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00:00POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I'M MARK CRUMPTON. THIS IS BLOOMBERG. CAROLINE: WILL THIS IS BLOOMBERG MARKETS THE CLOSED. -- THIS IS "BLOOMBERG MARKETS: THE CLOSE." U.S. STOCKS ARE ON PACE FOR THEIR FIRST ACT BACK SINCE MARCH. MEANWHILE, THE RAILROAD BIDDING WAR BREAKS OUT. NETFLIX NAVIGATING A SLOWING MARKET. THE GIANT OUT WITH FIRST-QUARTER EARNINGS AFTER THE BELL. WE TAKE YOU THROUGH THE METRICS. SO MUCH MORE COMING UP THIS HOUR. ROMAINE: I NORMALLY LIKE TO START OUT UPBEAT, BUT YOU ARE SEEING A MARKET THAT SEEMS TO BE RUNNING OUT OF BUYERS. MARKETS ARE COMING OFF OF RECORD HIGHS. YOU NEED PERFECTION IN THE MACRO ECONOMIC STORY TO CONTINUE GETTING GAINS. A LOT OF PEOPLE ARE GIVEN PAUSE IN THIS GOLDILOCKS SCENARIO. THE LATEST BLOOMBERG SURVEY OF STRATEGISTS ON WHERE THEY THINK THE S & P IS GOING TO AND THE YEAR. WE ARE RIGHT AT THAT NUMBER. TAYLOR: WE ARE SEEING THE 10 YEAR YIELD COME DOWN. THIS IS THE RISK ON TOWN WHICH IS DIFFERENT THAN YESTERDAY WHEN IT WAS SELL EVERYTHING. WE ARE SEEING A RISK OFF TOWN OFF OF EQUITIES INTO BONDS. WHY? THERE IS AN INTERESTING STORY. THE MAGIC NUMBER IS 16% ABOVE THE 200 A MOVING AVERAGE. THE LONG TERM MOVING AVERAGE. THAT'S WHERE EQUITIES HAVE HAD A BIG OVERHEAD RESISTANCE LEVEL. WE HAVE ROLLED BACK OVER. IT IS THE 16% PREMIUM TO THE 200 DAY MOVING AVERAGE. THAT HAS REALLY PROVIDED THE MARKETS TO TAKE A PAUSE. CAROLINE: TAKING US THROUGH TECHNICALS AGAIN, LET'S GET IN MORE INSIGHT. SYLVIA, YOUR PERSPECTIVE? > > GREAT TO TALK WITH YOU. ROMAINE MADE A GREAT POINT THAT THERE SEEMS TO BE A LACK OF DEMAND IN THE PAST COUPLE OF WEEKS FOR EQUITIES. PART OF THAT IS THAT SOME OF THE INVESTORS HAVE TAKEN A STEP BACK AND ARE SITTING ON THE SIDELINES WAITING TO SEE HOW ALL THIS PLAYS OUT. I REMAIN VERY BULLISH ON THE MARKET. THE BIG REASONS ARE BASICALLY CONTINUED FISCAL STIMULUS, SUPPORTIVE FED, MORE LIQUIDITY THAN EVER IN THE MARKET. THESE COMPANIES ARE STRONG. THEY HAVE MADE A LOT OF CHANGES LAST YEAR. THE AUTOMATED COME THEY DIGITALIZED, THEY CUT COSTS. EARNINGS SEASON IS GONE TO SHOW US THAT IT IS WORTH IT TO CONTINUE TO LOOK AND INVEST IN EQUITIES. I REMAIN BULLISH. ROMAINE: IF WE ARE LOOKING FOR SPECIFIC SECTORS, DO YOU LOOK TO THE PAST WINNERS FROM THE PREVIOUS BULL MARKET CYCLE MEANING THE BIG CAP TECH NAMES LIKE APPLE OR DO YOU LOOK FOR A NEW TIER OF COMPANIES TO EMERGE DURING THE PANDEMIC? > > GOOD QUESTION. IT'S ALL OF THE ABOVE. IF YOU HAD ASKED ME TWO YEARS AGO, I WITH A LOOK AT THE FAANG STOCKS. THAT'S WHAT'S MOVING THE MARKET FORWARD. ALTHOUGH WE NEED TO SEE A BROADENED BRETT IN TERMS OF THE BULL MARKET IN ORDER TO SEE REAL MARKET PERFORMANCE AND CONTINUED S & P ACROSS ALL THE SECTORS, I STILL LIKE THOSE NAMES. AMAZON, APPLE, FACEBOOK, MICROSOFT. THERE IS AN ARGUMENT THAT THEY ARE OVERVALUED. THERE ARE ARGUMENTS FOR WHY THE VALUATIONS ARE WHERE THEY ARE. I THINK YOU NEED TO LOOK AT THE REOPENED TRADE SOME. HOTELS AND CASINOS, SOME OF THEM ARE AT ALL-TIME HIGHS. AIRLINES ARE STILL OFF OF ALL-TIME HIGHS. INTERNATIONAL TRAVEL IS NOT -- ACROSS THE GLOBE. THAT WILL BOOST TRAVEL FOR SOME OF THOSE COUNTRIES. THEY ARE GETTING BEAT UP NOW, THOSE ARE PLACES TO LOOK. THE CARNIVAL CRUISE LINES AND ENTERTAINMENT COMPANIES, THERE IS SO MUCH PENT UP DEMAND TO GET OUT THERE AND LIVE AGAIN THAT WITH THE CULMINATION OF VACCINES TRYING TO GET ENOUGH PEOPLE VACCINATED AND SEEING THAT THEY ARE EFFECTIVE, IF WE KEEP THE BAD NEWS TO A MINIMUM WITH SIDE EFFECTS, YOU WILL SEE A SURGE THERE. > > I READ AN INTERESTING QUOTE ABOUT THE HEALTH OF BALANCE SHEETS THAT TODAY'S LIQUIDITY COULD BECOME TOMORROW'S LEVERAGE ISSUE. ARE YOU WORRIED ABOUT ALL ISSUANCE OF DEBT? HOW DO YOU PAY THAT OFF OVER TIME? > > IT IS CERTAINLY SOMETHING WE HAVE TO LOOK AT AND IT'S A GREAT POINT TO BRING UP ESPECIALLY AFTER I JUST MENTIONED AIRLINES BECAUSE THEY HAVE COME SO HIGHLY LEVERAGED. SOME OF THE BIGGEST TRADES LIKE THE 5G, IF YOU LOOK AT VERIZON AND COMPANIES LIKE THAT, THEY ARE TAKING ON SO MUCH LEVERAGE TO INVEST IN IT. THE FUTURE RESULTS HAVE TO PAY OFF IN ORDER FOR THAT TO WORK OUT MEANING THAT THE AIRLINE BOOKINGS HAVE TO COME IN. YOU HAVE TO SEE THE DEMAND FULLY PICKUP. YOU HAVE TO SEE EVERYTHING TURN BACK ON WITH THE 5G THINK AND INVEST IN 5G OR RETURNS IN THE FUTURE. IF THAT PLAYS OUT, SOME OF THAT LEVERAGE WILL UNWIND AS THESE COUNTRIES GENERATE REVENUES FROM APPLYING SOME OF THE SERVICES. THE LEVERAGE IS OK AS LONG AS IT AMOUNTS TO SOMETHING TANGIBLE AND RETURNS FOR THE INVESTOR IN THE FUTURE. CAROLINE: WHAT TAKES US HIGHER FROM HERE? I NOTICED THAT YOU STILL LIKE AIRLINES. ON A DAY LIKE TODAY WHEN WE ARE SEEING PRESSURE FROM THE AIRLINE STOCKS, HOW MUCH IS VOLATILITY? > > I LOVE DAYS LIKE TODAY. DAYS LIKE TODAY ARE BASICALLY LIKE BLACK FRIDAY FOR SHELL. YOU SEE TESLA STOCK BEAT UP. YOU CAN BUY ON THE DIPS WHERE YOU ARE TRYING TO GET SOME POSITIONS INTO YOUR PORTFOLIO. I ALSO THINK THAT IN GENERAL LOOKING AT THIS MARKET, WE HAVE TO THINK ABOUT THE FUTURE. I TALK ABOUT THIS A LOT. TALKING ABOUT THE BILL, IF IT PASSES AND THE VARIOUS PARTS ARE APPROVED, THERE'S GOING TO BE A TON OF MONEY POURING INTO THE INDUSTRIAL REVOLUTION MACHINE LEARNING, QUANTUM COMPUTING. INVESTMENTS IN CHIPS, SEMI CONDUCTORS, THE 5G NAMES. THERE SHOULD BE A BIG AMOUNT OF ALLOCATION GOING INTO ALTERNATIVE ENTRY -- ENERGY. CARBON, HYDROGEN, ELECTRIC VEHICLES, SOLAR, WIND. THERE'S A LOT OF TAILWIND IN THE MARKET YOU HAVE TO PICK YOUR SPOT. ROMAINE: ALWAYS GREAT TO GET YOUR OPINION. COMING UP, A LOT MORE ON THE BIG SHOW. A POSSIBLE BIDDING WAR. THIS IS A BIG DEAL NOT JUST FOR RAILROADS. THE THIRD BIGGEST M & A DEAL ANNOUNCED THIS YEAR WORLDWIDE. PLUS, PEPSI ANNOUNCING AMBITIOUS GOALS TO COMBAT CLIMATE CHANGE. WE TALKED TO THE COMPANY'S CHIEF SUSTAINABILITY OFFICER LATER THIS HOUR. NETFLIX EARNINGS ARE DUE AFTER THE BELL. WE WILL DISCUSS WITH AN ANALYST COMING UP NEXT. TAYLOR: REDUCING RELIANCE ON THE DEBT MARKETS, THAT IS GOING TO BE A BIG NUMBER THAT I WILL BE LOOKING AT AS WE THINK ABOUT NOT ONLY ADDING ON THOSE NEW SUBSCRIBERS, BUT BEING SUSTAINABLE ON YOUR OWN. ROMAINE: LET'S SEE WHAT OUR NEXT GUEST IS GOING TO BE LOOKING AT. LET'S START WITH THE SUBSCRIBER NUMBERS. A LOT OF PEOPLE OR WONDERED ABOUT WHETHER THERE'S GOING TO BE A SLOWDOWN IN THE NET ADDS GIVEN THE BUMP THEY GOT FROM THE PANDEMIC. WHAT YOU THINK? > > WE KNEW COMING INTO Q1 THAT THE COMPANY WOULD BE FACING TOUGH COMPARISONS. WHEN YOU HAVE THE ONCE-IN-A-LIFETIME EVENT LIKE THE PANDEMIC AND THE COMPANY ADDED 37 MILLION SUBSCRIBERS IN 2020, THERE'S ALWAYS GOING TO BE OBVIOUSLY A QUESTION OF TO WHAT EXTENT DEMAND GOT PULLED FORWARD INTO 2020 WHICH SHOULD WEIGH ON Q1. CONSERVATIVES WOULD NOT BE SURPRISED IF THEY EXCEEDED EXPECTATIONS. THEN, WE WILL BE LOOKING FOR SOME TYPE OF MODERATION THE SECOND HALF OF THE YEAR. THE BIG STORY BEYOND THE SUBSCRIBERS IS GOING TO BE THE CHANGING FINANCIAL PROFILE OF. THEY'RE GOING TO BE BREAKING EVEN FREE CASH FLOW THIS YEAR. THAT IS THE EXPECTATION AND WE EXPECT THEM TO RAMP UP SOME POSITIVE FREE CASH FLOW. IT HAS A LOT OF INVESTORS SALIVATING ON WHAT THE BUSINESS MODEL WILL EVOLVE INTO. CAROLINE: BUSINESS MODEL IS ONE THING TO FOCUS ON. ALSO IS THE COMPETITIVE LANDSCAPE. ROMAINE IS DIGGING UP THIS POTTERY SHOW ON HBO MAX. I WONDER ABOUT THE STREAMING RIVALS AND WHAT YOU ARE SEEING IN TERMS OF WHO THE REAL COMPETITION IS COMING FROM. > > THE STREAMING WARS INTENSIFY TO ALL-TIME HIGHS ABOUT 18 MONTH AGO SINCE THE LAUNCH OF [INDISCERNIBLE] THEN YOU HAVE 45 POTENTIALLY FORMIDABLE COMPETITORS IN THE SPACE. THAT BEING SAID, WE STILL BELIEVE THAT NETFLIX IS WELL-POSITIONED TO BE ONE OF THE EVENTUAL WINNERS. THERE WILL BE SEVERAL WINNERS, TO BE SURE. WHAT IS HAPPENED IS THAT AS MORE MORE STUDIOS TAKE BACK THERE -- FROM THIRD-PARTY PLATFORMS TO THEIR OWN PLATFORMS, MOST RECENTLY LOCKING UP FIRST ROUND PICTURES WITH SONY PICTURES AND MAKING A DEAL FOR THE SEQUELS. THEY NEED TO SIGNIFICANTLY EXPAND THE ADDRESSABLE MARKET FOR STREAMING. TO SHIFT FROM PAY-TV TO LINEAR TELEVISION IS GOING TO CONTINUE FOR SEVERAL YEARS. NETFLIX SEEMS TO HIS TAKEN A MIXED BILL AND STEPS TO MITIGATE THIS COMPETITIVE ONSLAUGHT. TAYLOR: SOME OF THE COMPETITION YOU JUST DESCRIBED, ARE YOU CONFIDENT GIVEN THE RECENT PRICE INCREASES THAT NETFLIX CAN TRY TO MIGRATE INTO BECOMING MORE OF A PRICE SETTER INSTEAD OF A PRICE TAKER? > > THAT IS ALWAYS A GREAT QUESTION, TAYLOR. THAT POSSIBILITY IS THERE WHEN YOU LOOK AT THE PRICING ACROSS THE PLATFORMS. ARGUED LEE, NETFLIX IS STILL VERY ATTRACTIVE VALUE PROPOSITION GIVEN ALL OF THE CONTENT THAT THEY HAVE PUT IN THE PLATFORM. NOW GOING HEAD-TO-HEAD WITH THE LIKES OF DISNEY WITH FAMILY ANIMATION AND KUDOS TO THEM. PRICING IS ALWAYS GOING TO BE A VERY TOUCHY ISSUE. THEY SEEM TO HAVE ABSORBED THE PRICE INCREASES THEY JUST HAD A FEW MONTHS AGO. I THINK AS YOU LOOK FORWARD, THERE IS A LOT OF POTENTIAL FOR PRICE INCREASES. THE PRICING POWER NO DOUBT HAS INCREASED. TO YOUR QUESTION, I DO BELIEVE THAT THEY HAVE THE LIKELIHOOD TO TRANSITION TO BE A PRICE SETTER GIVEN THE PRICING DISPARITY THAT WE SEE GIVEN THE LIKES OF HBO MAX AND OTHERS THAT ARE STILL DOUBLE MOST IN TERMS OF THE PRIVATE OUTLOOK. CAROLINE: ALL THINGS TO WATCH AHEAD OF THE EARNINGS COMING OUT AFTER THE BELT. GREAT TO CHECK IN WITH YOU. COMING, WHY MANY INVESTMENT GRADE COMPANIES ARE DECIDING TO KEEP THEIR LEVERAGE LEVELS HIGH. INSTEAD OF PAYING BACK DEBT. IT MAY BE LEADING TO A CORPORATE DEBT BOOM. THAT'S NEXT. THIS IS BLOOMBERG. TAYLOR: IT IS UNBELIEVABLE THE STATISTICS WE GOT IN 2020. MORE THAN $1 TRILLION IN DEBT WAS ADDED TO CORPORATE BALANCE SHEETS. EVERYONE CAN BORROW FOR NOTHING. IT'S BASICALLY FREE. HIGH-YIELD SALES ARE SURGING. WE ARE AT $200 BILLION SO FAR THIS YEAR. WHAT DOES THIS MEAN FOR THE HEALTH OF CORPORATE BALANCE SHEETS? WHAT DOES THIS MEAN IF TODAY'S LIQUIDITY BECOMES TOMORROW'S LEVERAGE? THE ISSUE GETS BETTER IF THERE'S MORE LEVERAGE. IT LETS BRING IN OUR LEVERAGE EXPERT. TALK TO US ABOUT ADDING THAT TO THE BALANCE SHEET. THINGS HAVE TO WORK OUT PERFECTLY TO BE ABLE TO MAKE SURE THIS DOESN'T TURN INTO A LEVERAGE ISSUE. > > EXACTLY. WHAT WE SAW AT THE START OF COVID WAS UNDERSTANDABLY A NUMBER OF COMPANIES RAISED BILLIONS OF DOLLARS OF DEBT AS A CUSHION. NOW, WE ARE SEEING THAT FOR THESE HEALTHIER CUSTOM -- COMPANIES, THAT CASH IS STILL SITTING THERE ON BALANCE SHEETS. WHAT ARE THEY DOING WITH IT? NOT ALL OF THEM ARE PAYING BACK DEBT. A NUMBER OF COMPANIES HAVE STARTED FOR DOING -- PURSUING ACQUISITIONS OR INCREASING DIVIDENDS BECAUSE SINCE THEY ARE SO HEALTHY, THEY CAN MAINTAIN HIGHER DEBT LEVELS. ROMAINE: I WAS UNDER THE IMPRESSION THAT YOU GET INCREASED DEBT LIKE THIS FOR SOME OF THESE COMPANIES, THAT GAVE THE TETHER TO THE STAKEHOLDERS. THE IDEA THAT COMPANIES WOULD PRIORITIZE THE DEBT PAYMENTS AND WOULD HAVE SOME CONFIDENCE THAT THEY WOULD MAKE THE RIGHT DECISION. WHY AM I SUPPOSED TO BELIEVE THAT BY THEM PURSUING ACQUISITIONS AND OTHER THINGS THAT THAT DOESN'T GET THEM TO THAT GOAL? > > THAT'S A GOOD POINT. THE WAY THESE COMPANIES RAISE THE DEBT IS UNDER GENERAL CORPORATE PURPOSES WHICH MEANS THEY CAN DO WHATEVER THEY WANT WITH IT. COMPANIES DO ABSOLUTELY PUBLICLY STATE LEVERAGE TARGETS. NOT ALL OF THEM DO, AND IT DEPENDS ON THE COMPANY. IT'S AN IDIOSYNCRATIC STORY. HOME DEPOT HAS JUST BORROWED A NUMBER OF BONDS TO FUND ITS ACQUISITION OF HD SUPPLY, BUT THEY HAVE A VERY SPECIFIC LEVERAGE TARGET. ANOTHER JUST BORROWED MORE THAN $30 BILLION TO ACQUIRE 5G SPECTRUM. THAT IS A LONG-TERM GOAL. NOW WE HAVE TO WAIT AND SEE. COMPANIES BASICALLY KICKING THE CAN DOWN THE ROAD AND ASSUMING EVERYTHING WILL GO RIGHT FOR THAT TO PAN OUT. CAROLINE: HOW MUCH OF THIS IS PITTING EQUITYHOLDERS VERSUS BONDHOLDERS AS FAR AS WHO GETS PAID OUT AND WHO GETS HURT IN THE LONG TERM? > > THAT IS A GOOD POINT. THIS IS A TALE AS OLD AS MARKETS. WE HAVE BEEN SEEING REINSTATEMENTS OF DIVIDENDS AND SHARE BUYBACKS OVER THE PRIOR DEBT REPAYMENT. IF THE ECONOMY GOES GREAT AND COMPANIES KEEP GROWING, THEY COULD EASILY SUPPORT DOING BOTH OF THESE ACTIONS BECAUSE THEY WILL GROW INTO THEIR HIGHER DEBT LEVELS AND EARNINGS INCREASE. THAT ASSUMES EVERYTHING GOES PERFECTLY. KEY HERE IS THAT WE ARE TAKING A LOT OF CHANCES WITH THE ECONOMY ASSUMING THINGS WILL GO WELL AND NOT THINKING TOO HARD ABOUT WHAT IF THEY DO NOT. ROMAINE: NOW, IT'S TIME TO GET TO TAYLOR WITH THE BUSINESS FLASH HEADLINES. TAYLOR: A SIGN OF THE TIMES RECORDED SUISSE. -- CREDIT SUISSE. THE BANK IS DIALING BACK ITS RISK FOLLOWING THE IMPLOSION'S OF CAPITAL MANAGEMENT AND GREENFIELD CAPITAL. THE NEW FUND HAD TARGETED $500 MILLION IN ASSETS. CRYPTO TRADING COMING SOON TO A VENMO FEED NEAR YOU. HIS ROMAINE GOING TO VENMO ME A BITCOIN? SELECT CUSTOMERS OF THE VENMO APP, YOU CAN BUY AND SELL OLD CRYPTOCURRENCIES. THEY WILL MAKE IT AVAILABLE TO ALL APP USERS. THIS IS A STORY THAT CAUGHT MY EYE. PROCTER & GAMBLE RAISING THE PRICES OF SOME CONSUMER PRODUCTS BATTLING THE HIGHER COST OF COMMODITIES. THEY HAVE BEGUN IMPLEMENTING PRICE HIKES IN BABY CARE, FEMININE CARE, AND ADULT INCONTINENCE CATEGORIES. I THINK WHAT STUCK OUT TO ME WAS YESTERDAY DURING A CONVERSATION, SHE MENTIONED BED, BATH & BEYOND WHICH SAID WE ARE SEEING A LOT OF INPUT COST INCREASES BUT WE DON'T WANT TO PUT THAT ON OUR CUSTOMERS. WE DON'T FEEL LIKE IT'S A GOOD THING TO DO TO MAKE OUR CUSTOMERS ANGRY. YET YOU HAVE PROCTER & GAMBLE IN TOUCH WITH CONSUMERS SAYING YES WE ARE GOING TO PASS THIS ON TO THE CONSUMER. ROMAINE: IT'S A BIG DEAL AND THIS TRACKS WITH THE DATA WE HAVE ALREADY SEEN, THIS PRICE INFLATION HAS BEEN GOING ON AT THE CONSUMER LEVEL. THERE WAS A STUDY DONE EARLIER THIS MONTH THAT SHOWED THE K SHAPE INFLATION WHERE YOU ARE STARTING TO GET INFLATIONARY PRESSURES ON THE LOWER MARGIN ITEMS OR ITEMS THAT APPEAL TO THE LOWER INCOME FOLKS SOME OF THE BIGGER TICKET ITEMS YOU'RE NOT REALLY SEEING ANY SORT OF MEANINGFUL PRICE INCREASE. CAROLINE: THESE ARE NECESSARY ITEMS. THIS IS WHAT WOMEN GO THROUGH EVERY MONTH. THIS IS WHAT CHILDREN NEED 10 OF DAY. IT DIAPERS. I HAVE READ SOME THE NEED FOR DIAPER BAGS IN THE U.S.. HOW MUCH THIS IS HURTING THOSE ON A LOWER INCOME. ROMAINE: OUR VIEWERS SHOULD CHECK OUT THAT REPORT THAT RAN EARLIER THIS MONTH. CAROLINE: THE MARKETS ARE DOWN. ♪ ROMAINE: THIS IS "BLOOMBERG MARKETS: THE CLOSE." CAROLINE: REMEMBER HOW WE WERE ALL UPSET WITH THE SUPER LEAK? IT SEEMS TO BE UNRAVELING. IT IS BEING REPORTED THAT MAN CITY IS WITHDRAWING FROM THE SUPER LEAGUE. WE KNEW THAT CHELSEA WAS FORCED TO PULL OUT BECAUSE OF A SEVERE BACKLASH FROM THEIR OWN SUPPORTERS. HIS QUICKLY AS WE LEARNED JP MORGAN WAS GOING TO BE BANKROLLING IT, IT IS ALL COLLAPSING. ROMAINE: THAT WAS QUICK. LET'S CHECK IN ON THE OIL MARKET. THIS IS NORMALLY WHERE I READ OFF A BUNCH OF PRICES, BUT WE SHOULD MARK THIS DAY. REMEMBER WHERE WE WERE ONE YEAR AGO WHEN WE SAW WTI CRUDE FUTURES CLOSED AT -$37.63 PER BARREL. LOOK AT WHERE WE HAVE COME. THAT WAS OBVIOUSLY A LITTLE BIT OF A DISTORTION. WE BOUNCED BACK. NOW, WE ARE AROUND THE $63 PER BARREL MARK. THERE IS A QUESTION ABOUT HOW MUCH HIGHER IT CAN GO FROM HERE. THAT WILL DEPEND ON THE COVID CRISIS. CORN FUTURES RISING TODAY AND A SOYBEAN IS ALSO UP. TAYLOR: WE ALSO NEED TO MARK THE FIRST DAY IN FOUR WEEKS THAT LUMBER IS GOING DOWN INSTEAD OF UP. TAKE A LOOK AT THE RED AND THE GREEN ON MY SCREEN. KANSAS CITY SOUTHERN IS HIGHER BECAUSE IT IS IN A BIDDING WAR. ANALYSTS ARE THINKING THIS WAS A HEALTH EVALUATION BEFORE, THIS IS A BIDDING WAR, DOES THE LOSER TRY TO BUY SOMETHING ELSE? WHAT HAPPENS? LOOK AT THIS MAP. THE TWO CANADIAN COMPANIES ARE IN WHITE AND ORANGE. THIS IS WHY EVERYONE IN THE CANADIAN RAILWAYS ONCE THE YELLOW KS YOU BECAUSE OF THE ACCESS THAT HE GETS THEM. WE SPOKE TO THE CANADIAN NATIONAL RAILWAY CEO. TAKE A LISTEN. > > TO CREATE THE VALUE WE WANT TO CREATE, TO CONNECT THE THREE COUNTRIES THROUGH SOLID NETWORK ALL THE WAY TO MEXICO CITY, TORONTO, CALGARY AND MICHIGAN. WE WILL BE LOOKING AT THE OPERATION IN THE UNITED STATES. THE RAILROADS IN THE UNITED STATES WILL REMAIN BIGGER THAN THE OTHERS COMBINED. ROMAINE: HERE TO TALK A LITTLE BIT MORE ABOUT THIS IS A BLOOMBERG INTELLIGENCE TRANSPORTATION ANALYST. WE SHOWED THE RAIL NETWORK AS IT MOVES THROUGH CANADA, THE U.S., AND MEXICO. EXPLAIN TO OUR VIEWERS WHY KANSAS CITY SOUTHERN IS SUCH A TARGET IN THIS BIDDING WAR. > > THERE ARE TWO FACTORS INVOLVED. ONE IS SIZE. IT MAKES IT EASY TO DIGEST. SECONDLY, THERE'S NOT THAT MUCH OVERLAP SO THERE'S PROBABLY LESS REGULATORY HURDLES THAN WOULD EMERGE WITH A RESTAURANT -- WESTERN RAIL. ANOTHER PART IS THE CROSS-BORDER FRANCHISE. IT MOVES FREIGHT BETWEEN THE UNITED STATES AND MEXICO. YOU HAVE PRODUCTS GOING SOUTHBOUND. YOU ALSO HAVE INTERMODAL GOING NORTHBOUND. THAT IS AN AREA OF HIGH GROWTH AS MORE MANUFACTURERS LOOK TO BRING OR DIVERSIFY THEIR MANUFACTURING AWAY FROM ASIA GIVEN THE ISSUES THAT WE HAD A COUPLE OF YEARS AGO WITH THE TRADE WARS WHICH ARE STILL ONGOING. THAT DIVERSIFICATION AND THE COST OF PRODUCING AND MEXICO IS PRETTY COMPETITIVE COMPARED TO WITH A. IT IS A GROWTH MARKET NOT ONLY A DOMESTIC GROWTH MARKET, BUT WITH TRANSPORTING STUFF INSIDE OF MEXICO BUT THE CROSS-BORDER BUSINESS BETWEEN THE UNITED STATES AND MEXICO. OBVIOUSLY, CONNECTING THAT WITH THE CANADIAN RAILROAD IT MAKES TRULY NAFTA NETWORK WHICH IS PRETTY COMPELLING. CAROLINE: WHAT A GEOPOLITICAL STORY. GO BACK TO THE BASICS, WHICH IS THE CASH INVOLVED. I CAN SEE ONE IS MORE THAN THE OTHER. WHAT ARE THE DIFFERENCES IN THE BIDS THAT ARE COMING THROUGH AND HOW CAN WE SEE THEM PROGRESS? > > THE FOLKS WITH THE CP DEAL WILL GET MORE -- WITH THE CN DEAL WILL GET MORE CASH WHERE THE CP DEAL WILL GET MORE STOCK. ASSUMING THAT IT IS CP AND KS YOU DEAL HAPPENS, THE KANSAS CITY SOUTHERN SHAREHOLDERS WILL HAVE A 25% STAKE IN THE NEW COUNTRY -- COMPANY WHERE THE OTHER DEAL THE SHAREHOLDERS WOULD HAVE A 12% STAKE. THE SHAREHOLDERS WILL HAVE MORE OF AN INVESTED POTENTIAL FOR THE UPSIDE THAT WOULD BE THE NAFTA NETWORK WHICH NOT ONLY WILL THE KS YOU SHAREHOLDERS AT A NICE PREMIUM TO THE SHARE PRICE, BUT THEY WILL PROBABLY BE ABLE TO PARTICIPATE MORE IN THE GROWTH STORY GIVEN THE EQUITY INVESTMENT THAT THEY WILL HAVE POST DEAL. CAROLINE: GREAT STORY AND MAPS AND ANALYSIS. THANK YOU. MEANWHILE, STILL AHEAD, SO MUCH MORE TO COME. SHARES OF UNITED FALLING TODAY. WHAT IT WILL TAKE TO RETURN TO PROFITABILITY. THAT'S COMING UP IN OUR STOCK OF THE HOUR. THIS IS BLOOMBERG. CAROLINE: COVID-19 IS RESEARCHING ACROSS THE WORLD. TOKYO ASKING THE JAPANESE GOVERNMENT TO DECLARE A STATE OF EMERGENCY. INDIA IS IN THE MIDDLE OF A SECOND WAVE. JOHNS HOPKINS CENTER OF HEALTH DISCUSSED THESE TRANSMISSION TRENDS EARLIER ON BLOOMBERG. > > DIFFERENT COUNTRIES HAVE DIFFERENT ROLLOUT TIMESCALES AND WE HAVE SEEN THESE MORE CONTAGIOUS VARIANTS TAKE IN CERTAIN COUNTRIES. IF YOU DON'T HAVE A VACCINE TO STAY AHEAD OF THEM OR STOCKS THEIR IMPACT, YOU'RE GOING TO GO BACK TO WHERE YOU WERE IN THE DAYS OF WINTER OR SPRING. NOT ALL OF THESE COUNTRIES WILL HAVE CONTROL WELL INTO 2022. THAT IS WHY YOU ARE SEEING THE NUMBER OF COUNTRIES INCREASE WELL UP TO 80% IN NO TRAVEL ADVISORIES. > > I LOOK AT THOSE INDIVIDUAL LOCATIONS, THEY CAN ALSO BE IN THE GLIDE PATH OF YOUNGER PEOPLE INCLUDING JONATHAN FERRO HAVING HIS SECOND SHOT HERE IN THE LAST 24 HOURS, IT IS RUMORED HE SURVIVED. I LOOK AT THE GOOD NEWS COMING ON IT IS THE YOUNGER PEOPLE COMING ON AS WELL. WHERE IS YOUR TIMELINE FOR 20-YEAR-OLDS AND 30-YEAR-OLDS IN AMERICA WILL GET BACK TO THE VIRUS SUCCESS WE HAVE SEEN IN 60 AND 70-YEAR-OLDS? > > IT IS LIKELY TO BE IN MIDSUMMER. HOPEFULLY NOW WITH EVERYONE SIGNING UP AND GETTING A DATE TO GET VACCINATED, SOME PLACES YOU CAN WALK IN LIKE HERE IN ITS PER. -- PITTSBURGH. THAT'S GOING TO MAKE IT EASY AND WE WILL LIKELY CONTINUE TO GET MORE OF THE YOUNG GROUP THAT IS RESPONSIBLE FOR MANY OF THE CASES THAT WE ARE SEEING RIGHT NOW VACCINATED. ONCE WE GET TO AROUND 40% OF THE POPULATION FULLY VACCINATED BASED ON ISRAEL, WE WILL START TO SEE A DECLINE IN CASES THE WAY THEY DID. WE HAVE ALREADY SEEN BENEFITS IN TERMS OF HOSPITALIZATION BECAUSE OUR OLDER INDIVIDUALS WHO WERE TAKING UP HOSPITAL BEDS, THAT IS NOT HAPPENING SO MUCH ANYMORE BECAUSE OF HOW MANY OF THEM HAVE BEEN VACCINATED. > > WHAT IS THE LATEST ON TRANSMISSION FOR THOSE WHO HAVE BEEN VACCINATED? WHETHER THEY CAN ACTUALLY PASS THE VIRUS ON TO OTHER PEOPLE? > > THE DATA WE HAVE ACCUMULATED SO FAR SHOWS IT TO BE EXTREMELY RARE. IT DOESN'T MEAN ZERO, BUT IT IS EXTREMELY RARE AND SOMETHING PEOPLE COULD BE COMFORTABLE WITH IN TERMS OF NOT HAVING TO WORRY ABOUT BEING A CARRIER. IF THERE IS AN OUTBREAK, YOU ARE NOT GOING TO LOOK AT THE VACCINATED PEOPLE TO SEE IF THEY WERE THE ONES THAT SPREAD IT. THERE'S GOING TO BE SOME TIME FOR PUBLIC HEALTH EDITS TO CATCH UP. THAT IS WHY WE HAVE CONSERVATIVE GUIDANCE FOR WHAT PEOPLE CAN SAFELY DO. IN TERMS OF RISK TOLERANCE, I'M NOT WORRY ABOUT -- WORRIED ABOUT VACCINATED PEOPLE. I TELL PEOPLE TO GO BACK TO THEIR LIFE AS MUCH AS POSSIBLE ONCE THEY HAVE BEEN VACCINATED. THAT'S HOW I THINK THE VACCINES ARE WORKING. WE HAVE REAL-WORLD DATA THAT SHOWS THE TRANSMISSION GOES DOWN AND THERE IS DATA FROM PFIZER THAT SHOWS THAT IT IS HARD TO BE INFECTED IF YOU ARE VACCINATED. TAYLOR: THE JOHNS HOPKINS BLOOMBERG SCHOOL OF PUBLIC HEALTH IS SUPPORTED BY MICHAEL R BLOOMBERG, FOUNDER OF BLOOMBERG LP AND BLOOMBERG PHILANTHROPIES. ROMAINE:. IT'S TIME FOR OUR STOCK OF THE HOUR. UNITED AIRLINES IS THE BIGGEST DECLINER OF THE DAY. WHAT'S GOING ON? I THOUGHT THINGS WERE GETTING BETTER FOR AIRLINES. DAVE: BETTER IS A RELATIVE TERM. WHAT UNITED DID IS SHOW HOW FAR THE COMPANY AND ARGUABLY THE AIRLINE INDUSTRY HAS TO GO. TO RETURN TO WHERE IT WAS IN 2019, BEFORE WE HAD THE CORONAVIRUS PANDEMIC. THAT PUT UNITED USING ITS BASIS FOR COMPARISON GOING BACK TWO YEARS. LOOKING AT, FOR EXAMPLE WHERE THEY WOULD BE AT YEAR END. THEY ARE LOOKING TO BE PROFITABLE WHEN YOU TALK ABOUT ADJUSTED -- THEY ARE FIGURING THAT IF THEY COULD GET TO 30% OF THEIR 2019 LEVELS IN TERMS OF BUSINESS TRAVEL AND INTERNATIONAL TRAVEL, THEY COULD GET THEIR. THEN, THEY TALKED ABOUT HOW THEY ARE LOOKING AT NET INCOME DOWN THE LINE IF THEY GET BACK TO 65% OF THE 2019 LEVELS. AGAIN, WITH BUSINESS TRAVEL AND INTERNATIONAL TRAVEL. HERE'S THE THING. THEIR CEO CAME OUT ON A CONFERENCE CALL TO TALK ABOUT HOW IN THE FIRST QUARTER, THEY ARE LESS THAN 20% OF WHERE THEY WERE TWO YEARS AGO. IN TERMS OF THOSE HIGH-PAYING PASSENGERS. THE ONES GOING OVERSEAS AND THE ONES TRAVELING FOR BUSINESS. THAT IS REALLY THE ISSUE GOING FORWARD. AS MUCH AS ANYTHING, WHAT IS WAITING ON UNITED -- WEIGHING ON UNITED IS WHAT IT'S GOING TO TAKE FOR THIS COMPANY AND BY EXTENSION THE INDUSTRY TO COME BACK. CAROLINE: DAVE WILSON, THANK YOU SO MUCH. MEANWHILE, LET'S TALK ABOUT STORIES OF SUSTAINABILITY BECAUSE THERE ARE STORIES OUT THERE. WE WILL TALK TO THE SUSTAINABILITY OFFICER OF PEPSICO. ♪ ROMAINE: TIME NOW FOR TOP CALLS. FIRST UP, NIKE. ANALYSTS ARE SAYING THEY ARE SLOWING BUSINESS IN CHINA AND THAT HAS NOT BEEN FACTORED IN TO NIKE'S GUIDANCE ON FORWARD. NEXT UP, HBE. A $20 PRICE TARGET. THE STOCK PRICE IMPLIES MANY YEARS OF NEGATIVE GROWTH AHEAD. SHARES ARE DOWN ALMOST 2%. FINALLY, ALPHABET. ANALYSTS EXPECTING RESULTS TO REINFORCE THE ADVERTISING FUNDAMENTALS SAYING THAT THEY REMAIN STRONG. THOSE ARE SOME OF YOUR TOP CALLS. CAROLINE: LET'S LOOK AT ANOTHER CORPORATE STORY, THE SUSTAINABILITY SIDE OF IT. YOU KNOW PEPSICO. THE COMPANY HAS A VERY LARGE AGRICULTURAL FOOTPRINT. THE COMPANY IS ANNOUNCING ITS LONG-TERM PLANS FOR REGENERATIVE AGRICULTURE. GROWING CROPS IN A WAY THAT REPLENISHES THE EARTH. PEPSICO SAYS IT WILL ELIMINATE 3 MILLION TONS OF EMISSIONS BY 2030. COMING UP WE ARE TALKING TO THE SUSTAINABILITY OFFICER. HOW COSTLY IS THIS TO DO AND HOW MUCH OF A REWARD IS IT? > > THANK YOU. THIS IS JUST INTRINSICALLY PART OF OUR BUSINESS. WE HAVE A VERY LARGE AGRICULTURAL FOOTPRINT. A LOT OF PEOPLE DON'T KNOW THAT PEPSICO IS MORE THAN A BEVERAGE COMPANY. FOOD AND SNACKS ARE ABOUT 55% OF OUR REVENUE. PROBABLY TWO THIRDS OF WHAT WE DO STARTS IN THE GROUND. THESE ACTIVITIES ARE PART AND PARCEL OF MAKING US A STRONGER MORE RESILIENT COMPANY. THE GREAT THING IS THAT AS WE MOVE FORWARD IN THIS, FARMERS ARE BUSINESS PEOPLE. THEY ARE LOOKING FOR HOW DO I REDUCE RISK AND HOW DO I INCREASE MY INCOME? THESE ARE REALLY POSITIVE PRACTICES FOR THE FARMERS AND ULTIMATELY THEY FLOAT THE VALUE CHAIN. ROMAINE: WHEN WE TALK ABOUT THE BOTTOM LINE, THERE ARE UPFRONT COSTS OR EARLY COST INVOLVED IN MAKING THIS TRANSITION. HOW DO YOU BALANCE THAT OUT NOT ONLY FOR THE FARMERS BUT ALSO THE CONSUMERS? IS THERE A COST DYNAMIC THAT WE SHOULD BE AWARE OF AND THAT MAYBE WE SHOULD FACTOR INTO THE GENERAL OUTLOOK? ASK THE COST ARE UPFRONT, AS YOU SAID. IT IS REALLY ABOUT HOW DO WE TAKE RISK OUT FOR THE FARMER? OVER TIME, WE HAVE SEEN THAT THESE PRACTICES HAVE A VERY POSITIVE IMPACT ON THE ECONOMICS FOR THE FORMER. WE HAVE A NUMBER OF PROGRAMS WHERE WE HELP REDUCE THAT RISK FOR THE FARMER BY COST-SHARING. WE WILL GIVE THEM AN AMOUNT PER ACRE FOR SOME OF THEIR ACRES. WHAT WE FIND IS THAT THE RESULTS ARE SO GOOD THAT THEY FREQUENTLY GO FAR BEYOND WHAT WE HAD ORIGINALLY SHARED COST ON BECAUSE THEY SEE THE BENEFITS. IT IS A REAL PRODUCTIVITY INCREASE FOR THEM. IT ALLOWS THEM TO REDUCE THE INPUT COST AND BE MORE RESILIENT, WHICH IS ULTIMATELY ABOUT TAKING RISK OUT. IT IS VERY POSITIVE AND THAT LITTLE UPFRONT IS JUST A TRANSITION THAT AS I SAY, WE FIND GOOD PICK UP AS WE MOVE FORWARD. TAYLOR: BEFORE YOU GET TO THE PICKUP, THE INITIAL COST THAT YOU DISCUSSED, ARE YOU PASSING THAT OFF TO THE CONSUMER? > > THESE COST ARBERY -- WE HAVE NOT PASSED ANY OF THEM AT THIS POINT OFF TO THE CONSUMERS BECAUSE WE SEE THE RESULTS THAT GET DRIVEN THROUGH OUR AGRICULTURAL CHAIN. IF YOU THINK ABOUT A BRAND LIKE WALKERS, WE ARE MOVING TO CARBON NEUTRAL POTATOES WHICH IS OUR BIG CHIPS BRAND IN THE U.K.. WE ARE MOVING TO CARBON NEUTRAL POTATOES WERE WE TAKE SOME OF THE WASTE PRODUCT, USING IT FOR FERTILIZER BACK TO THE FARMS. IT REDUCES GREENHOUSE GAS EMISSIONS AND CREATES CIRCULARITY. THE BENEFITS ARE MULTI FOLD ACROSS THE VALUE CHAIN. CAROLINE: I'M INTERESTED IN HOW MUCH THE SUSTAINABILITY DRIVES CUSTOMER DEMAND. COULD YOU CHARGE A PREMIUM PRICE BY DEMONSTRATING SUCH CARBON NEUTRAL POTATOES? > > WHEN IT COMES TO FOOD AND BEVERAGE, CONSUMERS ARE ALWAYS LOOKING FOR A COUPLE OF THINGS. THEY ARE LOOKING FOR GREAT TASTE. THAT IS OBVIOUSLY WHERE, AS OUR FOOD OR BEVERAGE PRODUCTS, WE PRIDE OURSELVES. THE OTHER IS TO HAVE AVAILABILITY. BEING AWARE OF CONSUMERS LIST OF PRODUCTS. THERE IS AN INCREASING NUMBER OF RETAILERS WHO ARE INTERESTED IN SUSTAINABILITY AND AS YOU KNOW FROM ALL OF YOUR WORK, WHAT ARE COMPANIES REALLY DOING TO LEAN IN TO THE PURPOSE? THOSE THINGS THAT GO BEYOND BUSINESS AS USUAL? WHEN YOU PUT THAT WHOLE PACKAGE TOGETHER, WE ARE FINDING YOU SAW WE JUST ANNOUNCED EARNINGS RECENTLY. BUSINESS HAS BEEN VERY STRONG. IT'S A COMBINATION OF ALL OF THESE THINGS. ROMAINE: A REALLY IMPORTANT TOPIC. WE APPRECIATE YOU TAKING YOUR TIME TO BE WITH US. THAT WAS THE CHIEF SUSTAINABILITY OFFICER AT PEPSICO. WE WANT TO GET BACK TO THE BROADER MARKET. THE S & P OPENED LOWER AND IT HAS BEEN A STAIRSTEP DOWN ALL DAY LONG. WE ARE NEAR THE LOWS OF THE DAY. THE RUSSELL IS YOUR UNDERPERFORMER. TAYLOR: IT IS DOWN 4% AS WE CONTINUE TO TRY TO TALK ABOUT THIS ROTATION INTO VALUE AND CYCLICALS. 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. I AM MARK CRUMPTON. THIS IS BLOOMBERG. CAROLINE: WE ARE COUNTING YOU DOWN TO THE CLOSE. JUST ONE HOUR LEFT IN TRADING. I AM CAROLINE HYDE. ROMAINE: STOCKS AT THE LOWS OF THE DAY. I AM ROMAINE BOSTICK. TAYLOR: I AM TAYLOR RIGGS. WE ARE OFF 1%. BONDS CATCHING A BID. YIELDS DOWN. PRICES HIGHER. UTILITIES, REAL ESTATE, BOND SENSITIVE SECTORS LEADING US HIGHER. EVERYTHING ON THE BOTTOM IS CLASSIC RISK-OFF, INCLUDING TECH. THAT IS WHERE THE HEADLINE INDEX FALLS. ROMAINE: J & J GETTING A BID. IT IS SCHEDULED TO RESTART SHIPMENTS OF THE VACCINE IN EUROPE. THERE IS A CDC ADVISORY COMMITTEE MEETING IN THE U.S. SCHEDULED TO TAKE PLACE BY FRIDAY AT THE LATEST. APPLE HAD THE BIG SPRING-LOADED EVENT. IT WAS WHAT WE EXPECTED. NEW IPADS IS PRETTY MUCH ALL IT WAS. I GUESS INVESTORS ARE DISAPPOINTED. UAL WAS THE STOCK OF THE HOUR LAST HOUR. THE BIG DEAL OF THE DAY, KANSAS CITY SOUTHERN NOW A TAKEOVER TARGET BY CANADIAN NATIONAL OUTFITTING CANADIAN PACIFIC. CAROLINE: I LOOKING AT SENTIMENT AT THE MOMENT. WE SEE RISK AVERSION AS WE WORRY ABOUT COVID. MIKE WILSON AT MORGAN STANLEY SAID PERHAPS EARNINGS SEASON WOULD BE AN ISSUE. TAKE A LISTEN. WHAT'S WE DOWNGRADED CONSUMER DISCRETIONARY AND SMALL CAPS AND ADVISED PEOPLE TO MOVE UP THE QUALITY CURVE ABOUT A MONTH AGO BECAUSE THE NEWS IS BAKED IN THE SHORT TERM. WE THINK THE EARNINGS COULD BE A BIT OF A SELL THE NEWS EVENT. AT THE END OF THE DAY, IT IS STILL A BULL MARKET. BUT IT IS GETTING TRICKIER. CAROLINE: GETTING TRICKIER WITH VALUATIONS WHERE THEY ARE. ROMAINE: LET'S BRING IN OUR NEXT GUEST, A PORTFOLIO YOU MANAGER JOINING US FROM LOS ANGELES. THERE IS A CONCERN IN THIS MARKET ABOUT WHERE WE ARE IN THE CYCLE, AND WHERE YOU THINK WE ARE IN THE CYCLE WILL DRIVE HOW YOU VIEW VALUATIONS AND THE MARKET. WHERE DO YOU SEE US? ARE WE MIDCYCLE, START A NEW CYCLE? WHERE DO YOU THINK WE ARE? > > I THINK WE ARE STILL ON OUR WAY TO RECOVERY. FROM A STOCK MARKET VALUATION PERSPECTIVE , THE S & P CYCLICALS INDEX PERFORMED 89% UP WHILE THE BROADER INDEX IS UP 50%. WE HAVE SEEN A MASSIVE RECOVERY IN CYCLICAL STOCKS. VALUATIONS HAVE BECOME MORE DEMANDING. WE BELIEVE THE ECONOMY WILL INCH HIGHER. WE DO SEE SOME RISK-REWARD TRADE-OFF AND CYCLICALS ARE NOT AS ATTRACTIVE AS SIX MONTHS AGO. CAROLINE: YOU HAVE BEEN TAKING RISK OFF, ANTICIPATING PERHAPS SOME VOLATILITY. TALK US THROUGH HOW YOU'VE DONE THAT. > > WE HAVE A CONCENTRATED PORTFOLIO. WE ARE LOOKING AT STOCKS ON A BOTTOM UP VALUATION BASIS. WE SEE SOME CYCLICAL STOCKS ARE PRICING IN SOMETHING HIGHER THAN PEAK EARNINGS FROM THE PREVIOUS CYCLE. FOR THOSE COMPANIES SPECIFICALLY, WE HAVE BEEN ROTATING OUT. COMPANIES IN DEFENSIVE SECTORS LIKE UTILITIES AND CONSUMER STAPLES, WE SEE BETTER OPPORTUNITY THERE WITH MORE STABLE BALANCE SHEETS, GOOD DIVIDENDS, AND REASONABLE GROWTH. TAYLOR: WHAT QS ARE YOU GETTING FROM THE BOND MARKET? A FEW WEEKS AGO, WE HIT 177 ON THE 10 YEAR. WE MIGRATE DOWN TO 150. WHAT IS THAT TELLING YOU? > > IF I LOOK LONGER-TERM AND THINK ABOUT WHERE THE ECONOMY IS HEADED, I THINK WE ARE IN A GOOD PLACE. I THINK BOND MARKET SENTIMENT WILL DRIVE VALUATION IN THE STOCKS I LOOK AT. THIS IS WHY WE WANTED TO TAKE ADVANTAGE OF RECENT CYCLICAL UPTURNS AND GO BACK INTO MORE DEFENSIVE WHERE OPPORTUNITIES ARE MORE PLENTIFUL. ROMAINE: LOOKING BOTTOM UP, A LOT OF PEOPLE WOULD LOOK AT THE BIGGER COMPANIES ON THE S & P 500 AND SAY THE VAST MAJORITY APPEAR TO BE IN RELATIVELY GOOD HEALTH. WE HAVE SEEN RELATIVELY RESILIENT REVENUE GROWTH DURING THE PANDEMIC AND IMPROVING BALANCE SHEETS FOR A LOT OF THEM. WE HAVE SEEN SOME IMPROVEMENT IN MARGINS. IS THERE ANYTHING THAT GIVES YOU CONCERN THAT SOMEHOW THAT IS NOT SUSTAINABLE? > > I THINK TOPLINE GROWTH FOR THE BIG COMPANIES, THEY HAVE AGILITY WHERE THEY HAVE READJUSTED THEIR BUSINESS MODEL TO THE ENVIRONMENT. I DO HAVE SOME CONCERNS AT THE SPECIFIC COMPANY LEVEL WHICH WILL BE HIT MORE BY INFLATION VERSUS THE ONE THAT WILL BE ABLE TO PASS ON THOSE COSTS IN PRICING. I THINK YOU HAVE TO LOOK AT IT ON A COMPANY SPECIFIC BASIS. CAROLINE: TALK TO US ABOUT VOLATILITY. YOU SAY YOU HAVE BEEN PREPARING A PORTFOLIO FOR IT. THERE IS TALK ABOUT A FEW GAUGE BEING PUSHED HIGHER THROUGH THE SUMMER -- THE FEAR GAUGE BEING PUSHED HIGHER THROUGH THE SUMMER. > > I THINK THERE ARE TIMES TO BE OVEREXPOSED TO VOLATILITY BECAUSE OF THE VALUATION OPPORTUNITIES PRESENT. WE HAVE TAKEN VOLATILITY OFF AN HOUR PERSPECTIVE DATA ARE LOWER BECAUSE WE DON'T THINK THERE ARE GOOD ENOUGH RETURNS. IF AND WHEN THERE IS ANOTHER LEG TO ECONOMIC GROWTH, THERE WILL BE EARNINGS UPSIDE. THIS WILL TRANSLATE INTO BETTER RETURNS. AT THIS POINT, WE ARE IN A PLACE WHERE WE WANTED TO TAKE VOLATILITY OFF BECAUSE LONG-TERM VOLATILITY DOES NOT PRODUCE OUTPERFORMANCE. TAYLOR: SOME COMPANIES YOU LIKE, UNILEVER, MONDELEZ. BED, BATH & BEYOND AND PROCTER & GAMBLE CHOOSING TO PASS ON HIGHER COST TO THE CONSUMER OR NOT. ARE YOU CONFIDENT THEY CAN PASS THE COSTS TO CONSUMERS AND KEEP MARGINS WHERE THEY ARE? > > I THINK IF IT IS BROAD-BASED COST INFLATION THAT THE WHOLE INDUSTRY IS FACED WITH, I THINK COMPANIES WILL BE ABLE TO PASS THOSE COSTS ON. THE REAL CRUX IS FOR SOME COMPANIES THAT HAVE PRODUCTIVITY GAINS DURING THIS TIME, THEY WILL BE ABLE TO PROFIT FROM SUCH SITUATIONS. COMPANIES LIKE UNILEVER HAVE AN ONGOING COST-CUTTING PROGRAM WHERE THEY CAN DIP INTO THE COOKIE JAR TO OFFSET COST INFLATION. CAROLINE: WE WANT TO THANK YOU, ELLEN LEE, PORTFOLIO MANAGER AT CAUSEWAY CAPITAL MANAGEMENT. THE IMPLOSION IS ROLLING FAST. SOME THINGS MONEY CANNOT BUY. WE ARE SEEING BREAKING NEWS. ED WOODWARD, CHAIRMAN OF MANCHESTER UNITED, IS STEPPING DOWN. SHARES ARE FOLLOWING TWO SESSION LOWS. SHARES ARE FALLING TO SESSION LOWS. THIS IS A PHENOMENAL TURNAROUND IN EVENT. ROMAINE: I DON'T EVEN FOLLOW SOCCER AND I AM FASCINATED BY THIS STORY AND HOW QUICKLY IT UNRAVELED. WE MAKE JOKES ABOUT, WHERE IS THE TOP OF THE MARKET? I THINK THE TOP OF THE MARKET WAS THE SUPER LEAGUE. WE WILL LOOK BACK AND REMEMBER THIS WAS THE PEAK. TAYLOR: HOW CAN YOU UNRAVEL OR IMPLODE ON SOMETHING NEVER STARTED? THE QUESTION OF THE DAY. CAROLINE: ASK J.P. MORGAN. ROMAINE: WHILE, VIOLENCE -- WOW, VIOLENCE. ROMAINE: 47 MINUTES TO GO IN THE TRADING DAY. TREASURIES GETTING BID TODAY. THE DOLLAR GETTING BID. EVEN THE VIX GETTING BID. THE DOLLAR WAS ON A SIX-DAY LOSING STREAK APPARENTLY GOING TO SNAP THAT TODAY. NOW, RBC ANALYSTS SAYING $1000 WILL PERSIST INTO MIDSUMMER. SOME INDIVIDUAL STORIES. LAST NIGHT, WE GOT IBM EARNINGS. FIRST MEASURABLE REVENUE GROWTH WE HAVE SEEN IN KEY BUSINESSES SINCE 2018. TRAVEL STOCKS GETTING HURT ON THIS DAY. VIRGIN GALACTIC HOLDINGS DOWN ON THE DAY. TWO OF HER FUNDS SOLD 795,000 SHARES. WE SAW A RICHARD BRANSON SELLOFF SHARES. FOISKER SHARES UP 5%. CAROLINE: THE SHANGHAI AUTOMOBILE EXHIBITION UNDERWAY THIS WEEK IN CHINA'S FINANCIAL HUB. ELECTRIC CARS AND INTELLIGENT DRIVING TECHNOLOGY WILL BE A MAJOR THEME. > > I HAVE A QUESTION FOR YOU. IF CHINA'S MOST INDEBTED REAL ESTATE COMPANY IS MAKING MOVES INTO THE ELECTRIC VEHICLE MARKET, IS THAT THE SIGN OF A BUBBLE? THAT IS WHAT SOME PEOPLE WOULD SAY. BEHIND ME IS ITS LINEUP OF ELECTRIC VEHICLES. IT HAS NINE MODELS ON DISPLAY AT THE SHANGHAI AUTO SHOW. THIS IS CHINA'S MOST HEAVILY INDEBTED REAL ESTATE COMPANY. THEY HAVE NO HISTORY IN CARS AT ALL. THERE IS SKEPTICISM ABOUT THE NUMBER OF COMPANIES MOVING INTO THIS SPACE ON THE BACK OF RECORD EV SALES LAST YEAR. 1.3 MILLION UNITS SOLD IN CHINA. MOMENTUM KEEPS GOING. YOU HAVE COMPANIES LIKE THE PROPERTY DEVELOPER AND HUAWEI MOVING INTO THE EV SPACE. THERE IS CONCERN ABOUT A BUBBLE IN THE SECTOR. THERE TALKING ABOUT CONTINUED STRENGTH IN THE PREMIUM SECTOR OF THE MARKET. MERCEDES-BENZ SOLD RECORD NUMBERS OF CARS IN THE CHINESE MARKET IN THE FIRST QUARTER OF THIS YEAR. THAT LOOKS LIKE IT WILL CONTINUE. WHAT ELSE IS HAPPENING? THERE IS ALSO DEBATE ABOUT THE OLD, INCUMBENT AUTOMAKERS MOVING IN AND MAKING THE FIRST ENTRANCE ON ELECTRICAL VEHICLES THIS YEAR. AUDI, BMW, MERCEDES, ALL COMING OUT WITH ELECTRIC VEHICLE MODELS WHICH COULD CHALLENGE TESLA WHICH HAS HAD A HEAD START AND DOMINATES THE CHINESE MARKET. TALKING OF TESLA, THERE WAS A RUCKUS EARLIER. WE HAD A PROTESTER STANDING ON TOP OF ONE OF TESLA'S CARS AND A T-SHIRT -- IN A T-SHIRT COMPLAINING ABOUT A FAULT SHE CLAIMS SHE HAD WITH TESLA. SHE WAS DRAGGED OFF BY SECURITY. CAUSING SOMETHING OF A STAR AT THE SHANGHAI AUTO SHOW. GROWTH IN TERMS OF CHINA'S MARKET IS THERE. IT IS BL BACK TO PRE-PANDEMIC LEVELS. THERE ARE COMPANIES INVOLVED IN EV'S NOW THAT NEVER HAD A LOOK IN THE CAR WORLD. THERE ARE SUPPLY CHAIN CONSTRAINTS THAT CONTINUE. TAYLOR: WE THANK TOM MACKENZIE FOR THAT REPORT. 44 MINUTES TO THE CLOSING BELL. WE WANT TO GET YOU UP TO SPEED WITH OPTIONS TRADING. ABIGAIL DOES THAT WITH THE VIX. ABIGAIL: VOLATILITY IS RISING AFTER FOUR UP WEEKS FOR THE S & P 500 IN A ROW. WE ARE LOOKING AT THE FIRST TWO DOWN DAYS IN A WEEK. THANK YOU FOR JOINING US TO DIG INTO THIS MORE. TAYLOR WAS MENTIONING THE VIX WHICH IS CLOSE TO 18, ALMOST TRYING TO GET BACK INTO THE BOTTOM OF LAST YEAR'S RANGE. DO YOU THINK VOLATILITY IS GOING HIGHER? > > HI, ABIGAIL. WE ARE GETTING CLOSE TO 19. WE HAVE BEEN GOING THROUGH THE HANDLES RELATIVELY QUICKLY, WHICH I GUESS IS A GOOD THING. IT MEANS WE ARE SEEING SOME ACTUAL VOLATILITY AND CHANGES IN IMPLIED VOLATILITY AT THE SAME TIME. I DON'T WANT TO MAKE TOO MUCH OF THE FACT WE HAVE HAD TWO DECENT DOWN DAYS IN A ROW. WE ARE BACK TO THE MIDDLE OF LAST WEEK ON S & P. I THINK WHAT WE ARE SEEING IS A MOVE AWAY FROM COMPLACENCY. WE SAW THE VIX GET TO 16 LAST WEEK. IN PERCENTAGE TERMS, WE ARE UP A DECENT AMOUNT NOW. IN REALITY, THESE ARE STILL RELATIVELY LOW NUMBERS. WE ARE NOT YET BACK TO THE 20 LEVEL WHICH DOMINATED MOST OF LAST YEAR. ABIGAIL: WE ARE CLOSER TO THE 19 LEVEL. WE ARE NOT AT 20, SO WE ARE NOT QUITE BACK IN THAT RANGE. THE TRUE BOTTOM OF THAT RANGE IS A LITTLE BELOW. COULD WE SEE A BURST HIGHER WHEN WE BRING THE VIX CURVE INTO THE PICTURE WHICH CONTINUES TO STEEPEN? > > THE VIX CURVE REMAINS AS STEEP AS IT WAS A MONTH AGO. WE ARE STILL SEEING ABOUT EIGHT FOUR-POINT PREMIUM AS WE LOOK OUT THREE OR FOUR MONTHS ON THE CURVE, WHICH MAKES YOU THINK, WHAT ARE PEOPLE LOOKING AT THIS SUMMER? IS VOLATILITY RELATIVELY PLENTIFUL OR NOT? ABIGAIL: IS THIS JUST AN OVERBOUGHT RALLY WITH AIR COMING OUT OR SOMETHING MORE? > > RIGHT NOW, IT IS AN OVERBOUGHT RALLY. WE WILL SEE WHAT THE EARNINGS TELL US THIS WEEKEND NEXT. ABIGAIL: STEVE SOSNICK, THANK YOU FOR JOINING US. FROM NEW YORK, THIS IS BLOOMBERG. CAROLINE: BLOOMBERG HAS LEARNED CHELSEA IS PREPARING TO LEAVE THE EUROPEAN SUPER LEAGUE. FOOTBALL FALLING TO SESSION LOWS. WE SEE THE SUDDEN UNRAVELING WITHIN 48 HOURS AS EXECUTIVES LEAVE AND COMPANIES STEP AWAY. TAYLOR: JUST AS I WAS FIGURING OUT WHAT A SUPER LEAGUE WAS YESTERDAY. [LAUGHTER] LET'S MIGRATE OVER TO EMERGING ACTION WHERE THERE IS NO EASY TRANSACTION, SO BEAR WITH ME. WE ARE GOING TO GO RIGHT BACK INTO CURRENCIES. THIS HAS BEEN THE YEAR OF DOLLAR WEAKNESS AND CHINESE YUAN'S STRENGTHS. IT COULD WIND UP STOKING GLOBAL INFLATION. IT IS THE MOST OVERVALUED OF 32 CURRENCIES IN TERMS OF THE REAL EFFECTIVE EXCHANGE RATE. LET'S TALK TO SHERY AHN. BIG WORDS COMING OUT OF THE J.P. MORGAN STUDY. SHERY: DEFINITELY. CHINA STILL BEING THE FACTORY OF THE WORLD, WE HAVE SEEN A LOT OF CONCERN OVER INFLATIONARY PRESSURES FROM CHINA AFFECTING THE REST OF THE WORLD. THE REAL EXCHANGE RATE EXPECTED IS ABOUT 2.8 STANDARD DEVIATIONS HIGHER THAN THE FIVE-YEAR AVERAGE. THESE ARE SOME OF THE FINANCIAL RISKS WE WILL BE WATCHING IN CHINA, NOT ONLY THIS WEEK BUT FOR THE ENTIRE NARRATIVE OF WHERE CHINA IS. WE GOT A BIGGER SENSE OF WHAT THAT MEANS THIS WEEK AT THE FORUM. WE HEARD PRESIDENT XI JINPING TALK ABOUT NOT ONLY ECONOMIC CHALLENGES, HE DOES WANT MORE ECONOMIC INTEGRATION WITH THE WORLD, BUT ALSO WARNING AGAINST DECOUPLING, CALLING ON SOME COUNTRIES NOT TO BOSS OTHERS AROUND. TAKE A LISTEN. > > THE FUTURE OF THE WORLD SHOULD BE DECIDED BY ALL COUNTRIES WORKING TOGETHER. WE MUST NOT LET THE RULES SET BY ONE OR A FEW COUNTRIES BE IMPOSED ON OTHERS. SHERY: HE EMPHASIZED INTERNATIONAL AFFAIRS SHOULD BE CARRY OUT BY NEGOTIATIONS AND DISCUSSIONS. HE DID NOT NAME THE U.S. SPECIFICALLY, BUT WE SEE VEILED CRITICISM. HE ALSO TALKED ABOUT BUILDING BARRIERS AND DECOUPLING WOULD WORK AGAINST ECONOMIC AND MARKET PRINCIPLES. WE HAVE SEEN THE U.S. TRYING TO REDUCE ITS DEPENDENCE ON CHINESE SUPPLY CHAINS. REALLY A COMING OUT PARTY FOR CHINA AFTER CANCELING THE FORUM LAST YEAR BECAUSE OF THE PANDEMIC. WE SAW MANY AMERICAN EXECUTIVES THERE AS WELL AS ELON MUSK AND OTHERS. CAROLINE: WE WERE JUST HEARING FROM TOM MACKENZIE ALL ABOUT A SHANGHAI AUTO SHOW ON ELECTRIC VEHICLES. WAS THERE ANY TALK OF CLIMATE FROM THIS EVENT? SHERY: IT WAS A KEY FOCUS OF PRESIDENT XI JINPING'S SPEECH. WE HEARD THE WORD "SUSTAINABILITY" SEVERAL TIMES BUT NOT NECESSARILY A NEW PLEDGE WHEN IT COMES TO CHINA ACHIEVING THE CARBON NEUTRALITY GO BY 2060. WE DID HEAR MORE ABOUT THE BELT AND ROAD INITIATIVE SAME GREEN SHOULD BE THE BACKGROUND COLOR OF THAT INITIATIVE. THAT IS BEING CRITICIZED BECAUSE 2/3 OF INFRASTRUCTURE FUNDING HAS GONE TO COAL, GAS, AND OTHER SECTORS LIKE OIL. THE PBOC GOVERNOR ALSO TALKING MORE ABOUT HOW CLIMATE RISKS WILL FACTOR INTO MONETARY STABILITY AND FINANCIAL RISKS AS WELL. ROMAINE: SHERY AHN, COANCHOR OF DAYBREAK: AUSTRALIA AND DAYBREAK : ASIA. ALMOST 30 MINUTES TO GO. THE MARKET HAS BEEN UNDER PRESSURE A GOOD PORTION OF THE DAY. THE S & P 500 OPENED LOWER AND HAS BEEN LOWER A GOOD PORTION OF THE DAY. CAROLINE: IT CERTAINLY HAS. WE ARE WORRIED ABOUT COVID. WE ARE WORRIED ABOUT EARNINGS. SMALL CAPS REALLY FEELING THE PAIN. TAYLOR: THEY ARE ONE OF THE BIG UNDERPERFORMERS. YOU ARE NOW OFF 4% OR 5% IN THE LAST FEW DAYS. BONDS ARE CATCHING A BID. WE ARE ONLY OFF BY THREE TO FOUR BASIS POINTS. GLOBAL NEWS 24 HOURS A DAY. I AM MARK CRUMPTON. THIS IS BLOOMBERG. CAROLINE: I AM CAROLINE HYDE. ROMAINE: I AM ROMAINE BOSTICK. TAYLOR: I AM TAYLOR RIGGS. BONDS ARE RALLYING. YIELDS ARE LOWER. ON SENSITIVE SECTORS ARE FIRMLY IN THE GREEN. EVERYTHING ELSE MOSTLY IN THE GREEN. THAT IS DRAGGING THE INDEX HEADLINE LOWER. ROMAINE: LET'S TALK ABOUT INDIVIDUAL STORIES. 26 MINUTES TO GO. HARLEY DAVIDSON WITH EARNINGS AND A BRIGHT SPOT FOR EARNINGS GOING FORWARD. ALTRIA IS DOWN AFTER CONCERNS ABOUT NEW REGULATIONS REGARDING NICOTINE RESTRICTIONS. THE STORY OF THE DAY, THE PARTNERSHIP BEING EXPANDED. WE GOT A LITTLE INSIGHT INTO THE VALUE OF THE DEAL. ABOUT $9 BILLION. THAT IS WHAT THEY ARE VALUING IT AT BASED ON THE AMENDMENT TO THE DEAL. NETFLIX EARNINGS COMING. CAROLINE: WE HAD EARNINGS FROM UNITED YESTERDAY. THE AIRLINE SECTOR FEELING THE PAIN TODAY. WE WORRY ABOUT THE COVID NUMBERS. WE WORRY ABOUT THE STATE DEPARTMENT LOOKING DIFFERENTLY ON COUNTRIES. WE WORRY ABOUT THE ABILITY TO TRAVEL. THE S & P AIRLINE INDEX DOWN FOR 10 STRAIGHT DAYS, I RECORD LONG LOSING STREAK. OFF 12% FROM PREVIOUS HIGHS. TAYLOR: WE MIGHT BE ABLE TO TALK ABOUT SOMETHING ELSE OFF FROM PREVIOUS HIGHS. IT IS BRINGING ALARM BELLS ABOUT THE MARKET. JOINING US WITH MORE. WHAT HAVE WE LEARNED? DID THIS FEEL LIKE ANOTHER WARNING? > > IT IS NOT A NEW CRITICISM. EVER SINCE THIS BEGAN, PEOPLE HAVE WONDERED. THERE IS A DAY IT WILL END. TODAY, THE HEDGE FUND GIANT CRITICIZED THE AWFUL RETURNS AND LOTS OF BAD THINGS HE ACCUSED THE PRODUCT OF DELIVERING. WE HAVE SEEN OBJECTIVELY VOLUME AND DEALMAKING SENTIMENT HAVE GONE DOWN IN RECENT WEEKS. WE HAVE SEEN MORE IPO'S THAN SPAC'S. IT LOOKS LIKE WE ARE GOING BACK TO THE OLD DAYS WHERE PEOPLE ARE GOING THE TRADITIONAL LISTING ROUTE OVER THE SPAC IPO. ROMAINE: IT IS INTERESTING TO SEE THE VOLUME COME DOWN. WE HAVE WORRIED ABOUT POTENTIAL REGULATIONS OR MORE SCRUTINY. ANY PROGRESS ON THAT? > > THE SEC HAS BEEN MORE OUTSPOKEN ABOUT LOOKING AT THE SPAC MARKET. WE HAVE NOT SEEN ACTUAL REGULATION COMING FROM THEM. MOST RECENT SIGNALS HAVE BEEN IN THE FORM OF PUBLIC STATEMENTS JUST REITERATING WHAT THEY ARE LOOKING AT. IT SENDS A SIGNAL TO THE MARKET THAT THE SEC IS PAYING ATTENTION. IT HAS THE EFFECT OF SLOWING THINGS DOWN BECAUSE YOU HAVE TO LOOK AT WHAT THEY SAID THEY WILL BE LOOK AT. THAT WAY, THE MARKET HAS SLOWED DOWN BECAUSE OF THE SEC. WE HAVE NOT SEEN ANY ENFORCEMENT OR REGULATORY CHANGES FROM THE SEC YET. CAROLINE: TALKING ABOUT HOW THICK AND FAST THEY CAME, IN EXCESS OF $100 BILLION IN THE LAST YEAR ALONE. ARE WE HEARING ANY SPAC'S COMING OUT? > > THERE ARE STILL SPOTS ON FILE. -- THERE ARE STILL SPAC'S ON FILE. THERE ARE SPAC'S IN THE PROCESS OF GETTING ANNOUNCEMENTS TOGETHER. FROM WHAT WE HAVE HEARD, THE PROCESS IS TAKING LONGER THAN IT USED TO. THE EQUITY PLACEMENTS THAT FINANCED THESE ARE NOT AS BULLISH AS THEY USED TO BE. THEY NEED MORE TIME TO LOOK AT DEALS. VALUATIONS HAVE COME DOWN. THINGS TAKE LONGER. THEY ARE STILL HERE. EVEN IF WE DON'T HAVE ANY MORE NEW SPAC'S THIS YEAR, 2021 VOLUME STILL SURPASSED 2020 JUST IN THE FIRST FOUR MONTHS OF $100 BILLION. IN THAT REGARD, WE HAVE NOT HAD A BAD YEAR AT ALL. ROMAINE: ALWAYS GREAT TO CATCH UP WITH YOU. WE ARE COUNTING YOU DOWN TO THE CLOSE. A LITTLE MORE THAN 20 MINUTES TO GO. WE WILL BE BACK IN A MOMENT. THIS IS BLOOMBERG. CAROLINE: LET'S GET YOU CHECKED IN ON THE MARKET BECAUSE WE HAVE NOT SEEN BACK TO BACK LOSSES SUCH AS THESE ALL THE WAY BACK TO MARCH. THE S & P 500 LOWER. THERE IS A SEARCH FOR A HAVEN. WE MOVE INTO BONDS, GOLD. WE SEE OIL BEING THROWN AROUND ON VARIOUS HEADLINES. LET'S GET TO IT WITH A GUEST RIDING OUT THE CLOSE WITH US. THE HEAD OF U.S. EQUITY STRATEGY FROM UBS IS WITH US THROUGH THE CLOSING BELL. ALWAYS GREAT TO HAVE YOUR TAKE ON DAYS LIKE THIS. ARE YOU WORRIED THE VOLATILITY WILL BECOME MORE REGULAR? > > I THINK WE HAVE BEEN ON GUARD FOR A PULLBACK ALL YEAR. WE HAVE BEEN TELLING INVESTORS WE WOULD GET TO 4100 ON THE S & P. WE SAID WE WOULD EXPECT TO SEE A PULLBACK AT SOME POINT. THE TIMING HAS BEEN UNCLEAR. ANY SENTIMENT INDICATOR IS TELLING YOU THINGS HAVE BEEN UNBELIEVABLY STRETCHED. LOOKING AT EARNINGS LAST WEEK, IT WAS GAUGING THE TONE. THE OUTLOOKS ARE COMING THROUGH FINE. WHEN WE LOOKED AT THE LANGUAGE, WE FELT THE TONE WAS NOT THAT ROSIE. IT IS INTERESTING IS HAPPENING AFTER GOOD RESULTS. I THINK THE TONE AND BODY LANGUAGE CONTRIBUTED. ROMAINE: DOES THAT IMPLY THE TONE WAS PESSIMISTIC OR WAS IT MORE IN ISSUE OF UNCERTAINTY? LORI: I THINK IT WAS MORE OF THE LATTER. MY TEAM DISCUSSED THE ADJECTIVES WE WOULD USE TO DESCRIBE IT. IT SEEMED MIXED AND MESSY. A LOT OF INVESTORS ARE TRYING TO GAUGE WHERE EARNINGS GO FROM HERE, WHAT IS HAPPENING WITH MARGINS WITH THE INFLATIONARY PRESSURES WE ARE TALKING ABOUT. WE HAVE NOT HEARD FROM A TON OF INDUSTRIAL COMPANIES YET. THE ONES WE DID HEAR FROM OUR RIGHT IN THE THICK OF IT AS OUR CONSUMER COMPANIES. I WOULD NOT SAY THE WORST FEARS ARE COMING TO FRUITION. BUT SOME FEARS ARE HITTING RIGHT NOW. WE ARE RIGHT IN THE THICK OF IT. TAYLOR: WE HAVE BEEN TALKING ABOUT SOME PRESSURES AND THE IMPACT IT HAS BEEN HAVING ON MARGINS IN THE LAST FEW HOURS. I'M CURIOUS ABOUT HOW YOU PICK COMPANIES ABLE TO PASS THOSE ON TO THE CONSUMER VERSUS THOSE WHO ARE NOT ABLE TO PASS THE COSTS ON TO THE CONSUMER. HOW DO YOU THINK ABOUT THAT? LORI: WHEN WE THINK ABOUT IT TOP DOWN, WE RECOGNIZE PRICING POWER IS EXTREMELY IMPORTANT. A FEW WEEKS AGO, WE LOOKED AT THE DRIVERS OF OVERALL MARGIN TRENDS AND TESTED A BUNCH OF DATA POINTS. ONE THAT WE TESTED WAS THE DIFFERENCE BETWEEN CBI AND PPI AS A PROXY FOR PRICING POWER. WE FOUND IT IS POSITIVELY CORRELATED WITH MARGIN. WHEN A LOT OF COMPANIES HAVE IT, IT IS MORE OF A TAILWIND. HOW DO YOU PICK COMPANIES? AS A STRATEGIST, I HAVE DONE THIS FOR A LONG TIME, I GET THOSE QUESTIONS YEAR IN AND YEAR OUT. THERE IS NO WAY I CAN SCREEN OR THAT QUANTITATIVELY. YOU HAVE TO GO COMPANY BY COMPANY. YOU HAVE TO BE A STOCK PICKER. YOU HAVE TO TALK TO ANALYSTS WHO KNOW THE INDUSTRY AND FIND OUT WHICH MANAGEMENT TEAMS ARE ABLE TO PULL THAT OFF. ROMAINE: YOU WILL HELP US COUNTDOWN TO THE CLOSE. WE HAVE TO TAKE A BREAK. LORI CALVASINA STICKING WITH US AS WE COUNT YOU DOWN TO THE CLOSE. A LITTLE LESS THAN 15 MINUTES TO GO. STOCKS NEAR THE LOWS OF THE DAY. THE RUSSELL COMING OFF THE LOWS OF THE DAY. TAYLOR: AFTER YESTERDAY'S SELLOFF, WE HAVE HAD MULTIPLE CONVERSATIONS IN THE PAST FEW HOURS ABOUT HOW THIS MAKES YOU RETHINK THE VALUE VERSUS GROWTH TRADE AND WHERE WE ARE IN THE REOPENING TRADE. CAROLINE: YOU KNOW WHAT IS UP? CAROLINE: THIS IS "COUNTDOWN TO THE CLOSE." I AM CAROLINE HYDE. TAYLOR: I AM TAYLOR RIGGS. ROMAINE: I AM ROMAINE BOSTICK. CAROLINE: WE ARE LOOKING AT UNDERPERFORMANCE ON SMALL CAPS AND BIG TECH. USUALLY, YOU GO TO BIG TECH ON HAVEN DAYS IN SEARCH OF A HAVEN, ON A DAY LIKE TODAY, BUT BIG TECH HAS BEEN THE UNDERPERFORMER. APPLE IS THE BIGGEST POINTS DRAG. THE RUSSELL 2000 A SERIOUS UNDERPERFORMER ON THE DAY. ROMAINE: ON THE FAANG INDEX, THE ONLY THING IN THE GREEN IS TESLA AND FACEBOOK. AWAITING NETFLIX EARNINGS AFTER THE BELL. THAT STOCK DOWN .8%. EVERYTHING IN THE TRAVEL SPACE IS TAKING A LEG DOWN. A LOT OF THIS TIED TO THE RISE IN COVID CASES IN ASIA AND NEW TRAVEL RESTRICTIONS CONSIDERED IN THE U.S., BASICALLY AN ADVISORY AGAINST TRAVELING OVERSEAS FOR U.S. CITIZENS. INTERESTING TO SEE HOW THIS WILL PLAY OUT. THE COVID CRISIS STILL SOMETHING THAT SHOULD BE ON EVERYONE'S RADAR. TAYLOR: THE MARKETS ARE WATCHING THOSE COVID NUMBERS. LET'S GET BACK TO LORI CALVASINA. WE LEFT THE LAST CONVERSATION HIGHLIGHTING SOME INPUT COST PRESSURES THAT FOCUS ON MARGINS IN THE MIDDLE OF EARNINGS SEASON. I WANT TO DRAW YOUR ATTENTION TO ANY CUES WE GET FROM THE BOND MARKET ABOUT FUTURE INFLATIONARY PRESSURES. LORI: I THINK IF YOU LOOK AT THE MARKET ACTION TODAY, YOU TALKED ABOUT HOW TECH IS GETTING HIT. THIS IS A GOOD, OLD-FASHIONED RISK-ON TYPE OF DAY IN THE MARKET. I THINK WE HAVE SEEN SOME DOUBTS ABOUT THE ECONOMY SNEAK BACK IN. I WAS THINKING ABOUT THE STATS WE SAW THAT HAVE BEEN IN HEALTHY UPTRENDS. BUT WHEN WE UPDATED THE CHURCH YESTERDAY, THEY DID LOOK LIKE THEY WERE -- UPDATED THE CHARTS YESTERDAY, THEY DID LOOK LIKE THEY WERE ROLLING OVER A LITTLE BIT. I THINK THERE IS SOMETHING MORE GOING ON THAN JUST ROTATION OUT OF THE REFLATION TRADE. THIS FEELS LIKE GENUINE WORRY FOR ME. CAROLINE: THAT COULD LAST FOR SEVERAL DAYS OR WEEKS. YOU SAID YOU HAVE BEEN TELLING INVESTORS TO EXPECT SOME SORT OF DRAWDOWN. HOW FAR COULD THAT GO? ARE WE GETTING INTO CORRECTION TERRITORY? LORI: IT HAS TO BE SOMETHING MORE THAN A 5% DRAWDOWN IF YOU ARE GOING TO REMOVE SOME OF THE FROTH WE HAVE IN THE MARKET. THESE ARE SIGNALS THAT WILL TAKE SIGNIFICANT DAMAGE TO PULL THE FROTH OUT. THE VALUATION DATA POINTS ARE ALSO EXTREMELY FROTHY. I TOLD PEOPLE I COULD SEE A DECLINE OF IS MUCH 10%. I THINK YOU DRAW THE LINE AROUND 10%. IF YOU PUSH IT PAST 10%, YOU GET INTO A GROWTH SCARE. WE HAVE HAD A NUMBER OF THOSE SINCE THE FINANCIAL CRISIS. THOSE ARE TIMES WHEN WE SEE 20% DRAWDOWNS WHERE PEOPLE START TO WORRY WE ARE TIPPING BACK INTO RECESSION. I DON'T THINK THAT KIND OF ISSUE IS ON THE TABLE RIGHT NOW. ROMAINE: WHEN WE LOOK AT THE BROADER MARKET, WE ARE AROUND 4137 ON THE S & P. THAT IS THE AVERAGE FOR THE END OF THE YEAR TARGET. AT THIS STAGE, YOU NEED AN EXTRA CATALYST. IS THAT A GOOD WAY OF THINKING OF IT? LORI: I THINK IT IS A GREAT WAY OF THINKING ABOUT IT. I HAVE BEEN SAYING IN MY MEETINGS THAT I THINK WHAT HAS GOTTEN US TO THE 4100 AND CHANGE NUMBER HAS BEEN THAT DESPITE HIGH EXPECTATIONS FOR THEIR RECOVERY IN 2021, THE MEMBERS HAVE STILL MANAGED TO COME IN BETTER-THAN-EXPECTED. WE HAVE SEEN THE NUMBERS COME UP. THAT HAS BEEN IMPORTANT. I THINK WE ARE GETTING TO THE END OF THAT. NOW IT IS TIME TO THINK ABOUT 2022. DECENT EXPECTATIONS HAVE BEEN SET IN TERMS OF EARNINGS AND THE ECONOMY. WHAT ARE WE READY TO START RAMPING THOSE UP? WE HAVE POTENTIAL FED ACTION NEXT YEAR. WE ARE IN A WEIRD SPOT. WE ARE DONE WITH 2021 PRICING. TOO EARLY TO GET EXCITED ABOUT 2022. ROMAINE: HOLD THAT THOUGHT. WE WANT TO GET MORE THOUGHTS FROM LORI CALVASINA, BUT WE ARE FIVE NETS AWAY FROM THE CLOSE. TAYLOR, WHAT ARE YOU WATCHING? TAYLOR: WE WILL BE GETTING EARNINGS FROM NETFLIX. I WANTED TO LOOK AT FREIGHT COMPANY CSX. CITI ANALYSTS SAYING WHOEVER LOSE OUT ON THE BID FOR KSU COULD LOOK AT THEM. THIS IS A COMPANY THAT WILL BE KEENLY IN FOCUS. EVERY TIME YOU ARE ON THE PROGRAM, I TRY TO ANTICIPATE WHAT YOU'RE GOING TO SAY. I GOT IT RIGHT THIS TIME. I AM LOOKING AT THE TRAVEL DATA YOU HIGHLIGHTED. LIKE YOU SAID, I REALLY GOOD UPTREND. WHEN YOU UPDATED THE LAST FEW DAYS, YOU ARE ONLY AT 60% OF THE 2019 TRAVELERS. YOU START TO ROLL OVER A LITTLE BIT. HOW DOES THE HIGH-FREQUENCY DATA FULL BEEN -- FOLD INTO WHAT YOU WERE SAYING? HAVE WE SEEN IT AS GOOD AS IT WILL GET? LORI: I HAVE BEEN TALKING TO PEOPLE A LOT ABOUT 2021 VERSUS 2022 AND WHETHER SOME OF THE BETTER-THAN-EXPECTED DATA THIS YEAR IS BORROWING AGAINST NEXT YEAR. IT IS A RISK WE HAVE TO MONITOR FOR. I WONDER IF SOME OF THE RECENT STRENGTH WE HAVE SEEN IN MARCH AND APRIL WAS PULLING FORWARD SOME OF THE DEMAND FROM APRIL AND MAY. I THINK WE ALL KIND OF FORGOT IT WAS SPRING BREAK. I WAS HEARING FROM A LOT OF PARENTS STILL GOING OUT AND DOING THINGS, ABLE TO FINALLY TAKE TRIPS. I WONDER IF WE FORGOT IT WAS SPRING BREAK AND GOT TOO EXCITED ABOUT THE SHORT TERM AS WELL. CAROLINE: WE ALWAYS GET A LITTLE EXCITED ON THE SHOW WHEN IT COMES TO SPRING BREAK. LORI CALVASINA, THANK YOU SO MUCH. REALLY GETTING TANGIBLE ESTIMATES THAT WE DO SEE A DRAWDOWN TO THE TUNE OF 10%. BEYOND THAT, TOO FAR. ROMAINE: WE NEED TO SEE THE NEXT LEG. MAYBE EARNINGS SEASON WILL PROVIDE IT. A LOT OF PEOPLE SAY IF WE HEAR BULLISH FORECASTS, MAYBE THAT GIVES US THE NEXT BUMP. LORI POINTED OUT SO FAR IT HAS BEEN DOUR. TAYLOR: CYCLICALS ARE FACING INPUT COST PRESSURES. HOW DOES THAT TRANSLATE? THE FED SAYS THEY DON'T SEE THEM. CONSUMERS ARE SEEING THEM A LITTLE BIT. ROMAINE: THE PNG STORY IS HUGE. WE ARE MOVING CLOSER TO THE CLOSING BELL ON THIS TUESDAY AFTERNOON. FULL MARKET COVERAGE RIGHT HERE ON BLOOMBERG AS WE TAKE YOU TO THE BELL AND BEYOND. ANNOUNCER: "BEYOND THE BELL," BLOOMBERG'S COMPREHENSIVE COVERAGE OF THE MARKET CLOSE STARTS NOW. ROMAINE: ABOUT TWO MINUTES AWAY FROM THE END OF THE CLOSING DATE. ROMAINE BOSTICK, CAROLINE HYDE, TAYLOR RIGGS COUNTING YOU DOWN TO THE CLOSING BELL. HERE TO TAKE US BEYOND THE BELL, CAROL MASSAR AND TIM STENOVEC, BRINGING TOGETHER OUR TELEVISION, RADIO, AND YOUTUBE AUDIENCES. WE ARE SEEING A BID TO TREASURIES. NO BID INTO STOCKS. CAROL: WE ARE GOING TO FINISH OFF THE LOWS OF THE DAY. I SAID I DID NOT HAVE ENOUGH CHARTS ON MY BLOOMBERG. SMALL CAPS IN PARTICULAR TAKING A HIT. TIM: WE ARE SEEING THIS SELLOFF TO DAYS IN A ROW. VIRUS CASES CLIMBING GLOBALLY HITTING U.S. COMPANIES HARD, OVERSHADOWING GOOD RESULTS THE LAST COUPLE OF DAYS. THE CONCERN IS THE VIRUS, WE COULD SEE HOTSPOTS AND THAT WILL AFFECT THE REOPENING GLOBALLY. TAYLOR: YESTERDAY WAS A SELL EVERYTHING DAY. YIELDS WERE HIGHER. STOCKS CAME LOWER. TODAY, BONDS CATCH A BID ON THE 10 YEAR. WE WERE NEAR THE LOWS WE HAD NOT SEEN SINCE MARCH 11. COMING DOWN FOUR OR FIVE BASIS POINTS ACROSS THE CURVE. CAROLINE: HAVEN BIDS GOING INTO TREASURIES AND GOLD. IT DOES FEEL AS IF GLOBALLY IT WAS A SELLOFF. EUROPE GETTING HIT THE HARDEST IN FOUR MONTHS. [CLOSING BELL] ROMAINE: THE S & P 500 LOOKING LIKE IT WILL SETTLE AROUND 4134. THE NASDAQ DOWN 1%. THE DOW JONES INDUSTRIAL AVERAGE DOWN ABOUT .8%. THE RUSSELL 2000 IS YOUR UNDERPERFORMER ON THE DAY, DOWN 2%. CAROL: DISAPPOINTMENT ON EARNINGS. THIS IS WHAT INVESTORS ARE FOCUSING ON. WE HAVE NETFLIX COMING OUT. THAT IS OUR FOCUS RIGHT NOW. CAROLINE: REVENUE MEETING ESTIMATES. 7.1 6 BILLION IS THE NUMBER FOR THE FIRST QUARTER. $7.41 BILLION HAS BEEN THE ESTIMATE. WHAT WE WANT IS THE STREAMING PAID NET CHANGE. IT WAS PHENOMENALLY LOWER. THE MARKET WANTED 6.3 MILLION. NETFLIX GUIDED TO 6 MILLION. THIS IS A BIG RITIKA: ROMAINE: ALSO GUIDING FOR THE SECOND QUARTER SIGNIFICANTLY BELOW ESTIMATES. AS YOU MENTIONED, CAME IN SIGNIFICANTLY BELOW EXPECTATIONS, STOCK TRADING SIGNIFICANTLY LOWER. ROMAINE: THIS IS A GROWTH STOCK, AND YOU HAVE TO CONTINUE TO SEE THAT GROWTH. WE NEED TO FIND OUT MORE ABOUT THE CASH SITUATION BECAUSE THAT WAS A HUGE COMPONENT TO THE STORY. IT WAS NOT JUST THE STREAMING BUT THE IDEA THAT THE BALANCE SHEET WAS LOOKING PRETTY HEALTHY, AND THIS IS A COMPANY THAT WAS MANAGING TO STAY ON LEVEL PLAYING. CAROL: TAKE A LOOK AT THAT STOCK. YOU GUYS HAVE IT UP ON TV, BUT FOR RADIO FOLKS, IT IS DOWN ABOUT 10%. WE KNEW FIRST QUARTER WAS GOING TO BE A BLOCKBUSTER NUMBER. WE KNOW THAT THOSE NUMBERS WERE KIND OF OFF THE CHARTS. FROM THE GET-GO, THEY KIND OF UNDERSTOOD A LOT OF PEOPLE WERE HOME STREAMING DURING THE PANDEMIC AND ONCE THE RECOVERY STARTED, THEY WOULD SLOW DOWN. ROMAINE: WE SAW WHAT WE SAW DURING THE PANDEMIC, AND THERE WAS THE IDEA THAT THIS WOULD BE STICKY, ONCE WE GOT OUT OF THE PANDEMIC, WE WOULD CONTINUE TO SEE THAT GROWTH. I WONDER IF THIS IS AN INDICATION THAT ONCE PEOPLE GET OUT OF THE HOUSE, MAYBE NETFLIX WILL NOT BE SO POPULAR. TAYLOR: FRANKLY, ALL YOU NEED TO KNOW ON RADIO, IT DOES NOT LOOK GOOD. OUR TEAM RACES TO UPDATE THIS. FEWER THAN 4 MILLION SUBSCRIBERS . A REMINDER, THAT ESTIMATE WAS ABOUT 6.29 MILLION. GOING FORWARD, LOOKING AT THE COMPANY SAYING IT WILL JUST BE ONE MILLION GOING FORWARD. I WANT TO BRING YOU UP-TO-DATE ON THE FINANCIALS WE ARE GETTING. BETTER THAN IT WAS THE PREVIOUS PERIOD. FREE CASH FLOW, $692 MILLION. THEY ARE LOOKING TO BEAT 2021 FREE CASH FLOW, BREAKEVEN. FOR ME, IT LOOKS ABOVE WHERE ANALYSTS WERE LOOKING, BUT WE WILL HAVE TO DIG THROUGH THOSE NUMBERS MORE. > > YES, THE POINT WE WERE TALKING ABOUT EARLIER WHERE THERE IS UNCERTAINTY AS THE COUNTRY IN THE WORLD TRIES TO GET PAST THIS PANDEMIC. NETFLIX CONTINUES AS STRONG SECOND HALF, BUT SEEING COVERT UNCERTAINTY. I HAVE COVERED STREAMING FOR YEARS. THE COMPANY PRIDES ITSELF ON HOW EASY IT IS TO SUBSCRIBE BUT ALSO HOW EASY IT IS TO CANCEL, SO IF YOU ARE DONE WATCHING WHAT YOU WANT TO WATCH, YOU CAN CANCEL SO EASILY, AND THAT COULD BE AN ISSUE IF PEOPLE RUN OUT OF WHAT THEY WANT TO WATCH. CAROLINE: TRACK FOR FREE CASH FLOW TO BE ABOUT BREAKEVEN. IT IS ALSO ABOUT WHAT COMES IN THE SECOND HALF IN TERMS OF CONTENT. WHEN YOU HAVE DISNEY+ ON YOUR HEELS, THE LIKES OF PARAMOUNT PLUS COMING OUT, BUT AT THE MOMENT, WE ARE HEARING ABOUT A STRONGER SECOND HALF. ROMAINE: YOU RAISE THE QUESTION ABOUT THE IDEA OF COMPETITION. I LOOK AT MY OWN HOUSEHOLD, AND WE HAVE PROBABLY FIVE STREAMING SERVICES ON OUR TV NOW THAT WE DID NOT HAVE A YEAR OR TWO AGO. AT ONE POINT, YOU HAVE TO LOOK AT THEM AND SAY, DO WE NEED ALL OF THEM? > > CAROLINE, I THINK YOU HIT ON IT. WE HAVE TO LOOK AT THE COMPS. AS SERVICES WAS OFF THE CHARTS, SO YOU HAVE TO HAVE PERSPECTIVE. THE OTHER THING, PNG TALKING ABOUT RAISING PRICES. THEY'VE GOT SOME LEEWAY TO MAKE UP AND WE WILL HAVE TO SEE IF THEY ARE ABLE TO START CHARGING CUSTOMERS MORE. CAROLINE: THEY ARE ALSO TALKING ABOUT REPURCHASING SOME STOCK. THIS MIGHT HELP BUMP UP THE STOCK A LITTLE BIT MORE. IT MIGHT HELP NOT ONLY ON CONTENT BUT ALSO REPURCHASING SOME OF THEIR STOCK OVERALL. 207 MILLION, SLIGHTLY BELOW THE ESTIMATE OF 210 MILLION. THE U.S. IS MEANT TO BE ABOUT 500,000, SO WE WERE LOOKING FOR EMEA TO PICK IT UP. > > THAT IS THE TOP-FIVE QUESTION WE ARE GETTING FROM ANALYSTS. WHAT NEEDS TO HAPPEN TO GET TO 100 MILLION SUBSCRIPTIONS? THAT IS THE NUMBER ONE QUESTION ON THE CALL, SO I THINK YOU NAILED IT. AS WE THINK ABOUT INTERNATIONAL GROWTH, AS WE HAVE INCREASINGLY HEARD, NOT QUITE VERIFIABLE. THE U.S. CUSTOMER IS A LITTLE BIT LESS STICKY. HOW DO YOU GET THAT WHEN INTERNATIONAL COMPETITION HAS REALLY BEEN INCREASING? ROMAINE: ABSOLUTELY. WE TALK ABOUT THE BROADER MARKET IMPACT, ABSOLUTELY COULD WEIGH ON SENTIMENT. IT WILL HAVE AN IMPACT, BUT NOT THE KIND OF IMPACT THAT WE WOULD SEE AT AN APPLE OR AN AMAZON. > > ONE THING I WILL BE LOOKING AT ON THE CALL TODAY IS ANYTHING ABOUT CONTENT PRODUCTION. WE NOTE CONTENT PRODUCTION HAS BEEN SLOWED DUE TO PANDEMIC ISSUES, AND IF THERE'S NOTHING TO WATCH ON NETFLIX, THEN YOU ARE QUITTING NETFLIX. THE BIG QUESTION I HAVE IS HOW THE COMPANY WILL CONTINUE TO BRING NEW CONTENT AS MORE AND MORE PLACES ARE OPENING UP, BUT THERE ARE HOTSPOTS EMERGING, AND THEY ARE TRYING TO JUGGLE THIS DURING THE PANDEMIC. CAROLINE: THE CROWD IS GOING TO GO STRAIGHT TO HBO MAX WHERE APPARENTLY POTTERY IS HOT. ROMAINE: IT'S BRITISH, RIGHT? YOU LIKE EVERYTHING BRITISH, DON'T YOU? CAROLINE: SEEMS NICHE. I DO. GREAT POTTERY THROWDOWN. CAROL COLA DISCOVERY AND DISNEY A LITTLE BIT LOWER IN THE AFTERMARKET. THAT IS GOING TO DO IT FOR OUR CROSS-PLATFORM COVERAGE OF THE CLOSING BELL ON THIS TUESDAY. ON BLOOMBERG TV, BLOOMBERG RADIO , AND YOUTUBE, WE WILL SEE YOU AT THE SAME TIME TOMORROW. CAROLINE: PLENTY MORE MARKET COVERAGE COMING UP. WE ARE DIGGING INTO NETFLIX EARNINGS. WHAT ARE THE GEOGRAPHICAL TAKEAWAYS? THIS IS BLOOMBERG. ROMAINE: THOSE NETFLIX NUMBERS ARE OUT. THEY ARE NOT GOOD. THE STREAMING SERVICE SAYING IT ADDED 3.80 9 MILLION SUBSCRIBERS -- 3.80 9 MILLION SUBSCRIBERS IN THE FIRST QUARTER. -- 3.89 MILLION SUBSCRIBERS IN THE FIRST QUARTER. THE STREET WAS LOOKING FOR 6.20 9 MILLION -- 6.29 MILLION. CAROLINE: IT IS INTERESTING THEY'RE TRYING TO GIVE CONFIDENCE FOR THE SECOND HALF. THEY ARE TRYING TO SAY THERE GOT MORE CONTENT COMING ONLINE, THEY HAVE A BETTER ROLLOUT, AND THEY THINK THEY CAN MOVE ON TO A STRONGER SECOND HALF, BUT THAT DOES NOT SEEM TO BE ALLEVIATING THE PRESSURE. TAYLOR: LET'S DIG INTO ALL OF IT WITH AN ANALYST FOR BLOOMBERG INTELLIGENCE. HOW BIG OF A MISS IS IT? IS THERE AN ABILITY OF THE STREET TO LOOK THROUGH THOSE NUMBERS INTO THE REST OF THE YEAR? > > I DEFINITELY THINK SO. THERE HAS BEEN A LOT OF CONCERN ABOUT SLOWING COMPETITION, SO WE HAD TWO NEW SERVICES THAT DEBUTED THIS QUARTER -- DISCOVERY PLUS AN PARAMOUNT PLUS . LOOKING THROUGH THE INVESTOR LETTER, THEY SAID IT WAS MORE A FACTOR OF ACQUISITIONS. THEY WERE NOT ABLE TO RICH -- ABLE TO ATTRACT AS MANY SUBSCRIBERS, NOT REALLY RETENTION, BUT COMPETITION CONTINUES TO BE A CONCERN. I THINK HOW THE STREET IS GOING TO APPROACH THIS IS THERE IS GOING TO BE A LOT OF CHOPPINESS, A LOT OF VOLATILITY NEAR TERM, BUT AS WE LOOK OUT TO THE SERVICE LONG-TERM, THE SUBSCRIBER OPPORTUNITY IS VERY MUCH INTACT. ROMAINE: HOW MUCH DOES COMPETITION PLAY INTO THIS? THIS YEAR, THE AMOUNT OF LEGITIMATE, GOOD STREAMING SERVICES IS A LOT DIFFERENT, A LOT MORE MEASURABLE THAN IT WAS THIS TIME A YEAR AGO AND CERTAINLY TWO YEARS AGO. > > ABSOLUTELY. THERE HAS BEEN A LOT OF COMPETITION. AS YOU JUST MENTIONED, THERE WAS THE LAUNCH OF HBO MAX. THIS YEAR, WE HAD MORE NEW SERVICES. THERE HAS BEEN AN AGGRESSIVE STRATEGY FROM BOTH HBO MAX AND DISNEY+, WHICH ARE RELEASING NEW MOVIES DIRECTLY TO THEIR PLATFORMS. YOU LOOK AT COMPETITORS. THEY OFFER MUCH LESS EXPENSIVE ALTERNATIVES TO NETFLIX, BUT WHAT I WOULD SAY IS A HUGE POSITIVE IS THAT THEY HAVE THE BREADTH AND DEPTH OF CONTENT. ON THE MARGIN, YES, COMPETITION IS A CONCERN. NETFLIX IS STILL THE GO TO SERVICE WHEN YOU'RE LOOKING AT BOTH QUALITY AND QUANTITY OF CONTENT, SO THAT IS WHAT GIVES THEM THE COMPETITIVE EDGE. OF COURSE, THE STRUCTURAL COMPETITIVE ADVANTAGE OF BEING THE FIRST MOVER. CAROLINE: WHERE WAS THE WEAK POINT GEOGRAPHICALLY SPEAKING? WE WERE EXPECTING MORE THAN 3 MILLION IN EMEA, MORE THAN ONE MILLION IN LATIN AMERICA. WHERE DID WE SEE THAT NOT COME TO FRUITION? > > I THINK IT WAS ACROSS THE BOARD. 80% OF THEIR NET THAT ASIANS COME FROM OUTSIDE THE U.S. -- NET ADDITIONS COME FROM OUTSIDE THE U.S. THE U.S. AND CANADA ARE MATURE MARKETS. ASIA IS A HUGE MARKET. EMEA, WE ARE SEEING THAT MARKET KIND OF REACH SATURATION. THE TWO MAIN GROWTH AREAS ARE STILL LATIN AMERICA AND ASIA. ASIA, THEY ARE REALLY KIND OF DOUBLING DOWN IN TERMS OF LOCAL CONTENT, NEW TEARS -- NEW TIERS, LOWER-COST PLANS. TAYLOR: CAN WE TALK ABOUT FREE CASH FLOW? BECAUSE THE NUMBERS SEEM PRETTY GOOD. FREE CASH FLOW, 690 $2 MILLION, ABOUT THIS TIME LAST YEAR AND WELL ABOVE WHAT THE STREET WANTED, ABOUT $182 MILLION, AND THEY COME OUT AND SAY THEY ARE CLOSE TO BEING FREE CASH POSITIVE AND NO LONGER NEED TO DO EXTERNAL FUNDRAISING. HAD THAT BEEN PRICED IN? > > I THINK IT HAS BEEN. OF COURSE, THEY ARE RAISING THE QUESTION ABOUT YES, WE ARE REACHING THIS INFLECTION POINT, BUT CAN THEY SUSTAIN THAT BREAKEVEN LEVEL? CAN THEY PRODUCE $1 BILLION IN FREE CASH FLOW, AND I ABSOLUTELY THINK THEY CAN, SO THERE ARE QUESTIONS ABOUT HOW THEY ARE GETTING SELF-SUFFICIENT, NOT JUST IN TERMS OF CONTENT BUT IN TERMS OF FUNDING THAT CONTENT. ROMAINE: WE ALWAYS APPRECIATE WHEN YOU JUMP ON ON EARNINGS DAYS LIKE THIS, GIVING US A LOT OF GREAT INSIGHT. BE SURE TO CHECK OUT ALL THE RESEARCH THAT HER AND HER TEAM DOES AT BLOOMBERG INTELLIGENCE. WE WANT TO GO NOW TO WHAT IS GOING ON IN THE BROADER NEWS WORLD AND BRING IN MARK CRUMPTON. MARK: THANK YOU. WE BEGIN WITH BREAKING NEWS. AFTER TWO DAYS OF DELIBERATIONS, THE JURY HAS REACHED A VERDICT IN THE MURDER TRIAL OF EX-COP DEREK CHAUVIN IN GEORGE FLOYD'S DEATH. IT WILL BE READ LATER THIS AFTERNOON. DEREK CHAUVIN IS THE WHITE FORMER MINNEAPOLIS POLICE OFFICER CHARGED IN THE DEATH OF MR. FLOYD, A BLACK MAN, LAST MAY. RESEARCH OPEN -- DEREK CHAUVIN HAD HIS KNEE ON MR. FLOYD'S NECK FOR NINE MINUTES. EARLIER, PRESIDENT BIDEN CALLED FLOYD FAMILY TO OFFER SUPPORT AND SAID HE IS "PRAYING FOR THE RIGHT VERDICT." AS SOON AS THAT VERDICT IS AVAILABLE, WE WILL BRING YOU THE DEVELOPMENT. BRITAIN MUST STAND FOR ANOTHER WAVE OF CORONAVIRUS THIS YEAR AS PRIME MINISTER BORIS JOHNSON LAUNCHED A NEW PROGRAM TO FIND HOME TREATMENTS TO LESSEN THE IMPACT OF MUTANT COVID STRAINS. > > MOST OF THE COUNTRY IS STILL FIRMLY OF THE VIEW THERE WILL BE ANOTHER WAVE OF COVID THIS YEAR, SO WE MUST AS FAR AS POSSIBLE LEARN TO LIVE WITH THIS DISEASE AS WE LIVE WITH OTHER DISEASES. MARK: OTHER MEASURES TAKEN BY THE U.K. INCLUDE TRAVEL LIMITS. THE MOST RECENT IS ADDING INDIA TO ITS TRAVEL BAN LIST AS CORONAVIRUS INFECTIONS SORE THERE -- SOAR THERE, PLUS THE EMERGENCE OF A NEW VARIANT WHICH COULD BE RESISTANT TO VACCINES. AUTHORITIES IN TOKYO HAVE STEPPED UP RESTRICTIONS TO CONTAIN A SURGE IN RESTRICTIONS. THE SUMMER OLYMPIC GAMES ARE SCHEDULED TO BEGIN IN JUST THREE MONTHS. AGAIN, REPEATING OUR TOP STORY, A VERDICT HAS BEEN REACHED IN THE TRIAL OF DEREK CHAUVIN, THE FORMER MINNEAPOLIS POLICE OFFICER CHARGED WITH MURDER IN CONNECTION WITH THE DEATH IN MAY 2020 OF GEORGE FLOYD. WE WILL BRING YOU DETAILS AS SOON AS WE GET THEM AND AS SOON AS THAT VERDICT IS IN. GLOBAL NEWS 24 HOURS A DAY ON AIR AND ON BLOOMBERG QUICKTAKE POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. TAYLOR: TIME FOR "FINAL PLAY," OR LET'S BE HONEST -- IT'S CAROLINE'S FINAL PLAY. I JUST FIGURED OUT WHAT THIS WHOLE SUPER LEAGUE THING WAS YESTERDAY. LET'S HOPE ALL OF OUR RESEARCH WASN'T FOR NOTHING. ALEX, WHAT THE HECK IS GOING ON? ALEX: A BUNCH OF MOVES ACROSS EUROPE TO CREATE A LEAK SIMILAR TO THE WAY SPORTS ARE BUILT ACROSS THE U.S. ARE YOU HAVE A FINAL -- A FINITE NUMBER OF TEAMS THAT ARE ALWAYS MEMBERS. BUT IT ALSO MEANS THEY DON'T HAVE TO SPEND AS MUCH ON PLAYERS BECAUSE THEY DON'T NEED TO WORRY SO MUCH ABOUT THE QUALITY OF THEIR SPORT. AT THE MOMENT, IT IS ONLY THE BEST TEAMS FROM ANY GIVEN YEAR WHO QUALIFIED FOR EUROPE'S PREMIER LEAGUE. CAROLINE: FUNNILY ENOUGH, MONEY DOES NOT ALWAYS TALK. THE FAN BASE WERE OUTRAGED. POLITICIANS WERE OUTRAGED. WE NOW HAVE MASS UNITED CONFIRMING THE DEPARTURE OF THEIR VICE DIRECTIVE CHAIRMAN. WE UNDERSTAND THE KEY GROUPS AND TEAMS ARE BACKING AWAY FROM THIS. CHELSEA, WE UNDERSTAND, SOME NEVER EVEN WANTED TO SIGN UP. > > YES, MANCHESTER 50 AND CHELSEA ARE THE ONES WE UNDERSTAND THEY ARE GOING TO STEP BACK FROM JOINING. THE SUSPICION IS THAT THEY WERE NOT GOING TO GET INVOLVED IN THIS ANYWAY, THAT THEY WERE NOT NECESSARILY AS KEEN AS THE OTHERS. THE TEAMS THAT REALLY NEEDED ARE THE SOVEREIGN EUROPEANS. BARCELONA, REAL MADRID ARE DRIVEN BY FANS, WHICH MEANS THAT HER ONLY MECHANISM FOR GETTING MONEY IS FANS. OTHER TEAMS CAN RAISE EQUITY BECAUSE THEY ARE NOT OWNED BY FANS. THESE OTHER TEAMS ARE DESPERATE TO FIND A WAY TO RAISE TRADITIONAL CAPITAL, LEVEL THE METAPHORICAL PLAYING FIELD, THE FINANCIAL PLAYING FIELD. ROMAINE: WHAT IS KIND OF THE LONGER-TERM FALLOUT? I FEEL LIKE WE ARE NOT GOING TO GO BACK TO BUSINESS AS USUAL AND EVERYONE IS GOING TO HAPPEN -- GOING TO BE HAPPY. > > F YOU LIKE WE ARE GOING TO SEE CHANGES TO THE WAY THE MANAGING BODY HANDLES FOOTBALL ACROSS EUROPE. I THINK THEY WILL INTRODUCE MORE SALARY CAPS, THINGS LIKE THAT. THEY ARE LIKELY TO MAKE IT MORE PREDICT WILL FOR OWNERS HOW MUCH THEY WILL BE SPENDING IN YEARS TO COME. PLANNING REVENUE HAS BEEN A REALLY TOUGH CHALLENGE. THEY ARE GOING TO HAVE TO FIND SOME CREATIVE SOLUTIONS FOR THAT PROBLEM. CAROLYN -- CAROLINE: FASCINATING. THERE SEEMS TO BE NO PERFECT OUTCOME HERE, BUT IT MIGHT BE A SIGN OF RELIEF FOR COMPANIES THAT MAKE A LOT IN ADVERTISING IN PLAYING THE SPORT. ALEX: THERE IS ALWAYS A PUSH FROM THE TEAMS WHO WANT TO BE MAKING MORE MONEY FROM THE BROADCAST REVENUE. THE STRUGGLE IS THAT IS STARTING TO PLATEAU. SKY, WHICH IS OWNED BY COMCAST, AND BT SPORT, THEY ARE THE MAIN COMPANY PAYING FOR FOOTBALL RIGHTS IN THE U.K. WHERE THEY ARE LOOKING NOW IS OUTSIDE OF EUROPE. ASIA, THE U.S. -- THAT IS A CHALLENGE PARTICULARLY WHEN FANS WANT TO BE WATCHING MANCHESTER UNITED. THE SUSPICION IS IT IS MORE THE LATTER, AND THAT IS WHERE YOU START TO GET THESE PUSHES FOR THE BIG TEAMS TO BE PLAYING EACH OTHER WEEK IN AND WEEK OUT. TAYLOR: THANK YOU FOR JOINING US. CAROLINE, IT IS YOUR WHEELHOUSE. I'M JUST GLAD WE HAVE YOU. OUR CHIEF FOOTBALL CORRESPONDENT. CAROLINE: IF MY HUSBAND HEARD THAT NOW, HE WOULD BE LAUGHING UPROARIOUSLY. I KNOW NOTHING -- NOT THE LEAST IN THE ROOM, BUT THE MIDDLE IN THE ROOM. U.K. TO U.S. FLIGHTS DELTA IS SAYING MIGHT BE OPEN BY THE MIDDLE OF JUNE OR JULY. I MIGHT BE COMING BACK. TAYLOR: WE JUST NEED BRITISH AIRWAYS TO GET ON BOARD. ROMAINE: WE'VE GOT TO MEET HER AT THE TWA BAR OUT THERE TO CELEBRATE. CAROLINE: PLEASE DO. TAYLOR: AGAIN, A DAY IN THE MARKETS, THE REOPENING TRADE. WE TAKE IT BACK TO THE MARKETS. NOT A GOOD DAY FOR THE RUSSELL 2000. SOME OF THE AIRLINE STOCKS, WE HEARD FROM UNITED, NOT HAVING A GOOD REACTION. YOU GET THESE MOMENTS OF OPTIMISM, AND YOU GET THE REALITY WE ARE NOT QUITE THERE YET, BUT WE HOPE YOUR REALITY WILL BE IN NEW YORK CITY IN JUNE OR JULY. WE JUST HAVE TO GET YOUR GOVERNMENT AND OUR GOVERNMENT ON BOARD WITH THAT. CAROLINE: IF NOT BEFORE.

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The Close Digital Full Show (04/20/2021)

Caroline Hyde, Romaine Bostick & Taylor Riggs bring you the latest news and analysis leading up to the final minutes and seconds before the closing bell on Wall Street and tackle Netflix's first-quarter earnings. Guests Today: Sylvia Jablonski of Defiance ETFs, Tuna Amobi of CFRA, Jim Andrew of PepsiCo, Ellen Lee of Causeway Capital, Frances Stacy of Optimal Capital and Lori Calvasina of RBC Capital. (Source: Bloomberg)

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