1 00:00:04,760 --> 00:00:08,080 Speaker 1: Welcome to the Bloomberg pm L podcast. I'm Pim Fox. 2 00:00:08,119 --> 00:00:11,200 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,280 --> 00:00:14,480 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:14,520 --> 00:00:16,560 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:16,800 --> 00:00:19,960 Speaker 1: or the trading floor. Find the Bloomberg p L podcast 6 00:00:20,000 --> 00:00:31,280 Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. Logic shares 7 00:00:31,400 --> 00:00:34,559 Speaker 1: right now are up more than eight percent. They reported 8 00:00:34,600 --> 00:00:39,279 Speaker 1: earnings after the bell yesterday that beat analysts estimate and 9 00:00:39,440 --> 00:00:43,280 Speaker 1: uh we have a special guest with us, Steve McMillan, chairman, 10 00:00:43,320 --> 00:00:47,040 Speaker 1: president and CEO of Logic to explain a little bit 11 00:00:47,040 --> 00:00:50,120 Speaker 1: more about what happened in the past quarter and why 12 00:00:50,159 --> 00:00:52,479 Speaker 1: it was so successful. Thank you so much for joining us. 13 00:00:52,560 --> 00:00:55,040 Speaker 1: Thank you, Lisa, thanks for having us so um So, 14 00:00:55,160 --> 00:00:58,440 Speaker 1: what happened? What sort of drove the better than expected earnings? Really? 15 00:00:58,480 --> 00:01:00,640 Speaker 1: I think it was broad based growth. We have three 16 00:01:00,720 --> 00:01:03,440 Speaker 1: key businesses in the company. We have the mommography business, 17 00:01:03,440 --> 00:01:06,080 Speaker 1: where we've become the world leader, especially behind our genius 18 00:01:06,280 --> 00:01:09,840 Speaker 1: three D technology. We also a very strong molecular diagnostics 19 00:01:09,880 --> 00:01:12,920 Speaker 1: business that has been the world leader in both cervical 20 00:01:13,160 --> 00:01:16,600 Speaker 1: cancer testing as well as reproductive health, so all kinds 21 00:01:16,600 --> 00:01:20,440 Speaker 1: of sexually transmitted infections. That business is performing very very well. 22 00:01:20,720 --> 00:01:23,320 Speaker 1: And then we have a guy in surgical division, which 23 00:01:23,400 --> 00:01:27,360 Speaker 1: is really for endometrioliblation as well as fibroid removal through 24 00:01:27,360 --> 00:01:31,800 Speaker 1: the uterus, and that business is also performing way above expectations. 25 00:01:31,800 --> 00:01:34,360 Speaker 1: It had a seventh straight quarter of double digit growth, 26 00:01:34,440 --> 00:01:37,600 Speaker 1: So it's really broad based growth. And as you know, 27 00:01:37,680 --> 00:01:41,080 Speaker 1: in a very skittish healthcare and investor environment right now, 28 00:01:41,360 --> 00:01:42,880 Speaker 1: we always kind of want to be a safe port 29 00:01:42,880 --> 00:01:45,040 Speaker 1: in the storm, and and we showed we came through 30 00:01:45,240 --> 00:01:47,880 Speaker 1: so very proud of our team. Well, I do want 31 00:01:47,880 --> 00:01:49,920 Speaker 1: to raise one thing. I mean, I would imagine that 32 00:01:50,080 --> 00:01:54,080 Speaker 1: Logic is sort of at the forefront of the controversy 33 00:01:54,120 --> 00:01:56,920 Speaker 1: over mammograms and how effective they are. And you know, 34 00:01:57,000 --> 00:02:00,160 Speaker 1: there's some talk about removing the recommendation that the men 35 00:02:00,200 --> 00:02:02,800 Speaker 1: get mamograms, which I'm sure is leading into insurance and 36 00:02:02,800 --> 00:02:06,360 Speaker 1: whether or not they'll cover it. How much is that 37 00:02:06,400 --> 00:02:10,119 Speaker 1: affecting Logic and the business going forward. We we really 38 00:02:10,120 --> 00:02:12,520 Speaker 1: see it as a great opportunity in that so many 39 00:02:12,560 --> 00:02:17,480 Speaker 1: of the shortfalls and shortcomings of traditional mamography or mammograms 40 00:02:18,000 --> 00:02:21,400 Speaker 1: has really been the old technology, and because we've brought 41 00:02:21,400 --> 00:02:24,000 Speaker 1: our three D technology to the marketplace just in the 42 00:02:24,080 --> 00:02:28,160 Speaker 1: last few years, it's really addressing all of the key 43 00:02:28,200 --> 00:02:30,360 Speaker 1: issues historically. So if you think about it, what are 44 00:02:30,360 --> 00:02:34,040 Speaker 1: the key issues historically? One is, you know, false positives. 45 00:02:34,800 --> 00:02:38,280 Speaker 1: Our three D technology dramatically reduces the amount of false positives. 46 00:02:38,280 --> 00:02:40,520 Speaker 1: So what does that mean in real terms? You know, 47 00:02:40,639 --> 00:02:44,640 Speaker 1: fiftcent fewer false positives means women are not having to 48 00:02:44,680 --> 00:02:48,120 Speaker 1: go back and have biopsies that aren't needed, so you 49 00:02:48,160 --> 00:02:50,600 Speaker 1: can see things so much better. The other part is 50 00:02:50,720 --> 00:02:56,560 Speaker 1: that we're detecting early stage cancers about fifteen months earlier 51 00:02:57,320 --> 00:02:59,440 Speaker 1: and or depending on how look at the data, we're 52 00:02:59,440 --> 00:03:05,480 Speaker 1: getting about more positives in terms of effectively diagnosing the 53 00:03:05,480 --> 00:03:08,000 Speaker 1: breast cancer. So what's happening is a lot of the 54 00:03:08,080 --> 00:03:12,720 Speaker 1: research and the guidelines are based on old mammograms. Everything 55 00:03:12,760 --> 00:03:16,560 Speaker 1: that we've brought with three D is effectively addressing those shortcomings. 56 00:03:16,560 --> 00:03:18,920 Speaker 1: But have fewer women been getting mamograms? And is that 57 00:03:18,960 --> 00:03:21,920 Speaker 1: affecting your business? Not really, we're seeing you know, actually, 58 00:03:22,160 --> 00:03:24,399 Speaker 1: part of the strength of our business over the last 59 00:03:24,480 --> 00:03:27,240 Speaker 1: couple of years has been the adoption of our three 60 00:03:27,320 --> 00:03:30,480 Speaker 1: D technology. So even though there's pressures on healthcare costs. 61 00:03:30,840 --> 00:03:35,000 Speaker 1: There are some controversies. You know, the USPSTF, which is 62 00:03:35,040 --> 00:03:39,720 Speaker 1: the US Prevented Services Task Force Society, had come out 63 00:03:39,840 --> 00:03:43,080 Speaker 1: a year ago suggesting that women should wait until they're 64 00:03:43,120 --> 00:03:46,400 Speaker 1: fifty for their first mammogram. I think everybody on this 65 00:03:46,480 --> 00:03:51,000 Speaker 1: planet has either a friend or someone in their family who, 66 00:03:51,040 --> 00:03:54,040 Speaker 1: if they waited until fifty, would be dead. Quite frankly, 67 00:03:54,280 --> 00:03:57,840 Speaker 1: my own mother was diagnosed almost twenty years ago, so 68 00:03:57,960 --> 00:04:02,040 Speaker 1: to wait until you're fifty is just completely nonsensical. And 69 00:04:02,120 --> 00:04:04,200 Speaker 1: so I think what we've actually seen is despite the 70 00:04:04,280 --> 00:04:09,320 Speaker 1: USPSTF guidelines, the American College of Radiology and the radiologist 71 00:04:09,320 --> 00:04:12,400 Speaker 1: who were close to this are absolutely going against that, 72 00:04:12,720 --> 00:04:15,200 Speaker 1: and they know that really starting at forty and frankly, 73 00:04:15,240 --> 00:04:17,839 Speaker 1: if you've had a history of breast cancer, you should 74 00:04:17,839 --> 00:04:19,520 Speaker 1: start sooner. You know, we all know, you know, there 75 00:04:19,520 --> 00:04:22,680 Speaker 1: are women in their twenties and thirties diagnosed. So the 76 00:04:22,800 --> 00:04:27,520 Speaker 1: whole key in breast cancer it's it's an eminently deal. 77 00:04:27,680 --> 00:04:29,600 Speaker 1: You know, it's a disease you can totally deal with 78 00:04:29,680 --> 00:04:32,320 Speaker 1: if you catch it early, and that's what three DM 79 00:04:32,360 --> 00:04:35,200 Speaker 1: ammograms are helping to do. So we actually feel we're 80 00:04:35,200 --> 00:04:37,880 Speaker 1: on the right side of it, and we're reducing costs, 81 00:04:37,920 --> 00:04:41,279 Speaker 1: we're improving the patient outcomes, and it's good for everybody 82 00:04:41,360 --> 00:04:44,880 Speaker 1: in the system, the patient, the payer, the radiologist, and 83 00:04:45,240 --> 00:04:47,880 Speaker 1: frankly our company. You mentioned. If you're reducing the cost, 84 00:04:48,160 --> 00:04:52,800 Speaker 1: what specifically, well, the big cost in breast cancer is 85 00:04:53,040 --> 00:04:54,720 Speaker 1: when you start to deal with it later. If you 86 00:04:54,760 --> 00:04:57,760 Speaker 1: get somebody who stage three or stage four, you're dealing 87 00:04:57,839 --> 00:05:00,240 Speaker 1: with full blown you know, let's face it mustaqu to me, 88 00:05:00,440 --> 00:05:05,120 Speaker 1: is radiation, chemo, all of that. When you can catch 89 00:05:05,200 --> 00:05:08,400 Speaker 1: breast cancer in its very early stages, you can have 90 00:05:08,720 --> 00:05:12,640 Speaker 1: much more les. You know, basically a less intervention is needed. 91 00:05:13,160 --> 00:05:15,080 Speaker 1: And so if you can get it early, when it's 92 00:05:15,120 --> 00:05:18,560 Speaker 1: small and it hasn't started to fantasticize, you deal with it. 93 00:05:18,640 --> 00:05:21,039 Speaker 1: And that's where the big win is both in terms 94 00:05:21,080 --> 00:05:24,800 Speaker 1: of survival rates, but it's also dramatically less in cost. 95 00:05:24,960 --> 00:05:28,000 Speaker 1: So that's why a win win. Something like SIGNA just 96 00:05:28,120 --> 00:05:30,160 Speaker 1: in the last couple of months is now covering three 97 00:05:30,240 --> 00:05:33,480 Speaker 1: D mammograms and we think that's clearly the trend that's 98 00:05:33,520 --> 00:05:36,440 Speaker 1: occurring because they're realizing it's better for the patients. It's 99 00:05:36,440 --> 00:05:38,920 Speaker 1: also frankly better for their caution, seconds got to be quick. 100 00:05:38,960 --> 00:05:41,600 Speaker 1: Does the election outcome impact you guys, not really? I 101 00:05:41,680 --> 00:05:44,080 Speaker 1: think you know again, we've even Donald Trump says he 102 00:05:44,160 --> 00:05:46,599 Speaker 1: wants to change in terms of Obamacare. At the end 103 00:05:46,640 --> 00:05:49,360 Speaker 1: of the day, we are reducing healthcare costs and we're 104 00:05:49,400 --> 00:05:51,400 Speaker 1: improving patient outcomes. We think it puts us in a 105 00:05:51,480 --> 00:05:55,400 Speaker 1: good place. Steve mcmilany's chairman Presidency of Logic, Morble mass 106 00:05:55,520 --> 00:05:57,440 Speaker 1: Is where they're based in our New York studio on 107 00:05:57,520 --> 00:06:09,680 Speaker 1: this Thursday, this is Bloemberg. Well, we want to talk 108 00:06:09,680 --> 00:06:11,760 Speaker 1: a bit about Wells Fargo today because it's back in 109 00:06:11,800 --> 00:06:15,160 Speaker 1: the news, the SEC investigating sales practices at the company 110 00:06:15,560 --> 00:06:18,520 Speaker 1: and our Bloomberg exclusive how the stars at the company 111 00:06:19,279 --> 00:06:22,840 Speaker 1: climbed as abuses flourished beneath them. Let's talk about it 112 00:06:22,880 --> 00:06:25,640 Speaker 1: all with us. As Laura Keller, financial reporter at Bloomberg News, 113 00:06:25,720 --> 00:06:29,960 Speaker 1: she's here with Elliot Stein's senior litigation analyst at Bloomberg Intelligence. 114 00:06:30,200 --> 00:06:32,640 Speaker 1: First off, Lord, let me start with you. Um, talk 115 00:06:32,680 --> 00:06:35,200 Speaker 1: to me about what was going on at the company. 116 00:06:35,240 --> 00:06:38,240 Speaker 1: We know about these fake accounts, these fraudulent accounts. A 117 00:06:38,320 --> 00:06:40,120 Speaker 1: lot of people lost their jobs as a result. But 118 00:06:40,440 --> 00:06:42,680 Speaker 1: what some of the senior people. They did just fine, 119 00:06:43,360 --> 00:06:45,960 Speaker 1: right exactly, And this is the story. UM, we hope 120 00:06:46,000 --> 00:06:48,440 Speaker 1: and I think it accomplished this UM you know that 121 00:06:48,560 --> 00:06:51,080 Speaker 1: was looking at accountability, so it really did focus more 122 00:06:51,120 --> 00:06:54,360 Speaker 1: on these senior managers and senior levels of people rather 123 00:06:54,440 --> 00:06:56,760 Speaker 1: than what we already know the company has you know, 124 00:06:56,880 --> 00:07:00,760 Speaker 1: fired these very low level workers. UM. So what we 125 00:07:00,920 --> 00:07:05,720 Speaker 1: essentially chronicled here was really just this generation of executives UM, 126 00:07:05,800 --> 00:07:09,040 Speaker 1: who rose through the ranks even while all of these 127 00:07:09,160 --> 00:07:12,920 Speaker 1: practices were going on. UM. These were very very ambitious people. 128 00:07:13,200 --> 00:07:15,280 Speaker 1: A lot of them came out of California, some of 129 00:07:15,320 --> 00:07:18,440 Speaker 1: them specifically out of southern California, UM, where we already 130 00:07:18,520 --> 00:07:22,840 Speaker 1: know from the Fortums former CEO excuse me, John Stump UM, 131 00:07:22,920 --> 00:07:25,000 Speaker 1: where a lot of these problems were happening. UM, and 132 00:07:25,080 --> 00:07:28,960 Speaker 1: then sort of chronicled the story of these UM Southern 133 00:07:29,000 --> 00:07:32,920 Speaker 1: California and California stars fanning out across the country and 134 00:07:33,080 --> 00:07:36,320 Speaker 1: therefore sort of bringing these sales practices that they had 135 00:07:36,560 --> 00:07:40,440 Speaker 1: you know, come to know and and used um throughout 136 00:07:40,600 --> 00:07:42,760 Speaker 1: their career, you know, to these other places like Florida 137 00:07:42,880 --> 00:07:45,360 Speaker 1: or like Texas. Well, hold on a second, and these 138 00:07:45,800 --> 00:07:48,400 Speaker 1: star managers are they immune at this point. I mean, 139 00:07:48,480 --> 00:07:50,640 Speaker 1: the story seems to suggest that some of them could 140 00:07:51,400 --> 00:07:54,080 Speaker 1: get fired. Still, yes, I mean, I want to be clear. 141 00:07:54,160 --> 00:07:58,600 Speaker 1: In the story, we do name many particular managers. We did, 142 00:07:58,840 --> 00:08:01,720 Speaker 1: um speak to some one who, um we note in 143 00:08:01,760 --> 00:08:04,280 Speaker 1: the story who told us that indeed there are some 144 00:08:04,440 --> 00:08:09,160 Speaker 1: managers that the company executives have already identified to be fired. Um, 145 00:08:09,400 --> 00:08:11,680 Speaker 1: but we don't We're not able to say at this 146 00:08:11,800 --> 00:08:14,480 Speaker 1: point whether those are the same people. So there's gonna 147 00:08:14,480 --> 00:08:16,040 Speaker 1: be clear on that. Well, I'm curious to how this 148 00:08:16,160 --> 00:08:18,280 Speaker 1: all folds. And Elliott, let's bring you in, senior litigation 149 00:08:18,280 --> 00:08:20,920 Speaker 1: analyst at Bloomberg Intelligence, and we're also talking with Laura Keller, 150 00:08:20,960 --> 00:08:23,760 Speaker 1: financial reporter at Bloomberg News. So I saw the headline 151 00:08:23,800 --> 00:08:27,680 Speaker 1: this morning about the SEC investigating the sales practice at 152 00:08:27,720 --> 00:08:30,680 Speaker 1: well before I thought, oh okay, another chapter. What does 153 00:08:30,760 --> 00:08:32,360 Speaker 1: this mean? How does it kind of maybe playing too 154 00:08:32,400 --> 00:08:34,280 Speaker 1: some of what Laura was talking about? Right, Well, it 155 00:08:34,480 --> 00:08:37,680 Speaker 1: just it shows that this continues to be in evolving 156 00:08:37,840 --> 00:08:40,160 Speaker 1: and growing story that the bank is really trying to 157 00:08:40,840 --> 00:08:43,560 Speaker 1: you know, rapids hands and head around and they haven't 158 00:08:43,600 --> 00:08:45,719 Speaker 1: quite yet. It feels like right right, Um, you know, 159 00:08:45,800 --> 00:08:48,800 Speaker 1: I think they've been criticized. Well, it's interesting because the 160 00:08:48,880 --> 00:08:52,040 Speaker 1: SEC investigation. First of all, it's not not really a surprise. 161 00:08:52,440 --> 00:08:55,240 Speaker 1: I mean, how could they not that and not only that, right, 162 00:08:55,280 --> 00:08:57,439 Speaker 1: how could they not after the Department of Justice is 163 00:08:57,480 --> 00:09:00,480 Speaker 1: investigating them? UH, states are invest to gain in them, 164 00:09:00,480 --> 00:09:03,520 Speaker 1: including California. But three U. S. Senators sent the SEC 165 00:09:03,640 --> 00:09:06,920 Speaker 1: a letter saying you should investigate Wells far ago UM. 166 00:09:07,040 --> 00:09:09,720 Speaker 1: And you know, the focus will probably be on whether 167 00:09:10,800 --> 00:09:14,080 Speaker 1: the bank should have disclosed in their filings that they 168 00:09:14,120 --> 00:09:16,559 Speaker 1: were being investigated for these things about the CFPV and 169 00:09:16,600 --> 00:09:20,480 Speaker 1: the o c C. Nothing really was disclosed until the fine, 170 00:09:20,600 --> 00:09:24,000 Speaker 1: the hive million dollar fine in September, even though these 171 00:09:24,040 --> 00:09:27,880 Speaker 1: things have been going on for year years, including lawsuits 172 00:09:28,360 --> 00:09:31,199 Speaker 1: UM and investigations by the City of Los Angeles. I 173 00:09:31,280 --> 00:09:33,719 Speaker 1: want to talk about that. As far as the expense 174 00:09:33,840 --> 00:09:37,120 Speaker 1: of the litigation, you noted that they increase their litigation 175 00:09:37,240 --> 00:09:41,120 Speaker 1: reserves by about seven hundred million dollars UH since the 176 00:09:41,360 --> 00:09:47,120 Speaker 1: first quarter. UM. Is this is this enough? UM? All right? So, 177 00:09:47,120 --> 00:09:50,840 Speaker 1: so today in their filing they disclosed that they're reasonably 178 00:09:50,920 --> 00:09:54,480 Speaker 1: possible litigation costs beyond reserves or one point seven billion 179 00:09:54,520 --> 00:09:58,319 Speaker 1: dollars as of September UM the same number at the 180 00:09:58,440 --> 00:10:01,599 Speaker 1: end of June three. For June thirty was one billion. So, 181 00:10:01,760 --> 00:10:05,560 Speaker 1: like you said, they increased by seven hundred million dollars UM. 182 00:10:07,120 --> 00:10:09,439 Speaker 1: It's unclear whether it will be enough. What's interesting is 183 00:10:10,080 --> 00:10:13,920 Speaker 1: um that it's potentially not the fake account scandal may 184 00:10:13,960 --> 00:10:17,800 Speaker 1: not be even the biggest um litigation cost if they'd 185 00:10:17,800 --> 00:10:20,520 Speaker 1: already we knew they'd already reserved the billion dollars. They're 186 00:10:20,520 --> 00:10:24,200 Speaker 1: still being investigated by the Justice Department's RMBS task Force, 187 00:10:24,720 --> 00:10:27,559 Speaker 1: which has been in the news because of the anticipated 188 00:10:27,600 --> 00:10:31,120 Speaker 1: Deutsche Bank settlement and settlements with other European banks. Wells 189 00:10:31,160 --> 00:10:32,920 Speaker 1: Fargo is one of one of one of the few 190 00:10:33,240 --> 00:10:35,719 Speaker 1: U S banks that still has to settle with that 191 00:10:35,920 --> 00:10:38,360 Speaker 1: task force. Well, go ahead, No, I was wondering the 192 00:10:38,480 --> 00:10:39,959 Speaker 1: lore like in your story, So you think, you know 193 00:10:40,120 --> 00:10:44,280 Speaker 1: you profile, you know, you talk about one individual Kim Young, Um, 194 00:10:44,600 --> 00:10:47,200 Speaker 1: you know who? You know who? Who was I guess 195 00:10:47,240 --> 00:10:50,880 Speaker 1: not senior senior or was she senior? Um? Pretty senior? Yeah. 196 00:10:50,880 --> 00:10:52,160 Speaker 1: I mean most of the people that we talked to 197 00:10:52,280 --> 00:10:55,599 Speaker 1: what they call regional presidents or even beyond that, I 198 00:10:55,679 --> 00:10:59,280 Speaker 1: mean within the retail bank, they're very senior people, um 199 00:10:59,440 --> 00:11:01,520 Speaker 1: just not senior you would think, you know, sea level 200 00:11:01,600 --> 00:11:03,800 Speaker 1: sweet for the whole company. Like, I wonder how much 201 00:11:03,840 --> 00:11:06,760 Speaker 1: of this investigation, whether the SEC and others will eventually 202 00:11:06,840 --> 00:11:08,880 Speaker 1: come back to some of those senior people who were 203 00:11:09,000 --> 00:11:11,199 Speaker 1: rising in the ranks as all of this was going on. 204 00:11:11,360 --> 00:11:14,400 Speaker 1: We know John Stump certainly is gone and has taken 205 00:11:14,440 --> 00:11:16,960 Speaker 1: a fault because of this, but you wonder how much 206 00:11:17,000 --> 00:11:19,360 Speaker 1: we'll trickle down. Coming off the financial crisis, it felt 207 00:11:19,400 --> 00:11:23,120 Speaker 1: like so many financial executives we're not prosecuted at all. 208 00:11:23,360 --> 00:11:25,120 Speaker 1: So I'm just curious if it'll if it will play 209 00:11:25,160 --> 00:11:27,040 Speaker 1: out here. Well, yeah, and I think that's a really 210 00:11:27,120 --> 00:11:28,880 Speaker 1: interesting question. I don't think we know the answer to 211 00:11:28,960 --> 00:11:31,839 Speaker 1: that yet and what authorities themselves will focus on. But 212 00:11:31,920 --> 00:11:33,679 Speaker 1: I think it's very interesting in the story that you know, 213 00:11:33,800 --> 00:11:36,520 Speaker 1: we note that the you know, when you go back 214 00:11:36,559 --> 00:11:39,480 Speaker 1: to these exacts, um, the that have identified people already 215 00:11:39,520 --> 00:11:42,120 Speaker 1: for firings, we we you know, in our story talk 216 00:11:42,200 --> 00:11:44,080 Speaker 1: about how well, actually they don't want to fire them 217 00:11:44,120 --> 00:11:47,679 Speaker 1: yet they're delaying this because they actually want to use 218 00:11:47,800 --> 00:11:49,959 Speaker 1: those people to an aid the investigation. They like that 219 00:11:50,080 --> 00:11:53,120 Speaker 1: inquiry to keep going. So you know, whether that means 220 00:11:53,200 --> 00:11:56,040 Speaker 1: they you know, eventually take the full brunt of us. 221 00:11:56,200 --> 00:11:57,319 Speaker 1: You know, I don't know, We'll have to see what 222 00:11:57,360 --> 00:12:00,319 Speaker 1: the investigation finds. You know, I'm looking at well Frago 223 00:12:00,400 --> 00:12:04,560 Speaker 1: shares right now. Year to date, they're down about thirteen percent. Uh. 224 00:12:04,800 --> 00:12:07,319 Speaker 1: You just have to wonder, given all of this uncertainty, 225 00:12:07,440 --> 00:12:11,240 Speaker 1: given potential turnover in the upper ranks of management that 226 00:12:11,320 --> 00:12:14,080 Speaker 1: are below the sea level suite Laura, like you're talking about, 227 00:12:14,120 --> 00:12:16,640 Speaker 1: you have to wonder, you know, what, what are going 228 00:12:16,720 --> 00:12:18,760 Speaker 1: to be the implications. I mean when you talk to investors, 229 00:12:18,840 --> 00:12:21,400 Speaker 1: what are they say? Yeah, I mean investors. It's funny. 230 00:12:21,480 --> 00:12:23,839 Speaker 1: Originally didn't really worry about this very much because it 231 00:12:23,880 --> 00:12:26,600 Speaker 1: was only million. But if I kind of pick up 232 00:12:26,600 --> 00:12:29,360 Speaker 1: on where you're going, Lisa, if this was so systemic 233 00:12:29,480 --> 00:12:31,640 Speaker 1: to the point, I mean, you know, our story chronicles 234 00:12:31,760 --> 00:12:34,120 Speaker 1: a lot of things here. You know, let's just say 235 00:12:34,200 --> 00:12:36,480 Speaker 1: we we found you know, the bank has around two 236 00:12:37,000 --> 00:12:40,240 Speaker 1: very senior managers. Let's just say, you know, wild guess, 237 00:12:40,280 --> 00:12:42,520 Speaker 1: and this is really based on just you know, hypotheticals. 238 00:12:42,760 --> 00:12:45,959 Speaker 1: What if of those people really had some hand in this? 239 00:12:46,280 --> 00:12:49,080 Speaker 1: Do you fire every single person? How do you actually 240 00:12:50,640 --> 00:12:52,560 Speaker 1: but hold on a second, Elliott, I want just real 241 00:12:52,679 --> 00:12:54,959 Speaker 1: quick and twenty seconds. I mean, what is sort of 242 00:12:55,080 --> 00:12:59,880 Speaker 1: the level of scrutiny that rises to legal accountability here? Well, 243 00:13:00,440 --> 00:13:03,080 Speaker 1: so you're just going back to the share, the share 244 00:13:03,160 --> 00:13:06,600 Speaker 1: losses um that actually goes to the SEC investigation, because 245 00:13:06,880 --> 00:13:09,160 Speaker 1: the issue there is whether it was material to the company. 246 00:13:09,480 --> 00:13:13,319 Speaker 1: You know, two million accounts sounds material um, but a 247 00:13:13,400 --> 00:13:15,440 Speaker 1: hundred and eight five million dollars may not have sounded 248 00:13:15,480 --> 00:13:17,760 Speaker 1: material to Wells Fargo. So that's sort of going to 249 00:13:17,800 --> 00:13:21,800 Speaker 1: be the issue that plays out there, which is exactly well, 250 00:13:21,880 --> 00:13:24,679 Speaker 1: Thank you so much, great conversation Laura Keller with a 251 00:13:24,720 --> 00:13:28,760 Speaker 1: fantastic story on the Bloomberg as well as Elliott Stein, 252 00:13:28,920 --> 00:13:31,360 Speaker 1: senior litigation analyst for Bloomberg Intelligence. Thank you so much 253 00:13:31,480 --> 00:13:33,480 Speaker 1: for being with us. This will be something that probably 254 00:13:33,720 --> 00:13:36,679 Speaker 1: will keep our attention for quite a few months to come, 255 00:13:36,760 --> 00:13:39,240 Speaker 1: so we'll keep an eye on it. Wells Fargo shares 256 00:13:39,559 --> 00:13:42,600 Speaker 1: slightly up, but overall this year they've been they've been 257 00:13:42,600 --> 00:13:53,000 Speaker 1: down quite a bit. This is Bloomberg right now, though, 258 00:13:53,000 --> 00:13:54,640 Speaker 1: we want to go back to some news we got 259 00:13:54,679 --> 00:13:57,319 Speaker 1: out of the UK this morning. A panel of London 260 00:13:57,400 --> 00:14:00,560 Speaker 1: judges deciding that the UK must hold a vote Parliament 261 00:14:00,880 --> 00:14:03,880 Speaker 1: before starting the two year countdown to Brexit. Let's talk 262 00:14:03,920 --> 00:14:07,240 Speaker 1: about what the implications of that decision, that legal decision, 263 00:14:07,760 --> 00:14:11,360 Speaker 1: what it all means. Kit Hillela's legal reporter at Bloomberg News, 264 00:14:11,760 --> 00:14:14,320 Speaker 1: was at the UK Supreme Court in London earlier today 265 00:14:14,320 --> 00:14:17,440 Speaker 1: and joins us from London at this hour. A Kit, 266 00:14:17,559 --> 00:14:20,000 Speaker 1: nice to have you here with Lisa and myself. So 267 00:14:20,240 --> 00:14:25,520 Speaker 1: what does this mean, Hi, Carol? What does it mean? Well, 268 00:14:25,680 --> 00:14:27,880 Speaker 1: the most important thing to remember is that this was 269 00:14:28,040 --> 00:14:32,680 Speaker 1: round one of a legal fight. Um. The government has 270 00:14:32,880 --> 00:14:36,680 Speaker 1: lost today, but it will be very quickly appealed to 271 00:14:36,720 --> 00:14:40,160 Speaker 1: the Supreme Court, who will ultimately have the final say 272 00:14:40,280 --> 00:14:44,760 Speaker 1: on this case. Okay, so um, But the markets are responding. 273 00:14:44,840 --> 00:14:46,480 Speaker 1: So it seems to indicate I mean there is some 274 00:14:46,600 --> 00:14:48,960 Speaker 1: significance here in that it's not going to be an 275 00:14:49,040 --> 00:14:54,040 Speaker 1: easy resolution, right, I mean even the Supreme Court how 276 00:14:54,080 --> 00:14:56,960 Speaker 1: long that will take a while? Right. Well, what they've 277 00:14:56,960 --> 00:14:59,680 Speaker 1: done is because because it's such an important question, they 278 00:15:00,040 --> 00:15:03,520 Speaker 1: us tracted. So the Supreme Court will hear the case quickly, um, 279 00:15:04,120 --> 00:15:06,640 Speaker 1: maybe as soon as December, and will probably make a 280 00:15:06,720 --> 00:15:10,840 Speaker 1: decision by January. UM. I guess the significance is that 281 00:15:11,040 --> 00:15:14,280 Speaker 1: if the Supreme Court agrees with the decision today and 282 00:15:14,360 --> 00:15:16,760 Speaker 1: there has to be a vote in parliament. That makes 283 00:15:16,800 --> 00:15:20,640 Speaker 1: it difficult for Thereason May to do a fast, hard Brexit, 284 00:15:20,760 --> 00:15:22,760 Speaker 1: which is what she wanted to do. It means they'll 285 00:15:22,760 --> 00:15:25,160 Speaker 1: have to consult Parliament, They'll have to be a vote. 286 00:15:25,160 --> 00:15:27,200 Speaker 1: It's going to take some time, it's going to be difficult, 287 00:15:27,480 --> 00:15:29,960 Speaker 1: and it's certainly going to going to affect the timetable. Okay, 288 00:15:30,000 --> 00:15:31,360 Speaker 1: And that's what I wanted to know. What were the 289 00:15:31,440 --> 00:15:34,400 Speaker 1: implications of having now the Parliament If it stays that 290 00:15:34,520 --> 00:15:37,320 Speaker 1: they have to vote you mentioned speed, that it's going 291 00:15:37,360 --> 00:15:39,880 Speaker 1: to slow down the process. If Thereason May was trying 292 00:15:39,920 --> 00:15:42,160 Speaker 1: to go much more quickly with this, and that they've 293 00:15:42,160 --> 00:15:45,360 Speaker 1: got a potentially consult parliament, what does that mean though? Then, 294 00:15:45,400 --> 00:15:48,320 Speaker 1: in terms of what a Brexit might ultimately look like. 295 00:15:49,480 --> 00:15:52,720 Speaker 1: I think most people accept that Parliament isn't going to 296 00:15:52,840 --> 00:15:55,680 Speaker 1: block Article fifty being triggered. It's not going to block 297 00:15:55,760 --> 00:15:58,880 Speaker 1: a Brexit, but Parliament wants to have a say in 298 00:15:59,000 --> 00:16:01,600 Speaker 1: how any deal will look and that makes it difficult 299 00:16:01,600 --> 00:16:04,600 Speaker 1: for the reason May. She has to go to negotiate 300 00:16:04,720 --> 00:16:07,640 Speaker 1: with other European nations about the terms of Britain's exit. 301 00:16:08,040 --> 00:16:09,840 Speaker 1: Now she has to go and do that with a 302 00:16:09,880 --> 00:16:12,680 Speaker 1: bunch of conditions from British lawmakers. That makes her job 303 00:16:12,720 --> 00:16:15,680 Speaker 1: a bit harder. Well, you know, I've got to I'm 304 00:16:15,680 --> 00:16:18,440 Speaker 1: a little confused. Can you help me out here? The 305 00:16:18,480 --> 00:16:21,440 Speaker 1: British on a lot of levels, but you know one 306 00:16:21,440 --> 00:16:24,400 Speaker 1: in particular, the British pound. You know, it gained on 307 00:16:25,000 --> 00:16:29,400 Speaker 1: the news, it gained quite a bit relative to recent history. Um. 308 00:16:30,280 --> 00:16:33,960 Speaker 1: I'm wondering whether this is a realistic kind of collective 309 00:16:34,320 --> 00:16:38,760 Speaker 1: effects cheering, or whether people are kind of uh getting 310 00:16:38,760 --> 00:16:41,400 Speaker 1: a little bit lost in the weeds here, because realistically 311 00:16:41,520 --> 00:16:44,480 Speaker 1: this just sort of creates more uncertainty, which could potentially 312 00:16:44,520 --> 00:16:49,400 Speaker 1: be negative for the economy. Right, Am I missing something here? No, 313 00:16:49,920 --> 00:16:53,120 Speaker 1: it's a fair point. It is. It is confusing, I think. 314 00:16:53,160 --> 00:16:55,760 Speaker 1: I think a lot of people are confused, especially even 315 00:16:55,800 --> 00:16:59,960 Speaker 1: legal reporters are confused by it. Um. I think traders 316 00:17:00,080 --> 00:17:02,760 Speaker 1: looking for any any sort of move that is going 317 00:17:02,800 --> 00:17:05,280 Speaker 1: to affect the Brexit timetable, and they're looking to trade 318 00:17:05,320 --> 00:17:08,159 Speaker 1: off any information. So in the middle of the trial, 319 00:17:08,560 --> 00:17:10,720 Speaker 1: the government's lawyers made a what I thought was quite 320 00:17:10,720 --> 00:17:12,960 Speaker 1: an obvious statement that they would have to be a 321 00:17:13,040 --> 00:17:16,240 Speaker 1: vote in Parliament eventually on whatever deal was reached. And 322 00:17:16,520 --> 00:17:19,160 Speaker 1: you know that news sent a pound up half a percent. 323 00:17:19,359 --> 00:17:21,680 Speaker 1: That's ridiculous. Of course they would have to vote on it. 324 00:17:22,600 --> 00:17:24,640 Speaker 1: So so so people are looking for any sort of news, 325 00:17:24,640 --> 00:17:26,520 Speaker 1: any indication of how long this is going to take. 326 00:17:27,040 --> 00:17:29,320 Speaker 1: And it is worth remembering that this legal. You know 327 00:17:29,440 --> 00:17:33,600 Speaker 1: that a potential, although very unlikely, outcome of this process 328 00:17:34,119 --> 00:17:37,040 Speaker 1: is that it makes Brexit impossible or too difficult, or 329 00:17:37,119 --> 00:17:38,960 Speaker 1: delays it for such a long period of time that 330 00:17:39,119 --> 00:17:41,840 Speaker 1: things change and maybe people are sort of trading on 331 00:17:41,920 --> 00:17:44,639 Speaker 1: that remote possibility. All right, so what's the next step. 332 00:17:46,119 --> 00:17:47,800 Speaker 1: The next step is that the government has said it's 333 00:17:47,800 --> 00:17:49,920 Speaker 1: going to appeal to the Supreme Court in the UK, 334 00:17:50,080 --> 00:17:53,200 Speaker 1: which is the highest court. That will happen very quickly 335 00:17:53,320 --> 00:17:55,320 Speaker 1: and we'll have a rerun of all the arguments from 336 00:17:55,400 --> 00:17:58,520 Speaker 1: both sides. The Supreme Court has a roughly fifty fifty 337 00:17:58,680 --> 00:18:03,240 Speaker 1: track record of allowing appeals or dismissing them, so you know, 338 00:18:03,359 --> 00:18:04,920 Speaker 1: you could make an argument that the government has a 339 00:18:05,000 --> 00:18:07,200 Speaker 1: has a fighting chance of winning at the highest courts, 340 00:18:07,720 --> 00:18:10,400 Speaker 1: and then the Supreme Court will make their decision in January. Okay, 341 00:18:10,440 --> 00:18:14,080 Speaker 1: So I'm looking up with the average hourly fee is 342 00:18:14,440 --> 00:18:18,560 Speaker 1: for lawyers in Britain, and it sounds like on average 343 00:18:18,600 --> 00:18:20,640 Speaker 1: it's about a hundred pounds an hour, which I guess 344 00:18:21,720 --> 00:18:24,399 Speaker 1: can be less than here, um, based on where the 345 00:18:24,440 --> 00:18:26,840 Speaker 1: pound is versus the dollar. But I mean, who's incurring 346 00:18:26,880 --> 00:18:30,399 Speaker 1: all of these legal fees? Um? Yeah, I think the 347 00:18:30,480 --> 00:18:32,040 Speaker 1: lawyers in this case are earning more than a hundred 348 00:18:32,080 --> 00:18:35,760 Speaker 1: pounds an hour. I would, I would think so. But 349 00:18:35,880 --> 00:18:39,120 Speaker 1: this is this isn't going to be inexpensive yet. Yes, 350 00:18:39,680 --> 00:18:43,400 Speaker 1: it is expensive to run these these cases in this country. 351 00:18:43,760 --> 00:18:46,680 Speaker 1: If you win your case, Um, the other side pays 352 00:18:46,760 --> 00:18:49,760 Speaker 1: your legal costs. So as of right now, the claimants 353 00:18:49,800 --> 00:18:52,600 Speaker 1: of one and the government will have to pay for everything. Um. 354 00:18:52,880 --> 00:18:56,200 Speaker 1: But is it is that the government versus the government here? No, 355 00:18:56,400 --> 00:18:58,760 Speaker 1: The claimants are a range of different people who have 356 00:18:58,840 --> 00:19:03,040 Speaker 1: an interest into laying or stopping Brexit. One of them 357 00:19:03,080 --> 00:19:06,159 Speaker 1: is Gina Miller. She's a she's an investment worker who 358 00:19:06,280 --> 00:19:08,919 Speaker 1: was sort of voted to remain in the EU. There 359 00:19:08,960 --> 00:19:13,080 Speaker 1: are various expat Brits living abroad. They're a diverse bunch 360 00:19:13,119 --> 00:19:15,720 Speaker 1: of people. Um. A few of the lawyers are acting 361 00:19:15,760 --> 00:19:18,240 Speaker 1: pro bono that they're doing it for free and you 362 00:19:18,280 --> 00:19:21,000 Speaker 1: know they've also raised funds using crowdfunding to pay for 363 00:19:21,080 --> 00:19:23,960 Speaker 1: this because there's obviously there's a there's popular support in 364 00:19:24,000 --> 00:19:26,040 Speaker 1: the UK for the idea of there being a vote 365 00:19:26,080 --> 00:19:30,440 Speaker 1: in Parliament about Brexit. That's amazing crowdfunded legal costs web business. 366 00:19:30,480 --> 00:19:33,240 Speaker 1: We did a story though about like the one, you know, 367 00:19:33,320 --> 00:19:35,520 Speaker 1: kind of jobs that will actually benefit because of Brexit. 368 00:19:35,560 --> 00:19:38,080 Speaker 1: They talked to think about the legal community in particular, 369 00:19:38,760 --> 00:19:42,439 Speaker 1: certainly in the short run. Kitchell, thank you so much 370 00:19:42,440 --> 00:19:46,600 Speaker 1: for joining us. It's really fascinating legal proceeding. Kitchell, legal 371 00:19:46,640 --> 00:19:50,560 Speaker 1: reporter for Bloomberg in London, talking about what's going on 372 00:19:50,840 --> 00:19:53,600 Speaker 1: with the Brexit vote and whether or not it can 373 00:19:53,640 --> 00:19:57,320 Speaker 1: be a fast, quick, easy clean Brexit sounds like not 374 00:19:57,520 --> 00:20:08,919 Speaker 1: so much. We'll stick with that though. This is berk Um. 375 00:20:09,000 --> 00:20:11,560 Speaker 1: I want to bring in, uh, somebody who can talk 376 00:20:11,600 --> 00:20:14,600 Speaker 1: to us a little bit about, uh, what's going on 377 00:20:14,880 --> 00:20:18,000 Speaker 1: with these smaller companies that perhaps people are looking over 378 00:20:18,520 --> 00:20:22,880 Speaker 1: as they rush to uh the stock markets. I want 379 00:20:22,920 --> 00:20:25,600 Speaker 1: to thank you very much for coming in. John Campbell, 380 00:20:25,680 --> 00:20:29,960 Speaker 1: chief investment officer of Cornerstone Investment Partners. Uh, so what 381 00:20:30,200 --> 00:20:33,680 Speaker 1: are you looking at? I mean, you focus on the smaller, less, 382 00:20:34,400 --> 00:20:37,040 Speaker 1: less less popular stocks. Which ones do you think are 383 00:20:37,040 --> 00:20:39,920 Speaker 1: the best best right now? Well, our approaches to look 384 00:20:39,960 --> 00:20:42,359 Speaker 1: at the overall market and try and find companies that 385 00:20:42,440 --> 00:20:45,400 Speaker 1: have improving fundamentals, and we try to take the risk 386 00:20:45,440 --> 00:20:47,879 Speaker 1: out of buying small cap stocks by buying companies that 387 00:20:48,000 --> 00:20:50,840 Speaker 1: have free cash flow so they can cover their debts 388 00:20:50,880 --> 00:20:52,680 Speaker 1: in the near term to cover their capex in the 389 00:20:52,760 --> 00:20:57,080 Speaker 1: near time, have tangible assets. These small small cap asset 390 00:20:57,160 --> 00:21:00,600 Speaker 1: classes an excellent class. If you look back nine the years, 391 00:21:01,119 --> 00:21:04,840 Speaker 1: the returns on small cap have greatly outperformed other classes. 392 00:21:05,040 --> 00:21:08,760 Speaker 1: For example, you can versus large cap stocks. Small cap 393 00:21:08,840 --> 00:21:11,399 Speaker 1: stocks have done about twelve on average over that period, 394 00:21:11,440 --> 00:21:13,920 Speaker 1: in large cap stocks have done closer to ten percent. 395 00:21:14,040 --> 00:21:16,960 Speaker 1: So a two percent advantage over ninety years is a 396 00:21:17,040 --> 00:21:20,960 Speaker 1: dramatic difference. The problem is you have a strong stomach 397 00:21:20,960 --> 00:21:22,879 Speaker 1: that for small caps it can be really volatile. You 398 00:21:22,960 --> 00:21:24,880 Speaker 1: could you have to have a strong stomach, and they're 399 00:21:24,960 --> 00:21:27,680 Speaker 1: much more volatile than large cap stocks. That's exactly right. 400 00:21:27,840 --> 00:21:30,200 Speaker 1: So if you want to get exposure of this class, 401 00:21:30,200 --> 00:21:31,440 Speaker 1: and we think it's a good idea to do it 402 00:21:31,480 --> 00:21:34,920 Speaker 1: because of the higher historic returns, you have to do 403 00:21:35,040 --> 00:21:36,760 Speaker 1: things to mitigate the risks so that you can make 404 00:21:36,800 --> 00:21:38,480 Speaker 1: it something you can live with and you can stomach. 405 00:21:38,520 --> 00:21:41,480 Speaker 1: As you say, so, by doing things like looking for 406 00:21:41,600 --> 00:21:43,760 Speaker 1: companies that are financially sound, we think we can take 407 00:21:43,760 --> 00:21:46,080 Speaker 1: a little bit of that edge off, and also by diversifying. 408 00:21:46,160 --> 00:21:47,560 Speaker 1: So let me ask you what does it mean now? 409 00:21:47,600 --> 00:21:50,000 Speaker 1: I was looking at the small cap index and we 410 00:21:50,280 --> 00:21:53,040 Speaker 1: broke it down too early. With Davi Wilson, brook Stocks columnist, 411 00:21:53,119 --> 00:21:55,360 Speaker 1: small caps are at roughly two point six percent this year. 412 00:21:55,600 --> 00:21:57,800 Speaker 1: I look at S and P five hundred, the large 413 00:21:57,880 --> 00:22:00,439 Speaker 1: caps up about two point eight percent, pretty mu almost 414 00:22:00,480 --> 00:22:03,080 Speaker 1: on par with one another. Mid caps have done really 415 00:22:03,160 --> 00:22:07,120 Speaker 1: well this year six percent. So in that kind of perspective, 416 00:22:07,720 --> 00:22:09,720 Speaker 1: when we see that kind of correlation with large caps, 417 00:22:09,720 --> 00:22:12,480 Speaker 1: does it tell you anything, Well, they took different paths 418 00:22:12,560 --> 00:22:14,560 Speaker 1: to get there, so it's it can be sometimes just 419 00:22:14,680 --> 00:22:17,840 Speaker 1: largely coincidental. Numbers are so close. For example, if you 420 00:22:17,960 --> 00:22:21,359 Speaker 1: broke down small cap into say growth small cap and 421 00:22:21,560 --> 00:22:25,000 Speaker 1: value small cap, you have dramatically different numbers. Value small 422 00:22:25,080 --> 00:22:27,800 Speaker 1: cap stocks have done over ten percent this year, and 423 00:22:27,880 --> 00:22:30,760 Speaker 1: growth small cap have done closer to one percent. The 424 00:22:31,160 --> 00:22:33,720 Speaker 1: Russell two thousand, which has a blend of all is 425 00:22:33,760 --> 00:22:36,880 Speaker 1: around the number you said, so it looks like maybe 426 00:22:36,880 --> 00:22:39,280 Speaker 1: a similar to large cap. But I mean the charts 427 00:22:39,320 --> 00:22:41,920 Speaker 1: are almost you know, we've really seen the market kind 428 00:22:41,920 --> 00:22:43,880 Speaker 1: of move, at least certainly the smart than the large 429 00:22:43,880 --> 00:22:45,800 Speaker 1: cap universe kind of move in tandem this year. And 430 00:22:45,840 --> 00:22:48,359 Speaker 1: there and there are and there are some elements that 431 00:22:48,440 --> 00:22:49,920 Speaker 1: are going on that are a little bit unique to 432 00:22:49,960 --> 00:22:54,560 Speaker 1: this time in history. The passive investment craze has become huge, 433 00:22:54,640 --> 00:22:56,840 Speaker 1: and so you tend to get a lot of indexes 434 00:22:56,880 --> 00:23:00,119 Speaker 1: and stocks moving in concert with each other. I think 435 00:23:00,200 --> 00:23:02,120 Speaker 1: this is something that happens from time to time where 436 00:23:02,160 --> 00:23:05,639 Speaker 1: you get these cycles, especially now, and we manage an 437 00:23:05,640 --> 00:23:08,200 Speaker 1: active e t F, there are a lot of passive 438 00:23:08,240 --> 00:23:10,320 Speaker 1: e t f s, and those passive ETFs are buying 439 00:23:10,359 --> 00:23:12,680 Speaker 1: the market. So whatever you buy one, you get everything, 440 00:23:12,760 --> 00:23:14,200 Speaker 1: and so they tend to push them together, you know. 441 00:23:14,240 --> 00:23:16,240 Speaker 1: I I wanted to bring that up. Um. You know, 442 00:23:16,359 --> 00:23:18,800 Speaker 1: there's been a sort of controversy behind e t f 443 00:23:18,880 --> 00:23:21,720 Speaker 1: s and actively managed the tfs in particular, especially those 444 00:23:21,840 --> 00:23:24,840 Speaker 1: that invest in less liquid assets. I mean, small caps 445 00:23:24,880 --> 00:23:28,119 Speaker 1: aren't exactly a liquid but they can be a lot 446 00:23:28,240 --> 00:23:31,760 Speaker 1: less traded than bigger stocks. I mean, how much of 447 00:23:31,760 --> 00:23:34,879 Speaker 1: a concern is liquidity for you, Well, we build a 448 00:23:34,920 --> 00:23:38,480 Speaker 1: portfolio of two forty stocks, so when an investor invest 449 00:23:38,560 --> 00:23:40,720 Speaker 1: with us, it's spread out of a lot of stocks 450 00:23:40,760 --> 00:23:42,760 Speaker 1: and we take care of a lot of the liquidity 451 00:23:42,800 --> 00:23:45,360 Speaker 1: issues that way. Also we're taking out the bottom part 452 00:23:45,720 --> 00:23:48,960 Speaker 1: of the liquidity UH spectrum and saying those maybe a 453 00:23:49,000 --> 00:23:50,760 Speaker 1: little bit too a liquids. We're playing in a little 454 00:23:50,760 --> 00:23:53,959 Speaker 1: bit larger space. In general, the companies were buying are 455 00:23:54,200 --> 00:23:59,119 Speaker 1: our companies that have solid fundamentals UH in improving fundamentals. 456 00:23:59,320 --> 00:24:02,719 Speaker 1: They also have free cash flow to cover their obligations, 457 00:24:02,760 --> 00:24:04,280 Speaker 1: so that takes a lot of the risk out. If 458 00:24:04,280 --> 00:24:05,920 Speaker 1: you just look at companies free cash when compared it 459 00:24:05,960 --> 00:24:09,399 Speaker 1: to their interest payments do and their capital expenditures do 460 00:24:09,680 --> 00:24:11,359 Speaker 1: and you can cover that for a year, that's a 461 00:24:11,400 --> 00:24:14,119 Speaker 1: pretty good gauge that that these stocks are. Okay, I'm 462 00:24:14,119 --> 00:24:15,600 Speaker 1: thinking about you know, at least when I'm with Corey, 463 00:24:15,600 --> 00:24:17,879 Speaker 1: I mean Corey Johnson, that's one of his favorite metrics. 464 00:24:17,920 --> 00:24:20,600 Speaker 1: I think looking at free cash flow essentially has means 465 00:24:20,640 --> 00:24:22,440 Speaker 1: that they've got the money to cover the cost of 466 00:24:22,520 --> 00:24:24,880 Speaker 1: their business and then some sure, if you're just trying 467 00:24:24,960 --> 00:24:26,760 Speaker 1: to get exposure to this space, but you don't want 468 00:24:26,760 --> 00:24:28,159 Speaker 1: to take all the risks they're one of the big 469 00:24:28,280 --> 00:24:30,480 Speaker 1: risk is a lot of these companies, especially when it 470 00:24:30,520 --> 00:24:33,560 Speaker 1: comes to accounting. Uh. The earnings can be you know, 471 00:24:34,320 --> 00:24:36,440 Speaker 1: they can be moved around and their the opinion of 472 00:24:36,440 --> 00:24:38,080 Speaker 1: the management. But cash flow it's hard to fool the 473 00:24:38,119 --> 00:24:40,399 Speaker 1: cash flow numbers well. And and one thing that that 474 00:24:40,520 --> 00:24:42,720 Speaker 1: leads into is leverage. And we've heard a lot about 475 00:24:42,760 --> 00:24:44,919 Speaker 1: how companies are borrowing as quickly as they possibly can 476 00:24:45,000 --> 00:24:47,399 Speaker 1: so that they can take advantage of these incredibly low 477 00:24:47,480 --> 00:24:49,280 Speaker 1: borrowing costs. I mean, how much of a concern is 478 00:24:49,320 --> 00:24:51,760 Speaker 1: that to you as you run your analyzes of companies. Yeah, 479 00:24:52,200 --> 00:24:55,440 Speaker 1: it's uh, it's of some concern. Our portfolio generally has 480 00:24:55,560 --> 00:24:59,159 Speaker 1: much lower leverage than the overall market, so uh, you know, 481 00:24:59,240 --> 00:25:02,280 Speaker 1: companies that are highly leveraged could be uh, could have 482 00:25:02,320 --> 00:25:04,440 Speaker 1: a more difficult time. There's been a lot of bankruptcies, 483 00:25:04,480 --> 00:25:06,880 Speaker 1: for example in the energy space. But some of these 484 00:25:06,880 --> 00:25:10,000 Speaker 1: companies can't cover their obligations. That's almost the definition about 485 00:25:10,000 --> 00:25:12,840 Speaker 1: bankruptcy is you can't meet your near term interest payments 486 00:25:12,880 --> 00:25:15,399 Speaker 1: and debt payments. So the companies were buying don't have 487 00:25:15,520 --> 00:25:17,879 Speaker 1: that issue. They can cover their cash cover with or 488 00:25:17,920 --> 00:25:21,199 Speaker 1: cash flow the interest and uh principal payments under debt. Hey, 489 00:25:21,200 --> 00:25:23,440 Speaker 1: I'm gonna ask you about two names that um you 490 00:25:23,760 --> 00:25:25,480 Speaker 1: wanted to come in and talk about. UM. One is 491 00:25:25,600 --> 00:25:28,480 Speaker 1: Grand Canyon Education tickers l o PE stocks up about 492 00:25:28,520 --> 00:25:31,440 Speaker 1: se so far, uh this year, it's hitting a fifty 493 00:25:31,440 --> 00:25:34,240 Speaker 1: two week high today. Drew Industries is another tickers d 494 00:25:34,520 --> 00:25:37,679 Speaker 1: W that stucks up forty one so far this year. 495 00:25:37,720 --> 00:25:40,719 Speaker 1: I'm curious when did you buy these or I'm assuming 496 00:25:40,720 --> 00:25:43,520 Speaker 1: you're not chasing a performance here. Well, we're not chasing performance. 497 00:25:43,560 --> 00:25:46,320 Speaker 1: We've owned these these companies for some time now, what's sometime? 498 00:25:46,640 --> 00:25:50,600 Speaker 1: Uh for several months? Uh so uh, you know, Drew, 499 00:25:50,640 --> 00:25:52,359 Speaker 1: you know we can buy it. We were having. The 500 00:25:52,480 --> 00:25:55,040 Speaker 1: fund is new to right, Well, the e t F 501 00:25:55,280 --> 00:25:57,639 Speaker 1: was launched in July. But let's keep in mind we've 502 00:25:57,680 --> 00:26:00,240 Speaker 1: been running the strategy for over four years and we 503 00:26:00,560 --> 00:26:02,520 Speaker 1: we poured it in, actually the track record into this 504 00:26:02,600 --> 00:26:05,560 Speaker 1: active ETF, and we are the first of that kind. 505 00:26:05,680 --> 00:26:08,560 Speaker 1: Nobody has ever ported separately managed account track record into 506 00:26:08,560 --> 00:26:10,000 Speaker 1: an e t F before. So we feel like we're 507 00:26:10,000 --> 00:26:11,960 Speaker 1: a bit, along with Advisor Shares, a bit of a 508 00:26:12,000 --> 00:26:14,679 Speaker 1: trailblazer in that regard, what's your biggest contrarian bet right now? 509 00:26:15,280 --> 00:26:17,840 Speaker 1: Our biggest contrarian bet is we have we're low on 510 00:26:17,960 --> 00:26:21,159 Speaker 1: financials right now, and I think maybe there's some sentiment 511 00:26:21,200 --> 00:26:23,639 Speaker 1: towards buying financials because they're so cheap. But a lot 512 00:26:23,720 --> 00:26:26,520 Speaker 1: of the financials that are in the small cap arena 513 00:26:26,600 --> 00:26:28,840 Speaker 1: are regional banks. Some of those regional banks are struggling 514 00:26:28,880 --> 00:26:30,639 Speaker 1: with the current interest rate environment. Do you think that 515 00:26:30,680 --> 00:26:32,200 Speaker 1: we're going to see some kind of recession in the 516 00:26:32,280 --> 00:26:33,800 Speaker 1: next year or so, or do you think that we're 517 00:26:33,960 --> 00:26:35,520 Speaker 1: going to kind of chuck along for all? That's a 518 00:26:35,760 --> 00:26:37,520 Speaker 1: that's a that's a good question. We try not to 519 00:26:37,600 --> 00:26:40,200 Speaker 1: forecast things like that, because but is that is it 520 00:26:40,400 --> 00:26:43,440 Speaker 1: essential if you're gonna be looking at well, we buy 521 00:26:43,520 --> 00:26:46,200 Speaker 1: companies that we we like, and uh, you know, you 522 00:26:46,240 --> 00:26:49,359 Speaker 1: can't forecast things like interest rates or elections or brexits. 523 00:26:50,119 --> 00:26:53,000 Speaker 1: But uh, you know, right now the economy is seased 524 00:26:53,000 --> 00:26:55,600 Speaker 1: to be doing just okay. And uh, I think of 525 00:26:55,640 --> 00:26:58,080 Speaker 1: the Federal Reserve is scheduling, and I think there's a 526 00:26:58,119 --> 00:27:01,520 Speaker 1: seventy percent chance or se kind of which priced in 527 00:27:01,600 --> 00:27:03,840 Speaker 1: is a chance that they will raise rates the next 528 00:27:03,920 --> 00:27:07,360 Speaker 1: goal around which means that they feel like the economy 529 00:27:07,520 --> 00:27:09,720 Speaker 1: is strong enough that they can do that without without 530 00:27:09,760 --> 00:27:12,320 Speaker 1: damaging too much. John Campbell, thank you so much for 531 00:27:12,400 --> 00:27:16,280 Speaker 1: joining us. John Campbell, Chief investment Officer, Cornerstone Investment Partners, 532 00:27:16,560 --> 00:27:19,560 Speaker 1: covering earnings and the outlook for small cap stocks. Thank 533 00:27:19,600 --> 00:27:27,840 Speaker 1: you so much for joining us. Thanks for listening to 534 00:27:27,880 --> 00:27:30,840 Speaker 1: the Bloomberg P and L podcast. You can subscribe and 535 00:27:30,960 --> 00:27:35,920 Speaker 1: listen to interviews at iTunes, SoundCloud, or whatever podcast platform 536 00:27:36,119 --> 00:27:38,800 Speaker 1: you prefer. I'm pim Fox. I'm out there on Twitter 537 00:27:38,960 --> 00:27:42,640 Speaker 1: at pim Fox. I'm out there on Twitter at Lisa Abramo. 538 00:27:42,760 --> 00:27:45,359 Speaker 1: It's one before the podcast. You can always catch us 539 00:27:45,480 --> 00:27:47,000 Speaker 1: worldwide on Bloomberg Radio