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the Bloomberg Terminal, and the Bloomberg Business App. We're gonna start strong. Stuart Kaiser is going to be with the sunny equity market, set her moment, Tom Vercelli on later of course, on FED Day and the myriad challenges that Jay Paul has. But we start especially strong. You know, she's an iron Woman, really, Gargey's out of Jones Beach. Okay, she She's like, you know, we're punting. I mean, Gargy is toughest nails with black Rock, and you know she's
doing the Iron Man thing and and all that. Yeah, you know, it's like like pray eth a lot but tough. I don't know Garge's with us this morning. Gardy, thank you so much for starting strong. What happens to your world if rates keep going higher?
Good morning, Paul and Tom. Longtime listener, first time joiner, Really excited to be here. So what happens to my world if rates continue to go higher? Two things. Number One, there's going to be continued focused on selectivity within equities, and the areas of the equity market in the US that have earnings growth are continue are going to continue
to outperform. So that's number one. Number two, And you know, we've been talking about this for a while, and Tom, you know, you and I have chatted about this before. But the long end, anything sort of longer than the five to six year part of the interest rate curve is going to become more and more difficult for investors, especially given that, you know, given that there has been five percent that you can earn or more in cash.
So I think two things for investors to keep in mind is staying in high quality in the equity markets and staying in the very front end to maybe the belly of the curve in fixed and come markets. I think that's going to be the exact.
I'm looking at the real rate. Kenneth Roguoff of Harvard was with David West and Wall Street week. Look for that this week, and Professor Rogoff is riveted on the real yield, the inflation adjusted yield. I'm sorry, Gargey. If it walks like a duck, works like a duck, it's a duck. And the ten year real yield I'm rounded up to two point two eight percent is the real yield walking away from us.
It looks like, you know, obviously, it has arisen pretty meaningfully for good reason. If we look at the month of April, everything that we have gotten so far, whether it's the payroll data, whether it was ISM in the beginning of the month, whether it was CPI and PCE,
all of that have contributed to yields moving higher. What I will say, though, and you know this is something that we lay out in our Spring Investment Directions, is owning real rates in the very short end, so sort of the zero to five year part of the curve we think make a lot of sense. And if you look at returns for the month of April, and if you compare sort of what s step has done versus many of the other front end securities or longer fixed
income securities. You've actually been a little bit more preserved being in the front end of the inflation link curve. Why because inflation has surprise to the upside, and you know, for a big part of the month, oil was surprising to the upside as well. So we do think that front end inflation can be a good place for investors to be invested in, especially at these really strong real rates. But again, keeping your duration short is very important.
So Gark, I like to keep in the duration short call here, Should I just park my money in the two year United States Treasury at five point zero three percent? Is that is that the trader? Should I take some take some credit risk here? And maybe you know, I don't know, corporates are high yields. How do I think about credit versus just the treasury market?
Yeah, look, it's it's really attractive. You know, you look at two years, you look at where they are, where it is, and it's certainly very attractive. But I would also say that as of right now, the economy looks good. Yes, the first look at the first quarter GDP was a little bit softer than expected, but we're still growing much higher than what expectations were coming into the years. So credit,
we think will remain okay. And if you look at owning sort of that front end, corporate credit maybe in the one to three are part of the curve, you are picking up a little bit of extra carry, and we think that makes sense and I want to highlight those that, especially given how tight spreads are both in ig credit as well as high as well as high yield.
You know, when you look at for centile levels, they're at their riches that they have been on a spread basis, but then when you look at in yield basis, they're obviously a lot more attractive. So I think selectivity really
plays a role here. So looking at you know, we're telling investors, if you're looking at high yield, go into defensive high yield, and look at if you're looking into corporate credit or even securitized asset, go with an active manager that can actually pick the bonds for you where you can earn your income, earn your carry, but at the same time be a little bit preserved for some of that downside given the level of the tightness of spreads.
All right, for those out there that want to take some equity risk here. I mean, I'm not sure what.
To do here.
I mean, we've all kind of grown up over the last fifteen twenty years with technology leading the way. Do I just stick with the big tech names, or do I try to find some value out there, whether it's financials or energy or consumer staples.
Yeah.
So, you know, again, if we look at the just even since the earnings that have come up just over the last week or so, I think what we're finding is that earnings growth is coming. You know, it is surprising to the upside, which is part of the reason why last week we had an okay week in the markets.
I think focusing on areas of the market, of the equity market where earnings growth remains stable, which companies which are able to generate cash flow, companies that very importantly have low leverage, and we call that high quality companies.
I think that is what investors should focus on. And you know, the question that we get over and over again from investors from clients when they're building their portfolios is that, you know, is this the time to get into cyclicals and is this the time to get into
small caps? And that is where you know, when we look at a portfolio analysis, we see that investors are largely overweight small caps, and we think that in this rising rate and higher rate period, away from the small cap and into larger companies, larger cap quality companies is what makes sense.
We're out of time. Thank you so much, Gary Chattery. This is the black rock. Stuard Chuycer with us right now. Let's get right into it. An important conversation. He has been incredibly on on this great bull market, a very articulate voice on having the courage to stay in. Oh my word, a drawdown four point two percent SPX. I know you're gonna tell me there's an opportunity here because you are a bull. What does your world do if
Powell or Paul Sweeney force interest rates higher? What what happens to the equity world if the real yield breaks through to two point three to zero two point three two percent?
I mean, there's definitely gonna be pressure on markets. I think if really yields keep rising, to us, it's more the velocity move than the level though. I mean, I think if we moved twenty basis points higher and then stabilized, I think equities can deal with that just fine. But you know, what we've had is just a very rapid, you know, sort of acceleration that's been disrupted.
Am I stunned that the VIX is sixteen point eight When I look at the interest rates soup into the one point thirty the Fed sides folks today on Bloomberg Radio. When I look at where we are in a sixteen point oh eight, let's feeling like a twenty. Why is the VIC sixteen point oh eight?
Yeah, Look, I think it's the reason the VIX is is, I think lower than most people expect, is because the markets not realizing a lot of volatility. Right The realized volatility over the last ten days is probably twelve and a half. So it's pretty hard to get the vics higher.
When day to day the equity markets just aren't moving that much. You know.
Rule of thumb, sixteen vix is a one percent move per day implied over the next month. That's actually high when you consider what we've had recently. So I agree it feels low from a risk perspective, but just you know, with the markets as stable as they are, it's just hard to get it meaningfully higher.
From here, stewartis you walk out to the City Trading Floor at three ninety Greenwich Street in Lower Manhattan. Are your traders there when they're talking to their clients. Are their clients wanting to take risk here or they We're just I'm sitting on the sidelines here until I get better sense of what this Fed's going to do.
You know, I think I think today for the morning, I think people will be sitting on their hands a little bit. There's no reason to take risk in the
you know, a few hours before the FED. I think in general people were happy to take risk until you know, two to three weeks ago, and then you had kind of oil move higher, you had some bad news out of the Middle East, and then frankly or you're seeing in in am d et cetera overnight is a repeat of what we saw out of Taiwan, Senmi and ASML and Netflix, which were some big sort of semis focused stocks making really large moves on earnings. And I think
when that happened it impacted us as well. We took a step back as wait a second, you know, if these these kind of high flying stocks are under this much pressure with what I would consider decent results YEPN, then maybe we just need to be a little careful, So I think I think investors are trying to digest all these various risks. And then obviously the GDP report definitely got people's attention without a doubt.
How about earnings were halfway through kind of earning season. Here we've got we had Amazon last night, Apple after the clothes tomorrow. What are you guys seeing in earnings and what's that doing to your call here? Is it impacting your call at all?
I say we were a little concerned going into TMT earnings last week. You know, frankly, they put up solid, solid results and that got the market higher. So I think by and large, we're getting what you would call a pretty solid quarter, like a modest beat on revenue, solid beat on EPs, and the biggest stocks in the market are delivering, So you know, I think that's gotten people fairly comfortable. After what I mentioned was a little bit.
Of a wobble kind of coming into the scenes. Came up with the dining room table last night. It was really check cadd that was great after thought picked out the food. Stuart Kaiser came up with the dining room table, which is how partitioned did this market? My basic take is the forget about magnificent seven, the magnificent twenty are ever separate from the other four hundred number on SPX.
Yeah, I think that's right. You know, time we've been sort of in this broadening theme. The problem with the broadening theme for us has been it doesn't work in two conditions when you have risk rising and too frankly during earnings, because the fact is your Microsoft's, your Apples, your Amazons, your Google's are just putting up huge numbers and it's very hard to get the market to broaden.
Oway, how do you use your theory in textbooks? Somebody had out a summary of the new revenue of the three major cloud companies. We've never imagined those numbers before. So then how do you do your day to day work? How odd this tech juggernaut is?
Yeah, I mean, look, it's it's It harkens back a little bit to the late nineties when you were basically introducing a new technology into the system and you assumed it forecasts really large revenue growth, but you were a little uncertain about, you know, both the size and timing
of it. So I think what you're having is to your point, people are compartmentalizing a little bit, right, Like I need to have some AI exposure on let me choose the way to do that, and then off to the side of that, I kind of need to model the rest of the market, you know, as a little bit independently. So it is a challenge, but it's a
good challenge to have, right. I think it's a good challenge to have that you have this large thematic revenue growth impulse kind of coming through the system, and look at this is why you know, we've kind of joked the Nvidia earnings report in late May is priced as as big an event as payrolls on Friday. So to your point, it just it just knocks.
Say that again, that's important.
So if you look at S and P five hundred options, they're pricing as much risk into the Nvidia earnings print as they are into payrolls this Friday. So to your point, this not only is it a big theme, it's also an uncertain theme. And even at the SMP level, that risk is being priced very aggressively.
So, I mean, Tom's been he's been long the Magnificent seven. I mean, he doesn't even come into work much many of these days. He's planning his trips to Paris and everything. The rest of us, though, what do we do? I mean, if we've do I look at energytoe, look at healthcare. I mean, what are the smart people at cities saying these days?
Yeah, I think you know, there's a couple of sectors people were kind of sniffing around, you know, wonder's healthcare because you know, healthcare underperformed so much last year. And you also have the GLP one story, which is not quite an AI theme, but it is sort of in the same general sort.
Of category as that.
I think industrials is a big focus right now, just because of the IRA spending that's coming through the system that's just hitting company revenues right now, and some of the reshoring story kind of falls into there as well. So I think industrials and healthcare two big areas of focus for a lot of clients. It's not just by the sector. You know, you're choosing stocks and subtection, but those are very important.
I'm looking at fifteen upgrades today on Amazon across Global Wall Street, including City Group, and they're all different levels, and it's a parle game. Where are you a year now? On SPX? Does Stewart Kaiser have to lift your SPX numbers simply because of tech.
Look, I think it's definitely potentially an upward lift on the EPs number. So Scott Cronert, who runs Equity Strategy, he's a two forty five. We're a little bit above consensus on the EPs number.
And you're gonna nudge out higher. You're suggesting, you know, they understand, you know, we shall see.
You know.
It looks like we're going to be consensus by more than five percent for this quarter. We revised up census by three percent last week. So certainly the pressure is to the upside. I think for the average.
Can you run out Stuart Kaiser and a bloomberg red sticky? Kaiser says two fifty from.
City group exactly?
You know city group, I mean three eighty eight grantwhich is where I work. But the people who actually get stuff done, or at three ninety grandish, the traders and salespeople. What are your traders saying to you as you walk through the floor these days?
You know?
I think, honestly, I think people have been a little surprised at at a little bit of just the lack of activity. The last couple of weeks. You know, the markets have been moving, but volumes have probably been a little lower than you might have expected. I think the one notable thing in the last couple of weeks is you did get a bit a bid for sort of tail risk protection about a week week and a half ago, so people buying call options on the vis at Tom's point.
So I think that was that was pretty notable. It's the first time we've seen people kind of, you know, making sure they had that tail risk protection on.
I can just say, folks, it's fascinating. Right now, we're gonna have a lot of funds. May Bloomberg surveying on Stuart Kaiser, thank you, thank you so much for coming in. He's a city group. Sweetey demanded we have to talk paramount. We have talk media, the future of TV, and that can only mean Brian Weezer yep of Madison and Wallas. Let me get one question in here before Sweeney takes over. Brian, what is Sherry Redstone waiting for?
I I don't know. I mean, here, here's the thing. There's this fine balance between making the most of her personal position or her family's position, and being mindful of any legal obligations that she has, and then there's any sentimental subjective preferences that she has. And I think it's it's what makes it so complicated. It's not just about the highest enterprise value.
So, Brian, it kind of goes to the bigger picture here. I mean, some of the restand might look like the smartest person in the room because he sold out years ago before the media business, you know, the deterioration, you know, really accelerated here.
Well you know, you could say he didn't sell out, you exited the business.
Yep, yep, exactly, so you never sold Yeah. So, Brian, what do you think here? I mean, what's the future here? How are you thinking about some of these traditional advertising driven dependent companies, you know, like the Disney's, like the Paramounts, like the Warner Brothers Discoveries, as they transition to streaming, are they going to make it?
I mean, here's the thing. If they keep doing what they have always done, they'll get what they've always gotten, at least in recent years, which is to say, a negative trajectory. I would argue that there is still lots of opportunity ahead for any of these companies paramount otherwise, as long as they invest in the right direction for
the future, and basically none of them are. That doesn't mean that they can't, but I've argued that, you know, certainly for the ad supported platforms, the pathway forward is to become a platform, meaning you got to you got to eliminate this idea of being a television based company.
Okay, well, I mean this is so inflammatory what you're saying, Brian, I'm going to cut you off. For example, I just saw in Variety there's five pilots this season of across seven networks. Two of the networks don't even have any pilots. What is the Weezer prescription to save streaming?
Well, I think that subscription based pricing is one thing. There's a lot of room for pricing increases, that's one thing. There has to be a lot of investment in programming and good programming too, right, not just cheap programming. So
that's part of it. I think that actually they this is going to be a little bit of a different view, but I think that if they actually kept investing and didn't put the brakes on it, if they actually tried to become a global platform, if they doubled their spending on streaming, programming, for example, and made sure that they were a more meaningful platform. They would have had lift off trajectory. I think in a way that would have helped Sustand the business problem is that it's never going
to be as profitable as the business is replacing. And I don't think that most companies understood that that you're going from what would have been a thirty forty percent margin business to one that's more like a ten or twenty percent margin business. How do you make up for that? You make sure you're two or three times bigger, and
it makes sure that you apply your platform globally. You limit how much you are giving up your economics to other partners, which Paramount was doing certainly in much of Europe. They kind of underinvested elsewhere before kind of throwing in the towel with the sky show time.
So, Brian, what's the just in terms of total ad spend? Give us a sense of kind of is there enough ad dollars to support broadcasting cable television as we all know it, as we all grew up with, or is it all going digital?
Well, this is where I'm going. If you're competing and we're talking about two kind of parallel but separate things. One is subscription to get a consumers to spend money on subscriptions. Right in the United States, there's about one hundred and forty billion dollars a year spent on subscriptions, video and various forms. Right streamers right now are only tapping in about thirty five forty billion dollars of that. There's still a lot of money to be gained. I'm buildings brilliant.
And then we have such a respect for Brian Weezer going back to time. Shut up, Facebook will be successful, Brian. What's going on at the lunch tables in Hollywood? They're all sitting there with their perfect water for some perfect well in New Zealand. Okay, great, What are they actually talking about if they're so far off the mark of the economic opportunity?
I honestly don't know. I'm not at those tables.
I guess.
No. But I think that there's this an inherent conservitism. It's true in most organizations right like, there's a handful of people who can make decisions to make radical pivots or meaningful investments or bet the farm kind of actions. And those people would be the likes of Sherry Redstone right.
I actually think that Bob Backas was doing the best he could within the constraints that he had to work with from everything I know, and I think that the problem is there are a small number of people who can do it, and then they have to be able to persuade investors of their plan, and most aren't willing to do that. The thing investors need their short term returns. Investors need short term returns when they're not given a
persuasive reason to believe otherwise. This is something that most companies at the CEO and chairman level do not fully understand.
Mike, I mean it was a Paul. It comes out of the heart of the matter. It Michael's in Los Angeles, in Santa Monica. They're over there salmon and caviar capeccio at twenty seven dollars. What are they talking about? Shouldn't they be like in a full panic?
Pol I think you know the question for and Brian knows this very well, is trying to kind of replace that traditional distribution model of cable and satellite and all that great money that was associated with their subscriptions with streaming. So Brian, as you step back here, you think about the paramounts, the Warner Brothers discoveries. I don't know, maybe even Comcasts. I don't know who kinda is going to be standing here five years from now, other than Netflix and maybe Disney.
Well, Comcasts and Disney are definitely well positioned because they do have so many other revenue rooms. They can sustain and support this transition to a much less profitable industry, right and that will buy them time. And it's nothing else you can grow when you take share of a shrinking business, and so that's all good for them. I think that the industry level opportunity, though, is on the subscription side, invests more heavily, not less heavily, in content.
You can build a bigger business and do it globally because there are real efficiencies. Netflix has taught us this, haven't they? Other than Amazon and out there, everyone else has given up. Okay, on the advertising side, the fact that it's video, it's professional premium video doesn't matter like it used to. It just doesn't matter. And here's what I'm saying that that the today's studio owners of networks
need to think differently about their advertising platforms. They need to be indifferent about the fact that they've got professional video. They need to be able to embrace the likes of YouTube and user generated contry. Embrace.
We got to leave it there, Brian. Thank you so much, Brian Weizer there with Madison and Walls. That's exactly what I heard from Mark Thompson in the ft interview from cmm.
D.
Look at the front pages, particularly on a fed day. I looked at Lisa's newspapers today. I get a preview from her people and just wow, I mean, I mean, there's like eighteen stories to pick.
There's a staff behind this. I'm telling you staff one. All right, we'll start the Wall Street Journal. It has an interesting story.
Americans divide their food shopping among different stores to save money, consumers making eight percent more trips to different stores because that's a big part of their budget.
Right. Brother used to do this.
I still do that.
I go to the farmers market for all my produce. Okay, so because it's cheaper to get.
A farmer's market, it does.
Okay, there you go.
Yeah, So I go to the farmers market for the produce.
Then I get, you know, things I need here and there at you know, the local town.
Supermarket, and then I go to costco for the big stuff that I can just save in the long haul.
How much save at the farmers market?
Oh, significantly?
Sometimes half the price half really yeah, yeah, no, it's a big difference.
Oranges half the price.
Strawberries, berries, all the berries.
The farmer's market in my town's more of a social thing, kind of.
Exactly. Show up. Here's the difference, folks. Lisa is out there with bags of berries. I have my good friend Bob in Washington. It's all he eats is berries. Yeah, and that's all right, Lisa, like for you gats of berries.
Right, we did weed to go there and get our apple cier for the kids and walk around world.
Where Paul lives. A farmer's market is a bunch of redovers, the giants plates.
It saves a bunch of money. I'm telling you, it gets tight. So the next one is from the Financial Times. Fires are actually looking to cut out that industry middleman who wants to sell some of its medicine straight to consumers. So it's developing this online platform you can order medicine like pack Slovid, a migrating nasal spray.
It'll launch later this year.
So it's connecting customers with telehealth consultants to prescribe it, and then a drug dispensing partner who's going to ship out the prescription. But Eli Lilly, I mean, they did something similar earlier this year, So they're just trying to kind of cut out that middleman.
And hopefully hopefully at a lower price.
First of all, President Biden and former President Trump both wanted to lower prices. I mean, Donald Trump made a big deal about this. Are we actually going to finally get prices like eighteen other countries?
Oh god, I don't know.
That's that is.
I mean, I'll tell you what.
Here's one issue that I had. I will never profess any knowledge of healthcare economics.
I just don't understand.
I mean, you can get a PhD.
In that you can be Reinhardt. It was very generous to us years ago with the lady Ouve Reinhart.
And who pays for it.
It's it's a it's a mystery. Yeah, that was depressing.
What's well, you know you can also get cheaper overseas is the weight loss drugs. That's another thing that leads to our next story. This is from the New York This is yes, Okay, so weight loss drugs are very popular, but the stress around social etiquette that is becoming an issue, like is it okay to ask.
Someone if they're on weight loss drugs? Or is it rude?
You know, that's the question being going around Barbara Streiss, and she sparked a debate. She was posting on commenting on Melissa McCarthy, the actress's picture, she said, are you on ozembek?
And people got offended by the like, how can you ask you know?
Or something like that information.
I guess that's what they're saying. It's that that the borderline now like.
Oh you look great, he lost a lot of weight, good for you, And I'll just leave it at that. I guess, yeah, okay, no one's and I've actually I've actually experienced this with an acquaintance and I was told, do not mention the three, just say congratulations on your way lost, because.
Then you're suggesting what they need, your help they need.
It's all news, to be honest. John Farrell was way out front on this.
I was like, look at it, John, he's got like nobody that he doesn't he's in the gym like at.
Ten ten am. But you know, Pharaoh was way out front on this and I look at the whole thing, and I go, I can see if they're on no zembic at leasta?
Can you tell in the faith?
I mean my aunt's on it.
She dropped like forty pounds. Wow, I mean you could tell right away.
But it's that question, like I knew she lost weight, but I didn't say, hey, are you want to back?
You know, it's kind of like she suggested it to me.
Yes. Yes.
And actually what we've learned is they will only put you on it, get you started when they feel like they can always have your refills done.
So it's a supply issue. Once they get feel comfortable to supply, they'll put.
A new person on it.
And that seems to be how that was depressing.
Here's another one that the Paris restaurants, yes, the tourists ahead of the twenty twenty four Olympics for tips. Okay, because tipping culture in France, as you know, it's different than in the US. Okay, they have a legally mandated fifteen percent service charge.
Legally mandated what fifteen.
Percent service charge? Menu prices often hire to cover it. It's called a poor bra.
How do you say, Tom, help me with this school bra? In French.
Okay, it's really interesting.
It's a different tipping culture.
But the restaurant tours are playing into the international guest kind of ignorance by them.
To pay like they would in the States. So they're good.
You may start to see like the tablets where they flip it around and it gives you that little percentage, even though the tipping culture is different in France.
Obviously, the first thing I learned when I moved to London in eighty seven no tipping.
It took me weeks to fit out. My take on this is they love Americans because most Americans tip over there like they tip in America, which the French love. But the worst I get upset in London. The way they have it set up in London is detrimental to the workers. It's not fair to no, no, it's terrible. They take change on the bar. You know, nobody has changed it, nobody, nobody cares money anymore, and it's really unfair.
In London and in Paris. You know my experiences, they love Americans like cab drivers will fight to take the Americans, not that they could ever tell I was American.
And Tom Messi's standing tables at all the best restaurants, Tarkers, you know, so you know he's got his people over.
There, Starbucks, Late book to start. They know who I am, Lisa Matteo on newspapers. Thank you so much, greatly appreciate that this is the Bloomberg Surveillance Podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters
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