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Value Investors Must Adapt or Face Failure: Bruce Greenwald · Bloomberg Intelligence

• 0:01
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
• 0:04
  Speaker 1: with my co host of Bonnie Quinn. Every business day
• 0:06
  Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
• 0:10
  Speaker 1: along with essential market moving news. Kind a Bloomberg Markets
• 0:13
  Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
• 0:17
  Speaker 1: and on Bloomberg dot Com. Very excited to bring in
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  Speaker 1: our next guest. Bruce Greenwald is Professor emeritus at Columbia
• 0:23
  Speaker 1: Business School. He is, of course famous for his seminal
• 0:27
  Speaker 1: book on value investing. He's been teaching so many thousands
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  Speaker 1: of students about value investing during his days at Columbia
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  Speaker 1: over the past several decades, me being one of them.
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  Speaker 1: I remember very difficult days poring over the book of
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  Speaker 1: case studies that Bruce Greenwald used to hand out. But
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  Speaker 1: excited that he's back on for a fully updated edition
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  Speaker 1: of the seminal book Value Investing from Graham to Boot
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  Speaker 1: and beyond. So Bruce, welcome, Very great to have you
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  Speaker 1: on the program. It's been a rough decade for value investing,
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  Speaker 1: of course, but there was a little bit of talk
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  Speaker 1: recently that we might be heading into the value cycle again.
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  Speaker 1: What did you make of all of that. Look, I think,
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  Speaker 1: let me first say, Vanni, it's a real pleasure to
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  Speaker 1: talk to YouTube after so many years. The fact of
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  Speaker 1: the matter is that I think, in contrast to what
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  Speaker 1: happened in the tech boom at the end of the nineties,
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  Speaker 1: there are fundamental changes in the economy that have taken place.
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  Speaker 1: So even though the basic value principles are still going
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  Speaker 1: to be there, which is, you want to look intelligently
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  Speaker 1: for opportunities where you're more likely to be better positioned
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  Speaker 1: than the other side of the trade. You want to
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  Speaker 1: know the value of what you're buying, and you want
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  Speaker 1: to be disciplined. The changes in the world means you're
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  Speaker 1: going to have to apply them differently, and I think
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  Speaker 1: if value investors don't adapt, there may be short periods
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  Speaker 1: when they do well, but I don't think for the
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  Speaker 1: long term they're they're going to have the kinds of
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  Speaker 1: records that they historically had. So, Professor, what types of
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  Speaker 1: adaptations do you think investors should take to the extent
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  Speaker 1: that they really want to pursue value investing. Well, okay,
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  Speaker 1: so let's actually start with just what it is that's changed.
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  Speaker 1: So you have an idea of what you're adapting to.
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  Speaker 1: And there are two dominant trends in the global economy
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  Speaker 1: that affect investors. The first is manufacturing is dying and
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  Speaker 1: we're becoming a service economy, which means we're going from
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  Speaker 1: big centralized manufacturing facilities to very dispersed service facilities. And
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  Speaker 1: the second thing is, and this really amounts to the
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  Speaker 1: same thing tchech has basically disaggregated organizations. So you see
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  Speaker 1: it in the way that people work separately, which is
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  Speaker 1: the gig economy, but you also see it in the
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  Speaker 1: way in which organizations are separated out. So in the
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  Speaker 1: old days, if you are doing I t IBM did everything.
• 2:55
  Speaker 1: If you look at it today, you know Microsoft does
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  Speaker 1: the operating system and basic functions, or Echo does the databases,
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  Speaker 1: Google does search, Intel does only the CPU chips, and
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  Speaker 1: Facebook does the interactions. So you're really going from large
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  Speaker 1: centralized organizations to really very decentralized one and that has
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  Speaker 1: three absolutely critical consequences. The first is that productivity growth
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  Speaker 1: is currently much harder on a decentralized basis, So going forward,
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  Speaker 1: you're not going to see the rate of improvement in
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  Speaker 1: productivity that you saw in the path. Although we're big
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  Speaker 1: organizations like McDonald's in the US learn to do it.
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  Speaker 1: We're going to do probably in the US better than
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  Speaker 1: other people. Second thing is when people work individually they
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  Speaker 1: get paid for what they do. They don't get paid
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  Speaker 1: the average wage, and that means that the distribution of
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  Speaker 1: income becomes much much more unequal, and that's going to continue.
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  Speaker 1: And I think the third thing, which is really what's
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  Speaker 1: crucial for value investors, is that you are moving from
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  Speaker 1: broad global markets, the gms, the gas of the world,
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  Speaker 1: to niche local markets. And big global markets are competitive
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  Speaker 1: small niche market I mean, for example, if you're gonna
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  Speaker 1: be viable at one percent market share, you're never going
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  Speaker 1: to keep anybody out of those big global markets, whereas
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  Speaker 1: small local markets are markets in which dominant competitors can
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  Speaker 1: enjoy barriers to entry based on economies of scale. And
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  Speaker 1: once that happens, once you've got these what Buffett refers
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  Speaker 1: to a franchise businesses, the whole investment world changes. So
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  Speaker 1: you have high returns on investment capital. So capital allocation
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  Speaker 1: can be hugely value creating as well as value destructive.
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  Speaker 1: You benefit from organic growth and revenue. I mean, if
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  Speaker 1: you're in a competitive market and revenue grows organically. Temporarily
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  Speaker 1: profits may go up, but then everybody enters and they
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  Speaker 1: just divide the business more finally, and the profits go away.
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  Speaker 1: And the same thing happens with the benefit of tech
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  Speaker 1: based margin growth, you know, is productivity goes up. In
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  Speaker 1: a competitive market, everybody rushes in. But if you benefit
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  Speaker 1: from barriers to entry, you get to enjoy that. And
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  Speaker 1: you see that, by the way, and what's happened to profits.
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  Speaker 1: In the early in the late eighties early nineties, profits
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  Speaker 1: were eight of national income. Today they're twelve to cent
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  Speaker 1: or higher, and they're probably going up. But here is
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  Speaker 1: the critical thing. Old fashioned asset based value investing is
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  Speaker 1: not going to do it for you. It's too small
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  Speaker 1: a part of the overall picture that assets aren't that
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  Speaker 1: important in a world where has got barriers to entry
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  Speaker 1: and franchise businesses, and there by the way, where you've
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  Speaker 1: got services and intangible assets, they're much harder to measure.
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  Speaker 1: So I think the first thing investors have to do
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  Speaker 1: is understand franchise businesses. Interesting case where we almost have
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  Speaker 1: a time, but I do want to get in one
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  Speaker 1: more question. If you talk to the likes of Joel
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  Speaker 1: greenbatt or Richard Bosina or Bill Miller, you'll come away
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  Speaker 1: with a very different style of value investing. A piece. Well,
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  Speaker 1: what distinguishes all of these different styles of value investing? Well,
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  Speaker 1: I don't think that they are as I say, there
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  Speaker 1: are three fundamental things that they all do. I think that,
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  Speaker 1: you know, the crucial difference between traditional value investors and
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  Speaker 1: them is that they've actually adapted much better, that they
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  Speaker 1: understand that growth creates value in this world, and you
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  Speaker 1: can't invest and look for value without understanding how to
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  Speaker 1: put value on growth. And I think that is the
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  Speaker 1: single overwhelming style difference. And I think, frankly the future
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  Speaker 1: lies with the Bill Millers and the Joel Green plots
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  Speaker 1: for the world. And in fact, what the book is
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  Speaker 1: really about is about adapting to this new environment where
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  Speaker 1: all of a sudden, the historical distinction between growth investing
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  Speaker 1: what you would call varieties of value investing and traditional
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  Speaker 1: sort of cigar but asset has gone away. A Bruce,
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  Speaker 1: thank you so much for joining us there. Bruce Bruce Greenwald,
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  Speaker 1: Professor Emeritus at Columbia Business School, Chairman of the Paradigm
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  Speaker 1: Capital Management, and senior advisor at First Eagle investment manager
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  Speaker 1: and of course author of the book Value Investing From
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  Speaker 1: Graham to Buffett and beyond. We always appreciate listening to
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  Speaker 1: the thoughts of Professor Greenwald. I think about value investing.
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  Speaker 1: It's really been challenging in this market where growth has
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  Speaker 1: really been the dominant theme really for a couple of decades.
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  Speaker 1: Right now and at this time now to take a
• 8:04
  Speaker 1: look at the credit markets and maybe the markets more broadly,
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  Speaker 1: let's bring in MinC you count on Depine, chief investment
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  Speaker 1: officer of Western Asset Management. I say the credit markets
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  Speaker 1: because they're top of mind today, Mike, what with a
• 8:15
  Speaker 1: MC being in a little bit of trouble. We know
• 8:17
  Speaker 1: that the movie theaters have already tapped all the credit
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  Speaker 1: that possibly is available to them, except for private individuals
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  Speaker 1: that are looking to do that. And just curious as
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  Speaker 1: to where you see the credit markets right now, Well,
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  Speaker 1: there's no question and by the way, Vanni and Paul,
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  Speaker 1: thank you for having me on UM. There's no no
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  Speaker 1: question that UM, there is still stress in the credit market.
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  Speaker 1: You mentioned amc Um. There's a lot of companies, there's
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  Speaker 1: a lot of industries that have done pretty much everything
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  Speaker 1: they possibly could to survive to this point, UM, some
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  Speaker 1: aren't going to make it, and you actually see that
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  Speaker 1: in the default numbers. UM. I think many because the
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  Speaker 1: capital will markets up so quickly back in late March
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  Speaker 1: and early April UH, some were able to access that
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  Speaker 1: rescue financing and even though they paid dearly for doing that. UM.
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  Speaker 1: I think it's going to be a wise move on
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  Speaker 1: their part, and UM will at least minimize how many
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  Speaker 1: of these companies actually had to ultimately restructure or or
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  Speaker 1: file so UM. I think the credit markets right now,
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  Speaker 1: there's no question that some of the rally that we
• 9:30
  Speaker 1: were expecting to occur in two thousand one, some of
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  Speaker 1: that has been pulled forward into two thousand twenty, just
• 9:38
  Speaker 1: with clarity on the vaccine. UM. I think everyone's expecting
• 9:42
  Speaker 1: as we are bouncing growth, a bouncing earnings UM. But
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  Speaker 1: that being said, I still think the credit markets have
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  Speaker 1: room for performance as we move forward over the next
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  Speaker 1: few quarters, probably going to be more of a focus
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  Speaker 1: on income, focus on carry trade versus what we've seen
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  Speaker 1: over the last two or three quarters, which has really
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  Speaker 1: been you know about capital appreciation and spread tightening. I
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  Speaker 1: think the magnitude of that spread tightening is probably behind
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  Speaker 1: us but but still opportunity UM in fixed income resectors
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  Speaker 1: broadly and UM in particular in credit. So, Mike, you
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  Speaker 1: talked about some performance maybe being brought forward a little
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  Speaker 1: bit here in let's talk about high yield. Is there
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  Speaker 1: any value left in high yield? It's amazing to me,
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  Speaker 1: you know, how well that market has performed, given some
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  Speaker 1: of the potential credit risks out there that are are
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  Speaker 1: quite likely, you know, even going well into Yeah, it
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  Speaker 1: is surprising. And if you just think about where we
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  Speaker 1: were uh in the depths of March and into early April,
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  Speaker 1: and you know, now high yields up over six percent
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  Speaker 1: year to date. UM. But I would say this, there's
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  Speaker 1: a lot of disparity in high yield UM. If you
• 10:54
  Speaker 1: look at you know, just even by rating category UH,
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  Speaker 1: double B high quality is doing very well, you know,
• 11:01
  Speaker 1: up nine and a half percent, triple CS uh. You know,
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  Speaker 1: just think of the lowest quality within high yield UH
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  Speaker 1: just up over a little over four percent year to date,
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  Speaker 1: and then take that even further UM by industry energy
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  Speaker 1: is negative still two percent year to date. UM. So
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  Speaker 1: there is a lot of disparity within the high yield market.
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  Speaker 1: And yes, we do still think there are opportunity. I
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  Speaker 1: think it's um. You know, again, if you go back
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  Speaker 1: to late March and early April, it was really just
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  Speaker 1: get risk in high yield. Clearly the downside had overshot
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  Speaker 1: and you just want to capitalize on that trade. I
• 11:38
  Speaker 1: think going forward you're gonna see, um, just just a
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  Speaker 1: lot more disparity or um, you know, just different markets
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  Speaker 1: out performing in different markets under performing. So I think
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  Speaker 1: it's really gonna end up being you know, you got
• 11:52
  Speaker 1: to pick the right credits, you gotta pick the right industries,
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  Speaker 1: really focus on bottom up discipline, fundamental research. Um. So.
• 12:00
  Speaker 1: I I do think that's there's opportunity there. Um. But again,
• 12:04
  Speaker 1: I don't think it's going to be as obvious, and
• 12:06
  Speaker 1: I think it's gonna take a little more work to
• 12:08
  Speaker 1: identify those trades. That said, we're not getting any new
• 12:11
  Speaker 1: stimulus that we know of. Yes, I mean maybe it
• 12:14
  Speaker 1: will happen, but we don't know how that will impact businesses.
• 12:17
  Speaker 1: Surely there's going to be another round of bankruptcy, is Mike, Um,
• 12:23
  Speaker 1: I do think. I mean, I don't think there's going
• 12:25
  Speaker 1: to be an elevated spike of bankruptcies. UM. I think
• 12:30
  Speaker 1: we know or at least have a reasonable idea of
• 12:34
  Speaker 1: which companies are on the verge of having to file UM.
• 12:38
  Speaker 1: If you look at trading levels, I think the market
• 12:40
  Speaker 1: does a pretty good job of identifying those credits, and
• 12:43
  Speaker 1: they tend to trade it very stressed or distressed prices. UM.
• 12:48
  Speaker 1: I only I think the only way that we would
• 12:50
  Speaker 1: get UM sort of a new flare up, if you will,
• 12:54
  Speaker 1: or another round of defaults or bankruptcies, is if we
• 12:58
  Speaker 1: had disappointment on the vaccine. I think between now and
• 13:02
  Speaker 1: when we expect the vaccine to make its way into
• 13:06
  Speaker 1: the broad population, let's call that maybe over the next
• 13:09
  Speaker 1: two quarters. UM. I think the market is is expecting that.
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  Speaker 1: I think the liquidity and on most of the balance
• 13:18
  Speaker 1: sheets of companies that are in the high old market
• 13:21
  Speaker 1: is sufficient to get to that point. However, again, if
• 13:24
  Speaker 1: we had disappointment and UM, you know that vaccine wasn't
• 13:29
  Speaker 1: as successful or the vaccines aren't as successful, and this
• 13:33
  Speaker 1: extends into the latter part of two thousand twenty one,
• 13:36
  Speaker 1: I do think then you know you're you're you're going
• 13:38
  Speaker 1: to see some more vulnerabilities. You're going to see some
• 13:40
  Speaker 1: of these at risk sectors and at risk companies either
• 13:45
  Speaker 1: have to get another round of secured financing, or perhaps,
• 13:49
  Speaker 1: as you alluded to, UM, have to to restructure. But
• 13:52
  Speaker 1: I don't think that's in our base case. Hey Mike,
• 13:55
  Speaker 1: what's uh, what's your thoughts on Janet Yelling as by
• 13:59
  Speaker 1: the Treasury Secretary nominee. Yeah, I think that was a
• 14:04
  Speaker 1: wise choice. UM, definitely calming to the markets. UM. You know,
• 14:10
  Speaker 1: even saw uh Larry Cudlow comment on that, and you
• 14:13
  Speaker 1: know he's one of the few from the Trump administration
• 14:16
  Speaker 1: to say anything, but clearly, I mean Janet Yell, you know,
• 14:20
  Speaker 1: sensible views on the economy as a former FED chair. Um.
• 14:24
  Speaker 1: You know, I think there's a certain level of comfort
• 14:26
  Speaker 1: in the market knowing that she understands the cohesion that's
• 14:30
  Speaker 1: necessary between between Fed and White House policy. UM. So
• 14:35
  Speaker 1: I think that was a wise choice and I think
• 14:37
  Speaker 1: definitely UM was was calming to the markets. So Michael,
• 14:44
  Speaker 1: will you be looking out now through year end? Are
• 14:46
  Speaker 1: we going to see this Santa calus while I continue? Yeah,
• 14:50
  Speaker 1: I think you know the new issue volume that m
• 14:54
  Speaker 1: in both the investment grade market and the high old market.
• 14:57
  Speaker 1: You know, those are two records. There's just an extra
• 15:00
  Speaker 1: ainary amount of new issuance UM. Now, a lot of
• 15:03
  Speaker 1: that was for refinancing, which I think is a good thing.
• 15:06
  Speaker 1: If you're a lender UM and you want to uh
• 15:09
  Speaker 1: classify new issuance into something that's either bondholder friendly or
• 15:14
  Speaker 1: bondholder not friendly, we'd obviously rather see more friendly purposes,
• 15:19
  Speaker 1: which we would call refinancing. Is definitely a friend friendly
• 15:22
  Speaker 1: use of proceeds UM. But clearly you're going to see
• 15:26
  Speaker 1: a slowdown in new issue volume over the next couple
• 15:29
  Speaker 1: of weeks. Um money continues to come into these markets,
• 15:33
  Speaker 1: both investment grade and high yield have seen uh you know,
• 15:36
  Speaker 1: an extraordinary amount of flows into both institutional as well
• 15:40
  Speaker 1: as retail funds, So, you know, good technical backdrop from
• 15:44
  Speaker 1: that perspective. More money continuing to come in, uh, you know,
• 15:48
  Speaker 1: less new issue should result in at least stable spreads
• 15:52
  Speaker 1: and stable markets. In my opinion, Hey, Mike, thanks so
• 15:55
  Speaker 1: much for joining us. We really appreciate your thoughts. Might
• 15:57
  Speaker 1: be Cannon, Deputy Chief investment officer for Western Asset Management
• 16:01
  Speaker 1: based out in Pasadena, California, really giving us their thoughts
• 16:05
  Speaker 1: on the fixed income markets. Again, new issuance all time high. Well,
• 16:11
  Speaker 1: we have seen several shots now of nurses critical care
• 16:14
  Speaker 1: and nurses getting their first adviser beyond take shots. So
• 16:18
  Speaker 1: the first vaccines are out there. Let's get straight to
• 16:22
  Speaker 1: Bob Landgrath, who is a Bloomberg healthcare reporter here for
• 16:25
  Speaker 1: us on this rollout. So deaths are approaching three hundred
• 16:29
  Speaker 1: thousand and continuing to rise. Bob, how fast can the
• 16:33
  Speaker 1: distribution network get this vaccine out to where it needs
• 16:36
  Speaker 1: to be? Oh? Yeah, no, this is going to take
• 16:39
  Speaker 1: a while. This is a long slow process. And you
• 16:41
  Speaker 1: mentioned the gas approaching three hundred thousand. Unfortunately, those deaths
• 16:45
  Speaker 1: are going to continue to increase because many of them
• 16:47
  Speaker 1: are essentially you know, they're based on people who have
• 16:49
  Speaker 1: already been infected weeks ago. So the numbers want to
• 16:52
  Speaker 1: continue to to go to to go up, to go
• 16:56
  Speaker 1: up in the terms of the guests for a few
• 16:58
  Speaker 1: weeks because the number of vaccines that are available, you know,
• 17:02
  Speaker 1: that's just not going to make you a big impact
• 17:04
  Speaker 1: on death for a while to come. But it's very
• 17:05
  Speaker 1: important to get this rollout going absolutely, and the people
• 17:09
  Speaker 1: that are being vaccinated now are you know, healthcare workers
• 17:15
  Speaker 1: and then the nursing home residents as small fraction of
• 17:17
  Speaker 1: the population those are kind of the priority people that
• 17:21
  Speaker 1: haven't decided that will get it first, because you know,
• 17:23
  Speaker 1: they're on the front lines. And in terms of the
• 17:25
  Speaker 1: healthcare workers, and then the nursing home residents obviously have
• 17:28
  Speaker 1: some of the highest death rates and account for a
• 17:31
  Speaker 1: large percentage of the death toll in the United States.
• 17:34
  Speaker 1: So right now there's in this initial way there's only
• 17:36
  Speaker 1: two point nine million doses available, so that's a very
• 17:39
  Speaker 1: small faction of even healthcare workers uh and uh uh
• 17:44
  Speaker 1: nursing home residents, and and then the next week there's
• 17:46
  Speaker 1: only more. In the week after that's gonna be more,
• 17:48
  Speaker 1: and hopefully by the end of this week will get
• 17:50
  Speaker 1: the moderna vaccine as well, not you approximately double the
• 17:53
  Speaker 1: number of doses you know, available per week. Uh, So
• 17:57
  Speaker 1: you know, it is starting to roll out. As people
• 17:59
  Speaker 1: have said, this is kind of the who we hope
• 18:01
  Speaker 1: this is the beginning of the end, but still only
• 18:02
  Speaker 1: the beginning, and it's going to take a while, and
• 18:04
  Speaker 1: that's very important. People still should take precautions until we
• 18:08
  Speaker 1: get to this difficult period right now and much larger
• 18:10
  Speaker 1: percentage of population is able to be vaccinated. Dr Faucci
• 18:15
  Speaker 1: just now on MSNBC says Americans with no underlying conditions
• 18:19
  Speaker 1: should get the vaccines at the end of March or
• 18:21
  Speaker 1: the beginning of April can according to Dr Fauci, just
• 18:25
  Speaker 1: now an MSNBC. UM, So interesting, Bob, what do we
• 18:30
  Speaker 1: know about the MODERNA drug again? It we It looks
• 18:33
  Speaker 1: like they're going to be just a week behind Fiser.
• 18:35
  Speaker 1: Get the approval Thursday, I guess, and then maybe start
• 18:39
  Speaker 1: rolling it out over the weekend like we just saw
• 18:40
  Speaker 1: with Fiser. Is there any reason to believe that Moddarian
• 18:43
  Speaker 1: will run into any roadbox. No, there are actually no
• 18:48
  Speaker 1: reason to believe I'm the Durnal run into any load box.
• 18:50
  Speaker 1: It's actually a very similar vaccine to the Fiser vaccine
• 18:53
  Speaker 1: that they're both based on this messenger RNA technology. It's
• 18:57
  Speaker 1: a new technology. It turns out to work be working
• 18:59
  Speaker 1: very well against the coronavirus U. Both of these vaccines
• 19:02
  Speaker 1: about efficacy rate, uh, and so this is very similar.
• 19:07
  Speaker 1: So you know, unless there's some surprises, Yeah, this should
• 19:09
  Speaker 1: should roll out around, start rolling out around and say Friday,
• 19:12
  Speaker 1: unless there's some showstopp or surprise. We don't don't know
• 19:15
  Speaker 1: about that. That's that's the very good news. You know
• 19:18
  Speaker 1: that the bad news is that both of these because
• 19:19
  Speaker 1: they're a new technology, isn't the manufacturing experience, and they
• 19:23
  Speaker 1: have to make this enormous quantities and these factories are
• 19:27
  Speaker 1: still current just gearing up now and that's why you're
• 19:29
  Speaker 1: at first for the first few months, there's definitely, you know,
• 19:32
  Speaker 1: going to be a shortage of vaccine to go around.
• 19:34
  Speaker 1: Can you give us some idea of the supply chain
• 19:37
  Speaker 1: and how it works and how you know a vaccine
• 19:39
  Speaker 1: gets from a factory to a hospital. Yeah, there are
• 19:44
  Speaker 1: several steps involved, and there's distribution hubs and UH. I
• 19:48
  Speaker 1: know that UPS and set X are involved and helping
• 19:51
  Speaker 1: ship uh the the Friser vaccine UH to to the
• 19:56
  Speaker 1: right places where it's needed. Uh. It's a very complicated
• 19:59
  Speaker 1: supply chain. Those governments monitoring it very closely. Once it
• 20:02
  Speaker 1: gets into individual states and locations, then it's more the
• 20:06
  Speaker 1: responsibility of the local states and hospital change to distribute
• 20:10
  Speaker 1: it once they get their allocations. But the U. S.
• 20:12
  Speaker 1: Government is kind of setting the allocations for the individual
• 20:15
  Speaker 1: states and territories and that's kind of the first step.
• 20:18
  Speaker 1: And then and then the manufacturing that's complicated as well.
• 20:21
  Speaker 1: Because these are injections. There's a manufacturing of the raw ingredients,
• 20:24
  Speaker 1: the m or and A itself at one factory, but
• 20:26
  Speaker 1: then there's a separate factory that does you know, puts
• 20:29
  Speaker 1: it into vials and insures it as sterile. So there's
• 20:31
  Speaker 1: several steps there as well. So it's all kind of
• 20:32
  Speaker 1: a very complicated system, made more complicated by the fact that,
• 20:37
  Speaker 1: as everyone's probably heard by now, Fighter's vaccine, these extreme
• 20:40
  Speaker 1: cold storage requirements, uh. And that means either extra ultracold freezers,
• 20:46
  Speaker 1: special ultracote fezers, or special dry ice containers that fisers
• 20:49
  Speaker 1: developed for places that don't have those freezers. Hey Bob,
• 20:53
  Speaker 1: how do we or how does the how is it
• 20:55
  Speaker 1: determined how much each state will receive? As it simply
• 20:59
  Speaker 1: pop elation is an infection rates the we Is there
• 21:02
  Speaker 1: a formula? Yeah? I believe that the government, I'm not
• 21:06
  Speaker 1: totally sure sure the government's kind of U S government
• 21:08
  Speaker 1: has set that that those figures, and I believe it's
• 21:11
  Speaker 1: you know, due to you know, it's more in the
• 21:13
  Speaker 1: total population in the group's uh, in the groups at
• 21:18
  Speaker 1: risk for the vaccident, But I don't know the fine
• 21:20
  Speaker 1: details of that. Where are we looking at more? Lockdown's
• 21:24
  Speaker 1: build a Blasio here? In New York, the mayor of
• 21:26
  Speaker 1: the city talking about the potential for New York City
• 21:29
  Speaker 1: to go into lockdown. Is that happening around the country still? Yeah, so, uh,
• 21:34
  Speaker 1: I mean, I think what people need to think about
• 21:36
  Speaker 1: is uh that, yes, these vaccines are starting to law,
• 21:40
  Speaker 1: and that's very very good news, you know. But the
• 21:42
  Speaker 1: fact is we're still you know, in the thick of
• 21:45
  Speaker 1: like the worst ways of the pandemic, and these vaccines
• 21:48
  Speaker 1: are not gonna impact what's happening right now in terms
• 21:51
  Speaker 1: of infections and deaths. You know, they're not kind of
• 21:53
  Speaker 1: significant impact on that, you know, on a kind of
• 21:56
  Speaker 1: broad basis, uh, for for quite you know, quite a while.
• 22:00
  Speaker 1: Quite a number of people you know are vaccinated. Obviously
• 22:03
  Speaker 1: they'll help the people who get the vaccines. That's just
• 22:05
  Speaker 1: a very small percentage right now. So in terms of
• 22:07
  Speaker 1: the big picture, you know, what we need to do
• 22:10
  Speaker 1: to to to control this right now, it's the same
• 22:13
  Speaker 1: things that we need to be doing more of. It's
• 22:16
  Speaker 1: you know, avoiding credit places, wearing masks and all those things,
• 22:19
  Speaker 1: and those are gonna need to replace day in place
• 22:21
  Speaker 1: or quite some time. Hey, Bob, thanks so much for
• 22:24
  Speaker 1: joining us. As always, you always appreciate your reporting about
• 22:26
  Speaker 1: Langreth Bloomberg Healthcare reporter giving us the latest on the
• 22:30
  Speaker 1: vaccine rollout. Again, we've all probably seen images from this
• 22:33
  Speaker 1: morning vaccines being given around the country, Day one of
• 22:38
  Speaker 1: vaccines and what is sure to be a long process.
• 22:42
  Speaker 1: Did it's time now to take a look at the
• 22:44
  Speaker 1: credit markets and then maybe the markets more broadly, let's
• 22:47
  Speaker 1: bring in Mike Puccount and Deputy Chef Investment Officer of
• 22:50
  Speaker 1: Western Asset Management. I say the credit markets because they're
• 22:52
  Speaker 1: top of mind today, Mike, what with a MC being
• 22:55
  Speaker 1: in a little bit of trouble. We know that the
• 22:57
  Speaker 1: movie theaters have already topped all the credit the possibly
• 23:01
  Speaker 1: is available as them except for private individuals that are
• 23:04
  Speaker 1: looking to do that. And just curious as to where
• 23:07
  Speaker 1: you see the credit markets right now. Well, there's no
• 23:11
  Speaker 1: question and by the way, Vanni and Paul, thank you
• 23:14
  Speaker 1: for having me on UM. There's no no question that, Um,
• 23:18
  Speaker 1: there is still stress in the credit markets. You mentioned
• 23:21
  Speaker 1: amc Um. There's a lot of companies, there's a lot
• 23:25
  Speaker 1: of industries that have done pretty much everything they possibly
• 23:30
  Speaker 1: could to survive to this point. Um, some aren't going
• 23:34
  Speaker 1: to make it. And you actually see that in the
• 23:35
  Speaker 1: default numbers. UM I think many because the capital markets
• 23:40
  Speaker 1: up so quickly back in late March and early April UH,
• 23:44
  Speaker 1: some were able to access that rescue financing and even
• 23:48
  Speaker 1: though they paid dearly for doing that. UM I think
• 23:50
  Speaker 1: it's going to be a wise move on their part,
• 23:53
  Speaker 1: and UM will at least minimize how many of these
• 23:58
  Speaker 1: companies actually had to ultimately restructure or or file. So
• 24:05
  Speaker 1: UM I think the credit markets right now, there's no
• 24:07
  Speaker 1: question that some of the rally that we were expecting
• 24:11
  Speaker 1: to occur in two thousand one, some of that has
• 24:14
  Speaker 1: been pulled forward into two thousand twenty, just with clarity
• 24:19
  Speaker 1: on the vaccine. UM I think everyone's expecting as we
• 24:22
  Speaker 1: are bouncing growth a bouncing and earnings UM. But that
• 24:26
  Speaker 1: being said, I still think the credit markets have room
• 24:30
  Speaker 1: for performance as we move forward over the next few quarters,
• 24:33
  Speaker 1: probably going to be more of a focus on income,
• 24:36
  Speaker 1: focus on carry trade versus what we've seen over the
• 24:40
  Speaker 1: last two or three quarters, which has really been you
• 24:42
  Speaker 1: know about capital appreciation and spread tightening. I think the
• 24:46
  Speaker 1: magnitude of that spread tightening is probably behind us, but
• 24:50
  Speaker 1: but still opportunity UM in fixed income resectors broadly and
• 24:55
  Speaker 1: UM in particular in credit. So, Mike, you talked about
• 24:59
  Speaker 1: some performance maybe being brought forward a little bit here
• 25:03
  Speaker 1: in let's talk about high yield. Is there any value
• 25:06
  Speaker 1: left in high yield? It's amazing to me, you know,
• 25:09
  Speaker 1: how well that market has performed, given some of the
• 25:12
  Speaker 1: potential credit risks out there that are are quite likely,
• 25:15
  Speaker 1: you know, even going well into Yeah, it is surprising.
• 25:19
  Speaker 1: And if you just think about where we were, uh
• 25:22
  Speaker 1: in the depths of March and into early April, and
• 25:25
  Speaker 1: you know, now high yields up over six percent year
• 25:28
  Speaker 1: to date. UM. But I would say this, there's a
• 25:31
  Speaker 1: lot of disparity in high yield UM. If you look
• 25:34
  Speaker 1: at you know, just even by rating category UH, double
• 25:38
  Speaker 1: B high quality is doing very well, you know, up
• 25:41
  Speaker 1: nine and a half percent, triple CS UH. You know,
• 25:44
  Speaker 1: just think of the lowest quality within high yield UH
• 25:48
  Speaker 1: just up over a little over four percent year to date,
• 25:51
  Speaker 1: and then take that even further UM by industry energy
• 25:55
  Speaker 1: is negative still two percent year to date. UM. So
• 25:59
  Speaker 1: there is a lot of disparity within the high yield market.
• 26:02
  Speaker 1: And yes, we do still think there are opportunity. I
• 26:05
  Speaker 1: think it's um you know again, if you go back
• 26:07
  Speaker 1: to late March and early April, it was really just
• 26:11
  Speaker 1: get risk in high yield. Clearly the downside had overshot
• 26:16
  Speaker 1: and you just want to capitalize on that trade. I
• 26:18
  Speaker 1: think going forward you're going to see, um, just just
• 26:22
  Speaker 1: a lot more disparity or um, you know, just different
• 26:25
  Speaker 1: markets out performing in different markets underperforming. So I think
• 26:29
  Speaker 1: it's really gonna end up being you know, you got
• 26:32
  Speaker 1: to pick the right credits, you gotta pick the right
• 26:33
  Speaker 1: industry is really focus on bottom up discipline, fundamental research um.
• 26:39
  Speaker 1: So I do think that's there's opportunity there um. But again,
• 26:44
  Speaker 1: I don't think it's going to be as obvious, and
• 26:46
  Speaker 1: I think it's gonna take a little more work to
• 26:48
  Speaker 1: identify those trades. That said, we're not getting any new
• 26:51
  Speaker 1: stimulus that we know of. Yes, I mean maybe it
• 26:53
  Speaker 1: will happen, but we don't know how that will impact businesses.
• 26:57
  Speaker 1: Surely there's going to be another rout of bankruptcies, Mike, Um,
• 27:02
  Speaker 1: I do think. I mean, I don't think there's going
• 27:05
  Speaker 1: to be an elevated spike of bankruptcyes. Um. I think
• 27:10
  Speaker 1: we know, or at least have a reasonable idea of
• 27:14
  Speaker 1: which companies are on the verge of having to file UM.
• 27:17
  Speaker 1: If you look at trading levels, I think the market
• 27:20
  Speaker 1: does a pretty good job of identifying those credits and
• 27:23
  Speaker 1: they tend to trade it very stressed or distressed prices.
• 27:27
  Speaker 1: Um all. I think the only way that we would
• 27:30
  Speaker 1: get UM sort of a new flare up, if you will,
• 27:33
  Speaker 1: or another round of defaults or bankruptcies, is if we
• 27:38
  Speaker 1: had disappointment on the vaccine. I think between now and
• 27:42
  Speaker 1: when we expect the vaccine to make its way into
• 27:46
  Speaker 1: the broad population, let's call that maybe over the next
• 27:49
  Speaker 1: two quarters. UM. I think the market is is expecting that.
• 27:54
  Speaker 1: I think the liquidity and on most of the balance
• 27:58
  Speaker 1: sheets of companies that are in the high you old
• 28:00
  Speaker 1: market is sufficient to get to that point. However, again,
• 28:04
  Speaker 1: if we had disappointment and UM, you know that vaccine
• 28:08
  Speaker 1: wasn't as successful or the vaccines aren't as successful, and
• 28:13
  Speaker 1: this extends into the latter part of two thousand twenty one,
• 28:16
  Speaker 1: I do think then you know you're you're you're going
• 28:18
  Speaker 1: to see some more vulnerabilities. You're going to see some
• 28:20
  Speaker 1: of these at risk sectors and at risk companies either
• 28:25
  Speaker 1: have to get another round of secured financing or perhaps
• 28:29
  Speaker 1: as you alluded to, UM have to to restructure, but
• 28:32
  Speaker 1: I don't think that's in our base case. Hey Mike,
• 28:35
  Speaker 1: what's uh, what's your thoughts on Janet Yelling as Biden's
• 28:40
  Speaker 1: Treasury Secretary nominee. Yeah, I think that was a wise choice. UM.
• 28:46
  Speaker 1: Definitely calming to the markets. UM. You know even saw
• 28:50
  Speaker 1: uh Larry Cudlow comment on that, and you know he's
• 28:53
  Speaker 1: one of the few from the Trump administration to say anything,
• 28:57
  Speaker 1: but clearly I mean Janet Yelling, you know, sensible views
• 29:01
  Speaker 1: on the economy as a former FED share UM. You know,
• 29:04
  Speaker 1: I think there's a certain level of comfort in the
• 29:06
  Speaker 1: market knowing that she understands the cohesion that's necessary between
• 29:12
  Speaker 1: between Fed and White House policy. UM. So I think
• 29:15
  Speaker 1: that was a wise choice and I think definitely UM
• 29:19
  Speaker 1: was was calming to the markets. So Michael, will you
• 29:24
  Speaker 1: be looking out now through year end? Are we going
• 29:26
  Speaker 1: to see this Santa calls while I continue? Yeah? I
• 29:31
  Speaker 1: think you know the new issue volume that UM in
• 29:34
  Speaker 1: both the investment grade market and the high old market.
• 29:37
  Speaker 1: You know, those are two records. There's just an extraordinary
• 29:40
  Speaker 1: amount of new issuance. UM. Now, a lot of that
• 29:43
  Speaker 1: was for REEF financing, which I think is is a
• 29:45
  Speaker 1: good thing. If you're a lender UM and you want
• 29:48
  Speaker 1: to classify new issuance into something that's either bondholder friendly
• 29:54
  Speaker 1: or bondholder not friendly, we'd obviously rather see more friendly purposes,
• 29:58
  Speaker 1: which we would call reefing dancing is definitely a friendly
• 30:02
  Speaker 1: use of proceeds UM. But clearly you're going to see
• 30:06
  Speaker 1: a slowdown in new issue volume over the next couple
• 30:08
  Speaker 1: of weeks. Um money continues to come into these markets,
• 30:13
  Speaker 1: both investment grade and high yield have seen, uh, you know,
• 30:16
  Speaker 1: an extraordinary amount of flows into both institutional as well
• 30:20
  Speaker 1: as retail funds, so you know, good technical backdrop from
• 30:24
  Speaker 1: that perspective. More money continuing to come in, uh, you know,
• 30:28
  Speaker 1: less new issue should result in at least stable spreads
• 30:32
  Speaker 1: and stable markets in my opinion, Hey Mike, thanks so
• 30:34
  Speaker 1: much for joining us. We really appreciate your thoughts. Mike P. Canon,
• 30:37
  Speaker 1: Deputy Chief Investment Officer for Western Asset Management based out
• 30:41
  Speaker 1: in Pasadena, California, really giving us up their thoughts on
• 30:45
  Speaker 1: the fixed income markets again, new issuance all time high.
• 30:50
  Speaker 1: Thanks for listening to Boomberg Markets podcast. You can subscribe
• 30:54
  Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
• 30:57
  Speaker 1: platform you prefer. I'm Monnie Quinn. I'm on Twitter at
• 31:01
  Speaker 1: on e Quinn. And I'm Paul Sweeney. I'm on Twitter
• 31:03
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• 31:06
  Speaker 1: us worldwide at Bloomberg Radio