Latest / Bloomberg Intelligence / Bloomberg’s Welch on GM: Already in the Works, Mostly Posturing

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Bloomberg’s Welch on GM: Already in the Works, Mostly Posturing · Bloomberg Intelligence

0:04
Speaker 1: Welcome to the Bloomberg pm L podcast. I'm Pim Fox.
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Speaker 1: Along with my co host Lisa Abramowitz. 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: the trading floor. Find the Bloomberg p L podcast on iTunes,
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Speaker 1: SoundCloud and at Bloomberg dot com. I want to learn
0:31
Speaker 1: more about General motors announcement today that it was investing
0:34
Speaker 1: one billion dollars in a US investment plan, spending on
0:39
Speaker 1: models and plants that have long been in the work.
0:42
Speaker 1: So I want to bring in David Welch, Detroit Bureau chief.
0:46
Speaker 1: My first question for you, David, is how much of
0:49
Speaker 1: this plan was already in the works and how much
0:52
Speaker 1: of this is new as a result of some of
0:55
Speaker 1: the cajoling from President elect Trump's team. It looks like
0:59
Speaker 1: most of it, if not all of it. The only
1:01
Speaker 1: part that we didn't really know about that that wouldn't
1:04
Speaker 1: have been part of their initial capital expenditures plan might
1:08
Speaker 1: be the the axle jobs coming back from Mexico. But
1:11
Speaker 1: even there, uh GM shift things around all the time
1:15
Speaker 1: based on demand for vehicles. Uh and and that kind
1:20
Speaker 1: of thing you know that the White Coward jobs, which
1:22
Speaker 1: is the bulk of this. UH. That's five thousand workers
1:24
Speaker 1: who will be doing R and D, who will be
1:26
Speaker 1: doing advanced development work on autonomous vehicles, and also some
1:30
Speaker 1: people who are working for GM Financial, which is the
1:32
Speaker 1: lending unit. UH. None of that would have been in
1:35
Speaker 1: Mexico anyway, of course, but you know those are areas
1:37
Speaker 1: that GM has been growing and adding more people. They
1:40
Speaker 1: had announced a while ago they were expanding their technical
1:43
Speaker 1: center north of Detroit, so a lot of that stuff
1:45
Speaker 1: was already in the works. UM factories to UH down
1:49
Speaker 1: in Mexico. They do make a lot of small cars
1:52
Speaker 1: and things that are already well margin because the wages
1:54
Speaker 1: are cheaper, and that's the only way you can even
1:57
Speaker 1: have a hope of making money on compact cars. As
2:00
Speaker 1: the market ships away from that stuff and they're building
2:02
Speaker 1: more SUVs to meet demand, that stuff will naturally require
2:06
Speaker 1: investment in the US. Well, David, you know, we got
2:09
Speaker 1: a chance to spend some time with you at the
2:12
Speaker 1: North American International Auto Show at Cobo Hall in Detroit,
2:15
Speaker 1: and I'm wondering if you could give us a little
2:17
Speaker 1: bit of a look into the detail of the auto
2:20
Speaker 1: industry right now, what with the emissions scandal that plagues
2:25
Speaker 1: not only VW's balance sheet but certainly Vexus. Sergio Marcione
2:30
Speaker 1: of Fiat Chrysler, what are the big themes right now
2:35
Speaker 1: that you need that you recommend people watch well. Regulations
2:39
Speaker 1: a big part of it, and it's been a really
2:42
Speaker 1: busy a few weeks in the auto industry for a
2:44
Speaker 1: couple of reasons. You have the Obama administration leaving and
2:48
Speaker 1: on their way out, they're trying to really make sure
2:50
Speaker 1: that things like clean air regulations are are really adhered to.
2:55
Speaker 1: So they they both the Justice Department and the ep
2:58
Speaker 1: A really handled handed volks like and some really big
3:01
Speaker 1: fines and some in dipmonds. They really went after them.
3:04
Speaker 1: And they're going after fid Kreisler to make sure that
3:08
Speaker 1: that the devices they had in their cars were not cheating.
3:11
Speaker 1: They haven't said their cheat devices yet. There there are
3:13
Speaker 1: eight devices that changed the emissions performance of the vehicle
3:16
Speaker 1: under certain conditions, all kind of have those those are legal.
3:20
Speaker 1: You have to tell the government they're there and they
3:22
Speaker 1: didn't do that, so that is uh that would warrant
3:27
Speaker 1: a penalty. Even if they are fine. They have to
3:30
Speaker 1: be disclosed. Now, if it turns out that they were
3:32
Speaker 1: done to cheat emissions tests, which is something Sergio Marchioni,
3:35
Speaker 1: the CEO, has denied, then then the findes can get
3:39
Speaker 1: really big like they were with Volkswagen. But at the
3:42
Speaker 1: moment it's not really Uh, they haven't proven that. That's
3:46
Speaker 1: the situation, you know, David, Just a turning back to GM.
3:49
Speaker 1: I'm wondering, you know, how much of this is a
3:52
Speaker 1: pup relations stunt or how much of this would have
3:55
Speaker 1: been done in the past with a company extolling it's
3:58
Speaker 1: it's upcoming expenditure plan, uh, in a release like this.
4:04
Speaker 1: Is it just the media? Is it us that is
4:06
Speaker 1: making a bigger deal about this because we're putting it
4:08
Speaker 1: into our our pattern of trying to respond to President
4:11
Speaker 1: elect Trump? Or has there been a material shift in
4:15
Speaker 1: approach to how some of these car companies communicate. I
4:19
Speaker 1: think a lot of it is the former. The General
4:21
Speaker 1: Motors spends nine billion dollars a year in capital expenditures,
4:24
Speaker 1: and that's new cars that are coming to market the
4:26
Speaker 1: next few years, and that's tooling up the factories to
4:29
Speaker 1: make those new cars. Every time you have a new car,
4:31
Speaker 1: you've got a new chassis line, a new paint shop,
4:34
Speaker 1: a new line for the body panels, new stampings for
4:38
Speaker 1: those bodies, and all that requires a lot of capital investment,
4:42
Speaker 1: and they do it to the tune of nine billion
4:43
Speaker 1: dollars a year. Some of the vehicles they're coming out
4:46
Speaker 1: within the next few years are support utility vehicles that
4:48
Speaker 1: they didn't previously have. So between for example, between now
4:51
Speaker 1: and Cadillac is supposed to get three new SUVs that
4:55
Speaker 1: they don't have now. Why because Cadillac is behind in
4:58
Speaker 1: luxury crossover issue use, which is the sweet spot of
5:01
Speaker 1: the luxury market. They have one auld E BMW and
5:05
Speaker 1: UH Mercedes have to three or four in their wind up,
5:07
Speaker 1: so GM is just catching up. You're gonna need factories
5:10
Speaker 1: to make those, so that's gonna be a big part
5:11
Speaker 1: of the investment right there. So all that stuff was
5:14
Speaker 1: in the work. So you're talking nine billion a year
5:16
Speaker 1: between now and one billion dollars that they're announcing and
5:20
Speaker 1: the jobs that would assemble those and a lot of
5:24
Speaker 1: it has retained jobs, which means UH that had they
5:28
Speaker 1: not put a vehicle in that existing factory, they would
5:30
Speaker 1: have laid those people off, but instead they're giving them
5:33
Speaker 1: something to do so they'll keep those jobs. A lot
5:35
Speaker 1: of it is stuff that would have already happened. The
5:37
Speaker 1: investment and autonomous vehicles and R and D would have
5:40
Speaker 1: already happened. And they have already stated that they want
5:43
Speaker 1: to grow their lending business to make more car woons
5:46
Speaker 1: that already would that would have happened as well. The
5:48
Speaker 1: only thing that might have happened is the four and
5:51
Speaker 1: fifty jobs. These are people making axles coming back from
5:54
Speaker 1: Mexico to the US, so that may have stayed down there.
5:57
Speaker 1: So there's that. But a lot of this is just uh.
6:00
Speaker 1: And they told me this moving forward. The announcements they
6:03
Speaker 1: would have made basically under pressure from Trump and in
6:07
Speaker 1: order to play nice with them. Remember, the automakers have
6:10
Speaker 1: a lot of stuff they want out of the Trump administration,
6:13
Speaker 1: which is maybe a little bit more relaxation on a
6:16
Speaker 1: few economy standards, and also lower corporate tax rates are
6:22
Speaker 1: a lot of things they like that the Obama administration
6:24
Speaker 1: didn't want to do. We're going to leave that for
6:25
Speaker 1: another time. I want to thank you very much. David
6:27
Speaker 1: Welch is our Detroit bureau chief for Bloomberg News. I'm
6:43
Speaker 1: trying to make sense of some of the moves in
6:45
Speaker 1: the Pound following Prime Minister Theresa May's comments to diplomats
6:50
Speaker 1: about how Britain plans to break away from the European Union.
6:55
Speaker 1: For somebody with a lot more insight than I can
6:56
Speaker 1: bring for this is Rob Hutton, UK Government and Polity
7:00
Speaker 1: six reporter for Bloomberg, who is joining us now. Rob,
7:02
Speaker 1: thank you so much. So what is the main takeaway
7:06
Speaker 1: from the speech so far? Well, the main takeaway is
7:09
Speaker 1: that she does actually have a plan. And I think
7:12
Speaker 1: if you'd asked me this morning, is she going to
7:14
Speaker 1: say very much? I just said I'm not sure she is,
7:17
Speaker 1: you know, but we did get we got clarity on
7:20
Speaker 1: a number of things. We've got clarity. She wants to
7:21
Speaker 1: take Britain out of the European the European Union, single market,
7:25
Speaker 1: all the way out. Um, we got clarity before you
7:28
Speaker 1: continue with that. So what's the significance of that. Well,
7:31
Speaker 1: that is the basis on which I in Britain can
7:34
Speaker 1: sell something to Germany on exactly the same rules that
7:38
Speaker 1: somebody in Germany can sell to somebody in Germany. She
7:42
Speaker 1: wants to break from that. And now that's fantastically important
7:45
Speaker 1: for manufactured so you can build a car in Britain
7:47
Speaker 1: and sell it all the way across Europe with with
7:50
Speaker 1: exactly the same regulations, and does she want to replace
7:54
Speaker 1: it with something else? Well, what she wants to do,
7:56
Speaker 1: she wants to she says. She said she wants to
7:59
Speaker 1: keep access to the Stems Union. This is a slightly
8:01
Speaker 1: tricky language. She wants to take Britain out of the
8:03
Speaker 1: Customs Union which sort of underpins that, and but still
8:08
Speaker 1: but still continue trading within it. And at that point
8:11
Speaker 1: you then start to get into what she didn't say.
8:13
Speaker 1: There are interesting questions about well, let's say I build
8:16
Speaker 1: a car in Britain and then I want to sell
8:17
Speaker 1: it to Germany. But we have a regulatory dispute. Where
8:20
Speaker 1: are we going to resolve that? And let's say that
8:22
Speaker 1: Germany changes its car regulations, or did the rather the
8:25
Speaker 1: European Union changes its car regulations. Britain is no longer
8:28
Speaker 1: bound by those, but effectively we kind of still are
8:31
Speaker 1: because if we want to sell cars here and there,
8:33
Speaker 1: so we already have that going on with Fiat and
8:36
Speaker 1: VW because of emissions. Well that's you know, and who
8:40
Speaker 1: who actually you know takes over as the regulator. But
8:43
Speaker 1: in just the focus on Theresa May. For example, I'm
8:46
Speaker 1: trying to understand that it says that the Prime Minister
8:49
Speaker 1: has a twelve point brexit plan. Uh, is there any
8:53
Speaker 1: and anything other than putting it to a vote at Parliament?
8:57
Speaker 1: It is what else do we need? Else? Is the
9:00
Speaker 1: most important thing that we need? The most important thing
9:02
Speaker 1: is is leaving a single market. The second most important
9:05
Speaker 1: thing is is keeping some kind of customs union access.
9:09
Speaker 1: That's her compromise. The vote to Parliament, I think is
9:12
Speaker 1: slightly a red herring. I've got to say, and if
9:14
Speaker 1: that's what people are buying the pound on the back of,
9:16
Speaker 1: then they should think about that because basically what that
9:19
Speaker 1: means is in two years time, members of Parliament are asked,
9:22
Speaker 1: do you want whatever deal it is I've got or
9:24
Speaker 1: do you want to leave the European Union with no
9:26
Speaker 1: deal at all? So so let's just undo all of
9:29
Speaker 1: this and not leave is unlikely to be on the table.
9:33
Speaker 1: The choice. The choice is going to be this deal
9:35
Speaker 1: which you may not like, or no deal. I'm struggling
9:38
Speaker 1: to understand. I mean, people talk about hard brexit versus
9:42
Speaker 1: a soft brexit based on what you initially said. It
9:46
Speaker 1: seems like that would be a hard breath. This is
9:48
Speaker 1: a pretty hard brexit, yes, so so the soft that
9:50
Speaker 1: the people who wanted something softer are all slightly stunned today,
9:55
Speaker 1: I think because because there's there's there's no concessions to
9:58
Speaker 1: them at all. There was an nice bit in the
10:00
Speaker 1: in the speech where the Prime Minister said that we
10:02
Speaker 1: all had to come together and sort of unite however
10:04
Speaker 1: we voted in the referendum. But to be honest, there's
10:06
Speaker 1: not very much for people who voted to stay to
10:09
Speaker 1: unite around in this speech. I guess it's difficult to
10:11
Speaker 1: figure out in some quarters whether there's a hard boiled
10:14
Speaker 1: egg or a soft boiled. This is quite a hard boil.
10:17
Speaker 1: But you say it's a hard boiled egg, and yet
10:19
Speaker 1: you see that big rise in the value. Well, that's
10:22
Speaker 1: what I wanted, That's what right, That's what I wanted
10:24
Speaker 1: to expand on because why it is, as you said,
10:28
Speaker 1: is this just a red red herring and someone's climbing
10:30
Speaker 1: at something, And because I wonder is uh is President
10:35
Speaker 1: elect Donald Trump in some way connected to well, I mean,
10:39
Speaker 1: you know, there may be, there may be other reasons
10:41
Speaker 1: and other things are going on. We had higher than
10:43
Speaker 1: expected to expect inflation this morning, so the pound was
10:45
Speaker 1: already on its way up before the speech began. The pound,
10:49
Speaker 1: the pound did definitely rise when she she talked about
10:52
Speaker 1: a vote and on the past the pound has written
10:55
Speaker 1: on things that made Brexit look less likely. And I
10:59
Speaker 1: I mean, were trying very hard to to tell people
11:03
Speaker 1: don't don't count on that vote, don't sift the sand
11:06
Speaker 1: for a diamond. You know that that that that vote
11:09
Speaker 1: is highly unlikely to reverse the decision. And in fact,
11:11
Speaker 1: when we tried, when when somebody asked the Prime Minister,
11:13
Speaker 1: and when we've asked her office, well, come on, what
11:16
Speaker 1: happens if the vote goes the other way? They just
11:17
Speaker 1: laugh and say the vote won't go the other way
11:19
Speaker 1: and they're right, who you know, how bad would a
11:21
Speaker 1: deal have to be for you to decide? That's what
11:24
Speaker 1: David Cameron said, didn't he? Yeah, well that's true. We
11:29
Speaker 1: got to leave it there. Robin Huddon, UK Government and
11:31
Speaker 1: Politics reporter for Bloomberg joining us from London. I want
11:46
Speaker 1: to bring in Joe Carroll, who covers the oil industry
11:49
Speaker 1: for us at Bloomberg, to give a little bit more
11:51
Speaker 1: color around this. Excell and Mobile purchase of of shale
11:57
Speaker 1: land and they based they paid five point six billion
12:00
Speaker 1: dollars in shares for this premium basin land. And Joe,
12:05
Speaker 1: I want to start with, was this an expected acquisition
12:08
Speaker 1: of XS. Well, we've known Exon is looking around this
12:11
Speaker 1: this region in Texas and New Mexico called the Permian Basin.
12:14
Speaker 1: It's the biggest US oil field UM for for for
12:18
Speaker 1: quite a while, we didn't expect a deal this gigantic
12:23
Speaker 1: for x On. This is the biggest deal since they
12:24
Speaker 1: bought Xto and that was their first for a into
12:27
Speaker 1: into North American shale, and that was back in UM.
12:30
Speaker 1: Not only are they paying five point six billion in shares.
12:34
Speaker 1: If the resources as rich as UM you know, as
12:37
Speaker 1: their geologists expected to turn out to be, they'll pay
12:39
Speaker 1: another billion in cash over the next fifteen years. I
12:42
Speaker 1: got to imagine that somehow we're going to work in
12:45
Speaker 1: former chief executive of Exxon Mobile Rex Till listen into
12:49
Speaker 1: the conversation. Yeah, they haven't told us, but it sure
12:52
Speaker 1: appears almost certain that this was a transaction that began
12:56
Speaker 1: before he left January one. These things just don't come
12:59
Speaker 1: together that quickly. Well, do you think that it was
13:02
Speaker 1: expedited to come out before Rex Silerson took the role
13:06
Speaker 1: of Secretary of State under President elect Tromp. No, I
13:09
Speaker 1: don't think the I think once once a company cut
13:12
Speaker 1: ties with him, Um, they cut ties with him. So um.
13:18
Speaker 1: Right now I'm looking at X and shares there up
13:20
Speaker 1: a bit. But what could this do for X? And?
13:23
Speaker 1: I mean, how much better of a position does this
13:26
Speaker 1: put them in? Potentially this is a pretty even though
13:29
Speaker 1: for X on five and a half billion dollars doesn't
13:31
Speaker 1: sound like a lot of money. This gives them, yeah,
13:35
Speaker 1: for for you know, for a company with more annual
13:38
Speaker 1: sales that said, it's if at least twenty years of drilling,
13:43
Speaker 1: it's an enormous amount of oil. It's three something billion
13:46
Speaker 1: dollars worth of oil locked on the ground there. It's
13:49
Speaker 1: pretty low risk because because the superman folks have been
13:52
Speaker 1: drilling out there for for almost a century. Um. It's
13:56
Speaker 1: interesting to me because it strikes me that this is
13:58
Speaker 1: some of the consolidation that a lot of oil analysts
14:00
Speaker 1: have been waiting for. People said that because of the
14:04
Speaker 1: drop in oil prices, that we have to see this
14:07
Speaker 1: consolidation by the biggest oil companies. Do you expect there
14:10
Speaker 1: to be more announcements like this from exces, rivals, from everybody.
14:14
Speaker 1: You know. Yesterday was was the Clayton Williams Noble deal.
14:17
Speaker 1: Um that that Dave Wilson just referenced, And that's in
14:19
Speaker 1: the same area that's in this uh Delaware basin, which
14:22
Speaker 1: is a subrecon region of the Permian there on the
14:25
Speaker 1: Texas New Mexico border. It's the hottest m and A
14:28
Speaker 1: play in oil anywhere in the world. Um. I think
14:30
Speaker 1: it attracted the quarter of about of all the oil
14:35
Speaker 1: M and A dollars. That's that's from according to Wood mackenzie. Um. Yeah,
14:40
Speaker 1: of course this is just going to keep steam rolling on.
14:43
Speaker 1: At what point does the price just become too expensive,
14:46
Speaker 1: Because if you've got ample supply in a domestic market,
14:51
Speaker 1: then you face the prospect of having more supply than
14:55
Speaker 1: your needs. You mean, you're talking about the price of oil.
14:59
Speaker 1: As far as x sun goes there, they're confident they'll
15:01
Speaker 1: they'll get double digit returns as low you know, with
15:04
Speaker 1: oil as low as forty up barrel. I believe Nobile
15:08
Speaker 1: said the same thing yesterday. So forty dollars is the
15:10
Speaker 1: breakpoint for when you flipped the switch to get the
15:13
Speaker 1: shale out. The shale oil out well forty dollars is
15:17
Speaker 1: the break point where you're making you return. It can
15:20
Speaker 1: certainly go lower than that. Joe, has it gotten cheaper
15:23
Speaker 1: to extracate oil from shell drilling. What's happened is they've
15:28
Speaker 1: yeah on a per unit basis, sure, because what they've
15:31
Speaker 1: done is they just drill these sideways wells for for
15:34
Speaker 1: a mile for two miles. Now, it costs more to
15:36
Speaker 1: drill each one of those wells, but the amount of
15:38
Speaker 1: oil that comes gushing out is so much more massive
15:42
Speaker 1: that your per unit costs are a lot lower. Because
15:44
Speaker 1: that was one of the big obstacles right in the
15:46
Speaker 1: U s. It's a lot more expensive to extracate oil
15:48
Speaker 1: than it is, for example, in Saudi Arabia and Iran.
15:50
Speaker 1: Correct correct um. So going forward is could any regulations
15:57
Speaker 1: actually help Exxon access more of the land that they
16:00
Speaker 1: just purchased. Could that have played into this at all
16:02
Speaker 1: or not? Really? You know, unlike the rest of the world,
16:05
Speaker 1: in the United States, almost everything that gets drilled for
16:09
Speaker 1: oil and gas is privately owned. Uh, you know, it's
16:12
Speaker 1: not like working in Canada or the UK or really
16:14
Speaker 1: anywhere else in the world where the government or the
16:16
Speaker 1: crown owns the resource, so so and and and given
16:21
Speaker 1: the fact that most of the regulation comes at the
16:23
Speaker 1: state level, I don't see a huge impact from from
16:25
Speaker 1: from the federal situation. Well, Joe tell us about potential
16:29
Speaker 1: price changes fifty three fifty two dollars a barrel. The
16:34
Speaker 1: OPEC meeting is in May. You've got this confluence of
16:38
Speaker 1: shale oil plus a new president, President elect Donald Trump. Uh,
16:44
Speaker 1: what do you see in the next ninety days. In
16:47
Speaker 1: the next ninety days, I think you continue to see
16:49
Speaker 1: more deals in the Permian, more m and a UM
16:51
Speaker 1: as long as these companies can can lock in prices
16:54
Speaker 1: by by you know, with forward hedges. Uh, they're just
16:57
Speaker 1: gonna they're gonna drill as much as they can, you know,
17:00
Speaker 1: and make their returns. UM. I think it was the
17:03
Speaker 1: Southeast was yesterday the day before said they don't expect
17:07
Speaker 1: expect the cuts, the open cuts to last through June.
17:10
Speaker 1: So so I think we really see see an impact there.
17:15
Speaker 1: All right. I have a feeling you're going to be
17:16
Speaker 1: very busy, and we thank you for it. Joe Carroll
17:19
Speaker 1: is Energy America's reporter for Bloomberg, giving us some perspective
17:23
Speaker 1: and additional information about x On Mobile paying five point
17:28
Speaker 1: six billion dollars to expand it's acreage in uh Western Texas.
17:44
Speaker 1: Here to tell us about some innovation when it comes
17:46
Speaker 1: perhaps to your portfolio, but it might also include some
17:48
Speaker 1: healthcare stocks, is Mike Bailey. He is the chief of
17:53
Speaker 1: financial Officer I beg your pardon to see f A
17:55
Speaker 1: and director of Research at FBB Capital Markets. Hey Mike Bailey,
17:59
Speaker 1: I'm sorry, I thought you got a new title there,
18:02
Speaker 1: but you didn't. Good morning morning at least thanks for
18:05
Speaker 1: having me. All right, I'm gonna get some kind of
18:07
Speaker 1: surprised news there, no no, no, no more surprise that
18:10
Speaker 1: we've got enough people doing surprise news. It's ok. You're
18:14
Speaker 1: you're managing almost a billion at FBV Capital. What are
18:19
Speaker 1: you telling your your client base right now to do
18:22
Speaker 1: or not do well? I think as we look at
18:26
Speaker 1: the very short term and ideally we do next three months. Sure,
18:30
Speaker 1: so I think we are a bit concerned here. Um,
18:32
Speaker 1: you know, I think we're we've got the uh the
18:34
Speaker 1: Trump inauguration coming up here in a few days. I
18:38
Speaker 1: think will probably be a good year, maybe not quite
18:41
Speaker 1: as good as what what are you concerned about Yeah,
18:44
Speaker 1: I think so if we want to kind of create
18:47
Speaker 1: a new word here, people love Brexit and flash crash
18:49
Speaker 1: and such, so Trump's secution, uh doesn't quite roll off
18:53
Speaker 1: the tongue. But I think we're getting to a phase
18:55
Speaker 1: where investors expect Trump to execute and we're getting you know,
18:59
Speaker 1: the rubbers about to hit the road here Friday, and
19:02
Speaker 1: I think our concerns are basically investors are hoping that
19:06
Speaker 1: Trump is going to act on some of his promises,
19:08
Speaker 1: you know, whether that's lower taxes, whether that's juicing up
19:11
Speaker 1: the economy, um. And if that doesn't happen, or if
19:14
Speaker 1: it happens later than investors expect, you're going to see
19:17
Speaker 1: some downside. So I think for us, um, there's a
19:19
Speaker 1: little bit more hope in the market right now than
19:22
Speaker 1: what you might expect to see in the very short term.
19:24
Speaker 1: So you know, also, we sort of haven't seen much
19:27
Speaker 1: volatility at all really since you know, the election actually,
19:31
Speaker 1: so I think putting some of those pieces together, we
19:33
Speaker 1: wouldn't be surprised to see a little bit of downside
19:35
Speaker 1: you know, later this week, early next week, and then
19:38
Speaker 1: I think investors will will catch their breath, you will
19:40
Speaker 1: see the new administrations start to roll out some policies,
19:43
Speaker 1: and I think that some of those expectations will get
19:45
Speaker 1: realized as we head towards the later latter part of
19:48
Speaker 1: the year. Mike, I thought that it was interesting that
19:49
Speaker 1: you said that you think that there's roughly upside and
19:52
Speaker 1: five percent downside for the year, sort of to your
19:55
Speaker 1: point that the near term perhaps downside, but over the
19:57
Speaker 1: longer term upside. I thought it was also interesting that
19:59
Speaker 1: you mentioned industrials and healthcare as all whether sectors, particularly healthcare.
20:06
Speaker 1: This was interesting to me because we've seen a lot
20:08
Speaker 1: of volatility in biopharmaceutical stocks and as as well as
20:11
Speaker 1: a hospital shares on the back of Trump's comments. So
20:15
Speaker 1: why is this such a stalwart industry? You know, I
20:18
Speaker 1: think when we look at healthcare, and I am a
20:20
Speaker 1: bit biased, used to be a healthcare analysts, I've spent
20:22
Speaker 1: a lot of time looking at it. Um, I do
20:24
Speaker 1: think I think there are a lot of spaces within
20:26
Speaker 1: healthcare where or you can do well over a number
20:28
Speaker 1: of years, and it may not necessarily be you know,
20:31
Speaker 1: the big farm of the big biotech that folks think
20:33
Speaker 1: about is kind of the headlines. Uh you know, maybe
20:35
Speaker 1: it's uh services maybe it's a managed care insurance stock,
20:38
Speaker 1: maybe it's a MidCap medical device dock. But there are
20:41
Speaker 1: some companies that in our view are changing and growing
20:45
Speaker 1: pretty meaningfully over a number of years. Uh. And they've
20:47
Speaker 1: got you know, they're diversified, so if the US is
20:50
Speaker 1: down one year, you know, maybe they'll get helped uh
20:52
Speaker 1: internationally the next year. UM. So there are some spaces
20:55
Speaker 1: we like. However, as you mentioned, there are certainly some
20:57
Speaker 1: areas that had a great bull run or two three,
21:00
Speaker 1: four years and that kind of came to a screeching hall.
21:02
Speaker 1: So we're we're awfully cautious of some of those spaces
21:04
Speaker 1: where you know, whether it's Trump's you know, drug pricing tweets,
21:08
Speaker 1: things like that, that where you can get in trouble
21:10
Speaker 1: with some of these companies. So we're trying to look
21:12
Speaker 1: look across the whole space and find some pretty interesting
21:14
Speaker 1: the names that are growing nicely. Are you finding any
21:17
Speaker 1: opportunities outside of just the broadly traded shares just in
21:23
Speaker 1: terms of sort of the traditional US pharmaceutical stocks, are
21:26
Speaker 1: looking at other kinds of healthcare companies or just you know,
21:28
Speaker 1: other assets of the healthcare companies, I mean, our stocks
21:31
Speaker 1: the best way in yeah, good, good points. So I mean,
21:34
Speaker 1: as a sort of generalist investment firm, we do equities,
21:37
Speaker 1: we do fixed income, preferred things like that, so we
21:39
Speaker 1: we look across the capital structure in general. For healthcare,
21:43
Speaker 1: I think we tend to favor more on the equity side,
21:45
Speaker 1: but we certainly owned plenty of corporate debt for for
21:49
Speaker 1: healthcare companies. Um. I think though, looking at at healthcare
21:52
Speaker 1: in particular, you do get some nice yields because I
21:55
Speaker 1: think that it is a space if you do own it,
21:56
Speaker 1: if you're overweight, you can certainly get some decent yield
21:59
Speaker 1: and maybe you don't have to be overweight bonds for example,
22:02
Speaker 1: within healthcare. But there's some certainly some ways to play
22:04
Speaker 1: it on the preferred side. For example, not quite as
22:07
Speaker 1: many healthcare names available there, but certainly a handful to
22:10
Speaker 1: choose from. Hey, Mike, what's been the best and worst
22:13
Speaker 1: call that you've that you've made over let's say, the
22:16
Speaker 1: last twelve months. So we can either talk about it
22:19
Speaker 1: within healthcare or just broad No, no, broadly, brother, I
22:22
Speaker 1: want to know, like, for example, you know, were you
22:23
Speaker 1: a bond bull when when everyone you know tried to
22:26
Speaker 1: get out of the gate and then you got head
22:28
Speaker 1: faked out of that one and got you know, bullish again. Yeah,
22:31
Speaker 1: I mean, and so if we look you know, across
22:33
Speaker 1: all markets, I think one of the areas we did
22:35
Speaker 1: maybe a bit better. This goes back a little bit
22:37
Speaker 1: over a year. We were a bit cautious on high
22:39
Speaker 1: yield kind of heading into the UM energy junk bond
22:42
Speaker 1: meltdown in late uh kind of early sixteen, So we
22:46
Speaker 1: were so like a medium term call. Yeah, So I
22:50
Speaker 1: think that that was sort of the call there, and
22:52
Speaker 1: high yield, I think from a negative you know, I
22:54
Speaker 1: think we probably could have taken a look at our
22:56
Speaker 1: treasury exposure a bit differently heading into the election. I
22:59
Speaker 1: think that's certainly in space where I think a lot
23:01
Speaker 1: of folks will were caught off guard, and we're probably
23:04
Speaker 1: there as well. But UM in general, I think we
23:06
Speaker 1: try to be a bit more nimble on the equity
23:08
Speaker 1: side from the on the bond from bomb perspective, we
23:11
Speaker 1: tend to be a little bit more patient, I think,
23:13
Speaker 1: and and sort of realize that the bond market does
23:16
Speaker 1: move a bit more slowly compared to equities, but we
23:18
Speaker 1: do certainly take a look at each asset class out
23:20
Speaker 1: there well, I've just want to do you have to
23:22
Speaker 1: add another metric now and I'm serious here when it
23:26
Speaker 1: comes to tweet volume of a of a particular company
23:30
Speaker 1: or a particular industry, because uh, we have a function
23:34
Speaker 1: on the Bloomberg that offers that. I'm sure there are
23:36
Speaker 1: many others, but you know, certainly not like this and integrated.
23:41
Speaker 1: But so we're able to see this as and then
23:44
Speaker 1: you correlated to you know, news articles read and uh
23:48
Speaker 1: so on. Do you think that that is a valid
23:51
Speaker 1: you know, a research criteria that's going to have to
23:53
Speaker 1: be added into your perspective? Uh? You know, I think
23:56
Speaker 1: if we get the next four years looking like last
23:59
Speaker 1: suck couple of months, that that's certainly in a possibility.
24:02
Speaker 1: I think certainly a lot of smart investors are using
24:04
Speaker 1: every data set they can, and if it turns out
24:06
Speaker 1: that tweets become highly correlated with you know a lot
24:09
Speaker 1: of you know, blue chips or big companies out there,
24:11
Speaker 1: is that's certainly relevant. Um. I think another point that
24:14
Speaker 1: that we sort of think about is just volatility in general.
24:17
Speaker 1: So if you've got a lot of presidential tweets out
24:20
Speaker 1: there driving market volatility, that's something we want to take
24:22
Speaker 1: advantage of a couple of things we're looking at is
24:24
Speaker 1: some of the for example, online brokers or some of
24:26
Speaker 1: the exchanges out there. I think our position pretty well
24:29
Speaker 1: to to to improve as you get more volatility. So
24:32
Speaker 1: that's one of the ways we're playing it without trying
24:34
Speaker 1: to to get as focused as you know, looking at
24:36
Speaker 1: individual companies that may or may not have a tweet
24:38
Speaker 1: coming out that could drive it intra day. Well, thank
24:41
Speaker 1: you so much for joining us. Mike Bailey, CFA and
24:43
Speaker 1: Director of Research at FBB Capital Partners talking about why
24:47
Speaker 1: over the long term, healthcare shares as well as industrials
24:51
Speaker 1: will continue to do well. And Pam, I find that
24:53
Speaker 1: interesting because, particularly in the industrial sector, we saw such
24:57
Speaker 1: a rally last year at the end of the year
25:00
Speaker 1: in response to some of the potential President electro Trump policies.
25:04
Speaker 1: UM will now see whether you can make good on that.
25:12
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
25:15
Speaker 1: You can subscribe and listen to interviews at iTunes, SoundCloud,
25:19
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
25:23
Speaker 1: out there on Twitter at pim Fox. I'm out there
25:26
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
25:29
Speaker 1: You can always catch us worldwide on Bloomberg Radio