Latest / Bloomberg Intelligence / Pound Sinks As Market Comes To Grips With Hard Brexit

Transcript

Pound Sinks As Market Comes To Grips With Hard Brexit · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you
• 0:05
  Speaker 1: along with my co host Lisa Brahma Wicks. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Let's take a look at the
• 0:22
  Speaker 1: currency markets. Sterling down one percent today, uh lois and
• 0:28
  Speaker 1: concerns about a hard Brexit. What does it mean for
• 0:31
  Speaker 1: Sterling and other currencies around the world. We welcome our
• 0:34
  Speaker 1: next guest, Dr wind Thin, Global head of Currency Strategy
• 0:37
  Speaker 1: of Brown Brothers Harriman. Uh he's on the phone with this,
• 0:40
  Speaker 1: Dr Thin, thanks so much for joining us. First, just
• 0:43
  Speaker 1: want to get your thoughts on Sterling here. Where do
• 0:45
  Speaker 1: you think this thing goes given what appears to be
• 0:50
  Speaker 1: increasing odds for a hard Brexit. Ali, first of all,
• 0:53
  Speaker 1: thanks for having me on. So is a pleasure. Look,
• 0:56
  Speaker 1: we're getting the first signs out of the new worst
• 0:58
  Speaker 1: Johnson government, and to me, the signs are not good.
• 1:01
  Speaker 1: That it's a lot of tough talk. He's saying October
• 1:04
  Speaker 1: thirty one, Do or die is so on and so on,
• 1:06
  Speaker 1: And you know they're talking about um doing away with
• 1:10
  Speaker 1: the Irish backstop, but that's a deal breaker for the
• 1:12
  Speaker 1: EU is not gonna go agree to that. So to me,
• 1:16
  Speaker 1: the u K is negotiating from position of weakness. And
• 1:20
  Speaker 1: so these threats that it's gonna be a heartbreakting PLoud?
• 1:23
  Speaker 1: Is it they really meaningless? Um that the EU has
• 1:25
  Speaker 1: already said, Uh, it's pretty much non negotiable at this point. Um.
• 1:30
  Speaker 1: So to me, I think markets coming to grips with Yes,
• 1:33
  Speaker 1: the heartbreaks, it is becoming more and more likely. So
• 1:35
  Speaker 1: what's the downside, Like, what's going to be the floor
• 1:37
  Speaker 1: here for these fears? I'm sorry with the floor? Yeah?
• 1:41
  Speaker 1: So how low can we go for sterling? Oh boy, well,
• 1:44
  Speaker 1: look that's a tough question. I take this take things.
• 1:47
  Speaker 1: You know, it's sort of a weak or a month
• 1:49
  Speaker 1: at a time. That's we think the March low March
• 1:53
  Speaker 1: two thousand seventeen low from on ten's next big target.
• 1:56
  Speaker 1: Let's get there and see what happens. You know, you
• 1:58
  Speaker 1: have some people out there calling with pair dy with dollars.
• 2:00
  Speaker 1: I think that's getting a little far ahead of itself.
• 2:02
  Speaker 1: But look, the only thing I will say is that
• 2:04
  Speaker 1: that the Bank of England did a scenario analysis last fall.
• 2:07
  Speaker 1: Was accused of being a scaremongering, but um, you know
• 2:10
  Speaker 1: that they called for I think somewhere between ten drop
• 2:13
  Speaker 1: and sterling eight percent contraction in GDP in the case
• 2:18
  Speaker 1: of heart Brexit. Look, it's just one scenario, but you know,
• 2:21
  Speaker 1: I think it's sort of any one's guess is as
• 2:23
  Speaker 1: good as anyone others. But let me just say this
• 2:25
  Speaker 1: that Sterling would be would be definitely sold on on
• 2:27
  Speaker 1: a heart brexit. So dr Sin. We have the FED
• 2:31
  Speaker 1: going to announce their decision on Wednesday, We've got the
• 2:34
  Speaker 1: Bank of England, the Bank of Japan also weighing in
• 2:38
  Speaker 1: over the near term. Given that this we're getting, this
• 2:41
  Speaker 1: global reduction in rates, is now the time to be
• 2:45
  Speaker 1: taking a harder look at emerging markets? Well, I've been
• 2:48
  Speaker 1: very cost on emerging markets for most this year, you know,
• 2:52
  Speaker 1: for variety of reasons. So to me, you know, the
• 2:55
  Speaker 1: liquidit story is obviously very positive for e m Um.
• 2:58
  Speaker 1: You know, the zero rates most the world getting lower,
• 3:01
  Speaker 1: the fedback on the cutting bandwagon, um, and so that
• 3:04
  Speaker 1: gives you a national bid for for instance, for emerging
• 3:07
  Speaker 1: market fixed income, you know they're one of the highest
• 3:09
  Speaker 1: yielding assets UM, but if you look at the currency
• 3:12
  Speaker 1: and equity markets, that liquidity story just isn't enough. The
• 3:15
  Speaker 1: global growth stories what's lacking. We've got an ongoing trade
• 3:18
  Speaker 1: war between US and China that's really killing the regional
• 3:21
  Speaker 1: Asian exporters Korea, Taiwan, Malaysia, etcetera. UM, emerging market equities
• 3:27
  Speaker 1: that have underperformed the developed market equities this year. UM.
• 3:31
  Speaker 1: And that's again we're missing a global growth stories. I
• 3:34
  Speaker 1: AM have just recently cut its global growth forecast again
• 3:36
  Speaker 1: warning about the impact of the global trade wars. So
• 3:41
  Speaker 1: you know it to me E MS a mixed bag.
• 3:43
  Speaker 1: I would say fixed income it looks positive from the
• 3:47
  Speaker 1: equity story, but equities and fixed in I'm sorry, and
• 3:51
  Speaker 1: FX are are I think are negative from the global
• 3:53
  Speaker 1: growth story. Here's what I truly don't get, and that's
• 3:55
  Speaker 1: sort of what the dollar is gonna do. So if
• 3:58
  Speaker 1: we just pretend that we get what the market seems
• 4:00
  Speaker 1: to expect point cut from the Fed on Wednesday, maybe
• 4:04
  Speaker 1: sort of, and then we're gonna wait and see how
• 4:06
  Speaker 1: the data pans out. What happens to the dollar. Un
• 4:10
  Speaker 1: that's a good point. Look the to me, I think
• 4:13
  Speaker 1: the person I think the FEDS kind of painting itself
• 4:15
  Speaker 1: from the corner. If you if you close your eyes
• 4:18
  Speaker 1: and said, okay, you told me where the economy is going,
• 4:20
  Speaker 1: with the John's report, where the retail sales are going,
• 4:22
  Speaker 1: and you kind of ignored everything what the FED has
• 4:24
  Speaker 1: been saying, you would say, well, what, of course we're not.
• 4:27
  Speaker 1: We're not cutting race. But the FED has pants stuff
• 4:29
  Speaker 1: in the corner. It tilted device just in the US
• 4:32
  Speaker 1: data was getting better. So to me, it's it's sort
• 4:35
  Speaker 1: of promised this point. But I agree with what your
• 4:39
  Speaker 1: assessment is that we're inna wait and see period. I
• 4:41
  Speaker 1: don't think the FED would be wise to precommit to
• 4:44
  Speaker 1: any further easing given how strong the economy looks right now.
• 4:47
  Speaker 1: We're getting two percent growth to point one percent growth
• 4:49
  Speaker 1: in Q two. That's been prety much trend growth um
• 4:52
  Speaker 1: for the US UM. So the markets I think are
• 4:57
  Speaker 1: overestimating the Fed's capacity of the cut rates. If you
• 4:59
  Speaker 1: look the January FED funds contract, it's still implying nearly
• 5:05
  Speaker 1: three cuts this year, and given what's going on coming,
• 5:08
  Speaker 1: I just don't think that's gonna happen. So once the
• 5:10
  Speaker 1: hopefully the markets recalibrate the FED easy expectations, that should
• 5:14
  Speaker 1: be the next leg higher for the dollar. I remained
• 5:16
  Speaker 1: dollarish just on the underlying strength of the US economy
• 5:20
  Speaker 1: uh and sort of my outlook for FED policy as
• 5:22
  Speaker 1: a result, Dr Winton, thank you so much for joining us.
• 5:26
  Speaker 1: As always. Dr Thani is a global head of currency
• 5:28
  Speaker 1: strategy for Brown Brothers Harriman here in New York. Here's
• 5:46
  Speaker 1: a news flash for you. I may buy an iPhone.
• 5:49
  Speaker 1: I have an iPhone five s E. You know how
• 5:51
  Speaker 1: small that phone is. I may buy one, and Apple
• 5:54
  Speaker 1: definitely wants me to. The company reporting after the closing
• 5:56
  Speaker 1: bell tomorrow expected to make about fifty three billion dollars
• 6:00
  Speaker 1: in sales. Joining US now is Dan, I was Managing
• 6:03
  Speaker 1: director Equity Research at Wedbush Securities. Was a twelve month
• 6:06
  Speaker 1: price target of two thirty five and an outperform rating.
• 6:10
  Speaker 1: Dan no doubt Apple is going to make a lot
• 6:12
  Speaker 1: of money. Is it going to be enough? Look? I
• 6:15
  Speaker 1: think this is just another proved me period for Cook
• 6:19
  Speaker 1: and Cupertino to really show that iPhone demand is stable,
• 6:23
  Speaker 1: to slightly improve and going to his next cycle, especially China,
• 6:27
  Speaker 1: China of all iPhone upgrades. That's going to be the
• 6:31
  Speaker 1: key focus this quarter. We continue think it's gonna be
• 6:33
  Speaker 1: a ho home quarter. That's another step in the right direction. So, Dan,
• 6:37
  Speaker 1: I think if you know, if you're an Apple shareholder today,
• 6:40
  Speaker 1: you have to feel pretty confident that this company can
• 6:43
  Speaker 1: make the big, big pivot from being an iPhone story
• 6:48
  Speaker 1: to being one of services, subscription fees and things like that. Um,
• 6:53
  Speaker 1: how confident are you that this company can make that
• 6:55
  Speaker 1: that pivot? Look, we're confident, and ultimately so the core
• 7:00
  Speaker 1: of our both thesis on the name because iPhones take
• 7:03
  Speaker 1: a step back, three million iPhones in the window of
• 7:06
  Speaker 1: an upgrade opportunity over the next twelve eight months. But
• 7:09
  Speaker 1: the monetation of services, that's the golden goose, and today
• 7:12
  Speaker 1: it's only fiftcent penetrated. And in our opinion four hundred
• 7:16
  Speaker 1: billions to four and fifty billion of the valuation of Apple.
• 7:20
  Speaker 1: Is the services business well fair? But that's not going
• 7:24
  Speaker 1: to be like this quarter or the next quarter, right,
• 7:26
  Speaker 1: So I feel like we've been waiting for the big
• 7:27
  Speaker 1: replacement cycle for a long time. Is it going to happen?
• 7:31
  Speaker 1: Is it going to happen? This year. Is it going
• 7:32
  Speaker 1: to happen with the shift of five G, Like, what's
• 7:34
  Speaker 1: going to be the actual trigger for the volume of
• 7:37
  Speaker 1: phones that we're gonna have to see Apple Cell? Sure,
• 7:39
  Speaker 1: it's a great question. I think five G is going
• 7:42
  Speaker 1: to be the silver bullet catalyst in terms of the
• 7:45
  Speaker 1: core upgrade opportunity. But in between now and then, I
• 7:49
  Speaker 1: think you'll see stable hundred eighty million to two indred
• 7:52
  Speaker 1: million type of iPhone unit years. And if they're able
• 7:55
  Speaker 1: to do that with services being amid to high team grower,
• 7:58
  Speaker 1: this is a stock that continues to get rerated in
• 8:01
  Speaker 1: our opinion, makes new highs. And that's why right now
• 8:03
  Speaker 1: many yelling fire in a crowded theater on Apple, whereas
• 8:07
  Speaker 1: the stock that continues to grind higher, I think to
• 8:09
  Speaker 1: China overhang has been a twenty impact in the stock.
• 8:15
  Speaker 1: So Dan just recently uh app, I think last week
• 8:18
  Speaker 1: actually Apple bought Intel's or announced they're gonna buy Apple's
• 8:21
  Speaker 1: Intel's phone business. What's the strategy behind that acquisition? That's
• 8:26
  Speaker 1: all about five G. That's them doubling down on five G.
• 8:29
  Speaker 1: Intel back was against the wall in terms of ever
• 8:33
  Speaker 1: since the Apple qual Calm truth, Intel that business was
• 8:38
  Speaker 1: basically for sale. They got on the cheap and this
• 8:40
  Speaker 1: is really cook an Apple doubling down on five G
• 8:44
  Speaker 1: going into this next massive cycle. In our opinion, it
• 8:47
  Speaker 1: was a smart acquisition and ultimately was a cheap price.
• 8:50
  Speaker 1: So what do you think it's gonna So how we
• 8:53
  Speaker 1: set up because usually, like the typical play was Apple's
• 8:56
  Speaker 1: going to guide low and then surprise hi and you
• 8:59
  Speaker 1: get that nice boot. That's no longer really the playbook
• 9:01
  Speaker 1: into Apple earnings. So what can we expect when the
• 9:04
  Speaker 1: stock is already treating it to nine to ten? Yeah,
• 9:06
  Speaker 1: I think this setup is an inline quarter with a
• 9:11
  Speaker 1: beat on services. Really what the street needs. The big
• 9:14
  Speaker 1: focus will be about the September quarter guidance and just quote,
• 9:19
  Speaker 1: we'll call it qualitatively how the company is thinking about
• 9:23
  Speaker 1: iPhone demand going into the next year. But the biggest
• 9:26
  Speaker 1: number is gonna be China. You need to see the
• 9:28
  Speaker 1: China iPhone number. We stabilize to show some sort of
• 9:33
  Speaker 1: slight uptick relative to a you know, we'll quote an
• 9:36
  Speaker 1: improving decline. That's really the key because ultimately Apple stock
• 9:41
  Speaker 1: is going to go up and down with China of
• 9:44
  Speaker 1: iPhone units. And I think there's many out there that
• 9:46
  Speaker 1: I think the anti Apple, call it pro Huaweian China
• 9:51
  Speaker 1: nationalist movement had been a huge negative on iPhone styles,
• 9:54
  Speaker 1: and that's gonna be key for them to show that
• 9:57
  Speaker 1: that's not the case. So Dan, as a reformed and
• 10:01
  Speaker 1: rehabilitating media analysts here, I've often said that exactly. I've
• 10:06
  Speaker 1: often said that, you know, as Apple pivots to more
• 10:08
  Speaker 1: of a services company, they should really think about the
• 10:11
  Speaker 1: content business. And I know they've dipped their toe in
• 10:14
  Speaker 1: the past in terms of creating some content, acquiring some content,
• 10:17
  Speaker 1: but really jumping into the deep end. And I look
• 10:19
  Speaker 1: on the balance sheet with billion dollars in cash, do
• 10:22
  Speaker 1: you think envision over the next several years that we
• 10:25
  Speaker 1: might see Apple make a big content acquisition somewhere along
• 10:28
  Speaker 1: the line. Yeah, that's really been our call. Our call
• 10:31
  Speaker 1: is for coments typically been shy of M and A
• 10:35
  Speaker 1: outside of Beats over the last five years, that they're
• 10:38
  Speaker 1: going to have to signfically acquiring content. I think they
• 10:41
  Speaker 1: do go into deep end the pool on a larger
• 10:43
  Speaker 1: content acquisition. You know, we've talked about meter studios like
• 10:47
  Speaker 1: MGM showny four in terms of ones that can look
• 10:51
  Speaker 1: at I also think it's important when you look at
• 10:53
  Speaker 1: the Intel that was an acquisition a billion dollars. I
• 10:56
  Speaker 1: think it just shows that you're starting to see applicat
• 10:59
  Speaker 1: a lot more equissive. I think contents next step that's
• 11:02
  Speaker 1: key to putting fuel in that content engine on the
• 11:04
  Speaker 1: services side, with that launch coming up later this fall.
• 11:08
  Speaker 1: Is that really Apple's m O I mean, and something
• 11:10
  Speaker 1: I get because they're trying to vertically integrate their business,
• 11:12
  Speaker 1: so they just do it themselves rather than like outsource,
• 11:14
  Speaker 1: if that makes sense. But content is just such a
• 11:17
  Speaker 1: cash burn, I mean, is that really something that they're
• 11:20
  Speaker 1: equipped to get into. That's probably one of the biggest
• 11:25
  Speaker 1: debates in the name because ultimately on the services side,
• 11:28
  Speaker 1: they even lad to the game versus Election, Netflix, Disney
• 11:31
  Speaker 1: and you know it's called streaming vendors. But that is
• 11:36
  Speaker 1: really what they need to further monetize, and that's really
• 11:39
  Speaker 1: going to be a proved me situation for Apple on
• 11:41
  Speaker 1: the content side. But I also view it just step
• 11:44
  Speaker 1: away from content, it's also as a distribution. If you
• 11:47
  Speaker 1: think about what they're really trying to do now with
• 11:49
  Speaker 1: this next services pieces, distribution monetization put further fence around
• 11:55
  Speaker 1: the one point four billion active iOS devices to date.
• 11:59
  Speaker 1: That's the key for Apple and that continues to be
• 12:02
  Speaker 1: the key of the evaluation. It's the install basis to
• 12:04
  Speaker 1: molonization the services. No doubt that's approved me, especially on
• 12:09
  Speaker 1: the streaming side as that continued to be a crowded space.
• 12:13
  Speaker 1: Uh Dan. Cash on the balance that I mentioned about
• 12:15
  Speaker 1: two five billion UM, what do you expect them to do?
• 12:18
  Speaker 1: I'm looking at the dividend yields about one point five percent.
• 12:21
  Speaker 1: What do you expect them to do with that cash?
• 12:23
  Speaker 1: Are they gonna give it back to shareholders perhaps in
• 12:25
  Speaker 1: a more aggressive way, Well, they've probably about being cash
• 12:28
  Speaker 1: on neutral where they're basically given that away through whether
• 12:32
  Speaker 1: it's bad backs for dividends. I think dividends are going
• 12:34
  Speaker 1: to keep that one in half, and I think there's
• 12:37
  Speaker 1: been pressure for them maybe to go up there a
• 12:39
  Speaker 1: quote above two bread and keeping it in the short
• 12:42
  Speaker 1: of suitets about one and a half percent divid and
• 12:44
  Speaker 1: yields key. I think by backs is ultimately going to continue,
• 12:47
  Speaker 1: and ultimately it's really gonna be M and A that's
• 12:49
  Speaker 1: gonna be the trifactor strategy. And I also do think
• 12:52
  Speaker 1: investors have started to get a bit frustrated because the
• 12:55
  Speaker 1: buy back strategy and dividends. It's obviously great for income
• 12:59
  Speaker 1: investors and David investors in any way to see it,
• 13:01
  Speaker 1: but you really want to drive growth here, and when
• 13:03
  Speaker 1: you look at M and A, that's the key. And
• 13:05
  Speaker 1: you know, work at Microsoft. Microsoft's company for many years
• 13:09
  Speaker 1: didn't do M and A. Then they started to get
• 13:10
  Speaker 1: aggressive and Alton, when you look at Lincoln and some
• 13:12
  Speaker 1: of the others, there have been some of the genius
• 13:15
  Speaker 1: acquisitions that Nadella has pulled off. Dana, I have thank
• 13:18
  Speaker 1: you so much for joining us once again. Dan is
• 13:20
  Speaker 1: a managing director equity research for What Bush Securities. Joining
• 13:23
  Speaker 1: us on the phone from New York City taking a
• 13:25
  Speaker 1: look at Apple. Time to check in with Bloomberg Opinion.
• 13:42
  Speaker 1: We're joined by Bloomberg Opinion columnist Max Neeson. Max covers biotech,
• 13:46
  Speaker 1: farmer and healthcare for Bloomberg Opinion. He joins us live
• 13:49
  Speaker 1: in our Bloomberg eleven three oh studios. So, Max, we've
• 13:53
  Speaker 1: got another healthcare deal here, give us the latest. Yeah. Absolutely,
• 13:58
  Speaker 1: So this is a deal that combined ends Viser's legacy
• 14:02
  Speaker 1: unit basically all of its drugs that have lost patent
• 14:05
  Speaker 1: production or facing generic competition along with with some other
• 14:08
  Speaker 1: chunks of its business and are and it's kind of
• 14:10
  Speaker 1: innovative novel branded drugs with with Mylin, which isn't a
• 14:15
  Speaker 1: similar business. It makes generics, it makes biosimilar as it
• 14:18
  Speaker 1: has an OTC business as well, And it's basically a
• 14:22
  Speaker 1: move to to kind of separate Viser's higher margin, more
• 14:26
  Speaker 1: rapidly growing business from something that was increasingly becoming a
• 14:29
  Speaker 1: drag on the company and from Mylin. It's an opportunity
• 14:32
  Speaker 1: to kind of turn the page on on four years
• 14:35
  Speaker 1: of kind of continued share price declines, lots of scandals
• 14:38
  Speaker 1: and overexposure to put's been a really tricky U S
• 14:41
  Speaker 1: generic market. This is a bit of a broader business.
• 14:44
  Speaker 1: So for the milind Visor tie up, though, isn't the
• 14:47
  Speaker 1: Myland management still going to be like running the whole
• 14:50
  Speaker 1: show or running the board at least? And isn't that
• 14:52
  Speaker 1: bad because don't we like don't like them? I mean
• 14:56
  Speaker 1: a lot of people don't. But it's they're going to
• 14:58
  Speaker 1: be a majority of the board still the chairman, but
• 15:01
  Speaker 1: but the CEO is going to be a long time
• 15:03
  Speaker 1: fiser fed and also they're they're redomiciling back to the
• 15:07
  Speaker 1: US away from from the Netherlands, where they had kind
• 15:10
  Speaker 1: of this complex and strange corporate governance structure that a
• 15:13
  Speaker 1: lot of people didn't like. So they won't be quite
• 15:16
  Speaker 1: as entrenched. And I think the fact that you know, Fiser,
• 15:19
  Speaker 1: a Fiser executive at the end of the day, is
• 15:21
  Speaker 1: going to be someone leading the company and then CEO,
• 15:23
  Speaker 1: how their brush who has been kind of the nexus
• 15:26
  Speaker 1: of a lot of the controversy is moving on. I
• 15:28
  Speaker 1: think there's a perception that that Fiser is is going
• 15:31
  Speaker 1: to be staring to ship to a certain extent. It's
• 15:32
  Speaker 1: also kind of a bigger chuck at the assets also,
• 15:35
  Speaker 1: So I was reading the Bloomberg intelligence note on this
• 15:37
  Speaker 1: deal and I didn't even know there was this subsector
• 15:40
  Speaker 1: of healthcare, the specialty generic drug sector. So generic doesn't
• 15:45
  Speaker 1: sound good to me. Specialty sounds pretty good to me.
• 15:47
  Speaker 1: So specialty generic is this a market that's even growing
• 15:51
  Speaker 1: or is this just it's not really growing. I just
• 15:52
  Speaker 1: gotta get scale and ring as many costs out as
• 15:54
  Speaker 1: I can. So, Uh, the generic side, it's been basically
• 15:59
  Speaker 1: in free fall for the past few years, just a
• 16:02
  Speaker 1: lot of pricing pressure, kind of these buying consortiums of
• 16:05
  Speaker 1: different people in the healthcare industry kind of combining to
• 16:09
  Speaker 1: to kind of force these these prices. Ever downward specialty
• 16:12
  Speaker 1: there's a little bit more room. You know, different people
• 16:15
  Speaker 1: have a different uh definition of that market, whether it's
• 16:19
  Speaker 1: just particularly complicated generics or or things that are still
• 16:24
  Speaker 1: have you know, a brand, but do face potential generic competition,
• 16:28
  Speaker 1: So that market there's a little more potential for growth.
• 16:30
  Speaker 1: The degree to which this organization is going to this
• 16:33
  Speaker 1: new company is gonna be able to grow as is
• 16:35
  Speaker 1: kind of the big swing factor for its valuation. It's
• 16:38
  Speaker 1: a lot of old drugs from Fiser that are going
• 16:40
  Speaker 1: to decline, but those will kind of have to be
• 16:43
  Speaker 1: encountered by by new generic products, by biosimilars, and by
• 16:49
  Speaker 1: basically just doing everything you can to prop up those
• 16:51
  Speaker 1: sales as long as possible. So at the same time, though,
• 16:53
  Speaker 1: they're gonna have a bazillion dollars in debt, right like
• 16:57
  Speaker 1: dolls in debt, I mean, so that's seams rough if
• 17:01
  Speaker 1: you're an our shareholder of this new company. It definitely
• 17:04
  Speaker 1: does for for Milan actually, which which kind of this
• 17:06
  Speaker 1: says a lot about the position there, and they will
• 17:08
  Speaker 1: be less levered after this, after this steal just because
• 17:13
  Speaker 1: you're you're adding a lot of revenue and EBITDA from
• 17:15
  Speaker 1: from Fiser. Uh, you know, it is a lot of debt.
• 17:18
  Speaker 1: But the nice thing about the specialty to Neeric business
• 17:21
  Speaker 1: it does generate a ton of cash, which is why
• 17:25
  Speaker 1: Fiser was able to attack on some debt and and
• 17:28
  Speaker 1: take twelve billion dollars back out of this steel for
• 17:31
  Speaker 1: for the continuing innovative Fiser company. So it is a
• 17:35
  Speaker 1: lot of debt, but they're still going to be able
• 17:36
  Speaker 1: to pay it down and pay a dividend. It's it's
• 17:39
  Speaker 1: uh not as exciting, but it is highly cash generative.
• 17:43
  Speaker 1: So what does Fiser do now that's a two thirty
• 17:45
  Speaker 1: five billion dollar market cap company. What's the growth story here?
• 17:49
  Speaker 1: It's substantially better than it was prior to uh this
• 17:53
  Speaker 1: when the steel was announced. Now it can kind of
• 17:55
  Speaker 1: focus on medicines that have a longer pack life, have
• 17:59
  Speaker 1: more room to kind of grow and expand as opposed
• 18:01
  Speaker 1: to being saddled with you know, just this year alone Lyrica.
• 18:05
  Speaker 1: It's a pain drug. I'm sure you've seen the ads
• 18:07
  Speaker 1: for it all over the place. That that just lost
• 18:10
  Speaker 1: that just is facing a generic launch. So that's gonna
• 18:12
  Speaker 1: cost them billions of dollars in sales over the next
• 18:14
  Speaker 1: several years and basically wipe out and if they've kept
• 18:18
  Speaker 1: it around, wipe out much of the benefit from from
• 18:20
  Speaker 1: what is going well from any new launches. So this
• 18:23
  Speaker 1: will be a much better looking business from a growth
• 18:25
  Speaker 1: perspective and also a more focused one. It can instead
• 18:29
  Speaker 1: of kind of managing this this beheamoth of of a
• 18:32
  Speaker 1: diversified business. It continues to to narrow the focus on
• 18:36
  Speaker 1: on just putting out new medicines that that will have
• 18:38
  Speaker 1: an opportunity to expand. So what other big companies quickly
• 18:42
  Speaker 1: need to be sold off? Jan j trimmed down. So,
• 18:46
  Speaker 1: Jane J. I think if there's one that's never going
• 18:48
  Speaker 1: to do it, they're the one. They They've they've kind
• 18:52
  Speaker 1: of always made the case that, you know, origin our
• 18:55
  Speaker 1: business works better, we like the stability of having another unit.
• 18:58
  Speaker 1: But I think there's no far of a business out
• 19:00
  Speaker 1: there that won't consider trying to kind of separate out
• 19:04
  Speaker 1: some of their their older medicines, because that really does
• 19:06
  Speaker 1: create a lot of trouble, creates a lot of volatility
• 19:09
  Speaker 1: where you're kind of constantly fighting the battle between new
• 19:12
  Speaker 1: and old medicines. Max Nison, thanks so much. Bloomberg Opinion
• 19:15
  Speaker 1: Columns Max Nis and you can read more on this
• 19:18
  Speaker 1: and other stories from Bloomberg Opinion at Bloomberg dot com,
• 19:21
  Speaker 1: slash Opinion and on the Terminal by typing O P
• 19:24
  Speaker 1: I n Go. Yeah, we want to take a look
• 19:40
  Speaker 1: at the commercial real estate business. We're seeing signs that
• 19:43
  Speaker 1: in certain parts of the country, UH might be softening
• 19:47
  Speaker 1: a little bit. To get the latest, we turned to
• 19:48
  Speaker 1: Tarrell Gates. Tarrell's the chief executive officer of Vertus real
• 19:52
  Speaker 1: Estate Capital with three point four billion dollars and assets
• 19:55
  Speaker 1: under management, based in Austin, Texas. U Tarrell, thanks so
• 19:57
  Speaker 1: much for joining us. I just wonder if we could
• 19:59
  Speaker 1: start off with you giving is just kind of state
• 20:02
  Speaker 1: of the commercial real estate market. Where are we today? Well,
• 20:07
  Speaker 1: we've been in a tenure expansion, just like every other
• 20:10
  Speaker 1: risk asset class out there. Um, we're at all time
• 20:13
  Speaker 1: highs when it comes to valuations, So that gives a
• 20:15
  Speaker 1: lot of people pause. Having said that, UM, we continue
• 20:19
  Speaker 1: to go. We continue to have a very positive environment
• 20:22
  Speaker 1: for commercial real estate investments. And when you look at
• 20:26
  Speaker 1: real estate relative to other risk asset classes like stocks
• 20:29
  Speaker 1: and bonds and private equity and commodities, et cetera. You
• 20:33
  Speaker 1: can say, from a relative beauty perspective, a relative beauty contest,
• 20:37
  Speaker 1: it looks really quite good compared to the other asset classes.
• 20:41
  Speaker 1: So how much of it doing well is because we
• 20:44
  Speaker 1: have low global central bank rates and how much of
• 20:47
  Speaker 1: it is actually the underlying demand and line business is
• 20:50
  Speaker 1: doing really well? You know, it's it's really both, right,
• 20:54
  Speaker 1: So your first point is really important because what's unusual
• 21:00
  Speaker 1: about the current escalated valuations is we don't have a
• 21:05
  Speaker 1: private debt bubble like we've had in the past. When
• 21:08
  Speaker 1: you look at the last several bubbles of commercial real estate,
• 21:11
  Speaker 1: obviously the most recent being the global financial crisis or
• 21:14
  Speaker 1: two thousand six, two thousand seven leading into o A,
• 21:17
  Speaker 1: you know, we had some really aggressive lending standards going
• 21:20
  Speaker 1: on that doesn't exist today. Now. Some would argue we
• 21:24
  Speaker 1: have a bit of an equity bubble which is fueled
• 21:27
  Speaker 1: by a debt bubble on the public sector balance sheet. Right,
• 21:31
  Speaker 1: So the federal government obviously, through all of its easy measures,
• 21:34
  Speaker 1: has levered up its balance sheet, pumped a lot of
• 21:36
  Speaker 1: liquidity into the system, which has driven valuations across all
• 21:41
  Speaker 1: risk asset categories very high. Simultaneously, that liquidity has also
• 21:46
  Speaker 1: influenced demand, so you have a scenario where there is
• 21:51
  Speaker 1: a lot of demand. As you suggest, unemployment is very
• 21:53
  Speaker 1: low GPS growing albeit slower than most people expected to
• 21:57
  Speaker 1: at this particular point in the cycle. Um and have
• 22:00
  Speaker 1: expensive pricing, but all the rest of the fundamentals remain
• 22:03
  Speaker 1: really pretty positive. So Tarah, I know you guys, your firm,
• 22:07
  Speaker 1: you focused on alternative property type investments. Give us a
• 22:10
  Speaker 1: sense of what those given us some examples of what
• 22:13
  Speaker 1: those would look like for you guys. Yeah, absolutely, So
• 22:17
  Speaker 1: we don't invest in what's known as the basic food
• 22:19
  Speaker 1: groups of commercial real estate, which is where about all
• 22:23
  Speaker 1: institutional real estate assets are held, things like multi family
• 22:26
  Speaker 1: and office and industrial and hospitality and retail. Of course,
• 22:31
  Speaker 1: where we focus instead is in property segments that we
• 22:35
  Speaker 1: have found to be resilient during economic downturns, things like
• 22:39
  Speaker 1: health your assets, so that would be senior living, medical, office,
• 22:42
  Speaker 1: and related things like educational assets, student housing, charter schools,
• 22:48
  Speaker 1: early at and then probably our biggest conviction asset class
• 22:51
  Speaker 1: right now is what we call workforce housing. Workforce housing
• 22:55
  Speaker 1: is simply quality, affordable housing for the average US renter.
• 23:00
  Speaker 1: You guys well know, particularly where you're located, we have
• 23:03
  Speaker 1: a housing affordability crisis in this country and for a
• 23:06
  Speaker 1: number of years we've been trying to be part of
• 23:08
  Speaker 1: the solution to that particular crisis, and we think you
• 23:11
  Speaker 1: can deliver attractive risk adjusted returns investing in that space.
• 23:16
  Speaker 1: So you're definitely not alone in particular. You know, I
• 23:18
  Speaker 1: know that KKR is putting a lot of money into
• 23:21
  Speaker 1: specifically things like senior housing. Um, what are valuations like,
• 23:25
  Speaker 1: how have they changed? How much more competition do you
• 23:27
  Speaker 1: have right now? You know, we've seen a lot of
• 23:30
  Speaker 1: new entrants into our categories of the last several years.
• 23:33
  Speaker 1: And bring up KKR. If we took the top ten,
• 23:36
  Speaker 1: the ten largest fund managers in the commercial real estate space,
• 23:40
  Speaker 1: I think about seven of those have made investments in
• 23:43
  Speaker 1: my property types in the last four or five years,
• 23:45
  Speaker 1: which was not the case prior. What it's done is,
• 23:49
  Speaker 1: on one hand, it's really challenging because it's driven valuations higher,
• 23:53
  Speaker 1: as you would imagine, but it's typically valuations in portfolios,
• 23:57
  Speaker 1: So we see portfolio premiums today higher than they've ever been. However,
• 24:02
  Speaker 1: one off deals still art have not grown at the
• 24:05
  Speaker 1: same rate as we've seen portfolio deals, so you can
• 24:09
  Speaker 1: still find value if you will, in the cracks and
• 24:12
  Speaker 1: the crevices. The other thing is is when you look
• 24:15
  Speaker 1: at the big guys when they come into a space,
• 24:19
  Speaker 1: that also, I guess you would say validates the space.
• 24:22
  Speaker 1: It creates more liquidity. So we see far more liquidity
• 24:25
  Speaker 1: when we go to sell assets today, and we are
• 24:27
  Speaker 1: always actively buying and we're always actively selling now typically
• 24:31
  Speaker 1: when we buy, we're buying one off and when we sell,
• 24:33
  Speaker 1: we're selling a portfolio, and we see a lot of
• 24:35
  Speaker 1: liquidity for that for those kind of transactions, more so
• 24:39
  Speaker 1: than we've ever seen in the past. So I think
• 24:42
  Speaker 1: there's a there's a lot of positives despite valuations being
• 24:45
  Speaker 1: impacted with which make it harder to buy but better
• 24:48
  Speaker 1: to sell. Arrol Gates, thank you so much for joining
• 24:51
  Speaker 1: us Terro Gates as chief executive officer for Vertus real
• 24:54
  Speaker 1: Estate Capital based in Austin, Texas, giving us a breakdown
• 24:57
  Speaker 1: of the commercial real estate market. Thanks for listening to
• 25:00
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 25:03
  Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
• 25:06
  Speaker 1: you prefer. I'm Paul Sweeney, I'm on Twitter at pt Sweeney.
• 25:09
  Speaker 1: I'm Lisa abram Woyit's I'm on Twitter at Lisa abram
• 25:12
  Speaker 1: Woits one before the podcast. You can always catch us worldwide.
• 25:15
  Speaker 1: I'm Bloomberg Radio