Bloomberg Audio Studios, Podcasts, radio news.
This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from 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 in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio,
the Bloomberg Terminal, and the Bloomberg Business app. If you have a tour duty at the Feller Reserve Bank of Richmond, that means you have a certain cast.
It's called fresh Water.
Or title Economics, and it goes really interesting theories dot and they're the late Marvin good Friend was one of the academics that led so much of that. And you you know, you get the fed Richmond with all of its history, it's heritage. You can do that out of Washington and Lee University, which is you know, it's a
short drive. You know, you get the carriage, you know, the two horse carriage and yep, you go up there, and of course you do it with some hard nosed University of Chicago economic Stephen Stanley joins us now right now with cent Tender.
What was it like at the Richmond Fed.
I've done so much work with them, including visiting, and you know their history. They used to write these the Edgeworth Box, forty two pages on the Edgeworth Box. What was it like walking in to the Federal Reserve Bank of Richmond out of Washington Lee in Chicago.
Well, well, first of all, I have to say, I feel like I'm on this is your life, this is this is a great but yeah, it was great. It was a fantastic place to start my career. Marvin was was one of my mentors, and I learned so much, you know, it was Yeah, it was fantas.
Is there underlying real economy theory valid? Or is there something to the saltwater economics of the Charles River?
Well? I think so.
Back in the day, you know, going back decades, the Richmond FED was definitely one of the monitorists banks, and that of course, you know, the theories there have evolved, but I certainly think that the framework that I got has helped me a lot So does.
The FRED have a framework? Now?
I don't if it's neo Monitorist, neo Kayesian, neo Stanley, I don't care. But all of our you know, Paul and I get mail on this every least it gets mail on this. The bottom line is is there a plan? Is there a framework? Well?
I think the closest thing they have to that would be the board staff in their models, which I mean, broadly speaking, I would say, are kind of, as you say, neo Kayesian. I think the Phillips curve gets a lot of weight at the FED, even though publicly the FED will kind of itself from that. That has always been a load star for the FED. But I think there's also a lot of pragmatism now, which you know is
good and bad. I think it's good that people are flexible, but at the same time, it sometimes does feel like there isn't really a strong framework from which to through which to interpret the data.
So how do you think the FED is interpreting that data these days? I mean they say they're data dependent, and the data, particularly the inflation data will wapstick at the PCE on Friday, But it's kind of reared its head a little bit more over the last few months. Do you think it's enough for the FED that you say, I think we're just going to sit on the sidelines and see what happens.
Well, here's how I would frame it up. So for about eighteen months, roughly the end of last year, you heard Terman Powell over and over again saying, we think we're going to need to see a period of subpar growth, slackening in the labor market if we're going to get inflation where we want it down to two percent on
a sustainable basis. And then you had that period in the second half of last year when growth was really strong, but the inflation numbers were still coming down, and I think they got a little bit enamored by that, and all of a sudden in January you heard Powell essentially say, we think maybe we can have our cake and eat it too.
Here.
We think the economy can just rip along and inflation is magically going to make its way to two percent. And I think the data so far this year has been a bit of a slap in the face to that optimism.
Are you concerned that this economy? I mean, it seems like again I took a couple of business classes at the University Richmond. I feel like i'm economics classes. I feel like i'm you know, I can stayed in opinion on economics. Is this soft landing? Have they landed this soft landing? Or do you think there's a risk that maybe it's gonna a little bit bumpier maybe?
Well, I mean we've certainly made good progress on that front, but I don't think you can declare victory until inflation is actually back to two percent.
Now, what's the two percent number? When did that come about? I never heard about that until like a couple of years ago. Yeah, and then people started talking about two what's wrong with two?
When I had for three percent?
So, you know, the the in theory price stability you would think would bean zero insplation.
Okay, but there are two issues.
One is the the there's you know, economists will tell you that there the inflation data are biased, so the true price stability number is probably somewhere between a half percent and one percent. And secondly, and more importantly, I think the FED has been spooked over the last several cycles by getting captured in the zero bound, and they want to stay away from that as much as they can. And so a little higher inflation takes them further.
Away from the zero bound on average Earth.
Thing the last two days has been the stimulus.
How does it unwine?
Ruscher Shearmer with a brilliant piece in the ft today, iconic at Morgan Stanley and his work at the Rockefeller Foundation. Now just just wonderful trying to figure out this mystery of the glide path of what I'm going to invent this word this morning. You could steal it, Steve stimulus. What's your framework for how many quarters we need to migrate out to de stimulize from the pandemic?
Yeah, well, I think for me it's at this point it's not as much the pandemic anymore in the sense that the the you know, I think there's still a lot of fiscal stimulus in the system, but the bulk of it is not coming from the pandemic programs. It's coming from the things that were passed afterward, the infrastructure agreed.
Agree.
Blanchard has talked about the three levels of stimulus. Yeah, okay, so what's your timeline on this?
Wow?
I mean these programs that we just ticked off have multi year spending paths, So I think it's a while. I mean, what I would really like to see is I'd like to see some fiscal discipline. I mean, we're running two trillion dollars a year budget.
Depth there there's the Richmond.
That's it. We need to We got to end the interview.
But it's good with the Federal Reserve Bank of Richmond, Steve's family with us.
What we're gonna do here, folks, is there's usual.
Blah blah blah blah, like where are we in, what's housing inflation going to do? And maybe what the international thing is? And then there's a memo that just stops you.
In your tracks.
Terry Weissman with us right now to say he's had a global currency.
He's interest rate.
Strategy at Macquarie barely describes decades of experience. Back to Fortress Schwartz at bear Stearns a few years ago. I was stopped and I was thinking of David folkerts Lando of Deutsche Bank the day after Putin invaded Ukraine. And here you are with a definitive, piercing note. Let's repeat what we've already said. Wars are inflationary? Are we missing the forest from somewhere out there? The trees. Is all
of this inflation we're talking about. Maybe we had a war in a pandemic, but these wars are inflationary full stop.
Yeah, this is not the shouldn't be a mystery to most people, Tom. I think if you look at the history of inflations in the US and where we've had big spikes, it was during Korea, right. We had a demobilization after World War Two and inflation fell. But when Korea started, we had a big inflation in the US. And then we had an inflation again in the intensification of the Vietnam War in the late sixties. And then we had an inflation again in nineteen seventy three, which
coincided with the Arab Azareeli war of the time. And we had an inflation again with the First Gulf War, right, and we had an inflation again with Russia and Ukraine. I mean, this is this Optically, you look at these charts and you look at what coincides with these wars, it has to be it is these spikes and inflation. You have to conclude that there has something to do. There's something to do with the idea that wars cause inflation.
I think, you know, you can talk about what the channels are, but supply side disruptions, right, So an important aspect of that.
I mean, you know, I'm still going at WT crude oil, you know, or actually Brent crude were down to bad eighty six. We were up to close over ninety here, So how do you factor that? And what's happening in Ukraine, what's happening in the Middle East. We passed another bill for also to fund some issues in Taiwan. How does that factor into your research and kind of how you view kind of rates, how you view currencies.
Yeah, let me say that a lot of economists tend to discount the importance of oil prices in the overall inflation picture and in respect to the Fed's policy outlook. And the reason for that is also simple. It's not part of core inflation. We like to think of energy and the energy complex sitting outside of core, and we like to think that when oil prices go up, it's going to be temporary, in part because it is a supply side shock that drives these prices from time to time.
I tend to fight against that view. And here's the reason. If you are a labor union and you're sitting in front of your employer and you're demanding higher wages. You're not going to say I don't eat food and I don't consume energy. You're going to say, I want my wage increase based on the basket that I consume in that basket very much. For the average work in the
United States is energy intensive and is food intensive. So even though core may be a better reflection of underlying inflation, when headline goes up, you have to imagine that workers are going to pressure their employers for higher wages, and to the extent that wages cause inflation, that in itself becomes inflation.
They in herited you. What you're hearing there, folks, this is critical the path here. There was a guy named Lawrence Kudlow million years ago before he was a ginormous TV star. I love busting Larry's jobs. And he held courted Bear Stearns and people threw apples and rocks at him because he was working in the nominal space. And then malpass In writing in Weissman, they were working in
the nominal. They had respect for the nominal space besides a convenience and crutch of real Right now, do we under emphasize the nominal space and the persistency of a higher ne nominal GDP.
No, I actually don't think we do to the extent that we are that the world central banks are inflation targeters, it implies that they are very much looking at the nominal space. Now, if nominal GDP were to rally a lot and real GDP were not to rally a lot, you'd effectively have what is called an inflation problem, presumably
driven by a supply side shock. You could make a case that the central banks should not respond to a supply side driven increase in inflation to the same extent that they would a real demand positive demand shock increase that that causes inflation. But that's exactly the point that I was trying to contest earlier, And the reason is because inflation expectations matter. At least the conventional wisdom is that they do. Banks believe that they do.
What does inflation expectations The synthesis of.
That tell you right now that they're not high enough to cause panic at the FED. But there is this risk that if oil prices stay high indefinitely because of these issues regarding supply side chalks, the war, climate change, demography, et cetera, even deglobalization that they may at some point start to drift higher.
I could be a currency trader. I'm just long the dollar. Give me a bare case for the dollar. I mean, I could do this for a living.
So the bare case for the dollar, if there's a structural one, is that the dollar will no longer be at some point, and no one knows when the world's reserve currency. Now we are already seeing signs that this is manifest. We see, of course, we see China accumulating gold. Well, that's telling you that they may not like the dollar anymore. We certainly see the Russians moving away from dollar reserves. We've seen the Venezuelans do that. Now the bold case
for the dollar as well. You can dismiss these countries because they're, you know, part of this I don't want to say access of evil obviously, but they're not on the same side of the fence as the US. But to the extent that we get a bipolarity in this world, that we really get a true a new Berlin Wall that goes up between the West and the rest, you have to imagine that that's going to be bad for the dollar, because the dollar has benefited in this era
of globalization. Anything that tends to reduce the amount of globalization tends to be bad for the dollar. And that new Berlin Wall would be bad for the dollar.
What are we gonna see in GDP here in a couple of days?
Does a quarry of a view.
On usgd Yeah, it's going to stay robust, does it? Do we have a pinpoint view on quarter ones?
Yeah?
On quarter one's results, I think we're at about two point five percent, if not my sake, in two point four two point five annualized robust.
Yeah.
Yeah, and that's very close to consensus. If you look at some of these GDP now estimates that come out of some of the reserve banks are fed, they're a little bit higher.
Uh.
And again if they are, if it is going to be strong, it's going to be driven by consumption.
This is fab as Terry Weiss would thank you so much and congratulations on a really thought provoking note in your team. It's just blunt, folks, Wars lead to inflation. If you're seeing your consultant at Deloitte, yep, that gives you a twisted perspective. I mean, it's not like you know, complains a lot's CFA combine. It's not like you know, you know, you come out of King's College, you get some parchment modern history in Oxford that sets you up for this, the streaming wars.
Why don't you bring in our.
Next victim, I'll tell you. One of the top media analysts in the city of London, covering all the European media sector for many years as Ian Whittaker, Managing director and owner of Liberty Sky Advisors. He's based in London, joining us here in New York City doing a little tour here in the US. Ian, thanks so much for coming into our studio. We appreciate it. We have some really good numbers that blew Tom keenan I away from Netflix. I mean, is this streaming business? Netflix can certainly make
a lot of money. How about the other media companies, the Disney's, the Paramounts, the Tom's favorite, Warner Brothers, Discovery. What's happening in the streaming business?
So thanks very much too for having the Thanks very much Tom as well. I think if you look at streaming, if you look at long term view, it's absolutely right. Netflix is numbers on a Q one basis absolutely fantastic. Really hard to disagree where anything they did.
I think if you actually look at.
Sort of some of the underlying things sort of within there and some of the details and some of the things they didn't mention, big question marks. You take away, as been mentioned, information on subscriber growth in twenty twenty five Honors. What does that say games that had been talked about as a big strategy sort of for them to grow revenues. Nothing on the call whatsoever in terms of that, And the games games industry is quite tough at the moment.
Sports.
You listen to what they're saying at the moment, definitely sounds as though there is a shift in terms of their strategy in sports, but they're going to have to spend big ye if they're going to do this. So there's a range of different questions. I think the fundamental issue for the streaming business is this what the big
media companies have done. I think they've be placed a model that we're extremely well with it for them for the number of years, and they sort of jumped into streaming into a business model that quite frankly is not sort of not great longer term, and I think we'll
look back in probably five to ten years time. I would say, this'll be one of those business case studies where people would say, why didn't the major media companies, the business warns, et cetera, taken a little bit more time before they jumped on the streaming bandwagon, because if
you look at it, streaming penetration is flatlining in many countries. Yeah, I think fundamental mistake that the streaming executives made, particularly big media companies, was to treat the rest of the world as though it was the US in terms of the same dynamics. Absolutely not the case whatsoever, even in the market like Curek, which is quite similar and so forth. And now you see all of them, what are they focusing on trying to reduce losses? Yep, Okay, well that's great,
but that's not a growth strategy moving forward. So I think if I look on a longer term basis, sure there's a little bit of confidence for streaming, but longer term, I think it's the dynamics still difficult.
So you look at a company like Paramount, for example, which back in the day you and I recall when Paramount was a slash Viacom slash CBS was a great company, was a blue chip media company. They can't give themselves away these days. I mean, what happens to a company like a paramount as they try to navigate to this streaming world.
Well, I think again it sort of comes back to this point that for many of these companies, what they did was pushed in. What they didn't think about was what exactly was the long game here. The smartest one and this is not this is something that's been said by others as well, but the smartest sort of company on the entertainment space was solely because what I said was, you know what, we cannot compete in terms of being
a mass market streaming player. It actually makes sense for us to sell our content to other players the arms dealer in that that has been used multiple times as well. You look at someone like a paramount, that's exactly what the strategy for somebody like a parent should be. Free cash flow generation.
Great, So, well, sell the book, I get it, sell the catalog, I get it. But to me, there's a fundamental issue in the train wreck of Paul Sweeney's world, and that is the intangible assets and bad will and the balance sheets. These numbers are in my amateur opinion, jenormous. Is the shock that's coming that they're going to have to udjust intangibles down.
Yeah.
I mean that's a great question and the answer is probably yes. The point being, I think if you were to ask, if you to ask all these streaming executives, all the top CEOs of these companies that on this truth about where they think the streaming business would go, I think they fundamentally recognize that essentially the endgame is not looking good. The problem becomes for many of them
in terms of a reputation. They've gone to the market and sold this sort of story for years, and I think many of them will find it very difficult to actually step out of that. That's going to be really the big issue. I think what will happen is that you'll get a continuation in the story, people saying, look, there's growth coming over the next three to five years. But at some point these pay he's going to have to buite the bubble.
Are you Are you in New York on your way to LA to help close the paramount dealers?
I make some news to that. I'm always available for quit.
I have to go that talk to us about the global advertising business. I think you have a lot of experience with the big ad agencies in London in New York. Here is any Is the money still going to broadcast and cable television or is it just going to the Metas of the world and the Googles of the world.
Yeah, I mean it's really interesting dynamics that you've got been advertising at the moment. So if you take the advertising industry generally in terms of bad spend, you know, what would say is that you've seen the advertising market perform much better than expected over the past couple of years. And I think what you've had here is a vast and planned experiment over the past two years where companies were able to pull up their prices much more aggressively
to consumers than they thought. And if you listen to the conference calls from those companies, they will say probably the key reason they were able to do that was the strength of the brand. And so I think fundamentally there is a sort of realization that advertising works. Then the questionure mark becomes where exactly is that money going to?
And what is interesting here when you look at the numbers in terms of each so that you look at the broadcasters had a tough twenty twenty three, twenty twenty four. You know the question marks. Actually in New Yorpe it started off well to be okay for the broadcasters and so forth. Is money going to the online platforms? You're starting to see the growth slope now. If you take Facebook Facebook last year everyone said revenue numbers absolutely fantastic,
you know, great growth and so forth. That was driven by advertising revenues coming from Asia Pac advertisers. You look at it was up thirty percent sort of twenty twenty three, nearly double the revenue growth. If you look for North American advertisers, their spend on Facebook was only up single digits.
So I think, you know, one of the big questions we're going to have over the next let's say, two to three four years, is you've got these platforms where there's increasingly questioned marks from the established markets as the weather, money should be going in okay, But where does that many go in future retail media? You know, does it go to some other segments that come up at the.
Moment, right we're out of time, Ian don't be a stranger, Ian Whittaker, where the Liberty Sky Advisors as well?
Just a few times did Jessica Cohen.
Were you on the same watch with Jessica Coin Beryl.
In the London team. Yeah, back in the early season.
Very cool Ian, Thank you. So I'd love to get you on with Jessica ref Colin Roy your Daily look at the front pages around the World, our most popular segment.
Lisa Matteo.
So, we've been talking about all different things that that New Yorkers are that concern New Yorkers. Right, we talked about congestion, pricing, hot button issue. The other one, it's the one Michael Barr has been talking about a lot of the protests going on over the Israel God's Award. They're starting to ramp up. You heard him talk about Columbia University. They canceled in person classes. Police they've arrested a dozen protesters at Yale New York University, and the
college leaders are in their spot. They're being called out for whether they're doing enough to protect students, faculty, staff, and at the same time they're being criticized for denying students right to speak out. So they're in this weird position already. You had more than one hundred demonstrators arrested
at Columbia last night. More arrests at NYU. I mean it's spreading to different universities at Boston University, University of North Carolina, Chapel Hill, MIT, the University of California at Berkeley. So this is a growing issue.
There's a lot of other schools.
There's somebody out on Twitter saying yep, but then there's Chicago, or then there's Duke.
Paul, you just visited Duke, And.
Every school is dealing with this in original way.
I find that fascinating.
Yeah. I think most schools are just trying their best, I guess, to kind of protect free speed of what they're certainly all about, while also, you know, protecting their students. All I can say is that if I were paying one hundred thousand dollars to Columbia to send my kid there, I'm not sure I want them in natural classes. I don't know. That's a tough situation there.
Well, I'm not going to go there. It's not our job.
My job I should say, to comment on the micropolicy at a different school, I would say, Lisa, a few it's like the Fed minutes several some of us, a few of us have a nodding acquaintance with nineteen sixty eight, and then the tension was a war, Vietnam War, and it was also a huge undercurrent of a racial tension as well. And to me, and I'm speaking strictly as an amateur, to me, there's a huge distinction between what we're seeing right now and what we lived in nineteen
sixty eight. I happened to be in Paris in nineteen sixty eight, and that complete ferment as a child.
And I just and I really need to read on this.
From experts, including from Bloomberg Opinion about the compare contrast with nineteen sixty eight, because I don't really.
See it right now. I'd love to read more on that. What else do you have?
Sure?
But so before kids get to college, they have to get through elementary and middle school and high school. Schools are banning cell phones, but parents they're kind of getting the way of it. So this is the big battle. So moms and dads say they want the kids to keep the cell phone because they want them in case of emergency. Times are different now, I mean, kids are having you know, not shooting drills, you know, in schools.
But the teachers are saying that it's taking away from focus it's taken away from their education time because that's part of their job now, so kind of monitor kids are using these cell phones. So this is becoming the issue. There was a school district in Colorado tried to ban it. Parents got on the way, so they came up with a compromise where the kids could hold it. They do this at my daughter's school. They can hold the phone, but they can't take them out until like recess or lunch.
But my kids, we got my kids in their mid to late twenties, when they got the sixth grade, that was that was when we would consider it.
Yes, okay, can I kind of do it attend into this, yes.
Vince Farrell, one of.
The giants of equity analysis, we lost them way too young. I'm still in such sadness over the death of Vince Ferrell. He and I said in tears one day laughing in the room right next door where we invented this and.
Vince ferrold I were trying to outdo each other. And when do you stop paying your kid's cell phone? Come on, Lisa, when do you stop paying the kids?
To himself?
Nine years old?
Nine years old, twelve, This is the I've cut my kids. They're off.
They are off. I was, except.
Except for the phone.
That's the last I said good morning to the memory of Vince Farrell.
Vince Farrell went to is Greave paying.
Like six kids? What do you got?
That's an issue. I'm telling my sister. I think it's when she got married. My fine, my parents finally cut her off of the family plan. All right, So we're going back to this was yesterday story. I want to point it out how the FTC is suing to block that eight and a half billion dollar union of Coach Tapestry. So Tapestry trying to take over Capri Holdings eight and a half billion dollars. So it's the first time the kind of bide administration is stepping into for a deal
in the fashion accessories industry. That's why makes it interesting. But you have Tapestry, okay, they own Coach, Kate Spades or Whitesmiths exactly who they have? You know, Michael Core's Verstachi, Jimmy Choo, Oh, Jimmy.
They have James Chu. You noticed they just move their story. I saw you in there looking.
At you can't tell my secrets. But it's the problem that the forcers are saying that it's going to deal to price rate, and they're saying the prices are going to start to rise if these two companies merger are saying workers wages are going to be affected because the companies compete, you know, for for competition for workers.
I tell you this administration is tough on get into M and A. I'm an M and A lawyer. I'm like, I'm not sure I can advise you, guys, we can get anything done these days.
Next.
Yes, it's a tough one, all right. If you you've been online right to go shopping or whatever you do, and sometimes that that notice pops up, like okay, find out how many motorcycles or how many bridges. You know, they're called captures.
I failed those quick. Quite that's the problem.
Okay, they're preventing bots from you know, disrupting websites. But a lot of people are saying that they're starting to get a little bit more difficult, and they are because they're the people who make them. They're trying to have to go after these bad actors who are figuring out how to crack them. So now they're getting even tougher to do. So, I know, I feel it failed the
motorcycle on. I was like, wait, that's a wait. You know, it gets a little confusing, and so they're going to be just the warning out there, they're going to be getting a little bit more difficult. So as you're thinking caps on when you go shop, on the shop anywhere else, they're going to start to get.
A little bit harder.
Lisa, let'll tell you thank you so much the newspapers had today. This is a 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 in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.