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tv   Bloomberg Surveillance  Bloomberg  April 20, 2022 8:00am-9:00am EDT

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>> if inflation starts to roll over, some of that pressure is taken off the fed. >> we need to see rates rise maybe another 25 basis once. >> the fed is more hawkish than they have ever been. >> they will be tightening in an economy that is slowing, not accelerating, and that will make a softer landing a very difficult task. >> this is bloomberg surveillance with tom keene jonathan ferro, lisa abramowicz. tom: good morning. you are watching us or you are watching netflix, down this
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morning. right now, a little bit of a bounce. we are going to retest that crater at -28%. jonathan: we were down 22% after last quarter's earnings, and here we are again. this time, a letter to investors saying this growth company is going ex-growth. tom: tim nolan from macquarie, never had a buy on it. i love what dan ives said, it will be about the haves and have-nots this earnings season. traditional media will be there and i will look at mourner discovery, their work on billions of dollars.
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help me with this energy, with the fed, the real yield actually what positive. lisa: they should welcome this. we have been in an abnormally suppressed environment, but how much higher does it have to go in order to be restrictive? as we are hearing increasingly, they are looking for some kind of restrictive policy. if they don't get that in place, what happens to inflation, given that expectations over the longer-term have climbed? tom: how do you perceive in the credit market the path to a restrictive reality, quarters or years? lisa: in the credit market, it's a different story, people are looking at the near-term. in the long term, can you do it slowly, or does the idea of inflation get entrenched in the population and you see sentiment starting to drive ongoing
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inhalation? that is the fear. are they going quickly enough, how far behind are they on the curb? tom: the german ppi numbers show you that the ecb has focus. jonathan: some councilmembers are thinking about a move in july. if they are doing that, they need to think about the sequencing of qe. do they accelerate that at the next meeting? for me, the outlook, my focus is on japan. they break out treasury yields, bund yields, the ecb set to follow in some fashion. at the end of the day, can the bank of japan maintain a policy this that caps 25 basis points. tom: we will continue this. on bloomberg digital, our conversation with jim bianco, piercing about the week yet and what it means for america.
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let's do a data check. dow futures up 124. jonathan: equity futures up .4 on the s&p. a nice lift to the equity market, a bit in the treasury market. 2.8628. in the next hour, a view on the bond market from bob michele. he likes credit a lot. i'm looking forward to catching up with him for why. tom: nice blog. -- plug. netflix back to a 252 level. we will continue to watch that. right now, victoria fernandez joins us from crossmark. she has to piece together what to do now. what is the first thing you look at each morning to try and frame a strategy?
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victoria: i am glad you made it back for this hour, i know that you said it was 50/50. tom: you have a whole closet of lululemon. can you see me and lululemon? i don't think so. victoria: me either. but it is all good. [laughter] yield curve is the first thing i want to see. not just where the 10-year is but also really yields. you have been talking about where really yields are, how that flows into financial conditions more broadly, that we are just starting to see financial conditions tightening. the fed wants to see more of that. we are watching to see is there progress there? they they see progress, maybe that gives them more room to do not as many rate hikes, but we are not seeing it in the dollar. equity market is volatile. we are not seeing it in credit spreads.
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i think we have to really look and see where global spreads are heading, what a yield spread looks like across the board. jonathan: any reason to buy cyclical equities given the beating they have had so far? victoria: i don't see why you cannot be choosy. there is nothing wrong with being a piggy stock -- piggy stock buyer in this environment. our outlook for the s&p is 4500. that doesn't mean that we don't think it will go about 4500, there will be a lot of volatility this year, but you need to be choosy. look at some cyclical names, that's ok. we like financials, bank of america. visa. i think you can go in and find names that will be opportunistic for your portfolio, but i don't think you go all in on cyclicals, or on a particular sector. lisa: do you see value in netflix right now? victoria: [laughter] that's a dangerous question.
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valley from the consumer, people see it from this point in time. from a stock perspective, a little bit tougher. we owned it in our covered call strategy. talking to our portfolio manager on that yesterday, what does that look like for rolling the call over, it will be pretty difficult. down 27%. i'll be watching to see what disney earnings streaming outlook looks like for them. probably will be a tough road if you are looking at the pure view opening play. lisa: do you see more netflixs out there as this earnings season progresses? people have such bifurcated views, are looking to punish certain areas with bearishness, while going long in some areas to provide income in a time of high inflation. victoria: during the pandemic, one thing we told our clients is to look further out. don't just bet on the quick
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turnaround plays like zoom, netflix, peloton. if people were putting all of their eggs in that basket, they would get hurt. they need to do their homework and do that bottom up work, make sure you have strong balance sheets, growing dividends for corporations. profit margins are still holding strong. corporations' largest issue right now is labor. what are they going to do with the cash on their balance sheet? capex, productivity, invest in tech. tom: help me in the realities of crossmark with the nonprofit tech area. it has been brutal. what do you say to clients that want to climb on the next tech vogue where there is not free cash flow, not a sustained ebitda. victoria: we don't like the nonprofit companies like that,
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where they should have profit and they don't, that is a dangerous signal. you have to look at the balance sheets, cash flows, debt ratios they have. if we are going to look at a tech name, we are looking more at the value component, like intel, cisco, vmware is a name that we are talking about. talking about capex, vmware has had a large surge in in-house systems people are putting in place to increase productivity. those are the areas that you want to watch. tom: i know that lululemon loaded the boat there. jonathan: as always, thank you, victoria fernandez. i have this one for you. david from deutsche bank, give me a sign to read out the conclusion.
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if central banks do not act soon and more aggressively than forecast, expectations will move higher, ultimately leading to a more aggressive tightening and deeper recession with larger rising unemployment. they say while there may be a temptation to let inflation drift at a higher level, we don't think the fed would risk losing its credibility. prepare for a hard landing ahead. this has been the view from deutsche bank as they look for recession into 2024 in the u.s. tom: 20 years ago, really authentic, original research on capital flows. all i have to say is, he has his radar up on the forced depreciation of currencies with a resilient dollar. when does that snap, as we heard from jim bianco? jonathan: prepare for a hard landing. lisa: the issue for me is not
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whether there will be a hard landing, it is when. we are going to get a recession at some point. whether the fed can orchestrate this in a less deep recession seems to be more the call ahead. jonathan: let's get to the price action. equity futures are doing ok on the s&p. futures up by .4%. the nasdaq 100 up by almost half a percent. yields come back a little bit, down seven basis points. 2.8686. netflix getting absolutely hammered. down by 27.4% this morning in the premarket. this is bloomberg. ♪ ritika: keeping you up to date with news from around the world, i'm ritika gupta. let's get to first word news. russia is calling this the second phase of the war in ukraine. early indication that it could
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go better for russia than the first. forces are looking to circle the eastern area and hauled as much as 40% of ukrainian troops in the region. china says it will keep boosting to teach it ties with russia, as a diplomat indicates, the relationship remains solid despite growing concerns of war crimes. the biden administration has not figured out how to respond to a federal judge striking down the mask requirement for plane and train travel. the mask mandate had been losing support even amongst some democrats in congress, well before the court ruling. netflix is throwing out its old rules after losing customers for the first time in a decade. they will institute a cheaper ad-supported option over the
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next couple of years. it will also crackdown on people sharing passwords. they project losing 2 million customers in the quarter. shares are plummeting today. mortgage applications in the u.s. felt for a six week. the mortgage bankers association index declined 5% to the lowest in more than three years. the average rate on a 30 year fixed rate mortgage was up to 5.2%. 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. i'm ritika gupta. this is bloomberg. ♪
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>> we are pulling back on some of our spend growth across our content and noncontent spend, but still growing our spend, investing aggressively into the long-term opportunity, but trying to be smart and prudent about it in terms of pulling back on the spend growth to reflect the realities of the growth in the business. jonathan: that was the cfo of netflix. the company this morning absolutely battered. in the premarket down by 27%. think about where it ended last year, 602.
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it closed yesterday at 3.48. right now in the premarket, where are we right now? 2.53, down by 27%. tom: it is fascinating. we focus on this not because of buy, hold, sell, and the rest of it, but the impact on our lives. if anyone to do into saturday morning football, i just part screaming over the six choices i'm supposed to have. jonathan: you have to try and find it first. i have said it a few times, you have to pay for hulu, espn plus to get formula one, champions league, you need paramount. i could go on and on, and that is just live sport. tom: we will be talking to experts. now, an exceptionally important and historic voice.
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brian wieser is legendary for his courage on facebook when it was launched years ago. he is now group president for business intelligence at group m. he really thinks about the trends in the industry. a definitive and constructive note on netflix this morning. i will cut to the chase. can reed hastings do a brian roberts, move to a cash flow driven company, like what comcast did years ago? brian: i think it is already. the company is already profitable. this is one thing that people in industry ignore, a company produces a lot of cash flow already. tom: the industry zeitgeist is he is no brian roberts, but you are saying, lose the caution.
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can you own the shares given your enthusiasm over their development of free cash flow? brian: expectation for the company were way out of whack. investors were trying to make a business model that didn't exist. tom: were they misled by netflix? brian: i think investors found a way to justify the stock price. that is not uncommon with momentum driven stocks. we see it with any stock that is overvalued. lisa: how do you assess what the actual value is at a time when we don't know what the real problem was? you throw cold water on this theory that consumers were cutting netflix subscription because of the rising commodity costs, rising cost more broadly. brian: i know there is a narrative out there around inflation, but i think the issue
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is -- spending on streaming services in the u.s. is about $30 billion last year. there is $100 billion traditional paid tv services, cable. there is a lot of room to go. tim nolan is bang on when he talks about competitive issues. there is just more streaming out there. lisa: who will be the winner? people thought that netflix could be the clear winner. can you say now that it is less clear that they will be one of the winners of the streaming wars? brian: there's a direct relationship between share to on content and viewing. if you spend $20 billion, you'll get about a 6% share of total viewing. the algorithm is not that complicated. if you spend $30 billion in a $300 billion industry, you'll get more viewing. it is as simple as that. tom: i have to talk about the new things we have.
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15 billion large of debt. can he actually do the entertainment and news artistry of it, and the financial as well, bring synergies to that new shop? brian: i think it is absolutely possible. i think we are looking at this transaction the wrong way. this is a warner bros. takeover of discovery but inserting discovery management on top of warner. to the extent that the company was really well-positioned by jason kyler for a long future ahead, to the extent investors focus on that and not the short-term, they will do well for themselves. the risk is they focus on short-term metrics, making the quote or work. that will coddle shareholder
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base, will lead to less optimal outcomes. jonathan: it did not work for netflix, that is for sure. brian wieser, thank you. that stock is down by 27% after doing the same thing last quarter's earnings. tom: he's note is more constructive than most, is that russia had a play on netflix. everyone is dealing with russia and ukraine. but the level of competition in living rooms, this is nuts. jonathan: the issue i have with what i am hearing this morning from some of the more constructive views on the south side, the most bearish note on netflix in the last 24 hours came from netflix in the shareholder letter. this was the first factor -- they had for as to why this all went wrong.
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it is increasingly clear the pace of growth into our underlying addressable market is partly dependent on factors we don't control. the adoption of on demand entertainment and data cost, uptake to connected tv's, we believe these factors will improve over time so that all broadband household will be potential netflix customers. but for now you have the company telling you that the addressable underlying market right now is a problem for them. that is the most bearish take out there, coming from the company. tom: i go back to the core feature, which is does any given company show profitability? within big tech, amazon, profitable -- for whatever reason, you can justify. apple, profitable. can you say that about netflix? jonathan: we get the luxury of
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waiting until walt disney numbers come out, get the disney plus numbers. if you are in the stock, this is ugly, has been all year. from new york city, this is bloomberg. ♪
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jonathan: live from new york city for our audience worldwide on tv and radio, on the s&p, higher for a second day. up .4%. the nasdaq 100 up by 0.5%. yields lower by two basis points. netflix is down by 27.6%, near session lows. jp morgan, a cut to neutral. piper's and there, cut to neutral. ubs, cut to neutral. new price target, 355. tom: i missed this over the break. netflix down to a 251 level
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moments ago. this is a set of lower lows. we will see in the opening. diane swonk watches netflix nonstop when she is not looking at the american economy. she joins us this morning. i was taken by the outlook yesterday the united states of america, a fairly constructive pretty good economic with inflation, pretty snappy nominal gdp. are we overglooming on the american economy? diane: i don't like to be the debbie downer here but i am worried what we will see in terms of the economy in the second half of the year as rates go. we have seen the yield pretty steeply and or goodreads have come up dramatically.
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the housing market will be the canary in the coal mine. i think we will see some pretty big declines in terms of activity. then question is what happened to home alleys by the end of the year. some of the hottest markets are already plateauing. tom: just a few years ago, the world stopped when swonk published on the american housing market and a few cycles. what is the microeconomics this stunning house boom? diane: i think but we will see, we are moving back to february 2020 levels, but as we get into the second half of the year, we are seeing those all-cash investors crowding out first time buyers. the percentage increase, 2% increase we have seen in goodreads holding about 5%, that movement up is bigger than it
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was in 1994 we went from 6.5 to 8.5% on mortgage rates. it is interesting people forget the percentage of interest expenses that much higher. i'm concerned about the run we had in housing, some of the hottest markets with what he percent gains, they will be producing declined by the end of the year as the market cools. over all home values will be for the year for most of the country. that is a big change from double-digit increases. lisa: it is a big change but not all that scary given how prices have gone up, and that will increase the affordability for those who see income crimped in other ways. is the dividing point between healthy declines in line with what the fed wants to see, and something more material for the economy and wall street? diane: we want to see homebuilding touch up a little
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bit, more supply,. that is good news or the market. i would be concerned if we saw home sales go back to 2015, 2016 levels, as opposed to just getting to the healthy levels they were at at the end of the last expansion. the dividing line is going back to the time when we were not buying many homes at all, still coming out of the housing bust. we have a lot more equity in homes. if prices are even flat, given the appreciation we have, they are still up a lot but will not destroy people's equity in their homes. but i think it's a major shift in the affordability on these mortgage rates. first time buyers, even with the wage gains they have got, they are having a hard time buying out there. can they stay in this market? lisa: i made a mistake as today,
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looking over at housing starts data, i thought this will not be that relevant. it came out at the fastest pace since 2006, had a market moving impact. people looked at the data and said maybe the fed is not aggressive enough, maybe not understanding how fast inflation is, how much momentum there is behind it. do you agree that if the data edifies that story, that the fed does not appreciate what they are facing here? diane: i think the fed appreciates it. the most vocal we have heard our jim bullard and chris waller, and he has talked about his own reality check of selling his home in saint louis, but cannot buy anything in washington because the market is crazy, as he put it. they are having these real-life experiences that everyone else is. two people incidentally -- jim
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bullard talking about a three quarters of a percent like, those are the ones that are most aggressive on a rate hike. interesting to see esther george and charlie evans talking about the need to get rates up, on board with a half percent hike, but also worried about the measured pace. markets have moved up, but they don't want to get too far ahead and trigger a bigger credit down. we are starting to see tensions with japan and their exchange rate. tensions with the living economies and their exchange rate. every time we think about raising rates, those other economies have to defend their currencies, and that is a house of cards for the federal reserve to balance on that tight rope. tom: what is business investment doing? you have a unique view on that. is the confidence still there to plan forward? diane: we are starting to see some erosion in that confidence,
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certainly saw that with the war in ukraine. many manufacturers that we talk to are looking to automate because they cannot get the workers they need. they are also dealing with a much more expensive equation. many of the margins that you see on these traded stocks, these are private middle-market companies that are getting the most margin squeeze, from labor costs to energy cost, to inability to get the components they need. tom: can they pass on the costs? diane: they do but it is squeezing their margins. some in the business are thinking about what parts of the business do we want to stay in, what parts can we get out of? we are passing the costs, it is inflationary, but there is a squeeze on margins. that is ultimately what inflation does, shows up in margins. many of the tech behemoths can absorb the shock to margins because they are leveraging and investing, there are companies
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out there in professional services that are investing a lot of money and they can absorb the wage increases, and the other increases they are facing. it is the smaller middle-market companies, the bread and butter of the economy, that cannot. lisa: how high do you think inflation will remain by the end of the year, especially given the fact that a lot of fed officials are waking up to how much they have to do? diane: by the end of this year, we are looking at core inflation to be running in the high 4's. that is still pretty hot, and that is because we expect cpi on inflation to still see the pivot into shelter cost more dramatically. we may see some backup in goods costs. charlie evans pointed to that, and that is important, to get some supply chain problems to push them up, but the real issue is what happens to rent an owner equivalent rent, homeownership
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cost. it takes over a year for the appreciation we have seen in home values to show up. that is still a lot of inflation and too hot to stop at a neutral rate. that will be one of the things that pushes the fed past the neutral rate, having to continue to raise rates into 2023. we expect to see 2% fed funds rate by the end of the year and 2023, but we have also called it a growth recession, where economy stalled out, growth progression. jonathan: the fed decision is two weeks away, and we will catch up with you again. may 4 for the fed decision. the lineup for the next hour on bloomberg is absolutely tremendous. you will hear from david malpass. in the next hour, on equities, lori and mike wilson. then we get into the bond market
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with bob michele. netflix, the stock du jour, we will catch up with michael nathanson of moffitt nathanson. tom: a select group that has always been skeptical about the netflix profit model. it will be interesting. i know he had been doing the media rounds. where all of those price targets are coming in, i will really watch what these people are looking at, how do they reset? jonathan: yesterday, people were tempted to buy into their earnings after a move of 40% year to date. down another 27%. there will be even more people to buy this now. that will be the question for mr. nathanson, is now the time to buy? we would argue not yet.
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we are still uncertain about what the revenue base looks like. tom: it is real simple. the way you learn not to buy into a fed announcement or earnings announcement, is to enjoy losing money when you buy into the announcement. i have enjoyed losing money. jonathan: i'm not sure how many people have enjoyed it is morning, losing money on this stock. down more than 27%. equity futures are doing ok, up .4%. from new york city, this is bloomberg. ♪ ritika: keeping you up to date with news from around the world, i'm ritika gupta. let's get to first word news. in shanghai, businesses are
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gradually resuming operations in the midst of that massive lockdown. manufacturers are able to restart by using a closed loop system, where workers live on-site site and undergo regular testing. two thirds of the 25 million residents are still locked down. a small but growing number of kremlin insiders are questioning vladimir putin's decision to go to war. they believe the invasion was a catastrophic mistake that will set the country back four years. they see no chance the russian president will change course, and no prospect of any challenge to him at home. considering a partial or full sale of the grubhub is this -- business. this just highlights how the end of the pandemic has turned the food delivery industry from a hot property into a struggling sector. abbott laboratories posted stronger than expected first quarter revenues.
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they maintained their forecast for the whole year. lululemon plans to double sales in 2026 in part by targeting men. at the same time, they want to quadruple international sales from last year's levels. 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. i'm ritika gupta. this is bloomberg. ♪
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>> compared to our january forecast, we have arise our projection for global growth
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downwards to 3.6 percent in 20 22 and 2023. tom: the head of economic research at the international monetary fund. the credentials he has out of the massachusetts institute of technology really bodes well for his perspective to the imf in the coming years. right now, the perspective of the imf and world bank meetings, david malpass joins us, the president of the world bank. i want to cut to one of the quiet stories here. it has to do with russia selling an awful lot of fertilizer to the united states of america. your shop is lead on building the supply of fertilizer critical to this humanitarian crisis. how are you doing?
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david: happy to see that fertilizer is more critical in this planting season. countries are at the moment where they need to get the crops in the ground, they need fertilizer. it is good that russia is doing that. i saw that india is selling some wheat to egypt. i believe there is supply in the world if it can be allowed to find the best use. tom: what can your is tuition do to get us away from 6, 7 standard deviation jobs in agricultural products? david: we can help with data, with the supply chains themselves. we can provide trade finance which is important in moving goods around. we can also encourage countries to find new sources, to realize that they need to move quickly in order to increase supply. importantly, we can encourage
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advanced economies to do all they can to release excess stocks and to make more products. they have huge production capacity. if they communicate that, that will help with the world pricing levels. lisa: time has become incredibly important when we talk about issues of hunger, especially in places where the average income of households, half goes to food. sri lanka stopped paying debt payments as a result of their need to buy food and fuel. how much do you see this becoming a routine issue with debt defaults, at a time when sri lanka says imf aid will take six months, which will be tough for them? david: different countries are in different positions. sri lanka waited to tackle its debt problem and they continued making payments on heavy debt burdens, including those to china. that drains resources. other countries have different
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problems. each one are unique. i was in romania and poland last week. they are facing the changes in energy supplies within europe. i missed time when he was in washington last week, but the point is, the world needs to have a resolution process for debt that is more robust than we have right now, and starts earlier. at a meeting this morning, there was a meeting for china to convene creditors for zambia. that will be a helpful step. zambia stopped paying its creditors more than a year ago and still does not have a pathway to a debt resolution. i think the world needs to work hard to provide that path. that would be a good step forward. lisa: as we try to understand the obligations of the developing world, do we know how
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much is owed to china, other types of debt? david: there is substantial do you it is not all transparent as to what the amounts are. the world bank puts numbers out on that. there are different ways to cut it, so you have to be careful. the official debt in china is some 65% of the total amount owed to creditors, of the official credits, that means government to government credits. another type is the poorer countries are expected to pay out $35 billion of debt service this year alone, which is bigger than the foreign aid that comes in. there really needs to be a change. that was discussed heavily already this morning at the imf meetings. tom: by no means am i casting an aspersion to you or your great institution, but our team is
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looking at the basic flows of aid. the world bank is always the first to write the check. are you writing a check to a given beleaguered nation and they are turning around and taking part or all of that check and rolling it over to beijing? david: we hope not, and we are working to avoid that, but the system has been one that has allowed transparency to go down and down. in many cases, there are nondisclosure clauses in the debt contracts that leave it on clear why the payments are being made to the creditor oftentimes to china. it is also in china's interest to do that. china is a big part of the world economy, can benefit from healthy countries and healthy
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development in the developing world. tom: hope will only get us so far, mr. malpass. any indication that the chinese want greater transparency so that the check you are writing is not going to beijing? do they want transparency? david: they are fully participating and the devil is in the details. they are willing to be more active in these debt resolutions, if they can actually play a former wall -- formal role. the world was set up under the old debt competition in which china was not a big layer. it has been the central institution to restructure debt. the g20 is trying to rotted that -- broadened that, i think they are making some progress. tom: david malpass, thank you very much, president of the world bank.
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there are eight things to talk about, and the one thing i have to go to is netflix. we almost got a 250 print. 251 handle right now. lisa: down 28%, 70% from the november high. i keep going back to why? is it because people, are cutting costs or that people have other things to do and are not willing to do what it takes to entertain their children in a lockdown? how much are we looking at something specific to that or something broader to the economic story? tom: the earnings season is upon us. i have to believe there will be other netflix's as well. a very eventful end of april. let me do a data check, focusing on currency, which i think i ignored today. yen, 128 level. a lot of bit of strength ever so fragile.
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the euro is ok, 1.28. sterling, we don't want to mention. we don't want to upset ferro. dow futures up 149. this is bloomberg. ♪
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jonathan: live from new york city, good morning. this morning all about one them, netflix. down 28%. the countdown to the open starts
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now. announcer: everything you need to get set for the start of u.s. trading. this is bloomberg: the open with jonathan ferro. live from new york city we begin with the big issue, kicking of big tech earnings. >> brutal your for big tech. >> you had that collapse in real yield which boosted valuations. >> we had such a run-up in tech. >> you have the reverse now. >> tech has been hit really hard since the start of the year. >> attack has been the area most punished by that combination of higher yields and inflation. >> the risk is the forecast is high. >> valuations are an issue. >> as real yield to positive territory. >> it is not a great outlook. >> the question is going to


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