CPI, Markets, and Telecom (Podcast)

a Bloomberg Intelligence for thirteen years. Uh, since the absolute beginning of Bloomberg Intelligence. Prior to that, he was a Goldman Sachs for like twenty years, a managing director doing god knows what over there um. But he's been picking stocks for a long time. He's seen some good names, some bad names. Tim is joints us here in a Bloomberg in Actor Brooker Studio. Tim Europe, we think of the US market, Oh my goodness, at SMP five PC

last year it was just a brutal year. Talk to us about European stocks last year and kind of what the alok is for this year. Absolutely, thanks for having me on Um, Matt, you look great. Thank you. I love the beard. Thank you. You're one of the few. So they they Europe certainly was under pressure last year, but it wasn't under nearly the pressure that the SMP

five was UM, and obviously NAZAC was even worse. UM, so you're ape out performed interestingly from the bottom of last October where there was a trading low in Europe. It's like over here, uh, European markets are up six UM the foot see as the biggest market within the within Europe is up. So there's there's been a nice move there. And you know, there's been this battle evaluation versus earnings UM. Last year, evaluation one earning state really high.

Surprisingly so UM evaluation just got crushed with rising interest rates. Since October, we've actually seen earnings roll over. We've had five percent negative revision in two thousand twenty three earnings estimates for the stock six hundred. But the market's risen because evaluation is now looking out towards the two thousand twenty four recovery, and valuations also in Europe are much lower than valuations here. Right on the S and P

five hundred. The other day, I was looking at it was almost nineteen percent again right, nineteen times earnings excuse me, and UM Europe was more like twelve. It's twelve twelve and a half times forward UM currently for the stock six hundred, the foot seas at ten point four. Now, the issue for is you've have explained to me over the years and as I read your research from you and your team, is Europe the UK have a much lower weighting and technology versus the US markets, and that

accounts for the valuation differential and the performance. Yeah. Absolutely so. We we put out a note last week. Two things I think of note relative to to this UM. One was on valuation specifically and and oriented towards the foot Sea given that it trades at such a low multiple. And you know, the comment was essentially you can find it on the terminal. You know, it's it's cheap for

a reason. And you know you've got big components of energy and materials and banks which trade at lower multiples. Especially with the energy and materials, it essentially peak earnings and so therefore multiples UM and it's got zero tech will one percent tech UM. So it's just a dramatically different proposition. And that whole idea that we've talked about

in terms of value investing versus growth investing. Europe broadly, the foot See specifically, is more value oriented than say the US, and it plays into an environment where interest rates and inflation, even if they're coming off peak, are still at relatively elevated levels. And I tend to think of the U s as as heavy and Europe as oil heavy. And I guess if you're heavy in any one sector, that would lead to more volatility, right, less diversity, UM.

But I don't think Europe is really as it's really the Footsie that's oil heavy, right, because they have a roll up shell British Petroleum UM, and it's the rest of York just has like Total well it's Total and and and SAL and and E and I. But it's it's five of the market for the stock six hundred, even including the UK UM, where the Footsie is about ten,

so it's it's definitely heavier there. I would say that Europe is still commodity heavy relative to your relative to the US, but there it's it's part metals and mining, which again is heavy in the UK, but in Europe broadly the continent it's chemicals and Yeah, that's one of those things where right now that's a question is to whether that's pressure point or an opportunity becau as you know, our energy prices higher or low, which is an input cost by the US is I mean, how much of

the S of the S and P is tech? It's like fifercent right, Well, it's more than that. And if you include e commerce is tech. And if you include the Internet which is in media, and you take that whole conglomeration, it's still call it three percent of the mark all right? For for all our listeners, I'll point out, just as an aside that Tim and Matt obviously go to the same barber, and we'll just leave it at that.

Um So, Tim, as we look ahead to what are your end you know, to the ribbing bald men get we're people to Paul, people to exactly Tam, what are our things here? As we look to the UK and your Yeah, I think you know, a big issue for for the region is going to be no no surprise what happens to energy where it was a much bigger shock than it was over here. And thank god we've had a warm winter so far. It's not good for skiing in the Alps. What there's no snow right now?

It's horrible. Didn't you just go skiing there was snow when in the US we're just delu California cannot dig out from all this. Although I was in Vermont for New Year's and that wasn't so hot, never never was. But nonetheless, so I think energy rolling over is a huge, big deal from the standpoint of reducing some of that um threat um that could have really put a spanner

in the work, so to speak, for the economy. And you know, that's lifting you know, the opportunities we can look towards two thousand twenty four unless something stupid happens

between Russian Tchin to reopening. Like when I think of some of the European companies that I think of Semens, it's the big german manufacturing, I say, I was that that's a second one, that is a it's I think it is more leverage to Europe because of its industrial, consumer, discretionary um commodity base that feeds into a China reopening. And the Europeans have just gotten along with miracle. Will hold a call with Shiji and Ping and they're nice

to each other. It's different than the Trump China relationship. Now, the Biden China relationship has been very adversary, uh and adversarial. I think that's that's that's where you go, thank you uh. And the Europeans have been courting China, you know, um, we have been angry at them for that, but now they're going to reap the benefits of both their relationships with China and global warning. Both of those things turn out to be good for democracy. It's kind of crazy.

I do think that we've had lots of discussions about this that it pushed came to shove and you had two spheres of influence. Germany will leg in with Europe and will leg into the US sphere as opposed to the Chinese sphere. But there's definitely plane both sides where possible. I think another big theme is just you know, talking to climate change and whatever else. It's just what happens

on the whole sort of infrastructure green approach. It's a big issue within the energy market, not only because there are pure plays there, but you've got the big energy exposure and what are they doing from the recycling of their capital. They're not they're not digging new holes in the ground for oil. They're putting it into renewables in various ways, and it's a pretty interesting theme. Good stuff

coming out of Europe, coming out of the UK. Tim Craig Headies Director Research and Senior European strategist for Bloomberg Intelligence. He's based in London, Queen Victoria Street. Just an awesome, awesome building, uh, that we have in Bloomberg in London. But he's here in New York this week. How cool is that. Robert Teeter, head of Investment policy and Strategy at Silver Crest Asset Managers, joins us here in studio, as does Jay Hatfield, CEO of Infrastructural Capital Advisors. So, Jake,

we saw the inflation data today. It looks like it's moderating. What does that mean to you, Well, we're far more bullish than um certainly the Federal Reserve on inflation and some market participants, because we really look at CPI dash R, which is our own index for inflation, which sounds exotic, but all it really is is just the way cp

was calculated before. So instead of using the BLS is highly lagged shelter component, we use case shoulder and that index and you can verify this on the terminal leads the shelter component by twelve months with a sevent correlation. I'd like that chart. I'll make the charge. Yet, that's

that's interesting, Bob. What do you think I mean? Um, inflation seems to be In hindsight, it looks like inflation was transitory, and maybe I'm too early to say that, but just a year later, well, I think there's been a few different cycles within inflation. Certainly energies one, shelters one, the goods components one, services as another. They're all in their own cycles, all a little bit different in terms

of their transitory nature. To me, the key thing is that the past few months, the month over month figures have been coming down significantly. I think that gives the FED a little more flexibility. So while they'll continue hiking, it's in smaller amounts. They might then proceed to a pause, and then I think they have a bit more flexibility if the economy weakens to change policy, because they're able to point to those metrics that improvements have been coming.

And so I think when we see them acknowledge that publicly, that'll be a signal that their mindset is we have started to hear speakers come out. Bostick the other day was like, wait until CP I maybe I'd be down with five. Then yesterday I think Susan Collins came out and said I'm feeling twenty five, and today Harker was like, twenty five looks good. So I guess they're trying to tell us, not all voting members obviously, but that you know,

February first could be twenty five rather than fifty. But they're definitely not going to pivot and cut right because then they would lose credibility all over again. That's right. I think they've earned a lot of credibility. They've they've clearly indicated that they would prefer to be tougher rather than weaker. They'd rather make the mistake of hiking too

much for too long. So I do think the basis point hikes will continue, although I thought the comments today from Parker acknowledging that the days of seventy five are long behind us, we're also encouraging. I think in the past there had maybe been some fear that those type of hikes might continue, and I think that's starting to fade into the background. But by the way, isn't that

a better mistake to make. Ja I mean, I heard someone this morning say the FED made a mistake, you know, by not raising rates early, and now they're making another mistake by raising rates for too long. But um, making a mistake and allowing inflation into the picture, real inflation, that's a big mistake, whereas making a mistake that causes a recession tightening a little too much, it's not a huge mistake. Well, that's a great representation of the Fed's view.

We don't agree with it, okay, because no, Matt, you're wrong. Just say the Fed, I mean, it's incredible entity. But the reason we don't believe in that theory is that the FED, we think, is too focused on the labor market and expectations, and we don't think that there's a risk of a wage price spiral. We really look at as a price wage downward spiral. So in other words, goods prices really drive wages, and if you really look

in this cycle, wages real wages of declining. So we don't think it's a problem, but we recognize the FED does, and that's why we're bullish on the market for the year, but cautious for this first six months. Because of exactly this debate where the market really thinks inflation is cooling or negative. Jeremy Siegal says that our index printed negative point two, So you have that camp and then the FED and they get to talk every day doing open

market operations. So if you're trading the market, that's always a risk factor. So we're thinking for six months volatile, second six months should be more bullish, Bob, what's what's your calling your shop? What are you guys thinking about as we head into after just a brewo, no matter where you were. So we're modestly optimistic on the course

of the year. The timeline is difficult to predict, I think because I think I have two influences going on, one which is earnings, which we think will be perhaps a bit better than than feared, maybe around flat, a little bit positive, I think, with a lot of dispersion beneath the surface, because the same cycles that are going on within inflation are playing out across revenue and cost structures of companies, So a lot of dispersion and earnings.

But we think that decline in inflation throughout the year, that change in FED tone will improve valuation. So I think I'll get a little bit of a lift from improved valuations as we navigate the year. All right, so, uh, the valuation picture I think has been really interesting, and in terms of price earnings it's still we're still valued, I think too high. It feels like right nineteen times earnings. If you look at the S and P, where should we be? And you know, um, are there better metrics

for you than P? Well, I think there are a lot of different metrics. Of course, the one that that we pay a lot of attention to is looking at PE relative to where rates and inflation are, and that's where I think we might get some of the upside boost on PE. So I agree with you point in time. Today it seems like stocks are certainly fairly valued and

not cheap. But as we see this turning and inflation, and as we see interest rates stabilize and potentially decline over the course of the next year, then I think that gives you room to boost PES by a bit, not a lot, but I think there is a little bit of upside there. So we're not looking for massive gains, but a little bit from the earning side, a little bit from valuation puts you into pretty decent place certainly

a lot better than last year. Hey, j I, you know energy is just ripped in that I missed that trade, Am I done? I don't think that energy stocks are going to lead the market this year. We're projecting that oil trades in a pretty tight range e D two hundred. But I will say that this is a very very warm winter, as you can tell if you live in New York City and in Europe as well, and that

was really the core of our both thesis. And having said that, China's opening, so we're sticking to our eighty two hundred, but that doesn't really argue for a rip roaring energy market, so we're looking to more interest sensitive. We are projecting a three tenure, which by the way,

does increase the fair multiple. Attend at a three yield on the treasury, that implies an eighteen and a half fair multiple, So you should really always look at them to see so you can accept to higher pe when yields are when rates are lower, right, that's the output of a d CF. We run a constant DCF. But but our bullish thesis requires rates to go lower because right now our fair values thirty eight hundred on the

SMP so it doesn't go lower, we're in trouble. What does what does the interest rate environment mean for you for your businesses right now? You know, not your investment outlook, but for the companies that you're running well, the companies. There are certain companies that have exposure to short rate to floating rate, and that is a headwind for some companies. A lot of them swap it out or buy caps. But that's something that we're changing our models and reducing

estimates for and that's a problem. I don't mean to call it your specific companies. I'm just saying no for business, you know, for for industry. Yeah, we fought. We have models on all the companies and we follow a lot of companies and they're all have headwinds and that is a risk. But we don't think the Feds. We think

three more increases are pretty much in the bag. We don't think that's going to hurt the economy that much because long rates are likely to be going down, because that's what's normal when the Feds overtight and most consumers are exposed to long rates and not short rates. In the United States, Canada they have more floating right then I might be going some long term debt coming up here soon. So I'll be your consumer who's in very good shape. And actually it looks like most US consumers

are in pretty good shape. Even though savings rates have come down substantially looking at this on the Bloomberg bank balances are still very high historically. UM now we're starting to see that rollover and we're starting to see credit card UH people start to leverage up a little bit, but not too much. What do you think about, Robert the U S consumer? I think there's still some room left for the consumer. It will be mixed across goods

and services. But what we've seen so far in terms of the early comments from banks Jamie Diamond the other day, looking at what happened with regard to airline reporting today, looking across consumer discretionary earnings, they've all been pretty good so far. It's very early days, but that indicates that the consumers still got some runway in front of them.

Job market remains very strong, also mixed a lot. There are a lot of jobs on offer, but there's certainly places like tech and finance where there have been some layoffs. So we think inaggregate, consumers still has some runway but a lot of noise beneath the surface. By the way, I was talking with my financial my personal financial advisor yesterday and I was like financial advisor, I was like, dude, can we I've got a little bit of cash that's just in a savings accounting said, can I put this

in some high interest rate like hips. We were talking yesterday, UM about the high income passed throughs this e t F and he said, listen, that's can you give you ten sent but we need for you to meet your goals, you need to quadruple your wealth and then multiply that by ten. So we need to get a lot more aggressive. Um. I had a lot of other people must be in that. That's not where you are. I mean, I'm almost fifty. Uh no, I should have been here twenty years ago.

But nonetheless, I think a lot of other people are in that position where they can't necessarily. Yes, you get some juicy yields. We hear um people advising institutions saying, hey, yield to worse for I g is five and a half percent. That's great, but for me it's not enough. What do you see out there in terms of opportunities for people that need to amp it up. I think it's all about time horizon, but I do think there are some interesting tail winds developing in some portions of

the equity market. So one of the themes that we've been looking to that's been kind of buried beneath the surface the last few years, there's been this re on shoring theme. So it became very prominent in the early days of COVID with supply chain problems, sort of got breast beneath the carpet, and it's back. If you look

in the chemical industry, there's been big job gains. You look at these big announcements in terms of chip companies, we think there's some interesting opportunities there in terms of industrial and manufacturing. The second theme we're looking at as the migration of technology into business. That's something that's been unfolding a bit. We think it will accelerate with some of the decline and employment in the tech sector and

those folks moving out into real industry. So we think there are some exciting things happening where wealth can compound over time. All Right, we're still waiting to hear from President Biden. We have this live shot of the White House and uh, Um, he's supposed to come on at ten. Here we are at ten thirty three, still no sign of him. But when he comes, we'll bring you live comments. Series has some comments on the economy and inflation. Uh print today. Um. You know, the definition of insanity is

continuing to do the same thing and expecting a different outcome. Right, I don't know why we expect President Biden to come out on time, and then we had a White House give us the two minute warning like five minutes ago. But that happens all the time, and he's constantly late. No offense to him, and he's got a lot to do.

It's a busy guy. He's very busy. But I'm just saying for us, as we're lining the shows, we're producing this, you know, as we're planning things, Eric, we should note that President Biden is always like thirty to forty minutes late at least. And that's why Eric keeps us. He just says, keep going, keep going. I want to talk about reets, Jay, I know you guys have an in for CAP preferred E t F. Talk to us about the reach space and just kind of as we walk

in hands on the energy sector. Right, what's up? That's a ret that leans on the energy set you are preferred stock stock. Now as I walk through Midtown Manhattan and I look at all these beautiful buildings, they're empty. What am I doing with reats? What am I doing with real estate? Well, the exposure and that fund is pretty limited on office. Having said that, um surprisingly a office even in Manhattan is going upward doing well. It's really the B offices they're getting smashed. This is in

my office here, I'm sitting in right. Everything else on the Lexington Avenue corridor is B is it if not C or D right, So that's going to get redeveloped. But the good thing about reads is that they're not very levered and they have long term leases. So by the time all those leases expired, there will have been movement out of the B space and conversions to probably residential. So they're under levered credits that survived well during cycles.

And that's really the investment bankers rarely what I give them credit. But they didn't want to sell, which formally was but I reformed, but they've actually required. We made a pitch when I was investment banker to one of our clients to be a read and I said, oh, let's put six leverage on it, and they said no, no, no, this has to be full cycle because we're gonna sell it to retail, so it's only leverage. So surprisingly, they're

they're really good credits even when they're pressured like in cycles. Now, in terms of you know, I always think of the housing market here is driving consumer wealth and I was lucky enough to get in right at the top. Um, do we see that as a real problem, Bob, because no, nobody seems that we're wried about it. We've seen a substantial drop in prices, and a bigger drop has been forecast by some boys who cried wolf. I guess is it is? It not as bad as had been expected.

I think there are a few influences, So one is that it it is bad in terms of there's been a big slowdown in terms of activity, which will delete some economic growth and is one of the underlying cycles in the economy. So the slowdown in housing with rates where they are right now, is something that that really will be a headwind for the economy. I think in terms of house pricing and wealth effect, it's similar to

the equity market. If you look at it in isolation over last year, it's a challenge and a problem, but when you look back over the past few years, not so bad. So I think if you wait that out, you have some people who will certainly be underwater on prices, a little bit of declining wealth effect, but by and large, over and reasonable period of time, that's not been a

big problem yet. So that's one of the reasons why it's important to get inflation under control, hopefully get mortgage rates under control, maybe back a little bit lower as we look ahead. All my problem is that you three guys are all probably on the other side of my guy Rick. He said, listen, if you want to send your kids to like Ivy League schools or even just college in America, um, you still need like way more income. But he said, if you send them to school for

free in in Europe. My wife is from Spain, you're good to go now, right, so just move back in like fifteen years. That's what I want to do. But my wife says we should give the kids the opportunity to go to some of these expensive U S schools because from her vantage point, the Europeans see this as an amazing experience, like a social chance that you never

would have in a European lifetime. And I feel like that's just I'm throwing away like a Rolls Royce culling in if I send one of my kids to four years of college in Americas. In investment, it's not expensed. It's an investment, but it's just a party, right, Am I wrong about that? You're not? I mean, you're not too that far removed. Um Bob, what do I do

with bonds? I had historic losses in bonds last year, and for an equity guy like me, when people tell me that they've never see those kinds of losses, I'm like, I'm all in, baby, you know, both hands buying bonds. What do you guys doing in the fixing comark? I think bonds do look pretty compelling here. And what's exciting about it is that you don't have to stretch that far to get a decent yield. So in the past

there was this, you know, stretch for yield. People were willing to give up liquidity, they were willing to take on all sorts of extra credit risk. You don't really need to do that here, So that the assumption if you walk in that that you can generate four to five percent with relatively conservative fixed income, keep duration not that long, don't take a lot of credit risk. Those

are decent returns. And so for institutional portfolios like endowments and foundations that are targeting five percent spend rates, that number is pretty close to that spend rate. It's a good investment. So we think there will be some good opportunities in fixed income and you don't have to get too creative to pursue them. What will be you don't think that they're already have they are now, So will be good returns and fixed it Okay, I mean, j if you see rates coming down, I mean did you

jump in at four in a quarter? Well, what we jumped into was preferred stocks, So in fact that was our call like a week and a half ago. But still do prefer yes, but they're up like almost one of our funds is up almost ten percent this year. And so typically they're vaulatile securities. They get sold way too much in the cycle because they have very low default rates. So if you're they're definitely more vaulatile, but

less vaultile than stocks. So that's where we have been suggesting to step in, and so far we've been right this year. By the way, do you care that it took Kevin McCarthy like fifteen votes to become the Speaker of the House. Do you care that we could see the debt ceiling come back as like an issue, certainly for the media, but possibly for markets as well. Does it matter to you as an investor? I mean, we think it's mildly positive because it's just indicative of gridlock,

and we're not big. We don't think that the U. S economy is driven by government spending, particularly federal government spending, so we think it's somewhat polish, even though the market might trade off if there's a debt ceiling. I was hoping, Bob he would say it's a concern because because the well, I wasn't hoping, but I was thinking that, you know, it's a problem if you can't pass a budget, if the US government defaults, which seems like crazy, but I'm

looking at Washington and they're crazy, you know. Is it a possibility. It's a possibility that will certainly create a lot of volatilities. We get closer to that date, which is somewhere out in the August September time frame, we've seen this movie before. So we've been through it. It's generated volatility before and we've gotten past it. So I'm in the same campus as Jay in terms of good

luck is good on the policy of standfront. You know what you're dealing with as a as a company management team. But whenever you think about the debt ceiling and things like that, that does have the potential to create volatility and probably will and we see it coming. Did you see did see Levine yesterday? Matt Levine? Yes? On the debt ceiling. His story starts out the dumbest thing in economics, the US government's debt ceiling. Yes, exactly. Uh, you have

money stuff. Matt Levin's money stuff is must read every day. I have an alert set up. He's talking about premium bonds. He thinks they should issue premium by so like a bond that yields like sixteen per cent, but instead of selling it for face value, they sell it to you for double that. Right, because the dead ceiling, apparently the law says it's all about the face value of the dead issue. They don't care about the interest expenses. And even I guess the premium would be okay for the

Treasury to pocket yeah, I mean so good stuff. I always recommend reading his stuff. Laura Martin is a senior media analyst at Native and Company. She's been on the street for decades, covering the entire evolution of the media and the TMT space. She joins U here in a Bloomberg Interactive broker studio. Were so glad to see you're based in l A but here in New York because you guys had a conference, right we did. We had a big the need Um Annual need Hum Growth Conference

this week. I had twenty two CEOs on stage real time talking about the end of the year outlook, super interesting stuff. What were some of the key takeaways for you? For you? So for me? So mostly out driven firms and as you know, advertising firms are down fifty last year had a horrible year. Look. I think estimates are low enough. I think first quarter is going to be weak.

I think fourth quarter, Paul, for the first time you were meeting analysts with me twenty years ago when we first were first Boston, and for the first quarter, like fourth quarter didn't show up. Some guys are going to report a lower fourth quarter than third quarter. But it's in the which you and I have never seen before as media people. But I think it's in the estimates. I think that we don't have more estimate revisions downwards.

So I think I'm hopeful for the second half of this year that UM stocks rebound towards the second half of this year with an outlook for earnings stabilization and ups in the second half and next year. So you're not just looking at reports and you know, reading notes, you actually talk to the CEOs of these companies. At the Needham conference in Vegas, you met with CEOs there, what what are What is their sentiment like right now?

Because I feel like Wall Street is getting a little bit more optimistic about three, a little bit less concerned about FED, less concerned about a big recession, and certainly less concerned about inflation. So so, and let me stay stick to the AD driven parts of the business. I think AD driven CEOs for for tell Um, expect On

are managing their cost structure towards an AD recession. None of them will step up to the level you've just asked about, which is an economic recession, because I dont feel qualified to do that, but I think each of them feels there is an AD recession as advertisers hold back, waiting for consumer demand to show up before they spend

ad trying to drive consumer demand. So met there are a million analysts out there on Wall Street and they all have their earnings estimates and price targets and things like that. Laura does that too, but she's different. She thinks like way out of the box, um and lots of big themes. A lot of her stuff I have to read two or three times to figure out kind of what she's saying. But it's way out there. What are some of yours? So I'm inarticulate. This is what

I've just learned to know. You're a big picture You're a big picture person, which, by the way, so here's a question then, um on a on a bigger picture thought that I've had for some time. Paul hates it when people work from home. To him, that's the bane of his existence. And I feel like this is the future, because we're all gonna live in the metaverse and be plugged in and never have to leave our little pads.

I feel like the one beneficiary of that should be the company that's named Meta, and they've been absolutely crushed as well. So why isn't that a long term buy for you has underperformed the only ones UM so so meta we're particularly worried about, and we do have an underperform which is rare on the street. I think there's fifty five by UM And I think what we're saying is, I think the question we are raising that we think investors need to think through is is there actually a

core business if TikTok isn't stopped. Yes, can you rely on regulators to enter in band TikTok? You can absolutely make a bet on that. However, if they aren't stopped, because in my opinion, TikTok has a real business and it will get bought by somebody rather than just go away. So if they have a real business, it is unclear to me what a social network is worth and whether it has any exit multiple if if TikTok keeps eating the world, but don't you separate that from their ambitions.

I mean, social networks are a flash in the pan. We had frends Tour, we had my Space is pretty gross. I think we can all agree, Um, you've got Instagram and TikTok that are hot right now. But the important thing for me is the metaverse. Aren't they buying, you know, and building this huge metaverse company. So let's go back to say, I'm going to tie that into your C E S question because C E S for the first time ever, and I didn't skip a C E S if it was on, I drove from l A to

see it had a metaverse section. First time ever metaverse included like the PlayStation. I don't know what you guys think. I don't think the PlayStation, which is a hardware based console game system, is the metaverse. The problem is there's four companies in it. There's four booths in the metaverse. So I think the metaverse, first of all, no one defines it the same. What you think you're asking me a metaverse is probably not what I think metaverse is.

As it pause, everybody has a new definition of it. A lot of AI and a lot of AI. I think is the metaverse coming out of C E S. I think what was really important for media as media analysts were pollen I started in the world is screens everywhere Japan. You know, they haven't been replacing their population, so they're making these little robots that look by people. Their face has a screen. Because it's sad it listens to you, it emotes. Guess what, there's gonna be an

ad on that screen someday to lower the cause. Right now, those robots are three thousand dollars a month. What why doesn't Coke put a little coke bottle on the bottom of every one of those screens and perpetuity and pay the company ten million dollars a year. What a great idea. There's screens on their bellies so that you can push, you know, call emergency response or get me a coke, and the robotos and get you their screens on the belly.

The point is in cars and in these new robotics, a lot of robotics on the floor of c e s, they all have screens. And if they have a screen, and advertisers going to figure out a way to subsidize the consumer payment for that physical asset forever, because that's just smart marketing. Put it, you know, put a water mark on it. It's already hapening right The screen in my car says Google right on it all the time.

It's got a Spotify button for me to click. I don't even use Okay, yeah, I'm sure, I just you know, you're right about the metaverse. My definition is much broader than probably I think the Zoom is already in the metaverse. You know, they're pretty Fortnight in the metaverse. Now everybody's like Fortnight it's a metaverse company. I'm like, okay, I think it's a mobile game company. But okay, so I

don't know. The most interesting I would say, look my deliverable when I go to c e S. Because they're showing stuff three years from now, is does it raise a question for me that I've never thought of in my life? And that's pretty hard high standard. It did because one of the things they're showing in you might call it the metaverse they're putting under AI. So artificial intelligence is if you upload videos and letters and um audio tapes, that AI will render your dead loved one.

And they have programmed the AI to answer the top ten thousand questions so you can talk to your your dead mother, your dead sister. There's a movie about that already in in re answering questions for you in their cadence, in their accent, in their person as an avatar. Like, it raises the question, just because technology can do something, should it? Should it do something? All right, let's go back to something a little bit more on the earth. In the Earth, Nelson Belts has taken a position in

the Walt Disney Company. What's your Disney call? Right here? Bob Eiger coming back, our old buddy, what's your Disney call here? So my Disney call is I think Bob igor is best in class at managing people both down and I think yum and I think up. So I think that we're going to get a lot less drama at the Walt Disney Company, which I think is good

for a content company. You know, Paul, they don't have a content Their content revenue is in other under the under Bob shapeck like how dismissive of what is the core business there that they build all of their other economic engines around. So I think we get a refocus on content, which I think is deserved. Um and I think he sells. I think the Walt Disney Company has been very unsuccessful like succession planning, and I think it's a hard job. It's almost an impossib job. It's like

running a government in terms of the brand stringency. So I think Apple buys them. I think that is a good home. Do you think Apple for years that Apple Disney. Yes, and he has said if Steve Jobs had not died, I would because he was on his board right he I would have sold Disney to Apple. That is a good fit. The government will make sure Apple says you can't make your content exclusive. That's smart for ten years like they did with NBC, you can't make this content exclusive.

When Comcast bought MBC, so for you know, ten or twenty years, Apple won't be able to make Disney content exclusive. But at the end of the day, that is a good home. We've got a billion of the wealthiest consumers on Earth in the Apple ecosystem, and the brands are completely brand consistent. And I just don't think there's a person out there that can run the Walt Disney company. It's just too hard. Well, I thought we had I thought we had a perfect set up with Tom Stags too.

I'm such a Tom Stags, I know. And then he Bob Biker's got so many wonderful things on his resume, just NonStop, but a huge failure is the lack of succession, his inability. I agree, and it hurts his legacy because as a as a general manager, you need to have a bench and a succession plan. And by the way, I blame the board more than I blame Bob. Bob's just a great execution guy. But in fairness, like if you're you got to think about the next hundred years,

not just like while you're inten your slight. He tried right, well, no, wouldn't give up power, simple as that. And then when he did give up power, he didn't really give up power. He kind of undermine Bob Jacob. All right, what's the one thing we're not thinking about that you're thinking about? Um? Streaming has ruined the economics of the media business. We're down to one window, right, if we don't have box office, we have a single window. When you and I covered media,

it was seven windows. You know what a good economic model is seven windows where you have ticket sales and your video games, then you have streaming, then you have broadcasts. We need more windows back otherwise the return on content spending is going to be negative as it is today. How do we how do we do that? Because when you and I, you know, we're covering these names. Even ten years ago, a network would spend a billion, two billion,

three billion dollars on content. Now they're spending twelve fifteen, seventeen billion dollars on content. Oh, by the way, and I don't I don't know where the revenue stream is going. And I guess that's kind of the conundrum for these media companies. My costs have gone up, but I don't know where my revenue is coming from. Well, I'm going to answer that, but I also want to tell you, by the way, all these streamers don't have talent back ends. So the talents about to go on strike in Hollywood

where I live because they don't. They're watching their traditional business go to zero and they don't have back ends and meaning they don't have an annuity stream after they produce the content. So they're going to strike because there's sort of nothing to lose for them. So the content costs that we've been paying for streaming is actually cheaper than it's about to be because talent is gonna want to have a back end residual like they do in

music and like they do in the film. Makes sense, So these costs are about to go up for streaming.

So the answer is you have to have consolidation. The thing I am most excited about that everybody's missing, I think is John Malone is back in the media business because he had give up a super voting rights and discovery and so now he's on the board and zaslavs you know that Zaslov team of execution, and Malone's genius of how to make money in an ecosystem, I think is one of the most I expect economic rationality to

come back. The Darth Vader of cable is coming back in the stream to make money, to make money, because we are not going to fund this anymore. We Wall Street have said you must make money, and streaming has been set up to not make money, and it's cost You're about to go up because talent wants to share. Let's talk about Apple a little bit more because you like Apple, and um, they are getting ready to grow into some pretty interesting places. They want to get into

what is augmented reality. I think they're putting out like some kind of glasses or headset this year at least, as a Mark German tells us. And they're gonna put out a car now if they buy Walt Disney there and pretty much everything. What what's the what's the future look like for Apple? So I think Apple has made so as you know, when you do the work, your customers are your revenue. That to what Apple specializes in. Twelve devices. A billion unique users have an iPhone worldwide.

That is the richest fifteen percent of and that is the people who have eighty percent of the economics in the world. Sad to say, but true. So anything that they do, they have ninety billion dollars a year free cash flow, which means no industry is safe unless Apple just doesn't care. It's too small. They're going into cars. That is hard work, you know, it's not hard work selling ads to the top fifteen percent wealthiest consumers they got. My my prediction is they will go into the ad

business in a big way. In they'll be very cautious. It is a eight hundred billion dollar a year business and it is easy to get into. There's established technology partners. So they have to do it brand consistent because they protect their brand at all costs. But it is an eight hundred billion dollar revenue stream that that they have can get partners and they don't need a car. That doesn't have to take them three years, and it's a

it's eighty percent margins. As Paul and I know, why haven't they gotten into the business you think, you know, I think they think it's not brand consistent. And again, like the Walt Disne your company that constantly asked what would Walt Disney do and is gated by that decision, Apple says what would Steve Jobs do? Well, he would never have done advertising, So they really have to go

very I would say plotting the Amazon. Amazon has showed that you can get big quickly, and you can get thirty billion this year for Amazon, and Apple is starting to break away because Steve Jobs would never have put a touch screen in a laptop. That's true, they're going to do that, but that's but they just are just more deliberate when they're going against Steve Jobs. They are just much more deliberate. But I think it is a much better revenue stream and a higher margin and they

should be in the act. You care that I've learned this year that Paul is very angry that they don't pay a dividend. Do you care? Don't care? I don't care? Sorry, I know, I just I would love a nice, saucy two to three pc dividend yield. Uh think, yeah, you can do both. They got cash flow, as you mentioned, all right, since we got here. We're going right down to your list. Alphabet, I mean digital advertising. It was

just on autopilot for more than a decade. It was not so much now how do we think about alphabet, but just kind of the digital advertising space. So I'll answered both questions. So what I think, Paul is this, you know, the search engine has like margins, and it's my opinion that even including you to sort of the rest of their business hobbies, nothing else makes money. Search

writes on a track. My view is that this this ad recession which all my guys are calling for, is going to allow Ruth, who's the CFO that comes from Morgan Stanley, which is a mature, competitive business. It's gonna allow her to cut costs. And it's about freaking time. They need to get rid of some of these hobbies.

And we either they need to get rid of hobbies or we need to take the share price down again because they're not being they're not running a business, you know, and Search is now underseach from this chat you know AI thing and maybe being take syn rows. But the point is if that's about to undermine their core competence, they should be scared to death and they should be cutting costs. So I'm hoping that we get business discipline into Alphabet for the first time because they're scared about

an AD recession coupled with this AI threat. And Ruth has probably wanted to cut costs for three years and just hasn't been allowed to it. Like I mean, Amazon under Bezos was always like they could turn the tap and profits would flow out. They would do that occasionally when Wall Street wanted to take the stock rights down. Um, what is it like under Jase? Now, what do you

think about Amazon? So I think so Amazon, we are writing that you should invest in the Red Cross rather than Amazon because they have five d billion of revenue and they have five billion of costs and they have a million employees and they're making no money. And I don't think that's a business. I think it's a hobby. So I called Shenanigans under Jeff Bezos, okay, like every time he spent lost a billion dollars, he would it would turn into the cloud or would turn into the

ad business. But I don't think you get to just transfer that goodwill from Wall Street to Andy Jaffee, who's a different human being. I don't know what decisions he's making in the five billion a quarter that he's spending that don't make money. And Wall Street has changed its mind this year, as you in, we want free cash flow. And when you're a public company, sorry, Wall Street gets to change its mind on a dime, even though you think you're running a business for multi years. We have

changed our mind. We want free cash flow now. So Jaffee eating it needs to business needs to go back to basos and then maybe he'll get a pass to not make money. If it's Jaffe in the seat. He needs to make money like yesterday. So he's got a million employees, he's not laying off fast enough. He's got to cut costs faster in order to get the sharp price up. In my opinion, there you go boom clear. I mean you walk out of a meeting with law Martin. You know exactly where she stands. So that was good

stuff law Martin. She's a senior media analysts that need him in company based in l a here in New York because they had their big need him company, uh growth stock kind of conference in New York annual. All right, good stuff, awesome. Let's bring in Sam Burns right now, he's founder and chief strategist at Mill Street Research, to talk about well this number, Sam, and you know the Fed, what are they gonna do? How do you take the inflation um? Are we getting back to a good place

and can the Fed kind of slow down? Ali? Thanks for having me on, and yes, I think the inflation numbers have definitely gotten a lot better over the last day six months or so. Uh. You know, you look at the six annualized rate of change of the CPI and we're we're basically just below two percent now, So we're back to where the Fed wants to see it during the period that's the really captures when they've been raising rates, and after the you know that the commodity

spike caused by Russia has kind of petered out. So I think we're in a much better place inflation wise. I think the Fed's main concern now is labor market. Even there, we're starting to see, you know, some signs

that it's slowing enough to towards them off. So certainly seeing the Philadelphia Fed President Harker out today saying that he's in favor of shifting down to twenty five basis point rate hikes as a sign that they're taking that into account and probably will slow down pretty quickly here. So we see inflation coming down here, Sam, certainly, But how about wages here? I mean wage growth has been strong, but certainly below that of inflation. How do you think

about that dynamic? That's right, and uh, you know, workers have not seen their wages keep up with inflation so far, um. But it does show so that you know, wages themselves are slowing and I think that's really what the FED is focused on. And certainly the total wage income in terms of the number of people working, the amount that they're earning prour and the number of hours they're working,

that's been slowing as well. It's not quite where they want to see it, but that's coming down closer to levels of last few months that would be consistent with you know, with low inflation. So I think that's the key metric, you know, taking everything into account, how much people are working, how many and what they're earning. Uh, and that's coming back closer to where they want to see it. Um. So I think it's uh, you know, one of those things where it's bad news is good

news still for the markets and for the Fed. They want to things see things slow down, which is less good for the workers who are earning that money, but better from the standpoint of not having to raise rates so much. So do we take the FED at their word though, that they're gonna you know, they've been so hawkish now the last couple of days we've heard I think at least three FED speakers come out and say twenty five base points instead of fifty, which I could.

I feel like it's a little bit devish. Nonetheless, they all say, you know, Raphael Bostic said we're going to hold rates high for a long time, and the market just doesn't seem to believe them. Why Now, that's right, the market definitely does not see the rates staying high

above five for a long time. Certainly that the way the Treasury YO curve and everything else's position now suggests that they're expecting rates to not only probably not get quite that high, but also to come down you know, fairly soon, meaning potentially even by the end of this year. It's not early next year. Um, And so I think, you know, looking at where the inflation data is, where the wage growth is a lot of what the surveys

are showing I s M and things like that. I think the bond market is going to assume that the FED responds to economic data going forward more like they used to, meaning that signs of slowing in the economy will produce fewer rate hikes and then potentially rate cuts, and that that's seeing things, uh you slow down fairly rapidly over the course of this year, will provoke rate

cuts to bring the rates back down. Because even even the FED things that two and a half percent is the long run, you know, kind of target over the next you say, five years, and so that four and alf for five would still be very tight relative to that long run target, and so there's still room to say, bring it down um from four and alf for five to four and still be considered tight even if it's moving in the direction of cuts. Sam, how do you

feel about the non US stocks? We had Tim Craighead, who runs research for Bloomberg Intelligence in Europe, and he was coming on and he's a strategist over there saying that Europe's done better and he expects it it may continue to do better. How do you feel about non

U s stocks? Yeah, So in my work the last few months, I've been much more in favor of non U S stocks than U S stocks, and particularly in Europe, and a lot of that is driven by what I see in the analyst activity earnings estimate for revisions, I have been holding up much better in Europe than they have in the US, particularly compared to the large cap gross stalks here, and so I think Europe's in fact Europe does not have the big tech heavy names that

we have, is finally now working in their favor and UH and that there may avoid a recession this year thanks to the milder winter and the preparations they've made to deal with energy crisis there. So I don't think things are going to be fantastic in Europe, but they'll

be potentially better than expected. The sentiment towards Europe in terms of the economy was really really negative for much of last year, particularly towards the end of the year, and I think, you know, as that sort of you know, gets mitigated, things look a little less bad than the stocks can outperform on a relative basis. Firsts the US. By the way, I looking January resume, you're an equities guy, but what do you think about these yields were seeing

in fixed income? Is it worth taking a bite. I've been underweight UH bonds in my asset allocation work because the bond yields right now don't look particularly attractive. They've already priced in a fair amount of what the Fed is likely to do in terms of cutting rates, and you know rates may still be going up in Europe as well. Um, so my guests would be that the short end cash is probably better and you know, the longer term bonds right now, but I still like I

like equities better than both than anywhere in fixing. Come at the moment, all right, Sam, great stuff. Appreciate getting your thoughts today. Sam Burns, founder and chief strategists at Mill Street Research, located in sure Born, Mass. I'm not sure what that is. Well, I'm just gonna guess it's somewhere greater Boston, but I'll look on the Google maps later. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever

podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Pet On Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio,