Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. As
Speaker 1: we have been talking about today, there has been some
Speaker 1: escalating weakness in the US hiled bond market, and here
Speaker 1: to talk about that with us is Matt Egan, vice
Speaker 1: president and portfolio manager for Loomis Sales and Company, which
Speaker 1: is based in Boston and overseas forty billion dollars. Matt,
Speaker 1: thank you so much for joining us. First, I just
Speaker 1: want to get your sense of the weakness that we're seeing.
Speaker 1: Is this harbinger of greater pain to come? Or is
Speaker 1: this simple just some idiosyncratic stories and an opportunity to
Speaker 1: buy the dip. I think it's a little bit of both.
Speaker 1: To me, it seems like simply the buyers have stepped
Speaker 1: away from the market. It's it almost seems like anybody
Speaker 1: wanted to own high yield was already invested and on
Speaker 1: the margin. We've seen flows come out. UM. This is
Speaker 1: we're in a we're in the late expansion phase of
Speaker 1: the of the economic cycle, and you know, obviously the
Speaker 1: next step would be a downturn. Nobody knows when that's uh,
Speaker 1: when that should be coming, but uh, you know, typically
Speaker 1: at this stage, how yield becomes a bit more choppy
Speaker 1: and you end up trading in a range. In other words,
Speaker 1: the backdrop, the fundamental backdrop, UH is pretty supportive and
Speaker 1: the range that you trade and is relatively narrow, and
Speaker 1: it tends to be driven by flows. And I think
Speaker 1: that's what we're seeing here now, is is flows that
Speaker 1: are are pushing the market down a bit. Well, but
Speaker 1: what's behind that, right, I mean, is there is there
Speaker 1: a reason why investors are not coming in to buy
Speaker 1: and who who's pulling out? Well, we've seen flows out
Speaker 1: of the ETFs recently. Um, there's been a lot of
Speaker 1: money flowing into et f s. We've also seen a
Speaker 1: strong bid from overseas investors. And I think, you know,
Speaker 1: towards the end of the year, maybe that allocations have
Speaker 1: been full or or just on the on the sidelines
Speaker 1: for now, UM, but we've seen you know, this thirst
Speaker 1: for yields. So while you know, hiled yield in absolute terms,
Speaker 1: that say, you know, a little over five per cents
Speaker 1: don't seem very high from historical perspective. When you look
Speaker 1: around at fixed income ass that's around the world, it
Speaker 1: is still the highest yielding, one of the highest heeling
Speaker 1: options out there for global investors. So so given that, Matt,
Speaker 1: are you in there buying? Is this is this weakness
Speaker 1: that you see as an opportunity. We've been on this,
Speaker 1: We've been on the sidelines. Uh, you know, this is
Speaker 1: a very much a bond pickers market. You mentioned spursion
Speaker 1: and the index, and it's definitely picking up and I
Speaker 1: think that has contributed to, you know, to spooking some
Speaker 1: of some investors. We can talk a little bit about that,
Speaker 1: but um, we've been on the sidelines. You know this market.
Speaker 1: I always say, uh, you know, high yield, the best
Speaker 1: you get is par plus half a coupon because there's
Speaker 1: a lot of call option embedded in high yield bonds
Speaker 1: and when you start trading up above pars. So if
Speaker 1: you look at the index, the price on the index
Speaker 1: is one oh one, the coupon is six, so your
Speaker 1: upside is one oh three and at that point you
Speaker 1: get called out. So you know, when you're trading up,
Speaker 1: you know, we've come off a little bit even that
Speaker 1: your upside is maybe one oh three and on the downside,
Speaker 1: just flow driven downside, you you could go down to
Speaker 1: the mid to low nineties. So you get this negative distribution.
Speaker 1: You want to be buying on the on the dips. So, um,
Speaker 1: given that you said that you're on the sidelines, you're
Speaker 1: not coming in yet, is that correct? Not? With uh? Not?
Speaker 1: With uh? Yeah, I wouldn't be buying the market with
Speaker 1: reserves currently we're only out as smidge So what would
Speaker 1: it take for you to come in and buy. I
Speaker 1: would like to see the market down around the level
Speaker 1: to get a little bit more so, say stay down
Speaker 1: five percent, which is a normal trading training range um
Speaker 1: for the market. Uh, you know, but again I think
Speaker 1: we would stay high quality. I would not try to
Speaker 1: reach down the credit spectrum for for for yield at
Speaker 1: this stage we've seen, you know, just on this recent
Speaker 1: episode of weakness. What happens is those disfavorite names. It's
Speaker 1: sort of like the equity market, right, there's a lot
Speaker 1: of idiosyncratic sector and and you know, the correlations are
Speaker 1: very disparate in the equity section. It's very much like
Speaker 1: that in high yield. So you look at healthcare, you
Speaker 1: look at telecom um, you look at retail. Some of
Speaker 1: those bonds from just the third course of say September
Speaker 1: are down, uh, you know, ten to fifteen price points. Uh.
Speaker 1: So you have to really be laser focused on the
Speaker 1: bonds that you're picking. You don't want to step into
Speaker 1: those really deteriorating f the mental credits because you'll find
Speaker 1: out a little bit about liquidity in the market where
Speaker 1: you know, apparently when there's all buyers stepping in, it
Speaker 1: seems like liquidity is available in the high market. But
Speaker 1: it but it's a bit of a mirage. And once
Speaker 1: you see, particularly when you go to sell, I would
Speaker 1: imagine that if you try to sell it all at once,
Speaker 1: all of a sudden, the waters has a way of
Speaker 1: the tide has a way of sweeping you out with it.
Speaker 1: Thanks very much, mack Egan. He is a vice president
Speaker 1: portfolio manager for Loomas Sales, telling us about the sell
Speaker 1: off in high yield debt. Coming up on Bloomberg. President
Speaker 1: Donald Trump is set to deliver remarks to the APEC
Speaker 1: summit that is taking place in De Nang, Vietnam, and
Speaker 1: the topic there has to do with protectionism, trade and
Speaker 1: also security threats in the guise of North Korea. Here
Speaker 1: to help us understand more about this is Ariel Cohen.
Speaker 1: He is a senior Fellow at the Atlantic Council and
Speaker 1: a principle at International Market Analysis. Ariel, thank you very
Speaker 1: much for being with us. Um. I wonder if you
Speaker 1: could just sort of set us up for what you
Speaker 1: believe will result from this APEC meeting, because simultaneously with
Speaker 1: the meeting taking place in Da Nang, wonderful irony that Uh,
Speaker 1: the U S S. Ronald Reagan, the U S S.
Speaker 1: Theodore Roosevelt, and the U S S Nimits three aircraft
Speaker 1: carriers are holding military exercises in the Western Pacific. And
Speaker 1: that's unusual, is it not? Uh? It is, and it
Speaker 1: isn't taking into account our deteriorating situation in the Korean Peninsula.
Speaker 1: I am not sure Mr Trout resolved anything going forward
Speaker 1: visa in North Korea. And for clear reasons, the Chinese
Speaker 1: influence in Pyongyang is limited. The relationship between Presidency and
Speaker 1: Kim John On is pretty bad, and there's only so
Speaker 1: much and I can do to change Kim's mind, and
Speaker 1: Kim's mind has hell bent on achieving deliverable nuclear warhead
Speaker 1: on a ballistic missile that can hit at least western
Speaker 1: United States, if not all of the United States. And
Speaker 1: that's where we're going with that. Having said that, on trade, also,
Speaker 1: unfortunately pretty little was achieved. So once we walked away
Speaker 1: from tit TIP Trans Pacific Trade Agreement, we are no
Speaker 1: longer leading on trade in the Pacific, and we are
Speaker 1: in a whole visa the China in trade three billion
Speaker 1: dollars and signing memoranda of understanding of this trip and
Speaker 1: the Secretary of Commerce and it's nine billion, the memorand
Speaker 1: of understanding donative TOI billion. Nevertheless, this is um a
Speaker 1: drop in the bucket. This is very little in terms
Speaker 1: of changing the dynamic of this trade around and walking
Speaker 1: away from the gaping deficit between the United States and China. Ariel,
Speaker 1: can you just give us a sense of what's been
Speaker 1: accomplished with a President Trump's trip overseason? And I would
Speaker 1: ask that not only in substantive terms, but also in
Speaker 1: sort of soft relationships that the US can build on. Absolutely. Uh,
Speaker 1: in terms of relationships with Japan. Uh, his strengths in
Speaker 1: the relationship. We probably are going to be supportive in
Speaker 1: the rearmament of Japan and possible to make a buck
Speaker 1: of that. Possibly us UM made your military gear corporations
Speaker 1: are going to sell technology or sell systems to the Japanese.
Speaker 1: In terms of South Korea, Uh, you saw a hundred
Speaker 1: and eighty degrees turned around in so when President Trump
Speaker 1: was not sounding belly coost but his instincts are to
Speaker 1: threaten to use force visa in North Korea. Will he
Speaker 1: across the red line? Will he use force? I do
Speaker 1: not know, but he wants to look like he is
Speaker 1: going to use force to bring Kim to the negotiating table.
Speaker 1: China can help by redheading up sanctions even more. Whether
Speaker 1: it's going to be effective or not, we don't know.
Speaker 1: In the past, the majority of economic sanctions against countries failed.
Speaker 1: The case everybody quotes in South Africa, but I would
Speaker 1: argue it was too generous. It was a specific case.
Speaker 1: So we are in a very precarious situation. Uh. In
Speaker 1: the Korean peninsula. This is why the three aircraft battle
Speaker 1: groups are there. And in terms of trade, Uh, you
Speaker 1: heard what I said. I'm not terribly impressed it's better
Speaker 1: than nothing, and I hope we will be in the
Speaker 1: position to move the don on that. But we're coming
Speaker 1: to this UH negotiating table visa EA China as a beggar.
Speaker 1: Um Our imports either not competitive or blocked by non
Speaker 1: economic means by China, um Our I P is being
Speaker 1: ripped off. And on Koreer, we're coming asking China. We
Speaker 1: have an ask on career, we have an ask on
Speaker 1: South China. See we have an ask on trade. What
Speaker 1: is the Chinese ask? Here's the answer, Ariel. Just to
Speaker 1: give us your quick thoughts though on the relationship. I'd
Speaker 1: like to know between China and South Korea in the
Speaker 1: military context, because those FAD missiles that are being deployed,
Speaker 1: they're made by Lockheed Martin and we might see themselves
Speaker 1: quite a bit more of them now, I hope. So
Speaker 1: we need missile defense. We need missile defense on the
Speaker 1: current peninsula. We need missile defense that can intercept i
Speaker 1: C b MS international intercontinental bolitic missiles. In the US
Speaker 1: we have altogether three thirty six missiles that can intercept,
Speaker 1: give or take, and that is totally totally insufficient against
Speaker 1: a possible North Korean attack. I've written about that we
Speaker 1: need many more UH intercept interceptors in the US as well. Yeah,
Speaker 1: Ariel Cohen, thank you so much for joining US. Arial.
Speaker 1: Cohen is a senior fellow at the Atlantic Council, also
Speaker 1: a principle with International Market Analysis in Washington, d C.
Speaker 1: Talking about President Trump's trip to China, this is well,
Speaker 1: for the holidays, a lot of people are going to
Speaker 1: want different technological gadgets. And here to tell us what
Speaker 1: the most popular among them is Steve Koenig, Senior director
Speaker 1: of market research for the Consumer Technology Association, which is
Speaker 1: based in Washington, but is here in our Bloomberg eleven
Speaker 1: three studios right now with us. Steve, So, what do
Speaker 1: people want? Do they want drones? Do they want Apple watches?
Speaker 1: Do they want I don't know, brain readers? What what's
Speaker 1: hot this year? Well, good morning, and consumers want it all.
Speaker 1: Tech is really become a mainstay for holiday. In fact, UH,
Speaker 1: this year, we're expecting a hundred and seventy million adults
Speaker 1: across the US will be looking for some type of
Speaker 1: technology product to give or given to themselves as a
Speaker 1: holiday gift. And you mentioned drones and everything. Yes, I
Speaker 1: mean certainly that long tail of all these connected products,
Speaker 1: smart home, robotic vacuums. There's so much innovation out there
Speaker 1: that's really inspiring and exciting folks. But sometimes it's just
Speaker 1: the good old products like TVs, anything with a screen. Uh,
Speaker 1: these products do really well, whether it's the the wish
Speaker 1: list or the gift list. Him. You know, I'm just remembering.
Speaker 1: I went on vacation once and saw somebody set up
Speaker 1: a drone and they were so excited, and it took
Speaker 1: a while for them to set it up, and then
Speaker 1: they started using it and it got caught in a
Speaker 1: tree promptly, and they needed a ladder, an old fashioned
Speaker 1: ladder to get it out of the tree and retrieve it.
Speaker 1: Are you getting a drone this year? No? I I
Speaker 1: don't think a drone would be great flying around the
Speaker 1: streets of Manhattan. But having said that, let's talk about
Speaker 1: what's on the screen, because I note that the screens
Speaker 1: that you talk about could be larger, they could be small, right,
Speaker 1: I want to know about the large screens first. Are
Speaker 1: we talking about things like, uh, you know, in any
Speaker 1: c I mean, is there any particular model or any
Speaker 1: particular technology. Is it backlit l C D S and oh, lead,
Speaker 1: what what kind of stuff is popular? Well, four K
Speaker 1: TVs are really front and center. TVs are a perennial
Speaker 1: holiday tech gift, and a lot of people look to
Speaker 1: holiday time to to upgrade their flagship display or just
Speaker 1: add to the TVs in their home. But this year
Speaker 1: we're seeing, really, on balance, just a massive wave of
Speaker 1: four K t vs, four K HDR TVs that deliver
Speaker 1: just an incredible entertainment experience. And as usual, the deals
Speaker 1: for these TVs are better than ever. The best deal
Speaker 1: that I've heard of so far this season is going
Speaker 1: to be a best buy, and that's a fifty four
Speaker 1: K TV for one seventy nine in store only. So
Speaker 1: that just kind of underscores the kinds of deals right television,
Speaker 1: that's right, And if you want to go bigger, of course, Uh,
Speaker 1: there are lots of deals out there heard of like
Speaker 1: up to seventy inch TVs for under two thousand dollars.
Speaker 1: I hope my husband is not listening to this. I
Speaker 1: don't want that in my home. Do you mean for this? Okay?
Speaker 1: So all right, So having said that, what about all
Speaker 1: the accessories that go with this, whether it is the
Speaker 1: sound bar and the uh, you know, base enhancer for audio,
Speaker 1: and what about things like even home theater equipment as well.
Speaker 1: Holiday is all about deals, and so it doesn't really
Speaker 1: matter what tech segment or category. Wherever you're looking, you're
Speaker 1: gonna find some amazing deals. You know, in store with
Speaker 1: the proverbial door busters that that we often hear about,
Speaker 1: but also online and yeah, audio is certainly part of that.
Speaker 1: We we always we see these bundling deals that that
Speaker 1: the retailers put together really curating packages, uh, for like
Speaker 1: say home theater. So yeah, those deals are going to
Speaker 1: be out there in abundance. When you talk about deals,
Speaker 1: I think about the other side and some of the
Speaker 1: retailers that are selling these as well as some of
Speaker 1: the electronics makers. Does the fact that you are seeing
Speaker 1: such good deal as a d seventy nine dollars for
Speaker 1: a fifty inch television, do you get the sense that
Speaker 1: they're hurting that that they're having to slash prices that
Speaker 1: much to get people in the door. Well, actually, our
Speaker 1: forecast call for a one percent gain in tech spending
Speaker 1: over the holiday quarter, so we look at the entire
Speaker 1: fourth quarter for holiday one percent gain up to nine
Speaker 1: billion dollars uh. And that may sound you know, lackluster,
Speaker 1: but it's actually quite healthy when you consider we had
Speaker 1: three point eight percent gain in spending in TwixT up
Speaker 1: to nine billion. So it's hard to repeat that kind
Speaker 1: of gain year over year over year. But yeah, the
Speaker 1: deals are out there, but still people are planning to
Speaker 1: spend more on tech this year. Just quickly give you
Speaker 1: twenty seconds. You said that you're a car guy. What
Speaker 1: in the car do you want? Well, I'll start with
Speaker 1: a new car because my car is about I drive
Speaker 1: a truck and it's about thirteen years old. But yeah,
Speaker 1: I'm really excited by a lot of the the advanced
Speaker 1: UH driver assistance features, you know, adaptive cruise control, blind
Speaker 1: spot detection, forward collision avoidance, a lot of these safety
Speaker 1: features that are that are helping us drive safer and
Speaker 1: avoid those nasty collisions. But also all the connectivity in
Speaker 1: the car so I can bring all my content in Wilders.
Speaker 1: It's great. If it would only give us all free parking, right,
Speaker 1: thanks very much for being televisions. My husband would totally
Speaker 1: want that. Steve Koenick, thanks very much, Senior director, Market Research,
Speaker 1: Consumer Technology Association, based in Washington, d C. Yesterday we
Speaker 1: got news that dropped on the market like a bomb shell.
Speaker 1: It was revealed that the Department of Justice was saying
Speaker 1: that it would not prove the merger between A T
Speaker 1: and T and Time Warner unless A T and T
Speaker 1: agreed to subsequently subsequently sell CNN. Here to discuss this,
Speaker 1: whether there's any precedent for this, whether this is likely
Speaker 1: to go through is Jennifer Re litigation analysts for Bloomberg Intelligence,
Speaker 1: as well as Paul Sweeney, US director of Research and
Speaker 1: senior Media and Internet analyst for Bloomberg Intelligence. Paul, let's
Speaker 1: start with you what happened here? Uh, you know, big surprise.
Speaker 1: We saw a Time Warner trade off over six percent yesterday,
Speaker 1: down another couple of percent today. So the market and
Speaker 1: particularly art traders clearly or not expecting, uh this type
Speaker 1: of news here. So uh, you know, as Jen can
Speaker 1: talk about more detailed, you know, the d o J
Speaker 1: kind of kind of dropped the bombshell, as you mentioned,
Speaker 1: and said, you know, they're really gonna take a much
Speaker 1: harder look at this transaction than the market had had
Speaker 1: been anticipating. And uh, you know, I think the market
Speaker 1: felt like this deal looked an awful lot like Comcast
Speaker 1: acquisition of NBC Universal, and that was approved with some
Speaker 1: minor modifications. So the marketplace fell like that was kind
Speaker 1: of the expectation, and that was kind of built into
Speaker 1: the timing. Uh, and now the timing remains, as the
Speaker 1: company's CFO mentioned, kind of uncertain, and so that really
Speaker 1: brought a lot of our pain out there. Jennifer, as
Speaker 1: an expert in the world of antitrust law, I know
Speaker 1: that Mr Sweeney, he's trying to be a little bit
Speaker 1: diplomatic here, and you know, because he's because we don't
Speaker 1: know what's going to happen. But I'm wondering, from the
Speaker 1: legal perspective, what is different about this particular situation compared
Speaker 1: to all the other situations that you've seen. That is
Speaker 1: the question, I mean, that's the question that d o
Speaker 1: J would have to grapple with if they actually go
Speaker 1: to court to try to suit a block this deal,
Speaker 1: because there is a very long history, very strong precedents
Speaker 1: for this kind of deal um in the same space,
Speaker 1: as well as other vertical deals in different spaces that
Speaker 1: raise the same kinds of concerns and and possible harms,
Speaker 1: in which behavioral concessions were just fine to fix these problems. Jennifer,
Speaker 1: let's just zoom out, mean is this legal? Is this okay?
Speaker 1: I mean, let's say that the real issue here is
Speaker 1: that President Trump, uh and this is just delving into
Speaker 1: the conspiracy theories. This is what everybody talks about when
Speaker 1: they're not on air, which is that President Trump doesn't
Speaker 1: like CNN and basically instructed the Department of Justice not
Speaker 1: to sign off on this agreement unless CNN was was
Speaker 1: sort of left out of this deal. First of all,
Speaker 1: is that a plausible reading of this or is that
Speaker 1: vastly misinterpreting the issue number one and number two? If
Speaker 1: that is the case, is it legal? Well start by saying,
Speaker 1: I certainly think it's plausible. And the reason I think
Speaker 1: it's plausible is because this is such a departure. It's it's,
Speaker 1: it's and and this is something that there's sort of
Speaker 1: bipartisan agreement on amongst both Democratic and Republican um antitrust
Speaker 1: practitioners and officials that this kind of deal doesn't generally
Speaker 1: cause significant harm, and usually that harm you can fix
Speaker 1: with the behavioral remedy. But here's the difficulty that the
Speaker 1: complexity of this is that there is an argument in court,
Speaker 1: There is an argument period, that there is some harm
Speaker 1: that can be caused by this deal. If there was
Speaker 1: no harm, you would need no remedy at all. So
Speaker 1: when you look at Comcast NBCU, these are probably the
Speaker 1: same kind of harms they're thinking about and grappling with now,
Speaker 1: and you needed a remedy there um. So you can
Speaker 1: go into court and you can say, well, well, there
Speaker 1: is a harm here, and we do have concerns and
Speaker 1: we are trying to protect consumers, and that is what
Speaker 1: we're supposed to do under the antitrust laws. The question
Speaker 1: is going to be why what's different about this? As
Speaker 1: Pim already raised, why don't these behavioral remedies which the
Speaker 1: parties appear to be willing to agree with. What is
Speaker 1: a behavior What is an example of a behavioral remedy.
Speaker 1: It's it's making commitments and signing onto an agreement that
Speaker 1: you will behave in a certain way. So for for example,
Speaker 1: not discriminate against your rivals, not try to try to
Speaker 1: try to use your leverage by owning great content or
Speaker 1: owning a lot of distribution to somehow raise the costs
Speaker 1: of your rivals who are trying to get their content
Speaker 1: on your distribution or harm other distributors that you compete
Speaker 1: with by using your own content. It's really just don't
Speaker 1: discriminate license on fair terms. So, Paul, given the market
Speaker 1: risk sponse, do you get the sense that people are
Speaker 1: taking this seriously and thinking, Wow, this deal really may
Speaker 1: not go through. I think what the markets telling us
Speaker 1: here is that at the very least there's going to
Speaker 1: be delay in the closing of this deal. It is
Speaker 1: not going to close by a year end. It looks
Speaker 1: like it's gonna be pushed into um. You know, I
Speaker 1: think most investors that I've spoken to over the last
Speaker 1: couple of days continue believe that the deal will close
Speaker 1: with modest modifications, if any, but that this may go
Speaker 1: to court, which then pushes the timing out of this
Speaker 1: deal out well into, if not beyond, And that is
Speaker 1: what we're seeing in the art spreads today. Jennifer, just quickly,
Speaker 1: let's say you were a lawyer at the Department of
Speaker 1: Justice and you didn't receive any telephone call or communication,
Speaker 1: but you knew the perspective and attitude of people in
Speaker 1: the executive branch. Could that influence you well, certainly, And
Speaker 1: that's another complication here. This may not have been a
Speaker 1: direct communication, but it just could be a desire to
Speaker 1: you know. Yeah, alright, well we're gonna be following this.
Speaker 1: And just to give you an update, the shares of
Speaker 1: A T and T they're higher right now by one
Speaker 1: and a quarter percent. Shares of Time Warner they are
Speaker 1: down by more than one and a quarter per cent.
Speaker 1: Thank you very much for joining us. Jennifer ree any Trust,
Speaker 1: the analyst for Bloomberg Intelligence, and of course Paul Sweeney,
Speaker 1: us director of Research and our senior media and Internet
Speaker 1: analyst for Bloomberg Intelligence. And I will just add you know,
Speaker 1: I've seen conflicting reports about what the motivation was and
Speaker 1: how this is being spun, so it is there still
Speaker 1: is a lot of question about what exactly is going
Speaker 1: on here in the d J stands yes, and well,
Speaker 1: we won't know until we know. Thanks for listening to
Speaker 1: the Bloomberg P and L podcast. You can subscribe and
Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
Speaker 1: platform you prefer. I'm pim Fox. I'm on Twitter at
Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo. It's one
Speaker 1: before the podcast. You can always catch us worldwide on
Speaker 1: Bloomberg Radio.