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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Well,

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Speaker 1: we have heard a lot about the Russia investigation that's

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Speaker 1: being led by Special Counsel Bob Mueller. We did get

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Speaker 1: an indictment this week of Paul Manafort and his coworker

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Speaker 1: for a long time Gates. Also, we learned that former

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Speaker 1: President Trump form policy advisor George Papadopoulos pleaded guilty and

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Speaker 1: is cooperating with the prosecutors here to break this down

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Speaker 1: and give us some more insights, particularly from the Russian side.

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Speaker 1: As Richard Khan, managing partner from Eurasia Advisers based in

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Speaker 1: New York, Richard, always a pleasure to speak with you.

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Speaker 1: What are we not picking up on with respect to

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Speaker 1: the indictment and the news that we've gotten this week

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Speaker 1: that we ought to be focusing on. That's more telling

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Speaker 1: than perhaps people realize. Well, great to see you again, Lisa,

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Speaker 1: Thanks for inviting me. The there are a few elements

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Speaker 1: to it that I don't think are commonly uh known

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Speaker 1: or thought about. Uh. Then I'll focus on two. One

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Speaker 1: has to do with the linkage that Mueller is making

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Speaker 1: in the Maniford indictment to Ukraine, and the second has

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Speaker 1: to do with the concept of kompamat, which I've spoken

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Speaker 1: about in the past visa the Ukraine. Uh. You know,

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Speaker 1: certainly the White House and others are basically saying in defense, look,

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Speaker 1: this has nothing to do with Russia. But what is

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Speaker 1: going to come out, because it's certainly true, is that Ukraine,

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Speaker 1: prior to the Paroshenko period which we're in now, was

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Speaker 1: under the control of Russia through Yanakovich, who was the

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Speaker 1: person that Maniford was working for at that time. What

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Speaker 1: Mueller is going to show is going back all the

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Speaker 1: way to two thousand six when um Maniford was working

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Speaker 1: for one of the leading oligarchs of Russia, very close

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Speaker 1: to Putin, gentleman named de Pasca. He's going to show

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Speaker 1: a course of conduct on the part of Maniford which

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Speaker 1: demonstrates very very close ties with Russia, and he's going

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Speaker 1: to put that context into play of easib Ukraine. It's

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Speaker 1: going to be one piece in the mosaic that's going

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Speaker 1: to show the involvement of various people in the White House,

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Speaker 1: including Trump, with Russia. Uh. You know, it's hard to

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Speaker 1: think of people in the White House right now that

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Speaker 1: do not have ties with Russia. So I think it's

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Speaker 1: important to realize that the that Ukraine is essentially a

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Speaker 1: code word for Russia in this context, in this indictment,

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Speaker 1: and that is going to be an easy thing to

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Speaker 1: show because frankly, everybody in the Russian world is very

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Speaker 1: well aware of these facts. So the second point to

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Speaker 1: talk about comes from the plea emon. Uh, there are

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Speaker 1: all sorts of details in here that are interesting and

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Speaker 1: that link in the White House of course into um

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Speaker 1: what I think Trump is called collusion, we can call

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Speaker 1: a cooperation. Um. Mueller, I think is going to eventually

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Speaker 1: try to show that that's part of a conspiracy against

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Speaker 1: the United States. Um. But this is an example from

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Speaker 1: from my perspective of of clear compromont. Compromont, just to

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Speaker 1: make clear, what this is about is a situation where

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Speaker 1: your opponent has information about you that is potentially damaging.

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Speaker 1: In this case, the FSB knowing about communications that the

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Speaker 1: Trump campaign had with them that were cooperative trying to

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Speaker 1: get information that would help the campaign from in this

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Speaker 1: case a source of may potentially be illegal, such as

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Speaker 1: the hacking of Clinton's emails. In that situation, If the

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Speaker 1: other party, in this case, the Trump team, does not

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Speaker 1: disclose the information, there is a mutual see secret that

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Speaker 1: you have both sides are aware of an embarrassing fact,

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Speaker 1: and that constitutes compromentt because it puts the FSB, puts

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Speaker 1: Russia in a position where they can basically simply be

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Speaker 1: friendly and say, of course we're not going to disclose it.

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Speaker 1: We're friends. You think that there is evidence that there

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Speaker 1: is this kind of compromont, Well, what I'm saying is

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Speaker 1: the Papadopoulos plea agreement lays out one example of that.

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Speaker 1: That's I think they'll be far far more of it,

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Speaker 1: But that is one very tangible example where there is evidence,

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Speaker 1: sworn testimony, now evidence of meetings that took place. We

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Speaker 1: have now something that came out to Day in the

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Speaker 1: paper that it was discussed openly at a meeting with

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Speaker 1: Trump as well as with other people in his campaign.

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Speaker 1: That's the type of information that Trump did not want

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Speaker 1: to have come out in the campaign and still does

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Speaker 1: not want to have come out in the campaign. And

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Speaker 1: that's a horrible position for the President of the United

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Speaker 1: States or for any senior people in our country to

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Speaker 1: be in. You don't want the FSB having information that

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Speaker 1: you don't want to have come out. Richard. Do you

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Speaker 1: think the goal, uh in Moss scale all along was

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Speaker 1: was it to get a president Trump elected because of

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Speaker 1: some sort of quid pro quo type of relationship, or

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Speaker 1: was it disrupt the American political machine just tear America

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Speaker 1: apart at the seams um And depending on the answer,

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Speaker 1: do they you know if if you're sitting in Moscow

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Speaker 1: right now, do you think do you feel like a

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Speaker 1: winner or do you feel like it's it's backfiring on

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Speaker 1: them that all this is coming out. Well, Mike, let

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Speaker 1: me start with this. We and you know your asan

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Speaker 1: advisors and I certainly don't take a simple view that

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Speaker 1: Russia is bad. We're good. I mean, obviously Russia has

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Speaker 1: a side in terms of how it views conduct against

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Speaker 1: him by the US, by US other Western powers, um.

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Speaker 1: And and they have some valid points to make. Obviously,

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Speaker 1: as an American I feel we have far more uh,

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Speaker 1: legitimacy in our arguments. But ultimately, you know, Russia genuinely

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Speaker 1: feels that, you know, one, that they have a right

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Speaker 1: to protect their system. We may not value their more

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Speaker 1: or less. Uh Uh. You know what I would view

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Speaker 1: as a dictatorial structure or old World style almost medieval

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Speaker 1: style structure, but they feel they have the right to

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Speaker 1: defend that. Uh. They do feel also that we've taken

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Speaker 1: in the United States and in the West, strong steps

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Speaker 1: against them with sanctions that they don't feel re appropriate.

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Speaker 1: They don't think we took into account their positions in

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Speaker 1: Ukraine when they needed to have their military basis in

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Speaker 1: Crimea protected from their perspective, because they only had two

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Speaker 1: bases outside of the country where we had over seven hundred.

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Speaker 1: So there's they have reasons why they felt they had

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Speaker 1: to take certain action. Doesn't justify it. But what they

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Speaker 1: did back in their eyes, not not being the aggressive

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Speaker 1: that they are clearly punching back in in a way

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Speaker 1: that they think is not to get gain in my view, revenge,

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Speaker 1: but to be effective. I think they genuinely wish to

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Speaker 1: change US policy towards them. I think they operate on

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Speaker 1: a long term basis seeking assets in Western countries, whether

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Speaker 1: in the media, whether in politics, to help support them

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Speaker 1: in this and again, from their perspective, they just want

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Speaker 1: to be treated fairly. From ours, they're interfering with our

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Speaker 1: electoral process, and I think that's what happened here. So,

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Speaker 1: based on what we've learned from the indictments and from

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Speaker 1: the George Papadopolis plea, it sounds like you think that

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Speaker 1: there's enough to tie all of this back to President

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Speaker 1: Trump very clearly in the way that Mueller is expected

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Speaker 1: to what sort of setting out to do. Well, Look,

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Speaker 1: each listener will decide at what point they think the

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Speaker 1: evidence is sufficient to make a showing that at least

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Speaker 1: we should be viewed the president as someone perhaps it's

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Speaker 1: untrustworthy in this area. Obviously Congress feels that way. They

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Speaker 1: passed the sanctions law universually, unanimously, not giving him the

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Speaker 1: right to alter it to Russia's favor. But Yeah, from

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Speaker 1: my perspective, I don't have any doubt that having read

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Speaker 1: the indictment and see the plea agreement, where one of

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Speaker 1: the directions that Mueller is going in and it's going

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Speaker 1: to be in my view, this conspiracy against the interests

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Speaker 1: of the United States at the highest levels of government,

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Speaker 1: and so for that reason I view it is a

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Speaker 1: watershed event in the United States history. I don't think

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Speaker 1: this is a small thing. And ultimately I think now

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Speaker 1: we are at a point where any objective observer would

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Speaker 1: would see evidence, at least some evidence now of cooperation

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Speaker 1: between Russia and the United States, not just what we

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Speaker 1: just saw come out, but obviously tying that into the

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Speaker 1: meeting that took place at Trump Plaza, which incidentally, didn't

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Speaker 1: you know those key emails did not start with the

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Speaker 1: words Lisa, by the way, I've got fabulous news. Russia

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Speaker 1: wants to help us. That was missing. And the reason

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Speaker 1: it's missing, I think we're going to see is because

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Speaker 1: it was simply part of a course of dealing. Richard Kahn,

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Speaker 1: I could speak with you all afternoon. Unfortunately we have

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Speaker 1: to leave it there. Richard Khan, managing partner of Eurasia Advisors,

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Speaker 1: which is based in New York City. It is uncertain

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Speaker 1: time for bonds. What is a bond fund manager to do? Well?

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Speaker 1: Here to tell us is Steve Peacher. He's president of

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Speaker 1: sun Life Investment Management, which oversees about forty four billion

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Speaker 1: dollars and is based in Wellesley, Massachusetts. He joines here

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Speaker 1: in our eleven three year studios. Steve, thank you so

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Speaker 1: much for joining us. You mostly invest in real estate

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Speaker 1: and debt investments, and I'm wondering what has been the

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Speaker 1: biggest most recent allocation shift. Can you describe it? Uh? Certainly, well,

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Speaker 1: thanks for having me. We um In addition to the

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Speaker 1: money we managed for other institutions, which is forty five billion,

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Speaker 1: we also manage some life general account which is about

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Speaker 1: a hundred and five billion. So I'll answer that question

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Speaker 1: relative to the money that we manage for some life

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Speaker 1: and we've been really been doing two things. One is

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Speaker 1: at the margin, going up in quality. I don't think

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Speaker 1: we're scared of these markets, but valuations are tighter, spreads

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Speaker 1: are tighter, um, real estate valuations are are are higher.

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Speaker 1: So we're trying. We're kind of modestly called just we

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Speaker 1: want to have dry powder if markets sell off. We

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Speaker 1: don't know when they will, but at some point they will,

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Speaker 1: So I would say we're going up in quality a bit.

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Speaker 1: We've taken our high yield allocations down a bit. How much, UM, Well,

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Speaker 1: they were never huge for us. We tend to be

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Speaker 1: an investment grade buyer UM, but we've I would say

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Speaker 1: we've probably cut them in half UM in the past

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Speaker 1: year or so. Yeah, within the past year, eighteen months UM.

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Speaker 1: We also make heavy use of assets in the private markets,

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Speaker 1: private debt markets. UM. We still find we can get

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Speaker 1: extra yield there without sacrificing quality. So we really want

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Speaker 1: to be cautious about the risk we're taking in this

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Speaker 1: in this market environment. Steve the Treasury Secretary this week

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Speaker 1: came out and said, uh, you know, initially he thought

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Speaker 1: the ultra long bond would be a good idea. Now

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Speaker 1: he's not so sure there's demand. I'm thinking a guy

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Speaker 1: like you might be someone who would take a look

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Speaker 1: at that is. Do you agree with him that there

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Speaker 1: would not be the demand for this UM. I think

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Speaker 1: there'd be a lot of man, Yeah, I mean we

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Speaker 1: were obviously an institution is a life insurance company that

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Speaker 1: needs duration. We have liabilities go off for decades. We're

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Speaker 1: not alone, you know, all TV pension plans need duration,

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Speaker 1: other life codes need duration. And I think that an

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Speaker 1: ultralong bond helps us with that, helps us manage our

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Speaker 1: portfolios in the duration profile. So yeah, I think there

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Speaker 1: would be what kind of yield would you expect, would

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Speaker 1: you know, intrigue you boy, I don't. I don't have

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Speaker 1: a number of throw off the top of my head

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Speaker 1: to say, what does the premium you need for that

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Speaker 1: ultralong bond? I mean, it's it's unusual that in some

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Speaker 1: markets at certain times you actually see marginally lower yields

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Speaker 1: at the very back of the curve because there's so

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Speaker 1: much demand for the the longest duration piece of paper.

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Speaker 1: I don't think that would be the case here, but

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Speaker 1: you do see it, Steve, I talked to a lot

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Speaker 1: of stock bulls and they seem really optimistic about economic growth,

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Speaker 1: and you know, the chance of recession they see being

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Speaker 1: far far out. What's making you cautious right now? Well,

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Speaker 1: it is a Goldilocks scenario right now, and it has

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Speaker 1: been for about you know, eight years' going. Yeah, we've

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Speaker 1: got lower rate, slow in faction, global growth accelerating, high

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Speaker 1: consumer confidence, high business confidence, record consumer net worth. Except

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Speaker 1: for US, it's as much about valuations as anything. You know,

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Speaker 1: Spreads are getting tighter, cap rates in real estate are

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Speaker 1: are getting lower, um p s are getting higher, so

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Speaker 1: you have you have less margin for air if something

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Speaker 1: goes wrong. What scares me the most is I don't

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Speaker 1: know what's gonna go wrong because everywhere you look, things

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Speaker 1: feel very supportive of valuations, but there's less cushion, So

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Speaker 1: incrementally we ought to be the higher, the higher prices go,

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Speaker 1: the incrementally more cautious we think we should be. Recently,

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Speaker 1: black Rock actually downgraded the US credit space UH to

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Speaker 1: neutral for I think, from overweight. Basically talking about the

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Speaker 1: things you're talking about these tight spreads, Um, is that

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Speaker 1: a similar sort of thinking that you have right now?

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Speaker 1: Is it? Is it not so much that the cycle's turning,

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Speaker 1: but it's you know, how how how much tighter can

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Speaker 1: these spreads actually get? Well? I think we, along with

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Speaker 1: almost everyone else in the credit markets, has been talking

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Speaker 1: about the credit cycle, and we've been using a baseball analogy.

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Speaker 1: You know where in the late endings of the credit cycle.

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Speaker 1: The problem is there's no shock. There's no clock in

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Speaker 1: a baseball game. So we may be in the seventh

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Speaker 1: or eighth inning, but these endings can last a long time.

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Speaker 1: Are you going to extra and how long they can? Laugh? Yeah? Exactly,

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Speaker 1: So do you really think seventh or eighth inning of

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Speaker 1: the credit cycle? Um? I think we're in the late

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Speaker 1: innings but I think that as we just talked about,

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Speaker 1: economic fundamentals are really supportive. We've we've been surprised that

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Speaker 1: they've continued to be supportive this long, UM, and I

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Speaker 1: don't it's hard to see that ending anytime soon. UM.

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Speaker 1: So we just don't see tons of value too in

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Speaker 1: the market today, especially I guess across the credit markets.

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Speaker 1: What about e marging markets, UM, I think that's tightened

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Speaker 1: along with other markets. So I'm not sure that it's um. UM.

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Speaker 1: You know, we see that that's standing out is a

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Speaker 1: great value. But you like investment grade bonds. We focus

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Speaker 1: mainly on investment grade bonds. What about the lowest rated

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Speaker 1: investment grade group bonds? The trip will be because they've

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Speaker 1: been added leverage at a faster pace and their yields

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Speaker 1: have tightened at a faster pace than higher rateed companies.

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Speaker 1: You're right about that, and we we've we're big investors

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Speaker 1: in the triple be part of the rating category, and UM,

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Speaker 1: we've I would say that at the margin, we've been

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Speaker 1: reducing our allocation and triple bees and moving into single

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Speaker 1: A and double A securities. Along with this whole theme

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Speaker 1: about being incrementally cautious. But this is important because it

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Speaker 1: means that you're expected returns going forward are going to

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Speaker 1: be much lower as a result. I would say, we're

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Speaker 1: giving up some incremental yield to to to make that trade,

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Speaker 1: but we feel like that will pay off because if

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Speaker 1: it gives us dry powder down the road, if we

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Speaker 1: get a big widening of spreads, it will be worth it. Yeah. See,

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Speaker 1: there's also been a lot of talk about sort of

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Speaker 1: the deteriorating quality of the covenants out there. Is that

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Speaker 1: something on your your radar? Are you worried about that? Yeah?

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Speaker 1: I am worried about it. I think we definitely see it. Um.

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Speaker 1: You see it in the middle market lending market, certainly.

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Speaker 1: I've had a lot of conversations with private equity investors

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Speaker 1: who are surprised at how loose the terms are they're

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Speaker 1: getting on their deals. You see it in the high market.

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Speaker 1: You see in the leverage loan market. Um. Maybe less

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Speaker 1: so in the investment grade mark it where you tended

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Speaker 1: everything tends to be senior and secured. But that's obviously

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Speaker 1: a sign of late innings, I would I would imagine

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Speaker 1: it's one of the things we look at well. But

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Speaker 1: here's the thing that I'm struggling to understand because with

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Speaker 1: investment grade bonds, you do reduce the credit risk, but

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Speaker 1: you increase the interest rate risk. And at a time

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Speaker 1: where Goldman Sacks Asset Management just came out and said

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Speaker 1: they're expecting the ten year yield to go to three percent, uh,

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Speaker 1: that seems like just as big, if not a bigger

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Speaker 1: risk at a time when all the fundamentals look okay,

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Speaker 1: What do you make of that? Well, when we think

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Speaker 1: about interest rate risk, we think about it relative to

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Speaker 1: our liabilities, and we always stay pretty well matched, so

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Speaker 1: we actually don't think we're taking much interest rate risk

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Speaker 1: because we like to be matched in terms of the

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Speaker 1: duration profile. So it doesn't matter to you. We don't

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Speaker 1: spend a lot of time thinking about whether rates are

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Speaker 1: going up or down because we're well matched. As far

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Speaker 1: as companies go, they look pretty healthy to you. The

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Speaker 1: latest earning cycle makes you feel pretty confident. Earnings have

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Speaker 1: been very strong. I mean they you know, I think

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Speaker 1: you've got capital flow tow companies that needed. Earnings have

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Speaker 1: been strong, The corporate environment feels healthy. The default rates

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Speaker 1: are very low and probably going to go lower in

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Speaker 1: the high old markets. So there's a reason why spreads

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Speaker 1: of this tight right, I mean it's a very healthy environment.

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Speaker 1: Steve Peacher, thank you so much for joining us. Sort

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Speaker 1: of dilemma that we're hearing throughout markets right now as

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Speaker 1: fund managers look at this incredibly high valuations but just

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Speaker 1: don't see anything to really shake them out of wax.

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Speaker 1: Steve Peacher as president of sun Life Investment Management, which

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Speaker 1: oversees I guess almost a hundred and fifty billion dollars

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Speaker 1: in assets including some life uh some Life financials own assets.

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Speaker 1: And he comes to us here at our Bloomberg eleven

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Speaker 1: three our studios, but the firm based in Wellesley, Massachusetts.

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Speaker 1: Later today we are going to be getting a look

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Speaker 1: at Facebook's earning reports tomorrow. Apple big question, can they

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Speaker 1: continue their meteoric, stratospheric whatever adjective you want to use?

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Speaker 1: Can they continue this incredible rally? Joining myself and Mike Regan,

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Speaker 1: Bloomberg Stocks Editor Bloomberg for Bloomberg personality extraordinaire. Uh, finally,

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Speaker 1: finally the title you need, um, I want to bring

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Speaker 1: a Michael Scanlon, a portfolio manager up for Manu Life

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Speaker 1: Asset Management based in Boston, and Michael, you own Apple?

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Speaker 1: You own Facebook? Is there a certain level that these

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Speaker 1: uh companies shares can reach at which point you will sell.

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Speaker 1: Oh good morning and thanks for having me. Uh, you know,

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Speaker 1: there's certainly is a price that will sell any stock

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Speaker 1: in the portfolio. But I think when you look at

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Speaker 1: those two names and some of the other thing names

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Speaker 1: which have obviously drawn a lot of attention on their

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Speaker 1: run the last couple of years, here, you know, they're

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Speaker 1: still all of great secular opportunities in terms of growth,

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Speaker 1: generating a tremendous amount of cash, and we're even returning

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Speaker 1: some of that cast shareholders the last couple of years. Yeah, Michael,

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Speaker 1: as far as that goes, I mean, I'm looking at

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Speaker 1: Apple with one point five percent uh indicated dividend yield.

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Speaker 1: Is are they got to kick that up? Do you think? So?

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Speaker 1: You know, when you when you look at Apple, yes,

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Speaker 1: the dividend yield isn't stated is all that great, But

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Speaker 1: you got to remember that this is a company that

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Speaker 1: kicks off a tremendous amount of cash and buys back

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Speaker 1: roughly thirty five billion dollars of stock every year. That's uh,

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Speaker 1: you know, somewhere in the ballpark of four percent of

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Speaker 1: the company. So when you add that four percent buyback

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Speaker 1: kicker post the dividend of about a point and a half,

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Speaker 1: you know, you're getting kind of a five and a

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Speaker 1: half percent return on the stock before they grow their

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Speaker 1: net income or the multiple potentially gets rerated higher. So

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Speaker 1: from a total capital return story, it's still quite a

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Speaker 1: powerful story there. You know, I'm wondering, is that, in

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Speaker 1: your opinion, the best use of their cash. I mean,

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Speaker 1: I looked at Sony's earnings overnight, uh and tell the

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Speaker 1: high end television sets doing really well for Sony? Is

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Speaker 1: Apple missing the boat on on TV? Well? They They've

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Speaker 1: made an umber of investments there over the years, and

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Speaker 1: if you think back kind of twelve to eighteen months ago,

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Speaker 1: there was the market was hot and some rumors that

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Speaker 1: that that there was a TV coming out very soon,

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Speaker 1: and ultimately that didn't unfold for them. You know, they

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Speaker 1: do have the Apple TV which they offer. You know,

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Speaker 1: really what they're focused on is the services side of

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Speaker 1: the business, which they mentioned a couple quarters ago that

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Speaker 1: they're hoping to double. I would expect that there's you know,

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Speaker 1: something in there in terms of content, one of these

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Speaker 1: skinny bundles or how they actually do it. Um, But

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Speaker 1: you know right now, I don't see them launching a

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Speaker 1: standalone television. So yesterday Facebook announced that they're going to

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Speaker 1: double their security and safety team to twenty people UH

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Speaker 1: in the upcoming year or so. And this is partly

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Speaker 1: in response to what we've been hearing down on Capitol

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Speaker 1: Hill this Stay two of the Tech hearings. How concerned

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Speaker 1: are you about the increased costs associated with self regulation?

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Speaker 1: Forget whether Congress can get its act together to come

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Speaker 1: up with something create from a regulatory standpoint, but they're

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Speaker 1: going to have to spend more. Yeah, So when you

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Speaker 1: look at any of these stalks that we're talking about

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Speaker 1: here today, kind of these fang names, in my mind,

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Speaker 1: the biggest risk to all these names is you know,

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Speaker 1: call it political risk. I mean, if you think back

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Speaker 1: to what Microsoft went through for ten years, the recent

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Speaker 1: settlement that Google just had with the EU in terms

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Speaker 1: of listing their products first and search results, that is

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Speaker 1: the biggest threat. And you know, you would certainly expect

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Speaker 1: that these companies are going to have to spend in

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Speaker 1: order to protect their reputation. Obviously with with this news

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Speaker 1: issue around the election cycle and accepting the advertising dollars

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Speaker 1: from what looks like Russian affiliates. Um, you know they're

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Speaker 1: going to have to continue to spend there to protect

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Speaker 1: their businesses because the last thing they want to do

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Speaker 1: is get caught up in the crosshairs of regulation. Yeah,

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Speaker 1: it's amazing. Adding ten thousand presumably pretty well paid uh

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Speaker 1: security staff. I mean, you put a hundred thousand dollars

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Speaker 1: a year salary on that. Some of them, it's it's conservatively,

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Speaker 1: I mean maybe twinterstouts and you're looking at one or

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Speaker 1: two here, and the stock is up today, so you know,

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Speaker 1: with their earnings growth they have, it seems like there's

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Speaker 1: a lot of margin to to do that. But how

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Speaker 1: do you see the regulatory risks sort of manifesting? Would

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Speaker 1: it be? Is it that basically like an added cost

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Speaker 1: of doing business? Uh? To prevent things like this from happening.

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Speaker 1: Where could you envision to find some sort of any

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Speaker 1: trust issues anything like that. Well, you know, trying to

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Speaker 1: predict what these find their antitrust results could look like

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Speaker 1: it's very difficult. Um. You know, I would say that

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Speaker 1: us that every investor expects that they're going to spend

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Speaker 1: more in terms of preventing these incidents, because obviously there

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Speaker 1: are a reputational hit. Um, so, you know there is

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Speaker 1: an increased cost there. I think when you look at

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Speaker 1: these names have got such strong secular trends and you know,

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Speaker 1: Facebook specifically is going to grow their revenue probably north

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Speaker 1: again this year. Um, So there's tremendous revenue growth there

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Speaker 1: that they can absorb some incremental costs. And you know,

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Speaker 1: when you look at the companies, they still have largely

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Speaker 1: untapped markets that they have, you know, visibility on type

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Speaker 1: revenue growth for a number of years going forward. Michael,

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Speaker 1: real quick, are you adding to your shares of Facebook

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Speaker 1: and Apple? Well, I can't talk about individual trading activity,

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Speaker 1: but you know, I think when you look at these

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Speaker 1: two positions for US, Apples our second the biggest position

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Speaker 1: in the portfolio and has been a holding since two

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Speaker 1: thousand nine, and Facebooks a long term holding for us

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Speaker 1: as well. Michael Scanlon, thank you so much for joining us.

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Speaker 1: Michael Scanlon, portfolio manager for Manu Life Asset Management in Boston.

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Speaker 1: Bullish on Apple, which releases earnings after the bell tomorrow,

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Speaker 1: as well as Facebook, which releases earnings after the bell today,

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Speaker 1: and of course we are going to be talking about

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Speaker 1: the second Day of Tech hearings on Capitol Hill, in

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Speaker 1: particular Al Franken, who had some great comments about rubles

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Speaker 1: uh and add dollars. October auto sales are trickling in.

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Speaker 1: We got a Nissan, We've gotten Chrysler, We've gotten GM,

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Speaker 1: we've gotten Ford. Here to break it all down, explain

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Speaker 1: sort of the tail of two different UH slices of

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Speaker 1: the auto market. Jimmie Butters joins us Now he's US

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Speaker 1: Auto Reporters reporter for Blue Broke News, coming to us

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Speaker 1: from the Detroit bureau. Jamie, they're about half beats and

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Speaker 1: half misses. Can you explain kind of what was under

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Speaker 1: the beats and what was under the beat Mrs Here. Yeah,

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Speaker 1: it's really been a mixed bag, that's for sure. You know.

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Speaker 1: Some of it has to do probably with the fleet sales.

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Speaker 1: They're the large, the bulk sales that are kind of

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Speaker 1: discounted um and can be really lumpy and come in

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Speaker 1: sometimes towards the end of the month. Uh. You know,

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Speaker 1: Nissan's had these really surprising beats the last two months. Uh.

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Speaker 1: They may be doing a little extra fleet action there

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Speaker 1: and they can take some sales from some others, you know,

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Speaker 1: Fiat Chrysler, they've been down for fourteen months in a row. Uh.

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Speaker 1: They as they've discontinued some of their vehicles that really

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Speaker 1: only sold the fleets that weren't very popular with actual

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Speaker 1: uh you know, people who buy vehicles, that's the word

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Speaker 1: for them. Yes. Uh So, you know, they've had a

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Speaker 1: had a long, long, uh streak of declines, but it's

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Speaker 1: actually been a healthier business. We've seen Fiat Chrysler's profits increases.

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Speaker 1: They've become more focused on you know, jeeps and pickups

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Speaker 1: that that people really want to buy. I mean, the

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Speaker 1: one thing that's been a constant throughout the day's results

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Speaker 1: has been demand for full size trucks. They've just they're

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Speaker 1: doing really well. We've seen a lot of construction activity

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Speaker 1: around the country probably also starting to see some people

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Speaker 1: snapping up trucks to do construction and clean up work

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Speaker 1: in places like Texas and Florida. Texas is a huge

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Speaker 1: pickup market. It's the biggest pickup market anywhere, and uh,

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Speaker 1: you know, so a lot of the replacement demand there

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Speaker 1: in Houston is is going to be truck heavy, so

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Speaker 1: that plays play as well for Detroit certainly. Uh Ford

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Speaker 1: F Series sales were very strong. GM had great pickup

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Speaker 1: sales this month. Yeah, j I'm meant to ask you

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Speaker 1: about that. So how how do we read these numbers? UH?

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Speaker 1: Sort of as an indicator of the macro economy. If

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Speaker 1: it sounds like they're very noisy this month with replacement

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Speaker 1: vehicles incentives, this is the time of year when two

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Speaker 1: thousand and seventeen models are discounted. What's the picture looks

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Speaker 1: like internationally? UH is their demand for pickups outside of

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Speaker 1: the US. You know, the full size pickup is really

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Speaker 1: a North American vehicle only it's a it's a U.

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Speaker 1: S and Canada vehicle. It's too big for the roads

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Speaker 1: in most parts of the country. But you know, stepping

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Speaker 1: back on the macro level for the US, right, You're

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Speaker 1: you're right, and it's really noisy results company by company, UM.

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Speaker 1: But what we're seeing overall is as strong demand. It's

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Speaker 1: a it's a good month. You know, probably it might

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Speaker 1: be close to an eighteen million UH pace, which which

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Speaker 1: is very high and almost you know, four hundred thousand

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Speaker 1: units better than than the average estimate. So that might

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Speaker 1: tell us that that they are getting enough vehicles sold

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Speaker 1: through the model your close out that there's not going

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Speaker 1: to need to be as much idling of factories, uh,

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Speaker 1: you know going into the winter months. So that's it's

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Speaker 1: a good sign for the US economy broadly, of course,

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Speaker 1: you know, winners and losers among among the players. But

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Speaker 1: it should mean, you know, pretty it should kind of

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Speaker 1: keep feeding this the GDP growth in the US. Maybe

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Speaker 1: you know, just a couple of months ago, we were

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Speaker 1: talking about how like sales were declining by the double

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Speaker 1: digits this year. All of a sudden, now everything looks great.

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Speaker 1: How much is just simply replacing vehicles that were lost

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Speaker 1: in the multiple hurricanes that have hit the US so far. It's, uh,

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Speaker 1: that's a great question. I've been asking all my all

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Speaker 1: my analyst friends, and and it looks like it's rough

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Speaker 1: kind of half and half maybe maybe a third do

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Speaker 1: a half is really hurricane related, uh you know, replacement

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Speaker 1: of vehicles and then you know, and like I said,

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Speaker 1: sort of this hurricane repair related demand. Um. But the

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Speaker 1: other probably half the two thirds, maybe you know a

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Speaker 1: little more, is really just this they've been carrying too

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Speaker 1: much inventory for a year, maybe almost a year and

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Speaker 1: a half. And you know, GM has some factory downtime

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Speaker 1: as they retool for some some new models. But industries

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Speaker 1: have been carrying a ton of inventory. Demand is you know,

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Speaker 1: has been softening throughout the year. They don't want to

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Speaker 1: go into calendar year eighteen was still seen model year

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Speaker 1: vehicles on their lots. They've got to get rid of them,

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Speaker 1: and they're and they're making that happen. So it's a

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Speaker 1: lot of it is it's kind of some some discount driven,

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Speaker 1: which is what we see at the end of the year,

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Speaker 1: right everyone wants to hit their numbers. You get those

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Speaker 1: Black Friday discounts the December to Remember kind of things. Uh,

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Speaker 1: you know those are gonna get cranking up really soon.

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Speaker 1: Automakers and a lot of you know, consumers have really

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Speaker 1: come to to count on big sales at the end

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Speaker 1: of the year. Jamie Butters, thank you so much for

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Speaker 1: joining us. Jamie Butters, us autos reporter for Bloomberg News,

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Speaker 1: coming to us from Detroit. Mike, what kind of car

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Speaker 1: do you have? You know, I'm primarily a pedestrian, but alright,

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Speaker 1: on the weekend. On the weekend, I'll drive the Twyota Highlander.

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Speaker 1: I'm kind of like the uber for my kids though,

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Speaker 1: that's that's my only driving. I get in we'll we'll

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Speaker 1: be discussing extensively, um the the financials of being an

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Speaker 1: uber for your kids. Thanks for listening to the Bloomberg

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Speaker 1: P and L podcast. You can subscribe and listen to

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Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.

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00:28:44,440 --> 00:28:48,040
Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm

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00:28:48,040 --> 00:28:51,440
Speaker 1: on Twitter at Lisa abramowits one before the podcast. You

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Speaker 1: can always catch us worldwide on Bloomberg Radio