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Discovery's Multi-Platform Distribution Is Paying Off · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul Swinge. You,
0:05
Speaker 1: along with my co host Lisa Brahma wits each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money, whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Well, one of my favorite media companies,
0:23
Speaker 1: Discovery Communications, reported better than expected results second quarter results.
0:27
Speaker 1: UH stock is actually up about one point two percent today,
0:30
Speaker 1: up about almost for UH the year. To help us
0:33
Speaker 1: break down the numbers four Discovery Communications and kind of
0:36
Speaker 1: the future growth drivers for the Compner's company, We're welcome.
0:39
Speaker 1: Gunner viden Fells, chief financial officer for Discovery Communications. He
0:43
Speaker 1: joins us live on our Bloomberg eleven three of studios. Gonner,
0:46
Speaker 1: thanks so much for being here and for dealing with
0:48
Speaker 1: my pronunciation. Um. First of all, just kind of just
0:52
Speaker 1: kind of breakdown kind of what what you really experienced
0:55
Speaker 1: there in a second quarter looks like against some pretty
0:57
Speaker 1: good results relative to the street expectations. Oh look, I
1:00
Speaker 1: mean bottom line is it was a great quarter. I'm
1:02
Speaker 1: really really happy with what we delivered UM, you know,
1:05
Speaker 1: because it chose two things. Number One, the core business
1:08
Speaker 1: is in much better shape than people think, and I
1:11
Speaker 1: do see a lot of longevity that might surprise some people.
1:14
Speaker 1: Number Two, we're also seeing some first you know, results
1:17
Speaker 1: coming in from our investments on the digital side, so
1:20
Speaker 1: that's been helping revenue growth. And uh you know, we
1:23
Speaker 1: we just guided to an actcelebration in in revenue growth
1:25
Speaker 1: for the next quarter. So that's that's that's a great,
1:27
Speaker 1: great result at this stage in the industry. And uh,
1:30
Speaker 1: you know, the the the bottom line is we're delivering
1:33
Speaker 1: top of industry performance, accelerating revenues, UH, peer group leading
1:37
Speaker 1: margins UM, and we're delivering on our promises. Women like
1:41
Speaker 1: to watch houses get remodeled, and they like to watch
1:43
Speaker 1: people throw down in a cooking competition. H GTV, Food Network, TLC,
1:48
Speaker 1: all of these are very commonly watched by women. Interestingly,
1:52
Speaker 1: we learned that Gunner's favorite show was The Deadliest Catch,
1:55
Speaker 1: which I love the idea of UM and we've been
1:58
Speaker 1: talking about sharks. But but moving forward, I think one
2:00
Speaker 1: big question for all media companies is distribution and whether
2:03
Speaker 1: you plan to go direct to consumer and how how
2:06
Speaker 1: you plan to to roll that kind of product out. Yeah. Look,
2:10
Speaker 1: I mean we've always said we we want to go
2:11
Speaker 1: for a maximum possible distribution, and uh, you know, over
2:14
Speaker 1: the past twelve to eighteen months, were now the most
2:18
Speaker 1: widely distributed media company across the traditional and the virtual
2:22
Speaker 1: MVPD environment. That's I mean, that's that's a major achievement
2:25
Speaker 1: over the past couple of What does that mean that
2:27
Speaker 1: you just do sling in Hulu and Netflix exactly, so
2:30
Speaker 1: you've got the broadest reach, got exclusive your cable satellite, Uh,
2:34
Speaker 1: you know, over the top, We're we're on all relevant
2:38
Speaker 1: platforms and you know, as you said, women like to
2:41
Speaker 1: watch our portfolio. Not a lot of people understand that
2:44
Speaker 1: Discovery is the number one TV company in the US
2:47
Speaker 1: across all of cable broadcasts for for female audiences. You
2:50
Speaker 1: know that that's that's a pretty powerful position. Uh. Speaks
2:53
Speaker 1: to the value of the content and um, you know
2:55
Speaker 1: that's why we also feel very well positioned. Uh you
2:58
Speaker 1: know as audiences move in to an O, T, T
3:00
Speaker 1: and directed consumer world. Uh. You know, obviously that's still
3:03
Speaker 1: early stage, but we have started deploying a lot of
3:06
Speaker 1: capital into the build out of our global director consumer platform.
3:10
Speaker 1: We've hired a team. Peter Farisee joined us from from
3:13
Speaker 1: Amazon really knowing you know, how to build those products. Well,
3:18
Speaker 1: you know, I've given guidance to about three or four
3:20
Speaker 1: hundred million negative a bit of contributions for the year. Um.
3:24
Speaker 1: You know that's you know, that's somewhere in the five
3:26
Speaker 1: range of our underlying profit. You know, it's not betting
3:29
Speaker 1: the farm, but it's material and enough to help us
3:31
Speaker 1: make a difference. And keep in mind, we're in a
3:34
Speaker 1: so much better position to roll this out. We've got
3:36
Speaker 1: this global footprint, boots on the ground and every relevant
3:38
Speaker 1: territory across the globe. We're reaching four close to four
3:41
Speaker 1: hundred million homes every day with with our products, so
3:45
Speaker 1: you know, when it comes to acquiring UH subscribers promoting
3:49
Speaker 1: these products, we're in a very very powerful starting position.
3:53
Speaker 1: So gunn are. One of the things that maybe a
3:54
Speaker 1: lot of people don't know about Discovery Communications is that
3:57
Speaker 1: outside of North America, you guys are very big in ports.
4:00
Speaker 1: You've made some very big bets Eurosport Olympics rights outside
4:04
Speaker 1: of North America, he had a big deal. I guess
4:06
Speaker 1: most recently be with the with the p g A,
4:09
Speaker 1: so you know, making a big bet on sports. But
4:12
Speaker 1: we've actually seen some investors have read that sports rights
4:15
Speaker 1: in sports viewing has kind of peaked. How do you
4:17
Speaker 1: view your investment in sports globally? Well, two things. Number one,
4:21
Speaker 1: the market is very different, uh, you know between the
4:24
Speaker 1: US and the rest of the world, because we've never
4:27
Speaker 1: had this sort of stuffing of h of sports into
4:30
Speaker 1: the mainstream you know basic bundle that we're seeing here
4:32
Speaker 1: in the U s which which is leading uh and
4:34
Speaker 1: and really driving the court cutting now uh, you know,
4:37
Speaker 1: in many international markets there's just no court to cut.
4:39
Speaker 1: And part of that, part of the reason behind that
4:41
Speaker 1: is that that in many markets sports is more of
4:43
Speaker 1: an ala carte product, so not as overpriced as as
4:46
Speaker 1: in the US. Um Number two is for US, uh,
4:49
Speaker 1: you know, we're not going after these sort of you know,
4:51
Speaker 1: top tier premium rights where you're paying up crazy inflation
4:54
Speaker 1: every three years. We're trying to go for you know,
4:57
Speaker 1: very attractive but a little more niche content, and we're
5:00
Speaker 1: going for as as broad a global coverage as we
5:03
Speaker 1: can get and for long term deals pick the p
5:05
Speaker 1: G E to where as an example, you know, we're
5:08
Speaker 1: we're in that business for twelve years. We've got all
5:11
Speaker 1: of the all of the world outside of the US,
5:14
Speaker 1: so that gives us time to really build out a
5:17
Speaker 1: global product without having to sort of chase rights renewals
5:20
Speaker 1: every two or three years. And one thing I also
5:22
Speaker 1: want to point out, and the Olympics may be the
5:24
Speaker 1: greatest example for that again long term deal. Uh, you know,
5:28
Speaker 1: eight years all of Europe, and we have a very
5:30
Speaker 1: unique ability to essentially orchestrate all kinds of different revenue
5:34
Speaker 1: streams to maximize the value of this I P that
5:36
Speaker 1: no one else has. Uh. In some markets we will
5:39
Speaker 1: sub license because there's public service broadcasters that with deep
5:42
Speaker 1: pockets that just paid crazy amounts for some of those rights.
5:45
Speaker 1: And others we have our own broadcast stations. Will you
5:47
Speaker 1: know we did more than viewership on on in Norway
5:51
Speaker 1: on some of the Winter Olympics events and in other
5:54
Speaker 1: markets you know, we'll we'll go in hard with our
5:57
Speaker 1: own O T T product on the mobile devices, etcetera.
5:59
Speaker 1: So so bottom line is we can slice and dies
6:02
Speaker 1: these these rights were in a gatekeeper position and can
6:04
Speaker 1: extract so much more value than many others could. Dr
6:07
Speaker 1: Gunnar vieden Felt, thank you so much for being with us.
6:10
Speaker 1: Dr Gunn viden Fels, I tried, I think it was,
6:14
Speaker 1: it was, it was. I mean, our producer did way
6:16
Speaker 1: better than I'm gonna Weeden Fells is chief financial officer
6:19
Speaker 1: of Discovery Communications, and I gotta say it is amazing
6:23
Speaker 1: the popularity of these shows. Yesterday was a bad day
6:41
Speaker 1: for risk acids in general, but it was a uniquely
6:43
Speaker 1: terrible day for emerging markets, in particular emerging market currencies.
6:48
Speaker 1: I'm looking right now at the ms c I Emerging
6:50
Speaker 1: Market Currency Index, which had its biggest plunge at one
6:52
Speaker 1: points two thousand thirteen. Here to explain what exactly investors
6:57
Speaker 1: are the most worried about right now, what they're pricing
6:59
Speaker 1: in his Eric Fine, but folio manager focused on emerging
7:02
Speaker 1: markets fixed income for van Eck Global, Eric, thank you
7:06
Speaker 1: so much for being with us. Let's start there, what
7:09
Speaker 1: our investors pricing in with this sell off? Sure? Thanks,
7:13
Speaker 1: great question, and I would phrase it as or I
7:14
Speaker 1: would my own response would be only beginning to price in?
7:18
Speaker 1: And I think, um, there are three big things that
7:20
Speaker 1: they're only beginning to price in that are big and
7:22
Speaker 1: they map to growth, not rates. I think everything is
7:26
Speaker 1: being fewed for the lens rate and not through the
7:28
Speaker 1: growth rate. And it's really important. What are they Number One,
7:31
Speaker 1: the FED, The USA is a relatively closed economy. If
7:35
Speaker 1: it's cutting rates because of issues in the big trading nations,
7:38
Speaker 1: Asia and Europe, how's that going to play out. It's
7:41
Speaker 1: probably going to play out where US growth ends up
7:43
Speaker 1: continuing to do couple and the rest of the world
7:46
Speaker 1: growth is weak. That is dollar bullus. That's what we
7:49
Speaker 1: saw in the first half of eighteen. That's what we've
7:51
Speaker 1: seen for big chunks of chunks of time. And when
7:54
Speaker 1: you look and let's let's say the ninety s basis
7:57
Speaker 1: points of cuts that are priced in happen or whatever reason, well,
8:00
Speaker 1: that's consistent with really weak growth numbers. That's also dollar bullush.
8:04
Speaker 1: All these countries that have been encouraged to issue dollar bonds,
8:07
Speaker 1: what are they going to do when they see see
8:08
Speaker 1: that they're gonna buy dollars first. So the FED context
8:12
Speaker 1: is really important. The perfect scenario, the Goldilocks scenarios were
8:15
Speaker 1: weak enough and the rest of the world is begins
8:18
Speaker 1: to grow just enough. I don't see evidence of it yet.
8:20
Speaker 1: China is rightly being very balanced Germany, no whole fiscal
8:24
Speaker 1: stimulus US. The elections too far away. So that's the
8:27
Speaker 1: big thing. That's number one, the number two, but it
8:29
Speaker 1: maps to grow the big picture ideas here are you
8:33
Speaker 1: think that necessary? The sell oft didn't go necessarily far enough. Um?
8:38
Speaker 1: I think that the market had this general view. Um
8:42
Speaker 1: I think that the market was pricing in a rate
8:44
Speaker 1: cutting cycle from the Fed. And it may not be,
8:48
Speaker 1: and it was pricing at a rate cutting cycle because
8:50
Speaker 1: it was too focused on global developments and on rates
8:53
Speaker 1: and not on what the Fed's narrow mandate is. Now.
8:56
Speaker 1: They may have bought some insurance, but we're relatively closed
8:59
Speaker 1: economy that's not as affected by these big negative developments
9:03
Speaker 1: that they are specifically citing. Just a good chance that
9:06
Speaker 1: we end up in a divergent scenario where the US
9:08
Speaker 1: is doing okay, rest of world isn't. And put put differently,
9:12
Speaker 1: what are they gonna hiking rates? What does that do
9:14
Speaker 1: for China trade? Sorry? Cutting rates? What does that do
9:16
Speaker 1: for that? Right? Right? Right? And and the dynamic is
9:19
Speaker 1: unusual because this on the second big issue, which is trade,
9:23
Speaker 1: is cutting rates If that's the response to what many
9:28
Speaker 1: think is bad trade policy, that encourages that, and the
9:31
Speaker 1: Hong Kong situation obviously encourages a harder line. So the
9:34
Speaker 1: dynamic so the FED is the context. Trade is the
9:37
Speaker 1: second pigure. I mentioned the third one. But you have
9:39
Speaker 1: a question, Well, let's just the news today or less
9:43
Speaker 1: four hours. UM, now that China has been named a
9:46
Speaker 1: currency manipulator? Do we care about that? Do emerging market
9:50
Speaker 1: care about that? Well? The facts are they care the
9:54
Speaker 1: pretty much every facts other than Lira where there's direct
9:56
Speaker 1: state intervention, most likely um cared, so they do care. UM.
10:00
Speaker 1: It's a bellweather currency, it's held UM so. I think
10:03
Speaker 1: there are two ways of answering it. The narrow way
10:06
Speaker 1: is no, what happens? I am a for issues of
10:10
Speaker 1: report UM. There are possible restrictions on OPEC. It's a state.
10:15
Speaker 1: US state agency can guarantee lending, UM limits its loans
10:18
Speaker 1: or a stop from very narrow symbolically though, it's it's
10:22
Speaker 1: it's uh, it's important. My broader question is who wants
10:27
Speaker 1: their currency stronger? Argentina other than Argentina. I could come
10:33
Speaker 1: up with a bunch, but yeah, but that kind of
10:35
Speaker 1: proves the point. But yeah, who wants their currency stronger?
10:37
Speaker 1: This is this is where the rubber hits the road,
10:39
Speaker 1: and this is where traditionally what's the central This gets
10:42
Speaker 1: to the level of central marks what center are going
10:43
Speaker 1: to do by foreign currency denominated assets of another country. Okay,
10:48
Speaker 1: so you buy emerging markets fixed income for a living,
10:51
Speaker 1: and you're coming in here expressing a lot of concern
10:53
Speaker 1: about the entirety of an asset class. So what are
10:55
Speaker 1: you buying? Yes, great question, Great way, friend. What I
10:58
Speaker 1: always tell people is if when if your choices for
11:01
Speaker 1: emerging markets boiled down to you waking up in the
11:04
Speaker 1: morning and thinking about President she and Trump and the FED,
11:08
Speaker 1: then that's an issue. Um Why because there are categories
11:11
Speaker 1: of I M bonds that are vulnerable to that. There's
11:14
Speaker 1: a big chunk that are low yielding Polish government bonds
11:17
Speaker 1: and local currency at two percent, Chinese government bonds at
11:21
Speaker 1: Mexico in dollars at three and a half, Russia. No,
11:25
Speaker 1: I'm saying those are the ones where if we're correct
11:29
Speaker 1: and on one of the two big scenarios that the
11:31
Speaker 1: FED is not on an easy cycle and that there's
11:34
Speaker 1: upside risk to yield, those are that's a whole category
11:37
Speaker 1: VM depth that's very vulnerable. It's over a third. Then
11:40
Speaker 1: there's another category that is vulnerable UM to rising spread duration,
11:46
Speaker 1: let's say, because because there's risk that the FED is
11:49
Speaker 1: growing but the rest of the world is doing poorly,
11:51
Speaker 1: so they're not doing any better. Rates are going higher,
11:54
Speaker 1: so you better be darn sure that your spread is
11:57
Speaker 1: coming down for idiosyncratic reasons. And there are a lot
11:59
Speaker 1: of country treas that don't fit nicely in that world.
12:02
Speaker 1: I put scom in South Africa, UM, I'd even put
12:05
Speaker 1: Mexico um the sovereign and then although that's also got
12:07
Speaker 1: a low yield problem. Those so those categories are the
12:11
Speaker 1: vulnerable ones. Those are big parts of what people think
12:14
Speaker 1: of as emerging markets. However, there is a large category
12:17
Speaker 1: that's very idiosyncratic and that has strong reformist governments. They
12:21
Speaker 1: are paying high yields Ukraine. I've been looking at Ukraine
12:25
Speaker 1: for over two decades. I have never seen a more
12:27
Speaker 1: reformist government has likely to have I m F support
12:31
Speaker 1: eight percent yields. Brazil much lower yields, very reformist government,
12:36
Speaker 1: but it's a net credit or doesn't mean that there
12:38
Speaker 1: aren't problems in Brazil. They mapped to the currency, but
12:41
Speaker 1: dollar denominated long dated bonds of petrobrass at five percent yields,
12:45
Speaker 1: that's attractive that can respond to this environment. So if
12:49
Speaker 1: your general answers, so if my broadest answers, it's about
12:52
Speaker 1: growth not rates. And my narrow answer is if what
12:56
Speaker 1: E M means to you is waking up in the
12:58
Speaker 1: morning and thinking about j Pal and the presidents of
13:01
Speaker 1: China and Russia. Sorry, President US, be cautious, right. There
13:06
Speaker 1: are a lot of things that are issues, but if
13:07
Speaker 1: you can be selective, there are a lot of great
13:09
Speaker 1: things in EM and the bottom the biggest context is
13:13
Speaker 1: the efficient frontier based on fifteen years of history, says
13:16
Speaker 1: the best category of EM bonds including all categories, were
13:19
Speaker 1: from treasuries to global act of corporates. People are under
13:22
Speaker 1: invested in EM generally if it means piling into generic stuff,
13:26
Speaker 1: I just told you my answer. But if you can
13:28
Speaker 1: be tactical and find the right way to express it,
13:30
Speaker 1: there are plenty of opportunities in EM. Eric Fine, thank
13:32
Speaker 1: you so much for joining us. Eric Fine, portfolio manager
13:35
Speaker 1: covers all thing emerging markets fixed income strategy for van
13:38
Speaker 1: Neck Global. Joining us here in our Bloomberg Interactive Broker studio,
13:56
Speaker 1: Let's bring in Paul Gates senior research analysts focus on
13:59
Speaker 1: European medals and mining to uh, to really understand what's
14:03
Speaker 1: driving the declines that we've seen in metals. Is this
14:06
Speaker 1: just concerned about escalating trade wars? Um, Hi, good oftening,
14:11
Speaker 1: good morning. Look you know in in in the short end,
14:14
Speaker 1: the answer to that is yes. I mean clearly what
14:16
Speaker 1: we've seen over the last you know, over the last
14:18
Speaker 1: few days is uh. You know, copper respond to the
14:21
Speaker 1: sort of macro the risk off sort of trade, right, um,
14:24
Speaker 1: And your sort of point about dr copper. People use
14:26
Speaker 1: the copper rice, you know, for for whatever reason to articulate,
14:30
Speaker 1: you know, a view that they have around around around
14:33
Speaker 1: global growth. It's liquid, it's easier to trade. You know,
14:36
Speaker 1: people can get into and out of it fairly, fairly easily. However,
14:40
Speaker 1: I mean, I think the other point, however, you've got
14:41
Speaker 1: to sort of look at, however, is if you were
14:43
Speaker 1: to look beyond copper. So let's say another elemy traded
14:46
Speaker 1: commodity like nickel that's actually up today, that's been on
14:49
Speaker 1: a bit of a bull run for the last for
14:51
Speaker 1: the last few months, and that sort of defined you know,
14:54
Speaker 1: the negativity around the sort of macros endment to actually
14:57
Speaker 1: post some pretty significant gains. So what we're sort of
15:00
Speaker 1: seeing in these commodities is something of a mixed back.
15:03
Speaker 1: You know, the the economic fundamentals eventually will trump essentially
15:08
Speaker 1: or overtake the risk offs, you know, trade and the
15:12
Speaker 1: risk off sentiment, and you'll actually see supply demand fundamental
15:15
Speaker 1: start to matter. But in the immediate short term for
15:18
Speaker 1: a commodity like copper, there's no immediate deficit, and so
15:21
Speaker 1: people are using it as a proxy for global trade.
15:23
Speaker 1: We're speaking with Paul Gates, senior research analysts for Sanford Burns,
15:27
Speaker 1: calling in from London. Paul, thanks so much again for
15:29
Speaker 1: joining us. Just wondering kind of as we think about copper,
15:33
Speaker 1: give us a sense of the supply and demand model
15:35
Speaker 1: that you see playing out here. I'm just looking at
15:37
Speaker 1: the charts. Lisa mentioned kind of an ugly chart, but
15:39
Speaker 1: what's your sense on the supplied demand dynamics for that metal.
15:43
Speaker 1: I mean, if you actually look at the sort of
15:45
Speaker 1: fundamentals and you say, look, you know, supply demand as
15:47
Speaker 1: you as you talk to what you see at the
15:49
Speaker 1: moment is a market that's actually in deficit, not a
15:51
Speaker 1: huge deficit, but slight deficit. Moreover, if you're to look at,
15:55
Speaker 1: for example, the position of the lem me say, for example,
15:57
Speaker 1: terminal market inventories. If you look at them of metal
16:00
Speaker 1: that's available on either you know, LM, Shanghai, COMEX, you
16:03
Speaker 1: know you're dealing with very very little metal actually available.
16:06
Speaker 1: Only about six or seven days worth of infantry is
16:10
Speaker 1: actually sort of there. So from the fundamental supply demand perspective,
16:14
Speaker 1: the industry is actually sort of looking pretty you know,
16:16
Speaker 1: pretty pretty healthy. Moreover, if you would have rolled this
16:19
Speaker 1: forward a few years, what you start to see as
16:22
Speaker 1: an industry whose fundamentals tightened up dramatically today's kind of
16:26
Speaker 1: copper price, it's very very difficult to invest in any
16:29
Speaker 1: new form of supply. It's uneconomic to build a new
16:32
Speaker 1: copper mind certainly on economic if what you're aiming for
16:35
Speaker 1: is one of these larger, more complex or bodies that
16:38
Speaker 1: have been developed over the you know, over the last
16:40
Speaker 1: few years. So really there isn't any supply growth. Demand
16:44
Speaker 1: growth continues to track, you know, at least in a
16:47
Speaker 1: trend sense, what it's always done, which is to sort
16:49
Speaker 1: of you know, follow global industrial production. So you roll
16:52
Speaker 1: this out a few years and it's you know, almost
16:54
Speaker 1: inevitable that we're going to see the copper price rally
16:57
Speaker 1: from rally from here. However, of course the immediate short
17:00
Speaker 1: term people aren't interested in, you know, the fundamentals. All
17:04
Speaker 1: they're interested in is the ability to articulate a negative
17:07
Speaker 1: view on for example, you know, the the R and
17:09
Speaker 1: B Chinese growth uh and and trade sentiment and the
17:13
Speaker 1: copper prices a convenient means by which they can do so. Paul,
17:17
Speaker 1: really quick, thirty seconds here, which medal are you most
17:19
Speaker 1: bullish on? Then over the next six months, Over the
17:23
Speaker 1: next six months would certainly be bullish on copy. We'd
17:25
Speaker 1: expect to see her recovery there. I think going into
17:27
Speaker 1: the going into the seasonal trade at the end of
17:30
Speaker 1: the year, there's a case to be made, you know,
17:32
Speaker 1: even for a commodity like iron are that has had
17:34
Speaker 1: something of you know, had a very dramatic sort of
17:37
Speaker 1: bull run. We also continue to be supportive for commodity
17:40
Speaker 1: like nickel and something like palladium as well. Paul Gay,
17:43
Speaker 1: thank you so much for joining us Paul Gate as
17:45
Speaker 1: a senior research channels covering European medals and mining for
17:48
Speaker 1: Sanford Bernstein based in London. We appreciate your comment if
18:05
Speaker 1: we talk fixed income. We talked to Ira Jersey, chief
18:08
Speaker 1: US interest rate strategist for Bloomberg Intelligence, we should start
18:11
Speaker 1: with yields that touch the lowest in the US yesterday
18:15
Speaker 1: all the price action. I want to start a little
18:18
Speaker 1: bit differently though, because we got that op ed in
18:20
Speaker 1: the Wall Street Journal of former FED chairs saying that
18:23
Speaker 1: it was really important to have an independent FED. Meanwhile,
18:26
Speaker 1: James Bullard spoke to the a f P. He's a St.
18:29
Speaker 1: Louis FED president, and he said that the FED has
18:32
Speaker 1: to avoid uh sort of responding in with rate cuts
18:35
Speaker 1: every time there's a tit for tat in the trade war.
18:38
Speaker 1: This seems to indicate there's a pushback to the assumption
18:42
Speaker 1: in markets that the FED will respond with deeper cuts
18:45
Speaker 1: to the trade uncertainty. Ira, what's your take on this? Yeah,
18:47
Speaker 1: I think that James Bullard is probably the first of
18:51
Speaker 1: probably a few FED speakers that are going to come
18:52
Speaker 1: out over the next couple of weeks and talk about
18:55
Speaker 1: that we're looking at the real economy and we're looking at,
18:57
Speaker 1: you know, how trade and trade tensions might impact the
19:01
Speaker 1: real economy going forward, and that's what we're going to
19:03
Speaker 1: react to we're not reacting to headlines, were not reacting
19:06
Speaker 1: to tweets. We're going to react more to the kind
19:09
Speaker 1: of the the boots on the ground and the normal
19:11
Speaker 1: things that they look at. And I think that the
19:13
Speaker 1: cut that occurred in July was in part um that
19:17
Speaker 1: they had the ammunition because there was increased in certainty
19:19
Speaker 1: about the economic outlook. There is slowing global growth and
19:23
Speaker 1: when you look at some survey indicators like I s
19:25
Speaker 1: M new orders, they're teetering on the edge of growth
19:29
Speaker 1: actually going negative. So um, so that's something that the
19:32
Speaker 1: FED wants again in front of. So you know, the
19:34
Speaker 1: other thing that he said that that President Bullard mentioned
19:37
Speaker 1: was he's going to be looking at incoming data. So
19:39
Speaker 1: it's really about data and then data expectations regardless of
19:43
Speaker 1: you know, what either the president wants or maybe what
19:46
Speaker 1: even what the markets expecting. So I I'm looking at
19:49
Speaker 1: the tenure treasury right now one point seven five, one
19:52
Speaker 1: point seven six, and I know that they and when
19:55
Speaker 1: I look at the futures, the markets pricing in three,
19:58
Speaker 1: I guess more more likely four rap cuts going forward.
20:01
Speaker 1: What is the market seeing that perhaps the feed is
20:04
Speaker 1: not and maybe some observers are not seeing as it
20:07
Speaker 1: relates the economy. Well, yeah, yeah, I think that the
20:09
Speaker 1: market really is looking forward to additional and firstly uncertainty,
20:14
Speaker 1: but also much slower growth and also you know, kind
20:17
Speaker 1: of easier, easier monetary policy globally, So the idea that
20:21
Speaker 1: the ECB might be starting a new round of quantitative easing,
20:25
Speaker 1: so a lot of a lot more asset purchases, as
20:28
Speaker 1: well as maybe another deposit rate cut in September. So
20:31
Speaker 1: all of those things I think are weighing on on
20:33
Speaker 1: the market. So the market was pricing in for another
20:36
Speaker 1: for basically what we are now about a month ago,
20:39
Speaker 1: and then things kind of got better, at least from
20:41
Speaker 1: a sentiment perspective, and then you know, over the last
20:44
Speaker 1: week they've gotten really four days, they've gotten significantly worse,
20:48
Speaker 1: and and it's it's all about sentiment, I think, in
20:51
Speaker 1: the market right now. So we could easily take back um.
20:54
Speaker 1: So right now we're we're priced for another four cuts
20:57
Speaker 1: by the end of next year, by the end of
20:59
Speaker 1: twenty twenty, so two more this year to next year,
21:02
Speaker 1: but we could easily take one or two of those
21:04
Speaker 1: back in in a heartbeat. Basically, if say trade tensions
21:08
Speaker 1: end up end up being um being resolved to say
21:12
Speaker 1: at the beginning of sometime in September, when the US
21:15
Speaker 1: and China have these talks, and you know, that will
21:17
Speaker 1: change that sentiment very quickly. So it's one thing for
21:20
Speaker 1: Jimbler to come out and say that the FED can't
21:23
Speaker 1: respond to every t tit for tat in the trade war.
21:26
Speaker 1: It's another thing for j Powell, the FED chair, to
21:28
Speaker 1: come out and say that. And I'm wondering, especially in
21:30
Speaker 1: light of that op ed that was printed in the
21:32
Speaker 1: Wall Street Journal, I'm wondering, is there a growing fear
21:35
Speaker 1: that J. Powell is not independent, that he will cave
21:38
Speaker 1: to market sentiment and market expectations and the pressure to
21:42
Speaker 1: be overly easy at a time when the economy still
21:45
Speaker 1: looks good. Well, I think we give a little bit
21:48
Speaker 1: too much credit to the FED chair. I think, you know,
21:50
Speaker 1: you know, Alan Greenspan was probably the first kind of
21:53
Speaker 1: imperial chair of the of the Federal Reserve. UM. So
21:57
Speaker 1: I think at this point there there are people like
22:00
Speaker 1: Richard Clarda, for example, who he's not going to be
22:03
Speaker 1: beholden to tweets and he's not going to be uh,
22:06
Speaker 1: He's gonna look at data within his own, his own
22:08
Speaker 1: monetary policy framework and make his decision based on on
22:13
Speaker 1: that reason. He's uh, so, I think it's not J.
22:16
Speaker 1: Powell that that you have to worry about, but it's
22:18
Speaker 1: you know, how how how much are all of the
22:20
Speaker 1: other members of the FOMC influence And I suspect that
22:23
Speaker 1: most of them have big enough egos, personalities and our
22:26
Speaker 1: type of personalities that that while they're they're not going
22:30
Speaker 1: to be immune to you know, some of the chatter
22:32
Speaker 1: by by people in the administration, they are going to
22:35
Speaker 1: ultimately act independent and in how they believe they could
22:39
Speaker 1: best serve the the economy of the United States. So, I,
22:42
Speaker 1: I know, interest rate geeks like yourself model this stuff out.
22:46
Speaker 1: Where do you think the tenure treasury yield should be
22:49
Speaker 1: given economic data? Are you okay with that? I prefer
22:53
Speaker 1: to be called a nerd but o um, the so,
22:57
Speaker 1: so our model has fair value right now just based
23:00
Speaker 1: on where economic conditions are at a little bit over
23:03
Speaker 1: two percent, closer to two and a quarter percent. So
23:06
Speaker 1: you know, we are very rich to where where our
23:09
Speaker 1: work says is fair value what the markets pricing right now? Um,
23:13
Speaker 1: if you if you just plug things into our fundamental
23:15
Speaker 1: fair value model. UH, it's pricing basically stagnant growth. So
23:19
Speaker 1: we have not a recession, but we have zero GDP
23:22
Speaker 1: growth priced in as well as the Federal Reserve starting
23:26
Speaker 1: what we're dubbing is QWI light, so so the Federal
23:28
Speaker 1: Reserve starting to keep reserve balances constant and do some
23:32
Speaker 1: modest bond buying. So so that's why I say, like,
23:35
Speaker 1: we have this big uncertainty premium built into the bond
23:38
Speaker 1: market right now. And just like we got here very
23:41
Speaker 1: quickly in three days, we rallied you know, thirty five
23:44
Speaker 1: basis points. We could easily undo all of that in
23:46
Speaker 1: just a few days as well, if there's some sort
23:49
Speaker 1: of certainty that's built into some of the expectations for
23:52
Speaker 1: the economy and UH, and the the trade tensions going forward.
23:56
Speaker 1: Our Jersey thank you so much. Our resident interest rate
24:00
Speaker 1: a NERD is the preferred term. Excuse you totally went
24:05
Speaker 1: way off the reservation there, exactly. Chief US Interest Rate
24:07
Speaker 1: strategist for Bloomberg Intelligence and joining us on the phone
24:10
Speaker 1: from Princeton, New Jersey. We appreciate that. Thanks for listening
24:13
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
24:15
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
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Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
24:22
Speaker 1: I'm Lisa abram Woyit's I'm on Twitter at Lisa A.
24:24
Speaker 1: Bram Wits one before the podcast, you can always catch
24:27
Speaker 1: us worldwide. I'm Bloomberg Radio