WEBVTT - Fed 'Takes Back' Last Year's Hike: Invesco's Hooper 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:24.840 at Bloomberg dot com. Well, it certainly was a news 0:00:24.920 --> 0:00:28.840 filled afternoon yesterday with the FED cutting rates by twenty 0:00:28.920 --> 0:00:31.639 five basis points, and then the Q and a and 0:00:31.720 --> 0:00:35.400 presentation by Chairman Pal which calls I think some uncertainty 0:00:35.400 --> 0:00:37.720 with many investors in the marketplace to try to make 0:00:37.760 --> 0:00:40.520 sense of it. We welcome our next guest, Christina Hooper. 0:00:40.960 --> 0:00:44.880 Christina is a chief global market strategist for Investco based 0:00:44.920 --> 0:00:47.519 here in York. Christina, you're joining us here on Bloomberg 0:00:47.520 --> 0:00:50.120 Interactor Broker Studio. It's great to see you. What were 0:00:50.159 --> 0:00:54.440 your takeaways yesterday from yesterday's testimony and Q and a 0:00:54.560 --> 0:00:57.880 and all that. Well, there are a few key takeaways Paul. 0:00:58.080 --> 0:01:01.480 First of all, it seems that the narrative is that 0:01:01.640 --> 0:01:05.440 the last rate hike of two thousand eighteen was a mistake, 0:01:05.840 --> 0:01:09.160 and we're giving that back, um, but that it doesn't 0:01:09.200 --> 0:01:13.399 necessarily mean we're going to see any series of rate 0:01:13.480 --> 0:01:17.399 cuts from here. Maybe one war. But J. Powell was 0:01:17.560 --> 0:01:21.240 very clear and suggesting that this is an adjustment, not 0:01:21.400 --> 0:01:24.800 a trend, and so that speaks volumes, but it does 0:01:24.880 --> 0:01:28.200 also cause confusion in markets. I think the other key 0:01:28.240 --> 0:01:32.240 takeaway was that the FET is confused because there are 0:01:32.319 --> 0:01:36.520 so many different data points swirling around that suggests different things. 0:01:36.600 --> 0:01:41.920 The dichotomy in the US economy strengthen the consumer, strengthened services, 0:01:41.959 --> 0:01:45.560 but of course weakness in manufacturing, which really mirrors what 0:01:45.600 --> 0:01:50.360 we're seeing globally. Um. Also just in general, we're seeing 0:01:50.360 --> 0:01:53.080 a strong domestic economy for the most part, but we 0:01:53.160 --> 0:01:56.440 have to worry about trade wars, and really there is 0:01:56.480 --> 0:02:00.000 no playbook for trade wars. So a lot of people 0:02:00.160 --> 0:02:04.680 said the VODO reserved disappointed markets. Yesterday you did see 0:02:04.720 --> 0:02:07.600 US so often equities a bit of a sell often bonds. 0:02:07.960 --> 0:02:10.520 Today we're seeing bonds rally and we're seeing two year 0:02:10.560 --> 0:02:13.800 yields come in uh the most in a couple of weeks. 0:02:14.120 --> 0:02:17.240 I'm trying to figure this out. Why. Well, I think 0:02:17.280 --> 0:02:22.280 there's always that visceral knee jerk reaction, and then markets 0:02:22.360 --> 0:02:26.840 take time to digest information, so they didn't necessarily get 0:02:26.919 --> 0:02:29.960 what they wanted from the press conference. They seemed to 0:02:29.960 --> 0:02:33.079 get what they wanted from the actual decision, but stock 0:02:33.160 --> 0:02:36.120 started to go down when the press conference occurred, and 0:02:36.200 --> 0:02:39.000 so it seems as though they were left feeling a 0:02:39.000 --> 0:02:42.519 little empty. Because J. Powell UM insisted that this is 0:02:42.600 --> 0:02:45.119 more of an adjustment rather than a trent. I say, 0:02:45.160 --> 0:02:47.800 this feels like a relationship. You know, they wanted to 0:02:47.800 --> 0:02:51.920 hear more, something more, what's what's the future? Well, it 0:02:52.000 --> 0:02:57.280 is a relationship. Uh And and luckily though, um J. 0:02:57.480 --> 0:03:00.919 Powell has colleagues on the FED, and so most likely 0:03:00.960 --> 0:03:03.160 we're going to see Vice Chair Clara to come out 0:03:03.280 --> 0:03:07.560 and clean up some of the comments and comfort markets. Um, 0:03:07.639 --> 0:03:11.359 this is a relationship. So, Christina, is there anything that 0:03:11.639 --> 0:03:15.600 happened yesterday or that will change how you guys view 0:03:15.880 --> 0:03:18.440 the marketplace? Maybe? How yet, allocating some capital for the 0:03:18.440 --> 0:03:22.359 remainder of the year, anything changed from yesterday? Nothing really changes, 0:03:22.639 --> 0:03:25.600 but it does suggest that we are likely to see 0:03:25.760 --> 0:03:30.840 more dollar strength um, and that really the FED has 0:03:31.000 --> 0:03:35.320 paved the way for other central banks to start getting 0:03:35.360 --> 0:03:41.800 more accommodative, so UM on the margins, though really not 0:03:42.000 --> 0:03:45.880 a lot of change UM, just I would expect that 0:03:46.040 --> 0:03:49.600 stronger dollar. I would expect UM something of a tilt 0:03:49.880 --> 0:03:55.200 towards UH risk assets performing well in environment where the 0:03:55.280 --> 0:03:58.920 Fed stands ready to be more accommodative if it needs to. 0:03:59.280 --> 0:04:02.880 UM certainly, and balance sheet normalization a bit early was 0:04:02.920 --> 0:04:05.320 a nod to the doves. So I think this is 0:04:05.320 --> 0:04:08.480 an environment that all else being equal, favors risk assets. 0:04:08.600 --> 0:04:10.960 What about emerging markets given the fact that you're expecting 0:04:10.960 --> 0:04:15.760 the dollar to strengthen, So emerging markets could do well 0:04:15.800 --> 0:04:20.400 in this environment in that the Fed has removed UM 0:04:20.640 --> 0:04:25.560 one key headwind, which is balance sheet normalization. Recall that 0:04:25.640 --> 0:04:28.640 was creating something of a liquidity suck for emerging market 0:04:28.800 --> 0:04:31.520 So I think that actually this could pave the way 0:04:32.000 --> 0:04:36.520 UM for for UM emerging markets to perform better. So 0:04:36.800 --> 0:04:39.479 another news item that seems a narrative that seems to 0:04:39.520 --> 0:04:42.040 be have been addressed a little bit this week, as trade. 0:04:42.480 --> 0:04:44.440 It appears that you know what the U S trade 0:04:44.480 --> 0:04:47.960 delegation going, and then coming back from Shanghai that it 0:04:48.000 --> 0:04:50.760 appears that while there doesn't look like there's going to 0:04:50.800 --> 0:04:54.200 be a deal immediately. At least there's just kicked this 0:04:54.320 --> 0:04:56.200 can down the road, and maybe this might even be 0:04:56.200 --> 0:04:59.960 a post election. Is that scenario from a trade perspec 0:05:00.760 --> 0:05:04.120 enough for the markets right now? I think it's enough. 0:05:04.440 --> 0:05:06.440 I think what we need to do, though, is watch 0:05:06.480 --> 0:05:10.839 for any signs of a deterioration in the relationship. But luckily, 0:05:10.880 --> 0:05:15.799 I think markets have begun to manage their own expectations 0:05:15.800 --> 0:05:18.600 with this. I think there was way too much optimism. 0:05:18.680 --> 0:05:21.240 I've always been a real pessimist when it comes to 0:05:21.240 --> 0:05:23.920 the U S. China trade situation, and I think now 0:05:24.000 --> 0:05:27.960 markets have come to again it's another relationship. Have come 0:05:28.000 --> 0:05:32.600 to accept um diminished expectations for what could happen between 0:05:32.760 --> 0:05:35.760 the US and China. However, if we see more tariffs 0:05:35.960 --> 0:05:39.120 than I do, think that will send stocks lower and 0:05:39.160 --> 0:05:41.720 really shape confidence. So we have the market on the 0:05:41.760 --> 0:05:45.200 couch speaking with the therapist right now. UM. I do 0:05:45.279 --> 0:05:46.680 want to know. You know a lot of people were 0:05:46.680 --> 0:05:50.160 talking about J. Powell and that his performance was not great. 0:05:50.839 --> 0:05:55.400 Do you agree? No? Actually, UM, what I would say 0:05:55.560 --> 0:05:59.279 is that, uh, you know, quite often it is hard 0:05:59.560 --> 0:06:05.680 to articulate a decision, uh, particularly one in which um, 0:06:05.720 --> 0:06:08.479 there are so many factors at play. I actually felt 0:06:08.520 --> 0:06:11.640 for him. Um. I certainly think Janet Yellen probably would 0:06:11.680 --> 0:06:14.960 have done more in the way of preparation and would 0:06:15.040 --> 0:06:17.880 have been very very scripted in her comments to make 0:06:17.920 --> 0:06:21.000 sure there was nothing offhanded that was mentioned. But when 0:06:21.040 --> 0:06:25.520 you think about UM J. Powell, he did try to articulate, um, 0:06:25.560 --> 0:06:27.960 the kind of conflicts the FED had in terms of 0:06:28.120 --> 0:06:31.800 what's looking positive and what's looking negative. And also I 0:06:31.839 --> 0:06:35.040 think he really stood up for FED independence as well, 0:06:35.480 --> 0:06:39.080 UM by making that stay. But he of course he does. 0:06:39.480 --> 0:06:41.560 I mean he's act to say, yeah, actually we're going 0:06:41.640 --> 0:06:44.520 a cave to what the president says. Lisa. Nothing is 0:06:44.560 --> 0:06:48.880 a given in this environment. So I actually do think 0:06:49.000 --> 0:06:51.520 that he had to to stand up and say that, 0:06:51.600 --> 0:06:54.080 and he did, Uh, And I think he was quite 0:06:54.080 --> 0:06:58.040 clear um not giving in. He could have been much 0:06:58.080 --> 0:07:00.799 easier for him to say, you know, to to really 0:07:00.800 --> 0:07:02.920 say nothing about this, but he tried to make sure 0:07:02.920 --> 0:07:05.280 it was viewed as an adjustment because he doesn't want 0:07:05.320 --> 0:07:07.239 to look like he's cow towing to the White House. 0:07:07.960 --> 0:07:10.640 Christine is about thirty seconds left up. We're about halfway 0:07:10.640 --> 0:07:13.160 through the earning season. What have you seen anything unusual? 0:07:14.040 --> 0:07:17.440 I've seen again that phenomenon that managing expectations can be 0:07:17.440 --> 0:07:23.080 a very good thing because while um earnings estimates were lowered, 0:07:23.440 --> 0:07:26.840 now they're coming in meeting expectations or in some cases 0:07:26.880 --> 0:07:29.280 beating them, and that has created something of a positive 0:07:29.320 --> 0:07:32.840 sentiment in markets. Christina Hooper, thank you so much. We 0:07:32.960 --> 0:07:35.800 love having you on. Thank you, thank you. Christina Hooper 0:07:35.880 --> 0:07:39.160 is chief Global market strategist for investco Whish overseas nearly 0:07:39.200 --> 0:07:57.800 a trillion dollars. This has been a mixed second quarter 0:07:57.920 --> 0:08:01.080 earnings period for many company ease, but there is one 0:08:01.160 --> 0:08:04.440 company that is doing a huge victory lap today and 0:08:04.480 --> 0:08:08.440 that is Shopify, the darling of the Canadian tech world, 0:08:08.480 --> 0:08:12.640 shares surging at ten today to a new record after 0:08:12.680 --> 0:08:15.560 reporting better than expected earnings. We're lucky to have with 0:08:15.640 --> 0:08:20.600 us now the chief operating officer of the firm, Harley Ficklstein. 0:08:20.760 --> 0:08:24.800 He's uh, He's based in Ottawa, Ontario, in Canada. Harley, 0:08:24.840 --> 0:08:28.640 congratulations and a very good earnings report and obviously the 0:08:28.840 --> 0:08:31.800 shares are reflecting that. What was the main driver of 0:08:31.880 --> 0:08:35.079 growth in the second quarter. Thanks so much for the 0:08:35.160 --> 0:08:37.280 kind words and thanks for having me on your show. 0:08:37.520 --> 0:08:39.360 I mean a couple of things are happening. One is 0:08:39.440 --> 0:08:41.959 I think people are getting to realize what Shopflight actually 0:08:42.040 --> 0:08:44.319 is doing. UM. I think for a long time we 0:08:44.320 --> 0:08:48.040 were known as this this very popular e commerce provider 0:08:48.080 --> 0:08:51.480 to help merchants build online stores. And I believe with 0:08:51.520 --> 0:08:54.080 the release of things like Shopslight Capital or point of 0:08:54.080 --> 0:08:56.760 sale offering, which is now in a hundred thousand stores, UH, 0:08:56.800 --> 0:08:59.000 these shop Flight of film and network that we've recently announced, 0:08:59.240 --> 0:09:01.520 people get into realize that we're actually building here is 0:09:02.320 --> 0:09:06.720 the first global retail operating system for for businesses both 0:09:06.800 --> 0:09:09.200 big and and and very small. UH. And I think 0:09:09.320 --> 0:09:11.400 part of the part of that is finally coming to 0:09:11.760 --> 0:09:14.040 people are being to realize that now after uh, sort 0:09:14.040 --> 0:09:15.840 of putting all the pieces together over the last couple 0:09:15.880 --> 0:09:17.840 of years. So hardly in the quarter I'm just looking 0:09:17.880 --> 0:09:21.040 at the quarterly numbers, internationals called out as an area 0:09:21.080 --> 0:09:23.520 of growth. What's driving the international growth for you guys? 0:09:24.720 --> 0:09:27.320 So I think Shopify, just by virtue of the fact 0:09:27.320 --> 0:09:30.040 that we were online, you know, our an internet company, 0:09:30.160 --> 0:09:33.960 we've always had merchants in in UH, in a global 0:09:34.160 --> 0:09:36.040 in a global reach. We've had merchants in hunter seventy 0:09:36.040 --> 0:09:38.320 five countries. UH. Even at the time of our I 0:09:38.400 --> 0:09:41.319 PO back into thousands fifteen. What's changed though in the 0:09:41.400 --> 0:09:44.880 last twelve eight months is a couple of things. We 0:09:44.920 --> 0:09:48.640 realized that even though we have merchants in places like Japan, Singapore, 0:09:48.720 --> 0:09:52.040 in Germany and France, we didn't actually have true product 0:09:52.120 --> 0:09:55.520 market fit for those merchants, meaning the Shopify admin where 0:09:55.520 --> 0:09:57.880 the merchants run their store, run their businesses, that was 0:09:57.920 --> 0:10:00.560 only in English, and last year we we translated it 0:10:00.559 --> 0:10:02.240 into a number of languages. Now it's it's close to 0:10:02.320 --> 0:10:05.240 nineteen languages, so merchants that don't speak English can also 0:10:05.240 --> 0:10:07.800 you Shopify today. We also went ahead and begin to 0:10:07.920 --> 0:10:10.040 did We did a deeper dive figuring out what are 0:10:10.080 --> 0:10:13.800 the nuances of what merchants need in each particular geography. So, 0:10:13.880 --> 0:10:17.280 for example, in a place like Germany, credit card penetration 0:10:17.400 --> 0:10:18.959 and credit card usage is not as high as in 0:10:19.000 --> 0:10:21.640 the US, debit cards are a lot more popular. So 0:10:21.720 --> 0:10:24.040 beyond just the translation, we began to figure out what 0:10:24.080 --> 0:10:27.439 those merchants need there from a payment perspective, from integration perspective. 0:10:27.760 --> 0:10:31.360 And then finally we also created and began to develop 0:10:31.480 --> 0:10:35.480 our international Shopify partner community. We began going to these countries, 0:10:35.480 --> 0:10:39.680 and cultivating relationships and partnerships with agencies and freelancers who 0:10:39.760 --> 0:10:42.319 not only refer merchants to Shopify, and I mentioned on 0:10:42.360 --> 0:10:45.040 the call more than twenty two thousand partners orfer business 0:10:45.040 --> 0:10:47.280 of Shopify in the last twelve months, but beyond that 0:10:47.440 --> 0:10:51.520 are now building applications and and integrations for merchants in 0:10:51.559 --> 0:10:54.160 those locations that are particularly relevant to the needs of 0:10:54.200 --> 0:10:57.079 merchants in places like Japan or Germany or France and 0:10:57.200 --> 0:10:59.520 all that. All that has led to us having the 0:10:59.559 --> 0:11:02.040 largest because of international merchants today that we've ever had. 0:11:02.480 --> 0:11:05.560 So the numbers are pretty impressive. Revenue grew forty eight 0:11:05.679 --> 0:11:10.599 percent according to the statement and analysts for projecting a 0:11:10.640 --> 0:11:16.760 three hundred and fifty point five million dollar revenue. Sounds amazing, right, increase, 0:11:16.880 --> 0:11:20.000 Yet it is the slowest in shop fives four years 0:11:20.000 --> 0:11:22.360 as a listed company. And I'm wondering whether you're the 0:11:22.400 --> 0:11:24.360 slowdown is due to just the fact that you're maturing 0:11:24.760 --> 0:11:27.480 as a company, or whether this has to do with 0:11:27.600 --> 0:11:29.720 just sort of the global macro backdrop and some of 0:11:29.760 --> 0:11:32.880 these slow in growth. Yeah, look, we think, you know, 0:11:32.920 --> 0:11:35.800 growing revenue at our size almost fifty percent, we think 0:11:35.840 --> 0:11:39.360 is really great. We also saw g m V growth 0:11:39.440 --> 0:11:42.680 beyond so g m V for the for the second 0:11:42.720 --> 0:11:47.120 quarter was almost fourteen billion, which again is greater than 0:11:47.200 --> 0:11:51.120 last year. Uh. Frankly, because we're so distributed and we're 0:11:51.240 --> 0:11:53.240 we have merchants all over the world. Um, you know, 0:11:53.280 --> 0:11:56.600 obviously some macro trends will affect us, but but generally 0:11:56.679 --> 0:11:59.520 we think that there's huge opportunities for us, not just internationally, 0:11:59.559 --> 0:12:02.079 but also with our existing merchants. We've been eight hundred 0:12:02.080 --> 0:12:05.280 thousand merchants now and figure out ways to expand what 0:12:05.360 --> 0:12:08.040 they use from us, whether it's capital. We've given out 0:12:08.040 --> 0:12:11.199 more than six thirty million dollars of cash advances to merchants, 0:12:11.200 --> 0:12:13.599 helping them now with filment and shipping, helping them with 0:12:13.640 --> 0:12:15.720 fraud protection. We think that not only can we get 0:12:15.760 --> 0:12:17.880 way more merchants, but the merchant we already have, we 0:12:17.920 --> 0:12:20.480 can also expand the services that we provide for them 0:12:20.640 --> 0:12:23.280 and and and make Shopify much more relevant to their 0:12:23.320 --> 0:12:26.240 their their business. Harley, what's the risk to your story? 0:12:26.280 --> 0:12:29.600 What's the bear case? Look? I think for a while 0:12:29.679 --> 0:12:31.640 people were a little nervous that some of the merchants 0:12:31.640 --> 0:12:34.640 coming on to Shopify. We're small businesses and not all 0:12:34.679 --> 0:12:38.040 some small small businesses succeed. We know that, and actually 0:12:38.080 --> 0:12:40.320 we think that that's okay. The way that we look 0:12:40.360 --> 0:12:42.320 at it from a business perspective is we want to 0:12:42.360 --> 0:12:45.040 create the largest top of final possible. We want anyone 0:12:45.040 --> 0:12:48.280 that has an aspiration or an ambition to build a 0:12:48.320 --> 0:12:51.400 startup or a business or a small a small retailer 0:12:51.440 --> 0:12:53.760 to do so on Shopify, and we acknowledge not all 0:12:53.800 --> 0:12:56.040 will succeed. What's important to us, though, is that the 0:12:56.080 --> 0:12:59.000 ones that do succeed offset the cost of those that don't, 0:12:59.160 --> 0:13:01.120 and that certainly is happening with us, and we've we've 0:13:01.120 --> 0:13:03.280 been seeing that for a number of years. And then 0:13:03.520 --> 0:13:06.599 the other piece of it is retail in general is 0:13:06.600 --> 0:13:08.800 getting far more complicated. So now you're you know, we're 0:13:08.800 --> 0:13:12.800 seeing companies like Instagram create create new new retail channels. 0:13:12.840 --> 0:13:16.000 We're seeing new marketplaces pop up, We're seeing accelerated check 0:13:16.000 --> 0:13:18.600 out with things like shopify pay and Apple Pay. The 0:13:18.679 --> 0:13:21.520 more that retail becomes complicated for a small business, we 0:13:21.559 --> 0:13:24.120 think the value of shop of that increases because shop 0:13:24.160 --> 0:13:26.040 if I can allow you to sell anywhere you want 0:13:26.080 --> 0:13:28.960 online or offline, or on marketplaces or on Instagram, but 0:13:29.040 --> 0:13:31.560 it all feeds back from one centralized back office. And 0:13:31.600 --> 0:13:34.199 so I would say that even though complexity and the 0:13:34.280 --> 0:13:36.679 challenge of a retail needs to grow, we continue to 0:13:36.720 --> 0:13:38.880 bend that learning curve. And and that's really what we're 0:13:38.920 --> 0:13:41.400 focused on. We think there's an opportunity for us at 0:13:41.480 --> 0:13:45.319 a macro global scale to be the entrepreneurship company. There 0:13:45.400 --> 0:13:48.120 isn't a company out there right now that truly owns entrepreneurship, 0:13:48.400 --> 0:13:49.840 and we think we have the best shot at doing 0:13:49.840 --> 0:13:51.959 that of anyone UM And and and so that's what we're 0:13:51.960 --> 0:13:54.520 focused on today. Harley, thank you so much for your 0:13:54.559 --> 0:13:56.920 comments and reviewing the quarter with us and the kind 0:13:56.920 --> 0:13:59.640 of the outlook for the company. Hardly Finglestein, chief operating 0:13:59.640 --> 0:14:02.480 officer for Shopify, thanks for joining us. I'm just looking 0:14:02.480 --> 0:14:05.920 at the consensus numbers on the Bloomberg terminal um you know, 0:14:05.960 --> 0:14:09.720 looking for revenue group about sixty percent last year, gonna 0:14:09.760 --> 0:14:14.199 grow forecast at over this year and then overt uh 0:14:14.320 --> 0:14:16.920 next year. And the company has gone from IBATA negative 0:14:17.559 --> 0:14:21.440 to forecast at EBA positive in nineteen. So the company 0:14:21.920 --> 0:14:25.480 seems to be making the pivot here and clearly the 0:14:25.480 --> 0:14:27.480 stock up about a d and fifty percent this year. 0:14:27.880 --> 0:14:31.960 Investors clearly paying up for this stock. This is Bloomberg. 0:14:48.280 --> 0:14:50.880 I remember a time when people thought that hil bonds 0:14:50.880 --> 0:14:54.120 were gonna lose money, but instead they've just continued their 0:14:54.200 --> 0:14:57.360 gravy train. This year. You see returns of ten and 0:14:57.400 --> 0:15:01.120 a half percent for the US junk bonds year to date. 0:15:01.200 --> 0:15:04.680 The question did the Fed just give them another leg 0:15:04.760 --> 0:15:07.360 to go? Here? Andrew Feltis is joining us here in 0:15:07.360 --> 0:15:10.240 our Blomberg Interactive Broker Studios. He's co director of Global 0:15:10.320 --> 0:15:14.080 High Yield for a Moony Pioneer, which oversees about eighty 0:15:14.120 --> 0:15:17.960 billion dollars. Andrew, wonderful having you. So, what do you 0:15:18.000 --> 0:15:21.040 think what's going to be the full year total return 0:15:21.440 --> 0:15:26.560 for US hiled bonds. That's a loaded question, but here 0:15:27.600 --> 0:15:31.200 the bulk of the spread tikings probably occurred, but the 0:15:31.240 --> 0:15:33.680 faults are low. You're still get a pretty good yield. 0:15:33.720 --> 0:15:35.560 So I think we're about ten ten and a half 0:15:35.680 --> 0:15:38.760 right now. Probably will continue to clip that coupon, and 0:15:38.840 --> 0:15:41.560 I think it's an environment we're choosing. The right security 0:15:41.600 --> 0:15:43.800 has gonna matter a lot more, so we think we 0:15:43.840 --> 0:15:47.800 can add some value in that side. Fourteen fifteen sounds 0:15:47.800 --> 0:15:50.080 about right, Wow, Andrew, what did you did you hear 0:15:50.120 --> 0:15:53.640 anything yesterday from the FED chairman Pal that makes you 0:15:53.840 --> 0:15:56.280 change at all? Shade at all? How you guys are 0:15:56.280 --> 0:15:59.520 looking at the market, So our our concern is more 0:15:59.560 --> 0:16:03.440 about the market reaction. I think we're consistent with what 0:16:03.560 --> 0:16:05.880 the FED sees. The economy is in good shape. We 0:16:05.880 --> 0:16:08.320 don't see a lot of risks here in the us UH. 0:16:08.360 --> 0:16:10.840 Internationally there's more risks, and that seems to be hitting 0:16:10.880 --> 0:16:14.880 trade and other issues. But the curve is inverted, and 0:16:14.960 --> 0:16:17.520 openly that's going to cause banks to change their behavior 0:16:17.560 --> 0:16:21.400 and that could lead openly to a recession. Now we 0:16:21.440 --> 0:16:24.240 think the FED will probably cut again, but the Fed 0:16:24.440 --> 0:16:27.480 was to keep that curve inverted. The longer it stays inverted, 0:16:27.560 --> 0:16:30.040 the more risk there is of a negative outcome. So 0:16:30.120 --> 0:16:32.640 at this point we haven't changed our views, but we're 0:16:32.640 --> 0:16:37.880 monitoring the situation closely. So whenever hil bonds rallied, there 0:16:37.920 --> 0:16:40.840 are the slews of nervous nellies that come out and 0:16:40.880 --> 0:16:44.640 say the end is nigh and this means that everything 0:16:44.720 --> 0:16:46.880 is going to go to pot next year when we 0:16:47.040 --> 0:16:49.960 face a day of reckoning. What gives you comfort that 0:16:50.000 --> 0:16:53.040 we're not just setting ourselves up for some sort of 0:16:53.840 --> 0:16:58.160 publicious frabie beer goggle type behavior. Well, that's great question 0:16:58.240 --> 0:17:02.600 list at least uh The first thing that most comfortable 0:17:02.600 --> 0:17:05.480 with is we're not seeing a lot of excess activity. 0:17:05.520 --> 0:17:07.840 So when I do see risky bonds, they tend to 0:17:07.840 --> 0:17:12.320 be getting priced very uh wide, So we're not underwriting 0:17:12.320 --> 0:17:14.040 a lot of bad deals, and you actually see the 0:17:14.080 --> 0:17:17.320 average credit qualities improving. There's more double b s, there's 0:17:17.359 --> 0:17:19.960 less triple cs. We don't see l B o s 0:17:20.000 --> 0:17:23.240 coming into the market, so quality is very high. Actually, 0:17:23.320 --> 0:17:25.679 the average credit ratings the highest we've ever seen it 0:17:25.720 --> 0:17:27.520 in the high yale market. So what does that start 0:17:27.560 --> 0:17:31.200 to cheerating as companies take advantage of this borrowing environment, 0:17:31.240 --> 0:17:33.080 so you'd see you have to see triple cs be 0:17:33.119 --> 0:17:35.119 able to come into the market, more l B o s, 0:17:35.760 --> 0:17:39.440 but also the pricing get much lower. And the problem 0:17:39.560 --> 0:17:41.040 is if you do in a triple ce and you've 0:17:41.040 --> 0:17:44.560 gotta pay ten per cent, you really can't refi a 0:17:44.840 --> 0:17:47.760 LBO type structure and make money with that type of return. 0:17:47.960 --> 0:17:50.560 So it's really limiting the type of bad deals are 0:17:50.600 --> 0:17:53.080 getting done in the market. So it gives a sense 0:17:53.119 --> 0:17:54.879 of the new issue market. It seems like if I 0:17:54.960 --> 0:17:58.840 had any capital needs whatsoever. Uh, you know, I would 0:17:58.880 --> 0:18:02.240 just love to access the high yield market given where 0:18:02.400 --> 0:18:05.800 rates are. Are you singing issuance pick up? So we're 0:18:05.840 --> 0:18:09.440 actually on track for a record month in July. About 0:18:09.480 --> 0:18:11.760 a quarter of that comes from one single deal, so 0:18:11.800 --> 0:18:14.760 that that's a bit of a one off, but generally 0:18:15.560 --> 0:18:18.480 that was the Diamond Sports. So those are the Disney 0:18:18.800 --> 0:18:24.400 Regional Sports and that Cereal. Yeah exactly, and you get 0:18:24.720 --> 0:18:27.880 now that deal one over great, right, Well, all these 0:18:27.920 --> 0:18:31.399 deals have done well. All the higher quality deals have 0:18:31.480 --> 0:18:34.560 done really well. Uh So, if you're a double B company, 0:18:34.600 --> 0:18:37.080 which means you don't have too much leverage, you're in 0:18:37.080 --> 0:18:40.719 your one notch below investment grade, you can get financed 0:18:40.720 --> 0:18:44.600 at five to six percent. That's pretty aggressively. The guys 0:18:44.640 --> 0:18:47.200 that they will ultimately lead to a bubble that lead 0:18:47.240 --> 0:18:49.440 you to lose money, and not just on a market 0:18:49.560 --> 0:18:52.760 market basis, our permanent impairman default Those are the triple 0:18:52.840 --> 0:18:55.560 see you guys and those you know, you monitor the 0:18:55.600 --> 0:18:58.159 amount of issuance in there and like what kind of 0:18:58.160 --> 0:19:01.440 pricing and if people are not being paid for default risk, 0:19:01.720 --> 0:19:04.040 that's when you start getting worried about a bubble, and 0:19:04.080 --> 0:19:05.919 we just don't see that type of behavior going on. 0:19:06.000 --> 0:19:08.480 The market's been very disciplined, so that gives us a 0:19:08.520 --> 0:19:11.359 certain level of confidence. How do you go about selecting 0:19:11.400 --> 0:19:15.080 securities in this environment since it does become that, Yeah, 0:19:15.119 --> 0:19:17.200 it's just rolling up your sleeves and doing hard work, 0:19:17.320 --> 0:19:21.480 so modeling the company's talking to management, understanding the business models. 0:19:21.840 --> 0:19:24.679 And then most importantly, you have to look at covenants, 0:19:25.160 --> 0:19:27.320 right because that's if something goes wrong, the covenants are 0:19:27.320 --> 0:19:33.160 there to protect you in anymore. That's keep hearing exactly, 0:19:33.200 --> 0:19:35.600 and that's become reality. But it's something you do have 0:19:35.640 --> 0:19:38.320 to pay attention to because in the next recession those 0:19:38.359 --> 0:19:40.280 type of things will matter. Any names that you can 0:19:40.320 --> 0:19:44.639 throw up, I'm not a BA exactly, So what it 0:19:44.640 --> 0:19:47.800 just gives a sense of kind of leverage where you know, 0:19:47.840 --> 0:19:50.320 I think about the media industry and that can you 0:19:50.359 --> 0:19:53.919 can borrow money at you know, five six times leverage 0:19:53.960 --> 0:19:55.919 maybe even a little bit higher where we're just in 0:19:55.960 --> 0:19:58.040 terms of leverage in your mind. So you know, first 0:19:58.080 --> 0:20:01.280 all the rating seas have been pretty steady on this. 0:20:01.359 --> 0:20:04.560 So if I look at Double be in two thousand nineteen, 0:20:05.359 --> 0:20:07.440 same type of average leverage that you've see in two 0:20:07.440 --> 0:20:10.800 thousand nine two eight, so that they have not done 0:20:10.800 --> 0:20:12.520 what they did in the housing market where they just 0:20:12.560 --> 0:20:16.320 completely abandoned all standards. So it depends on the business. 0:20:16.560 --> 0:20:18.600 You know, if you are a less cyclical business like 0:20:18.640 --> 0:20:21.080 a utility, you can leverage a little bit more than 0:20:21.119 --> 0:20:23.440 you can So single bees are more than that five 0:20:23.480 --> 0:20:26.679 to six territory, while your average double be is going 0:20:26.760 --> 0:20:28.720 to be more than that three to four type area. 0:20:28.880 --> 0:20:32.879 So what's the argument. If credit is good or not bad, 0:20:33.080 --> 0:20:34.800 and the FED is supportive of the market, why not 0:20:34.880 --> 0:20:38.200 just invest in stocks and and rates? Why go to 0:20:38.440 --> 0:20:41.879 entire bonus? So the beauty of high yield is you 0:20:41.920 --> 0:20:45.160 get paid to weight. So if we are moving sideways 0:20:45.800 --> 0:20:49.920 marketing pitch. So if we move sideways in the economy, 0:20:49.920 --> 0:20:52.680 we're not growing profits, We're not growing the top line. 0:20:52.840 --> 0:20:54.879 These guys can pay their bills. So you clip your 0:20:54.960 --> 0:20:58.520 cupon and you make your six seven, which is probably 0:20:58.520 --> 0:21:00.920 pretty close to what you get an equity these days 0:21:00.960 --> 0:21:03.800 for equities style perform, And look, we want equities outperformed 0:21:03.800 --> 0:21:06.000 because it makes our job easier. It's another source of 0:21:06.040 --> 0:21:08.960 capital for our companies. So there's load defaults when equities 0:21:08.960 --> 0:21:11.280 are going up. But equity guys need to grow that 0:21:11.320 --> 0:21:14.240 top line. They need to have improving profits. Margins are 0:21:14.280 --> 0:21:17.440 at great levels now, but it's really hard to expand margins. 0:21:17.480 --> 0:21:20.480 You know. Now we did the tax reform, that's not 0:21:20.560 --> 0:21:23.040 off the table. You really need to have growth, and 0:21:23.240 --> 0:21:25.520 we think you're gonna get growth, but it's a much 0:21:25.560 --> 0:21:29.160 harder environment to get that profit growth. So high yield 0:21:29.280 --> 0:21:31.520 is something that will give you that cupin and really 0:21:31.560 --> 0:21:34.719 help balance your portfolio up anything else, tu, I mean, 0:21:34.720 --> 0:21:37.880 this is fixed income, this is high yield. Basically, I'm 0:21:37.920 --> 0:21:40.520 not gonna engaged, just real quick. How long can this 0:21:40.600 --> 0:21:43.240 go on? The good times? This can go on until 0:21:43.320 --> 0:21:46.480 somebody makes a mistake. So whether that's the FED, whether 0:21:46.560 --> 0:21:49.639 that's a fiscal policy, whether that's something on the regulatory front, 0:21:49.720 --> 0:21:54.840 on the trade front, but until uh, someone makes a mistake, 0:21:55.119 --> 0:21:58.640