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Murdoch, Fed, Cisco, and UAW Strike · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
0:04
Speaker 1: my co host Matt Miller.
0:05
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market movin news.
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Speaker 1: I'm the Bloomberg Markets Podcast on Apple Podcasts or wherever
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Speaker 1: you listen to podcasts, and at Bloomberg dot com Slash podcast.
0:20
Speaker 1: When the world of media, major piece of news coming
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Speaker 1: out this morning, Rupert Murdoch is stepping down as chairman
0:26
Speaker 1: of the boards of Fox and News Corp. Following a
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Speaker 1: nearly seven decade career, and we'll become chairman emeritus of
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Speaker 1: each company. His son, Lachlan Murdock will become sole chairman
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Speaker 1: of News Corp and continue as executive chair and chief
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Speaker 1: executive officer of Fox. The company succession, big, big, big
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Speaker 1: time succession. In the real world, you need perspective on
0:45
Speaker 1: a story like this. There's only one person to go
0:47
Speaker 1: to in my opinion, and that is Brian Stelter. He
0:50
Speaker 1: is a Walter Schorenstein Fellow at Harvard University. Most of
0:54
Speaker 1: our audience knows him as a former chief media correspondent
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Speaker 1: at CNN. I also know him as a former media
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Speaker 1: reporter at the New York Time, so he is the
1:01
Speaker 1: voice to go to Brian Rupert Murdoch defines media mogul,
1:06
Speaker 1: So a pretty big move here today it is, and.
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Speaker 3: In some ways it is surprising because Rupert Murdoch always
1:12
Speaker 3: said that he would never retire. That's what son Lachlin
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Speaker 3: said about a decade ago as well. Lachlan was clearly
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Speaker 3: being groomed to be the successor that's been in place
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Speaker 3: for a few years. Today just affirms and confirms that
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Speaker 3: Lachlan is the chosen son. But all along Lachlan had
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Speaker 3: to share power with his father, and the idea was
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Speaker 3: that Rupert would never retire. Well, today is the closest
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Speaker 3: thing to a retirement that we're ever going to see
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Speaker 3: from Rupert. His allies are calling it more of a
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Speaker 3: semi retirement. He is saying he'll be very involved, watching, reading,
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Speaker 3: responding and giving feedback. But this is clearly a turning
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Speaker 3: point moment for both News Corporation and Fox Corporation to
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Speaker 3: have Rupert moving off the board as a chairman, moving
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Speaker 3: into an emeris emeritus role. There is obviously no coming
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Speaker 3: new turning back from this, and now this cements Lachlan
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Speaker 3: as the leader of both companies, for better or worse.
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Speaker 3: And I think there's a grand debate to be had
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Speaker 3: about Lachlan's leadership, the pros and cons and what it
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Speaker 3: means for shareholders.
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Speaker 2: You know, there are a lot of businesses in which
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Speaker 2: it doesn't really matter who's the CEO or the chairman.
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Speaker 2: If you've got somebody holding a big stake in the company,
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Speaker 2: he's still the boss or she's still the boss.
2:24
Speaker 1: Is that the case here?
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Speaker 2: Does Rupert Murdoch have to be chairman and CEO to
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Speaker 2: run the business or is he still in charge of
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Speaker 2: the family.
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Speaker 3: He's still in charge of the family, and he still
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Speaker 3: controls the trust. And that is the part of this
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Speaker 3: that is very much like HBO's succession. You know, the
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Speaker 3: storyline on succession is very much how it works in
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Speaker 3: the Murdoch family. There are a bunch of votes of
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Speaker 3: the trust. The trust controls both Fox and News Corps,
2:49
Speaker 3: and in the event of Ruper Murdoch's death, there will
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Speaker 3: be a battle for control of both companies within the
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Speaker 3: Murdoch family. People who may know that the outlines of
2:57
Speaker 3: this for adult children, two of whom Ruper James and
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Speaker 3: Lachlan have been worrying, have been battling for years. Also
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Speaker 3: to women Elizabeth and Prudence. In the event of Rupert's death,
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Speaker 3: they each get one vote and so there is no tiebreaker.
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Speaker 3: There will be some sort of reorganization of the companies
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Speaker 3: in the event of Rupert's death. But it's important to
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Speaker 3: note in the memo this morning, he says he is
3:19
Speaker 3: in robust health and he's been around the Fox studio
3:22
Speaker 3: a lot in Los Angeles this week, according to my sources.
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Speaker 3: So I think what we're seeing today is a sort
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Speaker 3: of confirmation that Lachlan is the chosen one of the father,
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Speaker 3: but that does not mean that there could not be
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Speaker 3: any number of changes in the years to come.
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Speaker 1: Brian, is there any reason to believe that, with this
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Speaker 1: news today that there could be any change in editorial
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Speaker 1: view strategy at Fox Right.
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Speaker 3: I think that's one of the most interesting questions, And
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Speaker 3: the initial answer is no. Because Lachlan Murdoch is as
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Speaker 3: conservative and in some ways more conservative than his father.
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Speaker 3: They have many of the same political views. They both
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Speaker 3: have some distaste for Donald Trump. Rupert Murdoch much more
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Speaker 3: critical of Trump than Lachlan has been at least as
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Speaker 3: far as we know, but both men, although critical of Trump,
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Speaker 3: are definitely and defiantly conservative. I don't think we're going
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Speaker 3: to see the brands change direction in a dramatic way.
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Speaker 3: What we might see, and this is the question mark,
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Speaker 3: and what I'm really curious about, is what will Lachlan
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Speaker 3: Murdoch may be more free, not entirely freed of his father,
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Speaker 3: but perhaps more free than he has been. Does he
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Speaker 3: have plans he liked to put in place? Does he
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Speaker 3: have business ventures or strategic shifts that he's not been
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Speaker 3: able to pull off because of his dad? You know,
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Speaker 3: we know the general direction is the same, right towards streaming,
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Speaker 3: toward getting Google and Facebook to pay for news corps properties.
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Speaker 3: You know, all of that will continue, but you know
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Speaker 3: we'll I guess are we going to see Lachlan emerge
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Speaker 3: from his dad's shadow?
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Speaker 1: Now?
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Speaker 3: I think is an open question.
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Speaker 1: How do you think when we look back on this, Brian,
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Speaker 1: I know you've got so much history and experience with
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Speaker 1: the Murdoch family in the news corporation, and how do
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Speaker 1: you think Ruppert goes down in history? Certainly when I
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Speaker 1: think about you know, the media moguls sum to Redstone,
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Speaker 1: Ted Turner, you know, a couple of others, John Malone,
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Speaker 1: he's right there at the top of the mountain.
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Speaker 3: Yes, in moving us from a broadcast to a cable
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Speaker 3: and then a digital world. Absolutely, there are some accomplishments
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Speaker 3: that you have to give credit for the creation of
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Speaker 3: the Fox broadcast network. You know, we wouldn't have the Simpsons,
5:24
Speaker 3: you know, in Family Guy. There's there's a lot that
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Speaker 3: is so much that has Ruber Murdock's fingerprints. Of course,
5:29
Speaker 3: that'll all rights.
5:30
Speaker 4: Fox, Bryan.
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Speaker 2: I mean, he's created an entire political movement. Doesn't it
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Speaker 2: feel like.
5:34
Speaker 3: That it does. We would not have a hat of
5:37
Speaker 3: Donald Trump presidency without Ruper Murdoch and Fox News. The
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Speaker 3: polarization of Fox News, but also the diversity of voices.
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Speaker 3: You know, we could argue in any number of directions,
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Speaker 3: but the impact is very clear and spread out all
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Speaker 3: around the world, including in Australia, in the UK and
5:50
Speaker 3: other markets. You know, there's a satellite network. A lot
5:54
Speaker 3: of that is a part of Ruper Murdock's legacy. Now,
5:56
Speaker 3: I would say on the business front, he had impeccable
5:59
Speaker 3: timing selling most of Fox to Disney about five years ago.
6:03
Speaker 3: You know, providing more firepower for Disney in the streaming wars,
6:06
Speaker 3: but also getting out of some declining businesses. If you
6:08
Speaker 3: look at the stock for Fox Corporation in the five
6:11
Speaker 3: years since it was spun out, you know it's down
6:13
Speaker 3: twenty three twenty four percent over five years. News Corporation
6:16
Speaker 3: has fared somewhat better. But if you're an investor in
6:18
Speaker 3: these companies, you are not altogether pleased by Rupert Murdock's
6:22
Speaker 3: performance in recent years as these companies have faced headwinds
6:26
Speaker 3: of the Apples and the Disney's and the Googles, these
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Speaker 3: much bigger giants than now control the media and tech landscape.
6:32
Speaker 1: And Brian that kind of calls into question again. A
6:34
Speaker 1: lot of folks say, maybe Rupert was the smartest person
6:37
Speaker 1: in the room selling to Bob Biger when he did.
6:39
Speaker 1: What does Bob Biger and Disney do now? Because they've said,
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Speaker 1: unlike Rupert, we're staying we're going to try to evolve
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Speaker 1: and compete in this new media world. How do you
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Speaker 1: think that plays out for Bob Biger?
6:50
Speaker 5: Right?
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Speaker 3: And to me, I think about it as a consumer.
6:53
Speaker 3: How attached am I to Disney as a consumer? How
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Speaker 3: invested am I? How much do I have to spend
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Speaker 3: to go to Disney World, Disneyland. How much do I
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Speaker 3: have to pay for Disney Plus? And I think Disney
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Speaker 3: has its hooks in consumers better than any of these
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Speaker 3: other media companies. That's why when I look at this landscape,
7:09
Speaker 3: it's Disney and of course Netflix, that would be the
7:12
Speaker 3: ones that I would be wanting to bet on. That said,
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Speaker 3: the challenges are enormous. He is saddled by assets like
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Speaker 3: the ABC television network that are no longer deemed desirable,
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Speaker 3: and how he's going to navigate out of that, you know,
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Speaker 3: to me, it's a very treacherous one. Two years ahead.
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Speaker 3: To me, in ten years, I'd still rather be Disney
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Speaker 3: because they're still going to have their hooks in so
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Speaker 3: many families that have to go meet Mickey Mouse. But
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Speaker 3: in that short term, that short term is so so murky.
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Speaker 1: Is there a future? What is the future for cable news?
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Speaker 3: Do you think for cable news? Well, Fox News is
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Speaker 3: the strongest of the pack. All of these companies are
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Speaker 3: facing secular challenges. We know about the headwinds, but you know,
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Speaker 3: Fox News, for all of its faults, and I believe
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Speaker 3: there are many, it has a captive and loyal audience
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Speaker 3: almost like anything else in television or in media, and
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Speaker 3: I do see some challenges around the edges. Tucker Carlson's
8:02
Speaker 3: firing did calls a ratings drop, but most of those
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Speaker 3: viewers actually come back to Fox News. So if you
8:08
Speaker 3: were betting on a cable channel out there, you'd probably
8:11
Speaker 3: be betting on Fox News again, for better or worse.
8:14
Speaker 3: Right now, they're getting ready for their next GOP debate.
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Speaker 3: The Republican Party gave Fox the first two debates, not Newsmax,
8:21
Speaker 3: not Rumbled, not some far right internet stream. Republican Party
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Speaker 3: still went back to Fox, so that alliance is still
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Speaker 3: very real and very strong and frankly very profitable for
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Speaker 3: Lachlin and Rupert.
8:31
Speaker 1: Brian, thanks so much for joining us. Really appreciate you
8:34
Speaker 1: giving us a few minutes of your time. Brian Stelter,
8:36
Speaker 1: He's a Walter Schorenstein Fellow at Harvard University and a
8:39
Speaker 1: former chief media correspondent at CNN, also former media reporter
8:43
Speaker 1: with The New York Times, so certainly has the chops
8:45
Speaker 1: to give us his perspective.
8:49
Speaker 5: You're listening to the team. Ken's a live program Bloomberg
8:52
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9:03
Speaker 1: Had a little bit of economic data today. In addition
9:05
Speaker 1: to the job as claims and Philly fed home sales,
9:09
Speaker 1: we also the leading index came in at zero negative
9:14
Speaker 1: zero point four. Consensus was for negative zero point five,
9:18
Speaker 1: so a little bit better than expected there. Dana Peterson
9:21
Speaker 1: joints as chief econmis for the Conference board. Dana, what
9:24
Speaker 1: did your what did you learn from your index that
9:26
Speaker 1: you released this morning?
9:29
Speaker 6: Well, still telling us that the leading indicators are suggesting
9:32
Speaker 6: that there's going to be a recession at some point
9:34
Speaker 6: over the next twelve months. Certainly when we look at
9:37
Speaker 6: the details, the financial market indicators as well as the
9:40
Speaker 6: expectations gauges for consumers continue to be negative. And also
9:45
Speaker 6: jobless claims ticked down a little bit. But all in all,
9:48
Speaker 6: this measure has been negative for sixteen seventeen months, and
9:52
Speaker 6: it's continuing to tell us the same exact story, is it.
9:57
Speaker 1: I mean, it's been telling us the same story. But
10:00
Speaker 1: the economy is pretty good shape here. How do we
10:02
Speaker 1: kind of put those two together? Sure?
10:05
Speaker 6: I think the thing is that within that measure you
10:07
Speaker 6: don't really have services embedded and you don't have all
10:11
Speaker 6: the labor market indicators in there. We do have labor
10:14
Speaker 6: market indicators in the Current Economic Conditions measure, and that
10:17
Speaker 6: has continued to say that everything's okay, and that's because
10:21
Speaker 6: we continue to see positive payroll gains and real incomes
10:25
Speaker 6: are rising year on year, especially as inflation comes off.
10:28
Speaker 6: And so that's really the current situation. But again we're
10:32
Speaker 6: trying to look ahead, and when we look at what's
10:35
Speaker 6: going to be facing the consumer and businesses going forward,
10:39
Speaker 6: we're looking at very elevated interest rates for longer. Certainly
10:42
Speaker 6: the Fed indicated that it's not going to cut interest
10:45
Speaker 6: rates that much next year. Maybe they have one more
10:47
Speaker 6: hike this year, but then only two cuts next year.
10:51
Speaker 3: And we're also.
10:51
Speaker 6: Looking at a situation where consumers are going to have
10:54
Speaker 6: to pay down their debts, and those debts are going
10:56
Speaker 6: to be much more expensive going forward, including having to
11:01
Speaker 6: pay for student loans. So all these things are going
11:03
Speaker 6: to coalesce into an economy that we think is going
11:06
Speaker 6: to be slower and potentially experiencing a short and shallow recession.
11:10
Speaker 2: How is the consumer looking and I know, Tom always
11:14
Speaker 2: points out the bifurcation, and that is, you know, definitely
11:17
Speaker 2: a thing. You know, if you're the CEO of an automaker,
11:21
Speaker 2: you're getting twenty five million dollars a year, so the
11:24
Speaker 2: consumer from that, that consumer looks great, but if you're
11:27
Speaker 2: one of the UAW workers, not so much. We start
11:30
Speaker 2: to see a build up in credit card debt, We
11:34
Speaker 2: start to see more and more delinquencies we're hearing in
11:38
Speaker 2: terms of credit card and auto loans. As you point out,
11:41
Speaker 2: student loans need to be repaid again, so that debt
11:44
Speaker 2: pile that's getting more expensive is also growing, right it is.
11:49
Speaker 6: When we look at consumer credit card debt, it's back
11:52
Speaker 6: to where we were on the trend before the pandemic.
11:55
Speaker 6: And you're absolutely right, delinquencies are arising. They're back where
11:58
Speaker 6: we were in twenty nineteen.
11:59
Speaker 4: So all the have been wiped out.
12:01
Speaker 6: And when we look at charge offs, especially by banks
12:04
Speaker 6: that are not in the top one hundred ranks, those
12:07
Speaker 6: charge offs are very elevated and even above where we
12:10
Speaker 6: were back in twenty nineteen. So we're looking at a
12:12
Speaker 6: situation where the consumer is coming under pressure. Folks are
12:16
Speaker 6: using credit cards to finance their spending and it certainly
12:20
Speaker 6: isn't coming into a very good picture.
12:22
Speaker 1: We think, how about the labor market here as it
12:25
Speaker 1: relates to this economy. We had the initial jobs claims
12:28
Speaker 1: once again come in, you know, better than expected, better
12:31
Speaker 1: than last month at two hundred and one thousand. It's
12:34
Speaker 1: this labor market, despite you know, all the doom and
12:37
Speaker 1: loom out there, if to the extent there is is
12:39
Speaker 1: still resilient.
12:41
Speaker 6: Well, I think you need to look at the labor
12:43
Speaker 6: market three different ways. So, yes, you do have some
12:47
Speaker 6: companies that are still hiring, and those are mostly the
12:49
Speaker 6: companies where they need people to show up to work,
12:52
Speaker 6: such as healthcare, restaurants, hotels, even public administration, and so
12:58
Speaker 6: we're definitely seeing job gains there, but those gains are
13:01
Speaker 6: getting smaller and smaller and smaller. And then on the
13:04
Speaker 6: other end of the spectrum, you do have layoffs, and
13:06
Speaker 6: those are mainly companies that did very well during the
13:09
Speaker 6: pandemic at not so much this now past the pandemic,
13:13
Speaker 6: certainly tech, finance, transportation, warehousing. But you still have a
13:16
Speaker 6: large group of companies that are hoarding workers and the
13:20
Speaker 6: reason why is they don't want to have to let
13:22
Speaker 6: everybody go especially if they think that the downturn is
13:24
Speaker 6: going to be short, it's going to be mild. But
13:27
Speaker 6: we are seeing them cut back on hours. Hours are
13:30
Speaker 6: back down to where they were a pre pandemic after
13:32
Speaker 6: or surge, and certainly wage growth isn't as aggressive as
13:36
Speaker 6: it used to be, and we're seeing companies pull down
13:38
Speaker 6: job ads and there's less quitting. So there's definitely cooling
13:41
Speaker 6: in the labor market occurring.
13:43
Speaker 2: Yeah, it does seem like the strength is a bit deceptive,
13:49
Speaker 2: you know, but we but you know, I keep thinking that,
13:51
Speaker 2: and then we keep getting these amazing data points so
13:55
Speaker 2: or much better than expected data points.
13:58
Speaker 1: At what point does that turner?
14:02
Speaker 6: Well, I mean the data that I'm looking at seems
14:04
Speaker 6: to be mixed. Certainly, when we look at retail sales,
14:07
Speaker 6: they were negative in terms of month on month games
14:10
Speaker 6: in real terms after adjusting for inflation. When we look
14:14
Speaker 6: at payrolls, yes, one to eighty seven was very good,
14:17
Speaker 6: and in most years that'd be great, but we saw
14:20
Speaker 6: pretty significant downward revisions to prior months. And when you
14:23
Speaker 6: start seeing downwards downward revisions to payrolls, it creates a
14:27
Speaker 6: trend and you have this downward momentum in general, So
14:31
Speaker 6: I think that and also when we look at inflation,
14:34
Speaker 6: headline is going in the wrong direction, hence the FED
14:37
Speaker 6: signal we're not done with interest rate hikes, and certainly
14:40
Speaker 6: there's concerns that the FED will raise interest rates so
14:43
Speaker 6: much and that the cumulative tightening is going to weigh
14:46
Speaker 6: on the economy and cause the more disastrous situation. So
14:49
Speaker 6: I think we need to parse the data very carefully. Yes,
14:52
Speaker 6: there's some things that are surprising to the upside or
14:55
Speaker 6: slightly better, but even our own leading indicators, even though
14:58
Speaker 6: it wasn't minus a half, it was still minas point four.
15:00
Speaker 1: That's it's still negative.
15:02
Speaker 6: So I think we need to look closely at the
15:04
Speaker 6: data and see that, Yes, the US economy is slowing
15:07
Speaker 6: in line with what the FED wants regarding its monetary
15:10
Speaker 6: policy tightening.
15:11
Speaker 1: So again, so just to be clear, Dana, are you
15:13
Speaker 1: guys at the conference board saying maybe a shallow recession
15:17
Speaker 1: next year is possible likely?
15:20
Speaker 3: Yeah, So that's our that's our call.
15:23
Speaker 6: Yes, we do expect recession. We keep having to push
15:25
Speaker 6: it out because consumers have been spending, but again a
15:28
Speaker 6: lot of that's using debt. But yes, we do have
15:32
Speaker 6: a recession call. For the first half next year. Again
15:35
Speaker 6: not very long, not very deep, and we'll get out
15:38
Speaker 6: of it pretty quickly.
15:39
Speaker 2: And then we get hopefully we get straight back to
15:41
Speaker 2: zero and straight policy as quickly as we can right exactly.
15:44
Speaker 1: That's life is good. Dana Peterson, thanks so much for
15:46
Speaker 1: joining us. Dana Peterson, Chief Economists for the Conference Board.
15:49
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Speaker 5: Bloomberg eleven thirty.
16:08
Speaker 1: Barry Reholtz joined us. He's a host of Masters in
16:10
Speaker 1: Business on Bloomberg Radio. Is also the chairman of Chief
16:13
Speaker 1: Investment Officer Rehults Wealth Management. Barry, your Federal Reserve stay
16:18
Speaker 1: put yesterday. But still talking tough, aren't they?
16:23
Speaker 7: Yeah, they have not been afraid to really communicate what
16:28
Speaker 7: their intentions are.
16:30
Speaker 4: We can disagree with.
16:31
Speaker 7: Them, and we can argue with them, but you can
16:35
Speaker 7: say they haven't worn the street of their views, and
16:38
Speaker 7: they haven't told people this is exactly what we're going
16:41
Speaker 7: to do.
16:43
Speaker 2: So they still have two cuts priced in next year.
16:47
Speaker 2: And I've been asking everybody today about, you know, where
16:50
Speaker 2: the Fed ultimately wants to be, because they have a
16:52
Speaker 2: forecast for three point nine percent at the end of
16:54
Speaker 2: twenty twenty five and two point nine percent at the
16:56
Speaker 2: end of twenty twenty six. It feels to me like,
16:59
Speaker 2: even though higher for longer is the current mantra, they
17:02
Speaker 2: want to be long term?
17:04
Speaker 1: Low? Is that is that the right way to be?
17:08
Speaker 7: They want to be long term? They've said they want
17:11
Speaker 7: to be long term.
17:12
Speaker 2: I No, No, they're forecasting two point nine percent at
17:15
Speaker 2: the end of twenty twenty six. Like, why if they
17:18
Speaker 2: achieve a soft landing and the economy's okay, why would
17:20
Speaker 2: you want rates to be.
17:22
Speaker 1: Two point nine percent? Isn't it healthy to have a solid.
17:24
Speaker 4: Five I'm sorry, did you say twenty twenty six? Yes?
17:30
Speaker 7: All right, So let's let's laugh about that for a moment,
17:34
Speaker 7: and let me point out that the quarterly dot plot
17:38
Speaker 7: has been so wildly wrong for all of the past
17:42
Speaker 7: five years, just looking out four quarters, just looking out
17:46
Speaker 7: a year ahead, to think that anybody on this Federal
17:50
Speaker 7: Reserve or anywhere else has the slightest idea what the
17:54
Speaker 7: state of the economy is going to be, what inflation
17:57
Speaker 7: is going to be, like, what interest rates are going
17:58
Speaker 7: to be like in twenty six. It's not merely laughable.
18:03
Speaker 7: I would call it malpractice because you have to know GDP,
18:09
Speaker 7: whether or not we're in a recession, what's going on
18:11
Speaker 7: with employment, what's going on with inflation. These guys can't
18:15
Speaker 7: forecast a quarter ahead three years.
18:18
Speaker 4: It's hilarious.
18:19
Speaker 1: I get that. I mean, my question is radio here.
18:21
Speaker 2: My question is really just you know, is the bias
18:26
Speaker 2: right now to try and get back down to ZERP,
18:29
Speaker 2: Like is that where we want to be? Because over
18:31
Speaker 2: the last fifty years we've averaged like four point six
18:34
Speaker 2: percent on the Fed funds rates? So isn't that healthy?
18:39
Speaker 2: Or I guess it's you know, it depends on where
18:41
Speaker 2: our start is. But isn't it healthy to have the
18:44
Speaker 2: real rate of return like around five percent?
18:48
Speaker 7: So so Z let's start with ZUP, which is a
18:51
Speaker 7: great place to begin.
18:52
Speaker 1: What is ZERP?
18:53
Speaker 4: What zero interest rate policy?
18:55
Speaker 1: Thank you?
18:56
Speaker 7: Was a actually traces back to nine to eleven, but
19:00
Speaker 7: really it's a post financial crisis emergency footing.
19:05
Speaker 4: So if the FED is at zero, your.
19:07
Speaker 7: Assumption should be, hey, something is either systematically wrong, systemically
19:13
Speaker 7: wrong with the financial system, or we're in the midst
19:16
Speaker 7: of a really really bad crisis or recession, so zero
19:19
Speaker 7: should be off the table. What we want to do
19:22
Speaker 7: is get to neutral, which is the English way of saying,
19:28
Speaker 7: our English way of saying, we're not encouraging inflation. We're
19:34
Speaker 7: not discouraging inflation. We're at to balance. The problem is
19:37
Speaker 7: the economy runs hot and cold. I don't mean recession
19:40
Speaker 7: wise or bubble wise, but some quarters are better than others,
19:44
Speaker 7: and you kind of have to allow a little bit
19:47
Speaker 7: of inflation. You don't want to cause a recession. When
19:51
Speaker 7: we look at CPI now, a lot of this all
19:55
Speaker 7: comes back to the two percent inflation target, which, as
20:00
Speaker 7: former FED Vice Chairman Ferguson showed, is really a made
20:04
Speaker 7: up number that goes back decades and doesn't correlate with anything.
20:09
Speaker 7: So the focus on two percent, I think is misguided.
20:13
Speaker 7: What we want to see is stable prices and as
20:17
Speaker 7: close to full employment as we can get. I think
20:20
Speaker 7: the FED sometimes gets so wrapped up in their models
20:23
Speaker 7: they forget first principles, price is stable, full employment. From there,
20:28
Speaker 7: what the actual FED funds rate is, whether it's four,
20:32
Speaker 7: four and a half five is almost irrelevant.
20:35
Speaker 1: Hey, Barry, I know how you hate throw away terms
20:37
Speaker 1: that people use all the time, like it's different this
20:39
Speaker 1: time and there's cash on the sidelines, things like that.
20:42
Speaker 1: But how about the one discussion I hear a lot
20:44
Speaker 1: of is soft landing, hard landing, no landing. I don't know, true,
20:49
Speaker 1: what the heck does that mean? I don't know. How
20:52
Speaker 1: do you think about just where the economy is heading
20:54
Speaker 1: and how to kind of describe it?
20:56
Speaker 7: I love that question. Listen the first first things. First,
21:02
Speaker 7: do you have a job. If you have a job, okay,
21:05
Speaker 7: so things are pretty okay. Are you getting paid enough?
21:09
Speaker 7: Are you seeing regular raises? Are you keeping up with
21:12
Speaker 7: the cost of living? That that's where we all start
21:15
Speaker 7: when we take it to the next level. We want
21:17
Speaker 7: to know what are consumers spending, how much is the
21:21
Speaker 7: broad economy growing?
21:24
Speaker 4: And are we investing in our future?
21:26
Speaker 7: So it's a little more complicated than just you know,
21:30
Speaker 7: are we in a recession or are we in an expansion.
21:34
Speaker 7: One of the things that I've liked that this administration
21:38
Speaker 7: has done that we haven't seen in a couple of
21:40
Speaker 7: administrations is a little bit of industrial policy and a
21:45
Speaker 7: lot of infrastructure spending. You know, you go back to
21:48
Speaker 7: Eisenhower and the interstate highway system. That was an economic
21:52
Speaker 7: boom that we built on that lasted decades. The same
21:56
Speaker 7: thing with the can be the administration and NASA and
22:01
Speaker 7: space exploration that led to amazing technologies, everything from microwaves
22:06
Speaker 7: to semiconductors. Very often the private sector can't make a
22:10
Speaker 7: commitment to invest in R and D that doesn't have
22:14
Speaker 7: a return for decades. Only Uncle Sam can do that.
22:18
Speaker 7: I'm glad to see we've sort of moved a little
22:22
Speaker 7: bit back in that direction because just think about the
22:26
Speaker 7: benefits of big, bold policy initiatives and how they've manifested
22:32
Speaker 7: in a robust economy. So to me, soft landing hard landing,
22:37
Speaker 7: is the economy expanding or people working. Are are they
22:40
Speaker 7: able to pay their bills? Are they out spending and
22:43
Speaker 7: enjoying life? If as long as that trend continues, we're great.
22:46
Speaker 7: Occasionally there's a recession, that's the nature of things. You
22:50
Speaker 7: just don't want it to be too severe and too damaging.
22:54
Speaker 2: Isn't ai another huge impetus for economic growth?
23:00
Speaker 4: One hundred percent.
23:02
Speaker 7: I've been playing with a software product called Perplexity, and
23:08
Speaker 7: I've been using it to every time I have a
23:12
Speaker 7: new guest on Masters in Business. I use it to
23:16
Speaker 7: as a way to double check and make sure I
23:18
Speaker 7: didn't miss anything. And you'd be surprised how often AI
23:22
Speaker 7: is going to find stuff that my researcher and myself
23:27
Speaker 7: just googling the history of somebody's career misses. And the
23:32
Speaker 7: fascinating thing is this product continues to get better.
23:36
Speaker 4: Every one of these.
23:37
Speaker 7: AI models continues to improve, and I think what we're
23:43
Speaker 7: looking at now is twice as good as it was
23:46
Speaker 7: a month from that ago. But I can't even guess
23:49
Speaker 7: where these things are going to be a year or
23:51
Speaker 7: a decade from now.
23:52
Speaker 4: They're just getting better and better.
23:55
Speaker 7: This is on the same level as the Internet. This
23:58
Speaker 7: is going to be a productivity boom, absolutely one.
24:02
Speaker 1: All right, Barry, thanks so much for joining us. As always,
24:04
Speaker 1: Barry Riderholt's hosts of Masters in Business on Bloomberg Radio.
24:09
Speaker 5: You're listening to the team Ken's are Live program Bloomberg
24:12
Speaker 5: Markets weekdays at ten am eastering on Bloomberg dot com,
24:15
Speaker 5: the iHeartRadio app and the Bloomberg Business app, or listen
24:19
Speaker 5: on demand wherever you get your podcasts.
24:23
Speaker 1: All right, we had the Bank of England today hold
24:26
Speaker 1: interest rates steady. Still, there's concern there and even more
24:30
Speaker 1: so in the Conte so much. You had this.
24:33
Speaker 2: The Swiss Central Bank holding rates steady. We were expecting
24:37
Speaker 2: a raise there. You had the ECV there this winter
24:40
Speaker 2: with the ECB coming out and saying well store Narris
24:43
Speaker 2: has said they've reached a peak in rates and the
24:44
Speaker 2: next move is likely a cut.
24:46
Speaker 1: So yeah, let's let's take a turning point. Let's break
24:49
Speaker 1: it down. Jay Hatfield, he's the CEO, founder and portfolio
24:52
Speaker 1: manager Infrastructure Capital Advisors. Jay, what do you make of
24:55
Speaker 1: the economy over there in Europe given what we're seeing
24:58
Speaker 1: some of these central banks.
25:00
Speaker 8: Thanks to Paul and Matt for having me on. So,
25:03
Speaker 8: as we discussed last time I was on, you know,
25:05
Speaker 8: we're laser focused on Europe and really really what gave
25:09
Speaker 8: rise to that was this huge global bond meltdown, and
25:15
Speaker 8: so we started to study the global monetary base and
25:17
Speaker 8: notice the ECB had shrunk it by five hundred billion,
25:21
Speaker 8: and overall it's dropped by three percent, which we think
25:24
Speaker 8: is a critical indicator of both inflation and growth, and
25:28
Speaker 8: then we started digging in and I'd recommend you sent
25:31
Speaker 8: your ECO default to the Eurozone if you have a terminal,
25:38
Speaker 8: which you should, but to track Europe because it's more
25:42
Speaker 8: difficult from the US. And if you look at that
25:44
Speaker 8: data since I was on last it's really horrific. It
25:48
Speaker 8: might melt your face, so be careful when you look
25:50
Speaker 8: at it. So both Germany, both retail sales and industrial
25:55
Speaker 8: dropped by point eight percent, which doesn't sound like that much,
25:58
Speaker 8: but that's for one month, just July. German GDP was
26:02
Speaker 8: for the end of the second quarter only it was
26:05
Speaker 8: down point six year every year. Italy industrial production was
26:09
Speaker 8: down point seven. So it looks like particularly those two
26:13
Speaker 8: countries are in an absolute free fall. Now we'll know better,
26:17
Speaker 8: So that's why I would set your default when we
26:20
Speaker 8: get the August data to see if that validates July.
26:23
Speaker 8: But if this isn't happening in the US, it would
26:26
Speaker 8: be all of this will be all we're talking about.
26:28
Speaker 1: Well, I mean, I'm looking at the ec FC the
26:30
Speaker 1: economic forecast, and for the Eurozone, I don't see recession
26:34
Speaker 1: out there in forecasts. But you think there is real.
26:38
Speaker 8: Risk, Well, I think that's the ECB's forecast and they
26:43
Speaker 8: have a little bit in common with our FED and
26:45
Speaker 8: that they may not be the greatest forecasters ever created.
26:48
Speaker 8: So we just look at the real time data and
26:52
Speaker 8: like I said, if you know, if US we tell
26:55
Speaker 8: sales are down point eight and industrials downpoint eight, like
26:57
Speaker 8: we would be yep, we would say, oh my god, odd,
27:00
Speaker 8: this is horrific. So I just would urge everybody to
27:05
Speaker 8: look at not just that data, but also the monetary
27:08
Speaker 8: base and really look at how Italy responded to that hike.
27:12
Speaker 8: That they were just excoriated the ECB for good reason
27:16
Speaker 8: because they're going into a significant recession. So we think
27:20
Speaker 8: this is the key risk. But on the other hand,
27:23
Speaker 8: that could be very bullish for the US because if
27:25
Speaker 8: Europe starts to go into a recession, then global rates
27:29
Speaker 8: should calm down. And that's really I would argue the
27:31
Speaker 8: key overhang on today's market is just we have a
27:34
Speaker 8: big global sell off in bonds.
27:36
Speaker 1: So if Europe is going through a recession, how are
27:40
Speaker 1: you positioning for that?
27:42
Speaker 8: Well, we're we do as you know, we're always cautious
27:47
Speaker 8: in August and September, in early October, so we do
27:50
Speaker 8: think I mean we're sort of fortunate in that we
27:52
Speaker 8: have conservative dividend type stocks, defensive dividend stocks, preferred stocks, allpes,
28:01
Speaker 8: and large cap dividends, and they've all outperformed the market
28:04
Speaker 8: during this time, which makes sense because they have lower
28:06
Speaker 8: betas and they're more defensive, and even within those portfolios,
28:10
Speaker 8: we've positioned them to be more defensive. For instance, with preferreds,
28:14
Speaker 8: we actually benefit in our main fund PFFA because we
28:17
Speaker 8: have a fixed to floating fifty two percent, so longer
28:20
Speaker 8: for hire is actually good for that the income of
28:22
Speaker 8: that fund. So we think it's a good time to
28:26
Speaker 8: either be in those type of stocks or it's okay
28:28
Speaker 8: to be in cash. Although we're sticking for now to
28:32
Speaker 8: our forty three hundred to forty six hundred call on
28:35
Speaker 8: the S and P. If rates keep selling off, then
28:37
Speaker 8: we could easily get to forty two hundred. But we
28:40
Speaker 8: do think that this global growth story declining is going
28:43
Speaker 8: to get out there. Tomorrow is the European PMI, and
28:49
Speaker 8: we think that'll be weak, although it is really Germany
28:52
Speaker 8: and Italy that in the UK they're the weakest, so
28:55
Speaker 8: there are other parts of Europe they're okay.
28:57
Speaker 2: So we continue to see dollar strength right now, the
29:00
Speaker 2: Bloomberg Dollar Index. So the way I track it is
29:03
Speaker 2: it twelve fifty six. I saw it this morning, right
29:05
Speaker 2: around twelve sixty, which is punchy.
29:09
Speaker 9: You know.
29:09
Speaker 2: I walked in Paul Common a, Wow, Gold's taking another
29:11
Speaker 2: chan and that's part of that trade. Obviously, does that continue?
29:15
Speaker 2: Do we see europarity, do we see Japanese yen at
29:18
Speaker 2: one fifty, and then do we start to see intervention?
29:22
Speaker 8: Well, if our scenario plays out, absolutely so. We think
29:25
Speaker 8: the US is resilient because of the resilient auto sector
29:31
Speaker 8: and housing, which usually crack during recession. In fact, we
29:35
Speaker 8: have some new data the average recession. You have a
29:38
Speaker 8: thirteen point four percent decline and investment, but consumption is flat.
29:44
Speaker 8: Normally grows at three to three, so it comes down,
29:46
Speaker 8: but it's really the driver of recession is investment. So
29:49
Speaker 8: if we're right about the US that we're resilient and
29:52
Speaker 8: Europe is plunging, then that trend should continue. And that
29:56
Speaker 8: is bearish for commodities. And one reason why we think
30:00
Speaker 8: oil will cool down because it's really not just rallied,
30:04
Speaker 8: it's rallied plus another five percent. Because the dollar is appreciate,
30:07
Speaker 8: it so that's a headwind and would validate our seventy
30:10
Speaker 8: five to ninety five dollars range on oil, which would
30:12
Speaker 8: be bullish for inflation. So, but we do think the
30:15
Speaker 8: dollar will continue if we're correct about the US economy
30:18
Speaker 8: dramatically outperforming China and Europe.
30:22
Speaker 1: Are we going to if we have a US government shutdown?
30:26
Speaker 1: What's your view on that? Is there any way to
30:28
Speaker 1: be in a prolonged UAW strike?
30:30
Speaker 10: I mean both of those things.
30:31
Speaker 3: Yes, Well, we callary right.
30:35
Speaker 8: We called the refer to the government shutdown as the
30:37
Speaker 8: government vacation because you know, if you look at it,
30:40
Speaker 8: they furlough the employees, but they still pay them. So
30:43
Speaker 8: it's actually a good rationale for Fitch to downgrade the
30:47
Speaker 8: US because we have the most ridiculous budget process ever
30:50
Speaker 8: where you quote shut down the government, but you don't
30:54
Speaker 8: save any money. So and if you look, the market
30:56
Speaker 8: actually trades up. Now I'm not sure it's going to
30:58
Speaker 8: trade up this time of the year, but we think
31:00
Speaker 8: that's irrelevant. I'm good for the media to report on,
31:03
Speaker 8: but not critical for investment. The DW strike I think
31:07
Speaker 8: is critical. Full disclosure. My daughter is a member of
31:10
Speaker 8: the UAW, so you could take this a grain of salt.
31:14
Speaker 8: And she's in the Berkeley division of the UAW, she's
31:19
Speaker 8: covered by them. But we do think that autos like
31:23
Speaker 8: we don't really believe in persistent inflation except for auto services.
31:28
Speaker 8: If you look at auto services, they are ridiculously high,
31:31
Speaker 8: like nineteen percent on insurance, fifteen percent on repair. Hasn't
31:35
Speaker 8: even started coming down. So if we have the strike,
31:38
Speaker 8: that's just going to get extended out, and so that
31:40
Speaker 8: may give the FED more reason to not cut rates
31:46
Speaker 8: or pause. So I would focus more on that. I
31:49
Speaker 8: don't think it's a big issue for the overall economy
31:52
Speaker 8: some degree. If you have less less inventories on these
31:55
Speaker 8: sort of wildcat strikes, then you have less chance of
31:58
Speaker 8: massive layoffs because we have a shortage.
32:00
Speaker 1: Let's rip up the script for a second.
32:01
Speaker 2: Yeah, I mean she's in the Berkeley unit of the
32:06
Speaker 2: u a W. So it's the United Autoworkers Union. And
32:09
Speaker 2: I mean, having seen Oppenheimer recently, I know that these
32:13
Speaker 2: higher places of higher education get very involved with with unions.
32:18
Speaker 2: What is she's clearly not putting cars together at Berkeley.
32:21
Speaker 8: Well, I'm very proud of her, and I think it's
32:24
Speaker 8: a good backup career to move to Detroit and assemble cars.
32:27
Speaker 8: But the teachers, the tas are members of the ua W,
32:31
Speaker 8: which I find fascinating. Not a successful strike, so I
32:35
Speaker 8: indirectly benefited from that because they had a pretty substantial
32:39
Speaker 8: pay race. I don't think they're going to do any
32:40
Speaker 8: wildcat strikes, but they're definitely getting emails and they're supporting
32:44
Speaker 8: their brethren.
32:45
Speaker 2: And that I had no Ideah, you better unionize those.
32:50
Speaker 2: But in the United Auto Workers, surely there's a teachers union.
32:53
Speaker 10: Yeah, exactly.
32:54
Speaker 1: But the uaw is good on these strikes things. I mean,
32:57
Speaker 1: they know what they're doing well.
32:58
Speaker 2: The last couple of presents the UAWR in prison, Yes,
33:02
Speaker 2: so they weren't very good that right.
33:04
Speaker 1: All right, Jay, thanks so much for joining us. Jay Hatfield, CEO,
33:08
Speaker 1: founder and portfolio manager Infrastructure Capital Management, looking at these
33:13
Speaker 1: markets again, kind of taking them breather here, no question
33:15
Speaker 1: about it.
33:16
Speaker 5: Uh.
33:16
Speaker 1: The S and P five hundred off one point one
33:18
Speaker 1: percent of the NASTAC off one point three percent of
33:21
Speaker 1: definitely some concern out there. And on the yields two
33:24
Speaker 1: years off three percent, five point one five percent on
33:27
Speaker 1: your two year treasury yield, that seems pretty attractive.
33:31
Speaker 5: You're listening to the tape cansur live program Bloomberg Markets
33:34
Speaker 5: weekdays at ten am Eastern on Bloomberg Radio, the tune
33:38
Speaker 5: in app, Bloomberg dot Com, and the Bloomberg Business app.
33:41
Speaker 5: You can also listen live on Amazon Alexa from our
33:44
Speaker 5: flagship New York station, Just say Alexa Play. Bloomberg eleven thirty.
33:50
Speaker 1: Had a nice MNA trade in the technology space. Today,
33:54
Speaker 1: Cisco intends to acquire Splunk for one hundred and fifty
33:57
Speaker 1: seven dollars per sharing cash is anding approximately twenty eight
34:01
Speaker 1: billion dollars in equity value. Let's get a sense of
34:05
Speaker 1: what this deal really means in the tech space. We
34:07
Speaker 1: welcome Oojino, senior hardware analysts for Bloomberg Intelligence. All right,
34:11
Speaker 1: wouch in this space here. First of all, just tell
34:15
Speaker 1: us what Splunk is. What do they do?
34:17
Speaker 9: Sure, Splunk is a company that does infrastructure software. They
34:22
Speaker 9: provide observability or and help monitor the hardware and the
34:27
Speaker 9: networking components that's within a coporate it. As more things
34:33
Speaker 9: move to the cloud, companies are trying to better understand
34:37
Speaker 9: how data traffic is moving inside the cloud. So Splunk
34:39
Speaker 9: plays a very critical role.
34:42
Speaker 2: That makes sense then yeah, so they're like going into
34:45
Speaker 2: the cave, into the dark recesses of the Internet and
34:50
Speaker 2: checking things out to make sure all the gear is good.
34:52
Speaker 9: Right, Well, let's think of it this way, Cisco to think,
34:56
Speaker 9: if we use the cave analogy, Cisco is the pipes
35:00
Speaker 9: in that cave, and then splunk Is is the scope
35:05
Speaker 9: that goes through the pipes.
35:07
Speaker 1: Interesting, all right, So so splunk is.
35:10
Speaker 2: I guess the best name they could come up with
35:13
Speaker 2: for that.
35:14
Speaker 1: Yeah, because if you think about it's blunking right exactly. Yeah,
35:20
Speaker 1: all right, So what's Cisco's strategy here? What's the kind
35:24
Speaker 1: of the takeaway from you in the street.
35:27
Speaker 9: Yeah, so it's fairly straightforward, right if long followers Cisco
35:32
Speaker 9: know this, They've been trying to move to this harbor
35:35
Speaker 9: only model to a perpetual software and model. Everyone loves
35:39
Speaker 9: recurring revenue, and you know, if for for Cisco, it's
35:43
Speaker 9: really tough for road for you know, given that they
35:46
Speaker 9: used to be a book and ship type of company
35:48
Speaker 9: from from a revenue generation standpoint. H they've been acquiring
35:51
Speaker 9: software companies and they've also been developing their own software
35:56
Speaker 9: for sale. And what we've seen over the past couple
35:59
Speaker 9: of years through M and A, that software is going
36:02
Speaker 9: to be about twenty five percent of total sales and
36:05
Speaker 9: about forty five percent of product sales, and Splunk is
36:10
Speaker 9: going to help them augment that software component as well
36:14
Speaker 9: as every current revenue component.
36:16
Speaker 2: So Cisco, I mean, is a giant company, right, Splunk
36:19
Speaker 2: is the deal is what twenty five billion or so
36:23
Speaker 2: and Cisco is a two hundred and sixteen billion dollar company.
36:27
Speaker 2: Are they very inquisitive? Is this how they build rather
36:31
Speaker 2: than organic growth? And do you think they have any
36:34
Speaker 2: more coming up?
36:36
Speaker 9: Yeah? So great question. I mean, Cisco, among all the
36:39
Speaker 9: companies that I cover, is probably one of the more
36:41
Speaker 9: inquisitive companies that I cover. However, they don't typically do
36:47
Speaker 9: deals of this size. They go for smaller, tucking technology
36:51
Speaker 9: deals and hope to grow it from the inside. Twenty
36:53
Speaker 9: eight billion will probably is the largest deal that they've
36:56
Speaker 9: ever done, and it's going to drain all of that
37:02
Speaker 9: excess cash that they have. But given that they degenerate
37:05
Speaker 9: about fifteen billion dollars in cash flow annually, they really
37:08
Speaker 9: should be able to do more deals if they want to.
37:12
Speaker 9: But I think large deals going forward are going to
37:14
Speaker 9: be off the table for the time being.
37:16
Speaker 1: So how about from a valuation perspective, I'm looking at
37:19
Speaker 1: Cisco stock off a little bit here today. What's the
37:22
Speaker 1: valuation pencil out to.
37:24
Speaker 9: Yeah, well, you know, Splunk. From a valuation perspective, it's
37:28
Speaker 9: about six times forward sales. If we talk about the
37:32
Speaker 9: fast growing software guys, they typically run anywhere between eight
37:37
Speaker 9: to twelve times. Some of the slower growth where Plunk
37:40
Speaker 9: can fall into are in the five to six times.
37:43
Speaker 9: So this is from a valuation standpoint, it's right, it's
37:47
Speaker 9: a good valuation, but it is on you know, Cisco
37:50
Speaker 9: tends to buy slower, more mature companies, so this is
37:55
Speaker 9: high on the Cisco perspective, but right right size from
38:01
Speaker 9: a software perspective.
38:02
Speaker 1: All right, So I'm looking at the comp function Matt
38:05
Speaker 1: Miller's favorite function comp for Cisco, and I see, you know,
38:08
Speaker 1: over the last five years this has had a compoundent
38:10
Speaker 1: and a return of about five percent has Cisco versus
38:14
Speaker 1: you know, the S and P five hundred about ten
38:16
Speaker 1: and then the information technology S and P five hundred
38:20
Speaker 1: information Technology sector index about eighteen or nineteen times. So
38:24
Speaker 1: Cisco really underperforming from stock price perspective. What's the story
38:27
Speaker 1: behind that?
38:29
Speaker 5: Yeah?
38:29
Speaker 9: You know, if you look at it from the past
38:31
Speaker 9: couple of years, I think people were very concerned about
38:36
Speaker 9: sustainable or sustained order activity because of the macro backdrop. Look,
38:41
Speaker 9: if you look at the revenue growth, it shows ten
38:44
Speaker 9: to twelve percent for fiscal twenty twenty three. But if
38:48
Speaker 9: you look at fiscal twenty four, we're seeing that revenue
38:50
Speaker 9: growth fall off to about one percent next year. That's
38:54
Speaker 9: actually a good thing. I think heading into the print
38:57
Speaker 9: last quarter, people were thinking that sales would climb because
39:00
Speaker 9: of the drop off in orders. But the ability to
39:06
Speaker 9: deliver revenue growth for the year shows that, you know,
39:08
Speaker 9: it's not going to drop off that much. Now. Now
39:10
Speaker 9: that being said, that's one of the reasons why are
39:13
Speaker 9: they going after companies with more recurring revenue likes Blunk
39:18
Speaker 9: And over the long term, it's going to help with
39:20
Speaker 9: the business model.
39:21
Speaker 2: In my mind, are these companies you know, destined to
39:26
Speaker 2: be changed by AI?
39:28
Speaker 1: I mean are they?
39:28
Speaker 2: Are they already being Uh? Is there already dramatic upheaval
39:32
Speaker 2: due to the AI kind of stock market revolution? Is
39:35
Speaker 2: it hitting the ground in corporate culture?
39:39
Speaker 9: Yeah? Well, for for let's just say Cisco and the
39:42
Speaker 9: networking guys of that ILK right, They've already been using
39:47
Speaker 9: AI and automation for for quite some time now. There
39:51
Speaker 9: are other companies that have utilized it a lot better.
39:54
Speaker 9: But as more of the hardware and software become disaggregate,
40:00
Speaker 9: that you can actually a lot automate a lot of functions,
40:04
Speaker 9: you know, and and for for example, let me give
40:08
Speaker 9: you whenever our PCs go down, uh, the network would
40:12
Speaker 9: be able to know automatically where which PC it is
40:17
Speaker 9: down and and how to fix it right away, right,
40:20
Speaker 9: and and that could save a lot of manpower hours.
40:23
Speaker 9: There's a lot of coding that's involved. So the whole
40:25
Speaker 9: space is destined to go AI. The question is is
40:29
Speaker 9: that what does that mean for from from a network
40:32
Speaker 9: management operations standpoint? And at the end of the day,
40:35
Speaker 9: it's all about saving costs on AI, right Yeah?
40:38
Speaker 1: Uh? Wohild out of your you know, hardware coverage, your
40:41
Speaker 1: networking coverage. What what are the names you're most excited
40:44
Speaker 1: about when you when you when you talk to investors?
40:46
Speaker 1: Wor's kind of the most interest?
40:48
Speaker 9: Well, the most interest is right now is is Dell
40:51
Speaker 9: and Hpe quite quite frankly, uh and and the other
40:55
Speaker 9: name is Arista. So those are the three names that
40:57
Speaker 9: most people are interested on. Uh A Arista is mainly
41:02
Speaker 9: on cloud AI data center infrastructure, and that's that's where
41:07
Speaker 9: they see phenomenal growth. But the other area is the
41:11
Speaker 9: revival of Dell and how AI servers can potentially drive
41:17
Speaker 9: a faster revenue growth profile versus three to four percent
41:20
Speaker 9: that they usually have to maybe another point or two
41:23
Speaker 9: and growth and better margins going forward.
41:25
Speaker 1: So I guess the question is within the tech stack,
41:28
Speaker 1: is it what's the big theme that that's kind of
41:31
Speaker 1: driving your your your space these days.
41:34
Speaker 9: Yeah, look, it's it's like everybody else in tech, it's
41:37
Speaker 9: it's AI AI AI, right, And I think I mentioned
41:41
Speaker 9: it to you once before on other shows. AI has
41:45
Speaker 9: turned into a drinking game on conference calls. So now
41:50
Speaker 9: it really is. If you don't have an AI growth
41:52
Speaker 9: story as part of the long term thesis, you're really
41:56
Speaker 9: not going to see the valuation expand, right we.
42:00
Speaker 1: Wich, thanks so much for joining us. Appreciate getting a
42:02
Speaker 1: few minutes of your time. Wujinhoe, Senior Harder analys Bloomberg
42:05
Speaker 1: Intelligence via zoom from the Bloomberg Intelligence Global HQ in Princeton,
42:11
Speaker 1: New Jersey. I saw John Butler in the background Keith
42:14
Speaker 1: the Wrong on Nothing in the background. There so good,
42:16
Speaker 1: good stuff.
42:17
Speaker 5: You're listening to the tape cansur live program Bloomberg Markets
42:20
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42:24
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42:27
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42:30
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42:35
Speaker 1: Big news in the world of media, I mean really
42:38
Speaker 1: big news. When you think about media mobiles, there's a
42:40
Speaker 1: bunch of them. Sumner Redstone, John Malone, I mean you
42:44
Speaker 1: think about Ted Turner, but certainly at the appolute top
42:47
Speaker 1: of that list, you got to put Rupert Murdock in.
42:49
Speaker 1: It was announced by the company today that he was
42:50
Speaker 1: stepping down from his role as chairman at Fox and
42:54
Speaker 1: and News Corporations. We want to get some perspective on that,
42:57
Speaker 1: and nobody better than Laura Martin. She's a senior media
43:00
Speaker 1: list at Needham. She's covered this industry, this company, and
43:03
Speaker 1: this man for decades. So Lauren, thanks for joining us here.
43:08
Speaker 1: You know, I guess it's not unexpected. I mean, given
43:10
Speaker 1: that he's ninety two years of old, ninety two years
43:12
Speaker 1: of age, but still a big day in the world
43:14
Speaker 1: of media and for news corp.
43:16
Speaker 11: I agree with you one hundred percent. I think you
43:18
Speaker 11: and I both Paul thought that Sumner Redstone would outlive
43:21
Speaker 11: this guy, but it just wasn't true in the end.
43:23
Speaker 11: It was like Out versus Fox. I guess Fox one.
43:26
Speaker 11: But yeah, I think I think Wall Street's been expecting
43:28
Speaker 11: this guy to step down for the last decade, and
43:30
Speaker 11: here he is finally stepping down at ninety two.
43:33
Speaker 10: It's unclear how heavy a hand.
43:36
Speaker 11: He's had in the you know, in the business of
43:38
Speaker 11: the company for the last four years, so I don't
43:41
Speaker 11: know how much will actually change with him stepping down,
43:43
Speaker 11: but certainly the last of an era. I think John
43:46
Speaker 11: Malone's the only one left that's sort of still on
43:48
Speaker 11: the board of her brothers of that old guard. I
43:51
Speaker 11: don't know if that's a positive or negative, but it's
43:53
Speaker 11: certainly about time for.
43:55
Speaker 10: Changing of the guard.
43:56
Speaker 1: Yeah, absolutely. And you know, Ruper Murdock and the Reginal
44:00
Speaker 1: News News Corporation now split into Fox and others certainly
44:04
Speaker 1: had a huge impact in Australia initially where he initially
44:06
Speaker 1: started the company, and then in Europe, particularly in the
44:10
Speaker 1: UK and then ultimately here in the United States. Talk
44:13
Speaker 1: to us about kind of the legacy you think Rupert
44:15
Speaker 1: Murdoch has in the world of kind of global media.
44:20
Speaker 11: You know, I think he was Remember he invented that
44:22
Speaker 11: fourth network. Everybody set a fourth network wouldn't work at Fox,
44:25
Speaker 11: and so he created a fourth network, proved it could
44:27
Speaker 11: be done the help of Barry Diller and Michael Eisner,
44:31
Speaker 11: and I think he proved to the world that the
44:34
Speaker 11: you know, member, he only had prime time program he
44:36
Speaker 11: didn't have all full day programming on time was one
44:38
Speaker 11: hour less. He really innovated Fox News, huge innovation. When
44:42
Speaker 11: you and I were covering these companies pulled together. You know,
44:45
Speaker 11: remember he paid Everyone thought he was crazy. He paid
44:47
Speaker 11: a dollar a month to get Fox News carried on
44:50
Speaker 11: Comcast because they didn't need another news program they had CNN,
44:53
Speaker 11: and he built that.
44:54
Speaker 10: I think he paid him for five years.
44:55
Speaker 11: And it became by buying that shelf space on cable television,
44:59
Speaker 11: which at the time, I'm was sort of shelf capacity
45:02
Speaker 11: constrained before they did their new buildouts for modems. You know,
45:05
Speaker 11: he basically made Fox News. He put them on the
45:08
Speaker 11: shelf and now it became probably the number one news
45:11
Speaker 11: for the last decade, it's become the number one news
45:13
Speaker 11: ratings channel. So thank good thank goodness, the linear bundle
45:16
Speaker 11: house Fox News. But Rupert paid to get it on
45:19
Speaker 11: and so literally he innovated a lot in media. He
45:22
Speaker 11: really sort of changed how we see media today. Was
45:24
Speaker 11: in large part influenced by Rupert Murdoch's decisions early on
45:29
Speaker 11: in the ecosystem.
45:30
Speaker 1: Yeah. Absolutely. And then about five years ago, Laura, he
45:35
Speaker 1: sold the majority of his company to, you know, to
45:40
Speaker 1: Walt Disney Company. And I guess in hindsight, that's a
45:44
Speaker 1: pretty smart move. How do you think that deal is
45:46
Speaker 1: going to be remembered?
45:48
Speaker 10: Yeah, good question.
45:49
Speaker 11: I mean, he basically doubled down on the linear TV
45:52
Speaker 11: ecosystem and he sold all of his streaming rights in
45:54
Speaker 11: all of his and all of his and he gave
45:57
Speaker 11: it to the Walt Disney Company.
45:59
Speaker 10: You know, seven billion is what he sold it for.
46:02
Speaker 10: You know, it's unclear.
46:04
Speaker 11: Maybe that deal looks expensive today, but is that Disney
46:06
Speaker 11: mismanaging it or is that really the value.
46:10
Speaker 10: I do think it's worth more.
46:11
Speaker 11: Those assets are worth more in the hands of the
46:13
Speaker 11: Walt Disney Company than they would have been in the
46:14
Speaker 11: hands of Fox alone.
46:15
Speaker 10: I think that to me is clear.
46:17
Speaker 11: But the linear TV ecosystem is maybe more troubled than
46:22
Speaker 11: they be new even at the time. I think it
46:25
Speaker 11: will go down in history that time Warner sold out
46:27
Speaker 11: at the peak, right that yuks seld out at the peak,
46:30
Speaker 11: and that's the brilliant move.
46:32
Speaker 10: I think it's a little less clear.
46:33
Speaker 11: Yet on Fox whether he sold out at the right price,
46:37
Speaker 11: too early or too late.
46:39
Speaker 1: Do you think there might be any change in strategy
46:41
Speaker 1: at the you know, Fox, or in any of the
46:44
Speaker 1: companies now that he's stepped on officially as a chairman.
46:48
Speaker 1: Do you think there of any change in strategy there?
46:50
Speaker 10: I do.
46:51
Speaker 11: I think youngsters are a little more inclusive, a little
46:54
Speaker 11: less twenty. I think some of this Fox News controversy
46:58
Speaker 11: is much more likely to come back, to my opinion,
47:01
Speaker 11: back to moderate with youngsters running it without Rupert's sort
47:06
Speaker 11: of sharp edge, because I think, you know, Rupert at
47:09
Speaker 11: ninety two probably had a different view of you know,
47:13
Speaker 11: entertainment versus news. I think Rupert always thought he was
47:16
Speaker 11: making entertainment, not news, and I think Fox.
47:20
Speaker 10: News has been criticized for that.
47:21
Speaker 11: I wouldn't be surprised to see the son who's younger,
47:24
Speaker 11: bring it back more towards news and less about entertainment.
47:31
Speaker 1: Laurie, I know you were, you know, at the Walt
47:33
Speaker 1: Disney had an investor day a couple of days earlier
47:36
Speaker 1: this week here. What were your takeaways there? Because one
47:40
Speaker 1: could argue, Bob Iger, boy, this is as tough as
47:42
Speaker 1: it's ever been to run a media company.
47:46
Speaker 3: You know.
47:47
Speaker 10: I agree.
47:47
Speaker 11: I think the skill that people underestimate that Bob Iger has,
47:51
Speaker 11: like he said twice, I'm going to quiet the noise.
47:53
Speaker 11: I think that is Bob Iger's core value skill, which
47:57
Speaker 11: is he put back the organ So content is first.
48:02
Speaker 11: He's going to quiet the noise with DeSantis, He's going
48:04
Speaker 11: to quiet the noise with regulators and all the local communities.
48:08
Speaker 11: He has one hundred and seventy thousand park employees. Ye,
48:11
Speaker 11: he's going to quiet the noise. And he says, we're
48:13
Speaker 11: going back. Our job is to entertain, not to be
48:16
Speaker 11: issues focused. So that's an easier task and it's safer
48:21
Speaker 11: for the Walt Disney company.
48:22
Speaker 10: So I think he's going to go back and create
48:24
Speaker 10: sort of this cone of silence that let's creative people
48:27
Speaker 10: do creative things.
48:29
Speaker 11: And I think the reason that Disney has been the
48:31
Speaker 11: Disney content has been so poorly received at box office
48:35
Speaker 11: is because of all the noise. And he's going to
48:37
Speaker 11: go back and say, look, our job is to entertain.
48:40
Speaker 11: Let's keep our eye on the ball, and let's make
48:42
Speaker 11: great stories that have nothing to do with the issues
48:45
Speaker 11: surrounding us in the real world.
48:47
Speaker 10: And I think that's good for content creation.
48:49
Speaker 1: How do you think was there any I guess to
48:52
Speaker 1: what extent did they frame the whole move towards streaming.
48:55
Speaker 1: I know this was an investor event focused on the
48:58
Speaker 1: theme parks, but obviously the big issue for Disney and
49:01
Speaker 1: for all the media companies is how they're going to
49:02
Speaker 1: effectively evolve into streamers. What's what's the current thinking at Disney.
49:07
Speaker 11: So, Paul, it was so interesting, I mean, and that
49:09
Speaker 11: was one if you've been in the audience with me,
49:11
Speaker 11: that was one of the big silences.
49:13
Speaker 10: They did not mention streaming.
49:15
Speaker 11: They did have the ESPN CEO on stage, you know,
49:17
Speaker 11: and that has to do with streaming, because he's eventually
49:19
Speaker 11: going to launch a core ESPN app, but totally unclear
49:23
Speaker 11: on timing the things he was saying he wants to
49:25
Speaker 11: integrate into this app sound to me like they're going
49:27
Speaker 11: to take three years to execute, which just doesn't even
49:30
Speaker 11: mean it's in an investment timeframe. So really a lot
49:33
Speaker 11: of silence around the strikes, around the streaming business, around
49:37
Speaker 11: the linear TV economics, which was super top of mind
49:40
Speaker 11: because of the Charter Resolute deal resolution.
49:43
Speaker 10: Really real silence is on that.
49:45
Speaker 11: The main focus was they're going to double CAPEX to
49:47
Speaker 11: sixty billion over the next ten years, and they're going
49:49
Speaker 11: to sync it into parks and cruise ships and Disney
49:52
Speaker 11: vacation villages, and they're going to try some management contracts
49:55
Speaker 11: out here in Palm Springs near me. So that was
49:58
Speaker 11: really I would say three hours of the total five
50:01
Speaker 11: hour day, and then there was an hour Q and
50:03
Speaker 11: A and an hour of you know, ESPN the Core
50:06
Speaker 11: app launch and what it's going to entail. But they
50:08
Speaker 11: didn't talk pricing and they didn't talk timing, and that
50:11
Speaker 11: was the only time they touched.
50:12
Speaker 10: Streaming at all.
50:12
Speaker 1: Interesting. What's the feeling that I get your opinion about
50:16
Speaker 1: this Capex and the focus on the parks and the cruises.
50:20
Speaker 1: Is that a good strategy in your opinion?
50:23
Speaker 10: You know, I think the.
50:24
Speaker 11: Most interesting thing to meet Paul I think you were
50:27
Speaker 11: in the room when five years ago I spend this
50:29
Speaker 11: big and in twenty eighteen when they said big shift
50:31
Speaker 11: to streaming and the stock ran way up, and it
50:34
Speaker 11: was like streaming is our growth driver.
50:36
Speaker 10: And I felt exactly.
50:37
Speaker 11: At that moment again, but with theme parks and so
50:41
Speaker 11: theme parks, as you know, Paul, have much more capital intensity.
50:44
Speaker 11: So whatever, if this is going to be their growth driver,
50:46
Speaker 11: the valuation multiple of Disney should come down compared to
50:49
Speaker 11: what we thought growth was going to be driven by streaming,
50:51
Speaker 11: which is much more capital light.
50:53
Speaker 1: In theory, yep, And yeah, I know you focus a
50:55
Speaker 1: lot on return on invested capital, but it seems like
50:58
Speaker 1: Disney gets the best out of that, you know, theme
51:01
Speaker 1: park kpex relative to anybody else out there.
51:04
Speaker 10: They do.
51:05
Speaker 11: Their returns are absolutely fabulous compared to other people. Compared
51:09
Speaker 11: to other people, but compared to the virtual world, real
51:12
Speaker 11: life assets. They have regulatory risk, they have COVID disease risks,
51:16
Speaker 11: they have shutdown risks. You've got parks in Shanghai and
51:18
Speaker 11: Hong Kong. So a decent question is, look, the Chinese
51:22
Speaker 11: government is using Apple as a pawn because we're us,
51:25
Speaker 11: is trying to kick out TikTok.
51:26
Speaker 10: They're like, well, we're not.
51:27
Speaker 11: Going to let employees of the government use Apple phones.
51:30
Speaker 11: At what point do they suddenly have used Disney in
51:33
Speaker 11: Shanghai Disney as a pond too. Right, So there's risk
51:36
Speaker 11: and real assets that don't exist in the global virtual
51:39
Speaker 11: world because if they kick you out, it's okay, you
51:41
Speaker 11: can go make money in France or Argentina.
51:44
Speaker 1: Right, all right, Laura, thank you so much for joining
51:46
Speaker 1: us the absolute go to voice when we want to
51:48
Speaker 1: talk about the big media stories of the day. In
51:51
Speaker 1: Rupert Murdock stepping down as chairman at News Corporation in
51:54
Speaker 1: Fox certainly one of those, Laura Martin. She is a
51:57
Speaker 1: senior media analyst at Needham and Company. She's based at
52:00
Speaker 1: in La, so certainly a feet on the ground.
52:02
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52:15
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