WEBVTT - 80% of Bain’s Distressed Purchases Have Been Outside the U.S. (Correct) 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 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:25.120 at Bloomberg dot com. So it seems like there are 0:00:25.360 --> 0:00:30.160 new funds being raised every day to invest in private credit. 0:00:30.200 --> 0:00:33.040 Angelo Gordon is expanding further into distressed debt with a 0:00:33.080 --> 0:00:36.199 new fund UH that has a billion dollars That is 0:00:36.320 --> 0:00:40.479 the latest today. Bain Capital among the most active with 0:00:40.560 --> 0:00:44.839 respect to raising money UH successfully and deploying it. Joining us. 0:00:44.880 --> 0:00:47.360 We are so lucky to have Jonathan Levine, co managing 0:00:47.400 --> 0:00:51.239 partner of Bain Capital, normally based in Boston, but gracing 0:00:51.320 --> 0:00:55.120 us with his presence here in our Bloombgood Active Brokers Studios. Jonathan, 0:00:55.360 --> 0:00:59.960 your firm overseas so much of this debt billion dollar 0:01:00.000 --> 0:01:03.960 there's an assets under management. Are you concerned about the 0:01:04.000 --> 0:01:08.160 amount of money being raised given the fact that there 0:01:08.200 --> 0:01:13.880 really aren't that many assets to buy? Well, I think 0:01:13.959 --> 0:01:17.759 you have to think about, uh, the world more globally. 0:01:18.480 --> 0:01:21.040 You know, ten years ago, if somebody were to ask 0:01:21.200 --> 0:01:24.479 us about the market, or were to ask us about credit, 0:01:24.880 --> 0:01:27.600 they would really be asking about the US buyout business 0:01:27.800 --> 0:01:32.120 and the US credit business. And really, UM, we actually 0:01:32.160 --> 0:01:34.679 manage a hundred and eight billion dollars, of which forty 0:01:34.720 --> 0:01:38.720 one billion is in credit. But that credit is UM 0:01:39.200 --> 0:01:45.440 senior and junior, it's over, it's it's in UM Europe, US, Asia, Australia, 0:01:45.920 --> 0:01:49.840 and the credit asset class has become quite nuanced in 0:01:49.960 --> 0:01:52.680 terms of the types of risk you can take, the 0:01:52.720 --> 0:01:55.240 types of liquidity you can take in the geographies you 0:01:55.320 --> 0:01:59.280 participate in, and those are not as correlated as they 0:01:59.320 --> 0:02:02.360 were ten years ago, when the story was whatever happened 0:02:02.400 --> 0:02:06.520 in US high yield was the entire story. So, Jonathan, 0:02:06.560 --> 0:02:11.079 were ten plus years into this economic cycle, you're the chief, 0:02:11.840 --> 0:02:15.000 I guess you know, chief credit investment officer. You need 0:02:15.040 --> 0:02:18.960 to really think about the quality of the credit where investment. 0:02:19.000 --> 0:02:21.160 When you think about the credit quality and deals that 0:02:21.280 --> 0:02:25.400 you're seeing, Now, how's it looking? So I think that 0:02:25.639 --> 0:02:29.320 the degree of difficulty has gone up. There's clearly larger 0:02:29.440 --> 0:02:32.480 use of proformas. But I've you know, made it clear 0:02:32.520 --> 0:02:35.920 that not all proformas are are good or bad and 0:02:36.280 --> 0:02:38.960 pro performers. What are you talking about because forecast by 0:02:38.960 --> 0:02:44.120 the company forecast adjustments in earnings almost always for the positive. Okay, UM, 0:02:44.320 --> 0:02:46.399 So I have yet to see one where somebody said 0:02:46.440 --> 0:02:48.560 our numbers are going to be worse in the future 0:02:48.560 --> 0:02:51.720 than they are today. And they really take three types. 0:02:51.760 --> 0:02:55.760 They take tangible um upside to earning that you can 0:02:55.800 --> 0:02:59.640 achieve and quantify. There's things that are dependent on growth, 0:03:00.040 --> 0:03:01.960 and then there's things what that I would call are 0:03:02.120 --> 0:03:06.760 highly ambitious market top type of behavior. So consolidating two 0:03:06.800 --> 0:03:11.320 factories clearly quantifiable UM. A software company that's growing quickly, 0:03:11.720 --> 0:03:15.160 you can't take last year's earnings and just grow, you know, 0:03:15.240 --> 0:03:18.400 run it out because there is some obvious growth things 0:03:18.480 --> 0:03:22.360 like proform of future revenue synergies. I don't even know 0:03:22.360 --> 0:03:23.880 what that is, but I have seen that in a 0:03:23.919 --> 0:03:27.959 perform and you don't You don't take that um because 0:03:28.320 --> 0:03:30.440 there is some margin of safety in there. And if 0:03:30.440 --> 0:03:32.600 you take every possible good thing that can happen to 0:03:32.639 --> 0:03:35.520 the company, and then the sponsor pays for that in 0:03:35.560 --> 0:03:38.800 their purchase price, and then you borrow against that UM, 0:03:39.040 --> 0:03:41.400 your margin of safety if the economy slows down has 0:03:41.440 --> 0:03:44.760 gone away. So one thing that people have said is 0:03:44.880 --> 0:03:50.080 that private equity sponsors, of which BANE counts itself among them. 0:03:50.120 --> 0:03:52.880 I know that that's not necessarily your day to day focus. 0:03:52.960 --> 0:03:56.160 As much as perhaps the credit investments UH that their 0:03:56.240 --> 0:04:01.320 sponsorship has led to a deterioration the a quality of 0:04:01.520 --> 0:04:03.600 some of the credit in particularly at the bonds and 0:04:03.640 --> 0:04:07.320 loans that companies are are issuing. Do you find that 0:04:07.680 --> 0:04:11.680 from the credit investor standpoint, I think that it is 0:04:11.960 --> 0:04:17.520 very much industry specific, company specific and sponsor specific. UM 0:04:17.640 --> 0:04:20.680 sponsors like us have a hundred people who go in 0:04:20.720 --> 0:04:24.600 and work with companies and really only invest in companies 0:04:24.600 --> 0:04:27.760 where we can add value and help change the answer 0:04:28.279 --> 0:04:32.159 versus other types of investors who may be participating in 0:04:32.200 --> 0:04:36.679 the upside beta of the market. And UM. At this 0:04:36.960 --> 0:04:41.440 stage in in any cycle, UM, the marginal deal is 0:04:41.440 --> 0:04:44.400 probably not the best deal. UM. That does not mean 0:04:44.440 --> 0:04:46.960 that all the deals being done are troublesome, all the 0:04:47.000 --> 0:04:50.200 deals being done are are are bad. You just need 0:04:50.279 --> 0:04:53.320 to make sure that you're investing in areas that can 0:04:53.360 --> 0:04:56.040 weather a cycle. Because I'm not saying whether there will 0:04:56.120 --> 0:04:58.000 or will not but it's certainly more likely than it 0:04:58.000 --> 0:05:00.880 would have been ten years ago. UM. Two, you want 0:05:00.880 --> 0:05:04.320 to make sure that you're in industries and business models 0:05:04.360 --> 0:05:07.680 that are sustainable. UM. And three, you want to make 0:05:07.720 --> 0:05:10.960 sure that you have a capital structure that can weather 0:05:11.000 --> 0:05:13.960 a storm. So which which industries are sustainable in the 0:05:14.040 --> 0:05:18.120 next cycle and which aren't. Well, it's interesting, UM, it 0:05:18.279 --> 0:05:21.240 used to be that technology was something everybody was scared of, 0:05:21.440 --> 0:05:26.080 and technology everybody viewed as vaporware or internet concepts like 0:05:26.160 --> 0:05:29.040 from a one when the bubble happened. And really, when 0:05:29.080 --> 0:05:32.360 you think about technology, there's lots of different types of technology. 0:05:32.440 --> 0:05:36.440 As a lender, software businesses that are subscription business is 0:05:36.760 --> 0:05:40.560 really good. Razor and razor blade types of technology business 0:05:40.680 --> 0:05:43.880 is really good. Um. What you have to watch out 0:05:43.960 --> 0:05:47.560 for is where people are taking equity risk with debt, 0:05:47.880 --> 0:05:50.960 business models that have to reinvent themselves, where there's massive 0:05:50.960 --> 0:05:54.240 amounts of capital expenditures that are required and you have 0:05:54.360 --> 0:05:56.800 to refresh the product on a very short life cycle. 0:05:59.760 --> 0:06:02.680 I'd know that. I just I don't know, go ahead 0:06:02.680 --> 0:06:05.200 fall no, So, Jonathan, I mean, you know what are 0:06:05.200 --> 0:06:07.480 the issues? You know, Geopolitical risk I know was always 0:06:07.480 --> 0:06:09.680 a part of the credit checklist you have to deal with. 0:06:09.720 --> 0:06:12.039 But it just seems like maybe in the last couple 0:06:12.080 --> 0:06:14.640 of years of geopolitical risk, whether it's trade tensions with 0:06:14.720 --> 0:06:18.760 China or European risks with Brexit, how are you how 0:06:18.800 --> 0:06:20.800 are the folks at bane kind of factory that into 0:06:20.800 --> 0:06:24.440 your credit analysis? UM So, I think there's two things. 0:06:24.600 --> 0:06:29.600 One is, the requirement for imagination almost exceeds the requirement 0:06:29.760 --> 0:06:34.920 for UM analysis because the sort of standard bell curve 0:06:35.080 --> 0:06:40.039 of what economic policy, trade policy, UM international treaties look 0:06:40.120 --> 0:06:44.360 like has gone out the window, and therefore outcomes I mean, 0:06:44.360 --> 0:06:47.520 if I'm sure you remember, you know, early on people 0:06:47.520 --> 0:06:50.240 were like, there is no way brexit will pass UM, 0:06:50.279 --> 0:06:52.640 and that was the operating assumption. And then once bregg 0:06:53.040 --> 0:06:57.839 bregsit passed, the markets created for half hour and then 0:06:58.040 --> 0:07:01.640 bounce back because they're like, well it'll it won't get implemented, 0:07:01.680 --> 0:07:04.359 and it hasn't been implemented. So what we try to 0:07:04.400 --> 0:07:08.599 do is think of a um an array of outcomes 0:07:08.800 --> 0:07:12.080 and test our hypothesis against that. And obviously you can't 0:07:12.120 --> 0:07:17.320 protect against every downside, but certainly being more broadly being 0:07:17.600 --> 0:07:23.680 UM more broadly UM analytical about tariffs, trade wars, UM 0:07:24.440 --> 0:07:27.960 immigration things like that are just a new requirement. So 0:07:28.360 --> 0:07:31.120 just in in about thirty seconds, which areas in the 0:07:31.160 --> 0:07:34.400 world do you see as the potentially most fruitful when 0:07:34.400 --> 0:07:38.880 it comes to distress opportunities? So uh, over the last 0:07:38.960 --> 0:07:42.200 several years, eight percent of our investing has actually taken 0:07:42.240 --> 0:07:47.920 place globally outside the United States. UM. The the ways 0:07:47.960 --> 0:07:52.120 that UH, different economies work through the crisis has resulted 0:07:52.160 --> 0:07:55.160 in very different opportunities. And we've spent a lot of 0:07:55.200 --> 0:07:58.600 time working on non performing loan portfolios coming out of 0:07:58.600 --> 0:08:02.240 European banks which are ill um in need of capital 0:08:02.720 --> 0:08:06.920 UM and the Asian capital markets which UM as I 0:08:06.960 --> 0:08:09.320 said earlier about technology, it's not a thing, it's a 0:08:09.360 --> 0:08:12.160 lot of things provide a lot of diversity, whether it's 0:08:12.200 --> 0:08:17.280 distressed debt in in India, npls in China, or private 0:08:17.360 --> 0:08:19.920 landing in Australia. Right right, Jonathan Levine, and thank you 0:08:19.920 --> 0:08:21.320 so much that we have to leave it there, but 0:08:21.320 --> 0:08:23.720 we're gonna definitely get you back in the studio next 0:08:23.760 --> 0:08:25.960 time you're in New York. But we understand happens often. 0:08:26.360 --> 0:08:29.360 Jonathan Levine, co Managing Partner and credit Chief Investment Officer 0:08:29.440 --> 0:08:32.520 at Bain Capital talking to us about the private equity world, 0:08:32.520 --> 0:08:50.400 in the credit side of private equity investment. Well, when 0:08:50.400 --> 0:08:53.600 trade tensions between the US and China really began to 0:08:53.720 --> 0:08:56.120 escalate several weeks ago, one of the U S names 0:08:56.120 --> 0:08:59.640 that came right into focus was Apple. Apples certainly exposed 0:08:59.640 --> 0:09:04.280 to China, getting almost revenue from China. Plus they also 0:09:04.360 --> 0:09:07.480 manufacture a lot of their phones and iPads and things 0:09:07.559 --> 0:09:10.440 in China, so clearly some risks there. Let's get the 0:09:10.480 --> 0:09:13.959 latest from John Butler Johnson, senior Telecom Services and Equipment 0:09:13.960 --> 0:09:16.600 annals from Bloomberg Intelligence. He joins us on the phone 0:09:16.679 --> 0:09:21.200 from Princeton, New Jersey. John, there's actually growing discussion that 0:09:21.640 --> 0:09:25.160 maybe Apple can source a lot of its products that 0:09:25.240 --> 0:09:27.640 were in China outside of China. How feasible is that 0:09:27.679 --> 0:09:31.599 do you think? Yeah, thanks, Paul, I think it's very feasible. 0:09:31.679 --> 0:09:36.400 The question is how much time does uh Apple's main 0:09:36.760 --> 0:09:40.800 UM manufacturer, called fox Con, how much time does fox 0:09:40.920 --> 0:09:44.680 Con really need to make that move? Um? In fact, 0:09:44.800 --> 0:09:48.880 I suspect the move is already underway. You know, Apple 0:09:49.040 --> 0:09:51.679 is long overdue to kind of spread its bets, so 0:09:51.760 --> 0:09:56.200 to speak. And and there are regions like Vietnam, for example, 0:09:56.320 --> 0:10:00.240 which are lower costs to produce a good like the 0:10:00.280 --> 0:10:04.600 iPhone than China. How long would it take for Apple 0:10:04.640 --> 0:10:08.560 to move its supply chain, Well, it's hard to say, Lisa. 0:10:08.640 --> 0:10:11.360 I would say to really move a hundred percent of 0:10:11.400 --> 0:10:14.400 the iPhone production out of China would probably take at 0:10:14.480 --> 0:10:17.600 least a couple of years, would be my guest. So 0:10:17.640 --> 0:10:21.720 wouldn't immunize them from some sort of very near term 0:10:21.760 --> 0:10:26.160 move by China? Not immediately, but again I suspect there's 0:10:26.200 --> 0:10:29.439 been some movement behind the scenes that we're not seeing. 0:10:30.400 --> 0:10:33.040 You know, the comment was made by a senior Fox 0:10:33.120 --> 0:10:36.160 con officials, so they probably he probably got the green 0:10:36.240 --> 0:10:40.040 light to say something suggesting to me the move is 0:10:40.080 --> 0:10:44.240 already underway. Lisa, just, you know, just to kind of 0:10:44.280 --> 0:10:46.600 go and show how the supply chain for Apple, how 0:10:46.720 --> 0:10:49.240 intense it is, and how expansive it is. On the 0:10:49.240 --> 0:10:51.840 Bloomberg terminal, you can just type in the symbol for Apple, 0:10:52.360 --> 0:10:55.240 then put in the function SPLC for supply chain, and 0:10:55.360 --> 0:10:59.080 it is just it's amazing how many suppliers supply Apple 0:10:59.120 --> 0:11:02.280 than how many customs. Apple has truly a global company. 0:11:02.480 --> 0:11:04.640 So John, I think that one of the risks, you know, 0:11:05.600 --> 0:11:07.960 when you think about it. You know that. I guess 0:11:07.960 --> 0:11:10.160 a real concern would be, at least the most immediably 0:11:10.400 --> 0:11:14.000 would be sales into China. Is there any sense that 0:11:14.480 --> 0:11:18.280 Chinese consumers, maybe just for nationalistic perspectives, might be pulling 0:11:18.280 --> 0:11:21.400 away from Western goods and Apple? Yeah, I mean that 0:11:21.559 --> 0:11:24.200 is spot on, Paul. I mean that's really what I 0:11:24.320 --> 0:11:27.280 worry about most right now. When I look at Apple 0:11:27.480 --> 0:11:32.400 and their risk um China. They don't break out sales 0:11:32.480 --> 0:11:36.880 by country, but I believe China is Apple's largest country 0:11:36.920 --> 0:11:42.920 by sales by iPhone sales. Um, my guess because it's 0:11:42.920 --> 0:11:45.920 probably um that's a that's a good point. It could 0:11:46.000 --> 0:11:48.840 be second to the US. It's hard to say. Again, 0:11:48.920 --> 0:11:52.720 they don't they break out sales by region, not country, 0:11:52.800 --> 0:11:58.480 So by region Greater China is just shy of of sales. 0:11:58.600 --> 0:12:02.080 It's around nine on of sales in the latest calendar year. 0:12:02.280 --> 0:12:06.440 So there's a lot at risk there, and there is 0:12:06.520 --> 0:12:12.360 I imagine there is rising um nationalist sentiment among Chinese consumers, 0:12:12.520 --> 0:12:15.920 and that can really dent sales of not just the 0:12:15.960 --> 0:12:20.880 iPhone but other Apple products. So I want to ask you, John, 0:12:21.080 --> 0:12:24.520 we were talking earlier about how the tech sector text 0:12:24.559 --> 0:12:28.160 shares in the United States have rallied the most in 0:12:28.200 --> 0:12:32.840 the past six days since two thousand and eleven. And 0:12:32.840 --> 0:12:36.040 I'm trying to understand how much of this is driven 0:12:36.160 --> 0:12:42.520 by fundamental improvements in the backdrop geopolitical otherwise, and how 0:12:42.600 --> 0:12:45.840 much this is just a knee jerk response too. Well, 0:12:45.920 --> 0:12:48.960 I guess people have stopped freaking out now, you know. 0:12:49.040 --> 0:12:51.960 My thought on that is a couple of things. Number One, 0:12:52.000 --> 0:12:57.720 Wall Street tends to look beyond the abyss a little bit, right, So, uh, 0:12:57.760 --> 0:13:01.600 this latest announcement by Fox con tells us that Apple 0:13:01.720 --> 0:13:05.640 can make moves to limit its exposure, and other tech 0:13:05.679 --> 0:13:09.520 companies can as well. That's number one, And I think 0:13:09.600 --> 0:13:13.600 number two, there's probably some hope that at the G twenty, 0:13:13.679 --> 0:13:16.560 the U. S And China can come to maybe even 0:13:16.559 --> 0:13:19.959 a short term agreement to take some of the pressure off, because, 0:13:20.880 --> 0:13:23.640 as you know, the US is as reliant on China 0:13:23.720 --> 0:13:26.480 as China is reliant on US. It's a two way 0:13:26.600 --> 0:13:29.719 street and it's in no one's best interest to let 0:13:29.760 --> 0:13:33.240 this escalate beyond where we are. John, just real quick, 0:13:33.480 --> 0:13:36.240 what's the next thing that Apple investors should be looking 0:13:36.240 --> 0:13:38.640 for in terms of new product launches or anything like that? 0:13:39.960 --> 0:13:43.080 Also a great question. So this they tend to do 0:13:43.120 --> 0:13:46.640 the fall refresh event they introduce all the new iPhones 0:13:46.720 --> 0:13:51.120 in September. I think this refresh will be okay but 0:13:51.240 --> 0:13:54.920 not great. But I'm really looking to for that new 0:13:55.000 --> 0:13:58.559 five G I phone, So I think next year is 0:13:58.600 --> 0:14:01.160 going to be a really big year for Apple. Would 0:14:01.160 --> 0:14:04.000 be my guest on the iPhone front, John Butler, thank 0:14:04.000 --> 0:14:06.600 you so much for being with us as always. John Butler, 0:14:06.840 --> 0:14:11.000 Senior Telecom Service as an equipment analyst for Bloomberg Intelligence. 0:14:27.720 --> 0:14:31.200 One area of the US equities that have underperformed are 0:14:31.240 --> 0:14:35.280 the A d R, the depository receipts of Chinese companies. 0:14:35.320 --> 0:14:37.400 I'm looking at Ali Baba a d R s which 0:14:37.440 --> 0:14:41.040 are down nearly twenty percent. Our next guest says, that's 0:14:41.040 --> 0:14:43.800 a buying opportunity. Let's bring him in, Danton Goie. He 0:14:43.840 --> 0:14:47.640 has a portfolio manager of at Davis Funds, which overseas 0:14:47.640 --> 0:14:49.920 about two billion dollars, and he joins us here in 0:14:50.080 --> 0:14:54.760 our Bloomberg Interactive broker's studios. So you actually are starting 0:14:54.760 --> 0:14:58.640 to see opportunities emerge in these Chinese stocks, even though 0:14:58.920 --> 0:15:01.960 people are very concerned earned about the corollary effects of 0:15:02.000 --> 0:15:05.960 trade wars in addition to a slowing Chinese economy. Why, yes, 0:15:06.080 --> 0:15:08.160 good morning, Thanks for having me. Yes, I think they 0:15:08.160 --> 0:15:11.120 are very interesting, specifically because of the worries now how 0:15:11.240 --> 0:15:15.040 depressed valuations and the stock prices are down, even though 0:15:15.360 --> 0:15:17.920 the businesses continue to be very strong, and it makes 0:15:17.960 --> 0:15:21.080 sense these businesses are focused on the Chinese consumer. They're 0:15:21.080 --> 0:15:24.720 not export driven, very little international sales, almost d percent 0:15:24.800 --> 0:15:29.760 domestic sales, and the Chinese consumer remains a very strong tailwind, 0:15:29.880 --> 0:15:32.320 a very strong story. Uh. And the business confuses to 0:15:32.360 --> 0:15:34.320 be very strong even in the recent quarters when there's 0:15:34.320 --> 0:15:37.520 been worries about the U S trade friction. Revenues have 0:15:37.560 --> 0:15:41.720 been up two cours ago last quarter revenues at Ali Baba, 0:15:41.800 --> 0:15:47.200 for example, we're up fifty, so business is great. The 0:15:47.240 --> 0:15:50.120 balance sheets continue to be very strong, long term demand 0:15:50.320 --> 0:15:54.200 forecast remain good. UH. And right now the valuations are down, 0:15:54.240 --> 0:15:56.680 so to us as value investors at Davis, we think 0:15:56.680 --> 0:15:59.240 it's a great buying opportunity. So give us a sense 0:15:59.240 --> 0:16:03.440 of how you think Chinese consumers are thinking about the 0:16:03.520 --> 0:16:07.440 trade issues as it go into consumer sentiment consumer confidence. 0:16:07.480 --> 0:16:09.680 Are you seeing any of those types of data points 0:16:09.720 --> 0:16:12.400 coming that might cause your consumer centric story to a 0:16:12.400 --> 0:16:14.280 little bit of a pause. Yeah, I think from the 0:16:14.280 --> 0:16:17.160 consumer point of view, it's not a huge worry. It's 0:16:17.160 --> 0:16:21.400 probably a bigger worry for Chinese investors UH and maybe 0:16:21.400 --> 0:16:24.080 taking a pause and investment. But at the margin of 0:16:24.120 --> 0:16:27.080 course it is negative UH and so it's not a positive. 0:16:27.560 --> 0:16:30.400 We do think though, that in the sort of short terms, 0:16:30.400 --> 0:16:33.200 sort of the next two to four quarters, there will 0:16:33.280 --> 0:16:35.960 be a resolution UH to the trade war. Mean, of course, 0:16:36.000 --> 0:16:39.360 no one knows the future perfectly, but in this case, 0:16:39.400 --> 0:16:43.240 there's strong reasons why both parties, the US and China 0:16:43.640 --> 0:16:46.120 want a trade of resolution. We are seeing a little 0:16:46.120 --> 0:16:50.200 bit of a slowdown in both economies UH being impacted, 0:16:50.360 --> 0:16:53.200 and this is something that they can both UH resolve 0:16:53.280 --> 0:16:55.320 on their own by coming to an agreement. So we 0:16:55.360 --> 0:16:57.280 do think that eventually there will be an agreement and 0:16:57.320 --> 0:16:59.880 this will be behind them. In the meantime, the companies, 0:17:00.160 --> 0:17:03.160 despite this are doing well. So some of the other 0:17:03.240 --> 0:17:07.240 companies other than Ali Baba, New Oriental Education and Technology 0:17:07.280 --> 0:17:10.080 trades onto the A d r H ticker e d 0:17:10.320 --> 0:17:13.080 U and then j D dot Com UH. Those shares, 0:17:13.119 --> 0:17:14.720 by the way, the A d R s have lost 0:17:15.160 --> 0:17:19.080 nearly thirty percent year to date, UH, so d U 0:17:19.440 --> 0:17:22.000 the new Oriental Education is sort of the outperformer here, 0:17:22.080 --> 0:17:26.119 only losing about twelve I'm just wondering. One question people 0:17:26.160 --> 0:17:30.080 have is the transparency of Chinese companies and concerns about 0:17:30.160 --> 0:17:33.520 really being able to dig into the finances given this 0:17:33.600 --> 0:17:37.200 sort of different accounting standards. How do you deal with that? Yes, 0:17:37.280 --> 0:17:39.080 that's a good question. You know. One of the ways 0:17:39.200 --> 0:17:41.800 we deal with that, and that's with any company that 0:17:41.840 --> 0:17:44.760 we look at, UH. But in China specifically, we only 0:17:44.800 --> 0:17:46.959 invest in US listed A d R S or Hong 0:17:47.040 --> 0:17:50.600 Kong listed stocks and no local A share companies. The 0:17:50.640 --> 0:17:53.240 reason being that here in the US, of course, we 0:17:53.280 --> 0:17:56.560 have US GAP and in Hong Kong they use International 0:17:56.680 --> 0:18:01.840 GAP UH. And so the listing standards, the acquire accounting standards, UH, 0:18:02.000 --> 0:18:05.280 the transparency requirements, the corporate governance requirements are much higher 0:18:05.760 --> 0:18:08.720 because they're listed here in the US or in Hong Kong. 0:18:09.040 --> 0:18:11.240 And so that's one way that you can. The other way, 0:18:11.280 --> 0:18:13.440 of course, is doing very in depth due diligence, which 0:18:13.480 --> 0:18:15.879 is what we're known for. And so we'll go and 0:18:15.960 --> 0:18:18.080 been following these companies for well over a decade now, 0:18:18.320 --> 0:18:20.359 so we know all the key individuals. We've talked to 0:18:20.359 --> 0:18:24.080 all their competitors and suppliers, their customers, UH and get 0:18:24.080 --> 0:18:26.240 a good sense of who they are as well. But 0:18:26.400 --> 0:18:29.560 you know, of course there's always UH risks there and 0:18:29.600 --> 0:18:33.000 so we're always trying to match the numbers compared to 0:18:33.040 --> 0:18:35.560 what we are hearing out there in the broad economy 0:18:35.800 --> 0:18:38.920 or other companies, and so that's one good way, UH 0:18:38.960 --> 0:18:41.919 to kind of minimize risk. So, Danton, you mentioned the 0:18:42.040 --> 0:18:44.840 as one of the supports for investing in China down 0:18:44.840 --> 0:18:47.679 addition to evaluation the these strong Chinese economy. We know 0:18:47.760 --> 0:18:51.080 it's slowing, but still I guess the the government is 0:18:51.080 --> 0:18:52.880 still talking about six six and a half percent growth. 0:18:52.960 --> 0:18:54.959 What is your sense of the economy in China right 0:18:54.960 --> 0:18:57.560 now in the next year or so. Yeah, it um it. 0:18:57.760 --> 0:18:59.639 It definitely is slowing and it's been on a sort 0:18:59.680 --> 0:19:00.800 of a down and trying. You know, used to be 0:19:00.800 --> 0:19:03.359 double digits, of course, then highest single digits. Now we're 0:19:03.400 --> 0:19:06.200 approaching sort of more mid single digits. And even if 0:19:06.560 --> 0:19:08.400 you know, some people always want to put a haircut 0:19:08.440 --> 0:19:10.679 on it, and I think that's reasonable in terms of 0:19:11.080 --> 0:19:13.520 how much you believe the numbers. It's still is still 0:19:13.600 --> 0:19:15.560 good you know, everything you look at, and even if 0:19:15.600 --> 0:19:18.679 you look at uh, non government reported numbers, if you 0:19:18.680 --> 0:19:24.040 look at sort of trainloadings or electrical production or uh 0:19:24.080 --> 0:19:26.840 you know, miles driven or things like that, Uh, those 0:19:26.880 --> 0:19:30.040 are all still very strong. And so all the sort 0:19:30.040 --> 0:19:33.080 of the non GDP numbers sort of correlate with still 0:19:33.119 --> 0:19:36.399 a growing UH economy in our senses that the government 0:19:36.400 --> 0:19:38.719 still has quite a bit of firepower in terms of 0:19:38.720 --> 0:19:41.280 helping the economy along its way. Meaning they have the 0:19:41.320 --> 0:19:44.200 ability cut rates, which are you know, tourner basis points 0:19:44.240 --> 0:19:46.960 higher than ours. They also have the ability to cut 0:19:47.000 --> 0:19:49.480 the reserve requirement at banks, which is the the amount 0:19:49.480 --> 0:19:51.360 of banks amount of money the banks that the cap 0:19:51.480 --> 0:19:54.679 keep uh, and so it increases their lending ability. So 0:19:54.680 --> 0:19:57.240 they have quite a bit of firepower to help the economy. 0:19:57.240 --> 0:19:59.879 They've been doing that. It has had an impact, and 0:20:00.000 --> 0:20:02.480 so they do have that impact that ability over the 0:20:02.520 --> 0:20:04.680 next new year or two to continue doing that. Very 0:20:04.720 --> 0:20:08.200 good Danton Goie, Thank you so much. Danton's portfolio manager 0:20:08.240 --> 0:20:10.480 for Davis Funds, joining us here in a Bloomberg Interactive 0:20:10.520 --> 0:20:29.320 Broker Studio week. Well, the markets are discounting at least 0:20:29.320 --> 0:20:32.760 two rate cuts this year and maybe more in But 0:20:32.880 --> 0:20:35.320 just recently we've had a couple of Wall Street economists say, 0:20:35.560 --> 0:20:38.520 not so fast to kind of square that circle. There. 0:20:38.520 --> 0:20:41.720 We welcome our next guest, Ira Jersey, chief US interest 0:20:41.800 --> 0:20:45.200 rate strategist for Bloomberg Intelligence, joining us from Princeton, New Jersey. Ira, 0:20:45.280 --> 0:20:47.399 thanks so much for joining us again. A couple of 0:20:47.440 --> 0:20:50.119 economists came out and said, gee, maybe the traders are 0:20:50.119 --> 0:20:52.440 a little bit ahead of themselves. What are your thoughts? Yeah, 0:20:52.640 --> 0:20:56.480 I'm I'm very uh in that camp. Actually, I think 0:20:56.520 --> 0:20:58.800 that the market has gotten a bit of ahead of itself. 0:20:58.800 --> 0:21:02.600 I think that the UM, no, the Fed it while 0:21:02.640 --> 0:21:05.080 it doesn't want to disappoint the markets, it also has 0:21:05.119 --> 0:21:08.280 to focus very strongly on the incoming data, both here 0:21:08.320 --> 0:21:11.520 in the US and abroad. And while we've seen, you know, 0:21:11.560 --> 0:21:14.679 a few disappointing data prints, it's not obvious that the 0:21:14.720 --> 0:21:17.199 economy is falling out of bed and is likely to 0:21:17.240 --> 0:21:20.679 do so going forward. So I think the market pricing 0:21:20.760 --> 0:21:24.800 right now for for a July cut is you know, 0:21:25.000 --> 0:21:27.600 is setting itself up for disappointment. I think, so, what 0:21:27.880 --> 0:21:30.639 in the data will the federals are point to to 0:21:30.840 --> 0:21:35.080 justify not cutting rates right now? And defying market expectations. Sure, 0:21:35.160 --> 0:21:38.000 so you know, I'm not saying that this is true, right, 0:21:38.280 --> 0:21:41.000 there's certainly a scope for some of the data to 0:21:41.040 --> 0:21:43.840 weaken over the next six or seven weeks before the 0:21:44.240 --> 0:21:46.679 before the July FED meeting. But if you look at 0:21:46.880 --> 0:21:49.640 at where we are on trends and things like retail 0:21:49.680 --> 0:21:53.240 sales running above four percent year on year, that's reasonably solid, 0:21:53.240 --> 0:21:55.680 although not at the five percent it was last year, 0:21:55.720 --> 0:21:58.720 but it's still at a solid reading. Um. You look 0:21:58.720 --> 0:22:01.760 at a lot of the the inflation data we got 0:22:01.760 --> 0:22:04.639 this morning, for example, you still have a p p 0:22:04.760 --> 0:22:07.080 I X food and energy up two point three percent, 0:22:07.200 --> 0:22:09.600 and if you get you know, cp I tomorrow, that's 0:22:09.680 --> 0:22:13.000 you know, close to two. Um. You know, those aren't 0:22:13.040 --> 0:22:16.040 the type of designer type of numbers that will give 0:22:16.080 --> 0:22:19.159 the Fed too much pause. I think the key and 0:22:19.280 --> 0:22:21.520 all of this, and and again they're going to be, 0:22:21.640 --> 0:22:24.080 you know, as data dependent as they can possibly be. 0:22:24.200 --> 0:22:26.879 I think in this intermeding period from the June to 0:22:26.960 --> 0:22:29.560 July meeting winds up being the June payrolls report, Right, 0:22:29.560 --> 0:22:31.359 you got a rebound into the hundreds of thousands, So 0:22:31.359 --> 0:22:34.080 you get a hundred and fifty thousand pay rolls and 0:22:34.119 --> 0:22:36.960 suddenly everyone's like, okay, maybe you know, May was a 0:22:37.000 --> 0:22:39.600 blip and and we're really on this more hundred and 0:22:40.680 --> 0:22:43.640 fifty thousand trend, which is fine. That's what you need 0:22:43.680 --> 0:22:46.359 in order to continue to have the unemployment rate stable, 0:22:46.400 --> 0:22:49.040 if not falling a little bit. Further, So, Eira, when 0:22:49.080 --> 0:22:52.679 the Fed does finally begin to ease, how do you 0:22:52.720 --> 0:22:56.320 think it will look? Yeah, so, so I think when 0:22:56.320 --> 0:22:59.920 they ease, you know, the I think the rates mark 0:23:00.040 --> 0:23:03.560 it in particular, is set up to uh to potentially 0:23:03.640 --> 0:23:06.399 steepen a little bit. And typically what happens when the 0:23:06.440 --> 0:23:09.639 Fed does start to cut interest rates um, the yield 0:23:09.640 --> 0:23:12.280 curve steepens and you wind up with some optimism that 0:23:12.320 --> 0:23:14.680 you're going to have inflation going up at some point 0:23:14.720 --> 0:23:17.440 in the future because of the easier monetary policy. But 0:23:17.760 --> 0:23:20.800