1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:31,400 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 7 00:00:31,560 --> 00:00:36,440 Speaker 1: corn is king. Corn markets are the biggest agricultural market 8 00:00:36,680 --> 00:00:40,080 Speaker 1: both in turns of tonnage as well as dollar amount 9 00:00:40,400 --> 00:00:42,800 Speaker 1: in the world. And here to tell us what to 10 00:00:42,960 --> 00:00:47,440 Speaker 1: expect from this market is Sala Gilberti, President, chief chief 11 00:00:47,479 --> 00:00:50,640 Speaker 1: investment officer and co founder of two Cream Trading ll C, 12 00:00:51,200 --> 00:00:55,360 Speaker 1: as well as Mike mclogan, commodity strategist for Bloomberg Intelligence. 13 00:00:55,560 --> 00:00:58,080 Speaker 1: So I want to start with you. You noted something 14 00:00:58,520 --> 00:01:02,800 Speaker 1: pretty amazing to me that even as demand increases from 15 00:01:02,800 --> 00:01:08,000 Speaker 1: ethanol and just globally, corn prices are around three dollars 16 00:01:08,000 --> 00:01:10,160 Speaker 1: and fifty cents of bushel, which means corn prices are 17 00:01:10,200 --> 00:01:14,720 Speaker 1: again at or below perceived cost of production. Does that 18 00:01:14,760 --> 00:01:17,480 Speaker 1: mean that farmers have to raise prices cell, Well, it 19 00:01:17,480 --> 00:01:20,040 Speaker 1: means the market has to raise prices. Farmers really don't 20 00:01:20,040 --> 00:01:22,800 Speaker 1: control the price unless they stop planting, and in a 21 00:01:22,800 --> 00:01:25,559 Speaker 1: way so indirectly they can control the price. What we've 22 00:01:25,560 --> 00:01:28,800 Speaker 1: seen is in the past ten years, two times corn 23 00:01:28,840 --> 00:01:31,200 Speaker 1: has been at this level three fifty or below spot 24 00:01:31,200 --> 00:01:34,240 Speaker 1: corn and the prices doubled to over seven dollars. That 25 00:01:34,280 --> 00:01:36,720 Speaker 1: happened in the two thousand seven two eight crop here 26 00:01:36,760 --> 00:01:42,119 Speaker 1: and again in usage continues to rise. Demand is always 27 00:01:42,240 --> 00:01:44,840 Speaker 1: rising for corn. Corn touches every part of your life. 28 00:01:44,840 --> 00:01:47,199 Speaker 1: It's like oil, and when oil, you know, goes below 29 00:01:47,240 --> 00:01:50,240 Speaker 1: the cost of production, money tends to be attracted. Their 30 00:01:50,560 --> 00:01:53,880 Speaker 1: corn is once again at that three fifty level in spot. 31 00:01:54,280 --> 00:01:56,680 Speaker 1: We we can't say when for sure there will be 32 00:01:56,680 --> 00:01:59,520 Speaker 1: a supply disruption. We know that it is very unlikely 33 00:01:59,560 --> 00:02:02,720 Speaker 1: that there will demand disruption. So corns corn maybe a 34 00:02:02,760 --> 00:02:05,920 Speaker 1: big opportunity here. Uh, Mike mcgloan wants you to come 35 00:02:05,960 --> 00:02:08,639 Speaker 1: in on this because you know, there's only so much 36 00:02:08,680 --> 00:02:11,359 Speaker 1: acreage out there, and farmers have to decide what the plant. 37 00:02:11,360 --> 00:02:13,760 Speaker 1: And sometimes they say, I'm not gonna plant corn, I'm 38 00:02:13,760 --> 00:02:17,600 Speaker 1: gonna plant soybeans. Uh. Why do they make those decisions? 39 00:02:17,639 --> 00:02:21,600 Speaker 1: And what are they deciding right now? One reason? Money revenue, 40 00:02:21,919 --> 00:02:24,080 Speaker 1: and that's A key factor that's happening right now is 41 00:02:24,840 --> 00:02:28,120 Speaker 1: there's I'm looking at my screen. The US D estimates 42 00:02:28,120 --> 00:02:30,919 Speaker 1: for corn revenue for this year are average acre is 43 00:02:30,919 --> 00:02:33,400 Speaker 1: gonna lose ninety dollars per acre, yet they're still breaking 44 00:02:33,440 --> 00:02:35,720 Speaker 1: even in soybean, so they're gonna plant more soybeans. So 45 00:02:35,720 --> 00:02:38,240 Speaker 1: that's probably the first time in history we're gonna see 46 00:02:38,320 --> 00:02:40,640 Speaker 1: much more soybeans planted than the corn. A key factor 47 00:02:40,680 --> 00:02:43,880 Speaker 1: there is it's an indication that US grain production is peaked, 48 00:02:43,919 --> 00:02:46,640 Speaker 1: which is a very profound statement because we heard about it. 49 00:02:46,639 --> 00:02:48,520 Speaker 1: You know, a great year again this year, but from 50 00:02:48,520 --> 00:02:51,600 Speaker 1: a typical acre of land you get maybe four metric 51 00:02:51,600 --> 00:02:54,320 Speaker 1: tons of corn, but for soybeans it's about one. So 52 00:02:54,400 --> 00:02:57,600 Speaker 1: the total production will continue decline, is very likely to 53 00:02:57,639 --> 00:03:01,120 Speaker 1: continue decline. It's farmers chase profits and plant more beans 54 00:03:01,120 --> 00:03:04,639 Speaker 1: and less corn, and that's probably it's an unsustainable trend 55 00:03:04,720 --> 00:03:07,960 Speaker 1: until price is generally adjust to make a difference. Sal 56 00:03:08,040 --> 00:03:11,840 Speaker 1: I'd like to to get your sense of why farmers 57 00:03:11,880 --> 00:03:15,280 Speaker 1: are planting more soybeans at this point. When I don't, 58 00:03:15,480 --> 00:03:18,240 Speaker 1: I mean I love tofu. We were talking earlier that 59 00:03:18,360 --> 00:03:21,320 Speaker 1: you like tofu too, but that's not much driving this 60 00:03:21,480 --> 00:03:23,440 Speaker 1: is it. No, it's not. In fact, that demand for 61 00:03:23,480 --> 00:03:28,080 Speaker 1: soybeans is so enormous from China, and China we saw 62 00:03:28,080 --> 00:03:31,800 Speaker 1: them by I think Smithfield. They they are consuming more pork, 63 00:03:32,200 --> 00:03:35,400 Speaker 1: more animal based proteins. They are importing all of the 64 00:03:35,400 --> 00:03:37,880 Speaker 1: soybeans they can find from any source in the world 65 00:03:37,920 --> 00:03:40,280 Speaker 1: in order to feed their animals. Remember, the number one 66 00:03:40,360 --> 00:03:42,240 Speaker 1: use of grains is to feed the animals that we 67 00:03:42,320 --> 00:03:44,320 Speaker 1: as humans eat, and so we might like the eat 68 00:03:44,320 --> 00:03:48,520 Speaker 1: a lot of tofu, but the real consumption is for animals. Okay, 69 00:03:48,560 --> 00:03:50,200 Speaker 1: so let's build on that. I mean, what at what 70 00:03:50,320 --> 00:03:55,080 Speaker 1: price point would farmers be incentivized to plant more corn? Well, 71 00:03:55,120 --> 00:03:57,880 Speaker 1: they look at a ratio, and so they look at 72 00:03:57,920 --> 00:04:00,680 Speaker 1: their inputs and their costs, and they look at what 73 00:04:00,800 --> 00:04:03,040 Speaker 1: will make them more Either you know, d seventy five 74 00:04:03,040 --> 00:04:05,520 Speaker 1: bushels of corn or fifty or so bustels of soybeans. 75 00:04:05,640 --> 00:04:06,840 Speaker 1: One or the other is going to come off of 76 00:04:06,880 --> 00:04:11,960 Speaker 1: that same maker. Importantly, though, for sustainability issues, it's really important. 77 00:04:12,120 --> 00:04:15,080 Speaker 1: Corn draws nitrogen out of the soil, and farmers think 78 00:04:15,080 --> 00:04:17,600 Speaker 1: about this all the time. Soybeans put it back in, 79 00:04:17,839 --> 00:04:20,640 Speaker 1: and so there's something called crop rotation where it's really 80 00:04:20,680 --> 00:04:24,800 Speaker 1: advisable for a farmer who can supplement with with artificial fertilizers. 81 00:04:24,800 --> 00:04:26,520 Speaker 1: But the best thing that farmer can do for his 82 00:04:26,560 --> 00:04:28,679 Speaker 1: soil is once in a while, when he's got a choice, 83 00:04:28,880 --> 00:04:32,120 Speaker 1: switch back to soybeans because it improves the general health 84 00:04:32,160 --> 00:04:35,320 Speaker 1: of his farm. Uh Mica. One of the things I 85 00:04:35,320 --> 00:04:37,400 Speaker 1: want you to speak about, though, is what they're facing 86 00:04:37,440 --> 00:04:40,080 Speaker 1: in terms of fuel costs right now with with farmers, 87 00:04:40,160 --> 00:04:43,040 Speaker 1: because I don't get this. Uh. The United States is 88 00:04:43,080 --> 00:04:46,719 Speaker 1: producing more oil and more natural gas than anybody can remember, 89 00:04:47,240 --> 00:04:50,400 Speaker 1: and yet supplies for farmers are kind of getting squeezed. 90 00:04:50,440 --> 00:04:52,840 Speaker 1: What's up? What's up with that one word? Exports a 91 00:04:52,960 --> 00:04:56,400 Speaker 1: key factor in in the US. I think the US 92 00:04:56,440 --> 00:04:59,839 Speaker 1: commodity market right now, most notably energies we can export. 93 00:05:00,120 --> 00:05:02,159 Speaker 1: We have a declining dollar that we had restrictions a 94 00:05:02,160 --> 00:05:04,359 Speaker 1: few years ago. Those are gone. So if there's a 95 00:05:04,360 --> 00:05:06,560 Speaker 1: better market overseas and there's more money to be made, 96 00:05:06,560 --> 00:05:09,400 Speaker 1: there's plenty of exports. So that is a key factors. 97 00:05:09,560 --> 00:05:13,040 Speaker 1: Cost of costs for farmers are increasing because patrol imune costs, 98 00:05:13,320 --> 00:05:16,600 Speaker 1: drying costs for corn are increasing, but exports and that's 99 00:05:16,640 --> 00:05:18,719 Speaker 1: also a key factor in the grains, and it just 100 00:05:18,760 --> 00:05:21,520 Speaker 1: hasn't happened yet. So we've seen a bottom in crude 101 00:05:21,520 --> 00:05:24,599 Speaker 1: oil bottomed and what it's really like from the lows 102 00:05:24,600 --> 00:05:26,720 Speaker 1: free years ago, we haven't seen that in the grain yet. 103 00:05:26,760 --> 00:05:29,120 Speaker 1: And that's what it's probably gonna happen in a key 104 00:05:29,200 --> 00:05:31,599 Speaker 1: driver's exports. So if we have a continued week dollar, 105 00:05:32,080 --> 00:05:35,440 Speaker 1: unless there's some kind of straight train restrictions, it's almost inevitable. 106 00:05:35,480 --> 00:05:39,680 Speaker 1: This substantial paradigm shift in big increase in US exports 107 00:05:39,720 --> 00:05:42,560 Speaker 1: should boost the price of US traded corn, soybeans, and 108 00:05:42,560 --> 00:05:46,600 Speaker 1: potentially weak So you were talking earlier about that ratio 109 00:05:47,320 --> 00:05:51,800 Speaker 1: of corn to soybeans. Where are we now? What's it saying? Um, 110 00:05:51,839 --> 00:05:55,120 Speaker 1: it's telling farmers to plant soybeans. Um, it was telling 111 00:05:55,200 --> 00:05:56,640 Speaker 1: them a couple of weeks ago to plant a lot 112 00:05:56,640 --> 00:05:58,960 Speaker 1: more soybeans. Right now it's coming back into line because 113 00:05:59,000 --> 00:06:01,920 Speaker 1: people are starting to speck like Mike is predicting that 114 00:06:02,000 --> 00:06:05,520 Speaker 1: they will plant more soybeans versus corn. And again, you're 115 00:06:05,520 --> 00:06:07,680 Speaker 1: gonna get fifty bushels of soybeans off an acre or 116 00:06:07,680 --> 00:06:09,880 Speaker 1: you're gonna get a hundred and seventy five corn. That's 117 00:06:09,880 --> 00:06:12,080 Speaker 1: a big difference. If you switch to soybeans. So how 118 00:06:12,160 --> 00:06:16,039 Speaker 1: much could you see corn prices rise? They're at about 119 00:06:16,080 --> 00:06:18,279 Speaker 1: three dollars and fifty cents of bushel right now. Where 120 00:06:18,279 --> 00:06:19,800 Speaker 1: are they going to go by this time next year? 121 00:06:19,880 --> 00:06:22,240 Speaker 1: There's no towing. I can tell you that this is 122 00:06:22,279 --> 00:06:24,679 Speaker 1: the midst of the corn harvest seasonal, so more corn 123 00:06:24,800 --> 00:06:26,719 Speaker 1: is in a big pile than then there will be 124 00:06:26,720 --> 00:06:28,920 Speaker 1: for the rest of the year, and so that generally 125 00:06:28,960 --> 00:06:32,279 Speaker 1: creates a seasonal low um, so you can see a 126 00:06:32,320 --> 00:06:34,680 Speaker 1: slow trickle upward of price for the next six months 127 00:06:34,760 --> 00:06:38,359 Speaker 1: until the next planning season becomes clear. But again, twice 128 00:06:38,560 --> 00:06:41,040 Speaker 1: in the last ten years, corn prices have doubled from 129 00:06:41,040 --> 00:06:43,560 Speaker 1: the price that they're at right now. I'm just looking 130 00:06:43,600 --> 00:06:46,320 Speaker 1: at your E T F right corn, the two cum 131 00:06:46,400 --> 00:06:48,920 Speaker 1: corn E T F trading it about sixteen and a 132 00:06:48,960 --> 00:06:52,480 Speaker 1: half bucks a share. It was as high as almost 133 00:06:52,520 --> 00:06:55,359 Speaker 1: twenty in July it was. And you've you've seen this 134 00:06:55,400 --> 00:06:58,159 Speaker 1: relentless bear market with these these supplies of corn. But 135 00:06:58,200 --> 00:07:01,480 Speaker 1: now the harvest is over. And again our fund wasn't 136 00:07:01,480 --> 00:07:03,960 Speaker 1: around for both of those doubling prices, but it was 137 00:07:04,040 --> 00:07:07,200 Speaker 1: for the one, and you know, the fund did perform 138 00:07:07,320 --> 00:07:08,920 Speaker 1: quite well, and I think it's went from the mid 139 00:07:08,920 --> 00:07:11,360 Speaker 1: twenties to the very low fifties. Mike, what's the best 140 00:07:11,400 --> 00:07:15,160 Speaker 1: way for investors to uh to trade corn? Well, I 141 00:07:15,560 --> 00:07:17,120 Speaker 1: have to admit when I look at a lot of 142 00:07:17,160 --> 00:07:19,040 Speaker 1: the products and it sell levels. When I do this, 143 00:07:19,120 --> 00:07:22,239 Speaker 1: I go to soybeans partly because historically you can invest 144 00:07:22,320 --> 00:07:25,040 Speaker 1: in soybean and soybean product and you don't have that 145 00:07:25,120 --> 00:07:27,480 Speaker 1: massive cost of carry. Now you might not get the 146 00:07:27,480 --> 00:07:29,320 Speaker 1: performance right away, but that's one of the issues in 147 00:07:29,400 --> 00:07:31,520 Speaker 1: commodities is you have a cost of carry. Soybeans are 148 00:07:31,600 --> 00:07:34,000 Speaker 1: very easy to store and very inexpensive to store, so 149 00:07:34,040 --> 00:07:36,840 Speaker 1: that generally you don't have that rolling futures cost I e. 150 00:07:36,960 --> 00:07:39,760 Speaker 1: A contango and corn you have. It's a little more expensive, 151 00:07:39,840 --> 00:07:42,000 Speaker 1: but you know that's just you have a different type 152 00:07:42,000 --> 00:07:44,120 Speaker 1: of market. So I look at soybeans is a longer 153 00:07:44,240 --> 00:07:47,880 Speaker 1: term hold. It depends on where you are, but overall 154 00:07:48,240 --> 00:07:52,000 Speaker 1: it's certain key levels like cell mentioned here. The risk 155 00:07:52,360 --> 00:07:54,760 Speaker 1: is that we trickled down or re double in price 156 00:07:54,800 --> 00:07:56,280 Speaker 1: over the next few years is the kind of way 157 00:07:56,320 --> 00:07:58,240 Speaker 1: I look at it. And a little bit of a 158 00:07:58,240 --> 00:08:00,120 Speaker 1: weather event will do that, and I'm not predicting that, 159 00:08:00,240 --> 00:08:02,840 Speaker 1: but just these demand versus supply trends imply prices and 160 00:08:02,920 --> 00:08:07,840 Speaker 1: top probably need to increase or exports will make them increase. Gentlemen, 161 00:08:07,880 --> 00:08:09,760 Speaker 1: want to thank you very much for joining us and 162 00:08:09,840 --> 00:08:12,840 Speaker 1: lightening us about the world of commodities. Sal Gioberti is 163 00:08:12,880 --> 00:08:15,640 Speaker 1: the president and the chief investment officer and co founder 164 00:08:15,680 --> 00:08:18,080 Speaker 1: of a two creum at Trading not just looking at 165 00:08:18,120 --> 00:08:21,800 Speaker 1: his soybean e t F again of about four point 166 00:08:21,840 --> 00:08:25,760 Speaker 1: three percent since August. Thanks very much. Mike mcgloanar commodity 167 00:08:25,800 --> 00:08:43,040 Speaker 1: strategist for Bloomberg Intelligence. This is Bloomberg. Here to help 168 00:08:43,120 --> 00:08:45,439 Speaker 1: us understand what's going on in the bond market is 169 00:08:45,480 --> 00:08:48,840 Speaker 1: Tad Revel. He is the chief investment officer of TCW, 170 00:08:48,880 --> 00:08:52,240 Speaker 1: helping to manage more than two hundred billion dollars based 171 00:08:52,280 --> 00:08:54,640 Speaker 1: in Los Angeles. Tad, thank you very much for being 172 00:08:55,040 --> 00:08:57,400 Speaker 1: with us. When if you could just begin by telling 173 00:08:57,440 --> 00:09:02,040 Speaker 1: people who was Sir Thomas Gresham, why does it matter? 174 00:09:02,280 --> 00:09:05,800 Speaker 1: And maybe tell us how that connects with the United 175 00:09:05,840 --> 00:09:08,520 Speaker 1: States and the fact that we don't use silver in 176 00:09:08,600 --> 00:09:12,280 Speaker 1: any of our money. That is, it is a bit 177 00:09:12,280 --> 00:09:14,880 Speaker 1: of an obscure reference, but I think actually many people 178 00:09:14,880 --> 00:09:19,960 Speaker 1: are familiar with the term. Gresham's loss. So Gresham was 179 00:09:20,040 --> 00:09:23,520 Speaker 1: actually an advisor to the court of King Henry the 180 00:09:23,559 --> 00:09:27,319 Speaker 1: eighth of financial advisor, and he put forth the observation 181 00:09:28,000 --> 00:09:31,280 Speaker 1: that bad money drives out good money, and what he 182 00:09:31,320 --> 00:09:33,680 Speaker 1: meant by that is that if there were or the 183 00:09:33,720 --> 00:09:39,040 Speaker 1: observation was that if you have two identical face value 184 00:09:39,160 --> 00:09:44,200 Speaker 1: type currencies, let's say gold coins, silver coins, copper coins, UM, 185 00:09:44,400 --> 00:09:47,719 Speaker 1: people will essentially take the gold coins and put them 186 00:09:47,720 --> 00:09:51,160 Speaker 1: in their drawer and utilize the copper coins to facilitate 187 00:09:51,200 --> 00:09:54,479 Speaker 1: the circulation UM. In the case of the American experience, 188 00:09:54,600 --> 00:10:00,240 Speaker 1: coinage was silver until n four Congress changed the law, 189 00:10:00,480 --> 00:10:04,200 Speaker 1: and beginning in nineteen sixty five, when other medals base 190 00:10:04,320 --> 00:10:07,719 Speaker 1: metals were used, all the silver coins basically disappeared. So 191 00:10:08,280 --> 00:10:11,440 Speaker 1: Gresham's law is kind of an interesting insight into the 192 00:10:11,520 --> 00:10:15,640 Speaker 1: human nature that actually most people are probably pretty familiar with, 193 00:10:15,679 --> 00:10:19,520 Speaker 1: even if no one really knows UM the origins of 194 00:10:19,520 --> 00:10:22,520 Speaker 1: the term well so so connecting it to to now 195 00:10:22,720 --> 00:10:25,680 Speaker 1: and to market, it's the idea being that we've seen 196 00:10:25,679 --> 00:10:29,720 Speaker 1: this incredible run up in equities and in riskier assets 197 00:10:29,920 --> 00:10:32,400 Speaker 1: in the debt market as well as frankly safe assets. 198 00:10:32,440 --> 00:10:34,760 Speaker 1: We've seen a run up and absolutely everything, and people 199 00:10:34,800 --> 00:10:37,520 Speaker 1: are chasing the rally by pouring more money in. Is 200 00:10:37,520 --> 00:10:41,360 Speaker 1: the implication here that we are on the precipice of 201 00:10:41,400 --> 00:10:44,120 Speaker 1: a turning point, that this is bad money going into 202 00:10:44,120 --> 00:10:47,280 Speaker 1: the market right now. I think that that's a that's 203 00:10:47,280 --> 00:10:50,280 Speaker 1: a good metaphor for for the point which is that 204 00:10:50,960 --> 00:10:55,520 Speaker 1: UH investors, I think are always counseled UM to be 205 00:10:55,640 --> 00:10:59,760 Speaker 1: disciplined in their approach to UH, not overpaying for assets 206 00:11:00,000 --> 00:11:02,520 Speaker 1: who taking a long term approach. But what does happen 207 00:11:02,960 --> 00:11:05,440 Speaker 1: laid in the cycle is the phenomenon that you alluded to, 208 00:11:05,559 --> 00:11:09,400 Speaker 1: which is that there is money that is hungry for 209 00:11:09,400 --> 00:11:12,440 Speaker 1: for yielden income and at some point is willing to 210 00:11:12,600 --> 00:11:15,400 Speaker 1: pretty much underwrite any risk in exchange for the income. 211 00:11:15,880 --> 00:11:18,880 Speaker 1: The result is that you get assets of all sorts, 212 00:11:19,400 --> 00:11:22,160 Speaker 1: those worthy and those less so that get bit up 213 00:11:22,160 --> 00:11:24,800 Speaker 1: in price, and in effect it becomes an example of 214 00:11:24,880 --> 00:11:29,720 Speaker 1: Gresham's law of investing, in which basically the bad underwriting UM, 215 00:11:29,800 --> 00:11:33,440 Speaker 1: the money that is just far too willing to UH 216 00:11:33,440 --> 00:11:36,120 Speaker 1: sponsor risk, starts to drive out the good money and 217 00:11:36,160 --> 00:11:39,040 Speaker 1: the good underwriting that which is more discipline, and it 218 00:11:39,040 --> 00:11:42,920 Speaker 1: creates a a point of cognitive dissonance for people because 219 00:11:42,960 --> 00:11:45,680 Speaker 1: you said on the sidelines, if your discipline and you say, 220 00:11:45,840 --> 00:11:48,839 Speaker 1: I just don't understand. Everybody else seems to be making 221 00:11:48,880 --> 00:11:51,240 Speaker 1: money and I'm sitting this out. Is this really the 222 00:11:51,760 --> 00:11:56,240 Speaker 1: right strategy for for me that I should take? And historically, 223 00:11:56,320 --> 00:11:58,920 Speaker 1: actually it is, even though it doesn't feel that way 224 00:11:58,920 --> 00:12:02,360 Speaker 1: in real time. Given given that sort of backdrop, is 225 00:12:02,360 --> 00:12:07,559 Speaker 1: TCW moving more money in its fixed income portfolios to cash? 226 00:12:07,960 --> 00:12:10,959 Speaker 1: Is it taking money out of certain markets? And if so, 227 00:12:11,120 --> 00:12:14,199 Speaker 1: which ones? Well? The way we think about it, or 228 00:12:14,240 --> 00:12:16,400 Speaker 1: the way we express it is that you should think 229 00:12:16,400 --> 00:12:19,559 Speaker 1: in terms of in terms of fixed income, you should 230 00:12:19,559 --> 00:12:23,080 Speaker 1: think about bendable assets and breakable assets. And by that 231 00:12:23,160 --> 00:12:26,199 Speaker 1: what we mean is that a breakable asset is essentially 232 00:12:26,520 --> 00:12:29,000 Speaker 1: an asset in the case of a bond, where you're 233 00:12:29,040 --> 00:12:33,760 Speaker 1: going to ultimately suffer loss of principle um it will 234 00:12:33,840 --> 00:12:39,440 Speaker 1: not recover or represent an economically viable asset. A bendable 235 00:12:39,480 --> 00:12:44,319 Speaker 1: asset is an asset that will, we believe, ultimately provide 236 00:12:44,320 --> 00:12:47,120 Speaker 1: full recovery of principle. But the use of the term 237 00:12:47,160 --> 00:12:50,200 Speaker 1: bendable is meant to remind us all that that doesn't 238 00:12:50,200 --> 00:12:52,520 Speaker 1: mean that there isn't going to be ups and downs 239 00:12:52,520 --> 00:12:57,079 Speaker 1: and market related type volatility. So what what Yeah? What 240 00:12:57,080 --> 00:13:01,720 Speaker 1: what's what's bendable and what's breakable? Yeah, exact exactly. Um. So, 241 00:13:02,200 --> 00:13:06,320 Speaker 1: just as a large generalization, UH, the kinds of assets 242 00:13:06,320 --> 00:13:08,120 Speaker 1: that you should think of as being bendable that are 243 00:13:08,200 --> 00:13:11,120 Speaker 1: appropriate late in the cycle where we think we are 244 00:13:11,120 --> 00:13:14,880 Speaker 1: are things like investment grade corporate bonds UM top of 245 00:13:14,920 --> 00:13:17,840 Speaker 1: the capital structure type of investments in some of the 246 00:13:17,880 --> 00:13:22,960 Speaker 1: securitized credit areas. So those would include typically triple A 247 00:13:23,080 --> 00:13:27,360 Speaker 1: rated commercial back mortgage backed securities. They would include programs 248 00:13:27,400 --> 00:13:31,120 Speaker 1: such as the UH the FELP student loan program, which 249 00:13:31,200 --> 00:13:35,920 Speaker 1: basically is government guaranteed full faith and credit obligations UH 250 00:13:35,960 --> 00:13:39,800 Speaker 1: student loans. They would include agency mortgages. And then that 251 00:13:39,840 --> 00:13:42,840 Speaker 1: begs the question, so what would be breakable? Well, um, 252 00:13:42,880 --> 00:13:44,960 Speaker 1: that of course is the rub of it, which is 253 00:13:45,000 --> 00:13:48,000 Speaker 1: that you need to pre identify that which will be 254 00:13:48,040 --> 00:13:51,320 Speaker 1: breakable before you essentially get into the end of the 255 00:13:51,360 --> 00:13:56,360 Speaker 1: cycle when markets tend to be absolutely unforgiving. Traditionally, you 256 00:13:56,360 --> 00:14:00,520 Speaker 1: will see breakable assets in such asset classes as UH 257 00:14:00,679 --> 00:14:04,679 Speaker 1: high yield securities below investment grade. You'll oftentimes see them 258 00:14:04,679 --> 00:14:07,520 Speaker 1: in emerging markets, and you'll typically see them down the 259 00:14:07,559 --> 00:14:10,840 Speaker 1: capital structure in some of the securitized credits. If you're 260 00:14:10,840 --> 00:14:14,120 Speaker 1: buying a triple B a double B commercial mortgage, you 261 00:14:14,240 --> 00:14:17,000 Speaker 1: better be careful about the level of due diligence that 262 00:14:17,040 --> 00:14:19,640 Speaker 1: you're doing because an asset like that, we would suggest 263 00:14:19,800 --> 00:14:22,320 Speaker 1: is potentially in the breakable category. So does that mean 264 00:14:22,360 --> 00:14:26,520 Speaker 1: that TCW is actively selling HILD bonds, emerging market bonds, 265 00:14:26,640 --> 00:14:30,440 Speaker 1: and some lower rated investment grade bonds. Right. So it's 266 00:14:30,440 --> 00:14:33,480 Speaker 1: important to convey this is that the statements I made 267 00:14:33,800 --> 00:14:37,760 Speaker 1: were generalizations, and there are sometimes particular differences. But as 268 00:14:37,760 --> 00:14:41,520 Speaker 1: a general statement, we have de emphasized the high yield 269 00:14:42,480 --> 00:14:45,640 Speaker 1: element in our portfolios for a significant period of time. 270 00:14:45,880 --> 00:14:49,560 Speaker 1: We have emphasized the triple A in securitized credit and 271 00:14:49,640 --> 00:14:52,240 Speaker 1: the investment grade. So I don't want to, you know, 272 00:14:52,520 --> 00:14:54,760 Speaker 1: go too far and say that, you know, we wouldn't 273 00:14:54,760 --> 00:14:57,280 Speaker 1: buy a high yield security in this type of environment. 274 00:14:57,520 --> 00:14:59,840 Speaker 1: We would subject it to a level of due diligence 275 00:14:59,840 --> 00:15:02,680 Speaker 1: and level of skepticism that I think you're that is 276 00:15:02,720 --> 00:15:06,800 Speaker 1: supposed to be appropriate laid in a credit or asset 277 00:15:06,840 --> 00:15:11,080 Speaker 1: price cycle ted just quickly, the people that you speak with, 278 00:15:11,240 --> 00:15:15,240 Speaker 1: do you feel that they are acting out of emotion 279 00:15:15,600 --> 00:15:20,040 Speaker 1: or out of some kind of rational thought process. UM. 280 00:15:20,080 --> 00:15:24,400 Speaker 1: I think it's actually mostly habit People become habituated uh 281 00:15:24,440 --> 00:15:27,880 Speaker 1: to to taking risk laid in the cycle. And I 282 00:15:27,880 --> 00:15:31,400 Speaker 1: think an interesting way to think about it is that, 283 00:15:32,000 --> 00:15:35,800 Speaker 1: uh if you look at market related measures of risks, 284 00:15:35,920 --> 00:15:39,800 Speaker 1: so things like the VIX index, which measures stock market 285 00:15:40,200 --> 00:15:43,360 Speaker 1: implied volatility or stock market implied risk. There are other 286 00:15:43,400 --> 00:15:46,400 Speaker 1: indicries like the MOVE index that measures that in treasuries. 287 00:15:46,680 --> 00:15:49,720 Speaker 1: Until a few days ago, these indicries were hovering at 288 00:15:49,720 --> 00:15:53,720 Speaker 1: twenty five years twenty five year loads. If market participants 289 00:15:53,720 --> 00:15:56,880 Speaker 1: were being utterly rational. The only conclusion you could draw 290 00:15:56,920 --> 00:15:59,920 Speaker 1: from that is that market participants must literally be saying 291 00:16:00,160 --> 00:16:03,560 Speaker 1: this is the safest investment environment in twenty five years. 292 00:16:04,000 --> 00:16:07,640 Speaker 1: If you think market participants are not literally and rationally 293 00:16:07,680 --> 00:16:10,520 Speaker 1: saying that, than what you're really observing is a very 294 00:16:10,560 --> 00:16:14,640 Speaker 1: crowded trade UM in the sense that many, for too 295 00:16:14,680 --> 00:16:18,160 Speaker 1: many people probably are over their skis as it related 296 00:16:18,240 --> 00:16:21,360 Speaker 1: to credit risk taking. Tad Revell, thank you so much 297 00:16:21,360 --> 00:16:24,440 Speaker 1: for joining us. Tad Revel, chief investment officer for TCW, 298 00:16:24,520 --> 00:16:27,600 Speaker 1: which overseas two hundred and one billion dollars and is 299 00:16:27,640 --> 00:16:43,560 Speaker 1: based in Los Angeles. When a company defaults, typically it's 300 00:16:43,600 --> 00:16:46,040 Speaker 1: because it has run out of money to pay its bills, 301 00:16:46,080 --> 00:16:48,640 Speaker 1: but every so often it means something very different. If 302 00:16:48,680 --> 00:16:51,560 Speaker 1: you take a look at the credit default swaps of Huffnanian, 303 00:16:51,600 --> 00:16:54,640 Speaker 1: which is New Jersey's biggest home builder, it looks like 304 00:16:54,680 --> 00:16:57,000 Speaker 1: the company is about default. If you look at the bonds, 305 00:16:57,000 --> 00:17:00,440 Speaker 1: it looks like they are nowhere near defaulting and are lying. 306 00:17:00,480 --> 00:17:03,600 Speaker 1: This is a hedge fund battle that we want to 307 00:17:03,720 --> 00:17:06,159 Speaker 1: illuminate with our own. Shodar Naturaj and he is a 308 00:17:06,240 --> 00:17:09,600 Speaker 1: high yield the debt and syndicated a loan reporter for Bloomberg. 309 00:17:09,880 --> 00:17:12,640 Speaker 1: He breaks a lot of news. He writes great articles. 310 00:17:12,680 --> 00:17:14,320 Speaker 1: You can find them on at the Bloomberg as well 311 00:17:14,320 --> 00:17:17,320 Speaker 1: as Bloomberg dot com. Um, sure, can you just give 312 00:17:17,400 --> 00:17:19,840 Speaker 1: us a sense what's going on here under the surface 313 00:17:19,920 --> 00:17:22,600 Speaker 1: having to do with have Nanian credit default swaps and bonds. 314 00:17:23,040 --> 00:17:25,480 Speaker 1: I mean, it's one of those situations that just leaves 315 00:17:25,520 --> 00:17:28,240 Speaker 1: a lot of people scratching their heads on how this 316 00:17:28,320 --> 00:17:31,919 Speaker 1: is even allowed. Essentially, you have a company who's sails 317 00:17:31,960 --> 00:17:34,919 Speaker 1: it down, credit metrics are worsening, and they have a 318 00:17:35,000 --> 00:17:37,000 Speaker 1: good chunk of debt that is about a mature so 319 00:17:37,040 --> 00:17:38,840 Speaker 1: they need to figure out a way how they can 320 00:17:38,880 --> 00:17:41,320 Speaker 1: refinance their debt, and in WOX and G s O, 321 00:17:41,400 --> 00:17:44,640 Speaker 1: which is black Son's credit unit, ostensibly as the White 322 00:17:44,720 --> 00:17:46,960 Speaker 1: Knight offering what might seem like a good deal to 323 00:17:47,000 --> 00:17:50,080 Speaker 1: the company, but there is this unusual provision. They want 324 00:17:50,119 --> 00:17:52,240 Speaker 1: the company to be able to default on the credit 325 00:17:52,280 --> 00:17:55,600 Speaker 1: default swaps contract so that they get a payout on that, 326 00:17:56,080 --> 00:17:57,919 Speaker 1: and that obviously has a lot of people on the 327 00:17:57,920 --> 00:18:00,679 Speaker 1: other side of the trade very upset. So basically you 328 00:18:00,720 --> 00:18:03,639 Speaker 1: have hundreds of millions of dollars at stake in the 329 00:18:03,680 --> 00:18:07,119 Speaker 1: credit default swaps market that are totally independent of the 330 00:18:07,160 --> 00:18:10,240 Speaker 1: company and the company's dealtload. Like the company doesn't actually 331 00:18:10,240 --> 00:18:12,359 Speaker 1: have to pay out in any of this, right, so 332 00:18:12,520 --> 00:18:17,040 Speaker 1: why wouldn't the company say we will take better financing terms, 333 00:18:17,320 --> 00:18:20,600 Speaker 1: We're going to lower our interest rates, except black Stones 334 00:18:20,720 --> 00:18:24,760 Speaker 1: offer and not make our payments quite on time, so 335 00:18:24,800 --> 00:18:26,960 Speaker 1: that a bunch of hedge funds are forced to pay 336 00:18:26,960 --> 00:18:30,640 Speaker 1: out black Stone make them whole on the whole transaction, 337 00:18:30,960 --> 00:18:34,040 Speaker 1: and everyone goes on there, mary or not some merry way. 338 00:18:34,119 --> 00:18:36,080 Speaker 1: Because the guys on the other side are arguing that 339 00:18:36,119 --> 00:18:39,200 Speaker 1: the company in this case would be intentionally interfering with 340 00:18:39,480 --> 00:18:42,720 Speaker 1: another contract that they have with third parties, because what 341 00:18:42,880 --> 00:18:45,359 Speaker 1: g s O is doing is they're effectively buying up 342 00:18:45,359 --> 00:18:49,760 Speaker 1: the default swaps, betting on a default while simultaneously knowing 343 00:18:49,800 --> 00:18:51,760 Speaker 1: that they will be able to force the default. And 344 00:18:51,760 --> 00:18:53,440 Speaker 1: that doesn't smell right to a lot of people on 345 00:18:53,480 --> 00:18:55,040 Speaker 1: the other side of the trade, who are obviously trying 346 00:18:55,040 --> 00:18:57,560 Speaker 1: to protect their own relative value trades. Who's on the 347 00:18:57,560 --> 00:19:00,920 Speaker 1: other side you have? You have hedge funds like Solas, 348 00:19:01,280 --> 00:19:04,119 Speaker 1: c Qus, there are a few other big names involved. 349 00:19:05,200 --> 00:19:10,080 Speaker 1: We know that the credit trades has involved people like Goldman, Citadel, 350 00:19:10,440 --> 00:19:14,040 Speaker 1: black Rock, and you have someone like an Apologlobal Management 351 00:19:14,080 --> 00:19:16,439 Speaker 1: their credit unit which is on the same side as you, 352 00:19:16,520 --> 00:19:18,520 Speaker 1: so as they have been buying a lot of the swaps, 353 00:19:18,520 --> 00:19:21,320 Speaker 1: so they will profit if there is a payout in 354 00:19:21,320 --> 00:19:24,560 Speaker 1: those contracts. But doesn't this just raise the very sort 355 00:19:24,560 --> 00:19:28,160 Speaker 1: of philosophical issue of how a credit the fault swap 356 00:19:28,320 --> 00:19:32,240 Speaker 1: works because the credit the fault swap, while it may 357 00:19:32,280 --> 00:19:36,040 Speaker 1: not be directly tied to something that underlies it, like 358 00:19:36,119 --> 00:19:39,840 Speaker 1: the value in this case of Hobnanian, it is a 359 00:19:40,000 --> 00:19:43,359 Speaker 1: separate entity. So it's almost as if you're selling insurance 360 00:19:43,359 --> 00:19:48,760 Speaker 1: for someone's automobile, and then the premium gets traded back 361 00:19:48,800 --> 00:19:52,199 Speaker 1: and forth, and people say, I want that premium to 362 00:19:52,280 --> 00:19:54,800 Speaker 1: go up, which means that you would get into an accident. 363 00:19:54,840 --> 00:19:57,280 Speaker 1: So you have someone who's throwing tax on the road 364 00:19:57,760 --> 00:20:00,080 Speaker 1: hoping that the car will get into an axe it 365 00:20:00,160 --> 00:20:02,520 Speaker 1: in because that will raise the premium, and then the 366 00:20:02,520 --> 00:20:05,760 Speaker 1: insurance company is left holding the bag. Is that It's 367 00:20:05,840 --> 00:20:08,159 Speaker 1: kind of the way this thing works. It feels like 368 00:20:08,160 --> 00:20:10,760 Speaker 1: and and and and the byproduct of this this is 369 00:20:10,800 --> 00:20:13,520 Speaker 1: a byproduct really of the growth we've seen in the 370 00:20:13,520 --> 00:20:17,000 Speaker 1: credit to false source market. These are essentially insurance contracts. 371 00:20:17,160 --> 00:20:19,439 Speaker 1: You're buying the contracts just so that you're able to 372 00:20:19,480 --> 00:20:21,719 Speaker 1: head your position. At least that was the original goal, right, 373 00:20:21,720 --> 00:20:23,879 Speaker 1: but that's been teased out. In other words, the person 374 00:20:23,920 --> 00:20:27,240 Speaker 1: who's buying that contract is now no longer really interested 375 00:20:27,280 --> 00:20:30,760 Speaker 1: in the health of the underlying asset, or they're interested 376 00:20:30,800 --> 00:20:33,639 Speaker 1: in is the value of the contract goes up or down, 377 00:20:34,000 --> 00:20:37,439 Speaker 1: and that's something that is traded just as if it 378 00:20:37,560 --> 00:20:40,520 Speaker 1: was a separate entity. And that's an interesting point to 379 00:20:40,560 --> 00:20:43,240 Speaker 1: make because the last time something like this happened, and 380 00:20:43,400 --> 00:20:45,159 Speaker 1: you know, black Stone got a lot of flak for it, 381 00:20:45,240 --> 00:20:48,359 Speaker 1: and this happened with the Spanish gaming company. Blackstone made 382 00:20:48,400 --> 00:20:51,040 Speaker 1: a very specific point, and I'd like to read out 383 00:20:51,080 --> 00:20:54,280 Speaker 1: about their statement from back then. They said the losers 384 00:20:54,359 --> 00:20:57,160 Speaker 1: on the other side of the trade was sophisticated hedge 385 00:20:57,200 --> 00:20:59,880 Speaker 1: funds using credit to false swaps to bet on the 386 00:21:00,040 --> 00:21:03,159 Speaker 1: timing of a default. They were like gamblers betting on 387 00:21:03,200 --> 00:21:06,000 Speaker 1: the overrun the spread, but having an interest, having no 388 00:21:06,160 --> 00:21:08,919 Speaker 1: interest in the outcome of the game. Of course, the 389 00:21:08,920 --> 00:21:11,320 Speaker 1: guys on the other side would argue that that's absolutely 390 00:21:11,359 --> 00:21:13,760 Speaker 1: not true, and that's why we have this bitched battle 391 00:21:13,880 --> 00:21:17,520 Speaker 1: right now. Interesting story, it's a great story and one 392 00:21:17,600 --> 00:21:21,520 Speaker 1: that I think will probably continue and the lawyers will 393 00:21:21,560 --> 00:21:24,040 Speaker 1: certainly make out with this. I will just note that 394 00:21:24,040 --> 00:21:28,040 Speaker 1: that company that Shodar was talking about was Coderi, and 395 00:21:28,080 --> 00:21:30,800 Speaker 1: it was featured the whole affair and Blackstone's role, and 396 00:21:30,800 --> 00:21:32,760 Speaker 1: it was featured on the John Stewart Show back in 397 00:21:33,680 --> 00:21:37,480 Speaker 1: It was that we perceived publicly as being rather ridiculous, 398 00:21:37,560 --> 00:21:41,040 Speaker 1: given how divorced it was from you know, the underlying Well, 399 00:21:41,119 --> 00:21:44,359 Speaker 1: there's no ridiculous in trying to make money, right, I mean, 400 00:21:44,359 --> 00:21:47,280 Speaker 1: it's all about whatever the opportunity presents itself. Thanks very 401 00:21:47,359 --> 00:21:50,040 Speaker 1: much for enlightening us. Shoot our not Taraj and he 402 00:21:50,119 --> 00:21:52,800 Speaker 1: is our high yield, dead and syndicated loan reporter. And 403 00:21:52,840 --> 00:21:56,760 Speaker 1: also my thanks to are my colleague Lisa Bramwitos, co 404 00:21:56,840 --> 00:22:10,919 Speaker 1: author of the piece. Thank you very much. Well, it 405 00:22:10,920 --> 00:22:14,399 Speaker 1: looks like twenty one century Fox has yet another couple 406 00:22:14,440 --> 00:22:18,560 Speaker 1: of suitors. Comcast and Verizon evidently have looked into acquiring 407 00:22:18,600 --> 00:22:22,240 Speaker 1: a big portion of a twenty one century Fox, swooping 408 00:22:22,280 --> 00:22:25,280 Speaker 1: in after talks with Disney cooled off. And here to 409 00:22:25,480 --> 00:22:29,600 Speaker 1: give us some more perspective is Geta Ranganathan, who is 410 00:22:29,640 --> 00:22:33,360 Speaker 1: a technology and media analyst for Bloomberg Intelligence, coming to 411 00:22:33,480 --> 00:22:37,120 Speaker 1: us from our BI headquarters in Princeton, New Jersey. Geta. 412 00:22:37,240 --> 00:22:39,560 Speaker 1: You know, I'm struck by the market action. In response 413 00:22:39,600 --> 00:22:42,240 Speaker 1: to this news, twenty one century Fox shares up four 414 00:22:42,320 --> 00:22:46,360 Speaker 1: percent so far today in trading, whereas Comcast shares down 415 00:22:46,440 --> 00:22:48,879 Speaker 1: Verizon also up. Why is this being viewed as a 416 00:22:48,960 --> 00:22:53,320 Speaker 1: negative for Comcast or is it so? Um so, Lisa, 417 00:22:53,680 --> 00:22:57,959 Speaker 1: Comcast has had a lot of regulatory struggles in the past. 418 00:22:58,200 --> 00:23:02,560 Speaker 1: Um they definitely for a severe setback when UM the 419 00:23:02,640 --> 00:23:05,720 Speaker 1: d o J basically athwarted their efforts to buy Time 420 00:23:05,720 --> 00:23:09,280 Speaker 1: Warner Cable and so I think the regulatory regulatory threat 421 00:23:09,440 --> 00:23:13,280 Speaker 1: is probably perceived as the biggest concern for Comcast kind 422 00:23:13,280 --> 00:23:16,680 Speaker 1: of trying to go after Fox, especially at this time. 423 00:23:17,080 --> 00:23:19,960 Speaker 1: This is really a very interesting time when we see 424 00:23:20,400 --> 00:23:22,320 Speaker 1: that the d o J is kind of giving a 425 00:23:22,400 --> 00:23:25,000 Speaker 1: T and T a hard time UM for its Time 426 00:23:25,000 --> 00:23:28,320 Speaker 1: Warner acquisition UM and and obviously the name that's coming 427 00:23:28,359 --> 00:23:31,120 Speaker 1: up a lot in those talks is Comcast and how 428 00:23:31,119 --> 00:23:33,679 Speaker 1: the d o J is not very happy with, you know, 429 00:23:33,720 --> 00:23:37,600 Speaker 1: the Comcast acquisition of NBC Universal. So adding more content 430 00:23:37,680 --> 00:23:43,040 Speaker 1: obviously could really set off a whole streak of regulatory review. 431 00:23:43,880 --> 00:23:46,320 Speaker 1: Can we just go to maybe the four different categories 432 00:23:46,359 --> 00:23:50,160 Speaker 1: of major businesses for Century Fox and why people would 433 00:23:50,160 --> 00:23:53,639 Speaker 1: want them such as Comcast or Verizon, even the cable 434 00:23:53,680 --> 00:23:57,720 Speaker 1: network programming? Who wants that? And and how valuable is it? So? 435 00:23:58,080 --> 00:24:01,480 Speaker 1: Cable network programming they have of a whole bunch of 436 00:24:01,560 --> 00:24:04,560 Speaker 1: different types of assets there. They have, um, you know, 437 00:24:04,640 --> 00:24:08,280 Speaker 1: their regional sports networks as well as you know FS one, 438 00:24:08,320 --> 00:24:11,359 Speaker 1: which is a national sports network now that apparently is 439 00:24:11,400 --> 00:24:15,159 Speaker 1: not up for sale. Their biggest portion of the cable 440 00:24:15,200 --> 00:24:17,960 Speaker 1: network business or at least, the one that is the 441 00:24:18,040 --> 00:24:21,040 Speaker 1: most profitable is Fox News Channel, that again is not 442 00:24:21,119 --> 00:24:24,520 Speaker 1: up for sale. So so what we're left with is 443 00:24:24,600 --> 00:24:28,600 Speaker 1: really a few general entertainment networks like f FX, UM, 444 00:24:28,680 --> 00:24:31,280 Speaker 1: you know, FX Movie Channel, some of the smaller brands, 445 00:24:31,359 --> 00:24:36,120 Speaker 1: and then National Geographic UM. Now this is what looks like, 446 00:24:36,440 --> 00:24:39,320 Speaker 1: is UM you know, is what Fox is looking to 447 00:24:39,320 --> 00:24:43,320 Speaker 1: put up for sale. UM. It could be complementary UM 448 00:24:43,400 --> 00:24:46,480 Speaker 1: for for let's say, a Disney or a Comcast kind 449 00:24:46,520 --> 00:24:49,720 Speaker 1: of adding that Nature channel, adding a little bit of UM, 450 00:24:49,840 --> 00:24:54,840 Speaker 1: you know, adding kind of deepening their entertainment UM profile. UM. 451 00:24:54,920 --> 00:24:56,639 Speaker 1: So that that that's the part of the business that 452 00:24:56,680 --> 00:24:58,280 Speaker 1: they're willing to give up. And I think the most 453 00:24:58,320 --> 00:25:02,400 Speaker 1: important part from a cable net working standpoint, which would 454 00:25:02,400 --> 00:25:05,240 Speaker 1: be of interest especially to Comcast in Disney, is their 455 00:25:05,280 --> 00:25:09,399 Speaker 1: international portfolio of cable channels. And and Fox really is 456 00:25:09,480 --> 00:25:13,280 Speaker 1: an absolute media behemoth in India with its ownership of 457 00:25:13,359 --> 00:25:16,960 Speaker 1: Star India has about fifty eight or fifty nine regional channels. 458 00:25:17,480 --> 00:25:20,159 Speaker 1: It's a media giant UM and just that portion of 459 00:25:20,200 --> 00:25:22,800 Speaker 1: the business ALAN should be worth about twelve to fifteen 460 00:25:22,800 --> 00:25:25,919 Speaker 1: billion at least. The growing market as opposed to the 461 00:25:26,040 --> 00:25:28,880 Speaker 1: U S which is you know, mature and possibly even 462 00:25:28,880 --> 00:25:30,639 Speaker 1: in decline. You think that would be of interest to 463 00:25:30,680 --> 00:25:35,000 Speaker 1: John Malone and Liberty It could be. Jean Malhone is 464 00:25:35,040 --> 00:25:39,400 Speaker 1: always always features right at the doubin in media mn A. Alright, television, 465 00:25:39,440 --> 00:25:42,399 Speaker 1: how about the television business? So the television business is 466 00:25:42,440 --> 00:25:45,720 Speaker 1: clearly not for sale, uh, you know, from from a 467 00:25:45,720 --> 00:25:48,840 Speaker 1: few different standpoints. First of all, um, Fox has a 468 00:25:48,880 --> 00:25:52,199 Speaker 1: broadcast network as well as the TV station business, and 469 00:25:52,280 --> 00:25:57,040 Speaker 1: both Comcasts and Disney have significant broadcast presence and just 470 00:25:57,119 --> 00:26:00,440 Speaker 1: the FCC would not allow any single company to own 471 00:26:00,800 --> 00:26:04,480 Speaker 1: two major broadcast networks. So the broadcast piece is going 472 00:26:04,480 --> 00:26:08,240 Speaker 1: to remain with Fox. Uh, not for sale. Um. The 473 00:26:08,320 --> 00:26:11,199 Speaker 1: other part of their business which possibly is up for 474 00:26:11,320 --> 00:26:13,960 Speaker 1: sale is the film and the TV studio business, which 475 00:26:14,040 --> 00:26:16,840 Speaker 1: is you know, filmed entertainment. Now, this is an area 476 00:26:16,920 --> 00:26:19,680 Speaker 1: that Fox has had a little bit of struggles with. 477 00:26:19,840 --> 00:26:22,920 Speaker 1: So the TV production is actually pretty robust. They've produced 478 00:26:22,920 --> 00:26:26,000 Speaker 1: like great hits like you know, This is Us and whatnot. Um, 479 00:26:26,119 --> 00:26:28,120 Speaker 1: But on the film side, it's been a little bit 480 00:26:28,119 --> 00:26:32,000 Speaker 1: more erratic. Um. They just don't have the franchises and 481 00:26:32,080 --> 00:26:35,200 Speaker 1: the cloud that let's say, a Disney or a Comcast 482 00:26:35,320 --> 00:26:39,520 Speaker 1: Universal Studio has and they really struggled, and I think, um, 483 00:26:39,720 --> 00:26:42,000 Speaker 1: they've figured that it's going to take them some very 484 00:26:42,080 --> 00:26:45,280 Speaker 1: very significant investments to kind of revive that portion of 485 00:26:45,320 --> 00:26:49,080 Speaker 1: their business, and so they're probably willing to just to 486 00:26:49,200 --> 00:26:51,440 Speaker 1: sell it and give it up to to somebody else, 487 00:26:51,480 --> 00:26:54,840 Speaker 1: maybe a bigger, bigger rival. I don't understand the timing 488 00:26:54,840 --> 00:27:00,080 Speaker 1: of this. Why is Century Fox right now looking to 489 00:27:00,080 --> 00:27:03,680 Speaker 1: sell some of its assets. I think the traditional media 490 00:27:03,720 --> 00:27:08,520 Speaker 1: company has realized. Media companies have realized that, um, you know, 491 00:27:08,640 --> 00:27:12,919 Speaker 1: Netflix has and other digital companies have clearly appended the 492 00:27:12,960 --> 00:27:17,679 Speaker 1: media landscape. It's time for these companies to kind of, um, 493 00:27:18,040 --> 00:27:21,639 Speaker 1: hone in on their narrow themselves down, kind of hone 494 00:27:21,680 --> 00:27:25,960 Speaker 1: in on their core competencies. Fox probably realizes that, um, 495 00:27:26,080 --> 00:27:28,359 Speaker 1: you know, it's core competencies in the news and the 496 00:27:28,440 --> 00:27:31,479 Speaker 1: sports side of the business, not so much the film 497 00:27:31,560 --> 00:27:35,040 Speaker 1: because it requires a lot of investments. Um And and 498 00:27:35,080 --> 00:27:37,560 Speaker 1: they've kind of they've they've they've made these investments, so 499 00:27:37,560 --> 00:27:40,440 Speaker 1: they've they've done it for national geographic, they really haven't 500 00:27:40,440 --> 00:27:43,280 Speaker 1: seen that translate into ratings yet, and so they've probably 501 00:27:43,359 --> 00:27:45,919 Speaker 1: kind of decided it's time to sell. When when they 502 00:27:45,960 --> 00:27:48,040 Speaker 1: can still get a good price. How about the direct 503 00:27:48,040 --> 00:27:54,200 Speaker 1: broadcast satellite television, So that is really up in the air. UM. 504 00:27:54,240 --> 00:27:58,399 Speaker 1: That is their business, which is sky Um, which is 505 00:27:58,520 --> 00:28:02,320 Speaker 1: a direct um to sell light Um kind of a 506 00:28:02,359 --> 00:28:06,760 Speaker 1: pay TV business, distribution business in Europe. UM. They already 507 00:28:06,800 --> 00:28:09,920 Speaker 1: own a thirty nine percent stake in sky and last 508 00:28:09,960 --> 00:28:12,040 Speaker 1: at the end of last year they made a fifteen 509 00:28:12,240 --> 00:28:16,680 Speaker 1: billion dollar bids to go ahead and acquire the remaining 510 00:28:16,720 --> 00:28:20,440 Speaker 1: six stake. Now that deal has run into a lot 511 00:28:20,480 --> 00:28:24,600 Speaker 1: of regulatory, um you know, obstacles, and they've obviously been 512 00:28:24,640 --> 00:28:26,720 Speaker 1: frustrated by that. So I'm not really sure how that 513 00:28:26,880 --> 00:28:29,280 Speaker 1: is going to play out. It's still under regulatory review. 514 00:28:29,800 --> 00:28:32,360 Speaker 1: Fox believes that they can get the deal done by 515 00:28:32,480 --> 00:28:36,440 Speaker 1: the middle of eighteen, but again a lot of uncertainty there. 516 00:28:36,480 --> 00:28:38,720 Speaker 1: They probably feel that it's best to kind of sell 517 00:28:38,800 --> 00:28:40,800 Speaker 1: that to either a Comcast or Disney or whoever is 518 00:28:40,800 --> 00:28:44,760 Speaker 1: willing to buy UM and get rid of that regulatory uncertainty. 519 00:28:45,000 --> 00:28:48,080 Speaker 1: Thanks for joining us, Kit Raganath on our technology and 520 00:28:48,120 --> 00:28:52,280 Speaker 1: media analyst for Bloomberg Intelligence, the Shares of Century Fox 521 00:28:52,360 --> 00:28:58,680 Speaker 1: or up for Thanks for listening to the Bloomberg P 522 00:28:58,800 --> 00:29:01,760 Speaker 1: and L podcast. You can subscribe and listen to interviews 523 00:29:01,800 --> 00:29:05,840 Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 524 00:29:06,240 --> 00:29:09,840 Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm 525 00:29:09,880 --> 00:29:13,160 Speaker 1: on Twitter at Lisa Abramo wits one. Before the podcast, 526 00:29:13,200 --> 00:29:15,800 Speaker 1: you can always catch us worldwide on Bloomberg Radio