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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along

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Speaker 1: with my co host of Bonnie Quinn. Every business day

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Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,

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Speaker 1: along with essential market moving news. Kind a Bloomberg Markets

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Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,

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Speaker 1: and on Bloomberg dot Com. Very excited to bring in

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Speaker 1: our next guest. Bruce Greenwald is Professor emeritus at Columbia

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Speaker 1: Business School. He is, of course famous for his seminal

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Speaker 1: book on value investing. He's been teaching so many thousands

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Speaker 1: of students about value investing during his days at Columbia

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Speaker 1: over the past several decades, me being one of them.

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Speaker 1: I remember very difficult days poring over the book of

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Speaker 1: case studies that Bruce Greenwald used to hand out. But

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Speaker 1: excited that he's back on for a fully updated edition

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Speaker 1: of the seminal book Value Investing from Graham to Boot

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Speaker 1: and beyond. So Bruce, welcome, Very great to have you

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Speaker 1: on the program. It's been a rough decade for value investing,

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Speaker 1: of course, but there was a little bit of talk

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Speaker 1: recently that we might be heading into the value cycle again.

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Speaker 1: What did you make of all of that. Look, I think,

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Speaker 1: let me first say, Vanni, it's a real pleasure to

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Speaker 1: talk to YouTube after so many years. The fact of

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Speaker 1: the matter is that I think, in contrast to what

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Speaker 1: happened in the tech boom at the end of the nineties,

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Speaker 1: there are fundamental changes in the economy that have taken place.

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Speaker 1: So even though the basic value principles are still going

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Speaker 1: to be there, which is, you want to look intelligently

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Speaker 1: for opportunities where you're more likely to be better positioned

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Speaker 1: than the other side of the trade. You want to

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Speaker 1: know the value of what you're buying, and you want

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Speaker 1: to be disciplined. The changes in the world means you're

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Speaker 1: going to have to apply them differently, and I think

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Speaker 1: if value investors don't adapt, there may be short periods

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Speaker 1: when they do well, but I don't think for the

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Speaker 1: long term they're they're going to have the kinds of

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Speaker 1: records that they historically had. So, Professor, what types of

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Speaker 1: adaptations do you think investors should take to the extent

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Speaker 1: that they really want to pursue value investing. Well, okay,

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Speaker 1: so let's actually start with just what it is that's changed.

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Speaker 1: So you have an idea of what you're adapting to.

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Speaker 1: And there are two dominant trends in the global economy

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Speaker 1: that affect investors. The first is manufacturing is dying and

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Speaker 1: we're becoming a service economy, which means we're going from

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Speaker 1: big centralized manufacturing facilities to very dispersed service facilities. And

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Speaker 1: the second thing is, and this really amounts to the

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Speaker 1: same thing tchech has basically disaggregated organizations. So you see

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Speaker 1: it in the way that people work separately, which is

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Speaker 1: the gig economy, but you also see it in the

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Speaker 1: way in which organizations are separated out. So in the

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Speaker 1: old days, if you are doing I t IBM did everything.

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Speaker 1: If you look at it today, you know Microsoft does

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Speaker 1: the operating system and basic functions, or Echo does the databases,

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Speaker 1: Google does search, Intel does only the CPU chips, and

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Speaker 1: Facebook does the interactions. So you're really going from large

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Speaker 1: centralized organizations to really very decentralized one and that has

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Speaker 1: three absolutely critical consequences. The first is that productivity growth

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Speaker 1: is currently much harder on a decentralized basis, So going forward,

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Speaker 1: you're not going to see the rate of improvement in

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Speaker 1: productivity that you saw in the path. Although we're big

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Speaker 1: organizations like McDonald's in the US learn to do it.

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Speaker 1: We're going to do probably in the US better than

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Speaker 1: other people. Second thing is when people work individually they

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Speaker 1: get paid for what they do. They don't get paid

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Speaker 1: the average wage, and that means that the distribution of

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Speaker 1: income becomes much much more unequal, and that's going to continue.

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Speaker 1: And I think the third thing, which is really what's

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Speaker 1: crucial for value investors, is that you are moving from

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Speaker 1: broad global markets, the gms, the gas of the world,

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Speaker 1: to niche local markets. And big global markets are competitive

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Speaker 1: small niche market I mean, for example, if you're gonna

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Speaker 1: be viable at one percent market share, you're never going

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Speaker 1: to keep anybody out of those big global markets, whereas

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Speaker 1: small local markets are markets in which dominant competitors can

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Speaker 1: enjoy barriers to entry based on economies of scale. And

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Speaker 1: once that happens, once you've got these what Buffett refers

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Speaker 1: to a franchise businesses, the whole investment world changes. So

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Speaker 1: you have high returns on investment capital. So capital allocation

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Speaker 1: can be hugely value creating as well as value destructive.

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Speaker 1: You benefit from organic growth and revenue. I mean, if

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Speaker 1: you're in a competitive market and revenue grows organically. Temporarily

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Speaker 1: profits may go up, but then everybody enters and they

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Speaker 1: just divide the business more finally, and the profits go away.

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Speaker 1: And the same thing happens with the benefit of tech

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Speaker 1: based margin growth, you know, is productivity goes up. In

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Speaker 1: a competitive market, everybody rushes in. But if you benefit

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Speaker 1: from barriers to entry, you get to enjoy that. And

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Speaker 1: you see that, by the way, and what's happened to profits.

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Speaker 1: In the early in the late eighties early nineties, profits

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Speaker 1: were eight of national income. Today they're twelve to cent

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Speaker 1: or higher, and they're probably going up. But here is

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Speaker 1: the critical thing. Old fashioned asset based value investing is

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Speaker 1: not going to do it for you. It's too small

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Speaker 1: a part of the overall picture that assets aren't that

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Speaker 1: important in a world where has got barriers to entry

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Speaker 1: and franchise businesses, and there by the way, where you've

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Speaker 1: got services and intangible assets, they're much harder to measure.

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Speaker 1: So I think the first thing investors have to do

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Speaker 1: is understand franchise businesses. Interesting case where we almost have

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Speaker 1: a time, but I do want to get in one

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Speaker 1: more question. If you talk to the likes of Joel

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Speaker 1: greenbatt or Richard Bosina or Bill Miller, you'll come away

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Speaker 1: with a very different style of value investing. A piece. Well,

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Speaker 1: what distinguishes all of these different styles of value investing? Well,

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Speaker 1: I don't think that they are as I say, there

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Speaker 1: are three fundamental things that they all do. I think that,

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Speaker 1: you know, the crucial difference between traditional value investors and

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Speaker 1: them is that they've actually adapted much better, that they

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Speaker 1: understand that growth creates value in this world, and you

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Speaker 1: can't invest and look for value without understanding how to

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Speaker 1: put value on growth. And I think that is the

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Speaker 1: single overwhelming style difference. And I think, frankly the future

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Speaker 1: lies with the Bill Millers and the Joel Green plots

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Speaker 1: for the world. And in fact, what the book is

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Speaker 1: really about is about adapting to this new environment where

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Speaker 1: all of a sudden, the historical distinction between growth investing

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Speaker 1: what you would call varieties of value investing and traditional

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Speaker 1: sort of cigar but asset has gone away. A Bruce,

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Speaker 1: thank you so much for joining us there. Bruce Bruce Greenwald,

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Speaker 1: Professor Emeritus at Columbia Business School, Chairman of the Paradigm

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Speaker 1: Capital Management, and senior advisor at First Eagle investment manager

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Speaker 1: and of course author of the book Value Investing From

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Speaker 1: Graham to Buffett and beyond. We always appreciate listening to

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Speaker 1: the thoughts of Professor Greenwald. I think about value investing.

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Speaker 1: It's really been challenging in this market where growth has

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Speaker 1: really been the dominant theme really for a couple of decades.

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Speaker 1: Right now and at this time now to take a

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Speaker 1: look at the credit markets and maybe the markets more broadly,

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Speaker 1: let's bring in MinC you count on Depine, chief investment

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Speaker 1: officer of Western Asset Management. I say the credit markets

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Speaker 1: because they're top of mind today, Mike, what with a

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Speaker 1: MC being in a little bit of trouble. We know

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Speaker 1: that the movie theaters have already tapped all the credit

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Speaker 1: that possibly is available to them, except for private individuals

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Speaker 1: that are looking to do that. And just curious as

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Speaker 1: to where you see the credit markets right now, Well,

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Speaker 1: there's no question and by the way, Vanni and Paul,

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Speaker 1: thank you for having me on UM. There's no no

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Speaker 1: question that UM, there is still stress in the credit market.

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Speaker 1: You mentioned amc Um. There's a lot of companies, there's

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Speaker 1: a lot of industries that have done pretty much everything

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Speaker 1: they possibly could to survive to this point, UM, some

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Speaker 1: aren't going to make it, and you actually see that

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Speaker 1: in the default numbers. UM. I think many because the

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Speaker 1: capital will markets up so quickly back in late March

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Speaker 1: and early April UH, some were able to access that

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Speaker 1: rescue financing and even though they paid dearly for doing that. UM.

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Speaker 1: I think it's going to be a wise move on

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Speaker 1: their part, and UM will at least minimize how many

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Speaker 1: of these companies actually had to ultimately restructure or or

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Speaker 1: file so UM. I think the credit markets right now,

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Speaker 1: there's no question that some of the rally that we

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Speaker 1: were expecting to occur in two thousand one, some of

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Speaker 1: that has been pulled forward into two thousand twenty, just

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Speaker 1: with clarity on the vaccine. UM. I think everyone's expecting

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Speaker 1: as we are bouncing growth, a bouncing earnings UM. But

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Speaker 1: that being said, I still think the credit markets have

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Speaker 1: room for performance as we move forward over the next

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Speaker 1: few quarters, probably going to be more of a focus

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Speaker 1: on income, focus on carry trade versus what we've seen

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Speaker 1: over the last two or three quarters, which has really

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Speaker 1: been you know about capital appreciation and spread tightening. I

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Speaker 1: think the magnitude of that spread tightening is probably behind

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Speaker 1: us but but still opportunity UM in fixed income resectors

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Speaker 1: broadly and UM in particular in credit. So, Mike, you

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Speaker 1: talked about some performance maybe being brought forward a little

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Speaker 1: bit here in let's talk about high yield. Is there

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Speaker 1: any value left in high yield? It's amazing to me,

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Speaker 1: you know, how well that market has performed, given some

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Speaker 1: of the potential credit risks out there that are are

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Speaker 1: quite likely, you know, even going well into Yeah, it

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Speaker 1: is surprising. And if you just think about where we

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Speaker 1: were uh in the depths of March and into early April,

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Speaker 1: and you know, now high yields up over six percent

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Speaker 1: year to date. UM. But I would say this, there's

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Speaker 1: a lot of disparity in high yield UM. If you

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Speaker 1: look at you know, just even by rating category UH,

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Speaker 1: double B high quality is doing very well, you know,

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Speaker 1: up nine and a half percent, triple CS uh. You know,

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Speaker 1: just think of the lowest quality within high yield UH

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Speaker 1: just up over a little over four percent year to date,

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Speaker 1: and then take that even further UM by industry energy

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Speaker 1: is negative still two percent year to date. UM. So

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Speaker 1: there is a lot of disparity within the high yield market.

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Speaker 1: And yes, we do still think there are opportunity. I

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Speaker 1: think it's um. You know, again, if you go back

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Speaker 1: to late March and early April, it was really just

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Speaker 1: get risk in high yield. Clearly the downside had overshot

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Speaker 1: and you just want to capitalize on that trade. I

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Speaker 1: think going forward you're gonna see, um, just just a

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Speaker 1: lot more disparity or um, you know, just different markets

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Speaker 1: out performing in different markets under performing. So I think

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Speaker 1: it's really gonna end up being you know, you got

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Speaker 1: to pick the right credits, you gotta pick the right industries,

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Speaker 1: really focus on bottom up discipline, fundamental research. Um. So.

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Speaker 1: I I do think that's there's opportunity there. Um. But again,

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Speaker 1: I don't think it's going to be as obvious, and

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Speaker 1: I think it's gonna take a little more work to

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Speaker 1: identify those trades. That said, we're not getting any new

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Speaker 1: stimulus that we know of. Yes, I mean maybe it

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Speaker 1: will happen, but we don't know how that will impact businesses.

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Speaker 1: Surely there's going to be another round of bankruptcy, is Mike, Um,

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Speaker 1: I do think. I mean, I don't think there's going

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Speaker 1: to be an elevated spike of bankruptcies. UM. I think

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Speaker 1: we know or at least have a reasonable idea of

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Speaker 1: which companies are on the verge of having to file UM.

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Speaker 1: If you look at trading levels, I think the market

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Speaker 1: does a pretty good job of identifying those credits, and

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Speaker 1: they tend to trade it very stressed or distressed prices. UM.

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Speaker 1: I only I think the only way that we would

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Speaker 1: get UM sort of a new flare up, if you will,

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Speaker 1: or another round of defaults or bankruptcies, is if we

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Speaker 1: had disappointment on the vaccine. I think between now and

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Speaker 1: when we expect the vaccine to make its way into

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Speaker 1: the broad population, let's call that maybe over the next

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Speaker 1: two quarters. UM. I think the market is is expecting that.

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Speaker 1: I think the liquidity and on most of the balance

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Speaker 1: sheets of companies that are in the high old market

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Speaker 1: is sufficient to get to that point. However, again, if

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Speaker 1: we had disappointment and UM, you know that vaccine wasn't

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Speaker 1: as successful or the vaccines aren't as successful, and this

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Speaker 1: extends into the latter part of two thousand twenty one,

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Speaker 1: I do think then you know you're you're you're going

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Speaker 1: to see some more vulnerabilities. You're going to see some

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Speaker 1: of these at risk sectors and at risk companies either

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Speaker 1: have to get another round of secured financing, or perhaps,

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Speaker 1: as you alluded to, UM, have to to restructure. But

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Speaker 1: I don't think that's in our base case. Hey Mike,

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Speaker 1: what's uh, what's your thoughts on Janet Yelling as by

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Speaker 1: the Treasury Secretary nominee. Yeah, I think that was a

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Speaker 1: wise choice. UM, definitely calming to the markets. UM. You know,

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Speaker 1: even saw uh Larry Cudlow comment on that, and you

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Speaker 1: know he's one of the few from the Trump administration

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Speaker 1: to say anything, but clearly, I mean Janet Yell, you know,

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Speaker 1: sensible views on the economy as a former FED chair. Um.

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Speaker 1: You know, I think there's a certain level of comfort

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Speaker 1: in the market knowing that she understands the cohesion that's

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Speaker 1: necessary between between Fed and White House policy. UM. So

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Speaker 1: I think that was a wise choice and I think

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Speaker 1: definitely UM was was calming to the markets. So Michael,

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Speaker 1: will you be looking out now through year end? Are

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Speaker 1: we going to see this Santa calus while I continue? Yeah,

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Speaker 1: I think you know the new issue volume that m

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Speaker 1: in both the investment grade market and the high old market.

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Speaker 1: You know, those are two records. There's just an extra

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Speaker 1: ainary amount of new issuance UM. Now, a lot of

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Speaker 1: that was for refinancing, which I think is a good thing.

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Speaker 1: If you're a lender UM and you want to uh

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Speaker 1: classify new issuance into something that's either bondholder friendly or

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Speaker 1: bondholder not friendly, we'd obviously rather see more friendly purposes,

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Speaker 1: which we would call refinancing. Is definitely a friend friendly

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Speaker 1: use of proceeds UM. But clearly you're going to see

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Speaker 1: a slowdown in new issue volume over the next couple

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Speaker 1: of weeks. Um money continues to come into these markets,

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Speaker 1: both investment grade and high yield have seen uh you know,

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Speaker 1: an extraordinary amount of flows into both institutional as well

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Speaker 1: as retail funds, So, you know, good technical backdrop from

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Speaker 1: that perspective. More money continuing to come in, uh, you know,

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Speaker 1: less new issue should result in at least stable spreads

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Speaker 1: and stable markets. In my opinion, Hey, Mike, thanks so

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Speaker 1: much for joining us. We really appreciate your thoughts. Might

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Speaker 1: be Cannon, Deputy Chief investment officer for Western Asset Management

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Speaker 1: based out in Pasadena, California, really giving us their thoughts

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Speaker 1: on the fixed income markets. Again, new issuance all time high. Well,

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Speaker 1: we have seen several shots now of nurses critical care

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Speaker 1: and nurses getting their first adviser beyond take shots. So

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Speaker 1: the first vaccines are out there. Let's get straight to

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Speaker 1: Bob Landgrath, who is a Bloomberg healthcare reporter here for

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Speaker 1: us on this rollout. So deaths are approaching three hundred

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Speaker 1: thousand and continuing to rise. Bob, how fast can the

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Speaker 1: distribution network get this vaccine out to where it needs

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Speaker 1: to be? Oh? Yeah, no, this is going to take

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Speaker 1: a while. This is a long slow process. And you

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Speaker 1: mentioned the gas approaching three hundred thousand. Unfortunately, those deaths

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Speaker 1: are going to continue to increase because many of them

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Speaker 1: are essentially you know, they're based on people who have

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Speaker 1: already been infected weeks ago. So the numbers want to

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Speaker 1: continue to to go to to go up, to go

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Speaker 1: up in the terms of the guests for a few

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Speaker 1: weeks because the number of vaccines that are available, you know,

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Speaker 1: that's just not going to make you a big impact

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Speaker 1: on death for a while to come. But it's very

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Speaker 1: important to get this rollout going absolutely, and the people

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Speaker 1: that are being vaccinated now are you know, healthcare workers

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Speaker 1: and then the nursing home residents as small fraction of

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Speaker 1: the population those are kind of the priority people that

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Speaker 1: haven't decided that will get it first, because you know,

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Speaker 1: they're on the front lines. And in terms of the

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Speaker 1: healthcare workers, and then the nursing home residents obviously have

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Speaker 1: some of the highest death rates and account for a

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Speaker 1: large percentage of the death toll in the United States.

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Speaker 1: So right now there's in this initial way there's only

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Speaker 1: two point nine million doses available, so that's a very

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Speaker 1: small faction of even healthcare workers uh and uh uh

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Speaker 1: nursing home residents, and and then the next week there's

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Speaker 1: only more. In the week after that's gonna be more,

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Speaker 1: and hopefully by the end of this week will get

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Speaker 1: the moderna vaccine as well, not you approximately double the

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Speaker 1: number of doses you know, available per week. Uh, So

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Speaker 1: you know, it is starting to roll out. As people

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Speaker 1: have said, this is kind of the who we hope

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Speaker 1: this is the beginning of the end, but still only

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Speaker 1: the beginning, and it's going to take a while, and

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Speaker 1: that's very important. People still should take precautions until we

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Speaker 1: get to this difficult period right now and much larger

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Speaker 1: percentage of population is able to be vaccinated. Dr Faucci

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Speaker 1: just now on MSNBC says Americans with no underlying conditions

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Speaker 1: should get the vaccines at the end of March or

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Speaker 1: the beginning of April can according to Dr Fauci, just

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Speaker 1: now an MSNBC. UM, So interesting, Bob, what do we

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Speaker 1: know about the MODERNA drug again? It we It looks

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Speaker 1: like they're going to be just a week behind Fiser.

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Speaker 1: Get the approval Thursday, I guess, and then maybe start

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Speaker 1: rolling it out over the weekend like we just saw

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Speaker 1: with Fiser. Is there any reason to believe that Moddarian

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Speaker 1: will run into any roadbox. No, there are actually no

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Speaker 1: reason to believe I'm the Durnal run into any load box.

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Speaker 1: It's actually a very similar vaccine to the Fiser vaccine

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Speaker 1: that they're both based on this messenger RNA technology. It's

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Speaker 1: a new technology. It turns out to work be working

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Speaker 1: very well against the coronavirus U. Both of these vaccines

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Speaker 1: about efficacy rate, uh, and so this is very similar.

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Speaker 1: So you know, unless there's some surprises, Yeah, this should

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Speaker 1: should roll out around, start rolling out around and say Friday,

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Speaker 1: unless there's some showstopp or surprise. We don't don't know

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Speaker 1: about that. That's that's the very good news. You know

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Speaker 1: that the bad news is that both of these because

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Speaker 1: they're a new technology, isn't the manufacturing experience, and they

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Speaker 1: have to make this enormous quantities and these factories are

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Speaker 1: still current just gearing up now and that's why you're

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Speaker 1: at first for the first few months, there's definitely, you know,

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Speaker 1: going to be a shortage of vaccine to go around.

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Speaker 1: Can you give us some idea of the supply chain

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Speaker 1: and how it works and how you know a vaccine

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Speaker 1: gets from a factory to a hospital. Yeah, there are

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Speaker 1: several steps involved, and there's distribution hubs and UH. I

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Speaker 1: know that UPS and set X are involved and helping

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Speaker 1: ship uh the the Friser vaccine UH to to the

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Speaker 1: right places where it's needed. Uh. It's a very complicated

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Speaker 1: supply chain. Those governments monitoring it very closely. Once it

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Speaker 1: gets into individual states and locations, then it's more the

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Speaker 1: responsibility of the local states and hospital change to distribute

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Speaker 1: it once they get their allocations. But the U. S.

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Speaker 1: Government is kind of setting the allocations for the individual

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Speaker 1: states and territories and that's kind of the first step.

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Speaker 1: And then and then the manufacturing that's complicated as well.

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Speaker 1: Because these are injections. There's a manufacturing of the raw ingredients,

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Speaker 1: the m or and A itself at one factory, but

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Speaker 1: then there's a separate factory that does you know, puts

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Speaker 1: it into vials and insures it as sterile. So there's

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Speaker 1: several steps there as well. So it's all kind of

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Speaker 1: a very complicated system, made more complicated by the fact that,

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Speaker 1: as everyone's probably heard by now, Fighter's vaccine, these extreme

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Speaker 1: cold storage requirements, uh. And that means either extra ultracold freezers,

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Speaker 1: special ultracote fezers, or special dry ice containers that fisers

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Speaker 1: developed for places that don't have those freezers. Hey Bob,

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Speaker 1: how do we or how does the how is it

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Speaker 1: determined how much each state will receive? As it simply

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Speaker 1: pop elation is an infection rates the we Is there

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Speaker 1: a formula? Yeah? I believe that the government, I'm not

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Speaker 1: totally sure sure the government's kind of U S government

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Speaker 1: has set that that those figures, and I believe it's

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Speaker 1: you know, due to you know, it's more in the

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Speaker 1: total population in the group's uh, in the groups at

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Speaker 1: risk for the vaccident, But I don't know the fine

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Speaker 1: details of that. Where are we looking at more? Lockdown's

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Speaker 1: build a Blasio here? In New York, the mayor of

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Speaker 1: the city talking about the potential for New York City

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Speaker 1: to go into lockdown. Is that happening around the country still? Yeah, so, uh,

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Speaker 1: I mean, I think what people need to think about

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Speaker 1: is uh that, yes, these vaccines are starting to law,

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Speaker 1: and that's very very good news, you know. But the

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Speaker 1: fact is we're still you know, in the thick of

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Speaker 1: like the worst ways of the pandemic, and these vaccines

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Speaker 1: are not gonna impact what's happening right now in terms

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Speaker 1: of infections and deaths. You know, they're not kind of

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Speaker 1: significant impact on that, you know, on a kind of

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Speaker 1: broad basis, uh, for for quite you know, quite a while.

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Speaker 1: Quite a number of people you know are vaccinated. Obviously

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Speaker 1: they'll help the people who get the vaccines. That's just

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Speaker 1: a very small percentage right now. So in terms of

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Speaker 1: the big picture, you know, what we need to do

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Speaker 1: to to to control this right now, it's the same

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Speaker 1: things that we need to be doing more of. It's

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Speaker 1: you know, avoiding credit places, wearing masks and all those things,

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Speaker 1: and those are gonna need to replace day in place

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Speaker 1: or quite some time. Hey, Bob, thanks so much for

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Speaker 1: joining us. As always, you always appreciate your reporting about

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Speaker 1: Langreth Bloomberg Healthcare reporter giving us the latest on the

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Speaker 1: vaccine rollout. Again, we've all probably seen images from this

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Speaker 1: morning vaccines being given around the country, Day one of

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Speaker 1: vaccines and what is sure to be a long process.

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Speaker 1: Did it's time now to take a look at the

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Speaker 1: credit markets and then maybe the markets more broadly, let's

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Speaker 1: bring in Mike Puccount and Deputy Chef Investment Officer of

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Speaker 1: Western Asset Management. I say the credit markets because they're

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Speaker 1: top of mind today, Mike, what with a MC being

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Speaker 1: in a little bit of trouble. We know that the

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Speaker 1: movie theaters have already topped all the credit the possibly

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Speaker 1: is available as them except for private individuals that are

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Speaker 1: looking to do that. And just curious as to where

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Speaker 1: you see the credit markets right now. Well, there's no

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Speaker 1: question and by the way, Vanni and Paul, thank you

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Speaker 1: for having me on UM. There's no no question that, Um,

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Speaker 1: there is still stress in the credit markets. You mentioned

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Speaker 1: amc Um. There's a lot of companies, there's a lot

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Speaker 1: of industries that have done pretty much everything they possibly

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Speaker 1: could to survive to this point. Um, some aren't going

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Speaker 1: to make it. And you actually see that in the

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Speaker 1: default numbers. UM I think many because the capital markets

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Speaker 1: up so quickly back in late March and early April UH,

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Speaker 1: some were able to access that rescue financing and even

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Speaker 1: though they paid dearly for doing that. UM I think

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Speaker 1: it's going to be a wise move on their part,

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Speaker 1: and UM will at least minimize how many of these

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Speaker 1: companies actually had to ultimately restructure or or file. So

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Speaker 1: UM I think the credit markets right now, there's no

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Speaker 1: question that some of the rally that we were expecting

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Speaker 1: to occur in two thousand one, some of that has

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Speaker 1: been pulled forward into two thousand twenty, just with clarity

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Speaker 1: on the vaccine. UM I think everyone's expecting as we

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Speaker 1: are bouncing growth a bouncing and earnings UM. But that

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Speaker 1: being said, I still think the credit markets have room

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Speaker 1: for performance as we move forward over the next few quarters,

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Speaker 1: probably going to be more of a focus on income,

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Speaker 1: focus on carry trade versus what we've seen over the

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Speaker 1: last two or three quarters, which has really been you

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Speaker 1: know about capital appreciation and spread tightening. I think the

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Speaker 1: magnitude of that spread tightening is probably behind us, but

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Speaker 1: but still opportunity UM in fixed income resectors broadly and

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00:24:55,920 --> 00:24:59,840
Speaker 1: UM in particular in credit. So, Mike, you talked about

431
00:24:59,840 --> 00:25:03,000
Speaker 1: some performance maybe being brought forward a little bit here

432
00:25:03,000 --> 00:25:06,000
Speaker 1: in let's talk about high yield. Is there any value

433
00:25:06,240 --> 00:25:09,520
Speaker 1: left in high yield? It's amazing to me, you know,

434
00:25:09,560 --> 00:25:12,280
Speaker 1: how well that market has performed, given some of the

435
00:25:12,280 --> 00:25:14,840
Speaker 1: potential credit risks out there that are are quite likely,

436
00:25:15,040 --> 00:25:19,720
Speaker 1: you know, even going well into Yeah, it is surprising.

437
00:25:19,760 --> 00:25:22,639
Speaker 1: And if you just think about where we were, uh

438
00:25:22,640 --> 00:25:25,320
Speaker 1: in the depths of March and into early April, and

439
00:25:25,640 --> 00:25:28,320
Speaker 1: you know, now high yields up over six percent year

440
00:25:28,359 --> 00:25:31,239
Speaker 1: to date. UM. But I would say this, there's a

441
00:25:31,280 --> 00:25:34,640
Speaker 1: lot of disparity in high yield UM. If you look

442
00:25:34,680 --> 00:25:38,040
Speaker 1: at you know, just even by rating category UH, double

443
00:25:38,040 --> 00:25:41,000
Speaker 1: B high quality is doing very well, you know, up

444
00:25:41,080 --> 00:25:44,200
Speaker 1: nine and a half percent, triple CS UH. You know,

445
00:25:44,280 --> 00:25:47,800
Speaker 1: just think of the lowest quality within high yield UH

446
00:25:48,200 --> 00:25:51,160
Speaker 1: just up over a little over four percent year to date,

447
00:25:51,440 --> 00:25:55,320
Speaker 1: and then take that even further UM by industry energy

448
00:25:55,960 --> 00:25:59,080
Speaker 1: is negative still two percent year to date. UM. So

449
00:25:59,119 --> 00:26:01,960
Speaker 1: there is a lot of disparity within the high yield market.

450
00:26:02,520 --> 00:26:05,240
Speaker 1: And yes, we do still think there are opportunity. I

451
00:26:05,240 --> 00:26:07,680
Speaker 1: think it's um you know again, if you go back

452
00:26:07,720 --> 00:26:11,000
Speaker 1: to late March and early April, it was really just

453
00:26:11,400 --> 00:26:16,000
Speaker 1: get risk in high yield. Clearly the downside had overshot

454
00:26:16,040 --> 00:26:18,720
Speaker 1: and you just want to capitalize on that trade. I

455
00:26:18,760 --> 00:26:21,840
Speaker 1: think going forward you're going to see, um, just just

456
00:26:22,080 --> 00:26:25,919
Speaker 1: a lot more disparity or um, you know, just different

457
00:26:25,960 --> 00:26:29,320
Speaker 1: markets out performing in different markets underperforming. So I think

458
00:26:29,359 --> 00:26:32,000
Speaker 1: it's really gonna end up being you know, you got

459
00:26:32,080 --> 00:26:33,880
Speaker 1: to pick the right credits, you gotta pick the right

460
00:26:33,960 --> 00:26:39,800
Speaker 1: industry is really focus on bottom up discipline, fundamental research um.

461
00:26:39,920 --> 00:26:44,240
Speaker 1: So I do think that's there's opportunity there um. But again,

462
00:26:44,280 --> 00:26:46,480
Speaker 1: I don't think it's going to be as obvious, and

463
00:26:46,520 --> 00:26:48,320
Speaker 1: I think it's gonna take a little more work to

464
00:26:48,359 --> 00:26:51,639
Speaker 1: identify those trades. That said, we're not getting any new

465
00:26:51,680 --> 00:26:53,920
Speaker 1: stimulus that we know of. Yes, I mean maybe it

466
00:26:53,960 --> 00:26:56,720
Speaker 1: will happen, but we don't know how that will impact businesses.

467
00:26:57,240 --> 00:27:02,840
Speaker 1: Surely there's going to be another rout of bankruptcies, Mike, Um,

468
00:27:02,960 --> 00:27:05,560
Speaker 1: I do think. I mean, I don't think there's going

469
00:27:05,600 --> 00:27:09,680
Speaker 1: to be an elevated spike of bankruptcyes. Um. I think

470
00:27:10,440 --> 00:27:13,919
Speaker 1: we know, or at least have a reasonable idea of

471
00:27:14,000 --> 00:27:17,879
Speaker 1: which companies are on the verge of having to file UM.

472
00:27:17,920 --> 00:27:20,040
Speaker 1: If you look at trading levels, I think the market

473
00:27:20,080 --> 00:27:23,320
Speaker 1: does a pretty good job of identifying those credits and

474
00:27:23,400 --> 00:27:27,160
Speaker 1: they tend to trade it very stressed or distressed prices.

475
00:27:27,840 --> 00:27:30,520
Speaker 1: Um all. I think the only way that we would

476
00:27:30,560 --> 00:27:33,760
Speaker 1: get UM sort of a new flare up, if you will,

477
00:27:33,880 --> 00:27:38,000
Speaker 1: or another round of defaults or bankruptcies, is if we

478
00:27:38,119 --> 00:27:42,239
Speaker 1: had disappointment on the vaccine. I think between now and

479
00:27:42,320 --> 00:27:46,560
Speaker 1: when we expect the vaccine to make its way into

480
00:27:46,720 --> 00:27:49,320
Speaker 1: the broad population, let's call that maybe over the next

481
00:27:49,320 --> 00:27:54,560
Speaker 1: two quarters. UM. I think the market is is expecting that.

482
00:27:54,720 --> 00:27:58,119
Speaker 1: I think the liquidity and on most of the balance

483
00:27:58,160 --> 00:28:00,240
Speaker 1: sheets of companies that are in the high you old

484
00:28:00,280 --> 00:28:04,200
Speaker 1: market is sufficient to get to that point. However, again,

485
00:28:04,200 --> 00:28:08,280
Speaker 1: if we had disappointment and UM, you know that vaccine

486
00:28:08,720 --> 00:28:12,719
Speaker 1: wasn't as successful or the vaccines aren't as successful, and

487
00:28:13,200 --> 00:28:16,080
Speaker 1: this extends into the latter part of two thousand twenty one,

488
00:28:16,359 --> 00:28:18,400
Speaker 1: I do think then you know you're you're you're going

489
00:28:18,440 --> 00:28:20,720
Speaker 1: to see some more vulnerabilities. You're going to see some

490
00:28:20,760 --> 00:28:25,080
Speaker 1: of these at risk sectors and at risk companies either

491
00:28:25,160 --> 00:28:29,119
Speaker 1: have to get another round of secured financing or perhaps

492
00:28:29,200 --> 00:28:32,080
Speaker 1: as you alluded to, UM have to to restructure, but

493
00:28:32,359 --> 00:28:35,080
Speaker 1: I don't think that's in our base case. Hey Mike,

494
00:28:35,160 --> 00:28:39,960
Speaker 1: what's uh, what's your thoughts on Janet Yelling as Biden's

495
00:28:40,080 --> 00:28:46,400
Speaker 1: Treasury Secretary nominee. Yeah, I think that was a wise choice. UM.

496
00:28:46,440 --> 00:28:50,320
Speaker 1: Definitely calming to the markets. UM. You know even saw

497
00:28:50,840 --> 00:28:53,840
Speaker 1: uh Larry Cudlow comment on that, and you know he's

498
00:28:53,880 --> 00:28:57,560
Speaker 1: one of the few from the Trump administration to say anything,

499
00:28:57,880 --> 00:29:01,200
Speaker 1: but clearly I mean Janet Yelling, you know, sensible views

500
00:29:01,280 --> 00:29:04,760
Speaker 1: on the economy as a former FED share UM. You know,

501
00:29:04,800 --> 00:29:06,920
Speaker 1: I think there's a certain level of comfort in the

502
00:29:06,960 --> 00:29:11,760
Speaker 1: market knowing that she understands the cohesion that's necessary between

503
00:29:12,080 --> 00:29:15,640
Speaker 1: between Fed and White House policy. UM. So I think

504
00:29:15,680 --> 00:29:18,760
Speaker 1: that was a wise choice and I think definitely UM

505
00:29:19,200 --> 00:29:24,720
Speaker 1: was was calming to the markets. So Michael, will you

506
00:29:24,720 --> 00:29:26,880
Speaker 1: be looking out now through year end? Are we going

507
00:29:26,920 --> 00:29:30,720
Speaker 1: to see this Santa calls while I continue? Yeah? I

508
00:29:31,080 --> 00:29:34,360
Speaker 1: think you know the new issue volume that UM in

509
00:29:34,360 --> 00:29:37,280
Speaker 1: both the investment grade market and the high old market.

510
00:29:37,560 --> 00:29:40,120
Speaker 1: You know, those are two records. There's just an extraordinary

511
00:29:40,160 --> 00:29:43,040
Speaker 1: amount of new issuance. UM. Now, a lot of that

512
00:29:43,200 --> 00:29:45,720
Speaker 1: was for REEF financing, which I think is is a

513
00:29:45,720 --> 00:29:48,440
Speaker 1: good thing. If you're a lender UM and you want

514
00:29:48,480 --> 00:29:54,480
Speaker 1: to classify new issuance into something that's either bondholder friendly

515
00:29:54,560 --> 00:29:58,960
Speaker 1: or bondholder not friendly, we'd obviously rather see more friendly purposes,

516
00:29:58,960 --> 00:30:02,600
Speaker 1: which we would call reefing dancing is definitely a friendly

517
00:30:02,720 --> 00:30:06,000
Speaker 1: use of proceeds UM. But clearly you're going to see

518
00:30:06,000 --> 00:30:08,840
Speaker 1: a slowdown in new issue volume over the next couple

519
00:30:08,880 --> 00:30:12,360
Speaker 1: of weeks. Um money continues to come into these markets,

520
00:30:13,080 --> 00:30:16,320
Speaker 1: both investment grade and high yield have seen, uh, you know,

521
00:30:16,360 --> 00:30:20,400
Speaker 1: an extraordinary amount of flows into both institutional as well

522
00:30:20,440 --> 00:30:24,320
Speaker 1: as retail funds, so you know, good technical backdrop from

523
00:30:24,360 --> 00:30:27,800
Speaker 1: that perspective. More money continuing to come in, uh, you know,

524
00:30:28,360 --> 00:30:32,120
Speaker 1: less new issue should result in at least stable spreads

525
00:30:32,120 --> 00:30:34,800
Speaker 1: and stable markets in my opinion, Hey Mike, thanks so

526
00:30:34,840 --> 00:30:37,800
Speaker 1: much for joining us. We really appreciate your thoughts. Mike P. Canon,

527
00:30:37,880 --> 00:30:41,640
Speaker 1: Deputy Chief Investment Officer for Western Asset Management based out

528
00:30:41,680 --> 00:30:45,440
Speaker 1: in Pasadena, California, really giving us up their thoughts on

529
00:30:45,640 --> 00:30:49,160
Speaker 1: the fixed income markets again, new issuance all time high.

530
00:30:50,760 --> 00:30:54,200
Speaker 1: Thanks for listening to Boomberg Markets podcast. You can subscribe

531
00:30:54,240 --> 00:30:57,720
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast

532
00:30:57,800 --> 00:31:01,080
Speaker 1: platform you prefer. I'm Monnie Quinn. I'm on Twitter at

533
00:31:01,080 --> 00:31:03,200
Speaker 1: on e Quinn. And I'm Paul Sweeney. I'm on Twitter

534
00:31:03,280 --> 00:31:06,120
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535
00:31:06,160 --> 00:31:07,720
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