say the Fed, I mean, it's incredible entity. But
11:58
Speaker 1: the reason we don't believe in that theory is that
12:02
Speaker 1: the FED, we think, is too focused on the labor
12:04
Speaker 1: market and expectations, and we don't think that there's a
12:08
Speaker 1: risk of a wage price spiral. We really look at
12:10
Speaker 1: as a price wage downward spiral. So in other words,
12:15
Speaker 1: goods prices really drive wages, and if you really look
12:18
Speaker 1: in this cycle, wages real wages of declining. So we
12:21
Speaker 1: don't think it's a problem, but we recognize the FED does,
12:24
Speaker 1: and that's why we're bullish on the market for the year,
12:28
Speaker 1: but cautious for this first six months. Because of exactly
12:30
Speaker 1: this debate where the market really thinks inflation is cooling
12:35
Speaker 1: or negative. Jeremy Siegal says that our index printed negative
12:39
Speaker 1: point two, So you have that camp and then the
12:41
Speaker 1: FED and they get to talk every day doing open
12:44
Speaker 1: market operations. So if you're trading the market, that's always
12:47
Speaker 1: a risk factor. So we're thinking for six months volatile,
12:52
Speaker 1: second six months should be more bullish, Bob, what's what's
12:55
Speaker 1: your calling your shop? What are you guys thinking about
12:57
Speaker 1: as we head into after just a brewo, no matter
13:01
Speaker 1: where you were. So we're modestly optimistic on the course
13:05
Speaker 1: of the year. The timeline is difficult to predict, I
13:07
Speaker 1: think because I think I have two influences going on,
13:09
Speaker 1: one which is earnings, which we think will be perhaps
13:11
Speaker 1: a bit better than than feared, maybe around flat, a
13:14
Speaker 1: little bit positive, I think, with a lot of dispersion
13:16
Speaker 1: beneath the surface, because the same cycles that are going
13:19
Speaker 1: on within inflation are playing out across revenue and cost
13:22
Speaker 1: structures of companies, So a lot of dispersion and earnings.
13:24
Speaker 1: But we think that decline in inflation throughout the year,
13:26
Speaker 1: that change in FED tone will improve valuation. So I
13:28
Speaker 1: think I'll get a little bit of a lift from
13:30
Speaker 1: improved valuations as we navigate the year. All right, so, uh,
13:35
Speaker 1: the valuation picture I think has been really interesting, and
13:39
Speaker 1: in terms of price earnings it's still we're still valued,
13:43
Speaker 1: I think too high. It feels like right nineteen times earnings.
13:47
Speaker 1: If you look at the S and P, where should
13:49
Speaker 1: we be? And you know, um, are there better metrics
13:54
Speaker 1: for you than P? Well, I think there are a
13:56
Speaker 1: lot of different metrics. Of course, the one that that
13:58
Speaker 1: we pay a lot of attention to is looking at
14:00
Speaker 1: PE relative to where rates and inflation are, and that's
14:03
Speaker 1: where I think we might get some of the upside
14:04
Speaker 1: boost on PE. So I agree with you point in time.
14:07
Speaker 1: Today it seems like stocks are certainly fairly valued and
14:10
Speaker 1: not cheap. But as we see this turning and inflation,
14:14
Speaker 1: and as we see interest rates stabilize and potentially decline
14:17
Speaker 1: over the course of the next year, then I think
14:19
Speaker 1: that gives you room to boost PES by a bit,
14:21
Speaker 1: not a lot, but I think there is a little
14:22
Speaker 1: bit of upside there. So we're not looking for massive gains,
14:25
Speaker 1: but a little bit from the earning side, a little
14:26
Speaker 1: bit from valuation puts you into pretty decent place certainly
14:29
Speaker 1: a lot better than last year. Hey, j I, you
14:31
Speaker 1: know energy is just ripped in that I missed that trade,
14:37
Speaker 1: Am I done? I don't think that energy stocks are
14:41
Speaker 1: going to lead the market this year. We're projecting that
14:44
Speaker 1: oil trades in a pretty tight range e D two hundred.
14:48
Speaker 1: But I will say that this is a very very
14:50
Speaker 1: warm winter, as you can tell if you live in
14:52
Speaker 1: New York City and in Europe as well, and that
14:56
Speaker 1: was really the core of our both thesis. And having
14:59
Speaker 1: said that, China's opening, so we're sticking to our eighty
15:01
Speaker 1: two hundred, but that doesn't really argue for a rip
15:04
Speaker 1: roaring energy market, so we're looking to more interest sensitive.
15:08
Speaker 1: We are projecting a three tenure, which by the way,
15:12
Speaker 1: does increase the fair multiple. Attend at a three yield
15:17
Speaker 1: on the treasury, that implies an eighteen and a half
15:19
Speaker 1: fair multiple, So you should really always look at them
15:22
Speaker 1: to see so you can accept to higher pe when
15:24
Speaker 1: yields are when rates are lower, right, that's the output
15:27
Speaker 1: of a d CF. We run a constant DCF. But
15:30
Speaker 1: but our bullish thesis requires rates to go lower because
15:32
Speaker 1: right now our fair values thirty eight hundred on the
15:34
Speaker 1: SMP so it doesn't go lower, we're in trouble. What
15:37
Speaker 1: does what does the interest rate environment mean for you
15:40
Speaker 1: for your businesses right now? You know, not your investment outlook,
15:44
Speaker 1: but for the companies that you're running well, the companies.
15:50
Speaker 1: There are certain companies that have exposure to short rate
15:53
Speaker 1: to floating rate, and that is a headwind for some companies.
15:56
Speaker 1: A lot of them swap it out or buy caps.
15:59
Speaker 1: But that's something that we're changing our models and reducing
16:02
Speaker 1: estimates for and that's a problem. I don't mean to
16:04
Speaker 1: call it your specific companies. I'm just saying no for business,
16:08
Speaker 1: you know, for for industry. Yeah, we fought. We have
16:10
Speaker 1: models on all the companies and we follow a lot
16:12
Speaker 1: of companies and they're all have headwinds and that is
16:15
Speaker 1: a risk. But we don't think the Feds. We think
16:18
Speaker 1: three more increases are pretty much in the bag. We
16:20
Speaker 1: don't think that's going to hurt the economy that much
16:22
Speaker 1: because long rates are likely to be going down, because
16:24
Speaker 1: that's what's normal when the Feds overtight and most consumers
16:28
Speaker 1: are exposed to long rates and not short rates. In
16:31
Speaker 1: the United States, Canada they have more floating right then
16:34
Speaker 1: I might be going some long term debt coming up
16:36
Speaker 1: here soon. So I'll be your consumer who's in very
16:39
Speaker 1: good shape. And actually it looks like most US consumers
16:42
Speaker 1: are in pretty good shape. Even though savings rates have
16:44
Speaker 1: come down substantially looking at this on the Bloomberg bank
16:49
Speaker 1: balances are still very high historically. UM now we're starting
16:54
Speaker 1: to see that rollover and we're starting to see credit
16:56
Speaker 1: card UH people start to leverage up a little bit,
17:00
Speaker 1: but not too much. What do you think about, Robert
17:02
Speaker 1: the U S consumer? I think there's still some room
17:04
Speaker 1: left for the consumer. It will be mixed across goods
17:06
Speaker 1: and services. But what we've seen so far in terms
17:08
Speaker 1: of the early comments from banks Jamie Diamond the other day,
17:12
Speaker 1: looking at what happened with regard to airline reporting today,
17:14
Speaker 1: looking across consumer discretionary earnings, they've all been pretty good
17:17
Speaker 1: so far. It's very early days, but that indicates that
17:20
Speaker 1: the consumers still got some runway in front of them.
17:22
Speaker 1: Job market remains very strong, also mixed a lot. There
17:25
Speaker 1: are a lot of jobs on offer, but there's certainly
17:27
Speaker 1: places like tech and finance where there have been some layoffs.
17:29
Speaker 1: So we think inaggregate, consumers still has some runway but
17:32
Speaker 1: a lot of noise beneath the surface. By the way,
17:34
Speaker 1: I was talking with my financial my personal financial advisor
17:37
Speaker 1: yesterday and I was like financial advisor, I was like, dude,
17:41
Speaker 1: can we I've got a little bit of cash that's
17:45
Speaker 1: just in a savings accounting said, can I put this
17:47
Speaker 1: in some high interest rate like hips. We were talking yesterday,
17:51
Speaker 1: UM about the high income passed throughs this e t
17:57
Speaker 1: F and he said, listen, that's can you give you
17:59
Speaker 1: ten sent but we need for you to meet your goals,
18:02
Speaker 1: you need to quadruple your wealth and then multiply that
18:04
Speaker 1: by ten. So we need to get a lot more aggressive. Um.
18:09
Speaker 1: I had a lot of other people must be in that.
18:13
Speaker 1: That's not where you are. I mean, I'm almost fifty.
18:16
Speaker 1: Uh no, I should have been here twenty years ago.
18:19
Speaker 1: But nonetheless, I think a lot of other people are
18:21
Speaker 1: in that position where they can't necessarily. Yes, you get
18:24
Speaker 1: some juicy yields. We hear um people advising institutions saying, hey,
18:28
Speaker 1: yield to worse for I g is five and a
18:31
Speaker 1: half percent. That's great, but for me it's not enough.
18:34
Speaker 1: What do you see out there in terms of opportunities
18:36
Speaker 1: for people that need to amp it up. I think
18:37
Speaker 1: it's all about time horizon, but I do think there
18:39
Speaker 1: are some interesting tail winds developing in some portions of
18:42
Speaker 1: the equity market. So one of the themes that we've
18:44
Speaker 1: been looking to that's been kind of buried beneath the
18:46
Speaker 1: surface the last few years, there's been this re on
18:48
Speaker 1: shoring theme. So it became very prominent in the early
18:51
Speaker 1: days of COVID with supply chain problems, sort of got
18:53
Speaker 1: breast beneath the carpet, and it's back. If you look
18:55
Speaker 1: in the chemical industry, there's been big job gains. You
18:57
Speaker 1: look at these big announcements in terms of chip companies,
19:00
Speaker 1: we think there's some interesting opportunities there in terms of
19:02
Speaker 1: industrial and manufacturing. The second theme we're looking at as
19:05
Speaker 1: the migration of technology into business. That's something that's been
19:08
Speaker 1: unfolding a bit. We think it will accelerate with some
19:10
Speaker 1: of the decline and employment in the tech sector and
19:12
Speaker 1: those folks moving out into real industry. So we think
19:14
Speaker 1: there are some exciting things happening where wealth can compound
19:17
Speaker 1: over time. All Right, we're still waiting to hear from
19:19
Speaker 1: President Biden. We have this live shot of the White
19:21
Speaker 1: House and uh, Um, he's supposed to come on at ten.
19:24
Speaker 1: Here we are at ten thirty three, still no sign
19:27
Speaker 1: of him. But when he comes, we'll bring you live comments.
19:30
Speaker 1: Series has some comments on the economy and inflation. Uh
19:33
Speaker 1: print today. Um. You know, the definition of insanity is
19:36
Speaker 1: continuing to do the same thing and expecting a different outcome. Right,
19:40
Speaker 1: I don't know why we expect President Biden to come
19:43
Speaker 1: out on time, and then we had a White House
19:45
Speaker 1: give us the two minute warning like five minutes ago.
19:47
Speaker 1: But that happens all the time, and he's constantly late.
19:51
Speaker 1: No offense to him, and he's got a lot to do.
19:53
Speaker 1: It's a busy guy. He's very busy. But I'm just
19:56
Speaker 1: saying for us, as we're lining the shows, we're producing this,
19:59
Speaker 1: you know, as we're planning things, Eric, we should note
20:04
Speaker 1: that President Biden is always like thirty to forty minutes
20:07
Speaker 1: late at least. And that's why Eric keeps us. He
20:10
Speaker 1: just says, keep going, keep going. I want to talk
20:12
Speaker 1: about reets, Jay, I know you guys have an in
20:15
Speaker 1: for CAP preferred E t F. Talk to us about
20:18
Speaker 1: the reach space and just kind of as we walk
20:21
Speaker 1: in hands on the energy sector. Right, what's up? That's
20:25
Speaker 1: a ret that leans on the energy set you are
20:29
Speaker 1: preferred stock stock. Now as I walk through Midtown Manhattan
20:32
Speaker 1: and I look at all these beautiful buildings, they're empty.
20:35
Speaker 1: What am I doing with reats? What am I doing
20:37
Speaker 1: with real estate? Well, the exposure and that fund is
20:40
Speaker 1: pretty limited on office. Having said that, um surprisingly a
20:44
Speaker 1: office even in Manhattan is going upward doing well. It's
20:48
Speaker 1: really the B offices they're getting smashed. This is in
20:50
Speaker 1: my office here, I'm sitting in right. Everything else on
20:54
Speaker 1: the Lexington Avenue corridor is B is it if not
20:57
Speaker 1: C or D right, So that's going to get redeveloped.
21:00
Speaker 1: But the good thing about reads is that they're not
21:02
Speaker 1: very levered and they have long term leases. So by
21:05
Speaker 1: the time all those leases expired, there will have been
21:08
Speaker 1: movement out of the B space and conversions to probably residential.
21:13
Speaker 1: So they're under levered credits that survived well during cycles.
21:19
Speaker 1: And that's really the investment bankers rarely what I give
21:21
Speaker 1: them credit. But they didn't want to sell, which formally
21:24
Speaker 1: was but I reformed, but they've actually required. We made
21:30
Speaker 1: a pitch when I was investment banker to one of
21:31
Speaker 1: our clients to be a read and I said, oh,
21:33
Speaker 1: let's put six leverage on it, and they said no, no, no,
21:36
Speaker 1: this has to be full cycle because we're gonna sell
21:38
Speaker 1: it to retail, so it's only leverage. So surprisingly, they're
21:42
Speaker 1: they're really good credits even when they're pressured like in cycles. Now,
21:46
Speaker 1: in terms of you know, I always think of the
21:48
Speaker 1: housing market here is driving consumer wealth and I was
21:53
Speaker 1: lucky enough to get in right at the top. Um,
21:56
Speaker 1: do we see that as a real problem, Bob, because no,
21:59
Speaker 1: nobody seems that we're wried about it. We've seen a
22:00
Speaker 1: substantial drop in prices, and a bigger drop has been
22:04
Speaker 1: forecast by some boys who cried wolf. I guess is
22:08
Speaker 1: it is? It not as bad as had been expected.
22:12
Speaker 1: I think there are a few influences, So one is
22:14
Speaker 1: that it it is bad in terms of there's been
22:16
Speaker 1: a big slowdown in terms of activity, which will delete
22:19
Speaker 1: some economic growth and is one of the underlying cycles
22:22
Speaker 1: in the economy. So the slowdown in housing with rates
22:24
Speaker 1: where they are right now, is something that that really
22:26
Speaker 1: will be a headwind for the economy. I think in
22:28
Speaker 1: terms of house pricing and wealth effect, it's similar to
22:32
Speaker 1: the equity market. If you look at it in isolation
22:34
Speaker 1: over last year, it's a challenge and a problem, but
22:36
Speaker 1: when you look back over the past few years, not
22:38
Speaker 1: so bad. So I think if you wait that out,
22:40
Speaker 1: you have some people who will certainly be underwater on prices,
22:43
Speaker 1: a little bit of declining wealth effect, but by and large,
22:45
Speaker 1: over and reasonable period of time, that's not been a
22:47
Speaker 1: big problem yet. So that's one of the reasons why
22:49
Speaker 1: it's important to get inflation under control, hopefully get mortgage
22:52
Speaker 1: rates under control, maybe back a little bit lower as
22:53
Speaker 1: we look ahead. All my problem is that you three
22:56
Speaker 1: guys are all probably on the other side of my
22:59
Speaker 1: guy Rick. He said, listen, if you want to send
23:01
Speaker 1: your kids to like Ivy League schools or even just
23:05
Speaker 1: college in America, um, you still need like way more income.
23:10
Speaker 1: But he said, if you send them to school for
23:12
Speaker 1: free in in Europe. My wife is from Spain, you're
23:15
Speaker 1: good to go now, right, so just move back in
23:18
Speaker 1: like fifteen years. That's what I want to do. But
23:20
Speaker 1: my wife says we should give the kids the opportunity
23:23
Speaker 1: to go to some of these expensive U S schools
23:25
Speaker 1: because from her vantage point, the Europeans see this as
23:28
Speaker 1: an amazing experience, like a social chance that you never
23:33
Speaker 1: would have in a European lifetime. And I feel like
23:37
Speaker 1: that's just I'm throwing away like a Rolls Royce culling
23:40
Speaker 1: in if I send one of my kids to four
23:43
Speaker 1: years of college in Americas. In investment, it's not expensed.
23:45
Speaker 1: It's an investment, but it's just a party, right, Am
23:48
Speaker 1: I wrong about that? You're not? I mean, you're not
23:50
Speaker 1: too that far removed. Um Bob, what do I do
23:53
Speaker 1: with bonds? I had historic losses in bonds last year,
23:57
Speaker 1: and for an equity guy like me, when people tell
23:59
Speaker 1: me that they've never see those kinds of losses, I'm like,
24:01
Speaker 1: I'm all in, baby, you know, both hands buying bonds.
24:05
Speaker 1: What do you guys doing in the fixing comark? I
24:07
Speaker 1: think bonds do look pretty compelling here. And what's exciting
24:09
Speaker 1: about it is that you don't have to stretch that
24:11
Speaker 1: far to get a decent yield. So in the past
24:13
Speaker 1: there was this, you know, stretch for yield. People were
24:15
Speaker 1: willing to give up liquidity, they were willing to take
24:17
Speaker 1: on all sorts of extra credit risk. You don't really
24:19
Speaker 1: need to do that here, So that the assumption if
24:21
Speaker 1: you walk in that that you can generate four to
24:23
Speaker 1: five percent with relatively conservative fixed income, keep duration not
24:27
Speaker 1: that long, don't take a lot of credit risk. Those
24:29
Speaker 1: are decent returns. And so for institutional portfolios like endowments
24:32
Speaker 1: and foundations that are targeting five percent spend rates, that
24:35
Speaker 1: number is pretty close to that spend rate. It's a
24:36
Speaker 1: good investment. So we think there will be some good
24:38
Speaker 1: opportunities in fixed income and you don't have to get
24:40
Speaker 1: too creative to pursue them. What will be you don't
24:43
Speaker 1: think that they're already have they are now, So will
24:46
Speaker 1: be good returns and fixed it Okay, I mean, j
24:49
Speaker 1: if you see rates coming down, I mean did you
24:51
Speaker 1: jump in at four in a quarter? Well, what we
24:54
Speaker 1: jumped into was preferred stocks, So in fact that was
24:58
Speaker 1: our call like a week and a half ago. But
25:00
Speaker 1: still do prefer yes, but they're up like almost one
25:04
Speaker 1: of our funds is up almost ten percent this year.
25:07
Speaker 1: And so typically they're vaulatile securities. They get sold way
25:11
Speaker 1: too much in the cycle because they have very low
25:13
Speaker 1: default rates. So if you're they're definitely more vaulatile, but
25:17
Speaker 1: less vaultile than stocks. So that's where we have been
25:19
Speaker 1: suggesting to step in, and so far we've been right
25:22
Speaker 1: this year. By the way, do you care that it
25:24
Speaker 1: took Kevin McCarthy like fifteen votes to become the Speaker
25:29
Speaker 1: of the House. Do you care that we could see
25:32
Speaker 1: the debt ceiling come back as like an issue, certainly
25:36
Speaker 1: for the media, but possibly for markets as well. Does
25:39
Speaker 1: it matter to you as an investor? I mean, we
25:41
Speaker 1: think it's mildly positive because it's just indicative of gridlock,
25:45
Speaker 1: and we're not big. We don't think that the U.
25:48
Speaker 1: S economy is driven by government spending, particularly federal government spending,
25:52
Speaker 1: so we think it's somewhat polish, even though the market
25:54
Speaker 1: might trade off if there's a debt ceiling. I was hoping,
25:57
Speaker 1: Bob he would say it's a concern because because the well,
26:02
Speaker 1: I wasn't hoping, but I was thinking that, you know,
26:04
Speaker 1: it's a problem if you can't pass a budget, if
26:08
Speaker 1: the US government defaults, which seems like crazy, but I'm
26:13
Speaker 1: looking at Washington and they're crazy, you know. Is it
26:16
Speaker 1: a possibility. It's a possibility that will certainly create a
26:19
Speaker 1: lot of volatilities. We get closer to that date, which
26:22
Speaker 1: is somewhere out in the August September time frame, we've
26:24
Speaker 1: seen this movie before. So we've been through it. It's
26:26
Speaker 1: generated volatility before and we've gotten past it. So I'm
26:30
Speaker 1: in the same campus as Jay in terms of good
26:32
Speaker 1: luck is good on the policy of standfront. You know
26:34
Speaker 1: what you're dealing with as a as a company management team.
26:37
Speaker 1: But whenever you think about the debt ceiling and things
26:39
Speaker 1: like that, that does have the potential to create volatility
26:41
Speaker 1: and probably will and we see it coming. Did you
26:44
Speaker 1: see did see Levine yesterday? Matt Levine? Yes? On the
26:47
Speaker 1: debt ceiling. His story starts out the dumbest thing in economics,
26:51
Speaker 1: the US government's debt ceiling. Yes, exactly. Uh, you have
26:55
Speaker 1: money stuff. Matt Levin's money stuff is must read every day.
26:58
Speaker 1: I have an alert set up. He's talking about premium bonds.
27:00
Speaker 1: He thinks they should issue premium by so like a
27:03
Speaker 1: bond that yields like sixteen per cent, but instead of
27:06
Speaker 1: selling it for face value, they sell it to you
27:08
Speaker 1: for double that. Right, because the dead ceiling, apparently the
27:12
Speaker 1: law says it's all about the face value of the
27:15
Speaker 1: dead issue. They don't care about the interest expenses. And
27:18
Speaker 1: even I guess the premium would be okay for the
27:20
Speaker 1: Treasury to pocket yeah, I mean so good stuff. I
27:22
Speaker 1: always recommend reading his stuff. Laura Martin is a senior
27:28
Speaker 1: media analyst at Native and Company. She's been on the
27:31
Speaker 1: street for decades, covering the entire evolution of the media
27:35
Speaker 1: and the TMT space. She joins U here in a
27:37
Speaker 1: Bloomberg Interactive broker studio. Were so glad to see you're
27:39
Speaker 1: based in l A but here in New York because
27:41
Speaker 1: you guys had a conference, right we did. We had
27:42
Speaker 1: a big the need Um Annual need Hum Growth Conference
27:45
Speaker 1: this week. I had twenty two CEOs on stage real
27:48
Speaker 1: time talking about the end of the year outlook, super
27:52
Speaker 1: interesting stuff. What were some of the key takeaways for you?
27:54
Speaker 1: For you? So for me? So mostly out driven firms
27:57
Speaker 1: and as you know, advertising firms are down fifty last
28:01
Speaker 1: year had a horrible year. Look. I think estimates are
28:04
Speaker 1: low enough. I think first quarter is going to be weak.
28:06
Speaker 1: I think fourth quarter, Paul, for the first time you
28:08
Speaker 1: were meeting analysts with me twenty years ago when we
28:10
Speaker 1: first were first Boston, and for the first quarter, like
28:13
Speaker 1: fourth quarter didn't show up. Some guys are going to
28:15
Speaker 1: report a lower fourth quarter than third quarter. But it's
28:18
Speaker 1: in the which you and I have never seen before
28:20
Speaker 1: as media people. But I think it's in the estimates.
28:22
Speaker 1: I think that we don't have more estimate revisions downwards.
28:25
Speaker 1: So I think I'm hopeful for the second half of
28:27
Speaker 1: this year that UM stocks rebound towards the second half
28:30
Speaker 1: of this year with an outlook for earnings stabilization and
28:33
Speaker 1: ups in the second half and next year. So you're
28:36
Speaker 1: not just looking at reports and you know, reading notes,
28:39
Speaker 1: you actually talk to the CEOs of these companies. At
28:42
Speaker 1: the Needham conference in Vegas, you met with CEOs there,
28:48
Speaker 1: what what are What is their sentiment like right now?
28:52
Speaker 1: Because I feel like Wall Street is getting a little
28:55
Speaker 1: bit more optimistic about three, a little bit less concerned
28:59
Speaker 1: about FED, less concerned about a big recession, and certainly
29:02
Speaker 1: less concerned about inflation. So so, and let me stay
29:05
Speaker 1: stick to the AD driven parts of the business. I
29:07
Speaker 1: think AD driven CEOs for for tell Um, expect On
29:11
Speaker 1: are managing their cost structure towards an AD recession. None
29:14
Speaker 1: of them will step up to the level you've just
29:16
Speaker 1: asked about, which is an economic recession, because I dont
29:18
Speaker 1: feel qualified to do that, but I think each of
29:20
Speaker 1: them feels there is an AD recession as advertisers hold back,
29:23
Speaker 1: waiting for consumer demand to show up before they spend
29:26
Speaker 1: ad trying to drive consumer demand. So met there are
29:29
Speaker 1: a million analysts out there on Wall Street and they
29:31
Speaker 1: all have their earnings estimates and price targets and things
29:33
Speaker 1: like that. Laura does that too, but she's different. She
29:36
Speaker 1: thinks like way out of the box, um and lots
29:40
Speaker 1: of big themes. A lot of her stuff I have
29:42
Speaker 1: to read two or three times to figure out kind
29:44
Speaker 1: of what she's saying. But it's way out there. What
29:45
Speaker 1: are some of yours? So I'm inarticulate. This is what
29:47
Speaker 1: I've just learned to know. You're a big picture You're
29:50
Speaker 1: a big picture person, which, by the way, so here's
29:53
Speaker 1: a question then, um on a on a bigger picture
29:56
Speaker 1: thought that I've had for some time. Paul hates it
29:58
Speaker 1: when people work from home. To him, that's the bane
30:01
Speaker 1: of his existence. And I feel like this is the future,
30:05
Speaker 1: because we're all gonna live in the metaverse and be
30:08
Speaker 1: plugged in and never have to leave our little pads.
30:12
Speaker 1: I feel like the one beneficiary of that should be
30:15
Speaker 1: the company that's named Meta, and they've been absolutely crushed
30:21
Speaker 1: as well. So why isn't that a long term buy
30:25
Speaker 1: for you has underperformed the only ones UM so so
30:32
Speaker 1: meta we're particularly worried about, and we do have an
30:34
Speaker 1: underperform which is rare on the street. I think there's
30:37
Speaker 1: fifty five by UM And I think what we're saying is,
30:40
Speaker 1: I think the question we are raising that we think
30:42
Speaker 1: investors need to think through is is there actually a
30:46
Speaker 1: core business if TikTok isn't stopped. Yes, can you rely
30:49
Speaker 1: on regulators to enter in band TikTok? You can absolutely
30:52
Speaker 1: make a bet on that. However, if they aren't stopped,
30:55
Speaker 1: because in my opinion, TikTok has a real business and
30:57
Speaker 1: it will get bought by somebody rather than just go away.
31:00
Speaker 1: So if they have a real business, it is unclear
31:02
Speaker 1: to me what a social network is worth and whether
31:03
Speaker 1: it has any exit multiple if if TikTok keeps eating
31:07
Speaker 1: the world, but don't you separate that from their ambitions.
31:10
Speaker 1: I mean, social networks are a flash in the pan.
31:11
Speaker 1: We had frends Tour, we had my Space is pretty gross.
31:16
Speaker 1: I think we can all agree, Um, you've got Instagram
31:19
Speaker 1: and TikTok that are hot right now. But the important
31:22
Speaker 1: thing for me is the metaverse. Aren't they buying, you know,
31:25
Speaker 1: and building this huge metaverse company. So let's go back
31:30
Speaker 1: to say, I'm going to tie that into your C
31:31
Speaker 1: E S question because C E S for the first
31:33
Speaker 1: time ever, and I didn't skip a C E S
31:35
Speaker 1: if it was on, I drove from l A to
31:37
Speaker 1: see it had a metaverse section. First time ever metaverse
31:40
Speaker 1: included like the PlayStation. I don't know what you guys think.
31:42
Speaker 1: I don't think the PlayStation, which is a hardware based
31:45
Speaker 1: console game system, is the metaverse. The problem is there's
31:47
Speaker 1: four companies in it. There's four booths in the metaverse.
31:50
Speaker 1: So I think the metaverse, first of all, no one
31:52
Speaker 1: defines it the same. What you think you're asking me
31:54
Speaker 1: a metaverse is probably not what I think metaverse is.
31:57
Speaker 1: As it pause, everybody has a new definition of it.
32:00
Speaker 1: A lot of AI and a lot of AI. I
32:02
Speaker 1: think is the metaverse coming out of C E S.
32:05
Speaker 1: I think what was really important for media as media
32:07
Speaker 1: analysts were pollen I started in the world is screens
32:11
Speaker 1: everywhere Japan. You know, they haven't been replacing their population,
32:14
Speaker 1: so they're making these little robots that look by people.
32:16
Speaker 1: Their face has a screen. Because it's sad it listens
32:19
Speaker 1: to you, it emotes. Guess what, there's gonna be an
32:21
Speaker 1: ad on that screen someday to lower the cause. Right now,
32:24
Speaker 1: those robots are three thousand dollars a month. What why
32:27
Speaker 1: doesn't Coke put a little coke bottle on the bottom
32:29
Speaker 1: of every one of those screens and perpetuity and pay
32:31
Speaker 1: the company ten million dollars a year. What a great idea.
32:33
Speaker 1: There's screens on their bellies so that you can push,
32:35
Speaker 1: you know, call emergency response or get me a coke,
32:39
Speaker 1: and the robotos and get you their screens on the belly.
32:42
Speaker 1: The point is in cars and in these new robotics,
32:45
Speaker 1: a lot of robotics on the floor of c e s,
32:47
Speaker 1: they all have screens. And if they have a screen,
32:49
Speaker 1: and advertisers going to figure out a way to subsidize
32:51
Speaker 1: the consumer payment for that physical asset forever, because that's
32:56
Speaker 1: just smart marketing. Put it, you know, put a water
32:58
Speaker 1: mark on it. It's already hapening right The screen in
33:01
Speaker 1: my car says Google right on it all the time.
33:03
Speaker 1: It's got a Spotify button for me to click. I
33:05
Speaker 1: don't even use Okay, yeah, I'm sure, I just you know,
33:10
Speaker 1: you're right about the metaverse. My definition is much broader
33:13
Speaker 1: than probably I think the Zoom is already in the metaverse.
33:16
Speaker 1: You know, they're pretty Fortnight in the metaverse. Now everybody's
33:19
Speaker 1: like Fortnight it's a metaverse company. I'm like, okay, I
33:21
Speaker 1: think it's a mobile game company. But okay, so I
33:24
Speaker 1: don't know. The most interesting I would say, look my
33:27
Speaker 1: deliverable when I go to c e S. Because they're
33:29
Speaker 1: showing stuff three years from now, is does it raise
33:31
Speaker 1: a question for me that I've never thought of in
33:33
Speaker 1: my life? And that's pretty hard high standard. It did
33:36
Speaker 1: because one of the things they're showing in you might
33:39
Speaker 1: call it the metaverse they're putting under AI. So artificial
33:41
Speaker 1: intelligence is if you upload videos and letters and um
33:47
Speaker 1: audio tapes, that AI will render your dead loved one.
33:51
Speaker 1: And they have programmed the AI to answer the top
33:54
Speaker 1: ten thousand questions so you can talk to your your
33:58
Speaker 1: dead mother, your dead sister. There's a movie about that
34:01
Speaker 1: already in in re answering questions for you in their cadence,
34:05
Speaker 1: in their accent, in their person as an avatar. Like,
34:08
Speaker 1: it raises the question, just because technology can do something,
34:12
Speaker 1: should it? Should it do something? All right, let's go
34:14
Speaker 1: back to something a little bit more on the earth.
34:17
Speaker 1: In the Earth, Nelson Belts has taken a position in
34:20
Speaker 1: the Walt Disney Company. What's your Disney call? Right here?
34:23
Speaker 1: Bob Eiger coming back, our old buddy, what's your Disney
34:27
Speaker 1: call here? So my Disney call is I think Bob
34:29
Speaker 1: igor is best in class at managing people both down
34:32
Speaker 1: and I think yum and I think up. So I
34:37
Speaker 1: think that we're going to get a lot less drama
34:39
Speaker 1: at the Walt Disney Company, which I think is good
34:40
Speaker 1: for a content company. You know, Paul, they don't have
34:43
Speaker 1: a content Their content revenue is in other under the
34:46
Speaker 1: under Bob shapeck like how dismissive of what is the
34:50
Speaker 1: core business there that they build all of their other
34:53
Speaker 1: economic engines around. So I think we get a refocus
34:55
Speaker 1: on content, which I think is deserved. Um and I
34:59
Speaker 1: think he sells. I think the Walt Disney Company has
35:02
Speaker 1: been very unsuccessful like succession planning, and I think it's
35:05
Speaker 1: a hard job. It's almost an impossib job. It's like
35:07
Speaker 1: running a government in terms of the brand stringency. So
35:10
Speaker 1: I think Apple buys them. I think that is a
35:12
Speaker 1: good home. Do you think Apple for years that Apple Disney. Yes,
35:18
Speaker 1: and he has said if Steve Jobs had not died,
35:20
Speaker 1: I would because he was on his board right he
35:22
Speaker 1: I would have sold Disney to Apple. That is a
35:24
Speaker 1: good fit. The government will make sure Apple says you
35:27
Speaker 1: can't make your content exclusive. That's smart for ten years
35:30
Speaker 1: like they did with NBC, you can't make this content exclusive.
35:32
Speaker 1: When Comcast bought MBC, so for you know, ten or
35:35
Speaker 1: twenty years, Apple won't be able to make Disney content exclusive.
35:38
Speaker 1: But at the end of the day, that is a
35:39
Speaker 1: good home. We've got a billion of the wealthiest consumers
35:42
Speaker 1: on Earth in the Apple ecosystem, and the brands are
35:45
Speaker 1: completely brand consistent. And I just don't think there's a
35:48
Speaker 1: person out there that can run the Walt Disney company.
35:50
Speaker 1: It's just too hard. Well, I thought we had I
35:52
Speaker 1: thought we had a perfect set up with Tom Stags too.
35:55
Speaker 1: I'm such a Tom Stags, I know. And then he
35:59
Speaker 1: Bob Biker's got so many wonderful things on his resume,
36:01
Speaker 1: just NonStop, but a huge failure is the lack of succession,
36:06
Speaker 1: his inability. I agree, and it hurts his legacy because
36:09
Speaker 1: as a as a general manager, you need to have
36:12
Speaker 1: a bench and a succession plan. And by the way,
36:15
Speaker 1: I blame the board more than I blame Bob. Bob's
36:17
Speaker 1: just a great execution guy. But in fairness, like if
36:20
Speaker 1: you're you got to think about the next hundred years,
36:22
Speaker 1: not just like while you're inten your slight. He tried right, well, no,
36:27
Speaker 1: wouldn't give up power, simple as that. And then when
36:29
Speaker 1: he did give up power, he didn't really give up power.
36:31
Speaker 1: He kind of undermine Bob Jacob. All right, what's the
36:33
Speaker 1: one thing we're not thinking about that you're thinking about? Um?
36:37
Speaker 1: Streaming has ruined the economics of the media business. We're
36:41
Speaker 1: down to one window, right, if we don't have box office,
36:43
Speaker 1: we have a single window. When you and I covered media,
36:45
Speaker 1: it was seven windows. You know what a good economic
36:48
Speaker 1: model is seven windows where you have ticket sales and
36:51
Speaker 1: your video games, then you have streaming, then you have broadcasts.
36:54
Speaker 1: We need more windows back otherwise the return on content
36:57
Speaker 1: spending is going to be negative as it is today.
36:59
Speaker 1: How do we how do we do that? Because when
37:01
Speaker 1: you and I, you know, we're covering these names. Even
37:03
Speaker 1: ten years ago, a network would spend a billion, two billion,
37:06
Speaker 1: three billion dollars on content. Now they're spending twelve fifteen,
37:09
Speaker 1: seventeen billion dollars on content. Oh, by the way, and
37:11
Speaker 1: I don't I don't know where the revenue stream is going.
37:13
Speaker 1: And I guess that's kind of the conundrum for these
37:15
Speaker 1: media companies. My costs have gone up, but I don't
37:17
Speaker 1: know where my revenue is coming from. Well, I'm going
37:19
Speaker 1: to answer that, but I also want to tell you,
37:21
Speaker 1: by the way, all these streamers don't have talent back ends.
37:24
Speaker 1: So the talents about to go on strike in Hollywood
37:26
Speaker 1: where I live because they don't. They're watching their traditional
37:29
Speaker 1: business go to zero and they don't have back ends
37:32
Speaker 1: and meaning they don't have an annuity stream after they
37:34
Speaker 1: produce the content. So they're going to strike because there's
37:36
Speaker 1: sort of nothing to lose for them. So the content
37:39
Speaker 1: costs that we've been paying for streaming is actually cheaper
37:41
Speaker 1: than it's about to be because talent is gonna want
37:43
Speaker 1: to have a back end residual like they do in
37:46
Speaker 1: music and like they do in the film. Makes sense,
37:49
Speaker 1: So these costs are about to go up for streaming.
37:51
Speaker 1: So the answer is you have to have consolidation. The
37:54
Speaker 1: thing I am most excited about that everybody's missing, I
37:56
Speaker 1: think is John Malone is back in the media business
37:59
Speaker 1: because he had give up a super voting rights and
38:01
Speaker 1: discovery and so now he's on the board and zaslavs
38:04
Speaker 1: you know that Zaslov team of execution, and Malone's genius
38:08
Speaker 1: of how to make money in an ecosystem, I think
38:10
Speaker 1: is one of the most I expect economic rationality to
38:13
Speaker 1: come back. The Darth Vader of cable is coming back
38:16
Speaker 1: in the stream to make money, to make money, because
38:18
Speaker 1: we are not going to fund this anymore. We Wall
38:20
Speaker 1: Street have said you must make money, and streaming has
38:23
Speaker 1: been set up to not make money, and it's cost
38:24
Speaker 1: You're about to go up because talent wants to share.
38:26
Speaker 1: Let's talk about Apple a little bit more because you
38:28
Speaker 1: like Apple, and um, they are getting ready to grow
38:33
Speaker 1: into some pretty interesting places. They want to get into
38:37
Speaker 1: what is augmented reality. I think they're putting out like
38:39
Speaker 1: some kind of glasses or headset this year at least,
38:42
Speaker 1: as a Mark German tells us. And they're gonna put
38:46
Speaker 1: out a car now if they buy Walt Disney there
38:49
Speaker 1: and pretty much everything. What what's the what's the future
38:52
Speaker 1: look like for Apple? So I think Apple has made
38:55
Speaker 1: so as you know, when you do the work, your
38:57
Speaker 1: customers are your revenue. That to what Apple specializes in.
39:01
Speaker 1: Twelve devices. A billion unique users have an iPhone worldwide.
39:05
Speaker 1: That is the richest fifteen percent of and that is
39:07
Speaker 1: the people who have eighty percent of the economics in
39:09
Speaker 1: the world. Sad to say, but true. So anything that
39:13
Speaker 1: they do, they have ninety billion dollars a year free
39:15
Speaker 1: cash flow, which means no industry is safe unless Apple
39:19
Speaker 1: just doesn't care. It's too small. They're going into cars.
39:22
Speaker 1: That is hard work, you know, it's not hard work
39:24
Speaker 1: selling ads to the top fifteen percent wealthiest consumers they got.
39:29
Speaker 1: My my prediction is they will go into the ad
39:31
Speaker 1: business in a big way. In they'll be very cautious.
39:35
Speaker 1: It is a eight hundred billion dollar a year business
39:38
Speaker 1: and it is easy to get into. There's established technology partners.
39:41
Speaker 1: So they have to do it brand consistent because they
39:43
Speaker 1: protect their brand at all costs. But it is an
39:45
Speaker 1: eight hundred billion dollar revenue stream that that they have
39:48
Speaker 1: can get partners and they don't need a car. That
39:50
Speaker 1: doesn't have to take them three years, and it's a
39:52
Speaker 1: it's eighty percent margins. As Paul and I know, why
39:54
Speaker 1: haven't they gotten into the business you think, you know,
39:56
Speaker 1: I think they think it's not brand consistent. And again,
39:59
Speaker 1: like the Walt Disne your company that constantly asked what
40:01
Speaker 1: would Walt Disney do and is gated by that decision,
40:05
Speaker 1: Apple says what would Steve Jobs do? Well, he would
40:07
Speaker 1: never have done advertising, So they really have to go
40:10
Speaker 1: very I would say plotting the Amazon. Amazon has showed
40:13
Speaker 1: that you can get big quickly, and you can get
40:15
Speaker 1: thirty billion this year for Amazon, and Apple is starting
40:18
Speaker 1: to break away because Steve Jobs would never have put
40:20
Speaker 1: a touch screen in a laptop. That's true, they're going
40:22
Speaker 1: to do that, but that's but they just are just
40:23
Speaker 1: more deliberate when they're going against Steve Jobs. They are
40:26
Speaker 1: just much more deliberate. But I think it is a
40:28
Speaker 1: much better revenue stream and a higher margin and they
40:31
Speaker 1: should be in the act. You care that I've learned
40:33
Speaker 1: this year that Paul is very angry that they don't
40:36
Speaker 1: pay a dividend. Do you care? Don't care? I don't care? Sorry,
40:41
Speaker 1: I know, I just I would love a nice, saucy
40:43
Speaker 1: two to three pc dividend yield. Uh think, yeah, you
40:47
Speaker 1: can do both. They got cash flow, as you mentioned,
40:50
Speaker 1: all right, since we got here. We're going right down
40:52
Speaker 1: to your list. Alphabet, I mean digital advertising. It was
40:55
Speaker 1: just on autopilot for more than a decade. It was
40:58
Speaker 1: not so much now how do we think about alphabet,
41:01
Speaker 1: but just kind of the digital advertising space. So I'll
41:04
Speaker 1: answered both questions. So what I think, Paul is this,
41:07
Speaker 1: you know, the search engine has like margins, and it's
41:10
Speaker 1: my opinion that even including you to sort of the
41:12
Speaker 1: rest of their business hobbies, nothing else makes money. Search
41:14
Speaker 1: writes on a track. My view is that this this
41:17
Speaker 1: ad recession which all my guys are calling for, is
41:20
Speaker 1: going to allow Ruth, who's the CFO that comes from
41:23
Speaker 1: Morgan Stanley, which is a mature, competitive business. It's gonna
41:25
Speaker 1: allow her to cut costs. And it's about freaking time.
41:28
Speaker 1: They need to get rid of some of these hobbies.
41:30
Speaker 1: And we either they need to get rid of hobbies
41:32
Speaker 1: or we need to take the share price down again
41:34
Speaker 1: because they're not being they're not running a business, you know,
41:37
Speaker 1: and Search is now underseach from this chat you know
41:40
Speaker 1: AI thing and maybe being take syn rows. But the
41:43
Speaker 1: point is if that's about to undermine their core competence,
41:46
Speaker 1: they should be scared to death and they should be
41:47
Speaker 1: cutting costs. So I'm hoping that we get business discipline
41:51
Speaker 1: into Alphabet for the first time because they're scared about
41:53
Speaker 1: an AD recession coupled with this AI threat. And Ruth
41:56
Speaker 1: has probably wanted to cut costs for three years and
41:58
Speaker 1: just hasn't been allowed to it. Like I mean, Amazon
42:01
Speaker 1: under Bezos was always like they could turn the tap
42:04
Speaker 1: and profits would flow out. They would do that occasionally
42:07
Speaker 1: when Wall Street wanted to take the stock rights down. Um,
42:10
Speaker 1: what is it like under Jase? Now, what do you
42:12
Speaker 1: think about Amazon? So I think so Amazon, we are
42:15
Speaker 1: writing that you should invest in the Red Cross rather
42:17
Speaker 1: than Amazon because they have five d billion of revenue
42:19
Speaker 1: and they have five billion of costs and they have
42:21
Speaker 1: a million employees and they're making no money. And I
42:23
Speaker 1: don't think that's a business. I think it's a hobby.
42:26
Speaker 1: So I called Shenanigans under Jeff Bezos, okay, like every
42:29
Speaker 1: time he spent lost a billion dollars, he would it
42:32
Speaker 1: would turn into the cloud or would turn into the
42:34
Speaker 1: ad business. But I don't think you get to just
42:36
Speaker 1: transfer that goodwill from Wall Street to Andy Jaffee, who's
42:39
Speaker 1: a different human being. I don't know what decisions he's
42:41
Speaker 1: making in the five billion a quarter that he's spending
42:44
Speaker 1: that don't make money. And Wall Street has changed its
42:46
Speaker 1: mind this year, as you in, we want free cash flow.
42:49
Speaker 1: And when you're a public company, sorry, Wall Street gets
42:52
Speaker 1: to change its mind on a dime, even though you
42:54
Speaker 1: think you're running a business for multi years. We have
42:56
Speaker 1: changed our mind. We want free cash flow now. So
42:58
Speaker 1: Jaffee eating it needs to business needs to go back
43:01
Speaker 1: to basos and then maybe he'll get a pass to
43:03
Speaker 1: not make money. If it's Jaffe in the seat. He
43:05
Speaker 1: needs to make money like yesterday. So he's got a
43:08
Speaker 1: million employees, he's not laying off fast enough. He's got
43:10
Speaker 1: to cut costs faster in order to get the sharp
43:13
Speaker 1: price up. In my opinion, there you go boom clear.
43:15
Speaker 1: I mean you walk out of a meeting with law Martin.
43:17
Speaker 1: You know exactly where she stands. So that was good
43:19
Speaker 1: stuff law Martin. She's a senior media analysts that need
43:22
Speaker 1: him in company based in l a here in New
43:24
Speaker 1: York because they had their big need him company, uh
43:27
Speaker 1: growth stock kind of conference in New York annual. All right,
43:31
Speaker 1: good stuff, awesome. Let's bring in Sam Burns right now,
43:36
Speaker 1: he's founder and chief strategist at Mill Street Research, to
43:40
Speaker 1: talk about well this number, Sam, and you know the Fed,
43:44
Speaker 1: what are they gonna do? How do you take the
43:46
Speaker 1: inflation um? Are we getting back to a good place
43:49
Speaker 1: and can the Fed kind of slow down? Ali? Thanks
43:52
Speaker 1: for having me on, and yes, I think the inflation
43:55
Speaker 1: numbers have definitely gotten a lot better over the last
43:57
Speaker 1: day six months or so. Uh. You know, you look
43:59
Speaker 1: at the six annualized rate of change of the CPI
44:02
Speaker 1: and we're we're basically just below two percent now, So
44:06
Speaker 1: we're back to where the Fed wants to see it
44:08
Speaker 1: during the period that's the really captures when they've been
44:11
Speaker 1: raising rates, and after the you know that the commodity
44:13
Speaker 1: spike caused by Russia has kind of petered out. So
44:16
Speaker 1: I think we're in a much better place inflation wise.
44:18
Speaker 1: I think the Fed's main concern now is labor market.
44:21
Speaker 1: Even there, we're starting to see, you know, some signs
44:23
Speaker 1: that it's slowing enough to towards them off. So certainly
44:27
Speaker 1: seeing the Philadelphia Fed President Harker out today saying that
44:31
Speaker 1: he's in favor of shifting down to twenty five basis
44:34
Speaker 1: point rate hikes as a sign that they're taking that
44:36
Speaker 1: into account and probably will slow down pretty quickly here.
44:39
Speaker 1: So we see inflation coming down here, Sam, certainly, But
44:44
Speaker 1: how about wages here? I mean wage growth has been strong,
44:47
Speaker 1: but certainly below that of inflation. How do you think
44:50
Speaker 1: about that dynamic? That's right, and uh, you know, workers
44:54
Speaker 1: have not seen their wages keep up with inflation so far, um.
44:58
Speaker 1: But it does show so that you know, wages themselves
45:01
Speaker 1: are slowing and I think that's really what the FED
45:03
Speaker 1: is focused on. And certainly the total wage income in
45:07
Speaker 1: terms of the number of people working, the amount that
45:09
Speaker 1: they're earning prour and the number of hours they're working,
45:11
Speaker 1: that's been slowing as well. It's not quite where they
45:13
Speaker 1: want to see it, but that's coming down closer to
45:16
Speaker 1: levels of last few months that would be consistent with
45:18
Speaker 1: you know, with low inflation. So I think that's the
45:21
Speaker 1: key metric, you know, taking everything into account, how much
45:24
Speaker 1: people are working, how many and what they're earning. Uh,
45:26
Speaker 1: and that's coming back closer to where they want to
45:29
Speaker 1: see it. Um. So I think it's uh, you know,
45:32
Speaker 1: one of those things where it's bad news is good
45:34
Speaker 1: news still for the markets and for the Fed. They
45:36
Speaker 1: want to things see things slow down, which is less
45:39
Speaker 1: good for the workers who are earning that money, but
45:41
Speaker 1: better from the standpoint of not having to raise rates
45:43
Speaker 1: so much. So do we take the FED at their
45:47
Speaker 1: word though, that they're gonna you know, they've been so
45:49
Speaker 1: hawkish now the last couple of days we've heard I
45:51
Speaker 1: think at least three FED speakers come out and say
45:54
Speaker 1: twenty five base points instead of fifty, which I could.
45:57
Speaker 1: I feel like it's a little bit devish. Nonetheless, they
45:59
Speaker 1: all say, you know, Raphael Bostic said we're going to
46:02
Speaker 1: hold rates high for a long time, and the market
46:05
Speaker 1: just doesn't seem to believe them. Why Now, that's right,
46:09
Speaker 1: the market definitely does not see the rates staying high
46:12
Speaker 1: above five for a long time. Certainly that the way
46:15
Speaker 1: the Treasury YO curve and everything else's position now suggests
46:18
Speaker 1: that they're expecting rates to not only probably not get
46:22
Speaker 1: quite that high, but also to come down you know,
46:24
Speaker 1: fairly soon, meaning potentially even by the end of this year.
46:27
Speaker 1: It's not early next year. Um, And so I think,
46:30
Speaker 1: you know, looking at where the inflation data is, where
46:31
Speaker 1: the wage growth is a lot of what the surveys
46:33
Speaker 1: are showing I s M and things like that. I
46:35
Speaker 1: think the bond market is going to assume that the
46:38
Speaker 1: FED responds to economic data going forward more like they
46:42
Speaker 1: used to, meaning that signs of slowing in the economy
46:45
Speaker 1: will produce fewer rate hikes and then potentially rate cuts,
46:49
Speaker 1: and that that's seeing things, uh you slow down fairly
46:52
Speaker 1: rapidly over the course of this year, will provoke rate
46:56
Speaker 1: cuts to bring the rates back down. Because even even
46:58
Speaker 1: the FED things that two and a half percent is
47:00
Speaker 1: the long run, you know, kind of target over the
47:02
Speaker 1: next you say, five years, and so that four and
47:04
Speaker 1: alf for five would still be very tight relative to
47:07
Speaker 1: that long run target, and so there's still room to say,
47:10
Speaker 1: bring it down um from four and alf for five
47:13
Speaker 1: to four and still be considered tight even if it's
47:16
Speaker 1: moving in the direction of cuts. Sam, how do you
47:19
Speaker 1: feel about the non US stocks? We had Tim Craighead,
47:22
Speaker 1: who runs research for Bloomberg Intelligence in Europe, and he
47:26
Speaker 1: was coming on and he's a strategist over there saying
47:28
Speaker 1: that Europe's done better and he expects it it may
47:30
Speaker 1: continue to do better. How do you feel about non
47:32
Speaker 1: U s stocks? Yeah, So in my work the last
47:36
Speaker 1: few months, I've been much more in favor of non
47:38
Speaker 1: U S stocks than U S stocks, and particularly in Europe,
47:42
Speaker 1: and a lot of that is driven by what I
47:43
Speaker 1: see in the analyst activity earnings estimate for revisions, I
47:47
Speaker 1: have been holding up much better in Europe than they
47:50
Speaker 1: have in the US, particularly compared to the large cap
47:53
Speaker 1: gross stalks here, and so I think Europe's in fact
47:56
Speaker 1: Europe does not have the big tech heavy names that
47:59
Speaker 1: we have, is finally now working in their favor and
48:03
Speaker 1: UH and that there may avoid a recession this year
48:05
Speaker 1: thanks to the milder winter and the preparations they've made
48:08
Speaker 1: to deal with energy crisis there. So I don't think
48:11
Speaker 1: things are going to be fantastic in Europe, but they'll
48:14
Speaker 1: be potentially better than expected. The sentiment towards Europe in
48:18
Speaker 1: terms of the economy was really really negative for much
48:21
Speaker 1: of last year, particularly towards the end of the year,
48:23
Speaker 1: and I think, you know, as that sort of you know,
48:25
Speaker 1: gets mitigated, things look a little less bad than the
48:29
Speaker 1: stocks can outperform on a relative basis. Firsts the US.
48:32
Speaker 1: By the way, I looking January resume, you're an equities guy,
48:35
Speaker 1: but what do you think about these yields were seeing
48:37
Speaker 1: in fixed income? Is it worth taking a bite. I've
48:41
Speaker 1: been underweight UH bonds in my asset allocation work because
48:45
Speaker 1: the bond yields right now don't look particularly attractive. They've
48:48
Speaker 1: already priced in a fair amount of what the Fed
48:51
Speaker 1: is likely to do in terms of cutting rates, and
48:53
Speaker 1: you know rates may still be going up in Europe
48:55
Speaker 1: as well. Um, so my guests would be that the
48:58
Speaker 1: short end cash is probably better and you know, the
49:00
Speaker 1: longer term bonds right now, but I still like I
49:03
Speaker 1: like equities better than both than anywhere in fixing. Come
49:06
Speaker 1: at the moment, all right, Sam, great stuff. Appreciate getting
49:09
Speaker 1: your thoughts today. Sam Burns, founder and chief strategists at
49:12
Speaker 1: Mill Street Research, located in sure Born, Mass. I'm not
49:16
Speaker 1: sure what that is. Well, I'm just gonna guess it's
49:17
Speaker 1: somewhere greater Boston, but I'll look on the Google maps later.
49:23
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
49:26
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
49:30
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
49:34
Speaker 1: at Matt Miller three. Pet On Ball Sweeney I'm on
49:38
Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
49:41
Speaker 1: catch us worldwide at Bloomberg Radio,