Why Markets Aren’t Scared of Kevin Warsh

14:16Mark Zandi:We're back with Prof. G. Markets. Disney's earnings beat both top and bottom line expectations and also reported record revenues in its experiences division. streaming at a great quarter too, with profits rising more than 70%. But the stock dropped as much as 7%. The results were overshadowed by lower international tourism, higher costs for sports rights, and continued weakness in Disney's traditional entertainment division. The earnings also came ahead of a pivotal board meeting this week to choose Bob Iger's successor. Okay, here to help us break down these earnings and what to expect from that meeting, we're speaking with Rich Greenfield, partner and TMT analyst at Light Shed Partners.

14:58Mark Zandi:Rich, great to have you back on the show. Thanks, Ed.

15:01Rich Greenfield:It's a pretty momentous week. I mean, you know, I think all signs point to what we've been waiting a very, very long time for, which is who's going to succeed Bob Iger. And again, we thought we all knew that a few years ago with Bob Chapek, but that obviously didn't last very long. And so I think everyone sort of believes this time Bob really means that he actually is leaving. And so, you know, all eyes are on this succession story.

15:25Mark Zandi:Does that explain what happened with the share price? I mean, the stock's down 7 % after a pretty great earnings call. I mean, overall, it's pretty good. What explains the movement in the stock right now?

15:40Rich Greenfield:I think the fear on earnings is that the March quarter, their fiscal Q2, because Disney's a fiscal September company. And so their fiscal Q2 is not great. You know, there's a lot of a number of headwinds is, you know, the theme park attendance looks like it's going to be flat to down. They're signaling weakness in international travel to the U.S. And they're really putting the majority of the earnings growth they're expecting this year on the back half of the fiscal year. And I think, you know, the minute you say to investors, the current outlook is not so good, but we'll pick it up or it'll improve later.

16:15Rich Greenfield:You know, people generally, you know, that is generally a good signal to I'm scared they're going to miss numbers. Right. And then add on to it, Ed. The other piece of this is not just is Bob Iger leaving, but again, according to press reports and, you know, this is unverified at the moment that we're recording. But the story goes is that Iger is also going to leave before his December 31st contract year end. So just imagine you're an investor, you're hearing earnings are very back half weighted and Bob's leaving sooner than you expected. Right. Like, you know, and theme parks, which is the number one reason people own Disney, like sure, ESPN and Disney Plus.

16:55Rich Greenfield:But if you look at like what people get excited about to own Disney now, given the size of the business, it's really about its theme park and cruises. So their experiences segment, as Disney calls it, that business facing sort of, you know, headwinds from an attendance standpoint spooks people. And look, it may get better. But, you know, attendance grew one percent this quarter, but they were comping against hurricanes. So organically, it was flat to down. Sounds like it's going to be flat to down in the U.S. in fiscal March Q2. And then the question is, can they actually accelerate that in the back half of the fiscal year?

17:33Rich Greenfield:And I think you're seeing from investors today, they are nervous. Yes.

17:38Mark Zandi:When we just look at the succession plan here, who's in the running? Who might it be next?

17:45Rich Greenfield:I mean, look, we've gone out in our top 20 predictions for the year and said it would be Josh DeMauro, who is currently the head of the theme parks. You know, I think go back to what I just said a minute ago. The reason investors own this stock, like I can't say this enough times, they own it for theme parks. So to choose someone who is not the theme park person, I think at this point would be strange. Dana Walden is a great executive. She's had an incredible career. She came from Fox when Disney bought Fox. She came over. She has an incredible resume in terms of what she's been able to achieve creating content over her career.

18:18Rich Greenfield:But again, if you think about what Disney is all about, it's not really about television, which is Dana's forte. And it's really not about the TV business at all. Well, again, it's really, you know, I really think about Disney is really two things right now. It's the creative engine on the film side that is driving theme parks and consumer products, Disney Plus. But it really, you know, comes down to so much of this is the, you know, the high profile movie content and the theme parks. And I think that's just not her focus. And so I'd be surprised if Disney went in that direction. I mean, look, there is always a wild card that either it's a dual CEO and or that it is somebody from the outside.

19:01Rich Greenfield:But again, every single data point seems to point towards it being Josh. And then I think the really big question for your viewers and listeners is, is this an indication of Disney pivoting? Like, will there be a strategic pivot? Are they just keeping all of the assets they have today? Again, Josh comes from the theme park segment. He's not a TV guy. He's not an ESPN sports guy. Do they reconfigure the company? And our bet is, is that he's going to lead investors to believe that structural change, meaning separating the companies the way a Warner Brothers has been, you know, is in process of separating, selling a piece to Netflix and spinning off their linear TV assets.

19:43Rich Greenfield:That's obviously what Comcast just did with Versant. We think there's a lot of logic to Disney simplifying its corporate structure over the course of the next couple of years. It wasn't going to happen under Bob Iger. It could certainly happen in 27 under Josh.

19:58Mark Zandi:And would that corporate restructuring involve moving the theme parks and experiences business to its own unit? Is that going to be sort of the versant for Disney?

20:07Rich Greenfield:No, I think you would keep theme parks and studio and Disney Plus all in one unit. So you'd have the production of movie content, the production of TV content, the distribution on, you know, Disney Plus. You would have, you know, the Hulu business. But then you would take ESPN and ABC and all of those TV stations and ship it off into a separate entity. And so theme park, studio and streaming all stay in one unit. And essentially what you would call, Ed, linear TV, which I know when we're talking about a show that streams online, seems a little bit outdated at this point in time. You would take the very profitable.

20:47Rich Greenfield:Remember, these are huge profit engines for Disney. I mean, I don't want to make light of the fact that ESPN and ABC are incredibly profitable businesses. But they're just not growth businesses in the way that the other assets are. And so I think you would capitalize them differently. Maybe they would look for their own M &A over the next few years. I mean, we continue to believe that Disney, if you got rid of TV and got rid of sports, could you lean into video gaming, interactive entertainment? You know, think about the Epic Games where they already have a joint venture with or think about Roblox.

21:19Rich Greenfield:Like if you think about what your viewers and listeners and what their kids are doing, it looks very different than watching linear TV in 2026. And so I think there's a lot of rationale for why a new Disney CEO would really rethink what the business should look like for the next decade.

21:38Mark Zandi:100 percent. One that we haven't gotten your views on. It's been a while since we had you on the program is the situation between Warner Brothers and Netflix. I haven't heard about that. What's going on there? Yeah. Just can we get your updated perspective? I know that you're going down to D.C. for the hearing. What are your views on the Warner Brothers situation and how this is all going to shake out?

22:01Rich Greenfield:I mean, look, Netflix is currently the winning bidder, been selected by Warner Brothers. Paramount doesn't like it. Paramount is trying to run a hostile proxy battle to try to win over Warner Brothers shareholders. I think the challenge right now is, you know, the approach that Paramount is taking is essentially, hey, we don't need to raise our bid anymore. We will just wait this out. We think we're going to get meaningful regulatory approval. And we think that that will push Warner Brothers shareholders to pressure management to take and reconsider our bid. I think that's unlikely. I mean, just given where the Netflix bid is at twenty seven seventy five in cash, the stub, which is going to be spun off, probably has more value than what Paramount has talked about publicly.

22:53Rich Greenfield:And so I think for shareholders, I think unless Paramount is willing to meaningfully raise its bid, it's in a tough spot. And I'll be honest, Ed, you know, leverage looking at the media business, especially a lot of TV assets, you know, legacy media, linear TV being levered when you need to go through a dramatic investment cycle. Like if you look at Paramount, I was out at UFC two weeks ago out in Vegas. Like they need to go through. They just spent a billion one on UFC. Those are the types of big, bold investments Paramount should be making. Like they're trying to change how you think about Paramount Plus.

23:30Rich Greenfield:They want your viewers to have a reason to keep coming back to Paramount Plus. Great. But to make those types of investments, not having leverage or having low leverage is a real asset. And so levering up to seven times or maybe more to buy WBD sounds a little crazy from our standpoint. And I actually wonder if we're past the point where if I'm really looking at this, like unless Larry Ellison is willing to put up a lot more cash of his own. But levering this company seven times, you know, at closing before you get all the synergies, levering it that high feels to me a bit dangerous. And I think if I were sitting there, if I was David Ellison, 42, 43 years old, having, you know, 20, 30 years, 40 years in front of me, I think I would look at this and say, I can invest and build for the future.

24:19Rich Greenfield:I don't need to over lever this to buy Warner Brothers. And so I actually think there's a scenario where they probably won't just walk away. I think they really don't want to walk away, but they probably should. And it'll be interesting tomorrow. There is certainly a view in D.C. that, oh, my God, Netflix and Warner Brothers is too big and scary. But, you know, on the flip side, you know, like look at YouTube, right? Like the elephant in the room, as you know, we've talked about on your show. YouTube is the monster and it's it's the number one reason or the number one use of anything watched on the TV is YouTube.

24:54Rich Greenfield:Like that's hard to fathom. And so the reality that Netflix buying Warner Brothers or Netflix buying HBO, it is effectively, you know, it's like a one point increase to Netflix's market share on the TV. YouTube is still larger. I mean, YouTube's larger than Disney. If you take Disney +, ABC, ESPN, Hulu, ESPN +, YouTube is still meaningfully larger. And so like this idea that like Netflix can't buy HBO, I think it's a I understand where it comes from, but I think it is not a well-educated view on what the actual competitive landscape and what your viewers are actually doing when they get home from work.

25:37Rich Greenfield:the competitive choices of where they spend their time, I think if you really look at it honestly, there is tremendous competition and there really shouldn't be a reason why that transaction is blocked.

25:50Mark Zandi:Okay, Rich Greenfield, partner and TMT analyst at Light Shed Partners. Rich, thank you. Thanks, Ed.

26:01Mark Zandi:Well, gold is swinging wildly yet again, this time to the downside. Friday was its worst single-day loss since the 1980s. It fell roughly 10 % in just one day. Meanwhile, silver got hit even harder, falling nearly 30%. And then yesterday, gold and silver ETFs continued the sell-off, both closing down roughly 4%. All in all, roughly$15 trillion worth of gold and silver was erased in less than 24 hours. For reference, that is roughly equivalent to about one-fifth of the entire market value of America's stock market. Just staggering. So it's getting to the point here where gold is almost behaving like a meme stock.

26:48Mark Zandi:I mean, you look at GameStop as an example, which will go up and down 10, 15, 20 % on any given day. You see the same thing with meme stocks like AMC. You see the same thing with MicroStrategy. Well, gold, the most valuable commodity by market cap in the world is now behaving in a very similar way. It's now acting like a meme stock. Same with silver, which raises kind of a crucial question here. If they're acting like meme stocks, is it possible that gold and silver actually are meme stocks? Now, this view will upset a lot of people, especially the people who are very bullish on gold and silver, the people who say that this is a global secular trend, that gold is a hedge against inflation, that it's a hedge against debasement, that the dollar is dying, people are shifting over to hard assets, and all of that might be true.

27:42Mark Zandi:But the meme stock theory tells us that the real reason that gold is surging by this much and also crashing by this much is because it is simply the sexiest trade right now. Like GameStop in 2021 or AMC after that, gold and silver are simply the next shiny objects to move in and out of your portfolio. Everyone's talking about it. Everyone's writing about it. Everyone's supposedly getting rich off of it. That might not explain the entire run-up, but it could explain at least some of it. And in fact, our friend Josh Brown, the CEO of Ritholtz, he had an interesting perspective that would support this theory.

28:20Mark Zandi:He said that the reason so many people are getting into gold and silver right now is simply because the brokerage apps are recommending them. He wrote, quote, it's like a Spotify playlist. None of these people have any fundamental or even technical opinion on silver. They are buying it because the app is suggesting it. He then went on to compare this whole dynamic to Netflix. He said, quote, why did Bridgerton become a hit show? Because Netflix decided to serve it up to everyone who just watched Downton abbey. It's an algorithm. There is nothing more to it. End quote. This is obviously a theory, and it might not explain everything, but I'd be willing to bet that it explains at the very least quite a lot.

29:04Mark Zandi:In fact, SLV, which is the largest silver ETF, is currently the top trending ticker on Wall Street bets right now. GLD, which is the largest gold ETF, is the third most mentioned. Retail is obsessed with gold and silver right now. Meanwhile, you look at what the central banks are doing. The guys who are supposedly the drivers of this whole rally, well, as our other friend Robert Armstrong pointed out last week, central banks actually reduced their gold purchases by more than a third last year. Now, all of this would kind of align with what we said last week. That is right after gold breached$5 ,000 for the first time ever, we said that the gold trade was not so much an investment thesis as it is a story.

29:48Mark Zandi:A story which, as we also said, most likely resembles some form of a bubble. Now, who knows what's going to happen to gold tomorrow? Who knows what's going to happen to gold the next day? But if you were going just off of the chart, if you were simply looking at the line, which was going up and up and up and now down and down and down, you would have to admit it is starting to look a lot like Meme Town.

30:17Mark Zandi:Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Paston and engineered by Benjamin Spencer. Our research team is Dan Chalon, Isabella Kinsel, Chris Nodonoghue and Mia Silverio. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.

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