WEBVTT - The White House's Impact on the Corporate Community 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.560 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.040 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We 0:00:32.080 --> 0:00:35.199 have spent a lot of time on this program talking 0:00:35.280 --> 0:00:39.479 about the woeful state that retail is in right now. 0:00:39.520 --> 0:00:42.680 We have a defender, someone who can explain what's going on, 0:00:42.760 --> 0:00:46.360 put it into perspective, and argue that perhaps markets have 0:00:46.440 --> 0:00:49.120 gotten a little over their skis with their hatred of 0:00:49.159 --> 0:00:51.559 the retail sector. Rick Helfin Fine, thank you so much 0:00:51.560 --> 0:00:54.800 for joining us. Rick Helfnbine is President, chief executive officer 0:00:54.920 --> 0:00:59.160 of American Apparel and Footwear Association, which is based in Washington, 0:00:59.480 --> 0:01:02.520 d C. And is a cheerleader for these beating up 0:01:02.560 --> 0:01:05.240 retailers that are seeing so much pain. So let's just 0:01:05.280 --> 0:01:08.880 start broadly, Rick, why do you think that traders have 0:01:10.080 --> 0:01:12.600 perhaps gotten a little ahead of themselves with selling some 0:01:12.680 --> 0:01:16.240 of these shares and bonds of retailers. Well, that's pretty 0:01:16.240 --> 0:01:18.800 easy to answer. You know, when you hear there's a 0:01:18.880 --> 0:01:21.880 hurricane warning in Florida and nobody wants to fly down there. 0:01:22.000 --> 0:01:24.440 You know, you don't want to fly into an apocalypse. 0:01:24.600 --> 0:01:28.560 And people have been talking down on retail for months 0:01:28.680 --> 0:01:31.000 now and form a whole host of reasons. You know, 0:01:31.040 --> 0:01:33.480 you go back to two thousand and eight. The first 0:01:33.600 --> 0:01:37.560 sign of coming out of a recession is a boost 0:01:37.560 --> 0:01:40.000 in retail sales. And when you see that, which we 0:01:40.080 --> 0:01:44.279 did in two thousand, retail stocks start flying up because 0:01:44.319 --> 0:01:45.920 people have a little money in their pocket, they go 0:01:45.959 --> 0:01:48.559 buy some new clothes and that's that's just the way 0:01:48.560 --> 0:01:51.920 it works. So now we're in the mature part of 0:01:51.960 --> 0:01:54.840 the cycle. And the mature part of the cycle is 0:01:55.520 --> 0:02:01.520 look a look at the numbers. Consumer confidence sixteen year high, gasolene. 0:02:01.520 --> 0:02:03.480 These are things we look at. Two dollars and forty 0:02:03.600 --> 0:02:07.920 cents a gallon, Unemployment four point six pc, the GDP 0:02:08.120 --> 0:02:11.639 at two point six percent. These are all indicators that 0:02:11.720 --> 0:02:14.600 people are buying. Remember, two thirds of our economy is 0:02:14.680 --> 0:02:18.160 based on consumer spending. On consumer spending, but that includes 0:02:18.200 --> 0:02:20.799 consumer spending on services as well as good So there 0:02:20.840 --> 0:02:25.280 has been a pretty big shift towards services and experiences 0:02:25.400 --> 0:02:28.519 rather than buying a new outfit, right. I mean, this 0:02:28.600 --> 0:02:31.000 has been one big driver of some of the pessimism 0:02:31.080 --> 0:02:34.560 around retail. That's true, But then you also look at 0:02:34.560 --> 0:02:37.120 the amount of goods coming into the country and you say, 0:02:37.680 --> 0:02:39.680 you know, because we can read these import numbers, we 0:02:39.680 --> 0:02:41.760 can look at domestic manufacturing, we look at the amount 0:02:41.800 --> 0:02:43.919 of apparel and foot where that's coming in the country. 0:02:44.200 --> 0:02:48.040 There really hasn't been slowdown. People are buying product. The 0:02:48.120 --> 0:02:51.680 question is the new shopper, how's the new shopper buying? 0:02:51.720 --> 0:02:54.959 And that's what's affecting brick and mortar retail sales. So 0:02:55.040 --> 0:02:57.720 let's talk about brick and mortar because embedded in a 0:02:57.720 --> 0:03:00.120 lot of the results that we have been seeing and 0:03:00.160 --> 0:03:03.880 some of the pessimism is this very uncomfortable period where 0:03:03.919 --> 0:03:06.920 brick and mortar has to spend a lot of money 0:03:07.200 --> 0:03:10.720 to adapt to the online world, to distribution services to 0:03:10.919 --> 0:03:17.320 online networks um while also dealing with lower margins on 0:03:17.480 --> 0:03:21.440 those sales and higher competition from people who can see 0:03:21.760 --> 0:03:25.280 marketplaces that are more comprehensive. This is what people are 0:03:25.280 --> 0:03:27.920 worried about. What do you say to them, Well, the 0:03:28.000 --> 0:03:32.040 worry is real, but the reality is nobody's walking around naked. 0:03:32.240 --> 0:03:39.720 I mean really, realistically speaking, today you have to look 0:03:39.760 --> 0:03:42.320 at who's your customer, you know, that's the big thing. 0:03:42.400 --> 0:03:45.520 Who's buying the goods. And the millennial customers age eighteen 0:03:45.560 --> 0:03:49.800 to thirty four of them will compare a shop or 0:03:50.000 --> 0:03:54.040 plan with their phones now will still go on a 0:03:54.120 --> 0:03:57.720 store to buy. So that's part of what's driving the 0:03:57.880 --> 0:04:03.320 price pressure down because there is price comparison. So the 0:04:03.400 --> 0:04:06.960 market is changing and retailers are adapting. And you know, 0:04:07.440 --> 0:04:09.160 I know there was a lot of noise this morning 0:04:09.160 --> 0:04:12.800 about foot Locker. You know, maybe they just didn't like 0:04:12.880 --> 0:04:15.080 what's in the foot Lockers store. But foot Locker is 0:04:15.120 --> 0:04:18.279 going to do just fine well. But in fairness, we 0:04:18.360 --> 0:04:22.280 have seen a pretty broad based disappointment when it comes 0:04:22.360 --> 0:04:25.400 to athletic where both what you wear when you go 0:04:25.440 --> 0:04:27.680 work out as well as what you wear when you 0:04:27.680 --> 0:04:30.480 want to look like you're working out even if you're not. Um. So, 0:04:30.640 --> 0:04:33.200 you know, this is something that is raising concerns that 0:04:33.200 --> 0:04:35.160 are we seeing the death of ath leisure as one 0:04:35.200 --> 0:04:38.000 analyst put it, or you know, what's going on here? 0:04:38.040 --> 0:04:40.360 Is this a sea change in the way people shop 0:04:40.400 --> 0:04:42.920 at an entire industry? Uh? You know, are you saying 0:04:42.920 --> 0:04:46.120 that you don't expect as many brick and mortar retailers 0:04:46.120 --> 0:04:49.479 to go to business as UH are currently kind of 0:04:49.520 --> 0:04:52.240 talking about it. You get into the numbers. We've had 0:04:52.279 --> 0:04:55.560 eighteen bankruptcy so far this year, and that would be 0:04:55.600 --> 0:04:58.159 in half the year, whereas two thousand and eight we 0:04:58.200 --> 0:05:02.720 had eighteen for the whole year. So clearly there's a 0:05:02.760 --> 0:05:04.440 lot of people going out of business. We have too 0:05:04.440 --> 0:05:08.279 many stores, that's quite obvious. We have too many malls. 0:05:08.400 --> 0:05:10.359 We have fifteen hundred walls at the peak. We have 0:05:10.360 --> 0:05:13.880 about eleven hundred walls today. We may have eighties six 0:05:14.000 --> 0:05:17.800 hundred doors closing this year. But we have too many 0:05:18.000 --> 0:05:21.000 square foot per person in the United States. And with 0:05:21.040 --> 0:05:25.320 this size and shift to the internet adjustment. So you 0:05:25.360 --> 0:05:28.320 said we have eleven hundred malls in the US. Where 0:05:28.360 --> 0:05:31.200 do you think that number will be five new years 0:05:31.200 --> 0:05:33.680 from now? I think a thousand. I think we have 0:05:33.800 --> 0:05:36.800 been another thousand walls to go to pare down to 0:05:37.040 --> 0:05:41.200 probably where we should be. We're overmalled, we're overstored, and 0:05:41.279 --> 0:05:43.880 you have this rise of the Internet. However, keep in 0:05:43.920 --> 0:05:46.360 mind one thing about the rise of the Internet. It's 0:05:46.360 --> 0:05:49.960 only eight point five of all the sales. So people 0:05:50.000 --> 0:05:52.599 are still shopping brick and mortar. That's why I believe 0:05:52.839 --> 0:05:56.039 the market is clearly oversold in the last week. You know, 0:05:56.400 --> 0:06:00.160 look at look at people going into the stores. Look 0:06:00.160 --> 0:06:04.279 at Nordstrom up, look at Target up, look at Walmart up, 0:06:04.320 --> 0:06:07.400 look at Gap up. So let's not focus on the 0:06:07.400 --> 0:06:10.479 bid news. Let's assume that all these retailers are going 0:06:10.480 --> 0:06:13.240 into a period of adjustment and they will come out 0:06:13.240 --> 0:06:17.479 of it just fine. Nobody's walking around naked. Rick Healfonbyne, 0:06:17.560 --> 0:06:19.840 thank you so much for joining us. Truly a pleasure 0:06:19.880 --> 0:06:22.320 to hear what you have to say. Rick Healfnbine is president, 0:06:22.440 --> 0:06:26.480 chief executive officer at American Apparel and Footwear Association, which 0:06:26.560 --> 0:06:42.440 is based in Washington, d C. Another share that we 0:06:42.440 --> 0:06:46.280 are watching today is that of Infocis. That's the I 0:06:46.279 --> 0:06:50.640 I T company and outsourcing provider who shares fell as 0:06:50.720 --> 0:06:53.880 much as thirteen percent today, wiping three and a half 0:06:54.000 --> 0:06:57.039 billion dollars from the company's market value. This came, of course, 0:06:57.120 --> 0:07:00.960 after it's chief executive officer v Shall seek a resigned 0:07:01.480 --> 0:07:05.360 even though many had really herald hit him as the 0:07:05.480 --> 0:07:08.760 driver A lot of a lot of the companies gains 0:07:08.800 --> 0:07:11.720 over the past few years. Here to discuss what the 0:07:11.800 --> 0:07:14.600 road is ahead is anorag Grana. He's our senior analyst 0:07:14.680 --> 0:07:17.640 of software and I T Services for Bloomberg Intelligence and 0:07:17.680 --> 0:07:21.640 he joins us in our Bloomberg eleven three oh studios. Now, Anora, 0:07:22.120 --> 0:07:25.040 can you just give us a sense of why the 0:07:25.080 --> 0:07:29.600 CEO resigned and why it's being perceived so negatively by 0:07:29.600 --> 0:07:33.680 the market. This company has a very interesting history. Prior 0:07:33.720 --> 0:07:37.520 to Vichal taking over as the CEO, all the you know, 0:07:37.560 --> 0:07:41.960 older CEOs were founding members of the company, and you know, 0:07:42.000 --> 0:07:44.680 there was a lot of pressure that the last couple 0:07:44.720 --> 0:07:47.280 of CEOs didn't do the job as well as uh, 0:07:47.400 --> 0:07:49.880 you know, other publicly traded companies. So they brought in 0:07:49.920 --> 0:07:53.080 a new guy that didn't was not a founder uh 0:07:53.320 --> 0:07:56.160 from SAP. He did a good job. He's done a 0:07:56.240 --> 0:07:58.680 lot of interesting things in the company since he came over. 0:07:59.160 --> 0:08:03.160 Employe atriction has dropped, sales has improved, the overall perception 0:08:03.160 --> 0:08:06.440 of emphasis is also improved in the industry. And then 0:08:06.520 --> 0:08:08.800 but you know, one of the founding members has always 0:08:08.840 --> 0:08:13.200 been nudging and bothering the board about you know, constantly 0:08:13.240 --> 0:08:15.600 interfering with the way he's been running it, so he 0:08:15.680 --> 0:08:18.120 just got sick of it and said, I'm quitting. So 0:08:18.240 --> 0:08:21.400 why did one of the founders do that If he's 0:08:21.400 --> 0:08:24.120 doing such a good job, if he's created so much 0:08:24.160 --> 0:08:28.160 market value. It seems a lot like some cultural differences 0:08:28.240 --> 0:08:30.520 between the two. Now, remember this is a forty billion 0:08:30.520 --> 0:08:33.160 dollar company or around forty billion dollar company without the drop, 0:08:33.440 --> 0:08:35.360 and you know a lot of the complaints were, well, 0:08:35.400 --> 0:08:37.440 why are you paying so much so much? Why are 0:08:37.440 --> 0:08:40.800 you taking charter jets? How much? Not not him? I 0:08:40.800 --> 0:08:42.920 mean they had paid you know, the CFO a little 0:08:42.920 --> 0:08:47.360 bit higher than what the founder thought was appropriate. And 0:08:47.640 --> 0:08:51.480 it was basically constant interference from these founders as to 0:08:51.559 --> 0:08:55.760 how the business should be run that made it, you know, 0:08:56.040 --> 0:08:58.200 you know, made him said that, you know, enough is enough. Well, 0:08:58.240 --> 0:09:00.719 let's talk a little bit about the business of a process, right, 0:09:00.760 --> 0:09:05.160 because right now it is a promising time for a 0:09:05.200 --> 0:09:07.199 lot of the services that they provide. But they're trying 0:09:07.240 --> 0:09:13.920 to transfer over to more web services and provide software solutions. 0:09:13.960 --> 0:09:17.440 Perhaps it is a little bit away from their original wheelhouse, right, 0:09:17.480 --> 0:09:18.760 Can you give us a sense of what the big 0:09:18.880 --> 0:09:21.240 challenges are? So if you look at this industry, has 0:09:21.280 --> 0:09:23.480 been dominated by you know these three or four major 0:09:23.520 --> 0:09:28.040 companies taught a consulting services in Force, Cognizance, web pro Um, 0:09:28.120 --> 0:09:32.120 and all of them do similar kind of products and services, 0:09:32.160 --> 0:09:33.960 but the bulk of their revenue comes from a lot 0:09:34.000 --> 0:09:37.880 of legacy I T work, application maintenance and software development, 0:09:38.200 --> 0:09:42.320 and the industry is moving more towards artificial intelligence software 0:09:42.360 --> 0:09:45.600 oriented tools. And you know this guy at Emphasis his 0:09:45.679 --> 0:09:48.280 background as he came from SAP, so he has done 0:09:48.360 --> 0:09:51.400 a lot of new changes ever since he came as 0:09:51.400 --> 0:09:54.920 the CEO, which is where the space has to go. Um. 0:09:55.080 --> 0:09:58.120 So if the place is kind of commoditized and you 0:09:58.320 --> 0:10:00.880 don't have a good leadership, just in this case, and 0:10:00.960 --> 0:10:03.280 you know in an influsis it might give chance for 0:10:03.320 --> 0:10:05.960 others to take shared away from the company, which is 0:10:06.000 --> 0:10:07.520 I think one of the reasons why you see the 0:10:07.520 --> 0:10:10.199 stocks dropping quite a bit. I see. So in other words, 0:10:10.240 --> 0:10:14.040 the co founders looking at this company the way he 0:10:14.320 --> 0:10:19.120 created it, which was providing providing outsourcing services, helping with 0:10:19.160 --> 0:10:23.360 your company with your company's computer system from AFAR, which 0:10:23.400 --> 0:10:26.640 is also sort of challenged right now given the HB 0:10:26.720 --> 0:10:29.960 one visas and the emphasis are not outsourcing as much 0:10:30.120 --> 0:10:32.720 at least in the US. Right well, publicly they have 0:10:32.800 --> 0:10:36.120 said that they don't you know, find any fault with 0:10:36.200 --> 0:10:39.240 his strategy and execution. They are more quite concerned about 0:10:39.240 --> 0:10:41.760 some of the corporate governance issues. And now, I mean 0:10:41.800 --> 0:10:44.520 the company has had an investigation to see you know, 0:10:44.559 --> 0:10:47.520 there were any as there's some visible ragley allegations about 0:10:47.520 --> 0:10:50.280 a particular acquisition, and they went through as this whole 0:10:50.400 --> 0:10:53.520 round of um, you know, going through an investigation and 0:10:53.559 --> 0:10:56.040 they didn't find anything. It is those kinds of issues 0:10:56.080 --> 0:10:59.120 the founders are more um you know, problematic or issue 0:10:59.320 --> 0:11:01.640 have issues with rather than the running of the company. 0:11:01.840 --> 0:11:05.199 What about this idea of this emphasis on a more 0:11:05.280 --> 0:11:08.880 nationalistic approach to business and how this could affect in 0:11:08.920 --> 0:11:11.839 persus it. You know, they have said that they will 0:11:11.840 --> 0:11:13.800 be hiring a lot more people in the US, and 0:11:14.520 --> 0:11:16.880 that's just part and parcel of what they do. Um. 0:11:16.920 --> 0:11:19.360 In fact, if you do have to do emerging technologies 0:11:19.720 --> 0:11:22.120 for your clients, you do need more people on site, 0:11:22.360 --> 0:11:24.440 which is you know, which is what all of these 0:11:24.440 --> 0:11:27.200 companies are doing at this point. Um. But the bigger 0:11:27.200 --> 0:11:30.880 issue in this particular cases, who can come Now? I mean, 0:11:31.080 --> 0:11:33.360 I mean you really cannot have a non founder is 0:11:33.360 --> 0:11:35.800 the CEO of a company at this point, because whoever 0:11:36.200 --> 0:11:39.679 comes will face the same exact scrutiny from the founders. 0:11:39.760 --> 0:11:42.160 They're going to start looking at every move this person makes, 0:11:42.400 --> 0:11:44.960 who they hire, what kind of pay goes in. So 0:11:45.040 --> 0:11:46.760 it's going to be very difficult for them to find 0:11:46.760 --> 0:11:50.360 a SEEO. At this point. Have the founders said anything, Yeah, 0:11:50.400 --> 0:11:52.319 they're still complaining. I mean I just saw that there 0:11:52.360 --> 0:11:55.160 is a there is another letter that they have sent 0:11:55.240 --> 0:11:57.840 out blasting the board, and I mean they might have to, 0:11:58.040 --> 0:12:00.400 you know, either either you know, in my my view, 0:12:00.600 --> 0:12:02.800 either the founders will have to sit down and decide. 0:12:03.240 --> 0:12:05.520 Either they come and run the way they wanted and 0:12:05.559 --> 0:12:08.320 they completely rechange the board and the management team and everything, 0:12:08.679 --> 0:12:12.240 or they get rid of their you know, the stake 0:12:12.320 --> 0:12:14.680 that they have and then let the let the other 0:12:14.679 --> 0:12:17.800 shareholders on this company. This is really interesting to me 0:12:17.880 --> 0:12:19.680 because there's a lot of money at stake, because, as 0:12:19.720 --> 0:12:22.800 you said, a forty billion dollar company, and clearly the 0:12:22.880 --> 0:12:25.800 market has retraced some of the losses from earlier. Now 0:12:25.840 --> 0:12:28.040 the shares are only down only down a little more 0:12:28.080 --> 0:12:30.400 than eight percent. But you know, you raise a lot 0:12:30.440 --> 0:12:33.200 of very important issues just about the path forward at 0:12:33.240 --> 0:12:36.640 a time when this is a very competitive space, when 0:12:36.679 --> 0:12:38.599 they do have to make a lot of investments and 0:12:38.640 --> 0:12:41.360 a lot of decisions sooner than later. Uh, and they 0:12:41.400 --> 0:12:45.240 now are facing a leadership void and a very aggressive 0:12:45.600 --> 0:12:49.920 co founder. Fascinating story. Ana Grana senior Analystic Software and 0:12:49.920 --> 0:12:52.560 I T Services here at Bloomberg Intelligence and he joins 0:12:52.640 --> 0:13:08.520 us in our eleven three oh studios right now. I 0:13:08.520 --> 0:13:11.320 am so pleased to be speaking with Mike Buchanan, Deputy 0:13:11.400 --> 0:13:15.480 Chief investment Officer at Western Asset Management. It oversees four 0:13:15.600 --> 0:13:20.199 hundred and thirty three billion dollars and is based in Pasadena, California. Mike, 0:13:20.240 --> 0:13:22.719 thank you so much for joining me. I want to 0:13:23.120 --> 0:13:25.800 focus a little bit on what we've been hearing from 0:13:25.800 --> 0:13:29.080 a growing number of big asset management firms, which is, 0:13:29.880 --> 0:13:34.040 we are getting concerned about the overvaluation of US high 0:13:34.120 --> 0:13:37.240 yield bonds and we are reducing allocations to this debt. 0:13:37.520 --> 0:13:40.840 Where do you stand on this? Well, first of all, Lisa, 0:13:40.880 --> 0:13:43.760 thanks for having me on. And yeah, you're right. I 0:13:43.760 --> 0:13:46.760 mean that's something that um, we we hear a lot 0:13:47.240 --> 0:13:51.160 from our clients, from consultants, concern that when you look 0:13:51.160 --> 0:13:53.120 at the corporate credit markets, and it's not just hi 0:13:53.240 --> 0:13:56.640 yield but investment grade as well. You just look at spreads, 0:13:56.679 --> 0:14:01.920 you look at yields. Valuations overall seem you know, somewhat compressed. 0:14:02.080 --> 0:14:06.800 And our view is that, Um, it's not necessarily indicative 0:14:06.880 --> 0:14:09.800 of a market that's that's over bought or it's certainly 0:14:09.800 --> 0:14:12.319 not in bubble territory. I think you have to put 0:14:12.360 --> 0:14:15.640 it in context. You have to think about what is 0:14:15.720 --> 0:14:19.640 the fundamental backdrop that's supporting these valuations. And it's very 0:14:19.640 --> 0:14:22.640 important to to marry those two. And when we look 0:14:22.640 --> 0:14:25.280 at that, what we see our fundamentals that we think 0:14:25.320 --> 0:14:28.360 are still very strong, Uh, the most part moving in 0:14:28.400 --> 0:14:32.560 the right direction. Um, And I think you know, valuations uh, 0:14:32.760 --> 0:14:36.240 certainly not table pounding. We're finding opportunities, and in high 0:14:36.280 --> 0:14:39.520 yield we're finding opportunities and investment grade. But to be 0:14:39.600 --> 0:14:44.280 fair back to your question, we have been reducing our 0:14:44.320 --> 0:14:48.160 our allocations just on opportunity. We're finding some other areas 0:14:48.160 --> 0:14:51.400 where we think, uh, you have better risk adjusted returns, 0:14:51.440 --> 0:14:55.760 so skewing our multisector portfolios in that direction. Like where 0:14:55.840 --> 0:14:59.400 where are you seeing better opportunities? Well, I think, uh, 0:14:59.640 --> 0:15:04.440 local emerging market, currency, debt is probably our our highest 0:15:04.480 --> 0:15:08.160 conviction idea right now. UM. And you know it's you 0:15:08.200 --> 0:15:12.560 think about a world that is where yields scarce. UM. 0:15:12.600 --> 0:15:15.560 You certainly can get a lot of yield in emerging 0:15:15.600 --> 0:15:18.200 market local currency debt. UM. And I think there's a 0:15:18.200 --> 0:15:20.840 lot of macro forces that are that are behind you 0:15:21.040 --> 0:15:24.680 and should result in some tightening of these spreads or 0:15:24.720 --> 0:15:28.280 these yields relative to developed market. Um. You're starting to 0:15:28.320 --> 0:15:31.760 see growth now for the first time and in really 0:15:31.800 --> 0:15:35.480 three years in Russia and Brazil as an example, positive 0:15:35.520 --> 0:15:39.320 growth there after two consecutive years of contraction. Uh. Some 0:15:39.440 --> 0:15:44.160 of the inflationary pressures in those economies UH and and 0:15:44.160 --> 0:15:48.120 and even broader emerging markets seem to be uh subsidying. 0:15:48.160 --> 0:15:50.040 It's going to give their central banks a little more 0:15:50.040 --> 0:15:53.240 flexibility on policy. And UH. You know, I think you're 0:15:53.280 --> 0:15:56.800 also seeing a little more of a bias towards policy 0:15:56.840 --> 0:16:00.680 discipline and reform. UH. So we really like take advantage 0:16:00.720 --> 0:16:03.200 of of a lot of those opportunities. And that's where 0:16:03.560 --> 0:16:05.960 you know, as we reduce some of these credit positions 0:16:05.960 --> 0:16:08.480 that I mentioned earlier, that's where a lot of that 0:16:08.920 --> 0:16:13.760 money is going. In correspondences before this segment. You also 0:16:13.840 --> 0:16:18.720 noted that a sector specific wager, you're looking at investment 0:16:18.760 --> 0:16:21.320 grade credit in the financial metals and mining and energy 0:16:21.360 --> 0:16:25.320 sectors as well as rising star opportunities in high yield. 0:16:25.640 --> 0:16:29.600 Are there specific names that you're targeting within that rising 0:16:29.640 --> 0:16:34.480 star category UH that you really believe in strongly? Yeah, 0:16:34.520 --> 0:16:37.320 I think that's a real interesting trade in high yield 0:16:37.440 --> 0:16:40.200 right now. You know, people don't look at the the 0:16:40.640 --> 0:16:43.960 shift and composition UH in terms of ratings in the 0:16:44.000 --> 0:16:47.280 market UM as much as we think they should right now, 0:16:47.720 --> 0:16:51.000 and you're definitely seeing less triple c issuance, You're seeing 0:16:51.000 --> 0:16:54.640 more double b issuance. The double B market within high 0:16:54.680 --> 0:16:57.600 yield is now the largest portion UH in terms of 0:16:57.720 --> 0:17:01.480 rating UH category within the high old market, and we 0:17:01.560 --> 0:17:05.520 think there's an inordinate number of those double bees that 0:17:05.720 --> 0:17:07.800 we think have a reasonable chance to make it to 0:17:07.880 --> 0:17:10.320 investment grade within the next year to year and a half. 0:17:10.720 --> 0:17:13.680 Specific names, yeah, I mean they're they're you know, kind 0:17:13.680 --> 0:17:15.800 of broad based, but I can throughout, you know, like 0:17:15.880 --> 0:17:20.760 Haynes Brands is a good example, Park aerospace, even in 0:17:20.800 --> 0:17:23.040 some of the you know, sectors that seem like they're 0:17:23.760 --> 0:17:27.760 UH somewhat stressed. You mentioned Metals and Mining, Freeport mcmaran. 0:17:27.840 --> 0:17:32.840 There on the energy side, Williams Pipeline Company. Uh, there 0:17:32.960 --> 0:17:35.399 is really I think the bigger message is there's just 0:17:35.560 --> 0:17:38.800 a very large number of these that our research teams identified, 0:17:38.800 --> 0:17:41.920 and we think you'll get not only a decent amount 0:17:41.920 --> 0:17:44.280 of income just from coupon clip there, but you'll also 0:17:44.359 --> 0:17:47.960 get some total return from spread compression as they make 0:17:48.040 --> 0:17:51.760 that jump from double B to triple B. Let's talk Tesla. 0:17:52.200 --> 0:17:55.120 You didn't buy those bonds, did you. Well, we did 0:17:55.160 --> 0:17:57.919 not participate in that deal. And you know, so it 0:17:57.960 --> 0:18:00.800 wasn't because it's not a great company, but um, it's 0:18:00.840 --> 0:18:03.800 really as a fixed income manager. Uh, you know, we 0:18:03.840 --> 0:18:08.359 saw some things there that just didn't really uh compel 0:18:08.440 --> 0:18:11.120 us to to to to participate in that deal. Didn't 0:18:11.119 --> 0:18:13.639 think it offered a lot of relative value, and we 0:18:13.640 --> 0:18:15.520 thought there were some risks there. But you did go 0:18:15.600 --> 0:18:18.680 for Amazon. Amazon just sold the sixteen billion dollar offering. 0:18:18.840 --> 0:18:21.680 Did you even buy the forty year bonds? We did. 0:18:21.720 --> 0:18:26.960 We We bought Amazon um across most maturities. Uh. And 0:18:27.240 --> 0:18:29.480 you know, it's interesting at least you look at those 0:18:29.520 --> 0:18:33.440 two deals on the surface, they look somewhat similar. Um, 0:18:33.480 --> 0:18:36.359 you know, there are obviously two great companies with tremendous 0:18:36.400 --> 0:18:40.840 management teams, very proactive vision and in great leadership. The 0:18:40.880 --> 0:18:44.239 difference being free cash flow generation. Tesla, you know, kind 0:18:44.280 --> 0:18:47.000 of a different part of its its life cycle, still 0:18:47.080 --> 0:18:50.240 burning cash, no free cash flow generation. It's going to 0:18:50.320 --> 0:18:53.560 take at least three years um to get there, and 0:18:53.600 --> 0:18:56.760 you certainly have execution risk and you know, a little 0:18:56.760 --> 0:19:00.000 over five percent yield. We thought there were better UH 0:19:00.000 --> 0:19:03.000 opportunities in the high old market, but you go over 0:19:03.000 --> 0:19:07.679 to Amazon. Amazon, you know, really a pristine balance sheet. 0:19:07.800 --> 0:19:11.080 They are generating a lot of free cash flow over 0:19:11.119 --> 0:19:15.960 ten billion UH per annum by our estimates, great liquidity profile, 0:19:16.040 --> 0:19:19.919 over twenty billion of cash and liquid securities on the 0:19:19.960 --> 0:19:22.960 balance sheet. Triple A balance sheet. Even though the ratings 0:19:23.400 --> 0:19:25.879 are are somewhat odd at B double A one double 0:19:25.920 --> 0:19:29.280 A minus, we probably think it's closer to a high 0:19:29.320 --> 0:19:32.880 single A you know, double A type company. So um, yeah, 0:19:32.920 --> 0:19:35.159 we we really like the Amazon deal. Thought it was 0:19:35.200 --> 0:19:38.000 priced right and took advantage of that. And Mike, just 0:19:38.119 --> 0:19:41.200 to give you some kudos, the bonds are trading up 0:19:41.240 --> 0:19:43.960 in the days after trading, so it seems like others 0:19:44.000 --> 0:19:46.480 agree with you. I want to ask you about cash holdings, 0:19:46.560 --> 0:19:49.320 because there have been a series of articles talking about 0:19:49.359 --> 0:19:53.720 a reduced amount of dry powder or cash in investment 0:19:53.720 --> 0:19:55.920 grade and high yield bond funds, and I'm wondering where 0:19:55.960 --> 0:19:58.399 you stand on that and whether you've been also eating 0:19:58.400 --> 0:20:02.200 into your cash piles in order to take advantage of 0:20:02.200 --> 0:20:05.320 some of these opportunities. Yeah, I mean, are we we 0:20:05.400 --> 0:20:08.119 manage our cash in accordance with what we see as 0:20:08.200 --> 0:20:11.320 opportunity in the market. And yeah, right now, Like I said, 0:20:11.400 --> 0:20:14.679 that's it's not a table pounder in either investment grade 0:20:14.840 --> 0:20:18.080 or high yield. So we're operating with, you know, a 0:20:18.119 --> 0:20:21.639 little bit more cash than maybe we traditionally have, UM 0:20:21.680 --> 0:20:25.280 to take advantage of you know, maybe pullbacks or some 0:20:25.359 --> 0:20:29.200 new issue opportunities. Um. But I think the also, I mean, 0:20:29.240 --> 0:20:32.680 just kind of speaking beyond Western asset management and maybe 0:20:32.760 --> 0:20:35.320 perhaps looking at some of our competitors, you've had a 0:20:35.359 --> 0:20:39.560 tremendous amount of investment grade new issuance recently. And it's 0:20:39.560 --> 0:20:43.000 not just the Amazon deal. You've had uh, some very 0:20:43.119 --> 0:20:46.440 high profile you know, the A T and T issue 0:20:46.600 --> 0:20:49.760 and B A T. You know, these are big, big issues. 0:20:49.800 --> 0:20:52.800 So UM, a lot of that cash has probably been deployed, 0:20:53.320 --> 0:20:57.119 speaks to the leaner cash positions. Mike Buchanan, Always a pleasure. 0:20:57.119 --> 0:20:58.959 I love speaking with you. Mike bi canon as deputy 0:20:59.000 --> 0:21:02.840 Chief Investment Officer for Western Asset Management, which has four 0:21:03.040 --> 0:21:05.600 d and thirty three billion dollars out of management and 0:21:05.840 --> 0:21:10.800 is based in Pasadena, California. Always fascinating to hear what 0:21:11.000 --> 0:21:14.280 looks good and what doesn't for that behemoth money manager. 0:21:27.440 --> 0:21:29.760 Right now, I am trying to wrap my head around 0:21:29.840 --> 0:21:33.320 what it means to be a responsible investor and to 0:21:33.320 --> 0:21:35.480 get a better sense of it from somebody who knows 0:21:35.880 --> 0:21:39.520 best because he helped found the whole movement. Is John Stroyer, 0:21:39.600 --> 0:21:42.920 chief executive officer of Calvert Research and Management, which was 0:21:42.960 --> 0:21:45.840 acquired by Eaton Vance earlier this year and is based 0:21:45.840 --> 0:21:50.240 in Bethesda, Maryland. John, I was reading some notes earlier, 0:21:50.400 --> 0:21:56.199 and uh, evidently Calvert helped found this concept, this United 0:21:56.560 --> 0:22:00.960 Nations Principles for Responsible Investment that now counts seventeen hundred 0:22:01.080 --> 0:22:04.480 large investors in more than seventy trillion dollars in assets. 0:22:04.520 --> 0:22:06.840 What does this mean? Great? Well, first of all, thanks 0:22:06.880 --> 0:22:08.520 for having me on the show and your question, what 0:22:08.560 --> 0:22:11.320 does it mean to be a responsible investor is a 0:22:11.400 --> 0:22:14.840 very important one day answer. First and foremost, what it 0:22:14.880 --> 0:22:17.119 means to be responsible investor is to get the right 0:22:17.160 --> 0:22:19.720 amount of return for the risk you're taking. Some performance 0:22:19.800 --> 0:22:22.000 is a big part of what we think about day 0:22:22.040 --> 0:22:24.560 in and day out. The second big part of our 0:22:24.600 --> 0:22:29.080 process is understanding how companies are impacting the environment and 0:22:29.119 --> 0:22:33.159 how companies are impacting society. But again, it's critical that 0:22:33.200 --> 0:22:35.159 we find the companies that are able to do a 0:22:35.200 --> 0:22:38.159 great job for people in planet and do it in 0:22:38.200 --> 0:22:42.119 a way that works for financially motivated investors. So is 0:22:42.200 --> 0:22:46.520 your job to essentially come up with a framework of 0:22:46.600 --> 0:22:50.880 what's responsible to give to some of these investors and say, here, 0:22:50.880 --> 0:22:52.639