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Oil, Real Estate, Davos, and India (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
0:15
Speaker 1: called Apple Podcast or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com Slash Podcast. Of course, Bernando Valleys
0:21
Speaker 1: are Bloomberg Intelligence oil strategist. Here, Fernando, you are on
0:26
Speaker 1: Bloomberg Television. I want to say, two days ago or
0:28
Speaker 1: so with me, we talked about Jeff Curry's big call
0:30
Speaker 1: about China reopening kind of kick starting this supercycle in commodities.
0:36
Speaker 1: How long is that going to take? It may take
0:38
Speaker 1: longer than expected for a couple of reasons. First, Uh,
0:41
Speaker 1: the just a contagion that we've seen in the rising
0:45
Speaker 1: cases that it's actually limiting the the traffic. So if
0:48
Speaker 1: you look at the ridership, for example, in the Beijing subway,
0:51
Speaker 1: it's still about their usual levels, uh pre lockdown. So
0:55
Speaker 1: we're still far away from a real impact on demand.
0:59
Speaker 1: And then I think what you said about the debt
1:01
Speaker 1: ceiling not to restarting something too that could break it's China,
1:08
Speaker 1: is Japan. Those are all very severe risks in the
1:12
Speaker 1: short term that are headwinds for oil and oil consumption because,
1:17
Speaker 1: as you said, created there is an issue with how
1:20
Speaker 1: we fund our government, and not just in the US
1:22
Speaker 1: but globally, and that if we have an issue there,
1:26
Speaker 1: and that leads to lower demand because we had to
1:28
Speaker 1: either raise rates or or just find a way of
1:33
Speaker 1: containing investments, that will ultimately impact the oil consumption at
1:37
Speaker 1: least in the short term. Wait, so you're saying the
1:38
Speaker 1: debt ceiling has an impact on the oil market and
1:41
Speaker 1: vice versa. I think obviously energy has been a big
1:44
Speaker 1: contributor to inflation and global inflation, and one of the
1:46
Speaker 1: reasons that they're looking to raise rates, and then that
1:50
Speaker 1: impacts interest payments on the debt and so on and
1:53
Speaker 1: so forth. Smart Man Matt Levine calls the debt ceiling
1:56
Speaker 1: the dumbest thing in economics. Why, well, because we do
2:01
Speaker 1: this to ourselves constantly, and it's no good for probably
2:04
Speaker 1: the interest payments that we need to make. But it's
2:08
Speaker 1: you'd hear probably some arguments from Republican congressmen, right, I mean,
2:11
Speaker 1: they love to use it as a tool, true, and
2:15
Speaker 1: they happen for for for years on years. The concept
2:17
Speaker 1: of the ceiling itself is not great, but the fact
2:21
Speaker 1: that we should limit our our spending should be something
2:24
Speaker 1: that we adhere to write that. I mean this way,
2:26
Speaker 1: you have like credit card limits right for the every
2:28
Speaker 1: end of the day exactly. And I think the constant
2:31
Speaker 1: spending in the modern monetary theory has just led us
2:34
Speaker 1: into this cycle of inflation that uh and and and
2:38
Speaker 1: nonproductive investments and uh, the very negative or low interest
2:43
Speaker 1: rates have shied away from creating ascid heavy investments, including
2:47
Speaker 1: an energy that are necessary for as a building block
2:51
Speaker 1: to our economy. I think ultimately, I always think of
2:53
Speaker 1: it as household economics, but in a nation scale, and
2:58
Speaker 1: we're spending everything on the credit card and we haven't
3:00
Speaker 1: we haven't invested on anything that actually makes money. You know.
3:03
Speaker 1: The trend for the past ten years is let's buy
3:05
Speaker 1: companies that don't generate revenues at all and um and
3:08
Speaker 1: shy away from the ones that are generating cash flow.
3:10
Speaker 1: And I think that has to revert in some kind.
3:12
Speaker 1: That's like my household economics. Try spending all your money
3:15
Speaker 1: on cars and motorcycles, depreciating assets um until the pandemic
3:21
Speaker 1: in terms of China. Um, I I still can't get
3:24
Speaker 1: away from Curry's call, and I think it's uh, it's
3:28
Speaker 1: it makes a lot of sense. China is huge and
3:32
Speaker 1: the reopening is going to drive economic growth at some point. Okay,
3:35
Speaker 1: subway ridership be damned. People are going to be driving
3:39
Speaker 1: their cars and filling them up. Um. Europe isn't nearly
3:42
Speaker 1: as bad as had been anticipated, so you could get
3:45
Speaker 1: actual growth there. I mean, Schultz told us they're not
3:47
Speaker 1: gonna have a recession, and obviously he's gonna say that,
3:50
Speaker 1: but it still is reassuring. And I guess the final
3:54
Speaker 1: um point is that the FED maybe done raising rates.
3:58
Speaker 1: How much or how closely have you been watching the
4:00
Speaker 1: FED as an oil analyst for Bloomberg Intelligence? Very closely.
4:05
Speaker 1: In fact, last year in our mid year outlook, we
4:08
Speaker 1: said the FED is the biggest risk for oil prices,
4:11
Speaker 1: and and lo and behold it panned out, and then
4:14
Speaker 1: we said China is the biggest risk. And um, but
4:17
Speaker 1: we think that, as you said, China, the reopening will
4:20
Speaker 1: have an impact. The question is it doesn't solve the
4:23
Speaker 1: Chinese consumer, right, it will improve the their the overall
4:27
Speaker 1: activity versus December, but it doesn't solve that they're massively
4:32
Speaker 1: levered and their real state bubble is still there and
4:35
Speaker 1: hasn't has been pricked, but it hasn't burst. I was
4:38
Speaker 1: just telling Erica, if you think New York is expensive,
4:41
Speaker 1: the average wage to buy an apartment in Beijing is
4:44
Speaker 1: forty seven years forty seven years of medium wage to
4:47
Speaker 1: buy an apartment in Beijing, So good luck affording that.
4:50
Speaker 1: And uh, ultimately in an authocratic government as China, all
4:54
Speaker 1: that debt reverts to the provinces and then ultimately to
4:57
Speaker 1: the central government. So awesome. Fernando Valley knocking it out
5:01
Speaker 1: of the park. Thank you so much for joining us.
5:03
Speaker 1: Really appreciate you coming into the Bloomberg Interactive Broker studio.
5:06
Speaker 1: Fernando Valley, senior analyst at Blueberg Intelligence, talking to us
5:10
Speaker 1: about the oil markets and they are interconnected to say
5:14
Speaker 1: the least. This, Yeah, housing starts a disappointment. Today. We
5:22
Speaker 1: have a perfect guest to comment on that. Patrick Carroll
5:24
Speaker 1: just walked into the studio. He is a CEO and
5:27
Speaker 1: founder of Carol, which is UH UH national leader in
5:33
Speaker 1: UM what multi family UH and residential properties. Patrick um, So,
5:38
Speaker 1: what do you think about the week data, What do
5:41
Speaker 1: you think about the state of the industry right now
5:42
Speaker 1: from your important perspective. So we focus on multi family
5:46
Speaker 1: for rents, so you know, rental properties tend to do
5:50
Speaker 1: well right now when um, when people can't really get mortgages,
5:53
Speaker 1: you know, mortgage rates uh to buy single family homes
5:56
Speaker 1: have doubled, and so it's keeping a lot more people running. Uh.
6:00
Speaker 1: That's said, our costs are up, so you know a
6:02
Speaker 1: lot of a lot of you know, loans, A lot
6:03
Speaker 1: of people that have bought heavily in our sector are
6:07
Speaker 1: on you know, floating rate loans and they're seeing you know,
6:10
Speaker 1: their interest rates double as well. So it's it's a
6:13
Speaker 1: tricky time. Um. A lot of people are concerned about
6:15
Speaker 1: the FED just because of the uncertainty. Nobody really knows
6:18
Speaker 1: which direction they're going in. What does that then mean
6:21
Speaker 1: for the divergences you're seeing in different parts of the country.
6:23
Speaker 1: I imagine Seattle is probably reacting differently than Miami. Yes,
6:27
Speaker 1: so you know, for twenty years we focused on the
6:30
Speaker 1: Sun Belt, which are you know, categorically business friendly states, uh,
6:34
Speaker 1: you know, lower costs, living, high quality of life, so
6:38
Speaker 1: you know, you know, especially after COVID a lot of
6:41
Speaker 1: people moved out of Seattle's Los Angeles, New York and
6:43
Speaker 1: they moved south. You know, Florida's booming. I live in Miami,
6:47
Speaker 1: it's booming. Uh, Georgia, Texas. All these areas continue to
6:51
Speaker 1: really attract people. So the fundamentals are strong. It's just,
6:54
Speaker 1: you know, from a capital market standpoint, a lending standpoint,
6:58
Speaker 1: it's very, very difficult right now. So, but we've been
7:01
Speaker 1: hearing from a lot of market participants they don't believe
7:04
Speaker 1: the Fed is going to go much over five even
7:06
Speaker 1: though the FET itself says yeah, five five and a
7:09
Speaker 1: quarters where we're headed. Um, what's your view? And I mean,
7:14
Speaker 1: floating rate debt seems like the perfect solution at this point, right. Well,
7:19
Speaker 1: I mean it's it's good when it was low. I
7:21
Speaker 1: mean when the Treasury was in the one Yeah, I
7:25
Speaker 1: mean it's it was a beautiful thing. Um, you know
7:28
Speaker 1: what's happened is the Fed. It's not really where it
7:30
Speaker 1: ends up. It's just the pace that they've moved rates.
7:33
Speaker 1: They've moved it so fast it's it's freaked people out.
7:36
Speaker 1: And you've seen valuations really good hit too. Uh. Commercial
7:40
Speaker 1: real estate is directly tied to tenure treasury, you know,
7:43
Speaker 1: the higher if the tenure goes to five per cent,
7:46
Speaker 1: technically gap rates should be six and a half to seven,
7:49
Speaker 1: you know, six months ago cap rates three. So I
7:53
Speaker 1: mean that's a fifty to client in values potentially if
7:55
Speaker 1: rates continue to go like that, but if they stay
7:58
Speaker 1: I mean, I was thinking about this when we're talking
8:00
Speaker 1: with our mortgage backed securities analysts Eric Heidelberg. Yesterday we
8:04
Speaker 1: saw mortgage rates at one point go well over seven
8:06
Speaker 1: percent um, you know, the bank rate UH numbers, and
8:10
Speaker 1: now they've come down to basically six if we hold here,
8:15
Speaker 1: is that okay? You're concerned about the pace of the move,
8:18
Speaker 1: not about the absolute level. I think it's okay, But
8:21
Speaker 1: it just you know, if if you're borrowing at six
8:23
Speaker 1: and a year ago, you can borrow it, you know,
8:25
Speaker 1: in the threes, technically you can afford less less house.
8:30
Speaker 1: So I've heard of stat somebody that qualified for a
8:32
Speaker 1: three I mean for a seven hundred loan a year ago,
8:36
Speaker 1: because now you can only afford a you know, three loan.
8:40
Speaker 1: So I think it's gonna it's gonna hurt valuations, you know,
8:43
Speaker 1: in the housing market, in the single family housing market,
8:45
Speaker 1: and in commercial real estate, you know, the higher rates
8:48
Speaker 1: are and even if they stay there, that's what they've doubled,
8:51
Speaker 1: So valuations are gonna have to you know. Come all right,
8:54
Speaker 1: So let me ask you this. I mean, you've done
8:55
Speaker 1: well because of this conundrum that a lot of consumers
8:59
Speaker 1: find themselves in. Um, people can't buy a house, so
9:03
Speaker 1: they rent a property instead. You've been a beneficiary of that.
9:06
Speaker 1: What happens when or if the FED actually pivots and
9:10
Speaker 1: starts to come down. Um, are you concerned that those
9:13
Speaker 1: people are gonna move out of your rental properties? Um? No,
9:16
Speaker 1: you know, look, when the economy does well and people
9:18
Speaker 1: are spending money and things like that and buying homes
9:21
Speaker 1: or whatever, you know, we tend to do well. Um.
9:24
Speaker 1: You know, no business really thrives off a bad economy.
9:27
Speaker 1: So you know, I would love to see you know,
9:29
Speaker 1: interest rates come in and and things get back to,
9:32
Speaker 1: you know, closer to where they were. Um that said,
9:34
Speaker 1: yes right now. Yeah, But the problem with that is
9:37
Speaker 1: they're only gonna cut if the economy does poorly. Right,
9:40
Speaker 1: So you're in a position where you probably don't want
9:42
Speaker 1: to see the FED pivot because that means we're in
9:44
Speaker 1: a recession. That's right, you know, and that's not good.
9:46
Speaker 1: You know, we're still depending on our residents having jobs
9:49
Speaker 1: being able to pay the rent um. So in one hand,
9:52
Speaker 1: it's great, you know, you have a record high occupancies.
9:54
Speaker 1: People are not able to move out, and you know
9:57
Speaker 1: we've we've maintained great occupancies. On the other hand, you know,
10:00
Speaker 1: I'm still concerned about the overall economy. There's a lot
10:03
Speaker 1: of you know, potential bad things that could happen, and
10:06
Speaker 1: that just affects everyone. You done, Matt asked all these questions.
10:11
Speaker 1: I want to ask about commercial real estate with reads
10:13
Speaker 1: specifically because you were talking about how reads that gets
10:20
Speaker 1: like so I just find it fascinated, and I just
10:23
Speaker 1: think it's such an interesting business because this is the
10:25
Speaker 1: kind of thing that you know, we talk all day
10:27
Speaker 1: about high finance, but at the end of the day,
10:29
Speaker 1: this is really what matters to the people. So yeah, No,
10:32
Speaker 1: Matt loves the stuff. He loves housing. He was building stuff.
10:35
Speaker 1: We just kind of let him roll with it when
10:36
Speaker 1: he when hes fire trucks and bulldozers, wrestling, you know, all,
10:42
Speaker 1: he's a guy's guy. But we got to hip about
10:44
Speaker 1: these commercial real estates because you look at the reeds
10:46
Speaker 1: market specifically real estate actually from a market perspective, underperformed
10:50
Speaker 1: last year, which almost feels counterintuitive given the inflation story
10:54
Speaker 1: that you're talking about. Can you make sense of that? Yeah,
10:57
Speaker 1: I mean the reds are way ahead of evaluation. Stand
11:00
Speaker 1: would have been way ahead of the private markets. So
11:03
Speaker 1: you know, they've baked in you know, the you know,
11:06
Speaker 1: raising the rising interest rates, so literally their valuations are
11:09
Speaker 1: down thirties something percent. You know that it ties directly
11:13
Speaker 1: to what I was saying about cap rates, So you know,
11:15
Speaker 1: the the stock market is pricing that in if you sell.
11:19
Speaker 1: Blackstone came out with their you know, private read and
11:21
Speaker 1: they haven't marked on their book. In fact, they've marked
11:23
Speaker 1: it up last year. So there is a little bit
11:25
Speaker 1: of confusion on who's right who's wrong. And you know,
11:28
Speaker 1: I think the public markets tend to get right before
11:31
Speaker 1: the private markets, and so you know, but it's all
11:34
Speaker 1: tied to interest rates. Like the fundamentals and in our
11:36
Speaker 1: sector and multi family are still very very strong. It's
11:39
Speaker 1: entirely tied to capital markets, and you know, no one
11:42
Speaker 1: knows how high interest rates are going on. All right, Pat,
11:45
Speaker 1: great having in the studio, Thanks so much for coming in.
11:50
Speaker 1: We've got a really cool reporter in studio here, Shanelli,
11:52
Speaker 1: pathic is here to talk to us about a little
11:55
Speaker 1: bit of everything. I think. We are, of course going
11:57
Speaker 1: to hear from Brian moynihan over in Davos, Switzerland in
12:01
Speaker 1: just a few minutes, but until then, talked to us
12:04
Speaker 1: a little bit about the narrative that we're hearing. I mean,
12:06
Speaker 1: you're obviously here in studio, but in Davos, which really
12:08
Speaker 1: seems to be uh, the Wall Street death sailing story.
12:12
Speaker 1: What do you think what's really interesting about that crity is,
12:16
Speaker 1: you know, there's a Wall Street death story. We've been
12:18
Speaker 1: talking about the det limit since last year. Honestly, we've
12:21
Speaker 1: been talking about it for a good age twelve months.
12:24
Speaker 1: There was a real concern that this would become an
12:25
Speaker 1: issue this year or so. Of course, if you're a banker,
12:28
Speaker 1: it's a problem because you deal in treasuries. So that's
12:34
Speaker 1: kind of the simplest way to say the story. As
12:36
Speaker 1: far as Davos goes, I think Mary Urdos, in her
12:38
Speaker 1: conversation with David Weston put it well. He asked her
12:42
Speaker 1: if she was surprised by anything, and she goes, I'm
12:44
Speaker 1: surprised by the lack of conversation about COVID. I'm surprised
12:47
Speaker 1: by the lack of conversation about crypto and by the way,
12:50
Speaker 1: you know, I think for Davos in particular, that's where
12:53
Speaker 1: the frustration lies. One year you go and there's a
12:55
Speaker 1: big hot topic, and the next year you go and
12:58
Speaker 1: maybe there's no follow up. And similarly, climate and E
13:02
Speaker 1: s G issues have taken a similar pivot, where obviously
13:06
Speaker 1: the questions around investing in climate have gotten a lot
13:08
Speaker 1: more complicated for bank executives that are under fire of
13:11
Speaker 1: between every pension fund in America. Well, and to be honest,
13:14
Speaker 1: it's probably the last thing they care about right now,
13:17
Speaker 1: right I mean, we have stories about every bank trying
13:21
Speaker 1: to control costs. Goldman Sacks was down seven per cent
13:25
Speaker 1: the other day, biggest drop in over a year for
13:27
Speaker 1: Goldman Sachs. Right now, Bank America is talking about a
13:31
Speaker 1: hiring freeze. All of a sudden, it looks like these
13:33
Speaker 1: banks are coming under fire because they can't stop spending. Listen,
13:37
Speaker 1: they're expected to spend an aggregate the big six banks
13:40
Speaker 1: a record amount of money this year, and two thirds
13:42
Speaker 1: of those costs are expected to come from personnel expenses.
13:45
Speaker 1: That's how much headcount is not only ballooned, but wages
13:48
Speaker 1: have also risen. Interestingly at a place at Bank of America.
13:51
Speaker 1: Remember they have a lot of branches across the country,
13:53
Speaker 1: so does JP Morgan. One thing I know I'll be
13:55
Speaker 1: looking out for in the proxy season and a couple
13:58
Speaker 1: of months here, which is where kind of the annual
14:00
Speaker 1: filings come out, is a few things. One is CEO
14:03
Speaker 1: to worker pay. We talked about this every time. There
14:05
Speaker 1: are a lot of nuances, but listen at the top
14:07
Speaker 1: end you had bank CEOs also come off of record pay.
14:11
Speaker 1: You're starting to see a certain amount of firing. You
14:13
Speaker 1: are seeing some wage appreciation at some banks, Bank of
14:16
Speaker 1: America having not only reason they are minimum wages, but
14:18
Speaker 1: risen them for a lot of their suppliers, requiring their
14:21
Speaker 1: suppliers to pay their employees more as well. You didn't
14:25
Speaker 1: see that at JPMorgan. So they are handling the question
14:28
Speaker 1: of pay very very differently. And remember in Wall Street,
14:31
Speaker 1: like it or not, there's a bit of a pecking
14:33
Speaker 1: order here and sometimes very often the investment bankers who
14:36
Speaker 1: are highly paid get paid more first, but they're also
14:40
Speaker 1: getting fired first. Two well, speaking of the packing order.
14:43
Speaker 1: We are obviously just coming off of a run of
14:45
Speaker 1: bank earnings as well. And I think you said that
14:47
Speaker 1: Goldman sets the industry standard when it comes to hiring
14:51
Speaker 1: and firing as well. Um, what did we learned this
14:54
Speaker 1: time around? Did Goldman set the standard or was it
14:56
Speaker 1: more of a JPMorgan Morgan Stanley story on on pay
15:00
Speaker 1: and talent? They certainly set a standard here. You have
15:04
Speaker 1: to watch. Remember a lot of these firms are facing
15:07
Speaker 1: less attrition because people are, like you know, just as
15:09
Speaker 1: banks are worried about recessions over their employees, so they're
15:12
Speaker 1: less likely, according to their CEO, to move, which means
15:16
Speaker 1: the banks themselves are also hiring less. So you have
15:19
Speaker 1: to wonder by mid year, after bonus season, after the
15:23
Speaker 1: Musical Chairs act that happens on Wall Street, after everyone
15:25
Speaker 1: gets their bonuses and decides whether they like it or
15:27
Speaker 1: not or doesn't and leaves to go to the bank
15:29
Speaker 1: across the street exactly, this is this is the part
15:31
Speaker 1: where we're watching where people choose to move with their feet.
15:35
Speaker 1: Do all those pandemic era lovely ideas of work from
15:39
Speaker 1: home matter anymore or does it come down to the
15:41
Speaker 1: bottom line for individual employee? I think this is where
15:44
Speaker 1: the rubber really hits the road on how we determined.
15:48
Speaker 1: I think it's going to come down to money, because
15:49
Speaker 1: guess what, Inflation is still running hot. People have bills
15:52
Speaker 1: to pay. So I think it's a really tough calculus
15:56
Speaker 1: here to sit there and say hey, hello, hello to
16:00
Speaker 1: my boss, and can I work from home today when
16:03
Speaker 1: everyone else is coming in. Yeah, it's a it's a
16:05
Speaker 1: very it's a pivotal moment for a lot of these
16:08
Speaker 1: workforce changes that we've seen start to kind of materialize.
16:11
Speaker 1: You had James Gorman just say today that he doesn't
16:13
Speaker 1: think people are going to come in five days a week.
16:15
Speaker 1: But you see a lot of people. Remember James Gorman,
16:18
Speaker 1: Morgan Stanley is actually in Purchase, New York, so it's
16:21
Speaker 1: a little more They have a very suburban base. You
16:23
Speaker 1: see a lot of these companies building more suburban bases
16:25
Speaker 1: to meet their employees. But it's so nice and Purchase.
16:28
Speaker 1: I think they're building a new pickleball facility there. If
16:30
Speaker 1: I didn't love doing is it with radio and TV
16:33
Speaker 1: so much, I'd move upstate with you, Matt. I mean
16:35
Speaker 1: I do a lot of radio and TV as well,
16:37
Speaker 1: but I managed to live up there. It's it's not
16:39
Speaker 1: really upstate, right, It's like thirty minutes north to me.
16:43
Speaker 1: I live fifteen minutes from Bloomberg's offices, so the side
16:46
Speaker 1: feels upstate to me. But so, you know, I wonder, Um,
16:51
Speaker 1: it's really just the masters of the universe that matter, right,
16:54
Speaker 1: in terms of costs, it's not the tellers you talk
16:56
Speaker 1: about Bank America. They have branches all over the place,
16:58
Speaker 1: and I'm sure, um, they're going to be demanding as
17:02
Speaker 1: much as they can to get a pay raise to
17:05
Speaker 1: match or beat inflation. Uh, it's unlikely that they're gonna
17:10
Speaker 1: be able to do that, right. What's interesting about it
17:13
Speaker 1: is that think about it this way. How much do
17:16
Speaker 1: they actually want people to come into a branch and
17:18
Speaker 1: put in more deposits in the bank after bloating up
17:21
Speaker 1: their deposit base after so long? Um, I think something
17:24
Speaker 1: in the mortgage businesses are also under pressure. Bank branches
17:27
Speaker 1: broadly across America, across the larger banking system have declined.
17:31
Speaker 1: Real estate costs, also tied to those branches, are also high,
17:34
Speaker 1: So consolidation among bank branches are important to watch out for.
17:38
Speaker 1: There's a shift, a meaningful shift in the workforce where
17:41
Speaker 1: a lot of these banks are doubling down on their
17:43
Speaker 1: wealth businesses. By the way, what did Morgan Stanley do
17:46
Speaker 1: right the other day? You know, because when Goldman was
17:50
Speaker 1: down seven percent, they were up seven percent both our
17:52
Speaker 1: earnings in the same day. I mean, it's a very
17:54
Speaker 1: simple thing. It's and it's funny. It's not a one
17:56
Speaker 1: day trend. If you look, when David Solomon took over
17:58
Speaker 1: at Goldman's acts, Goldman Sachses market cap was more than
18:02
Speaker 1: five billion dollars over Morgan Stanley's. Today there's more than
18:06
Speaker 1: twenty billion dollar difference. I would say forty billion dollar differences.
18:09
Speaker 1: I forget where we are. It's Vollo at all, but
18:12
Speaker 1: Morgan Stanley is way ahead and that has only increased
18:15
Speaker 1: over time. When I started the job, that was unheard of.
18:18
Speaker 1: Morgan Stanley was a little sister. But James Gorman's pivot
18:21
Speaker 1: to the wealth business is paying off. And it's also
18:25
Speaker 1: showing you that the margins in a tough environment are
18:29
Speaker 1: meeting that of an investment banking business, which typically had
18:33
Speaker 1: been you know, pridate on having higher margins because all
18:36
Speaker 1: you're really paying for is the banker. Well, because of
18:38
Speaker 1: this trend, do you then see other banks following suit. Yes,
18:42
Speaker 1: and you see it at scale Bank of America, of course,
18:45
Speaker 1: JP Morgan. Their biggest acquisitions have been in wealth management.
18:48
Speaker 1: Morgan Stanley has doubled down on wealth management. You know. Uh,
18:52
Speaker 1: the changes at credits we will be interesting across the globe.
18:55
Speaker 1: UBS wants to hire more the huge wealth manager. Our
18:58
Speaker 1: City Group wants to pay it more to wealth. I
19:01
Speaker 1: name me a bank that doesn't want to double down
19:03
Speaker 1: on wealth. And you know what it is. It's as
19:06
Speaker 1: folks grow up, as as new people enter the workforce,
19:09
Speaker 1: they want to catch them quickly. They want you to
19:11
Speaker 1: say with them, They want you to invest with them,
19:13
Speaker 1: they want you to borrow with them. And so for
19:16
Speaker 1: Morgan Stanley, they don't believe their net interest income has
19:18
Speaker 1: peaked because they think that their clients, which tend to
19:21
Speaker 1: be wealthier clients, will still be borrowing more in this environment.
19:26
Speaker 1: What do you want to hear most importantly from the
19:29
Speaker 1: CEO is at Davos. You know, I think the talent
19:33
Speaker 1: story is hard not to pay attention to because it's
19:35
Speaker 1: what really people are paying attention to day to day. Uh,
19:39
Speaker 1: you know, I talked to David Weston and Lisa bron
19:41
Speaker 1: was before they talk to James Gorman. I'm glad they
19:43
Speaker 1: addressed this question of succession. It's just about to ask
19:45
Speaker 1: you there's kind of another hot potato in the room here,
19:48
Speaker 1: and you know, somebody, Matt max Abelson was like, make
19:51
Speaker 1: this the lead of your newsletter on Friday, max Abelson
19:54
Speaker 1: the reporter, because we cover this a lot together. It's
19:58
Speaker 1: not that very top rank of the bank at the
20:00
Speaker 1: CEO level, it's everybody under them, because folks like James Gorman,
20:03
Speaker 1: Brian moynihan, Jamie Diamond, they've been a lot around for
20:05
Speaker 1: a while, so there's a lot of questions about how
20:07
Speaker 1: they manage the staff at the highest levels below them.
20:10
Speaker 1: And at Morgan Stanley, the three successors in place the
20:13
Speaker 1: potential successors. Out of all of them, none of them
20:15
Speaker 1: are women, and so you start to wonder about the
20:18
Speaker 1: d n I story. Jane Fraser is still the only
20:21
Speaker 1: woman leading a big six bank. Denis diversity inclusion. Diversity
20:24
Speaker 1: and inclusion, I mean when I kind of go out
20:26
Speaker 1: there and talk to folks in the market, there's a
20:28
Speaker 1: concern that in a downtime as usual, that UM will
20:33
Speaker 1: start to fade as a priority. All Right, Channelly Bassik
20:38
Speaker 1: talking to us about what's going on in terms of
20:40
Speaker 1: the banks. We've finished with the Big six in terms
20:44
Speaker 1: of earning earnings, and i' let's get to a story
20:50
Speaker 1: after the bell or coming up after the bell, I
20:53
Speaker 1: should say, Netflix reporting some of their earnings as well,
20:57
Speaker 1: and who better to get a little bit of a
20:58
Speaker 1: preview and d of a really shifting story, geta wrong
21:02
Speaker 1: enough in our US media analysts. Bloomberg Intelligence joins us,
21:06
Speaker 1: geta thank you as always for taking the time to me.
21:09
Speaker 1: Something that is so striking when it comes to these
21:12
Speaker 1: Netflix earnings is that it started with a focus on
21:15
Speaker 1: subscriber count, then went to a focus with how quickly
21:19
Speaker 1: and what quality are some of these streaming giants kind
21:22
Speaker 1: of ushering out new content. Squid Games is the one
21:25
Speaker 1: that comes to mind. Never saw it onto the next
21:32
Speaker 1: unfortunately washed my thing of squid games and now I
21:35
Speaker 1: think I'm scarred for life. Actually hurt my psyche. We're
21:39
Speaker 1: gonna circle back to that regardless, Githa, it feels like
21:42
Speaker 1: the focus on ad spend now, Oh absolutely, I mean
21:45
Speaker 1: you're absolutely right that the narrative has clearly shifted away
21:49
Speaker 1: from just this being in this land grab phase for subscribers,
21:52
Speaker 1: and we're kind of moving to more oh, you know,
21:55
Speaker 1: revenue acceleration. And one of the catalysts for accelerating revenue
21:58
Speaker 1: group is definitely the introduction of advertising on the platform.
22:03
Speaker 1: And it's telling because Rehastings just recently said, we should
22:07
Speaker 1: have done this sooner. We should have lost you know,
22:09
Speaker 1: religion on advertising much sooner. Um. So I think this
22:13
Speaker 1: this then kind of becomes such a key um. You know,
22:17
Speaker 1: I think advertising just positions them so much as a
22:20
Speaker 1: good recession play, especially if macro conditions worsen, because you know,
22:24
Speaker 1: the ad tear becomes so attractive for for value conscious customers.
22:29
Speaker 1: So what's the future look like for Netflix? So we're
22:32
Speaker 1: gonna start seeing um ads pop up there. I guess
22:36
Speaker 1: you can choose in which basket you want to fall, right,
22:39
Speaker 1: ad lists or with ads? Are they going to start
22:42
Speaker 1: capping costs? You know, Paul Sweeney, who covered media for years,
22:47
Speaker 1: always says the costs are the big problem. Yeah, the
22:50
Speaker 1: costs are the big problem. They were a huge problem
22:53
Speaker 1: for Netflix, but not anymore because they are tightening their belts.
22:59
Speaker 1: So they have kind of capped content costs now at
23:02
Speaker 1: about seventeen billion dollars. That's how much they're going to
23:05
Speaker 1: spend on an annual basis um. And this is when
23:08
Speaker 1: other you know, rivals like Disney and Warner Brothers and
23:12
Speaker 1: and Paramount and Peacock are all still spending. They're all
23:15
Speaker 1: still in a very very heavy spending phase, and they're
23:18
Speaker 1: all still seeing huge losses. Meanwhile, you have Netflix that
23:23
Speaker 1: that is turning around a profit and that is looking
23:25
Speaker 1: to actually expand uh it's margins and drive free cash flows. Well,
23:32
Speaker 1: how much of the story, though, is turning into a
23:34
Speaker 1: US versus international story for Netflix. So on the subscriber front,
23:39
Speaker 1: I mean, if there has to be growth, it does
23:41
Speaker 1: have to come from international markets. It does have to
23:43
Speaker 1: come from emerging markets, whether it's Latin America, whether it's
23:46
Speaker 1: the Eastern European markets, whether it's India, other regions of
23:50
Speaker 1: the Asia Pacific. So a lot of you know, the
23:53
Speaker 1: subscriber growth is still going to come there. It's going
23:55
Speaker 1: to come from there. But when you look at you know,
23:58
Speaker 1: the revenue growth in an acceleration in the a RPU metric,
24:02
Speaker 1: that is going to come from a lot of the
24:04
Speaker 1: developed markets. So whether it's the US, UH you know,
24:08
Speaker 1: the UK, so many of the other European markets. That
24:11
Speaker 1: is where you see Netflix really having a lot more
24:14
Speaker 1: kind of pricing power and a lot more flexibility to
24:17
Speaker 1: to raise prices as well as you know, with their
24:19
Speaker 1: new initiatives, whether it's advertising or password crackdown again, they
24:22
Speaker 1: get to really kind of tweak that metric, especially in
24:25
Speaker 1: the developed economies. We'll get the focus in on a
24:28
Speaker 1: little bit about the India piece of it. And of
24:31
Speaker 1: course I am Indian, so I'm very biased about this,
24:33
Speaker 1: as are you. Um but I was on American well both,
24:37
Speaker 1: I was born Indian American Indian American fair um Gita.
24:41
Speaker 1: I was on Netflix the other day and I saw
24:43
Speaker 1: Rumber Kapoor and All Your Butt movies, which are by
24:46
Speaker 1: the way, for international audience Bollywood like mega stars and
24:49
Speaker 1: to see they're amazing and they're married and just had child.
24:53
Speaker 1: Irrelevant but like cute and adorable and I follow it
24:57
Speaker 1: very closely. Anyways, um kia to see them on the
25:01
Speaker 1: main page of Netflix as a viewing option from an
25:05
Speaker 1: international perspective. And then you go to the company like
25:07
Speaker 1: Disney for example, which is pot partnering with hot Star,
25:11
Speaker 1: which once again showing the same offerings. How does Netflix
25:14
Speaker 1: compete in an environment like that in India. So it
25:17
Speaker 1: is it is definitely going to be a tough road
25:19
Speaker 1: for them to kind of up their subscriber games, but
25:22
Speaker 1: they are trying and they you know, you bring up
25:24
Speaker 1: a really really good point with Disney, because I think
25:26
Speaker 1: the competition there has been absolutely fierce. In many ways,
25:29
Speaker 1: you can say that Disney has got many many legs
25:33
Speaker 1: legs up in that race, especially in India, just because
25:37
Speaker 1: they have they just inherited such a great asset uh
25:41
Speaker 1: in hot Star when they when they did that Fox
25:43
Speaker 1: acquisition and one of the key things with hot Star
25:45
Speaker 1: was of course i PL Cricket and so many of
25:48
Speaker 1: the other games that Indians absolutely love. Um. So you know,
25:52
Speaker 1: they already have a huge user base there. They'll probably
25:56
Speaker 1: get to about sixty to seventy million subscribers in India
26:00
Speaker 1: loan in the next two to three years. So that
26:02
Speaker 1: is absolutely a critical piece of the pie for for Disney. Sorry,
26:05
Speaker 1: how many subscribers in India about sixty seventy million they
26:09
Speaker 1: currently have about so it is a huge piece of
26:13
Speaker 1: the Disney plus subscriber count not necessarily contributing to them
26:18
Speaker 1: from a you know, revenue or profit perspective, but definitely
26:21
Speaker 1: helps them kind of juice up those subscriber numbers. For Netflix,
26:25
Speaker 1: it's been a little bit of a you know, slow build,
26:27
Speaker 1: I would say, but again with this adre, I think
26:31
Speaker 1: it could be a game changer. So it's gonna be
26:32
Speaker 1: interesting to see how that kind of evolves in a
26:35
Speaker 1: lot of these developing countries, especially India, just kind of
26:38
Speaker 1: given the massive potential of that market. Just got thirty
26:41
Speaker 1: seconds here, but who is the leader in China? Because
26:44
Speaker 1: I know India is surpassing China in terms of population
26:47
Speaker 1: growth and they're growing rapidly economically, with China still the
26:51
Speaker 1: second biggest economy in the world and probably will be
26:53
Speaker 1: the first biggest very soon. So China is actually closed
26:57
Speaker 1: to a lot of these US based players. For Disney, Netflix,
27:00
Speaker 1: none of them really operate in China right now. So
27:03
Speaker 1: it's a lot of the local players, uh, you know
27:05
Speaker 1: each it's you know, UM the buy Do the Ali Bab,
27:09
Speaker 1: but they control all the video streaming services uh in
27:13
Speaker 1: that in that country, it's still pretty much closed to
27:17
Speaker 1: you know, UM US based services. All right, Keithan, thanks
27:21
Speaker 1: very much, keith on there talking to us about Netflix. Um,
27:25
Speaker 1: everyone looking forward to see what this company does and
27:30
Speaker 1: the streaming wars are such an important, uh, I guess
27:33
Speaker 1: issue for the markets. Um, it's big money, folks, it's
27:37
Speaker 1: a Netflix is a hundred and forty three billion dollar
27:39
Speaker 1: companies still even after the huge drop post pandemic. So
27:43
Speaker 1: we will watch um to see what happens with Netflix
27:46
Speaker 1: earnings when they come out after the bell. Today. We
27:52
Speaker 1: were just talking Critti Gufta about the Indian economy. I said,
27:56
Speaker 1: it's the fastest growing economy in the world. I'm not
27:58
Speaker 1: sure it might be the fastest growing economy in the
28:00
Speaker 1: world this year. And I got that little tidbit from
28:05
Speaker 1: a piece I read this morning, India's surging population is
28:09
Speaker 1: Economic Virtue, written by Matthew Winkler. He is the editor
28:13
Speaker 1: in chief emeritus of Bloomberg News and he joins us
28:16
Speaker 1: right now via zoom. Matt, thanks so much for your time, UM,
28:19
Speaker 1: great piece on India. It's something that a lot of
28:21
Speaker 1: ore the investors that Paul and I talked to on
28:24
Speaker 1: a regular basis talked to us about. The growth is phenomenal.
28:29
Speaker 1: I mean solely down to the fact that they have
28:31
Speaker 1: one point four billion people. They may be larger than
28:35
Speaker 1: China soon. UM. And Cretty has said that she absolutely
28:39
Speaker 1: loves the movie uh industry as well Bollywood. UM films
28:42
Speaker 1: are huge and they're seeping into the US. What do
28:46
Speaker 1: you think India has done right that others have gotten wrong? Well,
28:50
Speaker 1: first of all, it's great to be with you and
28:51
Speaker 1: Cretty and uh, what they've gone right is Uh. First
28:56
Speaker 1: of all, they do have the demography, uh, you know,
29:00
Speaker 1: in their favor. As you mentioned, they will overtake China
29:04
Speaker 1: as the most populous country in the world. And there
29:09
Speaker 1: really is no shortage of superlatives when you think about India.
29:12
Speaker 1: It's the largest mos UM for one thing, and you
29:17
Speaker 1: mentioned the film industry, but really the most important is
29:21
Speaker 1: that it has a relatively young labor market and um,
29:28
Speaker 1: that is really the elixir, if you like, for growth,
29:33
Speaker 1: and that's why, as you mentioned, over the last decade,
29:37
Speaker 1: India has managed to surpass Canada, Brazil, Italy, Russia, France
29:41
Speaker 1: and the UK, rising from number eleven UH in g
29:45
Speaker 1: d P in the world to number five. And it
29:48
Speaker 1: isn't it isn't stopping there. It's going to have the
29:52
Speaker 1: fastest growing economy this year, um, you know, and that
29:56
Speaker 1: sort of time when much of the world is teetering
29:59
Speaker 1: on the edge of at but India is according to
30:03
Speaker 1: forty six economists contribute their forecast to Bloomberg is going
30:07
Speaker 1: to expand six UM this year. And uh, that's really
30:15
Speaker 1: part of what is the beginning of another decade long
30:18
Speaker 1: trajectory higher. I mean, one thing that you you really
30:21
Speaker 1: do need to pay attention to is that UM exports
30:27
Speaker 1: are at a record India is um you know, making
30:32
Speaker 1: a lot of stuff and sending it to the rest
30:34
Speaker 1: of the world at a rate that it hasn't in
30:37
Speaker 1: the past. And that unprecedented growth really is UM. I
30:43
Speaker 1: think a key variable. Total exports were something like nine
30:46
Speaker 1: and sixty billion UM in two thousand one, for example.
30:50
Speaker 1: The speed of this is really exciting, and anecdotally, I
30:54
Speaker 1: can say a lot of this comes down to the
30:57
Speaker 1: leadership from Prime Mr Noranda Mode. Before I asked next question,
31:02
Speaker 1: I wanted to share with the audience that I anecdotally
31:05
Speaker 1: that years ago, Um, you know, my family and I
31:08
Speaker 1: would go to Delhi every every summer and the expressway
31:13
Speaker 1: between the airport to the outside of New Delhi to
31:15
Speaker 1: the suburbs essentially used to take three four hours to
31:20
Speaker 1: get there. There is now an expressway that takes you
31:24
Speaker 1: thirty minutes max. From from the heart of New Delhi
31:27
Speaker 1: to uh the outside or Gazi Bad, which is where
31:30
Speaker 1: where I was born. But essentially it has completely changed
31:32
Speaker 1: the dynamic and a lot of that comes from infrastructure
31:35
Speaker 1: spending UH at the helm of Norandra Modi's budget. But Matt,
31:39
Speaker 1: I want to ask you how much of this acceleration
31:42
Speaker 1: is really coming down to being able to mobilize this
31:45
Speaker 1: population growth as we've seen happen in China as well. Well.
31:49
Speaker 1: As you just said, Uh, infrastructure really is a key
31:54
Speaker 1: element in all this. And as you also said, UH,
31:58
Speaker 1: it's something it's spending that's been encouraged by Modi. UM. Well,
32:05
Speaker 1: it's not just roads, it's rail networks, its ports. UM.
32:10
Speaker 1: You know, India is the number two consumer of steel
32:13
Speaker 1: after China, for example. UM. And UH. You know, electricity
32:20
Speaker 1: demand is you know, largely driven by economic activities such
32:26
Speaker 1: as manufacturing and the industrial sectors, and that's why last
32:31
Speaker 1: year were really over the past three years, you know,
32:34
Speaker 1: the power industry has led the market. But because of
32:38
Speaker 1: all that, going forward, what we're seeing, at least as
32:43
Speaker 1: forecast is that consumers, discretionary companies are going to outperform
32:49
Speaker 1: the rest of the market, and that that is a real,
32:51
Speaker 1: if you like, leading indicator that demand in Italy is
32:55
Speaker 1: going up, and it's going up because this critic says,
32:58
Speaker 1: I mean, you can get from here to there a
33:00
Speaker 1: lot easier. When we started Bloomberg News, by the way, uh,
33:03
Speaker 1: in the early nineties, Um, nobody wanted to, you know,
33:08
Speaker 1: get to the Mumbai airport. I mean it was it
33:11
Speaker 1: was third world, but it's now first world as an example,
33:15
Speaker 1: and so, uh, there's really not anything that's in the
33:19
Speaker 1: way of India. Because here's another thing. If you think
33:22
Speaker 1: about India, it's got a middle class. Uh. That is
33:27
Speaker 1: the size of the entire US population. So just think
33:31
Speaker 1: about it that way. Uh, if you have more than
33:33
Speaker 1: three d million people, all of whom are middle class,
33:37
Speaker 1: all of whom are educated. Uh, you're going to see
33:40
Speaker 1: the kind of growth that we're seeing right now. By
33:43
Speaker 1: the way, how much of this growth is coming at
33:44
Speaker 1: the expense of the climate or at the expense of
33:49
Speaker 1: U the democratic global order? Because India has not condemned
33:52
Speaker 1: Vladimir Putin, they continue to buy Russian oil. And I'm
33:57
Speaker 1: assuming that they're still one of the biggest polluters on
33:59
Speaker 1: the face of the earth. Not putting a value judgment
34:02
Speaker 1: on it, I'm just asking, you know, how much the
34:04
Speaker 1: benefit do they have in that case? Yeah, I think
34:06
Speaker 1: you've got that right. I think that that is a criticism.
34:09
Speaker 1: But why should India be penalized for all of the
34:14
Speaker 1: if you like, transgressions that uh colonial and post colonial
34:20
Speaker 1: UM countries alike have UM enjoyed up to this point.
34:26
Speaker 1: And as to your your point about um Ukraine, for example,
34:30
Speaker 1: where India is in fact on the fence and it
34:33
Speaker 1: has a longstanding relationship with Russia that goes beyond the
34:39
Speaker 1: dissolution of the Soviet Union. But there were Moody and
34:43
Speaker 1: his government are pursuing this ultra realist foreign policy that
34:47
Speaker 1: obviously deep prioritizes legal and moral aspects of international affairs,
34:54
Speaker 1: including climate change and especially including Ukraine. And that's all
34:58
Speaker 1: about India's nationally triest and so they're doing what a
35:03
Speaker 1: lot of their oppressors historically have done for centuries. Dare
35:09
Speaker 1: I say? And so I'm not sure it's fair to
35:12
Speaker 1: criticize India at this point for catching up to the
35:15
Speaker 1: rest of the world. You know, it's interesting that you
35:18
Speaker 1: mentioned that one of the uh, the statistics from I
35:20
Speaker 1: want to say, the last couple of months was when
35:22
Speaker 1: India a crossed the UK in terms of GDP. It's
35:26
Speaker 1: like the fifth largest economy now, which you mentioned right,
35:29
Speaker 1: and it was I think like weeks after Rishi Sunac
35:32
Speaker 1: was elected or something. Uh, the Indian community had a
35:35
Speaker 1: good three weeks in that little span of a mat
35:38
Speaker 1: in the last about minute that we have talked to
35:40
Speaker 1: us a little bit about the leadership here and remember
35:42
Speaker 1: Mode specifically, who, by the way, from an internal domestic
35:46
Speaker 1: point of view, is still quite a polarizing figure. Yeah,
35:49
Speaker 1: there's no quick, there's no doubt about it. Uh. Look,
35:52
Speaker 1: our friends in our profession of journalism are particularly UM
35:59
Speaker 1: and understand endably UM concerned. Uh yeah, whilst very concerned
36:05
Speaker 1: because there is a tendency to oppress and suppress UM
36:13
Speaker 1: not unlike by the way, other UM rulers who have
36:18
Speaker 1: become autocrats in formally democratic places like Hungary for example.
36:22
Speaker 1: So that is very much there. And then there's the
36:25
Speaker 1: other part, which is uh Modi has really catered pandered too, uh,
36:32
Speaker 1: the the Hindi population and at the expense of the
36:39
Speaker 1: Muslim population, and there's no question that that is also
36:42
Speaker 1: a great concern because that really goes against the inception
36:45
Speaker 1: of India was meant to be a very open, secular,
36:50
Speaker 1: uh internationally minded if you like, society coming out of
36:55
Speaker 1: the British Empire with independence, and what Modi is doing
37:00
Speaker 1: is clearly some kind of repudiation if you like, of
37:04
Speaker 1: what Gandhi Mahatma Gandhi Um you know, started. So it
37:10
Speaker 1: is Casper concerned, there's no question about it. Well, certainly
37:13
Speaker 1: something we're going to keep an eye on. Folks. You
37:15
Speaker 1: can check out this column from Matt Winkler, Bloomberg News
37:18
Speaker 1: under Chief Emeritus, on the Bloomberg Terminal O P I
37:20
Speaker 1: n go or and of course Bloomberg dot com as well. Matt,
37:24
Speaker 1: thank you as always for joining us. Thanks for listening
37:30
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
37:34
Speaker 1: to interviews of Apple Podcasts or whatever podcast platform you prefer.
37:38
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three.
37:43
Speaker 1: Put on false Sweeney I'm on Twitter at pt Sweeney.
37:45
Speaker 1: Before the podcast. You can always catch us worldwide at
37:48
Speaker 1: Bloomberg Radio