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Alex Ci alongside Paul Sweeny, Welcome to Bloomberg Intelligence Radio. We are broadcasting to you live from Interactive Brokers Studio right here in Midtown Manhattan. Also check us out on YouTube as well. What do you do in the market? I mean the Nastak one hundred is up by two percent. It has been an extremely difficult week in the market if you count last Friday, just in terms of understanding where we are, where positioning is and is the market complacent?
I mentioned the Vicks at twenty five. Joining us now is Brian Whale and chief investment officer and a generalist portfolio manager over at TCW joins US now. Hey, Brian, are we complacent here at this point or is this a buying opportunity?
I think it's a buying opportunity in the bond market. We've had a little bit of a backup. I think everything we saw you know, earlier this week Sunday night into Monday was it was a bit of panic. You know, we've been in the very barished camp with regards to the economy. But even we would were dismissing the notion of some intermeding cut. We thought that was that was
a foolish way to think about the world. So I think this is this is kind of calm, This is the market kind of settling in here a little bit. You know, even though we've backed off in bond yields since the lows on Monday morning, if if you just take a step back for a second, you know, the five year as just kind of an indicator of yields has come down fifty basis points since we started the quarter, so since you know, since July one, and that's a
big move. And I think that's very much in line with you know, the the notions and everyone in the fairytale camp of no landing kind of being shaken a
little bit. We've seen a couple of months of of slowing economic data and the one economic kind of data point that had been holding up that no landing camp, which was the headline payrolls number, you know, that got knocked off a little bit on Friday, and so if you kind of forget the noise early in the week, this looks like a kind of the right place to settle in Brian.
When you walked out onto the TCW trading floor on Monday morning, what were your traders telling you?
It was, you know that metrics didn't make sense. Things were moving all over the place. Liquidity was very poor. You know, you saw the vicks. You know, I think at one point it was that you know, in toyday was well over fifty, which looked it was in a sixties. Yeah, it looked more like an apple. It looked like it looked like an It looked like a like a stock market crash.
It didn't.
It did not look like a market where a headline employee. You know, the rate should have been one hundred and seventy five thousand growth on the payrolls number, and it came in one hundred and fourteen thousand, and the unemployment rate went from you know, four point one to four point three. I mean, that's that's that's indi indicative of a slowing economy and a slower labor for worse than maybe one that's weaker than the market was expecting, and it probably will cause the FED to have to cut
more aggressively than the market was pricing beforehand. But sure, it sure wasn't panic.
Well what did you make of the ten year auction yesterday? It wasn't good.
It just was pretty bad again, thirty year coming today? The three year was fine. You know, our jersey tells me I should care about these things.
I know, yeah, I know.
What did you make that?
You know, it's it's it's it's the same thing I make of what I this morning. You know, it's it's gappy price action. It's it's it's a nervous market. I mean, you saw, you know, a little bit of supply. You know, the street pushes it around. You got a higher yield this morning. You know, initial jobless games come in just a hair under expectations. Although the four week moving average keeps moving up, continue it continued claims continues to stay hi.
So the fact that we're off ten basis points in the market is just it's a market trying to find its footing, almost trying to you know, almost trying to catch its breath a little bit, which is which is a healthy thing. I think what we would contend is, you know, this is maybe not the breath you take because everything is going to be all right, more like
the breath you take before you take the punch. And so you know, over the next few over the next few months, what we're probably going to see, at least we expect is is more of the same, which is the economic data continuing to slow and the FED is going to have to react to that.
Brian, where do you see opportunities in the fixing can market here? Given some of the volatility we've seen over the last several days.
It's a boring answer. I'd say the opportunities maybe agency mortgages aside, but at a high level of the opportunities is in duration and in liquidity, like keep keep your powder dry, because you know, I'm not saying we're going to have vixed days of you know, of north of
sixty again. But if we enter the fall and the narrative and you start reading more about a recession and the job market turns from one of where companies are just not hiring but actually starts to fire, what you're going to see then is concerned about earnings growth and the ability of companies to service their debt, and then there's going to be conversation around downgrades and what happens then in terms of pricing and like our trading floor
and the opportunities we're looking for. Corporate bonds are going to get cheaper relative to treasuries, highyield bonds, emerging market bonds,
they're all going to get cheaper. And that's the that's a really nice buying opportunity because in the bond world now, not only can you kind of buy cheap credit and get the benefits of spread duration and that's another conversation, but you can also get carry and you can also get the advantage of like diversification into portfolio because you know, with yields across the curve right now at four percent, you know, bonds can be bonds again, so they can
act as that hedge of that offset into an environment where we get volatility and equities to cline.
So two things with corporates.
One, we saw a record amount of issuance yesterday in the investment grade market all year. And then also the spreads have not blown out at all like in the last few days. Yeah, they moved up, but we haven't blown out. And I'm just wondering if there's more priced appreciation here to come.
Definitely, it's a trillion dollars a little over a trillion dollars of issuance year to date, which is very high. But yeah, look like just to put things in kind of context for everybody here and watch this stuff day to day. I mean, you know, investment, great corporate bonds kind of on the tight end, meaning like the amount of yield you get over treasuries doesn't get much tighter than about point eight percent, you know, eighty basis points.
We're sitting at about one hundred basis points. Historical averages just even excluding like big moves like the Great Financial Crisis, historical averages are about one hundred and twenty one hundred and twenty five basis points. So you know that was kind of us too on Monday when it's like, look the market, everybody's got to calm down a little bit. Like, you know, at one hundred basis points over, corporate bonds
still look expensive. So be patient. You know, this this may not be a recession that we kind of jump into in and overnight. This just may be an old fashioned recession where we're just going to have to walk our way into it. So as an investor, you've got to keep that kind of long term perspective in mind
and preserve that capital. You know, if you've got that cash, that's worth a lot because you'll be able to spend it in very wise ways, probably throughout the remainder of the year and into early next year.
So, Brian, when the phone calls do from Wall Street with these new issues, what kind of calls do you take?
Do you take everything?
I mean, because you've got capital deploy are you focusing just on the highest quality stuff? What kind of phone calls do you take from Wall Street these days?
I think the way I've described is like, don't call us when you think we need you, call us when
you need us. You know that that's that is That is like a good way to describe what we call like the liquidity premium, which is and I was talking about cash before, like you know, if you want the opportunities when people are calling you on the phone and saying we've got a problem or somebody needs to sell and et cetera, and it's like, Okay, what you hear seems like going on to like a dealer's like a car lot, you know, somebody's like, look, I got to
get rid of this thing, you know, blah blah. Same thing. Like, as an investor, you want to wait for the opportunities where Wall Street calls you and says, look, here's an opportunity. Here's the price. I know, you know where regular market pricing is, and you know, what do you think? And that's that's what you wait for. It It happens kind of infrequently, but that's where you can make the big money.
Where do you think we're going to see the most volatility?
That's a good question, you know. In the short term, you know, we'll see it uh in uh and obviously in interest rates. I think the next thing that would probably be a your what we call these high data parts of fixed income, like like high yield and emerging markets. I think down the line, you know, so so the public liquid markets will react first, and that's where you will see the vall also throw you know, they'll probably
see some some currency volatility in there too. But down the line, if we do get a true recession, there'll be a shake up, you know, in in everybody's favorite market today, which is private credit, and there's there's some you know, private credits here to stay and and you know, there's some some great things about it. However, it's been too easy for too long uh and there's going to have to be a shakeout uh And and that's a
healthy thing for the market in the long term. And so in the short term, focus on those kind of liquid markets like like like high yield bonds for instance, UH currencies, and then in the longer term that'll probably roll into less liquid parts of the market.
All Right, Brian, thanks so much for joining us. Really appreciate Brian Whalen. He's a chief investment officer. That means he's a big dude and a generalist portfolio manager TCW. I tell you I've worked at TCW when I was on a cell side twenty some odd years.
I knew I had like four or five relationships good relationships there.
Oh, really smart, super smart.
Yeah, I mean like across.
The board, like I avoided the fixicing floor, like the plague. I went to the equity floor because that's they were.
You know.
That's so I think people are really smart when they can break things down in language that I understand. Like that's the pure sign, Like you're so smart you can dumb it down right, And.
That's how Brian Wentlest principle was where can I make the most money?
Where can I make the most.
Money as he should? Exactly as he should.
I tell you go to Los Angeles. There's two meetings. You have to get TCW and Capitol Group. Everything else is just gravy.
If you get that, that's like.
Eighty percent of the votes, eighty percent of the commission dollars out of those two shops.
Yeah, duh, Tucker, he didn't know that, Geese.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
All right, let's check in with our good friend Claudia Sam. She's a chief economist, that New Century Advisor's former Federal Reserve economist, and a Bloomberg opinion columnist. And she's got this thing called the Sam Rule. Now, I'm not an economist. I think marginal revenue, marginal cost. That's my extensive knowledge of economics.
Claudia, thanks so much, for joining us here.
Can you just summarize for our listeners our viewers what the sum rule says and was it triggered on Friday with the job support.
So it's a recession indicator. So it uses changes in the unemployment rate over a year to it has a threshold and compares that to historical episodes of recessions. And you know that's when it turns on. It has turned on historically inside in the early months of not a forecast, in the early months of a recession. And with the employment report on July it the som rull crossed the half a percentage point threshold, and so it's indicating a recession.
Are we in a recession my expert opinion looking broadly as no, we are not, but that increasing unemployment rate that we have seen over a year plus is very disconcerting and we're not pointed in the right direction in terms of where we're trending.
This is why I really loved your Bloomberg opinion piece yesterday, because it feels like a lot of people are coming on talking about your rule and how that is de facto then we're in a recession. As reason for the FED to do something, maybe bigger or an emergency way, and you come out with an article that says US isn't in a recession despite the indicator, my recession rule was meant to be broken.
What does that mean.
When we think about this cycle from the pandemic on the last four and a half years, the disruptions to the US economy have been in many ways unprecedented, and in particular, we've had some really big disruptions to supply, which are typical boom and bust indicators recession, high inflation, low inflation. Those are about demand and so the some rule I, in my opinion, is getting overstated by some of the really abrupt shifts and labor supply in the
last several years. And that's just some of the unployment rate increase is the good kind. It's people who come in want to work, they will get jobs. It'll be growth. But in the interim that looks like the unemployment rate rising in the recession, there's some of the bad unemployment in there too. So that's where it gets really hard, and you know, it's difficult to hear. I'm happy to
have sparked a robust conversation. This is really really important to know if we're in or headed towards a recession because our policy actions that can be taken, and so you know, it's it's I'm using the tool and other data just like anybody else.
So, Claudia, what do you make of an unemployment rate of four point three percent?
To me, in my experience, that's still low.
I guess if you want to get concerned about the trend, I e.
It's moving higher, that's a concern.
But in and of itself four point three percent, how does that kind of stack up for you?
Right?
So, if if our concern is about the direction we're pointed in, are we headed towards the recession? Are we enter recession? The relevant metric is the change and the unemployment rate. The level is important. Sometimes it's unsustainably low, like earlier when we had the labor shortages, the unemployment rate in the United States, when I got down to three point four percent, that was because we were missing some workers too, right, Like that wasn't going to stick.
So sometimes, like you know, within bounds, sometimes the level does tell us something. But at four point three percent, this is very much consistent with the demographics of our We have an older, more experienced workforce four percent unemployment that that's much more like you would expect or predict, So that we're not four point three is not like,
oh wow, this is really low. It's not sustainable. And we've gone into recessions in the past with lower unemployment than now and also higher so the level itself is not a protection against a recession.
Paul pointing to himself when he said older workforce seasoned, we think season experience, Claudia to that point, how do I understand the fact that you had a huge move in the bond market when initial jobless claims came out. They're volatile, their seasonality, they change, and yet we're still having such market sensitivity to that.
Where does that kind of tell you about where we are?
Right? Well, this is very much this question about the dynamics the recession, right, It's not this isn't about this hole rule, but it captures it.
Right.
This is why this almost worked historic is you get periods where the unemployment rate starts coming up gradually, and then it picks up steam, and then it goes up a lot. And we had some signals that were in this stage. It's been going up slowly and gradually, and with the July employment report, things look like they were picking up steam in the wrong way, and so that's the concern. And then then what we're looking for and claims data is is that momentum there or was it
just the weather or this that you know? And so I think that's this reaction because we're kind of on this. It's not like we're on the knife's edge, but the dynamics are like it makes a big difference at this point if the increase in the unemployment rates speed up or not, because once they get going, they tend to you have these negative feedback loops and then you're not talking about a half a percentage point increase and then employment you're talking about a three percentage point increase.
Claudia talked to us about the migration component to the labor market. How has that impacted the number because again we've had a surge in migration on the southern border.
For the last several years. How's that impacted the numbers? Do you think?
Right?
Well, first thing, having the immigration and we've had other prime age labor force participation that is higher in the US right now than it's been in general. So it's not just about immigrants. But we it was very important to have more labor supply address these labor shortages that we'd had, and this has taken prior pressure off of
wages and inflation and so like that's very good. And then we have more supply of workers and that and hiring has moderated, right like, the pace has slow down some. So now we're in the opposite direction of the jobs need to catch up to the workers. So if you think about that, this is all in adjustment right like
where it's it's more of a timing issue. And when the reason that the labor supply causing increasing unployment rates a good thing is when they when those new workers do get jobs, they help us expand the economy, which is the exact opposite of this kind of recession watch contracting.
But I will say, you know, employers have different margins to adjust labor demand writ large, and we have seen the hiring rates at employers come down to levels that are, you know, line up with much higher unemployment rates than in the past. So it could be just employers are not wanting to lay off as much because they got burned in this crisis, and so we're seeing you know, it's harder if you're coming in labor force to get jobs.
So this is really tricky labor market treat and that means every single scrap of data we get on the labor market is a big deal.
So Claudia, before I let you go in, but a minute left. I'm looking at WERP WRP on the terminal. It's looking at twenty five basis points of cuts in the next three meetings.
Is that fair pricing? Right now?
That is my baseline. I think that's fair fair pricing the FED. There is more slowing in the labor market than I think is comfortable. We don't need to get into a recession for the FED to start acting, So I think a little picking up the pace some in like three consecutive cuts makes sense. But they're going to be very attuned to you know, we've got more information on labor market between now in September.
All right, Claudia, thank you so much for joining us. Really appreciate getting some of your time. Claudia sam she is the chief economist at New Century Advisors, former Federal Reserve economist, and a Bloomberg Opinion opinion writers. We appreciate getting some of her time. She's a creator of the Psalm rule, a recession indicator, which says, maybe it's not tripped today, but it's certainly suggesting that the risks of a recession or higher certainly.
In your term.
But I love her candor of like, look, I think some people are taking this and running with us like a little bit too far. There's some more nuances. I love that because you don't get that very often, particularly in a market that for so long appeared so one sided in terms of positioning, that that kind.
Of nuance is quite important.
And I have to wonder how complacent and are we still? I mean that fade yesterday was not a good sign.
No it wasn't.
But again we got the SMP, you know, up one point six percent here today, the Russell up one and a half percent, the NASTAC up one point eight percent, so kind of per some broad market moves hired today.
Yeah, and the visit twenty five. I remember those days where it was twelve, like two weeks ago.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card playing Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
Alex Steel here alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We keep you up to date on all the business news and economics and finance that you need with our Bloomberg Intelligence lens because they cover two thousand companies and one hundred and thirty industries worldwide.
We also like to dig deep.
Into the amazing reporting here that we have throughout Bloomberg News. And there's a couple of things on that point. One is we're going to go to Madison Mueller, who's going to talk about Eli Lilley earnings, because that was quite interesting.
The other is we're going to talk about ozempic town. It's a big take.
You can check it out on our podcast, you can check it out in Bloomberg Business Week as well, but it's saying it found the biggest town in the United States that uses ozempic. It was really cool, great anecdotal evidence, and I have lots of questions. Madison joins us now in studio verses. Take us through Eli Lily earnings. Is this a pure like market share grab from Novo to Ali?
Not quite yet, So that's what we're We're We've been closely watching. Lily is narrowing the gap with Novo Nordisk. The sales are coming quite close. I mean, Lily had one point two billion in sales of zep Bound, which only launched a few months ago, and Novo Nordists had one point seven billion in sales of its weight loss drugg we Go V, which they reported yesterday. And we Gov's been on the market for several years. So Lily
is like really moving fast. Sales are ramping up extremely quickly, and we are watching closely to see what happens.
I guess the next step for these drugs is I guess an oral yea, exactly where are we on that?
What are the companies saying?
Both companies have been working on pills, which obviously they think could help not only expand the market in the US, but expand x US because there are certain markets that research has shown prefer pills over shots.
Japan is one of them, interestingly, so that's kind of the next step here. Both of the companies are studying these drugs.
Novo, though, has had a lot of trouble with supply and particularly making enough of the active ingredient that's used in their drugs. The pill uses the same active ingredient and it uses more of it, so they're kind of struggling right now. They can't really launch that pill until they get a handle on supply.
Let's go to the big philps are about that didn't turn on my mic. Let's go to the big take because that was quite interesting and it feeds into the whole story. And the title is what it's like when o zepic takes over an entire town.
Wait, great story, thank you, thank you, because I spent a ton of time in Bowling Green, Kentucky.
Really, I know of what you.
Speak and I send it to a buddy who lives there. She knows half the people in the article.
That's really Oh that's awesome.
Wow.
I'm just really curious as to how you found this town.
So we worked with the data team on this story, and we got data at the three zip code levels, so we're looking at, you know, cities and sort of their surrounding areas, and we were looking all across the country. A few other spots came up, like Huntsville, Alabama, and we kind of were digging around to see just if people were talking about the drugs online. You know if there were doctors in the area that were prescribing them.
And we honed in on Bowling Green specifically because Kentucky as a state has the highest concentration of weight loss drug users in the country. So we were like, oh, well, if this city is showing up in our data, this is probably a good a good place to go and see what's happening. And so started talking to people there and like you know, it kind of spreads like wildfire. You talk to one person who's on the drugs and they're like, oh, talk to my friend, talk to my neighbor.
They're on the drugs too, And it just kind of was easy to find people after that.
Why is that?
Why is it the use so concentrated in a place like Kentucky. Is that just simply because there's more people there that qualify from a I guess a weight perspective.
Right, I Mean, that's a piece of it, which is actually a good thing.
I Mean, we hear so much about the drugs in New York and in Hollywood, but when we're looking at actual obesity rates, those aren't the places that have the highest concentration of people with obesity or diabetes. In Kentucky, there are high rates of obesity and diabetes. There's also there were large employers in the area that were covering
the drugs so people could get access to them. Bowling Green in particular is a very middle class area, so when people couldn't get coverage for the drugs, they were willing to pay out of pocket for it. So that kind of made the conditions ripe for these drugs to take off in Bowling Green.
When when you write the article, you also talk about compound drugs here, just walk us through what a compound drug is, why it's allowed, and is it legit.
Yeah, I mean that has been a really big thing and a really big part of this weight loss drug market as of recently because you know, and that fits in with this supply issue. LILLI and Novo have really been struggling to keep up with supplies. So when drugs are in shortage. Officially, these compounding pharmacies are allowed to make similar versions, copycat versions, we call them, to help, you know, patients who are unable to get prescriptions.
For the drugs.
But what's happened is, you know, in this gap, it's kind of allowed these compounding pharmacies to proliferate, and not all of them are exactly legitimate. And so there's a lot of medical spas that are using the compounding drugs, telehealth companies that are selling the compounding drugs, like Hymns and hers is one that comes up, and in Bowling
Green it's really taken off as well. There's like all of these medical spas popping up, weight loss clinics popping up that are offering compounded or just illegitimate versions of the drugs, and you know, that's become a big thing there as well.
Well for the compounded drugs, are they are they as effective?
Are they safe? What do we know about them?
That's kind of the problem is because you know, pharmaceutical products are so tightly regulated and require so many studies from these drug makers, but the compounded drugs are not studied and they're not regulated in the same way.
There's not the same FDA oversight.
So when we think about are these drugs as effective, the answer is like, we don't really know because we don't.
Have studies that prove that indefinitely, Why would.
That ever be allowed?
I don't mean understand like it's it's a tight supply shortage YadA YadA. But then why is it like, here's an option take a drug that you don't really know work, So what's in it?
Why is that allowed?
It's because, I mean, normally, like compounding, the reason that it exists is more on like an individual basis.
So if a person is allergic to a certain.
Ingredient or like a coloring and a drug, compounding pharmacies can you know, tailor make those drugs for that specific patient. Or if a drug is in shortage and a person can't get access to it. It's not really supposed to be. They're not supposed to be acting like drug makers. But that's kind of what we're seeing happening with these weight loss drugs because of the demand for them.
I mean, great stuff, Madison Moeller, your cohorts, co authors Devin Leonard and Tanna's mayor Johnny MCGANI yet mcganni, Okay, that's the big take story today a Bloomberg Business Week, what it's like when ozepic takes over an entire town. In this case, they focused on Bowling Green, Kentucky.
I did like in the story, I talked about how there was like a wellness thing, and then you also like Botox next door because it's a zempic.
Face everyone talks about.
But like you lose all that weight really fast, but then you got all the skin kind of flapping around everywhere.
The botox to fix it.
Bowling Green, Kentucky. They make Chevrolet Corvette's and they make underwear.
Thank you, thanks for the loom Is Baby loom In.
Really yeah, so that's what.
Let's also go there.
That's awesome.
Okay, so we have like a working.
Scabrola everyone to thanks.
Health reporter Bloomberg News, join's life here in a Bloomberg Interactive Brokers studio, doing some great reporting on these weight loss drugs, which are really really becoming a big phenomenon in the healthcare space.
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Let's keep going on an under armor here that stock up by twenty percent of quinnam Goyle, a senior US e commerce and retail analyst of Bloomberg Intelligence, She joins us, Now what part of this is like, who if it could have been worse versus we really like the stock and its growth.
I think, you know they're executing right. This is the start, but make no mistake, they have a long long way to go. I think the fact that they beat expectations is a good sign that they've stopped the bleeding and it's getting better. But getting to positive sales is still going to be a long while. In fact, before we see actually some meaningful improvement in product, which is a key part of the story, it's not going to be for another nine to twelve months, so there's still a
lot of time. The environment is still very fickle, and you know, when you look at their guidance, which they did raise, it doesn't suggest that things are getting materially better. In fact, there's a little bit of caution built into the guidance as they expect Asia Pacific region to get weaker. They're having freight expense pressures and also four X pressures, so it's not all rosy as it seems looking at the share price. But they are making improvement.
What do they need to restricture here or do they just need to have more cooler stuff in the stores.
I think it's everything. It's definitely product product disking. In retail, they do need to improve their product positioning as well as what they offer. Aside from that, they also have to improve how they market this product. Under Armour has gone through these restructuring efforts multiple times now, so this
isn't something new to them. They've overpenetrated in the off price category, they've over discounted, They've become basically a promotional banner, and now they're trying to do what they tried to do again previously, is to restructure themselves as a more premium brand. Can they do it, yes, but it's going to take effort and time and they have the means to do it. They have the expertise. But remember there are much smaller brand than a Nike and Adida, so
they don't have those deep pockets to help them. But it will take time for them to actually get this underway.
So isn't this like a really rough time to try and like rebe a premium brand.
It's tough, but under Armour isn't a dead brand, right. Everyone still recognizes under Armour and it isn't a brand that has kind of died and is not coming back to life. People recognize the name, people still use it in sports. They have seventy athletes across twenty eighteens and the Olympics right now. So it's not dead and yes it can be repositioned, but it will take time.
So in this part of the retail space that you cover, Punum, the Nikes, the Underarmers of the world, the Adidas, which is correct way to pronounce.
It, Oh, Matt Miller, is that you yes, off, how's.
The consumer there in that part of the world.
So the consumer isn't in the best place today. We've seen the consumer indicators, whether it's the unemployment rate, which we closely watch is now over four percent. They're lofty. Amazon said it on their call just last week that they do expect consumer volatility and macro pressures to build. There will be more discounting. So you know, the consumer is choosing, they're being picky, they're trading down, they're pulling back. It's not the best consumer environment heading into the back half.
So how much time do we need to give, then, say, under armour to fix all of this? Because what is in neusyncratic versus the macro environment. That feels like it's going to draw this process out a bit.
It's definitely going to draw it out a little bit, especially if at worsens. We heard them say that promotions will tick up, which was a major driver to better gross margins in the second quarter. That was really a large part of the outperformance there. But that said, you're talking about a ten percent decline in North America, double digit declines in the quarter. Is still expecting double digit declines in the rest of the year, their fiscal year. It's a long way before we can see, you know,
continuous positive growth. That's say, you know, definitely well over a year, if not longer.
Put them oil. Thank you so much. We appreciate it. Putt them oil.
She has our senior anamals covering all the retail stuff for Bloomberg Intelligence. Given the latest here on our good friends at under Armour based in Baltimore, Maryland. Kevin Plank is the founder of that thing. Pretty good story there overall, but as Puna mentioned, a lot of competition.
They need to restructure a little bit there.
You're listening to the Bloomberg Intelligence podcast. Catch us Live weekdays at ten am Eastern on Applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty.
I'll tell you what's not working today, Warner Brothers Discovery.
I don't know.
When I covered these stocks, they were ripping. But I don't know this new generation of media analysts. I don't know what they're doing here. Kevin here, he joins us here. He's a senior media associate for Bloomberg Intelligence. He works with my good buddy Getha ranganathin covering the media space. Here, Kevin, this is a tough one here. I mean, talk to us about what's happening with Warner Brothers Discovery taking a big write down today.
What was the write down for exactly?
Exactly?
Thanks for me on Paul.
It was.
It's it's bad, it's not great. Obviously, we're still in a very transitory period and media expectations were certainly tempered coming into the quarter. I think they've been that way for a little while now. Obviously, Warner stopped giving us adjusted ebit a guidance at the beginning of the year, but that said, you know, it was worse than expected, and it's really really I think the headline is on the network side, as you just said, that's where that
nine billion dollar write down was coming from. And the visibility isn't great. You know, they're they're going to be losing it's all of it's certain they're gonna be losing the NBA contract in twenty twenty five, twenty six. So it's really been a game for a long time for traditional media. Can they scale up their streaming services while PayTV continues to melt. But it's it's tough, but.
They're streaming wasn't terrible.
It was really just the traditional ad business and also the movie business like done too fine, Like I'll see it, but please you ain't.
A don't pool.
It's exactly right, that's exactly right. The ads were really where they're filling a lot of the weakness as you know, those linear ad dollars are moving towards connected TV.
Streaming was was pretty good.
They had some nice international launches during the quarter, So those net ads came in above expected and they are actually one of the few that are are starting to get to the inflection point where we're starting to see some profit, but again it's so much smaller compared to their legacy TV business that's still.
The bread and butter.
And on the studio side, you're right, they had some good, good results with Dune. They had a good launch with Godzilla x Kong. They also had some misses. Furiosa was one that didn't quite do as well. And of course on the video game side, that's also been quite weak, especially of some against some difficult comps against last year with the Hogwarts legacy.
All right, sixteen point seven billion dollar market cap, that's one thing, but then you look at the balance sheet and they got forty billion dollars of debt. Oh my god, what is this company? I mean, John Malone's a shareholder, an agent of change.
If nothing else.
Is there an expectation the marketplace, Kevin, that this is a company that needs to.
Be restructured, split up, acquired.
I mean, it's certainly been speculated on management. Of course, you know, declined to comment on on rumors like that. At they're certainly prioritizing their cash flow to to pay down their debt right now. Certainly a lot of that is going towards their their interest payments. It's it's difficult to say, you know, it's really really difficult. Obviously when you look across kind of the media landscape. They are
partnering together with with bundling. Obviously we have Venue Sports coming this fall, so.
That again help me understand that one.
It's it's the streaming sports JV. Essentially they're going to be it's like a skinny paid TV bundle. So essentially you know you're getting those cable TV channels, but it's all over the internet. Right, So again, that's Warner that's Fox, that's that's Disney's ESPN. But it's not NBC Universal, it's not NBC Universal, it's not Paramount CBS Sports.
It's a disaster. It's a digster.
We had when I was running this industry, we had people paying their cable operator one hundred bucks a month. The cable operator made money, and the cable operator paid a lot of money to the Viacoms and Warner Brothers Discoveries of the world for their cable networks. They made money, lots of big audiences, advertisers made money.
Everything was good.
And then the young guy folks come into the industry and they change it. They start the streaming service and now they're scrambling for dollars. Is there an expectation, Kevin, that we're somewhere near a point where it all shakes out or something.
Yeah, I think so, And then you make it sound so wonderful fact that money there Again, if you look at a I mean, certainly Netflix is crushing right now, you know. There their their margins are are so great. You know, they just up their margin guidance, cash flow really really strong and certainly seemed to be winning these streaming wars. But again, you know, it's it's evolving, right,
it's it's continuing. We're looking at price increases. Obviously, when you're looking at you know, kind of a more mature market like the US, the focus is on urpoop, So how are you going to raise arpoo there? There are a few different levers exactly exactly there it is, uh so you can do that. They're just price raises. Obviously, they're trying to build out their advertising like we were talking about before. And then the other big lever is
the password crackdown. So Netflix did that last year. Disney's going to be implementing that in earnest and.
Has that been material like did that.
Oh no, it really helped, yeah, very much.
So yeah, okay, when you offspring, we're upset because they've been skating on my coattails for a long time.
I guess also them.
The question is, at some point, I don't know if we're here yet, people are just gonna get fed up with all the pricing increases which I cannot keep track, and they're gonna do the thing where they go through and they're like no, no, no, yes, yes, and they're gonna start cutting.
Have we seen that yet a little bit?
A little bit again. You know, if you look at Netflix, their their turn levels are so low compared to their peers. But you do see a lot of those serial churners. You know, they'll sign up, they'll watch a show that they like, and then they'll cancel. Right, So they're they're trying to combat that. They're still keeping you know, again, they they being you know, most of these streamers, they're still keeping that competitive entry price with their ad supported tires.
So what they're trying to do is either you have to pay a lot for a premium product or pay less and watch ads.
All right, Kevin, good stuff, you can come back. You passed the test.
Kevin Near, senior media associate analysts that Bloomberg can telepressure. I didn't hire them, but Geitha did, so that's good enough for me.
That's all I need.
He's here at Bloomberg Interactive Broker Studio, and most importantly.
He's based in New York City.
None this Princeton stuff.
You want to be a player, you got to be in big town. That's what I always say. Kevin here, Thanks for joining us here.
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