Bloomberg IntelligenceMedia analyst and Harvard Fellow Brian Stelter joins to discuss Rupert Murdoch stepping down as the head of News Corp. Dana Peterson, Chief Economist at the Conference Board, joins to discuss the latest LEI data and gives her outlook for a soft landing after the Fed’s latest move. Barry Ritholtz, Founder of Ritholtz Wealth Management and Host of “Masters in Business,” discusses the markets and investing. Jay Hatfield, CEO at Infrastructure Capital Management, joins the program to discuss his non-consensus view on inflation, the Fed, and why Europe could face a deep recession. Woo Jin Ho, Senior Hardware Analyst at Bloomberg Intelligence, discusses the Cisco-Splunk deal. Laura Martin, managing director at Needham, joins to talk cable news, media, and Disney. Hosted by Paul Sweeney and Matt Miller.
Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market movin news.
I'm the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com Slash podcast. When the world of media, major piece of news coming out this morning, Rupert Murdoch is stepping down as chairman of the boards of Fox and News Corp. Following a nearly seven decade career, and we'll become chairman emeritus of each company. His son, Lachlan Murdock will become sole chairman of News Corp and continue as executive chair and chief executive officer of Fox. The company succession, big, big, big time succession. In the real world, you need perspective on a story like this. There's only one person to go to in my opinion, and that is Brian Stelter. He is a Walter Schorenstein Fellow at Harvard University. Most of our audience knows him as a former chief media correspondent at CNN. I also know him as a former media reporter at the New York Time, so he is the voice to go to Brian Rupert Murdoch defines media mogul, So a pretty big move here today it is, and.
In some ways it is surprising because Rupert Murdoch always said that he would never retire. That's what son Lachlin said about a decade ago as well. Lachlan was clearly being groomed to be the successor that's been in place for a few years. Today just affirms and confirms that Lachlan is the chosen son. But all along Lachlan had to share power with his father, and the idea was that Rupert would never retire. Well, today is the closest thing to a retirement that we're ever going to see from Rupert. His allies are calling it more of a semi retirement. He is saying he'll be very involved, watching, reading, responding and giving feedback. But this is clearly a turning point moment for both News Corporation and Fox Corporation to have Rupert moving off the board as a chairman, moving into an emeris emeritus role. There is obviously no coming new turning back from this, and now this cements Lachlan as the leader of both companies, for better or worse. And I think there's a grand debate to be had about Lachlan's leadership, the pros and cons and what it means for shareholders.
You know, there are a lot of businesses in which it doesn't really matter who's the CEO or the chairman. If you've got somebody holding a big stake in the company, he's still the boss or she's still the boss.
Is that the case here?
Does Rupert Murdoch have to be chairman and CEO to run the business or is he still in charge of the family.
He's still in charge of the family, and he still controls the trust. And that is the part of this that is very much like HBO's succession. You know, the storyline on succession is very much how it works in the Murdoch family. There are a bunch of votes of the trust. The trust controls both Fox and News Corps, and in the event of Ruper Murdoch's death, there will be a battle for control of both companies within the Murdoch family. People who may know that the outlines of this for adult children, two of whom Ruper James and Lachlan have been worrying, have been battling for years. Also to women Elizabeth and Prudence. In the event of Rupert's death, they each get one vote and so there is no tiebreaker. There will be some sort of reorganization of the companies in the event of Rupert's death. But it's important to note in the memo this morning, he says he is in robust health and he's been around the Fox studio a lot in Los Angeles this week, according to my sources. So I think what we're seeing today is a sort of confirmation that Lachlan is the chosen one of the father, but that does not mean that there could not be any number of changes in the years to come.
Brian, is there any reason to believe that, with this news today that there could be any change in editorial view strategy at Fox Right.
I think that's one of the most interesting questions, And the initial answer is no. Because Lachlan Murdoch is as conservative and in some ways more conservative than his father. They have many of the same political views. They both have some distaste for Donald Trump. Rupert Murdoch much more critical of Trump than Lachlan has been at least as far as we know, but both men, although critical of Trump, are definitely and defiantly conservative. I don't think we're going to see the brands change direction in a dramatic way. What we might see, and this is the question mark, and what I'm really curious about, is what will Lachlan Murdoch may be more free, not entirely freed of his father, but perhaps more free than he has been. Does he have plans he liked to put in place? Does he have business ventures or strategic shifts that he's not been able to pull off because of his dad? You know, we know the general direction is the same, right towards streaming, toward getting Google and Facebook to pay for news corps properties. You know, all of that will continue, but you know we'll I guess are we going to see Lachlan emerge from his dad's shadow?
Now?
I think is an open question.
How do you think when we look back on this, Brian, I know you've got so much history and experience with the Murdoch family in the news corporation, and how do you think Ruppert goes down in history? Certainly when I think about you know, the media moguls sum to Redstone, Ted Turner, you know, a couple of others, John Malone, he's right there at the top of the mountain.
Yes, in moving us from a broadcast to a cable and then a digital world. Absolutely, there are some accomplishments that you have to give credit for the creation of the Fox broadcast network. You know, we wouldn't have the Simpsons, you know, in Family Guy. There's there's a lot that is so much that has Ruber Murdock's fingerprints. Of course, that'll all rights.
Fox, Bryan.
I mean, he's created an entire political movement. Doesn't it feel like.
That it does. We would not have a hat of Donald Trump presidency without Ruper Murdoch and Fox News. The polarization of Fox News, but also the diversity of voices. You know, we could argue in any number of directions, but the impact is very clear and spread out all around the world, including in Australia, in the UK and other markets. You know, there's a satellite network. A lot of that is a part of Ruper Murdock's legacy. Now, I would say on the business front, he had impeccable timing selling most of Fox to Disney about five years ago. You know, providing more firepower for Disney in the streaming wars, but also getting out of some declining businesses. If you look at the stock for Fox Corporation in the five years since it was spun out, you know it's down twenty three twenty four percent over five years. News Corporation has fared somewhat better. But if you're an investor in these companies, you are not altogether pleased by Rupert Murdock's performance in recent years as these companies have faced headwinds of the Apples and the Disney's and the Googles, these much bigger giants than now control the media and tech landscape.
And Brian that kind of calls into question again. A lot of folks say, maybe Rupert was the smartest person in the room selling to Bob Biger when he did. What does Bob Biger and Disney do now? Because they've said, unlike Rupert, we're staying we're going to try to evolve and compete in this new media world. How do you think that plays out for Bob Biger?
Right?
And to me, I think about it as a consumer. How attached am I to Disney as a consumer? How invested am I? How much do I have to spend to go to Disney World, Disneyland. How much do I have to pay for Disney Plus? And I think Disney has its hooks in consumers better than any of these other media companies. That's why when I look at this landscape, it's Disney and of course Netflix, that would be the ones that I would be wanting to bet on. That said, the challenges are enormous. He is saddled by assets like the ABC television network that are no longer deemed desirable, and how he's going to navigate out of that, you know, to me, it's a very treacherous one. Two years ahead. To me, in ten years, I'd still rather be Disney because they're still going to have their hooks in so many families that have to go meet Mickey Mouse. But in that short term, that short term is so so murky.
Is there a future? What is the future for cable news?
Do you think for cable news? Well, Fox News is the strongest of the pack. All of these companies are facing secular challenges. We know about the headwinds, but you know, Fox News, for all of its faults, and I believe there are many, it has a captive and loyal audience almost like anything else in television or in media, and I do see some challenges around the edges. Tucker Carlson's firing did calls a ratings drop, but most of those viewers actually come back to Fox News. So if you were betting on a cable channel out there, you'd probably be betting on Fox News again, for better or worse. Right now, they're getting ready for their next GOP debate. The Republican Party gave Fox the first two debates, not Newsmax, not Rumbled, not some far right internet stream. Republican Party still went back to Fox, so that alliance is still very real and very strong and frankly very profitable for Lachlin and Rupert.
Brian, thanks so much for joining us. Really appreciate you giving us a few minutes of your time. Brian Stelter, He's a Walter Schorenstein Fellow at Harvard University and a former chief media correspondent at CNN, also former media reporter with The New York Times, so certainly has the chops to give us his perspective.
You're listening to the team. Ken's a live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business app, or listen on demand where however you get your podcast.
Had a little bit of economic data today. In addition to the job as claims and Philly fed home sales, we also the leading index came in at zero negative zero point four. Consensus was for negative zero point five, so a little bit better than expected there. Dana Peterson joints as chief econmis for the Conference board. Dana, what did your what did you learn from your index that you released this morning?
Well, still telling us that the leading indicators are suggesting that there's going to be a recession at some point over the next twelve months. Certainly when we look at the details, the financial market indicators as well as the expectations gauges for consumers continue to be negative. And also jobless claims ticked down a little bit. But all in all, this measure has been negative for sixteen seventeen months, and it's continuing to tell us the same exact story, is it.
I mean, it's been telling us the same story. But the economy is pretty good shape here. How do we kind of put those two together? Sure?
I think the thing is that within that measure you don't really have services embedded and you don't have all the labor market indicators in there. We do have labor market indicators in the Current Economic Conditions measure, and that has continued to say that everything's okay, and that's because we continue to see positive payroll gains and real incomes are rising year on year, especially as inflation comes off. And so that's really the current situation. But again we're trying to look ahead, and when we look at what's going to be facing the consumer and businesses going forward, we're looking at very elevated interest rates for longer. Certainly the Fed indicated that it's not going to cut interest rates that much next year. Maybe they have one more hike this year, but then only two cuts next year.
And we're also.
Looking at a situation where consumers are going to have to pay down their debts, and those debts are going to be much more expensive going forward, including having to pay for student loans. So all these things are going to coalesce into an economy that we think is going to be slower and potentially experiencing a short and shallow recession.
How is the consumer looking and I know, Tom always points out the bifurcation, and that is, you know, definitely a thing. You know, if you're the CEO of an automaker, you're getting twenty five million dollars a year, so the consumer from that, that consumer looks great, but if you're one of the UAW workers, not so much. We start to see a build up in credit card debt, We start to see more and more delinquencies we're hearing in terms of credit card and auto loans. As you point out, student loans need to be repaid again, so that debt pile that's getting more expensive is also growing, right it is.
When we look at consumer credit card debt, it's back to where we were on the trend before the pandemic. And you're absolutely right, delinquencies are arising. They're back where we were in twenty nineteen.
So all the have been wiped out.
And when we look at charge offs, especially by banks that are not in the top one hundred ranks, those charge offs are very elevated and even above where we were back in twenty nineteen. So we're looking at a situation where the consumer is coming under pressure. Folks are using credit cards to finance their spending and it certainly isn't coming into a very good picture.
We think, how about the labor market here as it relates to this economy. We had the initial jobs claims once again come in, you know, better than expected, better than last month at two hundred and one thousand. It's this labor market, despite you know, all the doom and loom out there, if to the extent there is is still resilient.
Well, I think you need to look at the labor market three different ways. So, yes, you do have some companies that are still hiring, and those are mostly the companies where they need people to show up to work, such as healthcare, restaurants, hotels, even public administration, and so we're definitely seeing job gains there, but those gains are getting smaller and smaller and smaller. And then on the other end of the spectrum, you do have layoffs, and those are mainly companies that did very well during the pandemic at not so much this now past the pandemic, certainly tech, finance, transportation, warehousing. But you still have a large group of companies that are hoarding workers and the reason why is they don't want to have to let everybody go especially if they think that the downturn is going to be short, it's going to be mild. But we are seeing them cut back on hours. Hours are back down to where they were a pre pandemic after or surge, and certainly wage growth isn't as aggressive as it used to be, and we're seeing companies pull down job ads and there's less quitting. So there's definitely cooling in the labor market occurring.
Yeah, it does seem like the strength is a bit deceptive, you know, but we but you know, I keep thinking that, and then we keep getting these amazing data points so or much better than expected data points.
At what point does that turner?
Well, I mean the data that I'm looking at seems to be mixed. Certainly, when we look at retail sales, they were negative in terms of month on month games in real terms after adjusting for inflation. When we look at payrolls, yes, one to eighty seven was very good, and in most years that'd be great, but we saw pretty significant downward revisions to prior months. And when you start seeing downwards downward revisions to payrolls, it creates a trend and you have this downward momentum in general, So I think that and also when we look at inflation, headline is going in the wrong direction, hence the FED signal we're not done with interest rate hikes, and certainly there's concerns that the FED will raise interest rates so much and that the cumulative tightening is going to weigh on the economy and cause the more disastrous situation. So I think we need to parse the data very carefully. Yes, there's some things that are surprising to the upside or slightly better, but even our own leading indicators, even though it wasn't minus a half, it was still minas point four.
That's it's still negative.
So I think we need to look closely at the data and see that, Yes, the US economy is slowing in line with what the FED wants regarding its monetary policy tightening.
So again, so just to be clear, Dana, are you guys at the conference board saying maybe a shallow recession next year is possible likely?
Yeah, So that's our that's our call.
Yes, we do expect recession. We keep having to push it out because consumers have been spending, but again a lot of that's using debt. But yes, we do have a recession call. For the first half next year. Again not very long, not very deep, and we'll get out of it pretty quickly.
And then we get hopefully we get straight back to zero and straight policy as quickly as we can right exactly.
That's life is good. Dana Peterson, thanks so much for joining us. Dana Peterson, Chief Economists for the Conference Board.
You're listening to the tape Cat's a our live program, Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and 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.
Barry Reholtz joined us. He's a host of Masters in Business on Bloomberg Radio. Is also the chairman of Chief Investment Officer Rehults Wealth Management. Barry, your Federal Reserve stay put yesterday. But still talking tough, aren't they?
Yeah, they have not been afraid to really communicate what their intentions are.
We can disagree with.
Them, and we can argue with them, but you can say they haven't worn the street of their views, and they haven't told people this is exactly what we're going to do.
So they still have two cuts priced in next year. And I've been asking everybody today about, you know, where the Fed ultimately wants to be, because they have a forecast for three point nine percent at the end of twenty twenty five and two point nine percent at the end of twenty twenty six. It feels to me like, even though higher for longer is the current mantra, they want to be long term?
Low? Is that is that the right way to be?
They want to be long term? They've said they want to be long term.
I No, No, they're forecasting two point nine percent at the end of twenty twenty six. Like, why if they achieve a soft landing and the economy's okay, why would you want rates to be.
Two point nine percent? Isn't it healthy to have a solid.
Five I'm sorry, did you say twenty twenty six? Yes?
All right, So let's let's laugh about that for a moment, and let me point out that the quarterly dot plot has been so wildly wrong for all of the past five years, just looking out four quarters, just looking out a year ahead, to think that anybody on this Federal Reserve or anywhere else has the slightest idea what the state of the economy is going to be, what inflation is going to be, like, what interest rates are going to be like in twenty six. It's not merely laughable. I would call it malpractice because you have to know GDP, whether or not we're in a recession, what's going on with employment, what's going on with inflation. These guys can't forecast a quarter ahead three years.
It's hilarious.
I get that. I mean, my question is radio here.
My question is really just you know, is the bias right now to try and get back down to ZERP, Like is that where we want to be? Because over the last fifty years we've averaged like four point six percent on the Fed funds rates? So isn't that healthy? Or I guess it's you know, it depends on where our start is. But isn't it healthy to have the real rate of return like around five percent?
So so Z let's start with ZUP, which is a great place to begin.
What is ZERP?
What zero interest rate policy?
Thank you?
Was a actually traces back to nine to eleven, but really it's a post financial crisis emergency footing.
So if the FED is at zero, your.
Assumption should be, hey, something is either systematically wrong, systemically wrong with the financial system, or we're in the midst of a really really bad crisis or recession, so zero should be off the table. What we want to do is get to neutral, which is the English way of saying, our English way of saying, we're not encouraging inflation. We're not discouraging inflation. We're at to balance. The problem is the economy runs hot and cold. I don't mean recession wise or bubble wise, but some quarters are better than others, and you kind of have to allow a little bit of inflation. You don't want to cause a recession. When we look at CPI now, a lot of this all comes back to the two percent inflation target, which, as former FED Vice Chairman Ferguson showed, is really a made up number that goes back decades and doesn't correlate with anything. So the focus on two percent, I think is misguided. What we want to see is stable prices and as close to full employment as we can get. I think the FED sometimes gets so wrapped up in their models they forget first principles, price is stable, full employment. From there, what the actual FED funds rate is, whether it's four, four and a half five is almost irrelevant.
Hey, Barry, I know how you hate throw away terms that people use all the time, like it's different this time and there's cash on the sidelines, things like that. But how about the one discussion I hear a lot of is soft landing, hard landing, no landing. I don't know, true, what the heck does that mean? I don't know. How do you think about just where the economy is heading and how to kind of describe it?
I love that question. Listen the first first things. First, do you have a job. If you have a job, okay, so things are pretty okay. Are you getting paid enough? Are you seeing regular raises? Are you keeping up with the cost of living? That that's where we all start when we take it to the next level. We want to know what are consumers spending, how much is the broad economy growing?
And are we investing in our future?
So it's a little more complicated than just you know, are we in a recession or are we in an expansion. One of the things that I've liked that this administration has done that we haven't seen in a couple of administrations is a little bit of industrial policy and a lot of infrastructure spending. You know, you go back to Eisenhower and the interstate highway system. That was an economic boom that we built on that lasted decades. The same thing with the can be the administration and NASA and space exploration that led to amazing technologies, everything from microwaves to semiconductors. Very often the private sector can't make a commitment to invest in R and D that doesn't have a return for decades. Only Uncle Sam can do that. I'm glad to see we've sort of moved a little bit back in that direction because just think about the benefits of big, bold policy initiatives and how they've manifested in a robust economy. So to me, soft landing hard landing, is the economy expanding or people working. Are are they able to pay their bills? Are they out spending and enjoying life? If as long as that trend continues, we're great. Occasionally there's a recession, that's the nature of things. You just don't want it to be too severe and too damaging.
Isn't ai another huge impetus for economic growth?
One hundred percent.
I've been playing with a software product called Perplexity, and I've been using it to every time I have a new guest on Masters in Business. I use it to as a way to double check and make sure I didn't miss anything. And you'd be surprised how often AI is going to find stuff that my researcher and myself just googling the history of somebody's career misses. And the fascinating thing is this product continues to get better.
Every one of these.
AI models continues to improve, and I think what we're looking at now is twice as good as it was a month from that ago. But I can't even guess where these things are going to be a year or a decade from now.
They're just getting better and better.
This is on the same level as the Internet. This is going to be a productivity boom, absolutely one.
All right, Barry, thanks so much for joining us. As always, Barry Riderholt's hosts of Masters in Business on Bloomberg Radio.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am eastering on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
All right, we had the Bank of England today hold interest rates steady. Still, there's concern there and even more so in the Conte so much. You had this.
The Swiss Central Bank holding rates steady. We were expecting a raise there. You had the ECV there this winter with the ECB coming out and saying well store Narris has said they've reached a peak in rates and the next move is likely a cut.
So yeah, let's let's take a turning point. Let's break it down. Jay Hatfield, he's the CEO, founder and portfolio manager Infrastructure Capital Advisors. Jay, what do you make of the economy over there in Europe given what we're seeing some of these central banks.
Thanks to Paul and Matt for having me on. So, as we discussed last time I was on, you know, we're laser focused on Europe and really really what gave rise to that was this huge global bond meltdown, and so we started to study the global monetary base and notice the ECB had shrunk it by five hundred billion, and overall it's dropped by three percent, which we think is a critical indicator of both inflation and growth, and then we started digging in and I'd recommend you sent your ECO default to the Eurozone if you have a terminal, which you should, but to track Europe because it's more difficult from the US. And if you look at that data since I was on last it's really horrific. It might melt your face, so be careful when you look at it. So both Germany, both retail sales and industrial dropped by point eight percent, which doesn't sound like that much, but that's for one month, just July. German GDP was for the end of the second quarter only it was down point six year every year. Italy industrial production was down point seven. So it looks like particularly those two countries are in an absolute free fall. Now we'll know better, So that's why I would set your default when we get the August data to see if that validates July. But if this isn't happening in the US, it would be all of this will be all we're talking about.
Well, I mean, I'm looking at the ec FC the economic forecast, and for the Eurozone, I don't see recession out there in forecasts. But you think there is real.
Risk, Well, I think that's the ECB's forecast and they have a little bit in common with our FED and that they may not be the greatest forecasters ever created. So we just look at the real time data and like I said, if you know, if US we tell sales are down point eight and industrials downpoint eight, like we would be yep, we would say, oh my god, odd, this is horrific. So I just would urge everybody to look at not just that data, but also the monetary base and really look at how Italy responded to that hike. That they were just excoriated the ECB for good reason because they're going into a significant recession. So we think this is the key risk. But on the other hand, that could be very bullish for the US because if Europe starts to go into a recession, then global rates should calm down. And that's really I would argue the key overhang on today's market is just we have a big global sell off in bonds.
So if Europe is going through a recession, how are you positioning for that?
Well, we're we do as you know, we're always cautious in August and September, in early October, so we do think I mean we're sort of fortunate in that we have conservative dividend type stocks, defensive dividend stocks, preferred stocks, allpes, and large cap dividends, and they've all outperformed the market during this time, which makes sense because they have lower betas and they're more defensive, and even within those portfolios, we've positioned them to be more defensive. For instance, with preferreds, we actually benefit in our main fund PFFA because we have a fixed to floating fifty two percent, so longer for hire is actually good for that the income of that fund. So we think it's a good time to either be in those type of stocks or it's okay to be in cash. Although we're sticking for now to our forty three hundred to forty six hundred call on the S and P. If rates keep selling off, then we could easily get to forty two hundred. But we do think that this global growth story declining is going to get out there. Tomorrow is the European PMI, and we think that'll be weak, although it is really Germany and Italy that in the UK they're the weakest, so there are other parts of Europe they're okay.
So we continue to see dollar strength right now, the Bloomberg Dollar Index. So the way I track it is it twelve fifty six. I saw it this morning, right around twelve sixty, which is punchy.
You know.
I walked in Paul Common a, Wow, Gold's taking another chan and that's part of that trade. Obviously, does that continue? Do we see europarity, do we see Japanese yen at one fifty, and then do we start to see intervention?
Well, if our scenario plays out, absolutely so. We think the US is resilient because of the resilient auto sector and housing, which usually crack during recession. In fact, we have some new data the average recession. You have a thirteen point four percent decline and investment, but consumption is flat. Normally grows at three to three, so it comes down, but it's really the driver of recession is investment. So if we're right about the US that we're resilient and Europe is plunging, then that trend should continue. And that is bearish for commodities. And one reason why we think oil will cool down because it's really not just rallied, it's rallied plus another five percent. Because the dollar is appreciate, it so that's a headwind and would validate our seventy five to ninety five dollars range on oil, which would be bullish for inflation. So, but we do think the dollar will continue if we're correct about the US economy dramatically outperforming China and Europe.
Are we going to if we have a US government shutdown? What's your view on that? Is there any way to be in a prolonged UAW strike?
I mean both of those things.
Yes, Well, we callary right.
We called the refer to the government shutdown as the government vacation because you know, if you look at it, they furlough the employees, but they still pay them. So it's actually a good rationale for Fitch to downgrade the US because we have the most ridiculous budget process ever where you quote shut down the government, but you don't save any money. So and if you look, the market actually trades up. Now I'm not sure it's going to trade up this time of the year, but we think that's irrelevant. I'm good for the media to report on, but not critical for investment. The DW strike I think is critical. Full disclosure. My daughter is a member of the UAW, so you could take this a grain of salt. And she's in the Berkeley division of the UAW, she's covered by them. But we do think that autos like we don't really believe in persistent inflation except for auto services. If you look at auto services, they are ridiculously high, like nineteen percent on insurance, fifteen percent on repair. Hasn't even started coming down. So if we have the strike, that's just going to get extended out, and so that may give the FED more reason to not cut rates or pause. So I would focus more on that. I don't think it's a big issue for the overall economy some degree. If you have less less inventories on these sort of wildcat strikes, then you have less chance of massive layoffs because we have a shortage.
Let's rip up the script for a second.
Yeah, I mean she's in the Berkeley unit of the u a W. So it's the United Autoworkers Union. And I mean, having seen Oppenheimer recently, I know that these higher places of higher education get very involved with with unions. What is she's clearly not putting cars together at Berkeley.
Well, I'm very proud of her, and I think it's a good backup career to move to Detroit and assemble cars. But the teachers, the tas are members of the ua W, which I find fascinating. Not a successful strike, so I indirectly benefited from that because they had a pretty substantial pay race. I don't think they're going to do any wildcat strikes, but they're definitely getting emails and they're supporting their brethren.
And that I had no Ideah, you better unionize those. But in the United Auto Workers, surely there's a teachers union.
Yeah, exactly.
But the uaw is good on these strikes things. I mean, they know what they're doing well.
The last couple of presents the UAWR in prison, Yes, so they weren't very good that right.
All right, Jay, thanks so much for joining us. Jay Hatfield, CEO, founder and portfolio manager Infrastructure Capital Management, looking at these markets again, kind of taking them breather here, no question about it.
Uh.
The S and P five hundred off one point one percent of the NASTAC off one point three percent of definitely some concern out there. And on the yields two years off three percent, five point one five percent on your two year treasury yield, that seems pretty attractive.
You're listening to the tape cansur live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and 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.
Had a nice MNA trade in the technology space. Today, Cisco intends to acquire Splunk for one hundred and fifty seven dollars per sharing cash is anding approximately twenty eight billion dollars in equity value. Let's get a sense of what this deal really means in the tech space. We welcome Oojino, senior hardware analysts for Bloomberg Intelligence. All right, wouch in this space here. First of all, just tell us what Splunk is. What do they do?
Sure, Splunk is a company that does infrastructure software. They provide observability or and help monitor the hardware and the networking components that's within a coporate it. As more things move to the cloud, companies are trying to better understand how data traffic is moving inside the cloud. So Splunk plays a very critical role.
That makes sense then yeah, so they're like going into the cave, into the dark recesses of the Internet and checking things out to make sure all the gear is good.
Right, Well, let's think of it this way, Cisco to think, if we use the cave analogy, Cisco is the pipes in that cave, and then splunk Is is the scope that goes through the pipes.
Interesting, all right, So so splunk is.
I guess the best name they could come up with for that.
Yeah, because if you think about it's blunking right exactly. Yeah, all right, So what's Cisco's strategy here? What's the kind of the takeaway from you in the street.
Yeah, so it's fairly straightforward, right if long followers Cisco know this, They've been trying to move to this harbor only model to a perpetual software and model. Everyone loves recurring revenue, and you know, if for for Cisco, it's really tough for road for you know, given that they used to be a book and ship type of company from from a revenue generation standpoint. H they've been acquiring software companies and they've also been developing their own software for sale. And what we've seen over the past couple of years through M and A, that software is going to be about twenty five percent of total sales and about forty five percent of product sales, and Splunk is going to help them augment that software component as well as every current revenue component.
So Cisco, I mean, is a giant company, right, Splunk is the deal is what twenty five billion or so and Cisco is a two hundred and sixteen billion dollar company. Are they very inquisitive? Is this how they build rather than organic growth? And do you think they have any more coming up?
Yeah? So great question. I mean, Cisco, among all the companies that I cover, is probably one of the more inquisitive companies that I cover. However, they don't typically do deals of this size. They go for smaller, tucking technology deals and hope to grow it from the inside. Twenty eight billion will probably is the largest deal that they've ever done, and it's going to drain all of that excess cash that they have. But given that they degenerate about fifteen billion dollars in cash flow annually, they really should be able to do more deals if they want to. But I think large deals going forward are going to be off the table for the time being.
So how about from a valuation perspective, I'm looking at Cisco stock off a little bit here today. What's the valuation pencil out to.
Yeah, well, you know, Splunk. From a valuation perspective, it's about six times forward sales. If we talk about the fast growing software guys, they typically run anywhere between eight to twelve times. Some of the slower growth where Plunk can fall into are in the five to six times. So this is from a valuation standpoint, it's right, it's a good valuation, but it is on you know, Cisco tends to buy slower, more mature companies, so this is high on the Cisco perspective, but right right size from a software perspective.
All right, So I'm looking at the comp function Matt Miller's favorite function comp for Cisco, and I see, you know, over the last five years this has had a compoundent and a return of about five percent has Cisco versus you know, the S and P five hundred about ten and then the information technology S and P five hundred information Technology sector index about eighteen or nineteen times. So Cisco really underperforming from stock price perspective. What's the story behind that?
Yeah?
You know, if you look at it from the past couple of years, I think people were very concerned about sustainable or sustained order activity because of the macro backdrop. Look, if you look at the revenue growth, it shows ten to twelve percent for fiscal twenty twenty three. But if you look at fiscal twenty four, we're seeing that revenue growth fall off to about one percent next year. That's actually a good thing. I think heading into the print last quarter, people were thinking that sales would climb because of the drop off in orders. But the ability to deliver revenue growth for the year shows that, you know, it's not going to drop off that much. Now. Now that being said, that's one of the reasons why are they going after companies with more recurring revenue likes Blunk And over the long term, it's going to help with the business model.
In my mind, are these companies you know, destined to be changed by AI?
I mean are they?
Are they already being Uh? Is there already dramatic upheaval due to the AI kind of stock market revolution? Is it hitting the ground in corporate culture?
Yeah? Well, for for let's just say Cisco and the networking guys of that ILK right, They've already been using AI and automation for for quite some time now. There are other companies that have utilized it a lot better. But as more of the hardware and software become disaggregate, that you can actually a lot automate a lot of functions, you know, and and for for example, let me give you whenever our PCs go down, uh, the network would be able to know automatically where which PC it is down and and how to fix it right away, right, and and that could save a lot of manpower hours. There's a lot of coding that's involved. So the whole space is destined to go AI. The question is is that what does that mean for from from a network management operations standpoint? And at the end of the day, it's all about saving costs on AI, right Yeah?
Uh? Wohild out of your you know, hardware coverage, your networking coverage. What what are the names you're most excited about when you when you when you talk to investors? Wor's kind of the most interest?
Well, the most interest is right now is is Dell and Hpe quite quite frankly, uh and and the other name is Arista. So those are the three names that most people are interested on. Uh A Arista is mainly on cloud AI data center infrastructure, and that's that's where they see phenomenal growth. But the other area is the revival of Dell and how AI servers can potentially drive a faster revenue growth profile versus three to four percent that they usually have to maybe another point or two and growth and better margins going forward.
So I guess the question is within the tech stack, is it what's the big theme that that's kind of driving your your your space these days.
Yeah, look, it's it's like everybody else in tech, it's it's AI AI AI, right, And I think I mentioned it to you once before on other shows. AI has turned into a drinking game on conference calls. So now it really is. If you don't have an AI growth story as part of the long term thesis, you're really not going to see the valuation expand, right we.
Wich, thanks so much for joining us. Appreciate getting a few minutes of your time. Wujinhoe, Senior Harder analys Bloomberg Intelligence via zoom from the Bloomberg Intelligence Global HQ in Princeton, New Jersey. I saw John Butler in the background Keith the Wrong on Nothing in the background. There so good, good stuff.
You're listening to the tape cansur live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and 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.
Big news in the world of media, I mean really big news. When you think about media mobiles, there's a bunch of them. Sumner Redstone, John Malone, I mean you think about Ted Turner, but certainly at the appolute top of that list, you got to put Rupert Murdock in. It was announced by the company today that he was stepping down from his role as chairman at Fox and and News Corporations. We want to get some perspective on that, and nobody better than Laura Martin. She's a senior media list at Needham. She's covered this industry, this company, and this man for decades. So Lauren, thanks for joining us here. You know, I guess it's not unexpected. I mean, given that he's ninety two years of old, ninety two years of age, but still a big day in the world of media and for news corp.
I agree with you one hundred percent. I think you and I both Paul thought that Sumner Redstone would outlive this guy, but it just wasn't true in the end. It was like Out versus Fox. I guess Fox one. But yeah, I think I think Wall Street's been expecting this guy to step down for the last decade, and here he is finally stepping down at ninety two.
It's unclear how heavy a hand.
He's had in the you know, in the business of the company for the last four years, so I don't know how much will actually change with him stepping down, but certainly the last of an era. I think John Malone's the only one left that's sort of still on the board of her brothers of that old guard. I don't know if that's a positive or negative, but it's certainly about time for.
Changing of the guard.
Yeah, absolutely. And you know, Ruper Murdock and the Reginal News News Corporation now split into Fox and others certainly had a huge impact in Australia initially where he initially started the company, and then in Europe, particularly in the UK and then ultimately here in the United States. Talk to us about kind of the legacy you think Rupert Murdoch has in the world of kind of global media.
You know, I think he was Remember he invented that fourth network. Everybody set a fourth network wouldn't work at Fox, and so he created a fourth network, proved it could be done the help of Barry Diller and Michael Eisner, and I think he proved to the world that the you know, member, he only had prime time program he didn't have all full day programming on time was one hour less. He really innovated Fox News, huge innovation. When you and I were covering these companies pulled together. You know, remember he paid Everyone thought he was crazy. He paid a dollar a month to get Fox News carried on Comcast because they didn't need another news program they had CNN, and he built that.
I think he paid him for five years.
And it became by buying that shelf space on cable television, which at the time, I'm was sort of shelf capacity constrained before they did their new buildouts for modems. You know, he basically made Fox News. He put them on the shelf and now it became probably the number one news for the last decade, it's become the number one news ratings channel. So thank good thank goodness, the linear bundle house Fox News. But Rupert paid to get it on and so literally he innovated a lot in media. He really sort of changed how we see media today. Was in large part influenced by Rupert Murdoch's decisions early on in the ecosystem.
Yeah. Absolutely. And then about five years ago, Laura, he sold the majority of his company to, you know, to Walt Disney Company. And I guess in hindsight, that's a pretty smart move. How do you think that deal is going to be remembered?
Yeah, good question.
I mean, he basically doubled down on the linear TV ecosystem and he sold all of his streaming rights in all of his and all of his and he gave it to the Walt Disney Company.
You know, seven billion is what he sold it for. You know, it's unclear.
Maybe that deal looks expensive today, but is that Disney mismanaging it or is that really the value.
I do think it's worth more.
Those assets are worth more in the hands of the Walt Disney Company than they would have been in the hands of Fox alone.
I think that to me is clear.
But the linear TV ecosystem is maybe more troubled than they be new even at the time. I think it will go down in history that time Warner sold out at the peak, right that yuks seld out at the peak, and that's the brilliant move.
I think it's a little less clear.
Yet on Fox whether he sold out at the right price, too early or too late.
Do you think there might be any change in strategy at the you know, Fox, or in any of the companies now that he's stepped on officially as a chairman. Do you think there of any change in strategy there?
I do.
I think youngsters are a little more inclusive, a little less twenty. I think some of this Fox News controversy is much more likely to come back, to my opinion, back to moderate with youngsters running it without Rupert's sort of sharp edge, because I think, you know, Rupert at ninety two probably had a different view of you know, entertainment versus news. I think Rupert always thought he was making entertainment, not news, and I think Fox.
News has been criticized for that.
I wouldn't be surprised to see the son who's younger, bring it back more towards news and less about entertainment.
Laurie, I know you were, you know, at the Walt Disney had an investor day a couple of days earlier this week here. What were your takeaways there? Because one could argue, Bob Iger, boy, this is as tough as it's ever been to run a media company.
You know.
I agree.
I think the skill that people underestimate that Bob Iger has, like he said twice, I'm going to quiet the noise. I think that is Bob Iger's core value skill, which is he put back the organ So content is first. He's going to quiet the noise with DeSantis, He's going to quiet the noise with regulators and all the local communities. He has one hundred and seventy thousand park employees. Ye, he's going to quiet the noise. And he says, we're going back. Our job is to entertain, not to be issues focused. So that's an easier task and it's safer for the Walt Disney company.
So I think he's going to go back and create sort of this cone of silence that let's creative people do creative things.
And I think the reason that Disney has been the Disney content has been so poorly received at box office is because of all the noise. And he's going to go back and say, look, our job is to entertain. Let's keep our eye on the ball, and let's make great stories that have nothing to do with the issues surrounding us in the real world.
And I think that's good for content creation.
How do you think was there any I guess to what extent did they frame the whole move towards streaming. I know this was an investor event focused on the theme parks, but obviously the big issue for Disney and for all the media companies is how they're going to effectively evolve into streamers. What's what's the current thinking at Disney.
So, Paul, it was so interesting, I mean, and that was one if you've been in the audience with me, that was one of the big silences.
They did not mention streaming.
They did have the ESPN CEO on stage, you know, and that has to do with streaming, because he's eventually going to launch a core ESPN app, but totally unclear on timing the things he was saying he wants to integrate into this app sound to me like they're going to take three years to execute, which just doesn't even mean it's in an investment timeframe. So really a lot of silence around the strikes, around the streaming business, around the linear TV economics, which was super top of mind because of the Charter Resolute deal resolution.
Really real silence is on that.
The main focus was they're going to double CAPEX to sixty billion over the next ten years, and they're going to sync it into parks and cruise ships and Disney vacation villages, and they're going to try some management contracts out here in Palm Springs near me. So that was really I would say three hours of the total five hour day, and then there was an hour Q and A and an hour of you know, ESPN the Core app launch and what it's going to entail. But they didn't talk pricing and they didn't talk timing, and that was the only time they touched.
Streaming at all.
Interesting. What's the feeling that I get your opinion about this Capex and the focus on the parks and the cruises. Is that a good strategy in your opinion?
You know, I think the.
Most interesting thing to meet Paul I think you were in the room when five years ago I spend this big and in twenty eighteen when they said big shift to streaming and the stock ran way up, and it was like streaming is our growth driver.
And I felt exactly.
At that moment again, but with theme parks and so theme parks, as you know, Paul, have much more capital intensity. So whatever, if this is going to be their growth driver, the valuation multiple of Disney should come down compared to what we thought growth was going to be driven by streaming, which is much more capital light.
In theory, yep, And yeah, I know you focus a lot on return on invested capital, but it seems like Disney gets the best out of that, you know, theme park kpex relative to anybody else out there.
They do.
Their returns are absolutely fabulous compared to other people. Compared to other people, but compared to the virtual world, real life assets. They have regulatory risk, they have COVID disease risks, they have shutdown risks. You've got parks in Shanghai and Hong Kong. So a decent question is, look, the Chinese government is using Apple as a pawn because we're us, is trying to kick out TikTok.
They're like, well, we're not.
Going to let employees of the government use Apple phones. At what point do they suddenly have used Disney in Shanghai Disney as a pond too. Right, So there's risk and real assets that don't exist in the global virtual world because if they kick you out, it's okay, you can go make money in France or Argentina.
Right, all right, Laura, thank you so much for joining us the absolute go to voice when we want to talk about the big media stories of the day. In Rupert Murdock stepping down as chairman at News Corporation in Fox certainly one of those, Laura Martin. She is a senior media analyst at Needham and Company. She's based at in La, so certainly a feet on the ground.
Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm Faull Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio
