WEBVTT - Hi-Yield Opportunity In Beat-Down California Utilities (Podcast) 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.599 at Bloomberg dot com. It has been one of the 0:00:21.640 --> 0:00:25.400 best starts to the year on record for US high 0:00:25.440 --> 0:00:29.760 old bonds returns exceeding five per cent. The extra yield 0:00:29.840 --> 0:00:33.080 investors are earning to own the debt versus safer notes 0:00:33.320 --> 0:00:36.480 has compressed to the lowest in months. Joining us here 0:00:37.000 --> 0:00:39.040 is uh someone who can weigh in on whether it 0:00:39.200 --> 0:00:41.880 is time to start pairing this risk of your debt 0:00:41.960 --> 0:00:44.200 around the edges. That is Greg Han, President and Chief 0:00:44.240 --> 0:00:47.680 investment Officer and Win throw Up Capital Management normally in Indianapolis, 0:00:47.760 --> 0:00:51.400 but joining us here today in our Bloomberg Interactive Broker Studios. Greg, 0:00:51.760 --> 0:00:53.400 what's your view on this? Is it time to sell 0:00:53.560 --> 0:00:56.960 hi yield bonds? Oh? No, we actually um right now, 0:00:57.080 --> 0:00:59.560 We're actually still buying high yield. We think there's value there. 0:00:59.640 --> 0:01:02.880 The the spreads have come in since the fourth quarter, 0:01:03.000 --> 0:01:05.400 but they're still room for it to move in volatilities down. 0:01:05.800 --> 0:01:07.560 So with spread ball down, we think that you're going 0:01:07.600 --> 0:01:09.520 to see more spread contraction. So what are some of 0:01:09.600 --> 0:01:11.520 the sectors in a high yield space that you're looking 0:01:11.560 --> 0:01:15.520 at right now? Uh, so, energy, telecom both, there's areas 0:01:15.560 --> 0:01:17.760 there that we like. UM. We've been in the in 0:01:17.840 --> 0:01:21.200 the financial side, higher quality, the double B space on financials. 0:01:21.360 --> 0:01:23.760 Are there any sectors that you're just no matter where 0:01:23.840 --> 0:01:26.880 the vat, you're just staying away from. UM. So we'll 0:01:26.880 --> 0:01:29.360 look at anything. I mean, honestly, especially when you look 0:01:29.360 --> 0:01:31.640 in the utility space, and with what's going on Pacific 0:01:31.680 --> 0:01:35.319 Gas and Electric that that area weo we think, wait, wait, wait, 0:01:35.440 --> 0:01:38.440 you're buying right now, not right now. So here's the thing, 0:01:38.480 --> 0:01:41.400 but look at so, look at so calid and Mission Energy. 0:01:42.200 --> 0:01:44.960 In other words, just because the other utilities that are 0:01:44.959 --> 0:01:49.000 getting slammed because of issue there, in order to get 0:01:49.040 --> 0:01:51.240 out of the bankruptcy, they've got to fix the legislation 0:01:51.480 --> 0:01:54.840 because you can't you can't leave bankruptcy and and still 0:01:54.920 --> 0:01:58.120 have that legislation in place where the utility is liable 0:01:58.560 --> 0:02:00.480 for the next fire. Because you haven't need anything, so 0:02:00.520 --> 0:02:02.279 they got to fix it. And I think that bodes 0:02:02.320 --> 0:02:05.560 well for all the southern utilities. Basically, this is a bet. 0:02:05.840 --> 0:02:09.040 Buying the bonds of those other California utilities is a 0:02:09.160 --> 0:02:13.239 bet that California will be forced to change its legislation 0:02:13.520 --> 0:02:16.080 so that these utilities are not held responsible for all 0:02:16.120 --> 0:02:19.799 of the damages of wildfires. And that's fascinating. That is 0:02:19.919 --> 0:02:22.520 that is a I would say, a gutsy call, because 0:02:22.600 --> 0:02:26.120 you're basically waiting for Sacramento to come and kind of 0:02:26.200 --> 0:02:28.400 make it all right for you. Well and think about it, though, 0:02:28.440 --> 0:02:31.600 in the capitalist society, can you really have publicly traded 0:02:31.720 --> 0:02:34.560 entity that is not played by the same rules as 0:02:34.600 --> 0:02:38.880 every other state in our in our form of capitalism, 0:02:38.919 --> 0:02:40.480 I don't think it makes sense. So I want to 0:02:40.520 --> 0:02:43.000 shift gears a little bit. We've seen a rash of 0:02:43.280 --> 0:02:46.640 deleveraging recently. We've seen a number of companies that are 0:02:46.800 --> 0:02:50.480 triple B rated who have agreed to pay down debt. 0:02:50.520 --> 0:02:52.880 I'm thinking of some of the big communications companies A 0:02:53.000 --> 0:02:56.320 T and T Verizon. You're laughing. I will find out 0:02:56.360 --> 0:03:00.239 why right now. Why are you laughing? So A T 0:03:00.360 --> 0:03:04.519 and T um has the debt level of Portugal. So 0:03:04.760 --> 0:03:08.840 and if you look at the total size of a 0:03:08.960 --> 0:03:10.840 T and T S debt is the equivalent of one 0:03:10.880 --> 0:03:13.919 of the top twenty five sovereign and debted nations billion 0:03:13.919 --> 0:03:15.600 dollars or something like that, something like that. So in 0:03:15.680 --> 0:03:18.919 other words, this deleveraging is yeah, they have to do 0:03:19.000 --> 0:03:21.200 it in order to state in order to stay trip 0:03:21.240 --> 0:03:24.120 will be rated. Now really this this is a cusp credit. 0:03:24.600 --> 0:03:26.400 Um we're going to expect to write down on the 0:03:26.480 --> 0:03:28.760 direct TV side, so they have to they have to 0:03:29.120 --> 0:03:32.799 deliver this. Wow. Interesting interesting, How about like another name 0:03:32.800 --> 0:03:35.400 it's similar to that Comcast that's that looks like a 0:03:35.480 --> 0:03:38.240 better profile. Yeah, we like Comcast and this this whole space, 0:03:38.320 --> 0:03:40.720 this is this is amazing. So in our generation to 0:03:40.840 --> 0:03:44.120 see the shift in technology that's taking place by going 0:03:44.200 --> 0:03:47.080 to streaming and what's what's happening with all the cord cutting, 0:03:47.160 --> 0:03:50.320 this is um so to be fully integrated like Comcast Disney, 0:03:50.480 --> 0:03:52.480 this is this is gonna be interesting. So you sound 0:03:52.600 --> 0:03:57.120 pretty sanguine right now on us credit. So you well, okay, 0:03:57.320 --> 0:04:00.240 we've had a heck of a rebound, so we're we're 0:04:00.280 --> 0:04:03.280 benefiting from that. I'll be honest with you December was 0:04:03.360 --> 0:04:05.400 tough because we gave up a lot in the in 0:04:05.560 --> 0:04:07.000 the last two weeks of the year. Well, let me 0:04:07.040 --> 0:04:09.520 tell you how tough it was. Um, I believe when 0:04:09.520 --> 0:04:12.480 you were here in December, you said, quote the financial 0:04:12.520 --> 0:04:15.680 position of the US is a disaster end quote. Have 0:04:15.840 --> 0:04:19.320 we changed as you bringing up You're absolutely no, we 0:04:19.360 --> 0:04:21.680 haven't changed. We still think it's a disaster. But and 0:04:21.920 --> 0:04:24.080 there's no So it's gonna be interesting because we're gonna 0:04:24.080 --> 0:04:26.920 come into the elections now, so two thousand twenty, we're 0:04:26.920 --> 0:04:28.880 going to start to hear dialogue on it. The debt 0:04:29.000 --> 0:04:31.960 levels is it's not part of the dialogue that's taking 0:04:31.960 --> 0:04:35.080 place right now, but you can't ignore it. So here's 0:04:35.120 --> 0:04:38.080 my question, especially at a time when JP Morgan and 0:04:38.480 --> 0:04:41.400 now what we're seeing with Toronto Dominion Bank and Canadian 0:04:41.400 --> 0:04:43.839 Imperial Bank of Canada both out today with their results, 0:04:44.240 --> 0:04:48.200 all raising issues about deteriorating credit worthiness of some of 0:04:48.279 --> 0:04:51.800 their borrowers. JP Morgan said that they're starting to tighten 0:04:51.839 --> 0:04:55.320 their credit uh credit conditions a little bit just to 0:04:55.880 --> 0:04:57.360 make sure that they don't deal with a lot of 0:04:57.440 --> 0:05:00.520 loss in the next downturn. What do you think could 0:05:00.680 --> 0:05:04.080 or will cause the next credit crisis and when Yes, 0:05:04.160 --> 0:05:06.160 so we and we talked about this last time too, 0:05:06.240 --> 0:05:07.400 is we're on the front end. We think we're on 0:05:07.480 --> 0:05:11.040 the front end of a potential shift in the credit cycle. 0:05:11.279 --> 0:05:14.320 We still believe in cycles. So it's gonna it's gonna 0:05:14.400 --> 0:05:17.080 show differently this time because traditionally we'd go through the 0:05:17.120 --> 0:05:21.240 banking sector, we'd see UM, an increase in loan reserves 0:05:21.480 --> 0:05:24.160 and higher non performing loans. That actually hasn't happened. So 0:05:24.320 --> 0:05:25.760 we were starting to see the front end of it, 0:05:26.120 --> 0:05:28.320 but we think it's going to be expressed in the 0:05:28.400 --> 0:05:31.880 public markets through leverage loans. So we're seeing you know, 0:05:31.920 --> 0:05:34.720 one of the telltale signs is as structured security issuance 0:05:34.839 --> 0:05:38.119 is up, clos are up, and um, we're seeing credit 0:05:38.240 --> 0:05:42.360 light uh loans so I'm sorry, covenant light loans that 0:05:42.400 --> 0:05:44.920 are coming to markets. So these are these are all 0:05:44.960 --> 0:05:47.920 signs the volume increase and we'll look back. I think 0:05:48.000 --> 0:05:50.640 on vintage two thousand seventeen, two thousand eighteen, and two 0:05:50.640 --> 0:05:54.679 thousand nineteen vintage structured securities could be problematic. How about 0:05:54.760 --> 0:05:57.480 you know, we have the FED on the sidelines. We 0:05:57.600 --> 0:06:00.240 have you know, earnings were pretty much done earnings. Do 0:06:00.320 --> 0:06:02.680 you think the market is fairly discounting some of the 0:06:02.760 --> 0:06:06.240 geopolitical issues out there, whether it's spoints China today, North 0:06:06.320 --> 0:06:10.520 Korea today, Brexit yesterday, what's the market? Absolutely not. And 0:06:10.600 --> 0:06:12.560 this is the part I just I just don't understand. 0:06:12.600 --> 0:06:14.920 I'll confess this, but growing up in the in the 0:06:14.960 --> 0:06:17.440 business in the eighties and nineties, when you had geopolitical 0:06:17.520 --> 0:06:21.040 events at moved markets. But to have Brexit, which is 0:06:21.120 --> 0:06:23.600 probably one of the single biggest events in the capital 0:06:23.640 --> 0:06:27.040 markets in the last thirty years, and there's I think 0:06:27.080 --> 0:06:29.400 Barkley's last week had a reserve set aside for it, 0:06:29.480 --> 0:06:31.440 but it's the only bank that we've seen that's put 0:06:31.480 --> 0:06:34.440 reserving against it. Corporate you know, the corporations are not 0:06:34.520 --> 0:06:36.480 set up for it. And I don't I don't think 0:06:36.520 --> 0:06:38.479 the markets are really discounting it. I think the markets 0:06:38.520 --> 0:06:39.840 are looking at it. You know this is going to 0:06:39.920 --> 0:06:43.640 get fixed somehow, or the markets are profoundly bored by 0:06:43.720 --> 0:06:45.760 all of the discussion that's been going on for two 0:06:45.880 --> 0:06:48.560 years and then they're saying, show be something I can 0:06:48.600 --> 0:06:52.000 hook my teeth into. Otherwise forget about it. Just real 0:06:52.120 --> 0:06:55.080 quick here, emerging markets, are you bullish or bearish, So 0:06:55.240 --> 0:06:57.680 we uh, this is Lisa, this is one area we 0:06:57.760 --> 0:07:00.760 really want to go into. Its lagged the last three years, 0:07:01.200 --> 0:07:03.240 and we still think it's early. And what we're looking 0:07:03.360 --> 0:07:06.040 for is credit flow. We're looking for credit that's flowing 0:07:06.160 --> 0:07:09.360 into the emerging economies and we're not seeing it, but 0:07:09.520 --> 0:07:10.920 we think we're on the cusp of that. So I 0:07:11.000 --> 0:07:12.160 think by the end of the year we're going to 0:07:12.200 --> 0:07:15.560 have an increase to that. We're in particular, so we're 0:07:15.720 --> 0:07:17.800 we look at the Big Four, so it's it's and 0:07:17.920 --> 0:07:19.960 we're not in there, but the Big four of China, Russia, 0:07:20.000 --> 0:07:22.480 India and Brazil, and it's I think China is gonna 0:07:22.520 --> 0:07:25.880 dictate what's gonna happen here. So interesting, very very good. 0:07:25.920 --> 0:07:27.720 We'll take well, well, have you back when you're starting 0:07:27.760 --> 0:07:30.680 to get into your mergery markets and we'll certainly take 0:07:30.680 --> 0:07:33.840 a look at that. Greg Han, President, Chief Investment Officer, 0:07:33.920 --> 0:07:37.120 Winthrop Capital Management, based in Indianapolis, but we're fortunate to 0:07:37.160 --> 0:07:40.200 have him here in our Bloomberg Interactive Brokers studio here 0:07:40.280 --> 0:07:57.040 in New York. Thank you so much. Greg. Well, the 0:07:57.160 --> 0:08:00.400 U S and China continue to discuss discussion. It's about 0:08:00.440 --> 0:08:03.920 possibly having discussions about trade. It is so unclear to 0:08:04.040 --> 0:08:06.520 me where we are in this process that I have 0:08:06.680 --> 0:08:09.640 to call upon our own Dr Sam Natapa, who is 0:08:09.680 --> 0:08:13.520 a frequent visitor here to our Bloomberg Interactive Broker studios. 0:08:13.600 --> 0:08:18.760 Dr Sam Natapa is president of Empire Global Ventures. All right, Sam, 0:08:19.280 --> 0:08:21.880 what what's going on? We have this deadline March one. 0:08:22.040 --> 0:08:25.800 It's gonna get kicked, the cannel get kicked with tariffs. 0:08:26.240 --> 0:08:29.240 What are you looking for for real progress here? Well, 0:08:29.320 --> 0:08:31.400 it's very clear that President Trump needs to listen to 0:08:31.480 --> 0:08:34.079 more Kenny Rogers because he doesn't know how to hold 0:08:34.160 --> 0:08:36.679 him and he doesn't know how to fold him. We 0:08:36.800 --> 0:08:38.760 have some sense of what the deal is going to 0:08:38.840 --> 0:08:42.200 be when President Ji Jinping will come to Florida tomorrow 0:08:42.280 --> 0:08:45.439 Lago to sign this agreement. One, they're probably going to 0:08:45.720 --> 0:08:49.240 agree to hold the yuan stable and not devalue in 0:08:49.400 --> 0:08:51.199 order to make Chinese goods cheaper to come into the 0:08:51.320 --> 0:08:54.760 US market. To the Chinese will clearly commit to buying, 0:08:55.280 --> 0:08:58.120 you know, hunting billions of dollars more of US goods. 0:08:58.160 --> 0:09:01.480 They've already committed to buy I think ten million tons 0:09:01.559 --> 0:09:03.960 more soya beans, which is about three point five billion 0:09:04.000 --> 0:09:06.880 dollars already this year. But since the US China trade 0:09:06.920 --> 0:09:09.520 deficits going to be four hundred billion dollars this year, 0:09:09.760 --> 0:09:13.360 that's less than one percent of that deficit. So what's 0:09:13.400 --> 0:09:16.599 that really going to mean? Yesterday, Bob Lightheiser announced that 0:09:16.640 --> 0:09:20.160 there's now a mechanism by which they will handle this 0:09:20.840 --> 0:09:24.240 back and forth internally and bilaterally instead of going through 0:09:24.280 --> 0:09:26.600 the w t O. In other words, the US has 0:09:26.600 --> 0:09:29.360 a chance to reimpose sanctions if the Chinese don't do 0:09:29.440 --> 0:09:32.160 what they say they're going to do. So there's a 0:09:32.200 --> 0:09:35.800 lot of talk, and the top line thing is Donald 0:09:35.840 --> 0:09:38.000 Trump wants to lower the U s trade deficit, which 0:09:38.040 --> 0:09:40.679 doesn't really mean anything. The things that really matter, the 0:09:40.720 --> 0:09:44.599 intellectual property issues, the force technology transfer, the protection for 0:09:44.800 --> 0:09:47.280 US companies going to do to stuff in China. None 0:09:47.320 --> 0:09:49.679 of that is being discussed and no progress will be 0:09:49.760 --> 0:09:53.800 made on that. Why are those big items not being addressed? 0:09:53.880 --> 0:09:55.480 Those are the ones that move the needle, Those are 0:09:55.520 --> 0:09:58.839 the ones that Corporate America is most concerned about. How 0:09:58.960 --> 0:10:01.960 are they not on the agenda? To be clear, US 0:10:02.000 --> 0:10:05.160 Trade Representative Robert Lightheiser has dedicated thirty years of his 0:10:05.280 --> 0:10:07.559 career to focus on this issue. He did this on 0:10:07.679 --> 0:10:10.840 Japan first, He's doing it on China now. He's deeply 0:10:10.920 --> 0:10:13.920 focused on that issue. He is being overruled by the 0:10:13.960 --> 0:10:16.079 President of the United States who's so desperate for a 0:10:16.160 --> 0:10:18.839 headline that he will undermine the structural integrity of the 0:10:18.920 --> 0:10:22.120 US economy going forward. All right, let's listen to something 0:10:22.400 --> 0:10:26.880 that Bob Lightheiser said. US Trade Representative Robert Lightheiser speaking 0:10:27.160 --> 0:10:30.960 in speaking yesterday in front of the Ways and Means 0:10:31.000 --> 0:10:33.280 Committee of the U s House of Representatives. Take a 0:10:33.320 --> 0:10:36.040 listen to what he had to say. I'm not PAULI Anna. 0:10:36.160 --> 0:10:38.439 I don't believe that this is going to solve all 0:10:38.480 --> 0:10:41.040 the problems between the United States and China. We have 0:10:41.200 --> 0:10:44.640 very different systems there in a process of reform or 0:10:44.720 --> 0:10:47.760 they're not. Depends on what you talked to. If they're 0:10:47.800 --> 0:10:51.080 in the process as reform, will we'll make headway. If 0:10:51.120 --> 0:10:53.600 they're not, we're going to go right back to having problems. 0:10:54.040 --> 0:10:57.880 That was US Trade Representative Robert lighthouser Heiser speaking in 0:10:58.000 --> 0:10:59.880 front of the House Ways and Means Committee. I have 0:11:00.040 --> 0:11:04.800 to wonder say just how many allies Bob Ladheiser has 0:11:04.960 --> 0:11:08.040 among other people who could kind of force President Trump 0:11:08.160 --> 0:11:10.559 to to sort of consider his point of view a 0:11:10.640 --> 0:11:13.120 little bit more. The US Chamber of Commerce is on 0:11:13.240 --> 0:11:16.120 his side, The American Association of Manufacturers is on his side. 0:11:16.280 --> 0:11:17.880 The problem is none of those people work in the 0:11:17.920 --> 0:11:20.120 White House, and even if they did, Donald Trump wouldn't 0:11:20.120 --> 0:11:21.960 listen to them. Well, will it be considered a victory 0:11:22.120 --> 0:11:24.520 if President Trump gets some sort of agreement that has 0:11:24.520 --> 0:11:27.720 to do with Soyabeans In other words, Well, markets rally, 0:11:27.920 --> 0:11:30.280 I mean, because that's essentially how President Trump is valuating it, 0:11:30.480 --> 0:11:33.560 right it is. But markets are smart, and markets are 0:11:33.600 --> 0:11:36.920 going to understand that this is lipstick on a pig, 0:11:37.320 --> 0:11:39.520 and pig is, of course the number one consumed meat 0:11:39.600 --> 0:11:43.000 in all of China. So nothing's going to change, all right? 0:11:43.440 --> 0:11:45.400 Who when when you take a look at the two 0:11:45.440 --> 0:11:47.000 sides and you take a look at some of the 0:11:47.040 --> 0:11:48.599 bigger issues are out there, But we don't have to 0:11:48.679 --> 0:11:50.880 do them all at once, but piecemeal. Maybe over the 0:11:50.960 --> 0:11:55.040 next couple of years. This China becoming increasingly incentive to 0:11:55.240 --> 0:11:58.880 make some changes that their economy slowing, maybe even slower 0:11:58.920 --> 0:12:02.000 than people believe. Isn't there growing incentive on China to 0:12:02.040 --> 0:12:04.679 actually come to the table on some of these issues. Yes, 0:12:04.920 --> 0:12:07.920 there is tremendous incentive for China to change. That doesn't 0:12:07.960 --> 0:12:10.720 mean there's incentive for them to compromise with the United States. 0:12:11.040 --> 0:12:14.199 In eighteen, the Chinese economy slow to six point six 0:12:14.280 --> 0:12:17.520 percent GDP growth, which is the lowest recorded since uh 0:12:17.720 --> 0:12:21.720 the nineteen nineties. Over the last three months, factory activity 0:12:21.760 --> 0:12:24.880 in China is the lowest it's been in since the 0:12:24.960 --> 0:12:28.439 nineteen nineties. There's a there tremendous indicators showing that the 0:12:28.520 --> 0:12:31.480 Chinese economy is slowing and that Ji Jinping has to 0:12:31.559 --> 0:12:34.960 do something. But forgive me, the one thing is he's 0:12:35.000 --> 0:12:39.000 under tremendous domestic pressure himself. Politically. He opened the path 0:12:39.120 --> 0:12:40.760 for him to be able to run for a third 0:12:40.800 --> 0:12:43.200 and fourth term as president, but if he doesn't deliver, 0:12:43.520 --> 0:12:45.680 that's not going to come true. So just to push 0:12:45.720 --> 0:12:47.880 back a little bit on this idea that President Trump 0:12:48.000 --> 0:12:51.600 is going to make an economic mistake on pretty big 0:12:51.640 --> 0:12:54.479 proportions if he just leaves the trade agreement at soybeans 0:12:54.480 --> 0:12:58.679 and other agricultural and other imports and exports. Isn't this 0:12:58.800 --> 0:13:01.760 just the opening salve those of ongoing discussions. Isn't the 0:13:01.840 --> 0:13:04.640 idea that the US and China can have some sort 0:13:04.679 --> 0:13:08.360 of agreement laying the groundwork for for future negotiations over 0:13:08.400 --> 0:13:12.200 the more substantial issues. It could be if President Trump 0:13:12.320 --> 0:13:15.400 were consistent enough to hold the line, because the lesson 0:13:15.480 --> 0:13:18.000 the Chinese just learned is we're going to go through 0:13:18.040 --> 0:13:21.160 two years of economic turmoil globally and in the end 0:13:21.360 --> 0:13:23.160 will get a deal that we would have signed two 0:13:23.280 --> 0:13:28.200 years ago. Sorry, so Sam, They're going to Palm Beach, 0:13:28.200 --> 0:13:31.079 Florida and lucky them, Um, they sign a deal. Good 0:13:31.160 --> 0:13:34.360 for them. Um. What are next steps in the China 0:13:34.920 --> 0:13:40.760 U S trade negotiations? Uh, Robert Leitheiser will again intend 0:13:40.880 --> 0:13:42.640 and try to put pressure on the Chinese to make 0:13:42.679 --> 0:13:46.439 structural changes, particularly on the intellectual property side, to technology 0:13:46.480 --> 0:13:49.920 transfer side, and the treatment of foreign companies inside China. 0:13:50.200 --> 0:13:53.559 Master card and visa cannot function in China, and that 0:13:53.720 --> 0:13:55.160 was one of the things that people were looking at 0:13:55.240 --> 0:13:57.560 in this negotiation to see if the Chinese would open 0:13:57.640 --> 0:14:00.880 up their domestic market. They're not going to. The question 0:14:01.000 --> 0:14:04.280 is Robert Leitheiser is in a difficult position because he 0:14:04.440 --> 0:14:06.280 just got his legs cut out of from under him 0:14:06.320 --> 0:14:08.520 by his boss and the Chinese assuming they'll do that again. Well, 0:14:08.600 --> 0:14:10.160 that That's what I was gonna say, is sort of 0:14:10.240 --> 0:14:12.440 you know that seems like some of these issues are 0:14:12.480 --> 0:14:14.280 gonna have a hard time getting yourself. Can you give 0:14:14.360 --> 0:14:18.040 us a sense of why Visa MasterCard can operate in China? Uh? 0:14:18.520 --> 0:14:22.440 This is a specific regulatory issue that both the Chinese 0:14:22.480 --> 0:14:26.400 Ministry of Finance and other Chinese regulators have uh not 0:14:26.880 --> 0:14:31.120 granted them a license to operate inside China. So that 0:14:31.280 --> 0:14:34.880 is a Chinese governmental decision. Uh. And it's we'll call 0:14:34.960 --> 0:14:38.400 it a non tariff barrier, if you will, Dr Sam Natapa, 0:14:38.520 --> 0:14:40.440 thank you so much for being here as always. Dr 0:14:40.480 --> 0:14:44.080 Sam Natapa is president of Empire Global Ventures, talking about 0:14:44.120 --> 0:14:47.720 the latest between the US and China trade negotiations, the 0:14:47.800 --> 0:15:08.320 dollar gaining a little against the U N today. Right now, 0:15:08.400 --> 0:15:11.280 let's shift our focus to the retail sector. We've gotten 0:15:11.280 --> 0:15:14.280 a host of earnings from t j X to Macy's 0:15:14.320 --> 0:15:17.480 two j C penny and really the question becomes, are 0:15:17.560 --> 0:15:19.920 we seeing a turn in the tide? There were a 0:15:19.960 --> 0:15:23.520 lot of short sellers targeting these companies. Are they being 0:15:23.640 --> 0:15:26.840 blown out of the water and forced to offend with 0:15:27.040 --> 0:15:29.880 actually a relatively healthy retail sector. Joining us now is 0:15:29.920 --> 0:15:33.360 Evan Clark deputy Managing editor for Women's Where Daily, joining 0:15:33.440 --> 0:15:35.920 us here in our Bloomberg Interactive Broker's studios. So, Evan, 0:15:36.520 --> 0:15:38.760 is there a big takeaway so far from all of 0:15:38.800 --> 0:15:41.320 the retail earnings we've gotten so far? Right? So, I 0:15:41.400 --> 0:15:45.359 think going into the holiday season, there was big expectations 0:15:45.440 --> 0:15:48.640 around sales, and I think that hasn't really panned out. 0:15:48.760 --> 0:15:50.760 I think sales were not quite as bad as the 0:15:50.840 --> 0:15:54.080 overall number that came out from the government, but it's 0:15:54.600 --> 0:15:56.560 they really didn't turn out the way that the industry 0:15:56.680 --> 0:15:58.840 was hoping. So I think the overall story that we 0:15:59.160 --> 0:16:03.200 are seeing right now is that retailers are being cautious. 0:16:03.240 --> 0:16:05.160 They've spent a few years really kind of spending to 0:16:05.280 --> 0:16:08.440 ramp up their online businesses, but now they're starting to 0:16:09.200 --> 0:16:12.320 hit that kind of hit the expense line a little bit. 0:16:12.360 --> 0:16:15.480 They're cutting back there, being more cautious going forward on 0:16:15.600 --> 0:16:18.200 how they spend their money. For instance, macy has just 0:16:18.240 --> 0:16:20.680 cut a hundred million dollars out of their expense structure, 0:16:21.080 --> 0:16:24.320 kind of reducing their top management and sort of simplifying 0:16:24.400 --> 0:16:27.760 things there. So that will help them be more flexible 0:16:28.000 --> 0:16:31.320 should the economy turn. You know, you can win and 0:16:31.440 --> 0:16:34.640 if that that happens so Evan really over the last 0:16:34.680 --> 0:16:37.040 several years as I listened to earning his conference calls 0:16:37.080 --> 0:16:40.480 from these retailers, it's a combination of cutting costs, as 0:16:40.560 --> 0:16:44.600 you mentioned with Macy's reducing um, you know, footprint, closing stores. 0:16:44.640 --> 0:16:47.080 We heard that from J. C. Penny closing eighteen stores. 0:16:47.720 --> 0:16:50.320 What is your sense for how much more the industry 0:16:50.440 --> 0:16:54.160 has to go in terms of reducing its footprint of 0:16:54.280 --> 0:16:57.320 physical stores to deal with what is now a e 0:16:57.480 --> 0:17:00.720 commerce growing e commerce economy. Yeah, you know, I don't 0:17:00.960 --> 0:17:03.880 the numbers I don't have off the top of my head, 0:17:03.960 --> 0:17:06.560 but the U S economy historically has had something like 0:17:06.680 --> 0:17:10.720 six times more retails space per pet capita than the 0:17:10.960 --> 0:17:13.560 next closest market, which is the UK. I think that 0:17:13.680 --> 0:17:16.440 number has come down some lately, but I think there's 0:17:16.480 --> 0:17:19.600 still a long way to go just where the right 0:17:19.680 --> 0:17:22.280 balance is. I don't think anyone really knows. But the 0:17:22.320 --> 0:17:25.600 buzzword we get in retail right now is experience. So 0:17:25.800 --> 0:17:29.920 everyone's trying to figure out how you know, the stores 0:17:30.160 --> 0:17:32.320 and the website are very clearly you know that you've 0:17:32.359 --> 0:17:34.520 got the same brand, the same products, but they're very 0:17:34.600 --> 0:17:39.960 clearly different experiences. So when stores do get people, when 0:17:40.000 --> 0:17:42.720 retailers do get people in their stores, what do they 0:17:42.760 --> 0:17:44.880 give them, How are they keeping them there, what kind 0:17:44.920 --> 0:17:46.879 of you know, what are they doing to engage them. 0:17:46.920 --> 0:17:48.600 That's why we've seen a whole lot of food come 0:17:48.640 --> 0:17:51.800 into retail. We're just seeing more sort of like testing 0:17:52.080 --> 0:17:55.919 with the Canada. Goose has cold rooms where it drops 0:17:56.000 --> 0:17:57.879 to minus twenty or something and you put in their 0:17:57.960 --> 0:18:00.480 jacket and see how cozy you feel. So I think 0:18:00.520 --> 0:18:03.480 that that I don't know the answer is. I think more. 0:18:04.000 --> 0:18:07.080 I think we'll see that the foot print kind of 0:18:07.240 --> 0:18:09.680 go down some more. I don't know when it ends. 0:18:09.680 --> 0:18:11.840 And that's sort of the ten million dollar question. I 0:18:11.920 --> 0:18:14.960 think this has also been an earning this period where 0:18:15.400 --> 0:18:18.240 there's been a huge divergences between the winners and the losers. 0:18:18.280 --> 0:18:20.400 I mean, I'm looking at Macy, as you mentioned them, 0:18:20.800 --> 0:18:23.720 shares down seventeen percent so far year to date, whereas 0:18:23.760 --> 0:18:25.840 t j X, which is banked on the whole experience 0:18:25.920 --> 0:18:30.040 of treasure hunting and finding bargains, up nearly fifteen percent. Right, 0:18:30.160 --> 0:18:33.879 And so it definitely has been uh a sort of 0:18:34.119 --> 0:18:36.520 shaking out of the of the sort of weaker players 0:18:37.000 --> 0:18:39.000 and sort of putting them aside and saying, you know, 0:18:39.119 --> 0:18:41.359 you still need to figure out what your experience is, 0:18:41.840 --> 0:18:45.359 what you're sort of claim to fame is versus the 0:18:45.400 --> 0:18:49.000 winners that are consolidating that power, right right, absolutely, So 0:18:49.240 --> 0:18:51.960 I think you mentioned the treasure hunt at t j X. 0:18:52.000 --> 0:18:53.840 I mean t j X has just been a phenomenon. 0:18:54.040 --> 0:18:57.920 It's been growing tremendously, so it's kind of really transcended 0:18:58.040 --> 0:19:01.760 that it's initial kind of you know, business model of 0:19:01.880 --> 0:19:04.720 taking leftover goods in the market and selling it. And 0:19:04.800 --> 0:19:09.159 they've really at this national brands at a discount price 0:19:09.280 --> 0:19:12.760 and it's like new, it's new, and it's the frequency 0:19:12.880 --> 0:19:14.280 is very fast. So if you go to t J 0:19:15.000 --> 0:19:18.080 Marshals today, it's different, it's going to be different next week. 0:19:18.680 --> 0:19:22.159 So I think that that model continues to resonate. So 0:19:22.240 --> 0:19:24.560 people want brands at a good price and like, uh, 0:19:25.000 --> 0:19:28.159 you know, an environment that is fun or engaging in 0:19:28.280 --> 0:19:31.120 some way. And I think you know, Macy's is very 0:19:31.240 --> 0:19:35.119 much uh trying to kind of figure out how they 0:19:35.280 --> 0:19:37.479 do what they do and how that works for the future. 0:19:37.520 --> 0:19:39.679 I mean, they're they're working very hard. They've got their 0:19:39.720 --> 0:19:43.080 program where they're really trying to sharpen the sharpened fifty 0:19:43.280 --> 0:19:45.919 of their stores to kind of give give a different 0:19:45.960 --> 0:19:48.040 look to shoppers, and they just expanded that to a 0:19:48.119 --> 0:19:52.120 hundred and fifty. So so there you know the changes there. 0:19:52.160 --> 0:19:55.000 They're trying to be um, They're trying to figure out 0:19:55.080 --> 0:19:57.359 exactly where they need to go. And that's the big 0:19:57.440 --> 0:20:00.159 question in retail is exactly where do you go? What 0:20:00.440 --> 0:20:02.919 is the model of the future that kind of really works. 0:20:03.359 --> 0:20:05.000 So I think that we see a lot of testing 0:20:05.080 --> 0:20:08.040 across the industry and kind of incrementally moving forward, I 0:20:08.080 --> 0:20:10.720 mean across the board for retail. The question is can 0:20:10.800 --> 0:20:14.159 people change fast enough? How about just the consumer as 0:20:14.200 --> 0:20:16.159 we go through here these fourth quarter numbers, what what 0:20:16.280 --> 0:20:18.119 are these results tell me about how the consumer is 0:20:18.200 --> 0:20:20.960 right now, real quickly twenty seconds right the consumer is 0:20:21.480 --> 0:20:23.639 is still strong. They still have money. They just have 0:20:23.720 --> 0:20:25.520 a lot more stuff to spend it on. They've got 0:20:25.800 --> 0:20:29.720 you know, the new iPhones are thousand dollars. There's Netflix 0:20:29.840 --> 0:20:33.359 costs every month, so there's more places to put the money. Interesting. 0:20:33.440 --> 0:20:36.919 Thank you very much. Evan Clark, Deputy Managing editor, Woman's 0:20:36.960 --> 0:20:39.840