WEBVTT - DraftKings Going Public As Legalization Fuels Growth 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 wits. 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 --> 0:00:21.840 at Bloomberg dot com. Very cool deal today in the 0:00:21.880 --> 0:00:24.960 betting space, DraftKings is going public in a three way 0:00:25.040 --> 0:00:28.920 deal with gaming technology provider sp Tech and an acquisition 0:00:29.000 --> 0:00:32.440 fund founded by former Hollywood executive Jeff Saganski that values 0:00:32.479 --> 0:00:34.879 a new firm about three point three billion dollars. We're 0:00:34.960 --> 0:00:37.320 very fortunate to today to have Jason Robberts. He is 0:00:37.360 --> 0:00:39.440 the CEO of draft Kings. He's in a Bloomberg and 0:00:39.440 --> 0:00:41.479 Director Brooker studio. Jason, thanks so much for joining us. 0:00:41.479 --> 0:00:44.639 I know it's a busy day. Describe this deal. You're 0:00:44.680 --> 0:00:47.160 not doing an I p O, you're not being acquired, 0:00:47.320 --> 0:00:49.920 tell us kind of how this really works. Well, thank 0:00:49.920 --> 0:00:53.040 you for having me, and happy holidays to everybody. Um So, 0:00:53.680 --> 0:00:57.720 this is a three way merger of DraftKings sp Tech, 0:00:57.840 --> 0:01:00.960 which is one of the world's leading technology g risk 0:01:01.040 --> 0:01:04.960 management and trading operators. Um. They provide services sports books 0:01:05.000 --> 0:01:08.679 all over the world. Uh. And then a spack company, 0:01:08.760 --> 0:01:12.280 special purpose acquisition company called Diamond Eagle. The way it 0:01:12.319 --> 0:01:16.839 works is Diamond Eagle as raised previously four hundred million 0:01:16.920 --> 0:01:20.200 dollars in cash. And UM. The way they did that 0:01:20.280 --> 0:01:22.840 as they went around various shareholders and they told them 0:01:22.880 --> 0:01:25.160 the types of businesses they would be interested in doing 0:01:25.160 --> 0:01:27.039 a deal with, and number one on their list was 0:01:27.080 --> 0:01:30.760 a sports betting business. So UM, you know really, Uh, 0:01:30.800 --> 0:01:34.480 the shareholders hopefully are are excited about this and um, 0:01:34.560 --> 0:01:37.640 once the deal closes, the company will be renamed DraftKings. 0:01:37.720 --> 0:01:40.960 It will be publicly traded. And the cash that's there, 0:01:41.000 --> 0:01:43.960 as well as the pipe that we raised, which is 0:01:44.080 --> 0:01:47.680 a little over three million dollar pipe is a private investment. Yeah, 0:01:47.720 --> 0:01:50.800 so the pipe is exactly it's a it's a private 0:01:50.840 --> 0:01:54.040 investment that go it rolls into the public stock. Um. 0:01:54.160 --> 0:01:59.240 We had great groups participate, UM like Cap Research, Wellington, Franklin, Templeton. 0:02:00.160 --> 0:02:02.960 So that'll all roll into the eventual close of the 0:02:03.000 --> 0:02:05.840 stock ex season closed of the deal, at which point 0:02:05.920 --> 0:02:08.440 Draft Kings will become a publicly traded stock. Okay, So 0:02:08.480 --> 0:02:12.120 tell me about the sports betting business today. It's rapidly changing. 0:02:12.120 --> 0:02:14.520 We're getting states like New Jersey. So I'm seeing all 0:02:14.520 --> 0:02:16.640 these folks from New York driving through the Lincoln Tunnel 0:02:17.080 --> 0:02:19.320 placing their bets, I guess, and then driving back. Tell 0:02:19.400 --> 0:02:21.920 us about what's going on in the sports betting business 0:02:22.040 --> 0:02:26.800 right now? Uh? Well, right now, there's tremendous momentum around 0:02:26.880 --> 0:02:30.880 legalization and regulation in the states. Uh. So, just in 0:02:30.919 --> 0:02:35.000 the last year, several new states have passed legislation, Several 0:02:35.000 --> 0:02:38.840 new states have launched products draft Kings ourselves, uh launched 0:02:38.840 --> 0:02:41.720 our online sports book UM last year in New Jersey. 0:02:41.760 --> 0:02:47.520 But just in the last few months we've launched West Virginia, Indiana, Pennsylvania, UM, 0:02:47.600 --> 0:02:51.120 New Hampshire will be hopefully coming soon. So a lot 0:02:51.160 --> 0:02:55.120 of great momentum behind states, you know, quickly adopting this. 0:02:55.280 --> 0:02:57.560 Now that this Preme Court, Uh, you know, about a 0:02:57.600 --> 0:03:00.120 year and a half ago lifted the federal band. So 0:03:00.200 --> 0:03:03.079 why isn't there But there isn't a federal legalization of 0:03:03.120 --> 0:03:06.520 sports betting? Right? Why isn't there one? There's actually a 0:03:06.639 --> 0:03:09.320 very interesting legal history. I'm not a lawyer, but I 0:03:09.360 --> 0:03:12.560 find it fascinating. So there's this law called passa Professional 0:03:12.600 --> 0:03:15.720 Amateur Sports Protection Act, and it never said sports betting 0:03:15.720 --> 0:03:17.760 is illegal. That's why you could always go to Vegas 0:03:17.800 --> 0:03:20.120 and other parts of Nevada and bet on sports. It 0:03:20.240 --> 0:03:22.919 just said no new states can legalize no new states 0:03:22.919 --> 0:03:27.080 can add sports betting to uh make it legal. So, um, 0:03:27.120 --> 0:03:30.040 you know, that stood in place for about twenty five 0:03:30.160 --> 0:03:33.400 or so years, and um, you know New Jersey tried 0:03:33.400 --> 0:03:36.280 to legalize sports betting. That law was used to to 0:03:36.360 --> 0:03:38.920 stop them. Uh, they took it all the way up 0:03:39.000 --> 0:03:42.480 and eventually one in the Supreme Court with you know, again, 0:03:42.520 --> 0:03:44.880 I'm not a lawyer, but my understanding was that, you know, 0:03:44.960 --> 0:03:47.800 the ruling was that the federal government could choose to 0:03:47.840 --> 0:03:50.120 make anything legal or illegal that they want to, but 0:03:50.320 --> 0:03:54.080 they couldn't tell the states what to make their own laws. So, um, 0:03:54.080 --> 0:03:55.880 it was kind of a unique law. I don't think 0:03:55.880 --> 0:03:58.680 there's anything else out there like it. So not that 0:03:58.760 --> 0:04:02.480 I you know, from Supreme Court's perspective, I don't think 0:04:02.480 --> 0:04:04.280 they were very interested in sports betting. I think it 0:04:04.320 --> 0:04:06.640 was much more of a states versus federal rights question. 0:04:06.840 --> 0:04:08.680 Tell us about the business now, as more and more 0:04:08.720 --> 0:04:11.400 states legalized sports betting, like when you like when New 0:04:11.440 --> 0:04:14.360 Jersey did it. How big of a business has it become? 0:04:14.840 --> 0:04:16.680 It seems like it would be big. I hear stories 0:04:16.720 --> 0:04:18.960 that's revitalized, you know, some of the casinos down in 0:04:19.000 --> 0:04:21.359 Atlantic City and so on, just driving traffic like on 0:04:21.360 --> 0:04:24.520 a Sunday morning to watch football. Absolutely, I mean, I 0:04:24.560 --> 0:04:27.559 think it's been, you know, by all accounts, a huge 0:04:27.560 --> 0:04:31.000 success in New Jersey and you know, other states I 0:04:31.080 --> 0:04:34.920 think are seeing promising early results as well. Everything is 0:04:35.000 --> 0:04:37.640 kind of up. It's not just sports betting, um, as 0:04:37.680 --> 0:04:40.880 you mentioned the whole industry. The brick and mortar casinos 0:04:40.880 --> 0:04:43.760 are up, the lottery is up, everything is up. So 0:04:43.800 --> 0:04:45.599 I think it's brought a lot of great attention to 0:04:45.640 --> 0:04:49.560 the state and hopefully we'll see more states follow. Talk 0:04:49.600 --> 0:04:52.920 to us about the competitive landscape, UM, cousender Draft Kings. 0:04:53.000 --> 0:04:55.599 You had a competitive fan Duel, I think that was 0:04:55.720 --> 0:04:58.920 recently acquired. Talked us about the competitive landscape. Who do 0:04:58.960 --> 0:05:03.480 you guys compete against. Well, FanDuel is definitely our chief competitor. UM, 0:05:03.520 --> 0:05:07.279 there's several others, mostly UH including FanDuel was bought by 0:05:07.320 --> 0:05:10.400 an Irish company, so most most of them come from Europe, 0:05:10.440 --> 0:05:13.160 a few from Australia, but really, you know, it's an 0:05:13.160 --> 0:05:18.320 interesting industry because, uh, due to obviously not having legal 0:05:18.360 --> 0:05:21.680 options in much of the US, there weren't really any 0:05:21.720 --> 0:05:24.680 big companies homegrown here. We're kind of the the only 0:05:24.800 --> 0:05:28.440 contender for that. Um And you know, obviously we started 0:05:28.480 --> 0:05:31.720 with fantasy sports, so it's sort of a back uh 0:05:31.839 --> 0:05:33.560 you know, a little bit of a sideways way to 0:05:33.600 --> 0:05:36.720 get to hear. But most of the traditional companies in 0:05:36.720 --> 0:05:39.160 this space, we're built in Europe. A lot of them 0:05:39.160 --> 0:05:42.000 are in the UK. UM. So you know, I think 0:05:42.040 --> 0:05:44.279 a lot of our competition, at least in the near term, 0:05:44.279 --> 0:05:46.719 will be from Europe. And then you know, certainly the 0:05:46.760 --> 0:05:49.960 brick and mortar casinos are going to compete, but um, 0:05:50.000 --> 0:05:51.680 I think they view it a lot more as a 0:05:51.800 --> 0:05:55.280 driver of traffic for the at least the retail side. Uh. 0:05:55.320 --> 0:05:57.640 And then there's a handful that are very focused online 0:05:57.680 --> 0:06:00.720 as well. Are you surprised that the professional sports leagues 0:06:00.800 --> 0:06:04.600 like the NFL have kind of dropped their longstanding you know, 0:06:05.080 --> 0:06:08.919 just really trying to keep betting away and gambling away. Uh. 0:06:09.080 --> 0:06:13.080 You know, I'm surprised how quickly and how um you know, 0:06:13.520 --> 0:06:16.359 it's been all of them, but I'm not surprised this 0:06:16.440 --> 0:06:19.880 is where things landed. It's you know, every every everyone 0:06:20.000 --> 0:06:22.640 sort of follows the times, and I think, you know, 0:06:22.720 --> 0:06:25.760 as years have gone on, sports betting has been something 0:06:25.800 --> 0:06:28.400 that's been demystified a lot. I think being able to 0:06:28.440 --> 0:06:32.080 do it online and on mobile actually significantly increases, uh 0:06:32.120 --> 0:06:34.680 the NFL and other sports league's ability to monitor and 0:06:34.720 --> 0:06:37.919 protect against integrity issues. I think, you know, having it 0:06:38.040 --> 0:06:42.080 be trackable on mobile makes a huge difference for that. Uh. 0:06:42.120 --> 0:06:44.120 And you know, I think they understand that this is 0:06:44.160 --> 0:06:46.640 what the fan of future wants and it's going to 0:06:46.680 --> 0:06:49.480 be an important engagement tool for them. And uh, you know, 0:06:49.680 --> 0:06:52.320 at the end, they're about engaging their fans and that's 0:06:52.360 --> 0:06:54.719 what makes them great. Yep. It's interesting to what you know. 0:06:54.760 --> 0:06:56.840 I know, as you've noticed as well, but you know, 0:06:56.880 --> 0:06:59.960 the Mickey Mouse company that also owns ESPN, now every 0:07:00.000 --> 0:07:02.479 time they give you us a schedule, it's always the 0:07:02.520 --> 0:07:05.520 line the over under, and that's something that I just 0:07:05.560 --> 0:07:07.840 didn't think we'd see, uh, you know, certainly from some 0:07:07.920 --> 0:07:12.480 of the big mainstream sports like ESPN, but everybody's embracing 0:07:12.520 --> 0:07:16.000 it's a it's really interesting. Jason Robbins, Uh, CEO of DraftKings, 0:07:16.000 --> 0:07:17.360 thanks so much for stopping by and now you have 0:07:17.400 --> 0:07:20.600 a busy data Congratulations on your transaction. Very interesting to 0:07:20.600 --> 0:07:23.440 see the growth of the sports betting UH in this country. 0:07:23.480 --> 0:07:25.240 And again there's stories or legion of you know, the 0:07:25.280 --> 0:07:28.160 folks in the neighboring states to New Jersey driving in 0:07:28.240 --> 0:07:31.200 placing their bets UH and then heading out. Very interesting. 0:07:31.240 --> 0:07:43.000 So I have to see how this plays out. Big 0:07:43.000 --> 0:07:45.960 news at Boeing today management change at the top, the 0:07:45.960 --> 0:07:49.000 existing CEO out, a new CEO coming from the board 0:07:49.000 --> 0:07:51.640 of directors takes charge. Here. This stock is up about 0:07:51.680 --> 0:07:55.000 two on the news. George Ferguson, senior Aerospace, Defense and 0:07:55.000 --> 0:07:57.840 Airlines analyst with Bloomberg Intelligence, joins us on the phone 0:07:57.880 --> 0:08:00.880 from b I headquarters in Princeton, New Jersey. So, George, 0:08:00.920 --> 0:08:05.000 the market seems to like this change. Was it expected 0:08:05.200 --> 0:08:07.760 or is this kind of a shock? I think this 0:08:07.920 --> 0:08:10.240 is a bit of a shock, at least the timetable 0:08:10.400 --> 0:08:13.800 was it. Think we all thought Dennis was under pressure, 0:08:14.440 --> 0:08:16.160 and but I think a lot of people thought them 0:08:16.320 --> 0:08:19.320 he would get the Max returned to service before he went. 0:08:19.960 --> 0:08:22.400 So I think we're a little bit surprised to see 0:08:22.400 --> 0:08:23.720 it happened here right at the end of the year, 0:08:23.720 --> 0:08:26.960 although this is the classic time to make big moves 0:08:27.000 --> 0:08:30.920 like this. So George the new CEO, David Calhoun, who 0:08:30.960 --> 0:08:34.680 had served as chairman since October, where we place Muhlenberg 0:08:34.720 --> 0:08:38.440 as CEO and president on January. Um, what do we 0:08:38.480 --> 0:08:42.959 know about this new CEO, David Calhoun? Well, I think interestingly, 0:08:43.720 --> 0:08:47.960 he has been very much on the sidelines and quiet 0:08:48.040 --> 0:08:50.599 until a few you know, like a month ago, a 0:08:50.640 --> 0:08:52.679 month and a half ago, when he came forward and 0:08:52.720 --> 0:08:55.280 started giving interviews, so you could kind of see him 0:08:55.320 --> 0:08:57.800 at that point warming up in the wings. He comes 0:08:57.800 --> 0:09:01.560 out a ge comes at a catapill or, he comes 0:09:01.559 --> 0:09:03.040 out of the investment world. So I think he's got 0:09:03.080 --> 0:09:05.960 a lot of strong experience. The interviews I've seen with him, 0:09:06.000 --> 0:09:08.959 he's a he's a pretty good communicator, and I think 0:09:09.000 --> 0:09:10.640 a lot of what he needs to do here though, 0:09:10.760 --> 0:09:15.600 is put a fresh face on this and approach the constituencies, 0:09:15.880 --> 0:09:20.240 you know, with with sort of clarity, um and cooperation. 0:09:20.920 --> 0:09:23.439 So I think, you know, even just getting a new 0:09:23.520 --> 0:09:26.080 face here Alps as well. But he looks very well, 0:09:26.520 --> 0:09:29.839 you know, very well prepared for this. So George, let's 0:09:30.040 --> 0:09:33.600 try to put his to do list together for January 0:09:34.360 --> 0:09:36.319 first day. What do you think the first phone call 0:09:36.400 --> 0:09:38.640 he makes, for the first visit he makes. I think 0:09:38.640 --> 0:09:41.800 he's going to the f a A. Okay, possible. I 0:09:41.840 --> 0:09:43.960 think it's set gates to do is just get the 0:09:44.000 --> 0:09:45.520 MAX back in the air. Get the MAX back in 0:09:45.520 --> 0:09:47.440 the air, Get the MAX back in the air. So 0:09:47.520 --> 0:09:49.320 I mean, give us a sense of where we are 0:09:49.440 --> 0:09:52.199 in the process. Um, you know, my understanding is there 0:09:52.320 --> 0:09:55.800 is a software fix that has been delivered I think 0:09:55.800 --> 0:09:58.800 to some extent, maybe tested to some extent. So where 0:09:58.840 --> 0:10:00.000 are we in the process and what what do you 0:10:00.000 --> 0:10:02.000 thing is kind of holding things up? I think the 0:10:02.160 --> 0:10:04.800 I think the ball is um in the f a 0:10:04.880 --> 0:10:06.840 a's court. But I mean that's probably not the right 0:10:06.880 --> 0:10:09.520 way to say, given Boeing wants to be involved all 0:10:09.559 --> 0:10:12.640 along the process. But I think the MAX software is fixed. 0:10:13.600 --> 0:10:16.360 We hear reports in the field of pilots testing it 0:10:16.400 --> 0:10:19.880 in simulators and they seem they say it behaves as 0:10:19.920 --> 0:10:22.800 they would expect. So I think where we are now 0:10:23.000 --> 0:10:26.240 is we have to the f a A has to 0:10:26.320 --> 0:10:29.760 approve the changes to that MAX software, to that MCAST software. 0:10:29.800 --> 0:10:34.920 Anti stall software as well as approve whatever training regime 0:10:35.440 --> 0:10:38.440 needs to be put in place for this new for 0:10:38.600 --> 0:10:41.120 this change to the software. And I think that's what 0:10:41.200 --> 0:10:43.120 we heard from the FA administrator a couple of weeks 0:10:43.120 --> 0:10:45.280 ago where he said, Hey, it's going to take us 0:10:45.280 --> 0:10:49.240 to at least mid February UM to finish up our 0:10:49.280 --> 0:10:51.560 review of the airplane. And I think this is about 0:10:52.080 --> 0:10:54.559 engaging the f a A A making sure they have everything 0:10:54.600 --> 0:10:57.760 they need to get that review done, as you know, 0:10:57.840 --> 0:11:01.319 as as simply as possible. Let's him um, which I 0:11:01.360 --> 0:11:04.000 know is not a good safe assumption always, but let's 0:11:04.000 --> 0:11:07.160 assume they do get f a A approval sometime in 0:11:06.960 --> 0:11:11.160 the first quarter. My senses, planes are scattered all over 0:11:11.160 --> 0:11:13.160 the country. They're in storage all over the country. I've 0:11:13.200 --> 0:11:16.280 seen them park and employee parking lots. What's the time 0:11:16.280 --> 0:11:19.320 frame do you think from approval to really getting this 0:11:19.400 --> 0:11:23.199 thing in commercial? Uh? You know rotation with the airlines yea, 0:11:23.320 --> 0:11:26.160 so definitely the scarier thing that the more challenging thing 0:11:26.240 --> 0:11:28.520 is that the longer the max is delayed in, the 0:11:28.640 --> 0:11:31.160 longer airplanes sit, the harder it is to get them 0:11:31.240 --> 0:11:35.319 back into the into the fleets and flying the longer takes, 0:11:35.400 --> 0:11:38.280 and so you know, we already saw United push everything 0:11:38.280 --> 0:11:40.760 out to June. Right. The challenge of the airlines too 0:11:40.800 --> 0:11:42.439 is they have to put a schedule out and then 0:11:42.440 --> 0:11:44.960 start to sell tickets for the schedule. They don't want 0:11:45.000 --> 0:11:47.400 to significantly count in an airplane before they know it's 0:11:47.400 --> 0:11:50.120 going to be ready to fly. So the way we 0:11:50.200 --> 0:11:53.240 really see it right now is it looks like, um, 0:11:53.360 --> 0:11:55.600 there'll be at least some flow starting to move to 0:11:55.720 --> 0:12:00.800 US airlines by by the very beginning of summer flying 0:12:00.880 --> 0:12:03.080 season right needs to flow to the airline, and the 0:12:03.080 --> 0:12:05.640 airline needs to get the pilots trained and into the 0:12:05.679 --> 0:12:08.600 cockpit too, so that it doesn't the airplane doesn't go 0:12:08.640 --> 0:12:10.760 back into service on day one. We think there's going 0:12:10.800 --> 0:12:14.040 to be some flow back to the US airlines by summer, 0:12:14.080 --> 0:12:16.000 but we don't think it's going to be all the 0:12:16.040 --> 0:12:18.480 airplanes that they originally thought they were going to get delivered. 0:12:18.520 --> 0:12:21.080 So we think that if you're a flyer this summer, 0:12:21.480 --> 0:12:24.440 you may end up paying more than you'd We always 0:12:24.480 --> 0:12:26.679 pay more than we hope for, but more than you 0:12:26.720 --> 0:12:29.880 would have had the MAX been back into fleets. And 0:12:29.920 --> 0:12:32.640 it looks to us like it's starting to slip for 0:12:32.760 --> 0:12:35.880 getting much of anything back to the European carriers account 0:12:35.920 --> 0:12:39.000 in the MAX by summer flying seasons. So Europe may 0:12:39.040 --> 0:12:43.200 have even better fair uh fairs than we expected for 0:12:43.240 --> 0:12:45.120 this summer, which would which would be a positive for 0:12:45.200 --> 0:12:48.520 airlines in both the US and in Europe. Yeah, when 0:12:48.520 --> 0:12:50.120 you say better, you're doing it from the perspective of 0:12:50.120 --> 0:12:54.080 the airlines, not the consumer. All right, George Ferguson, thanks 0:12:54.200 --> 0:12:56.280 very much. We appreciate your comments here. George is a 0:12:56.320 --> 0:13:00.000 senior Airspace, Defense and Airlines ANNALYSOM Bloomberg intellientis joining us 0:13:00.000 --> 0:13:02.600 on the phone. Uh. He always has great color on 0:13:02.920 --> 0:13:06.480 the aerospace companies and the airlines that whole supply chain. 0:13:06.600 --> 0:13:08.480 George covers and gives us a good sense here in 0:13:08.559 --> 0:13:11.800 Boeing here. Um, probably a change that you know a 0:13:11.800 --> 0:13:14.520 lot of investors are just judging by the pop in 0:13:14.559 --> 0:13:16.640 the stock here saying had to be made. You had 0:13:16.679 --> 0:13:18.960 to get a new face of the company here, particularly 0:13:19.640 --> 0:13:22.720 as you are dealing with the f A A, which 0:13:22.760 --> 0:13:26.079 is George Ferguson suggested, it's kind of the critical lynchpin 0:13:26.640 --> 0:13:28.760 to getting the MAX up in the air. You've got 0:13:28.800 --> 0:13:30.520 to get the f A A on board. You've got 0:13:30.520 --> 0:13:32.360 to work closely with the FA and perhaps this new 0:13:32.640 --> 0:13:43.560 CEO can get that done well. As we've been talking 0:13:43.559 --> 0:13:46.199 about this morning, nineteen has been a heck of a 0:13:46.280 --> 0:13:49.920 year for financial markets. Returns really stellar, particularly when you 0:13:49.960 --> 0:13:52.880 consider the depths. We were back almost a year ago 0:13:53.000 --> 0:13:55.319 today Christmas Eve last year, when the market was down 0:13:55.320 --> 0:13:58.880 about of course, the question is now it's what have 0:13:58.920 --> 0:14:01.240 you done for me lately? So what are we gonna 0:14:01.280 --> 0:14:04.760 do next year? David Garrety, chief market strategist from Laidlaw 0:14:04.760 --> 0:14:06.760 and Company, also a partner bat Block. You join us 0:14:06.760 --> 0:14:09.880 here in a Bloomberg Interactive broker studio. David, So again, 0:14:09.960 --> 0:14:12.840 twenty nineteen. I think snuck up on some people in 0:14:12.960 --> 0:14:14.960 terms of the performance, even here in the last you know, 0:14:15.120 --> 0:14:17.920 several weeks, several months. Uh, the upside is really I 0:14:17.920 --> 0:14:20.080 think snuck up on some people. How do you think 0:14:20.360 --> 0:14:23.160 that we should be positioned for next year in terms 0:14:23.200 --> 0:14:27.760 of maybe our expectations for returns. While in the markets 0:14:28.040 --> 0:14:30.520 markets people like to focus on the economics. I think 0:14:31.240 --> 0:14:34.000 is a year of politics, given the U S general election, 0:14:34.080 --> 0:14:37.320 given obviously the impeachment and trial which is going to 0:14:37.400 --> 0:14:40.040 be in the offering, Uh, and our expectation is that, 0:14:40.080 --> 0:14:43.040 you know, the politics and the uncertainties associated with that, 0:14:43.400 --> 0:14:46.280 coupled with the fact of a you know, perhaps six 0:14:46.320 --> 0:14:49.720 tenths of a percentage point hit to US GDP growth 0:14:50.000 --> 0:14:52.840 from the shutdown on the seven thirty seven max, probably 0:14:52.840 --> 0:14:55.160 give us the first half of the year, which is 0:14:55.160 --> 0:14:58.000 probably flat to possibly down, And we think that more 0:14:58.000 --> 0:14:59.560 of the returns for the year are going to be 0:14:59.560 --> 0:15:01.880 constant rated in the back half of the year, most 0:15:01.920 --> 0:15:04.560 likely in the form of a relief rally around the 0:15:04.640 --> 0:15:08.960 US presidential election November. So in this respect, coming out 0:15:08.960 --> 0:15:11.960 of two thousand nineteen, our advice to investors is to 0:15:12.000 --> 0:15:15.080 certainly be very very selective. We do think that we're 0:15:15.080 --> 0:15:17.640 still in an environment here where the long end of 0:15:17.640 --> 0:15:20.000 the treasury curve is going to come in probably from 0:15:20.040 --> 0:15:22.640 about the one point nine to level on the tenure 0:15:22.920 --> 0:15:24.960 maybe to about one and a quarter one and a half. 0:15:25.920 --> 0:15:28.160 But we don't think necessarily that the Feds in the 0:15:28.160 --> 0:15:30.640 position yet to cut rates, although I think that that's 0:15:30.640 --> 0:15:33.760 still going to be something to possibly support the market 0:15:34.040 --> 0:15:36.920 going into the election to the extent that things slow 0:15:37.320 --> 0:15:40.080 even if the data and you know, at least and 0:15:40.120 --> 0:15:41.960 I we argue about this all the time. She rejects 0:15:42.320 --> 0:15:45.800 to use her word, uh my contention that maybe the 0:15:45.880 --> 0:15:48.480 data is coming economic data is coming in better than expected, 0:15:48.840 --> 0:15:51.480 the consumer continues to be strong. We see stabilization in 0:15:51.680 --> 0:15:54.560 manufacturing and business investment. The trade deal gets cleaned up, 0:15:54.760 --> 0:15:56.320 there might be an argument to be made that this 0:15:56.320 --> 0:16:01.080 FED could actually hike in any to that or is 0:16:01.120 --> 0:16:02.800 it just because it's an election year you're just not 0:16:02.840 --> 0:16:04.480 going to see that. Well, I mean, I think that's 0:16:04.520 --> 0:16:06.720 a strange set of dynamics here in terms of how 0:16:06.720 --> 0:16:09.760 the current administration is doing trade policy, and the focus 0:16:09.760 --> 0:16:13.040 for trade policy with the current administration wasn't just China. 0:16:13.360 --> 0:16:15.240 I mean, there's been more of a drum beating with 0:16:15.360 --> 0:16:18.560 respect to the European Union the EU, and if we 0:16:18.600 --> 0:16:21.480 look at monetary policy and the EU, they really are 0:16:21.520 --> 0:16:24.960 sort of the locusts globally with regards to negative interest rates. 0:16:25.000 --> 0:16:27.640 And you've seen the Swedish Central Bank the ricks bank 0:16:28.080 --> 0:16:32.240 pull back within the recent two weeks, moving off of 0:16:32.280 --> 0:16:34.920 a five year experiment with negative interest rates. You know, 0:16:35.080 --> 0:16:37.760 obviously we may see this start to replicate itself more 0:16:37.800 --> 0:16:41.160 broadly across the EU. And much as the EU and 0:16:41.240 --> 0:16:45.200 our view lad the FED to cut rates in the 0:16:45.240 --> 0:16:48.240 second half of two thousand nineteen, to the extent that 0:16:48.280 --> 0:16:50.760 the EU under Christian Legard of the e c B 0:16:50.920 --> 0:16:54.080 under Christian Leguard decides to raise rates, I think the 0:16:54.120 --> 0:16:56.000 FED is left in a situation where they have to 0:16:56.040 --> 0:16:59.600 follow yet and that was that is not discounted. Would 0:16:59.640 --> 0:17:02.320 you agree? I mean, I don't think it's discounted. But 0:17:02.360 --> 0:17:04.280 I also think at the same time that the ECB 0:17:04.480 --> 0:17:06.639 is going to have a difficult time based on the 0:17:06.680 --> 0:17:09.840 economics of what's going on within the EU around breggsit 0:17:10.440 --> 0:17:13.040 uh in in having an environment where they could consider 0:17:13.080 --> 0:17:16.680 actually tightening monetary policy. And maybe it only might be 0:17:16.680 --> 0:17:20.520 because the US administration says that negative interest rates are 0:17:20.560 --> 0:17:24.440 a way of basically propping up an unfair trade advantage. 0:17:24.480 --> 0:17:27.680 But you know, there hasn't been a trade situation where 0:17:27.680 --> 0:17:31.240 the current administration has not seen an unfair advanta. Exactly 0:17:31.480 --> 0:17:34.800 do you anticipate a Phase one deal getting signed actually 0:17:34.800 --> 0:17:37.040 on a piece of paper at some point uh in 0:17:37.080 --> 0:17:41.000 a near to intermediate term the off rumored but seldom 0:17:41.080 --> 0:17:44.800 seen UH And our view is possibly not until sometime 0:17:44.840 --> 0:17:48.679 in But that doesn't mean that certain persons who are 0:17:48.760 --> 0:17:51.560 running for re election. Won't be running around throwing out 0:17:51.720 --> 0:17:54.480 tweets and rumors about it, but the substance I think 0:17:54.560 --> 0:17:57.880 is going to be uh somewhat short. So alright, we're 0:17:57.920 --> 0:18:01.359 thinking about you know, people a lot have their twenty 0:18:01.400 --> 0:18:04.120 twenty outlooks and sectors and so on and so forth. 0:18:04.560 --> 0:18:06.000 It seems to me as if we look back onto 0:18:06.760 --> 0:18:08.760 have periods where we were the market sing to be, 0:18:09.240 --> 0:18:11.560 you know, kind of rotating out of the cyclicals, maybe 0:18:11.560 --> 0:18:14.960 into the more defensive utilities consumer staples. But then it 0:18:14.960 --> 0:18:17.240 seems like maybe we've kind of rotated back to a 0:18:17.280 --> 0:18:19.320 little bit more growth, a little bit more risk. What 0:18:19.400 --> 0:18:21.320 are the sectors that you think people should be focusing 0:18:21.320 --> 0:18:23.920 on for well, I think, on the one hand, I mean, 0:18:24.040 --> 0:18:26.159 one of the major themes in terms of this market 0:18:26.480 --> 0:18:29.000 um from the bottoms back in March of two thousand 0:18:29.119 --> 0:18:31.600 nine had been tech, tech and more tech, and if 0:18:31.640 --> 0:18:34.200 you wanted to build wealth, you basically bought large cap 0:18:34.320 --> 0:18:37.439 us tech um. The question is, as we look at 0:18:37.440 --> 0:18:40.520 the election process, as we look at how things have evolved, 0:18:40.760 --> 0:18:42.560 not just on the federal level but also on the 0:18:42.560 --> 0:18:46.800 state level, and also oversees greater rise in terms of regulation, 0:18:46.920 --> 0:18:48.960 which is going to impose more in the way of 0:18:49.040 --> 0:18:53.840 costs UH and possibly have slower revenue growth for these names. 0:18:53.880 --> 0:18:57.200 So you know, while this clearly has been the major 0:18:57.320 --> 0:19:01.159 wealth generator over the past, deck aid, the question is 0:19:01.200 --> 0:19:03.560 can we rely upon tech to continue to provide the 0:19:03.560 --> 0:19:06.840 same type of returns going into and I would argue 0:19:06.840 --> 0:19:09.560 it may be time to pull back. Um. Granted, there 0:19:09.560 --> 0:19:11.720 have been concerns looking at a sector basis as to 0:19:11.800 --> 0:19:14.760 what's going to happen around healthcare policy, but we may 0:19:14.760 --> 0:19:17.399 actually end up as we get greater clarity around the 0:19:17.400 --> 0:19:22.280 political situation to see UM the underlying secular dynamics in 0:19:22.359 --> 0:19:27.200 terms of demographic profile changes, aging UH driving greater demand 0:19:27.240 --> 0:19:29.800 in the healthcare sector, and then as a result, healthcare 0:19:29.840 --> 0:19:33.040 may not be a bad place to consider as things 0:19:33.080 --> 0:19:36.600 become clearer. Right, So, I guess obviously the issue with 0:19:36.640 --> 0:19:39.160 healthcare has historically been really over the last several years, 0:19:39.160 --> 0:19:41.800 but certainly going into this election cycle is just kind 0:19:41.800 --> 0:19:44.159 of the headline risk. The policy risk that you know, 0:19:44.200 --> 0:19:46.640 the Elizabeth Warren that you know, the Metacare for All 0:19:46.680 --> 0:19:50.159 type of thing. Is that something that the valuations they're 0:19:50.200 --> 0:19:52.240 they're paying you for that risk you're taking anything I 0:19:52.560 --> 0:19:54.680 think in some respects we've already had some of those 0:19:54.800 --> 0:19:57.359 risks discounted in the market. But I would say simply 0:19:57.600 --> 0:20:00.320 if we look at twenty it's a year when technolo ology, 0:20:00.440 --> 0:20:03.359 where the tech sector goes into the regulatory woodshed and 0:20:03.400 --> 0:20:06.320 possibly the healthcare sector comes out. It's interesting looking at 0:20:06.359 --> 0:20:11.240 the ny s C Fang Index up about this year alone, 0:20:11.320 --> 0:20:14.520 up about forty seven percent on a trailing twelve month basis, 0:20:14.520 --> 0:20:16.720 And you're right, I think the big issue for a 0:20:16.720 --> 0:20:19.560 lot of investors is the story is great, the tech 0:20:19.640 --> 0:20:23.040