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The White House's Impact on the Corporate Community · 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
• 0:15
  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. We
• 0:32
  Speaker 1: have spent a lot of time on this program talking
• 0:35
  Speaker 1: about the woeful state that retail is in right now.
• 0:39
  Speaker 1: We have a defender, someone who can explain what's going on,
• 0:42
  Speaker 1: put it into perspective, and argue that perhaps markets have
• 0:46
  Speaker 1: gotten a little over their skis with their hatred of
• 0:49
  Speaker 1: the retail sector. Rick Helfin Fine, thank you so much
• 0:51
  Speaker 1: for joining us. Rick Helfnbine is President, chief executive officer
• 0:54
  Speaker 1: of American Apparel and Footwear Association, which is based in Washington,
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  Speaker 1: d C. And is a cheerleader for these beating up
• 1:02
  Speaker 1: retailers that are seeing so much pain. So let's just
• 1:05
  Speaker 1: start broadly, Rick, why do you think that traders have
• 1:10
  Speaker 1: perhaps gotten a little ahead of themselves with selling some
• 1:12
  Speaker 1: of these shares and bonds of retailers. Well, that's pretty
• 1:16
  Speaker 1: easy to answer. You know, when you hear there's a
• 1:18
  Speaker 1: hurricane warning in Florida and nobody wants to fly down there.
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  Speaker 1: You know, you don't want to fly into an apocalypse.
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  Speaker 1: And people have been talking down on retail for months
• 1:28
  Speaker 1: now and form a whole host of reasons. You know,
• 1:31
  Speaker 1: you go back to two thousand and eight. The first
• 1:33
  Speaker 1: sign of coming out of a recession is a boost
• 1:37
  Speaker 1: in retail sales. And when you see that, which we
• 1:40
  Speaker 1: did in two thousand, retail stocks start flying up because
• 1:44
  Speaker 1: people have a little money in their pocket, they go
• 1:45
  Speaker 1: buy some new clothes and that's that's just the way
• 1:48
  Speaker 1: it works. So now we're in the mature part of
• 1:51
  Speaker 1: the cycle. And the mature part of the cycle is
• 1:55
  Speaker 1: look a look at the numbers. Consumer confidence sixteen year high, gasolene.
• 2:01
  Speaker 1: These are things we look at. Two dollars and forty
• 2:03
  Speaker 1: cents a gallon, Unemployment four point six pc, the GDP
• 2:08
  Speaker 1: at two point six percent. These are all indicators that
• 2:11
  Speaker 1: people are buying. Remember, two thirds of our economy is
• 2:14
  Speaker 1: based on consumer spending. On consumer spending, but that includes
• 2:18
  Speaker 1: consumer spending on services as well as good So there
• 2:20
  Speaker 1: has been a pretty big shift towards services and experiences
• 2:25
  Speaker 1: rather than buying a new outfit, right. I mean, this
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  Speaker 1: has been one big driver of some of the pessimism
• 2:31
  Speaker 1: around retail. That's true, But then you also look at
• 2:34
  Speaker 1: the amount of goods coming into the country and you say,
• 2:37
  Speaker 1: you know, because we can read these import numbers, we
• 2:39
  Speaker 1: can look at domestic manufacturing, we look at the amount
• 2:41
  Speaker 1: of apparel and foot where that's coming in the country.
• 2:44
  Speaker 1: There really hasn't been slowdown. People are buying product. The
• 2:48
  Speaker 1: question is the new shopper, how's the new shopper buying?
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  Speaker 1: And that's what's affecting brick and mortar retail sales. So
• 2:55
  Speaker 1: let's talk about brick and mortar because embedded in a
• 2:57
  Speaker 1: lot of the results that we have been seeing and
• 3:00
  Speaker 1: some of the pessimism is this very uncomfortable period where
• 3:03
  Speaker 1: brick and mortar has to spend a lot of money
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  Speaker 1: to adapt to the online world, to distribution services to
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  Speaker 1: online networks um while also dealing with lower margins on
• 3:17
  Speaker 1: those sales and higher competition from people who can see
• 3:21
  Speaker 1: marketplaces that are more comprehensive. This is what people are
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  Speaker 1: worried about. What do you say to them, Well, the
• 3:28
  Speaker 1: worry is real, but the reality is nobody's walking around naked.
• 3:32
  Speaker 1: I mean really, realistically speaking, today you have to look
• 3:39
  Speaker 1: at who's your customer, you know, that's the big thing.
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  Speaker 1: Who's buying the goods. And the millennial customers age eighteen
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  Speaker 1: to thirty four of them will compare a shop or
• 3:50
  Speaker 1: plan with their phones now will still go on a
• 3:54
  Speaker 1: store to buy. So that's part of what's driving the
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  Speaker 1: price pressure down because there is price comparison. So the
• 4:03
  Speaker 1: market is changing and retailers are adapting. And you know,
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  Speaker 1: I know there was a lot of noise this morning
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  Speaker 1: about foot Locker. You know, maybe they just didn't like
• 4:12
  Speaker 1: what's in the foot Lockers store. But foot Locker is
• 4:15
  Speaker 1: going to do just fine well. But in fairness, we
• 4:18
  Speaker 1: have seen a pretty broad based disappointment when it comes
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  Speaker 1: to athletic where both what you wear when you go
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  Speaker 1: work out as well as what you wear when you
• 4:27
  Speaker 1: want to look like you're working out even if you're not. Um. So,
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  Speaker 1: you know, this is something that is raising concerns that
• 4:33
  Speaker 1: are we seeing the death of ath leisure as one
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  Speaker 1: analyst put it, or you know, what's going on here?
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  Speaker 1: Is this a sea change in the way people shop
• 4:40
  Speaker 1: at an entire industry? Uh? You know, are you saying
• 4:42
  Speaker 1: that you don't expect as many brick and mortar retailers
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  Speaker 1: to go to business as UH are currently kind of
• 4:49
  Speaker 1: talking about it. You get into the numbers. We've had
• 4:52
  Speaker 1: eighteen bankruptcy so far this year, and that would be
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  Speaker 1: in half the year, whereas two thousand and eight we
• 4:58
  Speaker 1: had eighteen for the whole year. So clearly there's a
• 5:02
  Speaker 1: lot of people going out of business. We have too
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  Speaker 1: many stores, that's quite obvious. We have too many malls.
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  Speaker 1: We have fifteen hundred walls at the peak. We have
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  Speaker 1: about eleven hundred walls today. We may have eighties six
• 5:14
  Speaker 1: hundred doors closing this year. But we have too many
• 5:18
  Speaker 1: square foot per person in the United States. And with
• 5:21
  Speaker 1: this size and shift to the internet adjustment. So you
• 5:25
  Speaker 1: said we have eleven hundred malls in the US. Where
• 5:28
  Speaker 1: do you think that number will be five new years
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  Speaker 1: from now? I think a thousand. I think we have
• 5:33
  Speaker 1: been another thousand walls to go to pare down to
• 5:37
  Speaker 1: probably where we should be. We're overmalled, we're overstored, and
• 5:41
  Speaker 1: you have this rise of the Internet. However, keep in
• 5:43
  Speaker 1: mind one thing about the rise of the Internet. It's
• 5:46
  Speaker 1: only eight point five of all the sales. So people
• 5:50
  Speaker 1: are still shopping brick and mortar. That's why I believe
• 5:52
  Speaker 1: the market is clearly oversold in the last week. You know,
• 5:56
  Speaker 1: look at look at people going into the stores. Look
• 6:00
  Speaker 1: at Nordstrom up, look at Target up, look at Walmart up,
• 6:04
  Speaker 1: look at Gap up. So let's not focus on the
• 6:07
  Speaker 1: bid news. Let's assume that all these retailers are going
• 6:10
  Speaker 1: into a period of adjustment and they will come out
• 6:13
  Speaker 1: of it just fine. Nobody's walking around naked. Rick Healfonbyne,
• 6:17
  Speaker 1: thank you so much for joining us. Truly a pleasure
• 6:19
  Speaker 1: to hear what you have to say. Rick Healfnbine is president,
• 6:22
  Speaker 1: chief executive officer at American Apparel and Footwear Association, which
• 6:26
  Speaker 1: is based in Washington, d C. Another share that we
• 6:42
  Speaker 1: are watching today is that of Infocis. That's the I
• 6:46
  Speaker 1: I T company and outsourcing provider who shares fell as
• 6:50
  Speaker 1: much as thirteen percent today, wiping three and a half
• 6:54
  Speaker 1: billion dollars from the company's market value. This came, of course,
• 6:57
  Speaker 1: after it's chief executive officer v Shall seek a resigned
• 7:01
  Speaker 1: even though many had really herald hit him as the
• 7:05
  Speaker 1: driver A lot of a lot of the companies gains
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  Speaker 1: over the past few years. Here to discuss what the
• 7:11
  Speaker 1: road is ahead is anorag Grana. He's our senior analyst
• 7:14
  Speaker 1: of software and I T Services for Bloomberg Intelligence and
• 7:17
  Speaker 1: he joins us in our Bloomberg eleven three oh studios. Now, Anora,
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  Speaker 1: can you just give us a sense of why the
• 7:25
  Speaker 1: CEO resigned and why it's being perceived so negatively by
• 7:29
  Speaker 1: the market. This company has a very interesting history. Prior
• 7:33
  Speaker 1: to Vichal taking over as the CEO, all the you know,
• 7:37
  Speaker 1: older CEOs were founding members of the company, and you know,
• 7:42
  Speaker 1: there was a lot of pressure that the last couple
• 7:44
  Speaker 1: of CEOs didn't do the job as well as uh,
• 7:47
  Speaker 1: you know, other publicly traded companies. So they brought in
• 7:49
  Speaker 1: a new guy that didn't was not a founder uh
• 7:53
  Speaker 1: from SAP. He did a good job. He's done a
• 7:56
  Speaker 1: lot of interesting things in the company since he came over.
• 7:59
  Speaker 1: Employe atriction has dropped, sales has improved, the overall perception
• 8:03
  Speaker 1: of emphasis is also improved in the industry. And then
• 8:06
  Speaker 1: but you know, one of the founding members has always
• 8:08
  Speaker 1: been nudging and bothering the board about you know, constantly
• 8:13
  Speaker 1: interfering with the way he's been running it, so he
• 8:15
  Speaker 1: just got sick of it and said, I'm quitting. So
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  Speaker 1: why did one of the founders do that If he's
• 8:21
  Speaker 1: doing such a good job, if he's created so much
• 8:24
  Speaker 1: market value. It seems a lot like some cultural differences
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  Speaker 1: between the two. Now, remember this is a forty billion
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  Speaker 1: dollar company or around forty billion dollar company without the drop,
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  Speaker 1: and you know a lot of the complaints were, well,
• 8:35
  Speaker 1: why are you paying so much so much? Why are
• 8:37
  Speaker 1: you taking charter jets? How much? Not not him? I
• 8:40
  Speaker 1: mean they had paid you know, the CFO a little
• 8:42
  Speaker 1: bit higher than what the founder thought was appropriate. And
• 8:47
  Speaker 1: it was basically constant interference from these founders as to
• 8:51
  Speaker 1: how the business should be run that made it, you know,
• 8:56
  Speaker 1: you know, made him said that, you know, enough is enough. Well,
• 8:58
  Speaker 1: let's talk a little bit about the business of a process, right,
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  Speaker 1: because right now it is a promising time for a
• 9:05
  Speaker 1: lot of the services that they provide. But they're trying
• 9:07
  Speaker 1: to transfer over to more web services and provide software solutions.
• 9:13
  Speaker 1: Perhaps it is a little bit away from their original wheelhouse, right,
• 9:17
  Speaker 1: Can you give us a sense of what the big
• 9:18
  Speaker 1: challenges are? So if you look at this industry, has
• 9:21
  Speaker 1: been dominated by you know these three or four major
• 9:23
  Speaker 1: companies taught a consulting services in Force, Cognizance, web pro Um,
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  Speaker 1: and all of them do similar kind of products and services,
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  Speaker 1: but the bulk of their revenue comes from a lot
• 9:34
  Speaker 1: of legacy I T work, application maintenance and software development,
• 9:38
  Speaker 1: and the industry is moving more towards artificial intelligence software
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  Speaker 1: oriented tools. And you know this guy at Emphasis his
• 9:45
  Speaker 1: background as he came from SAP, so he has done
• 9:48
  Speaker 1: a lot of new changes ever since he came as
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  Speaker 1: the CEO, which is where the space has to go. Um.
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  Speaker 1: So if the place is kind of commoditized and you
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  Speaker 1: don't have a good leadership, just in this case, and
• 10:00
  Speaker 1: you know in an influsis it might give chance for
• 10:03
  Speaker 1: others to take shared away from the company, which is
• 10:06
  Speaker 1: I think one of the reasons why you see the
• 10:07
  Speaker 1: stocks dropping quite a bit. I see. So in other words,
• 10:10
  Speaker 1: the co founders looking at this company the way he
• 10:14
  Speaker 1: created it, which was providing providing outsourcing services, helping with
• 10:19
  Speaker 1: your company with your company's computer system from AFAR, which
• 10:23
  Speaker 1: is also sort of challenged right now given the HB
• 10:26
  Speaker 1: one visas and the emphasis are not outsourcing as much
• 10:30
  Speaker 1: at least in the US. Right well, publicly they have
• 10:32
  Speaker 1: said that they don't you know, find any fault with
• 10:36
  Speaker 1: his strategy and execution. They are more quite concerned about
• 10:39
  Speaker 1: some of the corporate governance issues. And now, I mean
• 10:41
  Speaker 1: the company has had an investigation to see you know,
• 10:44
  Speaker 1: there were any as there's some visible ragley allegations about
• 10:47
  Speaker 1: a particular acquisition, and they went through as this whole
• 10:50
  Speaker 1: round of um, you know, going through an investigation and
• 10:53
  Speaker 1: they didn't find anything. It is those kinds of issues
• 10:56
  Speaker 1: the founders are more um you know, problematic or issue
• 10:59
  Speaker 1: have issues with rather than the running of the company.
• 11:01
  Speaker 1: What about this idea of this emphasis on a more
• 11:05
  Speaker 1: nationalistic approach to business and how this could affect in
• 11:08
  Speaker 1: persus it. You know, they have said that they will
• 11:11
  Speaker 1: be hiring a lot more people in the US, and
• 11:14
  Speaker 1: that's just part and parcel of what they do. Um.
• 11:16
  Speaker 1: In fact, if you do have to do emerging technologies
• 11:19
  Speaker 1: for your clients, you do need more people on site,
• 11:22
  Speaker 1: which is you know, which is what all of these
• 11:24
  Speaker 1: companies are doing at this point. Um. But the bigger
• 11:27
  Speaker 1: issue in this particular cases, who can come Now? I mean,
• 11:31
  Speaker 1: I mean you really cannot have a non founder is
• 11:33
  Speaker 1: the CEO of a company at this point, because whoever
• 11:36
  Speaker 1: comes will face the same exact scrutiny from the founders.
• 11:39
  Speaker 1: They're going to start looking at every move this person makes,
• 11:42
  Speaker 1: who they hire, what kind of pay goes in. So
• 11:45
  Speaker 1: it's going to be very difficult for them to find
• 11:46
  Speaker 1: a SEEO. At this point. Have the founders said anything, Yeah,
• 11:50
  Speaker 1: they're still complaining. I mean I just saw that there
• 11:52
  Speaker 1: is a there is another letter that they have sent
• 11:55
  Speaker 1: out blasting the board, and I mean they might have to,
• 11:58
  Speaker 1: you know, either either you know, in my my view,
• 12:00
  Speaker 1: either the founders will have to sit down and decide.
• 12:03
  Speaker 1: Either they come and run the way they wanted and
• 12:05
  Speaker 1: they completely rechange the board and the management team and everything,
• 12:08
  Speaker 1: or they get rid of their you know, the stake
• 12:12
  Speaker 1: that they have and then let the let the other
• 12:14
  Speaker 1: shareholders on this company. This is really interesting to me
• 12:17
  Speaker 1: because there's a lot of money at stake, because, as
• 12:19
  Speaker 1: you said, a forty billion dollar company, and clearly the
• 12:22
  Speaker 1: market has retraced some of the losses from earlier. Now
• 12:25
  Speaker 1: the shares are only down only down a little more
• 12:28
  Speaker 1: than eight percent. But you know, you raise a lot
• 12:30
  Speaker 1: of very important issues just about the path forward at
• 12:33
  Speaker 1: a time when this is a very competitive space, when
• 12:36
  Speaker 1: they do have to make a lot of investments and
• 12:38
  Speaker 1: a lot of decisions sooner than later. Uh, and they
• 12:41
  Speaker 1: now are facing a leadership void and a very aggressive
• 12:45
  Speaker 1: co founder. Fascinating story. Ana Grana senior Analystic Software and
• 12:49
  Speaker 1: I T Services here at Bloomberg Intelligence and he joins
• 12:52
  Speaker 1: us in our eleven three oh studios right now. I
• 13:08
  Speaker 1: am so pleased to be speaking with Mike Buchanan, Deputy
• 13:11
  Speaker 1: Chief investment Officer at Western Asset Management. It oversees four
• 13:15
  Speaker 1: hundred and thirty three billion dollars and is based in Pasadena, California. Mike,
• 13:20
  Speaker 1: thank you so much for joining me. I want to
• 13:23
  Speaker 1: focus a little bit on what we've been hearing from
• 13:25
  Speaker 1: a growing number of big asset management firms, which is,
• 13:29
  Speaker 1: we are getting concerned about the overvaluation of US high
• 13:34
  Speaker 1: yield bonds and we are reducing allocations to this debt.
• 13:37
  Speaker 1: Where do you stand on this? Well, first of all, Lisa,
• 13:40
  Speaker 1: thanks for having me on. And yeah, you're right. I
• 13:43
  Speaker 1: mean that's something that um, we we hear a lot
• 13:47
  Speaker 1: from our clients, from consultants, concern that when you look
• 13:51
  Speaker 1: at the corporate credit markets, and it's not just hi
• 13:53
  Speaker 1: yield but investment grade as well. You just look at spreads,
• 13:56
  Speaker 1: you look at yields. Valuations overall seem you know, somewhat compressed.
• 14:02
  Speaker 1: And our view is that, Um, it's not necessarily indicative
• 14:06
  Speaker 1: of a market that's that's over bought or it's certainly
• 14:09
  Speaker 1: not in bubble territory. I think you have to put
• 14:12
  Speaker 1: it in context. You have to think about what is
• 14:15
  Speaker 1: the fundamental backdrop that's supporting these valuations. And it's very
• 14:19
  Speaker 1: important to to marry those two. And when we look
• 14:22
  Speaker 1: at that, what we see our fundamentals that we think
• 14:25
  Speaker 1: are still very strong, Uh, the most part moving in
• 14:28
  Speaker 1: the right direction. Um, And I think you know, valuations uh,
• 14:32
  Speaker 1: certainly not table pounding. We're finding opportunities, and in high
• 14:36
  Speaker 1: yield we're finding opportunities and investment grade. But to be
• 14:39
  Speaker 1: fair back to your question, we have been reducing our
• 14:44
  Speaker 1: our allocations just on opportunity. We're finding some other areas
• 14:48
  Speaker 1: where we think, uh, you have better risk adjusted returns,
• 14:51
  Speaker 1: so skewing our multisector portfolios in that direction. Like where
• 14:55
  Speaker 1: where are you seeing better opportunities? Well, I think, uh,
• 14:59
  Speaker 1: local emerging market, currency, debt is probably our our highest
• 15:04
  Speaker 1: conviction idea right now. UM. And you know it's you
• 15:08
  Speaker 1: think about a world that is where yields scarce. UM.
• 15:12
  Speaker 1: You certainly can get a lot of yield in emerging
• 15:15
  Speaker 1: market local currency debt. UM. And I think there's a
• 15:18
  Speaker 1: lot of macro forces that are that are behind you
• 15:21
  Speaker 1: and should result in some tightening of these spreads or
• 15:24
  Speaker 1: these yields relative to developed market. Um. You're starting to
• 15:28
  Speaker 1: see growth now for the first time and in really
• 15:31
  Speaker 1: three years in Russia and Brazil as an example, positive
• 15:35
  Speaker 1: growth there after two consecutive years of contraction. Uh. Some
• 15:39
  Speaker 1: of the inflationary pressures in those economies UH and and
• 15:44
  Speaker 1: and even broader emerging markets seem to be uh subsidying.
• 15:48
  Speaker 1: It's going to give their central banks a little more
• 15:50
  Speaker 1: flexibility on policy. And UH. You know, I think you're
• 15:53
  Speaker 1: also seeing a little more of a bias towards policy
• 15:56
  Speaker 1: discipline and reform. UH. So we really like take advantage
• 16:00
  Speaker 1: of of a lot of those opportunities. And that's where
• 16:03
  Speaker 1: you know, as we reduce some of these credit positions
• 16:05
  Speaker 1: that I mentioned earlier, that's where a lot of that
• 16:08
  Speaker 1: money is going. In correspondences before this segment. You also
• 16:13
  Speaker 1: noted that a sector specific wager, you're looking at investment
• 16:18
  Speaker 1: grade credit in the financial metals and mining and energy
• 16:21
  Speaker 1: sectors as well as rising star opportunities in high yield.
• 16:25
  Speaker 1: Are there specific names that you're targeting within that rising
• 16:29
  Speaker 1: star category UH that you really believe in strongly? Yeah,
• 16:34
  Speaker 1: I think that's a real interesting trade in high yield
• 16:37
  Speaker 1: right now. You know, people don't look at the the
• 16:40
  Speaker 1: shift and composition UH in terms of ratings in the
• 16:44
  Speaker 1: market UM as much as we think they should right now,
• 16:47
  Speaker 1: and you're definitely seeing less triple c issuance, You're seeing
• 16:51
  Speaker 1: more double b issuance. The double B market within high
• 16:54
  Speaker 1: yield is now the largest portion UH in terms of
• 16:57
  Speaker 1: rating UH category within the high old market, and we
• 17:01
  Speaker 1: think there's an inordinate number of those double bees that
• 17:05
  Speaker 1: we think have a reasonable chance to make it to
• 17:07
  Speaker 1: investment grade within the next year to year and a half.
• 17:10
  Speaker 1: Specific names, yeah, I mean they're they're you know, kind
• 17:13
  Speaker 1: of broad based, but I can throughout, you know, like
• 17:15
  Speaker 1: Haynes Brands is a good example, Park aerospace, even in
• 17:20
  Speaker 1: some of the you know, sectors that seem like they're
• 17:23
  Speaker 1: UH somewhat stressed. You mentioned Metals and Mining, Freeport mcmaran.
• 17:27
  Speaker 1: There on the energy side, Williams Pipeline Company. Uh, there
• 17:32
  Speaker 1: is really I think the bigger message is there's just
• 17:35
  Speaker 1: a very large number of these that our research teams identified,
• 17:38
  Speaker 1: and we think you'll get not only a decent amount
• 17:41
  Speaker 1: of income just from coupon clip there, but you'll also
• 17:44
  Speaker 1: get some total return from spread compression as they make
• 17:48
  Speaker 1: that jump from double B to triple B. Let's talk Tesla.
• 17:52
  Speaker 1: You didn't buy those bonds, did you. Well, we did
• 17:55
  Speaker 1: not participate in that deal. And you know, so it
• 17:57
  Speaker 1: wasn't because it's not a great company, but um, it's
• 18:00
  Speaker 1: really as a fixed income manager. Uh, you know, we
• 18:03
  Speaker 1: saw some things there that just didn't really uh compel
• 18:08
  Speaker 1: us to to to to participate in that deal. Didn't
• 18:11
  Speaker 1: think it offered a lot of relative value, and we
• 18:13
  Speaker 1: thought there were some risks there. But you did go
• 18:15
  Speaker 1: for Amazon. Amazon just sold the sixteen billion dollar offering.
• 18:18
  Speaker 1: Did you even buy the forty year bonds? We did.
• 18:21
  Speaker 1: We We bought Amazon um across most maturities. Uh. And
• 18:27
  Speaker 1: you know, it's interesting at least you look at those
• 18:29
  Speaker 1: two deals on the surface, they look somewhat similar. Um,
• 18:33
  Speaker 1: you know, there are obviously two great companies with tremendous
• 18:36
  Speaker 1: management teams, very proactive vision and in great leadership. The
• 18:40
  Speaker 1: difference being free cash flow generation. Tesla, you know, kind
• 18:44
  Speaker 1: of a different part of its its life cycle, still
• 18:47
  Speaker 1: burning cash, no free cash flow generation. It's going to
• 18:50
  Speaker 1: take at least three years um to get there, and
• 18:53
  Speaker 1: you certainly have execution risk and you know, a little
• 18:56
  Speaker 1: over five percent yield. We thought there were better UH
• 19:00
  Speaker 1: opportunities in the high old market, but you go over
• 19:03
  Speaker 1: to Amazon. Amazon, you know, really a pristine balance sheet.
• 19:07
  Speaker 1: They are generating a lot of free cash flow over
• 19:11
  Speaker 1: ten billion UH per annum by our estimates, great liquidity profile,
• 19:16
  Speaker 1: over twenty billion of cash and liquid securities on the
• 19:19
  Speaker 1: balance sheet. Triple A balance sheet. Even though the ratings
• 19:23
  Speaker 1: are are somewhat odd at B double A one double
• 19:25
  Speaker 1: A minus, we probably think it's closer to a high
• 19:29
  Speaker 1: single A you know, double A type company. So um, yeah,
• 19:32
  Speaker 1: we we really like the Amazon deal. Thought it was
• 19:35
  Speaker 1: priced right and took advantage of that. And Mike, just
• 19:38
  Speaker 1: to give you some kudos, the bonds are trading up
• 19:41
  Speaker 1: in the days after trading, so it seems like others
• 19:44
  Speaker 1: agree with you. I want to ask you about cash holdings,
• 19:46
  Speaker 1: because there have been a series of articles talking about
• 19:49
  Speaker 1: a reduced amount of dry powder or cash in investment
• 19:53
  Speaker 1: grade and high yield bond funds, and I'm wondering where
• 19:55
  Speaker 1: you stand on that and whether you've been also eating
• 19:58
  Speaker 1: into your cash piles in order to take advantage of
• 20:02
  Speaker 1: some of these opportunities. Yeah, I mean, are we we
• 20:05
  Speaker 1: manage our cash in accordance with what we see as
• 20:08
  Speaker 1: opportunity in the market. And yeah, right now, Like I said,
• 20:11
  Speaker 1: that's it's not a table pounder in either investment grade
• 20:14
  Speaker 1: or high yield. So we're operating with, you know, a
• 20:18
  Speaker 1: little bit more cash than maybe we traditionally have, UM
• 20:21
  Speaker 1: to take advantage of you know, maybe pullbacks or some
• 20:25
  Speaker 1: new issue opportunities. Um. But I think the also, I mean,
• 20:29
  Speaker 1: just kind of speaking beyond Western asset management and maybe
• 20:32
  Speaker 1: perhaps looking at some of our competitors, you've had a
• 20:35
  Speaker 1: tremendous amount of investment grade new issuance recently. And it's
• 20:39
  Speaker 1: not just the Amazon deal. You've had uh, some very
• 20:43
  Speaker 1: high profile you know, the A T and T issue
• 20:46
  Speaker 1: and B A T. You know, these are big, big issues.
• 20:49
  Speaker 1: So UM, a lot of that cash has probably been deployed,
• 20:53
  Speaker 1: speaks to the leaner cash positions. Mike Buchanan, Always a pleasure.
• 20:57
  Speaker 1: I love speaking with you. Mike bi canon as deputy
• 20:59
  Speaker 1: Chief Investment Officer for Western Asset Management, which has four
• 21:03
  Speaker 1: d and thirty three billion dollars out of management and
• 21:05
  Speaker 1: is based in Pasadena, California. Always fascinating to hear what
• 21:11
  Speaker 1: looks good and what doesn't for that behemoth money manager.
• 21:27
  Speaker 1: Right now, I am trying to wrap my head around
• 21:29
  Speaker 1: what it means to be a responsible investor and to
• 21:33
  Speaker 1: get a better sense of it from somebody who knows
• 21:35
  Speaker 1: best because he helped found the whole movement. Is John Stroyer,
• 21:39
  Speaker 1: chief executive officer of Calvert Research and Management, which was
• 21:42
  Speaker 1: acquired by Eaton Vance earlier this year and is based
• 21:45
  Speaker 1: in Bethesda, Maryland. John, I was reading some notes earlier,
• 21:50
  Speaker 1: and uh, evidently Calvert helped found this concept, this United
• 21:56
  Speaker 1: Nations Principles for Responsible Investment that now counts seventeen hundred
• 22:01
  Speaker 1: large investors in more than seventy trillion dollars in assets.
• 22:04
  Speaker 1: What does this mean? Great? Well, first of all, thanks
• 22:06
  Speaker 1: for having me on the show and your question, what
• 22:08
  Speaker 1: does it mean to be a responsible investor is a
• 22:11
  Speaker 1: very important one day answer. First and foremost, what it
• 22:14
  Speaker 1: means to be responsible investor is to get the right
• 22:17
  Speaker 1: amount of return for the risk you're taking. Some performance
• 22:19
  Speaker 1: is a big part of what we think about day
• 22:22
  Speaker 1: in and day out. The second big part of our
• 22:24
  Speaker 1: process is understanding how companies are impacting the environment and
• 22:29
  Speaker 1: how companies are impacting society. But again, it's critical that
• 22:33
  Speaker 1: we find the companies that are able to do a
• 22:35
  Speaker 1: great job for people in planet and do it in
• 22:38
  Speaker 1: a way that works for financially motivated investors. So is
• 22:42
  Speaker 1: your job to essentially come up with a framework of
• 22:46
  Speaker 1: what's responsible to give to some of these investors and say, here,
• 22:50
  Speaker 1: if you want to sleep well at night, if you
• 22:52
  Speaker 1: want to feel like you're doing the right thing with
• 22:54
  Speaker 1: respect to human rights, with respect to global warming, with
• 22:57
  Speaker 1: respect to whatever it is that you think is super important,
• 23:01
  Speaker 1: here's a basket of stuff to buy you bet. And
• 23:03
  Speaker 1: the question really is what matters to which companies. In
• 23:06
  Speaker 1: other words, a company that's in the utility sector, we
• 23:09
  Speaker 1: need to really focus on their greenhouse gas emissions, their
• 23:13
  Speaker 1: percentage of power generated from renewable sources, what they're doing
• 23:17
  Speaker 1: visa v fossil fossil fuels, those are very very important
• 23:20
  Speaker 1: considerations a company in the tech sector, it's a different
• 23:23
  Speaker 1: set of issues. We want to understand their ability to
• 23:26
  Speaker 1: create well being for a diverse workforce, their issues around
• 23:30
  Speaker 1: Internet privacy and security. So you said it right. We
• 23:34
  Speaker 1: want to give clients the answers in terms of here
• 23:37
  Speaker 1: are the companies that are really making a positive difference.
• 23:40
  Speaker 1: But it means different things to different companies, and that's
• 23:43
  Speaker 1: where our big research platform and industry leading team of
• 23:47
  Speaker 1: analysts really come into play figuring that all out. Can
• 23:51
  Speaker 1: you give some perspective on how much this sector has
• 23:54
  Speaker 1: grown over the past few years, just in terms of
• 23:57
  Speaker 1: now well, As you said, Calvert was one of the
• 23:58
  Speaker 1: founding signatories of the United Nations Principles Responsible Investing in
• 24:02
  Speaker 1: twenty six. At that time there were thirteen of us
• 24:06
  Speaker 1: representing just a few billions, a few hundred billion dollars
• 24:10
  Speaker 1: in assets. Today, seventeen hundred large investors have signed on
• 24:14
  Speaker 1: seventy trillion dollars um in in assets under management worldwide.
• 24:19
  Speaker 1: But what does that mean? Seventy trillion dollars in assets?
• 24:21
  Speaker 1: Does that mean as far as companies that are adhering
• 24:24
  Speaker 1: to these principles. This is their total a U gasset owners,
• 24:27
  Speaker 1: so large pension funds and other investment management firms who
• 24:31
  Speaker 1: have said this matters. We think it matters to understand
• 24:34
  Speaker 1: how a company is impacting people in the planet in
• 24:38
  Speaker 1: our investment process. But let's talk about it from a
• 24:40
  Speaker 1: financial advisor and a client's perspective. What do we know
• 24:43
  Speaker 1: there today? There's still a pretty big gap between the
• 24:46
  Speaker 1: investors who have put their hands up and said, hey,
• 24:49
  Speaker 1: I'm interested in responsible investing, versus the financial advisors who
• 24:53
  Speaker 1: are comfortable with their level of expertise in talking about it.
• 24:57
  Speaker 1: About seventy three percent of investors and Eaton Van his
• 25:00
  Speaker 1: most recent ATOMICS survey have said that they're really interested
• 25:04
  Speaker 1: and responsible investing, but only about twenty three percent of
• 25:07
  Speaker 1: financial advisors have said this is a meaningful part of
• 25:10
  Speaker 1: my business. So we know that advisors are catching up.
• 25:13
  Speaker 1: They're developing expertise or learning about products and ways to
• 25:16
  Speaker 1: serve these clients. But still, one of the most interesting
• 25:20
  Speaker 1: parts about this movement is its investor lad it's interesting.
• 25:24
  Speaker 1: Uh and and just real quick, you noted before the
• 25:27
  Speaker 1: segment that President Trump has actually given some steam to
• 25:30
  Speaker 1: this movement. Can you just encapsulate that in thirty seconds? Sure.
• 25:34
  Speaker 1: I think we're all looking to companies to solve some
• 25:37
  Speaker 1: of our most pressing social and environmental challenges today, more
• 25:41
  Speaker 1: so than we're looking to the federal government. UM. I
• 25:44
  Speaker 1: could leave it at that, but I'd also observe over
• 25:46
  Speaker 1: the past couple of days, a lot of CEOs have
• 25:49
  Speaker 1: stepped up and said, we're going to disassociate ourselves with
• 25:52
  Speaker 1: these business counsels that the president put put together, and
• 25:56
  Speaker 1: this is part of it. These are these are companies
• 25:58
  Speaker 1: saying we're going to continue to press forward. We're going
• 26:01
  Speaker 1: to work hard to solve the challenges that the population
• 26:05
  Speaker 1: of the United States needs to have solved, environmental challenges,
• 26:09
  Speaker 1: equality challenges, social challenges, and we're going to do what
• 26:15
  Speaker 1: sort of on our own. So I think that the
• 26:17
  Speaker 1: Trump administration has made it clear the companies, more so
• 26:23
  Speaker 1: today relative to government, are responsible for our environmental and
• 26:29
  Speaker 1: social outcomes. Thank you very much, John Stroyer, chief executive
• 26:32
  Speaker 1: officer of Calvert Research and Management, owned by Eaton Vans
• 26:36
  Speaker 1: and based in Bethesda, Maryland. Thanks for listening to the
• 26:41
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 26:44
  Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
• 26:48
  Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
• 26:52
  Speaker 1: I'm on Twitter at Lisa Abramowits one before the podcast.
• 26:56
  Speaker 1: You can always catch us worldwide on Bloomberg Radio