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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moven news.

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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 1: Let's bring in some smart people here to talk rage,

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Speaker 1: to talk banks, to talk to you know, where things

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Speaker 1: are going here, Ira Jersey, He's a chief EOS interest

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Speaker 1: rates strategist. He's phoning it in and I love that

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Speaker 1: about him. From somewhere in Jersey, Herman Chan in the

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Speaker 1: Bloomberg Interactive Brooker's studio. So, Ira, you know, I typed

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Speaker 1: in FED go into my terminal, and I see we

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Speaker 1: got a FED meeting on May third, give us a preview.

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Speaker 3: Yeah.

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Speaker 4: So, after today's GDP report, which showed, you know, slightly

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Speaker 4: higher than expected inflation data, I think that that Wednesday's

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Speaker 4: FED is definitely gonna Hi. I think that that's almost

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Speaker 4: a gift. And I think the question now is under

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Speaker 4: what circumstances might they go further? Because we still have

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Speaker 4: some of these concerns, and I'm sure we've talked about

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Speaker 4: this with Herman about credit potentially starting to contract in

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Speaker 4: a pretty meaningful way and that could have serious effects

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Speaker 4: on the economy in the second half of the year

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Speaker 4: and going into twenty four. So I do suspect that

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Speaker 4: this might be the last hike. It's not a given

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Speaker 4: that'll be the last hike, but I do think that

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Speaker 4: the FED is much closer to being done than they

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Speaker 4: are to continue hiking.

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Speaker 1: So, you know, hermit hanging.

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Speaker 2: Can I correct myself because I was far off the

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Speaker 2: average US home price and immediately got a couple of

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Speaker 2: listener emails. Oh good, Okay, But so I did actually

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Speaker 2: put it into being and Bing tells me that the

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Speaker 2: average US home price varies depending on the source and

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Speaker 2: the type of measurement used, but the medium home median

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Speaker 2: home sales price, which is the middle point of all transactions,

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Speaker 2: is reported to be between three hundred and twenty one

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Speaker 2: thousand and four hundred and forty thousand dollars as of

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Speaker 2: twenty two.

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Speaker 1: And then and then they gave me.

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Speaker 2: Four sources that they used, which is I love this

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Speaker 2: new chat search function.

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Speaker 1: It's I mean, I just think it's cool.

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Speaker 2: Because they give you pretty decent answers and then they

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Speaker 2: source so so I can dig in if I want

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Speaker 2: to know. But yeah, so between three twenty and four

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Speaker 2: forty three seventy it's still far lower than sixteen million. Yes,

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Speaker 2: it's right, it is. So I guess our good friends

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Speaker 2: on hampsons are not necessary. Let me let me ask

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Speaker 2: Herman Chance. So, Herman, how were these mortgage products? First

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Speaker 2: of all, thank you for giving us some of your time.

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Speaker 2: I know how in demand you are. Herman Chand covers

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Speaker 2: regional banks for us at Bloomberg Intelligence Inteligence and is

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Speaker 2: now the most famous person in the building. What what

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Speaker 2: were the mortgage products? I know I flubbed that as well,

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Speaker 2: But was it you get interest only rate for ten

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Speaker 2: years and then you trip into a normal thirty year

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Speaker 2: fixed mortgage.

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Speaker 5: Usually it's the io period. It's just only period either

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Speaker 5: five years or ten years, and then you wouldn't go

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Speaker 5: to a normal interest rate. You would refinance that loan

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Speaker 5: again and then do another loan, maybe the same sort

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Speaker 5: of product, but then start the start the interest only

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Speaker 5: period all over again.

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Speaker 1: All right, So Herman, just looking at these banks, Paul,

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Speaker 1: did you get that kind of rate? When you bought

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Speaker 1: your I did not your lat Jersey state on the

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Speaker 1: Jersey Shore, No I did. I did not. Unfortunately, apparently

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Speaker 1: so Herman, I'm done with FRC. I'm done.

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Speaker 2: I mean, dude, Ben Emmon said said out a note

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Speaker 2: last night or two nights ago, saying that FA flight

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Speaker 2: is now a huge problem for them.

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Speaker 1: So I think, what flight financial advisor flight?

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Speaker 2: So basically they lost one hundred billion dollars of assets

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Speaker 2: in Q one and then they said in their call

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Speaker 2: in which they took no Q and a deposit, flight

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Speaker 2: was only one point seven percent in April. So I thought, oh,

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Speaker 2: that's right, that's tapering down to nothing. But I think

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Speaker 2: after the huge stock crash two days ago, a lot

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Speaker 2: of financial advisors or those who are still left, said listen,

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Speaker 2: I'm gonna take all my clients, all their assets, and

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Speaker 2: we're going to Morgan Stanley, We're going to JP Morgan,

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Speaker 2: We're going to Goldmansax.

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Speaker 1: They're leaving.

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Speaker 5: That's the risk that all the productive folks at the

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Speaker 5: Biggs now try to find greener pastures. The earnings released

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Speaker 5: earlier in the week had mentioned that of the financial

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Speaker 5: advisors that had left prior to earnings, they represented less

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Speaker 5: than twenty percent of assets in their management, but you

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Speaker 5: can presume that that number is only growing by the day.

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Speaker 1: I'm talking soccer with you. I have had enough of you two.

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Speaker 1: I mean, we're gonna have a fed on, you know,

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Speaker 1: May third, and I'll raise twenty five basis points and

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Speaker 1: we'll get you then, to read the tea leaves so

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Speaker 1: man City for one over arsenal John Farrell's telling me

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Speaker 1: I had to make time on my day yesterday to

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Speaker 1: watch that. Of course I did not. What did you

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Speaker 1: take away?

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Speaker 4: I actually have not seen that. I tried to avoid

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Speaker 4: watching Manchester City.

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Speaker 1: Really why is that?

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Speaker 4: You know, evil empire kind of stuff? The because I

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Speaker 4: support a team that that is their arch enemy.

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Speaker 1: Who do you support? Who's your team?

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Speaker 2: So?

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Speaker 4: Why support Afton Villa in the Premier League?

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Speaker 1: But okay, now, why do you now, as an ugly American,

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Speaker 1: how do we pick teams to follow?

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Speaker 6: Like?

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Speaker 1: How did you pick Aston Villa? I couldn't pick that.

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Speaker 4: I have a well, I had a close connection. So

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Speaker 4: I did a postgraduate degree at the University of Birmingham

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Speaker 4: in the Midlands of England, and Afton Villa was the

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Speaker 4: closest Premier League team to where I was so so

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Speaker 4: this was back in nineteen ninety three, ninety four, and

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Speaker 4: when I was there, we you know, I went to

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Speaker 4: like eight or nine matches, and so I just became

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Speaker 4: a Villa supporter. People would say like, hey, Liverpool's come

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Speaker 4: into town, let's go to Villa Park to watch a match.

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Speaker 4: And I just wanted so many matches. I became a supporter.

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Speaker 1: That's how it happens. Man. Yeah, very cool, the ugly

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Speaker 1: American in England. I actually heard last night.

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Speaker 2: A very cool interview Carol Masser had on Alexis Ohanian.

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Speaker 2: I don't think that's too far off the beaten bank

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Speaker 2: rates path. But Alexis o'hanian, who of course made his

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Speaker 2: money I think originally from Reddit, but he's super rich

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Speaker 2: from other stuff. Married to married Divinus william Serena Serena Williams.

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Speaker 7: Sorry.

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Speaker 2: He he bought women's soccer team in Los Angeles, Angel City.

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Speaker 2: I think or went in to start it right, and

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Speaker 2: he was saying the coolest the coolest part of what

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Speaker 2: he was saying, I should say, is that he didn't

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Speaker 2: do it because now he has a wife and a daughter,

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Speaker 2: and all of a sudden, like he realizes the importance

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Speaker 2: of equity equality, gender equality, but because he looked at

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Speaker 2: their Twitter following and the deals they were getting as

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Speaker 2: individual players, the popularity of these women, So many people

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Speaker 2: are interested in what they had to say and are

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Speaker 2: paying money for their the goods that they're selling. And

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Speaker 2: he said the collective value of the team was far

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Speaker 2: less than even one player. Yeah, you know, interesting. Yeah

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Speaker 2: for him, he said, it's a huge business opportunity. And

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Speaker 2: he also bought a little piece for his now five

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Speaker 2: year old daughter. She's the youngest sports own owner in America.

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Speaker 1: All Right, I were real quick third thirty seconds, twenty

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Speaker 1: five basis points on the third. Are we done then?

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Speaker 6: Yeah?

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Speaker 4: I think we very well. Maybe, but obviously, if we

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Speaker 4: keep on getting inflation data that creeps higher and higher,

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Speaker 4: it's possible that they go another twenty five in June.

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Speaker 4: But I think after that that they'll be done because

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Speaker 4: the Fed is worried about going too far and they

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Speaker 4: don't want to plunge the economy into a recession.

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Speaker 1: All right, Ira Jersey, he's our guy on the rates.

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Speaker 1: I mean, we'll talk to him next week. Of course,

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Speaker 1: we'll see what this Federal Reserve is going to do again.

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Speaker 1: Twenty five basis points kind of priced in IRA Jersey,

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Speaker 1: Chief US and straight strategist. Thank you so much, Herman

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Speaker 1: Chan in the studio. This man does not mail it in,

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Speaker 1: he does not phone it in. He's at his post

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Speaker 1: every day and he's been very widely needed here over

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Speaker 1: the past month and a half as we try to

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Speaker 1: navigate some of the turmoil, some of the stress in

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Speaker 1: the banking system, particularly on some of these regional banks.

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Speaker 1: And we also have the credit Swiss ubs thing, so

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Speaker 1: there's been some challenges there in the banking space and

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Speaker 1: that's spoop the market a little bit. So we're appreciative

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Speaker 1: of getting Herman's expertise.

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Speaker 7: You're listening to the Ken's Our Line program Bloomberg Markets

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Speaker 7: weekdays at ten am Eastern on Bloomberg dot com, the

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Speaker 7: iHeartRadio app and the Bloomberg Business App, or listen on

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Speaker 7: demand wherever you get your podcasts.

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Speaker 1: All right, let's be honest, folks. Bond Guy screwed up

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Speaker 1: bad last year. I mean, double digit declients everywhere across

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Speaker 1: the fixed income space. But they're making up for it

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Speaker 1: a little bit here. In twenty twenty three, the Bloomberg

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Speaker 1: u US Aggregatortal return value unheedged index whatever that is,

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Speaker 1: is up three point four to six percent year to date,

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Speaker 1: so that's pretty good. So let's bring in George Bori.

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Speaker 1: He's a chief investment strategist covering fixed income space for

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Speaker 1: all Spring Global Advisors, who are located just outside of

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Speaker 1: Lovely Milwaukee, Wisconsin, but he's based here in New York.

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Speaker 1: He joins us here in our Bloomberg Interactive Broker Study.

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Speaker 1: We appreciate you coming in, George. You get a gold

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Speaker 1: star for showing up and not phoning it in. Talk

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Speaker 1: to us about the difference between this year to date

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Speaker 1: and what you guys had to do with last year.

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Speaker 8: Yeah, well, good morning, thanks for having me on the show.

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Speaker 1: We're a very different.

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Speaker 8: Point in the economic cycle. You know, the Fed's obviously

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Speaker 8: much more advanced in terms of rate tightening, and although

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Speaker 8: we continue to see, you know, some ongoing inflation pressures.

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Speaker 8: What we like to say is, you know, inflation's off

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Speaker 8: the boil, but it's still still pretty hot and coming down.

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Speaker 1: So you need it to come down.

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Speaker 2: So you think, then we're set up for one more

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Speaker 2: hike and then hold. I mean that's pretty much consensus.

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Speaker 2: But if we have financial stability, assuming we don't have

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Speaker 2: a banking industry and crisis. I can't imagine why the

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Speaker 2: Fed would hold at you know, still between five and

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Speaker 2: six percent of sticky inflation.

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Speaker 8: Now today's data makes it tricky, and you know, I

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Speaker 8: think the bias is to move to a pause, but

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Speaker 8: you know, they don't have the all clear. They certainly

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Speaker 8: don't have the cover to do it without some risk.

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Speaker 8: And so you know, yes, raising rates one more time

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Speaker 8: certainly makes sense. You know, we need to see in

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Speaker 8: FED funds rate above the level of core inflation. At

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Speaker 8: that point, you know, the Fed can be a little

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Speaker 8: bit more disciplined, but we're simply not there yet, and

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Speaker 8: with core inflation showing some signs of moving up, that

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Speaker 8: may keep pressure on them.

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Speaker 1: Yeah, we're at four point nine percent.

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Speaker 2: The core PCEE quarter of a quarter came in at

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Speaker 2: four point nine percent today, so we were looking for

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Speaker 2: four point seven percent. Yeah, that's going the wrong direction essentially.

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Speaker 1: Yeah, all right, So George, I'm not sure if you

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Speaker 1: can't keep a job or you just like working all

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Speaker 1: over Wall Street JP Morgan Ubs Securities, Wells Farger. You've

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Speaker 1: been doing is for a long time. Where are you, guys?

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Speaker 1: Given where we are in cycle. Given where we are

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Speaker 1: with the FED, where are you guys at offspring thinking

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Speaker 1: about the best opportunities at fixed income right here?

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Speaker 8: So these were all tactical moves, just to be very

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Speaker 8: self initiated, not firm initiated, at least not yet.

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Speaker 1: So hopefully that continues.

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Speaker 8: But I think if I've learned anything over thirty plus years,

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Speaker 8: you know, as a fixed income investor, income matters. You know,

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Speaker 8: that's ninety plus percent of your return as you move

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Speaker 8: through time, and your best forward looking indicator or predictor

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Speaker 8: of returns is just your simple starting yield. So beginning

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Speaker 8: of the year, yields are pretty high. You know, that

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Speaker 8: was sort of a good entry point from our perspective

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Speaker 8: to certainly make a meaningful move into fixed income. You know,

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Speaker 8: as the year has unfolded, you know, with all these

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Speaker 8: sort of conflicting economic signals and really sort of the

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Speaker 8: reminder that yields are relatively high, adding duration to your

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Speaker 8: portfolio is effectively the kicker. That's really where you're gonna

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Speaker 8: get a little bit of extra return in the portfolio.

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Speaker 8: And we've seen that so far year to date. As

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Speaker 8: you mentioned the ag up, you know, let's call it

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Speaker 8: three and a half percent year to date. That's pretty

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Speaker 8: good by bond in bond terms for three months or

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Speaker 8: four months of effort. And so to the extent, you know,

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Speaker 8: expectations are that number could probably double over the course

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Speaker 8: of the year. You know, seven percent return doesn't necessarily

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Speaker 8: earn back everything from last year, but gets you, you know,

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Speaker 8: almost half of what we love. And so as we

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Speaker 8: move through time, you want to compound at the highest

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Speaker 8: rate possible, and we're doing that basically in just about

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Speaker 8: every strategy that we manage.

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Speaker 2: What's on your dashboard, George, when you look especially at

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Speaker 2: you know, the try to engage the health of corporate

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Speaker 2: America or you know, corporates globally, it seems from looking

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Speaker 2: at spreads to.

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Speaker 1: Me like they're pretty healthy.

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Speaker 2: But if I look at other interest rate indications, we're

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Speaker 2: headed for a recession. So how do you what's the

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Speaker 2: data that you look at every morning to do your job?

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Speaker 8: Yeah, I mean, I think what's unique about this cycle?

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Speaker 8: You know, it's not a great surprise, but inflation is

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Speaker 8: both you know, it's it's a it's a double edged sword.

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Speaker 8: You know, it generates a lot of nominal income for

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Speaker 8: both individuals as well as companies, and that nominal income

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Speaker 8: is ultimately used to pay back debts. So when we

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Speaker 8: see companies that have good, solid balance sheets, ones that

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Speaker 8: are pretty well funded, not a lot of immediate borrowing needs,

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Speaker 8: and relatively low cost of debt, they're in a good

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Speaker 8: position to kind of weather a lot of economic volatility.

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Speaker 8: And that's really what we're seeing, and that kind of

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Speaker 8: moves up and down the rating spectrum. That's not just

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Speaker 8: you know, the very highly rated triple A rated of

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Speaker 8: the few that exist companies in the world, but that

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Speaker 8: can kind of go all the way down kind of

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Speaker 8: the credit spectrum. And so what do I worry about.

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Speaker 8: I worry about companies and individuals that are attached to

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Speaker 8: floating rate debt costs because they've gone up, they've gone

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Speaker 8: up a lot, they've gone up quickly, and they are

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Speaker 8: now sort of working through and we're seeing it in earnings.

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Speaker 8: You're seeing you're seeing margin pressure. You're seeing now that

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Speaker 8: a reduction in capital spending and all that has to

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Speaker 8: do with the cost of capital. So that is working

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Speaker 8: its way through the system. But we don't have the

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Speaker 8: same kind of pressures in say one specific sector like

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Speaker 8: we had in eight or even in the dot com

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Speaker 8: bubble back in two thousand and so this is kind

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Speaker 8: of a long drawn out exercise, and for us as

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Speaker 8: bond investors, you know, sort of that quality that that

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Speaker 8: company analysis becomes absolutely critical. We can build good portfolios

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Speaker 8: with good companies that have very strong predictive paying power,

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Speaker 8: and that's where you sort of grab today's yields. You

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Speaker 8: capture it, and you continuously compound it through time. If

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Speaker 8: you can avoid permanent impairment, you win.

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Speaker 1: George, I know you've got a lot of experience in

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Speaker 1: a high yield space here. You know, if I'm staring

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Speaker 1: down our recession, do I allocate capital incremental capital to

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Speaker 1: the highild space or might just too worried about again

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Speaker 1: the potential recession and credit quality and all that kind

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Speaker 1: of stuff.

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Speaker 8: I think that the basic, you know, sort of assumption

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Speaker 8: is avoid high yield going into a recession. You know,

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Speaker 8: it's a good rule of thumb, but it's not exclusive.

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Speaker 8: And as I mentioned, you know, what's unique about this

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Speaker 8: cycle is we have a wide range of companies that

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Speaker 8: have very very well funded capital structures that includes high

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Speaker 8: yield companies. I mean, if you just simply avoided the

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Speaker 8: lowest and riskiest sectors of the market like triple c's

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Speaker 8: that that you've already taken out, like the line's share

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Speaker 8: of default risk in the universe. You haven't eliminated it,

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Speaker 8: but you've taken most of it out. And so just

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Speaker 8: moving a little bit up in quality and focusing on

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Speaker 8: say triple b's, double B single bee companies. Those are

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Speaker 8: the ones that are kind of hovering between investment create

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Speaker 8: and high yield companies that are paying six, seven, sometimes

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Speaker 8: eight percent yields and have good earnings transparency as well

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Speaker 8: as a well funded capital structure. To us that those

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Speaker 8: are very attractive opportunities, So our messages don't throw the

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Speaker 8: baby out with the bathwater, you know, be willing to

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Speaker 8: sort of look for those high quality companies regardless of

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Speaker 8: their rating, and then stick with them as you move

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Speaker 8: through time. So, you know, we like that segment of

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Speaker 8: the market. We like it in the front end of

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Speaker 8: the curve, so shorter duration, so constrain some of that

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Speaker 8: interest rate sensitivity and sort of capture that sort of

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Speaker 8: seven percent running yield and just try and compound it

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Speaker 8: and use that income to fund other parts of your strategy.

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Speaker 1: All right, So I mean, in your high yield models,

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Speaker 1: are your analysts what are they kind of modeling in

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Speaker 1: here for top line? I know it varies by industry,

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Speaker 1: but I mean, are you guys, is your base case

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Speaker 1: a recession model that you guys have had in your

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Speaker 1: back pocket for several years? Are you bringing that recession

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Speaker 1: model out? And that's my base case.

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Speaker 8: Our base case is no growth. Okay, so high nominal growth,

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Speaker 8: zero real growth. In that world, companies still make money.

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Speaker 8: It's just in real terms, who has pricing power, who's

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Speaker 8: keeping pace with sort of the economic backdrop that we're seeing,

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Speaker 8: and so we're sort of seeming to be sliding in

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Speaker 8: that direction. Today's data tells us that we're in a

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Speaker 8: what we'd call kind of a slow flation world. You know,

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Speaker 8: maybe we're sliding towards stagflation, but we're not there yet.

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Speaker 8: But in a world of slow flation, there are companies

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Speaker 8: that are keeping pace with kind of pricing pressures. They're

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Speaker 8: maintaining their margins and for the most part, you know,

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Speaker 8: as a debt person, they don't have big borrowing needs.

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Speaker 1: They might have a lot of.

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Speaker 8: Debt to begin with, but they don't have a lot

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Speaker 8: of borrowing needs going forward. So from that perspective, we

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Speaker 8: can find good companies, and you know those are that's

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Speaker 8: what's in our high yield bond fund, that's what's in

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Speaker 8: our short duration high income fund. That's in kind of

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Speaker 8: our more aggressive fixed income strategies. And you know, those

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Speaker 8: prices move around, but the paying ability of those companies

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Speaker 8: is pretty strong.

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Speaker 1: All right, George, thanks so much for coming in. I

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Speaker 1: really appreciated George Borri. He is the chief investment strategist

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Speaker 1: covering all the fixed income stuff for Allspring Global Investments.

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Speaker 7: Here.

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Speaker 1: We appreciate them coming into the Bloomberg and Actor Broker studio.

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Speaker 1: Just looking at the yield right here in the treasury market,

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Speaker 1: we've got the ten year treasury up about seven basis

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Speaker 1: points three point five to one percent, a little bit

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Speaker 1: more action there, and movement in the two year space.

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Speaker 1: We got it up ten basis points four point zero

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Speaker 1: five percent on your two years, So getting paid the

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Speaker 1: kind of weight there in that short term paper that

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Speaker 1: kind of gets your attention.

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Speaker 7: You're listening to the Take kens Are program Bloomberg Markets

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Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, tune in app,

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Speaker 7: Bloomberg dot Com, and the Bloomberg Business App. You can

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Speaker 7: also listen live on Amazon Alexa from our flagship New

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Speaker 7: York station, Just say Alexa play Bloomberg eleven thirty.

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Speaker 1: We got Mara Goldstein. She's a biotech analyst at miss

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Speaker 1: Zuho and she joined us share Mara, thanks so much

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Speaker 1: for joining us. You really appreciate it. I know you

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Speaker 1: upgraded recently. Hang on, what go Mayra?

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Speaker 2: Before we get to the world of drugs, we got

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Speaker 2: to talk about your resume.

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Speaker 1: Go Alex Brown. I love Alex Brown.

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Speaker 9: Yeah, yeah, yeah, you're publicly outing me. But yeah, Alex Brown.

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Speaker 1: Was that in Baltimore? Or is that was that in Baltimore,

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Speaker 1: New York?

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Speaker 9: So I was here in New York, based in Baltimore.

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Speaker 1: All right, Yeah, Drew Marcus was my arch competitor at

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Speaker 1: alex bid.

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Speaker 4: Yeah.

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Speaker 1: Now we're good, good buddies. It brings me back to

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Speaker 1: my days at Tucker Anthony. Yeah, go back, back back.

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Speaker 1: I know you upgraded Merk recently. What's the call there?

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Speaker 1: I mean this is a big company. I forgot it's

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Speaker 1: so big, two hundred and eighty billion of market cap.

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Speaker 1: The stocks kind of unchanged here to date. What's your

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Speaker 1: call here on MERK?

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Speaker 9: So we upgraded Mark at the end of last year,

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Speaker 9: and it was based on our view that so Tattertep,

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Speaker 9: which is a product that the company acquired to the

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Speaker 9: acquisition of accelera On, would be a great product. We

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Speaker 9: saw the data, the Phase three data earlier this year.

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Speaker 9: It looks like it's it looks like it's going to

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Speaker 9: be a fabulous product. That's for an indication called pulmonary

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Speaker 9: arterial hypertension. It's a rare disease and the exists in

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Speaker 9: the cardiovascular space, but opportunity to expand out from there.

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Speaker 9: And then secondarily on the basis of the potential for

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Speaker 9: the company to offset some of the key trudea loss

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Speaker 9: of exclusivity that could happen later in the decade with

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Speaker 9: a subcutaneous formulation, and that process is underway right now.

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Speaker 9: Those clinical trials are underway. We only converted part of

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Speaker 9: key Trudi sales to the subcutaneous formulation in our model

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Speaker 9: in the app years, so there's definitely flexibility there. And

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Speaker 9: in general, our belief that the company would continue to

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Speaker 9: acquire and develop and have solutions, maybe not exactly dollar

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Speaker 9: for dollar, but that's already in the stock. For the

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Speaker 9: loss of the key Tete exclusivity, I mean Kytuta is

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Speaker 9: a fabulous, you know, oncology product. It's going to be

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Speaker 9: twenty you know, it's twenty billion dollars. So it's a

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Speaker 9: big you know, it's a it's a huge concentration of

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Speaker 9: revenue for the company.

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Speaker 1: Twenty billion dollars annually.

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Speaker 9: That'll be a twenty billion dollar product.

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Speaker 2: Unbelievable. Maybe they are charging too much for this stuff.

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Speaker 2: I mean, how much did they pay for it?

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Speaker 9: So Key Trudah came to the company shoot the acquisition

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Speaker 9: of sharing Plow, and it was something that sharing Plow

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Speaker 9: wasn't working on. Mark found it in the sharing Plow

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Speaker 9: sort of back office, if you will, to sort in

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Speaker 9: the back of the lab and developed it and it

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Speaker 9: is approved in you know, many many cancer indications. It

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Speaker 9: was originally approved in late stage disease. The company is

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Speaker 9: migrating it to use an earlier state disease. Some of

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Speaker 9: the biggest indications, or where most of the sales get

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Speaker 9: generated from, are things like non small cell lung cancer,

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Speaker 9: which is a very deadly disease and really allowing patients

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Speaker 9: truly to live longer lives. I mean, it's you know,

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Speaker 9: it has it's part of the handful of drugs the

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Speaker 9: im you know, oncology drugs that work by basically redirecting

437
00:21:21,200 --> 00:21:25,120
Speaker 9: the immune system in cancer, and it's been transformational for

438
00:21:25,240 --> 00:21:27,600
Speaker 9: a lot of late stage disease and now they're moving

439
00:21:27,600 --> 00:21:30,840
Speaker 9: it earlier. Just was approved in breast cancer for an

440
00:21:30,840 --> 00:21:33,760
Speaker 9: earlier form disease. So you know, there's a there's a

441
00:21:33,840 --> 00:21:36,159
Speaker 9: long way to go here, and they could continue to

442
00:21:36,160 --> 00:21:39,240
Speaker 9: see additional indications, additional combinations, things like that.

443
00:21:39,520 --> 00:21:43,439
Speaker 2: You know, every morning, I come in marat three and

444
00:21:43,480 --> 00:21:45,560
Speaker 2: I start looking on the Bloomberg I type in most

445
00:21:45,600 --> 00:21:49,080
Speaker 2: space U four to see the big movers in the market,

446
00:21:49,240 --> 00:21:52,360
Speaker 2: in the pre market, and there's always a company that's

447
00:21:52,480 --> 00:21:57,080
Speaker 2: up or down, like eighty ninety percent, it's inevitably a

448
00:21:57,119 --> 00:21:58,880
Speaker 2: biotech that either yeah.

449
00:21:59,040 --> 00:22:00,879
Speaker 1: Is going to get bought or didn't get bought.

450
00:22:01,720 --> 00:22:05,479
Speaker 2: What are these big companies looking for when they, you know,

451
00:22:06,200 --> 00:22:09,159
Speaker 2: screen for these little biotechs that may have a one

452
00:22:09,240 --> 00:22:09,800
Speaker 2: hit wonder.

453
00:22:10,680 --> 00:22:13,560
Speaker 9: Sure, I mean, companies acquire for a variety of reasons, right,

454
00:22:13,640 --> 00:22:17,800
Speaker 9: and so there are some reasons that aren't particularly connected

455
00:22:17,800 --> 00:22:20,560
Speaker 9: to the company's immediate top line. Right, there's some kind

456
00:22:20,560 --> 00:22:24,440
Speaker 9: of technology that they're interested in. Maybe there's also something

457
00:22:24,440 --> 00:22:27,720
Speaker 9: that we don't readily see like an intellectual property estate

458
00:22:27,760 --> 00:22:30,240
Speaker 9: that they want access to. But the other piece of it,

459
00:22:30,280 --> 00:22:32,560
Speaker 9: and this is where you see Merk doing acquiring and

460
00:22:32,720 --> 00:22:36,520
Speaker 9: variety of other large cat pharmists, is either a product

461
00:22:36,520 --> 00:22:40,080
Speaker 9: that could be meaningful me and fills a hole in

462
00:22:40,119 --> 00:22:44,160
Speaker 9: their own portfolio, or something that can be a companion

463
00:22:44,280 --> 00:22:46,760
Speaker 9: product that can also help develop the portfolio. Like if

464
00:22:46,760 --> 00:22:48,520
Speaker 9: you look at Merk for a second, they have a

465
00:22:48,600 --> 00:22:53,080
Speaker 9: joint venture with Astrosenica and they market to Astrosenica cancer

466
00:22:53,160 --> 00:22:57,040
Speaker 9: drugs alongside their own cancer portfolio, and through that process

467
00:22:57,040 --> 00:23:00,040
Speaker 9: they've been able to expand not just those drugs, but

468
00:23:00,040 --> 00:23:03,000
Speaker 9: but Kei truda because they've done combination trials and things

469
00:23:03,040 --> 00:23:05,520
Speaker 9: like that. And so but if you look, I think

470
00:23:05,560 --> 00:23:08,000
Speaker 9: more to your point at merged acquisitions over the course

471
00:23:08,040 --> 00:23:10,440
Speaker 9: of the past you know, year two years they've bought

472
00:23:11,000 --> 00:23:13,080
Speaker 9: accele on, which had a product in phase three, so

473
00:23:13,480 --> 00:23:16,520
Speaker 9: you know reasonably the risk, you know the mechanism works

474
00:23:16,560 --> 00:23:18,199
Speaker 9: at that point, you don't know if the trial is

475
00:23:18,200 --> 00:23:19,919
Speaker 9: going to work, but you know the mechanism works. You know,

476
00:23:20,000 --> 00:23:22,320
Speaker 9: you have a sense of what the activity is that

477
00:23:22,480 --> 00:23:26,600
Speaker 9: can really come into a therapeutic area and be meaningful,

478
00:23:27,080 --> 00:23:30,879
Speaker 9: or a company like a Mago, which Merk just recently

479
00:23:31,320 --> 00:23:34,720
Speaker 9: closed the acquisition on that company, and that's a pre

480
00:23:34,840 --> 00:23:38,280
Speaker 9: revenue company and has a really interesting technology developing a

481
00:23:38,320 --> 00:23:41,720
Speaker 9: drug in an area where Merk does not have, where

482
00:23:41,720 --> 00:23:45,800
Speaker 9: work does not have a huge presence in and it's

483
00:23:45,840 --> 00:23:48,480
Speaker 9: a it's a new and it's a new drug with

484
00:23:48,560 --> 00:23:50,920
Speaker 9: a new mechanism. So there's a variety of reasons why

485
00:23:50,960 --> 00:23:54,480
Speaker 9: companies do these acquisitions. Sometimes they work, sometimes they don't.

486
00:23:54,720 --> 00:23:56,800
Speaker 1: Hey, Marik, just kind of like thirty seconds left here,

487
00:23:57,000 --> 00:23:58,840
Speaker 1: you know. I always joke that my next life I

488
00:23:58,840 --> 00:24:01,199
Speaker 1: want to come back as a healthcare M and a banker.

489
00:24:01,359 --> 00:24:04,840
Speaker 1: Should we expect more healthcare M and a going forward?

490
00:24:05,520 --> 00:24:07,320
Speaker 9: I think there's a couple of things. I think absolutely

491
00:24:07,359 --> 00:24:09,639
Speaker 9: companies will continue. There is a patent cliff, you know,

492
00:24:09,720 --> 00:24:13,080
Speaker 9: coming in this decade, so companies will continue to acquire.

493
00:24:13,280 --> 00:24:15,320
Speaker 9: The other piece of it is that the cost to

494
00:24:15,440 --> 00:24:18,560
Speaker 9: compete is so much higher than it used to be,

495
00:24:18,680 --> 00:24:21,680
Speaker 9: and the time frame in which drugs get to and

496
00:24:21,680 --> 00:24:24,680
Speaker 9: in which competitor drugs get to market has collapsed over

497
00:24:24,760 --> 00:24:28,280
Speaker 9: the last ten years or so, so the competitive environment.

498
00:24:28,359 --> 00:24:31,359
Speaker 9: So I think, you know, you need to have the scale,

499
00:24:31,359 --> 00:24:34,760
Speaker 9: and you need to have distribution and investors also, you know,

500
00:24:35,040 --> 00:24:37,800
Speaker 9: want to see. I think we prefer that then continuing

501
00:24:37,840 --> 00:24:41,280
Speaker 9: to invest in a company, because if you have one product,

502
00:24:41,359 --> 00:24:43,320
Speaker 9: it's very hard to be profitable company.

503
00:24:43,400 --> 00:24:45,560
Speaker 1: All right, Marek, great stuff. I really appreciate you taking

504
00:24:45,600 --> 00:24:48,679
Speaker 1: the time. Maraeric Goldstein, she's a biotech analyst at Mizuho,

505
00:24:49,240 --> 00:24:50,800
Speaker 1: joining us to talk about Merk and some of the

506
00:24:50,840 --> 00:24:54,399
Speaker 1: other healthcare and biotech companies out there. It just seems

507
00:24:54,440 --> 00:24:56,439
Speaker 1: like almost every Monday we come in and there's another

508
00:24:56,480 --> 00:24:59,480
Speaker 1: healthcare m and a trade. So lots of our ne

509
00:24:59,680 --> 00:25:03,359
Speaker 1: going on in that space, but also lots of acquisitions

510
00:25:03,680 --> 00:25:08,840
Speaker 1: to acquire drugs, different therapeutics. Really interesting, fascinating to follow.

511
00:25:10,080 --> 00:25:13,480
Speaker 7: You're listening to the team Ken's Are Live program Bloomberg

512
00:25:13,520 --> 00:25:16,879
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot Com,

513
00:25:16,960 --> 00:25:20,120
Speaker 7: the iHeartRadio app, and the Bloomberg Business App, or listen

514
00:25:20,200 --> 00:25:22,400
Speaker 7: on demand wherever you get your podcasts.

515
00:25:24,080 --> 00:25:26,840
Speaker 1: All right, let's talk fixed income here, folks. John Talker,

516
00:25:26,880 --> 00:25:29,200
Speaker 1: thank you very much. A fixing of twenty twenty two

517
00:25:29,400 --> 00:25:31,240
Speaker 1: brutal year. I don't care. There was no place to

518
00:25:31,320 --> 00:25:34,040
Speaker 1: hide equities or fixed income and really not too many

519
00:25:34,040 --> 00:25:36,040
Speaker 1: places in the fixed income space to hide it either

520
00:25:36,080 --> 00:25:40,560
Speaker 1: a little bit better this year. The Bloomberg Aggregate US

521
00:25:40,600 --> 00:25:43,480
Speaker 1: aggregatoral return value is up about three point five percent

522
00:25:43,640 --> 00:25:45,320
Speaker 1: this year, so they're doing a little bit better. And

523
00:25:45,520 --> 00:25:47,040
Speaker 1: when you want to talk fixed income, you need to

524
00:25:47,080 --> 00:25:49,320
Speaker 1: go talk to the folks at TCW. They're pretty big

525
00:25:49,560 --> 00:25:53,360
Speaker 1: in that biz. Steve Kine, co CIO and Generalist portfolio

526
00:25:53,400 --> 00:25:57,160
Speaker 1: manager for TCW Investment Management Joints is, Steve, you guys

527
00:25:57,200 --> 00:25:59,960
Speaker 1: are doing a little bit better this year than last.

528
00:26:00,760 --> 00:26:03,520
Speaker 1: What's kind of driving or what are the areas of

529
00:26:03,520 --> 00:26:06,920
Speaker 1: opportunity you guys see in a fixed income space this year.

530
00:26:09,040 --> 00:26:12,440
Speaker 10: Well, we're seeing quite a bit of opportunity. Actually. First

531
00:26:12,440 --> 00:26:15,120
Speaker 10: of all, sort of getting at your general point of

532
00:26:16,480 --> 00:26:19,919
Speaker 10: returns being positive is we think we're getting towards the

533
00:26:20,000 --> 00:26:23,080
Speaker 10: end of the FED hiking cycle and the market's beginning

534
00:26:23,119 --> 00:26:27,480
Speaker 10: to anticipate that, and that means that rates are likely

535
00:26:27,520 --> 00:26:30,080
Speaker 10: to be coming down. So the first thing we like

536
00:26:30,320 --> 00:26:33,840
Speaker 10: is the overall rate market, and specifically the front end

537
00:26:33,880 --> 00:26:36,439
Speaker 10: of the market where you're getting the highest yields, and

538
00:26:36,480 --> 00:26:39,199
Speaker 10: we expect that part of the market to rally the

539
00:26:39,240 --> 00:26:43,400
Speaker 10: most going forward. And then beyond that, I think we're

540
00:26:43,480 --> 00:26:47,280
Speaker 10: rather pessimistic about the economy. We think that the reason

541
00:26:47,320 --> 00:26:48,960
Speaker 10: rates are going to be going down is because you're

542
00:26:48,960 --> 00:26:53,000
Speaker 10: going to be entering a recession sometime later this year

543
00:26:53,080 --> 00:26:58,000
Speaker 10: early next year, which means we're defensive on lower quality credit.

544
00:26:58,040 --> 00:27:00,680
Speaker 10: But we like lots of areas of the high quality

545
00:27:00,920 --> 00:27:03,760
Speaker 10: parts of the fixed income market away from treasuries. You've

546
00:27:03,760 --> 00:27:07,399
Speaker 10: heard us talk at nauseum about the agency mortgage market.

547
00:27:07,400 --> 00:27:11,560
Speaker 10: We think that's very attractive. That continues to lag recently.

548
00:27:11,600 --> 00:27:15,359
Speaker 10: It's lagging due to the fact that the FDIC, through

549
00:27:15,400 --> 00:27:19,040
Speaker 10: Black Rock, is selling agency mortgages that were taken over

550
00:27:19,119 --> 00:27:24,280
Speaker 10: through the SVB and signature bank takeovers, if you will,

551
00:27:24,320 --> 00:27:28,400
Speaker 10: by the FDIC. But we like that area. We're modestly

552
00:27:28,440 --> 00:27:31,920
Speaker 10: constructive on investment grade corporate credit. We think that's fair.

553
00:27:32,720 --> 00:27:35,560
Speaker 10: And then we like high quality parts of the securitized market,

554
00:27:35,600 --> 00:27:39,560
Speaker 10: including non agency residential mortgages.

555
00:27:40,280 --> 00:27:43,200
Speaker 2: Why do you think, I mean in light of today's

556
00:27:43,240 --> 00:27:45,679
Speaker 2: inflation data, which I realize is only one point, but

557
00:27:45,760 --> 00:27:49,480
Speaker 2: core PCE quarter over quarter up to four point nine

558
00:27:49,560 --> 00:27:52,080
Speaker 2: percent from four point four percent in the last reading,

559
00:27:52,119 --> 00:27:54,960
Speaker 2: and more than economists had estimated. We were looking at

560
00:27:55,000 --> 00:27:57,959
Speaker 2: four point seven, so we're going back to five and

561
00:27:58,000 --> 00:28:02,119
Speaker 2: it looks like climbing. How can fed even consider lowering

562
00:28:02,200 --> 00:28:03,600
Speaker 2: rates in that type of environment.

563
00:28:04,520 --> 00:28:08,359
Speaker 10: It's a really good question, and the answer in the

564
00:28:08,359 --> 00:28:11,160
Speaker 10: short tenments, they can't cut rates. As a matter of fact,

565
00:28:11,160 --> 00:28:15,679
Speaker 10: the market's pricing this in. They're likely to hike next

566
00:28:16,359 --> 00:28:20,639
Speaker 10: week at their meeting, and maybe even another time. I

567
00:28:20,640 --> 00:28:22,800
Speaker 10: think we're the view that the market's getting a little

568
00:28:23,240 --> 00:28:26,240
Speaker 10: ahead of itself in terms of expecting easing as early

569
00:28:26,240 --> 00:28:30,320
Speaker 10: as September of this year. But we do think, whether

570
00:28:30,320 --> 00:28:35,280
Speaker 10: it's one or two more hikes, that the cumulative effects

571
00:28:35,280 --> 00:28:37,240
Speaker 10: of all the tightening five five and a half percent

572
00:28:37,920 --> 00:28:41,480
Speaker 10: is ultimately going to slow the economy down. We're beginning

573
00:28:41,520 --> 00:28:45,320
Speaker 10: to see signs of it in various areas housing. Certainly,

574
00:28:45,360 --> 00:28:49,440
Speaker 10: the business investment part of the GDP report suggests that,

575
00:28:49,480 --> 00:28:52,120
Speaker 10: you know, businesses are pulling back in a fairly significant way.

576
00:28:52,520 --> 00:28:55,480
Speaker 10: The last thing to go, and it's still hanging in

577
00:28:55,520 --> 00:28:59,080
Speaker 10: there is labor market, and we do think that it's

578
00:28:59,200 --> 00:29:01,400
Speaker 10: just a matter of time before you know, you start

579
00:29:01,400 --> 00:29:03,800
Speaker 10: to see bigger and bigger layoffs and loosening in the

580
00:29:03,840 --> 00:29:06,400
Speaker 10: labor market. And that's sort of the key part of

581
00:29:06,400 --> 00:29:10,320
Speaker 10: the equation that's going to get overall inflation heading towards

582
00:29:10,360 --> 00:29:11,120
Speaker 10: that two percent turn.

583
00:29:11,280 --> 00:29:13,880
Speaker 2: I mean, we I'll just repeat the GDP numbers that

584
00:29:13,880 --> 00:29:17,240
Speaker 2: we got this morning for our listeners. We got annualized

585
00:29:17,240 --> 00:29:21,040
Speaker 2: GDP quarter over quarter of one point one percent. That

586
00:29:21,120 --> 00:29:23,640
Speaker 2: compares to two point six percent in the previous reading,

587
00:29:23,880 --> 00:29:26,560
Speaker 2: and we were looking for one point nine So much

588
00:29:26,640 --> 00:29:31,400
Speaker 2: worse than expected, much worse than the previous number, a

589
00:29:31,440 --> 00:29:35,200
Speaker 2: real decline. What happens if we get into a situation

590
00:29:35,280 --> 00:29:39,479
Speaker 2: where GDP is coming down, unemployment is going up, and

591
00:29:39,520 --> 00:29:41,400
Speaker 2: inflation is stuck at five percent?

592
00:29:41,520 --> 00:29:43,240
Speaker 1: Is that something you could imagine?

593
00:29:44,200 --> 00:29:47,080
Speaker 10: Yeah, yeah, certainly. As a matter of fact, it's it's

594
00:29:47,400 --> 00:29:51,440
Speaker 10: very typical at the beginning of a recession because inflation

595
00:29:51,600 --> 00:29:55,360
Speaker 10: lags that you get this sort of temporary period of

596
00:29:55,360 --> 00:30:00,800
Speaker 10: stagflation where kind of economic activity is declining on it's rising,

597
00:30:00,840 --> 00:30:03,080
Speaker 10: but inflation is yet to adjust to kind of adjust

598
00:30:03,120 --> 00:30:05,360
Speaker 10: with a bit of a lag. So, yeah, it's gonna

599
00:30:05,640 --> 00:30:07,400
Speaker 10: there'll be a period of time where it looks like

600
00:30:07,440 --> 00:30:11,240
Speaker 10: a real conundrum for the FED because inflation will be lagging,

601
00:30:12,200 --> 00:30:15,200
Speaker 10: and the risk is that they are too focused on

602
00:30:15,360 --> 00:30:17,840
Speaker 10: that lagging indicator stay too tight for too long and

603
00:30:18,400 --> 00:30:21,880
Speaker 10: worsen the recession instead of you know, sort of looking

604
00:30:21,920 --> 00:30:26,080
Speaker 10: forward and understanding that you know, inflation trends are heading down.

605
00:30:26,760 --> 00:30:29,040
Speaker 1: Hey, Steve, unlike my colleague Matt Miller, I'm willing to

606
00:30:29,040 --> 00:30:32,560
Speaker 1: take some risk in life, and I'm willing to go

607
00:30:32,600 --> 00:30:35,280
Speaker 1: out to the high yield space here. You know, I'm

608
00:30:35,320 --> 00:30:37,280
Speaker 1: not really in that recession camp, or if it is one,

609
00:30:37,280 --> 00:30:39,360
Speaker 1: it's going to be pretty shallow. So I'm willing to

610
00:30:39,760 --> 00:30:42,520
Speaker 1: take on some some credit risk here. Can you steer

611
00:30:42,560 --> 00:30:44,800
Speaker 1: me somewhere? Says the guy who has the bulk of

612
00:30:44,840 --> 00:30:46,920
Speaker 1: its well, his wealth and munis exactly.

613
00:30:47,760 --> 00:30:53,040
Speaker 10: Yeah. Yeah, here's you know, high yield. You know, there's uh,

614
00:30:53,600 --> 00:30:57,800
Speaker 10: there's a wide variety of risk within high yield. There's

615
00:30:57,840 --> 00:31:00,720
Speaker 10: you know, the double b's down to the triple c's,

616
00:31:01,280 --> 00:31:05,280
Speaker 10: things trading at par yielding, you know, seven eight percent,

617
00:31:05,400 --> 00:31:08,520
Speaker 10: things trading fifty cents on the dollar and likely to default,

618
00:31:08,560 --> 00:31:11,720
Speaker 10: so big range. I think what I would advise you, Paul,

619
00:31:12,000 --> 00:31:15,320
Speaker 10: you know, is your financial advisor for the day. You

620
00:31:15,440 --> 00:31:18,600
Speaker 10: stay in the high quality parts of the high yield market.

621
00:31:19,040 --> 00:31:22,400
Speaker 10: Stay in those double b's and you know, high single bees.

622
00:31:22,440 --> 00:31:25,160
Speaker 10: The things that you know, the economy does take a downturn,

623
00:31:25,240 --> 00:31:27,640
Speaker 10: even though it sounds like you don't think it's happened happening,

624
00:31:28,120 --> 00:31:30,640
Speaker 10: that you'll be protected, you know, And that part, most

625
00:31:30,640 --> 00:31:34,280
Speaker 10: of that double bee single bee market really is fairly

626
00:31:34,320 --> 00:31:36,760
Speaker 10: default resistant. And I would say, you know, to make

627
00:31:36,760 --> 00:31:39,920
Speaker 10: a general statement about high yield is that part of

628
00:31:39,920 --> 00:31:44,680
Speaker 10: the market is pretty sound fundamentally from a leverage standpoint,

629
00:31:44,800 --> 00:31:48,840
Speaker 10: liquidity standpoint. You know that the fundamentals for the high

630
00:31:48,880 --> 00:31:52,560
Speaker 10: yield market look pretty good, you know, going into this recession.

631
00:31:52,600 --> 00:31:56,160
Speaker 10: So we don't expect a huge default cycle. I think

632
00:31:56,200 --> 00:31:58,360
Speaker 10: our cautiousness is we just think you're going to get

633
00:31:58,360 --> 00:32:01,120
Speaker 10: better entry points. We just think spreads are going to widen.

634
00:32:01,680 --> 00:32:05,440
Speaker 10: Even if it's a relatively benign default cycle, we still

635
00:32:05,440 --> 00:32:07,400
Speaker 10: think spreads are going to get a couple hundred basis

636
00:32:07,400 --> 00:32:10,560
Speaker 10: points wider. So we're keeping our powder dry. But you know,

637
00:32:10,640 --> 00:32:12,120
Speaker 10: I do think that you know, if you've go outen

638
00:32:12,160 --> 00:32:15,440
Speaker 10: buy how yield today, you're you'll underwrite a little bit

639
00:32:15,440 --> 00:32:18,360
Speaker 10: of volatility, but you're certainly not going to lose money.

640
00:32:18,920 --> 00:32:22,040
Speaker 1: Hey, Steve, just real quick twenty seconds. What are your analysts,

641
00:32:22,040 --> 00:32:24,280
Speaker 1: what's what's a recession model look like for your analysts,

642
00:32:24,280 --> 00:32:25,880
Speaker 1: no revenue growth, declining growth.

643
00:32:28,200 --> 00:32:29,640
Speaker 10: You mean for our credit analysts?

644
00:32:29,680 --> 00:32:30,800
Speaker 1: Yeah, what are they wrong?

645
00:32:30,880 --> 00:32:34,560
Speaker 10: Oh it's oh, it's kind of it's really industry by industry.

646
00:32:34,640 --> 00:32:41,160
Speaker 10: I mean, the disparity of industry trends is significant, although

647
00:32:41,480 --> 00:32:44,600
Speaker 10: a lot of them are starting to shift in the

648
00:32:44,640 --> 00:32:47,720
Speaker 10: negative direction. So what we've seen thus far is relatively

649
00:32:47,880 --> 00:32:52,080
Speaker 10: decent revenue trends YEA, and very negative earning strengths, meaning

650
00:32:52,080 --> 00:32:55,160
Speaker 10: you're seeing a lot of cost pressure, mrgin pressure and

651
00:32:55,200 --> 00:32:55,760
Speaker 10: that type of thing.

652
00:32:55,960 --> 00:32:58,120
Speaker 1: Steve, great stuff. Always appreciate getting a few minutes of

653
00:32:58,120 --> 00:33:01,400
Speaker 1: your time. Steve Kane Key's a co CIO generalist portfolio

654
00:33:01,400 --> 00:33:04,479
Speaker 1: manager TCW Investment of Management. They're based in La. They

655
00:33:04,560 --> 00:33:08,040
Speaker 1: got like two hundred and twenty five billion massive under management.

656
00:33:08,080 --> 00:33:09,640
Speaker 1: Not bet it's worth the trip to La.

657
00:33:09,760 --> 00:33:12,880
Speaker 7: You're listening to the tape. Cat's are live program Bloomberg

658
00:33:12,960 --> 00:33:16,560
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

659
00:33:16,600 --> 00:33:19,840
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business app.

660
00:33:19,880 --> 00:33:22,680
Speaker 7: You can also listen live on Amazon Alexa from our

661
00:33:22,720 --> 00:33:27,120
Speaker 7: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

662
00:33:28,640 --> 00:33:32,880
Speaker 1: Let's talk industrials Industrial America. We had Caterpillar reports and numbers, say,

663
00:33:33,120 --> 00:33:34,840
Speaker 1: we want to break that down, So we're gonna welcome

664
00:33:34,880 --> 00:33:37,560
Speaker 1: Chris Gielino. He covers all the largest maker of earth

665
00:33:37,600 --> 00:33:41,720
Speaker 1: moving equition. Isn't that cool? That is awesome? So Chris Giuliano,

666
00:33:41,760 --> 00:33:44,080
Speaker 1: he covers those stocks. From Bloomberg Intelligency joins us on

667
00:33:44,120 --> 00:33:47,320
Speaker 1: the phone from Princeton and brook Sutherland in our Bloomberg

668
00:33:47,360 --> 00:33:50,520
Speaker 1: Interactive Broker studio. She's Bloomberg Opinion calumnists and she covers

669
00:33:50,560 --> 00:33:52,960
Speaker 1: all things industrial. So Chris, let's start with you here.

670
00:33:53,440 --> 00:33:57,280
Speaker 1: Catcat is a symbol. What did they tell you on

671
00:33:57,320 --> 00:33:58,120
Speaker 1: their earnings release?

672
00:33:58,960 --> 00:34:03,360
Speaker 6: You know, it was really an impressive print across the board. Beat,

673
00:34:03,560 --> 00:34:06,800
Speaker 6: very strong pricing again in the quarter, better than expected

674
00:34:06,880 --> 00:34:11,320
Speaker 6: sales and margins really across all segments. That being said,

675
00:34:11,400 --> 00:34:13,799
Speaker 6: there's a lot of negative sentiment out there around the name,

676
00:34:13,960 --> 00:34:16,440
Speaker 6: and I would say even just more broadly in cyclicals

677
00:34:16,440 --> 00:34:21,560
Speaker 6: in general, just giving concerns over recession. So not only that,

678
00:34:21,680 --> 00:34:24,800
Speaker 6: we saw orders decline in the period, and then dealers

679
00:34:24,800 --> 00:34:28,520
Speaker 6: also built more inventory than we expected. So if you're

680
00:34:28,560 --> 00:34:30,480
Speaker 6: in that bearish camp and you kind of believe that

681
00:34:30,520 --> 00:34:32,520
Speaker 6: we're heading into a downturn. Those are kind of two

682
00:34:32,760 --> 00:34:35,319
Speaker 6: data points out there that will certainly concern you, and

683
00:34:35,360 --> 00:34:36,920
Speaker 6: I think that's part of the reason you're seeing the

684
00:34:37,239 --> 00:34:37,960
Speaker 6: stock trade off.

685
00:34:38,000 --> 00:34:41,959
Speaker 2: Didn't we just have a giant trillion plus dollar infrastructure deal.

686
00:34:42,000 --> 00:34:45,240
Speaker 1: Don't we need this stuff to fix America?

687
00:34:45,320 --> 00:34:48,160
Speaker 6: We certainly do. And really you're just starting to see

688
00:34:48,200 --> 00:34:51,840
Speaker 6: those numbers from the Infrastructure bill come into the backlog.

689
00:34:51,920 --> 00:34:54,359
Speaker 6: You still have the IRA, you still have the Chips Act.

690
00:34:54,480 --> 00:34:57,800
Speaker 6: There's trillions of dollars of money coming into the system,

691
00:34:58,239 --> 00:35:01,440
Speaker 6: but there's just more near term concern and around commercial

692
00:35:01,440 --> 00:35:06,920
Speaker 6: construction tightening credit standards that have certainly kind of spooked

693
00:35:06,960 --> 00:35:09,920
Speaker 6: investors here. We still see, you know, a multi year

694
00:35:10,000 --> 00:35:13,640
Speaker 6: runway from a lot of these recently past legislations.

695
00:35:13,800 --> 00:35:15,440
Speaker 1: I mean, I think Bloomberg News Mats got one of

696
00:35:15,480 --> 00:35:19,080
Speaker 1: the great headlines. Heies it relates to Caterpillar, cattle pillar drops,

697
00:35:19,160 --> 00:35:21,719
Speaker 1: mid worries. Quote, it's as good as it gets and

698
00:35:21,760 --> 00:35:23,200
Speaker 1: those things are kind of creeping in. So I think

699
00:35:23,200 --> 00:35:25,560
Speaker 1: that's kind of what we're hearing. So Hey, Brook Yet

700
00:35:25,600 --> 00:35:28,920
Speaker 1: have a great column out recently talking about deal making

701
00:35:29,200 --> 00:35:32,600
Speaker 1: and more. I know this Comerson caught my eye a

702
00:35:32,640 --> 00:35:34,240
Speaker 1: couple of weeks ago. And then.

703
00:35:35,719 --> 00:35:38,160
Speaker 2: A Carrier, which is a Utex spin off buying a

704
00:35:38,200 --> 00:35:41,760
Speaker 2: German company buying Viisman climate Solutions. And when I started

705
00:35:41,760 --> 00:35:44,920
Speaker 2: to see these deals, Honeywell announced six hundred and seventy

706
00:35:44,920 --> 00:35:48,560
Speaker 2: million dollar acquisition, the the Utex or the Carrier purchases

707
00:35:48,600 --> 00:35:53,640
Speaker 2: a thirteen billion dollar acquisition. Emerson was what was it,

708
00:35:54,560 --> 00:35:56,960
Speaker 2: eight billion? So these numbers are getting big, and I

709
00:35:57,000 --> 00:35:59,640
Speaker 2: started to you know, I was going through these stories

710
00:35:59,680 --> 00:36:01,719
Speaker 2: like now I ten pm at night, and I was thinking, Wow,

711
00:36:01,760 --> 00:36:02,680
Speaker 2: there's a pickup in M and A.

712
00:36:02,800 --> 00:36:04,719
Speaker 1: But then I looked on MA Go and there really

713
00:36:04,800 --> 00:36:05,759
Speaker 1: isn't a pickup.

714
00:36:05,480 --> 00:36:05,880
Speaker 7: In M and A.

715
00:36:06,120 --> 00:36:08,240
Speaker 11: There's not across the board. I mean, we are seeing,

716
00:36:08,440 --> 00:36:11,520
Speaker 11: you know, we're in a tighter lending environment, and the

717
00:36:11,560 --> 00:36:15,160
Speaker 11: macro outlook is concerning. But I think what's interesting is

718
00:36:15,160 --> 00:36:18,960
Speaker 11: that you're seeing a revival of these industrial two industrial deals.

719
00:36:19,440 --> 00:36:22,240
Speaker 11: And actually on that front, April was the biggest month

720
00:36:22,320 --> 00:36:25,160
Speaker 11: for industrial to industrial deals outside of a couple of

721
00:36:25,200 --> 00:36:28,920
Speaker 11: outliers that were really dominated by single mega transactions in

722
00:36:28,920 --> 00:36:31,239
Speaker 11: the last couple of years. So you are seeing a

723
00:36:31,280 --> 00:36:33,360
Speaker 11: real pick up there, and I think you know, honeywell,

724
00:36:33,360 --> 00:36:35,560
Speaker 11: and it's called today. The CEO said, there's never been

725
00:36:35,600 --> 00:36:37,520
Speaker 11: a better time to be a buyer, which I think

726
00:36:37,600 --> 00:36:38,719
Speaker 11: is a really striking state.

727
00:36:38,920 --> 00:36:40,399
Speaker 1: That's interesting.

728
00:36:40,640 --> 00:36:43,360
Speaker 2: Private equity has like two point seven trillion dollars. I

729
00:36:43,400 --> 00:36:46,360
Speaker 2: can't remember the exact number, but it's always mind blowingly high.

730
00:36:47,000 --> 00:36:49,720
Speaker 2: How come they're not competing with these industrials for these deals.

731
00:36:49,760 --> 00:36:51,879
Speaker 11: Well, I think they have been the last couple of years,

732
00:36:51,880 --> 00:36:53,799
Speaker 11: but I think it's getting harder for them to do so,

733
00:36:54,040 --> 00:36:57,640
Speaker 11: just because of the you know, tighter credit environment that

734
00:36:57,680 --> 00:36:59,600
Speaker 11: we're seeing. And so I think you're seeing these industrial

735
00:36:59,600 --> 00:37:02,480
Speaker 11: companies feel a little bit like they have the advantage

736
00:37:02,480 --> 00:37:05,840
Speaker 11: again and going after some of these strategic assets, especially

737
00:37:05,840 --> 00:37:07,400
Speaker 11: if you're going to take a longer term outlook in

738
00:37:07,480 --> 00:37:09,480
Speaker 11: terms of the robustness of some of these markets in

739
00:37:09,600 --> 00:37:11,800
Speaker 11: light of all of the stimulus funding and some of

740
00:37:11,840 --> 00:37:13,440
Speaker 11: the mega project trends that we're seeing.

741
00:37:13,920 --> 00:37:17,960
Speaker 1: Hey, Chris, I'm just looking at the PGeo function PGeo

742
00:37:18,040 --> 00:37:20,960
Speaker 1: function for Caterpillar and it says, you know, roughly forty

743
00:37:20,960 --> 00:37:25,960
Speaker 1: percent of their business is outside of the US. I'm sorry,

744
00:37:26,040 --> 00:37:29,120
Speaker 1: sixty percent of their businesses outside the US. What are

745
00:37:29,120 --> 00:37:31,640
Speaker 1: they saying about some of their US markets versus their

746
00:37:31,680 --> 00:37:32,520
Speaker 1: international markets.

747
00:37:33,360 --> 00:37:36,520
Speaker 6: You know, US continues to be remarkably strong. We continue

748
00:37:36,560 --> 00:37:39,200
Speaker 6: to see some of the strongest growth rates in North America,

749
00:37:40,080 --> 00:37:43,880
Speaker 6: even with that region being the most supply constraint. Still,

750
00:37:44,800 --> 00:37:48,400
Speaker 6: Latin America continues to be quite well, and Europe is

751
00:37:48,400 --> 00:37:52,200
Speaker 6: actually holding up a little better than they anticipated. I

752
00:37:52,200 --> 00:37:55,839
Speaker 6: guess the one pocket of weakness is Asia and more

753
00:37:55,880 --> 00:38:00,160
Speaker 6: specifically China. China is the largest equipment market in the world.

754
00:38:01,000 --> 00:38:03,960
Speaker 6: You know, historically it's been you know, five ten percent

755
00:38:04,000 --> 00:38:07,120
Speaker 6: of consolidated revenue at Caterpillar. It's below five percent and

756
00:38:07,239 --> 00:38:10,520
Speaker 6: will be this year. So relatively small and the big

757
00:38:10,560 --> 00:38:13,759
Speaker 6: scheme of things. But you know, like I said, it's

758
00:38:13,840 --> 00:38:17,000
Speaker 6: it's been holding up, I think better than most had anticipated,

759
00:38:17,040 --> 00:38:18,560
Speaker 6: including Caterpillar.

760
00:38:18,480 --> 00:38:21,680
Speaker 2: Brook in terms of you know, the boost in industrial

761
00:38:21,800 --> 00:38:24,840
Speaker 2: m and A. How much is on shoring or friend

762
00:38:24,880 --> 00:38:27,200
Speaker 2: shoring had to do with this, you know, Chris Menson

763
00:38:27,440 --> 00:38:30,880
Speaker 2: mentions China, and I just see a spate of stories about,

764
00:38:31,080 --> 00:38:33,480
Speaker 2: you know, things we're no longer buying from China, Things

765
00:38:33,480 --> 00:38:36,480
Speaker 2: were no longer sending to China. So does it make

766
00:38:36,480 --> 00:38:39,600
Speaker 2: sense that industrials are trying to you know, bring back

767
00:38:39,880 --> 00:38:42,560
Speaker 2: production and then also do M and A in order

768
00:38:42,600 --> 00:38:43,000
Speaker 2: to aid that.

769
00:38:43,360 --> 00:38:46,279
Speaker 11: Sure, we haven't seen any big deals in the name

770
00:38:46,320 --> 00:38:49,600
Speaker 11: of reshoring. You've seen some sort of smaller incremental investments

771
00:38:49,640 --> 00:38:52,839
Speaker 11: of companies buying parts of their supply chains. I think sure,

772
00:38:52,880 --> 00:38:55,960
Speaker 11: when Williams bought a coating ingredients maker, Hershey bought a

773
00:38:56,000 --> 00:38:59,640
Speaker 11: pretzel factory, and so smaller things like that around the edges.

774
00:38:59,680 --> 00:39:01,759
Speaker 11: But these deals, did you.

775
00:39:01,719 --> 00:39:04,440
Speaker 1: Brought it back from Germany? Was it Bavaria? No?

776
00:39:04,560 --> 00:39:06,880
Speaker 11: But in terms of just like building up the robustness

777
00:39:06,880 --> 00:39:08,759
Speaker 11: of their North American supply chain and being you know,

778
00:39:08,840 --> 00:39:11,319
Speaker 11: less dependent on sort of sprawling parts, networks or even

779
00:39:11,360 --> 00:39:13,719
Speaker 11: just third parties. But I do think, you know, that

780
00:39:13,760 --> 00:39:15,840
Speaker 11: some of these deals fit within some of the secular

781
00:39:15,880 --> 00:39:19,400
Speaker 11: trends we're seeing, whether that's automation, whether that's the energy

782
00:39:19,440 --> 00:39:24,480
Speaker 11: transition or positioning for you know, greater investments in industrials.

783
00:39:24,480 --> 00:39:26,160
Speaker 11: I do just want to make one point on Caterpillary,

784
00:39:26,280 --> 00:39:28,480
Speaker 11: you know, I do think it's interesting all the negativity

785
00:39:28,960 --> 00:39:31,720
Speaker 11: around their order backlock today. If you look at another company,

786
00:39:31,760 --> 00:39:35,600
Speaker 11: Rockwell Automation, which is positioned with some of the same

787
00:39:35,719 --> 00:39:38,920
Speaker 11: trends around mega projects construction spending, and you have investors

788
00:39:38,960 --> 00:39:41,759
Speaker 11: being a lot more forgiving on that front, even though

789
00:39:41,800 --> 00:39:44,399
Speaker 11: they are also talking about a similar moderation in their

790
00:39:44,520 --> 00:39:47,719
Speaker 11: orders for the vary same reasons. The Caterpillar gives that

791
00:39:47,760 --> 00:39:49,880
Speaker 11: you have a supply chain normalization and sort of a

792
00:39:49,920 --> 00:39:52,560
Speaker 11: reset of ordering patterns, and you just see a really

793
00:39:52,640 --> 00:39:56,520
Speaker 11: lopsided reaction from investors just depending on where these companies

794
00:39:56,560 --> 00:39:58,360
Speaker 11: sit in these secular themes.

795
00:39:58,520 --> 00:40:01,120
Speaker 1: You know, we had I'm Fazelli on yesterday. He's a

796
00:40:01,120 --> 00:40:03,560
Speaker 1: biotech analyst for Bloomberg Intelligence. He lives in France on

797
00:40:03,600 --> 00:40:05,880
Speaker 1: a farm. He just bought like a big tractor, like

798
00:40:05,960 --> 00:40:08,440
Speaker 1: not like a little tractory due to your lawn in suburbia,

799
00:40:08,600 --> 00:40:10,719
Speaker 1: like a tractor tractor. I mean, he's an outlier.

800
00:40:10,840 --> 00:40:15,040
Speaker 11: He's an outliers, very popular during the pandemic. Actually, hobby tractors,

801
00:40:15,080 --> 00:40:16,280
Speaker 11: We're like a huge business.

802
00:40:16,360 --> 00:40:17,880
Speaker 1: I would love to have a tractor.

803
00:40:17,920 --> 00:40:20,560
Speaker 2: But I can imagine that's exactly the kind of spending

804
00:40:20,600 --> 00:40:23,160
Speaker 2: that I'm going to be curtailing, soiting into this recession.

805
00:40:23,280 --> 00:40:25,200
Speaker 1: Right, So Chris, Let's say, let's say I go onto

806
00:40:25,239 --> 00:40:27,279
Speaker 1: a Caterpillar a lot here and I want to buy

807
00:40:27,560 --> 00:40:30,520
Speaker 1: of these big tractors for my farm. A. Do they

808
00:40:30,520 --> 00:40:32,760
Speaker 1: have them in stock? B? Do I have to pay

809
00:40:32,800 --> 00:40:35,080
Speaker 1: over the MSRP like I do for an automobile?

810
00:40:35,719 --> 00:40:41,600
Speaker 6: Yeah? Yeah, yeah. So inventories are getting better. We're still

811
00:40:41,920 --> 00:40:45,680
Speaker 6: below historical average is pretty significantly, both a new and

812
00:40:45,840 --> 00:40:50,239
Speaker 6: used equipment. Things are progressively improving though, and you've heard

813
00:40:50,280 --> 00:40:53,680
Speaker 6: that echoed in some of their commentary. Supply chain normalizing

814
00:40:53,680 --> 00:40:57,720
Speaker 6: in the quarter, but pricing continues to surprise to the upside.

815
00:40:58,160 --> 00:41:02,320
Speaker 6: We were up almost fifteen percent in the quarter, which

816
00:41:02,400 --> 00:41:04,600
Speaker 6: was an acceleration from what we saw in four Q.

817
00:41:05,880 --> 00:41:08,960
Speaker 6: So inventories are still tight and they're able to push

818
00:41:09,040 --> 00:41:12,520
Speaker 6: price because of a lot of the productivity improvements that

819
00:41:12,640 --> 00:41:16,040
Speaker 6: these new equipment. The new equipment has and you know,

820
00:41:16,160 --> 00:41:18,520
Speaker 6: underlying demand is still quite good and you have all

821
00:41:18,560 --> 00:41:21,840
Speaker 6: these infrastructure built, you know, coming through the pipe.

822
00:41:22,440 --> 00:41:27,840
Speaker 2: You know, Brooke brings up rock well and in the

823
00:41:28,160 --> 00:41:31,120
Speaker 2: sense that it differs investor reaction is different from what

824
00:41:31,880 --> 00:41:34,880
Speaker 2: investors are doing with Caterpillar. Next week, I'm going to

825
00:41:34,960 --> 00:41:36,880
Speaker 2: talk to the CEO of Mac Trucks, the maker of

826
00:41:37,000 --> 00:41:40,120
Speaker 2: Mac trucks. Right, it's a private company, but do you

827
00:41:40,120 --> 00:41:43,200
Speaker 2: think they're facing the same kind of problems as Caterpillar,

828
00:41:43,239 --> 00:41:44,480
Speaker 2: What do you think I should ask him?

829
00:41:45,520 --> 00:41:48,400
Speaker 6: You know, one thing that's interesting about the truck sector

830
00:41:48,640 --> 00:41:51,759
Speaker 6: is you have this bifurcation of what the customers are

831
00:41:51,760 --> 00:41:54,400
Speaker 6: saying and what the OEMs who actually make the equipment

832
00:41:54,440 --> 00:41:56,880
Speaker 6: or saying. If you look at all the truck makers

833
00:41:56,920 --> 00:42:01,239
Speaker 6: this past quarter, complete blowouts of their early results, way

834
00:42:01,239 --> 00:42:04,000
Speaker 6: better than anyone had anticipated. As a supply chain has

835
00:42:04,040 --> 00:42:06,959
Speaker 6: kind of loosened up, and they've got some operational efficiencies

836
00:42:07,000 --> 00:42:09,680
Speaker 6: and you know, backlocks already extended to next year. But

837
00:42:09,719 --> 00:42:12,000
Speaker 6: if you listen to the commentary coming out of any

838
00:42:12,040 --> 00:42:15,720
Speaker 6: transport company, any of the freight carriers, it's doom and gloom.

839
00:42:16,000 --> 00:42:19,960
Speaker 6: And we're heading into a freight recession. So any insight

840
00:42:20,040 --> 00:42:24,360
Speaker 6: that we could glean into twenty twenty four and how

841
00:42:26,560 --> 00:42:28,440
Speaker 6: deep of a decline we could be seeing on the

842
00:42:28,480 --> 00:42:31,200
Speaker 6: freight side, we'll have certainly have a big impact on

843
00:42:31,239 --> 00:42:31,799
Speaker 6: demand there.

844
00:42:31,880 --> 00:42:33,640
Speaker 2: Brook do you think we're going to see more consolidation

845
00:42:33,719 --> 00:42:34,800
Speaker 2: if we had into a recession?

846
00:42:34,960 --> 00:42:36,280
Speaker 1: Is that sometimes what happens.

847
00:42:36,800 --> 00:42:38,400
Speaker 11: I think we could. I mean, I think you know,

848
00:42:38,600 --> 00:42:41,160
Speaker 11: these industrial companies have been so preoccupied the last couple

849
00:42:41,160 --> 00:42:43,480
Speaker 11: of years of breaking up or buying software companies that

850
00:42:43,640 --> 00:42:45,640
Speaker 11: I think they're now starting to look back at the

851
00:42:45,640 --> 00:42:47,479
Speaker 11: core of their business and you know, like I said,

852
00:42:47,480 --> 00:42:50,239
Speaker 11: with a longer term view towards this coming investment wave.

853
00:42:50,320 --> 00:42:52,680
Speaker 11: I think people are looking for opportunities. They are trying

854
00:42:52,719 --> 00:42:55,040
Speaker 11: to position themselves to better take advantage of these trends.

855
00:42:55,040 --> 00:42:58,000
Speaker 11: So certainly, if you see, you know, a meaningful downdraft

856
00:42:58,040 --> 00:43:00,759
Speaker 11: and valuations, companies will take advantage of that. Most large

857
00:43:00,760 --> 00:43:02,759
Speaker 11: industrial companies are in pretty good shape as far as

858
00:43:02,760 --> 00:43:04,880
Speaker 11: their balance sheets are concerned, so even in a tinder

859
00:43:04,960 --> 00:43:07,000
Speaker 11: lending environment, they have some flexibility.

860
00:43:07,160 --> 00:43:11,239
Speaker 1: Dude brook has her own NI ticker. Oh she's special, and.

861
00:43:12,680 --> 00:43:16,080
Speaker 2: That Bloomberg terminal that that explains.

862
00:43:16,160 --> 00:43:19,280
Speaker 1: That explains a lot, all right, The aforementioned Brooks Sullyn

863
00:43:19,360 --> 00:43:22,600
Speaker 1: she covers all the industrial stuff for Bloomberg Opinion, and

864
00:43:22,680 --> 00:43:25,520
Speaker 1: Chris Chilian when he covers the industrials for Bloomberg Intelligence,

865
00:43:25,960 --> 00:43:29,760
Speaker 1: looking at the equities and the financials of those industrial companies.

866
00:43:29,920 --> 00:43:31,759
Speaker 1: We are fortunate to have both of them join us

867
00:43:31,760 --> 00:43:34,799
Speaker 1: here to talk about Kat and all things industrial America.

868
00:43:34,920 --> 00:43:38,040
Speaker 7: You're listening to the tape Cat's are Live program. Bloomberg

869
00:43:38,080 --> 00:43:41,680
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

870
00:43:41,719 --> 00:43:44,959
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

871
00:43:45,000 --> 00:43:47,799
Speaker 7: You can also listen live on Amazon Alexa from our

872
00:43:47,840 --> 00:43:52,880
Speaker 7: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.

873
00:43:53,719 --> 00:43:56,520
Speaker 1: Good Day in the Market, SMP up one point two percent.

874
00:43:56,600 --> 00:43:59,400
Speaker 1: Let's think bringing a professional who does this investing stuff

875
00:43:59,400 --> 00:44:01,560
Speaker 1: for a living, Brian Smaller, piece of CEO and principle

876
00:44:01,560 --> 00:44:05,359
Speaker 1: of hood River Capital Management. And despite the name hood River,

877
00:44:05,680 --> 00:44:07,600
Speaker 1: you're based in Florida, right, Brian.

878
00:44:08,520 --> 00:44:10,919
Speaker 3: Correct, we moved here around three years ago.

879
00:44:11,600 --> 00:44:14,279
Speaker 1: That's such a scam, this whole Florida my grade. I've

880
00:44:14,280 --> 00:44:16,759
Speaker 1: had enough of it, you guy. You guys only because

881
00:44:16,760 --> 00:44:18,799
Speaker 1: you haven't been able to do it yourself, exactly right,

882
00:44:19,200 --> 00:44:21,399
Speaker 1: you guys, can I hope your summer is just gonna

883
00:44:21,400 --> 00:44:23,520
Speaker 1: be sweltering and then you guys are gonna say, what

884
00:44:23,560 --> 00:44:24,000
Speaker 1: was I think?

885
00:44:24,800 --> 00:44:24,920
Speaker 2: So?

886
00:44:24,960 --> 00:44:29,120
Speaker 1: Anyway, Hey, Brian, thanks for joining us. We love yeah, exactly.

887
00:44:29,760 --> 00:44:31,440
Speaker 1: I love talking to Brian because he's a former analyst.

888
00:44:31,480 --> 00:44:35,080
Speaker 1: That Salomon Brothers my my place I used to work

889
00:44:35,280 --> 00:44:36,600
Speaker 1: way back in the day, and you got his NBA

890
00:44:36,680 --> 00:44:40,680
Speaker 1: some trade school alma mater. Yeah, so he went to Boston, Yeah, Boston. Yes.

891
00:44:40,680 --> 00:44:43,719
Speaker 1: So anyway, Hey, Brian, what do you make of kind

892
00:44:43,719 --> 00:44:45,879
Speaker 1: of these markets this year? I mean kind of yes,

893
00:44:45,960 --> 00:44:48,279
Speaker 1: and P's up seven eight percent year to date. I mean,

894
00:44:48,320 --> 00:44:50,600
Speaker 1: if you look on a trailing twelve month basis, yes,

895
00:44:50,680 --> 00:44:53,600
Speaker 1: and p's almost flat. I mean, so a big rally

896
00:44:53,640 --> 00:44:55,880
Speaker 1: off of that October lower. Are you guys buying it?

897
00:44:57,800 --> 00:45:01,840
Speaker 3: We're constructive when you look out twelve month it's probably

898
00:45:01,840 --> 00:45:03,839
Speaker 3: gonna be a little bit bumpy here for the next

899
00:45:03,880 --> 00:45:08,440
Speaker 3: three to six given all the macro headwinds that everyone's

900
00:45:08,440 --> 00:45:11,200
Speaker 3: talked about at nauseum. But when you get through that,

901
00:45:11,719 --> 00:45:15,680
Speaker 3: and if you just have a mild recession, then most

902
00:45:15,719 --> 00:45:19,160
Speaker 3: earnings estimates have been taken down for most companies. And

903
00:45:19,200 --> 00:45:21,560
Speaker 3: when you look at the twenty twenty four stocks are

904
00:45:21,600 --> 00:45:24,920
Speaker 3: pretty cheap. So I think that's why the market's okay here.

905
00:45:24,960 --> 00:45:27,319
Speaker 3: It doesn't mean that there can't be some downside volatility

906
00:45:27,360 --> 00:45:31,440
Speaker 3: if you have some negative earnings revisions from lots of different.

907
00:45:31,320 --> 00:45:35,520
Speaker 2: The macro picture looks kind of like it's coming in

908
00:45:35,560 --> 00:45:40,320
Speaker 2: as expected, right. Inflation is sticky, growth is slowing down.

909
00:45:40,640 --> 00:45:42,759
Speaker 2: Maybe we're headed for a recession, the Feds in a

910
00:45:42,800 --> 00:45:44,440
Speaker 2: tough position. What about earnings?

911
00:45:44,480 --> 00:45:46,680
Speaker 1: Does that turning out as we expected?

912
00:45:48,320 --> 00:45:51,640
Speaker 3: We're generally in an earnings recession, I would say yes.

913
00:45:51,840 --> 00:45:54,640
Speaker 3: I would say generally it's about as expected or a

914
00:45:54,719 --> 00:45:58,520
Speaker 3: little bit better in terms of companies being able to

915
00:45:58,640 --> 00:46:03,440
Speaker 3: control margins cut cost. So if you ask me twelve

916
00:46:03,440 --> 00:46:07,440
Speaker 3: months ago, the big negative surprise was companies couldn't really

917
00:46:07,520 --> 00:46:13,000
Speaker 3: manage the cost situation very well. Now that's pretty much

918
00:46:13,080 --> 00:46:16,879
Speaker 3: under control. Margins aren't really an issue in the near term.

919
00:46:16,920 --> 00:46:19,960
Speaker 3: It's really end market demand in lots of different areas,

920
00:46:20,000 --> 00:46:21,960
Speaker 3: and you're seeing softening there. But the market for the

921
00:46:21,960 --> 00:46:24,880
Speaker 3: most part, is expecting it, and that's why I think it's worse.

922
00:46:25,440 --> 00:46:26,880
Speaker 3: In the back half we be in more trouble, but

923
00:46:27,040 --> 00:46:29,680
Speaker 3: right now it's about as expected. Which letter market's acting.

924
00:46:29,719 --> 00:46:31,920
Speaker 1: Okay, Hey, Brian, I want you to sell me on

925
00:46:32,080 --> 00:46:35,200
Speaker 1: small cap growth here. What's the play?

926
00:46:36,719 --> 00:46:41,400
Speaker 3: So small cap tysically trades at a premium, given that

927
00:46:41,440 --> 00:46:45,360
Speaker 3: the names usually grow faster than their large cap brethren.

928
00:46:45,920 --> 00:46:49,000
Speaker 3: Right now they're at discount. They've been through a rough

929
00:46:49,520 --> 00:46:53,360
Speaker 3: two year past here, and usually it's risk off when

930
00:46:53,400 --> 00:46:56,160
Speaker 3: the markets are tougher. If you think you're going into

931
00:46:56,320 --> 00:47:00,400
Speaker 3: a mild recession and the stocks at discount that for

932
00:47:00,440 --> 00:47:03,880
Speaker 3: the most part, then you're set up for griding provisions

933
00:47:03,880 --> 00:47:07,560
Speaker 3: in twenty four and a lot of multiple expansion, and

934
00:47:07,600 --> 00:47:11,040
Speaker 3: then stock pickers and small cap tend to outperform the

935
00:47:11,080 --> 00:47:14,120
Speaker 3: media manager's beaten the benchmark over most time periods, so

936
00:47:15,600 --> 00:47:17,560
Speaker 3: it makes sense to look in that area too.

937
00:47:18,040 --> 00:47:19,879
Speaker 2: How much cash do you have on hand in order

938
00:47:19,920 --> 00:47:22,920
Speaker 2: to take advantages take advantage of things like small caps?

939
00:47:22,920 --> 00:47:26,160
Speaker 2: I mean, how did you prep and what are you

940
00:47:26,160 --> 00:47:26,640
Speaker 2: looking at?

941
00:47:27,719 --> 00:47:30,760
Speaker 3: So our clients want to make the market calls, not us,

942
00:47:31,000 --> 00:47:35,600
Speaker 3: So we're typically more than ninety five percent invested. Our

943
00:47:35,680 --> 00:47:38,799
Speaker 3: job is to stock pick within the universe, in any

944
00:47:38,800 --> 00:47:43,839
Speaker 3: sort of environment and outperform. And right now we're trying

945
00:47:43,840 --> 00:47:46,400
Speaker 3: to concentrate in names where we feel like the irving

946
00:47:46,440 --> 00:47:49,960
Speaker 3: provisions are going to be good. You can defend evaluations

947
00:47:50,200 --> 00:47:53,879
Speaker 3: and they don't have a demand problem. Looking out six

948
00:47:53,960 --> 00:47:55,000
Speaker 3: to twelve months.

949
00:47:55,680 --> 00:47:57,719
Speaker 1: Hey, Brian, I know you've got to name on your list.

950
00:47:57,800 --> 00:48:01,360
Speaker 1: Fortress Aviation. I got my attention. FAI is the ticker.

951
00:48:01,360 --> 00:48:03,239
Speaker 1: It's hitting a fifty two week high today. We had

952
00:48:03,239 --> 00:48:05,960
Speaker 1: a gentleman here earlier this week, and he's in a

953
00:48:06,000 --> 00:48:09,239
Speaker 1: business of leasing aircraft to the big airlines, and his

954
00:48:09,360 --> 00:48:12,160
Speaker 1: problem is he just can't get enough planes from Boeing

955
00:48:12,200 --> 00:48:15,080
Speaker 1: and Airbus. Talk to us about Fortress Aviation and kind

956
00:48:15,080 --> 00:48:17,120
Speaker 1: of what's driving that stock. Why you guys own that one.

957
00:48:18,400 --> 00:48:21,280
Speaker 3: So they benefit from those trends. Because of the supply

958
00:48:21,440 --> 00:48:25,000
Speaker 3: chain issues that Boeing and Airbus are having, they're able

959
00:48:25,040 --> 00:48:27,960
Speaker 3: to lease out engines, that's the primary part of that business,

960
00:48:28,080 --> 00:48:31,520
Speaker 3: and then they also repair the engines and provide parts.

961
00:48:32,040 --> 00:48:35,920
Speaker 3: The utilization levels are moving up, the prices of the

962
00:48:35,920 --> 00:48:38,560
Speaker 3: engines are moving up, which is good for the underlying asset.

963
00:48:39,640 --> 00:48:42,680
Speaker 3: Travel in general needs to still recover because of the

964
00:48:42,680 --> 00:48:46,000
Speaker 3: weakness that you've seen in Asia. In Europe, US has

965
00:48:46,000 --> 00:48:48,799
Speaker 3: been good for a while now, but worldwide we're only

966
00:48:48,840 --> 00:48:51,440
Speaker 3: about ninety percent of where we were pre pandemic. So

967
00:48:51,520 --> 00:48:54,440
Speaker 3: you layer in the demand getting better with Tigner reopening,

968
00:48:54,920 --> 00:48:59,760
Speaker 3: plus the supply chain situation, someone like Fortress can actually deliver.

969
00:49:00,080 --> 00:49:03,600
Speaker 3: They've had a really rough fundamental pass in COVID and

970
00:49:03,640 --> 00:49:06,720
Speaker 3: the company has gone from being an lc C corpse.

971
00:49:06,760 --> 00:49:08,719
Speaker 3: That's good for multiple expansion. That's why the stock has

972
00:49:08,719 --> 00:49:10,800
Speaker 3: been good. The reason why it stocks up today is

973
00:49:10,800 --> 00:49:12,560
Speaker 3: because they had a really good quarter and all those

974
00:49:12,560 --> 00:49:16,960
Speaker 3: demand drivers I just mentioned are intact and so and

975
00:49:17,000 --> 00:49:18,960
Speaker 3: we still like the stock here given the evaluation.

976
00:49:19,800 --> 00:49:23,480
Speaker 2: What's the what's a reason that you wouldn't convert to

977
00:49:23,520 --> 00:49:25,840
Speaker 2: an ETF? If you if I look at say the

978
00:49:25,840 --> 00:49:27,759
Speaker 2: Hood River Small Cap Growth Fund, why not.

979
00:49:29,239 --> 00:49:29,640
Speaker 1: Convert?

980
00:49:29,840 --> 00:49:30,160
Speaker 3: Why not?

981
00:49:30,200 --> 00:49:30,520
Speaker 7: Why not?

982
00:49:30,600 --> 00:49:32,040
Speaker 3: Why not convert to an ETF?

983
00:49:32,360 --> 00:49:32,600
Speaker 1: Yeah?

984
00:49:32,880 --> 00:49:36,560
Speaker 3: Well, part of it is we don't want to have

985
00:49:36,560 --> 00:49:39,239
Speaker 3: to dispose our holdings every single day, and there's kind

986
00:49:39,280 --> 00:49:44,719
Speaker 3: of a transparency issue there, and our clients are good

987
00:49:44,719 --> 00:49:47,799
Speaker 3: in the regular mutual fund structure, so we'd rather not

988
00:49:48,120 --> 00:49:49,839
Speaker 3: tell them Mark what we're doing every single day.

989
00:49:51,120 --> 00:49:52,160
Speaker 1: That's good good enough for me.

990
00:49:52,239 --> 00:49:54,640
Speaker 2: I mean, since I anchor an ETF show, I just

991
00:49:54,719 --> 00:49:57,560
Speaker 2: hear so much about these conversions, and I hear every

992
00:49:57,600 --> 00:49:59,520
Speaker 2: day arguments for why convert?

993
00:49:59,600 --> 00:50:01,560
Speaker 1: So why not? Is ye one of the thing that's

994
00:50:01,560 --> 00:50:03,439
Speaker 1: a good good answer. Hey, Brian, I missed this whole

995
00:50:03,560 --> 00:50:05,640
Speaker 1: energy drink thing. I mean, if I want an energy

996
00:50:05,680 --> 00:50:08,600
Speaker 1: to drink, I get a shot of expresso like like

997
00:50:08,680 --> 00:50:11,160
Speaker 1: adults do. But I know it's the thing. You guys

998
00:50:11,200 --> 00:50:13,240
Speaker 1: own this company Celsius tell us about.

999
00:50:13,040 --> 00:50:19,440
Speaker 3: That so Celsius currently has about four percent share of

1000
00:50:19,480 --> 00:50:23,800
Speaker 3: the overall energy market. It's been growing about one hundred percent.

1001
00:50:23,800 --> 00:50:25,839
Speaker 3: It's going to slow down a little bit this year,

1002
00:50:25,880 --> 00:50:29,480
Speaker 3: but they just partnered up with Pepsi and that gives

1003
00:50:29,520 --> 00:50:33,359
Speaker 3: them around fifty percent more doors in twenty twenty three

1004
00:50:33,560 --> 00:50:37,800
Speaker 3: to sell in versus twenty twenty two. So the demand

1005
00:50:37,840 --> 00:50:39,759
Speaker 3: is definitely there. People are going to keep buying their

1006
00:50:39,840 --> 00:50:42,960
Speaker 3: energy drinks in a recession. It tastes better than the

1007
00:50:43,000 --> 00:50:44,959
Speaker 3: other products that are on the market. It's the better

1008
00:50:45,160 --> 00:50:47,680
Speaker 3: It's generally just a healthier, better prodit product. I don't

1009
00:50:47,680 --> 00:50:49,280
Speaker 3: like drinking the other one that I like. It actually

1010
00:50:49,280 --> 00:50:52,080
Speaker 3: like drinking Selsius, and most customers do too. And the

1011
00:50:52,120 --> 00:50:55,560
Speaker 3: stock is only discounting right now around six and a

1012
00:50:55,600 --> 00:51:00,200
Speaker 3: half percent market share, and we think the success for

1013
00:51:00,239 --> 00:51:03,640
Speaker 3: the product house and House designed and the partnership with

1014
00:51:03,680 --> 00:51:06,359
Speaker 3: Pepsi should allow them to eventually get to twenty percent share,

1015
00:51:06,560 --> 00:51:07,880
Speaker 3: and that gives you a lot of upside in the

1016
00:51:07,880 --> 00:51:08,560
Speaker 3: stock from here.

1017
00:51:08,640 --> 00:51:10,120
Speaker 1: You know. I just I pulled up the holder's list

1018
00:51:10,160 --> 00:51:13,000
Speaker 1: for Fortress Aviation and Celsius and hood River. They're in

1019
00:51:13,040 --> 00:51:14,759
Speaker 1: the top ten holders of these names. So when they

1020
00:51:14,760 --> 00:51:16,800
Speaker 1: go into a name. Brian, you guys go into in size,

1021
00:51:16,840 --> 00:51:19,040
Speaker 1: so you got it like that, So that's conviction. Brian

1022
00:51:19,120 --> 00:51:24,000
Speaker 1: Smallocky is the CEO and principle of Hood River Capital Management.

1023
00:51:24,560 --> 00:51:28,680
Speaker 1: Like so many others, he's headed south, down to South

1024
00:51:28,719 --> 00:51:30,440
Speaker 1: Beach or down to Miami. You're just doing what all

1025
00:51:30,440 --> 00:51:32,279
Speaker 1: the cool kids do and we're stuck here in the

1026
00:51:32,360 --> 00:51:35,200
Speaker 1: upper side. I'll stick here. I would like to be

1027
00:51:35,320 --> 00:51:37,520
Speaker 1: down there, to be honest with you. Yeah, it's it's

1028
00:51:37,520 --> 00:51:39,080
Speaker 1: a pretty good gig for a lot of those folks.

1029
00:51:39,320 --> 00:51:40,600
Speaker 1: No taxes right now, about that.

1030
00:51:40,840 --> 00:51:43,920
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can

1031
00:51:43,960 --> 00:51:47,760
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

1032
00:51:47,840 --> 00:51:51,560
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

1033
00:51:51,760 --> 00:51:53,680
Speaker 2: at Matt Miller nineteen seventy three.

1034
00:51:54,120 --> 00:51:56,520
Speaker 1: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.

1035
00:51:56,640 --> 00:51:59,279
Speaker 1: Before the podcast, you can always catch us worldwide at

1036
00:51:59,280 --> 00:51:59,960
Speaker 1: Bloomberg Radio.