Latest / Bloomberg Intelligence / Ukraine Is Key to Showing Close Ties From Trump to Russia, Conn Says

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Ukraine Is Key to Showing Close Ties From Trump to Russia, Conn Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Well,
• 0:32
  Speaker 1: we have heard a lot about the Russia investigation that's
• 0:36
  Speaker 1: being led by Special Counsel Bob Mueller. We did get
• 0:40
  Speaker 1: an indictment this week of Paul Manafort and his coworker
• 0:44
  Speaker 1: for a long time Gates. Also, we learned that former
• 0:47
  Speaker 1: President Trump form policy advisor George Papadopoulos pleaded guilty and
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  Speaker 1: is cooperating with the prosecutors here to break this down
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  Speaker 1: and give us some more insights, particularly from the Russian side.
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  Speaker 1: As Richard Khan, managing partner from Eurasia Advisers based in
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  Speaker 1: New York, Richard, always a pleasure to speak with you.
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  Speaker 1: What are we not picking up on with respect to
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  Speaker 1: the indictment and the news that we've gotten this week
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  Speaker 1: that we ought to be focusing on. That's more telling
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  Speaker 1: than perhaps people realize. Well, great to see you again, Lisa,
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  Speaker 1: Thanks for inviting me. The there are a few elements
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  Speaker 1: to it that I don't think are commonly uh known
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  Speaker 1: or thought about. Uh. Then I'll focus on two. One
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  Speaker 1: has to do with the linkage that Mueller is making
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  Speaker 1: in the Maniford indictment to Ukraine, and the second has
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  Speaker 1: to do with the concept of kompamat, which I've spoken
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  Speaker 1: about in the past visa the Ukraine. Uh. You know,
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  Speaker 1: certainly the White House and others are basically saying in defense, look,
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  Speaker 1: this has nothing to do with Russia. But what is
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  Speaker 1: going to come out, because it's certainly true, is that Ukraine,
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  Speaker 1: prior to the Paroshenko period which we're in now, was
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  Speaker 1: under the control of Russia through Yanakovich, who was the
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  Speaker 1: person that Maniford was working for at that time. What
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  Speaker 1: Mueller is going to show is going back all the
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  Speaker 1: way to two thousand six when um Maniford was working
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  Speaker 1: for one of the leading oligarchs of Russia, very close
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  Speaker 1: to Putin, gentleman named de Pasca. He's going to show
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  Speaker 1: a course of conduct on the part of Maniford which
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  Speaker 1: demonstrates very very close ties with Russia, and he's going
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  Speaker 1: to put that context into play of easib Ukraine. It's
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  Speaker 1: going to be one piece in the mosaic that's going
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  Speaker 1: to show the involvement of various people in the White House,
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  Speaker 1: including Trump, with Russia. Uh. You know, it's hard to
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  Speaker 1: think of people in the White House right now that
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  Speaker 1: do not have ties with Russia. So I think it's
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  Speaker 1: important to realize that the that Ukraine is essentially a
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  Speaker 1: code word for Russia in this context, in this indictment,
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  Speaker 1: and that is going to be an easy thing to
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  Speaker 1: show because frankly, everybody in the Russian world is very
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  Speaker 1: well aware of these facts. So the second point to
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  Speaker 1: talk about comes from the plea emon. Uh, there are
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  Speaker 1: all sorts of details in here that are interesting and
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  Speaker 1: that link in the White House of course into um
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  Speaker 1: what I think Trump is called collusion, we can call
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  Speaker 1: a cooperation. Um. Mueller, I think is going to eventually
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  Speaker 1: try to show that that's part of a conspiracy against
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  Speaker 1: the United States. Um. But this is an example from
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  Speaker 1: from my perspective of of clear compromont. Compromont, just to
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  Speaker 1: make clear, what this is about is a situation where
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  Speaker 1: your opponent has information about you that is potentially damaging.
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  Speaker 1: In this case, the FSB knowing about communications that the
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  Speaker 1: Trump campaign had with them that were cooperative trying to
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  Speaker 1: get information that would help the campaign from in this
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  Speaker 1: case a source of may potentially be illegal, such as
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  Speaker 1: the hacking of Clinton's emails. In that situation, If the
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  Speaker 1: other party, in this case, the Trump team, does not
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  Speaker 1: disclose the information, there is a mutual see secret that
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  Speaker 1: you have both sides are aware of an embarrassing fact,
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  Speaker 1: and that constitutes compromentt because it puts the FSB, puts
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  Speaker 1: Russia in a position where they can basically simply be
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  Speaker 1: friendly and say, of course we're not going to disclose it.
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  Speaker 1: We're friends. You think that there is evidence that there
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  Speaker 1: is this kind of compromont, Well, what I'm saying is
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  Speaker 1: the Papadopoulos plea agreement lays out one example of that.
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  Speaker 1: That's I think they'll be far far more of it,
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  Speaker 1: But that is one very tangible example where there is evidence,
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  Speaker 1: sworn testimony, now evidence of meetings that took place. We
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  Speaker 1: have now something that came out to Day in the
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  Speaker 1: paper that it was discussed openly at a meeting with
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  Speaker 1: Trump as well as with other people in his campaign.
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  Speaker 1: That's the type of information that Trump did not want
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  Speaker 1: to have come out in the campaign and still does
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  Speaker 1: not want to have come out in the campaign. And
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  Speaker 1: that's a horrible position for the President of the United
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  Speaker 1: States or for any senior people in our country to
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  Speaker 1: be in. You don't want the FSB having information that
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  Speaker 1: you don't want to have come out. Richard. Do you
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  Speaker 1: think the goal, uh in Moss scale all along was
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  Speaker 1: was it to get a president Trump elected because of
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  Speaker 1: some sort of quid pro quo type of relationship, or
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  Speaker 1: was it disrupt the American political machine just tear America
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  Speaker 1: apart at the seams um And depending on the answer,
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  Speaker 1: do they you know if if you're sitting in Moscow
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  Speaker 1: right now, do you think do you feel like a
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  Speaker 1: winner or do you feel like it's it's backfiring on
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  Speaker 1: them that all this is coming out. Well, Mike, let
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  Speaker 1: me start with this. We and you know your asan
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  Speaker 1: advisors and I certainly don't take a simple view that
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  Speaker 1: Russia is bad. We're good. I mean, obviously Russia has
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  Speaker 1: a side in terms of how it views conduct against
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  Speaker 1: him by the US, by US other Western powers, um.
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  Speaker 1: And and they have some valid points to make. Obviously,
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  Speaker 1: as an American I feel we have far more uh,
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  Speaker 1: legitimacy in our arguments. But ultimately, you know, Russia genuinely
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  Speaker 1: feels that, you know, one, that they have a right
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  Speaker 1: to protect their system. We may not value their more
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  Speaker 1: or less. Uh Uh. You know what I would view
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  Speaker 1: as a dictatorial structure or old World style almost medieval
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  Speaker 1: style structure, but they feel they have the right to
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  Speaker 1: defend that. Uh. They do feel also that we've taken
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  Speaker 1: in the United States and in the West, strong steps
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  Speaker 1: against them with sanctions that they don't feel re appropriate.
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  Speaker 1: They don't think we took into account their positions in
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  Speaker 1: Ukraine when they needed to have their military basis in
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  Speaker 1: Crimea protected from their perspective, because they only had two
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  Speaker 1: bases outside of the country where we had over seven hundred.
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  Speaker 1: So there's they have reasons why they felt they had
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  Speaker 1: to take certain action. Doesn't justify it. But what they
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  Speaker 1: did back in their eyes, not not being the aggressive
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  Speaker 1: that they are clearly punching back in in a way
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  Speaker 1: that they think is not to get gain in my view, revenge,
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  Speaker 1: but to be effective. I think they genuinely wish to
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  Speaker 1: change US policy towards them. I think they operate on
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  Speaker 1: a long term basis seeking assets in Western countries, whether
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  Speaker 1: in the media, whether in politics, to help support them
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  Speaker 1: in this and again, from their perspective, they just want
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  Speaker 1: to be treated fairly. From ours, they're interfering with our
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  Speaker 1: electoral process, and I think that's what happened here. So,
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  Speaker 1: based on what we've learned from the indictments and from
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  Speaker 1: the George Papadopolis plea, it sounds like you think that
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  Speaker 1: there's enough to tie all of this back to President
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  Speaker 1: Trump very clearly in the way that Mueller is expected
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  Speaker 1: to what sort of setting out to do. Well, Look,
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  Speaker 1: each listener will decide at what point they think the
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  Speaker 1: evidence is sufficient to make a showing that at least
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  Speaker 1: we should be viewed the president as someone perhaps it's
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  Speaker 1: untrustworthy in this area. Obviously Congress feels that way. They
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  Speaker 1: passed the sanctions law universually, unanimously, not giving him the
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  Speaker 1: right to alter it to Russia's favor. But Yeah, from
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  Speaker 1: my perspective, I don't have any doubt that having read
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  Speaker 1: the indictment and see the plea agreement, where one of
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  Speaker 1: the directions that Mueller is going in and it's going
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  Speaker 1: to be in my view, this conspiracy against the interests
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  Speaker 1: of the United States at the highest levels of government,
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  Speaker 1: and so for that reason I view it is a
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  Speaker 1: watershed event in the United States history. I don't think
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  Speaker 1: this is a small thing. And ultimately I think now
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  Speaker 1: we are at a point where any objective observer would
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  Speaker 1: would see evidence, at least some evidence now of cooperation
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  Speaker 1: between Russia and the United States, not just what we
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  Speaker 1: just saw come out, but obviously tying that into the
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  Speaker 1: meeting that took place at Trump Plaza, which incidentally, didn't
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  Speaker 1: you know those key emails did not start with the
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  Speaker 1: words Lisa, by the way, I've got fabulous news. Russia
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  Speaker 1: wants to help us. That was missing. And the reason
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  Speaker 1: it's missing, I think we're going to see is because
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  Speaker 1: it was simply part of a course of dealing. Richard Kahn,
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  Speaker 1: I could speak with you all afternoon. Unfortunately we have
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  Speaker 1: to leave it there. Richard Khan, managing partner of Eurasia Advisors,
• 8:44
  Speaker 1: which is based in New York City. It is uncertain
• 9:00
  Speaker 1: time for bonds. What is a bond fund manager to do? Well?
• 9:05
  Speaker 1: Here to tell us is Steve Peacher. He's president of
• 9:07
  Speaker 1: sun Life Investment Management, which oversees about forty four billion
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  Speaker 1: dollars and is based in Wellesley, Massachusetts. He joines here
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  Speaker 1: in our eleven three year studios. Steve, thank you so
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  Speaker 1: much for joining us. You mostly invest in real estate
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  Speaker 1: and debt investments, and I'm wondering what has been the
• 9:26
  Speaker 1: biggest most recent allocation shift. Can you describe it? Uh? Certainly, well,
• 9:31
  Speaker 1: thanks for having me. We um In addition to the
• 9:34
  Speaker 1: money we managed for other institutions, which is forty five billion,
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  Speaker 1: we also manage some life general account which is about
• 9:39
  Speaker 1: a hundred and five billion. So I'll answer that question
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  Speaker 1: relative to the money that we manage for some life
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  Speaker 1: and we've been really been doing two things. One is
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  Speaker 1: at the margin, going up in quality. I don't think
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  Speaker 1: we're scared of these markets, but valuations are tighter, spreads
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  Speaker 1: are tighter, um, real estate valuations are are are higher.
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  Speaker 1: So we're trying. We're kind of modestly called just we
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  Speaker 1: want to have dry powder if markets sell off. We
• 10:02
  Speaker 1: don't know when they will, but at some point they will,
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  Speaker 1: So I would say we're going up in quality a bit.
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  Speaker 1: We've taken our high yield allocations down a bit. How much, UM, Well,
• 10:11
  Speaker 1: they were never huge for us. We tend to be
• 10:13
  Speaker 1: an investment grade buyer UM, but we've I would say
• 10:17
  Speaker 1: we've probably cut them in half UM in the past
• 10:20
  Speaker 1: year or so. Yeah, within the past year, eighteen months UM.
• 10:25
  Speaker 1: We also make heavy use of assets in the private markets,
• 10:28
  Speaker 1: private debt markets. UM. We still find we can get
• 10:30
  Speaker 1: extra yield there without sacrificing quality. So we really want
• 10:33
  Speaker 1: to be cautious about the risk we're taking in this
• 10:35
  Speaker 1: in this market environment. Steve the Treasury Secretary this week
• 10:39
  Speaker 1: came out and said, uh, you know, initially he thought
• 10:42
  Speaker 1: the ultra long bond would be a good idea. Now
• 10:45
  Speaker 1: he's not so sure there's demand. I'm thinking a guy
• 10:47
  Speaker 1: like you might be someone who would take a look
• 10:49
  Speaker 1: at that is. Do you agree with him that there
• 10:51
  Speaker 1: would not be the demand for this UM. I think
• 10:53
  Speaker 1: there'd be a lot of man, Yeah, I mean we
• 10:55
  Speaker 1: were obviously an institution is a life insurance company that
• 10:58
  Speaker 1: needs duration. We have liabilities go off for decades. We're
• 11:01
  Speaker 1: not alone, you know, all TV pension plans need duration,
• 11:05
  Speaker 1: other life codes need duration. And I think that an
• 11:07
  Speaker 1: ultralong bond helps us with that, helps us manage our
• 11:10
  Speaker 1: portfolios in the duration profile. So yeah, I think there
• 11:12
  Speaker 1: would be what kind of yield would you expect, would
• 11:16
  Speaker 1: you know, intrigue you boy, I don't. I don't have
• 11:18
  Speaker 1: a number of throw off the top of my head
• 11:20
  Speaker 1: to say, what does the premium you need for that
• 11:21
  Speaker 1: ultralong bond? I mean, it's it's unusual that in some
• 11:24
  Speaker 1: markets at certain times you actually see marginally lower yields
• 11:28
  Speaker 1: at the very back of the curve because there's so
• 11:30
  Speaker 1: much demand for the the longest duration piece of paper.
• 11:33
  Speaker 1: I don't think that would be the case here, but
• 11:34
  Speaker 1: you do see it, Steve, I talked to a lot
• 11:36
  Speaker 1: of stock bulls and they seem really optimistic about economic growth,
• 11:41
  Speaker 1: and you know, the chance of recession they see being
• 11:44
  Speaker 1: far far out. What's making you cautious right now? Well,
• 11:48
  Speaker 1: it is a Goldilocks scenario right now, and it has
• 11:50
  Speaker 1: been for about you know, eight years' going. Yeah, we've
• 11:53
  Speaker 1: got lower rate, slow in faction, global growth accelerating, high
• 11:56
  Speaker 1: consumer confidence, high business confidence, record consumer net worth. Except
• 12:00
  Speaker 1: for US, it's as much about valuations as anything. You know,
• 12:04
  Speaker 1: Spreads are getting tighter, cap rates in real estate are
• 12:07
  Speaker 1: are getting lower, um p s are getting higher, so
• 12:10
  Speaker 1: you have you have less margin for air if something
• 12:12
  Speaker 1: goes wrong. What scares me the most is I don't
• 12:15
  Speaker 1: know what's gonna go wrong because everywhere you look, things
• 12:17
  Speaker 1: feel very supportive of valuations, but there's less cushion, So
• 12:22
  Speaker 1: incrementally we ought to be the higher, the higher prices go,
• 12:25
  Speaker 1: the incrementally more cautious we think we should be. Recently,
• 12:28
  Speaker 1: black Rock actually downgraded the US credit space UH to
• 12:32
  Speaker 1: neutral for I think, from overweight. Basically talking about the
• 12:36
  Speaker 1: things you're talking about these tight spreads, Um, is that
• 12:39
  Speaker 1: a similar sort of thinking that you have right now?
• 12:42
  Speaker 1: Is it? Is it not so much that the cycle's turning,
• 12:46
  Speaker 1: but it's you know, how how how much tighter can
• 12:48
  Speaker 1: these spreads actually get? Well? I think we, along with
• 12:52
  Speaker 1: almost everyone else in the credit markets, has been talking
• 12:54
  Speaker 1: about the credit cycle, and we've been using a baseball analogy.
• 12:57
  Speaker 1: You know where in the late endings of the credit cycle.
• 12:59
  Speaker 1: The problem is there's no shock. There's no clock in
• 13:02
  Speaker 1: a baseball game. So we may be in the seventh
• 13:04
  Speaker 1: or eighth inning, but these endings can last a long time.
• 13:06
  Speaker 1: Are you going to extra and how long they can? Laugh? Yeah? Exactly,
• 13:09
  Speaker 1: So do you really think seventh or eighth inning of
• 13:11
  Speaker 1: the credit cycle? Um? I think we're in the late
• 13:15
  Speaker 1: innings but I think that as we just talked about,
• 13:18
  Speaker 1: economic fundamentals are really supportive. We've we've been surprised that
• 13:22
  Speaker 1: they've continued to be supportive this long, UM, and I
• 13:25
  Speaker 1: don't it's hard to see that ending anytime soon. UM.
• 13:29
  Speaker 1: So we just don't see tons of value too in
• 13:32
  Speaker 1: the market today, especially I guess across the credit markets.
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  Speaker 1: What about e marging markets, UM, I think that's tightened
• 13:41
  Speaker 1: along with other markets. So I'm not sure that it's um. UM.
• 13:45
  Speaker 1: You know, we see that that's standing out is a
• 13:46
  Speaker 1: great value. But you like investment grade bonds. We focus
• 13:50
  Speaker 1: mainly on investment grade bonds. What about the lowest rated
• 13:52
  Speaker 1: investment grade group bonds? The trip will be because they've
• 13:54
  Speaker 1: been added leverage at a faster pace and their yields
• 13:57
  Speaker 1: have tightened at a faster pace than higher rateed companies.
• 14:00
  Speaker 1: You're right about that, and we we've we're big investors
• 14:03
  Speaker 1: in the triple be part of the rating category, and UM,
• 14:07
  Speaker 1: we've I would say that at the margin, we've been
• 14:09
  Speaker 1: reducing our allocation and triple bees and moving into single
• 14:11
  Speaker 1: A and double A securities. Along with this whole theme
• 14:14
  Speaker 1: about being incrementally cautious. But this is important because it
• 14:16
  Speaker 1: means that you're expected returns going forward are going to
• 14:19
  Speaker 1: be much lower as a result. I would say, we're
• 14:23
  Speaker 1: giving up some incremental yield to to to make that trade,
• 14:27
  Speaker 1: but we feel like that will pay off because if
• 14:29
  Speaker 1: it gives us dry powder down the road, if we
• 14:31
  Speaker 1: get a big widening of spreads, it will be worth it. Yeah. See,
• 14:33
  Speaker 1: there's also been a lot of talk about sort of
• 14:36
  Speaker 1: the deteriorating quality of the covenants out there. Is that
• 14:40
  Speaker 1: something on your your radar? Are you worried about that? Yeah?
• 14:42
  Speaker 1: I am worried about it. I think we definitely see it. Um.
• 14:46
  Speaker 1: You see it in the middle market lending market, certainly.
• 14:49
  Speaker 1: I've had a lot of conversations with private equity investors
• 14:51
  Speaker 1: who are surprised at how loose the terms are they're
• 14:54
  Speaker 1: getting on their deals. You see it in the high market.
• 14:56
  Speaker 1: You see in the leverage loan market. Um. Maybe less
• 14:58
  Speaker 1: so in the investment grade mark it where you tended
• 15:01
  Speaker 1: everything tends to be senior and secured. But that's obviously
• 15:04
  Speaker 1: a sign of late innings, I would I would imagine
• 15:06
  Speaker 1: it's one of the things we look at well. But
• 15:08
  Speaker 1: here's the thing that I'm struggling to understand because with
• 15:12
  Speaker 1: investment grade bonds, you do reduce the credit risk, but
• 15:15
  Speaker 1: you increase the interest rate risk. And at a time
• 15:18
  Speaker 1: where Goldman Sacks Asset Management just came out and said
• 15:21
  Speaker 1: they're expecting the ten year yield to go to three percent, uh,
• 15:24
  Speaker 1: that seems like just as big, if not a bigger
• 15:26
  Speaker 1: risk at a time when all the fundamentals look okay,
• 15:30
  Speaker 1: What do you make of that? Well, when we think
• 15:31
  Speaker 1: about interest rate risk, we think about it relative to
• 15:34
  Speaker 1: our liabilities, and we always stay pretty well matched, so
• 15:37
  Speaker 1: we actually don't think we're taking much interest rate risk
• 15:40
  Speaker 1: because we like to be matched in terms of the
• 15:42
  Speaker 1: duration profile. So it doesn't matter to you. We don't
• 15:46
  Speaker 1: spend a lot of time thinking about whether rates are
• 15:47
  Speaker 1: going up or down because we're well matched. As far
• 15:50
  Speaker 1: as companies go, they look pretty healthy to you. The
• 15:53
  Speaker 1: latest earning cycle makes you feel pretty confident. Earnings have
• 15:56
  Speaker 1: been very strong. I mean they you know, I think
• 15:58
  Speaker 1: you've got capital flow tow companies that needed. Earnings have
• 16:01
  Speaker 1: been strong, The corporate environment feels healthy. The default rates
• 16:04
  Speaker 1: are very low and probably going to go lower in
• 16:06
  Speaker 1: the high old markets. So there's a reason why spreads
• 16:09
  Speaker 1: of this tight right, I mean it's a very healthy environment.
• 16:11
  Speaker 1: Steve Peacher, thank you so much for joining us. Sort
• 16:13
  Speaker 1: of dilemma that we're hearing throughout markets right now as
• 16:17
  Speaker 1: fund managers look at this incredibly high valuations but just
• 16:21
  Speaker 1: don't see anything to really shake them out of wax.
• 16:24
  Speaker 1: Steve Peacher as president of sun Life Investment Management, which
• 16:27
  Speaker 1: oversees I guess almost a hundred and fifty billion dollars
• 16:30
  Speaker 1: in assets including some life uh some Life financials own assets.
• 16:34
  Speaker 1: And he comes to us here at our Bloomberg eleven
• 16:36
  Speaker 1: three our studios, but the firm based in Wellesley, Massachusetts.
• 16:54
  Speaker 1: Later today we are going to be getting a look
• 16:56
  Speaker 1: at Facebook's earning reports tomorrow. Apple big question, can they
• 17:02
  Speaker 1: continue their meteoric, stratospheric whatever adjective you want to use?
• 17:07
  Speaker 1: Can they continue this incredible rally? Joining myself and Mike Regan,
• 17:12
  Speaker 1: Bloomberg Stocks Editor Bloomberg for Bloomberg personality extraordinaire. Uh, finally,
• 17:20
  Speaker 1: finally the title you need, um, I want to bring
• 17:22
  Speaker 1: a Michael Scanlon, a portfolio manager up for Manu Life
• 17:25
  Speaker 1: Asset Management based in Boston, and Michael, you own Apple?
• 17:29
  Speaker 1: You own Facebook? Is there a certain level that these
• 17:34
  Speaker 1: uh companies shares can reach at which point you will sell.
• 17:38
  Speaker 1: Oh good morning and thanks for having me. Uh, you know,
• 17:40
  Speaker 1: there's certainly is a price that will sell any stock
• 17:42
  Speaker 1: in the portfolio. But I think when you look at
• 17:45
  Speaker 1: those two names and some of the other thing names
• 17:47
  Speaker 1: which have obviously drawn a lot of attention on their
• 17:49
  Speaker 1: run the last couple of years, here, you know, they're
• 17:52
  Speaker 1: still all of great secular opportunities in terms of growth,
• 17:55
  Speaker 1: generating a tremendous amount of cash, and we're even returning
• 17:58
  Speaker 1: some of that cast shareholders the last couple of years. Yeah, Michael,
• 18:02
  Speaker 1: as far as that goes, I mean, I'm looking at
• 18:03
  Speaker 1: Apple with one point five percent uh indicated dividend yield.
• 18:07
  Speaker 1: Is are they got to kick that up? Do you think? So?
• 18:11
  Speaker 1: You know, when you when you look at Apple, yes,
• 18:13
  Speaker 1: the dividend yield isn't stated is all that great, But
• 18:16
  Speaker 1: you got to remember that this is a company that
• 18:18
  Speaker 1: kicks off a tremendous amount of cash and buys back
• 18:20
  Speaker 1: roughly thirty five billion dollars of stock every year. That's uh,
• 18:24
  Speaker 1: you know, somewhere in the ballpark of four percent of
• 18:26
  Speaker 1: the company. So when you add that four percent buyback
• 18:29
  Speaker 1: kicker post the dividend of about a point and a half,
• 18:32
  Speaker 1: you know, you're getting kind of a five and a
• 18:34
  Speaker 1: half percent return on the stock before they grow their
• 18:36
  Speaker 1: net income or the multiple potentially gets rerated higher. So
• 18:40
  Speaker 1: from a total capital return story, it's still quite a
• 18:42
  Speaker 1: powerful story there. You know, I'm wondering, is that, in
• 18:46
  Speaker 1: your opinion, the best use of their cash. I mean,
• 18:48
  Speaker 1: I looked at Sony's earnings overnight, uh and tell the
• 18:52
  Speaker 1: high end television sets doing really well for Sony? Is
• 18:55
  Speaker 1: Apple missing the boat on on TV? Well? They They've
• 18:59
  Speaker 1: made an umber of investments there over the years, and
• 19:02
  Speaker 1: if you think back kind of twelve to eighteen months ago,
• 19:05
  Speaker 1: there was the market was hot and some rumors that
• 19:07
  Speaker 1: that that there was a TV coming out very soon,
• 19:10
  Speaker 1: and ultimately that didn't unfold for them. You know, they
• 19:13
  Speaker 1: do have the Apple TV which they offer. You know,
• 19:16
  Speaker 1: really what they're focused on is the services side of
• 19:19
  Speaker 1: the business, which they mentioned a couple quarters ago that
• 19:21
  Speaker 1: they're hoping to double. I would expect that there's you know,
• 19:25
  Speaker 1: something in there in terms of content, one of these
• 19:27
  Speaker 1: skinny bundles or how they actually do it. Um, But
• 19:30
  Speaker 1: you know right now, I don't see them launching a
• 19:32
  Speaker 1: standalone television. So yesterday Facebook announced that they're going to
• 19:37
  Speaker 1: double their security and safety team to twenty people UH
• 19:42
  Speaker 1: in the upcoming year or so. And this is partly
• 19:45
  Speaker 1: in response to what we've been hearing down on Capitol
• 19:49
  Speaker 1: Hill this Stay two of the Tech hearings. How concerned
• 19:53
  Speaker 1: are you about the increased costs associated with self regulation?
• 19:56
  Speaker 1: Forget whether Congress can get its act together to come
• 19:59
  Speaker 1: up with something create from a regulatory standpoint, but they're
• 20:01
  Speaker 1: going to have to spend more. Yeah, So when you
• 20:05
  Speaker 1: look at any of these stalks that we're talking about
• 20:08
  Speaker 1: here today, kind of these fang names, in my mind,
• 20:10
  Speaker 1: the biggest risk to all these names is you know,
• 20:12
  Speaker 1: call it political risk. I mean, if you think back
• 20:14
  Speaker 1: to what Microsoft went through for ten years, the recent
• 20:18
  Speaker 1: settlement that Google just had with the EU in terms
• 20:20
  Speaker 1: of listing their products first and search results, that is
• 20:24
  Speaker 1: the biggest threat. And you know, you would certainly expect
• 20:26
  Speaker 1: that these companies are going to have to spend in
• 20:30
  Speaker 1: order to protect their reputation. Obviously with with this news
• 20:33
  Speaker 1: issue around the election cycle and accepting the advertising dollars
• 20:38
  Speaker 1: from what looks like Russian affiliates. Um, you know they're
• 20:41
  Speaker 1: going to have to continue to spend there to protect
• 20:43
  Speaker 1: their businesses because the last thing they want to do
• 20:45
  Speaker 1: is get caught up in the crosshairs of regulation. Yeah,
• 20:47
  Speaker 1: it's amazing. Adding ten thousand presumably pretty well paid uh
• 20:52
  Speaker 1: security staff. I mean, you put a hundred thousand dollars
• 20:56
  Speaker 1: a year salary on that. Some of them, it's it's conservatively,
• 21:01
  Speaker 1: I mean maybe twinterstouts and you're looking at one or
• 21:02
  Speaker 1: two here, and the stock is up today, so you know,
• 21:05
  Speaker 1: with their earnings growth they have, it seems like there's
• 21:08
  Speaker 1: a lot of margin to to do that. But how
• 21:11
  Speaker 1: do you see the regulatory risks sort of manifesting? Would
• 21:14
  Speaker 1: it be? Is it that basically like an added cost
• 21:18
  Speaker 1: of doing business? Uh? To prevent things like this from happening.
• 21:21
  Speaker 1: Where could you envision to find some sort of any
• 21:23
  Speaker 1: trust issues anything like that. Well, you know, trying to
• 21:28
  Speaker 1: predict what these find their antitrust results could look like
• 21:31
  Speaker 1: it's very difficult. Um. You know, I would say that
• 21:34
  Speaker 1: us that every investor expects that they're going to spend
• 21:37
  Speaker 1: more in terms of preventing these incidents, because obviously there
• 21:40
  Speaker 1: are a reputational hit. Um, so, you know there is
• 21:43
  Speaker 1: an increased cost there. I think when you look at
• 21:45
  Speaker 1: these names have got such strong secular trends and you know,
• 21:49
  Speaker 1: Facebook specifically is going to grow their revenue probably north
• 21:52
  Speaker 1: again this year. Um, So there's tremendous revenue growth there
• 21:56
  Speaker 1: that they can absorb some incremental costs. And you know,
• 21:59
  Speaker 1: when you look at the companies, they still have largely
• 22:01
  Speaker 1: untapped markets that they have, you know, visibility on type
• 22:07
  Speaker 1: revenue growth for a number of years going forward. Michael,
• 22:09
  Speaker 1: real quick, are you adding to your shares of Facebook
• 22:13
  Speaker 1: and Apple? Well, I can't talk about individual trading activity,
• 22:17
  Speaker 1: but you know, I think when you look at these
• 22:18
  Speaker 1: two positions for US, Apples our second the biggest position
• 22:21
  Speaker 1: in the portfolio and has been a holding since two
• 22:23
  Speaker 1: thousand nine, and Facebooks a long term holding for us
• 22:26
  Speaker 1: as well. Michael Scanlon, thank you so much for joining us.
• 22:28
  Speaker 1: Michael Scanlon, portfolio manager for Manu Life Asset Management in Boston.
• 22:34
  Speaker 1: Bullish on Apple, which releases earnings after the bell tomorrow,
• 22:38
  Speaker 1: as well as Facebook, which releases earnings after the bell today,
• 22:41
  Speaker 1: and of course we are going to be talking about
• 22:43
  Speaker 1: the second Day of Tech hearings on Capitol Hill, in
• 22:47
  Speaker 1: particular Al Franken, who had some great comments about rubles
• 22:50
  Speaker 1: uh and add dollars. October auto sales are trickling in.
• 23:06
  Speaker 1: We got a Nissan, We've gotten Chrysler, We've gotten GM,
• 23:10
  Speaker 1: we've gotten Ford. Here to break it all down, explain
• 23:13
  Speaker 1: sort of the tail of two different UH slices of
• 23:16
  Speaker 1: the auto market. Jimmie Butters joins us Now he's US
• 23:18
  Speaker 1: Auto Reporters reporter for Blue Broke News, coming to us
• 23:22
  Speaker 1: from the Detroit bureau. Jamie, they're about half beats and
• 23:26
  Speaker 1: half misses. Can you explain kind of what was under
• 23:29
  Speaker 1: the beats and what was under the beat Mrs Here. Yeah,
• 23:32
  Speaker 1: it's really been a mixed bag, that's for sure. You know.
• 23:36
  Speaker 1: Some of it has to do probably with the fleet sales.
• 23:40
  Speaker 1: They're the large, the bulk sales that are kind of
• 23:43
  Speaker 1: discounted um and can be really lumpy and come in
• 23:46
  Speaker 1: sometimes towards the end of the month. Uh. You know,
• 23:49
  Speaker 1: Nissan's had these really surprising beats the last two months. Uh.
• 23:54
  Speaker 1: They may be doing a little extra fleet action there
• 23:57
  Speaker 1: and they can take some sales from some others, you know,
• 24:00
  Speaker 1: Fiat Chrysler, they've been down for fourteen months in a row. Uh.
• 24:03
  Speaker 1: They as they've discontinued some of their vehicles that really
• 24:07
  Speaker 1: only sold the fleets that weren't very popular with actual
• 24:11
  Speaker 1: uh you know, people who buy vehicles, that's the word
• 24:16
  Speaker 1: for them. Yes. Uh So, you know, they've had a
• 24:19
  Speaker 1: had a long, long, uh streak of declines, but it's
• 24:23
  Speaker 1: actually been a healthier business. We've seen Fiat Chrysler's profits increases.
• 24:27
  Speaker 1: They've become more focused on you know, jeeps and pickups
• 24:31
  Speaker 1: that that people really want to buy. I mean, the
• 24:33
  Speaker 1: one thing that's been a constant throughout the day's results
• 24:36
  Speaker 1: has been demand for full size trucks. They've just they're
• 24:38
  Speaker 1: doing really well. We've seen a lot of construction activity
• 24:41
  Speaker 1: around the country probably also starting to see some people
• 24:44
  Speaker 1: snapping up trucks to do construction and clean up work
• 24:48
  Speaker 1: in places like Texas and Florida. Texas is a huge
• 24:51
  Speaker 1: pickup market. It's the biggest pickup market anywhere, and uh,
• 24:55
  Speaker 1: you know, so a lot of the replacement demand there
• 24:57
  Speaker 1: in Houston is is going to be truck heavy, so
• 24:59
  Speaker 1: that plays play as well for Detroit certainly. Uh Ford
• 25:02
  Speaker 1: F Series sales were very strong. GM had great pickup
• 25:05
  Speaker 1: sales this month. Yeah, j I'm meant to ask you
• 25:08
  Speaker 1: about that. So how how do we read these numbers? UH?
• 25:12
  Speaker 1: Sort of as an indicator of the macro economy. If
• 25:16
  Speaker 1: it sounds like they're very noisy this month with replacement
• 25:21
  Speaker 1: vehicles incentives, this is the time of year when two
• 25:24
  Speaker 1: thousand and seventeen models are discounted. What's the picture looks
• 25:28
  Speaker 1: like internationally? UH is their demand for pickups outside of
• 25:32
  Speaker 1: the US. You know, the full size pickup is really
• 25:36
  Speaker 1: a North American vehicle only it's a it's a U.
• 25:40
  Speaker 1: S and Canada vehicle. It's too big for the roads
• 25:42
  Speaker 1: in most parts of the country. But you know, stepping
• 25:46
  Speaker 1: back on the macro level for the US, right, You're
• 25:48
  Speaker 1: you're right, and it's really noisy results company by company, UM.
• 25:52
  Speaker 1: But what we're seeing overall is as strong demand. It's
• 25:55
  Speaker 1: a it's a good month. You know, probably it might
• 25:58
  Speaker 1: be close to an eighteen million UH pace, which which
• 26:02
  Speaker 1: is very high and almost you know, four hundred thousand
• 26:05
  Speaker 1: units better than than the average estimate. So that might
• 26:09
  Speaker 1: tell us that that they are getting enough vehicles sold
• 26:13
  Speaker 1: through the model your close out that there's not going
• 26:15
  Speaker 1: to need to be as much idling of factories, uh,
• 26:18
  Speaker 1: you know going into the winter months. So that's it's
• 26:21
  Speaker 1: a good sign for the US economy broadly, of course,
• 26:24
  Speaker 1: you know, winners and losers among among the players. But
• 26:27
  Speaker 1: it should mean, you know, pretty it should kind of
• 26:30
  Speaker 1: keep feeding this the GDP growth in the US. Maybe
• 26:34
  Speaker 1: you know, just a couple of months ago, we were
• 26:36
  Speaker 1: talking about how like sales were declining by the double
• 26:39
  Speaker 1: digits this year. All of a sudden, now everything looks great.
• 26:43
  Speaker 1: How much is just simply replacing vehicles that were lost
• 26:46
  Speaker 1: in the multiple hurricanes that have hit the US so far. It's, uh,
• 26:51
  Speaker 1: that's a great question. I've been asking all my all
• 26:53
  Speaker 1: my analyst friends, and and it looks like it's rough
• 26:56
  Speaker 1: kind of half and half maybe maybe a third do
• 27:00
  Speaker 1: a half is really hurricane related, uh you know, replacement
• 27:04
  Speaker 1: of vehicles and then you know, and like I said,
• 27:05
  Speaker 1: sort of this hurricane repair related demand. Um. But the
• 27:10
  Speaker 1: other probably half the two thirds, maybe you know a
• 27:12
  Speaker 1: little more, is really just this they've been carrying too
• 27:16
  Speaker 1: much inventory for a year, maybe almost a year and
• 27:19
  Speaker 1: a half. And you know, GM has some factory downtime
• 27:23
  Speaker 1: as they retool for some some new models. But industries
• 27:27
  Speaker 1: have been carrying a ton of inventory. Demand is you know,
• 27:30
  Speaker 1: has been softening throughout the year. They don't want to
• 27:32
  Speaker 1: go into calendar year eighteen was still seen model year
• 27:36
  Speaker 1: vehicles on their lots. They've got to get rid of them,
• 27:39
  Speaker 1: and they're and they're making that happen. So it's a
• 27:41
  Speaker 1: lot of it is it's kind of some some discount driven,
• 27:44
  Speaker 1: which is what we see at the end of the year,
• 27:46
  Speaker 1: right everyone wants to hit their numbers. You get those
• 27:48
  Speaker 1: Black Friday discounts the December to Remember kind of things. Uh,
• 27:54
  Speaker 1: you know those are gonna get cranking up really soon.
• 27:56
  Speaker 1: Automakers and a lot of you know, consumers have really
• 27:59
  Speaker 1: come to to count on big sales at the end
• 28:02
  Speaker 1: of the year. Jamie Butters, thank you so much for
• 28:05
  Speaker 1: joining us. Jamie Butters, us autos reporter for Bloomberg News,
• 28:08
  Speaker 1: coming to us from Detroit. Mike, what kind of car
• 28:11
  Speaker 1: do you have? You know, I'm primarily a pedestrian, but alright,
• 28:17
  Speaker 1: on the weekend. On the weekend, I'll drive the Twyota Highlander.
• 28:21
  Speaker 1: I'm kind of like the uber for my kids though,
• 28:23
  Speaker 1: that's that's my only driving. I get in we'll we'll
• 28:27
  Speaker 1: be discussing extensively, um the the financials of being an
• 28:31
  Speaker 1: uber for your kids. Thanks for listening to the Bloomberg
• 28:36
  Speaker 1: P and L podcast. You can subscribe and listen to
• 28:39
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 28:44
  Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
• 28:48
  Speaker 1: on Twitter at Lisa abramowits one before the podcast. You
• 28:51
  Speaker 1: can always catch us worldwide on Bloomberg Radio