WEBVTT - Pound Sinks As Market Comes To Grips With Hard Brexit 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Wicks. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.560 at Bloomberg dot com. Let's take a look at the 0:00:22.640 --> 0:00:27.480 currency markets. Sterling down one percent today, uh lois and 0:00:28.600 --> 0:00:31.400 concerns about a hard Brexit. What does it mean for 0:00:31.520 --> 0:00:34.159 Sterling and other currencies around the world. We welcome our 0:00:34.159 --> 0:00:37.600 next guest, Dr wind Thin, Global head of Currency Strategy 0:00:37.600 --> 0:00:40.360 of Brown Brothers Harriman. Uh he's on the phone with this, 0:00:40.520 --> 0:00:42.879 Dr Thin, thanks so much for joining us. First, just 0:00:43.120 --> 0:00:45.839 want to get your thoughts on Sterling here. Where do 0:00:45.880 --> 0:00:49.400 you think this thing goes given what appears to be 0:00:50.000 --> 0:00:53.840 increasing odds for a hard Brexit. Ali, first of all, 0:00:53.920 --> 0:00:56.480 thanks for having me on. So is a pleasure. Look, 0:00:56.480 --> 0:00:58.480 we're getting the first signs out of the new worst 0:00:58.520 --> 0:01:01.160 Johnson government, and to me, the signs are not good. 0:01:01.240 --> 0:01:04.280 That it's a lot of tough talk. He's saying October 0:01:04.319 --> 0:01:06.600 thirty one, Do or die is so on and so on, 0:01:06.720 --> 0:01:10.400 And you know they're talking about um doing away with 0:01:10.400 --> 0:01:12.200 the Irish backstop, but that's a deal breaker for the 0:01:12.240 --> 0:01:16.160 EU is not gonna go agree to that. So to me, 0:01:16.280 --> 0:01:19.759 the u K is negotiating from position of weakness. And 0:01:20.400 --> 0:01:23.600 so these threats that it's gonna be a heartbreakting PLoud? 0:01:23.680 --> 0:01:25.720 Is it they really meaningless? Um that the EU has 0:01:25.720 --> 0:01:30.040 already said, Uh, it's pretty much non negotiable at this point. Um. 0:01:30.120 --> 0:01:32.920 So to me, I think markets coming to grips with Yes, 0:01:33.000 --> 0:01:35.800 the heartbreaks, it is becoming more and more likely. So 0:01:35.880 --> 0:01:37.680 what's the downside, Like, what's going to be the floor 0:01:37.720 --> 0:01:41.839 here for these fears? I'm sorry with the floor? Yeah? 0:01:41.880 --> 0:01:44.640 So how low can we go for sterling? Oh boy, well, 0:01:44.800 --> 0:01:47.760 look that's a tough question. I take this take things. 0:01:47.960 --> 0:01:49.440 You know, it's sort of a weak or a month 0:01:49.440 --> 0:01:53.120 at a time. That's we think the March low March 0:01:53.160 --> 0:01:56.600 two thousand seventeen low from on ten's next big target. 0:01:56.920 --> 0:01:58.680 Let's get there and see what happens. You know, you 0:01:58.680 --> 0:02:00.640 have some people out there calling with pair dy with dollars. 0:02:00.640 --> 0:02:02.840 I think that's getting a little far ahead of itself. 0:02:02.880 --> 0:02:04.440 But look, the only thing I will say is that 0:02:04.520 --> 0:02:07.240 that the Bank of England did a scenario analysis last fall. 0:02:07.600 --> 0:02:10.480 Was accused of being a scaremongering, but um, you know 0:02:10.520 --> 0:02:13.760 that they called for I think somewhere between ten drop 0:02:13.760 --> 0:02:18.240 and sterling eight percent contraction in GDP in the case 0:02:18.280 --> 0:02:21.120 of heart Brexit. Look, it's just one scenario, but you know, 0:02:21.200 --> 0:02:23.240 I think it's sort of any one's guess is as 0:02:23.240 --> 0:02:25.280 good as anyone others. But let me just say this 0:02:25.360 --> 0:02:27.840 that Sterling would be would be definitely sold on on 0:02:27.880 --> 0:02:31.200 a heart brexit. So dr Sin. We have the FED 0:02:31.520 --> 0:02:34.440 going to announce their decision on Wednesday, We've got the 0:02:34.440 --> 0:02:37.440 Bank of England, the Bank of Japan also weighing in 0:02:38.040 --> 0:02:41.120 over the near term. Given that this we're getting, this 0:02:41.280 --> 0:02:45.079 global reduction in rates, is now the time to be 0:02:45.160 --> 0:02:48.840 taking a harder look at emerging markets? Well, I've been 0:02:48.960 --> 0:02:52.000 very cost on emerging markets for most this year, you know, 0:02:52.040 --> 0:02:54.960 for variety of reasons. So to me, you know, the 0:02:55.000 --> 0:02:58.160 liquidit story is obviously very positive for e m Um. 0:02:58.200 --> 0:03:01.120 You know, the zero rates most the world getting lower, 0:03:01.960 --> 0:03:04.920 the fedback on the cutting bandwagon, um, and so that 0:03:04.960 --> 0:03:07.320 gives you a national bid for for instance, for emerging 0:03:07.360 --> 0:03:09.160 market fixed income, you know they're one of the highest 0:03:09.200 --> 0:03:12.600 yielding assets UM, but if you look at the currency 0:03:12.600 --> 0:03:15.720 and equity markets, that liquidity story just isn't enough. The 0:03:15.720 --> 0:03:18.800 global growth stories what's lacking. We've got an ongoing trade 0:03:18.800 --> 0:03:21.800 war between US and China that's really killing the regional 0:03:21.880 --> 0:03:27.919 Asian exporters Korea, Taiwan, Malaysia, etcetera. UM, emerging market equities 0:03:27.919 --> 0:03:31.560 that have underperformed the developed market equities this year. UM. 0:03:31.600 --> 0:03:34.400 And that's again we're missing a global growth stories. I 0:03:34.440 --> 0:03:36.760 AM have just recently cut its global growth forecast again 0:03:36.760 --> 0:03:41.600 warning about the impact of the global trade wars. So 0:03:41.760 --> 0:03:43.440 you know it to me E MS a mixed bag. 0:03:43.480 --> 0:03:47.040 I would say fixed income it looks positive from the 0:03:47.040 --> 0:03:51.080 equity story, but equities and fixed in I'm sorry, and 0:03:51.240 --> 0:03:53.120 FX are are I think are negative from the global 0:03:53.160 --> 0:03:55.760 growth story. Here's what I truly don't get, and that's 0:03:55.760 --> 0:03:58.600 sort of what the dollar is gonna do. So if 0:03:58.600 --> 0:04:00.720 we just pretend that we get what the market seems 0:04:00.720 --> 0:04:04.920 to expect point cut from the Fed on Wednesday, maybe 0:04:04.920 --> 0:04:06.600 sort of, and then we're gonna wait and see how 0:04:06.600 --> 0:04:10.400 the data pans out. What happens to the dollar. Un 0:04:10.480 --> 0:04:13.520 that's a good point. Look the to me, I think 0:04:13.520 --> 0:04:15.240 the person I think the FEDS kind of painting itself 0:04:15.280 --> 0:04:18.000 from the corner. If you if you close your eyes 0:04:18.120 --> 0:04:20.120 and said, okay, you told me where the economy is going, 0:04:20.120 --> 0:04:22.160 with the John's report, where the retail sales are going, 0:04:22.839 --> 0:04:24.800 and you kind of ignored everything what the FED has 0:04:24.800 --> 0:04:27.120 been saying, you would say, well, what, of course we're not. 0:04:27.160 --> 0:04:29.440 We're not cutting race. But the FED has pants stuff 0:04:29.480 --> 0:04:31.960 in the corner. It tilted device just in the US 0:04:32.279 --> 0:04:35.800 data was getting better. So to me, it's it's sort 0:04:35.839 --> 0:04:39.240 of promised this point. But I agree with what your 0:04:39.240 --> 0:04:41.279 assessment is that we're inna wait and see period. I 0:04:41.279 --> 0:04:44.000 don't think the FED would be wise to precommit to 0:04:44.000 --> 0:04:46.600 any further easing given how strong the economy looks right now. 0:04:47.200 --> 0:04:49.480 We're getting two percent growth to point one percent growth 0:04:49.480 --> 0:04:52.320 in Q two. That's been prety much trend growth um 0:04:52.440 --> 0:04:57.040 for the US UM. So the markets I think are 0:04:57.160 --> 0:04:59.840 overestimating the Fed's capacity of the cut rates. If you 0:04:59.880 --> 0:05:05.599 look the January FED funds contract, it's still implying nearly 0:05:05.680 --> 0:05:08.719 three cuts this year, and given what's going on coming, 0:05:08.760 --> 0:05:10.520 I just don't think that's gonna happen. So once the 0:05:10.800 --> 0:05:14.520 hopefully the markets recalibrate the FED easy expectations, that should 0:05:14.520 --> 0:05:16.400 be the next leg higher for the dollar. I remained 0:05:16.440 --> 0:05:20.000 dollarish just on the underlying strength of the US economy 0:05:20.120 --> 0:05:22.440 uh and sort of my outlook for FED policy as 0:05:22.440 --> 0:05:26.040 a result, Dr Winton, thank you so much for joining us. 0:05:26.080 --> 0:05:28.560 As always. Dr Thani is a global head of currency 0:05:28.560 --> 0:05:46.400 strategy for Brown Brothers Harriman here in New York. Here's 0:05:46.400 --> 0:05:49.039 a news flash for you. I may buy an iPhone. 0:05:49.240 --> 0:05:51.280 I have an iPhone five s E. You know how 0:05:51.279 --> 0:05:54.000 small that phone is. I may buy one, and Apple 0:05:54.120 --> 0:05:56.920 definitely wants me to. The company reporting after the closing 0:05:56.960 --> 0:06:00.600 bell tomorrow expected to make about fifty three billion dollars 0:06:00.960 --> 0:06:03.400 in sales. Joining US now is Dan, I was Managing 0:06:03.400 --> 0:06:06.400 director Equity Research at Wedbush Securities. Was a twelve month 0:06:06.400 --> 0:06:09.640 price target of two thirty five and an outperform rating. 0:06:10.120 --> 0:06:12.440 Dan no doubt Apple is going to make a lot 0:06:12.440 --> 0:06:15.560 of money. Is it going to be enough? Look? I 0:06:15.600 --> 0:06:19.000 think this is just another proved me period for Cook 0:06:19.040 --> 0:06:23.359 and Cupertino to really show that iPhone demand is stable, 0:06:23.440 --> 0:06:27.120 to slightly improve and going to his next cycle, especially China, 0:06:27.279 --> 0:06:31.000 China of all iPhone upgrades. That's going to be the 0:06:31.080 --> 0:06:33.600 key focus this quarter. We continue think it's gonna be 0:06:33.640 --> 0:06:37.360 a ho home quarter. That's another step in the right direction. So, Dan, 0:06:37.440 --> 0:06:40.719 I think if you know, if you're an Apple shareholder today, 0:06:40.760 --> 0:06:43.040 you have to feel pretty confident that this company can 0:06:43.120 --> 0:06:47.760 make the big, big pivot from being an iPhone story 0:06:48.200 --> 0:06:53.440 to being one of services, subscription fees and things like that. Um, 0:06:53.520 --> 0:06:55.839 how confident are you that this company can make that 0:06:55.839 --> 0:06:59.440 that pivot? Look, we're confident, and ultimately so the core 0:07:00.040 --> 0:07:03.600 of our both thesis on the name because iPhones take 0:07:03.640 --> 0:07:06.560 a step back, three million iPhones in the window of 0:07:06.560 --> 0:07:09.320 an upgrade opportunity over the next twelve eight months. But 0:07:09.400 --> 0:07:12.720 the monetation of services, that's the golden goose, and today 0:07:12.720 --> 0:07:16.760 it's only fiftcent penetrated. And in our opinion four hundred 0:07:16.760 --> 0:07:20.080 billions to four and fifty billion of the valuation of Apple. 0:07:20.280 --> 0:07:24.120 Is the services business well fair? But that's not going 0:07:24.160 --> 0:07:26.120 to be like this quarter or the next quarter, right, 0:07:26.160 --> 0:07:27.480 So I feel like we've been waiting for the big 0:07:27.480 --> 0:07:30.840 replacement cycle for a long time. Is it going to happen? 0:07:31.000 --> 0:07:32.440 Is it going to happen? This year. Is it going 0:07:32.480 --> 0:07:34.520 to happen with the shift of five G, Like, what's 0:07:34.520 --> 0:07:36.880 going to be the actual trigger for the volume of 0:07:37.000 --> 0:07:39.920 phones that we're gonna have to see Apple Cell? Sure, 0:07:39.960 --> 0:07:42.320 it's a great question. I think five G is going 0:07:42.400 --> 0:07:45.840 to be the silver bullet catalyst in terms of the 0:07:45.880 --> 0:07:49.080 core upgrade opportunity. But in between now and then, I 0:07:49.080 --> 0:07:52.000 think you'll see stable hundred eighty million to two indred 0:07:52.000 --> 0:07:55.120 million type of iPhone unit years. And if they're able 0:07:55.160 --> 0:07:58.200 to do that with services being amid to high team grower, 0:07:58.560 --> 0:08:01.120 this is a stock that continues to get rerated in 0:08:01.240 --> 0:08:03.760 our opinion, makes new highs. And that's why right now 0:08:03.880 --> 0:08:07.280 many yelling fire in a crowded theater on Apple, whereas 0:08:07.280 --> 0:08:09.440 the stock that continues to grind higher, I think to 0:08:09.680 --> 0:08:14.320 China overhang has been a twenty impact in the stock. 0:08:15.120 --> 0:08:18.760 So Dan just recently uh app, I think last week 0:08:18.760 --> 0:08:21.440 actually Apple bought Intel's or announced they're gonna buy Apple's 0:08:21.840 --> 0:08:26.200 Intel's phone business. What's the strategy behind that acquisition? That's 0:08:26.240 --> 0:08:29.320 all about five G. That's them doubling down on five G. 0:08:29.880 --> 0:08:33.760 Intel back was against the wall in terms of ever 0:08:33.840 --> 0:08:38.320 since the Apple qual Calm truth, Intel that business was 0:08:38.360 --> 0:08:40.680 basically for sale. They got on the cheap and this 0:08:40.880 --> 0:08:44.319 is really cook an Apple doubling down on five G 0:08:44.559 --> 0:08:47.160 going into this next massive cycle. In our opinion, it 0:08:47.280 --> 0:08:49.920 was a smart acquisition and ultimately was a cheap price. 0:08:50.800 --> 0:08:53.599 So what do you think it's gonna So how we 0:08:53.640 --> 0:08:56.880 set up because usually, like the typical play was Apple's 0:08:56.880 --> 0:08:59.120 going to guide low and then surprise hi and you 0:08:59.160 --> 0:09:01.800 get that nice boot. That's no longer really the playbook 0:09:01.800 --> 0:09:04.199 into Apple earnings. So what can we expect when the 0:09:04.200 --> 0:09:06.880 stock is already treating it to nine to ten? Yeah, 0:09:06.880 --> 0:09:10.920 I think this setup is an inline quarter with a 0:09:11.000 --> 0:09:14.720 beat on services. Really what the street needs. The big 0:09:14.720 --> 0:09:19.280 focus will be about the September quarter guidance and just quote, 0:09:19.679 --> 0:09:23.000 we'll call it qualitatively how the company is thinking about 0:09:23.040 --> 0:09:26.319 iPhone demand going into the next year. But the biggest 0:09:26.400 --> 0:09:28.800 number is gonna be China. You need to see the 0:09:28.880 --> 0:09:33.360 China iPhone number. We stabilize to show some sort of 0:09:33.360 --> 0:09:36.679 slight uptick relative to a you know, we'll quote an 0:09:36.760 --> 0:09:41.200 improving decline. That's really the key because ultimately Apple stock 0:09:41.280 --> 0:09:44.120 is going to go up and down with China of 0:09:44.160 --> 0:09:46.800 iPhone units. And I think there's many out there that 0:09:46.800 --> 0:09:51.160 I think the anti Apple, call it pro Huaweian China 0:09:51.280 --> 0:09:54.920 nationalist movement had been a huge negative on iPhone styles, 0:09:54.960 --> 0:09:57.320 and that's gonna be key for them to show that 0:09:57.440 --> 0:10:01.000 that's not the case. So Dan, as a reformed and 0:10:01.080 --> 0:10:06.040 rehabilitating media analysts here, I've often said that exactly. I've 0:10:06.040 --> 0:10:08.839 often said that, you know, as Apple pivots to more 0:10:08.880 --> 0:10:11.600 of a services company, they should really think about the 0:10:11.679 --> 0:10:14.200 content business. And I know they've dipped their toe in 0:10:14.280 --> 0:10:17.320 the past in terms of creating some content, acquiring some content, 0:10:17.400 --> 0:10:19.880 but really jumping into the deep end. And I look 0:10:19.920 --> 0:10:22.800 on the balance sheet with billion dollars in cash, do 0:10:22.840 --> 0:10:25.120 you think envision over the next several years that we 0:10:25.400 --> 0:10:28.520 might see Apple make a big content acquisition somewhere along 0:10:28.520 --> 0:10:31.520 the line. Yeah, that's really been our call. Our call 0:10:31.679 --> 0:10:35.400 is for coments typically been shy of M and A 0:10:35.480 --> 0:10:38.480 outside of Beats over the last five years, that they're 0:10:38.520 --> 0:10:41.079 going to have to signfically acquiring content. I think they 0:10:41.080 --> 0:10:43.559 do go into deep end the pool on a larger 0:10:43.640 --> 0:10:47.400 content acquisition. You know, we've talked about meter studios like 0:10:47.559 --> 0:10:51.240 MGM showny four in terms of ones that can look 0:10:51.280 --> 0:10:53.320 at I also think it's important when you look at 0:10:53.360 --> 0:10:56.360 the Intel that was an acquisition a billion dollars. I 0:10:56.360 --> 0:10:59.000 think it just shows that you're starting to see applicat 0:10:59.040 --> 0:11:02.120 a lot more equissive. I think contents next step that's 0:11:02.240 --> 0:11:04.800 key to putting fuel in that content engine on the 0:11:04.840 --> 0:11:07.920 services side, with that launch coming up later this fall. 0:11:08.480 --> 0:11:10.440 Is that really Apple's m O I mean, and something 0:11:10.480 --> 0:11:12.559 I get because they're trying to vertically integrate their business, 0:11:12.600 --> 0:11:14.600 so they just do it themselves rather than like outsource, 0:11:14.640 --> 0:11:17.160 if that makes sense. But content is just such a 0:11:17.280 --> 0:11:20.720 cash burn, I mean, is that really something that they're 0:11:20.720 --> 0:11:25.240 equipped to get into. That's probably one of the biggest 0:11:25.240 --> 0:11:28.600 debates in the name because ultimately on the services side, 0:11:28.600 --> 0:11:31.480 they even lad to the game versus Election, Netflix, Disney 0:11:31.480 --> 0:11:36.320 and you know it's called streaming vendors. But that is 0:11:36.360 --> 0:11:39.000 really what they need to further monetize, and that's really 0:11:39.000 --> 0:11:41.240 going to be a proved me situation for Apple on 0:11:41.280 --> 0:11:44.880 the content side. But I also view it just step 0:11:44.880 --> 0:11:47.600 away from content, it's also as a distribution. If you 0:11:47.640 --> 0:11:49.400 think about what they're really trying to do now with 0:11:49.520 --> 0:11:55.240 this next services pieces, distribution monetization put further fence around 0:11:55.240 --> 0:11:59.080 the one point four billion active iOS devices to date. 0:11:59.200 --> 0:12:02.400 That's the key for Apple and that continues to be 0:12:02.440 --> 0:12:04.760 the key of the evaluation. It's the install basis to 0:12:04.800 --> 0:12:09.600 molonization the services. No doubt that's approved me, especially on 0:12:09.640 --> 0:12:12.559 the streaming side as that continued to be a crowded space. 0:12:13.240 --> 0:12:15.120 Uh Dan. Cash on the balance that I mentioned about 0:12:15.120 --> 0:12:18.760 two five billion UM, what do you expect them to do? 0:12:18.800 --> 0:12:21.640 I'm looking at the dividend yields about one point five percent. 0:12:21.760 --> 0:12:23.440 What do you expect them to do with that cash? 0:12:23.480 --> 0:12:25.760 Are they gonna give it back to shareholders perhaps in 0:12:25.760 --> 0:12:28.640 a more aggressive way, Well, they've probably about being cash 0:12:28.720 --> 0:12:32.480 on neutral where they're basically given that away through whether 0:12:32.520 --> 0:12:34.520 it's bad backs for dividends. I think dividends are going 0:12:34.559 --> 0:12:37.160 to keep that one in half, and I think there's 0:12:37.160 --> 0:12:39.439 been pressure for them maybe to go up there a 0:12:39.559 --> 0:12:42.440 quote above two bread and keeping it in the short 0:12:42.480 --> 0:12:44.520 of suitets about one and a half percent divid and 0:12:44.559 --> 0:12:47.600 yields key. I think by backs is ultimately going to continue, 0:12:47.600 --> 0:12:49.480 and ultimately it's really gonna be M and A that's 0:12:49.520 --> 0:12:52.680 gonna be the trifactor strategy. And I also do think 0:12:52.760 --> 0:12:55.760 investors have started to get a bit frustrated because the 0:12:55.840 --> 0:12:59.120 buy back strategy and dividends. It's obviously great for income 0:12:59.120 --> 0:13:01.480 investors and David investors in any way to see it, 0:13:01.760 --> 0:13:03.800 but you really want to drive growth here, and when 0:13:03.800 --> 0:13:05.400 you look at M and A, that's the key. And 0:13:05.840 --> 0:13:09.120 you know, work at Microsoft. Microsoft's company for many years 0:13:09.120 --> 0:13:10.679 didn't do M and A. Then they started to get 0:13:10.720 --> 0:13:12.800 aggressive and Alton, when you look at Lincoln and some 0:13:12.880 --> 0:13:15.000 of the others, there have been some of the genius 0:13:15.000 --> 0:13:18.079 acquisitions that Nadella has pulled off. Dana, I have thank 0:13:18.120 --> 0:13:20.120 you so much for joining us once again. Dan is 0:13:20.160 --> 0:13:23.640 a managing director equity research for What Bush Securities. Joining 0:13:23.679 --> 0:13:25.320 us on the phone from New York City taking a 0:13:25.320 --> 0:13:42.880 look at Apple. Time to check in with Bloomberg Opinion. 0:13:42.920 --> 0:13:46.720 We're joined by Bloomberg Opinion columnist Max Neeson. Max covers biotech, 0:13:46.760 --> 0:13:49.880 farmer and healthcare for Bloomberg Opinion. He joins us live 0:13:49.920 --> 0:13:53.160 in our Bloomberg eleven three oh studios. So, Max, we've 0:13:53.200 --> 0:13:57.800 got another healthcare deal here, give us the latest. Yeah. Absolutely, 0:13:58.000 --> 0:14:01.880 So this is a deal that combined ends Viser's legacy 0:14:02.200 --> 0:14:05.079 unit basically all of its drugs that have lost patent 0:14:05.120 --> 0:14:08.800 production or facing generic competition along with with some other 0:14:08.920 --> 0:14:10.560 chunks of its business and are and it's kind of 0:14:10.720 --> 0:14:15.360 innovative novel branded drugs with with Mylin, which isn't a 0:14:15.400 --> 0:14:18.720 similar business. It makes generics, it makes biosimilar as it 0:14:18.720 --> 0:14:22.200 has an OTC business as well, And it's basically a 0:14:22.240 --> 0:14:25.880 move to to kind of separate Viser's higher margin, more 0:14:26.000 --> 0:14:28.960 rapidly growing business from something that was increasingly becoming a 0:14:29.080 --> 0:14:32.440 drag on the company and from Mylin. It's an opportunity 0:14:32.480 --> 0:14:35.360 to kind of turn the page on on four years 0:14:35.360 --> 0:14:38.440 of kind of continued share price declines, lots of scandals 0:14:38.520 --> 0:14:41.920 and overexposure to put's been a really tricky U S 0:14:41.960 --> 0:14:44.320 generic market. This is a bit of a broader business. 0:14:44.360 --> 0:14:47.160 So for the milind Visor tie up, though, isn't the 0:14:47.240 --> 0:14:50.120 Myland management still going to be like running the whole 0:14:50.120 --> 0:14:52.600 show or running the board at least? And isn't that 0:14:52.640 --> 0:14:55.920 bad because don't we like don't like them? I mean 0:14:56.080 --> 0:14:58.480 a lot of people don't. But it's they're going to 0:14:58.520 --> 0:15:01.200 be a majority of the board still the chairman, but 0:15:01.200 --> 0:15:03.120 but the CEO is going to be a long time 0:15:03.240 --> 0:15:06.880 fiser fed and also they're they're redomiciling back to the 0:15:07.000 --> 0:15:10.240 US away from from the Netherlands, where they had kind 0:15:10.240 --> 0:15:13.760 of this complex and strange corporate governance structure that a 0:15:13.800 --> 0:15:16.080 lot of people didn't like. So they won't be quite 0:15:16.080 --> 0:15:19.360 as entrenched. And I think the fact that you know, Fiser, 0:15:19.600 --> 0:15:21.200 a Fiser executive at the end of the day, is 0:15:21.240 --> 0:15:23.680 going to be someone leading the company and then CEO, 0:15:23.760 --> 0:15:26.200 how their brush who has been kind of the nexus 0:15:26.240 --> 0:15:28.080 of a lot of the controversy is moving on. I 0:15:28.160 --> 0:15:31.280 think there's a perception that that Fiser is is going 0:15:31.280 --> 0:15:32.920 to be staring to ship to a certain extent. It's 0:15:32.920 --> 0:15:34.880 also kind of a bigger chuck at the assets also, 0:15:35.480 --> 0:15:37.880 So I was reading the Bloomberg intelligence note on this 0:15:37.920 --> 0:15:39.920 deal and I didn't even know there was this subsector 0:15:40.040 --> 0:15:45.040 of healthcare, the specialty generic drug sector. So generic doesn't 0:15:45.040 --> 0:15:47.440 sound good to me. Specialty sounds pretty good to me. 0:15:47.520 --> 0:15:50.960 So specialty generic is this a market that's even growing 0:15:51.080 --> 0:15:52.880 or is this just it's not really growing. I just 0:15:52.880 --> 0:15:54.960 gotta get scale and ring as many costs out as 0:15:54.960 --> 0:15:59.320 I can. So, Uh, the generic side, it's been basically 0:15:59.360 --> 0:16:02.440 in free fall for the past few years, just a 0:16:02.440 --> 0:16:05.400 lot of pricing pressure, kind of these buying consortiums of 0:16:05.600 --> 0:16:09.200 different people in the healthcare industry kind of combining to 0:16:09.200 --> 0:16:12.720 to kind of force these these prices. Ever downward specialty 0:16:12.760 --> 0:16:15.720 there's a little bit more room. You know, different people 0:16:15.760 --> 0:16:19.640 have a different uh definition of that market, whether it's 0:16:19.680 --> 0:16:24.640 just particularly complicated generics or or things that are still 0:16:24.640 --> 0:16:28.320 have you know, a brand, but do face potential generic competition, 0:16:28.520 --> 0:16:30.600 So that market there's a little more potential for growth. 0:16:30.840 --> 0:16:33.400 The degree to which this organization is going to this 0:16:33.440 --> 0:16:35.240 new company is gonna be able to grow as is 0:16:35.280 --> 0:16:38.000 kind of the big swing factor for its valuation. It's 0:16:38.000 --> 0:16:40.520 a lot of old drugs from Fiser that are going 0:16:40.560 --> 0:16:43.320 to decline, but those will kind of have to be 0:16:43.760 --> 0:16:49.000 encountered by by new generic products, by biosimilars, and by 0:16:49.040 --> 0:16:51.320 basically just doing everything you can to prop up those 0:16:51.320 --> 0:16:53.880 sales as long as possible. So at the same time, though, 0:16:53.920 --> 0:16:56.200 they're gonna have a bazillion dollars in debt, right like 0:16:57.400 --> 0:17:00.960 dolls in debt, I mean, so that's seams rough if 0:17:01.000 --> 0:17:04.080 you're an our shareholder of this new company. It definitely 0:17:04.119 --> 0:17:06.399 does for for Milan actually, which which kind of this 0:17:06.440 --> 0:17:08.600 says a lot about the position there, and they will 0:17:08.640 --> 0:17:12.719 be less levered after this, after this steal just because 0:17:13.040 --> 0:17:15.640 you're you're adding a lot of revenue and EBITDA from 0:17:15.680 --> 0:17:18.600 from Fiser. Uh, you know, it is a lot of debt. 0:17:18.760 --> 0:17:21.920 But the nice thing about the specialty to Neeric business 0:17:21.920 --> 0:17:25.040 it does generate a ton of cash, which is why 0:17:25.160 --> 0:17:28.080 Fiser was able to attack on some debt and and 0:17:28.119 --> 0:17:31.120 take twelve billion dollars back out of this steel for 0:17:31.119 --> 0:17:34.960 for the continuing innovative Fiser company. So it is a 0:17:35.000 --> 0:17:36.400 lot of debt, but they're still going to be able 0:17:36.440 --> 0:17:38.920 to pay it down and pay a dividend. It's it's 0:17:39.040 --> 0:17:42.639 uh not as exciting, but it is highly cash generative. 0:17:43.440 --> 0:17:45.720 So what does Fiser do now that's a two thirty 0:17:45.720 --> 0:17:48.880 five billion dollar market cap company. What's the growth story here? 0:17:49.520 --> 0:17:53.639 It's substantially better than it was prior to uh this 0:17:53.880 --> 0:17:55.840 when the steel was announced. Now it can kind of 0:17:55.840 --> 0:17:59.040 focus on medicines that have a longer pack life, have 0:17:59.160 --> 0:18:01.560 more room to kind of grow and expand as opposed 0:18:01.600 --> 0:18:05.520 to being saddled with you know, just this year alone Lyrica. 0:18:05.640 --> 0:18:07.560 It's a pain drug. I'm sure you've seen the ads 0:18:07.560 --> 0:18:10.080 for it all over the place. That that just lost 0:18:10.320 --> 0:18:12.800 that just is facing a generic launch. So that's gonna 0:18:12.840 --> 0:18:14.960 cost them billions of dollars in sales over the next 0:18:14.960 --> 0:18:17.960 several years and basically wipe out and if they've kept 0:18:18.000 --> 0:18:20.680 it around, wipe out much of the benefit from from 0:18:20.680 --> 0:18:23.040 what is going well from any new launches. So this 0:18:23.080 --> 0:18:25.919 will be a much better looking business from a growth 0:18:25.960 --> 0:18:29.320 perspective and also a more focused one. It can instead 0:18:29.320 --> 0:18:32.080 of kind of managing this this beheamoth of of a 0:18:32.240 --> 0:18:36.320 diversified business. It continues to to narrow the focus on 0:18:36.320 --> 0:18:38.840 on just putting out new medicines that that will have 0:18:38.880 --> 0:18:42.000 an opportunity to expand. So what other big companies quickly 0:18:42.040 --> 0:18:45.639 need to be sold off? Jan j trimmed down. So, 0:18:46.080 --> 0:18:48.040 Jane J. I think if there's one that's never going 0:18:48.119 --> 0:18:52.200 to do it, they're the one. They They've they've kind 0:18:52.200 --> 0:18:54.840 of always made the case that, you know, origin our 0:18:55.000 --> 0:18:58.160 business works better, we like the stability of having another unit. 0:18:58.680 --> 0:19:00.760 But I think there's no far of a business out 0:19:00.760 --> 0:19:03.960 there that won't consider trying to kind of separate out 0:19:04.119 --> 0:19:06.680 some of their their older medicines, because that really does 0:19:06.760 --> 0:19:09.080 create a lot of trouble, creates a lot of volatility 0:19:09.320 --> 0:19:12.760 where you're kind of constantly fighting the battle between new 0:19:12.760 --> 0:19:15.680 and old medicines. Max Nison, thanks so much. Bloomberg Opinion 0:19:15.720 --> 0:19:17.880 Columns Max Nis and you can read more on this 0:19:18.280 --> 0:19:21.280 and other stories from Bloomberg Opinion at Bloomberg dot com, 0:19:21.400 --> 0:19:24.240 slash Opinion and on the Terminal by typing O P 0:19:24.600 --> 0:19:40.920 I n Go. Yeah, we want to take a look 0:19:40.920 --> 0:19:43.760 at the commercial real estate business. We're seeing signs that 0:19:43.840 --> 0:19:47.240 in certain parts of the country, UH might be softening 0:19:47.240 --> 0:19:48.720 a little bit. To get the latest, we turned to 0:19:48.760 --> 0:19:52.200 Tarrell Gates. Tarrell's the chief executive officer of Vertus real 0:19:52.320 --> 0:19:55.080 Estate Capital with three point four billion dollars and assets 0:19:55.160 --> 0:19:57.800 under management, based in Austin, Texas. U Tarrell, thanks so 0:19:57.880 --> 0:19:59.480 much for joining us. I just wonder if we could 0:19:59.480 --> 0:20:02.119 start off with you giving is just kind of state 0:20:02.200 --> 0:20:06.960 of the commercial real estate market. Where are we today? Well, 0:20:07.000 --> 0:20:09.960 we've been in a tenure expansion, just like every other 0:20:10.119 --> 0:20:13.080 risk asset class out there. Um, we're at all time 0:20:13.160 --> 0:20:15.879 highs when it comes to valuations, So that gives a 0:20:15.880 --> 0:20:19.720 lot of people pause. Having said that, UM, we continue 0:20:19.760 --> 0:20:22.560 to go. We continue to have a very positive environment 0:20:22.600 --> 0:20:25.800 for commercial real estate investments. And when you look at 0:20:26.080 --> 0:20:29.760 real estate relative to other risk asset classes like stocks 0:20:29.760 --> 0:20:33.280 and bonds and private equity and commodities, et cetera. You 0:20:33.280 --> 0:20:37.280 can say, from a relative beauty perspective, a relative beauty contest, 0:20:37.880 --> 0:20:41.080 it looks really quite good compared to the other asset classes. 0:20:41.840 --> 0:20:44.439 So how much of it doing well is because we 0:20:44.560 --> 0:20:47.679 have low global central bank rates and how much of 0:20:47.680 --> 0:20:50.359 it is actually the underlying demand and line business is 0:20:50.400 --> 0:20:54.480 doing really well? You know, it's it's really both, right, 0:20:54.920 --> 0:20:59.720 So your first point is really important because what's unusual 0:21:00.000 --> 0:21:05.240 about the current escalated valuations is we don't have a 0:21:05.320 --> 0:21:08.440 private debt bubble like we've had in the past. When 0:21:08.480 --> 0:21:11.800 you look at the last several bubbles of commercial real estate, 0:21:11.840 --> 0:21:14.800 obviously the most recent being the global financial crisis or 0:21:14.960 --> 0:21:17.200 two thousand six, two thousand seven leading into o A, 0:21:17.840 --> 0:21:20.640