Discovery's Multi-Platform Distribution Is Paying Off

UH stock is actually up about one point two percent today, up about almost for UH the year. To help us break down the numbers four Discovery Communications and kind of the future growth drivers for the Compner's company, We're welcome. Gunner viden Fells, chief financial officer for Discovery Communications. He joins us live on our Bloomberg eleven three of studios. Gonner, thanks so much for being here and for dealing with

my pronunciation. Um. First of all, just kind of just kind of breakdown kind of what what you really experienced there in a second quarter looks like against some pretty good results relative to the street expectations. Oh look, I mean bottom line is it was a great quarter. I'm really really happy with what we delivered UM, you know,

because it chose two things. Number One, the core business is in much better shape than people think, and I do see a lot of longevity that might surprise some people. Number Two, we're also seeing some first you know, results coming in from our investments on the digital side, so that's been helping revenue growth. And uh you know, we we just guided to an actcelebration in in revenue growth for the next quarter. So that's that's that's a great,

great result at this stage in the industry. And uh, you know, the the the bottom line is we're delivering top of industry performance, accelerating revenues, UH, peer group leading margins UM, and we're delivering on our promises. Women like to watch houses get remodeled, and they like to watch people throw down in a cooking competition. H GTV, Food Network, TLC,

all of these are very commonly watched by women. Interestingly, we learned that Gunner's favorite show was The Deadliest Catch, which I love the idea of UM and we've been talking about sharks. But but moving forward, I think one big question for all media companies is distribution and whether you plan to go direct to consumer and how how

you plan to to roll that kind of product out. Yeah. Look, I mean we've always said we we want to go for a maximum possible distribution, and uh, you know, over the past twelve to eighteen months, were now the most widely distributed media company across the traditional and the virtual

MVPD environment. That's I mean, that's that's a major achievement over the past couple of What does that mean that you just do sling in Hulu and Netflix exactly, so you've got the broadest reach, got exclusive your cable satellite, Uh, you know, over the top, We're we're on all relevant platforms and you know, as you said, women like to watch our portfolio. Not a lot of people understand that Discovery is the number one TV company in the US

across all of cable broadcasts for for female audiences. You know that that's that's a pretty powerful position. Uh. Speaks to the value of the content and um, you know that's why we also feel very well positioned. Uh you know as audiences move in to an O, T, T and directed consumer world. Uh. You know, obviously that's still early stage, but we have started deploying a lot of capital into the build out of our global director consumer platform.

We've hired a team. Peter Farisee joined us from from Amazon really knowing you know, how to build those products. Well, you know, I've given guidance to about three or four hundred million negative a bit of contributions for the year. Um. You know that's you know, that's somewhere in the five range of our underlying profit. You know, it's not betting the farm, but it's material and enough to help us make a difference. And keep in mind, we're in a

so much better position to roll this out. We've got this global footprint, boots on the ground and every relevant territory across the globe. We're reaching four close to four hundred million homes every day with with our products, so you know, when it comes to acquiring UH subscribers promoting these products, we're in a very very powerful starting position.

So gunn are. One of the things that maybe a lot of people don't know about Discovery Communications is that outside of North America, you guys are very big in ports. You've made some very big bets Eurosport Olympics rights outside of North America, he had a big deal. I guess most recently be with the with the p g A, so you know, making a big bet on sports. But we've actually seen some investors have read that sports rights in sports viewing has kind of peaked. How do you

view your investment in sports globally? Well, two things. Number one, the market is very different, uh, you know between the US and the rest of the world, because we've never had this sort of stuffing of h of sports into the mainstream you know basic bundle that we're seeing here in the U s which which is leading uh and and really driving the court cutting now uh, you know, in many international markets there's just no court to cut.

And part of that, part of the reason behind that is that that in many markets sports is more of an ala carte product, so not as overpriced as as in the US. Um Number two is for US, uh, you know, we're not going after these sort of you know, top tier premium rights where you're paying up crazy inflation

every three years. We're trying to go for you know, very attractive but a little more niche content, and we're going for as as broad a global coverage as we can get and for long term deals pick the p G E to where as an example, you know, we're we're in that business for twelve years. We've got all of the all of the world outside of the US, so that gives us time to really build out a global product without having to sort of chase rights renewals

every two or three years. And one thing I also want to point out, and the Olympics may be the greatest example for that again long term deal. Uh, you know, eight years all of Europe, and we have a very unique ability to essentially orchestrate all kinds of different revenue streams to maximize the value of this I P that no one else has. Uh. In some markets we will sub license because there's public service broadcasters that with deep pockets that just paid crazy amounts for some of those rights.

And others we have our own broadcast stations. Will you know we did more than viewership on on in Norway on some of the Winter Olympics events and in other markets you know, we'll we'll go in hard with our own O T T product on the mobile devices, etcetera. So so bottom line is we can slice and dies these these rights were in a gatekeeper position and can extract so much more value than many others could. Dr Gunnar vieden Felt, thank you so much for being with us.

Dr Gunn viden Fels, I tried, I think it was, it was, it was. I mean, our producer did way better than I'm gonna Weeden Fells is chief financial officer of Discovery Communications, and I gotta say it is amazing the popularity of these shows. Yesterday was a bad day for risk acids in general, but it was a uniquely terrible day for emerging markets, in particular emerging market currencies. I'm looking right now at the ms c I Emerging Market Currency Index, which had its biggest plunge at one

points two thousand thirteen. Here to explain what exactly investors are the most worried about right now, what they're pricing in his Eric Fine, but folio manager focused on emerging markets fixed income for van Eck Global, Eric, thank you so much for being with us. Let's start there, what our investors pricing in with this sell off? Sure? Thanks, great question, and I would phrase it as or I would my own response would be only beginning to price in?

And I think, um, there are three big things that they're only beginning to price in that are big and they map to growth, not rates. I think everything is being fewed for the lens rate and not through the growth rate. And it's really important. What are they Number One, the FED, The USA is a relatively closed economy. If it's cutting rates because of issues in the big trading nations,

Asia and Europe, how's that going to play out. It's probably going to play out where US growth ends up continuing to do couple and the rest of the world growth is weak. That is dollar bullus. That's what we saw in the first half of eighteen. That's what we've seen for big chunks of chunks of time. And when you look and let's let's say the ninety s basis points of cuts that are priced in happen or whatever reason, well,

that's consistent with really weak growth numbers. That's also dollar bullush. All these countries that have been encouraged to issue dollar bonds, what are they going to do when they see see that they're gonna buy dollars first. So the FED context is really important. The perfect scenario, the Goldilocks scenarios were weak enough and the rest of the world is begins to grow just enough. I don't see evidence of it yet. China is rightly being very balanced Germany, no whole fiscal

stimulus US. The elections too far away. So that's the big thing. That's number one, the number two, but it maps to grow the big picture ideas here are you think that necessary? The sell oft didn't go necessarily far enough. Um? I think that the market had this general view. Um I think that the market was pricing in a rate cutting cycle from the Fed. And it may not be, and it was pricing at a rate cutting cycle because it was too focused on global developments and on rates

and not on what the Fed's narrow mandate is. Now. They may have bought some insurance, but we're relatively closed economy that's not as affected by these big negative developments that they are specifically citing. Just a good chance that we end up in a divergent scenario where the US is doing okay, rest of world isn't. And put put differently, what are they gonna hiking rates? What does that do for China trade? Sorry? Cutting rates? What does that do

for that? Right? Right? Right? And and the dynamic is unusual because this on the second big issue, which is trade, is cutting rates If that's the response to what many think is bad trade policy, that encourages that, and the Hong Kong situation obviously encourages a harder line. So the dynamic so the FED is the context. Trade is the second pigure. I mentioned the third one. But you have a question, Well, let's just the news today or less four hours. UM, now that China has been named a

currency manipulator? Do we care about that? Do emerging market care about that? Well? The facts are they care the pretty much every facts other than Lira where there's direct state intervention, most likely um cared, so they do care. UM. It's a bellweather currency, it's held UM so. I think there are two ways of answering it. The narrow way is no, what happens? I am a for issues of report UM. There are possible restrictions on OPEC. It's a state.

US state agency can guarantee lending, UM limits its loans or a stop from very narrow symbolically though, it's it's it's uh, it's important. My broader question is who wants their currency stronger? Argentina other than Argentina. I could come up with a bunch, but yeah, but that kind of proves the point. But yeah, who wants their currency stronger?

This is this is where the rubber hits the road, and this is where traditionally what's the central This gets to the level of central marks what center are going to do by foreign currency denominated assets of another country. Okay, so you buy emerging markets fixed income for a living, and you're coming in here expressing a lot of concern about the entirety of an asset class. So what are

you buying? Yes, great question, Great way, friend. What I always tell people is if when if your choices for emerging markets boiled down to you waking up in the morning and thinking about President she and Trump and the FED, then that's an issue. Um Why because there are categories of I M bonds that are vulnerable to that. There's a big chunk that are low yielding Polish government bonds and local currency at two percent, Chinese government bonds at

Mexico in dollars at three and a half, Russia. No, I'm saying those are the ones where if we're correct and on one of the two big scenarios that the FED is not on an easy cycle and that there's upside risk to yield, those are that's a whole category VM depth that's very vulnerable. It's over a third. Then there's another category that is vulnerable UM to rising spread duration, let's say, because because there's risk that the FED is growing but the rest of the world is doing poorly,

so they're not doing any better. Rates are going higher, so you better be darn sure that your spread is coming down for idiosyncratic reasons. And there are a lot of country treas that don't fit nicely in that world. I put scom in South Africa, UM, I'd even put Mexico um the sovereign and then although that's also got a low yield problem. Those so those categories are the vulnerable ones. Those are big parts of what people think of as emerging markets. However, there is a large category

that's very idiosyncratic and that has strong reformist governments. They are paying high yields Ukraine. I've been looking at Ukraine for over two decades. I have never seen a more reformist government has likely to have I m F support eight percent yields. Brazil much lower yields, very reformist government, but it's a net credit or doesn't mean that there aren't problems in Brazil. They mapped to the currency, but dollar denominated long dated bonds of petrobrass at five percent yields,

that's attractive that can respond to this environment. So if your general answers, so if my broadest answers, it's about growth not rates. And my narrow answer is if what E M means to you is waking up in the morning and thinking about j Pal and the presidents of

China and Russia. Sorry, President US, be cautious, right. There are a lot of things that are issues, but if you can be selective, there are a lot of great things in EM and the bottom the biggest context is the efficient frontier based on fifteen years of history, says the best category of EM bonds including all categories, were from treasuries to global act of corporates. People are under invested in EM generally if it means piling into generic stuff,

I just told you my answer. But if you can be tactical and find the right way to express it, there are plenty of opportunities in EM. Eric Fine, thank you so much for joining us. Eric Fine, portfolio manager covers all thing emerging markets fixed income strategy for van Neck Global. Joining us here in our Bloomberg Interactive Broker studio, Let's bring in Paul Gates senior research analysts focus on European medals and mining to uh, to really understand what's

driving the declines that we've seen in metals. Is this just concerned about escalating trade wars? Um, Hi, good oftening, good morning. Look you know in in in the short end, the answer to that is yes. I mean clearly what we've seen over the last you know, over the last few days is uh. You know, copper respond to the sort of macro the risk off sort of trade, right, um,

And your sort of point about dr copper. People use the copper rice, you know, for for whatever reason to articulate, you know, a view that they have around around around global growth. It's liquid, it's easier to trade. You know, people can get into and out of it fairly, fairly easily. However, I mean, I think the other point, however, you've got to sort of look at, however, is if you were

to look beyond copper. So let's say another elemy traded commodity like nickel that's actually up today, that's been on a bit of a bull run for the last for the last few months, and that sort of defined you know, the negativity around the sort of macros endment to actually post some pretty significant gains. So what we're sort of seeing in these commodities is something of a mixed back.

You know, the the economic fundamentals eventually will trump essentially or overtake the risk offs, you know, trade and the risk off sentiment, and you'll actually see supply demand fundamental start to matter. But in the immediate short term for a commodity like copper, there's no immediate deficit, and so people are using it as a proxy for global trade. We're speaking with Paul Gates, senior research analysts for Sanford Burns, calling in from London. Paul, thanks so much again for

joining us. Just wondering kind of as we think about copper, give us a sense of the supply and demand model that you see playing out here. I'm just looking at the charts. Lisa mentioned kind of an ugly chart, but what's your sense on the supplied demand dynamics for that metal. I mean, if you actually look at the sort of fundamentals and you say, look, you know, supply demand as you as you talk to what you see at the moment is a market that's actually in deficit, not a

huge deficit, but slight deficit. Moreover, if you're to look at, for example, the position of the lem me say, for example, terminal market inventories. If you look at them of metal that's available on either you know, LM, Shanghai, COMEX, you know you're dealing with very very little metal actually available. Only about six or seven days worth of infantry is actually sort of there. So from the fundamental supply demand perspective, the industry is actually sort of looking pretty you know,

pretty pretty healthy. Moreover, if you would have rolled this forward a few years, what you start to see as an industry whose fundamentals tightened up dramatically today's kind of copper price, it's very very difficult to invest in any new form of supply. It's uneconomic to build a new copper mind certainly on economic if what you're aiming for is one of these larger, more complex or bodies that have been developed over the you know, over the last

few years. So really there isn't any supply growth. Demand growth continues to track, you know, at least in a trend sense, what it's always done, which is to sort of you know, follow global industrial production. So you roll this out a few years and it's you know, almost inevitable that we're going to see the copper price rally from rally from here. However, of course the immediate short

term people aren't interested in, you know, the fundamentals. All they're interested in is the ability to articulate a negative view on for example, you know, the the R and B Chinese growth uh and and trade sentiment and the copper prices a convenient means by which they can do so. Paul, really quick, thirty seconds here, which medal are you most bullish on? Then over the next six months, Over the next six months would certainly be bullish on copy. We'd

expect to see her recovery there. I think going into the going into the seasonal trade at the end of the year, there's a case to be made, you know, even for a commodity like iron are that has had something of you know, had a very dramatic sort of bull run. We also continue to be supportive for commodity like nickel and something like palladium as well. Paul Gay, thank you so much for joining us Paul Gate as a senior research channels covering European medals and mining for

Sanford Bernstein based in London. We appreciate your comment if we talk fixed income. We talked to Ira Jersey, chief US interest rate strategist for Bloomberg Intelligence, we should start with yields that touch the lowest in the US yesterday all the price action. I want to start a little bit differently though, because we got that op ed in the Wall Street Journal of former FED chairs saying that

it was really important to have an independent FED. Meanwhile, James Bullard spoke to the a f P. He's a St. Louis FED president, and he said that the FED has to avoid uh sort of responding in with rate cuts every time there's a tit for tat in the trade war. This seems to indicate there's a pushback to the assumption in markets that the FED will respond with deeper cuts

to the trade uncertainty. Ira, what's your take on this? Yeah, I think that James Bullard is probably the first of probably a few FED speakers that are going to come out over the next couple of weeks and talk about that we're looking at the real economy and we're looking at, you know, how trade and trade tensions might impact the real economy going forward, and that's what we're going to react to we're not reacting to headlines, were not reacting

to tweets. We're going to react more to the kind of the the boots on the ground and the normal things that they look at. And I think that the cut that occurred in July was in part um that they had the ammunition because there was increased in certainty about the economic outlook. There is slowing global growth and when you look at some survey indicators like I s M new orders, they're teetering on the edge of growth actually going negative. So um, so that's something that the

FED wants again in front of. So you know, the other thing that he said that that President Bullard mentioned was he's going to be looking at incoming data. So it's really about data and then data expectations regardless of you know, what either the president wants or maybe what

even what the markets expecting. So I I'm looking at the tenure treasury right now one point seven five, one point seven six, and I know that they and when I look at the futures, the markets pricing in three, I guess more more likely four rap cuts going forward. What is the market seeing that perhaps the feed is not and maybe some observers are not seeing as it

relates the economy. Well, yeah, yeah, I think that the market really is looking forward to additional and firstly uncertainty, but also much slower growth and also you know, kind of easier, easier monetary policy globally, So the idea that the ECB might be starting a new round of quantitative easing, so a lot of a lot more asset purchases, as well as maybe another deposit rate cut in September. So all of those things I think are weighing on on

the market. So the market was pricing in for another for basically what we are now about a month ago, and then things kind of got better, at least from a sentiment perspective, and then you know, over the last week they've gotten really four days, they've gotten significantly worse, and and it's it's all about sentiment, I think, in the market right now. So we could easily take back um.

So right now we're we're priced for another four cuts by the end of next year, by the end of twenty twenty, so two more this year to next year, but we could easily take one or two of those back in in a heartbeat. Basically, if say trade tensions end up end up being um being resolved to say at the beginning of sometime in September, when the US and China have these talks, and you know, that will

change that sentiment very quickly. So it's one thing for Jimbler to come out and say that the FED can't respond to every t tit for tat in the trade war. It's another thing for j Powell, the FED chair, to

come out and say that. And I'm wondering, especially in light of that op ed that was printed in the Wall Street Journal, I'm wondering, is there a growing fear that J. Powell is not independent, that he will cave to market sentiment and market expectations and the pressure to be overly easy at a time when the economy still looks good. Well, I think we give a little bit too much credit to the FED chair. I think, you know, you know, Alan Greenspan was probably the first kind of

imperial chair of the of the Federal Reserve. UM. So I think at this point there there are people like Richard Clarda, for example, who he's not going to be beholden to tweets and he's not going to be uh, He's gonna look at data within his own, his own monetary policy framework and make his decision based on on

that reason. He's uh, so, I think it's not J. Powell that that you have to worry about, but it's you know, how how how much are all of the other members of the FOMC influence And I suspect that most of them have big enough egos, personalities and our type of personalities that that while they're they're not going to be immune to you know, some of the chatter by by people in the administration, they are going to ultimately act independent and in how they believe they could

best serve the the economy of the United States. So, I, I know, interest rate geeks like yourself model this stuff out. Where do you think the tenure treasury yield should be given economic data? Are you okay with that? I prefer to be called a nerd but o um, the so, so our model has fair value right now just based on where economic conditions are at a little bit over two percent, closer to two and a quarter percent. So you know, we are very rich to where where our

work says is fair value what the markets pricing right now? Um, if you if you just plug things into our fundamental fair value model. UH, it's pricing basically stagnant growth. So we have not a recession, but we have zero GDP growth priced in as well as the Federal Reserve starting what we're dubbing is QWI light, so so the Federal Reserve starting to keep reserve balances constant and do some

modest bond buying. So so that's why I say, like, we have this big uncertainty premium built into the bond market right now. And just like we got here very quickly in three days, we rallied you know, thirty five basis points. We could easily undo all of that in just a few days as well, if there's some sort of certainty that's built into some of the expectations for the economy and UH, and the the trade tensions going forward. Our Jersey thank you so much. Our resident interest rate

a NERD is the preferred term. Excuse you totally went way off the reservation there, exactly. Chief US Interest Rate strategist for Bloomberg Intelligence and joining us on the phone from Princeton, New Jersey. We appreciate that. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.

I'm Lisa abram Woyit's I'm on Twitter at Lisa A. Bram Wits one before the podcast, you can always catch us worldwide. I'm Bloomberg Radio