WEBVTT - P&L: Sears Will Get One Last Chance for Turnaround in 2017 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm PIM Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg P L Podcast on iTunes, 0:00:20.840 --> 0:00:29.040 SoundCloud and at Bloomberg dot com. All, let's gonna check 0:00:29.040 --> 0:00:31.800 on what's going on in the world of retail. Well, 0:00:31.840 --> 0:00:34.159 I guess we shouldn't even call it necessarily just retail 0:00:34.240 --> 0:00:38.920 because Sears Holdings has become more than just a retail story. 0:00:39.120 --> 0:00:41.600 It is a finance story in a big way. In 0:00:41.680 --> 0:00:45.639 here to tell us More's Bert Flickinger, Managing director Strategic Resource, 0:00:45.760 --> 0:00:47.920 a group. He can be followed on Twitter at Bert 0:00:48.040 --> 0:00:53.159 Underscore Flickinger. Alright, Bert Underscore Flickinger Underscore what's going on 0:00:53.240 --> 0:00:56.279 for us at Sears Holdings Because they just got a 0:00:56.320 --> 0:00:59.920 loan but a credit facility, but they're also closing stores. 0:01:00.360 --> 0:01:03.200 They're closing stores, and the worry, PIM UH to your 0:01:03.240 --> 0:01:07.040 good insight is same store sales or in a free fall, 0:01:07.200 --> 0:01:10.960 declining anywhere from UH seven to ten percent on an 0:01:10.959 --> 0:01:15.720 annualized basis and Typically when someone another department store chain, 0:01:15.800 --> 0:01:20.279 for example Macy's closes stores, uh Macy's same store sales 0:01:20.319 --> 0:01:23.839 will increase in the surviving stores or the remaining stores. 0:01:23.840 --> 0:01:26.480 That's that's not the case with Sears, and it's f 0:01:26.640 --> 0:01:29.920 D Reports and Credit and tell of have reported very 0:01:29.959 --> 0:01:32.720 well for a long time on Sears holdings came out 0:01:32.760 --> 0:01:36.440 of a number of others. It's it's the ones that 0:01:36.560 --> 0:01:40.559 can't rebalance themselves beyond the assets. The other thing FD 0:01:40.680 --> 0:01:45.160 Credit and tel reported those the average Sears um lease 0:01:45.480 --> 0:01:47.920 pays out at about five dollars and fifty cents of 0:01:48.000 --> 0:01:51.240 square foot, and on the open market it's probably worth something. 0:01:51.240 --> 0:01:54.240 We're closer to seventeen to twenty dollars of square foot. So, 0:01:54.280 --> 0:01:58.320 like you said, okay, so sevent square foot versus five 0:01:58.360 --> 0:02:01.000 and a half bucks. Yes, I think we can do 0:02:01.040 --> 0:02:03.320 the math. We could definitely do the math. And we're 0:02:03.360 --> 0:02:06.200 taking the math that Cheektawaga, New York, former home of 0:02:06.520 --> 0:02:10.680 George Westinghouse and Westinghouse in the intersection of the transportation 0:02:10.760 --> 0:02:15.040 border between the US and Canada, Sears is closing its 0:02:15.040 --> 0:02:18.920 store in the GALERIUMI mall profitable store, very good customer 0:02:19.040 --> 0:02:22.440 count but Sears can make millions assigning or flipping that 0:02:22.560 --> 0:02:25.480 lease or selling it back to Galeria as supposed to 0:02:25.520 --> 0:02:28.600 making a few hundred thousand years an operator of that store. 0:02:28.600 --> 0:02:31.760 At the same time, Sears gets to monetize its inventory 0:02:31.800 --> 0:02:35.040 and invest in other more profitable activities rather than retailing. 0:02:35.200 --> 0:02:39.680 Has Sears ever focused on online retailing in the way 0:02:39.720 --> 0:02:42.679 that Walmart says they want to focus on online retailing. 0:02:43.080 --> 0:02:47.800 That's the big opportunity that you're referencing as Sears is 0:02:47.880 --> 0:02:51.120 their online but not near where they need to be. 0:02:51.240 --> 0:02:53.720 And what we saw on our store checks across the 0:02:53.760 --> 0:02:59.160 country from the Carolinas to California is Sears has tremendous 0:02:59.280 --> 0:03:04.000 quality of pair, particularly in lands and so the UH finishings, 0:03:04.160 --> 0:03:08.239 the fifth the fabric, the quality, the value, the color palette. 0:03:08.639 --> 0:03:12.840 UH clearly eclipses Target, UM is on par with Coles 0:03:12.880 --> 0:03:16.919 and the bonton the other moderate UH department store chains. 0:03:17.120 --> 0:03:19.480 But Sears can't get the customer count in. So you 0:03:19.520 --> 0:03:21.959 really have to go back and retail history. And we're 0:03:22.000 --> 0:03:27.120 both retail historians. Is Arthur C. Martinez, CEO of Sacks, 0:03:27.160 --> 0:03:31.120 fith aving Oh, Bob Mettler, president of Robinson May They 0:03:31.160 --> 0:03:34.520 go in with Peter Gerjeski of Young and Rubicam creates 0:03:34.560 --> 0:03:37.840 softer side of Sears and get people coming in to 0:03:37.920 --> 0:03:40.800 buy apparel. The margins are two to three times higher. 0:03:41.200 --> 0:03:44.920 UH Sears wins financially. Metler and Martinez save Sears the 0:03:44.960 --> 0:03:47.920 first time twenty years ago. Lambert to his credits, hired 0:03:47.960 --> 0:03:49.800 a lot of good people. If you could get the 0:03:49.840 --> 0:03:52.920 customers to give him one last chance, and with a 0:03:53.000 --> 0:03:56.000 twenty million dollar secure letter of credit that can go 0:03:56.080 --> 0:03:59.120 to UH two hundred million, that can go to three 0:03:59.200 --> 0:04:02.000 hundred million, this might be the one last chance for 0:04:02.120 --> 0:04:05.440 Sears in twenty seventeen, but it's Larry served from F 0:04:05.560 --> 0:04:08.240 and D and credit until said, if Sears doesn't do 0:04:08.280 --> 0:04:11.160 it this time, they gotta start selling the catch registers 0:04:11.160 --> 0:04:13.360 and cleaning out the cash drawers. All right, let's get 0:04:13.360 --> 0:04:15.160 through a couple of other retailers, because we don't. I 0:04:15.520 --> 0:04:18.440 always want to get your expertise, Neiman Marcus Group burged 0:04:18.440 --> 0:04:22.040 off Goodman, what's going on there? Uh pim the bonds 0:04:22.080 --> 0:04:24.880 are really struggling. The same f D report Credit and 0:04:24.960 --> 0:04:27.960 tell the bonds of trade of the mid seventies are lower. 0:04:28.279 --> 0:04:31.360 So while Sears is trading a triple C plus uh 0:04:31.440 --> 0:04:34.320 Neiman Marcus Burg Doors trading at triple C. And with 0:04:34.720 --> 0:04:38.000 the Trump New York White House, it's really tough to 0:04:38.040 --> 0:04:40.760 get into two of their most profitable stores, Burg Doors 0:04:40.760 --> 0:04:44.880 Men's and Women's on uh fifth Avenue, so that that's 0:04:45.200 --> 0:04:49.040 really problematic, especially after losing almost half a billion dollars 0:04:49.040 --> 0:04:52.360 in the third quarter. Tell us about Jake Crew, Jay Crew, 0:04:52.480 --> 0:04:57.120 uh fall Uh, It's it's gonna be tough. They went 0:04:57.160 --> 0:04:59.680 from the penthouse to the basement and just a few 0:04:59.760 --> 0:05:03.799 years has probably got enamored with beach houses. The qualities 0:05:03.880 --> 0:05:06.880 uneven in the stores, the inventory is wrong, the color 0:05:06.960 --> 0:05:11.240 pellette of what's selling isn't always right in stock. But 0:05:11.360 --> 0:05:15.040 never bet against Mickey Drexler seminal genius of design and 0:05:15.080 --> 0:05:19.120 retail uh and say same with Gena Lyons. So we're 0:05:19.120 --> 0:05:22.599 hoping they come back, but they've dug themselves a big hole. 0:05:22.680 --> 0:05:25.119 So it really depends on the vendors there as well. 0:05:25.160 --> 0:05:28.760 But nine nine percent of the vendors supported Sears. Hopefully 0:05:28.800 --> 0:05:32.320 they'll support j Crew and niemen Bergdorf to the tell 0:05:32.320 --> 0:05:34.279 me about what's going on with J C. Penny is 0:05:34.279 --> 0:05:37.360 that to turnaround that's working. It's a turnaround that's working 0:05:37.400 --> 0:05:41.040 because they threw out Bill Ackman and as proverbial carpet 0:05:41.040 --> 0:05:44.040 baggers from Pershing Square that didn't know the detail and 0:05:44.120 --> 0:05:47.360 rhythm and retail left Penny on death store step another 0:05:47.440 --> 0:05:51.160 sex along Steve said Off X CEO comes in, teams 0:05:51.240 --> 0:05:54.400 up with Mike Aullman. They created dream team around Marvin 0:05:54.440 --> 0:05:58.160 Ellison who got trained by one of the other seminal 0:05:58.200 --> 0:06:03.840 geniuses of retail, Frank Blake, and Penny UH partnership with Sephora. 0:06:03.920 --> 0:06:08.320 They've got five more stores to do for perspective. Sephora 0:06:08.320 --> 0:06:11.480 on the Chansa Liz attracts as many visitors in Paris 0:06:11.600 --> 0:06:14.040 is the Eiffel Tower and the Eiffel Tower as longer 0:06:14.040 --> 0:06:18.360 hours co exclusive with with Disney, Penny dot COM's building 0:06:18.400 --> 0:06:21.839 Penny Homes Building. So Penny is a big comeback as 0:06:21.920 --> 0:06:24.520 his toys or us and both of them were left 0:06:24.560 --> 0:06:27.520 for dead, both the bonds UH and the credit ratings 0:06:27.560 --> 0:06:29.479 just a few years ago. And it's it's great to 0:06:29.480 --> 0:06:33.080 see those Rocky Bellboll type comeback stories. Marvin Ellison at 0:06:33.160 --> 0:06:35.200 j C. Penny doing the job. Stock is up more 0:06:36.279 --> 0:06:39.880 this year. Marvin Ellison's the Rocky Bellball of retail retail 0:06:40.279 --> 0:06:44.720 uh or or the Bob townsendavas Uh we we try 0:06:44.800 --> 0:06:46.919 harder and the win. I want that. Maybe, you know, 0:06:46.920 --> 0:06:48.520 maybe you can print that as a banner for the 0:06:48.680 --> 0:06:50.560 for the new year. Tell me about what's going on 0:06:50.600 --> 0:06:53.240 now at the Macy's because of course that is a 0:06:53.240 --> 0:07:00.400 continuing story, Macy's continuing story UH closing hundred stores, the 0:07:00.920 --> 0:07:05.400 Macy's International and Macy's Bloomingdale looks like it has high potential. UH. 0:07:05.560 --> 0:07:09.560 Macy's has more fashion resources. Bloomingdale seems to be hitting 0:07:09.560 --> 0:07:13.080 on all cylinders. Is we were going through North From stores, 0:07:13.120 --> 0:07:16.240 they seemed to be having a struggle with their associate 0:07:16.320 --> 0:07:19.480 shifting sales, particularly in the Shoot apartment to North from 0:07:19.520 --> 0:07:22.720 dot Com, so the commission sales people got less money 0:07:22.760 --> 0:07:25.440 they were interviewing at Bloomingdale's. We saw the same thing 0:07:25.520 --> 0:07:30.280 at the Neiman Marcus stores in Chicago, UH, California and elsewhere. 0:07:30.320 --> 0:07:34.200 So so it seems like Bloomingdale's and Macy's is recruiting 0:07:34.240 --> 0:07:36.960 the best of the brightest in a shrinking sector and 0:07:37.040 --> 0:07:40.520 ultimately Macy's Bloomingdale's is the consolidator in the winter. All Right, 0:07:40.560 --> 0:07:43.360 Well that's Terry Lundgren at Macy's that shares a Macy's 0:07:43.440 --> 0:07:46.280 up about four percent this year with Jeff Janetta and 0:07:46.360 --> 0:07:50.560 Karen Hoga. Very good leaders, quick ten seconds, Kate Spade, 0:07:50.560 --> 0:07:53.400 get bought or not bought. We'll get bought. It's selling 0:07:53.400 --> 0:07:56.440 in Paris, it's selling in Pasadena, California, in every place 0:07:56.480 --> 0:07:59.000 in between. People love the brand. Thanks very much, We 0:07:59.040 --> 0:08:03.960 love you. Thanks a lot. Managing Director, Strategic Resource Group, 0:08:04.360 --> 0:08:20.320 talking about all things retail, Washington, d C. On January 0:08:20.400 --> 0:08:23.600 the twenty one. Well, that will be a day after 0:08:23.720 --> 0:08:27.920 the inauguration. What will the district leaders wake up to? 0:08:28.280 --> 0:08:30.320 Here to tell us more is David Howell. He is 0:08:30.360 --> 0:08:35.040 the executive vice president and chief information officer for mcinnerney Associates, 0:08:35.080 --> 0:08:38.560 based of course in Washington, d C, which is home 0:08:38.600 --> 0:08:41.520 to Bloomberg one and one oh five point seven h 0:08:41.720 --> 0:08:45.679 D two. David Howell, thank you for being with us. 0:08:45.679 --> 0:08:48.120 Thank you. You are a veteran of the real estate 0:08:48.480 --> 0:08:51.520 industry in the district and in the region, and I 0:08:51.559 --> 0:08:53.640 wonder if you could describe for people that are not 0:08:53.880 --> 0:08:57.120 familiar with it, what is the biggest mistake we all 0:08:57.200 --> 0:09:02.440 make about new administrations coming to Washington. Well, I think 0:09:02.440 --> 0:09:06.440 there's a general um misperception that there's this avalanche of 0:09:06.440 --> 0:09:08.600 new people that come to town that provide a huge 0:09:08.600 --> 0:09:11.120 shot in the arm for our real estate market. UM, 0:09:11.280 --> 0:09:13.600 And that historically has not been the case. We don't 0:09:13.600 --> 0:09:15.439 think it will be the case this time. Either. It 0:09:15.480 --> 0:09:17.280 will be a boost, but it's not a it's not 0:09:17.360 --> 0:09:19.680 a boom, and it's not a boom because just the 0:09:19.760 --> 0:09:23.400 numbers of people that will turn over in the new administration, 0:09:23.559 --> 0:09:25.720 they're not necessarily going to have the money to buy 0:09:25.760 --> 0:09:29.400 new homes. Absolutely. You know, there's roughly four thousand presidentially 0:09:29.440 --> 0:09:32.080 appointed jobs, um. And first of all, they don't all 0:09:32.120 --> 0:09:34.679 happen on day one. It can take as long as 0:09:34.679 --> 0:09:37.640 twelve and eighteen months to fill all those positions. Our 0:09:37.679 --> 0:09:41.599 experience shows, and even thus far with the new Trump administration, 0:09:42.160 --> 0:09:44.440 roughly half the people that will fill those jobs already 0:09:44.480 --> 0:09:47.160 live in the Washington area, and roughly half the ones 0:09:47.200 --> 0:09:49.199 that are coming from out of town are going to 0:09:49.320 --> 0:09:52.719 rent rather than buy. So every sale is a welcome one. 0:09:52.840 --> 0:09:56.040 We we treasure every transaction, UM, but it's generally not 0:09:56.160 --> 0:09:59.320 enough to move the needle in a major way. Fifty 0:10:00.040 --> 0:10:04.920 homes are sold annually in the metro DC area, and 0:10:04.960 --> 0:10:07.360 you've got a population of anywhere from six hundred and 0:10:07.480 --> 0:10:10.880 eighty thousand, and then it swells well over a million 0:10:11.920 --> 0:10:14.240 every day when commuters come in. Tell us some of 0:10:14.280 --> 0:10:18.000 the areas of Washington, d C. That you see are 0:10:18.080 --> 0:10:24.800 thriving and improving, albeit without the effects of a new administration. Sure, 0:10:24.880 --> 0:10:28.040 the district itself, that market has been incredibly hot, where 0:10:28.040 --> 0:10:30.440 the suburban markets have not been quite as hot. So 0:10:30.520 --> 0:10:34.880 the immediate surrounding counties, UM, in cities City of Alexandria, Arlington, Fairfax, 0:10:34.920 --> 0:10:38.760 Montgomery County, in Maryland, Prince George's County, they're all doing 0:10:38.840 --> 0:10:41.600 fairly well, but nowhere near as hot as the district. 0:10:41.679 --> 0:10:43.680 The district's been our hot at market for the last 0:10:43.679 --> 0:10:47.960 several years. UM. Why is that? UM? I think first 0:10:47.960 --> 0:10:50.000 of all, the district's done a very good job in 0:10:50.480 --> 0:10:54.880 UM sort of reorienting themselves to be more attractive to businesses. 0:10:55.280 --> 0:10:58.840 Are like most other major cities, UM, we have enormous 0:10:58.880 --> 0:11:01.520 traffic issues, and I think people are making quality of 0:11:01.559 --> 0:11:04.320 life decisions that they want to live closer to where 0:11:04.320 --> 0:11:07.119 they work and not have to deal with the enormous 0:11:07.320 --> 0:11:10.480 commutes that sometimes suburban drivers and commuters have to deal 0:11:10.520 --> 0:11:13.439 with UM and the district has just become a very 0:11:13.520 --> 0:11:16.600 hip cool place to be, a hip cool place to be. 0:11:17.000 --> 0:11:20.079 But you say that new construction is not keeping up 0:11:20.200 --> 0:11:24.280 with household formation. Why not? Well, first of all, we've 0:11:24.320 --> 0:11:27.360 got a lack of land UM. Like again most of 0:11:27.360 --> 0:11:30.920 the major urban areas, UM is just tougher to find 0:11:30.920 --> 0:11:35.400 places to build UM, and it's it's a challenge to 0:11:35.520 --> 0:11:39.240 get developments through. All the jurisdictions have fairly long development 0:11:39.280 --> 0:11:42.120 processes to go through. And based on the studies that 0:11:42.160 --> 0:11:45.800 we read, UM, there's roughly a shortfall of fifty thousand 0:11:46.559 --> 0:11:50.679 household units UM to keep up with household formation over 0:11:50.720 --> 0:11:54.199 the next five years. So that contributes done ongoing shortage 0:11:54.200 --> 0:11:56.760 of supply, particularly acute in the district. All right, so 0:11:56.800 --> 0:12:00.360 you've got tight inventories. Talk about the expansion of public 0:12:00.360 --> 0:12:05.800 transport and the rehabilitation of public transport in the district. Well, 0:12:05.880 --> 0:12:09.120 it's it's hugely important in our metropolitan area UM, and 0:12:09.240 --> 0:12:11.360 as some of your listeners may have heard, our metro 0:12:11.480 --> 0:12:16.880 system has had some challenges of late, being diplomatic, which 0:12:16.920 --> 0:12:21.240 is appropriate for being in Washington. UM. We've and so 0:12:21.480 --> 0:12:24.559 Metro has kind of got to get get its act together. UM. 0:12:24.600 --> 0:12:26.800 But frankly, I think one of the interesting things we've 0:12:26.800 --> 0:12:28.600 seen it was tinging our agents a couple of weeks 0:12:28.640 --> 0:12:31.640 ago with the safe track issues UM, and those are 0:12:31.800 --> 0:12:34.920 the taking lines down for a period of time where 0:12:34.920 --> 0:12:38.319 they're having to do extended maintenance. People are changing how 0:12:38.360 --> 0:12:40.760 they're commuting UM. One of our agents was saying that 0:12:40.800 --> 0:12:43.240 a lot of her clients have actually just switched to 0:12:43.360 --> 0:12:47.360 Uber because it's more convenient. And when Metro is back 0:12:47.720 --> 0:12:50.760 in its rightful place, UM, they may have a bit 0:12:50.760 --> 0:12:53.040 of a battle getting some of those writers back. As 0:12:53.040 --> 0:12:56.840 they say, necessity the mother of invention. Tell us about 0:12:56.880 --> 0:13:00.160 interest rate increases, what I really have a change on 0:13:00.160 --> 0:13:03.200 on whether people buy or don't buy in the area. 0:13:03.720 --> 0:13:05.840 It certainly does have some impact, you know, with the 0:13:06.000 --> 0:13:08.120 with the rate increase of roughly a half a percent 0:13:08.640 --> 0:13:11.439 over the last six weeks or so, that's taken about 0:13:11.559 --> 0:13:14.960 six percent of buying power away from prospective purchasers. And 0:13:15.000 --> 0:13:18.360 that's certainly UM is a factor. But we've also learned 0:13:18.400 --> 0:13:21.720 that interest rates are a factor and whether someone buys 0:13:21.720 --> 0:13:24.439 a home, they're not the factor by any means. When 0:13:24.440 --> 0:13:26.880 our company started over thirty years ago interest rates for 0:13:28.040 --> 0:13:31.320 people still bought and sold home, so it's it's not 0:13:31.559 --> 0:13:34.360 just that number, but there's no doubt that on the 0:13:34.400 --> 0:13:37.120 short term it has both a real and a psychological 0:13:37.120 --> 0:13:39.840 impact when you lose that buying power and you see 0:13:39.920 --> 0:13:42.600 rates ticking up. UM. One of the things it does 0:13:42.640 --> 0:13:44.839 is it gets some fence sitters off the fence and 0:13:44.960 --> 0:13:47.600 into the market before they feel like they can get 0:13:47.640 --> 0:13:49.720 priced out of the market because rates are too high. 0:13:50.360 --> 0:13:53.200 But because we've had rates low for such a long 0:13:53.200 --> 0:13:56.520 period of time, we don't really know where the psychological 0:13:56.559 --> 0:13:59.360 wall is. UM. If it's five percent, five and a 0:13:59.360 --> 0:14:01.720 half percent of rates get that high, if buyers finally 0:14:01.720 --> 0:14:05.199 really get discouraged. But right now, let's face at four 0:14:05.240 --> 0:14:07.079 person interest rates, which is where they are right now, 0:14:07.360 --> 0:14:10.760 is still from an historical perspective, very low and very attractive. 0:14:11.080 --> 0:14:14.520 Thanks very much, David Howe, Executive vice president, chief information 0:14:14.559 --> 0:14:31.400 Officer McNerney Associates. Sixteen the year marks the beginning of 0:14:31.480 --> 0:14:34.600 the end of hedge funds as we've known them, so 0:14:34.760 --> 0:14:37.880 writes Katherine Burton. Cathy Burton is our hedge fund reporter 0:14:38.000 --> 0:14:40.880 joins us Now for Bloomberg News. Kathy Burton, thank you 0:14:40.960 --> 0:14:43.160 very much for being with us. You're welcome. So tell 0:14:43.240 --> 0:14:47.960 me about agonists. This is really from Milton. It means 0:14:48.000 --> 0:14:52.120 it's about Samson wrestling with adversity and trouble. You say, now, 0:14:52.360 --> 0:14:56.840 the title of your report is hedge fund Agonists. What's 0:14:56.840 --> 0:14:59.160 going on in the hedge fund world? Well, the hedge 0:14:59.160 --> 0:15:03.680 fund world is finally or investors are finally realizing that 0:15:03.800 --> 0:15:08.280 they shouldn't be paying managers to in the normal two 0:15:08.320 --> 0:15:12.160 and twenty as it's known. Uh. Basically, the managers get 0:15:12.280 --> 0:15:15.000 rich off the management fees even if they don't make 0:15:15.040 --> 0:15:17.560 money for their investors, which they haven't been doing for 0:15:19.160 --> 0:15:22.720 several years now. Is that why the theme, at least 0:15:22.800 --> 0:15:27.480 for Robert Mercer's The Hedge Fund Titan Robert Mercer the 0:15:27.480 --> 0:15:31.120 theme for his holiday costume party was villains and Heroes. No, 0:15:31.400 --> 0:15:36.840 I think that's more of a political uh uh, political comment. 0:15:37.360 --> 0:15:41.440 But he's one of the managers who's actually managed to 0:15:41.520 --> 0:15:44.480 make money all these years, all right, So if he's 0:15:44.520 --> 0:15:47.280 managed to make money, then isn't it just a natural 0:15:47.560 --> 0:15:51.200 selection in which those that don't won't have customers, and 0:15:51.240 --> 0:15:53.720 those that do, we'll have customers that are willing to 0:15:53.720 --> 0:15:57.000 pay the fees or not really No, that's exactly what's 0:15:57.000 --> 0:16:01.120 happening now. We're seeing a many more closures UM then 0:16:01.160 --> 0:16:04.080 we have in the past. UH. This year looks to 0:16:04.080 --> 0:16:07.440 be on track to have the most closure since that's 0:16:07.480 --> 0:16:12.880 an innate financial crisis, and people expect to UH, people 0:16:12.920 --> 0:16:15.600 expect that the industry could be cut by as much 0:16:15.640 --> 0:16:18.760 as a quarter over the next year, as much as 0:16:18.800 --> 0:16:21.440 a quarter. What what takes? What took the investors so 0:16:21.840 --> 0:16:23.840 so such a long time to actually do the math 0:16:23.920 --> 0:16:27.000 and and discover that they weren't making the money they 0:16:27.000 --> 0:16:30.600 thought they were. I think what happened is that a 0:16:30.640 --> 0:16:33.680 lot of the money that came in came from pension funds, 0:16:33.760 --> 0:16:38.200 and they didn't start investing until relatively recently. So they 0:16:38.800 --> 0:16:41.640 and they're very slow moving, So they sort of started 0:16:41.680 --> 0:16:45.440 to invest just as returns overall started to fall, and 0:16:45.440 --> 0:16:48.680 so it probably took them five or so years to 0:16:48.880 --> 0:16:51.240 get into the program, to figure out it didn't work, 0:16:51.280 --> 0:16:53.840 and then to get out. That's what's happening now. Well, 0:16:53.840 --> 0:16:57.360 you document that public retirement plans in Kentucky, New York, 0:16:57.400 --> 0:17:00.320 New Jersey, Rhode Island, they pulled the plug. They pulled 0:17:00.320 --> 0:17:04.200 money rather from hedge funds, as did the State University 0:17:04.240 --> 0:17:08.199 in Maryland and other endowments. That's correct, and there are 0:17:08.200 --> 0:17:11.360 other people that are. If they're not cutting their allocations 0:17:11.359 --> 0:17:14.480 the hedge funds, they're definitely cutting the number of managers 0:17:14.520 --> 0:17:17.480 they use. The University of California is doing that, and 0:17:17.520 --> 0:17:20.040 they may also end up cutting their exposure as well 0:17:20.600 --> 0:17:24.640 if they continue this trend. What kinds of hedge funds 0:17:24.720 --> 0:17:27.320 will be left? Just those that perform well in the 0:17:27.359 --> 0:17:32.160 past or have a track record that is measurable in decades. Yes, 0:17:32.280 --> 0:17:35.679 and I think that it's going to be uh the 0:17:35.760 --> 0:17:38.720 smaller funds to a lot of them that are more nimble, 0:17:38.800 --> 0:17:41.560 that are able to make money. Uh. A lot of 0:17:41.600 --> 0:17:45.240 the funds that used to be good are their return 0:17:45.359 --> 0:17:51.200 suffered as they added assets. Now those assets also translated, 0:17:51.240 --> 0:17:54.720 as you described, into fees, and those fees translated into 0:17:54.760 --> 0:17:58.400 things such as higher real estate prices in New York 0:17:58.480 --> 0:18:05.720 City's condos and a sky. That's absolutely correct. Um, the 0:18:05.840 --> 0:18:09.640 number of billionaires on the FORBS four hundred has grown 0:18:10.240 --> 0:18:13.000 a lot amongst the hedge fund set, and those people 0:18:13.080 --> 0:18:16.919 have UM certainly driven up prices of real estate in 0:18:17.000 --> 0:18:21.640 certain buildings and UH, certain art. Yeah. Well, you give 0:18:21.640 --> 0:18:25.440 the example. In two thousand and six, a leven hedge 0:18:25.440 --> 0:18:30.000 fund managers were in the Forbes four hundred. Fast forward 0:18:30.040 --> 0:18:36.600 ten years, that number climbs to twenty seven. Right. So, 0:18:37.480 --> 0:18:41.800 and is it as much a public relations disaster for 0:18:41.840 --> 0:18:46.359 the hedge fund industry as it is a performance issue? Yes, 0:18:46.760 --> 0:18:50.119 that is true because people got tired, especially in the 0:18:50.160 --> 0:18:56.280 public pension sounds where there's unions and uh, teachers and firemen, 0:18:56.400 --> 0:18:58.840 and they don't like to see these guys spending a 0:18:58.920 --> 0:19:02.680 lot of money and their conspicuous consumption um when they're 0:19:02.720 --> 0:19:04.960 not getting much in the way of returns. So they're 0:19:04.960 --> 0:19:09.760 actually connecting the personal behavior of the hedge fund manager 0:19:10.359 --> 0:19:13.399 with the returns that they see when they're just looking 0:19:13.400 --> 0:19:18.360 for an increase in the amount of money they make. Exactly. Yeah. Now, 0:19:18.560 --> 0:19:21.320 just to follow up on these apartments, these trophy real 0:19:21.400 --> 0:19:23.240 estate investments, I wonder if you could just tell us 0:19:23.280 --> 0:19:28.280 about Steve Cohen, who is now running his own family office. 0:19:28.760 --> 0:19:32.600 Just described because he's he's not a dumb bunny. What 0:19:32.720 --> 0:19:36.520 he bought what nine thousand square foot duplex at one 0:19:36.560 --> 0:19:40.359 Beacon Court, that's correct. I think he paid about twenty 0:19:40.400 --> 0:19:42.679 million dollars for it, So even if he sells it 0:19:42.720 --> 0:19:47.639 at the highly reduced UH price of sixty seven million, 0:19:47.720 --> 0:19:49.840 he'll still be making a lot of money. But at 0:19:49.840 --> 0:19:51.639 one point he thought he could get a hundred and 0:19:51.680 --> 0:19:55.240 fifteen million dollars for that apartment. But now I guess 0:19:55.440 --> 0:19:57.760 it's a bargain at sixties sixty seven and a half 0:19:57.840 --> 0:20:00.439 million exactly. So still make a huge off it, but 0:20:00.520 --> 0:20:02.240 not quite as much as he thought he was going 0:20:02.320 --> 0:20:04.439 to make. Just give you about ten seconds. Are there 0:20:04.440 --> 0:20:07.120 any hedge funds that are that are combating this whole 0:20:07.160 --> 0:20:10.440 issue and getting ahead of the game. Uh, certainly, some 0:20:10.600 --> 0:20:15.080 of the quantitative guys are raising money um and people 0:20:15.080 --> 0:20:19.159 like Renaissance Technologies is still putting up huge returns, although 0:20:19.160 --> 0:20:21.240 they don't take a lot in the way that's hoide money. 0:20:21.280 --> 0:20:24.679 But thanks very much. Cathy Burton, our hedge fund reporter 0:20:24.760 --> 0:20:28.320 for Bloomberg News. You can follow her on Twitter at 0:20:28.600 --> 0:20:44.480 Burton Cathy. What to do with your money in ten 0:20:44.600 --> 0:20:47.720 Perhaps nothing, but maybe not. Maybe the dog of the 0:20:47.800 --> 0:20:50.320 Dow theory is the way to go. Let's find out 0:20:50.320 --> 0:20:53.280 from jug Doug Cioca. He is the chief executive officer 0:20:53.359 --> 0:20:56.680 and partner at Cavar Capital Partners, helping to manage a 0:20:56.680 --> 0:20:58.680 little bit more than half a billion dollars. He's based 0:20:58.680 --> 0:21:02.199 in Leawood, Kansas. Doug great to always speak with you, um, 0:21:02.520 --> 0:21:05.040 dogs of the Dow. Why don't we start there because 0:21:05.040 --> 0:21:09.200 that may highlight why the Dow Jones Industrial Average is 0:21:09.400 --> 0:21:13.679 up nearly four this year while the SMP is up 0:21:13.680 --> 0:21:17.720 a little bit more than Yeah, PIM, thanks for having 0:21:17.720 --> 0:21:20.120 me on a happy new year, and I think it's 0:21:20.119 --> 0:21:22.240 been interesting. There seems to be a lot of tax 0:21:22.320 --> 0:21:24.840 loss selling that's taking place in certain sectors of the 0:21:24.880 --> 0:21:27.359 Dow in the SMP. But you know, whether it's in 0:21:27.480 --> 0:21:31.159 staples or healthcare and what we are calling the trailblazers 0:21:31.160 --> 0:21:34.320 of this changing face of retail, right, those companies that 0:21:34.359 --> 0:21:37.800 focus on direct to consumer as opposed to same store sales. 0:21:38.440 --> 0:21:41.920 Seems like some paradigm shifting has caused a little bit 0:21:41.960 --> 0:21:46.399 of consternation in certain sectors that um, we think offer 0:21:46.480 --> 0:21:49.480 some pretty good opportunity going into next year. Right, So 0:21:49.560 --> 0:21:53.119 much of what we're trying to determine from an asset 0:21:53.119 --> 0:21:56.560 allocation perspective is, you know what areas of the stock 0:21:56.600 --> 0:22:01.760 market have pulled forward the prospects of economic and earnings 0:22:01.760 --> 0:22:04.880 per share improvement ahead of it actually materializing it. Can 0:22:04.880 --> 0:22:07.080 you give us some details thats hows some industry goose 0:22:07.119 --> 0:22:12.440 particularly I know industrial stocks, well, industrial stocks, financials, and 0:22:12.280 --> 0:22:15.600 and and energy post election have been on a parabolic 0:22:16.320 --> 0:22:19.520 UH scream higher, which is great. And I think that 0:22:19.600 --> 0:22:24.119 it is embedding some optimism that was dormant for a 0:22:24.160 --> 0:22:27.000 period of several years. And you know, whether it's because 0:22:27.119 --> 0:22:28.880 that the set is going to have the green light 0:22:28.960 --> 0:22:31.679 and be buttressed by underlying economic growth that it feels 0:22:31.680 --> 0:22:34.840 that it can raise rates progressively and that's a very 0:22:34.880 --> 0:22:39.560 positive immediate impact for profitability of banks. Whether this functional 0:22:39.600 --> 0:22:42.880 fiscal policy that we're hopeful will make its way through 0:22:42.880 --> 0:22:46.040 the legislative process is going to be great for industrial 0:22:46.640 --> 0:22:50.920 companies that have seen a pretty significant ebb in their 0:22:51.000 --> 0:22:54.680 order flow um or whether it's it's the energy stocks 0:22:54.720 --> 0:22:58.600 that now feel like, okay, shoot the US, let's join OPEC. 0:22:58.760 --> 0:23:01.719 I mean, we've got enough natural gas, we've got enough energy. 0:23:02.080 --> 0:23:04.520 If if a mom had had hit and poined himself 0:23:04.560 --> 0:23:08.480 the energy president and we've had all these discoveries, can 0:23:08.480 --> 0:23:11.480 Trump then get it effectively transported through pipelines where it 0:23:11.480 --> 0:23:13.840 can actually make a material improvement in the economy and 0:23:14.160 --> 0:23:16.679 bring back the whole manufacturing base that we feel may 0:23:16.680 --> 0:23:20.679 have been abandoned. So are just gonna say, just breaking 0:23:20.760 --> 0:23:23.560 on on energy. I didn't know. I just recently learned 0:23:23.600 --> 0:23:25.560 this that the United States is on a tap to 0:23:25.840 --> 0:23:31.679 pump about eight point eight million barrels of oil a day, correct, 0:23:31.720 --> 0:23:35.760 I mean, we're somewhere around there now, but we're that 0:23:35.840 --> 0:23:37.840 was the level that it was about two years ago. 0:23:37.960 --> 0:23:40.320 Because of course the price of oil having come down, 0:23:40.359 --> 0:23:42.600 a lot of wells have been shut in and so on. 0:23:43.160 --> 0:23:45.960