Latest / Bloomberg Intelligence / Eaton Vance’s Gaffney Sees Opportunities In Mexico, Brazil Debt

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Eaton Vance’s Gaffney Sees Opportunities In Mexico, Brazil Debt · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
0:08
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
0:11
Speaker 1: bring you the most important, noteworthy, and useful interviews for
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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 and L
0:20
Speaker 1: Podcast on Apple Podcasts, SoundCloud and Bloomberg dot com. Is
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Speaker 1: there opportunity in emerging market debt? Here to help us
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Speaker 1: understand what's going on is Kathleen Gaffney, co director of
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Speaker 1: Diversified Fixed Income for Eaton Vans, helping to manage more
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Speaker 1: than four hundred billion dollars, of which more than seventy
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Speaker 1: billion dollars is in fixed income assets for customers. She's
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Speaker 1: normally based in Boston, but joins us here in our
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Speaker 1: eleven three oh studios. Kathleen, thank you very much for
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Speaker 1: being here. Make the case for being bullish on emerging
1:02
Speaker 1: market debt? Well, you've got growing populations, very strong growth.
1:10
Speaker 1: We know that China is important to global growth, and
1:14
Speaker 1: their response so far to the trade headlines has been easing,
1:21
Speaker 1: not inflationary monetary easing, opening up the spigots, but directed
1:26
Speaker 1: targeted infrastructure investments and tax cuts. It's the great benefit
1:31
Speaker 1: of command and control. China's growing, continuing to build relationships
1:37
Speaker 1: on the Silk Road. We just saw them, uh support
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Speaker 1: South Africa with funding there and Brazil in the soybean market. Alright,
1:47
Speaker 1: So have you recently been adding to your e M holdings. Well,
1:51
Speaker 1: we've got a fair amount of exposure already, uh, and
1:56
Speaker 1: so on any given day when the dawler is strong,
2:01
Speaker 1: we may add add on there. But in general, were
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Speaker 1: very comfortable with where we're positioned in both Latin America
2:09
Speaker 1: and Asia. Okay, So on those days where the dollar
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Speaker 1: does strengthen meeting, often these emerging market currencies weaken and
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Speaker 1: the the the bonds that are denominated in these local
2:20
Speaker 1: currencies lose value. Which which countries are you targeting specifically?
2:26
Speaker 1: That's a really good question, because it's not that emerging
2:29
Speaker 1: markets are attractive in a broad based way the asset class,
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Speaker 1: because the dollars probably going to see further strength as
2:39
Speaker 1: interest rates go up in the near term, and that's
2:42
Speaker 1: going to be painful for some countries. But Mexico and Brazil,
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Speaker 1: which really got pummeled over the last twelve to eighteen months,
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Speaker 1: partly due to the election here in the US and
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Speaker 1: the concerns about NAFTA and Brazil rightly so with all
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Speaker 1: the corruption, but they are in a counter trend right
3:02
Speaker 1: now because Mexico has actually rallied significantly since the Mexican
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Speaker 1: pas SO since am Lo uh one with a very
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Speaker 1: large mandate, and Brazil also seems to have gotten its
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Speaker 1: footing as well. So those are good examples of two
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Speaker 1: emerging nations that are striving to become more mainstream and
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Speaker 1: serve their populations. Well, is there a confrontation between what
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Speaker 1: investors want in emerging markets, which might be dollar denominated debt,
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Speaker 1: and the ability of emerging markets to actually repay that
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Speaker 1: debt because of the strength of the US dollar for
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Speaker 1: some countries, that is clearly going to be a problem.
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Speaker 1: I think I saw a headline this morning that Venezuela
3:50
Speaker 1: is looking at my my eyes did a double take
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Speaker 1: a million percent in relationship, and that was correct. You know,
3:56
Speaker 1: there's there's a right way to manage economies and there's
3:59
Speaker 1: a wrong way. Let me guess that's the wrong way. Yes,
4:02
Speaker 1: I think so, uh, But that is the key to
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Speaker 1: countries that are doing it right is access to capital
4:12
Speaker 1: is everything is Turkey doing it right. It's going to
4:15
Speaker 1: just ask that Turkey is not doing it right. And
4:20
Speaker 1: those are good examples of where the strong man the
4:23
Speaker 1: autocracy is not working. Uh. And in general that doesn't
4:28
Speaker 1: necessarily work, although what China is doing with command and
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Speaker 1: control is an example of getting it right for now. Okay,
4:37
Speaker 1: So I want to ask about Turkey. It's been a
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Speaker 1: falling knife. And now there was a story on the
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Speaker 1: Bloomberg this morning, uh, talking about one hedge front, Promeritum
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Speaker 1: Investment Management, which is starting to tiptoe into Turkish debt. Wow,
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Speaker 1: your eyes. I wish I could I could show people
4:56
Speaker 1: the look in your eyes of horror. I'm assuming that's
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Speaker 1: not you. I don't have that much confidence yet. And
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Speaker 1: the risk reward overall, how that would impact the multisector
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Speaker 1: Income Fund. It's not it's not a good fit. I
5:16
Speaker 1: can see why, Uh, someone might take that side that
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Speaker 1: there may be maybe limited downside. Turkey is close to
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Speaker 1: the European market. That's important, but I don't see a
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Speaker 1: rationale for air toan reversing course anytime soon. What's your
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Speaker 1: highest conviction contrarian bet right now? Oh? Gee, that's that's
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Speaker 1: a good question. I think it's got to be Brazil,
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Speaker 1: because Brazil doesn't have enough momentum right now. It's going
5:52
Speaker 1: to be an interesting election. We've got some work to do,
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Speaker 1: but there are incentives. Pension reform is very necessary, but
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Speaker 1: doesn't need to be done in the very near turn.
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Speaker 1: So you could see some negative news hit Brazil, but
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Speaker 1: I think longer term, the size of the country, the
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Speaker 1: economy and the population and how important those resources are
6:15
Speaker 1: to the rest of the world. It's going to get there.
6:17
Speaker 1: We have just about twenty seconds left real quick tenure
6:21
Speaker 1: treasury yields. Where are they going to end the year? Really? Oh,
6:27
Speaker 1: who knows, maybe not, maybe not the end of this year.
6:30
Speaker 1: Maybe it'll be the end of the next year. But
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Speaker 1: they're going up, all right. There you go. Kathleen Gaffney,
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Speaker 1: always wonderful having you on. Thank you so much for
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Speaker 1: being here. Kathleen Gaffney is co director of Diversified Fixed
6:40
Speaker 1: Income at Eton Vance. She's normally in Boston, but she
6:44
Speaker 1: swept in here on this lovely rainfall day in New
6:47
Speaker 1: York City to be with us here in our eleven
6:49
Speaker 1: at three oh Studios, three fifty PIM. That's a lot
6:53
Speaker 1: higher than it is now. It's just a fascinating thing
6:56
Speaker 1: right now to think about. Are they going up? Are
6:58
Speaker 1: they going down? Where are we heading? Well, we want
7:14
Speaker 1: to visit with David Garretty. He is the chief executive
7:16
Speaker 1: of g v A Research. They are based in wonderful Brooklyn,
7:20
Speaker 1: New York, and you can follow David on Twitter as
7:22
Speaker 1: we all do at g v A Research. Al Right,
7:26
Speaker 1: g v A Research, we want to know about Facebook?
7:29
Speaker 1: What do you believe investors want to know about? When
7:33
Speaker 1: the company reports results after the close, people are gonna
7:36
Speaker 1: look at one metric primarily, which is what's the growth
7:39
Speaker 1: going to be in terms of their daily and monthly
7:42
Speaker 1: active users. Now, the company had already indicated earlier in
7:46
Speaker 1: the month that UM with the European Unions UM imposition
7:52
Speaker 1: of the GDPR regulations, the General Data Privacy Regulation, that
7:57
Speaker 1: there might be some pairback in terms of those numbers.
8:01
Speaker 1: But certainly it's not something that's had the effect on
8:03
Speaker 1: the stock for all intents and purposes, as it's been
8:06
Speaker 1: breaking out to all time highs ahead of the earnings
8:09
Speaker 1: results after the close today, and people are also focusing
8:12
Speaker 1: on Instagram correct and the revenues that are coming from that.
8:15
Speaker 1: Certainly there are expectations that Facebook in terms of trying
8:20
Speaker 1: to monetize some of its other properties. UH. Instagram certainly
8:23
Speaker 1: has been significant given the fact that younger users seem
8:26
Speaker 1: to be moving off of Facebook and going on to
8:28
Speaker 1: other properties such as Instagram. UH. There's also been interest
8:32
Speaker 1: over time as to how is the company gonna be
8:33
Speaker 1: leveraging uh their WhatsApp messaging platform as well, and that's
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Speaker 1: something that probably still remains further down the road. You
8:40
Speaker 1: don't sound all that bullish or I missing something, uh.
8:44
Speaker 1: I My thinking is that you know, the people's expectations
8:49
Speaker 1: or fears around GDP are certainly spiked around the end
8:53
Speaker 1: of May or going into the imposition g DPR. It's
8:56
Speaker 1: something that's going to take time to implement, and I
8:58
Speaker 1: think that some of these shifts that we're seeing in
9:01
Speaker 1: terms of the younger demographics off of Facebook probably served
9:04
Speaker 1: to dampen the forward growth rate. We just haven't seen
9:07
Speaker 1: those numbers start to come through yet. There are other
9:09
Speaker 1: platforms out there, I think in the tech space that
9:12
Speaker 1: are um, say, for example, Amazon, with their move towards
9:18
Speaker 1: using their platform for advertising. I think Amazon trying to
9:22
Speaker 1: leverage its user base what they know about their user base.
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Speaker 1: What they can deliver in terms of advertising targeting is
9:29
Speaker 1: going to prove potentially to be you know, equal to,
9:31
Speaker 1: if not superior to, what Facebook can do. And I think,
9:35
Speaker 1: um that a lot of the news flow that certainly
9:37
Speaker 1: we've seen coming off of social media over the past
9:40
Speaker 1: number of years, uh, and intensifying earlier this year, UM
9:45
Speaker 1: about Facebook and how they have not really regarded privacy
9:48
Speaker 1: or personal information at a very high level, certainly serves
9:51
Speaker 1: to work against them. I mean, it is a flywheel Facebook,
9:54
Speaker 1: and it has ramped up to a fairly high speed,
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Speaker 1: and they've been getting great gains in terms of Internet
9:58
Speaker 1: advertising market share. Uh. But I think the underpinnings for
10:02
Speaker 1: it over time weekend this is this is fascinating because
10:04
Speaker 1: it starts to raise the question of, you know, how
10:08
Speaker 1: many big behemoth tech companies can continue to be advertising
10:12
Speaker 1: companies versus do something else. And you know, when you
10:15
Speaker 1: talk about Amazon, they're going to report earnings after the
10:17
Speaker 1: Bill on Thursday, and I am very curious to see
10:20
Speaker 1: their cloud computing services unit, the a w S, particularly
10:25
Speaker 1: in light of what we saw from Microsoft and Google
10:27
Speaker 1: with an acceleration in revenues and clients and people saying
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Speaker 1: that's a real growth driver. What's your repectation there for Amazon?
10:35
Speaker 1: I mean coming off of Microsoft's Azure performance, which was
10:39
Speaker 1: seeing growth up you know, mid eighties, eight year every
10:43
Speaker 1: year UM. Granted, Amazon's Amazon Web Services AWS is about
10:48
Speaker 1: three times the size of what Microsoft has about six
10:50
Speaker 1: and a half billion dollar annual revenue run rate UM.
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Speaker 1: You know, certainly Amazon wants investors to focus on that.
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Speaker 1: By having broken out the financials over the past couple
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Speaker 1: of years, and a business that is that profitable plus
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Speaker 1: margins growing for Amazon probably some of the area about
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Speaker 1: forty percent a year is a very nice value driver.
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Speaker 1: People obviously have always had questions around Amazon's valuation, uh,
11:15
Speaker 1: just because of their continual reinvestment of profits into their business.
11:18
Speaker 1: I think when you have businesses like AWS, which is
11:21
Speaker 1: a computing platform which more and more businesses are gravitating
11:25
Speaker 1: towards UM that having that as a significant driver of
11:28
Speaker 1: future results is significant for the stock. Do people make
11:32
Speaker 1: it too complicated when they think about investing in Amazon, Uh,
11:37
Speaker 1: you know, talk about, you know, whether the company is
11:40
Speaker 1: going to show you know, greater net income growth or
11:43
Speaker 1: what their margins are, and then they talk about the
11:46
Speaker 1: purchase of Whole Foods and moving into different areas. But
11:50
Speaker 1: I mean, is it really just not complicated here when
11:52
Speaker 1: you look at Amazon. I mean, Amazon in a way
11:55
Speaker 1: has been essentially the founder example to value oriented investing,
12:00
Speaker 1: probably since it went public rational investing, right, I mean,
12:03
Speaker 1: because it's loses, it can lose money, it can make money.
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Speaker 1: It's like tweaking the machine. Well, Benjamin Grant would be
12:10
Speaker 1: vomiting into a toilet if you had to look at
12:11
Speaker 1: the metrics associated with Amazon. But clearly when we look
12:14
Speaker 1: at Amazon as investors, we need to think more like
12:17
Speaker 1: venture capitalists. We need to think about what are the
12:20
Speaker 1: size of the sectors into, what's they're moving, what's the
12:23
Speaker 1: addressable market, what's they're likely market share. Clearly, Amazon has
12:28
Speaker 1: followed quarter after a quarter by putting more arrows in
12:31
Speaker 1: the quiver, more markets. They're going into the fact that
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Speaker 1: the Whole Foods acquisition over a year put year ago
12:37
Speaker 1: put them closer to the consumer, not just in terms
12:40
Speaker 1: of information but also in terms of location. Serves the
12:43
Speaker 1: strengthened Amazon's bond with the consumer and potentially their ability
12:48
Speaker 1: to extract more dollars from their competitors, and that clearly
12:51
Speaker 1: has worked to the benefit of the shareholders, real quick,
12:54
Speaker 1: thirty seconds a year from now, are we gonna be
12:56
Speaker 1: talking about agg rather than fang? Do we talking about Amazon?
13:01
Speaker 1: Apple and Google? Uh? Facebook a little bit less so
13:03
Speaker 1: in Netflix out of the picture. I don't necessarily want to,
13:06
Speaker 1: you know, give a death knell to Facebook because you know,
13:10
Speaker 1: clearly they do have a significant audience. You don't lose
13:13
Speaker 1: two billion dollar two billion active users overnight. Um. But
13:18
Speaker 1: I think things to start to slow and I would say, yes,
13:21
Speaker 1: the ones that are stronger, better positioned continue to be Amazon,
13:25
Speaker 1: I think, continue to be Google alphabet. Uh. And I
13:28
Speaker 1: wouldn't I wouldn't count out Netflix. I mean, Netflix certainly
13:30
Speaker 1: is on a tear and certainly you have Disney, you know,
13:34
Speaker 1: ponying up, you know, seventy billion dollars to try to
13:37
Speaker 1: be a more effective Netflix competitor. And when you start
13:41
Speaker 1: looking at the awards that have been coming out relative
13:43
Speaker 1: to Netflix generated content, they've now in the most recent
13:47
Speaker 1: Emmy Awards season surpassed m HBO. Yeah, all right, thank
13:51
Speaker 1: you so much for being with us. David Garretty at
13:53
Speaker 1: chief executive of g v A Research, talking about those
13:56
Speaker 1: tech earnings that have been rolling in over the past
13:58
Speaker 1: few weeks well as a T n T shares sink
14:16
Speaker 1: to a six year low as their wireless growth comes
14:20
Speaker 1: in below expectations. It's an important question to ask who
14:24
Speaker 1: are there, who is their competitor? Who is their main competitor?
14:27
Speaker 1: Is it just Verizon or are there others? And joining
14:29
Speaker 1: us now is a competitor. Rick Calder joins us now.
14:32
Speaker 1: He's president chief executive of G T T Communications based
14:35
Speaker 1: in McLean, Virginia. He joins us here in our eleven
14:38
Speaker 1: three oh studios. Rick, can you just sort of give
14:40
Speaker 1: us an overview of what g T T is and
14:43
Speaker 1: how quickly it's really been growing recently? Sure? I mean, Lisa,
14:47
Speaker 1: excuse me. We provide cloud networking services to large and
14:52
Speaker 1: multinational clients, and we you know, we're just talking about
14:55
Speaker 1: I've been here eleven years. And then the business star
15:00
Speaker 1: aart it at fifty million, and it was composed of
15:02
Speaker 1: two original companies, both of which actually had no assets whatsoever.
15:08
Speaker 1: And we were an integrator to provide cloud networks to
15:11
Speaker 1: large multinational corporations. And last quarter we completed we're about
15:16
Speaker 1: a billion dollars in revenue and we're well on our
15:18
Speaker 1: pace to two billion but people don't know who we
15:20
Speaker 1: are right So it's one of the interesting things in
15:22
Speaker 1: our business is that most people think they can only
15:25
Speaker 1: buy cloud network services from the large multinational firms like A, T,
15:29
Speaker 1: T and Verizon. We're here to say we can compete.
15:32
Speaker 1: We clearly can provide an alternative solution to large multinationals,
15:36
Speaker 1: and we think we're arriving on the stage to be
15:38
Speaker 1: able to do that against BT, Verizon, AT and T,
15:41
Speaker 1: Central Link and the like that have historically dominated this market.
15:45
Speaker 1: I'm trying to figure out where we should start. Should
15:46
Speaker 1: we maybe do a definition of what is a Tier
15:49
Speaker 1: one network? Sure? A tier one I mean the Internet
15:52
Speaker 1: was was originally it's probably a thirty year old innovation
15:55
Speaker 1: that's clearly here to stay, and over time there have
15:59
Speaker 1: been a series of Tier one backbones that are settlement
16:04
Speaker 1: free and peer with each other to allow traffic from
16:07
Speaker 1: end user locations to get to any application in the cloud,
16:11
Speaker 1: and that comprises almost half of our business at this stage,
16:14
Speaker 1: to be a Tier one Internet backbone to help corporations
16:17
Speaker 1: reach any application anywhere in the world. So it's an
16:22
Speaker 1: interesting time to be significantly expanding in this area because
16:26
Speaker 1: we've seen A T. And T and Verizon struggling to
16:29
Speaker 1: increase both their footprints and their wireless subscribers. How do
16:33
Speaker 1: you do this in a way that isn't capital intensive
16:37
Speaker 1: at a time when you know you've got five G
16:40
Speaker 1: developing and getting getting built up and it's expensive. Well, Interestingly,
16:45
Speaker 1: one of the things we see with the big incumbents
16:47
Speaker 1: is that they are first and foremost consumer mobile companies,
16:51
Speaker 1: and they have switched to their focus to be consumer
16:53
Speaker 1: mobile companies away from serving the large cloud network needs
16:57
Speaker 1: of corporations and lower corporations and on the globe that
17:01
Speaker 1: is a capital intensive business. Buying spectrum, building and leasing towers,
17:05
Speaker 1: building fiber to towers very capital intensive business. We've actually,
17:09
Speaker 1: in terms of focusing our business on large multinationals, have
17:12
Speaker 1: made it CAPEX light in two ways. One, we've purchased
17:16
Speaker 1: over time and acquired one of the largest global Tier
17:20
Speaker 1: one internet backbones underpinned by one of the largest fiber
17:23
Speaker 1: footprints across Europe the US in the Atlantic UH to
17:26
Speaker 1: be able to enable us to reach every location in
17:29
Speaker 1: the world on behalf of our UH large multinational clients,
17:33
Speaker 1: and we lease the last local loop piece from every
17:37
Speaker 1: carrier in the world, and so we trade actively with
17:39
Speaker 1: three three thousand last mile last local loop provider to
17:44
Speaker 1: be be get diverse, secure access to every location in
17:47
Speaker 1: the world. Rick so far this year three acquisitions, I
17:51
Speaker 1: believe right, you've closed the custom connect accelerated connections into
17:56
Speaker 1: Root Communications. What's the criteria for G t T to
18:02
Speaker 1: go out and make an acquisition besides strategic fit and
18:05
Speaker 1: all that kind of stuff, because you guys, really you
18:08
Speaker 1: have a an acquisition record. Yeah, we've done well over
18:12
Speaker 1: thirty acquisitions of the stage, as you noted, we've completed
18:15
Speaker 1: three right now, you took the words out of my mouth.
18:18
Speaker 1: Absolutely has to be strategic fit number one, where we
18:21
Speaker 1: are hewing to our strategy of focused on cloud networking
18:25
Speaker 1: services to large multinationals to we have to be able
18:27
Speaker 1: to integrate quickly and we don't look at an acquisition
18:30
Speaker 1: if we can't integrate it within one to two quarters.
18:35
Speaker 1: And that's very different from most corporations who think in
18:38
Speaker 1: one to two to three years. So generally we integrate
18:41
Speaker 1: across our organization, our systems, our network within one to
18:44
Speaker 1: two quarters and be able to deliver a post synergy
18:48
Speaker 1: ebitdawn multiple to our investors within two quarters post close
18:52
Speaker 1: and so those are the three criteria and we've been
18:53
Speaker 1: able to execute very effectively on that over the past
18:56
Speaker 1: several years. How big is the market for corp connectivity
19:00
Speaker 1: to the cloud. We we estimate the market it's somewhere
19:04
Speaker 1: between two fifty and four hundred billion dollars in terms
19:08
Speaker 1: of the amount of money that large multinationals across the
19:11
Speaker 1: world spend on cloud networking services. So as we approach
19:15
Speaker 1: our next financial objective of being a two billion dollar corporation,
19:19
Speaker 1: we still represent under one percent of the market. And
19:23
Speaker 1: most interestingly in the market where every multinational that we
19:26
Speaker 1: speak to us we walk into them says I need
19:28
Speaker 1: more connectivity. There's clearly more Internet connections going on in
19:33
Speaker 1: every corporation. Most corporations are moving their I T applications
19:36
Speaker 1: into the cloud, and most corporations have increasing size of
19:40
Speaker 1: files that they're trying to transfer across the organization to
19:43
Speaker 1: connect their people. So they all are dissatisfied with their
19:46
Speaker 1: connection today and need more. And that's our opportunity is
19:50
Speaker 1: to displace the incumbent. Who's the biggest challenges right now?
19:54
Speaker 1: The biggest challenger to us, I mean we still focus
19:57
Speaker 1: on the incumbent. Yes, there are like firms like GTT. Frankly,
20:01
Speaker 1: we think many of them create great acquisition opportunities because
20:04
Speaker 1: we think scale is important. Even at two billion, we're
20:07
Speaker 1: still relatively small in this market share. So we have
20:10
Speaker 1: our eyes squarely focused on A T T, Verizon, Century Link, BT,
20:17
Speaker 1: Orange Business Services, dutsch To Telecom. We think those uh
20:21
Speaker 1: formed the basics, and what we love about it is
20:23
Speaker 1: that they're not focused on our business. Well done. We're
20:26
Speaker 1: focused on listening to you and much appreciated Rick called
20:29
Speaker 1: our president, chief executive g T T Communications. They're based
20:34
Speaker 1: in McClean, Virginia. You know, Pim, we're talking so much
20:50
Speaker 1: these days about the trading relationship with the US and China,
20:55
Speaker 1: But you know, I did not realize that trade with
20:57
Speaker 1: China was at the heart of America's wealth more than
20:59
Speaker 1: a hundred years ago and it made some of the
21:02
Speaker 1: most prominent families in this in the US. And joining
21:05
Speaker 1: us now to talk about that is Stephen Yujifusa. He
21:08
Speaker 1: is the author of Barons of the Sea, a new
21:11
Speaker 1: book out talking about just this trend. So Stephen, thank
21:16
Speaker 1: you so much for joining us. Can we just start
21:19
Speaker 1: with how much how important China and trade with that
21:23
Speaker 1: country was to UH, creating sort of the new millionaires
21:27
Speaker 1: and billionaires of the time, perhaps more than a hundred
21:31
Speaker 1: years ago. Well, the trying and trade for nineteenth century
21:37
Speaker 1: early nineteenth century New England was a crucial part of
21:40
Speaker 1: building up family fortunes names that still are recognizable today,
21:44
Speaker 1: such as Delano, Forbes, uh Low. These are families that
21:48
Speaker 1: made their money in the giant trade, and starting the
21:50
Speaker 1: eighteen forties began building some of the early clipper ships.
21:54
Speaker 1: These were very fast three masted vessels built for speed
21:58
Speaker 1: rather than capacity, and this was a trade that was uh.
22:02
Speaker 1: T was a primarily export item from China, but to
22:05
Speaker 1: pay for the tea, these Yankee merchants would UH smuggle
22:08
Speaker 1: an opium from India and from Turkey, and this led
22:12
Speaker 1: to UH one of the first international conflicts. Obviously, the
22:16
Speaker 1: first major international conflict between China and the West was
22:21
Speaker 1: the First Opium War of the late eighteen thirties and
22:23
Speaker 1: eighteen forties. Would it be inaccurate to describe these American
22:28
Speaker 1: sea captains, these barons as a drug cartel, Well, there
22:33
Speaker 1: are several American firms which did deal in opium, and yes,
22:38
Speaker 1: it could be described as an early drug cartel of
22:41
Speaker 1: out of all the American firms based in uh Can,
22:45
Speaker 1: Tom Monody, Guangzhoe, only one refused to deal in opium.
22:49
Speaker 1: This is Oliphantine Company, a Quaker company, and the other
22:52
Speaker 1: merchants sort of laughed at them, calling them Zion's corner. Now,
22:57
Speaker 1: opium was replaced by gold as the big commodity correct
23:03
Speaker 1: well a gold was what basically set off the race
23:06
Speaker 1: to build even bigger and faster clipper ships starting in
23:09
Speaker 1: eighteen forty nine when gold were discovered in California and
23:13
Speaker 1: the small the smaller China clippers, which set records for
23:17
Speaker 1: example to see which traveled from China to New York
23:20
Speaker 1: and the record breaking time of seventy four days, when
23:22
Speaker 1: before that hundred and fifty days considered was considered to
23:26
Speaker 1: be a good passage. The discovery of golden California prompted
23:30
Speaker 1: merchants like Warren Delano to redeploy their clippers to go
23:34
Speaker 1: around Cape Horn to San Francisco, and these clipper ships
23:38
Speaker 1: set records uh for example the Flying Cloud of eighteen
23:41
Speaker 1: fifty one sale between New York and San Francisco around
23:45
Speaker 1: Cape Horn in eighty nine days, twenty one hours, and
23:48
Speaker 1: then a few years later she broke that record, and
23:50
Speaker 1: that was a time when six to seven months was
23:53
Speaker 1: considered to be a respectable voyage around the Horn. So
23:56
Speaker 1: this fueled a round the world trade which basically up
24:00
Speaker 1: a ship would leave from New York, sail around Cape Horn,
24:03
Speaker 1: stop in San Francisco, drop off its cargo of dry
24:05
Speaker 1: goods that were used to build the city of San Francisco,
24:08
Speaker 1: sail across to China, pick up a cargo of tea,
24:11
Speaker 1: and then sail around the Cave of Good Hope for
24:12
Speaker 1: home for a tremendous profit. So Stephen, I'm sure there
24:17
Speaker 1: are amazing stories and you you really outline them. UH
24:21
Speaker 1: scandal and all sorts of personalities that make their name
24:26
Speaker 1: in this time. I'm wondering, can you talk about the
24:30
Speaker 1: barriers to trade? I mean, just to sort of sort
24:33
Speaker 1: of create a parallel to what we're looking at right now.
24:37
Speaker 1: What were they then? Well before the First Opium War,
24:41
Speaker 1: China greatly restricted all sorts of access to uh It's
24:46
Speaker 1: trading networks. UH Westerners, as particularly Americans in particularly the British,
24:50
Speaker 1: had a very strong demand for tea, and the Chinese
24:55
Speaker 1: saw the the arrival of these fine quai. The foreign devils,
24:59
Speaker 1: as they were called, as an inconvenience, and so they
25:02
Speaker 1: were confined up into the early eighteen forties to a
25:04
Speaker 1: very small UH city few city blocks of Canton, known
25:08
Speaker 1: as the Foreigners Colony or the Golden Ghetto as was known.
25:12
Speaker 1: This was the only place where UH, Western Europeans and
25:16
Speaker 1: Americans could live, with the exception of the column at
25:18
Speaker 1: Portuguese Colleity of Macau, and it was the Chinese very
25:21
Speaker 1: tightly regulated UH the tea trade. Only twelve or so
25:26
Speaker 1: Chinese merchants were allowed to do business with the with
25:29
Speaker 1: the foreigners, and the most prominent of whom was a
25:33
Speaker 1: man named How Kua Whooping Chen, who UH rose to
25:38
Speaker 1: become arguably the richest non sovereign of the world because
25:40
Speaker 1: of his lock on the tea trade. UH. He was
25:43
Speaker 1: worth approximately six million dollars in the eighteen thirties, which
25:47
Speaker 1: made him the equivalent of a Jet Bezos or UH
25:51
Speaker 1: Warren Buffett in terms of his net wealth and power,
25:53
Speaker 1: and he formally adopted a number of these young thirties
25:57
Speaker 1: something year old Yankee traders, such as war On Delano
26:00
Speaker 1: and John Murray Forbes as his sons, and he did
26:04
Speaker 1: business with them exclusively. We're speaking with Stephen ugi Posa.
26:08
Speaker 1: He is the author of the new book Barons of
26:11
Speaker 1: the Sea and Their Race to build the World's Fastest
26:14
Speaker 1: clipper ship. Uh. Stephen, you mentioned the Flying Cloud one.
26:19
Speaker 1: This is a ship that was about tens had a
26:21
Speaker 1: mass that was ten stories high. Tell us about the captain.
26:27
Speaker 1: Captain Josiah Creasy was one of the most remarkable sea
26:30
Speaker 1: captains of his time, and the Flying Cloud was his
26:34
Speaker 1: first extreme clipper command. He had had experience in the
26:37
Speaker 1: giant trade, but had never commanded a vessel of this
26:40
Speaker 1: size or speed. And he had a very useful helpmate
26:45
Speaker 1: in this record breaking forage is that his He brought
26:47
Speaker 1: his wife along, Eleanor Creasy, who served as a navigator
26:51
Speaker 1: around Cape Horn, and it was thanks to her and
26:54
Speaker 1: her brilliance as a navigator that the ship was able
26:58
Speaker 1: to make that kind of record time. But he was
27:00
Speaker 1: known as what was called a pencil sharpen. He was
27:02
Speaker 1: known for uh quote unquote fudging his records in previous
27:06
Speaker 1: voyages or his day runs. But what is indisputable as
27:10
Speaker 1: the record time she made uh in in September of
27:14
Speaker 1: eighteen fifty one, when she sailed triumphantly into San Francisco,
27:17
Speaker 1: and uh, thousands of people would run down to the
27:20
Speaker 1: waterfront to uh see what good she had brought in
27:24
Speaker 1: from the East coast. This is the time when eggs
27:26
Speaker 1: sold for a dollar, and we're talking eighteen fifties dollars,
27:28
Speaker 1: so that's like twenty bucks an egg. And San Francisco
27:30
Speaker 1: was a boom town. So this was how merchants back
27:33
Speaker 1: east and clippership owners made their money. But Josiah Perkins
27:36
Speaker 1: crazy like a lot of these clipper ship captains were
27:39
Speaker 1: tough personalities, extremely competitive, a lot of them had ownership
27:43
Speaker 1: stakes in these vessels, and speed was the primary object
27:47
Speaker 1: and safety and operation those are sort of secondary, uh considerations.
27:53
Speaker 1: What mattered with speed really a fabulous issue, and you
27:58
Speaker 1: outlined it so well. Ben Yuji Fusa, author of Barons
28:03
Speaker 1: of the Sea and their Race to build the world's
28:06
Speaker 1: fastest clipper ship, just just came out. He's also a historian.
28:14
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
28:17
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
28:21
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
28:24
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
28:29
Speaker 1: It's one before the podcast. You can always catch us
28:31
Speaker 1: worldwide on Bloomberg Radio