WEBVTT - Biogen Was The Train Wreck Everyone Saw Coming: Nisen (Podcast) 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul Swinge. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penil podcast on Apple 0:00:15.520 --> 0:00:17.959 Podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.880 at Bloomberg dot com. Well, Biogen and its partner said 0:00:21.880 --> 0:00:24.599 they had decided to halt a late stage study of 0:00:24.640 --> 0:00:28.840 an experimental Alzheimer's disease drug, marking another setback for drug 0:00:28.840 --> 0:00:32.080 maker's efforts to find a therapy for the degenerative ailment 0:00:32.640 --> 0:00:35.560 that knocked the stock of Biogen down nearly thirty percent 0:00:35.720 --> 0:00:38.640 so far today. UH to help us dig deeper into 0:00:38.640 --> 0:00:42.080 this story, we welcome Max Nissan. Max's the biotech format 0:00:42.120 --> 0:00:45.240 and healthcare calumnist from Bloomberg Opinion. He joins us in 0:00:45.280 --> 0:00:48.920 our Bloomberg eleven thirties three oh studios here in New York. So, Mac, Max, 0:00:49.000 --> 0:00:51.280 this is a huge deal for the company's stock down 0:00:51.360 --> 0:00:55.480 thirty What happened? So? This was one of the last 0:00:55.880 --> 0:00:59.680 really big late stage Alzheimer's studies that focused on the 0:00:59.720 --> 0:01:04.320 particular way of potentially treating the disease, focusing on on 0:01:04.480 --> 0:01:08.320 the creation of amyloid beta plaques. But um, you know, 0:01:08.520 --> 0:01:11.759 there have been a number of previous failures, really prominent 0:01:11.840 --> 0:01:15.880 ones of a very expensive of late stage trials, most 0:01:15.920 --> 0:01:18.840 recently Elli Lily and then Roche gave up on a 0:01:18.880 --> 0:01:21.360 similar medicine. So it's something that you could have seen coming. 0:01:21.560 --> 0:01:24.520 But you know, Biogen has always pointed to data and 0:01:24.680 --> 0:01:27.200 some differences in its medicine and the way it's it 0:01:27.319 --> 0:01:30.040 ran its trials that that had people hoping that that 0:01:30.200 --> 0:01:32.760 this might finally be the one to break through. But 0:01:33.080 --> 0:01:36.280 it's becoming more difficult to avoid the conclusion that this 0:01:36.400 --> 0:01:39.920 approaches is pretty fundamentally flawed in some way. Yeah, Max, 0:01:40.240 --> 0:01:42.760 to your credit, you wrote a column to this effect 0:01:43.760 --> 0:01:46.720 almost a year ago basically saying this is there's not 0:01:46.880 --> 0:01:49.160 really any evidence that this is going to work. In fact, 0:01:49.240 --> 0:01:51.560 it sort of points to the opposite. And I'm just wondering, 0:01:52.320 --> 0:01:54.800 given given that, I mean, yes, you are prescient and 0:01:54.880 --> 0:01:58.160 your your insights are are very well taken, but it's 0:01:58.200 --> 0:02:00.880 just curious that it would remove of one third of 0:02:01.000 --> 0:02:04.680 the market value of the company on these results coming out, 0:02:04.880 --> 0:02:07.800 How does that has that square with reality? And what 0:02:07.880 --> 0:02:11.359 does that say about evaluations currently? So I think a 0:02:11.440 --> 0:02:12.919 lot of this has to do with the fact that, 0:02:13.160 --> 0:02:16.639 you know, if someone actually succeeded, it would be you know, 0:02:16.720 --> 0:02:20.720 an instant blockbuster, an incredible scientific breakthrough. You know, the 0:02:21.639 --> 0:02:25.440 consensus sales for this medicine, which are supposedly risk adjusted 0:02:25.840 --> 0:02:29.560 for ten billion dollars a year, you know, and if 0:02:29.600 --> 0:02:34.000 you actually succeeded and had a clinically significant impact on Alzheimer's, 0:02:34.240 --> 0:02:36.600 that that estimate might be low. So it's that kind 0:02:36.600 --> 0:02:40.720 of tantalizing upside that had some people still invested even 0:02:40.800 --> 0:02:45.280 if the likelihood of success was demonstrably pretty low. And 0:02:45.360 --> 0:02:47.000 there's also the fact that this has been kind of 0:02:47.040 --> 0:02:50.040 a huge focus of biogen not just this this big 0:02:50.160 --> 0:02:53.440 late stage trial, but a number of other medicines focusing 0:02:53.480 --> 0:02:56.080 either on this approach to Alzheimer's or Alzheimer's in general. 0:02:56.480 --> 0:03:00.000 So this kind of diminishes confidence in those further program 0:03:00.160 --> 0:03:03.760 ms and just in you know, the ability to tackle 0:03:03.880 --> 0:03:07.800 this disease anytime soon or with existing approaches in general. 0:03:07.880 --> 0:03:09.840 So you kind of had to write off not just 0:03:10.040 --> 0:03:13.240 as you canna map this medicine, but other programs as well, 0:03:13.760 --> 0:03:16.840 and then also biogen strategy in general has been to 0:03:16.960 --> 0:03:21.040 focus on these kind of riskier neurological conditions, you know. 0:03:21.120 --> 0:03:23.040 And it's great from a kind of a human and 0:03:23.120 --> 0:03:26.440 scientific perspective that you're that they're doing that. You need 0:03:26.560 --> 0:03:28.760 someone to otherwise we're we're not going to make progress. 0:03:29.040 --> 0:03:32.440 But from an investment perspective, h it's it's pretty scary, 0:03:32.600 --> 0:03:35.960 especially when their current big money maker and multiple scourses 0:03:36.040 --> 0:03:38.880 medicines is starting to kind of level out and decline. 0:03:39.040 --> 0:03:42.920 So that strategy looks even more risky right now than 0:03:43.000 --> 0:03:45.120 it did a day ago. So but if you if 0:03:45.120 --> 0:03:47.160 you talk about a market that is maybe ten billion 0:03:47.200 --> 0:03:50.000 dollars a year, I mean as monstrous. These companies cannot 0:03:50.200 --> 0:03:52.760 walk away from this, right, I mean even Biogen, who's 0:03:53.120 --> 0:03:55.200 just got whacked today in a stock market, they can't 0:03:55.240 --> 0:03:59.440 really walk away, can they. I think they should consider 0:03:59.560 --> 0:04:04.240 walking away from related approaches um And one of their 0:04:04.360 --> 0:04:09.640 biggest Phase three Alzheimer's medicines is you know, another amyloid 0:04:09.720 --> 0:04:12.920 beta focused program. And then the other kind of big 0:04:13.040 --> 0:04:15.320 area that people focusing this is on the towel protein 0:04:15.600 --> 0:04:17.840 that also has a pretty bad track record, So you 0:04:17.920 --> 0:04:20.080 really need to kind of look take a take a 0:04:20.160 --> 0:04:24.679 really hard look at those programs and think about whether 0:04:24.760 --> 0:04:27.880 there's a compelling reason to keep investing in them, or 0:04:28.240 --> 0:04:31.360 is it time to move on to approaches that you 0:04:31.400 --> 0:04:33.840 know are less validated and even risk here in much 0:04:33.880 --> 0:04:38.000 earlier stage, but to take a significant step away from 0:04:38.560 --> 0:04:41.280 from a hypothesis that has kind of repeatedly proven to 0:04:41.680 --> 0:04:43.960 to fallen short, Max, I want to zoom out a 0:04:44.000 --> 0:04:47.480 little bit because this whole situation really raises a very 0:04:47.560 --> 0:04:51.559 important question about development of new drugs, uh at about 0:04:51.600 --> 0:04:54.560 the expense and the risk of them, but the necessity 0:04:54.760 --> 0:04:58.120 for the public good. Uh and sort of where development 0:04:58.200 --> 0:05:01.720 should happen, right, I mean there is some development at universities, 0:05:01.839 --> 0:05:03.760 But I mean, can you give us a sense of 0:05:03.960 --> 0:05:07.320 companies of their approach of how much money they'll invest 0:05:07.400 --> 0:05:10.080 in R and D, Whether there is sort of a 0:05:10.160 --> 0:05:14.440 reliance on you know, universities, how how that works and 0:05:14.520 --> 0:05:17.440 they determine sort of what what's worth the investment. Sure, 0:05:17.440 --> 0:05:19.760 I mean, there there's a lot of spending on R 0:05:19.839 --> 0:05:23.280 and D, both directly in terms of internal discovery and 0:05:23.360 --> 0:05:27.560 development pipelines and then externally in the form of acquisitions, 0:05:28.000 --> 0:05:32.160 licensing deals with with little biotechs or or universities. Many 0:05:32.160 --> 0:05:34.920 of those little biotexs are spun out of universities, and 0:05:35.240 --> 0:05:38.640 how to go about doing that is an incredibly difficult question, 0:05:39.040 --> 0:05:41.640 one that I think pharma has a lot of a 0:05:41.800 --> 0:05:44.119 big way along ways to go in grappling with because 0:05:44.520 --> 0:05:48.640 more of their spending is increasingly directed at at smaller populations, 0:05:49.279 --> 0:05:52.000 so cancer and rare disease because you have you have 0:05:52.120 --> 0:05:55.640 pricing power there, and the trials are smaller and cheaper. 0:05:55.880 --> 0:05:59.840 Alzheimer's trials are giant, expensive and they fail all the time. 0:06:00.040 --> 0:06:03.400 Okay when on all three fronts um but you know, 0:06:03.680 --> 0:06:06.000 this really raises a question, especially when you talk about say, 0:06:06.120 --> 0:06:08.400 vaccines that aren't very sexy and that our money losers 0:06:09.120 --> 0:06:12.520 to antibiotics, you know, things that actually everyone uses all 0:06:12.560 --> 0:06:16.080 the time and that are crucial life saving UH drugs. 0:06:16.240 --> 0:06:18.880 It just raises a question, you know, what is the 0:06:19.000 --> 0:06:22.880 correct model for this with respect to either government intervention 0:06:23.360 --> 0:06:26.680 or sponsorship or rewarding or you know, how do you 0:06:26.960 --> 0:06:29.640 how do you incentivize these companies to do that. I 0:06:30.080 --> 0:06:33.280 do think there needs to be uh a kind of 0:06:33.440 --> 0:06:37.360 grand rethinking of of how what medicines we pay for 0:06:37.480 --> 0:06:39.480 and why and how much we pay for them. If 0:06:39.560 --> 0:06:42.200 we continue to kind of leave the system of the 0:06:42.240 --> 0:06:45.320 status quo where we pay a lot for these medicines 0:06:45.600 --> 0:06:49.440 that treat a very small population, often not that effectively, 0:06:50.040 --> 0:06:55.360 and have antibiotics that are not fundamentally not profitable to develop. 0:06:55.800 --> 0:06:58.320 So there needs to be some kind of incentive, whether 0:06:58.400 --> 0:07:02.040 it's you know, the government makeing specific you know, specifically 0:07:02.080 --> 0:07:05.480 funding that research, some way to bring the prices up there. 0:07:05.560 --> 0:07:07.680 There does need to be some kind of intervention otherwise 0:07:07.720 --> 0:07:10.440 we're going to continue a further down this path that 0:07:10.560 --> 0:07:15.080 we that our current market heavily incentivizes. So that's let's 0:07:15.120 --> 0:07:17.320 just go back to Alzheimer's. Is anybody doing it right? 0:07:17.440 --> 0:07:22.720 Is anybody making headway? Um? Not not not yet. Yeah, 0:07:22.840 --> 0:07:26.280 you know, there there are companies that are taking alternative approaches. 0:07:26.400 --> 0:07:28.720 There's interest in this, but yeah, that that kind of 0:07:28.760 --> 0:07:33.360 basic research, but there's nothing right now that's kind of 0:07:33.480 --> 0:07:36.400 in a big potentially you know, the sort of child 0:07:36.440 --> 0:07:39.240 that could get a medicine approved that that is of 0:07:39.360 --> 0:07:42.840 a kind of dramatically different approach than things that we've 0:07:42.880 --> 0:07:45.160 seen that have failed in the past. So there's a 0:07:45.240 --> 0:07:46.600 lot of work yet to be done, and a lot 0:07:46.640 --> 0:07:48.880 of that's gonna end up having to be I think 0:07:48.960 --> 0:07:53.200 in in small biotechs and and at universities UM where 0:07:53.520 --> 0:07:56.520 there's a little bit more more tolerance for failure. Uh 0:07:56.760 --> 0:07:59.760 So we'll see what happens. I continue to be hopeful, 0:08:00.680 --> 0:08:03.480 but where we're a long way off still. Max Nison, 0:08:03.520 --> 0:08:05.679 thank you so much for being with us. Max Neison 0:08:05.720 --> 0:08:08.680 is a Blomberg opinion columnist who covers the biotech and 0:08:08.960 --> 0:08:11.960 all things health topics. I gotta say his column back 0:08:12.000 --> 0:08:15.080 in July of last year, he said, this isn't the 0:08:15.160 --> 0:08:18.760 home runs. Some investors were looking forward respect to Alzheimer's 0:08:18.840 --> 0:08:37.200 treatments that Biojean was trying to develop. The Federal Reserve 0:08:37.440 --> 0:08:40.840 sent a very clear message to markets yesterday they were 0:08:40.880 --> 0:08:44.480 not playing to high grades this year or possibly again 0:08:44.760 --> 0:08:48.640 in this credit cycle, signaling a very devish turn. The 0:08:48.800 --> 0:08:52.040 question is do they have some sort of insight into 0:08:52.040 --> 0:08:54.920 the U S economy that the rest of the market doesn't, 0:08:54.960 --> 0:08:58.199 and are they seeing something that is weaker than what 0:08:58.320 --> 0:09:01.240 we have been talking about and seeing. Joining us now 0:09:01.520 --> 0:09:04.320 in our Bloomberg Interactive Broker Studios, God leving On, Chief 0:09:04.360 --> 0:09:07.600 economists for North America at the Conference Board. The Leading 0:09:07.640 --> 0:09:11.079 Economic Indicator Index came out today with an update that 0:09:11.280 --> 0:09:14.600 was better than expected, showing an actual increase in February 0:09:14.640 --> 0:09:19.640 to zero point two. Uh increasing to zero point I'm 0:09:19.720 --> 0:09:24.320 just wondering, is this indicating that the FED is responding 0:09:24.360 --> 0:09:27.439 to something else other than weakness in the economy. I 0:09:27.760 --> 0:09:30.520 think so. I don't think the FED knows more than 0:09:30.600 --> 0:09:33.079 the rest of us about the economy and about the 0:09:33.200 --> 0:09:38.079 future of the economy. UM. I think that the weakness 0:09:38.160 --> 0:09:40.920 and economy that we are seeing right now is not 0:09:41.120 --> 0:09:46.280 a surprise. I think it's a reaction to a very 0:09:46.360 --> 0:09:52.120 traumatic December in the especially in retail sales and some 0:09:52.320 --> 0:09:55.520 of the declining industrial production and you orders that we 0:09:55.600 --> 0:09:59.160 are seeing since then. He is a result of that decline. 0:09:59.240 --> 0:10:02.079 But the fundamental terms of the economy I think are 0:10:02.280 --> 0:10:05.800 not very different than they were three or four months ago. Um, 0:10:06.080 --> 0:10:11.120 And I think they're surprisingly dovish. Yeah. It's interesting to 0:10:11.559 --> 0:10:13.400 get the data that came up in the Leading Economic 0:10:13.440 --> 0:10:16.199 Indicator today from the Conference Board, better than expected, showing 0:10:16.280 --> 0:10:19.400 some strength. UM. So what do you think the FED 0:10:19.640 --> 0:10:23.079 is looking at to effectively double down on their dovishness 0:10:23.160 --> 0:10:25.600 if you will yesterday? What what what are they saying 0:10:25.600 --> 0:10:29.120 that maybe we're not? Yeah. I just think they made 0:10:29.160 --> 0:10:32.280 the decision when they saw that in December that they 0:10:32.320 --> 0:10:34.480 are going to be blamed for a recession if it 0:10:34.640 --> 0:10:37.880 was to come, and they don't. They are scared and 0:10:38.000 --> 0:10:41.640 they don't want this responsibility. I think they because of that, 0:10:41.760 --> 0:10:45.960 they made the shift, and they're using the economic outlook 0:10:46.080 --> 0:10:51.600 is almost as an excuse to m justified their shift. 0:10:51.920 --> 0:10:55.079 But I don't think there is indeed the reason to 0:10:55.200 --> 0:10:59.600 be very dovish or very pessimistic about the future outlook. 0:11:00.000 --> 0:11:04.120 Think they made a mistake. Um, I think it really 0:11:04.240 --> 0:11:09.480 depends on your ideology and other things. I think that thing. Yeah, 0:11:09.520 --> 0:11:14.120 I think that there is certainly more likelihood of increasing 0:11:14.200 --> 0:11:17.920 inflation then I think the FED leads us to believe. 0:11:18.120 --> 0:11:20.839 Right now, I think if we close our eyes and 0:11:21.400 --> 0:11:26.040 use our imagination and use the forecast of most economist, 0:11:26.120 --> 0:11:29.080 what we'll get is an economy that is growing by 0:11:29.120 --> 0:11:31.600 two to two and a half percent in the next 0:11:31.760 --> 0:11:37.240 six months or so, labor market tightening further, wages accelerating further, 0:11:37.840 --> 0:11:42.480 and in that scenario, I think having a higher inflation 0:11:42.679 --> 0:11:45.920 is a very likely outcome is that bad. I mean, 0:11:46.240 --> 0:11:49.959 higher wages isn't very good thing, that's a good So again, 0:11:50.000 --> 0:11:53.880 it depends what your goals are. If if your main 0:11:54.000 --> 0:11:56.839 goal is to control inflation and make sure that it 0:11:56.960 --> 0:12:02.240 doesn't go above what your comforts on, then I think 0:12:03.240 --> 0:12:06.640 this is a mistake. If you're willing to let inflation 0:12:06.760 --> 0:12:11.719 go higher or risk that inflation go higher, but have 0:12:12.080 --> 0:12:15.280 more people joined the labor market and having higher wages 0:12:15.400 --> 0:12:18.400 than I think that's a very legitimate decision. So to 0:12:18.480 --> 0:12:21.680 what extent do you think the FED chairman power are 0:12:21.720 --> 0:12:25.319 being influenced by some of the geopolitical issues in the world, 0:12:25.920 --> 0:12:31.160 China slowing down, trade issues with China, European Union certainly 0:12:31.200 --> 0:12:33.959 the economic weakness there and Brexit just adding on to it. 0:12:34.000 --> 0:12:36.480 How much do you think they took those issues into 0:12:36.559 --> 0:12:40.439 account in kind of surprising the market with their town yesterday. 0:12:41.280 --> 0:12:46.480 I think it's it's a factor that affects the outlook definitely, 0:12:47.040 --> 0:12:51.160 but it's not something that is new. The weakening in 0:12:51.400 --> 0:12:54.079 China and Europe has been going on for several months. 0:12:54.800 --> 0:12:57.760 I think, if anything, in terms of the fundamentals, they 0:12:57.800 --> 0:12:59.760 are good news. In recent months, the end of the 0:13:00.240 --> 0:13:05.440 down the increasing stock prices, the improvement or the smaller 0:13:05.559 --> 0:13:07.720 chances of a trade war with China. I think all 0:13:07.760 --> 0:13:10.960 of those are good things, and I think that would 0:13:11.000 --> 0:13:15.839 be reflected in the outlook going forward. I'm still going 0:13:15.920 --> 0:13:18.640 back to inflation, the idea that inflation could pick up 0:13:18.720 --> 0:13:22.199 more than people expect later this year. What's going to 0:13:22.280 --> 0:13:25.520 be driving that. Why is this time different, this late 0:13:25.559 --> 0:13:28.559 in the cycle, since we haven't seen a real acceleration 0:13:28.600 --> 0:13:34.760 inflation until now, right, I think we didn't have as 0:13:34.920 --> 0:13:37.800 fast of a wage growth as we have right now. 0:13:37.960 --> 0:13:41.720 I think the in twenty eighteen, it's the first time 0:13:41.760 --> 0:13:45.120 that we actually saw a visible increasing wages in the 0:13:45.200 --> 0:13:49.080 main measures, they're getting close to three and a half percent. 0:13:49.840 --> 0:13:52.800 And I think also revenues will grow more slowly in 0:13:53.800 --> 0:13:56.679 simply because the economy will slow down. So when you 0:13:56.800 --> 0:14:00.000 have an increase in labor cost and slow down in revenue, 0:14:00.520 --> 0:14:04.520 that will put a significant pressure on profits, and companies 0:14:04.600 --> 0:14:07.280 in many cases will choose to shift some of the 0:14:07.360 --> 0:14:10.520 costs to the consumer. So I think I think we 0:14:10.640 --> 0:14:13.280 now have a better chance of getting higher inflation than 0:14:13.360 --> 0:14:16.800 any time in this expansion. God Levanon, thank you so much. 0:14:16.800 --> 0:14:19.800 We appreciate you. Coming in god Lebanon, chief Economist for 0:14:19.840 --> 0:14:22.600 North America for the conference board, joining us in our 0:14:22.640 --> 0:14:45.520 Bloomberg Interactive Broker studio. Well, yesterday we had the FED 0:14:45.840 --> 0:14:49.440 double down on its dobish stance, perhaps maybe seeing something 0:14:49.520 --> 0:14:51.360 in the economy that the rest of us don't see. 0:14:51.800 --> 0:14:53.520 To dig into that a little bit more, we welcome 0:14:53.560 --> 0:14:57.040 our guest Bill Zox. Bill is the chief investment Officer 0:14:57.120 --> 0:15:00.440 of fixed income at Diamond Hill Capital Management approximate nineteen 0:15:00.440 --> 0:15:03.440 billion dollars under management, based in Columbus, Ohio, but he 0:15:03.560 --> 0:15:06.360 joins us here in a Bloomberg Interactive Broker studio. Bill 0:15:06.440 --> 0:15:10.440 welcomed to our studio. What did you take away from 0:15:10.640 --> 0:15:13.880 the Fed's report and from the comments from chair Chairman 0:15:13.880 --> 0:15:16.840 Pal yesterday? Well, I was surprised. I think the FED 0:15:17.040 --> 0:15:20.800 was clearly too tight in December. The Fed needs to 0:15:20.960 --> 0:15:25.040 pay attention to market signals, but in this case, now 0:15:25.160 --> 0:15:27.640 the Fed is paying too much attention to market signals. 0:15:27.680 --> 0:15:30.640 I think that the Fed is overcorrected and gone too 0:15:30.760 --> 0:15:33.160 far in the other direction, given the market even more 0:15:33.240 --> 0:15:36.200 than what it really wants or needs at this stage. Well, 0:15:36.240 --> 0:15:39.920 what's the consequence, I mean, what's the what's the detrimental consequence. Well, 0:15:39.960 --> 0:15:42.480 I think it's it's not a good situation when you've 0:15:42.680 --> 0:15:47.320 basically priced volatility out of all assets are largely priced 0:15:47.400 --> 0:15:50.400 volatility out. I think it's better when assets are are 0:15:50.480 --> 0:15:54.080 priced for some volatility. So basically, the fear here is 0:15:54.240 --> 0:15:56.760 that if the FED holds rates too long, it can 0:15:56.880 --> 0:15:59.760 create I don't want to say bubbles, but certainly excesses 0:15:59.840 --> 0:16:02.200 and different areas in different markets. And people point to 0:16:02.280 --> 0:16:04.920 stocks or HW yield bonds. But the interesting thing is 0:16:05.000 --> 0:16:07.200 is that following the FED meeting, you didn't really see 0:16:07.320 --> 0:16:10.720 that gut reaction. You actually saw the knee jerk was 0:16:10.880 --> 0:16:14.200 risk off and you saw credit spreads widen. Actually, so 0:16:14.520 --> 0:16:16.520 how do you sort of square these sort of uh, 0:16:17.080 --> 0:16:20.760 these these these developments. Well, we've seen such a tremendous 0:16:20.840 --> 0:16:25.360 move back in risk assets since late last year, and 0:16:25.440 --> 0:16:27.400 I think if you look at the treasury market, should 0:16:27.440 --> 0:16:30.000 high yield spreads are about four d basis points right now. 0:16:30.080 --> 0:16:32.600 If you look at the treasury market, high old spreads 0:16:32.600 --> 0:16:35.320 should probably be somewhat wider than that. There's a disconnect 0:16:35.400 --> 0:16:38.800 between the two markets. So where are you thinking about? 0:16:39.160 --> 0:16:41.200 Where do you see opportunity? Where do you see value. 0:16:41.240 --> 0:16:43.000 I know you principally play in the high yield market. 0:16:43.040 --> 0:16:45.480 Is that right? So where are you seeing some opportunity here? 0:16:45.880 --> 0:16:50.040 Principally in the high yield market? But uh, ironically, as 0:16:50.200 --> 0:16:53.640 high yield investors are moving up in quality, they're making 0:16:53.720 --> 0:16:57.280 double B corporate bonds very rich, and his investment grade 0:16:57.280 --> 0:17:00.760 investors are moving up in quality, they're actually making triple 0:17:00.840 --> 0:17:04.320 B bonds, certain triple B bonds attractive. So one theme 0:17:04.520 --> 0:17:07.280 is to sell double bees that are priced like investment 0:17:07.320 --> 0:17:10.760 grade and buy triple bees that are priced like high yield. 0:17:11.680 --> 0:17:14.800 That's really interesting going forward, I'm wondering, are we out 0:17:14.920 --> 0:17:18.560 of Goldilocks? Where is the FED remains? Do wish? Uh? 0:17:18.840 --> 0:17:21.439 And and even stops it's a balance sheet roll off 0:17:22.040 --> 0:17:25.520 that won't be as supportive for credit going forward because 0:17:25.520 --> 0:17:28.359 of how much it's already rallied. That's exactly right. I 0:17:28.400 --> 0:17:32.560 think Goldilocks was basically priced into the market, and now, uh, 0:17:32.960 --> 0:17:36.720 for the data to confirm a Goldilocks scenario like that 0:17:36.920 --> 0:17:39.440 is very unlikely. So that means that bad news will 0:17:39.440 --> 0:17:42.159 be bad news when it comes to the economy. I 0:17:42.240 --> 0:17:44.480 think that's right. So you know, one of the things 0:17:44.520 --> 0:17:46.159 I think a lot of people. Obviously, we're surprised. I 0:17:46.200 --> 0:17:48.719 think I'm sensing your sense of surprise about how doubbish 0:17:48.880 --> 0:17:50.679 the FED was. You say, do you think they are 0:17:50.840 --> 0:17:53.760 seeing something that maybe the market is not, and if so, 0:17:53.880 --> 0:17:57.400 what do you think that could be. I don't think 0:17:57.480 --> 0:18:00.679 that's the case, but the market is very concerned about that. Uh, 0:18:00.840 --> 0:18:02.720 you know, I think that. I just don't understand. The 0:18:02.800 --> 0:18:05.920 FED was not paying enough attention to market signals in December. 0:18:06.320 --> 0:18:08.520 Now they're paying too much attention. That's all I can say. 0:18:08.560 --> 0:18:10.080 I thought I thought it should be more of a 0:18:10.160 --> 0:18:12.640 give and take with the markets. When you talk about 0:18:12.680 --> 0:18:15.840 the high old bond market, there have been a number 0:18:15.920 --> 0:18:19.280 of idiosyncratic moves. It's sort of up moving from a 0:18:19.400 --> 0:18:22.720 macro driven market to a very micro driven market with 0:18:22.840 --> 0:18:27.160 specific companies either doing really well, they're dead, or really poorly. 0:18:27.320 --> 0:18:31.520 I'm just wondering, specifically within sectors companies, where do you 0:18:31.640 --> 0:18:36.159 see the opportunities right now? Yeah, you know, I'll give 0:18:36.200 --> 0:18:39.240 you one example that's sort of interesting and there to 0:18:39.440 --> 0:18:42.639 Detroit companies. It's consistent with a theme that I just mentioned. 0:18:43.080 --> 0:18:47.399 It's Motor City, a single casino credit in Detroit and 0:18:47.560 --> 0:18:51.359 Ford Motor and we're buying Ford motor and we've sold 0:18:51.400 --> 0:18:54.200 motor City. That's what I was talking about before. Motor City, 0:18:54.720 --> 0:18:57.280 a double B low double be credit priced inside of 0:18:57.320 --> 0:19:00.920 two d basis points credit spread. Forward opened up the 0:19:01.040 --> 0:19:03.640 investment grade market this year with a three year bond 0:19:03.680 --> 0:19:08.200 priced at three basis points over treasury. So there's a 0:19:08.280 --> 0:19:10.720 disconnect for you. Are there some sectors in the high 0:19:10.800 --> 0:19:12.680 yield to sectors within the hig yield that you like 0:19:12.960 --> 0:19:15.800 right now? Um or? Is everything a little rich from 0:19:15.920 --> 0:19:18.720 your perspective? I mean it's you have to be careful. 0:19:18.800 --> 0:19:21.639 We're late cycle. You've got to be careful in the 0:19:21.680 --> 0:19:24.320 high yield market. But we always like financials more than 0:19:24.760 --> 0:19:27.639 our peers, and and we definitely find things to do 0:19:27.720 --> 0:19:31.600 in financials. I'll give you another Detroit Credit Credit Acceptance, 0:19:31.640 --> 0:19:34.560 a subprime auto lender, which is a very well managed company. 0:19:34.600 --> 0:19:37.920 You're bullish on Detroit? Do we do like Detroit? Even 0:19:37.920 --> 0:19:42.040 though from Columbus, Ohio? I like Detroit Credits. So, Bill, 0:19:42.160 --> 0:19:46.280 you said late cycle. When do you expect the cycle 0:19:46.400 --> 0:19:50.120 to turn and defaults to really meaningfully pick up? Yeah? 0:19:50.119 --> 0:19:53.760 I mean that that that's hard to call. Uh, you know, 0:19:53.920 --> 0:19:57.920 I think that the cycle the FED is doing what 0:19:58.119 --> 0:20:01.080 it can to extend the cycle, but things can shift 0:20:01.240 --> 0:20:04.320 very quickly and and markets will probably drive it like 0:20:04.440 --> 0:20:07.280 they did in the fourth quarter, where fundamentally not a 0:20:07.320 --> 0:20:10.520 lot was happening, but the massive increase in volatility and 0:20:10.600 --> 0:20:15.600 markets increased the probability of recession quite dramatically. Thank you 0:20:15.680 --> 0:20:18.440 so much for being with us. Bill's ocks. He is 0:20:18.520 --> 0:20:21.080 the chief Investment Officer of fixed Income at Diamond Hill 0:20:21.320 --> 0:20:25.360 Capital Management. Joining us here in our Bloomberg Interactive Brokers 0:20:25.400 --> 0:20:42.440 Studios Well Levi Strauss. They priced their ip O last 0:20:42.520 --> 0:20:45.639 night at seventeen dollars per share, that was above the 0:20:45.920 --> 0:20:48.240 I p O range of fourteen and sixteen, and looking 0:20:48.280 --> 0:20:50.440 on my Bloomberg terminal right now, the stock is not 0:20:50.560 --> 0:20:53.000 open for trading yet today, but it is indicating even 0:20:53.119 --> 0:20:54.920 higher at twenty and a half to twenty one and 0:20:54.960 --> 0:20:57.520 a half is the range. So clearly a lot of 0:20:57.560 --> 0:21:00.439 investor appetite for this name. To help us kind breakdown 0:21:00.520 --> 0:21:01.800 the deal and take a look at the company in 0:21:01.840 --> 0:21:05.520 the space is Hen razutas Hen is the apparel and 0:21:05.640 --> 0:21:08.639 Footwell Footwear an also Bloomberg Intelligence. He joins us on 0:21:08.640 --> 0:21:11.520 our Bloomberg Interactive Brooker's studio. Hen, thanks so much for 0:21:11.640 --> 0:21:14.720 coming in. So what does the market really like about 0:21:14.800 --> 0:21:16.520 this name? I mean, again, it seems like a lot 0:21:16.600 --> 0:21:19.639 of demand above where investors are or the investment bankers 0:21:19.800 --> 0:21:23.959 initially put the ip O range on, right. So obviously 0:21:24.000 --> 0:21:26.879 a big name with a long legacy, big history in 0:21:27.000 --> 0:21:29.879 the apparel space. Um that we don't see too many 0:21:29.960 --> 0:21:31.520 I p o s and in the space in the 0:21:31.600 --> 0:21:33.760 last year's you know, we would more companies bankrupt or 0:21:33.880 --> 0:21:37.840 going private. So that's that's a that's unusual. What I 0:21:37.920 --> 0:21:40.680 think people like about it is a very uh, relatively 0:21:40.760 --> 0:21:42.880 low valuation they put on the deal in the first place, 0:21:43.080 --> 0:21:45.600 UM on an if it that basis, it was about 0:21:45.640 --> 0:21:49.479 eight and a half UM, where the industry averages around eleven. 0:21:50.200 --> 0:21:52.160 So I think that's kind of the movement we've seen 0:21:52.240 --> 0:21:56.239 this morning. Why are they doing an IPO or why 0:21:56.320 --> 0:21:58.080 have they just one one? I guess and we're waiting 0:21:58.119 --> 0:22:01.359 to see how it actually trades. But why now? Right? 0:22:01.400 --> 0:22:03.560 So eve Strice is a company, you know, family owned 0:22:03.560 --> 0:22:06.280 company house family, um, you know own it for ages 0:22:06.400 --> 0:22:09.800 and I think you know, to have some liquidity in 0:22:09.880 --> 0:22:12.040 their stake they have in the company. They're they're putting 0:22:12.040 --> 0:22:15.159 out the percent of the company. So what is all right, 0:22:15.200 --> 0:22:17.040 So what's the investment case here is this? Is this 0:22:17.160 --> 0:22:19.920 like any kind of growth in this business? UM? What 0:22:20.000 --> 0:22:22.359 are investors buying here? Right? So first of all, the 0:22:22.400 --> 0:22:25.160 core business is the bottoms, right that the genes, it's 0:22:25.160 --> 0:22:28.480 about sev The revenue, it's a it's a big category, 0:22:28.680 --> 0:22:31.600 all right, it's about hundred billion dollars. And then I 0:22:31.640 --> 0:22:34.440 think about this specific company, UM a lot like Nike 0:22:34.560 --> 0:22:36.560 what we see in Athletic. In every region that they 0:22:36.600 --> 0:22:39.240 operate there they hold the number one position. So in 0:22:39.240 --> 0:22:41.440 the US it is almost thirteen percent of market share 0:22:41.600 --> 0:22:44.879 just one company. UH in any other region are number one. 0:22:44.920 --> 0:22:47.040 Europe they're only number two. So I think people are 0:22:47.040 --> 0:22:48.840 looking at it saying, you know, it's the best in 0:22:48.960 --> 0:22:52.240 breed in that specific category that's to start. UM. I 0:22:52.359 --> 0:22:55.159 think after they're going public, they do have opportunities to 0:22:55.280 --> 0:22:58.440 venture out of the core business, to go into there's 0:22:58.440 --> 0:23:03.840 a story today about going into tops, sweatshirt, T shirts, etcetera. UM, accessories, footwear, 0:23:04.160 --> 0:23:06.679