Instagram is Facebook's Bellwether, Lehmann Says

it's implied. That's called an implied Pharaoh. Richard House counsel and Foreign Relations President Richard, It's always great to get your insight. You thank you, sir, I appreciate it. Let's talk about what we finally got, which was maybe a little bit of a de escalation between Europe and the United States. How did you read that, Rachel? I did read it as a de escalation. It's a it's a truce. The question with truces is whether they ultimately translate into

treaties and become enduring. And we don't know whether this was simply a tactical pullback by the president because he's getting some pushback around the country. A lot of people who are part of his base, farmers, also people in manufacture, just workers are beginning to feel the direct and indirect effects of these tariffs. So we don't know whether it's simply tactical, as things so often are in this administration, or again whether this will be translated into something that

will last. You've talked before about the several fronts of the United States appears to be at war with UM. One is trade, and there are other space you think it's taking place as well. UM what are you most concerned about now? The answer essentially yes, it's all of the above. There there's there's trade, which is one and the side effect also what of our fiscal stimulus and tax cutches the long term debt. I'm worried about North Korea because, among other things that is not the nuclearizing.

I think there's a chance of conflict with Iran, unlike North Korea where being urged to confront Iran by our local allies and Iran doesn't have great power backers. And then domestically, I think the assault on some of our institutions in this country is also a real, real grounds for concern. I've never asked you this question. I'm gonna ask it right now. How does it rand fight wars? I mean, I remember my amateur reading of the Iran

Iraq world, which was basically medieval. But how when when you say a potential conflict with Iran, what does that actually mean? Luran has many tools. That has cyber tools it would use against us. It has terrorism which it could deploy anywhere around the world. It has the Revolutionary Guards, which is essentially a power military force. It has its like a military military like tanks you know Arab Israeli

sixty seven, but not at not at that level. But I mean much much more worrisome about Iran is what they could do through what's called asymmetric efforts to interfere with shipping. That for example, tankers would be very vulnerable to Iranian missile bowes and to Iranian speedboats, which could be used as territory. Do they control the Gulf of Controls too stronger word, but they could deny it temporarily to us or to anybody else. It could be they

could disrupt. Now that would be a major escalation because that would put them a target on their backs, and sooner or later they would not prevail in that there's this illusion that there is an elected government that is a democracy. You really push against that, don't you. Yeah, it's almost impossible to speak about the Iranian government in the singular. It's plural. You've got a religious authority that is not elected, and then you've got political authority, but

that's limited. Plus now you also have this military, ideological intelligence authorities, so you've got multiple centers of power. But still I'd say there are this fusion of the political with the religious dominates. And the people were used to dealing with ravad zarif the foreign minister, Ruhani, the president, they are clearly limited in their way. There is something broader and perhaps more pathful taking place, and I'd love

your insight on it. I'm just wondering whether we've ever seen a country like the United States its voluntarily give up concede hegemonic power. If we ever seen this before, short answers, No, We're used to countries being exhausted. We saw that, say with the United Kingdom given World War One, the right that then we had the fall of the Empire.

We saw it with the Soviet Union as a result of Afghanistan and the Cold war competition the United States under to some extent Barack Obama, but intensified under Donald Trump, is the first example I'm aware of and history of a country voluntarily choosing to abdicate, to walk away from a large international role. And what makes it particularly bizarre is we have benefited so much. The costs of what we've done are far outweighed by the benefits we've derived.

So to simply abdicate I find without historical precedent and without rationale. Thank you so much for to be for to brief a visit on radio today, but we greatly appreciate it across our morning hours. Richard Hasses with the Council on Foreign Relations, This is our interview of the day on Facebook. And this goes back to the heritage of securities analysis of technology and it started, and I mean started forty years ago at Robertson Coleman Cybel and Weisseul.

Tom Weisseul was really the one that started all of this analysis of the investment in finance of technology in San Francisco. That distilled down to his wonderful firm and then on to Montgomery Securities and John a gentleman who helps spearheads so much of this. Then a younger Mark Lehman is with us UH today who understands the heritage the found dation John of the Medlal Park in San Francisco that's blowing up this morning. Isn't it nice to

have monk with us in New York? It is, and particularly because we we don't know the history of where Mark and I came from with Robertson Stevens and particularly with Tom Weissel, and you've got that heritage that Mr Zuckerberg and Miss Samberger bouncing off of this morning, Mott Lehman, JAMP Securities, the president joining us around a time. Great to have you with us with down in a pre market on Facebook. What went wrong, Mork, Well, a few

things went wrong. One is uh, they clearly had um a revenue top line number that missed h the analysts expectations and you never want to see that. You combine that with expense growth that was well above expectations as well, and of course the guidance going forward which was um not wonderful and not what the street wanted to see. So put those all together with a stock that had gone up since the bowels of the Cambridge analytical scare in the first quarter in in early April, and it

was just ripe for disappointment. And all those things combined. Have the stock, as you just said, down um, and and a lot of people saying I told you so. Then again, stock's gonna be flat year to date. It was up sent before this year to date. So it's not like this is uh, this is kind of a don't cry from the Argentina. But clearly this was a disappointment. We're going back to May levels and clearly it's a disappointment. And I always look at the failure of communication when

we see moves this big. We haven't got a catastrophe. There isn't a crisis that's been announced. We just got the numbers and they were a little bit lower with the many people anticipated. What are we seeing on the screen relative to the news. Is it an overreaction, That's what I'm trying to get into, and whether this is the mother of all buying opportunities when a company this big with so much scope, Well, you're you're you're correct. I mean, like you said, it is down here and

it is kind of flat year to date. UM. This will be the largest single uh loss of market cap in one day in the industry, and it's all my fault. The same people who are telling you I told you so, we're telling you to sell the stock at fifty undred fifty before that. UM, listen, I I My faith is in the fact that they have several platform that are still the bell Weather platforms, UM, Instagram, obviously, facebat Facebook.

Still they break out the income statements of these different boltons, including they really don't when they talk about his daily average juice they talk about I think the street will probably ask for it at some point. UM. I think they're probably not going to do that soon because I think it helps them, UM compare themselves to some of their competitors they have. Although the competition between Instagram and Snapchat, I think Instagram. If you my kids, Instagram is the

winner right now. Do they need to do in April eight, that is when Mr Scully took over from Mr Jobs, that they need to ring a CEO adult type into the room? You know, I don't. I'm not sure we're there yet. I think there's plenty of adults are on the table. They have had some losses, they've had some personnel losses. UM. I think Mark is clearly at the helm here. Um, he's not. Uh, I wouldn't put him in the category of needing an adult in the room. UM.

But clearly they're they're very detective of what they have here. UM. And and it is a very mercantile company and lost that loose say to that. UM. But they're hiring a lot of people. They're building more and more personnel and expense pressure on that to cure some of the ills that we've talked about. I think to play for the long bowld not to play for the next quarter. You say you wouldn't put him in the category as needing an adult in the room, but many people did. It's

why Sarah Sandberg is there. Quite clearly. Over the last couple of months, it's been a total failure. The response the Cambridge Analytic a scandal was slow, it was clumsy. Some people would just say it was outright pathetic. And the way they've communicated these numbers to the market is also pretty slow, clumsy, and allowsy and outright pathetic. When you see the stock down by this morning, what's clear to me is that we have a problem on our hands.

There is a growth picture that the market thought was going to come through, and the company themselves are saying it's now not going to expenses rows, marchins have come in a little bit. I guess the judgment called this morning is whether you think that trend continues. Is this a company that's just resetting expectations, or are we about to see Facebook ultimately go to a more mature stage where we're gonna get the kind of growth levels we've got used to and when marchings are gonna get a

little bit tight to what do you expect now? Mark? In the reset today, you're gonna see expenses bloat a little bit for now. I think given the revenue um that they're going to garner and I think that this move to the platform, obviously the online platform is still in its infancy. You are still seeing the media um spend go more and more towards online that has not anated. You saw what Google reported earlier this week, a gargantuan company that was still able to report the kind of

revenue growth they have. I don't think this is a revenue diminution story. I think this is still a story of whether you've got a lot or expenses and revenues bigger story, Mark Leman with us with j MP thrilled that he's with us today with his heritage the Bank of American Securities in Tom Weissel and Montgomery as well. I just did it a fitted standard deviation study and Mr Zuckerberg is joining enjoying a four point four standard

deviation dropping the stock as we speak. Everything in me says load the boat if you believe in the fundamental story. JP Morgan and just price target, somebody else adjusted, Piper Jeffrey adjusted price Target, Susquehanna want the other way and said we're long. What are you right now? Could you devolve that before your morning morning meeting. I mean, we're still positive on the story, and I think our analyst Ron Josie has been pointing out what we talked about earlier,

which is there's multiple ways to win here. If you just look at the ads on Instagram and the target markets that they have, that's a huge market. It's the absolute eighteen thirty market that absolutely advertisers always can I just say, Johnny, everybody at home has glued to Instagram. Yeah, I mean, I mean they have several franchises outside of the coal product with a billion users. Messenger WhatsApp on Instagram.

If you believe in the story like Mark does this morning, there's quite clearly areas way you're gonna see significant are you four point four standard deviation? This is a massive move because it's like your single best buy. It's it's certainly one at the top of our list. You also have a stock, like we said earlier, that's gone from a hundred basically a hundred and fifty a Troughton April to fifteen yesterday. Okay, so in three months, can up

the script please? Days? Okay, this is so important. We're talking about the heritage mark that you carry with you from the days of tomoisel and and and Robertson Stevens and that everybody out there collapsed in a one. What was the humility lesson out of the Nasdack collapse of March of one for the San Francisco securities industry. Well, you asked a really large question that the industry had started to um morph um. The four horsemen a term

that many of you know. Roberts and Stephens, Montgomery, Hamberken, Quests and Alex Brown had all been bought by larger banks um and at that time San Francisco, which was the hub of those three of those firms, Roberts and Stephens, Hamberg Montgomery have been bought by banks, and in doing so, the the core of the of those firms, which is really technology and healthcare, research and banking um started to morph and and move a little. The Nexus move to

New York. And as that happened, a a vacuum was created in tandem with the fact that the market was crashing. So our firm, JMP got started at that time on the heels of that. Tom Wisele also started his firm and has since moved in emerged into Stifel. But at that time there was a little bit of a vacuum then, and San Francisco really was it was. It was a ghost town relative to the way it is today. John Farrell on our team, thank you so much for coming.

And this is an extraordinary day. I didn't realize, folks that John Farrell, you said this could be the largest capitalization drop in history. I don't think we've ever had. I believe it will be a hundred billion plus today. Intel dropped I believe ninety billion at one In the old days and when the market was in two thousand thank you so much, greatly appreciated. Well, we're gonna shift right now to James Bevan, who has a tactical and strategic view of what to do with long term investment

at c c l A Investment management in London. James, how do you distill three and forty two earnings reports that one day? You can't do it? So? How do you sort of keep up with the portfolios? Earn? Tom? Sorry I lost you for a moment. Could you do that again? Okay, I'll do it. You're you know, you're a pro, your own x amount of securities in the earnings madness? How do you keep up with the news flow,

whether it's Facebook, American Airlines or whatever. I think keeping up the news flow is immensely easy because it's all tagged. It all comes up. You don't have to go and look for it. I think what is interesting is how does one deal with information overload? How does one read through the numbers and arrive at a decision that looks prudent without panicking with buying too much at the top. And for me, this is a matter of stepping back

and taking a long term view. I worry that there are far too many investors whose time horizon is very short. The day trade is good luck to them. I think that's going to be an increasingly difficult game to play. The other issue that you will readily recognizes the companies cannot know a brief away from the public arena, so digging up real nuggets information is much harder. Real insight

therefore will be very valuable. This is really important, John, the information flow today, James and I. John, remember when there was no PDF, no internet. In a ten am a cart with four heavy wheels was rolled off the elevator loaded with written reports. John, have you ever seen a written report? Hand written? No? No, No, we didn't use quill. Beven used quill. He was in London. I didn't use quill. I don't know if we go back to the twenties or not, but this information equality now

is remarkable. Which is a big question, James, about whether you can actually get an edge as a stock picker in Well research heavily perhaps overly researched large cap companies, whether you have to go to MidCap to small cap to find that edge. James, I think that if you take strategic views that the street turns to ignore, you absolutely can and you identified the secular trend that has been played out with MasterCard and Visa. They're both big

holdings in our portfolios because we share your view. But this is a secular growth story and it will run and run. It amazes me how many people are not stepping back and saying, well, so, what are the big picture changes going on? STARTI to which we should have leverage. What are the big picture changes conversely, which we should

try to avoid because they will trip us up. Well, let's talk about the other trends then, because the payment processing companies are just ripped James, as you know, and if you've been sitting on them, you'll be doing very well. Visa is up twenty year today, MasterCard for E one, PayPal square up over a hundred percent. All of these part of the same story. What's the other trend, this secular shift that we aren't picking up on, because quite

clearly many investors of court hold of that wind. What are you looking at that you think people are missing? Well, I certainly think that within the disruptive technologies generally in the field of pharmaceuticals, for example, we're not heavy in drugs. What we are interested in at diagnostics and devices. So we're looking at the companies that are able to help practitioners have a better understanding of the diseases they're looking

at with their patients. Those I think of the ideas because you can see secular growth, and you can you can calculate how big that market will be and therefore, by extension, how fast earnings will grow with it. This jasp Bevan is with rates higher, I'm seeing a ton of two and three billion dollar deals. They'd already make the news visibility Farer is so huge on his TV property he won't even mention a three billion dollar deal. It's too small for John James to mention on here.

But there's a time of them out there. Are we going to see an M and A frenzy as rates wolver? I certainly think we will, and I think that M and A is going to be driven in part because a number of companies are finding organic growth in a climate to slowing overall global growth increasingly hard to deliver, and they are fearful of what the market will do. They come to the table with numbers that are down, not up. What about the evaluation of these companies based

on high rates? James the valuations issue I think is really important, and what I would observe in the US equity market is that the strength of corporate earnings this year means that equities have had a roughly a fifteent devaluation. To me, the case for buying US equities as strong as it's ever been. And I'm still projecting that the SMP five hundred gets to forty one points by the end of the year this year, and if not by the end of this year, certainly by the middle of next.

It's way too early to sign up to the band market idea. So do you share that in musiasm for European echoities? James, No, do you know, I certainly do not. I worry about the US US economy being hotter than expected. Conversely, I worry about the European economy and being slower than expected. And that's because that the European growth story is predicated on two challenges. Export she's increasingly difficult, and also domestic growth. And the domestic growth story on the back of slowing

consumption trends is really very upsetting. Jez Bevin, thank you so much, greatly appreciate your thank you. Bloomberg's surveillance to just now talk with Winthin and Brown Brothers Harman with a really unique perspective on UM Eastern European and emerging market currencies and what they signal went to. And let's talk first of all about the core question is is Chairman Powell the central banker to the emerging markets? Let's say he's in some ways he's the central banker to

the world, right. I mean a lot of eyes are obviously on ecb UH this week, Big Bank, Japan, BANKAM England next week. But really the feed is still the really the main driver for global markets, and I think that's one of the reasons I remain fairly nervous, thought e M. Mr Powell. Um, they continuing with the tightening path that Michellan set forth the signal two more hikes. This here em in general does poorly in a set

tightening environment. So we've got the idiosyncratic stories Argentina, Turkey, etcetera. Let me talk about Philippines, which has been extremely well managed at the one at the fifty three level, folks, this has been a much weaker Philippine Peso and then in some real stability in Philippine Peso, how are they doing that well. As you probably know, most currencies and

emerging markets are are heavily managed. Uh. You know, I can really count on one and one or two hands and the number of EM currencies that are really freely tradeable. For the most part, they're heavily managed. We have a combination of UM intervention stealth intervention. Uh. We are in a tightening cycle and in many EM right now. I think that's if you want take a step back, that's to me, it's a big game changer for e M. Uh.

You know, EM has benefit from zero rates around for the dark world for almost a decade if not more, and we're finally getting out of that. And because that, we're seeing a repricing of e M assets, UM equity, fixed income, exchange rates were and I think we're still in the early days adjustment. But in general I look for higher EM interest rates as well as weaker EM currencies and some combination thereof thin tell us about China monetary easing in China, you know, it's China. It's interesting.

You know, they've been trying to de leverage, they've been trying to get away from the sort of debt fueled growth that we've seen over the past decade. But any time the the economy slows we get a hiccup, they seem to go back to plan A. Uh. So obviously with this last week, we've seen some easing measures. Uh this comes after some soft data out of China June July bottom line, and I found like the broken records. I say it every time, my bottom base case bottom

line is that they muddled through. I don't see any sort of big devaluation. I don't see any sort of financial crisis out of China over the next several years, but we are dealing with slower growth. I don't think they are propacy devaluing the currency. If you look at the the performance of the yuan on your w c r S page year to day, it's still one of the better performing m currency. So it's following the rest of the market. It's really strong dollar story that we're

seeing right now. Do you believe that China is moving countercyclically, Well, yeah, I mean I think they professed to want to to continue to de leverage um to you know, not lie on debt, new loans, etcetera, and growth, But when push comes to shove, I did to get nervous and growth starts falling with it too fast, and so we still see them so stepping on a gas little bit um. You know again it's it's not long term, it's not it's not optimal, but you know, it's sort it's sort

of the one in tier to your outlook. They can muddle through. Dr Sin, Thank you so much, Gin saying with Brown Brothers Harriman this morning. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio