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P&L: Apple Could Bundle New Original Content Business · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:14
  Speaker 1: you and your money, whether you're at the grocery store
• 0:16
  Speaker 1: or the trading floor. Find the Bloomberg pm L podcast
• 0:20
  Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. Here to
• 0:28
  Speaker 1: tell us what's going to happen in seventeen, or at
• 0:31
  Speaker 1: least what might happen is liz Ane Saunders, chief investment
• 0:34
  Speaker 1: strategist for Charles Schwab and Company, joining us from San Francisco.
• 0:38
  Speaker 1: Lizen always a pleasure tell us your outlook for the
• 0:41
  Speaker 1: SMP five harder. Let's start with earnings and then we
• 0:43
  Speaker 1: can talk about valuations. So um well, both in earnings
• 0:47
  Speaker 1: and in terms of market performance, we don't publish targets.
• 0:51
  Speaker 1: I actually think that that's a bit of a silly exercise.
• 0:53
  Speaker 1: But if you look at the consensus right now for
• 0:56
  Speaker 1: corporate earnings, it's about growth every year for calendar year seventeen.
• 1:01
  Speaker 1: What's interesting about that number is most analysts that do
• 1:04
  Speaker 1: publish forecasts have it yet incorporated in the potential benefit
• 1:08
  Speaker 1: either from regulatory reform or tax reform, infrastructure spending, or
• 1:12
  Speaker 1: maybe the combin combination of all of those. So I
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  Speaker 1: think there's potentially upside um. There's also some downside because
• 1:18
  Speaker 1: analysts naturally get a little bit too too optimistic, But
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  Speaker 1: I think the net is going to be fairly positive
• 1:24
  Speaker 1: in terms of economic growth. Clearly, we saw a lift
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  Speaker 1: up and economic activity in the second half of ten,
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  Speaker 1: so I actually think the rally that we got in
• 1:31
  Speaker 1: the stock market had as much to do with that,
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  Speaker 1: and much of that predated the election, so I don't
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  Speaker 1: think it's pure election related, and I think we are
• 1:39
  Speaker 1: looking at a pro growth administration. My concern, and I
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  Speaker 1: think it was exacerbated by the press conference yesterday, is
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  Speaker 1: that the protectionist part of the policy platform is starting
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  Speaker 1: to move up the spectrum in terms of likely action
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  Speaker 1: in seen, and I think that would be an offset
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  Speaker 1: to some of the more positive components of the of
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  Speaker 1: the plan. You know, we hear a lot about the
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  Speaker 1: rotation out of bonds and into stocks. Do you believe
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  Speaker 1: that this is happening and what are you looking for
• 2:05
  Speaker 1: to sort of indicate whether there is sort of more
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  Speaker 1: upside in stocks at the behest or at the detriment
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  Speaker 1: to the detriment of bonds. I think it's it's too
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  Speaker 1: soon to suggest that a new trend is in place.
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  Speaker 1: I e. The great rotation has kicked in. Uh you
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  Speaker 1: shaw about three weeks of pretty steady and flows into
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  Speaker 1: the US equity market, combining both neutral funds and exchange
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  Speaker 1: traded funds. But in the last week that's actually falter
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  Speaker 1: and you've gone back into negative territory. So it's a
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  Speaker 1: you know, it's a nascent shift, and I think too
• 2:36
  Speaker 1: soon to suggest that this is going to be a
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  Speaker 1: big story in two seen. The good news is is
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  Speaker 1: that if you look further back, if you look through
• 2:43
  Speaker 1: that this entireble market, not a single net new dollar
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  Speaker 1: of money has come into the US equity market, even
• 2:49
  Speaker 1: if you include e t f s into the funds category.
• 2:53
  Speaker 1: So there's still a lot of runway ahead of us
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  Speaker 1: for that to be a lift for the market. I I.
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  Speaker 1: You know, the fact we got three weeks of infloz
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  Speaker 1: is a good thing, but it also shows you how
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  Speaker 1: quickly sentiment can shift. Given that in just the last week,
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  Speaker 1: during this period of consolidation for equities, kind of investors
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  Speaker 1: turntail again. So it has the potential to be a
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  Speaker 1: positive story. It's I think it's a little early. Well,
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  Speaker 1: how attractive do equities have to be in order to
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  Speaker 1: attract that money. I was just taking a look at
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  Speaker 1: the price to earnings ratio for the SMP five D.
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  Speaker 1: If you bought it today, you're paying a twenty one multiple. Well,
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  Speaker 1: that's on trailing earnings. And nothing wrong with looking at
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  Speaker 1: trailing yeah, because you don't know what's going to happen
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  Speaker 1: in the future. But when you are at an inflection
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  Speaker 1: point in earnings and your trailing earnings incorporates a couple
• 3:39
  Speaker 1: of quarters of an earnings recession, I think that artificially
• 3:42
  Speaker 1: deflates the E and the PE equation, and I think
• 3:45
  Speaker 1: it is important to look in conjunction with trailing valuations,
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  Speaker 1: look at forward valuations, and on a forward PE basis,
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  Speaker 1: you're more like seventeen. That's a little bit north of
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  Speaker 1: the long term median. But in the current inflation environment
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  Speaker 1: we're in, assuming it doesn't really kick in from here,
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  Speaker 1: multiples have actually typically traded above where we are right now.
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  Speaker 1: So I also think valuation is the eye of the beholder.
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  Speaker 1: We're talking about traditional PE ratios. You can look at
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  Speaker 1: price to book. You can look at inflation adjusted measures
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  Speaker 1: like the rule of twenty two FED model. You can
• 4:17
  Speaker 1: look at even further trailing numbers like Schiller Cape, and
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  Speaker 1: I promise you that no matter what your view is
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  Speaker 1: on the market, I can find you a valuation metric
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  Speaker 1: that perfectly supports that view. And that view could be
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  Speaker 1: anything from extreme embarishness to extreme abolishness. Liz, you know
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  Speaker 1: the flip side of where what's a good entry point
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  Speaker 1: for stocks is at what point is it does it
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  Speaker 1: make sense to get back into bonds. I'm looking at
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  Speaker 1: a ten ure yield at two point uh. Some asset
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  Speaker 1: managers have called for three ten yurared yields by the
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  Speaker 1: end of this year. I mean at that level, do
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  Speaker 1: you think that that would be a buy? I don't
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  Speaker 1: think it should ever be a level. I don't think
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  Speaker 1: investing should ever be about get in and get out.
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  Speaker 1: That those are those are gambling on a moment in time,
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  Speaker 1: and investing should always be a process over time. So
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  Speaker 1: I would use the tried and true rules around rebalancing.
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  Speaker 1: And what rebalancing does is it let your portfolio tell
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  Speaker 1: you when it's time to do something. If your bond
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  Speaker 1: allocation has gotten out of whack relative to what your
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  Speaker 1: normal targets should be. And that's a function of your
• 5:14
  Speaker 1: risk tolerance and time arizing a need for income, etcetera, etcetera.
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  Speaker 1: Then your portfolio tells you want to make that adjustment
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  Speaker 1: to pick some arbitrary level on the yield to say
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  Speaker 1: time to get back in and bonds. Again, that's gambling
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  Speaker 1: on a moment in time, and investing should never be
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  Speaker 1: about that. Where is this money going to come from
• 5:31
  Speaker 1: central banks or from actual investors? Oh? I think from
• 5:35
  Speaker 1: from actual investors. Keep in mind that if you look
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  Speaker 1: over this entire Bowl market, retail investors have not been
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  Speaker 1: very active. We talked about that as it relates to
• 5:44
  Speaker 1: fund flows. Hedge funds net long exposure never got much
• 5:48
  Speaker 1: above the low fifties in this entire Bowl market and
• 5:51
  Speaker 1: pass Bowl markets. You would expect that to get up
• 5:52
  Speaker 1: into the mid sixties. Pension funds have not Traditional pension
• 5:56
  Speaker 1: funds have not been big buyers. So really the only
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  Speaker 1: game in town has been come. He's buying back their
• 6:00
  Speaker 1: own stock. In an environment where you haven't had a
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  Speaker 1: robust I p O market, it's a simple supply demand.
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  Speaker 1: So I think there's a lot of room for investors
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  Speaker 1: of every variety of different cohorts of investors two up
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  Speaker 1: their equity exposure. I wouldn't expect in a straight line,
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  Speaker 1: nor what I wanted to be. I think, you know,
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  Speaker 1: we started to get a sense of a melt up
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  Speaker 1: until this recent consolidation phase, and is as lovely as
• 6:25
  Speaker 1: melt ups feel while they're happening, assuming you're long, they
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  Speaker 1: don't tend to end well. So this kind of two
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  Speaker 1: steps forward half a step back is actually a pattern
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  Speaker 1: I would love to see continue in As you mentioned
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  Speaker 1: petch funds and what they may do. Yesterday, Cowper's c
• 6:39
  Speaker 1: I O. Is on Bloomberg Television and he was talking
• 6:42
  Speaker 1: about how he was hoping to rotate about thirty billion
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  Speaker 1: dollars of money that's currently managed by external managers private
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  Speaker 1: equity firms, hedge funds, and make it internally managed. Do
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  Speaker 1: you think that that's a good idea or and also
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  Speaker 1: do you think that that's going to be a trend
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  Speaker 1: that takes hold? Well, Yeah, I think it's a trend
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  Speaker 1: that that has already occurred. I think you already hit
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  Speaker 1: the inflection point for endowments, foundations, institutions, pension funds, that
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  Speaker 1: um shifted uh for for many years over the past
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  Speaker 1: decade or so, shifted significantly away from the public markets
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  Speaker 1: towards the private markets, whether it was you know, hedge
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  Speaker 1: funds or venture capito a private equity or or real
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  Speaker 1: estate funds. But that pendulum has already started to swing back.
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  Speaker 1: And in the case of hedge funds. The interesting thing
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  Speaker 1: about hedge funds, there is a lot of people put
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  Speaker 1: them in a category of alternative investments. Yet if if
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  Speaker 1: you have an investment in a hedge fund and that
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  Speaker 1: hedge fund is buying equities either on the longer short side,
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  Speaker 1: that's your exposure. That's not an alternative asset. It's a
• 7:44
  Speaker 1: an alternative way to get exposure to the equity asset class.
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  Speaker 1: So I think there's also a rethinking of how we
• 7:52
  Speaker 1: categorize hedge funds, and if they're purely equity, that's how
• 7:55
  Speaker 1: you you have to incorporate that into your equity exposure.
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  Speaker 1: I think it's the fee problem, limited performance, higher fees.
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  Speaker 1: That's been the real rub. Thank you so much, We're
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  Speaker 1: gonna have to leave it there, unfortunately. Liz Ane Saunders,
• 8:05
  Speaker 1: chief investment strategies strategist at Charles Schwab and Company talking
• 8:10
  Speaker 1: about her outlook for this year. Well, another sort of
• 8:24
  Speaker 1: sad stories in the biotech industry. There's a story on
• 8:28
  Speaker 1: the Bloomber terminal this morning talking about the mood of
• 8:31
  Speaker 1: shock and disbelief at the JP Morgan Healthcare conference in
• 8:34
  Speaker 1: San Francisco as they listened to President elect Trump talk
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  Speaker 1: about how he's going to take a hard line with
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  Speaker 1: his negotiations with the pharmaceutical companies. I want to bring
• 8:43
  Speaker 1: in Max Neeson bloombergad Fly columnists to sort of shed
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  Speaker 1: some light on why perhaps this shouldn't have come as
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  Speaker 1: a surprise to these pharmaceutical executives. Max, I mean, this
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  Speaker 1: is not unexpected, right, I mean you're to calumn about this, uh,
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  Speaker 1: several of them in fact, Uh, it really it does
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  Speaker 1: bewilder me the extent of the surprise. During the campaign,
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  Speaker 1: Trump repeatedly mentioned that he wanted Medicare to be able
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  Speaker 1: to negotiate drug prices and push them down. Back in December,
• 9:12
  Speaker 1: he made another comment about how he didn't like the
• 9:15
  Speaker 1: way that drug prices were going. What's really worrying for
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  Speaker 1: the sector. I think I think that kind of explained
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  Speaker 1: some of the extent of the reaction is the fact
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  Speaker 1: that he really seems to be escalating both his rhetoric
• 9:25
  Speaker 1: and um to some degree, the specificity going from just
• 9:29
  Speaker 1: I don't like drug prices to we're gonna change the
• 9:32
  Speaker 1: bidding process a policy than in fact many fear that
• 9:35
  Speaker 1: Hillary Clinton would actually try to bring about it if
• 9:38
  Speaker 1: she had been elected. We're just looking at some of
• 9:40
  Speaker 1: the stocks today other than Mark, and we're gonna get
• 9:42
  Speaker 1: to that in a in a second. But Fires are
• 9:45
  Speaker 1: down one percent, Bristol Maris Squib down about three quarters
• 9:49
  Speaker 1: of a percent, Abvy is down about a quarter of
• 9:51
  Speaker 1: although yesterday the clients were much more severe with so
• 9:54
  Speaker 1: much deed, I would just like to see whether anyone said, oh,
• 9:56
  Speaker 1: these are bargains. Johnson and Johnson down about half, right,
• 10:01
  Speaker 1: of course, the Nazac Biotechnology and that's which I'm looking
• 10:03
  Speaker 1: at right now, down six tents of repercent, which considering
• 10:06
  Speaker 1: how much stocks are down today and basically in line
• 10:09
  Speaker 1: with the market. And that's after a three percent decline yesterday.
• 10:12
  Speaker 1: Although Max, how much does that due to Mark? Because
• 10:14
  Speaker 1: Mark shares are up. Um. Yeah, Murk is kind of
• 10:18
  Speaker 1: the soul out performer on the kind of a specific
• 10:20
  Speaker 1: piece of drug data that was so good that it
• 10:23
  Speaker 1: seemed to overweigh the kind of broader industry. Yeah, lung cancer,
• 10:27
  Speaker 1: it's actually a really huge deal for them. Um. They
• 10:30
  Speaker 1: have a so called immune oncology drug sort of unlawshed, unleaked,
• 10:33
  Speaker 1: unleashes the immune system against lung cancer. And the news
• 10:38
  Speaker 1: they got is that it might be approved in combination
• 10:40
  Speaker 1: with chemotherapy in a far broader subset of patients. Right now,
• 10:44
  Speaker 1: it can only be used in about of them whose
• 10:47
  Speaker 1: tumor as a specific mutation. If they get disapproval by May,
• 10:50
  Speaker 1: which is well ahead of anything competitors can hope for,
• 10:53
  Speaker 1: it'll be about a year ahead of expectations and massively
• 10:56
  Speaker 1: increase their market size. Can I just ask you a
• 10:59
  Speaker 1: little bit about this because you mentioned the approval process
• 11:01
  Speaker 1: and we have yet to hear who is going to
• 11:04
  Speaker 1: be the head of the Food and Drug Administration? Does
• 11:07
  Speaker 1: anybody that you talk to expect big changes in the
• 11:10
  Speaker 1: way that drugs are approved now that there's going to
• 11:12
  Speaker 1: be a new president. Um, there there can be a
• 11:15
  Speaker 1: kind of a really big swing on that depending on
• 11:17
  Speaker 1: who gets put in charge. There have been sort of
• 11:19
  Speaker 1: two names, two very different names put up. One of
• 11:23
  Speaker 1: whom is a former kind of Peter Theeal associate who
• 11:26
  Speaker 1: has some pretty I mean, I would describe them as
• 11:28
  Speaker 1: just wacky ideas that he's dispoused in the past on
• 11:31
  Speaker 1: drug development, that you should approve drugs just based on safety.
• 11:34
  Speaker 1: If they're saying if they don't hurt people, if they
• 11:36
  Speaker 1: don't hurt people, you know, is this um, you know,
• 11:40
  Speaker 1: we'll find that before the second who is also being concerned. Um,
• 11:43
  Speaker 1: it's kind of a more doctrinaire x f DA official
• 11:46
  Speaker 1: who just you know, he's he's a little bit more conservative,
• 11:49
  Speaker 1: but he's not going to dramatically shake up the kind
• 11:52
  Speaker 1: of way things are done. I'd imagine if he replaces
• 11:55
  Speaker 1: Mr Califf. How much do you think that there are
• 11:57
  Speaker 1: conversations going on in the back office is of pharmaceutical
• 12:01
  Speaker 1: companies right now about how to take back the news
• 12:04
  Speaker 1: cycle from President elect Trump. I mean, it seems like
• 12:07
  Speaker 1: all he has to say is we're going to negotiate
• 12:10
  Speaker 1: really hard, and and their their share is just plummet.
• 12:12
  Speaker 1: I mean, can they do anything to kind of take charge?
• 12:16
  Speaker 1: I think they absolutely can. I think you've already seen
• 12:19
  Speaker 1: some of these moves from a couple of companies kind
• 12:21
  Speaker 1: of advocating self policing self restriction on drug price increases,
• 12:26
  Speaker 1: notably Novo nordisk Al organ and then just yesterday ABVY
• 12:30
  Speaker 1: pledge to not take take only a single drug price
• 12:34
  Speaker 1: set of drug price increase this year and limited to
• 12:36
  Speaker 1: less than ten percent, which is kind of, you know,
• 12:39
  Speaker 1: not exactly altruistic, but definitely a step down from what
• 12:43
  Speaker 1: had become the industry, or of kind of bi annual
• 12:46
  Speaker 1: price increases in excess of ten percent. The name you're
• 12:49
  Speaker 1: the name you're looking for was Jim O'Neill. Jim O'Neill,
• 12:52
  Speaker 1: who is at the event at the capital management firm
• 12:57
  Speaker 1: a Mithral Capital, which was founded by, as you said,
• 13:00
  Speaker 1: Peter Tildy, once a founder of PayPal and one of
• 13:04
  Speaker 1: the backers of Facebook. Yeah, that's the name. And and
• 13:07
  Speaker 1: also another tick on his resumes he's a member of
• 13:11
  Speaker 1: the board of the C Studying Institute, which are libertarians
• 13:15
  Speaker 1: C platforms, which kind of dovetails with his view on
• 13:18
  Speaker 1: the approvability of drugs and liberty libertarian fashion. And just
• 13:22
  Speaker 1: to close the loop on Murk and their lung cancer drug.
• 13:25
  Speaker 1: Lung cancer is the leading cause of cancer death in
• 13:28
  Speaker 1: both men and women in the United States and worldwide
• 13:33
  Speaker 1: specifically China. China has got a very big problem well
• 13:35
  Speaker 1: and in the United In the United States, lung cancer
• 13:37
  Speaker 1: is responsible for thirty percent of cancer deaths. This is
• 13:41
  Speaker 1: more than breast cancer, colon cancer, and prostact cancer combined.
• 13:45
  Speaker 1: About a hundred and fifty five thousand people die each
• 13:48
  Speaker 1: year from lung cancer, So that would be a big
• 13:50
  Speaker 1: breakthrough from Mark really well be huge market. Thanks very much, mcknean,
• 13:54
  Speaker 1: gad Fly expert in pharma. We've been hearing a lot
• 14:08
  Speaker 1: about how the Senate is currently talking about repealing and
• 14:12
  Speaker 1: voting to repeal Obamacare, but what exactly is going to
• 14:17
  Speaker 1: replace it? I want to bring in. Brian Ry, senior
• 14:19
  Speaker 1: healthcare policy analyst for Bloomberg Intelligence, has been closely following
• 14:23
  Speaker 1: the proceedings in Congress. Brian, I hear a lot about
• 14:27
  Speaker 1: the repeal of Obamacare. What exactly is Congress can replace
• 14:32
  Speaker 1: it with. I guess that's the key question that everyone's
• 14:35
  Speaker 1: grappling with, and the fact that they haven't come forward
• 14:37
  Speaker 1: with a single plan that everyone supported underscores how difficult
• 14:41
  Speaker 1: the question that is. I think you know, broadly speaking,
• 14:43
  Speaker 1: what Republicans want to do is what a lot of
• 14:45
  Speaker 1: politicians want to do, and that's keep the parts of
• 14:48
  Speaker 1: the plan that are popular and eliminate those that aren't.
• 14:50
  Speaker 1: Of course, that's easier said than done. So what I
• 14:52
  Speaker 1: think they want to replace it with is a system
• 14:55
  Speaker 1: that allows for more choice. I think they want to
• 14:58
  Speaker 1: combine a combination of uh, some plans that are have
• 15:01
  Speaker 1: lower premiums but higher deductible, sort of the catastrophic plans
• 15:04
  Speaker 1: that right now don't meet a lot of the essential
• 15:06
  Speaker 1: benefit requirements under the c A or under Obamacare, but
• 15:10
  Speaker 1: are lower premium And they want to do that to
• 15:12
  Speaker 1: try and draw in a lot of the younger, healthier
• 15:14
  Speaker 1: people that right now are aren't enrolling in sufficient numbers
• 15:18
  Speaker 1: to make the risk pools profitable for insurers. You've seen
• 15:21
  Speaker 1: a lot of insurers they're going to pull out of
• 15:22
  Speaker 1: the exchanges. I think that's the trend that the Republicans
• 15:26
  Speaker 1: are trying to reverse. Brian, I'm gonna ask you about
• 15:29
  Speaker 1: something much more sort of day to day. You know
• 15:32
  Speaker 1: those signs that are posted in restaurants showing the calorie count.
• 15:37
  Speaker 1: I believe restaurants that have more than twenty locations they
• 15:40
  Speaker 1: were required under the A c I to post this
• 15:42
  Speaker 1: nutritional information. Are things like that going to go away? Uh?
• 15:47
  Speaker 1: If they are, it's probably not going to be as
• 15:49
  Speaker 1: part of this process, um and uh. And so that
• 15:52
  Speaker 1: that's something that again, you know, they may direct uh
• 15:55
  Speaker 1: there the new administration under the FDA, for example, to
• 15:58
  Speaker 1: either withdraw that guid insto issue updated guidance that that
• 16:01
  Speaker 1: does that. But that's probably not going to be part
• 16:03
  Speaker 1: of what Congress is doing right now. And that's simply
• 16:05
  Speaker 1: because to avoid a Senate filibuster, recognizing the math problem
• 16:10
  Speaker 1: that Republicans have fifty two votes and not sixty. Um,
• 16:14
  Speaker 1: they're using this budget reconciliation process, and that restricts the
• 16:17
  Speaker 1: things that they can really target under this repeal effort,
• 16:20
  Speaker 1: the things that are only budget related, so taxes, penalties,
• 16:23
  Speaker 1: and medicaid expansion, anything involving federal funding. But a lot
• 16:27
  Speaker 1: of those regulations, such as the one you just referenced,
• 16:29
  Speaker 1: uh with the menu menus and calories, that's something that
• 16:32
  Speaker 1: would have to be addressed separately. Brian. Let's say this
• 16:36
  Speaker 1: repeal of Obamacare does pass the Senate. What happens then,
• 16:42
  Speaker 1: So where we are now is they've last night they
• 16:44
  Speaker 1: Senate essentially passed UM. What would be a blueprint that
• 16:48
  Speaker 1: would authorize various committees to then come up and craft
• 16:51
  Speaker 1: a repeal bill that has to go to the House. Now,
• 16:54
  Speaker 1: they're going to probably address that either tomorrow or over
• 16:57
  Speaker 1: the weekend, and then a couple of committees in each
• 16:59
  Speaker 1: the sent it in the House would then go to
• 17:01
  Speaker 1: work and craft language saying, Okay, we're going to repeal
• 17:04
  Speaker 1: these taxes, were going to repeal these mandates, repeal the
• 17:07
  Speaker 1: penalties for not buying A c A compliant insurance, those things,
• 17:10
  Speaker 1: and then in a matter of weeks come back with that.
• 17:12
  Speaker 1: But back to the original question. At the same time,
• 17:15
  Speaker 1: you know, President elect Trump and a growing number of
• 17:18
  Speaker 1: Republicans said, what, we also want to have a bill
• 17:21
  Speaker 1: specifying what we would replace it with in place at
• 17:24
  Speaker 1: the same time to make this simultaneous. If they're going
• 17:26
  Speaker 1: to try and do that, then this process will probably
• 17:28
  Speaker 1: bog down and they'll have to delay the repeal effort
• 17:31
  Speaker 1: while they wait for the replace effort to catch up.
• 17:34
  Speaker 1: This is maybe tangential to the issue of the A
• 17:37
  Speaker 1: c A. But haven't the lawmakers in Washington taken aim
• 17:42
  Speaker 1: at the use of human fetal tissue cells for scientific research?
• 17:50
  Speaker 1: They have, and you know there there are a few
• 17:52
  Speaker 1: different things and sort of tangential to that is part
• 17:55
  Speaker 1: of this repeal process. Speaker Paul Ryan has said that, UM,
• 17:59
  Speaker 1: they'd like to include, you know, removing federal funding for
• 18:01
  Speaker 1: planned parenthood for example, and UM and that could potentially
• 18:05
  Speaker 1: complicates their efforts to pass the repeal BI Also, you know,
• 18:08
  Speaker 1: lots of moving parts. But you're right, and I think
• 18:10
  Speaker 1: Republicans who have been targeting UH those type of provisions
• 18:13
  Speaker 1: for a while feel like that would say Republican in
• 18:15
  Speaker 1: the White House and Republicans retain a control of both chambers,
• 18:18
  Speaker 1: that this is their best chance to advance provisions like that.
• 18:21
  Speaker 1: And it'sn't one of the ideas with the repeal of
• 18:23
  Speaker 1: Obamacare that states would get less federal funding for medicaid
• 18:27
  Speaker 1: as part of this UH and would compel them to
• 18:30
  Speaker 1: negotiate take a harder line with drug companies. Is that
• 18:32
  Speaker 1: sort of the idea? You know, it could, So there's
• 18:34
  Speaker 1: two different things there. You know, they could repeal the
• 18:37
  Speaker 1: medicaid expansion that was part of the A C A
• 18:40
  Speaker 1: or you know, maybe have a compromise and leave it
• 18:42
  Speaker 1: up to the states saying if you want to keep it,
• 18:43
  Speaker 1: you can if not you don't necessarily have to, um,
• 18:47
  Speaker 1: but what they like to do. I think Paul Ryan's
• 18:49
  Speaker 1: vision is to essentially convert medicaid in the block grant program,
• 18:53
  Speaker 1: where we the federal government will give each state pool
• 18:56
  Speaker 1: of money UM to do with as they see fit
• 18:58
  Speaker 1: and uh and designed to own medicaid plans with that.
• 19:01
  Speaker 1: That's a harder sell on the drug pricing front. UM.
• 19:04
  Speaker 1: You know, we'll see what Trump's pick a for HHS
• 19:07
  Speaker 1: Secretary Tom Prices next weekend. We gotta run. Thanks very much,
• 19:10
  Speaker 1: Brian Ryan. Are you gonna be following this for us?
• 19:12
  Speaker 1: Our senior healthcare policy analyst for the Bloomberg Intelligence Government team.
• 19:28
  Speaker 1: Will Apple become the next HBO? Well, it looks like
• 19:31
  Speaker 1: they're gonna try. I want to bring in John Petreats,
• 19:33
  Speaker 1: managing director and portfolio manager at Point View Wealth Management,
• 19:37
  Speaker 1: to give some context to the news that we got
• 19:40
  Speaker 1: uh this morning by the Wall Street Journal that Apple
• 19:44
  Speaker 1: is planning to create new original television content for its
• 19:49
  Speaker 1: music subscribers. So John, Uh, first of all, what's your
• 19:54
  Speaker 1: take on what their plan is to do as far
• 19:56
  Speaker 1: as creating original content? Well, first of all, thanks for
• 19:59
  Speaker 1: having me on. I gives my first point would be, well,
• 20:02
  Speaker 1: it's about time. Um, when you're a six hundred and
• 20:05
  Speaker 1: fifty billion dollar company, it's really hard to sell a
• 20:09
  Speaker 1: lot of cool widgets to grow the top line, you
• 20:12
  Speaker 1: have to move into some sort of subscription type of
• 20:15
  Speaker 1: business model in order to grow, because it's just, you know,
• 20:18
  Speaker 1: you just can't. The margins on the hardware business just
• 20:21
  Speaker 1: get compressed, and it's just it's very difficult to reinvent
• 20:24
  Speaker 1: and sell new items. So the fact that they're finally
• 20:28
  Speaker 1: catching up or going after Amazon, Netflix, Hulu, understanding that
• 20:33
  Speaker 1: through the Apple TV, which is a portal for them,
• 20:36
  Speaker 1: they can create this original content or with the cash
• 20:39
  Speaker 1: where they have buy content and set up some sort
• 20:43
  Speaker 1: of scription subscription model where you and I pay Apple
• 20:46
  Speaker 1: you know, ten nine a month and get all this content.
• 20:49
  Speaker 1: So I think it's it's it's a great move for
• 20:52
  Speaker 1: a huge company that needs to change their business model.
• 20:56
  Speaker 1: You know, it's interesting that you talked about, you highlighted
• 20:58
  Speaker 1: that they might buy content, and I mean the content
• 21:00
  Speaker 1: world right now is incredibly crowded. You've got you know,
• 21:03
  Speaker 1: you mentioned yourself, Netflix, Hulu, Hbo, itself. I mean everyone
• 21:07
  Speaker 1: is sort of focusing on content. Are you expecting some
• 21:11
  Speaker 1: kind of consolidation and if so, who might Apple look
• 21:14
  Speaker 1: to purchase. Yeah, it's a good idea, it's a it's
• 21:18
  Speaker 1: a good question. I think they're going to go along
• 21:21
  Speaker 1: the route of building out their own original content. They
• 21:25
  Speaker 1: may not acquire companies, but they may acquire a very
• 21:29
  Speaker 1: creative smart people. Look what they did with Beats by
• 21:32
  Speaker 1: bringing on Jimmy Iovine and Dr dre Um to build
• 21:35
  Speaker 1: out on the music platform. So maybe they bring on
• 21:38
  Speaker 1: board really smart people to who are very creative to
• 21:42
  Speaker 1: do their original content. You know, a Viacom is a
• 21:46
  Speaker 1: company out there that has a tremendous amount of content
• 21:49
  Speaker 1: that's being undervalued. They have paramount studios, they own MTV, Nickelodeon,
• 21:55
  Speaker 1: and all the other sorts that that that the market
• 21:57
  Speaker 1: is thinking traditional TV and a cable model is dead.
• 22:01
  Speaker 1: So you know, maybe there's someone like that where they
• 22:04
  Speaker 1: can go up and pick up on the cheap. But
• 22:06
  Speaker 1: I think Apple's first route is going to be um
• 22:09
  Speaker 1: doing it on their own and maybe hiring and spending
• 22:12
  Speaker 1: a lot of money on really smart people that come
• 22:14
  Speaker 1: out and build it on their own. But John, isn't
• 22:17
  Speaker 1: the Walk of Fame littered with those efforts to become
• 22:21
  Speaker 1: a content producer, whether it is in the movie industry,
• 22:25
  Speaker 1: television industry. Is there an example of a company that
• 22:29
  Speaker 1: formally was not in the business that just flipped the
• 22:32
  Speaker 1: switch and was successful at it. I mean Amazon is
• 22:36
  Speaker 1: a perfect example, right. I mean, Amazon, who build this
• 22:39
  Speaker 1: entire bread and butter off the e commerce distribution platform
• 22:43
  Speaker 1: and then through the fire Stick, has decided to build
• 22:47
  Speaker 1: out its own content. And now as prime members, you
• 22:50
  Speaker 1: get access to all that through the through the fire Stick,
• 22:54
  Speaker 1: and you get X to all of Amazon's original content
• 22:56
  Speaker 1: within But do we know about that Amazon actually makes
• 22:59
  Speaker 1: a profit on all that content. If you take away
• 23:02
  Speaker 1: that prime subscriber, well that's a different story. Well, I
• 23:08
  Speaker 1: mean the goal supposedly is to actually make money, right, Yeah,
• 23:11
  Speaker 1: if there's ways to do it though, I mean Apple,
• 23:14
  Speaker 1: if the Apple can bundle right a a content subscription
• 23:19
  Speaker 1: with its music and then add in features of hey,
• 23:22
  Speaker 1: you know, we'll throw in extra storage on iCloud. I mean,
• 23:25
  Speaker 1: there's a lot of other ways to bundle in content
• 23:28
  Speaker 1: where a user, um, where maybe Apple is not maximizing
• 23:32
  Speaker 1: each individual user of an iPhone or an eye watch
• 23:35
  Speaker 1: effectively um to get more juice from the Lemon, so
• 23:39
  Speaker 1: I think and again, this is not a very capital
• 23:43
  Speaker 1: intensive type of build out. Think about the other projects
• 23:46
  Speaker 1: that have been thrown out that Apple may get into it,
• 23:48
  Speaker 1: such as cars, and I was never a believer into
• 23:51
  Speaker 1: the car model. But good luck in terms of building
• 23:54
  Speaker 1: on manufacturing facilities dealing with unions for auto workers. I
• 23:57
  Speaker 1: mean that was a capital intensive venture that people are
• 24:01
  Speaker 1: trying to throw out there. If Apple would compete with Tesla,
• 24:03
  Speaker 1: that I just didn't think make it any sense at all.
• 24:06
  Speaker 1: What's the key audience do you think that they're going
• 24:08
  Speaker 1: to try to target here? Well? I think clearly the
• 24:10
  Speaker 1: millennials are changing the way the way they view TV.
• 24:14
  Speaker 1: I mean, my kids are nine and a half and
• 24:17
  Speaker 1: six and a half and they probably watch more YouTube
• 24:20
  Speaker 1: and Netflix than when they're allowed to watch TV than
• 24:24
  Speaker 1: anything else. Um, they don't even know. They don't have
• 24:27
  Speaker 1: any uh you know, they're not they're not tied to
• 24:30
  Speaker 1: the traditional TV model that say you and I were
• 24:33
  Speaker 1: all brought up with. So the idea of you can
• 24:36
  Speaker 1: watch what you want when you want. An Apple has
• 24:39
  Speaker 1: the key here is Apple has the I t V platform, right,
• 24:42
  Speaker 1: you have that portal where you could download apps and
• 24:45
  Speaker 1: it could work seamlessly with all of your other Apple
• 24:47
  Speaker 1: devices and have your pictures on there in your music.
• 24:50
  Speaker 1: So by doing this, I think it's one of the
• 24:53
  Speaker 1: key ingredients to capturing UM The entire UH end users
• 24:58
  Speaker 1: UH media have Thanks very much for being with us.
• 25:02
  Speaker 1: John Patritis is a Managing director portfolio manager Point of
• 25:05
  Speaker 1: View Wealth Management based in Summit, New Jersey, speaking about
• 25:09
  Speaker 1: Apple and its potential to get into the content business.
• 25:19
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 25:21
  Speaker 1: You can subscribe and listen to interviews at iTunes, SoundCloud,
• 25:25
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 25:30
  Speaker 1: out there on Twitter at pim Fox. I'm out there
• 25:32
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 25:36
  Speaker 1: You can always catch us worldwide on Bloomberg Radio.