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Fed 'Takes Back' Last Year's Hike: Invesco's Hooper · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you,
0:05
Speaker 1: along with my co host Lisa Brahma wits. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money, whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Well, it certainly was a news
0:24
Speaker 1: filled afternoon yesterday with the FED cutting rates by twenty
0:28
Speaker 1: five basis points, and then the Q and a and
0:31
Speaker 1: presentation by Chairman Pal which calls I think some uncertainty
0:35
Speaker 1: with many investors in the marketplace to try to make
0:37
Speaker 1: sense of it. We welcome our next guest, Christina Hooper.
0:40
Speaker 1: Christina is a chief global market strategist for Investco based
0:44
Speaker 1: here in York. Christina, you're joining us here on Bloomberg
0:47
Speaker 1: Interactor Broker Studio. It's great to see you. What were
0:50
Speaker 1: your takeaways yesterday from yesterday's testimony and Q and a
0:54
Speaker 1: and all that. Well, there are a few key takeaways Paul.
0:58
Speaker 1: First of all, it seems that the narrative is that
1:01
Speaker 1: the last rate hike of two thousand eighteen was a mistake,
1:05
Speaker 1: and we're giving that back, um, but that it doesn't
1:09
Speaker 1: necessarily mean we're going to see any series of rate
1:13
Speaker 1: cuts from here. Maybe one war. But J. Powell was
1:17
Speaker 1: very clear and suggesting that this is an adjustment, not
1:21
Speaker 1: a trend, and so that speaks volumes, but it does
1:24
Speaker 1: also cause confusion in markets. I think the other key
1:28
Speaker 1: takeaway was that the FET is confused because there are
1:32
Speaker 1: so many different data points swirling around that suggests different things.
1:36
Speaker 1: The dichotomy in the US economy strengthen the consumer, strengthened services,
1:41
Speaker 1: but of course weakness in manufacturing, which really mirrors what
1:45
Speaker 1: we're seeing globally. Um. Also just in general, we're seeing
1:50
Speaker 1: a strong domestic economy for the most part, but we
1:53
Speaker 1: have to worry about trade wars, and really there is
1:56
Speaker 1: no playbook for trade wars. So a lot of people
2:00
Speaker 1: said the VODO reserved disappointed markets. Yesterday you did see
2:04
Speaker 1: US so often equities a bit of a sell often bonds.
2:07
Speaker 1: Today we're seeing bonds rally and we're seeing two year
2:10
Speaker 1: yields come in uh the most in a couple of weeks.
2:14
Speaker 1: I'm trying to figure this out. Why. Well, I think
2:17
Speaker 1: there's always that visceral knee jerk reaction, and then markets
2:22
Speaker 1: take time to digest information, so they didn't necessarily get
2:26
Speaker 1: what they wanted from the press conference. They seemed to
2:29
Speaker 1: get what they wanted from the actual decision, but stock
2:33
Speaker 1: started to go down when the press conference occurred, and
2:36
Speaker 1: so it seems as though they were left feeling a
2:39
Speaker 1: little empty. Because J. Powell UM insisted that this is
2:42
Speaker 1: more of an adjustment rather than a trent. I say,
2:45
Speaker 1: this feels like a relationship. You know, they wanted to
2:47
Speaker 1: hear more, something more, what's what's the future? Well, it
2:52
Speaker 1: is a relationship. Uh And and luckily though, um J.
2:57
Speaker 1: Powell has colleagues on the FED, and so most likely
3:00
Speaker 1: we're going to see Vice Chair Clara to come out
3:03
Speaker 1: and clean up some of the comments and comfort markets. Um,
3:07
Speaker 1: this is a relationship. So, Christina, is there anything that
3:11
Speaker 1: happened yesterday or that will change how you guys view
3:15
Speaker 1: the marketplace? Maybe? How yet, allocating some capital for the
3:18
Speaker 1: remainder of the year, anything changed from yesterday? Nothing really changes,
3:22
Speaker 1: but it does suggest that we are likely to see
3:25
Speaker 1: more dollar strength um, and that really the FED has
3:31
Speaker 1: paved the way for other central banks to start getting
3:35
Speaker 1: more accommodative, so UM on the margins, though really not
3:42
Speaker 1: a lot of change UM, just I would expect that
3:46
Speaker 1: stronger dollar. I would expect UM something of a tilt
3:49
Speaker 1: towards UH risk assets performing well in environment where the
3:55
Speaker 1: Fed stands ready to be more accommodative if it needs to.
3:59
Speaker 1: UM certainly, and balance sheet normalization a bit early was
4:02
Speaker 1: a nod to the doves. So I think this is
4:05
Speaker 1: an environment that all else being equal, favors risk assets.
4:08
Speaker 1: What about emerging markets given the fact that you're expecting
4:10
Speaker 1: the dollar to strengthen, So emerging markets could do well
4:15
Speaker 1: in this environment in that the Fed has removed UM
4:20
Speaker 1: one key headwind, which is balance sheet normalization. Recall that
4:25
Speaker 1: was creating something of a liquidity suck for emerging market
4:28
Speaker 1: So I think that actually this could pave the way
4:32
Speaker 1: UM for for UM emerging markets to perform better. So
4:36
Speaker 1: another news item that seems a narrative that seems to
4:39
Speaker 1: be have been addressed a little bit this week, as trade.
4:42
Speaker 1: It appears that you know what the U S trade
4:44
Speaker 1: delegation going, and then coming back from Shanghai that it
4:48
Speaker 1: appears that while there doesn't look like there's going to
4:50
Speaker 1: be a deal immediately. At least there's just kicked this
4:54
Speaker 1: can down the road, and maybe this might even be
4:56
Speaker 1: a post election. Is that scenario from a trade perspec
5:00
Speaker 1: enough for the markets right now? I think it's enough.
5:04
Speaker 1: I think what we need to do, though, is watch
5:06
Speaker 1: for any signs of a deterioration in the relationship. But luckily,
5:10
Speaker 1: I think markets have begun to manage their own expectations
5:15
Speaker 1: with this. I think there was way too much optimism.
5:18
Speaker 1: I've always been a real pessimist when it comes to
5:21
Speaker 1: the U S. China trade situation, and I think now
5:24
Speaker 1: markets have come to again it's another relationship. Have come
5:28
Speaker 1: to accept um diminished expectations for what could happen between
5:32
Speaker 1: the US and China. However, if we see more tariffs
5:35
Speaker 1: than I do, think that will send stocks lower and
5:39
Speaker 1: really shape confidence. So we have the market on the
5:41
Speaker 1: couch speaking with the therapist right now. UM. I do
5:45
Speaker 1: want to know. You know a lot of people were
5:46
Speaker 1: talking about J. Powell and that his performance was not great.
5:50
Speaker 1: Do you agree? No? Actually, UM, what I would say
5:55
Speaker 1: is that, uh, you know, quite often it is hard
5:59
Speaker 1: to articulate a decision, uh, particularly one in which um,
6:05
Speaker 1: there are so many factors at play. I actually felt
6:08
Speaker 1: for him. Um. I certainly think Janet Yellen probably would
6:11
Speaker 1: have done more in the way of preparation and would
6:15
Speaker 1: have been very very scripted in her comments to make
6:17
Speaker 1: sure there was nothing offhanded that was mentioned. But when
6:21
Speaker 1: you think about UM J. Powell, he did try to articulate, um,
6:25
Speaker 1: the kind of conflicts the FED had in terms of
6:28
Speaker 1: what's looking positive and what's looking negative. And also I
6:31
Speaker 1: think he really stood up for FED independence as well,
6:35
Speaker 1: UM by making that stay. But he of course he does.
6:39
Speaker 1: I mean he's act to say, yeah, actually we're going
6:41
Speaker 1: a cave to what the president says. Lisa. Nothing is
6:44
Speaker 1: a given in this environment. So I actually do think
6:49
Speaker 1: that he had to to stand up and say that,
6:51
Speaker 1: and he did, Uh, And I think he was quite
6:54
Speaker 1: clear um not giving in. He could have been much
6:58
Speaker 1: easier for him to say, you know, to to really
7:00
Speaker 1: say nothing about this, but he tried to make sure
7:02
Speaker 1: it was viewed as an adjustment because he doesn't want
7:05
Speaker 1: to look like he's cow towing to the White House.
7:07
Speaker 1: Christine is about thirty seconds left up. We're about halfway
7:10
Speaker 1: through the earning season. What have you seen anything unusual?
7:14
Speaker 1: I've seen again that phenomenon that managing expectations can be
7:17
Speaker 1: a very good thing because while um earnings estimates were lowered,
7:23
Speaker 1: now they're coming in meeting expectations or in some cases
7:26
Speaker 1: beating them, and that has created something of a positive
7:29
Speaker 1: sentiment in markets. Christina Hooper, thank you so much. We
7:32
Speaker 1: love having you on. Thank you, thank you. Christina Hooper
7:35
Speaker 1: is chief Global market strategist for investco Whish overseas nearly
7:39
Speaker 1: a trillion dollars. This has been a mixed second quarter
7:57
Speaker 1: earnings period for many company ease, but there is one
8:01
Speaker 1: company that is doing a huge victory lap today and
8:04
Speaker 1: that is Shopify, the darling of the Canadian tech world,
8:08
Speaker 1: shares surging at ten today to a new record after
8:12
Speaker 1: reporting better than expected earnings. We're lucky to have with
8:15
Speaker 1: us now the chief operating officer of the firm, Harley Ficklstein.
8:20
Speaker 1: He's uh, He's based in Ottawa, Ontario, in Canada. Harley,
8:24
Speaker 1: congratulations and a very good earnings report and obviously the
8:28
Speaker 1: shares are reflecting that. What was the main driver of
8:31
Speaker 1: growth in the second quarter. Thanks so much for the
8:35
Speaker 1: kind words and thanks for having me on your show.
8:37
Speaker 1: I mean a couple of things are happening. One is
8:39
Speaker 1: I think people are getting to realize what Shopflight actually
8:42
Speaker 1: is doing. UM. I think for a long time we
8:44
Speaker 1: were known as this this very popular e commerce provider
8:48
Speaker 1: to help merchants build online stores. And I believe with
8:51
Speaker 1: the release of things like Shopslight Capital or point of
8:54
Speaker 1: sale offering, which is now in a hundred thousand stores, UH,
8:56
Speaker 1: these shop Flight of film and network that we've recently announced,
8:59
Speaker 1: people get into realize that we're actually building here is
9:02
Speaker 1: the first global retail operating system for for businesses both
9:06
Speaker 1: big and and and very small. UH. And I think
9:09
Speaker 1: part of the part of that is finally coming to
9:11
Speaker 1: people are being to realize that now after uh, sort
9:14
Speaker 1: of putting all the pieces together over the last couple
9:15
Speaker 1: of years. So hardly in the quarter I'm just looking
9:17
Speaker 1: at the quarterly numbers, internationals called out as an area
9:21
Speaker 1: of growth. What's driving the international growth for you guys?
9:24
Speaker 1: So I think Shopify, just by virtue of the fact
9:27
Speaker 1: that we were online, you know, our an internet company,
9:30
Speaker 1: we've always had merchants in in UH, in a global
9:34
Speaker 1: in a global reach. We've had merchants in hunter seventy
9:36
Speaker 1: five countries. UH. Even at the time of our I
9:38
Speaker 1: PO back into thousands fifteen. What's changed though in the
9:41
Speaker 1: last twelve eight months is a couple of things. We
9:44
Speaker 1: realized that even though we have merchants in places like Japan, Singapore,
9:48
Speaker 1: in Germany and France, we didn't actually have true product
9:52
Speaker 1: market fit for those merchants, meaning the Shopify admin where
9:55
Speaker 1: the merchants run their store, run their businesses, that was
9:57
Speaker 1: only in English, and last year we we translated it
10:00
Speaker 1: into a number of languages. Now it's it's close to
10:02
Speaker 1: nineteen languages, so merchants that don't speak English can also
10:05
Speaker 1: you Shopify today. We also went ahead and begin to
10:07
Speaker 1: did We did a deeper dive figuring out what are
10:10
Speaker 1: the nuances of what merchants need in each particular geography. So,
10:13
Speaker 1: for example, in a place like Germany, credit card penetration
10:17
Speaker 1: and credit card usage is not as high as in
10:19
Speaker 1: the US, debit cards are a lot more popular. So
10:21
Speaker 1: beyond just the translation, we began to figure out what
10:24
Speaker 1: those merchants need there from a payment perspective, from integration perspective.
10:27
Speaker 1: And then finally we also created and began to develop
10:31
Speaker 1: our international Shopify partner community. We began going to these countries,
10:35
Speaker 1: and cultivating relationships and partnerships with agencies and freelancers who
10:39
Speaker 1: not only refer merchants to Shopify, and I mentioned on
10:42
Speaker 1: the call more than twenty two thousand partners orfer business
10:45
Speaker 1: of Shopify in the last twelve months, but beyond that
10:47
Speaker 1: are now building applications and and integrations for merchants in
10:51
Speaker 1: those locations that are particularly relevant to the needs of
10:54
Speaker 1: merchants in places like Japan or Germany or France and
10:57
Speaker 1: all that. All that has led to us having the
10:59
Speaker 1: largest because of international merchants today that we've ever had.
11:02
Speaker 1: So the numbers are pretty impressive. Revenue grew forty eight
11:05
Speaker 1: percent according to the statement and analysts for projecting a
11:10
Speaker 1: three hundred and fifty point five million dollar revenue. Sounds amazing, right, increase,
11:16
Speaker 1: Yet it is the slowest in shop fives four years
11:20
Speaker 1: as a listed company. And I'm wondering whether you're the
11:22
Speaker 1: slowdown is due to just the fact that you're maturing
11:24
Speaker 1: as a company, or whether this has to do with
11:27
Speaker 1: just sort of the global macro backdrop and some of
11:29
Speaker 1: these slow in growth. Yeah, look, we think, you know,
11:32
Speaker 1: growing revenue at our size almost fifty percent, we think
11:35
Speaker 1: is really great. We also saw g m V growth
11:39
Speaker 1: beyond so g m V for the for the second
11:42
Speaker 1: quarter was almost fourteen billion, which again is greater than
11:47
Speaker 1: last year. Uh. Frankly, because we're so distributed and we're
11:51
Speaker 1: we have merchants all over the world. Um, you know,
11:53
Speaker 1: obviously some macro trends will affect us, but but generally
11:56
Speaker 1: we think that there's huge opportunities for us, not just internationally,
11:59
Speaker 1: but also with our existing merchants. We've been eight hundred
12:02
Speaker 1: thousand merchants now and figure out ways to expand what
12:05
Speaker 1: they use from us, whether it's capital. We've given out
12:08
Speaker 1: more than six thirty million dollars of cash advances to merchants,
12:11
Speaker 1: helping them now with filment and shipping, helping them with
12:13
Speaker 1: fraud protection. We think that not only can we get
12:15
Speaker 1: way more merchants, but the merchant we already have, we
12:17
Speaker 1: can also expand the services that we provide for them
12:20
Speaker 1: and and and make Shopify much more relevant to their
12:23
Speaker 1: their their business. Harley, what's the risk to your story?
12:26
Speaker 1: What's the bear case? Look? I think for a while
12:29
Speaker 1: people were a little nervous that some of the merchants
12:31
Speaker 1: coming on to Shopify. We're small businesses and not all
12:34
Speaker 1: some small small businesses succeed. We know that, and actually
12:38
Speaker 1: we think that that's okay. The way that we look
12:40
Speaker 1: at it from a business perspective is we want to
12:42
Speaker 1: create the largest top of final possible. We want anyone
12:45
Speaker 1: that has an aspiration or an ambition to build a
12:48
Speaker 1: startup or a business or a small a small retailer
12:51
Speaker 1: to do so on Shopify, and we acknowledge not all
12:53
Speaker 1: will succeed. What's important to us, though, is that the
12:56
Speaker 1: ones that do succeed offset the cost of those that don't,
12:59
Speaker 1: and that certainly is happening with us, and we've we've
13:01
Speaker 1: been seeing that for a number of years. And then
13:03
Speaker 1: the other piece of it is retail in general is
13:06
Speaker 1: getting far more complicated. So now you're you know, we're
13:08
Speaker 1: seeing companies like Instagram create create new new retail channels.
13:12
Speaker 1: We're seeing new marketplaces pop up, We're seeing accelerated check
13:16
Speaker 1: out with things like shopify pay and Apple Pay. The
13:18
Speaker 1: more that retail becomes complicated for a small business, we
13:21
Speaker 1: think the value of shop of that increases because shop
13:24
Speaker 1: if I can allow you to sell anywhere you want
13:26
Speaker 1: online or offline, or on marketplaces or on Instagram, but
13:29
Speaker 1: it all feeds back from one centralized back office. And
13:31
Speaker 1: so I would say that even though complexity and the
13:34
Speaker 1: challenge of a retail needs to grow, we continue to
13:36
Speaker 1: bend that learning curve. And and that's really what we're
13:38
Speaker 1: focused on. We think there's an opportunity for us at
13:41
Speaker 1: a macro global scale to be the entrepreneurship company. There
13:45
Speaker 1: isn't a company out there right now that truly owns entrepreneurship,
13:48
Speaker 1: and we think we have the best shot at doing
13:49
Speaker 1: that of anyone UM And and and so that's what we're
13:51
Speaker 1: focused on today. Harley, thank you so much for your
13:54
Speaker 1: comments and reviewing the quarter with us and the kind
13:56
Speaker 1: of the outlook for the company. Hardly Finglestein, chief operating
13:59
Speaker 1: officer for Shopify, thanks for joining us. I'm just looking
14:02
Speaker 1: at the consensus numbers on the Bloomberg terminal um you know,
14:05
Speaker 1: looking for revenue group about sixty percent last year, gonna
14:09
Speaker 1: grow forecast at over this year and then overt uh
14:14
Speaker 1: next year. And the company has gone from IBATA negative
14:17
Speaker 1: to forecast at EBA positive in nineteen. So the company
14:21
Speaker 1: seems to be making the pivot here and clearly the
14:25
Speaker 1: stock up about a d and fifty percent this year.
14:27
Speaker 1: Investors clearly paying up for this stock. This is Bloomberg.
14:48
Speaker 1: I remember a time when people thought that hil bonds
14:50
Speaker 1: were gonna lose money, but instead they've just continued their
14:54
Speaker 1: gravy train. This year. You see returns of ten and
14:57
Speaker 1: a half percent for the US junk bonds year to date.
15:01
Speaker 1: The question did the Fed just give them another leg
15:04
Speaker 1: to go? Here? Andrew Feltis is joining us here in
15:07
Speaker 1: our Blomberg Interactive Broker Studios. He's co director of Global
15:10
Speaker 1: High Yield for a Moony Pioneer, which oversees about eighty
15:14
Speaker 1: billion dollars. Andrew, wonderful having you. So, what do you
15:18
Speaker 1: think what's going to be the full year total return
15:21
Speaker 1: for US hiled bonds. That's a loaded question, but here
15:27
Speaker 1: the bulk of the spread tikings probably occurred, but the
15:31
Speaker 1: faults are low. You're still get a pretty good yield.
15:33
Speaker 1: So I think we're about ten ten and a half
15:35
Speaker 1: right now. Probably will continue to clip that coupon, and
15:38
Speaker 1: I think it's an environment we're choosing. The right security
15:41
Speaker 1: has gonna matter a lot more, so we think we
15:43
Speaker 1: can add some value in that side. Fourteen fifteen sounds
15:47
Speaker 1: about right, Wow, Andrew, what did you did you hear
15:50
Speaker 1: anything yesterday from the FED chairman Pal that makes you
15:53
Speaker 1: change at all? Shade at all? How you guys are
15:56
Speaker 1: looking at the market, So our our concern is more
15:59
Speaker 1: about the market reaction. I think we're consistent with what
16:03
Speaker 1: the FED sees. The economy is in good shape. We
16:05
Speaker 1: don't see a lot of risks here in the us UH.
16:08
Speaker 1: Internationally there's more risks, and that seems to be hitting
16:10
Speaker 1: trade and other issues. But the curve is inverted, and
16:14
Speaker 1: openly that's going to cause banks to change their behavior
16:17
Speaker 1: and that could lead openly to a recession. Now we
16:21
Speaker 1: think the FED will probably cut again, but the Fed
16:24
Speaker 1: was to keep that curve inverted. The longer it stays inverted,
16:27
Speaker 1: the more risk there is of a negative outcome. So
16:30
Speaker 1: at this point we haven't changed our views, but we're
16:32
Speaker 1: monitoring the situation closely. So whenever hil bonds rallied, there
16:37
Speaker 1: are the slews of nervous nellies that come out and
16:40
Speaker 1: say the end is nigh and this means that everything
16:44
Speaker 1: is going to go to pot next year when we
16:47
Speaker 1: face a day of reckoning. What gives you comfort that
16:50
Speaker 1: we're not just setting ourselves up for some sort of
16:53
Speaker 1: publicious frabie beer goggle type behavior. Well, that's great question
16:58
Speaker 1: list at least uh The first thing that most comfortable
17:02
Speaker 1: with is we're not seeing a lot of excess activity.
17:05
Speaker 1: So when I do see risky bonds, they tend to
17:07
Speaker 1: be getting priced very uh wide, So we're not underwriting
17:12
Speaker 1: a lot of bad deals, and you actually see the
17:14
Speaker 1: average credit qualities improving. There's more double b s, there's
17:17
Speaker 1: less triple cs. We don't see l B o s
17:20
Speaker 1: coming into the market, so quality is very high. Actually,
17:23
Speaker 1: the average credit ratings the highest we've ever seen it
17:25
Speaker 1: in the high yale market. So what does that start
17:27
Speaker 1: to cheerating as companies take advantage of this borrowing environment,
17:31
Speaker 1: so you'd see you have to see triple cs be
17:33
Speaker 1: able to come into the market, more l B o s,
17:35
Speaker 1: but also the pricing get much lower. And the problem
17:39
Speaker 1: is if you do in a triple ce and you've
17:41
Speaker 1: gotta pay ten per cent, you really can't refi a
17:44
Speaker 1: LBO type structure and make money with that type of return.
17:47
Speaker 1: So it's really limiting the type of bad deals are
17:50
Speaker 1: getting done in the market. So it gives a sense
17:53
Speaker 1: of the new issue market. It seems like if I
17:54
Speaker 1: had any capital needs whatsoever. Uh, you know, I would
17:58
Speaker 1: just love to access the high yield market given where
18:02
Speaker 1: rates are. Are you singing issuance pick up? So we're
18:05
Speaker 1: actually on track for a record month in July. About
18:09
Speaker 1: a quarter of that comes from one single deal, so
18:11
Speaker 1: that that's a bit of a one off, but generally
18:15
Speaker 1: that was the Diamond Sports. So those are the Disney
18:18
Speaker 1: Regional Sports and that Cereal. Yeah exactly, and you get
18:24
Speaker 1: now that deal one over great, right, Well, all these
18:27
Speaker 1: deals have done well. All the higher quality deals have
18:31
Speaker 1: done really well. Uh So, if you're a double B company,
18:34
Speaker 1: which means you don't have too much leverage, you're in
18:37
Speaker 1: your one notch below investment grade, you can get financed
18:40
Speaker 1: at five to six percent. That's pretty aggressively. The guys
18:44
Speaker 1: that they will ultimately lead to a bubble that lead
18:47
Speaker 1: you to lose money, and not just on a market
18:49
Speaker 1: market basis, our permanent impairman default Those are the triple
18:52
Speaker 1: see you guys and those you know, you monitor the
18:55
Speaker 1: amount of issuance in there and like what kind of
18:58
Speaker 1: pricing and if people are not being paid for default risk,
19:01
Speaker 1: that's when you start getting worried about a bubble, and
19:04
Speaker 1: we just don't see that type of behavior going on.
19:06
Speaker 1: The market's been very disciplined, so that gives us a
19:08
Speaker 1: certain level of confidence. How do you go about selecting
19:11
Speaker 1: securities in this environment since it does become that, Yeah,
19:15
Speaker 1: it's just rolling up your sleeves and doing hard work,
19:17
Speaker 1: so modeling the company's talking to management, understanding the business models.
19:21
Speaker 1: And then most importantly, you have to look at covenants,
19:25
Speaker 1: right because that's if something goes wrong, the covenants are
19:27
Speaker 1: there to protect you in anymore. That's keep hearing exactly,
19:33
Speaker 1: and that's become reality. But it's something you do have
19:35
Speaker 1: to pay attention to because in the next recession those
19:38
Speaker 1: type of things will matter. Any names that you can
19:40
Speaker 1: throw up, I'm not a BA exactly, So what it
19:44
Speaker 1: just gives a sense of kind of leverage where you know,
19:47
Speaker 1: I think about the media industry and that can you
19:50
Speaker 1: can borrow money at you know, five six times leverage
19:53
Speaker 1: maybe even a little bit higher where we're just in
19:55
Speaker 1: terms of leverage in your mind. So you know, first
19:58
Speaker 1: all the rating seas have been pretty steady on this.
20:01
Speaker 1: So if I look at Double be in two thousand nineteen,
20:05
Speaker 1: same type of average leverage that you've see in two
20:07
Speaker 1: thousand nine two eight, so that they have not done
20:10
Speaker 1: what they did in the housing market where they just
20:12
Speaker 1: completely abandoned all standards. So it depends on the business.
20:16
Speaker 1: You know, if you are a less cyclical business like
20:18
Speaker 1: a utility, you can leverage a little bit more than
20:21
Speaker 1: you can So single bees are more than that five
20:23
Speaker 1: to six territory, while your average double be is going
20:26
Speaker 1: to be more than that three to four type area.
20:28
Speaker 1: So what's the argument. If credit is good or not bad,
20:33
Speaker 1: and the FED is supportive of the market, why not
20:34
Speaker 1: just invest in stocks and and rates? Why go to
20:38
Speaker 1: entire bonus? So the beauty of high yield is you
20:41
Speaker 1: get paid to weight. So if we are moving sideways
20:45
Speaker 1: marketing pitch. So if we move sideways in the economy,
20:49
Speaker 1: we're not growing profits, We're not growing the top line.
20:52
Speaker 1: These guys can pay their bills. So you clip your
20:54
Speaker 1: cupon and you make your six seven, which is probably
20:58
Speaker 1: pretty close to what you get an equity these days
21:00
Speaker 1: for equities style perform, And look, we want equities outperformed
21:03
Speaker 1: because it makes our job easier. It's another source of
21:06
Speaker 1: capital for our companies. So there's load defaults when equities
21:08
Speaker 1: are going up. But equity guys need to grow that
21:11
Speaker 1: top line. They need to have improving profits. Margins are
21:14
Speaker 1: at great levels now, but it's really hard to expand margins.
21:17
Speaker 1: You know. Now we did the tax reform, that's not
21:20
Speaker 1: off the table. You really need to have growth, and
21:23
Speaker 1: we think you're gonna get growth, but it's a much
21:25
Speaker 1: harder environment to get that profit growth. So high yield
21:29
Speaker 1: is something that will give you that cupin and really
21:31
Speaker 1: help balance your portfolio up anything else, tu, I mean,
21:34
Speaker 1: this is fixed income, this is high yield. Basically, I'm
21:37
Speaker 1: not gonna engaged, just real quick. How long can this
21:40
Speaker 1: go on? The good times? This can go on until
21:43
Speaker 1: somebody makes a mistake. So whether that's the FED, whether
21:46
Speaker 1: that's a fiscal policy, whether that's something on the regulatory front,
21:49
Speaker 1: on the trade front, but until uh, someone makes a mistake,
21:55
Speaker 1: this can go on forever. Probably won't, but I can.
21:59
Speaker 1: Music is just class, that's right. Andrew Felt is co
22:02
Speaker 1: director of Global high Yield at a Mundy Pioneer. Thank
22:05
Speaker 1: you so much for joining us on our Bloomberg Interactive
22:07
Speaker 1: Broker studio talking all things high yield. And again, I
22:10
Speaker 1: think still if we're hearing from Andrew. Still a constructive market,
22:13
Speaker 1: US four turns in a year that's plaised to be
22:17
Speaker 1: one of the best years since they're recovery from the
22:20
Speaker 1: financial crisis. Well after a two year slowdown, solar energy
22:37
Speaker 1: in America is apparently taking off again. To figure out
22:40
Speaker 1: what's going on there, we welcome Hugh Bromley. Hugh is
22:42
Speaker 1: a solar market analyst for Bloomberg New Energy financi joins
22:46
Speaker 1: us here in a Bloomberg eleven three oh studio. Hugh,
22:48
Speaker 1: thanks so much for joining us. Just give us, if
22:50
Speaker 1: you will, kind of the state of the solar energy
22:54
Speaker 1: market in the US right now. Yeah, sures you really
22:56
Speaker 1: think about it as a couple of different markets. First
22:58
Speaker 1: of all, the rooftop market homes of businesses buying solar,
23:01
Speaker 1: and that's really been slowing down the last couple of years.
23:03
Speaker 1: A couple of reasons for that. One. There was a
23:05
Speaker 1: little bit of a consumer uncertainty on the back of
23:08
Speaker 1: some regulatory change, mostly at the state level. Uh. And
23:12
Speaker 1: then also kind of investor where you know, it's following
23:14
Speaker 1: a couple of bankruptcies a few years ago, kind of
23:16
Speaker 1: investors pulling back, questioning their their investments the solar companies
23:20
Speaker 1: and saying don't grow so fast. We want to see
23:21
Speaker 1: profits rather than unsustainable growth. Both of those in cumbinations
23:25
Speaker 1: slowed down that rooftop market in utility scale. It's all
23:28
Speaker 1: about subsidy. There was a threat that federal subsidy would
23:31
Speaker 1: have been removed a couple of years ago, a lot
23:33
Speaker 1: of builder as a result, and then when it finally
23:36
Speaker 1: was extended, this wasn't enough products to build in the
23:38
Speaker 1: last two years. So the market has slowed down just
23:40
Speaker 1: because there's not enough land ready ready to move forward
23:43
Speaker 1: um across the board though, although all those elements, all
23:46
Speaker 1: those market sectors are ready to kind of start to
23:48
Speaker 1: start rebounding now um were the the the consumer unease
23:53
Speaker 1: or or uncertainty is certainly wearing off, and we're starting
23:56
Speaker 1: to see many many of the state markets former former
23:58
Speaker 1: large solo markets could cover. So it's interesting to hear
24:02
Speaker 1: you talk about and the hardware of this, basically the
24:04
Speaker 1: solar panels for example, and then also the utilities that
24:08
Speaker 1: rely on solar energy. And I'm just I'm wondering how
24:11
Speaker 1: much the success or failure of these companies hinges on
24:15
Speaker 1: subsidies from the government. Or incentive programs versus just being
24:19
Speaker 1: economic at their own rate. Sure, so it's a big
24:22
Speaker 1: question right now because those same federal subsidies that were
24:25
Speaker 1: thought to have that may have expired a few years
24:27
Speaker 1: ago and worltimate extandard are now stepping out of the
24:30
Speaker 1: next few years. A lot of lobbying if it's underway
24:32
Speaker 1: again to extend those those subsidies. But many players would
24:36
Speaker 1: argue they're not required anymore. Certainly for your large utility
24:38
Speaker 1: scale projects that are the supplying supplying our bulk power needs.
24:43
Speaker 1: Um those projects with the energy from those products could
24:45
Speaker 1: be competitive in many com many cases without subsidy. Certainly,
24:48
Speaker 1: project finance heres would love those subducting out of the way.
24:51
Speaker 1: In many cases, they distort pricing, make deals much more
24:55
Speaker 1: complicated to to to to arrange and to transact upon.
24:59
Speaker 1: In small scaling rooftop markets, those vendors, the large venders
25:02
Speaker 1: in particular, have business models that are that are almost
25:05
Speaker 1: entirely reliant on there being a federal tax subsidy, tax incentive,
25:09
Speaker 1: and without those they would need really to rethink their
25:12
Speaker 1: business model. Talking about the commercial market, it seems like
25:15
Speaker 1: I when I drive down the road and you you know,
25:17
Speaker 1: go by an office park, you'll see this huge solar
25:20
Speaker 1: panel field, I mean just huge. Even Bloomberg Down in
25:23
Speaker 1: Princeton we have a great, really cool solar panel field.
25:26
Speaker 1: I'm not sure what it's called, but um, how prevalent
25:29
Speaker 1: is it in the commercial market our business is adopting solar? Well, look,
25:33
Speaker 1: it really depends on where in the country you are.
25:35
Speaker 1: It's such a such part of the policies and incentives
25:38
Speaker 1: are mostly at the state level, and New Jersey being
25:40
Speaker 1: one of the richest richest states for incentive, California, Massachusetts
25:44
Speaker 1: being some of the other really big markets and therefore
25:46
Speaker 1: build but build, you know, the number of panels that
25:49
Speaker 1: are installed tends to boom and bust depending on the
25:51
Speaker 1: state of states, of state subsidy um. And for that reason,
25:56
Speaker 1: across the entire country, it hasn't been a big, big market.
25:58
Speaker 1: You know, maybe well under one percent half percent of
26:01
Speaker 1: businesses at the moment have have have solar installed on
26:04
Speaker 1: their facilities. There's a whole lot of room to to grow,
26:07
Speaker 1: but at the moment, pricing gets in the way. It
26:09
Speaker 1: is it is expensive, and that's partly partly because of
26:12
Speaker 1: these these incentives that are distorting pricing, and partly because
26:16
Speaker 1: there is just there isn't the presence of of of
26:18
Speaker 1: of large national firms in the states where there aren't
26:22
Speaker 1: generous state incenters. So we're talking about companies, solar companies.
26:26
Speaker 1: Let's give some names to the Sun Power corp Uh
26:29
Speaker 1: and Phase Energy. Are there others that we should be
26:32
Speaker 1: looking at just off the bat, Yeah, sure. So those
26:35
Speaker 1: two firms are done particularly well recently on the back
26:37
Speaker 1: of partly regulatory change and a shift in technology preferences
26:40
Speaker 1: towards what they're offering. They're both offering premium equipment and
26:43
Speaker 1: Phase some Power produces really high end panels, the panels
26:47
Speaker 1: that go on your roof and face produces high ended inverters.
26:51
Speaker 1: That's a little device that clips onto the panel that
26:53
Speaker 1: converts the power in from solar power into into what
26:55
Speaker 1: you need in your home. They're doing quite well because
26:58
Speaker 1: the regulators have kind of shifted the market to war
27:00
Speaker 1: the particular product that in Phase is selling further downstreaming.
27:03
Speaker 1: There's a lot of opportunity or companies that people like
27:06
Speaker 1: to watch that are the installers themselves, the ones that
27:09
Speaker 1: finance the deals and structure that structured the deals, and
27:11
Speaker 1: in many cases have the crews that come I come
27:13
Speaker 1: to your home. That's groups like sun Run, some Power
27:16
Speaker 1: as well as active in that space, Fun Hotel that
27:20
Speaker 1: really struggled, Vivin Solar and and and Tesla. But Tesla
27:24
Speaker 1: is really full back from this sector. Honestly, I do
27:26
Speaker 1: have to wonder how much the rebound that we're seeing
27:29
Speaker 1: this year is due to just the degree of the
27:32
Speaker 1: pullback in the prior four years, because a global inext
27:35
Speaker 1: of solar stocks. Maintain my bloomberk has surged tht so
27:39
Speaker 1: far this year, but it declined for of the past
27:42
Speaker 1: five years. And I do have to wonder some of
27:45
Speaker 1: the positioning, how much there is hedge fund involvement sort
27:47
Speaker 1: of crowding. Absolutely, I said before that kind of investors
27:50
Speaker 1: pulling back from this space was was a major factor here.
27:53
Speaker 1: Certainly some sorry Tesla after acquiring Solo City back in
27:57
Speaker 1: back in really slowed down their business model. That the
28:02
Speaker 1: contraction we've seen in Tesla explains a lot of the
28:04
Speaker 1: contraction we've seeing the entire solo market, but not all
28:07
Speaker 1: of it. So the market was still slowing overall. But
28:10
Speaker 1: really where the growth has been is in small local firms.
28:13
Speaker 1: You know, two guys in a truck taking market share
28:15
Speaker 1: from these big national players. Not as sexy probably for
28:18
Speaker 1: people looking for an easy share to buy, but definitely compelling.
28:22
Speaker 1: Hugh Bromley, thank you so much for being with us.
28:24
Speaker 1: He Bromley has a solar market analyst with Bloomberg New
28:27
Speaker 1: Energy Finance, which does some incredible work looking at all
28:31
Speaker 1: of the new energies that are coming up. Really interesting
28:34
Speaker 1: to see some of the new technology. Thanks for listening
28:36
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
28:39
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
28:42
Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
28:45
Speaker 1: I'm Lisa Abramloids. I'm on Twitter at Lisa A. Bramwoids.
28:48
Speaker 1: One Before the podcast, you can always catch us worldwide.
28:51
Speaker 1: I'm Bloomberg Radio.