Latest / Bloomberg Intelligence / Bank Earnings, Stocks, China, And Media Stocks (Podcast)

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Bank Earnings, Stocks, China, And Media Stocks (Podcast) · 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. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news on the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com Slash Podcast. Lots of stuff to
0:22
Speaker 1: get to with Alison Williams. She covers all the banks
0:24
Speaker 1: for Bloomberg Intelligence. She's one of the best on wall streets,
0:27
Speaker 1: so we love getting some of her time. Allison is
0:29
Speaker 1: a million ways week and go here. Let's start really
0:31
Speaker 1: easy with the with the easy stuff. I think Bank
0:33
Speaker 1: of America. I thought the numbers looked pretty good. What's
0:37
Speaker 1: your takeaway? The numbers looked really good, and that interest
0:41
Speaker 1: income the story for the quarter was very strong at
0:46
Speaker 1: the bank, and there's upside to the fourth quarter. So
0:49
Speaker 1: that's that's the good news. The consumer is healthy. Um.
0:53
Speaker 1: And so now that we have you know, sort of
0:55
Speaker 1: the four biggest diversified banks coming in uh, you know,
1:00
Speaker 1: charge offs came in better than expected. That's current credit trends.
1:05
Speaker 1: So the banks did set aside um some money for
1:08
Speaker 1: the future. But I would say, you know, generally modest
1:12
Speaker 1: compared to some concerns. So what I'd read a Brian
1:16
Speaker 1: moynihan quote. He says UM spending levels, although the growth
1:22
Speaker 1: is slowing, they're still growing, and that a consumer UM
1:27
Speaker 1: deposits are still elevated. So the consumer really is healthy. UM.
1:32
Speaker 1: We don't have to debate whether that's good or bad
1:34
Speaker 1: news for the market. But what does it mean for
1:37
Speaker 1: UM the banks? It means that we're probably going to
1:42
Speaker 1: have UM again a strong fourth quarter. So I talked
1:45
Speaker 1: about the net interest income, so part of that is
1:48
Speaker 1: interest rate, and then part of that is that consumers
1:51
Speaker 1: are spending UM. You know, the borrowing trends to us,
1:56
Speaker 1: We feel like that bears watching because some of the
1:58
Speaker 1: borrowings be healthy, but some of that borrowing could also
2:01
Speaker 1: just indicate UM that investors are, you know, less able
2:04
Speaker 1: to pay things out of their pockets. For the most part,
2:07
Speaker 1: these things to focus on UM the higher end consumer,
2:11
Speaker 1: which generally is holding well UM, but in general health
2:17
Speaker 1: they spending. Credit card spending does tend to be the
2:20
Speaker 1: strongest and loan growth best in the fourth quarters. So
2:23
Speaker 1: that's all very supportive in your term as we look
2:26
Speaker 1: into next year. You know, I'll circle back to my
2:29
Speaker 1: mention of the provisions, just the fact that we're seeing
2:32
Speaker 1: modest increases, and I think, um Jamie Diamond on Friday
2:36
Speaker 1: also helped to put into context. Look, if we see
2:40
Speaker 1: a five to six percent an unemployment rate, we're going
2:43
Speaker 1: to see you know, provisions building maybe six billion, So
2:47
Speaker 1: that's above the one billion or so factored into estimates,
2:51
Speaker 1: but certainly um well below the levels that we saw
2:55
Speaker 1: during the pandemic. Hey, Alison, what's going on with Goldman Saxon?
2:59
Speaker 1: I mean, I've got I think the third re org
3:02
Speaker 1: in four years. I mean, you and I have competed
3:04
Speaker 1: against Goldman Sacks for decades and I'll speak just myself,
3:07
Speaker 1: usually unsuccessfully, sometimes better than the worst, better, better, better
3:12
Speaker 1: than others. But what's going on over the Goldman sax
3:14
Speaker 1: It seems like a lot of instability there, so definitely
3:19
Speaker 1: some management changes. I would say that that would be
3:22
Speaker 1: the most impactful thing for me as an analyst. I
3:25
Speaker 1: like the changes because it lines up the bank um
3:28
Speaker 1: in an easier way to compare them to some of
3:31
Speaker 1: their peers. But for the most part, we could do
3:33
Speaker 1: that anyway. We had the pieces of the investment bank,
3:36
Speaker 1: we had the pieces of the trading. Now they're gonna
3:38
Speaker 1: sort of put that together, um, similar to other banks.
3:41
Speaker 1: And then you know, breaking up this uh you know,
3:44
Speaker 1: the reporting of the way that the consumer unit was reported.
3:47
Speaker 1: They had sort of wealth embedded in that unit, so
3:50
Speaker 1: maybe pulling that out. I think the most interesting thing
3:53
Speaker 1: to me is the breaking out of the transaction bank.
3:56
Speaker 1: You know, this is a business that we m have
4:00
Speaker 1: felt was a good fit for them. Now, as you said,
4:04
Speaker 1: they they've made a lot of changes in the last
4:06
Speaker 1: few years, but they really, I think over the long term,
4:09
Speaker 1: are the most consistent in terms of who they are.
4:11
Speaker 1: They're you know about a global investment banking and trading.
4:15
Speaker 1: The transaction banking is something that they hadn't done before.
4:18
Speaker 1: Just too explained that for a moment. You know that
4:21
Speaker 1: they're basically helping um, you know, companies with their cash management,
4:26
Speaker 1: and so that helps to give them a line into trading.
4:28
Speaker 1: And that's why we view it as positive. And I
4:30
Speaker 1: think the fact that they're gonna be breaking that out
4:33
Speaker 1: on a standalone shows that that effort is successful. What's
4:36
Speaker 1: trading look like to you, um from here on out?
4:39
Speaker 1: Because we've seen such choppy mark, so much volatility, so
4:43
Speaker 1: much you know, gloom um is trading a business that
4:47
Speaker 1: you want to be in this quarter, next quarter. This
4:51
Speaker 1: quarter is probably you know, tends to be the weakest
4:54
Speaker 1: quarter of the year. UM, so we would expect to
4:56
Speaker 1: see some seasonal moderation. UM could be some upside, as
5:01
Speaker 1: you said, from all of the volatility. Where we thought
5:04
Speaker 1: this past quarter was in the fixed income trade line.
5:08
Speaker 1: We expect that that continues. Equity trading is just sort
5:12
Speaker 1: of I think against a tougher comparison from a year ago. UM.
5:16
Speaker 1: Keep in mind all those I p s and all
5:18
Speaker 1: that activity also led to a lot of UM elevated trading.
5:23
Speaker 1: But fixed income I think as as long as we
5:26
Speaker 1: continue to see volatility around the interest rates, volatility around currencies,
5:30
Speaker 1: you're still going to get a left to that part
5:33
Speaker 1: of the income statement. All right. And last Alison credit Swiss,
5:37
Speaker 1: my alma mater. We got the head of the investment
5:40
Speaker 1: bank saying he's going to leave here. Are they even
5:42
Speaker 1: going to have an investment bank going forward? Well, that's
5:46
Speaker 1: the question that we'll find out next week. UM it
5:49
Speaker 1: should it be so investor, there's a Capital Markets Day
5:52
Speaker 1: next week in the analyst day. Yeah. So so the
5:55
Speaker 1: basically what they've said is when they report their earnings,
5:58
Speaker 1: which is October, and they are also going to give
6:02
Speaker 1: UM their strategy. So the big question are, you know,
6:05
Speaker 1: what are they going to look like or in the
6:07
Speaker 1: future what parts of the investment bank are they keeping?
6:11
Speaker 1: You know, there's another story every day. Are they bringing
6:13
Speaker 1: back first Boston? Are they going to sell parts of
6:16
Speaker 1: their Swiss unit? UM? You know, the Swiss bank UM
6:20
Speaker 1: sales are interesting because maybe you can get a bit
6:23
Speaker 1: better valuation UM. You know, granted it's a tough market everywhere,
6:27
Speaker 1: but securitized product group that we think they're going to
6:30
Speaker 1: do something with UM, you know, theirn a tough spot
6:33
Speaker 1: just given what evaluations are, and so there's going to
6:37
Speaker 1: be changes there. And the question is will they raise capital?
6:40
Speaker 1: All right, good stuff, I know I'm gonna I just
6:43
Speaker 1: think the day I left it just went downhill from there.
6:45
Speaker 1: I mean, I think, I think I think you can
6:47
Speaker 1: just plot that on a graph. Alison Williams, senior banks
6:49
Speaker 1: analysts for Bloomberg Intelligence, giving us the latest on all
6:53
Speaker 1: things Wall Street. Bank of America's a pretty good numbers
6:56
Speaker 1: coming out of via a some good stuff there, some big,
7:02
Speaker 1: big moves today and I'm just noting. So you got
7:04
Speaker 1: the SMP up two points seven percent, the volumes about
7:08
Speaker 1: seven percent higher than we've seen over the last thirty
7:11
Speaker 1: days at this time. So a little bit of a
7:12
Speaker 1: vine kind of backing up this move here. I want
7:14
Speaker 1: to check in with somebody it does this stuff for
7:17
Speaker 1: a living. Samir Samana, Senior Global market strategist at Wells Fargo. Samir,
7:22
Speaker 1: thanks so much for joining us. I mean, we've had
7:25
Speaker 1: such a volatility, we've had such a weak market in
7:27
Speaker 1: two What do you make of today's trading just for example,
7:32
Speaker 1: anything or is it just kind of another you know,
7:34
Speaker 1: kind of two percent three percent moving the market. You know,
7:38
Speaker 1: I'll kind of pick up where you left off. Really,
7:40
Speaker 1: it's a volatility i'd like to see calm down to.
7:43
Speaker 1: I don't take anything away from the down day. I
7:45
Speaker 1: mean last week was pretty pretty anxious, right with with
7:48
Speaker 1: what was going on the UK and with the FED
7:50
Speaker 1: and inflation prints. Um. But again, what I'd really like
7:53
Speaker 1: to see is for this market to try and find
7:55
Speaker 1: kind of a bottom and from that standpoint just maybe
7:58
Speaker 1: even trade sideways for a few days. I think these
8:00
Speaker 1: you know, constituted three up and down days. I think
8:03
Speaker 1: you're continue to spook investors, and I think, really it
8:06
Speaker 1: shows me that there's quite a bit of liquidity, quite
8:09
Speaker 1: a bit of fragility out there. So I think maybe
8:11
Speaker 1: the best course of action for for markets from here,
8:14
Speaker 1: given what the FEDS trying to engineer, is just to
8:15
Speaker 1: go sideways for a few days. So, uh, is there
8:19
Speaker 1: any evidence that we've hit a bottom here or do
8:22
Speaker 1: you think we still have a ways to go? I
8:24
Speaker 1: think we've got still yet, you know, maybe a little
8:27
Speaker 1: bit more probing to do to the downside for know
8:29
Speaker 1: other reason. Then again, these balances are very shallow, right.
8:32
Speaker 1: The SMP hasn't been above its twenty day moving average
8:35
Speaker 1: since the middle of August, so you're now two months
8:37
Speaker 1: where you haven't even able to get over a short
8:39
Speaker 1: term moving average. I think that tells me that there's
8:42
Speaker 1: just not a lot of interest at these levels. Again, Now,
8:44
Speaker 1: if you go sideways, you know, just by definition mathematically,
8:48
Speaker 1: you start to go through some of these moving averages,
8:50
Speaker 1: and so that might start to bring some more people in.
8:52
Speaker 1: But when you've got these big moves every day, I
8:54
Speaker 1: think a lot of people are just staying away. So, Samir,
8:57
Speaker 1: we're kind of getting into the teeth year of earnings
9:01
Speaker 1: season here. What are you looking for? What you know
9:05
Speaker 1: kind of what do you think you're going to hear
9:07
Speaker 1: from a lot of these companies. I think they're gonna
9:09
Speaker 1: kitchen sink at this quarter. So you've got a strengthening dollar,
9:13
Speaker 1: you've got weakening economic growth, you've got a consumer that's
9:16
Speaker 1: on its back foot, you've got the seed continuing to tighten,
9:18
Speaker 1: and and you know, cause the curve to to you know,
9:21
Speaker 1: stay and we're inverted. Um, all those different things should
9:24
Speaker 1: put downward pressure on the earnings outlook. And then I
9:27
Speaker 1: think when you think about all the uncertainty and the volatility,
9:30
Speaker 1: I think the multiple people are willing to pay for
9:32
Speaker 1: those earnings, um, you know, just aren't all that high.
9:35
Speaker 1: So from that standpoint, we're hopeful that maybe this is cathartic,
9:39
Speaker 1: from the standpoint of people finally mark their estimates down
9:42
Speaker 1: to where reality is. But to the extent that hope
9:45
Speaker 1: springs eternal, that earnings will magically grow in. That tells
9:49
Speaker 1: me that that's another reason why we probably haven't seemed
9:52
Speaker 1: the loaves one thing that seemed to me a bright
9:55
Speaker 1: spot or dark spot depending how you look at it.
9:57
Speaker 1: Was Brian moynihan talking about his consumer um okay, arguably
10:03
Speaker 1: slightly wealthier than the average consumer, I'm not sure about that,
10:08
Speaker 1: but saying that their account levels are still elevated, so
10:12
Speaker 1: you know, they haven't spent their stimmies completely, or at
10:16
Speaker 1: least they did some smart you know, Bank America customers,
10:18
Speaker 1: is something smart with them? What do you think about that?
10:20
Speaker 1: The consumers in better shape? It looks like from these
10:22
Speaker 1: bank earnings, and we might have thought, no, that's a
10:25
Speaker 1: great point. I think the tricky part with this cycle,
10:28
Speaker 1: or at least this downturn part of the cycle, is that,
10:30
Speaker 1: you know, look, if the FEDS trying to get in
10:32
Speaker 1: place under control, and if you're telling me that the
10:34
Speaker 1: consumers in better shape, then then we had all hope
10:37
Speaker 1: for Unfortunately, that makes the FEDS job harder, right, That
10:40
Speaker 1: keeps demand you know, somewhat supported for goods, services, etcetera.
10:45
Speaker 1: And I think unfortunately it makes the FEDS job a
10:47
Speaker 1: lot harder, which is really the biggest heads for markets
10:50
Speaker 1: right now. Alright. Smear Uh as a former equity analyst,
10:54
Speaker 1: I am a glass half full type of person by nature.
10:58
Speaker 1: So if I'm thinking about kind of identifying, if not
11:01
Speaker 1: calling the bottom here to the market at some point
11:04
Speaker 1: soon do I do I jump in on the cyclical
11:07
Speaker 1: names that would work in a cyclical rebound? Where do
11:09
Speaker 1: I go back to what's always worked for me? It
11:11
Speaker 1: seems since the Great Financial Crisis, which is just big tech. Yeah,
11:16
Speaker 1: so we we've got quite a bit of conviction that
11:18
Speaker 1: coming out of this downturn that the leadership will be
11:21
Speaker 1: meaningfully different. We're finally going to see value continue to
11:25
Speaker 1: outform growth because rates will remain elevated, commodity prices will
11:29
Speaker 1: remain elevated. You could even see the dollar, you know,
11:32
Speaker 1: at that point kind of resume. It's long, long term downtrend. Again,
11:35
Speaker 1: not anytime soon, but you know, over the coming let's
11:37
Speaker 1: say to three or five years. So the leadership probably
11:40
Speaker 1: is I would argue, you know, your resource you know
11:43
Speaker 1: based stocks like energy and materials, I think financials. Once
11:47
Speaker 1: the curve starts to steepens, you know, the short end
11:49
Speaker 1: comes off. Um, I think you'll see industrials right with
11:53
Speaker 1: defense spending, with you know, at some point having to
11:55
Speaker 1: redo a lot of the supply chains, you know, that
11:57
Speaker 1: area should do well. So I think it will be
11:59
Speaker 1: a lot more cyclical. I think a lot a lot
12:01
Speaker 1: more value oriented. I think where you've got concentration in
12:05
Speaker 1: some of the growthier areas like consumer discretionary, like calm services.
12:09
Speaker 1: You know, they'll probably struggle a little bit because a
12:12
Speaker 1: lot of these companies traded valuations where it's not like
12:14
Speaker 1: they're not making money. If anything, they're huge cash flow generators.
12:17
Speaker 1: I think the palm is just gonna take them years
12:19
Speaker 1: to go into those multiples. All right, smir great, getting
12:22
Speaker 1: you on. I have to have you back as soon
12:24
Speaker 1: as possible, smears Amon of their senior global market strategist
12:27
Speaker 1: at Wells Fargo, walking us through his view of the markets.
12:34
Speaker 1: I want to get to break to our next guest.
12:37
Speaker 1: Hans DAWCC of Mitchell Madison Group joins us, and we
12:41
Speaker 1: want to talk China a little. A lot of news
12:43
Speaker 1: coming out of China over the weekend as the government
12:46
Speaker 1: meetings take place, President G. G. Ping Uh getting we'll
12:50
Speaker 1: be getting a third term presumably eight unprecedented third five
12:56
Speaker 1: year term. Here, Hans, we had a lot of rhetoric
12:58
Speaker 1: coming out of China over the weekend. What did you
13:02
Speaker 1: take away? What are some of the things that we
13:04
Speaker 1: need to be focusing on. Yeah, I think it's it's
13:06
Speaker 1: pretty interesting. Thanks for having me. First of all, I
13:09
Speaker 1: think what you're seeing in China is really a lot
13:12
Speaker 1: of weakness, right, And I think you have um when
13:15
Speaker 1: you go back to the basics looking back at what
13:18
Speaker 1: really explained explained China's growth in the past was really
13:22
Speaker 1: a lot of things that had to do with extremely
13:24
Speaker 1: favorable demographics. Right, So the dependency ratio was an all
13:28
Speaker 1: time low. It went from you know, back in the eighties,
13:32
Speaker 1: it was about and it's going to be about but
13:36
Speaker 1: for a very bad reason. Right. The dependency ratio was
13:39
Speaker 1: high because I had children, and the dependency ratio is
13:43
Speaker 1: going to be very high because they have old people. Right.
13:46
Speaker 1: So demographics are always destiny, and you will see a
13:49
Speaker 1: very very dangerous pattern in China where they simply are
13:53
Speaker 1: going to have lose the economical bigger they're going to
13:56
Speaker 1: lose all the innovation, similar to what happened in Japan
14:00
Speaker 1: the nineties. So I think that's a big factor, right.
14:02
Speaker 1: But why I don't understand why does she Jin ping
14:08
Speaker 1: Um stick to this COVID zero policy That seems to
14:11
Speaker 1: be the main thing that baffles all of US Westerners,
14:16
Speaker 1: and I haven't heard a good defense of that yet.
14:20
Speaker 1: I don't understand it either. I mean, the the only
14:23
Speaker 1: thing I can think of is that they have to
14:25
Speaker 1: do that because they don't actually have a good vaccine, right,
14:28
Speaker 1: so the Chinese vaccine isn't particularly effective. H But what
14:32
Speaker 1: I mean, what happens if then they just let people
14:34
Speaker 1: get COVID and the old ones that are so difficult
14:38
Speaker 1: to pay for because they don't have enough young ones die?
14:42
Speaker 1: I mean, it's it's horrible and callous, but it sets
14:46
Speaker 1: the demographic shift straight. Yeah, it could be that. I mean,
14:50
Speaker 1: I don't think the thing I think that's stuck on
14:52
Speaker 1: this policy, and like with a lot of these you know,
14:55
Speaker 1: um sort of semi dictator ships, they are stuck in
14:59
Speaker 1: their way and they decided that they're going to do
15:01
Speaker 1: that and they want to lose. They can't lose faith
15:03
Speaker 1: now they can't. They can't turn around. It's a big mistake.
15:06
Speaker 1: I totally agree with you, the huge mistaken I was
15:08
Speaker 1: reading some of the reporting over the weekend about this
15:11
Speaker 1: China Congress and some of the statements in it. If
15:14
Speaker 1: it just feels like China is is, you know, setting
15:20
Speaker 1: itself up for a China against the rest of the world.
15:24
Speaker 1: Is that you're reading as well. I think that's the possibility.
15:28
Speaker 1: I do think that China, for like I said, demographic
15:31
Speaker 1: reasons and a lot of discontent in the population. The
15:35
Speaker 1: whole China dream thing doesn't seem to be working out
15:37
Speaker 1: so well. You know, today they delayed their GDP numbers.
15:41
Speaker 1: That can't be a good sign. So I think that's
15:43
Speaker 1: just a lot of things going on that are very,
15:45
Speaker 1: very negative for China, right. And I think in in
15:49
Speaker 1: situations where you have weak countries or declining countries, that's
15:54
Speaker 1: when the risk for confrontation is always the greatest. You
15:57
Speaker 1: saw that in Russia. We've seen this all over world history.
16:00
Speaker 1: I think it's a pretty dangerous situation. Yeah. On the
16:03
Speaker 1: other hand, he didn't seem terribly hawkish ari E Taiwan.
16:07
Speaker 1: I mean, he was, as I guess, um protective as
16:11
Speaker 1: you'd expect, but he seemed to indicate that the question
16:17
Speaker 1: is still an open one. Yeah. I think the taiwan
16:20
Speaker 1: Is situation is a very long term situation, and I
16:23
Speaker 1: think everybody recognizes the tremendous mutual dependency between the West
16:28
Speaker 1: and China, right, it would be an absolute catastrophe economically
16:32
Speaker 1: for everybody. And the path in China between the regime
16:37
Speaker 1: and the population is that there will be growth, right,
16:41
Speaker 1: and if there's no growth then they have a trouble.
16:44
Speaker 1: The problem is there or is there developing a technology
16:50
Speaker 1: cold war between China and the West. Well, certainly the
16:55
Speaker 1: West has recognized that they have some power over China, right,
16:58
Speaker 1: interesting enough that Trump harvers were never removed. The Chips
17:02
Speaker 1: Act is a good thing. The West is beginning to
17:05
Speaker 1: throttle technology, advanced technology going into China and China it's
17:10
Speaker 1: clearly trying to build you know, their own stuff. But
17:13
Speaker 1: you can also see it very interestingly h in the
17:16
Speaker 1: the SML, the Dutch chip making equipment company, has record
17:20
Speaker 1: orders despite you know, looming recession. Well why is that? Right?
17:24
Speaker 1: Clearly the West is preparing to move to production out
17:28
Speaker 1: of China and Taiwan in particular. So I think we're
17:31
Speaker 1: beginning to play that card. Is UM is China happily
17:38
Speaker 1: uh contributing to the formation of a new world order,
17:41
Speaker 1: of a new global paradigm with UM the US on
17:45
Speaker 1: one side and China allied with Russia and Iran, India
17:52
Speaker 1: possibly the Saudis on the other. It seems like an
17:55
Speaker 1: odd group, right, So, I think China is obviously trying
17:58
Speaker 1: to rival Western liberal democracy, and it seems like we're
18:02
Speaker 1: doing our best to appear confused and chaotic. But at
18:06
Speaker 1: the at the core bit right, nobody except North Korean
18:09
Speaker 1: wants wants to move to China. Culturally, they're not leading,
18:13
Speaker 1: they have a lot of issues around the liberalization of
18:16
Speaker 1: the economy, they have not good demographics. They're probably facing
18:21
Speaker 1: a middle income trap, which is common for those kinds
18:24
Speaker 1: of countries. And people have seen what they've done to
18:27
Speaker 1: Hong Kong, right, and they don't like it. You look
18:30
Speaker 1: at Hong Kong, it's a it's a great example what
18:32
Speaker 1: happened under the China Chinese system. Yeah, I mean I
18:35
Speaker 1: think you know, early in my career, back in the
18:36
Speaker 1: eighties and nineties and two thousands, of Hong Kong was
18:39
Speaker 1: just the posting to get if you were wanted to
18:42
Speaker 1: be a global banker, because it was really just the
18:44
Speaker 1: gateway to Asia. Now, it's just it's such a sad
18:48
Speaker 1: shame to see what's happening in Hong Kong. I mean,
18:50
Speaker 1: just you know, corporations pulling their people out of Hong Kong,
18:53
Speaker 1: and you know, sending in the Singapore and elsewhere. Will
18:56
Speaker 1: we see a Do you think we'll see there's the
19:00
Speaker 1: reason I think that's going to change? Is there for
19:01
Speaker 1: Hong Kong? I don't think so. Yeah, it's interesting. It's
19:05
Speaker 1: really said. All right, Hans Dole, thank you so much
19:07
Speaker 1: for joining us. Hans Dow he's the CEO of Mitchell
19:10
Speaker 1: Madison Tim Craig. Yet he's Director Research, Senior European strategist
19:18
Speaker 1: Bloomberg Intelligence. He is one of the co founders any builders,
19:22
Speaker 1: of Bloomberg Intelligence. Uh. And he's built our business in
19:27
Speaker 1: the US and in Hawkong. We we banished them to
19:29
Speaker 1: Hong Kong for four or five years and he built
19:31
Speaker 1: that business over there in Hong Kong. And now we
19:33
Speaker 1: got like seventy five analysts just covering all of the
19:36
Speaker 1: escaped Hong Kong. And now he's in London. And he
19:39
Speaker 1: did a prior term in London when he was with
19:41
Speaker 1: Goldman Sachs for like twenty years, so he's been around
19:44
Speaker 1: the horn. Nobody wants to work with him, so we
19:45
Speaker 1: just keep sending him around the world and he does
19:48
Speaker 1: make him sound really old. That's right. Tim talked to
19:50
Speaker 1: us about the UK you're based in London. What are
19:53
Speaker 1: clients saying over there? What are you telling clients about
19:56
Speaker 1: kind of how to invest in the UK and Europe.
19:58
Speaker 1: So if you read the headlines, I assume in particular
20:03
Speaker 1: from here, yes, it must sound like all of Europe
20:05
Speaker 1: and in particular the UK is like on fire in
20:09
Speaker 1: a bad sort of way. Um, boots on the ground,
20:13
Speaker 1: it feels a lot less bad. People are still out there,
20:17
Speaker 1: still about They're still doing their daily activity. Um. But
20:22
Speaker 1: the politics make for all sorts of big headlines, no doubt.
20:28
Speaker 1: The energy crisis is a big deal. This winter is
20:31
Speaker 1: going to be hard, um, and it depends on how
20:34
Speaker 1: harsh the winter is much different than what you would
20:37
Speaker 1: find here. But interesting enough, Um, you've got third quarter
20:42
Speaker 1: earnings in the thick of things here right now are
20:44
Speaker 1: starts over there over the course of the next week.
20:47
Speaker 1: Earnings expectations are flat ish in the US for third
20:52
Speaker 1: quarter earnings. Europe, Uh, thank you very much. A drop
20:58
Speaker 1: of growth. Growth And if by chance you take energy out,
21:04
Speaker 1: because that is a bigger deal in Europe than it
21:06
Speaker 1: is here, it's twelve it's still twelve percent positive. Um,
21:12
Speaker 1: I think that there is still that's the big question
21:15
Speaker 1: is there earnings risk to come, but valuation is cheap.
21:18
Speaker 1: Um earnings are been much better supported than what you've
21:22
Speaker 1: seen here. It's just a really interesting compare and contrast. Well,
21:25
Speaker 1: you do have big commodities companies, big energy companies. There's you,
21:30
Speaker 1: as you pointed out here, where what very tech heavy
21:32
Speaker 1: in the US UM totally different dynamic and a and
21:37
Speaker 1: a and to you always point this out to me,
21:39
Speaker 1: I mean the Footsie here to date rolling down six
21:43
Speaker 1: whereas the sp So it's the it's the behn in
21:50
Speaker 1: terms of if you've got sustained elevated energy prices inflation,
21:56
Speaker 1: you want to be in value um, you want to
21:59
Speaker 1: be in commodity producers as opposed to commodity buyers. And
22:05
Speaker 1: the Footsie happens to have a chunk of that. Well,
22:07
Speaker 1: you're only down six percent on the foot See if
22:10
Speaker 1: you happened to have pounds previously invested in pounds and
22:13
Speaker 1: you're looking at that investment now in pounds because Paul
22:17
Speaker 1: Sweeney had had bought the foot see in dollars, you'd
22:20
Speaker 1: be down. Let me let me give you a for
22:22
Speaker 1: instance on this really quick. You know how currency here
22:25
Speaker 1: obviously it's super strong that's a headwind for you for
22:28
Speaker 1: US earnings. That's part of the reason why earnings this
22:30
Speaker 1: period are so bad. Sand Vic a lot of people
22:34
Speaker 1: wouldn't have heard of it, but it's a military school
22:37
Speaker 1: right at Sandhurst. UM. Sand Vic is a Swedish machinery company.
22:43
Speaker 1: They make machine tools and they're used globally. It's a
22:46
Speaker 1: it's a bell whether it's a substantial company UM. They
22:50
Speaker 1: reported their earnings today. If anybody should be susceptible to
22:53
Speaker 1: global um economic weakness, it's them. They're the canary and
22:57
Speaker 1: the proverbial coal mine if you if you look x
23:03
Speaker 1: f X X currency no currency issue and a Swedish
23:06
Speaker 1: corona has gotten pummeled more so than the pound. Revenue
23:11
Speaker 1: was up eight percent um EBIT operating profit up five percent.
23:16
Speaker 1: It was a bit of margin compression in there, but
23:19
Speaker 1: still at elevated I think record operating margins amazing. Put
23:26
Speaker 1: in the currency eight revenue growth more than eight and
23:32
Speaker 1: operating earnings up twenty five. That shows you the weak
23:36
Speaker 1: currency how it's a benefit in Europe versus it's a
23:40
Speaker 1: real headwind here in the US. Are you sensing that
23:44
Speaker 1: people have allocated maybe more capital to the UK and
23:46
Speaker 1: Europe visa other parts of the world. It's frankly, it's
23:51
Speaker 1: hard to tell that if you look at E t
23:54
Speaker 1: F flow, for example, as a finger on the pulse
23:56
Speaker 1: of this UM, there is no doubt that you can.
24:00
Speaker 1: Let's say, in the UK u K E t F
24:02
Speaker 1: buyers UM have been putting money in the market. One
24:06
Speaker 1: of the big two US UK US based u K
24:12
Speaker 1: E t F s has seen a little bit about flow,
24:15
Speaker 1: the other one's been in flow. So you know, I
24:17
Speaker 1: think it's a mixed picture globally, but local markets are
24:20
Speaker 1: putting money to work. So the bottom line is earnings
24:24
Speaker 1: doesn't look so bad right now, but wait till this
24:27
Speaker 1: winter when the weather and increased financing costs started to
24:31
Speaker 1: hit that that's that's part of it. The other thing
24:33
Speaker 1: I would have to say is, you know, you can
24:35
Speaker 1: only put so much on the currency. But once there
24:38
Speaker 1: is more of a risk on appetite back in global markets,
24:41
Speaker 1: the dollar is going to come down, European currencies are
24:43
Speaker 1: gonna go up, and that headwind tailwind relationship is going
24:46
Speaker 1: to change. Bottom line, we think global markets are well
24:49
Speaker 1: priced in for recession. Alright, good stuff. Tim Carrot, Director
24:52
Speaker 1: of Research, senior European strategist for Bloomberg Intelligence, the tech
24:58
Speaker 1: heavy Nashdack. It's up three point two percent today, So
25:01
Speaker 1: I figured it's a decent time to check in with
25:03
Speaker 1: men Deep saying he covers all things technology for Bloomberg Intelligence,
25:07
Speaker 1: and Man Deep, let's he's phoning it in. By the way,
25:09
Speaker 1: I'll just point out to everybody, Um, let's talk about
25:12
Speaker 1: roadblocks working in the metaverse. Yeah, I guess whatever, Uh roadblocks?
25:17
Speaker 1: What is it? And why is the stock up today? Well,
25:22
Speaker 1: so I think Matt alluded to it, and uh, I
25:25
Speaker 1: am you know in the Metal Words and the reason
25:28
Speaker 1: why this stock is up is you know, this stock
25:32
Speaker 1: is a pure play metal words company. There was this
25:36
Speaker 1: news today about metal So losing engagement with its Horizon worlds.
25:40
Speaker 1: And in the case of Roadblocks, they give you these
25:42
Speaker 1: monthly metrics, so essentially their booking's guide is much better
25:47
Speaker 1: than what Consensus has baked in for their three Q
25:51
Speaker 1: and uh they're guiding to about you know, mid teens
25:56
Speaker 1: growth and their engagement continues to be wrong. So net Net,
26:01
Speaker 1: I think they were laughing tough comps and what we
26:06
Speaker 1: are seeing now is the company clearly has a long
26:09
Speaker 1: runway in terms of adding daily active users. Remember this
26:12
Speaker 1: platform was all about the nine to thirteen year olds.
26:15
Speaker 1: Now they're expanding their base to more, you know, the
26:19
Speaker 1: seventeen plus users and more adult users, and uh they
26:24
Speaker 1: continue to show both you know, user growth as well
26:26
Speaker 1: as engagement growth. So are you a creator man? Are
26:30
Speaker 1: you a Roadblocks creator? I am not, but I do
26:33
Speaker 1: have the studio installed on my PC and I keep
26:37
Speaker 1: looking at the amount of user generated content that comes
26:40
Speaker 1: from this platform. It's just, uh, you know, amazing how
26:44
Speaker 1: much content gets created. And that is the challenge that
26:47
Speaker 1: Meta is facing is even though they have spent so
26:51
Speaker 1: much money, they don't have that creative base. That's the
26:54
Speaker 1: base they're looking for, which Roadblocks has, and right now
26:58
Speaker 1: Meta is struggling to bring those creators to the Horizon worlds. Like,
27:03
Speaker 1: think of all the metaversees as wall gardens, so everyone
27:07
Speaker 1: is incubating their own wall garden. Obviously, Roadblocks as a
27:11
Speaker 1: year old lead compared to you know, Horizon Volts, which
27:15
Speaker 1: is fairly new. But that's what Meta needs to really
27:18
Speaker 1: drive the adoption. So what does this mean? I guess um,
27:23
Speaker 1: the reason for the increase is people are betting on
27:25
Speaker 1: the future of the metaverse being I don't want to
27:29
Speaker 1: say owned, but um dominated by roadblocks? Is that the case? Well,
27:34
Speaker 1: so right now, if I had to pinpoint one platform
27:39
Speaker 1: that has the most traction, it's Roadblocks and the second
27:42
Speaker 1: one would be Epic Fortnite. Like those are the two
27:45
Speaker 1: main uh kind of meta worse place. And then you
27:49
Speaker 1: have Unity as a gaming engine. Remember Unity doesn't have uh,
27:54
Speaker 1: you know, a meta worse platform. They just provide you
27:57
Speaker 1: the gaming engine. But essentially these are the three it
28:00
Speaker 1: what does the gaming engine is that like a chip
28:02
Speaker 1: or what? No, No gaming engine is just uh, you know,
28:07
Speaker 1: a middleware software that any contward us yes, so to
28:12
Speaker 1: deploy a new games. So think of you know, Grand
28:15
Speaker 1: Theft Auto or what Activision and EA have. Those are
28:18
Speaker 1: like the big publishers, but the reason why they've been
28:21
Speaker 1: struggling is because of all the user generated content in
28:25
Speaker 1: gaming that you know, people have moved away or I
28:28
Speaker 1: would say they're not spending as much time on Grand
28:31
Speaker 1: Theft Auto as they used to because there's so much
28:33
Speaker 1: other type of or red dead, redemption, call of duty.
28:36
Speaker 1: I would have thought Fortnite loses out there too because
28:40
Speaker 1: um or can you build your own worlds? In Fortnite
28:44
Speaker 1: the way you can in Roadblocks, you can. Yes, So
28:48
Speaker 1: that's the change that they've made is they have opened
28:51
Speaker 1: up the platform for users to again build their own content.
28:57
Speaker 1: They give you gaming engine, and so yes, they have
29:01
Speaker 1: kind of opened it up for user generated content. All right, Man,
29:04
Speaker 1: the Facebook a k A. Meta platforms. What's the current
29:09
Speaker 1: market thinking on this company, on this stock, on this transformation, Uh,
29:14
Speaker 1: you know, in the early stages. Yeah, So clearly market
29:19
Speaker 1: isn't too excited about, you know, the kind of opex
29:23
Speaker 1: they are spending on reality labs. And look, I think
29:27
Speaker 1: it's a hard thing right now to pinpoint in terms
29:29
Speaker 1: of what the company will look like five ten years downline.
29:32
Speaker 1: But clearly the engagement is declining in their core apps
29:36
Speaker 1: and reality labs isn't really picking up. Although I would say,
29:40
Speaker 1: you know, if Apple enters this market, then we are
29:44
Speaker 1: will be a big category. We know that the problem
29:47
Speaker 1: for Meta or Facebook is nobody trust them right now.
29:51
Speaker 1: So VR will involve capturing even more data than they
29:55
Speaker 1: capture in their social media apps. And you know, when
29:58
Speaker 1: you think about you know, the monetization will work, you know,
30:01
Speaker 1: showing ads or some other form wolf uh kind of
30:05
Speaker 1: token based monetization. It involves crunching that data, you know,
30:10
Speaker 1: basically personalizing stuff, and uh, no one trust them even
30:15
Speaker 1: you know when it comes to creators, they're developing all
30:18
Speaker 1: these games on roadblocks because they feel that's a better platform.
30:22
Speaker 1: Brands their platform, and and that's the challenge, bigger challenge.
30:25
Speaker 1: I feel that Meta hats alright, interesting stuff. I'm looking
30:28
Speaker 1: at Meta here. I mean, still a three or fifty
30:30
Speaker 1: billion market cap company, but stocks down six zero percent,
30:34
Speaker 1: so they got some work to do. Uh their Mendeve
30:37
Speaker 1: singh Uh. He is a technology analyst for Bloomberg Intelligence.
30:42
Speaker 1: I think he's a three day a week guy. Is
30:43
Speaker 1: how they get in on this? Well, yeah, he's look,
30:47
Speaker 1: you can work, you can work. I know that's what
30:49
Speaker 1: they say. But you should have come in today because
30:51
Speaker 1: I think we get COVID shots today. You're getting your
30:53
Speaker 1: COVID shot today. Next week, I think sometime coming up.
30:55
Speaker 1: I don't know, we'll see, but I'm getting it though.
30:57
Speaker 1: Why not jab me up? That's but we offer it
30:59
Speaker 1: Mondays and Fridays so that people like me and Deep
31:01
Speaker 1: come in on Monday or Friday. Let maybe I'll walk
31:03
Speaker 1: down and check it out. Matt, you watched the show's succession.
31:09
Speaker 1: I do not need to get on that. First of all,
31:13
Speaker 1: I do want to, but second of all, it's loosely
31:17
Speaker 1: not very I wouldn't even say loosely based, but but
31:19
Speaker 1: loosely based on Rupert Murdoc and his faunily and his
31:22
Speaker 1: company and all that kind of stuff. And you know,
31:25
Speaker 1: recently or not recent bit, but years ago they separated
31:28
Speaker 1: the slow growing print business into News Corporation, and then
31:31
Speaker 1: they kept the fast growing cable networks and stuff like
31:34
Speaker 1: that in Fox. Uh. They sold most of that cable
31:37
Speaker 1: stuff to Disney I think, and now they're talking about
31:40
Speaker 1: reuniting the two companies together. So other than the investment bankers,
31:44
Speaker 1: I'm not not sure who wins here. But let's bring
31:47
Speaker 1: in somebody who does this stuff as an expert. Either
31:49
Speaker 1: Ranathan Bloomberg Intelligence. She covers all things media, t MT,
31:54
Speaker 1: pretty much anything uh she wants. She's got that kind
31:57
Speaker 1: of credibility on the streets. So Ethan, what is Rupert
31:59
Speaker 1: Murdoc doing these days? Yes, so thanks Paul, thanks for
32:03
Speaker 1: having me. So he is trying to again put these
32:05
Speaker 1: businesses back together, very similar to what we've seen with
32:09
Speaker 1: you know, Viacom, and CBS. Uh now kind of recombined
32:13
Speaker 1: into paramount. These two businesses, though they're very very different.
32:16
Speaker 1: As you rightly pointed out, Fox is you know, really
32:19
Speaker 1: a TV pure play. News scope, on the other hand,
32:22
Speaker 1: is really this very interesting mix of different assets. So
32:26
Speaker 1: you know, obviously they have dow Jones. They also own
32:29
Speaker 1: Fox Style, which is an Australian pay TV operator. They
32:32
Speaker 1: have a book publishing business. They of course have all
32:35
Speaker 1: of the newspaper businesses, and then most importantly they have
32:38
Speaker 1: a big presence in digital real estate. So people really
32:42
Speaker 1: at this point not kind of quite able to figure
32:45
Speaker 1: out what is going to happen if he does indeed
32:48
Speaker 1: put a very very diverse set of assets back together.
32:51
Speaker 1: Hang on, did you say digital real estate? Yes? I did.
32:55
Speaker 1: What are you talking about the metaverse? Litha doesn't do
33:00
Speaker 1: the metaverse? What is that? Is it n f T s?
33:04
Speaker 1: He has a bunch of n f T s. No, No,
33:07
Speaker 1: it's what it really is, is you know, listings, property
33:10
Speaker 1: listings on on websites like like a Move, like a Zillow.
33:14
Speaker 1: So he owns actually some News Corp actually owns an
33:16
Speaker 1: eight percent stake in move dot Com, as well as
33:19
Speaker 1: a sixty percent stake in one of the online or
33:22
Speaker 1: the leading online real estate Australian platforms, which is called
33:26
Speaker 1: the r A Group. M So it's gonna be it's
33:29
Speaker 1: gonna be a tough road ahead for those real estate companies. Yeah,
33:32
Speaker 1: I think so. So you know, the stock of Fox
33:35
Speaker 1: fox A it's trading down, the stock of News Corps,
33:38
Speaker 1: the print assets, it's trading up. That kind of tells
33:41
Speaker 1: you what the market thinks here. So is this I mean,
33:45
Speaker 1: he controls both companies here, So does this have anything
33:48
Speaker 1: to do with the family control in succession? To use
33:52
Speaker 1: the term? I think so. I think he's definitely trying to, uh,
33:56
Speaker 1: you know, kind of bring the band back together, if
33:58
Speaker 1: you will. But it's also kind of an admission that, um,
34:03
Speaker 1: you know, maybe the whole lean and mean strategy at
34:07
Speaker 1: Fox is not really going to play out in the
34:10
Speaker 1: long term. So I think why investors have kind of
34:12
Speaker 1: really liked Fox so much is because the narrative is
34:15
Speaker 1: so simple, right. They have a very pure news and
34:18
Speaker 1: sports focus. They're heavily tied to the PayTV ecosystem, and
34:22
Speaker 1: the good thing that investors have kind of liked is
34:24
Speaker 1: that they have not been kind of bogged down by
34:26
Speaker 1: these billions and billions of dollars that are required to
34:28
Speaker 1: fight the streaming wars. But I think in the end
34:31
Speaker 1: everybody is kind of realizing that you do need you
34:34
Speaker 1: do need to have a presence. First of all, you
34:36
Speaker 1: do need to have a digital presence um and then
34:38
Speaker 1: you need to build scale in streaming. And so I
34:40
Speaker 1: think what you know, Rupert MURDACU is trying to do
34:43
Speaker 1: is kind of trying trying to get that digital exposure
34:45
Speaker 1: back to Fox, uh, you know, under the combined umbrella.
34:49
Speaker 1: But I'm not sure investors are really kind of buying
34:51
Speaker 1: it just yet. So um, I mean, what's the deal
34:55
Speaker 1: with Rupert? He was I think already running newspapers back
34:59
Speaker 1: when Queen Elizabeth was born. I mean, this guy is
35:02
Speaker 1: ninety one years old. Is he still making all of
35:06
Speaker 1: these changes himself or is it you know, Lachlan and
35:09
Speaker 1: James and the next generation that's doing it. I think
35:13
Speaker 1: he is pretty much still very very much in charge.
35:16
Speaker 1: But I think if the deal does go through, it
35:19
Speaker 1: will be so Lachlan Murdoch right now is CEO of
35:23
Speaker 1: Fox corp um And if if the recombination does indeed
35:28
Speaker 1: go through, I think it does consolidate power in Lachland's hands.
35:33
Speaker 1: All right, let's switch gears a little bit. Githa. Uh,
35:36
Speaker 1: Netflix reports, I think earning exam for the close tomorrow. Boy,
35:42
Speaker 1: this stock, it's it's down over the last year, although
35:45
Speaker 1: it's up pretty significantly off of its low. What's the
35:49
Speaker 1: market call on Netflix these days? Yeah, so, you know,
35:53
Speaker 1: obviously the sentiment really soured after they reported subscriber losses
35:57
Speaker 1: for the very first time I think their history. Um,
36:00
Speaker 1: they lost about one point two million subscribers in the
36:03
Speaker 1: first half of this year. I don't think the market
36:05
Speaker 1: is too much focused on subscriber growth for the third
36:08
Speaker 1: quarter itself, I think it's going to be pretty uninspiring.
36:10
Speaker 1: Maybe they add about a million subscribers. I think what
36:13
Speaker 1: we're really kind of looking for is really how much
36:16
Speaker 1: can they boost their subscriber growth. And the big thing
36:19
Speaker 1: that they're doing now is they're introducing a new ad
36:23
Speaker 1: based tier. And what that does is it really kind
36:27
Speaker 1: of makes Netflix accessible to a whole new market because
36:30
Speaker 1: they're pricing it very, very attractively. It's a seven dollar
36:33
Speaker 1: price point. The usual Netflix subscription typically cost you about
36:37
Speaker 1: fifteen and a half dollars, so it's it's less than
36:39
Speaker 1: half the cost um. So so the point is how
36:42
Speaker 1: much can they really kind of boost the subscriber growth
36:45
Speaker 1: with that new ad tier? And I think that's what
36:48
Speaker 1: kind of you know, investors are kind of hoping to
36:50
Speaker 1: hear when they report tomorrow how much I mean, are
36:53
Speaker 1: you expecting because when you say less than half, that
36:56
Speaker 1: sounds huge. But if you tell me I only have
36:58
Speaker 1: to pay seven dollars a month to get rid of
37:00
Speaker 1: the ads, you know, it doesn't seem like a big job.
37:04
Speaker 1: So cannibalization is a huge problem, Matt. So you know
37:08
Speaker 1: that there is this fear that you know, they are
37:10
Speaker 1: kind of diluting the value of that of that Netflix
37:12
Speaker 1: product because there might be a huge just kind of
37:15
Speaker 1: given the recessionary environment inflationary pressures, we might have a
37:19
Speaker 1: huge portion of the subscriber based kind of trading down
37:22
Speaker 1: and so you're you're losing subscription revenue. But the upside
37:25
Speaker 1: is that just kind of given Netflix is captive audience,
37:29
Speaker 1: we know that subscribers typically spend about two two and
37:32
Speaker 1: a half hours every day on this platform. The upside
37:36
Speaker 1: is that they are going to be able to charge
37:38
Speaker 1: advertisers a huge premium so we're looking at rates right
37:42
Speaker 1: now that Netflix is charging that's almost three x to
37:45
Speaker 1: four x the usual market value. And so the point
37:48
Speaker 1: is that they're going to be able to make it
37:50
Speaker 1: up the lost subscription revenue. They're going to be able
37:52
Speaker 1: to make it up through advertising. So Kith it just
37:54
Speaker 1: real quickly, what's the market's call on just streaming in general?
37:58
Speaker 1: There was a time there when just adding subscribers was
38:01
Speaker 1: all the stock needed to work, Like I'm thinking of Disney.
38:03
Speaker 1: But have those days passed? Yeah, that that those have? Unfortunately,
38:07
Speaker 1: now it's all down to streaming profitability, and so all
38:11
Speaker 1: of these companies, I mean, we're we've moved past, you know,
38:13
Speaker 1: that hyper focus on subscribers. We're really looking now at margins.
38:18
Speaker 1: We're looking at free cash flow um, and so all
38:21
Speaker 1: of these companies are now trying to, uh, you know,
38:24
Speaker 1: figure out how to curtail their investments and still kind
38:28
Speaker 1: of achieve good profitability metrics. Alright. Keith a great stuff
38:33
Speaker 1: as always keither wrong or nothing. She covers all things
38:36
Speaker 1: media on a global basis for Bloomberg Intelligence. She's one
38:40
Speaker 1: of the founding analysts members of Bloomberg Intelligence, and she's
38:44
Speaker 1: been She does a great job, so you can read
38:46
Speaker 1: all of her research. If you have a terminal b
38:49
Speaker 1: I go. Thanks for listening to the Bloomberg Markets podcast.
38:55
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
38:58
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
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Speaker 1: on Twitter at Matt miller y three. On Fall Sweeney,
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Speaker 1: I'm on Twitter at pt Sweeney Before the podcast. You
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Speaker 1: can always catch us worldwide at Bloomberg Radio