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Debt Ceiling, Retail, Noom, and Netflix (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
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Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast.
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Speaker 2: I let's getting a little bit more insight on the
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Speaker 2: macro front and the developments here. Because it's that debt
0:24
Speaker 2: ceiling debate. It's taking over the markets, I would argue,
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Speaker 2: overshadowing some of the other stories like inflation, Chinese growth, geopolitics.
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Speaker 2: There's a lot of doom and gloom out there, but
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Speaker 2: let's not dwell on the bad. Let's bring in Bloomberg
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Speaker 2: Intelligence analysts, Audrey child Freeman, our chief g ten FX
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Speaker 2: strategist over at Bloomberg Intelligence, and Dwayne Wright, senior government
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Speaker 2: analysts with BI as well. Dwayne, I want to start
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Speaker 2: with you and talk to us a little bit about
0:51
Speaker 2: the developments here. I believe M Kevin McCarthy has now
0:54
Speaker 2: said that there are negotiations happening this morning. But what's
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Speaker 2: the sticking point? What can't they agree on.
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Speaker 3: Well, thanks. I think it's the same conversation we've been
1:06
Speaker 3: having over the last or we've been hearing about over
1:08
Speaker 3: the last couple of weeks, and this is yet another
1:12
Speaker 3: mini storm that we think will end up before we
1:14
Speaker 3: get to the calm. It ends up being around what
1:19
Speaker 3: level of spending cuts do Republicans want and then they're
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Speaker 3: willing to accept. What level of spending cuts are Democrats
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Speaker 3: willing to agree to?
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Speaker 4: And there's about one.
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Speaker 3: Hundred and thirty billion dollars golf between the two parties.
1:32
Speaker 3: You know, we're talking about going back to last year's
1:35
Speaker 3: spending or working from this year spending. There's other policies
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Speaker 3: at play related to unspent COVID money. There's what to
1:46
Speaker 3: do about defense spending. As much as Republicans want to
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Speaker 3: dial down or dial back the spending on discretionary spent funding,
1:55
Speaker 3: they also want to increase spending on the defense side,
1:58
Speaker 3: which Democrats have said is is a bit of a
2:00
Speaker 3: non starter. And then you have all these other policies
2:03
Speaker 3: that deal with some of the social safety net programs.
2:08
Speaker 3: Should we have work requirements for healthcare, specifically in the
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Speaker 3: Medicaid program? Democrats have said no, and Republicans want to
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Speaker 3: expand on work requirements into healthcare. So a lot of
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Speaker 3: the sticking points that we saw that we're all in
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Speaker 3: the Republican House past bill that Democrats said no to,
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Speaker 3: those are still on the table, and those are still
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Speaker 3: the sticking points that they're trying to work through.
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Speaker 4: Audrey.
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Speaker 5: I want to bring you in here because we've seen
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Speaker 5: the dollar rising for the most part over the course
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Speaker 5: of the month of May, Bloomberg Dollar Index up again today.
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Speaker 5: I want to get your take how are markets pricing
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Speaker 5: in these debt ceiling concerns, specifically around the dollar.
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Speaker 6: So the dollar rebound has to be seen really up
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Speaker 6: to quite a long period of under performance, and the
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Speaker 6: market a couple of weeks, a few weeks ago, as
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Speaker 6: you said, started to look quite underweight dollar, and I suspect,
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Speaker 6: you know, if you go into this as the debt
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Speaker 6: ceiling deadlines looms and uncertainty continues to increase with regard
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Speaker 6: to that matter, I suspect that there will be an
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Speaker 6: incentive to close those underweight dollar position and just wait
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Speaker 6: and see what happens, because there's an element of uncertainty
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Speaker 6: on the impact that default would have on the dollar. Obviously,
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Speaker 6: it's negative, it's structurally negative. It adds onto the whole
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Speaker 6: theme of the dollarization. However, in the near term, if
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Speaker 6: that leads to financial market ternal which I suspect it would,
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Speaker 6: and that means funding problems that could actually push the
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Speaker 6: dollar higher. So I kind of feel that's one of
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Speaker 6: the reasons why the dollar has been pushing higher in
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Speaker 6: the past, in the past few weeks, but I feel
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Speaker 6: there's no strong conviction at the moment in the market.
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Speaker 2: Yeah, it feels purely defensive essentially, when you're looking at
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Speaker 2: kind of the way some of the speculative funds are
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Speaker 2: positioning Audie to follow upon that. Though, as soon as
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Speaker 2: this dollar debate kind of disappears, or there's a solution
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Speaker 2: or resolution of some sort, it's a no brainer trade
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Speaker 2: and unwinding of that essentially dollar weakness.
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Speaker 6: I think. So, However, compared to two or three months ago,
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Speaker 6: where you know, it was the compelling trade to have on,
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Speaker 6: there's a kind of fresh element of uncertainty creeping into
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Speaker 6: the market. In particular, I would mention the pace of
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Speaker 6: the Chinese economic recovery and the implications that would have
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Speaker 6: for the global economic outlook for currencies like the euro
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Speaker 6: the US dollar. So the answer to your question is yes,
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Speaker 6: but I don't. I think there's a little it's a
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Speaker 6: little bit less straightforward than it was. Let's say, you know,
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Speaker 6: in kind of early early January.
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Speaker 5: Duine, I want to bring you back in here. Talk
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Speaker 5: us through the timeline for the next couple of Oh boy,
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Speaker 5: we're running very close to that X date, that June
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Speaker 5: first X date. Talk us through the timeline of what
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Speaker 5: you're hearing from wamakers.
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Speaker 3: Well, they're still talking, and I think there's a big
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Speaker 3: question as to whether June first is the real X
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Speaker 3: date or if it's something after that. You know, up
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Speaker 3: to maybe last week or early this week, the Secretary
5:41
Speaker 3: jan had been very strong in terms of saying June
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Speaker 3: one is the X date, and then kind of got
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Speaker 3: a little squishy, which I think served as a bit
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Speaker 3: of a pressure release valve as far as these conversations go.
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Speaker 3: But there there are going to be at some point
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Speaker 3: over the next week or so that pressure is going
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Speaker 3: to ramp up as we get to June first, and
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Speaker 3: potentially maybe get past June first. And you got to
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Speaker 3: think about it from a procedural standpoint. In the House
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Speaker 3: and even in the Senate, once a deal is reached
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Speaker 3: between the President and the Speaker, it's going to take
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Speaker 3: about three days to get out of the House. And
6:21
Speaker 3: that's because Speaker McCarthy has said any bill that gets
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Speaker 3: passed out of the House longmakers will have three days
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Speaker 3: to review. So you have to build in seventy two hours.
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Speaker 3: You don't have to build in some more time to
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Speaker 3: potentially get it through a Senate that may not want
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Speaker 3: to move on it as quickly, depending on whether you're
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Speaker 3: on the right or left, and you don't like the
6:42
Speaker 3: deal and you want to slow things down. And so
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Speaker 3: I think as we're looking at the timeline over the
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Speaker 3: next several days, you really need to start to see
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Speaker 3: something happen by around the first in order to really
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Speaker 3: get a bill don it and really stave off potential default.
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Speaker 2: The X date, I think such a crucial thing to
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Speaker 2: talk about, because yes, it's June first, regarding headlines right now,
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Speaker 2: the Janney Ellen reaffirms that June first deadline. But at
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Speaker 2: the end of the day, look at what some of
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Speaker 2: these Wall Street banks are saying. The range goes from
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Speaker 2: June first to June fifteenth, and then you have the
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Speaker 2: real market bears. You're saying, actually the real X state
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Speaker 2: for the markets is May twenty six, so right before
7:24
Speaker 2: that Memorial Day weekend. Audrey Child Freeman of Bloomberg Intelligence,
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Speaker 2: we think he has always along with Dwayne Wright, thank
7:32
Speaker 2: you as well, our senior government analyst with Bloomberg Intelligence. Folks.
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Speaker 2: The doom and gloom is just going to ramp up
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Speaker 2: from here.
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Speaker 5: Is making me a little bit scared, as he was
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Speaker 5: talking about all those how long it needs in order
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Speaker 5: to just get past these procedural votes.
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Speaker 2: Yes, I feel bad for those staffers. Stick with us.
7:48
Speaker 2: This is Bloomberg.
7:51
Speaker 7: You're listening to the teenth ken'sher live program Bloomberg Markets
7:55
Speaker 7: weekdays at ten am Eastern on Bloomberg dot Com, the
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8:01
Speaker 7: wherever you get your podcast.
8:05
Speaker 2: Let's bring in some experts here. Diana Rossero, Pana equity
8:08
Speaker 2: research analyst over at Bloomberg Intelligence, joins us alongside a
8:12
Speaker 2: personal favorite of mine and a Dallas resident. Again another
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Speaker 2: reason to love him, Brendan Case, our Bloomberg News retail reporter.
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Speaker 2: Brendan I want to start with you here the difference
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Speaker 2: between a slowing consumer and a collapsing consumer. Are we
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Speaker 2: there yet?
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Speaker 8: Well, I think that we have to stick with slowing
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Speaker 8: for the moment, and we're definitely seeing signs of that
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Speaker 8: all over the place, you know, starting with Target and Walmart,
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Speaker 8: you know, saying that last week, plenty of additional signs. Now.
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Speaker 8: Pet Co reported results today. Not a huge company obviously,
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Speaker 8: but sort of an interesting category because people tend to
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Speaker 8: spend pretty heavily on their pets. And there again, you know,
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Speaker 8: they're seeing strong business in the essentials such as food,
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Speaker 8: but a pullback from the kind of toys and leashes
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Speaker 8: that people would buy more of in good times. I
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Speaker 8: don't think that we're ready to talk about a collapse yet,
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Speaker 8: but I do think it's a watch item. And you know,
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Speaker 8: I don't think that anybody would say that we've hit
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Speaker 8: bottom at this point.
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Speaker 5: Diana Brendan just mentioned some of that discrepancy we've seen
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Speaker 5: between us spending on things like food, both for humans
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Speaker 5: and for pets. It turns out as well against the
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Speaker 5: sort of discretionary items, whether it's leashes, collars, and toys
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Speaker 5: at Petco or electronics perhaps at places like Walmart. I mean,
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Speaker 5: how much pressure does this actually put on the companies
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Speaker 5: in terms of margin, like, aren't they happy that things
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Speaker 5: that people are still buying their stuff?
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Speaker 9: Yes? So basically what I got from the call earlier
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Speaker 9: this morning from Petco was that there's a bifurcation of
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Speaker 9: the consumer. You have consumers that are very dedicated to
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Speaker 9: the health and wellness of their pets, and even on
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Speaker 9: consumables such as food, you have people trying to buy
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Speaker 9: premium food, which obviously is more expensive than regular pet food.
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Speaker 9: So there's that, but there's also that seeking for value
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Speaker 9: that you see for Target and Walmart. Now this is
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Speaker 9: obviously the second part. The seeking value is a little
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Speaker 9: bit problematic for companies because usually the essentials are lower margin.
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Speaker 9: They tend to be lower margin compared to the discretionary category.
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Speaker 9: So you will see, in addition to labor and all
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Speaker 9: of the supply chain costs increasing in the past couple
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Speaker 9: of years, you see an added pressure of lower margin
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Speaker 9: items being more in demand.
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Speaker 2: So that is then necessarily a function of that kind
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Speaker 2: of recessionary call. It feels like essentially that you're going
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Speaker 2: to start tracking the higher end consumer to more perhaps
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Speaker 2: generic goods, at least in the case of Walmart for example,
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Speaker 2: When does that slow completely from from the consumer's point
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Speaker 2: of view.
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Speaker 9: Well, I think it has to do with consumer sentiment,
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Speaker 9: has a lot in play obviously unemployment or lack thereof.
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Speaker 9: It seems that obviously this is an unusual economic quote
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Speaker 9: unquote downturn because unemployment seems to be quite low compared
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Speaker 9: to you know, previous recessions or slow Dance or something
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Speaker 9: like that. So yeah, I would say it's mostly on
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Speaker 9: a consumer consumer sentiment, and I think how comfortable they
11:59
Speaker 9: feel with the feature sure and their ability to pay
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Speaker 9: their bills going forward.
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Speaker 5: Brendan, what have you heard from some of these executives
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Speaker 5: about the potential for the consumer to just like simply
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Speaker 5: hit a wall, stop going to stores, stop going online
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Speaker 5: simply because the inflationary pressures on their pocketbook are too much,
12:19
Speaker 5: or or what would it take. Essentially, have any executives
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Speaker 5: kind of address this, You.
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Speaker 8: Know, I don't think that that that is something that
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Speaker 8: they've really wrung the alarm bell about. They're talking much
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Speaker 8: more about slowing and if you take a step back
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Speaker 8: from some of the kind of the big mass market
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Speaker 8: retailers for one second, you know, there's still signs of
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Speaker 8: strength out there too, you know, sort of surprisingly strong
12:45
Speaker 8: sales at Abercrombie and Fitch. You know, we've heard about
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Speaker 8: this morning. You know, there's signs of progress even at
12:53
Speaker 8: Cohl's right now, so more of a mixed bag than
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Speaker 8: a sense of things falling apart. But it said, if
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Speaker 8: you listen to Walmart and Target, they're both pretty cautious
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Speaker 8: about the second half. And I think that one thing
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Speaker 8: that's going through their minds is that the rate increases
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Speaker 8: from the FED tightening financial conditions. You know, a lot
13:17
Speaker 8: of that is probably still an effect that we have
13:20
Speaker 8: yet to feel the full force of. And so you know,
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Speaker 8: there they are taking a very cautious view, albeit without
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Speaker 8: talking about consumers just flat out hitting a wall.
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Speaker 5: Yeah, when you think of that sort of looking ahead timeline,
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Speaker 5: do you draw any consensus from what you've heard about
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Speaker 5: when things might start looking up again?
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Speaker 8: It feels like it's too soon to talk about that.
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Speaker 8: You know. It feels like the question that's in the
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Speaker 8: front of the mind for the big retailers is okay,
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Speaker 8: is this going to get worse? You know, do we
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Speaker 8: end up having a recession? If so, when it doesn't
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Speaker 8: feel as though they are talking yet about kind of
14:13
Speaker 8: seeing you know, rays of light in the distant horizon.
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Speaker 8: It feels much more like, you know, watchful, waiting, lots
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Speaker 8: of caution and just not wanting to not wanting to
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Speaker 8: promise too much.
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Speaker 2: So Diana, in our last minute or so here talk
14:29
Speaker 2: to us about today's earning story with Cole's kss is
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Speaker 2: the taker folks hied by about eight and a half
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Speaker 2: percent for the stock Diana about forty five seconds. What
14:37
Speaker 2: did Coles do?
14:38
Speaker 4: Right?
14:40
Speaker 6: Yeah, I think.
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Speaker 9: Going back to what we said earlier, is the consumer
14:45
Speaker 9: seeking value and having that alternative for them. It seems
14:52
Speaker 9: that that drove a lot of their sales as well, So,
14:56
Speaker 9: you know, like going back to what Brennan said, it's
15:00
Speaker 9: it's consumers just being cautious and the executive of these
15:05
Speaker 9: companies recognizing that we're you know, it's difficult out there
15:11
Speaker 9: right now, and I think it's going to be darker
15:13
Speaker 9: before it starts to be light again.
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Speaker 2: Brendan ten seconds, putting on the spot anythin ad.
15:21
Speaker 8: I'm going to watch Best Buying Costco on Thursday. A
15:24
Speaker 8: lot of signals there about discretionary spending and higher end consumers.
15:28
Speaker 2: Well, we will definitely have you both back. We thank
15:31
Speaker 2: you as always, Diana, Rossaropena, equity research analyst over at
15:34
Speaker 2: Bloomberg Intelligence, and Brendan Case, our star retail reporter over
15:39
Speaker 2: in Dallas, Texas.
15:40
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15:43
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15:58
Speaker 9: Yeah.
15:59
Speaker 5: I've been so excited for this discussion, Creaty, because we're
16:03
Speaker 5: going to talk about NOOM and the potential for weight
16:09
Speaker 5: loss drugs to be part of this overall discussion on health.
16:13
Speaker 5: We bring in Linda Anagawa, chief of Medicine, as well
16:17
Speaker 5: as our Sam Fizzelli. He's a senior pharma analyst with
16:20
Speaker 5: Bloomberg Intelligence. Linda, you were brought on to to expand
16:28
Speaker 5: the ability of NOOM to bring in these weight loss drugs.
16:33
Speaker 5: Take us through the thinking here, because this isn't NOOM
16:35
Speaker 5: all about discipline and improving your healthiness of your lifestyle,
16:42
Speaker 5: and yet we're turning to medication potentially to bring down
16:45
Speaker 5: weight in people who are obese.
16:50
Speaker 3: Yeah.
16:50
Speaker 9: Absolutely.
16:51
Speaker 10: I'll tell you about NeoMed, where a program dedicated to
16:55
Speaker 10: fighting the disease of obesity using all of the best
16:58
Speaker 10: available scientific tools that we have. And what makes us
17:03
Speaker 10: unique is that we are still combining our suite of
17:09
Speaker 10: personalized psychological tools along with telehealth services to help people
17:15
Speaker 10: achieve not just the lasting weight loss, but also the
17:18
Speaker 10: improved health outcomes.
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Speaker 5: I mean, that's so interesting because these gop one drugs
17:28
Speaker 5: seem to really be a game changer in the overall
17:32
Speaker 5: idea of weight loss. Whether it's ozempig, whether it's the
17:37
Speaker 5: various other options out there, how do you fit these
17:43
Speaker 5: in for someone who's coming to noom med. So the
17:50
Speaker 5: introduction of the new, highly effective anti obesity medicines, without
17:55
Speaker 5: a doubt, have revolutionized this landscape for sustainable weight loss,
18:00
Speaker 5: you know, but for the millions of Americans taking these medications,
18:04
Speaker 5: lasting success is really not often achievable without having that
18:10
Speaker 5: anchor in behavioral change. I mean, as a doctor, I've
18:14
Speaker 5: prescribed these medications hundreds of times and I've seen some
18:18
Speaker 5: people even gain weight on them. So new med really
18:22
Speaker 5: has the only clinical program that's built on our best
18:25
Speaker 5: in class flagship behavior change platform. And that gives us
18:30
Speaker 5: an incredibly powerful way to address both the biology as
18:35
Speaker 5: well as the psychology that's necessary in the fight against obesity.
18:42
Speaker 2: I want to bring in Sam Fizzelli here. He leads
18:46
Speaker 2: our pharma coverage over at Bloomberg Intelligence. Sam double question here,
18:51
Speaker 2: first set the stage for us in terms of the
18:53
Speaker 2: landscape of the industry and of these products, and then
18:57
Speaker 2: you know, feel free to ask one to question yourself.
18:59
Speaker 11: Oh sure, thank you, thanks for having me on. So obviously,
19:03
Speaker 11: there's been drugs that have been in development or used
19:06
Speaker 11: for many years for obesity, but very few of them
19:10
Speaker 11: have actually been successful, really commercially until recently because the
19:15
Speaker 11: percentage of weight loss that they were giving, perhaps some
19:18
Speaker 11: of the side effect issues that they had were just
19:20
Speaker 11: basically not going conducive to use. Now we've got these
19:24
Speaker 11: drugs which have got pretty good safety at least in
19:27
Speaker 11: diabetic patients, have been used for years, not that these
19:30
Speaker 11: doses though, and now you get significant efficacy. And I
19:33
Speaker 11: think doctor Anagawa you've mentioned in the company's mentioned in
19:37
Speaker 11: the press release the twelve point odd percent twelve point
19:40
Speaker 11: four percent, I think that you get with we go
19:43
Speaker 11: V at sixty eight weeks whereas now soon we're going
19:46
Speaker 11: to have Lily's to zeppetite or which is the same
19:51
Speaker 11: agent used in Munjaro for diabetes, which is clocking it
19:55
Speaker 11: around eighteen percent proceed word just at weight loss. So
19:57
Speaker 11: these are significant numbers, and I think both companies are
20:00
Speaker 11: trying to even push it further. Where do you think
20:02
Speaker 11: that would go in terms of the level of interest
20:06
Speaker 11: Do you think there would be major switching or do
20:08
Speaker 11: you think there's so much demand that between the two drugs,
20:11
Speaker 11: people will take whatever they can get their hands on.
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Speaker 10: You know, I think that the landscape of these medications
20:19
Speaker 10: is going to continue to evolve. Absolutely. Turzeppetite is going
20:24
Speaker 10: to take us another step forward in what we are
20:28
Speaker 10: able to offer our patients suffering from this disease. What
20:31
Speaker 10: Neom's really looking to though, is not even what's immediately available,
20:36
Speaker 10: but what's coming down the horizon in the next two years,
20:41
Speaker 10: five years. And I think fundamentally, at the core of things,
20:47
Speaker 10: we still have to remember, sorry that as good as
20:53
Speaker 10: the drug trials look, they were all done with lifestyle
20:58
Speaker 10: change hand and hand, and so that still fundamentally has
21:02
Speaker 10: to be our anchor.
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Speaker 11: Oh, I absolutely agree. I think the you know, there's
21:09
Speaker 11: no point just reducing food intake and not changing a
21:11
Speaker 11: lifestyle to try and get more exercise, more correct eating.
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Speaker 11: So and that's I'm assuming the main push that you're
21:20
Speaker 11: putting in there, but actually thinking about drugs because at
21:23
Speaker 11: the end of the day, I'm a drug analyst. If
21:26
Speaker 11: you think forward and you see these the combination of
21:30
Speaker 11: lifestyle and the drugs, do you think it will make
21:33
Speaker 11: a big difference to people if they didn't have to
21:36
Speaker 11: inject themselves and one day there were some orals available.
21:40
Speaker 11: Do you think that's that would be a big plus
21:43
Speaker 11: for fitting into the whole regime that you were thinking about.
21:48
Speaker 10: I definitely do. And there certainly are drugs in development
21:52
Speaker 10: that have oral formulations, and not only will those probably
21:56
Speaker 10: be more acceptable to patients, my other hope is that
22:00
Speaker 10: they might be less expensive as well, which would allow
22:04
Speaker 10: us to improve access to them or broadly.
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Speaker 5: Doctor Linda, I mean, I want to ask, because the
22:14
Speaker 5: thing about these drugs, I guess the bad side of
22:16
Speaker 5: these drugs is that once you're on them, it seems
22:19
Speaker 5: like you're on them forever, or else you gain the
22:21
Speaker 5: weight back. How do you at noon think about this,
22:26
Speaker 5: because you know, if these drugs become a part of
22:29
Speaker 5: that treatment option. It feels weird to be on these
22:33
Speaker 5: drugs forever, especially when you know the weight loss that
22:37
Speaker 5: you're hoping for. Maybe not you know that large.
22:42
Speaker 10: It's a great question. New's point of view is that
22:47
Speaker 10: we may be able to drive even better health improvements
22:52
Speaker 10: than the drugs alone, because we've got significant published, peer
22:56
Speaker 10: reviewed studies in over fifty journals that show that our
23:02
Speaker 10: principles of psychological change, when applied to our patients and users,
23:07
Speaker 10: actually drive better long term outcomes than the standard of care.
23:12
Speaker 10: So I think the jury is out on whether every
23:16
Speaker 10: single patient will absolutely need these medications.
23:19
Speaker 11: Lifelong doctor, you interestingly segued into the idea of outcomes.
23:27
Speaker 11: We are awaiting some controlled, sizeable data for cardiovascular risk
23:36
Speaker 11: reduction of these drugs potentially. Do you think that's clearly
23:41
Speaker 11: if you then add better eating and more exercise to that,
23:44
Speaker 11: you're going to amplify that benefit. But do you think
23:47
Speaker 11: that's really important that the drugs do show that they're
23:50
Speaker 11: reducing cardival vascular risk. Do you think that your patients
23:56
Speaker 11: physicians are all looking for that.
24:00
Speaker 10: Absolutely? I mean, weight is really just one barometer and
24:04
Speaker 10: it's not the greatest barometer of overall health. So if
24:09
Speaker 10: there's clear cardiovascular risk reduction, I think hopefully that will
24:14
Speaker 10: make the case for coverage by payers stronger, because that's
24:20
Speaker 10: one of the things that does steiny us in our
24:23
Speaker 10: attempt to treat this disease of obesity.
24:27
Speaker 5: So one of the issues with these new drugs has
24:30
Speaker 5: been supply shortages because people who don't necessarily qualify as
24:39
Speaker 5: obese in a sense have been pushing for these drugs.
24:44
Speaker 5: I mean, take Hollywood, or take just people who have
24:47
Speaker 5: a couple extra pounds. How do you see this from
24:50
Speaker 5: New Med's perspective as being can you deliver this drug
24:56
Speaker 5: for people who you know, maybe don't have some of
25:00
Speaker 5: these same medical concerns caused by obesity.
25:06
Speaker 10: New Med is really committed to strict qualification of any
25:12
Speaker 10: of our patients who may be seeking a prescription from us,
25:16
Speaker 10: and one of the ways that we do this is
25:19
Speaker 10: not just greeting people by BMI, but utilizing video visits,
25:23
Speaker 10: which many in the space do not do as well
25:27
Speaker 10: as metabolic blood testing. Again to help us risks stratify
25:33
Speaker 10: which patients are more likely to achieve the best benefits
25:38
Speaker 10: from these drugs, and for whom it's really less critical.
25:41
Speaker 10: There's always a shared decision making process between our clinicians
25:46
Speaker 10: and our patients, and ultimately the clinicians are the ones
25:49
Speaker 10: who make that decision. They make that call.
25:53
Speaker 2: Doctor Linda Onigawa, Chief Medicine over at NOOM, alongside Bi's
25:57
Speaker 2: at Sam Fazelio. We thank you both. Is Bloomberg.
26:03
Speaker 7: You're listening to the Team Can't Live program Bloomberg Markets
26:06
Speaker 7: weekdays at ten am Eastern on Bloomberg dot Com, the
26:10
Speaker 7: iHeartRadio app, and the Bloomberg Business App, or listen on
26:13
Speaker 7: demand wherever you get your podcast.
26:17
Speaker 2: It's all about health, but health with a twist.
26:20
Speaker 5: Health and drugs maybe kind of encompassing this. And I'm
26:25
Speaker 5: so interested to speak to our next guest because he
26:28
Speaker 5: has his finger on the pulse of the marijuana industry
26:34
Speaker 5: and stuff. I've only been back in the United States
26:37
Speaker 5: a short period of time, and I swear I spell
26:39
Speaker 5: weed everywhere in New York City.
26:42
Speaker 2: It's been one of the biggest surprises Park Avenue at
26:44
Speaker 2: five pm. Is it just it overwhelms you. It's a
26:47
Speaker 2: truly New York experience of folks. Just so you guys know,
26:50
Speaker 2: Smoon Foxman was in the Middle East for three years,
26:54
Speaker 2: three and a half three and a half year she
26:56
Speaker 2: covered all of that FIFA coverage.
26:58
Speaker 5: Ain't no weed there illegal, It's completely illegal, and even
27:03
Speaker 5: for medical purposes I believe, which is a medical purposes
27:08
Speaker 5: of marijuana. Is something we're going to talk to our
27:11
Speaker 5: next guest about because this is just an exploding space. Clearly,
27:17
Speaker 5: everyone acknowledges that there are benefits for people who are
27:22
Speaker 5: going through any number of health issues.
27:24
Speaker 2: Yeah, and a fun fact, I should say it's an
27:27
Speaker 2: exploding space now. But I think when it first kind
27:29
Speaker 2: of I want to say, at least ticked off in
27:30
Speaker 2: the markets, it was like twenty eighteen. The only reason
27:32
Speaker 2: I remember that because that was one of my very
27:34
Speaker 2: first beats at Bloomberg I was the video game in
27:36
Speaker 2: Cannabis reporter for stocks. It's true, before it was like
27:39
Speaker 2: an actual coverage area they gave. They gave the girl
27:43
Speaker 2: who's never played a video game in her life video
27:45
Speaker 2: game in cannabis stocks to cover. So that was fun.
27:47
Speaker 2: Let's ring in our next guest, Morgan Patsia, the co
27:50
Speaker 2: founder of Poseidon Investment Management, talking a little bit about
27:53
Speaker 2: investing in this market. But before we do that, talk
27:55
Speaker 2: up to us about how you got interested, where where
28:00
Speaker 2: this kind of passion came from.
28:02
Speaker 12: Sure, well, thank you for having me. We started my
28:05
Speaker 12: sister and I, Emily started beside him back in twenty thirteen,
28:08
Speaker 12: so we're about to celebrate our tenure anniversary since we
28:11
Speaker 12: founded the company. We lost our parents to cancer when
28:14
Speaker 12: we were young, and our parents were believers that the
28:17
Speaker 12: war on drugs was unjust should be ended. My mom
28:20
Speaker 12: was a nutritious she saw the health benefits of hemp
28:23
Speaker 12: as like a superfood, and my dad thought cannabis was
28:27
Speaker 12: something that should be a rightful choice as an American
28:30
Speaker 12: citizen instead of just only having alcohol if you want
28:32
Speaker 12: to just relax at the end of the day kind
28:34
Speaker 12: of thing. And when he was in hospice, one of
28:37
Speaker 12: the nurses offered him cannabis and that was in the nineties,
28:41
Speaker 12: so very not okay, and so he didn't do it,
28:44
Speaker 12: and we just felt that that was wrong, should have
28:47
Speaker 12: been available, and shouldn't have felt a stigma or a
28:49
Speaker 12: negative association to his family to not do something like that.
28:53
Speaker 12: So that was why we started the firm. We saw
28:55
Speaker 12: it as an opportunity, as an opportunity for change, but
28:58
Speaker 12: also from a capital perspective as well.
29:01
Speaker 5: So now you're on the investment side of this. Clearly
29:04
Speaker 5: the regulations still differ from state to state. Is overcoming
29:09
Speaker 5: that sort of the biggest hurdle from an investment side,
29:13
Speaker 5: or what needs to happen to make this industry, I
29:17
Speaker 5: guess go a little bit more mainstream.
29:20
Speaker 12: So we are today. We're at twenty three adult use
29:23
Speaker 12: legal states in the country. When we started there were zero.
29:26
Speaker 12: We just have Minnesota join and there's something like I
29:28
Speaker 12: think thirty nine medical states. But you're right, it's all patchwork.
29:32
Speaker 12: Some states are doing it better than others. Some are thriving,
29:35
Speaker 12: some are struggling a bit, with illicit markets still being
29:38
Speaker 12: very prevalent. And we look at every state and analyze
29:42
Speaker 12: if it's attractive or not from a capital deployment perspective,
29:46
Speaker 12: and you can see it in how the companies perform.
29:48
Speaker 12: You can look at it from their margin profiles, if
29:50
Speaker 12: you're looking at gross margins, operating margins. Even today we're
29:53
Speaker 12: talking about free cash flows for some of the largest,
29:55
Speaker 12: most scaled businesses in the country. But it is a
29:59
Speaker 12: very fragmented space. It creates a lot of opportunity for
30:01
Speaker 12: consolidation as these businesses need to reach scale. Even though
30:06
Speaker 12: you know ultimately the way we look at the industry
30:08
Speaker 12: today will look drastically different in ten years, it's still
30:11
Speaker 12: very much an emerging market. So we think even though
30:14
Speaker 12: we've gone from zero to thirty billion in annual sales
30:17
Speaker 12: in this country, we're still at the beginning.
30:21
Speaker 2: Blue button. So how you said in the next ten
30:23
Speaker 2: years or so, in the next ten years, we'll have
30:26
Speaker 2: two maybe three new presidential elections, and how does that
30:29
Speaker 2: change that growth prospect?
30:33
Speaker 12: So great question and one of the biggest challenges we're
30:35
Speaker 12: having is the states are progressing, but we need the
30:38
Speaker 12: federal government to also proceed. And like last week, Emily
30:41
Speaker 12: and I were just in DC meeting with senators and
30:45
Speaker 12: trade groups and lobbyists and the like, because we have
30:49
Speaker 12: the Safe Banking Initiative that's currently going through regular order,
30:53
Speaker 12: first time ever hearing a banking reform in the Senate.
30:56
Speaker 12: But we need these We need the federal government to
30:58
Speaker 12: catch up. We need banking reform so that we're read
31:00
Speaker 12: the same as any other business. We need tax reform.
31:02
Speaker 12: We have this very owner's two ad tax code that
31:05
Speaker 12: we have to deal with, So there's a lot of
31:07
Speaker 12: work to do at the federal level and to your point,
31:09
Speaker 12: presidential cycles. Where we fit in all of that is
31:11
Speaker 12: a great question. But we're just trying to proceed forward,
31:14
Speaker 12: at least from a legislative perspective and getting some primary
31:18
Speaker 12: pieces in place, and we think that will unlock a
31:22
Speaker 12: lot of growth. It certainly is helpful from a social
31:25
Speaker 12: justice perspective and also from a small business and safety perspective.
31:28
Speaker 12: Is to have the federal government finally recognize that we
31:31
Speaker 12: are in American industry.
31:33
Speaker 5: Would the Safe Banking Act be a good step? I
31:36
Speaker 5: know that's something that various that seems to be gaining
31:41
Speaker 5: a little bit of moment. Talk to me about how
31:44
Speaker 5: important that is.
31:45
Speaker 12: It's important because right now we are not treated the same.
31:49
Speaker 12: We are treated at a disadvantage to every other industry
31:52
Speaker 12: basically in this country. And that really hurts the small
31:55
Speaker 12: businesses the most because if you're large enough, you do
31:59
Speaker 12: have access to some primitive level banking. But we need
32:03
Speaker 12: this from a much more from a depth perspective, and
32:06
Speaker 12: we need to start somewhere. And so that's the way
32:08
Speaker 12: we think about Safe Banking is this is a starting point.
32:11
Speaker 12: It's already passed the House seven times, but This is
32:14
Speaker 12: the first time it's actually been heard in the Senate.
32:16
Speaker 12: We just had our first hearing last week went pretty well.
32:20
Speaker 12: It does seem like we have a decent amount of
32:24
Speaker 12: bipartisan support to get this through at least to a
32:28
Speaker 12: floor vote, as long as it doesn't get expanded too much.
32:32
Speaker 12: If it stays pretty well focused, we think it's something
32:34
Speaker 12: that can get done. And that's what we were talking
32:38
Speaker 12: with them about last week, and it was great to
32:42
Speaker 12: see some of the minority groups traded groups also supporting
32:46
Speaker 12: this initiative and saying we need to be inclusive of
32:48
Speaker 12: capital markets because safe banking is a pretty narrow bill,
32:52
Speaker 12: but if you think about banking and financial services, it's
32:54
Speaker 12: kind of hard to just have a piece of it.
32:56
Speaker 12: You need the whole thing for the whole ecosystem and
32:58
Speaker 12: the movement of money to work.
33:02
Speaker 5: Thinking about your investments as well, what sorts of companies
33:08
Speaker 5: really attract your attention? Where is their development in the
33:14
Speaker 5: marijuana space, because I feel like there are so many
33:17
Speaker 5: growers now that's maybe the less exciting piece for many investors.
33:22
Speaker 12: Yep, we think access is really important at this part
33:26
Speaker 12: of the industry's life cycle. So what that means is
33:28
Speaker 12: retail being able to get direct access to the consumer
33:32
Speaker 12: in a legal way, because we think that is one
33:34
Speaker 12: of the best ways of combating the illicit market and
33:38
Speaker 12: seeing markets, you know, seeing new municipalities or new states
33:41
Speaker 12: that open up and create programs. Michigan is a great
33:44
Speaker 12: example of a state that has seen a high conversion
33:46
Speaker 12: rate of taking market share from the illicit market. It's
33:50
Speaker 12: a good program, low pricing, lots of retail accessibility.
33:54
Speaker 2: You said, retail accessibility, which brings us kind of to
33:57
Speaker 2: more of a institutional of embracing almost of the sector.
34:02
Speaker 2: Why haven't we seen more of that?
34:05
Speaker 12: Our investor base to date has been family offices and
34:07
Speaker 12: Highnight Wath individuals. Institutions have been held largely outside because
34:12
Speaker 12: of things like not having federal banking access, and so
34:16
Speaker 12: that keeps a lot of institutional capital on the sidelines,
34:19
Speaker 12: and we think that does open up for a lot
34:21
Speaker 12: of change, and especially when you add in capital markets too.
34:24
Speaker 12: You know, if you look at right now, the public
34:26
Speaker 12: companies trade on the CSE, the OTC. They're not on
34:30
Speaker 12: listed exchanges, and so their volumes are a fraction size
34:34
Speaker 12: because of participation is a fraction of the size, and
34:36
Speaker 12: so we think there's huge steps forward that can happen
34:39
Speaker 12: when institutional capital can really start to participate.
34:43
Speaker 5: Yeah, and I mean if you're a pension fund, it's
34:46
Speaker 5: hard to go to justify to your participants. It's just
34:54
Speaker 5: hard to go and justify that if it's not necessarily
34:56
Speaker 5: legal everywhere. You know, there have been sort of consolidation
35:03
Speaker 5: of some of these sellers of various cannabis products or
35:09
Speaker 5: hemp products. How much is there some threat that pharma
35:15
Speaker 5: will come in and start distributing more and potentially push
35:19
Speaker 5: out the more interesting players in the space.
35:22
Speaker 12: You know, good question. We look at pharma is largely
35:25
Speaker 12: participating more in a traditional pharmaceutical path where they would
35:29
Speaker 12: want to take drugs, do like the FDA and do
35:33
Speaker 12: that kind of stuff like GW Pharma did years ago.
35:36
Speaker 12: We see other CpG or alcohol tobacco like industries being
35:40
Speaker 12: more attracted to run it through their similar kind of pipelines.
35:44
Speaker 12: For example, the WSWA, I can't remember the acronym right now,
35:48
Speaker 12: but it's the I think it's a wholesale wine and
35:50
Speaker 12: spirits trade group. They want to be the national distributor
35:54
Speaker 12: of cannabis. So right now they're lobbying in DC saying
35:56
Speaker 12: we should be the ones to run this because we
35:58
Speaker 12: already have all of this infrastructure to do that. And
36:01
Speaker 12: understand that makes a lot of sense when we're talking
36:03
Speaker 12: about interstate commerce post federal legalization, but right now we're still,
36:08
Speaker 12: you know, a couple of steps behind that, talking about
36:11
Speaker 12: retail access, getting these states legalized, and as I mentioned,
36:14
Speaker 12: you know, banking reform, taxation. Those are we think, are
36:17
Speaker 12: you know, steps ahead before interstate commerce?
36:21
Speaker 2: A fascinating topic. I know Simone Foxman could probably ask
36:24
Speaker 2: you a million more questions. Morgan Paseia, co founder, managing
36:27
Speaker 2: partner beside An Investment Management, We thank you as always.
36:30
Speaker 4: You're listening to the tape.
36:31
Speaker 7: Can's our live program Bloomberg Markets weekdays at ten am
36:35
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36:39
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36:40
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36:43
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36:49
Speaker 2: As they try to really crack down. That's our next guest,
36:52
Speaker 2: this Keith the wrong enough? Then all over that gi
36:55
Speaker 2: the does that count as inflation? Price increases from.
36:58
Speaker 13: Netflix typically has hasn't it. They've done a really I
37:04
Speaker 13: think they've been really consistent in kind of raising their prices,
37:07
Speaker 13: you know, every twelve to eighteen months, and we've kind
37:10
Speaker 13: of seen the same I think a behavior pattern from consumers. Right,
37:14
Speaker 13: there's always that initial backlash. You'll see cancel Netflix kind
37:19
Speaker 13: of trending all over the place. But then eventually I
37:21
Speaker 13: think the dust settles and people kind of come back
37:24
Speaker 13: because they do have the content that everybody wants.
37:28
Speaker 5: Yeah, I mean we saw some I guess weakness out
37:31
Speaker 5: of I think Spain it was people moving away from
37:37
Speaker 5: being Netflix subscribers simply because they, you know, because of
37:41
Speaker 5: policies that were extra policing on using each other's accounts.
37:46
Speaker 5: How crucial are.
37:50
Speaker 1: Gauesse.
37:50
Speaker 5: How big a reaction could we see in these numbers
37:53
Speaker 5: As this comes to the United States in terms of subscribers.
37:56
Speaker 13: I think there's going to be a lot of near
37:58
Speaker 13: term volatility and noise. I think there's absolutely no way
38:01
Speaker 13: to sugarcoat that. Remember, there are you know, our Netflix
38:04
Speaker 13: has identified about one hundred million households across the world
38:08
Speaker 13: that are currently using Netflix but not paying for it.
38:11
Speaker 13: Over a third of those are currently in the United States.
38:14
Speaker 13: And so this is by far their biggest market, and
38:17
Speaker 13: so you know, the crackdown obviously, and management has said
38:21
Speaker 13: this as well, they don't expect this to necessarily go smoothly.
38:26
Speaker 13: They do expect some kind of resistance from customers. But
38:31
Speaker 13: I think what they're eventually seeing. And you brought up
38:34
Speaker 13: Spain and they had rolled out this experimental kind of
38:37
Speaker 13: password policing in a few markets Spain and Portugal, you know,
38:41
Speaker 13: New Zealand and Canada were some of the bigger ones.
38:44
Speaker 13: And in Canada, what they actually did was they did
38:47
Speaker 13: see that initial kind of negative reaction, but then you know,
38:52
Speaker 13: customers then finally came around and they said that they
38:55
Speaker 13: have managed to not only get back customers who canceled,
38:59
Speaker 13: but also kind of increase the subscriber base. So I
39:02
Speaker 13: think what they're hoping for is, you know, when this
39:05
Speaker 13: is all, when all is said and done, it does
39:08
Speaker 13: eventually help not only boost our pool but also the
39:12
Speaker 13: subscriber base. But that might take a little bit of time.
39:14
Speaker 13: I don't think it's I don't I don't think we're
39:16
Speaker 13: necessarily going to see this in numbers like next quarter.
39:20
Speaker 13: It's definitely going to take a while to play up so.
39:22
Speaker 2: How does this actually work when you crack down on
39:24
Speaker 2: password sharing, Doesn't that kind of violate privacy to some extent?
39:29
Speaker 2: Doesn't it include kind of tracking down IP addresses and
39:32
Speaker 2: what's your work, what's your home, what's your commute? How
39:35
Speaker 2: does this work in practice?
39:37
Speaker 13: I mean Netflix has already been doing that. So you know,
39:40
Speaker 13: if you kind of sign out outside of your home,
39:43
Speaker 13: for instance, they you know, ask you to kind of
39:45
Speaker 13: confirm that it's you. So so they've already been doing this,
39:48
Speaker 13: And what they're doing right now is they're trying to
39:52
Speaker 13: identify a primary household, you know, again using that IP address,
39:58
Speaker 13: and they're basically saying that anybody outside of that primary
40:00
Speaker 13: household will need to pay.
40:05
Speaker 5: One of the things I've also been interested in is
40:07
Speaker 5: this new ad tier that you can get Netflix more
40:11
Speaker 5: cheaply if you don't mind seeing some ads I think
40:16
Speaker 5: lower margin business, but more subscribers. You know, how does
40:20
Speaker 5: what is what's your forecast? In terms of how that
40:23
Speaker 5: piece of the puzzle plays out?
40:25
Speaker 13: Yeah, so that's again again relatively new to the advertising game.
40:29
Speaker 13: They haven't necessarily disclosed too many metrics, although they did
40:34
Speaker 13: give a number just a few days ago in terms
40:37
Speaker 13: of the number of monthly active users that they have
40:39
Speaker 13: got so far on the platform, and it was I
40:42
Speaker 13: think fairly impressive and more than what people were expecting.
40:46
Speaker 13: So they already have about five million monthly active users.
40:51
Speaker 13: That translates to roughly about one to maybe one and
40:54
Speaker 13: a half million people who are probably paying for the
40:58
Speaker 13: advertising tier. But again that now wasn't necessarily disclosed by Netflix.
41:01
Speaker 13: That's just an estimate that's out there. Again, it's small
41:04
Speaker 13: potatoes compared to like the big player in the field,
41:07
Speaker 13: which is Hulu, which probably has about twenty five million
41:10
Speaker 13: people on the ad based here, so still long ways
41:13
Speaker 13: to go. But Netflix itself has said that they do
41:17
Speaker 13: expect their advertising business to eventually become bigger than Hulu,
41:21
Speaker 13: probably contribute to about ten to fifteen percent of their
41:24
Speaker 13: total revenue. So they are looking at this, They are,
41:27
Speaker 13: you know, in this for the long game. They are
41:29
Speaker 13: looking at advertising as becoming a substantial portion of their
41:32
Speaker 13: revenue stream.
41:33
Speaker 2: So KEITHA, do we ever see Netflix offering some sort
41:37
Speaker 2: of products similar to that of Hulu or even cable
41:40
Speaker 2: and that they're offering kind of live programming, live TV,
41:44
Speaker 2: live coverage of events like I don't know the coronation
41:47
Speaker 2: or sports or anything like that is that Netflix's future.
41:51
Speaker 13: So they have dabbled a little bit, you know with
41:55
Speaker 13: live programming, but I wouldn't necessarily say that they want
41:58
Speaker 13: to go into it in a big way again, you know, Netflix,
42:02
Speaker 13: the whole genesis of Netflix has kind of been the uh,
42:05
Speaker 13: the anti pieces of live programming, right, it has to
42:08
Speaker 13: be on demand. Having said that, though, I mean, you know,
42:11
Speaker 13: I don't think they're necessarily averse to trying out things.
42:14
Speaker 13: I mean, you know, we kind of saw you know,
42:17
Speaker 13: different I guess, different flavors of it, whether it's you know,
42:22
Speaker 13: a reunion for a dating series or even you know,
42:25
Speaker 13: a baking competition, So they are trying different things. Again,
42:28
Speaker 13: I just don't think it would necessarily be a big
42:30
Speaker 13: focus for them going forward.
42:32
Speaker 2: A reunion for a dating series either. Are you a
42:34
Speaker 2: Love Island watcher? Am I sensing that?
42:38
Speaker 13: Sure?
42:38
Speaker 2: I am all for the work, all for the job,
42:42
Speaker 2: I get it.
42:43
Speaker 11: Geez.
42:44
Speaker 2: What about the gaming piece of the equation? Netflix said
42:46
Speaker 2: that they were kind of experimenting with that. How is
42:48
Speaker 2: that going?
42:50
Speaker 13: So again, we you know, it's been just like what
42:53
Speaker 13: they've said with their advertising strategy, which is, you know,
42:56
Speaker 13: kind of a crawl, walk run approach. It's been very
42:59
Speaker 13: similar in the gaming field also, so again they have
43:03
Speaker 13: not necessary so they what they have done is they've
43:05
Speaker 13: gone out and they've bought a lot of these smaller
43:07
Speaker 13: independence studios. They haven't made any big, splashy acquisition, and
43:12
Speaker 13: I think the general thinking is, yes, they have a
43:14
Speaker 13: few games on their service. I don't think it's necessarily
43:17
Speaker 13: moved the needle in terms of membership. Maybe it has
43:20
Speaker 13: deepened some level of engagement, but I think ultimately, if
43:22
Speaker 13: they really want to make a big you know, if
43:27
Speaker 13: they really want to kind of you know, move or
43:30
Speaker 13: do something game changing in in kind of the gaming space,
43:34
Speaker 13: I think they have to finally make an acquisition because
43:37
Speaker 13: so far we haven't necessarily seen any significant you know,
43:42
Speaker 13: engagement metrics or even membership metrics.
43:45
Speaker 5: Can you speculate which acquisition or any potential targets that
43:50
Speaker 5: they might be interested in.
43:51
Speaker 13: It's very hard to say at this point, just kind
43:54
Speaker 13: of given the regulatory environment out here, I'm not sure
43:57
Speaker 13: the regulators are generally in favor of big tech or
44:01
Speaker 13: even media tech kind of going after a big company,
44:06
Speaker 13: which is why they've kind of kept it. But they've done.
44:08
Speaker 13: You know, just these very very small, kind of independent studios.
44:11
Speaker 13: They're more kind of in that build mode. But eventually,
44:15
Speaker 13: I think everybody's fair game, right, whether it's an electronic
44:17
Speaker 13: arts or a take too, it just it just is
44:20
Speaker 13: going to come down to what makes the most sense
44:21
Speaker 13: for them and their portfolio.
44:24
Speaker 2: Keita, I gotta ask, are you a Bridgerdon fan?
44:27
Speaker 13: I am? I absolutely loved the new season the Queen Charlotte.
44:31
Speaker 2: Yes, oh my gosh, I'm obsessed. Someone have you seen it?
44:34
Speaker 5: I haven't seen it, but I have read all the
44:35
Speaker 5: Bridgerton books.
44:36
Speaker 2: Okay, that doesn't come on. This is enough segment.
44:40
Speaker 10: I love it.
44:41
Speaker 2: I gotta say, I just finished Queen Charlotte and I cried,
44:43
Speaker 2: absolutely cried. Keitha your thoughts thirty seconds.
44:47
Speaker 13: Oh, I absolutely loved it. And I loved how they
44:49
Speaker 13: kind of brought in that whole historical element. I mean,
44:51
Speaker 13: this was, you know, a part of history with think
44:54
Speaker 13: jeorsh the third. I thought it was done really really well.
44:57
Speaker 13: The emotional aspect of course, the set's, the costume, the actors,
45:00
Speaker 13: I mean everything. Just absolutely loved it, just like you Treaty, Yeah.
45:04
Speaker 2: I totally. I mean I don't want to spoil it
45:06
Speaker 2: for anyone. You guys have to go see it because
45:08
Speaker 2: it's so different from the first two seasons that it
45:11
Speaker 2: kind of does its ome thing. For what it's worth.
45:12
Speaker 5: She wasn't in the books at all, I know.
45:14
Speaker 2: But like creative creative license. Shonda Rhimes at her best,
45:19
Speaker 2: whatever ge the wrong and athen over at Netflix excuse
45:22
Speaker 2: me over at Bloomberg Intelligence covering Netflix, also at her best.
45:25
Speaker 2: We thank you as always, she covers everything. She's got
45:29
Speaker 2: her series critiques, she's got her financials down. What doesn't
45:33
Speaker 2: she do?
45:34
Speaker 7: You're listening to the tape Cat's are live program Bloomberg
45:37
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
45:40
Speaker 7: tune in app, Bloomberg dot Com.
45:42
Speaker 4: And the Bloomberg Business App.
45:44
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45:47
Speaker 7: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
45:51
Speaker 2: One of the big questions in this market zone is
45:55
Speaker 2: what is getting priced in and what actually isn't. And
45:57
Speaker 2: I think the consensus here is at where's the equity
46:00
Speaker 2: markets are taking kind of a wait and see approach.
46:02
Speaker 2: You're seeing a lot more volatility in the bond markets
46:04
Speaker 2: and in the FX markets off the kind of debt
46:07
Speaker 2: sealing drama.
46:08
Speaker 5: Yeah, and I mean a lot of very interesting picture
46:11
Speaker 5: in terms of the nearer term treasury yields, some as
46:16
Speaker 5: high as I think six percent looking ahead for the
46:20
Speaker 5: next couple of months or a month or so, as
46:24
Speaker 5: we get through this debt stealing conundrum. But then you know,
46:29
Speaker 5: we would turn to the long term fundamentals. Is the
46:32
Speaker 5: economy headed for a recession? Obviously the debt stealing the
46:36
Speaker 5: US defaulting might push us over the edge, But if not,
46:41
Speaker 5: then it's a bit more of a complicated question.
46:43
Speaker 2: It absolutely is, and perhaps one way to look at
46:46
Speaker 2: it in addition to some of the other factors that
46:49
Speaker 2: are affecting it. Look, we're still dealing with a very
46:52
Speaker 2: now slowly turning hawkish Federal Reserve James Bowler Neil Kashkari
46:56
Speaker 2: very vocal about their thoughts of BOE that's still saying
46:59
Speaker 2: we gotta go tough on inflation, not to mention around
47:02
Speaker 2: the world, the question of just how long this growth
47:04
Speaker 2: is going to sustain really dominating the market story, and
47:07
Speaker 2: I wonder if that's the narrative that's going to kind
47:09
Speaker 2: of move to the forefront after we get past the
47:12
Speaker 2: debt ceiling debate only a couple more days and we'll
47:15
Speaker 2: find out. Let's talk about what the trade is here
47:18
Speaker 2: in that framing, Cam Harvey joins us, the professor of
47:22
Speaker 2: Finance over at the Fokway School of Business over at
47:24
Speaker 2: Duke University. Now, I got to get this out of
47:27
Speaker 2: the way. I am a uva alum, so I am
47:30
Speaker 2: sworn to hate Duke. It's true. I think I'll make
47:34
Speaker 2: I know, but I think I'll make an exception for
47:36
Speaker 2: Cam Harvey because at the end of the day, smarts
47:38
Speaker 2: is what matters. Professor, walk us through your take here.
47:41
Speaker 2: Once we get past this debt ceiling story, what's the
47:44
Speaker 2: biggest risk.
47:46
Speaker 5: If we get past this business.
47:47
Speaker 2: I'm well, there's an inevitability to it, Professor, what do
47:51
Speaker 2: you think?
47:52
Speaker 14: Yeah, it's so the situation is fairly clear to me.
47:59
Speaker 14: So the guy that invented this model that shows that
48:03
Speaker 14: inverted yeal curves so when the short rate is higher
48:07
Speaker 14: than the long rate predicts recessions. And the record is
48:13
Speaker 14: pretty impressive, eight out of eight since the mid nineteen
48:17
Speaker 14: sixties without a fall signal, and in January we had
48:22
Speaker 14: a full quarter of inversion in the fall of twenty two,
48:28
Speaker 14: and the model was signaling recession, and I went on
48:33
Speaker 14: record saying that I thought it was a false signal.
48:36
Speaker 14: So it was about timed up a fall signal. And
48:40
Speaker 14: the other economic dynamics looked fairly strong, especially with the
48:44
Speaker 14: excess demand for labor. But what I said the last
48:48
Speaker 14: time I was on the show was there was one
48:51
Speaker 14: major caveat, and that caveat was that the FED needed
48:55
Speaker 14: to stand down, that they've done their jobs of inflation,
49:01
Speaker 14: and if they pushed the rates any higher at the
49:04
Speaker 14: short end, if they increased the inversion severity, that that
49:08
Speaker 14: would put the banking system at risk. And the FED
49:13
Speaker 14: did not stand down, and the FED has put the
49:16
Speaker 14: banking system at risk. We've seen in March some spectacular
49:21
Speaker 14: failures over five hundred billion dollars of assets and banks
49:25
Speaker 14: that went down, and I strongly suspect that there are
49:29
Speaker 14: many other banks that have been zombified by the negative
49:34
Speaker 14: yell curb situation just create stress in the financial system.
49:40
Speaker 14: This means that banks are less likely to make those
49:44
Speaker 14: important loans to businesses. There's a credit squeeze, and this
49:48
Speaker 14: makes things worse.
49:50
Speaker 5: Wait, I thought the regional banking crisis was over because
49:54
Speaker 5: you know shares rallied for the last little bit, though,
49:58
Speaker 5: I guess we're down today on the kW bank next
50:00
Speaker 5: about one point six percent. Take me through how we
50:05
Speaker 5: start seeing this stress again from now?
50:10
Speaker 14: So do you really think this is over? I think
50:13
Speaker 14: it's wishful thinking. So anytime the FED says in their
50:20
Speaker 14: FOMC statement, oh well, the banking system is sound and
50:23
Speaker 14: secure without providing the data. So I want to convince me.
50:28
Speaker 14: I want to go through the bank's balance sheets and
50:34
Speaker 14: show me that there are no other banks with negative equity,
50:37
Speaker 14: that we don't have these zombie banks. Well, that just
50:41
Speaker 14: isn't done, and I just don't buy it. It's cheap talk.
50:44
Speaker 14: So I've got the data, want to release the data.
50:48
Speaker 14: And any time that the FED is increasing rates, think
50:53
Speaker 14: about the banking model is really simple. You pay out
50:57
Speaker 14: to depositors, so that's the cost, and then you receive
51:02
Speaker 14: money from your loans and your investments, saying government bonds.
51:06
Speaker 14: So when you invert that, yeal crave. When you push
51:08
Speaker 14: the short term rates up and the long term rates
51:12
Speaker 14: don't go up as much, that that turns your business
51:15
Speaker 14: model upside down. It creates stress. And indeed, what we've
51:19
Speaker 14: seen is that some of the banks are really struggling
51:23
Speaker 14: to increase their savings rates. So my bank is one
51:26
Speaker 14: of the two big defail banks, and I was told
51:29
Speaker 14: last week that the savings rate that I'm getting is
51:34
Speaker 14: two basis points and other banks are one basis point.
51:39
Speaker 14: And what's the result there, Well, I said, I'm going
51:44
Speaker 14: to transfer my savings to a money market fund. So
51:46
Speaker 14: that sucks money out of the banking system. And again
51:50
Speaker 14: it has the same effect that it makes it more
51:53
Speaker 14: difficult for companies to get loans when that deposit base
51:58
Speaker 14: is taken out. So I think the banking system we
52:01
Speaker 14: would love to think that, oh well, the regional banking
52:05
Speaker 14: crisis is evolver. I just don't buy it. I'm much
52:08
Speaker 14: more skeptical and I want to see the evidence, not
52:12
Speaker 14: just the talk.
52:14
Speaker 2: Well, professor, that's one piece of the equation. Let's go
52:16
Speaker 2: back to kind of the economic piece of it. To
52:18
Speaker 2: your point on the model, I want to look at
52:21
Speaker 2: this twoes tens curve. I mean I gauge that I
52:24
Speaker 2: will say a lot of people think is broken, and
52:26
Speaker 2: it has been inverted for quite some time. We almost
52:29
Speaker 2: got to that negative two hundred. I think the record
52:32
Speaker 2: and version that we saw back in the eighties, where
52:34
Speaker 2: a negative sixty three right now in that tues tens conversion.
52:37
Speaker 2: But it feels like we've been talking about this recession
52:40
Speaker 2: around the corner for about two years, Professor, what is
52:43
Speaker 2: that recession actually going to hit?
52:46
Speaker 14: So the model, my actual model is the ten year
52:49
Speaker 14: minus three month that it published in nineteen eighty six,
52:52
Speaker 14: and the lead time to recession is not fixed. It
52:58
Speaker 14: varies between six months and eighteen months. So the ten
53:04
Speaker 14: minus three month has been inverted seven months. So again
53:11
Speaker 14: you need to have some historical perspective.
53:14
Speaker 4: On this model.
53:15
Speaker 14: It gives you advanced lead to a recession, though the
53:20
Speaker 14: lead time isn't fixed, it's variable. And the model is
53:25
Speaker 14: also very good at the duration of recession. So the
53:30
Speaker 14: duration of an inversion is very closely linked to the
53:34
Speaker 14: duration of a recession. And again we've been inverted for
53:38
Speaker 14: seven months right now, and again it's not unusual for
53:42
Speaker 14: this to play out well after the inversion. Indeed, sometimes
53:47
Speaker 14: the recession starts once the curve has gone back to normal,
53:52
Speaker 14: but the inversion happened.
53:54
Speaker 4: In the past.
53:55
Speaker 2: Certainly something we're going to be keeping an eye on.
53:57
Speaker 2: We thank you as always for your time Professor, Professor
54:00
Speaker 2: or Finance over at the Fokwell School of Business over
54:02
Speaker 2: at Duke University, Kim Harvey. We thank you, as always.
54:11
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54:14
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54:18
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54:24
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54:25
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54:26
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54:29
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