1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:34,040 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. So 7 00:00:34,080 --> 00:00:37,760 Speaker 1: it sounds like Comcast has fallen out of the running 8 00:00:37,760 --> 00:00:40,920 Speaker 1: to buy some assets of twenty one century Fox, which 9 00:00:40,960 --> 00:00:45,040 Speaker 1: leaves Walt Disney Company as the remaining suitor here and 10 00:00:45,040 --> 00:00:48,440 Speaker 1: they are expected to announce a deal any day. Now 11 00:00:48,520 --> 00:00:50,920 Speaker 1: Here to talk about that is Paul Sweeney, US director 12 00:00:50,960 --> 00:00:55,960 Speaker 1: of Research and senior Media and Internet analyst for Bloomberg Intelligence. Paul, 13 00:00:56,040 --> 00:00:59,240 Speaker 1: you have been covering this company for twenty seven years. 14 00:00:59,440 --> 00:01:03,440 Speaker 1: You know this place inside and out. What exactly is 15 00:01:03,520 --> 00:01:08,800 Speaker 1: Disney going to go after Century currently has and why? Well, 16 00:01:08,840 --> 00:01:11,199 Speaker 1: this is a If they buy these assets from twenty 17 00:01:11,440 --> 00:01:14,320 Speaker 1: century Fox, it will be a obviously a significant deal, 18 00:01:14,480 --> 00:01:17,759 Speaker 1: you know, probably fifties sixty billion dollars of value there um. 19 00:01:17,800 --> 00:01:20,440 Speaker 1: But it's really going to be the defining legacy deal 20 00:01:20,520 --> 00:01:22,840 Speaker 1: for Bob Eiger. Uh just in the past two or 21 00:01:22,880 --> 00:01:25,720 Speaker 1: three years, the media business has been tremendously disrupted by 22 00:01:25,760 --> 00:01:28,959 Speaker 1: the Netflix is of the world and the whole unbundling 23 00:01:28,959 --> 00:01:31,400 Speaker 1: and a chord cutting associated with the pay TV package. 24 00:01:31,440 --> 00:01:35,080 Speaker 1: That's really upended everybody's business model, including UH, the Walt 25 00:01:35,080 --> 00:01:38,600 Speaker 1: Disney Company, and the mighty ESPN. So if you're Bob Eiger, um, 26 00:01:38,640 --> 00:01:41,040 Speaker 1: you really have to position your company for the next 27 00:01:41,080 --> 00:01:43,480 Speaker 1: ten to twenty years. And I think the way they 28 00:01:43,520 --> 00:01:44,960 Speaker 1: feel like they need to do that as they need 29 00:01:45,000 --> 00:01:46,760 Speaker 1: to do a couple of things when they need to 30 00:01:46,800 --> 00:01:49,760 Speaker 1: bulk up on even more content, even though Disney arguably 31 00:01:49,800 --> 00:01:52,120 Speaker 1: has the best content in the world. By buying the 32 00:01:52,160 --> 00:01:55,600 Speaker 1: twenty century Fox Film and Television Studio, you get even 33 00:01:55,640 --> 00:01:59,400 Speaker 1: more UH film and television production, plus an amazing library. 34 00:01:59,640 --> 00:02:03,200 Speaker 1: They can use that content to create our program their 35 00:02:03,240 --> 00:02:05,760 Speaker 1: direct to consumer offering that they announced for next year 36 00:02:05,840 --> 00:02:08,520 Speaker 1: their version of Netflix. UM. You also get a lot 37 00:02:08,560 --> 00:02:12,880 Speaker 1: of international assets too, big assets one in Sky for 38 00:02:13,000 --> 00:02:17,160 Speaker 1: Europe and Star India in India, which really helps Disney 39 00:02:17,280 --> 00:02:20,160 Speaker 1: increase its international exposure, which I think they've been under 40 00:02:20,200 --> 00:02:23,760 Speaker 1: exposed internationally before in terms of their percentage of operating income. 41 00:02:23,840 --> 00:02:25,840 Speaker 1: So that's a big plus for them. And then third 42 00:02:25,919 --> 00:02:28,519 Speaker 1: is they get a controlling interest in Hulu, which is 43 00:02:28,600 --> 00:02:31,440 Speaker 1: a direct competitor to Netflix, and maybe you know, having 44 00:02:31,560 --> 00:02:34,680 Speaker 1: direct control over Hulu will allow Disney to really drive 45 00:02:34,760 --> 00:02:36,839 Speaker 1: that business afford and try to make that a much 46 00:02:37,040 --> 00:02:40,079 Speaker 1: bigger competitor to Netflix. So do we have any idea 47 00:02:40,160 --> 00:02:43,480 Speaker 1: why Comcast dropped out because we talked a lot about 48 00:02:43,560 --> 00:02:47,200 Speaker 1: why the acquisition of the Sky Network in particular was 49 00:02:47,280 --> 00:02:50,440 Speaker 1: really beneficial for Comcast. Yeah, yeah, I think Comcast and 50 00:02:50,600 --> 00:02:52,960 Speaker 1: Verison was also mentioned there. I think kind of from 51 00:02:53,000 --> 00:02:55,919 Speaker 1: the get go, the Murdochs have kind of sent out 52 00:02:56,000 --> 00:02:58,000 Speaker 1: some signals that they prefer to sell their assets to 53 00:02:58,080 --> 00:03:02,560 Speaker 1: Disney for a variety of reasons, some regulatory um and 54 00:03:02,720 --> 00:03:05,080 Speaker 1: some cultural. I think the cultural one is that the 55 00:03:05,160 --> 00:03:08,320 Speaker 1: rumors that James Murdoch, who was CEO of twenty one 56 00:03:08,360 --> 00:03:12,399 Speaker 1: century Fox, will get a leadership role within Disney, potentially 57 00:03:12,840 --> 00:03:15,320 Speaker 1: setting himself up for, in an ideal world in his mind, 58 00:03:15,360 --> 00:03:18,520 Speaker 1: to be a successor to Bob Eiger, is real. It 59 00:03:18,639 --> 00:03:21,720 Speaker 1: seems incredibly far fetched that a the Murdox would ever 60 00:03:21,760 --> 00:03:23,840 Speaker 1: sell their company and be that they would ever quote 61 00:03:23,880 --> 00:03:27,400 Speaker 1: unquote work for anybody else but we're in very crazy 62 00:03:27,480 --> 00:03:30,640 Speaker 1: times here in the media space. And uh and I 63 00:03:30,680 --> 00:03:34,200 Speaker 1: think if you're Disney, one of the real shortfalls into 64 00:03:34,200 --> 00:03:37,040 Speaker 1: disney story is that they do not have a succession 65 00:03:37,080 --> 00:03:39,680 Speaker 1: plan for Bob Biker. They had a very well defined 66 00:03:39,680 --> 00:03:41,240 Speaker 1: one up until two or three years ago when it 67 00:03:41,280 --> 00:03:43,920 Speaker 1: all fell apart, and since then they've been scrambling and 68 00:03:43,920 --> 00:03:46,280 Speaker 1: they have not been able to identify, you know, an 69 00:03:46,280 --> 00:03:48,840 Speaker 1: external candidate or an internal candidate, and it doesn't really 70 00:03:48,880 --> 00:03:51,480 Speaker 1: seem to be anybody on the horizon. So this might 71 00:03:51,880 --> 00:03:53,840 Speaker 1: fulfill one of their needs if it all were to 72 00:03:53,880 --> 00:03:56,880 Speaker 1: work out. So crazier things seems to have happened, but 73 00:03:56,880 --> 00:03:58,720 Speaker 1: this would certainly be right at the top. What do 74 00:03:58,720 --> 00:04:00,480 Speaker 1: you think the price tag is going to be for Disney? 75 00:04:00,680 --> 00:04:03,000 Speaker 1: It depends kind of what assets they buy. But you 76 00:04:03,000 --> 00:04:05,000 Speaker 1: know the numbers that we've run, um, you know, you've 77 00:04:05,040 --> 00:04:08,080 Speaker 1: put all the assets together that presumably that they're looking at. 78 00:04:08,120 --> 00:04:10,840 Speaker 1: It could be fifty to sixty billion dollars of enterprise value. 79 00:04:10,920 --> 00:04:13,480 Speaker 1: So um. And then what Fox will be left with 80 00:04:13,520 --> 00:04:15,840 Speaker 1: would be kind of a remain code, which would be 81 00:04:15,920 --> 00:04:21,760 Speaker 1: the Fox News cable network, the Fox uh broadcast network. UM. 82 00:04:21,800 --> 00:04:23,760 Speaker 1: And you know, a couple of other assets there, and 83 00:04:23,800 --> 00:04:25,839 Speaker 1: that would be in the Fox Sports one, and that 84 00:04:25,839 --> 00:04:29,080 Speaker 1: would be a much much smaller company. Um. And then 85 00:04:29,080 --> 00:04:30,880 Speaker 1: the question be what do the Murdochs do with that 86 00:04:31,040 --> 00:04:33,600 Speaker 1: smaller company? Uh And then I think the expectations they 87 00:04:33,640 --> 00:04:37,719 Speaker 1: would probably re emerge it into uh News Corporation, which 88 00:04:37,760 --> 00:04:40,920 Speaker 1: is the company that houses all of their print businesses, 89 00:04:40,960 --> 00:04:43,279 Speaker 1: the Wall Street Journal and all their papers around the world. 90 00:04:43,520 --> 00:04:45,640 Speaker 1: Maybe create a little bit of a bigger company that way. 91 00:04:45,680 --> 00:04:47,840 Speaker 1: So there's lots of pieces out there. The bankers are 92 00:04:47,839 --> 00:04:50,960 Speaker 1: working crazy hours, I'm sure trying to make sure everybody, 93 00:04:51,080 --> 00:04:53,640 Speaker 1: uh you know, all the pieces fit together. I'm just 94 00:04:53,680 --> 00:04:55,960 Speaker 1: trying to wrap my head around James Murdoch and the 95 00:04:55,960 --> 00:04:59,640 Speaker 1: cultural fit or lack thereof with Disney. That's that's kind 96 00:04:59,640 --> 00:05:01,440 Speaker 1: of mind Bogle, It really is. And you know that 97 00:05:01,560 --> 00:05:05,159 Speaker 1: Disney being the family uh friendly company and and Fox 98 00:05:05,320 --> 00:05:08,480 Speaker 1: uh you know, on across all of its portfolio assets 99 00:05:08,560 --> 00:05:10,039 Speaker 1: kind of being much more at their own edge in 100 00:05:10,120 --> 00:05:13,280 Speaker 1: terms of the programming that it's studio produces, the TV shows, 101 00:05:13,440 --> 00:05:16,039 Speaker 1: the Bart Simpsons of the world, and uh so they're 102 00:05:16,200 --> 00:05:20,200 Speaker 1: very very different culturally. UM. But I think the the 103 00:05:20,240 --> 00:05:24,320 Speaker 1: assets that uh, you know, Disney would be buying I 104 00:05:24,360 --> 00:05:26,400 Speaker 1: think actually would fit very well with the company. And 105 00:05:26,400 --> 00:05:28,159 Speaker 1: then what remains to be seeing how the other people 106 00:05:28,160 --> 00:05:31,359 Speaker 1: fit in and frankly, I mean maybe Disney wants that diversity, 107 00:05:31,400 --> 00:05:34,120 Speaker 1: that sort of edge. I'm just wondering about the timing 108 00:05:34,279 --> 00:05:36,680 Speaker 1: when you think Disney is going to announce this, Well, 109 00:05:36,680 --> 00:05:39,080 Speaker 1: this is very interesting the company. I'm I'm about to 110 00:05:39,080 --> 00:05:41,600 Speaker 1: head out to Burbank on Thursday morning after Disney They're 111 00:05:41,640 --> 00:05:43,520 Speaker 1: having an analyst meeting there where they were going to 112 00:05:43,920 --> 00:05:46,839 Speaker 1: kind of uh screen their new Star Wars movie, which 113 00:05:46,880 --> 00:05:48,560 Speaker 1: is gonna be a big driver for their company and 114 00:05:48,600 --> 00:05:50,320 Speaker 1: their for their stock, they hope. So that was already 115 00:05:50,360 --> 00:05:53,320 Speaker 1: established for Thursday. I think what they'd like to do 116 00:05:53,400 --> 00:05:55,200 Speaker 1: is once, since they already have their analysts and their 117 00:05:55,200 --> 00:05:57,800 Speaker 1: investors in the room at at in the Burbank studio, 118 00:05:57,960 --> 00:06:00,479 Speaker 1: is let's announce the deal then, and you know, let's 119 00:06:00,480 --> 00:06:03,159 Speaker 1: bring the Murdoch h Robert and his son's up on 120 00:06:03,200 --> 00:06:05,280 Speaker 1: stage and let's try to really sell this deal as 121 00:06:05,320 --> 00:06:07,279 Speaker 1: a as a great deal. And I think that's the 122 00:06:07,320 --> 00:06:10,320 Speaker 1: event that Disney would like to to to do there. 123 00:06:10,520 --> 00:06:12,560 Speaker 1: Nobody does events better than Disney, so I think that's 124 00:06:12,600 --> 00:06:14,040 Speaker 1: kind of how they like to announce the deal to 125 00:06:14,080 --> 00:06:16,360 Speaker 1: the world. Yeah, my heart's really bleeding for you. He's 126 00:06:16,360 --> 00:06:19,560 Speaker 1: gonna go out to California to watch movies, to watch 127 00:06:19,680 --> 00:06:23,960 Speaker 1: the premiere of Star Wars and having an amazing presentation, 128 00:06:24,080 --> 00:06:27,920 Speaker 1: an incredibly interesting announcement, hang out with your friends, and uh, 129 00:06:28,240 --> 00:06:31,120 Speaker 1: go out for a few drinks. Well, Paul Sweeney, it's 130 00:06:31,160 --> 00:06:34,640 Speaker 1: been real. Please bring me back a souvenir. Absolutely. Paul Sweeney, 131 00:06:34,720 --> 00:06:37,640 Speaker 1: US director of Research and senior Media and Internet Analyst 132 00:06:37,839 --> 00:06:57,800 Speaker 1: for Bloomberg Intelligence. I'm struck by the high yield bond market. 133 00:06:58,040 --> 00:07:02,039 Speaker 1: How people have been calling for its demise for almost 134 00:07:02,040 --> 00:07:04,239 Speaker 1: a decade now, almost as soon as it started surging 135 00:07:04,279 --> 00:07:06,960 Speaker 1: after the after the credit crisis. And yet here we 136 00:07:07,000 --> 00:07:10,280 Speaker 1: are with another year of pretty impressive gains, up more 137 00:07:10,320 --> 00:07:12,600 Speaker 1: than seven percent so far this year, following a seventeen 138 00:07:12,640 --> 00:07:14,960 Speaker 1: and a half percent game last year. So what's ahead 139 00:07:14,960 --> 00:07:17,000 Speaker 1: for next year? And uh has it already gotten to 140 00:07:17,080 --> 00:07:19,960 Speaker 1: be too good to be true? Should we expect losses? 141 00:07:20,200 --> 00:07:23,160 Speaker 1: Here to explain it all to us is Ken Monahan. 142 00:07:23,360 --> 00:07:26,520 Speaker 1: He is Director of high Yield for a Moondi Pioneer 143 00:07:26,560 --> 00:07:29,360 Speaker 1: in Durham, North Carolina. Nobody joins us here in our 144 00:07:29,400 --> 00:07:32,640 Speaker 1: New York studios. So, Ken, what's your projection for next year? 145 00:07:32,880 --> 00:07:35,760 Speaker 1: You know, Lisa m our crystal ball at this point 146 00:07:35,880 --> 00:07:40,840 Speaker 1: is so foggy it looks more like a snow globe. So, um, well, 147 00:07:40,840 --> 00:07:42,840 Speaker 1: we're we're we're working on it. You know, I think 148 00:07:42,880 --> 00:07:44,880 Speaker 1: that the first half of next year is much easier 149 00:07:44,880 --> 00:07:47,200 Speaker 1: to predict than the than the back half. And I 150 00:07:47,240 --> 00:07:49,320 Speaker 1: think the first half of the year, you know, today 151 00:07:49,320 --> 00:07:52,320 Speaker 1: we're waiting for news from the FED. Our expectation is 152 00:07:52,360 --> 00:07:55,520 Speaker 1: we're going to get several more moves, probably three next year. Uh. 153 00:07:55,560 --> 00:07:57,120 Speaker 1: And the question is what the e c B does 154 00:07:57,160 --> 00:07:59,320 Speaker 1: as well, and what kind of an impact that ultimately 155 00:07:59,360 --> 00:08:01,760 Speaker 1: will have a high yield marketplace. So you think that 156 00:08:01,920 --> 00:08:04,960 Speaker 1: still the high yield bond market is highly dependent on 157 00:08:05,160 --> 00:08:08,360 Speaker 1: actions of the central banks more than anything else. I 158 00:08:08,400 --> 00:08:10,600 Speaker 1: think that I'm not saying highly dependent. I think that 159 00:08:10,600 --> 00:08:13,640 Speaker 1: that's just one major variable. And with rates as low 160 00:08:13,720 --> 00:08:16,800 Speaker 1: as they are, we haven't been in this situation before. 161 00:08:17,240 --> 00:08:20,040 Speaker 1: You know, theoretically the high yield market should earn should 162 00:08:20,040 --> 00:08:22,400 Speaker 1: earn its coupon next year, so it should earn somewhere 163 00:08:22,400 --> 00:08:24,920 Speaker 1: around five percent plus or minus a little bit the 164 00:08:24,960 --> 00:08:28,240 Speaker 1: current high yield bond market is currently yielding about five 165 00:08:28,280 --> 00:08:30,520 Speaker 1: and three quarters percent. As you indicated, it earned a 166 00:08:30,560 --> 00:08:32,760 Speaker 1: little bit more than seven percent this year if you 167 00:08:32,800 --> 00:08:35,720 Speaker 1: look at the Bloomberg Barkley's index. I don't think it 168 00:08:35,720 --> 00:08:37,560 Speaker 1: will match that next year, but if it earned a 169 00:08:37,600 --> 00:08:40,600 Speaker 1: five percent return, that would be actually pretty reasonable. Um. 170 00:08:40,679 --> 00:08:43,720 Speaker 1: The question really is is how much headwinds do we 171 00:08:43,800 --> 00:08:46,400 Speaker 1: have out there and to what extent is the well 172 00:08:46,440 --> 00:08:50,360 Speaker 1: the activities of central banks contribute to that. So moving 173 00:08:50,360 --> 00:08:53,199 Speaker 1: beyond the macro story, one thing that I found fascinating 174 00:08:53,280 --> 00:08:55,480 Speaker 1: this year is that within the high elk bond market, 175 00:08:55,920 --> 00:09:00,120 Speaker 1: you've seen a number of potholes. Companies are just all 176 00:09:00,120 --> 00:09:05,240 Speaker 1: out of bed suddenly tank uh. There have been some resurrections. 177 00:09:05,360 --> 00:09:07,600 Speaker 1: We look at Valiant, for example, which seems to be 178 00:09:07,640 --> 00:09:12,040 Speaker 1: doing all right. But going into next year, which companies 179 00:09:12,240 --> 00:09:16,400 Speaker 1: do you expect to be the next potholes? Well, I'm 180 00:09:16,440 --> 00:09:19,400 Speaker 1: not going to name specific companies. There are certainly industries. 181 00:09:20,200 --> 00:09:22,920 Speaker 1: There's certainly industries that were watching. You know, Telecom is 182 00:09:22,960 --> 00:09:26,400 Speaker 1: an obvious one. Retail I think is an obvious one 183 00:09:26,480 --> 00:09:28,000 Speaker 1: as well. So in other words, you don't think the 184 00:09:28,040 --> 00:09:32,000 Speaker 1: retail carnage is over. I think that the juggernaut known 185 00:09:32,000 --> 00:09:35,520 Speaker 1: as aman Amazon is going to continue. Um. Having said that, 186 00:09:35,720 --> 00:09:38,559 Speaker 1: I don't think we were as nervous as some uh 187 00:09:38,640 --> 00:09:41,480 Speaker 1: you know, coming out of the third quarters numbers, or 188 00:09:41,640 --> 00:09:44,040 Speaker 1: really the second quarters numbers, which are perhaps a bit weaker, 189 00:09:44,360 --> 00:09:46,880 Speaker 1: and people had panicked and a lot of the retail 190 00:09:47,000 --> 00:09:51,439 Speaker 1: names had sold off. I don't think, um, Amazon is 191 00:09:51,440 --> 00:09:54,160 Speaker 1: going to replace the entire retail market. Uh. You know, 192 00:09:54,160 --> 00:09:56,800 Speaker 1: I said to my analysts earlier this year, I said, 193 00:09:56,840 --> 00:10:00,200 Speaker 1: you know, I've lived through environments where Internet was post 194 00:10:00,240 --> 00:10:04,480 Speaker 1: to replace automo auto car dealers. Uh. And then um, 195 00:10:05,559 --> 00:10:08,599 Speaker 1: the flat screen TVs in our home, We're going to 196 00:10:08,679 --> 00:10:11,600 Speaker 1: replace all the movie theaters. And yet those businesses continue. 197 00:10:11,880 --> 00:10:14,520 Speaker 1: It doesn't mean they don't have to re reconnect or 198 00:10:14,559 --> 00:10:17,320 Speaker 1: re engineer their businesses, but it doesn't mean that they 199 00:10:17,360 --> 00:10:19,880 Speaker 1: go out of business either. Well, and with telecom, before 200 00:10:19,880 --> 00:10:23,440 Speaker 1: I let you go into other sectors that you see 201 00:10:23,440 --> 00:10:27,040 Speaker 1: as as potentially experiencing some pain next year. Telecom is 202 00:10:27,040 --> 00:10:30,840 Speaker 1: fascinating because you have some behemoths like I Heart Communications 203 00:10:30,880 --> 00:10:34,080 Speaker 1: that's trying to bang out some kind of debt restructuring agreement. 204 00:10:34,080 --> 00:10:36,800 Speaker 1: And then you also have Sprint, which with its on 205 00:10:36,960 --> 00:10:39,480 Speaker 1: and off again, a deal with T Mobile that fell through. 206 00:10:39,880 --> 00:10:42,040 Speaker 1: Left at the altar, that's right, left at the altar. 207 00:10:42,080 --> 00:10:44,600 Speaker 1: There's a question of how it can continue in the 208 00:10:44,640 --> 00:10:49,040 Speaker 1: future alone, without a bigger footprint and without better technology. 209 00:10:49,040 --> 00:10:51,120 Speaker 1: It does not have the cash, it has tons of debt. 210 00:10:51,240 --> 00:10:54,360 Speaker 1: What is Masio show uh Masioshi's son going to do 211 00:10:54,840 --> 00:10:57,319 Speaker 1: from soft Bank, the big investor? Right? These are all 212 00:10:57,400 --> 00:10:59,679 Speaker 1: huge questions. But you think that the route that we've 213 00:10:59,720 --> 00:11:02,120 Speaker 1: seen and frontier, the route we've seen so far this 214 00:11:02,240 --> 00:11:04,440 Speaker 1: year is not over. Is that what you're saying. I 215 00:11:04,480 --> 00:11:06,200 Speaker 1: still think we're gonna get We're gonna have a very 216 00:11:06,240 --> 00:11:09,400 Speaker 1: bumpy road in telecom for two thousand and eighteen. But 217 00:11:09,480 --> 00:11:12,000 Speaker 1: doesn't mean if the sector can't earn a good return. 218 00:11:12,080 --> 00:11:14,240 Speaker 1: In fact, because if you look at where the yields 219 00:11:14,280 --> 00:11:16,520 Speaker 1: are for that sector right now, and those bonds are 220 00:11:16,559 --> 00:11:19,560 Speaker 1: trading at pretty significant discounts to bar So if we 221 00:11:19,600 --> 00:11:21,880 Speaker 1: can get, for example, some asset sales from some of 222 00:11:21,880 --> 00:11:24,600 Speaker 1: the large players in that space, UH, if our friends 223 00:11:24,760 --> 00:11:28,160 Speaker 1: spent sprint connect with somebody else or some how able 224 00:11:28,200 --> 00:11:33,760 Speaker 1: to monetize or show value for their enormous bandwidth, uh, 225 00:11:33,800 --> 00:11:37,240 Speaker 1: that that could change the the outlook for the sector 226 00:11:37,280 --> 00:11:39,480 Speaker 1: in terms of returns. So one big question that I 227 00:11:39,559 --> 00:11:43,400 Speaker 1: have is the field of triple B rated companies has 228 00:11:43,520 --> 00:11:46,680 Speaker 1: expanded pretty wild wildly in the past few years. This 229 00:11:46,760 --> 00:11:49,680 Speaker 1: is the lowest rung of investment rate. Yes, what is 230 00:11:49,720 --> 00:11:52,880 Speaker 1: the likelihood in your mind that they will get downgraded 231 00:11:52,920 --> 00:11:55,719 Speaker 1: to high yield and that you could see a rush 232 00:11:55,840 --> 00:11:59,640 Speaker 1: of debt kind of move into your world that is unexpected? Well, 233 00:11:59,679 --> 00:12:01,319 Speaker 1: if you if you look at a couple of things, 234 00:12:01,400 --> 00:12:03,480 Speaker 1: it's interesting you bring this up because there's two things 235 00:12:03,520 --> 00:12:06,280 Speaker 1: we would note. One, if you look at the at 236 00:12:06,320 --> 00:12:10,440 Speaker 1: the percentage of corporate debt outstanding that's investment grade versus GDP, 237 00:12:11,280 --> 00:12:14,760 Speaker 1: it's exploded, uh since the end of the recession, so 238 00:12:14,800 --> 00:12:17,360 Speaker 1: it's moved up by about threefold. If you look at 239 00:12:17,360 --> 00:12:19,559 Speaker 1: the percentage of high yield that it's increased as well, 240 00:12:19,600 --> 00:12:22,160 Speaker 1: but by a much smaller percentage. So there's a lot 241 00:12:22,200 --> 00:12:25,120 Speaker 1: more investment great debt that's been issued. A lot of 242 00:12:25,160 --> 00:12:27,920 Speaker 1: it's been used as well, particularly for triple V companies, 243 00:12:27,960 --> 00:12:32,160 Speaker 1: for shareholder friendly activity, so whether it's repurchasing shares or 244 00:12:32,200 --> 00:12:35,839 Speaker 1: paying out dividends or for acquisitions, and those are the 245 00:12:35,840 --> 00:12:37,800 Speaker 1: places you're right where you could have this risk of 246 00:12:37,840 --> 00:12:40,480 Speaker 1: downgrade going forward. I'm so interested in this. Thank you 247 00:12:40,520 --> 00:12:42,160 Speaker 1: so much for joining us. I could talk about this 248 00:12:42,240 --> 00:12:44,480 Speaker 1: all day long with you. Ken Monahan, co director of 249 00:12:44,520 --> 00:12:47,000 Speaker 1: High Yield at a Mundi pioneer, talking about what to 250 00:12:47,040 --> 00:12:50,120 Speaker 1: expect next year. We shinned up his crystal ball and 251 00:12:50,160 --> 00:12:52,480 Speaker 1: we got some insight. It's really interesting to me that 252 00:12:52,520 --> 00:12:55,240 Speaker 1: the telecom route is not over. We will be discussing 253 00:12:55,240 --> 00:13:13,680 Speaker 1: more about this. I'm sure a lot of people think 254 00:13:13,800 --> 00:13:17,600 Speaker 1: of the Federal Reserve as being an independent body that 255 00:13:17,800 --> 00:13:23,119 Speaker 1: is trying to maintain financial stability and keep the economy afloat. 256 00:13:23,520 --> 00:13:27,560 Speaker 1: Desmond King and Oxford University professor seeks to dispel that 257 00:13:27,720 --> 00:13:31,760 Speaker 1: notion with his new book, FED Power, How Finance Wins. 258 00:13:31,760 --> 00:13:34,720 Speaker 1: It was published last month and it was co authored 259 00:13:34,760 --> 00:13:38,200 Speaker 1: along with Lawrence Jacobs. Desmond joins us. Now it Doesmond, 260 00:13:38,200 --> 00:13:40,480 Speaker 1: thank you so much for being with us. Can you 261 00:13:40,520 --> 00:13:44,320 Speaker 1: just start. Can you just start with this idea that 262 00:13:44,480 --> 00:13:46,720 Speaker 1: a lot of people have with the FED as a 263 00:13:46,800 --> 00:13:50,959 Speaker 1: neutral player, and explain why you think that is inaccurate. 264 00:13:52,679 --> 00:13:55,719 Speaker 1: The FED is clearly trying to make decisions on the 265 00:13:55,760 --> 00:13:58,960 Speaker 1: basis of objective economic data and to do the best 266 00:13:59,000 --> 00:14:02,640 Speaker 1: to manage the economy. But but the way in which 267 00:14:02,760 --> 00:14:08,200 Speaker 1: this occurs is more tightly related to financial markets and 268 00:14:08,400 --> 00:14:11,439 Speaker 1: to the needs of certain economic interests than is commonly 269 00:14:11,480 --> 00:14:16,720 Speaker 1: recognized UM. And we developed this argument really about the 270 00:14:16,760 --> 00:14:20,960 Speaker 1: feds um extraordinary response to the recession in two thousand 271 00:14:21,040 --> 00:14:24,320 Speaker 1: and eight and the way in which it UM began 272 00:14:24,680 --> 00:14:29,840 Speaker 1: the processes and the unconventional monitary measures, including, for instance, 273 00:14:30,120 --> 00:14:33,840 Speaker 1: UM propping up money financial institutions and then going into 274 00:14:33,880 --> 00:14:39,400 Speaker 1: this expanse of quantitative easing process. These are measures which 275 00:14:39,680 --> 00:14:46,040 Speaker 1: UM are never scrutinized by UM a body such as 276 00:14:46,040 --> 00:14:49,880 Speaker 1: Congress to ask whether they are the most appropriate, or 277 00:14:49,920 --> 00:14:52,840 Speaker 1: they are measures which may or may not have various 278 00:14:53,040 --> 00:14:59,000 Speaker 1: unexpected distributional consequences. So the idea here is that because 279 00:14:59,080 --> 00:15:04,120 Speaker 1: the FED took these moves that directly propped up big banks, 280 00:15:04,160 --> 00:15:07,560 Speaker 1: it shows that they're biased toward a market in which 281 00:15:07,920 --> 00:15:11,120 Speaker 1: the biggest banks are the way they are and dominate 282 00:15:11,200 --> 00:15:14,960 Speaker 1: finance and are not open to another way of the 283 00:15:15,000 --> 00:15:18,400 Speaker 1: system running. Is that correct? Yes, I think biases may 284 00:15:18,400 --> 00:15:21,440 Speaker 1: be a very too stronger term. But UM, in the 285 00:15:21,480 --> 00:15:24,560 Speaker 1: way in which it responded, there were other options, for instance, 286 00:15:24,560 --> 00:15:27,120 Speaker 1: trying to do more for the mortgage market, for the 287 00:15:27,120 --> 00:15:32,040 Speaker 1: relief of mortgage holders UM, who had been allowed to 288 00:15:32,240 --> 00:15:35,840 Speaker 1: acquire many borrowers have been allowed to acquire mortgages which 289 00:15:35,840 --> 00:15:39,600 Speaker 1: they couldn't afford in the six to seven years before 290 00:15:39,680 --> 00:15:42,560 Speaker 1: the crisis of two thousand and eight, which was in 291 00:15:42,680 --> 00:15:46,680 Speaker 1: large part a regulatory failure UM and then when it 292 00:15:46,760 --> 00:15:50,880 Speaker 1: acted in this dramatic way since two thousands and eight UM, 293 00:15:50,960 --> 00:15:54,360 Speaker 1: we we think in the book that the processes of 294 00:15:54,400 --> 00:15:58,440 Speaker 1: accountability around this were really very weak and remain quite weak, 295 00:15:58,960 --> 00:16:02,880 Speaker 1: and we have at the moment then a situation which 296 00:16:03,360 --> 00:16:07,440 Speaker 1: central banking is really in quite a new era. And 297 00:16:07,440 --> 00:16:09,240 Speaker 1: it's not just the FED that the FED is by 298 00:16:09,240 --> 00:16:11,720 Speaker 1: far the most important. The supplies also to the ECB 299 00:16:11,880 --> 00:16:15,560 Speaker 1: and the Bank of England in terms of its there 300 00:16:15,600 --> 00:16:20,800 Speaker 1: interventions in the financial markets through quantitent of easing. The 301 00:16:21,400 --> 00:16:24,120 Speaker 1: sorts of measures that have been undertaken would be more 302 00:16:24,760 --> 00:16:27,400 Speaker 1: commonly associated with fiscal policy, or at least they have 303 00:16:27,440 --> 00:16:33,080 Speaker 1: fiscal policy implications in a way which moves beyond traditional 304 00:16:33,160 --> 00:16:36,880 Speaker 1: understandings of monetary policy. Well, so I'm wondering what are 305 00:16:37,040 --> 00:16:40,800 Speaker 1: the measures that should be taken to have better oversight 306 00:16:41,240 --> 00:16:45,440 Speaker 1: of the federals serve and other central banks for that matter. Well, 307 00:16:45,840 --> 00:16:52,000 Speaker 1: I think we need to think about who is appointed 308 00:16:52,040 --> 00:16:55,200 Speaker 1: to the federal banks. Whether there might be a broader 309 00:16:55,320 --> 00:17:00,280 Speaker 1: range of UM members of the FOMC, for instance, who 310 00:17:01,000 --> 00:17:07,160 Speaker 1: are more familiar with different aspects of financial markets. UM. 311 00:17:07,280 --> 00:17:11,080 Speaker 1: Whether there should be UM members of the economics profession 312 00:17:11,160 --> 00:17:14,840 Speaker 1: who aren't quite so much part of the consensus about 313 00:17:14,880 --> 00:17:19,439 Speaker 1: monetary policy. UM. So, whether there might be independent reviews 314 00:17:19,480 --> 00:17:24,120 Speaker 1: of the Congress by sorry, by the Congress of UM 315 00:17:24,160 --> 00:17:27,240 Speaker 1: of federal policy. You know, this is tricky because we're 316 00:17:27,240 --> 00:17:29,600 Speaker 1: coming at this at a moment when a lot of 317 00:17:29,640 --> 00:17:32,720 Speaker 1: people have raised concerns that the FED will become even 318 00:17:32,760 --> 00:17:36,840 Speaker 1: more political in the US, given some of the demands 319 00:17:37,240 --> 00:17:39,080 Speaker 1: on what we would like to see from growth from 320 00:17:39,119 --> 00:17:41,600 Speaker 1: our from our current president. So, uh, you know, it's 321 00:17:41,600 --> 00:17:43,320 Speaker 1: sort of tricky when you start to say, well, they 322 00:17:43,320 --> 00:17:49,560 Speaker 1: should have more oversight from potentially political operatives. Right, Yes, 323 00:17:49,680 --> 00:17:52,119 Speaker 1: I think it is, and I'm fully alert to that, 324 00:17:52,240 --> 00:17:56,440 Speaker 1: and I entirely agree with you. But central banks are now, 325 00:17:56,640 --> 00:18:00,600 Speaker 1: including the FED, are part of a of a quite 326 00:18:00,640 --> 00:18:04,640 Speaker 1: extraordinary financialization system that has occurred in the last three 327 00:18:04,680 --> 00:18:08,560 Speaker 1: decades UM. And so the way they operate, the importance 328 00:18:08,600 --> 00:18:12,400 Speaker 1: of markets, the way that policies have effects on markets 329 00:18:12,520 --> 00:18:14,960 Speaker 1: is deeper than it was, so we in some sense 330 00:18:14,960 --> 00:18:18,920 Speaker 1: I have to think about new institutions of accountability. There 331 00:18:19,000 --> 00:18:21,320 Speaker 1: is a there's a very strong argument that you know, 332 00:18:21,400 --> 00:18:24,919 Speaker 1: Congress dominates the FED, that that the idea that the 333 00:18:24,960 --> 00:18:28,280 Speaker 1: FED is independent is a myth, and that this is 334 00:18:28,280 --> 00:18:31,119 Speaker 1: a common scholarly view, and that the Congress is able 335 00:18:31,160 --> 00:18:35,960 Speaker 1: to um really exercise powerful control over it. I think 336 00:18:36,000 --> 00:18:37,920 Speaker 1: if you look at history it's rather different. The The 337 00:18:38,520 --> 00:18:40,680 Speaker 1: FED has been very good at maintaining itself as as 338 00:18:40,720 --> 00:18:46,480 Speaker 1: a neutral technical agency or UM and showing its capacity 339 00:18:46,520 --> 00:18:49,920 Speaker 1: to develop policies as it thinks most appropriate. But it's 340 00:18:49,960 --> 00:18:54,120 Speaker 1: hard to see processes of accountability there in these institutions. 341 00:18:55,160 --> 00:18:57,680 Speaker 1: Thank you so much for joining us, and your book 342 00:18:57,800 --> 00:19:01,600 Speaker 1: is fascinating and it's certainly emily right now, Desmond King. 343 00:19:02,320 --> 00:19:06,240 Speaker 1: Andrew W. Mellon, Professor of American Government at Oxford University, 344 00:19:06,320 --> 00:19:09,960 Speaker 1: joining us from Oxford UH. He is the co author 345 00:19:10,000 --> 00:19:13,919 Speaker 1: of a new book, Fedpower, How Finance Wins. A fascinating 346 00:19:14,040 --> 00:19:17,359 Speaker 1: argument and an important one at a time when the 347 00:19:17,520 --> 00:19:36,760 Speaker 1: FED is changing hands with respect to the chairmanship. It 348 00:19:36,920 --> 00:19:40,040 Speaker 1: is time to throw our crystal ball to Chicago, where 349 00:19:40,119 --> 00:19:43,399 Speaker 1: Jack Avalan is. He is chief investment officer at BEMO 350 00:19:43,680 --> 00:19:47,960 Speaker 1: Private Bank, which overseas about sixty eight billion dollars. Jack, 351 00:19:48,000 --> 00:19:50,240 Speaker 1: thank you so much for joining us. We've been talking 352 00:19:50,240 --> 00:19:54,160 Speaker 1: about what to expect for eighteen and uh the most 353 00:19:54,200 --> 00:19:56,560 Speaker 1: important question of the day, of course, is are you 354 00:19:56,600 --> 00:20:01,439 Speaker 1: going to be buying bitcoin? I don't know it. I 355 00:20:01,560 --> 00:20:06,160 Speaker 1: can't afford it. All right, in all seriousness, next year, 356 00:20:06,560 --> 00:20:10,119 Speaker 1: a lot of people are seeing pretty sanguine economic pretty 357 00:20:10,240 --> 00:20:16,040 Speaker 1: sanguine economic backdrop, synchronized growth. Pick the phrase that you will. 358 00:20:16,080 --> 00:20:19,000 Speaker 1: What's your most contrarian call for the year. I'm going 359 00:20:19,040 --> 00:20:21,480 Speaker 1: to say that, you know, if I'm looking for things 360 00:20:21,560 --> 00:20:24,800 Speaker 1: that could potentially upset the apple cart, it's it's going 361 00:20:24,840 --> 00:20:28,480 Speaker 1: to be a trade. Um. You know, we still have 362 00:20:28,720 --> 00:20:33,159 Speaker 1: these open items on NAFTA and some other trade agreements outstanding. 363 00:20:33,320 --> 00:20:36,600 Speaker 1: And I can't think of a single economist who stood 364 00:20:36,640 --> 00:20:40,120 Speaker 1: up and said, you know, ending our current trade agreements 365 00:20:40,400 --> 00:20:43,960 Speaker 1: going to help our economy. UM. So you know we 366 00:20:44,040 --> 00:20:47,880 Speaker 1: still have, um, you know, some of these lingering issues outstanding. 367 00:20:47,920 --> 00:20:50,560 Speaker 1: And I guess i'd call that contrarian in that, you know, 368 00:20:50,600 --> 00:20:53,240 Speaker 1: that's the one thing that could you know, run counter 369 00:20:53,359 --> 00:20:57,280 Speaker 1: to this, uh, you know, positive momentum on on growth. Alright, 370 00:20:57,359 --> 00:20:59,920 Speaker 1: So as an investment manager, how do you head you 371 00:21:00,080 --> 00:21:02,520 Speaker 1: endst that risk? Well, I'm not sure I want to 372 00:21:02,560 --> 00:21:05,720 Speaker 1: do too much of that right yet. Um, these are 373 00:21:05,800 --> 00:21:08,320 Speaker 1: things I'm gonna be watching for. I'm watching for that 374 00:21:08,880 --> 00:21:12,399 Speaker 1: any indications there. But we're still gonna you know, stay 375 00:21:12,440 --> 00:21:17,920 Speaker 1: in um. Uh, we're watching for inflation. Um also um, 376 00:21:17,920 --> 00:21:20,520 Speaker 1: but we we believe we're not going to really run 377 00:21:20,520 --> 00:21:24,960 Speaker 1: out of production capacity or even labor capacity until probably 378 00:21:25,359 --> 00:21:28,200 Speaker 1: mid two nineteen. So I think you know, right now, 379 00:21:28,240 --> 00:21:30,720 Speaker 1: our base case scenario is that we're still in the clear. 380 00:21:30,760 --> 00:21:34,000 Speaker 1: We're bunting along and around, you know, a little bit 381 00:21:34,040 --> 00:21:38,159 Speaker 1: more than potential GDP. While this is the one of 382 00:21:38,160 --> 00:21:41,080 Speaker 1: the longest recoveries that we've had on record, it certainly 383 00:21:41,080 --> 00:21:44,920 Speaker 1: the shallowest and so um, you know, it's it's uh, 384 00:21:45,240 --> 00:21:47,920 Speaker 1: certainly recovery not built on a lot of excesses, which 385 00:21:47,960 --> 00:21:50,119 Speaker 1: is its probably a good thing. So Jack, if you 386 00:21:50,200 --> 00:21:52,960 Speaker 1: are watching for inflation, I take that to mean that 387 00:21:53,000 --> 00:21:55,680 Speaker 1: you expected to pick up more next year. How are 388 00:21:55,720 --> 00:21:59,199 Speaker 1: you positioning to capture some of the gains from that 389 00:21:59,359 --> 00:22:02,000 Speaker 1: and to avoid some of the losses that say, may 390 00:22:02,040 --> 00:22:06,280 Speaker 1: come with the longest the longest term bonds. Right. UM, 391 00:22:06,359 --> 00:22:10,359 Speaker 1: So right now, we're you know, still somewhat um, you know, 392 00:22:10,920 --> 00:22:14,960 Speaker 1: under our target duration. So you know, we we are 393 00:22:16,280 --> 00:22:21,919 Speaker 1: you know, somewhat cautious there. I think what we're watching for, 394 00:22:21,920 --> 00:22:25,720 Speaker 1: for example, any evidence that the European Central Bank uh 395 00:22:25,960 --> 00:22:30,960 Speaker 1: takes it's it's uh photoph the accelerator would perhaps uh, 396 00:22:31,080 --> 00:22:33,800 Speaker 1: you know, raise rates in Europe. You know, keep in mind, 397 00:22:33,880 --> 00:22:36,840 Speaker 1: one of the main reasons we believe why the tenure 398 00:22:36,880 --> 00:22:40,399 Speaker 1: treasuries two point three, seven or two point four and 399 00:22:40,480 --> 00:22:44,040 Speaker 1: not three or more is because the German bonded zero 400 00:22:44,040 --> 00:22:47,760 Speaker 1: point three. Uh. So as we start to see rates 401 00:22:47,800 --> 00:22:52,159 Speaker 1: abroad move higher, uh, that probably raises the floor on 402 00:22:52,920 --> 00:22:55,560 Speaker 1: you know, on our rates here. So yeah, so we're 403 00:22:55,560 --> 00:23:00,840 Speaker 1: still somewhat cautious on interest rates UM, and we're still 404 00:23:00,840 --> 00:23:04,199 Speaker 1: fully invested in equities UM, but would be looking for 405 00:23:04,240 --> 00:23:08,480 Speaker 1: evidence that UM either inflation rise, as credit spreads widen, 406 00:23:08,560 --> 00:23:12,439 Speaker 1: anything that would drive interest rate growth faster than profit 407 00:23:12,480 --> 00:23:16,240 Speaker 1: growth would prompt us to reduce our equity risk. We 408 00:23:16,280 --> 00:23:20,440 Speaker 1: don't see huge evidence of that soon, but that would 409 00:23:20,480 --> 00:23:22,919 Speaker 1: be something that would suggest perhaps were either the end 410 00:23:22,960 --> 00:23:25,960 Speaker 1: of the business cycle end of a credit cycle. The 411 00:23:26,000 --> 00:23:28,440 Speaker 1: other thing that some people are watching is the yield curve, 412 00:23:28,520 --> 00:23:32,680 Speaker 1: the differential between long and short term rates. And when 413 00:23:32,680 --> 00:23:35,320 Speaker 1: you talk about the e c B and whether European 414 00:23:35,400 --> 00:23:37,560 Speaker 1: rates are going to raise, a lot of people think 415 00:23:37,600 --> 00:23:39,800 Speaker 1: that the ECB is going to keep its deposit rate 416 00:23:39,840 --> 00:23:42,200 Speaker 1: where it is next year and just work on potentially 417 00:23:42,200 --> 00:23:45,600 Speaker 1: tapering some of their asset purchases. So let's say they 418 00:23:45,680 --> 00:23:48,600 Speaker 1: don't make a move at all. Could we see a 419 00:23:48,680 --> 00:23:50,600 Speaker 1: yield curve in version because the Fed is going to 420 00:23:50,680 --> 00:23:53,240 Speaker 1: be raising short term rates and that longer term rates 421 00:23:53,280 --> 00:23:55,680 Speaker 1: going to be pegged. Yeah, we could, but I wouldn't 422 00:23:55,720 --> 00:23:59,800 Speaker 1: necessarily read a ton into it. Um. I think that 423 00:24:00,080 --> 00:24:02,600 Speaker 1: you know, it would invert for more more or less 424 00:24:02,600 --> 00:24:09,000 Speaker 1: technical reasons than anything. Um, you know, economic per se um. 425 00:24:09,040 --> 00:24:11,080 Speaker 1: You know, we still have a lot of distroy in 426 00:24:11,080 --> 00:24:14,840 Speaker 1: the bond markets, and um, you know, it's sending a 427 00:24:14,840 --> 00:24:18,640 Speaker 1: signal that you know, may not really be telling us 428 00:24:18,680 --> 00:24:22,520 Speaker 1: what we've traditionally interpreted in the past. Well, you know, 429 00:24:22,560 --> 00:24:25,000 Speaker 1: this is an important point because a lot of people 430 00:24:25,040 --> 00:24:27,600 Speaker 1: are saying, look, even if the U s you old 431 00:24:27,600 --> 00:24:31,160 Speaker 1: curve inverts next year, it won't necessarily be a harbinger 432 00:24:31,200 --> 00:24:33,320 Speaker 1: of a recession the way it has in the past. 433 00:24:33,800 --> 00:24:36,000 Speaker 1: And yet when I go back and I look at 434 00:24:36,080 --> 00:24:39,959 Speaker 1: the meeting minutes from Federal Reserve meetings back in two 435 00:24:40,000 --> 00:24:42,399 Speaker 1: thousand and six and two thousand and seven, a lot 436 00:24:42,480 --> 00:24:44,560 Speaker 1: of the FETE officials at the time, we're saying the 437 00:24:44,600 --> 00:24:47,840 Speaker 1: exact same thing. Yes we're seeing yield curve flattening, Yes 438 00:24:47,840 --> 00:24:51,520 Speaker 1: we're seeing inversion, but it means something different. It is technical, 439 00:24:51,640 --> 00:24:54,800 Speaker 1: it was not. Does that give you pause? Well, there 440 00:24:54,840 --> 00:24:58,359 Speaker 1: was no quantitative easing going on back then, so um, 441 00:24:58,400 --> 00:25:02,400 Speaker 1: you know, I'm not sure exactly what they were necessarily 442 00:25:02,480 --> 00:25:06,040 Speaker 1: drawing on to suggest that an inverted real curve would 443 00:25:06,080 --> 00:25:08,600 Speaker 1: have sent the wrong signal effect for us, it was, 444 00:25:09,320 --> 00:25:13,879 Speaker 1: it was a concern. In fact, credit spreads widened to 445 00:25:14,000 --> 00:25:18,000 Speaker 1: a point where they broke out in the third quarter 446 00:25:18,080 --> 00:25:20,480 Speaker 1: of two thousand and seven, which to us was a 447 00:25:20,520 --> 00:25:23,600 Speaker 1: signal to say, we do need to reduce our risk. 448 00:25:23,640 --> 00:25:26,280 Speaker 1: When momentum finally broke down in January of oh eight, 449 00:25:26,800 --> 00:25:29,480 Speaker 1: that was a clear signal for us to say, let's, 450 00:25:29,520 --> 00:25:31,880 Speaker 1: you know, watch the play out of this year from 451 00:25:31,880 --> 00:25:35,960 Speaker 1: the sidelines. With respect to credit, you said you're still 452 00:25:35,960 --> 00:25:39,080 Speaker 1: fully invested in equities, you've had you have lowered the 453 00:25:39,160 --> 00:25:44,440 Speaker 1: duration of your funds, meaning the exposure to interest rate risk. 454 00:25:44,560 --> 00:25:47,920 Speaker 1: I'm wondering where you stand on credit. Yeah, I mean, 455 00:25:47,960 --> 00:25:52,160 Speaker 1: that's that's really remarkable to me. Um. Credit spreads are 456 00:25:52,240 --> 00:25:55,879 Speaker 1: still remarkably narrow. Um. So there could be a little 457 00:25:55,920 --> 00:26:00,760 Speaker 1: technical factors. They are also as investors are clamoring or yield. 458 00:26:00,840 --> 00:26:03,400 Speaker 1: One of the things that you know, we're noticing though, 459 00:26:03,600 --> 00:26:07,560 Speaker 1: is that down grades are outpacing upgrades now and they 460 00:26:07,560 --> 00:26:10,920 Speaker 1: have not for the last two or three quarters. So UM, 461 00:26:10,960 --> 00:26:14,320 Speaker 1: I'm not necessarily flapping my arms and saying this is 462 00:26:14,359 --> 00:26:17,040 Speaker 1: the end of the credit cycle, but it is something 463 00:26:17,080 --> 00:26:19,240 Speaker 1: that we're watching, and it's a certainly a metric that 464 00:26:19,240 --> 00:26:21,480 Speaker 1: I want to pay attention to. Where's the more risk 465 00:26:21,560 --> 00:26:26,680 Speaker 1: in the lowest rung of investment grade or in high yield? Um. 466 00:26:26,880 --> 00:26:28,720 Speaker 1: You know that's probably a good question, I would say 467 00:26:28,720 --> 00:26:31,440 Speaker 1: in high yield. UM. In fact, you know, it's funny, 468 00:26:31,920 --> 00:26:36,600 Speaker 1: investment grade actually is outpacing high yield so far this year. Um. 469 00:26:36,720 --> 00:26:42,280 Speaker 1: So um, you know this this blind um uh, you know, 470 00:26:42,320 --> 00:26:46,600 Speaker 1: blind reach for yield is really starting to fall apart 471 00:26:47,119 --> 00:26:51,040 Speaker 1: in the notion that perhaps investors are really starting to 472 00:26:51,080 --> 00:26:54,560 Speaker 1: look discern, you know, what's a better value. Um. So 473 00:26:54,600 --> 00:26:56,600 Speaker 1: we're seeing it in the in the bond market, not 474 00:26:56,640 --> 00:26:58,800 Speaker 1: seeing it so much in the stock market. But it 475 00:26:59,320 --> 00:27:02,000 Speaker 1: sounds like good. Appears like we're going to get a 476 00:27:02,000 --> 00:27:05,720 Speaker 1: sector rotation going into next year. Jack Aplin, thank you 477 00:27:05,760 --> 00:27:09,120 Speaker 1: so much for joining us. Jack Avelin, Chief investment Officer 478 00:27:09,160 --> 00:27:12,560 Speaker 1: at BEMO Private Bank, which overseas sixty eight billion dollars 479 00:27:12,840 --> 00:27:21,080 Speaker 1: and is based in Chicago. Thanks for listening to the 480 00:27:21,119 --> 00:27:24,240 Speaker 1: Bloomberg P and L podcast. You can subscribe and listen 481 00:27:24,240 --> 00:27:28,400 Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform 482 00:27:28,440 --> 00:27:32,359 Speaker 1: you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. 483 00:27:32,680 --> 00:27:36,200 Speaker 1: I'm on Twitter at Lisa Abramo. It's one before the podcast. 484 00:27:36,240 --> 00:27:38,840 Speaker 1: You can always catch us worldwide on Bloomberg Radio.