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Howard Marks Says to Expect 5% Returns Now If You Start From Scratch · Bloomberg Intelligence

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  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
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  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
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Howard Marks,
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  Speaker 1: I loved your memo. Thank you for coming in. Howard Marks,
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  Speaker 1: of course, is a legendary investor in depth markets and
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  Speaker 1: across all asset classes. Frankly, co founder of oak Tree
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  Speaker 1: Capital Management. Uh, Howard, in your memo, you really outlined
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  Speaker 1: conditions that would necessitate being more cautious. Are we setting
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  Speaker 1: up conditions that are similar to what we saw in
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  Speaker 1: two thousand six two thousand seven, that are particip precipitating
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  Speaker 1: a pretty big downturn? Well, Lisa, it's easy to say
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  Speaker 1: we are seeing risky behavior in kind, but I don't
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  Speaker 1: think at all in degree. I mean, the conditions of
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  Speaker 1: oh six seven were uh exceptionally excessive and gave rise to,
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  Speaker 1: of course, the worst UH financial experience of a lifetime. UM,
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  Speaker 1: I don't think we're nowhere near in that territory. Now, yes,
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  Speaker 1: I mean the private sector and especially the financial sector
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  Speaker 1: is nowhere near as levered as it was at that time.
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  Speaker 1: And uh they in many cases the leverage where you
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  Speaker 1: was used to invest in subprime related mortgage backed securities. Uh.
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  Speaker 1: And I don't think there's an analog to those now.
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  Speaker 1: So I'm not saying that we're looking at that. All
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  Speaker 1: I'm saying, and maybe I didn't make it clear enough,
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  Speaker 1: although I think I did, is that is that there
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  Speaker 1: is a time for caution and there's a time for aggressiveness,
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  Speaker 1: and they're different, and it's important for a professional investor
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  Speaker 1: to make the distinction. And I believe that in relative terms,
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  Speaker 1: this is a time when one should emphasize caution over aggressiveness.
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  Speaker 1: And to be clear, even though you are saying caution,
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  Speaker 1: you're not saying and you specifically said that, you are
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  Speaker 1: not saying that this is a nonsensical bubble. Uh. It
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  Speaker 1: just there is high risk and valuations are high. So
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  Speaker 1: how do you proceed with caution? Can you give us
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  Speaker 1: an example of a type of asset that would be
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  Speaker 1: an appropriate by at this time? My point is that
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  Speaker 1: within each investment strategy, there are aggressive ways to pursue
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  Speaker 1: it and defensive ways to pursue it. Uh. An example,
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  Speaker 1: one of our activities is distress debt. The higher you
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  Speaker 1: are in the capital structure, the more dependably you make money.
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  Speaker 1: But when things go well, the less money you make.
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  Speaker 1: So do you want to be high in the capital
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  Speaker 1: structure and have a very high probability of making money
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  Speaker 1: or low in the capital structure and maximize the return
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  Speaker 1: in good outcomes? And I would say that if in
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  Speaker 1: a time for caution, you would move towards senior securities,
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  Speaker 1: increase your probability of making money, decrease the absolute payoff
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  Speaker 1: when things go great. So you're you're willing to pay
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  Speaker 1: higher prices for better secured assets even though the absolute
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  Speaker 1: return will be substantially less. Right, Well, what you what
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  Speaker 1: you call higher prices? I would say, we're willing to
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  Speaker 1: accept lower prospective returns for for greater safety. That's what
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  Speaker 1: it's all about. If the conservative investor accepts lower expected
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  Speaker 1: returns as the price for greater safety. There are times
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  Speaker 1: when that's highly appropriate. There are times when that's highly inappropriate.
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  Speaker 1: Our job is to figure out which this is. So. UM,
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  Speaker 1: I've heard a lot of pension funds in particular say
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  Speaker 1: that they are seeking returns and safety from this sort
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  Speaker 1: of a bulliant environment in private debt markets, and there
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  Speaker 1: seems to be quite a lot of cash flowing into
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  Speaker 1: private debt. Has it gone too far? And is it
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  Speaker 1: keeping companies alive that perhaps shouldn't be. I can't say
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  Speaker 1: too far it's gone far. The point is everybody says, oh,
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  Speaker 1: you should do this, We were the only ones who
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  Speaker 1: have thought of that. Every If everybody is saying you
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  Speaker 1: should do this because we're the only ones who thought
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  Speaker 1: of it, then it's really obviously not as novel a
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  Speaker 1: solution as they're suggesting. So so the eye da private
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  Speaker 1: lending UH is not undiscovered. Money has flowed in. I
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  Speaker 1: can't tell you whether it's an appropriate amount or too much. Clearly,
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  Speaker 1: the market is more competitive to make loans than it
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  Speaker 1: used to be, and when market is more competitive, that
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  Speaker 1: implies lower prospective returns. UH. I still think, however, that
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  Speaker 1: private lending is more appropriate today than than buying public
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  Speaker 1: securities because the public money can't get to the private
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  Speaker 1: lending opportunities. UH. And I think that the public quest
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  Speaker 1: for high returns in a low return world has caused
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  Speaker 1: a lot of money to flow into senior loans and
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  Speaker 1: hi your bonds and so forth. And that is less
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  Speaker 1: true about uh, the private dead market. But I'll add
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  Speaker 1: one thing. When you move away from public markets, which
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  Speaker 1: nowadays we kind of call beta markets because the return, uh,
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  Speaker 1: your return is determined by the turn of the market
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  Speaker 1: in large part. To alpha markets, where your return is
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  Speaker 1: largely a factor of the skill of the manager, you
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  Speaker 1: are accepting a new kind of risk which is substantial
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  Speaker 1: dependence on the skill of the manager, which is different
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  Speaker 1: than being in public markets, are being in an index fund. Uh.
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  Speaker 1: You know, talking about index funds, you talked about the
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  Speaker 1: threat of all of the money that moved in moving
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  Speaker 1: out in tandem. UM. I hear a lot about cash
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  Speaker 1: on the sidelines, and I'm not sure exactly what they're
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  Speaker 1: talking about. I think to a large degree they're talking
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  Speaker 1: about private equity funds that have all this dry powder
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  Speaker 1: lying around. To what extent will that cash on the
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  Speaker 1: sidelines buffer any declines, Well, it depends on where they
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  Speaker 1: are and whether the cash on the sidelines is so
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  Speaker 1: always say flexible. For example, we raised money for distress
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  Speaker 1: debt fund in the expectation that there would be an
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  Speaker 1: opportunity for distress which has not materialized yet. Admittedly, um,
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  Speaker 1: and you know, if there is such an opportunity, we're
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  Speaker 1: gonna swing into actually gonna put that money to work.
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  Speaker 1: This is something we've done in the past. Well, we
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  Speaker 1: hope to do it in the future if there's we
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  Speaker 1: hope there will be an opportunity, and we hope to
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  Speaker 1: do a good job with it. But given the nature
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  Speaker 1: of the investment business, if uh, if let's say, uh,
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  Speaker 1: to follow your argument, money flowed out of e t
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  Speaker 1: F s and they had to sell the high flyers
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  Speaker 1: that have done so well based on e t F
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  Speaker 1: buying and they had to become sellers, and that drove
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  Speaker 1: them down. We couldn't buy that because we can't take
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  Speaker 1: the money we raise for distressed debt funds and buy
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  Speaker 1: public equities. So uh. You know, in in the institutional
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  Speaker 1: investment business, we talk about something called buckets. Which bucket
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  Speaker 1: is your money for and our bucket is for private
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  Speaker 1: distress debt. We can't take that money and buy put
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  Speaker 1: it into a different bucket, which is public equities. So
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  Speaker 1: if the if most of the dry powder is in
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  Speaker 1: private equity and private debt and so forth, anybody who says, oh,
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  Speaker 1: you know, if the market goes down, those private equity
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  Speaker 1: guys will just go in and buy them up. It's
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  Speaker 1: unlikely because people don't step out of their bucket that often.
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  Speaker 1: So this is fascinating. Does that mean that there's more
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  Speaker 1: of a floor under prices of private debt, say, or
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  Speaker 1: distress debt than there is for equities. Well, of course
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  Speaker 1: the private debt or distressed debt guys would say no, no,
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  Speaker 1: we're gonna let it drop before we buy. But clearly,
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  Speaker 1: the more buying power there is on the sidelines, the
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  Speaker 1: more there's a floor, the less uh things will will
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  Speaker 1: drop unremittingly, you were talking about how you don't think
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  Speaker 1: that there is the same degree of leverage at investment
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  Speaker 1: banks that there was leading up to the two crash.
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  Speaker 1: I am hearing more about leverage being used by hedge funds,
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  Speaker 1: in particular to buy equities and investment grade credit. How
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  Speaker 1: concerned are you about this? Have you been hearing about this?
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  Speaker 1: The willingness to use more leverage after the market has
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  Speaker 1: risen making people feel good is indicative of, in my opinion,
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  Speaker 1: the need for caution. UH. If people are using leverage
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  Speaker 1: today who didn't use leverage five years ago, well, is
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  Speaker 1: it is today a better buying opportunity or a worse
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  Speaker 1: buying opportunity? Is it safer today or risk here? I
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  Speaker 1: would say it's a worse buying opportunity. It's risk here.
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  Speaker 1: So why are you using leverage today that you didn't
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  Speaker 1: use five years ago? The answer is, given the low
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  Speaker 1: prospective returns in all markets, it's hard to make money today,
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  Speaker 1: so more and more people resort to leverage. Leverage does
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  Speaker 1: not make an investment better. It only magnifies the results.
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  Speaker 1: It magnifies the gains if there are gains, and losses
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  Speaker 1: if there are losses. And uh So, the question is
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  Speaker 1: why would you use leverage today that you didn't use
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  Speaker 1: five years ago. It's by the way, you know, in
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  Speaker 1: Las Vegas, Lisa, they say the more you bet, the
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  Speaker 1: more you win when you win. Now, you can't argue
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  Speaker 1: with that statement, but but any intelligent person should see
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  Speaker 1: the fallacy. Uh you know you're talking about the private
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  Speaker 1: equity and then in the cash being raised. I'm wondering,
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  Speaker 1: you know, we have heard about the record amount of
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  Speaker 1: money new record funds for buyouts or private debt. Do
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  Speaker 1: you think that the worst case scenario for these is
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  Speaker 1: that returns will be much lower, or that it could
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  Speaker 1: potentially be even worse than that. The most likely negative
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  Speaker 1: repercussion is that returns will be hard to come by
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  Speaker 1: and maybe lower than investors have in mind. There's always
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  Speaker 1: the possibility of negative returns, uh, but that would require uh,
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  Speaker 1: something nearly cataclysmic, you know. I think that. I think
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  Speaker 1: that in oh eight, when the global financial crisis was
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  Speaker 1: raging after the Lehman bankruptcy, I believe that the private
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  Speaker 1: equity font in general, the funds of oh five, six, seven,
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  Speaker 1: maybe eight, we're looking at the prospect of losing money.
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  Speaker 1: It happens that the government did a great job of
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  Speaker 1: bailing out the financial sector, which reopened the credit window,
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  Speaker 1: which enabled those companies to refinance their debts and push
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  Speaker 1: them off. And also, of course, the government's bail out
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  Speaker 1: brought back the economy and brought an end to the
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  Speaker 1: to a significant recession. And the combination of those things
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  Speaker 1: meant that those funds will now have moderate, I believe,
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  Speaker 1: high single digit returns, and everybody will say, oh, not
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  Speaker 1: so bad, and the returns on those funds will not
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  Speaker 1: be bad. I believe they could have been worse, but
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  Speaker 1: for the things that went right. So talking about returns
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  Speaker 1: just last day, I want to touch base with you
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  Speaker 1: on what you expect to be appropriate expectations for returns
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  Speaker 1: for say, pension funds at this point. What's an appropriate
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  Speaker 1: market if you if if if you walked into a
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  Speaker 1: pension fund today which had no investments, and you were
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  Speaker 1: given a pile of cash, and you invested today intelligently,
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  Speaker 1: prudently but not shrinking from risk, I think you could
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  Speaker 1: expect to make something in the vicinity of five in
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  Speaker 1: the in the in the coming years from today. UM.
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  Speaker 1: If you take more risk and everything goes right, you'll
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  Speaker 1: make more, and vice versa. UM. The problem is, most
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  Speaker 1: pension funds need seven and a half to make the
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  Speaker 1: math work to make today's assets turn into enough to
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  Speaker 1: pay tomorrow's benefits. Uh. And I think that making seven
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  Speaker 1: a half from today will be quite a challenge and
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  Speaker 1: will necessitate two things substantial risk taking and and good outcomes,
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  Speaker 1: which means that there is a bigger risk of negative
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  Speaker 1: outcomes and UH, much lower than even To respond to
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  Speaker 1: the Las Vegas people, the more you bet, the more
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  Speaker 1: you lose when you lose, So you can't have it
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  Speaker 1: both ways. And I think that most investors see that
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  Speaker 1: today's low return environment necessitates substantial risk taking. But substantial
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  Speaker 1: risk taking, if it runs into bad outcomes, will will
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  Speaker 1: lead to disappointment. That's all we can say for sure.
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  Speaker 1: Poward Marks, thank you so much for joining. Thank you,
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  Speaker 1: Poward Marks, co founder of oak Tree Capital Management. I
• 14:05
  Speaker 1: can hear Chris Salman singing this song. Chris Salman, the
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  Speaker 1: chief investment officer of the California State Teachers Retirement System.
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  Speaker 1: I believe he's got a little bit more than two
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  Speaker 1: eight billion dollars under management. Chris, you're on your bicycle
• 14:20
  Speaker 1: now you have one in your office too. I know,
• 14:22
  Speaker 1: I wish I was. I actually tore the meniscus in
• 14:25
  Speaker 1: my knee dancing at my daughter's wedding. So I am
• 14:29
  Speaker 1: off my bike summer, but surgery. I'll be back soon, hopefully.
• 14:33
  Speaker 1: Well it was allah. It was all on a good cause,
• 14:36
  Speaker 1: as they say, exactly. I was dipping her. I I
• 14:39
  Speaker 1: have father daughter dance. I got to dip her and
• 14:42
  Speaker 1: boom out with my knee. I didn't drop though, So
• 14:45
  Speaker 1: it's okay. It was wonderful. Well good, Yeah, that that's
• 14:48
  Speaker 1: that's sort of like the investment philosophy, right, you know,
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  Speaker 1: you take the risk and then you hope that nothing
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  Speaker 1: bad happens and you bounce back. Good for you. Agree
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  Speaker 1: with Howard Marks. But I have a couple of other
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  Speaker 1: points to raise. Well, I want you to raise them.
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  Speaker 1: I just want to offer people the context for that
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  Speaker 1: California State Teachers Retirement System, which of course is the
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  Speaker 1: second largest US pension fund, you earned thirteen point four
• 15:12
  Speaker 1: percent in the fiscal year ended June. Well done, there
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  Speaker 1: you go. That does that make up for the for
• 15:19
  Speaker 1: the bad years? You know? Well, look at this tim
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  Speaker 1: we made ten percent over five years. We've made just
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  Speaker 1: about seven percent over the last twenty years net of fees.
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  Speaker 1: That includes two very nasty recessions. So well, that's that
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  Speaker 1: seven and a half bogey, right the seven and a
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  Speaker 1: half percent the hurdle. No, it is below that, but
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  Speaker 1: it's right out about seven. We're lowering our assumption rate
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  Speaker 1: from seven and a half seven in the corner last
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  Speaker 1: year seven percent this coming year. So you said that
• 15:52
  Speaker 1: you had some some responses to Howard Marks's comments where
• 15:56
  Speaker 1: he basically said that going forward, if pension funds were
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  Speaker 1: to invest new money today, all of their money knew,
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  Speaker 1: not including older legacy investments. That they could probably reliably
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  Speaker 1: get a five percent return without taking excessive risk and
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  Speaker 1: risking potential losses. Do you agree with that? Let me
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  Speaker 1: frame the way, and I think for your investor listeners
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  Speaker 1: that would help to frame that. Think about two thousand,
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  Speaker 1: sixteen and seventeen as a vintage year. So your IRA
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  Speaker 1: contribution this year, your money, if you invested it, as
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  Speaker 1: you're saying, this year new money, what's a realistic expectation
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  Speaker 1: for that over the near term? Five percent might be
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  Speaker 1: acceptable The differences I invest every year again and again
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  Speaker 1: for thirty years. So right now my portfolio, I have
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  Speaker 1: investments that are over twenty five years old that were
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  Speaker 1: made in the at the end of the nineties, where
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  Speaker 1: they're going to have a double digit return, and I
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  Speaker 1: think seven percent over the next thirty years is a
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  Speaker 1: realistic number if you use today as a starting date.
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  Speaker 1: And that's where Howard's coming from. Capital asset prices are expensive,
• 17:09
  Speaker 1: whether it's equities, public securities, and private securities are almost
• 17:13
  Speaker 1: priced to perfection, and so we recognize that new money
• 17:17
  Speaker 1: going to work this year may not have that great
• 17:20
  Speaker 1: of our return. This vintage year for private equity, this
• 17:23
  Speaker 1: vintage year for real estate, you can't expect to buy
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  Speaker 1: a building at these prices and have a really high return.
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  Speaker 1: But as he pointed out, when prices dropped, and that's
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  Speaker 1: when Howard loves to invest. When when prices go down,
• 17:37
  Speaker 1: then he'll come into the market, and so will we.
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  Speaker 1: I often say we're countercyclical. We have thirty year money.
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  Speaker 1: We don't have to buy at the top. We can
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  Speaker 1: wait and be patient and and look for lower prices.
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  Speaker 1: And that's been a big discussion of my staff. I
• 17:52
  Speaker 1: was just with a group of c I O s
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  Speaker 1: up in Canada last week. That was our key discussion
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  Speaker 1: was asset prices being perfection. How much dry powder should
• 18:02
  Speaker 1: you hold back? How cautious should you be? Are you
• 18:07
  Speaker 1: holding back? Well? Right now, we're over two percent in cash,
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  Speaker 1: and my staff met last week and is talking about
• 18:13
  Speaker 1: potentially raising that. We've been taking profits, Lisa, in this
• 18:17
  Speaker 1: US equity market since the start of the year. Every
• 18:20
  Speaker 1: time it hits the new high, we just shave off
• 18:22
  Speaker 1: a little bit of that profit. We've been putting that
• 18:24
  Speaker 1: in Europe and in Asia, but also building up our
• 18:28
  Speaker 1: our de risking assets, assets that that do better or
• 18:33
  Speaker 1: hold value when the markets go down. Um so those
• 18:36
  Speaker 1: assets didn't do well last year because the market was
• 18:38
  Speaker 1: up so so strong. But we're trying to balance that portfolio.
• 18:43
  Speaker 1: You've heard me say a year after year to the
• 18:45
  Speaker 1: to the listeners. It's all about rebalancing your asset allocation.
• 18:49
  Speaker 1: Don't let your equities run, rebalance into the less risky assets.
• 18:54
  Speaker 1: And I think that's what Howard's saying. Well, Chris Alman,
• 18:57
  Speaker 1: you know you you spend a lot of time listening
• 18:59
  Speaker 1: to hundits and experts, and you know you read all
• 19:02
  Speaker 1: the reports. I mean, what you're what you're proposing sounds
• 19:05
  Speaker 1: pretty reasonable and you don't necessarily need a PhD to
• 19:08
  Speaker 1: figure this out? Or do you? No, you don't. I
• 19:11
  Speaker 1: listen to you. You're the pundits expert. Don't do that.
• 19:15
  Speaker 1: You know that I listen to you. I ride my
• 19:16
  Speaker 1: bike to work sometimes I and I listen to you guys,
• 19:19
  Speaker 1: so and I hear and you're right. But my point is,
• 19:23
  Speaker 1: every time you ask, Chris, every time you ask someone
• 19:25
  Speaker 1: went to sell, no one ever has an answer. Oh exactly.
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  Speaker 1: But but look at the stage advice from people like
• 19:32
  Speaker 1: Warren Buffett. You buy when everybody is nervous, and you
• 19:36
  Speaker 1: sell when everybody is greedy. So right now things are
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  Speaker 1: priced to perfection. But even as Howard, he put out
• 19:42
  Speaker 1: a newsletter last week where he said it's it's they're
• 19:46
  Speaker 1: at it again again, but he admits he's often early.
• 19:50
  Speaker 1: We're at the we're in the late stages of this
• 19:52
  Speaker 1: economic expansion. But it could last for another year or
• 19:55
  Speaker 1: even two years. You don't know when it will crack.
• 19:59
  Speaker 1: So let's talk ab at that. Because we have heard
• 20:01
  Speaker 1: from some pensions, particularly in UH in Canada, they have
• 20:06
  Speaker 1: been investing directly in companies, buying them directly, basically competing
• 20:10
  Speaker 1: with private equity companies. You know that Cowper's is considering
• 20:15
  Speaker 1: doing the same. What about Calistas. We're looking at the
• 20:18
  Speaker 1: idea of teaming up with people. We don't think we
• 20:20
  Speaker 1: want to start from scratch um. We want to team
• 20:23
  Speaker 1: up with people that are already in the marketplace. And
• 20:26
  Speaker 1: this is part of recognizing as Pen was hitting me
• 20:29
  Speaker 1: with lower return environment. We can make or return out
• 20:33
  Speaker 1: of private equity, but if we can reduce our costs
• 20:35
  Speaker 1: a little bit of investing in private equity, that enhances
• 20:38
  Speaker 1: our return. So the idea of going and buying mid
• 20:42
  Speaker 1: sized companies directly instead of the old two and twenty
• 20:45
  Speaker 1: private equity model is much more attractive, and we've recognized
• 20:49
  Speaker 1: the spread and private equity has come down. You're not
• 20:52
  Speaker 1: getting three basis points are full three over public stocks,
• 20:57
  Speaker 1: probably only getting a hundred and fifty or one and
• 21:00
  Speaker 1: half percent over public stocks, but you're still getting a
• 21:02
  Speaker 1: premium over public markets. Chris just quickly. Is the investing
• 21:07
  Speaker 1: environment for let's say, environmentally friendly companies or companies that
• 21:11
  Speaker 1: respect the environment and so on, socially responsible? Is that
• 21:15
  Speaker 1: a key theme or is that something that was just
• 21:17
  Speaker 1: a buzzword and has gone away PIM I think we're
• 21:20
  Speaker 1: going to see today and into the future. I would
• 21:23
  Speaker 1: describe it as managements that actually think bigger and broader
• 21:27
  Speaker 1: than just the risks that appear in the next ninety days.
• 21:30
  Speaker 1: Managements that look out three to five years and think
• 21:33
  Speaker 1: about a broad section of material risk to their business.
• 21:37
  Speaker 1: Those companies are going to outperform other companies, says the
• 21:41
  Speaker 1: man who rides his bike to work. Chris Alman. Always
• 21:43
  Speaker 1: a pleasure. We love speaking with you. Chris Alman is
• 21:45
  Speaker 1: Chief Investment Officer of the California State Teachers Retirement System,
• 21:49
  Speaker 1: with more than two hundred billion dollars under management. It's
• 21:52
  Speaker 1: based in Sacramento, California. Now let's turn our attention to Sprint.
• 22:08
  Speaker 1: I want to find out what's going on there. We've
• 22:10
  Speaker 1: got John Butler. He is an expert when it comes
• 22:12
  Speaker 1: to telecom and telecom equipment, and he is joining us now.
• 22:16
  Speaker 1: He's of course from Bloomberg Intelligence and John Sprint up
• 22:19
  Speaker 1: a ten percent. That's the stock right now. What are
• 22:22
  Speaker 1: they doing? What what's causing this big move higher? Well? Sprinted? Okay,
• 22:27
  Speaker 1: in the quarter, you know, it was steady as she
• 22:30
  Speaker 1: goes um. Frankly, you know, they always do a very
• 22:34
  Speaker 1: good job about sort of managing investor expectations and giving
• 22:38
  Speaker 1: people the sense that they're writing the ship, and they are,
• 22:42
  Speaker 1: but it really is a cost cutting thing for them
• 22:45
  Speaker 1: more than a top line story. At this point. What
• 22:48
  Speaker 1: I think is driving the stock up is CEO Marcello
• 22:51
  Speaker 1: Clare was asked about potential combinations Charter, Yes, and he
• 22:59
  Speaker 1: told people to expect something coming soon. Um in the
• 23:04
  Speaker 1: near future, I believe was the term he used. Uh,
• 23:08
  Speaker 1: what are some of the what are some of the
• 23:09
  Speaker 1: possibilities in John Butler's Well, Before I answer that, I'll
• 23:13
  Speaker 1: just say I hope he's right, you know, Sprint has
• 23:15
  Speaker 1: been on the block for a while. Um Soft Bank
• 23:19
  Speaker 1: and in particular CEO uh Massa Yoshi San owns eight
• 23:25
  Speaker 1: percent of Sprint and he has really tried to monetize
• 23:29
  Speaker 1: that asset for a long time now, so tried to
• 23:32
  Speaker 1: sell it. Yeah, and it feels like a house that's
• 23:35
  Speaker 1: been on the market a little bit too long. You know,
• 23:38
  Speaker 1: it begins to get people wondering as to aging to Yeah,
• 23:42
  Speaker 1: what's really wrong there? But you know there's a convergence
• 23:47
  Speaker 1: now happening between cable and telecom or it's looming more
• 23:51
  Speaker 1: than anything. You see a T and T buying Time
• 23:54
  Speaker 1: Warner getting into content. Verizon has shown interest there through
• 24:00
  Speaker 1: a O L and Yahoo, both of which you have
• 24:02
  Speaker 1: a lot of content, and there's been talk that they're
• 24:05
  Speaker 1: kicking the tires and media land. So you know, the
• 24:08
  Speaker 1: potential for a cable company to buy Sprint or Sprint
• 24:12
  Speaker 1: to buy a cable company has been high on the
• 24:14
  Speaker 1: rumor mill um. You know, there's again potential, there's bundling potential.
• 24:20
  Speaker 1: They're right where people can buy their wireless, their cable,
• 24:24
  Speaker 1: their broadband all from one provider. You know, I have
• 24:27
  Speaker 1: to say, John and I this just shows the narrow
• 24:30
  Speaker 1: lens with through which I see the world. But here Sprint,
• 24:33
  Speaker 1: and I think, wow, They're the biggest issuer in the
• 24:36
  Speaker 1: high old bond market and the one point three trillion
• 24:38
  Speaker 1: dollar US higher bond market. They have more than twenty
• 24:42
  Speaker 1: four billion dollars in the main index that people track,
• 24:47
  Speaker 1: And this just makes me wonder. I mean, first of all,
• 24:49
  Speaker 1: would any buyer have to assume that date debt? And
• 24:52
  Speaker 1: how much of an obstacle is that to purchase? And
• 24:56
  Speaker 1: second of all, if it doesn't fall through, is there
• 25:00
  Speaker 1: chance that Sprint could go into a spiral and sort
• 25:02
  Speaker 1: of fail to pay the mounting UH interest payments that
• 25:06
  Speaker 1: it owes. We'll start by saying, thank god, I'm not
• 25:10
  Speaker 1: our credit analysts. We have a telecom credit analyst named
• 25:14
  Speaker 1: Steve Flynn who who knows the details better than I do.
• 25:17
  Speaker 1: But I will say if someone did acquire Sprint, they
• 25:21
  Speaker 1: would probably have to acquire that debt. And I think
• 25:24
  Speaker 1: Sprint is on a track now where they're sort of
• 25:27
  Speaker 1: out of danger in terms of making those payments. Things
• 25:31
  Speaker 1: can change overnight and telecom, as we all know, but
• 25:35
  Speaker 1: based on the current trajectory um, I would say they're
• 25:38
  Speaker 1: in pretty good shape for now Apple, what do you expect?
• 25:44
  Speaker 1: You know, the current quarter doesn't matter. People are really
• 25:48
  Speaker 1: all eyes are on September, uh, the September quarter, which
• 25:52
  Speaker 1: is their fiscal fourth quarter. Um, they have the launch
• 25:56
  Speaker 1: of the new iPhones coming, and just to sort of
• 26:00
  Speaker 1: at the table, we're expecting three new i phones. So
• 26:03
  Speaker 1: we'll get sort of a standard feature update of the
• 26:06
  Speaker 1: iPhone seven and seven plus that are on the market now.
• 26:10
  Speaker 1: So the iPhone seven s and the seven s plus
• 26:14
  Speaker 1: will have a similar screen, probably offer wireless charging, truly wireless,
• 26:20
  Speaker 1: or waterproof ports, and maybe a better camera. That's typically
• 26:24
  Speaker 1: what you see with you know, those kind of feature
• 26:27
  Speaker 1: upgrades or what you see with that sort of talk
• 26:31
  Speaker 1: here where you just get modest upgrades. But it is
• 26:35
  Speaker 1: the tenure anniversary of the iPhone, and there will be
• 26:39
  Speaker 1: hopefully a third iPhone called the iPhone X or the
• 26:43
  Speaker 1: iPhone eight as I've been calling it, which will be
• 26:47
  Speaker 1: a much bigger device, rumored to have a five point
• 26:49
  Speaker 1: eight inch screen, no bezels or those little side bars
• 26:54
  Speaker 1: that frame the screen on the side, So they're going
• 26:58
  Speaker 1: bezel lists, which will give you more real estate there.
• 27:01
  Speaker 1: And um, you know there's been talk of Component Delays.
• 27:07
  Speaker 1: John Butler, Senior Telecom Services and Equipment Analyst for Bloomberg Intelligence.
• 27:12
  Speaker 1: Always our pleasure to speak with you. Thanks for listening
• 27:18
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 27:21
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 27:24
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
• 27:28
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo wits one.
• 27:32
  Speaker 1: Before the podcast, you can always catch us worldwide on
• 27:35
  Speaker 1: Bloomberg Radio