Investing In Space

we're talking outer space. Just in the last month we've seen Sir Richard Branson and Jeff Bezos rocket into space, continuing the commercialization, if you will, of outer space. Let's get a sense of where we're going for John Wensby, executive director of the Allen b Levan NSU Broward Center of Innovation, joins is John, give us a sense here. You know, when I was a kid, it was all about the Apollo UH program and NASA, and you know the US government talk to us about is the future

space innovation? Is it no longer NASA? Is it with billionaire entrepreneurs? Well, ga Marine, and thanks for having me. I'm actually glad that you mentioned UH the Apollo program because we recently recruited Buzz Aldrin's son Andrew Aldrins, the director of our new space program called Level five Space

dook to support these entrepreneurial opportunities. But to really answer your question, there's never been a more opportune time for entrepreneurs to launch and scale companies in the space sector. And it's not the old government model of doing anything. It's really moving into the privatization and the commercialization of space through public private partnerships and more private sector um support.

And the barriers of entry are coming down, and the technological advances that are creating expectations for the future are much more cost effective than they've ever been. They're still high, but they're certainly coming down, which really leads to increased private investment by investors who are ran new to the space sector. And the recess successes as you mentioned with SpaceX and Version Galactic and Blue Origin are really great examples.

But the point is it's not just about it's not just about billionaires, right, because we talked to so many people, some of them young, you know gen z startup people who are getting into the space business because not everybody has to do the launch, right, there's so many other aspects. Yeah, you're absolutely correct, and the future of space isn't the big names and brands that you know, it's it's the

people that are behind it. So you're these early stage entrepreneurs that are focused on technology development, whether it's the hardware side or the software side, there are two evolving worlds. And the hardware we often refer to as the vehicle uh and the satellites as an example that on the hardware side, it's all around data and how you use data in space for the betterment of Earth or for inner and outer space applications. And it's really provided opportunities

for anybody no matter what your economic status is. If you've got a great idea that serving a need for now in the future, this is the time to be able to be focusing on that. Is there is there a profit angle here at all? John? I mean, you know, I look at Sir Richard Branson and Jeff Bezos and I'm not sure they're really focused on making money here given their status. Is there a belief that there is

a profit model in the commercialization of space? Well, I think when you're associating these these big names that are they're internationally known, they're making headlines, and what they're doing is they're bringing more awareness to the opportunities associated with space, and I would say that profit is not the number one objective. It's about breaking down the barriers so that

we can get to that next level. The future of the entrepreneur, though, is about the profit, and these start these small companies that are creating concepts and inventions that support the space sector, whether it's in the private or public sector. Their goal at the end of the day is to be able to make money and scale these businesses, and there's more infrastructure that's now available to be able to do that than there's ever been before. But it's the it's the names that we're not aware of that

are going to be successful. Are the ones that are profiting as they support these bigger initiatives. And I think it's really important to focus on the big names like the Nassas of the world and the Branson's and the

Bezos as examples. But what's happening is the space agencies around the world are moving more to the private sector in terms of support, where they're establishing very defined verticals of need and then you market those needs and you find the smaller entrepreneur that can cater to the development of the inventions and technologies for those needs, and then they're co funded. Um in many cases will be acquired with into those space agencies, but they're they're generating a

profit at the end of the day. It's also I mean, there's so many other angles besides the launch. And I said it already, but I think it's important to point out. Look, Netflix is producing a documentary um where SpaceX is going to put four civilians into orbit and that's next month. I mean, it just blows my mind. I know that media is not your wheelhouse. I bring it up because it is Paul's wheelhouse. But what are the other business

lines you think, John that are going to be profitable soon? Well, I think when you break it back down into the hardware and the software side, the hardware is a little bit more difficult. That's the space vehicles and the satellites that are previously mentioned. That's very difficult because of the high cost of putting that together. The profitable side of the business is the low hanging fruit, as I'm calling

it is to software is the data. It's a it's a uniquely feasible space product, and if you know how to collect it and analyze it and integrate it, and then distribute that into different forms of technologies. That's truly the future, and that can be done anywhere in the world. It hasn't doesn't have to be in a in a

space environment, if you will. And there are multiple industries that are currently creating things that may not even recognize that they're directly supporting space or have the potential to

directly support space. But when you think about evolving themes and this in this emerging world in which we live around acceleration and disruption, it's things like cybersecurity or agriculture, marine industries, telecommunications, um manufacturing and dance manufacturing, even smart city development and design for the future, as well as the creation of new space services that don't even exist today. So we have to create a whole world that supports

everything that happens up in inner in outer space. So there really isn't an industry that can't connect to space in a direct or indirect way. All right, John, great having you. Um. John Bensfeen is I think internationally known expert on air transport. He wrote Air Transportation and Management Perspective and Wheels Up Airline Business Plan Development, So he really knows, you know, not only how these businesses work, but how they can turn a profit. John, thanks very

much for joining us. Let's get back to the markets right now, and specifically to Disney earnings coming out after the bell today. Kevin Near joins US Equity Research associated Bloomberg Intelligence. He is live, Are you live in the studio? All right? Cool? So you're with I mean the two guys at the company who probably know more about Disney than anyone else save possibly David Weston because I think he used to work work there, work there. Um, what

do we expect? We've been talking a lot about the parks, but there's also a lot going on in their media business. And you know, you've got the TV, You've got the sports? What what what the highlights? Definitely definitely thank you so much again for having me. Uh so for us for Disney earnings, you know, we're looking at three key things. One is the update on this on the streaming subscriber story, obviously Disney Plus being sort of the most important product

on that side, but Hulu ESPN Plus also important. Uh. Next, we're gonna be looking for an update on the box office on their distribution side. Uh. You know, Disney has been really holding their cards close to their chest as opposed to some of the other studios. UM. And then lastly, as you as you mentioned, we're gonna be looking for

commentary on the theme parks business. We're expecting that this this past quarter fiscal three Q will be their first profit in that business since last year, since obviously the virus shut down that side of the business. UM. But that said, you know rising delta cases, there's something that we're looking at very closely. And uh, and we're gonna be looking for commentary on their on their bookings going forward.

So what do we know on the theme park business because it's you know, it's a business that a lot of people overlook because they look at the streaming business and they look at ESPN. But the parks and resorts quarter after quarter A it's a big business and be it grows double digit earnings every quarter. But I'm really concerned about this delta variant an impact you could have in Florida, in California and their international things. Have they

given any indication to how things maybe trending? Yeah, absolutely absolutely, So that's exactly what we're gonna be looking for. And uh, and again you bring up with great points. Um. You know, as far as the international side, there's still a little bit further behind than obviously on the domestic side. Uh, they just had to reinstate obviously wearing masks in in both those parks, Disney World and in Disneyland, Um, which you know again you know that's that's that's writing on

the wall. I think consumers really see that. Um. There's been no mention on you know, you know, vaccine mandates as far as that. We think it's unlikely that they will mandate vats nations considering just how they're how their clientele really excuse you know, much younger. Obviously the children

under twelve haven't been approved yet. Um. But that said, you're exactly to your point now, and you'd be turning away so many people, so many Americans are vaccine hesitant, I guess is the politically correct way to put it now, but exactly anti vaxers, and you don't want to lose those dollars, do you exactly exactly so that that remains a threat, you know, near term. It's it's just very unclear at this point how how delta is going to

shake out. You know, we're still waiting on that f t f D a mandate for for the vaccine, which should theoretically change things. I guess either way, the streaming business is good. I just wonder how you differentiate because you you mentioned they've got Disney Plus, Hulu, ESPN, and there's so many other offerings out there with um Netflix and Apple TV, and I mean, so I'm subscribed to p g A, I'm subscribed to MLB, Like the bills are higher than my cable box used to cost, right

right now, that's that's the It's exactly right. And just to contextualize this a little bit, what we've seen so far, you know, this past quarter was really a mixed bag on the streaming side. You know, this is domestic. International again is a different story. But uh, you know, Netflix posted really really some some weak result. They actually posted

a loss domestically in the US and Canada. On the subscriber side, Stars which is a premium spot service owned by lions Gate, they saw a similar trend losing subscribers domestically, and that's really all all based on weaker content slates. And meanwhile, exactly to your point, some of those newer services, Paramount Plus, HBO, Max Discovery Plus, they're posting gains you know, at or above expectations. And you know, part of that is is price promotions. Part of that is higher marketing

spence for those those newer services. UM. But what we're really seeing now is that you know, what we like to say is is the streaming wars have really started. You know, they've really started now. We've been talking about the streaming wars for a while, UM, but it's it's has gotten real just this pass quarter. And the expectation is that you know, Netflix, obviously they're the big dog, but Disney has established itself as a solid number two. So of to we'll take a look at those earnings

coming out after the close tonight. Kevin Near joins his is equity research associate at Bloomberg Intelligence, joining us here in the Bloomberg Interactive Broker studio. He works with the great ether rung Onohan, who is also media analysts and she covered some of the tech stuff as well. So another generation men of equity research covering the media sector coming up for Bloomberg Intelligence. Kevin, you're joining us here.

I want to get over to Greg Hahn. He is the chief investment officer at Winthrop Capital Management and I want to kick it off with an inflation question. Question, Greg Jarrett was just talking about the price of oil. We know the President wants the price at the pumps to come down, even if the I e A. Says demand is going to get crimped. Are you a believer in UH continuous inflation or is it transitory? So right now, the way that monetary policy is working is we actually

think that it's transitory whatever we define. However we define transitory, UH inflation is going to be here a little bit longer than what FED would want us to think, just because of the supply chain dislocations and just corporate incentives to keep prices up. Um. But as long as excess reserves are parked down, the balance shoes the FED. And that's not they're not leaking into the financial system. That I think the Fed's got a good shot at controlling

the rate of inflation. Hey, Greg, you know, I look at the ten year here trading at one point three, and I gotta just step back and say, you know, I've been an equity guy in my entire career in thank goodness, because I have no idea if I were a fixing co investor where I would go today. For any yield or return. What are these people doing all day? I mean, how do you generate return with the tenure at one? Right? So it's it's pretty much known that bond investors can suck the fun out of the room

faster than anybody. So the bond the bond world right now, if you're investing in public, publicly traded bonds, it's a very very difficult environment UM and institutional side. In the private credit space, there are more opportunities to earn yield, but those are coming down. Those would include clos and

commercial mortgage loans. But there are ways for individual investors to capture the c l O investment or the bank through UM some mutual funds and EPF so those obviously have a higher risk associated with them different liquidity issues. But that is the one of the answers to where do you get where do you get yield? And the other is leverage and the closed and fund provides that. I mean, the other answer that Howard Marks gave us

is that it's just tough. You know, it's not It's not easy, he said, um people are happy with three hundred. He's happy with three hundred basis points on high yield debt. That's that's enough. Um too, he thinks cover the costs are the risk of a default. And I thought that was amazingly told Eric Shasker that, Um, he said, people that need seven percent? He doesn't know what to do. Of course, he's a distress guy. Um what about in stocks?

Every time I think that we can't possibly run any higher than this and valuations look pretty full, Um, we do, and how much further can we go? So here's so. So the general rule of thumb in our world, this is the Winthrop world, is that as long as we have aggressive monetary policy and we have aggressive fiscal policy, which we have both right now. Um, there's a safety net on on asset prices. So um, that's can be

a catalyst for stocks to go higher. We are very, very concerned about the market right now, and the reason is there's a there's kind of a crossroads that are taking place. The Fed um is going to start to remove its stimulus, which means that the interest rates naturally

will drift higher. And then the question becomes, how will the stock market handle that at a time when the earnings comparisons, earning comps year over year are going to We're not going to have disfavorable earnings comp coming out of the pandemic. They're gonna We're gonna see earnings growth start too slow. So it's going to be a challenge

for equity investors going forward. And Greg's interesting. Earlier this week, Tom Keen and I had on Doug Cass from Seabree's Partners Legendary Investors, and he's at with a note, I think on Tuesday, basic and entitled sell stocks now, basically taking some of the concerns that you just highlighted and said they're more than concerns. They're coming and that's not good for equity markets. But that is very much the contrarian view out here as far as I can tell.

It's it's it is tough. I mean, we're ones to stay invested, We're not ones to try to time the market. But the the underlying theme here that the challenge that we have is that we we in our world, we recognize the structure of the capital markets has changed. And you sort of touched on it with this idea on

the fixed income side is where do investors go? The consequence of these said policies has been that US savers people that are looking at retirement or in retirement, it's very difficult to earn a an income stream in retirement to support our lifestyle. We have to look at capital games to do that. So it's it's a challenge that um, you know, it's just it's just a challenge. Thank goodness.

We have social security right well, yeah and that. But but just being sarcastic, I don't know, sometimes my sarcasm doesn't read on radio. Yeah, but I meant like it's not enough. Yeah. But in the in the equity markets, we're not ones that there are there are places to go. And I'm one of those that that is seriously a China because of what's happened there is there's one. We think there's just a tremendous buy an opportunity. It is not a place to run from. It's a place to

really study and look into that. Their form of capitalism competing alongside Western capitalism, is going to be a survivor over the next ten years. And there's some cheap stocks there. But you look there just for do you look for a capital appreciation or do you for returns? Yeah, well that's its capital appreciation. The income stream is not not competitive, Yeah,

it's it's a little scary. As Bloomberg had a story I think yesterday, just highlighting how many millions of people in America are going to be a turning sixty five and you know, if you retire at sixty five. My parents are retiring their seventy and they're still gonna live another twenty or thirty years, which I'm happy about. But it's expensive, and especially if you get hit with something like Alzheimer's or you know, it's it's a horrible thing

to think about, but it's just so expensive healthcare. Springing in a professionals or putting them in a home. It's just you've got to be prepared, and I think a lot of people are a little underprepared. Greg. Great having you on the program, Greg Han, chief investment officer at Winthrop Capital Management. Ernesta Ramo's chief investment officer for the U S for bmo A Global Asset Management. He joins us on the phone from Chicago. Ernesta, we're basically through

this second quarter earning period. You've got Disney after the Clothes tonight, but really really impressive earnings growth. Was that enough for those who feel like this market is expensive? And that's a reason to maybe be cautious. Well, there's certainly been incredible earnings growth, as you point out, Uh, it's clearly all in the price as we speak. And the question is what's the earnings growth going to be

look looking like going forward? And that's a that's a clear that's a question that doesn't have a clear answer. The only thing that we think it's clear is that it's not going to be as strong as it has been, uh for the last old months. I mean the earnings over the last all months for the smp F. I found it up. I don't think any analysts out there has that kind of number for for the for the

next told months. So we think the market is a bit richly valued in might need to take a breather here, and that's why we favor higher quality stocks are not very very abriginally value top what we call quality value stocks. Yeah, I'm looking at UM on the Bloomberg an esto. You can type an index and then gego, which allows you to graph a number of things. But I put up,

for example, trailing PE. Right now, we're at seven on the smp We were at the beginning of the year, UM up around thirty three so the earnings have done a lot to bring that down. But if you look at um the forward PE estimates, we're trading around twenty two and we had been at the high at the end of last year up around twenty seven. What do you think fair value is well with the with the kind of monetary policy of the interest rates where they are.

I think the market can handle to you know, but it's gonna need earning scurowth to to get further ahead. And right now, if you look at about the consensus, they're pricing in about or they're looking for twenty earnings to come in and about plus nine percent for one will come in. And so I think the market doesn't have a lot of room to go with nine percent earning s growth maybe a couple of percent higher from where it is now. So it's it's gonna be interesting

to see what what gives. But specifically, what we're looking to do in our portfolis is tilt a little bit away from from growth to value because we see the cycle, the economic cycle is really recovering strongly uh and uh and and and and also tilt a little bit towards smaller caps, so smaller cap value over large cap growth. But we're not dramatically, just just a little bit, just so that you get a little bit more exposure to

two sectors that are more uh tied to the economic cycle. Here, I tell you of the many reasons I like working with Matt Miller is his knowledge of Bloomark functionality is amazing. That function I did not know it and I've been here twelve years. Thank you for that, Sernesto. You know, what are some of the sectors that you guys are working on these days? I mean again, we just came through earnings. We've got some more information about how companies

are thinking about their businesses going forward. Are there some sectors that you guys are doing some extra work on these days? Well, we really are more focused on the companies at the at the bottom, up the level, so companies that AutoZone, companies like Carl Ruf. The AutoZone is is you know, celebrate care type shop where people that want to fix their own cards go by parts and whatnot. H card Rufi, which is tied to the recovery in in the housing sector and people um fixing their house

is up. And also it's also tried te a little bit infrastructure growth and and UH companies like like all State, which is an insurre not not too many people will come on shows and talk about insurance, but it's a company doing very well. And these are the one thing that characterizes them. For example, all State trades in like eight and a half times earnings, which is pretty pretty ridiculously cheap. But the thing that all of these companies have in common is that they don't trade at very

expensive valuations. And and that's the one thing we're making sure in our portfolos, even in our growth portfolios, we're not overpaid for any one stock because at these levels of valuation, the biggest risk in the market right now is a valuation risk and that we have a correction just because the market is originally valued. What are the you think the best sectors where we can find how do you screen for value stocks? Industrials is one, Financials

is another, UH, Materials is another. UM. You know, those are the traditional value sectors. UH, But but there's companies in in in UH the consumer discretion area for example of auto zone, which which I mentioned already, that that are that are attractively valued. So you really have to go sector by sector. Technology in general is going to be richly valued, but you're gonna find companies here and there that are doing very well and not trading at

very high valuations. So it's really a question of focusing on the company themselves and their individual prospects run to make broad based sector or industry calls. It's just all about the companies, and our approach really measures the evaluation. Of course it is very important, but profitability, quality, growth of every company, as well as market sentiment, and we aggregate a bunch of metrics on all of these to come up with a with a shortlisted. Then we do

a lot of fun the mode men. All right, Naste, thanks very much. Nasto Ramos from BMO. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.