Latest / Bloomberg Intelligence / The Ball Is In Comcast’s Court :Paul Sweeney

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The Ball Is In Comcast’s Court :Paul Sweeney · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa 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
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Let's
• 0:32
  Speaker 1: turn out to one stock and one story. In particular,
• 0:36
  Speaker 1: Century Fox shares higher right now by more than seven percent.
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  Speaker 1: This comes after an increased bid from Disney seventy one
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  Speaker 1: billion dollars to acquire those uh century Fox assets. Here
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  Speaker 1: to tell us more, Paul Sweeney expert when it comes
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  Speaker 1: to all things Internet and media related. He is our
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  Speaker 1: director of North American Research for Bloomberg Intelligence and our
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  Speaker 1: Internet analysts. Paul, what do you make of this particular
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  Speaker 1: move by Disney? Is this the coda? Is this the
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  Speaker 1: final final bid? You know, we'll have to see. The
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  Speaker 1: ball is definitely in Comcast court here, but you know,
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  Speaker 1: this is a very aggressive move by Bob Buyer and
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  Speaker 1: and Disney. Not only did they raise the price of
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  Speaker 1: their deal by approximately thirty but they also added a
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  Speaker 1: cash component allowing shareholders to elect between cash and stock,
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  Speaker 1: and that really makes the deal very compelling for sellers,
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  Speaker 1: particularly the Murdoch family, who may prefer to take stock
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  Speaker 1: and defer some of their their tax gains versus a
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  Speaker 1: a Comcast deal which is all cash and which would
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  Speaker 1: clearly result in a significant tax liability for the Murdoch
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  Speaker 1: So this is about as compelling a deal as Disney
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  Speaker 1: could have come back with. I think it's actually a
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  Speaker 1: little surprising how aggressive they were. So again, the ball
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  Speaker 1: is really in the court of Comcast and Brian Roberts,
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  Speaker 1: and they need to decide how much they want this asset.
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  Speaker 1: I'm really confused about the market response to this. Disney
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  Speaker 1: shares are up more than one percent, even though, uh,
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  Speaker 1: you know, the risk of Disney over paying, the risk
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  Speaker 1: of a bidding war ending up with an outcome that
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  Speaker 1: isn't so great is rising. Can you explain why investors
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  Speaker 1: are cheering this the power of cash? Um so. I
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  Speaker 1: think what's happening here is the original all stock deal
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  Speaker 1: that Disney put on the table is actually diluted to
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  Speaker 1: Disney shareholders per our analysis. However, as they reduced the
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  Speaker 1: amount of equity that they put in deal and increase
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  Speaker 1: the cash. Even at today's low rates, the deal becomes
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  Speaker 1: less and less dilutive and actually a little bit of
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  Speaker 1: creative here. So depending upon the elections of cash versus stock. So, um,
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  Speaker 1: it's actually for Disney from a near term perspective a
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  Speaker 1: little bit better believe it or not. And then I
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  Speaker 1: think it just kind of goes to I think it
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  Speaker 1: reflects effected. I think investors feel like this might be
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  Speaker 1: a knockout punch by Disney. Well, taking a look at
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  Speaker 1: the shares of Comcast. On the other hand, you know,
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  Speaker 1: Comcast investors don't seem to have liked this deal. The
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  Speaker 1: stock is down nearly eighteen percent so far this year
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  Speaker 1: today basically unchanged. Do you think that the if indeed
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  Speaker 1: Disney walks away with this, that this will be something
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  Speaker 1: that will be positive for Comcast? I think so in
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  Speaker 1: the short term. You're exactly right. The stock has been
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  Speaker 1: down this year. It's been underperforming given Charter, which is
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  Speaker 1: another big cable company, And I think the concern there
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  Speaker 1: with Comcast was just exactly what happened, that they would
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  Speaker 1: try to use their balance sheet to make a big
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  Speaker 1: acquisition and uh and uh, you know, really limit the
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  Speaker 1: amount of stock they can buy back or the amount
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  Speaker 1: they can invest in some of their other core businesses.
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  Speaker 1: And I think Comcast investors, while they're obviously very supportive
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  Speaker 1: of Brian Roberts and its management team, I think they
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  Speaker 1: feel like, UM, the Fox assets are not as critical
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  Speaker 1: to the future of Comcast as they might be for Disney.
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  Speaker 1: As a result, I don't think Comcast shareholders were quite
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  Speaker 1: as supportive of the Comcast management team and board as
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  Speaker 1: the Disney shareholders have proven to be. UM. So the
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  Speaker 1: question then will be, you know, A, what does Comcast
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  Speaker 1: do here in response to the Disney bid? And be
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  Speaker 1: if they lose, where does Comcast go next? UM? Do
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  Speaker 1: they try to copple together some assets like a Discovery Communications,
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  Speaker 1: like some other media companies that might be out there,
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  Speaker 1: like some film studios that might replicate in some way, um,
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  Speaker 1: the assets that they did not get with Fox. Paul Sweeney,
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  Speaker 1: thank you so much for being with us, and I'm
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  Speaker 1: sure we'll be following this on an ongoing basis as
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  Speaker 1: this saga continues to play out. Paul Sweeney as US
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  Speaker 1: director of Research and senior Media and Internet analyst for
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  Speaker 1: Bloomberg Intelligence. General Electric shares are down more than one
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  Speaker 1: percent today, following in early two percent laws yesterday after
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  Speaker 1: getting kicked out of the Dow Jones Index. This is
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  Speaker 1: a symbolic move, but it also could affect gees fortunes
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  Speaker 1: going forward in a fundamental way. Sarah pon Sech joins
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  Speaker 1: US now she's bloomber Cross Asset reporter um and this
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  Speaker 1: story is fascinating from so many perspectives. But first, can
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  Speaker 1: you just sort of paint the picture. General Electric has
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  Speaker 1: been in the index for a long time, storied company.
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  Speaker 1: Why was it kicked out? Of course, so this is
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  Speaker 1: pretty bitter sweet. G E was one of the original
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  Speaker 1: down members and now we don't have any of them.
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  Speaker 1: But the problem with ge is that we have been
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  Speaker 1: seeing it come forth with so many issues lately. I mean,
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  Speaker 1: it's lost half its market value in the last year.
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  Speaker 1: This year, it's down already last year it's down. I mean,
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  Speaker 1: it's been struggling with weak demand for industrial equipment. It's
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  Speaker 1: had cash flow problems. They're also going through an accounting
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  Speaker 1: probe right now. So there's just so much right now
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  Speaker 1: that's hurting the company. And it dropped to a point
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  Speaker 1: that's so low because the doubt is price weighted that
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  Speaker 1: it really didn't have too much weight within the Dow,
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  Speaker 1: and the doubts also supposed to represent the economy and
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  Speaker 1: the down makers, if you will feel like the economy
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  Speaker 1: is moving forth and maybe g E is in the
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  Speaker 1: next part of it. Well, just to be clear, right,
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  Speaker 1: the way in which the Dow Jones Industrial Leverage is
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  Speaker 1: put together is it is a price of and it's
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  Speaker 1: the sum of the actual price of all of the
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  Speaker 1: components and the index, and then that price is then
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  Speaker 1: divided by something called the Dow divisor, and that is
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  Speaker 1: designed to account for stock splits as well as a
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  Speaker 1: variety of other kind of changes in the actual stock price.
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  Speaker 1: And it's interesting because this is a very human decision, right,
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  Speaker 1: This is not something like g E reached a certain
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  Speaker 1: level of sales, you're out. It's not about it. It's
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  Speaker 1: not about that, right. It's not rules based, and like
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  Speaker 1: you said, it is price weighted, whereas a lot of
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  Speaker 1: the other industries are market cap weighted. But it's not
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  Speaker 1: a rules based system that either adds stocks or takes
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  Speaker 1: stocks out of the index. Rather, there's actually a committee
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  Speaker 1: that sits around and discusses which stocks should be the
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  Speaker 1: next one added, But this raises so many questions. It
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  Speaker 1: is about just you know, what is passive management and
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  Speaker 1: you know with index strategies, is this smart investing? I mean,
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  Speaker 1: given the fact that this company's shares has have absolutely tanked,
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  Speaker 1: is now the time to sell out and solidify losses
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  Speaker 1: and then bringing another name that's done really well that
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  Speaker 1: might not have as many games looking forward? Right. So
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  Speaker 1: Stephen Gendell, he wrote an opinion column for Bloomberg this morning,
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  Speaker 1: and he made a really interesting point saying, is it fair,
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  Speaker 1: uh for a committee to sit around and kind of
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  Speaker 1: choose what the economy is supposed to look like going forwards?
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  Speaker 1: And he pointed out that the DAL dropped A T
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  Speaker 1: and T back in and since then a T and
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  Speaker 1: T is we just saw the acquisition with Time Warner.
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  Speaker 1: And even before that, the DAL dropped Bank of America,
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  Speaker 1: and since then Bank of America shares are up. So
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  Speaker 1: it really comes down to the point of who whose
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  Speaker 1: choice is it to really decide who goes and who
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  Speaker 1: comes out. American Cotton Oil Company that was one of
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  Speaker 1: the original down members just to give it and it's
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  Speaker 1: now part of Unilever. After a variety of you know,
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  Speaker 1: a sires and sellers and so on. But I mean,
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  Speaker 1: it just reflects the ongoing change in the way that
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  Speaker 1: the economy is represented in the financial markets right right.
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  Speaker 1: And something that we've been discussing a lot is why Walgreens.
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  Speaker 1: We've been trying to figure it out because with Walgreens
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  Speaker 1: you can go both ways. Of course, it is actually
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  Speaker 1: classified as a consumer staples company, but a lot of
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  Speaker 1: people do think of it as a bit of a
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  Speaker 1: healthcare company. So if you look at the waitings and
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  Speaker 1: the members of the makeup of the Dow, consumer staples
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  Speaker 1: hold about five point seven percent of the entire index,
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  Speaker 1: but healthcare, on the other hand, holds about So is
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  Speaker 1: this a safe way to get more at retail but
• 8:39
  Speaker 1: not get into traditional retail. Someone I spoke with this morning,
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  Speaker 1: she said, you're not gonna add Mazis, You're not gonna
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  Speaker 1: add J C. Penny. But is it kind of a
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  Speaker 1: cop out? I also wonder, you know, just with respect
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  Speaker 1: to General Electric getting booted, how much the company shares
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  Speaker 1: will now decline further just to sort of a de
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  Speaker 1: facto response to these indexed funds that are being forced
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  Speaker 1: to sell the shares. And so I wonder if this
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  Speaker 1: sort of creates a spine, and that includes exchange traded funds,
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  Speaker 1: as you mentioned. But Goldman Sacks actually they came out
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  Speaker 1: with an interesting note. I thought it was a bit contrarian,
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  Speaker 1: because that's what you would think, um, But an analyst
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  Speaker 1: over Goldman Sachs he actually found that stocks that have
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  Speaker 1: been removed from the index recently have typically outperformed the
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  Speaker 1: rest of the doubt over the next twelve months. And
• 9:22
  Speaker 1: some are saying, in a way, maybe this is good
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  Speaker 1: for g E because maybe this takes off that label
• 9:29
  Speaker 1: of ge being that old, sturdy industrial company and maybe
• 9:33
  Speaker 1: it allows it to move forwards. Actually, Brooks Sutherland of
• 9:36
  Speaker 1: Bloomberg Opinion ort com and was discussing how perhaps this
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  Speaker 1: freees up General Electric to think more radically about how
• 9:42
  Speaker 1: to reshape itself and perhaps to a wholesale breakup of
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  Speaker 1: the company and really reckoned with some of the problems
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  Speaker 1: that has been facing over the past few months. Yeah,
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  Speaker 1: I mean, we'll definitely see going forwards, and it'll be
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  Speaker 1: interesting to keep an eye on GEES price just because
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  Speaker 1: it has been torn down so much over the past
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  Speaker 1: year or even more a year or so. But it's
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  Speaker 1: gonna be good for the shares of Walgreen. Oh yeah,
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  Speaker 1: I mean if you look at Walgreen shares right now,
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  Speaker 1: Walgreen shares are trading up about almost four and a
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  Speaker 1: half percent, so we're seeing it reflected in the share
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  Speaker 1: price today and I'm sure going forwards as it's added,
• 10:11
  Speaker 1: I think it's supposed to be effective Tuesday before the
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  Speaker 1: open of the market. I'm sure we'll see a bit
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  Speaker 1: of a of a booth there. Yeah, And just to
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  Speaker 1: give you the perspective, Walgreens Boots Alliance has three hundred
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  Speaker 1: and forty five thousand employees. Compare that to a General
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  Speaker 1: Electric three hundred and thirteen thousand employees, So at least
• 10:31
  Speaker 1: in terms of a number of people work for the companies,
• 10:34
  Speaker 1: not dissimilar. And I will just make one additional note
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  Speaker 1: that while we're talking about General Electric in the down
• 10:39
  Speaker 1: Jones index, uh, there are other index related decisions that
• 10:42
  Speaker 1: are affecting vast amounts of money right now as well.
• 10:45
  Speaker 1: For example, with respect to Saudi Arabia and Argentina both
• 10:48
  Speaker 1: looking for their inclusion m ms c I index, which
• 10:52
  Speaker 1: would affect six hundred billion dollars of assets. I mean
• 10:55
  Speaker 1: it's just these and just recently happened with China. That's
• 10:57
  Speaker 1: rights Leather. I'm gonna leave you with that last thought.
• 11:02
  Speaker 1: You know why the US leather company was an original
• 11:12
  Speaker 1: member of the TAO. The Thanks very much, Sarah Ponzac,
• 11:16
  Speaker 1: Bloomberg News, Cross Asset Reporter. All about general electric investing
• 11:37
  Speaker 1: in small and mid cap stocks, that's the specialty of
• 11:41
  Speaker 1: our next guest, Eric Kubi. He is the chief investment
• 11:43
  Speaker 1: officer for north Star Investment Management. They are based in Chicago.
• 11:48
  Speaker 1: Eric joins us though in our eleven three oh studios. Eric,
• 11:51
  Speaker 1: thank you very much for being with us. All right,
• 11:53
  Speaker 1: step up to the plate and tell us how do
• 11:54
  Speaker 1: you define small and mid cap stocks? And tell us
• 11:57
  Speaker 1: about the north Star dividend fun This is the symbol
• 12:02
  Speaker 1: is n s d v X right, great, well, thanks
• 12:06
  Speaker 1: for having me here. Um, So we define, uh, small
• 12:10
  Speaker 1: cap stocks as actually being companies that have market caps
• 12:13
  Speaker 1: under two and a half billion dollars. The definition changes.
• 12:17
  Speaker 1: I know, uh, when I first got into business, a
• 12:20
  Speaker 1: small cap stock probably had a market cap under a
• 12:22
  Speaker 1: hundred million dollars. So you you have to keep moving
• 12:25
  Speaker 1: with the times, um. But we focus actually on the
• 12:29
  Speaker 1: smaller end of the small cap stocks. The billion dollar
• 12:32
  Speaker 1: in under area. Alright. So you know, this is a
• 12:36
  Speaker 1: very important interview to be having right now because the
• 12:39
  Speaker 1: rust of two thousand, which is often viewed as a
• 12:41
  Speaker 1: proxy for smaller companies in the US, has been on
• 12:45
  Speaker 1: a terar. It has more returned more than twice as
• 12:48
  Speaker 1: much as the SMP five hundred and uh nearly three
• 12:51
  Speaker 1: times as much as the Dow Jones Industrial Index. So
• 12:53
  Speaker 1: I have to wonder, you know, right now many investors
• 12:57
  Speaker 1: are viewing small cap stocks as a haven in from
• 13:00
  Speaker 1: trade tensions because these companies are less exposed to any
• 13:05
  Speaker 1: economic impacts. Do you think that this is an accurate
• 13:07
  Speaker 1: bet so to a certain extent, Yeah, I mean, I
• 13:11
  Speaker 1: think that there are certain characteristics of small cap companies
• 13:15
  Speaker 1: which make them a haven from from what is concerning
• 13:19
  Speaker 1: the market right now. Most small cap companies don't do
• 13:23
  Speaker 1: much international business, so they're not going to be that
• 13:26
  Speaker 1: affected now. They're not immune because their supply chain still
• 13:30
  Speaker 1: is affected. Um and so I don't think that it's
• 13:34
  Speaker 1: a safe haven per se, but I do think it's
• 13:36
  Speaker 1: a good place to go into. The other aspect is
• 13:40
  Speaker 1: the dollar. The dollar has strengthened quite a bit. Again,
• 13:43
  Speaker 1: that's typically good for small cap companies. That shows the
• 13:47
  Speaker 1: domestic economy is strong, and also they're not exporting, so
• 13:50
  Speaker 1: the strong dollar doesn't hurt them. Again, largely, I think
• 13:54
  Speaker 1: what's happening is a rotation. Two thousand seventeen was the
• 13:58
  Speaker 1: year of the large cap growth stock. The entire year,
• 14:01
  Speaker 1: twelve months in a row, uninterrupted through January uninterrupted large
• 14:06
  Speaker 1: cap growth stocks. And since then there's been a rotation
• 14:09
  Speaker 1: into small cap companies, mainly into the Russell two thousand,
• 14:12
  Speaker 1: because people like to index, and I don't think that
• 14:15
  Speaker 1: that's really the right way to do it because within
• 14:17
  Speaker 1: the index, you know, there's a lot of companies that
• 14:20
  Speaker 1: aren't benefiting from the corporate tax cut, that aren't benefiting
• 14:23
  Speaker 1: from the strong dollar. But so we like, we like
• 14:26
  Speaker 1: more specific small cap companies. But it's the easy trade,
• 14:29
  Speaker 1: is the Russell two thousand. People like the easy trade.
• 14:31
  Speaker 1: All Right, I'm gonna ask Lisa to check your footwear
• 14:34
  Speaker 1: right now, because I want you to talk about a
• 14:36
  Speaker 1: company that I know is in the portfolio. This is
• 14:39
  Speaker 1: Rocky Brands out of Nelsonville, Ohio. How did you find
• 14:44
  Speaker 1: nelson How did you find uh Rocky Brands? That? Do
• 14:47
  Speaker 1: you want my report? Okay, come on. They're they're pretty classic, alright,
• 14:55
  Speaker 1: black office shoes, no boots today. All right. So we
• 14:59
  Speaker 1: found Rocky the same way we find most of our companies,
• 15:02
  Speaker 1: which is we screen. We're screening for companies in our
• 15:05
  Speaker 1: market cap arena that are had nice dividend yields. We
• 15:09
  Speaker 1: when we bought Rocky, it was over three percent. That's
• 15:12
  Speaker 1: our dividend screen was over three and it was trading
• 15:15
  Speaker 1: extraordinarily cheaply versus book value versus their earnings. UH and UH,
• 15:22
  Speaker 1: what's happened is their business has gone It's had a
• 15:24
  Speaker 1: terrific year. All of their markets are doing really well,
• 15:29
  Speaker 1: outdoor work, Western and military. They also do um a
• 15:34
  Speaker 1: great business with UH with companies. About two million employees
• 15:39
  Speaker 1: have to wear protected footwear in the country, and they've
• 15:42
  Speaker 1: got a great system for delivering the right footwear that
• 15:46
  Speaker 1: companies need to buy for their employees. So it's been
• 15:48
  Speaker 1: terrific company having a fantastic year. If you go down
• 15:52
  Speaker 1: the list, some of the other names that you identify, McGrath,
• 15:55
  Speaker 1: rent Corps, Brooks Automation, BG Staffing, among others. Just want
• 16:00
  Speaker 1: to get your sense real quick. We have about a
• 16:02
  Speaker 1: minute here on just the U S economy. From the
• 16:05
  Speaker 1: small business perspective, are you hearing from leaders of the
• 16:10
  Speaker 1: companies that we are peaking and that their profits and
• 16:14
  Speaker 1: potential are peaking, or that this is the beginning of
• 16:17
  Speaker 1: another sort of leg up in this business cycle. Small
• 16:21
  Speaker 1: business optimisms at all time high. When I talk to
• 16:24
  Speaker 1: company managements, they sound very enthusiastic about the near and
• 16:29
  Speaker 1: intermediate term. Uh, there is some concern about the you
• 16:34
  Speaker 1: know again, some of the tearoffs, how that's going to
• 16:36
  Speaker 1: affect them, what's going to happen to the consumer if
• 16:38
  Speaker 1: there is inflation. But we talked to CEOs all the time,
• 16:42
  Speaker 1: and uniformly they feel great about the future, very positive,
• 16:47
  Speaker 1: and they can hire people and they and they're looking
• 16:49
  Speaker 1: to hire people. And b G Staffing, which is a
• 16:51
  Speaker 1: temporary help firm, is doing a good job of helping
• 16:54
  Speaker 1: companies find people to hire. So employment is terrific and
• 16:58
  Speaker 1: they're looking to hire people all. Eric kubi thank you
• 17:01
  Speaker 1: so much for joining us. Eric Kuby is chief investment
• 17:03
  Speaker 1: officer at north Star Investment Management, which is based in Chicago.
• 17:07
  Speaker 1: But he checked out here to a sultry New York
• 17:10
  Speaker 1: City where we're enjoying some really Uh maybe maybe he
• 17:15
  Speaker 1: trecked wearing his Rocky brand boots. Yeah. Maybe, although if
• 17:19
  Speaker 1: you have to take those off and then then then
• 17:21
  Speaker 1: lay them back up again when you're going through security,
• 17:24
  Speaker 1: it might be in might PN conference, I always used
• 17:25
  Speaker 1: slip on there is a profound dissonance in markets these days.
• 17:42
  Speaker 1: If you look at the political headlines crossing UH highlights
• 17:46
  Speaker 1: a deep polarization of several nations and a sense of
• 17:51
  Speaker 1: high drama. If you look at the markets, the drama
• 17:54
  Speaker 1: is not. They're joining us to talk about uh, you know,
• 17:57
  Speaker 1: just how to view tariff hawk and other sort of
• 18:01
  Speaker 1: uh policy driven news that we've been getting. From an
• 18:04
  Speaker 1: investing standpoint. Is Mark Freeman, chief investment officer at Westwood
• 18:08
  Speaker 1: Holdings Group, and he joins us here in our eleven
• 18:10
  Speaker 1: three oh studios. So at what point, Mark, do you
• 18:14
  Speaker 1: start to change your allocations in light of the tariff
• 18:19
  Speaker 1: discussions that we've been getting in the back and forth
• 18:21
  Speaker 1: between Jun Ping and and Donald Trump. Yeah. Well, first,
• 18:24
  Speaker 1: great to be with you. Um, I think you raised
• 18:26
  Speaker 1: a real key point, certainly for investors. I think ultimately
• 18:30
  Speaker 1: what we have to differentiate in this in this areas
• 18:33
  Speaker 1: is that ultimately, when do these issues tariffs obviously your
• 18:36
  Speaker 1: front and foremost. But when do these issues move from
• 18:40
  Speaker 1: being what I would say, impacting the multiple, which is
• 18:42
  Speaker 1: a confidence gauge, and impacting on that, but moved from
• 18:46
  Speaker 1: that to being an earnings factor, because that's ultimately it's
• 18:49
  Speaker 1: when it becomes a much more significant issue for the market.
• 18:52
  Speaker 1: Right now, we're seeing it from a volatility standpoint, and
• 18:55
  Speaker 1: that's why when I say it impacts the multiple, you're
• 18:58
  Speaker 1: seeing volatility or changes in in that. But when it
• 19:01
  Speaker 1: becomes a much more fundamental issue is when you actually
• 19:04
  Speaker 1: start to see it impact either actual or earnings or
• 19:06
  Speaker 1: perhaps even more importantly, the market's expectation for for what
• 19:10
  Speaker 1: future earnings will be. That that's that that's when it
• 19:13
  Speaker 1: becomes an important issue. Okay, So just so so that
• 19:17
  Speaker 1: we're clear here, it's about the difference between what investors
• 19:20
  Speaker 1: are willing to pay for every dollar of earnings, that's
• 19:23
  Speaker 1: what they're willing to pay, versus the actual performance of
• 19:27
  Speaker 1: the company. So there are two kind of different things
• 19:30
  Speaker 1: exactly right. Okay from there, all right, now, I want
• 19:33
  Speaker 1: to get to the point about cash because I know
• 19:36
  Speaker 1: you you you help manage the Westwood UH Fund. This
• 19:40
  Speaker 1: is w h G I X right, and this is
• 19:43
  Speaker 1: the Westwood Income Opportunities Fund. Do you recommend people hold
• 19:48
  Speaker 1: onto a decent amount of cash now or do you
• 19:50
  Speaker 1: want to be fully invested? Well, I think in this
• 19:53
  Speaker 1: environment and our view is as we go forward, that volatility,
• 19:56
  Speaker 1: which has been largely absent prior coming into this year,
• 20:00
  Speaker 1: but that volatility will normalize. And that's just another way
• 20:03
  Speaker 1: of saying returned back to where it was prior to
• 20:06
  Speaker 1: the UH, prior to the to the Great Financial Crisis
• 20:09
  Speaker 1: and that. But basically the volatility going forward will be higher.
• 20:12
  Speaker 1: So whether it's issues like this or some other items
• 20:15
  Speaker 1: from there, we expect volatility to go back to more
• 20:17
  Speaker 1: normalized level. Under that assumption, we would advocate holding at
• 20:21
  Speaker 1: least some cash. Now we can define what is significant
• 20:25
  Speaker 1: or how much that is for us, that's typically between
• 20:28
  Speaker 1: say six two maybe ten percent cash. We view that
• 20:31
  Speaker 1: as just be it so, and what that allows you
• 20:33
  Speaker 1: to do is to be opportunistic. It's not it's not so,
• 20:35
  Speaker 1: you just keep it and it's there. But I think
• 20:38
  Speaker 1: the other thing that that's that at the margin, which
• 20:40
  Speaker 1: now starting to matter and which is very different where
• 20:42
  Speaker 1: we've been roughly from the last decade, is now the
• 20:44
  Speaker 1: rate of return on cash has actually moved up. I
• 20:47
  Speaker 1: mean that is one of the things that the FED,
• 20:48
  Speaker 1: from a tightening standpoint, has has probably impacted the most
• 20:51
  Speaker 1: is actually the rate on cash and is that continues
• 20:54
  Speaker 1: If that continues to drift up, which it seems most
• 20:57
  Speaker 1: likely that FED is very much committed to continuing to
• 20:59
  Speaker 1: raise rates, then that's another. So now the opportunity cost
• 21:02
  Speaker 1: is diminishing on that front. But I think in this
• 21:06
  Speaker 1: environment and allowing to be opportunistic makes sense. I ask
• 21:09
  Speaker 1: a lot of people this, and I'd love to get
• 21:11
  Speaker 1: your response to it. Almost the last time that you
• 21:15
  Speaker 1: made it significant change to your allocations in your portfolios.
• 21:18
  Speaker 1: Oh goodness. Um, well, in terms of our specific income
• 21:21
  Speaker 1: opportunity strategy, we use up to eight different asset classes
• 21:25
  Speaker 1: and those are changing literally on a quarterly basis. It's
• 21:28
  Speaker 1: ultimately driven though by the market environment and where we're
• 21:31
  Speaker 1: seeing opportunities and where things perhaps are getting repriced, and
• 21:34
  Speaker 1: so it's moving. It shifts, uh, incrementally, you know, on
• 21:38
  Speaker 1: a quarterly basis, even on sometimes on a weekly basis,
• 21:41
  Speaker 1: but but over time it does change rather significantly. So
• 21:44
  Speaker 1: what's been the most recent significant change that you made
• 21:47
  Speaker 1: an allocation. I think one of the things is actually
• 21:49
  Speaker 1: is is a couple of a couple of different areas.
• 21:52
  Speaker 1: One look, there is being some repricing on the short
• 21:54
  Speaker 1: end of the Yeld curve, and so we're using that
• 21:56
  Speaker 1: implementing some of our cash we've had, our higher cash balance.
• 21:59
  Speaker 1: We can now use that to add some incremental yield
• 22:02
  Speaker 1: for that UM in another part of the capital structure
• 22:04
  Speaker 1: of the preferred market. And so there we're not to
• 22:07
  Speaker 1: get too technical, but where we can use what we
• 22:09
  Speaker 1: call they're called hybrids, but they're just floating right securities.
• 22:12
  Speaker 1: They have a shorter duration than a typical preferred, but
• 22:14
  Speaker 1: then they become a floater after either three years five
• 22:17
  Speaker 1: years with a nice reset. And so if our expectations
• 22:20
  Speaker 1: are that short rates and fed rates continue to move up,
• 22:22
  Speaker 1: that's kind of a way for us to participate in
• 22:25
  Speaker 1: that and still learned some attractive yield. And then the
• 22:27
  Speaker 1: other area we're still in our largest components is still
• 22:30
  Speaker 1: in the equity market. I want to ask you about
• 22:32
  Speaker 1: one area of the equity market, and this is a
• 22:35
  Speaker 1: transportation because I noticed you got a position in FedEx
• 22:39
  Speaker 1: and I was reading a story today that UM logistic
• 22:42
  Speaker 1: costs have really accelerated there, up about six percent year
• 22:46
  Speaker 1: over year, and I would imagine that that's got to
• 22:49
  Speaker 1: benefit a company like FedEx if they can pass along
• 22:52
  Speaker 1: those increased costs of consumers. That's that's a fundamental part
• 22:57
  Speaker 1: of our thesis, and in terms of owning the name
• 22:59
  Speaker 1: and just kind of give you, um, not not necessarily
• 23:02
  Speaker 1: an anecdotal um. Uh. Example of that is that if
• 23:07
  Speaker 1: you look at the consumer staples sector and many of
• 23:11
  Speaker 1: those companies when they were reporting that, they were saying, look,
• 23:14
  Speaker 1: we knew in demand was a problem, but now we're
• 23:16
  Speaker 1: facing cost pressures. And then more specifically, we're facing cost
• 23:20
  Speaker 1: pressures on the transportation front. I heard that from the clus,
• 23:23
  Speaker 1: General Mills, others, they've all highlighted that. And so so
• 23:27
  Speaker 1: one company's cost pressures is another company's pricing power. And
• 23:31
  Speaker 1: so if we're like, okay, well then maybe let's take
• 23:33
  Speaker 1: a look at the company that has pricing power, and
• 23:35
  Speaker 1: FedEx I think is a classic example of that. What
• 23:39
  Speaker 1: do you think is the biggest mistake that many investors
• 23:41
  Speaker 1: are making? Today? Oh? Gosh, um, that's that's that's a
• 23:47
  Speaker 1: that's a great question. Um. To me, it's about I
• 23:50
  Speaker 1: think it would be understanding. Maybe a mistake, but I
• 23:53
  Speaker 1: think in terms of of understanding from a process standpoint,
• 23:58
  Speaker 1: one of the things that we UM have been communicating
• 24:01
  Speaker 1: to UM, to our investors and to others is that, look,
• 24:05
  Speaker 1: don't lose sight of how the process works UM in
• 24:08
  Speaker 1: terms of look, profit the market eventually always follows profit growth. Okay,
• 24:13
  Speaker 1: so profits are item number one. So profit lead the
• 24:16
  Speaker 1: market and the market UM leads the economy. The problem
• 24:20
  Speaker 1: is the investors to from a from a relationship standpoint,
• 24:24
  Speaker 1: they tend to think of it is exactly the opposite.
• 24:26
  Speaker 1: And that's why so many times you see retail investors
• 24:28
  Speaker 1: are saying, Okay, the time to invest is when the
• 24:30
  Speaker 1: economy is doing really, really well, because then that's going
• 24:33
  Speaker 1: to be good for the market, and then therefore that
• 24:35
  Speaker 1: should be good for for profits. It's it's exactly the opposite.
• 24:38
  Speaker 1: And so we're really just trying to highlight to people
• 24:40
  Speaker 1: that ultimately, despite look, I'm not saying all these more
• 24:44
  Speaker 1: politically oriented items and things like that aren't important, but
• 24:47
  Speaker 1: it ultimately comes back to the fundamentals for the market,
• 24:49
  Speaker 1: and that then the single most important fundamental for the
• 24:52
  Speaker 1: market is ultimately is profit growth. And what that looks
• 24:55
  Speaker 1: like and following that for going going forward there. I
• 24:58
  Speaker 1: want to thank you very much for being with us.
• 25:00
  Speaker 1: Much appreciate it. It's much pleasure to having you in
• 25:02
  Speaker 1: the future. Mark Freeman is the chief investment Officer of
• 25:05
  Speaker 1: a Westwood Holdings Group. They are based in Dallas, Texas,
• 25:09
  Speaker 1: and much appreciated. Very interesting conversation. Thanks for listening to
• 25:17
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 25:20
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 25:24
  Speaker 1: platform you prefer. I'm pim Fox. I'm on Twitter at
• 25:27
  Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo. It's one
• 25:31
  Speaker 1: before the podcast. You can always catch us worldwide on
• 25:34
  Speaker 1: Bloomberg Radio.