Latest / Bloomberg Intelligence / Big Tech Dominance May Trigger New Antitrust Legislation: Strauss

Transcript

Big Tech Dominance May Trigger New Antitrust Legislation: Strauss · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Time
• 0:33
  Speaker 1: now to learn a little bit more about free cash flow,
• 0:36
  Speaker 1: value investing, and artificial intelligence. We have David Pearl. He
• 0:39
  Speaker 1: is the co chief investment officer of Epic Investment Partners,
• 0:43
  Speaker 1: helping to manage more than forty seven billion dollars in
• 0:47
  Speaker 1: a variety of funds, and I believe also well. First, David,
• 0:51
  Speaker 1: thanks very much for coming into the studio. Thanks for
• 0:53
  Speaker 1: having them. I just should mention overall t D Bank,
• 0:56
  Speaker 1: I think is the big parent companies that correct Yes, okay,
• 0:59
  Speaker 1: just so set that stage. I want you to offer
• 1:02
  Speaker 1: this idea, uh and analyze it for us. That free
• 1:05
  Speaker 1: cash flow is a very important metric, a very important
• 1:10
  Speaker 1: bit of information that may not be reflected necessarily in
• 1:14
  Speaker 1: the earnings of a company. And I'm wondering if you
• 1:18
  Speaker 1: could explain why that would be so and why that
• 1:20
  Speaker 1: is attractive. Right, when you make an investment in an equity,
• 1:25
  Speaker 1: you own a company. The company gives you your return
• 1:28
  Speaker 1: through only three things. It generates profit, and that's what
• 1:31
  Speaker 1: we're going to talk about free cash flow. It pays
• 1:34
  Speaker 1: you back some of the money. That's return of capital,
• 1:37
  Speaker 1: dividends and share buy back and even debt pay down,
• 1:40
  Speaker 1: and then valuation. And you know those three are the
• 1:43
  Speaker 1: only determinants of return. Uh. The markets for the last
• 1:47
  Speaker 1: five years up until this year were driven by pe
• 1:51
  Speaker 1: expansion evaluation, not by the growth of profits, and only
• 1:56
  Speaker 1: by a small amount. And this is surprising to people
• 1:59
  Speaker 1: about dividends. Dividends have been four percent a year, but
• 2:01
  Speaker 1: the markets were up double digits every year, so the
• 2:04
  Speaker 1: rest of it was valuation. This has started to change
• 2:08
  Speaker 1: now and it is a profit driven market, which is
• 2:11
  Speaker 1: better for active managers because what we do is trying
• 2:14
  Speaker 1: to find the companies that are growing, to grow profits
• 2:16
  Speaker 1: faster than their competitors, and use the money more wisely,
• 2:20
  Speaker 1: including share by backward growing the dividend, and p will
• 2:24
  Speaker 1: be less of the metric that determines return going forward,
• 2:28
  Speaker 1: because as rates go up, valuations are liable to be
• 2:31
  Speaker 1: flat or even down. But the good news is if
• 2:34
  Speaker 1: the economy is growing, you're going to find earnings growth. Now,
• 2:37
  Speaker 1: the difference between earnings and profits, this is the question.
• 2:41
  Speaker 1: Accounting is a game. People think it's like physics, it's
• 2:45
  Speaker 1: a law of nature, can't be changed. It's not so.
• 2:48
  Speaker 1: As long as everyone plays by the same rules. You
• 2:51
  Speaker 1: can compare company A to company B. Well, company A
• 2:55
  Speaker 1: changes the rules every year. That's more than half the
• 2:58
  Speaker 1: companies that are publish don't use standard accounting UH and
• 3:04
  Speaker 1: many many many more UH. And what they do is
• 3:08
  Speaker 1: call it pro forma earnings adjusted earnings. We call it
• 3:11
  Speaker 1: earnings before expenses. Because they throw out anything they feel like,
• 3:15
  Speaker 1: and they change it every year. You can't compare even
• 3:18
  Speaker 1: their own history anymore. Whereas cash much harder to manipulate.
• 3:23
  Speaker 1: You can sort of do it, but it's much harder.
• 3:26
  Speaker 1: And if you've ever worked in a company as a
• 3:28
  Speaker 1: treasurer bookkeeper, companies run on cash. That's how you pay
• 3:32
  Speaker 1: everyone's salary, pay the rent, build a factory. Once a quarter.
• 3:36
  Speaker 1: They translate from cash to this game of accounting and earnings.
• 3:40
  Speaker 1: So companies say we're going to do a dollar and
• 3:42
  Speaker 1: everyone's happy if they do a dollar five and they
• 3:44
  Speaker 1: don't care how it happened. Okay, So so cash is
• 3:48
  Speaker 1: the dependable metric to look at on balance sheets. I
• 3:51
  Speaker 1: want to get to the point that you made saying
• 3:53
  Speaker 1: that active management will be increasing really relevant going forward.
• 3:57
  Speaker 1: Not everybody agrees with you. Uh. Certainly, investors have been
• 4:00
  Speaker 1: voting with their money and pouring into index funds. David Einhorn,
• 4:04
  Speaker 1: who is the founder of green Light capit All, said
• 4:07
  Speaker 1: earlier this year value investing may be dead, and Amazon
• 4:10
  Speaker 1: and tests like killed it. Meanwhile, you have, for example,
• 4:14
  Speaker 1: Mainstay Epoch Global Equity Yield Fund, which is a fund
• 4:17
  Speaker 1: that is co managed by your your firm, and it
• 4:22
  Speaker 1: has an expense ratio of uh, you know, pot six percent,
• 4:26
  Speaker 1: which is a pretty significant one. And how I mean
• 4:30
  Speaker 1: our our investors buying what you're saying. Yeah again, during
• 4:34
  Speaker 1: the period of quantitative easing over the last five years,
• 4:37
  Speaker 1: returns were driven by valuation, and that is hard for
• 4:42
  Speaker 1: most active managers because what we're trying to do is
• 4:44
  Speaker 1: find a company that's going to grow faster, grow earnings faster,
• 4:47
  Speaker 1: be at a discounted valuation. And what was happening is
• 4:49
  Speaker 1: the whole boat, the tide was lifting all the boats,
• 4:52
  Speaker 1: and index funds were actually making it worse because they
• 4:55
  Speaker 1: their market cap weighted, so they're buying the largest stocks
• 4:59
  Speaker 1: which looked more and more overvalued. And the last thing
• 5:03
  Speaker 1: that happened the perfect storm was that when you bring
• 5:06
  Speaker 1: rates to zero, people who would have kept their money
• 5:09
  Speaker 1: in the bank or in bonds were forced by equities,
• 5:12
  Speaker 1: and they only wanted equities that acted like bonds that
• 5:15
  Speaker 1: paid big dividends, which happened to be the largest ones.
• 5:18
  Speaker 1: So managers who are looking for the better stocks were
• 5:23
  Speaker 1: under owning the biggest names, which kept getting bigger and bigger.
• 5:27
  Speaker 1: Now what's changed is rates are beginning to go up.
• 5:30
  Speaker 1: That is putting a crimp on pe expansion correlations. If
• 5:35
  Speaker 1: you look at the market this year, correlations have really widened,
• 5:38
  Speaker 1: meaning that you know, the difference between a good stock
• 5:41
  Speaker 1: and a bad stock is a big difference. Stock picking
• 5:43
  Speaker 1: can work this year, and actually active managers are beginning
• 5:46
  Speaker 1: to outperform this year. This has been clearly a better year.
• 5:49
  Speaker 1: And I would have used the word frustrating over the
• 5:51
  Speaker 1: last few years because stocks that I thought were overvalued.
• 5:54
  Speaker 1: Take a utility or you know it has a four
• 5:57
  Speaker 1: percent dividend, but can't really beat anyone's not Bird's regulated
• 6:01
  Speaker 1: went to all time highs, and they were trading at
• 6:04
  Speaker 1: a huge premium to a market that had gone from
• 6:06
  Speaker 1: twelve times earnings to nineteen. Utilities were so so it
• 6:11
  Speaker 1: was a terrible environment for stock picking. We're finally moving
• 6:15
  Speaker 1: to one where your return is going to be determined
• 6:18
  Speaker 1: by earnings or in our case, free cash flow and
• 6:22
  Speaker 1: the return of cap. David Pearl, thank you so much
• 6:24
  Speaker 1: for joining as David Pearl co Chief investment Officer of
• 6:26
  Speaker 1: Epoch Investment Partners, which overseas forty seven point two billion dollars.
• 6:52
  Speaker 1: The rise in Amazon's market cap this year alone is
• 6:55
  Speaker 1: bigger than the combined total market values of virtually every
• 6:58
  Speaker 1: familiar chain that is to be found in US malls.
• 7:02
  Speaker 1: Jeff Bezos, the founder of Amazon dot Com, His wealth
• 7:06
  Speaker 1: searched past one hundred billion dollars on Friday. Is Amazon
• 7:10
  Speaker 1: dot Com benefited yet again from another shopping holiday, at
• 7:14
  Speaker 1: this time Black Friday to day Cyber Monday. Here to
• 7:16
  Speaker 1: talk about the implications of the rapid rise of these
• 7:21
  Speaker 1: big tech companies and uh the possibility or uh sort
• 7:25
  Speaker 1: of rationale behind breaking them up is Steven Strauss He
• 7:28
  Speaker 1: is the John Weinberg Goldman Sacks Visiting Professor at the
• 7:31
  Speaker 1: Woodrow Wilson School at Princeton University. He is joining us
• 7:35
  Speaker 1: from our Boston studio today. Uh, Stephen, thank you so
• 7:38
  Speaker 1: much for joining us. I just want to get first
• 7:40
  Speaker 1: of all, your take. Do you think that there is
• 7:43
  Speaker 1: a sufficient rationale for breaking up companies like Amazon dot Com? Um?
• 7:49
  Speaker 1: I think there's a sufficient rational to look at what
• 7:52
  Speaker 1: needs to be done about them. Um. Amazon, Alphabet, which
• 7:57
  Speaker 1: is apparent to Google, Apple, Facebook, They basically have a
• 8:01
  Speaker 1: few things in common. They are all in high fixed
• 8:03
  Speaker 1: cost businesses. If you want to go after you know,
• 8:06
  Speaker 1: Facebook or Google, you're literally talking about spending billions. Um.
• 8:10
  Speaker 1: I think when Microsoft want to enter search, it was
• 8:13
  Speaker 1: a five billion dollar fixed cost investment upfront. These are
• 8:17
  Speaker 1: businesses with very low marginal costs. I mean the actual
• 8:20
  Speaker 1: cost when you log into Facebook or use um, you
• 8:26
  Speaker 1: know Alphabet or even Amazon is almost nothing to the
• 8:29
  Speaker 1: company is just server time. So there's very low marginal costs.
• 8:33
  Speaker 1: And there's network effects. Um. You know you want to
• 8:36
  Speaker 1: be part of a community, you want to share on Facebook, Uh,
• 8:40
  Speaker 1: because that's where other people are sharing and all of
• 8:42
  Speaker 1: these companies have to varying degrees those three characteristics, and
• 8:46
  Speaker 1: those are the classic recipe for a monopoly or an oligopoly.
• 8:49
  Speaker 1: And it's not just their size and profitability. I mean,
• 8:52
  Speaker 1: Google has been on sevent share of the search market,
• 8:56
  Speaker 1: um Amazon of the incremental sales growth each year, and
• 9:02
  Speaker 1: online sales goes to Amazon. They've also got something like
• 9:05
  Speaker 1: a by revenues share of the book sales market and
• 9:09
  Speaker 1: so on for this group. So you know, the classic
• 9:12
  Speaker 1: recipe for dealing with that is break it up regulated
• 9:16
  Speaker 1: as a platform or in some way force a leving
• 9:20
  Speaker 1: level playing field. Exactly what the mix of solutions UH
• 9:25
  Speaker 1: is or how it should be approached, I'm not as sure,
• 9:27
  Speaker 1: but it certainly needs to be, you know, focus of
• 9:30
  Speaker 1: legislation and focus of regulatory work, Professor Strauss. I'm just
• 9:33
  Speaker 1: gonna throw a couple of legal UH statutes at you.
• 9:36
  Speaker 1: The Interstate Commerce Act, the Sherman Any Trust Act, the
• 9:41
  Speaker 1: Clayton Any Trust Act, Robinson Patment Seller to Father. We
• 9:46
  Speaker 1: have a lot of laws that deal with any trust situations.
• 9:50
  Speaker 1: And I'm wondering, do you believe that the laws as
• 9:52
  Speaker 1: they exist offer the government the power and authority to
• 9:58
  Speaker 1: do whatever it is, you might suggest, store alleviate the situation,
• 10:02
  Speaker 1: or is it is something in the legal framework that
• 10:04
  Speaker 1: needs to be changed. Um, I'm almost well first among
• 10:09
  Speaker 1: my I have a number of different qualifications of degrees.
• 10:11
  Speaker 1: But how how let me just give you more of
• 10:15
  Speaker 1: a you know, a public policy person's perspective. There's probably
• 10:20
  Speaker 1: gonna be a need for new legislation or at least
• 10:22
  Speaker 1: new ways of thinking about this. The current classic view
• 10:26
  Speaker 1: of antitrust in the US is so long as sort
• 10:30
  Speaker 1: of in the short intermediate term, the consumer is benefiting,
• 10:33
  Speaker 1: the antitrust authorities don't really get involved. And since most
• 10:38
  Speaker 1: of these services are offering things to the public for
• 10:41
  Speaker 1: free or at very low prices, um, there isn't that
• 10:45
  Speaker 1: much of an interest. Now again you get into the
• 10:49
  Speaker 1: question of what is the public who is benefiting? Uh.
• 10:53
  Speaker 1: If you look at the media landscape, for example, there's
• 10:55
  Speaker 1: a fairly strong argument that you know, Facebook, Google, et
• 10:59
  Speaker 1: cetera ability to distribute news media and content online. Um
• 11:04
  Speaker 1: that basically the diverting advertising revenues that were used to
• 11:07
  Speaker 1: be going to newspapers used to be going to news
• 11:09
  Speaker 1: media to themselves. That's probably one avenue for an antitrust
• 11:14
  Speaker 1: approach saying you know that this other industries being damaged.
• 11:18
  Speaker 1: There's already been one successful case of litigation um. It
• 11:22
  Speaker 1: was I believe Apple and Google had entered into a
• 11:25
  Speaker 1: collusive agreement to try and to press wages in Silicon Valley,
• 11:29
  Speaker 1: that they had agreed not to poach each other, and
• 11:31
  Speaker 1: they were challenged by that already on the Justice Department.
• 11:34
  Speaker 1: By the Justice Department had to settle. In Europe, Google
• 11:37
  Speaker 1: has paid about two point four billion dollars in an
• 11:40
  Speaker 1: antitrust um challenge. So there are certainly things you can
• 11:45
  Speaker 1: do under the existing frameworks, but I wouldn't be surprised
• 11:47
  Speaker 1: if new frameworks need to be developed. Stephen, have you
• 11:51
  Speaker 1: had any conversations with public policymakers about yes, I completely sure.
• 12:00
  Speaker 1: I want to say who or what? Mean? Yeah? I
• 12:04
  Speaker 1: mean my point is, I mean, is this something that
• 12:08
  Speaker 1: policymakers are actively thinking about or is this something that
• 12:12
  Speaker 1: people sort of nervously whispered to one another if they're
• 12:14
  Speaker 1: invested in these companies, and that's sort of you know,
• 12:17
  Speaker 1: argue if their investors in the brick and mortar companies
• 12:21
  Speaker 1: someplace in between. With my answer, I mean, one of
• 12:24
  Speaker 1: the problems we go off on a whole different discussion
• 12:27
  Speaker 1: about dysfunction in Congress. But one of the challenges you've
• 12:31
  Speaker 1: currently got at this point, I would say, is a
• 12:32
  Speaker 1: bit of overload in Washington, d C. And just getting
• 12:36
  Speaker 1: people's banned with Uh. Sure you're aware FCC has come
• 12:40
  Speaker 1: out with or is trying to come out with new
• 12:42
  Speaker 1: rules doing away with that neutrality. We could have a
• 12:45
  Speaker 1: separate debate and one of that's a good idea or
• 12:47
  Speaker 1: a bad idea, But that's absorbing a using amount of
• 12:49
  Speaker 1: bandwidth just in terms of people's ability to think about issues.
• 12:53
  Speaker 1: You know, more generally, you've got very substantial changes being
• 12:58
  Speaker 1: proposed to the tax code. So, yes, this is on
• 13:01
  Speaker 1: people's radar screens. I mean, certainly it's there, but you know,
• 13:06
  Speaker 1: to the extent that you want to get anyone in
• 13:09
  Speaker 1: Congress to think about it, you know, there are twenty
• 13:12
  Speaker 1: seven other crises at the moment which are ahead of it. Uh.
• 13:15
  Speaker 1: What's the expression the urgent crowds out the important? Well,
• 13:19
  Speaker 1: I mean I guess that the next question is is
• 13:22
  Speaker 1: there a point of no return? I mean, is there
• 13:24
  Speaker 1: some kind of urgency to this matter or is it
• 13:26
  Speaker 1: just sort of hanging out? There is something to address
• 13:29
  Speaker 1: at some point someday. Maybe I'm not a believer that much.
• 13:33
  Speaker 1: In the otherit you get to points of no return.
• 13:37
  Speaker 1: I mean the h and by the way, interesting analog
• 13:39
  Speaker 1: is sort of the late seventies and early eighties, a
• 13:42
  Speaker 1: number of factors came together. IBM was challenged as monopoly.
• 13:47
  Speaker 1: Uh in the sale of mainframe computers, A T and
• 13:49
  Speaker 1: T was broken up. And you know, the A T
• 13:52
  Speaker 1: and T monopoly had lasted, you know, quasi monopoly had
• 13:56
  Speaker 1: lasted seventy or eighty years. UM, so it maybe a
• 14:00
  Speaker 1: while before this hits, you know, the boiling point and
• 14:03
  Speaker 1: people focus, Uh may not. And I just flagged that.
• 14:06
  Speaker 1: You know, one of the advantage of breaking up these
• 14:08
  Speaker 1: companies is it may stimulate a lot of entrepreneurship, a
• 14:11
  Speaker 1: lot of opportunities. I mean. One of the issues at
• 14:14
  Speaker 1: this point with you know, Facebook or Google or Amazon,
• 14:19
  Speaker 1: it's the extent that you try to challenge them. If
• 14:21
  Speaker 1: you're a tech entrepreneur, you are on a real risk
• 14:24
  Speaker 1: that if you don't sell out to them, Uh, they're
• 14:27
  Speaker 1: simply going to drive you out of business, because you know,
• 14:29
  Speaker 1: they have enough money to undercut and over and outspend
• 14:33
  Speaker 1: just about any competitor. Thanks very much for joining us.
• 14:36
  Speaker 1: Steven Strauss is the John Weinberg Goldman Sachs Visiting Professor
• 14:41
  Speaker 1: at the Woodrow Wilson School of International Affairs and Public
• 14:45
  Speaker 1: Policy at Princeton University. Well, the bitcoin curve has just
• 15:13
  Speaker 1: gone vertical. Bitcoin up almost just so far today. Here
• 15:20
  Speaker 1: to talk about what it is that we're seeing. Here
• 15:22
  Speaker 1: is Chris Perniski, partner at Placehold, our an advisor to
• 15:25
  Speaker 1: our investment management, also author of a new early out book,
• 15:30
  Speaker 1: Crypto Assets, The Innovative Investors Guide to Bitcoin and Beyond. Chris,
• 15:35
  Speaker 1: thank you so much for joining us. I want to
• 15:37
  Speaker 1: just start by asking what are we seeing right now
• 15:40
  Speaker 1: with respect to the action in bitcoin? Is this mass
• 15:43
  Speaker 1: speculation or real money flowing into the asset class. Well,
• 15:48
  Speaker 1: we're definitely seeing a lot of activity, and I think
• 15:51
  Speaker 1: to quantify that activity it's best to look at how
• 15:56
  Speaker 1: much new fiat currency is slowing into the bitcoin ecast
• 15:59
  Speaker 1: of some versus how much is the network value, which
• 16:04
  Speaker 1: which many people think of as the market capitalization is increasing.
• 16:08
  Speaker 1: So we know over the last month, bitcoin has appreciated
• 16:11
  Speaker 1: roughly sixty billion in total value. So a month ago
• 16:14
  Speaker 1: it was at a hundred billion, and today it's around
• 16:17
  Speaker 1: a hundred sixty billion. Uh So then we have to ask, well,
• 16:21
  Speaker 1: how how much of that is is new dollars? And
• 16:24
  Speaker 1: so if we look at coin base, one of the
• 16:26
  Speaker 1: largest retail platforms where people can buy new bitcoin, they're
• 16:31
  Speaker 1: adding roughly a hundred twenty five thousand new users a day.
• 16:34
  Speaker 1: Uh If you assume, you know, that's one fourth of
• 16:37
  Speaker 1: the global totals, then we would have roughly five hundred
• 16:39
  Speaker 1: thousand new bitcoin users a day. And if we assume
• 16:43
  Speaker 1: they buy roughly, say a hundred thousand per new user,
• 16:47
  Speaker 1: then over thirty days, that would suggest fifteen billion new
• 16:50
  Speaker 1: dollars have entered the bitcoin ecosystem over the last thirty days.
• 16:55
  Speaker 1: And that doesn't even account for institutional Chris, it's always
• 16:59
  Speaker 1: go to speak with you, and I just want to
• 17:02
  Speaker 1: reference your book Crypto Assets, The Innovator Innovative Investors Guide
• 17:06
  Speaker 1: to a Bitcoin and Beyond. Because if you look on Amazon,
• 17:09
  Speaker 1: it says on the one hand, it's temporarily out of stock.
• 17:12
  Speaker 1: Yet if you want the hardcover it will cost you
• 17:14
  Speaker 1: twenty five. The kindle version is fifteen. You can get
• 17:17
  Speaker 1: a collectible version of the book for over a thousand dollars.
• 17:21
  Speaker 1: My point being that you have all of these different
• 17:23
  Speaker 1: suppliers offering a product at various prices. Is that similar
• 17:29
  Speaker 1: to what bitcoin could experience? Because if you don't have
• 17:32
  Speaker 1: any central clearing, how do you know or how does
• 17:36
  Speaker 1: any buyer know that the person that just sold you
• 17:39
  Speaker 1: the asset will buy it back for a similar price. Well,
• 17:44
  Speaker 1: it's interesting you mentioned the book because there has been
• 17:46
  Speaker 1: an aftermarket for it UM, which is interesting in and
• 17:50
  Speaker 1: of itself. It shows there's a uh, definitely a thirst
• 17:53
  Speaker 1: for knowledge. In terms of the bitcoin markets, you know
• 17:56
  Speaker 1: there are you can think of the different exchanges as
• 17:59
  Speaker 1: some way isolated liquidity pulse UM. But if you if
• 18:03
  Speaker 1: you look globally UM, because you know there are over
• 18:06
  Speaker 1: fifty exchanges globally that trade seven three sixty five days
• 18:10
  Speaker 1: a year UM, there are some arbitrary some some arbitrage opportunities,
• 18:14
  Speaker 1: But as more and more professional market makers come in,
• 18:17
  Speaker 1: we're seeing some of those opportunities get squashed. So I
• 18:21
  Speaker 1: would I would think of it as UM still a
• 18:23
  Speaker 1: somewhat immature market, but we're definitely seeing a tightening of
• 18:27
  Speaker 1: the spreads across all the different exchanges. So what could
• 18:31
  Speaker 1: happen to sort of puncture this rally. Considering the fact
• 18:35
  Speaker 1: that so many people are calling it a massive bubble,
• 18:40
  Speaker 1: I think that, UM, you know, there's there's any number
• 18:43
  Speaker 1: of things that could happen UM and learning from from
• 18:46
  Speaker 1: the past. You know, in late we also had a
• 18:51
  Speaker 1: similar ascent that was the first time bit clan crossed
• 18:53
  Speaker 1: a thousand dollars UM. Following that ascent, there was a
• 18:57
  Speaker 1: big hack on an exchange called mount Box, which had
• 19:00
  Speaker 1: nothing to do with the underlying bitcoin protocol that wasn't compromised.
• 19:04
  Speaker 1: It was just a poorly run exchange that was compromised
• 19:07
  Speaker 1: that threw people off. At that time, there was also
• 19:10
  Speaker 1: commentary from from China around bitcoin not being a real
• 19:14
  Speaker 1: currency with real meaning in in you know, we've seen
• 19:18
  Speaker 1: different scares. We've seen a few small hacks. We've seen
• 19:22
  Speaker 1: China come in with new commentary around its regulation and
• 19:25
  Speaker 1: banning i ceas, and while that has temporarily dampened bitcoins ascent,
• 19:30
  Speaker 1: it has recovered, which shows stronger hands. So right now
• 19:34
  Speaker 1: it's an extremely strong bowl market. UM. I can't say
• 19:39
  Speaker 1: for sure what what would stop this UM, but we
• 19:41
  Speaker 1: do have a few things to learn from in the past.
• 19:44
  Speaker 1: All right, let's just talk about short term. If you're
• 19:47
  Speaker 1: an investor or speculator that is long any kind of
• 19:50
  Speaker 1: bitcoin or cryptocurrency and you've got a significant gain, would
• 19:54
  Speaker 1: you sell it? So I don't give public investment advice.
• 19:59
  Speaker 1: It's it's a very very tricky thing to do in
• 20:01
  Speaker 1: the in the bit clin space, I definitely think people
• 20:04
  Speaker 1: need to UM exercise caution in these markets. You know,
• 20:08
  Speaker 1: over the last twenty four hours, we've traded over six
• 20:10
  Speaker 1: billion dollars in the bitclin markets, which is about three
• 20:14
  Speaker 1: three x what we've seen as the average over the
• 20:17
  Speaker 1: last fifty days. So things are are getting hot UM.
• 20:21
  Speaker 1: You know, if if you're entering the market, always good
• 20:23
  Speaker 1: to average in UM, and it really depends on what
• 20:27
  Speaker 1: your risk profile is in terms of UM if you're
• 20:29
  Speaker 1: a holder or seller right now, Chris, real quick, are
• 20:33
  Speaker 1: there more retail establishments actually accepting bitcoin as currency? There
• 20:40
  Speaker 1: was a famous article that came out this year that
• 20:42
  Speaker 1: actually showed fewer merchants were accepting bitcoin UM this year
• 20:47
  Speaker 1: than than the year past. I believe it was UM.
• 20:50
  Speaker 1: So we're we're not seeing um B two B or
• 20:55
  Speaker 1: or or or C two B UM use increase some
• 20:58
  Speaker 1: merchants were more se B two B, and you can
• 21:01
  Speaker 1: track that through um bitcoin's transaction volume on change transaction
• 21:07
  Speaker 1: volume which is um right around two billion dollars right
• 21:10
  Speaker 1: now or one point million dollars a minute. So that's
• 21:13
  Speaker 1: using bitcoin as a means of exchange, which is very
• 21:15
  Speaker 1: different from the trading volume we see. Thank you very
• 21:18
  Speaker 1: much for being with us. Chris Berniski is a partner
• 21:21
  Speaker 1: and at placeholder and adviser to ARC Investment Management, and
• 21:26
  Speaker 1: he is the author co author of Crypto Assets, The
• 21:28
  Speaker 1: Innovative Investors Guide to Bitcoin and beyond the shares of
• 21:57
  Speaker 1: Time Incorporator they are higher right now by a little
• 22:01
  Speaker 1: bit more than nine percent after a deal has been
• 22:04
  Speaker 1: announced that Meredith Corporation would like to buy Time Inc.
• 22:09
  Speaker 1: Along with the financial backing from the Koch Brothers. Here
• 22:12
  Speaker 1: to help us understand why this is taking place and
• 22:15
  Speaker 1: the price implications is our media and entertainment guru, Porter
• 22:19
  Speaker 1: Bib of Media Tech Capital Partners Porters. So go ahead,
• 22:23
  Speaker 1: answer your own question. How does Meredith justify a forty
• 22:27
  Speaker 1: six percent premium for Time? This is there? What is
• 22:31
  Speaker 1: this is like the lucky charm? Right? The third time
• 22:33
  Speaker 1: is the price that's exactly right. And they think that
• 22:38
  Speaker 1: they're going to be able to say nearly a half
• 22:40
  Speaker 1: a billion dollars in operating expenses and overhead by combining
• 22:44
  Speaker 1: Time Ink with their existing publications. But the key here
• 22:50
  Speaker 1: is twofold one. The Koch Brothers put a half a
• 22:54
  Speaker 1: billion dollars into this deal. There are ostensibly not going
• 22:57
  Speaker 1: to interfere with editorial. They're also not taking a board
• 23:01
  Speaker 1: position on Meredith. However, no one has said in the
• 23:06
  Speaker 1: Coke camp that Coke at some point, if Meredith can't
• 23:10
  Speaker 1: make a go of Time Magazine or Fortune or any
• 23:14
  Speaker 1: of the other key titles, that the Cokes won't be
• 23:17
  Speaker 1: able to buy those from Meredith. Uh. The interesting thing
• 23:21
  Speaker 1: that Meredith is is positing right now is the fact
• 23:26
  Speaker 1: that they're the seventh largest digital publisher in the country,
• 23:30
  Speaker 1: maybe maybe even in the world. Uh. And that's the
• 23:34
  Speaker 1: future of print. Even though there are now seven hundred
• 23:40
  Speaker 1: magazine publishing companies in the United States, almost maybe maybe
• 23:45
  Speaker 1: significantly more is controlled by just four companies. It will
• 23:49
  Speaker 1: be Meredith, Hearst, Conde Nast in American media, and the
• 23:53
  Speaker 1: value of pure print standalone magazines is plummeting. Timing for
• 23:59
  Speaker 1: Examp double lost to billion dollars in revenue for the
• 24:03
  Speaker 1: first nine months of this year. Meredith is hanging a
• 24:09
  Speaker 1: lot better in terms of the print side, but they
• 24:12
  Speaker 1: are really doing a good job on monetizing the digital assets.
• 24:19
  Speaker 1: Go ahead, well, Porter, I guess that what the backdrop
• 24:23
  Speaker 1: that you're painting of an industry and decline, which we
• 24:26
  Speaker 1: know the magazine industry is what would the Koch brothers
• 24:31
  Speaker 1: motivation be to get into this. I mean, obviously there's
• 24:34
  Speaker 1: been quite a bit of speculation that they have political
• 24:38
  Speaker 1: interests in controlling these magazines, although they've said that they
• 24:41
  Speaker 1: won't necessarily exert editorial control. So if that's not what
• 24:45
  Speaker 1: they're doing, what are they trying to do? Well? One
• 24:50
  Speaker 1: of the hidden assets of Timing is uh it's database
• 24:55
  Speaker 1: of consumer information. They have tens, maybe even hundreds of
• 25:01
  Speaker 1: millions of names and customer and consumer profiles on on
• 25:06
  Speaker 1: their database, and that really fits right into what the
• 25:10
  Speaker 1: Cokes are doing in terms of their own political uh
• 25:15
  Speaker 1: persuasion in terms of media analyzing and adding the Timing
• 25:21
  Speaker 1: customer base to their own existing database is a very
• 25:25
  Speaker 1: very valuable political asset, and no one at Meredith or
• 25:29
  Speaker 1: Coke has said We're not going to touch the database. There.
• 25:34
  Speaker 1: There's some other significant assets that I don't think interest
• 25:38
  Speaker 1: the Cokes, But the archives of Tim Inc. Are very
• 25:43
  Speaker 1: very valuable, all of the including magazines that they no
• 25:47
  Speaker 1: longer published, like Life magazine. UH. They also have a
• 25:50
  Speaker 1: very prosperous conference business with Fortune Magazine and a huge
• 25:56
  Speaker 1: consumer aspect in the whole Sports Illustrated swimsuit concept that
• 26:03
  Speaker 1: they have turned into a very very valuable franchise, and
• 26:08
  Speaker 1: it's mostly all digital these days. So porta would the
• 26:12
  Speaker 1: archives for example, they could even almost be a standalone
• 26:15
  Speaker 1: business such as a Shutterstock right, a commercial digital image business.
• 26:20
  Speaker 1: They Time Inc. Has one of the largest photo files
• 26:25
  Speaker 1: and archives in the world going back to when Henry
• 26:31
  Speaker 1: Loose and Britain hadn't founded Time magazine, and all of
• 26:36
  Speaker 1: the fabulous pictures that they got from Life, from Sports
• 26:40
  Speaker 1: Illustrated and from Time as well as there dozens of
• 26:43
  Speaker 1: other magazines create a very very valuable digital asset. Okay,
• 26:48
  Speaker 1: So is it possible to actually borrow or use that
• 26:51
  Speaker 1: digital asset is collateral for even more borrowing and more money. Well,
• 26:56
  Speaker 1: according to UH statements that the Meredith managed and has
• 27:00
  Speaker 1: said they could not do this deal without Coke's money,
• 27:04
  Speaker 1: because no banks and and and no uh private equity
• 27:08
  Speaker 1: lending funds would would believe that the Meredith is going
• 27:12
  Speaker 1: to be able to turn a profit in this deal
• 27:14
  Speaker 1: and pay back any money. So the the the funds
• 27:18
  Speaker 1: that that Coke has provided um. Coke actually made a
• 27:22
  Speaker 1: statement this morning and said, we're acting like a bank
• 27:25
  Speaker 1: and technically they're they're lending a half a billion dollars
• 27:29
  Speaker 1: to Meredith to make this deal happen. Meredith is right
• 27:33
  Speaker 1: about the savings that they think the combined entities will
• 27:37
  Speaker 1: will generate. Uh, they'll they'll save almost as much as
• 27:41
  Speaker 1: the Cokes are investing in the deal. Thank you so
• 27:44
  Speaker 1: much for joining us. Quarter Bid managing partner of Media
• 27:47
  Speaker 1: Tech Capital Partners, also the first publisher of Rolling Stone magazine.
• 28:00
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 28:03
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 28:07
  Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
• 28:10
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
• 28:14
  Speaker 1: Abramo wits one. Before the podcast, you can always catch
• 28:17
  Speaker 1: us worldwide on Bloomberg Radio