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We are thrilled to start this morning and all through the day fed coverage with Francis Donald. Incredibly strong is chief economist at RBC Capital Markets that can't say enough about the acuity, particularly from the border from Canada over to the US for North America is well. I'm going to make two observations. The money market fund used to be four point x even five percent. The money market fund is down three point six three point seven percent.
And the other observation is a landa GDP now. The GDP now is a stunning three point five percent. Why in God's name are we cutting interest rates? Tom?
If I woke up this morning and I'd been in a coma and all I had was the data, I would think, well, this Federal Reserve must be neutral or hawkish heading into this period. They are in an environment where inflation has been above target for fifty five months, the unemployment rate is extraordinarily tight. In fact, there's only two times in history, going back to the nineteen seventies, when the unemployment rate has been this tight. What happened
to the concept of normalizing and growth is fine. So what I want to hear from Chair Powell today is why are you cutting the other.
Side of the argument. People are saying cut cut, let's go, let's go, let's go.
A hasset Myron Frankly, A lot of other people as well state their case.
Well, the unemployment rate is moving in the quote unquote wrong direction, and historically labor markets move like forgive the Canadian reference, in a hockey shape direction, which is that when they weaken, they tend to weaken aggressively and quickly.
Except that this.
Labor market is a very different labor market than what we see.
The game is.
Different with the stupid bendy sticks now that break all the time. Yes, firstus the old days of Victoriaville's and CCM five stripes.
If it's I agree with you, both literally and metaphorically when it comes to economic data, which is that the hockey sticks are indeed broken for a variety of reasons, and I do not expect this unemployment rate to move in a hockey shaped type of direction, And in fact, I would say, could we maybe work through lunch and look at the subcomponents of the unemployment rate, which will tell you that the unemployment rate for the prime age workers has been relatively stable and really the rise is
coming from twenty to twenty four year olds. Are we cutting rates for twenty twenty four year olds? That's fine, but I want to hear.
That should we do more hockey talk?
Yeah? Absolutely, like the hockey references. That's all good, Francis. All right, let's assume we get the rate cut today. What do you think the FED does in twenty twenty six, Well.
It depends.
You know, I'm going to be old school on this fall and say it depends what the data does in twenty twenty six. I am feeling a little introspective that I used to spend so much time parceling out FED talk because the FED was such a large input into the economic outlook. But perhaps it's my now growing old age. I didn't have a birthday this weekend, but I do have a milestone one coming up, and increasingly I do increasingly believe that the data will lead the story. And
while there are biases that exist within the FED. They're probably within a reasonable margin of error. So one meeting ahead or before twenty five basis points here or there. And the really big problem heading into twenty twenty six is, frankly, we're still missing a big chunk of twenty twenty five.
This Fed's going to this meeting with only real clarity on where we were up until September, and I usually were about a month delayed, but we're three months delayed, and so between now and January we were going to get a boatload of more data, three jobs reports, two inflation prints, a lot more retail sales.
Twenty twenty six.
Clarity is going to become better as we head into the end of January, but I will still say I cannot believe that we are still not starting every conversation with.
Respect to tariff policy.
We are still in the midst of a once in one hundred year trade shock. We have not yet seen the full effects of that, and we don't even know the final trade policies that are coming through going to be really meaningful.
I'm not sure we're ever going to know them. What is the view of terrass from Canada, Because you guys are kind of a big trading partner for the US.
The last I heard, we are the primary trading partner.
Thank yeah.
So really sector specific, and I think that actually is a good microcosm for both the US and Canadian economies is that this trade shop has been a very sexual and regional shock. So if you look in Canada, for example, there are autos and steel and aluminum that have been impacted to a certain extent, and in the United States, same story, which is trade related. Sectors are shedding jobs, but they're being offset pretty substantially by the healthcare sector
that is growing. And so the trade shop for me has been a reminder that one GDP story, one inflation story, one consumer story is no longer relevant and are telling the real stories. And while we like to think that one forecast on one sheet of paper will guide all investment decisions, you have to reincreasingly bottom up and thinking about watch sectors are being impacted, and that's the real tariff impact that gets lost amidst the what is your CPI forecast with respective tarif policy?
Bloomberg surveillance across the nation, across Canada as well with US Francis Donald RBC, a lot of other good guests coming up here to really flesh out this really interesting nuanced FED day. And as Francis and Paul mentioned, we're a little blind heer on economic data. Maybe it's not as blind as six weeks ago, but we're blind. And we get a bunch of data coming up on Serious XM Channel one twenty one, Good Morning Canada. And we
also say on YouTube, subscribe to Bloomberg podcast. Okay, so we're going to get a meeting and he's going to basically say what you said. We're going to get a lot of data here. It's a toggle switch. We're going to be December twenty nine, December twenty seven. OMG Powell was brilliant or OMG's a dummy? I mean, if that's simple right.
Well, as Powell has told us, there is no risk free path. The one thing I'll say is that there is if you do have a buyas towards cutting, and this Central Bank does have a bias towards that they have expressed in multiple different ways that they want to be closer to neutral. Now is your window.
You have a.
Window where actually the lack of data has given you more optionality, but that window will close.
It will close by.
February when inflation starts to move much higher, and you don't see that material duration in the deterioration in the labor.
Markt what does your own Powell do today for small business in America?
Like the Palace which is just getting by?
Well, I got the wrong morning invite. It sounds like right off the top, but I think that very little. And as I said earlier, we used to talk a lot about how FED policy was a major input into the economy, but this is economy is decreasingly rate sensitive on a go forward basis. The argument that we're going to hear from the Fed is that the labor market is deteriorating and therefore probably we're in restrictive policy. But
who is policy restrictive for right now? And if we ease it by twenty five basis points, will you see material changes? Our point has been that the real pain of affordability and the real pain of prices and what's weighing on small businesses is coming from things like tariffs, not restrictive rate policy. So rate cuts today are like taking a tail and all for a broken arm. It'll help, but it's not going to curry.
You to Thailand al yesterday for a birthday. Tell twelve seconds. Are the bond vigilantes out?
The bond vigilantes are always out, But where are they on the curve is maybe the more important question. And I suspect that they will be more present as we head into February March, when that inflation data starts to take it.
Oh yet, folks, I promise into the December, into the beginning of the year, we will give you more information on the nuances of what Francis Donald calls the spread market. There's some huge dynamics going on right now. Francis Donald with us with OURBC. Thank you so much for joining us.
Stay with us.
More from Bloomberg Surveillance coming up after this.
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When you hear me say we protect the copyright of all of our guests, we take it very, very seriously. I have in front of me a coveted five page note from Moffatt and Nathanson in there. Just wonderful, Robert Fishman. It's loaded with global Wall Street knowledge on this media merger. We're thrilled at. Robert Fishman joins us right now, Robert, I went right to exhibit too, which is the deal valuation of Warner Brothers. It's three bar charts, folks, and
right in the middle is run rate synergies. I don't buy for a minute anything, but whatever's going to get done, there's going to be synergies way larger than what's published now.
Am I right on that?
So I assume you're first talking about the Netflix did if we want to start there, and so, yes, I think the answer to your question is that there's likely to be more synergies from a Netflix Warner Brothers combination. I think there's you bound to be some cost efficiencies when I'm thinking about the programming spend and content spending of putting those two companies together. But that's that's where the company has started in terms of laying out what the cost energies are for this deal.
Using the pro ratio evy to EB. I learned this from Michaels. I know the only reason I know it.
Robert Fishman if you get synergies over six billion, do you get ev to ebit which proves valuable for Netflix shareholders.
So let's let's break this down.
So what Netflix has said so far is two to three billion dollars of cost energies. Paramount Skydance has thrown out the six billion dollar cost energy number because they
are also buying the Global Networks portfolio. So the numbers aren't really apples to apples because you have to clearly understand that when putting the Paramount Skydance portfolio of cable networks together along with the Warner Brothers portfolio of networks, that there will be much larger cost energies when thinking about that versus Netflix, which is only just bidding on
the streaming and studio assets in Warner Brothers. So again, it's not exactly apples to apples when comparing the two numbers.
Hey, Rob, you know talking to some investors, heare One of the narratives I'm getting is for Netflix, this is a really nice to have. For Paramount Skuiddance, this is kind of a must have.
Do you view it that way?
We do from the Paramount Skuidance side, and why we upgraded Warner Brothers Discovery at the beginning of the year is we thought that the consolidation in the industry was inevitable. I think Michael's been on the show you over many years talking about this. And so when you think about who that the natural dance partners are, it was Comcast and it still is, Paramount Skuydance now after the Skydance deal and Warner Brothers Discovery. Those three are the most
natural players because they're all subscale in streaming. So when thinking about how to solve that streaming scale issue from a global basis, it's just natural to think that you need to see some combination of those players. And so that's essentially what's playing out in front of us. Paramounts Skydance needs these assets in order to accelerate the timing to reach the scale that they're desiring on a global scale basis for Paramount Plus.
So yes, we very.
Much think that the combination with Paramount Skuidance is a must have.
Rob the from an other perspective, if your Warner Brothers Discover Discovery aside from price, do you think they have a preference for one or the other and why so?
I think what we saw so far is that the preference was Netflix, and you know that's they announced that the deal on Friday, and you know, if you believe everything that that's been written and that the paramount Skuidance has put out from their perspective, they didn't continue to engage with them. So I think that the preference on the Warner Brothers Discovery side so far was Netflix. And you know that that might be for a few different
reasons if you want to break that down. I mean, clearly, Netflix brings an unprecedented global scale when thinking about what the opportunity is for Netflix to monetize this content, and Warner Brothers has licensed that content to Netflix.
Already, you know, over the many years.
So Netflix has essentially perfect information knowing how the content would perform on their platform. And that's the opportunity that I think that the company sees when monetizing this content going forward.
Robert Fishman with us. We thrilledies with us.
Today's with Mafatt Nathanson to give you a perspective here. Mafatt Nathanson out of Sanford Bernstein redefined independent media at research again. Their research here in the last couple of days has been just absolutely superb Rob Robert. One of the joys of this process has been Michael Nathanson's long, long note here on the merger on the first time he met the leadership of Netflix in a nondescript office ears in years.
Ago, and he says, it's media one oh one.
Do these mergers succeed or are we now at the point where it's just ego and they're going to be bad outcomes down the road.
Unfortunately, we do have a long history that you know, Michael and I have been a part of where media m and A is a lot more difficult to pull off than just what the spreadsheets tell you. And yes, you can, you can get to accretion, you can get to you know, potential upside over the longer term when thinking about how a new owner can take the assets and redefine them. But the long history of media M and A suggests that it's even more difficult than we would all seem.
I think a lot of that comes.
Down to the culture, and you know, when you start smashing different cultures together, that obviously becomes a challenge, especially in the media industry given the creative output that is needed, but also just when thinking about where the headwinds and the tailwinds are for the industry. A lot of these recent media mergers have been focused more on the cable network side, and clearly that the linear ecosystem has had
challenges over the past few years. So even with the m and A potential and the cost cutting where we started here, we haven't seen the true upside of those deals because it's really just enabled them to cut costs to offset the revenue headline synergy.
Yeah, that's Robert.
The regulatory hurdles here seemed pretty high for both players. How do you game that out for both of these bids here.
Yeah, there's a lot of noise around regulatory approval right now. I mean clearly from the Paramount Skydance side, they seem to have an upper hand right now just in terms
of the administration relationships that they have. At the same time that the true answer should come down to how the market is defined, and I think what Netflix is out there talking about is when you when you view the overall market to total total media consumption and look at how Nielsen measures it, Netflix today only has eight percent of that total pie, of the viewership pie in the US, and so when you when you compare who who Netflix is actually competing against YouTube actually has a
bigger share of that viewing pie and so on the streaming side. And so when when you start thinking about all the different portfolio of assets, Netflix actually is not number one or two. The traditional media guys are above them in terms of when you combine the linear television viewers.
Cut to the chase, Robert Fishman, do you think the government is going to buy that?
I think it comes down to how you define the market. And I think Netflix has a really strong point of view here because what we haven't even talked about TikTok and you know, Instagram, so that there are lots of different ways that people engage with content these days.
I mean, I'm looking Robert Fishman at the end of the Nathanson note, folks, ma fit Nathanson was way out front on cord cutting.
Can't say enough about this.
And there he's got the F free, the phrase free options. Like YouTube, Robert Fishman, the vector on YouTube is going up. The vector on Netflix is flat. Why is that going to change?
Well as part of this deal, I think what Netflix is looking to do is exactly, you know, focus on that engagement because to your point, yes, engagement is a little bit more than flatted. It's been growing in the second half, but compared to YouTube, no one is really growing as fast as YouTube is over the past year loss. And so what I think Netflix is looking at is how can we supercharge our engagement through all of this really premium content.
When thinking about HBO and.
The Warner Brothers library on the television side, plus all the theatrical releases that come with that, that's a very unique and rare opportunity to buy all this amazing premium franchise content and help allow Netflix to really lean in so that they can accelerate engagement.
Again, Robert, one of the variables in the Netflix deal is how to value the cable network business that Warner Brothers Discovery is going to spin out prior to a potential acquisition by Netflix. I've seen anything from one dollar to four or five dollars per share. How do you guys value it?
Yeah, so we're working through all the updated numbers now, but what we can say is clearly, when thinking about what the value of this remaining asset would be, it comes down to how how much net debt is really left there From the equity perspective, So even if you want to put a four to five times multiple on the debate, and the range of how much equity value is left after that really comes down to the net debt.
So what we're working through, you know, after all.
Of these deals have been announced, is how much has transferred over you know, as part of the one scenario Netflix, and how much is left if it is a standalone entity. And that's the biggest wing factor in terms of the dollar versus four.
Just one final question to Craig Moffatt and his historic work, is cord cutting continuing?
So we just put out an updated note on this, so I appreciate you asking. We've actually seen, for the first time in a very long time, you know, cord cutting actually start to get better.
And what do I mean by that?
We actually saw net ads grow this quarter, which is really an unthinkable statement, you know, even twelve months ago. And so where's that growth coming? From YouTube TV? Back to our friends there, you know, continue to show some really strong momentum, but also from the traditional distributors. You know that that you've talked about with Craig for many
many years. Carter has turned the corner and they have you know, started in to decline less and that's really helped allow the overall industry to see improvements in that core cutting trend. So, as you know, it's something that we watched very closely and see after football season, how many of those subscribers stick around.
Robert Fisherman, brilliant.
Thank you, thank you, Thank you so much again, Robert Fisherman with Moffatt Nathanson. Thank you to Moffett Nathanson, Tyra, thank you for getting those notes over to us today.
Stay with us.
More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven eight on Apple, Cocklay and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
We are migrate over to Amanda Agotti. Thrilled and she's been with us. Thank you for being so patient with a s Amanda Gottis with PNC Bank. What does a stock market want, Amanda Agatti out of today's fed festivities.
Well, I'm still hung up on your comment about private equity buying into Penn State.
My jaw dropped.
You couldn't see it, but I was listening to you guys. It's a value play. We can talk all day long about Penn State football, but I'm going to refocus here on FED day. Market wants a rate cut, but honestly, the market's already got it priced in, so it's much more about the path forward from here. Our base cases maybe we get another one two as a stretch assignment rate cuts in the new year. But I think the market is maybe particularly interested in what the FED says
today about the liquidity profile of the market. You know, our bank.
Reserves too low.
What are they thinking as it relates to QE or maybe a QE LTE kind of program. Some of those other topics I think are going to be more important today in terms of the market's path forward than just twenty five bits.
So if we do get twenty five basis points today, maybe one, maybe two rate cuts next year, where's the opportunity for P and C asset management in twenty twenty six. Because we've had a really solid twenty twenty five in both stocks end bonds. We sure have.
It's been a very very successful year. We'll take it somewhat unexpected I think, I mean, we thought it was going to be a good year. We didn't think it was going to be quite this strong. But again, this is an easy place to be wrong on. You have such strong market returns. We think next year is going to be another positive year, a little bit more muted.
That's not saying too much given returns this year, but a little bit more muted next year really because we think the purple haze of policy uncertainty is going to continue to dominate next year. Midterm election year notoriously difficult for equity market. So I think it's going to be a choppy kind of policy noise driven sort of a year. But the underlying fundamentals are so strong that by the end of the year, I think we're going to be in strong positive territory.
The heritage Amanda agattif PNC Bank is of course Stuart Hoffman and really grounded economics. Do you buy the three and a half percent run rate on GDP we see out of Atlanta Fed right now.
Well, we certainly have gotten better than expected results really over the course of this year. The Stu Hoffman or the house view in terms of the economic forecast for next year is a bit slower on a relative basis. We're not talking recession, we're not even talking flatlining in terms of growth, but I think there is a little bit of a moderation in terms of that growth rate that we would expect to see next year. The wild card is going to be policy.
Though.
There's a decent amount of stimulus from all of the good things that happened over the course of this year that are going to come home to roos next year, and so it could actually be an upside surprise. We just haven't seen a lot of that flow through yet. So I think it's going to be another solid year. We'll call it good enough.
It's a freeing of the show. Call it mid November to now. Is everybody's saying we're going to get a policy pop?
Yeah, we'll one being a beautiful bill. We'll see how it ripples through the economy.
Amanda.
In the bond market, boy, twenty twenty five yet solid high single digit returns in the bond market here, How do you think about twenty twenty six? Because I can sit here to two year treasury and clip three point six percent coupons, do I need to take credit risk on top of.
That well, if the backdrop continues to hold up as it has been, and again we think next year is going to be a good enough kind of a year. I do think that there is an opportunity to take on some additional credit risk. The challenge has been for the last few years that spreads have been so tight, AKA evaluations have been pretty high, and so there's not a lot of room there. With spreads as tight as they are and as well behaved as they are, that's the good news that we don't see a big default
cycle kind of kicking off here. But I think there's room for investors to take on some credit risk in twenty six.
Can I go nerd as we close this up, Amanda, I'm looking at the employment cost indecks SI, thank you so much. Side leans on the employment cost indecks. It's wages and benefits sort of summed it together. Year over year we had a buoyant five percent ECI really big, big, big wage and benefit growth. And come on, Amanda, we come halfway back now to year over year three and a half percent.
Is a surprise for next year a negative real wage?
Oh my goodness. I hope that's not the case, because that's going to spell trouble, certainly for the labor market and the consumer. I mean, you have to wonder how you can pep up this pace, right at some point it has to kind of moderate, but a negative real wage is not going to be great for consumer spending and consumer growth. Consumer's been hanging in there, but it's really because of what you just said, wages benefits. The
labor market's been hanging in. Okay, to the extent that we start to see that reverse, I think that could be, you know, a wildcard to the downside for next year. That's not in our MACE case, but certainly something to watch.
Amana, Thank you so much, Amanda Gotti with his chief investment officer Assets A PMC bank.
Really appreciate it. Stay with us.
More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Cocklay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
Yeah the newspaper.
Okay, do you like when you go into a bar, they know your name, they have their drink, your drinks that laid out for you. Does that make you happy? Make you want to go?
Long?
Walk into the squand tavern marks got my Tito's and you love that?
Sure?
See?
Okay, so this is happening more and more at airport lounges. No, yes, because a lot more people are starting to travel a little bit more, and so the airport lounges are becoming a little bit more crowded. So the Wall Street Journal actually shadowed this one bartender at the Delta Club at Hartsfield Jackson Airport. It's like this five hundred you know person lounge. Delta is you know, one of Delsa's largest, big, big airport.
So she knows the.
Flyers by name, like they come in and she gives them fly to talk about that families. Yes, so people are traveling a little bit more. One guy left her like a thousand dollars tip on his lemonade as a holiday gift. You know, he paid for it with his Delta miles. Background on the bartenders, which I know they actually they don't work for Dena Delta, so it's like
an outside company that I'll breaks a sky club. So they make about eight dollars an hour plus tips, and then they're pulled and shared with the bar back and they don't get the flight benefits. But people love coming and seeing that familiar face as you go.
From some lounge guy for.
Really, one of the I'll leave his name out of it. One of the major CEO said it's his single biggest headache. It's a single to me, it's a busted concept.
Well so all the it seems like the airport renovations now have really good restaurants and bars there in the terminal, like you don't need to go, where as when I fight International, I'm all in on the lounge.
But now aren't the drinks free in the list? Yes, that's it's some Yeah, he throwed. British Air has one at each end and one's a disaster and one's okay, it's strange.
I haven't been I next. Okay, do you I think we've had this conversation? Do you use instacart like to do the shopping food shopping?
Addicted? We don't use insta cart, but yes, okay changed.
Specific fike Instacart.
There is a new study that shows that it's charging different prices to different customers at the same grocery items in the same store. It's a New York Post has this as a study by Groundwork Collaborative Consumer Reports. They serveted like over four hundred shoppers, you know, they were ordering groceries in the app for in store pickup, and nearly three quarters of grocery items surveys were sold at different price points. And so they asked them, how much
do you think consumers are overpaying each year? And this company said an extra twelve hundred dollars on groceries. They're probably spending because of this algorithm that that has it picking different prices.
It's not seen right I go.
To the store.
Yeah, me too. You still go to the store too? Like going to that?
I do?
I do the shop right. In Belmark, we like going there.
It's like an event.
It's an event.
It's something to do. People are nice. Storaget lives. Does everyone worldwide know how? Sorry exactly?
But when the music in the supermarket starts making you happy?
Yes, you know. Your Friday nights are shot. Do you wear your ugly sweater to Costco when you go Christmas? Oh?
No, no, no, no, not at all I do. Okay, So this is a new term for you to be aware of. Okay, for the young folks, there's a new phrase by gen Z that they say is killing the dating scene. Okay, It's called swag gap. It's when you show up at a bar like you're dressed for the vibe and then your date shows up in like hoodie and old sneakers. And they're saying, you know, because swaggy means like you have confidence, and so the gap is when you look at one person you look at the
other and it's kind of not working. So the Wall Street jonal says, you know what, It's happening more and more, and the younger generation is getting tired.
I just saw a video this front.
She's they did this fabulous YouTube thing of restaurants and stuff in Paris, and the guy in the front she's Antoine. So the gap has never been wider between the way the French dress and the Americans in their sweatpants.
A cultural Yeah, yeah, it's never been wider.
When we went to say Italy, my friend says, you can't bring shorts to Italy.
You can't wear shorts care somebody. You can't get in with shorts.
Yeah, I mean we're just sight seeing. We're in a summer nopee.
Lisa wan Tayo, the newspapers, thank you so much.
This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal