1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:23,800 Speaker 1: at Bloomberg dot com slash podcast. Looking at the Bloomberg 7 00:00:24,640 --> 00:00:27,200 Speaker 1: let me call this here the Bloomberg US corporate total 8 00:00:27,280 --> 00:00:31,760 Speaker 1: return value year to date minus twelve point five per cent. 9 00:00:31,920 --> 00:00:35,040 Speaker 1: Haven't seen those types of performance numbers? A lot of 10 00:00:35,040 --> 00:00:37,640 Speaker 1: these credit folks taught me, Like ever, so what do 11 00:00:37,640 --> 00:00:39,880 Speaker 1: you do for the second half after that brutal first half? 12 00:00:40,240 --> 00:00:43,320 Speaker 1: Natalie Trevithick, head of investment grade credit Strategy Paid and Regal, 13 00:00:43,400 --> 00:00:46,320 Speaker 1: joins us. Natalie, I'm sure you and you're good folks 14 00:00:46,320 --> 00:00:49,720 Speaker 1: at Paid in the Regal again had experienced what was, 15 00:00:49,880 --> 00:00:52,360 Speaker 1: you know, a brutal first half of the year. Put 16 00:00:52,360 --> 00:00:54,600 Speaker 1: that in perspective for us and and kind of how 17 00:00:54,640 --> 00:00:58,840 Speaker 1: you're thinking about the second half. Sure, it was the 18 00:00:59,000 --> 00:01:01,520 Speaker 1: very shocking first up as we had to underlying interest 19 00:01:01,560 --> 00:01:04,200 Speaker 1: rates move up several percent as well extreads wide and 20 00:01:04,240 --> 00:01:07,720 Speaker 1: by around fifty basis point, producing those first half negative 21 00:01:07,760 --> 00:01:11,000 Speaker 1: total returns who are actually closer to negative fourteen and 22 00:01:11,120 --> 00:01:13,760 Speaker 1: a half percent. As of the first half end of 23 00:01:13,880 --> 00:01:18,360 Speaker 1: June thirte we've actually seen a recovery with total positive 24 00:01:18,360 --> 00:01:21,240 Speaker 1: returns of two point two percent on that Bloomberg Corporate 25 00:01:21,240 --> 00:01:24,440 Speaker 1: indexed UH month to date. So what that means is 26 00:01:24,520 --> 00:01:27,360 Speaker 1: yield are now much higher levels. The index is yielding 27 00:01:27,360 --> 00:01:29,760 Speaker 1: four and a half percent. You couldn't even get four 28 00:01:29,800 --> 00:01:31,559 Speaker 1: and a half percent on the law to high yield 29 00:01:31,560 --> 00:01:33,600 Speaker 1: bonds a year ago. So we think on a go 30 00:01:33,720 --> 00:01:36,280 Speaker 1: for basis is a pretty attractive time to be answering 31 00:01:36,319 --> 00:01:39,240 Speaker 1: credits at these much higher all in meals. Is there 32 00:01:39,240 --> 00:01:41,680 Speaker 1: any concern um that if we go into a deep 33 00:01:41,680 --> 00:01:45,200 Speaker 1: percession some of those investment grade credits become do you 34 00:01:45,200 --> 00:01:49,680 Speaker 1: call them fallen angels? Fallen angels? Right, yeah, potentially, But 35 00:01:49,760 --> 00:01:52,160 Speaker 1: companies are going to do whatever they can to maintain 36 00:01:52,200 --> 00:01:54,840 Speaker 1: their investment grade credit ratings. So they may not mind 37 00:01:54,880 --> 00:01:57,520 Speaker 1: following safe from single aid to triple B, but they're 38 00:01:57,520 --> 00:02:00,320 Speaker 1: going to protect themselves from going from triple B down 39 00:02:00,320 --> 00:02:02,760 Speaker 1: to a double be high yield status. And the good 40 00:02:02,840 --> 00:02:04,800 Speaker 1: thing is over the past couple of years where we've 41 00:02:04,800 --> 00:02:08,520 Speaker 1: had very cheap financing since the pandemic. A lot of 42 00:02:08,520 --> 00:02:11,560 Speaker 1: companies took advantage of that to prefund their maturities and 43 00:02:11,639 --> 00:02:15,560 Speaker 1: extend their that profile. So there's no looming maturity wall coming, 44 00:02:15,880 --> 00:02:17,400 Speaker 1: so we don't think there is going to be a 45 00:02:17,440 --> 00:02:21,160 Speaker 1: big wave of downgrades. Natalie, I gotta ask, because it's 46 00:02:21,160 --> 00:02:23,280 Speaker 1: in your notes, why do you refer to these markets 47 00:02:23,320 --> 00:02:27,720 Speaker 1: as Katie Perry markets. You know, they're hot when they're cold, 48 00:02:27,760 --> 00:02:29,560 Speaker 1: they're up and there, down there, yes and there, no. 49 00:02:29,840 --> 00:02:32,680 Speaker 1: You know, it's like each thing you's walk in and 50 00:02:32,720 --> 00:02:35,320 Speaker 1: you don't know what to expect. It's been a pretty 51 00:02:35,400 --> 00:02:38,680 Speaker 1: volatile relationship every day, so you don't know what you're getting. 52 00:02:39,000 --> 00:02:41,920 Speaker 1: A lot of time seems to be the opposite, despite 53 00:02:41,960 --> 00:02:44,640 Speaker 1: you know, expecting the FED to hikes seventy five basis 54 00:02:44,680 --> 00:02:48,040 Speaker 1: points tomorrow, we're seeing rates rally today with a ten 55 00:02:48,120 --> 00:02:51,079 Speaker 1: year down to two point seven five percent, twenty five 56 00:02:51,120 --> 00:02:54,079 Speaker 1: basis points in burden with the two year. So what 57 00:02:54,120 --> 00:02:57,280 Speaker 1: do you expect from the Fed? I mean tomorrow seventy 58 00:02:57,360 --> 00:03:00,120 Speaker 1: five basis points. I'm going to assume it's just locked in. 59 00:03:00,240 --> 00:03:04,360 Speaker 1: But what about the path forward? Yeah, the path forward 60 00:03:04,440 --> 00:03:06,760 Speaker 1: I think we're expecting it to continue to be aggressive, 61 00:03:06,800 --> 00:03:10,200 Speaker 1: with potentially another seventy in September, but the data is 62 00:03:10,240 --> 00:03:12,720 Speaker 1: coming in much cooler the past few days. Just the 63 00:03:12,840 --> 00:03:15,680 Speaker 1: Walmart profit warning, We're thinking the Fed may want to 64 00:03:15,720 --> 00:03:18,960 Speaker 1: talk back some of those uh rate hikes which have 65 00:03:19,200 --> 00:03:22,480 Speaker 1: already been priced into the market. Now, I mean, what 66 00:03:22,520 --> 00:03:24,880 Speaker 1: are some of the sectors. I mean again, given that 67 00:03:24,960 --> 00:03:28,919 Speaker 1: really uh, you know, terrible first half of the year, 68 00:03:29,000 --> 00:03:31,560 Speaker 1: what are some of the sectors to the extent that 69 00:03:31,760 --> 00:03:34,840 Speaker 1: your pm is want to dip their toe in some 70 00:03:34,960 --> 00:03:37,880 Speaker 1: of these investment grade credit areas. What are some of 71 00:03:37,880 --> 00:03:41,160 Speaker 1: the sectors that you're suggesting they look at. Yeah, we 72 00:03:41,240 --> 00:03:43,960 Speaker 1: like some of the more defensive sectors right now. That's 73 00:03:43,960 --> 00:03:48,120 Speaker 1: going to be utilities, Healthcare still doing quite well. We 74 00:03:48,240 --> 00:03:51,480 Speaker 1: like the higher quality technology. Even though these higher rates, 75 00:03:51,520 --> 00:03:53,640 Speaker 1: you know, are really hitting some of these tech companies 76 00:03:53,680 --> 00:03:57,000 Speaker 1: earnings from a credit stand appoint these companies still have 77 00:03:57,160 --> 00:04:00,320 Speaker 1: very very solid balance sheets intended and tend to trade 78 00:04:00,320 --> 00:04:02,920 Speaker 1: at tight spread, so we don't expect them to widen 79 00:04:02,960 --> 00:04:06,000 Speaker 1: as much as some of the more consumer driven sector. 80 00:04:06,200 --> 00:04:08,560 Speaker 1: Some of the retailers were a little bit more cautious 81 00:04:08,600 --> 00:04:11,960 Speaker 1: on We continue to like the energy sector, but it's 82 00:04:12,040 --> 00:04:14,120 Speaker 1: office peaks and we don't think it offers as much 83 00:04:14,200 --> 00:04:17,040 Speaker 1: value on to go forward DASA thanks of all to 84 00:04:17,200 --> 00:04:20,400 Speaker 1: issue forty five billions over the past couple of weeks, 85 00:04:20,400 --> 00:04:23,800 Speaker 1: and we're seeing definite pressure on that sector. Um So, 86 00:04:23,839 --> 00:04:25,880 Speaker 1: While we like the US banks, we just think they're 87 00:04:25,880 --> 00:04:29,080 Speaker 1: gonna be pretty volatile and to go forward data, but 88 00:04:29,839 --> 00:04:33,560 Speaker 1: um SO, bottom line is after the horrible first half, 89 00:04:33,760 --> 00:04:36,080 Speaker 1: now that yields are much higher, and the fact that 90 00:04:36,120 --> 00:04:39,840 Speaker 1: you don't expect many defaults, you like investment grade credits 91 00:04:40,240 --> 00:04:49,800 Speaker 1: um now despite the potential headwinds of recession, European crisis, etcetera. Yeah, 92 00:04:49,839 --> 00:04:51,719 Speaker 1: we think it could be a good entry point, but 93 00:04:51,800 --> 00:04:54,120 Speaker 1: we particularly like the front end of the curve. So 94 00:04:54,240 --> 00:04:57,120 Speaker 1: more looking at the Bloomberg one to five year corporate 95 00:04:57,120 --> 00:04:59,560 Speaker 1: index because still you're yielding over four percent and you 96 00:04:59,560 --> 00:05:01,880 Speaker 1: don't go that much more for extending out to one 97 00:05:01,920 --> 00:05:04,320 Speaker 1: to thirty year credit and then you're taking on all 98 00:05:04,400 --> 00:05:07,800 Speaker 1: the spread duration list. If you keep your portfolio pretty short, 99 00:05:07,839 --> 00:05:09,640 Speaker 1: you know, in that one to five year area, we 100 00:05:09,680 --> 00:05:12,800 Speaker 1: think you're poised to get positive total returns, even though 101 00:05:12,800 --> 00:05:14,640 Speaker 1: you may weather some you know, months and months and 102 00:05:14,720 --> 00:05:18,880 Speaker 1: day to day volatility in pricing. Natalie Matt asked about, 103 00:05:18,960 --> 00:05:22,680 Speaker 1: you know, investment grade bonds being you know, downgraded to 104 00:05:22,760 --> 00:05:24,640 Speaker 1: junk does it? How often does it happen with a 105 00:05:25,120 --> 00:05:28,400 Speaker 1: junk borrower gets upgraded to investment grade and then it's 106 00:05:28,400 --> 00:05:31,799 Speaker 1: maybe it's something you can look at. Yeah, that's actually 107 00:05:31,960 --> 00:05:34,880 Speaker 1: pretty frequent. We've had. We expect actually a few hundred 108 00:05:34,880 --> 00:05:38,160 Speaker 1: billions to be upgraded from high yield to i G. 109 00:05:38,400 --> 00:05:42,000 Speaker 1: We're already seeing it in some issuers here to day. Uh, 110 00:05:42,120 --> 00:05:45,479 Speaker 1: you know, we saw Freeport, we saw Toll Brothers e QT. 111 00:05:45,720 --> 00:05:48,520 Speaker 1: So we're seeing more upgrades from some of those names 112 00:05:48,640 --> 00:05:52,520 Speaker 1: which were downgraded during the pandemic. Also on the horizon, 113 00:05:52,600 --> 00:05:54,880 Speaker 1: a score that's probably not gonna get upgraded back to 114 00:05:54,920 --> 00:05:57,719 Speaker 1: i G until two thousand and twenty four, and Occidental 115 00:05:57,760 --> 00:06:01,440 Speaker 1: Petroleum is another one we're watching. It's interesting Ford being 116 00:06:01,520 --> 00:06:04,440 Speaker 1: upgraded back into investment grade. That would be a notable 117 00:06:04,880 --> 00:06:07,600 Speaker 1: move in the credit markets. Natalie trevith Iik thanks so 118 00:06:07,680 --> 00:06:11,080 Speaker 1: much for joining us head of investment grade credit strategy 119 00:06:11,800 --> 00:06:18,919 Speaker 1: at Peyton and Regal Red headline crossing the Bloomberg Terminal. 120 00:06:19,040 --> 00:06:23,239 Speaker 1: European gas prices rise above two hundred euros per mega 121 00:06:23,279 --> 00:06:26,200 Speaker 1: watt for the first time since March nine, and that 122 00:06:26,360 --> 00:06:29,880 Speaker 1: is due in part to the ongoing war in Ukraine, 123 00:06:29,880 --> 00:06:32,920 Speaker 1: which is a good segue to our next guest. Valentine 124 00:06:33,160 --> 00:06:37,280 Speaker 1: now Yuchenko, member of the Ukrainian Parliament and ex head 125 00:06:37,320 --> 00:06:40,400 Speaker 1: of the Security Service of Ukraine, joins us. Mr Noliachenko, 126 00:06:40,480 --> 00:06:43,360 Speaker 1: thank you so much for joining us here. I would 127 00:06:43,400 --> 00:06:46,160 Speaker 1: love to just get you know, kind of your quick overview. 128 00:06:46,200 --> 00:06:51,000 Speaker 1: Awhere we are today, where you are today as a 129 00:06:51,040 --> 00:06:54,799 Speaker 1: country in your ongoing war with Russia. What's the latest? 130 00:06:57,200 --> 00:06:59,080 Speaker 1: Thank you the Lisa, but Dona to be with you 131 00:06:59,360 --> 00:07:02,120 Speaker 1: with the all the US. So from Ukraine. News are 132 00:07:02,160 --> 00:07:05,760 Speaker 1: still bad, still about war and this night and early 133 00:07:05,839 --> 00:07:09,400 Speaker 1: morning south of Ukraine and the Islamic life cities. Again 134 00:07:09,600 --> 00:07:15,400 Speaker 1: we're under the Russian missiles altogether eighteen Russian missiles world 135 00:07:15,520 --> 00:07:20,160 Speaker 1: launched against like peaceful cities of Ukraine in the south, 136 00:07:20,400 --> 00:07:25,920 Speaker 1: against civilians, against supports, so even a civilian infrastructure. As 137 00:07:25,960 --> 00:07:29,720 Speaker 1: from the beginning of this war, Russia is still destroying 138 00:07:29,800 --> 00:07:35,360 Speaker 1: and targeting intentionally these object objects and facilities. So that's 139 00:07:35,400 --> 00:07:40,280 Speaker 1: for us, like today's picture of war which Russia wages 140 00:07:41,000 --> 00:07:47,640 Speaker 1: against Iubraine, what is the latest in terms of your defense? 141 00:07:48,080 --> 00:07:52,200 Speaker 1: How how is the Ukrainian army doing in terms of 142 00:07:52,280 --> 00:07:58,800 Speaker 1: holding the Russian invaders off so far? Much improvements because 143 00:07:58,920 --> 00:08:03,680 Speaker 1: and thanks to the United States, Canada, United Kingdom, European 144 00:08:03,840 --> 00:08:10,120 Speaker 1: Union weaponry supplies. It increased a lot of capabilities of 145 00:08:10,120 --> 00:08:14,240 Speaker 1: our armed forces both in east and south of Ukraine. 146 00:08:14,800 --> 00:08:19,760 Speaker 1: And now our armed forces are capable to destroy Russian 147 00:08:20,880 --> 00:08:26,200 Speaker 1: command centers, Russian weaponry at the temporarily occupied territories to 148 00:08:26,400 --> 00:08:31,480 Speaker 1: hit in the response of their attacks on Ukrainians. So 149 00:08:31,720 --> 00:08:36,040 Speaker 1: that's where we are united, and that's where Ukraine feels 150 00:08:36,760 --> 00:08:42,000 Speaker 1: not alone alone against the Russian aggressor. That's, by the way, 151 00:08:42,200 --> 00:08:47,080 Speaker 1: very much inspiring our armed forces, our people here in Ukraine, 152 00:08:47,240 --> 00:08:50,880 Speaker 1: US members of parliament, and I think that's the strategy 153 00:08:50,920 --> 00:08:56,200 Speaker 1: to win the world, to win Russian aggression. What is 154 00:08:56,200 --> 00:09:00,440 Speaker 1: there a belief with in the leadership of Ukraine about 155 00:09:00,559 --> 00:09:04,520 Speaker 1: how this war may play out, what would be an 156 00:09:04,640 --> 00:09:08,160 Speaker 1: end game and then also maybe the timing associated with 157 00:09:08,400 --> 00:09:13,640 Speaker 1: is there any growing consensus. Actually what we see is 158 00:09:13,720 --> 00:09:19,240 Speaker 1: that Russia himself, Kramblin put In, they try to as 159 00:09:19,320 --> 00:09:25,000 Speaker 1: much as they could use their forces efforts even waging 160 00:09:25,280 --> 00:09:29,760 Speaker 1: against war against Europe, to attack not only Ukraine but 161 00:09:29,880 --> 00:09:34,120 Speaker 1: the whole civilized war the world. That's so the Russian 162 00:09:34,160 --> 00:09:38,520 Speaker 1: strategy again to use for instance, energy supplies as a 163 00:09:38,559 --> 00:09:42,800 Speaker 1: weapon as a weapon against not only Ukraine, but European 164 00:09:42,920 --> 00:09:46,640 Speaker 1: Union member states as well. Plus what we see at 165 00:09:46,640 --> 00:09:51,280 Speaker 1: the temporal the occupied territories that Russia intentionally is destroying 166 00:09:52,280 --> 00:09:58,040 Speaker 1: medical facilities, schools, all social infrastructure. That looks like real 167 00:09:58,160 --> 00:10:04,439 Speaker 1: invasion with the very very one target to destroy normal life, 168 00:10:04,520 --> 00:10:12,000 Speaker 1: to inflict terror on civilians, on Ukrainians, and even broader, 169 00:10:12,679 --> 00:10:17,600 Speaker 1: to inflict her terror on the whole Europe. We got 170 00:10:17,600 --> 00:10:20,240 Speaker 1: a headline a couple of I think a couple of 171 00:10:20,280 --> 00:10:24,880 Speaker 1: days ago last week that Russia is preparing elections I 172 00:10:24,880 --> 00:10:30,760 Speaker 1: think September fift um to basically annex parts of the 173 00:10:30,840 --> 00:10:34,959 Speaker 1: down Bass region. Does that to you set a date 174 00:10:35,040 --> 00:10:40,840 Speaker 1: for when the war could possibly end? Actually the date, 175 00:10:41,080 --> 00:10:44,760 Speaker 1: what's a cain about dates? Or Russian's preliminary plans to 176 00:10:45,160 --> 00:10:50,280 Speaker 1: hold so called referendums illegal of course and with no 177 00:10:50,520 --> 00:10:54,200 Speaker 1: voters for June July. Now that it's at the end 178 00:10:54,280 --> 00:10:59,200 Speaker 1: of July, and we hear from our intelligence that again 179 00:10:59,480 --> 00:11:03,800 Speaker 1: again Gremlin NEPs. She has changed plans for August, maybe 180 00:11:03,840 --> 00:11:09,960 Speaker 1: even September. So this old referendum or voting stuff. Russians 181 00:11:10,040 --> 00:11:13,600 Speaker 1: understand very well now that in her song, for instance, 182 00:11:13,679 --> 00:11:17,920 Speaker 1: in South Ukraine or other temporal occupied cities or like 183 00:11:18,120 --> 00:11:22,480 Speaker 1: Mariuple almost destroyed city in the south, or the Nascut 184 00:11:22,559 --> 00:11:26,120 Speaker 1: and Basque region of Ukraine, it's simply impossible even to 185 00:11:26,760 --> 00:11:29,920 Speaker 1: show a picture as the Russian propaganda used to do 186 00:11:29,960 --> 00:11:33,240 Speaker 1: it before in two thousands fourteen. It's impossible to show 187 00:11:33,320 --> 00:11:36,720 Speaker 1: even now the picture of referenda because no people know 188 00:11:36,920 --> 00:11:41,520 Speaker 1: voters guests. Today we've seen from one of Russian TV 189 00:11:41,600 --> 00:11:46,320 Speaker 1: propaganda channel we they have collected up six people in 190 00:11:46,400 --> 00:11:51,520 Speaker 1: her Son to issue for them Russian passports. Six not 191 00:11:51,640 --> 00:11:54,920 Speaker 1: six hundred, not six thousand, but six people all together. 192 00:11:55,400 --> 00:12:01,160 Speaker 1: That how that explains how it looks at the field. Uh, 193 00:12:01,360 --> 00:12:06,120 Speaker 1: the real situation that all of Ukraine, I'm not willing 194 00:12:06,240 --> 00:12:10,800 Speaker 1: to buy any means be under the Russian imperim and 195 00:12:10,840 --> 00:12:14,840 Speaker 1: to live under the Russian founding. What amazes me beyond 196 00:12:15,720 --> 00:12:21,240 Speaker 1: um the staunch defense that Ukraine has put up against 197 00:12:21,640 --> 00:12:25,839 Speaker 1: this Russian invasion is that in many parts of the country, 198 00:12:26,200 --> 00:12:32,600 Speaker 1: UM Ukrainian workers are still trying to produce products, um, 199 00:12:32,640 --> 00:12:37,160 Speaker 1: you know, farmlands, export um things as if it's business 200 00:12:37,160 --> 00:12:39,920 Speaker 1: as usual. I've talked to auto executives who say they're 201 00:12:39,920 --> 00:12:43,719 Speaker 1: still getting you know, um parts and wire harnesses out 202 00:12:43,760 --> 00:12:46,160 Speaker 1: of Ukraine. And of course many much of the world 203 00:12:46,240 --> 00:12:50,640 Speaker 1: is still reliant on Ukrainian grains, especially when it comes 204 00:12:50,679 --> 00:12:53,600 Speaker 1: to wheat and other grains. How are those exports going, 205 00:12:55,440 --> 00:12:58,720 Speaker 1: You're right, absolutely, like I'm confirmed that in South Ukraine 206 00:12:58,760 --> 00:13:02,559 Speaker 1: and Eastern and the harvest is going on this year, 207 00:13:02,640 --> 00:13:06,680 Speaker 1: harvest with a lot of wheat, corn and other products. 208 00:13:06,760 --> 00:13:12,800 Speaker 1: And our farmers are doing outstandable job. Even Russia's bombarding 209 00:13:13,000 --> 00:13:18,080 Speaker 1: or using artillery, but the farmers continues to actually to 210 00:13:18,120 --> 00:13:20,520 Speaker 1: pick up the harvest and it's not bad this year, 211 00:13:20,559 --> 00:13:24,360 Speaker 1: by the way. So talking about grain experts, of course 212 00:13:24,440 --> 00:13:27,840 Speaker 1: we Ukraine and again Parliament, government, the President of Ukraine, 213 00:13:27,920 --> 00:13:33,640 Speaker 1: we all listening together, united to do whatever is possible 214 00:13:33,720 --> 00:13:39,640 Speaker 1: to restart to resume grains experts from Ukrainian supports. And 215 00:13:39,760 --> 00:13:44,000 Speaker 1: this is up to all together twenty million tones of 216 00:13:44,160 --> 00:13:48,440 Speaker 1: grain ready to be exported to Africa, to other regions 217 00:13:48,480 --> 00:13:51,480 Speaker 1: of the world. Ukraine ready and would and would like 218 00:13:51,760 --> 00:13:56,760 Speaker 1: again to contribute to global food security by supplying as 219 00:13:56,840 --> 00:14:01,760 Speaker 1: much as we can grains, fertilizers and others. All right, Valentine, 220 00:14:01,800 --> 00:14:04,600 Speaker 1: thank you so much for taking the time to share 221 00:14:04,679 --> 00:14:08,760 Speaker 1: the latest from Ukraine. To really appreciate your time. Valentine, 222 00:14:09,080 --> 00:14:13,520 Speaker 1: now Yuchenko, member of the Ukrainian Parliament, getting a fascinating, 223 00:14:13,679 --> 00:14:17,360 Speaker 1: uh real shot what is going on on the ground 224 00:14:17,960 --> 00:14:25,400 Speaker 1: in Ukraine. We appreciate his time. Walmart off eight point 225 00:14:25,520 --> 00:14:28,080 Speaker 1: eight percent today, folks, and that's a real market cap. 226 00:14:28,120 --> 00:14:30,080 Speaker 1: This thing started to day with a three sixty billion 227 00:14:30,080 --> 00:14:34,280 Speaker 1: dollar market cap, so that's real dollars being wiped out. 228 00:14:34,360 --> 00:14:36,200 Speaker 1: Let's check in with put Him Boyle, Senior Animals for 229 00:14:36,240 --> 00:14:40,360 Speaker 1: e Commerce at Leisure, off Price Retail for Bloomberg Intelligence. 230 00:14:40,360 --> 00:14:42,600 Speaker 1: Basically she covers all things retail and she spends her 231 00:14:42,640 --> 00:14:45,640 Speaker 1: life just walking around shopping malls. And that's kind of 232 00:14:45,640 --> 00:14:48,400 Speaker 1: how there is not true. That's what they do. They do. 233 00:14:48,480 --> 00:14:53,240 Speaker 1: They go and they check out, like what traffic and 234 00:14:53,280 --> 00:14:55,600 Speaker 1: all all says you basically go shopping for a living. 235 00:14:55,680 --> 00:14:59,200 Speaker 1: Is that true? Not for a living, but for definitely 236 00:14:59,480 --> 00:15:04,120 Speaker 1: part of my job. Absolutely? All right, So wal tell 237 00:15:04,160 --> 00:15:06,320 Speaker 1: us what's going on with Walmart here? You don't see 238 00:15:06,360 --> 00:15:08,800 Speaker 1: this kind of misery often from Walmart, and now it's 239 00:15:08,840 --> 00:15:13,080 Speaker 1: twice right, Yeah, exactly, Yeah, I think this is just 240 00:15:13,160 --> 00:15:15,560 Speaker 1: showing consumers trading down. If you think about the Walmart 241 00:15:15,640 --> 00:15:18,600 Speaker 1: quirk consumer, it is the low income shopper and they 242 00:15:18,600 --> 00:15:21,320 Speaker 1: are pinched by the inflationary pressures that we have been 243 00:15:21,360 --> 00:15:24,320 Speaker 1: seeing all year. So what you're seeing happen is them 244 00:15:24,400 --> 00:15:28,640 Speaker 1: trade into more essential items like food, which are lower margin, 245 00:15:29,120 --> 00:15:32,880 Speaker 1: and trading often away from more discretionary categories like apparel. 246 00:15:33,320 --> 00:15:36,800 Speaker 1: That means that you're going to have lower margins, lower profitability, 247 00:15:37,120 --> 00:15:39,720 Speaker 1: and that's why they're two key profit outlook mail calls 248 00:15:39,760 --> 00:15:43,120 Speaker 1: for thirteen to fourteen present drop in operating income. So 249 00:15:43,560 --> 00:15:47,760 Speaker 1: a concern previously for Walmart was that um, they had 250 00:15:47,800 --> 00:15:51,560 Speaker 1: too much stuff in their warehouses. I guess their whole 251 00:15:51,560 --> 00:15:55,200 Speaker 1: stores are warehouses, but that they have too much inventory 252 00:15:55,320 --> 00:16:00,000 Speaker 1: coming in UM over ordered and not selling enough. Now 253 00:16:00,000 --> 00:16:04,200 Speaker 1: out it seems that's still a problem. But also UM 254 00:16:04,240 --> 00:16:09,400 Speaker 1: consumers who are struggling to afford food and gas are 255 00:16:09,440 --> 00:16:12,360 Speaker 1: spending all their money on that stuff rather than the 256 00:16:12,440 --> 00:16:15,240 Speaker 1: other stuff that Walmart has too much of. Do they 257 00:16:15,240 --> 00:16:19,000 Speaker 1: get that right? Yeah, that's absolutely right. But Remember, as 258 00:16:19,040 --> 00:16:21,400 Speaker 1: they spend money on other stuff, they're not buying that 259 00:16:21,480 --> 00:16:24,440 Speaker 1: apparel that they had too much of anyways, So now 260 00:16:24,480 --> 00:16:27,360 Speaker 1: they have even more apparel to career. So the problem 261 00:16:27,440 --> 00:16:30,360 Speaker 1: hasn't gone away. And it's not a great time in 262 00:16:30,440 --> 00:16:33,080 Speaker 1: retail to have a lot of inventory because in just 263 00:16:33,200 --> 00:16:35,280 Speaker 1: a few months, retailers are going to be getting a 264 00:16:35,360 --> 00:16:38,000 Speaker 1: new holiday merchandise and they need to make room for 265 00:16:38,040 --> 00:16:43,080 Speaker 1: that promotions. This is maybe good news for the FED. Um, 266 00:16:43,200 --> 00:16:45,000 Speaker 1: does that mean that Walmart is going to have to 267 00:16:45,040 --> 00:16:49,200 Speaker 1: start cutting prices on that apparel? Absolutely? I mean they 268 00:16:49,240 --> 00:16:51,520 Speaker 1: have to get rid of that inventory, so prices will 269 00:16:51,600 --> 00:16:54,160 Speaker 1: drop on those items. So they'll have to promote clear 270 00:16:54,200 --> 00:16:56,600 Speaker 1: liquidate however to get them out all right. Put Um, 271 00:16:56,600 --> 00:16:59,000 Speaker 1: I'm not an expert in Walmart, but just as an outsider, 272 00:16:59,480 --> 00:17:03,120 Speaker 1: I put a out of this on management. Management misgauged 273 00:17:03,560 --> 00:17:08,760 Speaker 1: their consumer, mis mismanaged, or misgauged their inventory needs. Is 274 00:17:08,800 --> 00:17:11,800 Speaker 1: that a fairer analysis? I mean yes and no. I 275 00:17:11,800 --> 00:17:13,800 Speaker 1: mean think about where we're coming off of right So 276 00:17:13,920 --> 00:17:17,600 Speaker 1: during the pandemic, we couldn't get the goods here so rightfully, 277 00:17:17,640 --> 00:17:20,679 Speaker 1: So a lot of companies ordered goods in advance because 278 00:17:20,680 --> 00:17:23,120 Speaker 1: they were sitting on ships or the factories weren't able 279 00:17:23,160 --> 00:17:26,000 Speaker 1: to produce them. Now all that inventory has come on 280 00:17:26,040 --> 00:17:28,800 Speaker 1: board and is getting off those ships. So yes, there 281 00:17:28,880 --> 00:17:32,160 Speaker 1: is you know, some of that. But then also um inflation. 282 00:17:32,440 --> 00:17:34,640 Speaker 1: I wouldn't have guessed last year the gas prices would 283 00:17:34,640 --> 00:17:36,879 Speaker 1: be over five dollars a gallon. They were treated a little, 284 00:17:36,960 --> 00:17:39,080 Speaker 1: but you know, no one would have predicted that. So 285 00:17:39,200 --> 00:17:43,119 Speaker 1: some of this is just changing macro um variables that 286 00:17:43,200 --> 00:17:47,720 Speaker 1: you just can't really predict. Are they able, by the way, 287 00:17:47,760 --> 00:17:51,720 Speaker 1: to keep up um margins on the stuff that they 288 00:17:51,720 --> 00:17:54,439 Speaker 1: are selling a lot of where inflation still is a 289 00:17:54,480 --> 00:17:57,359 Speaker 1: problem food and does Walmart sell gas? They must have 290 00:17:57,400 --> 00:18:02,360 Speaker 1: gas stations and costco very few, very few, I see, 291 00:18:02,400 --> 00:18:05,320 Speaker 1: so they have some. But but food margins, are they 292 00:18:05,359 --> 00:18:07,399 Speaker 1: able to keep those high or do they have to 293 00:18:08,600 --> 00:18:12,919 Speaker 1: kind of eat some of those higher costs for their customers. 294 00:18:13,240 --> 00:18:16,120 Speaker 1: It's it's a mix, really, right. So food inflation had 295 00:18:16,160 --> 00:18:19,520 Speaker 1: been a top concern also earlier this year. Prices are 296 00:18:19,600 --> 00:18:21,639 Speaker 1: retreating a little, like if you look at the cost 297 00:18:21,680 --> 00:18:24,920 Speaker 1: of the it's come down, but um food inflations out 298 00:18:24,920 --> 00:18:27,679 Speaker 1: there and food prices are rising, and that's part of 299 00:18:27,680 --> 00:18:29,720 Speaker 1: the reason that you're seeing that low income shop, I 300 00:18:29,800 --> 00:18:32,680 Speaker 1: feel even more pinched because you're having to pay five 301 00:18:32,720 --> 00:18:34,760 Speaker 1: dollars for a gallon of milk, where last year you 302 00:18:34,760 --> 00:18:36,600 Speaker 1: may have paid for it dollars for that same gallon 303 00:18:36,640 --> 00:18:39,440 Speaker 1: of milk. And so there has been an increase. And 304 00:18:39,520 --> 00:18:42,040 Speaker 1: by the way, a lot of those low income shoppers 305 00:18:42,080 --> 00:18:46,240 Speaker 1: are also Walmart employees, right, are they demanding raises to 306 00:18:46,280 --> 00:18:50,000 Speaker 1: try and keep up with inflation? They have been getting raises, right. 307 00:18:50,040 --> 00:18:51,920 Speaker 1: I think that's the one thing that's been working well 308 00:18:51,960 --> 00:18:54,480 Speaker 1: for the low income consumer is that minimum wage and 309 00:18:54,560 --> 00:18:57,199 Speaker 1: what companies are paying has actually risen. So if you 310 00:18:57,280 --> 00:19:00,680 Speaker 1: think about what Walmart workers are making three to five 311 00:19:00,760 --> 00:19:04,520 Speaker 1: years ago, they're making anywhere from thirty to more than that. 312 00:19:04,560 --> 00:19:07,000 Speaker 1: You can argue, I mean, you walk into any of 313 00:19:07,040 --> 00:19:10,320 Speaker 1: these um stores and they're willing to pay you fifteen 314 00:19:10,320 --> 00:19:12,840 Speaker 1: dollars or more an hour. All right, put him it's 315 00:19:12,840 --> 00:19:15,399 Speaker 1: probably too early to ask. But here we are at 316 00:19:15,400 --> 00:19:18,439 Speaker 1: the end of July. My son California actually goes to 317 00:19:18,480 --> 00:19:22,000 Speaker 1: school like an first week of August at California, so 318 00:19:22,040 --> 00:19:24,760 Speaker 1: it's not too early to talk about back to school. 319 00:19:24,840 --> 00:19:28,200 Speaker 1: And then the dreaded holidays. What is the outlook. I mean, 320 00:19:28,280 --> 00:19:31,400 Speaker 1: if I'm a Walmart any retail executive, I'm not sure 321 00:19:31,800 --> 00:19:35,080 Speaker 1: how to gauge any of that stuff. Yeah, we're back 322 00:19:35,080 --> 00:19:37,560 Speaker 1: to school. In all the retail data that we've seen 323 00:19:37,640 --> 00:19:40,879 Speaker 1: so far indicates that back to school selling had been strong. 324 00:19:41,160 --> 00:19:43,600 Speaker 1: The question is where are they spending Quebec to school? 325 00:19:43,640 --> 00:19:46,679 Speaker 1: Are they spending on apparel? Are they buying their laptops 326 00:19:46,680 --> 00:19:49,760 Speaker 1: and iPhones and just to supplies or are they spending 327 00:19:49,760 --> 00:19:52,480 Speaker 1: on home furnishing for their dorm rooms? So I think 328 00:19:52,600 --> 00:19:54,720 Speaker 1: I think most of them. You'll have to get your supplies. 329 00:19:54,760 --> 00:19:57,480 Speaker 1: You'll need your laptop for school. But where you could 330 00:19:57,480 --> 00:20:00,119 Speaker 1: pull back is on where you're buying your apparel. Do 331 00:20:00,160 --> 00:20:02,199 Speaker 1: you need five pairs of Denom jeans or can you 332 00:20:02,280 --> 00:20:04,400 Speaker 1: do it too? And I think that's where you could 333 00:20:04,440 --> 00:20:08,960 Speaker 1: see some softness as consumers um are challenged with inflation, 334 00:20:09,160 --> 00:20:11,720 Speaker 1: have to make trade offs. Are they Are they doing 335 00:20:11,720 --> 00:20:14,000 Speaker 1: well in their competition with Amazon? I mean, we don't 336 00:20:14,040 --> 00:20:16,720 Speaker 1: have a Walmart around here, but if we did, that 337 00:20:16,760 --> 00:20:20,720 Speaker 1: would be the other place I would shop besides Amazon. Yeah, 338 00:20:20,760 --> 00:20:23,040 Speaker 1: I think I think two different stories here. It really 339 00:20:23,119 --> 00:20:25,440 Speaker 1: you know, we saw the Amazon shares pulled back last 340 00:20:25,520 --> 00:20:27,960 Speaker 1: night after Wall March are coronets say, it's a little 341 00:20:27,960 --> 00:20:30,800 Speaker 1: different at Amazon. Amazon has its own problems, they have 342 00:20:30,840 --> 00:20:34,080 Speaker 1: too much warehousing space, but their customer is very different. 343 00:20:34,119 --> 00:20:36,400 Speaker 1: It's a more affluent customer base. And I don't think 344 00:20:36,440 --> 00:20:39,200 Speaker 1: that customer base is trading down. Yes yet. In fact, 345 00:20:39,240 --> 00:20:41,520 Speaker 1: Amazon had its time Day just a few weeks ago 346 00:20:42,000 --> 00:20:45,520 Speaker 1: and the sales were up nicely and people were out shopping. 347 00:20:45,560 --> 00:20:47,919 Speaker 1: They were looking for deals. So I think the focus 348 00:20:47,960 --> 00:20:51,480 Speaker 1: will be deal shopping as we move into even holiday, 349 00:20:51,600 --> 00:20:57,000 Speaker 1: and that's not good news for margins. Uh, luxury, how's 350 00:20:57,000 --> 00:21:00,480 Speaker 1: that doing? Buguri is doing great? I know what end 351 00:21:00,680 --> 00:21:04,440 Speaker 1: the high end consumer is sending. I mean talk about 352 00:21:04,440 --> 00:21:07,480 Speaker 1: the income inequality and the wealth inequality, and it's just 353 00:21:07,480 --> 00:21:11,320 Speaker 1: getting exacerbated by this pandemic, as a lot of folks said, 354 00:21:11,320 --> 00:21:14,600 Speaker 1: and you can see it in the numbers, as they say. 355 00:21:14,640 --> 00:21:16,040 Speaker 1: All right, put him Goyle, thank you so much for 356 00:21:16,119 --> 00:21:19,800 Speaker 1: joining us. Put them Oil covers all things retail for 357 00:21:19,880 --> 00:21:24,040 Speaker 1: Bloomberg Intelligence. And yes, part of her job is walking 358 00:21:24,080 --> 00:21:26,800 Speaker 1: around shopping malls and so particularly like that black we 359 00:21:26,840 --> 00:21:28,399 Speaker 1: had a Walmart around here. Why don't we have a 360 00:21:28,400 --> 00:21:31,360 Speaker 1: Walmart at the Jersey Dude, you guys, get off this island. 361 00:21:31,640 --> 00:21:34,760 Speaker 1: We got cracker barrel too, So you do the Walmart 362 00:21:34,840 --> 00:21:37,000 Speaker 1: and the cracker barrel and that is a big day. 363 00:21:37,280 --> 00:21:39,040 Speaker 1: I might even do that this weekend. Come and think 364 00:21:39,040 --> 00:21:44,600 Speaker 1: of it. Okay, I'm want to talk about small cap 365 00:21:44,600 --> 00:21:47,160 Speaker 1: stocks now because they've been hit harder than the SP 366 00:21:47,280 --> 00:21:49,360 Speaker 1: five hunter. When you look at the Russell two thousand, 367 00:21:49,680 --> 00:21:52,480 Speaker 1: a lot of folks are saying there's opportunity in value stocks. 368 00:21:52,480 --> 00:21:56,200 Speaker 1: There's opportunity and small cap stocks. Brad Evans, he does 369 00:21:56,240 --> 00:21:58,840 Speaker 1: that for a living sup portfolio manager and senior VP 370 00:21:58,920 --> 00:22:02,600 Speaker 1: at heart Land Advisors. Brad, I'd love to get your 371 00:22:02,680 --> 00:22:05,720 Speaker 1: kind of thirty ft overview of kind of how this 372 00:22:05,880 --> 00:22:07,879 Speaker 1: first six seven months of the year have been for 373 00:22:08,160 --> 00:22:10,840 Speaker 1: the world where you live in small caps, value, that 374 00:22:10,880 --> 00:22:13,240 Speaker 1: type of thing, and kind of what's your outlook for 375 00:22:13,280 --> 00:22:16,560 Speaker 1: the remainder of the year heading into next Well, uh, 376 00:22:16,680 --> 00:22:18,440 Speaker 1: Matt and Paul, it's a pleasure to be with with you, guys, 377 00:22:18,440 --> 00:22:22,080 Speaker 1: say thanks again for having me back. Um, I won't 378 00:22:22,119 --> 00:22:24,600 Speaker 1: I won't really regurgitate what everybody knows. Value has had 379 00:22:24,640 --> 00:22:27,280 Speaker 1: a good run in the first half versus growth, and 380 00:22:27,320 --> 00:22:28,879 Speaker 1: that's you know, a carry over from the end of 381 00:22:28,960 --> 00:22:31,680 Speaker 1: last year, and I think you know it's it's there's 382 00:22:31,680 --> 00:22:34,280 Speaker 1: an incredible amount of violatility in the marketplaces we all know. 383 00:22:34,400 --> 00:22:37,199 Speaker 1: And I think you know what makes the current environment 384 00:22:37,280 --> 00:22:40,960 Speaker 1: very unique is you know, every crisis that we've seen 385 00:22:41,040 --> 00:22:44,919 Speaker 1: since is kind of in play today. Um you know, 386 00:22:44,960 --> 00:22:49,520 Speaker 1: the Russian ruble default and the long term capital management crisis, 387 00:22:48,440 --> 00:22:52,399 Speaker 1: of the Asian currency crisis, of the tech bubble, of 388 00:22:52,440 --> 00:22:57,280 Speaker 1: OH one crisis, the global financial crisis, of the housing 389 00:22:57,280 --> 00:22:59,399 Speaker 1: bubble that burst, and oh seven o eight, the pigs 390 00:22:59,400 --> 00:23:02,320 Speaker 1: crisis and a live and and now the COVID black swan. 391 00:23:02,400 --> 00:23:05,960 Speaker 1: Of all those dynamics are actually in play today, which 392 00:23:06,000 --> 00:23:09,320 Speaker 1: makes the current environment particularly tricky when you when you 393 00:23:09,359 --> 00:23:12,520 Speaker 1: overlay it with um an environment where there's just a 394 00:23:12,520 --> 00:23:15,240 Speaker 1: lot of leverage in the system. So this is this 395 00:23:15,280 --> 00:23:18,600 Speaker 1: is an environment that that I think from a small 396 00:23:18,640 --> 00:23:22,040 Speaker 1: cap perspective, you know, should be good for an active 397 00:23:22,040 --> 00:23:26,080 Speaker 1: manager versus passives, and should be good versus for value 398 00:23:26,160 --> 00:23:28,520 Speaker 1: versus growth. But we are in a very very tricky 399 00:23:29,040 --> 00:23:31,359 Speaker 1: environment today where it takes a very surgical approach to 400 00:23:31,359 --> 00:23:33,160 Speaker 1: be able to navigate all the risks that are out there. 401 00:23:33,960 --> 00:23:36,320 Speaker 1: Um well, that's a bummer. I was hoping I could 402 00:23:36,320 --> 00:23:40,520 Speaker 1: just buy like a small cap value E T f 403 00:23:41,320 --> 00:23:44,240 Speaker 1: UM and and and not worry about it. Why do 404 00:23:44,320 --> 00:23:49,240 Speaker 1: we need to have you know, precision surgical active management. 405 00:23:50,480 --> 00:23:52,840 Speaker 1: You know, I like to call the small captain to 406 00:23:52,880 --> 00:23:55,199 Speaker 1: see is kind of the land of misfit toys. And 407 00:23:55,240 --> 00:23:56,960 Speaker 1: the reason I say that is because you know we 408 00:23:57,040 --> 00:23:59,720 Speaker 1: have we have, you know, the the arbiters of the benchmark. 409 00:24:00,280 --> 00:24:02,200 Speaker 1: The folks at Russell have created a kind of a 410 00:24:02,920 --> 00:24:05,919 Speaker 1: unique benchmark, especially in the value benchmark. You know we 411 00:24:05,960 --> 00:24:07,720 Speaker 1: have we have seven percent of the benchmark which is 412 00:24:07,720 --> 00:24:12,040 Speaker 1: in biotech, and almost a third of the induscry is unprofitable. 413 00:24:12,520 --> 00:24:14,680 Speaker 1: And you know, the the the there's a there's a 414 00:24:14,760 --> 00:24:18,440 Speaker 1: large negative survivor bias and the Russell indusease, especially value indusease. 415 00:24:18,480 --> 00:24:21,440 Speaker 1: Where when I say negative survivor bias, these are companies 416 00:24:21,440 --> 00:24:24,119 Speaker 1: that have not been acquired, They have not graduated, that 417 00:24:24,560 --> 00:24:28,080 Speaker 1: have not been acquired by a larger company or private equity. 418 00:24:28,119 --> 00:24:30,920 Speaker 1: They have not been they have not graduated or grown 419 00:24:30,920 --> 00:24:32,800 Speaker 1: it to be a mid cap stock. So these are 420 00:24:32,800 --> 00:24:35,399 Speaker 1: companies that have just have have become zombified. They just 421 00:24:35,440 --> 00:24:37,760 Speaker 1: sit in these small cap indusease for for long periods 422 00:24:37,800 --> 00:24:40,399 Speaker 1: of time. For that reason, if you were to attack 423 00:24:40,520 --> 00:24:43,720 Speaker 1: this asset class with a passive benchmark, you're buying a 424 00:24:43,760 --> 00:24:47,119 Speaker 1: lot of you're really subpart companies that I'll be polite 425 00:24:47,160 --> 00:24:49,320 Speaker 1: about it. And and for that reason, our job at 426 00:24:49,359 --> 00:24:53,359 Speaker 1: Heartland as a small cap equity boutique, UM, you know, 427 00:24:53,400 --> 00:24:56,240 Speaker 1: my my fund being a high quality small cap fund. 428 00:24:56,640 --> 00:24:58,720 Speaker 1: You know, our job is to find diamonds in the rough. 429 00:24:59,080 --> 00:25:01,600 Speaker 1: And that's our job to build a concentrated portfolio of 430 00:25:01,680 --> 00:25:05,600 Speaker 1: roughly fifty names of undervalued small companies with great balance sheets, 431 00:25:05,640 --> 00:25:07,840 Speaker 1: which pay dividends and basically have been fallen, you know, 432 00:25:08,000 --> 00:25:10,240 Speaker 1: fallen out of favor for reasons that we think are 433 00:25:10,280 --> 00:25:13,480 Speaker 1: our temporary brat How do you do that? Um? You know, 434 00:25:14,520 --> 00:25:18,040 Speaker 1: it's a it's a huge universe, and I guess you've 435 00:25:18,080 --> 00:25:19,800 Speaker 1: been at this a long time. The Wall Street Journal 436 00:25:19,880 --> 00:25:23,479 Speaker 1: recognized you as a category king in small caps. How 437 00:25:23,520 --> 00:25:26,359 Speaker 1: do you screen for socks? Do you have a whole team? 438 00:25:26,480 --> 00:25:30,920 Speaker 1: Do you have a special method? What is it? It's 439 00:25:30,960 --> 00:25:35,000 Speaker 1: it's just hard work. Actually, my partner Andy Fleming, and I, um, 440 00:25:35,040 --> 00:25:38,480 Speaker 1: you know, we we just we dig through earnings transcripts. 441 00:25:38,480 --> 00:25:41,040 Speaker 1: We we talked to a lot of management teams. It's UM, 442 00:25:41,040 --> 00:25:43,600 Speaker 1: it's it's really rolling up the sleeves UH doing our 443 00:25:43,640 --> 00:25:46,600 Speaker 1: own model building and just getting to know management teams 444 00:25:46,640 --> 00:25:50,760 Speaker 1: and understanding how they are intending to deploy capital. Because 445 00:25:50,800 --> 00:25:54,120 Speaker 1: in small caps, Paul and Matt, that's the biggest thing 446 00:25:54,200 --> 00:25:56,440 Speaker 1: that for us to understand is having a management that 447 00:25:56,560 --> 00:25:59,800 Speaker 1: understands the problems that the company is facing and under 448 00:26:00,080 --> 00:26:02,879 Speaker 1: ends the appropriate fix to get the company back to 449 00:26:03,160 --> 00:26:07,560 Speaker 1: UH it's operating to a normalized operating environment where they're earning, 450 00:26:07,680 --> 00:26:10,920 Speaker 1: you know, an acceptable return on capital. Oftentimes we find 451 00:26:10,920 --> 00:26:13,240 Speaker 1: in these in small companies, they think the path to 452 00:26:13,359 --> 00:26:16,560 Speaker 1: successes you know, M and A to grow in organically, 453 00:26:17,040 --> 00:26:19,199 Speaker 1: and that often leads to balance sheet leverage and that 454 00:26:19,320 --> 00:26:21,600 Speaker 1: usually ends in tears for shareholders. So we want we 455 00:26:21,640 --> 00:26:23,680 Speaker 1: want to find companies who are focused on self help, 456 00:26:24,280 --> 00:26:27,840 Speaker 1: that are internally focused, have understand understand the problems they have, 457 00:26:27,920 --> 00:26:30,399 Speaker 1: and are going to deploy free cash flow UH to 458 00:26:31,080 --> 00:26:34,400 Speaker 1: too in directions that are very shareholder friendly, meaning pay 459 00:26:34,520 --> 00:26:37,760 Speaker 1: down debt, divesting non core assets they made that might 460 00:26:37,800 --> 00:26:39,879 Speaker 1: be a drag to their operations, and then returning to 461 00:26:39,880 --> 00:26:43,920 Speaker 1: capital shareholders through dividends and buy backs. All right, Brad, 462 00:26:43,960 --> 00:26:46,800 Speaker 1: good good stuff. We appreciate getting your perspective on a 463 00:26:46,840 --> 00:26:48,280 Speaker 1: part of the market. We should probably talk a little 464 00:26:48,320 --> 00:26:50,159 Speaker 1: bit more about kind of the small cap. Yeah, we 465 00:26:50,200 --> 00:26:52,399 Speaker 1: gotta get back on and get some picks. Yes, some 466 00:26:52,480 --> 00:26:55,639 Speaker 1: value stuff will through that He's based another. This is 467 00:26:55,680 --> 00:26:57,520 Speaker 1: the second guest I talked to you today from Milwaukee. 468 00:26:57,560 --> 00:26:59,320 Speaker 1: So I'm telling you this. Does it remind you of 469 00:26:59,480 --> 00:27:03,520 Speaker 1: the furniture? Is just me? But sure, who doesn't? I 470 00:27:03,520 --> 00:27:05,720 Speaker 1: mean when you think about Milwaukee. Brad Evan's portfolio manager 471 00:27:05,760 --> 00:27:12,240 Speaker 1: seen r VP Heartland Advisors. Brent Downley, president of Spectrum 472 00:27:12,280 --> 00:27:15,240 Speaker 1: Markets Joints, is here. Hey, brand, I got my federal 473 00:27:15,280 --> 00:27:18,040 Speaker 1: reserve tomorrow. It can be raising interest rates again. I 474 00:27:18,080 --> 00:27:20,439 Speaker 1: look at the d X Y dollar index. It's as 475 00:27:20,520 --> 00:27:23,560 Speaker 1: high as it's been for twenty years. Is there a 476 00:27:23,560 --> 00:27:27,679 Speaker 1: bear case for the dollar here at all? Well, the 477 00:27:27,720 --> 00:27:29,679 Speaker 1: markets tried it a few times, and I've tried it 478 00:27:29,680 --> 00:27:33,159 Speaker 1: a few times to no avail. The the issue with 479 00:27:33,240 --> 00:27:36,960 Speaker 1: the dollar right now is that it's really running from 480 00:27:37,000 --> 00:27:39,040 Speaker 1: one side of the dollar smile to the other. So 481 00:27:39,119 --> 00:27:42,280 Speaker 1: which means that when things are looking okay in the US, 482 00:27:42,320 --> 00:27:45,080 Speaker 1: which they were for a while, as really the sole 483 00:27:45,119 --> 00:27:48,679 Speaker 1: engine of growth. With China and Europe sputtering badly, the 484 00:27:48,720 --> 00:27:51,720 Speaker 1: dollar was doing well. But now as we're transitioning to 485 00:27:51,800 --> 00:27:55,639 Speaker 1: this growth fear in the US from Walmart, Snap, Twitter, 486 00:27:55,680 --> 00:27:59,120 Speaker 1: all that stuff, um, and also job cuts all over 487 00:27:59,160 --> 00:28:02,879 Speaker 1: the place. Now we're moving into a global recession fear trade, 488 00:28:02,920 --> 00:28:06,439 Speaker 1: which again is bullish dollar. And then on top of 489 00:28:06,440 --> 00:28:09,399 Speaker 1: that you have just this ongoing terms of trade gas 490 00:28:09,400 --> 00:28:13,360 Speaker 1: shock in Europe that means anytime you try to buy euros, 491 00:28:13,440 --> 00:28:15,639 Speaker 1: for example, when people tried to buy euros on the 492 00:28:15,640 --> 00:28:18,879 Speaker 1: fifty basis point hike from the ECB, it works for 493 00:28:18,880 --> 00:28:22,240 Speaker 1: about three hours and then the dollars comes raging back again. 494 00:28:22,800 --> 00:28:25,680 Speaker 1: I was wondering who was defending the euro at parody, 495 00:28:25,720 --> 00:28:28,000 Speaker 1: But it's been you know, it's held up, but it 496 00:28:28,040 --> 00:28:31,159 Speaker 1: only briefly went down through it. Do we do? We 497 00:28:31,200 --> 00:28:33,879 Speaker 1: see it, um, the euro going back below a dollar, 498 00:28:35,080 --> 00:28:38,600 Speaker 1: So I do for now. However, they're the reason that 499 00:28:38,640 --> 00:28:41,880 Speaker 1: it bounced so hard was that positioning kind of got 500 00:28:41,920 --> 00:28:44,440 Speaker 1: a little bit over at SKIS and there's a ton 501 00:28:44,680 --> 00:28:47,760 Speaker 1: of options expiries there. So if you look at it 502 00:28:47,800 --> 00:28:50,920 Speaker 1: the same way that people were looking at equity positioning, 503 00:28:51,640 --> 00:28:53,959 Speaker 1: they both kind of happened at the same time stocks 504 00:28:53,960 --> 00:28:56,080 Speaker 1: were at the lows and euro dollar was at the lows, 505 00:28:56,680 --> 00:28:59,160 Speaker 1: and then you had this squeeze. But it's been much 506 00:28:59,200 --> 00:29:03,280 Speaker 1: more of like a tactical short covering kind of squeeze. 507 00:29:03,400 --> 00:29:06,640 Speaker 1: And actually the data and the economic data has been 508 00:29:06,640 --> 00:29:10,160 Speaker 1: getting worse as stocks were going up there, and part 509 00:29:10,200 --> 00:29:12,640 Speaker 1: of that reflects there's a small contingent of people that 510 00:29:12,760 --> 00:29:16,280 Speaker 1: still think that bad news for the economy is good 511 00:29:16,320 --> 00:29:19,840 Speaker 1: news for stocks, and I very strongly disagree with that 512 00:29:19,920 --> 00:29:23,160 Speaker 1: given the framework um that the Fed's operating under now, 513 00:29:23,240 --> 00:29:27,240 Speaker 1: so that that was that was true from one very 514 00:29:27,240 --> 00:29:30,200 Speaker 1: often bad economic news was good for stocks because it 515 00:29:30,240 --> 00:29:33,480 Speaker 1: meant more easy. But the Fed just doesn't have room 516 00:29:33,520 --> 00:29:36,160 Speaker 1: to to even think about easing now. And that that's 517 00:29:36,160 --> 00:29:39,239 Speaker 1: what's interesting going into this fo MC meeting is that 518 00:29:39,320 --> 00:29:42,600 Speaker 1: we have a lot of cuts price now fore, and 519 00:29:42,680 --> 00:29:45,200 Speaker 1: to me, it's going to be very difficult for the 520 00:29:45,280 --> 00:29:48,520 Speaker 1: math on CPI to work out in a way that 521 00:29:48,600 --> 00:29:52,040 Speaker 1: the Fed will be able to cut early in simply 522 00:29:52,080 --> 00:29:56,280 Speaker 1: because CPI is a lagging indicator and home prices and 523 00:29:56,600 --> 00:30:01,160 Speaker 1: other past price rises are still going to pushing or 524 00:30:01,520 --> 00:30:05,000 Speaker 1: putting upward pressure on cp I even as commodities start 525 00:30:05,040 --> 00:30:07,320 Speaker 1: to put downward pressure on it. Yeah, that's kind of 526 00:30:07,320 --> 00:30:08,720 Speaker 1: where I wanted to go, is kind of get your 527 00:30:08,840 --> 00:30:11,680 Speaker 1: your inflation call here. The thing I look at almost 528 00:30:11,720 --> 00:30:14,640 Speaker 1: every day is to the gasoline price, and we're now down, 529 00:30:15,080 --> 00:30:18,000 Speaker 1: you know, all fifty sixty cents per gallon off off 530 00:30:18,040 --> 00:30:21,920 Speaker 1: of the peak here. Um. But you think this, this 531 00:30:22,040 --> 00:30:25,880 Speaker 1: inflation risk to the marketplaces maybe more persistent than the 532 00:30:25,880 --> 00:30:29,920 Speaker 1: market's discounting. I do, but I mean I could be wrong. 533 00:30:30,000 --> 00:30:34,040 Speaker 1: So one really interesting thing, really interesting dynamic is if 534 00:30:34,080 --> 00:30:37,800 Speaker 1: you look on Bloomberg and look at the median economist 535 00:30:37,880 --> 00:30:41,920 Speaker 1: forecast for U S c p I that comes in 536 00:30:41,960 --> 00:30:44,880 Speaker 1: around three point five percent right now. But if you 537 00:30:44,880 --> 00:30:48,280 Speaker 1: look at market pricing, because there's you can trade inflation 538 00:30:48,360 --> 00:30:52,400 Speaker 1: in the market, it's pricing something closer to one point 539 00:30:52,440 --> 00:30:54,720 Speaker 1: seven or two, depending on how you slice and dice 540 00:30:54,840 --> 00:30:58,160 Speaker 1: the data. So there's a really big divergence right now 541 00:30:58,240 --> 00:31:04,320 Speaker 1: between market pricing of future inflation and economist forecasts. Now, 542 00:31:05,160 --> 00:31:07,680 Speaker 1: it's very difficult to get to one point seven or 543 00:31:07,720 --> 00:31:13,560 Speaker 1: two quickly, just because of the housing pressure and and 544 00:31:13,720 --> 00:31:16,800 Speaker 1: other pressures that are still exerting some upward pressure on 545 00:31:16,840 --> 00:31:19,800 Speaker 1: the number. So I'm skeptical, but that that is what 546 00:31:19,880 --> 00:31:23,680 Speaker 1: the markets pricing. So the market has priced an incredibly 547 00:31:23,760 --> 00:31:28,959 Speaker 1: dubbish scenario for where CPI is below two and the 548 00:31:28,960 --> 00:31:33,719 Speaker 1: Fed is cutting as early as March or May. I 549 00:31:33,760 --> 00:31:36,880 Speaker 1: don't buy it. I think generally the FED has a 550 00:31:37,000 --> 00:31:40,160 Speaker 1: bias to fight the last war, and that's because the 551 00:31:40,200 --> 00:31:42,760 Speaker 1: politics drive a lot of what the FED does, and 552 00:31:42,800 --> 00:31:45,920 Speaker 1: the politics now are just so squarely in on the 553 00:31:46,000 --> 00:31:51,600 Speaker 1: side of fighting inflation because inflation affects everyone, and unemployment 554 00:31:51,680 --> 00:31:54,040 Speaker 1: right now is affecting three point six percent of people, 555 00:31:54,080 --> 00:31:59,440 Speaker 1: and inflations of affecting of people. Politics drive with the 556 00:31:59,560 --> 00:32:06,720 Speaker 1: independ pendant Federal Reserve. Does it hurts, but I feel 557 00:32:06,760 --> 00:32:09,520 Speaker 1: like such a dope, being such a sitting sarcasm is 558 00:32:09,520 --> 00:32:11,720 Speaker 1: the lowest form of wit. I gotta drop that part 559 00:32:11,760 --> 00:32:15,160 Speaker 1: of my personality. Yeah. All the institutions in the US 560 00:32:15,200 --> 00:32:17,440 Speaker 1: that are supposed to be independent are actually full of 561 00:32:17,480 --> 00:32:20,680 Speaker 1: nominees that are all political appointees. So make of that 562 00:32:20,800 --> 00:32:23,840 Speaker 1: what you will, all right, Bred good stuff as always. 563 00:32:23,880 --> 00:32:27,200 Speaker 1: Brent Dolly, president at Spectrum Markets. He's been in the 564 00:32:27,600 --> 00:32:31,760 Speaker 1: FX trading arena for a long time. Looking at his resume, 565 00:32:31,880 --> 00:32:36,760 Speaker 1: Marylynch City, I would say he's a category king as well. Yes, 566 00:32:36,840 --> 00:32:39,280 Speaker 1: he's a category king in the current sias. And again, 567 00:32:39,360 --> 00:32:41,480 Speaker 1: I I just don't see anybody given me a bear 568 00:32:41,560 --> 00:32:43,240 Speaker 1: case for the U. S. Dollar. I've been saying that 569 00:32:43,320 --> 00:32:45,480 Speaker 1: for a long time, and that seems to be the 570 00:32:45,520 --> 00:32:50,600 Speaker 1: case right now. Thanks for listening to the Bloomberg Markets podcast. 571 00:32:50,960 --> 00:32:54,200 Speaker 1: You can subscribe and listen to interviews with Apple Podcasts 572 00:32:54,320 --> 00:32:58,240 Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm 573 00:32:58,240 --> 00:33:01,480 Speaker 1: on Twitter at Matt Miller and I teen seventy three 574 00:33:01,400 --> 00:33:03,840 Speaker 1: and I'm fall Sweeney. I'm on Twitter at pt sweeney. 575 00:33:03,920 --> 00:33:06,560 Speaker 1: Before the podcast, you can always catch us worldwide at 576 00:33:06,600 --> 00:33:07,360 Speaker 1: Bloomberg Radio.