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P&L: This Holiday May Be the Best in a Decade for Retailers · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:14
  Speaker 1: you and your money, whether at the grocery store or
• 0:16
  Speaker 1: the trading floor. Find the Bloomberg P L Podcast on iTunes,
• 0:20
  Speaker 1: SoundCloud and at Bloomberg dot com. All right, Craig Johnson,
• 0:29
  Speaker 1: tell us what's going on in the world of Nike,
• 0:31
  Speaker 1: and then we'll get to other stores in a second. Yeah. Um, So, anyway,
• 0:35
  Speaker 1: Nike is having a little bit of a rebound, and
• 0:38
  Speaker 1: not that they've been in bad shape, but Nike remains,
• 0:40
  Speaker 1: you know, one of the two or three strongest, most
• 0:43
  Speaker 1: recognized brands in the world, very very powerful, and so
• 0:46
  Speaker 1: they had a you know, they had a perfectly solid
• 0:49
  Speaker 1: quarter and uh, both profits and top line up. I
• 0:53
  Speaker 1: think the top line was about eight percent or so.
• 0:56
  Speaker 1: So they're they're doing okay. Um now in the meantime,
• 0:59
  Speaker 1: uh under armor. You know, we don't do stock prices,
• 1:02
  Speaker 1: but you know, the stock has got a pulled back
• 1:03
  Speaker 1: for this year. But it's not that they're having any
• 1:07
  Speaker 1: you know, great giant troubles. You know, their sales are
• 1:09
  Speaker 1: up over profits up I think fift at their last
• 1:14
  Speaker 1: quarter they reported maybe a month month and a half ago.
• 1:17
  Speaker 1: And then the UH the folks whould really come on
• 1:20
  Speaker 1: quite strong as Audi doc and UH and that brand
• 1:23
  Speaker 1: has been as by the way people do anyway, they
• 1:29
  Speaker 1: they they a D S let's call it that because
• 1:32
  Speaker 1: it's called by the symbol. So they they've been doing fine.
• 1:35
  Speaker 1: And in fact, you've had night's rebound in the in
• 1:37
  Speaker 1: the marketplace. Customers like them, and they've they've moved their
• 1:40
  Speaker 1: R and D effort locally in the US from Germany
• 1:44
  Speaker 1: to be more current with a kind of US taste
• 1:47
  Speaker 1: and interests in the preferences. And of course for those
• 1:50
  Speaker 1: who lived in New York area, they've opened this huge,
• 1:52
  Speaker 1: rually magnificent flagship on Fifth Abo right about about a
• 1:56
  Speaker 1: forty six trade. It's really spectacular, quite quite something. You know, Craig,
• 1:59
  Speaker 1: you in your in your outlook that so far, the
• 2:03
  Speaker 1: retail UH scene seems to be the best in many years.
• 2:07
  Speaker 1: This has been the best season for shopping in a
• 2:10
  Speaker 1: long time. UM. And yet we're still seeing stories about
• 2:14
  Speaker 1: stories like J J Crew, which just can't seem to
• 2:17
  Speaker 1: get out of its death spiral. You know, what do
• 2:20
  Speaker 1: you expect as far as the bankruptcy is going, is
• 2:23
  Speaker 1: uh this year's positive development enough to stave off bankruptcy
• 2:29
  Speaker 1: for some of these firms. Well, Um, what we're seeing
• 2:33
  Speaker 1: overall is is kind of a two giant migrations in retail.
• 2:37
  Speaker 1: One is the migration from a channel point of view
• 2:39
  Speaker 1: from from store based retail to online and online we're
• 2:43
  Speaker 1: predicting is going to be about eighteen percent of total
• 2:45
  Speaker 1: sales over the holiday season and and that's really quite something,
• 2:49
  Speaker 1: is growing in about four plus a year of a
• 2:52
  Speaker 1: year UM. And the second migration is internally within within
• 2:56
  Speaker 1: within stores and there's there has been a migration away
• 2:59
  Speaker 1: from apparel stores including J Crew, but not only J
• 3:03
  Speaker 1: Crew UM to UH non apparel uses of spending and
• 3:08
  Speaker 1: UH and that's just that's a long term trun it's
• 3:10
  Speaker 1: been exacerbated to in recent years. And UM, and that
• 3:14
  Speaker 1: means there's going to be a raft of both winners
• 3:16
  Speaker 1: and losers in apparel land. And that's just it's the
• 3:20
  Speaker 1: world we live in. Craig, Let's talk about bed Beth
• 3:23
  Speaker 1: and beyond. They are going to report their results after
• 3:25
  Speaker 1: the close of trading today. How's their business faring well.
• 3:29
  Speaker 1: It's kind of interesting. Now there is a tale of
• 3:31
  Speaker 1: two cities in the third quarter of being much different
• 3:34
  Speaker 1: than in the fourth quarter. We've seen quarters to date. Um.
• 3:37
  Speaker 1: And you know, their quarter wrapped right after the Black
• 3:40
  Speaker 1: Friday U weekend I think in November, and the third
• 3:45
  Speaker 1: quarter will be not that great, and they were very
• 3:47
  Speaker 1: soft for for much of the fall um and then
• 3:50
  Speaker 1: but things did pick up across retail. Things picked up
• 3:54
  Speaker 1: after the election about by mid about November, mid November,
• 3:57
  Speaker 1: and so they were able to capture because they have
• 4:00
  Speaker 1: that you know, delayed quarter that they're going into November
• 4:03
  Speaker 1: twenty eight UM. Uh, so they're able to capture some
• 4:06
  Speaker 1: of the rebound then and then months to date, I mean,
• 4:09
  Speaker 1: you know this is they're still very early into the
• 4:12
  Speaker 1: into the Q four UM. They have been doing uh
• 4:15
  Speaker 1: really quite well. Along with the almost the entirety of
• 4:18
  Speaker 1: the home sector, whether it's home improvement guys like Depo
• 4:23
  Speaker 1: and Lows or weather home furnishings. Where we've seen a
• 4:26
  Speaker 1: lot of strength across the board, uh is restoration hardware
• 4:30
  Speaker 1: an asterisk. I would call that a little bit of
• 4:33
  Speaker 1: an exception that may prove the rule. They've they've had
• 4:35
  Speaker 1: some challenges. Um. Uh. You know, we think they're getting
• 4:38
  Speaker 1: their their ducks in a row together, but they they've
• 4:41
  Speaker 1: been a little bit challenged for for many months now
• 4:43
  Speaker 1: with some supply chain issues. You know. One thing I'm
• 4:47
  Speaker 1: struck by is that in the corporate credit world, we're
• 4:51
  Speaker 1: definitely are a lot of people think we're getting to
• 4:53
  Speaker 1: a later stage where it's a lot of these companies
• 4:56
  Speaker 1: are starting to build on leverage and they've already overextended.
• 5:00
  Speaker 1: Looking into consumer credit, I'm trying to figure out as
• 5:03
  Speaker 1: you talk about the different sectors uh, and then and
• 5:06
  Speaker 1: then better than expected shopping season, where what does this
• 5:11
  Speaker 1: indicate about where we are in the consumer credit cycle. Well,
• 5:16
  Speaker 1: there we're seeing a situation where personal savings rates are
• 5:19
  Speaker 1: still quite high, about five and a half plus percent.
• 5:23
  Speaker 1: We think that starting to come down consumer credits. Household
• 5:28
  Speaker 1: balance sheets are much much are the healthiest they've been
• 5:30
  Speaker 1: in years, um, and so with incomes gradually rising over
• 5:34
  Speaker 1: the last year or so, things are looking better now.
• 5:37
  Speaker 1: The implications though for distressed uh that retailers, Um, that's
• 5:44
  Speaker 1: a little bit of a different animal because there were
• 5:46
  Speaker 1: seeing some people that are having strong performance, such as
• 5:50
  Speaker 1: like toys or US. And then we have other folks,
• 5:53
  Speaker 1: whether it's UH crew you mentioned, whether it's players UM
• 5:57
  Speaker 1: and some of the other players out there that that
• 5:59
  Speaker 1: have had UH we'll just say a few more challenges. Craig,
• 6:03
  Speaker 1: just can we go back to UH Adidas or Audidas
• 6:08
  Speaker 1: and their success because they've now got the number two position,
• 6:12
  Speaker 1: they've surpassed under Armour I believe is this rebound from
• 6:17
  Speaker 1: where they were? Is this for real? Because they noticed
• 6:19
  Speaker 1: the Stan Smith, the heritage brands, UH partnerships with Kanye West.
• 6:24
  Speaker 1: Is that going to mean that Adidas is going to
• 6:27
  Speaker 1: just continue to go to another strength. Well, they have,
• 6:30
  Speaker 1: you know, we we think they really have stepped on
• 6:32
  Speaker 1: the gas and as you might know, they have a
• 6:35
  Speaker 1: new CEO in there. UM over the past year and UH,
• 6:39
  Speaker 1: we've already seen an improvement there. Now most of their
• 6:42
  Speaker 1: strength has been you know, again on the footwear side
• 6:44
  Speaker 1: of things under oarm Our Apparel, we think, we we
• 6:47
  Speaker 1: believe is still very very strong. H The performance where
• 6:50
  Speaker 1: UM but UH A d S has been has been
• 6:54
  Speaker 1: really coming on quite strong, and we think a lot
• 6:56
  Speaker 1: of reflection, you know, the new managements that's on board
• 6:59
  Speaker 1: and the fact that they're becoming much more in tune
• 7:02
  Speaker 1: with the US market. Originally some market research they've done,
• 7:05
  Speaker 1: and now as I mentioned that they've they've cited that
• 7:08
  Speaker 1: in an R and d UH center right here in
• 7:11
  Speaker 1: the US versus trying to monitor the US market from
• 7:16
  Speaker 1: back in Germany. Thank you so much for joining us.
• 7:18
  Speaker 1: Craig Johnson, president of Customer Growth Partners, coming to us
• 7:22
  Speaker 1: from New Canaan, Connecticut. Just want to mention Adida's shares
• 7:25
  Speaker 1: of fifty so far this year, Nike shares down, this
• 7:31
  Speaker 1: is bloom. The shares of FedEx are down about two
• 7:48
  Speaker 1: and a half percent after profit at the air freight
• 7:53
  Speaker 1: carrier that took a hit from rising investment in its
• 7:56
  Speaker 1: ground delivery business. And here to tell us more is
• 7:59
  Speaker 1: to teach Jin. Though he is the president of s
• 8:02
  Speaker 1: J Consulting Group, he joins us from Swickly, Pennsylvania, So
• 8:06
  Speaker 1: teach always a pleasure tell us about FedEx and the
• 8:10
  Speaker 1: challenges that the company faces, not necessarily just from ups
• 8:14
  Speaker 1: but from the likes of Amazon as well as Uber. Well,
• 8:20
  Speaker 1: this is a very interesting time for watching this company
• 8:24
  Speaker 1: and the industry. And as you commented, Uh, people think
• 8:29
  Speaker 1: there's a lot of investment. The growth of Farcel business
• 8:33
  Speaker 1: is of a kind that in my being in it
• 8:36
  Speaker 1: for twenty plus years, I have not seen. And the
• 8:39
  Speaker 1: peak is becoming higher and higher and more difficult because
• 8:45
  Speaker 1: when you have packaged volume increasing in the B two
• 8:48
  Speaker 1: B space, you don't add extra stuffs, but when you
• 8:51
  Speaker 1: do it for consumers, you're going to new addresses, and
• 8:54
  Speaker 1: that affects performance and productivity in service of a kind
• 8:58
  Speaker 1: that people can't understand and who are used looking at
• 9:01
  Speaker 1: annual statements and ten case for FedEx to have incorporated
• 9:06
  Speaker 1: and built hundred and five facilities, and I've been involved
• 9:11
  Speaker 1: with them, it is a remarkable edition. And if they
• 9:14
  Speaker 1: don't do it, then they continue to risk losing the
• 9:17
  Speaker 1: business of these big online retailers that they are handling.
• 9:21
  Speaker 1: And people don't realize they think Amazon doesn't use few
• 9:25
  Speaker 1: pious and FedEx. They still move millions of packages for
• 9:29
  Speaker 1: Amazon and other online retailers. And if they're going to
• 9:33
  Speaker 1: stay as a good option for them for these online retailers,
• 9:37
  Speaker 1: they have to be able to handle it throughout the year,
• 9:40
  Speaker 1: but more importantly, during a peak that is also not
• 9:43
  Speaker 1: becoming bigger but also getting spread out over several weeks.
• 9:48
  Speaker 1: I wanted to go back you made an interesting point.
• 9:50
  Speaker 1: You know, people think that Amazon and other online retailers
• 9:54
  Speaker 1: have their own channels for distributing packages other than FedEx
• 10:00
  Speaker 1: or ups, but they are really reliant on uh these companies.
• 10:05
  Speaker 1: What about drones? I mean, we've heard plenty about delivery
• 10:08
  Speaker 1: drones and sort of Amazon trying to create their own
• 10:12
  Speaker 1: horde of these flying self self flying vehicles. Is this
• 10:16
  Speaker 1: it all threat? You know, not for at least a
• 10:20
  Speaker 1: few years, for various reasons. I do believe that the
• 10:24
  Speaker 1: next five years, or maybe a little longer, we will
• 10:29
  Speaker 1: ourselves has seen them with our eyes, packages being dropped
• 10:33
  Speaker 1: off at people or places that we know of. However,
• 10:37
  Speaker 1: there are few limitations. One is the regulatory that moves
• 10:40
  Speaker 1: at a very slow pace and can't keep up with
• 10:42
  Speaker 1: the pace that twist technologies moving. But the other thing
• 10:46
  Speaker 1: is that drones are first going to be only used
• 10:49
  Speaker 1: in rural areas where they don't have to deal with
• 10:53
  Speaker 1: all the wires and everything else that comes in the
• 10:55
  Speaker 1: way of coming down to the lower level to drop
• 10:58
  Speaker 1: a package in someone's front out. The other thing is
• 11:01
  Speaker 1: that they are still limited in handling certain items that
• 11:05
  Speaker 1: have to be small, that have to be lightweight, and
• 11:08
  Speaker 1: all that is going to take time to evolve, and
• 11:11
  Speaker 1: then some things required signature. You can't get a signature
• 11:14
  Speaker 1: from a drone, not yet. I think that's the quote
• 11:19
  Speaker 1: of the day. You can't get a signature from a drone.
• 11:22
  Speaker 1: I love it. So I was just going to give
• 11:25
  Speaker 1: you some detail, just to put this into perspective because FedEx,
• 11:29
  Speaker 1: as you just describe this massive six hundred and fifty aircraft,
• 11:32
  Speaker 1: a hundred and fifty thousand vehicles, moves twelve million packages
• 11:37
  Speaker 1: a day. UPS moves even more more than eighteen million
• 11:40
  Speaker 1: packages a day. Can you explain this saying in the
• 11:44
  Speaker 1: world of supply chain that density equals profitability. Well, you
• 11:50
  Speaker 1: know what that is true, There is an element of density.
• 11:52
  Speaker 1: But when you've got in the twelve million you set
• 11:54
  Speaker 1: for FedEx and about seventeen for UPS, that is in
• 11:58
  Speaker 1: the normal day to February March April. During this month
• 12:02
  Speaker 1: of December, fed X is handling seventeen million and UPS
• 12:06
  Speaker 1: is handling millions, okay, And to put it in perspective,
• 12:11
  Speaker 1: that is in between one billion origin destra nation points.
• 12:18
  Speaker 1: And for people who are listening when they fly, they
• 12:20
  Speaker 1: don't realize the airlines perform at on time when they
• 12:25
  Speaker 1: only have to fly between four airports, that comes to
• 12:29
  Speaker 1: only eighteen thousand days. So that is the complexity you're
• 12:32
  Speaker 1: talking about. And they have a network that is unique,
• 12:37
  Speaker 1: and which is why you find that other people can't
• 12:40
  Speaker 1: create a network like that and they can't compete with them.
• 12:42
  Speaker 1: Which is why ups, fed X and Post Office, between
• 12:46
  Speaker 1: three of them, deliver ninety seven of all the packages
• 12:50
  Speaker 1: for all the shippers. And it seems like there's a
• 12:53
  Speaker 1: pretty big barrier to entry for the Amazons of the
• 12:55
  Speaker 1: world to create their own fleet, a huge and I
• 12:58
  Speaker 1: don't think Amazon people will talk about it. Amazon has
• 13:01
  Speaker 1: no interest in being a transporation company because of the
• 13:04
  Speaker 1: market that you cater to. Start to think of them
• 13:07
  Speaker 1: as a transportation company. There be ratio, it's going to plummet,
• 13:12
  Speaker 1: and it's start off with trading at seven dollars, it's
• 13:15
  Speaker 1: going to trade it hundred dollars. Sat Jindell, president of
• 13:21
  Speaker 1: s J Consulting Group from Siwickly, Pennsylvania, Thank you so
• 13:25
  Speaker 1: much for being with us. A story caught my I
• 13:38
  Speaker 1: from Fox that highlights the difficulties the U. S. Government
• 13:43
  Speaker 1: is facing as it tries to tackle the massive amount
• 13:47
  Speaker 1: of student loans outstanding, including some that perhaps were extended
• 13:53
  Speaker 1: under fraudulent assumptions. I want to bring in Shahin Nasira Poor,
• 13:57
  Speaker 1: Bloomberg News reporter the for US core cases and crime.
• 14:02
  Speaker 1: He is here in our Bloomberg eleven three oh studio.
• 14:04
  Speaker 1: Thank you for joining us. Uh, So, can you talk
• 14:07
  Speaker 1: to us a little bit about what the core issue
• 14:10
  Speaker 1: is here? For the US government? They have said they
• 14:12
  Speaker 1: would forgive some student loans that were underwritten under false pretenses, right, Uh,
• 14:19
  Speaker 1: but then they're going out they're actively pursuing uh, the
• 14:22
  Speaker 1: debt collections from those students at this point. What's going
• 14:26
  Speaker 1: on here? Well, thanks for having me on. It's a
• 14:29
  Speaker 1: it's a hard it's a hard question to ask. You know.
• 14:32
  Speaker 1: The thing that I keep coming back to is this,
• 14:35
  Speaker 1: you know, apparent conflict of interest within the US Apartment
• 14:38
  Speaker 1: of Education, where they are both you know, the lender
• 14:41
  Speaker 1: um as well as a servicer. And so their job
• 14:44
  Speaker 1: on one hand is to maximize collections and minimize the
• 14:47
  Speaker 1: cost of the federal student loan program two taxpayers. But
• 14:50
  Speaker 1: on the other hand they're running the largest student debt
• 14:54
  Speaker 1: forgiveness scheme in US history. And so that that apparent
• 14:58
  Speaker 1: conflict man infests itself in ways. You know, in one
• 15:02
  Speaker 1: way in which where the federal government has decided that
• 15:05
  Speaker 1: by and large, tens of thousands of you know, former
• 15:08
  Speaker 1: students who attended schools owned by Corinthian Colleges, Inc. Were
• 15:11
  Speaker 1: defrauded with false job placement rates and they were duped
• 15:16
  Speaker 1: into taking out these loans, and therefore these loans should
• 15:18
  Speaker 1: be canceled. But on the other hand, the department and
• 15:21
  Speaker 1: the Education Department is not proactively canceling this debt. It's
• 15:25
  Speaker 1: not proactively reaching out to these borrowers. And you could
• 15:29
  Speaker 1: argue that if they were a private sector creditor, that
• 15:32
  Speaker 1: their collection tactics would amount to a violation of laws
• 15:36
  Speaker 1: banning unfair and deceptive acts and practices because they are
• 15:39
  Speaker 1: collecting on debt that they have reason to believe need
• 15:41
  Speaker 1: not be repaid um. And so far they're they're not
• 15:46
  Speaker 1: really saying much about it. If you are an eligible
• 15:50
  Speaker 1: UH borrower, what is the process by which you would
• 15:55
  Speaker 1: have your fraudulent or allegedly fraudulent loan forgiven? What's the process?
• 16:02
  Speaker 1: It's actually really simple. There is a form that the
• 16:04
  Speaker 1: Education Department is created where all you need to do
• 16:07
  Speaker 1: is fill out you know some biographical information, name, address,
• 16:10
  Speaker 1: telephone number, etcetera. UM, you say you know, you list
• 16:15
  Speaker 1: the campus that you attended in the program you were
• 16:18
  Speaker 1: enrolled in in the dates of your attendants. UM, and
• 16:21
  Speaker 1: you simply check a box where you attest to the fact,
• 16:25
  Speaker 1: under penalty of perjury, that you relied on these job
• 16:27
  Speaker 1: placement rates when you enrolled. You sign your name at
• 16:30
  Speaker 1: the bottom of the form, you return it, and your
• 16:32
  Speaker 1: loans should be forgiven. That is what the Education Department
• 16:34
  Speaker 1: has said the process. That's how it's supposed to work.
• 16:37
  Speaker 1: But it's not working that way. No, it's not. They
• 16:40
  Speaker 1: are sending they've sent a few letters and a few
• 16:42
  Speaker 1: emails to borrowers informing them of this. Right, But they
• 16:45
  Speaker 1: also send these folks monthly bills in which there is
• 16:47
  Speaker 1: no disclosure of any kind. Same same department, same depart Well,
• 16:51
  Speaker 1: but you're right, and this is an important point. So
• 16:53
  Speaker 1: Corinthian College has filed for bankruptcy after being accused of fraud. UM.
• 17:00
  Speaker 1: If the US were to eliminate debt of all of
• 17:04
  Speaker 1: those who are potentially eligible for debt really from justice
• 17:08
  Speaker 1: Corinthian College, right, it could cost the federal government nearly
• 17:12
  Speaker 1: four billion dollars. This sort of speaks to your point
• 17:15
  Speaker 1: checking about the sort of push pull element of the
• 17:18
  Speaker 1: same agency overseeing both the forgiveness as well as the
• 17:21
  Speaker 1: debt collection, of managing the collection exactly. And and here's
• 17:25
  Speaker 1: the thing about it is, you know, look, the education
• 17:27
  Speaker 1: departments run by a lot of political appointees. If they
• 17:30
  Speaker 1: were to forgive this debt, there would be a ton
• 17:33
  Speaker 1: of outcry about the cost to taxpayers. And the question
• 17:37
  Speaker 1: evitably would be, well, how did the department allow this
• 17:40
  Speaker 1: learning to go on in the first place? Where were
• 17:42
  Speaker 1: they when all these loans were being made? There were
• 17:44
  Speaker 1: all these warning signs that this chain of schools was
• 17:47
  Speaker 1: engaged in suspect behavior and suspect practices. They had previously
• 17:51
  Speaker 1: been sued by state Attorney's General over you know, there
• 17:55
  Speaker 1: allegedly deceptive advertising to students. And so they make all
• 17:59
  Speaker 1: these loans, they book you know, expected revenues off these loans,
• 18:03
  Speaker 1: and then they come back and cancel them later at
• 18:05
  Speaker 1: this huge cost of taxpayers, and folks will inevitably say,
• 18:09
  Speaker 1: where were you when these loans are being made? Thanks
• 18:12
  Speaker 1: very much for enlightening us. Shaheen Nasirapor he is a
• 18:16
  Speaker 1: US court cases and crime reporter for Bloomberg News. Much appreciated.
• 18:33
  Speaker 1: It is my honor now to bring in Dan Fuss,
• 18:35
  Speaker 1: vice chairman of Loomis Sales. Uh. Dan, I'm grateful for
• 18:39
  Speaker 1: you joining us today, and I have an important question
• 18:44
  Speaker 1: to ask you. We've been hearing from a lot of
• 18:48
  Speaker 1: big bond fund managers, whether it's Jeff Gunlock, whether it's
• 18:52
  Speaker 1: Mark uisil Over at Pimco, now is the time to
• 18:56
  Speaker 1: be building cash and de risking. Do you agree? No,
• 19:03
  Speaker 1: not completely. I understand why, you know from reading your
• 19:09
  Speaker 1: column and others least, Um, I understand why they're doing it.
• 19:13
  Speaker 1: I share the general view that the odds are that
• 19:19
  Speaker 1: in the US dollar, uh, interest rates are starting their
• 19:23
  Speaker 1: seclical rise. I agree with that, how far how long?
• 19:28
  Speaker 1: There you get a wide spectrum of guessing, because that's
• 19:32
  Speaker 1: all you can do about the future. But um, there's
• 19:36
  Speaker 1: a sort of a fatal flaw if if you go
• 19:40
  Speaker 1: to the let's build a lot of cash, and then
• 19:44
  Speaker 1: in some cases people might say I've heard it, Uh
• 19:48
  Speaker 1: that just in case, they'll they'll bar bellow it, and
• 19:52
  Speaker 1: uh they'll they'll you know, buy some long whatever. Um
• 19:58
  Speaker 1: that that gets away from the theme that you're supposed
• 20:01
  Speaker 1: to make money. UM. As cash returns rise, and they've
• 20:06
  Speaker 1: risen somewhat to be fair, um, it gets easier to
• 20:11
  Speaker 1: do the short end of that because you're rolling over
• 20:15
  Speaker 1: every three months or whatever you're doing, and your yield
• 20:19
  Speaker 1: is going up. That's the general idea, But you have
• 20:22
  Speaker 1: to take into account the shape of the yield curve
• 20:28
  Speaker 1: and the dispersion the yield spreads around the old curve.
• 20:32
  Speaker 1: And more importantly than either one of those is the
• 20:36
  Speaker 1: fact that the world is now filling up with discount
• 20:39
  Speaker 1: bonds as opposed to premium bonds. And that's a world
• 20:44
  Speaker 1: of difference when you put those things together. Um. If
• 20:49
  Speaker 1: if you're not concerned about day to day or week
• 20:51
  Speaker 1: to week or even months to month, you say, well
• 20:55
  Speaker 1: I'm going to do then is I'm going to go
• 20:57
  Speaker 1: ride the old curve just like the Meuning people to Uh.
• 21:01
  Speaker 1: And that is a very very good idea. Well, hold
• 21:05
  Speaker 1: on a sect. So since November eighth, a lot of
• 21:08
  Speaker 1: people we've talked to have said that they've pretty significantly
• 21:11
  Speaker 1: changed their thesis or even started to change how they invest.
• 21:16
  Speaker 1: Have you not since November eight? Uh? Actually, uh, we
• 21:22
  Speaker 1: sort of unfortunately beat the rush uh and build up
• 21:27
  Speaker 1: some cash. I'm talking now in reference to the mutual
• 21:31
  Speaker 1: funds because we're anticipating withdrawals. Is this indexation thing and
• 21:37
  Speaker 1: et F goes on UM, so we we built it
• 21:42
  Speaker 1: for that. And but the rest of the portfolio is
• 21:46
  Speaker 1: the basic structure of it is shorter and it used
• 21:50
  Speaker 1: to be ex the cash shorter iteration in other words,
• 21:53
  Speaker 1: looking for a shorter maturity of the shorter and average maturity. No,
• 21:58
  Speaker 1: I'm going to confuse uh all the cf A students
• 22:02
  Speaker 1: with this. Do you have to be careful on using
• 22:06
  Speaker 1: duration when you're in a period of time where interest
• 22:11
  Speaker 1: rates are are moving rather strong or you know, directionally,
• 22:16
  Speaker 1: it may not be a lot of uh, you know,
• 22:19
  Speaker 1: a multi your move. But if your rates are trending
• 22:23
  Speaker 1: up and you're pretty sure the central bank has the
• 22:27
  Speaker 1: same idea or trending down, UM, then you you have
• 22:33
  Speaker 1: to say, whoops win Uh. Duration that's fine for liability matching.
• 22:38
  Speaker 1: But let's use average maturity and let's look at our
• 22:42
  Speaker 1: dispersion around the mean uh. And essentially to put into
• 22:51
  Speaker 1: math forms, UH, what we're doing is we're fattening the
• 22:55
  Speaker 1: middle uh, just like the waist lines around Christmas time
• 23:00
  Speaker 1: there with all the good ease. So otherwise you like
• 23:03
  Speaker 1: the sort of five to ten year treasury No, oh yeah,
• 23:07
  Speaker 1: you can do it with treasuries you have now treasuries,
• 23:11
  Speaker 1: you don't have any excess spread. So you like it
• 23:14
  Speaker 1: for like five to ten year corporates. Yes, and uh,
• 23:18
  Speaker 1: if it's a taxable account with a high incriminal tax. Uh,
• 23:23
  Speaker 1: you know, once you had the state onto it. Uh.
• 23:28
  Speaker 1: You do the same thing in muni's and uh it's
• 23:32
  Speaker 1: easier to see over there. But you do the same
• 23:36
  Speaker 1: thing in corporates. And you you know your fear when
• 23:39
  Speaker 1: rates go up as you say, oh my god, we're
• 23:42
  Speaker 1: at the end of all the credit cycles now, you know,
• 23:45
  Speaker 1: and get the parachutes out we go. No, no, no,
• 23:49
  Speaker 1: you don't do that. You do have to be much
• 23:52
  Speaker 1: more careful on the credit side. That's a given you
• 23:57
  Speaker 1: have to be because people who are financing are going
• 24:02
  Speaker 1: to have more trouble as rates go up if they're
• 24:05
  Speaker 1: not a fairly strong uh you know business and uh,
• 24:11
  Speaker 1: but if they've handled refinance already and the basic business
• 24:16
  Speaker 1: is a good business, not dependent on borrowing a ton
• 24:20
  Speaker 1: of money at lower rates, it's an important qualifier. Um,
• 24:25
  Speaker 1: then your best place to be is with the most
• 24:29
  Speaker 1: spread and call protection. And uh, this is where high
• 24:34
  Speaker 1: yield comes into play. Normally, high yield, when rates have
• 24:37
  Speaker 1: gone down quite a bit, is a loser's game because
• 24:40
  Speaker 1: if it works, you get called, and if it doesn't,
• 24:42
  Speaker 1: you get stuck. Uh and uh, Now you're in a
• 24:47
  Speaker 1: different setting because an early call gets more and more
• 24:52
  Speaker 1: expensive if you're buying this stuff, saying the eighties or
• 24:57
  Speaker 1: low nineties in the issue, who decides to call it
• 25:00
  Speaker 1: one oh four? Well, that's all right, you're not shedding
• 25:02
  Speaker 1: any tears. You wish you hadn't done that because you
• 25:05
  Speaker 1: have to, you know, work a little late the next night.
• 25:08
  Speaker 1: But uh, and that's it's a different market when the
• 25:13
  Speaker 1: direction is up. Now, the flaw on this whole thing
• 25:17
  Speaker 1: is you can say, I'll say to myself in the
• 25:20
  Speaker 1: mirror in the morning, right after I've cut myself shaving,
• 25:23
  Speaker 1: I'll say, now, listen, listen up. That's a good warning.
• 25:26
  Speaker 1: We're talking US dollar base. Everything I've set up to
• 25:31
  Speaker 1: now is US dollar base. Let's not forget the rest
• 25:34
  Speaker 1: of the world because that's going to impact what the
• 25:37
  Speaker 1: FED does. So don't buy any you know, don't draw
• 25:40
  Speaker 1: any straight lines here. Well, we're gonna all be uh
• 25:44
  Speaker 1: watching our fattening medals, and perhaps that is the way
• 25:47
  Speaker 1: to go for a bun fund uh him. I'm just
• 25:50
  Speaker 1: taking notes. That's the last point, Dan, Can you answer
• 25:54
  Speaker 1: this in ten seconds? Lisa Brahmins wants to know do
• 25:56
  Speaker 1: you still like energy? How you debt some of it? All? Right,
• 26:01
  Speaker 1: well there's an answer for you. Thank you very much,
• 26:03
  Speaker 1: Dan fuzz Is, Vice chairman of Loomis Sales. Thanks for
• 26:14
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 26:16
  Speaker 1: subscribe and listen to interviews at iTunes, SoundCloud, or whatever
• 26:21
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm out there
• 26:25
  Speaker 1: on Twitter at pim Fox. I'm out there on Twitter
• 26:28
  Speaker 1: at Lisa Abramo. It's one before the podcast. You can
• 26:31
  Speaker 1: always catch us worldwide on Bloomberg Radio.