1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:35,239 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. This 7 00:00:35,400 --> 00:00:39,600 Speaker 1: year has been one of relative pain for the retail industry, 8 00:00:39,640 --> 00:00:42,680 Speaker 1: at least outside of Walmart and Amazon, with a lot 9 00:00:42,680 --> 00:00:47,920 Speaker 1: of brick and mortar stores closing, companies reconsidering their balance sheets. 10 00:00:48,040 --> 00:00:51,360 Speaker 1: What will next year bring with us to discuss his 11 00:00:51,520 --> 00:00:54,720 Speaker 1: Eddi Ruma. He's an equity research analyst covering retail in 12 00:00:54,760 --> 00:00:58,360 Speaker 1: e commerce for key Bank Capital Markets in New York 13 00:00:58,400 --> 00:01:00,600 Speaker 1: and just comes from the Key Bank but the Market's 14 00:01:00,600 --> 00:01:04,760 Speaker 1: Consumer conference which went from through today and ed, we're 15 00:01:04,760 --> 00:01:06,800 Speaker 1: so happy to have you and what are you looking 16 00:01:06,840 --> 00:01:09,480 Speaker 1: for for next year? Glad to be here. Look, I 17 00:01:09,520 --> 00:01:11,520 Speaker 1: think one of the things that's been an interesting takeaway 18 00:01:11,520 --> 00:01:14,280 Speaker 1: from the conferences that results seem to have gotten a 19 00:01:14,280 --> 00:01:16,240 Speaker 1: little bit better towards the end of this year, and 20 00:01:16,319 --> 00:01:19,400 Speaker 1: so we think that you know better demand plus hopefully 21 00:01:19,440 --> 00:01:23,920 Speaker 1: inventory levels that are aligned should drive a much better alright, 22 00:01:23,920 --> 00:01:27,440 Speaker 1: a much better that's a very general statement. What are 23 00:01:27,480 --> 00:01:31,720 Speaker 1: the pressures that you see afflicting the retailers on a 24 00:01:31,880 --> 00:01:34,360 Speaker 1: day when we find out that Walmart is even taking 25 00:01:34,440 --> 00:01:37,560 Speaker 1: the words stores out of their name. It is an 26 00:01:37,560 --> 00:01:41,000 Speaker 1: interesting move by Walmart. I mean certainly, Um, you know, 27 00:01:41,120 --> 00:01:44,040 Speaker 1: Amazon is the innovator in retail today and we've seen, 28 00:01:44,080 --> 00:01:46,600 Speaker 1: as you pointed out, a Walmart that has been incredibly 29 00:01:46,640 --> 00:01:49,760 Speaker 1: innovative as well, and you know is racing to catch up. 30 00:01:50,040 --> 00:01:51,960 Speaker 1: And I think what we've been hearing from retailers here 31 00:01:51,960 --> 00:01:54,320 Speaker 1: at the conference and even prior to the conferences that 32 00:01:54,480 --> 00:01:57,000 Speaker 1: continued focus on e commerce, right, this is a business 33 00:01:57,000 --> 00:02:00,280 Speaker 1: that requires a constant investment the consumers. No of what 34 00:02:00,360 --> 00:02:03,360 Speaker 1: e commerce is or should be is changing. Uh. And 35 00:02:03,440 --> 00:02:06,200 Speaker 1: certainly those best in class competitors like an Amazon or 36 00:02:06,240 --> 00:02:08,680 Speaker 1: Walmart continue to get better. Okay, But did you say, 37 00:02:08,720 --> 00:02:12,560 Speaker 1: did you hear anything at your conference that made you think, gee, 38 00:02:12,600 --> 00:02:15,480 Speaker 1: this is something I hadn't thought of before, or these 39 00:02:15,480 --> 00:02:17,799 Speaker 1: guys have really figured out a way to do something 40 00:02:17,840 --> 00:02:19,600 Speaker 1: that no one else has. What have you learned from 41 00:02:19,600 --> 00:02:22,079 Speaker 1: the conference? You know, one thing that we've heard that's 42 00:02:22,080 --> 00:02:24,400 Speaker 1: pretty interesting is there's been this rush of companies to 43 00:02:24,440 --> 00:02:26,760 Speaker 1: sell on Amazon, and I think there's a lot of 44 00:02:26,760 --> 00:02:29,359 Speaker 1: discussions today on is that actually the right decision for 45 00:02:29,440 --> 00:02:32,280 Speaker 1: my business? And what I mean by that specifically is 46 00:02:32,919 --> 00:02:35,959 Speaker 1: Amazon is a great place if you're not seeing promotions 47 00:02:36,000 --> 00:02:38,720 Speaker 1: other places in the market, but if one competitor promotes, 48 00:02:38,880 --> 00:02:41,760 Speaker 1: Amazon matches it and that drives down price. So we're 49 00:02:41,800 --> 00:02:45,480 Speaker 1: now hearing retailers and apparelmenters rethink whether having their product 50 00:02:45,520 --> 00:02:48,799 Speaker 1: in having that on the Amazon platform is the way 51 00:02:48,840 --> 00:02:51,520 Speaker 1: to go. Well. Having said that, though, I was reading 52 00:02:51,520 --> 00:02:55,040 Speaker 1: a story today that Publicist, w PP and Omnicom, these 53 00:02:55,040 --> 00:02:57,840 Speaker 1: are the big ad firms. They plan to boost ADS 54 00:02:57,880 --> 00:03:04,200 Speaker 1: spending with Amazon between forty and one hundred percent next year. 55 00:03:04,600 --> 00:03:08,519 Speaker 1: WPP says that it's currently spending around two hundred million 56 00:03:08,880 --> 00:03:13,119 Speaker 1: that could increase about fifty Publicists spends anywhere from two 57 00:03:13,120 --> 00:03:17,080 Speaker 1: to three hundred million on Amazon, and on the COMES 58 00:03:17,120 --> 00:03:19,560 Speaker 1: spends about a hundred million dollars a year. They say 59 00:03:19,560 --> 00:03:22,880 Speaker 1: they could double that amount next year. So I mean, 60 00:03:23,080 --> 00:03:26,120 Speaker 1: is that something that the companies at your conference didn't 61 00:03:26,520 --> 00:03:30,160 Speaker 1: recognize or are they going in another direction? I think 62 00:03:30,200 --> 00:03:33,680 Speaker 1: it's certainly recognized that Amazon is the dominant force in retail. 63 00:03:33,960 --> 00:03:36,240 Speaker 1: The question is is it best to have your products 64 00:03:36,240 --> 00:03:37,840 Speaker 1: on Amazon or is it best to try to have 65 00:03:37,920 --> 00:03:41,280 Speaker 1: them be sold directly on your website. I'd also had 66 00:03:41,360 --> 00:03:44,240 Speaker 1: We've heard a lot of conversation here about Walmart and 67 00:03:44,280 --> 00:03:46,240 Speaker 1: what they're doing with Lord and Taylor and whether it 68 00:03:46,280 --> 00:03:49,240 Speaker 1: makes sense for more partners to uh be on that 69 00:03:49,320 --> 00:03:52,400 Speaker 1: Walmart platform that quite frankly is in a much earlier 70 00:03:52,400 --> 00:03:56,320 Speaker 1: stage of development. What they say, I think they're very 71 00:03:56,320 --> 00:03:58,840 Speaker 1: open to it, you know, I think they clearly like 72 00:03:58,960 --> 00:04:02,360 Speaker 1: Lord and Taylor, Lord tailors, lots of existing relationships, and 73 00:04:02,440 --> 00:04:05,680 Speaker 1: to be on that Walmart platform, which traffic could be 74 00:04:05,760 --> 00:04:09,040 Speaker 1: very exciting. So I heard from numerous companies here that 75 00:04:09,080 --> 00:04:11,680 Speaker 1: this is something that they were actively involved in discussions around. 76 00:04:12,080 --> 00:04:15,520 Speaker 1: So you hear constantly what's your Amazon strategy? We think 77 00:04:15,560 --> 00:04:17,240 Speaker 1: next year you're going to hear more of this, what's 78 00:04:17,240 --> 00:04:20,960 Speaker 1: your Walmart strategy? So just shifting gears a little bit, 79 00:04:21,000 --> 00:04:22,919 Speaker 1: are more people going to be wearing yoga pants to 80 00:04:22,960 --> 00:04:26,640 Speaker 1: work next year? Certainly, comfort is a big theme that 81 00:04:26,680 --> 00:04:29,839 Speaker 1: we're continue to hear. What's interesting is that that comfort 82 00:04:29,839 --> 00:04:31,800 Speaker 1: that used to only get in the yoga pant is 83 00:04:31,839 --> 00:04:34,440 Speaker 1: now you're able to get that in denim that stretches, 84 00:04:34,480 --> 00:04:37,160 Speaker 1: You're able to get that in other types of apparel, 85 00:04:37,200 --> 00:04:39,919 Speaker 1: and so a certainly comfort is going to continue to 86 00:04:39,920 --> 00:04:42,920 Speaker 1: be big. Is that specifically yoga pants? Time will tell, Well, 87 00:04:42,920 --> 00:04:45,720 Speaker 1: I'm talking specifically at leisure because I know there were 88 00:04:45,760 --> 00:04:48,840 Speaker 1: some pretty disappointing earnings this year from the likes of 89 00:04:48,960 --> 00:04:51,880 Speaker 1: Nike and under Armor. And you're gonna get Lulu Lemon 90 00:04:51,960 --> 00:04:55,520 Speaker 1: results after the market closes today, So we'll be watching 91 00:04:55,560 --> 00:04:58,159 Speaker 1: for that some of those transparent yoga pants. But what's 92 00:04:58,200 --> 00:05:00,719 Speaker 1: your what's your sense for at leisure? But there's certainly 93 00:05:00,720 --> 00:05:02,280 Speaker 1: a little bit of pressure, you know. I think this 94 00:05:02,360 --> 00:05:05,360 Speaker 1: has been a great growth market for almost ten years now, 95 00:05:05,400 --> 00:05:08,640 Speaker 1: and certainly as the market's load, we've we've seen a 96 00:05:08,680 --> 00:05:11,559 Speaker 1: little bit of change and performance. Um. We had Kevin 97 00:05:11,600 --> 00:05:14,880 Speaker 1: Plank doing a talk yesterday and I think he was 98 00:05:14,880 --> 00:05:17,520 Speaker 1: pretty forthrighting the challenges that his businesses faced both in 99 00:05:17,600 --> 00:05:20,560 Speaker 1: seventeen uh and as his market continuous see that level 100 00:05:20,560 --> 00:05:24,120 Speaker 1: of disruption. So uh, no all clear yet in in 101 00:05:24,200 --> 00:05:27,279 Speaker 1: sports and and and athletic um, but you know, we 102 00:05:27,320 --> 00:05:30,480 Speaker 1: are hopeful that at least this very very well. Seventeen 103 00:05:31,040 --> 00:05:33,520 Speaker 1: uh ends up being leading a path to hopefully I'm 104 00:05:33,520 --> 00:05:36,479 Speaker 1: more calm eighteen ed. Where are we with respect to 105 00:05:36,640 --> 00:05:39,919 Speaker 1: brick and mortar store closures? How many are you expecting? 106 00:05:39,920 --> 00:05:43,680 Speaker 1: Are people in the industry expecting next year? Uh? This 107 00:05:43,720 --> 00:05:46,279 Speaker 1: is one area where the train is likely not to change. 108 00:05:46,400 --> 00:05:50,680 Speaker 1: We continue to hear retailers talking about store closures, examining, 109 00:05:50,880 --> 00:05:53,680 Speaker 1: you know, kind of what's the optimal store footprint? UM 110 00:05:53,839 --> 00:05:56,520 Speaker 1: and so I think eighteen will be a repeat of seventeen. 111 00:05:56,560 --> 00:05:59,120 Speaker 1: I I continue to think that we're going to see 112 00:05:59,160 --> 00:06:01,799 Speaker 1: focus shift to eat com I think though the offset, 113 00:06:01,920 --> 00:06:04,479 Speaker 1: and this we did hear quite frequently, it's that the 114 00:06:04,520 --> 00:06:07,520 Speaker 1: store fleet that you do have should be compelling, it 115 00:06:07,560 --> 00:06:10,560 Speaker 1: should be engaging, it should bring a sense of community. 116 00:06:10,640 --> 00:06:14,200 Speaker 1: So we had companies like Shinola, which is um largely 117 00:06:14,240 --> 00:06:16,960 Speaker 1: direct brand, talking about the strength of having a store fleet. 118 00:06:17,040 --> 00:06:19,800 Speaker 1: So clearly the number of stores are coming down, but 119 00:06:19,839 --> 00:06:22,680 Speaker 1: hopefully the stores that remain in existence are more interesting. 120 00:06:23,279 --> 00:06:26,560 Speaker 1: Just quickly, Harmon International, which is owned by Samsung, they 121 00:06:26,600 --> 00:06:29,960 Speaker 1: announced that they've got a combination with under Armor for 122 00:06:30,040 --> 00:06:34,680 Speaker 1: what's called the U A sport wireless flex headphones. Is 123 00:06:34,720 --> 00:06:37,479 Speaker 1: that the kind of thing that under Armour and companies 124 00:06:37,520 --> 00:06:40,719 Speaker 1: like that apparel makers should be focused on. Obviously, the 125 00:06:40,839 --> 00:06:45,000 Speaker 1: convergence of technology is impacting all industries, but certainly in 126 00:06:45,040 --> 00:06:48,360 Speaker 1: apparel um under Armor understands, you know. They they've got 127 00:06:48,360 --> 00:06:51,800 Speaker 1: a great data platform, so they know how long your 128 00:06:51,839 --> 00:06:54,240 Speaker 1: run is, they know what you've been eating, and sort 129 00:06:54,240 --> 00:06:57,599 Speaker 1: of capitalize on that by giving other tech products around 130 00:06:57,600 --> 00:07:00,040 Speaker 1: that I think are really important. But ultimately, what's to 131 00:07:00,160 --> 00:07:02,679 Speaker 1: drive the success of underarmers selling more shirts and shoes 132 00:07:03,839 --> 00:07:06,360 Speaker 1: and that that's been a that's been a challenge for them. 133 00:07:06,360 --> 00:07:10,000 Speaker 1: The shares of under Armore down more than fifty so 134 00:07:10,080 --> 00:07:13,280 Speaker 1: far this year, Thanks very much. Eduma. He is equity 135 00:07:13,280 --> 00:07:16,120 Speaker 1: research channelists covering retail and e commerce for a key 136 00:07:16,160 --> 00:07:37,120 Speaker 1: bank Capital Markets. President Donald Trump is set to make 137 00:07:37,160 --> 00:07:40,880 Speaker 1: a statement on Jerusalem from the Diplomatic Reception Room in 138 00:07:40,880 --> 00:07:44,240 Speaker 1: the White House that will take place at one pm 139 00:07:44,400 --> 00:07:46,720 Speaker 1: Eastern time. Will of course bring that to you live 140 00:07:47,240 --> 00:07:51,320 Speaker 1: and to speak more about the topic of foreign relations, 141 00:07:51,360 --> 00:07:54,360 Speaker 1: we have with US Caitlin Weber or Bloomberg News, government 142 00:07:54,360 --> 00:07:59,560 Speaker 1: analyst for Bloomberg Intelligence, and Nick Wadhams are foreign policy reporter. Nick. 143 00:07:59,680 --> 00:08:02,400 Speaker 1: Let's be again with you, what do we expect the 144 00:08:02,440 --> 00:08:06,720 Speaker 1: president to say in any detail about Jerusalem as the 145 00:08:06,800 --> 00:08:11,640 Speaker 1: capital of Israel. Well, he will say that the US 146 00:08:11,720 --> 00:08:16,720 Speaker 1: recognizes Jerusalem as Israel's capital, and he will also direct 147 00:08:16,840 --> 00:08:20,080 Speaker 1: the State Department to begin the process which is expected 148 00:08:20,120 --> 00:08:22,680 Speaker 1: to take many years, you know, at least four or 149 00:08:22,680 --> 00:08:28,800 Speaker 1: five years of the process of building an embassy there. Um, 150 00:08:28,880 --> 00:08:32,440 Speaker 1: he will continue to sign a waiver as required under 151 00:08:32,520 --> 00:08:36,760 Speaker 1: US law, Um that he'll keep the embassy for now 152 00:08:36,800 --> 00:08:40,559 Speaker 1: in Tel Aviv. But really this is a symbolic move 153 00:08:40,600 --> 00:08:44,880 Speaker 1: where he will declare that the US recognizes that Jerusalem 154 00:08:44,920 --> 00:08:47,760 Speaker 1: is the capital of Israel. Nick and Caitlin, I'm going 155 00:08:47,840 --> 00:08:50,040 Speaker 1: to get you at one in one second. But Nick, 156 00:08:50,080 --> 00:08:52,000 Speaker 1: you say it's a symbolic move, but it's one that's 157 00:08:52,000 --> 00:08:55,200 Speaker 1: gotten a lot of attention worldwide. Of course, the Middle 158 00:08:55,200 --> 00:08:57,880 Speaker 1: East has been a spot of incredible tensions, and the 159 00:08:57,960 --> 00:09:01,720 Speaker 1: U s allies are coming out sharply critical of this move, 160 00:09:01,760 --> 00:09:04,360 Speaker 1: saying that it will hinder any attempts to broker a 161 00:09:04,400 --> 00:09:07,600 Speaker 1: peace agreement just quickly. Uh, do you think that this 162 00:09:07,640 --> 00:09:10,079 Speaker 1: could have a much bigger consequence that it might seem 163 00:09:10,160 --> 00:09:13,920 Speaker 1: just based on its sort of symbolic nature. Yeah, I mean, 164 00:09:13,960 --> 00:09:18,440 Speaker 1: the concern about from allies UM about this move is 165 00:09:18,480 --> 00:09:22,640 Speaker 1: that it will basically pre judge negotiations over the status 166 00:09:22,679 --> 00:09:26,480 Speaker 1: of of Jerusalem has worked out in any negotiation. And 167 00:09:26,520 --> 00:09:29,680 Speaker 1: then also it would UH sort of cast doubt on 168 00:09:29,720 --> 00:09:32,439 Speaker 1: the idea that the US is a neutral uh and 169 00:09:32,679 --> 00:09:36,439 Speaker 1: unbiased arbiter in these negotiations, that the US is willing 170 00:09:36,480 --> 00:09:41,400 Speaker 1: to recognize Jerusalem is the capital as Israel's capital, than uh, 171 00:09:41,480 --> 00:09:45,320 Speaker 1: it is biased towards Israel and against the Palestinians in 172 00:09:45,400 --> 00:09:47,760 Speaker 1: these negotiations and can't be seen as a sort of 173 00:09:48,040 --> 00:09:51,280 Speaker 1: an honest and neutral broker. So it's it's important also 174 00:09:51,480 --> 00:09:54,280 Speaker 1: to think that the relationship that the US has with 175 00:09:54,320 --> 00:09:57,959 Speaker 1: its allies will also UH dictate some of the path 176 00:09:58,120 --> 00:10:01,600 Speaker 1: of the ongoing tensions with North Korea. Kaitlin, can you 177 00:10:01,640 --> 00:10:04,920 Speaker 1: just bring us up to up to speed with respect 178 00:10:04,920 --> 00:10:07,640 Speaker 1: to the state of play in North Korea, the UH, 179 00:10:07,920 --> 00:10:10,880 Speaker 1: the sort of exercises that have been going on with 180 00:10:11,200 --> 00:10:13,640 Speaker 1: South Korea and the US and kind of where are 181 00:10:13,760 --> 00:10:17,240 Speaker 1: allies stand right now. Yeah, over the past year, we've 182 00:10:17,280 --> 00:10:20,439 Speaker 1: really seen tensions between the West and North Korea kind 183 00:10:20,440 --> 00:10:23,520 Speaker 1: of ebb and flow. UM. Earlier, this fault looked like 184 00:10:23,600 --> 00:10:26,760 Speaker 1: they were sort of um decreasing. They had been, you know, 185 00:10:26,960 --> 00:10:29,560 Speaker 1: a couple of months, but when North Korea didn't launch 186 00:10:29,600 --> 00:10:33,559 Speaker 1: any any missile tests, that all changed last late last month, UM, 187 00:10:33,600 --> 00:10:37,920 Speaker 1: when North Korea really escalated, UM it's test launching. They 188 00:10:38,360 --> 00:10:41,400 Speaker 1: they potentially the furthest reaching I CBM missile it had 189 00:10:41,760 --> 00:10:45,800 Speaker 1: UM had so far. So you know, looking sort of 190 00:10:46,040 --> 00:10:48,160 Speaker 1: you know to next year, we think it could be 191 00:10:48,160 --> 00:10:52,480 Speaker 1: potentially a really decisive year in that conflict. UM. Some 192 00:10:52,559 --> 00:10:54,600 Speaker 1: people think it might be the sort of the last 193 00:10:54,679 --> 00:10:57,120 Speaker 1: chance to prevent North Korea from becoming really a full 194 00:10:57,160 --> 00:11:00,839 Speaker 1: fledged nuclear weapons power. And there's an number of released 195 00:11:00,840 --> 00:11:04,240 Speaker 1: sensitive events on the on the calendar next year, UM, 196 00:11:04,320 --> 00:11:06,800 Speaker 1: including the Olympics in South Korea in February, and then 197 00:11:06,800 --> 00:11:09,679 Speaker 1: also the the end of the the the anniversary of 198 00:11:09,720 --> 00:11:11,520 Speaker 1: the end of the Korean War, and the anniversary of 199 00:11:11,559 --> 00:11:13,640 Speaker 1: the founding of North Korea. Those are both events that 200 00:11:13,679 --> 00:11:18,080 Speaker 1: are often marked with missile tests. Caitlin, if you could 201 00:11:18,080 --> 00:11:23,600 Speaker 1: comment on the perhaps not bipartisan and the more unilateral 202 00:11:23,679 --> 00:11:26,680 Speaker 1: approach on the part of US foreign policy under President 203 00:11:26,720 --> 00:11:30,719 Speaker 1: Donald Trump, because I believe that allies such as UK 204 00:11:30,840 --> 00:11:35,840 Speaker 1: Prime Minister Theresa May coming out and offering negative comments 205 00:11:35,920 --> 00:11:40,079 Speaker 1: about the upcoming speech that President Trump is going to 206 00:11:40,160 --> 00:11:43,040 Speaker 1: make detailing a Jerusalem as the capital of Israel. So 207 00:11:43,040 --> 00:11:45,760 Speaker 1: he's got allies who do not agree with that stand. 208 00:11:46,920 --> 00:11:49,560 Speaker 1: I think in terms of North Korea, UM, the Trump 209 00:11:49,600 --> 00:11:52,439 Speaker 1: administration has sort of gone back and forth between whether 210 00:11:52,520 --> 00:11:55,800 Speaker 1: or not they want to UM work with China and 211 00:11:56,000 --> 00:11:58,079 Speaker 1: the U N in terms of pressuring Piong Yang I 212 00:11:58,160 --> 00:12:01,959 Speaker 1: sort of come into line. UM. You know, the there 213 00:12:02,120 --> 00:12:05,200 Speaker 1: was un sanctions about six months ago that went into 214 00:12:05,240 --> 00:12:10,240 Speaker 1: place UM, and since then the US has passed UM 215 00:12:10,480 --> 00:12:13,280 Speaker 1: much stronger unilateral sanctions, something that was really looked at 216 00:12:13,400 --> 00:12:17,920 Speaker 1: UM negatively by the Chinese government. It's it's unclear, UM. 217 00:12:17,960 --> 00:12:21,400 Speaker 1: You know what going forward what the Trump administration stands 218 00:12:21,559 --> 00:12:23,160 Speaker 1: will be, whether they want to continue to go it 219 00:12:23,200 --> 00:12:27,040 Speaker 1: alone or or work sort of more multilaterally. I think, 220 00:12:27,559 --> 00:12:30,920 Speaker 1: you know North Korea, before it agrees to talks, is 221 00:12:31,160 --> 00:12:33,560 Speaker 1: it's likely going to you know, going to have to 222 00:12:33,559 --> 00:12:37,640 Speaker 1: be a high level multilateral effort. Nick, come on in here. 223 00:12:37,679 --> 00:12:40,560 Speaker 1: I want to talk about just generally the U S 224 00:12:40,600 --> 00:12:43,480 Speaker 1: foreign policy. I know there's been a lot of criticism 225 00:12:43,520 --> 00:12:46,800 Speaker 1: aimed at Rects tillersting questions about whether he will remain 226 00:12:47,040 --> 00:12:50,760 Speaker 1: in place as Secretary of State. I'm just wondering, is 227 00:12:50,800 --> 00:12:55,800 Speaker 1: there behind the scenes more cohesion among the foreign policy 228 00:12:55,840 --> 00:12:59,280 Speaker 1: walks in this administration than perhaps it might seem from 229 00:12:59,360 --> 00:13:03,719 Speaker 1: the outside It My impression is there is not cohesion. 230 00:13:03,840 --> 00:13:06,040 Speaker 1: And and one of the challenges that we've faced in 231 00:13:06,160 --> 00:13:10,720 Speaker 1: reporting out the foreign policy priorities of this administration is, uh, 232 00:13:11,200 --> 00:13:13,839 Speaker 1: you never really know who is calling the shots or 233 00:13:13,960 --> 00:13:15,840 Speaker 1: or what the priorities are. I mean, if you look 234 00:13:15,880 --> 00:13:20,040 Speaker 1: at North Korea, for example, Uh, you saw the U. S. 235 00:13:20,120 --> 00:13:22,439 Speaker 1: Investador to the UN, Nicky Hamley, make remarks at a 236 00:13:22,520 --> 00:13:26,719 Speaker 1: Security Council meeting last week where she basically gave a 237 00:13:26,880 --> 00:13:30,080 Speaker 1: sort of policy prescription that was different from what the 238 00:13:30,080 --> 00:13:32,840 Speaker 1: State Department said. She said, country should cut off all 239 00:13:32,920 --> 00:13:36,880 Speaker 1: ties with North Korea and uh, sever all diplotic ties. 240 00:13:37,200 --> 00:13:40,440 Speaker 1: When we question the State Department spokeswoman on that um 241 00:13:40,480 --> 00:13:44,040 Speaker 1: a day later, she said, uh, she wouldn't go that far. 242 00:13:44,280 --> 00:13:48,240 Speaker 1: She said that essentially they're encouraging countries to reduce ties, 243 00:13:48,280 --> 00:13:50,880 Speaker 1: but she wouldn't say they wanted countries to cut off 244 00:13:50,920 --> 00:13:53,560 Speaker 1: all ties. So, I mean, that's just a small example 245 00:13:53,600 --> 00:13:55,959 Speaker 1: of something we face all the time. Where you never 246 00:13:56,080 --> 00:13:59,240 Speaker 1: quite know who is speaking for the President, who is 247 00:13:59,280 --> 00:14:03,520 Speaker 1: speaking for US US policy, because in the different branches 248 00:14:03,640 --> 00:14:07,839 Speaker 1: and the different agencies there are substantive differences on what 249 00:14:08,000 --> 00:14:11,160 Speaker 1: various people say the US is doing and should be doing. 250 00:14:12,040 --> 00:14:15,120 Speaker 1: Is there is there any surprise that the oil prices 251 00:14:15,160 --> 00:14:17,800 Speaker 1: are actually lower today as a result of this. I mean, 252 00:14:17,920 --> 00:14:19,960 Speaker 1: normally you would say, all right, there's turmoil in the 253 00:14:20,040 --> 00:14:22,280 Speaker 1: Middle East and they're going to be problems because of 254 00:14:22,400 --> 00:14:24,560 Speaker 1: some policy change on the part of the United States. 255 00:14:25,080 --> 00:14:28,360 Speaker 1: You don't see any any reaction in the market. Well, 256 00:14:28,560 --> 00:14:31,040 Speaker 1: I mean, we will see. I think we really have 257 00:14:31,200 --> 00:14:34,080 Speaker 1: to wait until after the President speaks. Everybody I've been 258 00:14:34,200 --> 00:14:37,080 Speaker 1: talking to it the State Department says, wait till you wait, 259 00:14:37,160 --> 00:14:38,920 Speaker 1: wait till you hear what he says. It will be 260 00:14:39,040 --> 00:14:42,600 Speaker 1: a more nuanced speech than you than you think. Um. 261 00:14:42,800 --> 00:14:47,000 Speaker 1: But so far, yes, there people are saying that they 262 00:14:47,080 --> 00:14:50,640 Speaker 1: have not seen a great deal of protests outside US 263 00:14:50,680 --> 00:14:54,920 Speaker 1: embassies on the street in places like Cairo. Uh So 264 00:14:55,640 --> 00:14:58,160 Speaker 1: a muted response so far. But the real test will 265 00:14:58,200 --> 00:15:00,840 Speaker 1: be after the President delivers his speech. And of course 266 00:15:01,120 --> 00:15:04,640 Speaker 1: we're also looking at what the trade ramifications will be 267 00:15:05,160 --> 00:15:08,360 Speaker 1: with some of our allies stemming from the tax plan, 268 00:15:08,560 --> 00:15:12,520 Speaker 1: because it evidently is not being met with some criticism overseas. 269 00:15:12,600 --> 00:15:16,600 Speaker 1: Caitlin Webber, government analyst for Bloomberg Intelligence focusing on US 270 00:15:16,640 --> 00:15:20,040 Speaker 1: trade policy, as well as well as Nick Waddam's foreign 271 00:15:20,080 --> 00:15:23,240 Speaker 1: policy reporter for Bloomberg News. Both of you thank you 272 00:15:23,440 --> 00:15:26,240 Speaker 1: so much for your insights. Definitely a lot of moving 273 00:15:26,320 --> 00:15:28,960 Speaker 1: piece is hard to get your arms around, but really, 274 00:15:29,000 --> 00:15:30,560 Speaker 1: Pim and when we talk to people, what's going to 275 00:15:30,640 --> 00:15:33,640 Speaker 1: affect the markets? Are some of these trade tensions that 276 00:15:33,720 --> 00:15:53,800 Speaker 1: are picking up. Well. The company is Transao, and it's 277 00:15:53,880 --> 00:15:56,840 Speaker 1: chief executive is Chris Poppas, and he joins us here 278 00:15:56,960 --> 00:16:00,360 Speaker 1: in our eleven three oh studios and Transio Well, it 279 00:16:00,440 --> 00:16:04,520 Speaker 1: has its fingers in many different industries, automotive building as 280 00:16:04,560 --> 00:16:09,000 Speaker 1: well as electrical medical packaging. It's in the plastics business 281 00:16:09,080 --> 00:16:11,720 Speaker 1: as we remember. Chris, thank you very much for being here. 282 00:16:11,840 --> 00:16:16,320 Speaker 1: Much appreciated. I wanted to just skip ahead to Hurricane 283 00:16:16,400 --> 00:16:20,000 Speaker 1: Harvey and the rebuilding efforts that have gone on because 284 00:16:20,040 --> 00:16:22,880 Speaker 1: I know that several of your facilities were affected by 285 00:16:23,000 --> 00:16:25,200 Speaker 1: the hurricane, and I wonder if you could just give 286 00:16:25,280 --> 00:16:27,400 Speaker 1: us a quick update on what's going on. Well, we 287 00:16:27,560 --> 00:16:31,240 Speaker 1: had in our case actually no real impact on our facilities. 288 00:16:31,720 --> 00:16:35,440 Speaker 1: We were a distance from the hurricane and Louisiana, So 289 00:16:35,800 --> 00:16:38,600 Speaker 1: in our case, UM we had a short term lift 290 00:16:38,640 --> 00:16:40,800 Speaker 1: because our facilities are up and running while others were not. 291 00:16:41,000 --> 00:16:44,720 Speaker 1: But more broadly, the hurricane, while devastating a course for 292 00:16:44,800 --> 00:16:49,520 Speaker 1: the region, UM is going to stimulate construction activity post 293 00:16:50,080 --> 00:16:53,400 Speaker 1: for rebuilding and automotive you know, something like a million 294 00:16:53,520 --> 00:16:56,200 Speaker 1: cars will have to be replaced over the course the 295 00:16:56,280 --> 00:16:59,880 Speaker 1: next year or so, so aside from blips or sort 296 00:16:59,920 --> 00:17:03,040 Speaker 1: of temporary effects from the hurricanes. I'd love to get 297 00:17:03,080 --> 00:17:06,000 Speaker 1: your take just overall of what you're seeing with respected demand, 298 00:17:06,040 --> 00:17:10,800 Speaker 1: because Trina really has a pretty amazing view of the 299 00:17:10,880 --> 00:17:15,159 Speaker 1: economy since the products are and everything from automake automobiles 300 00:17:15,280 --> 00:17:17,920 Speaker 1: to smartphones to anything else that you buy that has 301 00:17:18,359 --> 00:17:21,520 Speaker 1: plastic components. Right. We we cross over many applications as 302 00:17:21,560 --> 00:17:25,760 Speaker 1: you mentioned, you know, including carpet construction, packaging, and we 303 00:17:25,840 --> 00:17:27,800 Speaker 1: do it globally, so we have a good view. Now 304 00:17:27,880 --> 00:17:30,359 Speaker 1: sixty sixty two percent of our sales are in Europe, 305 00:17:31,040 --> 00:17:32,480 Speaker 1: so I have a better view of Europe, of course 306 00:17:32,520 --> 00:17:36,080 Speaker 1: than the Americas. We have twenty in Asia, but you know, 307 00:17:36,119 --> 00:17:40,119 Speaker 1: we're pretty constructive on all of those segments. Um. And 308 00:17:40,560 --> 00:17:42,800 Speaker 1: when we gave our guidance, for example, for next year, 309 00:17:42,840 --> 00:17:45,160 Speaker 1: which we just just came out with about seven dollars 310 00:17:45,200 --> 00:17:48,240 Speaker 1: and ninety cents of share of earnings, we did not 311 00:17:48,400 --> 00:17:52,080 Speaker 1: forecast any real uplift in the economy from seventeen to eighteen. 312 00:17:52,680 --> 00:17:55,199 Speaker 1: We generally felt the economy of eighteen would be similar 313 00:17:56,080 --> 00:17:59,200 Speaker 1: to seventeen, which is pretty modest actually in terms of 314 00:17:59,359 --> 00:18:01,960 Speaker 1: actual growth. And you're talking global here, and we're talking 315 00:18:02,000 --> 00:18:04,399 Speaker 1: global here, so we're thinking in a two two and 316 00:18:04,400 --> 00:18:09,399 Speaker 1: alf Uh, you know, economic growth agenda to drive our 317 00:18:09,440 --> 00:18:12,040 Speaker 1: earnings growth. But if we had more than that, if 318 00:18:12,040 --> 00:18:14,440 Speaker 1: the economies in fact grew faster, because we're in so 319 00:18:14,520 --> 00:18:17,320 Speaker 1: many different segments, we would generally see a rise across 320 00:18:17,359 --> 00:18:20,479 Speaker 1: all those segments. I'm fascinated by this because we've been 321 00:18:20,560 --> 00:18:23,000 Speaker 1: hearing from a number of strategists saying that the FED 322 00:18:23,119 --> 00:18:25,320 Speaker 1: is going to hike four times next year, that we're 323 00:18:25,560 --> 00:18:29,920 Speaker 1: reaching the synchronized global growth story. Uh, this forecast that 324 00:18:30,040 --> 00:18:32,280 Speaker 1: you just gave out their flies in the face of that, 325 00:18:33,600 --> 00:18:37,480 Speaker 1: Why are you bearished? No, we're not bearish. We're saying 326 00:18:37,560 --> 00:18:40,760 Speaker 1: that we can see a rise in our earnings this year. 327 00:18:40,840 --> 00:18:44,160 Speaker 1: We forecast about seven sixty a share next year seven nine. 328 00:18:45,000 --> 00:18:47,040 Speaker 1: We're saying that we can see a rise in our 329 00:18:47,119 --> 00:18:51,280 Speaker 1: earnings independent of whether there is in fact a global lift. 330 00:18:51,400 --> 00:18:53,560 Speaker 1: So we gave our guidance. We were just saying that 331 00:18:54,560 --> 00:18:58,560 Speaker 1: on the basis of today's economic activity, we could see 332 00:18:58,600 --> 00:19:01,399 Speaker 1: earnings next year of seven dollars ninety cents. If in 333 00:19:01,560 --> 00:19:05,440 Speaker 1: fact the economy grows globally, then we would in fact 334 00:19:05,520 --> 00:19:08,520 Speaker 1: have generally higher earnings in that so we're not barished. 335 00:19:08,560 --> 00:19:11,119 Speaker 1: We just wanted to make that reference to our forecast, 336 00:19:11,440 --> 00:19:13,600 Speaker 1: to our earnings guidance. I just want to make it 337 00:19:13,680 --> 00:19:16,640 Speaker 1: even simpler. You make the plastic that makes lego blocks, 338 00:19:17,200 --> 00:19:19,800 Speaker 1: isn't that right? Well, that's an application that we are in, 339 00:19:19,920 --> 00:19:22,440 Speaker 1: of course, along with many, many, many many others. No, No, 340 00:19:22,600 --> 00:19:27,080 Speaker 1: I clearly, but I mean you know everybody knows. Or 341 00:19:27,160 --> 00:19:31,040 Speaker 1: yogurt cups would be another example. Very good, Um, tell 342 00:19:31,119 --> 00:19:33,399 Speaker 1: us about a business in China, because I know that 343 00:19:33,560 --> 00:19:37,119 Speaker 1: you've just really started production there at a new plant. 344 00:19:37,320 --> 00:19:39,440 Speaker 1: We have a new plant. We've been in China for years. 345 00:19:39,560 --> 00:19:42,119 Speaker 1: We're in China, or in Korea, we're in Indonesia with 346 00:19:42,320 --> 00:19:45,119 Speaker 1: with assets with plants and sales, of course, but we 347 00:19:45,240 --> 00:19:48,440 Speaker 1: just started up a new plastics facility and ABS plant 348 00:19:48,520 --> 00:19:52,640 Speaker 1: we call it, which is used in engineered applications, automotive 349 00:19:52,720 --> 00:19:56,040 Speaker 1: apply and smartphones, and we put it in China, and 350 00:19:56,119 --> 00:19:58,480 Speaker 1: we just started up a month ago on time, on 351 00:19:58,640 --> 00:20:03,040 Speaker 1: budget because of the growth in that particular region for 352 00:20:03,160 --> 00:20:06,080 Speaker 1: those markets and the kind of material we make there 353 00:20:06,680 --> 00:20:10,240 Speaker 1: is relatively unique compared to others, and our customers, mainly automotive, 354 00:20:10,840 --> 00:20:13,119 Speaker 1: want us to be where they're going to be building 355 00:20:13,400 --> 00:20:15,960 Speaker 1: their cars, which of course is in China. So in 356 00:20:16,080 --> 00:20:17,960 Speaker 1: that scenario, it made sense for us to put that 357 00:20:18,040 --> 00:20:21,280 Speaker 1: asset in China, which we did. Which product do you 358 00:20:21,320 --> 00:20:23,840 Speaker 1: think will be the biggest growth story next year? I 359 00:20:23,920 --> 00:20:28,520 Speaker 1: think too are rubber products for high performance tires, where 360 00:20:28,560 --> 00:20:30,920 Speaker 1: we also have a new plant coming up in January 361 00:20:31,000 --> 00:20:35,879 Speaker 1: in Germany, and our engineered performance plastics where we have 362 00:20:35,960 --> 00:20:38,719 Speaker 1: the new plant in China. Those two will be our 363 00:20:38,760 --> 00:20:41,479 Speaker 1: growth story for next year. Now. We on our investor 364 00:20:41,560 --> 00:20:43,600 Speaker 1: Day about a year and a half ago, we suggested 365 00:20:43,960 --> 00:20:47,800 Speaker 1: a hundred million dollars of EBITDA growth in performance plastics 366 00:20:48,040 --> 00:20:50,960 Speaker 1: and we outline investments that would drive that. Two of 367 00:20:51,040 --> 00:20:54,480 Speaker 1: those are the rubber plant in in Germany and the 368 00:20:54,560 --> 00:20:56,639 Speaker 1: A B. S plant in China. So we're delivering on 369 00:20:56,720 --> 00:21:00,800 Speaker 1: those investments as we described in November of two thousand six. 370 00:21:01,720 --> 00:21:05,040 Speaker 1: Is it easy to raise money we have, Well, we 371 00:21:05,119 --> 00:21:07,600 Speaker 1: have a fantastic balance sheet, you know, we're our leverage 372 00:21:07,640 --> 00:21:10,320 Speaker 1: is one point three times. We're generating. We have the 373 00:21:10,400 --> 00:21:12,719 Speaker 1: highest free cash flow yield of anybody in the chemical 374 00:21:12,800 --> 00:21:16,240 Speaker 1: space at about so we have very strong cash flows. 375 00:21:16,280 --> 00:21:19,920 Speaker 1: We just refinanced our balance sheet just a few months ago. Um, 376 00:21:20,200 --> 00:21:22,840 Speaker 1: we have a terrific balance sheet in our case. But 377 00:21:22,960 --> 00:21:24,760 Speaker 1: the answer your question is it is easy to raise 378 00:21:24,800 --> 00:21:26,480 Speaker 1: money if you need to raise money. In our case, 379 00:21:27,160 --> 00:21:30,280 Speaker 1: we have a stellar balance sheet, lots of free cash flow, 380 00:21:30,440 --> 00:21:34,280 Speaker 1: lots of capability to grow anymore without having access the 381 00:21:34,400 --> 00:21:39,840 Speaker 1: capital markets. We just complete our first acquisition successful nice 382 00:21:40,119 --> 00:21:44,040 Speaker 1: comping in in Italy that makes some term plastic glastomers. 383 00:21:44,160 --> 00:21:46,960 Speaker 1: Very nice product line. We're looking. But it's hard, it's 384 00:21:47,040 --> 00:21:51,480 Speaker 1: really hard. Valuations are high, very hard to do acquisitions. 385 00:21:51,560 --> 00:21:54,240 Speaker 1: In our view, in today's market, high valuation is tough 386 00:21:54,320 --> 00:21:56,479 Speaker 1: to do. Chris Pappas, thank you so much for joining us. 387 00:21:56,520 --> 00:21:59,560 Speaker 1: A pleasure speaking with you. Chris, Pappas is chief executive 388 00:21:59,600 --> 00:22:03,360 Speaker 1: officer of Trinco, which is based in Pennsylvania but has 389 00:22:03,880 --> 00:22:07,480 Speaker 1: plants and sells products all over the world. It's amazing 390 00:22:07,640 --> 00:22:10,840 Speaker 1: how big the market is for all this stuff that 391 00:22:10,960 --> 00:22:14,680 Speaker 1: you buy, all the components, the plastics, uh and and such. 392 00:22:30,600 --> 00:22:33,320 Speaker 1: A year ago, if you asked too many credit fund managers, 393 00:22:33,359 --> 00:22:36,000 Speaker 1: they would say, we're in the eighth, maybe ninth inning 394 00:22:36,440 --> 00:22:39,720 Speaker 1: this year. Perhaps we're in the seventh inning, or perhaps 395 00:22:39,760 --> 00:22:41,800 Speaker 1: we're in the eleventh inning. We're gonna go extra innings 396 00:22:42,200 --> 00:22:44,399 Speaker 1: to fifteen. Here to talk about that. As Frank oh 397 00:22:44,480 --> 00:22:47,520 Speaker 1: c No. He has senior portfolio manager at new Fleet 398 00:22:47,560 --> 00:22:50,640 Speaker 1: Asset Management, which oversees twelve billion dollars and it's based 399 00:22:50,680 --> 00:22:53,639 Speaker 1: in Hartford. Thank you so much of Frank for joining us. 400 00:22:53,760 --> 00:22:55,879 Speaker 1: I want to start with how close we are to 401 00:22:55,960 --> 00:22:58,280 Speaker 1: the end of this credit cycle, because we have gotten 402 00:22:58,320 --> 00:23:00,520 Speaker 1: a couple of calls recently from some pretty high profile 403 00:23:01,080 --> 00:23:04,120 Speaker 1: credit investors that were getting towards the end. Yeah, sure, 404 00:23:04,160 --> 00:23:06,520 Speaker 1: thanks for having me. I would say we're in a 405 00:23:06,920 --> 00:23:11,119 Speaker 1: very long seventh inning right now. Whenever we have a 406 00:23:11,240 --> 00:23:14,399 Speaker 1: benign credit environment, historically, it's very easy to say that 407 00:23:14,480 --> 00:23:17,160 Speaker 1: the end is two years out. Uh, you know five 408 00:23:17,280 --> 00:23:19,760 Speaker 1: we were talking about two in fifteen, we were talking 409 00:23:19,760 --> 00:23:22,880 Speaker 1: about two thousand and seventeen being the end. What we're 410 00:23:22,920 --> 00:23:26,879 Speaker 1: seeing right now is fundamentally, uh, we're in good shape. 411 00:23:26,920 --> 00:23:29,400 Speaker 1: It's still a benign credit environment. The faults are low, 412 00:23:29,960 --> 00:23:32,199 Speaker 1: balance sheets are in good shape, there's not a lot 413 00:23:32,240 --> 00:23:35,760 Speaker 1: of debt do an. Interest coverage is strong. Um, we 414 00:23:35,880 --> 00:23:40,320 Speaker 1: are starting to see some late cycle behavior, aggressive terms 415 00:23:40,480 --> 00:23:44,040 Speaker 1: loosening of credit standards, but by and large a two 416 00:23:44,119 --> 00:23:46,880 Speaker 1: and a half percent GDP. You know, environment is good 417 00:23:46,960 --> 00:23:49,240 Speaker 1: for fixed income in and for credit. So are you 418 00:23:49,359 --> 00:23:53,080 Speaker 1: holding less cash than you had been perhaps a year ago? 419 00:23:53,720 --> 00:23:56,879 Speaker 1: We are, We are fully invested. Our view is that 420 00:23:57,400 --> 00:24:00,920 Speaker 1: this fundamental environment is good for credit. Layer onto that 421 00:24:01,160 --> 00:24:04,240 Speaker 1: a strong technical environment. There is a strong bid for 422 00:24:04,400 --> 00:24:09,639 Speaker 1: yield globally, and so when there are investors looking for yield, 423 00:24:09,880 --> 00:24:12,440 Speaker 1: there are buyers of loans and high yield, which is 424 00:24:12,480 --> 00:24:14,760 Speaker 1: where we traffic, and so we want to take advantage 425 00:24:14,760 --> 00:24:17,240 Speaker 1: of that by being fully invested. Have you also gone 426 00:24:17,359 --> 00:24:21,920 Speaker 1: further down the credit spectrum into lower rated high yield 427 00:24:21,960 --> 00:24:25,119 Speaker 1: dead like triple C, single B. That's a good question. 428 00:24:25,320 --> 00:24:30,359 Speaker 1: We are a fundamental bottoms up credit shop at New fleet. 429 00:24:31,040 --> 00:24:34,239 Speaker 1: We started adding credit risk in the summer of two 430 00:24:34,280 --> 00:24:38,200 Speaker 1: thousand sixteen. We were risk off in fifteen and late fourteen. 431 00:24:38,720 --> 00:24:42,720 Speaker 1: Started adding risk around the summer of sixteen when valuations 432 00:24:42,840 --> 00:24:45,600 Speaker 1: we were attractive, not only in the loan market, in 433 00:24:45,640 --> 00:24:48,919 Speaker 1: the high yield market as well. We added single bs 434 00:24:49,119 --> 00:24:52,960 Speaker 1: and some triple cs. We started adding energy. UM Today, 435 00:24:53,600 --> 00:24:56,840 Speaker 1: I would say that we're UM less risk on a 436 00:24:56,920 --> 00:25:01,120 Speaker 1: pure relative basis, but I'm gonna stick with our credit quality, 437 00:25:01,480 --> 00:25:04,560 Speaker 1: UH band Right now, what if you could tell people 438 00:25:04,560 --> 00:25:08,399 Speaker 1: a little bit about the vertics new fleet dynamic credit 439 00:25:08,680 --> 00:25:13,480 Speaker 1: et F and how if you're an issuer, how do 440 00:25:13,560 --> 00:25:17,600 Speaker 1: you get your attention to actually buy some debt to 441 00:25:17,680 --> 00:25:20,000 Speaker 1: go into that e t F. Sure. So that's an 442 00:25:20,000 --> 00:25:23,040 Speaker 1: e t F that we launched last December h b 443 00:25:23,240 --> 00:25:25,680 Speaker 1: l H wise the ticker symbol UH. That is a 444 00:25:25,800 --> 00:25:29,560 Speaker 1: product that was born out of a few things. UH. First, 445 00:25:29,600 --> 00:25:32,520 Speaker 1: we'll take the market. What we found was that the 446 00:25:32,600 --> 00:25:36,760 Speaker 1: loan market, in the high yield market has slowly been converging. 447 00:25:37,560 --> 00:25:40,600 Speaker 1: If they're not brothers and sisters are definitely cousins. Uh. 448 00:25:40,760 --> 00:25:44,879 Speaker 1: There are loans now that look like bonds. There are 449 00:25:44,960 --> 00:25:48,760 Speaker 1: bonds that the bond market, the high yield market, for example, 450 00:25:48,840 --> 00:25:53,000 Speaker 1: is secured now and soft of the borrowers have both 451 00:25:53,080 --> 00:25:56,200 Speaker 1: a loan and a high yield security. And so our 452 00:25:56,280 --> 00:25:58,280 Speaker 1: view was that we ought to have a product that 453 00:25:58,359 --> 00:26:00,880 Speaker 1: can look at the entire capital struck sure of a borrower, 454 00:26:01,080 --> 00:26:03,600 Speaker 1: rather than a fund that can just buy loans and 455 00:26:03,640 --> 00:26:05,320 Speaker 1: a fund that can just buy bonds. If we like 456 00:26:05,920 --> 00:26:08,240 Speaker 1: a particular part of the capital structure, we want the 457 00:26:08,280 --> 00:26:11,080 Speaker 1: ability to buy it. What we also found was that 458 00:26:11,200 --> 00:26:14,240 Speaker 1: the client was moving in this direction as well. Clients 459 00:26:14,280 --> 00:26:18,960 Speaker 1: are not willing to outsource the complexity of allocating between 460 00:26:19,000 --> 00:26:22,400 Speaker 1: the two. They want to put a dollar into leverage finance, 461 00:26:23,119 --> 00:26:26,080 Speaker 1: allow us to do the allocation, and then allow themselves 462 00:26:26,200 --> 00:26:29,560 Speaker 1: to frankly, run their run their practice. Frank in the 463 00:26:29,600 --> 00:26:31,920 Speaker 1: notes that you sent over, you said that it's important 464 00:26:32,040 --> 00:26:35,639 Speaker 1: for this asset class to be a permanent part of 465 00:26:35,880 --> 00:26:40,399 Speaker 1: people's portfolios. How do you square that idea of investing 466 00:26:40,520 --> 00:26:43,680 Speaker 1: truly investing in a company for the long term with 467 00:26:43,840 --> 00:26:48,240 Speaker 1: an e t F that is frequently used for traders 468 00:26:48,280 --> 00:26:50,360 Speaker 1: who want to be able to get in and out. Yeah, 469 00:26:50,440 --> 00:26:52,639 Speaker 1: the e t F that we manage is active, and 470 00:26:52,720 --> 00:26:55,439 Speaker 1: so from our perspective, we manage the t F very 471 00:26:55,480 --> 00:26:57,800 Speaker 1: similar to we do then we would a mutual funds, right, 472 00:26:57,880 --> 00:27:00,399 Speaker 1: but so it is active and it's un clearer at 473 00:27:00,400 --> 00:27:02,720 Speaker 1: any given time with the underlying composition will be the 474 00:27:02,760 --> 00:27:06,000 Speaker 1: way that'say, H, Y, G or J and K would uh. 475 00:27:06,680 --> 00:27:09,160 Speaker 1: But the point of an e t F in large 476 00:27:09,240 --> 00:27:12,240 Speaker 1: part is taking in this case assets that don't trade 477 00:27:12,280 --> 00:27:15,680 Speaker 1: all that frequently and UH sort of pulling them together 478 00:27:15,760 --> 00:27:18,440 Speaker 1: and then having them sort of backing a share that 479 00:27:18,560 --> 00:27:21,439 Speaker 1: trades like a stock and people can get out quickly. 480 00:27:21,600 --> 00:27:25,760 Speaker 1: Does that concern you? It's not too dissimilar than the 481 00:27:25,840 --> 00:27:28,320 Speaker 1: mutual fund market. Right. Every morning we come in and 482 00:27:28,400 --> 00:27:30,639 Speaker 1: we have an inflow or outflow from the day before. 483 00:27:30,760 --> 00:27:33,600 Speaker 1: The real difference is that we can create units on 484 00:27:33,680 --> 00:27:35,960 Speaker 1: the e t F side at any time of the day. 485 00:27:36,800 --> 00:27:39,479 Speaker 1: But if there is an environment where people are selling 486 00:27:39,880 --> 00:27:41,840 Speaker 1: loans in high yield, will have an outflow in the 487 00:27:41,920 --> 00:27:44,280 Speaker 1: mutual funds and we'll have a redemption unit in the 488 00:27:44,400 --> 00:27:47,800 Speaker 1: e t F. So from my perspective, we're managing liquidity 489 00:27:48,200 --> 00:27:53,000 Speaker 1: the liquidity risk UH really very similarly in both products. 490 00:27:53,480 --> 00:27:54,840 Speaker 1: I wonder if you could just go back to the 491 00:27:55,000 --> 00:27:57,639 Speaker 1: Vertus new Fleet Dynamic Credit e t F because I 492 00:27:57,720 --> 00:28:02,520 Speaker 1: just want to understand what guides your action? How do 493 00:28:02,600 --> 00:28:04,560 Speaker 1: you know what to buy? What do you need to 494 00:28:04,640 --> 00:28:07,439 Speaker 1: know to put? You know, different different issues in there. 495 00:28:07,480 --> 00:28:10,399 Speaker 1: Because you've got one Walter Investment Management, right, that's currently 496 00:28:10,480 --> 00:28:13,280 Speaker 1: in bankruptcy, that's right, right, But then you've got others 497 00:28:13,359 --> 00:28:17,160 Speaker 1: like Gates Global that's I believe a Blackstone deal. How 498 00:28:17,680 --> 00:28:20,480 Speaker 1: what what sort of drives your decision making? Sure? So 499 00:28:20,600 --> 00:28:23,960 Speaker 1: we have a team of eleven credit analysts UH and 500 00:28:24,040 --> 00:28:27,800 Speaker 1: those analysts look at the entire capital structure of a borrower. 501 00:28:27,960 --> 00:28:31,600 Speaker 1: So the banks, the arranging banks syndicate whether it's a 502 00:28:31,680 --> 00:28:33,399 Speaker 1: loan or a high old issue, and we do our 503 00:28:33,440 --> 00:28:36,879 Speaker 1: own fundamental credit analysis. What makes us different is that 504 00:28:37,520 --> 00:28:40,920 Speaker 1: Walter Investment Management is a great, great example. We own 505 00:28:41,000 --> 00:28:44,360 Speaker 1: the loan rather than the hot than the bond issuance. 506 00:28:45,000 --> 00:28:47,440 Speaker 1: The bonds in the fifties. The loan is in the 507 00:28:47,520 --> 00:28:49,480 Speaker 1: mid nineties and will be a part recovery. So we 508 00:28:49,600 --> 00:28:54,160 Speaker 1: actively decided to be up the capital structure in that name. 509 00:28:54,840 --> 00:28:58,360 Speaker 1: Um As as an example, there are borrowers that don't 510 00:28:58,400 --> 00:29:00,920 Speaker 1: have bonds there, you know, on the shores that don't 511 00:29:00,920 --> 00:29:03,080 Speaker 1: have loans. We now have the ability to look at 512 00:29:03,120 --> 00:29:07,080 Speaker 1: the entire opportunity set to trillion plus of loans in 513 00:29:07,200 --> 00:29:11,000 Speaker 1: high yield rather than individual markets. I'm looking at the 514 00:29:11,080 --> 00:29:15,880 Speaker 1: composition of the fund and there is a certificant proportion 515 00:29:15,960 --> 00:29:19,800 Speaker 1: that's rated triple C or lower or single B or lower. 516 00:29:19,960 --> 00:29:23,680 Speaker 1: And I'm just wondering. You know, we've seen that, say 517 00:29:23,760 --> 00:29:27,640 Speaker 1: with UH with third avenue, right, the idea of what 518 00:29:27,880 --> 00:29:30,520 Speaker 1: happens if there are a sudden rash of redemptions, even 519 00:29:30,520 --> 00:29:33,680 Speaker 1: if it's a mutual fund. UH, what's your sort of 520 00:29:34,080 --> 00:29:37,280 Speaker 1: game plan if there were to be some kind of crisis. Yeah, 521 00:29:37,320 --> 00:29:41,080 Speaker 1: I would not categorize the single b's and triple cs 522 00:29:41,160 --> 00:29:45,760 Speaker 1: that we own here as the third avenue. Event um, 523 00:29:46,160 --> 00:29:49,680 Speaker 1: these are single b by and large loans. The triple 524 00:29:49,760 --> 00:29:53,240 Speaker 1: cs might be larger loans Walter Investment Management, for example, 525 00:29:53,440 --> 00:29:56,560 Speaker 1: it would would be one of those stress situations UM. 526 00:29:56,640 --> 00:30:00,680 Speaker 1: In et F form, UH, there are liquid the guidelines. 527 00:30:01,240 --> 00:30:04,400 Speaker 1: We need to have a certain market cap public market cap, 528 00:30:04,640 --> 00:30:07,480 Speaker 1: the loan issue has to be a certain size. We 529 00:30:07,680 --> 00:30:11,080 Speaker 1: manage a similar product on the mutual fun size that 530 00:30:11,440 --> 00:30:14,719 Speaker 1: has roughly seventy of the issues are over a billion dollars, 531 00:30:15,280 --> 00:30:18,400 Speaker 1: and so we're actively managing that type of liquidity rather 532 00:30:18,520 --> 00:30:23,000 Speaker 1: than a one off distress situation. Uh like like many 533 00:30:23,040 --> 00:30:24,960 Speaker 1: of the names that maybe we're in the Third Avenue deal. 534 00:30:25,360 --> 00:30:28,320 Speaker 1: Thanks for being with us, much appreciated, very educational. Franco 535 00:30:28,360 --> 00:30:32,480 Speaker 1: Sino is the senior portfolio manager for New Fleet Asset Management, 536 00:30:32,800 --> 00:30:38,120 Speaker 1: helping to manage about twelve billion dollars in assets. They 537 00:30:38,200 --> 00:30:47,040 Speaker 1: are a bill. They are based in Hartford, Connecticut. Thanks 538 00:30:47,080 --> 00:30:49,640 Speaker 1: for listening to the Bloomberg P and L podcast. You 539 00:30:49,720 --> 00:30:53,480 Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 540 00:30:53,640 --> 00:30:57,080 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 541 00:30:57,120 --> 00:31:01,120 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 542 00:31:01,240 --> 00:31:03,840 Speaker 1: It's one before the podcast. You can always catch us 543 00:31:03,880 --> 00:31:05,440 Speaker 1: worldwide on Blueberg Radio.