U.S. Middle Class' Income is Frozen, Aulette Says

In the United States, the VIX index very briefly traded with an eleven handle this morning. So where is the vault? I feel like it's seen again. Let's bring into Bias Left Kovic, City Chief US equity strategist. Good morning to Bias, Good morning, I'm very well the front pages of most of the newspapers freaking out as they usually do. To Bias. Don't see it in the market, do you not? Really? Um?

You mentioned the VIX. We we track our Panicky four a model, which is more a proprietary model looking at positioning, and we're seeing kind of neutral levels. Back if you went to January, everybody was really excited and that's kind of fallen off with some inflation fears back in February, and investors now are getting buffetted, if you like, by concerns on let's say trade. But on the other side, they're saying, hey, earnings are pretty good, buybacks are pretty good,

so they're not that rattled. No, so we have this story where the secular growth story holds up. You see that in tech, where the earnings have been terrific. Text stocks all time highs, and that's that record high small caps in the United States off the back of a stronger domestic economy that russell at all time high. So set me up for summer. To b us your note this morning, tourists often head out for summer. I read

that earlier in the week. Yeah, a lot of that had to do with we got this little fear last week around Italy and everybody kind of bolted from cyclicals. They backed off their financials as bond yields moved in kind of as a as a function of the safe have and trade. So investors don't have great conviction in their positions. The one area they do is intact where they feel very comfortab about the long term growth story. But my only argument there would be everybody knows that already.

You know, what's your incremental piece of good news. It's going to drive those stocks even higher. You mentioned small caps wasn't a risk trade, it was a dollar trade. As the dollar went up, it kind of dragged the small caps up with them. They're they're very sensitive to

those currency moves. So it's not even that people are that excited about the small cap growth domestic economy story, because I could have made that argument three or four or five months ago and they weren't participating in the same way. So it's more a currency issue. In general, investors have been kind of looking for something that's going to get them really excited. You can't cough until John coughs, and he can't cough till I cough. Well, I think

everybody will ever again. If you can find me good allergy medicine, I'm buying that stock. Tom Tom Kane has got some good meds I have, And you know it's it's it's shaking forever um Tobias. When we look at the spirit of the equity markets, there's got to be an opportunity, it's got to be a value. Which sector is the one where you go? You know this hasn't moved like Amazon. There's a real opportunity here either to make a total return or to protect myself of things

fall apart, which is that sector. So if I have to think about protect they're a little different. If I have to think about protection, it's it's things like farm in biotech where they really drive to beat of a different drummer, and it's a function of pipelines, FDA approval, those kind of factors. Um. They're they're defensive and in the in the generic sense, but they also have this kind of relationship to increase volatility if we get it um. On the other side, I think areas like energy have

been left a bit in the dust here. People have have very low conviction in the ability for the industry to maintain profitability and at the same time that the industry can't actually put in more production in the premium basin right now because there's all these pipeline bottlenecks. I mean, all Street Journal had a great charter lumber. Today, I took it off the Bloomberg terminal and did inflation adjusted lumber, and we're really very peaky. Are we seeing a commodity

turn including oil, including lumber, etcetera. So I know that you followed Morse's work pretty closely at City, and they do believe that commodities are are probably an interesting area to go. The one risk would be very powerful dollar that would hurt commodities. UM, we don't see the reason for a very powerful dollars. I don't see a particularly great reason for for a horrible dollar either. So we're gonna kind of trade around here, and that gives commodities

the ability to UH to continue moving higher. So we do like material stocks as well, but energies one where I think investors have extremely low belief in the disciplined industry UM, which almost can't get undisciplined in its capital spending activity in midwestern Texas simply because they can't move the oil right now, can we spend a little bit a on talking about another convictions right? Um sector convictions right for a lot of people, financials, and it just

isn't delivering. Um. You spend a little bit of time researching this over the last week, and I mentioned the last few years as well, just why isn't that delivering? Why is it a story of seven seen and the

eight seen? So so I think part of the reason for financials, and I can't necessarily tell you what everybody thinks, but I think part of the reason for financials is that UM it's viewed as an industry potentially under attack, similarly retail, similar to energy with technology changes, so fintech the idea that you could, you know, pay without using your credit card and some other system for whatever product

you want to buy, that they're being bypassed. The same thing on the lending side, if you go to some of the you know, crowdfunding lending UM alternatives. We think that's all fair and dandy and that people who have this perspective, But the big story in our mind is a pickup that's coming in in commercial industrial lending. That usually has about a six quarter lag from when you

see change and lending standards. So if you were all back in late in early twenty six rather there was a lot of pressure around the energy sector causing disruption in credit markets, and that showed up in terms of learning activity in the latter part of last year. Six quarters later. That started inflecting in the first quarter, and we would expect a meaningful improvement in the next couple of three quarters in learning activity for commercial industrial loans.

That's a function of M and A. It's a function of of major capital aspenditures that you can't go out and borrow ten billion dollars in some crowdfunding aspect, you have to go to the syndicates of the banks. It's the tax plan a big factor. It helps at the margin.

So one of the really distinctive and divergent trends, as we saw in May, the Senior Loan Officer survey from the Followerserve Board come out showing further easing and credit standards in an environment where we're seeing Wait a minute, but the feather raising rates bonules are higher, credit spreads of widened some degree. Um. Isn't that kind of the

exact opposite direction. Um. So what a lot of banks told you when they got the tax cuts was that they would use about half of the savings and the tax cuts to be more competitive and provide better terms to corporate lenders. And that's exactly what they seem to be doing. Levich Greta can't shop me this morning. Cities chief US equity strategist with a cough like the rest of us with us John Taft, he is vice chairman of Baird among other services, working with RBC and Mini

Eppo shops before that, but much more. Also on his important book of X number of years ago called Stewardship, which, to give you a perspective, Taft the Republican at a blurb from one B. Frank Barney Frank. How did that come about? How did Barney Frank? You know, you look at the back of the book and you go Barney Frank's telling us shot up and read John Taft, how did that happen? Yeah? And he wrote about how surprised it was that John Taft had something he felt worth endorsing.

Actually it came about because during the financial crisis, I testified to his committee in favor of a fiduciary standard of care for financial advisors providing advice to individual investors. And uh, well, you say, what a shock. But Tom, today, almost ten years later, we're still debating whether that's a good idea. Why do we need a fiduciary care act? If we have prudent man rule from Mr Putnam a few years before the test And this has been the

debate going on for the last ten years. Here's what's what's happening today. Though we're in a good place anyway, that's how Barney Frank came to came to normally around the fiduciary standard. But what's happened is the SEC was given by Barney Frank and his committee the authority to

write a fiduciary rule. They didn't. Then the Department of Labor under Tom Perez came in and wrote a rule that quite frankly, I would think was one of the worst pieces of financial regulation to come out of the financial crisis that now has been thrown out by a court. And mercifully, the SEC under Jay Clayton is stepping through the four and there and they've proposed regulation best interest

exactly what you're talking about, the Putnam formulation. Why do you need a financial finucier rule If there's a regulation saying you have to put clients interests first without regard to your own financial situation, that's what the SEC is doing. The SEC knows what he's doing. And finally we may get a rule that has a uniform and higher level of investor protection than we've had in the past. That'll be good for everybody, good for the industry, and good

for clients. And you mentioned Jake Clayton and he's we've had him in for interviews and also of course his work at the Economic Club of New York. And I would mention the chairman Levitt is a fan of what he's seas in Germany, Clayton, and that speaks to normalcy within regulation, normalcy within Washington, and it speaks to a normalcy which is the fabric of the Taft family going back to President and Chief Justice taff and frankly long before that as well. Do you see a normalcy out

there within political and financial America right now? I so I'm gonna answer the question yes, but I mean yes and no. So here's what I mean. If you look at the political UH dialogue, the process, the dysfunctionality UH at the highest levels of our political leadership, you would say, no, we're as far away from what my family represented in their six decades of public services you can get. On the other hand, if you look at the actual policies

coming out, in particular in the financial sector. So a year ago, Secretary of Treasury and the new oution signaled what the Trump Administration's going to do, and they've been executing it. And guess what, it actually makes sense. It's reasonable and appropriate. The pendulum of financial regulation swung much too far to the excessive side of the equations to financial crisis, and now we're just correcting it back to

a level that's appropriate. But you listen to the Elizabeth Warrens of the Earth world and it's like the end of Western humanity. I want to go back to incentives here, which is something you've had to deal with across wealth management at over we C and with your stewardship Bart. And that is the idea that I hear this from people all the time, and that executives today are so incentivized off of their income statement and off of profit

that labor is not getting their fair share. If we gone is a pendulum gone so far that executives are only representing themselves. The issue greater good, the issue that financial institutions have been dealing with since the partnership model went away, since people who own and ran financial services firm no longer had their own capital at risk, is the agency problem. There's an asymmetric ward system, i e. The chance to make lots of money if things go well,

but you lose nothing if things go poorly. That is the asymmetric compensation system that prevails today at Wall Street. One of the things that I've experienced recently, Tom, since I went back to work at Robert W. Beard, which is a hundred percent owned by its employees, is having your own capital at risk again. And you know what, it makes a complete difference. Um, it's not reasonable to expect that today, but we need incentive systems that recreate

that with this. John Taft of Minneapolis, of course, and his good work. John Ferrell, my colleague, really doesn't understand the Minnesota vikings, so we have them reading I Did It my Way, A remarkable journey to the Hall of Fame by Bud Grant. But within that, John, is the idea, John Farrell, that that London global Wall Street is different. Do you do, John Taft, do you distinguished between how we're doing this in America between what we're seeing in

the city in London. I don't. I don't know the London environment. I can tell you that how you do things in New York is different from the heartland. How you do things in the Heartland. You asked me that question on on your show earlier today. In other words, uh, we keep focusing on a half dozen financial institutions based here in New York or in a major financial system guilt. There are tens of thousands of financial institutions across the country who have their own capital at risk and who

serve middle market and individual clients. And that's the Wall Street that we don't pay attention to. Is that true in England? Is that? Is it a London focus or is it just like Canada more consolidate And there's very much London focus in the UK across the board, and not just in finance. That's been the accusation against the UK for ages. Just to wrap things up with you, John, you mentioned Senator Warren and her pushing back against a little bit of deregulation to what extent is there still

just a political football and about points scoring. I think it's entirely a political football and about point scoring, because if you look at what's going on in deregulation, honestly done, it is tweaking. It is not whole scale scaling back do Frank and the tweaks are appropriate, and the tweaks will remove irritance and impediments to financial institution in tuitions doing what they're supposed to do, which is to facilitate

economic growth. John' taft. Great to have a bit of presidential blood around the table in New York City, great great grandfather John. Yes, amazing, And it was also Chief Justice John Ferro. This is a real distinguishing feature. Yeah, that's what he really wanted to do, but he did the the the political band first. Right to have you with us, Bunce, Chairman of BET, Thank you very much.

Shannon O'Neil has been wonderful and Latin American studies on Mexico, but much more on overall Latin America on some of the dynamics here. She's at the Council on Foreign Relations where she is the Nelson and David Rockefeller Senior Fellow for Latin American Studies, and we're honored that she can join us now this morning. Shannon, is Brazil just simply the usual Brazilian politics or is there something else going on this time? Well, good morning, Tom, nice to join you.

You know, it makes a bit of both. There are particular things that are happening right now. We have seen some very serious strikes go nationwide. Truckers pull over and stop delivering goods, to the point where millions of chickens were dying because there was no feed. Airplanes weren't taking off because there was no fuel. So we've seen some immediate disruptions in the economy, but it's also these bigger fundamental issues that I think investors are finally looking at

the ones you mentioned. And Brazil has incredibly high debt to GDP ratio, so as people look to rising interest rates the United States and more globally, this is a country that's going to get hit hard. Well, Shannon, I think you bring up an important point because a lot of people look at Brazil. I think that the story of the last ten years was a commodity story, but actually a lot of the growth came off the back

of credit, didn't it, Shannon. It did. Credit was a big part of a consumption was a real engine for Brazil for many of these years. We saw through that the two thousands, you know, thirty million people come into the middle class, start buying those first refrigerators and cars and other kinds of appliances and the like. And now that has been fading. Um. So that engine um was that dying part of the recessions they've gone through, and the real question is can they pull back out of it, um,

and can they really restart that engine. His Trump trade action and discourse allowed an entree for China into Brazil, or at the margin, a greater China investment into Brazil. China has been investing in Brazil all along, but primarily in their natural resources, both in the actual resources themselves and then somewhat in the logistics to get those resources

out of Brazil and to China. So you know, energy and soy and beef and all sorts of things to to provide for the Chinese people, but in also their market. So that's really where they are thinking about investing. But the fact of the United States is closing itself and go into more protection stands means Brazil has been looking elsewhere. They first have been looking towards their neighbors and to the EU. But if those countries don't respond, and they

will look to China. Okay, But you know not that you're looking at the currency day to day on your Bloomberg gap on your cell phone, Shannon. But M and I see some dynamics in Argentina. We see the horror true, you know, no jokes. I mean of Venezuela. The stability of the region is suspect to say the least, is it business is usual in Latin America. Are we really waiting here for some exogenous or endogenous shock to upset

this very large nation of Brazil. Well, this year in Latin America, two out of every three voters is going to the polls to elect a new president. And most of these are not going to be incumbents. There's not re election, so the new people coming in. So this is a really pivotal moment in the region. And as you mentioned, there are these big problems. Most voters are

going to go to the poll for domestic reasons. So when you think about Brazil, they are going to go because they're tired of recession, They're tired of the corruption of their political class. They're going quite angry, and they're

looking for someone to vote for as an outsider. And that is really the challenge because Brazil in order to manage it, in order to work with Congress to get the structural reforms that Brazil needs and investors want things like pension reform, and they're like, you have to have this compromise. I think that too, is why we're seeing the rail being hit. People are looking towards two thousand eighteen for Brazil, and they're seeing more paralysis on the

policy side. Shannon, with us with the Console Foreign Relations and and for briefings on so many of these topics. You can really start with the website of Mr Hassa's Council on Foreign Relations. Shannon, you wrote a definitive post literally within the last forty eight hours. Mexico knows how to fight a trade war. Does Mr Trump know that? Is he aware that Mexico and their brethren to the north, the Canadians, actually may have a cogent in organized response

to Trump's NAFTA discussions. I don't know if he was prepared for it, but I can tell you that the Midwest farmers and they act businesses, they definitelyly know that Mexico and Canada have a few cards up their sleeve. And already we've seen Mexico step forward and and targets specific congressional district and specific products. So it's potatoes and

apples and cheese and pork and specific products. So we're starting to see that, and you're going to see members of Congress already their constituents start calling them saying, look, we we have these big tariffs on our product. Can you do something. I mean, I mean within this is the age old question of now versus when you were first studying this years ago. And I go back again, folks to a piece on mercatilism a few days ago

from Katherine Rample and the Washington Post. And Katherine Rample makes a distinction of Finnish goods policies versus inputs policies. Describe your expertise, and you've written about this in your books of the input back and forth at the Mexican border. But one of the interesting things that nafta broad about, which we don't talk a lot about, but it's not just that we import and export to each other, but what we're sending back and forth are what are called

intermediate goods. So the pieces and parts that will come together to make a car or a plane or medical devices are a whole host of things. And that has allowed companies off in US companies but off on Mexican companies to create things that are better and cheaper and able to compete with goods from China or the Europe or anywhere else in the world. And these terrorists that Trump is putting in on steel and aluminum, and perhaps the ones that come after. That is disrupting this process.

And the challenge is it's going to make US companies less competitive visa v the products that are made in places like Asia, and that is what is breaking down with these beginning parrats. Your classic Two Nations Indivisible ends with a chapter which is deciding our mutual future. I'm not sure that the president administration is a mutual future with Mexico. Let's flip it. Does Mexico have a mutual future with the United States of America or is it

just simply they don't have a choice. There is destiny and geography, so they will always be tied to the United States. But they will begin to pivot away from the United States, and we have will start seeing that. On trade, they just revamped and modernize their trade agreement with the European Union. Um they will start looking towards China. They'll start looking more broadly if we don't treat them well.

And they too, are going about to go through an election in their country, and we could see a very different slate of bureaucrats and others that will not be quite as forgiving of the United States and some of our eccentricities. Recently, in terms of rhetoric towards that nation. So I think we're gonna see a real change in US Mexico relations going forward. Shannon, thank you so much. The council formulations of Rockefeller Senior Fellow really definitive on

Mexico and of course on Brazil. Yeah, it is a joy as always to have Kenna Letta walked through the door Pim Fox in Orlando and Tom Keene in New York. And he has a wonderful new book out on the advertising business and of course on media, which is as we all know, exploding and blowing up in that and it's a piercing read called Frenemies, the epic destruction disruption of the ad business and everything else and the everything

else we'll talk about. But on this historic day, taking us back to nineteen, Mrs Robinson was number one for Simon and Garfunkele and every single family in America in June of nine. In the spring of nine was reeling. Is the only other way Ken that I can put it, including the Pim Fox family and the time Keene family, from the events of the moment you were living them in real time as a young buck working for one Robert Fitzgerald Kennedy, weren't you. You were not in Los

Angeles on the state, you know. I was at the old Shelburne Hotel and working for Bobby Kennedy and helping working with others to help him be victorious the New York state primary in a couple of weeks after California.

We had a meeting that night with his natural national organizer, Jack English and some others, and they're probably seven or eight people in the room, and we actually were worried because despite the bump he was getting from the victory in California, were worried that he was being sandwiched between Jeane McCarthy on the left of him in New York and hug Humphrey on the right of him, and with with regular Democrats, and we worried that maybe Bobby Kennedy

couldn't win in New York. And but we were going to organize like hell over the next two weeks. And we went to bed probably at one o'clock, and then we were awakened at two or three in the morning with the news. I take great issue with the way Robert F. Kennedy is treated in the movies and in the television today to the portrayals of Robert F. Kennedy. Capture the Robert F. Kennedy that you knew. Well, I didn't really know him that well. I was, I was in my twenties and and um, I mean I spent

a little time with him, but very little time. I think if I walked down the street, you wouldn't recognize me. But okay, but you know you were within the zeitgey stomach. Come on, yeah, no, I was. I gave up a job to go to work for him, so I I believed in him, and I some of it is captured. I mean Tim Tim m Um and no, no Tim Russey, not not Tim Russet. But um, what's his name? Chris

Matthews wrote a book, celebratory book about Robert. Uh. There've been other books, I mean the best probably his author, Lessenger's biography, Robert Kennedy. Uh. Does he get the full at it? I don't know. I mean it seems to me he's an iconic figure today and in that sense does get the credit and the show he deserves to be.

What was St. Patrick's Cathedral like? It was actually amazing, it was it was mobbed, It was very, very hot, and my job that day was to rotate every fifteen minutes the people who stood around the casket of Bobby Kennedy. And I'll never forget it um, because it was so stultifyingly hot. And and Prince Bradsley well Um, who was married to Jacqueline and Ass's sister, he came and he stood at the casket and a beautiful light blue shirt and suit and hair immacate lee comb and within fifteen

minutes he had dissolved into sweat. And then we all left the church. Is a very moving Teddy Kennedy gave a wonderful speech, and we got on the train and went to Washington. And as you sped by people on the Amtrak train sitting there, people would just lined up, thousands of people all the way down to Washington on the on the train beside the train tracks. It's a

moving death. Kennell LETTA strangely, I remember that day because my mother and father took me as a young seven year old to stay in front of St. Patrick's Cathedral on that Saturday, and uh, I remember hearing through the doors Andy Williams seeing the battle him of the Republic, and uh, I'm wondering if you could just describe what that spring was like because Martin Luther King had just been assassinated in April, Bobby Kennedy had only decided to run.

I believe it was in March, and this, uh, the assassination of Bobby Kennedy at the Ambassador Hotel in Los Angeles was coming in the very you know, late evening early morning of June June five. What was it like

that spring? Well, you know, the thing you have to overlay over all of this is the Vietnam War and and the anger among the populace, not just that Martin Luther King being assassinated and then of course Robert Kennedy being assassinated, but this feeling that the country was being assassinated by this war where eventually over fifty thou Americans lost their lives uh in the needless war, and people were protesting, and people are angry, so angry at President

Lyndon Johnson that he was he was compelled to step down and say I will not run for re election, so angry that they allowed Richard Nixon uh to win election over you. Bert Humphrey. Uh, they were angry with you. But Humphrey for supporting Lyndon Johnson. So it was it was a country just split apart, much as it is today. Uh over you know, people who like Trump and people

who don't. UM. So it was it was a it was an uncomfortable time and then caused civil rights um and and after Martin Luther King's death, it was people were,

you know, protesting and angry. And then of course Robert Kennedy did this miraculous thing in Indiana where he stood up before a largely black audience and talked movingly about Martin Luther King and his death and how the way to celebrate his life is not to destroy property and protests, but to join the political and political struggle to change America. Kennel let her. You grew up in Coney Island. You've described yourself as a semi juvenile delinquent whose fastball, I

believe is what got you into State University of Oswego. Uh. Do you miscovering politics? We're gonna talk about your book, But do you miscovering politics? No? I I don't. I love doing it. I mean I have a graduate degree in political science and I thought that would be my life, you know, in government. Um, State part maybe foreign diplomat. Um. And then you know, your life takes these twists, and suddenly I'm writing about the media and I love doing that.

We're gonna come back and talk. There's a lot of there's some empty offices at the State Department right now. We had to guess yesterday, Canner said, Mr Prompeo is so concerned he had to bring a third of the CIA over just to get through the coming weeks. It was so I would never get past Donald Trump. I don't. I'm just trying to think of you taking a meeting with the President the United States. No, I've I've had my meeting Trump when he was here. Yeah, well you

know very quickly here. What was it like meeting with citizen Trump? Well, citizen Trump back in the in the seventies and eighties. Um, I remember writing a profile of Roy Kone was one of his hero his mentor, and and who is probably the single most disgusting him being I've ever met and and Donald Trump kept saying to me, he's my match. Everything I learned from him, and what did he learn from roycon attack? Never apology, gizs sue the masters don't pay you a bill, fim Fox in Orlando.

I'm Tom Kennan, New York and with this Kennel Letta the new must treat I will have to read it cover to cover very selfishly because it's about the media business and about the ad business. Friend of mees Front of Me is the epic consruption of the ad business. And Ken, I hit your world in your book three days ago when I had a bit part in the background on Billions on Showtime and the response from the

family and you know people was was stunning. I mean, all the rules are broken by Netflix, by Showtime, by HBO. Is that the beginning of the trend? And just simply Kenna Letta with the Front of Me is out there. Where are we in five years? Well, that's a really good question. And if I were arrogant enough to try and answer, predict where we'd be in finn You wrote the book and you don't know. I don't know, and know as anyone I interviewed, and I interviewed over four people.

The truth is it's changing so fast and people are throwing stuff up against the wall to see what sticks. That there's a bet that the ads, which are deemed to be interrupted and annoying, particularly on your cell phone. Um that what you have to do is don't do an AD, but do a service. So you offer someone something. Can we know you're walking via Barney's. You know, we know you bought a sport jacket two weeks ago. If you walk two blocks to the Barney's now, we'll give

you twenty off on your next sport jacket. And you say, is that an AD or is that an offer they're offering me? And it may be attractive. On the other hand, you may say, how the hell they know so much about me. The art theme of all the people you talked to in your book, including Sir Martin Soil and others in the ad business, is this bat and wonderment of what young kids will do. Old people watch old media. It's off a cliff with the young people. What will

the young people do when they're older? Well, we know, we don't know what they'll do with Oh, we know what they're doing now. And one of the things they're doing now is that Americans, many of them young and technologically proficient, use ad block to block ads on their cell phones. We also know that people who have PVRs, according to Nielsen, of them who record a program skip

the ads. That's and they know, we know they watch things like Roku and Netflix and HBO and shown don't have ads that don't have ads so and and YouTube that often doesn't have that. So so they're growing up younger people in a world where advertising becomes less important and in fact is perceived not as a subsidy for media, which it really is, but as an annoyance. Can I

let us? In the book you speak about really a lot of different conflicting emotions that exist, and that is one of the things that advertising tries to do, which is to tug at people's emotions and generate emotions. Um, what what are emotions? What feelings did you come out of after writing the book? Well, I mean I came out as as I look close sleeve at the ads.

So many ads, including the celebrated ads super Bowl ads, or the Coca Cola little Kids standing on a hill, which which was the end scene of of Madman, the show Madman, I felt, I felt, I feel that emotionally manipulative and they annoy me. Um. On the other hand, there are brilliant ads that you go back to the Volkswagen ad that Bill Bernback created or leave these Rybred ads. They were brilliant ads. So there are brilliant people who do some brilliant ads. And there are people, however, who

do who try to emotionally manipulate you. And for me, I don't know whether I'm typical of the public, but it bothers me a lot. Are are brilliant people capable of running these huge advertising slash media companies today since they have so many divisions with so many pieces, Well, it depends on what they're brilliant at. I mean, you take Martin Sorrel, who was who in my last chapter of the book, I said, Mr sorl you're gonna be seventy three. When do you think you might step down?

He said, they'll have to shoot me to get him out. Get me out, And in fact they did shoot him, and a couple months ago he was in the news. Today. I should point out where his old company, w PP may go after him for setting up a new company because he's got some form of noncompete. But you know, Martin Sorrel is a brilliant guy who created the largest advertising holding company in the world WPP. On the other hand,

it's a company that owns four hundred other companies. He had no CEO, so he had basically, you know, hundreds of people basically reporting to That's too much even for someone who as talented as he is. The nexus of Keno Letta is a nexus of your your present book Freenemies with Googled, which I think you sold a few copies of. I mean it became a required read. Google has searched forward in Google and Facebook and others are capturing the vast majority of the marginal revenue growth and

profit within digital in digital of it? How how does the industry break that ownership of Google and Facebook digital excellence. One of the things that betting on is that Amazon, which appears to be entering aggressively the advertising business, will become a competitor to Glue and Facebook, and therefore giving

them a little leverage over Facebook. Jeff Bezos sophron of me of everybody but the president, I mean the president thinks of him as an enemy number he they are, I mean they're all front of me is I mean, everyone is getting to everyone else's business. One of the reasons I came up with that title is that if you're an ad agency today and you advertise, they on the new York Times or on Bloomberg. Well, Bloomberg and the New York Times are in the advertising business too.

You're creating ads for clients and going and bypassing the agency, by the way, so a pr agencies, so a clients who say I'm going to do it in the house. And then the biggest front of me, of course, as I said before, is the public. So everyone is surrounded by Jeff Bezo if he gets into advertising, is going to go directly to to clients bypassing the agencies and by the way, competing against Facebook and Google. Do subscriptions

replace advertising? No? And the reason they don't. The one thing that Hillary Clinton and and Donald Trump agreed on the two thousand sixteen campaign is that the American middle class and the working class, the majority of Americans, their income has been frozen for the last ten years. They can't afford more subscriptions. The average subscriber in this country pays about subscriptions and that doesn't coude include electricity and telephone.

They can't afford it. Maybe we can afford more subscriptions, but they can't. Advertising is makes things free. Of Facebook's revenues come from advertising, almost Google's does you're gonna you think Facebook can get away with charging people. I don't think. So. You started the book with a speech, really you You talked about a speech that the former head of Media com John Mandel, gave to a group of marketers. Why did Why did you start there? I started there because

for for several reasons. One is, what he was doing is basically laying out a speech of why clients shouldn't trust advertising agencies because they had secret agendas to make money at the client's expense, and that level of mistrust permeates the advertising marketing world, and I thought that was a way to crystallize that which which lays the groundwork for other chapters in the book where that mistrust plays

it large ale. The other reason is one of my major characters in the book is felled by the name of Michael Casson, who is the ultimate powerbroker in that world. Not well known outside, but in that world is charming guy who represents everybody, whispers in everyone's ear. Because of speech, like Jonathan Mandel, a lot of agencies said we had to review not agencies, A lot of clients that we have to review our agencies and maybe change our agencies who they hire to do that. Michael cass, I mean

with within. This is as we started this conversation is where are we going to be in five years? Let's bring it even closer. Where are we going to be the end of the year. What are you trying to observe in advertising slash media that gives you the next marginal piece of information is that the Disney merger, the Disney Fox battle with Comcast. No, I think. I think the thing to watch for is what does government do? Um?

I think will government say we are concerned about privacy, We're gonna maybe we should copy what the European Union has done in well, Michael and Extio says today Facebook's playing with fire with this Chinese data issue. They certainly are, and and that's part of the So one question is will they do something about privacy and the a the amount of data that companies like Facebook and Google can collect. Secondly,

will they say this monopoly issue here? I mean here they are going after a T and t on the monopoly issue. They shouldn't be allowed to buy Time Warner, well,

it should? Should Facebook be allowed to purchase a company like Instagram that that basically the potential fete to the kind of let out with front of me is I will read it cover to cover the epic disruption of the ad business and uh, kind of a lot of Thank you so much today, your comments on RFK as well on fifty years on from an assassination in Los Angeles,

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