Surveillance: SoftBank's WeWork Rescue With Galloway

Trump's Middle East this month. It is a spectacular essay. And John, what is so trenchant? Here? Is? A few years back, Mr Rose wrote an essay why we always fight the last battle? And there's the news. Say, there's the news flow of the last few days, including Mr Putin and Mr Ari Juan shaking hands, not over an Olympic medal in soci So getting this talk about it. If there's one take away from this addition, what would

that be? Uh? Well, that the Middle East is going back into its historical mode of a local region in which the local power powers play a great game of jockeying among each other, with occasional outsiders coming in to back them. With the US essentially signaling first with Obama and then with Trump that it was going to pull out. What we're actually seeing is the local powers adjusting to a Middle East without the United States playing a major role.

And so in America this is couched as oh, the Russians are coming in, or we've a been in the curves and all that's true. But from the local powers, the larger picture is, Okay, the Americans aren't really going to be here or be able to be counted on to protect us, So we have to make our own

deals with the locals in the region. And so when the Iranians send a signal to the saudiast and Americans by arranging the drone bombing of the Saudi oil fields as a signal you keep messing with us and we will can we can hurt you, then the Americans don't do anything one If the Saudis realized from that, we cannot afford to anger Iran because they can come and blow us up next time. Even worse, so the Saudis mute their response and start making an accommodation with Iran.

Same thing with the Israelis, who are now making deals with the Russians to protect their interests in Syria because the United States is no longer able to protect the Israelis from the problems in Syria. So essentially what you're seeing is the emergence of a post American Middle East. Uh, even quicker than we thought would happen. Well, let's talk about that. The broadest strategy in the region hinged on two big alliances, one with the Israelis, another with the Saudis.

Did the Saudis look a little lonely now, yes, exactly. So. The fact is that the Trump administration wanted to have its cake and eat it too. It wanted to continue to walk away from the region and not get Americans trapped in endless wars blah blah blah blah blah. Uh. And at the same time, it wanted to confront Iran

and avoid the consequences of justicely walking away. So it tried to essentially contract out US diplomacy in the region and US strategy in the region to its two powerful proxies, Israel and Saudi Arabia, and said, well, you guys can confront Iran, Israel in the Levant and Saudi in the Gulf, and we'll back you and we'll give you whatever you want to contract out that job. The problem is that the locals were very clever, took the American UH offer

and got whatever they wanted with their local conflicts. But they actually can't counter Iran because the Saudis are essentially a rich gas station without a strong military, their prey not a counterweight. And these and the Israeli's are off on the side of the region because no, the Arab powers won't allie with them formally because of the Palestinian issue.

And so essentially what has happened now is the Israelis and the Saudis played the Americans got what they wanted over the last couple of years, and now see the Americans walking away, leaving them with gains they've had. NBS is strong and in power and has established authoritarian control. Netanyaho has gotten a whole bunch of things that he wanted. And yet now the question is will the US be there in the long run to protect against the Iranians.

And I think the answer is now that the Iranians and sorry, the Saudis and the Israelis are starting to think, okay, we need to make deals with the Russians, with the Iranians because we can't count in the Americans. The United States is pulling back. Why is this administration sending troops to Saudi Arabia Because it can't pull back completely from the region. And what Trump would like to do is unwind American commitments. But at the heart of those commitments,

the external ones seem disposable. It doesn't really bother many Americans except for the dishonor about what we're doing to the Kurds. But the point is the courage, the front line of defense. If you keep good northern Syria, if you keep going further and further away, eventually you get to Saudi Arabia, and that's the world's gas station. You have to protect it for the stability of the global economy. And so the problem is not the first places you

withdraw from. It's when you start taking out those things. When you play the game of Jenga, when you're left at the bottom, if you have no other pieces there, you're screwed very quickly. Michael Durant and you're Wonderful Magazine. Why seeding land will not bring peace? Are we building a twenty mile wide new gaza strip between Syria and Turkey? So the most interesting part actually no, because we're essentially allowing the locals to deal with it. And the difference

there is the outside powers aren't going to play. It will be the local powers uh Russia, Syria, Turkey. Um. The interesting thing about the Palestinian issue is that has been kept alive for several decades because of the external involvement of other powers and the international system, including Turkey, including Turkey and their refugee. The fact is that the most interesting thing we've learned from this issue, at least for me, is that nobody cares about the Palestinians anymore.

Because the Trump policy has essentially given Israel everything it wanted and nobody has acted to it. We gotta leave it there. It is a triumph. Gideon Rose, in his team at Foreign Affairs magazine Trump's Middle East. We've been following Brexit since the Suez Canal crisis, and I must say, John, to cut to the chase. That was actually a good one. This is my favor. It's a good one. I watched

the Crown. Come on, Anthony's a good I know, you know there's that scene in Lawrence of Arabia where he's out starving in the desert, drying and Boomy comes over. There's a screen door and the boom. There's a suisque now and then the music. My eyes just thinking of you. This is really good. I was twive years or something. UM. This is my favorite Brexit guest, my absolute favorite Brexit guest from Cambridge University, The Big Financial Launch. Katherine Barnard,

The UK in a Changing Europe. Senior Fellow, Katherine, Great to have you with us on the program. Talk to me about what happened in the House of Commons in the last twenty four hours and what's happening right now. Well, it's remarkable. I mean, this is voice. Johnson became Prime Minister in the summer. He said he was going to get Brexit done. The only way he gets Brexit done was to revise the deal that Treason Maine had entered into. UM.

He successfully did that last week. In facts it's primarily Treason Mains deal but with knobs On and the knobs relate to Northern Ireland. Because they have he's changed the position on Northern Ireland. It's no longer a backstop, a sort of default position, insurance position. What he's done is create a special situation for Northern Ireland and he said, right, we need to put that to a vote and that and then that vote failed. Um. But um. What did he was forced to do as a result is right

to the EU and say we want an extension. He did that very grudgingly, as he was obliged to do it nder what's called the ben Act. And if you remember, he sent three letters on Saturday night to say I'm forced to ask an extension. I don't really want it, but I'm asking for one anyway. And then this week he tabled the WEB now the webs another bit of jargon, the web as the Withdrawn Implementation Bill. Um, and we got it on late Monday night. It's a hundred and

ten pages long. It's eiddishly complicated, really difficult legal text. And m he said, right, MPs, you've got three days to negotiate or to to rule on this. You can discuss it for three days, and that is it. MPs were very cross and so there was what's called something really very dull but a motion on how to actually

manage this process and he lost that too. But what he did win, and he doesn't have a great record of winning votes, he did win what was called the second reading vote, which basically said grudging we like this deal. That's the good news. So now we have this situation on whether they can agree on the time to discuss the overall bill, and Catherine, I wonder if they can do that. There was a suggestion before these votes yesterday that perhaps the Prime Minister just withdraws the whole thing

and calls an election. That hasn't happened. What do you think the next steps are, Well, that's the question. So at the moment, if you think about this in terms of the game of ping pong, the ball is currently in the e US court because the eu've got to decide whether they'll grant the extension that for as Johnson so grudgingly and ungraciously asked for on Saturday night. All of the omens look reasonably good that they will do. Remember,

they've got to act unanimously. President mcron, the a French president, is being really quite cross for about this and saying not very keen on granting an extension because the Brits can't get their house in order. As you've helpfully pointed out, that's been going on since the time of Sewers and the friendship had enough. But I think it's likely they

will grant the extension till the thirty one January. Then the big question is will be won election and what effect might the fact that we haven't left had on the Tory prospects in the election. Catherine Bernard with us a British legal scholar, which barely describes her accomplishments. She is a fellow of Trinity College at Cambridge. Professor Barnard, I am looking at the complexities of the parliamentary voting

system and Constituencies Act of two thousand and eleven. Is all of this insanity coming out of this revolutionary change in Parliament eight years ago? Well, partly you're right, but there's another act that has really changed the dynamics, and that's the Sixth Term of Parliament's Act. And that Act says, in order to call an election out of sequence that we know we have elections every five years, you need

to have two thirds majority in Parliament. And we're in a very unusual situation because usually the Opposition are jumping up and down saying, oh, yes, we absolutely want an election because we want to replace you lot in government. But this time Labor is saying, actually, we're not very keen, one because it's good to keep Boris Johnson dangling on the string, and secondly because Labors not actually convinced it

would win the election if there was one. So, Catherine, let's talk about where we have actually made some progress in the last six weeks. The Prime Minister has gone from saying that he would rather be dead in a ditch than remain in the EU but loot beyond October thirty one with or without a deal, and now he is saying that we will leave the EU with this deal.

I think that's the big takeaway for a lot of people, not just for markets, but just more broadly, that the chances of a hard Brexit so to speak, may not have completely been reserve holved, but they have receded and quite marked the Catherine, would you agree with that. I agree they receded on the one of October. It's not clear when they've receded on the thirty one January, assuming

that's a date for the extension. It's also not clear even if we can overcome those hurdles and the web, remember that's the domestic piece of legislation giving effect to Boris Johnson, treason may feel that even the web goes through.

What we do is we go into what's called a period of transition, which is essentially status quo, but there is a big trap door at the end of that transition, and if there's no future deal concluded, that's on what the future relationship that we end up with no deal at that moment, and that's what some of the remainder orban no no deal politicians are really worried about. At this moment. Do the other parties, besides a diminished labor and the Conservatives, that all the other parties do they

have quote unquote power? Do they have a a in the process forward? Well, they do because until a single party gets majority in Parliament, they hold the balance of power. And the party you need to watch particularly is the DUP, the Democratic Union because they only have ten seats. But remember they were in what's called a confidence and supply agreement with the Conservatives and that gave the Conservatives of their majority before one were thrown out of the Conservative part.

What's interesting is DUP very cross with Boris Johnpson at the moment. They don't like his new deal, and yesterday on the motion they voted against to the man the Conservative position Catherine Barnard, thank you so much, from Cambridge University as well. She has prodigious math chops with black Rock. We lee with us right now and John, A lot of this is the dynamics in the known unknowns within

the fixed in com market. Can we agree John before we go to Wally, that there's a new belief in a lower rate regime over the last ninety days, over the last year. I think that's been cemented in a lot of people's minds. The other story we've got to talk about it is just the amount of flows into Europe of all places. Waite joining us now black Rock head of Ice shares a mere investment strategy M E M E A you know with Mia. Yeah, they're like

a but but they didn't have that. Yeah, Okay, these are conversations we can do in a commercial broke Okay, Wiley, that just don't go there. Let's talk about Europe and the inflow. Shall we your thoughts on what we have seen through September into October? And why? Um? Yeah, wish I could join your other conversation during the commercial break. Yes, we're starting to speak or maybe not. Um, Yes, we're

starting to see inflows into European equities. And this is really um notable and important because on a year today basis, we're still having closed to a hundred billion dollars out of European equities and the flows are only starting to tentatively come back. In part of that have to do with the fact that some of the uh non risks to markets incrementally improving. So if you think about the US China trade, the escalation, if you think about the Brexit,

incremental improvements that has boosted sentiments. But we're talking about really coming from very very low base because most of the investors that we stick to under own Europe under on European aquitis, specifically record outflows followed by record inflows. Real what does that say about how fragile sentiment is at the moment, Well, it's very junky, right, So if we have this interview yesterday, this time will be totally talking about very very different mood music compared to what

we are speaking to today. So even this, like a matter of twenty four hours, can change sentiments completely, which is why we think that it is so important to build portfolio resilience no matter how good you feel, no matter how good market feel, especially given how much treasury and European government bonds have pulled back in recent weeks, they actually offer interesting entry point to build that portfolio resilience which you're going to need for a long time.

We should point out a mia folks is a wonderful abbreviation actually really works for Europe, the Middle East and Africa. That's used across all of global Wall Street and Walie. Of course out of I shares that well, we're jogging free. I didn't know. That's amazing how Wikipedia can save me. Really, when I look at this and I want to go back again to this important five pages of the I m F. Everybody is a yielder had right now and other nations are loading up on US high yield and

even moderate yield paper. Is that a source of concern for you? Do you see just this addiction to I've gotta own US paper? Um? Yes, we have seen a lot of demand for optically higher ulding US fixed income markets, and that applies to high but it applies to government bonds as well. Speaking to India investors here based in Europe, the level of income that one can get is significantly lower than than than than what one can get in the US. But the important UH concerned consideration here is

also haging costs. Right when it comes to fixing income, especially when it comes to investing in developed market fix income exposures, clients oftentimes have to hatch back into their base currency. So the optical you'd pick up then that that one gets actually get eroded quite a lot when you convert US exposure back to your Euro based currency, which is why that the demand is there, but not crazily.

So now back to US high market UH with we have seen actually influenced into the US high old market and whilst too much frost should be a source of concern, but if you look at the default profile, it's not biking even at this point in the in the in the late cycle, and given the very the nine founding environments, we definitely pay a lot of attention to it, but currently not a significant source of stress. What's the foreign bid like in European fixed income right now? What what's

the foreign what's the foreign bid? The foreign demand in European fixed income strong? Yeah, absolutely, um. Some of the clients that we speak to in APEX, for example, Japanese investors have been a consistent source of the deed uh a buyer also sovereign Semichael European government bonds. Even when you converted back into Japanese, YENNI looks and it looks, it still looks attractive. And frankly, domestic investors are also buying fixed income. You think about first of November, Quey

starts again. Um, that should sustain the demand for government bonds. But as a corporate bound high grade, well, thank you so much. It is with black Rock. We greatly appreciate her times this morning. We always inform here at Bloomberg Surveillance. As we look at email, we would also note ABA is the first names the letter acronymic kind of thing of Agnetha, Bjorn, Benny and Annie Freed. Why why I just we want to inform we got an email. I'm

not gonna lie. Actually didn't know that. Actually I didn't know that either. Okay, here's what we're gonna do it by popular claim, we are thrilled to bring you Mr Galloway, Scott Galloway at my book of the Year a couple of years ago on before, I still recommend to throw it at the nearest smart child you have and say shut up and read this on all this technology and the way he writes and abruptly hits you over the head an Amazon, and he is needless to saying out front,

what are we calling it? That we disaster, that we can do, we work whatever? Can? We give him a massive shout out before we bring him in because Scott won't say this about himself. Scott has been so so critical of this company, and I've seen the amount of abuse he's taken from the Silicon Valley guys who have tried to push back aggressively. Of the last two Unicorn crew, Scott was right, the Union crew with debt the Union,

the Unicorn with debt wrong. I want to bring its got Nascot got away n y U Stone Professor, Good morning to Scott, good morning and thanks for the kind words. How do you think this ends? Uh? My guess is I think this is more a cautionary tale that's historic. I think the company will either be a nice little coat working space it's worth three to five billion, or we have some sort of restructuring in a year to

eighteen months. It's still a company with forty three billion dollars in long term obligations over fifteen years, and it's difficult to see how this company survives and cuts cost cuts costs as fast as they need to, so either as much smaller company or bankruptcy. In two thousand and twenty, Scott in the blame game, a lot of people are just looking at Adam Newman. How much attention should we be paying to the likes of soft bank and the

Vision Fund. Well, you know, Adam Newman makes for a more interesting story, but the reality is if you tell a thirty year old male that he's Jesus Christ, who's inclined to believe you the fiducia wait wait, wait, wait, wait do we do that? Was Pharaoh? Every day? Every day? Ignore and Scott carry on place. Yeah, look, the fiduciaries here,

we're not acting as fiduciaries. And at some point the limited partners are going to ask uh Massioshi san, you know, how can you give somebody one point seven billion dollars which is more than eBay paid for PayPal to get out of the way. So that's what you could pay

severance two employees. This is the big learning here will be the dual class shareholder structures combined with the idolatry of innovators needs more scrutiny that power corrupts, and they put too much power in the hands of one individual and that was out of him. Tim Colpin and Shuley Ran have a brilliant essay. Washington Post picked it up as well off Bloomberg Opinion and and and it goes to Galloway one on one, which is we work will

be an associate of soft Bank. The accounting is really suspect. And the announcements of the last number of hours, including a five million dollar consultant fee, could that happen to an American corporation if soft Bank was American, given their general counsel, given their outside council, and given any kind of accountancy and regulation. You know, I don't, I don't

know the accounting. This is definitely gonna be one of the history books and we'll be teaching about this in accounting classes for a long time because they figured out a way to give commissions to fill up their office and then figured out a way to turn those commissions from expenses into revenues. So the accountant here has just

gotten crazy. That the cultural divider. The most interesting thing here in terms of it contrast and cultures is I do believe This will go down as the most expensive or costly exercise and saving face in the history of the private markets, because there really isn't a bowl case or an economic case for putting seven or eight billion

dollars in good capital after bad here. And the reason that soft Bank did it is this isn't as an investment as much, and we work as it is an investment in trying to safe base, or repair or buttress the reputation of soft Bank and Vision one fund. This economically makes no sense, Scott. We were weeks away from retail getting absolutely host and getting caught picking up all

of this mess for themselves. In an I p O. Some people asking as to whether there is more than one we work Scott, you called out, we work quite

correctly given the events of the last month. As you look around yourself right now, do you see any more any more big issues brewing ousewhere well the place to look, quite frankly, is the same judgment, the same algorithms for decision making around we work in that as a disaster that went from forty eight billion dollars to eight generously in about forty five days, and that is still look

at softbanks other investments I Think. If you were to try and sniff out other real estate soft bank backed real estate companies, you would find Oil, the Indian based company that is trying to roll up budget hotels that has a twenty five year old founder who had it's borrowed money against his own stock to be part of a one and a half billion dollars round that no one else but the founder, and of course soft Think

would invest in. I think the I buying space, specifically open Door, that is using algorithms to buy real estate and what is typically a very nuanced local market, deserves more scrutiny. And then there's the crazy three million dollars into a company called wag so you can have an AFT to get somebody walk your dog. There's definitely Scott Galloway twenty seconds Airbnb, How unicorny is Airbnb this morning?

I actually think Airbnb is one of the winners. Tom Cargons is strong hair, positive, positive margins, very strong modes both global global demands and global supply. I do not think Airbnb is no we work. This is wonderful. Scott Galloway, thank you so much, congratulations on a driving for the global Wall Street Conversation. This is important, and it usually comes into a stack of world class researcher Michael Nathanson with us writing with MOFA. Nathanson, it's just first glass.

Paul Sweeney has lined up with all sorts of intelligent questions. Michael Nathanson, you are such a stud Mrs Keane said, can you just start the interview today with one question? She wants to know? Is kemball Roy for real? In Succession? Do you watch this showever? Is it accurate? Is Kendall that big of a tool? I think it's you know, I think it's a bit of exaggeration. But you know, someone said to me, Michael Jordan's was a great basketball player,

doesn't mean his sounds a great basketball player, right? So really yeah, So this whole idea of like legacy and succession in media, unfortunately that's part of the industry, right, It's passed on down. There's no guarantee that year. So when you was a the mother of all content, King's grizzled pros, when you watch Succession, it rings true. It rings true. The whole pivot of old media new media.

You have to consolidate quickly. It's like this past season was really wait quickly here, well, because you know the walls are closing and media needs to consolidate, right, and do you want to buy new old TV stations? Do you want to get at it? Like? How do you fix your empire to get ready for Have you been on a yacht that big? I think he has several times. So, Michael,

you know the big thing you've been covering. You've been covering to media sector for such a long time, and you know it's really at a pivotal time for the media companies as they try to pivot towards technology and streaming, and probably no greater example as Walt Disney Company what they're trying to do. Give us your sense of how you think media will make that transition. Yeah, it's going to be really, really lumpy. So it starts with the question Tom always asked us, which is what does court

cutting look like? What's the future for the bundle? So right now, let's call it about eight million people who pay for a monthly video subscription. We think that falls the sixty million subs. Okay, the sixty million subscribers were there. They care about the Toronto Maple Leafs, they care about Premier League soccer, They care about the NHL, the NFL, Bloomberg News. They'll be there for sports and news, right.

So that means you'll lose a ton of subscribers you have now, if you have assets that play in the live sports and news business, you'll be fine. So Disney has ESPN, Fox which we like, has Fox News, Fox Sports, the long tail of entertainment networks. Anything you're gonna watch that's entertainment based will be on demand, right. So then the world's gonna shrink for kale networks. At the same time, there's gonna be this war we're watching now to play

in the on demand space. Right. So Netflix was the first mover than Hulu and Amazon. Now at Disney, Apple, right, cbsl access just more and more pressure to fight for that spot opportunity, right, Does that makes sense? Yeah? Yeah. So one of the things Tom and I, you know, always talk about because Tom is afraid he's he's spending. He pays so many bills every month and he's got so many streaming bills. He doesn't know what's going on in his bank accounts all direct you know, payment, he

doesn't know what's going on. So how many payments will people make for streaming services. Do you think rethink on average U be four to five streaming services, right, there

be four to five products, maybe three to four. But what's gonna happen is in homes have given up the bundle, they'll have surplus surplus spending, right because basically they've traded down from a hundred dollar bundle and to maybe four or five products that will costs, right, So you're gonna have extra opportunities to spend from households that have spun down spun out right. At the same time, what's gonna happen is Tom's not gonna go to the movies as much.

He's definitely not buying home videos anymore. He's not gonna buy you know, he's gonna stream his music. So there's beginning to see an erosion and consumer spending in categories where technology is disrupted. So he'll find excess, you know, savings from things that he no longer does. So the long history media is I would have said to you five ten years ago you have said how much more

can the bundle price and go up? And we would have said it goes up five percent every year because you can't find succession away from the bundle, right, So I I p is very very you know, it's got pricing power. Give it to me. The entire hinge here is the belief by well meaning executives the younger people who don't use this stuff will shift and use it when they get older. How certain is that foundational gospel

that's no longer a foundational gospel? That's not certainty. I think twenty three year old will or will not shifty years. They will not become us when they become our age. They just will not. Right, You go to anyone who's a college kid, look at their dorm structure versus ten years ago dorms. There's no TV sets anywhere, right, it's all it's all laptop, it's iPad. They're just going to basically hang a connected TV set on the wall, not paid for cable or satellite, and use apps, use apps

to watch what they want. Maybe they'll use the parents apps. Right, they just basically share passwords and put it on. Really yeah, Like the whole point Tom is like we we're gonna see basically a race to the bottom. Like your point of there has been life cycles and people usually follow their previous generation's behavior. That's broken down that's not going to Is there a profit for anyone on the race to the bottom? I think no, you know, the next three or four or five years. That is my big

worry that we don't have a profit here. You know, Netflix has never actually created free cash flow. You know that there's never been free cash generation. But the bond market is there for Netflix. Why is the bond market there for Netflix if they've never developed free cash flow? It's on the edge of weak company, right, because there's the belief embedded in the equity that cash flow positives around the corner. Okay, like Comcast flipped the switch and

they did that. The Roberts family executed that on the edge of brilliant, right, do you have the same confidence that content greaders can do a Comcast? They will have to be slowing top line growth and slowing content spending. Right. It's you've got the decision is going to have to be when the top land starts to slow, you have to basically hit the brakes on content spending. But we don't see that anywhere at the moment. Obviously, it just continuing to go up like crazy, and uh, you know

it's gonna get it even worse. Now with Disney coming to Marketplace and all these other streaming services. So just before I know, so Disney, you to let you know with what we have in our model, we think Disney is gonna lose in this current year four point six billion dollars in FIST year twenty on streaming and that's part of their guys six billion dollars. Yes, she just figured it out. You're dressed like Connor Roy. I mean

he is you set the casual thing going. Yeah, you know, since they left Sanford Bernstein, they just the whole mode is changed. I mean he and Craig used to be buttoned down, sharp, you could be here presentable, you know. Now it's like succession like that's in Senior Ann's joining us here in studio. We appreciate him coming in and giving us his time. Lots to talk about in this

media space. Lots of convergence, lots of consolidation, lots of big companies getting even bigger, lots of bills that Tom is paying for various kids around the world. He does not even sure what he's paying for, but he's writing the checks. Nonetheless, Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom

Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio