The reported secondquarter number for a net change in streaming subscription mist of the ball, but revenue is up. 4. 9 3ne up about 26 , billion was the estimate. Net income of 271 million. . 60, that is a beat as well. What people want to see is the growth in terms of subscribers. Romaine it is a fairly decent report. We have seen the ebbs and flows on a quarterly basis, but as laws they go upwards he will see investors willing to continue to take a shot on this. Scarlet it is all about the outlook, the Second Quarter has the release of Stranger Things, which is their number one show. People knew that the Second Quarter would be soft. It depends on how they step things up and what they focus on during the Conference Call as well. Caroline back to you, saying utilities are overbought, what you think of the faang names . Some of them are overbought as well. They do not bother me quite as much, if they have the growth opportunity. What bothers me on the opposite side is that money flow has been pretty extreme into the utilities in consumer staples, looking for safety, but more importantly seeking yield. That is very difficult in the market to find. Now you have those areas of the market trading above the market average, so rather than seeking safety i think that you are taking on more risk than investors expect in those areas, that is the area i would avoid. Scarlet we are looking at netflix shares dropping an extended trade. We have figured out a direction as investors react. Let me get your take, because we know that netflix is a thing stock and it is the second best performing after facebook this year, up 36 , but does it give us a read into how the highgrowth tech names do . Gina i would say yes and no. It gives you a read into Media Communications focused tech. Certainly it gives you some read on the consumer and what they are willing to spend on. Netflix, though, is in a niche. It is not representative of what will happen with apple, certainly not with anything happening in semiconductors with respect to trade. There are many different issues facing technology right now and i think that netflix offers something, but not a really big read through for the broader tech sector. Romaine when you think about this idea that these large cap stocks are what got us here, there has been speculation about how small caps play into this. We have not seen them really participate in the rally, at least on a relative basis with the rest of the market, is that something that is attractive or do you wait this cycle out . Ann i think it is something investors should Pay Attention to. In the last 20 years, there has only been four times where the smallcap stocks or russell 2000 has led by more than 10 , and we are in that cycle right now where the russell 2000 is lagging by more than 30 . In those prior events, that gap has closed rather quickly, actually. So this one hasbro more extended has been more extended. But there is reason to believe the gap will close. Small caps have better growth, they have lower yields, but better growth. And they are open for m a. They are less exposed to china as well. So i do think that there is a real opportunity for investors trading at a discount as well to the rest of the market. So that is an area that we like. Caroline stay with us, now we will dig into netflix, down 9 . Ann and gina are both with us. What do you make of these numbers . 2. 7 million in terms of Second Quarter streaming, much less than forecasted . That is a substantial mess. They were expecting 5 million adds in the Second Quarter, so that raises the question now of how much of an effect of the price increases that they instituted earlier this years have been the subscriber numbers. Having said that though, i think that the turn will be more for shortterm issue, there will be volatility, but i think as long as we have seen them come over seen them overcome these issues before. This is what we are seeing in the outlook my fairly robust in terms of what the street was expecting. I think they should be able to move past this pretty quickly. Scarlet they should be able to move past it quickly, and in fact that they have already reiterated their forecast of 3. 5 billion for 2019 for cash burn, and improvement next year. At what point would investors question the amount of money that netflix puts into its original programming, and say, you should back off. As long as you do not have the subscriber growth to back it up . There is a lot of that, that is a huge concern. But they have repeatedly shifted the focus now away from just the hyperfocus on subscribers to more of profitability. The negative side is turned, but there is a positive element, like topline. Increasing revenue and profitability my that should help moderate profitability, and that should help moderate the cash burn issue. We will see it at 3. 5 billion this year, but there is a substantial improvement coming in 2020 and beyond, as we see the revenue from the price hike. Romaine the cash burn and a subscriber growth, they were intertwined for years. You cannot really get the eyeballs on the platform unless you have new content, whether it is content they are purchasing or making themselves, so how do you continue generating that buzz if you are not sustaining that cash to spend that we have gotten used to seeing from them . They have been doing this since 2015, and if so far their original strategy has paid off. We have seen a lot of their shows resonate with audiences. There has been concern over the past few weeks about the loss of licensed content and of the shrinking of the syndicated library with the loss of shows like friends and what it could do for subscriber numbers, but i do not think it will be that bad. I think that this gives them additional wiggle room in terms of their budget to increase their marketing spend, increase their spend on original content, which has a longer tale and better are you i. Our odi. Scarlet you can see the stock is sinking right now more than 10 after its secondquarter subscribers missed estimates. We still have gina and ann with us. Ann, for in what you are seeing with expectations for the Federal Reserve to cut Interest Rates, are you in the camp that believes that we are one and done and they will hold off and see how the data shakes out, or is there a commitment to further cuts . Ann i think it is one for now, and we will see how things play out. I do think the fed is very open to more, but i think that they will reserve a little judgment to wait and see how the Economic Data looks after the one in july. Caroline from your perspective, what are you looking for in terms of management speak, the forecasts, in terms of earnings a season . Do we have concern about trade, the Interest Rates as they affect the banks . The financials are heavily focused on not only topline activity, but margins. So Interest Rates are incredibly important for them. For industrials, you will hear more about trade. With tech, trade is a huge issue. But it is not a big issue for those in the health care space, for example, where you are looking for different things. So you are looking for different things, but in general for the s p 500 we are looking for companies to try to confirm what is being forecasted, better growth ahead. Im not convinced we will get that from companies. In the First Quarter we were hoping that was the trough, but it turned out maybe it is not quite here and it is looking more like we are not convinced it is a trough yet, maybe it will be Third Quarter where we see the low. That will create a little bit of a hurdle for the market to get over. And it is probably also something that will keep the fed on track to continue to cut rates. Scarlet especially with the s p pushing down. Ok, thank you so much ann and gina. Taylor riggs is up next, speaking with one investor who sees a bubble in the tech stocks. We will discuss. This is bloomberg. Caroline from World Headquarters in new york, im caroline hyde. Taylor im taylor riggs. Romaine im romaine bostick. Caroline u. S. Stocks closing down once again today, concerns about trade tensions. Romaine the question is whatd , you miss . Caroline netlist reporting shares, tumbling after subscriber growth disappoints. Why when investor season some bubble trouble for the sector. Attention in washington, iran foreign minister says that the u. S. Has a shot itself in the foot by pulling out of the nuclear according. Libras biggest challenge may be facebooks reputation. We speak with a blockchain advisor. Get to netflix, because it was a big miss in terms of its secondquarter subscriber growth, which is basically half of what was anticipated, 2. 7 million, rather than 5 million. We are seeing that the numbers overall are looking better than anticipated. Net income at 470 million overall. They are reaffirming their Free Cash Flow view for 2019 as well. The shares are sinking more than 10 after hours, clearly the average revenue going up only 3 was not enough to satisfy the user base. Romaine another company reporting earnings, ibm. It actually beat almost of the headline numbers, we should point out though that expectations were pretty low. They shares are rising after hours. The company saying it is on l cash flowhieve ful expectations for 2019, excluding the impact of red hat. They say they will update what the impact of red hat will be and they will do that on august 2. They are projecting to come in ahead of expectations for most of their etfs and casual metrics. Thatr we will stay with text toy, netflix and others in a bubble that is on the verge of bursting. Sidedecent report, that the weight of the faang stocks, along with apple and microsoft in the russell 1000. Joining us is the founder and chairman of research affiliates, he specializes in investing and creating unconventional portfolio strategies, joining us from newport beach, california. Walk me through the methodology so far on why the value of the weight of these, or the overweighting of these in the russell 1000, makes you believe there is a bubble on the horizon . The first thing we have done is define the term bubble, because people do not ever really define it. We defined a bubble as an asset or market in which using a conventional valuation model that compares growth expectations with current values, you would have to use implausible assumptions to justify todays price. And secondly, the marginal buyer does not care. The marginal buyer expects to resell at a profit to somebody else. That very simple definition allows you to diagnose bubbles on the spot while they are happening, instead of years after the fact. What do we find . We find a lot of Tech Companies today, the faang stocks, many are priced to reflect lofty expectations, expectations for continuing future growth that is in fact implausible. It is not to say the growth is unlikely, the growth is likely, but not sufficient for current multiples. Whatct, some stocks are would classically have been defined as zombie companies, companies where the earnings before Interest Rates and taxes are smaller than just the Interest Payments alone on the debt. Tesla and facebook come to mind on that. Excuse me, tesla and netflix come to mind on that. So we are not suggesting that the whole tech sector or stock market is in a bubble, we are suggesting that there are bubbles within these sectors. Romaine what is a money manager to do . Obviously, the old maxim is you will get trapped in this, but there is research out there that shows that these crowded trades, they do pay off in the long term. Rob they pay off until they dont. So for careful about saying they pay off in the long term. The tech bubble of 2000 is a wonderful example. At the start of 2000, if you took the 10 largest market capitalization, the most valuable Technology Companies in the world, those 10 companies, how many beat the s p 500 over the last 19 years . One, microsoft. How much, about 1 a year, that is all. Four others produced positive returns that averaged about 2 a year. Not impressive. The other five lost money over the last 19 years, and two of them disappeared entirely. Win. At is 10 stocks, one in bubble territory, the bubble continues until it doesnt, so you need to be careful about being too aggressive in shorting the companies. Caroline do you want to own the benchmarks within . Microsoft, apple, facebook, they account for 20 of the s p 500s returns of this year alone. And they are significant in terms of the waiting w eighting. Of them, count up all plus apple and microsoft, their aggregate market value exceeds every stock market in the world, except japan and the u. S. They are worth more than the entire british economy, they are worth more than the entire german economy. Weird and strange. That surmises that these be superpowers in their industries for the foreseeable future and will grow rapidly for the foreseeable future. Think back to the peak of the tech bubble. Palm was briefly worth more than general motors. How many people on them today . How many people on a blackberry today . 10 years ago, that was a big deal. Then the iphone came along. You have got to be careful about disruptors themselves getting disrupted. Some of these tech darlenes will be disrupted, some of them will not. I would be very reluctant to guesstimate which ones will be disrupted and which ones will not, but some of them will be in they are all priced as if they wont. Taylor talk to me about the antibubble, the places in which the Analysis Shows that there is under evaluation and where you currently see some opportunity . Rob thank you for asking. We coined the expression antibubble 10 years ago in describing Financial Services companies and Consumer Discretionary companies during the Global Financial crisis. During that meltdown, we pointed out at the time that each of these companies is that fails clears the runway for the survivors to have a better path to a bigger profit margins. To so, what a great time invest in these sectors. Today, i would say the same thing about emerging markets value stocks. Not the tencent, alibaba and baidus, but the value stocks. Many of these are state owned enterprises. What is an antibubble . A market in which it would be hard not to have a risk premium, in which it would be hard not to beat bonds and cash by a good margin, using conventional assumptions about forwardlooking growth. And secondarily, where the marginal seller does not care about the valuation stories. State owned qualifies. They do not have to grow at all to be the bonds and cash handily. They grow and if they allow the foreign shareholders to enjoy part of that growth, the possibility of earning doubledigit returns is not difficult. But people shun them because they are afraid. Romaine ok, great stuff. We will have to leave it there. Now, back to the breaking news. Earnings moving across the wire. Ebay earnings are out, gross merchandise volume at 22. 6 billion, below estimates. Revenue continuing up. Eps above estimates. The real news, the Company Confirming it is reviewing the also of stubhub, saying it has reached a tactic to sell its fashion business it acquired in 2010 and 2011. Taylor another stock all about ibm, revenue and a Second Quarter parading earningspershare beating estimates. They are on track to achieve their earningspershare and Free Cash Flow views, excluding the red hat acquisition. This is interesting, because it shows ibm is seeing shrinking sales in their biggest unit, trying to get out of their legacy units and all eyes are on the red hat acquisition. That is next. This is bloomberg. Caroline a recap of key earnings. That looks down by 10 as they missed u. S. Customers for the Second Quarter. They said they lost 130,000 customers in the u. S. , facing higher prices perhaps, and a weaker slate of content. The signup was in the millions globally, but also a miss where they forecast 7 million new signups in the Third Quarter as they bring Stranger Things and other series back. Romaine ebay moving higher. The bigger news is that they said that they are reviewing the reviewing stubhub and they will selloff their brand, their fashion business that they had. Investors were looking to get rid of some of these units as a way to unlock a little more value. Taylor we are looking at ibm, shares up almost 3 after a pretty good quarter on the Second Quarter on both the top and bottom line. Most importantly, it is all about the full year 2019 earnings per share and cash flow views, excluding red hat. I want to bring in our guest who covers all technology into Tech Services for us at bloomberg intelligence. They are managing down that income statement and doing better than we thought, at least for the fullyear view, talk about the margins and moving down the income statement, excluding red hat before we can get the acquisition. One of the most important things right now and technology services, summer lowmargin, and to some services are highmargin. Ibm with red hat can get a lot of highmargin stuff into different segments. Right now, they are getting rid of legacy stuff in their order segments, and that is where you saw 100 basis points off the margin improvement. Caroline what are you expecting to hear from the cfo, hearing him saying we will see improvements to the numbers as we get into the second half . How much improvement is the market baking in and what optimism do you want to hear from management . They are getting rid of the lowmargin businesses, which is dragging down the total growth rate. And as that is completed, you will see improvement and growth rate. Once we get the new benefit of the red hat integration, maybe six months from now, that is when we really start to get benefits on the top line. Romaine this will be critical for them. The Global Technology business is down 6. 7 in this quarter, so a lot is riding on red hat. Are they