Surveillance: Formula One Growth with Horner

Tom would what are you doing? What are you doing with formula what? What's Formula one all about? Back in twenty fifteen, the former F one boss Bernie eccleston had this to say to ESPN. He said, we ought to try to break America, but it's hard for me because I'm not very enthusiastic about the country. It's difficult because they are sort of isolated. They are a big island, and they're slowly starting to learn about what other people in the world do well. Mister ecclestone was wrong. It

seems the United States has learned quickly. Following the sale of Formula one to Uspace Nobody Media and with the help of Netflix's Drive to Survive series. Look at the TV audience here, Tom, average race viewership in the US has gone from about half a million bank in twenty seven yesterday to one point two million last year. Where was it yesterday? Probably bigger for the season, probably bigger.

This is a join our Christian Horner to join us, and of course mister Farrell will lead this with legit knowledge on Formula one. But all I can say is what is so dominant here and is it's a safe free zone from Manchester United this morning, Bloomberg surveillance is a safe free zone for everybody in Formula one that cut their clocks cleaned yesterday. Just ridiculous dominance time. Absolutely. Christine Horner, the team principal of Red Bull Racing F one,

joined us right now. Christin, congratulations on the window for the weekend and let's start there. What goes into it over the winter to turn up in race one and absolutely dominate the way you did well. First of all, thanks very much. I mean it was a great start for us yesterday. And the regulations you know, they're constantly being tuned and of evolving. But the basis of the car is similar to the twenty twenty two rags. So the team have done a great job in evolving the

car and involving every single detail. Almost every component is new for this year, and with only three days of practicing of testing, it was great to get that first big scoring yesterday with the one to finish Christian. We've all heard about the rule changes in the last eighteen months. It was meant to make it more competitive, and I think a lot of people over the weekend might be looking at the front two and saying, what happened? What is it about this set up, these rule changes that

you think suits you and the team so well. I think we've only run the cars at this track in bar Rain. We tested there and we raced there and it certainly suited our car, you know, incredibly well. But you know, the former one calendar is twenty three different races, twenty three different circuits, different asphalts, different conditions, and the big question is is that kind of performance going to carry over into the different variants of circuits that we have.

So it's going to take two or three races. I know a lot of people are saying, ah that you know, Rebel are going to run away with it, But you know, we're certainly not thinking like that, and we need to see a few more races to see how things how things pan out. Christian, we started this conversation by talking about the changes we've seen in your sport, the attention

it now gets from the rest of the world. Can you give us a flavor of that, just how maybe some of the nature and the size of the sponsorship deals have adapted changed increased over the last couple of years. Well, look, we've seen massive growth. I think that the whole phenomenon through Drives and Survivors just introduced fomaller one to a whole new audience, a younger audience, and very much an

American audience. So I think out of the twenty five new partners that we've introduced in the last three years, twenty one of them are US based, and you know three of them are in the Fortune five hundred And it's just Formula one is on far at the moment.

And what Drives and Survivor has done is it's it's done a great job of explaining the sport and bringing a new fan base in a young and base female fan base as well, and it's shown some of the characters and some of the competition you know that goes on behind the scene. So it's a bit like you know, the Kardashians on wheels at the time, Chris, and I'm sure that's Salon in a big way. Does that work

for you time? The Karsassians on the side of Max's car Kardashians, I'm not sure Max would go with that, Christian. There are some hardcore fans, if you will, that are disappointed by some of the new tracks, including last year in Florida. Is there a risk that we sacrifice track and race quality for commercial and geographic expansion. I don't

think so. I think you've got to protect, you know, the old circuits like the Monacos and the silver Stones and the Monsters, but then to bring in new circuits. I mean, we have Miami last year as a new venue. This year we got Las Vegas and I have never

seen hype around a race like that. I think it's going to be the biggest sporting event on the globe this year, and you know the demand for that race is off the chart, so of course, you know, the commercial demand for the sport is at an all time high with twenty three races at twenty three different venues around the world, so you know there's a mixture of

street tracks and some of the old classic circuits. So I think it does data forever then Christian, unlike some of the owners and the elites of Formula one, you've actually raced the cars. I'm fascinated what you think about the expansion of four more cars within Formula one. I know a six hundred million dollars buy in is out there. To me, that seems low, but can the track take four more cars in the first dangerous turn? I think the tracks are certified to be able to take more cars.

I think it boils down to, you know, the practicalities you mentioned an entry, an entry criteria, and of course the commercials, like in any business you know, are going to drive the Asian making you know on this Effectively, you've got a ten franchise set up at the moment that uh, you know, have their value through the exclusivity of you know, those ten franchises, and I think Liberty are keen to protect that as the custodians and the

owner of the commercial rights holder, the FIA, the regulator obviously they're looking to see you know, cam more teams be accommodated, and so inevitably they'll need to be a compromise founders found at some point. But at the end of the day, it's going to come down to who pays for it. Christian, you're talking about expanding to the US and that things won't be sacrificed. But with the nature of the sponsors and the nature of the audience,

which target audience are you going after? Is formula one going after in the United States? Well, we're bringing in a young audience and we're signed you know, we've signed up so many partners, you know, recently like Oracle and hard Rock and Rocks and cash app and so and of course the big announcement for us last months the announcement with Ford for twenty twenty six on our power train, and you know we're bringing we're looking to appeal to

a younger demographic. Red Bull is an edgy team. You know, we've got drivers that push the boundaries. Were a team that pushes the boundaries. And you know, our following in the US is bigger than any other bigger than any other team. And I think it's only a matter of time in future years that the you know, an American driver will be running at the front in Formula One, and again we want to be at the forefront of that.

So you know, we're looking to make sure that we protect the die hard fans, but that we attract a new audience, a younger audience, and a more diverse audience into the sport a Christian. That's going to mean cheaper tickets. Maybe I was just looking at some of the prices in Vegas. It was cheaper for some of us on the East Coast. I think just to fly to Europe to go to Silverston Christian then try and get a ticket at some of the tracks here in the United States.

What can be done about that? Well, look, I think it's again it's supply and demand, design and demand. For Vegas. He's just off the charts. Anybody that's anyone is going to be at that that weekend and I think it's going to be the most watch sporting venue, as I say, of the year. But we do need to look after

the fans. We need to have a sensible entry price that fans can come and see ignal precon see these incredible cars, because until you see it live, you can't comprehend the speed of these machines and what you know, a human being is actually able to control around the streets for example of Las Vegas. So you know that's a responsibility that we as teams and the commercial rights

holder have to protect and look after. You know, the diehard fans Chris and you mentioned Ford, they're going to have a role in the speed of Red Bull racing in a few years time. Can you just discuss the risks arounding new relationship with a new partner and when

the planning really begins. Well, you know, for twenty twenty six it's new regulations for a new engine and as Red Bull decided to take on that challenge ourselves as an independent you know, as a subsidiary of an energy drinks manufacturer taking on Mercedes and Ferrari and now Audi and Reno and so so we felt that it was right for us to align ourselves with a with a manufacturer to give us, you know, access to some of the R and D that that they're investing, for example

in electrification and discussing with you know, Jim Farley from with from Ford and Bill Ford, um, they were looking at at Formula one and therefore, you know a partnership with Red Bull was a very natural thing on both sides to do, and um, you know we're going to benefit from their knowledge and their technical know how in you know, certainly in the electrification and you know we're that process has started already because twenty twenty six, as

far as the engines is literally tomorrow. Christen, I want to bring up someone else over the weekend. I think he joked that there were three red bulls on the podium over the weekend. Number three is the Aston Martin of Fernando Alonzo Kristin, you've been in a car before, can you describe how crazy it is what Finando Alonso is doing in his early forties. Well, look, I mean,

Fernando is a fantastic driver. He's you know, one of the best of all time, and he's finally got himself in a competitive car and forty one years of age, he's giving all of forty something's something a root for and he's showed yesterday he's lost none of that racing

spirit or drive or determination or skill. And you know, he's in great shape and he's going to be a competitive you know, driver and team this year for us, and we've got to know very much keep an eye on them because I think they could be the dark horse of this championship. Well, I was hoping that you'd say Ferrari, but maybe it's going to be Aston Martin, t K. Ferrari just not getting it done over the weekend,

that's all, Christian. Congratulations on a dominant race weekend. I hope we can do this again soon, and please come to the studio in New York when you might cove to the States. Christine Hana. That a red bull racing right now. Leadership from James Bianco, Jim Bianco's founder and president of Bianco a Research. Jim, I'm just thrilled to have you on here on a hallmark day of three months. Liebor at five percent, what does that signal to you?

That short rates are going to keep going higher, that defeat at a minimum is going to be higher for longer. And the aggressive call right now is that they're going to move maybe seventy five or another hundred basis points and we could be talking about a sixth handle before the end of the year on the funds rate. But short rates are going to keep going up, and that I think is the big driver of why the yield curve has become a new record inversion because it's all

been driven by the long end. When the tenure rallies, we get record inversions. When the tenure rises in the yield, we get some flattening of the Yeel curve, maybe less in version of the Yeel curve. And I think that that story is going to continue with the bond market. Jim, Jim expect Chamanpan will be reluctant to lean into that argument, given with still whiteson for Payrose Friday and cpon next week. No,

I don't think he will. I think that you know the data, You're right, I heard you before saying, you know, it's just one month of data, and it's all been very, very strong. But the arc of data that we've seen over the last several months has not been weak. It has not been what Elizabeth Warren, a senator from Massachusetts, has been calling, you know, millions of people losing their jobs.

It hasn't happened. Maybe it does, but it hasn't happened yet, and a lot of people thought it would have happened by now. So I think he's probably going to stay with the more aggressive move that the Fed is going to continue to go at least two or three more rate hikes, and if you're right, if the payroll data is strong, or if the CPI data is strong, that

we'll be talking about fifty for the March meeting. Right now, the market is putting about a third percent chance that the Fed will go fifty basis points at the March meeting. It wouldn't take much to push that over fifty percent and get people talking about it. With a strong payroll number or CPI next week and the potential for a short term rates to go even higher. As the reason why we've been talking all morning about this inversion, this yield curve in version, the two tents spread the most

inverted going back to nineteen eighty one. Some people are dismissing this and saying, ah, you can't read too much into it. Other people are saying, historically it has been one of the best indicators of recession to come. What is the correct read on this, Jim that a yield curve in version is a forward the indicator of recession. But more inversion does not mean a faster or harder recession than less inversion. It's a binary thing. Once you

go inverted, you should be looking for a recession. Now, that thing about the yield curve is it can lead as much as eighteen months before you eventually have that recession that would put you in the first or second quarter of next year. And I think that the whole narrative around the recession that a lot of people don't have that kind of patience. They think that the slowdown is going to happen in the next couple of months,

as opposed to an early twenty four story. So, yes, the eal curve is a very powerful signal that we might be seeing a very big slowdown in the economy. But just because it's inverting more does not mean it's gonna be worse, and it could still be up to a year away. Do you think that based on that and based on the readjustment that we've seen in markets for the past four months, do you think that there is a position that seems obviously crowded amid all of

this uncertainty. Oh, that's a good one right now. I think that if there isn't a position that is very crowded in the bond market, it's definitely, you know, higher short rates that you've seen a lot of speculative positions and a lot of people lining up to basically make a bet that short term interest rates to your note, you know, the live or the Fed funds rate or whatever,

is going to continue to go higher. Now, the thing about those kind of overcrowded trades is those are less market driven and more federal reserve policy driven type of trades, so they can be right at times. Other than that, if you want to look for crowded trades, I'd have to meander outside of interest rates and maybe say, the reopening in China is probably on my radar as being

the biggest crowded trade that we're seeing right now. Everybody's in on that trade, and with the idea that they're only pushing five percent growth for this year, was a bit of a disappointment for that trade. Jemmy, you suggesting we may have sent the reopening tried to play out already, Yeah, I think so. I mean reopening. Yes, the economy is going to reopen, it's going to be stronger than it was.

But this whole idea that it's going to be rip warring in China, that they are going to produce a ton of stuff, put it on cargo ships, send it to the US and collapse goods inflation in the US. I think that trade is a little bit overdone right now, and there's really no evidence than any of that is going to come to pass. Jim want for the cast, show meany to get you thought sense. Always looking forward

to hearing moll from you through the week. The Federal Reserve Chair used to phrase in the last couple of months. He said that disinflationary process has started. And our next guest had something to say about that. David Lebovitz, global market is trying to just at jpmulgan as in management. David, I remember you sang it your words. You said that phrase might go on the schaf with transit tree. Has that gone on the schaff with transit tree? I think

it has. I mean, when you look at the data that's come out so far this year, whether you look at the hard data being the job's numbers, whether you look at the soft data. I mean, the survey data for February was very robust. This is clearly an economy that's proving to be more resilient than a lot of people expected. And I'm not sure that that disinflation the market was really grabbing onto at the start of the

year is necessarily going to come through. I mean, particularly when you look at where job growth has been most robust, where wage growth has been most robust, it's in leisure, in hospitality, it's in the service sector more broadly, and the reality is that services are not really showing any signs of slowing down. The leisure in hospitality. That's what we're doing right here. We're leisure in hospitality. I mean,

that's what we do at Bloomberg Surveillance every day. You're in the calm patient long term business, what do you say to JP Morgan clients in a panic about the people that say not only we're going to drop, but we're going to drop at some point precipitously. So I think the first point that we've been trying to make to people is that a lot of folks are suffering from recency bias. Right when they start to get agitated,

they immediately think about one of two things. They either think about twenty twenty or they think about two thousand and eight. Statistically, those are very much outliers, and so when we look at the fundamental data, when we look at say the cyclical sectors of the economy, we don't really see anything that is so far offsides that it

suggests an outsized downturn when one does materialize. And so I think what we've been trying to lean on is, you know, look, this economy has more momentum, and yes, that has implications for inflation. But if the FED decides to crash the ship at some point down the road, we don't really see the pieces in place the way that they were say in OH seven and O eight with respect to housing, and certainly don't foresee another global pandemic coming anytime did it take for the FED to

crash this party? So I think, you know, the one thing that we've been spending a lot of time thinking about is that at the end of the day, this is really an exercise in central banks and the FED in particular, defending their credibility. I mean, the FED can get inflation to wherever they want it to be, they can get growth to wherever they want it to be. The question is what needs to happen to rates, and more specifically, what does the terminal rate actually look like?

If this is a more inflationary economy, what that means is that our star isn't two and a half percent, it's probably somewhere higher, and that has implications for what the FED needs to do in order to snuff this

inflation candle out. And so to me, the worst case scenario is a FED that gets very frustrated with their inability seeming inability to get inflation back into check and they keep hiking and hiking and hiking, and throw that whole theory about leads and lags and it takes time for this to work its way through the economy very much into the wind. That's the big risk to the

economy this year. Do you game out that risk and you're investing because right now you're talking about perhaps we're not going back to another two thousand and seven two thousand and eight kind of crisis. So if you see resilience, that could be good for stocks, not necessarily bad unless

there is that downside risk. Well, I think it's a good short term and I think that a lot of the concerns about profits are going to collapse by thirty percent that we've talked about together over the past couple of months. That's not necessarily going to come to fruition. If the economy is still humming along and inflation is taking longer to come down. So I do think that near term there is an opportunity in risk, and risk could certainly end up performing well again in the short run.

I think that the challenge is how do you get inflation back in the bottle? Well, you reduce demand and at some point that shows up in corporate revenues and corporate profits, and when earnings begin to really fall apart, that to me is what's going to lead the market back down, not necessarily to a new low, but perhaps the levels that we saw back in October in June of last year. Do you see evidence that earnings are

quote unquote falling apart? I think that earnings estimates are coming back down to earth, and I think that that's a good thing. You know, the twenty twenty three number is down, call it seven eight percent so far year to date. The challenges when you think about what the market price is off of the market price is off of a forward multiple. So every day that we go through in twenty twenty three, we're picking up a year of average earnings in twenty twenty four, because those estimates

certainly don't multiple statistic right now? Where's the multiple forward right now? So the forward multiple is about seventeen and a half eighteen times today. You know, we think that's about two turns expensive relative where it should be. And furthermore, it's really a question about twenty twenty four earnings because everybody was talking about how this was going to be a year where profits came under pressure. But if the economy's proving to more resilient, that story is getting shifted

down the road. And I'm not sure that markets necessarily appreciate that, and I certainly don't think that it's in the price. So what do you do with a frenzy of tech priced out of twenty two twenty five? Some of its growth is some of it's less profitable, but there's a lot of cash flow generators there as well. Are they worth the premium off seven and eighteen? So I don't think that they're there quite yet. I don't

think that they're necessarily worth it yet. The reason why is that when we look around the markets today, there are plenty of other interesting things to do. I mean, the layup continues to be traps. This is the key question. Is John Deer or whatever trading at nine, ten, twelve times earnings? Are they value traps? Where they sit there forever. I only think that they're value traps if the FED returns to zero, and I don't think that the FED

is returning to zero. I think my base case assumption is that there's going to be some sort of cost of capital in the market going forward, and that's going to make equities less about one thing ie megacap long duration growth, and a bit more balanced like we saw

in the past. I actually think businesses that can generate productivity are going to be the ones that perform best in this environment because investors aren't going to reward earnings growth simply that is a function of rising prices, right. They want to see business plans changing, and that's going to make or break investments going You say value tramps and not just think Europe and then it feels nice something's changed yet today European David the flant, what's that about? So?

I think part of it is is the sigh of relief trade. I mean, it's been what a decade since the Eurozone crisis and Europe finally seems to be kind of shaking off its scabs and coming back into the limelight. I think part of it might be a very long overdue dead cat bounce. I also think generally there's an expectation getting baked into that market that the ECB is going to have to do more. And like the FED, when the ECB pauses, it's going to be a pause.

They're not going to turn around and cut. Generally speaking, that's just a healthier environment for the banks. And furthermore, the European banks are very different today than they were in a seven and o eight, seeing much better behavior. Is the way I would categorize it. What's that Disney line? You used tom a whole New WoT? So that's from a ladness? Right? It's a song? Yeah? I know, But why would I refer to it? I didn't know what movie was about. Well, I don't know. I thought maybe

you were just saying it's a Disney song. It sounds like it, you know. He goes off lesson forget it, David, Thank you, David leave Fitz of Chype Mulkin Ellen, Will let's get serious here on China and five percent? Will that drive oil up ten dollars a barrel? You know it could? I think what we're seeing with China is that consumer demand is returning. Industrial demand is not returning as quickly, and so we're still in this kind of

slower climb up. I remember when when they started the reopening and everyone was anticipating this huge surge in oil demand, and I said, well, I don't know if it's going to happen quite as fast as we saw in the Western economies. I think it's going to be more of a slow climb up. And the question is really when

is that going to start going to start hitting. And it does seem like now the consensus is not till age two, and that's when we're going to see you know, hundred dollars one hundred dollars oil potentially of course, you know that hits right in the middle of the summer, potentially very high temperatures and lots of driving demand, especially in the US. So I do think that that's really more of where we're looking at in terms of a

surge in oil prices. And of course, you know, everyone who's predicted high oil prices, you know, we've we've seen oil jump up and then go go back down on recessionary fears. So I do think we're headed more in an upward trend, but there's always that potential for things to kind of wobble. One of the most notable sort of trends over the past couple of months Ellen is the number of people who have just abandoned calls for one hundred dollars oil and saying, actually, you know what,

it's never going to come back. This is basically where we're going to stay. I mean, it feels like the market's a bit of a I don't know a child who who's basically all or nothing sometimes, at least for the past couple of months. Do you get the sense that that is becoming one of the main things, the dominant themes that you keep hearing from the people you talk with. Yeah, I do think that we are seeing on the whole people kind of walking back there their predictions.

I remember at the end of twenty twenty two, we kept seeing, you know, these incredible predictions oil is going to be a one twenty one, one thirty in twenty twenty three, and now we're seeing revisions down to well, maybe we might hit one hundred dollars a barrel. I do think that we are headed, in general towards a period of tightness of a supply being more of a concern. I do think that there is potential in certain areas

to increase supply to meet that demand. That the place is not necessarily the United States, though, I don't think we can depend on US producers to ramp up production as much as we have in the past, and that that is something that is not necessarily being reflected in the forecast we're seeing from say the EIA. I do

think Saudi Arabia and UAE have potential. There's also potential from Iraq, and I do think that if things get really tight, we will see OPEC moving to increase their their quotas um you know, but maybe not really until June, July or even August. Some people say that stockpiles have gone up and that the price has remained relatively low relative to US expectations because of the increase in electric vehicle usage. Do you buy into this idea, No, I

do not. I think definitely we we're seeing more people buy electric vehicles, but I don't think that these are that these are a main driver in uh, you know, stockpiles, because electric vehicles are still limited in their range and when you look at you know, big driving, I mean it's it's not you know, people driving an electric vehicle, you know, twenty miles to you know, do some errands around town. So I really don't think we're seeing that bite.

I think, you know, if you really want to look at the big drivers in demand, we're talking about China and India, and these are not places where electric vehicles are necessarily having the huge impact. I know, it looks like a big increase because when you're starting from very little and you get an increase, it's very big. But you know, for every EV that's sold, how many you know, internal combustion engine cars are still on the road and

still being driven. So I don't think that that is cutting demand in the places where demand is really increasing all that much. I do think that they're you know, they are definitely growing in interest, but I think that there is a limit to how beneficial they are, given how range bound. A lot of these vehicles are looking forward to chatta with you, Adam Walked. They're putting Adam

Wald if the Atlantic cants, so thank you. Subscribe to the Bloomberg Surveillance podcasts on Apple, Spotify and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern. I'm Bloomberg dot Com, the iHeartRadio app tune In, and the Bloomberg Business app. You can watch us live. I'm Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keene, and this is Bloomberg