Ep.97: US Inflation Cools & The Fight For Disney

Hello and welcome to episode 97 of the Market Maker podcast, and today we're going to talk about really two major things. We're recording this on Thursday, so we've just had the release of the latest US CPI report. So we will aim to deconstruct that a little bit, talk about the intraday reaction, more importantly perhaps talk about what it's going to do for Fed thinking, and does it really make a great deal of difference? We're we will discuss. And then we're going to look at some single stock news and talk a little bit about Walt Disney. And the reason why is we're going to use it as a bit of an example. Not only is it a super interesting story for that single stock, but about this potential for the biggest proxy battle to take place in the US in years. And what exactly does that mean? So we'll look to explain. Kick things off though, Piers. I know you're a man who likes his fry-ups. Oh yeah, one of the things I was, uh, seeing a lot of meme activity in the Twittersphere, the FinTweet world, were eggs. Did you catch, uh, you feeling the pinch on your, your fry-ups these days in terms of like the cost of, uh, your full English?

I mean, I did know, yeah, eggs were like, like top of the list, weren't they, in terms of food inflation, inflation just generally. What was it like 50-odd percent, or 50%.

Yeah, 49% in the past year. They're kind of topping the table. And I saw all these memes, and yeah, some pretty hilarious ones, but I thought, hang about, what's going on with eggs here? Because one, one thing that I like is chicken, and chicken has been going— actually, um, it's the other way around. Chicken prices have been going down. Right, eggs are going up. So there's a little trade opportunity here going on. And it all boils down to the type of, the type of chickens you're talking about, right? Laying hens or those who are meant for meat consumption, right? And how they've, uh, differently reacted to basically bird flu. So there you go.

So hang on, the chicken laying eggs are more susceptible to the flu then, is that Right, so millions of egg-laying hens died last year.

It was the deadliest outbreak of avian flu in US history for egg-laying hens.

Right, right.

Yeah.

So is that a global— I mean, you might not know, but is that flu been global or has it kind of been limited to North America?

Good question. Well, the rules over— like, this is where when it comes to chicken particularly and food, as you know, rules in the Eurozone compared to America are wildly different in terms of how they, uh, deal with food quality and things like that. So I would have thought it's probably more broad, uh, further afield than North America, but probably impacting on different degrees. But yeah, I just thought I'd point that out. So next time you're at the Spurs game getting your full English pre-match, that you, um, you know, you're just really enjoying that egg that you're, you're paying for.

That's all I've got. Well, it's more my, you know, January, Healthy January. Obviously I've switched over to my Rocky Balboa diet. Oh yeah, it's a bit of a reference for those who are a bit older. Anyone? Anyway, Rocky's, you know, Rocky 1, classic, classic movie.

There's a new one, right?

Oh, is that—

oh yeah, Creed, Creed 3, I think it is now. Yeah.

Okay. Yeah, it's just not the same, is it? No, but Rocky Balboa's diet was raw eggs of a morning. That was— yeah, I think he had 6 raw eggs or something as part of his training. Okay, um, but I've just brought up the table. Yeah, the biggest egg producer globally, um, uh, produces 40.1 million— or sorry, no, has 40.1 million egg-laying hens. Wow, that's insane. Um, but that's a US company called Cal-Maine Foods. Um, and then there's a Mexican company number 2, US company number 3. So yeah, the top 3 are kind of North America, and then you've got others like Thailand and Japanese companies coming in. And, uh, yeah, but it's actually out of the top 11 2, 3, 4, 5, 6 are US, which I didn't know. That's interesting.

Yeah, expensive things, these eggs. So I guess, you know, rather than India, China, places like that.

Well, I'm sure some of our listeners will be following the, the, uh, the growing popular, uh, I better say this carefully, actually, Veganuary. Uh, diet. This is where you become vegan for the, for the month of January.

Okay.

Yeah, so perhaps egg demand is gonna drop off this month, which will help with that inflation.

Anyway, following this excellent discussion we're having, let's move on and let's talk CPI. So we'll talk macro first, and then we'll talk a little bit, um, single stock. And a couple of different ways I want to break this up, because I think let's just kick off and talk about the data in itself, and then let's talk about the way of which it impacts different types of market participants. Because I think for a lot of students, when you're thinking about careers, you know, you might get absorbed into a lot of the intraday headlines, but who and how are different participants reacting because it is very different. So we'll have a look at that. But kicking things off, the overall CPI fell 0.1% from the prior month. Energy costs, as you would imagine, contributed largely to that. I think oil was down about 16.6%, the biggest decline since Feb 1990 for oil. One of the other standouts was airfares. They were down just over 3%, biggest drop since August. The headline measure, year on year, 6.5%. Was actually in line with expectations, but does mark the lowest since October 2021. The core reading, obviously getting a lot of focus recently, that was up 0.3% from last month. It was at 5.7%, again further decline from prior. It, in fact, the core reading, the slowest pace since Dec of 2021 as well. So all of those things playing into the narrative as we have become somewhat accustomed to at the minute, which was a cooling of inflationary conditions on a surface level at least. But one of the things you often talk about on, on these podcasts is about what happens under the bonnet. And actually, when you go on to say the BLS website and you start looking at the CPI report, you realize that, oh, there's much more than these top-level figures. So was there ones within there like shelter costs, for example, which is— yeah, the biggest services component makes up a third of the overall CPI index. Is that the sort of thing that you look at as well as those top-level figures?

Yeah, this is it. I mean, um, it's always very hard— we'll talk about how markets have behaved in the super short term, like in the, in the kind of 3 hours since the data has released, and that kind of tells its own own story because we've had some wild market volatility off the back of these numbers. But on the face of it, as you suggested there, the headline numbers are basically as they— as expected. So when you're kind of certainly short-term, you're kind of trying to benefit or trying to profit from market reactions to this kind of stuff, when the kind of all the information on a very, very top level is as expected, well then, all right, does that mean markets won't react? All right, if the top line's as expected, we're going to have to go down a level or another level or another level into the nitty-gritty to find stuff that, that's out of line from expectation. And right, which of all these hundreds of different products that, you know, make up this inflation basket, which ones are more important than others in terms of driving the inflationary trend? And then, right, what's happened to them? I mean, look, can I just start on that top level? Yeah, it's in line, but I personally, I think this is another significant step and another, I'd say, supporting kind of piece of evidence for those in the camp that expect inflation to continue to fall at a steady clip as we go through the first half of this year. 6.5% on the headline. That, that is a drop from 7.1% the prior, prior month, right? So a 0.6% decline. We had a 0.6% decline last time as well. And look, I, I— what if you can look at the chart, basically we've had 1, 2, 3, 4, 5, 6 months in a row of declines, and the declines are accelerating. Right, that the, the amount by which it's dropping is, is increasing. And look, this is the low— this is the lowest we've had since 2021 now. So we've got like a 2-year low. Well, no, that's not true, apologies. It's like a 15-month low, okay, on inflation. So, but the top's in and it's coming down and it's continuing to come down at a decent pace. So I think that's good news. And when you look at the, um, When you look at the core inflation reading, then it's a little bit more mixed, but it's dropped off again. Yes, the same as expected, but my— the significant point there is, and I think I mentioned it last month, the 5.7 reading for December core inflation year on year is the lowest reading again that we've had since the end of 2021. So you're 15-month lows now. It's importantly below the low that we had last summer. Okay, so I think whilst it's all in line as expected, generally speaking, this is a real sort of positive signal for those in the camp that are expecting inflation to drop. Okay, and I think you can see that with regards to the expectations of what the Fed Reserve are going to do at their next meeting, which is at the start of February, because the probabilities now— obviously what we've been expecting is that the Fed will continue to reduce the amount by which they're hiking. So they hiked 0.75% 4 times last year, and then in their final meeting in December, they dropped to hiking just by 0.5%. And now the next meeting since that December meeting, which is the Fed one, we're expecting now another decline to an increase in 0.25%. The odds on that prior to today were 77% chance. Okay, we'll talk about more broadly markets in a minute, but we've had a really good week. We've had a pretty good start to the year actually. Stocks have been on the up, and part of that, uh, catalyst for driving them higher has been the increasing probability that the Fed will only hike by 0.25% in February. So that's gone from 77% chance to an 88% chance after this inflation data. Um, so that, that's one thing, right? So that, that's, that's plenty of evidence for those who are looking for inflation to drop, okay, that it is doing so. However, now to entirely contradict all of that, when you strip off the bonnet and look inside, well then, what's going on down there? And I think on a month-on-month basis, if you're looking just super short-term, how prices changed in December compared to November and as you're saying, gasoline is the one, right? Big drop in petrol and gasoline prices. So yeah, energy and gasoline are the kind of biggest falls. We've had a pretty decent drop in used cars as well. That was down minus 2.5% month on month. But if you're looking more on that year-on-year basis, then yeah, it's the shelter cost, which is a really big portion of that services side of the basket. Which we've talked about a lot as being the final sort of piece of the inflation jigsaw that hasn't turned over yet, that has stayed quite stubbornly high. And so I think those that— I guess this inflation report's classic. You, depending on your bias, you're really happy and you can have opposite opinions and yet everyone's happy, right? I've already explained why There are those that are looking for inflation to drop, why they're happy. But then those that think inflation is going to stay stubbornly high, they're also happy because of that shelter cost number. So you've got this a bit of a mess. And when you look at how markets have responded in the 3 hours since the data, I mean, if I just— I mean, maybe if I went to— I'm just going to look at the NASDAQ chart. And you would argue that the Tech stocks are a little bit more, most sensitive, let's say, to this sort of inflation-related data. And the initial reaction was a big sell-off, and that's because of those shelter costs and because the numbers were in line. And I guess you're all, people are always maybe irrationally hoping for numbers, inflation that's lower than expected, but it wasn't lower than expected, it was in line. Um, so you had this big sell-off, and when I say big, the NASDAQ dropped from— it dropped from 11,530 down to 11,290. I mean, this is a massive move, uh, and that took— yeah, it took about 1 minute for that sell-off.

Okay, got that low.

Then what happened? It stopped the massive sell-off, it turned And then it rallied all the way back to the high and set new highs for the day. Okay, so it rallied from 11,290 all the way up to 11,580, and that's almost a 300-point reversal. Then it stopped going up. That, that, that rebound took about an hour— no, sorry, 30 minutes. So 30 minutes, then it stopped going up. Do you know what it did then? It sold off all the way back to the low. Um, over the course of the next, uh, 1 hour. Then it rallied back to the middle and was still in the middle of the overall range. So you've had wild swings in both directions, really, really huge moves, because you got different people looking at all of this, the same data, in very different ways. And, and I've only just explained it from the point of view of short-term what's going on and Well, on the headline it's good, maybe you could argue, but hang on, what about those shelter costs? But you can then look at it from, well, who are the market participants and what's their different approach? Because you've got short-term, what we call fast money hedge funds, or you've got even more shorter-term kind of, you know, high-frequency algorithmic trading systems like on one end of the spectrum. And then you got your kind of long-term value investors. Who are looking over a whatever, 3 to 5 year horizon. And I think there's a huge— all of those short-termists, they're all over this stuff, right? They're all trading, trading, trading, trading. But I think a lot of those more, a lot of those more kind of longer term players, they see the numbers. Yeah, it's falling in line with expectation. I'm sitting out, you know, I'm going to sit out of this carnage. Really short-term volatility, they see that as noise and it's settled back. It wouldn't surprise me if we finish today's session not far off where we were when we started, despite this monster kind of roller coaster, um, in between.

I think that initial knee-jerk reaction, so the immediate aftermath, is somewhat as well exacerbated by the fact that this week overall the calendar is pretty quiet and it all capitulates in this one magic moment that drives this really frenetic price action. Um, but yeah, absolutely right. I guess the— I, I was on with a session with a, with a group of students actually, and one of the questions I posed to them was that if you were head of the Fed, given what we know about their forward guidance and what the communication is at the moment, which is still that there's further rate hikes to come Have you changed your mind with what you've seen? And that then, from that market participant's point of view, you know, ultimately, once the dust settles on this intraday fast money reaction, has it changed the game for Fed thinking? I mean, you said what, it's gone from 77 to 88-odd percent.

Yeah.

So they were going to hike 25, guess what, they're going to hike 25.

Yeah, right. Yeah, exactly. Um, yeah, I know I'm a little bit conscious of the fact that our listeners think all we ever bang on about is inflation. And I mean, it is ultimately the number one game in town, right? And I think that is still the case. Um, I will just maybe touch on though, I mentioned that it's been a good start to the year, right? So markets have had a good week and they've been kind of stepping quite a bit higher and it's not just because of inflation. So perhaps in the weeks ahead we can kind of steer our attention onto a couple of other things, but one being China and China reopening. I think that's really probably caught some by surprise just in terms of the speed of the reversing of this zero tolerance and it's like I think people a few weeks ago were expecting, you know, once it started happening, once it started to happen, it was like, okay, they're probably going to do it in phases. But they haven't. They've just gone bang, let's just do the whole thing now. And I think people are therefore expecting maybe that, that, well, post-lockdown, you know, consumption frenzy to be sooner than perhaps they were originally thinking. If it happens. I mean, we'll see. Early signs are that the Chinese consumer is still a little bit hesitant despite reopening to kind of properly get out there and confidently be out and about, um, and spending. But yeah, so people are kind of starting to price in China coming back to growth faster, um, and then just lower energy costs. And that's one of the key things in this inflation report. Energy costs, you know, they are coming down, um, and they're coming down a bit faster than maybe people had, had expected. And so I'm just looking— the FT have got some great, um, graphics actually. They've upped— I don't know who's in charge of their graphics, but they've, they've upped their game here. But when you're looking at energy costs, um, like things like, uh, electricity costs for example, than in the UK. I'm just trying to see. So in kilowatt hours, euros per kilowatt hour. If you look at the UK, right? So pre— let's go back to 2001 before the kind of Russia-Ukraine crisis kicked off and it was trading about $0.25 per kilowatt hour, OK, electricity. And then spiked to about— top out about $0.62. That's in the UK, right? 62 cents a couple of months ago. It's now back to just 40 cents. So it's kind of— it's, it's— we've dropped half of the spike. Um, so that's a big drop in the UK. Italy and Germany are lagging a little bit, um, in terms of that. And then natural gas, similarly, in the UK, um, it peaked at 25, um, euro cents per kilowatt hours, and it's now dropped back to Yeah, I mean, well, like 17 cents or something. So yeah, anyway, you know, the energy costs are dropping and that's just going to only help. And I think we, like, at the end of the year last year when markets kind of finished a bad year on a bad footing, you know, I think we've started this year with a couple of positives with China reopening faster. Maybe these energy costs aren't going to stay as high as we were worried about. That all plays into helping with the inflation decline, and maybe then the Fed are going to stop hiking sooner, and it all kind of plays into that story. And that's why we've had a pretty positive sentiment week in global markets. Um, you're— you, you, in classic Zoom fashion, you've, you've muted yourself, or I can't hear you now. I think that— wasn't that the most, um, the most commonly used phrase of COVID Uh, you're on mute.

You're on mute.

There you go.

No, I'm not. Momentarily, perhaps. But I said my phone just buzzed while you were doing that last explanation, and, uh, it popped up and it said Mike Wilson. And I was like, oh, so the head US— chief US equity strategist and biggest bear on the street could hear the family talking the market up. And he was like, quick, text, and lock him down. That's not gonna happen. We're not out the woods yet. And I thought, he's just sent me this piece, and he says— and this is talking about scenarios, of course, so not base case, but he was banging the drum this week about stocks could slump another 22%, US stocks, S&P, from where we're at at the moment. And he was talking about basically the rationale on the other side. So we've talked about the inflation situation, trying to reopening energy costs, so on. He was saying while investors are generally pessimistic about the outlook for the economic growth, corporate profit estimates are still too high equity risk premium is at its lowest since the run-up to 2008. So he's also talking— I remember listening to the podcast that he put out for Morgan Stanley this week. He was talking about the idea that earnings season's just around the corner again.

Yeah, yeah.

And at the beginning of the year is when they start talking about this year, how's this year going to pan out, and that's not going to be particularly pretty for, for the majority.

Yeah, yeah.

Any thoughts on that?

I know he's an uber bear, but it's a good point on the corporate earnings. I mean, that really is a good point, right? Because so basically they start pretty much, well, next week, right? And in earnest we'll get, you know, a steady flow of US— well, global, you know, big corporations reporting their performance for not only Q4 of 2022, but then, you know, completing the full year numbers for 2022. And then more interestingly, yeah, starting to put some— starting to nail some 2023 forecasts to the mast. And I think that, uh, human nature, you would say that, you know, after a bad year you're going to be cautious. I'm talking about like CFOs here whose job—

tough job for a CFO. Right.

So to put that outlook right out there, black and white, to the world, because the last thing you want to do is obviously you don't want to put out a big number and then spectacularly fail to get there, because that's the worst case scenario. Right. So they're going to be cautious, and therefore I'd say they're going to be downplaying their prospects for 2023, which might might play into the bear's hands. Um, and look, multiples are still high if you think there's going to be a recession.

Hmm.

But some people don't think that. That's why they think multiples aren't high. So yeah, difference of opinion.

Yeah, well, we're only in what, week 2 of the year, so it's all to play for. Um, but let's move on and let's talk a little bit about Walt Disney. I'll give you the headline first, and then perhaps— I know you've got a couple of angles on this, but the activist investor Nelson Peltz will try to force his way on the board of Walt Disney after the company declined to nominate him as a director. Oh, the joys of being, um, being on a board. Um, it's setting the stage for one of the biggest according to the FT, proxy fights in the US in a number of years. But conscious of the fact that proxy fight as a term first, what exactly are we talking about in reference to that? And then what is happening at Disney? Because I know they've been in the news a lot the last 6 months or so.

Yeah, so, well, Nelson Peltz, he's an investor, uh, a big one. Um, he runs a kind of a big, big fund. And when you build up a significant stake in a company, you know, well, then you own it, right? You own a big chunk of the company. And you— and therefore, the, the bigger the chunk you own, well, then, right, the more you think you should have a say in how that company's run.

So this was Elon not that long ago, right?

Yeah, right, 100%. Yeah, with Twitter. I mean, he went obviously super aggressive because he can. He's got the biggest checkbook in town. And because Elon— so, well, so this— well, what tends to happen is if you build up a big enough ownership, you want a say in how the company's run, which typically comes via what we call a board seat. Because who do— the people who run a business, the CEO, the C-suite, let's say, you know, in a normal business, well, they're at the top calling the shots, right? So who do they answer to? And they answer to, well, the shareholders. But the problem is with these big public companies, there's millions and millions and millions and millions of shareholders, okay? So, you know, you can't answer to millions and millions of people. So the board is supposed to be representing the shareholders, i.e., the owners of the company. And so the board are supposed to be that body of people that are monitoring, that the C-suite report into. So on it, you normally have a board meeting once a month, let's say, and the C-suite or the CEO or the CFO or whoever it is, depending on what's happening in the business, is reporting, right? How have we got on? You know, not only backwards-looking performance, but right forwards-looking in terms of not only forecast but strategy. And this is where the board have an influence on the future direction of the business. And they're keen to have their influence because they own it and they want to steer it in the direction they think is going to lead to the best growth and therefore the best return on investment. There's a really cool— I think it's Netflix, is it? I'm actually not sure what channel. It's not Disney. We'll talk about Disney in a minute. But there's a great document— well, it's not a docu— it's a docudrama about Uber. It's called Super Pumped is the name of it. I'm not sure if it's Netflix, but Google it. I actually watched it on a flight. I kind of crammed— I binged most of the episodes on a flight to Sydney. Anyway, the reason why I mention that is because this is a great— dramatization of what I'm talking about, where you have a board and you have the CEO and you have a big standoff between the two. If it gets to the point where they disagree on the direction of the business, or they disagree— maybe the board thinks, actually, you know what, CEO— and maybe in the case of Uber, so the CEO Travis, um, Kalanick was, um, in the end the board thought, well, You're a maverick, a bit like Elon Musk maybe in some ways, in that you're a maverick creator and a great founder. But when the company gets to a certain size and becomes a beast, well then it's a whole different ball game growing that. And I think the board kind of in the end said, look, CEO, you're a bit, you're not fit for the next stage of our journey. And in the end, the board forced him out, right? So, This is a classic boardroom battle between the people running the company and those that are representing the owners, which is the board. Now, Nelson Peltz has been building up a stake in Disney. And by the way, I don't know if you monitor Disney stock particularly closely, but it's trading about $100 right now. It's just shy, actually. We've had a little bounce as global markets have gone up over the last week. It's bounced off about $85, which was the low. It's gone up to just shy of $100. Okay, but the high that we had in 2021 for Disney was at $190.

Yeah, I remember that period. That was when they were surpassing streaming new subscribers, and Netflix was taking a bit of a hit at the time, wasn't it? There was a transition of power, it seemed. Yeah, there was playing out.

Exactly. So it hit $190 at its best. So it's still trading, even though we've had a good week, still trading let's just call it, round it up, half, with like 50% off its high. Okay, um, so you're obviously getting investors coming and sniffing about, people who hadn't been buying that stock, because that, that low we had, um, last— over the last sort of few weeks is the lowest the stock has traded since the summer of 2014. So we're at like an 8.5-year low on the stock. Um, so you're getting some new big investors coming in 'Cause obviously Disney have some phenomenal assets. Mm-hmm. Obviously, you know, on the streaming side, they've got the franchises of the likes of Star Wars and Marvel, for example, which are their kind of super, super assets. And, you know, that's why people often in that kind of streaming battle, against Netflix and Amazon Prime and Apple TV and the rest of them, they— a lot of people will point to Disney and say, well, they've got an ace card because, you know, they're kind of— their Star Wars and Marvel back catalog and, you know, future spinoffs is just an engine that will just keep on giving.

Yeah, I actually watched Star Wars. I think it's just the last Skywalker, like, not quite an old one, but one of the new series. Yeah, like, they are squeezing that franchise dry. Like, I watched it and my wife and kids were away, so I thought it's a good time to sneak in a little Star Wars, you know, as you do when the missus is out. And I watched it and I thought, this is rubbish. This is genuinely— this is like the last in the saga. The Last Skywalker, I was like pumped. I was like, this is terrible. If I paid for that in the cinema, I would have been disgruntled.

Well, I watched that in the cinema. I watched, uh, what, in the last year, the new Solo. It's the new Han Solo.

Okay.

Yeah. How was that story? That was— I have to say, that was better than a lot of the spin-offs, which, as you say, have been underwhelming in my, my view. But it was better than that. But yeah. You know, it's hard to stand up against, you know, the originals. Um, but look, anyway, they got that in the locker, all right? And it's a money-making machine. And that's why some would argue that Disney have got a bit of an advantage. Um, but so you've got these new investors, you know, new kids coming in buying up the stock. It's 50% discounted off the 2021 highs, blah blah blah. Nelson Peltz comes comes in, starts building up a big position. Okay, he's famous, um, well, for a number of sort of activist moves against other companies over the years. All right, perhaps the most famous was in 2020 when he built up, um, a big position, I think like a $100 million position in Procter Gamble, um, and became an activist investor, which means they actively seek a board seat. They actively seek to change the company's strategy because they believe it's heading in the wrong direction, and they're buying, buying stock at what they believe is a discounted value, only on the basis that they can change its direction where they think then there's a lot of upside and future potential in terms of returns. Okay, so he did this quite well, successfully or not, I don't know. Some I don't know, some would say not that successfully with Procter Gamble, but that's kind of where he's famous. So anyway, yeah, you've got this activist investor coming in. The reason why this is in the headlines this week is because he's just been refused a board seat. Okay, so this new activist investor, Nelson Peltz, his request for a seat on the board's been rebuked. And so he sent a letter to the board, um, mapping out why he thinks the company is going in the wrong direction, um, and what they need to do about it. Um, and some of the stuff that he's talking about, um, he's saying that a lot of that— a lot of Disney's problems are self-inflicted. One of the key things, um, he's not happy about is, is, is this guy who's come back to be CEO, um, Bob Iger. Okay, so step aside from the activist story. There's been a, well, a bit of a CEO saga at Disney over the last couple of years. Bob Iger ran the company for a couple of decades and really brought it, you know, from just being that, I guess, what you might perceive as Mickey Mouse slash theme parks stock to now being this global modern player fighting in these digital streaming wars and so on. He's credited with that kind of evolving the company to become, you know, to get it fit for purpose for the 21st century. And he was seen as doing that very successfully. And his strategy, as he kind of got into the role after a decade or so, growth strategy was all about acquisition, okay? And so the point about the back catalog and stuff, and it kind of culminated in his big deal in 2019 when he bought 20th Century Fox off Rupert Murdoch. Okay. And part of that deal was Fox Television and their movie studio. And with that came Avatar, which is obviously now— so he bought that in 2019. So now you're getting the big Avatar, you know, rollout. Okay. Um, they own stuff like The Simpsons as well on the Fox TV side. Um, but the point about that deal was they paid $71.3 billion, and the point about it is they had to use $42 billion of debt because there was a bidding war. Comcast came in, they wanted to buy it as well, and it got bid up, bid up, bid up, and they— Disney ended up taking on a lot more debt to get the deal done than they were hoping. $42 billion. Now, um, this new activist investor Nelson Peltz believes that was the, the end of a sort of era of misspending by Iger, um, and that now it's— they've got too much debt. But anyway, Iger then kind of retired. He hit 70. This is like in 2020. He kind of stepped back. That was his last big deal. Let's buy 20th Century Fox and— right, that's kind of my my big job done, and I'll step back and I'll let the new guys come in. And he set in place a succession plan. And a guy called Bob Chapek, who was one of his kind of understudies, and Bob Chapek stepped up to become CEO. Bob Iger moved into a consultancy role where Chapek was supposed to be utilizing his experience and tapping into his experience and opinions and ideas you know, as an advisor. Bob Iger was earning $2 million a month for that gig.

I always think that, like, in that situation, or when Bezos handed over to Jassy, you can imagine, given that Bezos is apparently quite psychotic, he's just watching you tapping at the keyboard.

What happened? So Chapek came in and basically Iger's phone stopped ringing, so he stopped asking for his advice. And Iger's like, what's going on? What's going on? And then Chapek made a massive faux pas. He kind of got involved with a political spat with DeSantis, the Florida senator. And it was all about LGBTQ related. It was something like a school's policy. I can't even remember what it was about now, but the quite right-wing DeSantis has set in place this new policy for schools around how you describe, um, bisexual people, for example. And they were trying to, uh, define the terminology that was acceptable and which wasn't. Okay. And the left side kind of kicked up massive— so what the hell's going on? You can't control this. This is You know, and so they kicked up this political storm, right? And Disney said nothing. And Disney are quite famous from back in the '90s of being quite proactive about their, you know, LGBTQ community and all the rest of it. And so they— and so then the Disney staff were going, well, Disney, why aren't you saying, you know, why isn't our leadership coming out, you know, anti this policy? And so Chapek was like, oh God, okay, fine, I'll get involved, and started getting involved. And it turned into this spat on Twitter with DeSantis, and DeSantis just destroyed him. And so Chapek lost a lot of credibility, and obviously from a PR point of view for Disney was a disaster. So Bob Iger said, look, he's not asking for my advice anymore, clearly he's not up for the job, bored, let's get him out, bring me back, you know, I'm bored, I'm sat on the beach, I've got nothing to do.

Return of the Jedi.

Uh, very good, very good. Um, so that's the long-winded story, and Iger is back. So Peltz is now like, well, hang on a minute, Disney's got too much debt, and Iger, the kind of dealmaker extraordinaire, is back. And so Peltz is going to the board, don't let Iger start eyeing up some new massive acquisitions, don't let him go back to his old ways of just big acquisitions to drive growth. We've got too much debt and we need to kind of turn things around. And so he's saying that basically, um, the cost of the services and the products has risen by two-thirds over the last couple of years. That's the cost of producing these kind of Star Wars spin-offs and so on. Operating margins have been massively hit, and they're actually— they've halved compared to pre-COVID. Free cash flow is down 90%. They used to be a very consistent dividend payer. That's disappeared. And so Peltz is going, oi, board, get me on, get me a seat. We're heading in the wrong direction. Iger's going to drive this thing into the ground. It's time to change. So we'll see. It's a battle that's just begun.

And maybe so, can they make a movie out of this situation?

Yeah, that's just a new one for Disney's, uh, catalog, um, dramatizing their own, uh, board, you know, the C-suite sagas. Um, but yeah, you should watch Super Pumped.

Super Pumped, okay.

Yeah, it's really good about the Uber story.

Yeah, I just, I just finished watching, um, The Monster on Wall Street. Uh, yeah, Bernie Madoff. Did you remember that period? So when you were trading, when it all— the wheels came off, was literally a month or two, because obviously the trigger that exposed the Ponzi was the collapse in financial markets on the back of Lehman Brothers, right, going down. Do you remember that too much when you were trading at that point, or is it so just wrapped up with the banking situation? It was He was just part of that wrapped in. I know he became like the poster of that because it personified the greed and excess of what banking was perceived as.

Yeah, he— the media pinned that whole saga, you know, they nailed him to the stake, didn't they, to the cross, and like, yeah, made him the kind of, um, that, that kind of flag bearer for everything that was excess and bad that led to the collapse of the world. Um, so yeah, the media were all over it, but You know, then again, it was a Ponzi scheme. And, you know, that's not to justify Madoff and what he did. But, but yeah, I mean, definitely Bernie Madoff was a massive story, wasn't it? How many years did he get?

150.

That's right. It was massive, wasn't it? They made a real example of him. Didn't he? Did he die? Did he die in prison? Or is he still—

Yeah, he did.

Yeah.

So one of the things was I didn't know was that he actually had a legitimate business. And when that started, it was the transition of when he embraced technology, and he was taking the pink sheets, so penny stocks, and putting it into a computerized format so that obviously to speed through everything. And he made absolute killing. So he was like, he was, uh, at the forefront of that shift. And apparently they had huge market share in the market-making space in a Citadel capacity. That dominated that initial screen shift that happened at the time. It's quite interesting.

I mean, this is it, I guess, some bit— and whilst you were explaining that, like, he had a legitimate business and then it grew and then it kind of got a bit out of control and he didn't know— it kind of reminded me of a much more recent example of that was Elizabeth Holmes and the Theranos um, story with her blood testing company. Well, I mean, look, she— I'm, I mean, so she's just been— has she been convicted yet? Well, she's been found guilty, but she hasn't been, um—

no, she's got sentenced, I think.

Oh, she did? How many years?

I can't remember.

Um, anyway, yeah, I mean, that's the whole thing about, like, probably starting out with the best intentions of creating this business and then it just— the momentum of it just becomes something you can't control anymore. And so you're out there selling and you're doing your sales pitch, and in the end you, you, you sell the story so many times that you start believing it, right? The story though is something about a product that you haven't developed yet, but you're kind of speaking in a way that you have, and then you're kind of raising millions and millions and millions of funding. But then, of course, finally it transpires that the product's not there and it's all a lie. The house of cards comes collapsing back down.

Yeah, it's made for some, some good documentaries.

Absolutely.

All right, well, look, we'll wrap it up there for this week. I know you're hitting the road.

Yep.

Soon. Is it tonight or tomorrow?

Tomorrow morning. I've got a 4:30 AM taxi.

Okay, nice.

So looking forward to that. Yeah.

Well, enjoy. And, uh, yeah, have a, have a great weekend everyone. And, uh, we'll be back as normal next week. One thing that I have been working out is potentially a new midweek series, uh, that I'll be putting out soon. Where I'm going to be trying to talk to a lot of the hiring and careers teams at a number of our financial institution partners to try and get top tips and advice for the application processes for all of these different banks across different roles in finance. So, um, if you check back through some of our previous episodes, you'll find there has been some we've done before with career insights from people from industry. And also career hacks that we've done as well. So you can always go back through the catalog to see those, but that series is coming. So make sure you subscribe to the channel and put on that bell icon notification. You'll get an alert when those new episodes go out. But with that, thanks very much, Piers, and safe travels, and I'll see you next week.

Yeah, catch you later.