WEBVTT - Bank Earnings, Flexible Investing and ESG 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.400 at Bloomberg dot com. Well, folks here at the Bloomberg 0:00:21.440 --> 0:00:23.800 offices in New York, I've spent the morning watching Alison 0:00:23.840 --> 0:00:27.280 Williams run, literally run back and forth between her desk, 0:00:27.640 --> 0:00:30.520 Bloomberg Television Studio and now the Bloomberg Radio Studio. Why 0:00:30.560 --> 0:00:32.920 you may ask, It's because it seems like every major 0:00:33.040 --> 0:00:36.840 bank reported earnings this morning, so she is in great demand. 0:00:36.880 --> 0:00:41.240 Alison Williams covers all things financials for Bloomberg Intelligence, joining 0:00:41.280 --> 0:00:43.120 us here on our Bloomberg and Act the Broker studio. 0:00:43.240 --> 0:00:48.760 So Goldman, Sachs, JP, Morgan City, Wells, Fargo. You know, 0:00:48.840 --> 0:00:50.720 you've had a couple of hours kind of cut through 0:00:50.720 --> 0:00:53.479 all the details. As you step back, how do you 0:00:53.640 --> 0:00:56.800 view kind of the current environment for the big banks 0:00:56.840 --> 0:00:59.440 that you've been covering for so many years. So I 0:00:59.440 --> 0:01:02.040 think the right a new environment remains a big question, 0:01:02.200 --> 0:01:06.200 right and that relates to trade and tariffs, bregsit all 0:01:06.240 --> 0:01:09.280 the geopolitical uncertainty. Uh. We sort of knew we wouldn't 0:01:09.280 --> 0:01:11.039 get an answer on that today, but I think where 0:01:11.040 --> 0:01:13.600 we did get an answer is who has some levers 0:01:13.640 --> 0:01:16.320 to pull? And I think that's um one place where 0:01:16.400 --> 0:01:21.160 JP Morgan is executing return on tangible equity pretty impressive. 0:01:21.280 --> 0:01:25.040 That's the best among the banks. And they showed uh, 0:01:25.120 --> 0:01:29.280 you know, gaining share and trading doing well on loan growth, 0:01:29.360 --> 0:01:31.480 so that helps to offset some of the margin pressure 0:01:32.000 --> 0:01:36.400 and then cost um flexibility the guidance coming down there. 0:01:36.400 --> 0:01:38.800 So those were all positive. If we look across the 0:01:38.800 --> 0:01:43.480 other companies, you know, WELLS Fargo, I think it's sort 0:01:43.520 --> 0:01:46.480 of the the earnings are less important than the incoming CEO. 0:01:46.640 --> 0:01:48.840 But they took a big litigation charge clearing the decks 0:01:48.880 --> 0:01:52.640 for Charlie Sharfs, So that's a positive city group. I think, 0:01:53.040 --> 0:01:56.440 you know, that's the questions are rising regard to the 0:01:56.480 --> 0:01:58.520 returns for next year. It looks like they're going to 0:01:58.560 --> 0:02:00.240 be able to make their target this year, but next 0:02:00.280 --> 0:02:03.360 year as a question, um, you know, twelve percent versus 0:02:03.400 --> 0:02:06.200 the eighteen percent that that JP Morgan did this quarter. 0:02:06.280 --> 0:02:09.560 City is executing around a twelve percent, hoping to make 0:02:09.600 --> 0:02:12.480 that target for this year. UM. So I think costs 0:02:12.560 --> 0:02:15.880 remain the question for them. And then on Goldman Sachs, 0:02:16.280 --> 0:02:21.040 you know, fees coming in weaker, that equity income coming 0:02:21.080 --> 0:02:24.000 in a little bit weaker, just due to what's happening 0:02:24.600 --> 0:02:28.080 on the market, the ip A pause, etcetera, UM, and 0:02:28.200 --> 0:02:31.240 cost a little bit higher for them. I wanted to 0:02:31.280 --> 0:02:34.840 sort of go and drill into the consumer because a 0:02:34.880 --> 0:02:37.560 lot of the banks Weapen Moregan included are expanding in 0:02:37.600 --> 0:02:41.000 their consumer lending businesses and people have been looking for 0:02:41.280 --> 0:02:45.400 signs of a possible slowdown amid the consumer strength that 0:02:45.440 --> 0:02:49.079 we continue to see. What was the reading there, So 0:02:49.160 --> 0:02:53.960 I don't think that we're seeing a slowdown so far. Uh. 0:02:54.040 --> 0:02:56.760 And in fact, you know City Group talking about the 0:02:56.800 --> 0:02:59.760 fact that you know, even though UM, you know they're 0:02:59.800 --> 0:03:03.320 keep being a tight rate no cost, but they also think, UM, 0:03:03.360 --> 0:03:05.360 they can have revenue growth and part of that is 0:03:05.400 --> 0:03:07.520 the consumer. Keep in mind, they have a much bigger 0:03:07.520 --> 0:03:12.040 credit card business UM than many of the other competitors. UM. 0:03:12.120 --> 0:03:14.560 JP Morgan also showing some health and we did see 0:03:14.639 --> 0:03:16.519 in the government data sort of a pick up in 0:03:16.560 --> 0:03:20.480 consumer loans, especially in auto lending. Um, we're gonna hear 0:03:20.520 --> 0:03:23.040 I think more about that broadly from the banks as 0:03:23.040 --> 0:03:25.639 they come in this week. So Elson, you mentioned JP 0:03:25.720 --> 0:03:27.680 Morgan had to I guess you said return on tangible 0:03:27.680 --> 0:03:30.680 equity about eight. That seems like if I remember back 0:03:31.160 --> 0:03:34.160 almost pre financial crisis, like and I was, I know, 0:03:34.200 --> 0:03:36.640 the bear case coming through the Financial crisis was a 0:03:36.720 --> 0:03:39.200 whole new set of regulations. They're never going to generate 0:03:39.240 --> 0:03:41.600 those kind of returns. Give us a sense of kind 0:03:41.640 --> 0:03:44.200 of the profitability and the returns we're seeing from some 0:03:44.200 --> 0:03:46.320 of the big banks you cover. Yeah, and and so 0:03:46.400 --> 0:03:49.119 to your point, Um, you know they're they're executing sort 0:03:49.120 --> 0:03:51.120 of top of their game, and I think what's impressive 0:03:51.200 --> 0:03:54.280 is that they're doing that in an environment where they 0:03:54.320 --> 0:03:58.480 are holding more more capital um and in fact on 0:03:58.920 --> 0:04:01.080 a sort of the interesting side notes, what's been going 0:04:01.080 --> 0:04:03.320 on in the repo market that's coming up on the 0:04:03.360 --> 0:04:06.400 calls and JP Morgan talking about the fact that because 0:04:06.440 --> 0:04:11.040 of restrictions, they weren't perhaps as active um and in 0:04:11.080 --> 0:04:13.280 that marketplace as they might have been in the past, 0:04:13.360 --> 0:04:17.280 so sort of you know, an eye towards regulation there um, 0:04:17.320 --> 0:04:20.040 but in general if you look at return on assets, 0:04:20.040 --> 0:04:22.800 so that adjusts for some of the some of the 0:04:22.920 --> 0:04:26.960 leverage and some of the changes. We are executing at 0:04:26.960 --> 0:04:28.960 a very high level, and that's what we'd expect to 0:04:29.000 --> 0:04:32.320 be because we are late cycle, and so as much 0:04:32.360 --> 0:04:35.040 as we talk about the revenue concerns, keep in mind 0:04:35.080 --> 0:04:38.719 that credit very solid. We could just continue to see 0:04:38.839 --> 0:04:42.040 very strong results across the backs. Alison Williams, thank you 0:04:42.080 --> 0:04:44.800 so much for being with us. Alison Williams, who is 0:04:44.839 --> 0:04:49.480 the hardest working woman in Bloomberg this morning. Alison Williams, 0:04:49.760 --> 0:05:08.280 intelligence analyst covering all things bank. It is no secret 0:05:08.360 --> 0:05:11.000 people are searching for income. This has been a theme 0:05:11.080 --> 0:05:13.640 for the oh, I don't know, past decade uh and 0:05:13.760 --> 0:05:17.040 increasingly they have been turning two convertible bonds. These are 0:05:17.080 --> 0:05:20.960 bonds that have an option to convert into securities into 0:05:21.000 --> 0:05:24.679 stocks given certain figures. Joining us now. Dave King, Senior 0:05:24.680 --> 0:05:29.120 portfolio manager with Columbia Thread Needle Investments based in Boston. Dave, 0:05:29.279 --> 0:05:32.000 you focus on convertible debt and your funds. I was 0:05:32.040 --> 0:05:35.000 looking at one of them. It's up more than fient 0:05:35.240 --> 0:05:38.680 year to date doing really well. What's been sort of 0:05:38.760 --> 0:05:43.159 the winning aspects of convertible bonds this year In the 0:05:43.200 --> 0:05:47.360 current year, it's been the recovery and equities UM. Convertibles 0:05:47.400 --> 0:05:51.840 are typically issued by companies with growth opportunities. So when 0:05:51.880 --> 0:05:55.680 the market bounced back, the equity market, I mean from 0:05:55.920 --> 0:06:00.400 a bad queue for leadership has been smaller, grow your 0:06:00.480 --> 0:06:05.240 stocks and our world is that world. Those are the 0:06:05.360 --> 0:06:08.840 underpinnings of the bonds and preferreds that we buy. So 0:06:08.920 --> 0:06:13.279 it's been good equity performance in areas like software or 0:06:13.320 --> 0:06:17.640 rebound and semiconductors, and then just isolated good performers in 0:06:17.680 --> 0:06:19.880 other areas that have led to charge for us and 0:06:19.960 --> 0:06:22.640 for the market. So Dave, when bankers go in and 0:06:22.680 --> 0:06:26.560 they're pitching a convert to a corporate issuer, you know 0:06:26.680 --> 0:06:29.000 sometimes I guess you know that maybe the argument could be, 0:06:29.040 --> 0:06:32.560 we'll just sell equity here. What's the what's the real 0:06:33.240 --> 0:06:36.880 advantage to an issuer? Uh By issuing a convertible bond, 0:06:37.680 --> 0:06:41.839 well compared to issuing equity directly, the process is much 0:06:42.080 --> 0:06:44.839 quicker to do a convertible. They can be issued under 0:06:45.080 --> 0:06:49.920 Rule one A and just sold to qualified institutions. So 0:06:50.080 --> 0:06:54.039 companies can get transactions done in the hundreds of millions 0:06:54.040 --> 0:06:58.120 of dollars in one day's time or overnight without the 0:06:58.240 --> 0:07:02.640 lengthy registration process. Says In terms of the contrast to 0:07:02.720 --> 0:07:06.840 issuing a bond, you often find that the bond market 0:07:07.040 --> 0:07:10.720 is a backward looking market that favors the old economy. 0:07:10.920 --> 0:07:16.040 So companies in areas like biotechnology or sas are challenged 0:07:16.080 --> 0:07:18.160 when it comes to dealing with the high yield market 0:07:18.240 --> 0:07:21.680 dynamics and find the convertible market much more friendly. I'm 0:07:21.680 --> 0:07:23.720 looking right now at the market value of the Bloomberg 0:07:23.720 --> 0:07:28.320 Parclay's US Convertibles Index, and it's about two hundred and 0:07:28.400 --> 0:07:31.680 nineteen billion dollars of securities. And the reason why I 0:07:31.720 --> 0:07:34.720 ask is because there was a problem in the past 0:07:34.800 --> 0:07:37.840 bunch of years where convertible bonds were more popular with 0:07:37.920 --> 0:07:41.360 investors than they were by issuers to sell them. And 0:07:41.400 --> 0:07:45.360 I'm wondering how that dynamic has evolved today. Yeah, that's 0:07:45.360 --> 0:07:48.120 a great observation. It remains a problem as far as 0:07:48.160 --> 0:07:51.800 I'm concerned. To put it in perspective, twenty years ago, 0:07:51.920 --> 0:07:54.720 the high yield market and the convertible market were similar 0:07:54.720 --> 0:07:58.240 in size. In two thousand, sixteen, new issuance in the 0:07:58.320 --> 0:08:01.680 high yield market exceeded the total size of a convertible market. 0:08:01.800 --> 0:08:06.720 So we've been a dwarf here because of the government 0:08:07.320 --> 0:08:13.000 focusing on very low yields, um quantitative easing and so forth. 0:08:13.360 --> 0:08:18.200 But can you hash that out? What exactly is the 0:08:18.360 --> 0:08:23.400 reticence on the part of companies to sell these bonds. Well, um, 0:08:23.560 --> 0:08:26.920 they can get cheaper money elsewhere as yields have been 0:08:26.960 --> 0:08:30.280 forced down dramatically. I mean, what we discuss as being 0:08:30.320 --> 0:08:33.400 the quote unquote high yield market is a five handle 0:08:33.480 --> 0:08:35.960 market that used to be a seven or eight handle market. 0:08:36.720 --> 0:08:40.200 So even in the context of a strong stock market, 0:08:40.280 --> 0:08:42.600 it's like, why give away a call option on your 0:08:42.600 --> 0:08:46.240 equity when you can finance so cheaply. So that's been 0:08:46.280 --> 0:08:48.440 the reticence. But the good news, as I said, is 0:08:48.480 --> 0:08:51.800 that last year was a record year for issuance, and 0:08:51.840 --> 0:08:54.199 this year actually through nine months was running ahead of 0:08:54.320 --> 0:08:58.120 last year. So there is a recovery in convertible issuance, 0:08:58.200 --> 0:09:00.720 but nowhere near where I think it will be if 0:09:00.840 --> 0:09:04.079 rates normalize at levels they were in the past. So Dave, 0:09:04.120 --> 0:09:07.680 I remember back in a financial crisis, some industries and 0:09:07.720 --> 0:09:10.960 companies that were really struggling, like airlines and autos, they 0:09:11.120 --> 0:09:14.760 went to the convert market. Um, is that kind of 0:09:14.800 --> 0:09:17.480 you know, saving the company type of financing? Is that? 0:09:17.480 --> 0:09:20.160 Do we still see that in the market today. Well, 0:09:20.200 --> 0:09:24.120 it hasn't been as necessary after ten years of economic recovery, 0:09:24.200 --> 0:09:26.920 but it's absolutely one of the functions of our market. 0:09:27.640 --> 0:09:31.240 The main uses of the convertible market are to finance 0:09:31.360 --> 0:09:35.000 disruptive growth companies, to finance M and A, and to 0:09:35.120 --> 0:09:38.400 finance survival of the enterprise. So when I think back 0:09:38.440 --> 0:09:42.319 to joining Columbia about ten years ago, as you point out, 0:09:42.320 --> 0:09:45.040 there were a lot of airline issues, home building issues. 0:09:45.280 --> 0:09:48.640 Ford Motor was a big issuer. They wisely did converts 0:09:48.640 --> 0:09:52.880 instead of having to file bankruptcy. So, yes, the economy cyclical. 0:09:53.000 --> 0:09:55.480 When the cycle heads down, will see a lot of 0:09:55.520 --> 0:09:59.800 issue ins in areas where the economy is struggling. Just 0:10:00.000 --> 0:10:02.680 a quick Dave, would you buy we were convertible bonds 0:10:02.679 --> 0:10:05.960 if they were to be sold, Um, well, they have 0:10:06.000 --> 0:10:10.320 to have a stock first of all. We can't convert 0:10:10.360 --> 0:10:16.240 into nothing but the community adjusted stock. Conceptually, it would 0:10:16.240 --> 0:10:19.080 be a very typical issuer in our market if it 0:10:19.160 --> 0:10:21.920 was a public company and if they had a balance 0:10:21.960 --> 0:10:25.839 sheet problem. Um, but could make the case, and this 0:10:25.880 --> 0:10:28.280 is hypothetical, they could make the case that they have 0:10:28.320 --> 0:10:31.520 a working business model. They would be welcome with open 0:10:31.640 --> 0:10:34.640 arms in our market, while skepticism would prevail in the 0:10:34.720 --> 0:10:38.040 high yield market in other places. Dave King, Senior portfolio 0:10:38.080 --> 0:10:41.240 manager for Columbia Thread Needle Investments, located in Boston, Thanks 0:10:41.240 --> 0:10:59.240 so much for joining us. Well, we have a risk 0:10:59.320 --> 0:11:01.600 on day today, that's for sure. The equity indices up 0:11:01.640 --> 0:11:03.920 about one percent. And to be honest with you, I'm 0:11:03.960 --> 0:11:06.600 not really sure why. Maybe a little bit of lift 0:11:06.800 --> 0:11:11.640 from Brexit, maybe some tech and healthy maybe a little 0:11:11.679 --> 0:11:14.480 tech little healthcare push pushing the market up. A mixed 0:11:14.520 --> 0:11:16.480 bag coming out of the big Wall Street banks. But 0:11:16.480 --> 0:11:19.640 hopefully our next guest can help us provide some color here. 0:11:19.880 --> 0:11:23.840 Frank Rabinski, chief macro strategist for Eggon USA Asset Management 0:11:24.320 --> 0:11:27.160 based in Charmed City that be, Baltimore, Maryland. But he 0:11:27.200 --> 0:11:30.240 joins us here in our Bloomberg Interactor Broker studio. So, Frank, 0:11:30.320 --> 0:11:33.480 just just today we had a nice move up here. Um, 0:11:33.520 --> 0:11:37.240 what do you attributed to having me? Yes, I think 0:11:37.640 --> 0:11:40.400 what you're seeing in part there's a macro story of 0:11:40.440 --> 0:11:43.840 this bear market in geopolitics which is really bleeding into 0:11:43.880 --> 0:11:47.120 the economics and and that's affecting markets. Right. So as 0:11:47.320 --> 0:11:51.800 as you get these oscillations of of of the geopolitical side, um, 0:11:51.840 --> 0:11:53.920 you know that you can see a quick reaction or 0:11:53.960 --> 0:11:55.880 you know, from from a day to day perspective on 0:11:55.920 --> 0:12:00.400 the risk markets. So what do you like? So we 0:12:00.440 --> 0:12:03.559 are at at this point, you know, lat in the cycle. Uh, 0:12:03.679 --> 0:12:06.160 we have been slowly going up in quality. And I'm 0:12:06.160 --> 0:12:09.280 talking about from a from a fixed income perspective. We think, 0:12:09.360 --> 0:12:10.840 you know, going too far up in quality, like all 0:12:10.880 --> 0:12:12.600 the way to treasuries, you know, doesn't make sense. At 0:12:12.600 --> 0:12:14.839 this point. You've already had say the tenure being you know, 0:12:14.880 --> 0:12:16.959 the yield cut in half UM and we think it's 0:12:16.960 --> 0:12:19.520 more of a coupon clip from here at best UM. 0:12:19.559 --> 0:12:21.319 So we we'd be looking kind of the mid tier 0:12:21.360 --> 0:12:24.040 corporate credit because we also think, you know, looking at 0:12:24.080 --> 0:12:26.400 the triple cs uh, you know, kind of the really 0:12:26.440 --> 0:12:28.800 low end, you're you're not going to have the the 0:12:28.800 --> 0:12:31.360 the oversized growth that those companies need to really grow 0:12:31.360 --> 0:12:33.480 grow into their balance sheets. So I do want to 0:12:33.480 --> 0:12:36.839 bring you a headline just crossing the Bloomberg that we 0:12:36.880 --> 0:12:40.440 work at the board of WE Companies is reported to 0:12:40.480 --> 0:12:44.600 be working with Perelo Weinberg Partners. That would suspect suggest 0:12:44.760 --> 0:12:48.439 at some sort of restructuring. I'm wondering, we work bonds 0:12:48.480 --> 0:12:51.960 falling to an all time low today, how much of 0:12:52.280 --> 0:12:55.800 a specific story do you think we work is and 0:12:55.840 --> 0:12:59.000 how much do you think it represents some broader potholes 0:12:59.000 --> 0:13:01.200 that we're going to see down the line with other 0:13:02.040 --> 0:13:04.400 other companies in the up market right now. I always 0:13:04.400 --> 0:13:07.439 think it's interesting how these types of stories they don't 0:13:07.480 --> 0:13:09.560 tend to happen at the start of a cycle, right, 0:13:09.679 --> 0:13:13.640 you get these late cycle when when capital is looking 0:13:13.679 --> 0:13:16.880 for return, looking for yields, um, and you get these 0:13:16.920 --> 0:13:18.880 misallocation of capital. You know, if they think of the 0:13:19.160 --> 0:13:21.600 nineties tech, right, I mean, and I think this is 0:13:21.640 --> 0:13:24.319 on a macro level, this is similar to to that 0:13:24.400 --> 0:13:27.320 type of thesis. Um. So again, I this is where, 0:13:27.480 --> 0:13:30.760 especially when you get into these low liquid uh type 0:13:30.840 --> 0:13:34.320 you know, you know, really low quality names. Um, the 0:13:34.320 --> 0:13:38.480 the credit analysis really becomes important because if you're just 0:13:38.520 --> 0:13:42.600 passive investing, it's really hard from a price discovery standpoint. Um. 0:13:42.679 --> 0:13:46.200 You know, having that uh, you know you can't focus 0:13:46.200 --> 0:13:48.120 on the story. It's more about the cap structure and 0:13:48.120 --> 0:13:51.920 the balance sheet and and the realistic component of that story. 0:13:51.960 --> 0:13:54.199 So it sounds like JP Moore Bloomberg News is out 0:13:54.200 --> 0:13:57.080 with the report this morning and news report this morning 0:13:57.080 --> 0:13:59.840 that the JP Morgan is you might be shopping around 0:13:59.840 --> 0:14:04.560 a you know, multibillion dollar you know capital structure, bond up, 0:14:05.880 --> 0:14:08.360 you know, coupon payment and kind in terms we haven't 0:14:08.400 --> 0:14:11.080 heard about for such a long time. That screams kind 0:14:11.080 --> 0:14:13.200 of you know, kind of end of cycle. Just give 0:14:13.280 --> 0:14:16.280 us a sense in your portfolio, how is kind of 0:14:16.320 --> 0:14:18.959 the credit quality I guess for you know, lack of 0:14:18.960 --> 0:14:20.920 a better terment. Does it feel late cycle to you 0:14:20.960 --> 0:14:24.560 their warning signs there or or is the overall the economy, 0:14:24.560 --> 0:14:26.400 which is still pretty strong kind of supporting most of 0:14:26.400 --> 0:14:29.560 the credits. Well, so I'll start with the economy side 0:14:29.640 --> 0:14:31.960 and then go into the portfolio side. So on the 0:14:31.960 --> 0:14:34.720 economy side, you know, definitely late side. I mean, we're 0:14:34.760 --> 0:14:37.400 moderating from peak growth, and you know, we see trend 0:14:37.440 --> 0:14:40.440 growth in the high ones and we think we're going there. Um, 0:14:40.520 --> 0:14:43.160 we don't see the cycle necessarily ending, you know, next year, 0:14:43.240 --> 0:14:45.120 So you know, we think from that perspective, you could 0:14:45.160 --> 0:14:47.880 have kind of trend like growth um, which is not 0:14:47.960 --> 0:14:51.600 bad for certain parts of credit. Uh. We conversely, but 0:14:51.640 --> 0:14:54.680 when we talk about the portfolio side, we have been 0:14:54.760 --> 0:14:57.520 on an up end quality type mode for for quite 0:14:57.560 --> 0:14:59.400 some time. Um. You know, if we look at the 0:14:59.440 --> 0:15:01.560 low end of high yield, the triple seas, you know, 0:15:01.600 --> 0:15:04.200 we're underweight. They're trying to go up. And if you 0:15:04.200 --> 0:15:06.280 look at at the sharp ratios, I mean, they're they're 0:15:06.320 --> 0:15:08.680 definitely being maximized and kind of the mid part of 0:15:08.720 --> 0:15:11.960 the credit structure because you've also been you know, assuming 0:15:11.960 --> 0:15:15.080 a lot of risk with the volatility you've seen on 0:15:15.120 --> 0:15:17.280 some of the lower end side of the of the 0:15:17.320 --> 0:15:20.040 credit space. So we we've definitely been on this up 0:15:20.120 --> 0:15:21.960 and quality, but as I said before, not going all 0:15:21.960 --> 0:15:23.880 the way up and quality because we don't think you know, 0:15:24.000 --> 0:15:27.520 the despite the trade fears, uh, you know, and kind 0:15:27.520 --> 0:15:29.520 of the uncertainty around that, we don't see the global 0:15:29.560 --> 0:15:34.200 cycle completely ending. Triple c credits have underperformed. A lot 0:15:34.240 --> 0:15:35.560 of people agree with you. A lot of people have 0:15:35.640 --> 0:15:37.640 been doing the same thing. If I were a contrarian, 0:15:37.720 --> 0:15:39.480 I would go into triple seas and say, well, for 0:15:39.560 --> 0:15:41.120 not at the end, these things are going to plug 0:15:41.160 --> 0:15:43.560 plug along. There's a lot of capital and private debt 0:15:43.600 --> 0:15:46.680 and private equity kinds of structures. So I'll be fine, 0:15:46.920 --> 0:15:49.440 what would you say to that person, Well, I hope 0:15:49.480 --> 0:15:52.560 his credit analysis is quite sharp. I mean it's I 0:15:52.640 --> 0:15:54.520 think it's helpful when you look at this cycle versus 0:15:54.560 --> 0:15:57.080 prior cycles in the sense of, you know, in the 0:15:57.120 --> 0:16:00.560 eighties and nineties, you know, nominal growth was is six 0:16:00.600 --> 0:16:04.320 seven percent. Now you know we're we're happy with three. 0:16:05.000 --> 0:16:09.160 And you know, when you're at a slower nominal growth world, um, 0:16:09.200 --> 0:16:11.760 it's harder to get the aggregate low end of the 0:16:12.000 --> 0:16:15.120 credit space because they need growth right to to grow 0:16:15.120 --> 0:16:17.800 into those balance sheets. So I think, will there be 0:16:17.880 --> 0:16:20.040 companies that survive and do wal and Trip will see yes. 0:16:20.440 --> 0:16:22.920 But again, I think buying a bucket of triple cs 0:16:23.400 --> 0:16:24.920 is going to be you know, you're going to be 0:16:24.920 --> 0:16:27.320 taking a more risk so that sharp race will be affected. 0:16:27.360 --> 0:16:30.320 As opposed to having me really experienced and sharp analysts 0:16:30.320 --> 0:16:32.800 who can you know, really figure out the credit specifics there, 0:16:33.040 --> 0:16:36.040 you might be buying a bucket of worms. Sorry, I 0:16:36.040 --> 0:16:41.400 couldn't help myself. It's Tuesday, Fransky. No, it's It's absolutely nothing. 0:16:41.480 --> 0:16:43.720 It's something I just made up. So um you can. 0:16:43.880 --> 0:16:46.440 You can write your comments to lebron Woods at Bloomberg 0:16:46.480 --> 0:16:48.840 dot net. Frank Rabinski, thank you so much for being 0:16:48.880 --> 0:16:51.360 with us. Frank Robinski as chief macro strategist to Egg 0:16:51.440 --> 0:16:55.080 on asset management over helping oversee a hundred and three 0:16:55.360 --> 0:16:58.480 billion dollars of assets from Baltimore. What what what did you 0:16:58.480 --> 0:17:16.280 call Baltimore? Charm city? Armed city? Who do po? We 0:17:16.400 --> 0:17:19.560 hear so much about the e s G label, Environmental, 0:17:19.600 --> 0:17:23.600 social and governance types of filters to invest more selectively 0:17:23.840 --> 0:17:27.520 and more wholesomely in equities, joining us now as someone 0:17:27.560 --> 0:17:30.480 who focuses on that all day long. And Marie Washer, 0:17:30.560 --> 0:17:34.560 founder and chief executive officer of Flat World Partners. Disclosure, 0:17:34.680 --> 0:17:37.080 she is not a flat earther. That is not the 0:17:37.160 --> 0:17:40.159 title of her firm. But Marie, why don't you just 0:17:40.200 --> 0:17:43.280 start with telling us what it does do? Sure? So, 0:17:43.640 --> 0:17:46.359 Flat World Partners is an investment management firm, and we 0:17:46.520 --> 0:17:50.800 focused on custom solutions for impact and sustainability that deliver 0:17:50.920 --> 0:17:54.159 market rate returns. So talk to us about E s 0:17:54.200 --> 0:17:57.719 G investing in general. Just size up the market force 0:17:57.960 --> 0:18:00.400 the growth of E s G investing can pep sense 0:18:00.400 --> 0:18:03.560 of how big this may be? Sure? So if we 0:18:03.600 --> 0:18:06.560 look at numbers this year, nine trillion of assets are 0:18:06.600 --> 0:18:08.960 already an E s G or s RI I negatively 0:18:09.600 --> 0:18:14.280 uh screen funds and public markets and sr I negatively screened. 0:18:14.400 --> 0:18:18.320 Isn't s R Yeah exactly. There's so many acronyms. I 0:18:18.320 --> 0:18:20.359 think that's part of the challenges of the market. But 0:18:20.480 --> 0:18:24.240 it's a socially responsible investing when you screen out tobacco 0:18:24.640 --> 0:18:29.120 or oil and gas. The markets growing so significantly right 0:18:29.119 --> 0:18:33.399 now over a d annually uh in terms of the 0:18:33.440 --> 0:18:36.720 flood of types of funds that are launching in fun flows. 0:18:36.720 --> 0:18:39.600 So it give us a sense of performance. Um do 0:18:39.640 --> 0:18:43.880 I sacrifice performance if I integrate E s G into 0:18:43.960 --> 0:18:46.639 my investment process? Right? Um? No, The good news is 0:18:46.680 --> 0:18:49.720 you don't. In fact, more and more studies show out performance. 0:18:49.760 --> 0:18:52.439 When you look at E s G data providers, you 0:18:52.480 --> 0:18:56.760 see that there's larger and larger gaps between UM traditional 0:18:56.800 --> 0:18:59.800 indexes and those indexes that are E s G because 0:18:59.840 --> 0:19:03.040 you're mitigating risks. Can you give us an example of 0:19:03.119 --> 0:19:06.520 kind of a hallmark E s G compliant or s 0:19:06.680 --> 0:19:13.159 RI I negative plus absolutely x three uh that you 0:19:13.200 --> 0:19:15.800 know that that you focus on. Sure. I mean if 0:19:15.800 --> 0:19:18.200 we look at public markets, you can use an example 0:19:18.240 --> 0:19:21.200 like pg N and the outages last week, So that 0:19:21.280 --> 0:19:24.199 has been available in E s G data providers, and 0:19:24.240 --> 0:19:27.560 you've actually seen the risk assessments on E s G 0:19:27.720 --> 0:19:30.439 data increase over time, which would have given us an 0:19:30.440 --> 0:19:33.760 indication that the stock would collapse. Um, and then you 0:19:33.880 --> 0:19:37.960 have opportunities actually back up on that when I dig 0:19:37.960 --> 0:19:40.840 in a little bit more. So please explain a little 0:19:40.840 --> 0:19:42.960 bit more what indicators would you be looking at that 0:19:42.960 --> 0:19:45.800 you would have been able to say. So, Bloomberg Terminal 0:19:45.800 --> 0:19:48.560 actually has E s G data on it, and you 0:19:48.560 --> 0:19:51.280 can see momentum scoring on whether E s or G 0:19:51.560 --> 0:19:55.440 factors are increasing or declining. That often shows an indication 0:19:55.520 --> 0:19:59.600 that stock may collapse if the scores are declining. Okay, 0:19:59.680 --> 0:20:02.240 so was declining the most when it comes to pg N, 0:20:02.680 --> 0:20:07.040 So that often falls under governance or environmental factors because 0:20:07.600 --> 0:20:10.679 where the fire start in California are literally where they 0:20:10.720 --> 0:20:14.840 have utility centers. So you mentioned the data. A lot 0:20:14.880 --> 0:20:17.160 of times, we've had E s G investors in here 0:20:17.200 --> 0:20:20.359 portfolio managers and they bemoan the lack of data or 0:20:20.359 --> 0:20:22.440 the lack of consistent data on E s G. It's 0:20:22.480 --> 0:20:24.080 not like going to an income statement or a balance 0:20:24.080 --> 0:20:26.320 sheet where it's you know, gap kind of data and 0:20:26.400 --> 0:20:28.920 everybody's kind of got it. You mentioned a Bloomberg terminal. 0:20:28.960 --> 0:20:31.560 We do on the terminal have tons of E s 0:20:31.600 --> 0:20:33.760 G data, But just give us a sense of if 0:20:33.800 --> 0:20:36.159 I wanted to incorporate it E s G into my 0:20:36.240 --> 0:20:39.760 investing kind of where do I get data? What's Yeah, 0:20:40.520 --> 0:20:43.320 the E s G data market is incredibly tricky. There's 0:20:43.359 --> 0:20:46.200 about different a D there's about a D data providers 0:20:46.200 --> 0:20:50.160 in the market now, and the score is really exkew significantly, 0:20:50.200 --> 0:20:53.320 there's no consensus scores. And so we're really working on 0:20:53.920 --> 0:20:58.240 technology to integrate platforms and incorporate unique data sets like 0:20:58.480 --> 0:21:01.960 green peace, ocean and plastic contribution. This is one of 0:21:02.000 --> 0:21:03.880 my troubles with the E s G label. I'm gonna 0:21:03.880 --> 0:21:07.280 be really honest, it's struggle with how vague it is. 0:21:07.920 --> 0:21:11.960 I mean, to be socially responsible can mean fourteen million 0:21:12.000 --> 0:21:15.080 different things to different people, and to have good governance, 0:21:15.160 --> 0:21:18.320 I mean again there are different screens and and really 0:21:18.320 --> 0:21:20.080 what does it mean to be good to the environment 0:21:20.160 --> 0:21:23.280 is if you have carbon offset but you're pumping carbon, uh, 0:21:23.320 --> 0:21:26.200 you know, into the into the environment. I mean, how 0:21:26.640 --> 0:21:30.000 how how confident are you with these screens? Really are 0:21:30.320 --> 0:21:34.160 something significant? Yeah, So it's really about understanding how those 0:21:34.160 --> 0:21:36.680 screens are put together, that that E s G data, 0:21:36.720 --> 0:21:39.159 and understanding the managers that are building those products and 0:21:39.200 --> 0:21:41.800 how they incorporate it. All of our clients care about 0:21:41.800 --> 0:21:44.960 different things, whether it's water or education or the environment, 0:21:45.080 --> 0:21:46.920 and we want to really think about what are the 0:21:47.000 --> 0:21:49.320 key points that we need to highlight in an investment. 0:21:49.680 --> 0:21:52.280 You can't do it all. You can't incorporate everything in 0:21:52.359 --> 0:21:56.000 every investment. So I can see how a pension fund 0:21:56.359 --> 0:22:00.119 um or maybe even a big mutual fund would care 0:22:00.160 --> 0:22:03.520 about incorporate E s G. How about the hedge fund community? 0:22:03.560 --> 0:22:06.879 Do they care? Are pretty cold hearted people will just 0:22:06.880 --> 0:22:10.080