Disney, Markets, Hilton, and Kellogg (Podcast)

US media analyst for Bloomberg Intelligence. And of course we've got to talk more about what's going on with Disney. It's a big move today, and as Abigail points out, um it's a big move in general. Kind of are they winning this issue with Nelson Pelts or have they both won? Everyone's a winner, Githa, what do you think? Yeah? I agree, I think everyone is a winner. I mean a Pell's got what he wanted, uh, which is, you know,

the stock price moved higher. And I think it's you know, just kind of even though it's a somewhat of an I think an unwelcome distraction for Disney when they had so much going on. It really kind of up to Bob Iger on his does and and forced him to kind of come up with the plan that he did, which he articulated yesterday, really kind of putting them now on that path to to sustainable earnings growth and profitability in the streaming business, two things that you know, investors

really wanted to see very badly. Also striking to me about the earnings picture, specifically that you're seeing a pretty decent rebound in Parks in their parks business as opposed to a miss on their subscriber business. Talk to us about that divergence. It doesn't feel like we can call Disney and Media tech company anymore. I agree, pretty. I mean, if you look at just their operating results from from what they posted yesterday, hundred percent of their operating income

now comes from the parks division. So I feel like it Parks still continues to be such a yes, a hundred percent. Um. You know, all of their operating income is generated by Parks because you know, whatever the linear networks were generating in operating income that was offset by the losses and the streaming division. Um, so Media really is net zero for them at this point. Um, and so everything is Sparks, and I feel like it is

somewhat miss uh. I don't want to say misunderstood, but definitely underappreciated because it is such a big part of their profit equation. And what we're seeing is not just the comeback in parks, right, but we're seeing the sustained momentum. So you're looking at attendance, it was up eleven You look at a capita spending that was up last year, it was up over pre pandemic levels. But even if you look at the fiscal first quarter, it was again up about you know, eight percent or so, so again

steady growth. And if you just look at US park margins thirty, I mean this was record high margins. So really they are you know, I want to say, firing on all cylinders, whether it's you know, revenue growth, whether it's extracting efficiencies in terms of costs um so Parks definitely is is just such uh you know, alliance share

of the profits there for them at Disney. If I listen, I feel like they're leaving some money on the table because if I get HBO streaming, I get everything that HBO offers, or when I get Netflix or Amazon Prime, I get all of the products they offer over the box with my little app. But ESPN. If I get ESPN Plus, then I get like Division three softball and

maybe some Ivy League quidditch games. Like, why is it that I can't get all of ESPN without having to fork out money that I'm that I'm unwilling to pay for some stupid old school cable package. Yeah, this is really the conundrum really for for Disney and for actually the whole media industry. Man, and you bring up a really good point. They are not able to go in or or I should say, all in on streaming when it comes to ESPN, just because ESPN really defines the

linear TV bundle. So if ESPN or when ESPN makes that complete shift to uming, uh, that's pretty much the depth of the traditional TV bundle as we know it, because all of the sports rights, all of the content, you know, is with that linear ESPN networking. Remember, it still throws out about three and a half four billion dollars in cash flow year after years. So this is really a very important part of the profit story for them,

or at at least it has been. It is going to be a diminishing part of it, but it has been for a long time, and they don't want to do anything to exacerbate card cutting because there still is value. I mean, even if it's generating lower IBADA, it's still throwing out cash and that that's important for business, at least for the businesses, especially when you know streaming is

still um in a loss making phase. But couldn't they I mean, I would pay twenty hours a month if I could see real ESPN streaming and not have to buy a cable bundle for it. Do they make more than that on an so on a cable bundle, They're making about twelve dollars per subscriber. So so they had to do this, they had to take baby steps here,

and they already did that. So they have the ESPN too, I'm sorry, the ESPN Plus product, which is you know, which really has all the non market content as you should be called n Yeah, yeah, good point, but it's all you know, the tier two sports. Uh. And the reason they can't get the n F, you can't get the NFL or you know, the the NBA or the MLB is because they want you to come back to the traditional TV package because they're they're still asking distributors

to pay that twelve dollar fee per subscriber. UM. So it's gonna be interesting. I mean pricing is going to be the biggest sticking point when it comes to that, you know, streaming product. Where are they going to price ESPN plus? You know, our customers used at twenty dollars. I mean, I don't know how many customers would be willing to pay twenty dollars. So that is really something

that they need to evalue it very closely. But I think just with them kind of separating out ESPN as as a segment by itself kind of definitely paved the way for them to do something much strategic with it, either you know, a spin a sale or or that big bush into streaming, maybe combining it with supports betting. We have to wait and watch. I have betting drives viewership for sure. Keith, thanks so much for joining us. KEITHA. Royan Nathan. There are US media analysts for Bloomberg Intelligence

walking us through what's going on with Disney. We've all heard about quiet quitting, and surely it's on the rise now in bonus season. If you don't get what you want and you can't get a raise, you're less likely to quit your job, but you might as well just not give up anymore. UM. Quiet hiring is a term I've never heard before until now, and that's why we're gonna bring in Emily Rose, Senior director of Research at Gartner um n y I C ticker I T for

Gartner if you want to check out the business there. Emily, thanks so much for joining us. What is quiet hiring so quiet hiring is how organizations are addressed in the fact that we've got a massive talent shortage while also some economic uncertainty by using the talent they have in house or contractors to add get the skills they need where they need the most without adding full time headcount.

So they so they they're outsourcing, well, it could be outsourcing UM, but usually what we're actually seeing is a lot more of Okay, this part of the business is incredibly important to us. We're going to move talent over to make it happen. UM. You've seen examples from the airline industry where anyone who has an office job is being paid extra to take a shift as a bag of chandler Um or if it's not operational priorities, it might be strategic priorities. To say a business decides we

desperately need data scientists. We know the hiring kinmeline for

them is maybe nine months long or longer. So rather than cut our goals for the year and say we're just not going to meet them because we couldn't get the talent we need, We're going to go take some analysts from HR and Marketing who have some of the skills that we need and move them over and have them do some of the data science work and then either upskill them, maybe run them through a quick boot camp, or redesign the work a little bit so that either

a contractor or someone else with the organization can do the parts of the role. But we can't do contractors. That's the thing I understand the bringing in contract work that makes sense and nothing new, um is are we in an environment where people are scared to add to headcount for you know Wall Street reasons. You don't see stocks jump when you add seven thousand people. You do see stocks jump when you cut seven thousand people. Is that why they might want to do this quietly? Exactly?

So this is essentially a response to the fact that Wall Streets watching, Your stakeholders are watching and and not wanting to have massively high labor costs just skyrocket at this particular point in time, but also the fact that the work still needs to get done. So does that shop up in something like the seventeen thousand jobs we were got reported on on Friday. Is that something that's showing up in the data or is this kind of

a great spot or a blind spot for the labor economy. Um, So this is something that you might not necessarily see in the job's numbers, because if someone's moving internally, um, it doesn't necessarily look like a job was added, but

they are affecting that. Assuming that this goes well for someone and they're able to perform in the role, they're going to be more likely to stay at the organization and maybe move upwards, which is going to then, of course keep them from hopefully joining the labor market and going to another organization and raise their pay. Right because if I'm middle management but also a baggage handler, I'm going to want more me for that. You know, if I'm an analyst, but now I'm a data scientist, I

feel like we deserve a bump. Yes, especially because data scientists are notoriously well paid compared to your typical HR marketing analyst. So this is somewhere where organizations have to see the that side of the coin. It's not enough to say we're gonna move you over because it's a strategic priority. So that's quiet hiring to pay people, So that's quiet hiring. Emily, what is the extremely loud hiring

that we saw last Friday. What's going on with this labor market where we just continue to add more jobs than expected even as the Fed tries to raise rates and tighten financial conditions, and we see a florry of pink slips coming out of the West Coast and the

Magic Kingdom. Yeah, so I can't speak to specific organizations, but in general with these layoffs, they're actually strikingly as difficult as they might be for the people going through them and their colleagues who are left behind, they are a small percentage of the workforce and so they make a lot of news, but they don't actually have a

massive impact on a lot of our jobs numbers. And what we are seeing is that and the reason the jobs numbers are going up is pointing to that talent shortage that's driving quiet hiring, which is people desperately need talent and are constantly adding it. But what about the intangibles here, things like more sickly, unlimited sick days, more

vacation time, whatever. The other intangibles are that a lot of these unions, for example, are really pushing for or how do you even factor that in so creating Those are actually great examples of how an organization might go about compensating someone or a group of people that they're moving over when they don't necessarily have the budget to do a massive compensation change. Maybe it's a one time bonus, maybe it's more flexibility, maybe it's more um pto. Whatever

it is, you have to compensate people. As you value them enough to move them over, you're gonna want to keep them. But does that then have the same effect like, for example, is there a tradeoff then like I will be willing to take less pay as as Matt brings up if you give me these added benefits. Is there

a way to see that trade off? Oh? Absolutely, And you can actually quantify it, so you can look at something and say, Dave pto is worth this much in salary, both in terms of what people are actually able to willing to trade off, so how they perceive it, and also what is the dollar value to the organization love

to see that equation. Let's talk about raises and bonuses, UM, you know, beyond Wall Street, just generally in the American economy, as so many people are hired, um, and as we see so much UH inflation, employees are gonna want bumps. But I guess employers are going to be a little bit worried about the possible recession that that we're heading into, so there is likely to want to give those boosts

to salary. What what are you seeing? We are seeing that the annual raise, particularly if it's the cost of living as opposed to a merit raise, is less than the current state of inflation in general. But of course accepting if there's a a union agreement that requires it to be tagged to annual inflation rates UM. So we are seeing that, And then associated with that is the lower that rate is UM, the more likely that organization is to see turnover. What does that then? Is that

equivalent across all sectors? Are you seeing that or even the concept of quiet hiring more predominant in certain parts of the economy. So I would say that quiet hiring is a little bit less predominant right now in some of the larger tech organizations that are having layoffs because they are obviously dealing with a slightly different situation than a talent shortage. But for most organizations, we see this a lot. It's in some ways it's a little bit

easier to do on site with on site workers. But we see this for desk based workers, we see this for deathless workers. We see this across industries. Where it's easier to do is where you have multiple business units. So say you can move someone when you decide to d prioritize a business unit, you can move people to the business unit you've prioritized. It's a little bit harder if you're extremely small as an organization. So coming back to the office, you mentioned desk less or desk spake

space workers. Um is coming back to the office. I mean everyone's going to have to do or have we entered a new normal where a lot of people are going to work from home multiple days a week. I just wonder, because you know, if we do hit a recession, I've heard a lot of people say that's when companies are going to make people come back. They can try. Um, what we've seen is that that has not worked. So saying you're going to come back to the office. Here the days of the week we want to see you.

Is they're very few situations where I've talked to clients about this and they've said it's going great. And part of it is that you have to actually explain now why someone should be coming into the office if they don't need to, and recognizing that actually by working remotely, they're saving on their transportation costs, their lunches, all of the different wear and tear on their clothing, and there

their car or however they're getting into the office. All of these little things that add up, and also the convenience in many cases of working from home. So if you want to bring people into the office, one you may need to actually compensate them even more to get them there. But also you're gonna want to design those in office days very intentionally so that you're actually giving

people a reason to want to be there. So rather than come into the office and do exactly what you're doing at home, just because we think it would be really nice if you somehow saw other people who you may not see because they may not have the same in office day as you. They need the actually organizations need to be saying when you're in the office, this is what we want from you. Here's how we've planned your day so that you will get these experiences we're

looking for. All Right, Emily, great having on the program. Thanks so much for joining us. These topics I think are interesting too. Very many people for for for for some obvious reasons. Let's get over to Mike Vogel, saying right now he joins us from Cap Trust, where he's chief investment officer and managing director. Mike, what do you think of this rally that we've seen from the October lows. I'm hearing a growing chorus of warnings from you know,

very traditionally conservative parts of Wall Street. Yeah, it's a great question. Matt it Crety, thanks for having on. I think I think the issue is, you know, you're just talking about the recession and the inverted yield curve. You know, there's pretty much everything is pointing towards slower economic output coming for the rest of this year except for employment. Right, We've we've every time the eeld curves and lay inverted, we've had a recession, but we've never had a recession

with employment this strong. So which one of those two is gonna win out. That's that's the battle on Wall Street today as we're talking, um, you know, the the rally, we think is a little bit of a knee jerk reaction from from just a you know, horrible, no good, very bad year last year and twenty two. And as a result, we've we've seen you know, the sort of

the January effect on steroids a little bit. Um. We're we're we're of the belief that inflation is peaked, the Federal Reserve isn't going to be as aggressive as as um you know, we sort of thought that were going to be three or four months ago, and I think you're seeing that in the equity markets. But um, we we still believe that at some point, weaker earnings, softer economic growth, and and um high valuations are going to end up causing some problems and ingestion for the market

this year. So we're just trying to be really patient and spick our spots when we want to add. But why, but why do we see you know, if we're seeing all these um, you know, bad signs in the data. Um, in terms of economic growth, why do we see such huge games and hiring. Well, that's that's exactly the dilemma. We've never seen this before. And you know, we're having we're having a discussion in our offices this morning about about this very things like what what has changed about

the employment picture? Maybe it's the fluidity or lack of friction and employment. You can go, Hey, if you lose your job, you can go become an uber driver by four o'clock that afternoon. Right, There's there's the there's the ability to bounce around and move. We've had we've had people leaving the job market on on sort of different in a different end, right, the demographic spectrum. The older workers have left, uh in a lot of ways. Is there something different? I don't think we have an answer

to this. We're just positing the question. Is there something different about the about the employment market in today's world that is changing the to use a technical word, the Phillips curve that the federal reserve uses, right, are we going to see a recession while employment stays high? We're are we going to see employments say high and pull us out and not allow us to go into recession? All of those things are on the table, and and and you know, for for people who are simply saying,

you know, this is a one directional market. Now the Feds cut rates, and we're gonna the Feds going to cut rates, and and you know, the long term part of the curves is much lower now, and therefore you can bid up prices on the equity markets. We we just think that's that's just not how it's gonna play. Cratty. I've always loved the idea that if you lose your job, that's a recession. If I lose my job, that's a depression.

But if neither one of us loses our jobs, Mike, let's apply all of those great questions to uh, the the market here. I mean, Matt started off this segment by talking about this two tons in version. Do you put any stock in it? Do you believe that this is still the signal it was, say ten years ago. Let's be clear, right, it's really it's really simple to get causality reversed. Um, it's not yield curve that causes

a recession. It's a signal of some things that are going on in the markets that mostly the federal reserve tightening interest rates, that that has historically has led to recession. So don't you know don't confuse causality here. They're they're very often temporal or contemporaneous, so it's it's important to keep that clear. Just because we were in an in an inverted yield curve doesn't mean that we're gonna go in recession. It just means the FED has been aggressive

because we had this a bout of inflation. It's also hard to separate out the impact of COVID that we've had. We've never been through this cycle before. We're still dealing with the ripples and after effects of COVID, you know, the COVID, the COVID rock that was thrown into the pond here is still creating big waves and and and having impact on labor markets and on on on inflation

and so on. So that that is all that is all playing out, and our jobs market participants and analysis just sort of sorts through that and come up with our best estimate for where we might play where this might play out. But again, you don't need to look any further than we've we've you know, recessions have been have been signaled every time by an inverted yield curve, and we've never had a recession when employments this strong, which which of those two immovable forces are gonna are

going to be proved to be movable? Right? So what do you do as an investor right now? I mean, if you're building a portfolio for say a new client comes in with a million bucks, where do you where do you put it? Yeah? Well, let let me give you a little context. So last year we were we were in really good shape. We were we felt super smart and super confident and super smug about about how well we did for clients because we were very conservative and and and and you know, um expected the markets

of struggle. Um. Now, the problem is that same sense of smugness has become a quickly of fear of missing out because we're still conservatively positioned. So you know, full full disclosure here, right, those who felt super smart last year are feeling pretty stupid this year. And that's the

way Marcus work, of course. And and um, so the question is in and I sort of sort of led with this a bit a minute ago that while the markets generating FOMO and it's gradually pulling people into the market, um, we're we're still remaining fairly conservative on our We have a we have a fairly high cash position, and are all equity portfolios for example. Um And and we're we're holding onto that because we just think we're gonna get

opportunity later in the year. We just think that at some point, falling earnings and they are falling, right, the estimates are coming down. Um. You know, the FED, the Fed's work is probably mostly done. We'll see if they get to five five and a quarter, maybe even five and a half if employment stays high. But inflation seems to have come off really hard. Um And and you know that holds that whole mix, that holds stew is gonna end up creating some air pockets in the markets

at some point. And and we we will likely, depending on facts and circumstances, get more aggressive when we get that chance. All right, Mike, thanks so much. Michael Olgising, their chief investment officer and managing director at Cap Trust, talk to us about some other earning stories. For example, Kellogg came out today. Uh maker. I think of them as the maker of corn flakes. Oh my god. Kayley Lines is leaving the building right now. I'm watching, We're

watching out the Interactive broker studio. Kayley Lines is moving to Washington, d C. Today was her last day in the New York studio. This is really sad, guys. She is a She is a like what is it a super star? A Hallmark? I think of Bloomberg Television. Fun fact, before I wasn't hired at Bloomberg, I called up Kayley and I was like, Kayley, will help me with the interview to get this job. And she did. From my Charletsville dorm room at u v A. Right because it

gives you. And almost half of Bloomberg staff worldwide went to u v A. It's just me. Did you go to uv A too? I did not. I went to Texas A. Wow, congratulations were going to a different college and everyone else. All right, let's get back to Kellogg corn flakes maker. Um, they came out with earnings today. What do you see? Yeah, so it's sales actually rose about twelve percent. So when you're thinking of Kellogg, you're

thinking rice, crispies, cereal, cheese at crackers. Um. It's also has been raising its prices, similar to see these other consumer goods makers to really offset these higher costs. But that's something that is stuck out when you're looking at these these companies right now that how they're continuing to deal with it, some of them better more so than others. But as far as when it comes to the package

good companies, that's been a big focus. And then something I wanted to point out, Matt, because I know you like to keep an eye on what happens with these auto makers, a Tesla in particular. I mean, we already had their earnings recently, but it actually it's stock has doubled from its low that was touched in early January, so it's basically up over a percent from its lows last year. That stock actually had plunged sixty five percent.

A lot of that is on different optimism as far as these uh Actually the Biden administration said it will expand this newly revamped EV tax credit to allow SUVs costing up to eighty thousand dollars to receive those types of credits. But I know you focus a lot when it comes to the automakers. So it's curious kind of your thoughts on Tesla, what's going on there and this big rebound obviously we've seen this year compared to what had happened. The thing is, these are seven thousand, five

hundred dollar rebates for buying logri cars. So this is a material amount of money for most consumers, right, and if you're going to buy a car that costs you know, forty fifty thousand dollars, that's a huge um. Yes, and so uh, the government has been so slow to come out with these rules. I want to buy a bmw

X five right now. They make a hybrid version of it, and I'm just waiting to see if I'm really going to be eligible, because the worst thing would be to buy the car and then to find out from my accountant at the end of the year or the beginning next year, oh no, you're not eligible, and now the car costs me sevent more. I think Tesla is going

through this same thing. Um. You know, a lot of the even American carmakers, if they don't get the right percentage of materials um in the battery from you know, North American or US friendly nations, they're not going to get the rebate. And so no one really knows what's going on. So it's hugely important that we get that direction. Jeff menton Uh from Texas and m thank you so much for joining us. Also, she's in charge of stocks coverage for Bloomberg News. Let's get to a couple of

socks stories right now. We talked about Kellogg a little bit, and Jennet Jennifer Bartosh is going to join us on that senior industry analyst UM for Bloomberg Intelligence. Also talk a little bit about gaming and lodging because Hilton came out beating estimates as well as resilient consumers and uh paid up in an increase in corporate travel, pushed hotel prices higher as well. Um, thanks so much for joining us. Brian and jen Let's start with Hilton because we haven't

really really gone through the story yet. Brian, what is it? So? You know, Hilton had a good quarter as well as a pretty favorable outlook for next year going I should say, for this year. Uh, you know, there's a little bit of note of caution that they're accounting for the possibility of a of a second half twenty three slow down. Our economic recession doesn't stop them from having very nice games and net rooms and and revenue per available room.

But overall, you know, pacing nicely both in terms of both leisure and business travel. What does that that mean for something like when we're talking about consumer and the willingness to spend is Hilton basically telling us that we're in the clear. I don't think they're saying necessarily were in the clear. We've come a long way, particularly in markets like the US and europri in terms of revenue

per rail room increasing. That's all acknowledging that if we have economic slowdown in the second half, we could kind of slow at the margin. Also from a global perspective, Bear in mind, while I think the removal of travel restrictions in China will eventually help in the short term, you know, China revenue for available room still deeply underwater relative to pre pandemic. Well, elso, mostly because the initial effect of the relaxation of travel curse has been kind

of a new round of COVID nineteen outbreaks. Well, Jennifer, hop on in here and give us a little bit more insight on kind of your take on on all of this, is that do you share that assessment that this is maybe not the all clear signal. Well, I think that we see a lot of mixed signals, and

it really depends on what group of consumers you're looking at. Um, there is really a bifurcation in the in the US consumer and so those that are more well off or that are you know, involved with business travel UM, you know, those those signals may be strong. UM. For those who are at the lower end of the income spectrum, it's

still a complicated story. And food inflation in particular, along with just overall higher cost of living has has really crimped budgets and made people a lot more cautious about where they're spending and how they're spending well. And you can see that difference in the stocks right because Hilton is up like twenty percent year to date. I know we're only at the beginning of February, but Kellogg is

off five and a half percent year to date. Now the picture looks different UM last year, right, Hilton had a down year I think last year UM and Kellogg had had a strong year last year. Jen, Why do

you see that bifurcation in terms of the stockments. But when you when you're looking at the companies and the space in which they play, UM, you know, the consumer has gotten less and less tolerant of higher priced food and so people at one point had pantries that were overflowing with goods so that they could go and they could select things at any given time to cook and prepare.

They're much more selective now. Pantry sizes in kitchens are smaller UM, and people are being more selective about what they're buying and trying to control that food spent because of that high food inflation and the sense that prices are just too high UM and so that's impacting these package truth companies that didn't impact the retailers involved in the space that such as the grocer's UM and companies

like Walmart and and her Target as well. We'll hop back in here, um Brian and talk to us a little bit about I guess the dynamic that gen is talking about. She's talking about it from a commodity perspective, but it feels like even a company like Hilton, for example, even the travel companies are going to be dealing with those margin pressures as well. Walk us with the numbers

on that. That's definitely been a concern, although there was a comment on the Hilton earnings call which just ended that they're seeing a little bit maybe some moderation and some of the wage cost pressures of the tight labor market, which may very well reflect what we see happening. For example, in other sectors like retail, where maybe you know, some staffing levels are being normalized after a kind of the

COVID demand impact. So if anything, although labor cost pressures throughout the service industry remain an issue, we may see a little bit of relief as in fact, you know, there's a little bit of flak in terms of the labor market. What's the outlook for these companies if we hit a big recession. I imagine Brian um, fewer people are going to check into Hilton it's a higher end hotel obviously, and more people are going to be eating

corn flakes. I would agree with that. Yeah, Hilton has you know, first part does have high and hotels that also has a lot of kind of a comedy economy and limited service brand, so they kind of played the

full spectrum of the market. You know, they are still expecting revenue for eloping room to be up on average three verses, so you're definitely looking for an up year, but it's probably gonna come more from North American and Europe than Asia, and there is factoring in the possibility that the room rate uh support of all that growth may slacken off a little bit in the second half if we do have a recession, and they're allowing for that possibility, but at least we go into the first half.

You know, certainly with the man conditions in North America feeling quite favorable compared to where we were a year or two back. I'm glad you mentioned the North America piece of the equation because we have, of course, we're covering Disney earnings for example, all rarning long and one of the big stories there is the US versus International component does about Hilton from an international perspective, So you know,

the trends really were were quite mixed. If you look at the trends in the quarter just reported, you know, the revenue prevailable room compared to let's say the four Q nineteen before the pandemic, it was up eight percent in the US, it was up to that benchmark in Europe, but it was down in Asia, and that's because China was down thirty seven percent. So again there's really some

quite significant disparities across regions. If you compare, for example, the fourth quarter of twenty two to the fourth quarter of jen what about um Kellogg, How do they look when you divide them up by regions? I always think of, uh, you know, corn flakes is North American product, but I know that they sell that race Christy's and everything else

overseas as well. They do. And when you look at the international portrait for for kellog Um, there are pockets of very strong growth which include Latin America and parts of they're emerging markets segment, especially in Africa and in Asia. UM. The region that's most pressured out of their entire global

business right now is Europe UM. And part of that is still stemming from uh, you know, issues related to the Ukraine Russia war UM, but it's also that the consumer in Europe has been pulling back faster than in other regions, and so they're seeing that those customers are even more stressed um than we're seeing in in areas like the United States. All right, Jen, thanks so much for joining us. Jen Bartasha is there from Bloomberg Intelligence

as well as Brian Egger also Bloomberg Intelligence. He covers gaming and lodging for us. I want to get to Matt Smith right now. He's an investment director at Ruffer and he joins us here in our interactive broker studio, even though he's normally a globe trotting master of the universe. Why are you here, Matt In in New York right now? I'm here as the manager of the fund we launched for US clients at the beginning of last Yet, what what's the fun focus on? So? Ruffer is a single

strategy firm. We are the biggest global macro fund you've never heard of, at thirty two billion dollars. So this fund follows our single strategy and makes it available to US clients for the first time. What is that strategy? Good question. We are looking to deliver positive absolute returns. So isn't that what off helping? Well, there's a pretty big focus on relative returns out there. We're trying to

not lose money. That's our primary goal, which seems almost comically unambitious, But it turns out that if you can do that and deliver decent returns on top, you will compound pretty powerfully. So you're not still worried about a benchmark. You're mainly worried about the zero bound. You don't want to go below it. That's correct, That which means what

a lot less risk? I would imagine It means that we start portfolio construction from the perspective of risk minimization rather than return maximization, which is what most people would would think to do. Okay, so you're a macro fund. Where are you putting your money right now? So I think you can break it down into three different places.

Are key structural trade, which I'm going to put in the FED capitulation bucket, is that no central bank in developed markets has got the political or popular mandate to genuinely get rid of inflation. They are all having a go, but we think when push comes to shove, the pain of dealing with inflation is still much greater than the pain of inflation itself, and that will take some time until that changes. So what does the portfolio result of that look like. It's an allocation to thirty and fifty

year US and UK inflation link bonds. So really what we want is the inflation expectation which currently sits it around too that the breaking and we think that that reflects the market's belief in total FED credibility. And as that gets called into questions as people think, okay, inflation is not going to be two over the long term, maybe it could be three or four, those assets should should do pretty well. Did you hear David Rubenstein talking to j Pale the other day. He was like, why

not three? Three seems good to me? Three doesn't seem good to me. Two doesn't even seem good to me. But I don't like inflation at all. But Rubenstein actually asked that question right, He said, like, why are we even shooting for two percent? Is that even a fair global standard of how It's like, well, that's the standard, he said. He said, why is it? And pal said because it's the global standard. There wasn't a better answer

than that, just it is what it is. I think one of the most entertaining dynamics is that Wall Street, like cell side inflation expectations are totally in line with that, and it looks a bit like one of the SpaceX rocket endings. So you know, these SpaceX rockets come down from the outer atmosphere and they land on a boat perfectly Wall Street inflation expectations come down from twelve ten eight down to two and they just sit there. And I think if you go and YouTube failed SpaceX landings,

you've got a lot of hits. You know, there's a lot of videos of when that went wrong. It seems to us extremely unlikely that they will be able to bring inflation down to two and it'll just stay there. Can I ask the mechanics of these investments? Thirty two billion dollars there's a lot of money, I mean for me and pretty that's a lot, I guess in the global treasuries market it's slightly less. But isn't there a liquidity issue with that? Even that some in terms of

investing did the short answers? No? Uh, we play in pretty liquid global asset classes. That affords us, you know, plenty of room for maneuver. But I don't know. If you remember Jeremy Irons in important call, he says you've got to be either the fastest, the cleverest, or you've got to cheat. Um, we are not going to be the fastest, and we certainly don't cheat. I'm not saying we're the cleverest. But what we try to do is position in advance of where people want to end up,

so we're always prepared for bad market outcomes. That means that liquidity normally historically has come to us at times of crisis, rather than us chasing some different positioning that we wish we had when things go wrong. I have a listener question for for for Matt here, I was told by my spies that you were speaking to John Arthur's before you came to our studio and grace us

with your presence. He writes in and said John Arthur's he was very famous for having written for the f T for years and years years, very famous, full stop. I think yes, that's fair, which is yeah. I kind of pulled like a Madonna slash Mosis, thinking John Arthur's everyone else who years. Anyways, he's asking what the pressure from governments on inflation fighting could actually be. Is there

an analogy to Nixon leaving Breton Woods? In so Nixon left putting you on spot Mat He always brings up Bredon Woods, just for Nixon left Bredon Woods because he couldn't hold the peg to gold because the the tightening he would have needed to do to keep the dollar on gold would have collapsed the U s economy, So he chose an easier path of no gold peg and inflation higher. Clearly, the US government today is not going to repeg to gold. That would definitely lead to some

pretty bad economic outcomes quite quickly. Um, I don't think they're going to be able to tighten significantly. Either they are just going to continue solving problems with more spending, and that's what leaves you with higher structural insertion. So it's not just about the FED. I would have asked about a Vulcar analogy, but that's only monetary policy, right, and you're looking at this and a much more holistic way.

I do think that the FED is actually it's not an irrelevance, but I think it's not where you should be looking for. How to position your portfolio structure is your time horizon. So we're trying to avoid losing money on a rolling twelve months basis. But the way we do that is to put in structural assets that we think are critical for protecting capital and then kind of encase them in other assets that allow to be agnostic

to timing. So short answer is we deliberately don't have one, because predicting the future is easy so long as you don't have to predict when the future is going to happen. So um And and in terms of the FED being say less relevant, Um, you don't look at the Vulcar scenario and say that that FED was able to withstand political pressures that were you know, ten x what Jerome Pale if not a hundred x what Jerome Pale faces. Now, it doesn't that that FED was enabled to do what

it did by political support. So everyone wants to be volca in advance, right, every central banker would want to run prudent monetary policy that you need a Reagan behind you exactly. So after ten years of being fed up with inflation uh V four, you had the Whip inflation. Now the wind campaign didn't work. It was only after the whole large sways that the voter base said, we're really sick of this. We'd like to elect someone with who's going to support or docks Montrey policy, supply side

reform hammed on both sides Atlantic Thatcher and Reagan. The results were pretty clear. I don't see that right now. The government in Europe is supporting people facing rising prices, facing inflation with more money. In the US, it's the same if you have a high gasoline price or heating bill.

You know the States are handing out stimulus. So yeah, I saw the German inflation print was lower today because Germany just picked up everybody's bills last which is not really helpful right in the long run, works for a while, but exactly in the long term. So that's why in the long term you run out of other people's money. Were you about to say that I was not, but I should have been. That's I believe a British quote.

That's Margaret that you know it's it's for us. It's a fantastic heads as well as a return seeking opportunity. If INFLA expectations rise a lot, or people realize that the FED doesn't have the political support to titan properly, then it's premiuted to rise a lot in the bond market, in the equity market, cross asset um, so for us have some of that protection. There are some good return opportunities out there, but for the most part, you know,

a five cent risk free rate is it's kind of competing. Matt. It was great having in the studio. Thanks so much for coming by, Matt Smith, investment director at Ruffer. 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 on Boll Sweeney, I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio t