Surveillance: Reopening Trade With Laidler

are dramatically underestimating the recovering company profits. They have hugely underestimated the earnings rebound for three quarters in a row, and Tommy thinks they will continue to do so. This is some of the nuances of the bullmarket. And with that, Yard, Danny and David Coston with us later as a standout show John, Ben Laidler more than anyone I know, he's consistently been shut up and get along. He's been doing that for pushing three years now. More than anyone else.

He has reaffirmed his optim as some week to week. The Equity Bill joined us right now, Ben later at a global market strategist. Ben, let's start there, why do you think this will continue? So? I look at forecasts from the consensus says that earnings actually four next quarter, the quarter after that, and the quarter after that. But this was the peak. I disagree with that. You look

forward to two, consensus has nine earnings growth. I mean that just looks like a sort of placeholder that we haven't really got around to sort of looking at yet. Um And and again, you know, we're coming off just this huge earnings rebound, which the market consistently underestimates. I mean, just but overy one second. I mean the last quarter, coming in, we thought we were gonna get sixty earnings growth. Coming out, we had ninety. I mean that that's just

a dramatic, dramatic um, you know, earnings mix. And I think that again there's more to come, I mean growth, you know, it's very very high and very resilient to you know, this third sort of virus way, these concerns on margins. I think this is sort of the peak of the margin pressure. And we just saw all time high margins. So and I think that sort of underlying driver, if you like, of why consensus is so verish. But you know, I think the march impressure is right now.

It's not you know, it's it's it's not in twelve months time, and that sort of top line remains remains super strong, and people continue to underestimate the earnings leverage to that top line. I mean, companies did a lot of costs set over the last sort of twelve months or so, and you know that's where the mistakes been made, the leverage earnings to that sort of incremental improvement in revenues.

Then the key phrase there for me is placeholder. You remember when the street at a conviction and they had a twenty one belief for twenty two belief and they'd even get out the June or twenty three right now, I totally take your point and the timidity of the market. How should our viewers and listeners play that timidity when they look out to say, oh, I don't know February

of twenty two right. So so I think earnings are being underestimated by maybe a factor of two for next year, and I think the way to think about that is a I think that gives more oxygen for this market to keep moving up. And secondly, and as importantly, you know, as we're facing sort of the fair about to make a sort of decision on tapering. I think that's the sort of insurance policy to the risk here. I mean, earning evaluations at twenty one times, that's super high. You know,

bond yields go up. The FED tasks tapering. I mean, those valuation numbers are probably gonna keep coming down a bit. But the big offset to that, which I think we continue to underestimate, is that growth will more than offset that. And I think that's the pathway to this market to sort of continuing higher even as we move through sort

of FED tapering and potentially lower evaluations. Then what do you say to potential critics who say, look, take a look at the delta area that's spreading, take a look at some of the shutdowns that we're seeing in China, some of the potential regulatory actions that are slowing growth there. All of these issues a contribute to supply side constraints that will lead to ongoing margin pressures and be removes

some China demand from the market. What do you say to people who say, no, these margin pressures are going to continue for a long time. I say, look at the data right now, so PPR, you know producer prices if you're gonna get today, you know minus consumer prices. You look at the p M I S sort of input prices minus output prices, it's really hard for me to see that. You're going to see, you know, the discrepancy, the gap, that huge gap that we've seen over the

last sort of six to nine months. You know, that really continuing. So I think, you know, margins are going to be under pressure, but I think that's going to be more than offset by this, by by the revenue rebound. I mean, just for example, just look at the sort of these classic reopening stocks. You know, those earnings are still down from where they work coming into the crisis. I mean, this reopening trade has I would argue, hasn't

even started yet. I mean, these reopening stocks are still under mowhelmed sort of work from home by six the earnings have still been absolutely decimated, and you know, your average economy glotally it's still you know, if you look at these sort of lockdown indices, they're they're over fifty right, relative to zero by definition before we came into this, and you know, in the world hasn't been fully vaccinated yet.

So I think there's a reopening trade which is gonna push revenues or it's gonna put journings is badly to start started, and it may be delayed somewhat here, absolutely, but it's it's it's not derailed. And and and the macro day that we're seeing tells you we're just learning to live with this. I mean, this is the third wave. Um, you know, we're a bit more vaccinated, we're a bit more used to dealing with this. And I think again, earnings are going to remake very resilient and the market's

underestimating them. That is quite a statement to wrap things out. Ben Laidla of ETA Global Market STRATEGYES Ben, thank you right now, a massive joy. Michael Spence is any number of things, including a noble lawyer. Yes it's General Atlantic Senior Advisor, but he is someone who was thoughtfully rebuilt American education with his work at Stanford and then onto New York University and the Lawya joins us this morning

from Hello, welto Italy. This is something folks you need to know about surveillance is these guys are on the shores. It's some fancy, gorgeous place and they drive up in whatever they want to drop in to pretend they're toughen it out in Palo Alto at Stanford. You're not at Stanford, are you, Professor Spence? I am not on the coast

of Italy. Very good, that's good to know. Right now, I want to know a redo of your wonderful book on convergence of a decade ago, and I want to take a chapter there on multi speed globalism and say it's convergence within what certainly we're seeing a multi speed pandemic. How do we come out of this with constructive convergence? Well, Tom, I mean it's a very important question that you raised

so briefly. Um, I think there's some serious question about whether the convergence is going to be fairly complete with respect to the low income countries. I mean, they're adversely affected by it's nearly a perfect storm, the pandemic, with very very slow vaccine rollout, that the the climate change is obviously accelerating. They have demographic problems, they have internal governance problems. So so you know, it was always going

to be a kind of struggle to get there. But but I think, you know, with digital technology coming, questioning the growth model and so on, I think you know, we probably have to rethink this and in in the meantime, I mean, we have some important priorities before us, and I think item one on the list would be a real plan to roll out the vaccine global. You have a cottage industry and consultancy on the Pacific RIM and particularly to China. You have studied the domestic dynamics of China.

What is our best practice to assist Beijing to diminish the use of coal? Um? You know, they have the technology to get this done. Um. And it's not clear to me why they aren't moving faster. Now. You know, China is far enough along in their economic development that they have a problem that's similar cars, which is replacing

coal and fossil fuels with green energy and electricity generation. Uh. And whereas a lot of you know, earlier stage countries, you know, can have most of the electricity generation capacity to build, so they can build it green, you know, ab initio, so to speak. Um. But I I think you know the answer to that is, I don't know. And I think we ought to have a serious talk in the context of what is now you know, globally

perceived as a serious problem. And I think we need acceleration everywhere on a broader level of Michael in order to lobby for an acceleration to greenify the industries like

coal and like fossil fuels. In general, there's a question of the labor market and whether some of the adaptation of the U the U S and Chinese economy actually helps the labor market, where you can make an argument that it will actually provide some sort of back tail win basically to the improvements that the Biden administration and jes and Ping would like to see. I think I think there's a lot of merit in that argument, Lisa.

I mean, you know, with very large amounts of public sector and private sector investment, which is what it's going to take to deal with this problem in China, in the United States, in Europe. Um, there's gonna be lots of you know, economic activity and employment associated with it. Now, you know, the flip side of the coin is this is a transition and the structure of the economy, So they'll be pockets of distress that require some kind of support.

But I think when you add it all up, it's a positive provided the provided the investment momentum is behind it. Is the investment momentum more likely to come from public entities, or private entities. You know what what I was talking with John Brown the other day, who's you know, probably one of one of the most knowledgeable people I know in in the in the energy field, and he thinks it's a combination, right. You know, I don't know exactly

what the percentages. Let's call it. We need public sector investment UM in the whole variety of kinds of infrastructure and research and stuff. But we need private sector investment to deliver the technologies that that businesses are now demanding. I mean business is business broadly globally, not completely, has committed to being part of the solution to this problem. So that then the question is, and what are we

gonna do? And the answer is, a whole bunch of investment has to occur to provide solutions, uh, in the whole variety of sectors. I think it's coming. Whether it's coming fast enough, I think it's the open question. Your speech in Stockholm a few years ago, Professor Spence, was about signaling about the things that we do within our system and in our financial system that signaled to us,

what is the signal of this odd time? We live in a massive monetary accommodation and particularly unprecedented fiscal stimulus in the United States. What are we signaling? I think, what what's what's being signaled? And it's the Central Bank in the administration. Is that, you know, in balancing off sort of you know, potential inflation slash instability as opposed to sort of righting the ship in terms of inclusive growth.

They're going for inclusive growth. Uh and and there I think if you've got them privately, they would say, yeah, I know we're running some risks on on the other side, but but it's worth it. We we had a terribly weak um and unequal recovery from the Great Financial Crisis. We're not doing it again, and we're gonna you know, fire all the guns. I mean, just johonn if I may here Pressure Spence, a guy named Boston, a guy

named John Taylor out at Palo Alto, Stanford. It looks a lot like Palo Alto, Italy, Michael Spence, but it's out at Stanford. They're gonna take a more conservative tax to this and say we can't trust the path to inclusive growth. How should the Biden administration respond to that? In liberals worldwide, Well, you know, I think the Biden administration.

This is a personal opinion, and I respect my colleagues who are you know, at Stanford, who are I think a little bit more conservative on this than I am possible. But my view is the deficit that we faced in America that caused our growth patterns to be um out of out of kilter in terms of inclusiveness were investment deficits, some of its infrastructure, some of its human capital, some of it's you know, kind of new technology and so on.

I think they're trying to address that now. They have pressure on the left to do a whole lot more than that, um, you know, and make the government a whole lot bigger, and to be perfectly honest, you know, beyond a certain point. I don't think that's gonna fly in the American context. I mean, you know, when you when you start getting governments that are noticeably larger than what Americans broadly are comfortable with. The bark uh And we won't go down that road onto the midterms next

year politically speaking, anyway, Michael gonna catch up. Appreciate time, sir, as always the wonderful Michael spents there Nobolt Laureate and General Atlantic Senior advisor. Well, let's get one for you right now with any research founder and chief investment strategist, and let's start there. The path to five K on the SMP five hundred next year. Just walk us through the framework for you, Ed. Well, you know, forecasting the stock market is actually very easy. It's only two variables.

What do you have to do is get P and E right. The trick is getting them right. Uh. And the challenge up ahead here, I think is the valuation multiple has already quite elevated at around twenty two. It's been an earnings driven bull market. We've had a melt up really since March twenty three of last year, and initially that melt up was led by the PE. Uh forward. PE went from twelve point nine to twenty three by m September of last year. And since May of last year,

earnings have been on fire. They're gonna be up eighty percent on a year over year basis just in the second quarter. It should be up about forty for the year as a whole. Uh. So, I think the market's going higher. And my bullishness is based on my perception that there's no recession ahead, there's no credit crunch ahead. And they're still higher earnings ahead your Denny, when you took your PhD at Yale University with a privileged faculty

at the time. I can't say enough about the quality of Yale in nineteen seventy six and down migrated from one thousand out to where we are now at thirty six thousand. On the way was a Carter malaise. As you know, from seventy six to roughly eighty two there was just a flatness. Is the thing we're not seeing here is not the up and down to the financial media, but the ability to just go flat and rest for

a while. I think the huge story when you compare the nineteen seventies, which was called the Great Inflation Era, uh, and the what I think is going to is the Roaring twenties era right now is productivity. Productivity collapsed in the nine and this time around, productivity is up from zero point six percent on a twenty quarter basis. I try to smooth it out. That's what it was not too long ago, at the end of fifteen. Right now, we just got a new number. It's a two percent.

I think it's going to four percent at leasta. Greg Granton at Yale University. The acclaimed his story and calls it the dismal seven in these I don't hear that right now, No no one saying it's the dismal seventies. Some people saying that we might get some sort of inflationary pressures that resemble something at last seen perhaps closer

to seventies than we've seen in recent decades. And how much is your call five thousand by the year end of two predicated on treasury yields remaining where they are or around or around there. Well, I have to say that this year has been a tricky one, uh for forecasting the bond market. And uh I was I wasn't surprised that I went to one point seven percent back

in March. I was surprised that I went back to one point one twelve percent recently, But now I'm not surprised again that it's heading back up to one point three five And I think we could be a two percent by the end of the year or sometime next year. And I think that would be a clearly a sign that the economy is getting a little bit closer to

normal than it had been for quite some time. Uh. Now that could weigh on the on the evaluation ultiple, I suppose, And but you know, five thousand is actually a fairly conservative outlook. It's in of next year. There's plenty of time for earnings to grow along the along that time. And by the way, by the end of next year, the markets are going to be really discounting three. I know it's weird to be talking about that far out,

but that's what the market does. And I got earnings two five this year, two dollars two hundred five dollars this year for the SMP five hundred next year two hundred fifteen, and then in two thousand and thirteen, looking that far out, it could be up two hundred forty bucks. So and I think I think on your point, I think profit margins are gonna hold up surprisingly well because of the productivity story. The story then comes down to

the second point. Then it's the multiple And if we want to talk about twenty three, we'll be talking about ray hikes. Can we really tried positively through tapering given the amount of stimulus we've had from this federal Reserve into a conversation about ray hikes? Well, John, you know this tapering talks been around for a long time. It's not like a surprise. We've had previous tampering episodes which were more on the surprising side. This one certainly isn't.

As a matter of fact, everybody's kind of wondering why they haven't started already given some of the economic data that we've had. So I think the market is gonna handle tapering just fine. By the way, m too, some people are getting starting to freak out about the empty growth rate. Uh, what they don't really appreciate is that empty today is five trillion dollars higher than there was before the pandemic. There's still just a tremendous amount of

liquidity just sitting there. Uh. People look at velocity. I I look at the other side of velocity. If you take EMPTWO divided by nominal GDP, it's almost the year's worth of them too. Now with nominal GDP it's an all time record high. So there's lots of liquidity out there that's still kind of pent up. Supply of liquidity still bullish at John Tanny, It's gonna catch up, sir at any Research founder and chief Investment Strategistics right now.

Treat for Lisa Rammins and myself, Craig MafA and Michael Nathanson they pick up the pieces after the Olympics, the streaming frenzy that's out there. And also, and we we do a tangent here Lisa on what's going on in Washington. Let me go to Craig Mafat on this. This is his wheelhouse as well. Craig, this is a story not told, which is we're almost on the edge of where there is a right to the Internet versus a privilege of the Internet. To me, it's a real subtle sea change.

Are we at the point with Biden legislation that we're gonna demand pristine internet coast to coast? Well, first of all, thank you for having us back on. Always a pleasure to be here. You know, I'm not sure about that. That's been a push pull through the last what five administrations. And um, and this this question of is broadband utility? Should it be treated as a utility versus h that that the private sector has actually done a pretty good

job bringing broadband to Americans. Um and that tension I think is appropriate. I don't think it's going to change my takeaway from from what's happened in Washington. And look, this shouldn't be a surprise is despite the fact that we've swung back to a democratic administration, Biden is who he said he was. He's a moderate and and and actually what we've seen fairly consistently is moderation in most

of the policies around broadband. There was some talk about price regulation and some flirtations in the early drafts of the infrastructure plan. That's not where we ended up. So I think overall what we're seeing is reasonably friendly to the incumbents. There's so many things to talk to you about your claim to research here on the hardware of the media we look at every day and again, the media is content is king and Michael Nathanson, if I could go to you, what are you prepared for? What

are you stealed for? In the streaming wars? Where's the curiosity right now? Well, Wren Tom, what I'm waiting for. There's someone to tap out, someone who looks at I guess we were a solid Warner Media and Discovery merge and acknowledgement that this is a hard business to uh to master. But I'm waiting to see what VI Common Comcast do. They're both too small to win this. So Craig and I are both waiting for somebody to realize

that this is not a great business to chase. It's probably better to be a content seller than you know, a fifth rated streamer. So we're waiting for more consolidation here. Um. I don't know when that's going to be, but to us that has to happen. Well, Michael, just to follow up on that, are we passed peak content? Lisa? Um, I think we're a year two years away. You know, Apple's it's gonna put more money to work. Amazon will as well, So I would say the next one or

two years gets peaked. There's clearly to your question, there's clearly too much content out there is not enough time in the day. The economics are forcing lower, lower returns. Um. But I think we're one two years away from it when realizing that they need to change their approach. Right,

there's just too much capital chasing chasing this opportunity. Craig, which really wears on the hardware store a story of things basically that regardless of who wins the content wars, the bottom line is more people are going to be streaming, and so perhaps is that the pure play going forward to basically hinge on the streaming phenomenon that's only getting stronger, even if there is this war on content that perhaps

has created some peaks in pricing at least down the road. Well, I wish I could say, yes, there's certainly going to be a lot of demand for for bits and bites. The question is really whether there's a mechanism for the

industry's eye cover telecommon and cable to monetize that. You know, you could make the argument that in this particular gold rush, the ones that are selling the pickaxes and the shovels are not so much the network operators, but the network equipment suppliers who really are are I think seeing a serious boom for the For the wireless operators, monetizing incremental

traffic has always been problematic. And for the cable operators, they have a better business structurally than the wireless operators, tend to be less competition, but they too generally don't charge extra for the throughput. If you're just joining us on Bloomberg Television in Bloomberg Radio, we are thrilled to bring you both Craig Moffatt and Michael Nathanson of Moffatt Nathanson years at Sanford Burnstein and truly definitive on all

that we do in media. This is a joint question to both of you, and then Lisa is gonna pound in with another question. Michael Nathanson, I'm gonna let you go first. What are the two of you learn about the Olympics that NBC has to tattoo to their brain as they go to China and beyond. Michael First, well, Tom, great question. They need to change and who am? I am? An analyst? But no stuff, you're Michael Nathanson. They're gonna

listen to this. Go okay. They need a constant always on Barker channel where I can go to watch Olympics. It was a hodgepodge to right, you do know what was on where it was there was no excitement. They basically need to take over either NBC or USA and make it Olympics and show game show everything live on broadcast and linear, then use digital to basically augment the non core you know events. I think ESPN has done a great job they figured that out. ESPN uses ESPN

one for all their Maine events. They have all the other ESPN channels for the secondary and tertiary events. They need to rethink it. I thought it was really poorly done. It was a sad It was a sad Okay, Craig, Craig, your briefing. Brian Robert's here and you're looking more at the hardware as well. What do you tell Brian Roberts to do next on the Olympics. Well, I'll tell you so, you know, I think first you have to recognize in the diagnosis of the problem here. Rating ratings were down

from five years ago total day um. A large part of that is the fact that there are just a lot fewer television households to uh to to watch the Olympics. Right. The court cutting that has accumulated over the last five years has left a mark and it hurts. The problem that that creates, though, is actually deeper than that, because I think about the machine that Comcast is or that NBC is in creating the run up to the Olympics and making people interested and engaged in the athletes and

the stories around the Olympics. If ratings are down or more in the months leading up to the Olympics, then so much of that is being lost. That engagement when the Olympics comes around just isn't what it used to be.

And I think the real problem now is trying to figure out whether the whole ecosystem that surrounds the Olympics of public personal interest stories about athletes and national pride and all that sort of thing is permanently damaged because fundamentally, the Olympics are made for TV event and we're just in a post TV world, right, Well, hold on a second, That's where I wanted to go, Craig, Can we extrapolate out beyond the Olympics two sports in general that perhaps

cable news doesn't capture the same kind of audience, and frankly, some of these sports don't capture the same type of audiences. That goes hand in hand and a sea change that fundamentally undermines cable's prowess in this industry. Well, you can't say, Lesa. It goes to your question to me about this is just too much content out there, right, there's too much content. Discoveries become impossible. To Greg's point, we lost the audience

past five years. It's incredible challenge right and sports right to keep going up. Um, So we wonder what happens in four or five years when the next NFL contract

really kicks in its part. In terms of the heart of the escalation, it's a challenge, and I think I think you have you need consolidation here, you need less content being produced, and it eliminate some of the clutter we see right now over the dial basically and all over streaming and Craig From your perspective, what would it do to some of these cable giants if they sold the rights to some of the sports streaming well for the broadband providers, that is, the infrastructure providers, The short

answer is not much. They're there, to some extent agnostic about what travels over the networks. In fact, I think they fought for years to say we don't want to have to carry every regional sports net for example, on the basic tier, and make everybody in America pay for sports even if they don't watch it. The problem has been that the programmers have been too strong and have

demanded basic tier carroag. That's clearly breaking down right now, and and you wonder whether the straw that broke the camel's back will be one or two more of these networks being withdrawn, to the point that the sports system as we know it today really on ravels and and you're certainly seeing that on the regional sports side. UM, the national sports side has held in better because Disney has so much power in its negotiations, but the sports

ecosystem is feeling a lot of stress. I gotta leave it there, Craig Moffatt, Michael Nathans is too just too short of visit, but always very generous of you to join us today with MONFTT Nathanson. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations.

And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloombergh.