WEBVTT - Junk Market Isn't a Buy Unless it Drops Another Five Percent, Loomis' Eagan Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.320 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. As 0:00:32.360 --> 0:00:35.559 we have been talking about today, there has been some 0:00:35.800 --> 0:00:39.680 escalating weakness in the US hiled bond market, and here 0:00:39.720 --> 0:00:42.440 to talk about that with us is Matt Egan, vice 0:00:42.479 --> 0:00:46.440 president and portfolio manager for Loomis Sales and Company, which 0:00:46.479 --> 0:00:49.840 is based in Boston and overseas forty billion dollars. Matt, 0:00:49.880 --> 0:00:52.559 thank you so much for joining us. First, I just 0:00:52.640 --> 0:00:55.080 want to get your sense of the weakness that we're seeing. 0:00:55.280 --> 0:00:59.280 Is this harbinger of greater pain to come? Or is 0:00:59.360 --> 0:01:03.240 this simple just some idiosyncratic stories and an opportunity to 0:01:03.280 --> 0:01:07.480 buy the dip. I think it's a little bit of both. 0:01:07.800 --> 0:01:11.600 To me, it seems like simply the buyers have stepped 0:01:11.600 --> 0:01:13.800 away from the market. It's it almost seems like anybody 0:01:13.800 --> 0:01:18.120 wanted to own high yield was already invested and on 0:01:18.160 --> 0:01:21.880 the margin. We've seen flows come out. UM. This is 0:01:22.160 --> 0:01:24.720 we're in a we're in the late expansion phase of 0:01:24.760 --> 0:01:27.959 the of the economic cycle, and you know, obviously the 0:01:27.959 --> 0:01:32.440 next step would be a downturn. Nobody knows when that's uh, 0:01:32.480 --> 0:01:35.800 when that should be coming, but uh, you know, typically 0:01:35.840 --> 0:01:38.920 at this stage, how yield becomes a bit more choppy 0:01:39.160 --> 0:01:42.800 and you end up trading in a range. In other words, 0:01:42.920 --> 0:01:49.000 the backdrop, the fundamental backdrop, UH is pretty supportive and 0:01:49.120 --> 0:01:51.800 the range that you trade and is relatively narrow, and 0:01:51.840 --> 0:01:53.800 it tends to be driven by flows. And I think 0:01:53.800 --> 0:01:57.360 that's what we're seeing here now, is is flows that 0:01:57.400 --> 0:02:00.160 are are pushing the market down a bit. Well, but 0:02:00.360 --> 0:02:02.520 what's behind that, right, I mean, is there is there 0:02:02.560 --> 0:02:06.600 a reason why investors are not coming in to buy 0:02:06.640 --> 0:02:10.639 and who who's pulling out? Well, we've seen flows out 0:02:10.639 --> 0:02:13.440 of the ETFs recently. Um, there's been a lot of 0:02:13.520 --> 0:02:16.760 money flowing into et f s. We've also seen a 0:02:16.880 --> 0:02:19.600 strong bid from overseas investors. And I think, you know, 0:02:19.720 --> 0:02:21.880 towards the end of the year, maybe that allocations have 0:02:22.000 --> 0:02:24.960 been full or or just on the on the sidelines 0:02:25.040 --> 0:02:28.480 for now, UM, but we've seen you know, this thirst 0:02:28.560 --> 0:02:32.520 for yields. So while you know, hiled yield in absolute terms, 0:02:32.560 --> 0:02:34.519 that say, you know, a little over five per cents 0:02:35.160 --> 0:02:38.160 don't seem very high from historical perspective. When you look 0:02:38.240 --> 0:02:41.320 around at fixed income ass that's around the world, it 0:02:41.400 --> 0:02:44.919 is still the highest yielding, one of the highest heeling 0:02:45.360 --> 0:02:49.000 options out there for global investors. So so given that, Matt, 0:02:49.240 --> 0:02:51.480 are you in there buying? Is this is this weakness 0:02:51.560 --> 0:02:54.519 that you see as an opportunity. We've been on this, 0:02:54.800 --> 0:02:57.560 We've been on the sidelines. Uh, you know, this is 0:02:57.639 --> 0:03:00.519 a very much a bond pickers market. You mentioned spursion 0:03:00.680 --> 0:03:02.679 and the index, and it's definitely picking up and I 0:03:02.800 --> 0:03:06.000 think that has contributed to, you know, to spooking some 0:03:06.400 --> 0:03:09.519 of some investors. We can talk a little bit about that, 0:03:09.720 --> 0:03:11.919 but um, we've been on the sidelines. You know this market. 0:03:12.400 --> 0:03:14.720 I always say, uh, you know, high yield, the best 0:03:14.760 --> 0:03:17.040 you get is par plus half a coupon because there's 0:03:17.080 --> 0:03:20.400 a lot of call option embedded in high yield bonds 0:03:20.960 --> 0:03:23.120 and when you start trading up above pars. So if 0:03:23.160 --> 0:03:25.720 you look at the index, the price on the index 0:03:25.800 --> 0:03:29.200 is one oh one, the coupon is six, so your 0:03:29.280 --> 0:03:31.120 upside is one oh three and at that point you 0:03:31.200 --> 0:03:34.040 get called out. So you know, when you're trading up, 0:03:34.120 --> 0:03:35.640 you know, we've come off a little bit even that 0:03:35.720 --> 0:03:38.520 your upside is maybe one oh three and on the downside, 0:03:38.600 --> 0:03:41.280 just flow driven downside, you you could go down to 0:03:41.400 --> 0:03:45.280 the mid to low nineties. So you get this negative distribution. 0:03:45.360 --> 0:03:48.120 You want to be buying on the on the dips. So, um, 0:03:48.280 --> 0:03:50.440 given that you said that you're on the sidelines, you're 0:03:50.480 --> 0:03:53.800 not coming in yet, is that correct? Not? With uh? Not? 0:03:54.120 --> 0:03:58.160 With uh? Yeah, I wouldn't be buying the market with 0:03:58.360 --> 0:04:02.000 reserves currently we're only out as smidge So what would 0:04:02.040 --> 0:04:03.800 it take for you to come in and buy. I 0:04:03.840 --> 0:04:06.480 would like to see the market down around the level 0:04:06.560 --> 0:04:08.600 to get a little bit more so, say stay down 0:04:08.680 --> 0:04:11.720 five percent, which is a normal trading training range um 0:04:12.440 --> 0:04:15.080 for the market. Uh, you know, but again I think 0:04:15.200 --> 0:04:18.560 we would stay high quality. I would not try to 0:04:18.640 --> 0:04:22.720 reach down the credit spectrum for for for yield at 0:04:22.760 --> 0:04:25.839 this stage we've seen, you know, just on this recent 0:04:25.880 --> 0:04:28.880 episode of weakness. What happens is those disfavorite names. It's 0:04:28.880 --> 0:04:31.000 sort of like the equity market, right, there's a lot 0:04:31.040 --> 0:04:35.600 of idiosyncratic sector and and you know, the correlations are 0:04:35.720 --> 0:04:38.360 very disparate in the equity section. It's very much like 0:04:38.480 --> 0:04:40.200 that in high yield. So you look at healthcare, you 0:04:40.279 --> 0:04:44.320 look at telecom um, you look at retail. Some of 0:04:44.360 --> 0:04:47.240 those bonds from just the third course of say September 0:04:47.800 --> 0:04:52.160 are down, uh, you know, ten to fifteen price points. Uh. 0:04:52.240 --> 0:04:55.680 So you have to really be laser focused on the 0:04:55.760 --> 0:04:58.320 bonds that you're picking. You don't want to step into 0:04:58.400 --> 0:05:02.680 those really deteriorating f the mental credits because you'll find 0:05:02.720 --> 0:05:05.200 out a little bit about liquidity in the market where 0:05:05.320 --> 0:05:08.160 you know, apparently when there's all buyers stepping in, it 0:05:08.360 --> 0:05:11.680 seems like liquidity is available in the high market. But 0:05:11.760 --> 0:05:14.360 it but it's a bit of a mirage. And once 0:05:14.400 --> 0:05:16.520 you see, particularly when you go to sell, I would 0:05:16.560 --> 0:05:19.000 imagine that if you try to sell it all at once, 0:05:19.400 --> 0:05:21.400 all of a sudden, the waters has a way of 0:05:21.440 --> 0:05:23.480 the tide has a way of sweeping you out with it. 0:05:23.839 --> 0:05:26.480 Thanks very much, mack Egan. He is a vice president 0:05:26.560 --> 0:05:29.800 portfolio manager for Loomas Sales, telling us about the sell 0:05:29.839 --> 0:05:43.760 off in high yield debt. Coming up on Bloomberg. President 0:05:43.880 --> 0:05:46.919 Donald Trump is set to deliver remarks to the APEC 0:05:47.360 --> 0:05:50.680 summit that is taking place in De Nang, Vietnam, and 0:05:50.880 --> 0:05:54.560 the topic there has to do with protectionism, trade and 0:05:54.839 --> 0:05:59.000 also security threats in the guise of North Korea. Here 0:05:59.040 --> 0:06:01.599 to help us understand more about this is Ariel Cohen. 0:06:01.640 --> 0:06:03.880 He is a senior Fellow at the Atlantic Council and 0:06:03.960 --> 0:06:08.200 a principle at International Market Analysis. Ariel, thank you very 0:06:08.279 --> 0:06:10.480 much for being with us. Um. I wonder if you 0:06:10.520 --> 0:06:12.920 could just sort of set us up for what you 0:06:13.120 --> 0:06:19.000 believe will result from this APEC meeting, because simultaneously with 0:06:19.080 --> 0:06:23.400 the meeting taking place in Da Nang, wonderful irony that Uh, 0:06:23.880 --> 0:06:26.400 the U S S. Ronald Reagan, the U S S. 0:06:26.440 --> 0:06:31.400 Theodore Roosevelt, and the U S S Nimits three aircraft 0:06:31.520 --> 0:06:36.800 carriers are holding military exercises in the Western Pacific. And 0:06:36.960 --> 0:06:41.080 that's unusual, is it not? Uh? It is, and it 0:06:41.240 --> 0:06:48.520 isn't taking into account our deteriorating situation in the Korean Peninsula. 0:06:49.200 --> 0:06:54.160 I am not sure Mr Trout resolved anything going forward 0:06:54.680 --> 0:06:59.960 visa in North Korea. And for clear reasons, the Chinese 0:07:00.120 --> 0:07:06.280 influence in Pyongyang is limited. The relationship between Presidency and 0:07:06.800 --> 0:07:11.080 Kim John On is pretty bad, and there's only so 0:07:11.280 --> 0:07:14.320 much and I can do to change Kim's mind, and 0:07:14.520 --> 0:07:20.880 Kim's mind has hell bent on achieving deliverable nuclear warhead 0:07:21.040 --> 0:07:24.040 on a ballistic missile that can hit at least western 0:07:24.160 --> 0:07:26.760 United States, if not all of the United States. And 0:07:27.040 --> 0:07:34.040 that's where we're going with that. Having said that, on trade, also, 0:07:34.200 --> 0:07:40.120 unfortunately pretty little was achieved. So once we walked away 0:07:40.320 --> 0:07:46.880 from tit TIP Trans Pacific Trade Agreement, we are no 0:07:47.160 --> 0:07:51.800 longer leading on trade in the Pacific, and we are 0:07:52.600 --> 0:07:57.400 in a whole visa the China in trade three billion 0:07:57.440 --> 0:08:02.120 dollars and signing memoranda of understanding of this trip and 0:08:02.440 --> 0:08:07.040 the Secretary of Commerce and it's nine billion, the memorand 0:08:07.080 --> 0:08:11.600 of understanding donative TOI billion. Nevertheless, this is um a 0:08:11.680 --> 0:08:15.440 drop in the bucket. This is very little in terms 0:08:15.560 --> 0:08:20.800 of changing the dynamic of this trade around and walking 0:08:20.880 --> 0:08:25.240 away from the gaping deficit between the United States and China. Ariel, 0:08:25.360 --> 0:08:27.160 can you just give us a sense of what's been 0:08:27.360 --> 0:08:31.360 accomplished with a President Trump's trip overseason? And I would 0:08:31.360 --> 0:08:34.480 ask that not only in substantive terms, but also in 0:08:34.600 --> 0:08:41.079 sort of soft relationships that the US can build on. Absolutely. Uh, 0:08:41.800 --> 0:08:46.640 in terms of relationships with Japan. Uh, his strengths in 0:08:46.720 --> 0:08:52.319 the relationship. We probably are going to be supportive in 0:08:52.559 --> 0:08:56.120 the rearmament of Japan and possible to make a buck 0:08:56.160 --> 0:09:02.679 of that. Possibly us UM made your military gear corporations 0:09:02.720 --> 0:09:06.120 are going to sell technology or sell systems to the Japanese. 0:09:06.679 --> 0:09:11.680 In terms of South Korea, Uh, you saw a hundred 0:09:11.720 --> 0:09:15.160 and eighty degrees turned around in so when President Trump 0:09:16.160 --> 0:09:21.480 was not sounding belly coost but his instincts are to 0:09:21.679 --> 0:09:25.640 threaten to use force visa in North Korea. Will he 0:09:26.840 --> 0:09:29.400 across the red line? Will he use force? I do 0:09:29.559 --> 0:09:34.079 not know, but he wants to look like he is 0:09:34.120 --> 0:09:38.800 going to use force to bring Kim to the negotiating table. 0:09:39.160 --> 0:09:44.040 China can help by redheading up sanctions even more. Whether 0:09:44.120 --> 0:09:46.040 it's going to be effective or not, we don't know. 0:09:46.600 --> 0:09:51.320 In the past, the majority of economic sanctions against countries failed. 0:09:51.840 --> 0:09:55.360 The case everybody quotes in South Africa, but I would 0:09:55.440 --> 0:09:58.560 argue it was too generous. It was a specific case. 0:09:59.360 --> 0:10:03.240 So we are in a very precarious situation. Uh. In 0:10:03.480 --> 0:10:07.760 the Korean peninsula. This is why the three aircraft battle 0:10:07.840 --> 0:10:11.280 groups are there. And in terms of trade, Uh, you 0:10:11.440 --> 0:10:14.240 heard what I said. I'm not terribly impressed it's better 0:10:14.320 --> 0:10:16.480 than nothing, and I hope we will be in the 0:10:16.559 --> 0:10:20.920 position to move the don on that. But we're coming 0:10:21.000 --> 0:10:24.760 to this UH negotiating table visa EA China as a beggar. 0:10:25.360 --> 0:10:31.440 Um Our imports either not competitive or blocked by non 0:10:31.520 --> 0:10:35.640 economic means by China, um Our I P is being 0:10:35.720 --> 0:10:40.679 ripped off. And on Koreer, we're coming asking China. We 0:10:40.800 --> 0:10:42.959 have an ask on career, we have an ask on 0:10:43.040 --> 0:10:46.280 South China. See we have an ask on trade. What 0:10:46.480 --> 0:10:51.800 is the Chinese ask? Here's the answer, Ariel. Just to 0:10:52.000 --> 0:10:54.240 give us your quick thoughts though on the relationship. I'd 0:10:54.280 --> 0:10:57.199 like to know between China and South Korea in the 0:10:57.280 --> 0:11:02.280 military context, because those FAD missiles that are being deployed, 0:11:02.600 --> 0:11:05.840 they're made by Lockheed Martin and we might see themselves 0:11:05.920 --> 0:11:08.679 quite a bit more of them now, I hope. So 0:11:09.040 --> 0:11:11.599 we need missile defense. We need missile defense on the 0:11:11.679 --> 0:11:16.199 current peninsula. We need missile defense that can intercept i 0:11:16.440 --> 0:11:20.880 C b MS international intercontinental bolitic missiles. In the US 0:11:21.520 --> 0:11:26.240 we have altogether three thirty six missiles that can intercept, 0:11:26.320 --> 0:11:31.160 give or take, and that is totally totally insufficient against 0:11:31.480 --> 0:11:35.719 a possible North Korean attack. I've written about that we 0:11:35.920 --> 0:11:42.080 need many more UH intercept interceptors in the US as well. Yeah, 0:11:42.760 --> 0:11:45.040 Ariel Cohen, thank you so much for joining US. Arial. 0:11:45.080 --> 0:11:48.520 Cohen is a senior fellow at the Atlantic Council, also 0:11:48.640 --> 0:11:52.559 a principle with International Market Analysis in Washington, d C. 0:11:52.800 --> 0:12:11.000 Talking about President Trump's trip to China, this is well, 0:12:11.600 --> 0:12:13.959 for the holidays, a lot of people are going to 0:12:14.040 --> 0:12:17.040 want different technological gadgets. And here to tell us what 0:12:17.200 --> 0:12:21.320 the most popular among them is Steve Koenig, Senior director 0:12:21.360 --> 0:12:25.079 of market research for the Consumer Technology Association, which is 0:12:25.120 --> 0:12:27.760 based in Washington, but is here in our Bloomberg eleven 0:12:27.760 --> 0:12:30.920 three studios right now with us. Steve, So, what do 0:12:31.040 --> 0:12:34.640 people want? Do they want drones? Do they want Apple watches? 0:12:34.840 --> 0:12:37.600 Do they want I don't know, brain readers? What what's 0:12:37.679 --> 0:12:40.839 hot this year? Well, good morning, and consumers want it all. 0:12:41.120 --> 0:12:46.640 Tech is really become a mainstay for holiday. In fact, UH, 0:12:46.760 --> 0:12:50.920 this year, we're expecting a hundred and seventy million adults 0:12:50.960 --> 0:12:53.559 across the US will be looking for some type of 0:12:53.640 --> 0:12:57.040 technology product to give or given to themselves as a 0:12:57.120 --> 0:13:01.360 holiday gift. And you mentioned drones and everything. Yes, I 0:13:01.400 --> 0:13:04.240 mean certainly that long tail of all these connected products, 0:13:04.280 --> 0:13:08.319 smart home, robotic vacuums. There's so much innovation out there 0:13:08.360 --> 0:13:11.959 that's really inspiring and exciting folks. But sometimes it's just 0:13:12.160 --> 0:13:15.520 the good old products like TVs, anything with a screen. Uh, 0:13:15.640 --> 0:13:18.600 these products do really well, whether it's the the wish 0:13:18.679 --> 0:13:21.680 list or the gift list. Him. You know, I'm just remembering. 0:13:21.720 --> 0:13:23.760 I went on vacation once and saw somebody set up 0:13:23.760 --> 0:13:25.800 a drone and they were so excited, and it took 0:13:25.800 --> 0:13:27.080 a while for them to set it up, and then 0:13:27.080 --> 0:13:28.880 they started using it and it got caught in a 0:13:29.000 --> 0:13:31.720 tree promptly, and they needed a ladder, an old fashioned 0:13:31.800 --> 0:13:33.679 ladder to get it out of the tree and retrieve it. 0:13:33.720 --> 0:13:36.040 Are you getting a drone this year? No? I I 0:13:36.559 --> 0:13:38.839 don't think a drone would be great flying around the 0:13:38.960 --> 0:13:42.559 streets of Manhattan. But having said that, let's talk about 0:13:42.679 --> 0:13:47.200 what's on the screen, because I note that the screens 0:13:47.280 --> 0:13:50.280 that you talk about could be larger, they could be small, right, 0:13:50.880 --> 0:13:54.520 I want to know about the large screens first. Are 0:13:54.520 --> 0:13:57.480 we talking about things like, uh, you know, in any 0:13:57.640 --> 0:14:00.960 c I mean, is there any particular model or any 0:14:01.040 --> 0:14:05.040 particular technology. Is it backlit l C D S and oh, lead, 0:14:05.160 --> 0:14:07.719 what what kind of stuff is popular? Well, four K 0:14:07.920 --> 0:14:11.360 TVs are really front and center. TVs are a perennial 0:14:11.760 --> 0:14:14.679 holiday tech gift, and a lot of people look to 0:14:14.840 --> 0:14:18.040 holiday time to to upgrade their flagship display or just 0:14:18.200 --> 0:14:21.640 add to the TVs in their home. But this year 0:14:22.360 --> 0:14:26.120 we're seeing, really, on balance, just a massive wave of 0:14:26.200 --> 0:14:30.440 four K t vs, four K HDR TVs that deliver 0:14:30.640 --> 0:14:35.320 just an incredible entertainment experience. And as usual, the deals 0:14:35.480 --> 0:14:39.280 for these TVs are better than ever. The best deal 0:14:39.360 --> 0:14:42.000 that I've heard of so far this season is going 0:14:42.080 --> 0:14:44.600 to be a best buy, and that's a fifty four 0:14:44.680 --> 0:14:48.640 K TV for one seventy nine in store only. So 0:14:48.760 --> 0:14:55.280 that just kind of underscores the kinds of deals right television, 0:14:55.560 --> 0:14:58.120 that's right, And if you want to go bigger, of course, Uh, 0:14:58.440 --> 0:15:00.480 there are lots of deals out there heard of like 0:15:00.640 --> 0:15:03.840 up to seventy inch TVs for under two thousand dollars. 0:15:03.880 --> 0:15:05.640 I hope my husband is not listening to this. I 0:15:05.880 --> 0:15:10.200 don't want that in my home. Do you mean for this? Okay? 0:15:10.280 --> 0:15:12.560 So all right, So having said that, what about all 0:15:12.600 --> 0:15:14.720 the accessories that go with this, whether it is the 0:15:14.880 --> 0:15:19.880 sound bar and the uh, you know, base enhancer for audio, 0:15:20.240 --> 0:15:23.840 and what about things like even home theater equipment as well. 0:15:23.880 --> 0:15:26.480 Holiday is all about deals, and so it doesn't really 0:15:26.560 --> 0:15:31.040 matter what tech segment or category. Wherever you're looking, you're 0:15:31.040 --> 0:15:34.440 gonna find some amazing deals. You know, in store with 0:15:34.560 --> 0:15:37.640 the proverbial door busters that that we often hear about, 0:15:37.720 --> 0:15:41.400 but also online and yeah, audio is certainly part of that. 0:15:41.680 --> 0:15:45.120 We we always we see these bundling deals that that 0:15:45.320 --> 0:15:49.120 the retailers put together really curating packages, uh, for like 0:15:49.280 --> 0:15:51.240 say home theater. So yeah, those deals are going to 0:15:51.320 --> 0:15:53.400 be out there in abundance. When you talk about deals, 0:15:53.440 --> 0:15:55.480 I think about the other side and some of the 0:15:55.600 --> 0:15:58.360 retailers that are selling these as well as some of 0:15:58.480 --> 0:16:01.600 the electronics makers. Does the fact that you are seeing 0:16:01.720 --> 0:16:03.840 such good deal as a d seventy nine dollars for 0:16:03.920 --> 0:16:07.880 a fifty inch television, do you get the sense that 0:16:07.960 --> 0:16:10.600 they're hurting that that they're having to slash prices that 0:16:10.840 --> 0:16:14.400 much to get people in the door. Well, actually, our 0:16:14.680 --> 0:16:18.440 forecast call for a one percent gain in tech spending 0:16:18.760 --> 0:16:21.320 over the holiday quarter, so we look at the entire 0:16:21.400 --> 0:16:25.080 fourth quarter for holiday one percent gain up to nine 0:16:25.600 --> 0:16:29.880 billion dollars uh. And that may sound you know, lackluster, 0:16:30.040 --> 0:16:32.760 but it's actually quite healthy when you consider we had 0:16:32.840 --> 0:16:36.760 three point eight percent gain in spending in TwixT up 0:16:36.800 --> 0:16:39.960 to nine billion. So it's hard to repeat that kind 0:16:40.000 --> 0:16:42.880 of gain year over year over year. But yeah, the 0:16:42.960 --> 0:16:45.120 deals are out there, but still people are planning to 0:16:45.160 --> 0:16:48.160 spend more on tech this year. Just quickly give you 0:16:48.200 --> 0:16:51.280 twenty seconds. You said that you're a car guy. What 0:16:51.560 --> 0:16:54.840 in the car do you want? Well, I'll start with 0:16:54.880 --> 0:16:57.840 a new car because my car is about I drive 0:16:57.880 --> 0:16:59.840 a truck and it's about thirteen years old. But yeah, 0:16:59.880 --> 0:17:04.000 I'm really excited by a lot of the the advanced 0:17:04.480 --> 0:17:09.200 UH driver assistance features, you know, adaptive cruise control, blind 0:17:09.280 --> 0:17:12.600 spot detection, forward collision avoidance, a lot of these safety 0:17:12.680 --> 0:17:15.399 features that are that are helping us drive safer and 0:17:15.680 --> 0:17:18.639 avoid those nasty collisions. But also all the connectivity in 0:17:18.720 --> 0:17:22.000 the car so I can bring all my content in Wilders. 0:17:22.200 --> 0:17:25.040 It's great. If it would only give us all free parking, right, 0:17:26.960 --> 0:17:30.880 thanks very much for being televisions. My husband would totally 0:17:30.920 --> 0:17:34.959 want that. Steve Koenick, thanks very much, Senior director, Market Research, 0:17:35.000 --> 0:17:51.560 Consumer Technology Association, based in Washington, d C. Yesterday we 0:17:51.680 --> 0:17:55.640 got news that dropped on the market like a bomb shell. 0:17:55.800 --> 0:17:58.880 It was revealed that the Department of Justice was saying 0:17:58.880 --> 0:18:01.639 that it would not prove the merger between A T 0:18:01.840 --> 0:18:04.680 and T and Time Warner unless A T and T 0:18:04.880 --> 0:18:09.920 agreed to subsequently subsequently sell CNN. Here to discuss this, 0:18:10.359 --> 0:18:12.880 whether there's any precedent for this, whether this is likely 0:18:13.000 --> 0:18:16.640 to go through is Jennifer Re litigation analysts for Bloomberg Intelligence, 0:18:16.640 --> 0:18:19.440 as well as Paul Sweeney, US director of Research and 0:18:19.560 --> 0:18:23.760 senior Media and Internet analyst for Bloomberg Intelligence. Paul, let's 0:18:23.800 --> 0:18:27.680 start with you what happened here? Uh, you know, big surprise. 0:18:27.920 --> 0:18:30.399 We saw a Time Warner trade off over six percent yesterday, 0:18:30.480 --> 0:18:32.600 down another couple of percent today. So the market and 0:18:32.680 --> 0:18:36.520 particularly art traders clearly or not expecting, uh this type 0:18:36.560 --> 0:18:39.320 of news here. So uh, you know, as Jen can 0:18:39.359 --> 0:18:41.240 talk about more detailed, you know, the d o J 0:18:41.520 --> 0:18:43.720 kind of kind of dropped the bombshell, as you mentioned, 0:18:43.760 --> 0:18:45.520 and said, you know, they're really gonna take a much 0:18:45.560 --> 0:18:48.320 harder look at this transaction than the market had had 0:18:48.359 --> 0:18:50.840 been anticipating. And uh, you know, I think the market 0:18:50.880 --> 0:18:54.160 felt like this deal looked an awful lot like Comcast 0:18:54.240 --> 0:18:57.320 acquisition of NBC Universal, and that was approved with some 0:18:57.440 --> 0:19:00.800 minor modifications. So the marketplace fell like that was kind 0:19:00.880 --> 0:19:03.360 of the expectation, and that was kind of built into 0:19:03.400 --> 0:19:06.040 the timing. Uh, and now the timing remains, as the 0:19:06.119 --> 0:19:09.600 company's CFO mentioned, kind of uncertain, and so that really 0:19:09.600 --> 0:19:13.720 brought a lot of our pain out there. Jennifer, as 0:19:13.880 --> 0:19:17.440 an expert in the world of antitrust law, I know 0:19:17.600 --> 0:19:20.399 that Mr Sweeney, he's trying to be a little bit 0:19:20.440 --> 0:19:22.960 diplomatic here, and you know, because he's because we don't 0:19:22.960 --> 0:19:24.440 know what's going to happen. But I'm wondering, from the 0:19:24.520 --> 0:19:30.960 legal perspective, what is different about this particular situation compared 0:19:31.080 --> 0:19:34.600 to all the other situations that you've seen. That is 0:19:34.680 --> 0:19:36.720 the question, I mean, that's the question that d o 0:19:36.800 --> 0:19:38.960 J would have to grapple with if they actually go 0:19:39.080 --> 0:19:41.200 to court to try to suit a block this deal, 0:19:41.440 --> 0:19:44.960 because there is a very long history, very strong precedents 0:19:45.000 --> 0:19:47.720 for this kind of deal um in the same space, 0:19:47.840 --> 0:19:50.200 as well as other vertical deals in different spaces that 0:19:50.320 --> 0:19:53.240 raise the same kinds of concerns and and possible harms, 0:19:53.680 --> 0:19:58.200 in which behavioral concessions were just fine to fix these problems. Jennifer, 0:19:58.560 --> 0:20:02.080 let's just zoom out, mean is this legal? Is this okay? 0:20:02.240 --> 0:20:05.119 I mean, let's say that the real issue here is 0:20:05.200 --> 0:20:08.240 that President Trump, uh and this is just delving into 0:20:08.240 --> 0:20:10.879 the conspiracy theories. This is what everybody talks about when 0:20:10.880 --> 0:20:14.000 they're not on air, which is that President Trump doesn't 0:20:14.040 --> 0:20:16.840 like CNN and basically instructed the Department of Justice not 0:20:17.000 --> 0:20:20.920 to sign off on this agreement unless CNN was was 0:20:20.960 --> 0:20:22.600 sort of left out of this deal. First of all, 0:20:22.840 --> 0:20:24.520 is that a plausible reading of this or is that 0:20:24.880 --> 0:20:28.480 vastly misinterpreting the issue number one and number two? If 0:20:28.560 --> 0:20:31.080 that is the case, is it legal? Well start by saying, 0:20:31.160 --> 0:20:33.520 I certainly think it's plausible. And the reason I think 0:20:33.520 --> 0:20:36.800 it's plausible is because this is such a departure. It's it's, 0:20:37.000 --> 0:20:38.840 it's and and this is something that there's sort of 0:20:38.960 --> 0:20:43.959 bipartisan agreement on amongst both Democratic and Republican um antitrust 0:20:44.080 --> 0:20:47.520 practitioners and officials that this kind of deal doesn't generally 0:20:47.600 --> 0:20:50.720 cause significant harm, and usually that harm you can fix 0:20:50.800 --> 0:20:53.760 with the behavioral remedy. But here's the difficulty that the 0:20:53.840 --> 0:20:57.120 complexity of this is that there is an argument in court, 0:20:57.200 --> 0:20:59.760 There is an argument period, that there is some harm 0:20:59.840 --> 0:21:01.800 that can be caused by this deal. If there was 0:21:01.880 --> 0:21:03.720 no harm, you would need no remedy at all. So 0:21:03.800 --> 0:21:07.000 when you look at Comcast NBCU, these are probably the 0:21:07.080 --> 0:21:09.560 same kind of harms they're thinking about and grappling with now, 0:21:09.640 --> 0:21:12.639 and you needed a remedy there um. So you can 0:21:12.680 --> 0:21:14.199 go into court and you can say, well, well, there 0:21:14.320 --> 0:21:16.520 is a harm here, and we do have concerns and 0:21:16.600 --> 0:21:18.359 we are trying to protect consumers, and that is what 0:21:18.400 --> 0:21:21.679 we're supposed to do under the antitrust laws. The question 0:21:21.800 --> 0:21:24.000 is going to be why what's different about this? As 0:21:24.040 --> 0:21:27.639 Pim already raised, why don't these behavioral remedies which the 0:21:27.720 --> 0:21:30.359 parties appear to be willing to agree with. What is 0:21:30.400 --> 0:21:33.600 a behavior What is an example of a behavioral remedy. 0:21:33.840 --> 0:21:36.359 It's it's making commitments and signing onto an agreement that 0:21:36.400 --> 0:21:38.639 you will behave in a certain way. So for for example, 0:21:38.720 --> 0:21:41.680 not discriminate against your rivals, not try to try to 0:21:41.760 --> 0:21:44.119 try to use your leverage by owning great content or 0:21:44.160 --> 0:21:47.040 owning a lot of distribution to somehow raise the costs 0:21:47.160 --> 0:21:49.399 of your rivals who are trying to get their content 0:21:49.480 --> 0:21:53.000 on your distribution or harm other distributors that you compete 0:21:53.040 --> 0:21:55.440 with by using your own content. It's really just don't 0:21:55.480 --> 0:21:59.639 discriminate license on fair terms. So, Paul, given the market 0:21:59.760 --> 0:22:02.040 risk sponse, do you get the sense that people are 0:22:02.080 --> 0:22:05.720 taking this seriously and thinking, Wow, this deal really may 0:22:05.760 --> 0:22:08.119 not go through. I think what the markets telling us 0:22:08.160 --> 0:22:11.359 here is that at the very least there's going to 0:22:11.400 --> 0:22:13.200 be delay in the closing of this deal. It is 0:22:13.240 --> 0:22:14.960 not going to close by a year end. It looks 0:22:15.000 --> 0:22:18.040 like it's gonna be pushed into um. You know, I 0:22:18.160 --> 0:22:20.440 think most investors that I've spoken to over the last 0:22:20.440 --> 0:22:22.960 couple of days continue believe that the deal will close 0:22:23.040 --> 0:22:28.000 with modest modifications, if any, but that this may go 0:22:28.200 --> 0:22:30.320 to court, which then pushes the timing out of this 0:22:30.440 --> 0:22:34.240 deal out well into, if not beyond, And that is 0:22:34.280 --> 0:22:37.879 what we're seeing in the art spreads today. Jennifer, just quickly, 0:22:38.160 --> 0:22:40.600 let's say you were a lawyer at the Department of 0:22:40.760 --> 0:22:44.400 Justice and you didn't receive any telephone call or communication, 0:22:44.520 --> 0:22:48.240 but you knew the perspective and attitude of people in 0:22:48.280 --> 0:22:51.879 the executive branch. Could that influence you well, certainly, And 0:22:52.080 --> 0:22:54.119 that's another complication here. This may not have been a 0:22:54.200 --> 0:22:56.560 direct communication, but it just could be a desire to 0:22:57.080 --> 0:23:00.119 you know. Yeah, alright, well we're gonna be following this. 0:23:00.240 --> 0:23:02.399 And just to give you an update, the shares of 0:23:02.440 --> 0:23:04.280 A T and T they're higher right now by one 0:23:04.320 --> 0:23:06.679 and a quarter percent. Shares of Time Warner they are 0:23:06.760 --> 0:23:09.280 down by more than one and a quarter per cent. 0:23:09.640 --> 0:23:12.399 Thank you very much for joining us. Jennifer ree any Trust, 0:23:12.480 --> 0:23:15.359 the analyst for Bloomberg Intelligence, and of course Paul Sweeney, 0:23:15.440 --> 0:23:18.880 us director of Research and our senior media and Internet 0:23:18.920 --> 0:23:22.159 analyst for Bloomberg Intelligence. And I will just add you know, 0:23:22.200 --> 0:23:25.359 I've seen conflicting reports about what the motivation was and 0:23:25.440 --> 0:23:27.680 how this is being spun, so it is there still 0:23:27.760 --> 0:23:30.280 is a lot of question about what exactly is going 0:23:30.320 --> 0:23:33.240 on here in the d J stands yes, and well, 0:23:33.320 --> 0:23:37.720 we won't know until we know. Thanks for listening to 0:23:37.760 --> 0:23:40.600 the Bloomberg P and L podcast. You can subscribe and 0:23:40.680 --> 0:23:44.640 listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast 0:23:44.720 --> 0:23:48.160