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- [00:01]
A
What if you could monitor the health of your career? For most people, it starts strong. A new job where anything's possible. But somewhere along the line, your career flatlines. You need to get to Strawberry Me, where a certified career coach will bring it back to life by putting together a plan for you to get ahead, either at your current job or a new one. Go to Strawberry Me unstuck and get 50% off your first coaching session. Well, the holidays have come and gone once again, but if you've forgotten to get that special someone in your life a gift, well, Mint Mobile is extending their holiday offer of half off unlimited wireless. So here's the idea. You get it now, you call it an early present for next year. What do you have to lose? Give it a try@mintmobile.com Switch limited time 50% off regular price for new customers. Upfront payment required $45 for three months, $90 for six months or $180 for 12 month plan taxes and fees. Extra speeds may slow after 50 gigabytes per month when network is busy see Terms. Every year, hundreds of thousands of people from all over the world flock to Las Vegas for the Consumer Electronics show, and they spend a week trying to sell each other on the weirdest gadgets you've ever seen in your entire life. This week on the Vergecast, we're talking all about everything happening at CES, from the TVs to the AI gadgets to the humanoid robots that everybody is hoping might someday do your laundry and wash your dishes. All that and much more on the Vergecast. Wherever you get podcasts.
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B
Today'S number 100. That's how many body parts were stolen from cemeteries by a man in Pennsylvania last week. Authorities confirmed this after they broke into his storage unit. When asked what they found, the officer replied, remains to be seen. Money Market if money is evil, then that building is hell. Welcome to FR Markets. I'm Ed Elson. It is January 15th. Let's check in on yesterday's market vitals. The major indices all ended the day in the red. For a second day, the Nasdaq led those declines, dragged down by Nvidia after Trump announced new security requirements for H200 chip exports to China. Bank stocks also fell following their earnings. We will talk about that in a second. Oil prices dropped after President Trump signaled an attack on Iran is not Immin. And finally, gold, silver and copper all hit record highs. Okay, what else is happening? Fourth quarter bank earnings delivered a mixed picture, but Wall Street's verdict on bank stocks was quite simple. Sell Citigroup fell 3%. Bank of America dropped 4%. Wells Fargo slid 5%. That's the most in six months. And JP Morgan fell for a second day. It's down more than 5% since its Tuesday earnings. Let's take a look at the earnings themselves. Citigroup beat estimates but saw profits slide. Bank of America beat on revenue and net income with quarterly profit actually rising 12%. Wells Fargo disappointed with its net interest income and JP Morgan topped expectations. However, profits fell 7% after a one time hit tied to its Apple card deal. But mixed results weren't the only thing weighing down these earnings calls. Bank executives also had to contend with fresh political pressure after President Trump floated a proposal to cap credit card interest rates at 10%. On top of that, the sector is still reeling from the news about the DOJ's investigation into federal Reserve Chair Jerome Powell. A lot here, a lot to unpack. Today we're speaking with Saul Martinez, head of U.S. financials research at HSBC. He will break down these earnings for us. Saul, thank you for joining us on Prof. G Markets.
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C
Thanks for having me.
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B
So we want to get your reactions to this earnings. We've seen earnings from all the big banks here and generally a sell off. Any initial reactions?
- [04:13]
C
I think the divergence between what were generally good results and outlooks and negative share reactions is telling of high expectations going into these results. So I'd characterize these results as is good, not great. Now in many respects, the results did really validate the bull case for banks. Net interest income's growing, loan growth, picking up, capital markets, revenues have been good, credit quality is good. They're managing their costs effectively. The expectations from the banks are that profitability levels will go up. As you said though, Ed, the stocks reacted negatively. JP Morgan is down 5% since they reported on yesterday and Citi, bank of America, Wells Fargo were all down 3 to 5%. Now I think this does reflect that the big banks have become darlings. They've outperformed considerably last year. They outperformed in 2024. Valuations are historically elevated and I think there's some disappointment that results weren't even stronger. I think that is reflected in the guidance. The guidance that banks gave for 2026 is pretty much in line with where analysts are at and likely doesn't trigger material upgrades from analysts. And if you overlay concerns about policy, which I expect we'll probably get into at cartoon, it shifted sentiment a little bit towards the bank. So I think it's a reflection of high expectations coming in and the fact that the results were good, but they weren't great. And they're not necessarily going to lead. To lead analysts and investors to really ramp up their expectations, their baseline expectations for earnings and profitability going forward.
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B
Just looking at some of these businesses, I mean, wealth management was a success at Citigroup, bank of America, America, Wells Fargo, some really impressive M and A numbers from Citigroup up 84%, record deal making. I'm just thinking about what Wall street is expecting or what they wanted in 2026 and what they didn't get in that guidance. Is there a story that you think that Wall street was expecting perhaps to do with investment banking revenue, perhaps to do with maybe the IPO market? What do you think they wanted that they didn't see?
- [06:48]
C
I think it varies a little bit by bank. You're right. You know, some of the elements of the results were good. But again like the, you know, the out the expectation, what is in the market consensus is that capital markets revenues will be strong, wealth management will be strong. There is an expectation that we may be entering into a super cycle of investment banking activity. So I don't think folks are concerned about investment banking or capital markets related businesses. I think to a large degree though, there's probably some, you know, some disappointment with net interest income. So the traditional business of banks lending, investing in securities and part of the bull case ed for banks is that we're now living in an environment where there's positive real rates across the curve. So a lot of the loans and the investments in securities that banks made in a low interest rate environment are effectively repricing to a higher interest rate environment and you're getting a positive benefit on asset yields that's driving net interest income. And I think the expectation was that banks would be even more positive on net interest income. JP Morgan gave some guidance in December about net interest income growing 30%. I think there was some hope that maybe they would increase that. I think the same story applies to Wells Fargo and Bank of America. So I think there was some hope that the traditional revenue driver of banks that interesting. Would actually be a little bit better than it actually was. But banks are basically saying that what analysts are expecting from that revenues is probably just about right. I think there was some hope that they would raise guidance and that would lead to higher earnings estimates going forward.
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B
Something that we should also bring up. Certainly putting pressure on these stocks. Trump's proposal to put a 10% cap on interest rates on credit cards.
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C
Yeah.
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B
Which the banks do not like. Wells Fargo didn't like It Citi didn't like it. JP Morgan CFO said everything is on the table to push back against this proposal. Can you tell us a little bit more about the proposal, how it will affect these companies and if these companies should really be worried about it?
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C
Yeah, well, first of all there's a lot to unpack here and there's a lot of uncertainties. You know, right now it's a social media post as opposed to a natural proposal. You know, and there's some questions about how it could even be implemented. I think most policy analysts, legal, legal analysts will tell you it requires legislation. It's very hard to see legislation passing this by January 20th. And it's hard to see legislation passing that would implement a cap of 10% and an executive order on this would likely be met by with legal action. So how this would be implemented is a very big question. It would have a devastating effect on the credit card business though. A 10% interest rate cap on lending would make, you know, large swaths of a credit card business unprofitable. Broad swath of the population would lose access to credit. Banks won't make, banks cannot make money and credit card companies cannot make money given the loss rates on credit cards with an inch, with a 10% interest rate. And there would be, you know, so you would have to see a material change to the business models. Rewards would be cut, you would see more late fees and you know, for JP Morgan and Citigroup they would be affected. Right. Important business for them. It would have a material impact on earnings. But you know, especially for more pure play credit card companies who do have more exposure to riskier segments of the population, somebody like a capital one, it would be, you know, have a, you know, it's just a, you know, fairly devastating impact on their earnings and profitability. I think that make one additional point though because I think it ties into what we were talking about earlier about you know, the bull case for banks and what's in the expectations of the market. And part of what has made the banks so attractive to investors is the view that their primary beneficiaries of deregulation, the direction of travel on policy is a good one. You're going to see capital requirements cut, less stringent enforcement from regulators. And I think this was a reminder that policy can cut both ways. It's not a one way track to, you know, easier, more favorable regulation. And so this really threw cold water on an important part of the bank bull thesis. And I think it was a reminder that, you know, there are risks and this is something we did highlight and report very recently as one of the key risks for 2026, especially as we head into the midterm election. And if, you know, if you do get a situation where Democrats do really well in the midterm elections, investors will be, you know, we'll start to look to 2028 and it will be a reminder that maybe the, the, the very favorable regulatory policy that you've seen may not always be that way. But we got that reminder, I think, a little bit earlier than expected with, with the social media Post last Friday, 100%.
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B
It is fascinating the extent to which Trump is influencing everything, including the markets and the businesses of these businesses. I mean, as you say, it's like it was all about deregulation. That was the idea and that's what the market was getting excited about. Now it appears that maybe the banks aren't friends with the White House. Who knows? But the point being this is what is moving the markets. This is what decides the whole game. Just before we end here, I'd love to hear what we learned from the banks about Trump's investigation or the DOJ's investigation into Jerome Powell. We were discussing this earlier on in the week and one of our guests said, you know, it'll be very interesting to see what these titans of finance, what these leaders say about one of the most cataclysmic events that we've seen when it comes to the Federal Reserve in the past few years. What did we hear from the CEOs? Did they speak about it?
- [13:41]
C
Yeah, I mean, it wasn't a topic of conversation that was, you know, front and center. It. I think it did come up in, in, in the JP Morgan earnings call. I think that, and, you know, I think the, the, the view of the banks and I think Jamie did express this was central bank independent is, is important and it's important for, you know, for, you know, pretty obvious reasons. Yeah. So I think banks, you know, bank CEOs, you know, will express that, that view. I think, you know, I think it is fair to say that, you know, bank CEOs have to be, you know, they represent the bank and they have to be, you know, pretty, you know, they have to be, you know, very judicious with what they say and how they say it and, and, but in the current, you know, political environment. But I think they did express the view, and they will express the view that central bank independence is an important part and having those safeguards are important to, are important for the US Economy and important for the central bank's ability to carry out its mission of maintaining inflation under control. But I don't think we necessarily learned anything or, you know, bank CEOs, you know, stuck their necks out in one direction or another during the, during the earnings calls.
- [15:15]
B
Yes, absolutely. Okay. Saul Martinez, head of US Financials Research at hsbc. Saul, really appreciate your time. Thank you for joining us.
- [15:24]
C
Yeah. Anytime.
- [15:28]
B
After the break, an update on Warner Brothers Discovery's bidding war. And if you're enjoying the show, give Prof. To market to follow.
- [15:42]
D
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A
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B
We're back with Profg Markets. Netflix is reportedly preparing an all cash bid for Warner Brothers Discovery as the company moves to fast track a potential sale. This news comes shortly after rival bidder Paramount launched a proxy fight on Monday. The company is also suing Warner Brothers Discovery and its CEO David Zaslav for failing to disclose information about its sales process. Netflix and Warner Brothers and Paramount stock all closed down on this news. Here to break it down for us, and also to give us a fresh scoop on this bidding war, we are speaking with Rohan Goswami, business reporter at semafor. Rohan, welcome back to Property Markets.
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A
Ed, great to be back with you. Hope you've been doing well since we've last spoken.
- [19:05]
B
Absolutely. And we do want to get an update since we last spoke. I mean, last time we spoke, we saw that Warner Brothers Discovery had told its shareholders to reject the Paramount bid. They were encouraging shareholders to go with Netflix. That was three weeks ago. We're gonna hear about your scoop, but just before that, can we just get an update on what has happened since we last spoke in these past three weeks?
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A
Yeah, you know, setting the scene in the last three weeks, somehow Paramount came back again and said, look, we've made some changes. We've made our money a little bit more certain. Like you and I talked about. Remember we had talked about their money wasn't totally shored up. Jared Kushner had just left. There were some concerns about the sovereign wealth funds. So Larry Ellison, right, David Ellison's old man, actually stepped in and personally guaranteed $40 billion a huge portion of this check and basically said, I'm good for it. I'm here for. Really. Must be wonderful and nice. And Paramount said, all right, Warner, let's give this another go. You wanna come to the negotiating table, talk with us? And Warner over the holidays, sat around, thought about it for a little bit and said, nah, we, we like what we've got with Netflix. And shareholders got pissed off, truly furious, because from their perspective, we're talking about $30 a share for a whole company in cash. Everyone loves cash versus 2177, 21, 27, 75 for part of the company. So less money for less of the company. It was more complicated, it was more muddled. Warner rejected it again. Paramount said, well, okay, fine, if you don't want to do that, Warner Brothers board, we're ready to fire you. We're going to mount a proxy fight. We're going to try to take control of your board because we think shareholders are pretty pissed off about this and want a chance to get their hands on all our cash. So they did that earlier this week. Now it's come out. Bloomberg first broke this news. We've confirmed it. Several other outlets have confirmed it as well that Netflix is pretty close to making its bid all cash. So it's trying to solve for some of the problems that shareholders have pointed out. Mostly, they don't really want to own Netflix stock. Right. They want to own. They don't want to own Netflix at all. They want. They want cash in hand. Who doesn't want cash? That's where we are today. And as we reported earlier right before we, you know, we're getting on to talk about this right now, Both Paramount and Netflix have have been making their case to regulators in Europe, but also in the US Trying to sort of say, look, we are the pro competition deal here. Even though, remember, Paramount, as we know, doesn't have its own bid yet, it hasn't been approved. So that's sort of where the lay of the land is as we stand today.
- [21:40]
B
So, so much in there. I think one of the most important pieces is the fact that Paramount comes back and gives a better offer. I mean, they said before, oh, we don't trust that you have the money. Then dad comes along and says, no, no, I have the money. And we know that he does. They make the offer again, and then Warner Brothers says, no. And this is interesting because one thing that we saw from David Ellison before all of this unfolded, before Netflix was getting involved, before he even knew that Netflix had made the is, he wrote this letter to Warner Brothers saying, hey, I think you guys are biased against me. And something that you reported is that you've been speaking with shareholders. Shareholders think there is a, quote, inexplicable personal animus between Zaslav and David Ellison. This is what you wrote? Yep. So it sounds like maybe David, Zaslav and the board actually are biased against David Ellison. I thought it was kind of a ridiculous statement, but it sounds like maybe it's true. What do you think?
- [22:46]
A
I'll be honest. Look, remember when we first spoke, I Thought Netflix had it. I thought that Paramount had not done enough to solve the problems, the real problems that Warner Brothers has. But time has gone on, they've stepped up the certainty of their financing. They've said, look, we're willing to negotiate. Please just come to the table with us and talk to us and Warner again. This is Warner's board. We can't all put it at David Zaslav's feet. But David Zaslav's also the CEO of this company and has a lot of influence over this board. Has just said no time and time again, no, I might add, in kind of an insulting way. I mean, their last response, as you know, Ed, was to compare it to a leveraged buyout, which is not something that sits well with anybody. When you're trying to talk about how much you care about a brand, how much you care about these assets, how you want to steward these assets. When we think LBOs, we think, you know, what private equity used to do. Let's buy an asset up with someone else's money, let's strip mine all the good stuff out of it and let's make a ton of cash for ourselves. Screw the shareholders, screw the employees. That's what Warner Brothers compared the Ellison's offer to. And as we reported, it was super insulting to these guys. So, yeah, some shareholders really do feel, and certainly my reporting hasn't gotten to the bottom of this. I would love David Ellison, if you want to pick up the phone and let me know what you're thinking here. I would love to understand this, but certainly the shareholders I spoke with said, look, it makes no sense. These guys have all the money in the world. And if that wasn't enough, they've got three friends, right? These sovereign wealth funds who have all the money in the world. Why aren't they picking up the phone and talking? Unless Zaslav has some beef with Ellison. Remember these guys went out to dinner together, they went on walks together, they had all these conversations leading up to this auction. Ellison even offered to make him co CEO. That's David Zaslav, co CEO of the combined company. That's not a joke. That's a real offer. And that was in a lot of the merger documents. Documents. As it stands, you know, Zaslav will make a ton of money off this either way. So it's left to, you know, it's left to your imaginations what we think. But this is what M and A bankers call the social issues of a deal. The price might be right, the structure might be right, but if two CEOs don't like each other, if two boards don't like each other, it's the same as real life. It becomes hard to get anything done.
- [24:51]
B
Ultimately, this looks like maybe a shareholder lawsuit. I mean, Zaslav has a fiduciary responsibility to get the best price, to get the best offer. If the shareholders are saying, we think the best offer is from Paramount and he's not doing it because. Because I don't know, because he doesn't like him, because he doesn't like his dad, because they're buddies with the president. I don't know what it is, but doesn't that seem like a lawsuit?
- [25:22]
A
Shareholders are always going to sue. In fact, shareholders already have in San Francisco, I think the very week this deal was announced. Shareholders always want more money and if they don't the money, they're always happy to complain. What has happened, right, Is this proxy fight, right? So this board fight that, that Paramount has threatened to kick off. And that is the easiest way for shareholders in the short term to express how unhappy they are. Now, one big shareholder, that's a shareholder called Penwater, already went on CNBC and has said, look, this is insane, this is crazy that they're not talking. We're going to block the Netflix deal. We're going to vote to block the Netflix deal because we feel like it's absolutely crazy to turn down 30 bucks for this company. Because remember before we talk, when we talked, the closest comp to the planned spinoff from Warner Brothers Discovery was a company called Versant. That's my former employer, cnbc, msnbc, a bunch of grab bag assets that were leaving Comcast. That company hadn't started trading yet. And everyone kind of thought this company is going to be a better play than Warner Brothers Discovery spinoff. That hasn't been the case. That stock is in the tubes. It's terrible. And so when that happened, a lot of shareholders went, well, Versant has less debt than Warner Brothers plan spinoff. Theoretically, it's a better, higher performing, higher end collection of assets. And it's trading like crap. No one wants to touch this thing. If that thing, that quote unquote, quality asset, it's all relative because it's tv. But if that quality asset is trading so badly, what chance do I have of making up for my $2.75, or sorry, $2.25 off this spinoff? I'd rather go with something more certain. So, you know, we'll see how this proxy fight shapes out if they even need to do it. But it's certainly. Shareholders are not happy, not in the slightest.
- [26:55]
B
Something you said earlier. We'll leave it to the imagination why he's not going with Paramount. You've been studying this for a while. You've been reporting on this. You're speaking with sources. Let's use our imagination. Why do you think he's saying no? Why do you think David Zaslav doesn't want to take the deal?
- [27:14]
A
That's a tricky one, if I had to guess. Look, Warner Brothers. The combination of Warner Brothers and Discovery, it was supposed to be a crowning achievement for Zaslav and John Malone, who helped orchestrate this deal. And that was almost. That was five years ago. Now it's 2021. You were going to marry these two assets and you were going to build something better and bigger than the sum of their parts. And to do that, they took on a lot of debt. A lot of debt. And to his credit, David Zaslav has managed to pay down a tremendous amount of that debt. The company is far healthier financially than it was when it merged. But that wasn't reflected in the stock price, right? The stock ticked down and down and down really, until this bidding war started, which, by the way, created tens of billions of dollars of value for shareholders. So kudos to Zaslav for that, in all seriousness. And then you have this guy, you've got Larry Ellison and you've got his kid David, who have all the money in the world and they go and they pick up one of the most storied studios in the planet. They pick up Paramount just like that, because they want it, because it's nothing to them. And now you're David Zaslav. You're sitting there. There's been a lot of reporting about his sort of his. The way he approaches the job as CEO. And there's a great story in New York magazine about this. I think it was New York magazine about how he actually has and uses the desk of Jack Warner, right. The father, the creator of Warner Brothers. So there's some implication that he actually thinks of himself as a modern day movie mogul. And yet he hasn't really been successful in those ambitions. Right. He hasn't managed to give the company the financial relevance that he sought. David Ellison, on the other hand, has an unlimited checkbook. And so you kind of have this interloper, this guy, to be fair, he's been a producer for a long time. But this guy who's never run a major studio, who's certainly never run a media conglomerate, who Suddenly is buying up everything for sale. In other words, is doing exactly what David Zaslav wanted to do, was never able to get done. That's just a guess. I haven't talked to Zaslav. I haven't talked to Ellison about their psychologies or how they feel. I would love to. That's never going to happen. So that's my best guess. But it also makes sense. It's human nature, right? You try to do something, you don't succeed at it, and then you watch someone just waltz in and do it instead of you. You're. You might feel a little resentful again. Totally. Guess, no sourcing here, but if I had to put money on something, I wouldn't. I'd put a couple bucks on that for sure.
- [29:30]
B
Fascinating. I think we could talk about this for hours. We're going to have to let you go here. Rohan Goswami, business reporter at Semaphore. Rohan, really appreciate it.
- [29:38]
A
Thank you, Ed, always a pleasure. Thanks so much.
- [29:44]
B
Well, the past few days have been extremely busy. We had the situation in Iran. We had the fight between Trump and the doj and Jerome Powell. We had this controversial inflation report. And all of this has made it a little bit difficult for us to focus on what we usually focus on, and that is earnings. And as a result, there was a pretty interesting report that we didn't cover yesterday, and that was Delta's earnings report. So before we end today's episode, we're just going to quickly cover it now. So Delta had a pretty decent quarter. They reported record revenue. They also beat expectations on earnings. But that is quite surprising because when you dig into the numbers, what you'll find is that their main cabin sales actually fell by 7%. Which raises the obvious question, how is it that they had a pretty good quarter despite the fact that main cabin sales were down? And the answer lies in the growth of premium cabin sales, I. E. First class tickets. That business grew by 9% year over year. And in fact, for the first time in Delta's history, the premium cabin business is now larger than than the main cabin business. Premium tickets generated $5.7 billion in revenue. Regular tickets generated $5.6 billion in revenue. Put another way, Delta's growth is now being kept alive by rich people. Now, if you're a regular listener, you know this is a theme we talk about a lot. This divide in America between the rich and the poor. The K shaped economy as people are talking about it and the extent to which that divide is actually driving the real economy. The most important Data point that we flagged last year was this data from Mark Zandi, which found that the top 10% of earners in America are now responsible for half of all the consumer spending. That number has never been higher. And this shocked us, not because it was necessarily surprising to us, but because it was just such a vivid illustration of something that we already kind of suspected but weren't fully see it. Well, now we're seeing it at the company level. Now we're seeing it reflected in the earnings of some of the most iconic companies in America, in this case Delta. And in fact, CEOs are now outwardly acknowledging this. Delta CEO Ed Bastian said, quote, there's a lot of discussion about the K shaped consumer. Our consumer happens to sit right at the top end of that K. And it's striking the extent to which the case shape is now openly being recognized. It's no longer some theory that people talk about on podcasts. It is an actual reality. It is a law of business that companies are expected both to understand and also to capitalize on. And that is exactly what Delta has done here in this earnings report. And it's also why they are talking about it, because they know investors feel better if they see that your business is specifically catering products to the nation's very richest people. Those are the consumers that matter. So those are the consumers that you need to own. And that is what Wall street wants to see. Now, to be honest, I'm not sure if this is better or worse than what we had before when people would theorize about this inequality problem. They talk about the K shaped economy. They discuss it intellectually versus what we have now, where people and CEOs seem to simply throw their hands up and accept it as some principle of the universe. Yeah, the K shaped economy. Oh, yeah, that's just the way it is. I actually don't know what is worse either way. What is clear now is we have gone from theory to reality. We've gone from bargaining to acceptance. The gap is getting bigger, the rift is getting wider. And we are now watching this play out in earnings. Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. Thank you for listening to Profg Markets from Prof. G Media. If you liked what you heard, give us a follow on. I'm Ed Elson. And tune in tomorrow for our conversation with Scott Nations.