Disney Cuts Lay Bare That 'Normal' Isn't On The Horizon

columns for Bloomberg Opinion. Uh and it really just a fascinating story coming out of the Walt Disney Company, once again highlighting the really difficult challenges out there for the American worker. Walt Disney announcing that it's gonna slash twenty eight thousand workers in its slumping US parks and resorts business. Terror Thanks so much for joining us here. Boy, the pain is really being felt at the Walt Disney Company,

among others. Yeah. I think you know a lot of companies had been holding out hope these last few months that you just had to get through these for a few months and that they could keep their workers and that you know, you could kind of see normal on the Horizon, and I think this is Disney saying in a big way that we're really not there and we're not going to be there for a while, and they needed to do this, and I think it's going to be the start of other companies badly doing this as well.

You know, their theme park in California has been closed, and they've kind of Disney has kind of pointed fingers at California's state government for that. But the reality is that even in Florida where they are opening, they're they're open, they're not seeing a lot of travelers come in because

people are still really weary about doing this. Not to mention, we're in a recession, so you know, I don't know how many families are willing to spend a hundred bucks or more a day on each person in their household to go to Disney World right now. Yeah, the head of the theme park send out a statement in which he said that many of these were part time already or contract workers. In other words, they were in the union employees, and they're going to trying them to some

kind of an agreement with the union employees. But nevertheless, a phenomenal amount of workers that we're getting some kind of paycheck from Disney, right. You know, they had furloughed about a hundred thousand people and in kept their task members um on their healthcare uh since April when they had to do this, And I think now they're starting to realize, you know, the same parts really aren't going to come back for a while because they simply can't.

And it's similar for the movie theater industry, which Disney is also typed to, where you have them reopening around the country, but you're not seeing people come back in big numbers for a lot of different reasons. And it just shows that to get the economy back on track, we need to fix the virus first. It's just there's no way to get around it. And I think this is what these companies are starting to realize, and unfortunately it's going to cause a lot of pain for a

lot of workers. Yeah, it's Terry. You know you've covered Disney for a long time. You know that the big moves they've made uh to pivot towards their streaming business. But the reality is most of their operating income today comes from their theme parks and their cable networks and the filmed entertainment studio and all those businesses are really being impacted by the economic infects effects of this pandemic. Is what's the thinking do you think within Disney about

kind of their strategy for dealing with this pandemic. Is it just to batten down the hatches and wait to get together side. I mean, I guess so, but it's been a little bit confusing. I mean, they installed a new CEO in February, which is Bob Shapeck, who came from the theme park side, which I guess is a good thing right now in this moment because he really knows that business. However, what is Disney's future, And if their future is streaming, I mean, good luck to them.

That's going to be a really difficult challenge going up against Netflix and trying to make money in this industry. And like you said, you know, the streaming business is doing well and that it's growing and a lot of people of interest in Disney Plus and the other products that they're coming out with. However, it doesn't generate the kind of money and won't for a long time that these theme parks, the cable networks do, and all these

different businesses. So there's a lot of question marks around Disney. It just makes me wonder, you know, what does Disney look like in a new normal? What is the company? Is it a theme park and movie and uh cable network giant or is it a streaming company? And and how do they kind of what does that look like?

I think there's just a lot of questions about, um, how they're kind of going to get through this, and what the thinking is at the top, since they do have a new CEO who really didn't come from the entertainment side of this company. Yeah, and he actually went to half salary for the rest of the pandemic. Correct me, both of you if I'm wrong, because goodness knows, nobody

knows Disney better than YouTube. But wasn't there a time when Disney was certainly not counting on its theme parks for you know, its revenue stream or for its operating income. You know, it was almost a surprise, was it not that the theme parks were keeping other parts of Disney aflows if you like, am I right? Pole and Tara, Well, it's actually, you know, the theme park business has been

kind of terror writes about this. It's kind of been a sleepy part of the business relative to the you know, the movies and all the other cool stuff, the espns of the world. But it's always been a very deady generator of profit and profit growth. And it's such a good business that, as Tera knows. You know, they invested over five billion dollars in their theme parks business in Shanghai to open a theme park business in Shanghai. So it's a business they've always liked. They've always been a

leader in it. What was interesting when Comcasts bought NBC Universal, they didn't even really think about the Universal theme park business, but that turned out to be a great business for Comcasts as part of that acquisition. Yeah, so I suppose that's what I mean in the sense that, you know, it's almost an unexpected gift. So therefore, can it be made more boutique and still work as that unexpected gift? I mean, do you need two hundred thousand cast members?

Do you you know, do you need to change up your rides every year? Can you just have it maybe a little less exciting, a little less full, and still be generating enough income that's possible. I mean, I think a lot of companies are having to make that calculation. Now, do you operate at a smaller capacity. We saw the retail industry goes through this in recent years, even before COVID, you know, becoming more boutique. I think Disney can do that.

There's just so much fascination and and love around the Disney brand. I mean, people are obsessed with it all around the world. But how do you get all these people to come back and travel again? You know, maybe it doesn't mean operating at a at a lower capacity, being smaller, but then how do you charge as much

as you're charging for these things? So I think there's just there's a lot that's going to change, and it's going to take a lot of trial and error and trying to figure out where do we land at the end of this pandemic, What does it mean and do we go back to quote normal or is normal no longer part of our vocab here? And what does it mean for these giant companies that have operated this way for so long? They're really gonna have to rethink things.

Um Tera, what do we know about Shanghai? Has that reopened? If so, how is you know traffic there? Yeah, they reopened that. I think they actually had quite a bit of demands. I think it was maybe the beginning of the summer, um the local government there had them reduced capacity again because virus cases were spiking, but I think

they've been opened. I mean, I think the big problem area has been California for Disney, and they really wanted to get that park back open, especially since I think the California park Disneyland gets a lot of local visitors as opposed to Orlando, which relies on a lot of people getting out a plane and coming. So I think they really wanted to get that one open, and obviously that's not happening anytime soon. Tara's thanks so much for joining us with all of your info there on Disney

and of course, you know, entertainment companies in general. Tara is Bloomberg Opinion columnists covers all of that media, entertainment and so on. And Disney today down four tenths one over the last year. It's down four point two percent, so definitely not one of those docks that benefited. Pole has said that without looking at the chart. Yeah, exactly right. They've really been hit hard and again their theme park

business has just effectively been shut down. Um so and and as Terror you know points out, you know, they really full of Florida parks. They need global travel to pick up because a lot of their customers come from outside of Florida, outside the United States, and they need global travel to pick up. And that doesn't seem like it's something on the near term horizon. Yeah, it's such

a such a difficult time for everybody involved. And of course the story the other day that the Disneyland resort in a Hong Kong lost an option to expand its side and just just headlines negative coming constantly for Disney. It is time to talk bonds, bond market, fixed income, volatility, and all the rest of it. We have somebody who is glued to this day in day out. Bryan Whalen is general portfolio manager for fixed income at tc W, which has of course two D twelve billion dollars in

asss under management. Brian, thanks for joining. When you come into the office the day after you know, a debate that was so content to contentious and so difficult, where do you go to look first to see if there's a reaction in the marketplace. Well, well, first, thanks for having me. Um. You know clearly you know we're bond managers, so we look at the yield curve will look at the moves across the board, and honestly, this morning it's

just more of the same. I think that debate kind of with your opinion on it, you know, good bad. I don't think it really um changed anyone's you know, UM expectations for the election. And you know we're seeing that in treasury yields, which are still confined to a to a very narrow range. So, Brian, where do you guys at TCU, with all the assets under management you guys have, where do you see opportunities given where yields

are here? Yeah, great question. I mean, you know, look, um, I think you know, as a bond manager, you have to you have to recognize, you know, the power of the FED and the influence on asset prices. And you know, we have an opinion that the economy is you know, actually you know, much worse than than it may appear, and it feels and that has to do with what we've seen in terms of the fiscal uh stimulus UH, you know, and monetary um, you know, aggressive monetary policy

from the Fed. UH. And so you know, when we're thinking about the marketplace today, you know, areas where the FED is directly involved. I think you have to embrace that. I have to kind of look at high quality assets and you have to realize that, you know, the prices are the spread that we saw happening in in March, most like, you're not going to see that again in high quality assets because because the FED is not gonna let it happen. And so you have to embrace that.

And I think, you know, maybe take maybe a little bit more risk there then you might otherwise would take in an environment like this. And then on the other hand, you have to be patient giving the amount of you know, just outright trauma the economy has incurred, uh, any amount of demand you know, destruction and the amount of really

creative destruction going on. You when we get into two thousand twenty one, you need to be patient, uh in parts of the capital structure and parts of the market, um that are vulnerable to all the damage and and the changes going on. How far down the credit stock are you going by in uh, not very far to be honest with you, you know, the errors we like the most, you know, Uh, Agency mortgages is one area.

UM that's you know, the FED has bought you know, in this QUEWI period over a trillion dollars of A and C mbs, and they've kept spread volatility incredibly muted. High quality investment grade corporate bonds. UM. You know, we

still like them. Obviously the Feds involved, maybe not to the same extent, uh, and that they've only bought a you know, a very little amount, but just the presence of the FED has given that market a sense of a kind of a an absolute kind of cap on spreads and that again the FED won't lead volatility pick up too much there. But you know, outside of the UM, let's say they called the you know, the warm embrace of the FED, where they have kind of ring fence

asset classes like that. You have areas like leverage finance, which includes high old bonds and leverage loans. You have areas like UM you know, down the capital structure, as you said, and in the commercial mortgage back market where you know, there's a lot of damage, uh and it's

going to take a long time to play out. So you know, as I mentioned before, you know, we think the best way to kind of spend your dollars and fixed income now is in the high quality parts of the market and be patient and wait for better opportunities or maybe I should say better price is um down capital structure. Brian talked us a little bit about credit quality as you look across your portfolio here, Um, we're six seven months into this pandemic. I suspect you're starting

to see some some real cracks. Yeah, I mean this is a you know, as as a you know, like you're seeing in the real economy, seeing in the bond market, meaning you know, we're kind of we're moving into a world of the halves and the have nots. Uh. And even though you know, if you look at big kind of major kind of barometers for let's take corporate bonds, like the investment Grade UH index and the spread of that index, you know, it's around a hundred twenty five

hundred thirty basis points, which historically is about average. The same thing in the high old bond market, you know, plus minus five hundred basis points. But um, there is more dispersion under the surface, and that is reflective of you know, what's going on in the broader economy and that you know this this will take a while to play out, uh, and we're going to see lots of winners, but we're all going to see also going to see

lots of losers. So you say you need to look for more risk, but yet not go down too far into sort of the depths of you know, the corporates, ratings, issuance. How do you do that? How do you do both? Do you look abroad? Do you I mean, are there still opportunities that people haven't seen? It's bottoms up work.

I mean you have to have you know, you've got to have a lot of smart people um underwriting, not just sectors anymore, but you know, individual credits because it's not just you know, there'll be sectors that win, they'll be sectors that loses. But even in the sectors that win, you know, there will be companies that kind of rise to the top and you know they will prosper. Uh when we you know, look at look at the retail

for instance. I mean, you know, the amount of change we've seen over the past six months during the pandemic in terms of let's say e commerce penetration and retail sales. You know, we've seen basically a four point jump you know, from about twelve to six of e commerce penetration just during the pandemic. Previously, that four point increase took about five years to occur, so the change is rapid. You

know that. There's that old kind of Leneing quote about you know, their decades when nothing happens, and then every weeks where decades happen. We're living in the middle of that right now. Yeah. Absolutely, in many many ways. Brian Will, and thank you so much for joining us. Brian Will and general portfolio manager for fixed income at tc W. They have two d and twelve billion dollars firm wide under management, so they see all parts of the market.

We always like to talk to the smart folks at tc W. They generally had a more conservative view of the market, and I think that's been born out here. So again, Brian Will and Gender portfolio manager, fixed Income. The first presidential debate last night is in the books and what the debate. It was back and forth, very lively, to say the least, between President Trump and former Vice President Joe Biden. Let's take a listen to some of

the highlights. Everybody knows he's a liar, but I just want to I want to make sure and you wanted last I want to make sure. Can you let him finish sir, he don't know how to do that. He knew it was a deadly disease. What did he do. He's on tape, is acknowledging he knew it. He said he didn't tell us or give people a warning of it because he didn't want to panic the American people. You don't panic. He panicked. We've done a great job. The only thing I haven't done a good job, and

that's because of the fake news. No matter what you say to them, they give you a bad press on It's just fake news. They had the slowest recovery since ninety economic recovery since nine. It was the slowest recovery. I paid thirty eight million dollars one year. I paid twenty seven minute. Nobody's done that. He's just he's here's the deal. I know a lot more about it. Let him finish. The fact is that there is racial insensitivity. People have to be made aware of what other people

feel like. That was President Donald Trump and former Vice President Joe Biden at the debates last night. Let's get a postmortem, if you will. Jeanie Zano title. She's a political contributor for Bloomberg News and also professor of political science at Iona College. Jenny, thanks so much for joining us here. Boy, lots to unpack from last night. What was your thirty thousand foot takeaway from the debates? Winners, losers or a draw? Yeah, it's so good to talk

to you. I think, you know, I think debate at this point is a generous word. It was more like a brawl. And um, I think you know when you talk about winners and losers, my takeaway was when it it is so divisive and you know, described in so many ways, but certainly no Linkenant Douglas debate. This was like a you know, all out barbarawl. I think it's hard for there to be a winner or a loser

in that context. You know, you had the vice president calling the president names, you had the President repeatedly interrupting. I'm curious to see how many people tuned out after the first fifty in twenty minutes. And so from that perspective, I think it is a draw, and I think you

end up pretty much with the status quo. And unfortunately for the President, he went into this debate lower in you know, the polls across the country and even in many of the battleground states and that's a big challenge for him. When you're looking at a you know, Washington Post ABC poll the other day with the vice president nine almost double digits lead in Pennsylvania, that's a problem.

And I think that is, you know, where we find ourselves the morning after Genny doesn't make a difference of the polls, even if someone decided to decide just a non botherable thing after last night. Um, I do think, you know, of course, for me as a political scientists, I think that is so unfortunate because of course that's how we speak, that's how we express ourselves, that's how we have power as Americans and as citizens in the republic. So I think it is a problem, and I think

your point is well taken. We heard from Frank Luntz after the debate that many of the undecideds that he was pulling seemed like they just made tune out at this point, that they just didn't want to be involved, and who can blame them? And of course we all lose in that perspective. And so you know, you talk about a winner a loser, I think a lot of people said, and I agree, the American public is a loser when you can't have a real sustained debate about this.

So many issues that are going on all around us. We're waiting for a Job's report out on Friday, We're in the middle of a pandemic, We've got a Supreme Court nomination. The list goes on and on, and there was, you know, a little bit of substance one. We don't want to say there was nothing, but it wasn't nearly what it should have been. So, Jennie, I guess that begs a question should be should there these two candidates

even debate any further? You know, I know this is I've heard so many different ideas about this, and and you know, Democrats urging the president the vice president sorry not to debate. I think that would be unfortunate. I'm hoping this isn't the end of the presidential debates, probably selfishly because I was so excited about yesterday. I love this time of year. Um. I do hope that they

have them. Um, I have to admit that I do hope that they have them, and I hope that there is a way that they could be done so that we, the American people, can benefit. Whether that means, you know, people are talking about shutting down Mike's. But the bottom line is if two people agree to debate and one of or both decide not to follow the rules, this

is what happens. And I think this was a concerted strategy on the President's part to throw the vice president off his game, to make it hard for him to you know, express his opinions and to you know, show any strength. And I think the President may have gone too far in that respect. I think, you know, quite frankly, had the president done a little bit of that, the vice president may or may not have stumbled. But what the president is, he just went overboard, and he, I think,

is the one who came out the loser around this. Yeah, I mean even in terms of policy, it's not like we heard all that substantive. You know, policy platforms in any area really just had a lot of complaints. Will it make it any more likely that we get stimulus around four though? I mean Pelosi emotion right now are chatting and they will want to distract from last night's tobacco now. Absolutely, And you know that's one of the things that kept occurring to me last night. You have

you know, we have not had the stimulus package. Obviously, no agreement on that we have. These offers on the table are being discussed, and I'm not sure I heard, you know, more than just sort of a little, you know, mention of those nothing substantive. And that again is where we find ourselves with unemployment where it is and people suffering on the ground, over two hundred thousand dead, no stimulus package out of Washington, and a lot of back

and forth. But I'm not clear at this point where either the President or the Vice president stand on something as basic as the proposal that both sides in Congress in the White House has put forward at this point. So, Jenny, what do you think the president needs to do to close that gap that the polls are indicating right now. I think what the president needs to do is he needs to appeal to the people who helped him win

in twos sixteen. That is a traditional moderate, undecided Republican women in the suburbs, in particular seniors, college educated voters, and they believe they can pick up some Latinos. And I think to do that, he cannot repeat what he did last night, and I think that's going to be his big challenge. I'll just give you one quick example on the economy. You know, he interrupted Joe Biden talking about the pre COVID economy, and I was wondering why

the pre COVID economy was very strong. Donald Trump does great in all polls, and rightly so when you talk about the pre COVID economy, why not let Joe Biden try to take that on. And yet he sort of interrupted him, and I think was a loser for the president talk about the economy, especially pre COVID, because you

win on that. So I think he needs to, you know, try to appeal to those voters by not stepping on the vice president in those moments and by letting the vice president make his case, because I do think the president, on the economy and in other areas has an argument to make that will appeal to some of these moderates

he needs to pull over. Genie, thank you so much for watching the base first of all, and for talking to us about is Gennie of course, is on television last night on Bloomberg Television, watching the debate and commenting on it and moving on balance of power again today. Junie zy Know is political contributor for Bloomberg News, also professor of political science at Iona College let's talk a little et F action, shall we. When I think E t F s, I think Vanguards, some of these huge,

huge players in the space. I want to get a sense of kind of the future of the E t F business where some of the big players stand. We can do that with Eric Valchunis, senior et F analysts for Bloomberg Intelligence. Bloomberg Intelligence is Bloomberg's investment research business staff with hundreds of world class analysts around the world. Eric, thanks much for joining us here. Talk to us about

Vanguard here. I mean, I know they are just monsters in the space about a billion and a half I'm sorry, a trillion and a half bond fund business. You think they're gonna get even bigger, don't you? I do. We think they're probably going to double that number to three trillion within five years perhaps um, as long as this low rate environment continues. First of all, just a little on the one point five trillion that is double any other asset manager. We were even shocked. We hadn't dug

dug into their bond funds in quite a while. We're largely in et F, so we looked at all of their bond funds and fillion of that is inactive, which makes them the biggest active bond fund manager as well. They're just a monster in the space. And the reason we're so bullish is because if you have a low rate environment and real yields are falling, the expense ratio of your bond fund, whether it's active, war passes, it's going to start eating up an increasingly large chunk of

that yield. Thus, if Vanguard has fees that are five to ten, perhaps twenty basis points at most, they're going to eat up a lot much smaller portion of the yield. That's going to help investors get more yield from the fund. In addition, it will give them a little more breathing room to take a little less risk to try to go out further on the credit spectrum to increase the yield, which then makes a fund vulnerable to a sell off, and we saw Pempco get hit with that in March.

They had a much bigger draw down. So those are the factors that we think really aligned perfectly with Vanguard, and yeah, they could get much bigger. Could Vanguard learn anything from the March sell off teachable moment to hedge

against that possibility again? Well, I would almost go and flip and say, what could PIMCO learn Because if you look at the March sell off, like vanguards equivalent to the total return or the PIMCO income fund is the Vanguard bond fund v t O b X, and it only went down about half as much as the PIMPCO fund.

That saving that much raw down becomes very huge. And so that fund is up nine percent in the past year, whereas p m I m X, which is the largest actively managed bond funds PIMCO is is only a one percent. I think the agg might be about seven. So in general, if there's a real nice rally and bonds, which there has been in five years prior to the sell off, the Pimcos of the world are going to do a little better. They take on a little more risk UH, and they're going to beat the agg by a lot.

But in these sell offs really hurt them. And this is what Vanguard is less exposed to UH than most active manager. I will say all of them, but many of them do dip a little higher into the high yield areas. So you might have PIMCO at ten percent high yield and Vanguard will be maybe more three, four

or five. So it's interesting, Eric, you talk about the fun flows into uh, this one and a half trillion dollar bond fund business for Vanguard with rates so low, I'm kind of surprised that folks are thinking about, you know, people putting even more money into these bond funds. Perhaps they should be looking elsewhere for yield. Yeah, and this is this is perhaps one of the head winds to our call, which is just people not really being into

bond funds. I I just think you look at the equity markets and you know that they can see them a little frothy too. I I still believe the sixty is a huge uh issue here because we do find that if the equity markets rally, then people will rebalance into bonds to keep that allocation. So um yeah, I mean, if if equity markets falter and bonds keep rowling, you could people have people rebalance more into equities. So there's

some other factors that could come into it. But I do think you know, bonds from just major asset class, and I think if you look, uh, you know, the stability they provide is also part of what you get out of them. It's not just the yield return it's also they can provide some diversification benefits, and so I do think that will carry the day. And I do think that's a large chunk of a portfolio and I

don't see that going away completely. Eric, Where is on Guard taking market share from or is this new money maybe perhaps made in the hecity market. Uh? Well, Vanguard I think takes market share from everybody, um, you know in the bond space, which they Pimco, black Rock Capital Group, all of they're all the competitors of Vanguard. And you know that they have their competitors on the equity side. To UM, it's they're just you know, to me, they're

like Amazon. Vanguard is like Amazon is to retail, except to the asset management world. You just don't hear as much about them because they're not couplely traded. But their fees are usually four or five times lower. And we're just in a world where people are obsessed with cost. It's one of the things they trust the most now, and so they're going to just continue to eat market share.

It's just on the bond side, the fee comes in extra is extra important, perhaps because of those shrinking yields. All right, Er, let's switch gears a little bit, just real quickly, what's the most exciting thing you're looking at an et F world today? We're looking at a spack eks that is going to launch tomorrow. We think, yeah, you guess it, um and uh, there's another one filed. We're calling it the spack attack. We're expecting about four or five of these bad plays to launch in the

next couple of months. Probably two or three will survive the next couple of years. It reminds me the blockchain frenzy and the cannabis frenzy, uh recent years. So that's what we're looking at. Wow, I don't know what to say about that. I mean, yeah, I mean, I guess these ets can come and go pretty quickly, right, Yeah, Look, I mean e t s are opportunistic like a lot a lot of areas, but especially when it's a new area.

Because speaking of Vanguard, these new areas I call them Vanguard free zones, Like Vanguard is not going to launch this back ets, so issuers love that can come in charge a little higher fee and not get priced down so quickly. Right, it makes so much sense. Eric Belltoon is always bringing us the news stories and the new at s that are out there. Thank you so much for joining us. Eric caball Tunas of Bloomberg Intelligence is there,

et F analysts. Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever a podcast platform you prefer. I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio