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Leveraged Loans Offering Better Risk-Reward: Finke · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg PENL Podcast. I'm Paul Swinge. 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, since December, global markets have
• 0:26
  Speaker 1: rallied significantly and broadly across asset classes and geographies. Do
• 0:31
  Speaker 1: you get a sense of where they're still maybe value?
• 0:33
  Speaker 1: We turned to our next guest, Tom Fink Thomas, chairman
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  Speaker 1: and CEO of Bearings based in Charlotte, North Carolina. But
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  Speaker 1: Tom comes to us today from the Milk and Institute
• 0:41
  Speaker 1: Conference in Los Angeles. Tom, thanks so much for joining us.
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  Speaker 1: Um As you look about globally, where do you see
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  Speaker 1: opportunities right now? Well, first of all, thanks for having
• 0:52
  Speaker 1: me on, Paul, It's been my golden be on the
• 0:55
  Speaker 1: on the radio with you. But um, yeah, when you
• 1:00
  Speaker 1: look at it, yes, we did have a very uh
• 1:04
  Speaker 1: significant sell off in most markets in the fourth quarter.
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  Speaker 1: Slowly that's worked its a back uh that said, I
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  Speaker 1: think the you can find value in any market, but
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  Speaker 1: I think because emerging markets equity and and and emerging
• 1:20
  Speaker 1: market debt have been down for so long, there's probably
• 1:23
  Speaker 1: more upside value on a general basis UH than you
• 1:29
  Speaker 1: might expect on the more development markets. So let's talk specifics.
• 1:34
  Speaker 1: In particular in Asia, I know that Bearings is focused
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  Speaker 1: on building out the business there, and I'm just wondering
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  Speaker 1: which nations in particular and which businesses, how are you
• 1:43
  Speaker 1: going about it. So when you look at our business overall,
• 1:47
  Speaker 1: we're fairly broadly diversified ASCID manager UM in Asia, we've
• 1:51
  Speaker 1: actually been there through the our legacy business on the
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  Speaker 1: on the Bearing side, in the equity and fixed income
• 2:00
  Speaker 1: markets and the fund markets in Hong Kong, you know, Taiwan, UH,
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  Speaker 1: Tokyo and Korea for a very long time UM half
• 2:08
  Speaker 1: a century in Hong Kong. In terms of our growth,
• 2:12
  Speaker 1: last year we UH did receive our licensing and established
• 2:17
  Speaker 1: a presence in Shanghai UH. But we've also been in
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  Speaker 1: some of the private markets and in particular direct leverage
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  Speaker 1: lending UH in areas like Australian Singapore UM, where we've
• 2:31
  Speaker 1: done a lot of transactions over the last ten years. So, Tom, so,
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  Speaker 1: thinking about your Asia business and continuing to invest in Asia,
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  Speaker 1: how important to your business that the US and China
• 2:42
  Speaker 1: forge meaningful trade agreements. I think it's very important, you know. Frankly,
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  Speaker 1: I think it was an error by US UH both
• 2:51
  Speaker 1: parties during the sixteen election to basically ignore UH TPP.
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  Speaker 1: You know, the reality is you need agreements to provide
• 3:02
  Speaker 1: the basis for trade at the end of the day.
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  Speaker 1: And you know, is it a distraction this uncertainty between
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  Speaker 1: the US and China? Sure? Are Are we hopeful that
• 3:14
  Speaker 1: they come up with some resolution, Yes, because it probably
• 3:19
  Speaker 1: allows more clarity for businesses to invest and if you will,
• 3:23
  Speaker 1: get on with it. Um So, I do think it's
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  Speaker 1: important for the global economy and ultimately the markets. So
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  Speaker 1: I'm wondering, Tom, the challenge in delving into leverage lending,
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  Speaker 1: in particular in areas that are you know, if not
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  Speaker 1: emerging more susceptible to rapid investor flows at this point
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  Speaker 1: in the cycle. How do you go about doing it?
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  Speaker 1: Are you seeing any warning signs? Well, you know, the
• 3:50
  Speaker 1: the leverage loan market is something that was a big
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  Speaker 1: part of my career before they made you know, I
• 3:55
  Speaker 1: got into more the management side, and I've seen the
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  Speaker 1: cycles from the late eighties. Uh, you know when the
• 4:03
  Speaker 1: junk bond market and drugs will blew up, through the
• 4:06
  Speaker 1: nineties and nine eleven, and of course the financial crisis.
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  Speaker 1: When you talk about the leverage loan in the market,
• 4:13
  Speaker 1: for instance, so that how your bond market. Yes, it
• 4:16
  Speaker 1: has grown, but you also have to look at the
• 4:18
  Speaker 1: fact that the amount of if you will enterprise value
• 4:23
  Speaker 1: in private companies has grown dramatically. We've seen, um, you know,
• 4:27
  Speaker 1: over thirty years many companies go private or stay private.
• 4:30
  Speaker 1: So just the growth of a market itself doesn't mean
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  Speaker 1: it's overheated. That being said, we have a long recovery
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  Speaker 1: and long cycle. UH, it's prudent to approach the market
• 4:41
  Speaker 1: assuming that you know you're later in the cycle. So
• 4:45
  Speaker 1: you just have to be more selective uh in the
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  Speaker 1: deals you do, UH to be prepared for what will
• 4:52
  Speaker 1: eventually be UH an increase in default in a credit
• 4:56
  Speaker 1: cycle at some point. What's interesting to me, I'm wondering Tom,
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  Speaker 1: if you act we are seeing more opportunities in leverage
• 5:02
  Speaker 1: lending right now because there has been so much bad
• 5:04
  Speaker 1: press around loans and we have seen loans laking behind
• 5:07
  Speaker 1: high yield bonds to the point where actually loans in
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  Speaker 1: some in some respects yield more than high old bonds,
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  Speaker 1: which is an unusual confluence. I mean, is this sort
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  Speaker 1: of an opportunity, Yeah, it is an opportunity. In fact,
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  Speaker 1: the way we are built our high yield loan business,
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  Speaker 1: it's all integrated, right, and a lot of our strategies
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  Speaker 1: can move between the bond and loan market, between the
• 5:29
  Speaker 1: US and European markets because the relative data value does
• 5:34
  Speaker 1: EBB and flow over time. There's times that bonds are
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  Speaker 1: cheap to loans and and times where you know, loans
• 5:41
  Speaker 1: are are cheap demands based on risk return. And so
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  Speaker 1: it's not that we go all into one or the other,
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  Speaker 1: but we may overweight at a time when, for instance,
• 5:51
  Speaker 1: you know, loans appear more attractive on a risk adjusted basis,
• 5:56
  Speaker 1: you know, we may allocate more there. So, Tom were
• 6:00
  Speaker 1: at the Milk and conference in Los Angeles. What has
• 6:03
  Speaker 1: been maybe the most surprising takeaway you've had so far? There?
• 6:08
  Speaker 1: You know, it's a great conference in part because it
• 6:12
  Speaker 1: is not just about sitting around talking about the economy
• 6:14
  Speaker 1: and the markets. And um I was on a panel
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  Speaker 1: with a lot smarter people than me yesterday and uh uh,
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  Speaker 1: and we followed Madame Legarde and one she was fabulous
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  Speaker 1: listened to and and just just very impressive views. But
• 6:31
  Speaker 1: what was interesting is we moved from talking about what
• 6:35
  Speaker 1: you would expect markets and and economies and things like that,
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  Speaker 1: really started talking about the issues of workforce and about
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  Speaker 1: education and you know, in essence, I think the skills
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  Speaker 1: gap is underscores a lot of the challenges of the
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  Speaker 1: future and and how do you deal with that. So
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  Speaker 1: there's there's a number of panels focused on that, and
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  Speaker 1: I think that's a very relevant and important topic. Tell
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  Speaker 1: thank thank you so much for being with us, and
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  Speaker 1: best of luck to you throughout the rest of the conference.
• 7:04
  Speaker 1: Tompan chairman and chief executive officer of Bearings, which oversees
• 7:08
  Speaker 1: three d and billion dollars from Cholotte, North Carolina. Last week,
• 7:25
  Speaker 1: City Group CEO Michael Corbett said one thing that's keeping
• 7:29
  Speaker 1: him up most at night is the widening income gap
• 7:32
  Speaker 1: in the United States, saying that it has led not
• 7:34
  Speaker 1: just the US but around the world, and said that
• 7:36
  Speaker 1: it has led to increasingly polarized politics. The question is
• 7:40
  Speaker 1: what do you do about that? And right now joining
• 7:43
  Speaker 1: us here in our Interactive Broker Studios is Nell Abernathy,
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  Speaker 1: vice president of Strategy and Policy at the Roosevelt Institute. Now,
• 7:51
  Speaker 1: you just put out a new report, New Rules for
• 7:54
  Speaker 1: the Century, Corporate Power, Public Power, and the future of
• 7:57
  Speaker 1: the American economy. Digging into some of these issues before
• 8:01
  Speaker 1: we get into the details, why is it important to
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  Speaker 1: bridge the gap the inequality the income inequality gap right now?
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  Speaker 1: Thanks so much for having me. That's a great question,
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  Speaker 1: and I think we've seen that there are people all
• 8:16
  Speaker 1: around the world, but focusing even on the US, who
• 8:19
  Speaker 1: feel very disconnected from the growth that's occurring that we
• 8:22
  Speaker 1: see in the headline numbers, GDP growth, stock market growth,
• 8:27
  Speaker 1: and in the reality is these actually aren't reflecting the
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  Speaker 1: real experience that Americans have who are trying to put
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  Speaker 1: their kids through college, get health insurance, stay on health insurance,
• 8:39
  Speaker 1: pay for housing. And that's becoming not only an economic problem,
• 8:43
  Speaker 1: but a political problem as well. So, what created or
• 8:47
  Speaker 1: how did this income equality become so pronounced, and maybe
• 8:50
  Speaker 1: what current policies, whether the government policies are, you know,
• 8:55
  Speaker 1: corporate policies that are supporting this or sustaining this issue.
• 8:59
  Speaker 1: We argue and this most recent report that we need
• 9:01
  Speaker 1: to fundamentally rethink our approach to markets and our approach
• 9:05
  Speaker 1: to government. We need markets to do what they can
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  Speaker 1: do well, create jobs, innovate, provide valuable goods and services.
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  Speaker 1: But that's not how markets are functioning today. Due to
• 9:17
  Speaker 1: this market fundamentalism, where we thought if we just let
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  Speaker 1: markets do what they do, they'll take care of everything.
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  Speaker 1: We've really created an enormous set of opportunities for corporations
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  Speaker 1: and the wealthy to extract value instead of create value.
• 9:31
  Speaker 1: So what can you do about it? We talk about
• 9:34
  Speaker 1: antitrust policy. Let's reduce the power of corporations over workers
• 9:38
  Speaker 1: and their competitors. We talk about corporate governance reform. Let's
• 9:42
  Speaker 1: ensure that firms aren't only focused on returning funds to
• 9:46
  Speaker 1: their shareholders. Let's talk about labor policy reform and ensure
• 9:50
  Speaker 1: that workers can actually bargain for some of the shaff
• 9:53
  Speaker 1: profits they're creating. In practical terms, does this mean breaking
• 9:56
  Speaker 1: up the big tech companies and limiting share buybacks? Is
• 10:00
  Speaker 1: that you're calling for? Absolutely? Those are two examples of
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  Speaker 1: the kinds of things that would address the roots of
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  Speaker 1: the problem. One thing a lot of people have pushed backs,
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  Speaker 1: and so that share buy backs is simply that the
• 10:10
  Speaker 1: reason why companies are buying back shares is because they
• 10:13
  Speaker 1: don't have better projects to invest in, and if they
• 10:15
  Speaker 1: were just to invest in other things, it would make
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  Speaker 1: for a bad business model. So I think that argument
• 10:22
  Speaker 1: looks at ending share buy backs in a vacuum, and
• 10:25
  Speaker 1: I would argue it's only one tool of the many
• 10:27
  Speaker 1: that we need to promote. So for example, Yeah, if
• 10:30
  Speaker 1: you don't need to compete to stay innovative as a firm,
• 10:33
  Speaker 1: why would you be investing. But if you have a
• 10:37
  Speaker 1: competition policy that forces firms to actually invest in innovate,
• 10:42
  Speaker 1: then you won't need to you you will have to
• 10:44
  Speaker 1: put money into investment in order to maintain long term viability.
• 10:49
  Speaker 1: So we head towards the election, a lot of the
• 10:51
  Speaker 1: Democratic candidates Senator Warren for example, Bernie Sanders, have talked about,
• 10:56
  Speaker 1: you know, radically altering the tax structure, the tax policy
• 10:59
  Speaker 1: of this country to in part to address this income inequalities.
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  Speaker 1: That's something that your report dealt with absolutely. I think
• 11:06
  Speaker 1: that we need to start thinking about taxes the way
• 11:09
  Speaker 1: they've talked about, as well as not simply about raising revenue,
• 11:12
  Speaker 1: but actually structuring economic policy and incentivizing different kinds of behaviors.
• 11:18
  Speaker 1: And right now, our tax structure again incentivizes a lot
• 11:22
  Speaker 1: of extractive corporate behaviors and and speculation and tax dodging
• 11:27
  Speaker 1: or evasion. And so we can think about how we
• 11:30
  Speaker 1: come up with a pro growth, pro investment, pro democracy
• 11:33
  Speaker 1: tax policy. So just to give us a sense of
• 11:37
  Speaker 1: how feasible some of these proposals are, can you give
• 11:40
  Speaker 1: the sense of what your contacts are with politicians and
• 11:43
  Speaker 1: how mainstream these views are versus sort of up more
• 11:46
  Speaker 1: on the left leaning side of the Democratic Party. Absolutely,
• 11:50
  Speaker 1: these policies are actually becoming increasingly mainstream, and I think
• 11:56
  Speaker 1: that's because two reasons. First, the crisis is such that
• 11:59
  Speaker 1: people will understand the kinds of tweaks around the edges
• 12:03
  Speaker 1: are just not gonna work. But also, this is not
• 12:07
  Speaker 1: a radical view of government. This is a level of
• 12:11
  Speaker 1: government intervention and regulation that Franklin Roosevelt would be very
• 12:15
  Speaker 1: comfortable with, that was common in American politics before the nineties.
• 12:23
  Speaker 1: And so we're really not talking about, uh, some kind
• 12:27
  Speaker 1: of either market fundamentalism or government does everything approach. It's
• 12:32
  Speaker 1: a both, And it sounds like this, let me ask you,
• 12:36
  Speaker 1: is this more of a public private type of cooperative
• 12:40
  Speaker 1: type move or do you think the government needs to
• 12:43
  Speaker 1: take a much heavier hand here in implementing some of
• 12:45
  Speaker 1: these changes. So we argue in this report that we
• 12:48
  Speaker 1: need to tackle reforms long two levels. One is restructuring
• 12:53
  Speaker 1: markets so that markets do what they do well. And
• 12:56
  Speaker 1: the other then is a more robust version of public
• 13:00
  Speaker 1: power or public intervention where the government actually does some
• 13:04
  Speaker 1: things better than markets, and that's something we've forgotten. We
• 13:08
  Speaker 1: default to thinking that markets are always going to be
• 13:11
  Speaker 1: more effective than government, and there are some things that
• 13:13
  Speaker 1: government can actually do more effectively. So when you talk
• 13:16
  Speaker 1: about I want to go to the antitrust issues that
• 13:19
  Speaker 1: you raise, because this is something that we've heard from
• 13:21
  Speaker 1: other guests, the idea that perhaps people should look at
• 13:24
  Speaker 1: breaking up or at least limiting the growth, particularly in
• 13:26
  Speaker 1: technology or say Amazon. And I'm just wondering, what do
• 13:30
  Speaker 1: you say to people who argue that these companies have
• 13:34
  Speaker 1: lower costs and improved the quality of life for people
• 13:37
  Speaker 1: who can have easier access to goods, cheaper access to them, uh,
• 13:42
  Speaker 1: as well as you know, more media and other things. Absolutely,
• 13:45
  Speaker 1: so I think there are two important things to remember
• 13:48
  Speaker 1: about antitrust policy. One, it's not simply about breaking things up.
• 13:53
  Speaker 1: That is one option that in certain industries does make
• 13:57
  Speaker 1: sense in others. For example, with platforms, where you see
• 14:00
  Speaker 1: the kind of benefits that come from having a large network,
• 14:04
  Speaker 1: you wouldn't necessarily break up that network. You might just
• 14:08
  Speaker 1: impose some kind of oversight to make sure, for example,
• 14:12
  Speaker 1: they can't sell all your data to add buyers um.
• 14:17
  Speaker 1: Second of all, one of the challenges we've seen in
• 14:21
  Speaker 1: antitrust policy is that everything is defined by the value
• 14:25
  Speaker 1: to the consumer. And what we're what most reformers are
• 14:29
  Speaker 1: arguing is we need to consider more than just consumers.
• 14:32
  Speaker 1: We also need to consider competitors and workers. And it
• 14:35
  Speaker 1: doesn't make a lot of sense if you can get
• 14:37
  Speaker 1: cheap goods, if there's no other no job for you,
• 14:40
  Speaker 1: no opportunities to build well through starting your own business,
• 14:44
  Speaker 1: and a really dysfunctional democracy. Interesting, No, Lapathy, thank you
• 14:48
  Speaker 1: so much for joining us nell as the vice president
• 14:50
  Speaker 1: Strategy and Policy for the Roosevelt Institute. Joining us live
• 14:53
  Speaker 1: here in our Bloomberg Interactive Broker studio. Well, we continue
• 15:13
  Speaker 1: to get more data points on big tech. This week,
• 15:16
  Speaker 1: we had Google report disappointing numbers. After the closed last
• 15:19
  Speaker 1: night and tonight after the clothes we have Apple reporting results.
• 15:24
  Speaker 1: So to get more details on what is going on
• 15:26
  Speaker 1: with the world with big tech, we bring in David Garrity.
• 15:28
  Speaker 1: David's a chief market strategist for laid law and Companies,
• 15:31
  Speaker 1: also a partner at bt Block. He joins us in
• 15:34
  Speaker 1: our Bloomberg Interactive Broker studio. David, thanks so much for
• 15:37
  Speaker 1: being with us. Let's start with Google. How concerned are
• 15:40
  Speaker 1: you with that slowing revenue growth story there? Well, it's
• 15:43
  Speaker 1: been a marketing deceleration. I mean, if you look at
• 15:45
  Speaker 1: the progression a year ago, the company was growing its
• 15:48
  Speaker 1: revenues by about six percent year every year. Fourth quarter
• 15:51
  Speaker 1: of two thousand and eighteen that was this last quarter
• 15:54
  Speaker 1: was seventeen, so you basically have seen you know, eleven
• 15:57
  Speaker 1: percentage points of deceleration year of year. Obviously, if you
• 16:01
  Speaker 1: took this five percent declined quarter over quarter and annualized that,
• 16:05
  Speaker 1: you would say that you're actually starting to see accelerating
• 16:09
  Speaker 1: deceleration in terms of the growth and to the extent
• 16:12
  Speaker 1: that the market tends to, you know, operate off of
• 16:15
  Speaker 1: the second derivative in terms of looking at how prices
• 16:18
  Speaker 1: go accelerating deceleration. I know exactly what he means. Yes,
• 16:22
  Speaker 1: I do too, actually, but it just does. A second
• 16:24
  Speaker 1: derivative would call it as em topic to the downside.
• 16:27
  Speaker 1: Look at that not necessarily a pretty picture. One thing
• 16:30
  Speaker 1: that I'm curious about is who's stealing the share right
• 16:32
  Speaker 1: Because Facebook, we saw increase their share marginally of the
• 16:36
  Speaker 1: ad revenue, and this is sort of the big deceleration
• 16:39
  Speaker 1: with respect to Google, particularly a YouTube platform. Not a
• 16:43
  Speaker 1: lot of answers as to why what was behind the
• 16:47
  Speaker 1: decline in the ad spending on YouTube in Google's results,
• 16:51
  Speaker 1: Alphabet's results. I'm just wondering, is it really a Facebook
• 16:55
  Speaker 1: winning Amazon winning Google the big loser here? Well, I
• 16:59
  Speaker 1: would certain they say it seems to be shaking out
• 17:01
  Speaker 1: that way. We could talk about who has the stickier audience,
• 17:04
  Speaker 1: and we could say that, you know, Facebook, despite the
• 17:06
  Speaker 1: issues that have been raised around it and which will
• 17:08
  Speaker 1: continue to dog the company going forward, hasn't yet really
• 17:12
  Speaker 1: seen the rate of attrition off of their platform to
• 17:15
  Speaker 1: potentially lose uh an annuity stream, if you will, of
• 17:19
  Speaker 1: online advertising revenue. Google really is, we know, never really
• 17:23
  Speaker 1: been all that successful in building a social media platform. Yes,
• 17:27
  Speaker 1: YouTube has been a wonderful franchise for them. You know,
• 17:29
  Speaker 1: one can argue about the quality of the content on
• 17:32
  Speaker 1: the site, um, but you know, Google necessary hasn't had
• 17:35
  Speaker 1: that stickiness. Amazon, we know consumers are going to at
• 17:39
  Speaker 1: least on a daily basis and perhaps even more frequently
• 17:41
  Speaker 1: than that. So you know, I look most significantly at
• 17:45
  Speaker 1: Amazon's growth in online advertising revenue of thirty four percent
• 17:49
  Speaker 1: year every year, basically double the rate we're seeing of
• 17:52
  Speaker 1: the seventeen percent for Google. As Amazon, clearly this is
• 17:55
  Speaker 1: a game that they're gonna win. I think that they
• 17:57
  Speaker 1: take it first from Google Facebook second. It's interesting. One
• 18:00
  Speaker 1: of the uh concerns I think I've heard from investors
• 18:03
  Speaker 1: really over the last couple of reporting periods, but certainly
• 18:06
  Speaker 1: after yesterday, is the lack of disclosure by Google for
• 18:09
  Speaker 1: some of their other businesses that investors feel like A
• 18:13
  Speaker 1: their big businesses and B we think they're good growth stories.
• 18:16
  Speaker 1: I'm thinking the cloud business, um, YouTube, and they're concerned
• 18:20
  Speaker 1: they're just not getting any disclosure from the company. Help
• 18:22
  Speaker 1: concerning is that to you? Well, it's always been concerning
• 18:25
  Speaker 1: ever since the company went public back in two thousand four.
• 18:28
  Speaker 1: They came out with this mantra of do no evil,
• 18:31
  Speaker 1: you know, followed by an investor relations uh mantra of
• 18:34
  Speaker 1: saying trust us. Uh. Well, clearly what's going on here
• 18:37
  Speaker 1: in all this opacity is not something that's encouraging to investors.
• 18:41
  Speaker 1: You know. Certainly we have great uncertainty is to when
• 18:44
  Speaker 1: do we actually see the payoff from these new initiatives,
• 18:47
  Speaker 1: whether it's way most self driving cars, um, you know,
• 18:51
  Speaker 1: that could be five to ten years or more out
• 18:53
  Speaker 1: in the future, and they may not necessarily be successful
• 18:56
  Speaker 1: in this regard. So clearly we see billions of dollars
• 18:59
  Speaker 1: you know, going you not really a well defined opportunity.
• 19:04
  Speaker 1: So I want to shift gears a little bit because
• 19:06
  Speaker 1: we did get off bed after the bell yesterday. Today,
• 19:09
  Speaker 1: after the bell, we're going to get Apple a lot
• 19:11
  Speaker 1: of people looking for some sort of gauge on the
• 19:13
  Speaker 1: smartphone market and also just how well Apple is diversifying
• 19:17
  Speaker 1: into services and even uh and I know you're gonna
• 19:20
  Speaker 1: get excited media and what could potentially happen there. So
• 19:23
  Speaker 1: I'm just curious, what are you looking for? What do
• 19:25
  Speaker 1: you think could potentially be the biggest surprise today? I mean,
• 19:28
  Speaker 1: certainly the big thing that the company is going to
• 19:31
  Speaker 1: have to address is the expectation of a ninetent decline
• 19:34
  Speaker 1: year of year and smartphone sales. And then certainly that
• 19:37
  Speaker 1: in many ways is driven by you know, weakness in
• 19:40
  Speaker 1: the Chinese economy, but also the fact that consumers have
• 19:43
  Speaker 1: gotten to a point where the affordability of a handset
• 19:46
  Speaker 1: um has gotten to the point where people are saying, look,
• 19:48
  Speaker 1: if I don't necessarily feel confident about my spending, this
• 19:51
  Speaker 1: is a durable good and I'm just gonna hold on
• 19:53
  Speaker 1: to what I have longer. So you know, clearly, at
• 19:55
  Speaker 1: the end of the day, it says for Apple, you know,
• 19:57
  Speaker 1: they better see accelerating growth in term of services. I
• 20:00
  Speaker 1: think the streaming media announcement that they had earlier, uh
• 20:04
  Speaker 1: certainly plays into see an acceleration and services growth as
• 20:07
  Speaker 1: we go out towards. But you know, Apple is a
• 20:10
  Speaker 1: stock up from its lows u most recently, you know,
• 20:15
  Speaker 1: certainly in a position to continue to return cash to investors.
• 20:18
  Speaker 1: This is the point of the year, will receive their
• 20:20
  Speaker 1: dividend decision being made typically something that serves to sustain
• 20:23
  Speaker 1: the stock. So you know, unlike obviously Google, where there's opacity,
• 20:28
  Speaker 1: certainly when you look at Apple, despite the fact that
• 20:31
  Speaker 1: they narrowed the scope of their disclosure around what actual
• 20:34
  Speaker 1: iPhone shipments they were making. Uh, certainly provides better relative disclosure.
• 20:39
  Speaker 1: Do you think they should be more Apple should be
• 20:40
  Speaker 1: more aggressive returning cash? They've got over two or billion
• 20:43
  Speaker 1: dollars worth of cash. Um. I you know, certainly they've
• 20:46
  Speaker 1: got the wherewithal if that's a decision that they wish
• 20:48
  Speaker 1: to make. But one might argue that, you know, in
• 20:50
  Speaker 1: contrast to other names, one could say that Apple has
• 20:53
  Speaker 1: done a far better job in terms of providing clarity
• 20:56
  Speaker 1: around the expected expected returns on their investment, as well
• 21:00
  Speaker 1: as a better I think return on invested capital overall.
• 21:03
  Speaker 1: David Garritty, thank you so much as always for being
• 21:05
  Speaker 1: with us. David Garrity, chief market strategist for laid Law
• 21:08
  Speaker 1: and Company, also partner at bt Block. Well, it has
• 21:26
  Speaker 1: been a big earnings day from big Pharma today. We
• 21:29
  Speaker 1: had Mark, Eli, Lily and fires Are all reported earnings
• 21:32
  Speaker 1: this morning. To get the latest returned to Sam Fazelli.
• 21:35
  Speaker 1: Sam is director of research for Bloomberg Intelligence. He joins
• 21:38
  Speaker 1: us on the phone from London. Sam, thanks so much
• 21:41
  Speaker 1: for joining us. It seems like, your company's had a
• 21:44
  Speaker 1: pretty good quarter here, most beating estimates, raising some estimates.
• 21:47
  Speaker 1: What's the bottom line? Yeah, so high Pool and Lisa
• 21:51
  Speaker 1: the three companies reported today in and in order of performance, Uh,
• 21:58
  Speaker 1: Lily then Fisa, then Mark Mark having the best beats
• 22:01
  Speaker 1: on sales and EPs for the first quarter and basically
• 22:05
  Speaker 1: underlying business is doing well. But in all three cases called,
• 22:10
  Speaker 1: there were some issues and questions that would raise some
• 22:13
  Speaker 1: angst um for US at least, so angst I want
• 22:18
  Speaker 1: to talk about Eli Lily in particular, because that seemed
• 22:21
  Speaker 1: to have the one small miss at least when it
• 22:24
  Speaker 1: came to revenues, I believe, and I'm trying to figure
• 22:28
  Speaker 1: out how important it is that their actual prices declined
• 22:33
  Speaker 1: in certain drugs. Yeah, so that's that's obviously the focus
• 22:37
  Speaker 1: over here when we're looking at these numbers. Um. You know,
• 22:41
  Speaker 1: drug pricing US drug pricing is an issue that everyone's
• 22:45
  Speaker 1: focused on, So it's not surprising that everyone's highper sensitive
• 22:49
  Speaker 1: to when a company says that they had lower net
• 22:52
  Speaker 1: realized pricing. On the call, they did actually say that
• 22:55
  Speaker 1: part of the issue for this big drug that they
• 22:57
  Speaker 1: have with analyzing it over about four billion dollars Trulicity
• 23:01
  Speaker 1: for diabetes, and that's obviously a big, big growth driver
• 23:05
  Speaker 1: for them, and and and a significant chunk of their
• 23:07
  Speaker 1: overall revenues. So everyone's very very focused on it. And
• 23:10
  Speaker 1: they said that actually what one of the key drivers
• 23:13
  Speaker 1: of that missing consensus in this first quarter was inventory
• 23:17
  Speaker 1: down downturn in the first quarter, so one assumes that
• 23:21
  Speaker 1: that would return back to normal into Q. The problem
• 23:25
  Speaker 1: for Lily is to a degree, it's really high PE.
• 23:29
  Speaker 1: So at the moment the sitting despite the share price drop,
• 23:32
  Speaker 1: at the second highest PE multiple evaluation amongst large pharma.
• 23:37
  Speaker 1: So that doesn't leave much room for error. So switching
• 23:40
  Speaker 1: gears to Mark. When I when I think of Mark,
• 23:41
  Speaker 1: I think of the drug Truda. What happened with that
• 23:45
  Speaker 1: drug this quarter? Is that's still the growth driver for
• 23:47
  Speaker 1: this company? Oh yeah, absolutely so, I mean these are
• 23:51
  Speaker 1: we're only playing at the margins and that drugs analyzing
• 23:53
  Speaker 1: it pretty close to ten billion dollars a year, and
• 23:56
  Speaker 1: it is a revolutionary drug for the treatment of cancer,
• 24:00
  Speaker 1: as I'm sure you've heard me say before. The the
• 24:03
  Speaker 1: the anomally there is that it did miss versus consensus
• 24:07
  Speaker 1: for the first quarter slightly. Um, we have a little
• 24:12
  Speaker 1: um uh sales scenario that we've set up, and it
• 24:17
  Speaker 1: actually met our sales expectations for first quarter. But the
• 24:20
  Speaker 1: key issue is that both for consensus in terms of
• 24:25
  Speaker 1: US sales and our numbers, they were lighter. So that
• 24:29
  Speaker 1: was one issue that I think people kind of highlighted.
• 24:32
  Speaker 1: But to be honest, their their growth across the board
• 24:36
  Speaker 1: in international markets China up fifty eight percent UM, including
• 24:41
  Speaker 1: the impact of currency. Um, that's phenomenal that that really
• 24:45
  Speaker 1: has driven top line and their beat and their rays
• 24:48
  Speaker 1: is pretty high quality. You mentioned the currency effect there.
• 24:52
  Speaker 1: Can you just give us a sense of which of
• 24:54
  Speaker 1: the big pharmacy giants pharmaceutical giants that reported earning US
• 24:57
  Speaker 1: this morning have the biggest currency in hacked and really
• 25:01
  Speaker 1: how much credence to give this or how much a
• 25:03
  Speaker 1: weight to give this? Yeah, I mean I wouldn't you know.
• 25:06
  Speaker 1: Currency we try an old scratch beyond that, at the
• 25:08
  Speaker 1: end of the day is completely out of their control. Um,
• 25:11
  Speaker 1: so that you have the the the stronger US dollar
• 25:14
  Speaker 1: has impacted all of them. Now different companies like what
• 25:17
  Speaker 1: different level of exposure to x US versus US, So
• 25:20
  Speaker 1: at the end of the day, really not something that
• 25:23
  Speaker 1: I'm particularly bothered by because come and come twelve months time,
• 25:26
  Speaker 1: it all analyzes and it goes the other direction. So
• 25:28
  Speaker 1: it's really not operational, so not not necessarily a major focus.
• 25:31
  Speaker 1: So Sam one of the major focuses. However, it's just
• 25:34
  Speaker 1: the pressure on drug prices. I know. You know, certain
• 25:37
  Speaker 1: sectors of the healthcare space have just been crushed this year,
• 25:39
  Speaker 1: health insurers, as you know, you see political rhetoric ratchet
• 25:43
  Speaker 1: up that you know, more regulation and uh, how have
• 25:47
  Speaker 1: the big farmer companies whether and their stocks, whether they
• 25:50
  Speaker 1: pressure and the concern about high drug prices. You know,
• 25:54
  Speaker 1: I think they've actually done pretty well. We did have
• 25:57
  Speaker 1: a wobble a week or two ago when the and
• 26:00
  Speaker 1: care for All idea was surfaced. I have to say
• 26:04
  Speaker 1: again by UH presidential candidate m Bernie Saunders, but that
• 26:11
  Speaker 1: is not a new proposal, certainly not from a new
• 26:13
  Speaker 1: proposal from him. It's something that has come up before.
• 26:17
  Speaker 1: We don't think that's got meaningful legs on it in
• 26:19
  Speaker 1: terms of future um reality, given the variety of pushes
• 26:23
  Speaker 1: and pulls in the Congress and Senate, etcetera. In terms
• 26:26
  Speaker 1: of Democrats versus um Republicans. At the end of the day.
• 26:31
  Speaker 1: There is pressure on existing pressure on US drug prices
• 26:35
  Speaker 1: from the payers, and the companies are competing with each other.
• 26:39
  Speaker 1: So the way they are dealing with it is by
• 26:41
  Speaker 1: coming up with more and more innovative therapies, things that
• 26:44
  Speaker 1: are treating diseases not just with symptomatic relief, but actually
• 26:48
  Speaker 1: making a patient live much longer than they did before.
• 26:52
  Speaker 1: Examples of gene therapy and that sort of thing. Sam Fazli,
• 26:55
  Speaker 1: thank you so much for being with us. Sam Fazli,
• 26:57
  Speaker 1: director of research for Bloomberg Intelligence, joining us from London.
• 27:02
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 27:05
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 27:07
  Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney. I'm
• 27:10
  Speaker 1: on Twitter at pt Sweeney. I'm Lisa abram Woyits I'm
• 27:13
  Speaker 1: on Twitter at Lisa abram Woits One. Before the podcast,
• 27:16
  Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio