1 00:00:05,800 --> 00:00:08,360 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim 2 00:00:08,400 --> 00:00:11,200 Speaker 1: Fox along with my co host Lisa A. Brahmowitz. Each 3 00:00:11,240 --> 00:00:14,440 Speaker 1: day we bring you the most important, noteworthy, and useful 4 00:00:14,480 --> 00:00:17,079 Speaker 1: interviews for you and your money, whether you're at the 5 00:00:17,120 --> 00:00:20,360 Speaker 1: grocery store or the trading floor. Find the Bloomberg p 6 00:00:20,520 --> 00:00:27,479 Speaker 1: m L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 7 00:00:27,560 --> 00:00:30,920 Speaker 1: Yesterday I spoke with Dan Ivanson, chief investment officer of Pimco, 8 00:00:31,040 --> 00:00:34,080 Speaker 1: overseeing one point seven trillion dollars in assets. He also 9 00:00:34,120 --> 00:00:36,839 Speaker 1: happens to be the manager of the world's biggest actively 10 00:00:36,880 --> 00:00:40,040 Speaker 1: managed bond fund, and we discussed everything from leveraged loans, 11 00:00:40,080 --> 00:00:43,520 Speaker 1: to Brexit to emerging markets. I started off by asking him, 12 00:00:43,560 --> 00:00:46,199 Speaker 1: are we on the brink of a more serious downturn 13 00:00:46,240 --> 00:00:49,680 Speaker 1: than many people are preparing for starting in take a listen. 14 00:00:50,040 --> 00:00:52,960 Speaker 1: The short answer is, you know, we don't know for sure. Uh. 15 00:00:53,880 --> 00:00:56,000 Speaker 1: I think the last few months have given us a 16 00:00:56,080 --> 00:00:58,640 Speaker 1: sense of the types of risks that are out there. 17 00:00:59,280 --> 00:01:01,680 Speaker 1: You know that both UH, the economy and markets going 18 00:01:01,720 --> 00:01:04,680 Speaker 1: to face in two thousand nineteen. I think, at a 19 00:01:04,720 --> 00:01:10,319 Speaker 1: minimum like we've seen this year, expect ongoing volatility and 20 00:01:10,319 --> 00:01:13,280 Speaker 1: I think that's true across really all segments of the 21 00:01:13,280 --> 00:01:18,840 Speaker 1: financial markets um Looking at two thousand nineteen, we're still 22 00:01:19,200 --> 00:01:22,160 Speaker 1: quite constructive on growth at least in the base case, 23 00:01:22,920 --> 00:01:27,039 Speaker 1: much more concerned about policy politics on a global basis. 24 00:01:27,880 --> 00:01:30,920 Speaker 1: And although we've seen some repricing in risk assets over 25 00:01:30,959 --> 00:01:33,800 Speaker 1: the course of the last few months, we still think 26 00:01:34,240 --> 00:01:37,120 Speaker 1: valuations are at a point where, you know, if we 27 00:01:37,200 --> 00:01:40,320 Speaker 1: see more negative outcomes, you know, across a series of 28 00:01:40,440 --> 00:01:43,600 Speaker 1: pockets of uncertainty, you know, you could see continued pressure 29 00:01:43,600 --> 00:01:46,600 Speaker 1: on risk assets from here. So which risk assets in 30 00:01:46,600 --> 00:01:52,120 Speaker 1: particular look specially vulnerable. Well again, and we've talked about 31 00:01:52,160 --> 00:01:55,440 Speaker 1: this now for for quite some time, you know, the 32 00:01:55,480 --> 00:01:59,040 Speaker 1: credit markets, you know, particularly the non financial segments of 33 00:01:59,040 --> 00:02:02,000 Speaker 1: the corporate credit mark gets or where we see the 34 00:02:02,000 --> 00:02:04,680 Speaker 1: most long term risks. Now, I think it's important to 35 00:02:04,720 --> 00:02:08,399 Speaker 1: note that we've seen some repricing there. If you look 36 00:02:08,440 --> 00:02:11,360 Speaker 1: at more traditional valuation metrics, at least in terms of 37 00:02:11,360 --> 00:02:14,720 Speaker 1: where spreads are from a historical perspective, you know, things 38 00:02:14,720 --> 00:02:18,440 Speaker 1: look closer to fair. But hold on a second, that's important. 39 00:02:18,480 --> 00:02:21,000 Speaker 1: You said things look closer to fair, meaning that there 40 00:02:21,040 --> 00:02:23,959 Speaker 1: are some buying opportunities within credit right now. Well, yeah, 41 00:02:24,120 --> 00:02:26,280 Speaker 1: to be clear again, UM, you know, you know, first 42 00:02:26,320 --> 00:02:28,960 Speaker 1: of all, the types of measures that that would suggest that, 43 00:02:29,040 --> 00:02:32,320 Speaker 1: you know, the corporate credit markets are more fair, I 44 00:02:32,480 --> 00:02:35,240 Speaker 1: don't necessarily take into account some of the risks that 45 00:02:35,280 --> 00:02:37,639 Speaker 1: have been building in that space. So to answer your 46 00:02:37,680 --> 00:02:41,880 Speaker 1: specific question, first, we are beginning to see a few 47 00:02:41,960 --> 00:02:47,680 Speaker 1: select opportunities across credit markets, but we remain concerned about 48 00:02:48,080 --> 00:02:50,760 Speaker 1: credit in general, and I'm referring to to again non 49 00:02:50,800 --> 00:02:55,000 Speaker 1: financial corporate credit. Mostly we think this is a sector 50 00:02:55,120 --> 00:02:58,600 Speaker 1: that is most prone to overshooting fundamentals. Uh, there's been 51 00:02:58,600 --> 00:03:01,760 Speaker 1: a tremendous amount of issuance of the last decade. We've 52 00:03:01,760 --> 00:03:06,200 Speaker 1: seen a steady deterioration in underwriting standards. And it's been 53 00:03:06,240 --> 00:03:08,840 Speaker 1: a long time, you know, really, you know, not since 54 00:03:08,840 --> 00:03:11,520 Speaker 1: early sixteen has there have been real fear you know, 55 00:03:11,560 --> 00:03:14,040 Speaker 1: in the corporate credit market. And it's been much longer 56 00:03:14,080 --> 00:03:17,440 Speaker 1: than that since we've gone through a default cycle. In fact, uh, 57 00:03:17,880 --> 00:03:20,840 Speaker 1: you know, many participants in these markets, uh today you 58 00:03:20,840 --> 00:03:23,880 Speaker 1: have never gone through a default cycle. So we're cautious. 59 00:03:23,880 --> 00:03:25,960 Speaker 1: I think, you know, as an active asset manager, the 60 00:03:25,960 --> 00:03:28,840 Speaker 1: more generic forms of credit risk, even though in a 61 00:03:28,840 --> 00:03:32,360 Speaker 1: more narrow sense, are beginning to look more reasonable from 62 00:03:32,400 --> 00:03:36,080 Speaker 1: evaluation perspective, This is an area where you know, we 63 00:03:36,120 --> 00:03:38,680 Speaker 1: believe if you can be more creative, use you know, 64 00:03:38,720 --> 00:03:42,720 Speaker 1: all the global tools at a investor's disposal, you can 65 00:03:42,800 --> 00:03:45,920 Speaker 1: end up with a much more resilient portfolio, still underweight 66 00:03:46,040 --> 00:03:48,560 Speaker 1: that risk. It's a tough needle to thread here. And 67 00:03:48,600 --> 00:03:50,520 Speaker 1: I can tell because you're not the only one. But 68 00:03:50,560 --> 00:03:53,960 Speaker 1: I've spoken to people and they're starting to see select opportunities, 69 00:03:54,000 --> 00:03:58,040 Speaker 1: but overall, on average, credit spreads could widen. So can 70 00:03:58,080 --> 00:04:01,200 Speaker 1: you talk about, first of all, where opportunities are starting 71 00:04:01,240 --> 00:04:04,840 Speaker 1: to emerge, and how to be creative in an environment 72 00:04:04,880 --> 00:04:09,600 Speaker 1: where it does become more specific and less macro driven. Sure, 73 00:04:09,760 --> 00:04:12,520 Speaker 1: and I think you know, first you know a lot 74 00:04:12,560 --> 00:04:14,400 Speaker 1: of what we're talking about here, you know, relating to 75 00:04:14,440 --> 00:04:18,760 Speaker 1: the credit markets, UM is really the type of philosophy 76 00:04:18,800 --> 00:04:22,840 Speaker 1: you need as an active asset manager to outperform. More broadly, 77 00:04:23,520 --> 00:04:26,719 Speaker 1: I think at this stage in the cycle, and cycles 78 00:04:26,760 --> 00:04:29,560 Speaker 1: can extend a lot longer than h than participants UM 79 00:04:29,800 --> 00:04:32,320 Speaker 1: expect them to. You know, you want to be nimble, 80 00:04:32,720 --> 00:04:35,279 Speaker 1: you want to be flexible, you want to be liquid, 81 00:04:35,680 --> 00:04:37,400 Speaker 1: and if you can do that, and of course that 82 00:04:37,440 --> 00:04:39,960 Speaker 1: involves a lot of patients, which sometimes from a behavioral 83 00:04:40,000 --> 00:04:44,320 Speaker 1: perspective is the toughest thing to adhere to. But with 84 00:04:44,360 --> 00:04:47,520 Speaker 1: that flexibility, you know, we believe, you know, we can 85 00:04:47,560 --> 00:04:51,000 Speaker 1: be liquidity providers in areas where there has been some overshooting. 86 00:04:51,120 --> 00:04:53,919 Speaker 1: So you know, looking at the world today, um, for 87 00:04:53,960 --> 00:04:56,320 Speaker 1: the first time in a while, we're beginning to see, 88 00:04:57,120 --> 00:05:00,880 Speaker 1: you know, pockets of concern, in pockets of volatility show 89 00:05:01,000 --> 00:05:06,720 Speaker 1: up one sectors within the financial space, banks more specifically, 90 00:05:07,520 --> 00:05:11,520 Speaker 1: So for example, uh, there's a tremendous uncertainty relating to Brexit. 91 00:05:12,240 --> 00:05:16,160 Speaker 1: There's certainly you know, very negative paths that these negotiations 92 00:05:16,200 --> 00:05:21,520 Speaker 1: can take. But even under very extreme negative scenarios for Brexit, 93 00:05:21,880 --> 00:05:24,680 Speaker 1: you know, and looking at the banking system there, you know, 94 00:05:24,760 --> 00:05:28,480 Speaker 1: we don't believe that even under worse case type scenarios 95 00:05:29,279 --> 00:05:32,800 Speaker 1: the viability of some of these larger financial institutions is 96 00:05:32,839 --> 00:05:36,960 Speaker 1: at risk. You have very high capital ratios relative to 97 00:05:37,120 --> 00:05:41,560 Speaker 1: past history, and now, although you have to appreciate the 98 00:05:41,640 --> 00:05:46,080 Speaker 1: increased uncertainty and the ongoing volatility in that space, you're 99 00:05:46,080 --> 00:05:49,040 Speaker 1: picking up yields and spreads um that we think are 100 00:05:49,160 --> 00:05:53,040 Speaker 1: more than enough to compensate for the risk that's one example. 101 00:05:53,120 --> 00:05:55,520 Speaker 1: Of course, as you go through other areas of the world, 102 00:05:56,360 --> 00:06:00,200 Speaker 1: across Europe, even in the United States, with the there's 103 00:06:00,200 --> 00:06:02,440 Speaker 1: a similar dynamic where you know, in the midst of 104 00:06:02,440 --> 00:06:06,880 Speaker 1: a market that's you know, at best fairly valued, there 105 00:06:06,960 --> 00:06:09,520 Speaker 1: is this sector of the market that's born the brunt 106 00:06:09,560 --> 00:06:11,600 Speaker 1: of some of the recent volatility and where we think, 107 00:06:11,760 --> 00:06:14,120 Speaker 1: you know, as a patient investor you can go on 108 00:06:14,160 --> 00:06:17,200 Speaker 1: the offense a little bit and find good risk adjusted returns. 109 00:06:17,440 --> 00:06:21,880 Speaker 1: What do you think US credit versus emerging markets tot Yeah, 110 00:06:21,880 --> 00:06:25,719 Speaker 1: that's that's that's another great question, UM. On the margin, 111 00:06:26,000 --> 00:06:28,440 Speaker 1: you know, looking into next year, we still think there's 112 00:06:28,480 --> 00:06:32,880 Speaker 1: some attractive opportunities in the emerging markets. But I think 113 00:06:32,920 --> 00:06:37,080 Speaker 1: also you know, we're are acknowledging that emerging markets very 114 00:06:37,160 --> 00:06:40,680 Speaker 1: quietly have formed extremely well over the course of the 115 00:06:40,720 --> 00:06:44,120 Speaker 1: past few months. UM. As you know, back in uh 116 00:06:44,279 --> 00:06:48,039 Speaker 1: the summer period um, there was considerable fear towards the 117 00:06:48,040 --> 00:06:52,040 Speaker 1: emerging markets. Almost all the financial press was focused on 118 00:06:52,760 --> 00:06:56,320 Speaker 1: concerns you know, really across the board, Brazil and Mexico 119 00:06:56,400 --> 00:07:01,360 Speaker 1: and in some of the I guess relatively safer areas Turkey, Argentina, 120 00:07:01,680 --> 00:07:04,680 Speaker 1: a tremendous amount of concern. Of course. You know, now 121 00:07:04,720 --> 00:07:07,279 Speaker 1: over the last few months, we've seen weakness in global 122 00:07:07,320 --> 00:07:11,640 Speaker 1: equity markets, weakness in the corporate credit markets. These areas 123 00:07:11,720 --> 00:07:14,280 Speaker 1: where there appeared to be the most fear just a 124 00:07:14,280 --> 00:07:18,280 Speaker 1: few months ago, have actually performed extremely well, both on 125 00:07:18,320 --> 00:07:21,360 Speaker 1: a relative basis and in many cases on an absolute 126 00:07:21,400 --> 00:07:23,880 Speaker 1: basis as well. So when we look at emerging markets 127 00:07:23,880 --> 00:07:29,160 Speaker 1: today versus several months ago, fears dissipated. Along with fear 128 00:07:29,200 --> 00:07:32,640 Speaker 1: being reduced, spreads of tightened prices have gone up, so 129 00:07:33,320 --> 00:07:37,040 Speaker 1: their advantage versus other types of credit investments has narrowed. 130 00:07:37,640 --> 00:07:40,040 Speaker 1: With all that said, we continue to be you know, 131 00:07:40,080 --> 00:07:42,440 Speaker 1: active in the emerging markets. I think the key in 132 00:07:42,480 --> 00:07:47,440 Speaker 1: this space is to size risk appropriately given increased volatility 133 00:07:47,480 --> 00:07:51,640 Speaker 1: and at times, you know, more idiosyncratic uncertainty. UM So 134 00:07:51,680 --> 00:07:53,760 Speaker 1: we like the sector. We just don't love some of 135 00:07:53,760 --> 00:07:56,920 Speaker 1: these investments um on a relative basis like we did 136 00:07:57,160 --> 00:08:00,160 Speaker 1: just a few months ago. Dan, when you're talking, I'm 137 00:08:00,200 --> 00:08:03,920 Speaker 1: just thinking how being nimble really does sort of stand out, 138 00:08:03,960 --> 00:08:06,400 Speaker 1: because you're talking about how a few months ago it 139 00:08:06,440 --> 00:08:08,600 Speaker 1: seemed like a goodbye. Now it probably seems a little 140 00:08:08,600 --> 00:08:11,160 Speaker 1: bit less. So. Credit markets starting to see a little 141 00:08:11,160 --> 00:08:13,800 Speaker 1: bit more value. How do you remain nimble given the 142 00:08:13,880 --> 00:08:16,360 Speaker 1: size of some of your funds um and given the 143 00:08:16,400 --> 00:08:20,320 Speaker 1: fact that there could be a change in sentiment that 144 00:08:20,560 --> 00:08:23,520 Speaker 1: is very hard to execute quickly. Sure, you know, I 145 00:08:24,000 --> 00:08:28,400 Speaker 1: think one key is is diversity and approach, and you know, 146 00:08:28,440 --> 00:08:32,360 Speaker 1: the the you know, we're we're fortunate at PIMCO, And 147 00:08:32,720 --> 00:08:34,920 Speaker 1: I know we started the conversation with with you kindly, 148 00:08:35,120 --> 00:08:37,640 Speaker 1: you know, referring you know, to me a you know, 149 00:08:38,600 --> 00:08:41,079 Speaker 1: you know, as as a member of royalty. In fact, 150 00:08:41,480 --> 00:08:44,000 Speaker 1: I'm you're not very comfortable with me saying that, are you. Well, 151 00:08:44,000 --> 00:08:47,160 Speaker 1: it's not it's it's not about comfort. I just think 152 00:08:47,200 --> 00:08:50,480 Speaker 1: that you know, myself and and and other senior folks 153 00:08:50,520 --> 00:08:53,000 Speaker 1: around our firm, you know, have the benefit of a 154 00:08:53,040 --> 00:08:56,200 Speaker 1: tremendous team, a global team, and a team that's involved 155 00:08:56,240 --> 00:08:59,439 Speaker 1: in many segments of the market. So I think the 156 00:08:59,520 --> 00:09:02,480 Speaker 1: value position is to come up with creative ways to 157 00:09:02,559 --> 00:09:07,840 Speaker 1: generate value while maintaining sufficient liquidity or flexibility and not 158 00:09:07,960 --> 00:09:11,480 Speaker 1: relying on you know, more of a lazy overweight to 159 00:09:11,480 --> 00:09:14,560 Speaker 1: corporate beta. And one way we do that is to 160 00:09:14,559 --> 00:09:16,959 Speaker 1: try to understand what types of risk we're taking and 161 00:09:17,600 --> 00:09:21,200 Speaker 1: if we're expressing a view on credit spreads more broadly 162 00:09:21,240 --> 00:09:23,880 Speaker 1: in a portfolio, we try to do that in the 163 00:09:23,920 --> 00:09:27,600 Speaker 1: most liquid way possible. UM So, rather than getting into 164 00:09:27,640 --> 00:09:30,880 Speaker 1: a situation where you're buying each cash corporate bond that 165 00:09:30,920 --> 00:09:33,720 Speaker 1: comes to market, and we try to pull risk in 166 00:09:33,760 --> 00:09:37,080 Speaker 1: such a way where we maintain that flexibility to change 167 00:09:37,080 --> 00:09:41,960 Speaker 1: our views as market conditions change or credit to fault swaps. Yeah, 168 00:09:41,960 --> 00:09:44,360 Speaker 1: typically indices UM you know, we've looked at the et 169 00:09:44,480 --> 00:09:47,640 Speaker 1: F market, but mostly some of these diversified indicries that 170 00:09:47,679 --> 00:09:51,160 Speaker 1: trade out there in the marketplace can typically offer liquidity, 171 00:09:51,320 --> 00:09:54,240 Speaker 1: you know, up to twenty times greater than a portfolio 172 00:09:54,280 --> 00:09:56,760 Speaker 1: of cash bonds. So that would be an example where 173 00:09:56,760 --> 00:10:00,160 Speaker 1: if we're simply looking to fine tune the beta UM 174 00:10:00,360 --> 00:10:03,920 Speaker 1: or our overall exposure to to credit more broadly. You know, 175 00:10:03,960 --> 00:10:06,719 Speaker 1: those are the type of tools that we try to utilize. 176 00:10:07,280 --> 00:10:11,160 Speaker 1: In addition to that, UM we look to find areas 177 00:10:11,200 --> 00:10:16,120 Speaker 1: of the market that are attractive that offer materially better liquidity. UM. 178 00:10:16,200 --> 00:10:18,360 Speaker 1: One area of the market that we're focused on currently 179 00:10:18,840 --> 00:10:22,440 Speaker 1: our agency mortgage backed securities. These are areas of the 180 00:10:22,480 --> 00:10:25,840 Speaker 1: market that have widened this year. One of the primarily 181 00:10:26,080 --> 00:10:28,640 Speaker 1: primary reasons why they've widened is that the Federal Reserve 182 00:10:28,679 --> 00:10:32,440 Speaker 1: is selling them again. Uh, we don't mind that. Um, 183 00:10:32,480 --> 00:10:35,840 Speaker 1: that's a technical in the marketplace that over time will 184 00:10:35,840 --> 00:10:39,000 Speaker 1: likely resolve itself. Of course, as the Fed continues to 185 00:10:39,080 --> 00:10:41,480 Speaker 1: reduce balance sheet, they can certainly go wider from here. 186 00:10:42,000 --> 00:10:46,680 Speaker 1: But that's an example of a reasonable surrogate for forms 187 00:10:46,720 --> 00:10:49,679 Speaker 1: of less liquid risk that we like to utilize and 188 00:10:49,760 --> 00:10:52,160 Speaker 1: where we again have the good fortune of having a 189 00:10:52,520 --> 00:10:55,280 Speaker 1: big and an effective team in that area coming through 190 00:10:55,280 --> 00:10:59,120 Speaker 1: the different alternatives within that very high quality segment of 191 00:10:59,120 --> 00:11:02,080 Speaker 1: of the market. And then finally, UM, the willingness to 192 00:11:02,120 --> 00:11:07,160 Speaker 1: hold uh cash, sometimes moderate amounts, sometimes a lot of cash. 193 00:11:07,200 --> 00:11:10,200 Speaker 1: And that gets back to what I mentioned earlier. It 194 00:11:10,240 --> 00:11:15,200 Speaker 1: requires patients. It also requires the ability to accept under 195 00:11:15,200 --> 00:11:18,959 Speaker 1: performance during periods where credit spreads are tightening and when 196 00:11:19,000 --> 00:11:22,240 Speaker 1: stocks are going up. We were in that environment now 197 00:11:22,480 --> 00:11:25,880 Speaker 1: for you know, a good portion of two thousand seventeen, 198 00:11:26,160 --> 00:11:28,440 Speaker 1: even you know, briefly earlier in this year. And I 199 00:11:28,440 --> 00:11:29,839 Speaker 1: think you have to be willing to give up a 200 00:11:29,880 --> 00:11:33,040 Speaker 1: little bit of near term return to optimize portfolios for 201 00:11:33,080 --> 00:11:35,800 Speaker 1: clients over the long run. So right now, how much 202 00:11:35,840 --> 00:11:40,360 Speaker 1: cash you holding relative to recent history yeah, it depends 203 00:11:40,360 --> 00:11:43,840 Speaker 1: on the mandate. UM. But I you know, looking looking 204 00:11:43,880 --> 00:11:48,160 Speaker 1: across the board, you know, certainly relative to UM you 205 00:11:48,200 --> 00:11:51,480 Speaker 1: know several years ago, you know, we are you know, 206 00:11:51,600 --> 00:11:55,240 Speaker 1: at several multiples more cash than we would hold historically, 207 00:11:55,559 --> 00:11:58,600 Speaker 1: and even that doesn't tell the full um or doesn't 208 00:11:58,720 --> 00:12:01,440 Speaker 1: you know, fully paint the picture. In addition to having 209 00:12:01,520 --> 00:12:04,680 Speaker 1: cash on hand, we really really focus on liquidity tearing. 210 00:12:05,000 --> 00:12:07,560 Speaker 1: So we want to make sure that uh, you know, 211 00:12:07,720 --> 00:12:10,760 Speaker 1: above and beyond just old fashioned cash, we also have 212 00:12:10,880 --> 00:12:13,840 Speaker 1: sufficient liquidity and other areas of the portfolio to be 213 00:12:13,880 --> 00:12:17,480 Speaker 1: able to deal with more negative negative environments. So one 214 00:12:17,520 --> 00:12:20,440 Speaker 1: area that's been particularly beaten up, at least verbally, by 215 00:12:20,480 --> 00:12:24,000 Speaker 1: regulators and analysts, has been leveraged loans. People have called 216 00:12:24,040 --> 00:12:26,520 Speaker 1: this the epicenter of the credit bubble and the first 217 00:12:27,000 --> 00:12:29,520 Speaker 1: first place to go. We have seen prices declined to 218 00:12:29,520 --> 00:12:33,360 Speaker 1: the lowest since October two thousand sixteen on these leveraged loans. 219 00:12:33,559 --> 00:12:34,840 Speaker 1: Do you agree? Do you feel like this is a 220 00:12:34,880 --> 00:12:40,920 Speaker 1: really a troubled spot. So, I, you know, we're concerned 221 00:12:41,000 --> 00:12:46,040 Speaker 1: with longer term fundamentals within the leverage loan space. UM. 222 00:12:46,080 --> 00:12:47,840 Speaker 1: You know, I've always said that if if, if I 223 00:12:47,880 --> 00:12:50,160 Speaker 1: was allowed one piece of research or one piece only. 224 00:12:50,760 --> 00:12:52,680 Speaker 1: A pretty good piece of research would be to look 225 00:12:52,720 --> 00:12:56,120 Speaker 1: at issuance versus history. And I think when you look 226 00:12:56,120 --> 00:12:58,040 Speaker 1: at leverage loans, you look at other segments of the 227 00:12:58,040 --> 00:13:02,240 Speaker 1: corporate credit universe, UH, issuance is very very high UM 228 00:13:02,280 --> 00:13:08,080 Speaker 1: and that has been not surprisingly accompanied by reduced credit fundamentals, 229 00:13:08,360 --> 00:13:13,000 Speaker 1: less um covenants to protect investors, and this risk has 230 00:13:13,040 --> 00:13:15,840 Speaker 1: been distributed very broadly. And I bring that point up 231 00:13:15,880 --> 00:13:18,000 Speaker 1: because if we were to get into a more difficult 232 00:13:18,000 --> 00:13:23,440 Speaker 1: market environment, it will be increasingly difficult for investors to 233 00:13:23,679 --> 00:13:27,959 Speaker 1: defend their positions and look to exert influence in any 234 00:13:28,120 --> 00:13:33,520 Speaker 1: required workouts. You combine that with significant issuance within the 235 00:13:33,520 --> 00:13:36,520 Speaker 1: clo market, and you know, looking at total outstandings of 236 00:13:36,559 --> 00:13:39,040 Speaker 1: the cello market UM and I don't mean to sunt 237 00:13:39,080 --> 00:13:43,240 Speaker 1: over the alarmists, but you know, total issuance today is 238 00:13:43,280 --> 00:13:46,440 Speaker 1: pretty dark, close to max outstandings of A B, S, 239 00:13:46,440 --> 00:13:49,040 Speaker 1: C d os prior to the financial crisis UH. And 240 00:13:49,080 --> 00:13:51,160 Speaker 1: in no way do I suggest that these structures are 241 00:13:51,200 --> 00:13:54,200 Speaker 1: nearly as weak as those were, but it is setting 242 00:13:54,280 --> 00:13:59,439 Speaker 1: us up for under performance and probably overshooting to the downside. 243 00:13:59,679 --> 00:14:04,520 Speaker 1: One investor sentiment towards economic growth changes. So this is 244 00:14:04,559 --> 00:14:08,800 Speaker 1: an area where where the most cautious our activities in 245 00:14:08,800 --> 00:14:11,960 Speaker 1: this space have almost entirely been confined to the most 246 00:14:12,000 --> 00:14:15,800 Speaker 1: senior tranche in the in the clos that have been 247 00:14:15,840 --> 00:14:19,400 Speaker 1: issued UM, and we have very small holdings in that space. 248 00:14:20,040 --> 00:14:22,440 Speaker 1: One other final point I'll make on on loans is 249 00:14:22,520 --> 00:14:25,920 Speaker 1: that UM, you know, typically later in the cycle, when 250 00:14:26,520 --> 00:14:29,160 Speaker 1: the FED is taking interest rates higher and when people 251 00:14:29,160 --> 00:14:32,480 Speaker 1: are concerned about interest rate risk, you hear the thesis 252 00:14:32,560 --> 00:14:36,560 Speaker 1: that loans are a good way to protect against rising rates. UM. 253 00:14:36,600 --> 00:14:38,840 Speaker 1: I guess it's true in the sense that the coupons float, 254 00:14:39,440 --> 00:14:42,120 Speaker 1: but if you want to head your insulated portfolio from 255 00:14:42,160 --> 00:14:44,560 Speaker 1: interest rate exposure, there are other ways to do that. 256 00:14:44,720 --> 00:14:47,840 Speaker 1: So it's true that loans float and they don't have 257 00:14:47,880 --> 00:14:50,600 Speaker 1: a lot of direct interest rate exposure. But it's also 258 00:14:50,640 --> 00:14:53,760 Speaker 1: important to note that these are below investment grade assets 259 00:14:53,800 --> 00:14:58,520 Speaker 1: that have had a deterioration and fundamentals. So you hedge 260 00:14:58,520 --> 00:15:01,160 Speaker 1: against one risk, and of course you expose yourself to 261 00:15:01,880 --> 00:15:05,680 Speaker 1: pretty significant risk of a more negative environment for credit. 262 00:15:05,720 --> 00:15:07,440 Speaker 1: And I think you know from a from a retail 263 00:15:07,480 --> 00:15:10,560 Speaker 1: investor perspective, you know at times that's dangerous to the 264 00:15:10,600 --> 00:15:14,320 Speaker 1: extent that they don't fully appreciate that very critical and 265 00:15:14,400 --> 00:15:17,160 Speaker 1: important second form of risk embedded in UH in these 266 00:15:17,200 --> 00:15:19,800 Speaker 1: types of investments, Dan, I don't want to take up 267 00:15:19,800 --> 00:15:21,720 Speaker 1: too much of your time, but just to finish up here, 268 00:15:21,960 --> 00:15:24,120 Speaker 1: I would love to get your sense. This year, investment 269 00:15:24,160 --> 00:15:27,520 Speaker 1: grade US corporate bonds were some of the worst performers 270 00:15:27,560 --> 00:15:32,320 Speaker 1: out there, and cash was the best performer. This time 271 00:15:32,400 --> 00:15:34,240 Speaker 1: next year, what do you think would be the best 272 00:15:34,240 --> 00:15:38,440 Speaker 1: performing as a class within fixed income and the worst performing? Yeah, 273 00:15:38,480 --> 00:15:42,280 Speaker 1: it's you know twelve forecasts are are are difficult. I 274 00:15:42,320 --> 00:15:44,560 Speaker 1: think there's a you know, there's certainly the chance that 275 00:15:44,560 --> 00:15:48,480 Speaker 1: that cash ends up with a with a real good year. Again. UH, 276 00:15:48,800 --> 00:15:51,960 Speaker 1: We're we were made a little cautious on high quality bonds, 277 00:15:52,800 --> 00:15:55,040 Speaker 1: but if we end up in an environment where a 278 00:15:55,080 --> 00:15:59,280 Speaker 1: lot of these risks that markets are facing, policy politics, UH, 279 00:15:59,640 --> 00:16:03,360 Speaker 1: central bank over shooting. We don't think high quality bonds 280 00:16:03,480 --> 00:16:07,280 Speaker 1: necessarily have a bad potential for returns during during two 281 00:16:07,280 --> 00:16:10,440 Speaker 1: thousand nine. So UM, if you pin me down to 282 00:16:10,920 --> 00:16:14,160 Speaker 1: UH one specific area of the market. UM, At PIMCO, 283 00:16:14,320 --> 00:16:17,800 Speaker 1: our favorite sector continues to be the housing related sectors. 284 00:16:18,600 --> 00:16:20,760 Speaker 1: So I would say, you know, how's it related. Bonds 285 00:16:20,800 --> 00:16:24,040 Speaker 1: all else equal and adjusted for risk, will likely continue 286 00:16:24,040 --> 00:16:26,720 Speaker 1: to be a top performer, even with the slowdown in 287 00:16:26,800 --> 00:16:30,120 Speaker 1: housing that we've seen. Absolutely, and and I think I 288 00:16:30,120 --> 00:16:32,440 Speaker 1: think there's there's an important distinction that that needs to 289 00:16:32,480 --> 00:16:35,720 Speaker 1: be made there Um. We are not advocating big overweights 290 00:16:35,760 --> 00:16:40,520 Speaker 1: to investments that require, uh, the pace of home price 291 00:16:40,640 --> 00:16:44,880 Speaker 1: growth to continue, um at very at the levels we've 292 00:16:44,880 --> 00:16:48,000 Speaker 1: seen the last few years. Also within the housing sector, 293 00:16:48,080 --> 00:16:51,160 Speaker 1: as you know, um, that's where we've begun to see 294 00:16:51,200 --> 00:16:55,640 Speaker 1: significant wage pressure. So home builder business models can remain 295 00:16:55,720 --> 00:17:01,720 Speaker 1: under pressure, while bonds backed by homes or borrowers will 296 00:17:01,800 --> 00:17:05,160 Speaker 1: likely continue to perform extremely well. And the simple reason 297 00:17:05,200 --> 00:17:07,240 Speaker 1: for that is that regulators, as you know, have made 298 00:17:07,240 --> 00:17:12,800 Speaker 1: it real hard um to issue new loans to investors. 299 00:17:13,040 --> 00:17:15,919 Speaker 1: And we've had several years of very strong home price performance. 300 00:17:16,000 --> 00:17:19,280 Speaker 1: So in these types of investments, you have borrowers that 301 00:17:19,440 --> 00:17:22,200 Speaker 1: have a lot of equity in their property, um, that 302 00:17:22,520 --> 00:17:26,840 Speaker 1: for the most part have are employed, and where the 303 00:17:27,000 --> 00:17:30,560 Speaker 1: downside risks are much lower than some investors still fear. 304 00:17:30,640 --> 00:17:33,200 Speaker 1: So we think not only is this an attractive investment 305 00:17:33,200 --> 00:17:37,119 Speaker 1: from a yield perspective, we think you'll really see significant 306 00:17:37,119 --> 00:17:40,280 Speaker 1: resiliency versus other alternatives if we happen to get into 307 00:17:40,280 --> 00:17:43,719 Speaker 1: a more difficult economic environment next year. Not quite our 308 00:17:43,720 --> 00:17:46,159 Speaker 1: base case yet, but it's certainly increasing in terms of 309 00:17:46,160 --> 00:17:49,360 Speaker 1: probability and what's the worst performing as a class within 310 00:17:49,400 --> 00:17:52,800 Speaker 1: fixed income again, where we're we're real cautious on corporate 311 00:17:52,800 --> 00:17:56,640 Speaker 1: credit despite recent repricing. That's where we think at least 312 00:17:56,640 --> 00:18:01,880 Speaker 1: the prospects for more negative returns. Cist. That was Dan Ivison, 313 00:18:01,960 --> 00:18:05,800 Speaker 1: chief investment officer of PIMCO overseeing one point seven trillion 314 00:18:05,840 --> 00:18:08,920 Speaker 1: dollars in assets, also the manager of the world's biggest 315 00:18:09,000 --> 00:18:13,080 Speaker 1: actively managed bond fund, speaking with me yesterday and pim 316 00:18:13,119 --> 00:18:15,440 Speaker 1: you know, this is actually important, the concept of being 317 00:18:15,480 --> 00:18:19,760 Speaker 1: a very large actively managed fund, you know, the concept 318 00:18:19,760 --> 00:18:23,640 Speaker 1: of nimbleness, the concept of holding more cash, of holding derivatives, 319 00:18:23,680 --> 00:18:25,440 Speaker 1: of holding things that you could get in and out 320 00:18:25,440 --> 00:18:28,240 Speaker 1: of really quickly, of bonds that were you know, traded 321 00:18:28,280 --> 00:18:31,280 Speaker 1: more frequently. Such a prevalent theme, and I find that 322 00:18:31,440 --> 00:18:34,440 Speaker 1: fascinating at a time when everybody seems to agree the 323 00:18:34,480 --> 00:18:37,960 Speaker 1: volatility is picking up and it's not as clear cut 324 00:18:38,080 --> 00:18:41,440 Speaker 1: as there's a great opportunity and credit broadly or a 325 00:18:41,560 --> 00:18:44,960 Speaker 1: terrible opportunity and credit broadly, but you know specific opportunities 326 00:18:45,000 --> 00:18:49,520 Speaker 1: and perhaps uh opportunities that arrive at that arise that 327 00:18:49,640 --> 00:18:53,040 Speaker 1: can disappear within a month. Well, my reaction is that 328 00:18:53,119 --> 00:18:57,000 Speaker 1: when the head of the world's largest actively managed bond 329 00:18:57,040 --> 00:19:02,880 Speaker 1: fund says cash is a great alternative to anything out there, 330 00:19:03,600 --> 00:19:08,160 Speaker 1: and that they're concerned about potential liquidity risks and that 331 00:19:08,440 --> 00:19:14,679 Speaker 1: risk has been broadly distributed, it doesn't sound so great. No, 332 00:19:14,800 --> 00:19:17,159 Speaker 1: it doesn't. At the same time, it's not that the 333 00:19:17,160 --> 00:19:19,199 Speaker 1: world is about to end and sort of this is 334 00:19:19,240 --> 00:19:22,520 Speaker 1: the this is the hard line. It never does. But 335 00:19:22,840 --> 00:19:26,160 Speaker 1: it sounds bleak, bleak, but not two thousand and eight, right. 336 00:19:26,160 --> 00:19:28,679 Speaker 1: I mean, basically people are saying it's not necessarily the 337 00:19:28,680 --> 00:19:31,040 Speaker 1: big kahuna, but you're going to get something that's going 338 00:19:31,080 --> 00:19:33,960 Speaker 1: to be a much more uncomfortable backdrop. And the idea 339 00:19:34,080 --> 00:19:36,959 Speaker 1: being that the way you can generate bigger returns is 340 00:19:37,000 --> 00:19:39,879 Speaker 1: to if there is a liquidity event, be able to 341 00:19:40,000 --> 00:19:41,560 Speaker 1: have the money to go put it to work. In 342 00:19:41,600 --> 00:19:44,160 Speaker 1: other words, if there is a lot of withdrawals from 343 00:19:44,320 --> 00:19:46,800 Speaker 1: an e t F and the underlyings can't sell, they 344 00:19:46,840 --> 00:19:48,560 Speaker 1: have to sell it a discount. You know, how do 345 00:19:48,560 --> 00:19:50,520 Speaker 1: you make sure you can be a buyer at that point? 346 00:19:51,080 --> 00:19:53,320 Speaker 1: But what I do wonder is, given the number of 347 00:19:53,400 --> 00:19:57,600 Speaker 1: investments invest managers who we've spoken with who are emphasizing this, 348 00:19:57,720 --> 00:20:01,199 Speaker 1: you have to wonder is that, you know, will that 349 00:20:01,280 --> 00:20:05,439 Speaker 1: buffer some of the declines? It's possible, But I was 350 00:20:05,520 --> 00:20:08,080 Speaker 1: just looking at h y G, which is the I 351 00:20:08,280 --> 00:20:11,800 Speaker 1: shares I box high yield e t F. It is 352 00:20:11,840 --> 00:20:15,560 Speaker 1: down nearly two and a half percent since the beginning 353 00:20:15,840 --> 00:20:19,160 Speaker 1: of October. Yeah, it's been it's been a really rough ride. 354 00:20:19,160 --> 00:20:21,800 Speaker 1: And we've seen spreads or the extra yield that investors 355 00:20:21,840 --> 00:20:24,639 Speaker 1: earn on top of benchmark rates for HIO bonds and 356 00:20:24,720 --> 00:20:28,240 Speaker 1: investment grade bonds widened their most since since two thousand sixteen. 357 00:20:28,280 --> 00:20:31,439 Speaker 1: So definitely risk off. But when you put it in 358 00:20:31,440 --> 00:20:34,160 Speaker 1: a sort of longer term scheme of things, it isn't 359 00:20:34,200 --> 00:20:37,040 Speaker 1: it isn't really going and retracing too much of what 360 00:20:37,280 --> 00:20:39,960 Speaker 1: dan Ivison was talking about, which was this incredible run 361 00:20:40,040 --> 00:20:43,800 Speaker 1: up and credit and an unbelievable amount of record issuance. Yes, 362 00:20:43,920 --> 00:20:47,959 Speaker 1: and just wait until those maturities start hitting, And what 363 00:20:48,000 --> 00:20:50,959 Speaker 1: are they going to do for new credit? Are they 364 00:20:51,000 --> 00:20:53,440 Speaker 1: going to roll over those old credits and go back 365 00:20:53,480 --> 00:20:58,040 Speaker 1: to the same lenders and say please give me better terms. Yeah. 366 00:20:58,119 --> 00:20:59,720 Speaker 1: And then the other question is is will this be 367 00:20:59,760 --> 00:21:02,000 Speaker 1: a off landing with sort of the air being led 368 00:21:02,040 --> 00:21:05,120 Speaker 1: out of spreads slowly over time, or will this sort 369 00:21:05,119 --> 00:21:07,919 Speaker 1: of be subject to an event that will create some 370 00:21:08,000 --> 00:21:10,119 Speaker 1: kind of trauma. And that's sort of a big question 371 00:21:10,119 --> 00:21:12,560 Speaker 1: emerging out there as well. Well, we'll be covering it 372 00:21:12,640 --> 00:21:15,199 Speaker 1: whether it is a big event or a slow leak. 373 00:21:16,600 --> 00:21:24,880 Speaker 1: Talking about what happens in the world's credit markets. Apple 374 00:21:25,080 --> 00:21:28,320 Speaker 1: came out and said that it would invest one billion 375 00:21:28,400 --> 00:21:31,720 Speaker 1: dollars to expand its operations in Austin. It's also looking 376 00:21:31,760 --> 00:21:37,560 Speaker 1: at opening up establishments and Culver City, Seattle, and San Diego. Uh, 377 00:21:37,760 --> 00:21:40,639 Speaker 1: adding to sites in Boulder. It's like all the cities 378 00:21:40,680 --> 00:21:43,359 Speaker 1: that have benefited the most from some of the tech 379 00:21:43,720 --> 00:21:47,280 Speaker 1: tentacles that have trickled out of San Francisco joining us 380 00:21:47,280 --> 00:21:49,920 Speaker 1: now to talk about this. David Garretty, chief market strategist 381 00:21:49,960 --> 00:21:53,080 Speaker 1: for laid Law and Company. Uh, David, do you think 382 00:21:53,080 --> 00:21:56,119 Speaker 1: this is a case of President Trump getting what he 383 00:21:56,200 --> 00:22:01,480 Speaker 1: wants in terms of big tech opening more are headquarters 384 00:22:01,600 --> 00:22:04,360 Speaker 1: around the country. The only way that Trump would really 385 00:22:04,359 --> 00:22:06,879 Speaker 1: benefit from a political standpoint, is if Apple were to 386 00:22:06,920 --> 00:22:08,399 Speaker 1: come out and say that they were going to be 387 00:22:08,440 --> 00:22:15,560 Speaker 1: opening up campuses in rural locations around America, such as Davenport, Iowa, Peoria, Illinois, 388 00:22:15,920 --> 00:22:19,240 Speaker 1: or others. Um Out of the six cities that Apple cited, 389 00:22:19,400 --> 00:22:23,640 Speaker 1: really only Pittsburgh might be considered as falling into possibly 390 00:22:23,640 --> 00:22:26,400 Speaker 1: an area that you know, the Trump political base might benefit. 391 00:22:26,400 --> 00:22:29,320 Speaker 1: But arguably in Pittsburgh, the reason why Apples establishing it 392 00:22:29,359 --> 00:22:32,080 Speaker 1: is really because of Carnegie Mellon University and strength of 393 00:22:32,280 --> 00:22:35,960 Speaker 1: their computer science programs. And obviously Apple wants to go 394 00:22:36,000 --> 00:22:39,000 Speaker 1: where the talent is. But what's the difference Why what 395 00:22:39,200 --> 00:22:41,439 Speaker 1: I mean, a billion dollars is still a billion dollars. 396 00:22:41,480 --> 00:22:44,240 Speaker 1: It's great for the city of Austin, right, It's a 397 00:22:44,280 --> 00:22:47,800 Speaker 1: billion dollars over three years UM. And the question is 398 00:22:48,200 --> 00:22:50,560 Speaker 1: how many of those employees are actually gonna be coming 399 00:22:50,560 --> 00:22:53,760 Speaker 1: into the US under H one B visas is another 400 00:22:53,880 --> 00:22:56,360 Speaker 1: thing to sort of consider here. I mean, obviously there's 401 00:22:56,400 --> 00:23:00,720 Speaker 1: a there's a granularity behind this headline may make it 402 00:23:00,840 --> 00:23:03,240 Speaker 1: sound as if the tech sector is cow towing to 403 00:23:03,359 --> 00:23:07,920 Speaker 1: Trump's presidential protectionist edicts, but at the end of the day, 404 00:23:08,200 --> 00:23:09,840 Speaker 1: you know, Apple is going to have to try to 405 00:23:09,880 --> 00:23:13,520 Speaker 1: find a way to maneuver around these walls that Trump 406 00:23:13,600 --> 00:23:17,000 Speaker 1: is building against a multilateral global economy. Well, I guess 407 00:23:17,080 --> 00:23:19,440 Speaker 1: let's put it this way. There has been some talk 408 00:23:19,520 --> 00:23:23,000 Speaker 1: about rejiggering supply chains in response to some of the tariffs. 409 00:23:23,040 --> 00:23:26,320 Speaker 1: Apple in particular might or said that it might do 410 00:23:26,400 --> 00:23:30,119 Speaker 1: that should the tariffs be implemented. Do you think this 411 00:23:30,200 --> 00:23:32,200 Speaker 1: is a whole lot of lip service? Do you think 412 00:23:32,240 --> 00:23:36,080 Speaker 1: that they are starting to rejigger their supply chains. Well, 413 00:23:36,359 --> 00:23:39,800 Speaker 1: understand that these supply chains were established over decades, and 414 00:23:40,000 --> 00:23:43,879 Speaker 1: clearly one can't necessarily turn on a dime or in 415 00:23:44,240 --> 00:23:49,600 Speaker 1: a turn of Trumpian temperament and recon reconstitute one's global business. 416 00:23:49,640 --> 00:23:53,520 Speaker 1: But certainly businesses having to deal with the uncertainty that 417 00:23:53,640 --> 00:23:57,719 Speaker 1: protection is m or the leaning towards protectionism has represented, 418 00:23:57,960 --> 00:24:00,960 Speaker 1: obviously have to be running themselves in a little bit 419 00:24:01,000 --> 00:24:03,639 Speaker 1: more fluid manner. So if you have to make some 420 00:24:03,680 --> 00:24:06,640 Speaker 1: announcements about beefing things up in places where you're gonna 421 00:24:06,640 --> 00:24:11,760 Speaker 1: be recruiting people anyway, wonderful. Um. But otherwise, um, you know, 422 00:24:11,880 --> 00:24:14,600 Speaker 1: just the idea of moving imposing protection is in America 423 00:24:14,680 --> 00:24:21,359 Speaker 1: first basically leads towards smaller markets undermines economies of scale. Ultimately, 424 00:24:21,720 --> 00:24:25,240 Speaker 1: the wages of protectionism will be inflation, whether they're because 425 00:24:25,240 --> 00:24:29,080 Speaker 1: of tariffs being imposed on US consumers or because of 426 00:24:29,119 --> 00:24:32,680 Speaker 1: structural costs that are being imposed on businesses as they 427 00:24:32,720 --> 00:24:36,800 Speaker 1: face these smaller markets. David, just to sort of step 428 00:24:36,800 --> 00:24:38,679 Speaker 1: back a second, you get a chance to listen to 429 00:24:38,880 --> 00:24:47,000 Speaker 1: some dar of Google testify before Congress. Right, Yes, okay, 430 00:24:47,600 --> 00:24:50,359 Speaker 1: I'm sure there are, but I can't name them. You 431 00:24:50,400 --> 00:24:53,320 Speaker 1: think there are any Americans who are the head of 432 00:24:54,440 --> 00:25:01,720 Speaker 1: behemoth Indian companies? Uh? At President? No? So okay. And 433 00:25:02,000 --> 00:25:04,359 Speaker 1: the reason I ask it like that is because the 434 00:25:04,400 --> 00:25:08,919 Speaker 1: fact that he is. They are testifying before Congress representing what, 435 00:25:09,040 --> 00:25:12,160 Speaker 1: in all intensive purposes, is the largest search engine company 436 00:25:12,280 --> 00:25:16,760 Speaker 1: in the world and advertising. Doesn't that kind of speak 437 00:25:17,040 --> 00:25:21,160 Speaker 1: to the openness of markets here in the United States? Well, 438 00:25:21,200 --> 00:25:24,200 Speaker 1: it speaks to what has been, you know, the meritocracy 439 00:25:24,240 --> 00:25:28,720 Speaker 1: of achievement, of America's ability, because of its relative openness 440 00:25:28,760 --> 00:25:32,560 Speaker 1: to attract human talent from a global market, and certainly 441 00:25:32,600 --> 00:25:37,119 Speaker 1: immigration or the imposition of immigration controls have started to 442 00:25:37,160 --> 00:25:41,040 Speaker 1: militate against that. We've seen early signs that foreign students 443 00:25:41,080 --> 00:25:45,600 Speaker 1: are no longer considering American universities for their postgraduate programs. 444 00:25:45,800 --> 00:25:48,120 Speaker 1: You know, one has to understand if one goes through 445 00:25:48,160 --> 00:25:50,879 Speaker 1: and looks at you know, the unicorns, the billion dollar 446 00:25:51,280 --> 00:25:54,640 Speaker 1: valuation private companies, whether in the tech sector or elsewhere, 447 00:25:54,800 --> 00:25:57,480 Speaker 1: how many of those have been founded by non US 448 00:25:57,640 --> 00:26:01,199 Speaker 1: nationals who came here to get the postgraduate degrees and 449 00:26:01,240 --> 00:26:03,680 Speaker 1: decided to stay. And now we've also started to see 450 00:26:03,680 --> 00:26:07,119 Speaker 1: evidence that people have decided that, rather than basically pursue 451 00:26:07,160 --> 00:26:11,359 Speaker 1: opportunity in the US, take their capabilities returned back to 452 00:26:11,480 --> 00:26:15,680 Speaker 1: their countries India, China, elsewhere, and decided to pursue their 453 00:26:15,760 --> 00:26:19,600 Speaker 1: dreams in those locales. This is what we get as 454 00:26:19,600 --> 00:26:22,320 Speaker 1: a result of protectionism. This is what we get from 455 00:26:22,359 --> 00:26:25,880 Speaker 1: the standpoint of nationalism. All right, I'm just looking right now. 456 00:26:26,160 --> 00:26:28,720 Speaker 1: It sort of fits in. The NASDAC has actually turned 457 00:26:28,760 --> 00:26:31,359 Speaker 1: negative for the day, uh and is down about a 458 00:26:31,359 --> 00:26:34,280 Speaker 1: half a percentage point after being up earlier. We saw 459 00:26:34,320 --> 00:26:37,280 Speaker 1: some optimism kind of getting baked in with possible trade 460 00:26:37,760 --> 00:26:41,400 Speaker 1: agreements or tensions whatever. But uh, the NAZAC is still 461 00:26:41,520 --> 00:26:44,560 Speaker 1: up for the year three point four percent, including reinvested dividends. 462 00:26:44,560 --> 00:26:46,320 Speaker 1: And I'm just wondering I mean, do you think that 463 00:26:46,400 --> 00:26:48,720 Speaker 1: next year is going to be a very rough year 464 00:26:49,119 --> 00:26:52,080 Speaker 1: for big tech based on the regulatory pressures as well 465 00:26:52,119 --> 00:26:55,000 Speaker 1: as the trade tensions. Well, I certainly think that from 466 00:26:55,000 --> 00:26:58,320 Speaker 1: the standpoint of the volatility that the trade negotiations have 467 00:26:58,400 --> 00:27:01,119 Speaker 1: built in here, I mean, certainly we're seeing a market 468 00:27:01,160 --> 00:27:03,159 Speaker 1: that's far more volatile, and I don't think that this 469 00:27:03,240 --> 00:27:06,840 Speaker 1: is necessarily going to be resolved UM early in two 470 00:27:06,880 --> 00:27:09,199 Speaker 1: thousand nineteen, despite the fact that coming out of the 471 00:27:09,240 --> 00:27:11,720 Speaker 1: G twenty meeting in Buenos Areas, there was a thought 472 00:27:11,800 --> 00:27:13,679 Speaker 1: that there would be some sort of framework agreement in 473 00:27:13,680 --> 00:27:16,359 Speaker 1: place by March first. UM. I would also say at 474 00:27:16,400 --> 00:27:19,880 Speaker 1: the same time that yes, the concerns, whether it's from 475 00:27:19,880 --> 00:27:22,879 Speaker 1: the standpoint of data privacy or whether it's from the 476 00:27:22,920 --> 00:27:26,760 Speaker 1: standpoint of election interference, I think that the Democratic House 477 00:27:26,760 --> 00:27:29,800 Speaker 1: of Representatives clearly is going to be stepping up further 478 00:27:29,840 --> 00:27:33,639 Speaker 1: discussions with the technology sector as to how it is 479 00:27:33,680 --> 00:27:35,960 Speaker 1: that's dead and being data is being managed. And we've 480 00:27:36,000 --> 00:27:39,159 Speaker 1: seen some data health bills that have been introduced in 481 00:27:39,240 --> 00:27:43,080 Speaker 1: the Senate UM primarily from Democratic senators. And we all 482 00:27:43,119 --> 00:27:46,760 Speaker 1: know that a Democrat Republican Senate led by Mitch McConnell. 483 00:27:47,000 --> 00:27:49,200 Speaker 1: You know things like that, probably see a snowball's chance 484 00:27:49,200 --> 00:27:51,280 Speaker 1: of hell of actually getting to the floor. But you know, 485 00:27:51,359 --> 00:27:55,480 Speaker 1: Mitch McConnell represents a dead hand political expression carrying it 486 00:27:55,600 --> 00:27:57,640 Speaker 1: is it is dead hand is another word to use 487 00:27:57,720 --> 00:28:01,240 Speaker 1: for it. But sometimes Mitch looks like that. But in 488 00:28:01,320 --> 00:28:03,960 Speaker 1: any event, neither here nor there. The outlook for two 489 00:28:03,960 --> 00:28:06,159 Speaker 1: thousand nineteen, I would argue, is probably a four to 490 00:28:06,320 --> 00:28:09,160 Speaker 1: six percent upside in the SMP five hundred with increased 491 00:28:09,200 --> 00:28:12,320 Speaker 1: volatility in terms of one percent moves. For investors, it 492 00:28:12,320 --> 00:28:15,399 Speaker 1: probably means if you have long positions, right options against 493 00:28:15,480 --> 00:28:18,560 Speaker 1: them to get the premium income that comes from greater volatility. 494 00:28:18,600 --> 00:28:20,720 Speaker 1: But for people looking to put money to work in 495 00:28:20,760 --> 00:28:25,240 Speaker 1: the market, certainly this hasn't made things any easier. David Garritty, 496 00:28:25,280 --> 00:28:27,439 Speaker 1: just to give you twenty seconds, you agree with this 497 00:28:27,520 --> 00:28:33,159 Speaker 1: statement that China is now the greatest threat to americans privacy? No, 498 00:28:33,320 --> 00:28:35,719 Speaker 1: I think arguably that there are other countries that are 499 00:28:35,760 --> 00:28:39,280 Speaker 1: the greatest prep threat to America's privacy. The Marriott hacking 500 00:28:39,680 --> 00:28:44,600 Speaker 1: with five hundred million accounts involved, notwithstanding, I mean certainly 501 00:28:44,680 --> 00:28:46,920 Speaker 1: China is not alone in terms of hacking. We could 502 00:28:46,920 --> 00:28:49,680 Speaker 1: look at a wide range of other state actors, not 503 00:28:49,800 --> 00:28:53,560 Speaker 1: just China. Thank you very much, much appreciated. David Garretty 504 00:28:53,560 --> 00:28:57,880 Speaker 1: always a pleasure, Chief market strategist for laid Law and Company, 505 00:28:58,240 --> 00:29:01,520 Speaker 1: and he joins us here in our Bloomberg director Broker's studios. 506 00:29:01,640 --> 00:29:04,040 Speaker 1: And just taking a look at the SMP five hundred 507 00:29:04,160 --> 00:29:08,680 Speaker 1: right now, basically unchanged at the fifty off the highs 508 00:29:08,720 --> 00:29:11,400 Speaker 1: of the day that were set earlier in the morning. 509 00:29:11,440 --> 00:29:14,440 Speaker 1: Taking a look at oil right now up about six 510 00:29:14,480 --> 00:29:17,160 Speaker 1: tents of a percent, fifty one dollars a barrel. Gold 511 00:29:17,320 --> 00:29:20,200 Speaker 1: right now down about a quarter of a percent, lower 512 00:29:20,280 --> 00:29:23,800 Speaker 1: by three dollars and forty cents one dollars for an 513 00:29:23,800 --> 00:29:26,560 Speaker 1: ounce of gold. You're listening to Bloomberg Markets. I'm pim 514 00:29:26,680 --> 00:29:33,480 Speaker 1: Fox along with Lisa Abramowitz. The topic now is Amazon 515 00:29:33,840 --> 00:29:39,160 Speaker 1: and it's a workforce. Amazon workers can earn between seventeen 516 00:29:39,240 --> 00:29:41,400 Speaker 1: and a half to twenty three dollars an hour, and 517 00:29:41,920 --> 00:29:46,520 Speaker 1: they also receive what the company describes as world class benefits. Well, 518 00:29:46,760 --> 00:29:49,720 Speaker 1: some workers, at least in New York may not feel 519 00:29:49,760 --> 00:29:53,600 Speaker 1: that way because they have announced plans to unionize. Here 520 00:29:53,640 --> 00:29:56,240 Speaker 1: to tell us more is josh Idolson. He is our 521 00:29:56,400 --> 00:29:59,840 Speaker 1: labor reporter for Bloomberg and he joins us from pal 522 00:30:00,000 --> 00:30:02,480 Speaker 1: Walto and you can follow Josh as we all do 523 00:30:02,840 --> 00:30:06,640 Speaker 1: on Twitter at Josh Idolson. That's E I D E 524 00:30:06,840 --> 00:30:10,600 Speaker 1: L S O N. So, Josh tell us why workers 525 00:30:10,760 --> 00:30:14,840 Speaker 1: at Amazon would want to unionize. Employees I talked to 526 00:30:14,920 --> 00:30:19,200 Speaker 1: at the Staten Island facility talked about pay that they 527 00:30:19,320 --> 00:30:24,240 Speaker 1: view as inadequate, especially in New York City. Safety concerns 528 00:30:24,280 --> 00:30:28,200 Speaker 1: they say don't get adequately addressed. Twelve hour shifts without 529 00:30:28,320 --> 00:30:32,360 Speaker 1: enough breaks, without the ability to get to a break room, 530 00:30:32,400 --> 00:30:34,760 Speaker 1: and with enough time left to make it worth it, 531 00:30:35,320 --> 00:30:38,360 Speaker 1: Hourly quotas for how much stuff they have to process, 532 00:30:38,480 --> 00:30:42,080 Speaker 1: quotas that they say keep moving and are like a 533 00:30:42,120 --> 00:30:45,920 Speaker 1: finish line that keeps getting changed every day. And additional 534 00:30:45,960 --> 00:30:49,440 Speaker 1: time that they lose after those twelve hour shifts, and 535 00:30:49,480 --> 00:30:54,200 Speaker 1: mandatory overtime because they're stuck in line, unpaid, waiting to 536 00:30:54,240 --> 00:30:57,440 Speaker 1: go through security check so they can leave. So, Josh, 537 00:30:57,440 --> 00:30:59,400 Speaker 1: can you give us a sense of what type of 538 00:30:59,440 --> 00:31:02,160 Speaker 1: wages these workers get? And it's sort of surprising to 539 00:31:02,200 --> 00:31:05,040 Speaker 1: me because when I heard that Amazon was creating a 540 00:31:05,080 --> 00:31:07,880 Speaker 1: new headquarters and putting part of it in New York 541 00:31:08,400 --> 00:31:12,880 Speaker 1: that these would be higher paid positions. So these are 542 00:31:13,120 --> 00:31:18,800 Speaker 1: staten Island fulfillment center workers. These are not HQ two workers, 543 00:31:18,840 --> 00:31:22,120 Speaker 1: and these standard island workers. One of them I talked to, 544 00:31:22,280 --> 00:31:26,120 Speaker 1: for example, said that he makes eighteen dollars and sixty 545 00:31:26,160 --> 00:31:29,320 Speaker 1: cents an hour. Amazon points out that when people are 546 00:31:29,360 --> 00:31:31,800 Speaker 1: working over time and they're getting time and a half 547 00:31:32,360 --> 00:31:37,840 Speaker 1: at that facility, they're making to thirty four fifty for 548 00:31:37,960 --> 00:31:42,440 Speaker 1: those time and a half over time hours. Well, Josh, 549 00:31:42,520 --> 00:31:46,160 Speaker 1: you know, looking at the Bureau of Labor Statistics report 550 00:31:46,280 --> 00:31:51,720 Speaker 1: that tracks weekly wages for New York City workers, the 551 00:31:51,800 --> 00:31:55,720 Speaker 1: average weekly pays over three thousand dollars. Let's say you 552 00:31:55,760 --> 00:31:59,000 Speaker 1: get twenty three dollars an hour working at Amazon. That 553 00:31:59,040 --> 00:32:02,320 Speaker 1: doesn't even add up to a thousand dollars a week 554 00:32:02,440 --> 00:32:09,360 Speaker 1: for forty hour a week. And again that and upgrade 555 00:32:09,400 --> 00:32:12,480 Speaker 1: is four time and a half. So that's not what 556 00:32:12,600 --> 00:32:16,080 Speaker 1: people are making the other forty hours a week by 557 00:32:16,160 --> 00:32:19,200 Speaker 1: the data that Amazon is giving. And these are jobs 558 00:32:19,240 --> 00:32:23,920 Speaker 1: where people say there's the cost of living that they're 559 00:32:24,200 --> 00:32:27,840 Speaker 1: unable to keep up with at this rate. And even so, 560 00:32:28,160 --> 00:32:30,160 Speaker 1: one of the workers I talked to said he commutes 561 00:32:30,320 --> 00:32:33,440 Speaker 1: four hours a day so you add the four hours 562 00:32:33,440 --> 00:32:36,520 Speaker 1: a day back and forth to the job to a 563 00:32:36,560 --> 00:32:42,040 Speaker 1: twelve hour shift, and people say there's an exhaustion that 564 00:32:42,240 --> 00:32:46,320 Speaker 1: builds on the exhaustion of the job itself. All Right, So, Josh, 565 00:32:46,400 --> 00:32:48,800 Speaker 1: I have to think the timing of this is not accidental. 566 00:32:48,840 --> 00:32:51,160 Speaker 1: There's a lot of focus and political pressure on Amazon 567 00:32:51,240 --> 00:32:55,760 Speaker 1: to increase wages, to offer better conditions for workers, especially 568 00:32:55,880 --> 00:33:00,320 Speaker 1: given their parade for the headquarters search, the sort of 569 00:33:00,480 --> 00:33:04,560 Speaker 1: Bachelor at type of scene that we had there. You know, 570 00:33:04,640 --> 00:33:09,320 Speaker 1: I'm wondering, is that our potential unionizer is taking advantage 571 00:33:09,360 --> 00:33:12,120 Speaker 1: of that, basically saying the time is ripe, let's pounce. 572 00:33:12,160 --> 00:33:15,040 Speaker 1: Now Amazon is in the news for this. There is 573 00:33:15,280 --> 00:33:20,000 Speaker 1: absolutely an aspect of that to the strategy here. In fact, 574 00:33:20,120 --> 00:33:22,400 Speaker 1: the union that these workers are working with, the retail 575 00:33:22,440 --> 00:33:26,640 Speaker 1: wholesale Wholet Sale and Department Store Union, it's president told 576 00:33:26,640 --> 00:33:29,560 Speaker 1: me directly that he thinks there's never been greater leverage 577 00:33:30,040 --> 00:33:33,320 Speaker 1: to support this kind of effort by workers. He says, 578 00:33:33,360 --> 00:33:37,560 Speaker 1: if there's up to three billion dollars in taxpayer subsidies 579 00:33:37,600 --> 00:33:41,640 Speaker 1: effectively that Amazon is getting, that's leverage to make Amazon 580 00:33:42,200 --> 00:33:46,040 Speaker 1: not bust a union. There. Now the situation is complicated 581 00:33:46,080 --> 00:33:50,160 Speaker 1: by the fact that federal law restricts states and cities 582 00:33:50,320 --> 00:33:56,280 Speaker 1: from regulating union organizing and union busting activities, and so 583 00:33:56,760 --> 00:33:59,840 Speaker 1: the city does not have totally free reign, and neither 584 00:34:00,040 --> 00:34:04,800 Speaker 1: us the state. However, there is some leeway for governments 585 00:34:05,440 --> 00:34:09,520 Speaker 1: under court precedent when their own money is involved, when 586 00:34:09,520 --> 00:34:14,880 Speaker 1: they have a so called proprietary interest, and certainly in 587 00:34:14,960 --> 00:34:18,840 Speaker 1: the political debate that's going on that, among other things, 588 00:34:18,880 --> 00:34:24,680 Speaker 1: involves advocates and lawmakers saying that a state entity should 589 00:34:24,680 --> 00:34:30,000 Speaker 1: reject this subsidy deal with Amazon. What Amazon's labor reputation 590 00:34:30,040 --> 00:34:34,000 Speaker 1: and behavior is, It's something that certainly people will take 591 00:34:34,000 --> 00:34:37,440 Speaker 1: into account in drawing their conclusions, and so the union 592 00:34:37,520 --> 00:34:40,520 Speaker 1: and the workers think that there is leverage here. There 593 00:34:40,560 --> 00:34:44,760 Speaker 1: wouldn't be otherwise to try to stop Amazon from making 594 00:34:44,800 --> 00:34:48,840 Speaker 1: some of the moves that people allege otherwise might be 595 00:34:48,920 --> 00:34:51,239 Speaker 1: going on. Josh Idelson, thank you so much for being 596 00:34:51,280 --> 00:34:54,640 Speaker 1: with us. Josh Idelson as labor reporter for Bloomberg News, 597 00:34:54,640 --> 00:34:57,680 Speaker 1: coming to us from Palo Alto, and I do have 598 00:34:57,800 --> 00:35:00,480 Speaker 1: to think, Pam. The other side of this is Amazon 599 00:35:00,560 --> 00:35:03,040 Speaker 1: doesn't necessarily have the biggest margins in the world, and 600 00:35:03,040 --> 00:35:05,920 Speaker 1: they're all into compressing their margins that they can gain share, 601 00:35:06,000 --> 00:35:09,080 Speaker 1: and you have to wonder will this force their profitability 602 00:35:09,120 --> 00:35:12,879 Speaker 1: to decline or force prices to increase If this does 603 00:35:12,960 --> 00:35:16,320 Speaker 1: gain steam, and how that will affect the entire retail backdrop. 604 00:35:16,360 --> 00:35:19,319 Speaker 1: A really interesting issue. Yes, and this is coming out 605 00:35:19,360 --> 00:35:22,600 Speaker 1: of particularly difficult and fraud time for Amazon because of 606 00:35:22,600 --> 00:35:25,920 Speaker 1: the two new headquarters that they said they're going to build. 607 00:35:27,000 --> 00:35:29,560 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 608 00:35:29,880 --> 00:35:33,799 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 609 00:35:33,920 --> 00:35:37,359 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 610 00:35:37,400 --> 00:35:41,400 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 611 00:35:41,520 --> 00:35:44,120 Speaker 1: It's one before the podcast. You can always catch us 612 00:35:44,160 --> 00:35:45,760 Speaker 1: worldwide on Bloomberg Radio