Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Jason Kelly. We're here every day bringing you the latest
Speaker 1: news from the world's of business and finance, plus technology, politics, economics,
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Speaker 1: Week on iTunes, SoundCloud, or Bloomberg dot Com. You can
Speaker 1: also listen to our radio show weekdays at two pm
Speaker 1: Eastern only on Bloomberg Radio. Vitos Purdudo is co head
Speaker 1: of Global Mergers and Acquisitions at RBC Capital Markets in
Speaker 1: our Interactor Broker studio, along with the one and only
Speaker 1: Ed Hammond, deal's reporter at Bloomberg News. So nice to
Speaker 1: have both of you here, Vito, Let's just get right
Speaker 1: to it. What's the M A environment? Look like we
Speaker 1: had a bunch of deal activity, big deals late last year.
Speaker 1: Is that going to continue? Yeah? Look, I think it
Speaker 1: was an interesting year last year. It was kind of
Speaker 1: two halves. So the M and A market was completely
Speaker 1: made by large deals in the first half of and
Speaker 1: so if you looked at the US market, Um, you know,
Speaker 1: it was fully driven where it was up over in
Speaker 1: the first half because large deals were up that much.
Speaker 1: The European market, just given the uncertainty and the political
Speaker 1: climate over there, was actually off over in the first half,
Speaker 1: and even though they had a massive rally in the
Speaker 1: second half, they were still down last year. I think
Speaker 1: a lot of what we're seeing now are the trends
Speaker 1: that developed in the second half. A lot of the
Speaker 1: transactions are of a size kind of one to five billion,
Speaker 1: kind of mid size, more bite size for corporates, uh
Speaker 1: more doable for private equity firms. But conditions are pretty
Speaker 1: strong right now. We are sitting at financing rates if
Speaker 1: you talk, if you see the markets from a debt
Speaker 1: financing perspective, and the volumes that are occurring, they're they're
Speaker 1: hungry for M and A product right now. So many
Speaker 1: companies are repricing their debt financing, but there isn't a
Speaker 1: lot of new M and A product and so as
Speaker 1: that comes to market, that's really available. Stock prices are
Speaker 1: near all time highs, and then cash on balance sheets
Speaker 1: and dry powder and private equity funds again kind of
Speaker 1: near all time all time highs for private equity, near
Speaker 1: all time highs for corporates, and so you have a
Speaker 1: lot of really good conditions. Um, I do think it's
Speaker 1: a first half of this year market. So when you
Speaker 1: look at the second half, I'm sure it'll extend into it.
Speaker 1: But if you can get your deal done first half
Speaker 1: of this year and not have to deal with the
Speaker 1: political uncertainty, and we're sitting here on a day when
Speaker 1: you know you can't call an election in such a caucus,
Speaker 1: excuse me, and and so even call a caucus, bro,
Speaker 1: imagine the deal was done like that. You're gonna sort
Speaker 1: of partially announce the deal and then I'm gonna trickle
Speaker 1: it out over days and days. It's embarrassing, Yeah, and
Speaker 1: it's difficult. I think the problem right now is people
Speaker 1: look at it and there are a lot of key
Speaker 1: assets that people want to sell because they weren't able
Speaker 1: to last year, and so there's a lot of pent
Speaker 1: up demand both in terms of buying and selling. And
Speaker 1: as a result, you know, I think people want to
Speaker 1: make sure that you know, I'm not going to risk
Speaker 1: uncertainty and if I can get it out sooner, and
Speaker 1: that's what we're seeing from our clients right now. But
Speaker 1: but there's not a lot of large deal flow versus
Speaker 1: what we saw last year. We saw some real blockbusters
Speaker 1: in that first half of the year. And so in
Speaker 1: the immediate term, how much is your phone ringing or
Speaker 1: your email box filling up with concerns from a CEO
Speaker 1: who might be thinking about selling around coronavirus. So, look,
Speaker 1: I think that impacts you if you're dealing with business
Speaker 1: that excuse into Asia China more specifically. So you saw
Speaker 1: some I p O s get pushed out and I
Speaker 1: think somewhere because of exposure to that market, somewhere just
Speaker 1: because of concerns on volatility. UM. I think you know,
Speaker 1: M and A deals don't happen when there's uncertainty, and
Speaker 1: so you need to be certain about your performance. You
Speaker 1: need to be certain about the market performance. And so
Speaker 1: I think the risk is more you know, it's going
Speaker 1: to be isolated a certain areas. Now, we've spent a
Speaker 1: lot of time looking at this UH and I would
Speaker 1: tell you the the amount that the Chinese economy accounts
Speaker 1: for the global economy is much more significant than if
Speaker 1: you go back to stars. Right, So if you go
Speaker 1: back to two thousand three, I saw a statistic for
Speaker 1: luxury goods. A third of all luxury goods today are
Speaker 1: sold in China. Yeah, we've talked about the fall off
Speaker 1: in Hong Kong. Yeah, ten was the number back in
Speaker 1: two thousand three, And so if you think about that,
Speaker 1: if you think about the importance they are just to
Speaker 1: the global economy, it's going to have an impact, but
Speaker 1: I do think it's going to be more of a blip.
Speaker 1: The other thing I was talking to someone this morning
Speaker 1: about was how soon I was asked this question by
Speaker 1: a client, how soon do you think people are going
Speaker 1: to start mentioning the coronavirus in their earnings? Well, I
Speaker 1: couldn't be. I mean you look at LVMH, tiffany where.
Speaker 1: Obviously the China pieces a huge motivation. Could they? Could
Speaker 1: they potentially, Declara Mac. I don't think so. But it's
Speaker 1: but but you know, I look remind people where the
Speaker 1: back is material at first change and then the deal,
Speaker 1: and basically it's it's it's way you almost impossible. I
Speaker 1: think there's only been in Delaware law, there's only been
Speaker 1: one that and it's you can't And in general, market
Speaker 1: conditions like this are excluded from that definition. So I
Speaker 1: think that's difficult. But I do think if you recall
Speaker 1: when Tiffany's had to make comment about their UM the
Speaker 1: main store and the impact that was having from being
Speaker 1: so close to Trump Tower in New York City. Since
Speaker 1: the streets are shut down, UM, you're gonna see things
Speaker 1: like that impacted. You start hearing about Macau shutting down
Speaker 1: for two weeks, you start hearing about Apple and Starbucks
Speaker 1: closing stores, Right, you're gonna feel some impact. Now. I
Speaker 1: do think, um, we'll know a bit more as this
Speaker 1: plays out, but it will impact the companies that are
Speaker 1: exposed to that market in general. Speaking of M and A,
Speaker 1: just want to bring you a quick headline Intercontinental Exchange
Speaker 1: approaches eBay about a takeover that is just crossing the
Speaker 1: Bloomberg according to just got three set can here. What
Speaker 1: would you say to that? You know, you're seeing a
Speaker 1: blend of a lot of these companies like this. We
Speaker 1: we've been talking to big theme this year of convergence. Yeah,
Speaker 1: and so when you take a look at sort of
Speaker 1: buyers extending their reach in the other areas, especially technology related, UM,
Speaker 1: that's fairly inesting. I haven't I haven't spent a lot
Speaker 1: of time in that space. But that's something I'll be
Speaker 1: taking a closer look at. That's a really instrument all right,
Speaker 1: video about five and a half percent as expected. We'll
Speaker 1: keep watching that one. He is the co head of
Speaker 1: Global M and a over at RBC Capital Markets are
Speaker 1: thanks to him, and of course to Ed Hammond, our
Speaker 1: m and a man on the scene. All right, Well,
Speaker 1: this story immediately jumped out to both Carol and myself.
Speaker 1: It's a topic that we talked about a lot on
Speaker 1: this show. We talked about it at the Bloomberg fifty.
Speaker 1: It's just something that's very much, as Tom Keane would
Speaker 1: say in the Zeitgeist for more diverse corporate boards. Move
Speaker 1: down the org chart. That's the headline on the story
Speaker 1: by Jeff Green in the latest edition or the upcoming edition.
Speaker 1: I guess of Bloomberg business Week magazine. Jeff Green normally
Speaker 1: based out in Detroit City. He's here with us in
Speaker 1: New York City, and so is Joe Webber, the editor
Speaker 1: of Bloomberg Business Week. Detroit people feel about Detroit City.
Speaker 1: That a thing you like that Detroit City. The rocket
Speaker 1: is understood. Come on, as long as you spelled Detroit, right,
Speaker 1: We're good. Alright, good. Uh so j G, welcome back
Speaker 1: to New York. Tell us about this story, because this
Speaker 1: is the constant refrain. People say, all right, we want
Speaker 1: a more diverse board, but the candidates just starting out there,
Speaker 1: there's nothing I could do about it. Bro Yeah, Well,
Speaker 1: I started kind of looking at it backward. I was
Speaker 1: looking at the number of first time executives that were
Speaker 1: showing up on boards. There's a lot of a lot
Speaker 1: more first timers now on the SP it doesn't turn
Speaker 1: over much, but when it does, they're more likely to
Speaker 1: be first timers. And I was trying to figure out why.
Speaker 1: So I started looking at, well, who has the most
Speaker 1: people UM, and Marriott jumped kind of to the top.
Speaker 1: So I went to them and said, what's going on here?
Speaker 1: And like they had no idea that they were in
Speaker 1: any way. Look, you know would be on this list.
Speaker 1: And so I talked to Arnie Sorenson. He said, it's
Speaker 1: it's not really on purpose. We're not trying to be
Speaker 1: more diverse. But he said, you know, I was one
Speaker 1: of the first people allowed to be on an outside
Speaker 1: board at Marriott. I went on he first, he went
Speaker 1: on Walmart. Now he's on Microsoft UM. And he said,
Speaker 1: I thought it was a great experience. So he made
Speaker 1: it a requirement that his reports come to their board
Speaker 1: meetings and kind of see how it works. And then
Speaker 1: for those who are interested, he said, why don't you
Speaker 1: think about going on some outside boards. Oh? Interesting, So
Speaker 1: this is allowed, so non CEO, but maybe C suite
Speaker 1: or kind of how it's percolated down to reports to
Speaker 1: reports to reports at Marriott's three levels. At least one
Speaker 1: of those people that would have been in the story
Speaker 1: she just left for another company, but it had been
Speaker 1: a report to report to report. Perhaps the programs working
Speaker 1: because one of the things that comes with these positions
Speaker 1: is oftentimes a little networking effect, right, Yeah, and a
Speaker 1: higher profit and a higher pay. It doesn't hurt if
Speaker 1: you're trying to keep somebody. So what are those well,
Speaker 1: I mean you get access to both for the company
Speaker 1: that you work for and the company you're going to.
Speaker 1: There's access and networking. Um, you know the Home DEEPO
Speaker 1: in Adobe or a couple of the boards where people
Speaker 1: from Marryott are now serving Home Deeper in particular, they
Speaker 1: talk about how it's a customer service. They have people
Speaker 1: trying to wait on you on the floor, you have
Speaker 1: people you know, waiting on you in the rooms, and
Speaker 1: there's a lot of potential cross pollenization, a lot of things.
Speaker 1: So it makes a business sense. And it's not just Marriott,
Speaker 1: I mean I was, there was several. Almost every big
Speaker 1: company now is letting their lower level executives serve in
Speaker 1: some capacity, usually just one, but I mean one is
Speaker 1: really all you need for one is more than none,
Speaker 1: which is what it used to be, right, especially for
Speaker 1: lower level. It's a retention tool. You have somebody you
Speaker 1: might want to be CEO someday, you put them in
Speaker 1: this position basically the boss of a CEO. I'm I'm
Speaker 1: an e v P but by day, but you know,
Speaker 1: eight times a year, I'm the boss of the CEO
Speaker 1: of a major company. Potentially. It's also like an executive
Speaker 1: program to some extent, if you think about it, you're
Speaker 1: taking your lower level executives and exposing them to another
Speaker 1: corporate board and kind of their expertise and what they're
Speaker 1: working on. And in that way, I mean there's a
Speaker 1: payoff for the company as well. Yeah, and you know
Speaker 1: the sort of the collateral undamaged whatever, the the good
Speaker 1: thing that comes out of it is the next layer
Speaker 1: and the layer below that in most corporations is more diverse.
Speaker 1: I mean, you know, what is it of C E
Speaker 1: O S or white males? It gets better it's our
Speaker 1: female and you know the numbers get bigger when you
Speaker 1: get further down. Well, and the other point you make
Speaker 1: this in the story is this idea that when boards
Speaker 1: are looking for new members, they are often not looking
Speaker 1: for white dudes. They are looking for people of color
Speaker 1: and women often and so that only it becomes sort
Speaker 1: of a virtuous sort of situation. So who else is
Speaker 1: shining in this regard? You know, if if Marryott just
Speaker 1: happened to stumble into this, uh, like, what else is
Speaker 1: happening out there? Well, it's not. I mean a lot
Speaker 1: of companies are doing it for the other reasons. I
Speaker 1: mean I think I remember Cummins, you know, the industrial company,
Speaker 1: for no reason they could explain LOOKS is really good
Speaker 1: in this and big companies like m X and and
Speaker 1: other companies, you just it's because they have the policy.
Speaker 1: I mean, I've written about this in the past. I
Speaker 1: did an article for Business Week a few years ago
Speaker 1: when I first saw this kind of happening, and it
Speaker 1: was interesting. Some of the people I wrote about one
Speaker 1: of them now runs of General Motors. The other one,
Speaker 1: the other woman now runs Automation, and they've both been
Speaker 1: featured in these stories about how they're you know, they decided, Um.
Speaker 1: I think it was the CEO of General Motors said
Speaker 1: I'm gonna put some of my lower level executives out there.
Speaker 1: And Mary Borrow was one of the people who got
Speaker 1: a shot, and I interviewed her at the time. She was,
Speaker 1: you know, two layers from CEO. So let me ask
Speaker 1: you this, because this is right in your wheelhouse. We
Speaker 1: made a lot of this decision by Goldman Sax recently
Speaker 1: to say we're not going to take you public if
Speaker 1: you don't have at least one diverse member of your board.
Speaker 1: And a year from now, I believe her in one
Speaker 1: that's going to go to two. How big a deal
Speaker 1: is that? I mean, you know this space much better
Speaker 1: than we do. How big a deal with that? Well,
Speaker 1: I don't think Goldman Sax is going to not do
Speaker 1: a deal. But I don't think Goldman Sax has to
Speaker 1: worry anymore that anybody is going to come to them
Speaker 1: with a board that isn't going to have a diverse candidate.
Speaker 1: I mean, I think it's gonna be basically, I want
Speaker 1: Goldman sex and my deal. I'm going to start looking
Speaker 1: because if you look at most I p o s
Speaker 1: and you look at you go just pull them up
Speaker 1: on the Bloomberg and look at the screen. The last
Speaker 1: two people picked for almost every board are women. But
Speaker 1: we work wasn't that way. They waited till everything that.
Speaker 1: But I'm just saying a high profile you know I
Speaker 1: p O that had a lot of different problems, but
Speaker 1: they didn't have women on ten percent of the big
Speaker 1: I p o s every year don't have any women
Speaker 1: on the board. I mean, that's that's a that's not
Speaker 1: my stat but I quoted a lot um. It was
Speaker 1: I think it was twenty women on boards. Went and look,
Speaker 1: they look at the top twenty five I p O
Speaker 1: deals every year and they don't, you know, invariably ten
Speaker 1: percent percent. And this is the one in this way
Speaker 1: that that jumped out of me. Although women make up
Speaker 1: half the work, first, they didn't exceed a quarter of
Speaker 1: SMP directors until just last year, right, so total total.
Speaker 1: What I what I guess I think about with this
Speaker 1: framing is like overall problem is like we know diversity
Speaker 1: on boards is a problem, right, and like novel solution
Speaker 1: that hadn't been talked about, and don't jump to this,
Speaker 1: We'll just open up the funnel a little bit, like
Speaker 1: it doesn't have to be top of the food chain
Speaker 1: down the later the company's opening. If you want to
Speaker 1: see diversity, look for chaos, look for turmoil. We did
Speaker 1: another story looking at the consumer segment. You know, it's
Speaker 1: the worst place to be in theory as a CEO.
Speaker 1: At the moment, they're more CEOs are being fired at
Speaker 1: consumer companies than anywhere else. However, it's also if you're
Speaker 1: willing to, you know, be a little risky, it's the
Speaker 1: great place to be a woman right now. I mean
Speaker 1: it's they have a food chain too, they have a
Speaker 1: they have a bench. So you're seeing women just like
Speaker 1: jump to the floor there. And when you're on a board,
Speaker 1: even if you're a lower level executive, you get paid
Speaker 1: for it, right exactly, it's not and it's not too shabby. Yeah,
Speaker 1: not for nothing, all right, Jeff Green, what a treat
Speaker 1: to see you here in New York City. Managining diversity
Speaker 1: reporter for Bloomberg, usually based out in Detroit, Michigan, I
Speaker 1: said it correctly that Detroit Detroit City. Joel Weber, editor
Speaker 1: of Bloomberg Business Week, he is here in New York.
Speaker 1: You just call it motor City. My god, there's a
Speaker 1: lot of growing going on right now, just saying this
Speaker 1: isn't a good corporate board. No, not even close. You're
Speaker 1: listening to Bloomberg Business Week with Carol Messer and Jason
Speaker 1: Kelly on Bloomberg Radio. Alright, so this story one of
Speaker 1: the most right on the Bloomberg Today. Goldman Sachs is
Speaker 1: Adam Corney is one of Wall Street's most prominent evangelists
Speaker 1: for rewiring trading desks deaths. I can't say it trading
Speaker 1: desks with cutting edge technology anyway. It talks about the
Speaker 1: commitment really that has been made to technology at Goldman Sachs.
Speaker 1: And so you do wonder about him stepping down. Trinaderag
Speaker 1: And is finance reporter at Bloomberg News. He's in our
Speaker 1: Bloomberg Interactor Broker studio. He wrote it, sor I've been
Speaker 1: I'm spending too much to Twitter is a little crazy today.
Speaker 1: All Right, I'm going to step back from Twitter and
Speaker 1: I'm going to focus on straight. Um. I'm glad you're here.
Speaker 1: We're gonna look you in the eye and welcome you
Speaker 1: to our home. Thank you. Tell us about this story,
Speaker 1: who this guy is, and what he's meant to Goldmen,
Speaker 1: and what it means that he's leaving. Well, the interesting
Speaker 1: thing is how much the story has changed just in
Speaker 1: the last few hours since we published the story, Because
Speaker 1: when we were talking about this story, initially it was
Speaker 1: Adam Corn, one of the most prominent tech evangelists inside
Speaker 1: Goldman's accent across Wall Street. But in the last few
Speaker 1: years we've also heard the new breaking news that his
Speaker 1: boss was also one of the most senior engineers there
Speaker 1: is leaving the film. And you know, some people might
Speaker 1: find it weird. Why are we talking about engineers when
Speaker 1: we're talking about a big Wall Street banking investment bank.
Speaker 1: Why do I care? They're not the real players. We
Speaker 1: need to talk about the traders and the investment bankers.
Speaker 1: It turns out that's not the case the new Goldman.
Speaker 1: Just last week they did a huge deal with their
Speaker 1: big debut investor day where they talked about tech transformation
Speaker 1: being the centerpiece of their trading vision and strategy. So
Speaker 1: when you have two people who have been integral to
Speaker 1: that process, who have been at the firm for so
Speaker 1: many years, who know all the core products have been
Speaker 1: building it leaving in the midst of all these initiatives.
Speaker 1: It's certainly it feels like a really puzzling move, and
Speaker 1: one wonders that there's more to it, and especially that
Speaker 1: it's not like one guy. I mean that there's there
Speaker 1: is a trend here. I mean, especially when as you
Speaker 1: do in your story, you talk about Marty Chavez, you
Speaker 1: talk about Alicia Weasel. Is that am I saying that? Right? Um?
Speaker 1: You know, these are a lot of important people who
Speaker 1: not only set the strategy, but we're executing it and
Speaker 1: we're put forth by Goldman. So what do you make
Speaker 1: of it? Let's take a step back when you when
Speaker 1: you think of all the palace intrigue inside Goldman Sacs
Speaker 1: of the last couple of years. What is it that
Speaker 1: we've talked about a lot. Ever since David Solomon took over,
Speaker 1: see you, and the new management was in place. We
Speaker 1: we kept talking about the old guard and people associated
Speaker 1: with Lloyd blank Fire, and then the old leaders of
Speaker 1: the firm leaving and and in new blood coming in
Speaker 1: or people close to the new management taking prominent roles
Speaker 1: across the firm. However, the moves that we're putting on
Speaker 1: this week feel different. These are people who are supposed
Speaker 1: to be a part of the nucleus of David Solomon's
Speaker 1: team taking Goldman Snacks forward, the likes of Ezra the
Speaker 1: Adam corn. These were people who were supposed to be
Speaker 1: the next generation leaders driving that vision forward. So for
Speaker 1: them to abruptly leave is definitely a bit of a
Speaker 1: head scratch. So what are you okay, so scratching your head,
Speaker 1: But what are you hearing from folks about what it means?
Speaker 1: Maybe about what's going on inside Coleman Sacks. Well, well,
Speaker 1: one thing is clear, there's no way, in no way,
Speaker 1: shape or firm doesn't indicate that Godman's pulling back from
Speaker 1: its text strategy, right. That should have said no, No
Speaker 1: one can have any sort of thoughts about going back
Speaker 1: on that promise. That is the only way forward for them.
Speaker 1: And we have talked about a procession of tech innovatives
Speaker 1: who have left the firm. But at the same time,
Speaker 1: Goldman has tried to offset the losses by bringing in
Speaker 1: tech fire are par from the outside. They've got Marco
Speaker 1: or Gentye from Amazon, they got another senior leader from Verizon,
Speaker 1: So they have been beefing up a talent from outside,
Speaker 1: and I'm sure over time that these outsiders will also
Speaker 1: bring in people that they work with closely over the
Speaker 1: years to fill up the ranks inside Goldman Sax. And
Speaker 1: you know, that's what leads you to wonder maybe some
Speaker 1: of that tension is that play. Although we have no
Speaker 1: indication exactly why they left, all we know is last
Speaker 1: week these people were all part of the showcase invested
Speaker 1: at Goldman Sacks and suddenly they're not there. And Tree,
Speaker 1: as you know, and we certainly around this table, I
Speaker 1: feel like for years, remember Jamie Diamond holding some event
Speaker 1: and talking about the amount of money spending out technology
Speaker 1: and cybersecurity and all these things, and I think we
Speaker 1: all at that point, you know, started to say, Okay,
Speaker 1: Wall Street is not just about the finance part. It's
Speaker 1: a big part about technology. So how do you read this?
Speaker 1: Is this just another sign because as you said, they're
Speaker 1: not cutting back on their commitment to technology. They brought
Speaker 1: into big names. Is it just David Solomon continuing to
Speaker 1: kind of remake this firm and his bitch or where
Speaker 1: he sees it going the tech transformation, the people he's
Speaker 1: put in place is certainly part of the stamp he's
Speaker 1: leaving on the firm. But the problem is, right now,
Speaker 1: when we're talking about that stamp, it's about a lot
Speaker 1: of the people who are leaving. And I'm sure he
Speaker 1: doesn't like that. I'm sure he doesn't want that, but
Speaker 1: he will continue to pour as much money as possible
Speaker 1: into upgrading the technological system because Wall Street has been
Speaker 1: overhauled over the last ten to twenty years and the
Speaker 1: change is only going to accelerate over the next decade
Speaker 1: or so. So you can't walk away from that pledge.
Speaker 1: So he's continuing to do that. But at the same time,
Speaker 1: the kind of people who have left, that's a lot
Speaker 1: of right, especially coming after the state of knowledge leaving
Speaker 1: the building, because you have to think of it. In
Speaker 1: some ways, the bank technology is not the same as
Speaker 1: the technology the tech company you have. You have to
Speaker 1: build very specific products and these are people who know
Speaker 1: the core of the system. So in some ways for
Speaker 1: them to leave, that's that. I mean, you guys got
Speaker 1: the would right it is, and you can lose and
Speaker 1: you can certainly lose a momentum right when you're when
Speaker 1: you're building out tech processes. It's a technical term. It's
Speaker 1: bummer dot com. You m R on the terminal Bummer
Speaker 1: bro exactly finance reporter for you have no idea. It's
Speaker 1: about the themes for today. It's about It's about the
Speaker 1: bro all right. Anyway, Bro's coming and going, John, thank
Speaker 1: you so much, Bro Journal. Yeah, but you let me drive?
Speaker 1: Oh no, no, no, no, who's going to home? Please?
Speaker 1: I'll do the l I don't want to drive all
Speaker 1: just drive baby questions drying us the drive to the
Speaker 1: globe Bloomberg Radio, it is time for the drive to
Speaker 1: the clothes. Larry Pitkowsky is back with us, co founder
Speaker 1: at good Haven Capital Management, based in Millburn, New Jersey,
Speaker 1: back in our Bloomberg Interactive Broker studio on what, as
Speaker 1: you know, is a busy, busy Tuesday. It always seems
Speaker 1: it's very true. Um, what do you make of this
Speaker 1: market environment? There's you know, Jason and I kicked off
Speaker 1: our broadcast saying, man, there's so much uncertainty out there.
Speaker 1: We're still a waiting news on the Iowa caucuses. Uh,
Speaker 1: we're a waiting you know, kind of what's the future
Speaker 1: of Tesla. The stock just keeps taking off and off
Speaker 1: despite people still questioning some of the fundamentals that are
Speaker 1: out there. We're worried about the virus. There are a
Speaker 1: lot of things still up in the air, and yet
Speaker 1: the market continues to grind higher. It does you know
Speaker 1: a good haven. We are stock pickers and risk managers
Speaker 1: and we're really not macro people. And I'd be in
Speaker 1: a better mood if the market was down than the
Speaker 1: market being your value person to write value people, and
Speaker 1: you know it's easier to find bargains on weaker reads. However,
Speaker 1: the economy seems okay, and you know you have very
Speaker 1: low interest rates, it is harder to find things to
Speaker 1: do in asset prices of almost everything you're dramatically higher.
Speaker 1: But you know, you have to deal with the circumstances
Speaker 1: that are in front of you and try and look
Speaker 1: for in a risk adjusted and risk averse way things
Speaker 1: to do with capital if you find them. And so
Speaker 1: where do you go? What are you picking these days? Well,
Speaker 1: if you look at a couple of things that I
Speaker 1: thought were worth talking about one uh as as you
Speaker 1: mentioned the coronavirus, and you know it's, first of all,
Speaker 1: it's a it's a terrible thing happening from a standpoint
Speaker 1: of human beings. People have lost their lives. More people
Speaker 1: probably will, but there seems to potentially be some overreactions
Speaker 1: in some areas. Uh At good Haven, we own some
Speaker 1: Delta Airlines. That stock has been a little bit weak lately,
Speaker 1: and you know, they only get five percent of revenues
Speaker 1: from all of the Asia Pacific region and it's not
Speaker 1: a very profitable part of their portfolio. And it's seven
Speaker 1: and a half eight times earnings. You have the best
Speaker 1: margins in the airline industry, you have the best balance sheet,
Speaker 1: and that seems like a cheap stock price to us.
Speaker 1: So you'd be buying into it, are you adding? We
Speaker 1: have added selectively, We've owned it, We've added selectively. We
Speaker 1: own it, you know, in a reasonable size, and we
Speaker 1: own some We also own American Airlines. But I think
Speaker 1: that's an industry that has become a much better business
Speaker 1: and has been weaker lately, and that's where we like
Speaker 1: to do some fissure. They had a good run last year,
Speaker 1: did It's a very well run company. Although I don't
Speaker 1: think we're talking about I don't think it's that kind
Speaker 1: of is to eight times earnings with really minimal exposure
Speaker 1: to what's happening. You know, that seems like a cheap
Speaker 1: price and a two dividend to speak to what David
Speaker 1: was talking about. Well, and it's I'm glad you said
Speaker 1: that thing about American because I do wonder in a
Speaker 1: case like this, whether you're sort of looking at an
Speaker 1: entire sector, in this case being the airlines. We happen
Speaker 1: to find this sector in general interesting. It's become a
Speaker 1: much better business. You look at the industries consolidated domestically
Speaker 1: down to four main carries and control spacity, charging you
Speaker 1: for everything, well, you know, and getting people to still yeah,
Speaker 1: depending on the flight, depends which hat you're wearing. When
Speaker 1: I you know, when I when I see the extra
Speaker 1: pieces a consumer, I remind myself that I'm an owner,
Speaker 1: and I smile and I put my owner hat on.
Speaker 1: But I think, by the way, on an inflation adjusted basis,
Speaker 1: airline fares are still have gotten nowhere for decades. Yeah, alright, alright,
Speaker 1: so Larry says. But I just do feel like it
Speaker 1: adds up though. If you're checking bags, if you want
Speaker 1: to potentially eat something, if you want to blanket, if
Speaker 1: you want to do anything, you want to breathe, if
Speaker 1: you want to breathe think about it. Used to be
Speaker 1: able to move around on an airline so easily, right,
Speaker 1: and now it's like, no, you can't sit there, because
Speaker 1: if you want to sit there, we're going to charge you.
Speaker 1: I do find that the experience has been getting better lately,
Speaker 1: and of course Delta happens to have the best scores
Speaker 1: for Delta. Delta seems to have figured it out a
Speaker 1: little bit. Yeah. I mean, I'm in Atlanta Delta for
Speaker 1: a long time, and but but I will say, as
Speaker 1: a longtime Delta person, they went through a terrible period.
Speaker 1: I mean like they went through a period where they
Speaker 1: were the worst in the industry everyone, a long difficult period.
Speaker 1: But I think they've come out of it, and I
Speaker 1: don't think they go back to that, and I don't
Speaker 1: think the market has given them, you know, their proper
Speaker 1: due for having become a much better business. All right,
Speaker 1: let's talk a little bit about Uncle Warren. Warren Buffett
Speaker 1: Berkshire is another name that you like. Tell us why
Speaker 1: that's not an obvious pack. I think it's I call
Speaker 1: it hiding in plain sight. I mean, who would believe
Speaker 1: after all these decades of notoriety and unbelievable success that
Speaker 1: Berkshire would be priced at what I considered to be
Speaker 1: a very attractive level. I mean, it might be depending
Speaker 1: on we don't know what book value was at the
Speaker 1: end of the year, and let's use that as a
Speaker 1: rough proxy, but assume the fourth quarter it was up
Speaker 1: in high single digits. Berkshire could be priced today at
Speaker 1: around one point three times book value. And it's not
Speaker 1: what you have to really appreciate what's beneath the surface.
Speaker 1: You have a bunch of very strong, big businesses that
Speaker 1: throw off an enorose amount of cast Burlington Northern, all
Speaker 1: the insurance companies. You have a big investment portfolio that's
Speaker 1: two hundred billion dollars probably today. You have talented people
Speaker 1: all through the organization. You have a hundred and twenty
Speaker 1: billion dollars of cash, which is enormous optionality in any
Speaker 1: kind of a downturn. And he has begun repurchasing stock,
Speaker 1: you know, probably ten to fifteen percent below the current price.
Speaker 1: So I it's amazing to me that after all these years,
Speaker 1: that is available at what I consider to be way
Speaker 1: below intrinsic value at a very attractive price. Alphabet, they
Speaker 1: just reported earnings yesterday. Big holding for you guys. Have
Speaker 1: you added on the selling today or what's your take?
Speaker 1: Care to go backwards? You know, we've probably made five
Speaker 1: times our money in alphabet and we had we did
Speaker 1: not buy any today. Have been pairing back? I think
Speaker 1: not not very lately. You know, if you you know,
Speaker 1: sitting on a high quality holding, if it's growing in
Speaker 1: the you feel the intrinsic values. Marching forward can often
Speaker 1: turn out to be a wonderful way to compound money.
Speaker 1: I thought the earnings were fine. I think there's all
Speaker 1: kinds of volatility. I don't think they spend a lot
Speaker 1: of time guiding UH investors ahead of earnings, and so
Speaker 1: you get some volatility. But you know, I I thought
Speaker 1: what they articulated as far as future growth, and they
Speaker 1: did buy back a lot more stock in the quarter
Speaker 1: than they have previously. I think it was just fine.
Speaker 1: And of course what you pay for a investment matters
Speaker 1: a lot, and we paid a very good price. We
Speaker 1: just want to mention a headline crossing. This is about
Speaker 1: boeing Um said to set its new loan size at
Speaker 1: thirteen billion dollars. So um this is connected with the
Speaker 1: seven thirty seven. Yeah, in turn on the MAX. Yeah, yeah,
Speaker 1: exactly blowing. Is that something that you'd be picking up
Speaker 1: thing to look at it? Well, it does have. The
Speaker 1: MAX has had an interesting impact on the airline companies,
Speaker 1: some good and some bad. Good is taking capacity out
Speaker 1: and not bind blowing, not at the moment, but it is.
Speaker 1: It is a pile. It is on the ski. Co
Speaker 1: founder portfolio Maader of good Haven Capital Management. Always good
Speaker 1: to catch up with you. Thanks for listening to Bloomberg
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