Latest / Bloomberg Intelligence / GFG Plans On Producing 5 Millions Tons Of Steel in U.S. (Podcast)

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GFG Plans On Producing 5 Millions Tons Of Steel in U.S. (Podcast) · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim
• 0:08
  Speaker 1: Fox along with my co host Lisa Abramowitz. Each day
• 0:11
  Speaker 1: we bring you the most important, noteworthy, and useful interviews
• 0:15
  Speaker 1: for you and your money, whether you're at the grocery
• 0:17
  Speaker 1: store or the trading floor. Find the Bloomberg P M
• 0:20
  Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.
• 0:31
  Speaker 1: I want to bring in Greg Han. He is the
• 0:33
  Speaker 1: president and the chief investment officer for Winthrop Capital Management.
• 0:36
  Speaker 1: They are based in Indianapolis, but he joins us here
• 0:39
  Speaker 1: in studio. Greg, thank you very much for being here.
• 0:42
  Speaker 1: Let's go right to the idea of leverage loans and
• 0:44
  Speaker 1: what does the leverage loan market tell you right now?
• 0:48
  Speaker 1: Right now, the leverage loan market is probably the biggest
• 0:50
  Speaker 1: source of fear in the bond market. We are on
• 0:53
  Speaker 1: the front end potentially of a change in the credit cycle,
• 0:56
  Speaker 1: and we expect that to express express itself through the
• 1:00
  Speaker 1: leverage loan market. Traditionally it would go through the banking sector,
• 1:04
  Speaker 1: but a lot of that's been pushed into the market now.
• 1:06
  Speaker 1: So what does that mean? So UM products like business
• 1:10
  Speaker 1: development corporations and commercial clos um collateralized loan obligations are
• 1:17
  Speaker 1: are at they have a different risk profile. They use
• 1:20
  Speaker 1: that as their collateral, and if it starts to deteriorate,
• 1:22
  Speaker 1: we'll see deterioration in those products. But I meant, if
• 1:25
  Speaker 1: this is sort of the epicenter of the next problem
• 1:29
  Speaker 1: in credit markets, how does that unfold? What does that
• 1:31
  Speaker 1: look like? It starts with restructuring of the underlying loans.
• 1:34
  Speaker 1: So the small business that does alone, it's a highly
• 1:37
  Speaker 1: leveed loan, UH can't make its its interest payment because
• 1:40
  Speaker 1: of rising interest rates or covenant breach, and so it
• 1:44
  Speaker 1: needs to restructure that loan. If that happens ten times
• 1:47
  Speaker 1: inside of one of these pooled products, then that that
• 1:50
  Speaker 1: that's a source of deterioration, and that impacts the products
• 1:54
  Speaker 1: ability to pass cash flow onto its investor. Having said that,
• 1:57
  Speaker 1: our current investors getting paid for the risks they're taking.
• 2:02
  Speaker 1: So I would say, given the increase in volatility that
• 2:05
  Speaker 1: we're experiencing right now, yes, However, if you look at
• 2:09
  Speaker 1: two thousand and eighteen with the low spread volatility and
• 2:12
  Speaker 1: low volatility and the the equity market leading up to the
• 2:14
  Speaker 1: fourth quarter, then that was really that was really the
• 2:17
  Speaker 1: question is are really compensated for the risk, and then
• 2:19
  Speaker 1: I would say, no, it's only when we see increased
• 2:21
  Speaker 1: volatility and these price adjustments as really the price of
• 2:24
  Speaker 1: risk readjusting itself in the market place. Right now, now
• 2:28
  Speaker 1: we look at it and say, yeah, we're we're compensated.
• 2:31
  Speaker 1: All right, Greg, I want to widen out a little
• 2:33
  Speaker 1: bit because you just recently put out your outlook for
• 2:36
  Speaker 1: next year, and let's just start with the first line.
• 2:39
  Speaker 1: There's no other way to say it. The financial position
• 2:42
  Speaker 1: of the United States is a disaster. So what does
• 2:45
  Speaker 1: that mean? I mean, are we headed toward an imminent
• 2:48
  Speaker 1: recession or deterioration? Is it going to happen in the
• 2:52
  Speaker 1: first quarter of the fourth quarter? What's your what's your forecast?
• 2:55
  Speaker 1: Hear No, So we are not forecasting a recession. We're
• 2:58
  Speaker 1: forecasting an economic slowdown in the second half of two
• 3:01
  Speaker 1: thousand nineteen. But that that first sentence was really encapsulated
• 3:05
  Speaker 1: a bigger thesis we have that our form of democracy
• 3:08
  Speaker 1: and our form of capitalism are evolving. That's not a
• 3:11
  Speaker 1: political statement, it's just for us to really understand how
• 3:15
  Speaker 1: do you how do you invest in today's market relative
• 3:17
  Speaker 1: to years ago? We have to look at it and
• 3:19
  Speaker 1: say wait a minute, this this this democracy is evolving.
• 3:22
  Speaker 1: And look what's going on over in Europe with with Italy, Britain, France, Germany,
• 3:26
  Speaker 1: all of these governments are going through some form of chaos.
• 3:30
  Speaker 1: Ours is just we've we've spent a lot of money
• 3:33
  Speaker 1: since the financial crisis to get this economy moving at
• 3:36
  Speaker 1: a time when we're growing, but we're running huge budget
• 3:39
  Speaker 1: deficits that all turns into debt. All right, So if
• 3:42
  Speaker 1: that turns into debt, does it ever have to be repaid?
• 3:46
  Speaker 1: That is a great question. I I I honestly don't
• 3:50
  Speaker 1: think it does. I think I'm waiting for Wall Street
• 3:52
  Speaker 1: to come up with the the vision for how we
• 3:55
  Speaker 1: turn all of this into one great, big zero coupon
• 3:57
  Speaker 1: bond on the Fed's balance sheet and and it never
• 4:00
  Speaker 1: becomes a problem. But well, so, Greg, what does this
• 4:02
  Speaker 1: mean in terms of how you position your investments? What's
• 4:05
  Speaker 1: been the biggest change you've made recently to your actual
• 4:09
  Speaker 1: investing portfolio? So we've made a couple changes. The that
• 4:13
  Speaker 1: we've been we've been moving this whole period of time
• 4:15
  Speaker 1: has been the up and quality trade in the bond portfolios.
• 4:18
  Speaker 1: And um so now we're seeing we're actually seeing just
• 4:21
  Speaker 1: more opportunities. Spreads widen A lot of this Leasa's technical.
• 4:24
  Speaker 1: We expect there was heavy supply coming into December. We
• 4:27
  Speaker 1: expect that to slow down. But with the increase in
• 4:30
  Speaker 1: spread volatility, the decline in interest rates, it spreads widen.
• 4:33
  Speaker 1: When you say up in quality, does that mean investment
• 4:35
  Speaker 1: grade over high yield? Does it mean A over triple B?
• 4:38
  Speaker 1: I mean, what are you talking about. Most of the
• 4:40
  Speaker 1: market now is triple B, but it really means that
• 4:42
  Speaker 1: we're moving up towards the higher end of triple B
• 4:44
  Speaker 1: into single A. We like the banking sector. Here's the paradox.
• 4:48
  Speaker 1: The yield curve inverts, right, So everyone thinks that banks
• 4:52
  Speaker 1: should lose money, but remember this is post Glass Stiegel.
• 4:55
  Speaker 1: Banks have a lot more levers and a lot more
• 4:57
  Speaker 1: drivers to revenue than they did when all they did
• 4:58
  Speaker 1: was make loans and and collect deposits. So in a
• 5:02
  Speaker 1: world where it's post Glass Stiegel, we think this actually
• 5:06
  Speaker 1: is a period of time for banking upgrades. Given the
• 5:08
  Speaker 1: increased capital positions and having looked at what's happened to
• 5:12
  Speaker 1: bank stocks in the last week, they're all hit new
• 5:15
  Speaker 1: fifty two week lows. Have you been buying. We've been well,
• 5:18
  Speaker 1: we've been in the market buying the bank stock, the position,
• 5:21
  Speaker 1: and we're we're neutral on banks stocks right now, but
• 5:24
  Speaker 1: we're finding other opportunities. I liken it to kids in
• 5:27
  Speaker 1: a candy store and Saturday morning cartoons. That sounds pretty good.
• 5:31
  Speaker 1: Thank you so much for being with us kids in
• 5:33
  Speaker 1: a candy store. Perhaps for you kids in a guitar store,
• 5:36
  Speaker 1: but we won't go there. Greg Han is President and
• 5:39
  Speaker 1: Chief Investment Officer of Winthrop Capital Management, based in Indianapolis,
• 5:43
  Speaker 1: but joining us here in our eleven three oh studios
• 5:46
  Speaker 1: in New York, We're gonna stay in the sort of
• 6:04
  Speaker 1: circle around perhaps the top executive of the United States
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  Speaker 1: that is now landing in the court system, with Russia
• 6:13
  Speaker 1: in particular in focus. Let's talk about alleged alleged Russian
• 6:17
  Speaker 1: operative Maria Maria Boutina, who was not initially cooperating with
• 6:23
  Speaker 1: federal prosecutors but now is pleading guilty. So let's start
• 6:27
  Speaker 1: with who is Maria Boutina and why is her guilty
• 6:31
  Speaker 1: plea important joining us as Richard Khan, managing partner at
• 6:34
  Speaker 1: eur Asia Advisors in New York, which focuses on Russia
• 6:38
  Speaker 1: and and banking in Russia. He has a ton of
• 6:40
  Speaker 1: experience working in Russia with Russian businesses, Richard, So let's
• 6:45
  Speaker 1: start there about Maria Puttina, Well, in terms of who
• 6:49
  Speaker 1: she is, she has been identified as basically a Russian
• 6:54
  Speaker 1: agent who did not disclose herself as such. And uh
• 7:00
  Speaker 1: she apparently um and will learn more about it was
• 7:03
  Speaker 1: being utilized by Russia too, both influence the n A
• 7:09
  Speaker 1: and its positions, and possibly act as a resource to
• 7:14
  Speaker 1: you know, direct funding two different political groups, perhaps through
• 7:19
  Speaker 1: the n r A. So she is a really a
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  Speaker 1: treasure trove for our security forces in the United States
• 7:27
  Speaker 1: to try to figure out how Russia operates in this area,
• 7:30
  Speaker 1: the subtlety of their activities with different organizations, the n
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  Speaker 1: r A being the one that's now been identified, but
• 7:36
  Speaker 1: there may be others. And uh, so she's a very
• 7:39
  Speaker 1: significant resource for us. What do you believe the Russian
• 7:45
  Speaker 1: leadership is thinking or feeling based on this news, Well,
• 7:51
  Speaker 1: based on that particular news, I'm sure they're pretty unhappy.
• 7:55
  Speaker 1: They don't want their spycraft to be revealed. I also
• 7:59
  Speaker 1: think they do not wish people in the United States
• 8:04
  Speaker 1: to wake up to the level of subtle interference in
• 8:09
  Speaker 1: our politics and in our institutions. That takes place by
• 8:13
  Speaker 1: utilizing already existing and embedded organizations to both influenced by
• 8:20
  Speaker 1: argument and also through money our political process. UH. In
• 8:25
  Speaker 1: other words, I think what this is going to lead
• 8:27
  Speaker 1: to is people recognizing that this huge scandal we're living through,
• 8:31
  Speaker 1: this nightmare, is not just about Trump and people around him.
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  Speaker 1: It potentially has far broader implications. So Maria Bottina is
• 8:40
  Speaker 1: set to plead guilty to conspiring to act as an
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  Speaker 1: agent of the Kremlin aside from the n R A
• 8:46
  Speaker 1: who who has not yet been named, may get kind
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  Speaker 1: of wrapped up in this as more information trickles out.
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  Speaker 1: Given what I've seen in terms of how Russia operates
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  Speaker 1: in other locations, including within its own country UH, I
• 9:01
  Speaker 1: would be surprised if we are not UH in the
• 9:04
  Speaker 1: US already investigating UH cash flow going through religious institutions.
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  Speaker 1: I think that is a classic device used by Russia.
• 9:15
  Speaker 1: Religious organizations UM have various special protections in the United States,
• 9:22
  Speaker 1: very difficult to attack them to get information about them.
• 9:27
  Speaker 1: These types of charitable organizations and foundations are a prime
• 9:31
  Speaker 1: resource for UH, for Russian intelligence and other areas, and
• 9:35
  Speaker 1: it's a It's a very difficult area to uh uh
• 9:40
  Speaker 1: to fight against because one can always make the argument, look,
• 9:44
  Speaker 1: you know, we we share the perspectives of Russia on
• 9:47
  Speaker 1: particular social issues, and so all we're doing is we're
• 9:50
  Speaker 1: advancing our own agenda. So finding the line between basically
• 9:55
  Speaker 1: becoming an agent of some sort of Russia in terms
• 9:59
  Speaker 1: of advancing it's agenda and only advancing, if you will,
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  Speaker 1: the the value system of a particular organization is not
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  Speaker 1: an easy one to find. That's again why the subtlety
• 10:09
  Speaker 1: is so effective. Um, and I do think we're going
• 10:12
  Speaker 1: to find in a long term that that money has
• 10:15
  Speaker 1: flown through that way. Do you believe that this is
• 10:17
  Speaker 1: going to complicate the already complicated and fraught relationship between
• 10:23
  Speaker 1: the United States and Russia? Or is the relationship already
• 10:26
  Speaker 1: gone to a point where you know, nothing can make
• 10:29
  Speaker 1: it even worse. Well, you know, with the bombers landing
• 10:34
  Speaker 1: in Venezuela, obviously things can always get worse. Tell people
• 10:37
  Speaker 1: about this. This is about aircraft, so a Russian aircraft
• 10:41
  Speaker 1: that have been transferred to Venezuela that are capable of
• 10:43
  Speaker 1: carrying nuclear weapons. Sure, this has echo is obviously of
• 10:47
  Speaker 1: the Cuban missile crisis, when Russia placed nuclear what was
• 10:51
  Speaker 1: trying to place nuclear weaponry very close to us in
• 10:54
  Speaker 1: the Caribbean. This is further away. Venezuela is a lot
• 10:56
  Speaker 1: further away than Cuba. On the other hand, that they
• 10:59
  Speaker 1: now have jets that can travel twice the speed of sound. Um,
• 11:02
  Speaker 1: and so it's never a comfortable thing to have bombers
• 11:06
  Speaker 1: that are capable of carrying nuclear weapons in such proximity. So, yeah,
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  Speaker 1: this is Russia's way of one signaling some uh, disappointment
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  Speaker 1: in Trump's view that he wants to withdraw from the
• 11:17
  Speaker 1: I n F. It's also more directly an analogy to
• 11:21
  Speaker 1: the situation in Ukraine, where um, from the Russian perspective,
• 11:25
  Speaker 1: we're interfering in their backyard and we've been supplying weaponry
• 11:29
  Speaker 1: there and Russians are saying, well, fine, you know we
• 11:32
  Speaker 1: we can once again come into the Caribbean and let
• 11:35
  Speaker 1: you know how it feels. I'm wondering, just in light
• 11:39
  Speaker 1: of the rising tensions, in the rising awareness of Russia's
• 11:44
  Speaker 1: influence in US elections, what does that mean from your
• 11:48
  Speaker 1: perspective for the elections? Does that mean that we're actually
• 11:51
  Speaker 1: going to be more protected because people are going to
• 11:54
  Speaker 1: be more aware of these influences. Well, quite honestly, I
• 11:58
  Speaker 1: am concerned about it. I think there are various levels
• 12:01
  Speaker 1: to it. Uh. I do think people are hopefully going
• 12:04
  Speaker 1: to be more aware that the information that they're receiving
• 12:09
  Speaker 1: uh may have been influenced by a non US party.
• 12:13
  Speaker 1: What type of information just give us a sense. Well,
• 12:16
  Speaker 1: for example, if they see advertising taking place or messaging
• 12:20
  Speaker 1: on Facebook or any other social media platforms. Uh, these organizations,
• 12:25
  Speaker 1: meaning the social media platforms are stepping up and trying
• 12:28
  Speaker 1: to do more to protect us from that or at
• 12:30
  Speaker 1: least identify the sources. But I think people are more
• 12:33
  Speaker 1: savvy now about the risk of that, So in that
• 12:36
  Speaker 1: in that one area, I'm a bit more hopeful. Uh.
• 12:40
  Speaker 1: I do worry that we need to be much more
• 12:43
  Speaker 1: aggressive and hardening our defensive capabilities at the accounting of votes,
• 12:49
  Speaker 1: the registering of votes. UH, Russians or should never be
• 12:53
  Speaker 1: underestimated in their capabilities when it comes to essentially cyber
• 12:58
  Speaker 1: crime if if they want to do that. Uh. Obviously
• 13:02
  Speaker 1: most of defense is trying to get people not to
• 13:04
  Speaker 1: want to attack you. But we are in a mode
• 13:07
  Speaker 1: now where I do view that as an ongoing risk
• 13:11
  Speaker 1: in our state systems. Many of them are antiquated, and
• 13:14
  Speaker 1: I'm not confident that the current administration has a particular
• 13:19
  Speaker 1: incentive to do all it can to harden those assets.
• 13:23
  Speaker 1: Give you about twenty seconds. Current business practice as you
• 13:26
  Speaker 1: know it is it hardened to the point where it
• 13:28
  Speaker 1: can defend itself and repel attacks from state sponsored cyber attacks.
• 13:35
  Speaker 1: When when I've seen no, I think it's an ongoing battle.
• 13:39
  Speaker 1: We see cyber attacks constantly, both from state actors and
• 13:42
  Speaker 1: perhaps even more uh, you know, frighteningly from non state actors. Certainly,
• 13:46
  Speaker 1: one thing the Russians are concerned about and want to
• 13:48
  Speaker 1: talk to us about is safeguarding, for example, nuclear codes
• 13:53
  Speaker 1: and stockpile of worrying about the non state actors. Uh.
• 13:57
  Speaker 1: At least when we're dealing with China and Russia, we
• 14:00
  Speaker 1: have responsible people we can talk to. Thank you very
• 14:02
  Speaker 1: much for being one of them. Much appreciated. Richard Kahn
• 14:05
  Speaker 1: is managing partner for Eurasia Advisors. There's a growing kind
• 14:29
  Speaker 1: of groundswell of complaint that there was a real estate
• 14:33
  Speaker 1: law passed at the end of last year that is
• 14:36
  Speaker 1: basically giving kickbacks to some key political figures joining us now,
• 14:41
  Speaker 1: as Caleb Melby, financial investigations reporter for Bloomberg News, we
• 14:46
  Speaker 1: are talking about these opportunity zones. Can you just start
• 14:50
  Speaker 1: by telling us what those are? When it was passed
• 14:53
  Speaker 1: and why? Sure? Yeah, they were part of President Trump's
• 14:57
  Speaker 1: November tax bill. And basically how they work is is UH,
• 15:02
  Speaker 1: governors get to choose of there are sensibly poor census
• 15:07
  Speaker 1: tracks um, UH to get a suite of very generous
• 15:12
  Speaker 1: tax benefits. And UH. Specifically, if you sell an asset
• 15:16
  Speaker 1: and you invest the capital gains into one of these zones, UM,
• 15:20
  Speaker 1: you get to defer your capital gains. If you hold
• 15:22
  Speaker 1: it for at least seven years, you get up to
• 15:23
  Speaker 1: a permanent discount on those capital gains. And most importantly,
• 15:28
  Speaker 1: if you hold the new asset for at least a decade,
• 15:31
  Speaker 1: you pay no capital gains on that when you sell.
• 15:34
  Speaker 1: So it's a really good deal for people who can
• 15:36
  Speaker 1: make this work. UM. But as we and others have
• 15:39
  Speaker 1: been drilling into what places have been selected, some of
• 15:42
  Speaker 1: these zones look less poor than others. And of course
• 15:45
  Speaker 1: there's a lot of people around the President himself who
• 15:49
  Speaker 1: seemed to be let's just say, early movers to take
• 15:52
  Speaker 1: advantage of these designations. Well, yeah, that that's where the
• 15:56
  Speaker 1: next question is what about the ethical consideration and about
• 16:00
  Speaker 1: who gets to participate in these zones and their relationship
• 16:05
  Speaker 1: with the lawmakers or the president that had something to
• 16:08
  Speaker 1: do with all this. Yeah, well that's exactly it. So,
• 16:11
  Speaker 1: so two people that uh that stick out are Kushner
• 16:15
  Speaker 1: Companies UM, owned by the family of presidential son in
• 16:19
  Speaker 1: law and senior advisor Jared Kushner UM. And then another
• 16:22
  Speaker 1: early mover is Anthony Scaramucci whose Skybridge Capital is looking
• 16:26
  Speaker 1: to take advantage of this as well. When you say
• 16:29
  Speaker 1: early mover, what do you mean exactly? So, yeah, right now,
• 16:34
  Speaker 1: Treasury is still finalizing rules for opportunity zones, and a
• 16:37
  Speaker 1: lot of investors are really scared to make investments based
• 16:41
  Speaker 1: solely on what they perceived to be the tax benefits
• 16:45
  Speaker 1: right now. But to take full advantage of the tax benefits,
• 16:48
  Speaker 1: you also need to make your moves before December of nineteen.
• 16:52
  Speaker 1: So the fact that people buying large haven't been investing
• 16:55
  Speaker 1: yet and are still waiting for those rules to come down,
• 16:57
  Speaker 1: but people who are closer to the administration are making
• 17:00
  Speaker 1: these moves early while rules are still being finalized is
• 17:03
  Speaker 1: causing concern for some people, Caleb, Is there any understanding
• 17:06
  Speaker 1: as to why the rules have to be so complicated?
• 17:14
  Speaker 1: It does seem to harken back to a certain type
• 17:16
  Speaker 1: of policy making made popular in the nineties nineties and
• 17:20
  Speaker 1: moving into the early two thousands, where you have these
• 17:24
  Speaker 1: broad societal problems under investment in poor communities. UM. But
• 17:29
  Speaker 1: rather than trying to create, UM, some sort of government
• 17:31
  Speaker 1: programs to grapple with this, we're basically going to try
• 17:34
  Speaker 1: and incentivize participants in the market to solve these problems
• 17:38
  Speaker 1: for us. Just to push back a little bit, has
• 17:41
  Speaker 1: this idea been floated before President Trump came to office?
• 17:45
  Speaker 1: In other words, was this something that was a popular
• 17:48
  Speaker 1: cause on a bipartisan level earlier? Well, it's certainly. Uh,
• 17:52
  Speaker 1: It's seen previous iterations. The most recent example to the
• 17:57
  Speaker 1: opportunity zone would be enterprise zones that existed beforehand. And yes,
• 18:01
  Speaker 1: the language that went into the tax bill did have
• 18:04
  Speaker 1: bipartisan support, so uh, um it was actually UM. One
• 18:08
  Speaker 1: person who worked really hard to pitch it UM was
• 18:10
  Speaker 1: Sean Parker, the Facebook investor UM, and he worked closely
• 18:14
  Speaker 1: with Tim Scott, the Republican Senator from South Carolina. Um.
• 18:18
  Speaker 1: But then another backer was Corey Booker, the Democratic senator
• 18:21
  Speaker 1: from New Jersey. And is it worth noting that any
• 18:25
  Speaker 1: time you have a tax advantaged investment, in this case
• 18:29
  Speaker 1: having to do with opportunity zones and real estate, that
• 18:32
  Speaker 1: ultimately the US taxpayer ends up subsidizing this in the
• 18:37
  Speaker 1: form of lost tax revenue. Yeah, that's exactly it. And um,
• 18:44
  Speaker 1: in terms of talking about alleviating poverty spurring investment, um, Uh,
• 18:50
  Speaker 1: I can tell you We've been talking to a lot
• 18:52
  Speaker 1: of developers, a lot of investors, a lot of lawyers.
• 18:56
  Speaker 1: The the idea of alleviating poverty is uh. I mean
• 19:01
  Speaker 1: most people want to do Yeah, they want to do it,
• 19:04
  Speaker 1: but it's it's not what they're they're they're devoting their
• 19:07
  Speaker 1: energy what they professionally do. But Caleb, I mean, just
• 19:11
  Speaker 1: to be clear here, the issue is the first mover aspect.
• 19:16
  Speaker 1: The key is can inside executives or officials represent elective
• 19:21
  Speaker 1: officials representatives use information that they have, uh, that other
• 19:26
  Speaker 1: people do not have to make investments that will inevitably
• 19:29
  Speaker 1: be lucrative. Well, and again we should be clear. So
• 19:32
  Speaker 1: so Jared Kushner's lawyers and representatives say he's had nothing
• 19:36
  Speaker 1: to do with the family business since taking office. Anthony
• 19:39
  Speaker 1: Scaramucci famously was only part of the administration for ten days.
• 19:43
  Speaker 1: He's somebody who uh surrounds the White House but is
• 19:48
  Speaker 1: not part of it. Um so so the idea that
• 19:52
  Speaker 1: we there's no sense that there's actual like insider information
• 19:57
  Speaker 1: is anybody who would listen to the show popularly understands it,
• 20:00
  Speaker 1: just just so much as a familiarity and a confidence
• 20:03
  Speaker 1: around the tax advantages with with this aspect of the
• 20:07
  Speaker 1: tax lock. Thanks very much for being with us. Always
• 20:10
  Speaker 1: a pleasure, and thanks for explaining all this. Caleb Melby
• 20:13
  Speaker 1: is our financial investigations reporter for Bloomberg News. You can
• 20:17
  Speaker 1: follow him on Twitter as we all do at Caleb Melby,
• 20:21
  Speaker 1: m E. L. B Y. I want to bring in
• 20:38
  Speaker 1: Greg Han. He is the president and the chief investment
• 20:41
  Speaker 1: officer for Winthrop Capital Management. They are based in Indianapolis,
• 20:44
  Speaker 1: but he joins us here in studio. Greg, thank you
• 20:47
  Speaker 1: very much for being here. Let's go right to the
• 20:49
  Speaker 1: idea of leverage loans and what does the leverage loan
• 20:52
  Speaker 1: market tell you right now? Right now, the leverage loan
• 20:55
  Speaker 1: market is probably the biggest source of fear in the
• 20:58
  Speaker 1: bond market. We are on the run end potentially of
• 21:01
  Speaker 1: a change in the credit cycle, and we expect that
• 21:03
  Speaker 1: to express express itself through the leverage loan market. Traditionally
• 21:08
  Speaker 1: it would go through the banking sector, but a lot
• 21:10
  Speaker 1: of that's been pushed into the market now. So what
• 21:13
  Speaker 1: does that mean? So UM products like business development corporations
• 21:18
  Speaker 1: and commercial clos um collateralized loan obligations are are at
• 21:24
  Speaker 1: they have a different risk profile. They use that as
• 21:26
  Speaker 1: their collateral, and if it starts to deteriorate, we'll see
• 21:29
  Speaker 1: deterioration in those products. But I meant if this is
• 21:32
  Speaker 1: sort of the epicenter of the next problem in credit markets,
• 21:36
  Speaker 1: how does that unfold? What does that look like? It
• 21:38
  Speaker 1: starts with restructuring of the underlying loans. So the small
• 21:41
  Speaker 1: business that does alone it's a highly leveed loan, UH
• 21:44
  Speaker 1: can't make its its interest payment because of rising interest
• 21:47
  Speaker 1: rates or covenant breach, and so it needs to restructure
• 21:51
  Speaker 1: that loan. If that happens ten times inside of one
• 21:54
  Speaker 1: of these pooled products, then that that that's a source
• 21:57
  Speaker 1: of deterioration and that impacts the products ability to pass
• 22:01
  Speaker 1: cash flow onto its investor. Having said that our current
• 22:05
  Speaker 1: investors getting paid for the risks they are taking. So
• 22:09
  Speaker 1: I would say, given the increase in volatility that we're
• 22:12
  Speaker 1: experiencing right now, yes, However, if you look at two
• 22:15
  Speaker 1: thousand and eighteen with the low spread volatility and low
• 22:18
  Speaker 1: volatility the equity market leading up to the fourth quarter,
• 22:21
  Speaker 1: then that was really that was really the question is
• 22:23
  Speaker 1: are really compensated for the risk? And then I would
• 22:25
  Speaker 1: say no, it's only when we see increased volatility and
• 22:28
  Speaker 1: these price adjustments as really the price of risk readjusting
• 22:32
  Speaker 1: itself in the marketplace right now, now we look at
• 22:35
  Speaker 1: it and say, yeah, we're we're compensated. All right, Greg,
• 22:38
  Speaker 1: I want to widen out a little bit because you
• 22:39
  Speaker 1: just recently put out your outlook for next year, and
• 22:44
  Speaker 1: let's just start with the first line. There's no other
• 22:47
  Speaker 1: way to say it. The financial position of the United
• 22:49
  Speaker 1: States is a disaster. So what does that mean? I mean,
• 22:52
  Speaker 1: are we headed toward an imminent recession or deterioration? Is
• 22:57
  Speaker 1: it going to happen in the first quarter of the
• 23:00
  Speaker 1: Earth quarter? What's your what's your forecast here? No, so
• 23:03
  Speaker 1: we are not forecasting a recession, We're forecasting an economic slowdown.
• 23:06
  Speaker 1: In the second half of two thousand nineteen. But that
• 23:09
  Speaker 1: that first sentence was really encapsulated a bigger thesis we
• 23:13
  Speaker 1: have that our form of democracy and our form of
• 23:15
  Speaker 1: capitalism are evolving. That's not a political statement, it's just
• 23:19
  Speaker 1: for us to really understand how do you how do
• 23:21
  Speaker 1: you invest in today's market relative to years ago. We
• 23:25
  Speaker 1: have to look at it and say, wait a minute,
• 23:26
  Speaker 1: this this, this democracy is evolving. And look what's going
• 23:29
  Speaker 1: on over in Europe with with Italy, Britain, France, Germany,
• 23:33
  Speaker 1: all of these governments are going through some form of chaos.
• 23:36
  Speaker 1: Ours is just we've we've spent a lot of money
• 23:39
  Speaker 1: since the financial crisis to get this economy moving at
• 23:43
  Speaker 1: a time when we're growing, but we're running huge budget deficits.
• 23:46
  Speaker 1: That all turns into debt, all right, So if that
• 23:49
  Speaker 1: turns into debt, does it ever have to be repaid?
• 23:52
  Speaker 1: That is a great question. I I I honestly don't
• 23:56
  Speaker 1: think it does. I think I'm waiting for Wall Street
• 23:58
  Speaker 1: to come up with the uh, the vision for how
• 24:01
  Speaker 1: we turn all of this into one great, big, zero
• 24:03
  Speaker 1: coupon bond on the Fed's balance sheet, and and it
• 24:06
  Speaker 1: it never becomes a problem. But well, so, Greg, what
• 24:08
  Speaker 1: does this mean in terms of how you position your investments.
• 24:11
  Speaker 1: What's been the biggest change you've made recently to your
• 24:15
  Speaker 1: actual investing portfolio. So we've made a couple of changes.
• 24:18
  Speaker 1: The we've been we've been moving this whole period of
• 24:22
  Speaker 1: time has been the up and quality trade in the
• 24:23
  Speaker 1: bond portfolios, and um so now we're seeing we're actually
• 24:26
  Speaker 1: seeing just more opportunities. Spreads widen a lot of this
• 24:29
  Speaker 1: Leasa's technical. We expect there was heavy supply coming into December.
• 24:33
  Speaker 1: We expect that to slow down. But with the increase
• 24:36
  Speaker 1: in spread, volatility, the decline and interest rates, it spreads widen.
• 24:39
  Speaker 1: When you say up in quality, does that mean investment
• 24:41
  Speaker 1: grade over high yield? Does it mean a over triple B?
• 24:45
  Speaker 1: I mean, what are you talking about? Most of the
• 24:46
  Speaker 1: market now is triple B. But it really means that
• 24:48
  Speaker 1: we're moving up towards the higher end of triple B
• 24:50
  Speaker 1: into single A. We like the banking sector. Here's the paradox.
• 24:54
  Speaker 1: The Yeld curve inverts, right, So everyone thinks that banks
• 24:58
  Speaker 1: should lose money, but remember this is post Glass Stiegel.
• 25:01
  Speaker 1: Banks have a lot more levers and a lot more
• 25:03
  Speaker 1: drivers to revenue than they did when all they did
• 25:05
  Speaker 1: was make loans and and and collect deposits. So in
• 25:09
  Speaker 1: a world where it's post Glass Stiegel, we think this
• 25:12
  Speaker 1: actually is a period of time for banking upgrades, given
• 25:15
  Speaker 1: the increased capital positions and having looked at what's happened
• 25:18
  Speaker 1: to bank stocks in the last week, they're all hit
• 25:21
  Speaker 1: new fifty two week lows. Have you been buying We've
• 25:24
  Speaker 1: been while we've been in the market, buying the bank
• 25:27
  Speaker 1: stock the position, and we're we're neutral on banks stocks
• 25:30
  Speaker 1: right now, but we're finding other opportunities. I liken it
• 25:33
  Speaker 1: to kids in a candy store and Saturday morning cartoons.
• 25:36
  Speaker 1: That sounds pretty good. Thank you so much for being
• 25:38
  Speaker 1: with us kids in a candy store. Perhaps for you
• 25:42
  Speaker 1: kids in a guitar star, but we won't go there.
• 25:44
  Speaker 1: Greg Han is President and Chief Investment Officer of Winthrop
• 25:47
  Speaker 1: Capital Management, based in Indianapolis, but joining us here in
• 25:50
  Speaker 1: our eleven three oh studios in New York. Thanks for
• 25:58
  Speaker 1: listening to the Bloomberg an l podcast. You can subscribe
• 26:02
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 26:05
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
• 26:09
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo wits
• 26:13
  Speaker 1: one before the podcast. You can always catch us worldwide
• 26:16
  Speaker 1: on Bloomberg Radio