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Global central banks, Kevin Mayer at Cannes: Catalysts

The markets (^DJI, ^IXIC, ^GSPC) are rebooting from a mid-week holiday and probably already getting prepped for the weekend. Yahoo Finance's Madison Mills and Brad Smith walk investors through the morning trading hours and what's moving markets on Thursday's episode of Catalysts.

Deutsche Bank Global Chief Investment Officer Christian Nolting joins the show to talk about the diverging interest rate paths of global central banks and the US Federal Reserve.

Needham & Co. Senior Media & Internet Analyst Laura Martin breaks down her coverage of Apple's AI plans (AAPL), Netflix's immersive Netflix House experience (NFLX), and Reddit (RDDT).

Candle Media Co-Founder and Co-CEO Kevin Mayer sits down with Yahoo Finance Executive Editor Brian Sozzi at the Cannes Lions International Festival of Creativity to tackle a wide array of subjects within the media landscape, including streaming platforms' pivots into live sports, Disney (DIS) CEO Bob Iger's future succession plans, and Paramount Global (PARA, PARAA) acquisition saga.

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Keep up to date on Yahoo Finance's full coverage of this year's Cannes Lions International Festival of Creativity.

This post was written by Luke Carberry Mogan.

Video transcript

10 a.m. here in New York City, I Madison Mills alongside Brad Smith.

Let not the catalyst moving markets today.

No surprise.

The big one here in video, the chip giant overtaking Microsoft in market cap now becoming the world's most valuable company here in the US.

There appear to be a few catalyst that could slow that rally but it's still the S and P to a new all time high of 5500.

This morning, we discuss the implications plus a fresh read on the labor market, jobless claims coming in higher than analysts expected but declining from the previous weeks, revised levels.

Now the data reaffirming that the labor market is showing signs of some cooling but overall it remains strong.

And we're also watching the great rate debate play out globally as central banks around the world like the Bank of England holding rates steady at a 16 year high.

Meantime, the Swiss National Bank is making its second interest rate cut of the year, citing a drop in underlying inflationary pressures.

We discuss the impact this could have on the Federal Reserve's decision here in the US.

But first, we've got to get to our top story of the day which is in video, the chip maker now the most valuable company in the US surpassing Microsoft with a market cap of more than $3.33 trillion and video bows can't get enough of the A I way.

But what could derail the potential rally one concern is valuations.

Stacy Ra on Bentein managing director and senior analyst recently told Yahoo Finance that in videos upcoming earnings expectations could be a concern as we get closer to earnings and other things, how high do expectations go into those prints?

And then like, what do things look like relative to those expectations?

That'll, that'll be the worry for the next few quarters, but the raw numbers themselves, I I think should be fine.

So it continues to be this question of valuations.

But when you look at a company like in video and the pe ratio, it does support the high valuation, they continue to deliver on the fundamental.

So this big question about valuations doesn't necessarily hold a lot of water when the company continues to deliver.

Brad having said that an interesting note from Barclays this morning saying that there are quote reluctant laws on this market.

This idea that you're kind of grinding out, you continue rally to new all time highs like we saw this morning, but it doesn't really feel that comfortable when you've got so much concentration in just a couple of names.

That's a lot of risk basically riding on NVIDIA and Microsoft and it really does come back to what their market share profile looks like going forward from here.

I mean, as of right now, they could perhaps and based on some of the conversations we've had with some of the most bullish analysts on this company going forward, if they maintain somewhere about eight percent of the market share that they do have in this chip segment, especially considering the de facto play or the de facto kind of um annexation that they received from some of the Goldman Sachs of the world, the de facto play in generative A I uh for NVIDIA.

If they're able to maintain about 80% of that market share, then that puts them in firm positioning to really just continue to grow on top of the portfolio of clients that they do have at at the same time where many of those clients are going to see a massive ramp up in the amount of chips that are necessary in data centers.

You think about the current profile of some of these data centers looking at about 60,000 chips in a data center we could get to and, and this is from NVIDIA and what they've talked about on earning calls and some of the analysts as well, we could get to a million chip data center at some point.

And NVIDIA is certainly banking on that.

It's a really great point, Brad and what going to tell clients.

I'm not going to get in on the tech trade, that's just not going to work.

So it's really a great point.

Thanks for joining me on that here.

We're going to zero and more on global central banks, England and Norway central banks holding rate study this morning as the Bank of Switzerland made its second cut of the year here in the US traders pricing in September for the first rate cut.

That's according to the CMF watch tool here to discuss the global divergence that we are seeing.

We have Christian.

No, he the global Chief Investment Officer at Deutsche Bank.

Christian.

Thank you so much for being here.

I mean, let's start on this domino effect that was supposed to be kicked off here, right?

Allegedly, it was going to happen in Europe after the Swiss National Bank started.

Now it's continued.

Norway didn't follow.

Neither did the Bank of England this morning?

Are these international central banks kind of waiting on their own inflation data to come before continuing to cut or are they waiting for the Federal Reserve?

Yeah, you would always have said probably the ECB always wants to wait for the fed to cut first, which historically has been the case.

Now, you've seen the ECB cutting first.

I think what the center banks need to do to look indeed, as you're saying, at their own economy and what they need to do.

So what's the inflation picture.

And I think especially for Switzerland, right.

They have cut also to weaken the currency a little bit because inflation was not a massive problem in Switzerland.

So they had some room to go and they achieved that.

So, but in the last weeks, the currency was strengthening.

So I think that opened for them uh to cut one more time here, which they did today.

And you see the currency weakening a little bit in order to get again uh some inflation in because it's not that they are so much worried about inflation, that's probably different in the US.

Where of course you need to look from a fed perspective that's also above you.

Inflation is quite sticky.

So you cannot just cut 67 times as the market was pricing at the beginning of the year.

What do you make of the staggering that we may see in rate cuts going forward?

Christian?

Yeah, I think central banks will have the room to cut, but we are a bit cautious that there are many cuts to come because I also think we are not in a situation where the central banks are fearing a massive inflation coming up.

And hence you see a full cutting cycle on the opposite, right?

We are seeing inflation is quite sticky.

The labor market as you just mentioned, not only in the US, but the also in Europe is quite sticky stable which by the way is not the worst news.

So from that perspective, why would you cut so much as a central bank?

So we think over time and maybe that's one year time horizon I'm talking about, we could imagine that central banks like the fed, like the ECB are cutting three times over the next 12 months.

So that's a little bit our projection.

Well, I I also want to talk to you about the global election picture and the volatility that that could cause for markets.

It did seem like the French election outcome, particularly the snap election move from Macron did take people by surprise.

Which upcoming election globally are you telling clients to prepare for, to not be taken by surprise for the potential outcomes?

Yeah, guess what?

I think it's the election in the US.

Although of course, there's a lot of interest here in the election in France, you've seen spreads between French OTs and German wounds are widening to literally record levels.

Last time you've seen them at these different, these spread in 2011.

So there was of course, some anxiety about what happens to markets.

Then, then there's the UK election coming up also very close on July 4th.

But uh what I discussed with clients and where they ask most is and remains the US election, I think quite clearly.

Well, it's interesting you bring up the US election in our final minute here.

I'm curious from your perspective, I mean, every leader does kind of want to avoid a Liz trust moment where you bring out the bond vigilantes.

Do you think that could make leaders who do come in a little bit more moderate than what the market may be pricing in?

Yeah, I think.

Yes, absolutely.

Because you have seen our statements also from France, from different parties.

We will of course, need to look what's going on, you see that in the UK and of course, U SI wouldn't be surprised to see.

Uh let's say very surprising, immediate reactions after.

So from that perspective, yes, I think there was clearly a learning and I would be really surprised if there's immediate action coming.

And by the way, in France, it's not even possible if there's a change in government, there needs to be some time to build some things in and from that perspective, I wouldn't call for next day, immediate volatility.

All right, we're going to have to leave it there.

Thank you so much for joining us.

Great insight.

That was Christian Nolte.

He is the chief investment officer at Deutsche Bank.

Now we are less than five months away from the US presidential election.

Just a week out from the first debate of the cycle between President Joe Biden and former President Donald Trump.

So how are investors preparing for the match up?

Yahoo, finance senior columnist, Rick Newman is here with the breakdown.

Rick, what are investors taking a look at here?

Lots of things.

Uh tax policy, tariff policy, uh who would be uh better handling with inflation, which we've talked about recently.

I mean, I think one of the big things that um is really starting to come into focus are the Trump tax cuts that expire at the end of 2025.

And there's going to be a big difference between whether Biden is president or Trump is president.

It also matters who controls Congress and there are basically four scenarios.

Biden gets re elected with a full democratic congress pretty unlikely.

Biden gets re elected with divided congress.

Trump gets elected with full Republican congress and the full Trump agenda or Trump gets elected with a congress and those whatever, whichever of those scenarios we end up with is going to have a lot to do with what happens with the individual tax cuts that expire at the end of 2025.

Just to remind people the corporate tax cuts that Trump put in place in 2017, cutting the rate from 35% to 21.

That's permanent.

Nothing changes about that unless Biden wins with Democrats and he's able to raise it, which he has already tried to do and been unable but all of the individual tax cuts expire.

So if nothing, if Congress doesn't do anything about that, it's a de facto tax hike for most Americans.

Yeah.

And as you mentioned earlier, it can be inflationary as well.

So people should definitely check out Rick Newman's by line and look at kind of the multitude of coverage that you've got from Rick.

Thank you so much for joining us.

We really appreciate it.

That was our own Rick Newman.

We're gonna have all of your markets action ahead right here on Yahoo Finance.

So stay tuned.

You're watching Catalysts take a look at some trending take that we are watching this morning, Kroger beating on estimates on the top and bottom line in the latest quarter earnings as more shoppers visited its stores as food prices starting to level out our very own.

Kroger.

Beat reporter, Brad Smith is still with me to discuss this name.

It's interesting.

We're seeing shares kind of fluctuating a little bit this morning off of this mixed report, Brad, it seems like eps identical sales be estimates but we have muted gross margin growth.

What are you looking at in this earnings that sticks out to you?

Yeah, just to put a number on that gross margin.

It was 2020 22.4% of sales for the first quarter here.

Uh and excluding fuel decreased by about seven basis points compared to the same period last year.

And they said that the decrease in that rate was primarily attributable to lower pharmacy margins, increased price investments and then uh partially offset by some favorable product mix, reflecting their our brands margin performance.

And you think about that particular part of the business too for Kroger and for Walmart, for target, many of them leaning into so many of these home grown brands as well where consumers are pushing back on price for some of the other sourced assortment and mix that Kroger target Walmart, especially within their own positioning.

I'll throw whole foods in there as well.

All of them have leaned into those larger brand uh and considerations and, and partnerships over the years.

So all of those things considered leaning more into the homegrown or the private label.

And then additionally, here, one of the other considerations that this company is talking about is the macro here trying to deliver value at a time where many consumers, they're saying need it more than ever affordable prices is what consumers are looking for.

They're looking for personalized promotions as well.

So those promotions certainly can put a dent in some of that margin element that we started off this conversation with here.

Um And then also just talking about some of those investments, just putting a little bit more color on that trying to make sure that even despite whatever economic cycle that they're in, that they investing further in the employee experience, which is really interesting to hear from the company here, trying to make sure that they're also retaining a certain base of employees operating these stores and knowing um how much they need to deliver upon.

And then just lastly one of the sexiest parts of the business for me.

Yes.

Groceries can be sexy, especially when you think about the digital sales components of how people are engaging, whether that be buy online, pick up in store or having somebody pick and pack and then just bring it to you or deliver it to you.

Did sales grew more than 8% delivery and pick up combining for double digit growth right there.

So, uh, all right, I've exhausted, uh, the word count on this one, but that's for you right now.

I love it.

And it's a great point, Brad because the grocery market is definitely a look at the consumer and a look at our economy and a look at the fed.

It tells us a lot.

So appreciate you joining us for that.

Thanks so much, Brad and thanks for joining me at the top of our show.

We appreciate it.

We are moving on to KB Home shares there in the green after the company B earnings estimates on the top and box lines are looking at a stock that's up a little bit over four and a quarter percent nearing 4.5% here.

The company raising the lower end of its housing revenue guidance as well.

Y finances.

Danny Romero joins me with more.

Danny.

I know you cover the housing space for us.

Tell me what stuck out to you in this earnings.

The new home market is the winner here.

And KB Home really reported an impressive second quarter earnings now there are some takeaways from what can be revealed in its earnings about the state of the housing market.

And so that's really kind of crucial here.

Mortgage rates are still the blame.

They are the problem in the housing market, especially as we are waiting for this recovery to materialize, which is pushing a lot of buyers to the sidelines.

Now, with that in mind, incentives are not going away.

So the popular mortgage incentive has been the mortgage rate buy downs.

That's when the builder upfronts the cost to lower the rate on the loan.

That has been a very popular incentive for entry level buyers.

And KB Home is specifically geared towards entry level buyers.

They also revealed a little bit about their customers.

So who is actually buying these homes?

It is buyers who make 100 and $30,000 a year.

And that really stood out to me that it really sits on that higher end when it comes to the income spectrum and they're also putting about 70 grand as a down payment.

So that was a little bit of revealing a little bit of the who is the customer right now buying a home?

Now, the other thing is mortgage rates have pulled back.

So does that mean that this home builder or more home builders were also pulled back on incentives which has been squeezing some of the gross margins across all home builders.

KB Home revealed that they could see some pull back in incentives.

Um Now that all is dependent on mortgage rates, of course.

But again, remember the interesting part of all of this is that if, if mortgage rates do come back, it could spark some competition in the resale market.

And what does that mean for home builders and KB home pretty much said we're not worried about the competition here.

We, you know, if, if there is more supply that gets added to the resale market, we are good and we are in a good standing here and we know that we will still be able to take the market share of the buyers that are interested in the housing market.

So that really did reveal to me that the new home market is still a winner here, still a winner and especially given like the amount of competition in the space.

It's really interesting to see that Danny, thank you so much for bringing us, you're reporting on this name.

We really appreciate it.

Thank you so much.

We're moving on to another name here.

Shares of garden and restaurants moving higher this morning after the company beat earnings estimates up a little over 1.5% there.

It's acquisition of Ruth Chris Steakhouse fuel a 6.8% jump in net sales for more on this.

We're going to bring in Gregory Frank for he is good senior analyst.

Thank you so much for being here with us Gregory listen, I I'm really interested in this because you're trimming your estimates and price target on Dan slightly.

But you still think it's one of the highest quality assets in the restaurant space.

Talk to me about the single biggest driver in your decision here.

Sure.

Sure.

So we, yeah, we trimmed, um, estimates into the quarter.

Um, and the company just reported this morning, um, uh, same store sales of flat, uh, which was a little bit below consensus.

Um, you know, earnings was a little bit above consensus as margins beat.

Um, and, and one of the things that I think is interesting is Darden is the, the best bellwether for full service restaurant stocks in, in the space that we cover.

Um, they, they've continued to see, um, a little bit of pressure on the low end consumer.

But one of the things that I thought was really interesting from the earnings call this morning was that, uh, they're actually seeing a little bit less check management on the business as a whole.

So a little bit less people, um, or fewer people removing a drink, removing a side, uh, mix was actually relatively flattish in the quarter.

So we're getting a very mixed read on the consumer where, um, sales are still a little bit soft but maybe there's a little bit of glim on the, on the margin and on check management side of things Gregory, let's dive into that because just in case fed chair, Jay Powell is listening to our program right now, getting great insights from you.

I want to make sure that he understands.

So it sounds like the lower end consumer is changing ever so slightly.

But the overall consumer picture looked pretty ok for Dan and I understanding that correctly.

Yeah, II, I hope, I hope pal listens to us but uh we'll, we'll see the um Yeah, II I, so this has been uh, the restaurant sector has been under quite a bit of pressure the last few quarters.

Um, and Darden is one of the ones that reports off cycle.

So we get AAA different read.

Um, they're the biggest full service restaurant chain um, in the public markets.

And so what they say matters and, um, they taken a strategy where they've actually underpriced their competitors by about, you know, 6 7% over the last four years.

Um, and the sales have, have kind of been ok.

They've seen some traffic outperforms, but generally their view on the consumer has been that the lower income has been under a bit of pressure and they've seen a bunch of, of, of, uh consumers electing not to have a drink, electing not to have a side.

But this quarter was a little bit different.

We, we, we kind of saw that neutralize and maybe there's a glimmer of hope from, from that perspective and then we'll be watching that when we get the rest of uh, rest her earnings coming through in the next month or so.

Well, Gregory, another thing I wanna talk to you about what we have you is this sort of value meal war that we're starting to see amongst some of the more fast food and quick service chains.

Here.

I'm talking about a mcdonald's Burger King and Wendy's.

They've got these more affordable combo meals that they are pushing into the market to kind of drive forward this idea of affordability.

What is that telling you about the state of play when it comes to the fundamentals at these businesses and whether or not that's gonna be a good business decision for them moving forward or is it something that can potentially be a headwind on their profit margins?

Yeah, II I think what's driving this is it, it's been a very challenging inflation backdrop for restaurants to manage the last few years.

Um You've seen 20 mid, 20% stacked uh food inflation, a similar level of labor inflation.

And so restaurants have had to take a lot of pricing.

Now, you're in an environment where labor inflation is still going up four or 5% a year.

Um But food inflation has been kind of flattish and uh the franchisees and Franchisors have a little bit of a different approach where the franchisees are trying to drive bottom line profits.

The franchisors are trying to drive sales.

Um And so the sales have been a little bit soft and they're trying to get the franchisees to be a little bit more restrained on their price increases.

Um And so I think this inflation, we're seeing uh a less inflation than we saw 6, 12 months ago.

Um The, the franchisors are trying to rein in the franchisees and how much pricing that they've been taking.

And so I think that's what's playing out.

You've seen margins up quite a bit the last 12 months.

And I think this industry is too competitive for industry wide margins to structurally be higher.

And, and you're seeing that competed away a bit.

Absolutely.

And just to put a button on that, the president noting and the company's prices for mcdonald's increasing by an average of 40% since 2019 across those franchises to offset those rising costs.

And customers certainly taking note of that.

Gregory.

Thanks so much for joining us this morning.

That was Gregory Frankfurt.

He's Guggenheim Securities senior analyst.

Now coming up, red is getting a bullish call from Needham.

We're going to speak with the analyst behind that call after the break, it shares are up over 20% since the company's public debut back in March.

Our next guest though, thinks there's more room to run hiking her price target on Reddit from $63 to 75 on the heels of its new open a deal along with some upcoming data licensing agreements as well.

Joining us to discuss, we've got Laura Martin.

She's need.

And a senior media and internet analyst, Laura, thank you so much for being here.

Let's talk about reddit because as we mentioned, you rose your estimates and price target on the name.

What is the single biggest driver of that upgrade uh other revenue which is their generative A I licensing fees.

So they do about 100 of 1 million conversations a day and 7 million comments.

And all of these gen a large language models need to not only understand pop culture English when you ask them a question, but they need to answer in a way that sort of keeps up with the change in English language.

And so the best place for real human conversation is the Reddit daily update of these uh real conversations in Real English.

Yeah, we have these continued conversations on our show about where you see A I plays that make sense and are really fueling company fundamentals versus just kind of a mention of A I on an earnings call.

It sounds like for you, the A I play with Reddit is one that could lead to a fundamentally better business, I think.

So the margins here are 90% when they do one of these licensing duels and they already have a $200 million deal with Google or, or alphabet.

I guess their LLM is called Gemini over at alphabet and then they just got another $200 million deal from open A I Sam Waldman's company that Microsoft is the big investor in.

I expect all the Amazon large language models and the meta large language models to also license the Reddit conversations to keep up with changing English real quickly.

How concerned are you about the saturation of Reddit users so far?

You know, they're, they're going global, about 50% of their users are global and they're acceleratingly adding users.

Um So their user growth is like doubled in the last two years.

So all of that bodes well for more users coming on board, which gives you more, more conversations which should be a flywheel to track the next user.

Well, another company that I know you cover is Apple Laura right before this recent rally that Apple had, they had just broken above the flat line for their year to date performance.

Now they're up about 14% year to date.

I'm curious from your perspective, is the post worldwide developers conference growth real or does it start to fade particularly after we get the upcoming quarterly earnings from Apple?

Right.

So I mean the the reason that the market is saying that they think the generative A I announcements that Apple has made um will actually drive faster iphone sales that are in any of our Wall Street consensus estimates.

So I think I think they are too early.

I I do not think that will play out in the current iphone that gets launched in September.

Um especially because you saw today, the headline was that Apple needs a large language model in China because China does allow any of the large language models that are seen in America to be used.

So none of the gen A I stuff they announced are represent are allowed in China and that's 20% of iphone sales.

So um I think this cycle is too early.

So we think actually estimates will not exceed Wall Street consensus this year.

But next September, we do think a lot of developers will integrate the gen A I capabilities Apple is talking about.

So the next cycle after this one, uh we do think is probably our estimates are too low, but I'm not as optimistic as the market today is about the the the September of 2024 iphone cycle.

Well, it was interesting because initially after the conference, there was kind of a tepid Wall Street reaction on Apple.

And then the next day after we got some commentary from folks in the space, it seemed like there was this sudden rally around all the announcements that they made.

I mean, I'm just curious, what did you think of the announcements?

Did they pass the sniff test for you?

You know, I think it just so first of all, Apple, as you know, has $100 billion share buyback.

And so my guess is there in the market supporting the shares here?

That would be my guess.

Um and then secondly, I think it just all come, it's just all a judgment and people are trading on how important, how big iphone sales will be because that's 50% of their revenue still.

Um this September and it's my judgment that gen A I won't be as big a deal this year.

But the market disagrees with me.

They think that this, these gen A I announcements are gonna drive iphone sales, this September and October.

Well, that's what makes conversations with people like you fun, Laura.

So we appreciate you having an interesting take.

I do want to also get another company name in here.

Laura.

You also laid out the Bull and Bear case for Netflix in a recent note, the stock continuing to hit all time highs right along with the broader market here.

How much more room to run?

Do you think that Netflix has moving forward?

You know, they announced today that they're going to do their own version of physical.

I'm gonna call it theme parks, but it's more like a house where you go and you can do selfies.

Um They were demoing it at the upfronts where you can um go and inhabit all of their tit shows in real life.

So it's their version of a theme park.

So they're sort of copying in a, in a low capital intensity way.

They're copying the Disney Playbook, you know, more, merge more video games more.

So that's sort of interesting they continue to innovative things.

I think the return on capital for some of these things is unknown and unproven, but they, they're really innovative and I think that's interesting.

Uh they do it all their own way.

But uh so I think, I think um they are, you know, what the greatest thing about Netflix right now is that they're buying sports rights and not increasing their content budget.

And while, and investors strongly believe that the return on um viewing the viewing, the upside value from a sports activity is much higher than another dollar spent on entertainment content, which we sort of think is oversaturated and and um commoditized.

Well, as you mentioned live programming, a big catalyst for Netflix.

But to me profiting off live programming sort of requires advertising and sports itself just sort of requires advertising within it.

What do you think that means for Netflix's ad tier offerings?

Could you see a future where they don't offer an ad free option for subscribers?

Um that so the Wall Street loves dual revenue streams?

No, I think, I think all these streamers will end up just like the cable business was 50% ad driven, 50% subscription driven.

It'd be silly to actually only have a single revenue stream.

Wall Street hates that because of the lack of diversification.

So, no, I cannot see that.

Whilst there are customers who will pay a lot of money to not have ads, usually rich people So no, you should offer them that if that's what the consumer wants.

So, no, I think these streamers including Netflix will end up in the end with 50% ad revenue, 50% subscription revenue.

And Wall Street likes that kind of mix best.

Laura.

I really appreciate you joining the show.

Thank you so much for the great conversation.

That was Laura Martin.

She's N and co's senior media and internet analyst.

Now coming up more of the coverage of our KL International Festival.

Yahoo Finance spoke with celebrities, business leaders.

Everyone in between m going over in the south of France are very own.

Brian saw that down with Kevin Mayor Candle Media, co CEO and founder.

We going bring you that interview.

Next one of the most in demand executives here at Can Lines is no doubt Kevin Mayer Candle Media co founder.

Good to see you look good in that jacket, sir.

I'm feeling a little, you know, you looking good in the shirt was at the uh the Yahoo Finance 2023 best conference news making there.

That was a great conference, great news making.

Thanks for having me.

I appreciate that.

Uh that shout out.

So what brings you to, to Cannes, how is your week looking so far?

And what is candle media up to?

Well, we're up, we're up to many, many things.

Part of our, the biggest part of our business is actually um a youtube presence that we have with some of the biggest kids IP in the world, Coco Melon for parents out there that have small Children don't know who coon is.

They'll love me or hate me.

But I think love me more than anything else.

Uh Blippy and a whole bunch of different properties.

Those are all ad supported as well as streaming uh licensing to streaming services.

So I'm here meeting with a bunch of advertisers, seeing the creativity that's out here, come here every year.

It's a really great, great event.

What's your uh vibe on the advertising outlook?

Of course, political year could be a nice little boost for uh many linear networks.

But what's your, what's your feel of it?

I feel it's definitely political year.

It's gonna be a big political year for sure.

Um I do think the advertising is on the upswing, you know, it's very cyclical and it follows the economy.

The economy was a bit in the doldrums for a couple of years now, but it's coming out, I guess we didn't have an official recession but we had close to it.

So waiting for one and that will happen next year, it will happen at some point.

There always is one at some point, but I think the ad business is doing pretty well and I do think it's shifting though, there's a big mix shift afoot in advertising.

I think advertisers are seeking high quality video environments which I've always had in linear television, but also coupled with the ability to at least lightly, if not, if not, if not really in a deep way target their advertisements.

So I think these interactive platforms, I think um fast channels, I think all the over the top ad supported services, most streaming services now do have ads in their in their mix.

I think that's where the advertising dollars are flowing.

Linear TV is still important.

It has a lot of reach, has some of the highest quality programs in the world.

So still important.

But I think you're seeing this target media coupled with great environments.

That that's the thing.

Do big brands want to see their name in an ad after the first debate on CNN.

Isn't there a risk to putting your name out there?

You have to ask the brand, I don't know, those debates can be pretty interesting.

I think it's going to be interesting.

I'm looking forward to watching them.

I think the one thing I will say people are pretty engaged in those debates is not a lean back experience.

So I think advertisers that do end up there and have the, the 4 to 2 to stick with, it will probably be paid off with a decent amount of recognition and engagement.

You have really an extensive streaming background.

Help launch what Disney Disney plus, what is the outlook for linear TV?

If we're having this conversation 10 years from now, what does the local TV?

Station look like linear TV is in, is in secular decline.

I think there's no question that at least the pay TV, elements of your television are being supplanted by streaming.

And I think that, you know, the, the, the last bastion of pay TV has always been sports and news, news.

You can get in a lot of different streaming.

Uh and, and you can get them just on the web and you can get news in a lot of different places.

So I'm not sure that's going to continue to be a major driver of pay TV.

So it's really down to sports.

And I think, you know, ESPN has announced that they're going over the top of their sports streaming.

There's, they're in a joint venture with Warner Brothers and Fox to do the same thing.

I, I think that you'll see sports migrating from pay TV in a very, very substantial way also to streaming.

So I think the, the outlook for pay television isn't great.

Um And when, when sports viewers find other opportunities to watch sports, I think you'll see a continuation of that, of that decline and, and, and a collapse frankly of that environment.

But uh broadcast is a bit different.

That doesn't depend on pay TV, to get delivered to house in every single household.

And I do think you'll just see a different type of programming coming in there.

You'll still see sports on broadcast.

You'll see a, see a news, of course, and you'll see a much more reality programming, less expensive programming.

I think this the day is a very expensive, high production value, scripted programming and linear television are coming to an end.

I hear what Disney and Warner Brothers teaming up to launch that streaming sports, um that, that package or uh platform.

But do we need another streaming service in our life?

And is that is what they're doing something that a Netflix and Amazon should just got into and just totally own the own the ecosystem.

I don't think that um Amazon and Netflix should have gotten into that.

I think sports are very, very interesting and differentiated type of programming.

They're very expensive.

They appeal to a subset of the population but not everyone, I think, you know, big time sports fans are probably less than 50% of households would be my guess.

Um And for years, I mean, one of the reasons pay TV is in such, you know, secular and substantial decline is the cost of those sports rights and everyone had to bear the cost of those sports rights.

So you had uh every consumer, almost every household had pay TV 10 years ago and everyone was paying not only for the entertainment that they loved, but also for sports and not everyone watched the sports.

And I think that helped drive the decline down.

People were paying for something and a very expensive thing that they didn't really want to watch.

So I think Netflix will put their toe in the water but they've been, they've become a very successful entertainment company without sports.

They have sports related programming, but not the actual sports rights.

I don't think they're going to get into it in a big way with the major sports rights.

I might be wrong.

Can linear hold these sports rights?

They continue to go up, I mean, linear, the, the cost is going up the balance sheets for the likes of the sports broadcasters are, are getting, they're not where they need to be.

And the biggest companies with the biggest cash coffers are, in fact, Amazon and Netflix, they are Netflix, Amazon, Google and Google.

You know, the, the big, the big tech companies and Amazon has proven, has proven once in the end that they are interested in sports rights, they're bidding on them.

Uh you know, rumor has it.

They're in the NBA this time around.

I don't know if that's true or not.

Um They obviously have um football, they have a lot of sports and they have sports internationally too.

I don't know how much more they're gonna do in sports.

It has to feed their ecosystem in some way, the direct revenue of sports through their advertising business and it's a big advertising business.

I doubt it covers the big major sports, but I do think that there is ancillary benefits to uh companies like Amazon and Google.

It brings people to the ecosystem has a of engagement.

It causes it's a brand deposit in a very big way.

So I think they'll still be in it.

I just don't know if it would be a wholesale shift away from traditional media to digital or not.

It's yet to be seen.

Last time we talked to you at our investment conference.

You were advising Disney, Ceo Bob Eer.

Are you still advising him?

And then when he is no longer the CEO of Disney, what does Disney look like?

Does he have that one more eger moment where he makes some form of big strategic change?

I still advising.

I have to be, I, I can't, I can't speak too directly about it.

Um, nor should I, um, but I'd say, you know, Bob's here for 2.5 more years.

He has plenty of time.

He has a good deep bench there.

They have a very, very solid management team across the board.

So I think that he has succession.

Well in hand, I would guess again, I'm not involved in the process.

Um And do I think he wants to do one more big thing before he leaves?

Possibly?

Um, I don't know what that would be exactly, but he's made some, you know, made some investments recently and I think that there's probably a little more to do.

Um, but he might just leave in 2.5 years and leave it to his successor and make a big change.

I'm not sure it's in good shape.

Disney is in actually very good shape.

The stock price hasn't quite reflected that yet, but I think it will and I think this weekend with, uh inside out two is a huge win and a much needed win for, for Disney two parter one.

Do we know who the Disney successor is this year?

And then what characteristics are they looking for?

And how is the process, I guess, different than the last time Disney went through the process?

Well, I'm not sure I'm not privy to their, to their succession process.

So I, I, but I do think the board is gonna be quite involved as, as good governance would call for and I think they were last time too.

Um I think we may know this year but he's, he has a 2.5 more year.

So it wouldn't surprise me if it, if it extended a little bit beyond this calendar year into next calendar year.

But in the not too distant future, he's gonna wanna make, make uh make it known who his successor.

So he has some time to spend with him or her uh at the helm.

Um I don't know much more than that and I don't have a huge amount of insight.

I think the succession process will be very clean and very good this time around.

You're also the former former ceo of tiktok and we've talked to a lot of creators here on the ground and gosh, they're just a passionate group.

They love the tiktok platform.

But if, gosh, Kevin, if this gets banned in the US, what happens to this community and where do they go?

This has been such a strange process.

I was, when I was there in 2020 we had to go through the same thing that was a little easier to navigate though, in hindsight because they were presidential decrees.

Trump had some decrees and said, you know, we're banning tiktok and he didn't have the weight of the legislature, legislature behind him.

And now, of course, it's a validly passed law both houses and it's signed by President Biden.

So it looks a little more difficult their path at this point.

Now they can always sell or something can happen and the law could be overturned in the court in the courts.

That's also possible.

Again, I don't know what the outcome will be.

I think it's all a bit.

I don't want to use the word silly.

It's hard.

It's hard for me to contemplate tiktok being that big of a good thing.

No, it's not.

No, I don't think it's a good thing.

I don't.

And I think tiktok is a great service, I think um tiktok has been separated from China in a large way.

I think they're based in Singapore now and they're, and they're largely separated at this point, if not, fully, I'm not, again, I'm not at tiktok now.

I don't know all the facts, but it's a good platform.

It's a, it's more than a good platform.

It's a spectacular platform.

It, it does things that others can't.

The A I that it uses both to create all the lip syncing and all the things it does with the A I and the creation side.

But also on the curation side, the for you page is nothing but a vastly efficient, incredibly insightful A I engine that knows exactly what every single user wants in what order and what, what to show them next and does a lot of A B testing throughout the process.

So they have an incredible platform if they do get banned or if they get, if they get banned, I think two there are two companies that are gonna really benefit from that.

Everyone talks about meta and reels and that's for sure they're gonna benefit.

But I think youtube is probably the biggest beneficiary.

You know, I think, I believe it's true that youtube shorts has even more monthly active users than tiktok around the world in that vertical video format.

And I think they've done a great job.

I love Instagram reels too, but those two will share the spoils should take tiktok get banned, which I hope they don't.

Um I think probably youtube benefits a bit more lastly real quick before I let you go.

Um Paramount uh this has just been a true disaster story.

II I, I'm, it's, it's, it's, I've never seen anything like this, Kevin, but is there another buyer potentially coming in here or is this brand now been harmed beyond repair?

Just given the process they've gone through?

It's been a very strange process.

People I know and respect a lot have been in it.

You know, Redbird or the Jerry Cardinal was almost got the deal done.

And David Ellison, great guys, really smart guys.

Very surprised that Sherry at the end didn't decide to take that option.

You have Apollo and Sony that are knocking on the door.

I think there's, I've heard I've seen in the press a couple of other potential suitors that are out there, but I will say Paramount as a company is quite impaired at this point, they have, you know, three CEO s running it, uh broken, it looks to be maybe it will resurrect but a but a broken deal process and a business that is not doing all that well.

So I like Sherry a lot.

I think she'll uh hopefully figure out what to do here.

But as of right now, it's a, it's a big strange problem.

Put it uh to put it mildly, Kevin Mayer.

Well, let's get back to the uh party and meeting, sitting here at Ken Lyons and thank you for always making time for your finance.

We'll talk to you soon.

I appreciate it.

Thank you.

Commercial real estate market continues to be a volatile sector as us office values are 25% below their 2022 peak.

Now, Moody's is warning of potential downgrades for six regional banks that have commercial real estate exposure.

Despite this, our next guest believes that the could be a great buying opportunity for more.

We welcome in Barry.

He is New Waves, co founder, chairman and CEO.

Thank you so much for being here in person with us.

So we set it up nicely there for you.

A lot of obstacles in the CRE space.

But you're seeing opportunity.

I am, I think you're being generous when you're talking about values Hanly, I think uh in the office sector, I think values are down 50 to 70% not 25%.

So depending on which side of the sale you're sitting on.

If you're sitting on the seller side of the equation, you're probably a little concerned if you're sitting on the buyer side of the equation, you're probably looking at the opportunity as being generational in nature.

So getting in while it's inexpensive.

But for what?

Well, you've got, you've got two sides of the equation.

You got the capital market side which drives values and then you got supply and demand, which drives leasing and they're both a mess can at the moment.

And the institutional capital world doesn't want anything to do with office right now.

You know, they've got all their legacy issues and their existing portfolio, they have a negative bias towards what's going on in the office sector from a supply and demand standpoint and what the institutions tend to do is at the darkest point in the cycle, they generally take the leasing activity trend line and extrapolate that out.

And when you do that, when there's virtually no leasing activity going on, you can convince yourself that it's gonna take 10 years or longer to absorb all the vacant space.

Now, historically, that never is what happens.

Certainly in the tech sectors, you know, our markets are all driven by tech, the markets that were in west coast markets.

You know, all the big tech users, whether it's creative tech, whether it's traditional tech, defense, tech, life science, you know, go down the list they're home to, to all the big companies here.

And what you see is that these office markets tend to recover more like a hockey stick, right?

So it happens much quicker than most people predict.

So, are we at the bottom though of that hockey stick yet?

Oh, I think so.

And in fact, we're starting to see green shoots of leasing certainly in the Silicon Valley.

Well, it's interesting to me that you talk about the tech space.

This is just one example, but the king of tech at the moment, Jensen Juan require people to come into the office.

What if the tech world is just changing into a remote work?

Friendly sector.

Well, I think that it has candidly and isn't that bearish for CRE, well, certainly it's created, you know, significant amount of vacancy.

Right.

So I think it's going to typically take longer to absorb that because, you know, you see the tech companies are shrinking their footprints and it's compounded by the fact that, you know, when interest rates are zero, tech companies are focused on top line revenue growth and when they're focused on top line revenue growth, they're talk, they're focused on growing head count to generate that revenue.

And I, I think what you saw certainly during the COVID days is that the tech companies over leased space based on forward projections, uh interest rates rise and what you see is then they're focused on bottom line profit.

And I think so, you know, we in the commercial real estate sector were more than happy to accommodate their, their over projections.

You know, now we're suffering the hangover from that, right?

So, so what would be the single biggest driver then of a return to office?

Given that we are seeing a more remote work friendly sector?

Well, I think I, I think you're seeing a return to office.

You know, I think you all you gotta do is look at the big tech companies and see the mandates, you know, at Amazon, you're required to go back into the office, you know, four days a week at least.

And you're seeing the same thing at all, the big tech companies.

So, while there are some tech companies that have embraced the work from home environment, there's other ones that are clearly moving back to the, the more traditional with a little bit of a hybrid piece of the equation.

But, you know, I, if you're required to work three days a week or four days a week, you still need the same amount of office space because, you know, people are still coming into the space.

Right.

Right.

All right, Barry, well, we're gonna have to leave it there, but really appreciate you joining us and discussing the CRE space.

Thank you so much.

That was Barry D Ramon.

He is Steel Waves, co founder chairman and CEO.

Now coming up here, we are going to have wealth dedicated to all of your personal finance needs.

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