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Hottest M&A Sectors Now Are Tech, Health Care: Lincoln International · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. You know, m n A,
0:23
Speaker 1: it's merger Monday, It's back today. I got a couple
0:25
Speaker 1: of pretty big deals, including Goodyear Tire buying Cooper Tire,
0:28
Speaker 1: which I thought was a pretty interesting. Uh deal. There,
0:31
Speaker 1: there's I didn't you know, there's still deals to be
0:33
Speaker 1: done out there in despite the pandemic, was a big
0:36
Speaker 1: year for m n A. Let's get the latest. We
0:38
Speaker 1: do that with Rob Brown. He's a managing director and
0:40
Speaker 1: CEO of North America Fort Lincoln International based in Chicago. Rob,
0:45
Speaker 1: thanks so much for joining us here. You know, when
0:48
Speaker 1: I was a banker, it was all about hopping on
0:49
Speaker 1: a plane going to see companies, see clients, get deals done.
0:53
Speaker 1: That's how deals really got done. And so I'm wondering,
0:56
Speaker 1: in that world of pandemic, how are you guys doing business?
1:01
Speaker 1: Talk to us about that, Well, it pretty incredibly Uh.
1:05
Speaker 1: The M and A world went uh much more virtual,
1:08
Speaker 1: in some cases totally virtual, uh, with very little interruption.
1:11
Speaker 1: Because I I agree with you when when the pandemic
1:15
Speaker 1: really forced the economy to shut down. Um, the M
1:19
Speaker 1: and A market shut down for a period of time,
1:21
Speaker 1: and they went from kind of a slow saw at
1:24
Speaker 1: the end of the second quarter to the floodgates opening
1:26
Speaker 1: up when you got in a third and fourth quarter. UM.
1:29
Speaker 1: But specific to your question, you know, overnight everybody had
1:33
Speaker 1: to become very comfortable with some form of video technology.
1:38
Speaker 1: A lot of due diligence was moving virtual anyway through
1:40
Speaker 1: virtual data rooms. But UM, you know, it became clear
1:45
Speaker 1: that the need to put money to work by private
1:48
Speaker 1: equity groups, the need to continue to grow by strategic acquirers. UM,
1:53
Speaker 1: these companies were not going to let the inability to
1:55
Speaker 1: meet in person get in their way of getting deals done.
1:58
Speaker 1: In fact, we had several deals in any where the
2:01
Speaker 1: buyer never saw the company, never met anybody in person.
2:04
Speaker 1: They were done totally virtually. And yet UM was a
2:09
Speaker 1: pretty hot year for deals. I mean it wasn't far
2:12
Speaker 1: off what we saw UM pre COVID. What do you
2:16
Speaker 1: expect from one I expected to continue. And if you
2:21
Speaker 1: look at you know, when you look at coming into
2:24
Speaker 1: and you um, we have an annual growth conference we
2:28
Speaker 1: do at the end of the year, and at the
2:29
Speaker 1: end of two thousand nineteen, we surveyed hundreds of private
2:32
Speaker 1: equity groups and said, what's your number one goal coming
2:35
Speaker 1: into The number one goal was to put capital to
2:37
Speaker 1: work at a faster clip. So you came into the
2:40
Speaker 1: year with that as your goal. You had several months
2:42
Speaker 1: where there was an inability to put capital to work.
2:45
Speaker 1: And so what happened at the end of the year,
2:47
Speaker 1: and as you know, why the M and A market
2:49
Speaker 1: picked up is anybody that had a good COVID story
2:52
Speaker 1: to tell. There were investors willing to listen to the
2:54
Speaker 1: story and invest in it. And that continued into this year.
2:57
Speaker 1: And so we're still, by the way, rob, where where
3:00
Speaker 1: is all that money coming from? Is this stimulus money
3:02
Speaker 1: that's flooding the market? I mean, if I look at
3:05
Speaker 1: the average premium last year, it rose back to bonkers
3:08
Speaker 1: like well over what we saw in the three years
3:11
Speaker 1: before that. Yeah, I think where a lot of it's
3:13
Speaker 1: coming from our institutional investors with interest rates that essentially zero. Right,
3:18
Speaker 1: people are more willing to put money into private equity funds.
3:21
Speaker 1: Look at SPACs. Look at the amount of SPACs that
3:23
Speaker 1: have been raised in the last year. It's it's mind boggling.
3:26
Speaker 1: So I think the alternative asset class of which private
3:30
Speaker 1: equity debt fund and spact, with interest rates where they're at,
3:34
Speaker 1: and the returns that these funds have consistently driven, they're
3:37
Speaker 1: able to continue to raise money. And then you put
3:39
Speaker 1: on top of it the amount of cash sitting on
3:41
Speaker 1: the balance sheets of the fortune five hundred. There is
3:43
Speaker 1: still more capital that wants to be put to work
3:45
Speaker 1: to buy companies than there are companies to buy. And
3:48
Speaker 1: when you have that imbalance, you're going to have a
3:51
Speaker 1: high level of activity at high values. So interesting you
3:55
Speaker 1: mentioned SPACs. Rob, talk to us about how you, as
3:58
Speaker 1: an M and a bank or think about spack. I
4:00
Speaker 1: mean it's if I'm a business owner, that's another exit
4:03
Speaker 1: for me. If you will, UM, how do you talk
4:06
Speaker 1: to your clients about specs? UH? It is, well, first
4:09
Speaker 1: of all, we're talking to them more and more about
4:11
Speaker 1: spects because the number of SPACs and the amount of
4:13
Speaker 1: money going into SPACs UH is incredible, and and so
4:17
Speaker 1: for the right seller. It's a it's a it's a
4:21
Speaker 1: good alternative. If you're a business that's looking to sell,
4:23
Speaker 1: you need additional growth capital, you can access the public
4:26
Speaker 1: markets afterwards. Um, it can be the right seller. And
4:30
Speaker 1: they can pay high prices too, because if you if
4:32
Speaker 1: you look at their cost to capital, you look at
4:34
Speaker 1: the expectation of kind of the post trading and the
4:37
Speaker 1: public markets, they've performed well. So it is a it
4:40
Speaker 1: is another alternative for the right seller. It can take
4:44
Speaker 1: a little bit longer, right, there's a little more regulatory
4:46
Speaker 1: hurdles to go through. So if if speed and certainty
4:49
Speaker 1: are really important to you, a spact may not be
4:51
Speaker 1: the right alternative. However, if you accessing public equity and
4:56
Speaker 1: public that post a deal is important to you, they
4:59
Speaker 1: could be a very good by Are you, on the
5:01
Speaker 1: other hand, are you making sure like your nut is
5:03
Speaker 1: safe and you have a bugout bag next to the bed,
5:06
Speaker 1: Because if people are willing to give um, you know,
5:09
Speaker 1: Kaepernick a couple of hundred million dollars in the spack,
5:13
Speaker 1: this market may not last much longer. Yeah, I I personally,
5:17
Speaker 1: I don't know how all that s back money is
5:19
Speaker 1: going to be put to work. But I think the
5:21
Speaker 1: institutional investors that are putting money to these they're not
5:24
Speaker 1: They're not dumb. I think what they're saying is will
5:26
Speaker 1: interest rates to zero? If I put the money into
5:28
Speaker 1: this back, This back has two years to find a company.
5:30
Speaker 1: If they don't find a company, I get the money back,
5:33
Speaker 1: and you know I didn't lose a lot of interest.
5:35
Speaker 1: The issue will be is if they feel pressure to
5:37
Speaker 1: put the money to work and they stretch and do
5:39
Speaker 1: on the economics things. So real quickly, Rob, just give
5:43
Speaker 1: us your thoughts. What are some of the hot sectors
5:45
Speaker 1: we should be looking at for EM and activity this year?
5:47
Speaker 1: So you know, from our perspective UM, and you know,
5:50
Speaker 1: we had a we had a record year last year,
5:52
Speaker 1: we had a huge back while coming to this year.
5:54
Speaker 1: The two areas of the firm where we're seeing the
5:56
Speaker 1: most activity broadly are in technology and in healthcare, where
6:00
Speaker 1: you have the most secular growth the most need for capital.
6:04
Speaker 1: Although I will say with that said, if I look
6:06
Speaker 1: at our industrial group, our consumer group, our business services group,
6:09
Speaker 1: they all have record backlogs. But but as a firm,
6:13
Speaker 1: as a just level of activity, UM, technology and healthcare
6:18
Speaker 1: UM are our areas where We're seeing tremendous growth, and
6:20
Speaker 1: some of that secular growth, some of its bounced back,
6:23
Speaker 1: bounced back from particularly the healthcare services side, where you know,
6:27
Speaker 1: things may have slowed down and now there's a there's
6:29
Speaker 1: kind of a makeup right on. Rob, Thanks so much
6:31
Speaker 1: for your insight. It was great having you on the program.
6:33
Speaker 1: Rob Brown is managing director and he runs North America
6:37
Speaker 1: as CEO for Lincoln International. Now I want to bring
6:41
Speaker 1: in Kevin Tynan. He's our senior auto's analyst at Bloomberg Intelligence.
6:46
Speaker 1: And I feel kind of guilty Kevin, because I think
6:50
Speaker 1: Paul is more excited for the Mustang mack one than
6:54
Speaker 1: I am. Um, he's definitely put his down payment at
6:58
Speaker 1: his local deal, already waiting or his car to arrive.
7:01
Speaker 1: Is he going to be disappointed? No? I don't think so.
7:06
Speaker 1: I think yeah, as I was looking at the numbers,
7:09
Speaker 1: you know, the the internal combustion Mustang might not be
7:12
Speaker 1: that much, you know, more long for this world though. Um,
7:17
Speaker 1: you know I could see that drive train, you know,
7:20
Speaker 1: being in that nameplate all the way across you know,
7:22
Speaker 1: and not just this sort of suv thing that they're making,
7:25
Speaker 1: but even into the sports cars over time. So, Kevin,
7:29
Speaker 1: you you've told me and others you know, over the years.
7:32
Speaker 1: You know, you know where Detroit really makes its money
7:36
Speaker 1: is on trucks, uh in the U s here, so
7:39
Speaker 1: is the EV market at niche market until the four
7:42
Speaker 1: decides it wants to put it f one fifty e
7:44
Speaker 1: V out on the market. I think, so, yeah, And
7:48
Speaker 1: and and the other thing to Paul, you gotta remember
7:50
Speaker 1: is that there's really been no automaker, you know, other
7:54
Speaker 1: than Tesla advancing the e V narrative at all. So
7:59
Speaker 1: you know, when cyber truck starts to come for that
8:03
Speaker 1: full size pickup segment, and Ford and General Motors and
8:08
Speaker 1: whoever else have an answer for that, and they actually
8:13
Speaker 1: want to sell the product, you're gonna get a lot
8:15
Speaker 1: of marketing might behind the technology that just hasn't been
8:18
Speaker 1: there yet. Right, nobody's really talking about e vs other
8:21
Speaker 1: than you know, media and Tesla fans. But you know
8:26
Speaker 1: that's a lot of money that will come behind, right
8:28
Speaker 1: because if if you think about it, full size pickup
8:31
Speaker 1: is the largest segment in the US by revenue, not
8:33
Speaker 1: by accident, it's because it's what's marketed to us. And
8:36
Speaker 1: I think if you get some of that money. Going
8:38
Speaker 1: after different segments or different druve train technologies, you'll get
8:41
Speaker 1: a similar result is what you got with pick up.
8:43
Speaker 1: I mean, I hope they're full size though, because I
8:45
Speaker 1: look at the Rivan pickup truck and I look at
8:49
Speaker 1: the Cyber truck. Um. I think the Bolinger is probably
8:52
Speaker 1: the coolest electric option that's coming out. None of them
8:55
Speaker 1: are really big. You know what, I want to move
8:58
Speaker 1: back to America because I want to buy a giant truck.
9:01
Speaker 1: I want to ram power wagon, you know, I want
9:05
Speaker 1: something legit, maybe with a six point seven leader turbo diesel.
9:08
Speaker 1: You can't get that from these millennials. No, But the
9:13
Speaker 1: reality is, though, Mas that you know, I just had
9:15
Speaker 1: a two fifty Super Duty that I was testing, and
9:18
Speaker 1: you know, I took it to the used record store
9:20
Speaker 1: in Princeton. I couldn't get in the parking garage, you know.
9:23
Speaker 1: So so you know, you have to there's a time
9:28
Speaker 1: and a place for that kind of vehicle, and there's
9:30
Speaker 1: a lot of the United States where it is appropriate.
9:32
Speaker 1: But you know, it's it's going to be difficult, considering
9:35
Speaker 1: congestion and infrastructure the way it is now for that
9:38
Speaker 1: to be you know, the daily driver for most people,
9:42
Speaker 1: was it a tremor? Was it a tremor, Kevin, tremor packs,
9:46
Speaker 1: It was just a regular super duty Matt. You're you're
9:49
Speaker 1: in Europe, You're in Berlin. Are there any pickup trucks
9:53
Speaker 1: in Europe? There are, but they're they're far few and
9:56
Speaker 1: far between. You know, I um love to get one here,
10:01
Speaker 1: but they just are too big to fit through your
10:03
Speaker 1: your average road. They just won't fit through the street, Kevin.
10:06
Speaker 1: And that's a that's a really interesting point too, because
10:09
Speaker 1: you know, as as Ford and General Motors, you know,
10:12
Speaker 1: Ford especially talking about going fully e V and you know,
10:16
Speaker 1: making e vs for Europe. You know, that's been a
10:19
Speaker 1: problem over the years, even with internal combustion, is that
10:22
Speaker 1: the vehicle architecture that works in Europe doesn't work in
10:26
Speaker 1: the United States, you know. So where Ford was doing
10:29
Speaker 1: small cars for Europe, that never really translated here, and
10:33
Speaker 1: that's why you've seen those companies just get out of
10:35
Speaker 1: those regions altogether. So it's gonna be interesting to see
10:38
Speaker 1: how to sort of globalize the platform where it works
10:43
Speaker 1: in Europe, where you have congestion and infrastructure issues that
10:46
Speaker 1: are very different than what we buy here. In the
10:49
Speaker 1: United States, and I hope we get the Bronco over here.
10:51
Speaker 1: I hope Ford doesn't jip me on this because you know,
10:54
Speaker 1: ever since they started this one Ford strategy and said
10:57
Speaker 1: they were going to bring everything over here, but there's
10:59
Speaker 1: no there's no Rapture over here, you know, they f
11:01
Speaker 1: one fifty. Rapture has long been my favorite car of
11:04
Speaker 1: all time. Um. I'm excited for the Broncho to this
11:06
Speaker 1: place that when they finally put a V eight in it. Yeah, well,
11:11
Speaker 1: you know again, and that's the that's the inconsistency across
11:13
Speaker 1: the regions, right, you know, and and historically you know,
11:17
Speaker 1: fuel prices there versus here, and it just you can't
11:20
Speaker 1: have a global product that works everywhere. Um. And it'll
11:25
Speaker 1: be interesting to see if that means that it's e
11:27
Speaker 1: vs that work everywhere. But I still think you're gonna
11:29
Speaker 1: need bigger vehicles, um, you know, to work in the US.
11:33
Speaker 1: That is going to be difficult sell in in Europe.
11:37
Speaker 1: All right, So, Kevin, I'm looking at the auto stocks
11:39
Speaker 1: for GM and whatever the new uh Chrysler is whatever
11:48
Speaker 1: over the trailing twelve months. What's the what's the bull
11:50
Speaker 1: case here? Yeah? I think you know, they're they're what
11:54
Speaker 1: you're gonna get or what you would start to think
11:56
Speaker 1: what happen would be that either the Tesla Neo you know,
12:01
Speaker 1: Rivians of the world would come back down to earth
12:04
Speaker 1: in terms of valuation, or you're going to get the legacy.
12:07
Speaker 1: Automakers who have global engineering, design, production distribution, after sales
12:16
Speaker 1: scale already in place will get recognized, you know, for that.
12:20
Speaker 1: And I think Volkswagen is a perfect example is that,
12:24
Speaker 1: you know, if they hit their e V target, they'll
12:28
Speaker 1: sell five hundred thousand units about you know, eighteen months
12:32
Speaker 1: after really starting or committing to it, you know, and
12:36
Speaker 1: Tesla took eight years to get there. So I think
12:40
Speaker 1: that when the big automakers they start, they will start
12:43
Speaker 1: to have to get recognized for that ability to do
12:46
Speaker 1: the same thing. Okay, when when the time comes and
12:49
Speaker 1: profitabilities there, we can do evs. By the way, By
12:52
Speaker 1: the way, how sick will it be a VW spins
12:54
Speaker 1: off Porsche? Because that is a unit they own that
12:57
Speaker 1: is worth more than their entire market cap. Yeah, well
13:01
Speaker 1: that you know, evaluations get a little funny right now.
13:03
Speaker 1: So um, all right, Kevin, we'll be on the outlook
13:06
Speaker 1: for that. But Kevin Tyne and Senior Auto's animals for
13:08
Speaker 1: Bloomberg Intelligence. We appreciate that as always. Now let's learn
13:13
Speaker 1: more about what's going on in markets. As you heard
13:15
Speaker 1: from Greg, stocks are down, and the reason I thought
13:20
Speaker 1: was that UM rates are up, but they're not really
13:24
Speaker 1: rates are pretty flat right now. UM. The big gainers
13:27
Speaker 1: that we see in these markets are really the metals
13:29
Speaker 1: and other commodities. Let's bring in Sarah Ponzac, she's Bloomberg
13:33
Speaker 1: Cross Asset reporter for US and UM. Sarah, is it
13:37
Speaker 1: is it really the rates even though right now they're
13:40
Speaker 1: still pretty flat UM that have pushed stocks back a
13:44
Speaker 1: little bit. It does seem to be the case. I mean,
13:47
Speaker 1: overnight we did see tenure yields make run towards one forty.
13:51
Speaker 1: We did have Christine Legard of the e c B
13:54
Speaker 1: come out and say that the e c B is
13:56
Speaker 1: closely monitoring longer term nominal bond yield That is just
14:00
Speaker 1: around the time, right. I love when the central bankers say,
14:04
Speaker 1: we are doing our job. We're still at work. We're
14:07
Speaker 1: still we're still working even though there's a global pandemic.
14:09
Speaker 1: But that's really what reverse yields. But we have to
14:12
Speaker 1: really take into contact the move that we have seen
14:14
Speaker 1: over the past couple of weeks. If we just look
14:16
Speaker 1: at ten year nominal yields, for example, we've seen a
14:19
Speaker 1: run of about twenty three basis points or so that's
14:22
Speaker 1: the fastest monthly rise since early At the same time,
14:26
Speaker 1: if you look at real yields right now, yes, granted
14:28
Speaker 1: still very deeply negative, but ten year real yields now
14:33
Speaker 1: stand at negative eighty one basis points. That is very
14:37
Speaker 1: close to punching through levels that we saw a few
14:40
Speaker 1: months ago to become the highest since this summer. And
14:42
Speaker 1: this compares too if we look where we closed out
14:45
Speaker 1: the year or where we started the year. On January four,
14:48
Speaker 1: we had a real tenure yield of negative one point
14:52
Speaker 1: one so we have really seen the way how do
14:55
Speaker 1: you so how do you compute that? Exactly? You take
14:57
Speaker 1: the ten year yield one point three four and then
15:00
Speaker 1: you subtract what cp I X food and oil. So
15:03
Speaker 1: this is subtracting out tips to get a sense of
15:06
Speaker 1: inflation expectations going forward. So this calculation would subtract out
15:09
Speaker 1: tenure tips um and that is really the case. I mean,
15:13
Speaker 1: we are seeing inflation expectations rise. Granted, there is still
15:18
Speaker 1: an argument over whether or not we are going to
15:20
Speaker 1: see true rampant inflation. But we also have further discussion,
15:24
Speaker 1: at least in the United States, of another multi trillion
15:26
Speaker 1: dollar fiscal package and then more stimulus down the line.
15:30
Speaker 1: I mean, people talking of another three trillion package down
15:33
Speaker 1: the line. And you also have an economy that is
15:36
Speaker 1: regaining its footing. You have a vaccine rollout that is
15:38
Speaker 1: going pretty well now around the globe. You have to
15:41
Speaker 1: wonder what happens when you have an economy that is
15:43
Speaker 1: doing well on its own. You also have plenty of
15:45
Speaker 1: cash flush in the system. While some are starting to
15:48
Speaker 1: believe now that we will see inflation start to rise, Yes, sir,
15:52
Speaker 1: when you think about the reflation trade that folks are
15:55
Speaker 1: increasingly talking about, and just inflation in general coming back
15:58
Speaker 1: into the economy. I look to the g uh G
16:01
Speaker 1: l c O screen on the Bloomberg terminal, the global commodities,
16:04
Speaker 1: and you know, whether it's energy, whether it's metals, whether
16:07
Speaker 1: it's agricultural products, you see, you know, double digit increases
16:12
Speaker 1: across pretty much across the board on a year to
16:14
Speaker 1: date basis. That's a pretty good indication that we're seeing
16:18
Speaker 1: some inflation coming back into this economy. Oh, certainly it's
16:21
Speaker 1: not just being reflected in break even inflation expectations are
16:24
Speaker 1: in the bond market. We're seeing it reflected in commodities
16:27
Speaker 1: front and center. You think about copper prices, for example,
16:30
Speaker 1: over the weekend, rising above nine thousand dollars for the
16:33
Speaker 1: first time in nine years and knocking on the door
16:36
Speaker 1: really of all time highs that we're set back in.
16:39
Speaker 1: At the same time, I look at my screen right now,
16:41
Speaker 1: and we have an OPEC meeting coming up next week.
16:44
Speaker 1: We we'll just add to the fun. But I look
16:46
Speaker 1: at oil prices right now w T I now above
16:49
Speaker 1: sixty one barrel Brent prices six sixty four, right, which
16:53
Speaker 1: is amazing. Which is amazing because now we're starting to
16:56
Speaker 1: see supplies come back online in the Texas area, right.
17:00
Speaker 1: So now you're gonna start to see supply come back.
17:03
Speaker 1: But I guess the bet that traders are making is
17:05
Speaker 1: that demand is going to come back even stronger. That's
17:08
Speaker 1: exactly the case. And while while the supply side of
17:10
Speaker 1: the equation has certainly had an effect over the past year,
17:14
Speaker 1: when you think about what has really driven oil markets
17:16
Speaker 1: over the past year, it has been the demand side
17:19
Speaker 1: of the equation, especially when we saw oil prices go negative.
17:22
Speaker 1: I mean that feels like years ago now considering we're
17:26
Speaker 1: looking at at a crude prices. Never forget it, right,
17:30
Speaker 1: never forget it. Forget what a moment, But it seems
17:33
Speaker 1: like years ago when you now have crude prices above
17:37
Speaker 1: sixty dollars a barrel, and you have Goldman Sacks saying
17:40
Speaker 1: that we could see crude prices above seventy dollars a
17:42
Speaker 1: barrel in the coming months. We had a Marco Pappach
17:45
Speaker 1: he's from clock Tower on our podcast last Friday, and
17:48
Speaker 1: he said he's expecting us to reach eighty dollars a
17:51
Speaker 1: barrel in a time not too far away. So when
17:55
Speaker 1: you think about how far we've come, and yes, we
17:58
Speaker 1: have seen some demand recover. Uh, the expectation is that
18:02
Speaker 1: as the vaccine rollout goes smoothly, as we start to
18:05
Speaker 1: hit critical mass, you get that feel of her community
18:08
Speaker 1: that people will feel more comfortable. I mean, god forbid
18:11
Speaker 1: going on planes, are getting on a cruise ship and
18:14
Speaker 1: all of a sudden we will see global oil demand
18:16
Speaker 1: not just recover, but you're also going to spee see
18:19
Speaker 1: this immense global economic recovery that's going to see demand
18:23
Speaker 1: just rise further from here. Sarah Ponzac, thank you so
18:26
Speaker 1: much for joining us. We appreciate it as always giving
18:29
Speaker 1: us h an update on all of the financial market.
18:32
Speaker 1: Sarah Ponza, cross asset reporter for Bloomberg News, journey us
18:35
Speaker 1: every day at this time. Matt, you know, I just
18:38
Speaker 1: think it's I agree, it's kind of been a demand
18:40
Speaker 1: driven market there for for oil, but I kind of
18:43
Speaker 1: feel like when we do get that surging demand, I
18:46
Speaker 1: think the supplies can come right back on the marketplace. Yeah,
18:48
Speaker 1: of course, because there is a supply that's been captain.
18:51
Speaker 1: The question is when's the demand going to come, right, Paul,
18:53
Speaker 1: Because we're so much talk about her immunity. If it
18:56
Speaker 1: comes sooner, we're all going to jump in our cars
18:58
Speaker 1: or jump on a plane sooner as well. Right, Yeah, absolutely,
19:00
Speaker 1: And again the Wall Street Journal had this opinion piece
19:03
Speaker 1: over the weekend citing um, you know, a Johns Hopkins
19:06
Speaker 1: professor talking about herd immunity perhaps as quickly as uh April,
19:12
Speaker 1: And boy, I don't think that's necessarily baked into the
19:15
Speaker 1: market place at the moment, but we'll certainly pay attention
19:17
Speaker 1: we'll have more coming up. This is Bloomberg. Now. I
19:22
Speaker 1: want to bring in right now a man who manages
19:26
Speaker 1: one point three billion dollars out of Indiana, Indianapolis UM,
19:32
Speaker 1: but has I think a pretty unique experience in running
19:36
Speaker 1: his company. Greg Han is chief investment officer for Winthrop
19:38
Speaker 1: Capital Management. And Greg, I noticed you founded Winthrop in
19:42
Speaker 1: two thousand seven. So that's like a baptism by fire
19:46
Speaker 1: in terms of running an investment business through UH an
19:49
Speaker 1: incredible recession and out the other side. Do you notice
19:52
Speaker 1: any parallels to what we've just seen with the COVID pandemic.
19:57
Speaker 1: So yeah, a lot of last what thanks Joe. A
20:00
Speaker 1: lot of what we're going through really goes back to
20:03
Speaker 1: the financial crisis of two thousand and eight and I
20:06
Speaker 1: founded Winthrop Capital Management. I describe it as the doorstep
20:09
Speaker 1: of the financial crisis because it was literally the end
20:12
Speaker 1: of October of two thousand and seven, and you could
20:14
Speaker 1: just feel the the vacuum. It's like the air leaving
20:17
Speaker 1: the room. It was like a vacuum that was being
20:19
Speaker 1: created before everything blew up in in UH around Valentine's
20:22
Speaker 1: Day in two thousand and eight. But yeah, it's it's
20:25
Speaker 1: very similar to the and this is where the aggressive
20:28
Speaker 1: monetary policy that we're seeing comes from. Is um the
20:31
Speaker 1: rescue money that came into the market in two thousand
20:34
Speaker 1: and eight really never left the market, and now we're
20:36
Speaker 1: doing right now is piling on top of it. So, Greg,
20:39
Speaker 1: a lot of folks, I think, are increasingly concerned about
20:42
Speaker 1: a bubble, uh financial bubble here. Whether you look at
20:46
Speaker 1: you know, the market's hitting all time highs almost on
20:48
Speaker 1: a daily basis, whether you look at the proliferation of spacks,
20:53
Speaker 1: whether you look at some of the trading we saw
20:55
Speaker 1: on some of the game stops of a few weeks ago,
20:57
Speaker 1: all kind of telltale signs potentially of a market top,
21:00
Speaker 1: a market bubble. How do you think about that? Yeah,
21:04
Speaker 1: and that's a good question. I mean we you know,
21:06
Speaker 1: the scars go back to two thousand after the dot
21:08
Speaker 1: com first and Uh. It's the difference though, is the
21:12
Speaker 1: money that is the bubble that was created back in
21:15
Speaker 1: two thousand had didn't have the aggressive monetary policy supporting it.
21:20
Speaker 1: So it was it was speculative because everybody was piling
21:23
Speaker 1: into the market. I say everybody, but investors were piling
21:25
Speaker 1: into text stops, tex stocks and valuations were just ignored
21:31
Speaker 1: this go around. We've got not only domestic um money
21:35
Speaker 1: both fiscal and monetary stimulus, but we have global monetary
21:39
Speaker 1: and fiscal stimulus going into the financial markets and it
21:42
Speaker 1: has to find a home. So UH, in aggressive periods
21:46
Speaker 1: of aggressive monetary and fiscal stimulus, we do see extended
21:49
Speaker 1: p evaluations. And that's part of what's being experienced right
21:52
Speaker 1: now is these um these valuations are really extended. These
21:57
Speaker 1: business models though, Jeff, they sup were you know, operating
22:01
Speaker 1: margins that are in excess of six operating margins. So
22:04
Speaker 1: the growth rates when you see layer on eighteen percent
22:07
Speaker 1: growth rates with six profit margins, there's room to grow.
22:11
Speaker 1: Is Are you concerned? Though? I sense a little bit
22:13
Speaker 1: of an Austrian twinge in your UH statement about about
22:18
Speaker 1: the money that came in the TARP money first and
22:21
Speaker 1: then we got a couple of trillion more and now
22:23
Speaker 1: we're getting a couple of trillion more. And you know,
22:26
Speaker 1: does that were you that piled up debt that big
22:30
Speaker 1: balance sheet at the Fed? Yeah? So the um the
22:34
Speaker 1: so two things we we we are living through two
22:37
Speaker 1: experiments aggressive monetary policy that goes back to two thousand
22:41
Speaker 1: and eight. This is all an experiment. We can't just
22:43
Speaker 1: take this as normal and too as we're living through
22:45
Speaker 1: a pandemic and we've got developed governments of developed countries
22:49
Speaker 1: through money into the system to help support the economic
22:52
Speaker 1: downturn in its worked. Both are experiments though, so the
22:56
Speaker 1: consequences of that are this elevated level of debt and
23:00
Speaker 1: now um and in economies that are are just recovering.
23:04
Speaker 1: This was all a cost that was um born to
23:09
Speaker 1: make sure that our economies continue to function to mitigate
23:12
Speaker 1: the downturn. Whether we can pull it off and transition
23:17
Speaker 1: into a more normalized economic paradigm, that's that's what remains
23:22
Speaker 1: to be seen. So it's gonna for the next challenge,
23:25
Speaker 1: all right, Greg, So in this market here again hitting
23:28
Speaker 1: all time highs. Here, where are you guys spending your time?
23:32
Speaker 1: Where do you see opportunities? So the opportunities there. I
23:36
Speaker 1: think the opportunities are in three areas. One is China.
23:40
Speaker 1: Um And that's a longer conversation. When we look at
23:42
Speaker 1: Western democracy against the center, I's gonna say that sounds
23:45
Speaker 1: crazy for who's to say that? Uh No, it's but
23:49
Speaker 1: it's when you search the world over and you look
23:51
Speaker 1: at what we've got here in the United States with
23:53
Speaker 1: extended valuations, and you look at what the opportunity is
23:56
Speaker 1: over in China with UM. You know, it's the second
23:59
Speaker 1: largest because on me it's got a growing middle class,
24:03
Speaker 1: but you know that it has its own barriers to compete.
24:05
Speaker 1: But when you look at you know, we looked at
24:07
Speaker 1: corporate earnings last year. You look at Talk Proctor and Gamble,
24:11
Speaker 1: Starbucks their earnings. The reason that earnings held up well
24:14
Speaker 1: in the large part was because of the business they
24:16
Speaker 1: did in China. So that's one area. Second is there's
24:20
Speaker 1: a still a recovery basket. Even though we've seen UM,
24:24
Speaker 1: you know, the stock market's done really, really well, there's
24:25
Speaker 1: still areas that are COVID affected that we think, UM
24:31
Speaker 1: it includes gaming, leisure, travel, entertainment, convention. Actually now everyone's
24:35
Speaker 1: talking about her immunity. Yeah, well we had so we
24:38
Speaker 1: added Southwest air to the portfolio this UM this last quarter. UM,
24:43
Speaker 1: we think that it's the airlines. I'm not ready to
24:46
Speaker 1: go all in, but there's going to be some growth
24:48
Speaker 1: and it's already g would be another example, UM of
24:52
Speaker 1: how to play the recovery. So, Greg, I guess seconds
24:58
Speaker 1: left here are are you in that rotation trade. Do
25:01
Speaker 1: you feel like the cyclicals are also place to look. No,
25:05
Speaker 1: we're not at I'm not into that. We we buy
25:08
Speaker 1: good companies. We just want to buy really really good
25:10
Speaker 1: companies and invest alongside of them to be able to
25:13
Speaker 1: move in and out. I mean, we struggle right now
25:15
Speaker 1: that one of the great plays right now is in
25:16
Speaker 1: the commodity markets. We're not getting investors. But when you
25:19
Speaker 1: look at the man from copper Um right now because
25:22
Speaker 1: of what's happening in silver with the five G roll
25:24
Speaker 1: out and just that that's a real demand. So Freeport
25:28
Speaker 1: mcmaran would be something we would be looking at, but
25:30
Speaker 1: it's something that we normally that's not our sweet pot.
25:33
Speaker 1: Got you okay, Hey, great, Thanks so much for joining us.
25:35
Speaker 1: We appreciate it. As always. Greg Han, chief investment officer
25:38
Speaker 1: for Winthrop Capital Management based in Indianapolis, giving us his
25:43
Speaker 1: thoughts here as the markets again pulling back a little
25:45
Speaker 1: bit today, but you know, making ever higher highs on
25:48
Speaker 1: in large part on the reopening trade and again the
25:51
Speaker 1: metrics on the pandemic very supportive right now. Thanks for
25:55
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
25:59
Speaker 1: listen to intervi us an Apple Podcasts or whatever podcast
26:02
Speaker 1: platform you prefer. I'm Matt Miller, I'm on Twitter at
26:06
Speaker 1: Matt Miller. And I'm fall Sweeney. I'm on Twitter at
26:10
Speaker 1: pt sweeney. Before the podcast, you can always catch us
26:13
Speaker 1: worldwide at Bloomberg Radio