Latest / Bloomberg Intelligence / It's Premature To Start Celebrating the Death of Obamacare (Podcast)

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It's Premature To Start Celebrating the Death of Obamacare (Podcast) · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Late Friday,
• 0:34
  Speaker 1: a Texas judge ruled against Obamaca Obamacare, declaring an unconstitutional,
• 0:41
  Speaker 1: and the response today has been swift and fierce among
• 0:44
  Speaker 1: healthcare stocks, some of which are down more than eight percent.
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  Speaker 1: Joining us now, Max Nisson, Biotech, pharma and healthcare columnist
• 0:51
  Speaker 1: a Bloomberg opinion joining us here in our eleven three
• 0:53
  Speaker 1: oh studios. Max, thank you so much for being here.
• 0:56
  Speaker 1: So as market's digestis, it seems like Senten, uh, Community Health,
• 1:01
  Speaker 1: Tenant are some of the biggest losers. Why them in particular?
• 1:05
  Speaker 1: So the companies that are down the most are the
• 1:08
  Speaker 1: ones you'd expect. You mentioned Centena, also Molina Health to
• 1:12
  Speaker 1: insurers that have the largest exposure both to the affordable carrects,
• 1:16
  Speaker 1: individual exchanges and to the Medicaid expansion. On the hospital side,
• 1:21
  Speaker 1: I think it's just the general sense um basically that
• 1:24
  Speaker 1: they might be facing more more having to provide more
• 1:28
  Speaker 1: uncompensated care, and just generally seeing the obvious cooling effect
• 1:32
  Speaker 1: that millions of people potentially losing health coverage would have
• 1:36
  Speaker 1: on their their ability to perform max. Based on your
• 1:40
  Speaker 1: reporting in your analysis, is Obamacare dead or is this
• 1:44
  Speaker 1: just going to be one step in a long legal march.
• 1:49
  Speaker 1: I'd expect the ladder um. You know, the the affordable
• 1:52
  Speaker 1: character has has survived more more cogent legal threats than
• 1:57
  Speaker 1: this one in the past. Uh, it's a pretty weak
• 2:00
  Speaker 1: case and a pretty conservative judge. Even though the Fifth Circuit,
• 2:04
  Speaker 1: which is the next place it would go, is a
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  Speaker 1: pretty conservative um appellate court as far as they go,
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  Speaker 1: I still think they're likely to overturn, and if not,
• 2:12
  Speaker 1: then the Supreme Court, just because you know, this is
• 2:15
  Speaker 1: really a pretty big overreach by this judge and by
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  Speaker 1: the Republican attorneys general that brought the case of the
• 2:21
  Speaker 1: first place. Although, is the uncertainty that this introduces enough
• 2:25
  Speaker 1: to create a material risk regardless of whether the judge's
• 2:28
  Speaker 1: decision has ever turned sure, I think you know the
• 2:31
  Speaker 1: prospect of facing yet another year when it finally seemed
• 2:34
  Speaker 1: like things were going to settle down the repeal effort
• 2:37
  Speaker 1: in Congress failed, premiums were down, and chairs were expanding.
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  Speaker 1: Here's another year of something with I'll be frank, you
• 2:45
  Speaker 1: know you saw enormous downside risk, which is the entire
• 2:48
  Speaker 1: law being being overturned, um potentially in a pretty disorderly
• 2:52
  Speaker 1: fact fashion, if there's an injunction, if it's upheld. So
• 2:56
  Speaker 1: that's definitely a big risk. I think that's why you're
• 2:57
  Speaker 1: seeing the sell off, even though UM I you might
• 3:00
  Speaker 1: consider an overreaction, just because the outcome with the greatest
• 3:04
  Speaker 1: likelihood is that this ruling gets reversed in the end.
• 3:08
  Speaker 1: Is this a philosophical battle or is there a viable
• 3:12
  Speaker 1: alternative to what is currently described as Obamacare EI. There
• 3:17
  Speaker 1: are plenty of of vible alternatis. I don't know if
• 3:19
  Speaker 1: we've seen one proposed in full that that would have
• 3:23
  Speaker 1: the backing of both parties, but you could certainly, you know,
• 3:26
  Speaker 1: there are plenty of ways to go about ensuring a
• 3:29
  Speaker 1: broader class of people. The a C certainly as its flaws,
• 3:32
  Speaker 1: but but in terms of kind of a philosophical disagreement
• 3:34
  Speaker 1: over kind of the legal aspects of this case, Um,
• 3:37
  Speaker 1: you know, it's whether the individual mandate is severable from
• 3:41
  Speaker 1: the rest of the law. And I think both from
• 3:43
  Speaker 1: a standpoint of congressional intent, we know that they think
• 3:47
  Speaker 1: it's severable because they literally last year voted to repeal
• 3:52
  Speaker 1: the mandate but keep the rest of the law. That
• 3:54
  Speaker 1: is clearly their intent. And also just from a logical
• 3:58
  Speaker 1: economic and financial stand point, insurers expanded knowing that the
• 4:03
  Speaker 1: individual mandate was going away. They clearly see it as
• 4:06
  Speaker 1: economically severable as well. So, you know, I think it's
• 4:10
  Speaker 1: it's reasonably expect to get it to get overturned. Where's
• 4:12
  Speaker 1: the political pressure right now in terms of either edifying
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  Speaker 1: Obamacare or replacing it with something that has sort of
• 4:20
  Speaker 1: perhaps more feasibility the long term, especially from the financial
• 4:24
  Speaker 1: point of view, especially if you don't have the mandated
• 4:27
  Speaker 1: UH coverage. So I think there kind of falls into
• 4:31
  Speaker 1: a few separate branches. There's not much in the way
• 4:34
  Speaker 1: of political repeal to our political will to of repeal
• 4:37
  Speaker 1: and replacement. Considering that even the GOP with a larger
• 4:41
  Speaker 1: majority in the in the Senate or someone in the
• 4:44
  Speaker 1: Senate and that majority now couldn't manage to do it now.
• 4:46
  Speaker 1: Democrats of the House, So it's kind of likely to
• 4:49
  Speaker 1: be a little bit of a standpoint, a little bit
• 4:51
  Speaker 1: of a stalemate. Uh, there's the potential push for for
• 4:54
  Speaker 1: something like Medicare for All by Democrats. UM, that's going
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  Speaker 1: to be kind of the next battleground, I think, or
• 5:01
  Speaker 1: a push maybe for a bipodssan effort to stabilize the
• 5:04
  Speaker 1: exchanges UM by introducing reinsurance UM something other than the mandate,
• 5:09
  Speaker 1: conceivably reintroducing the mandate, although I'd expect that's a bit
• 5:12
  Speaker 1: of a long shot. In analyzing all of this, have
• 5:16
  Speaker 1: you found that premiums for these insurance policies that exist
• 5:21
  Speaker 1: on these online exchanges have increased, you know, for the
• 5:25
  Speaker 1: first time this year, they're actually in the first time
• 5:28
  Speaker 1: in years there they're down in a number of states,
• 5:31
  Speaker 1: they're still increases, and they're still unsustainably high, particularly for
• 5:35
  Speaker 1: the portion of the population that is ineligible for subsidies UM.
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  Speaker 1: And that's a product of a lot of things, Uh,
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  Speaker 1: Partially the mandate going away, Partially the fact that you know,
• 5:44
  Speaker 1: Congress has been in the hands of the JUP, which
• 5:47
  Speaker 1: has been outwardly explicitly hostile law and the Trump administration
• 5:52
  Speaker 1: has done a few things that have caused preministerized cutting
• 5:55
  Speaker 1: marketing budgets, cutting outreach and introducing um or pushing for
• 6:00
  Speaker 1: the broader use of short term plans that aren't is
• 6:03
  Speaker 1: comprehensive and might sipe and healthy people away. So that's
• 6:06
  Speaker 1: all had kind of an impact on premiums. Could be
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  Speaker 1: reversed with with action, but that just hasn't happened. Thank
• 6:12
  Speaker 1: you very much. Max Neeson has always a pleasure to
• 6:15
  Speaker 1: have you here. Are biotechnology, pharmaceutical and healthcare columnist for
• 6:20
  Speaker 1: Bloomberg Opinion, and you can follow Max on Twitter as
• 6:23
  Speaker 1: we all do at Max Neeson and I S. E. N.
• 6:42
  Speaker 1: If you ask Amazon's Alexa, this is the artificial intelligence
• 6:47
  Speaker 1: natural language technology. If you ask it who helped to
• 6:51
  Speaker 1: create Alexa, the name Alex Spinelli should turn up. He
• 6:56
  Speaker 1: is the chief technology officer of Live Person. He is
• 6:59
  Speaker 1: the former head of Amazon's Alexa, and he joins us
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  Speaker 1: here in studio. Alex, thank you very much, and I
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  Speaker 1: have to ask you is the reason why it is
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  Speaker 1: called Alexa. Doesn't have anything to do with your first name.
• 7:12
  Speaker 1: It has thank you for having me. It has nothing
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  Speaker 1: to do with my first name. It was named before.
• 7:15
  Speaker 1: I OK, alright, fair enough, I'd like to tell a
• 7:19
  Speaker 1: different story there, but uh not not my name. Tell
• 7:22
  Speaker 1: the story about how you go from Alexa and Amazon
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  Speaker 1: to your current role of Chief Technology Officer for Live
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  Speaker 1: Person and another artificial intelligence creation called Maven. Yes so um.
• 7:37
  Speaker 1: I met Rob Lcacio about eight years ago here in
• 7:40
  Speaker 1: New York and we had this wonderful, amazing conversation about conversation.
• 7:44
  Speaker 1: So built a business enabling brands have conversations with people online,
• 7:49
  Speaker 1: and we hadn't talked for many years and we reconnected
• 7:52
  Speaker 1: almost a year to the day. While I was running
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  Speaker 1: the alex os at Amazon, And what really fascinated me
• 7:59
  Speaker 1: was I was helping build what I believe our natural
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  Speaker 1: language experiences, UH ambient experiences, which I think of the
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  Speaker 1: next way people will talk to their to have conversations
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  Speaker 1: with their digital lives. Um. And I was just fascinated
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  Speaker 1: the ability to go from working just for Amazon to
• 8:14
  Speaker 1: deliver that to working for all of the brands that
• 8:17
  Speaker 1: we use day in and day day out. So Live
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  Speaker 1: Person's customers are banks, tel cos, retail businesses, and the
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  Speaker 1: opportunity to actually go do that and make a real
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  Speaker 1: change in all the services that we use is the
• 8:29
  Speaker 1: primary reason I can join. So going from a arguably
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  Speaker 1: the hottest product on a on the planet, very large
• 8:35
  Speaker 1: company to a small company, but to have a bigger
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  Speaker 1: impact in the experience that I think we need. So
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  Speaker 1: when you say a conversation about conversations, what is it
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  Speaker 1: about a conversation that so many artificial intelligence programs have
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  Speaker 1: failed to get? What sort of the secret sauce in
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  Speaker 1: replicating a human to human experience with a robot? Right? Well, Um,
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  Speaker 1: the hard part is the sort of core language understand
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  Speaker 1: And I think I don't know if previous ais have failed.
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  Speaker 1: I think it's been an evolution and we're getting better
• 9:05
  Speaker 1: and better and better. I think we started with Sirie
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  Speaker 1: very early, capturing people's imaginations. I think Alexa kind of
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  Speaker 1: went into the living room and across the home. And
• 9:14
  Speaker 1: now when you see the ability, what we're doing at
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  Speaker 1: Life Person is actually embedding that capability in any of
• 9:21
  Speaker 1: the messaging tools that you use today. So, um, all
• 9:24
  Speaker 1: of the things that you use today day in and
• 9:25
  Speaker 1: day out, your What's app I message line in Japan,
• 9:30
  Speaker 1: those are the places that we're integrating me even so
• 9:32
  Speaker 1: that brands can actually have conversations with people, where they live,
• 9:35
  Speaker 1: where they talk to their wives, their girlfriend's boyfriends, their families.
• 9:40
  Speaker 1: Do you see a time when websites will be obsolete?
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  Speaker 1: So absolutely so. I I actually joined to kill the
• 9:47
  Speaker 1: website in the app. I think they're kind of failures.
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  Speaker 1: I think I look at my phone and I have
• 9:51
  Speaker 1: a hundred and sixty two apps that need to be updated.
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  Speaker 1: If you look at the share of retail sales that's
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  Speaker 1: online in the US, it's still under fourte percent, and
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  Speaker 1: in Europe they don't predict it to be Forrester doesn't
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  Speaker 1: predict it to be fourteen percent until so for I
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  Speaker 1: think for most businesses, the web is somewhat of a failure. Uh,
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  Speaker 1: it's never really produced the return. Sure, I can manage
• 10:14
  Speaker 1: my account, I can pay bills, but they're Amazon has
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  Speaker 1: been successful, they own nearly half that retail sale online.
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  Speaker 1: But for most businesses it's not working. If the flip
• 10:25
  Speaker 1: side and Alexa sort of has highlighted this is when
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  Speaker 1: you start to have a robot that understands human language
• 10:33
  Speaker 1: and can also track your movements and can also video you,
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  Speaker 1: it becomes a security issue and a privacy issue that
• 10:40
  Speaker 1: becomes very uh. Front Front and Front and foremost, so
• 10:43
  Speaker 1: I just wandered from your perspective, does that privacy issue
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  Speaker 1: become more of a concern when all of a sudden,
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  Speaker 1: this is a multisensory experience and device. So privacy is
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  Speaker 1: super important to us. It was super important to me
• 11:00
  Speaker 1: when I was at Amazon. It's super important to me
• 11:02
  Speaker 1: as a consumer. So we take great pains to drive
• 11:05
  Speaker 1: a lot of privacy and security. We don't sell or
• 11:09
  Speaker 1: market your data as a consumer. We don't mix and
• 11:12
  Speaker 1: match enterprise and brand data. Um. But yes, I think industry,
• 11:15
  Speaker 1: why this is something that we all need to actually,
• 11:18
  Speaker 1: you know, pay close attention to. Well, not selling the
• 11:20
  Speaker 1: data is one thing, but what about police for example,
• 11:23
  Speaker 1: that now that the crime has been committed, Uh, and
• 11:26
  Speaker 1: they can go and if let's say it's let's say
• 11:28
  Speaker 1: it's a brand, right, they can go in and they
• 11:30
  Speaker 1: can say, well, someone might have talked to you, it
• 11:32
  Speaker 1: might have stayed on their device, but I've stayed on longer.
• 11:34
  Speaker 1: Can you just give us the tapes? Yeah? And I
• 11:37
  Speaker 1: think these are these are real concerns. I think they
• 11:39
  Speaker 1: exist today and they existed before AI. You know, whenever
• 11:41
  Speaker 1: you call your phone, your phone calls recorded. You get
• 11:44
  Speaker 1: that message, anything you do on the website, there's a
• 11:47
  Speaker 1: lot of ability to track that. So I think this
• 11:48
  Speaker 1: is just something we need to pay close attention to.
• 11:51
  Speaker 1: I think consumers need to have a say and input.
• 11:54
  Speaker 1: Uh and you know we have to actually hold companies
• 11:56
  Speaker 1: like ours too accountable for those kind of things. Again,
• 11:58
  Speaker 1: we take this very seriously. We're consumers as well. Let's
• 12:03
  Speaker 1: say someone is running a business, any kind of business
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  Speaker 1: that could be a service business, a business that makes
• 12:08
  Speaker 1: a product, if they are interested in adding this artificial intelligence,
• 12:15
  Speaker 1: natural language capability, and they don't have a strategy currently
• 12:20
  Speaker 1: for eye message, for what'sapp, for Amazon's Alexa, for live person,
• 12:26
  Speaker 1: what are the characteristics of the people that they need
• 12:29
  Speaker 1: to hire in order to tell them how to get there?
• 12:32
  Speaker 1: Well as a as a business person support of what
• 12:34
  Speaker 1: we're doing, I think they should come talk to to us.
• 12:37
  Speaker 1: Alive person for sure, they don't even know what the
• 12:39
  Speaker 1: right so they definitely need to look to people who
• 12:42
  Speaker 1: understand machine learning, who understand AI. AI is not a panacea.
• 12:46
  Speaker 1: It's not a solution to anyone's problem. If people come
• 12:48
  Speaker 1: and tell you drop the AI in here and it
• 12:50
  Speaker 1: will solve all your problems, that's wrong. So I think
• 12:53
  Speaker 1: they need to start to hire people who understand it's
• 12:55
  Speaker 1: a tool. It's a tool that can be used for
• 12:57
  Speaker 1: great things. It's a tool that can you can spend
• 12:59
  Speaker 1: a lot of money and waste. So I think finding
• 13:01
  Speaker 1: the right experts to help develop that strategy is really
• 13:05
  Speaker 1: important because we do think you'll see the brands and
• 13:08
  Speaker 1: businesses that invest in using technologies of where people live,
• 13:12
  Speaker 1: conversations where people are fifteen million texts every minute, sixty
• 13:16
  Speaker 1: billion messages on WhatsApp and Facebook Messenger every day. You
• 13:21
  Speaker 1: have to go where the consumer is, so you need
• 13:22
  Speaker 1: to find people who understand that shift. Which brands are
• 13:26
  Speaker 1: most forward thinking when it comes to this shift UM, Well,
• 13:31
  Speaker 1: we have some of the largest brands in the world,
• 13:33
  Speaker 1: T Mobile, Home depot Rack, Utan and Japan MUFG, So
• 13:37
  Speaker 1: there's it's pretty much across the spectrum. Banks, Telco's UH
• 13:41
  Speaker 1: utilities are all investing in this UM. I think that Amazon, certainly,
• 13:46
  Speaker 1: you know and you look to the sort of big ones,
• 13:48
  Speaker 1: are certainly kind of leading a charge in some of
• 13:49
  Speaker 1: these ways. I think more and more businesses are starting
• 13:52
  Speaker 1: to hire the kind of people we talked to before
• 13:54
  Speaker 1: and are starting to explore UM I think the ones
• 13:57
  Speaker 1: that you see um take bigger experiment and really start
• 14:01
  Speaker 1: to play and learn and iterate quickly are the ones
• 14:04
  Speaker 1: that I think we'll be successful. Thank you so much
• 14:06
  Speaker 1: for being with us. Pleasure. It was a pleasure speaking
• 14:10
  Speaker 1: with you, and I know my nine year old son
• 14:11
  Speaker 1: would be unbelievably excited to thank that I spoke of
• 14:14
  Speaker 1: someone who helped create Alexa. Alex Binelli, chief technology officer
• 14:19
  Speaker 1: of Live Person in Seattle and New York, joining us
• 14:22
  Speaker 1: here in our eleven three hour studios today in New
• 14:24
  Speaker 1: York City. Joining us now is Brendan to Hearne, chief
• 14:44
  Speaker 1: investment Officer A Crane Shares in New York. Brendan, thank
• 14:47
  Speaker 1: you so much for being with us. I'm really struck
• 14:50
  Speaker 1: by the slew of disappointing data that has been coming
• 14:53
  Speaker 1: out of China from retail sales on and I'm wondering
• 14:56
  Speaker 1: whether you have a view on whether perhaps China is
• 15:00
  Speaker 1: suffering vastly more than markets are currently pricing in well
• 15:05
  Speaker 1: in the first forward. Thank you for the opportunity, Lisa China.
• 15:08
  Speaker 1: China has been running a number of domestic policies aimed
• 15:11
  Speaker 1: at transitioning from high growth fueled by debt too slower,
• 15:16
  Speaker 1: but higher quality growth. And it's really been the trade
• 15:21
  Speaker 1: war in conjunction with these policies has created a little
• 15:25
  Speaker 1: bit of a down draft that's taking place. I mean,
• 15:29
  Speaker 1: I think if you step back, China's GDP will continue
• 15:32
  Speaker 1: to slow just law of large numbers, but I think
• 15:34
  Speaker 1: it's just the culmination of some of these domestic policies
• 15:37
  Speaker 1: as well as the effects of a trade war have
• 15:39
  Speaker 1: created pretty soft self economic numbers here of late. Do
• 15:44
  Speaker 1: you believe that this will continue into and what effects
• 15:48
  Speaker 1: will it have in the commodity markets? So, yeah, great question.
• 15:51
  Speaker 1: You know, Um, what we see is we believe that
• 15:54
  Speaker 1: that we're at a market bottom at or near equity
• 15:57
  Speaker 1: um Chinese markets at the bottom. We then believe we're
• 16:00
  Speaker 1: at a policy bottom, that we're seeing an effect by
• 16:04
  Speaker 1: policymakers in China to stimulate the economy. And what will
• 16:08
  Speaker 1: happen over the course of Q four as well as
• 16:11
  Speaker 1: in Q one will be an earnings bottom so as
• 16:13
  Speaker 1: well as an economic number bottom. So I think these
• 16:16
  Speaker 1: stimuluses is making its way into the system. It just
• 16:19
  Speaker 1: takes a little while to show up what you might
• 16:22
  Speaker 1: see him around the commodities that could be interesting is
• 16:25
  Speaker 1: we're seeing a little bit more of some infrastructure projects
• 16:28
  Speaker 1: have been approved as well as potentially a curbing of
• 16:32
  Speaker 1: some of the property. Property development has been curtailed, and
• 16:36
  Speaker 1: we might see that come off as well, which which
• 16:38
  Speaker 1: I think could have a very big benefit for commodities. Alright,
• 16:41
  Speaker 1: So Brennan, it sounds like you're pretty positive on China
• 16:44
  Speaker 1: right now, Is that right? Well? I do think, um,
• 16:47
  Speaker 1: you know, as an entry point, it looks very appealing
• 16:49
  Speaker 1: from both a relative as well as a historical valuation basis.
• 16:53
  Speaker 1: So how would you recommend the international investors gain exposure
• 16:57
  Speaker 1: to China? Well, I think at the stage you have, uh,
• 17:01
  Speaker 1: the Chinese A share market is off, you have Hong
• 17:05
  Speaker 1: Kong markets off as well as US listed names. It's
• 17:08
  Speaker 1: self serving and highly biased obviously Crane shirts as a
• 17:10
  Speaker 1: family of China focus dts. But I really like the
• 17:13
  Speaker 1: prospect for investors with a three to five three to
• 17:16
  Speaker 1: five year time rising for potential entry point here. Well,
• 17:20
  Speaker 1: if you listen to members of the of the Trump administration,
• 17:23
  Speaker 1: I mean, for example, Peter Navarro saying that investors should
• 17:26
  Speaker 1: just let the China trade war play itself out, do
• 17:31
  Speaker 1: you agree stand on the sidelines until something becomes clear. Well,
• 17:36
  Speaker 1: I think for a lot of investors, you don't have
• 17:39
  Speaker 1: necessarily that ability that you know your your mandate is
• 17:42
  Speaker 1: to stay invested. I think you know if you wait
• 17:45
  Speaker 1: for the year, but you don't have to stay invested
• 17:46
  Speaker 1: in China, well, well to some degree. I mean, China
• 17:50
  Speaker 1: is almost it's four hundred and sixty five of the
• 17:55
  Speaker 1: plus stocks in a ms c I emerging market. It's
• 17:58
  Speaker 1: about it, just over thirty percent of the total sources.
• 18:01
  Speaker 1: So it's a big, big part of of these benchmarks.
• 18:04
  Speaker 1: So they'll go to a meaningful underweight, could create pretty
• 18:07
  Speaker 1: dramatic tracking error. But but I do think in general,
• 18:11
  Speaker 1: if you wait for the green light, you know, the
• 18:13
  Speaker 1: all clear sign, you've missed the move. And I think
• 18:16
  Speaker 1: if we get some progress, as we're seeing on the trade,
• 18:19
  Speaker 1: if we get some some rays of sunlight as the
• 18:21
  Speaker 1: clouds part um, I think the markets can and well
• 18:25
  Speaker 1: respond positively. I have to wonder we're seeing an increase
• 18:29
  Speaker 1: in defaults UH in the corporate debt market in China,
• 18:32
  Speaker 1: and there have been a number of distressed investors, including
• 18:36
  Speaker 1: oak Tree, that have said that they actually see opportunity
• 18:38
  Speaker 1: in China right now. Do you agree, I mean, do
• 18:40
  Speaker 1: you think beyond just the public markets since sort of
• 18:43
  Speaker 1: the easy access points, that this is a time for
• 18:46
  Speaker 1: firms to be moving more deeply into the into the
• 18:49
  Speaker 1: markets there. Yeah, I saw last week, uh great Warward
• 18:53
  Speaker 1: Pinkus announced that it was raising a billion plus dollar
• 18:57
  Speaker 1: fund to focus on distressed reality. So so in general China,
• 19:00
  Speaker 1: China is becoming Darwinistic when it comes to uh, defaults.
• 19:05
  Speaker 1: They're they're allowing the proverbial hand of the market to
• 19:07
  Speaker 1: play a factor. What China has had been tightening in
• 19:12
  Speaker 1: seventeen um, they've had the back burner a little bit
• 19:16
  Speaker 1: of this tightening and de leveraging process because of because
• 19:20
  Speaker 1: of the trade war. But but I think in general,
• 19:22
  Speaker 1: for smaller players, UH, there's going to be a rise
• 19:26
  Speaker 1: in defaults. If you're a very large player that has
• 19:30
  Speaker 1: the potential to be that first domino and creating a
• 19:34
  Speaker 1: systematic risk, they're going they're gonna do things to try
• 19:37
  Speaker 1: to prevent that from happening. But certainly I think for
• 19:40
  Speaker 1: bond investors, UM, you really want to stay clear of
• 19:44
  Speaker 1: some of these smaller players, uh, simply because they don't
• 19:47
  Speaker 1: have the backing, they don't have that systematic risk and
• 19:50
  Speaker 1: therefore that the policymakers are gonna let them go. Brendan.
• 19:54
  Speaker 1: Just as an example, the Crane Shares, a CSI China
• 19:58
  Speaker 1: Internet fund is trading at levels that we haven't seen
• 20:03
  Speaker 1: since May of seventeen. Go back even further, it was
• 20:08
  Speaker 1: trading lower, and that's even before the U S election.
• 20:13
  Speaker 1: What would prevent it from returning to those pre election levels. Well,
• 20:18
  Speaker 1: I think what we're seeing is and and you know,
• 20:21
  Speaker 1: there's been a lot of pressure on on managers. If
• 20:24
  Speaker 1: you hold something with China in the name, uh, you're
• 20:27
  Speaker 1: going to get a lot of questions. I mean, we
• 20:28
  Speaker 1: could argue all day that Ali Baba, one of our
• 20:31
  Speaker 1: top holdings in k web, has no revenue exposure to
• 20:35
  Speaker 1: the United States, and yet the stock is well off. UM.
• 20:38
  Speaker 1: So I think this is a little bit of the
• 20:41
  Speaker 1: effect of a trade war on professional investors UM in general.
• 20:45
  Speaker 1: When you look at a lot of the revenue growth
• 20:47
  Speaker 1: of the companies that we hold, they're very, very high,
• 20:50
  Speaker 1: and yet we're at at a fairly meaningful valuation discount
• 20:54
  Speaker 1: to our US equivalents despite having a higher rate of
• 20:59
  Speaker 1: revenue growth. So this is where you know, I think
• 21:01
  Speaker 1: the per real baby in the bath waters thrown out.
• 21:04
  Speaker 1: All right, we gotta leave it there. Thanks very much.
• 21:06
  Speaker 1: Brendan A. Hearn is the chief investment officer for Crane Shares,
• 21:11
  Speaker 1: speaking about equity investments in China. It is that time
• 21:30
  Speaker 1: of year when we get a slew of Wall Street
• 21:33
  Speaker 1: analyst predictions for the year to come. Joining us now
• 21:37
  Speaker 1: with one of those, Matt, Tom's chief investment officer focusing
• 21:40
  Speaker 1: on the fixed income market for Voy Investment Management, overseeing
• 21:43
  Speaker 1: more than two hundred billion dollars from Atlanta, Georgia. Matt,
• 21:47
  Speaker 1: thank you so much for being with us. Increasingly we
• 21:51
  Speaker 1: hear from analysts start becoming defensive. What does that mean
• 21:56
  Speaker 1: in the fixed income markets? And do you think a
• 21:58
  Speaker 1: defensive posture is the one to take? Um it's it's
• 22:02
  Speaker 1: important to bifrecate' is a good question, important to biofrecate
• 22:05
  Speaker 1: between credit sensitivity and interest rate sensitivity. There's been a
• 22:09
  Speaker 1: lot of discussion over the last three years about the
• 22:11
  Speaker 1: potential of rates going up, and so it's been right
• 22:13
  Speaker 1: to be defensive in the interest rate risk that that
• 22:17
  Speaker 1: one has been taken. As you have seen the interest
• 22:19
  Speaker 1: rates obviously increase in the US up to just below
• 22:22
  Speaker 1: three percent in the tenure. However, it is right to
• 22:24
  Speaker 1: look to be a bit more defensive in credit sensitive assets,
• 22:27
  Speaker 1: so bank loans, high yield UM or more volatile UH,
• 22:32
  Speaker 1: components of the BOD markets that have a higher correlation
• 22:34
  Speaker 1: to equities. That's where that defensiveness has made sense the
• 22:37
  Speaker 1: second half of eighteen and is likely to make sense
• 22:39
  Speaker 1: in in early nineteen as well. So where can investors
• 22:43
  Speaker 1: hide um? Well, UH, the big push has been in
• 22:47
  Speaker 1: the floating rate, and one of our big beliefs is
• 22:49
  Speaker 1: that you had in the next year, the FETE is
• 22:50
  Speaker 1: likely to slow. We'll get some more information in the
• 22:52
  Speaker 1: middle of this week. Unlikely to really signal a pause yet.
• 22:57
  Speaker 1: I'll come back to that. But where can you hide
• 22:59
  Speaker 1: to used to be floating rate instruments that would protect
• 23:01
  Speaker 1: against that that melt higher and rates. We think investment
• 23:05
  Speaker 1: grade oriented bond funds are quote unquote intermediate bond funds
• 23:08
  Speaker 1: now have the best stress return balance, you have some
• 23:11
  Speaker 1: duration to help you, you have some yield, and you
• 23:13
  Speaker 1: have more modest forms of credit sensitivity. So we'd advise
• 23:19
  Speaker 1: more towards those higher quality funds and less towards high
• 23:22
  Speaker 1: yield and bank loans at this time, I'm curious what
• 23:24
  Speaker 1: you think about that triple B rated sect to the
• 23:27
  Speaker 1: lowest rated investment grade rank of debt. I mean, just
• 23:31
  Speaker 1: think about Xerox just downgraded bonds fell out of bed.
• 23:35
  Speaker 1: Does that present a risk to your to your thesis?
• 23:38
  Speaker 1: It is a meaningful market risk and a very important topic.
• 23:41
  Speaker 1: And there's been a lot of good work done at
• 23:44
  Speaker 1: Boomberg and beyond on detailing now that fifty percent, more
• 23:48
  Speaker 1: than fifty percent of the investment grade corporate bond market
• 23:51
  Speaker 1: is made up of triple b's. Now we think one
• 23:53
  Speaker 1: of the important things to talk about is because there's
• 23:56
  Speaker 1: more of them, does that necessarily change how they're going
• 24:00
  Speaker 1: to act? And we think it's important to separate between
• 24:03
  Speaker 1: the triple B. So there's two types of companies that
• 24:06
  Speaker 1: that get lower ratings, good companies with strained balance sheets
• 24:10
  Speaker 1: or strained companies with good balance sheets, and and lending
• 24:14
  Speaker 1: to good companies with strained balance sheets is usually a
• 24:17
  Speaker 1: good trend. And so companies like City or Verizon, or
• 24:20
  Speaker 1: A T and T or CVS, these are names that
• 24:23
  Speaker 1: everyone knows they're in the triple B category. There's some
• 24:26
  Speaker 1: of the biggest issuers not necessarily strained business models, but
• 24:30
  Speaker 1: more aggressive financing. So those are companies are examples of
• 24:33
  Speaker 1: companies that we think you can still invest in and
• 24:36
  Speaker 1: and and have as a part of a strategy. There
• 24:38
  Speaker 1: are some that have more velocity into the downside of
• 24:41
  Speaker 1: their fundamentals business that's where you'd be concerned. So we think, yes,
• 24:44
  Speaker 1: it's important, but be you can't lump them all together.
• 24:48
  Speaker 1: There is still going to be ample opportunity within many
• 24:50
  Speaker 1: of those triple b's. Will the market make that distinction
• 24:54
  Speaker 1: when liquidity flees the bond market, we think it will broadly.
• 24:59
  Speaker 1: There is one area where it may not, though, and
• 25:02
  Speaker 1: that's in the longest maturity forms of triple b'sum which
• 25:06
  Speaker 1: is the least liquid but has also grown. So that's
• 25:09
  Speaker 1: thirty year component of the bond market where fewer retail
• 25:13
  Speaker 1: investors are involved. It's much more insurance companies and pension
• 25:16
  Speaker 1: funds with this big stock of triple B debt. When
• 25:20
  Speaker 1: those are downgraded, there's very little demand by high yield
• 25:23
  Speaker 1: buyers or others for twenty to thirty year data double
• 25:27
  Speaker 1: B debt once it's downgraded from triple B. That's the
• 25:30
  Speaker 1: area where the market will have a tough time distinguishing,
• 25:33
  Speaker 1: and that's where you're most likely to see the most
• 25:35
  Speaker 1: severe price velocity, shorter data triple bs. We do think
• 25:39
  Speaker 1: the market will differentiate. I'm wondering what do you think
• 25:42
  Speaker 1: US versus the rest of the world, in particular emerging markets,
• 25:45
  Speaker 1: because there's been actually a lack of consensus on developing
• 25:49
  Speaker 1: markets next year. Given the fact that the fusure reserve
• 25:52
  Speaker 1: continues to tighten, UM, our bias is still towards the
• 25:55
  Speaker 1: US um We think that you have a strong US
• 25:58
  Speaker 1: consumer that has been very diligent and very modest in
• 26:03
  Speaker 1: its re leveraging. Actually debt to debt to GDP at
• 26:07
  Speaker 1: the consumer level continues to be lower and now even
• 26:11
  Speaker 1: just barely barely sideways to ups, so that contrast meaningfully
• 26:15
  Speaker 1: versus the corporate segment that's been re leveraging. So a
• 26:18
  Speaker 1: US bias still holds. We think the downside on main
• 26:22
  Speaker 1: Street in the US is still limited, even if you
• 26:25
  Speaker 1: have valuation headwinds on Wall Street now e M has
• 26:29
  Speaker 1: been a fantastic area to avoid over the last eighteen
• 26:32
  Speaker 1: months with the FED in motion, our belief that the
• 26:35
  Speaker 1: FED starts to step back, and our belief that you
• 26:38
  Speaker 1: have incrementally softer growth out of Europe does mean e
• 26:42
  Speaker 1: m um does it starts to look a bit more
• 26:45
  Speaker 1: attractive next year. Valuations will eventually pull money in as
• 26:49
  Speaker 1: that natural growth rate of VM is higher than developed markets.
• 26:52
  Speaker 1: That'll matter more next year. So it's a little early
• 26:54
  Speaker 1: to go all in on EM but certainly a brighter
• 26:56
  Speaker 1: outlook than it has been for the last eighteen months.
• 26:59
  Speaker 1: What do you take away from the recent reports about
• 27:02
  Speaker 1: economic health in China? On Friday, the Chinese government reported
• 27:08
  Speaker 1: that trade slowed sharply in November, imports of copper and
• 27:14
  Speaker 1: iron ore declining from the same month last year, weak
• 27:18
  Speaker 1: growth in monthly retail sales and industrial production. What does
• 27:24
  Speaker 1: that mean for that thesis? What a bevy of good
• 27:27
  Speaker 1: news right? Uh? Yeah, So it's certainly a risk to
• 27:30
  Speaker 1: the markets. UM. We think one thing that one thing
• 27:33
  Speaker 1: that it does highlight is that a tariff for is
• 27:36
  Speaker 1: a lose lose game and ultimately, UM, the markets are
• 27:40
  Speaker 1: looking for this h for this tariff spat or war
• 27:43
  Speaker 1: to be concluded UM with ultimately lower tariffs. So we
• 27:47
  Speaker 1: think both sides are hurting us. Consumer confidence is still resilient,
• 27:52
  Speaker 1: but business confidence is taking a hit UM, and we're
• 27:55
  Speaker 1: looking for signs that that melts through to the consumer.
• 27:57
  Speaker 1: But on the Chinese run, it's clear China growth is
• 28:01
  Speaker 1: is softer. Um. We think what you'll see is fiscal policy,
• 28:05
  Speaker 1: tax spending, tax cuts, getting dollars and you on into
• 28:10
  Speaker 1: the in the hands of the of the consumers will
• 28:12
  Speaker 1: be their next step. And infrastructure spending, so no longer
• 28:16
  Speaker 1: on the housing front, but on infrastructure and tax that
• 28:18
  Speaker 1: should be enough to offset that downward trend in the
• 28:22
  Speaker 1: stop Chinese growth from plummeting lower. That's the belief. There
• 28:25
  Speaker 1: is more risk in the you know all else equal
• 28:27
  Speaker 1: than there has been, but it still looks like a
• 28:30
  Speaker 1: very manageable situation in China. It's interesting that you continue
• 28:33
  Speaker 1: to view the US as a brighter spot than the
• 28:36
  Speaker 1: rest of the world. And I have to wonder how
• 28:38
  Speaker 1: did that uh sort of plays with the yield curve
• 28:42
  Speaker 1: that we've seen flattening recently, with the shorter data ends
• 28:46
  Speaker 1: of the curve actually inverting. Are you concerned about this?
• 28:49
  Speaker 1: When do you foresee recession? Um? We think clearly you're
• 28:54
  Speaker 1: you're at best mid cycle and very likely moving towards
• 28:58
  Speaker 1: a late cycle right now. However, the flatness of the
• 29:01
  Speaker 1: US curve. UM it doesn't cause a change in financial
• 29:06
  Speaker 1: conditions in and of itself right, doesn't stop banks from lending.
• 29:09
  Speaker 1: Much of that lending is now. It's done through the
• 29:12
  Speaker 1: markets channel is where you've seen that trip will be
• 29:14
  Speaker 1: debt created, and then the leverage loan market, where you've
• 29:17
  Speaker 1: seen that below invest in great debt created. So the
• 29:19
  Speaker 1: flattening of the yield curve doesn't um cause a recession,
• 29:24
  Speaker 1: it certainly is a sign that the bond market is
• 29:26
  Speaker 1: saying FED please pause. As I mentioned, we think they
• 29:29
  Speaker 1: will pause. And if the Fed pauses and the balance
• 29:33
  Speaker 1: sheet does begin to wind down, we would expect, and
• 29:35
  Speaker 1: this is a contrarian view, we'd expect the yield curve
• 29:38
  Speaker 1: to be able to slowly begin to steep in next
• 29:41
  Speaker 1: year UM as they Fed looks to be more cautious.
• 29:45
  Speaker 1: That lets the dollar come off of its highs, That
• 29:47
  Speaker 1: lets em rebound, and we're very likely to roll into
• 29:52
  Speaker 1: the second half of nineteen having experienced something that looks
• 29:55
  Speaker 1: like a mid cycle slowdown. So that ability for the
• 29:58
  Speaker 1: FED to step back is a positive. And importantly, we
• 30:03
  Speaker 1: have made the exit in the US from zero all
• 30:05
  Speaker 1: the way up to two and a half percent on
• 30:07
  Speaker 1: Fed Funds rate um. Other central banks have not been
• 30:10
  Speaker 1: able to do that, and that is also a cushion
• 30:13
  Speaker 1: should there be economic down downside. Not many central banks
• 30:16
  Speaker 1: that globally have that cushion. Much appreciated. Matt Tom's is
• 30:20
  Speaker 1: the Chief Investment Officer Fixed Income for Voya Investment Management,
• 30:24
  Speaker 1: based in Atlanta, helping to manage more than two hundred
• 30:27
  Speaker 1: billion dollars of customer assets. Thanks for listening to the
• 30:35
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 30:38
  Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
• 30:43
  Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
• 30:47
  Speaker 1: I'm on Twitter at Lisa abramowits one before the podcast.
• 30:50
  Speaker 1: You can always catch us worldwide on Bloomberg Radio