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Five Battle Lines in the Market

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar. Competition is certainly nothing new in the market, but we have seen some interesting battle lines drawn recently.

Here with me to offer a recap is Morningstar market's editor, Jeremy Glaser.

Jeremy thanks for joining me.

Jeremy Glaser: You are welcome Jason.

Stipp: So, what do you have for the Friday Five this week?

Glaser: Well, we are going to take a look at battle lines that have been drawn between News Corp and Cablevision, between Democrats and Republicans, between good growth and bad growth, emerging markets and developed markets, and finally McDonald's versus the World.

Stipp: Well I always am interested in hearing about what's happening on cable, because it is such an important part of my life. What's that story with Cablevision and Fox? They got a little heated earlier this week.

Glaser: Yeah, absolutely. News Corp, which is the owner of Fox, got into a really big fee dispute with Cablevision, and they started pulling a lot of their channels. You know they pulled starting with the stuff that people might not care about as much and threatening to pull even the regular Fox network.

And it is something that is kind of concerning for people, because obviously, consumers aren't negotiating directly with News Corp to see how much they pay. Cablevision is an intermediary there. They don't want to pay more for the content. It opens up a lot of questions about, who is going to pay for content in a more decentralized world, if you can get the stuff on the Internet.

But another interesting wrinkle here is in fact the Internet. And it is the idea that, what News Corp did was block people who have Cablevision Internet, from being able to view the fox shows on Hulu. So, not only could they not get it on their TV, they also couldn't get it on the web.

And we talked a lot about net neutrality before, and this shows why net neutrality actually is important and does affect people's lives, because even if you were just an Internet subscriber and you had no interest in the TV or weren't paying for TV, you all of a sudden couldn't get access to that content. It's not like you can quickly switch to another Internet provider; I think a lot of people were left with a bad taste in the mouth. You know, they have kind of retreated from that position, but certainly there was an aggressive negotiating tactic, and I think that this could portray in a lot of future battles.

Stipp: Sure, it seems that the more interconnected all these media get, the more cause for trouble, when these situations come up for the regular consumer.

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Glaser: Absolutely.

Stipp: So, Jeremy for number two, one thing that we do see a lot on TV right now are those attack adds; politicians are at each other's throats. What's the story for the election and investors?

Glaser: When investors think about this elections, it is easy to maybe to get a little carried away. But I think the reality will be, there is not going to be a huge difference to most people's investment portfolios, the way that most people invest after this.

It looks like the Republicans will be able to pick up the house, might be able to take control of the Senate or will come very close. But president Obama will still have the veto power. So any major changes to the investment landscape, or investment legislation, are pretty unlikely.

So I think it might have some, on the margin, some differences in the way that the tax cuts will be handled; that's something that the Democrats say that they are going to take care of in the lame duck section after the elections. So there will be changes, but I think it will be difficult to predict what they will be. I think for most people, they shouldn't be repositioning the portfolio, worrying about a lot of tax consequences; it could be a couple of years before those changes would end up playing out anyways.

Stipp: So Jeremy on the global stage, in China they seem to have a problem that we might like to have a little bit up here in the U.S., which is lots of growth recently that they actually need to slow down a little bit. It seems like they are drawing a battle line there between two kinds of growth. What are you seeing there?

Glaser: It is certainly hard to manage a runaway economy, and China is very cognizant of not wanting a bubble. They want to keep property prices reasonable, they want to make sure the economy just doesn't go completely off the rails, and they've raised interest rates this week, which is a surprise announcement, and GDP growth came in at under 10%, which was kind of a boon for them. It is slower than it had been growing, but certainly it's, I think, right in the sweet spot where they want to be.

For a country that big, if it grows just too fast, you are going to have worries about inflation, you are going to have worries about all sorts of issues that could come, so they are really trying to have smart growth now; I think it shows how much they have matured as an economic power. I think there are still a lot issues with the currency, and other global issues that are going to have to be solved and are going to have to come out, but I think it shows the Chinese government is watching the economy very carefully and that they were trying to get in that middle right.

Stipp: So Jeremy more broadly in the emerging markets, and looking at the emerging markets versus developed world, I think a lot of investors think of that as a dichotomy, but it is not necessarily adversarial. However, we have seen a pretty big performance difference between these two parts of the world.

Glaser: There has been a huge difference in the performance. The emerging markets have been doing great. The recession was a little bit lighter for them, and they have come out of it with a very strong growth.

Caterpillar results this week kind of underscored this. They saw in Latin America and in Asia, just a huge demand for big machines to build infrastructure. You have these countries that are growing quickly. They need to build new roads; they need to build new train lines; whatever it is that they need to spend their money on, they are out there, they are really putting this capital work and it's helping Western companies like Caterpillar, it is helping a lot of people provide these services.

But you are right, it is not adversarial. So emerging markets are doing well, but the hope is that, that kind of growth will help the developed markets pull out of the deficits that they are in, pull them out of the slow growth that they have seen.

Obviously, the United States is never going to grow as fast as Brazil or as China; they are having a lot of catch-up growth, but I think certainly there hasn't really been a decoupling of the emerging markets as completely separate from the developed world, so hopefully that battle line will become even more blurred as the developed world returns to growth.

Stipp: Lastly, Jeremy, in the fast food industry, McDonalds and the rest of the fast food industry, there certainly seems like there is a clear battle line between McDonalds versus them. What's their performance been, how have they been doing, can they keep it up?

Glaser: McDonald's just keeps winning. They introduce new product lines, they do new price points across, cheaper price points across the world. You have frappes, you have the McCafe, and they seem to be doing really well.

Certainly the recession has helped them. People don't want to eat out as much, when they do, they want to eat something, a little bit cheaper, but at the same time if people aren't working, you have less office workers go enjoying lunch, or less people coming for breakfast, so it is not a completely positive trend for them. But they have been doing great.

And I think it is shows you how important an economic mode is. The fact that McDonalds has the best locations, they have this global distribution network, they have all this learning that they get from their stores all over the place. It lets them continue to succeed. So it's not some of these regional players that keep having these missteps, they are doing great. I think it is something they will be able to keep up, at least for the short medium term. It just shows how important competitive advantages can be.

Stipp: No matter how well their menu items are going to be doing, they still don't have that Triple Threat Jeremy.

Glaser: No, it is really hard to beat the Triple Threat, and I think when that comes to market, McDonald's, that's probably the one potential landmine in the horizon for them.

Stipp: Certainly. Well thanks so much for joining me.

Glaser: You are welcome, Jason.

Stipp: For Morningstar, I am Jason Stipp. Thanks for watching.