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Disney Cuts Lay Bare That 'Normal' Isn't On The Horizon · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
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Speaker 1: along with essential market moving news. Find the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com. It is time for Bloomberg Opinion.
0:22
Speaker 1: You're joined by Tara la Chapelle Entertainment, Telecommunications and deal
0:26
Speaker 1: columns for Bloomberg Opinion. Uh and it really just a
0:29
Speaker 1: fascinating story coming out of the Walt Disney Company, once
0:31
Speaker 1: again highlighting the really difficult challenges out there for the
0:35
Speaker 1: American worker. Walt Disney announcing that it's gonna slash twenty
0:38
Speaker 1: eight thousand workers in its slumping US parks and resorts business.
0:43
Speaker 1: Terror Thanks so much for joining us here. Boy, the
0:45
Speaker 1: pain is really being felt at the Walt Disney Company,
0:48
Speaker 1: among others. Yeah. I think you know a lot of
0:51
Speaker 1: companies had been holding out hope these last few months
0:54
Speaker 1: that you just had to get through these for a
0:56
Speaker 1: few months and that they could keep their workers and
0:58
Speaker 1: that you know, you could kind of see normal on
1:00
Speaker 1: the Horizon, and I think this is Disney saying in
1:03
Speaker 1: a big way that we're really not there and we're
1:05
Speaker 1: not going to be there for a while, and they
1:07
Speaker 1: needed to do this, and I think it's going to
1:08
Speaker 1: be the start of other companies badly doing this as well.
1:11
Speaker 1: You know, their theme park in California has been closed,
1:14
Speaker 1: and they've kind of Disney has kind of pointed fingers
1:17
Speaker 1: at California's state government for that. But the reality is
1:20
Speaker 1: that even in Florida where they are opening, they're they're open,
1:23
Speaker 1: they're not seeing a lot of travelers come in because
1:26
Speaker 1: people are still really weary about doing this. Not to mention,
1:29
Speaker 1: we're in a recession, so you know, I don't know
1:30
Speaker 1: how many families are willing to spend a hundred bucks
1:33
Speaker 1: or more a day on each person in their household
1:36
Speaker 1: to go to Disney World right now. Yeah, the head
1:39
Speaker 1: of the theme park send out a statement in which
1:42
Speaker 1: he said that many of these were part time already
1:44
Speaker 1: or contract workers. In other words, they were in the
1:46
Speaker 1: union employees, and they're going to trying them to some
1:48
Speaker 1: kind of an agreement with the union employees. But nevertheless,
1:51
Speaker 1: a phenomenal amount of workers that we're getting some kind
1:54
Speaker 1: of paycheck from Disney, right. You know, they had furloughed
1:58
Speaker 1: about a hundred thousand people and in kept their task
2:00
Speaker 1: members um on their healthcare uh since April when they
2:05
Speaker 1: had to do this, And I think now they're starting
2:07
Speaker 1: to realize, you know, the same parts really aren't going
2:09
Speaker 1: to come back for a while because they simply can't.
2:11
Speaker 1: And it's similar for the movie theater industry, which Disney
2:14
Speaker 1: is also typed to, where you have them reopening around
2:17
Speaker 1: the country, but you're not seeing people come back in
2:20
Speaker 1: big numbers for a lot of different reasons. And it
2:23
Speaker 1: just shows that to get the economy back on track,
2:25
Speaker 1: we need to fix the virus first. It's just there's
2:28
Speaker 1: no way to get around it. And I think this
2:30
Speaker 1: is what these companies are starting to realize, and unfortunately
2:33
Speaker 1: it's going to cause a lot of pain for a
2:34
Speaker 1: lot of workers. Yeah, it's Terry. You know you've covered
2:38
Speaker 1: Disney for a long time. You know that the big
2:40
Speaker 1: moves they've made uh to pivot towards their streaming business.
2:44
Speaker 1: But the reality is most of their operating income today
2:47
Speaker 1: comes from their theme parks and their cable networks and
2:51
Speaker 1: the filmed entertainment studio and all those businesses are really
2:55
Speaker 1: being impacted by the economic infects effects of this pandemic.
3:01
Speaker 1: Is what's the thinking do you think within Disney about
3:03
Speaker 1: kind of their strategy for dealing with this pandemic. Is
3:05
Speaker 1: it just to batten down the hatches and wait to
3:07
Speaker 1: get together side. I mean, I guess so, but it's
3:10
Speaker 1: been a little bit confusing. I mean, they installed a
3:13
Speaker 1: new CEO in February, which is Bob Shapeck, who came
3:16
Speaker 1: from the theme park side, which I guess is a
3:18
Speaker 1: good thing right now in this moment because he really
3:20
Speaker 1: knows that business. However, what is Disney's future, And if
3:24
Speaker 1: their future is streaming, I mean, good luck to them.
3:27
Speaker 1: That's going to be a really difficult challenge going up
3:30
Speaker 1: against Netflix and trying to make money in this industry.
3:33
Speaker 1: And like you said, you know, the streaming business is
3:35
Speaker 1: doing well and that it's growing and a lot of
3:37
Speaker 1: people of interest in Disney Plus and the other products
3:40
Speaker 1: that they're coming out with. However, it doesn't generate the
3:43
Speaker 1: kind of money and won't for a long time that
3:45
Speaker 1: these theme parks, the cable networks do, and all these
3:48
Speaker 1: different businesses. So there's a lot of question marks around Disney.
3:52
Speaker 1: It just makes me wonder, you know, what does Disney
3:55
Speaker 1: look like in a new normal? What is the company?
3:57
Speaker 1: Is it a theme park and movie and uh cable
4:02
Speaker 1: network giant or is it a streaming company? And and
4:06
Speaker 1: how do they kind of what does that look like?
4:09
Speaker 1: I think there's just a lot of questions about, um,
4:12
Speaker 1: how they're kind of going to get through this, and
4:14
Speaker 1: what the thinking is at the top, since they do
4:17
Speaker 1: have a new CEO who really didn't come from the
4:20
Speaker 1: entertainment side of this company. Yeah, and he actually went
4:23
Speaker 1: to half salary for the rest of the pandemic. Correct me,
4:27
Speaker 1: both of you if I'm wrong, because goodness knows, nobody
4:29
Speaker 1: knows Disney better than YouTube. But wasn't there a time
4:32
Speaker 1: when Disney was certainly not counting on its theme parks
4:35
Speaker 1: for you know, its revenue stream or for its operating income.
4:39
Speaker 1: You know, it was almost a surprise, was it not
4:41
Speaker 1: that the theme parks were keeping other parts of Disney
4:45
Speaker 1: aflows if you like, am I right? Pole and Tara, Well,
4:48
Speaker 1: it's actually, you know, the theme park business has been
4:50
Speaker 1: kind of terror writes about this. It's kind of been
4:52
Speaker 1: a sleepy part of the business relative to the you know,
4:55
Speaker 1: the movies and all the other cool stuff, the espns
4:57
Speaker 1: of the world. But it's always been a very deady
5:00
Speaker 1: generator of profit and profit growth. And it's such a
5:03
Speaker 1: good business that, as Tera knows. You know, they invested
5:06
Speaker 1: over five billion dollars in their theme parks business in
5:08
Speaker 1: Shanghai to open a theme park business in Shanghai. So
5:11
Speaker 1: it's a business they've always liked. They've always been a
5:14
Speaker 1: leader in it. What was interesting when Comcasts bought NBC Universal,
5:18
Speaker 1: they didn't even really think about the Universal theme park business,
5:21
Speaker 1: but that turned out to be a great business for
5:23
Speaker 1: Comcasts as part of that acquisition. Yeah, so I suppose
5:26
Speaker 1: that's what I mean in the sense that, you know,
5:28
Speaker 1: it's almost an unexpected gift. So therefore, can it be
5:32
Speaker 1: made more boutique and still work as that unexpected gift?
5:35
Speaker 1: I mean, do you need two hundred thousand cast members?
5:37
Speaker 1: Do you you know, do you need to change up
5:39
Speaker 1: your rides every year? Can you just have it maybe
5:41
Speaker 1: a little less exciting, a little less full, and still
5:45
Speaker 1: be generating enough income that's possible. I mean, I think
5:49
Speaker 1: a lot of companies are having to make that calculation. Now,
5:51
Speaker 1: do you operate at a smaller capacity. We saw the
5:54
Speaker 1: retail industry goes through this in recent years, even before COVID,
5:57
Speaker 1: you know, becoming more boutique. I think Disney can do that.
6:01
Speaker 1: There's just so much fascination and and love around the
6:04
Speaker 1: Disney brand. I mean, people are obsessed with it all
6:06
Speaker 1: around the world. But how do you get all these
6:08
Speaker 1: people to come back and travel again? You know, maybe
6:11
Speaker 1: it doesn't mean operating at a at a lower capacity,
6:13
Speaker 1: being smaller, but then how do you charge as much
6:16
Speaker 1: as you're charging for these things? So I think there's
6:18
Speaker 1: just there's a lot that's going to change, and it's
6:19
Speaker 1: going to take a lot of trial and error and
6:22
Speaker 1: trying to figure out where do we land at the
6:24
Speaker 1: end of this pandemic, What does it mean and do
6:26
Speaker 1: we go back to quote normal or is normal no
6:29
Speaker 1: longer part of our vocab here? And what does it
6:32
Speaker 1: mean for these giant companies that have operated this way
6:34
Speaker 1: for so long? They're really gonna have to rethink things.
6:37
Speaker 1: Um Tera, what do we know about Shanghai? Has that reopened?
6:42
Speaker 1: If so, how is you know traffic there? Yeah, they
6:45
Speaker 1: reopened that. I think they actually had quite a bit
6:47
Speaker 1: of demands. I think it was maybe the beginning of
6:50
Speaker 1: the summer, um the local government there had them reduced
6:54
Speaker 1: capacity again because virus cases were spiking, but I think
6:56
Speaker 1: they've been opened. I mean, I think the big problem
6:58
Speaker 1: area has been California for Disney, and they really wanted
7:02
Speaker 1: to get that park back open, especially since I think
7:04
Speaker 1: the California park Disneyland gets a lot of local visitors
7:07
Speaker 1: as opposed to Orlando, which relies on a lot of
7:09
Speaker 1: people getting out a plane and coming. So I think
7:12
Speaker 1: they really wanted to get that one open, and obviously
7:14
Speaker 1: that's not happening anytime soon. Tara's thanks so much for
7:17
Speaker 1: joining us with all of your info there on Disney
7:19
Speaker 1: and of course, you know, entertainment companies in general. Tara
7:23
Speaker 1: is Bloomberg Opinion columnists covers all of that media, entertainment
7:27
Speaker 1: and so on. And Disney today down four tenths one
7:30
Speaker 1: over the last year. It's down four point two percent,
7:32
Speaker 1: so definitely not one of those docks that benefited. Pole
7:35
Speaker 1: has said that without looking at the chart. Yeah, exactly right.
7:38
Speaker 1: They've really been hit hard and again their theme park
7:40
Speaker 1: business has just effectively been shut down. Um so and
7:44
Speaker 1: and as Terror you know points out, you know, they
7:46
Speaker 1: really full of Florida parks. They need global travel to
7:50
Speaker 1: pick up because a lot of their customers come from
7:52
Speaker 1: outside of Florida, outside the United States, and they need
7:55
Speaker 1: global travel to pick up. And that doesn't seem like
7:57
Speaker 1: it's something on the near term horizon. Yeah, it's such
8:00
Speaker 1: a such a difficult time for everybody involved. And of
8:03
Speaker 1: course the story the other day that the Disneyland resort
8:06
Speaker 1: in a Hong Kong lost an option to expand its
8:08
Speaker 1: side and just just headlines negative coming constantly for Disney.
8:18
Speaker 1: It is time to talk bonds, bond market, fixed income, volatility,
8:22
Speaker 1: and all the rest of it. We have somebody who
8:24
Speaker 1: is glued to this day in day out. Bryan Whalen
8:27
Speaker 1: is general portfolio manager for fixed income at tc W,
8:30
Speaker 1: which has of course two D twelve billion dollars in
8:32
Speaker 1: asss under management. Brian, thanks for joining. When you come
8:35
Speaker 1: into the office the day after you know, a debate
8:38
Speaker 1: that was so content to contentious and so difficult, where
8:43
Speaker 1: do you go to look first to see if there's
8:45
Speaker 1: a reaction in the marketplace. Well, well, first, thanks for
8:49
Speaker 1: having me. Um. You know clearly you know we're bond managers,
8:52
Speaker 1: so we look at the yield curve will look at
8:53
Speaker 1: the moves across the board, and honestly, this morning it's
8:57
Speaker 1: just more of the same. I think that debate kind
8:59
Speaker 1: of with your opinion on it, you know, good bad.
9:02
Speaker 1: I don't think it really um changed anyone's you know,
9:05
Speaker 1: UM expectations for the election. And you know we're seeing
9:08
Speaker 1: that in treasury yields, which are still confined to a
9:10
Speaker 1: to a very narrow range. So, Brian, where do you
9:14
Speaker 1: guys at TCU, with all the assets under management you
9:17
Speaker 1: guys have, where do you see opportunities given where yields
9:21
Speaker 1: are here? Yeah, great question. I mean, you know, look, um,
9:26
Speaker 1: I think you know, as a bond manager, you have
9:28
Speaker 1: to you have to recognize, you know, the power of
9:30
Speaker 1: the FED and the influence on asset prices. And you know,
9:33
Speaker 1: we have an opinion that the economy is you know,
9:37
Speaker 1: actually you know, much worse than than it may appear,
9:40
Speaker 1: and it feels and that has to do with what
9:42
Speaker 1: we've seen in terms of the fiscal uh stimulus UH,
9:46
Speaker 1: you know, and monetary um, you know, aggressive monetary policy
9:51
Speaker 1: from the Fed. UH. And so you know, when we're
9:53
Speaker 1: thinking about the marketplace today, you know, areas where the
9:56
Speaker 1: FED is directly involved. I think you have to embrace that.
9:58
Speaker 1: I have to kind of look at high quality assets
10:01
Speaker 1: and you have to realize that, you know, the prices
10:03
Speaker 1: are the spread that we saw happening in in March,
10:07
Speaker 1: most like, you're not going to see that again in
10:09
Speaker 1: high quality assets because because the FED is not gonna
10:10
Speaker 1: let it happen. And so you have to embrace that.
10:13
Speaker 1: And I think, you know, maybe take maybe a little
10:15
Speaker 1: bit more risk there then you might otherwise would take
10:19
Speaker 1: in an environment like this. And then on the other hand,
10:21
Speaker 1: you have to be patient giving the amount of you know,
10:24
Speaker 1: just outright trauma the economy has incurred, uh, any amount
10:27
Speaker 1: of demand you know, destruction and the amount of really
10:29
Speaker 1: creative destruction going on. You when we get into two
10:31
Speaker 1: thousand twenty one, you need to be patient, uh in
10:35
Speaker 1: parts of the capital structure and parts of the market,
10:38
Speaker 1: um that are vulnerable to all the damage and and
10:41
Speaker 1: the changes going on. How far down the credit stock
10:45
Speaker 1: are you going by in uh, not very far to
10:48
Speaker 1: be honest with you, you know, the errors we like
10:50
Speaker 1: the most, you know, Uh, Agency mortgages is one area.
10:54
Speaker 1: UM that's you know, the FED has bought you know,
10:56
Speaker 1: in this QUEWI period over a trillion dollars of A
11:00
Speaker 1: and C mbs, and they've kept spread volatility incredibly muted.
11:04
Speaker 1: High quality investment grade corporate bonds. UM. You know, we
11:08
Speaker 1: still like them. Obviously the Feds involved, maybe not to
11:11
Speaker 1: the same extent, uh, and that they've only bought a
11:14
Speaker 1: you know, a very little amount, but just the presence
11:17
Speaker 1: of the FED has given that market a sense of
11:19
Speaker 1: a kind of a an absolute kind of cap on
11:22
Speaker 1: spreads and that again the FED won't lead volatility pick
11:25
Speaker 1: up too much there. But you know, outside of the UM,
11:28
Speaker 1: let's say they called the you know, the warm embrace
11:31
Speaker 1: of the FED, where they have kind of ring fence
11:33
Speaker 1: asset classes like that. You have areas like leverage finance,
11:37
Speaker 1: which includes high old bonds and leverage loans. You have
11:39
Speaker 1: areas like UM you know, down the capital structure, as
11:42
Speaker 1: you said, and in the commercial mortgage back market where
11:44
Speaker 1: you know, there's a lot of damage, uh and it's
11:46
Speaker 1: going to take a long time to play out. So
11:48
Speaker 1: you know, as I mentioned before, you know, we think
11:50
Speaker 1: the best way to kind of spend your dollars and
11:53
Speaker 1: fixed income now is in the high quality parts of
11:55
Speaker 1: the market and be patient and wait for better opportunities
11:58
Speaker 1: or maybe I should say better price is um down
12:01
Speaker 1: capital structure. Brian talked us a little bit about credit
12:04
Speaker 1: quality as you look across your portfolio here, Um, we're
12:08
Speaker 1: six seven months into this pandemic. I suspect you're starting
12:11
Speaker 1: to see some some real cracks. Yeah, I mean this
12:15
Speaker 1: is a you know, as as a you know, like
12:18
Speaker 1: you're seeing in the real economy, seeing in the bond market,
12:20
Speaker 1: meaning you know, we're kind of we're moving into a
12:22
Speaker 1: world of the halves and the have nots. Uh. And
12:24
Speaker 1: even though you know, if you look at big kind
12:27
Speaker 1: of major kind of barometers for let's take corporate bonds,
12:31
Speaker 1: like the investment Grade UH index and the spread of
12:33
Speaker 1: that index, you know, it's around a hundred twenty five
12:36
Speaker 1: hundred thirty basis points, which historically is about average. The
12:39
Speaker 1: same thing in the high old bond market, you know,
12:41
Speaker 1: plus minus five hundred basis points. But um, there is
12:44
Speaker 1: more dispersion under the surface, and that is reflective of
12:48
Speaker 1: you know, what's going on in the broader economy and
12:50
Speaker 1: that you know this this will take a while to
12:52
Speaker 1: play out, uh, and we're going to see lots of winners,
12:55
Speaker 1: but we're all going to see also going to see
12:56
Speaker 1: lots of losers. So you say you need to look
13:00
Speaker 1: for more risk, but yet not go down too far
13:03
Speaker 1: into sort of the depths of you know, the corporates, ratings, issuance.
13:12
Speaker 1: How do you do that? How do you do both?
13:13
Speaker 1: Do you look abroad? Do you I mean, are there
13:15
Speaker 1: still opportunities that people haven't seen? It's bottoms up work.
13:19
Speaker 1: I mean you have to have you know, you've got
13:21
Speaker 1: to have a lot of smart people um underwriting, not
13:24
Speaker 1: just sectors anymore, but you know, individual credits because it's
13:27
Speaker 1: not just you know, there'll be sectors that win, they'll
13:30
Speaker 1: be sectors that loses. But even in the sectors that win,
13:32
Speaker 1: you know, there will be companies that kind of rise
13:34
Speaker 1: to the top and you know they will prosper. Uh
13:38
Speaker 1: when we you know, look at look at the retail
13:41
Speaker 1: for instance. I mean, you know, the amount of change
13:43
Speaker 1: we've seen over the past six months during the pandemic
13:47
Speaker 1: in terms of let's say e commerce penetration and retail sales.
13:50
Speaker 1: You know, we've seen basically a four point jump you know,
13:53
Speaker 1: from about twelve to six of e commerce penetration just
13:57
Speaker 1: during the pandemic. Previously, that four point increase took about
14:01
Speaker 1: five years to occur, so the change is rapid. You
14:05
Speaker 1: know that. There's that old kind of Leneing quote about
14:07
Speaker 1: you know, their decades when nothing happens, and then every
14:09
Speaker 1: weeks where decades happen. We're living in the middle of
14:12
Speaker 1: that right now. Yeah. Absolutely, in many many ways. Brian Will,
14:16
Speaker 1: and thank you so much for joining us. Brian Will
14:17
Speaker 1: and general portfolio manager for fixed income at tc W.
14:21
Speaker 1: They have two d and twelve billion dollars firm wide
14:24
Speaker 1: under management, so they see all parts of the market.
14:27
Speaker 1: We always like to talk to the smart folks at
14:28
Speaker 1: tc W. They generally had a more conservative view of
14:31
Speaker 1: the market, and I think that's been born out here.
14:34
Speaker 1: So again, Brian Will and Gender portfolio manager, fixed Income.
14:39
Speaker 1: The first presidential debate last night is in the books
14:42
Speaker 1: and what the debate. It was back and forth, very lively,
14:46
Speaker 1: to say the least, between President Trump and former Vice
14:49
Speaker 1: President Joe Biden. Let's take a listen to some of
14:52
Speaker 1: the highlights. Everybody knows he's a liar, but I just
14:57
Speaker 1: want to I want to make sure and you wanted
15:00
Speaker 1: last I want to make sure. Can you let him
15:05
Speaker 1: finish sir, he don't know how to do that. He
15:07
Speaker 1: knew it was a deadly disease. What did he do.
15:11
Speaker 1: He's on tape, is acknowledging he knew it. He said
15:14
Speaker 1: he didn't tell us or give people a warning of
15:16
Speaker 1: it because he didn't want to panic the American people.
15:19
Speaker 1: You don't panic. He panicked. We've done a great job.
15:22
Speaker 1: The only thing I haven't done a good job, and
15:24
Speaker 1: that's because of the fake news. No matter what you
15:26
Speaker 1: say to them, they give you a bad press on
15:28
Speaker 1: It's just fake news. They had the slowest recovery since
15:32
Speaker 1: ninety economic recovery since nine. It was the slowest recovery.
15:37
Speaker 1: I paid thirty eight million dollars one year. I paid
15:41
Speaker 1: twenty seven minute. Nobody's done that. He's just he's here's
15:47
Speaker 1: the deal. I know a lot more about it. Let
15:49
Speaker 1: him finish. The fact is that there is racial insensitivity.
15:54
Speaker 1: People have to be made aware of what other people
15:57
Speaker 1: feel like. That was President Donald Trump and former Vice
16:02
Speaker 1: President Joe Biden at the debates last night. Let's get
16:06
Speaker 1: a postmortem, if you will. Jeanie Zano title. She's a
16:09
Speaker 1: political contributor for Bloomberg News and also professor of political
16:12
Speaker 1: science at Iona College. Jenny, thanks so much for joining
16:15
Speaker 1: us here. Boy, lots to unpack from last night. What
16:19
Speaker 1: was your thirty thousand foot takeaway from the debates? Winners,
16:22
Speaker 1: losers or a draw? Yeah, it's so good to talk
16:25
Speaker 1: to you. I think, you know, I think debate at
16:28
Speaker 1: this point is a generous word. It was more like
16:30
Speaker 1: a brawl. And um, I think you know when you
16:33
Speaker 1: talk about winners and losers, my takeaway was when it
16:37
Speaker 1: it is so divisive and you know, described in so
16:40
Speaker 1: many ways, but certainly no Linkenant Douglas debate. This was
16:43
Speaker 1: like a you know, all out barbarawl. I think it's
16:47
Speaker 1: hard for there to be a winner or a loser
16:49
Speaker 1: in that context. You know, you had the vice president
16:52
Speaker 1: calling the president names, you had the President repeatedly interrupting.
16:56
Speaker 1: I'm curious to see how many people tuned out after
16:59
Speaker 1: the first fifty in twenty minutes. And so from that perspective,
17:02
Speaker 1: I think it is a draw, and I think you
17:04
Speaker 1: end up pretty much with the status quo. And unfortunately
17:07
Speaker 1: for the President, he went into this debate lower in
17:11
Speaker 1: you know, the polls across the country and even in
17:14
Speaker 1: many of the battleground states and that's a big challenge
17:17
Speaker 1: for him. When you're looking at a you know, Washington
17:19
Speaker 1: Post ABC poll the other day with the vice president
17:23
Speaker 1: nine almost double digits lead in Pennsylvania, that's a problem.
17:27
Speaker 1: And I think that is, you know, where we find
17:30
Speaker 1: ourselves the morning after Genny doesn't make a difference of
17:33
Speaker 1: the polls, even if someone decided to decide just a
17:36
Speaker 1: non botherable thing after last night. Um, I do think,
17:40
Speaker 1: you know, of course, for me as a political scientists,
17:42
Speaker 1: I think that is so unfortunate because of course that's
17:44
Speaker 1: how we speak, that's how we express ourselves, that's how
17:47
Speaker 1: we have power as Americans and as citizens in the republic.
17:51
Speaker 1: So I think it is a problem, and I think
17:53
Speaker 1: your point is well taken. We heard from Frank Luntz
17:56
Speaker 1: after the debate that many of the undecideds that he
18:00
Speaker 1: was pulling seemed like they just made tune out at
18:03
Speaker 1: this point, that they just didn't want to be involved,
18:05
Speaker 1: and who can blame them? And of course we all
18:08
Speaker 1: lose in that perspective. And so you know, you talk
18:11
Speaker 1: about a winner a loser, I think a lot of
18:12
Speaker 1: people said, and I agree, the American public is a
18:15
Speaker 1: loser when you can't have a real sustained debate about this.
18:19
Speaker 1: So many issues that are going on all around us.
18:22
Speaker 1: We're waiting for a Job's report out on Friday, We're
18:24
Speaker 1: in the middle of a pandemic, We've got a Supreme
18:26
Speaker 1: Court nomination. The list goes on and on, and there was,
18:30
Speaker 1: you know, a little bit of substance one. We don't
18:32
Speaker 1: want to say there was nothing, but it wasn't nearly
18:34
Speaker 1: what it should have been. So, Jennie, I guess that
18:37
Speaker 1: begs a question should be should there these two candidates
18:41
Speaker 1: even debate any further? You know, I know this is
18:45
Speaker 1: I've heard so many different ideas about this, and and
18:48
Speaker 1: you know, Democrats urging the president the vice president sorry
18:51
Speaker 1: not to debate. I think that would be unfortunate. I'm
18:54
Speaker 1: hoping this isn't the end of the presidential debates, probably
18:57
Speaker 1: selfishly because I was so excited about yesterday. I love
19:00
Speaker 1: this time of year. Um. I do hope that they
19:02
Speaker 1: have them. Um, I have to admit that I do
19:04
Speaker 1: hope that they have them, and I hope that there
19:07
Speaker 1: is a way that they could be done so that we,
19:10
Speaker 1: the American people, can benefit. Whether that means, you know,
19:12
Speaker 1: people are talking about shutting down Mike's. But the bottom
19:16
Speaker 1: line is if two people agree to debate and one
19:19
Speaker 1: of or both decide not to follow the rules, this
19:22
Speaker 1: is what happens. And I think this was a concerted
19:24
Speaker 1: strategy on the President's part to throw the vice president
19:27
Speaker 1: off his game, to make it hard for him to
19:31
Speaker 1: you know, express his opinions and to you know, show
19:34
Speaker 1: any strength. And I think the President may have gone
19:36
Speaker 1: too far in that respect. I think, you know, quite frankly,
19:40
Speaker 1: had the president done a little bit of that, the
19:42
Speaker 1: vice president may or may not have stumbled. But what
19:45
Speaker 1: the president is, he just went overboard, and he, I think,
19:48
Speaker 1: is the one who came out the loser around this. Yeah,
19:51
Speaker 1: I mean even in terms of policy, it's not like
19:54
Speaker 1: we heard all that substantive. You know, policy platforms in
19:58
Speaker 1: any area really just had a lot of complaints. Will
20:02
Speaker 1: it make it any more likely that we get stimulus
20:04
Speaker 1: around four though? I mean Pelosi emotion right now are
20:07
Speaker 1: chatting and they will want to distract from last night's
20:11
Speaker 1: tobacco now. Absolutely, And you know that's one of the
20:15
Speaker 1: things that kept occurring to me last night. You have
20:17
Speaker 1: you know, we have not had the stimulus package. Obviously,
20:20
Speaker 1: no agreement on that we have. These offers on the
20:23
Speaker 1: table are being discussed, and I'm not sure I heard,
20:26
Speaker 1: you know, more than just sort of a little, you know,
20:29
Speaker 1: mention of those nothing substantive. And that again is where
20:34
Speaker 1: we find ourselves with unemployment where it is and people
20:38
Speaker 1: suffering on the ground, over two hundred thousand dead, no
20:42
Speaker 1: stimulus package out of Washington, and a lot of back
20:45
Speaker 1: and forth. But I'm not clear at this point where
20:47
Speaker 1: either the President or the Vice president stand on something
20:50
Speaker 1: as basic as the proposal that both sides in Congress
20:53
Speaker 1: in the White House has put forward at this point. So, Jenny,
20:58
Speaker 1: what do you think the president needs to do to
21:01
Speaker 1: close that gap that the polls are indicating right now.
21:04
Speaker 1: I think what the president needs to do is he
21:06
Speaker 1: needs to appeal to the people who helped him win
21:09
Speaker 1: in twos sixteen. That is a traditional moderate, undecided Republican
21:14
Speaker 1: women in the suburbs, in particular seniors, college educated voters,
21:19
Speaker 1: and they believe they can pick up some Latinos. And
21:21
Speaker 1: I think to do that, he cannot repeat what he
21:24
Speaker 1: did last night, and I think that's going to be
21:26
Speaker 1: his big challenge. I'll just give you one quick example
21:29
Speaker 1: on the economy. You know, he interrupted Joe Biden talking
21:33
Speaker 1: about the pre COVID economy, and I was wondering why
21:36
Speaker 1: the pre COVID economy was very strong. Donald Trump does
21:40
Speaker 1: great in all polls, and rightly so when you talk
21:43
Speaker 1: about the pre COVID economy, why not let Joe Biden
21:46
Speaker 1: try to take that on. And yet he sort of
21:49
Speaker 1: interrupted him, and I think was a loser for the
21:52
Speaker 1: president talk about the economy, especially pre COVID, because you
21:55
Speaker 1: win on that. So I think he needs to, you know,
21:58
Speaker 1: try to appeal to those voters by not stepping on
22:01
Speaker 1: the vice president in those moments and by letting the
22:04
Speaker 1: vice president make his case, because I do think the president,
22:08
Speaker 1: on the economy and in other areas has an argument
22:10
Speaker 1: to make that will appeal to some of these moderates
22:13
Speaker 1: he needs to pull over. Genie, thank you so much
22:16
Speaker 1: for watching the base first of all, and for talking
22:19
Speaker 1: to us about is Gennie of course, is on television
22:21
Speaker 1: last night on Bloomberg Television, watching the debate and commenting
22:24
Speaker 1: on it and moving on balance of power again today.
22:27
Speaker 1: Junie zy Know is political contributor for Bloomberg News, also
22:29
Speaker 1: professor of political science at Iona College let's talk a
22:35
Speaker 1: little et F action, shall we. When I think E
22:38
Speaker 1: t F s, I think Vanguards, some of these huge,
22:40
Speaker 1: huge players in the space. I want to get a
22:42
Speaker 1: sense of kind of the future of the E t
22:44
Speaker 1: F business where some of the big players stand. We
22:46
Speaker 1: can do that with Eric Valchunis, senior et F analysts
22:50
Speaker 1: for Bloomberg Intelligence. Bloomberg Intelligence is Bloomberg's investment research business
22:55
Speaker 1: staff with hundreds of world class analysts around the world. Eric,
22:59
Speaker 1: thanks much for joining us here. Talk to us about
23:02
Speaker 1: Vanguard here. I mean, I know they are just monsters
23:04
Speaker 1: in the space about a billion and a half I'm sorry,
23:07
Speaker 1: a trillion and a half bond fund business. You think
23:10
Speaker 1: they're gonna get even bigger, don't you? I do. We
23:13
Speaker 1: think they're probably going to double that number to three
23:16
Speaker 1: trillion within five years perhaps um, as long as this
23:20
Speaker 1: low rate environment continues. First of all, just a little
23:23
Speaker 1: on the one point five trillion that is double any
23:26
Speaker 1: other asset manager. We were even shocked. We hadn't dug
23:29
Speaker 1: dug into their bond funds in quite a while. We're
23:32
Speaker 1: largely in et F, so we looked at all of
23:33
Speaker 1: their bond funds and fillion of that is inactive, which
23:37
Speaker 1: makes them the biggest active bond fund manager as well.
23:40
Speaker 1: They're just a monster in the space. And the reason
23:43
Speaker 1: we're so bullish is because if you have a low
23:45
Speaker 1: rate environment and real yields are falling, the expense ratio
23:49
Speaker 1: of your bond fund, whether it's active, war passes, it's
23:52
Speaker 1: going to start eating up an increasingly large chunk of
23:55
Speaker 1: that yield. Thus, if Vanguard has fees that are five
23:59
Speaker 1: to ten, perhaps twenty basis points at most, they're going
24:02
Speaker 1: to eat up a lot much smaller portion of the yield.
24:06
Speaker 1: That's going to help investors get more yield from the fund.
24:09
Speaker 1: In addition, it will give them a little more breathing
24:12
Speaker 1: room to take a little less risk to try to
24:15
Speaker 1: go out further on the credit spectrum to increase the yield,
24:18
Speaker 1: which then makes a fund vulnerable to a sell off,
24:21
Speaker 1: and we saw Pempco get hit with that in March.
24:23
Speaker 1: They had a much bigger draw down. So those are
24:26
Speaker 1: the factors that we think really aligned perfectly with Vanguard,
24:29
Speaker 1: and yeah, they could get much bigger. Could Vanguard learn
24:33
Speaker 1: anything from the March sell off teachable moment to hedge
24:37
Speaker 1: against that possibility again? Well, I would almost go and
24:41
Speaker 1: flip and say, what could PIMCO learn Because if you
24:44
Speaker 1: look at the March sell off, like vanguards equivalent to
24:47
Speaker 1: the total return or the PIMCO income fund is the
24:49
Speaker 1: Vanguard bond fund v t O b X, and it
24:54
Speaker 1: only went down about half as much as the PIMPCO fund.
24:58
Speaker 1: That saving that much raw down becomes very huge. And
25:02
Speaker 1: so that fund is up nine percent in the past year,
25:05
Speaker 1: whereas p m I m X, which is the largest
25:07
Speaker 1: actively managed bond funds PIMCO is is only a one percent.
25:10
Speaker 1: I think the agg might be about seven. So in general,
25:14
Speaker 1: if there's a real nice rally and bonds, which there
25:18
Speaker 1: has been in five years prior to the sell off,
25:21
Speaker 1: the Pimcos of the world are going to do a
25:23
Speaker 1: little better. They take on a little more risk UH,
25:25
Speaker 1: and they're going to beat the agg by a lot.
25:26
Speaker 1: But in these sell offs really hurt them. And this
25:29
Speaker 1: is what Vanguard is less exposed to UH than most
25:33
Speaker 1: active manager. I will say all of them, but many
25:35
Speaker 1: of them do dip a little higher into the high
25:37
Speaker 1: yield areas. So you might have PIMCO at ten percent
25:40
Speaker 1: high yield and Vanguard will be maybe more three, four
25:42
Speaker 1: or five. So it's interesting, Eric, you talk about the
25:46
Speaker 1: fun flows into uh, this one and a half trillion
25:50
Speaker 1: dollar bond fund business for Vanguard with rates so low,
25:55
Speaker 1: I'm kind of surprised that folks are thinking about, you know,
25:59
Speaker 1: people putting even more money into these bond funds. Perhaps
26:01
Speaker 1: they should be looking elsewhere for yield. Yeah, and this
26:06
Speaker 1: is this is perhaps one of the head winds to
26:09
Speaker 1: our call, which is just people not really being into
26:11
Speaker 1: bond funds. I I just think you look at the
26:13
Speaker 1: equity markets and you know that they can see them
26:16
Speaker 1: a little frothy too. I I still believe the sixty
26:19
Speaker 1: is a huge uh issue here because we do find
26:23
Speaker 1: that if the equity markets rally, then people will rebalance
26:26
Speaker 1: into bonds to keep that allocation. So um yeah, I mean,
26:30
Speaker 1: if if equity markets falter and bonds keep rowling, you
26:33
Speaker 1: could people have people rebalance more into equities. So there's
26:36
Speaker 1: some other factors that could come into it. But I
26:38
Speaker 1: do think you know, bonds from just major asset class,
26:42
Speaker 1: and I think if you look, uh, you know, the
26:44
Speaker 1: stability they provide is also part of what you get
26:47
Speaker 1: out of them. It's not just the yield return it's
26:49
Speaker 1: also they can provide some diversification benefits, and so I
26:53
Speaker 1: do think that will carry the day. And I do
26:55
Speaker 1: think that's a large chunk of a portfolio and I
26:57
Speaker 1: don't see that going away completely. Eric, Where is on
27:01
Speaker 1: Guard taking market share from or is this new money
27:05
Speaker 1: maybe perhaps made in the hecity market. Uh? Well, Vanguard
27:09
Speaker 1: I think takes market share from everybody, um, you know
27:12
Speaker 1: in the bond space, which they Pimco, black Rock Capital Group,
27:16
Speaker 1: all of they're all the competitors of Vanguard. And you
27:20
Speaker 1: know that they have their competitors on the equity side.
27:22
Speaker 1: To UM, it's they're just you know, to me, they're
27:24
Speaker 1: like Amazon. Vanguard is like Amazon is to retail, except
27:29
Speaker 1: to the asset management world. You just don't hear as
27:31
Speaker 1: much about them because they're not couplely traded. But their
27:34
Speaker 1: fees are usually four or five times lower. And we're
27:38
Speaker 1: just in a world where people are obsessed with cost.
27:41
Speaker 1: It's one of the things they trust the most now,
27:43
Speaker 1: and so they're going to just continue to eat market share.
27:46
Speaker 1: It's just on the bond side, the fee comes in
27:48
Speaker 1: extra is extra important, perhaps because of those shrinking yields.
27:54
Speaker 1: All right, Er, let's switch gears a little bit, just
27:55
Speaker 1: real quickly, what's the most exciting thing you're looking at
27:57
Speaker 1: an et F world today? We're looking at a spack
28:03
Speaker 1: eks that is going to launch tomorrow. We think, yeah,
28:06
Speaker 1: you guess it, um and uh, there's another one filed.
28:10
Speaker 1: We're calling it the spack attack. We're expecting about four
28:13
Speaker 1: or five of these bad plays to launch in the
28:15
Speaker 1: next couple of months. Probably two or three will survive
28:18
Speaker 1: the next couple of years. It reminds me the blockchain
28:21
Speaker 1: frenzy and the cannabis frenzy, uh recent years. So that's
28:24
Speaker 1: what we're looking at. Wow, I don't know what to
28:28
Speaker 1: say about that. I mean, yeah, I mean, I guess
28:31
Speaker 1: these ets can come and go pretty quickly, right, Yeah, Look,
28:35
Speaker 1: I mean e t s are opportunistic like a lot
28:38
Speaker 1: a lot of areas, but especially when it's a new area.
28:41
Speaker 1: Because speaking of Vanguard, these new areas I call them
28:44
Speaker 1: Vanguard free zones, Like Vanguard is not going to launch
28:46
Speaker 1: this back ets, so issuers love that can come in
28:48
Speaker 1: charge a little higher fee and not get priced down
28:51
Speaker 1: so quickly. Right, it makes so much sense. Eric Belltoon
28:54
Speaker 1: is always bringing us the news stories and the new
28:57
Speaker 1: at s that are out there. Thank you so much
28:59
Speaker 1: for joining us. Eric caball Tunas of Bloomberg Intelligence is there,
29:03
Speaker 1: et F analysts. Thanks for listening to Bloomberg Markets podcast.
29:07
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
29:11
Speaker 1: or whatever a podcast platform you prefer. I'm Bonnie Quinn,
29:14
Speaker 1: I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney.
29:17
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
29:19
Speaker 1: can always catch us worldwide at Bloomberg Radio