1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Sweene. You, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma wits each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money. Whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,960 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:24,560 Speaker 1: at Bloomberg dot com. It may be one of the 8 00:00:24,560 --> 00:00:27,160 Speaker 1: biggest investment firms you have never heard of, and that 9 00:00:27,320 --> 00:00:30,400 Speaker 1: is a clutch of high net worth individuals who meet 10 00:00:30,440 --> 00:00:34,600 Speaker 1: together to discuss how they are deploying their assets, what 11 00:00:34,760 --> 00:00:38,760 Speaker 1: strategies they're using. And we're lucky to have with us 12 00:00:38,800 --> 00:00:41,640 Speaker 1: the founder and the chair of this organization, which is 13 00:00:41,680 --> 00:00:44,440 Speaker 1: called Tiger twenty one. His name is Michael sudden Felt. 14 00:00:44,520 --> 00:00:47,720 Speaker 1: He joins us here in our Bloomberg Interactive Broker's studios. 15 00:00:48,120 --> 00:00:51,880 Speaker 1: Uh So, this club, which is Tiger twenty one, oversees 16 00:00:51,960 --> 00:00:55,120 Speaker 1: about seventy one billion dollars. And the club doesn't oversee 17 00:00:55,120 --> 00:00:57,480 Speaker 1: it. It It just as a clutch of individuals right who 18 00:00:57,520 --> 00:01:01,840 Speaker 1: come together sign a confidentiality agreement to discuss what they 19 00:01:01,840 --> 00:01:04,319 Speaker 1: are doing, how they are doing it. And sort of 20 00:01:04,360 --> 00:01:07,399 Speaker 1: consult with one another. Can you give us a sense 21 00:01:07,440 --> 00:01:11,080 Speaker 1: of how much your organization has grown as an example 22 00:01:11,200 --> 00:01:15,240 Speaker 1: of just the power of high net worth individuals and 23 00:01:15,280 --> 00:01:18,280 Speaker 1: how it has come up. Sure, First of all, we're 24 00:01:18,319 --> 00:01:22,679 Speaker 1: not an investment firm. We're an organization. What we provide 25 00:01:22,720 --> 00:01:27,600 Speaker 1: is the plumbing that connects today seven individuals in five countries, 26 00:01:28,000 --> 00:01:33,360 Speaker 1: thirty cities, fifty four groups, and seventy billion in assets. 27 00:01:33,400 --> 00:01:36,200 Speaker 1: Every member meets in a group once a month, twelve 28 00:01:36,240 --> 00:01:41,960 Speaker 1: people to fifteen around the table. They've signed confidentiality agreements, 29 00:01:42,040 --> 00:01:45,240 Speaker 1: and they're there to help one another, not sell one another. 30 00:01:46,040 --> 00:01:49,960 Speaker 1: So MIKEA, I'm guessing this group of people they've made 31 00:01:50,000 --> 00:01:52,640 Speaker 1: their money. If this isn't about what's the hottest new 32 00:01:52,760 --> 00:01:54,760 Speaker 1: stock to buy, what's the hottest new I p O, 33 00:01:55,360 --> 00:01:58,080 Speaker 1: maybe a little bit more about preserving their capital. So 34 00:01:58,640 --> 00:02:00,720 Speaker 1: what are some of the strategies that people in this 35 00:02:00,800 --> 00:02:03,960 Speaker 1: group are employing right now? So most of our members 36 00:02:03,960 --> 00:02:07,280 Speaker 1: have had the liquidity event, and what they're trying to 37 00:02:07,280 --> 00:02:10,040 Speaker 1: do is figure out an all weather strategy. How do 38 00:02:10,080 --> 00:02:13,640 Speaker 1: they have a balanced portfolio? But it reflects also the 39 00:02:13,720 --> 00:02:17,600 Speaker 1: skills with which they created their wealth. So today you 40 00:02:17,680 --> 00:02:21,600 Speaker 1: have about seventy five percent of their assets, split roughly 41 00:02:22,160 --> 00:02:26,040 Speaker 1: between real estate, private equity, and public equity, the largest 42 00:02:26,080 --> 00:02:31,480 Speaker 1: being about in real estate income producing real estate. And 43 00:02:31,560 --> 00:02:37,600 Speaker 1: what's interesting is public equity is the smallest of them 44 00:02:37,639 --> 00:02:41,760 Speaker 1: because members have created their wealth in private markets and 45 00:02:41,800 --> 00:02:45,240 Speaker 1: in real estate markets, so that's where they're comfortable deploying 46 00:02:45,280 --> 00:02:48,320 Speaker 1: their capital to preserve it for the long term. What's 47 00:02:48,320 --> 00:02:52,639 Speaker 1: been the most popular trade of late, Well, uh, I'd 48 00:02:52,680 --> 00:02:56,079 Speaker 1: say the most interesting. Members do a portfolio defense once 49 00:02:56,120 --> 00:02:59,440 Speaker 1: a year in their groups. They have ninety minutes to 50 00:02:59,520 --> 00:03:03,240 Speaker 1: defend their portfolio. And in a recent portfolio defense, a 51 00:03:03,320 --> 00:03:06,639 Speaker 1: young member was saying, you know, he's concerned about the markets. 52 00:03:06,840 --> 00:03:09,440 Speaker 1: He has a lot of tech stocks and index funds. 53 00:03:09,919 --> 00:03:13,959 Speaker 1: He decided to sell the index funds because his thesis 54 00:03:14,440 --> 00:03:17,880 Speaker 1: is that the new durable, the new consumer durable, or 55 00:03:17,919 --> 00:03:20,000 Speaker 1: the tech stocks, no matter how good are bad, the 56 00:03:20,000 --> 00:03:23,040 Speaker 1: economy is people are gonna buy on Amazon, they're gonna 57 00:03:23,040 --> 00:03:27,160 Speaker 1: talk on Facebook, they're gonna use Microsoft office products, and 58 00:03:27,200 --> 00:03:30,520 Speaker 1: it was really turning upside down for safety. He was 59 00:03:30,600 --> 00:03:35,280 Speaker 1: staying in the tech stocks. Just an amazing intergenerational perspective 60 00:03:35,640 --> 00:03:37,840 Speaker 1: and what is yet it's kind of a stable for 61 00:03:37,960 --> 00:03:40,440 Speaker 1: some of the younger folks. So how about some of 62 00:03:40,480 --> 00:03:43,080 Speaker 1: the alternative investments out there. You know you're reading, you 63 00:03:43,120 --> 00:03:45,960 Speaker 1: hear about some of these ultra wealthy people that will put, 64 00:03:46,200 --> 00:03:48,880 Speaker 1: you know, a significant part of their or meaningful part 65 00:03:48,960 --> 00:03:52,720 Speaker 1: of their net worth into wine or art or things 66 00:03:52,760 --> 00:03:54,760 Speaker 1: like that, as maybe a little bit of hedge on 67 00:03:54,880 --> 00:03:57,640 Speaker 1: other parts of the market. So we do have members 68 00:03:57,920 --> 00:04:01,960 Speaker 1: who are investing in those things, but for the most part, 69 00:04:02,440 --> 00:04:05,960 Speaker 1: it's the private equity and the private ownership of real estate. 70 00:04:06,000 --> 00:04:09,640 Speaker 1: And interestingly enough, if you're interested in private equity, that 71 00:04:09,760 --> 00:04:12,320 Speaker 1: leads you to look at a firm like black Stone, 72 00:04:12,400 --> 00:04:15,800 Speaker 1: because so much of their public value comes from the 73 00:04:15,800 --> 00:04:20,520 Speaker 1: asset management fee, but the promotes that occur when a 74 00:04:20,600 --> 00:04:23,039 Speaker 1: company is sold are not baked into the price. So 75 00:04:23,120 --> 00:04:25,720 Speaker 1: even if you're into private equity, you can look at 76 00:04:25,720 --> 00:04:27,880 Speaker 1: a public company like black Stone and say you can 77 00:04:27,880 --> 00:04:31,039 Speaker 1: get the benefits of private equity. How concerned are the 78 00:04:31,160 --> 00:04:34,760 Speaker 1: members of the Tiger twenty one group about the high 79 00:04:34,839 --> 00:04:37,520 Speaker 1: valuations right now and the amount of money that has 80 00:04:37,600 --> 00:04:43,400 Speaker 1: flowed into private equity companies? So um, most private equity 81 00:04:44,120 --> 00:04:47,800 Speaker 1: analysis talks about private equity funds, and you could talk 82 00:04:47,839 --> 00:04:51,600 Speaker 1: about the private equity market having too much money. Our 83 00:04:51,640 --> 00:04:55,839 Speaker 1: members tend towards the smaller companies where they're making direct investments, 84 00:04:55,880 --> 00:04:59,040 Speaker 1: where they're rolling up their shirt sleeves. These are people 85 00:04:59,080 --> 00:05:02,960 Speaker 1: who have built great businesses. Our marketplace for our members 86 00:05:03,080 --> 00:05:06,839 Speaker 1: is people who have created essentially multi hundred million dollar 87 00:05:06,920 --> 00:05:10,520 Speaker 1: businesses and sold them. The qualifications for Tiger you have 88 00:05:10,600 --> 00:05:13,960 Speaker 1: to have investable assets between ten million and a billion. 89 00:05:14,279 --> 00:05:17,520 Speaker 1: We exclude the all stars of a billionaires and above 90 00:05:18,279 --> 00:05:21,680 Speaker 1: in that area. These people know how to operate, and 91 00:05:21,760 --> 00:05:23,520 Speaker 1: one of the reasons they don't have a lot of 92 00:05:23,560 --> 00:05:26,159 Speaker 1: public equity is there the last to hear about a 93 00:05:26,200 --> 00:05:28,720 Speaker 1: problem when you own a public stock. But when you're 94 00:05:28,720 --> 00:05:32,080 Speaker 1: a director a part owner of a small business and 95 00:05:32,320 --> 00:05:35,680 Speaker 1: the management comes to you and says I have a problem, 96 00:05:35,720 --> 00:05:37,880 Speaker 1: you can actually help them and make a difference, not 97 00:05:37,920 --> 00:05:40,000 Speaker 1: only to help them, but to help your own investment. 98 00:05:40,360 --> 00:05:44,240 Speaker 1: So this is actually relatively new in this particular cycle 99 00:05:44,320 --> 00:05:48,560 Speaker 1: since the financial crisis, the sort of acceleration in smaller 100 00:05:48,600 --> 00:05:54,440 Speaker 1: investors directly lending to businesses, right investing and investing in 101 00:05:54,560 --> 00:05:58,120 Speaker 1: businesses with a private equity, private debt, but direct lending 102 00:05:58,240 --> 00:06:01,839 Speaker 1: direct to equity and infusion and I'm just wondering, you know, 103 00:06:01,920 --> 00:06:04,839 Speaker 1: how much are they bumping up against the blackstones of 104 00:06:04,880 --> 00:06:07,760 Speaker 1: the world as they try to do this. Well, clearly 105 00:06:07,800 --> 00:06:11,200 Speaker 1: there's a continuum and at the larger numbers you you 106 00:06:11,240 --> 00:06:13,560 Speaker 1: get that. But you know, one of the things that's 107 00:06:13,600 --> 00:06:15,919 Speaker 1: always interesting is when you get the best of the best, 108 00:06:15,960 --> 00:06:18,960 Speaker 1: they can do large deals. In the real estate business, 109 00:06:18,960 --> 00:06:20,840 Speaker 1: people always thought you had to go to the outer 110 00:06:20,920 --> 00:06:23,240 Speaker 1: boroughs to make a lot of money. Turns out, if 111 00:06:23,279 --> 00:06:25,000 Speaker 1: you bought at the right time in the cycle, you 112 00:06:25,000 --> 00:06:26,880 Speaker 1: could make a lot of money on Fifth Avenue. So 113 00:06:26,920 --> 00:06:30,200 Speaker 1: when you're buying in private equity some of the great firms, 114 00:06:30,720 --> 00:06:33,159 Speaker 1: you can get great returns if you're the best of 115 00:06:33,200 --> 00:06:36,200 Speaker 1: the best, and some of the private equity managers are 116 00:06:36,320 --> 00:06:41,159 Speaker 1: so the small businesses see public equity as the exit. 117 00:06:41,400 --> 00:06:43,599 Speaker 1: They want to build a small business and sell it 118 00:06:43,640 --> 00:06:45,800 Speaker 1: to a public company. So as an example, with all 119 00:06:45,839 --> 00:06:48,359 Speaker 1: the I p o S that are coming down these days, 120 00:06:48,760 --> 00:06:51,560 Speaker 1: our members have been buying into the private version of 121 00:06:51,560 --> 00:06:55,159 Speaker 1: that company. So when it went public, they were on 122 00:06:55,240 --> 00:06:57,600 Speaker 1: the they were on the liquidating side, not on the 123 00:06:57,600 --> 00:07:00,719 Speaker 1: buying side. And so we've had a lot of appy campers. 124 00:07:01,600 --> 00:07:04,040 Speaker 1: Michael just real quickly next twenty seconds or so. How 125 00:07:04,040 --> 00:07:07,200 Speaker 1: about cash? If I just sold my company and you know, 126 00:07:07,200 --> 00:07:09,440 Speaker 1: I got a bunch of cash in stock, I may 127 00:07:09,480 --> 00:07:11,480 Speaker 1: be tempt to just stick it in a mattress. So 128 00:07:11,520 --> 00:07:15,520 Speaker 1: our members have between around twelve percent in cash. That's 129 00:07:15,840 --> 00:07:18,600 Speaker 1: our members are conservative by nature, and we know that 130 00:07:18,680 --> 00:07:21,200 Speaker 1: they spend two to three percent a year, so that's 131 00:07:21,240 --> 00:07:24,560 Speaker 1: about four years of living expense. That gives them the 132 00:07:24,680 --> 00:07:28,560 Speaker 1: luxury not have to liquidate public stocks in a downturn 133 00:07:28,640 --> 00:07:31,920 Speaker 1: and allow them to ride through it. So uh, this 134 00:07:32,000 --> 00:07:35,200 Speaker 1: notion of an all weather portfolio is what our groups 135 00:07:35,280 --> 00:07:37,920 Speaker 1: really helped members grapple with when they get together once 136 00:07:37,920 --> 00:07:39,720 Speaker 1: a month and they say, how are you doing it? 137 00:07:39,760 --> 00:07:41,720 Speaker 1: And how are you doing it? If you can pull 138 00:07:41,760 --> 00:07:44,680 Speaker 1: away one idea, it can make all the difference from 139 00:07:44,720 --> 00:07:47,040 Speaker 1: having to give up a bad investment at the wrong time. 140 00:07:47,480 --> 00:07:49,680 Speaker 1: Michael san Fel, thank you so much for joining us. 141 00:07:49,680 --> 00:07:53,080 Speaker 1: Michael's chairman founder Tiger twenty one was seventy one billion 142 00:07:53,120 --> 00:07:55,440 Speaker 1: dollars under management. He joined us in our Bloomberg eleven 143 00:07:55,440 --> 00:07:58,480 Speaker 1: three oh studios in New York. Very interesting to see 144 00:07:58,480 --> 00:08:02,800 Speaker 1: how the ultrue ultra wealthy invest their money. So you know, well, 145 00:08:03,040 --> 00:08:06,200 Speaker 1: there's you know, they have needs, they have challenges like 146 00:08:06,320 --> 00:08:09,080 Speaker 1: everybody else, and it's a huge class of people and 147 00:08:09,080 --> 00:08:27,160 Speaker 1: it's growing on so it's important to keep track of that. Well. 148 00:08:27,240 --> 00:08:30,880 Speaker 1: Last week, Finn proposed running a pilot program that would 149 00:08:30,880 --> 00:08:33,640 Speaker 1: give traders forty eight hours before having to reveal their 150 00:08:33,679 --> 00:08:36,680 Speaker 1: so called block trades to other investors, and some of 151 00:08:36,679 --> 00:08:40,439 Speaker 1: the biggest investors argue that such a move would improve liquidity. 152 00:08:40,800 --> 00:08:44,839 Speaker 1: Help us breakdown this story, we welcome Mike Turwiliger portfolio 153 00:08:44,920 --> 00:08:48,720 Speaker 1: Magic Resource America covering resource credit Income Fund. He joins 154 00:08:48,800 --> 00:08:51,360 Speaker 1: us in our Bloomberg Interactive Broker studio. Mike, thanks so 155 00:08:51,440 --> 00:08:54,880 Speaker 1: much for joining us. Give us the background on what 156 00:08:55,440 --> 00:08:58,200 Speaker 1: is happening here in the bond market. Yeah, so absolutely so. 157 00:08:58,280 --> 00:08:59,920 Speaker 1: First of all, thanks for having me so to just 158 00:09:00,040 --> 00:09:02,600 Speaker 1: sort of level steps, so level sets. So in two 159 00:09:02,679 --> 00:09:05,080 Speaker 1: thousand and two we pass what is known as trace 160 00:09:05,160 --> 00:09:07,880 Speaker 1: and what trades mandated is that all trades within the 161 00:09:07,880 --> 00:09:10,680 Speaker 1: bond market must be posted within fifteen minutes. So there's 162 00:09:10,720 --> 00:09:13,520 Speaker 1: currently a movement of foot largely driven by the Monster 163 00:09:13,600 --> 00:09:16,320 Speaker 1: bond shops and the Monster managers to try to remove 164 00:09:16,360 --> 00:09:19,480 Speaker 1: their disclosure to a forty eight hour window for block trade. 165 00:09:19,520 --> 00:09:22,320 Speaker 1: So that's our trades over ten million investment grade and 166 00:09:22,400 --> 00:09:26,600 Speaker 1: five million in high yield. And look, ultimately, I would 167 00:09:26,640 --> 00:09:28,959 Speaker 1: applaud the regulars for trying to address liquidity risk, but 168 00:09:29,000 --> 00:09:32,520 Speaker 1: I think this is ultimately a misguided effort. Okay, So 169 00:09:32,600 --> 00:09:36,960 Speaker 1: this comes. This change to basically delay reporting from fifteen 170 00:09:37,000 --> 00:09:41,920 Speaker 1: minutes to forty eight hours comes after vociferous opposition to 171 00:09:42,000 --> 00:09:45,280 Speaker 1: trace reporting requirements for years. People have been saying this 172 00:09:45,320 --> 00:09:49,800 Speaker 1: reduces liquidity liquidity because basically people don't want to do 173 00:09:49,880 --> 00:09:53,560 Speaker 1: a block trade a big chunk of corporate bonds that 174 00:09:53,600 --> 00:09:56,720 Speaker 1: they transact because they are worried they're going to move 175 00:09:56,720 --> 00:09:59,839 Speaker 1: the market against them as they try to slough it 176 00:09:59,880 --> 00:10:04,240 Speaker 1: off into the markets. The question is will a forty 177 00:10:04,280 --> 00:10:08,360 Speaker 1: eight hour delay help the market in terms of getting 178 00:10:08,360 --> 00:10:12,080 Speaker 1: these trades through, or will end up hurting the people 179 00:10:12,120 --> 00:10:14,360 Speaker 1: on the other side who end up buying at a 180 00:10:14,440 --> 00:10:17,360 Speaker 1: price that is too high relative to the supply dynamic 181 00:10:17,360 --> 00:10:19,920 Speaker 1: demand dynamic. I mean, I guess I would argue pretty 182 00:10:19,920 --> 00:10:21,800 Speaker 1: strangously that we do not know if this will in 183 00:10:21,920 --> 00:10:24,520 Speaker 1: fact improve market liquidity, And in this regard, I would 184 00:10:24,559 --> 00:10:27,040 Speaker 1: applaud the idea that it's at least a one year trial. 185 00:10:27,400 --> 00:10:29,560 Speaker 1: But ultimately I think this is a failed effort and 186 00:10:29,559 --> 00:10:33,040 Speaker 1: will ultimately not work. But I think again the idea 187 00:10:33,080 --> 00:10:35,920 Speaker 1: of will it improve liquidity, I think that's to be determined. 188 00:10:36,080 --> 00:10:39,080 Speaker 1: But one thing we know it unquestionably will do is 189 00:10:39,120 --> 00:10:43,320 Speaker 1: will convey a monstrous, you know, frankly, informational advantage on 190 00:10:43,360 --> 00:10:45,600 Speaker 1: the big funds. Big funds are going to be able 191 00:10:45,600 --> 00:10:47,720 Speaker 1: to trade big blocks, and there's gonna be a forty 192 00:10:47,800 --> 00:10:49,680 Speaker 1: hour window where the rest of the marketplace is just 193 00:10:49,760 --> 00:10:52,440 Speaker 1: not going to be aware of that trade. So over 194 00:10:52,480 --> 00:10:55,080 Speaker 1: that forty hour windows, investment banks and bonds and loan 195 00:10:55,080 --> 00:10:57,600 Speaker 1: funds can be able to trade that with an informational advantage. Okay, 196 00:10:57,600 --> 00:10:59,720 Speaker 1: So in the past it was big Wall Street banks 197 00:10:59,720 --> 00:11:02,640 Speaker 1: that to this excuse me, brokers, and they would have 198 00:11:02,679 --> 00:11:06,920 Speaker 1: the information so they could uh more correctly guide their 199 00:11:06,960 --> 00:11:10,200 Speaker 1: clients as to the correct price and then take the 200 00:11:10,720 --> 00:11:14,120 Speaker 1: differential brid ask spread and and and weap a profit 201 00:11:14,200 --> 00:11:17,000 Speaker 1: from it. So the fact that you say big funds 202 00:11:17,160 --> 00:11:19,120 Speaker 1: are they going to be acting in that capacity to 203 00:11:19,760 --> 00:11:23,280 Speaker 1: how I mean unquestionably? So by definition again, who is 204 00:11:23,280 --> 00:11:25,040 Speaker 1: going to be trading big blocks is going to be 205 00:11:25,080 --> 00:11:27,720 Speaker 1: the biggest funds like ten million dollar i G again 206 00:11:27,840 --> 00:11:30,680 Speaker 1: high yield five. Those are going to be big trades 207 00:11:30,720 --> 00:11:32,880 Speaker 1: by big funds, so they are going to get a 208 00:11:32,920 --> 00:11:35,199 Speaker 1: huge informational advantage on the rest of the marketplace that 209 00:11:35,200 --> 00:11:37,720 Speaker 1: it's ultimately going to come at the cost of the 210 00:11:37,760 --> 00:11:40,400 Speaker 1: mom and pop investor. They are going to have an 211 00:11:40,440 --> 00:11:43,800 Speaker 1: informational disadvantage that's going to cost them. This is literally 212 00:11:43,840 --> 00:11:46,560 Speaker 1: going to be boosting the bottom lines of big monster 213 00:11:46,679 --> 00:11:51,280 Speaker 1: funds at the cost of the little guy. So how 214 00:11:51,360 --> 00:11:53,560 Speaker 1: much are we talking about here in terms of the 215 00:11:53,559 --> 00:11:56,240 Speaker 1: percentage of volume in the corporate bond market. Is this 216 00:11:56,360 --> 00:11:58,760 Speaker 1: something that is a big, big percentage of what gets 217 00:11:58,760 --> 00:12:00,680 Speaker 1: traded every day or are we just talking about some 218 00:12:00,720 --> 00:12:04,200 Speaker 1: small block trades among the big funds. I mean, ultimately, 219 00:12:04,280 --> 00:12:07,640 Speaker 1: block trades can be a big driver of liquidity, unquestionably, 220 00:12:07,679 --> 00:12:09,480 Speaker 1: and I think the big firms would love to see 221 00:12:09,520 --> 00:12:11,320 Speaker 1: more of that liquidity so that they can make the 222 00:12:11,360 --> 00:12:14,600 Speaker 1: big trades. But right now, because of tracing, because of 223 00:12:14,600 --> 00:12:17,040 Speaker 1: market a liquidity, there are more one off trade So 224 00:12:17,080 --> 00:12:20,000 Speaker 1: I think that's where they're trying to trying to move 225 00:12:20,120 --> 00:12:21,920 Speaker 1: Maria Tory standpoint, to see if they can get a 226 00:12:21,960 --> 00:12:24,400 Speaker 1: little bit more of the block trade activity. I've struck 227 00:12:24,440 --> 00:12:27,560 Speaker 1: by why now, why is FINRA coming out in two 228 00:12:27,600 --> 00:12:30,720 Speaker 1: thousand and nineteen with this when actually the sort of 229 00:12:30,840 --> 00:12:34,240 Speaker 1: din of people complaining about market liquidity has dropped off 230 00:12:34,240 --> 00:12:37,240 Speaker 1: a cliff, at least in the corporate bond market. I 231 00:12:37,360 --> 00:12:41,000 Speaker 1: would argue strenuously that unquestionably the single biggest risk in 232 00:12:41,000 --> 00:12:44,160 Speaker 1: the bond and loan market is unquestionably liquidity. Obviously, we 233 00:12:44,240 --> 00:12:47,040 Speaker 1: passed the vocal rule in as a part of the 234 00:12:47,080 --> 00:12:49,880 Speaker 1: after the Great Financial Crisis, after as part of Dodd 235 00:12:49,920 --> 00:12:52,120 Speaker 1: Frank And what the vocal rule has basically done is 236 00:12:52,120 --> 00:12:54,440 Speaker 1: it has taken liquidity of the marketplace because investment banks 237 00:12:54,440 --> 00:12:57,800 Speaker 1: cannot engage in proprietary trading. So, look, you've seen these 238 00:12:57,800 --> 00:13:00,400 Speaker 1: periods of market liquidity over in the last couple of months. 239 00:13:00,440 --> 00:13:02,360 Speaker 1: I mean, look, the fourth quarter of the bond and 240 00:13:02,400 --> 00:13:05,240 Speaker 1: loan market, particularly on the loan side, get absolutely rocked 241 00:13:05,640 --> 00:13:08,480 Speaker 1: because individual investors were withdrawing money and there weren't the 242 00:13:08,480 --> 00:13:11,040 Speaker 1: investment banks on the sideline providing liquidity to have an 243 00:13:11,120 --> 00:13:15,000 Speaker 1: orderly unwind. Look, addressing liquidity risk that is a very 244 00:13:15,000 --> 00:13:17,280 Speaker 1: important issue. So to answer the question, I think it's 245 00:13:17,280 --> 00:13:19,360 Speaker 1: because the market is trying to think about a way 246 00:13:19,600 --> 00:13:23,040 Speaker 1: to improve liquidity in a pulsed vocal rule era and 247 00:13:23,280 --> 00:13:25,640 Speaker 1: in this capacity, just to be very clear, because people 248 00:13:25,640 --> 00:13:28,440 Speaker 1: say liquidity and it means everything under the sun. Here, 249 00:13:28,640 --> 00:13:33,080 Speaker 1: the idea is to be able to very quickly find 250 00:13:33,120 --> 00:13:36,400 Speaker 1: a correct market level so that people don't necessarily get 251 00:13:36,480 --> 00:13:40,480 Speaker 1: ripped off with a momentary plunge or spike in price. 252 00:13:40,559 --> 00:13:43,600 Speaker 1: Correct correct. Ultimately, it's the ability to sell an asset 253 00:13:43,600 --> 00:13:45,800 Speaker 1: without a massive impact on the price. So that is 254 00:13:46,040 --> 00:13:48,600 Speaker 1: the issue at hand and the way that finer is 255 00:13:48,640 --> 00:13:53,000 Speaker 1: proposing to remedy it is with this delay of reporting 256 00:13:53,040 --> 00:13:55,360 Speaker 1: big trades. A lot of people say that I ain't 257 00:13:55,360 --> 00:13:58,320 Speaker 1: gonna do it. Michael To Religio, thank you so much 258 00:13:58,360 --> 00:14:01,040 Speaker 1: for being with us. Michael To really is a portfolio 259 00:14:01,080 --> 00:14:05,320 Speaker 1: manager for the Resource Credit Income Fund, which belongs to 260 00:14:05,360 --> 00:14:09,400 Speaker 1: the C three Capital management firm, which overseas six billion dollars. 261 00:14:26,960 --> 00:14:30,080 Speaker 1: The healthcare sector has been beaten up of late, whether 262 00:14:30,080 --> 00:14:33,440 Speaker 1: it's the Amazon threat of potentially disrupting the way that 263 00:14:33,480 --> 00:14:37,360 Speaker 1: they distribute pharmaceuticals, or if it is Washington, d C. 264 00:14:37,680 --> 00:14:40,840 Speaker 1: That has their eye on reducing the cost of drugs. 265 00:14:40,880 --> 00:14:43,640 Speaker 1: Johnson and Johnson shrugged all of that off and delivered 266 00:14:43,720 --> 00:14:47,320 Speaker 1: better than expected earnings and more importantly, better than expected 267 00:14:47,400 --> 00:14:51,720 Speaker 1: forecast for the full year after ratcheting back their prediction 268 00:14:52,120 --> 00:14:54,480 Speaker 1: just months ago. So a pretty big about face Joining 269 00:14:54,560 --> 00:14:57,160 Speaker 1: us now to talk about that is Max Neeesson, biotech, 270 00:14:57,200 --> 00:15:00,080 Speaker 1: farm and healthcare columnist for Bloomberg Opinion, joining us here 271 00:15:00,080 --> 00:15:03,720 Speaker 1: in our interactive broker studios. So, Max, let's start with 272 00:15:03,800 --> 00:15:08,520 Speaker 1: Johnson and Johnson and the about face. Do you buy 273 00:15:08,840 --> 00:15:12,920 Speaker 1: their descriptions of what happened in two months or three 274 00:15:12,960 --> 00:15:17,240 Speaker 1: months they completely changed their forecast for the full year. Um, 275 00:15:17,320 --> 00:15:21,040 Speaker 1: you know, I think they're a company that's traditionally pretty 276 00:15:21,080 --> 00:15:24,440 Speaker 1: cautious when it comes to guidance, so they might have 277 00:15:25,160 --> 00:15:27,640 Speaker 1: you know, acted with an abundance of caution earlier in 278 00:15:27,640 --> 00:15:30,520 Speaker 1: the year, and after seeing you know, better than expected 279 00:15:30,600 --> 00:15:34,600 Speaker 1: drug sales which definitely did come through in this first quarter, 280 00:15:35,160 --> 00:15:38,520 Speaker 1: they felt comfortable enough to to come back and uh, 281 00:15:38,520 --> 00:15:40,640 Speaker 1: you know, raise guidance and feel a little bit more 282 00:15:40,640 --> 00:15:43,080 Speaker 1: confident for the year. I guess it's sort of a question, 283 00:15:43,360 --> 00:15:45,320 Speaker 1: as it is sort of with the whole sector, about 284 00:15:45,720 --> 00:15:48,800 Speaker 1: the fundamentals of the business, which appear to be you know, 285 00:15:48,920 --> 00:15:53,239 Speaker 1: doing just fine. And then broader, longer term concerns about 286 00:15:53,280 --> 00:15:56,840 Speaker 1: the pricing and regulatory environment, or in Johnson Johnson's case, 287 00:15:57,040 --> 00:16:00,120 Speaker 1: it's kind of bevy of of legal risks. So what 288 00:16:00,120 --> 00:16:02,760 Speaker 1: do they legal risk in particular kind of what's the 289 00:16:02,920 --> 00:16:05,640 Speaker 1: latest what's their latest outlook that you've heard on the call. 290 00:16:06,080 --> 00:16:10,720 Speaker 1: So things have been on the opioid side confined largely 291 00:16:10,760 --> 00:16:13,240 Speaker 1: to other companies so far, but that is a risk 292 00:16:13,240 --> 00:16:16,160 Speaker 1: that sort of lurks in the background. On TALC, they 293 00:16:16,160 --> 00:16:19,520 Speaker 1: had a pretty big settlement recently. The question is always 294 00:16:19,600 --> 00:16:22,120 Speaker 1: is you know, is that a one off, one jury, 295 00:16:22,280 --> 00:16:24,760 Speaker 1: one one case that went poorly or does it read 296 00:16:24,800 --> 00:16:27,600 Speaker 1: through to the product case. It's still a lot that's 297 00:16:27,600 --> 00:16:30,320 Speaker 1: going to be determined as to the liability on on 298 00:16:30,360 --> 00:16:32,960 Speaker 1: both fronts. I want to switch gears a little bit 299 00:16:33,000 --> 00:16:36,280 Speaker 1: now to United Health because that's another aspect of the 300 00:16:36,280 --> 00:16:38,880 Speaker 1: healthcare industry that's undergoing a lot of change, especially in 301 00:16:38,960 --> 00:16:44,240 Speaker 1: light of potential regulatory changes around Obamacare. United Health reported 302 00:16:44,240 --> 00:16:47,560 Speaker 1: earnings that were better than expected, portrayed a pretty rosy 303 00:16:47,680 --> 00:16:52,400 Speaker 1: backdrop for their business. Their shares, however, have been underperforming 304 00:16:52,400 --> 00:16:56,760 Speaker 1: and are down. Why. I think it's a combination of 305 00:16:56,800 --> 00:16:59,920 Speaker 1: a lot of things. The biggest being just that investor 306 00:17:00,120 --> 00:17:04,440 Speaker 1: is hey, regulatory uncertainty, and there's you know, no business 307 00:17:04,520 --> 00:17:08,120 Speaker 1: that faces kind of a bigger helping of it than 308 00:17:08,520 --> 00:17:11,119 Speaker 1: insurers in general and United Health in particular. You know, 309 00:17:11,200 --> 00:17:15,800 Speaker 1: the threat of of extinction. No, it's very remote, but 310 00:17:15,960 --> 00:17:19,280 Speaker 1: it's something that's in the news constantly. And then you 311 00:17:19,440 --> 00:17:22,400 Speaker 1: just have kind of a general political shift where even 312 00:17:22,440 --> 00:17:25,480 Speaker 1: if Medicare for all is envisioned by Bernie Sanders is 313 00:17:25,520 --> 00:17:28,960 Speaker 1: a really big long shot, the place that the kind 314 00:17:28,960 --> 00:17:31,200 Speaker 1: of the center of the Democratic Party and the rest 315 00:17:31,240 --> 00:17:34,359 Speaker 1: of the field of candidates that that's moved to to 316 00:17:34,400 --> 00:17:37,159 Speaker 1: where they're supporting instead of just you know, tweaks to 317 00:17:37,160 --> 00:17:40,760 Speaker 1: the A c A or or making more people medicare eligible, 318 00:17:41,040 --> 00:17:44,479 Speaker 1: they want kind of a full blown, potentially competitive public option, 319 00:17:44,480 --> 00:17:46,679 Speaker 1: and a lot of them so that that's scary. You know, 320 00:17:46,720 --> 00:17:48,919 Speaker 1: even even if it uh, they're not gonna see it 321 00:17:48,960 --> 00:17:51,160 Speaker 1: for years to come, and they're obviously going to fight 322 00:17:51,200 --> 00:17:54,280 Speaker 1: in and have been successful in the past lobbying threats 323 00:17:54,280 --> 00:17:56,720 Speaker 1: out of existence. It's out there and and it's pretty 324 00:17:56,720 --> 00:17:59,879 Speaker 1: pretty terrifying. Well, despite all that, you know, um, the 325 00:18:00,040 --> 00:18:03,600 Speaker 1: backstop of the uncertainty of the regulatory environment the blocking 326 00:18:03,600 --> 00:18:05,960 Speaker 1: and tackling this quarter seemed pretty decent. Almost a million 327 00:18:05,960 --> 00:18:09,640 Speaker 1: News subscribers. How is that relative to expectations? Uh, they're 328 00:18:09,640 --> 00:18:12,160 Speaker 1: they're doing a little bit better. But I will point 329 00:18:12,200 --> 00:18:15,399 Speaker 1: out that the gains seem to be focused in the 330 00:18:15,440 --> 00:18:19,680 Speaker 1: employer and individual market, and some of that came from, uh, 331 00:18:19,720 --> 00:18:22,520 Speaker 1: these kind of short term plans that the Trump administration 332 00:18:22,520 --> 00:18:25,199 Speaker 1: has been pushing as kind of a little bit of 333 00:18:25,200 --> 00:18:27,840 Speaker 1: an end around the A c A, which under some 334 00:18:27,960 --> 00:18:31,119 Speaker 1: legal threat. So it's unclear how long that will be 335 00:18:31,160 --> 00:18:34,040 Speaker 1: a growth business for United Health and the employer market 336 00:18:34,080 --> 00:18:37,879 Speaker 1: too when you have full employment, can't really add that 337 00:18:37,960 --> 00:18:40,800 Speaker 1: much enrollment that way. So um, you know, we we'll 338 00:18:40,800 --> 00:18:42,680 Speaker 1: see how if they can keep that particular part of 339 00:18:42,680 --> 00:18:45,320 Speaker 1: the business up. You know, you we have all talked 340 00:18:45,400 --> 00:18:48,919 Speaker 1: about how things might change in the healthcare industry, and 341 00:18:48,960 --> 00:18:52,800 Speaker 1: we've talked about regulatory pressures to uh, you know, potentially 342 00:18:52,960 --> 00:18:56,480 Speaker 1: undermine or remove a bobbing care, put in something different, 343 00:18:56,960 --> 00:19:00,440 Speaker 1: to change up Medicare and Medicaid. But what about the 344 00:19:00,480 --> 00:19:04,880 Speaker 1: companies themselves. Are they pushing back or asking for better 345 00:19:04,960 --> 00:19:07,760 Speaker 1: deals with United Health or are they pretty much happy 346 00:19:07,800 --> 00:19:10,440 Speaker 1: with how things are and they're fine, right because that's 347 00:19:10,440 --> 00:19:13,719 Speaker 1: the biggest, probably the biggest source of their revenue. So 348 00:19:14,000 --> 00:19:16,760 Speaker 1: United Health is is pretty diversified. That they do have 349 00:19:17,359 --> 00:19:20,920 Speaker 1: a large employer based you know, that's a lot of 350 00:19:20,960 --> 00:19:23,080 Speaker 1: their coverage. It's not I'm not sure if it's their 351 00:19:23,080 --> 00:19:26,120 Speaker 1: biggest market though, especially because it helped us a PBM 352 00:19:26,160 --> 00:19:28,800 Speaker 1: and their whole data business too. I don't think there's 353 00:19:28,840 --> 00:19:31,719 Speaker 1: a ton of pressure on the employer's side. There are 354 00:19:31,720 --> 00:19:34,880 Speaker 1: some changes in the sense that scrutiny on the pharmacy 355 00:19:34,920 --> 00:19:38,199 Speaker 1: benefit manager has United Helps been reacting a little bit 356 00:19:38,200 --> 00:19:41,400 Speaker 1: more aggressively than most of that. It's basically passing more 357 00:19:41,440 --> 00:19:44,720 Speaker 1: discounts directly to patients instead of the employer. That's a 358 00:19:44,720 --> 00:19:47,159 Speaker 1: big change, so they were we have to see how 359 00:19:47,200 --> 00:19:50,040 Speaker 1: employers are going to react to that. But but we'll 360 00:19:50,080 --> 00:19:51,480 Speaker 1: see that a little bit more of that going forward. 361 00:19:51,520 --> 00:19:55,320 Speaker 1: I think Max Needson thanks thank you so much. Max's biotech, 362 00:19:55,400 --> 00:19:58,200 Speaker 1: farm and healthcare communist for Bloomberg Opinions. He joined us 363 00:19:58,480 --> 00:20:01,199 Speaker 1: in our Bloomberg eleven three studio in New York the 364 00:20:01,240 --> 00:20:04,000 Speaker 1: beginning of earnings for the healthcare So I'm sure we'll 365 00:20:04,000 --> 00:20:06,360 Speaker 1: be speaking to Max going forward as more of these 366 00:20:06,720 --> 00:20:10,800 Speaker 1: healthcare companies, the big farmer companies and biotech companies report earnings, 367 00:20:10,800 --> 00:20:13,520 Speaker 1: but as Max noted, you know, certainly for the healthcare 368 00:20:13,680 --> 00:20:17,560 Speaker 1: ensurer companies like United, the political backdrop continues to be 369 00:20:17,680 --> 00:20:20,560 Speaker 1: kind of the driver for that story, and that is 370 00:20:20,760 --> 00:20:39,040 Speaker 1: for investors very unpredictable. Well, if you flashback a week 371 00:20:39,200 --> 00:20:41,240 Speaker 1: or so ago, all we were talking about, certainly in 372 00:20:41,240 --> 00:20:44,000 Speaker 1: the fixing income world was the Saladi a ram Code deal. 373 00:20:44,400 --> 00:20:47,560 Speaker 1: If we recall there was a twelve billion dollar bond 374 00:20:47,640 --> 00:20:51,200 Speaker 1: priced that was after about a hundred billion dollars of demand. 375 00:20:51,480 --> 00:20:53,840 Speaker 1: So it's got an update on where that deal is trading. 376 00:20:53,840 --> 00:20:57,520 Speaker 1: We welcome Damien Sassaur. Damians the chief Emerging markets credit 377 00:20:57,560 --> 00:21:00,199 Speaker 1: strategist for Bloomberg Intelligence. He joins, us are in our 378 00:21:00,200 --> 00:21:03,200 Speaker 1: Bloomberg eleven three oh studio in New York. So very 379 00:21:03,280 --> 00:21:08,200 Speaker 1: highly anticipated deal, big money, big issuer. Have the bonds traded. 380 00:21:08,280 --> 00:21:09,800 Speaker 1: So the bonds have come off a bit, I mean, 381 00:21:09,960 --> 00:21:11,640 Speaker 1: and you know, I mean I don't know if that's 382 00:21:11,800 --> 00:21:14,640 Speaker 1: entirely was entirely expected, right because given the order book, 383 00:21:14,680 --> 00:21:17,080 Speaker 1: I mean, we had like a hundred billions, some crazy 384 00:21:17,160 --> 00:21:19,280 Speaker 1: number of orders coming through. People thought it was going 385 00:21:19,320 --> 00:21:22,600 Speaker 1: to be um you know, overbought, and so to see 386 00:21:22,640 --> 00:21:25,000 Speaker 1: them trade off in the early days here is a 387 00:21:25,040 --> 00:21:27,680 Speaker 1: little bit unexpected, I would say, But it's still early days, Paul. 388 00:21:27,720 --> 00:21:30,280 Speaker 1: And what I mean is this issue hit in April 389 00:21:30,480 --> 00:21:32,600 Speaker 1: and we're still only halfway through the month. And what 390 00:21:32,680 --> 00:21:34,760 Speaker 1: a lot of fun managers who like to take advantage 391 00:21:34,760 --> 00:21:37,879 Speaker 1: of this new issue discount which is embedded within, you know, 392 00:21:38,400 --> 00:21:41,399 Speaker 1: the Saudi Ramco deal, They would hope to crystallize that 393 00:21:41,480 --> 00:21:43,439 Speaker 1: by the end of this month. So we're still two 394 00:21:43,480 --> 00:21:46,000 Speaker 1: weeks away, mind you, and we're only a couple pennies 395 00:21:46,040 --> 00:21:48,720 Speaker 1: off off par here. But um I wouldn't at all 396 00:21:48,760 --> 00:21:51,280 Speaker 1: be surprised if we see things start to rally in 397 00:21:51,320 --> 00:21:54,359 Speaker 1: two months, And because as you rightly point out, some 398 00:21:54,359 --> 00:21:58,280 Speaker 1: of the big fun managers who participated are disappointed and 399 00:21:58,280 --> 00:22:01,479 Speaker 1: they get very upset with the underwriters who you know, 400 00:22:02,080 --> 00:22:03,840 Speaker 1: for the deal. So yeah, we'll see how how things 401 00:22:03,840 --> 00:22:06,760 Speaker 1: shake out. I have to engage with a little bit 402 00:22:06,800 --> 00:22:09,760 Speaker 1: of a conspiracy theory just for a moment here, the 403 00:22:09,840 --> 00:22:13,399 Speaker 1: idea that perhaps banks that were looking to make this 404 00:22:13,520 --> 00:22:16,560 Speaker 1: a very good deal for Saudia Ramco so they could 405 00:22:16,560 --> 00:22:19,880 Speaker 1: get a good position for the potential initial public offering 406 00:22:20,520 --> 00:22:24,840 Speaker 1: really drummed up this deal, talked it up, said that 407 00:22:24,880 --> 00:22:27,639 Speaker 1: there was this massive order book which is really fuzzy 408 00:22:27,680 --> 00:22:30,240 Speaker 1: and isn't sure what it means, but there's no way 409 00:22:30,280 --> 00:22:32,600 Speaker 1: to prove it. But a lot of people want this deal. 410 00:22:32,600 --> 00:22:35,440 Speaker 1: I get it while it's hot, and there really wasn't 411 00:22:35,440 --> 00:22:38,320 Speaker 1: that much demand. It's not the story here, I mean, 412 00:22:38,359 --> 00:22:40,000 Speaker 1: I think, I mean, look, we could look at a 413 00:22:40,000 --> 00:22:41,520 Speaker 1: lot of different things. We can also look at the 414 00:22:41,560 --> 00:22:43,679 Speaker 1: fact that you might have relative value players trying to 415 00:22:43,680 --> 00:22:45,560 Speaker 1: play that. Are you remember that spread that it is 416 00:22:45,560 --> 00:22:48,760 Speaker 1: trading inside the sovereign and remember Saudi Arabia the sovereign. 417 00:22:48,840 --> 00:22:51,080 Speaker 1: The dollar bonds are very liquid, so you can get 418 00:22:51,080 --> 00:22:53,480 Speaker 1: the borrow to short those and maybe try to play 419 00:22:53,520 --> 00:22:55,400 Speaker 1: for that, and that might be putting pressure on the bonds. 420 00:22:55,440 --> 00:22:57,040 Speaker 1: There's a lot of reasons we can point to as 421 00:22:57,040 --> 00:22:59,720 Speaker 1: to why the bonds may potentially be trading off here. 422 00:23:00,160 --> 00:23:02,719 Speaker 1: But I do, I do, Lisa, your your your spot on. 423 00:23:02,760 --> 00:23:04,200 Speaker 1: I mean, there is a lot of people kind of 424 00:23:04,240 --> 00:23:07,399 Speaker 1: pointing at the conspiracy theory that we talked this thing 425 00:23:07,520 --> 00:23:09,800 Speaker 1: up to kind of you know, kind of inflate ourselves 426 00:23:09,880 --> 00:23:11,800 Speaker 1: position for the I P O and UH and look, 427 00:23:11,800 --> 00:23:14,359 Speaker 1: there's still a lot of of wrangling going on. I mean, 428 00:23:14,400 --> 00:23:16,600 Speaker 1: Larry Fink was on the tape just this morning talking about, 429 00:23:16,840 --> 00:23:20,400 Speaker 1: you know, glowingly about Saudi Arabia and about Black Rock's 430 00:23:20,440 --> 00:23:22,399 Speaker 1: business there and how he's going to be traveling there 431 00:23:22,440 --> 00:23:24,639 Speaker 1: soon and so yeah, we'll see how it all shakes loose. 432 00:23:24,800 --> 00:23:26,439 Speaker 1: But as soon as I Saudi Arabbie is out of 433 00:23:26,440 --> 00:23:31,160 Speaker 1: the doghouse, let's switch gears to Venezuela. Any green shoots 434 00:23:31,320 --> 00:23:35,920 Speaker 1: there for that economy. He's giving me a look, I 435 00:23:35,920 --> 00:23:38,120 Speaker 1: I really, I gotta say, I don't love that expression. 436 00:23:39,560 --> 00:23:42,360 Speaker 1: It's just such cliche. I mean, it's it's but yeah, 437 00:23:42,359 --> 00:23:45,840 Speaker 1: and it's in Venezuela. Well. Well, there's something interesting actually 438 00:23:45,880 --> 00:23:47,399 Speaker 1: that came out last week and a lot a lot 439 00:23:47,400 --> 00:23:49,239 Speaker 1: of people are paying the attention to in Venezuela. It's 440 00:23:49,240 --> 00:23:51,239 Speaker 1: the fact that JP Morgan is formally announced that they 441 00:23:51,280 --> 00:23:53,840 Speaker 1: may be finally removing Venezuela from their bond indu Sey. 442 00:23:53,880 --> 00:23:55,080 Speaker 1: This is a big deal, and I'll tell you why 443 00:23:55,080 --> 00:23:57,359 Speaker 1: it's a big deal because nine of the Emerging Market 444 00:23:57,440 --> 00:24:00,000 Speaker 1: Universe is benchmark to the JP Morgan sweem indu Sey. 445 00:24:00,320 --> 00:24:02,560 Speaker 1: Now they have until July two or June July to 446 00:24:02,640 --> 00:24:04,679 Speaker 1: kind of announce whether or not they're going to do that, 447 00:24:04,720 --> 00:24:06,679 Speaker 1: and then fast forward to when they're going to do 448 00:24:06,760 --> 00:24:08,880 Speaker 1: that and what that process may look like. But right now, 449 00:24:08,920 --> 00:24:11,760 Speaker 1: with all the sanctions on Venezuela, Paul Lisa, I can 450 00:24:11,800 --> 00:24:14,119 Speaker 1: tell you no bank, no custodio bank. I'm talking to 451 00:24:14,160 --> 00:24:16,720 Speaker 1: city groups, the JP Morgan's of the world. I want 452 00:24:16,720 --> 00:24:18,920 Speaker 1: to settle any trade that has anything to do with 453 00:24:19,000 --> 00:24:21,280 Speaker 1: Venezuela whatsoever, because they don't know if they'd be subject 454 00:24:21,320 --> 00:24:24,320 Speaker 1: to sanctions for facilitating some trade to a US person. 455 00:24:24,359 --> 00:24:26,760 Speaker 1: I mean, with the O fact rules, it's very opaque 456 00:24:26,800 --> 00:24:29,560 Speaker 1: as to who's liable if a trade takes place, and 457 00:24:29,600 --> 00:24:33,119 Speaker 1: it would so I think right now it's it's all talk. 458 00:24:33,240 --> 00:24:34,960 Speaker 1: But we're going to see how things progress there. I 459 00:24:34,960 --> 00:24:36,880 Speaker 1: mean we're watching that very closely. I mean you saw 460 00:24:36,920 --> 00:24:39,600 Speaker 1: some new sanctions come through from Canada today. Um I 461 00:24:39,600 --> 00:24:41,639 Speaker 1: think they announced that forty three high ranking officials are 462 00:24:41,680 --> 00:24:44,720 Speaker 1: now subject to new sanctions. UM in Venezuela reserves her 463 00:24:44,760 --> 00:24:47,160 Speaker 1: down to under nine billion. I mean, look, it's it's 464 00:24:47,200 --> 00:24:49,639 Speaker 1: it's it's painful there, I mean obviously on the ground, 465 00:24:49,680 --> 00:24:53,159 Speaker 1: but we'll see how how how this JP Morgan index 466 00:24:53,200 --> 00:24:56,800 Speaker 1: inclusion discussion kind of kind of uh comes home to 467 00:24:56,880 --> 00:24:59,040 Speaker 1: roost and and and that's just something we're looking at 468 00:24:59,040 --> 00:25:02,320 Speaker 1: their Well, yeah, looking right now at the total amount 469 00:25:02,320 --> 00:25:04,959 Speaker 1: of debt that Venezuela has, and if you look at 470 00:25:04,960 --> 00:25:09,080 Speaker 1: their external debt, it's more than forty six billion dollars, 471 00:25:09,160 --> 00:25:11,800 Speaker 1: but that's actually not anywhere close to the amount of 472 00:25:11,840 --> 00:25:13,680 Speaker 1: debt that it actually has because it also has a 473 00:25:13,720 --> 00:25:17,479 Speaker 1: lot of debt outstanding to China and Russia. I just 474 00:25:17,600 --> 00:25:21,360 Speaker 1: have to wonder who gets hit hardest if they are 475 00:25:21,440 --> 00:25:25,200 Speaker 1: forced to sell Venezuela debt because it is no longer 476 00:25:25,240 --> 00:25:28,520 Speaker 1: included in the index, to people who will not take it. 477 00:25:28,600 --> 00:25:30,119 Speaker 1: There's no one who will take it. On the other side, 478 00:25:30,320 --> 00:25:33,359 Speaker 1: with brokers who are not allowed to trade it because 479 00:25:33,359 --> 00:25:36,040 Speaker 1: it is sanctioned. So now let's be clear, I actually 480 00:25:36,040 --> 00:25:38,199 Speaker 1: disagree with that. I think there are a lot of 481 00:25:38,240 --> 00:25:40,600 Speaker 1: buyers for this debt. I mean, I can right now, 482 00:25:40,800 --> 00:25:43,280 Speaker 1: on the back of a napkin create a that sustainability 483 00:25:43,280 --> 00:25:45,840 Speaker 1: analysis for Venezuela when they have a regime change that 484 00:25:45,880 --> 00:25:48,400 Speaker 1: will show you that those bonds should pay par at 485 00:25:48,440 --> 00:25:51,760 Speaker 1: some point in time because they're sanctioned. But they're sanctioned today, 486 00:25:51,800 --> 00:25:54,679 Speaker 1: which means you've got this sort of structural glitch in 487 00:25:54,680 --> 00:25:57,439 Speaker 1: the system. Right. So, the way o FAC works is 488 00:25:57,520 --> 00:26:00,320 Speaker 1: you can sell as a US person to a non 489 00:26:00,400 --> 00:26:02,879 Speaker 1: US person is or at least that's my understanding of it, 490 00:26:02,920 --> 00:26:05,840 Speaker 1: which means if you have some kind of offshore entity 491 00:26:05,920 --> 00:26:08,479 Speaker 1: setup that allows you to purchase those bonds. I wouldn't 492 00:26:08,520 --> 00:26:11,240 Speaker 1: say that USP prisons should trying to circumvent the sanctions, 493 00:26:11,440 --> 00:26:13,679 Speaker 1: but if you're a European investor, or an Asian investor, 494 00:26:13,760 --> 00:26:16,120 Speaker 1: or a Russia or Chinese investor, you can buy those 495 00:26:16,160 --> 00:26:18,080 Speaker 1: bonds right now. You're not subject to o facs, so 496 00:26:18,440 --> 00:26:21,840 Speaker 1: you know, they may be getting in at a favorable cost, 497 00:26:22,359 --> 00:26:24,880 Speaker 1: and when things go right, they're gonna be sitting having 498 00:26:24,920 --> 00:26:27,560 Speaker 1: acquired these bonds at pennies on the dollar and holding 499 00:26:27,640 --> 00:26:29,760 Speaker 1: them out to part So so I do think there 500 00:26:29,840 --> 00:26:33,040 Speaker 1: is demand there. The question again is you know, how 501 00:26:33,080 --> 00:26:34,439 Speaker 1: do you sell them? How do you how do you 502 00:26:34,480 --> 00:26:36,399 Speaker 1: do that in a way that's legal and binding and 503 00:26:36,400 --> 00:26:38,600 Speaker 1: the keeping with o FAC rules and regulations. I just 504 00:26:38,680 --> 00:26:41,080 Speaker 1: don't think anyone can answer that right now. And so 505 00:26:41,200 --> 00:26:44,000 Speaker 1: that's the struggle. A glitch in the system, really well 506 00:26:44,000 --> 00:26:48,919 Speaker 1: said Damian Sassaur, chief Emerging markets credit strategist for Bloomberg Intelligence, 507 00:26:49,000 --> 00:26:52,520 Speaker 1: joining us here in our interactive brokers studios. Thanks for 508 00:26:52,560 --> 00:26:54,760 Speaker 1: listening to the Bloomberg P and L podcast. You can 509 00:26:54,760 --> 00:26:57,600 Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever 510 00:26:57,640 --> 00:27:00,840 Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at 511 00:27:00,880 --> 00:27:03,560 Speaker 1: pt Sweeney. I'm Lisa Abram Wohits. I'm on Twitter at 512 00:27:03,600 --> 00:27:06,399 Speaker 1: Lisa Abram woos one. Before the podcast, you can always 513 00:27:06,400 --> 00:27:08,480 Speaker 1: catch us worldwide on Bloomberg Radio